Rep: OEB
Doc: 12N9Z
Rev: 0













ONTARIO ENERGY BOARD

Volume: 6

31 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
31 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

MURRAY KLIPPENSTEIN

Polution Probe

THOMAS BRETT

OASBO

ROBERT WARREN

CAC

JAY SHEPHERD

OPSBA

VINCE DEROSE

IGUA

DAVID POCH

GEC

BRIAN DINGWALL

HVAC

SUE LOTT

VECC

BRUCE MacODRUM

CME



8
TABLE OF CONTENTS

9

PRELIMINARY MATTERS:

[28]





ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45; CONTINUED: HOLDER, CHIOTTI

[112]




CROSS-EXAMINATION BY MR. BRETT:

[115]





CROSS-EXAMINATION BY MR. SHEPHERD:

[305]





CROSS-EXAMINATION BY MR. DeROSE:

[372]





CROSS-EXAMINATION BY MR. DINGWALL:

[421]





CROSS-EXAMINATION BY MR. MORAN:

[496]





QUESTIONS FROM THE BOARD:

[529]






:ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUES 9.2 TO 9.5; RECALLED: SQUIRES, RYCKMAN, WILLIAMS, HEENEY, SIMON

[593]




CROSS-EXAMINATION BY MR. WARREN:

[615]





CROSS-EXAMINATION BY MS. LOTT:

[1042]






10
EXHIBITS

11

EXHIBIT NO. K.6.1:	OUTLINE OF EXAMINATION-IN-CHIEF FOR WORK AND ASSET MANAGEMENT SOLUTION

[298]









EXHIBIT NO. K.6.2:	EXCERPT FROM THE ELECTRICITY DISTRIBUTION RATE HANDBOOK, PAGE 8-1

[1168]









12
UNDERTAKINGS

13

UNDERTAKING NO. J.6.1:	TO DETERMINE AND FILE INFORMATION FROM ACCENTURE CONTRACT

[217]





UNDERTAKING NO. J.6.2:	TO PROVIDE THE FIGURE FOR THE DISCOUNTED COST OF THE UTILITY'S RATE OF RETURN

[263]





UNDERTAKING NO. J.6.3:	TO PROVIDE A DETAILED CALCULATION OF BOTH THE ORIGINAL DPWAMS AND WAMS

[351]





UNDERTAKING NO. J.6.4:	TO PROVIDE BACKGROUND MATERIAL FROM THE EBRO-497-01 CASE SUPPORTING THE DEVELOPMENT OF THE SSM FORMULA

[645]





UNDERTAKING NO. J.6.5:	TO PROVIDE A RESTATEMENT OF PAGE 2 OF 2 OF EXHIBIT I, TAB 13, SCHEDULE 93

[666]





UNDERTAKING NO. J.6.6:	TO PROVIDE RESTATEMENT OF EXHIBIT K.4.2

[721]





UNDERTAKING NO. J.6.7:	TO CALCULATE THE AMOUNT OF THE SSM USING THE INDECO SSM FORMULA WITH TWO ASSUMPTIONS: THE $13.07 MILLION IN EXPENDITURE AND THE TRC AT THE VARIOUS BREAK POINTS AS THEY APPEAR IN K.4.2.

[792]





UNDERTAKING NO. J.6.8:	TO ADVISE THE BOARD HOW MUCH OF THE $50,000 HAS BEEN SPENT ON INDECO AND HOW MUCH IS LEFT

[846]





14
--- Upon commencing at 9:40 a.m.
15
MR. BETTS:	Thank you, everybody. Please be seated.

16
Good morning, and welcome back on this Monday morning to day six of our hearing. I will start off and invite preliminary matters from parties.

17
First Ms. Persad.

18
MS. PERSAD:	Good morning, Mr. Chair. I have a couple of undertakings to file with the Board as a follow up --

19
MR. BETTS:	Excuse me for a second. We've got to check the sound here.

20
Can they hear me back there?

21
MR. MORAN:	The mics are still off.

22
MR. BETTS:	Testing, one, two, three.

23
Well, this is beyond my capacity.

24
MR. MORAN:	Mr. Schuch has gone to investigate.

25
MR. BETTS:	Okay. Well, continue doing whatever you'd like to do. We'll reconvene shortly.

26
You know the old rule of IT. When things don't work, you shut it off and start it up again. Well, it worked.

27
Again, welcome back, and we will invite preliminary matters from Ms. Persad first.

28
PRELIMINARY MATTERS:



29
MS. PERSAD:	Thank you again, Mr. Chairman.

30

As I was saying, I have two undertakings to file in response to undertakings that were given on Friday, Undertaking J.4.1 and J.4.4. I'll just distribute those.

31
MR. BETTS:	Thank you. We now have a copy.

32
MS. PERSAD:	I have one other preliminary matter before we get back into cross-examination of this panel, Mr. Chairman, and that was left over from Mr. Warren's cross-examination on Friday of this panel, and specifically with respect to his request for a copy of the proposal from Accenture for the WAMS project.

33
I undertook to speak -- well, the company -- undertook on behalf of the company to speak to Accenture about what concerns they might have about confidentiality in this document, and we have done that, and this is the response that we received:

34
The company is prepared and Accenture is prepared to have filed this -- the proposal that they gave to the -- the request for proposal on a few conditions: First, that the document be kept confidential.

35
Second, we would request certain conditions to attach to that confidentiality. Those conditions would be as follows: The company and Accenture would want to have the Accenture proposal returned at some point during the proceeding, and we would assume that that would be after parties have submitted their arguments in this case.

36
Second, we would request that certain parties to the proceeding or at least certain clients of parties not see the document. And that concern, Mr. Chairman, is based on the commercially-sensitive information that is in the Accenture proposal. For instance, we would request that Union Gas not receive a copy of the document, and we cannot list the other parties at this point, because, for instance, there's one party here, CEED, and that we don't actually know who all of the constituents are, so we would want to know a list of who the clients of CEED are to determine whether we would feel comfortable with those parties seeing the document. Otherwise, we could have the document restricted only for the viewing of their counsel.

37
Thirdly, Mr. Chairman, we would ask that any cross-examination which would take place on the document would be in-camera and that session would essentially be restricted to those parties who have received the document.

38
I'd just like to address, then, what types of concerns the company would have and Accenture would have regarding having this information disclosed on the public record and not being kept confidential.

39
First of all, the information in this document was -- it was agreed to by the parties that it would be kept confidential at the outset by the parties signing a confidentiality agreement.

40

Second of all, this document throughout contains very lengthy explanations about what structures Accenture has in place for its other clients and what those other clients have achieved, and it names names. It gives personal names and telephone numbers of clients. Certainly Accenture could not disclose that information.

41
Thirdly, the document contains information about approaches generally that Accenture would not want disclosed on the public record, because they are commercially sensitive. They -- Accenture feels that its structure is very unique compared with other competitors, and it would not want those ideas shared.

42
I'd just like to make one other point, Mr. Chairman, about Enbridge's concerns about having this information disclosed, and it's a general point that it makes it very difficult for parties to negotiate a deal with parties when such documents are under scrutiny in a hearing such as this, because they really are only of a draft nature. The terms and conditions of the arrangement will change with the evolution of the final agreement between the parties. Debating these drafts, in essence, is almost like having all of the parties in this room participate directly in those negotiations, and that makes them very difficult to manage.

43
The company wants to do business with companies that are not regulated, and this places a restriction on that desire.

44
Those are my submissions, Mr. Chairman. If we could get some indication from parties about whether they would accept those conditions, and we could go forward on that basis.

45
MR. BETTS:	Thank you very much.

46
Can I have comments from any parties.

47
Mr. Warren?

48
MR. WARREN:	Ms. Persad's analysis seems reasonable to us, and we're prepared to live with the conditions, Mr. Chair.

49
MR. BETTS:	Thank you. Any other comments?

50
Mr. Shepherd?

51
MR. SHEPHERD:	Mr. Chairman, in the context of this particular disclosure, I don't have a particular problem, but I'm concerned that there's a precedent being set. We're going to be discussing these similar issues next week, and I want to make a couple of comments in that context.

52

First, the fact that there's specific client information in this material strikes me as a bit of an odd concern from Enbridge and/or Accenture, because Accenture is disclosing this information to Enbridge. Enbridge is a third-party relative to those other clients, and unless Accenture was -- or received permission from those other clients to disclose this, it seems to me that they are already spreading it around.

53
Secondly, Accenture appears to be claiming that they have some sort of proprietary design, and I guess I -- or methodology, if you like, and it seems to me that if they have something that is proprietary, then presumably they are protecting it in some way.

54
So while, in the context of this particular situation, it would seem to me that these restrictions are acceptable. I wouldn't like it to be a precedent.

55
Those are our submissions.

56
MR. BETTS:	Thank you.

57
Any other comments?

58
MR. DINGWALL:	At this point in time, I'm not sure whether my client is one of the parties identified as people who get to see things or people who don't get to see things, and prior to making a comment, it might be helpful to know that.

59
MR. BETTS:	I'll ask for further comments, and then, perhaps, Ms. Persad can reply to all of them.

60
MR. DeROSE:	Actually, my comment was going to be of a similar nature, simply questioning what the procedure will be to identify which clients are or are not entitled to the documents. That's, perhaps, a question for the company to address.

61
MR. BETTS:	And Mr. Brett?

62
MR. BRETT:	Mr. Chairman, my comments would be similar to Mr. Warren's, and I'd also endorse what Mr. Shepherd said that for this purpose of this transaction, we can live with those restrictions.

63
MR. BETTS:	Thank you. Any other comments?

64
Mr. Moran?

65

MR. MORAN:	Mr. Chair, I was wondering if it would make sense for, perhaps, Mr. Warren to deal directly with Enbridge on this matter, and my reason for suggesting that is that if Mr. Warren is prepared to enter into an undertaking to maintain confidentiality just to see the documents and then has a chance to review them, it may well be that he can work something out which reduces the need for the document either to come on to the record, because he may decide he doesn't need it anymore, or there's nothing in there that is of particular assistance to the case he's trying to make, or, at least, minimize the amount of stuff that has to be kept confidential.

66
And they may even agree on redactions as part of the filing, and that would, I think, perhaps assist the Board and the record and -- in maintaining and reducing as much as possible the need to go in camera if something could be worked out ahead of time.

67
So I was wondering if the parties wanted to make some submissions on that suggestion.

68
The second point I would make with respect to the -- if ultimately the document becomes part of the public record, of course, the tribunal has an obligation to maintain that public record until all appeal avenues have been exhausted, because part of the appeal process would require the Board to file a record with Divisional Court. So the earliest it could be -- any confidential record might be returned would be after all appeal periods have had been exhausted.

69
So I just wanted to put that on the record.

70
MR. BETTS:	Mr. Moran has made a suggestion that one of the intervenors, specifically the one that requested the information, have a chance to review the issue with Enbridge, and I think make some recommendations from there.

71
I believe that this matter has probably raised the interest of other intervenors in the document, so the question I put to all of you -- first of all, I have to put the question to Mr. Warren whether he would find that acceptable and then, secondly, to other parties whether you would find that acceptable.

72
Mr. Warren, first of all your response.

73
MR. WARREN:	I'm happy to do that, Mr. Chairman. I'm happy to sit down with Ms. Persad and with the witness panel and work through the document.

74
For example, I would have no particular problem with redacting the names of the Accenture clients. For my purposes, I don't see -- need that, and there may well be other things in there that I don't need to see.

75
The only concern I have is that I suspect that some of my colleagues behind me are -- may well not want me to do that, because I may be more willing to compromise on it than they are. But I'm willing to do it, sir.


76
MR. BETTS:	With that, can I have submissions from other intervenors?

77
MR. BRETT:	Mr. Chairman, I -- I think Mr. Warren surmises correctly, as far as I'm concerned; although, for the most part, I would be -- I'm not quite sure what we're speaking of here.

78
I guess if we're speaking of just the items that would -- that could come out of the document in order to have the document go on the public record, if that's what it is, so then the issue becomes, well, what -- are certain things going to excised?

79
I guess, Mr. Chairman, I'd like to see the document as well. I mean, I would not want that to be done just by one party. I think I'd want to see the -- I think I would want to be a party to that process. I fully agree with the example Mr. Warren raised. I don't think the names of, for example, the parties that Accenture has dealt with is have to be in there, but the various types of approaches that have been used and the various alternatives and the results that they've been able to achieve are all very germane to, in my view, to this -- judging the efficacy of this proposal, because they go to things like the likely benefits, the likely costs, and so on.

80
And they go to just clarifying what it is that Accenture is really proposing to do here, which is not yet, to me at least, altogether clear.

81
So I'd like to be able to see the document. Thank you.

82
MR. BETTS:	Any other comments?

83
Mr. Shepherd?

84
MR. SHEPHERD:	Mr. Chairman, I agree with Mr. Brett. With the greatest of respect to Mr. Warren, I don't think it's appropriate to, in effect, delegate the responsibility to make some sort of arrangement with the company. I'd be happy for him to try to work it out with the company but I'd like to see the result before I decided to sign on to it.

85
MR. BETTS:	Any other comments on this matter?

86
MR. DeROSE:	IGUA would also like to look at the document in its entirety.

87
MR. BETTS:	Mr. Dingwall.

88

MR. DINGWALL:	Similarly, sir, we'd make the same suggestion. And if that suggests a two-stage process, whereby the document in the first instance is subject exclusively and solely to counsel access with an undertaking to maintain that confidentiality while the details are worked out, followed by some determination of what some degree of client restriction the balance might have or redaction, then that would be my suggestion in approaching how to accomplish that.

89
MR. BETTS:	Any other comments?

90
Ms. Persad, the last suggestion regarding confining such to preliminary session counsel, would that be satisfactory to the -- to Enbridge?

91
MS. PERSAD:	The company would be open to that kind of a restriction, Mr. Chairman. And perhaps if it was -- if counsel believed that they had to consult with one of or two of their clients to advise or to know what questions they needed to ask on the document then we would want to confine it and to know exactly whose eyes were going to be looking at the document.

92
Just to respond to a couple of the other points that were raised, Mr. Chairman. Mr. Moran stated that the earliest the document could be returned in -- if we were to submit it on a confidential basis, would be after all appeal avenues were exhausted. I think the company would be willing to accept that for the documents that have been filed with the Board, but if we could perhaps receive back from parties their documents once they have used them for the purposes of writing their arguments then perhaps we could at least place that restriction.

93
As long as we know, again, as I was saying, who is going to be seeing this document, then we would not have to see a list of all of the parties that the various counsel that are representing, as long as that undertaking is given that they will only -- that they are the only persons who will see the document and that they will only share it with those whose names that they share with us.

94
And the only -- the third point I would like to make is in response to a remark by Mr. Shepherd, that he finds it unusual that Accenture would be claiming confidentiality over this type of information once it has already disclosed it with Enbridge. I'll just remind the parties that Enbridge has signed a confidentiality agreement with Accenture and that Enbridge would not disclose any of this information to third parties so that concern should not be there. Accenture's concerns over confidentiality of this document are real, Mr. Chairman.

95
MR. BETTS:	Thank you.

96
Mr. Moran, this was your suggestion. Is your final comment you'd like to provide to the panel?

97

MR. MORAN:	Only this, sir: I wasn't proposing that Mr. Warren be anointed as the representative of all intervenors. It was merely a proposal that any party who wanted to see the document ahead of it being put on the public record, as I think Mr. Dingwall has suggested, I think that's all I was proposing. And that seems to be acceptable to the parties as they discussed it.

98
MR. BETTS:	That is also acceptable to the Board so we will ask that all interested intervenors with the applicant review the documents under a confidential framework or umbrella and we'll see then what rulings are required by the Board -- hopefully none -- but whatever the determination of that group meeting we will act on those recommendations.

99
And Mr. Dominy has asked that we be very specific to indicate that that initial meeting would be with counsel only, in that framework, and if it needs to go beyond that the matter would have to be brought before the panel again for further consideration.

100
Any questions? We appreciate the collective desire to resolve that.

101
Any other preliminary matters, Ms. Persad?

102
MS. PERSAD:	I have none, Mr. Chairman.

103
MR. BETTS:	Okay. Are there any preliminary matters from intervenors?

104
Mr. Moran?

105
MR. MORAN:	Not from me, Mr. Chairman.

106
MR. BETTS:	Then, Ms. Persad, I believe when we left on Friday afternoon, we were in the process -- where were we as a matter of fact? I think it was cross-examination at that stage, of our witnesses and welcome back, panel.

107
MS. HOLDER:	Thank you.

108
MR. BETTS:	I recall that there was an indication from Mr. Brett, Mr. Shepherd, and Mr. DeRose and Mr. Moran that they wished to ask some questions of the panel.

109
Are there any other participants that would like to ask questions as well?

110
And I believe the order was suggested to be Mr. Brett first. So Mr. Brett, please continue.

111

MR. BRETT:	Thank you very much, Mr. Dominy, Mr. Chairman.


112
ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45; CONTINUED: HOLDER, CHIOTTI



113
J.HOLDER; Previously sworn.

114
L.CHIOTTI; Previously sworn.

115
CROSS-EXAMINATION BY MR. BRETT:

116
MR. BRETT:	Good morning, panel. In your evidence, this is your updated evidence, your evidence in chief, I guess, that you addressed yesterday, you say at -- on the second page of it that -- when addressing the question of what is it you want from the Board, what approval are you seeking, you say at the end of the paragraph, A.2:

117
"Generally, however, the company is requesting that the Board endorse its WAMS proposal as prudent and that it meets the needs of the utility."

118
Now, is that still current? That's what you're looking for?

119
MS. HOLDER:	Yes.

120
MR. BRETT:	Now, in the -- in your evidence that -- your pre-filed evidence, that's A.6, tab 7, schedule 3 in the first page in the second paragraph, you comment here that:

121
"The Board decided not to hear the DPWAMS evidence as part of the 032 hearing."

122
Then you go on to say:

123
"Enbridge recognized that its proposed project approach may not be viable, given the Board decision, and began the evaluation of alternatives to the internal development of the DPWAMS solution."

124
And just by way of preamble, I read the Board decision, the relevant part of the Board decision in 0032, and the Board had a couple of comments about the DPWAMS proposal which I think, to me at least, formed the basis of why they did not -- why the issue was not addressed by the Board.

125

And it seemed to me there were two things the Board said there, in essence.

126
First, that in -- last year in 0032, EGD senior management had not approved the proposal, and the Board thought it would be more appropriate before bringing this issue to the Board that the senior management approve it.

127
And then secondly, the Board had some concerns about a lot of the information, the detailed information on DPWAMS being brought forward rather late in the process.

128
Now, that's a high-level summary of mine of why the Board declined to deal with the DPWAMS issue last time. Is that fair?

129
MS. HOLDER:	I guess my reading of the decision was somewhat different. I think the evidence in the last case as well as the -- I think it's mentioned in the decision by the Board in the last case -- was that senior management had approved the project or the concept of DPWAMS but had not approved the implementation of it until such time as we received OEB approval.

130
So it was not that the senior management wasn't behind this project. They were very much behind the project. It's just we did not have final go ahead to implement until there was some certainty around what the risks would be to the company, and that was -- would require a decision from this Board.

131
MR. BRETT:	All right. Well, then, that's close enough, I think, for my purposes, that that was why the Board declined to deal with it.

132
Now, is it the case that you could deal with those two issues -- and I guess to a degree you have -- you could deal with the two issues that the Board had a problem with by providing information well in advance and also by getting unequivocal company approval before coming to the Board.

133
But in the last case, you had an internal solution, an internal, for want -- as a short-hand way of describing it, you had internal solution to the problem, the DPWAMS case. You were going to do it yourself.

134
In this case, you've suggested a very different approach, and I'm curious as to why you've done that, why you've made that change.

135
And I guess in particular when you said in the -- when you said in your evidence at A.6, tab 3, schedule 3, as I read you a moment ago, that -- page 1, paragraph 2:

136
"Enbridge recognized that its proposed project approach may not be viable."


137
My question to you is: What do you mean "not viable"? What was not viable about your previous approach that compelled you to take this other approach this time around?

138
MS. HOLDER:	The term "viable," I think, refers really to the concept of timing. Doing an IT internal solution is still viable. You still could do that. We still could be seeking today approval for $20.5 million of capital to be spent this year and next for a solution.

139
But when the Board decided during the hearing of 2002 rates that they would not deal with this issue in 2002, we had an issue with respect to timing. We do see the need for this type of IT solution. It is imperative for our business. We have done all we can do to date with improving our processes, centralizing as much as we can. The next step of evolution around work and asset management really is an IT solution. We did not want to lose any time.

140
And so when we were before the Board last year when it was -- when intervenors raised a concern about hearing this application last year, and it was decided for the motion not to hear the application or to hear, at least, the work and asset management solution DPWAMS, we sought other ways of dealing with our business issues, and that was the result of the RFP and looking at other solutions that would mean an implementation of a system at the same time as we had originally planned on implementing DPWAMS -- at least within the same sort of era of time -- and also a means of mitigating some of the risks to the shareholder.

141
MR. BRETT:	Well, leaving aside the last phrase for a moment and going back to your question of timing, I don't understand the -- let me put it this way to you: You could have brought forward last year's proposal again, I take it. In this case you could have refiled a very similar proposal with complete information, with complete company internal approval, and you would have been able to presumably begin to -- if it were approved, you would be able to begin to implement that internal proposal sometime in 2003; right?

142
MS. HOLDER:	No, that wouldn't be the case. If we were to -- if we were seeking the $20.5 million of the original DPWAMS solution today, we would have approval from this Board, we're assuming, August/September of 2003.

143
By the time we received those approvals and then started the process of going out and acquiring a system, refining our processes, it would not be available, likely, until 2005.

144
Our approach means that we are going to be receiving benefits for the ratepayers in 2004.

145
MR. BRETT:	The approach that you have now is -- are you expecting to close some of that capital to rate base prior to the end of 2003?

146

MS. HOLDER:	It is within the capital budget that was approved in ADR, so there is, in that we will manage our capital to the ADR envelope it will, yes, in essence be a portion be closed to 2003.

147
MR. BRETT:	So a portion of the DPWAMS capital is going to be closed in 2003?

148
MS. HOLDER:	Yes.

149
MR. BRETT:	And when do you expect to have the -- when do you expect to have your contract completely negotiated with Accenture, executed? What's your target date at the moment?

150
MS. HOLDER:	We're actually -- we'd be probably trying to do that the minute we find some time after this hearing, so that's expected within the next week or during this week. We're close to finalizing that contract. However, there are some components that will not be completed and there's some time lines within the contract such that all aspects will be completed by June 16th, I believe is the date.

151
MR. BRETT:	So you're saying it will be substantially completed this week but there will be a few loose ends to be tied up and completed by June 16th?

152
MS. HOLDER:	Yes.

153
MR. BRETT:	Well, I'll come back to that, I want to come back to the contract. But I just want to stick for a moment to this question of what -- of how it is that you -- You're saying if you had stuck with your original proposal, your internal proposal, you would be effectively building that over a period of two years is what you're telling me, I take it, but you'd have -- pieces of it would presumably become available before the end of the two-year period; correct?

154
MS. HOLDER:	Yes, it would take a year to 18 months, typically, to implement these types of systems internally.

155
MR. BRETT:	Right. And in this case, when you contract with Accenture, Accenture is, I take it they will not be your software supplier, that you will still deal with Maximo, Maximo will be -- will remain the software supplier?

156
MR. CHIOTTI:	Maximo is still one of the products being considered but as we are now working with Accenture and they bring some experience that we don't have, we've decided to take a look at what other products might be available. So Maximal is certainly still in the running but it may the be the eventual product that we use.

157
MR. BRETT:	I guess the comment I'm making is you sign the contract with Accenture in mid-June, you don't immediately on the next day get a service from them, do you? They have to carry out this analysis, select software providers, select hardware providers, there's that -- in respect of the changes that the new service that you would have provided had you done it internally. That new service, that replacement for your existing legacy services, that won't come into being fully dressed two days after you sign the contract, I take it. What will that period of time be?

158
MR. CHIOTTI:	Well, the analysis work is actually ongoing right now. One of those lose ends that Ms. Holder referred to is in fact confirming the software product that we'll be using. So once we've signed the contract, one of the outstanding items is software selection which we will begin almost immediately. It's expected to take about a month to go through that software selection process, at which time we would have confirmed the pricing of that software and that in turn would adjust the pricing for the overall service in the contract.

159
MR. BRETT:	Now, in your -- in some of your materials, in describing the Accenture role, I gather one of the things Accenture is going to do is help operate and maintain your legacy systems until such time as a new system is put in place; is that fair?

160
MR. CHIOTTI:	No, they're not going to do that, in fact. When we were considering the broader option of creating a new entity in that case, they would have operated our legacy systems as part of their involvement with the new entity but as we've reverted to them just being the application service provider, they will not be operating the legacy systems while we are creating the new system. Our own people will be doing that.

161
MR. BRETT:	All right. I guess maybe I just come back and close this part off by saying it's fair to say though I think, is it not, that there's nothing -- you spoke of viability, the word of viability was the word that you used in your evidence of your first approach. And I want to be sure that I'm clear that you're not saying that the Board, in its decision, in 0032, effectively directed you or made it necessary for you to change your approach. You could have continued to go with the existing internal approach; it would have simply meant, if I follow you properly, that the service would have come in -- well, by going with the internal -- by going with the internal system, you're saying that it would take a little longer to get the service that you're looking for than it would have had you gone with this -- with the alternative that you're seeking.

162
In other words, it wasn't the Board decision that compelled you to do this; you could have stayed with the existing system.

163

MS. HOLDER:	Yes, but I think it had two problems with that. Number one is I think it would have delayed the benefits that we would receive from such a system; and second of all, I believe this is a better solution. I think that was one of the comments we made on our last day of testimony is that this solution by having Accenture at the table will assist us in actually getting better value out of an IT solution.

164
So our proposal, I know we've been talking more about an IT solution, but the proposal is larger than just an IT solution. We are also paying Accenture for their assistance in ensuring we capitalize on that solution.

165
MR. BRETT:	Is there -- as a general proposition, you do set out in your evidence, your most recently pre-filed evidence, the -- everyone's been talking about the A.6, tab 3, schedule 3 -- A.6, tab 7, schedule 3 you set out in fairly brief terms what the, sort of, intermediate concept was, if I can put it that way, the work training centre concept.

166
And then in your evidence in chief, you talk a little bit about this revised, sort of, final end result.

167
Apart from those documents, is there anywhere where you provide more detailed information on exactly how the ASP system is going to work? Is there anything else filed?

168
MR. CHIOTTI:	Well, we did file -- we've now filed the RFP that was issued to --

169
MR. BRETT:	Yes, I'm sorry. I should have said that, but I think a lot of the discussion that you had around the RFP, as I recall was -- the RFP was really drafted mostly from the point of view of this work management centre concept; right?

170
MR. CHIOTTI:	That's true.

171
MR. BRETT:	A lot of things that are said in that RFP, you clarified with Mr. Warren the other day are no longer really on. I mean --

172
MR. CHIOTTI:	That's true. With respect to the actual details of the functionality of the system we are proposing, for all intents and purposes, they are equivalent to the original DPWAMS proposal, and we did file in the 2002 case a business case that detailed what those requirements looked like.

173
MR. BRETT:	All right. I've seen that, and that's helpful.

174
Now, you've answered the question already -- I asked you about the software, and you said it's not clear yet that, as I understand it, that you and Accenture are trying to determine whether Maximo will continue to provide the software.


175
Does Accenture provide the hardware, the actual computers or servers or whatever pieces of hardware are used in this proposal?

176
MR. CHIOTTI:	Yes, for the work and asset management system proportion of this, Accenture would be providing the hardware as well as the software.

177
MR. BRETT:	And they continue to -- they would own that, would they?

178
MR. CHIOTTI:	Yes, they would, but it would transferable should we terminate the contract.

179
MR. BRETT:	And you have the right to terminate the contract, I guess, among other -- in among other -- for -- I suppose for non-performance and, I suppose, also if you wish to later move into this -- back into this work management centre arrangement with an affiliate?

180
MR. CHIOTTI:	Yes. Essentially, we will have the right to terminate the contract for any reason or no reason.

181
MR. BRETT:	And the -- in last year's proposal, there were a number of different roles pointed out in the -- in your document. It was going to be internally done, but you did have a party that was referred to as a system integrator, as I recall.

182
Is that part of what Accenture is doing in this proposal?

183
MR. CHIOTTI:	Yes. I would anticipate that that's what they're doing, since they will be the ones acquiring the software and configuring for our use.

184
MR. BRETT:	And there's also a reference in that document, last year's document in the business case that you referred me to to -- I guess it's ECS having a role as a facilitator in that internal project.

185
Now, ECS then I guess is Customer Works today; right?

186
MR. CHIOTTI:	No. Actually, ECS then is now our own internal IT group that has been moved back into the utility.

187
MR. BRETT:	You collapsed that back into the utility in October of 2002, roughly.

188
MR. CHIOTTI:	Is that the right date?

189
MR. BRETT:	I think so.

190
MR. CHIOTTI:	I'm not sure of the date, but yes.

191
MR. BRETT:	Okay. All right.

192
Now, will the -- I think Ms. -- and I'll come back to this when we discuss benefits, but just in a general way, I think, Ms. Holder, you mentioned on Friday that a savings or benefits, perhaps including savings to the company resulting from using the Accenture approach, are going to be tracked in some fashion.

193
Can you elaborate on that? How will they be tracked?

194
MR. CHIOTTI:	Perhaps I'll take that question.

195
As we've been working through what we are actually trying to accomplish in all of this, we've been focused on identifying very specific business objectives. And as an example, we have -- we know, sort of, the productive number of hours our crews spend today working in the field. One of our objectives will be to increase that amount of productive hours on a daily basis.

196
We have over this past year or so been instituting more and more measurements of how we actually do our work, and that's how we can measure that today. So we will have those kinds of measurements to be able to track that we are, in fact, increasing the productive time in the field as we had projected.

197
MR. BRETT:	The -- I take it that the -- will the contract -- and I know you haven't quite finished negotiating yet. Is there any manner in which -- is the contract going to guarantee savings?

198
MR. CHIOTTI:	Not as such; however, as we mentioned in previous cross-examination, part of the arrangement will be a gain-sharing arrangement, and that gain-sharing arrangement will be established such that there will be a certain level of benefits that we have to achieve before any gain sharing takes place at all. So in that sense, Accenture's taking a significant risk that we are going to attain a minimum level of benefits before they can recoup the fees at risk that they are putting into the contract to relate to the gain share.

199
MR. BRETT:	When you say "fees at risk," do you mean to say that they are having to spend some monies of their own without -- and will not receive fees from you until such time as these performance tests are met? Or is it rather they will receive some money from you and then more money from you if they do meet their tests?


200
MR. CHIOTTI:	They have taken the normal fees that they would charge for these services and they have deducted a proportion of those fees so we will only be paying that lesser amount and they will recover or have the opportunity to recover those other fees through the gain sharing.

201
MR. BRETT:	I take it once this contract is negotiated, that it will be -- will have an opportunity to see it, it will be filed, made available?

202
MS. HOLDER:	The contract itself is, again, under the confidentiality agreement that we have signed with Accenture. We would expect that we would file what we've known to be familiar with this -- in this environment is term sheets.

203
MR. BRETT:	A redacted version.

204
MS. HOLDER:	Aspects of it.

205
MR. BRETT:	You'd give us at least the commercial guts of it so that we can see the principles, the commercial principles involved?

206
MS. HOLDER:	I'm not sure whether commercial is right, but we would give sufficient information for the Board to understand what the proposals or the contract is.

207
MR. BRETT:	That would be important because I think it is in part simply because this is something of a moving target and it's a rather different arrangement. That's not to say it may not be a good arrangement, but it would be important to us exactly what that is, for the Board to understand it, that is.

208
And that would be available, you're thinking, sometime since you're substantially finished next week, that would be available sometime towards the end of next week, beginning of the following week?

209
MS. HOLDER:	Aspects of it will be. One of the components that will not be finalized is the pricing component, so we will not -- that's still under negotiation. It will be finalized by June 16th.

210
MR. BRETT:	So am I to understand that you will be able to make some material available, absent the pricing provisions, the end of this week, early next week by way of undertaking?

211

MS. HOLDER:	Yes, I can at least look to see what we can file and obviously I will have to get permission from Accenture on those components that we can file. And I think we would also -- may need to look at whether it needs to be filed in confidence or not.

212
MR. BRETT:	With respect to the numbers --

213
MR. BETTS:	Excuse me, Mr. Brett, would you like to formalize that undertaking?

214
MR. BRETT:	I think I would, Mr. Chairman, if I could. It would be helpful.

215
MR. MORAN:	Mr. Chair, it would be Undertaking J.6.1. I wonder if Ms. Holder could state her understanding of what she has agreed to do, just for the purposes of the record.

216
MS. HOLDER:	What I've agreed to do is I will work with Accenture to determine what components of the contract we can file as a matter of public record, at least those parts of the contract that we have finalized negotiations on. If there are aspects that are still confidential, I will deal with that at a different time. But I'll find out what I can from Accenture with regards to the current contract or the what will be a current contract soon and what we can file of that contract.

217
UNDERTAKING NO. J.6.1:	TO DETERMINE AND FILE INFORMATION FROM ACCENTURE CONTRACT

218
MR. BRETT:	If I might suggest, it might be had he helpful if you're going to, Mr. Chairman, through you, Mr. Moran, if you're going to make that analysis, you might also at the same time see if there are other matters that you could file, not on the public record but could file in confidential as a supplement. I think you said that the first time I asked you the question, sort of a two-fold thing; is that acceptable?

219
MS. HOLDER:	Yes, I can do that.

220
MR. BRETT:	All right. Just for a moment on the question of the costs, this approach that you have -- the ASP approach that you've developed, you've laid out the costs of this at page -- this is in your key piece of evidence, Exhibit A.6, tab 3, schedule 3 at page 7, A.6, tab 3, schedule 7, page 7 of 8. Now, you lay out the costs here, and I read this service fees to be $50 million over 7 years with a possible extension for a further three years which would increase them further.

221
Now, I have a -- first of all, those numbers, they're a -- how firm are those numbers? Are they fairly firm at this stage?

222

MS. HOLDER:	Fiscal 2003 is a firm number. The remaining numbers are just an estimate and they would not include any work that we may choose to do with respect to field force -- what we're referring to as field-force transformation. That's the field technology.

223
MR. BRETT:	That was going to be my next question. The field technology in the 2002 case, your field technology, upgrading the equipment of your people in the field as I recall, you had a number of 3.5 million initially attached to that, and I'm not going to ask you to take this subject to check. I don't have all of the material from 2002 in front of me.

224
You then, I think, marked that down to 2.4 million to arrive at a total price last year of something like 20.1, I believe -- 20.6. It was one of those two numbers.

225
Now, when you say "field" -- I wanted to know that -- I think you've answered my question. 50.3 doesn't include those sorts of expenditures. Would the expenditures that you're contemplating for the field workers be more than that or the same as they were last year?

226
MS. HOLDER:	I'll let Mr. Chiotti answer that question. But just to finish off my last response, one of the other aspects of these numbers where I say that they're estimates and not firm is we do have a right to terminate some of these services prior to the seven years as well, which would bring these numbers down if we chose to do that.

227
MR. CHIOTTI:	With respect to the field and that phase of the project --

228
[Microphone feedback]

229
MR. BETTS:	I've run into this before, and the secret is try not to get too close to the mic, but I think it was an Enbridge witness, as a matter of fact, before.

230
Anyway, let's try that and see if that works.

231
MR. CHIOTTI:	All right.

232
With respect to the field force, in the original DPWAMS proposal, we only intended to replace devices in the field that we were currently using so that the costs that were included in that original -- or the projected costs that were included in that original business case were only associated with that.

233

Part of working with Accenture has introduced us to the fact that much greater gains can be had by going through more of what is termed a field-force transformation, so it won't be just a case of implementing some new devices in the field, but we will be looking at the processes, we will be looking at the interaction of the field with the work management centre, we will even be down to looking at potentially redefining the roles of our front line supervisors and so on as part and parcel of that.

234
Therefore, the costs will be more. We anticipate the costs will be more than what we outlined in the original DPWAMS proposal, but by the same token, we expect the benefits to be considerably more as well.

235
MR. BRETT:	How much more would the cost be, as far as you can tell?

236
MR. CHIOTTI:	That's a part that we're still in discussions on, and, in fact, because the field-force transformation component isn't expected to be undertaken until 2004, that will be the part of the arrangement that will be very, very tentative at this stage and won't be firmed up until much closer to the date that we'll be starting that part of the project, and that would be about midway through our fiscal 2004.

237
MR. BRETT:	But eventually those funds would be -- they would be added to this contract with Accenture. In other words, they would be part of the overall Accenture package?

238
MR. CHIOTTI:	Yes, they would.

239
MR. BRETT:	And they would be subject to some sort of fixed ceiling as well as these other funds?

240
MR. CHIOTTI:	Yes, they would.

241
MR. BRETT:	And are those capital funds or -- I suppose they are? Are they or --

242
MR. CHIOTTI:	With respect to the fee for services from Accenture, in the 2003 year, we propose to split those 50/50 between capital and O&M. And our original thinking behind that is that this system will primarily be used by the work management centre, which itself is an expense that's split 50/50 between capital and O&M, because they manage work for both sides of the budget.

243
We intend to reexamine that as we go forward to see if that does make sense in subsequent years, but right now, it's split 50/50, and that would be the same for the field-force transformation if we continue that way.

244
MR. BRETT:	So what you've decided so far, and I'm going to come back to that question of accounting, but what you are telling me, I think, is that you just decided the accounting treatment for 2003 so far, not for subsequent years.


245
MS. HOLDER:	That's correct. We are looking at the 2004 year and on, relative to where we're identifying the benefits of this program would fall.

246
At the time that we filed the evidence and needed to strike our budget for 2003, we had not identified specifically where all the benefits would come from, and that's why we allocated the costs the same way as we would allocate our costs in the work management centre.

247
Looking forward, though, it probably makes more sense to us to allocate the costs based upon where the benefits are going to be received. So if you're receiving 90 percent or 80 percent of the benefits through capital, then 80 percent of the program costs should be capitalized.

248
MR. BRETT:	Conversely, if you are receiving 80 or 90 percent through better management of your -- such tasks as meters replacement, inspections, visits, things that are O&M in nature, it would be the opposite; right?

249
MS. HOLDER:	I think we're saying the same thing is wherever the benefits are occurring, that's where we would allocate the costs.

250
MR. BRETT:	And in the list of costs that are -- your costs forecast, the 50.3 million, those costs are being incurred, of course, over a period of years. Have you shown anywhere here what the -- that cost of that in today's dollars would be?

251
MS. HOLDER:	That would be taken into consideration in the net present value calculation which we referred to on page 8 of Exhibit A.6, tab 7, schedule 3. So that is to bring everything back into --

252
MR. BRETT:	Right. Could you, as a prior step to doing the overall -- I know you've done the calculation and you've compared the net present value that you achieved by this formulation with the net present value that you would have obtained had you stuck with the 2002 approach. But could you just give me, if you wouldn't mind, the cost, the discounted cost of this, discounted at the utility's rate of return, just on the cost side? In other words, if -- let's assume that these expenditures were -- what I'm trying to do here and I will be straight, up front with you, I want to be able to compare the cost of proceeding the way you are now with the - leave aside the benefits for the moment - with the costs that you would have incurred had you started with the internal method. We know what those costs would have been; they would have been $20 million, roughly, over two years.

253
I'd like to see what these costs are, discounted back to 2003. Could you do that as an undertaking?

254

MR. CHIOTTI:	We could do that but I would want to make the following sort of observation: One of the reasons why we've used a net present value approach to comparing these two alternatives is that it's not entirely an apples-to-apples comparison. On the one case, DPWAMS, we were talking about investing $20.5 million over a two-year period to build or to implement a system which we would then operate. We didn't factor into -- into those plans the life of that system. It's hard to determine up front what the life of that system might be. We haven't -- it was difficult to factor in issues such as, would we have to add more hardware to the system over time because of volume increases and so on.

255
In the Accenture case, the fees that they are quoting would cover the implementation of that system but it would also cover the ongoing maintenance of that system over time. And if it turned out that our expectations for volumes were wrong and volumes were going to increase over time, then Accenture would be providing the additional capacity to handle that volume without a change in fees.

256
So it's not strictly an apples-to-apples comparison. In the one case, we have a system that we know is going to be there for us for a period of 10 years under the Accenture arrangement. When you build your own system, it's hard to predict what the eventual lifespan on that system will be.

257
MS. HOLDER:	Just to add to that is that in the fees to Accenture, again, we need to remind ourselves that it includes the -- their services in assisting us in capitalizing on the benefits of an IT solution which was not in the 20.5. That 20.5 that we originally proposed in DPWAMS was only for the IT solution.

258
MR. BRETT:	All right. Subject to those caveats, could you -- you could give me that number?

259
MR. CHIOTTI:	We can give you the number, but here again, I'm not sure that you can gain too much out of the comparison of those two numbers.

260
MR. BRETT:	All right. But I'll take that chance. I'd like to, if I may, have an undertaking, Mr. Chairman, to produce a discounted number there.

261
MR. BETTS:	Mr. Moran.

262
MR. MORAN:	That would be Undertaking J.6.2.

263
UNDERTAKING NO. J.6.2:	TO PROVIDE THE FIGURE FOR THE DISCOUNTED COST OF THE UTILITY'S RATE OF RETURN

264
MR. BRETT:	All right. Well, I think you've answered my question about the elements of work that are in the current proposal that are not in the 0032 proposal. You've touched on that a few times here in the last 20 minutes. Is there anything else you'd want to add there or that pretty much covers the essential differences?

265
MR. CHIOTTI:	Can't think of anything else to add at this point.

266
MR. BRETT:	All right.

267
Now, with respect to the benefits that you allege are going to be achieved by this proposal, by the revised proposal, you have set those out in your evidence at Exhibit A.6, tab 7, schedule 3, and you're talking about $7 million of benefits in 2004 going up to 12 million in each of 2005, out.

268
Now, I think I'm right, you answered this for me earlier, but I think that I'm right in that, subject to what's in the RFP and subject to what we will see when we see the revised -- the proposal, I guess, the essence of the proposal later on and subject -- you haven't -- the material that you've filed on what those benefits are, the description of those benefits and how you get the $12 million and the $7 million, those are contained in the updated evidence, in this main piece of evidence that we've been talking about, the Exhibit A.6, tab 7, schedule 3 in the RFP that we spoke about, and that is, those are the sources, right, that you filed on what those benefits consist of?

269
MR. CHIOTTI:	Yes, I believe so.

270
MR. BRETT:	I haven't missed anything?

271
MR. CHIOTTI:	No.

272
MR. BRETT:	All right. And you had -- from the accounting treatment point of view, just for a moment, I take your answers, and I think you've answered the better part of this question, I take it that this work, though, that you've described, and you have described some -- you've given some examples of what the work constitutes on your -- in your evidence in chief, Mr. Chiotti, you listed a number of -- in trying to give the Board an idea of the scope of this project, you listed a number of examples of different types of operations you had to carry out in each year. And I'm reading here from -- I'm just quoting at random from this list: 103,000 inspections, 11,000 locates, 7,000 permit applications, 90,000 emergency calls, 64,000 meter work units, the latter -- the meter work units would be meter replacements?

273
MR. CHIOTTI:	Yes. A large proportion of those are what are known as government inspections where we have to bring a sampling of meters back into the company to test them on a cyclical basis.

274

MR. BRETT:	So am I right in thinking that most of those -- I just read you some of them, not all of them. The ones that I read you appear to be related more to labour, company labour, time spent by company employees doing things; in other words, they look to me like O&M type costs as opposed to costs incurred in constructing anything. They're not building anything; you're inspecting and checking and checking meters and so on. So I would have thought that with -- insofar as this plan relates to those kinds of activities and enhances your ability to do those sorts of activities more efficiently, you would consider those payments, which are, after all, service agreement payments to Accenture, as O&M payments.

275
MR. CHIOTTI:	Certainly, some of the work outlined here is O&M work, but much of this work is, in fact, capital; 55,000 customer additions, for example, is all capital work.

276
The maintenance work that we have to do, much of that is capitalized, and so on. So if you actually look at the division of this labour relative to O&M and capital, it is predominantly capital; although, there clearly is some O&M here as well, which is why the benefits we've outlined -- there is a proportion of benefits that's attributable to O&M.

277
MR. BRETT:	It's also the case, is it not, that you -- when you -- in your capital budget -- and we're not going into the details of that; it's a settled issue, but when you do a capital budget, an overall capital budget for the year, a portion of that capital budget is capitalized overhead; correct?

278
MS. HOLDER:	Yes.

279
MR. BRETT:	And is it my -- do I recollect correctly -- I know the number varies, but that it's, sort of, in the area of 10 to 15 percent on an overall basis?

280
MS. HOLDER:	I'm not --

281
MR. BRETT:	You're not --

282
MS. HOLDER:	I'm not confident in the number, sorry.

283
MR. BRETT:	Okay. I can find that out.

284
MR. MORAN:	Mr. Chair, if I may, just for the purposes of the record, the discussion of the numbers that -- come from a document that actually isn't part of the record. It was an outline of an examination-in-chief for work and asset management solutions that was circulated amongst parties, but I know there's been several references to the document itself and what's in the document.

285
I am wondering if it would make sense to identify it as an exhibit.

286
MR. BRETT:	I assumed that this was in, but I think it seems to me, Mr. Chair, it ought to be in.

287
MS. PERSAD:	Mr. Chairman, if I could facilitate things. I mean, the company would not object to having this marked as an exhibit, but we could just easily refer to the transcript, which, in fact, would be a more accurate form of what was actually put on the record.

288
MR. BETTS:	That was my understanding as well, so this -- we're referring to an excerpt from the transcript.

289
Or, Mr. Brett, you may be referring to a document that was used to provide that oral evidence.

290
MR. BRETT:	It's the latter for me, Mr. Chairman, and I guess my thought would be just to -- so we don't get the -- so people can follow the cross-examination when they're trying to assess -- when they're trying to look at creating their arguments and so on, that this document also be made an exhibit as well.

291
MR. BETTS:	Certainly, if there was any difference, that would sort out those differences. So let us do that, then.

292
If we can establish an exhibit number for that, the problem will then be to get sufficient copies so that it can be distributed. I'm not sure who does or doesn't have that.

293
MR. MORAN:	Mr. Chairman, my understanding is it was distributed to all the parties, so the only people that may not have that document would be you, which is why I posed it.

294
MR. DOMINY:	We also don't have K.5.2.

295
MR. MORAN:	That's right, and Mr. Schuch is going to take care of that.

296
MR. BETTS:	So if we could just arrange to get a couple extra copies for the panel, that would be fine. And let us have an exhibit number.

297
MR. MORAN:	That would be Exhibit K.6.1, outline of examination-in-chief for work and asset management solution.

298
EXHIBIT NO. K.6.1:	OUTLINE OF EXAMINATION-IN-CHIEF FOR WORK AND ASSET MANAGEMENT SOLUTION

299
MR. BRETT:	Mr. Chairman and the panel, I think that concludes my questions, so thank you.

300

MR. BETTS:	Thank you, Mr. Brett.

301
And I believe Mr. Shepherd is up next.

302
MR. SHEPHERD:	Yes, Mr. Chairman, I have about ten minutes. Do you wish to break now or wait until I'm finished?

303
MR. BETTS:	Let's break after your examination.

304
MR. SHEPHERD:	That will speed me up.

305
CROSS-EXAMINATION BY MR. SHEPHERD:

306
MR. SHEPHERD:	My first question is concerning the nature of the commitment that you're proposing to make right now. As I understand it, last year you came with DPWAMS, and you said to the Board, We want to make a commitment to spend $20.5 million over two years; please approve it. And the Board said they didn't want to right now.

307
This year you're coming to the Board, and if I understand correctly, you're saying that we want to make a commitment, a legal commitment to spend $50 million over seven years, and I guess my question is: Are you asking the Board to say that's okay?

308
MS. HOLDER:	Sorry, from your premise, I am assuming you were asking why do we see this different than what we were asking for last time as opposed to what we're --

309
MR. SHEPHERD:	No, I understand the difference between capital and the ASP model, but a legal commitment is still a legal commitment. If you are committing to spend the money, then whether you are committing to spend it on capital or on O&M, it's still money.

310
And my question is: Are you asking the Board to say yes to that $50 million commitment?

311
MS. HOLDER:	We're asking the Board to say that the approach we are taking to finding an ultimate solution to work and asset management is appropriate, and that's appropriate based upon the benefits and the costs that we have provided.

312

The actual costs will be presented when we're before the -- this Board at -- in future rate cases. So I'm not asking, or we're not asking the Board to approve a $60 million expenditure over ten years at this point in time. We're asking the Board to look at this as a proposal for a solution. And given that the benefits far outweigh the costs, that it makes sense for all parties involved.

313
Does that help?

314
MR. SHEPHERD:	Yes.

315
MS. HOLDER:	I think the other comment I want to make is that we're making a legal contractual commitment for ten years. We have the right to terminate at any point in time with reasons or with no reasons.

316
MR. SHEPHERD:	And with penalties.

317
MS. HOLDER:	The penalties do not cut in until 2004.

318
MR. SHEPHERD:	In other words, the next rate case, during the next rate case if you terminate, you have a penalty?

319
MS. HOLDER:	During the next fiscal year. I'm not sure when the -- the next rate case hopefully will happen prior to 2004.

320
MR. SHEPHERD:	I take your point.

321
But I just want to narrow this down because as you've seen from the cross-examination there's a lot of confusion about what you're asking for and so I want to see if I can nail it down. You're going to spend $7.1 million this year; correct?

322
MS. HOLDER:	Correct.

323
MR. SHEPHERD:	And that's included in the capital budget which is already in the capital envelope in the ADR and in the O&M budget which is also an envelope and you are making a judgment call that you are going to spend those monies within those envelopes; correct?

324
MS. HOLDER:	Correct.

325

MR. SHEPHERD:	Next year when you come to ask for approval to spend $10 million, which will be, as you think right now, 5 million of O&M and 5 million of capital, can the intervenors come to the Board and say, Well, you know what, we don't think this is a prudent expenditure because we look at what happened last year and you didn't save $7 million even though you spent $7 million and so that it looks like it's a bad project and you shouldn't be allowed to spend the money. Can we say that next year?

326
MS. HOLDER:	I think you have the right to examine all our costs next year as well as all other benefits. I just want to clarify: We do not expect to deliver any benefits in 2003; the $7 million that we're spending within our current capital and current O&M is in order to strategic benefits in 2004. But in 2004, I think we will be examining -- there will be an examination of our 2004 approval of 2004 rates and if the benefits aren't materializing, which they will.

327
So I'm struggling with the -- I believe that all our costs will be reviewed as they have been historically; no differently than any other program we're in. We contract for 60 to $80 million worth of costs with other contractors every year. That's all part of our O&M and capital budgets. I see this no different than what we're already doing with regarding our other services that are provided through contractors.

328
MR. SHEPHERD:	So then if I understand correctly, the difference between last year's project and this year's is that last year you were asking the Board to approve a commitment of the ratepayers' money, $20.5 million; this year you're not asking the Board to approve spending of $50 million of the ratepayers' money, only 7 million, which is in fact already in ADR. The rest of that commitment, when you signed that contract with Accenture, the rest of that commitment is shareholder money unless you get approval next year and the year after, et cetera; is that right?

329
MS. HOLDER:	Yes, I believe that's correct. Recognizing that, obviously, the benefits there are -- I'm convinced that the regulator would see fit to approve the costs that are being incurred to provide those benefits.

330
MR. SHEPHERD:	I'm sure you are correct.

331
The second question relates to the distinction between O&M and capital. And I guess the problem I have, and perhaps you could enlighten me here: You're going to put $3.5 million in rate base this year and I guess I don't understand how you can close anything to rate base if there's no ratepayer benefits. I don't understand that.

332

MS. HOLDER:	I'm probably not the right person to ask with respect to how we manage our IT capital funding, but my understanding is this is the way we always manage our IT capital. There are no benefits really in 2003 because, as we've been talking, we're only signing a contract now; however, we do believe that we will start incurring benefits in -- as early as this fall, so starting in 2004 we will be incurring benefits immediately even though there won't be an IT solution available in -- until later in 2004. There will be benefits incurred through improved efficiencies of our processes.

333
MR. SHEPHERD:	But I guess my concern is -- I am just talking now about the capital side. Your argument to include some of this, to take some of this and make it capital is presumably it's going to reduce the capital cost of some of these activities that are being covered by WAMS; is that right?

334
MS. HOLDER:	That's correct, so that the processes that we will be working on between now and the end of this fiscal year will result in efficiencies of the work management centre itself which is allocated 50/50 between capital and O&M. So we will actually have benefits from this project by the end of this fiscal year which is the philosophy around capital to rate base; is that if it's used or useful, we will actually have redefined many of our processes. So there will be benefits incurring within work management as early as this fall.

335
MR. SHEPHERD:	Now I'm confused. I'm quite sure I heard you say just 60 seconds ago there will be no benefits in 2003.

336
MS. HOLDER:	Sorry. This fall happens to be our 2004 year.

337
MR. SHEPHERD:	Okay. So you're saying in calendar 2003 you'll have benefits but in fiscal 2003 you will not.

338
MS. HOLDER:	That's a better way to put it.

339
MR. SHEPHERD:	Gotcha.

340
Third question relates to the NPV calculations. I looked around the evidence and I have to admit that I didn't find those two NPV calculations for DPWAMS and for WAMS. Are they filed somewhere?

341
MS. HOLDER:	The results are filed at Exhibit A.6, tab 7, schedule 3, page 8 of 8, the last paragraph, number 19.

342
MR. SHEPHERD:	No, those are just the numbers. I'm looking for the calculations in the same way as we got the EnTRAC calculations, a detailed NPV calculation. That's not filed?

343
MS. HOLDER:	We're trying to recall if somebody asked that in an interrogatory or not, and we don't believe it has been filed.

344

MR. SHEPHERD:	Well, I wonder if I could get, then, both of those as an undertaking, that is, the original DPWAMS, which is, what, 7.6 million NPV or something?

345
MS. HOLDER:	Yes.

346
MR. SHEPHERD:	And then the new one, the WAMS.

347
MS. HOLDER:	Yes. The DPWAMS is in evidence, I believe, but we'll file both of them together.

348
MR. SHEPHERD:	Thank you.

349
Could I have an undertaking number for that.

350
MR. MORAN:	Mr. Chair, that will be Undertaking Number J.6.3.

351
UNDERTAKING NO. J.6.3:	TO PROVIDE A DETAILED CALCULATION OF BOTH THE ORIGINAL DPWAMS AND WAMS

352
MR. BETTS:	Thank you.

353
MR. SHEPHERD:	And last but not least, I listened with interest the cross-examinations on Friday and the reference to the creation of a new entity, and I have to admit I'm not clear even as yet as to what your conclusion is.

354
Do I understand correctly that you've decided not to create a new entity, and we won't be hearing next year or the year after, Oh, we changed our mind; now we want to set up a new entity for WAMS?

355
MS. HOLDER:	We are not contemplating at this point in time setting up a new entity for work and asset management. It is still something that we will consider and review on an ongoing basis, as we're reviewing our need to improve our efficiencies and ensure that we remain the lowest-cost provider of distribution services.

356
So the other answer to your question is, Yes, you may see us at a later date come forward with a proposal to move work and asset management outside the utility.

357
MR. SHEPHERD:	Thank you, witnesses.

358
Panel, those are my questions.


359
MR. BETTS:	Thank you, Mr. Shepherd.

360
Mr. DeRose?

361
MR. DeROSE:	Mr. Betts, one of the realities of sitting at the back of the room is that a lot of my questions are taken. I think I can finish my cross in less than five minutes, and I would propose, perhaps, before the break doing that so that this panel could be released.

362
MR. DINGWALL:	If I could follow up on that, one of the benefits of sitting at the back of the room is you also get to see what hasn't been asked, and I'm going to put my name forward as an additional examiner in respect to this panel, probably with 10 to 15 minutes, just to give the Board an indication of timing.

363
MR. BETTS:	Mr. Moran, did you have questions?

364
MR. MORAN:	Yes, Mr. Chair, I probably have about 10 or 15 minutes at the most.

365
MR. BETTS:	I think, then, with those prospects, we will break now and return with questions from Mr. DeRose.

366
So we'll stand adjourned and return at -- well, let's aim at 25 past 11:00.

367
--- Recess taken at 11:05 a.m.
368
--- On resuming at 11:28 a.m.
369
MR. BETTS:	Please be seated everybody.

370
We will resume cross-examination with Mr. DeRose.

371
MR. DeROSE:	Thank you, Mr. Chairman.

372
CROSS-EXAMINATION BY MR. DeROSE:

373
MR. DeROSE:	Good morning, panel. My name is Vince DeRose. I'm here on behalf of IGUA. We've said "hi" to each other in the hallway, but I don't believe we've been formally introduced.

374
As I said before the break, I will try and keep my cross-examination to about five minutes. And what I'd like to talk about is the gain-sharing mechanism which has been referred to this morning and on Friday.

375
And if I'm simplifying this too much, let me know, but my understanding is that what you're negotiating is a fixed-price contract with a bonus structure; is that a fair summary?

376
MR. CHIOTTI:	We haven't used the term "bonus" up until now. I guess the way I would describe it is that we wanted to ensure that Accenture had a stake in the success of this beyond just, you know, normal arrangements, and so they are prepared to put a certain proportion of fees at risk.

377
In concert with that, we will strike a gain-sharing mechanism, which will allow them to recoup those fees at risk on the basis that we actually achieve and overachieve the benefits that we would anticipate.

378
MR. DeROSE:	Okay. So the contract will set out a set amount of money, which is guaranteed to be paid to Accenture, and if they meet certain thresholds, they will receive additional sums of money?

379
MR. CHIOTTI:	Right. They would receive some proportion of benefits exceeding certain levels.

380
MR. DeROSE:	Okay. Now, if I could take you Exhibit A.6, tab 7, schedule 3, page 7 of 8, and it's paragraph 16. This is the paragraph that you've been taken to a number of times, and it sets out what you estimate to be the fees for each of the years 2003 to 2010. Do you have that exhibit?

381
MR. CHIOTTI:	Yes.

382
MR. DeROSE:	Now, are the estimates of fees, which you've set out there, are those the reduced fees of Accenture?

383
MR. CHIOTTI:	This set of fees relates to just two components of what we're proposing at the moment, the creation and provision of the work and asset management system and its operation, plus the management assistance that Accenture will be providing to us.

384
The actual fees at risk, gain-sharing is more tied into the field-force transformation component of the project, so these figures are total figures.

385
MR. DeROSE:	Okay. So again, forgive me if I'm simplifying this too much. If Accenture successfully achieves the gains, which everyone hopes it will, will the money paid to Accenture be greater than what you've set out at paragraph 16?

386
MR. CHIOTTI:	Yes, assuming that we complete the full scope of the engagement, then yes.

387
MR. DeROSE:	Okay. And is there a cap on which -- on the gain-sharing mechanism? Is there a maximum per year that Accenture can achieve?

388
MR. CHIOTTI:	The percentage of the benefits that would accrue to Accenture is capped.

389
MR. DeROSE:	Is that provided anywhere in the evidence?

390
MR. CHIOTTI:	No, we're still negotiating all those details right now.

391
MR. DeROSE:	Okay. So you would not be able to provide by way of undertaking the same list or chart that you provided at paragraph 16 which includes the gain-sharing mechanism cap?

392
MS. HOLDER:	As part of the undertaking we already took that we would provide what information we can from the contract that we will be hopefully finalizing this week, we will -- we can't provide the pricing because the pricing isn't negotiated and won't be until June 16th, is our time frame. But we'll see what we can provide as far as structure.

393
MR. DeROSE:	Fair enough. What I would really be interested in is, for instance, for fiscal year 2003 you have 7.1 million -- well, actually 2003 will be a bad year because it's -- there's no benefits in that year. Take 2005, 6 million. I would be interested to know, for instance, is the cap, if they exceed all of their targets, 8 million or 10 million or 12 million, how much could that be increased because of the gain-sharing mechanism? That's what I would be interested in. And if you can provide it --

394
MS. HOLDER:	We'll see what we can provide.

395
MR. DeROSE:	Fair enough.

396
MS. HOLDER:	I'm just not sure how much we've negotiated on this.

397
MR. DeROSE:	Fair enough. And I take it that the final contract in any event, those details would be provided in the next rate case for test year 2004.

398
MS. HOLDER:	Yes, if we're before the Board defending our O&M capital, we will bring forward the necessary or relevant information.

399
MR. DeROSE:	Thank you. Now, one last area.


400
MR. MORAN:	Perhaps that should have an undertaking number?

401
MR. BETTS:	Sorry, Mr. Moran?

402
MR. MORAN:	I was just wondering whether Mr. DeRose needed an undertaking number.

403
MR. DeROSE:	Perhaps -- my understanding was it would be a best-efforts attempt.

404
MS. HOLDER:	It's part of the original undertaking.

405
MR. MORAN:	So this is part of Undertaking J.6.1.

406
MS. HOLDER:	Yes.

407
MR. DeROSE:	Panel, as I understand, it is not anticipated that for fiscal 2003 that WAMS would produce benefits; is that correct?

408
MS. HOLDER:	There isn't a black or white line on exactly what makes -- because part of the benefits are coming from improvement in efficiencies, not just -- improvement of processes, not just an IT solution. So theoretically, as we're working through this whole program or project with Accenture, as we discover things can be done, we are implementing them as we speak. So there are probably minor benefits that will be realized maybe in August or September but nothing that's material to the O&M budget we've presented.

409
MR. DeROSE:	Right. And where I'm going is that the bulk of the benefits from the WAMS Accenture arrangement I assume would be seen beginning in 2004, but I understand the evidence really coming to fruition in 2005 and beyond; is that fair?

410
MS. HOLDER:	That's correct.

411
MR. DeROSE:	Now, if between now -- so what the company's doing and what the ratepayers would be also doing is investing now for future benefits.

412
MS. HOLDER:	Yes.

413

MR. DeROSE:	Now, if between now and 2005 the company proposes a comprehensive performance-based regulation program, can you say whether those benefits would still come back to the ratepayers?

414
MS. HOLDER:	I think that would be subject to the application we bring forward on an incentive regulation plan.

415
MR. DeROSE:	So if there was a CPBR plan, it's possible that the benefits which we're investing now to get into the future would not come back to ratepayers. That's a possibility.

416
MS. HOLDER:	I guess theoretically it's a possibility, but again, we'd have to file an application in order for a comprehensive plan to be put in place; again, that would be reviewed by this Board and approved by this Board.

417
MR. DeROSE:	Thank you, panel. Those are all my questions.

418
MR. BETTS:	Thank you.

419
Mr. Dingwall.

420
MR. DINGWALL:	Thank you.

421
CROSS-EXAMINATION BY MR. DINGWALL:

422
MR. DINGWALL:	Good morning, panel.

423
Following up on a comment Mr. Chiotti made earlier, I'm wondering if you could describe in some way how the amended proposal is likely to address field-force transformation, what sort of things are under consideration.

424
MR. CHIOTTI:	Here again, this is the one area of the overall proposal that is least well-defined at this point, because the timing of it is such that it will really take place until we're into our 2004 fiscal year.

425
Field-force transformation essentially will involve, first of all, implementing appropriate technology in the field, particularly some form of network and appropriate devices for our field forces to use to interact with the work and asset management system. So as an example, today, whereas they may need to wait for some paper copy of information in order to do a locate or do some function in the field, they will be able to call up that information immediately and have it accessible to them in the field thereby increasing their efficiency and their effectiveness.


426
But once again, like the rest of this proposal, field-force transformation goes beyond just implementing technology. As part of implementing that technology we will be looking at the processes that are carried out in the field and how those processes can be improved. We will also be looking at things like the actual role of the -- the supervisor, the front-line supervisor in the field. Today our supervisors are saddled with a fair amount of administrative work because so much of our systems are manual and there is a lot of paper that needs to be filled in and sent into the central office and so on and so forth. One of our expectations with this field-force transformation would be to really redefine the role of the supervisor so that they are spending more time working with their crews in the field and trying to ensure that they are operating as effectively as possible and paying even more attention to safe operations and so on.

427
Does that give you a better feel or --

428
MR. DINGWALL:	That's very helpful. I wonder, just in following up on that, if you can tell me whether the whole concept of field-force transformation has any inclusion of the subcontractors currently performing utility services?

429
MR. CHIOTTI:	Yes, it is our intent that the contractors that we are using would be part of that process. And in fact, we would be looking at what means those contractors would take to use the same devices in the field, for example, and so on.

430
MR. DINGWALL:	Thank you. Is that why, then, the field-force transformation would be likely deferred until 2004? Is it dependent upon the technology that would be in the field?

431
MR. CHIOTTI:	Well, it's really dependent upon getting the work and asset management system in place. There would be no point in putting devices out in the field without the system for being there for those devices to hook into and be able to access information from.

432
MR. DINGWALL:	Is there any thought to changing either the scope or nature of arrangements that you make with third parties that subcontract to perform utility services under this proposal?

433
MS. HOLDER:	We are actually in the process of that very issue. We sent an RFP to many contractors, somewhere in excess of 30, probably closer to 40 contractors last fall, requesting their response to how they could provide construction maintenance and service work to us.

434
We have short-listed that group and are currently in the process of negotiating only with two contractors for providing all construction, all service and all maintenance work for a period of five years.

435

MR. DINGWALL:	With respect of the scope of the work and asset management system, are any of Enbridge Gas Distribution's affiliates looking at contracting for similar services to provide an economy of scale?

436
MS. HOLDER:	I believe Gazifere, who we all currently provide work management to, will be part. But we have not been looking at the other affiliates. The only other affiliate that may make sense is our small operation in New York state, St. Lawrence Gas, primarily because most of the Enbridge affiliates are all about big pipe transmission systems; and work management, as we define work management, isn't the same for them. They do not have the day-to-day transactions that we experience, so their type of -- their work management systems are much -- I don't want to say simplistic, but much simpler than ours would be.

437
MR. DINGWALL:	So this wouldn't be something Enbridge Gas New Brunswick would be considering.

438
MS. HOLDER:	Enbridge Gas New Brunswick eventually could be; I suspect right now, again, it's not a big issue for them as they are just adding primarily a construction operation and very small day-to-day -- a number of day-to-day transactions. But they potentially could be.

439
MR. DINGWALL:	With respect to the design of the field-force transformation and the work and asset management system, is the company in discussions with industry participants on how best to gain efficiencies?

440
MS. HOLDER:	We will be working with our two contracts. Our two contractors that we have just awarded our construction service and maintenance work to, they will be working with us on ensuring that we gain efficiencies in the system.

441
MR. DINGWALL:	Now, those two contractors wouldn't include approximately the 90,000 emergency calls, would they?

442
MS. HOLDER:	They would --

443
MR. CHIOTTI:	Yes, they would.

444
MR. DINGWALL:	So would this effectively be all the -- these two contractors would be doing all the work that would come under the previous heading of "Subcontracted Utility Work"?

445

MR. CHIOTTI:	Yeah. Actually, when we refer to two contractors in this context, there are two groups that we're dealing with. But within themselves, they've actually formed some partnerships to respond to this RFP.

446
So we're actually talking about a combination of a pipeline contractor and a service contractor, and there's two groups of those that we're dealing with here.

447
MR. DINGWALL:	Two groups of each?

448
MR. CHIOTTI:	Let me try to explain it again, because I want to be very clear on this. But we've -- we're looking at a -- we're looking at working with two groups. Each of those groups is a combination of a pipeline contractor and a service contractor, who have chosen of their own accord to respond collectively to the RFP.

449
MS. HOLDER:	Very simplistically, we will have two contracts in place for all our construction work -- service work and maintenance work. And there are groups of contractors who are party to those contracts -- those two contracts.

450
MR. DINGWALL:	So I understand this, Mr. Chiotti's earlier answer was that each of the two contractors who you have identified as being the contractors that will be performing all the subcontracting utility work, which goes back to the evidence in chief and the seven or eight headings of services, there will be two companies performing these, and each of the -- or two groups, pardon me, performing these, and each of those is composed of a pipeline service contractor and a services contractor; is that correct?

451
MS. HOLDER:	Actually, the one contract -- there is a principle -- maybe the easiest way to explain this -- it's no secret who these two are. We have agreement with Link Line and agreement with Sommerville to provide us services.

452
Sommerville, who is primarily a construction contractor, has partnered or teamed up with other contractors in order for them to deliver to us the services that we requested in the RFP.

453
Likewise with Link Line, they have also partnered or teamed with other contractors in order so they can fulfill the full scope of the services requested in the RFP. But there will only be monies changing hands between ourselves and Sommerville and ourselves and Link line for all our work.

454
MR. DINGWALL:	So --

455
MS. HOLDER:	How they perform that work is not just with their own employees. They will also have other contractors performing that work.


456
MR. DINGWALL:	How many subcontractors would have been in place previously performing these services?

457
MS. HOLDER:	Somewhere around 35 is the number of contractors that we have worked with. There wouldn't necessarily be that main under a contract at any point in time.

458
MR. DINGWALL:	Could I ask for an undertaking to produce the RFP and any related documents that might lead to an understanding of what the scope or terms and conditions of these services might be?

459
MS. PERSAD:	Mr. Chairman, if I could just interject for a moment.

460
I'm not sure what this has to do with the issue that this panel was brought here to address, that is the WAMS solution. Maybe Mr. Dingwall could advise us on that point.

461
MR. DINGWALL:	Certainly. One of the other issues that we have to deal with, and I did have a brief discussion with Ms. Persad on the break, is issue 8.2, which is the terms and conditions relating to utility subcontractors performing services on behalf of the utility.

462
And given that there is a panel on that specific policy issue later, I asked Ms. Persad's leave, if you will, on the break to maybe explore some of the specifics as they relate to work and asset management with this panel, as the policy panel may not have sufficient detail of the operations to give a full scope to some of these questions.

463
And interestingly enough, we're learning that 35 contractors who would have been subject to a degree of scrutiny through the standard contract forms and conditions produced under some of the HVAC undertakings previously, are now to be replaced by two main contractors, who, subject to what the RFP and any related agreements might say, may not have the same degree of visibility or contractual scrutiny as the previous arrangement.

464
So my effort in seeking to produce the RFP within this context really goes towards providing some further information related to 8.2, which is clearly one of the issues on the issues list, how that devolves, and what the impact on this quite new and exclusive five-year arrangement could be in terms of the way that services are provided in the future.

465
MR. BETTS:	Ms. Persad?

466

MS. PERSAD:	Mr. Chairman, I don't want to preclude Mr. Dingwall from exploring these issues under issue 8, and particularly 8.2, but perhaps I could suggest that these questions are more properly addressed to the outsourcing policy panel, which will come forward later in the proceeding. And Ms. Holder will be part of that panel.

467
MR. DINGWALL:	Well, to respond briefly, it would be nice to have the terms of reference and the documents in advance of that panel; otherwise, we will be going through the whole process, frankly, of asking for documents, having the opportunity to review them, which might mean downtime within the hearing, and then responding at that point.

468
I'm happy to defer the questions as they relate to the policy aspects, but since we've identified something that's quite key that will require some review in advance of that time, this might be an appropriate time in the transcript to reflect that undertaking.

469
MR. BETTS:	I think the Board at this point would prefer that that matter be left for the issue 8.2 at that time. If your questions are not satisfied, and if, in fact, they still are worthy of pursuit, then we can deal with it at that point, and we will concentrate simply on this issue at this point in time.

470
MR. DINGWALL:	Certainly, sir. I have a couple more questions.

471
With respect to the proposal or the consideration that this initiative be pursued through Accenture, can you give me an indication of how the Accenture business unit that you're in discussions with relates to the other Accenture business units, which you have ongoing transactions with, such as CWLP?

472
MS. HOLDER:	There is no relationship with the individuals we were working with from Accenture and those involved with Customer Works Limited -- or Customer Works LP.

473
MR. DINGWALL:	Are they the same people?

474
MS. HOLDER:	No.

475
MR. DINGWALL:	Is there any corporate separation between the units that you're talking up to?

476
MS. HOLDER:	That I couldn't tell you. I'm not intimately familiar with Accenture's corporate structure.

477
MR. DINGWALL:	Will the database and the operational information housed at CWLP have any physical access to the data that will be produced or held or used by the WAMS system?

478
MS. HOLDER:	There were -- the housing of these assets would likely not be in the same place, the hardware that contains the software or managing the software. But there will be an interface with our CIS system that is part of the Customer Works LP in that our current work management system has interfaced to those systems.

479
So there will be an interface necessary, but there will be no access to the data that's being captured by the work and asset management system by Customer Works, if that's really the crux of your question.

480
MR. DINGWALL:	That goes some way.

481
So there's an interface. How is the data segregated so that there is no access? You indicated that there would be no access to the data by Customer Works employees as it relates to WAMS.

482
MR. CHIOTTI:	Yeah. I'm not technically aware of all of the details of what the interface might look like, but in order to process a work order that originates with a customer, it's necessary to be able to access the customer file to know where that customer is, address, and that kind of information.

483
So to the extent that work management deals with work that's initiated by customers, there needs to be a linkage of that information, but they will not be a general, open quarry-type facility against the customer file. It will be -- the access will only be there through the work and asset management system to obtain, you know, necessary information on that customer in order to be able to complete the work.

484
MR. DINGWALL:	So would it be correct to say the access would be one-sided, that the work and management system can make the query of CWLP but not vice versa?

485
MR. CHIOTTI:	Here again, you know, I haven't been intimately involved in working through the technical details of this, and I'm almost -- feel like I'm kind of speculating here to some degree.

486
But part of the process has to be that a customer can call in and inquire about the status of their order. Exactly what linkage will be necessary to fulfill that request on the part of the customer, I'm not absolutely sure, so that may create an interface need as well.

487
MR. DINGWALL:	Would it be fair to say that a lot of the interfaces and a lot of these structures are frankly developmental at this time, because of the status of the project?

488
MR. CHIOTTI:	Yes, that would be fair to say.

489
MR. DINGWALL:	So is this something we're best coming back to in the next year?

490
MR. CHIOTTI:	Certainly we'll be able to talk about it in more detail at that time.

491
MR. DINGWALL:	Thank you.

492
Those are my questions.

493
MR. BETTS:	Thank you, Mr. Dingwall.

494
Am I correct that there were no other intervenors apart from Mr. Moran that would like to question this panel?

495
Mr. Moran?

496
CROSS-EXAMINATION BY MR. MORAN:

497
MR. MORAN:	Thank you, Mr. Chair.

498
Just a couple of questions for clarification, witnesses.

499
With respect to the hardware and the software that are part of this program, could you just indicate how that's going to be acquired? Is this Enbridge acquiring it, or is it Accenture acquiring it and recovering the costs of -- those acquisitions costs in the service fee?

500
MR. CHIOTTI:	For the work and asset management component, we anticipate that all of the hardware and software required for that will be acquired by Accenture with the ability to assign those -- to assign the hardware and to assign the licences for the software to us, should we terminate the agreement.

501
With respect to field-force transformation, and here again, we haven't gone into nearly as much detail on this side, it's anticipated that Accenture will acquire software necessary to establish that, but the devices that we would contemplate our people using in the field may be acquired by the utility.

502
MR. MORAN:	And you've indicated that if the contract was terminated early, that there would be a mechanism by which you would acquire the software and the hardware that was procured by Accenture; is that right?

503
MR. CHIOTTI:	That's right.


504
MR. MORAN:	What happens at the end of the contract, either at the end of the 7 years or, if the option to renew is exercised, at the end of the 10 years? What happens to the assets at that time?

505
MR. CHIOTTI:	Here again, we'd be able to assign the assets to Enbridge.

506
MR. MORAN:	You would be able, or you actually would do that?

507
MR. CHIOTTI:	If we were not going to renew, then presumably we'd do that. I'm only hesitating because 10 years is an awful long time out in the future. At that point there may be yet another solution that we had been looking at and be prepared to pursue at that time. It's hard to predict what sort of evolution will take place in the IT realm over a 19-year period; it's just a long, long time.

508
MR. MORAN:	Fair enough. With respect to the RFP that gave rise to you selecting Accenture to do what they're proposing to do for you, as I understand your evidence earlier, you indicated that the RFP was much broader than the current proposal and that a number of companies responded to the RFP, and that when you were reviewing the responses and thinking about a slight change in direction, you ended up with the current proposal that you have before the Board. I think if I remember correctly you also indicated that Accenture had responded to the full range of things in the RFP; this is a subset of that.

509
Could you indicate what process you went through with respect to all of the RFP responses on this point? Did you examine all of them from within the context of being able to deliver the narrower proposal of WAMS?

510
MR. CHIOTTI:	No, we actually didn't because at the time the RFP was issued and at the time we received the responses and were evaluating the responses, of course, it was based on the broader context that was in the RFP to begin with.

511
However, in Accenture's case, which presumably many of you will see shortly, they responded in a manner that basically broke down our various components of this. So they responded with respect to the creation of a separate entity; they responded with respect to providing a work and asset management solution and field-force transformation and management assistance so it was quite easy in that case to revert to this other plan once we decided not to proceed with the new entity.

512
MR. MORAN:	All right. You simply took them up on what they proposed in their response, given your change in plan.

513
MR. CHIOTTI:	Right.


514
MR. MORAN:	All right. Did you go back to any of the other respondents to see if they were able to also respond in an equivalent fashion?

515
MR. CHIOTTI:	We didn't. The other respondents, quite frankly, their responses were -- one of them was quite different; the other wasn't broken down by that structure.

516
MR. MORAN:	All right. So if I understand you, you didn't go back and test, through the RFP process, the price associated with doing what Accenture is proposing to do?

517
MR. CHIOTTI:	No, we didn't.

518
MS. HOLDER:	I think just to add to that, we were already into negotiations with Accenture when we received the decision on our 2002 rate case at which case we'd already made a commitment to Accenture to negotiate, we felt we had still to live up to that commitment even though we were changing directions to at least pursue with Accenture a narrower-scope proposal.

519
The other part of the reason why we didn't go back to the other original responders is that clearly through our discussions with Accenture and through the first proposal, we recognized that they were in a position to deliver greater benefits than what the other responders were offering, even in the narrower scope.

520
MR. MORAN:	Thank you very much. Those are all my questions.

521
MR. BETTS:	Thank you.

522
Ms. Persad, are there any questions in re-examination?

523
MS. PERSAD:	If I could just take a moment, Mr. Chairman.

524
MR. BETTS:	Sure.

525
Please continue.

526
MS. PERSAD:	Mr. Chairman, all that to say that I do not have any questions on redirect.

527
MR. BETTS:	Okay. Thank you very much.

528
Mr. Dominy.

529
QUESTIONS FROM THE BOARD:

530
MR. DOMINY:	I have the advantage of seeing Exhibit K.5.2 for the first time and I'm wondering if I can turn to page 7 of it, "Scope and Work Requirements". I just want to confirm what part of the scope we're dealing with because as I understand some things are not included and some things are.

531
So if I go down, I think they are titled 3.1.1, "Creation of Work and Management Centre Entity"; I assume that's not in this.

532
MR. CHIOTTI:	Correct.

533
MR. DOMINY:	The next one is "Maintenance of Existing IT Infrastructure," 3.1.2. I assume that's not in this.

534
MR. CHIOTTI:	That's correct also.

535
MR. DOMINY:	The third one is "Development and Distribution of Plant Asset and Management Solution", 3.1.3. I assume that is what we're dealing with.

536
MR. CHIOTTI:	Yes.

537
MR. DOMINY:	And the last one is 3.1.4, "Field-Force Conversion". I assume this is the one that you haven't really developed beyond, sort of, initial discussions, and it is not included in the estimates of costs, but it is something that is going to be done.

538
MR. CHIOTTI:	Yes.

539
MR. DOMINY:	Okay. So now I can tie this into what we're been dealing with.

540
The second question I was wondering about was if you could just explain to me what the fixed price is? You've used the word -- we've retained Accenture on a fixed-price basis.

541
Would you just explain to me what "fixed price" means?

542
MS. HOLDER:	The actual price we're still finalizing negotiations on, and that's the negotiations that we said will be finalized by June 16th.


543
MR. DOMINY:	That's the quantum.

544
MS. HOLDER:	That's right. The fixed price means that once we establish the price, it will not change for the term of the contract.

545
MR. DOMINY:	And that will be the creation of the system, the maintenance of the system.

546
MS. HOLDER:	And their services, their, for lack of a better word, consulting services to us to ensure that we capitalize on the benefits of the system.

547
MR. DOMINY:	Perhaps you could help me with what "capitalize on the benefits of the system" means.

548
MS. HOLDER:	Actually, realizing the benefits of the system.

549
MR. DOMINY:	Because there is a difference in the words, as far as I'm --

550
MS. HOLDER:	Sorry. I talk about capitalization not in an accounting sense. I'm an engineer. I talk -- I'm referring to, actually, ensuring that we get the benefits that we believe we should be getting from the systems.

551
MR. DOMINY:	There's been a lot of discussion about how you are going to split the cost been between capital and operating, and my understanding - I just want to confirm that I understand you correctly - is basically because the activities that are undertaken may relate to what you would normally regard as a capital project, you split the charges half towards capital and half towards operating. It's because of the activities that are undertaken using the system; is that correct?

552
MS. HOLDER:	In essence. We have somewhere between 100 and 140 people in the company today involved in this activity of managing work, and their time and their costs are currently allocated, and have been for quite some time, 50 percent capital and 50 percent O&M.

553
So when we presented our evidence for 2003, not knowing specifically where the benefits were going to come from, we had an idea, but not specifically. We felt that the best way to allocate the costs of this project would be 50 percent capital, 50 percent O&M to be like what we do with our current costs of work management.

554
MR. DOMINY:	So if I look at the 270 settled figure or plus DSM for O&M, that 3.5, I think -- I can't remember which is in the 270, but there's three which aren't?

555
MS. HOLDER:	That's correct.

556
MR. DOMINY:	There was one last thing, and you're talking about the approval in principle that you guys were seeking. And I was -- I didn't sit on 32, but I did look at the 32 decision.

557
And in there, there was a statement saying at 2.9.9 of that decision, when there's a discussion of this topic, it says:

558
"The approval in principle would comprise agreement that the distribution plant, work and asset management solution is required, agreement that the solution proposed by the company would deliver the required functionality, and agreement that the costs of the project as currently forecast are reasonable."

559
At least that's the way that the previous panel described their understanding of what you were seeking at that time.

560
Is there -- is that similar to what you're seeking this time, or can you explain the differences, if there are any?

561
MS. HOLDER:	There are times and very few times that I wish I had a better regulatory background, but -- so I could answer this question, and I'll give you my understanding, and if it's legally not correct, I'm sure the lawyers will figure it out for me.

562
But I think the first statement we're saying that agreement, that a distribution plant, work and asset management solution is required. That is clearly -- we would seek that approval in principle.

563
That the solution which now, of course, is not just an IT solution, but the proposed contract with Accenture and the benefits that that will result in is the right solution to meet the needs of the company, including of the ratepayers.

564
I don't believe the required functionality is as much of an issue now in that we're providing -- these services will be provided in aggregate. So by way of contract, the functionality will be there.

565
And that a contract over a term -- expanding a term of many years is appropriate means of dealing with receiving these types of IT solutions.

566

MR. DOMINY:	So that a possibility would be in a future year, that while the Board has -- if it were to approve the approach that's being followed to provide the system that's required, and that at this time there's a belief that the range of costs do not look unreasonable - I've changed the words specifically, "unreasonable" rather than "reasonable" - but that when you come in next year, the Board says, Gee, that's a little bit more than we think is reasonable. They could adjust the amount that would be allowed to be recovered in rates?

567
MS. HOLDER:	Yes, I think -- my understanding of the regulatory process is that as in past, the Board has the opportunity to review our costs. And I hate to raise this issue, but gas costs being a prime example, we have signed contracts but each year the reasonableness of those costs are reviewed by this Board. I would see this working very similar to that.

568
MR. DOMINY:	Thank you. Those are my questions.

569
MR. BETTS:	I just have one question. It relates to the field-force conversion. Am I right in assuming that the field-force conversion is one of the major benefits of this system; the benefits wouldn't be achieved without that conversion?

570
MR. CHIOTTI:	Certainly just the work and asset management system itself is projected to produce some benefits, but we anticipate that the benefits will be substantially higher with the field-force transformation.

571
MR. BETTS:	Okay. And I appreciate that there is still work to do in terms of establishing the field-force conversion and the methodology and the hardware and software and everything. Is there any concern on the company's part in terms of proceeding without having that more firmly understood?

572
MR. CHIOTTI:	We are -- we will continue -- we've done some work on the field-force transformation component in the sense that, as we've been analyzing the requirements, we've tried to take the full scope of the requirements into account. So we have some confidence in at least the range of numbers that we're talking about at this point.

573
As the project proceeds, we'll continue to refine those numbers, Mr. Chair, and our confidence level will increase. But I think it would be fair to characterize that we certainly have confidence in the range of numbers that we've been looking at at this point.

574
MS. HOLDER:	The benefits that we provided at page 8 of our evidence, that's that schedule at Exhibit A.6, tab 7, schedule 3, those benefits will be realized even without the field-force transformation. So this project does make sense on its own even without field force.

575

But, as Mr. Chiotti has mentioned, from the knowledge we have gained through talking to other organizations, other utilities that have gone through the field-force transformation, there is a lot more benefits to be obtained by taking the next step in the evolution of work and asset management.

576
MR. BETTS:	Okay. Thank you. That concludes my question as well.

577
Is there any need for follow-up on those questions, Ms. Persad?

578
MS. PERSAD:	I have no need for that, Mr. Chairman.

579
MR. BETTS:	Thank you.

580
It is 12:15 and it appears that we've concluded our need for this panel, and thank you very much for your participation so far.

581
It would be appropriate now, then, for us to break and we will break for an hour and 15 minutes, if that's satisfactory. That will bring us back to the hearing room at 1:30. Thank you. We will stand adjourned.

582
--- Luncheon recess taken at 12:15 p.m.
583
--- On resuming at 1:34 p.m.
584
MR. BETTS:	Thank you, everybody. Please be seated.

585
Before I turn the sound on, I had our Board Secretary check to see why we were getting feedback and the Board Secretary suggested that it was because we turned the mics up like that because they are directionally sensitive and the speakers are right overhead. So when they are not in use, turn them to the side or whatever. But generally, if they are pointed at you, that is where the sound is going to be picked up. We were getting some feedback this morning. Now we've all had our instructions on the Board sound system.

586
Welcome back, everybody. Are there any preliminary matters to be dealt with? Mr. O'Leary?

587
MR. O'LEARY:	Mr. Chair, we have three answers to undertakings that were given last week. Collectively they have been identified as Undertaking J.3.2, J.3.3, and J.3.4. I have ten copies of each for the Board and for parties, additional copies.

588
MR. BETTS:	Thank you, Mr. O'Leary.

589
MR. O'LEARY:	If anyone doesn't have all three, if they speak to me, I do have several extras.


590
MR. BETTS:	Are there any other preliminary matters, Mr. O'Leary?

591
MR. O'LEARY:	No, Mr. Chair.

592
MR. BETTS:	Anyone else with any preliminary matters?


593
:ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUES 9.2 TO 9.5; RECALLED: SQUIRES, RYCKMAN, WILLIAMS, HEENEY, SIMON



594
P.SQUIRES; Previously sworn.

595
N.RYCKMAN; Previously sworn.

596
T.WILLIAMS; Previously sworn.

597
D.HEENEY; Previously sworn.

598
J.SIMON; Previously sworn.

599
MR. BETTS:	Then we welcome back the company's DSM panel. I'm not sure how long ago we saw you here but welcome back nonetheless. When you left, we had concluded the cross-examination from parties that were in support of the partial settlement agreement and we will now be turning to parties that did not support the partial settlement agreement.

600
Has there been any order established for cross-examination?

601
MR. WARREN:	I think --

602
MR. BETTS:	Mr. Warren.

603
MR. WARREN:	I think I was going to lead.

604
MR. BETTS:	And Ms. Lott?

605
MS. LOTT:	I think I'm going next after Mr. Warren.

606
MR. MacODRUM:	And I think, Mr. Chair, I'm going after Ms. Lott.

607

MR. BETTS:	In fact, I might as well ask who else will be --

608
Mr. Warren, did you indicate you would be leading? You would begin?

609
MR. WARREN:	I would begin, sir.

610
MR. BETTS:	And then Ms. Lott, Mr. MacOdrum, and Mr. DeRose.

611
MR. DeROSE:	Possibly. We'll see the three before me, where they go and...

612
MR. BETTS:	We'll see what happens.

613
Then please begin, Mr. Warren.

614
MR. WARREN:	Thank you, sir.

615
CROSS-EXAMINATION BY MR. WARREN:

616
MR. WARREN:	Panel, just while it's fresh in our minds, could I ask you to turn up first Undertaking Response J.3.2. This is the actual DSM spending for fiscal -- for five months of fiscal 2003; is that correct?

617
MS. SQUIRES:	Yes.

618
MR. WARREN:	And the proposed budget is 10.5, 10.8; is that right?

619
MS. SQUIRES:	10 point -- depends what you include, 10.85, I believe, is the amount identified in issue 9.1.

620
MR. WARREN:	And obviously there isn't -- should I assume there is an arithmetic relation between the amount spent to date and the amount that's going to be spent thus far? If you've only spent a third of what you're allowed to thus far, is there going to be a spending burst in the next seven months?

621
MS. SQUIRES:	I don't know if I'd characterize it as a "burst," but typically the spending pattern is not linear in a fiscal year.

622

MR. WARREN:	The second is with respect to J.3.3. This was an undertaking given to a question I asked. I just want to put this in context.

623
Ms. Squires, you and I had an exchange last week in which you told me that in roughly a seven-month period, there were information requests that resulted in between 75 and 90 percent of five staff peoples' time being spent responding to information requests; is that correct?

624
MS. SQUIRES:	That sounds correct, yes.

625
MR. WARREN:	And are these -- are the information requests which are listed in J.3.3, are these the information requests that generated that work?

626
MS. SQUIRES:	This represents probably a portion of those requests. To the extent that we were able to identify the individual requests simply by reading the meeting minutes, that's what you see before you in the undertaking response.

627
There were undoubtedly many requests that occurred perhaps verbally and were not captured in minutes, or occurred through telephone conversations directly with intervenors, and we have no way of -- we have no documentation of all of those requests.

628
MR. WARREN:	Thank you, panel.

629
I want to deal first with the subject of -- the issue of the SSM, which is issue 9.2.

630
Ms. Squires or Mr. Ryckman, I'd like to deal briefly with the history of the SSM. As we have already established some time ago, the original SSM formula was designed as part of the ADR agreement in the 497-01 case; is that correct?

631
MS. SQUIRES:	Yes.

632
MR. WARREN:	And, Ms. Squires or Mr. Ryckman, can you tell me what the basis for the formula was, specifically how the formula was arrived at in that case, if you know?

633
MS. SQUIRES:	Just to clarify, are you looking for a description of the actual formula or a description of how it was landed on?

634

MR. WARREN:	The latter, how you came up with that particular formula. And in that context, I'm particularly interested in whether or not -- what formed that formula? Was there reference, for example, to a formula used in other jurisdictions? Was there some calibration, for example, of the level of incentive that the company thought was appropriate in relation to its spending, that kind of thinking that went into the development of the formula, if you know that.

635
MS. SQUIRES:	I'm afraid I can't speak directly to that because I wasn't an active participant in that ADR conference.

636
MR. WARREN:	If I were to ask you for an undertaking to find out what informed it -- just before I ask for the undertaking, if there's no one alive and breathing who could tell you the answer, would it be possible for you to find out what considerations went into the development of the formula?

637
MS. SQUIRES:	I'm not sure, because the company representative that was the lead company representative in that settlement conference is no longer with the company.

638
MR. WARREN:	All right. Well, then, rather than asking for an undertaking, let me ask you -- you probably already know the answers to this, but just for the record, can you tell me, Ms. Squires, whether or not you know that the formula that was arrived at was arrived at by reference to a formula used for incentive mechanisms under DSM plans in other jurisdiction; do you know that?

639
MS. SQUIRES:	I don't believe that it was an exact duplicate of an existing mechanism elsewhere, but I do know that there was evidence in that case led by the company and other parties that brought to the discussion examples of formulas used in other jurisdictions. So to that extent, other jurisdictions, experiences probably informed the discussion.

640
MR. WARREN:	Could I ask you for this undertaking, then, since it's probably easier for you to do than for me to do.

641
Can I ask you for an undertaking to dig out the evidence that you've just referred to. Would that be possible?

642
MS. SQUIRES:	Yes.

643
MR. WARREN:	Thank you. Could I have an undertaking on that, please.

644
MR. MORAN:	That will be Undertaking J.6.4.

645

UNDERTAKING NO. J.6.4:	TO PROVIDE BACKGROUND MATERIAL FROM THE EBRO-497-01 CASE SUPPORTING THE DEVELOPMENT OF THE SSM FORMULA

646
MR. BETTS:	Can we just clear -- basically the background material that supported the formulation of the calculation or the mechanism?

647
MR. WARREN:	Thank you, Mr. Chairman.

648
Actually I was going to ask if we could broaden it slightly, Ms. Squires. I'd like an undertaking, if you could, to get from the record in the 497-01 case any evidence, whether from the company or intervenors, relevant to the development of the SSM formula in that case.

649
MR. O'LEARY:	Mr. Chair, could I just -- sorry.

650
MR. WARREN:	Go ahead.

651
MR. BETTS:	Mr. O'Leary.

652
MR. O'LEARY:	Just a question regarding clarification. Is Mr. Warren asking for us to reproduce that portion of the record or simply to identify, which is what we would submit is the extent of the undertaking, to simply identify those exhibit references from that prior proceeding that might touch upon the historical development of the SSM?

653
MR. WARREN:	Whatever's easiest for the company, Mr. Chairman. If the material is accessible and can be reproduced then that saves everybody from scrambling back to their materials; if they want to give us the reference then I'll do the scrambling. Whatever is easiest, sir.

654
MR. BETTS:	Is that satisfactory Mr. O'Leary?

655
MR. O'LEARY:	It is, Mr. Chair.

656
MR. WARREN:	Ms. Squires, could you turn up one of these exhibits in this case, which is one that you and I talked about a little bit last week, and that is in response to IGUA interrogatory number 93 and for the record it is Exhibit I, tab 13, schedule 93.

657
MS. SQUIRES:	Okay.

658
MR. WARREN:	I'll just wait until the panel members have it.

659
MR. BETTS:	Thank you.

660
MR. WARREN:	Ms. Squires, listed on page 2 of 2, you've got the DSM expenditures in each of the four years listed and you have the DSM claim submitted and the actual pay-out. I wonder if you -- I could ask for an undertaking, please, to restate page 2 of 2, doing two things.

661
In the B line, for the SSM actual pay-out for 2000-2001, would you insert there, please, the amounts that are in the ADR agreement for those two years. You can asterisk them as not yet being finally approved, but I would like those numbers in, please.

662
In addition, would you add line D, please, to express the amount of the pay-out as a percentage, expressed as a percentage of the DSM expenditures. Could you do that for me, please?

663
MS. SQUIRES:	Yes.

664
MR. WARREN:	Could I have an undertaking for that.

665
MR. MORAN:	Mr. Chairman, that would be Undertaking J.6.5, restatement of page 2 of 2 of Exhibit I, tab 13, schedule 93.

666
UNDERTAKING NO. J.6.5:	TO PROVIDE A RESTATEMENT OF PAGE 2 OF 2 OF EXHIBIT I, TAB 13, SCHEDULE 93

667
MR. BETTS:	Thank you.

668
MR. WARREN:	Now, Ms. Squires, I'd like now to turn to the SSM formula which is in the ADR agreement, and in that context, if you would please turn up the text of the ADR agreement. And the evidence reference, members of the panel, is Exhibit N.1, tab 1, schedule 1, page 67 of 93.

669
Now, before I deal with the actual formula as it's set out there, just a brief historical note, Mr. Ryckman and Ms. Squires. As I recollect it, looking at page 67, the marginal incentive rate was 35 percent in 2001 and then it was reduced to 20 percent for the 2002 test year only; is that correct?

670
MS. SQUIRES:	Yes.

671
MR. WARREN:	And can you explain to me why the reduction was made?


672
MS. SQUIRES:	I should point out that I wasn't present, I was on leave from the company at the time that settlement conference occurred so I wasn't personally there. My review of the material in the record of that proceeding tells me that the reason for that reduction in the marginal incentive rate had to do with the fact that there was an expectation that the increase in gas prices during that period of time might result in an incentive pay-out that would be higher than would have been anticipated when the 35 percent incentive rate was first established. And then 20 percent was agreed upon to freshly mitigate that effect.

673
MR. WARREN:	But it was, as I understand the note on page 67 of 93, it was to be for one year only; is that correct?

674
MS. SQUIRES:	That's correct.

675
MR. WARREN:	And your recollection was that it was a function of gas prices in that period?

676
MS. SQUIRES:	Yeah, and again, just to qualify, that's -- there may have been other factors but that's the one that stands out in my recollection.

677
MR. WARREN:	Would it be fair for me - and please feel free to tell me if I'm being unfair - would it be fair for me to say that the concern of the utility was that an SSM at 35 percent would result in too rich an incentive?

678
MS. SQUIRES:	I think you have to consider the decision that was made at that time in the context of the environment and the climate at that time. The decision was made that it should be done for the 2002 test year only, with an understanding that it was a point in time that an adjustment needed to be made.

679
So it wasn't intended to suggest that 35 percent in general is too rich an incentive. It was a decision made for that specific point in time.

680
MR. WARREN:	Okay. Thanks for that, Ms. Squires.

681
Now, turning to the specific components of the formula in the ADR agreement that's before us, my reaction at a very high level of generality, Ms. Squires, is that this is a quite precisely calibrated formula. It's got five different break points at percentage of TRC savings over the budget. Am I right that it's a precisely calibrated formula?

682
MS. SQUIRES:	Can you explain what you mean by "calibrated"?


683
MR. WARREN:	Rather than simply 35 percent gross, you calibrated it to different break points in terms of percentage of savings, amount of savings achieved; correct?

684
MS. SQUIRES:	That's correct, but the -- I just -- I don't want to suggest that there's something magic about the break points that were included here. I mean, it's a consistent-step formula with every increment of 10 percent -- 10 percentage points, the incentive rate changes.

685
So by saying that it's "calibrated," I don't want to suggest that there has been something -- there's something special or something has been tested about the significance of those break points. It's just an evenly-stepped function.

686
MR. WARREN:	Thank you for that gloss, which leads me to my next question which is that Enbridge Gas Distribution - and I don't mean this next observation critically - Enbridge Gas Distribution, being a careful business enterprise, by and large, would know in advance what it wants to achieve when it develops a formula; fair enough?

687
MS. SQUIRES:	Yes. And the decision to support this settlement in many ways is a compromise, and this acceptance of essentially a declining-block structure incentive, I would submit, is a compromise on Enbridge's part in that it does reduce the potential size of the incentive over what we would have had with the older formula.

688
MR. WARREN:	But is it fair for me to assume that in developing this formula, you had a pretty good idea of what targets you were going to reach; fair enough?

689
MS. SQUIRES:	I don't think we -- no, I don't think I could agree to that on an indefinite basis into the future. We can't say at this point what targets we are going to reach next year or the year after or the year after.

690
MR. WARREN:	Could you turn up Exhibit K.4.2, which is a document which was prepared by Mr. Klippenstein, and it was put to you on Thursday morning of last week; do you have that?

691
MS. SQUIRES:	Yes, I do.

692
MR. WARREN:	It's a single sheet of paper, Mr. Betts, that was introduced by Mr. Klippenstein. It looks just like that.

693
MR. BETTS:	Thank you.

694
MR. WARREN:	Mr. Klippenstein has done the calculation of the SSM payment at the various percentage break points, and looking at that, of the numbers in the second column, "SSM Payment," did you -- do you have now, or did you have at the time that you agreed to the formula, some sense of where you were going to get this year in terms of the SSM payment?

695
MS. SQUIRES:	No, we didn't, because during this same settlement conference, we were also discussing what the budget and target would be. So from that standpoint we couldn't have predicted when we first saw this where we would end up in terms of an SSM payment.

696
MR. WARREN:	But surely - which is an adverb no lawyer should ever use responsibly in cross-examination; having said that, I'll use that - surely you must have known what the formula was likely to produce before you agreed to it, Ms. Squires.

697
MS. SQUIRES:	We knew from doing an analysis similar to what Pollution Probe has done in this table, we looked at possible achievements and possible outcomes and used that information to help us make the decision to agree to the partial settlement.

698
MR. WARREN:	Could I add, then, Ms. Squires, to your work burden slightly by asking for an undertaking if you would restate Exhibit K.4.2 by adding to it the following columns:

699
In addition to the -- would you add to it a column showing the amount spent, the expected SSM formula, SSM payment, which is already there, and then the expected SSM payment expressed as a percentage of the amount spent.

700
Now, just as a gloss on that, before we get the actual undertaking number, I want to make sure that you and I are in agreement on the amounts spent. The amount agreed to by way of O&M budget is 10.8 million; correct?

701
MS. SQUIRES:	That's correct.

702
MR. WARREN:	Okay. In addition to which, there is the possibility of a DSMVA payment that would lead you to a total - if I've done the math right - of 13.02 million; is that right?

703
MS. SQUIRES:	I have to check. It's --

704

MR. WARREN:	If it's math, I am desperate that you check it because it's invariably the case that I get it wrong.

705
MS. SQUIRES:	If you just give me a moment, I will check it for you.

706
MR. WARREN:	Sure.

707
MS. SQUIRES:	I'm sorry. The number you said, Mr. Warren?

708
MR. WARREN:	I said 13.02. Your counsel has just corrected me that the O&M spending is 10.9 million. And the DSMVA payment, my calculation had led to a total of 13.02 million.

709
MS. SQUIRES:	So 10.9 plus 2.17, which is the 20 percent, would be 13.07 million.

710
MR. WARREN:	13.07. Thank you.

711
So in restating -- sorry. And one more preliminary question. Am I right in assuming, Ms. Squires, that in order to achieve -- to exceed the target and therefore be eligible for an SSM payment, it's likely that you will have to spend all of 13.07 million?

712
MS. SQUIRES:	Certainly more than the 10.9 and likely as much as 13.07.

713
MR. WARREN:	So in restating K.4.2, when you put in the column for the amount spent, in an attempt to be as fair to Enbridge as I can be, as constitutionally I'm capable of, can you put in the column the amount spent 13.07 in each case so that you're spending the maximum amount allowed? And then express the expected SSM payment as a percentage of that spending; do you follow me?

714
MS. SQUIRES:	I think so. Just a question of clarification. So each row --

715
MR. WARREN:	I'd just like you to add columns to that.

716
MS. SQUIRES:	Yes, I understand that, and in that column for each row, each increment, 10, 20, 30, 40, 50, it will show the same amount, 13.07?

717
MR. WARREN:	The only thing that will vary, I presume, is the percentage of --

718
MS. SQUIRES:	Okay.

719
MR. WARREN:	Can I have an undertaking for that, please.

720
MR. MORAN:	That will be J.6.6, restatement of Exhibit K.4.2.

721
UNDERTAKING NO. J.6.6:	TO PROVIDE RESTATEMENT OF EXHIBIT K.4.2

722
MR. DOMINY:	Just so we have a set of consistent numbers, I look in the ADR agreement and it says, "In summary there is a partial agreement that the total O&M budget should be 10.85 million." So is it 10.9 or 10.85 that we're dealing with? I just wanted to clarify from the witnesses.

723
MR. WARREN:	What you've got is you've got two lawyers, each of whom has the wrong numbers.

724
MR. O'LEARY:	Perhaps I could try once again. There is agreement amongst the parties, and there is complete agreement on this, that for the purposes of rate setting, the budget would be fixed at 10.9 million. But the parties agreed in a partial agreement that they would actually support an agreement of 10.85 and that the DSMVA would then be used to record any differences between what the Board approves and the 10.9 million. It was done deliberately to confuse us all.

725
MR. WARREN:	For purposes of my restated K.4.2, I think 13.07 is the correct number; correct?

726
MS. SQUIRES:	We can use that number, yes.

727
MR. WARREN:	Okay. Now, Ms. Squires and Mr. Ryckman, we've had some back and forth, a kind of roundelay over the past few days, on the question of what is meant by a return and return on investment and so on and so forth. I'd like at some parallel obviously to return generically to that topic, and the way I'm going to present it to you is this: Take a hypothetical, if you can, and that is that Enbridge Gas Distribution has $13.07 million sitting in its pocket and it wants to use that money to make some money, okay? That's my hypothetical.

728
I'm going to put to you for your comment three possibilities for how they might take the $13.07 million to make some money. One example would be they could go to the local CIBC and they could put it in a savings account; correct? That's a possibility.

729
MR. RYCKMAN:	That's a possibility.

730

MR. WARREN:	And you wouldn't get very much of a "return" on that, would you? It would be pretty low.

731
MR. RYCKMAN:	I would think so.

732
MR. WARREN:	A second possibility is you might invest it as part of, let's say, a gas distribution utility and what you'd get for that would be the approved rate of return of 9.75 percent; can we agree on that?

733
MR. RYCKMAN:	Yes.

734
MR. WARREN:	And I suppose --

735
MR. BETTS:	Mr. Ryckman, we haven't given you a seat very close to the microphone.

736
MR. WARREN:	And a third possibility, and I don't mean this facetiously, I don't mean it too facetiously, is that you could take it out to Mohawk Raceway and you could lay it on this afternoon's Trifecta to see what you might get in that way; right? And if you were lucky enough you'd get a high return; right?

737
MR. RYCKMAN:	I wouldn't agree that that's an option.

738
MR. WARREN:	Okay. Now, what I'm trying to get at, panel, in addition to being a smart-aleck, which is my personality, what I'm trying to get at is how we should collectively, and particularly the Board should regard the amount that you make in these incentives every year we can agree that the $13.07 million, if it's invested either in the local CIBC or in the gas distribution business, is likely to get you a lower profit on that money than the SSM payment formula which is set out in Exhibit K.4.2; correct? Is that fair?

739
MR. RYCKMAN:	Yes.

740
MS. SQUIRES:	Well, I -- I think we'd be hesitant to the agree that the SSM formula would give us a profit in the same way.

741
MR. WARREN:	Again, you have to stick with my hypothetical. If you are going to invest $13.07 million in any way, if you invest it -- if you spend it as part of a DSM program with this formula, what you make on the 13.07 is higher than you would make in either of the other two examples, the CIBC savings account or the gas distribution utility; is that not fair?


742
MR. RYCKMAN:	Well, I think the incentive mechanism is meant to drive behaviour to ensure that the utility focuses on DSM. So I don't see a parallel to a return type of calculation. I think it was introduced to incent the company to pursue DSM and I think it's been successful in doing that. So I don't agree that there's a parallel with a return type of equation.

743
MR. WARREN:	I have your answer on that, panel.

744
What I'd like you to tell me, though, is can you compare -- first of all, is there any data on the record in this case that would allow me, or more importantly the Board, to compare the level of incentive or the levels of incentive payments that would arise from your formula with the levels of incentives in DSM programs in other jurisdictions? Is there anything on the record in this case?

745
MS. SQUIRES:	I don't believe there's anything on the record in this case that would allow you to do a direct comparison.

746
MR. WARREN:	Okay. Am I right though, panel, and the entire panel is free to answer this question, that the IndEco report is silent on that point; that is, a comparison of the proposed level of SSM incentive to incentives in other jurisdictions; nothing in the report on that?

747
MS. SQUIRES:	Well, just to clarify the timing of some of these things, the settlement proposal and the mechanism in that settlement proposal came about after IndEco and Navigant did their report.

748
MR. WARREN:	Thank you, Ms. Squires. You are characteristically far more precise than I am.

749
The IndEco report proposes its own formula for consideration for the SSM; fair?

750
MS. SQUIRES:	Yes.

751
MR. WARREN:	Now, in that context of the IndEco proposal for an SSM formula, is there anything in the IndEco report that compares what they are proposing with SSM incentives in other jurisdictions?

752
MS. SQUIRES:	If you could just give us a moment, we are going to look --

753
MR. WARREN:	Sure.

754

MS. SQUIRES:	We're just checking the actual report, because certainly the knowledge of the consultants in -- that formed their recommendations was based on their knowledge of what had been done in other jurisdictions.

755
In the final report that's included in the DSM evidence, there isn't a direct comparison to specific utilities elsewhere; however, there was work done by Navigant, who was in partnership with IndEco on producing that report back in October of 2001, where they were working with a group of intervenors on the overall performance-based regulation model, where they did look specifically at other jurisdictions and reference the kinds of incentive mechanisms that are in place. So --

756
MR. WARREN:	For PBR formula or for DSM?

757
MS. SQUIRES:	Yeah, the name of the report was "DSM in a PBR Framework."

758
Now, unfortunately, that's not on the record in this case, but certainly that research informed the consultants in their recommendations on a formula -- on the formula that's in our evidence.

759
MR. WARREN:	And I was looking for what was on the record in this case, and you have given me the answer.

760
Now, in arriving at the formula that's in the ADR agreement, is there some calculation or some factor in there for risk? Ordinarily, in the ordinary universe, when you are talking about return on equity and what's an appropriate return, we use the concept of risk and whether or not money is put at risk.

761
Is there some notion in here that the $13.07 million is money which is put at risk in some way?

762
MS. SQUIRES:	It's put at risk to the extent that there's no guarantee that there will be any sort of incentive pay-out at all. It's conceivable that we could spend 13.07 million and not reach the target and not receive any incentive whatsoever.

763
MR. WARREN:	We are in agreement, though, that you are held whole for the -- all of the 13.07. You recovered that from the ratepayers in its entirety; correct?

764
MS. SQUIRES:	That's correct.

765
MR. WARREN:	And you are also held whole for any revenue which may have been lost as a result of the success of your DSM programs; correct?

766

MS. SQUIRES:	That's correct. The risk component comes in, though, in that the company, in any other type of business decision, would consider whether it would be worth putting the resources and the staff time into an effort or an undertaking, with the expectation that there would be no incentive or pay-out for that work at the end of the year.

767
MR. WARREN:	The risk, if I may restate it in my words, Ms. Squires, is that you may have $13.07 million that doesn't earn any money for you over the course of the year; is that fair? Is that the risk?

768
MS. SQUIRES:	Yes, that's one risk. Yes.

769
MR. WARREN:	And one way to mitigate that risk would be to spend the $13.07 million on a gas distribution business, in which case you would get a return of 9.75 percent; fair?

770
MS. SQUIRES:	Well, to the extent that we are free to make that decision, I don't believe that we're currently -- with our current regulatory mandate to pursue DSM we are able to make that decision entirely.

771
MR. WARREN:	Just a couple of more brief areas on the SSM question.

772
As I recollect the IndEco proposal -- I'm sorry, it's not a proposal -- the IndEco paper on the improvements to the DSM incentive, IndEco proposes a formula in -- if I could ask you to turn up, panel, Exhibit A.7, tab 2, schedule 2, page 11.

773
There's the table there, and correct me if I am wrong, panel, as I read this table, this is a table which applies the IndEco formula retrospectively to show how much of an incentive would have been earned in 1999, 2000, 2001, if the IndEco SSM formula had been in place; is that right?

774
MR. WILLIAMS:	Yes.

775
MR. WARREN:	Could I get you, panel, to undertake to indicate what the return would be -- I apologize; it's a Freudian slip -- what the SSM payment would be if the IndEco formula were used in 2003 at a level of spending of $13.07 million? Is that possible?

776
MS. SQUIRES:	Well, I don't think that's enough information for us to make a calculation, because we would need to know what the achievement is in terms of TRC benefits.

777
MR. WARREN:	Could we use the various break points that are in the other ADR formula? Is that a fair way to look at it?


778
I'm trying to get at a way of seeing what the dollar results would be of the IndEco proposal in 2003. Is there any way we could do that, panel? If we are missing a vital piece of data and can't do it, then we can't do it.

779
MS. SQUIRES:	Yeah, we could do that calculation on the break points in Exhibit K.4.

780
MR. WARREN:	Could I have an undertaking for that.

781
MR. MORAN:	Mr. Chair, that would be Undertaking J.6.8.

782
Just for the purposes of the record, I wonder if Mr. Warren could just restate the undertaking so we know what we have.

783
MR. BETTS:	Mr. Warren?

784
MR. WARREN:	Mr. Moran delights in doing that. He likes to see counsel twist in the wind --

785
MR. MORAN:	I gave you the wrong number. It's J.6.7.

786
MR. WARREN:	I was asking for an undertaking, if the panel could, using the IndEco SSM formula, calculate what the amount of the SSM would be with two assumptions: One is the $13.07 million in expenditure, and the other is the TRC at the various break points as they appear in K.4.2.

787
Have I got it right, Ms. Squires?

788
MR. BETTS:	And, Ms. Squires, you understood that last request, and that's what -- you are capable of delivering that?

789
MS. SQUIRES:	Yes.

790
MR. BETTS:	Thank you.

791
MR. MORAN:	Just to be clear that was Undertaking J.6.7. I think I said 8.

792

UNDERTAKING NO. J.6.7:	TO CALCULATE THE AMOUNT OF THE SSM USING THE INDECO SSM FORMULA WITH TWO ASSUMPTIONS: THE $13.07 MILLION IN EXPENDITURE AND THE TRC AT THE VARIOUS BREAK POINTS AS THEY APPEAR IN K.4.2.

793
MR. WARREN:	My final area of questions, Ms. Squires and Mr. Ryckman, on SSM is this: I'm trying to understand the relationship between incentive levels and what Enbridge will do.

794
Speaking hypothetically, if the Board were persuaded at the end of the process to say that the SSM should be no higher than 9.75 percent of $13.07 million, speaking hypothetically, if the Board were persuaded that that was a reasonable approach to an incentive package, I have two questions flowing from that hypothesis.

795
Number one: What happens to the ADR agreement? Do you go forward with it as modified in that fashion?

796
And the second question is: The amount of money that would be generated by that formula, is that a sufficient incentive for Enbridge to pursue DSM aggressively?

797
MS. SQUIRES:	Maybe you can just break that up into two separate questions so I make sure I cover them.

798
MR. WARREN:	Okay, again, so we understand the hypothesis. If the Board were persuaded at the end of the day to say the level of the SSM payment should be an amount which is no higher than 9.75 percent of $13.07 million, okay, on that hypothesis, the first question -- I'm going to reverse them. The first question is: Does the amount that results from that, is that a sufficient incentive for Enbridge to aggressively pursue DSM?

799
MS. SQUIRES:	Without having worked out what that translates into in terms of an incentive payment, I would certainly say that it's obviously less of an incentive to aggressively pursue DSM. The other unknown, I suppose, is whether the Board approved the other parts of the partial settlement, such as the budget and the target that are currently embedded in there, and Enbridge has gone on record numerous times in this case explaining or characterizing that budget and target that's in the partial settlement as very tight and a very challenging budget and target to meet.

800
So with that said, I would suggest that that reduction in the incentive which, at least on the first block, is a reduction of half, essentially, of the incentive, it would take away a large part of our incentive to be aggressive in surpassing a DSM target.

801

MR. WARREN:	And the second part of my question was: Assuming this may be too gross of an assumption for everybody to make, too many things built into it, but let's assume the Board did not, in any other respect, change the ADR agreement with the targets and your budget and the protocols and all that stuff, does the ADR agreement stand from your perspective, or does it fall?

802
MS. SQUIRES:	I don't know if I'm the right person to answer that question. I think a lawyer would be.

803
MR. WARREN:	That's a fair response, Ms. Squires.

804
MR. RYCKMAN:	If I could just add to that for a moment, though. If your question is, if we had a return that was similar to an ROE, would we still invest in DSM; is that another way to characterize that?

805
MR. WARREN:	Well, I think the -- Mr. Ryckman, you'd have to because the Board is going to tell you you have to do DSM; that's an assumption that Ms. Squires made. The question is: Is it a sufficient incentive to pursue it as aggressively as you have been pursuing it? That's really what I was driving at.

806
MR. RYCKMAN:	I think there is a couple of things to consider there as well, that is, with DSM there is some uncertainty that we've heard around some of the assumptions that go into the calculation. So I think there are some inherent uncertainties around DSM that aren't there on the capital investment side of the business.

807
I think there are also spillover effects that we have talked about that we don't get recognition for so I don't think we are necessarily left whole from all of the impacts of the DSM activities. So I think there is a couple of strong reasons why return shouldn't be exactly what an ROE equation would generate.

808
And I think the other thing is, you know, if you are going to generate the same sort of return on DSM as we do on other aspects of the business, we're certainly well equipped to handle other aspects of the business and might be more inclined to do so. So the incentive is, I think, an important part of this whole DSM framework.

809
MR. WARREN:	When you talk about the spill-over effects, are those the societal effects?

810
MR. RYCKMAN:	Those would be individuals or companies that undertake conservation for which we don't get credit, through awareness of the program, through spilling it out to other facilities that they may have.

811
MS. SQUIRES:	And those aren't captured by our LRAM corrections.

812

MR. WARREN:	Those are free riders.

813
MR. RYCKMAN:	No.

814
MS. SQUIRES:	No.

815
MR. WARREN:	What are they?

816
MS. SQUIRES:	That's the spillover effect of DSM.

817
MR. WARREN:	How is the Board able to -- how is anybody able to capture how much that is and to say whether or not the amount of the SSM bears a fair relationship to that unknown?

818
MS. SQUIRES:	I was going to say we don't try to quantify that, in fact, for that reason. Our estimate of our achievement is quite conservative. I mean, we do deduct free riders, meaning we discount our achievement for those people or those parties that we expect would undertake the activity anyway, but we don't augment our results to say, Well, you know, there's some parties out there that are doing this activity that we don't quite take credit for.

819
So in that sense, I think it's fair to assume that our stated results actually understate what's actually happening out there.

820
MR. WARREN:	But we don't know by how much we understate it. I mean, this is a rational process, Ms. Squires. We have to calibrate -- the Board has to calibrate the amount of the SSM payment to what's actually achievable. Can we put a number on that segment of...

821
MS. SQUIRES:	I think in recognizing the inherent difficulties in doing that, Enbridge has taken the position of being conservative to allow that -- for the possibility that we can't quantify that, and any incentive that's paid to us is based on a number that's in all likelihood less than what's really happening out there.

822
MR. WARREN:	Mr. Ryckman, are the societal benefits part of the other effects that you are talking about that should be recognized in the SSM?

823
MR. RYCKMAN:	Well, there are -- through the spillover activity, there's societal benefits that will be generated through that, but they are not captured in our calculations.


824
MS. SQUIRES:	Just to be clear, are you talking about environmental benefits?

825
MR. WARREN:	Environmental benefits. I'm sorry, yeah.

826
MS. SQUIRES:	Yeah. They are currently not captured in the SSM formula.

827
MR. WARREN:	But should the amount of the incentive in some way recognize those environmental benefits?

828
MS. SQUIRES:	I think it would be nice if we did, but I think we all recognize the inherent challenges in quantifying the effects or the monetary value of reduced emissions.

829
MR. WARREN:	My final question, panel, and I just want to make sure that I understand this for the record in this case. We're talking in the ADR settlement about 2003; there was another portion of this case earlier last week that dealt with 2001 and 2000.

830
What's the state of play in 2002 in relation to the SSM payment? Where are we on 2002?

831
MS. SQUIRES:	We have just about complete our 2002 evaluation report. It has not been released to the consultative group yet, but it will be very shortly, and at that point we would start the next step, which would be initiating an audit process to look at the 2002 evaluation report.

832
MR. WARREN:	And in the ordinary course, it would go through the audit subcommittee and then back to the consultative and then to ADR and then to a hearing if none of that succeeds; correct?

833
MS. SQUIRES:	If none of that succeeds, it would; correct.

834
MR. WARREN:	Now, let me turn, far later than I'd hoped, to issue 9.3, which is the one-time budget amount of 790,000.

835
Can you turn up the ADR agreement, please, Exhibit N.1, tab 1, schedule 1, page 72.

836
You may have answered this earlier, Ms. Squires, and I didn't catch it; if I didn't, I apologize.

837

The first bullet item on that page, there is an agreement that a budget of $50,000 for the development of the new refined incentive mechanism for DSM is appropriate. The IndEco report, which is in evidence, is that the mechanism you're talking about there; and if so, how much of the $50,000 has already been spent?

838
MS. SQUIRES:	The payment for the services of Navigant and IndEco to produce the report are certainly a large part of that $50,000, but I don't have -- I don't have the exact amount that's already been paid to date with me.

839
MR. WARREN:	But it is some part of the 50,000; is that right?

840
MS. SQUIRES:	Yes.

841
MR. WARREN:	Do you contemplate producing any other report, any other proposal for a DSM mechanism out of the 50,000?

842
MS. SQUIRES:	Not necessarily any additional reports, but certainly as we've agreed in the partial settlement to investigate with the consultative group alternative SSM mechanisms, we would probably undertake some costs to analyze different options. There may not necessarily be another report that comes out of that, though.

843
MR. WARREN:	Could you undertake, please, to tell me just -- advise the Board how much of the $50,000 has been spent already on IndEco and, therefore, how much is left of the $50,000?

844
MS. SQUIRES:	Yes, I will.

845
MR. MORAN:	Mr. Chair, that will be Undertaking J.6.8.

846
UNDERTAKING NO. J.6.8:	TO ADVISE THE BOARD HOW MUCH OF THE $50,000 HAS BEEN SPENT ON INDECO AND HOW MUCH IS LEFT

847
MR. BETTS:	Thank you.

848
MR. WARREN:	Now, as I understand the ADR agreement, the IndEco proposal is going to be sent to the consultative to see if you can reach a consensus on the IndEco proposal; is that right?

849
MS. SQUIRES:	I think the task is to work with the consultative to investigate alternative SSM formulas. So the IndEco report proposal would be one of, perhaps, many that we would consider.

850
MR. WARREN:	Now, let's supposing hypothetically you take it to the consultative and there are - let's say for the sake of discussion - six participants in the consultative discussion and each one of them makes a proposal for a different form of SSM formula. Will each of those be investigated; and if so, by whom?

851
MS. SQUIRES:	I think the -- I think the consultative group itself would probably initially try and make a call as to the relative merits of those six proposals, and if possible, the group itself would prioritize which ones should be looked at first and, potentially, which ones don't need to be looked at if there is some overlap.

852
And it's likely that Enbridge -- well, certainly Enbridge would do the analysis. If other parties wanted to as well, then so be it. But Enbridge would certainly, with the help of consultants, probably want to do the analysis.

853
MR. WARREN:	But the limit of what you can spend on that exercise is the difference between what IndEco has charged you already and $50,000; is that right?

854
MS. SQUIRES:	In terms of what we've got in the settlement agreement, that's the amount that's been identified. To the extent that we have some flexibility in our overall O&M budget, if we see the benefit in allocating, perhaps, some more of our fixed-cost dollars towards pursuing this and, hopefully, reaching some consensus agreement, we might choose to do that.

855
MR. WARREN:	Ms. Squires, I don't mean to be more of a Gloomy Gus than I already typically am, but don't we know in advance that you are not going to reach a consensus on an SSM formula because we know, for example, that the CME doesn't want a SSM at all?

856
MS. SQUIRES:	I don't think we can conclude that that's impossible at this stage. I think some scenarios might unfold that would allow perhaps for a phasing in or taking the model that we have for 2002 and -- sorry, 2003 and modifying it going forward.

857
We certainly aren't prepared to write off the process at this stage. I think there's some likelihood of making progress.

858
MR. WARREN:	I turn to the second bullet item which is an agreement that a budget for $500,000 for the development and collection of end-use market data is appropriate.

859
Now, can you tell me, has there been a proposal that's been tendered for the development and collection of the end-use market data?


860
MS. SQUIRES:	No proposals have been tendered at this time.

861
MR. WARREN:	Has Enbridge considered for this exercise partnering with the other entities, for example, with Union or the electric utilities?

862
MS. SQUIRES:	Yes, we have considered it.

863
MR. WARREN:	And if you were to partner with them, do you still need $500,000?

864
MS. SQUIRES:	The scenario that I see that would unfold in that hypothetical situation where we partner with somebody would be that we wouldn't necessarily want to reduce the amount that we spend. If we had approval for $500,000, I think that the alternative would be that we still spend the money but possibly do more with the same amount of money. So we're just more efficient and we get economies of scale from partnering with somebody and getting more information for the same amount of money.

865
MR. WARREN:	Perish the thought, Ms. Squires, but isn't it possible that you may be able to get the same amount of information and spend less money if you partner with somebody else?

866
MS. SQUIRES:	Well, we could get the same amount of work done with less money, that's one way to proceed. I don't think that there's a finite number of data points that are out there to collect. I think there's always more and better research that can be done, and if we can do more with the same amount and it will address our needs and help set budgets and targets going forward then that might be the course of action we take.

867
MR. WARREN:	Ms. Squires, have you determined whether, for example, the federal government, in its pursuit of ways to achieve Kyoto compliance, has generated or will be generating some or all of this Canada?

868
MS. SQUIRES:	Yes, we've considered it. It's my expectation, however, that given that Enbridge has significant experience in designing and delivering DSM programs, we're probably in a better position to actually identify and carry out more focused and targeted research than perhaps the federal government might be at this point, given their newness to this type of activity.

869
MR. WARREN:	Have you discussed with NRCan or anyone else in the federal government the possibility of partnering with them to develop this information at something less than $500,000?

870
MS. SQUIRES:	We haven't to this point, but we would be open to that suggestion.

871
MR. WILLIAMS:	I think one of the other considerations is that Enbridge is looking for information for their service territory. And I mean even with, say, perhaps Union, which would be, you know, I think a good opportunity that would be looking at all of Ontario, so in all these exercises, you still have to deal with the kind of isolated, or at least Enbridge would want to isolate its territory. So whether it's an Ontario-wide study or Canada-wide information, you still want to be able to get a statistically reliable information from Enbridge's territory.

872
MR. WARREN:	The point of the answer, though, can we agree, panel, is that Enbridge hasn't looked at that possibility of partnering with NRCan to see whether or not the information can be determined, whatever refinements may be required; that's fair, isn't it? You haven't looked at it yet.

873
MS. SQUIRES:	It's not that we haven't considered it; we haven't undertaken any discussions at this point with NRCan.

874
MR. WARREN:	Finally, on the issues 9.4 and 9.5, this is the review of the DSM consultative process and the audit process.

875
Ms. Squires, one of the -- in the course of my cross-examination of you last week, one of the observations that you made or agreed to was that the critique of the consultative process that appears in your pre-filed evidence was that the consultative strayed from its original purpose of advising Enbridge into a decision-making body; is that fair?

876
MS. SQUIRES:	Are you quoting from my evidence? I'd like to look it up.

877
MR. WARREN:	I can on this point, Ms. Squires, but I thought at this point we can agree on that. I can certainly find it in the pre-filed evidence if you want.

878
If you turn up Exhibit A.7, tab 1, schedule 1, page 5 of 14, beginning at paragraph 15, it says: "In effect this agreement" - and they're referring to the ADR agreement and EBRO 45 - "this agreement declared that the consultative would act as an advisory body with a purpose to offer input and advice to the company on program design and delivery with a recognition that the company would retain decision-making power and accountability for its actions.

879
And then paragraph 16:

880

"Over the last few years, the DSM consultative group has evolved into a decision-making body focused on the details of program tracking and evaluation with participation effectively limited to a small subset of the larger group due to the highly analytical nature of their work they are involved in."

881
So my gloss of your critique was that, among other things, it had evolved from an advisory body into a decision-making body; is that fair?

882
MS. SQUIRES:	Yes.

883
MR. WARREN:	With the result, Ms. Squires, that your DSM program is now in whole or in part being micromanaged by the consultative, and my text reference there, Ms. Squires, is volume 3 of the transcripts at paragraph 575, which I quote in my question:

884
"Can I fairly characterize, Ms. Squires, the activities of the DSM consultative over the last couple of years as something that amounts to micromanaging of your DSM program; is that a fair observation on my part?" Answer: "Yes, it is."

885
Okay?

886
MS. SQUIRES:	Yes.

887
MR. WARREN:	Now, I wonder, Ms. Squires, if you and I can agree on this: Would I be fair in suggesting that the problems in the consultative and the audit subcommittee, over the last couple of years anyways, are principally a function of two things: The first is your perceived need, your felt need to achieve a consensus; is that fair?

888
MS. SQUIRES:	Yes.

889
MR. WARREN:	And the second would be your reluctance to control the process and to impose discipline on it; is that fair?

890
MS. SQUIRES:	To some degree, yes. I would say in hindsight we realize now that it was always our expectation that the issue would be resolved at the next meeting, and we'd get to the next meeting and new situations and problems and requests would come up and that would extend the process. Of course, in hindsight we see now that we might have been better placed to impose some restrictions on the process at the time. But hindsight is 20/20 and we didn't know that at the time.

891

MR. WARREN:	And your hope and expectation that things would always be resolved at the next session was driven by, as you have put it, and I'm quoting from the transcript here, "the spirit of trying to cooperate and make the process work"; fair?

892
MS. SQUIRES:	Yes.

893
MR. WARREN:	Okay. Now, against that background, I'd like to turn if I could, please, to the ADR agreement, and to the proposal that you have there. The reference, members of the panel, is Exhibit N.1, tab 1, schedule 1, page 73 of 93.

894
MR. BETTS:	Thank you.

895
MR. WARREN:	Now, can we agree, Ms. Squires, looking at this proposal for the DSM consultative, that one of the purposes remains to seek a consensus or a substantial consensus; correct?

896
MS. SQUIRES:	Yes.

897
MR. WARREN:	And can we agree, Ms. Squires, that if one were a student of irony -- let me just highlight this point. If you could turn up your pre-filed evidence at page 5 of 14, the evidence reference, Mr. Chairman, is Exhibit A.7, tab 1, schedule 1, page 5 of 14.

898
Ms. Squires, in paragraph 14, citing the EBRO-485 ADR agreement, that's the one where the text is -- creates the notion of the consultative as an advisory body; correct?

899
MS. SQUIRES:	Yes.

900
MR. WARREN:	And the point of irony I wanted to suggest to you, Ms. Squires, is that you are proposing in this ADR agreement to embody in an ADR agreement and in a Board decision the requirement to achieve consensus, something which has never been in an ADR agreement before.

901
MS. SQUIRES:	We're not suggesting a requirement to achieve consensus, it's an effort to achieve consensus.

902
MR. WARREN:	But the notion of achieving consensus, whether it's a requirement or an effort, would appear in an ADR agreement for the first time if you're successful in what you're proposing in this case.

903
MS. SQUIRES:	That's correct. And I believe this would only be the second ADR agreement that attempts to outline the consultative process at all since EBRO-485.

904
And the other point I should emphasize, that the wording here in the current settlement proposal says that we seek to achieve a consensus or substantial consensus.

905
MR. WARREN:	Now, if I understand your evidence, Ms. Squires, or your proposal in this case, it's that what you look to in order to ensure that the process works better, avoids all the problems that we talked about last week, are the Rules of Procedure which are here on page 74 of the ADR agreement; is that right?

906
MS. SQUIRES:	Yes.

907
MR. WARREN:	Now I'd like you to turn to the Code of Conduct, please. And the first question, you and I, can we agree, Ms. Squires, looking at the middle of the page, says:

908
"All the consultative participants must abide by the following procedural rules: Participants will review all material provided for discussion prior to attending the consultative; participants will not speak out of order as determined by the facilitator or Enbridge acting as the coordinator; participants will respect each other's rights to speak; and participants will request time out for side conversations and will not initiate side discussions while the consultative is in progress."

909
Can you and I agree that the last three of those four bullet items are designed to control behavioural problems?

910
MS. SQUIRES:	In part, that would be the intent, and in addition to that, it's an effort to ensure that the process moves along quickly and efficiently.

911
MR. WARREN:	And what you're asking the Board to do in approving this ADR agreement is to put its stamp of approval on these Rules of Procedure; is that fair?

912
MS. SQUIRES:	Yes.

913
MR. WARREN:	Now, before the Board were to put its stamp on Rules of Procedure dealing with behavioural problems, is it not fair that the Board should know what these behavioural problems are, what it's dealing with?

914
MS. SQUIRES:	These conduct or procedural rules are intended to -- they're generic rules that are intended to ensure that problems do not crop up in the first place.

915
In some ways they are professional rules of conduct that might be considered intuitive, but the thought in laying them out specifically here is to ensure that all parties come to this process with an understanding of how it's going to work and that it will be an efficient process so that they will want to participate.

916
MR. WARREN:	Is it fair for the Board to understand that one of these reasons for putting these kinds of behavioural guidelines in here is that people haven't followed these kinds of guidelines in the past?

917
MS. SQUIRES:	There have been circumstances where that's true.

918
MR. WARREN:	Now, if people violate these prescriptions or norms, for example, looking at the next paragraph, it says:

919
"Enbridge Gas Distribution, at its sole discretion, may exclude from the consultative any stakeholder representative who fails to act in a professional manner or --" and I underscore the following words -- "treat another participant with courtesy and respect."

920
You can exclude that person who violates those prescriptives from the consultative process; correct? Not you personally, but Enbridge can.

921
MS. SQUIRES:	That's what's proposed.

922
MR. WARREN:	Now, what are the criteria for treating another person with courtesy and respect? Let me give you an example, Ms. Squires, at the risk of again being a smart-aleck.

923
If I were to suggest, for example, I'm going to say -- I say to you, Ms. Squires, with respect that every word Mr. Poch says is a lie, including the "ands" and the "thes," would I be excluded from the consultative?

924
MR. POCH:	No, because that's true.

925
MR. WARREN:	I said it with respect, but I've just said he's a liar. Would I be excluded, Ms. Squires?

926
MS. SQUIRES:	Probably not. I think -- I think we need to characterize this part of the Rules of Procedure to emphasize the fact that Enbridge is not -- does not want to come into this process and act as the police to the process. Enbridge wants the process to work and gives the benefit of the doubt to all parties that are going to walk into the room and give them -- or afford them the benefit of the doubt that they will act in a professional manner.

927

It's not -- it's certainly not our hope that we would ever have to exercise that type of exclusion to any party. And I think having this written down and approved by the Board, parties will come into the process recognizing that that's how it's intended to work, and it's -- I have the best of -- best of expectations that we would never have to exercise that sort of judgment.

928
MR. WARREN:	Let me give you another example. We're in the course of a consultative and I turn to Mr. Poch, even though that I know he's a lying dog, and I say, Let's talk about the Blue Jays' game last night and the two of us chat about it, or how we're doing at the Trifecta at Mohawk. Now, would both of us be excluded from it because it's a side conversation that's taking place without permission?

929
MS. SQUIRES:	Again, I think -- I can't answer your question without -- without looking at the context and the history. And this is not -- this would not be a situation where people have three strikes and they're out, or one strike and they're out. That's not the way -- that's not the spirit in which this -- these rules have been put down on paper.

930
Certainly there's a recognition that this is a networking opportunity, the consultative, and it's an opportunity for parties to speak less formally.

931
And the ability for the company to exclude somebody, as I said earlier, would only be exercised in the most extreme of circumstances where there had been, perhaps, an ongoing situation or an ongoing problem where certain -- a certain incident or a certain party was disrupting the process.

932
MR. WARREN:	Let me -- one final example. Let's suppose I were to persistently and aggressively, albeit politely, but persistently and aggressively argue that there should be no SSM at all. It's bad policy, bad economics. The world will disappear if there's an SSM. Is there not a risk that in my doing that persistently and aggressively, I might be excluded from the consultative?

933
MS. SQUIRES:	The way I would respond to that is that we would respond to you that we would record your opinion and your objection in the meeting minutes, and we would make the decision to move on from that point.

934
MR. WARREN:	Let me, as hesitant as I am ever to publically appear to agree with Mr. MacOdrum on anything, let me put to him a question which appears at -- his question, which appears at volume 3, paragraph 1004 of the transcript. Mr. MacOdrum says:

935
"Would you agree with me that what to one person may appear bad faith to another person may be vigorous, thorough, and forceful inquiry and comment?"

936
And your answer was, "That's possible."


937
And the problem I have in understanding this protocol is: Who draws the line, and according to what criteria? Enbridge has to draw the line; correct? You're the one who polices this.

938
MS. SQUIRES:	I'm not going to agree to the use of the word "police."

939
MR. WARREN:	You are the one who makes sure that people adhere to this protocol, and you are the one who makes the call that somebody is excluded from the consultative; correct?

940
MS. SQUIRES:	Ultimately, if it came to that, yes.

941
MR. WARREN:	Now, is there an appeal mechanism, Ms. Squires? If I have been excluded from the consultative -- if the Consumers' Association of Canada, in a fit of delirium, decides that the only legitimate representative it wants in the room is Robert Warren, and I'm obnoxious and I am excluded, does the CAC have a mechanism for appealing that; and if so, to whom?

942
MS. SQUIRES:	We haven't stipulated an appeal process per se. But my response to that would be that the forum that we're in right now would be the forum that that would be addressed.

943
MR. WARREN:	So the Board, in the hearing process -- is it not possible that the Board, in the hearing process, may hear a whole bunch of, sort of, backwater appeals about the fact that I got kicked out of the hearing? Is it not a possibility, Ms. Squires?

944
MS. SQUIRES:	I have my doubts that it would get to that point. Certainly, as I said earlier on a couple of occasions that it's not expected that this is the type of situation that's going to unfold. And certainly, Enbridge is going to do its best to ensure that the parties that want to be a part of the process can be a part of the process, and will do its best to keep those people involved.

945
MR. WARREN:	Can I ask you to turn up, please, Ms. Squires, Exhibit K.4.1, which are the minutes of the DSM consultative held on October 25th, 2000. This was introduced by Mr. Poch in the course of his cross-examination of you on Wednesday morning.

946
You can have my copy if you want, Ms. Squires.

947
MS. SQUIRES:	No, I have it. Thank you.


948
MR. WARREN:	Mr. Poch referred you to page 10, a paragraph in about the middle of it. It said:

949
"Jack pointed out that the experience of the 1999 process demonstrated the status quo doesn't make sense. In the 1999 review, only $100,000 of the knock-down resulted from the work of the independent auditor; whereas, 1.8 million of the knock-down resulted from the work of Kai and Chris."

950
Mr. Poch put this to you last Thursday and said:

951
"Is this not evidence of the success in protecting the interests of ratepayers of the consultative?"

952
Do you remember that exchange with Mr. Poch?

953
MS. SQUIRES:	Yes, I do.

954
MR. WARREN:	Can you and I agree, Ms. Squires, that to use the somewhat pugilistic term "knock-down," that a reduction in the amount of the SSM claimed could be achieved in the ADR process; correct?

955
MS. SQUIRES:	It could be, although I'm not sure about the reduction that's specified in this paragraph, what was behind that the extent of the analysis that might have been behind that. It could have been significant enough that that particular reduction might not have been achievable in the constricted time frame of an ADR.

956
MR. WARREN:	But one of the functions of the ADR is to try, from the intervenors's point of view, is to try to reduce the claims of the SSM; correct? And it can result in a reduction of the amount of the SSM claim; correct?

957
MS. SQUIRES:	That's one possibility, but I don't know that every intervenor comes to the table with the intention of reducing the SSM claim. I would put forward that they are trying to make it more accurate.

958
MR. WARREN:	Is it not possible that the ADM provides a formula whereby Chris Neme and Kai Millyard could come to the SSM and ask for a reduction in the amount of the SSM based on their calculations; is that not possible?

959
MS. SQUIRES:	Yes, they could.

960
MR. WARREN:	In other words, Ms. Squires, you don't need a consultative to achieve this result when you have the ADR mechanism; is that fair?

961
MS. SQUIRES:	You don't need it but it's more -- it has the potential to be a more efficient and less costly process.

962
MR. WARREN:	I'm sorry, Ms. Squires, you are not speaking ironically when you use the words "efficient" and "productive process" in connection with the consultative. As the record would suggest, in the last two years it's been neither efficient, nor productive; has it?

963
MS. SQUIRES:	That's correct. But I believe I said it has the potential to be a more effective and less costly process.

964
MR. WARREN:	Let me add one further factor to it. Assuming for the moment that the consultative might provide a forum by which these kinds of knock-downs could be achieved, is the need to achieve consensus necessary to achieve these kinds of beneficial results?

965
MS. SQUIRES:	Ultimately, in order to land on an SSM number and avoid going to ADR, we would need to achieve consensus in a consultative process. Without that consensus, it would, I believe, necessarily go to an ADR stage.

966
MR. WARREN:	Is it not possible, for example, Ms. Squires, that you could pick up a telephone over the course of the year and phone Mr. Millyard or phone Mr. Neme and say, This is what the number is; what do you think? And have them say, I think it's high by $1.8 million, and you say, You know, that makes sense. You can do that, can't you?

967
MS. SQUIRES:	That's a gross oversimplification of how the process would work. It can't be done in a single phone call.

968
MR. WARREN:	But you could reach out -- I'm simplifying it. But you could reach out for Mr. Millyard's advice, you could reach out for Mr. Neme's advice, without having the consultative; isn't that right?

969
MS. SQUIRES:	We could do that, but I wouldn't do that and exclude that consultation with just one group of intervenors. Part of the reason that we're proposing to continue with the audit subcommittee is that we would want multiple parties involved in reviewing the results and helping us come to some conclusions about what the right number is.

970

MR. WARREN:	Now, in the course of my cross-examination of you the other day, I talked about the amount of the cost that had been expended in 2000-2001, and we don't need to turn it up, but your figure in the record that the consultative including the audit subcommittee cost about $126,000 in 2001-2002; do you remember that number?

971
MS. SQUIRES:	It sounds like it's in the right ballpark. I don't remember the exact number.

972
MR. WARREN:	Now, can you and I agree, Ms. Squires - it may be in here but I haven't been able to find it - your Rules of Procedure, your protocol for the consultative is silent on the issue of costs?

973
MS. SQUIRES:	That's correct.

974
MR. WARREN:	There are, as I look at the protocol, no limits on what participants may be charged; correct -- may charge; is that right?

975
MS. SQUIRES:	That's correct.

976
MR. WARREN:	And there's not even an indication that cost claims have to be in compliance with the structures which appear in the Board's cost guidelines; is that right?

977
MS. SQUIRES:	That's correct. As I understand it, those guidelines were not intended to apply specifically to the DSM consultative.

978
MR. WARREN:	But one way or another, there's nothing in this protocol that deals with the question of cost; correct?

979
MS. SQUIRES:	Correct.

980
MR. WARREN:	So if the Board were to approve this, there is no means by which the amount of costs awarded would be controlled; is that fair?

981
MS. SQUIRES:	The means by which the costs can be controlled are captured in the company's management of the process in terms of ensuring that too many meetings aren't scheduled during the course of a year and that topics such as budget and target-setting are not allowed to go beyond one or two meetings or whatever the appropriate number is. That's what the mechanism is, to ensure that the costs don't get out of hand.

982
MR. WARREN:	Ms. Squires, you've had the authority, not you personally but Enbridge has had the authority to impose those controls over the last two years and it hasn't done so; correct?

983
MS. SQUIRES:	That's correct.

984
MR. WARREN:	So what's the difference all of a sudden, Ms. Squires? Why can the Board, in the absence of any rules on cost, have any confidence that Enbridge is now going to behave any differently than it has in the last two years in its attempt to achieve "consensus"?

985
MS. SQUIRES:	Because Enbridge is here talking about this because we have learned from this process over the last 18 months - the hard way, I might add - that the process hasn't been working as efficiently as it could have, and that is what's driven us to make these suggested improvements to the process.

986
MR. WARREN:	Now, I want to understand, if I can, arising out of this proposal for the DSM consultative process, what the ultimate accountability is. Enbridge is ultimately accountable to the Board, is that right, for its management of the DSM consultative process; correct?

987
MS. SQUIRES:	That's right.

988
MR. WARREN:	And what criteria would you expect the Board to apply annually in assessing whether or not the consultative process had been successful?

989
MS. SQUIRES:	Well, there might be many criteria, but I would expect that they would consider the success of our programs and the extent to which the knowledge and the experience of intervenors formed the program design and delivery. They might look at the consultative's ability to settle issues such as budget and target and possibly SSM amounts without going to ADR, the extent to which we are achieving TRC benefits every year and possibly increasing those. Those are a few ideas of ways they might judge the effectiveness.

990
MR. WARREN:	Now, your proposals for the audit process and the audit committee, if you turn to page 76 of 93 of the audit committee's functions, are to select an independent auditor, provide advice to the independent auditor with respect to the conduct of the audit, review the independent auditor's final advice and report, recommend appropriate LRAM and SSM claims to the company.

991
And then looking at number five on that page: "The audit committee members are to make a good-faith attempt to achieve a consensus or a substantial consensus on all issues through interest-based negotiations that take into account the interests of all parties."

992

Now, I take it that the same protocol, behavioural protocol in terms of bad behaviour that's set out with the consultative, is to apply here as well? If you're rude or unprofessional or speak out of turn, you can be excluded from the audit process; is that right?

993
MS. SQUIRES:	Well, the same -- the four procedural rules that are outlined in the consultative process are not repeated verbatim in the audit committee protocol, although the same general requirement for professional conduct and treatment of other participants with courtesy and respect are outlined.

994
And I'm just looking at the top of page 77 where a condensed version of those rules of conduct is presented, and I think the reason it's condensed is that it's a reflection of the fact that the audit committee is proposed to be a four-person committee and not a larger group, and in that sense, I think the expectation is that it would be a little bit easier to manage that component of the work with a smaller group.

995
MR. WARREN:	Ms. Squires, just finally on this question of these protocols for behaviour. The Energy Board, indeed all regulatory agencies in this province, are required to behave according to what are known broadly as the rules of natural justice which require you to give notice before you impose a penalty, and you are supposed to give people an opportunity to be heard and all of that layer of procedural fairness before you exercise the power.

996
Now, when I look at the protocol, a person can be excluded from a meeting and indeed excluded from the audit subcommittee and that person can then be excluded forever. What procedural fairness protections are in here in terms of giving them notice that this is going to happen, giving them an opportunity to argue their case, having an independent decision-maker make the decision? What's in here on those kinds of fairness issues?

997
MS. SQUIRES:	I think the fact that Enbridge and all parties are required to come to this process in good faith is certainly a start at addressing that. And to me what that means is that Enbridge is prepared to consider -- if it got to a point where a member had been asked to leave the process, Enbridge would be considered to work with that party or work with that representative organization to find a way to ensure that their interests are represented either with another -- a different representative or through some -- through some discussion and consultation offline to see if some agreement could be reached on continuing that person's involvement.

998
In terms of what's stipulated in the actual protocols under the audit subcommittee, on page 77, it is stipulated that the stakeholder that may have been excluded certainly has the right of assigning an alternative representative in the process. And I believe that is also identified in the consultative protocol as well. It is.

999
MR. WARREN:	I have your answer. Thanks, Ms. Squires. I want to just put in closing these propositions to you to see if you would agree with them.

1000
Now, I want to imagine hypothetically, Ms. Squires, that following this process, the Board were to say, you know, what we really need to do is return the consultative to its original intent, okay? And imagine for a moment that what the Board said about the consultative, it had the following characteristics: Number one, it was to meet no more than twice a year; secondly, it was that there was no need to achieve consensus or to pursue consensus, that the function of the consultative was to provide advice only, and that any costs arising of that were subject to OEB approval.

1001
Now, if that model were in place, Ms. Squires, can you and I not agree that you wouldn't need this behavioural protocol?

1002
MS. SQUIRES:	Perhaps not. I think that regardless of the frequency of meetings and the subject of those meetings and the requirement or non-requirement for consensus, regardless of those things, I think these behavioural or procedural rules would be considered as no requirements for participants to be involved in the process, whether or not they're written down and approved by the Board.

1003
MR. WARREN:	Finally, Ms. Squires, with respect to the audit, I want you to tell me, if you would, what would be wrong with the following model:

1004
If the Energy Board were to appoint an independent auditor and set the terms for the auditor, if the Energy Board were to receive the audit and if, therefore, there was no need for an audit subcommittee and, therefore, no need for a consensus, in terms of the values of having an independent audit, what would be wrong with that model?

1005
MS. SQUIRES:	Well, the first thing that jumps to mind for me is that the auditor would not have -- well, depending on how you structure it, the auditor might not have the benefit of the perspectives of Enbridge and the intervenors in terms of identifying, perhaps, new areas of DSM work or uncertain areas of DSM work that might warrant further review by the auditor.

1006
And I'm thinking of the experience in '99 and in 2000 and 2001 where that is one of the values that the audit subcommittee brings to the table. They help give the auditor some perspective on the DSM achievements in that year.

1007
And this is especially the case if you've got a new auditor, somebody who doesn't have first-hand experience with the programs.

1008
MR. WARREN:	Take the model which I've just described to you, where the Board appoints the auditor but the auditor goes out and seeks the advice of Enbridge and any interested stakeholder, but there's no need for a consensus and there's no audit subcommittee. If the auditor sought the advice and input of the stakeholders, what would be wrong with that model?

1009
MS. SQUIRES:	Well, then, the Board would be put in a position where they would have to manage an auditor, and from my own experience through Enbridge and with the subcommittee, that is a very involved process and it requires, for at least a period of a month or six weeks or longer, sometimes daily contact with an auditor to provide data and to direct the auditor.

1010
It is -- I mean, it's not my place to judge, but I suppose the Board might not be in a position to actually undertake that level of detailed management of an auditor.

1011
MR. WARREN:	But the Board might be able to get the job done in fewer than 22 audit subcommittee meetings; is that not possible?

1012
MS. SQUIRES:	That's possible.

1013
MR. WARREN:	Thanks for your help, Ms. Squires.

1014
Those are my questions, sir.

1015
MR. BETTS:	Thank you, Mr. Warren.

1016
I think it's appropriate to take a short break in that we really are looking at a 2 1/2-hour session this afternoon, and I would suggest that, perhaps, if we can just break for 15 minutes, and if somebody would like to bring something back to the room, they are welcome to do that. But let's target to be back at, perhaps, 3:25.

1017
That will leave, I believe it was, three, four parties that would like to question this panel, and I'm quite certain -- I doubt that we will be able to accomplish that this afternoon.

1018
But for anyone that's interested, the Board would be prepared to stay a little later tonight if that would help this panel get on their way and conclude their activities here.

1019
So keep that in mind, and perhaps you can discuss that through the break and let us know whether that would help the parties at all.

1020
MR. MacODRUM:	Mr. Chairman.

1021
MR. BETTS:	Yes, Mr. MacOdrum.

1022

MR. MacODRUM:	Could you clarify that if we do not finish today, this panel, will we continue with them first thing tomorrow morning? I know that we've got this EnTRAC argument scheduled, but I would -- in the event that I am not reached today, I would really appreciate it if we could continue with this panel tomorrow morning, because I have another commitment tomorrow afternoon and...

1023
MR. BETTS:	May I have submissions on that suggestion.

1024
MR. O'LEARY:	Mr. Chairman, the company is desirous of seeing this panel's cross-examination continue so that it's not broken up yet again, and therefore we would support Mr. MacOdrum's suggestion there. And we could deal with EnTRAC either immediately following the conclusion of the examination of this panel, assuming that there's still some time left tomorrow, or reschedule it to the following morning, whichever we think works best.

1025
MR. BETTS:	So you're agreeing that we would be able to continue in the morning with this panel --

1026
MR. O'LEARY:	That would be our preference, sir.

1027
MR. BETTS:	Any other comments on that?

1028
Mr. DeRose?

1029
MR. DeROSE:	Just with respect to timing, I can indicate after Mr. Warren's cross-examination I will have no further questions of this panel, so that's one person off the slate, so to speak.

1030
MR. BETTS:	Okay. Thank you.

1031
Well, I think we have a bit of a plan that seems a little bit flexible and so on at this point. But anyway, let's take 15 minutes, and if there's any conclusion in terms of discussion, we'll hear about it later. Thank you.

1032
--- Recess taken at 3:10 p.m.
1033
--- On resuming at 3:26 p.m.
1034
MR. BETTS:	Thank you, everybody. Please be seated.

1035
Welcome back. And are there any preliminary matters that arose during that break?

1036
MS. LOTT:	Well, I --

1037
MR. BETTS:	Ms. Lott?

1038
MS. LOTT:	Just if I can say I might go a little bit beyond 4:00 in my questions, and you indicated that might be acceptable to go a bit beyond four today. That would certainly be helpful to me, as I would really need to be back in Ottawa by tomorrow.

1039
MR. BETTS:	And perhaps as we approach the 4:00 hour, you can estimate how much longer you'll need and that might help you with the decision too. But we will certainly try to accommodate that, Ms. Lott.

1040
Then with that, we will turn to Ms. Lott and you can go ahead with your cross-examination.

1041
MS. LOTT:	Thank you very much, Mr. Chair.

1042
CROSS-EXAMINATION BY MS. LOTT:

1043
MS. LOTT:	Good afternoon. I am Sue Lott. I am counsel for the Vulnerable Energy Consumers Coalition, and to my right is Judy Kwik who acts as a consultant for VECC as well.

1044
I just wanted to start by saying, to clarify the record, there had been some question last week in exchanges back and forth in what VECC's mandate was as compared to the CAC, for example. Just to put it on the record, we represent residential ratepayers but we represent those that are low and fixed income, that subset of residential ratepayers.

1045
So I'm just to give a road map of what I'm going to do today. I'm going to be asking questions, issue by issue, starting with issue 9.2 going to issue 9.3, and then for issues 9.4 and 9.5 I will be asking questions together. And I don't have many questions in that area.

1046
So starting with issue 9.2, I'll just let you know I will be looking at Exhibit A.7, tab 2, schedule 2, which is the "Improvements to the DSM Incentive Mechanism"; Exhibit I, tab 4, schedule 179 which is the Navigant consulting document entitled "DSM in a PBR Framework". And I'm also going to be looking at the settlement agreement, Exhibit N.1, tab, 1, schedule 1, and finally, Exhibit A.7, tab 1, schedule 1, which is EGD's pre-filed evidence called "Fiscal 2002 Demand-Side Management Overview and Proposal". So that's what I will be looking at in issue 9.2.

1047

Okay. In last week's cross, I think it was with Mr. Poch for GEC, he drew an analogy between the DSM incentive mechanism which provides the company with a monetary incentive to accomplish savings beyond the volume targets, and drew that analogy with the case of a service quality performance indicator where the incentive is for achievement beyond the targeted performance, such as answering a phone in three rings rather than four. Would you agree that that is a fair comparison to make or a fair analogy to draw?

1048
MS. SQUIRES:	In some respects, yes, to the extent that Enbridge is carrying out a service in delivering DSM programs, I think you could draw a parallel.

1049
MS. LOTT:	Okay. I'd like to take you to Exhibit A.7, tab 2, schedule 2, on page 8 of that document. In that page 8, there are principles for an incentive mechanism that are presented; I think there are four principles there. I'm just going to take you through those principles and ask you some questions about each of them. So if you've got that in front of you there.

1050
The first one states that risks and rewards should not be too high, and then further under that principle it says that the incentive mechanism should "be in keeping with the benefits achieved and the risks assumed by other similarly regulated companies to achieve commensurate benefits."

1051
So based on that principle, if we then go to, and I'm going to take you to Exhibit I, tab 4, schedule 179, and there's an appendix there, appendix A which -- there are two pages in that appendix and it's a table called "DSM in a PBR Framework".

1052
MS. SQUIRES:	I am sorry, what was that last reference? It was an interrogatory?

1053
MS. LOTT:	It's Exhibit I, tab 4, schedule 179 and it's appendix A which is at the end of that document, a two-page appendix which is a table or two pages of a table. It's called summary of case studies. Have you got that?

1054
MS. SQUIRES:	No. We're just taking a moment to find it. Thank you.

1055
MR. DOMINY:	Ms. Lott, could I just ask a quick question before we proceed. I notice there is a document called "DSM in a PBR Framework". Is this the document that was earlier referred to?

1056
MS. SQUIRES:	I believe it was, and I'm just realizing now, I think that was put on the record in response to an interrogatory and I had forgotten that in my earlier testimony.

1057
MR. DOMINY:	Thank you, Ms. Squires.

1058
MS. SQUIRES:	Yes, I apologize for that.

1059
Thank you. We have it now.

1060

MS. LOTT:	Okay, we have it now.

1061
If you look at that table, there are two jurisdictions that are studied there. On the first page, if you look at Maryland, which is second from the last column, and then on the second page of that table, British Columbia, which is the third from right column on that second page of this appendix.

1062
And I'm interested in looking at where they're looking at the incentive mechanism based on net benefits. So if you look at the -- if you bring down the line to utility DSM incentive mechanism, and go across that, underneath Maryland it's asking if there is a DSM incentive mechanism in place in those jurisdictions, and Maryland says yes, up to 10 percent on after-tax basis of DSM net benefits.

1063
And then looking at the same thing under British Columbia, again asking if there's a utility DSM incentive mechanism on the second page of that table and under British Columbia it says yes, up to 6 percent of net benefits.

1064
So looking at those two jurisdictions, and then there are, again, just looking over that table under that, you know, question of utility DSM mechanism, you can see that there are five other jurisdictions where the incentive mechanisms are used, and the incentive ranges, you'll see there, from about I think it's 3 percent up to 8 percent of the DSM budget.

1065
So given the principle that the risks, based on this first principle that we were looking at, that the risks and rewards of an incentive mechanism should not be too high and should be in keeping with the benefits achieved by other similarly regulated companies, how does EGD justify a proposed incentive mechanism - and I'm talking only about the proposed one - of 10 percent of the DSM budget plus 12 percent of the actual TRC realized, which is prorated, this variable incentive added to that as well?

1066
MR. WILLIAMS:	I'd just like to make a clarification on those two jurisdictions mentioned, Maryland and British Columbia.

1067
Our understanding, based on the information we had in terms of looking at the decisions in the rate value, is that those incentives, the 10 percent and the 6 percent, are based on the total TRC realized and not on what I guess we -- we were referring to here in Ontario as sort of the delta or the difference between the target TRC and the actual achievement.

1068
So just to make it fair, if Enbridge, in the proposed settlement, achieved the 130 million in TRC in those other jurisdictions, say, for example, B.C. at 10 percent or Maryland, that would be 13 million in incentive. I just want to make that clear.

1069
So what we are talking about here is a difference from actual to target, and in those two cases, based on what we saw and everything we could see - everything - all the research results, were that those were based on total TRC realized. I just wanted to clarify that.


1070
MS. SQUIRES:	So with that preamble, Enbridge's proposed incentive mechanism is actually less generous than those two situations.

1071
MS. LOTT:	Okay. But it wouldn't be with respect to the five other jurisdictions where they range from 3 to 8 percent?

1072
MS. SQUIRES:	Well, in those other jurisdictions, the percentage is as -- it's as a percentage of budget rather than a percent of TRC, so I don't think you can compare it.

1073
MS. LOTT:	Okay. Moving on to the next principle under -- go back to my reference here, back to Exhibit A.7, tab 2, schedule 2, page 8, where the second principle states that the target ought to have meaning. And then it further states in that paragraph that:

1074
"If the DSM is to be integrated into business plans and treated as an operational program, not just a regulatory requirement, it is reasonable that EGD should receive a reward when it fulfills its end of the social contract."

1075
Now, based on that, I'm interested in going back to your pre-filed evidence, which is Exhibit A.7, tab 1, schedule 1, page 13, and paragraph 35. If you could pull that out.

1076
Have you got that reference?

1077
MS. SQUIRES:	Yes.

1078
MS. LOTT:	So in paragraph 35 you do say that DSM would be considered a pass-through or a "Y" factor in the incentive regulation framework, just as it has been in the targeted performance-based regulation framework currently in place.

1079
My question would be: Is DSM being treated here as a PBR performance indicator or as a "Y" pass-through? There seems to me some inconsistency there between what you've stated in one reference under the principle number 2 and what we have just read here in paragraph 35.

1080
MS. SQUIRES:	Well, first of all, I should make sure that it's understood that the company's pre-filed evidence in paragraph 35 and 36, and in fact for the rest of page 14, is really just some preliminary thoughts about how the company's framework for DSM might operate in a potential future performance-based regulation environment, because, of course, we don't have that yet and we don't know exactly what that's going to look like when it comes.

1081
So these are sort of -- this is some of our advanced thinking, if you will, about how it might operate.

1082
And having said that, the proposal or that forward thinking is proposing to treat DSM in exactly the same way that DSM was treated in the targeted PBR period over the last three years, in that the budget is set separately and the incentive mechanism is set separately from the rest of the company's O&M expenditures.

1083
MS. LOTT:	Okay. Moving down to the third and fourth bullets of the principles, the third one states that:

1084
"The incentive mechanism should encourage the utility to invest in DSM, particularly where there are opportunities to go beyond the target. The incentive mechanism should encourage the utility to invest additional resources in DSM programs and provide an appropriate return based on the risks for doing so."

1085
Are there risks other than program costs that would be recovered through a DSM variance account?

1086
MS. SQUIRES:	I think, as the last couple of years have shown us, the last couple of audit processes have shown us, the measurement and evaluation of DSM is not an exact science. Effectively, we are trying to measure and quantify something that didn't happen and therefore there is some -- certainly some uncertainty, you could call them "risks," in the exercise of trying to nail down exactly what the savings were and bring some accuracy to that through an audit process.

1087
So from that standpoint, Enbridge doesn't have the same degree of certainty about what the final outcome is going to be upon which an incentive calculation is going to be based, so there is that uncertainty which brings some element of risk to the company in terms of their -- forecasting their revenue streams.

1088
MS. LOTT:	Okay. Looking at the last principle, then, the incentive mechanisms should reflect benefits created. The incentives should be based on results achieved for ratepayers, not just effort expended. Ideally, the incentive should also give the company the information required to enable the business benefits, for example the return on investment, to be estimated so that DSM investment can be compared against other potential utility investments."

1089
I guess my question would be that if you wanted to estimate DSM benefits relative to the company's other utility investments, how else do you do that except to base it on its distribution investment?

1090
MS. SQUIRES:	Sorry, could I ask you to repeat the question one more time.

1091
MS. LOTT:	My question is: If you wanted to estimate the DSM benefits related to the company's other utility investments, how else you do it other than to base it on its distribution investment?

1092

MR. RYCKMAN:	I could speak to that just for a moment. It's my understanding that this point was based on the premise that the shareholder would be funding activity over and above the targeted level. And I think whenever you get into shareholder funding, then we are starting to have to look at the scope within the Enbridge Inc. perspective. So there may be a multitude of things that it may be competing for attention with. This isn't on the table in the context of 2003. So this was part of an original proposal that isn't on the table at this point in time.

1093
MS. LOTT:	Okay. I guess in terms of the other thing, that when we speak about investments, shareholder DSM investment, am I correct in saying that it really isn't appropriate to speak of investment by shareholders because you are basically going to recover with respect to DSM everything in rates; would that be an appropriate conclusion to draw?

1094
MS. SQUIRES:	Well, under this particular mechanism that we've been referring to, it's actually a combination of ratepayer-funded DSM plus the opportunity or the potential for the company to invest its own shareholder dollars above and beyond that ratepayer-funded portion. So certainly there is that potential for that extra part, the shareholder-funded part. We're not guaranteed recovery of that and in fact the incentive mechanism for that portion of the expenditures is designed such that it should cover those costs that are invested by the shareholder. That's how that's intended to work.

1095
MS. LOTT:	Okay.

1096
MR. RYCKMAN:	If I could just add one more thing. The Energy Probe proposal they had would have the shareholder funding all DSM activity. So that is an important distinction to make because, once again, when you enter into that arena, then you are at an Enbridge Inc. level and we haven't fully assessed what that could mean. I mean it could mean anything from a little DSM to lots of DSM; we don't know. But one thing is certain: You would be competing in a much broader arena for attention and funds.

1097
MS. LOTT:	Just looking again at this last principle. It says an incentive should be based on the results achieved for ratepayers. My question is really why would the incentive include part of the ratepayers' commodity cost savings?

1098
MS. SQUIRES:	If you support the concept of TRC as being the appropriate measure of benefits created, then the ratepayers' commodity costs, among other things, are included in that measurement of TRC.

1099
MS. LOTT:	But those savings only are going to accrue to the participants in the program; that's correct?


1100
MS. SQUIRES:	The commodity costs --

1101
MS. LOTT:	In the DSM programs.

1102
MS. SQUIRES:	Yes, that's correct.

1103
MS. LOTT:	So at times when the commodity cost is high, wouldn't the income on the DSM activities be probably disproportionally high compared to other utility activities such as -- what I mean here is just non-DSM-related activities by the utility.

1104
MS. SQUIRES:	That's in fact what I understand the circumstances were in 2002 when the incentive rate was reduced from 35 percent to 20 percent. That was one of the factors that was considered.

1105
MS. LOTT:	And a reason for the reduction.

1106
MS. SQUIRES:	Yes.

1107
MS. LOTT:	On this issue, I just wanted to -- I mean you are a regulated distributor. These are regulated activities and we know that the OEB's role is primarily as a economic regulator. I guess my question would be how is the OEB able to apply these latter two principles with respect to assessing issues of risk and investment if DSM is not really like other utility activities in terms of risk and investment? I know that's sort of a broad question but...

1108
MS. SQUIRES:	Well, I think part of what our evidence was intended to do was to illustrate how the risks and benefits of DSM differ from traditional utility activity, and leading from that, why we're proposing the incentive mechanism that we did propose in this evidence. It's a consideration of those risks and rewards and benefits and how they differ from traditional utility activities. So we are recognizing that they are different and we -- our intention was to present that evidence.

1109
MS. LOTT:	Okay. Looking at what was actually -- is actually -- was proposed by EGD for the incentive mechanism, and I'm here going back to Exhibit A.7, tab 2, schedule 2, page 9, there we see that there's a component of the incentive that's based on the TRC and then we know of course that the incentive mechanism in the partial settlement agreement to which EGD is a party, that the entire incentive is based on the TRC. A significant component of the TRC, as we've established, is the natural gas commodity price; that's correct?

1110

MS. SQUIRES:	Yes.

1111
MS. LOTT:	And with respect to the incentive mechanism proposal that was presented, again, I'm referencing back to pages 8 and 9 of Exhibit A.7, tab 2, schedule 2. It does state that:

1112
"Instead of basing the penalty or incentive on the difference between the budgeted TRC and the actual TRC, the proposed incentive mechanism is driven primarily by EGD's actual cubic-metre savings compared with the budgeted cubic-metre savings. EGD's incentive would also be partially dependent on the actual TRC realized."

1113
Now, given that the TRC is heavily based on the commodity cost and it aggravates the principles that EGD set out for an incentive mechanism, which as we had indicated in those principles that the incentive mechanism should not be too high, why did EGD include the second element, the variable incentive of its incentive mechanism proposal?

1114
MS. SQUIRES:	I think Enbridge's position is that the TRC was identified by the Board back in EBO-169 as the definitive measure of the net benefits of demand-side management, and the companies continued to support and endorse that belief. And we strongly believe that that is a fair representation about what the benefits, net benefits of DSM are.

1115
Having said that, there is another aspect of our proposal which recognizes that the commodity costs in particular have been, to say the least, a variable component of the TRC in the last couple of years, and there's a mechanism proposed on page 6 of that same report to address that concern.

1116
What was proposed here was that instead of using just this single year forecast of avoided gas costs in the TRC, that we are proposing that a rolling average concept be used instead of that single year in recognition of the fact that nobody wants the SSM to be entirely a function of highly variable gas prices.

1117
MS. LOTT:	But there's still an issue of volatility there; am I not correct about that? There's still an issue of volatility.

1118
MS. SQUIRES:	It's a significantly mitigated issue with this type of proposal.

1119
And I'll also add, I know you're asking about our proposal, but just referencing the partial settlement, that issue again is explicitly addressed in that the partial settlement proposes to lock in the commodity prices or the avoided gas costs at the budgeted level so that, going into the process, all parties are aware of what the role of -- or what the significance or the impact of those commodity costs are going to be on the SSM.

1120
MS. LOTT:	But I would just add that the issue of volatility is still a major concern for low- and fixed-income consumers, because it can result in rate instability for them.

1121
MS. SQUIRES:	Yeah. I guess our response would be that, in fact, that's what demand-side management opportunities can help, particularly for those customers.

1122
If rates are increasing because of commodity costs or any other factor, the demand-side management programs are intended or are able to help address those concerns for those customers.

1123
MS. LOTT:	I'm going to get into that -- a few questions around that a bit later, but just to -- again, to make the point that if -- only for those consumers that can afford to invest in those programs. There's still an issue of affordability with much of the --

1124
MS. SQUIRES:	With some programs, but not all.

1125
MS. LOTT:	Okay.

1126
Now, given the kind of -- the line of questioning I've been pursuing, it's -- as I said to you before, it's apparent for our client group that there is some difficulty basing an incentive mechanism on the TRC for them as ratepayers apart from our recognition of the general societal environmental benefits, which we support.

1127
In the following questions, I just wanted to explore an incentive mechanism that would not be based on the TRC but that would focus on the distribution business side, so I'm going to just work through a hypothetical here with you and see if I could put down some examples and get you to comment on that, okay?

1128
Let's just assume that there are distribution savings for every cubic metre of gas that doesn't have to be distributed through the EGD system. Now, if you had a DSM incentive mechanism that's treated similar to a service quality performance indicator, my question to you would be whether or not this following mechanism would be consistent with such an approach?

1129
So let me just read this through for you. Let's assume that the distribution savings is the cubic metres of gas that EGD doesn't have to distribute as a result of DSM, and that EGD's distribution rates cover its distribution costs and also includes a distribution return on investment.

1130
We suggest that there could be an incentive mechanism that would be an increase in the return component in DSM volumes on the condition that the target is met or exceeded. Would this approach provide the company with an incentive for enhanced DSM investment?

1131
MS. SQUIRES:	There's elements of it that might provide an incentive, but I think there are elements of that proposal that would not -- would not incent the company to do so in a cost-effective manner, from a societal standpoint.

1132
It doesn't sound, by what you've described, that that approach incorporates any cost-effectiveness screening, nor does it include any consideration of long-term benefits, any consideration of what the life of certain programs and measures might be. And again, what -- it also wouldn't include any consideration of the environmental benefits, which are excluded from the TRC but are in the SCT.

1133
MS. LOTT:	I'm sorry about that. I just wonder if I could get you to do an undertaking to quantify what this approach might look like, and I'll just explain here what I mean so you give us some idea of what the size of your reward might be here using this mechanism.

1134
So let's say we're assuming 2002 rates, so we're assuming an allowed return on -- rate of return of 9.75 percent. What would be the size of the reward if you -- if EGD were to receive an incremental rate of return of 1 percent on the targeted DSM volumes, a return of 3 percent and a return of 5 percent, and I'm wondering if you can comment in this undertaking how high this incremental rate of return would need to be to provide you with an effective incentive.

1135
MS. SQUIRES:	Can you repeat the scenarios that you wanted to look at?

1136
MS. LOTT:	Yeah. Assuming 2002 rates, and looking at an incremental rate of 1 percent on the targeted DSM volumes, 3 percent and 5 percent, and then if you could comment in that undertaking how high the incremental rate of return would have to be to provide you with an effective incentive.

1137
MR. HEENEY:	Excuse me, could you just clarify that what you are suggesting is that instead of the ROE for Enbridge's distribution being 9.75, it would be 10.75, 12.75 and 14.75?

1138
MS. LOTT:	That's right, yeah.

1139
MR. HEENEY:	Just as a matter of point, if you look at the table Exhibit K.4.2 that Mr. Klippenstein handed out, I think it's showing the kinds of things that you're interested in; and if not, perhaps you could explain the difference. It shows that under the current proposed partial settlement, the -- at a 50 accedence of the target, the impact on the after-tax ROE would be 46/100ths of a percent.

1140
MS. LOTT:	We'll have a look here. I think the difference here is that we're asking for a dollar amount rather than a percentage.

1141
MR. WILLIAMS:	On the entire sort of Enbridge rate base so to speak?

1142
MS. LOTT:	On the DSM cubic metres.

1143
MR. HEENEY:	You mean dollar per cubic metre?

1144
MS. LOTT:	Total dollars.

1145
MR. HEENEY:	Is it different than the 7.8 million in column one shown for 50 percent, which is at roughly half a percent? So at one percent it would be roughly two times 7.8, 15.6.

1146
MS. LOTT:	We're asking for the total DSM amount and I -- the total DSM cubic metres.

1147
MR. DOMINY:	Valued in what way?

1148
MS. LOTT:	Sorry, what was the question?

1149
MR. DOMINY:	You asked a return on a cubic metre number, but the return is measured in dollars so how can I translate that cubic metres into dollars?

1150
MS. LOTT:	Yes.

1151
MR. DOMINY:	Well, I'm one percent of 10 million cubic metres, that gives me so many cubic metres.

1152
MS. LOTT:	I hope I can clarify that it's the rate of return component that we're looking for within the DSM cubic metres in dollars for each of these increments of 1 percent, 3 percent and 5 percent.

1153
MS. SQUIRES:	I guess it --

1154
MR. BETTS:	Perhaps you could even take this offline and discuss this with the parties outside, or try to establish with them exactly what it is you are looking for and then we'll log that in as an undertaking.

1155
MS. LOTT:	Okay. I'll move on then. Thank you.

1156
MR. BETTS:	Ms. Lott, it's 4:00. Can you anticipate how much longer you will need? And we are flexible if it can help with your schedule.

1157
MS. LOTT:	I would say 15, 20 minutes.


1158
MR. BETTS:	I think that would be fine. Please continue.

1159
MS. LOTT:	Okay. Just a couple of last questions on 9.2. I guess what I'm trying to get at here is some of our concerns around the broader implication of the use of the TRC. In suggesting it, its use as the incentive mechanism, there is an implicit expectation that the OEB will be regulating based on assessing societal, non-economic benefits in addition to its role as an economic regulator of the monopoly component of the energy sector. Would you agree with that?

1160
MS. SQUIRES:	No. The TRC is an economic measure of the benefits resulting from DSM in the sense that they're all -- all the costs and benefits that are included in the TRC are financial, quantifiable benefits. It doesn't include environmental externalities.

1161
MR. WILLIAMS:	I might add that that calculation of TRC is pretty much a standard methodology used in I think almost any other jurisdiction that looks at the cost effectiveness or the economic benefits of demand-side management, excluding, of course, the environmental considerations which would be included in the societial cost test, which is a sort of a separate test from the TRC.

1162
MS. LOTT:	But we are assessing this on a societial basis rather than on the distribution ratepayer.

1163
MS. SQUIRES:	The TRC measures the total -- if you want to use the term "societial" including all participants in society, not participants in the program, it includes -- it's effectively all the -- it's the net bill reductions, if you will, energy-bill reductions that occur as a result of DSM, so it is societial from that standpoint. But to be clear, to differentiate it from the societial cost test which includes environmental externalities, the TRC does not include those.

1164
MS. LOTT:	Okay. So I'm going to move on to issue 9.3.

1165
I'm going to be looking here at Exhibit A.7, tab 1, schedule 1, which is the fiscal 2003 DSM overview proposal. I'm also going to be looking at Exhibit I, tab 24, schedule 87, which is a VECC interrogatory number 87 if you want to pull that out. And the third thing I'm going to be doing is I've just pulled an excerpt from the OEB's Electricity Distribution Rate Handbook, March 9th, 2000. I'm looking at a page excerpt here which I have copies for. So I don't know if we want to file that as an exhibit or not.

1166
MR. BETTS:	I think we will assign that an exhibit number for reference sake.

1167
MR. MORAN:	Mr. Chair, that would be Exhibit K.6.2, excerpt from the Electricity Distribution Rate Handbook, page 8-1.


1168
EXHIBIT NO. K.6.2:	EXCERPT FROM THE ELECTRICITY DISTRIBUTION RATE HANDBOOK, PAGE 8-1

1169
MS. LOTT:	Okay. I'd like to start by looking at Exhibit A.7, tab 1, schedule 1, page 7 where you're putting forward -- EGD is putting forward principles of change, and I wanted to explore these principles with you as well.

1170
The first principle states that the company is still very much in support of DSM and the principle of an incentive mechanism. DSM has been shown to have value to customers and to be an environmentally worthwhile activity.

1171
Just a couple of questions around that. In terms of value to customers, I assume that you refer to the customers as ratepayers of distribution services; is that correct?

1172
MS. SQUIRES:	Yes.

1173
MS. LOTT:	And would you agree that some residential customers cannot afford to participate in some DSM programs due to income limitations? And I'm thinking here of larger item things like furnace replacement programs, programmable thermostats?

1174
MS. SQUIRES:	I suppose that's possible, yes.

1175
MS. LOTT:	And putting aside the environmental and general societal benefits, would you agree that for those customers not participating in a DSM program, an incentive mechanism for EGD is probably going to add to the rate pressure on these customers' incremental costs as a result of DSM, without any direct value to themselves?

1176
MS. SQUIRES:	I believe that's fair to say, although the rate impact of that on a per-residential-customer basis would be quite minimal.

1177
MS. LOTT:	Would you also agree that DSM only has value to customers that can participate in a DSM program, and for the remaining customers it's an incremental cost which will be further exacerbated by the cost of the incentive mechanism?

1178

MS. SQUIRES:	We've had considerable discussion already through the course of this hearing about public education and information and spillover effects and I think -- I don't think we should overlook the effects of those activities on all ratepayers, whether they are participants in a program. Certainly the company's -- we've in the past we've turned them as broad scale communication activities in our participation in things like the CNE and home shows and so on, where we just had a broad public forum where we can communicate messages about energy efficiency. I just don't want to overlook the value of that information to all customers, whether they are participants in a program.

1179
MS. LOTT:	Okay. The second bullet says:

1180
"The incentive mechanism should be transparent and straightforward and send the correct motivational messages to employees involved in the delivery of energy-efficiency programs."

1181
What motivational messages has EGD used over the years that it's had an incentive mechanism in place?

1182
MS. SQUIRES:	Well, I guess the -- certainly the message about shareholder -- the potential for a shareholder reward is motivating to the extent that many employees are in fact shareholders as well. I think that the thinking behind putting this principle of change in this -- in the evidence is to indicate that there are actually additional ways and perhaps better ways to motivate more effectively employees. And that was really the thinking behind the proposed incentive mechanism which we've talked about already and putting -- or setting the trigger for that incentive mechanism to kick in in the form of surpassing M-3 targets which is something that employees, in their contact with customers, can get their head around a little more easily. So that was one of the improvements that we proposed with that principle in mind.

1183
MS. LOTT:	Is there any way you can estimate what proportion of the incentive pay-outs in the last years that you've had the incentive mechanism have been required to motivate employees?

1184
MR. RYCKMAN:	I think the incentive in a broad sense has focused management on DSM activity in that it's allowed DSM to contribute to the profitability of the company. So I don't know that you can necessarily make a direct link with individuals on the size of the incentive. It's about driving the behaviour that's necessary to continue to pursue DSM and to try to leverage opportunities that are out there.

1185
So I don't know that there's a magic number where that triggers on or off. It's really about trying to drive that behaviour.

1186
MS. LOTT:	I guess maybe it's you are not able to say. I guess I'm just looking for some idea of what, sort of, minimal cost is required to incent employees?

1187

MS. SQUIRES:	Well, I think it's a difficult question to answer, admittedly, and I think we're through the process of tweaking our SSM mechanism, you know, first from the 35 percent to the 20 percent and then to potentially what we've got in our settlement. We're trying to find that balance point.

1188
And we've been slightly reducing the marginal incentive rate, but, you know, from Enbridge's standpoint, we're trying to remain aware of that floor, if you will, below which we start to lose that motivational message.

1189
So I can't pinpoint what that floor is, but certainly we're aware of that and have an eye to it.

1190
MS. LOTT:	Okay. The third bullet says:

1191
"Processes for DSM program design, delivery, evaluation, and audit should be standardized to the greatest extent possible."

1192
Would you agree that the effect of putting in place this principle would minimize the problems that have certainly been -- characterize the consultative, the ADR, and the hearing process on DSM generally?

1193
MS. SQUIRES:	Yes, that's the intention.

1194
MS. LOTT:	So you would agree with me that the absence of this framework really does create uncertainty for EGD and the DSM process overall?

1195
MS. SQUIRES:	I'm sorry. The absence of which framework?

1196
MS. LOTT:	A framework that would put in place processes for design, delivery, evaluation, and audit that were standardized.

1197
MS. SQUIRES:	I would agree with that.

1198
MS. LOTT:	A regulatory framework is really what I'm talking about here.

1199
I just wanted to make reference now to the handout -- the exhibit that has now been given an exhibit number, which you've just been given, Exhibit K.6.2, the -- it's from the "Electricity Distribution Rate Handbook," and I just wanted to read the quote on that page, 8-1, where it talks about:

1200
"The role of the electricity distribution utilities with regard to demand-side management has not yet been examined. Also, substantive issues may arise from the monopoly wires-only entity's involvement with DSM programs. The question on how DSM will be delivered in the restructured electricity industry requires better understanding."


1201
It then goes on to say that:

1202
"These issues around DSM need to be reviewed before DSM principles can be incorporated into a PBR regime for the electricity distribution industry."

1203
My question on this would be: Is it your view that a standardized DSM regulatory framework for gas and electricity distributors would eliminate this uncertainty it's made reference to in -- on the electricity side?

1204
MS. SQUIRES:	I'm by no means an expert on the electricity industry, and my thoughts on this would be that on the gas side, we have a certain number of years of experience in delivering demand-side management programs, and perhaps we are further along the curve than -- well, I think we are further along the curve than the local electric utilities are.

1205
So I don't -- I don't believe that the exact same framework would necessarily work for both industries.

1206
Those are my preliminary thoughts.

1207
MR. WILLIAMS:	And I think that the -- in the context of this chapter 8, I think the electricity industry was going through a significant change or having to go through a significant change in terms of market readiness and a whole lot of other things, and I think that given that context, that would lead to a lot of the uncertainty with respect to the role on DSM.

1208
MS. LOTT:	Are you concerned at all, though, about the issue of having a level playing field between both industries when we're talking about industries that would be able to choose between gas and electricity as an energy source?

1209
MS. SQUIRES:	I certainly believe that there are opportunities for integrating the processes to some degree, and to the extent that that's workable, there are lots of programs and program ideas that I think would work well with some sort of joint effort between electric and gas utilities.

1210
But at this stage of the game, I think it would be difficult to make, sort of, sweeping framework decisions that would necessarily apply to both. At this stage of the game, I think it would be more workable for those opportunities to be investigated on a one-off basis.

1211
MS. LOTT:	Okay.

1212

I just want to ask a few questions here about looking at how an incentive mechanism would work under a PBR framework and then a just a couple questions after that on 9.3, and then I just have some very few questions on 9.4 and 9.5.

1213
So if we're looking at bullet 4:

1214
"The regulatory framework for DSM should be consistent with the overall company incentive regulation framework. Regulatory filing requirements for the DSM should be standardized and applied on a preset schedule."

1215
In response to VECC's interrogatory number 87 -- if you want to pull up the reference for that, being Exhibit I, tab 24, schedule 87 -- VECC had asked whether EGD would still expect a 10 percent contingency allowance for its DSM budget if it were on a PBR plan in 2004.

1216
And then we have the response there, which in the interests of time, I won't read, but my question about that is just it's not clear to me how you would envision this separate PBR model for DSM, so I wanted to take you through various DSM aspects to see how they might be treated under a PBR framework.

1217
So if you don't mind I'll just go through these and then I'll ask you to see whether this -- you see this as being something that would be reasonable for a DSM PBR plan.

1218
The first one would be that the DSM budget would be set in the first year of the plan and then would be adjusted annually for the term of the plan according to some formula that would allow for an appropriate annual inflationary increase that would build in an expected efficiency improvement and might have some adjustment for cost changes that are not in control of the company (sic). And that might be something like changes in accounting or tax rules.

1219
And then the DSM target is set in the first year and remains at the same level for each year of the PBR plan. So the way that the budget and target would be structured you'd get productivity improvement. The output would stay the same but the input would go down because you've got this efficiency requirement and improved productivity.

1220
In incentive regulation, once the base revenue requirement and the rate adjustment formula is set, the company's at risk for any cost overruns and you would increase your profits based on your lowered cost; therefore, there's no need for a DSM variance account and also no contingency allowance. And given that this is a PBR, the DSM program after the first year is totally under the company's control; there would be no renegotiations of annual budgets or targets, but you would have a lost revenue adjustment mechanism in place to keep the company whole and there will be an annual valuation of assumptions that may change the future year's annual target at the beginning of each year, and those could be things like free ridership, those things might change the budget and targets.

1221

So with the PBR plan for utility there are normally service-quality performance indicators, and to draw the same comparison within a DSM PBR, the cubic metres saved would be the indicator and the utility would be rewarded for going above the target.

1222
Now, does this, as I've just fleshed it out here, does that sound like it would be a reasonable plan for DSM under PBR; and if not, how would you picture a PBR plan for DSM?

1223
MS. SQUIRES:	You've given us a lot of information.

1224
MS. LOTT:	Yeah.

1225
MS. SQUIRES:	And I have to admit that our thoughts about how DSM would operate under an PBR framework were preliminary and we didn't do a lot of analysis in that area because we recognized that 2003 would be a cost-of-service year. So you know any comments I might have would be -- would not be based in any significant analysis.

1226
A couple of -- I didn't remember everything that you laid out, but a couple of things that stuck in my mind were that, with respect to budget- and target-setting, in our own evidence we indicate that the concept of setting budgets and targets in advance has some merit and has some desirability on our part. But we also recognize that over a 3- or potentially even a 5-year horizon, significant changes in the market and in the market potential for programs can occur. And as we've seen recently with residential programs, such as temperature turn-down and showerheads, you can lose or potentially gain significant chunks of potential DSM savings over the course of a couple of years.

1227
So I think you definitely would need that opportunity to relook at your budgets and targets on an annual basis.

1228
MS. LOTT:	Okay.

1229
MS. SQUIRES:	In terms of your comments about the need for contingency or a DSMVA, even in that environment that you described, I believe that there's still the uncertainty and -- around the rate of program uptake, and for example on -- that's one thing that the DSMVA and the contingency was supposed to protect us from and to allow us to continue to deliver programs and not have to have any abrupt or unnatural halts in program delivery. And I don't see that need disappearing in that environment.

1230
And I guess the other -- another consideration is with respect to how we are measuring the benefits of DSM and this whole issue about cost effectiveness, I don't think in the model that you described there is an effective measure of what the lifetime value of benefits would be from DSM such as the TRC would provide. And I feel that might be a shortcoming.

1231

MS. LOTT:	Okay. Thanks for that. Just a couple of questions, looking at Exhibit A.7, tab 1, 1, page 13 of 14, that's table 1, and I'm interested in items number 2 and 3. Just a couple of questions about that and then I'll move on to a few questions on 9.4 and 9.5 and then I'll be done.

1232
So on page 13 of 14, table 1 item 2, there's been questions to you before on this issue about the 50,000 for the analysis of DSM results and other North American utilities. My question is: Is this type of monitoring not done as a regular part of carrying out your DSM initiative? I mean, wouldn't you normally do this to benchmark?

1233
MS. SQUIRES:	We couldn't in a coordinated way. To the extent that DSM staff are involved in organizations such as the Canadian Gas Association or to the extent that we participate in international conferences, we get information related to some of these processes and other utilities but in an ad hoc way. And this is really to intended to collect that information in a very coordinated way in a -- under a more clearly-defined research plan so that we are collecting the same information with the same assumptions and under the same conditions for all utilities that we want to look at.

1234
I think you have to do it that way in order to really draw any conclusions from that research.

1235
MS. LOTT:	Okay. And then item number three, the 500,000 for the development of the end-use market information-rich depository, again, isn't this type of information not a regular part of your information gathering when you're carrying out DSM? And I'm wondering if there's overlap with this information that you gather for forecasting purposes for each rate class?

1236
MS. SQUIRES:	I would repeat the answer I just gave you with respect to item 2 in that, again, it's done in a very ad hoc way and the information that we have is not necessarily franchise-area specific which is what we really want to do so that this information is useful.

1237
MS. LOTT:	Okay. And just on that, considering that we are at the end of March 2003, I'm just wondering what is your estimate of what might be achievable on that, the remainder of that year, on that item number 3?

1238
MS. SQUIRES:	It's certainly something that we've considered in terms of what can we accomplish in the balance of this year and, at this stage, we have every intention of proceeding in terms of defining the scope of this work and starting the data collection exercise. At this stage, I don't think I can give you a dollar figure without having scoped it out further.

1239

MS. LOTT:	Okay. Just a very few questions on issue 9.4 and 9.5, and I'm just making reference here to the settlement agreement which is Exhibit N.1, tab 1, schedule 1 and I'm interested in just looking at the protocol for the consultative and the audit committees on pages 73 and 76, and I'll just note that you've indicated as the purpose for the consultative and the audit committee, both of those include seeking to achieve a consensus or substantial consensus with respect to DSM evaluation reports and its LRAM and SSM claims. And by the same token, you've said that the role of the audit committee is to recommend appropriate LRAM and SSM claims for the company.

1240
Would you agree to a protocol for the consultative and for the -- for the consultative that would only refer to an incentive mechanism that wouldn't make any explicit mention of SSM claims?

1241
Our concern here is the -- as it's worded, that it assumes that -- the protocol assumes an acceptance of the specific incentive mechanism that you've proposed in this settlement agreement which is the SSM.

1242
MS. SQUIRES:	I don't believe we would be opposed to that. Just to clarify, you're suggesting the language "incentive mechanism" be used as a more generic term.

1243
MS. LOTT:	Right. Exactly.

1244
MS. SQUIRES:	Yeah.

1245
MS. LOTT:	And finally, just again, we've gone over -- this has been gone over much by the other intervenors, but I just want to make one last -- a couple of questions about it. The protocols for both the consultative and the audit committee are aiming to achieve consensus or substantial consensus. I assume that you would agree with that.

1246
MS. SQUIRES:	Yes.

1247
MS. LOTT:	And we know that it's been difficult to achieve this. Would you agree that they haven't -- the committees, the consultative and the audit committee, haven't worked effectively for the company and for ratepayers in the absence of these protocols?

1248
MS. SQUIRES:	In the -- I would say in the last 12 to 18 months, it hasn't been as productive as it could have been.

1249
MS. LOTT:	And when I questioned you, I think it was Ms. Squires, previously, I asked you a question about whether you agree that the OEB should be more proactive with respect to providing regulatory direction on DSM, and I think you agreed with me, and I would be happy to reference the transcript. It was March 26th, line 1129 when we -- I asked you a question about that. Do you recall that?


1250
MS. SQUIRES:	I recall -- I'm just trying to recall the context of it though. Perhaps I could look that up.

1251
MS. LOTT:	It's March 26th, the transcript line reference is 1129.

1252
MS. SQUIRES:	I believe we were talking about -- this was in the context of the amendment to the OEB Act in which you asked the question.

1253
MS. LOTT:	That's correct. Yeah.

1254
MS. SQUIRES:	Yeah, I agree with my earlier response.

1255
MS. LOTT:	And just based on that, would you also agree that if we had this regulatory framework, that in addition to the protocols, it would significantly advance the achievement of consensus in the consultative and in the audit committees?

1256
MS. SQUIRES:	I -- well, it's difficult to speculate as to whether all intervenors would continue or would change their position on certain issues if the Board were to mandate, perhaps, a certain framework for DSM. I don't know that that necessarily would prevent intervenors from voicing concerns or disagreement. It perhaps would facilitate how we move forward, even in light of opposition, I suppose. So yes, I guess it would still contribute to making the process more productive and efficient.

1257
MS. LOTT:	Those are my questions. Thank you very much.

1258
MR. BETTS:	Thank you, Ms. Lott.

1259
Mr. MacOdrum, it's getting late. Can you wait until tomorrow?

1260
MR. MacODRUM:	I can, indeed, sir.

1261
MR. BETTS:	Thank you.

1262
And I believe Mr. MacOdrum and Mr. Moran are the last two that are interested in posing questions. So tomorrow morning, Mr. O'Leary, we will deal with the final questions to this panel.

1263
MR. O'LEARY:	That would be satisfactory, Mr. Chair.

1264
MR. BETTS:	And Ms. Lott, will you -- will you undertake to clarify the undertaking of Enbridge.

1265
MS. LOTT:	Yes, I was just speaking to my consultant here, and she will come to speak to you apart from this hearing and we can straighten that out.

1266
MR. BETTS:	And Mr. Moran or someone else can get that on the record for you.

1267
MS. LOTT:	Thank you very much.

1268
MR. DeROSE:	Mr. Chairman, back here. If we can just -- if Mr. MacOdrum and Mr. Moran would just be able to give us an idea of what time they expect so for those of us that are going to be arguing the EnTRAC issue tomorrow, we can, perhaps, not be here first thing in the morning but instead prepare for the EnTRAC right to the last minute.

1269
MR. MORAN:	Mr. Chair, I'm looking at maybe 5 to 10 minutes at the most.

1270
MR. BETTS:	And Mr. MacOdrum?

1271
MR. MacODRUM:	Mr. Chairman, given the -- you know, we lawyers spend a lot of time criticizing other people's estimates and forecasts and -- but given our own track record with our estimates and forecasts, I can only state a range that -- with the present state of my notes, I would expect to be between half an hour and an hour.

1272
MR. BETTS:	Okay.

1273
Mr. O'Leary, any -- I mean we have to spend the time on it one way or the other so that's for -- I think for scheduling purposes only, we would look as though we're going to be probably an hour to an hour and a half in finalizing questions, and that's -- we should be allowing, obviously, some opportunity for panel questions and re-examination from Enbridge.

1274
So it will be in that order of magnitude, and if I could ask one more question one more time, are there any other matters that we should consider for tomorrow or before we adjourn?

1275
MR. O'LEARY:	There is one matter which consists of responses to a series of undertakings that were given during the EnTRAC panels and I thought perhaps I could file our responses with you at this time, if that's satisfactory?

1276
MR. BETTS:	I think that would be appropriate since it will be discussed tomorrow.


1277
MR. O'LEARY:	What I have is on day four, there were five undertakings given and four, to this point, have been completed with the outstanding one being Undertaking J.4.1, and then we also have the -- the company also has answers to Undertakings 5.1 to 5.7 which I believe leaves only one further undertaking outstanding which we may even get to before I finish distributing these undertakings here, but if not, we'll try to have it to the parties first thing in the morning.

1278
MR. BETTS:	Okay. That would be great.

1279
MR. O'LEARY:	I will leave copies of these undertakings at the back of the room for the parties to help themselves.

1280
MR. BETTS:	Thank you, Mr. O'Leary.

1281
In the interests of everybody's time, we can certainly get our copies very shortly. Are there any other matters that we should review? Then we will adjourn at this time and reconvene at 9:30 tomorrow morning. And everybody continue what you're doing because we're going to get some papers, so thank you very much.

1282
--- Whereupon the hearing adjourned at 4:33 p.m.