Rep: OEB
Doc: 12NB1
Rev: 0













ONTARIO ENERGY BOARD

Volume: 7

1 APRIL 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
1 APRIL 2003

5
HEARING HELD AT TORONTO, ONTARIO



6
APPEARANCES

7

PAT MORAN

Board Counsel

COLIN SCHUCH

Board Staff

SUZANNE TONG

Board Staff

DENNIS O'LEARY

Enbridge Gas

TANIA PERSAD

Enbridge Gas

THOMAS BRETT

OASBO

ROBERT WARREN

CAC

JAY SHEPHERD

OPSBA

VINCE DEROSE

IGUA

BRUCE MacODRUM

CME

MICHAEL Janigan

VECC

ROGER Higgin

VECC

JIM Hamilton

OESC



8
TABLE OF CONTENTS

9

PRELIMINARY MATTERS:

[20]





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

[43]




CROSS-EXAMINATION BY MR. MacODRUM:

[50]





CROSS-EXAMINATION BY MR. MORAN:

[308]





RE-EXAMINATION BY MR. O'LEARY:

[325]





QUESTIONS FROM THE BOARD:

[380]






PRELIMINARY MATTERS:

[464]





ARGUMENT BY MR. O'LEARY ON ISSUE 6.4:

[480]





ARGUMENT BY MR. JANIGAN ON ISSUE 6.4:

[577]





ARGUMENT BY MR. WARREN ON ISSUE 6.4:

[674]





ARGUMENT BY MR. SHEPHERD ON ISSUE 6.4:

[760]





ARGUMENT BY MR. BRETT ON ISSUE 6.4:

[819]





ARGUMENT BY MR. DeROSE ON ISSUE 6.4:

[918]





ARGUMENT BY MR. HAMILTON ON ISSUE 6.4:

[968]





10
EXHIBITS

11

EXHIBIT NO. K.7.1:	OUTLINE FOR CORPORATE COST ALLOCATIONS, PANEL 1, EXAMINATION-IN-CHIEF

[474]









12
UNDERTAKINGS

13











































14
--- Upon commencing at 9:52 a.m.
15
MR. BETTS:	Good morning, and thank you. Please be seated.

16
Once again, good morning. We are reconvening to sit for day six of the hearing for application RP-2002-0133. We are starting a little bit late. Nobody's fault, certainly weather-related. I'm glad everybody has arrived safely, and that's about all anybody can do on a day like today. A little bit of a late start is fully understandable.

17
When we left last night, the record will show we were in the process of cross-examining the applicant's panel on DSM issues, specifically 9.2 through to 9.5, and at that point we had Mr. MacOdrum up next to begin questioning and that we will do very shortly.

18
Before we do that, I would just inquire if there are any preliminary matters to be dealt with.

19
Mr. O'Leary.

20
PRELIMINARY MATTERS:



21
MR. O'LEARY:	Yes, Mr. Chair, just two very minor corrections to the record, but before I identify those, I would like to thank the Board for its indulgence this morning and patience. We do blame the weather. Hope it doesn't keep us too late this evening.

22
The one reference is on -- is in volume 4 of the transcript, March 27th, 2003, and it's found at paragraph 217. And it's in a response by Ms. Squires, and the reference is -- it's one of those situations where it's the old, was the traffic light red or green, and the transcript reference unfortunately is the wrong colour.

23
I'll read the entire sentence. She states that:

24
"On a consultative side I can point to specific programs and program delivery concepts that are brought to the table as ideas from members of the consultative group and some of these programs have be quite --" and the transcript reads "unsuccessful," but the correct answer is successful. Is that correct, Ms. Squires?

25
MS. SQUIRES:	That's correct.

26
MR. O'LEARY:	That's at paragraph 217.


27
A very minor further correction in the transcript at paragraph 384 in the second line, there's one too many "this," and that should be removed, and those are the extent of the corrections that we noted in that transcript, Mr. Chair.

28
MR. BETTS:	Thank you.

29
Are there any other preliminary matters? Mr. O'Leary, is that all of them?

30
MR. O'LEARY:	The only thing perhaps I should identify on the record is at the conclusion of yesterday, we were able to complete the balance of the answers to undertakings given during the EnTRAC cross-examinations, and copies were left with Mr. Moran, including Undertaking 5.7, which we inadvertently didn't attach the attachment to. But that has now been rectified and the attachment has been provided to Mr. Moran, and copies are available at the back of the room.

31
MR. BETTS:	Thank you.

32
MR. O'LEARY:	Those are all the preliminary matters on behalf of the applicant.

33
MR. BETTS:	Thank you.

34
Mr. Moran, any preliminary matters?

35
MR. MORAN:	No, Mr. Chair.

36
MR. BETTS:	And are there any intervenors with preliminary matters? There appear to be none.

37
One item that was left last night was an undertaking that, on behalf of VECC, there was to be some discussion with the witnesses to see if that could be determined exactly what it was about.

38
Mr. Moran.

39
MR. MORAN:	My understanding is that that's still under discussion, Mr. Chair, so there's nothing to report on that.

40
MR. BETTS:	Thank you.

41
Then if there are no further preliminary matters, I will invite Mr. MacOdrum to begin his questioning.

42
MR. MacODRUM:	Thank you very much, Mr. Chairman.


43
:ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUES 9.2 TO 9.5; CONTINUED: SQUIRES, RYCKMAN, WILLIAMS, HEENEY, SIMON



44
P.SQUIRES; Previously sworn.

45
N.RYCKMAN; Previously sworn.

46
T.WILLIAMS; Previously sworn.

47
D.HEENEY; Previously sworn.

48
J.SIMON; Previously sworn.

49
MR. MacODRUM:	Good morning, members of the panel.

50
CROSS-EXAMINATION BY MR. MacODRUM:

51
MR. MacODRUM:	Ms. Squires, if I could begin with some questions for you. Do I understand that the current DSM process involves setting a volume target first and then deriving the budget for the programs from the volumetric target?

52
MS. SQUIRES:	Not as a rule. It's often -- they're often looked at and set simultaneously, and in discussions with the consultative group or even discussions within the company, we look at trying to balance one against the other, so it's not necessarily one before the other.

53
MR. MacODRUM:	Logically, don't you have to set one or the other first and then derive the other from it?

54
MS. SQUIRES:	I suppose as a starting point you would need to pick one, but it's very much an iterative process. Looking at, as we've discussed in earlier testimony, looking at previous years' successes and having an understanding of, perhaps, what some of the pressures might be from different intervenor groups about what the target and/or budget should be.


55
MR. MacODRUM:	But am I correct in assuming that although it is an iterative process, that the tendency has been to concentrate on the volume and derive a budget from that, and that during the course of the process, it has been suggested that the emphasis change, and that you should set a budget first, fix the budget, and then derive a volumetric target that meets that budget?

56
MS. SQUIRES:	In our evidence, we've made a suggestion -- a few suggestions as to how a budget guideline might be set. That's in our evidence related to a new framework for DSM. But I don't think we're explicitly suggesting that you necessarily set the budget first as a rule. We just got suggestions as to how that budget -- the ballpark for that budget might be landed on.

57
MR. MacODRUM:	Do you think if you did set the budget first that it would then involve less time and resources in setting the target, because the range that the target could be in could be narrowed?

58
MS. SQUIRES:	Yes, I believe that's true, and I believe the reverse is also true: If you were to set the volumetric target first, that limits the range of budget that you could spend to achieve it.

59
MR. MacODRUM:	Ms. Squires, would you agree with me that Enbridge at any time can lose load for reasons that are beyond its control? For example, if a commercial business has to close down due to bankruptcy or receivership or whatever, you lose load; is that correct?

60
MS. SQUIRES:	In that situation, yes.

61
MR. MacODRUM:	And you don't recover your lost margin on that lost load?

62
MS. SQUIRES:	Not specifically on that customer's lost load.

63
MR. MacODRUM:	Now, in your testimony in answers for Mr. Poch, and unfortunately I don't have the paragraph reference but it was pages 31 and 32 of the March 26th transcript, I believe you said that Enbridge is kept whole as far as the cubic metres of gas saved through its DSM efforts by virtue of the LRAM. The LRAM is to keep Enbridge whole as a result of its lost load from DSM programs; is that correct?

64
MS. SQUIRES:	That's correct.

65
MR. MacODRUM:	And you claim 100 percent credit for the natural gas savings of lost load for each of your DSM programs?

66
MS. SQUIRES:	Perhaps I should clarify how the LRAM works.

67
In the company's overall volumetric budget-setting process, the company incorporates the forecasted DSM volumes into that overall load forecast, and the LRAM is only meant to correct for variances from that original forecast.

68
MR. MacODRUM:	But the way you do it is, in effect, to capture 100 percent of the load that is lost through DSM programs?

69
MS. SQUIRES:	Yes, through both the overall volumetric setting process -- volumetric budget-setting process and the LRAM.

70
MR. MacODRUM:	Now, the auditor's recommendation for 2000 was that the 10 percent should be replaced with 49 percent for business markets for the free-rider rate.

71
MS. SQUIRES:	I believe the auditor's recommendation was to replace the 10 percent with a value in the range specified.

72
MR. MacODRUM:	And for various reasons, the company didn't accept the 49 percent but suggested that the free-rider rate for business market should be 30 percent?

73
MS. SQUIRES:	In the 2003 budget; that's correct.

74
MR. MacODRUM:	And the free-rider benefits are netted out of the TRC calculation; is that correct?

75
MS. SQUIRES:	That's correct.

76
MR. MacODRUM:	And which rate did you use in the netting out for the 2000 SSM claim? Did you use 10 percent or did you use 30 percent?

77
MS. SQUIRES:	10 percent.

78
MR. MacODRUM:	So if you assumed that the free-rider rate was 10 percent but the auditor said it should be 49 percent, but you reject the 49 percent, you think 30 percent -- if you use the 30 percent rather than the 10 percent, doesn't that prevent you being rewarded for lost load that you didn't create?

79
MS. SQUIRES:	I sense that we're mixing principles here. Lost load is compensated, if you will --


80
MR. MacODRUM:	I'm not talking about compensating for lost load through the LRAM. I'm talking about how the TRC calculation takes into account load that your programs did not reduce; in other words, the free riders.

81
MS. SQUIRES:	And I'm sorry, your question again is?

82
MR. MacODRUM:	The question is, by continuing to use the 10 percent for 2000, you're in effect getting a benefit that you yourselves recognize you don't deserve by accepting that the free ridership accurately should be at least 30 percent.

83
MS. SQUIRES:	I would not say that we don't deserve the reward. Our principle about the purpose of the SSM is that it should be used to reward or punish, if you will, through a penalty to the company for its actions given the information that it had at the time of program delivery.

84
MR. MacODRUM:	But you agree with me that the 10 percent, you now recognize that that's not the right number.

85
MS. SQUIRES:	Well, actually, the 30 percent figure that we've landed on for the 2003 budget was established by looking at and researching and surveying participants in 2001 and 2002 programs, so I -- I wouldn't -- I can't say with any certainty that that would have been the right number for 2000.

86
MR. MacODRUM:	Are you telling that a whole lot more work went into deriving the 30 percent than did deriving the 10 percent?

87
MS. SQUIRES:	That's true, and the 49 as well.

88
MR. MacODRUM:	I would like to briefly discuss with you, Ms. Squires, the dynamics of the consultative process, and would you agree with me that the parties in the consultative process represent specific interests?

89
MS. SQUIRES:	Yes, I would.

90
MR. MacODRUM:	And could you help me understand what is the interest that the environmental groups generally, GEC and Pollution Probe, represent at the consultative process?

91

MS. SQUIRES:	I can't speak on their behalf. From my perspective, what I see as their interests, they are ensuring that energy conservation and energy efficiency continues to be promoted and increased to the extent possible.

92
MR. MacODRUM:	So their interest is really more programs, higher targets, and larger DSM budgets?

93
MS. SQUIRES:	Well, I'm hesitant to comment on what their objectives are.

94
MR. MacODRUM:	But from your observations of the dynamics of the consultative process.

95
MS. SQUIRES:	From my observations, they are interested in pursuing continued and increased cost-effective DSM programs.

96
MR. MacODRUM:	What would you think they more are placing the emphasis on, the increase or the cost effectiveness?

97
MS. SQUIRES:	From what I see, I would say both.

98
MR. MacODRUM:	In the partial settlement agreement, the major partial settlement agreement, not the December 2002 settlement, partial settlement agreement, at -- which is Exhibit N.1, tab 1, schedule 1, page 72, you make a reference there that there is an agreement that a budget of 20,000 is appropriate for an independent DSM meeting facilitator.

99
So do I take it from that -- it's my understanding that the DSM facilitator should be independent?

100
MS. SQUIRES:	Yes, that's the language we used.

101
MR. MacODRUM:	Who was the facilitator at the November 2002 meeting of the consultative that elected the audit subcommittee?

102
MS. SQUIRES:	Dennis O'Leary.

103
MR. MacODRUM:	And at that time was Mr. O'Leary retained by Enbridge in this proceeding?

104
MS. SQUIRES:	I can't say for certain. I'm not sure of the timing of the actual --

105
MR. MacODRUM:	Was his firm retained by Enbridge in this proceeding?

106

MR. RYCKMAN:	I believe it was.

107
MR. O'LEARY:	The answer is yes.

108
MR. MacODRUM:	Yes, to both, Mr. O'Leary?

109
MR. O'LEARY:	I'm not aware I'm under oath, but that is yes to both.

110
MR. BETTS:	We'll accept that.

111
MR. MacODRUM:	So is the $20,000 that's been identified, is that for a truly independent DSM facilitator?

112
MS. SQUIRES:	We haven't identified that Mr. O'Leary, or any other party for that matter, would necessarily be the facilitator going forward.

113
MS. SIMON:	Normally in a facilitation process, what's meant by an independent facilitator is one that's not through -- a salaried employee, so anyone, ultimately, would be Enbridge that would be paying the bills, but as long as the person was not a direct employee, that would be what's normally treated as an independent facilitator in these types of activities.

114
MR. MacODRUM:	So it's your view that an advocate for the company's position in the very type of proceeding -- very proceeding to which the consultative may have input is independent?

115
MS. SIMON:	I think that especially lawyers are trained and have the skill set, in fairness, and respect of those kind of activities, and so typically, I've seen the capabilities there to be independent facilitators are normally retained by the company, so in my experience I don't see a problem there.

116
MR. MacODRUM:	Do you think it might be reasonable for some participant in the consultative to have some concerns about the independence of a facilitator who was also counsel of record in a proceeding to which the consultative may have input?

117
MS. SIMON:	The facilitator's job is to make sure that the process is the management of the process. It's chairing the meetings and making sure that the process runs smoothly and parties have an opportunity to be heard, so in that context, I would think that it's quite possible to be independent.

118

MR. MacODRUM:	That wasn't my question. My question was, do you think it's reasonable for a party to the consultative to be apprehensive about the independence of the facilitator given the very situation we were in November of 2002?

119
MS. SQUIRES:	My feeling is that if the facilitator is carrying out their tasks to deliver and manage the agenda of the meeting and ensure that the parties have the opportunity to express their views, that those parties shouldn't have those concerns about the facilitator.

120
MR. MacODRUM:	I'm not asking whether they should; I'm not asking you whether the facilitator was or wasn't independent, in his own mind and his own skill set. I'm asking you whether it would be reasonable for a party to the consultative to be apprehensive about the independence of the facilitator when they find themselves in the position that Mr. O'Leary was in the December consultative.

121
MS. SIMON:	I think any participant to any kind of facilitated process would initially be concerned by any facilitator that was retained. I think that the proof is in the pudding; if the facilitator is a good facilitator, and is proceeding in a fair manner, I think those concerns should dissipate.

122
MR. MacODRUM:	My question was not about any facilitator. My question was about a facilitator in the circumstances that Mr. O'Leary was at the December -- sorry, the November 2002 meeting at which the audit committee was selected.

123
MS. SIMON:	Since I answered any facilitator. Mr. O'Leary would be a subset of that, so my answer would apply to him as well.

124
MR. MacODRUM:	I'm not interested in subsets. I'm interested in the specific circumstances of the November 2002 meeting. Would you please address your answer to that.

125
MS. SQUIRES:	I believe it's possible for some parties to have concerns about Mr. O'Leary being a facilitator at the November 22nd consultative meeting, but I also believe that given that experience and that the agenda was followed and all parties were given the opportunity to speak, that those concerns should be alleviated in future situations like that.

126
MR. MacODRUM:	Were parties given advance notice that Mr. O'Leary was going to be facilitator?

127
MS. SQUIRES:	I can't recall if all parties were told that Mr. O'Leary would be the facilitator, but my recollection is that parties were told that there would be a facilitator at the meeting.

128

MR. MacODRUM:	Ms. Squires, with the voting rules that you're proposing in the partial settlement for the audit subcommittee, would you agree with me that it is possible for a full spectrum of views of the consultative therefore not to be represented on the audit subcommittee?

129
MS. SQUIRES:	I think by definition, given that there are only four members or four participants on the audit subcommittee, that it can't possibly reflect every single member's position. However, the arrangement is such that the subcommittee is supposed to act on behalf of the larger consultative group and be available to them for consultation and to carry their views forward if desired.

130
MR. MacODRUM:	But the proposed voting arrangement can freeze out minority views or exclude minority views?

131
MR. RYCKMAN:	If I could just add something. One of the things that Ms. Squires said in previous testimony is that the auditor is an independent auditor doing the actual audit function, so the audit subcommittee is a working group charged with managing the process of the audit, not actually doing the audit.

132
She also mentioned that there was an ability for intervenors to communicate directly with the auditor as well, so I would think that their views would be funneled through to the auditor to the extent that they felt that they wanted to do that.

133
MR. MacODRUM:	My question didn't relate to the notes, e-mails, letter, and other representations that parties to the consultative might make to the auditor. It was the deliberations of the audit subcommittee.

134
Would you agree with me that a minority view could be excluded from the deliberations of the audit subcommittee?

135
MS. SQUIRES:	I don't believe that's true, because as Mr. Ryckman said, parties have the ability to ensure that their views are expressed and considered by the audit subcommittee and the auditor.

136
MR. MacODRUM:	Would you agree that someone with a minority view could be excluded from the membership of the audit subcommittee?

137
MS. SQUIRES:	That's possible.

138

MR. MacODRUM:	Ms. Squires, I believe you've testified that in order to set new volumetric targets and budgets, Enbridge needs supporting market information and a survey of DSM activity by other utilities as a benchmark for performance?

139
MS. SQUIRES:	That's correct.

140
MR. MacODRUM:	What kind of marketing information are you looking for?

141
MS. SQUIRES:	Excuse me while I just refer to my notes.

142
The proposal in the company's evidence to undertake market analysis is intended to look at a host of areas, everything from market-research type studies to understand technologies, behaviours, the stock of the equipment in customers' homes and premises, to also looking at, sort of -- I'm not sure whether you're talking about the $500,000 market research or the study of other utilities. Perhaps I could ask you to clarify.

143
MR. MacODRUM:	I'm talking about, in this question, your own research. Not the survey --

144
MS. SQUIRES:	So the answer I just provided is the high-level summary of the kinds of information we would be looking for.

145
MR. MacODRUM:	It's a high-level summary of research that is going to be a detailed end-use market research. You want to really get into peoples' homes or businesses - I'm not being critical; I'm just trying to understand - and understand what they are using gas for?

146
MS. SQUIRES:	Yes, the research is intended to be targeted on a priority basis.

147
MR. MacODRUM:	Turning now to the research at other jurisdictions, why do you believe that the activities and the experience of other jurisdictions will be of value to the situation in Ontario?

148
MS. SQUIRES:	I think -- I think it's of value because Enbridge and Union Gas, for that matter, have reached a point in the delivery of their DSM programs where there are often questions - well, speaking just for Enbridge - about whether the level of our activity is too high or too low or just about right.

149
So as a starting point, we want to put Enbridge's performance in DSM in perspective of what other utilities in North America have been able to accomplish, and we feel that will not only help the company and intervenors in discussing targets and budgets, but it will also help the Board understand the context that we are delivering our programs in.

150

MR. MacODRUM:	I believe my next question is to Mr. Heeney.

151
Would you turn to Exhibit A.7, tab 2, schedule 2, and I'd like to take you first to, I believe it is page 11, and table 2.

152
This is the -- Mr. Chair, this is the IndEco, in large print, and Navigant Consulting study.

153
MR. BETTS:	Thank you. We've got it, Mr. MacOdrum.

154
MR. MacODRUM:	Do you have that, Mr Heeney? Do you have the exhibit in front of you, Mr. Heeney?

155
MR. HEENEY:	Yes, I'm sorry.

156
MR. MacODRUM:	Looking at table 2, did you prepare this table?

157
MR. HEENEY:	I -- we did this jointly, Navigant and IndEco. I think this particular table Todd Williams prepared.

158
MR. WILLIAMS:	Yes, I did.

159
MR. MacODRUM:	Perhaps you could help me with this.

160
The years 1999 and 2000, the comparison between the calculated -- of the calculated SSM is of audited amounts; is that correct?

161
MR. WILLIAMS:	1999 is audited, and I believe the 2000 audit results were not --

162
MS. SQUIRES:	The amount identified in the 2000 year represents the company's audit -- post-audit claim for 2000.

163
MR. MacODRUM:	Post-audit claim, so it's an audited amount?

164
MS. SQUIRES:	For 2000, yes.

165
MR. MacODRUM:	But for 2001 it's not an audited claim; is that correct?

166

MS. SQUIRES:	That's correct.

167
MR. MacODRUM:	So this table is sort of mixing - to use the old saw - apples and oranges.

168
MR. WILLIAMS:	It's intended to be illustrative of the impact of the proposed incentive mechanism relative to the incentive mechanism that existed previously for Enbridge.

169
MR. MacODRUM:	You're not suggesting that an audited claim is the same as the audited, are you?

170
MR. WILLIAMS:	As I said, the table is illustrative only.

171
MR. MacODRUM:	Turn to page 10. Again, you can help me with who's the appropriate witness to answer these questions, and I'm looking at the last sentence of the first paragraph. It says:

172
"The key parameters of the assumed budget in DSM portfolio are as follows."

173
And it's suggesting an annual DSM budget of 8 plus 2, 10 million, with a target of 89, whatever it is, cubic metres.

174
Is that what Enbridge is now -- what Enbridge is proposing?

175
MR. WILLIAMS:	No. As I said, this was -- the intent here was to illustrate the impact that the proposed incentive mechanism would have on the -- essentially the SSM, so what we were trying to compare was what was existing today with the proposed mechanism, and to show how that would vary with respect to either the M cubed achieved or the TRC results achieved.

176
And this -- this -- these are sort of assumptions going into looking at that illustration, assumptions for that analysis.

177
MR. MacODRUM:	So what is the relevance of these numbers to the budget setting and the target-setting process?

178
MS. SQUIRES:	There is no direct link. They are hypothetical -- it's a hypothetical scenario, although we did try to pick numbers that were approximately in the range of numbers that we've been dealing with lately, just for the purposes of making this realistic.

179

MR. MacODRUM:	Approximately in the range of what you're dealing with lately means what you would like the numbers to be, Ms. Squires?

180
MS. SQUIRES:	Not necessarily.

181
MR. MacODRUM:	What do you mean by "approximately in the range"?

182
MS. SQUIRES:	Well, for example, the annual DSM target of 89, 106 , M3 happens to be the number that we had in our original filing for 2003, which we subsequently changed. But that's -- that gives you an example of, you know, how we borrowed from reality for the illustrative case.

183
MR. MacODRUM:	Happens to be, or the consultant was directed that they use that, or suggested they use that number?

184
MS. SQUIRES:	No, the consultant was not directed to use that.

185
MR. MacODRUM:	I think it's still Mr. Williams. Could you turn to page 4. In the second sentence on the first paragraph, it says:

186
"The determination of TRC is a complex calculation with many input variables. Almost all of these variables are outside EGD's direct control."

187
What are the variables that are outside EGD's direct control.

188
MR. WILLIAMS:	I think actually the proposed settlement actually talks to a lot of those variables that are outside Enbridge's control, so I might just refer to that in terms of looking at a lot of program parameters.

189
MR. MacODRUM:	Let's do that. What's the reference?

190
MR. WILLIAMS:	I was looking at Exhibit N.1, tab 1, schedule 1, starting on page 69.

191
MR. MacODRUM:	Where do I find the parameters that are beyond Enbridge's control?

192
MR. WILLIAMS:	Yeah, if we go to the -- if we go to the second-last bulleted text on that page, on page 69, now, I'll just read it -- and this is an example of parameters that will be outside Enbridge's control:


193
"For prescriptive programs, actual TRC benefits will be calculated using the budget values for annual unit savings for measures, measure lifetimes, customer incremental costs and free-rider rates."

194
Those would be parameters that would be outside of Enbridge's control.

195
MR. MacODRUM:	Now, could you agree with me that, at least in the business market, there's been some discussion to date about to what extent free-rider estimate is within or without the company's control?

196
MS. SQUIRES:	Yes, there's been some discussion.

197
MR. MacODRUM:	And given the possibility that the company could do a better job of screening for free riders, that there may be a greater degree to which the free-rider rate is within the company's control?

198
MS. SQUIRES:	We don't -- we don't believe that that's the case, and the fact that it can be measured in better ways does not necessarily mean that we have the ability to influence it.

199
MR. MacODRUM:	Wouldn't one of the points of being able to measure it better would be so that you could influence it?

200
MS. SQUIRES:	No, the measurement and the evaluation of any variable -- there's always room for improvement in measurement and evaluation processes, and I don't believe there's any link between those improvements and the ability of the company to control something.

201
MR. MacODRUM:	On page 4, you say:

202
"The determination of TRC is a complex calculation with many input variables."

203
Could you explain, aside from the multiplicity of variables, what adds to the complexity of it?

204
MR. WILLIAMS:	Well, I think the nature of the calculation is, you know, accurately estimating the cost and accurately estimating the benefits. And as was discussed earlier, presented earlier, the TRC calculation is really just a measure of the net benefit to customers from the DSM programs that Enbridge implements.

205

MS. SQUIRES:	I would add that the net-present-value component of the calculation adds some complexity as well.

206
MR. MacODRUM:	Given that complexity, given the difficulty of estimating the variables that are beyond the control of the company, what is the margin of error in the TRC calculation?

207
MR. WILLIAMS:	I wouldn't say that the parameters that are outside the control of the company are necessarily difficult to calculate. I think I would make the distinction that there are some variables that are within the control of the company and some that are not, but those that are not are not necessarily difficult to calculate. I wouldn't want to suggest that.

208
MR. MacODRUM:	So you're suggesting that measure lifetimes, to take your example, are not hard to calculate, yet we're having a dispute even over something like water heaters, over what's the reasonable assumption to use as the lifetime for that.

209
Certainly you're not suggesting that there is an easy -- the free-rider rates are easy to estimate and there is great agreement on what they should be?

210
MR. WILLIAMS:	I think in a lot of those parameters, there would be different perspectives on -- on an appropriate figure.

211
MR. MacODRUM:	So given the complexity and the range of the variables, what is the margin of the most likely TRC? What's the range of the -- what is it, plus or minus 10 percent?

212
MS. SQUIRES:	We can't quantify that.

213
There are, as Mr. Williams described, numerous inputs to the TRC calculation and each one of those perhaps has its own margin of error. And I'm not aware of any exercise that anybody has undertaken to actually pinpoint the margin of error around the total TRC.

214
MR. WILLIAMS:	And I think it's also worth pointing out that with, you know, the range in each of those parameters, they would tend to balance out, so one might offset the others.

215
MR. MacODRUM:	Do I understand your testimony, Mr. Williams, that you say that these factors may balance out, and that's your testimony? And you're giving that testimony immediately after Ms. Squires had just testified that we haven't undertaken the study?

216

MR. WILLIAMS:	No, I'm saying that, based on my experience working with TRC calculations over the past 20 years, and understanding the inputs, that my own view is that the parameters can balance out, the range of uncertainty. So the range of uncertainty for one multiplied by the range of uncertainty for the other, I mean at the end of the day, they could balance out. That's the point I'm trying to make.

217
MR. MacODRUM:	Certainly they could balance out. But have you undertaken a detailed -- the detailed type of margin-of-error studies of all of the input variables, Mr. Williams?

218
MR. WILLIAMS:	Not specifically.

219
MR. MacODRUM:	Not in your 20 years of experience, you have not undertaken those specific studies, have you?

220
MR. WILLIAMS:	Not specifically.

221
MR. MacODRUM:	You don't know whether they do balance out or they don't; you just think that they could balance out?

222
MR. WILLIAMS:	I think it's worthwhile to point out that the TRC calculation is an industry-accepted methodology for calculating the benefit from DSM programs, so a lot of other -- a lot of other governments, regulatory agencies and utilities have accepted this calculation as a methodology to determine what are the benefit from DSM programs.

223
MS. SQUIRES:	I think just to add to that, we are undertaking an activity -- a Board-mandated activity to carry out DSM and to encourage conservation. So again, by definition, we're tasked with measuring something that didn't happen.

224
And how else do you -- I don't see any other way that you can measure, with the strictest of accuracy, with a small range of error, exactly what we're trying to measure. We are using the best tools available in the industry to do so.

225
MR. MacODRUM:	Mr. Williams, I may still be with you. I have appendix A, a summary of case studies, which I believe is an appendix to Navigant Consulting report, "DSM in a PBR Environment," which I think is Exhibit I, tab 74, schedule 179; is that correct? Appendix A. They're not numbered pages, but I think it's pages 36 and 37. Is that correct?

226
MR. WILLIAMS:	Appendix A, "Summary of Case Studies"?

227
MR. MacODRUM:	Yes. Do you have that?

228
MR. WILLIAMS:	Yes, I do.

229
MR. MacODRUM:	And that was a Navigant report?

230
MR. WILLIAMS:	Yes, it was.

231
MR. MacODRUM:	And were you involved in its preparation?

232
MR. WILLIAMS:	Yes.

233
MR. MacODRUM:	How were the 13 jurisdictions chosen?

234
MR. WILLIAMS:	As the title of the study indicates, it's DSM in a PBR framework so we were looking for, to the extent possible, utilities that were offering DSM programs, who were also subject to a PBR framework, if you will. So, in a sense, that was the primary filter for identifying the utilities.

235
MR. MacODRUM:	Was there any filter inserted to see if they were most relevant to the circumstances of Enbridge in Ontario?

236
MR. WILLIAMS:	I think the reality is that these were the utilities that actually popped through that filter. In fact, there was another one that had some interesting DSM programs and parameters that we thought were worthwhile to include. But when you do that filtering, this is what -- these are the utilities that popped through.

237
MR. MacODRUM:	And of the 13 utilities you surveyed, seven have a shared savings mechanism and six do not? The six that do not, by my understanding, are New York, Washington, Maine, Oregon, the U.K. and Norway?

238
MR. WILLIAMS:	This study was done a little while ago, so I'm just refreshing my memory.

239
Yes, based on this study, there were seven utilities that had an SSM.

240
MR. MacODRUM:	And of the seven that do have an SSM, most base it on a percentage of the DSM budget; is that correct?

241
MR. WILLIAMS:	Of those, yes. Most were -- I'd say five --

242

MR. MacODRUM:	Do any of the seven jurisdictions base their SSM on a TRC calculation?

243
MR. WILLIAMS:	Yes. Of the ones we studied, I believe it was Maryland and British Columbia base their SSM on TRC calculations.

244
MR. MacODRUM:	Is it done in the same manner as Enbridge?

245
MR. WILLIAMS:	No, it's not the same manner. As I pointed out yesterday, the calculations -- the shared savings for Maryland and British Columbia are based on the total TRC generated, whereas Enbridge's historic SSM, as well as in essence the proposed settlement, is based on the difference from kind of a target TRC to the actual TRC.

246
So I would not say that they are the same, but I would also -- I would say that those two are based on the TRC calculation.

247
MR. MacODRUM:	Now, turning to what you found out about other utilities using LRAM or something equivalent to that, would you agree with me that this appendix shows that only three utilities allow the lost revenue due to DSM to be recovered?

248
MR. WILLIAMS:	That is one area of the report where I think we did not, frankly, dig deep enough to characterize the LRAM. So a lot of these -- these jurisdictions, they may have had a one-year rate-setting process, and in a lot of cases, when you look at -- looking at the -- on the public record, I would say that, sort of in retrospect, we may have underestimated the number of utilities that had LRAM.

249
MR. MacODRUM:	Would you agree with me that the appendix, the exhibit that has been filed with the Board, indicates that only three of the utilities allow lost revenue equivalent to LRAM to be recovered?

250
MR. WILLIAMS:	The -- as I said, the appendix does indicate that, but I'm --

251
MR. MacODRUM:	Thank you.

252
MR. WILLIAMS:	I'm just saying that in retrospect and looking at it and sort of digging a little bit deeper subsequent to that, that there would likely be other utilities that have, in fact, an LRAM mechanism.

253
MR. MacODRUM:	But --

254

MR. WILLIAMS:	Actually, I just want to make another point with respect to LRAM.

255
In a lot of these -- in essence, the LRAM calculation for Enbridge has kind of two components; one is up front in terms of estimation of DSM impact, and the other component is kind of an after-the-fact component.

256
So in essence what we were -- the issue that I have with sort of the correction I want to make to this study is we were looking for kind of the after-the-fact component of LRAM as opposed to the LRAM up front.

257
Naturally, the utility has projections of DSM, whether it's M cubed or kilowatt hours if they're electric, and that's going into the rate-setting process. By definition that part is what we're calling LRAM. That's why I just want to get the record straight in terms of those other utilities, I would say, most likely would have that calculation, the estimate of the DSM savings built into the rate-setting process. It's the after-the-fact adjustment that I think some of them do not have. So the initial LRAM, yes.

258
MR. MacODRUM:	That's quite a significant qualification to these appendices, isn't it?

259
MR. WILLIAMS:	No, I mean -- yeah. Yeah, I mean we did not -- keep in mind that this study was intended to be a high-level scan across sort of what other utilities were doing. Because it was a high-level scan, we did not have time nor a budget to dig down into, frankly, a lot of the details.

260
MR. MacODRUM:	No, but you've done that now, or you are testifying that you have this additional information which would correct any misinterpretation that somebody made of these appendices. But here, with the last cross-examiner on the last day of the panel, you find it timely to make this correction?

261
MS. SQUIRES:	I guess I would put forward that if the issue came up sooner, we would have made the corrections.

262
MR. WILLIAMS:	Yeah, we would have made it then.

263
MR. MacODRUM:	You're saying you would have just left -- if I hadn't raised this topic at all, you would have just let the appendices lie, even though Mr. Williams's recent research, if I can call it that, suggests that they are substantially incomplete.

264
MS. SQUIRES:	It's -- the comments that Mr. Williams has just made with respect to this appendix are meant to clarify the information in the appendix. He's not suggesting the information is incorrect. It's a clarification so that there's an appropriate understanding of the information that's in there.

265
MR. WILLIAMS:	And I think as well, keep in mind, that it was intended to be a high-level, sort of broad-brush approach.

266
MR. MacODRUM:	I guess we're finding out how broad-brush it was.

267
New Jersey is one of the three that does have a lost revenue -- lost revenue to be recovered, and they expect to discontinue the practice in 2002. Is that what the appendices show?

268
MR. WILLIAMS:	That was the -- sort of the ruling at the time. I'm aware that -- I mean, keep in mind that this study was done a little while ago, and I think if we were to have a fresh look at it, obviously we would get new information. And I'm not sure what the latest decision in New Jersey has been with respect to LRAM.

269
MR. MacODRUM:	But what we have before us indicates that they were intending to discontinue it in 2002?

270
MR. WILLIAMS:	Yes.

271
MR. MacODRUM:	Now, as I understand it, you're recommending that Enbridge should receive a reward for meeting or exceeding the DSM target.

272
MS. SQUIRES:	Just to be clear, that's -- that is, in fact, what was recommended by the consultants and that's what's in our company's pre-filed evidence; however, that's not what we've agreed to in 2003 for in the partial settlement.

273
MR. MacODRUM:	Thank you, Ms. Squires.

274
Mr. Williams, you are recommending that the company receive a reward for meeting or exceeding the DSM target; is that correct?

275
MR. WILLIAMS:	In the report that was provided and is now filed as evidence, yes.

276
MR. MacODRUM:	Why do you not also recommend that the company should suffer a penalty for not meeting the DSM targets?

277
MR. WILLIAMS:	In the utilities that we've looked at as part of the study we're just talking about, if we look to A.7, tab 2, schedule 2 and turn to page 2, table 1.

278
MR. MacODRUM:	Sorry, where are you at?

279
MR. WILLIAMS:	Figure 1, sorry, A.7, tab 2, schedule 2, On page 2 -- sorry, figure 1, at the bottom of the page.

280
In that figure, we have calculated the effective reward or penalty associated with the existing SSM at the time, which was 20 percent for 2002. And in that -- so this is -- this is -- this is the incentive or the penalty at -- as expressed as a percent of TRC realized, and in this case, if you look at the penalties expressed as a percent of TRC realized, they start to get quite significant, quite quickly, to the degree that Enbridge fails to meet its target.

281
If we look at -- and in the -- in the study that we were referring to earlier, looking at DSM incentive mechanism for other jurisdictions, there was only one other jurisdiction that we found that, in fact, had penalties. So all, of the other 13 utilities, 13 utilities studied, only one of those had a penalty component in their incentive mechanism. All the other stayed at zero; i.e., there was only a reward.

282
And looking at Enbridge's penalty, in effect as a percent of TRC, it was significantly, significantly greater than other jurisdictions -- the only other jurisdiction being British Columbia. In our case, it was West Kootenay Power.

283
MR. MacODRUM:	So what you're telling me is that looking at Enbridge's current situation, which had a -- you considered to be a very onerous penalty arrangement, you thought the only alternative was to reject the idea of a penalty altogether.

284
MR. HEENEY:	No. Actually, on Exhibit A.7, tab 2, schedule 2, page 9, in the footnote there is discussion that we did give consideration to a penalty, and as explained here, that was rejected because the reward of the target was deemed adequate incentive to ensure that the target was met.

285
MR. MacODRUM:	So help me with your logic there. Are you saying -- you're saying you don't need a penalty because they would never fall below the target?

286
MR. HEENEY:	The whole point of an incentive is to provide an incentive to encourage a certain kind of action. Under the mechanism proposed in this report, there would be a pay-out of approximately $1 million for achieving the target. In essence, if the target was not achieved, that million dollars would not be forthcoming and that million dollars was deemed an adequate incentive to motivate the company to ensure that the target was met.

287
MR. WILLIAMS:	And just in the -- in the example used in this report, the TRC benefits for achieving the target -- again, this is a hypothetical case -- the TRC benefits for achieving the target would be $160 million. So in that case, a reward of a million dollars for achieving that target of creating $16 million worth of benefit for society, we believe is appropriate.

288
MR. MacODRUM:	I'm not trying to understand why you're suggesting to have a reward for exceeding the target. And in this particular question, I'm not trying to understand why you're giving a reward for meeting the target, even though I'm having difficulty understanding why you are.

289
I'm trying to understand why you are not recommending having a penalty.

290
MR. HEENEY:	It's for the reasons that I previously explained which is that the million dollars reward for the target is deemed adequate incentive to motivate the company to achieve the target, and the objective of this mechanism is to provide motivation for the company to achieve the target.

291
MR. WILLIAMS:	And I think also that that is the conclusion that most other regulatory agencies in the jurisdictions that we studied, they came to that same conclusion, and that's why, with the exception of one, they all had no penalties.

292
And I think the other question that's important here is should -- you know, we don't believe it's appropriate for -- for Enbridge to be penalized for creating societal benefits through its DSM efforts.

293
MR. MacODRUM:	But Enbridge is creating these societal benefits with its ratepayers' money. So all these good works that it is doing are at the expense of the ratepayers.

294
MS. SQUIRES:	But without an incentive mechanism, there's no encouragement to continue to grow the program or to continue to expand and find new delivery channels and new opportunities. Without an incentive, the company might be inclined just to revert back to doing the bare minimum, which is not our understanding of what the Board and, in fact, the recently revised OEB Act would be in support of.

295
MR. MacODRUM:	Is that the company's usual approach to regulatory and policy compliance?

296
MS. SQUIRES:	I can't speak to the company's approach in other areas beyond DSM, but I can speak to the company's perspective on DSM and the value that it offers to its customers.

297
MR. MacODRUM:	But without a carrot, Ms. Squires, the company's approach to DSM, at least, is to do the bare minimum?

298
MR. RYCKMAN:	I think the incentive mechanism is serving a purpose and that's to focus management on the benefits that DSM can provide, and it does allow DSM to contribute to profitability, directly to profitability. And that's important where DSM competes with other initiatives.

299
MR. MacODRUM:	Ms. Squires, my question was for you, that without the incentive, the company's policy, you're telling us, is to do the bare minimum.

300
MS. SQUIRES:	We have no such policy. What I was suggesting is that given the competition of company resources to all the activities it has to undertake, there might be situations where it would be inclined to reduce its DSM activity without the right financial incentive.

301
MR. MacODRUM:	These are programs that are backed up by regulatory and, as you've identified, government policy mandate; but you're still saying without the incentive, you do the bare minimum.

302
MS. SQUIRES:	I'm not saying that as a rule. I'm saying that's a possibility in certain circumstances.

303
MR. MacODRUM:	Those are all my questions, Mr. Chairman.

304
MR. BETTS:	Thank you, Mr. MacOdrum.

305
Mr. Moran, how long do you feel you will require?

306
MR. MORAN:	Approximately five minutes, Mr. Chair.

307
MR. BETTS:	Let's go on with your questions.

308
CROSS-EXAMINATION BY MR. MORAN:

309
MR. MORAN:	Just a couple of questions, Ms. Squires, to you about the process from the subcommittee through consultative through ADR.

310
The audit subcommittee, in dealing with the audit, is there a process of negotiation in relation to the SSM claim and the SSM target at that committee level?

311
MS. SQUIRES:	There are -- well, we only have one year of experience to look back on and we're only partially through 2001, but I would say through 2000, yes, that was the experience.

312

MR. MORAN:	And if that attempt at negotiation doesn't work out, does the issue then go to the consultative -- the larger consultative group for further negotiation?

313
MS. SQUIRES:	In the case of the 2000 audit, that stage was skipped, if you will, in keeping with the ADR agreement from the 2002 rate case which stipulated that if agreement couldn't be reached, then the parties would take the issue to ADR, which is what we did.

314
MR. MORAN:	So then it would go to ADR for further negotiation.

315
I guess what I'm really trying to get at is how many times does it need to be negotiated before you would decide that it's going to a hearing?

316
MS. SQUIRES:	Well, in that case, I suppose there were two stages before a hearing, if you will, the audit subcommittee stage and the ADR stage.

317
MR. MORAN:	Is it necessary to have more than one stage of negotiation, I guess is what my question really boils down to?

318
MS. SQUIRES:	Well, looking back on that experience, I think that through the subcommittee stage, parties were sticking to principles, if you will, and all parties felt very strongly that their principles were the right ones.

319
The environment or the climate, if you will, in a settlement conference is a little bit different in that I believe that parties come to that process with an expectation or an understanding that there might be some compromise that occurs in a settlement, so that's a slightly different environment for negotiation than the subcommittee was.

320
So in that sense, we -- I believe that there -- there was some benefit in taking it to the ADR stage. We did actually reach a partial settlement which was more progress than we made in the subcommittee stage.

321
MR. MORAN:	Thank you.

322
Those are all my questions.

323
MR. BETTS:	Mr. O'Leary, any re-examination.

324
MR. O'LEARY:	Just a couple questions Mr. Chair.

325
RE-EXAMINATION BY MR. O'LEARY:


326
MR. O'LEARY:	First, starting with the line of questioning by Mr. MacOdrum, he asked the panel some questions about the independence of a facilitator as considered necessary by the company in the future and the fact that, at least on one previous occasion, there was questions about whether or not any party was entitled to raise questions about the independence of that facilitator.

327
I'd like to ask you several questions about the role that the company sees a facilitator playing in future facilitations with a view of trying to determine whether or not those concerns, either in past or in future, might be justified.

328
So if I might ask you, under the protocols which are proposed under the partial settlement agreement, what is the role the facilitator in setting agenda? We can go to it. It may be that we'll find that specifically some of these things aren't there, and therefore it's just going to be the company's position. You could turn it up at Exhibit N.1, tab 1, schedule 1, at page 73.

329
My first line of questions will just be relating to non-substantive issues.

330
MR. RYCKMAN:	I was just going to say, in setting the agenda, first of all, it would be done in advance of the meeting and it would be done with input from the consultative members, so it's not something that we would do in isolation.

331
And I'm a big believer in setting a clear agenda that is time bound, and also ensuring that we understand the objective that we're trying to achieve through that session.

332
MR. O'LEARY:	And the facilitator is not a member of the consultative?

333
MR. RYCKMAN:	No, that's correct.

334
MR. O'LEARY:	So the facilitator would or would not be consulted in respect of what is included on the agenda?

335
MS. SQUIRES:	The facilitator would be certainly informed, but the facilitator would not be responsible or have any input to the agenda.

336
MR. O'LEARY:	Would the facilitator have any role in setting the meeting date?

337
MS. SQUIRES:	No, except that we would want the facilitator to be available on that date.

338

MR. O'LEARY:	Fair enough. And would the facilitator be responsible for setting the wording of the notice of the meeting and providing notice to the members of the consultative?

339
MS. SQUIRES:	No, that would be Enbridge's responsibility.

340
MR. O'LEARY:	Does the facilitator have any role in selecting who's a member of the consultative?

341
MS. SQUIRES:	No.

342
MR. O'LEARY:	Does the facilitator have any role in setting the location of consultative meetings?

343
MS. SQUIRES:	No.

344
MR. O'LEARY:	Does the facilitator have any role in determining what should be served for lunch?

345
MS. SQUIRES:	No.

346
MR. O'LEARY:	From a substantive perspective, if we go to issue 9.4 at --

347
MR. MacODRUM:	Mr. Chairman, I'm just wondering, in light of Mr. O'Leary's desire to ask leading questions on re-examination, whether the company would consider putting him on the stand. I know they have another lawyer in the building that could sit in for them, and he seems to be wanting to give so much testimony through leading questions which -- on re-examination, I wonder whether the company would consider that.

348
MR. O'LEARY:	Well, Mr. Chair, it's a totally improper request to suggest that counsel who has been involved in examination-in-chief and in the -- now in questioning on redirect that then be placed on the stand. I'm unaware of that request ever having been made previously, and I would suggest it's completely out of order and inappropriate for such a proceeding.

349
MR. BETTS:	Mr. O'Leary, please continue.

350

MR. O'LEARY:	Ms. Squires or Mr. Ryckman, at page 73, we see under the heading "Purpose of the Company's DSM Consultative," there are the five bullets, and looking at each of the five there, can you tell me if the facilitator has any decision-making role in respect of reaching a consensus or a partial consensus in respect to those five areas?

351
MS. SQUIRES:	No.

352
MR. O'LEARY:	And if we turn to the following page, under the heading, "Rules of Procedure," under the second bullet, can you tell me what your view is, having reviewed that, of the facilitator of one of the consultative meetings?

353
MS. SQUIRES:	I'm sorry, can you clarify your question.

354
MR. O'LEARY:	Under "Rules of Procedure," you'll see there's four bullets. If you take a moment to review that, just what your view is as to the role of the facilitator.

355
MS. SQUIRES:	On all of the points?

356
MR. O'LEARY:	No, just in the second bullet.

357
MS. SQUIRES:	My view is that the facilitator would ensure that any party that has an interest in speaking on a matter will be given that opportunity to do so, and whether that be by keeping track of who has expressed an interest and then giving them sufficient time or a fair, equal amount of time to express those views in order.

358
MR. O'LEARY:	All right. And in respect of the election of members of the audit subcommittee, what is the role of the facilitator?

359
MS. SQUIRES:	The role -- the facilitator's role with respect to the selection of the audit subcommittee is really no different than their role in any other matters or events that occur in the consultative. It's simply to ensure that the process occurs and the process is completed as per the guidelines and the rules that are laid out.

360
MR. O'LEARY:	Thank you.

361
Ms. Squires, Mr. MacOdrum also suggested right at the outset of his cross-examination, and I believe my notes have the words down correctly, that the company has accepted the 30 percent free-ridership figure, which is contemplated in the settlement proposal.

362

Could I ask you to turn to page 70 of the settlement agreement. At the bottom of the page, there is reference to certain further work being undertaken by the company. Can you advise us as to whether or not that last bullet and the company's future intentions in respect of developing further -- and requiring further information, whether that relates to at all -- or at all the suggestion put to you by Mr. MacOdrum that the company has accepted the 30 percent free-ridership rate for custom projects?

363
MS. SQUIRES:	The company and the parties to this settlement agreement have accepted 30 percent for the fiscal 2003 year only as indicated in the second bullet point, and the last bullet point indicates that the company is prepared to continue to evaluate and to discuss methodologies for evaluating free-rider rates in the future.

364
MR. O'LEARY:	All right. In his questioning yesterday, Mr. Warren asked you a series of questions that were suggesting or asking you about the benefits of the continued existence of the consultative and whether it's a good thing, given its history. And my question, first of all, is whether or not the company is able to advise this Board of any benefits that have arisen from the existence of the consultative over the past several years.

365
MS. SQUIRES:	Certainly, and I believe at some point in my testimony in the last few days I have attempted to describe certain benefits that have come out of the consultative process, and, in fact, I believe the correction to the transcript you mentioned this morning is one example of where I was describing ideas for new programs and ideas for program delivery channels that have come directly from consultative members.

366
And despite some of the issues that arose out of the audit subcommittee process last year, certainly, Enbridge and all parties learned a lot through that experience in terms of how to improve an audit and how to -- the discussion around how to apply audit findings certainly solidified -- helped Enbridge solidify its position and its principles. Those are a couple of examples of a very concrete way of the consultative process, and the intervenors that are a part of it have added value to our DSM program.

367
MR. O'LEARY:	Thank you.

368
MR. RYCKMAN:	If I could just add to that.

369
We see a lot of value in the consultative process. What we want to achieve is bringing a little more order so that we have a good flow through the meetings, that we accomplish the objectives that we set out to do. So I really see in the future, where we would have a pre-set number of meetings, maybe if they're quarterly meetings a year, have the objectives of the meeting spelled out in the agenda, spelled out, in an environment where we can extract the maximum amount of value out of that, realizing that we won't be able to reach consensus in all areas.

370
Certainly we strive to do that, but within the context of that day and the objectives of the day that we set out within the consultative meeting, if we can't reach consensus, we still have to move on.

371

We respect the diversity that comes through the process, but we can't be paralyzed through the process. So we think through the structure we will be able to really move the consultative forward in a very positive manner.

372
MR. O'LEARY:	Mr. Ryckman, you lead me to one of my final questions, which also arises from Mr. Warren's examination yesterday related to whether or not it is appropriate to have a consensus or a partial consensus as the goal or objective of the consultative.

373
If I could ask you to turn back to the settlement proposal at the bottom of page 74. If you could just take a moment to read that and perhaps offer any comments you have as to whether or not that assists in respect of considering the propriety of having a consensus or partial consensus as the goal or target of the consultative.

374
MR. RYCKMAN:	Yeah, I think, once again, it's our desire to try to achieve consensus, but we still need to move forward in the absence of consensus. So we really see the role of the consultative, as an advisory group, provides a lot of value, in my opinion, and we'd like to leverage that value to the extent that we can. But ultimately the company is accountable for the DSM program and, in the absence of consensus, we still need to move forward with what we think is the appropriate actions to take.

375
So I don't know if that addresses your --

376
MR. O'LEARY:	I think it does.

377
And I believe those are all our questions in redirect, Mr. Chairman.

378
MR. BETTS:	Thank you, Mr. O'Leary.

379
MR. DOMINY:	I have a few questions.

380
QUESTIONS FROM THE BOARD:

381
MR. DOMINY:	If we could look at the settlement agreement and I think it's on page 69.

382
Ms. Squires, I think you went through the terms of that agreement in your direct and you had tried to categorize things as no-no and yes-yes, or no-yes. As I go down, in your prescriptive programs, I think you described that as no-no; in other words, the original assumptions would be the basis of calculating both the forecast and the actual TRC benefit?

383
MS. SQUIRES:	That's correct.

384
MR. DOMINY:	And then you went on to discuss the custom programs, and in that context, on page 70, when you're dealing with the 30 percent free-rider rate, you also categorize that as a no-no in the sense that the 30 percent free-rider rate would be used both in setting up the 2003 SSM program as well as in measuring the results; is that correct?

385
MS. SQUIRES:	That's correct.

386
MR. DOMINY:	So if I turn back, then, to page 69, there's a paragraph for custom programs, and that deals with assumptions with regard to the actual unit savings and incremental costs. Am I correct in inferring that that is a no-yes?

387
MS. SQUIRES:	For annual unit savings and customer incremental costs, yes, that would be treated in a no-yes model.

388
MR. DOMINY:	I just wanted to make sure I understood the agreement.

389
My second question, and this is a very -- more an accounting question. It deals with the question of -- we have heard a lot about the costs of the consultative in audit and also the settlement proposal and where they actually are captured and how they are recovered. I was wondering if you could just help me out a bit.

390
As I understand it, there are three, maybe there are four different places in which you have funded intervenor participation or stakeholder participation: The first one is the consultative; the second one would be the audit, which I assume is a subset of the consultative; the third one would be the special settlement that was conducted on the DSM programs; and the fourth one would be the ADR which has been -- that we addressed at the beginning of this hearing.

391
Now, my understanding, and correct me if I'm wrong, is that the consultative and the audit programs are funded by Enbridge and are funded through a regulatory budget; is that correct?

392
MS. SQUIRES:	The intervenor costs and the costs of carrying out the consultative and audit subcommittee meetings are paid for through the DSM budget.

393
MS. SQUIRES:	So they're not in the Board's cost award process, they're out of it?

394
MS. SQUIRES:	That's correct.


395
MR. DOMINY:	But the cost of the special DSM settlement and the ADR that took place will be in the cost awards that the Board will be asked to review when the cost claim is made; is that correct?

396
MS. SQUIRES:	That's my understanding.

397
MR. DOMINY:	Thank you. I think that clears that up for me.

398
There was a general question, and it arises out of the appendix that Mr. MacOdrum was cross-examining on and it was just an observation, and I was just wondering whether Mr. Williams or Mr. Heeney can comment on it.

399
I was looking at these tables and what struck me was that the DS-funding collection method in many cases was through a volume surcharge as opposed to through a rate reduction. In fact, I only saw in British Columbia where it was identified through rates. Is that a general practice that is happening now in DSM programs?

400
MR. WILLIAMS:	In -- in a lot of the -- in a lot of the U.S. jurisdictions, they have -- they would have an explicit surcharge on the bill, whether or not it's -- it's actually on the customer bill or not. But it's like a rate rider that would be called a systems benefit charge or something like that, along those lines. That is certainly the case in the U.S.

401
MR. DOMINY:	Is that something that is instituted by the regulator, or is that something that is as a result of legislation?

402
MR. WILLIAMS:	I think the history behind these is always quite unique to the actual jurisdiction. And my sense would be that -- again, we didn't -- we didn't -- we weren't able to delve into that sort of detail, but my sense would be that it would be a combination of government policy and a regulatory sort of response to that in terms of setting something up.

403
MR. DOMINY:	And the other item that struck me as interesting was the -- there seemed to be a correlation and maybe a connection, and I may not be quite right in this, but it appears to me that many of the cases where there was no incentive mechanism, that the program was managed by an agency independent of the utilities or by an agency set up by the utilities to manage it as a separate program; is this correct?

404
MR. WILLIAMS:	Yes. I think that New York state would be a good example of that, where most of that is implemented by an agency with the acronym NYSERDA.


405
MR. DOMINY:	I'm sorry, this is just for interest because I saw this.

406
There was a question I had on the principles, and I think, Mr. Williams, you were the one who spoke to it and I think you said your fifth principle was that DSM initiatives ought to be somewhat higher than for gas distribution alone, et cetera. The principle would only apply if Enbridge invests its own shareholder money in DSM. I'm assuming that this is not a principle that's being considered in this application?

407
MR. WILLIAMS:	As part of the proposed settlement? No, I mean these were the six principles -- there was -- went to the Board to consider and provide feedback on in terms of for 2004 and beyond.

408
MR. DOMINY:	Because in this case, I think Mr. MacOdrum's question suggested that the funding for DSM, essentially, was coming from the rates, that it wasn't a shareholder loan.

409
MS. SQUIRES:	That's correct, in the SSM, and captured in this partial settlement, that's the case.

410
MR. DOMINY:	Thank you.

411
MR. BETTS:	Mr. Dominy has invited me to ask a couple of questions I have. I think there's one that's still whirling around in his head that he's trying to formulate at this point.

412
This is the first opportunity, well, to my knowledge, the first opportunity the Board's had to really talk about DSM in a kind of fulsome environment, and I wanted to ask a couple of high-level questions, and if they aren't within -- or if you're uncomfortable in responding, it's not going to be an issue, and I will direct them to Ms. Squires.

413
The first one, the Enbridge approach to DSM, is -- well, DSM is fully integrated within the other functions of corporate life; am I correct in saying that?

414
MS. SQUIRES:	Yes.

415
MR. BETTS:	Can you outline for me what you see to be the pros and cons of that approach versus having a separate stand-alone DSM function?

416

MS. SQUIRES:	Sure. The advantages I see in that approach are primarily from the customer's standpoint in that, particularly for business market customers, there's one point of contact for energy service solutions, if you will; whether they -- the needs are for added load or fuel switching or energy conservation, one person can help them with the answers to their questions and identifying the solution for them. And I see that as a very strong advantage of the integrated approach.

417
Another advantage along the same vein is that a sales representative has a number of tools in their pocket, if you will, to get into a customer's premises to promote natural gas. They have DSM incentives for energy-efficiency programs, which -- which might open that door a little wider for them, and once they get in that door, they have the opportunity to promote the whole range of services and benefits that Enbridge can bring to the table.

418
Another advantage from an organizational point of view is that - I'm not an organizational behaviour expert by any stretch, but just from my own experience - I see the integration of the skills that, for example, my department with primarily the DSM experience can bring to analysis and evaluation of other utility activities. And I think through the course of this rate case, there are examples in our evidence of areas where we've applied, for example, cost-effectiveness screening tools to other non-DSM utility activities to demonstrate their worth and their value.

419
And the reverse is also true. I learn, and my department learns from other activities within the company, things that we can use to help improve DSM and improve the measurement and evaluation of our programs.

420
On the negative side, I suppose that the -- one of the disadvantages is that the -- the nature of the issues in DSM seems to be cyclical, and there are certain periods of time where we need to focus all resources on a particular DSM activity, and an example of that is the audit that we went through that last summer. And that means that we have to, if you will, borrow from other aspects of the utility in order to really beef up the resources that we have to that activity. And then you get into that -- an issue of competing -- competing objectives and that's challenging.

421
And we also are faced with the responsibility of identifying cost allocations for DSM and non-DSM activities, which I think we do a fair job of, but it is a challenge and it is a responsibility that we have to deal with. If everybody was 100 percent DSM, of course, that wouldn't be an issue.

422
Those are my preliminary thoughts.

423
MR. BETTS:	Those were very full, thank you.

424
My only other question, again, is a high-level one, and to some extent I think you provided part of your answer already, but perhaps you could just consider whether there was anything you would add, and that is: Can you tell me, in your opinion, what the advantages or disadvantages would be to the consumer in general if this service was provided by an independent third party rather than a distributor of energy.

425

MS. SQUIRES:	In terms of advantages, the first thing that comes to mind is that an independent agency might not be constrained by restricting the programs to just natural gas or primarily or predominantly natural gas. They might potentially have the opportunity to identify conservation -- energy conservation opportunities in whatever fuel or resource that makes sense to the customer.

426
On the negative side, I see that if we were to embark on that -- that type of arrangement in Ontario, I feel that there would be setbacks in DSM programs and DSM delivery. There would necessarily be, I think, an interruption in the delivery flow.

427
Enbridge brings to the table at least eight years of experience in designing and delivering programs, and it would be unfortunate if they had to be disrupted for that purpose. Certainly, that's not to say that an agency couldn't get up the learning curve quickly as well, but that would be one short-term disadvantage.

428
Again, those are my preliminary thoughts.

429
MR. BETTS:	Thank you.

430
Thank you for that, it was very informative.

431
Mr. Dominy?

432
MR. DOMINY:	Just a quick one, and again, I'm looking at the settlement agreement on page 68. As I understand it, the proposed incentive mechanism, and in fact, everything, relates to 2003 only; is that correct?

433
MS. SQUIRES:	Yes.

434
MR. DOMINY:	And the expectation is that you will be consulting or discussing or -- how will you deal with 2004 and going forward?

435
MS. SQUIRES:	My expectation is that we would use the consultative process as a forum for sharing different incentive mechanism ideas, and we've heard about a few of them already through this hearing. That forum would be used to bring those to the table to have a more in-depth discussion about them and to identify analysis needs that might arise from those ideas to fully flush out the implications and the pros and cons of all of those alternatives.

436
We have to consider, of course, the time frame of 2004, that being just six months away. And I'm not exactly sure whether we would be successful in landing on a new incentive mechanism that all parties could agree to before then, but certainly that would be the intention and we have the intention or the expectation of planning at least a couple of meetings in the remaining six months of this year to attempt to do so. If no consensus is achieved, I suppose we would go to the next regulatory cycle, ADR and hearing again.

437
MR. DOMINY:	You wanted to add something, Mr. Williams?

438
MR. WILLIAMS:	I just wanted to reiterate that the six principles that were presented, those principles would certainly inform a discussion with respect to incentive -- incentive mechanics. So the intent is to at least set a framework; what are the principles that would guide that incentive mechanism. And I think in that case Enbridge -- Enbridge and, in fact, all members of the consultative would be better able to discuss that because they would know what the parameters are. I wanted to reiterate the importance of getting the Board's views on those six principles.

439
MR. DOMINY:	As I understand it, Ms. Squires, the issue would be trying to get something in place so that you have a program or a way in which to design and develop your 2004 DSM activities before 2004 starts?

440
MS. SQUIRES:	Certainly that's the desired outcome.

441
I think the biggest challenge is specific to the establishment of a new incentive mechanism. I feel quite confident that we would be able to identify a budget and a target that we would be prepared to go ahead with in 2004 in this time frame advised, to the extent possible, by the research that we're able to complete in that time. But, again, I think the establishment of an SSM is probably going to be the biggest challenge in that time.

442
MR. DOMINY:	And the last question - and it's probably to Mr. Heeney or yourself, Ms. Squires - how many DSM programs, and I know they're redesigned since PBR, have a DSMVA, an LRAM and an SSM? And is Enbridge the only one that has all three mechanisms?

443
MR. WILLIAMS:	In terms of utilities that have all three, I'm not aware of any others that have all three of those, kind of, components to the DSM framework.

444
MR. DOMINY:	And I noticed in some of the material related to that report that you had filed, there appeared to be a general -- not to be too broad, but there appeared to be some references to the fact that the introduction of SSM-type programs had led to rapid - maybe that's the wrong word - had led to increased activity in DSM within the utilities when these -- this incentive mechanism was introduced. I was wondering whether you would make some comments on that.

445
MR. WILLIAMS:	I don't recall the specific point in here where this report does mention it, but I think it goes -- it goes without saying that if there's an incentive for an activity, it would follow that the utilities would more vigorously pursue that activity than they otherwise would.


446
And I think that, you know, the fact that there are a number of other jurisdictions who have some form of incentive mechanism or SSM, if you will, just sort of reflects that -- I guess they've come to that same conclusion.

447
MR. DOMINY:	I was looking for the reference but I'm having difficulty. I think it was California, but -- I don't need it. It's just that I wanted to get the concept that, in fact, these things incent more activity and they have, in fact, been successful in doing so.

448
MR. WILLIAMS:	I just wanted to be clear. You asked about the three components before, the LRAM, the DSMVA, and the SSM. The LRAM is not specifically an incentive, nor is the DSMVA. It's the SSM that you're talking about as an incentive, is that --

449
MR. DOMINY:	Yes, I agree. That is the incentive. The other two are sort of, I suppose you could call them, protections for the utility.

450
Thank you. Those are my questions.

451
MR. BETTS:	Thank you.

452
Mr. O'Leary, any follow-up?

453
MR. O'LEARY:	No, sir.

454
MR. BETTS:	Thank you very much. We'll break now. And I guess it's getting close to the lunch, but let's make this coffee break relatively short. We'll return and begin to hear arguments on EnTRAC and then break for a little later lunch, so it will shorten the afternoon period for us.

455
I did want to express the thanks of the Board to the witness panel. You've come and gone and persisted throughout, and I think I can speak for the Board in saying that certainly your dedication to and knowledge of DSM issues has truly been impressive, so thank you for your contribution.

456
We will adjourn now and return, let's target at roughly five to twelve. Thank you.

457
--- Recess taken at 11:31 a.m.
458
--- On resuming at 11:54 a.m.
459
MR. BETTS:	Thank you, everybody. Please be seated. Thank you.


460
We are now sitting specifically to hear arguments on issue 6.4 which is related to EnTRAC.

461
Are there any preliminary matters before we begin?

462
Mr. O'Leary.

463
MR. O'LEARY:	Yes, Mr. Chair, thank you.


464
PRELIMINARY MATTERS:



465
MR. O'LEARY:	We have some additional filings. The first is the response to Undertaking J.5.8 which arose during the WAMS testimony. I have ten copies of that. I also have an outline for corporate cost allocation examination-in-chief. And finally, we have a copy of a letter to the Board of today's date attaching several pages of the record which have been corrected, specifically Exhibit 1, tab 2, schedule 16, page 4 of 4, and, I'm sorry, schedule 29, page 1 -- Exhibit I.

466
MR. BETTS:	Am I correct that two of those items should have exhibit numbers established for them, or they --

467
MR. O'LEARY:	The one undertaking I identified already, and then we probably should identify the other two.

468
MR. MORAN:	I don't have the other two, Mr. Chair, so I'm not sure what I'm looking at.

469
MR. BETTS:	As soon as you get a copy, we'll go through the process.

470
MR. O'LEARY:	Mr. Chair, one is just a correction to the record. That, perhaps, does not need to be given an exhibit number.

471
MR. MORAN:	I think that's right, Mr. Chair.

472
MR. BETTS:	Okay.

473
MR. MORAN:	So we have Exhibit K.7.1, outline for corporate cost allocations, panel 1 examination in chief.

474
EXHIBIT NO. K.7.1:	OUTLINE FOR CORPORATE COST ALLOCATIONS, PANEL 1, EXAMINATION-IN-CHIEF

475
MR. BETTS:	Thank you.

476
Is that all of the preliminary matters for you, Mr. O'Leary?

477
MR. O'LEARY:	Yes, it is, sir.

478
MR. BETTS:	Are there any other preliminary matters?

479
Then I believe we're ready to receive arguments in chief from the applicant.


480
ARGUMENT BY MR. O'LEARY ON ISSUE 6.4:



481
MR. O'LEARY:	Thank you, Mr. Chair.

482
I first of all wanted to thank the Board for agreeing to deal with this issue up front, at the beginning of the hearing, and also to thank other parties for putting forward that request.

483
I should start out by indicating that while there is some -- there are some issues that are obviously outstanding, we see from issue 6.4 of the partial settlement proposal, in the very first paragraph, what I think I indicated to you at the beginning of the evidentiary portion of this issue was, that there was agreement amongst the parties to the extent that they endorse the objective of enhancing, at a reasonable cost, the information systems required to manage agreements with large-volume and direct-purchase customers and associated gas-supply management issues.

484
So the issues are not so much do the parties agree with that overall objective, it's a question of the cost and, ultimately, cost allocation.

485
We had indicated that the applicant would be prepared to separate those two issues if it would expedite matters, but I will briefly address the cost-allocation issue today. But we would certainly reiterate our request that the Board consider, at its earliest possible opportunity, the entire issue of the EnTRAC project and, to the extent that you are prepared to support it, to grant approval so that the company may proceed with the project as soon as possible.

486
Mr. Chair, the evidence in respect of EnTRAC is set out at Exhibit A.56, tab 5, schedules 1, 2, and 3. Included within that evidence is an overview and description of the project; the business case, a substantial business case which the company has put forward substantiating the project, and justifications for it; an update to the evidence discussing the current status of the project; and, of course, there are the numerous responses to interrogatories and the evidence that we have heard over the last several days, particularly that of Mr. Charleson and Ms. Collier, who gave evidence in chief, updated matters further in responding to questions.

487
In my argument, sir, I will be addressing four issues: First, why there is a need for the project; second, why the cost of the EnTRAC project is reasonable; third, what is the approval that the company is now seeking; and finally, how the EnTRAC costs should be allocated as proposed by the applicant.

488

As you have heard -- starting with the very first issue, why there is need for EnTRAC. As you've heard, EnTRAC, which is the acronym for the Energy Transaction Reporting, Accounting and Contracting project, which is a mouthful, will more effectively support the company's large-volume contracting and direct-purchase activities more so than the aging legacy systems, as they have been described in evidence, which, in some instances, exceed more than 20 years. The ELVIS system and other systems have been there for a number of years, but the company's evidence has been, quite clearly, that these systems are simply not in a position to sustain the kind of activities that are occurring in this present environment. They weren't designed for that purpose when they were put into place 20 years ago.

489
As Mr. Charleson testified in response to a question from Mr. Warren, in the transcripts on March 27th -- I'd like to just read a brief response by Mr. Charleson to the question by Mr. Warren at paragraph 1358. I believe this is a fairly brief but illustrative explanation of EnTRAC. Mr. Charleson states:

490
"What EnTRAC is designed to do is provide an interface through the Internet for direct-purchase customers and their agents to be able to interact with Enbridge in terms of managing their direct-purchase agreements. It is also designed to deal with all the back-office processing as required to manage those agreements, so all the information that has to be maintained and processed to be able to deal with the various reporting that has to be provided in the various transactions that are entered into a between Enbridge and direct-purchase customers."

491
As the company's evidence makes clear, the system will encompass all activities associated with the management of large-volume contracts, direct-purchase agreements and the associated gas-management issues. It will manage these agreements throughout their entire life cycle, from the creation of the agreement to the finalization or settlement of any related costs or changes -- charges. The scope of the project along with its anticipated benefits are described in detail in the business case which has been filed as Exhibit A.5, tab 5, schedule 2.

492
Now, the first issue is what led the company to conclude that the EnTRAC project is required. Mr. Charleson testified that over the past several years it has become increasingly complex to manage direct-purchase agreements. And if you look at the sheer numbers and the change in the environment in which the company is operating, it's, I believe, we respectfully submit, a very good illustration of the change.

493
For example, the number of direct-purchase customers which was, several years ago, 500,000 has risen now to 750,000, and we should recall that in rates 1 and 6, at least half of the customers in those rate classes are direct-purchase customers.

494
We also heard evidence that 90 percent of large-volume customers are also direct-purchase customers.

495
We've seen an increase in the number of contracts which the company is required to manage of over 250 percent, increasing from 400 to 1,400. These are simply numbers which the legacy systems didn't anticipate or foresee.

496
Mr. Charleson stated in his testimony and in the pre-filed evidence some of the problems experienced by the company's customers that are a direct result of the fact that the company does not have the systems necessary to properly manage and administer large-volume rate contracts, direct-purchase agreements, and the associated gas-management issues.


497
Specifically, the problems encountered by the company and its customers have included the existing legacy systems are labour-intensive and inefficient. This has led to a slow and occasionally inaccurate flow of information to customers. As a result, there is frustration on the part of customers who believe that the slowness and inaccuracy of the information supplied costs them time and money, and there is frustration on the part of company's employees who must deal with the unhappy customers.

498
The existing systems lack the flexibility to respond to changes in the marketplace, and the most current example of this is the fact that the existing systems will require extraordinary effort to make them compatible with the changes that are contemplated by GDAR.

499
Unlike Union, the company's existing systems do not provide customers with any ability to access information on their own without the involvement of a company representative, obviously at a cost.

500
The existing systems do not provide up-to-date information. This means that in many cases the company is not able to accurately forecast and determine the purchases it has to make for load-balancing supply and system gas customers. Inaccurate information or allowances that need to be made to direct-purchase customers have a direct impact on the volume and cost of gas purchased for these other purposes. All of this, of course, ends up in the PGVA, which impacts all customers. So the objectives, of course, have been to reduce those incidences.

501
We don't mean to overstate that by any means, Mr. Chair, but it's something that has occurred and is something that the EnTRAC project is designed to address.

502
A further reason for the system, a justification for it, is that as a result of inaccurate information regarding banked gas account balances of direct purchase contracts, the company assessed penalties to marketers which it was forced to subsequently waive.

503
We don't mean to overstate the occurrence of that, but it has occurred and it is something that justifies proceeding with a system that will virtually eliminate or very much ensure that it won't occur.

504
Currently, the company permits direct-purchase customers 180 days to bring their banked gas accounts into balance. Half of this period is due to the time that it takes the existing systems to finalize the BGA. This means that the company must finance gas purchases and take the risk of bad debt over a longer period of time than is necessary, something that clearly costs all customers.

505
Now, the evidence in support of these reasons is found at pages 16 to 22 of the business case which, again, is A.5, tab 5, schedule 2, and in the transcript of evidence on March 27th at paragraphs 1919 through -- 919 to 921, 952 to 970, and 1365 through 1374.

506

It is clear that many of these problems, or at least the financial implications of these problems, affect all of the company's customers, not just the large-volume or direct-purchase customers, and it is as a result of these problems that the company is presently here asking for approval and is in a position to proceed with the project immediately.

507
Now, over the past several years the company has undertaken a process of study and consultation internally with affected customer groups to develop solutions to the problems and limitations associated with the existing systems. The internal processes undertaken by the company are described, of course, in the business case and also in the response to Board Staff interrogatory 67, which, if memory serves, is that fairly extensive response that shows the level of detail that the company has -- and the time spent by the company in the development of project.

508
The company's evidence is that customer response on what has been proposed has been very positive, and that the EnTRAC project is seen to be the right direction for the company to be taking to address the problems which I just briefly identified. If I may be so presumptuous to add that the apparent agreement of the parties that there should be an improvement to these information systems is further evidence of the general support for it.

509
Now, before moving to the issue of the costs, one should consider the benefits of the EnTRAC project.

510
As discussed in the evidence at pages 8 to 10 and 15 to 22 of the business case, the company's project will be beneficial in many ways and will benefit all ratepayers, not simply those with direct-purchase agreements or large-volume consumers.

511
These benefits include many that are not quantifiable in straight financial terms, such as the improved customer service and satisfaction through an ability to provide an information source in a more accessible, timely and accurate basis. In a related response to a question by Mr. Brett about what EnTRAC would do for large-volume customers, Mr. Charleson said at page -- paragraph 659, on March 28th, and I propose to quote from that, Mr. Charleson stated:

512
"For large-volume customers, what EnTRAC would enable them to do is to view the contract parameters that they've entered into on the distribution rate contract, see their three-year historical consumption volumes so that they would be able to project what their consumption may be in the coming year as they're working towards planning for entering into a new distribution rate agreement."

513
Down a little further in the next paragraph:

514
"So it enables them" -- referring to large-volume customers -- "really, to have access online to all of those contract parameters and to see that information that today the only way of really assessing that is through requests into their account executive."

515
At paragraph 668 Mr. Charles states, again referring to these benefits:

516

"It will provide them with improved information so that they are in a better position to make decisions around whether they choose to run afoul of those parameters or whether they are able to take action to mitigate those."

517
Another not easily quantifiable benefit is the fact that the EnTRAC system will allow the company to adapt and respond to future changes to the nature of its business, and of course it will result in improved employee satisfaction having to deal with happier customers.

518
On the other side of the equation, there are the quantifiable benefits and financial savings that would be achieved through the EnTRAC project. I set out at pages 16 through 20 of the business case, and at page 3 of the updated evidence, Exhibit A.5, tab 5, schedule 3, the total tangible benefits associated with EnTRAC over the first five years are estimated at 4.9 and 17 million. Briefly, these benefits will accrue from reductions in staffing and maintenance; reduction in main-frame use; reduced gas costs; a significant reduction in the costs that would be incurred to implement GDAR, which, as the evidence indicated, absent EnTRAC, the company would have to spend at least 5.2 million in the next six months to be GDAR-compliant by March 2004; and finally, the reduced risk associated with a defaulting broker, given the shorter settlement time frames and more tightly managed agreements that will result with the implementation of EnTRAC.

519
The benefits anticipated from EnTRAC were also discussed by Mr. Charleson in response to a question from Mr. DeRose that arose on the March 27th day of the hearing, and I propose to take you to that as well. It's found at paragraph 952 and onwards -- sorry, 957. Mr. Charleson, responding to a question, stated:

520
"Where we look at the various imbalance penalties, the load-balancing that has to occur and the various deliveries that are made during the course of a contract term, although the company throughout the course of the year has to manage the overall supply portfolio that's required to meet all of our customer requirements, whether they be direct-purchase or system-gas customers, we have the responsibility for all of the -- balancing the total load.

521
"As we see imbalances occurring and when other -- when direct-purchase customers fall outside of allowed tolerances, there's a requirement on the company's part to adjust its purchasing or supply portfolio to offset these imbalances, and there's a cost associated in doing that.

522
"With the implementation of EnTRAC, we expect direct-purchase customers to have improved information, have the ability to manage their supplies in a more proactive manner, and also, with the increased accuracy of the information, to reduce kind of the situation the company's in today, where there's a requirement to reconsider the application of some of those charges due to problems with information that's being provided.

523
"So it's through a reduction in the number of agreements that we would see falling outside of those tolerances and also through having more strength in terms of being able to enforce any of the charges for being outside of allowed tolerances."

524
I apologize for entering, once again, a lengthy quote that's already on the record, but I think it is a good statement. It indicates some of the real benefits that the company believes will flow to ratepayers.

525
Finally, it is important to consider the impact on ratepayers if EnTRAC is not approved. Mr. Charleson addressed this issue in response to a question from the Board panel on March 28th and stated that if EnTRAC is not approved, the company will have to revert to a more expensive and more time-consuming and more complicated scheme to address GDAR. It will also have to resort to continue to use Band-Aid solutions to try and address the problems it encounters in dealing with the administration of direct purchase and large-volume customers.

526
It will also have meant that the apparent objectives of the various intervenors and, of course, the applicant will not have been met, because we will not have seen that level of change and improvement in the company's system, whichever one appears collectively to support and to put forward as a fair and appropriate objective.

527
The next issue is why the cost of EnTRAC is reasonable. In its pre-filed evidence, the company discussed the reasons that it had to seek a custom solution for the EnTRAC project and the fact that this would entail significant costs. The company's evidence responds to interrogatories and oral evidence and also describes the process that was undertaken, and it's quite detailed and significant.

528
There has been an extensive consideration by the company, first internally, as to what would be required, and a great deal of exchange and communications as indicated in Board Staff interrogatory response -- sorry, the interrogatory response to Board Staff number 67.

529
If we follow the chronology of the development of it, we -- from the evidence we see that initially the company made inquiries with Union Gas, and it was Union Gas that, in fact, recommended Sapient who ultimately, while the preferred vendor, was the entity that was recommended to Enbridge, that it did not go out and simply say -- or preordain Sapient as the preferred vendor.

530
Members of the company spent a significant amount of time working with Sapient, a company that has world-wild credentials, which appears to be growing successfully in Canada according to Mr. Charleson, and they developed the project parameters which was necessary, of course, to ultimately take it to the RFP stage.

531
A detailed RFP was released and forwarded to a number of qualified, potential vendors, and a number of qualified vendors responded. And it is important to understand that the responses that came in, and while the evidence indicates that the costs first submitted by each of these vendors varied, what we have to realize is that there had to be some levelling of the playing field before it would be fair to properly compare each of those bids.

532

There were different degrees to which the company would be committed to providing its resources, and those costs had to be considered in those situations where the vendor was proposing a greater amount of company involvement than another vendor.

533
And conversely, if one vendor was proposing to take on that -- or shoulder that much greater portion of the project than another vendor, well, then, that vendor's bid would be that much more money and it needed to be equalized and the playing field levelled.

534
These are the things that went on leading us to today where we have now have the company having settled upon the preferred vendor.

535
It's not that Sapient was preordained or selected in advance. In fact, Mr. Charles's evidence was that at least half of the evaluation team that considered in detail the responses, at least half had nothing to do with the development of the project parameters initially with Sapient.

536
So they, these individuals, guarantee a degree of objectivity and impartiality so that we know the selection process should not be questioned.

537
Again, in terms of Sapient's track record, it has worldwide credentials, and certainly in response to a question in redirect, there is nothing in the financial record of Sapient that one would not be surprised to find in respect of any other company of its nature, given the present worldwide climate dealing with companies of their qualifications and in their business.

538
The company believes that the cost of $18 million is reasonable and represents good value to ratepayers. First of all, it was not the highest of the bids. Mr. Charleson indicated that when the level playing field was considered, it was not the highest bid.

539
But we know that it's reasonable by reason of the fact that the company has undertaken a long and involved process to scope out what is required, and what Sapient will provide as opposed to company resources.

540
We know that in addition to the non-quantifiable benefits of EnTRAC, the total tangible benefits associated with the project over the first five years are estimated, as I said earlier, between about $15 million and $17 million. We know the cost is reasonable when we consider that the company received a quote from Customer Works for its involvement; the quote was $3.8 million. That was a quote to -- in respect of their cost to undertake the work necessary in support of the implementation of EnTRAC.

541
The company felt that there was an opportunity to manage these costs, and a lower amount, $3 million, has been included in the budget, which means that the company is at risk if they have incorrectly chosen or decided that they could manage those costs down from 3.8 to $3 million. They did that with a view to helping ensure that the cost is certainly reasonable and something supportable by the Board.

542

Working with Sapient, the cost that Sapient initially forecast of 16.6 million was reduced to 9.4 million, and somewhat surprisingly perhaps, but Mr. Charleson's evidence is that it did occur, not only did the cost of their involvement go down by that amount, but also Sapient will undertake and assume greater responsibility for aspects of the project. And the evidence in support of that is at paragraph 501, on March 28th.

543
It is submitted that these efforts and these steps demonstrate that the price of the project of $18 million is reasonable and one that is supportable.

544
It should also be recognized that the company accepts that the $18 million cost estimate for the project effectively represents a ceiling, which is what I believe Mr. Charleson said in response to a cross-examination question. The ceiling on the amounts that can be spent in the project, unless, of course, the company receives supplementary Board approval.

545
In this sense, any cost of the project above 18 million is at the company's shareholders' risk, absent, of course, receiving subsequent approval.

546
On the other hand, however, to the extent that less than 18 million is spent on the project, then that lesser actual amount, not 18 million, will be the amount that is recovered in rates. Mr. Charleson stated that at paragraph 1074 through 1080, on March 27th.

547
So with those benefits in mind and reasonable cost established, what is it that the company is now seeking? As I've indicated earlier, the objective, of course, is to, at a reasonable cost, enhance and improve the information systems required to manage direct-purchase and large-volume agreements and associated gas-supply issues.

548
The company is looking for the Board to rule as soon as possible in favour of the EnTRAC system, finding that is appropriate and necessary to address the system issues, and that the $18 million cost is also reasonable. Of course, I reiterate that we would like to see that decision as soon as possible as the company is presently in a situation to proceed.

549
As set out in the evidence, if the Board approves the EnTRAC project, the company proposes to close $6 million to rate base in this fiscal year. We ask the Board to take note of the level of the company's commitment to this.

550
Aside from the clear commitment of time and resources of individuals like Mr. Charleson and Ms. Collier and all of the other staff that are identified in those numerous e-mails and other documents and on the design team and evaluation team, we remind the Board that Ms. Janet Holder, the company's Vice-President of Operations, said in her evidence on March 28th, 2003, that the company has determined that no separate board-of-directors approval is necessary for the EnTRAC project because it forms part of the company's overall budget which has already been approved by Enbridge Gas Distribution board of directors.

551

Ms. Holder makes clear the fact that she has personally endorsed the project, as has Mr. Schultz, the president of the company, and the rest of the company's executive team. That's found in the transcripts on March 28th, at paragraphs 1129 and 1130.

552
As stated in response to Board Staff interrogatory 188, the company stated that the work and thought involved in EnTRAC demonstrates that it is very real and has a commitment from management towards advancing the initiative. That's our submission, that there's no suggestion on the record to the contrary.

553
A final issue I will be addressing is how the company proposes the EnTRAC costs be allocated.

554
A proposed detailed cost allocation for each customer class for the cost of the project are set out in response to CAC interrogatory number 40, which is at Exhibit I, tab 2, schedule 40. As can be seen from that response, the allocations for the EnTRAC costs are proposed to be made on the basis similar to other IT projects.

555
The reason for this is that EnTRAC, like other IT projects, is considered to be of general benefit to all of the company's customers. I've already mentioned a number of these benefits already and will not repeat each of them again now, but there are several that are worthy of, perhaps, highlighting because of the impact on global system customers.

556
First, EnTRAC reduced the occasions of the company basing supply purchase decisions on less accurate information. The project will result in shortened banked gas account settlement periods and this will have a reducing impact on revenue requirement. The number of occasions that direct-purchase contracting parties will go beyond their specific tolerance levels under their contracts will decline and this will make system load-balancing less costly, which is to the benefit of all system customers.

557
For those reasons and the numerous other reasons suggested earlier, which are to the benefit of system gas customers, it's the company's position that the cost allocation methodology which is proposed, which is equivalent to how other IT projects are allocated, is our preferred method.

558
In closing, Mr. Chair, we are looking for approval for EnTRAC in principle, approval of up to an expenditure of $18 million on the project, recognizing that the company proposed to close out $6 million in this fiscal year.

559
The company would like to proceed to finalize its negotiations with Sapient so that it will be in a position to proceed with the project as soon as possible. The fact that the parties have mutually agreed to put this issue at the beginning of this hearing and request a decision before the final decision of this hearing is received, we suggest, underlines the importance of proceeding with these changes, and with the advent of GDAR, further reason for an early decision from the Board.

560
In the end, an early decision will allow the company, we believe, to have the project fully operational, the objective is by the end of fiscal 2004.

561
And for those reasons, Mr. Chair, the company invites a favourable response to the request for approval of the EnTRAC project.

562
MR. BETTS:	Thank you, Mr. O'Leary.

563
MR. DOMINY:	Mr. O'Leary, as I understand it, what you've done is you've gone over the evidence of the project as well as the way in which you are proposing to allocate the costs. The decision or the approval you're requesting is for both parts or just for the first part, i.e., the project itself, and the cost allocation is something that could be dealt with in the final decision?

564
MR. O'LEARY:	Mr. Dominy, it's probably a little confusing right at the outset. Initially, the company had indicated that it would prefer, if it would save time and for the efficiencies of proceeding with the hearing and any decision in respect to the project generally, that we separate out the two issues, approval for the project from the cost allocation issue.

565
If there are no savings in time, and if it won't delay the Board's decision, we would certainly be pleased to receive a decision in respect of both. But if a more fulsome debate and written final argument in respect of cost allocations would be your preference, the company would be happy with a decision in respect of the project as soon as possible, and then we'll deal with cost allocation issues at the appropriate time at the conclusion of this hearing in final argument.

566
MR. DOMINY:	I just wanted to clarify that. Thank you.

567
MR. BETTS:	I have no questions, Mr. O'Leary, at this point.

568
Can I have an indication from parties of who intends to provide intervenor arguments? I think that's everybody.

569
MR. WARREN:	Try and control your enthusiasm, sir.

570
MR. BETTS:	Well, quite sincerely, I think this is a very valuable part of the process for the Board, so I encourage that participation.

571
Would it be helpful to the intervenors to break now, or would it be better to begin the arguments and break after some appropriate time? Has there been an order established?

572
MR. WARREN:	Mr. Janigan is going to precede me, Mr. Chairman. Beyond that, I don't think there is any particular order established.

573
MR. BETTS:	Since those names have popped up first, if nobody objects, I'll just take those first.

574
And, Mr. Janigan, therefore, how long do you think you would require? I'm looking to see if we should break for lunch now --

575
MR. JANIGAN:	I think 15 to 20 minutes, Mr. Chairman.

576
MR. BETTS:	Then if you're agreeable, I would like to hear your arguments, and we'll probably break for lunch after that.


577
ARGUMENT BY MR. JANIGAN ON ISSUE 6.4:



578
MR. JANIGAN:	Mr. Chairman, VECC proposes to address the two issues which we believe are in play as a consequence of the company's application for approval of the EnTRAC system.

579
The first issue is the justification of the amount to be expended and the consequence of that, the assignment of the inherent risk of the project to the utility itself. The second issue is the matter of, if the costs are approved then how should they be allocated across the customer classes.

580
Now, with respect to the issue of justification, there are obviously two options available to this Board; one is the pre-approval of the EnTRAC cost of 18 million as requested by Enbridge, and the second is no approval at this time of some or all of the elements of the EnTRAC costs.

581
VECC is of the view there are problems with coming to a conclusion that this amount is a prudent amount for which the utility should be at risk by way of a preapproval of 18 million for EnTRAC, and we have come to that view for the following reasons:

582
First of all, notwithstanding the explanations of the company, we find the RFP to be somewhat problematic. All bidders were informed by Enbridge that the costs that they were considering to be reasonable for carrying out the project was established to be 19.5 million.

583
Secondly, having Sapient included in the design meant that there could have been vendors who were discouraged from bidding because they were of the view that Sapient had already locked into the deal. And I refer to transcript reference volume 5, paragraphs 364 and 365, on that topic.

584
In fact, according to the evidence, one vendor didn't bid on this project for this very reason, and Sapient was the original supplier and designer. That's at paragraphs 373 and 374. I won't read out that transcript reference.

585
The RFP process Enbridge established with vendors was based on a short time frame. According to cross-examination by Mr. Shepherd of Mr. Charleson, the time to respond was in 15 days at one point and 30 days at another point, and that is found at transcript reference volume 5, paragraphs 381 and 382.

586
Secondly, we note that notwithstanding the various attempts to adjust and approve the NPV, the NPV analysis is still unfavourable. The net impact of this project that is inclusive of the GDAR benefits and increased efficiencies of replacing manual systems with automations still results in an overall net cost to the project. That's found at paragraphs 206 to 216 of volume 5.


587
It is important to note that this NPV calculation musters up a number of benefits, or calls to mind a number of benefits which exclude the corresponding costs, such as the costs of GDAR - transcript volume 4, paragraphs 1206 and 1209 - and are exclusive of the EnTRAC costs already spent - that's found at transcript volume 5, paragraph 267 to 310 - and only to generate an NPV over a five-year time period that is still reflective of a project that is more expensive than the benefits.

588
Thirdly, there is difficulty in understanding how the dollar figure was established. Examination by Mr. DeRose showed that the Sapient bid went from 16.6 million to 9.4 million; however, the cost of the project didn't decline by the same magnitude. I would note transcript volume 4, paragraph 1003 to 1005. In fact, according to the cross-examination and the answers given therein, the work to be carried out by Sapient increased as opposed to decreased from the original bid to the lower final bid. That is as well at volume 5, paragraphs 501 to 502.

589
This increased functionality by Sapient and the reduced costs by the vendor still results in an overall project cost that is only 1.5 million less.

590
Mr. Shepherd's cross-examination on the systems cost with Mr. Charleson brought out the fact that Enbridge did not bring forth a witness capable of addressing the technical costs of this project. Mr. Charleson clearly notes that he did not have the expertise to discuss the trend in IT projects cost given that his role was to manage the relationships between large-volume customers, brokers and marketers. And that's found at volume 5, 87 to 90.

591
Given the fact that there was little available exploration of the IT costs from a specialized sense, the Board and intervenors are left with very little sense that the 18 million is, in fact, appropriate. Whatever the conclusion on that score, it is, it seems to be clear, that the EnTRAC project is in excess of the cost that Union paid for similar infrastructure, which is about 15.7 million in costs. And that's found at transcript volume 5, paragraphs 72 to 76.

592
As well, on the subject of justification, we are aware that the concept of user pays was not considered seriously by the company, or it was considered and discarded. We note the answer given both in the evidence and at CAC interrogatory 47.

593
Although this is a matter that will be touched upon later in our argument on allocation of costs, it's important to look at this refusal or this decision not to examine user pays in the consequence of whether or not the utility should be at risk for these costs with a preapproval process.

594
I'd like to deal now with the allocation of the costs that the Board may find to be appropriate or approve for this project.

595
In VECC's view, the evidence shows the following:

596

Number 1, the cost allocation as proposed by the company is not based on cost causality. EnTRAC is not for the system sales customers, and the cause of the costs is related to the activities of direct-purchase customers and large-volume customers. That's at transcript volume 4, paragraphs 1224 to 1225. I'm going to read this particular quote:

597
"MR. JANIGAN: Now, assuming that there were no direct-purchase customers and large-volume gas customers, there wouldn't be any requirement for the EnTRAC system.

598
"MR. CHARLESON: I think that's fair. No contracts are needed for the general service customer."

599
You will find the evidence supporting that at transcript volume 4, paragraphs 1228 to 1229.

600
And the requests for system upgrades have come in from ABMs and industrial customers, not from individual rate 1 and rate 6 customers. That's found volume 4, paragraphs 1235 to 1238, and the EnTRAC business case, page 20.

601
Secondly, cost causality is not following the benefits flow to other customers, not causing the costs. CME, in interrogatory 53, notes the benefits to all rate classes. The rationale for allocation proposed by Enbridge in CAC IR number 40 comes about as it states there are benefits from EnTRAC to all customers, which benefits were explored in the cross-examination of Mr. DeRose at transcript volume 4, paragraph 951 and 971.

602
However, cost causality principles are thrown out the window by allocating 91 percent of those costs of the customers on the basis of those benefits, customers who are not users of the system. That, once again, is derived from CAC interrogatory number 40.

603
Ninety-one percent of the EnTRAC costs are recovered from a group of customers that don't have the contractual agreements that are the specific agreements that are the subject of the EnTRAC system itself. And that's found at transcript volume 4, paragraph 1284 and 1291. I'm going to read this particular exchange:

604
"MR. JANIGAN: In looking at this IR response, it would appear that rate 1 is allocated 73.09 percent of the costs and rate 6 is allocated 18.15 percent of the costs.

605
"MS. COLLIER: Yes, that's right.

606
"MR. JANIGAN: So a little over 91 percent of the EnTRAC costs will be recovered from a group of customers where there is no contractual agreement or no direct-purchase agreement with those customers.

607
"MR. CHARLESON: The individual customers themselves do not sign the agreements.

608
"MR. JANIGAN: But the agreements are under their accounts in their name, and not all residential customers are direct-purchase customers.

609
"MR. CHARLESON: That's correct."

610
Fourthly, costs have been allocated by way of a questionable allocator, in this case, a computer equipment allocator. The IT allocator is equal to the computer equipment allocator, and the evidence on that is found at volume 4, paragraph 1303. And once again, that's Ms. Collier's testimony, it indicates:

611
"That's correct. That's the manner in which those costs have been treated in this study.

612
"And up above there you see on item 3.10, computer equipment is functionalized based on forecast information service charge back to the function group. So that's what I'm trying to explain. It's sort of a multi-step process. It's not like I had one of my standard allocation factors to apply to it. It's a multi-step purpose function."

613
In fact, no effort was made to assess the functionality of EnTRAC. No evidence of the EnTRAC costs and benefits even reflects the allocation or allocator associated with computer equipment.

614
We would suggest that the supposition that rates 1 and 6, having not been responsible for causing the costs, are now getting over 91 percent of the benefits of EnTRAC has simply not been proven.

615
Fifthly, we note that ABMs are not in the equation or assessed a particular allocation of the costs. And we look at volume 4, paragraphs 1398 to 1399, transcript reference, an exchange between Mr. Warren and Mr. Charleson.

616
"MR. WARREN: The one group that we know with absolute certainty isn't going to pay any part of the bill are the ABMs, who represent residential customers; isn't that fair?

617
"MR. CHARLESON: That's fair. They would not directly pay anything."

618
As well, the benefits themselves are questionable. First of all, the benefits are only approved if there is a successful completion of the project and if there are users. Problems with functionality may result in the fact that cost savings will not be accrued to the utility and not accrue to the rate classes which the company allegations will benefit. You'll find that at transcript volume 4, paragraph 1257 and 1258.

619
Sorry if my omission of some of the transcript references might make this a little bit choppy, but I don't know if it might possible to have that -- search that on their own in the interest of brevity.

620

And as I indicated that the non-use of the system or push-back on using the system will introduce a risk to achieving the benefits according to Mr. Charleson, and that's, once again, found at volume 4, paragraphs 1406 to 1409. Once again, an exchange between Mr. Warren and Mr. Charleson.

621
Secondly, it's noted that some of the benefits or one of the benefits that is noted in support of the cost allocation as suggested by the company is reduced contract processing effort. In Exhibit A.5, tab 5, schedule 2, the EnTRAC business case on page 16 notes that:

622
"EnTRAC will result in contract-processing efforts so that account executives will be freed up to be able to focus on more enhanced customer relationships."

623
Now, clearly this benefit of EnTRAC is obviously a benefit to the industrial customers as opposed the individual rate 1 and rate 6 customers who, this proposal suggests, should pay 91 percent of this system.

624
Undertaking J.4.4 confirms the fact that these costs are currently, in the industrial rate classes, based on the number of customers and in the DPAC function. Therefore, EnTRAC will provide a cost benefit of about 503,750 per year for industrial and DPAC customers.

625
With respect to service-provider savings, in Exhibit A.5, tab 5, schedule 2, the EnTRAC business case, page 18, notes that EnTRAC expects to have lower service costs and the savings are estimated to be $100,000.

626
In cross-examination, this reduced cost from Customer Works isn't guaranteed based on a contract requirement or any legal sense. It is merely a hope result from the EnTRAC system. That's found at volume 5, paragraphs 803 to 807, cross-examination between Mr. Brett and Mr. Charleson.

627
As well, the correct bill-to-system customers is characterized as a benefit under the company's proposal. In Exhibit A.5, tab 5, schedule 2, the EnTRAC business case notes that EnTRAC expects the number of penalties being weighed will be reduced. The savings are estimated to be $875,000.

628
EnTRAC helps to ensure that system-sales customers are, in effect, being given a correct bill as opposed to be historically overbilled for gas costs caused by direct-purchase customers. In fact, system-sales customers have been paying too much and direct-purchase customers have, in fact, been avoiding penalty charges.

629
It's a laudatory objective to have this corrected, but we have some problem with having this cited as some sort of benefit now getting bills that were correct as opposed to the overcharging that they previously got in the past.

630
VECC is of the view that the EnTRAC system provision of a reduced gas costs to system customers shouldn't be deemed a benefit, as they are now being correctly billed for a historical injustice.

631
Further, to now charge system customers with the cost of the system through the allocation of costs in the manner suggested by the company is inappropriate.

632
Our preference for allocation of such costs, as the Board may deem to be justified and to be preapproved, is to allow recovery through the DPAC charge. The benefits are small and not even guaranteed. It's appropriate that they be recovered from the users that will be benefiting from the system or wish to use the system.

633
We noted that in the evidence this was explored. A possible approach, according to an Enbridge witness, is to recover the cost to the EnTRAC system via the DPA charge. That's found at volume 4, paragraph 1324 to 1325:

634
"MR. JANIGAN: Presumably all customers in rates 1 and 6 that are on direct purchase could have paid through for the EnTRAC system through an increase in the DPAC charge.

635
"MR. CHARLESON: That is one possible approach."

636
The EnTRAC costs need to be recovered from the DPAC charge since this charge is supposed to capture the costs of direct-purchase agreements, nominations and reports. That's noted at volume 4, paragraphs 1190 to 1191.

637
To ignore the case basis of this DPAC charge will, in fact, result in system-sales customers paying for the system that is required to support direct-purchase customers. The entire concept of a level playing field for system-sales and direct-purchase customers becomes questionable.

638
In effect, moving away from why there is a DPAC in that system-sales administration charge is a distortion of the very level playing field which the Board, in EBRO-497, attempted to bring to the market. An exploration of that is found at paragraphs 1179 to 1183 of volume 4.

639
Sorry, Mr. Chairman, this is the first time I've been arguing from a computer screen so...

640
It should be noted that direct-purchase customers elect to be direct-purchase customers, and the benefits from being a direct-purchase customer will go directly to the customers. That's obviously through sales from commodity costs.

641
Mr. Warren covered in his cross-examination with Mr. Charleson that the costs associated with being a direct-purchase customer are borne by everyone; there is distortion in the competitive marketplace. And that's found at transcript reference volume 4, paragraphs 1442 to 1441.

642

Now, to the extent that there is evidence that there are benefits for all customers and that the Board is not satisfied with the mechanism for recovery of this amount through the DPAC charge, the Board may wish to go to other mechanisms for recovery of a portion of those costs from customers.

643
We would suggest that the appropriate mechanism or the appropriate allocator for recovery of those costs should be based on customer volumes rather than on -- in the fashion indicated by the company in CAC IR number 40.

644
So with respect to cost allocation, we believe that it should follow a system of user pays, that the best mechanism for carrying out that system of user pays would be through a DPAC charge, and in the event that the Board was of the view that a portion of these costs should be picked up by ratepayers as a whole as a result of the benefits alleged by the company, that, in fact, they should be picked up on a volumetric basis.

645
And those are our submissions on this issue, Mr. Chairman.

646
Thank you for your indulgence. I went over my limit.

647
MR. BETTS:	Thank you, Mr. Janigan.

648
MR. DOMINY:	Mr. Janigan, I was trying to understand your argument. Do I understand that basically, with all the supporting evidence, what you're saying is you're not comfortable that the cost is appropriate and that you don't believe that it should be allocated -- costs should be recovered in the way in which the company proposes, and you make -- suggest an alternative approach.

649
Are you in favour of some system being introduced to better manage the arrangements?

650
MR. JANIGAN:	Yes, we endorse the ADR agreement, the fact that that system -- that a system should be brought in to better, more effectively manage the way in which the company deals with direct-purchase and other contracting issues.

651
But you're right, we're not convinced that -- that the company has brought forth sufficient evidence to convince us as to this particular set-up that they wish to have approved, that have been prudently arrived at; and secondly, if they are going to implement it, that the way in which the cost should be allocated is appropriate.

652
MR. DOMINY:	Thank you, Mr. Janigan.

653
MR. BETTS:	Along the same line, Mr. Janigan, can you clarify for me what your -- what your position is in the argument regarding the cost of the project and what recommendation you have for the Board in terms of dealing with the evidence on costs.

654
MR. JANIGAN:	Well, it's -- it was a difficult issue that we approached, because we -- we're not in a position to suggest that this dollar amount is preferable to that dollar amount. We had to look at the totality of the company's evidence to see whether or not we felt it satisfied appropriate standards to qualify for preapproval as a prudent expenditure and something that the utility -- utility ratepayers should be at risk for. We felt on the totality of that evidence, it didn't pass muster.

655
That doesn't mean the company is foreclosed from bringing more and better evidence on that subject at a later hearing. It may mean that the company is at risk for implementing the system at this point in time, and in which case -- and in which case, then, it should look at systems for implementation like user pays or -- and in coming back before the Board with its approval on that subject.

656
But in general terms, we felt that we could not support the company's application to have the costs preapproved and put at the risk of ratepayers at this point in time.

657
MR. BETTS:	Thank you.

658
MR. DOMINY:	Mr. Janigan, just to clarify that, I think what you're saying is that nothing be closed to rate base at this time.

659
MR. JANIGAN:	That's correct, Mr. Dominy.

660
MR. BETTS:	Thank you, Mr. Janigan. That concludes our questions of your arguments.

661
So we will pause now for a lunch break. Does anyone have a problem if we return at quarter past two?

662
I don't see any difficulties with that, and we will -- perhaps during that lunch break, I could ask the intervenors to try and establish, for my benefit, a list, the order in which we will take arguments, and that would be helpful so that I don't have to draw numbers or point fingers.

663
Are there any questions before we break for lunch? Then we will adjourn now and reconvene at quarter past two.

664
--- Luncheon recess taken at 1:02 p.m.
665
--- On resuming at 2:15 p.m.
666
MR. BETTS:	Thank you, everybody. Please be seated.

667
Welcome back from our lunch break, and we will resume intervenor arguments.


668
First of all, are there any preliminary matters that arose during the lunch break? There appear to be none.

669
Did we have an opportunity to establish an intervenor reply list? I see Mr. Shepherd nodding his head.

670
MR. SHEPHERD:	Yes. Mr. Warren will go first and I'll follow.

671
MR. BETTS:	Okay, thank you. And perhaps I'll just let it flow after that, so I'll see a hand after you're done and that will tell me who's next.

672
Mr. Warren, please continue.

673
MR. WARREN:	Thank you, Mr. Chairman.


674
ARGUMENT BY MR. WARREN ON ISSUE 6.4:



675
MR. WARREN:	Mr. Chairman, in these submissions on behalf of my client, the Consumers' Association of Canada, I will address both heads of the issue arising from the EnTRAC matter; namely, whether the Board should approve the proposal in principle at that cost, and also the second issue of cost allocation.

676
For reasons which I will set out in the submissions, it is our proposal you can't separate the two issues; that one informs the other in the analysis.

677
Let me begin, Mr. Chairman and Mr. Dominy, by addressing an issue which Mr. Dominy raised with Mr. Janigan at the conclusion of his submissions; namely, if I may paraphrase Mr. Dominy, what is the significance of the wording in the ADR agreement, which my friend Mr. O'Leary was careful to quote precisely; although my sense of the gravamen of his submissions on the position was that it teetered perilously close to a commitment on the part of the signatories of the ADR agreement to something that looked an awful lot like EnTRAC.

678
Let me say, Mr. Chairman and Mr. Dominy, from the point of view of the CAC, the ADR statement, the preliminary statement amounts to no more than a statement -- a recognition on behalf of the signatories, on behalf of the CAC, that there was some evidence that some form of system was required to address the issues that has been raised by Enbridge with respect to this operation of the system, but that there was no commitment to EnTRAC being the appropriate solution, no commitment to this price being an appropriate price, and certainly no commitment to the proposed method of cost allocation.

679
If I may then turn to the substance of my submissions, Mr. Chairman. The broad relief which Enbridge is seeking, as Mr. O'Leary has noted, is a Board ruling that the proposed EnTRAC system is the appropriate manner for addressing what Enbridge describes as "system issues," and that $18 million is a reasonable cost for doing it.

680
Enbridge is also seeking Board approval for a proposed method of allocating costs. The present forecast costs before you are $18 million, but, as both the pre-filed evidence and the transcript indicates, there will be an additional cost of approximately $2.7 million to address the service-transaction requests element of the GDAR proposal.

681
So, to be realistic, Mr. Chairman, the actual approval, although not formally what's before you, the real approval, the approval being sought is really for some 20.7, if I can round it up, some $21 million.

682
Now, in our respectful submission, what Enbridge is seeking approval for at a high level is advance approval for a scheme without having to invest in it themselves and without being able to show that it will be used or useful, or more importantly, that it is used and useful.

683
In my respectful submission, the personal endorsement of Ms. Holder and Mr. Schultz is giving the Board the sleeves out of their vests. Without their company making a commitment to invest the money, the fact that they are willing, indeed enthusiastic, about spending ratepayer money for the scheme is something that should be given no weight.

684
EnTRAC is intended and indeed it is designed to meet the needs of large-volume rate contracts and direct-purchase agreements. In its testimony, Enbridge stated that some large-volume customers had complaints about Enbridge's inability to meet their needs and that EnTRAC is seen as a tool that will address many of these issues.

685
I'd like to refer the Board - you don't need to turn it up because I will quote it - to an exchange that took place between Enbridge, Mr. Charleson, and Mr. O'Leary. And there is some irony to the fact that Mr. O'Leary has already referred to this same passage, but I will do so for a slightly different reason.

686
In volume 4 of the transcript, beginning at line 923, in response to a question to Mr. O'Leary, the question was:

687
"Mr. Charleson, can you tell me, how have the company's customers endorsed this initiative?"

688
Remember, Mr. Chair, Mr. O'Leary deliberately chose the word "customers," which would suggest customers writ large of Enbridge.

689
The response from Mr. Charleson was quite careful and quite precise. He said:

690
"The company conducts a series of customer council meetings over the course of the year. These meetings are established to work with large-volume customers and the agents, brokers, and marketers that represent other customers to obtain their input on issues on Enbridge and the manner in which Enbridge works with their customers. Several presentations have been made at these councils on EnTRAC, copies of which were filed in response to CAC's interrogatory number 46, which is found at Exhibit I, tab 2, schedule 46.

691
He then goes on to say:

692
"EnTRAC --" this begins at paragraph 925 -- "EnTRAC has also been discussed with individual customers and ABMs in terms of addressing specific issues that had been encountered due to limitations in the existing system in the processes. Some large-volume customers --" and I repeat those words -- "some large-volume customers have been quite vocal in expressing their satisfaction at Enbridge's inability to meet their needs. EnTRAC --" and I want to underscore the following sentence -- "EnTRAC is seen as a tool that will address many of these issues."

693
Those are the issues that are of concern to large-volume customers.

694
Now, when I asked Mr. Charleson at the beginning of my cross-examination what EnTRAC was intending to do, and again my friend Mr. O'Leary has quoted this, but I take it for somewhat different purposes than I intend, at volume 4 of the transcript, beginning at paragraph -- at 1358, this is in response to my question, "What is it going to do? How is it going to work?" Mr. Charleson says:

695
"What EnTRAC is designed to do is to provide an interface through the Internet for direct-purchase customers or their agents to be able to interact with Enbridge in terms of managing their direct-purchase agreements. It is also designed to deal with all the back-office processing that's required to manage those agreements, so all the information that has to be maintained and processed to be able to deal with the various reporting that has to be provided, and the various transactions that are entered into between Enbridge and direct-purchase customers."

696
I underscore that passage, Mr. Chairman, because it, again, reflects the reality that EnTRAC is designed to deal with a small subclass of customers.

697
Now, at transcript volume 5, paragraph 659, there is an exchange between my friend Mr. Brett and Mr. Charleson, and Mr. Brett asks Mr. Charleson generically what it is that Enbridge is going to do for large-volume customers, and I quote beginning at paragraph 659, Mr. Charleson says:

698
"Certainly. For large-volume customers, what EnTRAC would enable them to do is to view the contract parameters that they entered into on the distribution rate contract to see their three-year historical consumption volumes so that they would be able to project what their consumption may be in the coming year as they're working towards planning for entering into a new distribution rate agreement."

699
Now, I pause there to say that that description applies to large-volume consumers and does not apply to individual residential consumers. The system is designed for those large-volume customers.

700
And at volume 4 of the transcript, paragraph 1366, Mr. Charleson, in response to a question which I posed to him -- you remember the exchange I had with him when we reduced the number of customers that will be using EnTRAC to 2,900, I asked him, beginning at paragraph 1365:

701
"They would be the ones using the Internet to get access to the information which EnTRAC can provide; is that correct?"

702
Answer: "Those would be the groups that we would be targeting as users."

703
I repeat that phrase, sentence: "Those would be the groups that we would be targeting as users."

704
And, as Mr. Janigan has pointed out to the Board this morning, in the exchange which took place between and he and Mr. Charleson, which I think is worth repeating again, Mr. Chairman, is at volume 4, paragraph 1225, Mr. Janigan says -- sorry, 1224, Mr. Janigan says:

705
"Now, assuming there will be no direct-purchase customers and large-volume gas customers, there wouldn't be any requirement for the EnTRAC system."

706
Answer: "I think that's fair."

707
Now, Mr. Chairman, I read those passages into the record simply to underscore a point which, in our respectful submission, is critical, particularly on the issue of costs causality, and that is that EnTRAC is designed to serve large-volume customers and ABMs.

708
I turn then to the threshold issue of whether there is a need for the system. In our respectful submission, there is no evidence beyond Enbridge's assertion of the need for this system. There's no independent evidence from direct-purchase customers that they need a system improvement.

709
And more importantly, Mr. Chairman, there is no evidence that large-volume customers or ABMs either need or desire a system improvement that will cost $22 million.

710
In my respectful submission, you can't untether the system that's proposed and its cost and who's going to pay for it, because in the marketplace, the test of whether a system is necessary and will be used is the willingness of people to pay for it. And there is no evidence that the principal users, indeed the only users of the system and its principal beneficiaries are willing to pay their fair share of $22 million for this system.

711
The evidence which Enbridge cites are with respect to a number of meetings with some customer groups in which they apparently expressed approval for the system.

712
Now, I needn't point out to the Board that that evidence is unverifiable, but, from our respectful submission, it is meaningless because the principal users of the EnTRAC system do not have to pay the largest portion of the cost.

713
In our respectful submission, the truest measure of both the depth of the need and appropriateness of the solution is the willingness of the principal users to pay for it, and Enbridge's proposed method of cost allocation has distorted that issue. It has made it impossible for the Board to come to a conclusion on that.

714
There's also no evidence, we submit, with respect to Enbridge's assertion that the system will be functional or that the cost is appropriate. There should, in our respectful submission, at a minimum, be an independent assessment of the appropriateness of the system at that cost.

715
Enbridge's principal argument in support of the appropriateness of the cost is to point to the fact that they were are responses to the RFP. In our respectful submission, responses to RFPs are not in and of themselves a measure of the appropriateness of the cost. If, for example, the system were overdesigned, the RFP would not necessarily reflect that.

716
There is, in our respectful submission, an essential requirement for independent evidence of the appropriateness of the cost measured against comparable systems.

717
It's the absence of any evidence on comparable systems, any benchmark, that makes it very difficult for this Board to say, This is an appropriate cost.

718
Now, as the CAC's interrogatory response number 40 points out, 91 percent of the costs of this system will be borne by residential consumers. They will not be the ones who are using it, the evidence is clear on that, and there is absolutely no evidence that they will get 91 percent of the benefits.

719
Indeed, the evidence suggests that the principal beneficiaries will be the ABMs and the large industrial customers who will be paying -- the ABMs will pay nothing, which surely, under any system, is an unacceptable result; but the large industrial customers will pay some 9 percent of the system, 9 percent of the costs, even though the quotes I just put to you suggest they will be the principal users and, I would suggest, the principal beneficiary.

720
What Enbridge did for its method of cost allocation was to take a method that was, as it were, on the shelf, which is the method for the use for allocation of cost of computer equipment, but other computer equipment arguably benefits all ratepayers, including system customers.

721
Here the EnTRAC benefits go to a small group of large customers. The proposed method of cost allocation violates a fundamental rule of cost allocation in that it separates both cost causality from cost allocation and benefits from cost allocation.

722
Enbridge conceded, and I would ask the Board to -- you don't need to turn it up, certainly, but at volume 4, paragraph 1319 of the transcript, in response to a question, Mr. Chairman, which you posed -- sorry, Mr. Janigan posed to Mr. Charleson, Mr. Janigan says, and I quote at paragraph 1318:

723
"Well, are customers in rates 1 and rate 6 going to be getting over 91 percent of the benefits from EnTRAC?"

724
The answer from Mr. Charleson:

725
"I think it's difficult to determine which rate classes receive which percentage of the benefits."

726
Now, if Mr. Charleson says that, surely a corollary of that is that there is no evidence that the folks getting 91 percent of the costs get 91 percent of the benefits.

727

Now, Enbridge asserts that ratepayers writ large, including residential consumers and system residential consumers, will receive benefits chiefly from a better-managed gas supply and therefore fewer distortions in the PGVA.

728
The problem with this analysis, in our respectful submission, is that the -- according to the argument, EnTRAC is correcting problems which system-gas customers didn't cause in the first place. The problem arose with inadequacies in Enbridge's system and the behaviours of ABMs and large industrial customers, and mirabile dictu these things are -- these things have added cost to residential consumers.

729
They are now going to be fixed and residential consumers now have to pay the cost of fixing a problem they didn't create. In our respectful submission, that is simply unfair.

730
In our respectful submission, the direct beneficiaries -- sorry, the evident direct beneficiaries of EnTRAC should pay for it. If they felt it were beneficial, they would pass the costs on to their customers.

731
Some form of user pay has, in our respectful submission, at least two benefits. There is a closer connection between -- sorry, three benefits. One is a link between cost causality and the payment of the costs. It is these folks who caused the costs and therefore these folks who should pay.

732
The second benefit is that there is, under a user-pay system, a closer connection between benefits and costs. It does not - and I underscore this - it does not prevent those who pay the costs from passing them onto the customers. In the process, this user-pay system, by linking more closely benefits and costs, eliminates the unfairness in Enbridge's proposed allocation scheme.

733
The third principal benefit of the user-pay system is that it allows for a more realistic assessment of whether there's a real need for EnTRAC at the proposed cost. If people who are literally going to derive a benefit from it are unwilling to pay for it, then it is either not the right solution or it's too costly, or some combination of the two.

734
Looking more broadly at the issue, Mr. Chairman and Mr. Dominy, Enbridge's proposal, particularly its cost-allocation proposal, highlights what we see as two dangers in the regulatory system.

735
The first danger is seeking an approval for an expenditure before there is evidence that the proposed investment would be used and useful. That, as my friend Mr. Janigan has indicated, shifts the risks from the utility to the ratepayer. The ratepayer shouldn't bear those risks.

736
The second and, in a sense, more insidious risk of the proposal is its ability to distort what should be market choices. It is a crude simplification but an accurate one.

737
The regulatory system is supposed to function as a proxy or, if you wish, a surrogate for the competitive market, and this proposal distorts that because it allows recovery over a broad range of customers.

738

If you have 2,900 customers on the one hand and $18 million in costs -- I'm sorry, $21 million in cost, then the unit cost is obviously much higher than if you have 1.6 million customers and divide the costs among them. But that simply hides the reality of what's going on, and that is a danger in the regulatory system where we can all too easily say, This cost is appropriate because it can be shifted to a lot of people, even if they are not the ones who caused it or not the ones who are going to get the benefits.

739
These dangers can, in our respectful submission, be avoided by requiring Enbridge to adopt a user-pay approach and, in our respectful submission, the Board should make it a condition of the -- a condition of any approval it would grant for Enbridge.

740
Enbridge can then -- if the Board were to say, notwithstanding the thinness of the evidence on this, this is the appropriate system at the appropriate cost, and you can spend it but you have to make the users pay for it, then you would find out, all of us in a hurry, whether or not this system was ever going to get off the ground.

741
Reference has been made, Mr. Chairman and Mr. Dominy, to the allocation of costs for Union's unbundling proposals as a potential alternative approach to mix costs allocated on a volumetric basis with costs based on the number of customers, as I recollect that.

742
In our respectful submission, this is not a good analogy and the system should not be adopted, because in the Union unbundling proposal, it was clear that some benefits were going to accrue across the system of all ratepayers, and it would appear, as I read the transcript, that Enbridge agrees with the fact that there is not an apples-to-apples comparison between the two. And in this context there is an exchange which took place between Mr. DeRose and Ms. Collier which appears at paragraph 1131 of volume 4 of the transcript. Mr. DeRose asked -- sorry, paragraph 1130:

743
"And are you aware of how Union Line's capital cost was allocated?"

744
Answer: "I have read through the Union decision. From my understanding with regards to Union's proposal from last year, it's certainly not a one-for-one comparison for what we are proposing today with EnTRAC. Part of their implementation plan had to do with --" and I'm going to underscore the following words -- "providing the unbundling of their rates and service for general-service customers. As a result, it was sort of treated in two phases. One phase was allocated to customers based on their customer's delivery volumes. The second phase was allocated to the customer or general-services customer classes based on customer numbering."

745
So Enbridge itself has pointed to the fundamental difference between what they're proposing with EnTRAC and what Union was doing with its unbundling costs, and therefore we submit with respect that the proposed method of cost allocation of Union shouldn't be adopted in this case.

746
To conclude, Mr. Chairman, we say, with respect, the Board should, in the first instance, deny approval of EnTRAC as proposed because there is no compelling evidence that this is the appropriate system and the proposed cost. If, however, the Board is prepared to grant that approval, then it should do so on the basis of a user-pay system, perhaps, as my friend Mr. Janigan suggested, recovered through the DPAC charge.

747
My final point, Mr. Chairman, is that there is some danger in separating approval in principle from approval of the cost allocation methodology. The two should not be separated. They should go together for both analytical purposes and also in terms of their impact of the likelihood that this thing will ever get off the ground.

748
Those are my submissions. Thank you.

749
MR. BETTS:	Thank you, Mr. Warren.

750
MR. DOMINY:	Mr. Warren, there is just one question I wondered. As I understand it, you're proposing that any costs of the system that was approved would be based on a user-pay basis to reflect the benefits and cost causality; in other words, that you'd suggest that the costs should be recovered from the large-volume customer or from the ABMs.

751
And I just wondered whether one could extend the ABMs to say ABMs is essentially the surrogate for the direct-purchase customers in the general service class, because obviously they all go through an ABM to get that benefit or cost.

752
MR. WARREN:	Sir, in my submission, under a user-pay system, one of the great virtues of the user-pay system is the ABMs can decide to pass that on to their customers. They may choose to do that; they may not choose to do that. But they will go through the following calculation: They will say: What is the benefit I'm getting for this money, and are my customers going to pay for it? And it's that filter process which is really a market-filtration process.

753
So they may choose to do that, but in our respectful submission, in the first instance, it should be to people who are actually going to use the service and they can choose to pass it on to their customer or not, as the case may be.

754
MR. DOMINY:	So, in other words, if I interpret user as direct user as opposed to indirect user.

755
MR. WARREN:	Yes, that's correct, sir.

756
MR. DOMINY:	Thank you.

757
MR. BETTS:	And I have no questions, Mr. Warren. Thank you.

758
Mr. Shepherd.


759
MR. SHEPHERD:	Thank you, Mr. Chairman, Mr. Dominy.


760
ARGUMENT BY MR. SHEPHERD ON ISSUE 6.4:



761
MR. SHEPHERD:	Going back to Mr. O'Leary's four points, it's my intention not to deal with the question of need for the project but to deal with the justification of the costs, the approval sought, and not to deal with cost allocation.

762
I should just make a comment on need, after Mr. Warren's comments. I think everybody in the ADR agreement agreed that some solution, some new automated approach to this particular functionality is necessary, and I take Mr. Warren's point that there wasn't agreement that this particular solution was the right one. The way I would look at that is if your car is 20 years old and is falling apart, that can demonstrate a need for a new car; that does not necessarily demonstrate the need for a Mercedes, and I believe that's the distinction Mr. Warren is making, too.

763
So let me deal with the two issues that I do want to address; the justification of the costs and the approval being sought.

764
I'm back to this process after several years away from it, and during that time I spent a couple of years essentially raising money for companies - I say this with some weariness in my voice - and I learned over that time to recognize an investment presentation when I saw one. And what we saw from the company on EnTRAC was no different than what I did innumerable times, and I saw other people do, before VCs and before institutional investors.

765
The company in this case has come to this Board to seek an investment for $23.7 million from the ratepayers for a project that they want to proceed with. This Board, like anyone else receiving an investment pitch, has to decide whether the case for that investment has been made. It's not just a question of whether it's a great project. It's a question of whether the proponents of the project have done their homework and have come to you with a rigorous and properly thought-out approach that gives you confidence that you should spend what is other people's money, after all, $23.7 million of ratepayers' money, on this enterprise.

766
The question is was that case made, and sadly the answer is they did not make that case. And I'll go through briefly why I say that.

767
Let's start with -- leaving aside the fact that everybody accepts that the car is 20 years old and it's broken down and we need a new one - I'm not going to discuss that - we still have to talk about how much should we be spending on this new car, how much should this project cost.

768

I can tell you from my own background, and I think we all know, that any company that can't deliver similar functionality through an IT project for less money today than five years ago simply isn't trying hard enough. Costs have been rapidly driven down in new technologies, and the use of web-based systems is an order of magnitude simpler and cheaper than the old client-server-based technologies of the past.

769
I take Mr. Janigan's point that it's unfortunate that the company wasn't -- didn't put to this Board a witness who could talk to us about the technical distinctions between old technologies and new ones. I think that would have informed the Board on this issue.

770
MR. O'LEARY:	Mr. Chair, I'm hesitant to interrupt my friend at all at this point, but in terms of one of the great principles of argument that you base it upon the evidence that's before the tribunal, and to my knowledge there is nothing to support what my friend has indicated as being whether the project could be done at a lower cost because of the general trend or not. This is just something that my friend is now inventing for the purposes of this argument, with no evidence to support it.

771
MR. SHEPHERD:	Mr. Chairman, I agree with Mr. O'Leary that it is inappropriate to interrupt somebody's argument, and I guess my argument was - I thought I was clear; maybe I maybe wasn't - that it was the company's responsibility to lead evidence on this point, and they didn't. I'm not the first one to make that argument; Mr. Janigan made the same argument.

772
MR. BETTS:	I would prefer, if possible, that we not have interruptions of parties' arguments and that it be a significant point when there is a need. And I think, Mr. O'Leary, you will have opportunity to reply and I'm hoping you can clarify that issue, if it still exists, at that time.

773
MR. O'LEARY:	Thank you, Mr. Chairman.

774
MR. BETTS:	Mr. Shepherd, please continue.

775
MR. SHEPHERD:	It seems intuitive to me that, particularly where a system is replacing old mainframe packages, even manual systems, and particularly where a system is going to ask the customers to do a lot of the work, that's what web-based systems do, they ask the customers to do a lot of the work that otherwise you would have to pay people to do. And where the essence of the functionality is the transparent management of very extensive, time-sensitive and very complex information, intuitively one wonders why this project couldn't be cheaper than what it's replacing, why it does not have a positive NPV.

776
But against that background, and I won't go further on that point, but against that background, the company says that they - and "they" in this context, means the ratepayers, because it's their money - can't do this without losing money.

777

So if you come to an investor, like this Board, and you say, Well, we want to do this and it's not actually cost-effective, but it's still a good idea, then it would seem to me that the first part of any rigorous analysis should be a review of the alternatives. That's the most shocking part of this evidence, I think.

778
What did they actually do to review the alternatives? Well, they say they only looked at commercially-available systems. This boggles the mind. Do they think that systems like this are shrink-wrapped products that you buy at Computer City? How many companies in the world use a system like this? It's hardly likely to be off the shelf and commercially available.

779
On the other hand, what are the odds that Enbridge Gas Distribution is the first company to automate this process using modern technology, using today's technology. Not likely. There are a lot of utilities that have the same problems. There's obviously a good chance that other utilities faced with the same issues have developed a solution. Indeed, the only evidence we have on that point is that the only other gas distribution utility in this province has already done it. Doesn't Enbridge think that utilities outside Ontario might be equally enlightened and have developed similar systems? But what they admit is that they didn't do that homework. It would have been so easy, a day or two of just calling around to other utilities asking them what they've done. They didn't do that; they didn't bother.

780
Even easier, they could have talked to the head offices of major customers of their own here in Ontario and asked them, What are you seeing in other jurisdictions? They were talking to them anyway. Why didn't they ask them, What systems did you like? That would have had the advantage of not only would they have found out what else is available, but they also would have found out what the customers wanted or what the customers would have liked. Then didn't do that, or if they did do that, they didn't give evidence of that.

781
MR. BETTS:	I'm sorry, Mr. Shepherd, I think it's important to state that -- how do I put this. I would like you to confine your arguments to the evidence that we have, not what we don't have, if that's possible. I appreciate the case that you're attempting to make, that perhaps the applicant didn't make their case, but concentrate on that side of it rather than what generated what might have been say if it were asked.

782
MR. SHEPHERD:	Mr. Chairman, I take your point and I will try to control my enthusiasm.

783
But what I'm trying to demonstrate is that there was evidence that the company, in making their case, should have put to this Board, and they did not, and I'm giving examples of the sorts of things they should have done and told you about in order to make their case. If I've expressed that poorly, I am sorry.

784
MR. BETTS:	I appreciate that, and that's valid. I think what I'm reluctant to hear is what the possible alternatives would have been, because in a sense you're giving evidence at that point, in my mind. So if you -- I certainly accept the fact that perhaps evidence was not given, but please try not to generate it for us.

785
MR. SHEPHERD:	Thank you, Mr. Chair.

786

So what did the company, in fact, put to this Board? The only justification of the costs that this company put to this Board, only justification, is the RFP. There is no other even quasi-independent evidence of any sort with respect to the cost of this project. So let's look at that RFP.

787
First, they decide to do it only after they have sole-sourced Sapient and decided they were the best vendor. Second, it was clear from the outset that Sapient was in the preferred position. They weren't even going to be asked to bid, as the witnesses have indicated, and they seriously considered having Sapient evaluate the other bidders. Wisely, they decided not to do that, but they did consider it, as Mr. Charleson admitted. And they told the other bidders that they would have to make their own deal with Sapient if they wanted access to the informal design information that Sapient had available.

788
Look at the short time frames, what Mr. Charleson called in his evidence aggressive. Short time frames always favour the incumbent, as is obvious, and the most-favoured-nation clause would clearly be more of a problem for a larger company with more customers rather than a smaller company like Sapient.

789
Yet after all this, they set up this package with what, in our respectful submission, were built-in biases, Sapient still comes in with the highest bid and they still get selected.

790
The bottom line here is that they tried to use the RFP to justify the amount of this investment and they failed. The RFP was only for show, but their plans went awry and all it showed was that they were intent on buying the Mercedes from the outset, no matter what the cost, in our submission.

791
It doesn't help that they didn't even do a basic review of the financial strength of their preferred partner. Mr. Chairman, the fact that Sapient is in some financial trouble is apparent from their public filings.

792
Are other companies in a similar position? Well, Mr. Charleson says he thinks they are, but he also says he doesn't know what a 10-K is, so I think that the weight of his evidence on the state of the IT industry may be -- this Board may elect to give it relatively low weight.

793
But the point is not whether Sapient will survive or not. The point is that Mr. Charleson and his team didn't do their homework. They want to give $12 million to $15 million of ratepayers' money to this company for a critical software application and they didn't even do the basic financial review of their preferred supplier. They chose to rely, instead, on the fact that Sapient Canada moved into larger premises. They're growing, he said.

794
Mr. Chairman, of course they're growing, they just got $15.7 from Union Gas and Enbridge has told them they're going to get a similar amount from them. In those circumstances, I would move into larger premises too.

795
What Mr. Charleson didn't know is that Sapient closed two of their major non-U.S. subsidiaries in the last 18 months. This is the sort of thing that is essential information that any properly-run company has to know this about one of their key suppliers.

796
This is not just about credit-worthiness, of course, it's also about price. Mr. Charleson managed to reduce the price of this project overall from 19.5 to 18 million. Actually, of course, with the earlier 3 million and the 2.7 million from GDAR, it's really only a reduction of 25.2 million to 22 million. That's a 6 percent decrease. Is this the toughest they can be with a major supplier that desperately needs work? They haven't answered that question.

797
Before I get to our recommendation to the Board, Mr. Chairman, I want to touch on one glaring point in this discussion, what I would characterize as the embarrassing unreliability of the information provided to the Board on this project. Let me just give you a few examples.

798
First, the initial figure of 19.5 million was apparently a guess. I draw your attention to Friday's transcript at paragraph 408 - you don't need to turn it up - where Mr. Charleson admits that the 19.5 million figure didn't even have the level of detail found in the updated evidence with respect to the 18 million. You'll recall, the 18 million was broken down into six or eight component parts. What he says about the 19.5 million is, and I quote:

799
"We never did it to the same degree of detail. It's a collection of ranges that we kind of averaged out and came to a number."

800
Which sounds, in my submission, like a guess.

801
So then after they file for 19.5 million, Sapient increases their estimate by several million dollars, which Mr. Charleson told us for the first time on Friday. But the company doesn't amend their filing or tell the Board or tell the intervenors. Why not?

802
Then they get the RFP bids, select the highest bidder, and Mr. Charleson says they didn't negotiate, but somehow the number moved down to 18 million.

803
Now we find out that it isn't really 18 million, it's really 23.7 million because they've already spent 3 million, which -- I don't know how to characterize that 3 million, Mr. Chairman. They've closed it to rate base, but they don't have an asset. I don't know, are they depreciating it? I don't know how they're dealing with it. How do you close something in rate base if you don't have something there?

804
And $2.7 million for GDAR compliance which they say they aren't asking to be approved but they have to do it anyway. And then maybe it isn't even 23.7 million. As Mr. Charleson admits, scope change, as he put it, scope change is a major component of IT projects and scope change in this project is extra.

805
Then we look at the NPV calculations. First we find that the 3 million already spent is not included. What that means is that the project is actually a bigger financial loser than they are presenting to us. But why is it not included? Mr. Charleson can't decide whether it's EnTRAC spending or not, but somehow they have some benefit from this.

806
Then they load in the GDAR net benefits, but it's clear they haven't done their homework on those numbers either. They filed a transcript undertaking in which they broke them down. The detail is limited; it's minimal.

807
Finally, I'm concerned about some of Mr. Charleson's answers which bordered on the - I'm trying to be gentle here - disingenuous. He's the senior management person responsible for dealing with large customers and yet he doesn't know what a 10-K is. He's a computer-system specialist by training and background, but he says he knows nothing about technical issues, even though up to seven years ago that was his job at Enbridge, as he later admitted.

808
I want to make clear I'm not challenging Mr. Charleson's integrity in any way. What I'm doing, rather, is pointing out that when witnesses play the game, as it were, they create an impression that they're not being forthcoming with the Board, and when you're asking for approval of 23.7 million, that's not the right way to do it.

809
So, Mr. Chairman, what do we do now? We need some form of system, but it really, and I agree with my friends who have spoken before me, it really is unreasonable to expect this Board to approve spending $23.7 million on the basis of the evidence before it. I don't believe we should put this off, but I don't believe this Board should approve 23.7 million.

810
Therefore, we're proposing the following: We're proposing that this Board authorize only the amount the company can prove keeps the NPV at zero or better. The company, in transcript Undertaking J.5.4, says that number is $9.7 million, which, by the way, I believe should be inclusive of the 3 million that's already been spent. In any case, I don't think the Board needs to determine what the number is. I think the Board should say to the company it will approve the break-even amount. Company, go ahead, spend the money, but be prepared to come back in the next rate case and show us that what you spent was a break-even amount. Anything above that is not approved.

811
Now, I'm assuming that GDAR is not included in this, and here is the reason: As I understand it, the GDAR has a deferral account already set up and so it seems to me, if we've already dealt with how GDAR will be handled, there's no reason to mix the two.

812
Mr. Chairman, it's disappointing that this program is not supported by better evidence, but this Board has to deal with what's presented to it. Here the company needs a new system but hasn't made out the case for it. We see no other solution but to approve a lesser amount and let the company find a way to build this solution within that envelope.

813
Those are our submissions.

814
MR. BETTS:	Thank you, Mr. Shepherd.

815

[The Board confers]

816
MR. BETTS:	Thank you, Mr. Shepherd. We have no questions.

817
Mr. Brett?

818
MR. BRETT:	Thank you, Mr. Chairman, Mr. Dominy.


819
ARGUMENT BY MR. BRETT ON ISSUE 6.4:



820
MR. BRETT:	Mr. Chairman, because of the accelerated timing of this -- of the argument on this issue, and I think this is something that we agreed on with the utility, I think it might be said broadly as an accommodation to the utility, I'm at somewhat of a disadvantage in the sense we're arguing before the benefit of having I think all of the undertakings answered, or at least answered fully to our satisfaction, and I'm thinking in particular of the undertaking that came back with the confidentiality attached to it with respect to the Sapient contract.

821
And also there is -- there were some questions in cross-examination that were deferred to later panels, notably, in my case, one dealing with the savings -- how the saving promised by EnTRAC would be dealt with under a PBR regime. However, that's not going to, I think, be a fatal blow here. I'm going to go ahead and address that issue. How we think it should be done is one of our topics.

822
The other thing is, Mr. Chairman, I had not intended -- actually, we had not intended to address at this time the issue of the cost allocation of the program. We were going to do that -- I was going to do that during the written argument, and I -- I had thought that that opportunity would be available.

823
Now, I may be the only person in the room left thinking that. I've been in and out of this hearing. I did not attend the parts of the hearing dealing with demand management, because we had been party to a partial settlement on that so I have been here a limited amount of time. But in any event, my intent would be to not address that issue until the -- until my written argument, and I guess if that isn't acceptable, at the end of the day, I would -- I would simply waive the opportunity to do that. There have been a number of able arguments here on that subject.

824
I would say in very general terms that the -- on that issue, that our preliminary view on the matter is that we would not agree with the method proposed by the company to allocate the costs; that, without getting into all of the detail and rationale today because I haven't prepared for that, we view, I think, the primary beneficiaries of the project to be two categories of the large-volume customers - whether they be system customers or direct-purchase, it doesn't matter - large-volume contract customers, 90 percent of whom, of course, are on direct purchase. And secondly, the marketer aggregators who contract with the utility on behalf of larger number of smaller users.

825
We do think that the small-volume users who are involved in a direct-purchase scheme themselves have some benefit, but a lesser benefit than those first two categories. And we think that the small-volume users that are not party to a direct-purchase scheme through a marketer or aggregator probably have some benefit but a very small one. So the order of hierarchy is as I've pointed out.

826
Then if I may move on to the remainder of the presentation in the -- in the settlement agreement, and I think I'm quoting here:

827
"The parties agree that they endorse the objective of enhancing, at a reasonable cost, the information systems required to manage agreements with large-volume and direct-purchase customers and associated gas-supply management issues."

828
In our view, the Board -- the issues the Board needs to address in connection with this matter are: Is there a demonstrated need for the project, number one; number 2, is the overall cost reasonable; number 3, are the risks inherent in the project fairly allocated and mitigated as well as possible, and who bears the residual risks; number 4, is there assurance that at least some of the O&M and capital savings that this project is said to generate will continue to flow to ratepayers under the upcoming comprehensive PBR plan; and finally, are the costs -- are the forecast costs of the project allocated in a manner that is both transparent and fair?

829
With respect to the first point, the need for the project, Schools' is of the view that the utility needs to take some action to improve its ability to handle the large volume of information related to gas consumption of large-volume customers and contract customers, and contract customer and large-volume customers are alternative terms. All large-volume customers have contracts, have distribution contracts. And also direct information required to deal with direct-purchase arrangements for both large customers and smaller rates 1 and 6 customers through their marketers. So it's really an information handling capability that is the need, I think.

830
And then finally there are -- there is a -- it's also important that this information handling be available to serve as a floor, as I understand it, for the GDAR, upcoming GDAR system, and for further unbundled rates in the event that unbundled rates are offered.

831
And that latter connection, on my third point there, the importance of this as being a -- an underpinning information sort of infrastructure for GDAR and unbundling, I would call your attention, and you don't need to turn this up, but Exhibit I, tab 1, schedule 65 -- schedule 67, I'm sorry, that's the Board Staff IR schedule 67 with all of the materials attached.

832
On page 58 there's a memorandum from Mr. Steve McGill to Mr. Dave Charleson giving his view, his comments on the EnTRAC proposal. And Steve McGill, Mr. McGill, as you won't know, panel, has been involved in customer care initiatives and, I'll said broadly, this part of the utility's operation for a very long time.

833
And his comments are instructive. His final comment, this is paragraph 6, and I just want to read it briefly, and this may be more for the future than for today, but I think it impacts on a decision for today as well, he says here:

834
"I believe it's a foregone conclusion that GDAR will come into existence in some way, shape or form."

835
This was written on the 7th of October, 2002.


836
"Also, I don't believe that we will be able to cope with its introduction in an effective, economic way without the kind of database restructuring envisaged in EnTRAC. It's my view that we should be able to attribute 50 to 80 percent of the EnTRAC database design, development and implementation cost to GDAR and rate-service unbundling. If these things go ahead, we will need to restructure our databases anyway. Doing it through EnTRAC means that we will be able accommodate the contemplated market changes much more quickly and effectively. These costs will be incurred in any case."

837
So I would just like to flag that, and I'd like everyone to remember that.

838
The question, then -- the next -- following on with the question of need, the information that we're talking about, that's the subject of this information program includes end-users' daily consumption, including the daily consumption of companies that have many plants and want instantaneous daily information on their total consumption across all of their plants in Ontario. This has nothing to do with direct purchase as such. It's wanting to know exactly where you stand, as Mr. Charleson said earlier in response to one of my questions with respect to whether you're on -- whether you, as a customer, an end-use customer, are on or off-side your contract-demand requirements and other contractual commitments that you have to the company, to the utility. Because unlike a general-service customer, a large-volume customer has specific contractual undertakings he must live with and he cannot exceed without penalty, so he's got to know this.

839
And secondly, large end-use customers who are party to direct-purchase arrangements, normally bundled transportation arrangements, the daily status of banked gas accounts, these are every bundled purchase -- every direct-purchase arrangement in Ontario has a banked gas account, which is the mechanism by which the company oversees the supply versus consumption under direct purchase, and those accounts have to be kept within limits. So the information is critical for the status of those accounts, and the -- and as well, the market -- for a marketer who has many, many direct-purchase, small direct-purchase customers he's acting for, that marketer has to know on a daily basis, or would like to know on a daily basis, the status of his banked gas account so he can take corrective action well in advance of a problem getting out of hand. That's sort of the way that system works.

840
And it seems to me that IGUA representatives who were consulted in the course of the preparations and whose remarks are contained in one of the responses to I-67 said that it was very important to them to have daily information. That was the most important thing. They wanted daily information for the plants, especially if they had multiple plants.

841
I've had some personal experience, actually, with -- with situations where Enbridge has sent out billing systems, and has sent out bills that actually characterize customers as being on direct purchase when they're actually on system gas as a result of switching back -- this was a large customer, as it happened.

842
So I guess this is to say that there is a need, I believe, there is a need. It's not a need -- it's not a public-safety need, but it is a matter of making the system work more efficiently for the company, many of its customers and stakeholders, other stakeholders. And as I said before, it will be important in laying the ground work for GDAR and Consumers if and when they go this way, a further unbundling of rates.


843
The second point: Is the overall cost reasonable? As some others have said, Mr. Chairman and Mr. Dominy, in my view, it's very hard to judge this matter. All IT projects seem to me to be expensive, and they seem to be notorious for ending up more expensive than first thought. This seems to be a universal phenomena. I'm speaking as an amateur here, not as a professional on IT. It's not restricted, certainly, to Enbridge Consumers Gas or Enbridge Gas Distribution, although EGD has had its share of such projects, notably CIS, the experience with which, I think, underlies the caution of many intervenors here about IT projects.

844
Enbridge Gas Distribution, simply put, has to demonstrate that it can properly manage multi-year IT projects. It appeared to do so reasonably well with the Y2K project; let us hope that continues.

845
The contract with Sapient accounts for 9.4 million or about one half of the total costs. It was chosen early on, I believe, by EGD on the basis of recommendations from Union Gas.

846
The 18 million quoted is not the total cost as others have said, because it does not include the cost of accommodating EnTRAC to GDAR which is an additional 2.7 million; and then, as Mr. Shepherd noted and others noted, the 3.0 million of EnTRAC project costs closed to rate base in 2002, so the real cost is, I believe, 23.7 million.

847
It appears then that is correct based on the bids in the RFP, and based on the relative positioning of Sapient in that process, that we do have a sort of Cadillac system here. I differ from Mr. Warren, but I think my point is the same. That's not to say that it's not a good one, provided that it works.

848
I'm going to have some comments in a moment about the issue of risk allocation, including the timing of closing to rate base and the treatment of the $3 million that was already closed to rate base in 2002. And the cost -- costs that are -- also I will have a comment on the cost, specifically the cost to be incurred, if any, by Customer Works and by EOS.

849
And I guess I would make in passing the observation that the information on GDAR justifying the 2.7 million was very slight. There did not appear to be much information on that point.

850
My third point is on risk allocation. In the Schools' view, it is critical that ratepayers be protected from any cost above 18.0 million, and separately 2.7 million for the GDAR enhancement. Accordingly, Schools' would ask the Board to require, one, that any cost in excess of 18 million be for the account of the EGD shareholder.

851
The company, it seems to me, has said in effect that they agreed that their approach, that is, to come back to the Board if costs would go above 18 million, is more or less equivalent to that. I don't think it is. I think the Board should make it clear that the company should be expected to absorb any further costs themselves. The same would apply for the costs involved in ongoing system management, which have been estimated to be $400,000 a year. Those are apparently going to be fixed-price contracts, but I don't think that the company should be permitted to spend additional monies -- ratepayer money on those.

852
And I think the same should apply within that overall framework to the contract price itself with Sapient of 9.4 million. If it's a truly fixed price, then the company should be responsible for the balance.

853
The issue of scope change I don't think should be one that the company should be able to bring forward at this stage. The company has already spent $3 million plus, including $2 million under a contract with Sapient, studying a problem, designing a system to fix it, so there ought not to be any scope changes at this point; and if there are, the company should be at risk for any scope changes.

854
In addition, if you look at the breakdown of the budget the company provided for the 18 million - I believe it's page 5 of their principal piece of evidence - there is $2.5 million in the budget for incremental IT resources to help implement the project, so any excess over the 9.4 should be able to be served from that amount.

855
Further, I believe with respect to Customer Works, that Customer Works should be required to find the $3 million of the project costs if this is possible under the existing Customer Works contract. And we'll have to -- I believe it is, but I am not certain. Or alternatively, Enbridge Gas Distribution should pay the costs but only on two conditions: (a) that there are savings that would approve to Enbridge Gas Distribution through lower fees from Customer Works of a magnitude at least equal to the utility's return on equity when viewed against the $3 million investment; and (b) that the contract - and here I have some doubts about what the contract allows - and that the contract permit immediate or same-year pass-through of such savings realized by Customer Works to EGD, and I don't think the contract, as drafted, does that. We discussed that at some length in the 0032 case, and I haven't had the opportunity to review that discussion, but my memory says that the contract doesn't permit that.

856
EGD should report on this matter, and Customer Works needs to provide all of the necessary information to allow it to make a complete report on this matter at the next rates case. Bear in mind when dealing with Customer Works that it's an entity in which Enbridge Inc. has a 70 percent beneficial interest, that is to say, that Enbridge Inc. gets 70 percent of any profit; BC Gas gets 30 percent. And I think when we're dealing with Customer Works, we should bear that in mind.

857
Finally, with respect to EOS, it is clear to me at least that EOS will realize some O&M savings by virtue of the use of the EnTRAC system. EnTRAC will make their job of nominating gas on pipelines and controlling the flows on gas through the various components of the Enbridge Gas Distribution system easier to do, to take into account fluctuating loads and user needs, nominating make-up gas for balancing purposes or shedding gas for balancing purposes for direct-purchase customers either with end-users directly or with marketers.

858
It seems to me that the software it requires to direct gas flows will have to be integrated with the EnTRAC software, and it will result -- the EnTRAC software will result in them being able to do a better job and realize a better result.

859

Three more points with respect -- this is point number 4 for me with respect to risk allocation, and here I must agree with my -- with what the predecessor speaker said. We are -- Schools' is surprised that EGD apparently did not do a credit analysis of Sapient company and the other bidders, for that matter, as part of the RFP. It's clear that Sapient itself, the corporation, is not in good financial shape based on it's most recent financial 10-K report, notwithstanding the fact that its Canadian office may be growing and successful.

860
As you are aware, Sapient Canada is just a tiny part of Sapient Corporation which has incurred what are very large losses, by any standards, in recent years.

861
Schools' would accordingly suggest that the Board's approval of the project be conditioned on the fact that any costs that are incurred by EGD or its affiliates because of the insolvency or financial difficulty of Sapient - for example, layoffs of key staff that might affect the implementation timetable for the EGD project - be for the account of shareholders; and two, that the contract between EGD and Sapient contain provisions to protect EGD against the eventuality as much as possible; for example, no layoff of named key staff for the balance of the project.

862
The fifth point is that Enbridge Gas Distribution be required to file the letter of intent and the contract with the Board and intervenors as soon as it is available. The Board approval should be -- any Board approval should be contingent upon the contract providing adequate, normal commercial protections for the company and its ratepayers for things such as failure to perform, delays, and the like.

863
Point 6. With respect to the $3 million of EnTRAC project spending closed to rate base without Board approval in 2002, Schools' believes that - and this is a rather difficult set of circumstances - that no return on that capital should be permitted going forward, and that the amount of return paid in 2002 should be credited back to ratepayers in 2004 rates.

864
I think we've given agreement that we will not do anything that affects 2003 rates, but that return that's been paid, if I have that right, needs to come back to ratepayers.

865
There is, in our view, nothing used or useful in the 2002 work without the follow-on work. There is always an issue, it seems to me, with multi-year capital projects in terms of when you close various aspects of them to rate base.

866
The Board in the past has declined to close projects to rate base until potential benefits are being realized with the expectation, I think, that remaining benefits would be realized, but at least that there are some first-generation benefits that are realized.

867
This is true generally, and I think the Board should continue to take that view today.

868
I'm going to move on to my fourth and final area, and it will be a brief one but a complicated one, and that is the question of the regulatory treatment of this -- well, not so complicated, I guess. I'm sorry, I think it's -- the regulatory treatment of this issue.


869
The company is asking the Board to approve the EnTRAC project in 2003, this year, which is a cost-of-service year, on the eve of a five-year performance-based rate-making regime, which will very likely commence either October 1st, 2003 or, if not then, October 1st, 2004. I don't think anyone is certain at the moment what the company's intentions are in this regard.

870
The company has also declined to clarify to date its response to, I believe it is, CAC 53 with respect to the regulatory treatment of the project savings, and we're going to learn that when the panel appears, the O&M policy panel appears later in the week.

871
But in a nutshell the problem is that the company will have spent, if they obtain approval for this, something like 23.7 million in 2002, 2003, and 2004. This expenditure will generate a stream of O&M savings of 600,000 in 2004 - I'm using the company's projections here from their NPV analysis - 2.4 million in each of 2005, 2006 and 2007, and presumably for several years thereafter. There are additional gas-cost savings of 875,000 per year projected commencing in 2004, for a total saving of something in the order of 3.9 million per year from 2004 on.

872
Now, assuming we just stick with the O&M, because I think it's clear here, and I haven't -- I'm not so certain about the gas-cost savings.

873
The O&M saving -- under cost-of-service rate-making, those savings would accrue to the ratepayer in the year in which they were taken, or at least in the next year in the form of a reduced O&M budget. Under PBR rate-making, depending on the program design, the shareholder could receive 100 percent and in all likelihood at least will receive 50 percent of such savings, while the ratepayer will have paid the capital cost of the project that generated the savings.

874
Schools' believes that the full amount of such savings should be deducted from the O&M base for PBR purposes, adjusted to take account of the step-up in the amount of the savings from 2004 to 2005.

875
There are some alternatives to this. It might be done by way of a negative Z factor in each year in question, but in any event, that effect should be calculated.

876
And finally, with respect to the regulatory side of this, I think it's also important, in our view, that if -- if and when a project of this nature proceeds, that Enbridge Gas Distribution should be able to come forward with additional SQI factors in their next PBR, which reflects the fact that they have enhanced information-management system, which will allow them to agree to specific targets with respect to items like transfer of customers into and out of direct-purchase arrangements, adjustments to contract rate structures, and other such things.

877
Mr. Chairman and Mr. Dominy, thank you very much for your attention. Those are my submissions.

878
MR. BETTS:	Thank you, Mr. Brett.

879
MR. DOMINY:	Mr. Brett, I wonder if you could just help me a little bit. I'm not quite sure what your final position is. I think you were arguing at the beginning that you saw a need for the project.

880
MR. BRETT:	Yes.

881
MR. DOMINY:	And then I wasn't quite clear what you were suggesting the Board should do about the project in the context of the approval being asked. Are you suggesting that the Board should approve it with a limited budget or -- perhaps you could help me.

882
MR. BRETT:	Yes, I take your point.

883
I suggest that the Board approve the project, you know, approve the initiative subject to the conditions that I spelled out about management of risk and that variety of conditions that I spelled out under -- under the risk management part of my talk or my submissions.

884
So I'm really not -- what I really said is I think the project as presented -- I think the project with the budget as presented can be approved, subject to the specific qualifications that I made in that next section which include the Customer Works exception, the fact that any excesses over those numbers would be for the account of the shareholders, both the contract itself and the full budget.

885
I just want to look up the list here: that, for example, scope changes are not a permissible enhancement for the contract cost; that the $3 million that has already been admitted to rate base not be permitted to earn a return. In other words, that -- that the -- if there is any additional costs - as I guess this is repetitive - any additional costs arising as a result of a failure of Sapient to be able to complete the project, that that be for the account of the shareholder; that we get an opportunity to review the contract from EGD and Sapient. I think those are the principal items.

886
Now, I guess following from the logic of what I was saying, if -- on the question of what would be closed to rate base in 2003, there would need to be, it seems to me, some demonstrable benefits that would arise. In other words, there would have to be a component of the project finished and actually producing benefits for there to be any further funds closed to rate base, and I had thought that the initial presentation of the project -- well, I remember some attempt to segment the project initially into phases, but I believe that may have changed. So I will just put it this way: that there needs to be some identifiable benefits flowing in this year if the $6 million or some part of it will be closed to rate base.

887
So with those conditions, I would say that I would recommend approval of the -- approval of the project in principle, the need for an initiative, and subject to those conditions, approval of that budget.

888
Does that help, sir?

889
MR. DOMINY:	Thank you, Mr. Brett. That does.

890
I had one other -- two other questions. One is you referred to undertaking responses that hadn't been provided. I was wondering if you could just identify --

891
MR. BRETT:	Yes. I believe actually this morning -- sir, this was drafted, for the most part, last night, and when I drafted it, I didn't have any undertakings in hand to the questions I had. When I came here this morning, I realized that a number of undertakings were at the back. The only one -- the one that caught my eye because it was substantive was the undertaking to reply -- to provide -- it was an undertaking the company gave to talk to Sapient to see whether they might provide a contract or a draft contract, and they came back with a letter -- I can probably give you the number. You may know it already, but it was --

892
MR. DOMINY:	5.7.

893
MR. BRETT:	Undertaking J.5.7. They filed a disclosure agreement, a confidential disclosure agreement between themselves and Sapient, and then said they are prepared to file something with the Board in confidence. And my -- what I was reflecting in my comment was if it's being filed with the Board in confidence, I think that means that the intervenors don't get to see it and therefore would not be -- and to me, it should be shown to the intervenors for -- so people can assess whether or not there are sufficient protective clauses in the contract. So that was really the meaning of that phrase.

894
MR. DOMINY:	Thank you.

895
And there was one other comment. You made reference to Customer Works and you made reference to the EOS, and I was wondering whether the conditions you suggested would overcome -- or whether you had any concerns about an approval of this proposal in the context of what may become issues discussed under 8.3, which I believe is an examination of costs and other implications of Enbridge Gas Distribution Inc.'s agreement with Customer Works Limited Partnership.

896
MR. BRETT:	Yes. I do think they're related.

897
We did discuss the Customer Works agreement. I may not be quite getting the sense of your question, but let me try this: We did discuss this agreement at some length last year. There was a copy of the agreement filed last year, I believe a more complete copy filed this year.

898

And Mr. Charleson, in his replies to several intervenors, talked about wanting to have discussions with Customer Works to determine whether or not they would undertake -- what benefits could be generated for them by an investment for EGD in their -- to improve their systems, to make them work properly with EnTRAC, and whether or not -- and his view seemed to be that those savings, any savings realized by Customer Works would be automatically pushed through back to the utility.

899
And in the alternative, I think he was suggesting that if there were not going to be -- if the savings were not going to be made available to the utility, then he would be negotiating for Customer Works to bear that $3 million cost or part of it itself.

900
And it was really -- I was concerned about whether the agreement -- the Customer Works agreement did provide for any sort of fool-safe system, if you like, or any dependable -- whether there was really a mechanism in this Customer Works contract to allow savings to be passed easily back to the utility.

901
MR. DOMINY:	I think I understand what your position was. My question was, and I think it's answered, but it was related to the fact of whether there was a connection between that issue and this one, that a decision on --

902
MR. BRETT:	I think there is, sir. Yes, I think there is, because I think the -- I think the -- if -- if, for example, if the intent is for the utility to sponsor changes in the Customer Works system to make those expenditures, then those would become examples of savings that were realized by affiliates or essentially quasi-affiliate companies and there would need to be a way to count those against the -- to bring those back to the credit of the utility.

903
MR. DOMINY:	Thank you, Mr. Brett.

904
MR. BETTS:	Mr. Brett, I was going to give Mr. Moran a bit of a head's up because you raised the question about how the Board would deal with a filing that was provided to us in a confidential framework, and I would just ask Mr. Moran if he could state the normal procedure if the Board receives such a document. You were referring specifically to your concern that the intervenors might not ever see that document.

905
MR. BRETT:	Yes.

906
MR. BETTS:	Perhaps, Mr. Moran, if you wouldn't mind.

907
MR. MORAN:	Yes, Mr. Chair.

908
The procedure for a party who wanted to get access to a document that has been filed in confidence would be to apply to the Board for access. The Board would look at whether confidentiality had to be maintained and that would be based on providing an opportunity to the person who filed the document and claimed the confidentiality, giving that person a chance to make submissions to it as to why it should continue to be kept confidential; and parties who want to see it could also make submissions on whether it should be confidential.


909
At the end of that, if the Board determines at that confidentiality should be maintained, then the next question would be how do parties get access to that confidential document? Should they be required to file signed undertakings to maintain confidentiality? Should the access be restricted to a specific number of people, and so on. But that would be the procedure.

910
MR. BETTS:	Generally speaking, if the document is determined to be relevant to the issues at hand, then there are methods by which the intervenors can gain access to it. And, Mr. Brett, that really wasn't a question, but it brings up this question: Is there still lingering concerns about Undertaking K.5.8, other than you don't have it at hand at this point?

911
MR. BRETT:	Well, Mr. Chairman, I think that I probably should reflect on that a little bit. It may be that -- I don't -- I'm mindful of the fact that we've got a lot of -- there are a lot of matters on everybody's plate in this proceeding, so I would like to just reflect on that.

912
MR. BETTS:	Very well.

913
Who would be next? It is my objective to try and get all of the intervenor arguments in before we leave, and that will give the applicant an opportunity to review the transcripts and provide their reply tomorrow.

914
So, Mr. DeRose, I saw your hand go up so please proceed.

915
MR. DeROSE:	I believe I'm next.

916
MR. BETTS:	Thank you.

917
MR. DeROSE:	I moved seats so I could see both of the Board members. I believe Mr. O'Leary's head was in the way of you, Mr. Chair.


918
ARGUMENT BY MR. DeROSE ON ISSUE 6.4:



919
MR. DeROSE:	Let me begin by saying that IGUA supports the company with respect to the necessity of this project. The EnTRAC system, in our opinion, is required to allow the company to, one, better manage the administration of large-volume contracts and direct-purchase agreements; two, to better manage gas delivery and compliance-related issues associate with direct purchase agreements; and thirdly, to allow for better processing in a timely, more accurate manner, information with respect to large-volume customers and direct-purchase agreements.

920
Now, a number of my friends have pointed out this afternoon that EnTRAC will be used, in large part, by large-volume customers and direct-purchase customers, and, in our submission, the Board's analysis of the appropriateness and the cost allocation of EnTRAC cannot stop at simply asking, Who will use EnTRAC?

921
In our submission, it would be inappropriate to simply say, Who will use EnTRAC; and they will pay for it. Although there's certainly an elegance in the simplicity of that approach, in our submission, that would lead to inequitable and unreasonable results. And it's our submission that a full and proper analysis of this issue must consider not only who will use EnTRAC but who will benefit from EnTRAC.

922
And in that regard, if I can -- and I will not be reading very much from the transcript, but I will read this one answer. It's volume 4, starting at paragraph 13.16. This is a question from Mr. Janigan, and it's in the context of asking with respect to the user-pay approach. Mr. Janigan says:

923
"Now, I had difficulty in trying to true that statement up with your response in CAC interrogatory 47 that you don't support a user-pay approach and recover the EnTRAC costs where, in fact, those that caused the cost are paying. Can you explain that."

924
And Mr. Charleson explains it in the following manner:

925
"Yes. In looking at the user-pay approach, you're looking -- you're only looking at one side of the equation. You are looking strictly at the cost side of the equation, where you're saying that those who cause the cost pay for it. But then you also have to look at the other side in terms of who receives the benefits, and how do you ensure that those who receive the benefits also pay for the costs of achieving those benefits? And that's where we felt that a user-pay approach would not do that, because the benefits that we see accrue to all ratepayers, not strictly direct-purchase customers, and so to do a user-pay approach, in essence, direct-purchase customers would be funding benefits for all the system-gas customers."

926

Now, in that context, it's our position, as is the company's, that the benefits of EnTRAC -- that there are benefits which come out of EnTRAC that accrue to all ratepayers. And the evidence in this case has been gone -- Mr. O'Leary reviewed it with you in some detail and I don't propose to go through it again in detail. You have Mr. O'Leary's explanation and provision of that.

927
However, I do think that there are certain benefits which are worth highlighting, simply because of both the importance of the benefits and also because those benefits do not accrue only to large-volume customers and direct-purchase customers.

928
Now, in that regard, I'm going to be referring to Undertaking J.4.4, and this is an undertaking which sets out six benefit categories. And just to recall, those six benefit categories are decreased contract processing, decrease in costs associated with legacy application maintenance, decrease in hardware and software costs, reduced gas costs, shortened PGA settlement periods and a reduction of service provider costs.

929
And with respect to the reduction of legacy application maintenance and reduction of software and hardware costs, these benefits will go to all rate classes, and the reference in the transcript to confirmation of that fact is volume 4, line 952 to 953.

930
Similarly, EnTRAC will also reduce gas costs. The company will make its supply-purchase decisions based on better information, more up-to-date information, and more accurate information. And with better information comes better decisions, and the evidence of the company is that this will lead to a reduction in the PGVA, which is better to system-gas customers based on volumes. This is not a benefit to direct-purchase customers. And the evidence confirming this point is in volume 4, 962 to 965.

931
Similarly, Undertaking J.4.4 also confirms that system-gas customers will benefit from the shortened PGVA settlement.

932
Finally, with respect to costs of Customer Works which are reflected in the O&M budget of the company, the evidence is that the charges of Customer Works will also be reduced, and this, as it's in the O&M, will be a benefit to all rate classes.

933
There's a short side-bar with respect to Customer Works. The evidence of the company is that EnTRAC will lead to reduced charges from Customer Works, and IGUA has concerns about the ability to track the benefits achieved within Customer Works and also that the benefits of EnTRAC will be occurring outside of the company.

934
And in this regard, at volume 4, paragraph 1108 to 1119, Mr. Charleson testified that he expected that Customer Works would recognize the benefits achieved and that those benefits would be passed back to the company.

935

In our submission, given that evidence, and given that in part one of the benefits which the company is relying upon to justify this project is reduced cost in Customer Works, it's appropriate for the Board, in its decision, to direct the company to track the benefits that EnTRAC would provide to Customer Works, and to direct the company to demonstrate in future rate cases that those benefits are, in fact, being transferred back to the company.

936
Now, although IGUA supports the project -- the goals of the project and certainly recognizes the necessity of the project, IGUA does have certain concerns and questions with respect to the proposed budget.

937
Now, the company is seeking preapproval for $18 million, and it's clear that the company has the onus of establishing that that proposed budget is reasonable. In our submission, that amount was tested in this case and it is difficult to conclude, based on the evidence on the record, that 18 million is clearly reasonable.

938
The company issued an RFP and reviewed five proposals in detail, and the final bid prices of the proposals range from a low of 2.2 million to a high of 9.2 million.

939
The bidder selected was the $9.2 million solution. In other words, the bidder selected was the most expensive bid response.

940
Now, in all fairness, Mr. Charleson, at v volume 4, paragraph 1034, did explain that the cost of the low bid of 2.2 million and the high bid of 9.2 million were, in his opinion, similar because the lower bid was riskier and that the company would have to enter into greater mitigation activities. So there is an explanation from Mr. Charleson. But in our submission, when there is such discrepancy in bid prices, the onus on the company to demonstrate the reasonableness of the bidder selected becomes heavier.

941
And in our submission, when that happens, the company should provide a more full and complete explanation for accepting the higher bid. In this case, we would submit that the company has not done that.

942
Now, another area of concern which was -- which came about during cross-examination is that the selected bidder Sapient, whose initial bid was 16.6 million but after negotiations and discussions, it was reduced to 9.2 million, so there was a reduction of 7.4 million in the selected bidder's bid, and that the initial budget proposed by Enbridge was 19.5 million and they reduced the amount asked to 18 million, which was a reduction of 1.5 million, and what we would submit the inference here is that although Sapient reduced its bid by 7.4 million, the costs -- the non-vendor costs of the project increased by 5.9 million. And this raises concerns to us.

943
Now, the fact that the selected supplier Sapient -- and it was selected despite being the highest bidder -- worked with Enbridge to develop both the scope of the project and, in fact, the initial budget of the project, and then was selected, raises further concerns for us. And the selection of Sapient, coupled with the fact that it was the highest bidder, and coupled with the reduction in its bid by 7.4 million but only a reduction in the proposed project amount of 1.5 million, simply raises the spectre of concerns of the appropriateness of the budget.

944

Now, I think to be fair, we are not in a position to tell you what the right number is, and we would submit that it would be appropriate for the Board to approve the project but with a limited budget at this time with the proviso that the company can return to the Board in the next rate case and demonstrate the prudence of further expenditures.

945
Now, if I can turn to cost allocation. First with respect to cost allocation, IGUA supports the company's proposal. In our opinion, the company's proposal is consistent with the manner in which technology such as EnTRAC has been allocated in the past, and is consistent with producing a reasonable and equitable outcome.

946
However, if the Board believes that there should be a departure from the company's proposed allocation, IGUA's submission is that the methodology approved by the Board in the Union case of RP-2000-0078 should be applied in this case.

947
In our submission, this alternative proposal, which would allocate cost-based 50 percent volumetrically and 50 percent to all general-service customers, would also provide a reasonable outcome.

948
And in this regard, the Board asked a question to Mr. Charleson, and it's at volume 5, page 1012 to page 1015, and the question was with respect to whether Mr. Charleson and Enbridge had considered the Union approach and Mr. Charleson indicated that Enbridge does see some merit in how the allocation was done in the Union case.

949
So in our submission, this alternative approach would be consistent with Board-approved methodology, and would still recognize the benefits provided to all rate classes by EnTRAC.

950
And in the Board's consideration of this, it would be useful to look at Exhibit K.4.3, and this was a spreadsheet provided by the company. And just to be clear, because when I read through the transcript, it was a little bit confusing.

951
The second proposal -- and there's not numbers on it, but it's the proposal that says "50/50 Volumes, GS Customer Number". That is the allocation, as I understand it, of EnTRAC if the Union methodology were to be applied.

952
And if you want to compare that with what the company's proposal actually is, if you go four groupings down under the heading "Proposed," that is the company's proposal.

953
Now, to be clear, IGUA opposes the user-pay approach. In our submission, it's inconsistent with EnTRAC's system-wide benefits, and it also has some impractical and undesirable outcomes, specifically, the system-wide benefits of EnTRAC will only happen if people use EnTRAC, and we would submit that a user-pay option could actually act as a deterrent to people using it.

954

If customers were told, You can use it but you must pay, customers may choose not to use it, and we will then be in the same situation that we are today with the same problems, and that is an outcome that I believe all parties in their -- all parties have recognized that there is a problem, and that's recognized in the ADR agreement, and that should be addressed. So in our submission, a user-pay approach would undermine the solution itself.

955
Also, a user-pay approach would lead to an outcome where a small group of users would pay for a project that benefits all of the users of the system, and again, this is unreasonable and inequitable.

956
Finally, IGUA also opposes an allocation which would allocate costs only to large-volume customers, and with respect to Exhibit K.4.3, that would be the third grouping.

957
In our submission, again, that would lead to a small group of users paying for a project that benefits all users, and that such an approach would also ignore the fact that approximately 50 percent of customers in rates 1 and 6 are direct-purchase customers, so it would not properly recognize both the system-wide benefits and the benefits to direct-purchase customers in residential rate classes and IGUA also opposes the allocation to only the DPAC charge.

958
And again, as with -- as with allocation of costs only to large-volume customers, allocation only through DPAC would ignore the system-wide benefits.

959
Subject to any questions, those are our submissions.

960
MR. BETTS:	Thank you, Mr. DeRose.

961
Thank you. I think that was pretty clear. I just want to make sure, for the record, which -- with reference to Exhibit K.4.3, which did you identify to be the -- as the term we're using, the Union solution? Which one?

962
MR. DeROSE:	It is -- if you were to number them going from the top to the bottom, it would be number 2. It is the tranche of numbers -- it says "50/50 Volumes," and then it says "GS Customer Number."

963
MR. BETTS:	Thank you. I do agree with that. I just wanted to make sure that we were looking at the same number.

964
MR. DeROSE:	I believe we are, sir.

965
MR. BETTS:	That was the only question I had.

966

Further submissions? Mr. Hamilton.

967
MR. HAMILTON:	Thank you, Mr. Betts, Mr. Dominy.


968
ARGUMENT BY MR. HAMILTON ON ISSUE 6.4:



969
MR. HAMILTON:	Because of the quality of some of the remarks that have preceded me, my remarks will be much shorter than they might otherwise have been. But I do have a few points that I would like to bring forward to the Board.

970
First of all, to say like IGUA, Ontario Energy Savings Corp., and I will refer to them as OESC supports fully the company's EnTRAC initiative. OESC believes that the evidence demonstrates the project has been well conceived and well planned. It is apparent that considerable time and effort has gone into scoping the project and to defining the respective roles of the various parties who will collectively build and support the project.

971
It is also apparent that the EnTRAC solution will be GDAR-compliant and will reduce the level of costs that would have otherwise been required to comply with GDAR on a stand-alone basis.

972
The Board should be mindful of the earlier comments of Mr. Brett that EnTRAC will become a necessary platform for the implementation of GDAR compliance and probably for the implementation of further unbundling. The Board will be aware that the GDAR initiative is a Board-mandated initiative, and the Board will be aware that the proposed unbundling provisions or extensions are to the benefit of all customers.

973
To OESC, the total cost estimate of approximately $18 million appears to be reasonable. We understand the difficulty of some intervenors in identifying or evaluating the components of those costs, but we believe it's constructive to look at the Union solution, which is Union Line, which we understand to have cost approximately $15.7 million. It provides much of the functionality that is encompassed in the proposed GDAR process.

974
The system works well and is providing significant benefits to all users on the Union system. We are a user of that system.

975
We also would point out to the Board that $15.7 million cost of the Union system did not include compatibility with GDAR compliance because the solution was developed before there was a GDAR. So it's apparent that there are going to be additional costs in the Union system to bring their systems up to a level that is comparable to EnTRAC.

976
For all of those reasons, we believe that on balance, the $18 million estimate for the cost of delivery of the system is not unreasonable.

977

With respect to the cost allocation methodology issues, we would largely support the arguments of IGUA. They were well presented and directionally exactly where we would be going.

978
I would like to reinforce the statement or the point, or reiterate the point that OESC will support any cost allocation which -- methodology which is seen by a majority of intervenors to be reasonable. Having said that, a direct-purchase only option or a user-pay option is clearly not an acceptable solution. I would commend to you the arrangements of IGUA in that regard with respect to the Union methodology. That would certainly be our recommendation to the Board.

979
And we believe that that is a reasonable allocation because of all of the evidence that you've heard about the benefits of EnTRAC to all customers, system and direct-purchase customers, and in light of Mr. Brett's and my previous comments with respect to GDAR compliance and future unbundling, from which all customers are clearly expected to benefit.

980
Subject to any questions you may have, that concludes my remarks.

981
MR. BETTS:	Thank you, Mr. Hamilton.

982
And no questions of you either. Thank you.

983
I believe that concludes the submissions from -- or arguments from intervenors. It does.

984
Mr. O'Leary, we will be breaking at this point which gives you the opportunity to review those arguments and provide the Board with your reply tomorrow.

985
MR. O'LEARY:	The time is much appreciated, Mr. Chair.

986
MR. BETTS:	Can someone remind me, because the schedule is not precise, following the arguments, reply arguments from the applicant, what happens next tomorrow?

987
MR. O'LEARY:	Mr. Chair, I think there was -- if I understand where the schedule was proceeding, we were going to move on into issue 7.45, which is the corporate cost-allocation methodology, which was originally 7.43 on the issues list.

988
And I understand that with some of the slippage that we may or may not have some difficulty from a witness-availability perspective, but I think I need to seek some further counsel on that, but wanted to alert you to it at this time. One possibility is that we could proceed with the manufactured gas-plant deferral account evidence in its place, or preceding it, to ensure that we have used up all the available time tomorrow. That would offer parties an opportunity to hear from Mr. Boyce, and then to ask any questions relating to the creation of that deferral account.

989

MR. BETTS:	Very well, and I appreciate that that's far from a firm commitment, because you're not sure at this point, but I would just ask if any intervenors see any complications in dealing with things more or less out of order?

990
Certainly the order of things is already a little bit confused, it would appear by my schedule to be kind of a day late, or falling behind by a day at this point.

991
MR. O'LEARY:	Not that I want to confuse matters at all further: The other suggestion might be that we could proceed with the corporate cost-allocation panel tomorrow afternoon, assuming that we have completed both the company's reply tomorrow morning and the MGP panel.

992
MR. JANIGAN:	I'm sorry, Mr. Chairman, I must have been a little brain-dead when Mr. O'Leary was speaking. There will be another panel inserted in front of the corporate cost-allocation panel tomorrow?

993
MR. BETTS:	I don't think that's a certainty at this point, but there's a possibility if he cannot arrange the panel he's suggesting, he might be able to move manufactured gas-plant deferral into that time slot. Am I correct?

994
MR. O'LEARY:	That's correct, Mr. Chairman.

995
MR. BETTS:	Hopefully that won't be necessary, but it is a way of filling the hours.

996
Does anyone have a serious concern with that if it becomes necessary? It appears as though that is a viable option, so we will leave it to you to try and keep our day full.

997
MR. O'LEARY:	We will make every effort, sir.

998
MR. BRETT:	I just wonder, Mr. Chair, if Mr. O'Leary could let people know perhaps as soon as he finds out. I'm not entirely clear on what was just discussed. I think I understand that we may be talking about issue 7.45 tomorrow, corporate cost allocation, and that's the Brooks/Cowan/Ladanyi/Mees/Ernst and Young panel, or we may not. Some of those people are from Calgary. It would be good to know that tonight, if possible.

999
MR. O'LEARY:	What I could add at this time, again, with the caveat that there is some uncertainty here, is that we would take up the morning with both the reply to the EnTRAC arguments, to be followed by the manufactured gas-plant panel, which I presume would take up the balance of the morning. And then in the afternoon, the corporate cost-allocation panel would be available.


1000
MR. BETTS:	So the only concern is that the corporate cost-allocation panel may not be available in the morning; is that correct?

1001
MR. O'LEARY:	That's correct.

1002
MR. BETTS:	So, Mr. Brett, does that clarify it for you?

1003
MR. BRETT:	That's very helpful. Thank you.

1004
MR. BETTS:	Thank you. We will try and be flexible, and obviously any advance warning that you can provide the parties would be beneficial.

1005
Finally, just for clarification, and this may be directed to Mr. Warren, I'm not sure if someone else can help, can someone confirm for us the current status of the timing for consideration or arguments on the motion from IGUA, CAC and VECC.

1006
MR. WARREN:	I'm sorry, sir, I had assumed that this schedule as printed which had it next Tuesday, the 8th, was fixed in everyone's mind. If that was uncertain, I apologize for not bringing that to your attention. But I think everybody in the room was operating on the assumption that it's the 8th and you may be the only one who wasn't aware of that, Mr. Chairman, I'm sorry.

1007
MR. BETTS:	Well, it was on my schedule too, but I'm very glad to have it confirmed. So we just wanted to make certain of that timing. Everything has been done right. It does appear that way on my schedule as well and thank you for that confirmation.

1008
Is there anything further in terms of matters that should be included on the record for tonight?

1009
If not, I think we're in a position to thank you all for your submissions that we've heard tonight -- or today, and we will look forward to reconvening tomorrow morning at 9:30, hopefully on time and not facing the weather as we did this morning.

1010
Good night, everybody.

1011
--- Whereupon the hearing adjourned at 4:20 p.m.