Rep: OEB Doc: 12RWW Rev: 0 ONTARIO ENERGY BOARD Volume: 2 11 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 11 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 PETER THOMPSON IGUA VINCENT DeROSE IGUA JAY SHEPHERD OPSBA TOM BRETT OASBO 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [18] ENBRIDGE GAS DISTRIBUTION PANEL 1; GIRIDHAR, DUGUAY, SMALL, BRENNAN [36] CROSS-EXAMINATION BY MR. WARREN: [41] CROSS-EXAMINATION BY MR. BRETT: [143] CROSS-EXAMINATION BY MR. VEGH: [379] CROSS-EXAMINATION BY MR. MORAN: [388] RE-EXAMINATION BY MR. FARRELL: [518] QUESTIONS FROM THE BOARD: [557] PROCEDURAL MATTERS: [690] SUBMISSIONS BY MR. JANIGAN: [749] SUBMISSIONS BY MR. WARREN: [778] SUBMISSIONS BY MR. FARRELL: [846] SUBMISSIONS BY MR. VEGH: [897] SUBMISSIONS BY MR. DEROSE: [965] SUBMISSIONS BY MR. THOMPSON: [1011] SUBMISSIONS BY MR. BRETT: [1062] SUBMISSIONS BY MR. SHEPHERD: [1099] REPLY SUBMISSIONS BY MR. FARRELL: [1158] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:07 a.m. 15 MR. BETTS: Good morning and welcome back to day two of this proceeding in consideration of application EB-2003-0126. 16 We finished yesterday in the midst of cross-examination of this witness panel, and we will begin today again with that. 17 Before we do, are there any preliminary matters to be dealt with? 18 PRELIMINARY MATTERS: 19 MR. FARRELL: Yes, Mr. Chair. I have two filings; I think you and Mr. Dominy should have a copy of each. 20 The first is Exhibit J.1.1, which is a response to Undertaking J.1.1, which has to do with a question involving Union Gas's QRAM process. 21 And the second is Exhibit J.1.3, which is a response to Undertaking J.1.3. This is a black-line version of Exhibit Q.4-1, tab 2, schedule 1, appendix A, which is Enbridge's description of the QRAM process that was prescribed initially in the RP-2000-0040 settlement proposal as approved by the Board and modified by the RP-2002-0133 settlement proposal, also as approved by the Board. 22 And this exhibit indicates the changes from the initial settlement agreement and I would emphasize, as the application did, that this is a description prepared by Enbridge. It is not intended to be a re-write of the settlement. It just reflects a current reality. For example, whereas the original settlement uses the term "Enbridge would do" something, now this uses the present tense "Enbridge does" something. And it also reflects under the regulatory framework the current process as opposed to the process that was initially prescribed. There is some variations, but on the theme that have been in place for a number of cases. 23 So with that, I'll just indicate that I had prepared this description under the instructions of Ms. Duguay. 24 MR. BETTS: Thank you, Mr. Farrell. 25 Thank you, and I did turn the volume up a little bit. Somebody turns it down every night on me. I work it up slowly. 26 Okay, thank you, Mr. Farrell. Is there anything else on a preliminary basis to deal with? 27 Then I believe we can expect questions yet from Mr. Warren, from Mr. Brett, from Mr. Shepherd and Mr. Moran. 28 All of you indicated yesterday that you were hoping to keep your questions somewhere within the quarter-hour range. Is that still the expectation? I don't see any furrowed brows, so we'll go ahead on that basis. 29 Is there any order determined or -- 30 MR. WARREN: I think I am next, Mr. Chair. 31 MR. BETTS: Mr. Warren, please. 32 MR. WARREN: I'll caution the Board that there has been a certain amount of overnight inflation, but I hope to keep it reasonably contained. 33 MR. BETTS: I see nods of acceptance of that point, but if you could keep your inflation to a minimum, that would be great, but certainly -- 34 MR. WARREN: My friend Mr. DeRose is expressing cynicism that it always happens, but I deny that flatly. 35 MR. DeROSE: Only with Mr. Warren. 36 ENBRIDGE GAS DISTRIBUTION PANEL 1; GIRIDHAR, DUGUAY, SMALL, BRENNAN 37 M.GIRIDHAR; Previously affirmed. 38 P.DUGUAY; Previously sworn. 39 D.SMALL; Previously sworn. 40 F.BRENNAN; Previously sworn. 41 CROSS-EXAMINATION BY MR. WARREN: 42 MR. WARREN: Panel, I have just a few questions for you, and I would like to begin with just getting some numbers straight, if I can, and in that context, would you turn up VECC interrogatory number 7, which, for the record, is Exhibit I, tab 4, schedule 7. 43 And the information that I am going to ask for may well be there staring me in the face, but I need somebody to hit me over the head with it; perhaps, Ms. Duguay, it is for you. 44 Can you tell me, what is the monthly impact on rate 1 direct-purchase customers expressed in dollars per month if the Enbridge application were approved, that is, recovery over a six-month period? 45 MS. DUGUAY: I think the reason why those numbers didn't jump in your face is they have not been filed, so the exhibit that you see at Exhibit I, tab 4, schedule 7, page 2 out of 3, the three-months and the six-month scenario depicts the impact for a typical residential customer on system supply. 46 So what I would have to do here, and it's not very -- it could be done fairly quickly, is given that we have the volume on the monthly basis, we would need to substitute the unit rate that would be applicable to a residential customer on transportation service rather than the unit rate that is applicable for a customer on system supply. 47 Having said that, the difference, if I can ask you to turn to exhibit -- that would be Exhibit Q.4-3, tab 7, which is the rate handbook. 48 MR. WARREN: Yes. 49 MS. DUGUAY: And more specifically, if you could turn towards the end of the document, rider C, which is the gas inventory adjustment rider -- 50 MR. WARREN: Can you help me, Ms. Duguay, I see rider A, B -- C, got it, thanks. 51 MS. DUGUAY: So if you look in the column in the rate class number 1. 52 MR. WARREN: Right. 53 MS. DUGUAY: And sales service, the unit rate based on our six-month proposal for self-service is 6.4972, whereas the transportation service is 5.0897, so the difference is not that significant. So I would need to essentially reproduce the exhibit that we were looking at earlier, that is, the response to VECC's interrogatory number 7 and substitute the unit rate times the volumes that appear on that schedule. 54 If you would like, we could do that for you very quickly. 55 MR. WARREN: Well, Ms. Duguay, I am sensitive to the time constraints on us, and you have given me an explanation that the difference is not likely to be significant. 56 MS. DUGUAY: Yes. 57 MR. WARREN: So I think in light of that, it is not necessary for you to do it. 58 MS. DUGUAY: Okay, very good. 59 MR. WARREN: Just a couple then of general principles -- sorry, general observations, I would like to confirm if I can. 60 Am I correct in my understanding, panel, that in the past direct-purchase customers have paid load-balancing costs? 61 MS. DUGUAY: Yes, that is correct. 62 MR. WARREN: And that the difference here in this case is one of timing; is that correct? 63 MS. DUGUAY: That's correct. 64 MR. WARREN: And can I confirm as well that you have followed the Board-approved methodology in determining what load-balancing costs are; is that correct? 65 MS. DUGUAY: That is correct. 66 MR. WARREN: And am I correct as well in my understanding that it is open to both system and direct-purchase customers to review the prudence of the load-balancing costs when the PGVA is ultimately cleared; is that correct? 67 MS. DUGUAY: That's correct. 68 MR. WARREN: Okay. Now, I would like you to turn, if you would, please, to appendix A to the application, which is, for the record, Exhibit Q.4-1, tab 2, schedule 1, appendix A. And I would like to take you to numbered paragraph 2 of that document. And it reads as follows: "The QRAM process is intended to achieve or accommodate the following eight principles." 69 And as I look, Ms. Duguay, at what has been filed as J.1.3, I see that the text of those principles is not substantially changed, not materially changed from what appeared in the settlement proposal in the RP-2002-0133 case; is that correct? 70 MS. DUGUAY: Yes. 71 MR. WARREN: I would like to, panel, just examine a few of those principles, and I would like to look at the principles, if you wish, in two contexts: One is if -- and my principal concern is if the relief that you're asking for is not granted, okay, then I'd like to examine what the effect would be on these principles. 72 Now, if the relief you're asking for is denied, looking at principle 1, would the result be more or less reflective of market prices on an ongoing basis? 73 MS. DUGUAY: I think it would be less reflective of market prices by virtue of imputing costs to a certain class of customers; whereas, other type of customers, in this case more particularly, transportation-service customers would not bear the same responsibility as it relates to seasonal load-balancing costs. 74 MR. WARREN: Again, with the same assumption, panel, that the relief you're asking for is not granted, would that -- would the result have the effect, looking at numbered principle -- or the second bullet item, would it have the effect of enhancing price transparency or not? 75 MS. DUGUAY: Well, in my opinion, given that rider C strictly deals with the clearing of the PGVA or the purchased gas variance account, which has to do with gas costs, dealing with that on a stand-alone basis enhances price transparency rather than roll it with the disposition of all other 2003 deferral/variance accounts. 76 MR. WARREN: I would like to then go to the fourth bullet item, customer awareness, customer acceptance, and less confusion in the marketplace. And if the relief you're asking for is not granted, what would be the effect, if any, on that principle? 77 MS. DUGUAY: Well, I believe that -- and I think I touched a little bit on that yesterday, that by virtue of charging the forecast year-end PGVA balance solely to self-service customers would amount to charging them $155 only to turn around and refund to them essentially half of that amount at a later period of time. And I think this would be confusing to a residential customer. 78 MR. WARREN: Looking, then, at the next bullet item, which is the fifth of the principles, "Mitigation of Large Adjustments and Customer Bills," if the relief you're seeking here is not granted, what would be the effect on that principle? 79 MS. DUGUAY: Well, there would be a large adjustment at the end of the process. 80 MR. WARREN: And my final question in this context deals with the next bullet item, which is "Fairness and Equity Among All Customer Groups." Again, in the context if the relief you're seeking is not granted, is that principle achieved or not? 81 MS. DUGUAY: I don't believe so, because I believe that the existing methodology for clearing the PGVA is a reasonable methodology in terms of a cost-causation perspective, and I think that to simply defer that, given that we have a mechanism in place to proceed with the final true-up of the PGVA, which we are proposing to simply advance, is a reasonable thing to do. 82 MR. WARREN: Panel, stepping away from those specific principles to look more broadly at the QRAM process, in your view, is -- I mean, first of all, your institutional memory would clearly be vastly superior to mine, but would I be right, for example, Mr. Brennan, that this past year has been an unusual one both in terms of price volatility and in terms of the volume consumed because of cold weather? 83 MR. BRENNAN: Yes, I would certainly say that. 84 MR. WARREN: And has it also been unusual, Mr. Brennan or any other member of the panel, in terms of the public response to the issue -- indeed, public and government response to the issue of retroactive rate-making? 85 MR. BRENNAN: Yes, I think that's a fair comment. Certainly, it's certainly on our minds. 86 MR. WARREN: And, panel, is it your view that the QRAM process has to be responsive to all of those pressures, price volatility, volume consumed because of cold weather, and also the public pressure writ large on retroactive rate-making? 87 MR. BRENNAN: Yes, I would say that. I think everyone is aware of the price volatility, and I think that the QRAM process in that it deals with the commodity aspects is a place to address those issues. 88 MR. WARREN: My final question, really, is a cluster of questions, panel, is in the technical questions, and if I could ask you to turn up VECC interrogatory number 5, which is, for the record, Exhibit I, tab 4, schedule 5. 89 And the context for the question was questions about this, if I can put it rather roughly, your discovery or someone's discovery that there is an opportunity to game the UOG charges. 90 And if you look at the text of your answer, beginning on page 1 of 4, the second sentence: 91 "The company is unable to confirm at short notice ..." 92 And I underscore those words: 93 "... whether and the extent to which unauthorized volumes were incurred on the system on each of these dates." 94 First of all, if I turn over the pages, and I see that you've got transaction dates there, which are, I think without exception, in January and February of 2003; is that correct? 95 MS. DUGUAY: Mm-hm. 96 MR. WARREN: And am I correct that those two months were the periods when the most gas had to be acquired for load-balancing purposes; is that correct? 97 MS. DUGUAY: Mm-hm. 98 MR. SMALL: That's correct. 99 MR. WARREN: Now, when you use the phrase -- the words in your answer "unable to confirm at short notice," can I conclude logically from that that the analysis can be done, that is, that you can determine the extent to which unauthorized volumes were incurred on the system on each of those dates? 100 MS. GIRIDHAR: That's correct. 101 MR. SMALL: Just if I could add, Mr. Warren, sorry, I've got someone back at the office looking into that right now, and hopefully we can get an answer on that later this morning. 102 And just to add, if I could, that that person's recollection is that the amounts that we'll find related to those unauthorized overruns will be a minimal amount, dollar amount. 103 MR. WARREN: Will be what? I'm sorry. 104 MR. SMALL: Be a minimal dollar amount. 105 MS. GIRIDHAR: You're referring to the non-curtailed customers? 106 MR. SMALL: Yes, the non-curtailed situations. 107 MR. WARREN: Now, Mr. Janigan asked a question yesterday in his remarkably brief cross-examination -- he kept within his time limit, as opposed to others of us -- about where the amounts that would derive from this analysis, where they're recorded, and I'm not sure I understood the answer. 108 Are they recorded in the PGVA amounts that are about to be cleared? 109 MS. GIRIDHAR: All amounts relating to a curtailment situation where there has been an unauthorized overrun would be recorded in the PGVA. I believe -- 110 Mr. Small, do you want to just -- 111 MR. SMALL: The only distinction we're trying to make, I guess, is that if it's an unauthorized overrun situation on the day of a curtailment, a situation where the customer, the interruptible customer continues to consume, that amount is in the neighbourhood of 2 to $2 1/2 million. We will be recording in the PGVA. It is not in there right now. 112 The other -- 113 MR. WARREN: What -- sorry. Go ahead. 114 MR. SMALL: I was just going to say, the other instance when you could have unauthorized overrun is when the direct-purchase customer self-suspends or does not deliver their gas but continues to burn. 115 Those instances are few, but that is an unauthorized overrun situation, and that is not recorded in the PGVA. 116 MR. WARREN: The question I was trying to get to, panel, to cut through it, is this: Is it possible that, for example, system-gas customers would end up paying through the PGVA some or all of the costs that result from a person who gamed the system in the way you're talking about? Is that possible? 117 MR. SMALL: They would end up taking their share, yes. 118 MR. WARREN: And can we get sense -- can we get an understanding of how much that would involve, how much system customers would be absorbing as a result of somebody gaming the system? 119 MR. SMALL: Well, I guess I am struggling a little bit. We recognize that we have billed some unauthorized overrun and non-conformance billings for curtailment situations and we will be capturing that in the PGVA, and that will be allocated. I believe Ms. Duguay mentioned yesterday where we can find that. 120 The amounts in the other situation where what I would like to call supply UOG are minimal amounts. My expectation is that it would be less than $10,000. So it would be a minimal amount. 121 But if I could just add that one of the concerns we had is when a couple of markers came to us and suggested that this was a possibility that the way the rate for the UOG was set up, that got us thinking that maybe we should start looking at that, and that if that possibility existed, maybe we had to increase the penalty. 122 Subsequent to us going through this, an added concern we would have is going into the future with the level of turn-back capacity in TransCanada. The possibility could exist that there would be even more situations of customers failing to deliver their supply. 123 MR. BRENNAN: Maybe just to add to that. The concern that I have had, because I have certainly had one marketer call me in a panic trying to get gas into the CDA, and realizing that he was relying on interruptible transportation only to realize that day that TransCanada had cut or there was a limited amount of interruptible transportation, and he was asking me if there is any way I could get gas into the CDA for him. And I said, Not really, there is not much I can do. 124 And then the next question was, well, you know, what is your UOG penalty? And so that certainly triggered my interest that there was obviously a concern there, and as Mr. Small just mentioned, given that the amount of turn-back, those customers wanting to bring in their own capacity for this winter, in particular into the CDA, or central delivery area, all of that, or I would say close to 90 per cent, is gas that is being brought in by customers under their own arrangements. 125 And our concern is that maybe some of that could be moving uninterruptible transportation on TransCanada, and if we have a winter like we did last year and there may be other instances where that interruptible transportation may not be available to them on TransCanada and then, given where prices may be, that they may elect to not deliver into the franchise area and move gas elsewhere or just fail to deliver and then continue to consume at the same time. 126 MS. GIRIDHAR: We believe it is important to recognize that unauthorized overrun gas is not a legitimate source of supply for a customer. It is intended to dissuade a situation when a customer fails to deliver. 127 If I might just point you to Exhibit K.1.2, which was the graph, with the level of turn-back we have had, what we might end up seeing, if we don't have a sufficient penalty in place, is that the relatively flat red line which is the budgeted supplies, which is the amount of gas that should be coming in inclusive of the amount provided by direct-purchase customers, that might go down on the day when we really need that gas to be coming in. Consequently, the company has to make up that difference to a greater extent because the gas isn't coming in when it should. 128 And it is just to prevent such an eventuality that we would like to have a penalty in place that is related to the price of gas, the highest price of gas in that month. So those supplies that were budgeted to come in and which the company believed were going to come in do in fact come in on that day. 129 MR. WARREN: Ms. Giridhar, are you satisfied that the penalty that you are proposing will accomplish the goal that you want to? Is it sufficiently high to be a disincentive to this gaming? 130 MS. GIRIDHAR: We believe it -- well, it is the most stringent penalty that we can accommodate. It is the highest price in that calendar month, and it is 150 per cent of that. 131 The only instance I can think of a customer wanting to pay that penalty might be, for instance, if they were electricity generation unit and the price of electricity was 15 or 20 times what it normally is, and therefore, they can still -- you know, but in a situation like that, it is beyond us. I mean, we can only link it to the price of gas on the day or in the month, I mean, we can't have penalties in place related to what the end product of the use of that gas might end up being. So we believe this is the most -- or the best penalty we can in fact have in place in the situation. 132 MR. BRENNAN: And that is not uncommon either. I have spoken to some people, and SEM -- Southeast Michigan -- has a similar UOG deterrent, if you like, where it is the highest price paid in the month. 133 MS. GIRIDHAR: In the month. 134 MR. BRENNAN: As a method of, again, making sure that customers continue to deliver. 135 MR. WARREN: Those are my questions. Thank you, sir. 136 MR. BETTS: Thank you, Mr. Warren. 137 Next, any preference? Mr. Shepherd? 138 MR. SHEPHERD: Mr. Chairman, I am not going to have any questions. 139 MR. BETTS: Pardon me? 140 MR. SHEPHERD: I will not have any questions. 141 MR. BETTS: Thank you. Mr. Brett. 142 MR. BRETT: Thank you, Mr. Chairman and Mr. Dominy. I do have a few questions. 143 CROSS-EXAMINATION BY MR. BRETT: 144 MR. BRETT: Just picking up on the last conversation, panel, for a moment. Mr. Small, the dollars that are -- the penalty dollars that are realized from, as you put it, the supplier self-suspension or failure of a supplier to deliver, those go to the shareholder, do they? 145 MR. SMALL: Currently, that's where they go, yes. 146 MR. BRETT: And do you propose to change that as part of this proposition, or why would those go to the shareholder -- why are those dollars any different than the dollars that are realized by a penalty on the interruption case? 147 MR. SMALL: I think what it comes down to is going back a few years, back to 1996, when we had a significant amount of curtailment that year, plus we had a large balance in the PGVA at that time as well, we recognized that during times of curtailment, customers were continuing to use and we were out buying additional supplies and we felt it was prudent to offset some of those higher costs by those penalties. 148 As I have mentioned a couple of times, the incidents of the supply UOG are minimal, and to this point in time, subject to what I am able to find out hopefully this morning, is the indications are that it is less than $10,000, a minimal amount. 149 I think what we would have to look at, though, is if, going forward into the next year, one of the concerns we have is with the level of turn-back, that if we did see the incidents rising and the significance of that UOG was rising and therefore we would have to replace that gas, then we would certainly look at that time whether or not we should be including those dollars into the PGVA. 150 MR. BRENNAN: But maybe just to help you a little bit, Mr. Brett. I think my understanding, anyway, not necessarily being that close to it, but one of the reasons where a customer who has elected to self-suspend - this is apart and distinct from the curtailment - is a case where a customer fails to provide the gas, say, at Empress under say a Western T-Service arrangement and that capacity goes vacant and that's capacity that the utility would be managing, the utility could be exposed to unabsorbed demand charges. And I guess that was maybe one of the reasons or that why, if some of those penalties should go back to the shareholder. 151 MR. BRETT: And if you are exposed -- well, let me take this in two steps, I guess. 152 You are aware, are you, that in many cases producers and marketers of gas that are selling gas to your customer, your end-use customer, who in turn is providing that gas to you at Empress under a buy/sell or under a Bundle-T arrangement, in many cases those marketers and producers are very reluctant to agree to a clause that says they will cover the cost of any distributors' UOG penalties; are you aware of that, that that is an attitude that they take? 153 MR. BRENNAN: It wouldn't surprise me. 154 MR. BRETT: All right, and in terms of your comment about UOG, your -- in circumstances where a customer was likely not to -- was likely to fail to supply you, would it not be likely that you would be able to fill that capacity with gas? 155 MR. BRENNAN: Certainly that would be our first alternative would be to fill it, and we have done that in the past when customers have failed, we would continue to make sure that we operate those pipelines, but to the extent that we couldn't. 156 MR. BRETT: All right. The -- and just one other question coming off the last round of questions. 157 Ms. Duguay, Mr. Warren was asking you about -- just to confirm that -- in one of his confirmation questions -- that the question of prudency of these expenditures could be raised in the next -- at the time the PGVA was cleared, and you said yes. 158 And I take it you'd agree that not just the question of prudency, but the question of allocation of the expenditures could also be raised? 159 MS. DUGUAY: Yes. 160 MR. BRETT: Yeah. With respect to the physical aspects of this, of how these expenditures are made, could you -- would you agree with me, and this is probably for you, Mr. Small, but that when contracts -- when direct-purchase customers of yours that have bundled-T contracts commence on November 1 and end on October 31st, they draft the system, as sort of the parlance goes, and through the winter period, because effectively they are agreeing to supply 1/365 of their estimated annual requirement each day of the year. 161 And of course, over the winter period, they will consume more than 1/365, so they will go negative, if you like, through the months of probably December, January, February, March, April, and then they will go positive for the balance of the year. And the way it's supposed to work is at the end of -- by October 31st, they're back to -- they're back in balance. 162 Is that a fair, sort of, summary of how this works? Now, I would say in a normal year, I mean, in a business-as-usual year. 163 MR. SMALL: The intent would be that the MDV is based upon the estimated consumption, so yes, the deliveries and the consumption would match. 164 MR. BRETT: And in that case, in that situation, EGD will be buying gas to supply them through the winter, to supplement their supply through the winter; is that right? 165 MR. SMALL: Either buying gas or -- 166 MR. BRETT: Taking gas from storage? 167 MR. SMALL: That's correct. 168 MR. BRETT: But in that case, that will be -- that will be -- those will be purchases that have basically been planned and budgeted for, and those will be in your gas-supply plan, effectively? 169 MR. SMALL: That's correct. 170 MR. BRETT: So that those -- the gas bought for that purpose, the dollars involved in buying the gas for that purpose, and I'll call it the business-as-normal seasonal load balancing, if you like, those aren't dollars that are included in the $150 million that we were talking -- we've been talking about, are they? 171 MR. SMALL: No, they're not. 172 MR. BRETT: Okay. So in other words, it doesn't matter if the price of those dollars -- if the price of that gas goes up beyond where you forecasted it to be in your supply plan, those dollars still don't find their way into that account? 173 MR. SMALL: Well, just -- 174 MR. BRETT: I'm making a distinction, I guess, between -- in this second question, I'm making a distinction between what price you assume in your supply plan and the price that you actually end up paying for those particular volumes. 175 MR. SMALL: If I can just put it maybe in this analogy: If, for example, the demand, overall demand came in as we planned or budgeted it to be, and the deliveries came in -- 176 MR. BRETT: Right. 177 MR. SMALL: -- so we had a match with the deliveries and the consumption, and the load balancing occurred the way we thought, if we bought exactly what we budgeted, but the price went up, just the price went up, then there would be dollars into the PGVA. 178 MR. BRETT: Right. 179 MR. SMALL: But they would be commodity-related and -- 180 MR. BRETT: They would not be load-balancing dollars? 181 MR. SMALL: That would be -- you know, I'd have to double-check with Ms. Duguay, but -- 182 MR. BRETT: Okay. I just wanted to establish that as sort of the base. 183 MR. SMALL: The only distinction would be is we'd have to match that commodity cost with the WACOG price, that the built-in commodity price in the rates. We were talking yesterday about the commodity cost with the Western buy/sell reference price. 184 So we'd have to look at that, but the premium, if you will, I can't imagine it being large. 185 MR. BRETT: When you say the -- all right. So you're saying that you -- in your plan you've got a price built in, which is -- now, you said the WACOG, and then you said the buy/sell reference price. 186 Are those things the same things for this purpose? 187 MR. SMALL: Sorry. Yes, they are. 188 I guess, maybe, if we could just go to Exhibit I, tab 3, schedule 9, where we were showing the calculation of how we came up with the 150 million, that might kind of help in your analogy. 189 MR. BRETT: Just a second here. 190 Okay. I have it. Thank you, Mr. Farrell. 191 Yeah, I see that. 192 MR. SMALL: What -- we would continue to go through this analysis. So to the extent that the imputed commodity costs of those supplies compared -- 193 MR. BRETT: Okay. Where are you now? 194 MR. SMALL: Sorry. I'm looking at the top half of the schedule. 195 MR. BRETT: Under the title "Load Balancing"? 196 MR. SMALL: That's correct. 197 MR. BRETT: All right. 198 MR. SMALL: We would look at whatever the delivered unit cost was, back off the assumed transportation to come up with the imputed cost. 199 MR. BRETT: Of the commodity? 200 MR. SMALL: Yes. And then we would be comparing that against -- or then back off the Western buy/sell with fuel price. 201 MR. BRETT: When you say "back off," so you take the 397, and you back out the transportation cost? 202 MR. SMALL: That's correct. 203 MR. BRETT: The deemed transportation cost, or what do you use for transportation cost in that instance? Is that the TCPL toll? 204 MR. SMALL: It's the TCPL, the transportation costs. 205 MR. BRETT: Okay. 206 MR. SMALL: Because we're just trying to get back to an assumed commodity cost, if you will, for those supplies. 207 MR. BRETT: Okay. And then you would compare that with, effectively, the WACOG, or the -- 208 MR. SMALL: Western buy/sell. 209 MR. BRETT: The Western buy/sell price, and it's the difference between those two -- it would only be the difference between those two prices that would be considered load balancing in the example I gave you? 210 MR. SMALL: Yes. So if you matched right on with whatever you were buying, then you'd just be looking at the price variance. And then, dependent upon the change, if you will, in the Western buy/sell price, would dictate the amount of load balancing -- 211 MR. BRETT: So in other words, in this example, in following this calculation, it's the $132 that's the unit rate variance? 212 MR. SMALL: In this case, that was the load-balancing premium for this past winter, yes. 213 MR. BRETT: So that what you'd do, then, to get that -- I just want to make sure I get this, sort of, method right. 214 To get to the actual number of dollars that you had to put into the load-balancing account in respect of just the purchases I outlined to you, just the purchases in the business-as-usual area, business-as-usual case where the demand matches your projection, you would -- there'd be no volume -- no volume effects, so we'd just be talking about dollars of the basic molecule, of the energy bought. You'd be using that 132; is that right? 215 MR. SMALL: If I can just -- sorry, Mr. Brett, but if we just, sort of, back up one second. 216 MR. BRETT: Yeah, it might be helpful, Mr. -- well, sorry. Okay, go ahead. 217 MR. SMALL: Well, what you'd have to recognize is that in establishing the rates in the first place, we would come up with whatever our budgeted unit cost was. 218 MR. BRETT: Right. 219 MR. SMALL: So we would then -- 220 MR. BRETT: The actual WACOG, eh? 221 MR. SMALL: Well, you'd have the delivered costs, and then you'd be backing off the assumed transportation costs. 222 So that we would then identify for purposes of the cost-allocation and rate-design group, we would be identifying what the budgeted amount is for the Western buy/sell price and what the load-balancing premium was. So they would design the rates accordingly. 223 So as we went through the year and the prices changed, then all we'd be doing is looking at what the incremental amount is in those two components, and that would be how we would clear the PGVA. 224 MR. BRETT: And it's the two components being the price of the load balancing -- the price and the volume? 225 MR. SMALL: Yes. 226 MR. BRETT: All right. So then my second example was going to be if you take the case, you have it like last winter where you have an unusually cold winter. So what happens is, as I understand it, in physical terms is that in addition to the gas we were just speaking about, since the demand has gone way up relative to the projected demand, each and every one of these direct-purchase customers is going to require more gas over the twelve-month period, and it's going to get it either by -- either it is going to buy it itself, or I guess what is really happening for the most part is you buy it, you buy it for them, as you go through the winter months. 227 And that then -- those additional volumes, then, become the -- those are the so-called seasonal -- those are the seasonal dollars that you are putting into the $150 million; correct? I mean, it is the cost -- it is the -- you have budgeted in your gas plan certain discretionary volumes in the gas plan in the 0133 case, and if you end up having to buy a lot more discretionary volume than that as a result of what I have just said, then it is that additional volume times the price differential you were speaking about earlier that goes into the pot, into the load-balancing pot; is that right? 228 MR. BRENNAN: Yes, that would be my understanding. It wouldn't be just discretionary either. We would also include peaking service. For example, if we purchased more peaking service than we had budgeted as well, I guess the pricing -- 229 MR. BRETT: I was going to come to that. 230 MR. BRENNAN: Okay. 231 MR. BRETT: I think peaking service is the third one, and you defined peaking service separately in your materials, you defined it separately in your gas plan. And I take it you define "peaking service" essentially with reference to how you buy it, because you buy it under certain specified contracts. 232 MR. BRENNAN: Yes, we arranged to have peaking service prior to going into the winter period, and typically these are power plants, I guess, usually outside the franchise area that have dual capability that are offering to interrupt their use of gas and provide it to us. Typically, it could be five days, ten days, even as high as 30 days. 233 So we go into those arrangements, and then we have a -- we pay a demand charge as well as a commodity charge. And that's built into our supply portfolio going into the winter. We would assume certain usage of those peaking supplies. 234 MR. BRETT: And I think with the peaking supply, you assume that the -- your assumption there is that the direct-purchase community don't supply their own peaking supply; whatever they may supply with respect to seasonal supply, they don't supply their own peaking supply. So you allocate a piece of that to the direct-purchase group, I think in this case it was the $13 million; right? 235 MR. BRENNAN: That's correct, the direct-purchase customers provide a mean daily volume, the same volume each and every day. 236 We purchase peaking service as well as discretionary on behalf of all customers to do the load balancing. 237 MR. BRETT: So I think the point was made yesterday, I think you made this point in a response, that certain direct -- I mean direct-purchase customers could, in principle at least, acquire their own seasonal requirements, if the demand went up -- my second example, the cold-winter example, the direct purchaser could balance himself, could he not? 238 MR. BRENNAN: They would have an ability to do what we call make-up. 239 MR. BRETT: Right, that's what you were discussing yesterday. You were saying they could do it in principle, but very few, historically, have done that. 240 MR. BRENNAN: Correct. I would say that going through the winter and they can see their consumption exceeding what they would have forecast for the year, assuming that the rest of the year went as expected, that they are at the end of their year or at the end of the contract, they would be out of balance, if you like. They would have an opportunity to request to provide make-up, and certainly during the winter periods we would be more than happy to take that make-up. It would just mean that we would be out buying less gas. 241 MR. BRETT: You think in the future if we see a sort of diminution of the winter/summer price differential that direct-purchase customers may want to buy more of their own gas in the winter? 242 MR. BRENNAN: Well, typically I would say that they don't necessarily want to do that because providing make-up in the winter, prices tend to be higher. So the past experience has been that the majority of those customers would wait until the summer period when prices are expected to drop to provide make-up capacity. 243 MR. BRETT: And you are really saying that what you are putting in that account then, in that regard, is the fact that you need to step in and buy during the winter to ensure there is sufficient gas in the system. 244 MR. BRENNAN: We purchase gas throughout the winter to make sure we can meet the demand for the entire system each and every day. 245 MR. BRETT: Now, if you -- going back to that first chunk of gas I spoke about, what I will call the sort of secular, seasonal purchase that you make and the business-as-usual situation, you mention in your evidence that a majority of your buy/sell -- your bundled-T contracts commence on November 1, but I take it from comments you made yesterday, a couple of you, that there are a lot of contracts, not a majority, but a lot of those contracts don't start November 1, they are scattered throughout the year; correct? 246 MR. BRENNAN: That's true. 247 MR. BRETT: Have you got a rough idea of percentages here in either total number or total volumes, would it be say 60 per cent start November 1 or -- 248 MR. BRENNAN: No, I have no idea. The reason we try to tend not to do it, because if we had all our contracts expiring March 31st -- or I'm sorry, October 31st, it would be an enormous task to try and get all those arrangements in place for November 1. 249 MR. BRETT: Right. 250 MR. BRENNAN: So we would tend to try and have them scattered throughout the year. So -- 251 MR. BRETT: But in your calculations, I just want to make sure I understand this, this has been kind of a -- well, the calculations you make in assembling the amount of money that goes into these various pots we have been discussing, do you actually look to see when your contracts expire, or do you assume they all expire on October 31st? In other words, what I am saying is going back to that first chunk of gas, if you had most of your contracts starting April 1st, you wouldn't be buying gas for that purpose, would you, because the consumer would be long, he would be in positive balance all year long. So you wouldn't have to buy gas for him, if the demand stayed the same. 252 MR. SMALL: In the preparation of our budget, we are going to assume that the deliveries and the consumption would match. If, for example -- if an exact direct-purchase agreement was to expire on March 31st for purposes of the budget we would just assume that it would continue on and continue to deliver his MDV. 253 So for budget purposes, over the twelve of month of the budget period, the deliveries and the consumption are going to match, regardless of the renewal dates of the direct-purchase agreement, so we assume the level of supplies coming in throughout the year. 254 MR. BRENNAN: But I guess your point is that regardless of when the contract starts, given the fact that the direct-purchase customer is providing us with a mean daily volume, there are going to be periods throughout the year where they are going to be out of balance, they are either going to owe us or we owe them gas back or whatever. 255 MR. BRETT: No, I understand that, but when you say that -- you are talking here about the amount of gas that you purchase on behalf of direct-purchase customers, and I don't think I understood your answer. 256 If, to the extent that direct-purchase contracts begin in the spring rather than in the fall, so that you would to buy less -- and assuming the demand stays the same in my example, my business-as-usual example where we started a while go, isn't it the case that you have to buy less gas for them? And I just want to be clear that when you compute these amounts, of these volumes which in turn are the basis for your dollar figures, you are making -- I want to know what your assumption is. 257 I guess what you are telling me is in that first case I gave you, you forecast a certain volume of gas for the year, and my assumption I put to you is that volume wouldn't increase, so you're saying it doesn't matter. Is that what you are telling me, essentially, it doesn't matter when those contracts end or start? 258 MR. BRENNAN: That's correct. I'll take your example of if a contract starts April 1st, if you like, so they are giving us a mean daily volume. And again, depending on what their consumption is in April, they may be a mismatch. They could be giving us more gas than they are consuming, so we are okay there. But then you go through the summer period of time where we are getting more gas relative to what their consumption is, but then when you get into November, December, January and February, they are drawing down that. 259 So by the time they get to, you know, January or February, they could be in a negative situation where we have to go out and buy the gas, and then they only come in line -- and then the whole process starts over again. 260 MR. BRETT: Yeah. All right. Well, I just have -- just one other set of questions on the costs. 261 Ms. Duguay, you said yesterday, I think, that one of the key issues, really, here in this proceeding, or I think you -- generally you might have meant was what's the appropriate benchmark cost to use for measuring the premium, and you now use the Western buy/sell reference price. 262 And do you have handy there the -- this is -- I'd like to turn to your summary of gas costs to operations, and I think I mentioned the -- your -- to your colleagues yesterday that I'd be asking a question on this. This is from the -- this is Exhibit D.1, tab 2 from the 0133 case. 263 I'm sorry. I don't think I have additional copies, Mr. Chairman, but it's -- I can just spell out here what I am talking about. 264 MR. BETTS: Yes, Mr. Brett, if you could just be as clear as possible with the question, that will be fine. 265 MR. BRETT: All right. And this is your gas plan, Mr. Small? 266 MR. SMALL: That would be the volumes that we're expecting to purchase, yes. 267 MR. BRETT: Right. And in this plan, you show along the left-hand side all of the different components of your gas supply; correct? 268 So if I read down from the top, you have "Long-Term Supplies," "Alberta Production." 269 MR. SMALL: Mm-hm. 270 MR. BRETT: You then have "Peaking Supplies." You then have "Buy/Sell," which is a very small amount. It's almost disappeared. And then you have "Other Supplies," which are the largest, by far, portion of that. 271 And under "Other Supplies," you have Western at Empress, Western at NOVA, and both of those transported through TCPL, Western through Alliance. So that's Western source gas coming through those pipelines? 272 MR. SMALL: That's correct. 273 MR. BRETT: And are those -- those are part of what you call discretionary gas? 274 I guess the question is -- let me just, perhaps, go on with the rest of the list there. Then you have Vector, first tranche; Vector, second tranche. Those would be gas supplies sourced in the U.S. and brought in through Vector; is that correct? 275 MR. SMALL: That's correct. 276 MR. BRETT: And then you have Link supplies, which is a small amount. And then Ontario-delivered, which is a very small amount. 277 And the total of those last -- the total of those other supplies is 3 million -- 3 billion cubic metres, and it represents three-quarters, roughly, of your total gas supply. And this is your system-gas supply here we're speaking of; right? 278 This is not -- I mean, buy -- this is not -- except for buy/sell, there's another -- there's another world out there of bundled-T, but this is the system gas? 279 MR. BRENNAN: This is all system gas. 280 MR. SMALL: Including whatever we're going to need for, like, the peaking, for example, that -- 281 MR. BRETT: Yeah, I understand. 282 Now, the question I have, under "Other Supplies" where I just listed these sources, are those -- which of those are what you're calling "discretionary"? 283 In other words, which of those sources qualify for -- or I guess it's increments to which of those sources qualify for inclusion in your PGVA load balancing. I'm trying to zero in on where this gas is in relation to your plan. Can you tell me that. 284 MR. SMALL: Just the -- just the Ontario-delivered number. 285 MR. BRETT: The Ontario-delivered. Okay. So that's a very small number in the plan. So what you're saying, then, is that the rest of those volumes are coming in through situations where you've got pipeline capacity, or someone else has pipeline capacity, and they're using it to get gas to you. I mean, those are gas that's matched up by pipeline capacity? 286 MR. BRENNAN: Right. That's gas that I'm moving either on TransCanada, Alliance, or Vector. 287 MR. BRETT: Okay. Now, then, the Ontario-delivered, that's -- that's what you go to when you have a -- that's sort of your residual or your balance wheel amount. When you need a lot more gas, this is how you're getting it, effectively. 288 And these are people who would deliver gas to you at your city gate? 289 MR. BRENNAN: It could be either at our city gate or at Dawn. 290 MR. BRETT: Okay. And so this amount, if we were to look at this table revised to reflect what's actually happened, this amount would be a lot larger than it is. It would be -- it would be much larger? 291 MR. BRENNAN: That's correct. That's correct. 292 MR. BRETT: Okay. Now, just as an aside, there's a -- I notice that in this same section of your exhibit here, which is -- this is Q.4-3, tab 1, schedule 1, these are the numbers that you included. You have a statement that you filed in here called -- a schedule 1 called "Summary of Gas Cost Operations Year-Ended June 30th, 2004." 293 And I couldn't understand what -- is that -- is that mislabelled, or why is that there? 294 MR. SMALL: No, as part of the QRAM application, the intent is that we would look at what the budgeted supplies are and look over the upcoming 12-month period. 295 So in the case of this, we would be looking at prices over the July 1, 2003, to June 30th, 2004, what those monthly price forecasts are, and we would apply them to the budgeted volumes. 296 The idea being that when you establish what your budget was, you would have made an assumption of what you were going to buy in the month of October, November, December -- 297 MR. BRETT: All right. 298 MR. SMALL: As part of the QRAM, we would look at the prices for the July 1 to June 30th period in this QRAM, and we would apply those monthly prices to the budgeted volumes. 299 And what we would do is we would make the assumption that on a go-forward basis, what we had originally assumed as being the volume to be purchased in the month October 2002 was -- as part of this application would just be put into October 2003. 300 So you've got the same volume that underpins your budget, and you're just applying a new set of prices, forward prices to it. So that's why it says it is going to June 30th, 2004. 301 MR. BRETT: Okay. Now, if I go back to that -- but you said -- go back to the table we were just talking about, the summary of gas-cost operations year-ended September 30th, you have -- I went through that list of items of supply, chunks of supply that you forecast. Now, opposite each of those, you have a price in column 4. 302 And, Ms. Duguay or Mr. Small, these prices range from about $5.48 a gigaJoule for Alberta production to $8.83 for peaking, to Ontario-delivered, $6.76. Now, you've got a whole range of prices in here. 303 Now, I don't see the Western buy/sell price. Where does it come out, or what would it be in this -- as calculated at this time? What will we be looking at, and where is it to be found in this exhibit, if it is? 304 MR. SMALL: That -- the item number 3, the total buy/sell, the forecast for buy/sell. 305 MR. BRETT: That's what you're -- so that that $5.70, which is the forecast for buy/sell, okay, that is the Western buy/sell price? 306 MR. SMALL: That would -- the forecast assumed that the only volumes that we were going to be buying under the buy/sell option were the Western buy/sell with fuel. 307 MR. BRETT: And that's what the $5.70 is? 308 MR. SMALL: That was what the forecast was at that time, yes. That would have been a 12-month average of the monthly prices. 309 MR. BRETT: But you -- now, how does that $5.70, how does that relate to your WACOG price? Where is the WACOG price on this chart? 310 MR. SMALL: Are you referring to the WACOG price that we would have used in the determination of the -- 311 MR. BRETT: Of your rates. 312 MR. SMALL: Of which rate? The load-balancing rate? 313 MR. BRETT: No, of the initial -- of the initial rate going forward that you filed at the beginning of this -- at the beginning of the year. In other words, your initial -- your initial rate for 2003. 314 MR. SMALL: The exhibit you're referring to was the update that we would have done -- that was -- the exhibit that you're referring to and the dollar amount that you're quoting was based upon the update that we did November 11th -- sorry, November 27th, 2002. 315 MR. BRETT: Okay. 316 MR. SMALL: And that update reflected, if I remember correctly, a number of things, including an update for T-service volumes. 317 MR. BRETT: What amount would you have -- in that update, what amount would you have put in for your -- the commodity cost embedded in rates? That's what I'm trying to get at. 318 MR. SMALL: Well, if I could just -- sorry. If I could just finish. 319 What we did is at that time we took whatever our forecasted purchases were, and we looked at a 21-day average of prices. 320 At that time we looked at a 21-day average of prices from October 8th to November 5th, and said, Okay, here is what the latest forecasts of prices are. We are going to apply those monthly prices, those unit rates to our forecasted portfolio. We came up with what the unit cost was. 321 Now, if you go down to the bottom of that page, you'll see there is a PGVA adjustment and then the total purchase cost after the PGVA adjustment comes to a unit rate of 2.37. 322 MR. BRETT: Which is $6.31 a gigaJoule? 323 MR. SMALL: No. 324 MR. BRETT: I am trying to keep these units -- in order to discuss these, we have to keep the units the same all the time. I would like to go on the basis of gigaJoules, it is an easier thing to relate to. If you just give me that number in -- 325 MR. SMALL: I guess what I am trying to let you know, Mr. Brett, is that November application or that filing, what we were attempting to do was look at what the cost of our purchases were, but we also recognized that we were going to bring our gas costs back to the reference price that was calculated as part of the October 1 QRAM because we wanted to show our gas costs that was based upon what was underpinning in rates. 326 So the revenue forecast that we would have filed on the November application would have been assuming the October 1 sales rates, and those rates would have been those ones that came out of the October 1 QRAM. 327 MR. BRETT: And that was -- what was that sales rate? What was that commodity rate -- what was that commodity cost embedded in the sales rate? 328 MR. SMALL: That would have been the -- the reference price would have been -- in dollars per 103m3 would have been $237.963, dollars per 103m3, which translates to $6.31 for gJ. 329 MR. BRETT: So that was the overall average price. 330 MR. SMALL: Is so-called utility price, based upon the October 1 QRAM. 331 MR. BRETT: And the question I wanted to ask, really, is you have got a range of prices here. Now, for example, when you calculate, Ms. Duguay, the amount of money that you should put into the load-balancing pot of the PGVA for peaking, do you use the $8.82, which is in this exhibit as the forecasted peaking charge, which is already presumably incorporated in your rates, or do you use -- and rather, what I should say is do you use the differential between what you actually paid for the peaking gas and the $8.82 or is it the differential between what you paid for the peaking gas and the $5.70? 332 MR. SMALL: What we would have to do, Mr. Brett, is we would have to go back to the October 1 QRAM filing, because it would have been the rates that were underpinning that that Ms. Duguay would have used for establishing what she wanted to recover in rates -- what you have on that D.1 exhibit. 333 MR. BRETT: The $6.31. 334 MR. SMALL: Those forecasted supplies would have been at a new 21-day average, but what I was trying to say to you for purposes of calculating gas costs, we brought our purchases back to the October 1 reference price. So that's what gas costs for the application were based on, was the October 1 reference price. 335 MR. BRETT: So, you are saying, though, as I understand you - and I won't pursue this really anymore much because of the complexity, and I don't think this is the place really to do it, and I am quite aware of our timing problems and so on - but you are not -- you are saying that you don't use the $5.70, that particular buy/sell figure, that western buy/sell figure, as the base when you are looking at what the number of premium dollars is for peaking -- for the differential? 336 MS. DUGUAY: Yeah. Really what is happening, Mr. Brett, as it relates to peaking-service supplies - I'm sorry, I don't have the exhibits you are referring to, so I don't have those unit rates - but at a high level, what we do for rate-making purposes is we look at what we have forecast to pay for peaking service. 337 MR. BRETT: Right. 338 MS. DUGUAY: The total dollars, and what is going to be included in the gas supply charge or the portion that relates to commodity, that will be borne by sales-service customers only. We take essentially the volume that we anticipate to purchase times the unit rate for the western buy/sell reference price with fuel. So the remainder being the total dollars minus what we deem is the commodity-related element, which is pinned to the western buy/sell reference price, becomes the load-balancing element. 339 So the load balancing is the difference between the forecast total costs minus the deemed commodity portion. 340 MR. BRETT: And the deemed commodity portion is the western buy/sell price times -- 341 MS. DUGUAY: Times the volumes, yes. 342 MR. SMALL: So just to add, so each time we would do a QRAM and we come up with a new utility price, we would have a new forecast of the western buy/sell with fuel price, that then that would be, from that point on, where it would become the price that Ms. Duguay would use as the commodity cost. 343 MR. BRETT: Well, I guess I ask this at my peril, but I may as well ask it anyway because we'll have to look at this in the rates case. 344 Ms. Duguay, you implied many what you said yesterday that you used the western buy/sell price as the benchmark, but there could be other possible benchmarks that could be used. You had chosen to use that one. Are there other possible benchmarks that could have been used? 345 MS. DUGUAY: Well, what we use as a benchmark has been in place for a long time. I think what I alluded to yesterday was to draw a parallel, for example, between the methodology that Union Gas uses to establish the load-balancing component of the PGVA, and in their specific case, the benchmark is the summer prices, because they look at the volume times the summer/winter differential. 346 And the assumption, and you can find that in Union's evidence, is that direct-purchase customers would return their -- return or make-up, because it could go both ways, the molecule during the summer period. 347 And we don't use that assumption. We take into consideration that that could occur throughout the fiscal period. So we take an average price for the test year, rather than strictly during the summer. 348 MR. BRETT: So the average of prices being -- 349 MS. DUGUAY: Being the western -- 350 MR. BRETT: The western buy/sell being a surrogate -- 351 MS. DUGUAY: The average being the western buy/sell reference price with fuel. 352 MR. BRETT: But the average -- the actual -- you agree with me this far, that -- I am not sure how far this gets me, but that the actual western buy/sell price is very little used in reality now. I mean, it only is actually used to purchase this almost minuscule amount of buy/sell volumes that remain. It used to be, ten years ago, that buy/sell was a direct component of the direct-purchase supply. Now you would agree with me that it is almost negligible? 353 MS. DUGUAY: I would agree with you, and that is something we need to change in the future. 354 MR. BRETT: What was that again? 355 MS. DUGUAY: I said I would agree with you and that is something that we need to change, to essentially move to another methodology -- 356 MR. BRETT: To do this calculation. 357 MS. DUGUAY: -- for deeming the commodity component for the purpose of rate-making. 358 MR. BRETT: Okay, I see. And are you going to propose -- do you intend to propose a changed methodology in the upcoming rates case? 359 MS. DUGUAY: I didn't plan for that. We have got quite a few things that we need to look into. I think, certainly, in terms of the proposed changes to the existing cost-allocation methodology, that that is part of the to-do list. 360 I think more realistically, that would probably be part of our 2005 rates case, which we plan to file, probably, at least the objective is to file that prior to the end of this calendar year. 361 So I think it would more fit within that time frame, given that our primary objective in 2004 is to get back on track. 362 MR. BRETT: Right. I think the -- now, when you mentioned cost allocation, I just saw my last little question here was on cost allocation. When you referred just a moment ago to cost allocation, were you referring to that's how you allocate the peaking and the seasonal component? 363 MS. DUGUAY: Amongst other things, yes. 364 MR. BRETT: Amongst other things. All right. 365 Oh, I see. You're referring to cost allocation more broadly? 366 MS. DUGUAY: Yeah. I guess the main cost-allocation change would be the manner in which we currently allocate long-haul upstream transportation costs, and as part of that exercise, we identified several other changes, given that we have an integrated gas-supply portfolio. So -- 367 MR. BRETT: Some of those relate to this issue we're discussing? 368 MS. DUGUAY: Yes. 369 MR. BRETT: Mr. Chairman, I think those are my questions, Mr. Dominy. Thank you very much. 370 I apologize for kind of getting on. It's very difficult to judge these things. But anyway, it's mid-morning. Thank you. 371 MR. BETTS: Thank you, Mr. Brett. 372 MR. BRETT: I took Mr. Shepherd's time, I guess. 373 MR. BETTS: Mr. Moran? 374 MR. VEGH: Excuse me, sir. With the Board's leave, there was one area arising out of Mr. Brett's cross-examination. I have one question just to clarify in issue, if I may. 375 And if Mr. Farrell thinks it's inappropriate, he could let me know, but this really is just for clarification. 376 MR. FARRELL: Well, let's hear the question and go from there. 377 MR. BETTS: Thank you. 378 Go ahead, Mr. Vegh. 379 CROSS-EXAMINATION BY MR. VEGH: 380 MR. VEGH: Panel, I just wanted to take you back to the conversation you were having with Mr. Brett about the banked-gas accounts and customers who may be out of balance during the course of a year and then bring themselves back into balance during the winter period or later. 381 And I just wanted confirmation that whether or not a customer brings himself back into balance through additional deliveries, that has no impact on their exposure to the load-balancing charges that you're proposing in this application or as currently designed, really? 382 MS. DUGUAY: I would agree with that, given that the seasonal load-balancing element is -- does not include the variance associated with the commodity, given that T-service customers would return that molecule through the disposition of their banked-gas account, yes. 383 MR. VEGH: Thank you. 384 That was my only question. 385 MR. BETTS: Thank you. 386 Mr. Moran, please proceed. 387 MR. MORAN: Thank you, Mr. Chair. 388 CROSS-EXAMINATION BY MR. MORAN: 389 MR. MORAN: I would like to start with the unauthorized overrun gas-penalty issue first, if I may, and perhaps the easiest thing to do would be to turn up VECC interrogatory number 5. That's Exhibit I, tab 4, schedule 5 at page 2. 390 And on page 2 we see -- this is, as I understand it, the central delivery area point that we are looking at, the Niagara export point? 391 MS. GIRIDHAR: Mm-hm. 392 MR. MORAN: And you've set out the Niagara price. You've compared it to the penalty as it would apply, and you've got the difference between the spot price for specific dates and the penalty that would have been charged on that date. 393 All right. So as I understand it, then, if somebody fails to curtail or fails to deliver, and let's take, for example, the highest one, February 25th, '03. 394 If on February 25th somebody failed to curtail or failed to deliver, then the penalty that would be applied to the volume that they failed to curtail or failed to deliver would be the 0.37 dollars that we see in column 2; right? 395 MS. GIRIDHAR: That's right. 396 MR. MORAN: And the problem that would be created by their failure to deliver or curtail would be that Enbridge would have to make up the balance, and Enbridge would be paying at the much higher price of $1.25? 397 MS. GIRIDHAR: Yeah, we would potentially -- we could potentially have gone out and bought gas on that day at $1.25. 398 MR. MORAN: Right. So if somebody for economic reasons decided that they could use their volume and make more money somewhere else giving it to a generator of electricity or -- on a peak day rather than delivering it to Enbridge, that's the equation they're looking at, how much the spot price is and how much of a penalty they might have to pay if they failed to deliver it to Enbridge? 399 MS. GIRIDHAR: That's right. 400 MR. MORAN: All right. And in order to prevent this kind of gaming, you're proposing a penalty, and as I understand the penalty, it's based on the highest price in the month for the delivery point. So for our example, would that be $1.25? 401 MS. GIRIDHAR: That's right. It would be 150 percent of -- 402 MR. MORAN: All right. So just walk me through what you would do, then, starting with the $1.25 to come up with a penalty. 403 MS. GIRIDHAR: Well, we would -- it would be 150 times, so $1.25 times 1.5 would become the penalty that would be applied to all unauthorized overrun gas volumes for that month. 404 MR. MORAN: All right. And then -- 405 MS. GIRIDHAR: For deliveries in CDA. 406 MR. MORAN: I'm sorry? 407 MS. GIRIDHAR: If the unauthorized overrun happened in CDA, in our central delivery area. 408 MR. MORAN: Right. And we could look at what would happen if it happened to be in the eastern delivery area. For February 25th, the price was $1.34 there. 409 MS. GIRIDHAR: That's right. 410 MR. MORAN: Okay. Now, the revenues that come from the penalty, if the revenue from the penalty relates to a failure to curtail, as I understand it, that would then be posted to the PGVA? 411 MS. GIRIDHAR: That is correct. 412 MR. MORAN: But if it had to do with failure to deliver, it's not posted to the PGVA; it goes to the shareholder. Did I have that correct? 413 MS. GIRIDHAR: If it's failure to deliver by a non-interruptible customer on that day. 414 An interruptible customer could also fail to deliver. I mean, he might not be consuming and not delivering on that day. Both of those are unauthorized overrun instances, and in both of those cases, the penalty would go to the PGVA. 415 MR. MORAN: All right. Okay. So regardless of what the reason is for applying the penalty to an interruptible customer, all of the revenues from the penalty go to the PGVA? 416 MS. GIRIDHAR: That's right. 417 MR. MORAN: And if it's a non-interruptible customer, it goes to the shareholder? 418 MS. GIRIDHAR: Yes. 419 MR. MORAN: All right. Given that in both cases the problem that's being created by this is a need for the company to go out and buy spot gas, which then ends up being posted in the PGVA, why wouldn't both of those revenue streams be posted directly to PGVA? 420 MR. SMALL: I guess the idea was that in a situation where it's a non-interruptible customer that chooses not to deliver, the number of occurrences that we have had to date have been minimal, so we're talking about a small amount, and it's something that, to tell the truth, we hadn't thought of. 421 And as I was mentioning earlier, I think what we would want to do in light of the potential that would happen next year, we'd have to look at the number of occurrences and the amount, and then we'd make a decision at that time if it was an excessive amount. 422 MR. MORAN: So there hasn't been any policy analysis to justify the direction of the revenue in any particular direction -- 423 MS. GIRIDHAR: I believe it's more a historical thing in that when -- initially those amounts used to go to the shareholder. In 1996 the curtailment penalty amounts were moved into the PGVA. 424 And traditionally we have not had too many instances of the other kind, and it's, therefore, not been really on the radar screen. 425 MR. MORAN: Fair enough. 426 MS. GIRIDHAR: And my expectation, however, is that with the penalty that we will be introducing, the expectation is that it will incent appropriate behaviour and that our unauthorized for our revenues should, in fact, be zero. 427 MR. BRENNAN: But to the extent that the shareholder is exposed, because for whatever reason we're not able to fill that -- because we're not able to get the supply, and to fill our transportation we're exposed to, sort of, demand charges, then I would think that should be recovered and going back to the shareholder. 428 But to the extent that we're able to continue to fill the pipeline, then I agree with what's been said. 429 MR. MORAN: All right. So in principle, it should be posted to the PGVA, subject to your comment that you just made, Mr. Brennan; right? 430 MR. BRENNAN: Mm-hm. 431 MR. MORAN: Okay. Thank you. 432 Moving on, then, to the under-recovery of distribution revenue issue, I just want to confirm you're not actually seeking any relief from the Board on this issue in the QRAM process, as I understand it. 433 MS. DUGUAY: That's correct. 434 MR. MORAN: The answer to the issue is to be left to the main rates case? 435 MS. DUGUAY: That's correct. 436 MR. MORAN: Okay. With respect to the QRAM methodology, as I understand the proposal that you have put before the Board, the only change in methodology for the purpose of this application is a change in the timing of the allocation of load balancing. Rather than waiting until final disposition, you want to advance it because of the size of the balance? 437 MS. DUGUAY: That's right. 438 MR. MORAN: All right. And as I understand it, this is a one-time deviation, as it were, from the timing methodology? 439 MS. DUGUAY: Yes. 440 MR. MORAN: Okay. Given that you've had the experience of a large balance building up in relation to the load-balancing component, would it make sense to consider whether the QRAM methodology should have a trigger point for load balancing in future cases? 441 MS. DUGUAY: I would agree with that in principle. I would have to think about or examine what the trigger should be and so on and so forth. Certainly I don't think we would be prepared to, in this proceeding, anyway, to formalize a proposal in that respect. 442 MR. MORAN: All right. You would agree that it might make sense to look at that issue in the context of a review of the QRAM methodology at the appropriate time? 443 MS. DUGUAY: Yes, absolutely. 444 MR. MORAN: Okay. If you could turn up the very last page of your pre-filed evidence, Q.4-3, tab 4, schedule 9. 445 MS. DUGUAY: Schedule 1, I'm sorry, Mr. Moran? 446 MR. MORAN: It is schedule 9, the very last page in the binder, just before the tab "Decision, Interim Rate Order", so it is Q.4-3, tab 4, schedule 9. 447 MS. DUGUAY: We have got that. 448 MR. MORAN: All right. You have set out the unit rates for the 2003 PGVA clearance based on three scenarios, the three months, the six months and the nine-month scenarios. As I understand it, although you are proposing a six-month recovery period, you don't have any strong objections with respect to the nine-month period either. 449 MS. DUGUAY: That's correct. 450 MR. MORAN: All right. And if we go through what we see here, what's reflected is what the rider would be for each of the rate classes under each of those three scenarios; is that correct? 451 MS. DUGUAY: That is correct. 452 MR. MORAN: Okay. And if you were to look at the scenario that you are proposing, the six-month recovery period and the scenario in column three, the nine-month period, what would you see as the advantages or disadvantages of those two scenarios when compared to one another? 453 MS. DUGUAY: The six months and the nine months? 454 MR. MORAN: Yes. 455 MS. DUGUAY: Well, I guess what we have indicated in the evidence is that the company, as you know, is proposing the six months. But were the Board to be inclined to further smooth the impact on all customers by virtue of letting them more time to pay the balance in the PGVA, we would be fine with that. So that's really the only advantage from a customer perspective. 456 However, as indicated in response to an interrogatory from VECC, there is carrying costs calculated in the PGVA, so the customer has the ability or would have the ability to spread payments over time, but there is a cost attached to that too. 457 MR. MORAN: Interest would be applied? 458 MS. DUGUAY: Yes, yes. 459 MR. MORAN: For the longer period. 460 MS. DUGUAY: Yes. In my view, that would be the main difference. 461 Another thing I can think of is with regard to a QRAM application in October, given the existing provision of the QRAM, all that could happen in October is there would be a new utility price in effect, provided that the difference has exceeded the existing half-a-cent threshold, we would change our rates accordingly. 462 But there is no new rider in October, so you wouldn't have essentially two riders overlapping or one that is a result of our 2003 fiscal year and another one kicking up or being implemented for 2004. 463 So the six months would be cleaner because there wouldn't be anything in October, so all we would have is the existing rider that would apply through to the end of December and potentially in January, depending on what is happening in terms of market prices; there could be at that time a new rider coming into effect. So at that point we would have a single rider, potentially, instead of having sort of two riders. 464 MR. MORAN: Okay, thank you. If the Board approves the QRAM application, then you have some notice issues; right? You have to advise the system customers and explain to them what the rider means? 465 MS. DUGUAY: Yes. 466 MR. MORAN: And I guess for the first time you'll now have to also figure out a way to explain to direct-purchase customer what is the rider means to them. 467 MS. DUGUAY: Yes. 468 MR. MORAN: Given that the amount that would be reflected in the rate rider that would be applied to direct-purchase customers would be confined solely to load balancing, does it make sense that the notice go into a description of the fact that load balancing is part of the distribution service? 469 MS. DUGUAY: Yes. 470 MR. MORAN: As opposed to the commodity price? 471 MS. DUGUAY: Yes, and we have submitted a draft to Board Staff on Monday morning, a sample of a notice for customers on system supply, as well as a notice for customers on transportation service for residential customers and there is a description. 472 In there we are trying to describe what load balancing is and describe what are the sources of the adjustment that would appear on their bill, provided that the Board does approve our application. 473 MR. MORAN: All right. And would it make sense to emphasize the fact that load balancing is part of the distribution service as opposed to the commodity cost, which of course is a concern to those who are marketing? 474 MS. DUGUAY: Yes, we have attempted to do that. 475 MR. MORAN: Okay. Sorry, yes, one last area. Given that the rate rider is going to be potentially under your proposal, at least, spread over six months, can you explain how that would affect the timing of the true-up process for the 2003 PGVA account? 476 MS. DUGUAY: What we would do -- let's say that the final adjustment would take place in October with regard to the final disposition of the PGVA. What we would assume then is that -- well, we would look at the actual amounts that were recovered through the rate rider, but for the portion of, for example, from October 1st through to the end of December, because we don't know what the actual amount would be, we would take into consideration what we anticipated the rider to recover, and we would take that or offset the PGVA by that amount and the rider would continue, because the objective is to smooth out what we need to recover from customers. 477 So the rider would continue and we would estimate what we think the rider will recover through the final adjustment of the PGVA, and any variances would be captured in the 2004 PGVA. 478 So we would think that the final adjustment, it shouldn't be large based on the company's proposal. 479 MR. MORAN: All right, so the true-up would take place on the normal schedule? 480 MS. DUGUAY: Yes. 481 MR. MORAN: And recognizing that at the end of the rider period, there might still be a final true-up, but that would be carried into 2004? 482 MS. DUGUAY: Yes, that's correct, yes. 483 MR. MORAN: Thank you very much. 484 Those are all my questions, Mr. Chairman. 485 MR. BETTS: Thank you. 486 Mr. Farrell, just a practice of this panel has been that we like to hear your reply -- examination in reply before the Board asks any questions. Often our questions are clarified by your questions. But we would offer you the opportunity to, again, go through reply questions to clarify any of ours. 487 So if you would like to proceed, are you in a position to proceed at this point? 488 MR. FARRELL: I am. What I am -- I was looking at the clock to see what the time was relative to your normal break time, because Mr. Small has one outstanding undertaking, and I don't know whether it would be best to take a break, allow him to see whether he can provide the answer on the record, I do my re-examination and the Board can ask their questions, and then if I had anything following your questions, I would do a second re-examination. 489 So I guess what I'm suggesting is I can do my first re-examination now. We could take a break and see whether Mr. Small can answer the outstanding undertaking and come back, or we can break now and then just come back and finish the evidentiary portion in one shot. 490 MR. BETTS: And let me ask you, would you -- under the break-now scenario, would you want a break again before you provide your argument in-chief? 491 MR. FARRELL: Yes, I would. 492 MR. BETTS: Okay. And then -- 493 MR. FARRELL: I'm suggesting the break now be relatively short, because either the information is going to be available to Mr. Small when he goes back to our office and makes the phone call, or it's not. And then I wouldn't propose to hold up the process for that purpose. 494 MR. BETTS: Okay. Well, let us, then, take a 15-minute break, and by my clock that would bring us back approximately five minutes to the hour. 495 And we have, for those of you that weren't here during our last get-together, the Board would not be upset if someone brings their unfinished coffee or tea back to this room with them. 496 So if we could try to get back in approximately 15 minutes, that would be fine. 497 Thank you. We'll break now until five minutes to the hour. 498 --- Recess taken at 10:40 a.m. 499 --- On resuming at 11:00 a.m. 500 MR. BETTS: Thank you. And before we begin with the examination in reply, are there any preliminary matters to be dealt with? 501 MR. FARRELL: Can I just indicate now, Mr. Chairman, that we have received the written argument of the Vulnerable Energy Consumers Coalition, and we have copies for parties in the room that I'll distribute when we're finished the evidentiary portion so others can see what VECC has said. 502 MR. BETTS: Thank you. 503 And did you learn anything more with the undertaking of Mr. Small? 504 MR. FARRELL: Mr. Small, would you report, please. 505 MR. SMALL: What I've been able to find out is that the estimate is that it's less than $10,000 that we've accrued as revenue from October 1 to date. 506 MR. BETTS: Thank you. 507 MR. FARRELL: I think that undertaking was given to Mr. DeRose. I'm just wondering whether he is satisfied with the best estimate to date or whether he at some point would like something more final than that. 508 Mr. Small was responding to, I think, an undertaking given to you about the dollars that accrued to the benefit of shareholders from authorized overrun gas, and Mr. Small just reported that he doesn't have anything better than a best estimate, and a best estimate now is less than $10,000. 509 MR. DeROSE: : Thank you, Mr. Small. That's fine. 510 MR. BETTS: Thank you, Mr. DeRose. 511 Then, Mr. Farrell, with respect to the written arguments received from Mr. Janigan, the Board has in the past, at least in the practice of this particular panel, had that added to the transcript, just transcribed from the written form to the transcript just to aid us and have all of the information in one location. 512 Is there any objection, not only from yourself but any other party in doing that? 513 MR. FARRELL: I have no objection, Mr. Chairman. My only point being, of mentioning that I had copies, if others wanted to read what VECC said in preparing their own remarks, we're quite prepared to give them copies of VECC's argument. But in the transcript is fine by us. 514 MR. BETTS: That would be very helpful, and we will do that. 515 For the court reporter's purposes, we will insert that when we begin the arguments from the intervenors. 516 Mr. Farrell, please proceed. 517 MR. FARRELL: Thank you. 518 RE-EXAMINATION BY MR. FARRELL: 519 MR. FARRELL: Ms. Duguay, do you have a copy of yesterday's transcript? 520 MS. DUGUAY: Yes, I do. 521 MR. FARRELL: Could you turn to paragraph 778. 522 MS. DUGUAY: I have that. 523 MR. FARRELL: That is Mr. DeRose's question to you, and he is referring you to page 7 of IGUA's supplementary interrogatories; do you see that? 524 MS. DUGUAY: Yes, I do. 525 MR. FARRELL: Okay. Now, do you have a copy of IGUA's supplementary interrogatories? 526 MS. DUGUAY: Yes. 527 MR. FARRELL: So he was asking you about (a) at the top of page 7; do you see that? 528 MS. DUGUAY: Yes. 529 MR. FARRELL: And in answering his questions, did you take into account the lengthy -- I don't know how to describe it -- preamble on page 6? 530 MS. DUGUAY: I would have to read the lengthy preamble on page 6. 531 MR. FARRELL: Well, I would just ask you -- well, go ahead and read it, because I think it's an important point. 532 MS. DUGUAY: Yes, I have read it. 533 MR. FARRELL: And let me repeat my question: In giving your answer to Mr. DeRose's question at 778, your answer starts at 779. 534 MS. DUGUAY: Yes. 535 MR. FARRELL: Did your answer, or when you were answering at the time, did you take into account the assertions made by IGUA on page 6? 536 MS. DUGUAY: I certainly did not touch upon in that specific response with regard to amounts, for example, pertaining to affiliate transactions. I think Mr. Brennan answered some previous questions in this specific area, the same as with anything that would have to do with regard to transactional services. That did not form part of my question. 537 Really, I was focused around the disposition of the seasonal load-balancing portion of the PGVA in light of the existing provision for the QRAM and the final true-up methodology. 538 I believe with regard to the responsibility for interruptible customers, I touched upon that yesterday in terms of the derivation of the allocation factors for the variance associated with peaking supply as well as discretionary supplies, so I think my answer or those broader issues were touched upon in other cross-examination. 539 MR. FARRELL: Thank you. 540 MS. DUGUAY: This was not a full answer, no. 541 MR. FARRELL: Thank you. 542 Now, if you could just turn the page of the transcript where we just were, and I just want to make sure that the record is clear to what you meant by the phrase in paragraph 789, "all other things being equal." 543 You had at an answer at paragraph 787 talked about that the company wouldn't be prejudiced to the extent that -- I'm quoting now: 544 "The company would not be prejudiced to the extent that we would be able to recover the variances at a later point in time." 545 And I take it in response to the next question, when you referred to "all other things being equal," you were including in that, one, that the company would fully recover the variance at some time? 546 MS. DUGUAY: That is what I meant, that's correct. 547 MR. FARRELL: And was another thing that the methodology you are now proposing to clear the PGVA would be used at that other time? 548 MS. DUGUAY: Well, I guess what I meant by that is if there were a change in methodology to the extent that the company is in a position to fully recover the balance in the PGVA, that is essentially what I meant. 549 MR. FARRELL: All right, thank you. And then today, in response to a question by Mr. Brett, he asked you whether -- my note says allocation could be raised in the next rates case. And I take it that was the method of allocating the balance in the PGVA. 550 MS. DUGUAY: Yes. 551 MR. FARRELL: And you agreed that it could be raised. Do you think that the method should be changed? 552 MS. DUGUAY: I don't believe that it should be changed. I think I did mention that I believe that the methodology that is currently in place is a reasonable methodology. However, were the Board to rule otherwise, it would be possible through the final disposition of our 2003 deferral and variance accounts. 553 MR. FARRELL: Thank you, Ms. Duguay. 554 Those are my questions, Mr. Chair. 555 MR. BETTS: Thank you, Mr. Farrell. 556 The Board does have a few questions. 557 QUESTIONS FROM THE BOARD: 558 MR. DOMINY: I have a few questions that relate to understanding. 559 As I understand it, load balancing occurs if the supply provided -- I am thinking of a direct-purchase customer. If the supply provided to the direct purchaser doesn't match with the consumption of the direct purchaser and although a provision is made by his storage arrangements, et cetera, to provide it, that the weather is extremely cold and the take is higher than they could have planned for. So that's the load balancing you are looking at, the additional charge for load balancing. There is something already included in the rate to reflect those sort of circumstances, those day-to-day load balancing? 560 MS. DUGUAY: That's right. 561 MS. GIRIDHAR: That's correct. 562 MR. DOMINY: What happens to a direct purchaser who is, say, an industrial customer and by happenstance most of his load is related to operation as opposed to heating, and his consumption is constant throughout the year and his delivery is constant throughout the year. Would that customer be charged a load-balancing penalty in this circumstance? 563 MS. DUGUAY: That would be factored in at the rate-class level when we derive the allocation factor. 564 So for example, for a process-oriented customer such as a rate 115 customer where the minimum load-factor requirement is in excess of 80 per cent, that would be taken into consideration when we derive the seasonal space-allocation factor, and the rate class responsibility, in my example for rate 115, would be minimal. So therefore, their share of that price variance would be very small. 565 MR. DOMINY: Thank you. Then you were discussing in one of the interrogatories how you calculated the number, and you had in it, I have it here, I think it is tab I -- Exhibit I, tab 3, schedule 9, page 2. And you calculate here the different unit cost using the western buy/sell with fuel prices as a reference. 566 But you have a column called "Volume Purchased", and the number there is about 1 billion 103m3, and in discussing that, Mr. Brett referred to the information in exhibit -- well, I have got the original exhibit from the 0133 case, but it is also attached using June 2004 in one of your evidence filings. But it includes in there, it is the "Gas Cost to Operations Summary", and it shows the volumes that are used as the basis of all the calculations. 567 And you were referring to the Ontario-delivered as the balancing or extra gas you buy in order to do this unexpected load balancing, and the number there was about 4 million. It is 4,000 103m3, as opposed to a million 103m3. So there is a difference of about 996,000 103m3. 568 Is that the measure of the additional gas you had to purchase for load balancing? 569 MR. SMALL: That's correct. 570 MR. DOMINY: And how is that calculated, how is that arrived at? 571 MR. SMALL: We would have looked at the amounts we had to buy above and beyond those supplies that would have been coming in from our various pipeline contracts, so the additional volumes we had to buy on a monthly basis. 572 MR. DOMINY: And the same thing applies to the peaking supplies, there is a number in the gas-cost summary of 87,000 103m3; in this case, it is 91,509. Is that 91,509 103m3, more or is that -- 573 MR. SMALL: No, we would have purchased 91,000 103m3, of peaking service. 574 MR. DOMINY: Additional to what you had already planned for? 575 MR. SMALL: No, that would be the exact amount that we bought. 576 MR. DOMINY: To go back to the first one, then, that is the exact amount of load balancing gas that you bought? 577 MR. SMALL: Yes. 578 MR. DOMINY: And not just the extra one? 579 MR. SMALL: It is the exact amount that we would have purchased. 580 MR. DOMINY: I just wanted to understand where these numbers come from. 581 MR. SMALL: Fair enough. 582 MR. DOMINY: Mr. Vegh yesterday made reference to, I think it was $30 million of costs or a credit that he said at the time of clearing the -- in using the QRAM methodology, it was passed all on to system customers as an anticipated surplus, and wasn't cleared at the time of the PGVA clearance during the QRAM to the direct-purchase customers. 583 And then I am assuming that when the PGVA accounts were trued-up, was that then distributed so that the direct-purchase customers got their share of that credit, if that was the case? 584 MS. DUGUAY: That is correct, yes. 585 MR. DOMINY: I think the reference is in transcript paragraph 808 is where the reference to this question was. Whether it was a question or a comment, I am not sure, but it was certainly raised. 586 There is an answer to an interrogatory which is Exhibit I, tab 4, schedule 7, page 2, and this is the impact on the bill for three months or six months of the rate rider. 587 MS. DUGUAY: Yes. 588 MR. DOMINY: Exhibit I, Tab 4, schedule 7, page 2. And I was interested in the comment that basically the additional interest charge is about $12, if you go six months as opposed to three months; is that correct? 589 I took the difference between the top set of figures and the bottom set of figures. 590 MS. DUGUAY: The interest was not taken into consideration in the three-months versus six-months scenario. We used in both cases the principle of $172 million being captured in the PGVA. 591 What is creating that $12 difference is essentially the monthly distribution of that typical residential profile in relation to the rate class average. 592 MR. DOMINY: Sorry. Perhaps you could explain. Does this mean that by using a six-month profile as opposed to a three-month profile, a higher proportion of the charges are allocated to that class, then? 593 MS. DUGUAY: At the rate-class level, intuitively you would think that it doesn't make any difference whether it's three months or six months, because we've taken the same amount and spread it over three months versus six months. 594 But whenever we present information for a typical residential customer, there's a certain annual volume that we assume, which is 3,064 cubic metres per year, and there is also a monthly distribution of that volume, which is meant to be representative of the medium of the class. But if you compare that to the distribution of the rate class as a whole, there is a mismatch, which causes those differences to occur. 595 I wish I could make it more simple, but -- 596 MR. DOMINY: No, I think I understand, but -- 597 MS. DUGUAY: Okay. Good. 598 MR. DOMINY: -- basically those $12 would ultimately get back to the customer, because they've paid more, because his consumption was higher or her consumption was higher in December? 599 MS. DUGUAY: Yeah. 600 MR. DOMINY: But it'll work its way back, because they paid $12 more then. But somehow you do a true-up, which would net it back to him? 601 MS. DUGUAY: Yeah. Yeah. Because when we will do the true-up, we will use essentially an annualized consumption. So the disparities, given that you're taking just a partial year, will disappear through the final disposition. 602 MR. DOMINY: And just an observation, I note that the amount the person pays extra on his bill is about $20 for each of the low-consumption months in the three months, and becomes reflected almost as another $20 each of the high-consumption months. 603 MS. DUGUAY: Yeah. 604 MR. DOMINY: If you go to the six months. 605 So spreading, in the context of this customer, I'm not sure what the advantage to that customer might be. If he's got a large gas bill, which is 10 percent higher in December, and a -- 606 MS. DUGUAY: Yeah. Well, that would be the only month that the amounts that would be payable would be superior to the three-month Rider C scenario. The customer would get a break for the month of -- well, a break, I mean a lower billed amount for the month of July through to November. 607 MR. DOMINY: And I'm assuming that Rider C is the combination of the existing rider plus the addition to it. So there's one -- just one Rider C? 608 I mean, there is an existing rider, which terminates, was it, in September, and what you've done here is you've added -- you've increased that rider, so there's only one Rider C? 609 MS. DUGUAY: We've superceded the rider to the one that was implemented April 1st, so it's a new rider. 610 MR. DOMINY: I understand. There's only one rider. 611 MS. DUGUAY: That's right. 612 MR. DOMINY: It's just recalculated? 613 MS. DUGUAY: Yeah. That's right. 614 MR. DOMINY: Two rather small questions: You are using the Western buy/sell as the base on which you calculate these things, calculate the load-balancing costs. 615 MS. DUGUAY: Yeah. 616 MR. DOMINY: Would you anticipate there would be any significant difference if there was a different base? I mean, is Western buy/sell still a reasonable proxy of what a price would be for that calculation? 617 MS. DUGUAY: So anyway -- I'm sorry, Mr. Dominy. I was just discussing the matter with Mr. Small, and we think that the existing methodology, that is the use of the Western buy/sell price with fuel, would be consistent with were the company to use an index, forecast index price at Empress inclusive of fuel. 618 I think the issue that we have with the existing methodology is that, as you know, we are no longer entering into buy/sell arrangements and have not for a certain period of time. The only buy/sell arrangement that we still have are for customers of Gazifere, which takes service pursuant to our Rate 200. 619 So having said that, in terms of the calculation we could continue to carry it out, but it's -- I think it's antiquated, and we need to move on to a concept that is more contemporary. However, having said that, we do not believe that there would be a large discrepancy for the purpose of deeming the commodity portion of our rates. 620 And there's a mirror image as well from the rate-making purposes where there are some assumptions that are being used, and whenever we clear our deferral and variances account, we use the same assumption on the ground that would we have known that at the outset, that the variance would have been generated throughout the fiscal year, that the way that the allocation would find itself and the way that the company recovers its costs would be the same through the rate-making process and the true-up to reflect actual costs through the disposition of our variance account. 621 So it needs to be in sync. 622 MR. DOMINY: Thank you. 623 And the last one, I'm having trouble with make-up volumes and load balancing and all these issues. 624 My understanding of make-up volume is that a direct purchaser entered in a contract to provide you a certain amount of gas at an even rate over the course of the year. And assuming that he supplies it or she supplies it or the firm -- company supplies it consistently, then make-up volumes would occur if he had consumed more, or make-up surpluses would occur if he had consumed less than he had contracted for? 625 MS. DUGUAY: Yeah. 626 MR. DOMINY: And that's over the period of the year? 627 MS. DUGUAY: Yeah. 628 MR. DOMINY: And there's a contract which requires the person to even his account, and if that firm doesn't even its account, i.e., either by getting rid of the surplus or filling the void, a charge is applied to that? 629 MS. GIRIDHAR: Mm-hm. 630 MR. DOMINY: What is that charge? 631 MS. DUGUAY: That would be contained in the rate handbook in the terms and conditions relating to direct purchase. 632 And if I could ask you to turn to section F, that has to deal with the disposition of banked-gas account balances. If you -- 633 MR. DOMINY: Could you give me a moment; I'm trying to find it. Is there a handbook page number on it? 634 MS. DUGUAY: Yes. It would be at the beginning of the handbook, and it's labelled page 8 of 9. 635 MR. DOMINY: Okay. I have it. Yes. 636 MS. DUGUAY: So the price, for example, in the case of a debit balance, "debit" meaning that consumption was in excess of deliveries, is contained in part A, subpart 1. 637 And conversely, if we are dealing with a credit balance, the pricing mechanism is contained in section B, sub part 2. 638 To your point, like in terms of the difference between make-up, let's say -- let's assume that debit balance, for example, that is, where consumption exceeded deliveries, the only obligation based on the terms and conditions of service is that make-up needs to occur at the end of the anniversary of the contract, and the customer is provided 180 days to do so provided that they are within the preset tolerance, being 20 times the MDV. 639 From a load-balancing perspective, the company needs, on every single day, to ensure that the difference between the consumption and the volumes of gas delivered or the gap, if you will, is met. So that happens every single day; whereas the disposition at the banked-gas account, the only obligation is that that will occur at the end of the year. So that's essentially the difference between those two. 640 And I think yesterday, in terms of the disposition of the seasonal variance in the PGVA, I tried to explain that with regard to the commodity portion, that this is allocated to system-supply customers only because T-service customers, at the end of the contract year, have an obligation to return the molecule if they were, in my specific example, in a debit situation. 641 So we don't want to capture that. We want to capture the premium over and above the commodity if, for example, the company had to purchase peaking service to fill that gap - which is more expensive, presumably, that's the most costly source of supply. And, presumably, transportation-service customers would not buy peaking service; they have got 180 days to make up to return their molecule to the company. 642 MR. DOMINY: Thank you. 643 MS. GIRIDHAR: If I might just use an example, I don't know if that would help. The distinction between make-up and load balancing is if you anticipate that you will consume 365 units over a year, your mean daily volume would be 1 unit of gas per day. Let's say that you have actually consumed 400 units over the year. Then the 1 unit that you have provided every single day results in a make-up situation at the end of the year. 644 However, make-up is different from load balancing because what load balancing does is, if on a particular day you consume 2 or 3 units, we have provided you that entire difference between 1 unit and the 2 or 3 units. Make-up and load balancing would only ever be the same if we were having a model where customers had to provide the exact amount of gas that they had to consume on any particular day, which is a daily load-balancing model, which is not what we have. We have the annual load-balancing model where we load balance on behalf of the customer. So today they are two different beasts and -- 645 MR. DOMINY: I understand the timing, but in the context of the 400 units that the person actually consumed, has he an obligation of 35 to make up, then? 646 MS. GIRIDHAR: Yes, at the end -- he is given 180 days to make that up. 647 MR. DOMINY: And what you are charging to the load balancing is the premium above that price for the 35 which occurred during the load-balancing period? 648 MS. DUGUAY: The premium of what we deem the commodity price to be, which, based on the existing methodology, the reference price for the commodity is the western buy/sell, inclusive of fuel. 649 MR. DOMINY: But that would be equivalent, as far as make-up was concerned, your assumption would be that they would -- if they could better the western price that was theirs, but that's what they would doing it at. 650 MS. DUGUAY: But that will be dependent on the specific arrangement that either the gas marketers or the customers will have to return the gas. So we can only make an assumption, and we believe that we are making a reasonable assumption. 651 MR. DOMINY: Thank you. 652 And there was one final question and it is just related to the answer to the interrogatory you received from Union Gas, which was with regard to whether or not, in QRAM, they had changed or they had approved the unauthorized penalty, and the question that I would ask you is: Does this say they set the unauthorized gas or do they change the basis on which the unauthorized gas has been established -- the penalty established in the course of the QRAM? 653 There are two questions there. The one is: Do they set a number in the QRAM according to a methodology that exists; and then that would be what could be the answer here. Or do they change the methodology by which the penalty is set within a QRAM; and do you know the answer to that? 654 MS. DUGUAY: I don't know the answer. I think what that answers is -- or confirms is the fact that they changed the rate applicable to unauthorized overrun gas through the QRAM, which we currently do, but with regard to the inception of the methodology, that response does not address that. And I can only speculate. I don't know the answer to the question; I'm sorry. 655 MR. DOMINY: Fair enough. I was just reading it this way, and that's why I wanted to make sure I had read it correctly. 656 MS. DUGUAY: You are right. 657 MR. BRENNAN: It could be that, though, if they made a change to the methodology, that that could have occurred prior to the QRAM process even being in place. We don't really know. 658 MR. DOMINY: Fair enough. I just wanted to clarify the question, because I thought the intent from the questioning was the change of methodology as opposed to the setting of a number. 659 Thank you, those are my questions. Thank you very much for the answers. 660 MR. BETTS: Thank you. Basically, I have one question, just a follow-up to some previously asked by Mr. Moran. 661 It related to review of the analysis of customer impact on the three-month, six-month and nine-month scenarios, and I don't think you need to turn it up, but it struck me that there was a significant difference in the monthly charges. 662 If we focus and the six- and nine-month scenarios. In act, perhaps we should go to that section. I think Mr. Moran said it was the very last page of the application, which is Exhibit Q.4-3, tab 4, schedule 9, page 1. 663 And in that particular exhibit, if we look at, for example, rate 1 system sales, there is a difference in the six-month scenario to the nine-month scenario of a 6.8-cent-per-cubic-metre number for the six-month and a 2.7-cent-per-cubic-metre rate for the nine-month. 664 MS. DUGUAY: Yes. 665 MR. BETTS: Similarly, although not quite so significant, if one looks at the Ontario T-Service as an example, there again is a significant difference in those rates. 666 I am now looking for perhaps your assessment or whoever on the panel could help me with this as to how the customer would react to those two different scenarios. As you prepare your notice, what would you assume your switchboard would hear from customers? I assume in both cases, you are going to hear from your customers. I am really looking for your, let's call it intimate knowledge of your customers and help the Board understand if there is a significance from your customers' perspective in these two scenarios. 667 MS. DUGUAY: I wish I could see the dollar amounts for the winter months using the nine-month scenario. I haven't looked at that in terms of what it means. We saw from an interrogatory response to VECC that under the, for example, three-month scenario, it was a charge varying between 20 and $25; whereas, the six-month started off with $5, $8, and rose to essentially $30 in December. 668 Unfortunately, with the smaller unit rate under the January scenario, and maybe I could just calculate it, I don't know what it means for consumption in January and February. 669 So maybe I can look at that now if you can give me a minute. 670 MR. BETTS: If you can do that, that would be very helpful, and the Board would take it as an approximate number. 671 MS. DUGUAY: Yeah. 672 So I'm using consumption in January underpinning the profile, the typical residential profile, which is the highest month in terms of consumption, and to which I applied the 2.7 cents per cubic metre, and that's about $15. So that would be the largest amount that the customer would see under the nine-month scenario. So I think it gives you some kind of a range. 673 With regard to those adjustments, in terms of customers' response, I think the only empirical studies or factual information that I could provide you would be in relationship to our trigger methodology prior to us using a QRAM approach to determine whether we would change our rates to reflect more current market conditions. 674 And at that time, the trigger used to be $35, a one-time adjustment of 35, and that was based on qualitative market research with residential customers. 675 So we know that essentially within $20 to $35 is kind of the maximum charge that a customer would like to see as a one-time adjustment. I understand that this is not a one-time adjustment, but if they need to pay these additional costs on a monthly basis, I wouldn't like to see it over $30, for sure. 676 MR. BETTS: Thank you. That was a very helpful answer, considering I just dropped it on you, so thank you. 677 One other one that might be a little unfair to ask, but I'll ask it anyway, and certainly you have made it clear that the decision to ask the Board to consider the clearance of the load-balancing balance at this time came as a result of the magnitude of the balance in the account. 678 And again, this is a follow-up to Mr. Moran's question as to what effect -- depending on the Board's position on your application, whether there should be something in the longer term that should address these similar situations. 679 If the Board were to accept your application, then, in a sense it establishes a form of precedent that indicates that the Board is willing to consider those things, and perhaps that will drive some change in the QRAM description so that it would include that more formally. 680 It's something that would, perhaps, help all the participants in considering such a move in the future, would be to have an idea what drove you to bring this to the Board at this time. Certainly, the number I think we're talking about is $150 million. If it had have been $100 million, would you have been compelled to bring this point to the Board? 681 MS. DUGUAY: Yes. And if my memory serves me correctly, when we first brought this issue to the attention of the Board and the intervenors in presenting the settlement proposal of our 2003 rates case, the load-balancing variance was strictly an estimate at that time that Mr. Small provided, and we were talking at that time about $100 million. 682 So I think considering that quantum and the issue of having a certain class of customer pay now only to be refunded later, that this would, in my opinion, be a large amount -- or, sorry, would be a sufficient amount that would support the treatment that is contained in the present application. 683 MR. BETTS: And can you see, following that question, any threshold that comes to mind at this point? And I appreciate that you responded to Mr. Moran saying you would like to review that further, and I appreciate that. 684 MS. DUGUAY: Yeah, I would like to have the opportunity, if I could, to have a closer look at the numbers, what does that amount to for a typical residential customer and so on in order to turn my mind around what I would think would be a reasonable threshold. 685 I don't really have the information in my head at the present time. 686 MR. BETTS: That's fine. Thank you. 687 Anything further? 688 Mr. Farrell, that concludes the Board's questions. Do you have any questions in redirect? 689 MR. FARRELL: No, I don't. Thank you, Mr. Chair. 690 PROCEDURAL MATTERS: 691 MR. BETTS: Thank you. 692 That will bring us, then, to the oral argument phase, and perhaps I could just get some information from those of you who are present that will help me sort out what schedule we will follow. 693 First of all, Mr. Farrell, you indicated you would like a bit of a break at this time to get your thoughts together? 694 MR. FARRELL: Yes, please, Mr. Chair. 695 MR. BETTS: Any assessment on how long you might want? 696 MR. FARRELL: Thirty minutes, please. 697 MR. BETTS: And then can I ask you to crystal-ball and suggest how much time you might need for oral argument. 698 MR. FARRELL: About half that time, 15 to 20 minutes, hopefully on the lower side of the range. 699 MR. BETTS: So conceivably if we took the break and waited for your arguments in chief, we could be ready roughly about half past 12 for a subsequent break? You would be completed by half past 12? 700 MR. FARRELL: Yes, I would. 12:30, 25 to one. 701 MR. BETTS: Give or take. That's fine. I'm just looking for approximations. 702 That would allow us, then, to break for lunch and allow the intervenors the opportunity to assess their arguments and come back after lunch with those. 703 Can I have an indication from intervenors roughly how long they might anticipate -- I'm not going to hold you to this, because you haven't heard the arguments in chief, but just a ballpark on -- are we talking 15 minutes, a half an hour, or an hour? 704 Mr. Warren? 705 MR. WARREN: Mr. Chairman, two things: About 15 minutes maximum. 706 My difficulty, Mr. Chairman, is that I have to be out of here before one o'clock or else my life is simply not worth living. 707 MR. BETTS: That's pretty significant. 708 MR. FARRELL: The master of understatement strikes again. 709 MR. WARREN: I can appreciate that that's diminished according to the realm, sir, but it's nonetheless important to me. 710 And I'm wondering, Mr. Chairman, if I might be permitted to jump the queue and deliver my argument before Mr. Farrell breaks. It gives him an opportunity to consider whatever meager, thin gruel is in my argument in terms of responding to it, but it would really assist me personally, sir, if I could do that. 711 MR. BETTS: Let me understand, then. You would like to deliver your argument before the argument in chief? 712 MR. WARREN: I'd like to deliver it now, sir. 713 MR. BETTS: Okay. That's clear. And how long do you anticipate? 714 MR. WARREN: Fifteen minutes, maximum. 715 MR. BETTS: Fifteen minutes. 716 Mr. Farrell, what is your position on that? 717 MR. FARRELL: I am quite prepared to have Mr. Warren go now. 718 MR. BETTS: Okay. Okay, well, that one I think the Board is prepared to deal with it in that fashion. 719 MR. WARREN: Thank you, sir, I appreciate that. 720 MR. BETTS: Then I think we could still probably complete Mr. Farrell's argument in-chief prior to our break. 721 With that now as the looming scenario, can I hear from the other parties as to how long they might take in their arguments? 722 MR. DeROSE: I would suspect, Mr. Chair, 20 minutes to 30 minutes, and if I can just raise one procedural issue. You may have noticed Mr. Thompson at the back of the room this morning. 723 MR. BETTS: I did. 724 MR. DeROSE: We would request the Board's permission to have a division of oral argument. Mr. Thompson would like to deliver some of the more technical aspects and I'll deliver the remainder. I have checked with Mr. Farrell and almost all of the other intervenors in the room, and I think that there is a unanimous consensus that everyone is fine with that, as long as the Board is. 725 So, I mean, I didn't ask Mr. Warren, but he is about to deliver his anyway, and he'll be gone. 726 MR. BETTS: Very good point. 727 MR. DeROSE: So with the Board's permission, that's what we would like to do, and I would still expect 20 minutes to half an hour. 728 MR. BETTS: And is that 20 minutes to half an hour in total for the -- 729 MR. DeROSE: I would suspect so, although we will be having lunch together in between, and there is always some inflation there, but that is our estimate at the moment. 730 MR. BETTS: Thank you. 731 And perhaps Mr. Brett? 732 MR. BRETT: Yes, sir, no longer than 15 minutes on my part. 733 MR. BETTS: Okay. Mr. Vegh? 734 MR. VEGH: Probably 15 minutes to half an hour, no longer than half an hour. 735 MR. BETTS: Okay, and Mr. Shepherd? 736 MR. SHEPHERD: 10 to 15 minutes. 737 MR. BETTS: Okay. 738 After that, we would take again a break, and allow the applicant an opportunity to provide their arguments in reply. 739 It would appear that that will take us close to the end of the day and we will see how we stand at the end of the day. My feeling is that the Board will probably break at the end of the day, reconvene tomorrow morning, I would expect about 9 o'clock, to hopefully deliver our oral decision at that time. 740 So with that schedule, at least loosely established -- and Mr. Dominy is suggesting 10:00 a.m. for a start tomorrow morning would be an appropriate time, but we will confirm that by the end of the day. 741 With that tentative schedule established, then, let us take a short break to allow the applicant some time to organize their arguments in-chief. We will come back -- oh, sorry, Mr. Warren, we will take your arguments and then we will go back to the schedule. 742 So Mr. Warren, please proceed. 743 MR. WARREN: Thank you, sir, and thank you very much for accommodating me. 744 MR. BETTS: May I interrupt for just one moment, and remind the court reporters that we will inject Mr. Janigan's arguments prior to Mr. Warren's. Thank you. Sorry for the interruption. Please proceed. 745 MR. FARRELL: Just before Mr. Warren starts, Mr. Chair, may we release the witness panel? 746 MR. BETTS: Yes, please, and thank you so much for your assistance. I know everything was brought together very quickly, and you responded to kind of unadvertised questions very well, so thank you for your help. 747 Sorry, Mr. Warren. 748 MR. WARREN: Thank you, Mr. Chairman. 749 SUBMISSIONS BY MR. JANIGAN: 750 [Court Reporter's Note: The written submissions of Mr. Janigan, on behalf of VECC, have been inserted at the Board Panel's request. Mr. Janigan was not in attendance.] 751 EGD proposes the following in the RP-2002-0133/EB-2003-0126 QRAM application: 752 1) The existing utility price of $312.877/103m3. 753 2) PGVA year-end balance for the PGVA has two components both debit amounts: a) $150.1 million for load balancing attributed to direct purchase and sales service customers; b) $22.0 million is commodity related attributed to sales service customers. 754 EGD will segregate the two components of the PGVA for clearing purposes. The rate rider accordingly applies to direct purchase as well as sales service customers. 755 3) The forecast year-end balance in the PGVA will be cleared over 6 months as opposed to 3 months. 756 4) The penalty applicable to unauthorized overrun gas ("UOG") under its large volume rate schedules, other than Rate 125, will be redesigned. The existing rate no longer serves its purpose of discouraging customers from taking UOG gas. There will be a market-based UOG rate for each delivery area of TCPL in which the customer's terminal location for distribution service is situated. Each UOG rate would vary monthly, according to the market price for each delivery area, and would be equal to 150% of the applicable market price. 757 5) Board approval to record the under-recovery of distribution revenues in relation to gas costs for May and June 2003, in its Deferred Rebate Account, DRA, for its Test Year 2003. EGD proposes to record the under-recovery for the five-month period May through September 2003 in the DRA. EGD requests the Board to approve this proposal for consideration in the context of the RP-2002-0133. 758 VECC has reviewed EGD proposals and submit the following comments to the Board pertain to the EB-2003-0126 QRAM Application: 759 1) With respect to the EGD proposal to keep the utility price unchanged, VECC supports this proposal as it consistent to the QRAM guidelines. 760 2) VECC notes the comments of the panel to the effect that this QRAM process is not a prudency review of the costs in the PGVA deferral account, as that issue is one for the 2004 Rates proceeding at which time a final disposition of those costs will be sought by the Company. Furthermore, this QRAM should not address changes to the existing allocation of the load balancing costs. This proceeding differs from the application by Union to change its allocation methodology associated with costs in the PGVA in the EB-2003-0056 QRAM Application which was denied by the Board. 761 The EGD proposal in this QRAM, in fact, does not seek approval for any changes in the Board approved methodology pertaining to the load balancing derivation of the quantity or the allocation. As a result, the forecast year-end balance in the PGVA related to the load balancing is an outcome arising from the existing Board approved methodology. In effect, the EGD proposal is to commence collection of this load balancing PGVA cost to from all customers correctly in the first instance, as opposed to over-charging the system sales customer first, then giving a credit to these customers later when the 2003 PGVA is finally disposed of. 762 In light of the above, VECC supports the EGD proposal to establish a rate rider that will also apply to direct purchase customers associated with clearing the PGVA load balancing charges. VECC recognizes this proposal is not consistent with the standard QRAM operational guidelines, however the magnitude of the load balancing costs incurred over the 2003 winter months is also not consistent with anticipated and historical levels (VECC IR Response No. 2 - Ex. I, Tab 4, Sch. 2, page 1). Given these abnormally high expenditures, VECC is of the view that the QRAM process should be adjusted to change the mechanics of its application but not the principles. The adjustment being sought will be made to the QRAM process for this particular year-end clearance, effectively bringing the prospective recovery process in line with the expected final outcome of charging all customers for this load balancing cost. 763 Furthermore, in carrying out the recovery in the manner proposed by EGD, there will be an accurate pricing signal being relayed into the market, correctly reflecting customer costs. By maintaining the standard methodology an incorrect price signal will be developed by over charging system sales customers for the cost associated with the direct purchase customers. 764 VECC notes that the QRAM process is intended to achieve or accommodate the following principles of (as outlined in the QRAM agreement filed in Ex Q4-1, Tab 2, Schedule 1, Appendix A, page 1): Reflect market prices on an ongoing basis; conduct regular quarterly review processes; enhance customer awareness, customer acceptance and price transparency, minimize confusion in the marketplace, mitigate large adjustments of customer bills, fairness and equity among all customer groups, implementation in a cost effective manner, and reduction of regulatory burden relative to the former "trigger methodology", and the related rate adjustment mechanism, for EGD's PGVA. VECC is of the view that the EGD proposal for dealing with this load balancing cost is one that accords with the principles associated with the intent of the QRAM process, which parties all agreed to. 765 3) With regard to the issue of clearing the PGVA in 6 months as opposed to 3 months, VECC does not support the Company's proposal. VECC is of the view a 3-month clearing of the PGVA balance is more appropriate as it minimizes the interest being charged to EGD customers by approximately $1.3 million (Ex I, Tab 4, Sc. 7, page 3). 766 Furthermore, during a 3-month clearance, 45% of residential customers, who are not on equal billing, will receive an average month charge of about $22 per month during a period in which their bills are at its lowest point. From a total bill impact perspective, the three-month recovery process makes more sense. If the 6-month rider is used, the customer will be paying off these 2003 PGVA costs in the month of December with the dollar impact being about $30.85 being levied on the customer when their bill is at its highest level of about $203.02 (exclusive of Rider C). (See Ex I, Tab 4, Sc. 7, page 3). Bearing in mind the customer ability to manage the recovery of this large PGVA clearance, the 3-month rate rider from total bill perspective is more reasonable. VECC believes that the overall size of the customer bill is a potential trigger for customer payment failure and potential loss of service. 767 For customers on an equal billing process, the 3-month rider should not be an undue burden as the true-up will mean that the July payment of $20.81 will be included in that final true-up process. For the month of August, the customer on equal billing will pay the same as a customer who is not on equal billing - a payment of about $59. In September the EBP starts again with the Rider C taken into account, with a 3-month rider process in place there will only have about $24 remaining in which to smooth out over the entire equal billing process. If a 6-month rider were elected, there would still be approximately $67 remaining to collect over the next equal billing period. 768 VECC recognizes that the Rider C unit rate is large given the low volumes available for PGVA balance recovery, as noted in VECC IR Response No. 6. However, to avoid customer confusion, the EGD customer notice to residential customers should explain that this unit rate is equal to approximately a $22 per month, and that this charge will be applicable for the months of July, August and September when the customer's bills are at their lowest point. 769 4) In this QRAM application, EGD is proposing a change to the Unauthorized Overrun Gas ("UOG") penalty to 150% of the highest price during the month a UOG volume is incurred. In the EGD evidence, the company notes that interruptible customers fail to curtail and direct purchase customers fail to deliver at times since it could be more economical to continue to consume unauthorized volumes at the unauthorized charges of 150% of Rate 320. In effect the customers are taking advantage of the spread between the current UOG charge and the market price. Given this obvious ability of customers to game the system at the cost of all other ratepayers, VECC supports EGD in its proposed change to the UOG charge. According to VECC IR Response No. 5 (Ex I, Tab 4, Sch. 5, page 2-3), there were numerous occasions in which the existing penalty was below the spot price of gas. Furthermore, in the Schools IR Response No. 2 (Ex I, Tab 5, Sch. 2, d), the Company notes that there were 216 instances of failure to deliver over the period of January and February 2003. 770 In addition, this change to the UOG charge is consistent to the Union Gas Failure to Deliver Penalty charge which is linked to the highest market price in a month of the failure to deliver, as approved by the Board in the RP-2001-0029 Decision with Reasons. It is also important to note that in the Union Decision (RP-2001-0029) the Board states that penalty charges should be sufficiently costly to discourage strategic non-compliance to obligations. 771 "In the Board's view, the penalty must be sufficiently costly to defaulters to strongly discourage strategic non-compliance with balance obligations, and the careless or incompetent acceptance of contractual obligations which are not reasonably achievable. The Board is concerned that parties wishing to engage in the market, either directly or through agents, must be appropriately encouraged to manage their obligations responsibly. The system as a whole requires that." (RP-2001-0029 Decision with Reasons, Para. 2.95) 772 In the event that this issue is adjourned to the subsequent rates proceeding, more potential gaming of the system may occur in the coming winter months, with potential detrimental impacts on all other customers. Accordingly, VECC supports EGD in its proposal to make this rate design change to the UOG charge to be effective July 1, 2003. This rate will therefore will be in place well before the next heating season, providing customer adequate notice of the change to the interruptible and direct purchase customers. 773 5) EGD is seeking approval to extend the gas losses to be recorded in the 2003 DRA until the end of the 2003 fiscal year for disposal at a later date. According to VECC IR Response No. 8 (Ex I, Tab 4, Sch. 8, c), the normal process is for the volumetric variance between forecast and actual gas losses to be captured in the Unaccounted for Gas Variance Account, while the price variance between the forecast and actual gas losses is recorded in the PGVA. Clearly the normal process for the Company is to record all variances in the actual results in a deferral account. Given the historical practice, VECC is of the view that the EGD request to record the $630,000 shortfall of gas losses in the 2003 DRA is acceptable. 774 Despite the fact VECC supports EGD in its proposed changes in this QRAM application, VECC does wish to state its opposition to the use of the QRAM process to address issues that are clearly not related to the QRAM. When issues that are commonly addressed in a Rates Proceeding appear in a QRAM, it undermines the comprehensiveness of the review of the issue, since the QRAM process does not normally include interrogatories, intervenor evidence, and an oral hearing process. 775 VECC seeks to recover the costs of its participation in this proceeding and proposes to include such cost claim in the claim arising in the context of the 2003 Rates proceeding. 776 All of which is respectfully submitted this 11th day of June 2003. 777 [Mr. Janigan's written submissions concluded] 778 SUBMISSIONS BY MR. WARREN: 779 MR. WARREN: Let me begin with a preliminary observation about the Consumers' Association of Canada, and that is that it represents the interests of residential consumers some of whom are system customers and some of whom are direct-purchase customers. And the various issues which are raised in this case, depending on how the Board disposes of them, may have different implications for those two customer classes -- for those two customer groups, I'm sorry. 780 Against that background, the CAC has tried to develop and articulate some general principles which it believes you should apply in disposing not just this QRAM application, but all QRAM applications, regardless of whether they are by Union or by Enbridge. The first of those principles is the avoidance, to the extent possible, of rate retroactivity. 781 We would ask the Board to appreciate in consideration of our numbers, some of which are large and some of which are small, we have to appreciate for some customers, for some residential customers, rate retroactivity causes genuine hardship, particularly those in low-income groups and those on fixed incomes. 782 The second principle we ask that the Board apply is the principle of cost causality, that those for whom costs are incurred should, to the greatest extent possible, be responsible for them. 783 And the third general principle is one of fairness: That one group or interest should not get an artificial advantage over another in the disposition of a QRAM application. 784 Broadly speaking, in our submission, the principles of the QRAM process, which are set out in the QRAM document, must be applied flexibly. 785 The QRAM is intended to allow a response to shifts in market conditions, and we are, as the witness panel indicated, in a period where there are, I think it fair to describe them as tectonic pressures, which are significant. We are in a period of volatile prices, very significant volatile prices. We are in a period where cold weather has led to unusually high demand and therefore unusually high consumption. And we are also in a period where there is public concern and as well government concern that is reflected in the recently introduced legislation about the protection of consumer interests and particular sensitivity to retroactive charges. 786 In our respectful submission, Enbridge has in this case followed the principles articulated in QRAM. There has been no change in the methodology. And where there are, even if there had been a change in methodology, where there are conflicting interests, the Board should consider both fairness and the balance of convenience in attempting to determine how those conflicting interests should be resolved. 787 In our respectful submission, no party, no interest will be prejudiced by the granting of the application as applied for. There will be an opportunity to examine prudence and to lead evidence on the issues when -- on the prudence of the load-balancing charges when the PGVA is cleared. That may well lead to adjustments, but in the interim, in our respectful submission, no one is prejudiced. 788 We observe, as is clear on the record, that direct-purchase customers have paid load-balancing charges in the past, and they would expect in the ordinary course to pay them in the future. If, as we submit, no party will be prejudiced by the granting of the application, on the other hand, there will be the prejudice to the interests of system customers if the application is denied or granted only in part. If only system customers pay now, that distorts the market and is, in our respectful submission, a violation of QRAM principles. 789 If no one is paid now, if the relief is simply denied in its entirety, there will inevitably be a large retroactive payment which harms all residential consumers and runs fundamentally contrary to QRAM principles. 790 I think it useful to remember that the QRAM principles include the following: If the relief is denied, it will not -- the result will not be reflective of market prices, in addition to which it will not enhance price transparency and it will not promote customer awareness, customer acceptance or less confusion in the marketplace. Indeed, as Ms. Duguay has pointed out, it will likely enhance confusion in the marketplace. 791 It certainly will not mitigate large adjustments of customer bills and will not achieve fairness and equity among all customer groups. 792 I hesitate in advance of hearing their submissions to speculate about what the submissions might be of my friends, Mr. DeRose, ably assisted by his junior Mr. Thompson, and of Mr. Vegh. But as I understood it, as articulated in cross-examination and also in the interrogatories which were delivered by IGUA, there are two principal arguments against the EGD proposal which I would like to respond to, or address, if I can. 793 The first, as I understand it, is the IGUA argument that costs were not incurred on behalf of its constituency, and there have been, as I understand it, two notions advanced. One is that the makeup requirements in the direct purchase arrangements are, in effect, an offset, if you wish, against the load-balancing obligations. 794 And secondly, it has been suggested in cross-examination that some or all of the load-balancing costs were incurred in relation to transactional services by EGD. 795 The unchallenged evidence of EGD, however, is that the make-up requirements do not affect the load-balancing costs and that transactional services were not a function. And the Board doesn't need to turn it up, but I would invite the Board when they deliberate on this matter to see the exchanges which are found at the following points in the transcript: First of all, transcript pages 548 -- sorry, paragraphs 548 to 550, transcript page 619 -- paragraph 619, and transcript paragraph 703. 796 Those are three instances in the transcript in which Mr. DeRose quite directly and candidly put propositions to EGD with respect to both the make-up requirements and the transactional services and received equally direct, succinct, and candid responses which, in effect, negative or dispose of the arguments as I understand them on behalf of IGUA. 797 In addition, Mr. Chairman, in the interrogatories that were delivered by IGUA -- and I should say in passing I found it very helpful to have those interrogatories, and I think Mr. Thompson and Mr. DeRose should be congratulated for delivering what amounts to a full statement of the issues in the form of the interrogatories. 798 There is, as a preliminary to interrogatory number 20 what amounts to a kind of preamble, and in that, IGUA advances three what are described as issues that the load -- let me read it: 799 "Further, the claim to recover from direct purchasers any proportion of PGVA costs that can reasonably be classified as load-balancing costs raises important questions such as:" 800 And the first is: 801 "Whether there can be a recovery from direct purchasers who will fulfill their obligation to provide make-up volumes." 802 Secondly: 803 "Whether there can be any recovery from direct purchasers served under the auspices of interruptible rates who were curtailed." 804 And third: 805 "Whether there can be retroactive recovery to the extent to which the unauthorized overrun charges were inadequate to offset the actual amount of load-balancing costs incurred by EGD." 806 Those are important issues. I don't quarrel with the fact that those are important issues. 807 But at this stage, there is no prima facie evidence in support of those concerns; and therefore, they should not, in our respectful submission, stop the Board from granting the relief as applied for. 808 When the PGVA comes to be cleared at the end of the day, IGUA and others can raise those issues and can lead evidence with respect to them, but in the absence of prima facie evidence in support of those concerns at this stage, they should not, in our respectful submission, be a bar to the Board granting the relief as asked for. 809 I turn with some hesitation to what I understand to be the principal concern of the clients that are represented by Mr. Vegh, and as I understand those concerns, and I apologize in advance if I have got them wrong, but as I understand them, the concerns are that this application represents a change in the methodology that has been agreed on in the most recent ADR agreement and approved by the Board, and that that, therefore, is both inappropriate and in some fashion unfair. 810 In our respectful submission, the unchallenged evidence of EGD is that the Board-approved methodology has been followed throughout and that the only issue is with respect to the timing. But even if -- even if the Board were to be concerned that there had been some change in methodology, the important -- the task for the Board, then, is to determine how that change of methodology should be considered in light of the principles which are embodied in the QRAM document, and it's at that stage that I submit that the Board should not be precluded from accepting any change in methodology if, on a balance of convenience test and in the application of the principles in QRAM, the interests dictate that the change should be made. 811 As I understand it, and I say this with respect, as I understand the proposition that may be advanced by my friend Mr. Vegh was -- what the argument is, it is a purely formalistic argument about change in methodology. 812 And the issue, in our respectful submission, is not whether or not the Board should -- the Board shouldn't be hide-bound, in other words, be precluded from making changes by some purely formalistic argument that no changes can ever be made in QRAM. It has to be a flexible process. Indeed, it must be, in light of the principles which have been articulated. 813 But at the end of the day, no one is prejudiced by any proposal that is advanced by EGD, and that is the overriding consideration. 814 Balanced against that, both the market generally and system customers specifically will be prejudiced. In our respectful submission, so will direct-purchase residential consumers, because they will get the wrong market signals. 815 There may be some short-term marketing advantage which may accrue, but the long -- the medium- and long-term damage is for everybody if there are distorted signals in the marketplace. It's simply not fair. 816 In our respectful submission, therefore, Mr. Chairman and Mr. Dominy, the EGD proposal should be accepted in its entirety. It is consistent with the QRAM principles. It is based upon board-approved methodology. There will be no prejudice to any party. It avoids, in particular, a substantial retroactive charge, which is, as I have submitted, deeply prejudicial to residential consumers. 817 Now, with respect to the proposed change in the penalty provision, we submit that the change should be made now in order to try to preclude any gaming of the system in the period before the next main rates case. I accept the proposition advanced, what I believe to be advanced by IGUA, that there should be some explicit notice of the change. That can be accomplished if the relief is granted by a direction from the Board that there be specific notice to all marketers and to all industrial customers about this change. 818 I do not, with respect, see any issue of fairness in this case. It would be a peculiar notion of fairness if, based on the propositions, there had been a failure to advise people that the cost of cheating is likely to go up. That somehow puts, in my respectful submission, the notion of cheating -- sorry, of fair notice and turns it on its head. 819 Those are the submissions of the CAC. We ask that we be awarded 100 percent of our originally incurred costs for our participation in the case. Clearly, the issues in this QRAM application engage the interests of residential consumers, and it is necessary that they be represented. 820 Having asked for the award of costs, I will leave it to the Board to direct whether or not there should be an independent cost claim arising from this proceeding or whether it should form part of a cost claim in the larger pending rates case. 821 Those are my submissions, and I very much appreciate your allowing me to make them now, sir. 822 MR. BETTS: Thank you, Mr. Warren. 823 [The Board confers] 824 MR. BETTS: Mr. Warren, one point you did not raise in your argument, and it would be helpful for the Board to understand the position of your constituents, you did indicate your support of the application as it's been presented. 825 Specifically, with request to the alternative of a six-month payment period versus a nine-month payment period, can you provide the Board with any position from your constituents on those two alternatives. 826 MR. WARREN: I'm sorry, sir. When I -- it was overly oblique. When I said that I supported the application, the CAC supports the six-month period. 827 The reason is that having looked at the evidence, the six-month recovery period seems reasonable. It seems to smooth out the more egregious hardship that might come from a three-month period, and it doesn't include the problem of the interest charges, which would be inherent in the nine-month period. 828 So I'm sorry if I didn't make it explicit, but the CAC believes that the six-month recovery period as proposed by EGD is the appropriate one, sir. 829 MR. BETTS: Thank you. That was helpful. 830 There are no more questions from the Board panel to Mr. Warren. 831 Mr. Farrell, I think what we would like to do if we can is to break, allow you some time to collect your thoughts again, and conclude your argument in chief before we break for lunch. 832 Is that still satisfactory? 833 MR. FARRELL: Yes, it is. 834 MR. BETTS: We will aim at that roughly 15-minute break period, but perhaps you -- we will allow you to complete that consideration, so if you would just contact Mr. Moran to indicate when you're ready to come back, we will be available and we will return when you are ready, but if you could target at 15 minutes, we will do so as well. 835 MR. FARRELL: I had asked for 30 minutes, and had 15 minutes as the duration of my submission. 836 MR. BETTS: Sorry. 837 MR. FARRELL: So what we could do, to hold us to that, if we could reconvene by 20 to 1:00, I should be finished by 1 o'clock or shortly before that. 838 MR. BETTS: That is perfect then. We'll break now and we'll reconvene at 12:40 p.m. Thank you. 839 --- Break taken at 12:10 p.m. 840 --- On resuming at 12:46 p.m. 841 MR. BETTS: And Mr. Farrell, before we begin your argument in-chief, are there any preliminary matters? 842 MR. FARRELL: No, I have none, Mr. Chair. 843 MR. BETTS: And none from any other parties? 844 Then please proceed, Mr. Farrell. 845 MR. FARRELL: Thank you, Mr. Chairman. 846 SUBMISSIONS BY MR. FARRELL: 847 MR. FARRELL: I'll just to begin by summarizing Enbridge's proposal, and there are four components to the proposal. 848 One, there is no change in the utility price because the threshold was not pierced. That is not controversial, and I don't plan to devote any remarks to that component in the balance of my argument in chief. 849 The second component is a clearance of the purchased gas variance account, or PGVA, in two tranches, if I can use that analogy. One is the commodity tranche, which would be cleared to sales service, namely system-gas customers as well as buy/sell customers, and the second tranche is the load-balancing component, and that would be cleared to all customers. 850 And I'll just make this point and I'll come back to it. The clearance to all customers is a timing change, not a change of methodology. Eventually, even under the status quo, the load-balancing component would be cleared to all customers. 851 The third component of the application is a change in the basis for the unauthorized overrun gas or UOG rate. This has been referred to as a penalty; Enbridge thinks of it as a compliance tool. And to summarize, it's a tool that sends the message it doesn't pay to cheat. 852 The fourth component is the under-recovery of distribution revenue. This is simply a proposal to continue the use of the deferred rebate account for the period from May through September of 2003 to accommodate the mismatch that Ms. Duguay described in her evidence in chief, and also that is described in the company's pre-filed evidence. This component, the under-recovery component, is also, as we see it, not controversial, and I have nothing further to say about it in my argument in chief. 853 So before I start with the proposal for clearing the PGVA, I should say, Mr. Chairman, that Mr. Warren's remarks have served to shorten mine. I subscribe to his argument, at least in this case, surprise, surprise. And I don't plan to repeat his points about the principles of QRAM and how the company's application serves and promotes those principles because I don't want to take your time by repeating in different words the gist of his argument. 854 So the PGVA clearance, as I mentioned in my opening remarks, is comprised of two components: The commodity component, at least conceptually, does not seem to be controversial; what is controversial is the load-balancing component, or at least the timing of it. 855 And I just by way of an introduction, I'll refer you to Exhibit K.1.2, which was Mr. Small's graph of the 2003 volumes, and ask you when you are looking at this graph during your deliberations to remember that the budgeted supply line does contain an element of load balancing, which is to say, peaking supplies and discretionary supplies. So that's the solid red line, and then when you get to the dotted red line, you'll see that the supply that was required - and you'll see that it is quite a steep peak - that accounts for the volumetric component or the volumetric driver, if I can use that term, of the balance in the PGVA that is attributable to load balancing. 856 Why is it that high? Answer, abnormally cold weather. When you turn and look at the price driver, why are the dollars so high in addition to the volume? The answer is volatile prices. 857 So the company budgeted for load balancing, budgeted as usual using a normalized approach. The year was abnormal; the amount is abnormal. As we see it, the issue is really one of timing, no more and no less. 858 The load-balancing component will be cleared eventually to all customers. I realize that there may be -- that maybe there is to be a true-up, I realize there may be challenges to the amount, the dollar amount, but whatever the approved dollar amount is, it will be cleared, ultimately, to all customers unless the Board changes the existing methodology. 859 It boils down to, as we see it, the phrase from the commercial that I used when we were debating whether we would continue or we would proceed with this hearing, "you can pay me now or you can pay me later". The evidence is pay me now is the better way to go. It sends the right market signal. It avoids confusion in the marketplace. And it avoids at least the appearance of retroactivity. 860 I am trying to anticipate, as I should from the cross-examination, the concerns of parties who will undoubtedly oppose the proposal for the PGVA clearance, and I'll deal first with Mr. Vegh's clients. 861 And as I interpreted the thrust of his questions, it was, in a phrase, Enbridge is trying to change the deal. And the short answer is yes, for timing purposes only, because QRAM and the QRAM process is not cast in stone. The utility needs some flexibility, or at least some measure of flexibility, in order to respond to unusual circumstances. No process could anticipate every eventuality. 862 IGUA's concern -- my comments are derived not from the supplemental interrogatories, which were comprised of a good deal of unsubstantiated rhetoric, but rather from the questions Mr. DeRose asked and the answers that were given. 863 IGUA's suggestion seems to be that the make-up obligation, or as Mr. DeRose conceded, the make-up option exonerates direct purchasers from load-balancing charges, either in whole or in part, I am not too sure which. 864 And as my previous remarks implied, there is no obligation, as the witnesses told Mr. DeRose, but rather a right to make up a deficiency at the end of a contract year. The majority of the contract years are the November 1 to October 31 gas year, but there are others spread through either the calendar, the gas or the fiscal year of the company. 865 There is, in other words, no matching between the time a direct purchaser needs load balancing, needs to have more gas than he or she delivers to Enbridge, and the time that the direct purchaser who has the benefit of load balancing may try to make up the deficiency. Any matching would be purely happenstance. So the suggestion that make-up exonerates a direct purchaser from load balancing charges is a classic red herring. 866 So too were the other suggestions in Mr. DeRose's cross-examination. One of them was that there were affiliate transactions that influenced the amount of money in the PGVA that has to do with load balancing. Mr. Brennan was quite clear on the subject: Yes, Enbridge bought some gas from Enbridge Gas Services, but no, there was no mark-up, there was no fee. It was an administrative convenience in the sense that Enbridge Gas Services is a member of electronic exchanges, bought the gas for Enbridge Gas Distribution's account and charged no more than the cost of the gas. 867 So the gas was needed; the gas was bought; all that got recorded in the PGVA was the cost of the gas alone. The middle man took no mark-up. 868 Neither were there any transactional services that could have been affected by the load-balancing activity of Enbridge. There was no nothing, in other words, that mitigates against the Board granting the relief Enbridge is seeking in this proceeding. 869 The unauthorized overrun gas price, or the UOG price, is, again as we see it, a timing issue. The question was asked, perhaps not in these words, Why are we dealing with it here in QRAM instead of in the next rates case? 870 And the answer was provided by Mr. Brennan. UOG is a gas-cost issue, and QRAM deals with gas costs. 871 There was some discussion with the witnesses by a number of cross-examiners on the fact that there would be true-up in the next case when the PGVA was finally cleared as opposed to being cleared on an interim basis in the QRAM process, and Ms. Duguay was asked on a couple of occasions whether there would be an opportunity at that time to look into the prudence of the expenditures. And her answer was yes, and her answer was yes in layman's terms. 872 Let me say from a legal perspective, there is a presumption of prudence on the part of a utility, and so yes, prudence can be looked into, provided those who want to do the looking can overcome the presumption of prudence. 873 There was also a question, I think by Mr. Brett, as to whether the method of allocation in terms of the load-balancing component of the PGVA could be looked into in the next case. And again, Ms. Duguay's answer was yes. 874 I would also remind the Board, though, that in re-examination, Ms. Duguay indicated that in her view there was no reason to change the existing allocation methodology. 875 There were some suggestions that there wasn't proper notice of the proposal to clear the QRAM and that perhaps the company should have taken action earlier or perhaps even knew about it before the last QRAM application. And I don't propose to read to you excerpts from the transcript in the RP-2002-0133 proceeding, but I would invite you, Mr. Chairman and Mr. Dominy, to look at the transcript for March 20th, 2003, which was the presentation of the proposed settlement agreement. And in particular, look at paragraphs 369 and 370 together with paragraphs 378 to 381. 876 And I also invite you to look at volume 17 of the transcript in the same proceeding, starting with paragraph 37 and continuing for a few pages thereafter. 877 In terms of the warning, for lack of a better term, or the notice given by the witnesses on those occasions that the load-balancing component of the PGVA was growing quite quickly, and they also indicated why, and their answers also show that there would have been no advance notice vis-a-vis the filing time of the previous QRAM application or, indeed, the settlement conference in order to raise this. 878 So let me conclude with the following submissions: That the timing for both the PGVA clearance and the change in basis for the UOG price is right. Now is the time to do both. Both changes -- or both proposals, rather, will send correct market signals. 879 The PGVA clearance, which avoids the pay me now; get a refund later, as far as sales-service customers are concerned will also avoid confusion and will go a long way towards avoiding retroactivity. 880 Those are my submissions in chief. Thank you. 881 MR. BETTS: Thank you, Mr. Farrell. 882 [The Board confers] 883 MR. BETTS: Mr. Farrell, the Board has no questions of you. 884 I had indicated that we would be able to break now for lunch, but I do respect the fact that many of you might have other things to do this afternoon. 885 Are there any of the intervenors -- I don't know that it would be reasonable to assume that we can take all of your arguments before a lunch break, but are there any that feel it would be -- well, in their best interests or most convenient to deliver that argument at this point? 886 Then we will continue with our planned schedule. We'll take -- considering that you'll have to do a little bit of work during that period, I think we could take an hour and a quarter for lunch and reconvene at 1:45 and receive the arguments from intervenors. 887 Did I look at that right, 1:45? Oh, yes. Sorry, 2:15. I always try to get an extra bit of time in here, you know. Thanks. And thanks for checking me up on that, too. 888 So we will reconvene at 2:15 to receive arguments from intervenors. Thank you. 889 --- Luncheon recess taken at 1:02 p.m. 890 --- On resuming at 2:15 p.m. 891 MR. BETTS: Welcome back, everybody. We are at the stage of receiving arguments in response, and do we have any order pre-established? 892 MR. VEGH: Yes, sir, I'll be going first. 893 MR. BETTS: Thank you, and next? Well, we'll wait and see what happens after that. I love suspense. Are there any preliminary matters to be dealt with before we begin? 894 MR. FARRELL: I have none, thank you. 895 MR. BETTS: And there appear to be none from anybody else. Mr. Vegh, please proceed. 896 MR. VEGH: Thank you, Mr. Chair. 897 SUBMISSIONS BY MR. VEGH: 898 MR. VEGH: As I said at the outset of this hearing, and as I think Mr. Farrell said at the outset of his submissions, the controversial part of this application, as far as my clients are concerned, is how to address the collection of $88 million of load-balancing costs that are attributable to direct-purchase customers. And my submission is that these amounts should be collected in accordance with the terms of the settlement agreement through a year-end adjustment. 899 My clients takes no position on whether that $88 million should, in the first instance, be cleared to system gas customers or not. 900 So if the Board is of the view and if other parties are of the view that there should not be an initial clearance of $88 million to system customers, as the agreement may now provide, and then a year-end adjustment to address that, my clients take no objection to that. 901 So our only position is that the $88 million should not be cleared through a rate rider to direct-purchase customers. That $88 million, subject to prudence, et cetera, reviewed later on, that $88 million should be cleared in the normal course through direct-purchase customers through a one-time adjustment. 902 And the basis for that position is that the settlement agreement, the QRAM adjustment mechanism agreement is unambiguous as to how load-balancing costs are to be addressed, and our submission is that that agreement should be followed. 903 And I would like to just refer to the provisions of the agreement that we are addressing, because it's important to appreciate that the difference between collecting load-balancing costs from direct-purchase customers and the PGVA clearances through the rate riders were negotiated and were looked at quite closely by all the parties involved. 904 So when we look at the provisions of the agreement that deal with load-balancing costs in particular, those provisions are quite specific and do not involve a clearance through rate riders. Those provisions address load-balancing costs in four material ways, and I don't have the reference to the transcripts, but basically those four ways are the gas-cost component of distribution rates are set when there is a new utility price set through the QRAM adjustment mechanism. 905 There is an inventory adjustment that is set through the QRAM mechanism, and that has an impact on load balancing. Number three, changes in transportation rates are an adjustment for load balancing costs. And then number four, there is a year-end adjustment for direct-purchase customers. So that's load balancing. 906 And the QRAM agreement quite clearly distinguishes between how those load-balancing costs are collected from direct-purchase customers and how the PGVA clearance mechanism is supposed to work. The agreement is clear that the PGVA clearances through the rate rider are to be to system-gas customers only. The clearances to direct-purchase customers are at year-end. 907 Now, both of these issues, how you deal with PGVA clearances through rate riders and how load balancing adjustments are carried out throughout the year, were thoroughly negotiated by all the parties and were approved by the Board. And this negotiation and this approval was in light of the eight principles in the QRAM agreement that Mr. Warren referred to earlier. 908 And this is what those principles were meant to represent: The idea was the parties would get together, negotiate over the very complex terms of how PGVA clearances should be carried out, how load-balancing adjustments should be made, and all of those points were to be addressed in light of the eight principles so that we could come up with something that was fairly mechanical and can be addressed on a quarterly basis through the Board. 909 The idea was not that every quarter we run to the Board and try to apply these eight principles and see what is the best way to clear an account this quarter. 910 Now, I put great emphasis on this agreement, and Mr. Warren said this morning that relying on a negotiated agreement is purely formalistic, and my submission is it is not formalistic at all. My clients are not standing on ceremony here. My clients are, of course, out in the marketplace making representations to customers on how direct purchase works based on the rules as they are. And if we meddle with those rules every time we don't like the result that those rules lead us to, you take away from the integrity of the marketplace. 911 And if this Board and the utilities expect decisions around gas-purchasing arrangements to be made in a commercial context out there in the marketplace, then we have to have a set of rules that the marketplace can rely upon. 912 So my basic submission is that the agreement is unambiguous as to how load-balancing costs are to be addressed and that agreement should be followed. 913 Now, in this application, Enbridge has given three reasons for departing from the timing mechanism in the agreement, and I agree with Mr. Farrell that that's really what this issue is about between our clients, it's a timing mechanism. 914 The three reasons given are, first, materiality. I think Enbridge disagreed with my position that the timing differences are material. The second reason given by Enbridge is this customer confusion issue caused by the claw-back, that is, you pay the customers $150 and then claw back $77 later. And then the third issue is around price signals, and the claim is that the clearance mechanism proposed by Enbridge provides a better price signal than alternatives. So I would like to address these three issues. 915 First, on materiality, and this is where Mr. Farrell characterizes the issue as "you pay me now or you pay me later", and I agree that that is the issue, you pay me now or you pay me later. To say that that is not material is completely blind to commercial relations. Every commercial agreement has a term of when do I pay you. Do I pay you on a quarterly basis? Do I pay you at a year-end? Do I pay you in some mix of the two? Payment terms are always material. I am not aware of any commercial arrangement which does not specify how and when payments are to be made. So it is always material. Timing is very important. 916 Now, especially when you consider what it is that Enbridge is proposing here. Enbridge is not proposing to replace the pay-me-later mechanism with a pay-me-now mechanism. Enbridge is saying, Let's not have any kind of rule about this, you'll pay me later or you'll pay me now depending on the amounts involved. You cannot have a credible commercial relationship based on that arrangement. You always have to deal with those issues up front, so that's why I say these timing issues are crucial. 917 So the second issue or the second reason put forward is this claw-back argument, and Ms. Duguay referred to that as putting herself in the position of a system-gas customer, how it would be confusing for her, and I'll have the exact numbers wrong, but it would be confusing for her if she were to pay $150 now and then get an adjustment in the future of $72 dollars. 918 And in my submission, the way to avoid the claw-back problem in a manner that respects the payment terms of the QRAM settlement is to simply limit the clearance of the PGVA to system-gas customers. So only system-gas customers pay the amounts that are owed or applicable to them. 919 And if the Board takes that approach, then it avoids this claw-back issue, but at the same time does not change the terms relied upon -- does not change the terms of the methodology as it applies to direct-purchase customers. 920 The third reason given for changing the approach is the price-signals argument, and that's put forward in Enbridge's prefiled evidence -- I won't take you to it; I'll just read you to it -- I'll just read it to you. 921 The reference is Exhibit Q.4-2, tab 4, schedule 1, page 3, paragraph 5. Enbridge supports its proposal of clearing load-balancing costs to direct-purchase customers through the rate rider by saying that: 922 "This approach 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." 923 So that's the price-signal argument, and I have some responses to that argument. 924 First, with all respect, that argument seems disingenuous. If this is the correct price signal, then one would think that this should apply in all circumstances, not just sometimes versus other times. If we're looking at price signal, you expect price signals to be consistently applied. And as I take what Enbridge is proposing here, they're not even saying that this approach of clearing the amounts to direct-purchase customers through the rate rider should be consistently applied. 925 But even apart from that, in my submission, you should step back a bit and say, Well, what is a price signal? Now, the function of a price signal is to try to incent behaviour, and when you look at the function of a price signal, this approach of clearing the load-balancing amount attributable to direct-purchase customers through a rate rider, it does not incent any kind of behaviour. 926 First of all, it is not a price signal. It's a collection of costs that were incurred back in the winter that are then to be collected from customers over the period July to October. That's not a price signal. That's not going to incent anyone's behaviour. This activity has already taken place. 927 The second reason it's not a price signal is because it does not relate to behaviour at all. This deficit, this $88 million, was not caused by poor behaviour of direct-purchase customers. This was caused by the weather, and we agree with Mr. Farrell that this was caused by the weather. 928 Direct-purchase customers delivered the gas on an MDV basis as they were supposed to under their contract, and that means sometimes they will be in a physical shortage situation; sometimes they'll be in a physical surplus situation. And the direct-purchase customers will bring themselves back into balance, but that's not going to have any impact on the PGVA deficit. 929 To take Mr. Dominy's example of the customer who is projected to consume 365 units, whether that customer -- sorry, the customer is projected to consume 365 units and then does deliver 365 units, whether that customer consumed 365 units or consumed 400 units, this doesn't have any impact on whether the load-balancing charge here was applicable to that customer. There is no relationship between the physical balancing, the physical make-up obligations under DPA agreements and the load-balancing charges that are cleared here. So there's no incentive -- there's no behaviour that's being incented by putting this charge in a quarterly rate. 930 Then the third reason why this is not a price signal; that is, it is not something that functions to have an incentive on behaviour, is that there's no choice. A customer gets load-balancing services from Enbridge Gas and Enbridge's franchise, but Enbridge has a monopoly over that load-balancing service. It doesn't matter what the price signal is. It's not like the customer can actually do anything about it and go anywhere else to purchase that service. So again, this -- this clearance mechanism does not add anything in terms of being a price signal. 931 And finally, on the price signal point, Mr. Warren made a submission this morning that collecting amounts from system-gas customers only has, I guess, what you would call a price-signal impact, because it had what he called -- he says it creates a distorted market signal that would provide a short-term marketing advantage to -- well, to marketers. 932 And in response I would say that this is a fundamental misunderstanding of the importance of having certainty over commercial terms in the agreements. Direct-purchase agreements are commercial arrangements. Direct-purchase service providers, marketers, have appeared here to prevent changes to the QRAM methodology regardless of whether those changes led to their short-term advantage or short-term disadvantage. They cannot operate effectively in the marketplace where the rules are constantly changing. 933 So, and the example I give, again, is last year. There was -- at this time there was an expected surplus of $30 million in the account, in the PGVA. The proposal was to -- Enbridge's proposal was to clear that $30 million, not over three months as had been in the agreement, but over six months, because otherwise the net impact would make system-gas prices appear to be too low if it was cleared over three as opposed to six. 934 And my clients were here saying, Sure, that makes system gas, you know, attractive over the next three-month period, but the point here is we need some commercial certainty, and we can't go changing the rules every time. 935 So to take Mr. Warren's perspective, it would have been in the short-term advantage of marketers to have an artificially higher system-gas price, but that is a very limited perspective. 936 Are marketers influenced by self-interest? Sure they are, but it's a more enlightened and longer-term self-interest in commercial certainty than trying to manipulate system-gas prices on a quarterly basis. 937 So those are my submissions in support of my clients' position on this issue. The one other issue that I'll just touch upon is if the Board does have this clearance, should it be over three months or six months. And our client's position is that it should be over three months if you are going to use this clearance mechanism. 938 First, I think the price difference is 1.3 million, and I think that's what VECC relied upon to make that argument, and that's persuasive. 939 You know, but the fact is we're opposed to having this clearance mechanism in the first place, so the shorter, the better, and then, perhaps, we could return back to a more contractual market arrangement. 940 And I'll just, perhaps, make an observation that Enbridge proposes to open the door to a nine-month clearing mechanism, and our position is that that's simply unacceptable. The clearing mechanism was addressed quite thoroughly in the last go-around. It was negotiated that the default is three. If Enbridge could prove six, then there's an argument for six, and there is no reason at this stage to add another three to that at the end. 941 Thank you very much, sir. Those are my submissions. 942 MR. BETTS: Thank you very much. 943 [The Board confers] 944 MR. DOMINY: Mr. Vegh, I just had a question, and that's basically you are representing a group of what I assume are marketers; is that correct? 945 Sorry, am I all right? Can you hear me? 946 The question is: Have you discussed this with any of your customers as to what they might prefer? Would they prefer to have the possibility of a lump-sum payment at the end of the period or to pay as you go? 947 MR. VEGH: Well, to answer your direct question, I discussed this issue with my clients. I haven't discussed this issue with people my clients have contractual relationships with. 948 I can give you the rationale for why my clients say it's in the -- why it is this is important to them and how they deal with it with their customers. 949 Basically, the value proposition that they offer to the customer is that the customers can say with predictability what their monthly obligations are going to be. Now, at the same time, they're aware that there will be a year-end adjustment, but that year-end adjustment is a one-time annual adjustment that they will have to make. 950 And so when my clients go into the marketplace and try to sell their product to the customer, that's what they are selling, monthly predictability subject to this one-time adjustment. 951 And so, you know, they would be in the position now of their customer saying to them, I am not getting what you said this system delivers. I am now paying your monthly amount and then every month I now have another charge on top of that, I am paying to the distributor. 952 Now, if you were to go back and start over and say, you know, is this the only possible way to approach this, of course the answer is no. I mean, there is any number of ways you can approach payment terms. But again, the point is you try to have some certainty around that so you can go, make a credible presentation of what your product is, and then have some commercial certainty that you can actually deliver what you say you can deliver. 953 MR. DOMINY: Thank you, Mr. Vegh, that's helpful. 954 MR. BETTS: And I have no questions for you, Mr. Vegh. Thank you very much. 955 Who will be presenting arguments next? 956 MR. DeROSE: We'll go ahead. 957 MR. BETTS: Mr. DeRose and Mr. Thompson. 958 MR. DeROSE: Thank you, Mr. Chair and Mr. Dominy. 959 The way that we intend to proceed is that I will start, and I will address two issues, the first being UOG and the second would be what could be described as a high-level overview or certain high-level arguments with respect to load balancing and Mr. Thompson will then follow me. And I anticipate Mr. Thompson will focus his comments on the load-balancing issue. So first of all, with respect to UOG. 960 MR. BETTS: I don't want to interrupt you, but there won't be any repetition in both of you covering the load-balancing issues? 961 MR. DeROSE: I believe we are addressing different issues. 962 MR. BETTS: Thank you. 963 MR. DeROSE: Or different levels of specificity. 964 MR. BETTS: Thank you. Please proceed. 965 SUBMISSIONS BY MR. DEROSE: 966 MR. DeROSE: Now, first of all, with respect to the UOG, there is evidence on the record that there were a number of days this year that the UOG was lower than the spot price or spot-gas price. And it is IGUA's position that a change to the UOG is appropriate, given that fact. 967 We do have concerns, however, with notice being given to customers, and in this regard I would like to make reference or bring the Board's attention to a Union case, and it is RP-2001-0029, which, if memory serves me right, Mr. Dominy was on that case. 968 And I apologize to the Board, I don't have copies of that case for you, but I would like to bring your attention to one paragraph and I would read the key sentences just into the record, and it is at paragraph 2.97. 969 And in that case Union was seeking an increase of a failure-to-balance penalty, and although the penalty that they were seeking is different than the penalty in this case, they were seeking to increase the penalty, and I would submit that it is akin to this case. In that case, the Board concluded as follows: 970 "The revised penalty shall apply to all incidents of default arising after the date of this decision and after potentially affected customers have been clearly notified by Union of this decision and shown by example how a penalty would be applied. It will not be applied with respect to incidents of default which have arisen prior to such notice." 971 So in our submission, it is appropriate for this Board to make a similar order in this case with respect to notice. 972 Now, with respect to load balancing, we intend to limit or restrict our comments to only those rate classes which affect IGUA members, and in this regard, it is rate classes 110, 115, 135, 145 and 170, and collectively, through my submissions, I will be referring to those classes as "the contract rate classes". 973 And I think it would be useful for the Board if you can turn up Exhibit Q.4-3, tab 4, schedule 8, and I'll start on page 4 of 5. Do you have that? 974 MR. BETTS: Thank you, we are ready. 975 MR. DeROSE: And the reason I want to take you to two exhibits, this being one of them, is to show you exactly what we are talking about in terms of the portion of that 88 million attributable to those rate classes so that we know what we are talking about for IGUA members. 976 And in that schedule, you will see this shows the seasonal-peaking load-balancing component of the $150 million, and on my rough math -- and this is a rough, this is an approximation -- we are talking about approximately $1.1 million that is attributable to those rate classes. 977 And then if you turn the page to the next exhibit - and again, this exhibit show it is seasonal-discretionary load-balancing components of the $150 million - you'll see that that's approximately $8.2 million for those rate classes. So that's rate classes 110 through to 170. 978 So we are talking, for our clients, just under $10 million of that $88 million. So as we are addressing the appropriateness of applying a rate rider to our clients, that is the amount that we are talking about. 979 Now, our submission will be that this group of customers should not be subject to a rate rider, and to use Mr. Farrell's terminology, this group of rate customers or rate-class customers should be granted the "pay later" option, in accordance with the established QRAM methodology. And in our submission, the pay-later option for these customers is far superior than the pay-now option. 980 Now, to be clear, we do not take a position with respect to whether the direct-purchase customers of the other rate classes, so those would include the residential and the small commercial rate classes, whether the rate rider should be applicable to those rate classes. 981 And in this regard, I would suggest that our submissions are consistent with those of the consumer groups that suggest that the rate rider should be applicable to the residential rate class. Our submissions will be that, if the Board orders that the rate rider is applicable to those classes, in any event, it should not be applicable to the large industrial-commercial rate classes. 982 So in our submission, there are two questions that the Board will have to address. The first is whether the rules of the QRAM process should be changed in the middle of a test year within the compressed time frame of QRAM application, that is the threshold question. 983 And the second question is if the Board accepts that it can be changed in the QRAM application, has the company met its evidentiary burden with respect to the appropriateness of clearing load balancing through a rate rider. 984 Now, as Mr. Vegh has gone over, and I won't go into detail on this, the established, Board-approved QRAM methodology is crystal clear. The rate rider is to be paid by sales-service customers and not direct-purchase customers, and specifically not contract-class rate classes. 985 Now, yesterday and today the answers by some of the witnesses and the questions put to them by some of the intervenors, I would submit, may have left with the Board the impression that direct-purchase customers would benefit from this rate rider, that it would decrease the retroactive impact or dampen the impact when the PGVA is cleared. 986 And that may very well be the case for residential or small-commercial class customers, but in our submission, that benefit would not be equally applicable to large users of gas. 987 Now, first of all, large users of gas, obviously, budget for their gas purchases over the year. As every company does, they have an internal budgeting process, and their planning would obviously be based on the Board-approved methodology, which says they don't pay now; they pay later. So in our submission, the rate rider would affect that planning for large users of gas. 988 Secondly, the current QRAM application also contemplates that these rate classes would not make payments until they have had an opportunity to fully test, first of all, the prudence of the load-balancing costs and, secondly, the allocation of the load-balancing costs. And this would normally happen when the PGVA is cleared. 989 In our submission, the expedited hearing in this QRAM application has not given those customer classes the opportunity to fully test those two components, namely, the prudence and the allocation. So those customer classes have been deprived of the ability to test the evidence that they would normally have before they are asked to make any payment. 990 Now, in our submission, the QRAM application should remain formulaic and non-contentious, and I think it is fair to say in this case this application has clearly been contentious. And furthermore, we would also submit that the QRAM should be predictable and should allow commercial certainty. And if a change is allowed to the QRAM methodology midstream, there is a danger that it undermines the predictability of the QRAM process, and it undermines the ability of companies to plan. 991 Now, you have heard testimony from the company that the change to the rate rider is not a material change but is just a matter of timing, and in our submission, the Board should reject such an argument for the following reason: 992 If the contract rate classes now find themselves subject to the rate rider, they will now be paying three months before they would have planned, and that is clearly material. The timing is not simply a technicality, and the timing is not inconsequential. 993 Timing is material, and you simply have to think back to the current 2003 test year case of Enbridge, the 0133. One of the QRAM methodology changes in the settlement agreement was to provide the company with the opportunity to extend the period from three months to six months for the rate rider. That's an issue of timing, but it's a change. And in our submission, the appropriate forum to have a change of timing such as that or such as the one sought in this case is in a rate application. 994 Now, the QRAM methodology, again, as Mr. Vegh has pointed out, agreed upon by the parties and approved by the Board has two components that are material to this current application. The first component is the rate rider, and the QRAM methodology clearly says that the rate rider is applicable only to sales-service customers, and this is the pay-now component of the QRAM, and it is not applicable to direct-purchase customers. 995 And the other component is that at the end of the test year, the PGVA is recalculated, and the responsibility of each rate class is determined, but it is determined only after customers have been provided the opportunity to scrutinize the load-balancing charges and the allocations. 996 So again, we would simply submit that the change is material. It's not a technicality, and it is inappropriate to be dealt with in this forum. And there are three reasons that we would submit the Board should reject a change to the QRAM methodology in a QRAM application. 997 The first is, as I have indicated, applications are by their nature conducted in a compressed time frame, and this is normally acceptable, because QRAM applications are formulaic and noncontentious, but where there are contentious issues, those issues should be moved to a full hearing. 998 And this is -- the danger that happens in a compressed time frame, I think, has been exemplified over the last 24 hours. Answers to interrogatories were received by the intervenors. Some received them Monday night, others of us received them about quarter to nine yesterday, and so intervenors proceeded with cross-examination in the absence of timely disclosure. 999 Now, I think to be fair to the company, the absence of timely disclosure in this case is not the fault of the company, but it is the result of proceeding in a QRAM application. It's been exactly two weeks today that the application was sent out, so it's a result of the forum in which the Board is being asked to make its decision and not the result of any of the actions of either the company or the intervenor. It simply demonstrates why QRAM applications are the wrong forum for such changes. 1000 Secondly, IGUA has concerns about -- with respect to evidence given by Ms. Duguay at paragraphs 1037 and 1040 of volume 1 of the transcript, and this is the evidence in which she indicated that Rider C will not necessarily be applied in future QRAM applications to load balancing, that it may or may not, and it's at the discretion of the company. 1001 And in our submission, it is inappropriate for QRAM methodology to be expanded from time to time on an ad hoc basis as the company chooses. The result is that large-volume users of gas will not know whether a rider will or will not be applicable to them in any given year. It further would undermine the predictability of the QRAM and, I would submit, the integrity of the QRAM process. 1002 And third, it has now been approximately -- just, I guess, we are now at about 30 hours since we received the interrogatories, and it shouldn't be a surprise to the Board that we have not had an opportunity to explain all of the evidence to IGUA members, to obtain the reaction from IGUA members, and to fully respond to that evidence. 1003 As well, it shouldn't be a surprise, given the timing, that no intervenors have been able to put in evidence. Within the time frame that we have operated, we would submit it's quite frankly impractical and not possible to properly assess the evidence, retain an expert, instruct the expert, and obtain a report or written evidence. 1004 With respect to the test that the Board should apply in assessing EGD's application, in our submission, the test is a high one and that the Board should apply a test similar to that test which is applied by courts for mandatory injunctions. 1005 And in our submission, for EGD to succeed in having load-balancing charges applied to direct-purchase customers and, specifically, the contract rate classes, they should demonstrate, first of all, a prima facie case for the changes; secondly, that the company would suffer irreparable harm if the changes were not made; and third, that the balance of convenience would favour the clearance of this amount at this time as opposed to simply waiting until the PGVA is cleared. 1006 And we would submit that EGD simply cannot show irreparable harm. In fact, if the Board -- in fact, Ms. Duguay has actually confirmed that if the Board were to refuse to allow clearance of the $88 million at this time through a rider, the company would suffer no prejudice. 1007 So in our submission, they have not discharged their burden, and we would say that the request that the rider be applicable to contract rate classes should be rejected. 1008 So in summary, with respect to my submissions, this Board should not allow the rider to be applied to the contract-rate classes, and again, from perspective, that includes the following classes: Rate 110, rate 115, rate 135, rate 145 and rate 170. 1009 And in our submission, for the Board to refuse such a rider -- that such a rider be applied to those rate classes would, one, preserve for those customers that the predictability and integrity of the QRAM process; and secondly, for those customers would preserve commercial certainty. 1010 So I turn it over. 1011 SUBMISSIONS BY MR. THOMPSON: 1012 MR. THOMPSON: First of all, Mr. Chairman and Mr. Dominy, I want to express to the Board my appreciation for allowing IGUA to divide the argument between Mr. DeRose and myself. 1013 I am here because the case is perhaps a little more complicated than we had originally anticipated, but more importantly, because IGUA is very concerned with the relief being sought against large-volume customers, direct-purchase customers, primarily from a customer-communications perspective, and this goes to notice and the opportunity to respond to the notice. 1014 So I would like to embellish, if I could, Mr. DeRose's remarks a bit with some examples that will hopefully help you to understand why we believe the option that you should choose for the large volume customers, direct-purchase customers, is the pay-later option rather than the pay-now option. 1015 And as Mr. DeRose noted, these customers operate within the ambit of contract rates, and the important thing to recognize is that in those contract rates, 110, 115, 145, 170, the customers must take on a contract demand. A contract demand is specified in the rate handbook as a specified daily limit on the amount that can be consumed. 1016 So there are a number of customers in these contract rate classes, manufacturing concerns, that operate within these daily CD limits. 1017 In contrast, the non-contract rate classes, the residential and the small commercial, do not have a daily contract demand constraint, so they are obviously more severely affected by weather. They can take beyond a certain level without any penalties, whereas contract customers are exposed to penalties if they exceed their daily CD. So that is why our focus is on these individual direct-purchase customers served under the contract rates. 1018 As Mr. DeRose mentioned, the Board-currently-approved method for recovering load balancing, and Mr. Vegh mentioned this, is at the end of the year, and I would say, more importantly, under the current approach to load balancing, the process contemplates advance notice to affected customers and a reasonable opportunity to respond. 1019 And that's extremely important for the large-volume customers. The company has a department to deal with communications with its contract customers. None of these customers, to my knowledge, have received any notice of this request to recover load-balancing charges mid-year. Nothing in writing. The application went out, but that just was sent to IGUA. 1020 Now, we asked some questions about the impact on individual IGUA members, but we don't have that yet. So all we have been able to tell the executive director of the association, who has communicated to his members, is the company is looking for load-balancing charges; we don't know what its impact is going to be on you. 1021 And the reason that communications are important with individual customers is that, whether they are right or they are wrong, these customers, I believe, perceive that if they provide make-up volumes or if they do certain things, they avoid their exposure to these load-balancing charges. 1022 So when the company characterizes the opportunity to provide make-up volumes as an option, I would suggest that that's probably not a fair characterization. If you look at the banked-gas provisions in the rate handbook, if you are overdrawn at the end of the year, you have, as the company says, the opportunity to provide make-up. But if you don't provide make-up, then you are deemed to have purchased the volumes from the company, and there is a price specified in the handbook -- I don't know what it is, but it is -- I think Ms. Duguay put it on the record. 1023 So the perception, whether rightly or wrongly, is that this make-up volume opportunity is more of an obligation than an option. And my understanding is, and again, I don't know this to be accurate or inaccurate because we haven't really discussed it with the IGUA members, but the handbook calls for balances in the banked-gas account to be provided on a customer-specific basis from time to time. 1024 My understanding is that is done and that customers take this as notice that if they are out of sync, they have got to get back into sync. So there are some out there that actually do look at this opportunity to provide make-up volumes as an obligation, and more importantly, there are some out there, I believe, who perceive that if they provide the make-up volumes, then they have relieved their exposure to load-balancing charges. 1025 All of this is in aid to suggest that fairness requires that these individual, large-volume direct purchasers get notice of what the company is claiming and why, so they can react to what the company says is the appropriate approach and have the company explain why their reaction is inappropriate and then take it from there. 1026 I would like you to consider the following illustrations in assessing whether it should be now or later for the large-volume contract customers. 1027 First of all, take a firm-service customer, has a contract CD, direct purchase, has an MDV, let's say it is 100 a day is their CD and their MDV is 70 a day, and that particular customer is not affected by weather, it lives within the strict rules of its contract throughout the year. And under the company's approach, that customer July 1 is going to get a rate rider saying, you have caused -- implying you have caused us to incur load-balancing costs and your share is X. 1028 That customer would say, just a second, I didn't cause you to incur any load-balancing costs. I live precisely within the parameters of my contract. 1029 And then you have another customer, a firm customer, who takes more, lives within the parameters of his CD but takes more of the upper limit than expected. So for example, if the MDV was based on an expectation -- MDV, let's use, for example, 70 a day, and the CD is 100 a day, and that's based on an expectation that that customer would use 100 a day maybe on ten days and, in fact, that customer uses 100 a day on 30 days, that customer is going to be, all other things being equal, in an overdrawn position in his banked-gas account during points of time in the year and at the end of the year. 1030 And if that customer goes out and gets the make-up volumes and gives them back to the company, that customer's perception is that whatever has been posted to the PGVA as the difference between what it cost the company to go out and buy the gas that that customer caused by way of temporary load balancing and the unit put back into the pot by the customer. Whatever that difference is, the customer's perception is, I have discharged my obligation; I am not on the hook for the difference or a portion of the difference. 1031 Whether that's accurate or inaccurate or not in my submission should be determined after the customer has asked the questions it wants to ask of the company and has had an opportunity to respond to them, and not without, in effect, no reasonable notice to respond. 1032 Let's take an example. Assume the reference price is $4.00. This customer causes the company to go out and get some $6.00 gas. The company, as I understand it, would go out and buy the $6.00 gas. It would put $2.00 in the PGVA. 1033 At some point later, the customer goes out and provides the make-up volumes. That gas may cost the customer $5.00, $6.00, $7.00; we don't know, but that unit is given back to the company at some point in time. 1034 The customer thinks, I have replaced the volume that you had to incur because of my cause of temporary load balancing; and therefore, that $2.00 shifts from the direct-purchase pool to the system-gas support pool. That's, I believe, the perception, and whether that's right or wrong, it shouldn't be resolved against individual customers until they've had an opportunity to at least consider the company's position and have the company consider their position. 1035 Let's take another example where we've got interruptible, direct-purchase interruptible customers. These customers will have a CD. Their MDV will be based on a certain anticipated period of curtailment. Let's say, for example, it's five days. 1036 So if you have a customer with 100-a-day CD, 70-a-day MDV, and anticipated curtailment of five days, and because of the weather conditions, what will happen and is what happened this past winter is these customers get curtailment notices; you're off for 10 days; you're off for 20 days, and I believe there were two periods of curtailment within the EGD system. Certainly in other distribution systems, the curtailments were much longer. 1037 So what that customer does, is obliged to do, is continue to deliver the MDV. The customer is curtailed, continues to deliver the MDV. The customer gets paid a market price for that MDV, and that customer can go out and acquire its own gas and have -- the company will be able to carry that gas, and it's called curtailed delivery service or something along those lines. 1038 And so there you have a customer, an interruptible customer who is living within the four corners of its obligations. They're respecting the curtailment, so the MDV that it's providing is helping the company with its load-balancing problem. The customer has gone out and acquired his own gas at market rates and is distributing it, and the company gets that extra distribution margin. 1039 And then, under the company's proposal, this customer is going to get a rate rider July the 1st saying, Here's your share of the load-balancing burden that you caused. That customer is going to go ballistic, because they will say, Well, we didn't cause anything. 1040 Another example of interruptible is where the customer is curtailed, and it goes to oil. It says, Fine, I'll respect the curtailment; I'll continue to deliver my 70-a-day MDV. That helps you with your problem. 1041 I go to oil, and so I haven't contributed to your load-balancing problem at all. That customer is going to get a rate rider effective July 1 on the company's proposal that's tied to consumption from July 1 forward, where during the period of the load-balancing problem the customer is off gas completely. That customer is going to go ballistic. 1042 And so I'm not saying Mr. Farrell is wrong that at the end of the day these people should pick up a portion, but all I'm suggesting is that there certainly are arguments that they can make to suggest amounts ought not to be allocated to them, and they should have the opportunity to at least respond by way of evidence and make those arguments. 1043 There is also this question of what happens when the customers pay the -- take the gas, and they pay the unauthorized overrun charge, UOC. Taking my earlier example, the company is caused to have to go out and buy some $6.00 gas. The reference price is $4.00. $2.00 goes into the PGVA. 1044 The customer -- take an interruptible, for example -- continues, doesn't respect the curtailment, continues to take. That customer, as I understand it, would pay the UOG price, and some of that is supposedly going into the PGVA. I'm not quite sure how much, because my understanding is what the company does is they treat that UOG transaction as if it were a gas sale. 1045 And so if the UOG is $7.00, and the difference between the $3.05 rate and the $7.00 is an amount, and that goes into the PGVA, you may have the amount going to the PGVA less than an amount that's sufficient to offset the $2.00. 1046 We believe that when that occurs, that is when the UOG amount occurs, the differential that should go to the PGVA is the differential between $4.00 and the UOG price. 1047 And so that in any case where UOG actually exceeded the price that the company had to pay in the open market for balancing gas, there is an argument that the customers have not caused -- sorry, there's an argument that the PGVA amount attributable to direct purchasers is zero, even a credit, because they paid more than what the company incurred. 1048 We don't have the details on that, and so I don't know the extent to which that is an issue, but -- a dollar issue, but it is, from our perspective, something that should be explored before the load-balancing amounts are cleared to direct purchasers served on contract rates rather than -- rather than after. 1049 So these illustrations, I hope, will assist you in appreciating the concerns that IGUA has with dealing with this matter now as opposed to later for its members served under the contract rates. 1050 And at the end of the day, my friend Mr. Farrell is correct, we will pay, but it's better, I submit, from a customer-relations perspective to deal with this later for the individual large-volume customers rather than now. 1051 Those, I believe, are the only points I wanted to make, supplemental to what Mr. DeRose said. 1052 There is this other issue that Mr. Farrell mentioned about the mismatch of distribution-related costs, and that we see as simply a recording matter, and we have no objection to the relief that the company seeks under that heading. 1053 So unless there are any questions of the IGUA team, those are our submissions. 1054 MR. BETTS: Thank you. 1055 [The Board confers] 1056 MR. BETTS: Thank you. I think we answered all of our own questions, so sorry for the delay and thank you for your arguments. 1057 MR. THOMPSON: I didn't mention costs, Mr. Chairman. I don't know if it is appropriate to make those submissions now or just reserve them for the end of the case, since the Enbridge case is still -- 1058 MR. BETTS: I think we have had people take this opportunity to do it. We wouldn't object to that if you would like to. 1059 MR. THOMPSON: We'll roll them into our main case argument. Thank you very much for your patience. 1060 MR. BETTS: Next, Mr. Brett. 1061 MR. BRETT: Thank you, Mr. Chairman, Mr. Dominy. 1062 SUBMISSIONS BY MR. BRETT: 1063 MR. BRETT: The Schools are -- literally, the Schools are primarily in rate 6. There's a few on rate 100, which is a contract rate, but the large majority are on rate 6 and 90 percent of them are direct purchase. So you can see we do have 10 percent that are on system, but the vast majority are direct purchase. 1064 Our first submission is that the Board does have the authority to vary the QRAM process. I think when it was entered into, it was entered into carefully and people did discuss it in some detail, but no one anticipated this sort of turn of events where we had a huge amount of load-balancing costs to be allocated. And I think the Board ultimately has to set just and reasonable rates, and I think the rate riders are part of the rate, so I think the Board has wide discretion in what it does. 1065 I think there are two other principles that are quite important in light of recent happenings, and I won't go into any detail. Mr. Warren spoke of them this morning, but I think it is important for our client, certainly, that a rate shock be minimized. I also think it is important that retroactivity be minimized. 1066 I think that's important not just for the clients directly, but for the integrity of the system really, for the standing of the Board and in the sort of circumstances that we find ourselves in, I think it is important to pay attention to those principles, of minimizing retroactivity and minimizing rate shock. 1067 And our customers I think in that -- our clients in that area probably fall closer to the residential customers in the manner in which they would react to these things, to increases rather than, I think, the picture that Mr. Thompson is giving you, although it remains to see what would actually happen at the time that rates are finally -- or that PGVA balances are finally disposed of. But I'll come back in a moment to our final submission on this. 1068 With respect to the question of what goes -- of the size of the pot that goes to the direct-purchase customers, I think that we are of the view -- Schools is of the view that the calculation of that amount of money is really based, in part, on the use of the western buy/sell price as a benchmark, and we are of the view that that benchmark is no longer the right one to use. And I think Ms. Duguay agreed with that. 1069 I don't think this is the case to make that change, and I agree that the Board is following the currently-approved method of allocation. We just haven't had the time in this case or the evidentiary base to arrive at an alternative number, but my sense is that there will be one found. 1070 And I don't know what the result will be in terms of the size of the pot that's going to the direct purchasers. My suspicion would be that it would make the size of that pot lower, but I can't prove that in this case and I don't think we have the evidentiary record in front of us to really wring our hands too much about that, other than, I think the Board should recognize it is quite likely that within the next six months or so we will have another way of calculating that amount of money using a different benchmark. 1071 Now, as far as what that benchmark would be and what the significance of it would be, it's too early to say, but I can make two or three points. 1072 First is that all of the direct purchasers that we are representing here, all of these schools, they do balance. I mean, let's face it: There isn't a direct purchaser in this world that doesn't do his darndest to balance at the end of the year, because as was stated to you a couple of times already, the direct purchaser faces very severe penalties if he doesn't. So that is a given; everybody tries to balance. 1073 And the company may call it an option, but I think Mr. Thompson's point is fair, it is not just an option, it is a de facto obligation. But you don't balance on a daily basis. Direct purchasers balance on an annual basis. There is no evidence, really, on the record that they don't, that they do otherwise. 1074 So what, in effect, is happening is that, I think, that the utility is paying a higher price for the gas in the cold-winter scenario because it is buying that gas in a concentrated two- or three- or four-month period than it would have paid on average if it had bought -- if it was paying its average annual -- its average price for gas over the year. 1075 So it is really paying, it seems to me, it's a price-differential issue, concept, and I think, secondly, when you examine -- when we get to examining what benchmark should be used, it is going to be based on actual utility costs for gas, not forecast utility costs for gas. Because the question is going to be, What is the actual amount that they paid relative to what they might have paid in the absence of having to make these concentrated purchases at a time when prices are or have historically been or were in this particular instance higher than normal? 1076 And whether we will get to be using an index of some sort I am not sure, but it will not be, I don't think -- the benchmark will not end up being a forecast of a particular price which is forecasted a priori in this case. 1077 So I just lead with these -- some of these thoughts, because I think -- I think we are going to see a change in that. But my -- of course, the gas -- the gas is replaced by the customer, as Mr. Thompson pointed out. 1078 Now, I think the -- notwithstanding that view of the world, in other words, I'm saying that I think it's quite likely that when we've had an opportunity to examine the issue, we'll conclude that the ratio that should be -- the amount that should be applicable to direct purchase is reduced. 1079 I think in this case before you, our suggestion would be that you do accept the company's proposal, because there is a chance, an opportunity for a true-up in the rates case. There's an opportunity to address this issue in the rates case, upcoming rates case, the issue of allocation. 1080 And I think based on -- I think once we have this balance, it has to be dealt with. I think the sooner it's dealt with, the better, and I think dealing with it by way of a rate rider avoids rate shock. 1081 And I realize that it violates the existing layout of the QRAM, and I don't mean to minimize that, but I just think that the QRAM is one thing you look at, but you make your decisions taking into account the broad public interest. And I think you have to -- I respectfully suggest that you're not -- that in this case you should make the modification. 1082 With respect to the UOG issue, we would agree with the IGUA position that it is -- the change is warranted, but there should be -- it should not be implemented until appropriate notice has been given. And I would hope that Enbridge would take into account some of the individual circumstances of the cases, because my experience has been oftentimes that -- well, let me put it another way. 1083 It's important to understand that the end user is buying gas at Empress from a producer or a marketer, and then that end user turns around and delivers the gas to Enbridge at Empress. That's his obligation to deliver. 1084 And under the bundled-T contract between the end-use customer and Enbridge, if he fails to deliver, and he carries on taking, and he's a general-service customer like School Boards', he has to pay this penalty. 1085 But what often -- what can happen is that the producer, who is supposed to show up with the gas at Empress for the end user, whether it be a school board or a factory, doesn't supply; he defaults or calls force majeure, and in most gas contracts -- not in all, and it is a matter for negotiation in every case -- the marketers will not accept the risk of being responsible for the distributor's authorized overrun penalties, or, they put it -- "penalty rates" is the way they phrase it. 1086 And one can say, Well, why don't you just negotiate your way out of that? Sometimes the end user can, but there are -- there has been a certain amount of concentration in the industry on the sell side in the last while, and there are a lot of very large marketers out there that have a lot of power. 1087 And I'm talking now about the -- well, about the part of the market that we're addressing, and my clients are concerned with, sort of, the mid-level of the market. So it's not always possible to make those changes. 1088 Nonetheless, I still -- I think the idea is valid, but I think in implementing it they should exercise discretion. It's one thing if an interruptible customer flat-out refuses to interrupt when you ask him to. That's just, seems to me, behaviour that runs contrary to his contract and to the terms, the reason why he's getting an inexpensive rate. 1089 It's another thing if the customer can't supply the gas because his supplier has failed to supply him the gas, and he may have done it -- he may have simply called force majeure, because he can't get it himself. 1090 Finally, with respect to the third, the true-up issue, our -- our position is that we would agree with that, the company's proposal there. We assume -- and I asked an interrogatory on this, and I did get a response. I didn't quite fully understand it. 1091 I assume that the company, which is now asking to be covered off for underrecoveries, if there were any overrecoveries in the earlier months, I assume those credits, those overrecoveries would go into the credit -- as credit balances into the DRA, deferred rebate account. But with that caveat, we support what the company has proposed. 1092 And finally, on the question of costs, like IGUA, I think we'll address that in our written argument on the main case. 1093 And thank you very much, Mr. Chairman and Mr. Dominy. 1094 MR. BETTS: Thank you, Mr. Brett. 1095 [The Board confers] 1096 MR. BETTS: Thank you, Mr. Brett. No questions either. 1097 Mr. Shepherd? 1098 MR. SHEPHERD: Thank you, Mr. Chairman. 1099 SUBMISSIONS BY MR. SHEPHERD: 1100 MR. SHEPHERD: I am going to deal with two issues only, unauthorized overrun gas and the prospective PGVA clear-out. 1101 Let me start with the UOG question. I agree with my friend Mr. Brett with respect to the practical issue, but I'd like to raise a more general question, and that is what is -- and this has been alluded to a number of times in the last two days -- what is the dividing line between QRAM issues and rate-case issues? 1102 What I'm concerned with here is that on something like the UOG issue, this is really something that normally is a rate-case issue. There doesn't appear to be any urgent reason why it has to be dealt with today. It happens that the company's noticed it, but it's July. Nobody is going to game the system in July. 1103 And what I am concerned with is that there is a danger that the QRAM process will, in effect, turn the rate case into a sort a continuous process, a rolling rate case. Every three months we'll have all the same issues coming up. The company will be able to pick and choose anything it wants to bring into a truncated process. And indeed, the intervenors will be able to raise all of the issues that they wanted to raise in the rate case and maybe already did. 1104 So for example, you see in the IGUA interrogatories, 13 -- interrogatory 13 refers to transactional services, and 15 refers to the company's earnings, and 17 refers to affiliate transactions. 1105 There's an argument that all of these relate in some way to this QRAM process, but we also all understand that these things are primarily rate-case issues and are not issues that belong in a process that is supposed to be relatively mechanistic. 1106 So, Mr. Chairman, with respect to the UOG issue, what School Boards' would like to urge the Board to do is to draw as clear as possible a line between the issues that should be raised in a QRAM and the issues that should not be raised in a QRAM, and I would suggest that this UOG issue is on the rate-case side of that fence. 1107 With respect to the prospective clear-out of the PGVA, I wonder, what I'd like to do is I'd like to take it step by step. 1108 Let's start with the number 172.1 million. Is there any issue about this? The answer, I think, is that -- well, perhaps my friend Mr. DeRose would say that it has been challenged, or Mr. Thompson would say it has been challenged. I think at the highest, you could say that IGUA has cast aspersions on the number, but has not directly challenged it. Now that may be because of the nature of this process. Or it may be because there simply isn't any reason, there isn't any evidence before you to suggest that that number is wrong. 1109 So I agree with my friend, Mr. Warren, that that is an unchallenged number, and we need not discuss it further. 1110 So step two: What do you normally do with that? Well, the PGVA process, as we have heard at length today, says this should be recovered from system-gas customers alone. It is not complicated. It is right in there. That's what you do. 1111 So the company has quite sensibly said, $172 million, that is a lot of money, and we happen to know that if we recover it from the system-gas customers, that will be an incorrect result. So we think that, notwithstanding that we should follow the QRAM methodology, we shouldn't follow it to a wrong answer. That doesn't make sense. And the company has I think correctly identified that if they are going to tell you that that's the wrong answer, they have a burden of showing that. 1112 And Mr. Thompson has raised the question earlier that perhaps not all of the $88 million that should go to direct-purchase customers really should go to them, but he hasn't actually given any details or any evidence. And I think it is fair to say that the company has provided fairly clear evidence that that $88 million belongs to the direct-purchase customers and the other $84 million belongs to the system-gas customers. I think it is fair to say that that evidence is also unchallenged. 1113 So now the Board has a choice. One, you could follow the QRAM methodology exactly as it's set out. It's an agreed, Board-mandated methodology. Of course it produces a wrong result, but you could follow it because that is the rule. It is submitted that that's simply not a good answer. You don't follow the rules when you know the answer is wrong. 1114 So then the second possibility is that you can have some sort of combination in which you -- let's say you approve the rider for system-gas customers but for the direct-purchase customers you defer that until the end of the year, and then use the standard clear-out methodology. 1115 And I think that's what some of my friends would like to see happen. Although their arguments are, we shouldn't change the rules, they won't say, Charge everything to the system-gas customers, because they know that's ridiculous. So instead what they'll say is, Well, don't change the rules as they affect us, but change the rules this little way so that we'll only charge the system-gas customers. 1116 Well, with respect to my friend, Mr. Vegh and Mr. Thompson, either they want to follow the rules as they are, or they agree that this Board should look at what the appropriate way is to act today. And once you open it up -- it is a binary thing, you follow the rules or you don't. So if you decide not to follow the rules, because it's not the right answer, then we have to look at what the right way to do this is. And we already know what the right way to do this is because we have a method of clearing out the PGVA at the end of the year. It is well understood. 1117 The company says quite reasonably, we know how to do it, let's do it the way we know is correct. So that is the third option, which is, approve the recovery from both the system-gas and the direct-purchase customers on the percentages proposed by the company. 1118 There is a potential that there will be some adjustments later on when we do a prudence review in the 2004 case or there will be a discussion about whether the allocation on the eventual clear-out is correct, and there may well be some dollars moving around, but it won't be a lot of dollars. And it is our submission that to delay the recovery because you can't get the number exactly right in this truncated process is to give insufficient weight to the issue of avoiding retroactivity. 1119 So therefore, if we come to the point where we have to -- where the appropriate thing is to recover from both the direct-purchase and system-gas customers, then the only question left is, What is the period over which we recover it. And there have been three numbers given: Three, six and nine months. 1120 It is submitted, Mr. Chairman, that nine months isn't really an appropriate number, for one, what I see as a compelling reason. We just finished a tough negotiation which included this issue, just finished a month ago, when we knew that there was going to be a big QRAM coming up and, nonetheless, the company and the intervenors, approved by the Board, agreed that the maximum recovery in Q4 would be six months. 1121 Therefore, it seems to us that unless this Board decides that it will simply undermine the ADR process, which was tough this year, unless it wants to undermine the ADR process, it should put nine months out of its mind. 1122 That leaves us with three months versus six months. And the rule, as I understand it, is the standard is three months; that is, the theory I guess being pushed recover an amount relating to 2003 in 2003. It makes sense. 1123 In the settlement for the 2003 case, there was an agreement that in extraordinary circumstances, where the company justifies the difference, that could be extended to six months. 1124 I went back and read that last night, by the way, Mr. Chairman, and it says that new rule is effective July 1st. I don't recall whether that means that it is not effective yet, and so we are still stuck with the three months, but I am going to leave that aside for a second and just assume that it is an issue that we have to figure out, what is the right way to do it, should it be three months or six months. 1125 And I find myself in agreement with my friend Mr. Janigan, in his argument, and Mr. Vegh, which surprises me somewhat, in his alternate argument that the appropriate time frame is three months. 1126 Let me explain the reason for that. Let's start with we want to have the clearest market signals possible, and obviously the faster you bring price differentials back into market rates, the better. However, we have a very high balance, and it would seem that we agreed that when you have a very high balance, you should consider six months, so why isn't that appropriate here? 1127 And we have seen that the difference in per-cubic-metre rates are huge, 30 cents versus 6 cents, that sort of difference. 1128 But the reality is that the actual difference to real live customers, the practical difference shows, as my friend Mr. Janigan says in his argument, that it's actually better to recover it over three months, not six months, for the average customer. It is one of these situations where you'd think, in theory, if your unit rate is much higher with three months than six months, that it is better to -- it will be a mitigating factor if you use six months. But it is one of those examples where theory and practice don't really match properly. 1129 If you actually go to the numbers, it looks like it is better for the average customer to have a three-month recovery than six months, and I would ask you, Mr. Chairman and Mr. Dominy, to look once more at VECC 7, page 2. This is Exhibit 1, tab 4, schedule 7, page 2. 1130 And I just looked at this as a consumer, as a person who heats his house with gas, and I thought to myself, now, which would I rather have? Would I rather have $20 a month in July, August and September extra that I have to pay so that my bill is still lower than the rest of the year, it is just not as much lower, or would I rather pay very little in July, August, and September, but just about Christmastime, I get a good whack? 1131 And the answer is that of course I want the first. It's cheaper for me in total, and it's easier for me to handle. In addition, we know that October 1st there will be new rates. Their increase might not be that much. Indeed, we should all be so lucky, it could be a decrease. 1132 But there will be changes to the rates, and generally speaking, they tend to go up. And so if we recover it in July, August, September, that means this rate rider is past history at the time that a new rate increase comes into effect on October 1st. 1133 But finally, and I think this is the most important point, what about retroactivity? And all rate riders are, in essence, retroactive. We know that. A rate rider by its essence is taking money that if the market was reacting exactly correctly, if people were paying exactly the right prices, these are amounts that would have been paid by customers in January and February. And we're instead going to start charging them in July. 1134 But I think it's clear that all customers want to minimize retroactivity, and the way to minimize it is to recover this as quickly and as efficiently as possible. 1135 And yes, we want to mitigate the impact on consumers, particularly the smaller residential consumers. But frankly, I agree with Mr. Janigan, the way to mitigate the impact on them is charge them during the summer months when their bills are lower anyway. That's the easiest way for them to handle it. 1136 Mr. Chairman, we will, with your permission, deal with costs in our written argument on the 0133 case. 1137 Those are our submissions. 1138 MR. BETTS: Thank you very much, Mr. Shepherd. 1139 [The Board confers] 1140 MR. BETTS: Thank you, Mr. Shepherd. We have no questions for you either. 1141 MR. SHEPHERD: Thank you. 1142 MR. BETTS: I believe that brings us to Mr. Moran. 1143 And, Mr. Moran, do you have any submissions for the Board at this stage? 1144 MR. MORAN: No, Mr. Chair, I don't have any submissions. 1145 MR. BETTS: Okay. Thank you. 1146 Then I trust I have not missed anybody. I look around, and I think we have covered everybody. 1147 So it would be appropriate to now break for a short while and allow the applicant to consider his arguments in reply. 1148 Mr. Farrell, do you feel you would benefit from a break at this point? 1149 MR. FARRELL: Yeah, I think I would be shorter in the end result if I had a few moments to discuss this with my advisors than if I just, sort of, started through my notes and thought as I spoke. 1150 So may I suggest we return at 4:15. I would expect to be no longer than 4:30 and probably shorter than that. 1151 MR. BETTS: Okay. That would be fine, and it will allow us all an opportunity just to take a break anyway, and the timing is good. 1152 So we will adjourn now and return at 4:15. Thank you. 1153 --- Recess taken at 3:52 p.m. 1154 --- On resuming at 4:17 p.m. 1155 MR. BETTS: Thank you, everybody. We are about to hear reply arguments. Are there any preliminary matters prior to doing so? 1156 Mr. Farrell, please continue. 1157 MR. FARRELL: Thank you, Mr. Chairman. 1158 REPLY SUBMISSIONS BY MR. FARRELL: 1159 MR. FARRELL: I'm going to deliver my reply submissions by topic rather than by counsel, so I'm not going to take you through what Mr. Vegh said and then what Mr. Thompson said and so on. 1160 I do, however, in terms of mentioning those two counsel, have to make the observation that it seems to us that you heard quite a bit of evidence in the course of their argument. 1161 Both Mr. Vegh and the tag-team of Mr. DeRose and Mr. Thompson talked about timing and the commercial implications that it had. They talked about planning processes and planning for costs and so on, and Enbridge has to observe that it's incomprehensible to us how a rate rider at a constant unit rate is a bad thing, but a one-time adjustment of unknown magnitude is okay for planning purposes. So their arguments to the fact that this is disruptive of planning simply escapes us. 1162 Mr. Vegh talked about price signals, and in his view -- and I don't know what school of economics he went to -- but in his view, price signals were meant to incent behaviour. As we see it, price signals are intended to have prices reflect the economic cost of a consumption pattern, and the longer it takes for the consumer to realize the cost of that consumption pattern, the weaker the price signal is. 1163 There was mention by the IGUA team of the need for notice vis-a-vis timing, and Mr. Thompson took you through a number of illustrations, and I'll come to those in a moment, to indicate that what IGUA members or contract customers needed was more time, more notice, time to react, and so on, and I'll just repeat by reference what I said in my argument in chief. 1164 I referred you to transcript references from March 20th and April 29th. I'd again ask you and Mr. Dominy to look at the evidence of the Enbridge witnesses there in terms of what they were saying about the magnitude of the PGVA and the means of clearing it as a response to this notice issue. I'd also point out that at transcript paragraph 457 in yesterday's transcript, Ms. Giridhar mentioned meetings with large-volume customers where this matter was discussed. 1165 Mr. Thompson took you through a number of illustrations, and I'm not too sure what to make of those in terms of replying to them, but let me say that the theme seemed to be that large-volume customers thought that make-up exonerated them from load-balancing charges. And we find that, again, incomprehensible, because for large-volume customers, the gas-supply load-balancing charge is a separate line item on their bill. So surely they know they're being charged for load balancing, regardless of whether they are at a deficiency or otherwise. 1166 You remember Mr. Small's graph. A supply line on a budgeted basis includes load-balancing supplies as budgeted. The dollar balance in the PGVA now on the load-balancing side reflects two things: One is that more load-balancing gas was needed than was budgeted for because of the abnormally cold weather, and that the prices were more volatile in this past year than had been the case in the previous year or, perhaps, previous years. 1167 So load balancing can't be new to large-volume users, and therefore, they can't be said, in our submission, to be totally caught by surprise by the fact they're going to get a load-balancing charge. 1168 But then I would, on the flip side of that, say to you or remind you -- and now I don't have a transcript reference, because it was evidence that was given this morning, but Ms. Duguay in reply to some questions by Mr. Dominy, and I'll have to base my submissions on my notes, the question was to the effect that there is load balancing in rates, and if the weather was colder, there would be no load balancing. And Mr. Dominy used the example of an industrial customer who was a process customer, not a heating customer or not a heat-sensitive customer. 1169 And what about the allocation of load-balancing dollars? And Ms. Duguay's answer, as I wrote it down, was that the -- that load pattern was factored into the scheme of things at the rate-class level and that the allocation factor that was used to allocate load-balancing dollars at the rate-class level took that into account, so the share of the load-balancing price variance for those particular rate classes would be, and I think she used the word "minimal". 1170 So I don't know many IGUA members personally, but if they go ballistic at a minimal allocation, then I guess they go ballistic at anything, and I wouldn't pay any attention to that submission. 1171 There was a suggestion and now I don't remember whether it was -- I think it was Mr. Shepherd who, in asking you to draw a bright line between rate-case issues and QRAM issues, put the unauthorized overrun gas or UOG price issue on the rate case side of the bright line. 1172 And my response to that submission, which I take to be a submission that you should not approve that change in this case, my reply to that is based on Mr. Brennan's evidence where he talked about the large volume of turn-back and his uncertainty as to what was going to happen in terms of where people who didn't have capacity on TransCanada, where their source of gas was going to be and what route it was going to follow. 1173 So the point of my reply on the basis of that evidence is now is the time for that change, so that customers who are contemplating their contracting options will know the consequences if they opt for interruptible service on TransCanada and somehow get squeezed, in the sense of there being a price failure; they will know the consequences that lay ahead of them, and they should know that now rather than some time into the fall, getting closer to the time when their contracting choices may have already been made. 1174 So that is our reason for saying now is the time. 1175 There were some submissions to the effect that the period of the rate rider, should you grant one, should be three months instead of six months. The company's principal concern is to recover the monies it spent for load-balancing purposes, but the company's preference in terms of recovery period is six months, for the reasons given by Ms. Duguay, both in her pre-filed evidence and again yesterday and today in response to questions. 1176 And I would point out one thing I think that she mentioned for the first time this morning, and that is to say that the benefit of a six-month period in addition to having a lower time -- a lower unit rate was the fact that in the first quarter of fiscal 2004 there would be no rate rider, and therefore, there would be no overlap or build-up of rate riders. So I just mention that as one aspect to emphasize in favour of a six-month period. 1177 And I would also mention that those who seem to favour the three-month period are focussing on heat-sensitive rate classes, and the company, as pays heed to the interest of not only heat-sensitive rate classes but also the larger-volume rate classes, so the six-month period, at least in the company's opinion, would better serve the interests of all customers, heat-sensitive, as well as large volume. 1178 And the last thing that I wanted to reply to was the standard of proof that Mr. DeRose mentioned. I had a hard time maintaining a straight face when he was suggesting to you that the standard of proof in this case should be one akin to a mandatory injunction. 1179 We are seeking rate relief here. The standard of proof that applies in a rate case is the one that applies here. This is nowhere near the type of proceeding that one would characterize as one of a mandatory injunction, and so I think you should simply disregard his submissions in that regard. 1180 Those are my submissions in reply. Thank you very much. 1181 MR. BETTS: Thank you, Mr. Farrell. 1182 [The Board confers] 1183 MR. FARRELL: Mr. Chairman, Ms. Hare reminds me that I overlooked making one final submission, and that is to say that in disagreeing with Mr. Shepherd's categorization of the UOG issue in terms of the bright-line issue, that is not to say that Enbridge would not welcome some guidance from the Board, if you and Mr. Dominy have views you wish to express, on what is a QRAM matter and what is not a QRAM matter. 1184 I think that everyone would benefit from your views in that regard. So I am just asking you not to take my submissions on that particular issue as being an attempt to refute the idea of a bright line. Thank you. 1185 MR. BETTS: Thank you. That was my question. My question just related to that point, and I'll just state it so that it does get clarified. 1186 I didn't think that Mr. Shepherd was in fact trying to determine that the timing was not right for this particular matter, but was questioning whether or not the QRAM process was the right process to take. 1187 So I take from your comments that you are not in disagreement with that, that you understood his point. 1188 MR. FARRELL: Yes, we do. We say that, as I said in my argument in chief, the UOG rate is, in the company's view, based on Mr. Brennan's evidence, a gas cost issue, and QRAM is a gas-cost process. So we think that this is the right place to raise the issue. 1189 But in terms of a bright line between what is and isn't a QRAM issue, we would welcome your views. 1190 MR. BETTS: We will take that under advisement. 1191 MR. FARRELL: Thank you. 1192 MR. BETTS: We have no further questions of you either, Mr. Farrell. Thank you. 1193 That concludes the evidentiary portion of the hearing. The panel will be meeting tonight to review the submissions made today, and if necessary, into tomorrow morning. We are still planning on the schedule we proposed earlier today, which would be a reconvening at 10 o'clock tomorrow morning in this hearing room. We feel that will be achievable, and we will do our best to do that. 1194 [The Board confers] 1195 And as we have said in the past, when we do come to issue oral decisions, we do not expect to see everybody here. Certainly you are all welcome to come, but we will not be in the slightest way offended if you are not here to hear us state our decision. 1196 You'll get it very promptly in another format one way or the other, and it is probably in your interests and the consumer's interests if -- well, I will leave the rest unsaid. Anyway, I'll leave that to your own discretion. 1197 Are there any comments that anyone needs to make at this point, in closing? 1198 I would like to thank you all. This has not been a normal QRAM process, by any means. I would like to thank the intervenors for their very prompt attention and trying to satisfy the needs of the Board, and I would like to thank the applicant very much for their very prompt attention to the need for information and their willingness to provide that on a very, very short time frame. 1199 And my respect to the panel for trying to deal with questions on, again, a short preparation schedule. I think it has been helpful. 1200 It was an unusual request, and I believe we have probably either -- well, in fact, I would say answered some questions that would have definitely and may still arise in the future. So from that point of view, it has been meaningful. 1201 And once again, thanks to Board staff and the court reporters for their assistance, and I think with that, we will adjourn now and reconvene at 10 o'clock tomorrow morning. 1202 --- Whereupon the hearing was adjourned at 4:35 p.m.