Rep: OEB Doc: 12RX8 Rev: 0 ONTARIO ENERGY BOARD Volume: 2 9 JULY 2003 BEFORE: R. BETTS PRESIDING MEMBER B. SMITH MEMBER F. PETERS MEMBER 1 RP-2002-0143 EB-2002-0423 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF a Notice of Intention to Make a Compliance Order under section 75 of the Ontario Energy Board Act. 3 RP-2002-0143 EB-2002-0423 4 9 JULY 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel NABIH MIKHAIL Board Staff HAROLD THIESSEN Board Staff JAMES SIDLOFSKY Casco MARY ANNE ALDRED Hydro One ANDREW LOKAN Power Workers Union RICHARD KING TransAlta Energy Corporation 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [21] SUBMISSIONS BY MR. SIDLOFSKY: [52] SUBMISSIONS BY MR. KING: [166] SUBMISSIONS BY MS. ALDRED: [203] SUBMISSIONS BY MR. LOKAN: [335] REPLY BY MR. SIDLOFSKY: [360] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:00 a.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good morning, and welcome back to day two of this matter related to application number RP-2002-0143. Yesterday we completed the evidentiary portion of the hearing and today we are here to sit and receive oral arguments from four parties, or four participants in the hearing, the two primary parties and two intervenors. 17 Before we begin, are there any preliminary matters? 18 MS. ALDRED: No. 19 MR. BETTS: Being none? 20 MR. SIDLOFSKY: Just a question, sir. 21 PRELIMINARY MATTERS: 22 MR. BETTS: Yes, Mr. Sidlofsky. 23 MR. SIDLOFSKY: I wonder if Hydro One has managed to find an answer to its undertaking on the Transmission System Code submissions. 24 MS. ALDRED: We have it downstairs, actually, yes. 25 MR. SIDLOFSKY: Sir, maybe I can help because I have it with me this morning. So if Ms. Aldred can confirm that what she would be handing out is what I've got, we can probably take care of that. 26 MS. ALDRED: That's fine. 27 MR. BETTS: That's fine. Thank you. 28 MR. BETTS: And that is a response to Undertaking 1.3, if I have that recorded correctly? 29 MR. SIDLOFSKY: I believe that's right, sir. 30 MR. BETTS: Thank you. 31 MS. ALDRED: I can confirm that that's the undertaking that we would have supplied, yes. 32 MR. BETTS: Thank you very much. 33 There were two other undertakings from yesterday, I believe one for each of the two primary parties. Can anyone give the Board a status report on those? 34 MR. SIDLOFSKY: Sir -- sorry. 35 MS. ALDRED: On the undertaking that we had, which was the calculation, we now have all the raw data that we need to do that calculation. And we anticipate that we can provide the undertaking by the end of this week. 36 MR. BETTS: That would be Friday afternoon? 37 MS. ALDRED: That would be by Friday. Yes. 38 MR. BETTS: Okay. Let's take that as the latest possible time. 39 MS. ALDRED: All right. 40 MR. BETTS: Anything earlier would be appreciated. We will want to consider that in our decision. 41 MS. ALDRED: We'll do our best. Thank you. 42 MR. BETTS: And Mr. Sidlofsky, there was one for you as well, or your witnesses. 43 MR. SIDLOFSKY: Sir, Mr. Gardner has just gotten a note over to me. He discussed with his plant manager at Casco's Cardinal plant Cardinal Power's capability to provide backup utilities - steam, compressed air, and water - during times when Cardinal is not generating electricity. The advice that Mr. Gardner has received is that if Cardinal Power provides prior notice of an outage, then Casco will know that Cardinal's not generating. Cardinal Power has a package boiler that will provide up to 75 percent of the steam requirements of Casco if the Cardinal generation is down. Other utilities can be provided despite an outage. 44 So what Mr. Gardner advises me is, that may have an impact on some of their processes because they're not able to operate at full capacity with the steam that they would normally get from the Cardinal Power plant. But I think that does answer the undertaking. 45 MR. BETTS: Thank you. And I believe that undertaking was requested by Mr. Moran. Is that satisfactory? 46 MR. MORAN: I think so, Mr. Chair. Yes. 47 MR. BETTS: Thank you. 48 I believe, then, we are ready to proceed with final arguments, and we will hear from Casco, TransAlta, Hydro One, and the Power Workers' Union, if that order is satisfactory. Does anyone see a better order to follow? 49 MS. ALDRED: That's fine. Thank you. 50 MR. BETTS: That's fine. Thanks. And then we will hear reply from Casco. 51 So, Mr. Sidlofsky, please proceed. 52 SUBMISSIONS BY MR. SIDLOFSKY: 53 MR. SIDLOFSKY: Sir, I told the Board yesterday that I expected to be relying on my argument in the Abitibi matter, both Abitibi's initial submissions -- thanks for moving there, sir. I appreciate that -- both Abitibi's initial submissions of June 30th, 2003, as they were revised slightly on July 2nd, and on the reply submissions of July 7th, 2003. And I'm happy to confirm this morning that I still intend to do that. So I expect that my comments will be fairly brief. 54 Frankly, I don't think that a large number of items were raised in yesterday's hearing that haven't already been addressed, argued, and considered at length in the Abitibi proceeding. So I don't think it would assist the Board a great deal if I took you through those arguments again, chapter and verse. 55 Now, I will focus on a couple of items that aren't so much different from what was dealt with in the Abitibi hearing, but they've been expanded upon a bit in the context of the Casco hearing. If I could start out, though, with a couple of comments on what makes Casco and Abitibi similar. 56 In both situations, we have loads and generators within an industrial complex. They're highly integrated operations, with steam and other products also being supplied by the generator. The generation is connected at transmission voltage. The load doesn't own the output of the generator. The generator that's on the same complex produces the electricity that powers the load. Both the load and generation are behind the meter that registers electricity supplied from the regulated transmission system. In Abitibi's case, that was meter 1 in the exhibits; in the Casco-Cardinal case, that's meter 225 at the remote switching station that connects Cardinal Power's transmission facilities to those of Hydro One. 57 Both Abitibi and Cardinal are exempt from licensing, and you've heard references to non-licensed transmission. Both of those systems are non-licensed. In fact, it goes a little further than that. Not only are Abitibi and Cardinal exempt from licensing requirements, but they're exempt from any requirements that we would submit can be reasonably understood to constitute a regulated transmission facility. 58 Now, as I said when we were adjourning yesterday, I advised the Board that I anticipated adopting my argument, both initial and reply, from the Abitibi proceeding. And having had an opportunity to review the transcript from yesterday's hearing, I'm even more convinced that that's the correct approach. 59 You might recall that in my opening statement I noted a number of reasons that Hydro One raised in its witness statement for denying the relief requested by Casco, and I predicted that you would hear them in the oral evidence in the Casco hearing. 60 Those included the fact that Casco purchases its power from the wholesale market and not from Cardinal Power; that Casco doesn't own the Cardinal Power generation; that Casco has historically paid for electricity on a gross basis; that Casco makes use of the Hydro One transmission system to purchase power from the IMO-administered market and to receive power quality support; and that the Cardinal generation was not installed for the purpose of supplying all or part of Casco's load. 61 As you know, each of those reasons was acknowledged by Hydro One in the Abitibi proceeding as being irrelevant to the determination of whether a generation facility will be considered embedded generation. And the customer to whose electrical system the generation is connected will be eligible for net-load billing. But for a short while yesterday those reasons were back. Hydro One did, as predicted, rely on them again in opposing Casco's requested relief. I say "for a short while" because in cross-examination Hydro One's panel acknowledged that they were standing by their answers in cross-examination from the Abitibi proceeding. Accordingly, those factors appear irrelevant again. 62 I'm not going to take you through a detailed discussion of each of them. What I will do is refer you to my June 30th submission in the Abitibi proceeding where you will find the extracts from the Abitibi transcript that establish their irrelevance. For the contractual arrangements for the output of the generation, I'd refer you to page 12, paragraph 4(f)(3)(b); for ownership of the generation, page 12, paragraph 4(f)(3)(a); for historical gross-load billing, the reference is to a Hydro One response to an Abitibi interrogatory, Abitibi interrogatory number 5, regarding treatment of LDCs with respect to pre-market opening gross-load billing and post-market opening net-load billing, and that can be found at page 13, paragraph 4(f)(3)(c) of the June 30th Abitibi submission. And a similar response was given by Hydro One to Casco interrogatory number 5. 63 For the fact that Casco makes use of the Hydro One transmission system to purchase power from the IMO-administered market and to receive power quality support, I'd refer the Board to pages 21 and 22 of Abitibi's June 30th submission, as updated July 2nd, just so the Board can follow the correct pagination, at paragraph 4(h). 64 I'd also remind the Board of the Hydro One panel's acknowledgement, yesterday, that a party does not have to be a transmission customer in order to participate in the IMO-administered market. 65 Finally, with respect to the reason for installation of the generation, I'd refer the Board to page 14, paragraph 4(f)(3)(d) of the Abitibi June 30th submission. 66 In the Abitibi proceeding you heard that at least one customer, Inco, receives the equivalent of net-load billing by way of aggregation of delivery points, but that same treatment would not be extended to other customers because Inco had installed generation, even though it was at a transmission voltage prior to October 30th, 1998, to serve its own load. 67 Hydro One adopted that policy, relying on its stakeholder process in RP-1999-0044 that was effectively rejected by the Board when the Board rejected the draft settlement agreement in the face of the Board's transmission decision and rate schedule that provide for billing on a per-delivery-point basis. 68 And yet Hydro One maintains that it cannot decide to apply an interpretation of the rate order based on its understanding of evidence in the RP-1999-0044 proceeding on which the Board may or may not ultimately have based its decision or on a glossary of terms provided in that proceeding. 69 For more on this, I'd refer the Board to page 12 of Abitibi's July 7th, 2003 reply submission. 70 You heard the Hydro One panel maintain, yesterday, that the Cardinal transmission system remains regulated because certain sections of the Electricity Act and the OEB Act would still apply to Cardinal Power. I'd refer you to page 8 of Abitibi's reply submission of July 7th for a review of the sections referred to by Hydro One at that time. 71 As you will see, Hydro One has failed to identify any legislative provisions that would reasonably lead to the conclusion that Abitibi's transmission facilities form part of the regulated transmission system. 72 Hydro One, yesterday, added a few sections to the list contained in its argument, and as I said, sir, there are really only a couple of items that have been expanded upon in yesterday's testimony. This is this is one of them. 73 Dr. Poray cited section 32 of the Electricity Act, which establishes the IMO as the authority to make market rules. This is applicable to all market participants. They don't apply to unlicensed transmitters to any greater or lesser extent than any other entity connected to the IMO-controlled grid. Even those not connected, even those market participants not connected, will be subject to the market rules if they want to participate in the IMO-administered markets. 74 Dr. Poray cited section 40, powers of entry of transmitters or distributors on to land on which the transmission or distribution system is located. 75 As with section 4, which was discussed in the Abitibi reply -- excuse me, as with section 41 discussed in the Abitibi reply, this section actually relieves Cardinal from restrictions that might otherwise apply to a person's right of access on to private land. 76 Section 42 allows transmitters and distributors to use land subject to an easement or other right in favour of that transmitter or distributor in order to provide telecom services. Again, this is an expansion of property rights. 77 Section 42.1: Easements in favour of generators. Transmitters or distributors for those purposes, that is, for the purpose of generating, transmitting or distributing electricity, don't have to be pertinent to or annexed to or for the benefit of any specific parcel of land to be valid. Again, this is an expansion of property rights; this is not a restriction on Cardinal. 78 Section 43: Easements in favour of transmitters and distributors will survive tax sales of the land in respect of which the easements have been granted. Once again, an expansion of rights. 79 Section 44: Property of a transmitter or distributor that has been affixed to realty does not become part of the realty. It doesn't become a fixture. Which means it's not subject to seizure, and that's covered by section 45. 80 Once again, sections 44 and 45 represent expansion of rights and not restrictions on a transmitter. 81 Section 46: Lands subject to rights under section 48 of the Power Corporation Act continues to be subject to those rights, and the rights can be transferred to certain entities. Again, this isn't particularly relevant to Cardinal Power, or it certainly doesn't represent a restriction or a regulatory imposition of any kind on Cardinal that could reasonably be interpreted as creating in Cardinal the identity of a regulated transmitter, or making Cardinal's transmission system a regulated transmission system. 82 Dr. Poray also cited section 103 of the OEB Act that relates to the right of entry onto land without consent for the purpose of inspecting, altering, maintaining, repairing, renewing, disconnecting, replacing or removing a work or part of a work, where leave for the construction, expansion, reinforcement or making of an interconnection was granted by the Board. This follows on section 92, which is the leave-to-construct section, and that was addressed in Abitibi's submission. 83 Leave-to-construct applies to any person, as I mentioned there, transmitters, generators, loads or distributors. The regulation of Cardinal bears no relationship to Cardinal's status as an exempt transmitter, that is, the regulation of Cardinal through section 103 of the OEB Act. 84 As I've said, sir, the same arguments for Abitibi still hold true for Cardinal, and nothing that was added, none of the sections added yesterday by the Hydro One panel, have changed that. 85 Secondly, in the Abitibi proceeding, the Board heard about the "slippery slope" issue. And the suggestion was that if the relief being requested by Abitibi is allowed, others will try creative reconnection and rates for other remaining customers will go up. 86 Once again, I would rely on the Abitibi submissions in this regard. And I'd refer you to paragraph 4(k) at page 24 of the June 30th Abitibi submission as updated. 87 As in the Abitibi submission, we heard the Hydro One concern about the "slippery slope," and that was supplemented a bit in this proceeding by a couple of exhibits that showed you what might possibly happen or could possibly happen one day, or over the course of a few years, if the Board allows the relief that Casco has requested. 88 Now, first of all, there is no slippery slope here. As for similar situations to that of Casco, I went through this in the Abitibi submission as well, there happens to be Abitibi. And Abitibi's situation is acknowledged by Hydro One as being unique. There is Inco, which already enjoys what amounts to net-load billing, but what Hydro One won't acknowledge as net-load billing because they'll call it aggregation of delivery points. But, as you've heard in the evidence in Abitibi, the net effect is the same. No pun intended there, sir, but at the end of the day Inco is receiving net-load billing. 89 Hydro One indicated in its response to Casco interrogatory number 6 that there may be one or two other situations like that of Casco. But certainly there are no "floodgates" issues simply by the Board dealing with the Casco request. 90 As we've discussed, Hydro One is actively involved in the Transmission System Code review proceeding. In September of 2001 - and this is what gets me to Hydro One's response to yesterday's undertaking - in September of 2001, Hydro One proposed clauses for the connection agreement, and that is Appendix A to the Transmission System Code, that would be implemented by way of amendments to the agreement, and which would prevent bypass. 91 In the package that I handed you, which Hydro One agreed would be the response to Undertaking 1.3, there is an attachment referred to. There are actually a couple of references, first of all, in the letter of September 27th, 2001, which is probably a third of the way through the package I handed up to you. 92 Now, sir, a number of those proposed amendments to the Transmission System Code don't deal with the bypass issue. And if I could take you to page 3 of that Hydro One September 27th, 2001 letter, Hydro One proposes a new section 10 for the code, actually code appendix 1, schedule B, a new section 10. And that is a couple of small paragraphs dealing with what Hydro One terms "protection of transmission customers." It's a requirement that would be in the code that "the transmitter shall include the requirements set out in schedule B of appendix 1 in all connection agreements with customers." 93 Hydro One also proposes a new section for appendix 1, schedule B, and that would be section 10. And you can find that right at the end of that letter. That letter is five pages long. Attachment 1 is a new section for schedule B of appendix 1. And once again, appendix 1 of the Transmission System Code is the transmission connection agreement. That's quite a lengthy section, and I'm not going to quote it to the Board. That's quite a lengthy section that would ostensibly protect customers from transmission bypass. Effectively, it prevents, or it would prohibit bypass of Hydro One's transmission facilities. 94 That letter is almost two years old now, sir, and as I discussed with the Hydro One panel, Hydro One has made a number of submissions in the Board's Transmission System Code review proceeding. Those submissions, in part, consistently relate to prevention of transmission system bypass. Now, yesterday the Panel said that the proposed bypass clauses or no-bypass clauses would relate to new construction or new facilities, because the panel's understanding was that those clauses were in their construction-cost recovery agreement. So that would relate to new correction. Clearly, on the facts, clearly, on the basis of the correspondence that's already filed with the Board, that's not the only area in which Hydro One is addressing bypass issues and proposing to prevent bypass on a broader scale. 95 As I said yesterday, sections 29.2 and 29.3 of the transmission connection agreement deal with amendments to that agreement by the Board. That's exactly what Hydro One is proposing and has been proposing for almost two years now. The Board can order amendments to the agreement, and that would require all customers, or -- the amendments that are ordered could require all customers, existing and new, to abide by the no-bypass clauses that the Board ultimately adopted. 96 So in terms of the "slippery slope" argument, and the scenarios that Hydro One put to you yesterday of what in one case amounted to sort of a multi-year stealth program to bypass the transmission system by going from load to load with lines of less than two kilometres, that is something that not only can be addressed by the Board in the Transmission System Code proceeding, but that's a scenario that is being addressed by the Board in the Transmission System Code proceeding. Hydro One can certainly approach the Board at any time to ask for an amendment to the connection agreement, or to ask the Board to initiate a proceeding in that regard, even in subsequent years, if this were to turn out to be a legitimate issue or a real issue. And at this point, as I said in Abitibi, it's only speculation. 97 Ultimately, as you heard in Mr. Moran's cross-examination, Hydro One, perhaps if it didn't get the satisfaction it was looking for from the Board, could drop by and approach its shareholder. 98 What is new from yesterday's hearing isn't the spectre of transmission system bypass; it's really only the drawing of possible real-life scenarios. All of the examples given by Hydro One involve the building of new facilities to bypass and make redundant the existing Hydro One facilities. And, sir, this is entirely different from the Casco situation, as it was different from the Abitibi situation. There's nothing being bypassed here. 99 Now, yes; eight years ago the Casco load was disconnected from Hydro One's 44 kV line at the Morrisburg TS, but to imply that Casco should be billed on a gross basis because of that and the alleged stranding of transmission system capacity eight years ago ignores fact that no other transmission customer that left a transformer station and was connected to what Hydro One would consider true embedded generation eight years ago would be required to continue paying transmission on a gross basis, on account of that. 100 Fundamentally, sir, as in Abitibi, what Hydro One is attempting to do by demanding gross-load billing is placing Hydro One's financial interests above fairness and above arbitrary results. 101 Now, one thing I will repeat is the relief that's been requested by Casco in this matter. Casco has requested that the Board confirm that Casco is not subject to transmission charges, as it's not a transmission customer of Hydro One; that the Board direct Hydro One to take all the steps necessary to ensure that no transmission charges are levied against Casco or collected by the IMO on account of Casco's load, or from Casco; and that the IMO billing and settlement process for Casco reflects no charge for transmission in respect of the Casco-Cardinal plant. 102 Third, that the Board order Hydro One to reimburse to Casco with interest all payments which may have been made by Casco to the IMO, or to any other person on account of transmission; fourth, that the Board, if necessary, amend Hydro One's transmitter license so as to prohibit Hydro One from imposing transmission charges in respect of the Casco plant; and finally, that the Board order Hydro One to pay all of Casco's costs related to this proceeding. 103 Now, sir, as you would find at page 14 of the April 3rd update to Casco's initial submission to the Board, if the Board were to find Casco a transmission customer and subject to transmission charges, the only appropriate basis for billing Casco remains on a net basis. And the reason for that is as we've submitted at length in the Abitibi matter. 104 Billing Casco on a gross basis, whether as a transmission customer in its own right or indirectly by billing Cardinal Power, perpetuates the effectively discriminatory treatment that Casco has received since 1995 when the Cardinal plant became operational, and that is because contractually Casco was required to buy its power from the bulk system on a gross basis, and that included transmission. And it imposes rates on Casco that bear absolutely no relationship to the level of transmission service that's taken by Casco. 105 If the Board continues Hydro One's practice of imposing gross-load billing on Casco, Casco will continue to pay half a million dollars per year to move its electricity ten feet within its complex, when the closest Hydro One assets, the closest regulated assets, the closest licensed transmitter, is approximately five miles away from where this activity is taking place. 106 Sir, as I said in my reply submissions in the Abitibi proceeding, I finished that reply by quoting two sections from the Board's transmission decision. Paragraphs 3.2.27 of the decision and 3.2.33. 107 At 3.2.33 the Board adopted net-load billing, and net-load billing was intended to reflect the level of transmission service taken by customers. And what the Board said, because I think it's instructive to repeat it, is that: 108 "On balance, then, the Board finds that net-load billing shall apply to network transmission service. Current users of the transmission system will continue to pay for the level of transmission service they use. 109 "In the Board's view, given the circumstances presented, net-load billing for network service is a fairer, more practical, and simpler system to apply. It removes the arbitrariness inherent in gross-load billing, it removes the uncertainty over future transmission pricing for embedded generation, and it does not frustrate the objectives inherent in open access, particularly the opening up of the energy market to alternative generation. 110 "The Board recognizes that there will be some cost impacts as a result of its findings, but they ought to be mitigated by anticipated developments in new generation." 111 And as I've said in Abitibi, sir, there are no cost impacts on existing transmission customers should you determine that Casco either is not a transmission customer and shouldn't be billed at all, or that Casco's load should be billed or at least the load -- the level of transmission that Casco takes from the regulated transmission system should be paid for. And Casco doesn't necessarily dispute that. What Casco has indicated is that if there is a transmission customer here, it's Cardinal Power. 112 And in Mr. Gardner's evidence yesterday, you heard Mr. Gardner indicate that that would be a matter, the matter of passing on the transmission charges that might be attributable to Casco's load, is a matter between Casco and Cardinal. And Mr. Gardner is confident that that is a matter that can be worked out. 113 In short, on that point, no one's suggesting here, sir, that Hydro One would not be compensated in some way for the level of transmission service that it provides, that is, when power is flowing from the regulated transmission system. However, as you've also heard, in the normal case that doesn't happen, despite the fact that on occasion there have been outages at the Cardinal Power facility. 114 Going back to section 3.2.27 of the Board's decision, the Board notes that: 115 "Gross-load billing for network services would necessitate highly complex rules and regulations that would have nothing to do with the level of transmission services taken or the cost of providing transmission service. 116 "Among other things, these rules would place some industrial customers on whom gross-load billing would be imposed at an unfair disadvantage, compared to their competitors who, by historical circumstance, enjoy net-load billing." 117 Sir, that's exactly what's happening here. There are complex rules and regulations being applied that have absolutely nothing to do with the level of transmission service that's being taken by Casco from the regulated transmission system. 118 Casco is, in the normal course, taking no services from Hydro One and no services from any other transmitter that's subject to rate regulation and a party to the uniform pooled transmission rate order and the allocation tables that form part of the Board's order in that regard. 119 An interesting example of the highly complex rules and regulations and the arbitrariness of imposing gross-load billing on Casco is that if Casco were to connect to the Cardinal generator at a distribution voltage, we wouldn't be here. Again, distinctions are being drawn based on the voltage at which the transmitter and the load are being connected. 120 Sir, that's not fair. That's not reasonable. That's arbitrary. And that, again, simply illustrates an attempt by Hydro One to protect their own financial position while denying the facts of this case and while denying the level of transmission service that Hydro One provides. 121 As we said in Abitibi, open access provided an opportunity to have transmission charges reflect the level of transmission service used. That should be the case for Casco, as it is for any other transmission customer, whether or not Casco itself is a transmission customer. Charges attributable to Casco should only reflect the level of transmission service that's being used, whether that's by Casco or by Cardinal, whichever way the Board decides in terms of who the transmission customer is here. 122 If I could ask for your indulgence for just a moment, sir. 123 Thank you, sir. I expect I may have some reply comments, but that will be it for now. 124 MR. BETTS: Thank you. 125 We're just pausing to consider whether we have questions, Mr. Sidlofsky. And we do. 126 Mr. Smith. 127 MR. SMITH: Mr. Sidlofsky, you mentioned the two Hydro letters and an attachment concerning the Transmission System Code review. And with respect to the attachment, I think that you said it refers not only to new construction but to existing. And I wonder if you could point to me the actual words referring to... You'll recall Hydro's argument was that they were only going to -- that the other proceeding dealt with new facilities and wouldn't cover the Nanticoke or Thunder Bay situation, which they had brought up. And your argument was that they were, in fact, making submissions about that, and would cover that as well. 128 I just wondered if you could point to me the paragraph that you're referring to. 129 MR. SIDLOFSKY: Well, sir, maybe I could start this way. 130 What the Hydro One panel told you yesterday was that the clauses that would prevent bypass arose in the context of Hydro One's construction cost recovery agreement. So in the context of new construction, where a customer, a transmission customer, were to approach Hydro One asking for work to be done, Hydro One would require the customer to sign an agreement that would confirm how Hydro One would recover the costs of that work. 131 Now, I don't have a typical Hydro One construction cost recovery agreement in front of me, but what I can tell you is that it relates to the process, and the process is set out in the Transmission System Code, of conducting an economic evaluation to determine whether the incremental transmission rates that will be, for lack of a better term, generated by the expansion of the transmission facilities will be recovered through the transmission rates that will be applicable to that customer, that is, through the incremental transmission revenues. 132 So in the context of new construction, Hydro One is going to say, on the other hand, how much is it going to cost to operate and maintain this expansion, assuming that the expansion is going to be pool-funded and not funded by the customer itself, because then they would be outside of the pool. So Hydro One says: What will it cost to construct, operate, and maintain this expansion, and on the other hand, what do we anticipate recovering in incremental transmission revenues on account of this? 133 And they do that evaluation. And they want to make sure that if there's a shortfall, that's recovered by way of a capital contribution. That's all incorporated into a construction-cost recovery agreement. So in that way, the customer, the transmission customer, will confirm that it's going to make the capital contribution; it will likely also confirm in that agreement that it will meet certain load guarantees so that Hydro One's estimates of the revenues they were going to receive over time actually are borne out. 134 One aspect of the Transmission System Code review proceeding arose because of an application to the Board by Ontario Power Generation. As I recall, it was Ontario Power Generation; it may have been Brighton Beach Limited Partnership, but the point is -- Mr. Snelson tells me it was OPG. But the point is that in that proceeding, which was actually parallel to Hydro One's requests for amendments to the Transmission System Code -- in that proceeding, OPG took Hydro One to the Board saying that what they were doing in requiring the cost recovery agreement to be signed and including no-bypass clauses in that agreement was beyond the scope of Hydro One's license. Ontario Power Generation's application was for an amendment to the Hydro One license. Now, that proceeding was incorporated into the Transmission System Code review proceeding. 135 This is a long way of saying that what Hydro One's panel told you yesterday was that, for new construction, they were proposing certain clauses in the construction-cost recovery agreement. 136 There's another side to it, and that's the part that the panel wasn't quite there on yesterday. And the other side of it is that Hydro One has asked for amendments to the agreement, to the transmission connection agreement, that is part of the Transmission System Code. It's Appendix A to the Transmission System Code. All transmission customers would be required -- well, I shouldn't put it that way. 137 Hydro One, because the Transmission System Code doesn't apply to the customer; the Transmission System Code applied to the transmitter, Hydro One is required to enter into a transmission connection agreement with its transmission customers. Transmission customers are those customers that are connected to the Hydro One system. 138 You heard the panel yesterday on how -- and I'll paraphrase here -- but the idea seemed to be that they were sort of cleaning up a loose end here because they were concerned that Casco was sort of out there and was a transmission customer but it was connected to unlicensed transmission, so they thought maybe they should enter into an agreement with Casco. Casco's not connected to Hydro One; I think we can all agree on that. 139 But the point here, in the context of the Transmission System Code, is these proposed amendments to both the code and the agreement would apply to transmission customers that have agreements with the transmitter. That means that these no-bypass clauses would apply to Imperial Oil in the context of their existing transmission connection agreement with Hydro One, assuming the Board, as is completely within the Board's jurisdiction to do, requires an amendment to the transmission connection agreement. 140 And if the Board makes that amendment universally, and Hydro One hasn't suggested that it shouldn't be made universally, then that will apply to both existing customers and new customers, regardless of whether there's existing or new construction. Because, actually, construction relates more to that parallel agreement that we're dealing with. 141 I hope that's not too long an answer. If I could ask for one moment, please. 142 MR. BETTS: Sure. 143 MR. SIDLOFSKY: Sir, Mr. Snelson points out that at page 3 of Hydro One's letter of September -- 144 MR. SMITH: Which letter? 145 MR. SIDLOFSKY: Sorry, September 27th. 146 MR. SMITH: Yes. 147 MR. SIDLOFSKY: At the bottom of page 3. 148 MR. SMITH: Mm-hm? 149 MR. SIDLOFSKY: Hydro One is proposing a new Section 10 for the code. And that section would read: 150 "The transmitter -- under the heading "Protection of transmission customers" -- the transmitter shall include the requirements set out in schedule B of appendix 1 in all connection agreements with customers." 151 There's no indication there that it's connection agreements with new customers, connection agreements that relate to new construction. 152 MR. SMITH: Thank you. 153 MR. SIDLOFSKY: Okay. I'll stop now, on that. Anybody else want to ask a question now? 154 MR. BETTS: No. Thank you. That's all the questions the Board has. 155 MR. SIDLOFSKY: Thank you, sir. 156 MR. MORAN: Mr. Chair, if I might, there is a couple of things I'd like to draw to the Board's attention, with respect to the question that was just asked by Mr. Smith. And I'll be very brief. 157 Mr. Sidlofsky has already taken you to Hydro One's proposal, which is to require in all connection agreements a no-bypass clause and that's their proposal in the TSC proceeding. I think what's important to understand about what's going on in the TSC proceeding, is two things. The first is that bypass has been squarely identified as one of the issues that will be addressed in the TSC proceeding. If you look at the procedural order, which is a matter of public record, which attaches to the issues list, you will see in Phase 1 of the proceeding the issue of bypass is going to be addressed, "When is it appropriate to allow bypass to happen?" And at the end of Phase 1 a number of policy decisions will be made, including the policy decision on bypass. 158 Then you go into Phase 2, and Phase 2 is about rewriting the code to implement the policy decision from Phase 1. And if we look at the issues list again for Phase 2, one of the issues on the issues list for Phase 2 is "Given the policy decisions and given the changes in the code that result from the policy decisions, what should happen to existing agreements?" 159 And so the issue is on the table and potentially existing agreements can be changed to reflect new policy decisions, including, for example, a no-bypass rule exactly along the lines that Hydro One is proposing. So that's the framework and the context for the bypass issue. 160 MR. SMITH: To summarize both answers, it's on the table. 161 MR. MORAN: It's on the table. 162 MR. SMITH: Thank you. 163 MR. SIDLOFSKY: We probably could have said that. 164 MR. BETTS: Thank you. Mr. King. 165 MR. KING: Thank you, Mr. Chair. 166 SUBMISSIONS BY MR. KING: 167 MR. KING: Casco has put before the Board two issues here, namely, one, whether Casco is a transmission customer. If not, then Casco cannot be billed transmission charges set out in the Ontario Transmission Rate Schedule. End of story. 168 The second issue they've put before the Board is their alternative argument. If Casco is a transmission customer, then can Cardinal Power be treated as embedded for the purposes of billing Casco for transmission? 169 Now, given the way that those two issues have framed the record, it seems to me that there are three ways that the Board can decide this dispute. 170 First is to decide in Hydro One's favour, namely that Casco is a transmission customer. That would put the delivery point at the transformer station at meter 224, which is right at the Casco load. And it would also require the Board to find the Cardinal Power plant cannot be considered embedded. And I'll explain why later on we believe Casco is not a transmission customer and why the Cardinal Power plant is embedded generation. 171 Now, the second way the Board can decide this matter is to find that Casco is a transmission customer; that the Cardinal Power generation is, nevertheless, embedded for the purposes of Casco bills. And again, this is Casco's alternative argument. And it was the argument, essentially, advanced in the Abitibi case. 172 And the final way the Board can decide this is Casco's primary argument, namely, that Casco is not a transmission customer and therefore not liable for any transmission charges. And if it decides this, then the question of whether Cardinal is embedded or not becomes moot. It doesn't matter. 173 TransAlta's position is that this last way is the most appropriate way to find in this matter. And it's important to note that this is slightly different than the argument advanced in the Abitibi case. And the difference is a consequence of the different ownership of the transmission facilities that connect to Hydro One. In the Abitibi case, the load was the transmission customer. And the load, namely, Abitibi, asked the Board to treat its on-site generation as embedded. 174 In this case, it is the generator that is the transmission customer. And in our view, everything is just simpler and more straightforward if the definitions of transmission customer and delivery point are placed at the end of the licensed transmitter's system. 175 So let me deal with the primary argument of Casco; namely, whether Casco is a transmission customer. The definition of transmission customer in the current rate schedule is as follows: 176 "Entities that withdraw electricity from the transmission system in the province of Ontario." 177 And that's what we have to interpret. And the key issue, again, is what is the meaning of transmission system as that phrase is used? Is it the transmission assets owned by the four licensed transmitters? Or do you expand it to include all unlicensed transmission assets in the Province of Ontario? And again, it's TransAlta's position that the former interpretation is the more appropriate. And the reason for this is fairly straightforward. 178 For context, let's examine the evolution of the transmission rate schedule. In the January 2001 rate schedule, following Hydro One's rate proceeding, a transmission customer is defined as -- and I'll quote: 179 "...entities which own those facilities that are directly connected to the transmission system owned by Hydro One Networks Inc." 180 That definition obviously made Cardinal a transmission customer but does not make Casco a transmission customer. 181 Now, this January 2001 rate schedule was superseded by the April 2002 Ontario rate schedule. And that's the current rate schedule. Now, this newer rate schedule was issued following the Board's decisions in the rate proceeds of the three other licensed transmitters; namely, Canadian Niagara, Great Lakes, and Five Nations. 182 So, in other words, the new rate schedule reflects the pooled revenue requirements of Hydro One and the other three licensed provincial transmitters. The definition of transmission customer, then, in the new rate schedule was amended to remove the specific reference to the transmission system of Hydro One, and instead, to refer to the larger transmission system. And in our view, that expansion was meant to capture the transmission systems of the other three transmitters. It was not meant to be expanded to include the assets of these three other transmitters and all other privately-owned high-voltage equipment in the Province. 183 Now, support for this, I think, can be found by examining the bottom of the two rate schedules in the box labelled "Board order." If you look at the January 2001 rate schedule, that box referred to the 44 proceeding. If you look at the April 2002 rate schedule, that box has been amended to include references to the rate proceedings of all the four licensed transmitters. 184 So, again, it's clear in our view that the move to incorporate the transmission assets of Great Lakes, Canadian Niagara and Five Nations into the new rates schedule could not have had the effect of turning Casco into a transmission customer. 185 Casco receives its power over private, high-voltage facilities attaches to onsite generation. To consider Casco a transmission customer that attracts transmission charges would have the effect of allowing the four transmitters to earn revenue on transmission assets that are not part of any licensed transmitter's rate base. 186 Simply put, it's our view that to be a customer of one of the four transmitters that earn transmission revenue, you have to be connected to one of the four transmitters. 187 And again, if the Board accepts this argument that Casco is not a transmission customer, then the matter is at an end. We don't need to consider whether Cardinal is embedded or not for the purposes of determining how Casco ought to be billed. 188 Now, if the Board does not accept Casco's argument that it is not a transmission customer, then TransAlta supports Casco's alternative position that it should be billed on a net basis because the Cardinal facility is embedded. And the definition of embedded generation in the Board decision refers to: 189 "Generation that is located behind the meter that registers the electricity supplied from the regulated transmission facilities." 190 The Cardinal-owned transmission facilities are not licensed and they are not regulated. Mr. Sidlofsky, this morning, took you through the sections that Hydro One referred to yesterday in the Electricity Act, and the Ontario Energy Board Act. And it was Hydro One's contention that those sections made them regulated. 191 It's our submission that that does not make you regulated. Those sections would apply to anyone owning high-voltage transmission assets. To say that you are regulated because those apply to you would make the word "regulated" meaningless. At a minimum, "regulated" has to mean licensed. 192 So the meter that registers electricity supplied from the regulated transmission facilities in Casco's case must be meter 225. And because Cardinal is generation behind that meter it is embedded. 193 Now, Hydro One has a different view of embedded generation, and they took us through that in the Abitibi case. And it turns, essentially, on whether you are connected at distribution voltage. And they get that interpretation -- that flows from their interpretation of the two phrases in section 3.2.1 of the RP-1999-0044 decision. And those two phrases are "behind the meter" and "not connected directly to the transmission system." 194 In the Abitibi case, I urge the Board to reject Hydro One's interpretation of "embedded generation" for three reasons. And I won't repeat them in detail here, but I would ask the Board to refer to my argument in Abitibi. And in summary, those three reasons were as follows: 195 First, there was insufficient discussion of what wouldn't or would not constitute embedded generation in RP-1999-0044. Simply put, not every permutation was contemplated, nor every permutation could be contemplated. 196 Second, the Hydro One definition of embedded generation leads to arbitrary and unfair results. Those with existing on-site generation connected at distribution voltage are fortuitously billed on a net-load business base. Those unfortunate enough to have connected at high-voltage, likely for legitimate technical or economic reasons, are out of luck. 197 And the third reason to reject Hydro One's interpretation of embedded generation is that it is unnecessarily complicated. It entails looking at how transmission customers move power internally within their industrial complexes. It turns out there has been nothing in this proceeding that would cause it to change its views about Hydro One's interpretation of embedded generation. So I would again urge the Board to reject Hydro One's interpretation of embedded generation. 198 So, in summary, we would submit that the Board should find that Casco is not a transmission customer, and in the alternative, if the Board finds that it is, that the Cardinal generation be treated as embedded. 199 Those are my submissions. 200 MR. BETTS: Thank you. 201 The Board Panel has no questions. Thank you very much, Mr. King. 202 Ms. Aldred? 203 SUBMISSIONS BY MS. ALDRED: 204 MS. ALDRED: Thank you. 205 We will also be adopting those portions of the Abitibi argument which are applicable to the facts of this particular proceeding. 206 We're before the Board, as we were two weeks ago, responding to a notice of a compliance order which would require Hydro One Networks to comply with its transmission license. The notice advised the company that the Board intends to make this order based on evidence submitted to it which indicates that Hydro One is not in compliance with section 19 of its transmission license, which requires Hydro One to charge transmission rates only in accordance with its transmission rate order dated April 30th, 2002. 207 This is a serious matter with potentially serious consequences for both Hydro One and its other transmission ratepayers. Hydro One submits that the evidence clearly demonstrates that the company is, and has been, in compliance with its transmission license. We await the Board's confirmation of those facts in this decision. 208 Firstly, I'd like to talk about the license requirement. 209 Within this context it is helpful to revisit exactly what Hydro One's transmission license provides. Section 19 states: 210 "The licensee shall not charge for the transmission of electricity or for connection to its transmission system except in accordance with a rate order approved by the Board." 211 At different times during this proceeding and in the Abitibi case that preceded it, parties have suggested that Hydro One should not rely solely on the definitions and provisions contained within the rate order when determining how that rate order is applied. They suggest that Hydro One apply altered definitions in order to suit their particular circumstances so as to avoid paying transmission charges. That is clearly not what the license states is a utility's obligation. 212 The legislative framework and the transmitter's license do not grant Hydro One the right to apply rates on the basis they believe to be appropriate or intended. It says: 213 "The licensee shall not charge for the transmission of electricity or for connection to its transmission system except in accordance with the rate order." 214 That is not to say that the spirit of the decision, the intent of the Board, or evidence that was presented in the RP-1999-0044 decision are not captured within the rate order; we would submit that they are. The process that was followed to stakeholder issues, hear evidence, and ultimately approve the order, provided sufficient controls to ensure that the ultimate order was reflective of the decision and the intent and evidence on which it was based. 215 The transmission rate order was developed at the end of an exhaustive review process that began with an intervenor stakeholder-ing in May of 1999. Evidence was developed incorporating the conclusions from that stakeholder-ing process and a hearing took place from February 16th, 2000, to March 9th, 2000. Arguments were filed and a decision was reached in May of 2000, following which a further round of stakeholder consultation on a draft rate order was undertaken. 216 A final rate order was issued on January 15th, 2001. This process lasted 17 months from beginning to end, with the participation of many parties, including Mr. Snelson, who appeared on behalf of AMPCO, and also representatives from TransAlta, Abitibi, and many other intervenor representatives. 217 The Board can find a sample of the evidence that was provided in the RP-1999-0044 proceeding at Exhibit 1.7 to this application. The exhibit includes stakeholder consultation material, evidence exhibits, transcript and settlement agreements that demonstrate that a fulsome discussion did take place respecting the issues of transmission customers, delivery points, embedded generation, and delivery point aggregation -- the matters that are being debated here in the context of Abitibi and now Casco. The issues were explored and a decision was reached. 218 In the end, the Board approved the stakeholder-ed rate order, and the rate order has been applied in accordance with our license. 219 I note that although that should have been enough, there was another round of evidence, argument, and consultation which took place as a provincial uniform transmission tariff was developed during the spring of 2003. 220 Notwithstanding this process, Casco, like Abitibi, claimed that the issues weren't fully explored, or alternately, that rate orders are not reflective of the evidence, decision and intent. I would respectfully suggest that such a claim has no basis in fact. The process followed in preparing the order was appropriate; the evidence was expansive; and the order must be applied. 221 What does the rate order say? Section A of the terms and conditions reads as follows: 222 "The rate schedules herein pertain to the transmission service applicable to the provision of provincial transmission service to the transmission customers who are defined as the entities that withdraw electricity from the transmission system in the province of Ontario." 223 I note that this provision requires that rates apply to transmission customers who are connected to the transmission system. There is no exclusion for those that have unlicensed transmitters located between the load and the IMO-controlled grid to which they ultimately connect. 224 Section A goes on to express where these schedules do not apply, and I quote: 225 "These rate schedules do not apply to the distribution services provided by any distributors in Ontario, nor to the purchase of energy, hourly uplift, ancillary services or any other wholesale charges that may be applicable in electricity markets administered by independent electricity market operator of Ontario." 226 Again, there's no exclusion for transmission customers that are connected to unlicensed transmitters. 227 Section C of the rate order's terms and conditions reads as follows: 228 "The transmission delivery point is defined as the transformation station owned by a transmission company or by the transmission customer which steps down the voltage from above 50 kV to below 50 kV and which connects the customer to the transmission system. 229 Footnote 1 of rate schedule PTS elaborates further on this point by stating: 230 "The demand megaWatt for purposes of this rate schedule is measured as energy consumed during the clock hour on a per-transmission-delivery-point basis. The billing demand supplied from the transmission system shall be adjusted for losses as appropriate to the transmission point of settlement, which shall be the high-voltage side of the transformer that steps down the voltage from above 50 kV to below 50 kV at the transmission delivery point." 231 Clarification respecting the meaning of "transmit", "transmission system", and "transmission customers" is provided through legislation. And "transmit" is defined through section 56 of the OEB Act as meaning "to convey electricity at voltages of more than 50 kVs. The lines on the Casco property and the lines emanating from the property are all rated at more than 50 kV, and the electricity which is being conveyed on those lines is being conveyed at transmission voltages. 232 Now "transmission system" is also defined in the Act, and it means: 233 "A system for transmitting electricity and includes any structures, equipment, or other things used for that purpose." 234 Again, if we examine what occurs at the Casco site and on the surrounding Hydro One lines, we see that electricity is, in fact, conveyed at more than 50 kV. And the Casco and Cardinal Power power facilities are therefore connected to the transmission system. 235 As I indicated earlier, there is no mention in the Act, in the orders, or in the rate schedules themselves of ownership issues. None of the governing laws make any distinction as to whether facilities are part of the transmission system based on their ownership of the line. 236 In Hydro One's submission, it is clear from the legislation that the 115-kV line on the Casco site forms part of the transmission system. The fact that the provincial transmission system does include the 115-kV transmission line owned and operated by Cardinal Power was confirmed by Dr. Poray in his evidence in the transcript of the Casco proceeding at 946. 237 Cardinal Power, therefore, is a separate transmission customer. Firstly, it is connected to the transmission system; and secondly, it is connected at a separate delivery point, which is located at its own step-down transformer, as per the delivery point definition in the rate schedule. And that was filed as Exhibit 1.11. The 115-kV line on the Casco property forms part of the provincial transmission system by virtue of the legislated definition of transmission system. 238 Together these sections indicate quite clearly that in the instance of Casco and the Cardinal Power generator, there are two distinct delivery points where transmission charges must be applied, since there are two connections to the provincial transmission system as defined by the rate order. 239 In addition, there are four other questions that must be considered so that we can determine how Casco and Cardinal Power are to be billed. 240 The first is: Is the Cardinal Power generator embedded generation, and therefore is its output to be netted from the demand Casco places on the provincial transmission system? 241 Secondly, was the Cardinal Power generator historically treated as load displacement generation, and does it therefore qualify for net-load billing treatment? 242 Thirdly, can the Cardinal Power generation and the Casco delivery points be aggregated so that the effect is similar to net-load billing? 243 And fourthly, are transmission customers that are connected to unlicensed transmission relieved of regulation and of an obligation to pay transmission charges by means other than the wording of the Transmission Rate Schedules? 244 I'd firstly like to deal with the issue of embedded generation. That's really the nub of the matter, as the proponents in both Abitibi and Casco cases desire to establish, that in both cases the generators in question are embedded with the load. 245 Now, Mr. Sidlofsky suggested in his argument in the Abitibi matter, and again, I believe this morning, that there was inconsistency between the oral evidence given by Hydro One in the Abitibi proceeding as compared to Hydro One's argument as of June 30th, 2003, and the evidence given yesterday. And I believe the basis for this inconsistency is the perception by Mr. Sidlofsky that Hydro One witnesses agreed with Board counsel during their cross-examination that neither ownership of generation, contractual arrangements, historical gross billing, and reasons for installation of generation matter in establishing eligibility for net-load billing. 246 But an examination of the transcripts indicates that this is not the case and I would just like to refer you to one excerpt from the transcript at volume 2, lines 807-816. And I do have that page just photocopied, if it would be convenient just to receive that, or I can just read it. It's not a very long excerpt. Would you like it? 247 MR. BETTS: You might as well read it for the record, Ms. Aldred. 248 MS. ALDRED: I'll read it for you. So, if we start at paragraph 807, and I would submit this is where the cross-examination started, which led to the conclusion that I think Mr. Sidlofsky has drawn. It's cross-examination by Board counsel. 249 Mr. Moran says, "Dr. Poray, just one last question for you. I want to take you back to the scenario, that's Exhibit 1.7. The last scenario I want to explore with you, the last variation of scenario C in figure 1 that I want to explore with you is this: Load 2 owns generator B; right? In this scenario? And generator B is not owned -- I'm sorry. Load 2 does not own generator B, but generator B is hooked up at low voltage, so generator B is a separate company from load 2, but generator B delivers its output to load 2 at low voltage." 250 So twice he says "low voltage." Then he says: 251 "Would you consider that to be an embedded generator? 252 Dr. Poray says: "Yes, I would." 253 And then Mr. Moran continues: 254 "All right. So where that takes us, then, is that ownership is not really the issue. It's not whether the generator is owned by different entities, it's really a question of the physical arrangement, and in your view, the physical arrangement has to include a low-voltage connection." 255 And Dr. Poray agrees. And then the cross-examination continues, and I won't take you through it, but that is the inception of that line of questions. And the question that's put to Dr. Poray includes a conclusion already that the generation is embedded, and then, in my submission, Dr. Poray then understands that he's talking about embedded generation already. He's not talking about the qualifications for embedded generation, and he continues to answer the questions. 256 So, just to continue with my argument. Casco could be relieved of the obligation to pay transmission charges for the portion of its load that is served by the Cardinal Power generator if Cardinal Power meets the definition for embedded generation. The issue of embedded generation is addressed in the decision with reasons from RP-1999-0044. The definition of embedded generation is included at paragraph 3.2.1, on page 25 of the decision with reasons. In order for the Cardinal Power generation to qualify as embedded it must fit squarely within this definition. And the Board stated: 257 "Generation that is not connected directly to the generation system and is located behind the meter that registers the electricity supply from the regulated transmission facilities is referred to as embedded generation." 258 The definition gives us two criteria for determining whether or not a generator is embedded for the purposes of the decision and the rate schedules which arise from it. 259 This test is a two-part test. This is consistent with the testimony given by Hydro witnesses at this proceeding, and in the event, the decision with reasons from that proceeding governs and it includes two components in the definition. 260 The first part of the test for embedded generation is that it cannot be connected directly to the transmission system. As we've already seen, Cardinal Power generator is directly connected to the transmission system at 115 kilovolts. It fails the test for embedded generation for that reason alone. And Mr. Sidlofsky himself said this morning, "If Cardinal were connected at distribution voltage, we would not be here." And we agree. 261 There is no room for misinterpretation of this requirement that the generator not be connected at transmission voltages. The generator must be distribution connected and the Cardinal Power generator is transmission connected. 262 Dr. Poray confirmed that the phrase "not connected to the transmission system" can only mean distribution connected in the Abitibi case, at volume 2, 1416 to 1423. And there's no evidence to the contrary. 263 Furthermore, the market rules in Chapter 11, section 1.1.115 define embedded generator as follows. I can hand this out, if you wish. But I'll just read from it now. 264 "Embedded generator means a generator within the IMO-controlled area whose generation facility is not directly connected to the IMO-controlled grid but is instead connected to a distribution system. An embedded generation facility shall be interpreted accordingly." 265 And then, just so there's no doubt, section 1.1.1.106, also of the market rules, defines distribution system as follows: 266 "Distribution system means a system for distributing electricity and includes any structures, equipment or other things for that purpose." 267 And section 1.1.1.106, also defines distribute as follows: 268 "Distribute with respect to electricity means to convey at voltages of 50 kV or less." 269 Now, secondly, in order to qualify as embedded generation, the generator must be located behind the meter that registers the electricity supplied from the regulated transmission facilities. The Cardinal Power generator does not meet this test either, as it is not located behind the Casco meter which registers Casco's demand. This was confirmed by Mr. Gardner in his cross-examination at paragraph 230 of the transcript. 270 That leads us to Mr. Toneguzzo's testimony. He explained that the Casco load is measured by reading meter 224, located on Casco's property. The output of the Cardinal Power generator, he said: 271 "The output of the Cardinal Power generators is metered by the IMO by adding the reading of meter 224, which registers Casco's demand to the value of meter 225, which registers the flow in the transmission line run by Cardinal Power." 272 And that's found in the transcript at paragraphs 1078 to 1083. 273 Mr. Toneguzzo went on to explain that transmission charges are calculated at a delivery point. As indicated earlier, the rate schedules define the delivery point for any given customer as the point at which the power is withdrawn from the transmission system by that customer. And the rate schedule tells us that a delivery point is the point where the power is transformed from transmission voltages to distribution voltages for use by the customer. 274 Cardinal Power generator is connected at the transmission level. It has its own delivery point. Cardinal Power generator is, therefore, not behind the meter which registers the amount of power Casco withdraws from the transmission system, and it's not eligible for treatment as an embedded generator. 275 Now, historically, Cardinal Power sold all of its power to the provincial power pool at premium rates. To deliver these sales they required the same line as they do today in making deliveries to the IMO market. And that's found in the transcript, volume 1, 1084 to 1089. 276 Casco purchases all of its power from this market. Cardinal Power is and has been contractually bound to sell all of its power into the market, and Casco has and continues to buy all of its power from the market. The only way that power can be delivered to Casco is for the power to be delivered by the provincial transmission system. The amount of power Casco withdraws from the provincial transmission system is, and has been, measured at the delivery point. Excuse me. This is where Casco facilities transform the voltage from above 50 to below 50 kV. Accordingly, there was and is no basis for treating the Cardinal Power NUG as load-displacement generation. Therefore, Cardinal Power and Casco were not afforded the same historical treatment as was given to Inco. 277 Now I'd like to talk for a minute about aggregation. Aggregation involves the combining of delivery-point meter measurements at the transmission level. If such combining of delivery-point measurements were permitted for the Casco load and the Cardinal Power generation as measured at their separate delivery points, then the effect would be similar to net-load billing, although different rules apply. 278 Section C of the transmission rate schedule does provide for aggregation in certain instances, but as Mr. Paterson indicated in his testimony, this does not apply at all to Casco and Cardinal, as the rate schedule only allows for the aggregation of demand, and not supply with demand. The plants must be owned by the same entity, which is not the case with Casco and Cardinal. And those references are in the transcript, paragraphs 1034 to 1040. 279 To be sure that the Board understands that the rate order is not vague in this regard, I will read from section C to reinforce this conclusion that the load of Casco and the generation of Cardinal Power cannot be aggregated, A, because they are not commonly owned; B, because the aggregation of load with generation is not permitted; and C, because Casco and Cardinal have separate transmission connections and separate delivery points. And it reads as follows: 280 "The demand registered by two or more meters at any one delivery point shall be aggregated for the purpose of assessing transmission charges at that delivery point if the corresponding distribution feeders from that delivery point or the plants taking power from that delivery point are owned by the same entity within the meaning of Ontario's Business Corporations Act." 281 Aggregation as defined by the rate schedules does not apply to the Casco/Cardinal circumstance. 282 I'd like to turn now to the issue of regulated versus non-regulated. As Dr. Poray indicated, unlicensed transmitters, in Hydro's submission, remain subject to many of the provisions of the Ontario Energy Board Act, the Electricity Act, the market rules and the surrounding framework of regulation. That's in the transcript from 970 to 982. 283 A non-licensed transmitter is relieved from only one section of the Electricity Act and some four sections to have OEB Act. The rest of the Electricity Act and the Ontario Energy Board Act and the surrounding framework continue to apply. 284 Furthermore, as acknowledged by Mr. Sidlofsky in argument this morning, the market rules apply to non-licensed transmitter. The market rules are regulation. And I would submit it's odd to come to the conclusion that a non-licensed transmitter is an entity who can operate without any regulatory oversight. Clearly, the market rules are regulatory oversight. 285 It is therefore clear, in my submission, that although these non-licensed transmitters have been relieved by regulation of the need to obtain a transmission license, they're still regulated. Therefore, the transmission lines which they own are most definitely regulated under the applicable legislation. Indeed, this paradigm is essential in a province to regulate non-licensed transmitters for, in the absence of such regulation, the IMO would not have any jurisdiction over these transmitters, even when such oversight is essential for the safe and reliable operation of the IMO-controlled grid and for operating the electricity markets. 286 Now, if I could turn to the matter of unlicensed transmission. Casco relies quite heavily on the fact that it is exempted by virtue of regulation 20/02 -- well, actually, Cardinal Power is exempted from regulation 20/02, from having a transmission license. The distinction Casco is trying to make with regard to non-licensed transmission owners is quite important to its case. It's also important for regulation of transmission in Ontario. 287 Essentially, Casco is trying to argue that a customer that is connected to unlicensed transmission is not subject to pay transmission tariffs. The distinction made by regulation 20/02 does not alter the manner in which the system is used, as Mr. Toneguzzo indicated in his evidence. Hydro One's facilities continue to be essential to Cardinal Power and Casco. Casco and Cardinal continue to rely on the transmission system for transmission services. That's found in the transcript at 1084 to 1089. 288 Mr. Toneguzzo told us that based on the Hydro One records, even on a physical flow basis, Casco relied on generation other than Cardinal Power seven times during 2002. Neither Casco nor Cardinal Power have requested disconnection from the licensed transmission system. And it's clear that they continue to benefit from their connection to it. 289 Regulation 20/02 was intended to relieve a party whose primary business was not electricity transmission from the administrative requirements of the license. As Dr. Poray indicated, regulation 20/02 does not permit a non-licensed transmitter to provide transmission services to a third party, i.e., Casco. The regulation allows licensed transmission to use unlicensed facilities to convey electricity from the IMO-controlled grid to Casco. The fact that there is a private agreement between Casco and Cardinal Power is not relevant, as the witness admitted. It is therefore not clear how Cardinal Power is able to provide transmission services as contemplated in that agreement. And at any rate, that agreement does not bind the Board. 290 To summarize, then, this section of the argument, Casco must pay transmission service charges. Cardinal is a separate transmission customer connected to the system through its own delivery point, connected to transmission. Indeed, both of these entities are connected to regulated transmission. Therefore, Casco must pay transmission charges on the basis of its own demand from the transmission system exclusive of Cardinal Power generation. 291 Furthermore, as acknowledged in the direct evidence of Mr. Snelson yesterday, allowing an entity to escape paying transmission charges, by virtue simply of locating in such a way as to be connected to the system through a line owned by an unlicensed transmitter, will cause a shortfall in transmission revenue. This shortfall will have to be addressed by increasing rates for other transmission customers at future rate-setting transmissions. 292 The potential for rate increases due to such reconnection to unlicensed transmission as a result of the decision in this case was reviewed in Mr. Pattani's evidence at 1118 to 1145. Opportunities do exist for generators to reconnect to the provincial transmission system in a manner that would take advantage of the definitions that Casco argues that the Board should adopt. Mr. Pattani, in his evidence yesterday, was talking about new arrangements in response to this decision, not existing arrangements. 293 Mr. Sidlofsky made the point this morning that there are very few existing arrangements that could take advantage of this particular decision. But Mr. Pattani was actually talking about new configurations that people could put in place. 294 Now the Transmission System Code review was noted as a potential avenue to address this problem. Hydro One notes that it's far from clear what the outcome of that proceeding will be or the timing of that outcome. And furthermore, any decision that you make in this case may prejudice or prejudge the result of part of that Transmission System Code proceeding. I think it would also be fair to say that the proceeding as it's now constituted seems to be contemplating more, not less, bypass. 295 Mr. Smith asked a question of Mr. Sidlofsky about the transmission connection agreements, and I think the issue he was asking was whether they would apply retroactively to existing customers. And Hydro One is not aware of whether the Board will ultimately decide either to put in the non-bypass clauses that it has requested or whether, in fact, if they did make their way into the transmission connection agreements, what decision the Board would come up with in terms of whether those should be applied retroactively or not. 296 A further note I'd like to make is the construction-cost recovery agreement, which Mr. Sidlofsky was referring to this morning, does not apply to construction of non-licensed transmission and therefore does not really provide any relief in terms of being able to amend that agreement in order to address potential bypass situations. 297 Now, just before I come to my conclusion, there's a couple more matters I'd just like to address briefly. I referred you to some of the transcript references. And there's just a few more references which I'm not going to read out for you but which I would like to have on the record and they come from the cross-examination of Mr. Sidlofsky, at the end, to have proceeding after Mr. Moran had finished his cross-examination. And if you are interested later you could look at paragraphs 1027 and 1028 and 1026-1042, in terms of the questions that were asked and the answers that were given. 298 MR. SIDLOFSKY: I'm sorry. What was that second reference? 299 MS. ALDRED: Sure. No problem. References were 1027, 1028, and 1026-1042. 300 MR. SIDLOFSKY: Thank you. 301 MS. ALDRED: Now, one last matter before I wrap up. 302 Mr. Sidlofsky this morning referred to the decision with reasons and specifically he referred to paragraphs 3.2.27 and 3.2.33. And, in fact, these paragraphs were referred to in the Abitibi case as well. I would just like to point out that these particular paragraphs are part of a discussion by the Board, at that time, on how to treat new embedded generation. And as you will recall, the Board had accepted, and, in fact, all the stakeholders agreed, that existing embedded generation should continue to be net-load billed. 303 So the discussion that's taking place here in the decision is talking about, Okay, we're going to net-load bill existing. Let's talk now about how to treat new embedded generation. So you should read those paragraphs in that context, that it was a discussion about how to treat new embedded generation, not existing. 304 Now, finally, if the Board were to decide that Cardinal Power is Casco's embedded generator, this would create a serious concern for Hydro One. Firstly, it would require the Board to alter the definition of "embedded generation" and this is clearly outside the scope of this proceeding, that deals with Hydro One's strict compliance with its transmission license. It would also require the Board to alter or modify two key definitions, which are transmission customer and delivery point. 305 Second, it would have a significant impact on rates paid by the remaining customers across the Province. As evidenced in Mr. Pattani's testimony, such a decision by the Board would open the door for other customers to undertake a number of creative reconnections of existing generation to avoid paying rates. 306 As stated at the outset, the notice of hearing provided the framework for the hearing and the relevant determination to be made, and it clearly stated that it was a compliance hearing. The issue for determination has been to determine whether Hydro One has been charging in accordance with the rate order, as required by its license. 307 Although, clearly, Hydro One can only apply the rate order as it is written, much of the debate at this hearing seemed to centre around how to rewrite the order slightly in order to apply it differently to the Casco fact situation. 308 Hydro One has no ability to alter the definitions and provisions of the decision with reasons, as it is bound by the rate order as it is written. And I note that although Casco and Abitibi had originally requested the Board to alter the rate schedules if necessary, they seem to have now abandoned that claim. So they, too, take the position that the rate order must apply as it's written. 309 However, the very fact that Casco acknowledges that the definitions need to be modified to fit the Casco fact situation should demonstrate that Hydro One is properly applying the order as it is written. 310 Hydro One cannot decide to apply an interpretation of the rate order based on other parties' suggestions as to the manner in which it should be altered. Definitions in the rate schedule are there in black and white, and they must apply as they are written. 311 Cardinal Power and Casco are separately connected to the transmission system. They are separately owned, and accordingly, have distinct delivery points that are subject to independent tariff calculations. 312 Cardinal Power is not a load-displacement generator, and therefore, is not given relief for the payment of transmission charges on the basis of its historic treatment. 313 Cardinal Power was economically justified based on selling power at premium rates into the Ontario power pool, and now the IMO-administered market. It was never envisaged that Cardinal Power or Casco would extract additional value related to avoiding transmission rates at the expense of Ontario transmission ratepayers. 314 Cardinal Power is not distribution-connected or behind Casco's meter that registers the supply it withdraws from the transmission system, and accordingly, is not an embedded generator. Cardinal Power generation and the Casco load cannot be aggregated under the provisions of the rate schedule, which consider aggregation of load only at a given delivery point. 315 Furthermore, Cardinal Power cannot, under the existing legislation, provide transmission services to Casco. Moreover, regulation 20/02 clearly states that Cardinal Power provides its transmission facilities to enable Hydro One to convey electricity to Casco from the IMO-controlled grid. 316 And lastly, the distinctions raised by Casco respecting unlicensed transmission are a red herring. Casco, which is connected to Cardinal's transmission facilities, continues to depend on the provincial transmission system for service in accordance with regulation 20/02. Casco has made no request to be separated from the grid. They need it and they use it. 317 It is clear, and for the reasons cited in this argument, Casco and Cardinal Power remain obligated for transmission charges based on their unique delivery points. Hydro One is, therefore, properly applying the rate order as it was worded by the Board in its decision with reasons, and should therefore, be found to be in compliance with its transmission license. 318 Thank you. 319 MR. BETTS: Thank you. 320 Ms. Aldred, one question I have for you relates to the argument put forward by Casco and, in fact, the application and the relief sought by those parties. 321 Is there anything, any comments you want to make to the Board, if the Board were to find in favour of Casco, with respect to those items of relief? If you're not prepared to, that's fine. 322 MS. ALDRED: Those items of relief now exclude the amendment of the rate schedules. So the items of relief, then, would be that Hydro One reimburse Abitibi and Casco. 323 MR. BETTS: Correct. 324 MS. ALDRED: And be instructed to charge in accordance with the findings that the Board made. 325 MR. BETTS: Correct. 326 MS. ALDRED: No, I really don't have any comments on that. That's what they request, and I don't really have any comments on that, other than the fact that we hope that you don't make that finding. 327 MR. BETTS: I can understand that fully. And don't take from my question that there's any decision made in that respect. 328 And there was also relief sought in terms of their costs for the proceeding. Any position that you wish to express on that? 329 MS. ALDRED: Yes. We would oppose that request for costs. We've had four days of testimony and argument now on this proceeding, and I think the Board can see that this is quite a complex issue. There was a lot of debate here today. From our viewpoint, we're properly applying the rate order and it is clear cut, but you hear Abitibi and Casco argue exactly the opposite. 330 In our view, if Abitibi and Casco were to prevail, Hydro One should not have costs awarded against it. We're certainly here in the honest belief that we are properly following the rate order and properly adhering to our license. So I would oppose that request, if it were made. 331 MR. BETTS: Thank you very much. 332 Mr. Lokan. How long do you think you will need? 333 MR. LOKAN: No more than ten minutes. 334 MR. BETTS: Then let's try to take your arguments in, and we will take a short break and come back for reply, then. So Mr. Lokan, please proceed. 335 SUBMISSIONS BY MR. LOKAN: 336 MR. LOKAN: Thank you. 337 Firstly, we rely on our submissions filed in the Abitibi proceeding, so I will try not to repeat those too much. 338 Secondly, we adopt Hydro One's submissions in this case. 339 The Power Workers' Union asks the Board to look at this case on a system-wide basis. Casco participates in the wholesale market. It buys all of its power from the wholesale market. The IMO-controlled market entails a series of bids from generators throughout the province. These bids are accepted at escalating prices until supply matches demand. 340 In short, it's a mechanism for ensuring that power is available to all customers in the province at the lowest possible price. That's regardless of where the power is produced, whether it's at the nuclear facilities, at Sir Adam Beck, at Nanticoke, and regardless of where the power is consumed, whether at Fort Frances, by the St. Lawrence River, in Southern Ontario, or wherever. 341 For this mechanism to work, there must be a delivery system that connects all generators with all customers, and that's what the provincial transmission system is. There are real costs of that system, and they should be borne, in our submission, by all who benefit from it. 342 Now, Mr. Sidlofsky says this morning that Casco doesn't really use that system. It says they use only ten feet of wire between the co-gen and their load. Well, that's not true at all. 343 With respect, all you need to do to test that proposition is think for a moment what would happen to Casco's energy prices if, say, Bruce Nuclear Power was disconnected from the grid on a hot day in the summer and you took that 3,000 megawatts off the system. Prices would sky rocket, and they would not like their energy bills. 344 So Casco is benefiting from the connection of the generators to the grid, Bruce Power and everyone else. They're benefiting from the transmission of the power from generators to customers. And you have to look at it as an entire system. It isn't just about that ten feet. It's only in the most narrow, literal, and ultimately misleading sense that you can say that they are only using ten feet worth of transmission. 345 Now, if Casco and Abitibi get the relief that they seek, they will be in the privileged position of buying power from the wholesale market without paying transmission charges. That, we would say, makes them free riders. They will not be in that position because they have done something that contributes to the public good, and that, we respectfully submit, is what RP-1999-0044 was about: Providing incentives to customers to install load displacing self-generation, which benefits the entire province because it adds to the generation supply. 346 It won't be because they've done that, but because they happen to be in a situation where they connect to a generator via unlicensed transmission when they're not even buying their power from that generator. 347 We don't see them as having any real fairness argument on their side that would justify a bending of the rules, as Ms. Aldred points out, in order for them to get the relief that they seek. 348 As with other cases where free riders are involved, they put forward the defence that, Well, if it's just us, it doesn't have very much impact on the system. It's a bit hard to judge the number of parties that might be able to take advantage of their view of the system. We know that Abitibi and Casco are in the category. TransAlta is also here, so presumably they have a situation which they think falls into the same category. We've heard about other possible reconnections. We don't know what else is out there. So it's a bit hard to know the ultimate financial impact of the bending to have rules. 349 But in any event, the more fundamental point is that there is no fairness or equity in favour of them being able to escape their fair share of the costs in that manner. 350 We would draw your attention to various sources which confirm the real situation here, which is that Casco does take power from the IMO-controlled grid. That is in the power-purchase agreement, which confirms that Cardinal Power exports to the IMO-controlled market. That's in section 2.1 of Exhibit 1.9. In the line use and transfer agreement, it's confirmed that Casco takes its power it's delivered from the grid via Cardinal Power in sections 2 and 3. And in regulation 20/02, as Ms. Aldred has just taken you to, legally the only way in which the unlicensed transmission power line can be used is for it to convey power from the grid to Casco. 351 If you take all of those, they confirm the common-sense view here, which is that they are taking from the provincial transmission system, they're relying on that system, and they should bear their fair share of the costs of that system. Therefore they should pay transmission charges. 352 And those are our submissions. 353 MR. BETTS: Thank you. 354 Thank you, Mr. Lokan. We have no questions. 355 We'll take now a 15-minute break, and reconvene to receive reply argument from Casco. That will get us back here at 11:00. 356 --- Recess taken at 10:46 a.m. 357 --- On resuming at 11:01 a.m. 358 MR. BETTS: Thank you, everybody. Please be seated. Thank you. 359 Mr. Sidlofsky, please proceed with your reply. 360 REPLY BY MR. SIDLOFSKY: 361 MR. SIDLOFSKY: Sir, I'll try to be brief, although I do have what may be a lengthier-than-might-be-expected comment on one particular issue raised by Ms. Aldred and I'll get to that momentarily. I'd like to simply pick out a few items from Hydro One's argument and address them in reply. 362 Earlier on in her submission, Ms. Aldred suggested that it's clear from the legislation that the 115-kV line owned by Cardinal Power forms part of the provincial transmission system. What I'd like to do is refer the Board to page 7, paragraph III of Abitibi's July 7th, 2003, reply. And to avoid the Board the need to search for that, I'll read the paragraph in that submission. 363 And I should say, while I'm at it, that for the most part, I don't intend to reply to a great deal of Hydro One's or the Power Workers' submissions. As I said at the outset in my initial argument, there's been very little raised yesterday in Hydro One's evidence that would merit additional comment in addition to the submissions I made in the Abitibi proceeding. So I don't propose to go through the Abitibi argument or reply argument in my reply submissions in the Casco proceeding. But the Board can assume that I'm adopting those submissions in reply as well. 364 At page 7 of the July 7th, 2003 reply submission of Abitibi, Abitibi noted: 365 "Finally on this point" -- and this point was on the issue of connection to the transmission system, and in particular here it relates to Ms. Aldred's comments about, in this case, the Cardinal line being part of the provincial transmission system -- "Hydro One makes a leap from the definitions of transmit and transmission system in the legislation to the conclusion that Abitibi's 115-kV line forms part of the provincial transmission system. The terms 'transmit' and 'transmission system' are defined in legislation. The term 'provincial transmission system' or, as it is set out in the transmission rates schedule, 'the transmission system in the province of Ontario', is not set out in legislation. It was a creation of Hydro One in its redrafting of the Transmission Rate Schedules to accommodate the three additional licensed transmitters who would have transmission charge revenues allocated to them. If the interpretation that Hydro One now wishes to place on that term is not consistent with the Board's transmission decision, then the Board must ensure that Hydro One applies it in the correct and appropriate manner. 366 "In any event" - and I'll read one more paragraph of this - "the interpretation that Hydro One now wishes Board to accept is not the interpretation that Hydro One itself placed on the term when it filed its revised draft rate schedule on April 26th, 2002. For Hydro One's understanding of the meaning of the term, it is instructive to review the April 26th, 2002, correspondence to the Board from Hydro One's vice-president, regulatory affairs, which attached a 'copy of a customer notice that transmitters can send directly to their customers explaining the new rates.' The letter can be found at tab 2H of Abitibi's witness statements." 367 And so you can follow, sir, if necessary, that letter could also be found at tab 2C of the Casco witness statements, Exhibit 1.2. 368 "The extract from Mr. Snelson's evidence in which he discusses Hydro One's notice and the fact that Hydro One did not interpret the new rate schedule that Hydro One itself had prepared as extending the definition of transmission customer as including parties that did not have a direct connection to a licensed transmitter can be found at pages 6 and 7, paragraph 4(b)(vi) of Abitibi's June 30th, 2003 submissions. 369 "Hydro One has provide no evidence" - and, sir, I suggest that there's still been no evidence in the Casco proceeding - "to refute Abitibi's submission that Hydro One's notice reflected its understanding of what constitute a transmission customer when it prepared and filed the April 30th, 2002 version of the Transmission Rate Schedule. The understanding of Hydro One as evidenced by that letter is supported by the numerous references to the assets of licensed transmitters in the description of the pools in respect of which rates are being charged." 370 Now, sir, Ms. Aldred took you to some of the transcript, a portion of volume 2 of the Abitibi transcripts, on the issue of ownership of generation and the dispute was with Casco's suggestion that ownership of the generation isn't relevant. 371 And I would note that paragraphs 807 through 812 of that transcript are actually excerpted at page 12 of Abitibi's June 30th submission. And I should also note that those paragraphs, where Dr. Poray finally conceded that ownership of the generation isn't really the issue, was the culmination of a line of questioning that started, I believe, roughly a hundred paragraphs earlier, at paragraph 713. If the Board wants some context for Ms. Aldred's comments, I'd suggest that the Board would appropriately start at that point in the transcript. 372 Ms. Aldred has suggested that the rate schedule is sacrosanct, and it sets out a mechanism for billing for transmission where embedded generation exists. 373 I'd point out, sir, that the rate schedule does no such thing. There is a reference to embedded generation. The reference to embedded generation in the rate schedule relates to the operation of meters in accordance with the market rules. That suggests that for guidance as to how to deal with billing in the context of embedded generation, one has to look to the transmission decision. Therefore, there is no need, and this confirms Mr. Snelson's evidence, there is no need to amend the rate schedule should the Board decide either in Abitibi's or Casco's favour. 374 And in any event, I should note, Hydro One hasn't considered itself bound to follow the rate schedule in any event in the case of Inco, or its aggregating delivery point where there's no Board authority to do so. 375 As I've noted in the Abitibi submissions, that runs counter, regardless of the merits of doing that, and I'm not suggesting that Inco shouldn't be billed on the basis of aggregated delivery points. However, clearly, when it suits Hydro One's purposes, Hydro One is more than willing to skirt the transmission rate schedule. Apparently it's not willing to consider altering its approach or its interpretation of the rate schedule in Casco or Abitibi. 376 Ms. Aldred suggested that it's not clear how Cardinal had provided transmission services under an agreement that dates back approximately eight years. Actually, the power-purchase agreement and the line use and transfer agreement that you heard about yesterday from Mr. Gardner date back to 1992. 377 I have some difficulty with this comment, seeing as for eight years of operation of the Cardinal plant, the Cardinal Power plant, and certainly for the seven years until market opening, Ontario Hydro's been buying Cardinal Power's output. Ontario Hydro's been fully aware, there's no indication that Ontario Hydro wasn't fully aware of the configuration of the facilities at this site. 378 To suggest now or to imply now that there's no authorization for Cardinal Power to be running its power ten feet over to the Casco facility is simply groundless. There's been no evidence on that, other than speculation by Hydro One's witnesses. Or not even speculation but the implication that there's no authority to provide transmission services. 379 Before I get to a point that actually follows on that, I have just a brief comment on one of Mr. Lokan's comments. And that is, that if Casco were relieved of paying transmission rates, Casco would somehow be a free rider in the system. Sir, nowhere in its evidence, in its testimony, has Casco suggested that Hydro One, and by extension the other licensed transmitters, because they do share in transmission revenues -- nowhere has Casco suggested that Hydro One should not be paid for the level of transmission service that's taken from Hydro One. And the level of transmission service that's taken by Hydro One should be considered on the same basis as any load that has embedded generation. 380 The level of transmission service taken by Casco typically is zero. First of all, as we all know, Casco's not connected to the Hydro One transmission system. And in the normal course, notwithstanding seven outages in a 12-month period -- and there was little indication except for one outage in June of last year what period those outages were for, but there is, as I said, no suggestion that Hydro One should not be compensated for its transmission services. 381 As I said, typically the level will be zero. In some circumstances, power will be taken by Cardinal Power from the regulated transmission system. That suggests that with Cardinal Power as the Hydro One transmission customer, then Cardinal Power is the entity that should be billed for transmission. 382 But, sir, we've given you an alternative as well, and the alternative is that even if Casco were to be billed, were to be treated as a transmission customer, Casco's billings should still reflect the level of transmission service from the regulated system that's ultimately used by Casco. And that equates to net billing. Whether the Board wants to deal with that as aggregation of delivery points or the purer net-load billing, the result is the same. The aggregation of delivery points, as I have suggested at length in the Abitibi proceeding, is really a creation of Hydro One in any event, because there's no authority for Hydro One to be doing that. And again, I'd refer the Board to my comments, my written comments in the Abitibi proceeding on that. 383 Now, that takes me to the suggestion - and it was made by both Ms. Aldred and Mr. Lokan - that Cardinal can't legally provide transmission services to Casco. Now, aside from the fact that they've been doing it with Ontario Hydro's apparent blessing, since 1995, the suggestion is that it's only for the purpose of conveying power from the transmission system or from the grid, from the IMO-controlled grid, that Cardinal is authorized to convey electricity or to provide transmission services to Casco without facing a requirement to obtain a transmitter license. 384 Now, aside from the fact that that has absolutely nothing to do with this proceeding, and it may be an interesting line of discussion, it's a complete red herring. And I was hoping I'd be the first one to be able to use that this morning, but I can't now. But it is one. And I'll spend a few moments telling you why, if you don't mind. 385 I agree with Ms. Aldred that the regulation generally provides for exemptions from regulatory requirements for those entities that fall within the definition of transmitter but are not in the business of providing transmission service. 386 Now, you've heard the debate, and you've read the debate a number of times now, on whether the statutory provisions that remain in place and relate for the most part to licensed and non-licensed transmitters and anyone else who deals with the IMO-controlled grid, for example, including, in some cases, loads that are embedded within distribution systems if they want to participate in the IMO-administered markets. Aside from that debate that's outstanding, there is this question of authorization to provide transmission services or, more accurately, the question of whether a transmission license is required for Cardinal to be doing what it's doing. 387 Now, Hydro One has acknowledged that Cardinal is exempt from the licensing requirement. Now, we say that the facts say they're also exempt from a whole lot more, and the legislation says that as well. But in any event, Hydro One suggests that the reason Cardinal is exempt from licensing is that its transmission system is used only for the purpose of permitting the licensed transmitter to convey electricity from the IMO-controlled grid to consumers. 388 Now, that comes from regulation 20/02. And that clause is the one that Dr. Poray suggested was applicable in these circumstances. 389 Sir, I've just set my copy of regulation 20/02 in the wrong place. If I could just... Ah, there it is, sorry. 390 Now, in particular, that's section 4.0.2(1)(b) of regulation 20/02. And the implied threat here seems to be that if Casco's not a transmission customer, then Cardinal requires a transmission license. 391 Now, Cardinal's not a party to this proceeding, and, as I've said, that's completely irrelevant to this proceeding. But I do want to make a few comments on that because it concerns me that the suggestion is being made in the absence of the party to which the license requirement would apply. And I'll get to that momentarily. But I'll start with what we know. 392 We know that Dr. Poray's interpretation of the regulation may well be that that's the subsection that applies and that may be a reason to exempt Cardinal, but there may be other reasons as well. And with the greatest of respect, it's not clear to me that Dr. Poray is in any position to opine on which sections of a regulation would exempt Cardinal from the requirement to obtain a transmission license. 393 Hydro One doesn't control that sort of thing, the legislation does or the regulation does. And ultimately that may be a question that the Board has to deal with. But we know that Cardinal's a generator, and we know that Cardinal uses its transmission system to convey electricity to the IMO-controlled grid. And what we find is another ground for exemption in clause 4.0.2(1)(d)(i). We know that when Cardinal is down, when the Cardinal Power plant is not operational, it acts like a load, so it's also a consumer. And it permits a licensed transmitter to convey electricity to a consumer. And when it is operating it conveys electricity to the IMO-controlled grid. That's another ground. The combination there constitute another ground for exemption under clause 4.0.2(e) of the regulation. 394 In its decision on the question of TransAlta's need for a transmitter license, the Board determined that as TransAlta's energy at its Sarnia plant would be going predominantly into the IMO-controlled grid, it was an exempt transmitter. Now that's not completely relevant to this proceeding, as I said, because this proceeding has nothing to do with any requirements for Cardinal to obtain a transmitter license. 395 But the point is, there may be several grounds for exemption that may apply to Cardinal. All of these possible grounds support the understanding that the regulation is intended to protect those transmitters whose business is not transmission from being subject to an unnecessary regulatory structure. 396 Dr. Poray's choice of one ground for discussion purposes, or to maintain Hydro One's grip on gross-load billing, isn't determinative of anything. We also know that in the normal course, and since market opening, Hydro One has identified few occasions, very few occasions, when the Cardinal Power facility was down. On a physical basis, in the normal course, the electricity is flowing from the Cardinal generators to Casco, and this is not disputed by Hydro One. And on the facts as we know them, Hydro One agrees that Cardinal's exempt. 397 So what's a reasonable understanding of the clause that Dr. Poray suggests does apply here on the undisputed facts of this case? For that, we can look to Hydro One's oft-stated rationale for gross-load billing. While still irrelevant to net versus gross billing, it's instructive here. And we've heard this as recently as this morning. Casco buys its power from the IMO-administered market and Cardinal sells its power into the IMO-administered market. As a contractual matter, Casco might well take its power from the grid because it doesn't own the output of the Cardinal Power plant. That has no bearing, however, on the level of Hydro One transmission service that's being taken by Casco, which in the normal course is zero. 398 This is consistent with the provisions in the line use and transfer agreement between Casco and Cardinal. In fact, it's also consistent with the power-purchase agreement between Ontario Hydro and Cardinal. Is it inconsistent with the regulation? No, it's not. Hydro One can't say it's inconsistent with the regulation because, on the facts before you, Hydro One agrees that Cardinal is exempt. 399 In any event, the regulation doesn't speak to the question of who is a transmission customer. In fact, you won't even find the term "customer" used in section 4.0.2 of the regulation, which sets out transmitter exemptions. The only reference is to consumers. 400 The regulation says nothing about whether those consumers are to be customers of the licensed transmitter. It's completely silent on that. That determination remains in the Board's purview. You might be assisted, though, by Hydro One's April 26th form of letter to transmission customers confirming that they're defined as such because they're connected to a licensed transmitter. 401 Secondly, the regulation is silent on the appropriate treatment of those consumers for the purpose of billing for transmission services. Again, that's the Board's determination to make. In fact, the Board already considered the issue of maintaining gross-load billing on the basis that, even with embedded generation, there are benefits to being attached to the transmission system. And that was dealt with at paragraph 3.2.32 of the Board's transmission system and rejected as a basis for gross-load billing as proposed by Hydro One. Those benefits included power quality support, access to replacement energy, and opportunities to sell excess electricity into the market. And the Board rejected that. Put simply: The regulation doesn't do what Hydro One says it does. 402 Now, the last point I'd like to make on this issue is that this is not, as I've said before, a proceeding to determine whether Cardinal Power requires a transmitter license. Cardinal Power isn't even a party to this proceeding. And to threaten an absent party with a significant regulatory burden if Hydro One doesn't get its way on gross-load billing is highly inappropriate. 403 For all of these reasons, sir, we ask that the Board reject the notion that Casco has to be a Hydro One transmission customer or that gross-load billing for Casco is required for regulation 20/02 to apply. If the Board feels that Casco must for some reason be a Hydro One transmission customer, the Board is certainly free to make that determination, but, as I said in my earlier submission, and as Casco maintained in its August 2002 submission, even if Casco continues to be charged as a transmission customer, its transmission charges must reflect the level of transmission service it receives. That's fair; that's equitable; and that's not arbitrary. And that's why the Board determined to adopt net-load billing over gross-load billing. 404 Those are my comments, sir. 405 MR. BETTS: Thank you. The Board Panel has no questions, Mr. Sidlofsky. 406 That concludes arguments on this hearing. The Panel would like to express our thanks to staff, the court reporter and all of you who have contributed to our understanding of this issue. We will try and do our job now. As stated, it's our intent to reconvene on Tuesday morning, July 15th, at 9:30 a.m. to deliver oral decisions on both this matter and the matter relating to Abitibi-Consolidated and Hydro One. If there is any change to that, we will attempt to contact the four parties involved and let them know, and the only change would be if the Board is unable to reach a decision at that time. 407 I think, that being said - unless there are any questions or comments from participants; I see no one taking me up on that - then we will adjourn this hearing and reconvene on July 15th, 9:30 a.m. Thank you all. 408 --- Whereupon the hearing adjourned at 11:27 a.m.