Rep: OEB
Doc: 12NB7
Rev: 0













ONTARIO ENERGY BOARD

Volume: 12

9 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
9 APRIL 2003

5
HEARING HELD AT TORONTO, ONTARIO


6
APPEARANCES

7

PAT MORAN

Board Counsel

COLIN SCHUCH

Board Staff

SUZANNE TONG

Board Staff

TURGUT HASSAN

Board Staff

FRED CASS

Enbridge Gas

TANIA PERSAD

Enbridge Gas

ROBERT HOWE

Customer Works Inc.

JOHN SPROAT

Customer Works LP

ELIZABETH STEWART

Enbridge Inc. et al.

ROBERT WARREN

CAC

TIBOR HAYNAL

TCPL

MICHAEL JANIGAN

VECC

ROGER HIGGIN

VECC

JAY SHEPHERD

OPSBA

JAY SHEPHERD

OPSBA



8
TABLE OF CONTENTS

9

PRELIMINARY MATTERS:

[16]





MOTION:

[27]




REPLY SUBMISSIONS BY MR. WARREN:

[28]





QUESTIONS FROM THE BOARD:

[120]






PRELIMINARY MATTERS:

[162]





ENDBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45 corporate-cost allocation: DEWOLF, DUPONT, HABERBUSCH, KENT, PLAYER, WILSON

[176]




EXAMINATION BY MR CASS:

[186]





CROSS-EXAMINATION BY MR. WARREN:

[328]





CROSS-EXAMINATION BY MR. MORAN:

[355]





QUESTIONS FROM THE BOARD:

[545]






PROCEDURAL MATTERS:

[638]





10
EXHIBITS

11

12
UNDERTAKINGS

13

UNDERTAKING NO. J.12.1: TO PROVIDE THE AVERAGE COST OF SALARIES FOR EI AND EGDI

[336]





UNDERTAKING NO. J.12.2: UNDERTAKING TO PROVIDE THE ALLOCATIONS WHICH ENBRIDGE GAS DISTRIBUTION IDENTIFIES WITH OTHER AFFILIATED COMPANIES WITHIN THE ENBRIDGE FAMILY OF COMPANIES

[503]





UNDERTAKING NO. J.12.3: UNDERTAKING TO DETERMINE IF EI DONATIONS ARE ALLOCATED

[539]





UNDERTAKING NO. J.12.4: UNDERTAKING TO PROVIDE INDEPENDENT BENCHMARKING AND COST-ALLOCATION ANALYSIS

[592]





14
--- Upon commencing at 9.39 a.m.
15
MR. BETTS: Thank you, everybody. Please be seated.

16
PRELIMINARY MATTERS:

17
MR. BETTS: Good morning, everybody, and welcome back to day 12 of this hearing of application RP-2002-0133.

18
A couple of housekeeping items. First of all, I wanted to warn everybody of a change in the starting time for this Friday, April 11th. There is another hearing panel that requires about 30 minutes to receive oral reply arguments on a Union application. It will suffice if we change our starting time from 9:30, normal time, to 10 o'clock, so we will start at ten o'clock on Friday morning.

19
We concluded yesterday's session by receiving submissions in chief and in response to a motion from CAC, IGUA, and VECC, regarding disclosure of information. We will commence today's session with the moving parties' submissions in reply.

20
We also at the end of the day discussed the potential changes to the hearing schedule: One, based upon the pace that we're currently at, and the second based on the assertion that the decision on the motion may suggest a need for a delay in hearing certain witness panels. And as we said, the Board will be leaving that matter with the parties and hopefully will be receiving a recommendation for our consideration.

21
Before we begin with reply submissions, are there any preliminary matters?

22
I see none.

23
And do we have a spokesperson for the moving parties?

24
MR. WARREN: Yes. Messrs. Thompson and Janigan have spent the night stuffing me full of whatever arguments they think are relevant. Mr. Thompson said as he disappeared over the horizon, If you pooch it, it's all your fault.

25
With that background, let me deliver my reply submissions.

26
MR. BETTS: Please proceed.

27
MOTION:


28
REPLY SUBMISSIONS BY MR. WARREN:

29
MR. WARREN: Mr. Chairman and Mr. Dominy, I want to begin with two areas of reply that cover points that were raised by all of the counsel in yesterday's submissions, and the first deals broadly with the jurisdiction of the Board to order production from non-parties. I'm going to deal a little bit later with the specific arguments of my friends Ms. Stewart and Mr. Sproat on this issue, but I want to deal broadly with this question on jurisdiction.

30
Ms. Cass and Ms. Stewart argued that the Board was without jurisdiction, or in the alternative has a very constrained jurisdiction to order production from non-parties and affiliates, and I want to begin with the observation that I find these -- we find these submissions somewhat odd in light of Mr. Cass's letter to you of March 21st.

31
In that letter Mr. Cass indicated that he would be producing documents from various of the affiliates and members of the Enbridge family subject only to the constraint of confidentiality. Mr. Cass did not otherwise limit or condition what he was saying. He didn't -- offering. He didn't, for example, say that it was subject to the concurrence of Enbridge Inc. and the others and I'm going to deal a little bit later with the details of the letter.

32
So the overall umbrella within which the submissions were made yesterday by my friends has to be, in our submission this: That it is a given that documents will be provided from the parent and the affiliates as outlined in that letter and that they will be produced, and therefore, in our respectful submission, the issue becomes whether more documents will be produced and whether they will be filed in confidence.

33
The second submission I want to make that covers, essentially all of the submissions yesterday -- deals with the issue of confidentiality. Several of the counsel made the observation, indeed they complained that the motion was silent on the issue of confidentiality. We ask rhetorically, why would the moving parties mention it? Confidentiality is something that must be claimed by the moving parties, and the onus is on them to establish the need for it.

34
The more important point in our respectful submission is that all of the counsel conflate the issue of confidentiality with the issue of production, and they are fundamentally different issues. The Board can make a decision on what documents should be produced and then, as it were, in a second tier of decision making decide whether any or all of that should be kept in confidence. This second tier of decision making is essentially a process question.

35
Now, the moving parties believe it is in the public interest that the documents should be produced on the public record. This, after all, deals with the question of the benefits that are -- that accrue to the ratepayers as a result of the TPBR regime, among other issues.

36

However, having said that, the moving parties are prepared to leave it to the Board to decide how they're going to be treated, that is whether or not they should be treated in confidence. Certainly from our point of view, Mr. Chairman and Mr. Dominy, the question of whether they should be filed in confidence is not the tail that wags the dog as to whether or not they should be produced.

37
The final point I want to raise broadly on the issue of confidentiality is that several counsel claimed that the names of the customers of various of their clients other than Enbridge Gas Distribution would be revealed.

38
Now, again, that speaks to, in our respectful submission, not to the question of production but the question of process. The Board can decide what if any information needs to be redacted from the information that is provided. And that doesn't determine the question of whether or not they should be produced.

39
Against that background of general observations, let me turn to the submissions of individual counsel, first with Mr. Cass.

40
The first of Mr. Cass's submissions was, if I may paraphrase him, that the Ontario Energy Board Act limits the circumstances in which the Board can exercise powers in relation to affiliates. Mr. Cass's assertion, as I understand it, is that the legislation specifies the power the Board has in relation to affiliates and these are the only powers it has.

41
Now this argument and variations on it, which we have heard from our counsel, in our respectful submission, mistakes in a fundamental way the nature of the relief which we are seeking. We are not asking the Board to exercise any power over the affiliates. The issue before you is one of due process.

42
We are seeking to secure the production of information which is relevant to the exercise of the Board's powers under section 36 to set just and reasonable rates. That power, in our respectful submission, is sufficiently broad to allow the Board to order the production of information necessary to make its decision. This is the point about both the AGT case as cited by my friend Mr. Janigan and the Midland Cogeneration case in the Michigan Court of Appeals. The important point, however, Mr. Chairman is that we are not asking the Board to exercise any regulatory supervision over the affiliates, the issue, if you were, a substantive order against them.

43
The broader point in this context, in our submission, is that the Board needs the power to get sufficient information in order to allow it to make decisions in changing circumstances. Mr. Cass and others argue, for example, that the Affiliate Relationships Code is a complete code for the Board's dealing with the affiliates. The ARC, in our submission, does not deal with the Board's statutory obligation to set just and reasonable rates. In the exercise of that power, the Board clearly has the power to get whatever information it needs from whomever it needs it, subject only to constraints of relevance and fairness.

44

Mr. Cass then suggest that the Board is changing the rules in relation to affiliates after the TPBR period, and I say with respect that Mr. Cass is just wrong on this point. The Board's power to elicit information relevant to its decision making under section 36 has not changed. It had the power before the TPBR period, it had the power during the TPBR period. It has the power now to get whatever information it feels is necessary to make a decision in exercise of its statutory powers.

45
Mr. Cass's argument on this point about a supposed change in the power over affiliates, which I say, with respect, is wrong, disguises, in our respectful submission, a formal insidious argument.

46
Mr. Cass was at some pains yesterday to parse the promise which Enbridge Gas Distribution or as it then was ECG to deliver benefits to ratepayers and to allow access to information.

47
Now, at transcript 390 -- paragraph 390 of yesterday's session -- sorry, 590, I read this very late last night, Mr. Chairman, and I may well have mistaken the numbers. But Mr. Cass was at some pains to analyze, and as I say, parse the transcript reference which is found in -- at tab 11 of my friend Mr. Thompson's materials. I'd ask the Board to turn up tab 11 of Exhibit K.11.1, and it's the transcript reference that we referred to yesterday at page 378.

48
MR. BETTS: Thank you. We have that.

49
MR. WARREN: As I reviewed the transcript from yesterday and my notes on this, Mr. Cass's interpretation, among other things, of what's said at page 378 is that what's being promised there has something to do -- deals only with just and reasonable rates, and that it was not with respect to the production of information from affiliates and non-affiliates.

50
Now, I think it's important, Mr. Chairman, that we review briefly once again what is said at that transcript reference, and I refer in particular to what begins at line 18 and I quote:

51
"Now, when it comes to rebasing at the end of the three-year period, it's incumbent upon the utility to demonstrate to the Board that that outsourcing, be it with an affiliate or non-affiliate, results in just and reasonable rates and is consistent with the Board's previous decisions on pricing. So that is something we would have to be able to address, and we would have to discharge that burden of proof at the point of rebasing."

52
Now, in our respectful submission, any way you want to parse that statement, it's an indication in the case that Enbridge led on TPBR that the issues of outsourcing in the relationship with affiliates would be dealt with in the rebasing phase. That, in our respectful submission, amounts to an ineffective promise or undertaking that forms what we describe as the moral basis for TPBR and, by implication, our request for information.

53
Now, the second and third headings -- sorry, categories in Mr. Cass's argument dealt with rebasing, and with what he characterizes is the real issue in the 2003 case which is simply the setting of just and reasonable rates.

54
Mr. Cass's argument on this point is, in our respectful submission, a curious one. He appears to be suggesting that EGD has, through the ADR agreement, delivered efficiency gains and that as a result of that, rebasing is no longer an issue. He suggests, as I understand his argument, that IGUA -- what he characterizes as IGUA's approach to calculating O&M would take further amounts off the efficiency gains, which he says have been delivered in the ADR agreement and that this is somehow unfair. And the implication of it, as I understand it, is that the Board -- it would be somehow unfair for the Board to take anything further off the ADR agreement on account of efficiency gains.

55
Now, I have immense respect for Mr. Cass as counsel, and I know that he would not do this deliberately, but Mr. Cass's submissions on this point I'm afraid come dangerously close to a breach of the rules that govern the ADR agreement. As a general observation, the ADR agreement reflects an agreement among the parties to settle on a number. How they came to that number, what drivers they were considering, what the numbers ought to be, is a matter that was decided in confidence.

56
It is, in our respectful submission, unfair to suggest that it represents any one particular position. It is particularly unfair, we submit, to imply that the moving parties have accepted that the O&M number reflects the delivery of efficiency gains. That's just not the case.

57
Secondly, the ADR agreement is clear, in our respectful submission, that the issue of the efficiency gains remains outstanding. If the Board were to accept Mr. Cass's submissions on this point that it would somehow be unfair to take from the ADR number an amount on account of efficiency gains, then one of the implications of that, in my respectful submission, is that the ADR agreement collapses. In our respectful submission, the ADR agreement is clear that one of the issues in this case that all parties will pursue is whether there was efficiency gains; where they were realized, whether in the affiliates or not; and whether, or to what extent, efficiency gains realized in the affiliates should be recorded in a deferral account and therefore taken from the O&M numbers next year.

58
Now, the third point about Mr. Cass's argument on this point is that once again, the Board and the intervenors should be satisfied with the information which Enbridge has provided to the Board. Mr. Cass repeatedly said yesterday that there had been a mountain of information provided with respect to the O&M costs in various categories. Thereby implying, in our respectful submission, that the intervenors shouldn't ask for any more information to test that.

59
Well, as an overarching principle, in my respectful submission, neither the Board nor the intervenors should be content with or should have to be content with, more accurately, the information that Enbridge chooses to deliver to the Board. And that was one of the points that was made in the 0032 case or one of the themes in the 0032 case, is that it's incumbent upon Enbridge to provide all of the information which the Board and also the intervenors feel is necessary to arrive at a decision.

60

The Board and the parties shouldn't and are not, in our respectful submission, bound by what EGD chooses to file. One of the ironies -- I'm confident unintended ironies -- of Mr. Cass's position on this point is that there is among filed information from Enbridge Inc., so one of the effects of the proposition is this: That -- the Board -- Enbridge can decide to give certain information from Enbridge Inc. which it thinks is relevant and persuasive, but not only are we not entitled to ask for more, you have no authority to order the production of more. It's a fundamental contribution which lies, in our respectful submission, at the heart of Enbridge's position in this case.

61
The fourth argument which Mr. Cass advanced yesterday, and I note he didn't plead it in the alternative, was to say that what is offered -- what was -- I'm sorry. What he undertook to provide in his letter of March 21st is reasonable, whereas what we are seeking is unreasonable because it's overreaching.

62
Now, I'd ask the Board to turn to Mr. Thompson's brief of materials, Exhibit K.11.1, and it's at tab 13. And I think it's -- it is important, in our respectful submission, that the Board look with care at the precise wording of this letter.

63
First of all, as I noted earlier, Mr. Cass didn't, other than the issue of confidentiality, Mr. Cass didn't -- I apologize for using a word which is not a verb as a verb -- didn't condition the letter in any way. I ask the Board to turn to page 2 of the letter, paragraph 2. In the second sentence Mr. Cass says:

64
"The company" -- which is EGD -- "is prepared to file in confidence statements of the revenue and expenses of EOS for the EOS fiscal years 2001 and 2002."

65
Turning over the page on paragraph 4, second sentence:

66
"On the same basis as described in paragraph 2 above, the company is prepared to file in confidence a statement of budgeted revenue, i.e., fees paid by Enbridge Gas Distribution and expenses for EGS."

67
Then down in paragraph 7, third sentence:

68
"The company is prepared to file in confidence on the same basis as described in paragraph 2 above, statements of revenue and expenses -- of ECS for ECS's fiscal years 2000, 2001, and 2002. The statements for 2002 would contain the revenues and expenses attributable to ECS's ownership interest in CWLP. In addition, the company is prepared to include the year-end balance sheet for ECS for each of the years 2000, 2001, and 2002 as part of the confidential filing."

69
I don't, Mr. Chairman, frankly, know how to marry up Mr. Cass's submissions on what he's prepared to file in this with his other arguments about the limits on your jurisdiction. The troubling component of it is this: Enbridge appears to be saying we will file information which we want to file, but you can't ask for anything more, and indeed, you don't have the jurisdiction to order the production of anything more. That point, in our respectful submission, is simply wrong.

70
For reasons we've articulated, we submit the Board not only ought to have the information but clearly has the power to order its production.


71
Now, the final point of Mr. Cass's submission is in relation to the 0032 case. Mr. Cass suggests, as I understand his argument, that EGD will be leading evidence on its compliance with the directives in the 0032 case. We submit that implicit in that argument is the proposition that the Board and the intervenors are required to rely on the information which EGD chooses to supply about its compliance with the 0032 case.

72
In our respectful submission to the Board -- the intervenors are entitled to ask for production of information to ensure that the 0032 directions have been complied with and test the outsourcing arrangements. Again, the point: We shouldn't have to rely simply on what Mr. Cass and his client are prepared to provide.

73
Let me, then, turn to the submissions of my friends Ms. Stewart and Mr. Sproat. Because they are in large measure the same, I will deal with them at the same time.

74
Their argument on the issue of the jurisdiction to order production from non-parties is, as I understand it, essentially the same. Their argument, if I may paraphrase it, is that the Board's rules do not specifically contemplate the production from non-parties.

75
Mr. Sproat adds to that that section 5.4 in the Statutory Powers and Procedures Act does not specifically contemplate production from non-parties, and therefore, the Board has no power to order production from non-parties or affiliates in this case. And they supplement that argument by saying that the Dofasco case, which I referred to in my submissions, does not help us because the Court of Appeal did not have to decide in that case whether or not the Commission's rules or section 5.4 of the Statutory Powers and Procedures Act applies to non-parties.

76
I'd like to turn first, before I return to the Dofasco case, I'd like to turn first to the statutory interpretation, and I'd ask you to turn up my friend Mr.Thompson's book of authorities, which is K.11.2, tab 6. My first point of reference in those materials, Mr. Chairman and Mr. Dominy, is page 130 of the Court of Appeal decision in the Dofasco case.

77
Now, as I understand Mr. Sproat's argument is that there are two questions the Board has to answer. First, do the Board's rules allow the Board to order production of non-parties, and does section 5.4 permit the Board order production from non-parties, and he says you have to answer both in the affirmative before you can make the order.

78
Now, if you look at the wording of section 5.4 (1) as it appears on page 10, it says and I quote:

79
"If the tribunal's rules made under section 25.1 deal with disclosure --" and I pause there to underscore the words "deal with disclosure." It does not say, If the tribunal's rules made under section 25.1 deal with disclosure as set out below. It says simply "deal with disclosure," which means they can deal with disclosure in any way then. It just has to deal with disclosure.


80
"Then the tribunal may," and I add the word "may," "at any stage of the proceeding before all hearings are complete make orders for --"

81
And then they list five categories including "(e): Any other form of disclosure."

82
Now, the Board's rules provide for disclosure, so given that, the authority of section 5.4 kicks in, in my respectful submission, and the question then becomes whether or not section 5.4 (1), and particularly subsection (e) is broad enough to allow you to order disclosure from non-parties.

83
So in response to Mr. Sproat's two tests, both of which have to be answered in the affirmative, I say he's wrong on that point, simply as a matter of statutory interpretation.

84
I then ask you, with that background, to turn up paragraph 51 of the Court of Appeal's decision in the Dofasco case. Both Ms. Stewart and Mr. Sproat correctly observed that the Court of Appeal said, We don't have to decide whether section 5.4 allows for production from non-parties, because the Commission's order was directed to a party and not to a non-party. And I'm saying, with deep thanks, that they're simply underscoring a point I had already made in my argument.

85
What I then went on to observe, and a point they chose to ignore, is that in paragraph 51 Mr. Justice Morden turned his mind to whether or not section 5.4 allowed for production from non-parties. And as I said yesterday, his observations on this point are obiter; that is, they are not essential to the decision which was made, but they are surely from one of the most senior and respected jurists in this province, very persuasive. What he said was, and I quote:

86
"It is generally agreed that if documents under the control of non-parties are important to the fair and accurate resolution of issues, it is preferable that they be produced before the hearing to avoid almost inevitable adjournments if they are produced for the first time at the hearing and to enable each side to prepare its case more effectively."

87
He then goes on to observe, and I underscore the following observation:

88
"In this regard, section 2 of the Statutory Powers and Procedure Act, which provides that the Act and rules made under it shall be liberally construed to ensure the just, most expeditious and cost-effective determination of every proceeding on its merits may be of assistance in interpreting section 5.4(1)(e) in a way that would support pre-hearing disclosure from third parties. This point was not argued, and I express no final opinion on it."

89

Now, I say, with respect, that Mr. Justice Morden is tilting towards that interpretation, more than tilting. I say his words can be interpreted as saying that's the reasonable interpretation of it in light of section 2. But I would ask the Board that even if Mr. Justice Morden didn't arrive at that conclusion to say that that is a reasonable interpretation of your powers under section 5.4, that you can order production from non-parties if it is necessary or see it as important to the fair and accurate resolution of issues.

90
Now, the broader context in which the Dofasco decision is relevant is in the observation that production should be -- this is a theme in the decision, and I say this with respect -- that including production from non-parties may be important to the fair and accurate resolution of issues, and that is one of the themes or one of the drivers, if you wish, of our motion for production is that the production of the information that we've asked for is important to the fair and reasonable -- fair and accurate resolution of the issue.

91
I say with respect to the position taken on statutory interpretation by my friends Mr. Sproat and Ms. Stewart and to a lesser extent Mr. Cass, that it is an extraordinarily restrictive approach to the interpretation of this Board's powers. Regardless of the scope of the Board's rules, in our respectful submission, the Board has the power to get the information it needs to exercise its rate-making powers.

92
Now, the two U.S. cases that I cited about which my friends were somewhat mocking and derisive yesterday because they come from someplace other than Ontario, is that those cases demonstrate that the issue of affiliate relations and the need to get information about the affiliate relations in order to set just and reasonable rates, is an issue which is central to regulatory decision-making today.

93
And the power of the Board to get information in order to track those relationships, in order to ensure that costs are allocated fairly and reasonably is essential to your ability to carry out your statutory authority in the public interest.

94
My friend Mr. Cass at some point in his argument yesterday said that one of the cases, and I think it's the WNG case, could be distinguished because it dealt with cost allocation and not the outsourcing. Well, that's a distinction without a difference, we say with respect. They're all species, all examples of the same phenomenon; that is, utilities purchasing service from affiliates and non-affiliates, and in that transaction, whether you call it affiliate outsourcing or whether you call it cost allocation, have the costs been allocated fairly or the power of relationships inherent in those cost allocations been done in a way that protect the interests of the people who depend on the monopoly for services.

95
To take the kind of restrictive approach that my friends suggest would fundamentally impair the ability of the Board to get the information it needs to carry out its statutory obligation. Surely, at a simply common-sense level, the legislature of the province did not intend that the Board would be so hampered. In our respectful submission, the Board has power to get the information it needs. Broadly, under section 36 or, if necessary, under section 5.4 of the Statutory Powers Procedure Act.

96
Now, I want to make one final set of observations in conclusion and these apply across Board to all of the submissions that were made by my friend yesterday.

97

Several counsel commented on the extraordinary breadth of the request that we've made, with sort of a tremor of horror in their voices as they contemplated the extraordinary sweep of what we're asking for. I think Mr. Howe referred to going on a house-to-house search. He may have been watching the Fox channel too much in the evening.

98
But I would actually ask the Board to drill down what is being asked for to see that what we're asking for is actually quite narrow. The starting point is EGD's repeated assertions in the 497 case that efficiencies would be driven out, a rather dramatic metaphor for what they were going to do. They were going to drive out inefficiencies.

99
As a general observation, we want to know by this motion where they drove to and what the efficiencies were. How much and where did they go?

100
Now, let's look it as a practical matter. Let's set aside, for a moment, if we can, the lawyers' fine distinctions about different corporate entities and look at the reality. All of the entities from which we are seeking production are either the parent or a little Family Compact controlled by the parent, so it's one tight, tiny group of entities from which we seek the information.

101
Most if not all of the information is about the dealings of these various entities with one entity, Enbridge Gas Distribution. The exception, of course, is this triangulated relationship of Customer Works with CW Inc., to which I'll return in a moment.

102
We think it's reasonable to presume, since all of these entities were created in the first instance to provide outsource services to EGD, that most, if not all of the relevant information in records would be in EI's files rather than disperse them widely.

103
The second point is we are not seeking the customer lists of these other folks. We are looking for the relationship they had with EGD, and so a simple redacting process to eliminate the names of the other customers satisfies that concern in its entirety.

104
Now, Mr. Cass has, as I've indicated, shown a willingness to supply some of the documents. We say Mr. Cass hasn't gone far enough and in two particular respects: He has not offered to provide audited financial statements; he is also not going to provide the planning and strategic documents with respect to outsourcing, nor the costing data on which the cost relationships were set.

105
Let me deal first with the planning and strategic matter.

106
Counsel for Union was here yesterday to repeat the argument you heard from Mr. Jackson and Mr. Penny on many occasions with respect to Union, is that ordering of planning and strategic documents somehow will put a chill on the corporate and planning process. Well, the corporate and strategic planning documents we're looking for Mr. Chairman, are those with respect for the outsourcing arrangements, because as we've said, the outsourcing arrangements lie at the heart of, if you wish, the regulatory bargain which underlies the TPBR.

107

Now, the reason that we are seeking those documents - and it's only with respect to the outsourcing arrangements, it's not with respect to the other aspects of what their corporate plans are for a competitive market - is that they are necessary, in our respectful submission, to have the Board and intervenors understand what Enbridge Gas Distribution and EI hope to achieve by efficiencies and how they plan to achieve them.

108
As the Board will know, one of the fundamental difficulties in the regulatory system is what Dr. Bauer has referred to as information asymmetry. That is, that the bad guys have all of the information and we representatives of the good and the right, don't have enough information. I put it facetiously, but it's a serious, a fundamental problem.

109
So if we were to get bare bones financial information without putting it in context, the difficulty is that EGD and EI can -- and I don't mean this term in a derisive way, but they can put whatever spin they want on what they were intending to do and what they were intending to accomplish.

110
In order to test that financial information, the planning documents, what they were trying to achieve and how they were going to try to achieve it are essential so that we can get at -- and I say we, I include the Board -- a fuller picture of what was going on with these outsourcing arrangements.

111
We cannot and we should not be and I include the Board in this be restricted to one version of events, one interpretation of data. We should have all of the information that allows us to test that data.

112
So in that context, we have asked for the planning documents as they relate to the outsourcing arrangements for EGD's services, how they were to be structured, and how they were going to be costed.

113
So if you do that kind of analysis of what we're asking for, we're not proposing a house-to-house search, we're not setting up a huge Hoover vacuum cleaner to Hoover up this information. It's specific information we require with respect to the outsourcing information.

114
Finally, Mr. Chairman, I want to make an observation with respect to the triangulated relationship among Customer Works, Customer Works Inc. and EGD. Now, Mr. Howe was here yesterday to say that if we get information from Customer Works Inc., the sky is going to fall, because they were one corporation doing business with a whole bunch of folks. All we want to know is what's the relationship as it bears with EGD, and the risk here is this: The arrangement is that we've got three parties involved.

115
If we, and I include the Board, are denied access to the information because of the third parties involved, you can bet that the day after the Board makes that determination, every single outsourcing arrangement will have a triangulated arrangement, because that will be the way of sheltering this information from access.

116
We need to get the necessary information from CWLP and CW Inc. as it bears on the relationship with EGD in order to test the outsourcing arrangement.

117
Those are my submissions in reply. Thank you very much, sir.

118
MR. BETTS: Thank you, Mr. Warren.

119
[The Board Confers]

120
QUESTIONS FROM THE BOARD:

121
MR. DOMINY: Mr. Warren, just a couple of quick questions.

122
With regard to the request for information you've put out, you go through the audited financial statements and, as I understand it, Mr. Cass, in his letter, has offered to provide financial information in a different form. Would the information that Mr. Cass, on just that element, those elements of your request, satisfy your needs for the financial information? I'm not dealing here with the planning part of it.

123
MR. WARREN: What Mr. Cass has -- he's going to file, as I read his letter, is incomplete in the sense that it's not the audited financial statement. In our view we need the audited financial statements in order to get -- be able to test --

124
MR. DOMINY: I understood there was some concerns as to whether the audited financial statements were, in fact, were available or existed in certain cases.

125
MR. WARREN: That, I understood, Mr. Dominy, was an issue of chronology, as to whether or not the financial statements -- whether or not the companies were in existence for some of the periods we'd asked for. I didn't understand Mr. Cass to say that there weren't audited financial statements, but I may have misunderstood him.

126
MR. DOMINY: Well, I think you're probably right.

127
The second question is you've asked for strategic planning information, strategic planning documents. I was wondering whether one could be a bit more precise in the type of information. Is this what has normally been referred to in many cases business cases you're looking for?

128
MR. WARREN: Yes, I think that would be fine, sir.

129
MR. DOMINY: Business cases of EGD with regard to the outsourcing arrangement.

130

MR. WARREN: EGD and EI. I'm only guessing at this, but EGD -- the panel has already heard from some of the corporate outsourcing, that there's a lot of -- that strategic planning may be done in EI, so we've asked for these, as you term it, business cases for both EI and EGD.

131
MR. DOMINY: Thank you.

132
MR. WARREN: Mr. Chairman, I think Mr. Cass has a point of clarification on what financial data is available.

133
MR. CASS: If it would assist the Board, on the issue of audited financial statements, I don't pretend to have seen this information or to have this information, I guess I should say. But it's my understanding it's not just an issue of chronology in relation to existence of audited financial statements. It's my understanding they wouldn't necessarily exist in an audited form for each of the entities.

134
MR. WARREN: Well, if they don't exist in an audited form, then we'll take -- we can't insist, at this stage, that they be audited. We'll take them in whatever form they are. But as I read Mr. Cass's letter, he was offering something less than full financial statements for all these entities.

135
MR. DOMINY: Thank you, Mr. Warren, Mr. Cass.

136
Mr. Chairman?

137
MR. BETTS: Thank you. Just one question for clarification.

138
I believe I heard in response to the submissions that the promise -- you've indicated the moral aspects of this promise, the term that's been used, related to the willingness to provide this detail at the point that the parties evaluated or rebased the numbers for EGDI and it was a suggestion, I believe, if I interpreted it correctly, that rebasing has not happened and it did not happen and that was as a result of a settlement that occurred through an ADR process.

139
What is your position on that? Do you feel that the fact that there was a settlement made which I think fairly one could say is short of a full rebasing therefore negated that promise?

140
MR. WARREN: No, sir, it does not. The difficulty with the onset of rebasing - I may be the only one in the room that has this difficulty - is the assumption that there's some magic moment where we all say we are now in the process of rebasing.

141
At the end of the TPBR period, rebasing is going to be a, if you wish, a movable feast, or more accurately, a continuing process that will begin with the first cost-of-service case after the TPBR period and will continue until there is, if there is, a new comprehensive performance based regulation.


142
So part of what we're dealing with in the 2003 case, but you can appreciate the danger, is that the risk is that there may be nothing after the 2003 rates case. Enbridge Gas Distribution may come in and say, We're proposing a comprehensive performance based regulation scheme that's based on the numbers that were approved in 2003.

143
So we start from the premise that rebasing is taking place now. The second is that there was a number arrived at in the ADR agreement that was essentially a number that was allowed to put rates in place so we wouldn't run into this problem of retroactive rate making -- retroactive charges to which everybody is sensitive. But there was reserved from that this question of efficiency gains and how they should be dealt with.

144
So to the extent that efficiency gains are going to be examined in this case, efficiency gains of the affiliates are going to be examined in this case, and they are going to be reported in a deferral account, that is part of the rebasing process.

145
So the answer to your question is, No, we do not believe that the ADR agreement constitutes the entire rebasing and that that puts an end to the obligation of EGD to provide this information. There is this whole area that's been reserved, and that's the efficiency gains, that needs to be explored and that promise is directly relevant to that outstanding issue.

146
Does that respond to your question?

147
MR. BETTS: That's fine. Thank you very much, Mr. Warren.

148
MR. DOMINY: Mr. Warren, I just listened to your response to Mr. Betts, and I was wondering if, for instance, you've got the ADR agreement and the Board were to pursue in depth the efficiency gains and a decision was made, and that decision on efficiency gains would obviously include the question of the degree to which the gains that had been found through the second process may have been incorporated in information that was included in the ADR. I don't know, that's just a thought that went through my mind.

149
But supposing one made a decision, then, on efficiency gains; would you then say that we have completed the rebasing? You have done the ADR agreement plus the efficiency gains?

150
MR. WARREN: I don't know the answer to that question, sir. That's a -- my reaction to the question is, yes, we would have, sir.

151
MR. DOMINY: Thank you, Mr. Warren.

152
MR. BETTS: Thank you, and that concludes the Board's questions on this matter.


153
At this stage, I believe our schedule indicates that the applicant will be bringing forward their next witness panel on corporate-cost allocation. So we'll take -- I think all we need is a short break, and let's make it a five-minute break if we can, and allow the witness panel to take its position and anyone else to change seats, if that's required.

154
And before we leave, any of the parties that are leaving as a result of this part of the hearing being concluded, we sincerely appreciated your input. It will help the Board come to a reasonable and just decision on this matter. Thank you very much.

155
We will adjourn now until, we will make it quarter to 11.

156
--- Recess taken at 10:32 a.m.
157
--- On resuming at 10:50 a.m.
158
MR. BETTS: Thank you, everybody. Please be seated.

159
Thank you, and I see we have a full witness panel and first of all, are there any preliminary matters before we introduce this panel?

160
MR. SHEPHERD: Mr. Chairman, I have a preliminary matter.

161
MR. BETTS: Mr. Shepherd.

162
PRELIMINARY MATTERS:

163
MR. SHEPHERD: I listened this morning to the responding argument of Mr. Warren on the disclosure motion, and he dealt with the question of the intent of the settlement agreement. And I -- within the context of the disclosure motion, he has dealt with the arguments and I have nothing to add. It wouldn't be appropriate in any case.

164
However, what has been raised by Mr. Cass' argument yesterday and Mr. Warren's response today is whether the settlement agreement in fact represents a consensus ad idem of the parties. And that is a more serious matter that has nothing to do with the disclosure motion.

165
Therefore, I would like to put on the record, Mr. Chairman, that it is our understanding - and I believe it's true for all the intervenors, but they can obviously speak for themselves - that the $270 million dollar number was before any deduction for efficiency gains. It is our understanding that it was agreed that there would be a debate on that question.

166

If that is not the company's understanding, if the company's understanding is that the year's efficiency gains belong to the company somehow because we're not doing a rebasing, for example, then it is our submission that there is no settlement agreement and we have not agreed to a $270 million number.

167
I realize this is a very serious matter, Mr. Chairman, and this is why I'm raising it at this time. I'm hopeful that either Mr. Cass will clarify his comments so that it is clear that he is not resiling from that agreement or that we can have some sort of other determination to make clear that the efficiency gains, whatever they are, have to be netted from the 270.

168
But it seems to me, Mr. Chairman, that the only reason we created an O&M deferral account, agreed to the creation of that, and everybody did, was to put efficiency gains in it. And if the current position of the company is we're not allowed to do that, then we do not have an agreement.

169
Thank you, Mr. Chairman.

170
MR. BETTS: Does anyone care to respond to that at this time?

171
Then we will just duly note your concerns, Mr. Shepherd, and see where that takes us.

172
Mr. Cass, would you like this panel sworn in first or introduced?

173
MR. CASS: Yes, Mr. Chair. There are, as you can see six witnesses to be sworn, and maybe as they come forward I will introduce them.

174
Closest to the Board panel is Scott Wilson. Next to him is Scott Player. Then Jane Haberbusch, Bonnie DuPont. Then coming around the corner, George DeWolf and Duncan Kent. If those could be sworn, Mr. Chairman, as I don't think anybody has been sworn.

175
MR. BETTS: Thank you. If you could come forward, panel.

176
ENDBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45 corporate-cost allocation: DEWOLF, DUPONT, HABERBUSCH, KENT, PLAYER, WILSON

177
S.WILSON; Sworn.

178
S.PLAYER; Sworn.

179
J.HABERBUSCH; Sworn.

180
B.DUPONT; Sworn.

181
G.DEWOLF; Sworn.

182
D.KENT; Sworn.

183
MR. BETTS: Thank you, the witnesses have been sworn in.

184
Mr. Cass, please proceed.

185
MR. CASS: Thank you, Mr. Chairman.

186
EXAMINATION BY MR CASS:

187
MR. CASS: As the Board is aware, this panel is here to address the issue of corporate cost allocations from Enbridge Inc.. This panel will talk generally about benefits and services.

188
To save time, I will give a little more introduction of each member of the witness panel by way of explaining their position with Enbridge Inc. or Enbridge Gas Distribution.

189
Again, starting closest to the Board panel. Scott Wilson is Senior Vice-President, Finance of Enbridge Inc.. Beside him is his counterpart from Enbridge Gas Distribution, Scott Player is Vice-President, Finance at the utility. Then is Jane Haberbusch who is Director, Human Resources at Enbridge Gas Distribution. Bonnie DuPont is Group Vice-President, Corporate Resources at Enbridge Inc.. Mr. DeWolf, the next person coming around the corner, is Director of Information Technology at Enbridge Gas Distribution, and Mr. Kent is Vice-President and Chief Information Officer at Enbridge Inc..

190
Mr. Player, could I start by asking you to briefly explain the purpose of the panel's evidence.

191
MR. PLAYER: Yes, Mr. Cass, the purpose of the panel's evidence is really to identify the services that are being provided from Enbridge Inc. to Enbridge Gas Distribution, how they're determined, and how they work on a practical basis.

192
Furthermore, we want to establish very clearly the benefits that are received from the provision of these services and how they relate to the costs.

193
And finally, I think, to take those changes in the services over time, as we've seen from 1999 through to the 2003 budget, and to make that clear.

194
MR. CASS: Thank you, Mr. Player. Where in the pre-filed material will the Board and the parties find the description of services and benefits?

195
MR. PLAYER: Now, there is a high-level description of the services that's in the corporate departments and centres of excellence and general expenses set out in the corporate cost-allocation methodology document. That's filed in schedule 1 to the intercorporate services agreement, attachment 1 to Exhibit I, tab 12, schedule 71.

196
There is a more detailed description of the services, then, provided to Enbridge Gas Distribution, which was set out in the operating and maintenance expense evidence for the receiving departments, and that is filed under Exhibit A.6 and the related interrogatories to that.

197
Then there is response to Undertaking J.9.11, and that was to provide a listing for all of the categories of the corporate cost allocations that are listed in Exhibit A.6, tab 19, schedule 1, on page 10, where in the pre-filed evidence including the interrogatory responses a description of the services that are to be provided gives rise to those costs will be found. That will be filed soon. That undertaking will summarize the evidence references for the Board.

198
MR. CASS: Turning to you, Mr. Wilson, what services are you responsible for at the corporate level in relation to Enbridge Gas Distribution?

199
MR. WILSON: At Enbridge Inc. I have direct responsibility for the treasury department, for the corporate controllers' group, for the investor relations department, for the tax services group, and for the pension fund investment group. I will also be prepared to speak to a number of the other corporate department centres of excellence and expense categories that are included in the evidence.

200
MR. CASS: Mr. Player, what services does Enbridge Gas Distribution receive that are in your area of responsibility?

201
MR. PLAYER: Those related to the corporate controller, certainly, tax, audit services, risk management, insurance, and related to the CFO. Also any stock and debt administration, but if there are other ones that relate to more a corporate administration, I could speak to those as well.

202
MR. CASS: So could the Board understand, Mr. Wilson and Mr. Player, that from the providing end, in your case Mr. Wilson, and on the receiving end in your case Mr. Player, it's essentially the same group of services?

203
MR. WILSON: That is correct.

204
MR. PLAYER: Yes.

205
MR. CASS: Can you, please, give the Board some idea of what the services consist of and what the benefits are to Enbridge Gas Distribution and its ratepayers?

206
MR. PLAYER: Yes, we certainly can. I think perhaps the best way to do that is through an example. Now, this may take a little bit of time, but I think it's worth taking that time in order to get a fuller understanding of what we're talking about.

207
Several of the corporate services provided for which we are held accountable in Enbridge Gas Distribution satisfy Enbridge Gas Distribution's need to raise debt and equity capital.

208
I draw your attention to Exhibit A.6, tab 18, schedule 1, and in particular, paragraphs 8 through 14. And you don't necessarily need to turn to that right now but reference it, and that evidence deals only with Enbridge Gas Distribution's access to capital. Access to capital is not the only rationale for the changes from the corporate departments and the centres of excellence of Enbridge Inc. as well as the general expenses.

209
However, most of the services to Enbridge Gas Distribution from Enbridge, including those of the chief executive officer, the chief financial officer, investor relations, corporate controller, taxation, audit services, and those other ones that I mentioned previously including risk management, insurance services are, in part, related to capital access, and as such capital access, I believe, is a useful illustration for evidence on allocated costs.

210
MR. CASS: Can you explain the need of Enbridge Gas Distribution to raise debt and equity capital, please?

211
MR. PLAYER: Certainly.

212
Now, Enbridge Gas Distribution requires access to capital in order to sustain its financial integrity, first and foremost, but secondly, needs capital access in order to sustain its viability as a corporation, to be able to provide safe, reliable services and supply on a continuing basis to our customers and to our potential customers. Without capital access, Enbridge Gas Distribution would simply be unable to provide gas distribution services.

213
Capital is no different than employees, gas supply, it's a key critical resource. Employees, gas supply, and capital, without these things the delivery of natural gas services to our customers simply could not be sustained. Therefore, the value of capital access to ratepayers, I think we need to think of it as not just the lower cost that we are benefitting from as a result of this range, but it is really at the heart of Enbridge Gas Distribution's ability to provide gas distribution service. If you don't have access to capital, you can't put plant in the ground. You can't develop. You can't grow the business. You can't have a sustainable business, and that's really what it's about, Mr. Cass.


214
MR. CASS: How do the corporate services that have been referred to meet the needs of Enbridge Gas Distribution in this regard?

215
MR. PLAYER: Well, the primary forms of capital that sustain Enbridge Gas Distribution and its ability to provide gas services are debt preference equity, as well as a common equity by way of Enbridge Inc..

216
Now, Enbridge Gas Distrubution has $1.8 billion in term debt outstanding. That's a large company. There are significant portions of this term debt maturing in eight of the next 10 years, and there will be future maturities thereafter.

217
In order to maintain the capital structure of Enbridge Gas Distribution, this maturing debt will be refinanced or reborrowed. And in addition to that, continued customer growth will likely require even further capital; we expect it will, as this company grows, a portion of which will be debt over and above the refinanced debt that I mentioned.

218
So in order to raise this debt capital on the most economic terms and flexible terms possible, the cost of which of course is flowed through to our ratepayers, we have to access the public debt markets.

219
And the public debt market for Canadian debt securities is regulated, as you well know, by the provincial securities commissions, and that will require Enbridge Gas Distribution to file a prospectus as well as our audited financial statements and to regularly update these public documents. So the filing of a prospectus and the audited financial statements require the services of many Enbridge Inc. departments and expense categories that you have seen.

220
The prospectus itself, as you well know, includes full, true and explained disclosure of Enbridge Gas Distribution's business and financial condition. Now, they can either do that through a description of the document itself or through continuously filed public documents through our annual information forum, that encompasses the audited financial statements, management discussion analysis on performance, as well as the quarterly financials.

221
Enbridge Inc.'s treasury department in conjunction request internal Enbridge Gas Distribution legal and Enbridge Inc.'s corporate law departments manage the prospectus preparation and the filing process. So the role of Enbridge Inc. in this prospectus and transaction approval process is absolutely necessary and indeed, it's a legally required function in Enbridge Gas Distribution's process of raising capital.

222
So as noted, we have both internal and external legal counsels involved. The internal counsel at Enbridge Inc., in conjunction with Enbridge Gas Distribution's own internal legal people ensures that the disclosure about Enbridge Inc. accurately represents its business status, and that any material legal proceedings involving the company are fully and accurately disclosed in those statements.

223

The experience of Enbridge Inc.'s legal people stems from their ongoing work on a regular basis with the financings of Enbridge Inc.. So there are efficiencies which accrue through documentation preparation, filing mechanics, et cetera, which are brought to bear on this.

224
There is certainly no duplication of service to Enbridge Gas Distribution here between Enbridge Gas Distribution's internal legal service and Enbridge Inc.'s corporate law department, because Enbridge Gas Distribution personnel are simply not skilled in securities matters, but they are closest to Enbridge Gas Distribution's specific legal matters that must be disclosed, so they need to have that involvement. The Enbridge Inc. legal staff have securities experience, and they supplement that, as required, with external counsel, but only as required.

225
Now, if I can redirect this to Mr. Wilson, I think he can probably better explain the role of the corporate controllers' group in this process.

226
MR. WILSON: As Mr. Player noted, Enbridge Gas Distribution's audited financial statements are included in a prospectus. These are prepared by Enbridge Gas Distribution's accounting staff with the assistance of the corporate controllers' group in Calgary. The corporate controllers' group ensures that the financial statements reflect up-to-date accounting standards. This expertise resides in the Calgary office and is provided to all of Enbridge companies in the group.

227
In the wake of Enron and WorldCom and other situations, the world's accountant standard setting bodies are regularly changing and making new pronouncements with respect to accounting standards. So it's very important that Enbridge Gas Distribution's financial statements reflect these up-to-date accounting standards.

228
As it relates to regulatory accounting, which provides Enbridge Gas Distribution with certain permitted variation from GAPP, which is generally accepted accounting principles, such as no recording of future income taxes and no recording of other flow-through items, Enbridge's Vice-President and Controller, Karen Brooks, who was here last week, sits on the emerging issues committee of the CICA and is an active lobbyist on behalf of regulatory accounting principles in Canada.

229
The consequences of the loss or the elimination of regulatory accounting could be unfavourable to the utility. This could cause credit rating agencies to take a less favourable view on the credit status of the utility which could cause an increase in the utility's cost of debt which would be flowed through to ratepayers. So the corporate controllers' group is actively working on behalf of ratepayers to keep the cost of debt down.

230
The corporate controllers group in Calgary also, in conjunction with the CIO's department, maintains the enterprise financial system which Enbridge Gas Distribution utilizes to report its financial results.

231

Turning, just for a minute, to the external auditors, they sign off on the financial statements, in it that they are in accordance with GAPP and along with permitted regulatory accounting exceptions. Investors in the utility' securities would not purchase such securities without that accounting firm sign-off. The Enbridge Inc. corporate controllers group coordinates that sign-off process and the interaction with the external auditors.

232
Now, investors in the securities of the utility also require that a credit rating agency opine on the credit-worthiness of the securities and apply and affix a credit rating. These securities would not be saleable in public markets without such credit rating, and Enbridge Gas Distribution's debt securities are rated by the principal rating agencies in North America.

233
It's the Enbridge Inc. treasury department that manages the credit-rating process, but there are many other departments in Enbridge Inc. that are involved in that process, including centres of excellence and individuals such as the Enbridge Inc. CEO who provides support on the strategic direction of Enbridge Gas Distribution. In fact, the CEO plays a critical role in all of the capital raising processes of the utility, and I'll speak a little bit more about that in a minute.

234
The Enbridge Inc. CFO is also involved and speaks to Enbridge Gas Distribution's financial condition. Other Enbridge involvement includes the corporate controllers' group that finalizes the statements, the taxation group, as well as the risk management group that oversees the placement of all of the insurance for the utility.

235
In this capital raising process, the credit rating agencies and generally investors concern themselves with the funded status of the utility's pension plan. The utility's pension plan has been well-managed with oversight from personnel from Enbridge Inc. in Calgary, and we believe that Enbridge Gas Distribution ratepayers are very unlikely to have to fund any deficiencies into the foreseeable future.

236
The securities from Enbridge Gas Distribution are generally sold to agents or underwriters representing the ultimate investors for those securities. If these are sophisticated institutions, they will have done much of their own due diligence through interaction with Enbridge Inc.'s treasury department or investor relations department; however, all of these investors rely on the agents and underwriters to conduct formal due diligence sessions. These sessions are coordinated by Enbridge Inc.'s treasury department. They involve the treasury staff, but also involve the Enbridge Inc. corporate law department, the CFO and the CEO.

237
In addition to operating information, areas of particular diligence focus include strategic direction, credit ratings, legal matters, and insurance coverage.

238
MR. CASS: Mr. Player, is there a quantification on the part of Enbridge Gas Distribution of the benefits from these services?

239
MR. PLAYER: Yes, Mr. Cass. If we take the characterization of the services as provided by Mr. Wilson, if I can just put some quantification around some of those, first of all, from the reduced financial systems costs, we have, as Mr. Wilson noted, a financial system that is comprehensive across all of the Enbridge family of companies.

240
And as a result of putting that in place, we've been able to realize staff reduction savings in the order of half a million dollars per year.

241
In addition to that, we do a lot of projects in the utility, and there is a specific projects module that was included in that new financial system, and that's really cut down on our ability to have overruns on our projects and that's probably in the order of $300,000 to $400,000 per year related to that aspect.

242
There are a couple of other areas of more significance on our financial systems, and one is lower financial systems support and maintenance than we had previously incurred, to the tune of $1.7 million per year. And furthermore, if we had had to put in a new financial system with the capability that this financial system has - and we direly needed it because we were in pretty poor shape with the financial system that we had - and we put that in place and had to depreciate it, that would have cost us another million and a half more than the costs we're incurring today through depreciation.

243
So all told, there's $4 million just from that financial system which has been put in place across all of the Enbridge companies that we are sustaining benefits on and the ratepayer is realizing the advantage of.

244
Secondly, Mr. Wilson referred to the external auditors. Well, the audit fees prior to Enbridge Inc.'s involvement - this goes back to the mid-1990s - were $855,000 a year at that time. Today, we incur a charge from -- through Enbridge Inc. for external audit fees of just over $400,000 a year, so there's an additional $700,000 a year of benefit.

245
And one other area which I think is noteworthy is in the area of insurance. We save $2 million a year as a result of the umbrella insurance program that Enbridge Inc. has put in place for its family of companies that accrue directly to us. Now, there's not only a cost savings with regard to insurance, this comes down to access for insurance. Everyone knows what has taken place in the insurance market since September 11th and it's simply a matter of -- a lot of companies, particularly in the energy sector, have not been successful in getting full insurance coverage whereas we have because of the stature of Enbridge Inc. in the marketplace. That is a significant benefit that goes well beyond something we can quantify here.

246
MR. CASS: Pardon me, Mr. Player, did you give the evidentiary reference for where those benefits are quantified?

247
MR. PLAYER: I'm sorry, Mr. Cass. That's Exhibit I, tab 4, CME number 164.

248
MR. CASS: Thank you. Are these services that you and Mr. Wilson have been talking about all of the corporate services in relation to access to capital?

249

MR. PLAYER: No. There's additional services that provide us an advantage there, and that's in Enbridge Inc.'s undertaking to maintain Enbridge Gas Distribution's equity position, its capital structure, at a 35 percent level. So that involves services provided to Enbridge Inc.'s investor relations, the chief executive officer is heavily involved in that, of course, the chief financial officer and our aviations group, in addition to the other services that we have related to simply the raising of debt capital.

250
MR. CASS: Mr. Wilson, can you explain the services that Mr. Player has just referred to?

251
MR. WILSON: Yes, I can. As noted in Exhibit A.6, tab 18, schedule 1 at paragraph 10, Enbridge Inc. continues to stand ready with capability to inject equity into the utility in order to maintain its capital structure at the level deemed appropriate by this Board. Enbridge Gas Distribution requires equity capital from time to time as a result of rate-base growth or earning shortfalls due to warm weather, or both of those things happening simultaneously.

252
If Enbridge Gas were a public company, as it once was, it would incur directly all of the costs and expenses required to maintain its own equity raising capability.

253
When Enbridge Gas Distribution requires additional equity capital, Enbridge Inc. must raise equity capital on a dollar-for-dollar basis for capital injected into the utility. All of the Enbridge Inc. costs for corporate departments and centres of excellence, as well as related general expenses that were applicable to the example that we went through for the utility raising debt capital, also apply to Enbridge Inc.'s raising of equity capital.

254
The investor relation costs, for example, that are borne by Enbridge Inc. do not overlap with the treasury costs. Investor relations and treasury are related functions in the sense that they are both intimately involved in the capital raising process; however, there is no duplication.

255
The investor relations function at Enbridge is required to maintain daily contact with equity investors and debt analysts and equity analysts, both retail and institutional.

256
In contrast, while the Enbridge Inc. treasury department does coordinate the equity raising process, it's simply not staffed to deal with this day-to-day contact with investors. As Enbridge Inc. is the sole shareholder of the utility, the Enbridge Inc. shareholders and the potential shareholders are also the shareholders and potential shareholders of the utility. They are as valid a constituency for the utility to nurture as are the suppliers of gas.

257
When Enbridge Gas Distribution was a public company, it had all these investor relations requirements on its own. The marketing of Enbridge Inc.'s equity securities is managed by Enbridge Inc.'s investor relations personnel in conjunction with Enbridge Inc.'s CEO and CFO. They maintain a year-round, ongoing program of one-on-one visits with institutional investors, speaking presentations, and other meetings.

258

While these meetings are typically in the context of Enbridge Inc., Enbridge Gas Distribution figures very prominently in such meetings because it represents one-third of the capital employed of the parent company.

259
One of the key functions of Enbridge Inc.'s aviation department is to assist with the capital access process, whether it's a maintenance meeting or whether it's relating to the issuance of new securities. The aviation department permits Enbridge Inc.'s senior executives to accomplish much more than they otherwise would on commercial airline schedules.

260
MR. CASS: Mr. Player, what about the quantification of the benefits from the services Mr. Wilson has now just described?

261
MR. PLAYER: Before I do that quantification, I think I'd just like to stress the importance of that capital access. It simply cannot be understated. You've seen what's taken place in the world, seen what's taken place with -- Scott mentioned WorldCom, Enron. Companies simply can't access capital. This is a serious issue. So this is very important to us, and the benefits around that and I'll refer to again, I, tab 4, CME number 164 reduced financing costs.

262
Now, in that Exhibit, we reference $2 million per year of reduced financing costs. It actually understates it. When we push the numbers a little harder to see how it turned out, it's actually closer to the $3 million mark. How does that come about? There's a couple of areas in particular. One is we have a bank credit facility of $650 million in order to operate this company, in order to have the working capital backing that we need.

263
If we had to do that on a stand-alone basis with a company the size and breadth of an Enbridge Gas Distribution, we would incur 19 to 20 basis points higher cost of putting that facility in place than we do today. That adds about $1.2 million of savings to our ratepayers.

264
Secondly, the underwriting commissions on the new equity are 4 percent. It's expensive commissions that we pay to the Bay Street guys, but about every three years we're looking about $135 million to $ 140 million dollars of new equity injection into this company. Four percent on $135 million over the three-year period gives us another advantage of a million dollars, eight, per year, if my math is right. There's a total of $3 million in reduced financing costs that we are satisfied that we receive through this arrangement with Enbridge Inc..

265
Secondly, there are reduced treasury costs. Treasury group, when was operated in Enbridge, this was pre-Enbridge, it was the Consumers Gas Company Limited, it had costs of approximately a million dollars a year being incurred. Today we're charged just over $400,000 a year from Enbridge Inc. for those services. So that's a savings of another $600 million dollars -- or $600,000.

266
MR. CASS: Thank you. If I could turn to you, Mr. DeWolf and Mr. Kent. Could you briefly explain what corporate services you two are involved with?

267

MR. KENT: I am the corporate Chief Information Officer and generally responsible for strategy related to the provision of information technology services and the organization and its employees.

268
MR. DeWOLF: I, as Director of Information Technology for Enbridge Gas Distribution, am responsible for the strategic and operational planning and the day-to-day operation of Enbridge Gas Distribution's IT, voice and data networks.

269
MR. CASS: Mr. Kent, can you summarize the nature of these services, please?

270
MR. KENT: They are described, to some degree, in our evidence, in Exhibit A.6, tab 15, schedule 1, and specifically in response to an interrogatory from CAC, number 99. I'd like to touch now, though, on a couple of areas. One is our ongoing search for improved efficiency and effectiveness in the delivery of information technology, and the other is around reduced risk associated with IT projects.

271
Enbridge Gas Distribution has largely standardized on particular types of software and hardware for delivery of information technology, because it's more efficient to do so in a standardized fashion rather than using a very wide variety of technologies. The same sort of opportunity may exist at the corporate level as well.

272
The financial system is a very good example of that. We've adopted a common software and hardware basis for the financial system that we use across the whole organization, and by doing so, we've achieved both additional leverage with the vendor of the software and hardware and efficiencies because we've simply have to plan it once and execute it once rather than having each part of the organization go through that planning and delivery process individually which would add up an aggregate cost rather than doing it in a combined fashion.

273
There's a number of opportunities like that. We have something in place we call the IT council which Mr. DeWolf represents Enbridge Gas Distribution, which meets and has a number of discussions in an attempt to guide efforts to find additional synergies across additional business units, and there are some areas where it doesn't make sense to do so. We need to know where it makes sense to standardize where there are gains to be achieved, and where it doesn't, and the IT council is the group that guides that decision-making process.

274
One of the things that came out of the IT council discussions was our decision to implement a common portal framework for access to applications information across the organization. It was something that we could do once on behalf of the whole organization and save money by doing so.

275
There's savings opportunities as well in things like operational processes. When someone has a problem with a computer system, they need to call someone for help to solve it. They call a help desk. We have recently adopted a single help desk provider for all of Enbridge, and in doing so have achieved savings for Enbridge Gas Distribution and the other business units.


276
Those operational process changes are something, again, that's distinct from software and hardware, but a very real and tangible benefit.

277
Turning, if I could, to the risk issues, large-scale IT projects are a necessity in delivering to staff in the organization the tools that they need to do their work efficiently. Things like the financial systems project, for example. You can't do anything other than embark on a very large-scale project. The software is complex and difficult to implement. The extent of business change associated with putting in a large new system like that is quite substantial. The technology evolved rapidly, and finally, the other thing that's tricky about information technology projects is that they are not visible and tangible in the way that a pipeline construction process is or another physical facility. It's hard to see what's going on. And all of this makes management of information technology projects extremely difficult and entails significant risk to the organization and ratepayers.

278
We have, within the CIO office, brought together the most experienced people from across the organization in management of large IT projects, and can therefore provide that kind of experience and knowledge to things -- but projects within Enbridge Gas Distribution that are specific to the utility but where the range of expertise or knowledge, downright experience, may not exist to the same level as it exists at the corporate level.

279
And in involving the CIO, myself, in the capacity of the steering group of some of these projects, the gas distribution group gains the advantage of that additional experience and the risk mitigation, risk reduction associated with having another set of eyes on projects.

280
And while its difficult to quantify a dollar benefit of that, I think it's significant in management's willingness to embark upon large IT projects which can bring very significant benefits to the organization, but if the risk level is high, may be unattractive to management. Part of the function of the CIO office is to provide sufficient mitigation of those risks that it makes sense for management to embark on projects that will bring down operating costs and will be of benefit to ratepayers.

281
MR. CASS: Mr. DeWolf, can I comment on the benefits received by Enbridge Gas Distribution from such services?

282
MR. DeWOLF: Yes, I can. Mr. Kent has mentioned a number of areas of potential benefit, and since the creation of the CIO office we have seen a number of tangible examples that demonstrate the benefit of these charges.

283
Mr. Kent had first mentioned the area of standardization and referenced the corporate portal. In that example, as stated in my evidence, Exhibit A.6, tab 15, schedule 1, paragraph 30, Gas Distribution investigated in 2000 the development and implementation of a portal. The investigation showed that it will cost Gas Distribution $1.5 million to deliver that solution. That was higher than the threshold that Gas Distribution could justify implementing such a budget, and the project was scrapped.


284
In 2002, again as Mr. Kent mentioned, the CIO office implemented a corporate portal for the price of $1.5 million across the entire organization. As a result, Gas Distribution pays -- will pay $700,000 for the portal that would have cost them $1.5 million and thus deriving a benefit of $805,000 into the ratepayers of Ontario. And that number is referenced in our response to interrogatory CME 164.

285
Since the filing of CME 164, there have been a number of additional examples that have come to fruition. Again, as Mr. Kent mentioned, we've been working a lot more with the other organizations, and recently Gas Distribution and Pipelines North, were looking for pipeline integrity software. And because of the knowledge provided to us by the CIO office of the same need in Pipelines North, a combined project team was put together to investigate the solution.

286
Okay. The combined project team drove out a savings to Gas Distribution of over $100,000 over the initial investigation of what was the appropriate solution. As it turned out, in this case, Pipelines North requirements and our requirements were different, and two different applications selected. But the selection process was cheaper than it would have been if we both ran projects simultaneously to determine what the vendors were.

287
This also had advantage with the vendors, in that we were talking to them, we weren't having two projects going on at once and confusing the vendors, and that was also brought up by the vendors, that we got a better price, a non-quantifiable price, but the fact that they were only talking to one group of people on one set of things drove benefits to the organization.

288
The other project that Mr. Kent mentioned was the help desk selection. In the last month, we have signed a contract with IBM to provide help desk to Enbridge across the piece. That implementation will save Gas Distribution $500,000 a year on its help-desk services that it provides to our users.

289
The final area I would like to talk to is the oversight of large projects. During the time that the CIO office has been in place, we have implemented the FS project as has been mentioned a number of times. That project was a 50 plus million dollar project and included people and co-ordination across all of the Enbridge organizations. That project was brought in on time, on budget, for each one of the organizations, one right after another.

290
The intangible benefit of delivering IT projects on time, on schedule, as predicted is huge, and I believe that that, again, intangible benefit to a large degree has been due to the fact that we have additional oversight and standardized processes for managing and looking after projects that have been brought into play since the shared services type model has been put in place.

291
And I believe very strongly that all of the costs that are being allocated for IT expenses to Enbridge Gas Distribution are well worth what we're paying in the benefits that we've received.

292
MR. CASS: Turning finally to Ms. Haberbusch and Ms. DuPont.

293
Ms. DuPont, can you explain what corporate services you have accountability for, please?

294
MS. DuPONT: Yes, I'm the Vice-President of Corporate Resources, and within that portfolio are human resources, public and government affairs, IT governance, and corporate office administration.

295
MR. CASS: And Ms. Haberbusch, what corporate services do you oversee from the perspective of Enbridge Gas Distribution?

296
MS. HABERBUSCH: I have accountability for the human resources function within Enbridge Gas Distribution, and I also receive the services from the Enbridge Inc. HR centres of excellence.

297
MR. CASS: Ms. DuPont, taking human resources as an example, can you just summarize the nature of the services from Enbridge Inc., please?

298
MS. DuPONT: Yes, I'd be happy to do that, Mr. Cass.

299
The services are outlined also in Exhibit I, tab 1, schedule 3, pages 2 to 5, so this may be a bit of a summary of that material. I would like to emphasize, really, a number of aspects about these services out of the human resources group in the corporate office.

300
First of all, the human resources leader in that office, who's our Vice-President of Human Resources, works very closely with the directors of human resources in the various business units in a forum called the HR council. And that council is responsible for coming together on a quarterly basis and making sure that strategy, policy, and standards are articulated, are agreed upon, and are worked through for the benefit of all business units. So that's a really fundamental part of the role of the corporate human resources group under Mr. Reid's leadership.

301
The second thing I want to talk about for a moment are the centres of excellence. And typically, we've had three centres of excellence, although we've recently added a fourth one.

302
The first centre of excellence, to describe briefly, is our labour relations centre of excellence. We have an individual and a support person in that centre of excellence that provide labour relations support services right across Enbridge. It's a very cost-effective way of delivering that service, and I think Ms. Haberbusch will relate to the benefits of that centre of excellence.

303
The second centre of excellence is our total compensation centre of excellence. Again, compensation is a complex area in most large organizations and we have, in that centre of excellence, expertise that provides services to all of our business units. So we have expertise in compensation, we have expertise in pension, benefits, administration, et cetera, in that centre of excellence.


304
Thirdly is our learning and leadership centre of excellence. We, at Enbridge, believe that people are our most important resource and we are very firmly committed to the development of our people and to internal succession planning. And so we have a resource in our centre of excellence that does strategic planning on the learning and leadership side and provides services to the business units, again in succession management, succession planning, as well as development of competencies that can be used across Enbridge.

305
And the fourth centre of excellence that I would mention briefly is our HRIS centre of excellence, which is a newly developed centre, and which has taken, really, two independent human resources information systems and consolidated them into one human resources information system. And that system is now available for the use of all of the business units and will become a core of our operations in human resources.

306
And I guess the final comment that I would make about the overall functioning of the human resources area in the corporate office is that it also provides service to the corporate office itself. We have about 125 to 145 staff in that office, and so that centre also provides services to the corporate office.

307
MR. CASS: All right. And then finally, Ms. Haberbusch, could I ask you, please, just to comment on the benefits that Enbridge Gas Distribution receives from those services.

308
MS. HABERBUSCH: Certainly. The benefits can be classified under two major headings. Number one is it provides the utility with access to highly technically skilled employees that -- through the centres of excellence, which skills that don't exist within Enbridge Gas Distribution, as Ms. DuPont mentioned.

309
Without having access to those skills through the centres of excellence, the utility would either be forced to hire those resources internally and thus incur the full-time costs of those resources, or we would have to purchase those services externally through various consulting firms at much higher cost to the organization.

310
So an example of that, as Ms. DuPont mentioned, was labour relations. There are certain senior level technical skill requirements that we need within the utility to manage certain activities such as negotiating collective agreements, managing arbitrations, negotiating transition agreements. And being able to access that labour relations centre of excellence expertise allows us to just pay an allocated cost for those services and thus receive the cost that we need within the utility in a very cost-effective manner.

311
If we had to hire that expertise internally within the utility, we would incur that full-time cost, and it wouldn't be cost-effective, because we really don't need that level of expertise for all of the day-to-day labour relations management functions. We're able to do many of those day-to-day labour relations pieces internally using much more junior personnel at much lower rates of pay.

312

The second major benefit classification that Enbridge Gas Distribution receives from the centres of excellence is that it allows us to share in the development costs associated with programs, systems, tools, and initiatives that are all required for the utility. And should we not be able to share those costs through the centres of excellence, we would have to incur those costs ourselves.

313
A straightforward example of that would be, for example, in the purchasing of on-line recruitment services, such as a Workopolis. Workopolis charges a flat rate fee for their services. That fee is currently purchased through the total compensation centre of excellence, and the costs are allocated out to all of the business units that utilize that service. So we're able to use an unlimited number of postings for that service, but at a reduced cost.

314
Should we have to do that as a stand-alone entity, we would pay the same flat rate fee to get the same level of service, but we would have to incur the full cost rather than an allocated portion.

315
As Ms. DuPont mentioned, we've now recently developed a human resource information system centre of excellence, and we have consolidated the Peoplesoft databases that house all of our employee data as well as manage all of our payroll data into one system. We used to have that system resident within Enbridge Gas Distribution on its own, and it was duplicated elsewhere in the Enbridge organization.

316
By consolidating those Peoplesoft systems into one, it now allows us to only have to incur a portion of the cost that we used to have to incur in full. With any technical system, there are costs associated with annual maintenance fees. There are annual taxation upgrades that are required to be able to generate T-4 slips, for example, and the Peoplesoft vendor themselves upgrade their systems regularly, and there is a cost to upgrade those systems as well.

317
So the fact that we're able to share in those costs as opposed to having to pay those in full ourselves is a significant benefit to Enbridge Gas Distribution, and that amounts to approximately $500,000 per year. That information is also included in the interrogatory CME 164.

318
There are also some secondary benefits that we do get through the utilization of the centres of excellence. One of it is also being able to take advantage of some economies of scale. So for example, when we're negotiating with our benefit carriers for the costs of our benefits, we're able to utilize the Enbridge-wide purchasing power through the centre of excellence to negotiate a preferred rate. We would not be able to negotiate that same rate as a stand-alone entity with a much smaller employee base.

319
And I guess, lastly, the other area I wanted to mention that does tie in with what Ms. DuPont was saying, there is an intangible benefit in being able to attract and retain top-quality employees who see the advantage of having Enbridge-wide succession management practices and the ability to develop across the organization through the use of the processes developed through the learning and leadership centre of excellence.

320
And while that may be difficult to quantify in a monetary way, it certainly improves the quality of leadership that we're able to attract within the utility.

321
MR. CASS: Those are my questions of the panel, Mr. Chairman. Thank you.

322
MR. BETTS: Thank you, Mr. Cass.

323
We will begin, then, with cross-examination of this panel.

324
I think we will aim at, probably, a break in and around 12:30, so we will ask the questioners to keep that in mind and help the Board select an appropriate time for that break.

325
Mr. Warren, are you first?

326
MR. WARREN: I am, sir.

327
MR. BETTS: Please go ahead. Please proceed.

328
CROSS-EXAMINATION BY MR. WARREN:

329
MR. WARREN: Ms. DuPont and Ms. Haberbusch, could you, please, get me two figures: First is the average cost of salaries at Enbridge Inc., and the second is the average cost of salaries at Enbridge Gas Distribution.

330
MS. HABERBUSCH: The average cost of salary within Enbridge Gas Distribution is $54,177. I don't have Enbridge Inc..

331
MS. DuPONT: Nor do I.

332
MR. WARREN: Can I get an undertaking to get that second number?

333
MR. MORAN: Mr. Chair, that will be Undertaking J.12.1, undertaking to provide the average cost of salaries at EI.

334
MR. BETTS: Perhaps we could include the average cost of salary for EGDI in the same document, just so it's all in one place, then.

335
MR. WARREN: Thank you, sir.

336

UNDERTAKING NO. J.12.1: TO PROVIDE THE AVERAGE COST OF SALARIES FOR EI AND EGDI

337
MR. WARREN: Those are my questions for this panel.

338
MR. BETTS: Next? Mr. Janigan?

339
MR. JANIGAN: I have no questions for this panel, Mr. Chair.

340
MR. BETTS: Mr. Shepherd?

341
MR. SHEPHERD: Mr. Chairman, I have no questions for this panel.

342
MR. BETTS: Are there any other intervenors that had questions for this panel?

343
Mr. Moran?

344
MR. MORAN: Mr. Chair, I'd like a few minutes, if I might, to consider what all this means in terms of questions I might have. Perhaps we could adjourn at this time for lunch, then.

345
MR. BETTS: I think, then, the Board's plans have changed substantially, and rather than breaking at 12:30, I believe it would be appropriate to break at this point, and we will allow for an hour and a quarter for lunch.

346
Let us return, then, at one o'clock to reconvene, and we will receive questions from Mr. Moran, if he has any.

347
So we will adjourn now until one o'clock.

348
--- Luncheon recess taken at 11:48 a.m.
349
--- On resuming at 1:02 p.m.
350
MR. BETTS: Thank you, everybody. Please be seated.

351
We are now reconvening after a short lunch break. Are there any preliminary matters before we entertain questions from Mr. Moran?

352

There appear to be none.

353
Mr. Moran?

354
MR. MORAN: Thank you, Mr. Chair.

355
CROSS-EXAMINATION BY MR. MORAN:

356
MR. MORAN: Just as a preliminary matter, panel, there were a number of undertakings that the company gave back on April 3rd and April 4th and some of the information obviously is relevant to what you guys are here to talk about. I'm just wondering if there's a reason why we don't have those undertaking responses yet.

357
MR. CASS: The only reason I could provide, Mr. Moran, is that they're being worked on. The responses are brought to the hearing room as soon as they are complete, so if the work was complete, they would be here.

358
MR. MORAN: Thank you.

359
Undertaking J.9.1 was an undertaking to provide the background data for the numbers that are set out on page 3 of 3 of Exhibit I, tab 1, schedule 164, that's the CME IR response that you've referred to several times today. I'm just wondering, in the absence of the background data, how we might be able to deal with those numbers? I'm just wondering if you can comment on that?

360
MR. WILSON: Fire away.

361
MR. MORAN: Mr. Player, and maybe Mr. Wilson, maybe this is best aimed at you folks. You gave some evidence this morning about some numbers in relation to savings, and it's not clear how those numbers are reconciled with the numbers that we see in schedule 164. I'm just wondering if you could help the Board with that.

362
MR. PLAYER: Would you like me to walk through some of those, then? I'm happy to do so.

363
The first one -- I'll just address the savings. If we look at the insurance costs of the $2 million, that is related to the umbrella program that we got of insurance across Enbridge, and I think Enbridge puts out about 30 or -- between $30 million and $35 million of insurance premiums a year, which we're about a 13 percent of that total program, but as a result of that, we were able to save considerably more.

364
I don't know, Mr. Wilson, if you'd like to comment further on the insurance part.

365
MR. WILSON: Certainly. Jardine Lloyd Thompson is the broker for the Enbridge companies' insurance. They help place the insurance with the ultimate insurer, and as a matter of practice, we obtain from them their estimate, and we have a letter from them in this regard, telling us what the Gas Distribution insurance premium would be on a stand-alone basis, and that exceeds $6 million and is the difference between the 4 million that is being allocated to the utility, based on the allocation method that the last panel took you through, and EGD's -- Gas Distribution's stand-alone costs. That's where the 2 million comes from.

366
MR. PLAYER: And the direct charge for insurance is referenced under direct charges in the second column on that Exhibit, Exhibit 4.3.

367
Following down on the savings, the 0.7 million for audit fees, we referenced that this morning in terms of a saving, and that goes back to, I think in the mid-'90s, where we were using KPMG as an external auditor. Their charges for audit services were very close to the million dollar -- no, $855,000, as I recall.

368
You escalate that to today's value, just based on CPI, and take the $400,000 charge that we're currently getting for audit -- 500,000, which is shown in the direct charge line on the second column, and there is the savings that we reference for the audit fees.

369
The financing costs were made up, you may recall, by a couple of parts. We've indicated there that it has a savings value of $2 million, but in fact, when we'd done our numbers, we found they are a little bit higher, about $3 million. And it refers to the savings associated with our $650 million stand-by facility and also the underwriting fees associated with equity that's raised for the company.

370
So those two, in combination, really add up to the $3 million as opposed to the two.

371
The financial systems costs were made up of, I believe, four different components. There was about a half a million dollars reduction in staffing costs in EGD's finance group. We had about $300,000 to $400,000 worth of saving associated with less project overruns that we've had in the past because of the system capability which now has a specific project module to it, so a great deal of specificity associated with the project management.

372
Then there were really savings, that probably Mr. DeWolf could refer to better, associated with the financial system, maintenance and support costs reduced by, I think it's $1.8 million.

373
MR. DeWOLF: That's correct.

374
MR. PLAYER: And then a further savings associated with the depreciation.

375

Had we done a stand-alone financial system without this being party to a broader financial system across all of Enbridge, I think that we would have incurred higher depreciation on the order of whatever that residual is, Mr. DeWolf.

376
MR. DeWOLF: A million and a half.

377
MR. PLAYER: Yes. So that gets us the $4 million on the financial systems costs.

378
Reduced travel cost is really under Ms. DuPont's area, under administrative services, and that's associated with the central services that we have for travel arrangements. So we deal with a single vendor in order to get discounts on airline, lowest prices, hotels, rental cars. I don't know if there's anything further on that --

379
MS. DuPONT: Yes, it is the negotiation of volume discounts for all travellers within Enbridge and, as you say, airfare, hotels, car rentals, et cetera. under the purchasing costs, $7.7 million. We have got a supplier management program across Enbridge and it's been extremely effective. What that is -- it's not going outside and doing three bids and a buy anymore. It was a program that was put in place to be in effect across the entire of Enbridge and managed by a director in Enbridge, and I think there's only one individual in the department, but there's a team of people associated with any particular process or buy that we need to do. And they look at the entire process of work that's being done.

380
It's not just, How do I get the lowest cost of that particular commodity? It's looking, Well, is there a better way to do? Maybe we won't even use that commodity in the future, we may use a substitute product for it.

381
In total, a lot -- and a lot of our capital savings in the order of $7.7 million identified there. I would suggest they're probably higher than that.

382
To give you some further detail behind that, 2001, 2002, 2003, O&M savings alone would have added up to in excess of $12 million. And that's a continuing program. We've got new projects going on in that all the time, looking for further savings.

383
The reduced treasury costs, I guess that goes back to when we had a treasury department in Enbridge Gas Distribution, as it was known as Consumers Gas Company Limited at that time. And the cost of that stand-alone treasury operation compared to the treasury fee that we received from Enbridge Inc. today affords us a savings of $600,000. The fee, at that time, was about a million dollars, and we're getting a charge of about 400,000 today.

384
Human resource system costs. I'm going to have to defer that one off to Ms. Haberbusch.

385

MS. HABERBUSCH: That was actually what I referred to this morning and it's the savings associated with the sharing of system resources database as opposing to keeping one system stand alone within the utility.

386
MR. PLAYER: And perhaps, Mr. Kent, if I could refer the portal costs savings or Mr. DeWolf.

387
MR. DeWOLF: Again, as I mentioned this morning, the costs of the portal is resulting in the $800,000 saving, and that's the only saving that's noted here. And then there were the additional savings that I mentioned this morning that have occurred since the issuance of CME 164.

388
MR. PLAYER: The final point on there is reduced employee cost due to reduction of the head count, a savings of $300,000 a year. I know I've seen that in evidence, I'm just not -- on the prior page, page 2, and that's highlighted there where you can see the positions that were reduced in Enbridge Gas Distribution.

389
And then the equivalent number of position charges we have coming back from Enbridge Inc. to do various services. And finance, as an example, reduced their head count by six people. So that adds up the total savings of $19 million.

390
The direct charge line in the second column, we've already talked about the insurance line and the audit fees, less direct charge for depreciation.

391
Have you got that, Scott?

392
MR. WILSON: This has been allocated on the basis of capital employed, so there's $4.2 million of total depreciation related to IT projects, computers, office furniture, and there is a component of the aviation group as well, totalling 4.2 million, and then 1.4 on the basis of capital employed allocation.

393
MR. MORAN: All right. And as I understand it, to get the details behind all of that, we have to await the delivery of the undertaking; right?

394
MR. WILSON: Well, if there's anything more we could help you with now, we'd be happy to.

395
MR. MORAN: As I understand it, there's still work being done to develop the answer to Undertaking J.9.1.

396
MR. WILSON: You will have received most of what you'll get by the response by Mr. Player and the other responses here. We would be happy, again, to expand on any component of that at this time.

397
MR. MORAN: All right.


398
The corporate allocation methodology, as it's been described, is something that applies to all the business units, right, within the Enbridge family of companies; is that correct?

399
MR. WILSON: That's correct.

400
MR. MORAN: And out of the entire family of Enbridge companies, we have representatives of two of them today on the panel, EI, and obviously EGDI; right? Yes?

401
MR. WILSON: I just wanted to say, as the last panel noted, that as representatives of the corporate office, Mr. Kent, Ms. DuPont and myself, the bulk of our labour is on behalf of the business units, on behalf of the four principal business units in the company.

402
MR. MORAN: Right. And to understand the perspective of the people that are receiving those benefits, what we have available to us is the perspective of EGDI; correct?

403
MR. WILSON: That's correct.

404
MR. MORAN: We don't have the perspective of the other members of the EI family, do we?

405
MR. WILSON: Not here and present, but I would hope that the last panel talked to their acceptance of the methodology.

406
MR. MORAN: Right, but the last panel was also only populated by representatives of EI and EGDI; isn't that correct?

407
MR. WILSON: Ms. Brooks, who has overseen the development of methodology, could have attested to the acceptance of it throughout the organization.

408
MR. MORAN: Right, but there was nobody who applies the equivalent role of, for example, of Mr. Player, and Ms. Haberbusch, and Mr. DeWolf to talk about the perspective of the recipients of the services; right?

409
MR. WILSON: Right.

410
MR. MORAN: Of course, when you're talking about sharing things amongst a group of people, one of the issues is whether everybody is getting their fair share on an individual basis; right? Isn't that correct?

411

MR. WILSON: Correct. Correct.

412
MR. MORAN: So for the Board to be able to understand if the cost drivers are appropriately allocating to EGDI, wouldn't you agree that they would have to understand how the cost drivers work in relation to the other recipients of these services?

413
MR. WILSON: I believe that Ms. Brooks and the panel -- the last panel outlined the methodology that's applicable across Enbridge Inc., and Ms. DuPont and I can attest to the fact that the -- the business unit -- heads of those business units have accepted that methodology.

414
MR. PLAYER: If I could just add to that a little bit, Mr. Wilson. When the methodology was built up, Mr. Moran, we had individuals from each one of the business units involved in that, at a working-group level. So they came together and they agreed on what the methodology would be, and then it moved up, of course, through the hierarchy, through the ranks, and it was approved at a higher level as Mr. Wilson indicated. So there was definitely buy-in at the working group level of all of the different units at that time.

415
MR. DeWOLF: And I can speak to the fact that in the IT area, on the IT council before Mr. Kent's budget went up to get approved, that was brought to the IT council, where myself, the heads of IT for Pipeline North and the heads for IT of Pipeline South discussed the budget and approved it before he even submitted it up. Because once he submitted it and it came down, that would be inappropriate for us to question it at that time. So before it went forward, and I can attest to the facts that all three of the heads of IT agreed to that budget before Mr. Kent put it forward and submitted it as his plan for the next year.

416
MS. HABERBUSCH: And I could attest to the same, that the HR council which also includes representatives -- my counterparts in the other business units, also reviews those costs prior to them being finalized.

417
MR. MORAN: All, right. So as part of the development of the methodology, if I understand the three of you correctly, you were involved in understanding how that methodology would apply to costs that would be charged to your departments or work that would normally be done by your departments.

418
MS. HABERBUSCH: Yes.

419
MR. PLAYER: I will make one qualification on that. I had a designate to do that for me.

420
MR. MORAN: Right. So that person reported to you and it was all signed off.

421
MR. PLAYER: Yes.


422
MR. MORAN: Was this all done prior to the retention of Ernst & Young to look at the methodology?

423
MR. PLAYER: That's correct, it was.

424
MR. MORAN: Were you one of the people who was interviewed by Ernst & Young?

425
MR. PLAYER: I was.

426
MR. MORAN: Ms. Haberbusch, were you one of the people that was interviewed by Ernst & Young?

427
MS. HABERBUSCH: I was.

428
MR. MORAN: Mr. DeWolf?

429
MR. DeWOLF: Yes.

430
MR. MORAN: Were other people in your department interviewed?

431
MR. PLAYER: Yes, they were.

432
MR. MORAN: Were those people involved in the budgeting process that happened prior to that?

433
MR. PLAYER: Yes. I can't tell you how many of those people were, but certainly at least two that I can think of were involved in the prior process as well.

434
MR. MORAN: How about you, Ms. Haberbusch?

435
MS. HABERBUSCH: No, I was the only one from human resources within the utility.

436
MR. MORAN: Mr. DeWolf?

437
MR. DeWOLF: And I was the only one from IT.

438

MR. MORAN: Okay. We heard a description of the overall approach under the title of One Company, One Vision. I wonder if you could just turn up Board interrogatory 72. You'll find that at Exhibit I, tab 1, schedule 72.

439
All right. In this interrogatory response, we see the names of the directors of EGDI set out, and then in the subsequent pages the boards of directors for Enbridge's affiliates in the subsequent pages; right?

440
The last panel indicated that, based on the interrelationship of membership amongst those boards of directors, that that was reflective of the One Company, One Vision philosophy. I take it you'd agree with that?

441
MR. WILSON: Yes.

442
MR. MORAN: And there was also some discussion with the last panel about the fact that most of the officers in -- or some of the officers, I guess, of Enbridge Gas Distribution are on the boards of directors of other Enbridge companies; right? A further example of the integrated approach to managing the family of companies; right?

443
MR. PLAYER: And this would have long pre-dated Enbridge in terms of how this has been managed.

444
When you've got smaller subsidiary companies, like us, it's very typical to have opposite directors of the larger company.

445
MR. MORAN: And as I understand the approach, everybody in the family benefits as a result of this interplay; right?

446
MR. PLAYER: I think so, yes.

447
MR. MORAN: And that's the driving force behind the methodology, for example, to allocate corporate costs -- corporate centre costs for the various group of companies; right?

448
MR. PLAYER: Yes.

449
MR. MORAN: Now, let me take -- let me take Mr. Schultz as an example, I guess, to explore how this will work. Mr. Schultz, of course, is an officer of Enbridge Gas Distribution; right? He's the President?

450
MR. PLAYER: That's right.

451
MR. MORAN: He's not on the board of directors of Enbridge Gas Distribution but is on the board of directors of other companies; right?

452
MR. PLAYER: Correct.

453
MR. MORAN: And is he a member of the corporate leadership team?

454
MR. PLAYER: He has just been appointed a member of the corporate leadership team.

455
MR. MORAN: Right. And the corporate leadership team, as I understand it, is a group of people that's drawn from various companies within the group; right?

456
MR. PLAYER: The major business group and the executive from the corporate office.

457
MR. MORAN: The corporate leadership team, to what extent are they involved in getting access to capital?

458
MR. WILSON: I think in our earlier evidence in chief we indicated that it's primarily the CEO, the CFO, the treasury department, and the investor relations department that are involved in marketing issues, but there are other departments that are involved and are represented by CLT members. Most of those, though, would fall under the CFO.

459
MR. MORAN: All right. So the corporate leadership team would be involved, in part, in supporting access to capital initiatives.

460
MR. WILSON: Correct.

461
MR. MORAN: Along with the other individuals that you mentioned, the CEO of EI and so on?

462
MR. WILSON: Yes.

463
MS. DuPONT: I think with respect an exception to those functions falling under the CFO would be the law department that's involved in capital.

464
MR. MORAN: And who at Enbridge Gas Distribution is involved in working on access to capital issues?

465
MR. PLAYER: Really, we provide input to that, so through the financial group, the legal department would provide input for proper disclosures, prospectuses, filings. Certainly the financial department would provide input, the audit services in its review of the financials will have provided input. So to that extent, I think those are the key ones that would be involved.

466
MR. WILSON: I would agree.

467
MR. MORAN: Now, to the extent that there are certain costs associated that are contributed to by people who work for EGDI, how are those costs factored into the allocation methodology so that they are also allocated in the same way as the corporate centre costs are allocated back down?

468
MR. PLAYER: There is no allocation to the time that would be spent from those people, because it is infinitesimally small, I would say, in the scheme of things.

469
MR. WILSON: Their costs would just be part of EGDI's own costs, and typically, they would not be allocated elsewhere within the organization. They would only be working on EGDI financing issues.

470
MR. MORAN: Let me take the HR centre of excellence as another example. As I understand it, there's a council composed of HR people from the various companies that make up the family of companies; right?

471
MS. HABERBUSCH: That's correct.

472
MR. MORAN: And the underlying principle is that there are some efficiencies to be gained if everybody works together to provide HR services to the entire group of companies; is that correct?

473
MS. HABERBUSCH: That's correct.

474
MR. MORAN: Of course you, as an employee of Enbridge Gas Distribution, are a member of that council; right?

475
MS. HABERBUSCH: That's correct.

476
MR. MORAN: And there are certain costs associated with a council; right?

477
MS. HABERBUSCH: In terms of my time, yes.

478
MR. MORAN: And in terms of the time of all of the members who are on that council; right?

479
MS. HABERBUSCH: Yes.

480

MR. MORAN: And to the extent that there are efficiencies to be gained by this approach, all of the companies benefit from those efficiencies; right?

481
MS. HABERBUSCH: Yes.

482
MR. MORAN: Including, I assume, EI; right?

483
MS. HABERBUSCH: I would assume so.

484
MR. MORAN: Ms. DuPont, you've got some folks working for you at EI; right?

485
MS. DuPONT: Yes, certainly EI would benefit, to the extent that EI actually have staff that are recipients of the human resources services, but keep in mind that the staff numbers in the EI office are very small relative to the business units.

486
So the benefit to EI would be significantly less, proportionately.

487
MR. MORAN: Now, given that there are contributions to the centre of excellence from all of the business units, and given that there are corporate centre allocations in relation to HR services allocated to all the business units, where would I find an offset for those contributions?

488
MS. DuPONT: You would find an offset -- are you asking me now in the evidence or are you asking me to comment on that?

489
MR. MORAN: Well, if it's in the evidence, that will be helpful. If it's not --

490
MS. DuPONT: Yes, because I cannot off the top point to the evidence, but certainly we could give you an undertaking to give you more detail on that. But off the -- in terms of a comment, if you look at, for example, some of the things that Ms. Haberbusch referred to in her commentary this morning, such things as negotiation for the whole of Enbridge with carriers for our benefits programs, if you look at such things as avoidance of cost of consultants, some of whom run in the $750/hour category. By having our own in-house expertise on the compensation side, for example, if you look at the offset in the costs of hiring consultants, again, in the learning and leadership area again, at fairly substantial dollars, there's value there. There's no question in my mind.

491
The time that the individual directors, such as Ms. Haberbusch and the others from the business units, put into the human resources council is significant in terms of consultation and involvement, but it is, I believe, more than offset by the savings that we get by the group purchasing power, if you will, or the, you know, the economies of scale. And I'd be happy to give you more information on that.

492

MS. HABERBUSCH: And if I could make just clarify, my role on the council is there to represent Enbridge Gas Distribution and to make sure that any decisions, prioritization of work that gets done and that any savings are going to flow back to the utility. So I'm there representing the utility.

493
MR. MORAN: Ms. DuPont, you may have misunderstood my question, and it's probably my fault to the way I phrased it. When I was referring to offsets, where would I see a subtraction from the cost allocation representing the contribution by EGDI who the HR allocation?

494
MR. PLAYER: Mr. Moran, can I take that one? In a general sense, we allocate out cost to any of the companies, whether it's from Enbridge Gas Distribution to one of our subsidiary companies that we're dealing with, or whether it's to other parts of the organization, Enbridge Pipeline, et cetera.

495
One good example of that would be with the financial system we've got. In fact, we do more services on that when we have an in-flow on Enbridge's financial system. Sorry, I can't refer to the point in evidence, but I know it's in there someplace.

496
We also have fully allocated out these costs to other subsidiaries at a fully allocated cost. So I don't think it's only one way, is what I'm trying to say.

497
MR. MORAN: I guess that's my question. Where do I find the evidence of the fact that it's not one way? If I were to look for that, where would I see it?

498
MR. PLAYER: I don't think that would be a problem for us to provide that to you, take that as an undertaking.

499
MR. MORAN: So it's not something -- Mr. Chairman, if we could make that undertaking, then. And just so we understand one another properly, Mr. Player, maybe you could describe the undertaking that you think you're giving to me.

500
MR. PLAYER: We will undertake to provide the allocations which Enbridge Gas Distribution identifies with other affiliated companies within the Enbridge family.

501
MR. MORAN: That will be Undertaking J.12.2, Mr. Chairman.

502
MR. BETTS: Thank you.

503
UNDERTAKING NO. J.12.2: UNDERTAKING TO PROVIDE THE ALLOCATIONS WHICH ENBRIDGE GAS DISTRIBUTION IDENTIFIES WITH OTHER AFFILIATED COMPANIES WITHIN THE ENBRIDGE FAMILY OF COMPANIES


504
MR. MORAN: Just one more example I wanted to explore, and that has to do with the name of the family of companies, Enbridge.

505
As I understand it, there's quite a deliberate attempt on the part of the companies to create a single brand for the group; right? That's why we see Enbridge everywhere, we don't see it broken down to Enbridge Gas Distribution when we're talking about Enbridge Gas Distribution. We just see the name Enbridge. It's at the bottom of the pre-filed evidence; it's everywhere. There's a creation of a brand.

506
Is that something that benefits the entire group of companies, or is it one that primarily benefits the public company?

507
MS. DuPONT: We believe it benefits the entire group of companies and also benefits the public company. But we believe that in the eyes of our customers and stakeholders, if the name Enbridge comes to mean reliable service, good reputation in the community, and a responsible corporate citizen, that that brings value to the organization and to the aspects of it.

508
MR. WILSON: I'd like to add to that if I could. I think some of the benefits that Mr. Player referred to on the financing cost side are a direct result of the benefit of the brand and the benefit of the larger organization associated with the brand. We would not be able to get for Enbridge Gas Distribution bank credit facilities at the -- on the fine terms that they're obtained and for which the ratepayers benefit without the Enbridge brand and size benefit, as an example.

509
MR. MORAN: I'm not sure who should answer this question, but does Enbridge Gas Distribution make donations?

510
MR. PLAYER: Yes, it does.

511
MR. MORAN: It does. And does Enbridge Inc. make donations?

512
MS. DuPONT: Yes, it does.

513
MR. MORAN: And I wonder if you could indicate what benefits flow from the making of donations on the part of Enbridge Gas Distribution first.

514
MR. PLAYER: We try to tie a lot of our donations around community-type activities where our ratepayers are involved.

515

So, for instance, we will do work, social programs, health-related programs, educational programs. They tend to be around those kind of activities where we can particularly benefit our ratepayers. I can't think of the particular programs to date, but I know in the past where we had programs related to individuals who are unfortunate enough not to be able to pay bills and get behind, and turning them towards a "Share the Warmth" type programs, "Out of the cold" type programs. We focus a lot in that direction.

516
I'm sure there's some information I could grab if I only knew it better. It's not part of my evidence.

517
MR. MORAN: And these kind of activities, I take it, go towards contributing to the goodwill of the company, of all the companies?

518
MR. PLAYER: They do, and I think that's important. I also happen to have responsibility for the customer care part of our organization, and it's one that's fairly sensitive to -- when people who run into difficult times are calling you and looking for some help, it's nice to be able to point to some organization which you're supporting that they can turn to.

519
MR. MORAN: And it's fair to see that when we see posters in the community with respect to events that are being sponsored. We typically see the name Enbridge on those materials, not Enbridge Gas Distribution or Enbridge Gas Services, it's just the brand; right?

520
MR. PLAYER: I think that's correct.

521
MS. DuPONT: That's true.

522
MR. MORAN: All right. So to some extent, then, these charitable donations go to supporting the brand from which everybody benefits; right?

523
MR. PLAYER: Yes. And to the extent that, I guess, Ontarians are investors in the company, are shareholders in Enbridge, I think referring to Mr. Wilson's comment in terms of raising capital, we indirectly get a benefit from it in that way coming right back to Enbridge Gas as we need equity and capital --

524
MS. DuPONT: Well, I would add to that, if I may. I think our perspective is also -- certainly our community investment activities do support the brand, there's no question about that, but we also are very selective in terms of our community investment activities in terms of support for the communities in which we operate and for the ratepayers in those communities.

525
So I think you may be aware that we are in the practice of donating to the Toronto Sick Kids Hospital and to the St. Elizabeth Health Centre, I believe, in Toronto.

526
We've also been very active in the Clean Air Partnership Smog Summit, so we've put some of the community investment dollars into environmental issues as well.

527
So yes, it's reputation management, if you will, it's enhancement of the brand, but it's also being attentive to the needs of the communities in which we operate and wish to maintain goodwill and positive relations with ratepayers.

528
MR. MORAN: When you say "we," just to clarify, you're talking about the group of companies or individual companies?

529
MS. DuPONT: Well, I'm talking about -- as I speak, I'm talking about the group of companies, and some of the dollars certainly come from the utility and some come from the core.

530
MR. DeWOLF: But I think to a large degree the people who participate in these events or -- that we sponsor see it through the view of their particular view. In that people in Ontario, when we sponsor the CN Tower Stair Climb, when we sponsor events in Calgary around -- in Ottawa around Winterlude and those kinds of things, they see that in a Gas Distribution context, because that's how they see Enbridge Ontario. They do not understand the connection with Pipelines and Houston, because they perceive Enbridge as being Gas Distribution.

531
Similarly, when there are event in Edmonton and Fort McMurray, the Pipeline sponsors it. The people that attend those functions and are involved in those charitable events see that through Pipeline's view, because they understand Enbridge Pipelines participants in their economy, and similarly in Houston.

532
So I think, to a large degree, those kinds of things are very much directed at the constituents of those areas in which they are done, and that I wouldn't think that unless someone from Edmonton or Calgary happened to visiting Toronto at the time we were doing the stair climb and promoting physical fitness and the United Way that they would then, again, see that in the context of the Pipeline, they would see it in the context of Gas Distribution.

533
MR. MORAN: Are the EI donations allocated?

534
MR. WILSON: I don't believe they are. Bonnie?

535
MS. DuPONT: I don't think they are, but --

536
MR. MORAN: Do you need to check that?

537
MS. DuPONT: Yes, if we could.

538
MR. MORAN: That will be Undertaking J.12.3, Mr. Chair, undertaking to determine if EI donations are allocated.

539
UNDERTAKING NO. J.12.3: UNDERTAKING TO DETERMINE IF EI DONATIONS ARE ALLOCATED

540
MR. MORAN: Are the EGDI donations allocated?

541
MR. PLAYER: No, they're not.

542
MR. MORAN: They're not.

543
Thank you, Mr. Chair. Those are all my questions.

544
MR. BETTS: Thank you Mr. Moran.

545
QUESTIONS FROM THE BOARD:

546
MR. DOMINY: I can't remember the evidence reference, but there was some discussion about the role of the CEO and the role of your senior committee in EI during the previous panel's hearing. And I wondered whether it was possible to get some understanding about where activities like strategic planning are carried out in this corporation. Is strategic planning activity carried out at the EI level or at the EGD level?

547
MR. WILSON: Well, I can speak for EI, and principally the strategic planning activities for the Enbridge group of companies are conducted at the Enbridge Inc. level, and there are corporate departments and costs related to that that are then allocated to the rest of the organization. That's not to say that Enbridge Gas Distribution does no strategic planning. They would be an integral part of the process, and within their own business unit, they will be formulating their own plans which would then work up toward the overall strategic plan of the company. And it's very much debated and discussed in the context of the larger entity.

548
Scott, I don't know if you want to add anything to that.

549
MR. PLAYER: Yes, only to say that we do not have a strategic planning department per se. We do have an individual who's charged with the responsibility for the strategic planning in Enbridge Gas Distribution, but it tends to come upon the responsibility of the entire senior management group to do that strategic planning. So we work together and we have an individual who more or less facilitates that work, and then through finance, we have the quantitative side of that as well, and it's brought together, but it very much dovetails up into the overall Enbridge Inc. strategic process.

550

MR. DOMINY: So with that structure in mind, I was wondering with regard to a decision such as outsourcing customer service or gas costs or those, where would that sort of decision be made? Would it be made at the EI level or at the EGD level?

551
MR. PLAYER: There's some good examples I think we've had recently to respond to that. And the ones that you have brought up are really done at the Enbridge Gas Distribution level, and if we believe that's what should take place, we put that recommendation forward to the rest of the organization in attempt to follow what that direction has been.

552
But we've had one with regard to the gas services, for instance, and we suggested that was an appropriate thing that we should be outsourcing.

553
And I repeatedly saw an article in a trade publication that really promoted that what Enbridge has done recently with regard to that gas services as an organization, it is absolutely state of the art. And we were fortunate to take a part of that. But we saw that as an advantage to this business unit, we wanted to be a part of it, and said that's something we want to do. It wasn't something that was foisted upon us, as an example.

554
MR. DOMINY: So I'm assuming that these decisions are made as a result of business cases that are presented. And so a business case would have been made for a decision to outsource customer services and that would have been presented at which level of Board?

555
MR. PLAYER: When you say the business services, is that the customer care service?

556
MR. DOMINY: Customer care services.

557
MR. PLAYER: Customer care services.

558
MR. DOMINY: Or any examples. You've also got a number of things that you've outsourced, and I wondered whether the business cases would have been presented.

559
MR. KENT: Perhaps we could, Mr. Dominy, talk about the IT help desk outsourcing that we recently engaged in. The opportunity was identified initially by Mr. DeWolf as a potential way of adjusting to changes associated with the change from the Enbridge Commercial Services environment to one in which the IT services were being provided from within the utility.

560
The opportunity came from that idea, and we explored it and felt that there was a larger opportunity across the whole organization. We concluded within the IT counsel that we should proceed and explore that possibility further, and we indeed found, as Mr. DeWolf pointed out, that there were significance savings for Gas Distribution by pursuing it on the part of the organization as a whole.


561
And that decision, I guess, was taken within the IT council. If we had not seen an opportunity Enbridge-wide, then I think it would still have been possible for Mr. DeWolf to proceed independently -- in fact, I know it will have been -- but the savings opportunity would have been smaller.

562
MR. DeWOLF: And yes a business case was put forward to that and delivered at the IT council, as these are the savings, these are the costs, up-front costs of integrating the IBM help desk into our organization, and it was agreed upon that the business case was solid and we went forward.

563
MR. DOMINY: This is the first Enbridge rates case I've sat on so I don't have the history that others may have, but my understanding is the customer service group went to an ECS to start with, and then from ECS to CWLP, and then from CWLP they contract we had Accenture.

564
MR. WILSON: That's right.

565
MR. DOMINY: And therefore, there are three decisions there. I was wondering if you could help me through, to explain to me, where the different decisions would have been taken and where the business cases would have been presented for those three staged decisions.

566
MR. PLAYER: Yeah, I think I can do that. And I've had the time now to think that one through, the order that we had.

567
So initially the customer care operations were in the Consumers Gas Company Limited and at that time, as you'll recall, there was the unbundling going on, and home services, retail services part of the business was going to be spun off into a different -- a different business.

568
We realized that if that took place, ratepayers were going to be disadvantaged, because we would have had lost the economies of scale in our customer support group, so we set up a shared services company, Enbridge Commercial Services to provide services to both of those organizations because they were affiliates at that point in time.

569
So that business case was done in the utility.

570
Then the next decision to go from Enbridge Commercial Services into Customer Works was really at a divisional level. We had set up a divisional structure to manage the -- the businesses in the east, if you will, so that was out of the utility at that point, because it was then in an affiliated company, Enbridge Commercial Services, so that separate business case was done, and then said well -- and I'll give you the rationale for it, because I think it's important to understand the progression here.

571

When we decided, not only as an affiliate, that the retail services business would have to go another step to become totally third party, because there was considerable angst, I think, amongst the different industry groups suggesting that that wasn't appropriate, that you would have the retail services group as an affiliate of the utility, and I can relate to the perception of that.

572
We said okay, fine, we'll take that out and make that a third party, arm's length type of relationship. But if we do that, once again, we've got the same situation we would have had when we unbundled the utility and took it out. We would have lost the economies of scale in our shared services group.

573
So at that point and thinking at the divisional level, and this was not at the Enbridge Gas Distribution level, was how do you retain the economies of scale, and when Customer Works was set up, that was relationship that you probably would know was done with BC Gas, a pooling of assets and an equal sharing -- a proportionate sharing, rather, of those assets.

574
So that was the line of thinking that was followed and where the decisions were made, if that answers your question.

575
MR. DOMINY: So after the first decision related to setting up a customer-service entity which was made in EGD, the others have been made at the EI level.

576
MR. PLAYER: At a divisional level above the --

577
MR. WILSON: But they've been done so, haven't they, Mr. Player, with the Gas Distribution utility considering and fully subscribing for and understanding the basis of the costs that are being charged back from that entity into the Enbridge Gas Distribution utility.

578
MR. PLAYER: Well, that's correct. And because of the contract that we have, whether it was in Enbridge Commercial Services, because we had a service-level agreement or whether it's an arrangement with the Customer Works operation, we had to be satisfied that not only the cost, but also the ability to get the service levels were required would be satisfied.

579
MR. BETTS: If I could just follow up on one question of Mr. Dominy's, you were referring to the fact that EGDI or maybe EC at the time would have to be comfortable with the costs of those changes. Who would have done that cost analysis?

580
MR. PLAYER: We had -- I mean internally there was a lot of work that was done to compare, but we had some benchmarking done to ensure that we were in the proper range, and I think -- I don't know, Mr. DeWolf, do you recall the name of that company who did the benchmarking work for customer care?

581

MR. DeWOLF: Ernst & Young did an evaluation on the IT part as we moved Commercial Services out, and I believe they did the other piece as well, but I don't think during those different evolutions of the customer service that the price that the cost to Gas Distribution changed during any of those different changes subsequent to them leaving.

582
We -- at the first time that they left and became part of Commercial Services, a price was set by call and by bill, and et cetera, and during all of the other changes, none of those costs to Gas Distribution changed because of those other changes.

583
MR. BETTS: That wasn't exactly my question. My question was who -- you indicated that there was a cost analysis done that would have been something that would have been standard process, and I understand that. And I'm just curious who did that analysis and who considered the analysis?

584
MR. PLAYER: Well --

585
MR. BETTS: I understand that there was some independent benchmarking done. Perhaps, in fact, is that in evidence at this point? If it is not, I wonder, could you undertake to provide that evidence, and perhaps with it, the cost allocation analysis.

586
MR. PLAYER: I guess what I'm thinking of is the evidence that Mr. McGill would have used in the customer support activity.

587
MR. BETTS: If it's there, perhaps you could --

588
MR. PLAYER: I just can't recall the name of the company, sorry.

589
MR. BETTS: Perhaps you could summarize it and provide it to the Board as an undertaking. That would be of assistance.

590
Mr. Moran.

591
MR. MORAN: Mr. Chair, that would be Undertaking J.12.4.

592
UNDERTAKING NO. J.12.4: UNDERTAKING TO PROVIDE INDEPENDENT BENCHMARKING AND COST-ALLOCATION ANALYSIS

593
MR. BETTS: I wanted to ask a question now, and I'm venturing into very thin ice for an engineer with not a strong financial background, so forgive me if I use the wrong terms or say something silly. Could I start out by asking what the credit rating is for EI?

594

MR. WILSON: Certainly. The credit rating for Enbridge Inc. is single A-Mid, by both Dominion Bond Rating Services and Moody's, and single A-low by Standard & Poor's.

595
MR. BETTS: Can you tell me what EGDI's credit rating -- does EGDI have a credit rating?

596
MR. WILSON: It most certainly does, yes.

597
MR. BETTS: What is its credit rating?

598
MR. WILSON: It's credited rating is single A-mid by DBRS, and single A-low by S&P.

599
MR. BETTS: This is where my inexperience will show, but is it not generally felt that utilities should carry a relatively high credit rating - not that A-mid or A is low by any means - but is it not generally felt that a utility should carry a relatively high credit rating just because of the regulatory structure that it works under.

600
MR. WILSON: I'd say generally that that comment is true, Mr. Betts. I think in Canada you see utilities ranging from BBB through to A-high. I don't believe there are any AAs, although Canadian Utilities may still have an AA rating.

601
And as there will be various reasons for the differences in those ratings. The regulatory structure, though, that you noted, is one which, quite frankly, is under significant review by one such agency, that being Standard & Poor's to determine the protections that it does offer, and there are some -- there are some questions in that rating agency's mind at this time.

602
MR. BETTS: I'm going to refer to one paragraph from the decision issued December of last year by the Board, and that was RP-2001-0032, and specifically, it's -- it's section 2.8.1, and no one needs to bring it up. It's short. I'll read it to you, and I'll reread it if you don't catch it. But again, 2.8.1:

603
"The Board is concerned that ECG's --" and that was Enbridge Consumers' Gas's name at that time "-- credit rating has been downgraded in part due to the ratings action on ECG's ultimate parent Enbridge Inc. (EI) and about the impact of the resulting additional costs of debt incurred by the utility."

604
It goes on to say: "The Board expects ECG to establish the reasonableness for the cost of debt for ratemaking purposes attributable to the utility alone and not as a result of any linkage between ECG's and EI's credit profiles."

605
Now, I'm not concerned about the last part of that. That might be dealt with in a different forum.

606

Where I'm coming from here is that, can you -- can you comfort me with some solid knowledge that, in fact, EGDI is not providing a benefit to the Enbridge family by offering a credit rating, which, in fact, improves the family's rating? If, in fact, it does provide such a benefit, can you indicate to me how it benefits financially in the cost allocation as a result of that?

607
MR. WILSON: Well, I think that because the credit ratings of all the Enbridge companies are virtually the same that there is no cross-subsidization of credit either coming from Enbridge Inc. to the Gas Distribution utility or working the other way.

608
If you saw a significant difference, you'd have to ask why that would be going one way or another, and does Enbridge Inc. get a benefit from the diversification of having the Gas Distribution utility ownership, a pipeline ownership, diversified into the Gulf Coast basin through its ownership levels there. I think the answer would have to be, Yes, it does, that there is a benefit for Enbridge Inc. from that.

609
But remember our earlier thesis in what the first panel was talking about, that activity on behalf of Enbridge Inc. and the capital that gets raised there is largely for the benefit of the business units, so it's a rather circular argument that we're talking about.

610
The Gas Distribution utility also gets a benefit from having a very strong and well-diversified parent company.

611
So I think I'd come back to the original comment that the credit ratings of the underlying subsidiaries in the parent company are virtually the same, and as such there is no such cross-subsidization.

612
MR. BETTS: Again, as a layperson looking at that, am I wrong in assuming that they are much the same, because they're basically guided financially by one body, and the wealth, in a sense, is managed by one body?

613
In a sense, would I not be surprised if they were different?

614
MR. WILSON: Well, I think you -- let me try and answer your question and if I don't get it, please ask me again.

615
MR. BETTS: I probably haven't asked it very well, but do your best.

616
MR. WILSON: I think what you're seeing is the fact that the credit risk profile of the Gas Distribution utility which makes up a third of the capital employed of the overall organization, of the Pipeline company Enbridge Pipelines Inc. and the U.S. partnership, and the other assets of Enbridge have relative credit profiles that aren't dramatically different. We don't have significantly different businesses within the Enbridge Inc. group of companies.

617

And the way that you might have seen with other -- with other conglomerate type companies in the past, Enbridge Inc.'s businesses and part of its investment thesis is to have stable, relatively predictable businesses, and they are all in the energy infrastructure business.

618
So that's why your -- you don't see much of a difference, and the credit rating agencies look at that, and that's why their relative credit ratings are quite similar.

619
MR. BETTS: Okay.

620
MR. DOMINY: I was thinking about the response I got to my first question as to whether -- and my understanding of the responses I received, and please correct me if I'm wrong, was that the initial decision was made at the EGD level, i.e., to go outside and, well, to create a separate organization to deliver those services.

621
The next one was made at the divisional level, which I assume is an element of the EI structure, the distribution division, or whatever you call it, which is the one which went into a partnership with BC Gas and created CWLP.

622
After that, then, there was the question of the -- I suppose it was the sale of the business to Accenture?

623
MR. PLAYER: I can't really comment to that, because I wasn't involved in that, but my understanding was that it wasn't a sale, but I'm the wrong person to ask.

624
MR. DOMINY: Well, whatever it is, the arrangement with Accenture, where would that division have been made?

625
MR. PLAYER: That would have been made at that divisional level or -- actually, probably an agreement between BC Gas and Enbridge or the joint venture partners in Customer Works. It was probably between those two companies.

626
MR. DOMINY: But probably the analysis from the Enbridge point of view would have been at the divisional level.

627
MR. PLAYER: Would have been the divisional level.

628
MR. DOMINY: Because clearly, obviously, two parties had to make a decision, it's a partnership, but the interests of the party had to be analyzed somewhere, and that will be the divisional level.

629
MR. PLAYER: Yes.

630
MR. DOMINY: Thank you.

631
MR. BETTS: That is all the questions of this panel. Thank you very much.

632
Just a couple of comments, and I mention this -- I mentioned this when we dealt with the first panel on corporate-cost allocation. If, in fact, some of the undertakings generate more questions, we may, in fact, have to recall one or more of the witnesses to help us with that.

633
The other thing just by way of procedure I'd like to comment on, I'm a little disappointed that basically -- and I believe this is correct, Mr. Cass -- we have received a verbal response to Undertaking 9.1, am I correct, or is there more to come?

634
MR. CASS: Well, I think there was a verbal response. I believe the undertaking response will still be filed. As to whether there's further information that can be provided in the written response, I can't say myself. I think we will do our best to provide as full a response as possible.

635
MR. BETTS: I did hear one of the witnesses indicate that we'll probably not get anything more than what we've heard orally, and that's fine, but if -- in those events, I would prefer to have a response to an undertaking that complicated in writing and as far in advance as possible so all the party cans fully digest it.

636
MR. CASS: Yes. Thank you.

637
MR. BETTS: And with that, I'd say, Thank you very much, witnesses. You've helped us, and we will move on to the next stage.

638
PROCEDURAL MATTERS:

639
MR. BETTS: And that probably brings me to ask this question: What is the next stage? Does anyone have a plan for tomorrow's day?

640
MR. CASS: That's a very good question, Mr. Chairman. During the lunch break when we realized that there was going to need to be a change the schedule, e-mails were sent out to see what could be done to advance the DSM issue. And as of the time we came back to the hearing room from the lunch break, we have nothing on that that could give us any encouragement that DSM would proceed tomorrow.

641

We're still hoping about Friday, and what we're contemplating is for CME to give -- or to have its witness on DSM on Friday, Energy Probe possibly Friday or Monday. GEC, we understand, is not available until Wednesday.

642
And over the lunch break, that was the best we were able to do. We certainly are at a bit of a gap in the schedule at this point in time.

643
MR. BETTS: Is there any possibility that we will have an answer to a potential schedule for tomorrow in a reasonable time to make plans today? In other words -- and if there was, how would you even communicate that?

644
MR. CASS: Yes, I think, Mr. Chairman, that realistically we can't get anything organized for tomorrow. Based on the responses we've had from the DSM people, there's just nobody who can come tomorrow of those that I just listed for you.

645
And really, the times -- the days that I listed for those three different parties, I think, are, sort of, best-case at this point in time.

646
I'm sorry about that. Again, we just learned of this need at -- this morning, and we did our best at lunchtime to get something underway as quickly as possible. But that's -- that's our best hope at this time that we have something for Friday.

647
MR. BETTS: And the panel does not hold you responsible for that. We realize that it's been a bit of a surprise to everybody, and we do appreciate you doing your best to try and fill that schedule.

648
Let me just confirm with my fellow panel member.

649
(The Board confers)

650
MR. BETTS: I guess I will ask this question: This is a little bit like having a living-room conversation in a very formal setting, but I'm going to try and do that. Is there any sense in attempting to schedule for Friday, or is it more sensible to say we will reconvene on Monday?

651
I will first direct that to the applicant. And certainly, confer if you'd like, and I'd like the other parties to consider that as well.

652
MR. CASS: We were talking about that at lunchtime, Mr. Chairman, I'm sure for the same reasons that you were, wondering whether there is a point in trying to do it for Friday.

653

Where we ended was just the concern about losing any more time than is absolutely necessary. So of course, subject to the Board's own timing, I think our view would be to try to schedule something for Friday if we can, just not to lose any more time than we absolutely have to.

654
MR. MORAN: Mr. Chair, one of the considerations in that conversation was ensuring that DSM could be completed by the 16th, and that would be more likely if we could schedule something for Friday rather than leaving it all until next week.

655
MR. BETTS: Okay.

656
Any other comments on that suggestion, or if anybody else has solutions that we haven't thought of yet?

657
Mr. Janigan?

658
MR. JANIGAN: I am mercifully not involved in DSM, but my colleague Sue Lott is, and she will be travelling from Ottawa.

659
Are we certain that things are going to be going ahead on Friday on DSM if we set them on Friday, I guess is the question.

660
MR. MORAN: Mr. Chair, if we can't finalize a decision right now, certainly Board staff could undertake to ensure that everybody knows in lots of time whether or not something is happening on Friday, if that's of assistance.

661
MR. BETTS: I think probably what would be appropriate, then, would be to have a cut-off time established by which we will decide either we're on or we're off.

662
And what is a practical cut-off time; noon tomorrow? If we circulate a decision at noon tomorrow, whether there's a hearing on Friday or not?

663
Is that satisfactory, particularly in your case, Mr. Janigan? Would Ms. Lott be able to make plans accordingly?

664
MR. JANIGAN: I think that might leave enough time. Perhaps ten o'clock tomorrow might be a little better.

665
MR. BETTS: That would be satisfactory to me.

666

Let's do that. We will say that at ten o'clock tomorrow morning we will make a decision as to whether or not we will hear on Friday or whether we will postpone until Monday. And we will e-mail or fax all of the parties that information at or around ten o'clock in the morning, and we will ask everybody to do their best.

667
And, Mr. Cass, by all means, the Board agrees totally that we're interested in keeping this moving. It's a long and intense process, and we certainly don't want any delays if they can be avoided.

668
Any closing comments?

669
Then we will certainly be adjourning for sure until Friday morning and possibly until Monday morning. And stay close to your fax machines until Thursday at ten.

670
Thank you all. We will stand adjourned.

671
--- Whereupon the hearing adjourned at 2:12 p.m.