Rep: OEB Doc: 12N9Y Rev: 0 ONTARIO ENERGY BOARD Volume: 5 28 MARCH 2003 BEFORE: R. BETTS PRESIDING MEMBER G. DOMINY MEMBER 1 RP-2002-0133 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Schedule B); AND IN THE MATTER OF an Application by Enbridge Gas Distribution Inc. for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, transmission and storage of gas commencing October 1, 2002. 3 RP-2002-0133 4 28 MARCH 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel COLIN SCHUCH Board Staff SUZANNE TONG Board Staff TURGUT HASSAN Board Staff DENNIS O'LEARY Enbridge Gas TANIA PERSAD Enbridge Gas FRED CASS Enbridge Gas MICHAEL JANIGAN VECC ROBERT WARREN CAC THOMAS BRETT OASBO JAY SHEPHERD OPSBA VINCE DEROSE IGUA 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [16] ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 6.4; CONTINUED: CHARLESON, COLLIER [45] CROSS-EXAMINATION BY MR. SHEPHERD: [57] CROSS-EXAMINATION BY MR. BRETT: [606] CROSS-EXAMINATION BY MR. MORAN: [890] RE-EXAMINATION BY MR. O'LEARY: [991] QUESTIONS FROM THE BOARD: [1006] FURTHER RE-EXAMINATION BY MR. O'LEARY: [1070] DECISION: [1086] ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45: HOLDER, CHIOTTI [1113] EXAMINATION BY MS. PERSAD: [1117] CROSS-EXAMINATION BY MR. WARREN: [1193] CROSS-EXAMINATION BY MR. JANIGAN: [1446] PROCEDURAL MATTERS: [1510] 10 EXHIBITS 11 EXHIBIT NO. K.5.1: MATERIALS FOR CROSS-EXAMINATION FILED BY SCHOOL BOARDS [52] EXHIBIT NO. K.5.2: REQUEST FOR PROPOSAL FOR BUSINESS PROCESS MANAGEMENT OF THE WORK OF MANAGEMENT CENTRE FUNCTIONS FOR ENBRIDGE GAS DISTRIBUTION, DATED SEPTEMBER 2002 [1287] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.5.1: TO PROVIDE THE NET PRESENT VALUE CALCULATION FROM THE RATEPAYERS' PERSPECTIVE, INCLUDING GDAR EFFECTS [123] UNDERTAKING NO. J.5.2: TO PROVIDE A BREAKDOWN OF THE GDAR ESTIMATE OF BETWEEN $6.1 MILLION AND $8.2 MILLION, FILED IN EXHIBIT A.5, TAB 5, SCHEDULE 5, PAGE 3 [176] UNDERTAKING NO. J.5.3: TO PROVIDE THE REMAINDER OF ADJUSTMENT TO THE NPV CALCULATION [191] UNDERTAKING NO. J.5.4: TO PROVIDE BREAK-EVEN CALCULATION OF GDAR BENEFITS [226] UNDERTAKING NO. J.5.5: TO PROVIDE BIDDERS SPREADSHEETS IN RESPONSE TO RFP 4.8 [333] UNDERTAKING NO. J.5.6: TO PROVIDE BREAKDOWN OF EGD'S DIRECT-PURCHASE AND SYSTEM-GAS CUSTOMERS [631] UNDERTAKING NO. J.5.7: TO FILE SAPIENT CONTRACT, SUBJECT TO CONFIDENTIALITY [777] UNDERTAKING NO. J.5.8: TO PROVIDE CONTROL OF LEGACY SYSTEMS UNDER THE ARRANGEMENTS BETWEEN ACCENTURE AND CUSTOMER WORKS [951] UNDERTAKING NO. J.5.9: TO PROVIDE THE ESTIMATE ENBRIDGE CURRENTLY HAS OF THE ADDITIONAL COSTS OF WAMS RELATED TO FIELD FORCE TECHNOLOGY [1415] 14 --- Upon commencing at 9:37 a.m. 15 MR. BETTS: Good morning, everybody. Please be seated. 16 PRELIMINARY MATTERS: 17 MR. BETTS: Once again, good morning and welcome back to day 5 of this hearing procedure. I have no matters to bring to your attention from the panel's perspective, so I will invite preliminary matter from the participants. 18 Mr. O'Leary, anything from the applicant? 19 MR. O'LEARY: Mr. Chairman, two very brief matters. 20 The first is the transcript at paragraph 898. In a response that Mr. Charleson gave, the last line of that paragraph says "GAR" and I think what was intended was "GDAR"; just that one minor correction. 21 The other is I'd like to, Mr. Chair, refer you to paragraph 1420 through to 1428, which was a line of questioning by Mr. Warren in respect of the extent, if any, of board-of-director approval for the EnTRAC project, and Mr. Charleson's answers are there. I'd like to advise the Board and parties that Ms. Janet Holder, VP of Operations, will be joining us later this morning. She is intended to participate on the panel for WAMS following this panel and she will be able to address any questions parties may have in respect of that issue, and has some further information. 22 My question, Mr. Chair, is whether it would be preferable to invite her to join this panel briefly or to simply await for her arrival this afternoon and the questions in respect of both WAMS and EnTRAC can be dealt with at the same time. 23 MR. BETTS: It was Mr. Warren's questions that were being addressed there. 24 Mr. Warren, do you have a preference? 25 MR. WARREN: I'm happy to wait for Ms. Holder. Thank you, sir. 26 MR. BETTS: Fine. So we can leave Ms. Holder's appearance until her scheduled appearance this morning. 27 MR. O'LEARY: Thank you, sir. That's all the preliminary matters. 28 MR. BETTS: Are there any other preliminary matters -- well, from Mr. O'Leary, any further -- that was it? 29 MR. O'LEARY: Yes. 30 MR. BETTS: And from intervenors? No? 31 Mr. Moran. 32 MR. MORAN: Yes, Mr. Chair, just with respect to the schedule, you have a copy before you of an updated schedule that reflects the results of the discussions that we had yesterday. Just to put this on the record so that parties who are not here will understand what's going on, you will see that the plan for today, March 28th, is to finish the EnTRAC evidence and then to move to issue 7.45, the WAMS evidence, and the plan is to then adjourn at that point, if that's completed. 33 On Monday, March 31st, we would continue with the cross-examination of the Enbridge DSM panel and that may finish that day or it may not. If it finishes, again, we would adjourn, which is what's proposed here. 34 On April 1st in the morning, the EnTRAC oral argument would take place, and the plan is to complete that by the lunch break and then begin with the issue 7.5 and 7.43, as it is on the original issues list, starting right after the lunch break. The only variation that might happen is that if DSM hasn't been quite completed before the EnTRAC argument, then it would be completed on the afternoon of April 1st. 35 MR. BETTS: Thank you. 36 It may very well be that all the parties have not had a chance to study this. Are there any comments from any parties at this point on the schedule? 37 Mr. Brett. 38 MR. BRETT: I just have one question, thank you, Mr. Chairman. Is the plan still to adjourn today at lunch, or are we going this afternoon as well? I thought -- I wasn't sure of that? 39 MR. BETTS: The plan is to continue through lunch and adjourn at our normal time of 4 p.m., unless someone could convince the panel otherwise. But that's the current plan, Mr. Brett. 40 Thank you very much for that updated schedule. 41 Anything else, Mr. Moran? 42 MR. MORAN: No, Mr. Chair. 43 MR. BETTS: Then in closing the hearing day yesterday, we were in the process of cross-examination of the Enbridge panel on the EnTRAC issue and I received indications at that time from Mr. Shepherd, Mr. Brett, and Mr. Moran of their intentions to cross-examine the panelists. Is that still the situation? 44 It appears so, so welcome back, Ms. Collier, and Mr. Charleson, and Mr. Shepherd. Please proceed. 45 ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 6.4; CONTINUED: CHARLESON, COLLIER 46 D.CHARLESON; Previously sworn. 47 J.COLLIER; Previously sworn. 48 MR. SHEPHERD: Thank you, Mr. Chair. 49 You have in front of you a document 10.K, Sapient Corporation. I'm just letting you know that later in his cross examination I hope to put that in evidence and ask questions about it. -- 50 MR. BETTS: Thank you. 51 MR. MORAN: Mr. Chair, if you wish, we could mark that Exhibit K.5.1, "Materials for Cross-examination Filed by School Boards." 52 EXHIBIT NO. K.5.1: MATERIALS FOR CROSS-EXAMINATION FILED BY SCHOOL BOARDS 53 MR. BETTS: Thank you. 54 And just before we commence, and thank you for that, Mr. Shepherd, I did notice some confusion in the appearances -- I should have mentioned this earlier. On volume 4 of the transcripts, and I think they have both Mr. Brett and Mr. Shepherd representing the same parties, so that will need some correction as well, just to be noted. 55 Sorry, Mr. Shepherd, please proceed. 56 MR. SHEPHERD: Thank you, Mr. Chairman. 57 CROSS-EXAMINATION BY MR. SHEPHERD: 58 MR. SHEPHERD: Mr. Charleson, your updated evidence shows a total cost for EnTRAC of 18 million; is that correct? 59 MR. CHARLESON: That's correct. 60 MR. SHEPHERD: That doesn't include GDAR compliance; is that correct? That's an additional 2.7. So the real cost you're proposing is 20.7 million. 61 MR. CHARLESON: The cost that we are proposing for the scope of EnTRAC that this issue is dealing with is the $18 million. The company would then have to look to recover incremental costs associated with applying GDAR, and those are currently estimated at $2.7 million. 62 MR. SHEPHERD: You're actually planning on spending $20.7 million; is that right? 63 MR. CHARLESON: Assuming that we would be moving ahead on becoming compliant with GDAR, yes. 64 MR. SHEPHERD: And, in fact, your NPV calculation assumes that you're going to include GDAR in the project? 65 MR. CHARLESON: The NPV calculation assumes that if we didn't -- that if we were not to include GDAR, or if we were not to have EnTRAC in place, that there would be a significantly higher cost with being compliant on GDAR. 66 MR. SHEPHERD: So the NPV that you're telling the Board today is NPV for this project, assuming that GDAR is in the project? 67 MR. CHARLESON: It assumes that EnTRAC will provide the foundation for GDAR -- for the company to become compliant with GDAR. I'm sorry, it seems like we're splitting hairs a little bit on this. But if the NPV were to include all of GDAR, then we would also have to include the cost -- the 2.7 million in the cost, and that's not factored into that NPV calculation. 68 MR. SHEPHERD: So, now, I'm trying to figure out whether it's a fixed cost or not. In your answer to Mr. Warren yesterday, I thought you said this was a fixed-price contract, but then you talked about scope changes. 69 Isn't scope changes really the standard way that custom software projects are costed in over the long term; that is, the actual amount of the project is rarely the original amount, isn't that true, because of scope changes? 70 MR. CHARLESON: I would agree that scope change tends to be one of the significant factors that impacts any IT project. 71 MR. SHEPHERD: The Union Line has a similar system to yours that was developed and implemented by the same company, Sapient. 72 MR. CHARLESON: It's correct that Sapient worked on implementing the Union Line. There are definite differences between the Union Line and what we're proposing here. 73 MR. SHEPHERD: And that system was 15.7 million in cost? 74 MR. CHARLESON: That's correct, based on my understanding of the decision on the Union Line. 75 MR. SHEPHERD: Does that have a similar technical architecture to yours; that is, is it based on an Oracle database, and does it integrate Lotus Notes and those sorts of things? Is it similar in those respects? 76 MR. CHARLESON: Based on my high-level understanding of the Union Line, there would be a similar infrastructure used. 77 MR. SHEPHERD: Now, that project started in 1999 and came into service in 2001; isn't that right? 78 MR. CHARLESON: I'm not familiar enough with all the time lines around it. My understanding was that the final phases of the Union Line were implemented in 2002. 79 MR. SHEPHERD: Is it fair to say that that Union Line product is one of the first web-enabled services of its type anywhere in the natural gas industry? 80 MR. CHARLESON: I don't have sufficient knowledge to agree with that. 81 MR. SHEPHERD: Didn't you do an investigation of this type of product at the time you decided to look at EnTRAC? 82 MR. CHARLESON: We did look around to see what other utilities were doing, and we know that Atlantic Gas & Light has done work in terms of a product. I'm just not sure whether theirs is web-enabled or not, or the infrastructure that underpins that. I just know that there are some other utilities that have done work in this area. But whether it's web-enabled or whether it's some other mechanism being used, we don't have sufficient knowledge. 83 MR. SHEPHERD: In your investigation of what was available out there, you didn't look at whether products with a similar architecture to what you were planning, web-enabled self-service products, were in the market already? 84 MR. CHARLESON: We looked at what appeared to be commercially available, and that's where -- that's where the focus of the investigation was. 85 MR. SHEPHERD: But you wouldn't normally have a commercially-available product like this, would you? Normally, you'd have a utility that builds one for themselves and then maybe licences it to other utilities if they like it; isn't that true? 86 MR. CHARLESON: Based on what we've seen, yes, we haven't seen anything that's commercially available. Our expectation would be, and what we've seen is custom development has been the norm in that, so whether those utilities would look to licence those products or not, we'd have to speculate. 87 MR. SHEPHERD: Is it true in the general costs for large IT projects like this one have been trending down over the last five years, new technology make it easier to implement complex functionalities up here? 88 MR. CHARLESON: I'm not familiar enough with what's been happening in projects and IT costs in general in the past few years. 89 MR. SHEPHERD: Maybe I misunderstand. I understood that part of your role was to procure IT solutions for Enbridge; isn't that right? 90 MR. CHARLESON: No, my role at this point in time is to manage the relationships we have with our large-volume customers and brokers and marketers. 91 MR. SHEPHERD: I misunderstood. I have a number of technical questions. I'm not sure whether -- I'll ask them anyway. 92 The system that you're putting in place includes an Oracle application server and Vitria middleware. These are things that, tell me whether this is correct, that prewrite a lot of the guts of any system. A lot of the sort of basics of major software are already in the middleware in the application server; is that right? 93 MR. CHARLESON: Based on my understanding of those tools from previous experience, I wouldn't say that that's an accurate classification of those tools. 94 When you look at something like a Vitria middleware, it requires coding all of the relationships between -- or the touch points between the different systems that you're looking to connect with that middleware. And once you have coded those relationships, it then, in the longer term, will deliver savings because you're able to reuse those components. But each organization has to develop those initial components, and we don't have those yet. 95 MR. SHEPHERD: Okay, so -- sorry, I'm at a loss here. 96 Is it your evidence, then, that those tools, in the development of a major project like this, don't save time and money? 97 MR. CHARLESON: They provide the opportunity to save time and money if those tools have been used -- have previously been used within the organization to have to build similar touch points to the applications that this solution would have to deal with. But it provides the opportunity for future savings as other development efforts or other applications have to be developed that would also look to interface with those other touch points where you would be able to reuse those components. 98 MR. SHEPHERD: EnTRAC is based on J2EE technology; is that right? 99 MR. CHARLESON: Based on it, yes, it is. 100 MR. SHEPHERD: I take it that means that it will use extensive -- extensively use work flows as part of the design? 101 MR. CHARLESON: Unfortunately, we're now getting into an area that I don't have the technical background. 102 MR. SHEPHERD: Okay, I'll move on. 103 Can I ask you to turn up School Boards' interrogatory 55, which is Exhibit I, tab 17, schedule 55. 104 MR. CHARLESON: I have that. 105 MR. SHEPHERD: And while you keep that up, would you also turn up Exhibit A.5, tab 5, schedule 3, page 4, which I believe is your new NPV calculation for the same project. 106 MR. CHARLESON: Yes, I've got that as well. 107 MR. BETTS: Mr. Shepherd, the last one was A.5, tab 5 -- 108 MR. SHEPHERD: Schedule 3, page 4, which is the update evidence, the last page. 109 Sorry, Mr. Charleson, you're faster at getting these things than I am. 110 Now, these NPV calculations are both from the company's point of view, right, rather than the ratepayers? 111 MR. CHARLESON: Yes, they are. 112 MR. SHEPHERD: And so if you did -- if you looked at whether it has a net positive benefit to the ratepayer, you'd do a different calculation entirely; how much was included in rates at given times, what benefits flow back in rates at different times, et cetera; isn't that right? 113 MR. CHARLESON: I think how we would probably look at it is based on -- we would take a look at the revenue requirement impacts, taking into consideration the costs and benefits and some of those other tax implications. 114 MR. SHEPHERD: And you'd net-present-value that. You could. 115 MR. CHARLESON: You could. 116 MR. SHEPHERD: But you haven't done that. 117 MR. CHARLESON: No. We've looked at the revenue requirement impacts of EnTRAC over a five-year horizon, but we haven't net-present-valued that. 118 MR. SHEPHERD: Okay. And if you net-present-valued it, would it be negative or positive, do you think? 119 MR. CHARLESON: It would still be negative. 120 MR. SHEPHERD: Okay. Can you undertake to provide us with that calculation? 121 MR. CHARLESON: Yes, we can. 122 MR. MORAN: Mr. Chair, that would be Undertaking J.5.1. 123 UNDERTAKING NO. J.5.1: TO PROVIDE THE NET PRESENT VALUE CALCULATION FROM THE RATEPAYERS' PERSPECTIVE, INCLUDING GDAR EFFECTS 124 MR. BETTS: Thank you. 125 MR. CHARLESON: Sorry, just to be clear on that, when we look at the revenue requirements, it depends on what assumptions we make around GDAR and the incremental cost benefit on GDAR. So there is the potential we may end up seeing a positive net present value when we take that into consideration. But we will include that in our -- in the undertaking. 126 MR. SHEPHERD: Fine. 127 I want to go through the main differences between these two NPV calculations and see if I can figure them out. Let's start with the capital costs. On the current one you've got $18 million listed as hardware. Why is that? 128 MR. CHARLESON: Because there's no real difference in terms of the NPV treatment or the treatment of those capital costs, whether they be software development, labour. For simplicity they were put in as a single line item so that people could relate to the total cost. So the caption perhaps could be better reflected. 129 MR. SHEPHERD: Okay. So it doesn't affect, for example, your tax calculations or any of that sort of stuff. 130 MR. CHARLESON: My understanding is that it doesn't. 131 MR. SHEPHERD: Okay. And the change in your capital cost line is -- you have a little more this year, a lot more next year, but then the project is finished next year because it's now an 18-month project, so there's nothing in 2005; isn't that right? 132 MR. CHARLESON: That's correct. 133 MR. SHEPHERD: And so all of those will tend to make the NPV better, because the cost is lower but -- 134 MR. CHARLESON: Yeah, the lower cost would make the NPV better, yes. 135 MR. SHEPHERD: And the acceleration will make it worse? 136 MR. CHARLESON: Yes. 137 MR. SHEPHERD: Can we move down to the line "Annual Gas Cost Savings". 138 MR. CHARLESON: Yes. 139 MR. SHEPHERD: You now have them starting in 2004 rather than 2003; I assume that's because your first functionality won't be available in this year? 140 MR. CHARLESON: Yes, and also what we recognized in filing -- when we were revising the NPV calculation, is that that 875,000 in 2003 in the response to School Boards' interrogatory number 55 really shouldn't have been there. We look at the benefit table that's included in the business case. There were no benefits to be seen in 2003, so that was an error on our part that we tried to correct in this updated schedule. 141 MR. SHEPHERD: So that tends to make NPV worse. 142 MR. CHARLESON: That's correct. 143 MR. SHEPHERD: Now, two lines down from that you have a figure "Other Items" and you've increased that by 2.5 million in 2003 -- 850,000 in 2004. Do I understand correctly that that's the net impact of the GDAR savings? 144 MR. CHARLESON: That's the net impact of us assuming -- looking at the incremental cost of dealing with GDAR on a stand-alone basis and this scenario that we've provided here was assuming that we would be able to deliver at the low end of the estimated stand-alone costs. 145 MR. SHEPHERD: So -- now that's net of the 2.7 million that would be in this project for GDAR; right? 146 MR. CHARLESON: Net of the 2.7 that would be an incremental cost of this project, assuming that we were able to do GDAR with EnTRAC as the foundation. 147 MR. SHEPHERD: So then if you take the 2.55 plus the 850, plus the 2.7 million, you get the 6.1 million, which is the low end of your cost? 148 MR. CHARLESON: Sorry, you're throwing a lot of numbers out quickly. 149 MR. SHEPHERD: Oh, sorry, they're your numbers. The 2.55 in 2003, the 850,000 in 2004, and the 2.7 million cost of GDAR within the EnTRAC environment, total 6.1 million. 150 MR. CHARLESON: That's correct. 151 MR. SHEPHERD: Which is the low of your estimated cost for a non-EnTRAC GDAR. 152 MR. CHARLESON: That's correct. 153 MR. SHEPHERD: How did you decide the timing of those things? Do you have a budget for GDAR without EnTRAC and with EnTRAC? 154 MR. CHARLESON: At this time, we don't have a budget for GDAR with and without. With the work that we've done, we have done preliminary estimates. 155 The focus of our estimation has really been on having EnTRAC as the foundation, and that's how we arrived at the 2.7 and that's why we've been able to keep it to a singular number there. 156 Recognizing that there is the potential that EnTRAC may not proceed, we've looked at what our fall-back approach may be, and for that we haven't been able to determine the same degree of precision or same degree of estimation on those costs, and so that's where we've arrived -- come up with the estimated range that we would see, given the potential approach that we would look at taking. 157 If EnTRAC were not to proceed, we would obviously have to spend additional effort revisiting our approach and look at how that would be addressed to find out where we would land within that range. 158 MR. SHEPHERD: Well, in order for this NPV calculation to be correct - tell me if this is right - you would have to assume that without EnTRAC, you would spend $5,250,000 before the end of September on GDAR; is that right? Because you've got 2 million 550 this year. 159 MR. CHARLESON: That's correct. 160 MR. SHEPHERD: Plus the 2.7 million that's netted out and 850 next year. 161 MR. CHARLESON: That's correct. 162 MR. SHEPHERD: So you have, then, some sort of budget, I assume, that says that it would cost 5.2 million in the next six months in GDAR implementation. 163 MR. CHARLESON: We have an estimate that leads us to believe we would need to spend $5.2 million in the next six months for us to be in a position to be GDAR-compliant by March 1st, 2004, if EnTRAC were not to proceed. Whether internally our senior management would be in a position -- would be comfortable with approving moving forward with that expenditure in the absence of cost -- assurances on cost recovery would remain to be seen. 164 MR. SHEPHERD: There's some sort of deferral account on GDAR costs, isn't there? 165 MR. CHARLESON: Yes, there is. 166 MR. SHEPHERD: So do you have some sort of calculation of these numbers, 6.1, 8.2, 2.7, these various numbers? Do you have some sort of value indication? 167 MR. CHARLESON: We have some basis for those numbers, yes. 168 MR. SHEPHERD: Could you undertake to provide those. 169 MR. CHARLESON: Certainly. 170 MR. MORAN: That will be Undertaking J.5.2. 171 MR. BETTS: Could we have again a description of that, either from Mr. Shepherd or Mr. Charleson. Maybe Mr. Charleson, what you understand to be the undertaking. 172 MR. CHARLESON: My understanding of what is being looked for is a breakdown of the estimate that has led us to the numbers filed in Exhibit A.5, tab 5, schedule 5, on page 3, that show our estimate for GDAR to be between 6.1 million and $8.2 million. 173 MR. SHEPHERD: Sorry, Mr. Chairman, and the 2.7 million that is assumed within EnTRAC. 174 MR. CHARLESON: We can include that as well. 175 MR. BETTS: Thank you. 176 UNDERTAKING NO. J.5.2: TO PROVIDE A BREAKDOWN OF THE GDAR ESTIMATE OF BETWEEN $6.1 MILLION AND $8.2 MILLION, FILED IN EXHIBIT A.5, TAB 5, SCHEDULE 5, PAGE 3 177 MR. SHEPHERD: And then those numbers included in the NPV calculation have a tendency to improve the NPV obviously? 178 MR. CHARLESON: Yes, they would. 179 MR. SHEPHERD: Take a look at the line above that in this Exhibit. You've increased O&M savings by a half a million dollars a year for a total of $2 million over four years from your previous estimate. Can you tell us why that is? 180 MR. CHARLESON: Yes. If you look at our response to the School Boards' interrogatory number 150, which is -- which was where we provided -- in that interrogatory response, we provided an estimate of the service fee that would be charged to ABC. 181 MR. SHEPHERD: Yes. 182 MR. CHARLESON: I'll just give everybody a minute to find that. 183 MR. BETTS: We're all right up here. 184 MR. CHARLESON: Okay. So in the response to that interrogatory, we've identified that as EnTRAC come into service, there would be a charge -- an incremental charge to the ABC service for that kind of non-utility support that EnTRAC is providing. So we've taken that fee and that has been factored into the NPV calculation. 185 Also, as I indicated before, we had revisited all of the benefits that were in the original NPV calculation, and there was some tuning to ensure that we were matching the benefits as stated in the business case with what was in the NPV calculation. 186 MR. SHEPHERD: Well, okay, just help me out here. 187 The School Boards' 150 says that in 2004 the ABC usage fee is $75,000, and in 2005 it's $320,000, so that's not $500,000 in either. So what is the remainder of that adjustment to the NPV calculation? 188 MR. CHARLESON: I'd have to undertake to provide you that detail. 189 MR. SHEPHERD: Thank you. 190 MR. MORAN: Undertaking J.5.3. 191 UNDERTAKING NO. J.5.3: TO PROVIDE THE REMAINDER OF ADJUSTMENT TO THE NPV CALCULATION 192 MR. SHEPHERD: Now, finally, can we look at the ABC calculations in your current NPV calculation? You've accelerated the spending, and that means that the tax shield is slightly earlier; isn't that right? 193 MR. CHARLESON: Without being a tax expert, the CCA calculation would show that, yes. 194 MR. SHEPHERD: But then in 2007, you have a number that is currently $1,369,000 which is the residual tax shield, so in calculating your NPV you would treat that benefit as having been received entirely in 2007; right? 195 MR. CHARLESON: Sorry, in looking at the residual value of the tax shield. 196 MR. SHEPHERD: 1,369,522. 197 MR. CHARLESON: It would appear that's the way it's reflected, yes. 198 MR. SHEPHERD: You would only have that benefit if the system were taken out of service at that time, so you would have had a terminal loss; isn't that right? 199 MR. CHARLESON: I'm sorry, I'm not familiar enough with the tax rules to know that. 200 MR. SHEPHERD: Okay. This is your NPV calculation? 201 MR. CHARLESON: It is my NPV calculation. I was assisted on it, and if there's clarification needed on the tax rules, I can undertake to provide whatever clarification is needed. 202 MR. SHEPHERD: You're not anticipating you're going to have an additional tax shield in 2007, are you, in fact? Or do you know? 203 MR. CHARLESON: I don't know. 204 MR. SHEPHERD: You're not expecting that the system will have to be replaced by the end of the 2007 rate year, are you? 205 MR. CHARLESON: No, I'm not expecting that. 206 MR. SHEPHERD: Now, this -- with all these changes, and even with the GDAR benefit, there's still a negative NPV. Is it fair to say that that negative NPV is in essence a representation of the total cost to ratepayers of the increased functionality and quality of service that you're getting from EnTRAC? That's what you're paying for, that increased functionality and quality of service. 207 MR. CHARLESON: I think that's fair. 208 MR. SHEPHERD: So, in essence on this calculation anyway, it looks like it's going to cost about $3 million to do energy transaction management reporting better than you're doing it now? 209 MR. CHARLESON: Assuming that the GDAR benefit is taken at the low end of the estimate. 210 MR. SHEPHERD: Yeah. 211 In your experience, and this is not the first time you've been involved in one of these big projects, is it? 212 MR. CHARLESON: No, it's not. 213 MR. SHEPHERD: Is it your experience, is it generally true when you shift from your own legacy systems, like ELVIS is 20 years old, I understand -- your ELVIS. When you shift from legacy systems and ones particularly that are like this that are manual ones to newer technologies, isn't it generally true that you get additional efficiencies that translate into cost savings? 214 MR. CHARLESON: I think there are efficiencies that are excepted that will translate into cost savings and I believe we have tried to capture those cost savings in the business case. 215 MR. SHEPHERD: But there is, in fact, a net cost to this project? 216 MR. CHARLESON: Yes. 217 MR. SHEPHERD: In fact, the Sapient, your selected contractor, describes on their web site a typical project, I'm just going to describe this to get your reaction, in which the client had a 30 percent reduction in capital costs, IT capital, plus reduced O&M plus increased functionality. Does that sound pretty typical to you of implementation of major new technologies? 218 MR. CHARLESON: I think there's a great risk in making a broad generalization around the implementation of new technologies. It depends on the issue that's being addressed. It depends on the -- kind of the business problem that's being addressed and kind of the resources that are currently being used in relation to that. 219 MR. SHEPHERD: Excluding the GDAR benefits - leave those aside for a second because I understand that's a separated issue - at what cost would you have to do this system in order for the NPV to be zero? Have you done that break-even calculation? 220 MR. CHARLESON: No, I haven't. 221 MR. SHEPHERD: Is it fair to say it would be somewhere around 8 million, or do you have any idea? 222 MR. CHARLESON: I think it would be somewhat higher than that. 223 MR. SHEPHERD: Do you think you could undertake to provide that number? 224 MR. CHARLESON: Yes, we could. 225 MR. MORAN: Undertaking J.5.4. 226 UNDERTAKING NO. J.5.4: TO PROVIDE BREAK-EVEN CALCULATION OF GDAR BENEFITS 227 MR. SHEPHERD: Whatever that number is, if you look at it another way, that's the intrinsic value of the system on a strict financial point, isn't it, whatever that number is. 228 MR. CHARLESON: On a strict financial basis. Perhaps before we move on, if I could get some clarification on what you're looking for in J.5.4. You indicated that exclusive of the GDAR piece, so you would like me to be stripping out the incremental GDAR benefit. 229 MR. SHEPHERD: You could do it both ways if you want. That's probably the easiest. 230 MR. CHARLESON: Okay, we'll do it both ways. 231 MR. SHEPHERD: Could you now turn to page 2 of your updated EnTRAC evidence. This is that same Exhibit A.5, tab 5, schedule 3. 232 MR. CHARLESON: I have that. 233 MR. SHEPHERD: On page 2 you have a breakdown of costs. Now, that's your $18 million total. 234 MR. CHARLESON: Yes. 235 MR. SHEPHERD: Does this include the amounts that you've closed to rate base in 2002? 236 MR. CHARLESON: No, it does not. 237 MR. SHEPHERD: Now, that amount was $3 million; right? 238 MR. CHARLESON: That's correct. 239 MR. SHEPHERD: Which means that the real total cost of the system is actually $21 million plus whatever the GDAR component is; is that right? 240 MR. CHARLESON: Yes. 241 MR. SHEPHERD: And GDAR right now is estimated at 2.7, so current -- your current expectation is that you're going to spend $23.7 million on this in total? 242 MR. CHARLESON: Our expectation to address all of the business issues, to increase the understanding of the business processes that we use, and to implement a solution that will deal with those issues plus deal with service transaction request processing within GDAR would be that number. 243 MR. SHEPHERD: Your NPV calculation doesn't have that 3 million that you've already closed to rate base in there, doesn't it? 244 MR. CHARLESON: No, it does not. 245 MR. SHEPHERD: Shouldn't it be in there to be a fair calculation? 246 MR. CHARLESON: I don't necessarily believe it should be, because the focus of that has been to understand the issue. There's already benefits that we're receiving from that that aren't reflected as well, so we've kind of viewed that as there was some work that needed to be done. That work has been completed. It has now been closed to rate base, and really what we're looking at now is there's an incremental expenditure that we need to be making to achieve these other benefits, and so we focused our NPV calculation on that piece. 247 MR. SHEPHERD: I'm having a hard time understanding that. You closed the $3 million to rate base? 248 MR. CHARLESON: Yes. 249 MR. SHEPHERD: So it must be a capital asset? 250 MR. CHARLESON: Yes. 251 MR. SHEPHERD: What's the asset? 252 MR. CHARLESON: I think if you look at the response -- I have to find the interrogatory reference. 253 MR. SHEPHERD: School Boards' 54, is that the one you're looking at? 254 MR. CHARLESON: Yes, that's the one, thank you. So in School Boards' 54, we have identified the rationale behind closing that to rate base and why we viewed the $3 million that had been spent as an asset. It talks about raising the base level of the understanding between interdependencies of various departments. It talks about increasing kind of the knowledge and understanding of the interrelationships and processes that we use, which is today helping us in terms of managing the business and making incremental changes to the way that we operate. 255 MR. SHEPHERD: When you do the scoping and functionality analysis in a major software project, you learn a lot about your business; right? 256 MR. CHARLESON: Yes, that's fair. 257 MR. SHEPHERD: And that allows you to change your business models or practices, even forgetting the software, just because you've learned so much. 258 MR. CHARLESON: Yes, that's fair. 259 MR. SHEPHERD: But you've in fact said in this interrogatory you've kindly referred us to: 260 "The company has spend $3.3 million on the EnTRAC project to date." 261 So that $3 million, was it on the EnTRAC project or not? 262 MR. CHARLESON: It was under the auspices of EnTRAC, yes. 263 MR. SHEPHERD: Then why isn't it in the NPV calculation? 264 MR. CHARLESON: Again, because we focused the NPV calculation on the incremental span that we're looking at to address the issue. 265 MR. SHEPHERD: So really it's because it's its own cost? 266 MR. CHARLESON: Yes, that's fair. 267 MR. SHEPHERD: So the NPV calculation is based on costs going forward, and the fact that you've spent that money already, it's already spent, so it's not part of the equation today. 268 MR. CHARLESON: That's what -- yes. 269 MR. SHEPHERD: Now, just looking at this list of costs back to Exhibit A.5, tab 5, schedule 3, page 2, and I'm working from the 23.7 million number just because all my numbers in here, in my preparation, are based on that. 270 Is it fair to say that about half of that $23.37 million number goes to third parties and half of it is internal costs of either Enbridge Gas Distribution or its companies in the family; is that about right? Twelve million to Sapient or to software vendors and hardware costs, and another, say, 12 million internal. 271 MR. CHARLESON: No, I don't think that that would be the split that we would see. I think we would see a higher percentage to third parties. 272 MR. SHEPHERD: All right. Well, the $3 million that you've already closed to rate base, that's mostly internal; right? 273 MR. CHARLESON: No, a significant portion of that was with Sapient. 274 MR. SHEPHERD: Do you know what the split was? 275 MR. CHARLESON: Not offhand. 276 MR. SHEPHERD: And you've got 2.5 million Enbridge IT resources, and 3 million to Customer Works, and 1.5 million, other program costs. These are all internal costs; right? 277 MR. CHARLESON: I wouldn't necessarily classify the Customer Works cost as internal cost. 278 MR. SHEPHERD: This is about whether they're affiliated; I understand. That's why we said in the Enbridge family. 279 MR. CHARLESON: And again, we undertook yesterday to get clarity on the role they play in the Enbridge family. 280 MR. SHEPHERD: And the $2.7 million on GDAR, is that mostly for Sapient or mostly internal? 281 MR. CHARLESON: Predominantly Sapient. 282 MR. SHEPHERD: Some. Costs that are internal - and by "internal" I mean everybody other than Sapient and software/hardware vendors - some of those are not Enbridge Gas Distribution; right? 283 MR. CHARLESON: That's correct. 284 MR. SHEPHERD: Do you have a breakdown of what those numbers are; how much is going to be EI and how much is going to be paid to Customer Works and et cetera? 285 MR. CHARLESON: The only component that I would see is we have the $3 million that has been identified as Customer Works, and out of the 2.5 million, when you look at the Enbridge IT resources, some of those costs will go to third party independent contractors, contract resources that Enbridge may have on Board. 286 MR. SHEPHERD: Some of it will also go to the EI IT department? 287 MR. CHARLESON: No, it won't. 288 MR. SHEPHERD: No. None of it will be allocated to them? 289 MR. CHARLESON: No, there are no costs allocated to that group. 290 MR. SHEPHERD: Okay. Can I turn to Board staff interrogatory 67, which is Exhibit I, tab 1, schedule 67. And there you've kindly provided us with about a million pages of e-mails. You're a very prolific e-mail writer, Mr. Charleson. 291 MR. CHARLESON: Are you planning on getting into some of the e-mails? Because I'll have to grab another binder. 292 MR. SHEPHERD: Yes. 293 MR. CHARLESON: Okay, I now have that collected. 294 MR. SHEPHERD: I wonder if you could go to page 148 of that. 295 Mr. Chairman, am I -- 296 MR. BETTS: I'm with you so far. 297 MR. CHARLESON: Okay, I have that page. 298 MR. BETTS: Thank you. That was 148? 299 MR. SHEPHERD: Page 148 of the response, yes. 300 You'll note the top slide there's a reference to negotiating with EOS and Customer Works about costs, and I assume it's not just those small amount of costs but ongoing costs as well. What transpired in those negotiations? 301 MR. CHARLESON: As we worked through those, we ended up, for the design phase, that there was no charges from Customer Works or EOS related to their involvement. 302 MR. SHEPHERD: And did that negotiation include what amounts would be paid to those companies for the future phases? 303 MR. CHARLESON: No, they did not. 304 MR. SHEPHERD: Could you turn to page 44 of your same response. And you refer to an additional -- 305 Sorry, does everybody have that? 306 MR. CHARLESON: I have that page. 307 MR. SHEPHERD: You refer to an additional $5.3 million with respect to a portal project. Is that in these costs now? Or what would happen to that? 308 MR. CHARLESON: What ended up happening with that is that the cost ended up not getting billed to EnTRAC. The work was undertaken but, based on the outcomes that came from it, the company felt there was additional value that was gained by both by Sapient and by our CIO office, so the costs -- there ended up being no incremental cost charged to EnTRAC for that. 309 MR. SHEPHERD: Was the work done in part for EnTRAC? 310 MR. CHARLESON: The work was done to do an assessment of whether the interface for EnTRAC should be done as a portal, using portal tools or whether it should be done using other tools. So it was more to make an assessment as to what the interface technology should be. 311 MR. SHEPHERD: And you ended up deciding you should charge it to something else. It a capital cost, in any case? 312 MR. CHARLESON: The cost ended up being absorbed within Sapient and within the CIO office. 313 MR. SHEPHERD: Oh, that's good. 314 MR. CHARLESON: I would see that as one of the benefits of having a CIO office. 315 MR. SHEPHERD: I walked into that, didn't I. 316 Can you turn to your RFP on the EnTRAC project. This is at School Boards' 52, which is Exhibit I, tab 17, schedule 52. 317 MR. CHARLESON: I have the RFP. 318 MR. SHEPHERD: I invite you to mark that, because I may come back to it a couple of times. 319 MR. CHARLESON: Okay. 320 MR. SHEPHERD: Now, I just want to take you to page 20 of the RFP, and there you refer to a pricing spreadsheet that each bidder had to provide in Excel format; do you see that? 321 MR. CHARLESON: Sorry, is that the page number at the bottom of the RFP, page 20? 322 MR. SHEPHERD: Yes, at the bottom. Mine doesn't have page numbers at the top. 323 MR. CHARLESON: No, that's fine. Which section number -- 324 MR. SHEPHERD: It says "4.8, Pricing". 325 MR. CHARLESON: Okay. 326 MR. SHEPHERD: You see there's a reference to an Excel spreadsheet that each vendor has to provide? 327 MR. CHARLESON: Yes. 328 MR. SHEPHERD: I'm wondering, can you undertake to file those spreadsheets for the eight that eventually bid. You can delete their names, obviously, but file the detailed pricing for each? 329 MR. CHARLESON: I would want to take a closer look at what's provided to make sure we're not disclosing anything that may be proprietary, even with removing the names. 330 MR. SHEPHERD: I'm happy for you to take out anything that's confidential, of course. 331 MR. CHARLESON: We can look at that. 332 MR. MORAN: Mr. Chair, that would be Undertaking J.5.5. 333 UNDERTAKING NO. J.5.5: TO PROVIDE BIDDERS SPREADSHEETS IN RESPONSE TO RFP 4.8 334 MR. SHEPHERD: And yesterday, Mr. Charleson, you were speaking with Mr. DeRose about amendments to the pricing during the course of your negotiation with the last five. 335 MR. CHARLESON: That's right. 336 MR. SHEPHERD: Was it five or three that you ended up getting an amended set of pricing? 337 MR. CHARLESON: It was four out of the five that there was some amendments made to pricing. 338 MR. SHEPHERD: You presumably have done new pricing spreadsheets for those four? 339 MR. CHARLESON: No, they weren't provided at the same level of detail, so it was more at a summary level that the pricing adjusts were made. 340 MR. SHEPHERD: So the material that you're providing with respect to Mr. DeRose's undertaking yesterday will be all the details you have available on those changes. 341 MR. CHARLESON: At this time, what we had planned to include was the bottom-line number comparable to what we provided in terms of the initial numbers in the other interrogatory response. 342 MR. SHEPHERD: Do you have a little more of a breakdown than that available? 343 MR. CHARLESON: We have a little bit more. 344 MR. SHEPHERD: Could you provide that as part of this undertaking, please. 345 MR. CHARLESON: We can do that. 346 MR. SHEPHERD: Thank you very much. 347 MR. MORAN: Mr. Chair, just for the record, are we just noting that as an amendment to the undertaking that was given to Mr. DeRose? 348 MR. CHARLESON: Yes, that would be an amendment, I guess, to Undertaking J.4.1, which is the final bid prices, so I guess what's being asked is if we can amend that to provide whatever detailed break-out we may have on each of those prices. 349 MR. MORAN: Thank you. 350 MR. BETTS: Thank you. 351 MR. SHEPHERD: Still on the request for proposals, when you issued this RFP, the $19.5 million number was public; right? You had filed it here. 352 MR. CHARLESON: Yes, it had been filed here. 353 MR. SHEPHERD: And so all the bidders knew that you had already determined that the 19.5 million was a reasonable amount to spend for this? 354 MR. CHARLESON: All of the bidders knew that 19.5 was a number that we considered was necessary to do it. 355 MR. SHEPHERD: Do you think that that had a -- never mind. 356 Let me turn to another question. Obviously -- perhaps I could ask you to go to IGUA interrogatory 76, which is Exhibit I, tab 4, I believe... 357 MR. CHARLESON: I believe it's tab 13. 358 MR. SHEPHERD: Tab 13, schedule 76. And on the second page, you have your list of people invited to bid. 359 MR. CHARLESON: Yes. 360 MR. SHEPHERD: Now, you said you got 14 bids, but there's only 13 on this list. Was the fourteenth Sapient? 361 MR. CHARLESON: There was actually two companies that aren't on that list that were invited to bid. Rand Consulting was also a late addition, and then Sapient hadn't originally been requested to file a formal bid given the work that we were doing with them, but then ended up responding with a formal bid. 362 MR. SHEPHERD: Was their formal bid different than what they'd already given you? 363 MR. CHARLESON: It was a formalization of what they had been talking with us about. 364 MR. SHEPHERD: Before I get to the amount of their bid, let me just ask about -- obviously in a situation like this where they'd been so intimately involved in the design, you would wonder whether other bidders would hesitate to bid because they would figure they already have a lock on the contract. That's generally true, isn't it? 365 MR. CHARLESON: I would see that as being a factor that any vendor would look at. 366 MR. SHEPHERD: And in fact, there's a -- the system that you proposed is based on a proprietary Sapient technology, isn't it? 367 MR. CHARLESON: No, I would disagree with that. There is a small component that Sapient would use in terms of their tool kit; however, that's a tool kit that any vendor would have a comparable set of and would factor into their bid. 368 MR. SHEPHERD: I'm going to ask you to turn back to Board staff interrogatory 67, the collection of e-mails, and to page 57 of that. And I wonder if you could read the third sentence starting, "One of his concerns..." 369 MR. CHARLESON: "One of his concerns from the meeting last Friday was the fact that the design relies on a proprietary Sapient framework and this would preclude anyone else from building EnTRAC." 370 MR. SHEPHERD: Was that not correct? 371 MR. CHARLESON: No, it wasn't. Again, it was an assumption or concern that Mr. Kent had raised during the course of some of the sessions that he had been involved in, and it's something that we pursued further with Sapient to get a better understanding of to what extent their framework played within the design. And when it was looked at, there was very -- there was a relatively minor role that that framework plays, and it was something that was seen as being -- other vendors would have similar frameworks that they would bring in. 372 Also, from all of the bidders, we did see eight responses, eight bids, and none of them expressed any concern that there was a proprietary framework that was going to make it difficult for them to deliver the solution. 373 MR. SHEPHERD: You, in fact, had one bidder -- invitee that declined to bid, and one of the reasons they gave for that was that Sapient -- it would be better if you just went with Sapient; isn't that right? 374 MR. CHARLESON: That's right, but I think we have to be careful how we characterize that. And I think in response to one of the your interrogatories, and I believe it was -- I think it's number 152, but I'll just check. In School Boards' interrogatory number 153, we talked to that issue. And in the case of the one vendor who declined to bid, their indication was that they felt working with the original supplier/designer of the system would probably generate the best outcome. So they were looking at it more in terms of what they felt would provide the highest likelihood of success for Enbridge, as opposed to them, you know, precluding themselves from bidding because the original bidder was in the game. 375 MR. SHEPHERD: Now, there was a point at which you, internally, talked about whether Sapient should actually be involved in the evaluation of the bids; right? 376 MR. CHARLESON: Yes, we did have some discussions around that. 377 MR. SHEPHERD: What was the conclusion? 378 MR. CHARLESON: The conclusion was that Sapient should not be involved in those discussions. 379 MR. SHEPHERD: Because in essence they were going to be a bidder? 380 MR. CHARLESON: That's correct. 381 MR. SHEPHERD: This RFP also has some very short time frames, isn't that right, to respond; fifteen days at one point, 30 days at another point. 382 MR. CHARLESON: Yes, there were some fairly aggressive time frames that we were looking at around it, but we didn't receive any complaints or issues from any of the bidders around the time frame. 383 MR. SHEPHERD: And finally, on the design of the RFP, the RFP includes a most-favoured-nations clause. Does anybody express any concern over that? 384 MR. CHARLESON: Just about all the vendors did. 385 MR. SHEPHERD: Were you willing to remove it? 386 MR. CHARLESON: We deemed that that would be something that would be subject to the detailed negotiations. 387 MR. SHEPHERD: Now, in the changes to the costing, Sapient reduced the overall cost, their component, the overall cost from 19.5 million to 18 million, and that was a reduction of their bid of 16.6 down to 9.4; is that right? 388 MR. CHARLESON: I'm not sure -- your characterization of Sapient's original bid, you talked about 19.5 going to 18 million. Enbridge's estimated costs were originally 19.5 and they moved to $18 million. Sapient was involved in helping us determine that initial cost of the 19.5 million; however, there was a number of factors that hadn't been fleshed out. 389 You are correct, though, that Sapient's original bid was the 16.6, and in the end, the final bid was at the 9.4. 390 MR. SHEPHERD: So their bid went down 7.2 million, but the cost of the project went down 1.5 million. That doesn't subtract. Explain that, please. 391 MR. CHARLESON: Again, we're talking about an overall program. If Sapient's original bid had held, one, we wouldn't have accepted them as the successful bidder because that wasn't a reasonable cost, and we still -- I think we hadn't looked at all of the other components that had to be factored into that program. So the Enbridge IT resources, the customer costs, you have your hardware and software, when all of those other pieces were added in, if we were to stay with the original bid of Sapient at, say, the 16.6 and select them, then I wouldn't be here discussing an 18 million project estimate; it would be significantly higher. 392 MR. SHEPHERD: But the 16.6 was what you used when you proposed 19.5 earlier; right? 393 MR. CHARLESON: No, it's not. 394 MR. SHEPHERD: Didn't you just say earlier that they didn't make a big change between what they had proposed to you earlier and what they bid? 395 MR. CHARLESON: What they proposed to us at the end of our design phase, which was subsequent to us filing the 19.5 million. 396 MR. SHEPHERD: So after you filed the 19.5 million, you actually found out from Sapient that their number was going to be significantly higher. 397 MR. CHARLESON: That's correct. 398 MR. SHEPHERD: How did you set the 19.5 million, then? 399 MR. CHARLESON: Again, it was based on some initial discussions with Sapient, because of their experience in delivering applications of this nature, and also looking at our own internal resources and the work that we felt needed to be done. 400 And based on that effort, we developed an estimate of what we thought it was going to take given the time frames that were being considered and the resources that we need to be involved. 401 It was, I can't say it was an early estimate, but kind of a mid-stream estimate of what the costs were going to look like. There was some additional work and research that had to be done to nail it down. 402 MR. SHEPHERD: Didn't you ask them, How much are you going to charge us to build this? 403 MR. CHARLESON: We had discussions with them in terms of the range of costs, and the initial estimate of the kind of the range of costs was lower than the 16.6 million. 404 We had also estimated at the same time that the internal costs of dealing with Enbridge were probably going to be lower than what we now believe they are going to be. So there's a number of those variables that shifted since we originally filed that 19.5 million. 405 MR. SHEPHERD: All right. You recall that list of components on Exhibit A.5, tab 5, schedule 3, page 2, the 18 million. Do you have a similar breakdown for the 19.5 million? I don't know whether I ever saw it in the evidence. 406 MR. CHARLESON: No, I don't have that breakdown that way. 407 MR. SHEPHERD: You never did that calculation? 408 MR. CHARLESON: We never did it to the same degree of detail. It's a collection of ranges that we kind of averaged out and came to a number. 409 MR. SHEPHERD: Do you still have IGUA 76 out there, Mr. Charleson? 410 MR. CHARLESON: I turned away from it, but I can get there quickly. 411 MR. SHEPHERD: That's Exhibit I, tab 13, schedule 76. 412 MR. CHARLESON: I have it. 413 MR. SHEPHERD: That list -- with a couple of exceptions, those are all pretty big companies; is that right? 414 MR. CHARLESON: Yes, I'd agree with that. 415 MR. SHEPHERD: Is that generally the case, that you'd prefer to invite mainly large companies to do the work for major projects like this? 416 MR. CHARLESON: I think when looking at a project of this nature, you try to look to companies that you believe have the capacity and the capability to deliver a project of that size, so typically you would look towards some of the more major players in the industry to do that. 417 But at the same time, we did see some smaller niche players that we saw as having an opportunity as well, and that's why we extended the RFP to those players as well. 418 MR. SHEPHERD: When you deal with the smaller companies, you have to be more careful about their reliability and stability, don't you? 419 MR. CHARLESON: Obviously some of the factors that you have to take into consideration is kind of the capacity within that organization. Are they going to be there for the long haul through to completion; what are the resources that they've got; do they have the sufficient capacity to take on a project of this nature without, say, impacting other work that they may have going on. 420 MR. SHEPHERD: So I wonder, given that, could you turn to the Exhibit that you filed this morning, the form 10.K, Exhibit K.5.1 appropriately headed up "Form 10K Sapient Corporation." Do you know what a 10K is? 421 MR. CHARLESON: No, I don't. I'm not an expert in this area by any means. 422 MR. O'LEARY: If I could, Mr. Chair, just briefly reflect upon the fact that this document was just provided to the witnesses this morning just prior to the opening of cross-examination, so neither have had an opportunity to read all 112 pages of fine print. 423 MR. BETTS: Thank you. 424 MR. SHEPHERD: Mr. Chair, so far I've only asked him what a 10K was. 425 MR. CHARLESON: I assume it's one of these things. 426 MR. SHEPHERD: Sapient Corporation are your chosen supplier of EnTRAC; correct? 427 MR. CHARLESON: Yes, the Canadian division of Sapient. 428 MR. SHEPHERD: The Canadian division? Based in Toronto. 429 MR. CHARLESON: Based in Canada. Yes, they're based in Toronto. 430 MR. SHEPHERD: When you issued the RFP, you asked for detailed financial information from each of the bidders; is that correct? 431 MR. CHARLESON: Yes, that was part of the RFP. 432 MR. SHEPHERD: Did you receive detailed financial information on Sapient? 433 MR. CHARLESON: My recollection is we did receive copies of the annual reports. 434 MR. SHEPHERD: Just give me one second, please. 435 I wonder if you could turn to page 25 of the RFP, which is at Exhibit I, tab 17, schedule 52, School Boards' 52. Page 25 at the bottom of the page, Mr. Charleson. 436 This information that you're getting from each of the bidders, did you get all this information from Sapient? 437 MR. CHARLESON: We would have received -- again, my recollection is they bid on all the criteria we were looking for so my assumption would be that, yes, we do have all this information. 438 MR. SHEPHERD: They advised you, for example -- I'm looking at B.1.7 at the top of the page -- they advised you of their gross revenue for 2001, 2002, and projected for 2003? 439 MR. CHARLESON: Again, it's been awhile since I've looked at these bids so, again, we looked at them -- all of the bids that we received met the submission criteria, so my assumption would have to be that we received what we believe was adequate information in these areas. 440 MR. SHEPHERD: I'm going to ask you to turn to page 57 of Exhibit K.5.1. The page headed up "Sapient Corporation Consolidated Statement of Operations." 441 MR. CHARLESON: Okay. 442 MR. SHEPHERD: There's a line there "Total Gross Revenues." 443 MR. CHARLESON: Yeah, I see that. 444 MR. SHEPHERD: Do you see that? 445 Subject to check, can you confirm their revenues dropped from 192 million from 2000 to 2001 and 164 million from 2001 to 2002? 446 MR. CHARLESON: It looks like that would be correct. 447 MR. SHEPHERD: And if you go down to the line "Net Income Loss," which is about 2 inches from the bottom - this, of course, is all U.S. dollars - can you confirm that Sapient, in the last two years, lost more than $400 million U.S., or more than half a billion Canadian dollars? 448 MR. CHARLESON: It would look like, by adding those numbers, that's about right. 449 MR. SHEPHERD: I wonder if you could turn back to page 55. And if you look at the top line which says "Cash and Cash Equivalent," can you confirm that this says that Sapient, at the end of December, had $91 million of cash? 450 MR. CHARLESON: That's what this statement would appear to state. 451 MR. SHEPHERD: And finally, this is the second last page I'll refer you to, if you could turn to page 98 of this Exhibit, about a little more than halfway down you'll see a line "Loss From Operations." 452 MR. CHARLESON: I see that line. 453 MR. SHEPHERD: And you'll see that in the fourth quarter of 2002, the loss was about $22 million; Is that correct? 454 MR. CHARLESON: Yes, that looks correct. 455 MR. SHEPHERD: Now, if you do the math, at that rate, they're going to run out of cash before they finish their project; isn't that right? 456 MR. CHARLESON: I would be speculating. 457 MR. SHEPHERD: Well, isn't that something you would know when you deal with a supplier, are they going to be able to be around until the end of the project? 458 MR. CHARLESON: Definitely, we look at what we believe the long-term viability of that organization is and, based on our assessment of Sapient Canada and the operation of that organization, we're confident that they're around for the long haul. 459 MR. SHEPHERD: Were you aware when you selected them that they were in financial difficulty? 460 MR. CHARLESON: Again, I would be speculating that they're in financial difficulty based on this. Our view is that they're -- they're a viable organization, and we expect them to be around for the long haul. 461 MR. SHEPHERD: Now, you told me that you're actually dealing with their Canadian operation; is that right? 462 MR. CHARLESON: Yes, we are. 463 MR. SHEPHERD: Were you aware when you selected them that they've recently closed their operations in both Japan and Australia? 464 MR. CHARLESON: No, I wasn't aware of that. 465 MR. SHEPHERD: I'm going to ask you to turn to page 17 of that Exhibit. In the discussion about the difficulties with their business which -- by the way, I'm not impugning Sapient's management at all; it's been a bad time for a lot of companies in this area. 466 I'd like you to turn to the second paragraph and if you see the sixth line down, there's a sentence which reads: 467 "We also closed our Australia office in 2001 and discontinued our operations in Japan in December 2002." 468 You weren't aware of that? 469 MR. CHARLESON: Again, personally, I was not aware of offices closing. 470 MR. SHEPHERD: Have you had any discussions with Sapient to get assurances that they will not close their Canadian office before this project is completed? 471 MR. CHARLESON: We haven't had those discussions. What we have seen is a growth in the Canadian office in the time that we've been dealing with Sapient. They've moved to larger offices than the original location they were at when we first started dealing with them; we've seen a growth in the number of resources they've got in the Canadian operation; and it's our understanding as well their client base is growing quite dramatically in the Canadian operation. 472 So have we asked them if they plan on keeping that office open? No, we haven't. If the Board felt it was necessary, it is something that we could work to have Sapient commit to in the final contract. 473 MR. SHEPHERD: Your project over the course of the three years will end up paying Sapient somewhere around $12 or 13 million, including last year? 474 MR. CHARLESON: That would be correct. 475 MR. SHEPHERD: That's about 5 percent of their revenue for last year, one year's revenue; is that in the right range? 476 MR. CHARLESON: Again, I -- I'd have to go back and go into all the numbers, but if -- if the math works out to that, then that would be correct. 477 MR. SHEPHERD: I'm going to ask you to look at page 57, "Revenue for 2002," $182 million U.S. 478 MR. CHARLESON: Yes. 479 MR. SHEPHERD: Can you accept, subject to check, that that's about $270 million Canadian? 480 MR. CHARLESON: Sure. 481 MR. SHEPHERD: And your project is around 13 million Canadian? 482 MR. CHARLESON: Yeah, that would be right. That's about 5 percent of that; however, that gives no indication as to what their 2003 revenues may be. 483 MR. SHEPHERD: Well, okay. I'll ask you to go to page 17 again, and if you look at the third paragraph, about the second-last sentence that commences, "On January 30th," they say that they had a conference call at the end of January. This is after you already selected them, or right about the same time, I guess; is that right? 484 MR. CHARLESON: No, we didn't notify them of their selection until, I believe, the end of February. 485 MR. SHEPHERD: Where they estimate that their first quarter revenues for this year will be between 41 and 44 million, which is about the same as their poor 4th quarter last year? 486 MR. CHARLESON: Again, assuming that their revenues flow equally over -- you know, quarter to quarter, that there's no peaks and valleys. 487 MR. SHEPHERD: Look at the next sentence, which says: 488 "Within our individual business units, we do not expect any material changes in our services rendered, compared to the three months ended December 31st, 2002." 489 MR. CHARLESON: Again, you've had a greater opportunity to review this 10K than I, so it would appear correct based on -- 490 MR. SHEPHERD: That's fine. My apologies. 491 All of this is really to -- I have one more question about this. They have an energy services group; correct? 492 MR. CHARLESON: That's correct. 493 MR. SHEPHERD: That's who you're dealing with? 494 MR. CHARLESON: Yes. 495 MR. SHEPHERD: Is it correct to say, or do you know whether it's correct to say that the EnTRAC project represents more than 50 percent of their projected revenue this year in that group? 496 MR. CHARLESON: I don't know. 497 MR. SHEPHERD: I guess I would have thought, armed with the negotiating power that you apparently have, that you would have been able to cut the cost on the project a lot more than you did. You have a project that went from 19.5 million to 18 million, and while I take your point that they bid 16.6 and went down to 9.4, the overall cost is pretty close to what was originally projected and, in fact, with the GDAR added in, it was going to be more. 498 MR. CHARLESON: But, again, but if the GDAR was added in to the 19.5, it would be more as well. 499 MR. SHEPHERD: Sure. But it isn't much of a reduction, is it? 500 MR. CHARLESON: I'd like to have $1.5 million, but you're right. On a percentage basis, it's not that large. 501 MR. SHEPHERD: When they went from 16.6 million down to 9.4 million, was responsibility for a number of things shifted out of their responsibility and given to Enbridge Gas Distribution? 502 MR. CHARLESON: No. Actually, the opposite occurred, and I know that's a little hard to believe, but as they worked on refining the estimate, there were some additional roles that they were able to work in that delivered some economies where they were actually taking on a little bit more responsibility. 503 What really -- the driver behind some of the shift in that was a re-looking at some of the testing strategies and kind of what Enbridge's expectations around the testing would be. 504 MR. SHEPHERD: So this is my last question on this. If I understand this right, they gave you a number of $9 or $10 million to do this initially, in your initial discussions. 505 MR. CHARLESON: It was a bit higher than that. 506 MR. SHEPHERD: Do you remember what it was? 507 MR. CHARLESON: My recollection would have been it would be probably somewhere in the 12 to 15 range. 508 MR. SHEPHERD: So 12 to 15. And then they told you after you filed the 19.5 million -- so in the 19.5 million, you assumed 12 or 13 or 14 sore something like that? 509 MR. CHARLESON: Something in that area. 510 MR. SHEPHERD: Then you filed the 19.5 million number, and then they told you no, no, no, it's going to be more like 16.5 million. 511 MR. CHARLESON: As part of the RFP process, yes. 512 MR. SHEPHERD: No, I think you said that prior to that they told you it was going to go up? 513 MR. CHARLESON: Yeah, that's correct. 514 MR. SHEPHERD: Then they bid at that level. 515 MR. CHARLESON: Correct. 516 MR. SHEPHERD: And then you negotiated them back down even below what they originally estimated, but in addition, your internal costs it turned out you'd underestimated, so you had to increase them, am I -- 517 MR. CHARLESON: I wouldn't characterize it as we negotiated them down. We were conducting a detailed review of the RFP responses, and as each of the vendors took us through the details of what they had incorporated into those responses, we raised questions in terms of the necessity of some components or shortcomings in other components. And it was based on the feedback that the company provided to each of the individual vendors that they revisited their responses and came up with a new number. 518 I characterize negotiation as getting into some of the finer points of, you know, the actual unit costs and who bears costs and risks for what. This was more of a clarification of the bid, and based on clarifying Enbridge's expectations and time lines that Sapient came back with a revised number. 519 MR. SHEPHERD: Now I'm confused, because I would have thought that when you have a price for a project like this, if you want to change the price, they either do less, therefore they get paid less, or they do the same for less money. Which was it? 520 MR. CHARLESON: I think in going from the 16.6 down to the 9.4, a large part of there was -- we felt there was less effort required for certain components that Sapient had originally estimated, so it was more a reduction of the effort. 521 MR. SHEPHERD: All right. I just have three other brief areas to deal with, Mr. Chairman. I can probably do it in about ten minutes. 522 MR. BETTS: Let's try and do that then and we will break at that point. 523 MR. SHEPHERD: Mr. Charleson, the warranty on this project is only one to three months; is that right? 524 MR. CHARLESON: The warranty period beyond each phase, yes, that's about it. 525 MR. SHEPHERD: Is that normal? 526 MR. CHARLESON: Based on my experience, that's typical and it's consistent with what most of the vendors were proposing. 527 MR. SHEPHERD: You'll understand it seems a little unusual that you would buy something for $18 million or 9.4, depending on how you look at it, and your warranty expires sort of pretty quickly. It's something you're expecting to use for several years? 528 MR. CHARLESON: Yes, but as with any IT project, you look at taking it from development through implementation into a short warranty period to deal with any of the initial implementation issues, and then it moves into ongoing maintenance and support. This is an asset the company is going to own. The company will have the responsibility beyond implementation for ensuring that it's supported; we may outsource that to Sapient. 529 So it's only -- it's reasonable that the vendor provides a period of time of a warrant that any issues that are found in the initial -- you know, following initial implementation going through the first couple of business cycles with it, that they will address those issues. 530 Beyond that point in time, any IT project would move into maintenance and support, otherwise the capital cost associated with IT projects would be even higher. 531 MR. SHEPHERD: The quote for annual support and maintenance is $400,000 a year? 532 MR. CHARLESON: Yes. 533 MR. SHEPHERD: Now, somewhere in the material, and I confess, last night I looked all over the place and I couldn't put my hands on it, I think I saw that $400,000 is up to 1,000 hours of support and maintenance by Sapient annually. Am I right on that? 534 MR. CHARLESON: If you can just give me a second, I think I may be able to point you to what you're referring to. 535 MR. SHEPHERD: Thanks. 536 MR. CHARLESON: Yeah, if you look at the response for CAC interrogatory number 50. 537 MR. SHEPHERD: Okay. 538 MR. CHARLESON: In that response we've provided a breakdown of how -- what that support would entail and you're correct. If you look at item number 6, it talks about the capacity being approximately 1,000 person-days a year. 539 Now, that capacity, if you look back at point 4, it talks about bug fixes, minor enhancements being done up to a capped capacity level, and that's, again, a reasonable expectation, because when we start looking at enhancements you're starting to get beyond pure support. 540 So what Sapient had proposed was that there would be, you know, an allowance for some capacity for minor enhancements, because you have to have resources there to deal with bug -- with problems and bugs that may appear within the application from time to time, and you can't just grab those resources intermittently and use them, so you want to have kind of a standard level of capacity there. And what they're showing within there is there's a commitment towards a certain level of resource that you would then use when there aren't, say, bugs that need to be fixed, to do minor enhancements to the application. 541 And I don't see that as being out of the ordinary if you're looking at a support-type arranges. 542 MR. SHEPHERD: The support is only second level support; right? The first level support is going to be done internally, at Enbridge? 543 MR. CHARLESON: The first level of support is more or less somebody says this isn't working so they call a help desk. The help desk may say, Do you need your password changed? Is your computer turned on? The very basic, the fundamental levels of support. Anything beyond that that needs to be referred to a more technical resource would be deemed second-level support. 544 MR. SHEPHERD: Is there an additional cost for that? Is there an incremental cost for the first-level support that you are going to provide? 545 MR. CHARLESON: No, Enbridge already has that first-level support service in place as part of its existing IT costs. 546 MR. SHEPHERD: You don't have any incremental cost to that because of this project? 547 MR. CHARLESON: No, because again, the expectation would be we're also removing a couple of applications which would also be subject to that first line of support, so you're just trading off. 548 MR. SHEPHERD: And the initial training -- and this is included the capital cost; right? You're doing it? 549 MR. CHARLESON: Yeah, the cost of developing the training materials. 550 MR. SHEPHERD: But the ongoing training is Enbridge's responsibility; as each person who deals with the system internally has to be trained, you're going to do that internally? 551 MR. CHARLESON: That would be our expectation, yes. 552 MR. SHEPHERD: Is there an incremental cost for that? 553 MR. CHARLESON: No, the assumption would be that that would be able to be done with current capacity, with current resources. By focusing on ensuring the appropriate training materials are developed as part of the program, we can then rely on those training materials and deal with incremental training on a one-off basis which is, as a new resource comes on, either having one of their peers provide the training and take them through the training materials, or from time to time, if there was a larger collection of users that needed some training, provide a training session, but using some of our existing resources to do that. 554 MR. SHEPHERD: Okay. So I guess if I understand correctly, if there's an incremental cost, it's negligible. 555 MR. CHARLESON: Yes. 556 MR. SHEPHERD: Let me turn to another question, another subject. You've kindly advised us earlier about the usage fees that you will charge out to the ABC service, $516,000 a year. 557 MR. CHARLESON: Yes, that's the estimated usage fee based on the original 19.5. 558 MR. SHEPHERD: How was that usage fee calculated? 559 MR. CHARLESON: It was calculated by looking at the various components of EnTRAC and trying to assess which components provided support into the ABC program, and then apportioning the costs of EnTRAC related to developing those components, and then taking that apportionment and applying that to some of the general overhead type costs. 560 MR. SHEPHERD: I absolutely hesitate to ask this, but I'm going to anyway. When you apportioned the cost, did you fully allocate or did you use incremental costing? 561 MR. CHARLESON: Again, since we're looking at the capital costs of the project, really all the costs are included in there in terms of developing, writing the code, testing all the resource, so I guess it would comparable to fully allocated. 562 MR. SHEPHERD: While I can read 10Ks, I must confess that I'm always confused by utility accounting. 563 We had a whole discussion at some point about the difference between rental revenue, which is a type of usage fee, and rate-base elimination to account for non-utility use of utility assets. Is that a distinction that we should be concerned with here? 564 MR. CHARLESON: I think I'll let Ms. Collier address that. 565 MS. COLLIER: Sorry, could you repeat the question. I'm not sure I can -- say that again. 566 MR. SHEPHERD: If this amount was eliminated from charges to ratepayers through rate-base elimination rather than through usage fees, would that change the number? 567 MS. COLLIER: No, I don't believe so. 568 MR. SHEPHERD: It would be the same. 569 MS. COLLIER: I'm not totally sure, to be quite honest, from that accounting perspective what you're asking. I'm not sure what number -- why you think the number would change. 570 MR. SHEPHERD: Well, as I say, utility accounting confuses me, so I'm sort of firing off shots in the dark here. 571 MS. COLLIER: Right. I'm not responsible for calculating those numbers either. They sort of come to me and I allocate them, so that would be subject to check if that's an appropriate answer. 572 MR. SHEPHERD: There are other entities that would be using this system. In addition to the ABC service, this system will be used by Customer Works; right? 573 MR. CHARLESON: Customer Works, we would expect Customer Works to use the system in delivering the services that we purchase from them. 574 MR. SHEPHERD: And am I right that they are going to reduce the amounts you pay them, because this would be reducing their costs 575 MR. CHARLESON: That is our current expectation, yes. 576 MR. SHEPHERD: Have you told us how much that is, or do you know yet? 577 MR. CHARLESON: I think we spent some time talking about this yesterday where there's still some work to be done with Customer Works to arrive at a final amount. 578 In the current business case, an amount of $100,000 is included there, but that was a very preliminary number provided by Customer Works, and we still need to do additional work with them to really arrive at what the final benefit should be relating to Customer Works. 579 MR. SHEPHERD: Are they going to be able to use this just for Enbridge Gas Distribution or also for BC Gas? 580 MR. CHARLESON: My expectation that because of the nature of the system and how -- and the design of it is that it would be -- their role would only be in terms of Enbridge Gas Distribution. 581 MR. SHEPHERD: Do I understand that Enbridge Operational Services and Enbridge Inc. will also use this system in some ways? 582 MR. CHARLESON: They would have access to the system for the purposes of obtaining information that's needed for the services they provide today, so it would be, in essence, a change to the channel in which we provide them the information that we provide today. 583 MR. SHEPHERD: Are you going to bill them for that access or is this something that you have the responsibility to provide them anyway? 584 MR. CHARLESON: We have the responsibility for providing them with the information today so the services can be provided so, in essence, it provides an efficiency for us. 585 MR. SHEPHERD: Will you also be using this system to -- or the information from this system to -- in your gas supply risk management activities? 586 MR. CHARLESON: To the extent that it provides a picture of direct-purchase supplies that we expect, that information is something that rolls into our gas-supply planning. So whether the gas-supply forecasting group actually uses EnTRAC or whether they use information provided by reports from EnTRAC, definitely information that's contained within EnTRAC is something that would factor into that planning. 587 MR. SHEPHERD: And finally, the RFP says that the successful bidder of the RFP has to transfer ownership of the result to you. 588 I assume that means that Sapient is going to be transferring ownership of this entire project to you? 589 MR. CHARLESON: Yeah, I believe yesterday we indicated that the intellectual property would belong to Enbridge. 590 MR. SHEPHERD: There's nothing of a proprietary nature that they would continue to own? 591 MR. CHARLESON: My belief is no. 592 MR. SHEPHERD: Those are all my questions, Mr. Chairman. 593 MR. BETTS: Thank you, Mr. Shepherd, and this is probably an appropriate time to take a break, as I look at the clock. If we can reconvene at 11:25, we will continue with questions from Mr. Brett. 594 --- Recess taken at 11:04 a.m. 595 --- On resuming at 11:23 a.m. 596 MR. BETTS: We will reconvene now at this point and turn the questioning over to Mr. Brett. 597 Mr. O'Leary. 598 MR. O'LEARY: Mr. Chair, just one preliminary matter. I thought I would respond to one of the outstanding undertakings that was given yesterday; it is Undertaking J.4.3, and it relates to a question about the relationship between Customer Works and Enbridge Gas Distribution, and that undertaking can be found at paragraph 11.07. The answer is actually in the record already. I will identify its location at Exhibit A.6, tab 5, schedule 2, pages 1 of 26. It reads that: 599 "Customer Works Limited Partnership is a limited partnership between BC Gas and Enbridge Commercial Services Inc. which provides customer care services to Enbridge as well as other utility and non-utility clients. The services provider is a limited partnership and as such CWLP is not an affiliate for the purposes of the Affiliate Relationship Code for gas utilities." 600 MR. BETTS: Thank you, Mr. O'Leary. I believe that was at the request of Mr. Warren. 601 MR. O'LEARY: It was. 602 MR. BETTS: Yes. Thank you very much. 603 Any other preliminary matters? 604 Mr. Brett, please go ahead. 605 MR. BRETT: Thank you very much, Mr. Chairman, Mr. Dominy, and panel. 606 CROSS-EXAMINATION BY MR. BRETT: 607 MR. BRETT: My first question really just picks up on something that Mr. Shepherd raised with you a few moments ago. It pertains to the financial viability of Sapient, and the question is, really, has Enbridge's -- EGD's financial department done a financial analysis of that company as part of your evaluation of the RFP? 608 MR. CHARLESON: Not to my knowledge. 609 MR. BRETT: How about the credit department of EI itself, the parent company? 610 MR. CHARLESON: Again, no. 611 MR. BRETT: Now, yesterday -- or your evidence suggests that there are -- I've got a few questions here of sort of an informational nature, but I just want to make sure I have this straight. 612 Your evidence suggests that -- you've got that EGD has 2,900 large customers; correct? 613 MR. CHARLESON: That's correct. 614 MR. BRETT: Large-volume customers. And I take it to mean that these are customers that are in rate classes other than rate 1 and rate 6; is that right 615 MR. CHARLESON: I would also include rate 9 with that, general service rates being rate 1, rate 6, and rate 9. So rate 100 and above. 616 MR. BRETT: Rate 100 and above. 617 Now, those customers, one of those characteristics would have a contract, a distribution contract with the utility; right? 618 MR. CHARLESON: I'm assuming you're talking rate 100 and above, the large-volume customers. 619 MR. BRETT: Yes, large-volume customers or contract customers. 620 MR. CHARLESON: They may or may not have a distribution contract. They would have a large volume rate contract in place, and then depending on whether they chose to be on system gas or direct purchase would determine whether they are on kind of the direct-purchase contract. 621 MR. BRETT: Right, but they would have at least a distribution arrangement with you, if not a sales arrangement. 622 MR. CHARLESON: A distribution rate contract, yes. 623 MR. BRETT: Okay. And can you tell me, of the 2,900 large-volume customers that are on rate 100 and above, how many of those customers are on direct purchase? Are all of them on direct purchase, or are some not? 624 MR. CHARLESON: As I indicated yesterday, we're looking about -- there's more 90 percent of those customers that are on direct purchase. 625 MR. BRETT: Were you going to clarify that, or could you give us an undertaking to tell us exactly how many are on direct purchase and how many are on system gas? 626 MR. CHARLESON: We could undertake to give the precise numbers, as well as a little more precision, say, on the 2,900. 627 MR. BRETT: That will be helpful, too. 628 MR. BETTS: Mr. Moran, we will get an undertaking number. 629 MR. MORAN: Undertaking J.5.6, Mr. Chairman. 630 MR. BETTS: Thank you. 631 UNDERTAKING NO. J.5.6: TO PROVIDE BREAKDOWN OF EGD'S DIRECT-PURCHASE AND SYSTEM-GAS CUSTOMERS 632 MR. BRETT: Thank you, Mr. Chairman. 633 Now, you also mentioned the other day that you had a total of 1,400 direct-purchase contracts; right? 634 MR. CHARLESON: Roughly. 635 MR. BRETT: And of those 1,400 direct-purchase contracts, I'm going to characterize them, for sake of convenience, into two groups; one is a group of individual large-volume customers who have their own, what I'll call their own direct-purchase arrangements with a seller, whether they be industrial, large commercial customers or large institutional customers, and I'm oversimplifying a bit; and the second group would be the very small residential customers and rate 6 customer, the sort of mom-and-pop stores customers whose loads have been aggregated by what I'll call the marketer-aggregators into a direct-purchase contract that might consist of anywhere -- well, I don't have the exact number, but it might easily consist of 10,000 of these accounts under the one DPA. 636 Is that a fair -- it's a little simplistic, but is that a fair division, fair comment? 637 MR. CHARLESON: I think that's a fair simplification of the types of direct-purchase arrangements that we would have. We have some that are targeted to large-volume customers where they have made their own direct-purchase arrangements for either an individual or a collection of accounts, and then we have those that are targeted more towards general-service customers. 638 MR. BRETT: And the ones that are targeted -- of the ones that are targeted toward general service customers, I'm going to say -- and this is just -- this is my estimate, I'm going to say that perhaps half of those are targeted to general service customers and the other half would be large-volume customers? 639 MR. CHARLESON: I think that may be a conservative estimate in terms of the numbers that are attributable to general-service customers. I would see it as being more than half -- 640 MR. BRETT: More than half. 641 MR. CHARLESON: -- are related to the general-service customers. 642 MR. BRETT: How much more, would you say? 643 MR. CHARLESON: That, I would be speculating. 644 MR. BRETT: Could you give us that breakdown as well? Direct-purchase agreements by -- the percentages -- 645 Mr. Chairman, what I would be interested in is the number of the 1,400 -- taking the 1,400 as the universe, what number of those are with small-volume customers, rates 1 and 6, and what number of direct-purchase arrangements are the larger-volume customers. 646 MR. BETTS: Thank you for that description. 647 Mr. Moran. 648 MR. MORAN: Mr. Chair, I'm wondering if that could just be made part of the previous Undertaking J.5.6? It would seem to fit together. 649 MR. CHARLESON: That would be fine with me. 650 MR. BETTS: Thank you. 651 MR. BRETT: And the reason that these numbers jibe or match, the 1,400 and the 29, is that most of the large-volume customers would have multiple accounts; correct? 652 MR. CHARLESON: That's correct. 653 MR. BRETT: So that someone like, as an example, Kraft Canada might have 15 plants in Ontario, and if they did - and I'm just using that as a hypothetical example - they would have one direct-purchase agreement to cover their 15 plants. 654 MR. CHARLESON: Yeah, and also taking the example that a school Board may have a direct-purchase agreement that includes some large-volume customers and some general service customers, but it's an aggregation together of those various accounts. 655 MR. BRETT: The point I want to make sure I understand, and I think I understand it and I think probably everybody else in the room does as well, but the large-volume customer, so called, is a large volume account, it's not a corporation, necessarily. So in my capacity of Kraft Foods, if it has ten plants in Ontario, each of those ten plants has a separate account for utility billing purposes -- sorry, not billing, but utility rate-making purposes, and each of those ten plants could be a large-volume account? 656 MR. CHARLESON: That's right, and actually a particular plant may have multiple accounts, depending on the metering that's in place. 657 MR. BRETT: Right. 658 Now, what I'd like you to do for a moment is explain briefly to me and to the Board what EnTRAC does for large-volume customers. You spent some time in your argument in chief or your evidence in chief talking about what it does from the perspective of direct purchase. I would like you to describe a little bit what it does with respect to large-volume customers. 659 MR. CHARLESON: Certainly. For large-volume customers what EnTRAC would enable them to do is to view the contract parameters that they've entered into on the distribution rate contract to see their three-year historical consumption volumes, so that they would be able to project what their consumption may be in the coming year as they're working towards planning for entering into a new distribution-rate agreement. 660 You will be able to see how their consumption is progressing during the course of the year for all of the accounts that may be under that organization. And so again, they can look at how that's tracking versus some of the contract parameters within the rate contract to see what risks they may be exposed to in terms compliance with the terms and conditions of the contract. So it enables them, really, to have access online to all of those contract parameters and to see that information that, today, the only way of really accessing that is through requests into the their account executive. 661 MR. BRETT: So, for example, these customers, these contract customers or large-volume customers, as we call them, they have -- some of them have or many of them have contract demand provisions this is their contract; correct? That is to say, they can't exceed -- they can't assume more than X feet of gas on a particular day or suffer a penalty, unless they are specifically authorized? 662 MR. CHARLESON: That's correct. The contract demand forms a component of the contract. 663 MR. BRETT: And some of them have minimum annual take requirements that they need to meet to qualify for that particular contract? 664 MR. CHARLESON: That's correct. 665 MR. BRETT: So these sorts of contractual obligations that they have to the company -- which I might add parenthetically general-service customers do not have -- you'd agree with that aside? 666 MR. CHARLESON: Yes, I do. 667 MR. BRETT: EnTRAC will help them to ensure that they don't run afoul, to put it bluntly, of these contractual parameters and therefore absorb unauthorized overrun penalties, for example. 668 MR. CHARLESON: It will provide them with improved information so that they are in a better position to make decisions around whether they choose to run afoul of those parameters or whether they are able to take action to mitigate those. 669 MR. BRETT: And if you collect unauthorized overrun penalties from these customers, if they exceed a contract demand -- I should know this -- are these amounts of money credited to the cost of service or do they go to the shareholder? 670 MR. CHARLESON: It's my understanding that those amounts are credited to the PGVA, so in essence, they're returned to customers. 671 MR. BRETT: They would be returned to customers as part of the clearing the PGVA at the end of each year? 672 MR. CHARLESON: Yes. 673 MS. COLLIER: Yes. 674 MR. BRETT: You don't have any doubt about that; you're fairly certain? 675 MR. CHARLESON: I'm fairly certain. I'm pretty much 100 percent certain it does not go to shareholders. 676 MR. BRETT: Thank you. 677 Now, just with respect to the -- I want to dwell for just a moment here on the advantages, if you like -- or to put it shortly, what does EnTRAC do for broker-marketers. You've touched on this in your evidence, and I think you've said in places that I can't find at the moment that there are benefits, but they're not benefits that are easy to quantify. Is that a fair, broad summary of how you've characterized that? 678 MR. CHARLESON: Yeah, I think we touched on this yesterday where we do expect that there are some benefits that a broker or marketer would see as a result of EnTRAC being in place, however, it's difficult to quantify that or, because we're not familiar with what their internal processing may be, they're reliant on what degree of automation they may already have within their own internal systems and to what extent it would rely on the information that EnTRAC is providing. 679 We do see it delivering some degree of efficiency in terms of the communication of information, associating accounts with different direct-purchase agreements and kind of managing those associations. 680 Beyond that, it starts to get into -- depending on what degree of sophistication they may have already put in place within their own shops. 681 MR. BRETT: Let me talk about two specifics aspects of that for a moment. The first is, you're familiar with the term "price point"? 682 MR. CHARLESON: Very familiar. 683 MR. BRETT: And as I understand it, and you may correct me if this needs refinement, but as I understand it, in a direct-purchase agreement, and we're speaking here now of the ones that involve hundreds and thousands of the rate 1 and rate 6 customers. Let's suppose we have a direct-purchase arrangement that's set up by an aggregator-broker, Direct Energy, Canadian Energy Savings Corporation, every one of these folks that has 10,000 rate-1 customers, or a mix of rate-1 and rate-6 customers in it. Am I understanding correctly that there can only be in one direct-purchase contract at the moment, with your current technology, one pricing point? That is to say that the price, that the commodity price that you are collecting under the ABC agreement for that broker has got to be the same price for those 10,000? 684 MR. CHARLESON: Before I answer that question, I just want to clarify one thing around the way that the direct-purchase agreements work. We've looked to have the simply indication of having the two types of agreements where you may have the large volume direct purchase agreements and the general service, there are also agreements that will span all rate classes, so when we talk to the price point, there may be some large-volume customers that are also on an agreement -- on an ABC-type agreement. So I just want to make sure that we're clear that there's not a cut and dried distinction. 685 MR. BRETT: Right. Now, are you suggesting by that if, for example -- these would be customers in your example, in a mix of different rate classes. Does that matter in terms of a price point, or would the price point still be the single price point? 686 MR. CHARLESON: No, it doesn't. So to get back to your original question, for each direct-purchase agreement that we have today, there can only be a single price point. 687 MR. BRETT: A single commodity. And I gather the reason for that is basically technology, it's because it's just too onerous to manually provide otherwise? 688 MR. CHARLESON: Yes. The way that our systems are designed today do not facilitate anything other than that. 689 MR. BRETT: I gather that one of the things that the marketer/broker community would have is the capacity to differentiate, to have multiple price points in the one agreement; is that fair? 690 MR. CHARLESON: It's something that we would like to see as well, but yes. 691 MR. BRETT: And why is that? 692 MR. CHARLESON: Again, we have 1,400 agreements to manage today, a 250-percent increase over the past five years. Anything that we can do to reduce the number of agreements that we're having to manage will help to reduce the effort that we're having to take internally in terms of managing and balancing all of those agreements. It makes it easier for us to manage the load balancing and supply around all of those. So if there's a functionality that we can deliver that will help to reduce the number of agreements that have to be out there, it's something that I see as helping us to increase our own internal efficiency as well as increase the accuracy of the information that we're working with. 693 MR. BRETT: Just for clarity, because I may have skipped a step here, what you're saying is if you can have multiple price points within a single direct-purchase agreement, then you can have many fewer direct-purchase agreements. For example, Direct Energy, just as a purely hypothetical example, today they might have 500 agreements; under this regime that you're proposing, under EnTRAC, they might have ten, which would be good for them, and I think what you're saying, it's good for you too. 694 MR. CHARLESON: Yes. 695 MR. BRETT: Now, the other thing I want to touch on is what I'll call, for simplification, the credit risk to you of a broker being in default. And I don't know that I need to ask you to turn this up, but just perhaps for reference purposes, I was also a sort of a voyeur of your e-mail traffic, Mr. Charleson, so I -- 696 MR. CHARLESON: Let me grab that binder. 697 MR. BRETT: You better get that. 698 MR. CHARLESON: I'm glad I've provided such an interesting read. 699 MR. BRETT: It was extremely interesting. It was time-consuming, but it was interesting. 700 And I just reference this to just sort of nail this point, tie this down to something concrete. This is a note from you to one of your colleagues, and -- 701 MR. CHARLESON: Can you please provide me the page reference? 702 MR. BRETT: Page 84, I'm sorry. 703 MR. CHARLESON: Okay. 704 MR. BRETT: And it says here -- there, in your second paragraph there: 705 "Trying to get a sense of the volume of activity that we have on a month-over-month basis with different brokers so we can assess some of the risks associated with the marketplace." 706 And without, you know, me going through it all in great detail, what I -- what I think you're saying here is this -- one of the advantages that you get from this arrangement is that you're able to keep closer track of the broker's general position. Could you explain that a bit more fully? 707 MR. CHARLESON: Yeah. Again, as you're trying to manage, say, a collection of contracts with a particular broker, you'd have to aggregate together, say, 200, 300 pieces of information to know what the total exposure to Enbridge may be in terms of consumption versus deliveries in -- for a particular -- for a particular broker. 708 So the -- obviously that -- that -- not having a good understanding of that number introduces a certain degree of risk if that broker were to fail. 709 By having a smaller number of agreements, also by being able to manage those agreements more tightly and look for settlement on those to occur in a shorter time frame, we're able to reduce the risk for exposure that the company is seeing; one, by having greater certainty in the information that you're working with and relying on, and having that information in a more timely manner. 710 To find out 90 days after the fact when this broker's failed, that they owed you, say, several cubic metres of gas makes it difficult to collect on that; whereas if you've got information that's more current and available in a more timely manner, you can manage that on a much better basis should things start to go bad with a particular broker or customer. 711 MR. BRETT: Now, just switching a little bit here, I just want -- I have a few brief questions on the numbers. They've been worked over pretty well by others. I just want to make sure there are a couple points I'm clear on. 712 Your evidence suggests, at the moment, I think, that you're going to clear -- you're going to put $6 million into rate base in 2003. Is that still current, a current number? 713 MR. CHARLESON: Yeah. Our expectation that if we're able to commence work shortly, that the cost of the first phase that we would deliver in September would have accumulated costs of about $6 million, and that's what we would expect and we would then close that to rate base. 714 MR. BRETT: All right. And you -- as I understand it, you talked a little bit with Mr. Shepherd about the amount of the first contract that you had with -- if I can put it that way -- with Sapient for the investigation of this -- scope of this project and the early design work. And I'll come back to the process in a moment, but I just want to talk a little bit about numbers. 715 I understand that you did have a contract with Sapient that some time in -- over some period of 2002, and I recall a number there of something like 2.9 million. Is that about -- does that strike you as right? 716 MR. CHARLESON: We did have a contract with Sapient for the -- we actually had two agreements with Sapient, one for some initial up-front kind of scoping exercise, and then we had a contract with Sapient for doing the more detailed design work. 717 The 2.9 doesn't strike me as being -- I mean, it strikes me as being higher than what that contract was for. 718 MR. BRETT: Can you give us a number for those first and second contracts? I recall a number of something like 100,000 for the first short one. 719 MR. CHARLESON: That's right. 720 MR. BRETT: What do you think the second one was? 721 MR. CHARLESON: The second one I think was more in the realm of maybe $2 million. 722 MR. BRETT: $2 million. 723 MR. CHARLESON: Subject to check. 724 MR. BRETT: Okay. Then as I think you've said, what you put into rate base for 2002 was the total of those two contracts plus costs of your own in connection with that analysis? 725 MR. CHARLESON: That's correct. 726 MR. BRETT: Now, the $400,000 in support costs that we've talked about, Are these costs, annual costs that Sapient is going to be expected -- well, first of all, is Sapient going to provide that support? 727 MR. CHARLESON: We haven't negotiated that with Sapient yet. We're still determining whether we want to do the support internally or whether we would look to outsource it to Sapient. It's something we're still deciding on. 728 MR. BRETT: So the $400,000 is an estimate at this stage? 729 MR. CHARLESON: That's correct. 730 MR. BRETT: And is the $400,000 estimate included in the NPV calculation on the back page of your updated evidence? 731 MR. CHARLESON: Yes, it is. 732 MR. BRETT: So it's netted out, essentially, of the O&M cost saving, is it? It's in there as a positive number, but it is -- 733 MR. CHARLESON: That's correct. It's netted against the annual O&M cost savings line. 734 MR. BRETT: Now, if you were to -- if you were to have Sapient do that, you would sign a contract with them for that, or would include that in your current contract? 735 MR. CHARLESON: Whether -- definitely the contract would be entered into with Sapient. Whether it would form part of the development or implementation agreement or whether we would have a separate agreement dealing with that, we would have to leave that to the lawyers. 736 MR. BRETT: Would it be a fixed-price contract? 737 MR. CHARLESON: For the support. 738 MR. BRETT: For the ongoing annual support. 739 MR. CHARLESON: I would expect that we would look for it to be structured that way. 740 MR. BRETT: Now, this may be a quick one here. In CAC number 53, and I may be -- there may be a piece of paper out here that I just didn't get or misfiled, but I may as well find out here. 741 Do you have that? 742 MR. CHARLESON: Yes, I do have that. 743 MR. BRETT: If you look at the answer, the question was: 744 "What's the regulatory treatment of this expenditure of a multi-year project given that we're likely going into a PBR regime shortly, perhaps as early as the 1st of October, 2003?" 745 And you say here in response: 746 "The company is preparing a proposal for regulatory treatment that will be filed as an update to the response to this interrogatory as soon as available. The proposal will be an adjustment to the 2003 test year revenue deficiency equivalent to the NPV of the rate impacts of EnTRAC over the life of the project if cost-of-service regulation were to continue indefinitely beyond fiscal 2003." 747 Two questions: Has there been an amended response filed? 748 MR. CHARLESON: No, we have not amended the response. Given our current plans and expectations around PBR, we haven't gone back and completed that work as yet. 749 MR. BRETT: Could you tell me, when do you intend to do that? Do you intend to do that before the end of the hearing? 750 MR. CHARLESON: I guess in my own mind, I'm not sure of the need for doing that, given that the company hasn't really advanced anything around the incentive regulation at this time. So I -- I don't think we really assessed whether we were going to revisit that one. 751 MR. BRETT: Are you saying that the company is not going to be making any proposal for a PBR scheme that commences October 1, 2003? 752 MR. O'LEARY: Mr. Chair, if I might suggest that this line of questioning is not within Mr. Charleson's abilities to respond to. It relates to matters that Mr. Brett might want to put to the appropriate panel at the appropriate time. 753 MR. BETTS: Thank you. Do you know which panel that would be? 754 MR. O'LEARY: The O&M panel. 755 MR. BETTS: Mr. Brett, is that satisfactory? 756 MR. BRETT: Yes, that's fine, Mr. Chairman. When we say O&M panel, this is the panel that we've got down for what date here? Which panel are you speaking of? 757 MR. O'LEARY: It's the one that Ms. Hare will be participating with. 758 MR. BRETT: This is the one on 7.45? 759 MR. O'LEARY: That's correct. 760 MR. BRETT: O&M policy panel. Certainly, Mr. Chairman, I can take it up with them. My only question really had been to explain what that second sentence meant, but I think it would be better if I took it up with the next panel. 761 MR. BETTS: Thank you. 762 MR. BRETT: I have just a couple of questions on the general subject of risk allocation. 763 You mentioned that you have a contract. You have a contract drafted with Sapient but not executed, or is it executed? 764 MR. CHARLESON: We're in the process of negotiating a contract or formalizing a contract with Sapient right now, but it will not be executed until all the necessary approvals are in place. 765 MR. BRETT: You have a draft contract with them? 766 MR. CHARLESON: We have made progress on a number of the terms and conditions. The degree of, you know, the extent of the draft, whether it's 60 percent, 80 percent, 90 percent, I don't know right now. 767 MR. BRETT: Do you have a contract -- a draft -- have you got -- let me put it another way. 768 Could you file what you've got so far by way of a draft contract in this proceeding, and you can take out, you know, the price, if you like, if you're still negotiating that. 769 MR. O'LEARY: I might just ask Mr. Charleson whether we have any ability under any agreement -- 770 MR. CHARLESON: I'd have to check first in terms of if there's any concerns on Sapient's behalf around the proprietary information that may be embedded in that contract. 771 MR. BRETT: That's fair enough. Could you undertake to do that, please, and get back to us? 772 MR. CHARLESON: Yes, we can. 773 MR. BRETT: My general recollection is that many of these contracts have confidentiality provisions in them, but they almost invariably say if the regulator requires the contract to be filed, it will be filed, but it would be an exception of the obligation of the party not to file it. But by all means check and get back to us on that. 774 Could we have an undertaking for that, please? 775 MR. MORAN: Mr. Chair, that would be Undertaking J.5.7. 776 MR. BETTS: Thank you. 777 UNDERTAKING NO. J.5.7: TO FILE SAPIENT CONTRACT, SUBJECT TO CONFIDENTIALITY 778 MR. BRETT: You know my interest here, Mr. Charleson, is not to try and ferret out the price or anything of that sort. We have actually already had pretty extensive discussion on that. My interest is more in the area of the kinds of protection clauses that may be built into it to protect the company and the ratepayers. There was some concern expressed by the Board in its 0032 decision that some of those contracts, perhaps, did not have the clauses necessary, and that's where I'm coming from on this. 779 But, for example, you have a liquidated damages clause in the agreement at this stage? 780 MR. CHARLESON: I'm not the individual that's actually involved in preparing the contract. That's being worked on by our IT group in conjunction with our lawyers. 781 And again, when we provide this contract, I think it's important to recognize, that it is still going to be a work in progress and that if there are certain terms and conditions that may not be there, it's not because the company has overlooked them; it may be because we haven't finalized or set the terms and conditions on it. 782 MR. BRETT: That's fair enough. 783 MR. CHARLESON: So I think it's best you know, if there are specific aspects of the contract or terms that you're concerned with, then it's probably best to wait until we see if we can file that. 784 MR. BRETT: You did mention that it was a fixed-price contract? 785 MR. CHARLESON: Yes. 786 MR. BRETT: Well, let's see if we can have a look at it. The reason I'm interested, again, is simply because it's very difficult, I find, without looking at all of the parts of a contract, a commercial contract, and the way the different parts interrelate, to really have a view on how risk is allocated between parties. And people have ways of describing contracts, fixed-price, scope change, so on and so forth, but it's always helpful I think to see the document. 787 MR. CHARLESON: I think that's fair, but I think also we have to recognize that if for some reason the company hasn't managed the risk with the vendor sufficiently through the contract, the company is going to be exposed to any risks of exceeding the $18 million that we're requesting the Board for approval for and have to come back to the Board and requesting approval for any incremental funds. 788 MR. BRETT: I want to speak briefly to you about Customer Works and their role in this. 789 Just before I do that, Mr. Charleson, the contract will contain firm deadlines, firm deadline dates for the delivery of each component? 790 MR. CHARLESON: I would expect that to be a component. 791 MR. BRETT: In the -- in your updated evidence, Exhibit A.5, tab 5, schedule 3, at page 2, you have Customer Works spending something in the order of $3 million to implement -- make the adjustments to the billing system, and these are billing system process changes, as you've described them. Let me be more precise. There is an expenditure indicated of $3 million for these changes, and it will be the changes to the Customer Works infrastructure. 792 Now, you -- you told, I believe, Mr Janigan yesterday that you had not -- you were having some discussions with Customer Works, but at this time, I think was your phrase, correct me if I'm wrong, they had not committed to pay any of the $3 million themselves. 793 And my question to you is: Do you anticipate -- first of all, are you asking that Customer Works bear the cost of the $3 million, given the fact that they are a long-term service provider to you, who I think is billing you something in the order of $90 million a year, so over the term of this arrangement -- over the remaining term of their contract, would be billing you something in the order of several hundred million -- are you going to be asking them to absorb that 3.0 million as an ongoing adjustment to their system, to allow you to proceed with the modifications that you wish to proceed with? 794 MR. CHARLESON: As I indicated yesterday, and I think earlier this morning as well, we still have to have those discussions with Customer Works around both the benefits and the costs side of the equation, and I think again, it comes back to, you know, the premise that I was talking to yesterday in terms of the overall cost of kind of a matching of the cost and the benefits. 795 If customer -- part of my discussions with Customer Works will be to look at what extent would they look at funding, say, that portion of the development; and if they were to do so, I would expect that they would then look to retain any of the benefits that they -- that are achieved from providing that funding. So what I want to look at with them is what do I believe provides the best scenario for Enbridge Gas Distribution and its customers in terms of should having Customer Works develop it. 796 And we would pay for that development effort, because it's incremental work, it's something outside of the service agreements that we've got with them, but then also expect that they return the benefits to us from that, so that again the net outcome of it is what's in the best interest of our ratepayers. 797 MR. BRETT: I take it that your -- I take it that you're of the view, and your colleagues at EGD are of the view, that there are benefits to Customer Works arising out of this activity? 798 MR. CHARLESON: Yes, and we've already shown some of that with the $100,000 that was included in the business case as a preliminary number. 799 MR. BRETT: Right, right. 800 Now, so you've got -- you've got to look at this, as you say, from that point of view. Is it your view that under -- is it your view that if there were benefits realized by Customer Works -- and let's take your second hypothesis that you -- well, let's just leave it at this. 801 If there are benefits realized by Customer Works as a result of EnTRAC, is it your view that Customer Works is required, under the contract that EGD has with them, to automatically pass those benefits through to EGD? 802 MR. CHARLESON: I'm not familiar enough with the contract that we have with Customer Works to be able to answer that. My answers are more in terms of what I believe are reasonable expectations and how I would approach it with Customer Works. 803 MR. BRETT: So you're not telling the Board at this stage -- you're not opining on what the contract requires, really, in either a commercial or, needless to say, a legal sense. You're simply saying you'd expect some sorts of quid pro quo there. 804 MR. CHARLESON: That's correct. And I think -- if I'm not able to achieve what I believe is a reasonable outcome to that, then I will look at to what extent can I make changes to the scope so that Customer Works may not achieve those benefits -- 805 MR. BRETT: Or alternatively, it may be the case, I suppose, that in the agreement that Customer Works has with EGD allows EGD to require them to make those changes; that's a possibility? 806 MR. CHARLESON: I'm not familiar enough to... 807 MR. BRETT: All right. 808 Now, just a question or two on the history of this: You began to work with -- is it Sapient or Sapient? 809 MR. CHARLESON: Sapient. 810 MR. BRETT: I take it from reading the e-mail traffic here and from questions you've given to other examiners, you began working with Sapient in early 2002 on this project? 811 MR. CHARLESON: I believe we started our initial discussions with them in March of 2002. 812 MR. BRETT: Okay. And they worked -- I mean, it seems to me that you worked very, very closely with them in the organization and the development of this project; is that fair? You spent many, many days at their offices in workshops, and there was a lot of back-and-forthing between your group and their group to develop the -- really develop the outline and the scheme and the, sort of, conceptual framework and the design for this project? 813 MR. CHARLESON: Yes, definitely. 814 MR. BRETT: Over 2002. 815 And had you intended to send an RFP out in the fall of 2002, or was that something that the Enbridge head office had suggested? 816 MR. CHARLESON: It was something that I had -- I had contemplated and given some thought to; however, it was something that the CIO, Duncan Kent, felt was definitely necessary, and that more or less confirmed, you know, some of the thoughts that I had been having that we should do that. 817 MR. BRETT: But it seems to me, and I guess I would put it this way: It almost looks to me like, everything considered, that the result of this RFP was, barring some highly unusual circumstance, such as Sapient being way out of the market vis-a-vis the other bidders, pretty much preordained, would you not say? 818 MR. CHARLESON: No, I'd say we went into the RFP process with a very open mind towards looking at what the marketplace had to offer. I had discussions with a number of the vendors around the issue. There was concerns expressed by some of the vendors that this was more just an exercise and that it wasn't really a true bidding process. We gave reassurances to them. 819 Some of the people that were involved in the RFP selection process from the evaluation team perspective were not -- had had no prior involvement with Sapient. They were -- I think 50 percent of the RFP evaluation team hadn't been working on the Sapient processes. They were -- so they brought, kind of, that impartiality into the evaluation. 820 MR. BRETT: If you'd turn back to the Board staff interrogatory 67, the one with the e-mails attached, and if you'd look at page 82 for a moment. 821 MR. CHARLESON: Yeah, I have that. 822 MR. BRETT: And just look at number 4 on that page. These were, I guess, questions that you had designed internally to respond to bidders; is that right, potential bidders' questions? 823 MR. CHARLESON: Yeah, this was in preparation for, kind of, a bidders' conference that we were having, that we tried to contemplate some of the questions that bidders may pose to us and how we would look to respond to those questions. 824 MR. BRETT: Question 4, you say -- one of the questions you design was the bidders might ask: 825 "Will there be post-bid access to Sapient if bid is awarded to another vendor at what cost?" 826 Answer: 827 "Knowledge transfer of the design of the EnTRAC system will occur at the discretion of Sapient. Details of such an arrangement will be between Sapient and the chosen vendor." 828 That to me doesn't sound like what you were speaking about earlier whereby Enbridge has the ownership of the design and is able to do with it what it wishes. 829 Does this, first of all, say what I think it says, that the vendor would have to make their deal with Sapient to get ahold of the design? 830 MR. CHARLESON: No, that's not what this is saying. 831 What this is saying is that if after the bid process another vendor was selected, that if they chose to get input from Sapient on the design deliverables, Enbridge would be providing the full design. 832 The full design is an Enbridge asset. It belongs to Enbridge. However, if the vendor felt that they could enhance their ability to deliver EnTRAC by having discussions with Sapient to understand some of the, say, intricacies of the technical components or some of the business -- the application of business knowledge into that technology, if the vendor felt that they would be better positioned by doing that, that the vendor would have the opportunity to approach Sapient to see if Sapient was interested in having those discussions. 833 MR. BRETT: Thanks. 834 Just a question on the accounting treatment and the -- insofar as you can -- you know, you're comfortable dealing with it, you've capitalized 100 percent of the cost of this project as I understand it; is that right? 835 In other words, the cost of the -- the costs in 2002, 2003, and 2004 of designing and constructing or implementing this EnTRAC project is all considered -- has all been deemed capital by the company and put in -- and you seek to put it all in rate base? 836 MR. CHARLESON: All of the costs with the exception of the -- kind of, the internal business resource costs of the time of my staff, my own time, all of that is just something that we end up having to absorb and manage within our O&M. 837 MR. BRETT: So the $3 million that was closed to rate base in 2002 of which -- so you're saying none of the time of the EGD people was in that $3 million? 838 MR. CHARLESON: None of the business resource time. There was IT resources involved, technical resources, and they are included in those. 839 MR. BRETT: So the salaries of -- portions of the salaries of IT staff would be included? 840 MR. CHARLESON: Yes, to the extent that it was, say, an incremental resource or incremental work for that resource. 841 MR. BRETT: And I guess the same would be true through the implementation period? 842 MR. CHARLESON: That's correct. 843 MR. BRETT: Have you been involved in any other IT implementation projects other than this one? 844 MR. CHARLESON: Yes, very much so. My background is in IT. 845 MR. BRETT: Sorry, I just wanted to check that. I, sort of, thought that was case -- 846 MR. CHARLESON: Just -- I see Mr. Shepherd has a puzzled look, based on some of my responses earlier. 847 I've been out of the IT field now for about seven years, so in terms of currency of new technologies and things like that, that's why I had difficulty. 848 MR. BRETT: Are you familiar with the inventions of the utility business with respect to the capitalization of IT projects? 849 MR. CHARLESON: Somewhat familiar. 850 MR. BRETT: Do you know of other IT projects -- let me put that another way. Are the costs of all IT projects in a utility 100 percent capitalized? 851 MR. CHARLESON: My understanding is the manner in which we're looking at capitalizing this project is consistent with the manner with which we've treated other IT capital projects. 852 MR. BRETT: Now, I want to ask you a question about Karen. Does that ring any bells with you? 853 MR. CHARLESON: I'm sorry. 854 MR. BRETT: If you look at page 115 of the Board staff interrogatory 67, it starts with a page which is entitled, "Meet Karen." 855 MR. CHARLESON: I'm sorry, what page was that again? 856 MR. BRETT: It's page 115. Karen's an employee of Enbridge Operational Services? 857 MR. CHARLESON: Oh, yeah, the hypothetical Karen. 858 MR. BRETT: This was the Hollywood presentation. This was the presentation that was apparently done in a movie studio. 859 You can see in that slide and the next slide how Karen uses EnTRAC, and the question I have for you is you would agree with me that obviously from this description, EnTRAC will have benefits to EOS staff in carrying out their responsibilities? 860 MR. CHARLESON: As I indicated earlier, EnTRAC will change the manner in which EOS is able to get the information from gas distribution in terms of providing the services to us. 861 MR. BRETT: It will improve it. It will make their life easier. 862 MR. CHARLESON: We would expect that -- 863 MR. BRETT: Make it more efficient. 864 MR. CHARLESON: We would expect that it would be -- to a degree, it would deliver some degree of efficiency. 865 MR. BRETT: Have you spoken to EOS about having them contribute to the costs of EnTRAC? 866 MR. CHARLESON: Again, they've contributed to the cost to an extent today -- as I discussed earlier this morning in our original discussions around design costs, we had anticipated that there would be costs billed to gas distribution for EOS for the resource involvement and participation that they had. We were not billed any of those costs. They participated. They sent resources here. They flew them from Edmonton to Toronto to participate in some of our workshops and we would expect, going forward, that there would be continued interaction with that group so that they would be prepared to accept the application when it comes in. And again, to date, that's all been done at their own cost. 867 MR. BRETT: But you don't -- you don't -- that was in the design phase that they contributed some sweat equity, but you do not expect them then to contribute any dollars to the payments to afford the ECS implementation; is that fair? 868 MR. CHARLESON: No, I don't expect them to contribute any hard dollars because, again, the benefit, if anything, of CIC has been very limited in that it's delivering a small amount of efficiency in terms of the way that they're able to obtain some information from gas distribution. 869 MR. BRETT: Well, I guess we will have to characterize that portfolio in another argument. 870 Mr. Chairman and panel and Mr. Dominy, thank you very much. Those are my questions. 871 MR. BETTS: Thank you, Mr. Brett. 872 We are after 12:00. I would just ask Mr. Moran and Mr. O'Leary: At this point, is it preferable to break for a lunch break and return to this panel after that, or is it preferable to keep going? 873 Mr. Moran? 874 MR. MORAN: This might be a fine time to break, Mr. Chair. I have more than a few minutes of questions. 875 MR. BETTS: I think, then, with that advice, we will take this opportunity to break for lunch, and there -- perhaps I can ask Mr. O'Leary this question. 876 Is it -- we normally are trying to take an hour and a quarter, in that range for lunch. Is time of the essence in terms of your second panel? Does anyone -- 877 MR. O'LEARY: We would like to see as much of WAMS completed this afternoon, if not all of it, so if your inclination is to shorten the lunch a little bit, that would certainly be agreeable to the company. 878 MR. BETTS: Would anybody object to that? I'm not talking about shortening too much, but perhaps an hour for lunch. Any objections to that? It might get everybody home a little earlier on a Friday afternoon as well. 879 I think with that, then, we will aim to be back here at 20 past one, and we will adjourn at this point. 880 --- Luncheon recess taken at 12:16 p.m. 881 --- On resuming at 1:22 p.m. 882 MR. BETTS: Thank you, everybody. Please be seated. 883 MR. BETTS: I know we didn't allow everybody a lot of time for a Friday afternoon lunch, but we do appreciate you working with that schedule. 884 We will now resume this hearing with cross-examination from -- first of all, are there any preliminary matters? 885 MR. O'LEARY: Just two matters, Mr. Chair. The company has completed its answers to two undertakings. The first is Undertaking J.4.2, which was to provide the break-out, which is the equivalent of that set out at Exhibit A.5, tab 5, schedule 3, page 2 of the for the three vendors which were considered in detail by the company. 886 The second is Undertaking J.4.5, which was to provide a breakdown of the options that allocates the cost by way of the direct-purchase administration charge and that which allocates the benefits to the customers paying the charge. I've got copies of that that I will distribute with your permission. 887 MR. BETTS: Thank you. 888 Thank you very much. And Mr. Moran, you can continue when you're ready. 889 MR. MORAN: Thank you, Mr. Chair. 890 CROSS-EXAMINATION BY MR. MORAN: 891 MR. MORAN: Witnesses, I wonder if you could just turn up Exhibit A.5, tab 5, schedule 3. 892 MR. CHARLESON: I have that. 893 MR. MORAN: If you could turn to page 2 where we see the break-out of the costs associated with the $18-million program. 894 You've already given evidence about the vendor costs and the fact that that's a fixed price contract and so on that basis, your expectation is that that cost will stay at $9.4 million; is that right? 895 MR. CHARLESON: That's correct. 896 MR. MORAN: On that basis, it would be unlikely that we would see cost overruns except on the basis that you earlier described which is if you were to change the scope of the work? 897 MR. CHARLESON: That's correct. 898 MR. MORAN: On the second item, the Enbridge IT resources, I take it that's that a matter that's totally within the control of the company? 899 MR. CHARLESON: Yes. 900 MR. MORAN: And that's an item listed at $2.5 million? 901 MR. CHARLESON: That's correct. 902 MR. MORAN: The third item is the Customer Works resources at $3 million. I take it that that one isn't necessarily within the control of the company, because it involves this limited partnership, Customer Works? 903 MR. CHARLESON: That's correct. The work that we -- with Customer Works is currently proposed to be done on a timing materials basis, so if there was any errors or difficulties with the estimation, that could affect the cost. 904 MR. MORAN: Right. And I'm going to come back to that one in a few minutes. 905 The third item is the hardware/software item. Is that something that's within the control of the company? 906 MR. CHARLESON: Not entirely because, again, there's certain pieces of infrastructure in software that we would have to acquire. Assumptions have been made in terms of the price that we would be able to acquire that hardware and software for, and any variance, zoning variance in terms of what we can actually get it for in the marketplace would be a risk. 907 MR. MORAN: So that number is based on certain assumptions that the company made, though; right? 908 MR. CHARLESON: The company in conjunction with Sapient. 909 MR. MORAN: Right. And if those assumptions are wrong, then we might see -- 910 MR. CHARLESON: Correct. 911 MR. MORAN: -- a problem with that number. 912 When we come to other program costs at $1.5 million, would you characterize those as being within the control of the company? 913 MR. CHARLESON: Yes, I would. 914 MR. MORAN: All right. 915 I'm going to deal with these items, then, in two separate categories, the ones that you've identified as being within the control of the company and the ones that are not. And for the purposes of the next set of questions, I'd like to proceed on the basis that the Enbridge IT resources item, the hardware/software item, with the qualification that you added to that, and the other program costs are within the same group within the company's control? 916 MR. CHARLESON: Yes, they are within the company's control. That, however, doesn't preclude them from any risk in terms of cost changing. 917 MR. MORAN: Right. 918 As I understand your evidence, you were highly confident with respect to the total of $18 million. I think you indicated that your expectation was that if there was approval to proceed coming from the Board, that it would be on the basis of that $18 million number, and that if there were cost overruns, that it was your view of the company would have to come back and try to make a case to collect any cost overruns? 919 MR. CHARLESON: Yes, that's correct. 920 MR. MORAN: And I it that in talking about those cost overruns, we would be talking about the cost overruns other than the vendor cost item? 921 MR. CHARLESON: Unless -- unless the reason for the vendor cost overrun was because there were scope items that for some reason were overlooked during the course of the work that's been done to date. 922 MR. MORAN: All right. 923 So focusing down on the ones that we've described as being within the control of the company, to what extent do you think that the Board -- that the company ought to take the risk and stay with these numbers as they are, as opposed to come back for additional funds if they don't turn out to be enough? 924 MR. CHARLESON: I think, given that the company would have to come back and justify the reasonableness of any cost overruns in those categories is in essence having the company take the risk on that. 925 MR. MORAN: Okay, fair enough. 926 I'll turn now, then, to the Customer Works resources. I think as counsel for Enbridge indicated this morning, that's a -- it's a limited liability partnership between Enbridge Customer Service, which is an affiliate, and BC Gas -- I'm sorry, Enbridge Commercial Services, which is an affiliate of Enbridge and BC Gas. Did I have that correct, Mr. O'Leary? 927 MR. O'LEARY: I'm sorry, I was working on something. I missed that. 928 MR. MORAN: Mr. Chair, I'm just seeking confirmation of what Mr. O'Leary advised us today that Customer Works is a limited liability partnership between the two companies, Enbridge Commercial Services, which is an affiliate of Enbridge Gas Distribution and BC Gas. 929 MR. O'LEARY: I believe that's right, and that's also in the Exhibit number that I identified earlier. 930 MR. MORAN: Right. All right. 931 So, Mr. Charleson, proceeding on that basis, are you aware that the Customer Works Limited Liability Partnership has further outsourced the billing service that it provides to a third company called Accenture. 932 MR. CHARLESON: Yes, I am familiar with that. 933 MR. MORAN: And of course, that's a true third party; it's not affiliated in any way with Enbridge? 934 MR. CHARLESON: Correct; Accenture is not. 935 MR. MORAN: And I notice that Accenture was one of the parties that you invited to participate in the RFP process. 936 MR. CHARLESON: Yes, that's correct. 937 MR. MORAN: Are you able to indicate if they put a bid in? 938 MR. CHARLESON: Yes, Accenture did provide a bid. 939 MR. MORAN: Now, with respect to the $3 million, which is required as you've indicated on page 2 of Exhibit A.5, tab 5, schedule 3, who's actually going to do the work that that $3 million is associated with? Is it Customer Works Limited Liability Partnership or would it be Accenture, in the context of Accenture now being the service provider, albeit indirectly? 940 MR. CHARLESON: That, I'm not sure. That would be for Customer Works to determine how they want to distribute the work, how they can best manage that workload. We have gone to Customer Works to indicate changes that we believe need to be made as part of the EnTRAC program, and how they staff to meet that workload would be within their control. 941 MR. MORAN: All right. So are you aware of who actually runs the software and hardware under the current arrangement with Accenture? 942 MR. CHARLESON: I'm aware of some of the parties from an Accenture perspective; no, I'm aware of the people I interact with at Customer Works. 943 MR. MORAN: Are you aware of where the work would actually get done within the partnership or within Accenture? 944 MR. CHARLESON: Not with -- not with 100 percent certainty. My expectation is that the bulk of the work would have to be done within the limited partnership, given that it's addressing legacy systems. 945 MR. MORAN: All right. And are you able to indicate who has control of those legacy systems at the moment under the arrangements between Accenture and Customer Works? 946 MR. CHARLESON: I'm not familiar with that. 947 MR. MORAN: Is it possible for you to try to confirm that? 948 MR. CHARLESON: Yes, we can do that. 949 MR. MORAN: That will be Undertaking J.5.8, Mr. Chairman. 950 MR. BETTS: Thank you. 951 UNDERTAKING NO. J.5.8: TO PROVIDE CONTROL OF LEGACY SYSTEMS UNDER THE ARRANGEMENTS BETWEEN ACCENTURE AND CUSTOMER WORKS 952 MR. MORAN: Now, as I understand it, Accenture carries out -- it isn't limited to this activity of providing billing services for Enbridge; it does other things in the marketplace; right? 953 MR. CHARLESON: Yes, Accenture is a large organization. 954 MR. MORAN: And I think you indicated earlier today that the $3 million is a -- and these are my word, so feel free to disagree if you want to -- is a soft number because you have to carry out further discussions with the folks at Customer Works in order to get a better handle on what it really means to implement this system? 955 MR. CHARLESON: The $3 million itself, there is some -- some definition around that number. We had asked Customer Works to provide us with a proposal of costs to deal with the changes required to support EnTRAC. The proposal that they came back with was for $3.8 million; however, upon reviewing the proposal, I feel there's an opportunity to reduce some of those costs, and feel that it could be managed to a lower level, and that's why I've only included $3 million in the overall project costs, in essence, assuming some of the risk of being able to successfully lower that cost. 956 There's still further discussions that have to happen with Customer Works in terms of, you know, is there a willingness for them to bear the cost, if they can retain the benefits or, you know, the mix of the benefit cost equation. 957 MR. MORAN: Do you know if BC Gas has direct-purchase customers? 958 MR. CHARLESON: I'm not familiar with their operations. 959 MR. MORAN: I wonder if you could describe for the Board the steps that you've taken to try and understand how the work that would be done as a result of the $3 million expenditure might be leveraged into other uses by either Customer Works or Accenture? 960 MR. CHARLESON: I really see there being limited to no opportunity for them to be able to leverage that work into other uses. Given that the -- the changes that we're asking them to make are very specific interface issues between the systems being used within Enbridge Gas Distribution and the systems that Customer Works is using to support Enbridge, they're very targeted towards that functionality, and the only manner that I would see them being able to leverage that beyond -- beyond that use -- and again, this will be strictly speculation -- would be if they had another customer that was trying to operate in a similar environment using a system similar to EnTRAC for managing similar types of arrangements, so there was a lot of if, if, if built into that, that leads me to believe that there is limited to no likelihood of them being able to leverage this outside of this. 961 MR. MORAN: Of course one possible customer might be BC Gas which is part of the partnership; right? 962 MR. CHARLESON: But again, that would only assume -- that would only be if BC Gas was using a system similar to EnTRAC that had the same interface and business process requirements. 963 MR. MORAN: Right, which I might well have, but you indicated -- 964 MR. CHARLESON: There's always the possibility. 965 MR. MORAN: You haven't explored that possibility in the context of BC Gas, at least? 966 MR. CHARLESON: No, we haven't. 967 MR. MORAN: Okay. I want to move on now to the GDAR functionality question, and as I understand it, you've indicated that to incorporate GDAR functionality into the system in a cost-effective way rather than doing it on a stand-alone basis, we're talking about $2.7 million to do that; right? 968 MR. CHARLESON: That's correct. 969 MR. MORAN: I think you indicated earlier that that will be over and above the $18 million that's proposed for this project? 970 MR. CHARLESON: That's correct. It would be incremental scope. 971 MR. MORAN: Right. And I think you also confirmed that the component of the rule, of GDAR, that this relates to is not the part that's under appeal by the company? 972 MR. CHARLESON: That's correct. We're strictly focused on the service transaction requests, which is not part of our appeal. 973 MR. MORAN: Right. So I guess just to try to understand what it is you're asking the Board for at this point, I mean, I assume that in the context of having to comply with the rule, to the extent that it's not under appeal and to the extent that there are arguments about what is stayed and what isn't stayed, the company's intention is to go ahead with the part that isn't under appeal; right? 974 MR. CHARLESON: That's our current intention, pending any internal approvals around the -- any concerns there may be on cost recovery. 975 MR. MORAN: And certainly, the Act requires the company comply with the rule, so it's not really a choice on the part of the company, is it? 976 MR. CHARLESON: It would appear to be that way. 977 MR. MORAN: Right. So in that context, are you seeking approval, therefore, to carry out that aspect of the spending as well so, that you can, in fact, comply with the rule as you've indicated? 978 MR. CHARLESON: That's not part of our request at this time. Our intention is that the incremental cost that we would be incurring would be captured within the deferral account that has been agreed to as part of this proceeding; however, if the Board wanted to kind of recognize or approve that incremental cost as being something that is reasonable, we would be more than happy to accept it. 979 MR. MORAN: All right. 980 So in terms of the actual time line for implementing that aspect of it, I wonder if you could just indicate where you are at this point. On the assumption that you have to do it -- because there's a rule, and it's not under appeal, so it's part of the obligations -- what's the game plan to carry out and meet the obligation on the rule and include that functionality and achieve the efficiency gained based on this approach rather than doing it on a stand-alone basis? 981 MR. CHARLESON: What we've done to date, back in December we undertook some initial analysis to understand the impact of GDAR on to EnTRAC as it was designed at a very high level to see the areas and components that would be affected. Following that, over the past few months we've been doing some more detailed design work, where we've been going and reopening some of the components of EnTRAC, plus designing any new components that would be required to deliver the functionality that GDAR dictates. 982 At the same time, we've been having discussions with Union Gas and with the agents, brokers and marketers, the ABMs, around the interpretation of GDAR. There are some areas of GDAR that are less than clear and are open to some interpretation and we've been trying to work with parties that are -- you know, that will be impacted by GDAR to ensure that the interpretation that's being applied is something that can be agreed upon in a consistent manner within the marketplace so that we're not having to reopen or revisit scope at a later date, should there be a difference of interpretation. 983 MR. MORAN: Now, moving to the, perhaps, slightly more sensitive area, the part that is under repeal of the rule. There are billing issues there, that this is the billing options part of the rule. I wonder if you could indicate from the IT side of things, from the infrastructure side of things, what relationship you see between the EnTRAC project and the technical requirements of the -- that would be required to implement the billing options? 984 MR. CHARLESON: It's very limited. The only relationship that EnTRAC really has to the billing options is that we would see EnTRAC as a vehicle for capturing the billing option that's selected by the customer or the marketer, if the appeal were to, you know, be unsuccessful. And just pass that billing option over to our billing systems, where they would then assume responsibility for managing that portion. 985 MR. MORAN: So when we look at the non-billing option part, the service transaction side of it, where there are some real economies of scale, as you've indicated, reducing the cost to 2.7 million, is there anything of that order on the billing options side that would be missed as a result of not taking advantage of it now? 986 MR. CHARLESON: Given the -- given the lack of kind of reliance on EnTRAC for that, I wouldn't see EnTRAC being a driver for the cost consequences in dealing with the billing options should we need to do so. 987 MR. MORAN: Thank you. Thank you, Mr. Chair. Those are all my questions, and my apologies to Ms. Collier for keeping her past lunch, since I didn't have any questions for her. 988 MS. COLLIER: That's fine. I ate; I'm good. 989 MR. BETTS: Mr. O'Leary, is there any re-examination? 990 MR. O'LEARY: Just very briefly, Mr. Chair. 991 RE-EXAMINATION BY MR. O'LEARY: 992 MR. O'LEARY: In response to Mr. Brett's questions about whether EOS would realize any efficiencies as a result of the EnTRAC project, Mr. Charleson, can I ask you whether or not EOS would be capable of using EnTRAC for the purposes of providing services to any other utility other than Enbridge Gas Distribution? 993 MR. CHARLESON: No, I don't see how they would be able to do that. 994 MR. O'LEARY: And on a somewhat related line of questioning which I think arose yesterday in respect of the issue of the contractual terms between EOS and Enbridge Gas Distribution and whether or not there would be any recovery of potential efficiencies, can you tell me which panel is it that the company will be presenting that would speak to the issues of the terms and conditions in those contracts? 995 MR. CHARLESON: I'm not familiar with all the panels that we're bringing forward, but I do know that there is a panel that will be addressing those issues, and I believe Mr. Brennan will be the witness for that. 996 MR. O'LEARY: Thank you. 997 And earlier today, Mr. Shepherd was asking you a number of questions in relation to -- I just lost the Exhibit list. It's the 10K, which I always thought you needed jogging shoes for. But I just ask you if you just have as a matters of general knowledge, Mr. Charleson, Mr. Shepherd was suggesting certain financial implications as a result of taking you to the various financial tables in this Exhibit. 998 Can you give me your sense, just from a general knowledge perspective, of what comparable companies are doing financially, world-wide, presently? 999 MR. CHARLESON: Without being able to get to any real specifics, I know that the software industry as a whole has been impacted quite heavily in the past number of years in terms of workload. I think there is kind of, you know, the boom in terms of everybody preparing for Y2K. And coming out of that, there's been a fairly steep drop-off in terms of the amount of consulting or contract work that organizations have been looking to these types of organizations for. And I think, you know, there's a fair drop-off in terms of the revenues that a lot of those organizations will have seen. 1000 A part of that I would attribute -- the organizations that are out there are hungry for work and looking for things -- I would attribute that that as kind of an indicator of that drop-off in work. 1001 MR. O'LEARY: Given these general trends that you've just indicated you're aware of, Mr. Charleson, can you advise me whether or not you find surprising the state, financially, of the Sapient Corporation? 1002 MR. CHARLESON: Not entirely. I knew when we started dealing with Sapient that there had been some restructuring that they had been doing in the 2000/2001 time frame, but I also know the kind of experience I've been having with them, and the type of work I see them getting within their Canadian operation. 1003 MR. O'LEARY: Mr. Chair, that's our redirect. 1004 MR. BETTS: Thank you. The panel does have a couple of questions, and if you feel it necessary to re-examine after those, we would welcome that. 1005 Mr. Dominy? 1006 QUESTIONS FROM THE BOARD: 1007 MR. DOMINY: It's a simple but perhaps a difficult question. What would happen if the Board were not to approve the EnTRAC project? 1008 MR. CHARLESON: If the Board were not to approve the EnTRAC project, the company would obviously have to take a close look at how we are going to approach dealing GDAR. We would have to kind of revert to our plan B which leaves the range of those costs of the 6.1 million to the 8.2 million, formalize the approach that we would take for how we would address GDAR, and focus our efforts on first securing approvals internally to move ahead with costs of that nature without, say, a commitment to recovery from the Board, and then move forward to -- in an effort to be compliant by March 1st of next year. That's where our energies would be focussed. 1009 And after we had dealt with that, we would then look at is there any other incremental work that we could do to try to improve -- continue to apply the Band-Aids, I guess. 1010 MR. DOMINY: So your response to how you deal with GDAR, and then the Band-Aids are how you deal with what you perceive as deficiencies in the gas management/contract management part of the contract? 1011 MR. CHARLESON: That's correct. 1012 MR. DOMINY: In the Union Gas 78 decision regarding the allocation of the costs of its unbundling, I believe, when I was looking at the decision, an attempt was made to separate the costs into two types: Those which were attributable to the development of the unbundled market and which was done on a volume basis -- so let's say system-wide costs to improve the whole way the gas market operates -- and those that were specific to the complexities of handling a large number of individual contracts relating to the small volume market. 1013 Has any thought been given to that sort of thinking in terms of the allocation of the costs of this project? 1014 MR. CHARLESON: I think we have given some thinking towards that. Obviously we've been looking at the Union decision and some of the rationale behind that, and we see -- we do see some merit to how that allocation was done. 1015 We do -- I think the focus that we've had has been that how we see -- you know, EnTRAC is dealing with issues in both those types of areas and how we've seen the benefits flowing. So it's a difficult area, I guess -- kind of what is the best or most appropriate method of allocating those costs. 1016 MS. COLLIER: I would just add to that. The analysis I provided yesterday looked at a varying degree of allocation methods. When you look at the end results of our proposed methodology versus sort of a 50/50 allocation to all rate classes, the change between the rate classes isn't too significant. It's not a drastic change to residential rates, for example, in all the large term -- it's sort of consistent in the ballpark, so that gave us a comfort level as well with our methodology. 1017 MR. DOMINY: In terms of the -- I probably should know the answer to this, but in terms of the way in which the net present value is calculated, I notice the whole thing was done on a five-year term. What's the basis of the choice of five years? And there was some discussion about the residual capital cost allowance claim, and I don't know what you call it -- the end of the project you lump form what might be future benefits by saying a salvage value or something like that. Why is it five years is used? 1018 MR. CHARLESON: I think the five-year horizon is used because that's been kind of the historical time horizon that we've seen for IT-type projects. I know coming out of SIM, the majority of our SIM projects were capitalized over a five-year time horizon, and it's something where we've really looked towards what's a reasonable life cycle expectation for an IT asset, given the pace of change in -- kind of in the IT industry, the evolution of the marketplace, that -- that's been kind of the -- considered accepted time horizon for an IT application. That's why we applied it to. 1019 Our hope and expectation is what we're putting in place here would have a life beyond that, but given the pace of change, there's never any certainty. 1020 MR. DOMINY: I was just hoping we weren't going get another application for $18 million in five years to replace it. 1021 MR. CHARLESON: That would certainly be my hope as well. 1022 MR. DOMINY: And there was one small additional question. It's in I.67, which is the Board staff interrogatory and I've just got to find it. That was a very interesting set of communications. 1023 MR. CHARLESON: Will you be looking at one of the communications at the back -- 1024 MR. DOMINY: It's towards the back. I must admit that I was quite interested that many of the points that I had were asked by various intervenor counsel. 1025 It's the one which shows the breakdown of the 2 point -- I think it was nine -- approximately $9 million that been spent on the design of the system. It's on page 148. It says "Costs". 1026 MR. CHARLESON: Yes, I have that page. 1027 MR. DOMINY: And I was just interested in noting the EOS labour, ECS labour, CW labour. And there are dollar figures shown there, and I think you were telling me that they hadn't actually billed anything to you. 1028 MR. CHARLESON: That's correct. 1029 MR. DOMINY: So I wondered what those numbers meant. 1030 MR. CHARLESON: This is a presentation that we provided, I believe it was to our executive management team within Enbridge Gas Distribution back in May of 2002. So this was, in essence, where we were seeking approval from the EMT to proceed with the detailed design phase of the project. 1031 So this page, the cost page on page 148, is really -- it was the projection of the costs that we were expecting for the design phase. 1032 MR. DOMINY: So the -- I don't remember the number, but the 2.8 or whatever had already been booked. It isn't this breakdown, it would be a different breakdown that shows that? 1033 MR. CHARLESON: It would be a different breakdown. It was, say, approximately $3 million that was booked at the end of fiscal 2002, and that would -- that would include the costs from this design phase, and also the line above that, the cost to date of approximately $450,000. 1034 So the actual costs of the design phase came in at less than what we were requesting. 1035 MR. DOMINY: And a last question: How was Sapient selected at the very beginning as opposed to it being selected through the RFP process for the implementation? 1036 MR. CHARLESON: The initial rationale for meeting with Sapient and starting to work with Sapient was based on discussions we had with Union Gas. 1037 We had a meeting with Union Gas in February of last year, and it was at that time when we were getting a lot of information in terms of Union Line and what they were doing there. We had heard that they were working with Sapient, but we didn't have a strong appreciation for the role that Sapient had played and the skills that they might be able to bring to us in terms of understanding the approach that we could take and assisting us with the design. 1038 So it was more based on the -- Union Gas's use of Sapient, and the success that they had had working with Sapient gave us a strong degree of comfort in terms of starting to do some work with Sapient to help us get a really good handle of what it was we had to address and how we could address it. 1039 MR. DOMINY: So this was effectively a selection of someone whose reputation had been provided to you and not a tender of processes? 1040 MR. CHARLESON: That's right. It was more based on the reputation they had from the work they had done for Union Gas and also work that we became aware that they had done for Atlantic Gas & Light on similar type issues. 1041 MR. DOMINY: Thank you. Those are my questions. 1042 MR. BETTS: I have perhaps a few questions, but primarily directed or focused on two areas. 1043 One, you responded to questions earlier indicating that the -- the allocation to residential or small customers was high because they were likely to be benefitting more from positive results of the program; that is correct, is it not? 1044 MR. CHARLESON: The allocations, because we're using the standard IT cost allocation, but we also do expect those customer classes to receive a fair portion of the benefits. 1045 MR. BETTS: That portion, somewhere in the order of 90 percent? 1046 MS. COLLIER: I can't state for certain how the benefits would flow in that sense. I think you would recognize that certainly our customer base is a significant number of residential customers, of which approximately 45 percent of them are in direct-purchase arrangements, as well as we indicated benefits flowing to system-gas customers as well, so I don't know if it's a one-to-one match with the benefit allocation as well as the cost allocation. 1047 MR. BETTS: You also indicated an answer to another question that there were risks associated with the success or failure of this program, and that most of those risks laid with the possibility that those people that were determined to be the users of this chose not to use that; is that correct? 1048 MR. CHARLESON: I think that was an item that Mr. Warren was pursuing yesterday afternoon, and I believe in my responses to Mr. Warren, I indicated that our expectation is that there won't be a choice for -- this will be the mechanism that we look towards them to -- to interact with us. 1049 There is a risk that they may resist or not be entirely comfortable with using that, and we will have to put additional effort forward to help them achieve that comfort in using it, but our expectation is that this is the way that we will look to transact and work with those customers. 1050 MR. BETTS: Thank you, then. You really answered my question. 1051 My concern was that it appeared that the risks to those people that may be allocated the costs were beyond their control, but you indicated to me that the company would intervene in that to ensure that they do their part to ensure that the system is fully utilized. 1052 MR. CHARLESON: That's right. We would work to make sure that they are comfortable using it as opposed to applying resources to work around them not using it. 1053 MR. BETTS: Okay. Thank you. 1054 The last focus I have, again, it's a little bit of a follow-up to Mr. Dominy's questions about residual value of the system and so on, and there has been examples in the past where Enbridge has chosen to go to an outsource agent to provide services that are based upon software programs that they, in fact, developed and were in-house. And often those transfers -- not often, I think in virtually every case, the transfers were done at net-book values, which generally are at or near zero at that point in time. 1055 Rather than getting into the accounting side of it, which I think is obvious, I just wanted to ask you the general question: Can you foresee any situation where this system could be appropriately used by an outsource agent to provide the service to Enbridge, or is it safe to say that it will always stay in-house? 1056 MR. CHARLESON: I think there is always the possibility that as we look at the most efficient way of delivering services and managing cost within Enbridge, that we could look at a different model for resourcing or staffing the way that we manage contracts. And so is there the potential that at some point down the road we would look towards a service provider to -- to kind of manage the contract administration process? There's always that potential. 1057 Would we outsource and shift the responsibility for, say, the day-to-day interactions on the relationship -- relationship side or the face-to-face relationship aspects, probably lesser so, but there's no way we could say with any certainty that Enbridge would never pursue that. 1058 Right now, to the best of my knowledge, there's no intention that way, but... 1059 MR. BETTS: Okay. That concludes my -- oh, Mr. Dominy has one question to follow up. 1060 MR. DOMINY: Just something that crossed my mind, and I think you probably answered it, but I couldn't remember. 1061 I believe there was some concern being expressed by some of the potential users of your system that there should be some consistency between what EnTRAC would introduce and what Union Line requires in the way of information filing of performance or -- I don't know how you would put it. I think they have these things called EBT guidelines in the electricity area. 1062 Is there any discussion about trying to get some sort of standardization on the type of filing required, for instance, with regards to the transaction request to change one customer from one direct purchaser to another? 1063 MR. CHARLESON: Yes, and this is something we haven't really talked about over the past day, but as part of GDAR, there is a section that talked about EBT, electronic business transactions, and GDAR currently does not stipulate that a standard will be dictated by the Board. 1064 But given that, though, both Union Gas and Enbridge very much want to be able to arrive at a single standard that can be used, and we also -- and this was part of the discussions that we had with the marketers the other week, and we want to work with them as well in terms of establishing that format to see if we can arrive at something that is consistent both from a Union Gas and an Enbridge perspective, but also from a marketer perspective will help to mitigate the cost implications of being able to perform service transaction requests. 1065 So there is a drive towards arriving at a consistent format. 1066 MR. DOMINY: Thank you, Mr. Charleson. 1067 MR. BETTS: Mr. O'Leary, do you have any re-examination to clarify any of the questions? 1068 MR. O'LEARY: Just one question. 1069 MR. BETTS: Go right ahead. 1070 FURTHER RE-EXAMINATION BY MR. O'LEARY: 1071 MR. O'LEARY: Mr. Charleson, Mr. Betts was asking you about the possibility of the outsourcing of the EnTRAC project and the services that would be offering, and the question that I would ask you to consider is, in light of the decision of the Board in the RP-2001-0032 decision, can you tell me whether you're aware of the company's position as to whether it would first seek Board approval before outsourcing such a function? 1072 MR. CHARLESON: No, I'm not aware of that. 1073 MR. O'LEARY: You're not aware of that, so we will save that for another panel? 1074 MR. CHARLESON: Yes. 1075 MR. O'LEARY: Thank you. 1076 MR. BETTS: Thank you, Mr. O'Leary. I'll look forward to hearing that question. 1077 First of all, I'll thank the panel for helping us in this hearing process. You have been very helpful and we appreciate that. 1078 We'll take a ten-minute break if we can and allow the panels to change. And I will tell all the parties that the Board intends to issue its oral decision on the motion of Direct Energy when we return. 1079 MR. O'LEARY: Mr. Chair, I would just like to say it was a pleasure to speak with you and I'm going to be followed now by my colleague Tania Persad, who will be here for the WAMS panel. 1080 MR. BETTS: Thank you very much, Mr. O'Leary. 1081 --- Recess taken at 2:06 p.m. 1082 --- On resuming at 2:21 p.m. 1083 MR. BETTS: Thank you, everybody. Please be seated. 1084 MR. BETTS: Are there any preliminary matters that arose in the last ten minutes? There are none, apparently. 1085 I indicated that the Board will be issuing an oral decision on the motion at this point, and we are ready to proceed with that. 1086 DECISION: 1087 MR. BETTS: Direct Energy has brought a motion with respect to evidence filed by the HVAC Coalition, or HVAC. In its motion, Direct Energy takes the position that the evidence filed by HVAC is outside the scope of the issues list established for this proceeding. Direct Energy argues that the HVAC evidence is primarily aimed at the issue of the impact on the competition in the HVAC market, resulting from the exclusive access that one HVAC company has to Enbridge's bill. 1088 As a result of the Board's decision with respect to the issue list, Direct Energy says that this issue is outside the scope of the issues set out on the Board's issues list. 1089 In response to this motion, HVAC points to issue 8.3, which reads as follows: 1090 "Costs and other implications of Enbridge Gas Distribution Inc.'s agreement with Customer Works Limited Partnership for the provision of customer care services, including a review of the Douglas Louth report." 1091 HVAC argues that this issue is broad and should include a review of all aspects of the relationship between Enbridge Gas Distribution and its affiliates, how these agreements came about, and who benefits or is burdened by these agreements. 1092 HVAC goes on to argue that such a review will determine whether there are implications for the ratepayers. HVAC characterizes the issue to be whether there are cross-subsidies from Enbridge Gas Distribution to a third party. HVAC also says that it is necessary to determine whether the costs incurred by Enbridge Gas Distribution are prudent, and to examine the cost implications of the exclusive access to the Enbridge Gas Distribution bill enjoyed by Direct Energy's HVAC affiliate. 1093 HVAC takes the positions that it is necessary to examine the implications that exclusive access to the Enbridge Gas Distribution bill have for the competitive HVAC market. 1094 The Ontario Association of Schools Business Officials, or Schools, is of the view that the exclusive access of one HVAC company to the Enbridge Gas Distribution bill may have implications for ratepayers and that these implications fall within the scope of issue 8.3. To the extent that the HVAC evidence addresses this issue, it does fall within the scope of issue 8.3. 1095 However, Schools also notes that the HVAC evidence also addresses the issue of the unfairness in the context of the HVAC market that arises as a result of the exclusive access to the Enbridge Gas Distribution bill enjoyed by one HVAC company. This aspect of the HVAC evidence falls outside the scope of issue 8.3. 1096 Schools opposes the Direct Energy motion to the extent that the HVAC evidence falls within the scope of 8.3, and to the extent that the HVAC witness would be a useful witness on the issue of ratepayer impacts that result from the exclusive access to the Enbridge Gas Distribution bill enjoyed by one HVAC company, the Ontario Public School Boards Association, or School Boards, is of the view that it is within the scope of issue 8.3 to examine whether ratepayers are affected by the arrangement that allows one HVAC company to have exclusive access to the Enbridge Gas Distribution bill. 1097 The Vulnerable Energy Consumers Coalition, or VECC, takes the position that to the extent that the HVAC evidence relates to issue 8.3, then the Board should permit the evidence to be heard. VECC also says that to the extent that the HVAC evidence relates to bill access and the HVAC market, that the evidence does not necessarily need to be struck from the record but can simply be given the appropriate weight that it deserves. 1098 It is VECC's position that the motion is premature and should be dismissed. The Consumers' Association of Canada, or CAC, also argues that the motion is premature and should be dismissed. 1099 Enbridge Gas Distribution agrees with Direct Energy that the HVAC evidence is aimed at addressing the issue of bill access and its effect on the HVAC competitive market. Enbridge Gas Distribution takes the position that HVAC is not entitled to pursue this issue because it falls outside the scope of issue 8.3. 1100 Enbridge Gas Distribution agrees that HVAC is entitled to pursue the issue of whether billing practices may have a negative impact on ratepayers. 1101 In its reply submission, Direct Energy argues that the evidence as filed by HVAC does not support the argument that HVAC says it wants to pursue regarding implications for ratepayers flowing from the bill access arrangements. 1102 The Board is of the view that the specific issue of who should have access to the Enbridge Gas Distribution bill and the impact of access to the bill in the HVAC marketplace is outside the scope of this proceeding. 1103 The Board reaffirms that issue 8.3 is limited to rate consequences flowing from the arrangements between Enbridge Gas Distribution and Customer Works Limited Partnership. Therefore, the Board directs HVAC and all parties to confine their evidence and arguments so it remains within the scope of issue 8.3 as just described. 1104 In reviewing both the HVAC evidence and the HVAC submissions, the Board is of the view that if HVAC intends to pursue issue 8.3 with additional evidence not already filed, it is only fair to the other parties that they understand what that evidence will be in advance of its presentation. 1105 HVAC is directed to serve and file any supplementary evidence no later than 4 p.m., April 7th, 2003. 1106 Are there any questions? 1107 Then, I welcome some new faces at the witness panel, some familiar faces, and I will turn the hearing back to Mr. Cass to introduce the panel. 1108 MR. CASS: Thank you, Mr. Chairman. I came to hear the ruling on the motion. Ms. Persad will actually lead the witnesses through their examination-in-chief. Thank you, sir. 1109 MR. BETTS: Thank you. 1110 Ms. Persad, please proceed. 1111 MS. PERSAD: Thank you, Mr. Chair. If I could first ask for the panel to be sworn. 1112 MR. BETTS: Thank you. Mr. Dominy will do that. 1113 ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45: HOLDER, CHIOTTI 1114 J.HOLDER; Sworn. 1115 L.CHIOTTI; Sworn. 1116 MR. BETTS: And the witnesses have been sworn. 1117 EXAMINATION BY MS. PERSAD: 1118 MS. PERSAD: If I may introduce the witnesses, Mr. Chair. Sitting closest to you is Ms. Janet Holder, Vice-President Operations for Enbridge Gas Distribution, and sitting next to her is Mr. Lloyd Chiotti, General Manager, Central Region, also for the company. 1119 Ms. Holder, can I please just confirm that the pre-filed evidence filed at Exhibit A, tab 7, schedule 3, and the related interrogatories were prepared under your direction and supervision. 1120 MS. HOLDER: Yes, that's correct. 1121 MS. PERSAD: Do you adopt this evidence for the purposes of this hearing? 1122 MS. HOLDER: Yes, I do. 1123 MS. PERSAD: Mr. Chiotti, do I also understand that you directed and/or assisted in directing and supervising the preparation of this same pre-filed evidence? 1124 MR. CHIOTTI: Yes, I did. 1125 MS. PERSAD: I just have a few questions, evidence in chief, that are outstanding matters, Mr. Chair, from the EnTRAC evidence that was just given and I believe Mr. O'Leary advised you that Ms. Holder would address at least one of these questions, and the first issue deals with a matter discussed at the transcript, volume 4, paragraphs 1420 to 1429 where, Ms. Holder, your name is mentioned, respectfully. 1126 Have you read this section of the transcript? 1127 MS. HOLDER: Yes, I have. 1128 MS. PERSAD: And Ms. Holder, do you have any direct knowledge in respect of management or board-of-director approval for EnTRAC? 1129 MS. HOLDER: Yes, I do. I think Mr. Charleson in his evidence has at least indicated that I have personally endorsed the EnTRAC project, and I just want to state that the rest of the executive team at Enbridge Gas Distribution has also endorsed the project; that includes Mr. Schultz, our president. 1130 With respect to approval from Enbridge Gas Distribution's Board of directors, we do not believe we need specific approvals for the EnTRAC project, in that it is part of our budget that was approved by the Board and therefore this is -- in our normal course of business, would not require further approval from the Board of directors. 1131 MS. PERSAD: The second outstanding matter from the EnTRAC panel was a question -- I believe it was the last question that Mr. O'Leary ask Mr. Charleson, and it was in redirect, whether the company would seek this Board's approval before outsourcing the EnTRAC system after it was already up and running. Mr. Charleson stated that he didn't know. 1132 Can you answer that question. 1133 MS. HOLDER: I have not seeked (sic) legal advice on this, but in light of the environment we have right now and the past decision, without any further clarification, I would expect we would bring an application before this Board if we were to choose to outsource the EnTRAC system and its functions. 1134 MR. BETTS: Thank you. 1135 MS. PERSAD: Now, turning to the WAMS issue. How does the company's evidence, filed at Exhibit A.6, tab 7, schedule 3, relate to issue 7.4 or what is now subsumed under issue 7.45 on the issues list? 1136 MR. CHIOTTI: Mr. Chair, in our 2002 rate proceeding, we filed a proposal to implement a new work and asset-management system. We termed the system the distribution plant work and asset management system or DPWAMS for short at that time. That system was going to involve a $20.5-million expenditure, which was going to occur over two fiscal periods, two fiscal years. 1137 The project proposal did not go forward to the hearing, and as a result of that, the company began to look at other alternatives for meeting our work and asset management needs as opposed to implementing this system in-house. 1138 In our recent evidence on our O&M budget for the 2003 case, we indicated that we were still evaluating alternatives for how we might obtain such a system, but we did put a provision in the budget of $4.5 million O&M to cover the potential cost of acquiring the use of such a system from a third-party application service provider, as they are called. 1139 Subsequently, we went through a formal request for proposal process, and through that process we selected Accenture as our partner to be our application service provider and to provide us with a work and asset management system. 1140 We went on to sign a letter of intent with Accenture on January 30th, 2003, and we are now in detailed discussions with them, confirming the scope and the financial matters around the engagement that we would have with them. 1141 Essentially, this alternative would involve Accenture providing the work and asset management system to us. They would work with us to create that system and implement it, but then they would actually operate the system. They would run the system for us. 1142 And when I say "system," I'm only referring to the computer aspects of this. It will remain our employees and our work management centre that actually does all the work and interacts with the computer system, but Accenture would provide the system, essentially, and operate the system on our behalf. 1143 In addition to that, the engagement would call for Accenture giving us some management support and some operational assistance, primarily directed at helping ensure that we get all the benefits from using such a system within our operations. 1144 The arrangement is that all of this would be on a fee-for-service basis, and as a result of that, we would not have to contemplate a major capital project. 1145 MS. PERSAD: What is the company expecting the Board to approve with respect to its WAMS proposal? 1146 MR. CHIOTTI: In the settlement proposal, the cost consequences of this have been included, and so the O&M expenditure would be included in the envelope of 270 million that was agreed in the settlement. 1147 However, the settlement recognized that some intervenors had some outstanding unresolved policy issues with respect to this project that they wished to pursue at the hearing. We're not actually aware of the details of those issues, but from the company's point of view, we would seek to have the Board endorse this project as being prudent and that it meets the needs of the utility as presented. 1148 MS. PERSAD: Mr. Chiotti, can you please describe for us, then, in more detail what the work and asset management solution is and how it relates to the needs of the utility. 1149 MR. CHIOTTI: At the heart of the work and asset management solution is technology and a computer system, but it really does go beyond that. It would involve the organization, the business processes, and a supporting information technology behind that to manage our distribution plan assets and to manage the work that we have to do with respect to those assets. 1150 To be more explicit about managing the assets, we think about our assets as having a life cycle. That life cycle includes asset design. It includes planning, asset construction, the operations of the assets, the maintenance of those assets, the ongoing improvement, and ultimately, the decommissioning of assets once they have exceeded their life. 1151 Work management, in this case, refers to the process of actually managing the work that has to be performed on those assets. So it's a question of how do we handle work orders, how do we track those orders, how do we record the completion of those orders, how do we dispatch those orders to our field forces, and so on. 1152 I'd like to take a minute and provide sort of a sense of the scale of the operations that we're talking about here, because they are quite considerable. 1153 The utility is responsible for operating and maintaining over 60,000 kilometres of mains and services distributing natural gas to over 1.6 million customers. Each year we add an additional roughly 55,000 customers to that number, and in the process, we add another 3,200 kilometres of mains and services to our system. 1154 From a financial point of view the annual O&M and capital associated with this work is approximately $260 million. 1155 To bring this down to some other terms, each year the operations group completes approximately half a million individual pieces of work. That works out to something in excess of 2,000 units of work on a daily basis. And I'd like to illustrate what some of that work amounts to. 1156 On an annual basis, we respond to approximately 90,000 emergency calls, and that can be anything from a residential householder thinking they smell a gas leak to a significant emergency where someone has struck our system and we have gas blowing in the field. 1157 We do 103,000 inspections. This is legislated activity whereby we have to go and inspect the installation of services and the installation of equipment in customers' homes and so on before the gas can be turned on. 1158 We do roughly 64,000 meter work units. A good proportion of that are what are known as government inspections whereby on a regular cycle we have to go out and exchange meters and bring meters in for testing. 1159 As mentioned previously, we add 55,000 customers, and clearly that involves a lot of work with putting plant in the ground and so on. 1160 We do 29,000 construction relights, so once we've got those customers connected, we have to go out and light their pilot lights and what have you and turn on the gas. We have 47,000 pieces of work that we do annually on our regulator stations, involving various maintenance and so on. 1161 An additional 14,000 just miscellaneous units of work, things we call tracers and follow-ups and so on. 1162 Of those 90,000 emergency calls, roughly 3,000 are the result of actual damages to our plant on an annual basis, and this could be anything from a residential customer installing a fence and hitting a service line to a large construction operation where our mains have been damaged through construction. 1163 We have roughly 23,000 units of maintenance work, and that would be anything from replacing equipment, replacing valves, replacing sections of main, et cetera, that needed to be replaced. 1164 Eleven thousand locates is another major category of work. This is what we would prefer people to do rather than damage our plant, call us in advance, so we can mark our plant out for them so they won't hit it when they're doing their construction work. 1165 And as a final category, to get all of this work done often involves us getting the necessary permits and so on to do it. We have to process approximately 7,000 permit applications on an annual basis. 1166 This is a formidable task. If you can imagine the forecasting, the planning, the scheduling, the dispatching, the tracking of all of this work, it is a considerable undertaking. In addition, we have to capture all the necessary records from doing all of this work for our files in an accurate and timely manner, because this is essential to us to being able to provide ongoing safe and reliable operations. 1167 We do all of this in the Operations Group. In doing all of this, it also strives to constantly do it in a more efficient manner. With 55,000 customer additions every year, there is an ever-increasing volume of work to be done and we need to find new ways of doing it more efficiently in order that we can contain the escalating costs that would arise from that work. 1168 MS. PERSAD: Mr. Chiotti, how does the utility manage this work today? 1169 MR. CHIOTTI: Today we rely on a host of manual and computerized processes. Today we have no less than 46 individual computer systems that are in one way other another associated with us managing this workload. 1170 Many of these systems have been developed over a long period of time. Some of them are as much as 20 years old. I have personal experience in them in that I used to work in the IT department and I feel that my name is still on some of those systems. 1171 MS. PERSAD: Why is it that you feel that these existing systems do not meet the company's needs? 1172 MR. CHIOTTI: There's no question that these existing systems are aging, and as a result, they're becoming increasingly difficult to maintain and enhance. And this is very typical of computer systems over time. 1173 Because some of these are very old systems as well, it's difficult to interface them to any new software that we might be able to obtain. 1174 Another key issue is that these systems tended to be developed independently, so for a given category of work, we would develop a particular system to manage that work. 1175 The result of that, sort of, evolution of our systems is that it's very difficult to get a complete view of all the work that has to be done. So for example, a crew might be out today responding to an emergency at a particular premise, and not realize that there is a government inspection that needs to be done on the meter at that premise in the near future, and clearly that leads to inefficiencies in our operations. 1176 Effectively managing all of this work also requires capability that the our existing systems don't have today. In particular, the ability to forecast workload out into the future is simply not there in our systems today. And once again, this ability to have a single view of all the work that needs to be done is essential to being able to ultimately manage our resources in the most optimal way. 1177 These capabilities are also very important to our ability to make scheduling commitments to our customers, and to ensure that we can meet these commitments on a consistent basis. 1178 I mentioned that we have many manual processes as part of all of this as well. In particular, the planning and scheduling components of the work-management function are manual as they are today, and this means that they are really quite time-consuming and labour-intensive. 1179 MS. PERSAD: How is it that you feel the WAMS proposal will deal with these shortcomings? 1180 MR. CHIOTTI: The intent of the work and asset management solution is to acquire a single system, a single integrated system that will replace these existing 46 systems and the manual processes that we have around these systems. This system would then provide all of the functionality that we need to meet the work and asset management needs of the organization. 1181 What we're looking to do is in fact acquire a package solution. We don't intend to actually build a system from scratch. We don't intend to have Accenture build a system from scratch. There are commercially-available, very sophisticated systems in the marketplace, and the intent is to acquire this package and use this package to manage all of this work that we've been talking about. 1182 MS. PERSAD: Mr. Chiotti, why does the company believe that the WAMS proposal is superior to the other alternatives it has considered, including the DPWAMS alternative? 1183 MR. CHIOTTI: The work that we're now doing with Accenture and the system scope and the details of the system that we're now working through with them is designed to meet all of the same business requirements that we identified during the DPWAMS effort leading up to our filing date for the proposal in 2002. 1184 One of the major differences is that by working with Accenture, we gain the benefit of all the experience that they have in implementing these kinds of systems. And through our RFP process, we established that they, in fact, have extensive experience; they have implemented work and management systems in no less than 50 utilities across North America in recent years. And so the key benefit of that from our point of view is that we reduce the risk of this endeavour considerably. 1185 As well, in our arrangement with Accenture, they will do this on a fixed-price basis and so essentially we, once again, reduce the implementation risk of trying to do this on our own. 1186 Accenture will also provide to us post-implementation support, and that addresses another key risk that you have with these kinds of implementations, and that is that we will enhance our ability to make sure that we achieve all of the benefits of this system once it's been implemented. 1187 I want to stress that the utility really considers the application of a new work and asset management solution to be a business necessity. Our systems are aging. They really have reached and, in some instances, gone beyond a reasonable life span. The utility needs to be able to continue to provide safe and reliable delivery of natural gas and to satisfy our customers' needs, and that was first and foremost in our minds in proceeding with in project. 1188 From that point of view, because it is a business necessity, our examination of this project was not predicated strictly on a cost-benefit analysis alone; however, there are tangible benefit that we anticipate with this project. We anticipate a tangible benefit with DPWAMS as well. We have done a net present value comparison of this project versus the original DPWAMS project and this project does produce a higher net present value calculation result, and that's based on a six-year calculation with our last approved ROE. 1189 MS. PERSAD: I have no further questions, Mr. Chair. 1190 MR. BETTS: Thank you, Ms. Persad. 1191 Questions, I guess, from any intervenors at this point. 1192 MR. WARREN: Thank you, sir. 1193 CROSS-EXAMINATION BY MR. WARREN: 1194 MR. WARREN: Mr. Chiotti, do I understand your responses to Ms. Persad's last series of questions that Enbridge has come to the conclusion that the WAMS proposal, the arrangement with Accenture is a significant improvement over DPWAMS; is that correct? 1195 MR. CHIOTTI: Yes. 1196 MR. WARREN: And I rarely get this opportunity, but I take it, then, you feel some relief that the Board didn't approve DPWAMS last year? 1197 MR. CHIOTTI: That decision certainly did lead us to look at some alternatives that we weren't looking at that at that time. 1198 MR. WARREN: Will there be a moment during this process in which you will thank us for that? 1199 MR. CHIOTTI: I will thank you right now. 1200 MR. WARREN: I'll see what I can do for you today, Mr. Chiotti. 1201 Mr. Chiotti -- panel, I'm sorry, I didn't mean to exclude you, Ms. Holder. I'd like to start with the issue of the relief which you're seeking in the case, and with some apologies, I suppose this takes us back to the ADR agreement. My understanding, panel, from your observation is that you are interpreting the ADR agreement as, in effect, allowing you to spend money within the O&M envelope on, among other things, the WAMS project; is that right? 1202 MS. HOLDER: Yes, that's correct. 1203 MR. WARREN: Now, the WAMS project, as it's set out in the prefiled evidence, has a seven-year life span -- sorry, your contract with Accenture has a seven-year life span; is that correct? 1204 MR. CHIOTTI: It's actually seven years with an option to extend for three additional years. 1205 MR. WARREN: Now, there's a cost of that contract in every year; is that correct? 1206 MR. CHIOTTI: That's right. 1207 MR. WARREN: Is it your position, your understanding of the ADR agreement and the Board's acceptance of it, that what has been approved is the freedom, if you wish, to allocate from within your O&M budget the first-year amount, which I think is $7 million, if I recollect? 1208 MS. HOLDER: It's 3.5 billion in O&M and 3.5 million, roughly, in capital. 1209 MR. WARREN: Have I captured your understanding of it? 1210 MS. HOLDER: Yes. 1211 MR. WARREN: Is it your view that you would have to come back next year to the Board to seek approval for the expenditure of -- I'm looking at your prefiled evidence, Exhibit A.6, tab 7, schedule 3, page 7, which is a break-out of the annual service fee over the life of the contract. And I see in fiscal 2004 there would be 10.2 million spent next year; is that right? 1212 MS. HOLDER: Yes and no. We haven't finalized the fee schedules for years 2004 on yet with Accenture, but it will be in that ballpark. 1213 MR. WARREN: Let's -- to use a term of the level of my friend Mr. Thompson -- let's use it as a placeholder for the moment, okay? 1214 MS. HOLDER: Okay. 1215 MR. WARREN: Is it your position that you would have to come back to the Board next year and get approval for $10 million for the WAMS project for the second year of the operation? 1216 MS. HOLDER: Yes, I guess it's our expectation that for 2004 case that we would be asking for the fees that we would be paying to Accenture for these services. We would be asking for them again to be split between O&M and capital based upon the benefits that would be accrued to the company, due to this project. 1217 MR. WARREN: If, however -- I'm trying to get to the implications of what it is -- the relief the Board is going grant this year going forward. 1218 Are you asking the Board to approve the prudence of the project as a whole? By which I mean, when you come back in 2004, for example, it's, in effect, a rubber stamp that you're going to get your $10.4 million, because the Board would have said, Yes, it's a prudent expense? 1219 MS. HOLDER: No, I don't ever expect that this Board would give a rubber stamp for costs in future years. 1220 I think what we're asking for is that this concept, which is somewhat different than any approach that we've taken in the past for these types of projects, is recognized as being prudent by the Board. 1221 MR. WARREN: But when the Board -- would you agree with me, panel, that when the Board looks at the prudence of the project, they have to keep in -- that they're in effect being called upon to assess whether the WAMS project as a whole and a total all-in cost of - I haven't done the math, I'm sure you have - $70 million or thereabouts -- I'm sorry, it's less than that. Whatever the figure is on page 7. It's late in the day; I apologize. The total all-in cost, that the Board has to make an assessment, in effect, today whether or not this arrangement at that total price is a prudent one. Is that not fair? 1222 MS. HOLDER: That's -- I don't believe that's the relief we're asking for. We're asking for the concept of us moving forward in this direction with outsourcing a solution to our work and asset management as being prudent. 1223 It is different than building these types of solutions, IT solutions inside the company as a capital project. We are not asking the Board at this point in time to approve the $7 million or whatever -- 1224 MR. WARREN: I appreciate that. My question was a little bit different, Ms. Holder. 1225 I was asking if you agreed with me that in order for the Board to arrive at a conclusion about whether or not this is a prudent project, the Board would necessarily have to make a decision about whether or not it was worth 50 million, or whatever it is, over the life of the contract; is that not fair? 1226 MS. HOLDER: I'm afraid I might be getting into a bit of a legal debate in what -- what you define as prudent or not prudent. 1227 MR. WARREN: Oh, dear, I'm having post-traumatic stress syndrome, because you and I have been there before. 1228 MS. HOLDER: That one was a different situation. I was aware of what prudence meant in that situation and we were asking for full recovery costs in that case. 1229 MS. PERSAD: Mr. Chairman, to be fair, Ms. Holder is not here to give a legal interpretation of what prudence is. 1230 MR. WARREN: And I'm sorry, I wasn't asking Ms. Holder to do that, Mr. Chairman. I'm just trying to get an understanding of what the company believes the Board's relief will mean to it. And I have one view of that, and my question simply was whether or not it was Ms. Holder's view that, in assessing the prudence of the project, the Board would have to make an assessment of whether or not the cost was a reasonable one over the life of the contract. It wasn't a legal opinion I was asking for. 1231 MS. HOLDER: The only answer I think I can give, Mr. Warren, is that as we come forward in 2004, we will have O&M costs and capital costs that we will be asking for approval of. In that the costs of this project will be in both O&M and in capital, we will be seeking the Board's approval of those costs at that time. 1232 I think what we're asking for right now is that the concept of what we are doing makes sense to this Board. 1233 MR. WARREN: All right. Let's move on, panel. 1234 I'd like you to turn up your prefiled evidence at Exhibit A.6, tab 7, schedule 3. And I'm looking at paragraph number 2, panel, and the last sentence in there, it's a paragraph in which you are discussing the disposition of the DPWAMS matter in the 0032 case. And the statement appears to read as follows: 1235 "Enbridge recognized that its proposed project approach may not be viable given the Board's decision. It began the evaluation of alternatives of internal development to the DPWAMS solution." 1236 I'm trying to understand what the notion of -- what you mean by "viable" there. 1237 Can we not agree, panel, that the DPWAMS project was either viable or not viable, regardless of what the Board decided to do with it; in other words, it's either a good project or its not. 1238 MS. HOLDER: I think viable is in the full context of the business solution, not as an IT solution. You are correct, it was a viable IT solution, or a solution to our IT problem is maybe is a better way of stating it. 1239 I believe viable in this context is was it a viable solution for us to move forward from a business context, and that relates to the fact -- I think the evidence in the last case made it very clear that we believed we needed something. We could no longer, as we've stated earlier today, go on with our current legacy systems. 1240 The heart of the question, though, is what risks would the shareholder bear and what benefits would the ratepayers bear. And when we looked at that whole business context, we had a concern about moving forward with spending $20.5 million with no certainty that that would be recovered in rates, though we would have expected the benefits would have been captured by the ratepayers. 1241 MR. WARREN: So that the -- since it's late in the day, I'll try and shorten this up as best I can Ms. Holder. This seems -- the philosophy that I see embodied in that statement seems to be a reversal of the historical view -- the historic practice of the Board where a utility makes a decision internally that the project is a good one for it and its ratepayers, makes a decision, makes the investment, and then when in its operation comes into the Board with evidence that it is a good thing and they want to recover the costs as opposed to getting what amounts to pre-approval for an expenditure. Do you understand the distinction? 1242 MS. HOLDER: I understand the distinction, but I don't believe that is a fair characterization of what the past practice was. 1243 Unfortunately, last year, for 2002 rate case, and this year for 2003 rate case, we are in the middle of our year. Typically, we come before the regulator long before our fiscal year with a proposal to spend so many dollars in capital and so many dollars in O&M. We typically have approval for that O&M and that capital prior to us getting to the fiscal year in which we're planning on spending the money. 1244 That was the difficulty we had in 2002, because we were partway through the year, we were sitting here in this hearing room wanting to spend the money, but had no idea whether it was going to be captured in rates or not. 1245 Had we been on our normal rate case schedule that we historically had, we would have had that decision prior to the 2002 year starting. 1246 MR. WARREN: Isn't it fair, though, Ms. Holder - let's leave aside this question of where you were chronologically - isn't it the case that the came to the Board last year with DPWAMS and said, We're not going to spend any money on this unless the Board says we can recover it in rates. Is that fair? 1247 MS. HOLDER: I think my evidence said something very similar. We said if we did not have recovery in rates or approval from this Board, that we would have to look at our alternatives, that we needed to look at some means of moving forward, and that we needed to determine how we could minimize our risks. 1248 MR. WARREN: Let me take you to this case. If the Board were, in this case, were to say, We're not convinced that, based on the evidence that you provided, this is a prudent project, are you still going to go ahead with it? Given Mr. Chiotti's evidence a moment ago about how important this is to your operations, are you still going to go ahead with it? 1249 MS. HOLDER: We are proceeding, and I think as we've indicated in the past, the letter of intent we've signed with Accenture does not have OEB approval as a condition of the contract, nor have we contemplated that in the contract that we will finalize with Accenture. 1250 The part I struggle with, would we move forward? I'd have to say yes, we would move forward, but it would be a very different 2004 application and 2005 application in that if the shareholder is funding up to the 70 million, or whatever those numbers add up to in there, then we would except that the shareholder would capture all the benefits of this project as well. 1251 MR. WARREN: Okay. Could I ask you to turn up at page 3 of 8, and Mr. Chiotti, this may be more appropriately addressed to you. As I understand it - this is my gloss on paragraph 9, and correct me if I'm wrong - you had DPWAMS and you, in thinking about how these services would be obtained, began to think about it in a new way and a new way to arrive at the solution. And you observe in the middle of that paragraph: 1252 "The creation of a new entity offering work and asset management services was repeatedly identified as a logical next step, given the apparent evolution of the energy industry towards an 'asset owner/asset manager/service provider' model as evidenced by developments in the United Kingdom, Europe, United States and Canada." 1253 First of all, can you tell me what was meant by the term "asset owner/asset manager/service provider model"? 1254 MR. CHIOTTI: I won't profess to be an absolute expert in this but I will give you my understanding of it, and that understanding grows every day as this whole concept evolves in the energy industry. 1255 If you think of a utility essentially the way that utilities operate today, they own assets, they manage those assets, and they do the services on those assets that are necessary for the management of those assets. 1256 And if you think about the -- a utility in that context, you can segregate those three fundamental sets of functions. There is this function of owning, the function of managing, which would involve things like determining the standards and the policies with respect to how those assets are going to be built and maintained and used, et cetera, and you can separate all of those functions from the function of the actual services; be it the actual physical construction of the assets or the maintenance; basically, all of those kinds of activities that I listed in my examination-in-chief. 1257 So this is a model that has been evolving now. It certainly -- this terminology has been familiar to us for some time. It is being pursued in various ways and in various areas. Certainly our understanding is that in the UK and other parts of Europe it's probably more advanced than it is here, but it's certainly being looked at in Canada and the United States. 1258 So the notion is that if utilities can be organized in this way, then the -- as an example, the service-provider set of functions could evolve such that a company provides those functions and can provide them to multiple utilities rather than each utility having those functions embedded within them. And in theory, that would generate economies of scale, it would generate efficiencies, and ultimately reduce the cost of operations. 1259 MR. WARREN: Is "asset owner/asset manager/service provider model" a fancy-shmancy term for outsourcing? 1260 MR. CHIOTTI: No, I certainly wouldn't characterize it that way. I think, first and foremost, it's an attempt to describe a potential model of how utilities are going to evolve over time, and I don't think outsourcing, as we traditionally know it, really adequately describes the model that's being talked about here. It's a much more extensive business model than just a model of outsourcing. 1261 MR. WARREN: Then that's a fair response to my somewhat smart-alecky observation, but let me drill down, then, to what was contemplated in your prefiled evidence about the WAMS project. 1262 As I read your evidence, the concept was that the WAMS function would be delivered by a service provider and not by Enbridge; is that right? 1263 MR. CHIOTTI: Yes, that's correct. 1264 MR. WARREN: And DPWAMS by contrast was going to be provided by Enbridge to itself; correct? 1265 MR. CHIOTTI: That's correct. 1266 MR. WARREN: So that the services that were being provided internally are going to be outsourced to somebody else; is that right? 1267 MR. CHIOTTI: Here again, I think we have to be careful not to oversimplify the characterization, and as well, there's two levels that we're talking about here. 1268 As indicated in the evidence, when we started to look for alternatives. We were introduced to other ideas, including the idea that in an asset owner/asset manager service provider model, it would be possible to take the work and asset management activity and that would actually include the activity that is performed by our employees today within the utility and to create a separate entity and offer those services to multiple utilities, and that was really the original concept that we got introduced to. 1269 With the Board's decision in the 2002 case, we did not pursue that idea any further, pending some resolution of, you know, the whole issue of -- that came up in that case with respect to outsourcing. 1270 What we then turned our attention to was to not contemplate creating this new entity, but simply finding what's known as an application service provider, a company that's willing to host a computer system for you and operate that system for you instead of you having to operate it for yourself. 1271 The WAMS proposal, as presented here, does not involve moving any employees out of the company. We still do all the work, it's just that the actual computer system will be operated by Accenture, and we will be connected to all of -- all of our employees will be connected to that system through their PCs and what have you in our premises. 1272 MR. WARREN: Mr. Chiotti, what I'm trying to pull together are the various disparate strains which I see in the pre-filed material, and perhaps it would help us in this respect, if you would turn up the "Request for Proposal for Business Process Management of the Work of Management Centre Functions for Enbridge Gas Distribution." It's dated September 2002. Do you have that document? 1273 MR. CHIOTTI: I do. 1274 MR. WARREN: Mr. Chairman, I don't know what Exhibit number this has. 1275 MS. PERSAD: Mr. Chair, I don't believe that that document has been filed. It was provided to people in the ADR session. 1276 MR. WARREN: I apologize for that, Ms. Persad. I thought it was in the record in this case. 1277 Is there a problem with it being part of the record in this case? 1278 MS. PERSAD: I don't believe so. 1279 MR. WARREN: I'm sorry, I didn't intend to violate the rules of the ADR. I'm sorry. May that be filed as an Exhibit? 1280 MS. PERSAD: The company has no objection. 1281 MR. BETTS: Thank you, Ms. Persad. And I assume at this point there is only one copy available. There are several people that have copies. 1282 MS. PERSAD: That's right, Mr. Chair. We didn't come with copies, but we can have them made. 1283 MR. BETTS: Thank you very much for that level of cooperation as well. 1284 Is it necessary for us to actually see a copy? 1285 MR. WARREN: I think it would be helpful if you had one in front of you, Mr. Chairman, just so we can move along in the process. Enbridge wouldn't be expected to have any copies. They didn't expect to have to deal with a bozo lawyer on the other side. 1286 MR. MORAN: Mr. Chairman, that would be Exhibit K.5.2, and I wonder if Mr. Warren could restate the title of the document for the record since I don't have a copy. 1287 EXHIBIT NO. K.5.2: REQUEST FOR PROPOSAL FOR BUSINESS PROCESS MANAGEMENT OF THE WORK OF MANAGEMENT CENTRE FUNCTIONS FOR ENBRIDGE GAS DISTRIBUTION, DATED SEPTEMBER 2002 1288 MR. WARREN: The document is entitled, "Request for Proposal for Business Process Management of the Work Management Centre Functions for Enbridge Gas Distribution," and it's dated September 2002. 1289 MR. BETTS: Does anyone feel disadvantaged in not having this in front of them at this point or can we kind of get by on this basis for now? There will be copies available for everybody at one point. If we can limp by on this -- 1290 MR. WARREN: My sense is a number of copies have been circulated in samizdat form, Mr. Chairman, so that they're around. 1291 MR. BETTS: Thank you. Please proceed. 1292 MR. WARREN: Turn up page 7 of 13 of this document that I've bumbled over, panel. 1293 Mr. Chiotti is the RFP that went out that resulted in the response from, among others, Accenture? 1294 MR. CHIOTTI: Yes, that's right. 1295 MR. WARREN: Now, if I look at "Scope of Work and Requirements," I see in paragraph 3.1 that there are work-management centres, three of them, performed in three separate locations within Enbridge, specifically Richmond Hill, Thorold, and Ottawa, and I see that there are a number of employees, 77 full-time employees in Richmond Hill, Ottawa has 43 full-time employees, and Niagara has 16. 1296 I then go down to the paragraph 3.1.1 under the heading "Creation of Work Management Centre Entity," it says: 1297 "This represents the initial transition stage where the vendor will create a stand-alone entity where all existing Enbridge WMC staff are to be transferred." 1298 And then if I go over to the top of the next page, it says: 1299 "Enbridge is willing to consider holding an equity position in the new entity but does not require majority ownership. Enbridge will, however, require operating control of the new entity. The vendor will be required to establish a service-level agreement between itself and Enbridge Gas Distribution Inc. which is subject to Ontario Energy Board review. The service level agreement will set out the principles that will govern the overall relationship and must retain performance measures to ensure quality of service." 1300 Now, the original concept, if I can try and distill this is that your three -- Enbridge's three work management centres would be consolidated in one place, in Richmond Hill, that there would be a new entity created, a new legal entity, presumably, in which Enbridge would have some equity interest, and the -- is it the case that the employees were to be transferred to this new entity? Is that the concept? 1301 MR. CHIOTTI: Yes, but let me just comment at this point. 1302 When we put out this RFP, it was based on the fact that in looking for other alternatives, we had been discussing some new concepts around this asset owner/asset manager, service provider. The explanation in this RFP, I don't think, was ever intended to be sort of a final -- this is what it would look like at the end of the day. We were trying to solicit ideas and responses from the folks that we sent the RFP out to, and so we -- we were couching possibilities and looking for reactions and responses. That's what request for proposals are all about. 1303 So this was a potential scenario that we were documenting in the RFP to stimulate thought and stimulate response. 1304 MR. WARREN: I appreciate you putting that gloss on it, Mr. Chiotti. I don't quarrel with that, but have I captured what the essence of the idea -- at least this idea would be, would be a new legal entity? 1305 MR. CHIOTTI: Yes. 1306 MR. WARREN: In which Enbridge would have an equity interest, the employees would be transferred to the legal entity and it would perform the work asset management functions; is that correct? 1307 MR. CHIOTTI: That's right. 1308 MR. WARREN: Okay. 1309 Now, Accenture among others responded to this RFP correct? 1310 MR. CHIOTTI: Yes, they did. 1311 MR. WARREN: Does the response from Accenture reflect this arrangement? 1312 MR. CHIOTTI: Yes. Accenture responded to the full scope of the RFP, and expressed their interest in pursuing this kind of idea, for sure. 1313 But also included in that response were all of the other factors that led us to identify them as our preferred choice for being an application service provider, which is not as extensive as, you know, the arrangements contemplated in this RFP. 1314 MR. WARREN: It's the once burned, twice shy. Is the Accenture response to the RFP part of the record? 1315 MS. HOLDER: No. 1316 MR. WARREN: Can it be made part of the record? 1317 MS. HOLDER: No. It is under a confidentiality agreement with the company. 1318 MR. WARREN: Mr. Chairman, I would ask that it be produced. I have no problem with it being subject to whatever rules of confidentiality are appropriate, but it seems to me, in my respectful submission, if the intervenors and the Board are to understand what it is that is being approved, that they need to have that response and I'm going to include in that the letter of intent agreement. Is that confidential as well? 1319 MS. HOLDER: Yes, it is. 1320 MR. WARREN: I'm asking for a Board order that those two documents be produced. I don't know whether my friends have any interest in the production of those documents. 1321 MR. SHEPHERD: Mr. Chairman, we support the request of Mr. Warren. 1322 MR. BETTS: Mr. Shepherd, sorry? 1323 MR. SHEPHERD: We support the request of Mr. Warren. 1324 MR. BETTS: Any other comments or submissions? 1325 MR. JANIGAN: Yes, Mr. Chairman. I think it's an important document to complete the record with respect to the way in which WAMS is going to be carried out. The response of Accenture, while it may be confidential, there are mechanisms that the Board can use to ensure that the confidentiality is maintained at the same time as the Board and intervenors have the benefit of the knowledge gained from that document will enable us to better understand the particulars of the new arrangement. 1326 MR. BETTS: Anything further? 1327 Mr. Brett. 1328 MR. BRETT: Yes, thank you, Mr. Chairman. 1329 I would support Mr. Warren's request. 1330 MR. DeROSE: As well, IGUA supports CAC's request. And I would also raise the issue that when confidentiality is claimed, the onus would fall upon the company claiming confidentiality to demonstrate the need and requirement. 1331 MR. BETTS: Thank you. 1332 Ms. Persad, any comment? 1333 MS. PERSAD: Yes, I do have a few comments, Mr. Chairman, thank you. 1334 But first I want to clarify what Mr. Warren's request is. Is it simply for the letter of intent and the Accenture response to the RFP? 1335 MR. WARREN: Yes, that's what I asked for, is the Accenture response to the RFP and the letter of intent. I wasn't asking for any of the other responses to the letter of intent, just Accenture's. 1336 MS. PERSAD: Okay. And I also have a question for Ms. Holder. 1337 Ms. Holder, do you have any idea of what Accenture's position would be to filing that document -- or those documents with the Board, even on a confidential basis? 1338 MS. HOLDER: Yes, they would have concerns with us filing those documents, because they do contain commercially-sensitive information relative to their business, and presenting that information to anybody would give an advantage relative to their competition. 1339 I think it's also important to understand, though, also, is that the response to the RFP is not the proposal that we're moving forward on. There's only one component of that proposal. 1340 We've been in negotiations since we've signed the letter of intent, which was the letter of intent with a right to negotiate from now until April 1st. So I'm not sure the RFP has material -- is of material value. 1341 I think what's of material value is the agreement we finally sign with Accenture, not their response. 1342 MR. WARREN: Mr. Chairman, may I just respond to that particular point. The traditional drill when claims are made for confidentiality is if the Board feels at that confidentiality is an important issue, the document is filed with the Board, and perhaps can be delivered on a confidential basis to counsel, and then they can argue about that. 1343 I have enormous respect for Ms. Holder, but none of us should be in the position of takes just her word for the significance of the document. We should be a position to make that assessment ourselves. Without seeing the document, I have no way of knowing its significance, and nor, for that matter, can the Board. 1344 MS. PERSAD: Mr. Chairman, just to respond, the company will have to check with Accenture on this and to determine exactly what their position will be before it can decide what its position will ultimately be on this. 1345 So we're going to have to take an undertaking to check with Accenture and then respond with a fuller answer as to how we're prepared to deal with it. 1346 MR. BETTS: I believe that's a reasonable -- I believe it is reasonable to allow you to investigate that level, and certainly, to investigate the Board's confidentiality guidelines as well. 1347 And perhaps at the same time, you can consider even something as simple as a redacted version; whether or not that will satisfy all parties, we just don't know at this point. 1348 And before we leave that, perhaps I could just ask Mr. Moran if there's any comments that you could provide in terms of Board policy or guidelines that might assist the parties with this. 1349 MR. MORAN: Yes, Mr. Chair. I can certainly indicate that the statute of Statutory Powers Procedure Act sets out what the Board's authority is in this area and there are a number of principles reflected in that statute. 1350 The first one is, of course, that hearings are public. That's the default position, and anybody who wishes to claim confidentiality over any document bears the onus of establishing that that's appropriate. And there are factors set out in the statute that the Board would take into account in making that decision. 1351 Secondly, regardless of any private arrangement between two companies with respect to confidentiality, the Board has overriding authority to require the production of documents and that's set out in section 12 of the Act. The statute clearly recognizes that in exercising that power, it might be compelling people to produce information that is sensitive from a commercial perspective, or perhaps from a national security perspective and there are other examples. But the way that that gets dealt with is with respect to how the information actually gets treated. It's not a situation where that information would not come into the hearing, it's a question of how it comes into the hearing. 1352 I think what Ms. Persad has indicated is that she simply needs time to get some instructions on what position to take on all of this, and I think you've indicated that you're going to accommodate her on that. But at the end of the day, there is a request for the production of information which still has to be ruled on. 1353 I would suggest that there are two aspects to the first one. Is it relevant? And if it's not, you don't get into the confidentiality problem is it relevant or material. But if you get past that, then you're into the confidentiality issue. 1354 Those would be my comments. 1355 MS. PERSAD: If I could just respond briefly to that, Mr. Chair. 1356 My point on saying that we needed to discuss this with Accenture was more to the issue that their interests are impacted by whether or not we file this document either on a confidential basis or redacted basis or any other basis. And they are not here to respond to what their interests are, so it's more than just checking with them to respond on their behalf. It's really to determine whether they want to speak for themselves. 1357 MR. MORAN: Yes, Mr. Chairman. Accenture would have the right, obviously, to speak to this matter, so they would have to get notice of it. 1358 MR. BETTS: Thank you. 1359 Then perhaps I'll ask this question to Mr. Moran. Procedurally, what form might that notice take to Accenture? Is Ms. Persad's intent to speak to them sufficient? 1360 MR. MORAN: Again, Mr. Chair, that would be the easiest way and the most practical way to do it. 1361 In terms of the hearing process, it may be that you want to give some indication of when you'd like to hear from them if they choose the right to make those submissions so it can be factored into the proceeding and we can continue on an orderly basis, but I don't think there's anything further to be done. Enbridge is capable of giving that notice, and they're probably obligated under the terms of any agreement they've got anyways. 1362 MS. PERSAD: Yes, Mr. Chair, the company has no problem undertaking to notify Accenture of the request. 1363 MR. BETTS: Thank you. Rather than us directing that answer, what would be a reasonable time from your point of view in terms of replying to the Board on this issue? 1364 MS. PERSAD: Perhaps I could ask Ms. Holder or Mr. Chiotti to comment on that. 1365 MS. HOLDER: We should be able to at least have some direction from Accenture by Monday morning. 1366 MR. BETTS: Mr. Warren, it was your request. Does this sound satisfactory at this point? 1367 MR. WARREN: Absolutely, sir. 1368 May I just ask Ms. Holder, and through you, Ms. Holder and Ms. Persad perhaps as well, Ms. Holder has indicated that there is a -- there is a process of negotiations whereby their response to the RFP and the letter of intent, and then there are negotiations that are ongoing to try and come up with the final form of that. I intended to ask a number of questions about that, Ms. Holder. Would the answers to those questions be encompassed within the confidentiality concern as well? 1369 MS. HOLDER: Some aspects, but we're more than willing to try to respond to most of your questions around the contract that we are negotiating. 1370 MR. WARREN: I just want to put them on notice that I will, in the course of time, when the production issue has been resolved, be asking questions. So when seeking instructions from Accenture, Accenture is on notice that there will be questions about what the terms are that are being negotiated. So that's all I was doing. 1371 MS. HOLDER: I think those are fair questions. We would have no problems with the terms. 1372 MR. WARREN: Perhaps I can move on and finish the balance, Mr. Chairman, of my questions. 1373 MR. BETTS: That's fine. 1374 MR. WARREN: And I'll reserve the right to ask any questions that may arise from the documents. 1375 MR. BETTS: Yes, I was going to grant that without you asking. 1376 MR. WARREN: I'm going to leave for a moment, then, panel, the question of what was in the response and what was -- what is contemplated beyond just this question. 1377 I take it, Mr. Chiotti, that these concepts, which I've just a few moments ago referred to are in 3.1 and 3.1.1 of the request for proposal, that is, independent entity, that those are not, for the moment, what's being negotiated with Accenture? 1378 MR. CHIOTTI: That's right. 1379 MR. WARREN: But it is possible that that -- broadly speaking, that that kind of arrangement may ultimately come into existence down the road depending on the resolution of the outsourcing issues that were raised in 0032 and which are alive in this case; is that fair? 1380 MR. CHIOTTI: We would certainly like to continue to pursue that at that time, yes. And not clear that we would ultimately go that way, but we would like to -- we had begun a pursuit of that. We suspended that pursuit. We would like to take it up again when it's appropriate to do so. 1381 MS. HOLDER: Sorry, I just want to add, to reinforce what Mr. Chiotti had said. My responsibility is, with the assistance of Mr. Chiotti, obviously, is to ensure the safe, reliable delivery of natural gas to all our customers, and at a low cost. 1382 My challenge, and the challenge of the rest of my team as we go forward, is to maintain our position as the lowest-cost provider of these services in North America; that's what I'm charged with doing, in that if we can provide lower-cost services by outsourcing functions or by moving these types of functions outside so that we could provide these services to others, then it's -- I must pursue these types of opportunities. It's good for the ratepayers. It's good for the company. And so we will always consider these matters relative to, though, safety, reliability, and costs. 1383 MR. WARREN: I wasn't being critical, Ms. Holder, I was just asking if you were going to do it. And I take it that you will if the opportunity arises; is that fair? 1384 MS. HOLDER: And if they meet all of those qualifications. 1385 MR. WARREN: If they meet all of the qualifications, okay. 1386 Mr. Chiotti or Ms. Holder, in the prefiled evidence we talked about, you talked about a transition in your thinking about your -- from the DPWAMS model to the WAMS model and the outside service provider. Were there, first of all, was that transition in your thinking part of a larger planning or strategic thinking process within Enbridge or its parent EI with respect to the provision of services using outsourced arrangements? 1387 MS. HOLDER: No. 1388 MR. WARREN: It was a stand-alone thinking process or planning process for WAMS? 1389 MS. HOLDER: Yes. 1390 MR. WARREN: Even though it was a stand-alone process, were there internal reports or memoranda or planning, strategic planning documents about the way to provide these services? 1391 MS. HOLDER: No. 1392 I mean, that's a very big, encompassing statement you just made there. There is no strategic planning document that encompassed how we might do this. 1393 There have been discussions at the executive management team of Enbridge Gas Distribution around these proposals. We have presented, or Accenture presented to the executive management team the proposal as we've outlined it here in our evidence, but no strategic planning documents. 1394 MR. WARREN: Is the proposal that went to the management team identical to what we see here, or was there a different document? 1395 MS. HOLDER: No, it is the same. It's a different document, but it's the same proposal. 1396 MR. WARREN: Okay. Same proposal. 1397 Now this, as I read your pre-filed evidence, one of the things, Mr. Chiotti, that was encompassed in this transition to a new form of thinking was you also have to think about -- this is my term and not necessarily your term -- field services. And what I understand by that is linkages between this central computer system and the folks in the field who are actually delivering the services; is that correct? 1398 MR. CHIOTTI: I think I understand, but I'm not quite sure exactly what you're referring to. 1399 MR. WARREN: In your pre-filed evidence -- I'm sure I can find it if I go through it again; I was trying to save time by this, but there is a reference to -- the term "field" is used -- 1400 MR. CHIOTTI: Oh, yes. Yes. Yes. 1401 Yes. In fact, when we originally proposed DPWAMS, it essentially was to automate the work that's done within the work-management centre. We recognized even at that time that there might be additional things that could be done in terms of the field force and how the field force would interact with such a system, but that -- we've -- we've, I guess, focused more on that now that we've been down this other path, because, as an example, that is one Accenture's particular strengths is helping you to figure out how you can further leverage the technology to improve the performance of your field forces. 1402 MR. WARREN: Will there be additional costs resulting from whatever linkages you've got to make with the folks in the field? 1403 MR. CHIOTTI: Yes. We would -- we would see a second phase to this project that would ultimately involve looking at the kind of network that would have to be put in place and the kind of hardware that we would provide to people in the field. 1404 We do not contemplate that before 2004, however, and when we do get to that stage, we would bring that forward. 1405 MR. WARREN: I take it, though, that when you bring that forward, one of the -- may I be so bold as to guess one of the compelling arguments in favour of that is that the WAMS system is in existence, and it doesn't make any sense if you don't have the field stuff as well? 1406 MR. CHIOTTI: Yes, the two things clearly fit together, and one enables the other. 1407 We -- there would be additional benefits from doing that, clearly, both tangible benefits and also benefits in terms of -- in particular, improving the timeliness and the accuracy of communication between our field forces and our work-management centre, and that speaks to the issue of safety and reliability, as I mentioned in my opening remarks. 1408 MR. WARREN: Do you now have an estimate, even a rough working estimate, of what the cost of those field linkages will be, a field component, if I can put it that way? 1409 MS. HOLDER: I believe there are some capital dollars included in our 2004 budget, and I just don't recall offhand what that is. We can bring that forward -- 1410 MR. WARREN: Can I get an undertaking. And what I'm looking for, panel, is whatever estimate Enbridge currently has of the additional costs of WAMS related to the field component of it. Is that fair enough? 1411 MS. HOLDER: We refer to it as "field force technology." 1412 MR. WARREN: Sounds like Star Wars, but there you go. 1413 MR. BETTS: Mr. Moran? 1414 MR. MORAN: That would be Undertaking J.5.9. 1415 UNDERTAKING NO. J.5.9: TO PROVIDE THE ESTIMATE ENBRIDGE CURRENTLY HAS OF THE ADDITIONAL COSTS OF WAMS RELATED TO FIELD FORCE TECHNOLOGY 1416 MR. WARREN: My final question, panel, subject to the documents that Ms. Persad and I were talking about before is this: 1417 Can we agree, panel, that for the Board to assess the prudence of this project or, indeed, any project like it, the Board would have to know whether or not -- would have to make an assessment of a number of components. First of all, is it necessary for the company; is that fair? 1418 MS. HOLDER: Yes. 1419 MR. WARREN: They would have to make an assessment about whether or not this was the appropriate arrangement to meet that necessity; is that fair? 1420 MS. HOLDER: Yes. 1421 MR. WARREN: They would like -- they should be able to make an assessment of its benefits; correct? 1422 MS. HOLDER: Yes. 1423 MR. WARREN: And they should be able to make an assessment about whether or not the costs of the project are reasonable; is that right? 1424 MS. HOLDER: In that -- I don't know if they need to make that decision today. That's where I am struggling with your line of questioning. 1425 I do agree that each year when we have a case such as this, they need to determine whether the costs that we've included in the application and the benefits we've included in the application are appropriate. And from that extent, yes, I do believe they need to know the costs and benefits. 1426 In that we're dealing with 2003 rates, I'm not sure that it's necessary that they understand all the benefits and all the costs from 2004 to 2010. 1427 MR. WARREN: My point was -- and characteristically -- a somewhat simpler one than that, and it was if we can agree, panel, that in order for the Board to make any assessment about whether or not costs are reasonable, they should be able to compare it to alternate ways of providing this service. In other words, they should have some benchmarks against which to measure these costs; is that fair? 1428 MS. HOLDER: Yeah, that's fair. 1429 MR. WARREN: Can you point to me in the evidence, in the prefiled evidence, Ms. Holder, where the Board would find some comparable benchmarks for the cost of this kind of service? 1430 MR. CHIOTTI: Well, first and foremost, the benchmark we've been using was the DPWAMS proposal that we filed in 2002. We've used that, basically, as our base case, and we wanted to make sure that any alternative we selected was going to be superior to that base case. And that's why we've done the net present value analysis of this proposal relative to the DPWAMS proposal. 1431 MR. WARREN: Other than a comparison with DPWAMS, is there any other data in the record in this case that would allow the Board to compare the costs of WAMS to the costs -- other ways of providing these services? Any benchmarks other than DPWAMS? 1432 MS. HOLDER: No, though we do need to recognize that DPWAMS has a complete business case behind it, so it's not just a cost of one versus the other. It is the complete business case with benefits and costs. 1433 MR. WARREN: Can you remind me, Ms. Holder, whether or not within the business case for DPWAMS there were any comparables in there. I don't remember there being any, but your memory is, no doubt, better than mine. 1434 MR. CHIOTTI: Well, in DPWAMS we -- we were talking about an effort that would essentially be done in-house, so it was based on the associated cost of that. The business case also looked at various alternatives for the software packages that we might use, and there's comparisons of those software packages and the selection of -- at that time, we were contemplating a package called Maximal from a company called MRO. 1435 But we weren't contemplating an application service provider type alternative at that time, so that we didn't contemplate trying to make those kinds of comparisons at that time. 1436 MR. WARREN: So returning to Ms. Holder's early point, a comparison of the WAMS solution that you're proposing and DPWAMS is really not an adequate comparison by which to benchmark WAMS, is it, because it was a different solution provided in a different way. 1437 MS. HOLDER: Yes, it is a different solution provided in a different way, but that solution was obtained through the responses to an RFP so we did have more than Accenture responding to that RFP, and when we evaluated and analyzed the responses to our RFP, Accenture did provide the best alternative to our solution. 1438 So in a sense, we did have a benchmark in that we had multiple proposals to compare. 1439 MR. WARREN: Are those other proposals before the Board in this case? 1440 MS. HOLDER: They are not. 1441 MR. WARREN: Okay. Those are my questions, subject to what may arise from the other issue, Mr. Chairman. 1442 MR. BETTS: Thank you, Mr. Warren. 1443 We have kind of ten minutes until the target that we would like to leave, but I'm also prepared to deal with the hearing as required. 1444 Is there any intervenor that feels they have a short series of questions, and I see Mr. Janigan is the first to volunteer, so I will turn it over to you, Mr. Janigan. 1445 MR. JANIGAN: Thanks very much. The prospect of not having to come back on Monday is wonderfully concentrated in my mind. 1446 CROSS-EXAMINATION BY MR. JANIGAN: 1447 MR. JANIGAN: At page 6 of your evidence at A.6, tab 7, schedule 3, paragraph 13, you state: 1448 "In light of the Board's RP-2001-0032 findings with respect to outsourcing and affiliate transactions, the company's alternate solution will not involve the creation of a new entity offering work management and related services at this time." 1449 Is there any specific paragraph in the Board's decision that caused the company to make this decision? 1450 MS. HOLDER: There's no one particular paragraph. I think it was the decision and the tone of the decision in its entirety. 1451 MR. JANIGAN: Can you elaborate just a little more on that, what you felt the decision -- what you felt the decision put a damper on this particular line of proceeding? 1452 MS. HOLDER: I don't think that's appropriate for me to respond to. 1453 MR. JANIGAN: It was -- in general, you felt the decision prevented you from seeking this particular option? 1454 MS. HOLDER: No. Maybe that's a mischaracterization, sorry. 1455 If we -- if we were to proceed with outsourcing these functions at this point in time, in light of the environment we have before us right now, without further clarification through our appeal process, we would bring an application or a proposal to this Board seeking approval. 1456 So it's not that we believe the decision stopped us from doing it, it's that we had to have some time to sit back and regroup and think about the complete implications of that decision. 1457 MR. JANIGAN: Now, at your evidence at A.6, tab 7, schedule 3 of paragraph 9, the company states that it issued an RFP to a short list of application service providers. 1458 Can you tell me when was the RFP issued and what was the date for response? 1459 MR. CHIOTTI: The RFP was issued in September, and responses were -- I don't have the exact dates in my head, but they were in late October, I believe. 1460 MR. JANIGAN: Now, in Board Staff interrogatory 193, and you may not have to turn it up, the company states that: 1461 "The company is not aware of any service provider currently providing a comprehensive work management or related services package for the Canadian marketplace and drew the conclusion that no market price could be established at this time." 1462 I note that the date for that response is January 16th, 2003, and I'm curious why the company was not aware of the extensive experience of Accenture as set out in your evidence at A.6, tab 7, schedule 3, page 5, with evidence that was filed only a few weeks later? 1463 MR. CHIOTTI: This interrogatory and its response is specifically in reference to the creation of a new entity that would offer work and management services to other utilities. 1464 We are not aware of any entity that offers work and management services to utilities at this point, and that is not what Accenture will be giving us in this proposal. We -- we backed off of that creation of the new-entity concept, and all Accenture is doing is acting as what's known as an application service provider. They're running a computer system for us and giving us access to it. 1465 To this day, we're not aware of any companies out there that offer the kind of work and asset management services we were contemplating when we were contemplating the creation of a new entity. 1466 MR. JANIGAN: Now, evidence at A.6, tab 7, schedule 3 at page 4 and following, you list a number of points which set out a rationale for the selection of Accenture. It seems notable that there's no mention of price. 1467 Was price a factor? 1468 MR. CHIOTTI: Certainly the combination of price and projected benefits was a factor. 1469 MR. JANIGAN: I'm wondering why that wasn't set out in this material under the rationale? That would strike me intuitively as indicating that price was a very diminished factor. 1470 MR. CHIOTTI: Well, we do speak to the fees and the anticipated benefits later in the evidence, and the comparison of those to what we were using as our base case, which was DPWAMS. 1471 MR. JANIGAN: And that, as I think Mr. Warren established earlier, really is the only evidence that we have with respect to market price? 1472 MR. CHIOTTI: Yes. 1473 MR. JANIGAN: Now, on page 7 of your evidence at A.6, tab 7, schedule 3, you set out the annual fees for the services Accenture will provide. Is it your understanding that the agreement with Accenture would allow for increases in these fees for any reason? 1474 MR. CHIOTTI: No. This is a fixed-price arrangement. 1475 MR. JANIGAN: And if Accenture provides similar services to another utility at a lower price than Enbridge Gas Distribution has contracted, is there a clause or will there be a clause in the agreement with them that will guarantee that price to Enbridge, in other words, a most-favoured-nations clause? 1476 MS. HOLDER: No, I don't believe there would be. Recognize we haven't completely finalized our negotiations. 1477 We would probably include such a clause if they were to provide similar services to an affiliate, but most organizations that are offering services in a competitive market find it very difficult to operate under a favoured-nations clause primarily because very seldom, first of all, are the services identical; and, second of all, it's very hard to monitor from our perspective, for instance, that whether we're getting the best -- whether somebody has got a better deal or not without them disclosing the other deals. 1478 And when it's a commercial arrangement under confidentiality agreements, most companies struggle with this information being released in order to ensure that we're getting the best price. 1479 MR. JANIGAN: What if that class of customers was restricted to utilities? Wouldn't that be sufficient? 1480 MS. HOLDER: No, I still believe that they would be a commercial arrangement, and I'll use an example of ATCO Gas in Alberta for lack of somebody else to choose. 1481 If they were to provide a similar type of service to ATCO Gas, there is a commercial arrangement between Accenture and ATCO Gas that I don't believe I should have the right to review. It's a commercial, negotiated settlement or agreement. 1482 MR. JANIGAN: I guess that, in effect, Enbridge runs the risk of effectively being the test run for Accenture, which they can use to develop a product and peddle it at a lower price to other utilities? 1483 MR. CHIOTTI: There isn't the development of a product per se in this, in the sense that the system itself is going to be based on a commercially available package and we're not creating something new. We're simply using that package and Accenture would help us acquire that package and bring it up and have it operational and help us in terms of our training on that package and so on. And that package would be licensed only for our use. 1484 So there really isn't a product being created in the process that would be marketable. 1485 MR. JANIGAN: But presumably Accenture's going to gain knowledge in the practice of helping you with this -- deal with this particular practice, which they can put to use elsewhere for other utilities? 1486 MR. CHIOTTI: One of the reasons we selected Accenture is they have the experience of doing this in 50 utilities across North America and we are going to benefit from that experience. 1487 MR. JANIGAN: Now, the agreement with Accenture appears to run out in 2010. Are there provisions for early termination or will there be provisions for early termination? 1488 MS. HOLDER: Yes. 1489 MR. JANIGAN: What will be the grounds for such termination? 1490 MS. HOLDER: Again, we're still in negotiations. But we will be able to terminate based upon no reason. Of course, there are penalties associated with termination, depending on when that determination is decided. 1491 Also, I would like to include that upon termination, if we were to choose that, the assets revert back to the utility, so they would not have them in their possession to peddle somewhere else. 1492 MR. JANIGAN: There is termination for no reason with penalty; and I assume if there is some causes, there would be some reasons as set out for termination with cause? Would you agree? 1493 MR. CHIOTTI: Yes. 1494 MS. HOLDER: Yeah. 1495 MR. JANIGAN: And can you indicate in a general way what those would be? 1496 MR. CHIOTTI: We're still in the process of discussing those. 1497 MR. JANIGAN: Now, just one final question. In response to CME's interrogatory 139, which is at tab 4, schedule 139, the company states that under an outsourcing scenario, there would be no capital investment involved and therefore there would be no risk to the ratepayers. 1498 Is it your view that none of the outsourcing scenarios in the agreement with Accenture involves any risk to the ratepayers? 1499 MS. HOLDER: Sorry, I'm not sure I heard -- 1500 MR. JANIGAN: Well, what about the risk of the ratepayers paying too much for the service? Presumably there remains that risk. 1501 MS. HOLDER: However, this Board will be reviewing those costs on an annual basis as part of our main rate case, so the costs will be scrutinized, as well as the benefits. 1502 And the other added advantage of this proposal relative to other responses to the RFP and relative to the DPWAMS solution as originally proposed is that Accenture has put fees at risk, meaning that they are willing to take a risk on this project by charging us less than their cost. But in return, there will a gain sharing, so they will capture -- they will be paid based upon the benefits we capture from ratepayers. 1503 So in that -- that information will be available as we move through this project or program. I believe there are very little risks -- or no risk to ratepayers. 1504 MR. JANIGAN: How will the Board know in future years the costs are reasonable? Will there be benchmark information available? I think you indicated you're not going to be able to find out whether or not Accenture is charging a lower price to other companies for similar services. 1505 MS. HOLDER: I think if the benefits, which we expect, fully would exceed the costs in a year, then there is a benefit to ratepayers. And I would say, then, that the costs are fair as well as the benefits are fair, and those benefits will be tracked. 1506 MR. JANIGAN: Thank you, Mr. Chairman. Those are all my questions, and thank you for your indulgence in letting me go at the end of the day. 1507 MR. BETTS: Thank you. It is four o'clock, it's Friday afternoon, and I think we have worked hard this week and got a lot accomplished. 1508 If there are any closing comments that anyone wants to provide the Board, I will invite those right now. 1509 Mr. Cass. 1510 PROCEDURAL MATTERS: 1511 MR. CASS: Thank you, Mr. Chair. I wonder if it would be possible to get a sense of how much longer people will be with this panel, because we're starting to wonder whether we should reschedule DSM from Monday. I know the Board is concerned about continually breaking up DSM, and so if this panel is going to be much longer on Monday, it becomes appropriate to put DSM at a new date. 1512 MR. BETTS: That's a very fair question to ask. 1513 MR. BETTS: Perhaps, could I first of all have an indication from those who have not cross-examined at this point who would like to. 1514 Mr. Shepherd. I think -- Mr. Brett. 1515 MR. DeROSE: I will not be long at all on Monday, certainly not long enough to postpone DSM. 1516 MR. BRETT: I would say the same, Mr. Chairman. 1517 MR. BETTS: Mr. Shepherd? 1518 MR. SHEPHERD: I'm going to invite Mr. Brett to go first and I expect to have very little after that. 1519 MR. BETTS: Then with that, is there still a prospect that we can deal with DSM on Monday? 1520 MR. CASS: I think that would be the case, Mr. Chair. Perhaps we should stick with the schedule as it is. 1521 MR. BETTS: Okay. I'm glad you brought that up. If I would have forgotten myself I would have been upset. 1522 With that, then, I believe it's time for us to adjourn and schedule to reconvene at 9:30 on Monday morning. Thank you all. 1523 --- Whereupon the hearing adjourned at 4:01 p.m.