Rep: OEB Doc: 12N9S Rev: 0 ONTARIO ENERGY BOARD Volume: 1 21 MARCH 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. BIRCHENOUGH MEMBER 1 RP-2003-0034 EB-2003-0039 EB-2003-0041 ACQUISITION BY CANADIAN NIAGARA POWER INC. 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15, Schedule B; AND IN THE MATTER OF an application pursuant to subsection 86(2)(a) of the Ontario Energy Board Act, 1998 by the Canadian Niagara Power Company Inc. for leave to acquire over 20% in the aggregate of the voting securities of Granite Power Distribution Corporation from Granite Power Corporation and, pursuant to section 21(4)(b), to dispense with a hearing; AND IN THE MATTER OF the review of proposals for acquisitions by Canadian Niagara Power Company Limited and Canadian Niagara Power Inc. pursuant to sections 80 and 81 of the Ontario Energy Board Act, 1998. 3 RP-2003-0034 EB-2003-0039 EB-2003-0041 ACQUISITION BY CANADIAN NIAGARA POWER INC. 4 21 MARCH 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 JENNIFER LEA Board Staff BEVERLEY JAFFRAY Board Staff TIM CURTIS Canadian Niagara Power JAMES FISHER Canadian Niagara Power BRUCE BACON Econalysis Consulting CHRISTINE LONG Town of Gananoque MARK RODGER Town of Gananoque BERT MEUNIER City of Kingston JIM KEECH Utilities Kingston SCOTT MCLEAN Granite Power 8 TABLE OF CONTENTS 9 APPEARANCES: [25] PRELIMINARY MATTERS: [36] SUBMISSIONS BY MR. FISHER: [54] SUBMISSIONS BY MR. RODGER: [78] SUBMISSIONS BY MR. MEUNIER: [110] REPLY SUBMISSIONS BY MR. FISHER: [131] QUESTIONS FROM THE BOARD: [139] RULING: [174] CANADIAN NIAGARA POWER INC. - PANEL 1 [209] EXAMINATION BY MR. FISHER: [211] CROSS-EXAMINATION BY MS. LEA [241] CROSS-EXAMINATION BY MR. RODGER: [529] CROSS-EXAMINATION BY MR. MEUNIER: [679] RE-EXAMINATION BY MR. FISHER: [750] CLOSING ARGUMENT BY MS. LEA: [766] CLOSING ARGUMENT BY MR. FISHER: [808] CLOSING ARGUMENT BY MR. RODGER: [817] CLOSING ARGUMENT BY MR. MEUNIER: [838] REPLY ARGUMENT BY MR. FISHER: [871] DECISION: [889] PROCEDURAL MATTERS: [923] 10 EXHIBITS 11 EXHIBIT NO. J.1.1: LETTER DATED MARCH 13, 2003 TO THE BOARD FROM THE TOWNSHIP OF SOUTH FRONTENAC [497] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:56 a.m. 15 MR. SOMMERVILLE: Good morning. Please be seated. Welcome to everyone. Good morning, my name is Paul Sommerville and with me is Arthur Birchenough. 16 The Board has convened this hearing this morning to consider an application by Canadian Niagara Power Limited pursuant to Section 86 of the Ontario Energy Board Act. Canadian Niagara Power Limited has entered into an agreement for the purchase of the shares, the voting securities of Granite Power Distribution Company and Granite Power Generation Company from Granite Power Corporation. 17 The Board understands from a letter dated February 26th, 2003, from CNPL's counsel that Canadian Niagara has assigned its rights to purchase the shares to its affiliate Canadian Niagara Power Inc. That letter is an exhibit in these proceedings. 18 Granite Power Distribution Company is currently licensed by this Board pursuant to an interim licence bearing number ED-1999-0171. Granite Power Generation Company is also licensed by this Board as a generator, pursuant to a generator's licence. 19 Canadian Niagara Power Limited holds various licences including a generator's licence and CNPI holds a distribution licence. 20 The application seeks an order from the Board granting its leave respecting the acquisition of the shares in the distribution company by Canadian Niagara Power Inc. The Board has assigned file number EB-2002-0039 to this proceeding. 21 In addition, attendant to the transfer application, Canadian Niagara has given notice to the Board of its proposal integral to the application that it and its affiliate Canadian Niagara Power Inc. acquire as a result of the transaction interest in a distribution system and a generation system respectively. This notice is mandated by Sections 80 and 81 respectively of the Ontario Energy Board Act. As noted above, Canadian Niagara Power Limited operates its generation system and its acquisition or its affiliate's acquisition of an interest in a distribution system is subject to Board review. 22 Similarly, insofar as Canadian Niagara Power Inc. is a distributor, the acquisition by its affiliate of a generation system is also subject to Board review. The Board has issued a notice that it will review the proposals. 23 This aspect of the matter has been assigned Board file number EB-2003-0041. Notice respecting the application and notice of the review of the proposal was ordered by the Board in its notice of application and oral hearing dated March the 6th, 2003. 24 These are the matters that are before us today. May I have appearances. 25 APPEARANCES: 26 MR. FISHER: James Fisher on behalf of the applicant. 27 MR. SOMMERVILLE: Thank you, Mr. Fisher. 28 MR. RODGER: Good morning, Mr. Chairman. Mark Rodger appearing as counsel to the Town of Gananoque, and with me is Ms. Christine Long and also Bruce Bacon of Econalysis. 29 MS. LEA: Jennifer Lea appearing for Board staff. 30 MR. MCLEAN: My name is Scott Mclean, Mr. Chairman. I appear here today as what I would describe as a watching brief for Granite Power Distribution. I am here to be of assistance to my friends, but I do not expect to make submissions before you. 31 MR. SOMMERVILLE: Thank you, Mr. Mclean. 32 MR. MEUNIER: My name is Bert Meunier. I'm the chief administrative officer for the City of Kingston. And I have with me Jim Keech who is president and CEO of Kingston Utilities. 33 MR. SOMMERVILLE: Thank you. 34 There being no further appearances, are there any preliminary matters. 35 MS. LEA: I have a few preliminary matters, Mr. Chairman. 36 PRELIMINARY MATTERS: 37 MR. SOMMERVILLE: Please. 38 MS. LEA: First of all, I've had an opportunity to look at the affidavit of service and publication. The Board's directions for publication appear to have been complied with. And therefore I believe that the hearing can proceed today without any further notice being sent. 39 There had been a supplemental filing which was made yesterday by the applicant. It's attached to a letter dated March 20, 2003. It was received here at the Board, and I have provided it on the dias to you, as I don't know whether distribution of that filing had been accomplished by close of business yesterday. 40 MR. SOMMERVILLE: I have that. 41 MS. LEA: The supplemental filing provides further information related to Section 3 of the application, and you'll notice the supplemental filing is in the form of questions and answers. I hope that's acceptable. Board staff had sent some questions to the applicant in an attempt to complete the record with respect to that section and that's the nature of the supplementary filing. 42 There is an exhibit list for this proceeding. The prefiled exhibits have been given file numbers A through F. The Board-issued documents are under group G. Various correspondence is listed at H. 43 I should make one remark, the letter you referred to in your preliminary remarks Mr. Chairman is Exhibit H.4 in this proceeding. We need to correct the exhibit list in that regard. The word "to" in that line under H.4 should read Mr. Fisher so, it should read, "letter from Mr. Fisher assigning rights to CNPI dated February 25, 2003." So there was just a few words left out. 44 MR. SOMMERVILLE: Thank you. 45 MS. LEA: And I understand -- yes, one further thing. 46 The original application was filed citing section 86.2(b) of the Ontario Energy Board Act, however, I understand that the transaction is actually properly under section 86.2(a), so there was a small error there. I don't think it is of any material consequence to this proceeding but I just wanted to clarify that I think the 86 approval is properly brought under 86.2(a). 47 MR. SOMMERVILLE: Thank you, Ms. Lea. 48 MS. LEA: And I understand my friends may have matters with respect to the request for confidentiality which was made by way of letters before this panel earlier this these proceedings. Thank you. 49 MR. SOMMERVILLE: Are there other preliminary matters? 50 Ms. Lea alluded to submissions with respect to confidentiality. Is this the time to deal with those submissions? 51 MR. FISHER: Yes, Mr. Chairman. 52 MR. SOMMERVILLE: Well, Mr. Fisher, we'll hear from you first, please. 53 MR. FISHER: Thank you. 54 SUBMISSIONS BY MR. FISHER: 55 MR. FISHER: Good morning. 56 MR. SOMMERVILLE: Good morning. 57 MR. FISHER: As far as the maintenance of the confidentiality of the financial statements and purchase price which I will refer to collectively as confidential information is concerned, I wish to make the following submissions on behalf of the applicant. 58 First, the Board has in its files letters from Mr. Mclean, counsel for Granite Power Distribution Corp., which I'll refer to as the distributor, and Granite Power Generation Corporation, which I'll refer to as the generator, and those letters are dated March 7 and March 19th of 2003. 59 And these letters provide information as to why the confidential information should be maintained as confidential. 60 In the interest of expediency, I don't wish to repeat them for the Board and wish to advise the Board that the applicant continues to support the submissions by Mr. Mclean. 61 Second, counsel for the Town of Gananoque set out in a letter dated March 18, 2003, essentially three reasons as to why the Town objects to this request for confidentiality. First, counsel for the Town submits that the confidential information is material to the MAAD process in that it is crucial for the Board and the Town to understand the economic status of the distributor and that the confidential information is particularly material and relevant in this proceeding given past and ongoing comments concerning the apparent distress of the utility and its general inability to perform as a regulated distributor. 62 Counsel for the Town also suggests that the Town is entitled to understand the precise nature of the distress, the causes of the distress and how the situation will be remedied or alleviated and that the release of the confidential information is the best mechanism to shed light on what has transpired. 63 The applicant's response to the materiality question is that this amounts to an historical review exercise that is not relevant in this forward-looking transaction. 64 Secondly, the applicant is an experienced, sophisticated operator of distribution and generating plants, and as such undertook an extensive due diligence exercise before entering into an agreement with the vendor. As a result, the applicant believes that it will not be exposed to material capital expenses that would significantly impact distribution -- future distribution rates. 65 Furthermore, if large capital expenses were required for the distribution assets, the applicant would have the onus of proving in its rate application that such expenses should be included in the rate base and it would be up to the Board to ultimately decide whether the unbundled rates applied for are just and reasonable. 66 The second reason for disclosure submitted by the Town is that the public interest requires the disclosure because the distributor's customers have not received the commodity rebate pursuant to Bill 210. In response to this point, the applicant submits that first, this issue relates to the compliance with the electricity distribution licence and not this transaction. Secondly, the applicant will be filing applications for unbundled distribution rates and an electricity distribution licence at the same time as quickly as possible following the closing of the transaction subject to the Board approving the order that the applicants seek today. 67 The Board's decision in those proceedings will be definitive as to the commodity rebate. 68 The second point submitted by the Town in relation to public interest is whether or not the transaction protects the customers of the distributor, because at this stage the Town has no information concerning the profitability of the distributor and the prices customers have paid for distribution services and the cost of the commodity. In response, the applicant submits that first, this again, is historical information that is not relevant to the MAAD application before the Board, and second, there is no intention of rate harmonization because the existing rates are bundled and the service area of the distributor is not contiguous with the distributors presently owned and operated by the applicant. 69 The applicant will file a rate application to unbundle rates that will be transparent and open to public scrutiny. 70 The third reason the Town submits for disclosure is that no harm will result from public disclosure. In response, the applicant submits that there is potentially significant financial harm to the vendor in this case if the Board does not approve the transaction. The harm that would occur would be that the vendor would be severely disadvantaged in negotiating with a potential buyer because the subsequent buyer would have had the opportunity to know the financial status of the company and the purchase price previously accepted. Clearly a difficult situation for any vendor to face in negotiating the sale of a business. 71 The applicant also submits that harm may occur if the Board decides that the confidential information should be released because there is potential the vendor may withdraw the confidential information, and perhaps the transaction may fail; leaving the customers in a continued state of uncertainty. 72 In summary, the applicant believes that the reason the Town has advanced -- the reasons the Town has advanced for the disclosure of confidential information are related to an historical examination of past practices of the vendor through which the Board has limited, if any, influence, and that they are not materially relevant to the approval of this transaction but are materially related to distribution rates and licensing issues. 73 Consequently, knowledge of this information has limited relevance to this application to approve this transaction. In addition, the applicant wishes to assure the Board that it will file a distribution rate application to unbundle rates, along with the electricity distribution licence application. At the same time, all of which will be transparent and open to public scrutiny. 74 Those are my submissions. The applicant respectfully requests that this information remain confidential. Thank you for your consideration. 75 MR. SOMMERVILLE: Thank you, Mr. Fisher. 76 Mr. Rodger, do you want to proceed at this point. 77 MR. RODGER: Yes, thank you Mr. Chairman. 78 SUBMISSIONS BY MR. RODGER: 79 MR. RODGER: As my friend has indicated, the Town is asking that the financial statements for both the distribution company and the generation company be filed on the public record in these proceedings. And as Mr. Fisher indicated, we set out some of our reasons in our March 17th letter, which is copied to Mr. Pudge and all intervenors. 80 We believe that this information and these statements are critical for this process, that is the MAADs process, because what the Board is looking at today is a transaction which has two components. It has one, the business to be sold and the features of that business and those assets, and secondly, the purchaser, and its business, its ability to operate the business it purchased. 81 And the Board has recognized that both these pieces are relevant as set out in its own filing guidelines. And as I specify in my letter of March 17th, if you look at 1.4, the description of the proposed transaction in the preliminary filing requirements for sections 85 and 86, 1.4.3 states as follows: "Attach the financial statements, including the balance sheet and income statement and sources and uses of funds of the parties to the proposed transaction for two complete years prior to the proposed transaction." 82 For further clarity, if you refer to, once again, the Board's own guide for preliminary filing requirements for mergers, acquisitions, amalgamations and divestitures for the distribution sector, this document provides further description of why this information is needed. 83 And pertaining to this particular information request, the Board's guideline states that the financial statements have to be attached, and then it goes on to state: "Financial statements should be audited if available. If the financial statements are unaudited, accountant's comment should also be included. The financial statements should be signed by two directors of the corporation." 84 So clearly the Board in all the MAADs applications that was come before this tribunal over the past few years, this has been a standard feature of the application process of the materials put before the Board. 85 Now, in this case, the owners of Granite and now the applicants have asked that they not be disclosed. And again, if you go to your OEB guidelines and again, these are the MAADs guideline, and if you look at the rules of practice and procedure section, which is on page 4 and beyond, it clearly spells out that if confidentiality is claimed, the applicant clearly has to explain the harm. 86 And in my submission, neither the applicant nor the vendor has done that. 87 As I said in my written submission, we're not talking about a competitive, unregulated business when we talk about the distribution. This is a regulated utility. As Mr. Chairman, you said yourself at the outset, both these entities are licensed by the Energy Board. These documents don't have that kind of commercial competitive type of information. It's a regulated utility. 88 The generation statements I'll talk about later, but it is crucial before the Board, because that generation information also relates to the unbundled, but let me just leave that for the moment. 89 Now, we believe that the public interest does require disclosure in this case. Going back to the prefiling requirements, there is a whole section, 2.3 of your filing requirements, on having to do with protecting the interests of consumers. And 2.3.1 of your filing requirements requires the applicant to provide the costs and benefits of the proposed transactions. And we're saying in this case we have to understand both sides of the coin. We have to understand the before and after so we can put some meaning around the benefits. 90 We need some way to gauge the benefits and, particularly in this case, when you look at the extraordinary circumstances as to how these transactions came before you, and I'm not going to go into it into the it detail of all the correspondence, but the Board will be aware that the Town received notification from Granite that it was in serious distress in its ability to maintain being a distributor, and in February, there was a concern that these assets would simply be taken off-line. 91 So the Town is looking at this from the position that we've got a situation where a utility apparently is in great distress, particularly financial distress, apparently. Now we've got a new purchaser and all of a sudden, the business seems to be sustainable. Well what, happened? How does this change of ownership magically rectify this situation? And we believe we need the financials to really understand that. 92 To give you some specific examples, for the LDC financial statements -- and my friend referenced this -- the Town wants to understand what the infrastructure is. 93 My friend, Mr. Fisher, has kind of indicated that there doesn't seem to be any issues there. Well, the Town is asking, Show us; show us the information. We don't know whether what's being transferred is a Rolls-Royce system, a Chevy system, or an old clunker that's ready to be taken off to the scrap heap. We just don't have any information to give us that. 94 MR. SOMMERVILLE: Just a question on that point, Mr. Rodger. How would you learn that from a financial statement? 95 MR. RODGER: Well, again, part of the guidelines talk about any capital expenditures that may be required, so if we've got financial statements which show virtually nothing in maintenance or capital investment over the past couple of years, then that might give us an indication of what the new purchaser has to do on a go-forward basis. 96 MR. SOMMERVILLE: Thank you. 97 MR. RODGER: There is also the issue that the Town would like to be raised today and that's the issue of customer deposits. They don't have any sense of how much money is retained as customer deposits, what will happen to that money as part of this transaction, and they would like to know these answers. Again, the financial statements should give us an indication of that. 98 There is also some serious public interest and public protection issues in the context of Bill 210. The Town and the ratepayers of the Town of Gananoque all heard the Premier's November announcement around that famous kitchen in Mississauga about price protection, and the Town and its ratepayers are aware that rebate cheques went out to customers before the end of last year, and the Town understands that Granite received approximately $350,000 from OPG or the Independent Market Operator in connection with these rebates, and the Town has advised me and asked me to advise you that the Minister of Energy advised the Town directly that Bill 210 applied to the Granite system. 99 So the question is we have Bill 210 prescribing rebates. Why didn't of the Town or its eligible customers receive this? What happened to that money? What will happen to that as part of this transaction? 100 Finally, Mr. Chairman, on the relevancy question, my friend Mr. Fisher talked about how historical data is irrelevant to this application, this MAADs process, and we completely disagree. Mr. Fisher said that it's the intent of CNPI to come forward if this application is approved with unbundled rates, and to unbundle rates under your regime requires that you look at historical cost of power. 101 When the application will come before you, when they unbundle rates, you have to understand both components: What's the cost of power historically; you remove that, that gives you your distribution piece. 102 Again, part of the filing requirements -- and again, I'm under the Section 2.3, protecting the interests of consumers -- 2.3.6 says "describe the changes, if any, in rate levels the parties to the proposed transactions are planning." Again, not making this a rate case, but describe the changes in rate levels. 103 Again, if you go to your guidelines, there's more details around this particular point, and I'm looking now at page 11 of your guidelines, 2.3.6. And it reads as follows: "To ensure that the interests of consumers are protected with respect to prices, the applicant must provide details of the rates that the parties propose to implement after completion of the proposed transaction. The purpose of this filing requirement is to provide the Board with general information concerning the intention of the parties concerning proposed rate changes. Note that any proposed change in rates are subject to a separate rate hearing process. The approval of the MAADs transaction does not necessarily mean that the rates set out in the material filed with the Board will be approved." So our point here on the generation financial statement is we have to know what the historical cost of power was, both the cost paid to Hydro One and the cost paid by the distribution company to its affiliate generation company. 104 I would further refer the Board to its rate handbook that says that local generation is treated differently in the cost of power calculation than just being bought from the Ontario Hydro system. 105 So again, a relevance here, we have to kind of get that information, so we're able to question the applicant on its intent to raise, and that also includes the historical cost of power. And why this is so important is that the cost of power can skew distribution rates on a go-forward basis, so as I say, where CNIP (sic), Canadian Niagara Power Inc., goes in the future on distribution rates is linked to what the historical cost of power has been. 106 And again, if you can appreciate the Town's perspective, in the past when it has seen other applications come before the Board, and I'm thinking of other public filings like Orillia and St. Catharines where they had local generation, what typically was the case in those applications for unbundling is that the local generation was used to basically reduce rates in those communities. But in the Town of Gananoque, we have local generation, but we have some of the highest rates in the province, so again, the Town is asking, What has happened here? 107 I think for all those reasons and my earlier submission, Mr. Chairman, that's the rationale for the Town's request that both these financial statements be disclosed for this hearing. 108 Thank you. 109 MR. SOMMERVILLE: I think as a matter of procedure, we'll hold questions on this subject until everyone has made their submissions. I know that I've -- I've asked one question already, but I think we'll hear from the City of Kingston on this subject. Do you wish to make submissions on this point Mr. Meunier? 110 SUBMISSIONS BY MR. MEUNIER: 111 MR. MEUNIER: Yes, if I could Mr. Chair, I will make some brief comments, and maybe by way of preamble we would like to indicate that our interest in this matter relates to the fact that approximately 400 of the 3,800 users serviced by this company or the eventual company reside within the City of Kingston. 112 And as we've submitted in our letter of March 18, the City Council's interest or one of the City Council's interest in this matter has to do with the impact upon the consumer and the public interest in terms of the citizens of Kingston that are being serviced by this company. 113 In terms of the matter at hand in relationship to that, our concern would be to have the ability to have some scrutiny by the Board and by the public and the interested parties in terms of the viability of future operation on an ongoing and sustainable basis for the future. 114 We were quite concerned when we received indications from Granite Power indicating, as the Town of Gananoque's submission has put, an indication that there was distress in terms of the existing operation, and notice that by the end of the month, they were going to be ceasing operation, and as a result of that, we received and council received quite a number of phone calls from our residents wondering what was happening. And we would have a concern that the Board assures itself that the public has an ability to have some assurances that the go-forward business model would not in the future, within the year or a certain period present us with a scenario where there is not a business viability going forward, and that we would be placed in the same type of situation in terms of having a notice that the business is no longer viable or sustainable financially. 115 So generally for those reasons we would support the request for those documents. 116 As the last comment, I would also have the reaction of saying that if there is a concern about information that might be available for subsequent purchase and sale review, our impression would be that those types of transaction, given the fact that these are done in a regulated environment and have a high degree of sophistication would be done in the context of due diligence and open access to information in terms of those transactions, so we're a bit surprised that this information would do harm in the future in terms of any other eventual purchaser. 117 So that would be our submission. 118 MR. SOMMERVILLE: Thank you. 119 Mr. Mclean, I'm assuming that your watching brief is still watching. 120 MR. MCLEAN: Yes, it is. Thank you, Mr. Chairman. 121 MR. SOMMERVILLE: Mr. Fisher, insofar as I think you have the burden of persuasion here, is there anything you'd like to add by way of reply. 122 MR. FISHER: Yes, thank you, Mr. Chairman, I would. And I would just ask if I could maybe have a minute or two to put my thoughts in an organized fashion. 123 MR. SOMMERVILLE: Would you like us to stand down for five minutes, ten minutes? 124 MR. FISHER: Five minutes would be great. 125 MR. SOMMERVILLE: We will stand down for ten minutes and return at 20 minutes to 11 and hear your reply and the Board will then have, if it has any questions, it will then put questions to all those who have submitted on the subject. 126 We will stand adjourned until twenty to. 127 --- Recess taken at 10:31 a.m. 128 --- On resuming at 10:46 a.m. 129 MR. SOMMERVILLE: Thank you very much. Please be seated. 130 Mr. Fisher, please. 131 REPLY SUBMISSIONS BY MR. FISHER: 132 MR. FISHER: Thank you, Mr. Chairman. First off, I would like to say that Mr. Rodger relies extensively on the guidelines for the MAAD application as reasons for disclosure. 133 In response, I would like to remind the Board that these are guidelines and the Board has the discretion to vary from their requirements. In this case, given the extraordinary circumstances given to the distributor, I would submit that this is not the transaction in which the guidelines need to be followed to the letter. 134 Secondly, as far as harm to the vendor is concerned, we wish to advise the Board that the vendor is in a unique situation, unlike, I would suggest, more than 90 percent of the utilities in Ontario owned by municipalities and therefore open to public scrutiny, the distributor is a privately held company, and has been so for more than 100 years and has always been unregulated and had privacy. And now it's a new world and the owners wish to protect this privacy, and perhaps this is one of the reasons why they're selling the business. 135 Third, I wish to reiterate that all of the issues raised by my friend primarily relate to distribution rates and compliance with the electricity and distribution licence. These will be addressed at the -- when the applicant makes these applications. 136 And finally, and I believe this is an extremely important point, no one on record is opposed to this transaction. 137 Those are my comments, Mr. Chairman. Thank you. 138 MR. SOMMERVILLE: Thank you, Mr. Fisher. 139 QUESTIONS FROM THE BOARD: 140 MR. SOMMERVILLE: Mr. Rodger, what is your response to the submission of Mr. Fisher that revelation of the material on the public record, the financial material, and I'm talking about the distribution company now, and the purchase price would prejudice his -- would prejudice Granite Power if this Board decided to not approve or grant its leave for the transfer of shares as they have applied for? 141 Let me restate the question. What is your response to the claim by Mr. Fisher that there is a genuine prejudice, in the event that the Board didn't grant this application, if the financial information and the purchase price were to be on the public record? 142 MR. RODGER: There's two responses, Mr. Chairman. It seems to me that whether we're talking about Granite Power or any of the other dozens and dozens and dozens of applications that came before you under the MAADs regime over the last couple of years, every vendor is in the same boat. Every vendor had to disclose this information, and none of these transactions are done deals until the Board says so. So it seems to me that this harm has been faced by every other vendor under this process. 143 Secondly, as Mr. Fisher says, no one, at least at this time that I'm aware of, is opposing this transaction. So what the Town is saying, if it appears that there may be support or endorsement to approve the transaction, then let's have the information so we have the disclosure as part of this proceeding. 144 So again, there is no risk, because as Mr. Fisher says, there doesn't seem, at least at this time, to be any objection from the intervenors. 145 MR. SOMMERVILLE: Thank you for that answer. 146 A question to both Mr. Fisher and Mr. Rodger, and Mr. Meunier. We have heard your submissions with respect to a proposal that the financial information of the distribution company, the generation company, and the purchase price be part of the public record, and I guess there's also an issue with respect to an organization charge, that this all be part of a public record. 147 The Board in its rules of practice and procedure -- and I'm referring to Rule 10, which deals with confidential documents -- indicates that there may be some other options available to us, and one of them that I'd like your comments on is the making the material available. 148 In this case, Mr. Rodger, I'm thinking about making the material available to you upon an undertaking that you would not reveal the material in any degree to your client. That you would be given access to the material, if you wanted to make detailed submissions that would have to occur in an in camera session, and if you wanted to make reference to any of those materials on an cross-examination, similarly, that would have to occur in an in camera session. 149 Now, I'm considering that approach to the subject, and Mr. Meunier, I've read with care and interest the originating notice of intervention that the City of Kingston made and I think it is fair to construe from that document that the primary interest of the City of Kingston in its intervention was to address rates issues and if a rate hearing were to be held that the disclosure would be appropriate in that context and similarly with respect to related issues, that if there were an opportunity in a rates case for disclosure that that would satisfy the interest of the City of Kingston. 150 Have I misconstrued the tone of your intervention? 151 MR. MEUNIER: I would agree with your comment, I would add, however, that we do have a concern about the reflection of the Board and the public in terms of the sustained viability, moving forward, and if you're indicating that that would be captured under the rates submission, then it is our primary concern. 152 MR. SOMMERVILLE: Thank you for that. 153 Mr. Fisher, can I have your reaction to the option that I have raised? 154 MR. FISHER: Mr. Chairman, we really can't speak on behalf of the vendor in this case. And as such I would refer you to Mr. Mclean. 155 MR. SOMMERVILLE: Okay. 156 Mr. Mclean, I'll hear from you on this subject. 157 MR. MCLEAN: Yes, and I may -- thank you, Mr. Chairman, and I may ask your indulgence to make a further comment after Mr. Rodger answers your question. In fairness, the question has been put in my submissions may, in part, be driven by the answer. 158 In any event, in order to be of assistance, I would have to indicate that on this point, Mr. Chairman, my instructions would be to respectfully oppose the suggestion that you have asked Mr. Rodger to address, Mr. Chairman. 159 Mr. Rodger himself has said that the past is relevant here. And with all respect to Mr. Rodger, I'm not so certain that my client would have any comfort in an undertaking given that Mr. Rodger himself may find himself in a difficult position having given to the Board, given that his client is a municipality that has a council that is made up of members who may have different views. 160 My position with respect to your question is that the undertaking itself may be difficult to give, but I'm quite certain that my instruction, and I haven't been instructed on this point particularly, but in an effort to be of assistance my instruction would be to oppose, Mr. Chairman, that suggestion. 161 MR. SOMMERVILLE: Your position is noted. 162 Mr. Rodger. 163 MR. RODGER: Thank you Mr. Chairman. 164 My submission, Mr. Chairman, or in respect to your proposal, in the Town's view it would be unsatisfactory. The whole driver here to the Town is to have information and as my friend for Granite says, we are dealing with a municipality, with a municipal council, and with ratepayers that have expressed concern to those councillors. The dilemma I would have is if I have to keep this knowledge to myself and are unable to disclose it to my client, how does my client benefit; how does my client get the information it needs pursuant to the issues it has raised. 165 MR. SOMMERVILLE: So that's not a suggestion that has any currency with you? 166 MR. RODGER: That's correct, sir. 167 MR. SOMMERVILLE: The Board will retire for ten minutes to consider its decision on this subject. We will make a ruling on that this morning, and as I said -- actually, give us until -- or I will take until 11:15, at which time, following that ruling, Mr. Fisher, are you in a position to proceed with a witness? 168 MR. FISHER: Yes, Mr. Chairman. 169 MR. SOMMERVILLE: Are there any other witnesses that are going to be called in this matter today? 170 Okay Mr. Fisher, you're the only party who's going to be leading evidence in chief, so we will stand adjourned until 11:15, and we'll see I then. 171 --- Recess taken at 10.:57 a.m. 172 --- On resuming at 11:23 a.m. 173 MR. SOMMERVILLE: Please be seated. Thank you. 174 RULING: 175 MR. SOMMERVILLE: The Board has considered the submissions of the parties on the subject and has come to a determination. 176 In its original filings with the Board, Canadian Niagara Power Limited provided copies of various financial statements for Granite Power Corporation covering a series of years. At the time of filing, Canadian Niagara made a request that the materials be retained as confidential material. The initial rationale for this request was expressed to be that, insofar as Granite Power Corporation, the distribution company, Granite Power Distribution and the generation company, Granite Power Generation, were private companies, that this material was of such a nature that it ought not to go on the public file. 177 I should indicate that as a matter, the presumption exists that materials filed with the Board are to be on the public record in the absence of good reasons to keep them confidential. 178 And of course, what we've tried to establish this morning is the core rationale and the coherence and strength of the reasons supporting retaining these materials as confidential materials for the circumstances of this case. 179 The claim for confidentiality was extended some days later upon receipt of correspondence from counsel for Granite Power Mr. Mclean, who asked that the purchase price assigned to the transaction and certain other material basically consisting of a portion of an organization chart should also be considered to be confidential. 180 The Board caused a notice to be issued to all of the intervenors respecting the request for the confidential treatment of the various materials. This notice, which outlined the nature of the claims and it contained copies of the correspondence supporting them and creating them. The notice invited submissions on the subject to be made by yesterday and both the Town of Gananoque and the City of Kingston did that. 181 In fact, the Town of Gananoque filed materials contesting the request. The focus of the Town's submissions was the initial request for the treatment of the financial statements as confidential materials. 182 The Town has asserted both in its written submission and in its oral argument before us today that the financial material should be part of the public record, because as a general rule, such materials have been so treated, and that the guidelines respecting filing requirements reflect and contain an implication that they will, in fact, be part of the public record. 183 It also stated in its written material that Granite Power or Canadian Niagara neither had provided any genuine rationale respecting harm in the event of disclosure. 184 In considering the issue, the Board is guided in part by Section 9 of the Statutory Powers Procedure Act. That section authorizes the Board to balance the general desirability of which I've already spoken of open access materials filed in such cases with the reasonable interests of parties who wish to keep private financial or transactional information private. 185 The key element in the consideration of any evidentiary issue is the relevance of the material to the issues under consideration in the case at hand. 186 In the instant application, the Board's consideration is limited to the extent that the proposed transfer serves the objectives outlined in the Act and that as an ancillary matter the implication of the acquisition of a distribution system by a company that has generation assets and the converse is in the public interest. 187 In this consideration, as I think has been noted most particularly by Mr. Meunier in his submissions, the overwhelming interest is not in the financial performance of the acquired company, but rather the viability and durability, to use his words, of the acquiring company, in this case Canadian Niagara. The financial performance of the acquired company is only relevant to the matter under consideration to the extent that its position could be so onerous to the acquiring company and the assumed liability so large that they threaten the continuation of the operation upon which the public reasonably relies and depends. 188 The public materials in this case make it clear that the acquiring company, Canadian Niagara Power Limited and its affiliate is well solvent. In its originating filing Canadian Niagara stipulated that there are no liabilities, and this is a key stipulation in my mind, there are no liabilities of the acquired operations that it cannot or will not assume. The acquiring company has significant successful experience in the operation of analogous systems to those being acquired. 189 In this context, making the financial statements of Granite Power seems to be of peripheral value. 190 Counsel for the applicant has indicated clearly that the -- and the application is consistent with this statement -- that the applicant has done its due diligence into the financial state of the distributor and is content that it can continue to provide the service that the citizens so properly rely on. There is, in fact, scant precedent in the Board's experience to determine our determination of this issue in this case. 191 The weight of precedent that was referred to is oblique at best. We are unaware of any case which is genuinely analogous to this one. 192 The overwhelming majority of cases brought under section 86 involve companies with very different characteristics than those involved in this case. 193 The Board is also highly motivated in this determination, that if we do not approve the transfer applied for, granting our leave pursuant to section 86, the acquired company would be in an invidious position wherein subsequent prospective purchasers, intervenors or not, would have access to detailed financial information, and the proposed purchase price, details which could be highly prejudicial in any subsequent efforts to sell the companies. 194 In making the determination with respect to confidentiality, we are obliged to balance the general public interest in open access with the core materiality of the material that's at issue and the potential harm of disclosure. 195 In this determination, of key importance is the fact that -- and I listen very closely, Mr. Rodger, to your submission on this subject, and your very able submissions, may I say, on this subject. The Board is very mindful of the interest and concerns that your client has with respect to the subject matters that you've raised and of key importance to us is the undertaking, which we regard as irrevocable on the part of the applicant in this case to bring a transparent rate application as soon as practicable following the consummation of this transaction. At which time the applicant, according to the normal processes of this Board will be obliged to provide all of the necessary information, historical and otherwise, to support its application for just and reasonable rates, and that the submissions which you made and while I can't speak for a subsequent panel, but the submissions that you've made are perfectly appropriate in the context of a rate application, a rate application which we expect, anticipate, and rely upon from the applicant. 196 The same thing is true with respect to the licence application that is before the Board. The Board fully expects that that licence application will be prosecuted competently with all necessary information. The Board notes that it has significant powers to require the filing of information with respect to applications before it. There should be no misunderstanding that we do and will make use of those powers if necessary, to ensure that all of the necessary information in order for the Board to consider matters before it is accumulated. 197 So in light of the fact that those applications, one is before the Board, and one is the subject of a firm undertaking from the applicant, those are extremely relevant matters in our determination of this subject. 198 On balance, in the particular circumstances of this case, the public interest, in our view, will not be significantly compromised by keeping the materials confidential, and the disadvantages and prejudices associated with disclosure outweigh the benefit of public disclosure. 199 This determination is highly specific to this case. It's an unusual case, as everyone in this room appreciates. 200 Are there any questions with respect to the Board's determination on the subject? 201 There being none, Mr. Fisher, are you prepared to proceed? 202 MR. FISHER: Yes, Mr. Chairman. 203 I'd like to call Mr. Tim Curtis as a witness. 204 MR. SOMMERVILLE: I'll swear the witness. 205 Could you state your name for the record, please. 206 MR. CURTIS: Tim Curtis. 207 MR. SOMMERVILLE: > How do you spell your last name? 208 MR. CURTIS: C-u-r-t-i-s. 209 CANADIAN NIAGARA POWER INC. - PANEL 1 210 T.CURTIS; Sworn. 211 EXAMINATION BY MR. FISHER: 212 MR. FISHER: Mr. Curtis, would you explain your position with the applicant for the Board, please. 213 MR. CURTIS: Yes, I'm an officer of both companies, Canadian Niagara Power Limited and Canadian Niagara Power Inc. My title with Canadian Niagara Power Company Limited is vice-president corporate development and chief financial officer, and with Canadian Niagara Power Inc. it's vice-president finance and chief financial officer. 214 MR. FISHER: Thank you. 215 Do you adopt the evidence submitted in the form of the MAAD application including additional filings of March 20th, 2003, in relation to sections 80 and 81 of the Act? 216 MR. CURTIS: Yes, I do. 217 MR. FISHER: Would you please describe for the Board the relationship of the applicant within the Fortis family of companies. 218 MR. CURTIS: I'll try. 219 We are, of course -- at the top of the food chain is Fortis Inc., which is a publicly traded company based in St. John's Newfoundland and it's widely held. They own 100 percent of Canadian Niagara Power Company Limited which is the licensed generator. Canadian Niagara Power Company Limited in turn owns Canadian Niagara Power Inc., the other applicant, 100 percent. In addition, we have 100 percent ownership of Cornwall Electric, and 10 percent ownership of Westario Power Holdings, and Rideau St. Lawrence Holdings. 220 MR. FISHER: Thank you. Please describe for the Board the general activity of the Fortis family of companies, and in particular its activities and operations in Ontario with respect to distribution and generation. 221 MR. CURTIS: Fortis Inc. is predominantly an electric utility company. They own Newfoundland Power, which is the distributor on the island of Newfoundland with a little over 200,000 customers. They own Maritime Electric, also 100 percent, which is the distributor on the island of Prince Edward Island. They also have holdings in the Caribbean, around 38 percent of Caribbean Utilities which is the Grande Cayman, and 67 percent of Belize Electricity in the country of Belize. And finally, in several of these utilities they also have some small generation -- hydro generation in Belize, in Newfoundland and also Fortis U.S., which owns some small hydro plants in upper New York State. 222 So the predominant business is electricity distribution and hydro generation. In addition, they do have a properties company, which is commercial and hotel properties in Atlantic Canada. 223 In Ontario, all their holdings are through Canadian Niagara Power Limited and we mirror our parent company in that our focus is electricity distribution and hydro generation. Our company was established in 1892 to build the Rankine Generation Station, which was the first hydro electric plant on the Niagara River on the Canadian side, and we've basically developed and grown since then. But our focus, and that of Fortis Inc. is electricity distribution and hydro generation. 224 MR. FISHER: Thank you. 225 Could you just sort of give us a brief outline for the reasons for this acquisition? 226 MR. CURTIS: Fortis has been successful over the last dozen years in terms of creating value for its shareholders through its growth. It originated as the holding company for Newfoundland Power and has grown successfully since then through acquisition. Our corporate strategy is to mirror that within the Province of Ontario. We believe that there is a role for a private, you know, publicly-owned but not public as in municipal, operator of electricity distribution and small hydro. There's a role and we believe we can provide and be a valuable member of that industry. 227 And so our corporate strategy is to grow through acquisition, and we've done that through the lease of Port Colborne and acquisition of Cornwall Electric, and 10 percent minority interest in Westario and Rideau St. Lawrence. If we are able to close this transaction it will be an additional step in that process. 228 MR. FISHER: And finally, if the Board approves this transaction, what will be your next steps with respect to rates and licences? 229 MR. CURTIS: As the chairman has indicated, we do covenant that we will be bringing to the Board promptly a rate application and a licence application, and that the rate application will be derived to basically reflect the general requirements of the -- a normal rate in Ontario, including, open access. We would waive the exemption that Granite currently has with respect to open access, and we would look to have transparent rates including the unbundling as currently required in most electric utilities. 230 MR. FISHER: Thank you. 231 Mr. Chairman, those are my questions. 232 MR. SOMMERVILLE: Thank you. 233 Mr. Rodger or Mr. Meunier or Ms. Lea; who wants to go next? 234 MS. LEA: I think Mr. Rodger indicated that he was content if I proceed; is that correct? 235 MR. RODGER: That's fine, Ms. Lea. 236 MS. LEA: Mr. Meunier, you're content with that also? 237 MR. MEUNIER: Yes. 238 MS. LEA: Thank you. With your leave, then, Mr. Chairman, I do have some questions of the applicant. 239 MR. SOMMERVILLE: Just before you start, it's my expectation we try to break at 12:30, depending on where we are at in terms of the procedure today, but I would normally break at 12:30 for, say, an hour, and we'll see where we are at that point, if that's of any assistance to the parties. 240 Sorry, Ms. Lea. 241 CROSS-EXAMINATION BY MS. LEA 242 MS. LEA: Thank you. 243 Mr. Curtis, I just wanted to clarify a few matters with you with respect to the filing of this application. And the first is that it is now Canadian Niagara Power Inc. as you've indicated, who is the applicant and I gather that that flows from the exercise of a right in section 10.6 of the agreement for the original purchaser, CNPL to assign its rights to any affiliate; am I correct about that? 244 MR. CURTIS: Yes, you are. 245 MS. LEA: And in that regard, then, there are several -- 246 MR. CURTIS: Actually I should clarify with respect to the purchase of the distribution business. 247 MS. LEA: Okay. 248 MR. CURTIS: The generation business would be purchased by Canadian Niagara Power Limited, keeping the separation. 249 MS. LEA: All right; thank you for that clarification. There are several places in the application where I think then there needs to be some correction of who is the applicant, and although this may be a little bit dull, I think we need to get the record clarified in that regard. Do you have the cerlox-bound application before you? 250 MR. CURTIS: Yes. 251 MS. LEA: Thank you. 252 I wonder if you could begin by turning to tab A, page 5, please. 253 MR. CURTIS: Okay. 254 MS. LEA: In paragraph 1.4.2, it says CNP shall pay Granite Power. Who is it there that's going to be paying Granite Power the undisclosed amount there? 255 MR. CURTIS: It would be both companies for the two relevant parties. 256 MS. LEA: Both parties; all right. Thank you. 257 And 1.4.5, you've indicated that CNPL proposed to continue providing local service based in the Town of Gananoque. Would that be CNPI now as the acquisitor of the distributor? 258 MR. CURTIS: Yes. 259 MS. LEA: Thank you. 260 And at 1.5.4, over the page, it says "the transaction will result in CNPL acquiring control of Granite Power Distribution and Generation." 261 Do I understand now it would be CNPI acquiring control of Granite Power Distribution and CNPL acquiring control of Granite Power Generation? 262 MR. CURTIS: Yes. 263 MS. LEA: Thank you. 264 Still on page 6, there's a section 2.3 with several subsections under that dealing with the protection of the interests of consumers. That appears to all relate to the distributor. Where it relates to the distributor, is it CNPI who is making these undertakings? 265 MR. CURTIS: Yes. 266 MS. LEA: Similarly page 9, 3.1.2. Is CNPI applying to the electricity distribution licence? 267 MR. CURTIS: Yes. 268 MS. LEA: Similarly page 11, 4.1.1, CNPI would be applying for the distribution licence? 269 MR. CURTIS: Yes. 270 MS. LEA: Just for your information and this can be dealt with at the end of the case, applications for the licence are made to the director of licensing under Section 60 of the OEB Act, but they can be referred to the Board. 271 Now, there was one further matter, which I think may be a slight inaccuracy in the application. Again, for the purposes of clarifying the record, which is part of my job. 272 Page 6, it is a paragraph immediately 1.5.4, and it begins "GPGC is subject to a Board order ..." And so on. That would be GPD, D for distribution that is subject to that Board order? 273 MR. CURTIS: Yes. 274 MS. LEA: And the Board order, has, in fact, been rescinded; is that your understanding? 275 MR. CURTIS: Yes. 276 MS. LEA: All right. Thank you for bearing with me with respect to that. 277 Now, I understand you talked about the position of these companies, the applicant companies with respect to Fortis Inc. I understand there's an application before the Board to grant leave for Fortis Ontario to acquire 100 percent of the shares of Canadian Niagara Power Limited; am I correct? 278 MR. CURTIS: Yes. 279 MS. LEA: If that then occurs it would be Fortis Ontario that would be the parent of CNPI and the Cornwall interest; is that right? 280 MR. CURTIS: That's correct. 281 MS. LEA: Okay. One moment. 282 More completion of the record type questions. Several schedules, we have an agreement at tab E of the filed materials, and several schedules referred to in that agreement are missing. There's a list of schedules that are referred to in the agreement at pages 12 and 13 of the agreement, and I just wanted to update the record as to what schedules are missing. And if you look at page 13, do you have this information, sir? Is this something you can answer or is this something that your counsel would have to answer for you as to what's missing? 283 MR. FISHER: Ms. Lea, I have provided information with respect to the schedules that have -- were not provided in the initial filing. 284 MS. LEA: All right. I understand that you provided information to staff by way of correspondence in that regard; is that right? 285 MR. FISHER: That's correct. 286 MS. LEA: All right, then I can rely on that information. And the reason that I'm raising it now is just to get it on the public record at this proceeding, so I will do that quickly, and perhaps your witness or yourself could tell me if I'm wrong with respect to any of these things. 287 MR. CURTIS: You may rely on the information provided by my counsel. 288 MS. LEA: Okay. Thank you. So for the record then schedule 3.2.1 is not in the filings. Schedule 3.2.3(f) and (j) -- schedule 3.3.0, that's indicated as being a nil schedule. I was -- just had a concern about that. Mr. Curtis, there are no disclosures then to be made pursuant to that schedule; that's your understanding? 289 MR. CURTIS: That's correct. 290 MS. LEA: You've stated in your application that you are prepared to assume the liabilities of the vendor, subject to the provisions, of course, of the agreement and this also applies to environmental liabilities? 291 MR. CURTIS: Yes. 292 MS. LEA: Okay. Further down that list on page 13, schedule 3.32 B and C and schedules 3.33(d) and (e) and schedule 3.36 are not in the filing. I have no questions about those schedules. 293 Now, I understand that as this transaction involves a share purchase, the licensed entity, that is Granite Power Distribution will remain the same and there is no need in this transaction for any transfer of that licence to a new company. You intend to keep that company alive, is that right? 294 MR. CURTIS: At this time, yes. 295 MS. LEA: Okay. And you've indicated that you have made application or will make application for a permanent electricity distribution licence as part of this application. 296 You are aware that there are licence compliance issues, I gather, as disclosed by the vendor in the schedules to the agreement. The schedule I'm particularly thinking of is schedule 3.11(a), which discloses some issues in that regard. Are you aware of the fact that there is one or more licence compliance issues? 297 MR. CURTIS: Yes, we are aware. 298 MS. LEA: I noted in schedule 3.22 to the agreement that it is stated here that regarding the $75 rebate and the -- which is mandated by the legislation, and monies received from Hydro One in regard to payments to consumers, I note from that disclosure that there is no liability accrued in the books for these amounts as the vendor takes the position that the distribution company has no obligation to pay these amounts. 299 Do you understand that to be the case with respect to this schedule? 300 MR. CURTIS: Yes. 301 MS. LEA: And I also noted that there is an indemnification clause in the agreement whereby the vendor would indemnify the purchaser under certain conditions and within certain limits for these amounts, if there is some order for distribution to pay them. Are you aware of that indemnification clause? 302 MR. CURTIS: Yes. 303 MS. LEA: And are you satisfied then with the status as disclosed in the application regarding these issues? 304 MR. CURTIS: Yes. 305 MS. LEA: You indicate in -- just one moment. Paragraph 4.1.2 in tab A of your application. All right, you indicate there that any exemptions from a provision or a rule of -- okay, I'll start again. 306 Any exemptions from a provision of a rule or code will be filed with the OEB as a separate application. Are you referring there to exemptions from Board rules and codes? Is that what that's a reference to? 307 MR. CURTIS: I believe so, yes. 308 MS. LEA: I just need to understand if that is, in fact, what you're referring to. There is no other rules or codes I'm thinking of, but you recognize if you need an exemption from the Board, you have to apply for it? 309 MR. CURTIS: Yes. 310 MS. LEA: All right. 311 Regarding the status of your licence at this time, then, there is an interim licence in the possession of the distribution company that's the subject of this transaction, and by a letter dated February 27th, 2003, the Board extended the term of that interim licence to April the 14th, 2003, or to the closing date of this transaction, whichever came first. 312 Are you aware of that letter of the Board and the state of the interim licence of the distributor? 313 MR. CURTIS: Yes. 314 MS. LEA: I gather, then, if the Board does approve this transaction that you would need some extension to the interim licence as of the date of your -- of the closing of this transaction until the permanent licence application is. Would that be your position? 315 MR. CURTIS: Yes. 316 MS. LEA: Thank you. 317 A little bit more information about Canadian Niagara Power Inc., if you please. I gather from the evidence that the company was incorporated in 1999 to take over the wires business of the predecessor companies; am I correct about that? 318 MR. CURTIS: Yes. 319 MS. LEA: When did you acquire Cornwall Electric? 320 MR. CURTIS: In October of 2002. 321 MS. LEA: October of 2002, okay. 322 MR. CURTIS: That is, Cornwall Electric was owned by the parent company Canadian Niagara Power Company Limited. 323 MS. LEA: So it's not owned by CNPI but by the parent? 324 MR. CURTIS: That's correct. 325 MS. LEA: Thank you. 326 Where is the Rankine Station, that's R-a-n-k-i-n-e Station? 327 MR. CURTIS: It's located in Niagara Falls, Ontario, on the crest of Niagara Falls. 328 MS. LEA: What company operates that? 329 MR. CURTIS: Canadian Niagara Power Limited. 330 MS. LEA: Will the transactions that are proposed in this application affect the operations of the Rankine Generating Station? 331 MR. CURTIS: No. 332 MS. LEA: What about the Cornwall Generating Station? 333 MR. CURTIS: No. 334 MS. LEA: Now, you filed a supplemental filing with respect to certain matters which we indicated that we thought were missing from the original application. And I'm looking at question 3.6.4 of that supplemental filing. You might want to have it in front of you, and this relates to the Rankine Station. 335 In your response to the request for information under 3.6.4, you indicated that Fortis Ontario was not able to comment on the contracts between the IMO and the OPGI as they are not a party to the contracts. Have you any reason to believe, sir, that anything has changed since the previous filing, in which you indicated that there were no must run contracts with respect to Rankine? 336 MR. CURTIS: I don't have any reason to believe there's been any change. 337 MS. LEA: That was must run, two separate words. 338 You've indicated in your application that CNPI and your affiliates are in compliance with the legislation and licences and codes and rules of the Board; is that the case, sir? 339 MR. CURTIS: Yes. 340 MS. LEA: Do you intend to run the distribution company and the generation company that you're proposing to acquire so that they comply with all those things? 341 MR. CURTIS: That is our intent. 342 MS. LEA: I have some questions about the company that you propose to acquire, and I'd like you to look please, at tab C of the application. That's the cerlox-bound application, tab C, and this is the corporate organization chart of Granite Power. 343 As I understood it, Granite Power corporation is a holding company and it states in the written application that you are acquiring Granite Power Distribution Corporation and Granite Power Generation Corporation. What's happening to the other two entities that are listed as subs of Granite Power Corporation? 344 MR. CURTIS: We are also acquiring those under a separate agreement. 345 MS. LEA: When you say we, who is going to be acquiring those? 346 MR. CURTIS: Canadian Niagara Power Company Limited. Actually, there has been a final -- whether we allocate down to CNPI. 347 MS. LEA: It's either the Company Limited or Inc., Canadian Niagara Power that will be acquiring these. 348 MR. CURTIS: Yes. 349 MS. LEA: What are your plans with respect to providing street lights in the Town of Gananoque, or have you come up with plans yet? 350 MR. CURTIS: Well, we have a contractual commitment between one of the Granite Power companies and the Town of Gananoque, so we would be assuming that. So we would be sticking with those commitments, and of course, we would try to ensure that the standards of any services provided are those equivalent to Fortis Ontario standards. 351 MS. LEA: To Fortis Ontario standards? 352 MR. CURTIS: In terms of -- 353 MS. LEA: I just didn't hear. 354 MR. CURTIS: Yes, Fortis Ontario standards. 355 MS. LEA: Thank you. We're being recorded and it's important to have clear speech, thank you. 356 And I understand that you would be cooperating with the Town with respect to any discussions with respect to the provision of street lights? 357 MR. CURTIS: Most definitely. 358 MS. LEA: Do you provide street lighting in the City of Kingston as well or only in the Town of Gananoque? 359 MR. CURTIS: I do not know. 360 MS. LEA: I shouldn't have said do you, I should have said do the corporations you're proposing to acquire. 361 I'm getting ahead of myself here. Okay, thank you. One moment, please. 362 A few questions about the -- continuing on about Granite Power. Just trying to find my reference. It was obviously not sufficiently detailed. One moment, please. 363 Page 4 of tab A in the application, the paragraph immediately preceding 1.3.2. You indicate there that the stations owned by Granite Power Generation Company supply 15 percent of the demand of the distribution company through intercompany contracts and the remaining demand is purchased from the IMO-administered market; is that correct? 364 MR. CURTIS: Yes. 365 MS. LEA: I gather that the power that you purchase from the market is actually purchased from Hydro One; is that right? 366 MR. CURTIS: That's correct. 367 MS. LEA: In your supplemental filing -- this still relates to the generation company -- at question 3.4.2, you've provided partial information there. You have not included the total annual production with respect to the generators owned by the generating company. I gather that one reason for this is before the transaction closes you're sensitive to confidentiality issues in that regard? 368 MR. CURTIS: That's correct. 369 MS. LEA: The Board needs some information about the total annual production or output of these generating stations. Do I understand correctly that it would be less than 20,000 megawatt hours per annum would be the total production? 370 MR. CURTIS: The production will vary from year to year. So are you just looking for the -- 371 MS. LEA: Average, yes. 372 MR. CURTIS: Yes, that is correct. 373 MS. LEA: There was also an answer to question 3.4.4 in your supplemental filing that I wanted to explore further and that was the statement that the plants could serve or expected to serve a load pocket, and I'd like to explore that a little further with you. 374 If your understanding of Granite Power distribution and generation, the operations, physical operations of these entities, could -- could all the power needed to supply the customers of distribution be taken from Hydro One if that was necessary? 375 MR. CURTIS: Most definitely. 376 MS. LEA: So I'm not sure that I understand your answer that the generation plants are excepted to serve a load pocket, unless we have a different understanding of what a load pocket is. 377 MR. CURTIS: It was probably a misunderstanding on our point as to the meaning of load pocket. But basically we have investigated this further, and the full requirements of the Town of Gananoque can be served off the grid from Hydro One without the use of the generators. 378 MS. LEA: All right. That's helpful. 379 You've also indicated in your evidence that you plan to allow open access, non-discriminatory open access on the distribution system for supply; is that correct? 380 MR. CURTIS: Yes. 381 MS. LEA: In that circumstance, the generation plants that you are proposing to acquire would be what are generally called price takers; am I correct? 382 MR. CURTIS: Yes. 383 MS. LEA: Would you intend to operate them in a manner such that they are price takers? 384 MR. CURTIS: Yes. 385 MS. LEA: Okay. Thank you. One moment. 386 I'd like to ask some questions about the issue of financial viability, which has been discussed a little bit already this morning. 387 You have indicated in the application at the time that the application was made, you've indicated that the impact of the transaction on Canadian Niagara Power Limited would be de minimis. Is that what you said? 388 MR. CURTIS: Yes. 389 MS. LEA: Is this still true now that the applicant is Canadian Niagara Power Inc.? 390 MR. CURTIS: I'm not sure I know the answer. I am not sure what the technical definition of de minimis is. 391 MS. LEA: Okay. Okay. It's a legal term. The only reason I use it was because it was in your filing. You've indicated -- let me ask the question another way, then. 392 The impact of the transaction on Canadian Niagara Power Inc. would be very small? 393 MR. CURTIS: Yes. 394 MS. LEA: Is this due in part to the availability of the internal financing from Fortis? 395 MR. CURTIS: Fortis or within the Canadian Niagara Power group of companies. 396 MS. LEA: But what I'm asking you is is that a factor in the statement that the effect of this transaction would be very small? 397 MR. CURTIS: Yes, it is. 398 MS. LEA: Can you describe a little bit for me the general financial position of Fortis. 399 MR. CURTIS: Fortis has a very solid financial position. It gets very good ratings from all the various analysts that cover the company. It's price is at or near an all time high. It's capital structure is consistent with those in this industry. 400 MS. LEA: I think I understand from the filing that it had about a $2-billion asset base; am I correct? 401 MR. CURTIS: That's correct, and it's market cap is around $850 million. 402 MS. LEA: Okay. Thank you. 403 And although the purchase price in this matter is not on the record, do I understand that that purchase price would represent a very small percentage of the total assets of Fortis if it were acquired? 404 MR. CURTIS: Yes. 405 MS. LEA: Are there any financial liabilities that you are unwilling to assume in this transaction? 406 MR. CURTIS: No. I mean the purchase agreement spells out certain steps that must take place, but the answer is no. 407 MS. LEA: Okay. 408 There has been an indication in the disclosures -- I think it's schedule 3.2.3, but don't quote me. Here we go, yes, schedule 3.2.3(a). There's a statement here that the market opening and the current regulatory framework have caused and are causing significant financial loss to the purchased corporations and the business. You're aware of that disclosure? 409 MR. CURTIS: Yes. 410 MS. LEA: In the knowledge of that disclosure, are you still indicating that there are no financial liabilities you are unwilling to assume, subject to the provisions of the agreement which is before us? 411 MR. CURTIS: Yes. 412 MS. LEA: Is there any danger that this transaction would be a burden or risk to the existing ratepayers served by the Fortis group of companies? Those in the Fort Erie area or those in Cornwall. 413 MR. CURTIS: No. 414 MS. LEA: At schedule 3.13, again in the schedules to the agreement, and it's in (f). Now, I don't have a numbered page for you. Just a moment. 415 MR. CURTIS: Unfortunately, I don't think we brought the schedules. 416 MS. LEA: Oh, you don't have the schedules, all right, well -- yes, I think we have a clean copy we can lend you. I'll give you time to find it, anyway. 417 It may not even be in the schedules. Just a second. Sorry about this. No, I've obviously got the wrong reference. 418 Okay, in the schedules -- and I would love to find you the reference, but now I can't, I can try to do that within the next few minutes -- there's a reference to an amount that is sought by Ontario Hydro -- or Hydro One, rather. Here we go, yes, 3.18(f). 419 MR. CURTIS: That's correct. 420 MS. LEA: Again, my schedule pages are not numbered, but it's schedule 3.18(f). It indicates here Hydro One has requested that Granite Power Distribution Corp. provide a letter of credit in a certain amount. What's the reason for that? 421 MR. CURTIS: That would be the prudential requirements as required by Hydro One in its capacity as the seller of electricity to Granite Power. The IMO provides prudential requirements for the other Canadian Niagara Power distribution companies. 422 MS. LEA: So as I understand it, you're saying Hydro One requires this amount from you because it supplies -- from the distribution companies because it supplies power to the distribution company? 423 MR. CURTIS: Yes. 424 MS. LEA: Turning to the operation of the distribution system itself. You've indicated that you have satisfied yourself as purchaser, that you're willing to acquire the shares of this company. 425 How did you ascertain in doing your due diligence, how did you ascertain the state of the distribution assets of the distribution company? 426 MR. CURTIS: Yes, our employees were conducted on tours and were able to visit all the relevant sites within the distribution system and satisfied themselves as to the operating condition of the assets. 427 MS. LEA: Were those employees experienced in operating a distribution system? 428 MR. CURTIS: Yes. 429 MS. LEA: Was there anything that they discovered that gave you pause in terms of completing this transaction or makes you think you might not be able to run the assets properly? 430 MR. CURTIS: No. 431 MS. LEA: How did you do you your due diligence in ascertaining the financial position of the distributor? 432 MR. CURTIS: We were provided access to the auditors and the auditor's financial statements of the company, and of course, the transaction is structured in a manner to protect us financially. 433 MS. LEA: Now, I recognize that your answer for this question in part will rely on or will depend on the rates set by the Board, but are you confident in your ability to run the distributor as a financially viable utility? 434 MR. CURTIS: Yes. 435 MS. LEA: You've indicated that you are familiar with the characteristics of the system, and your evidence in chief has indicated that the Fortis Group of companies has operated distribution systems before; is that correct? 436 MR. CURTIS: Yes. 437 MS. LEA: With regard to the generation stations, is the proposed purchaser experienced in operating those type of facilities? 438 MR. CURTIS: Yes. 439 MS. LEA: What is the basis of your experience there? 440 MR. CURTIS: Well, in Ontario, we operate the Rankine hydro electric facility in Niagara Falls. We also, within Fortis we have experience. We have four hydro electric plants in upper New York State and about a dozen small hydro plants in Newfoundland, plus in Belize there's a small hydro electric plant there. So that knowledge is disseminated through out Fortis companies, including within Ontario itself with Rankine. 441 MS. LEA: Can you provide a similar indication of your experience in running distribution companies in Ontario and elsewhere? 442 MR. CURTIS: Certainly. I mean Canadian Niagara Power has been -- owned and operated a distribution utility in Fort Erie since 1907. Since last April we've been the operator of a distribution utility in Port Colborne, and Cornwall Electric has operated the distribution utility in Cornwall and some of the surrounding counties are also close to 100 years. In addition, in both cases we will be taking on employees from the Granite Power companies who are experienced in the generation and distribution within those particular sites. 443 MS. LEA: All right, thank you. At schedule 3, point 11 to the agreement there's a list of titles, deficiencies and encumbrances and again, I don't expect you to give any legal opinion with respect to these, but given those disclosures, are you concerned that any of these will prevent you from operating the system properly? 444 MR. CURTIS: No, we caused extensive due diligence with respect to title and rights. 445 MS. LEA: Thank you. 446 And there's disclosures under schedule 3.39 of occupational health and safety matters. I have two questions with respect to that. First, are you concerned about those aspects in closing the transaction; and secondly, if you acquire these companies, do you intend to work towards coming into compliance where necessary? 447 MR. CURTIS: We are not concerned; and yes, we do intend to come into compliance in a manner consistent with all Ontario companies. 448 MS. LEA: You have indicated that you intend to operate the distribution company in accordance with Fortis standards; is that correct? 449 MR. CURTIS: Yes. 450 MS. LEA: If the Board were to try and understand what those standards are, what utilities in Ontario would it look at? Would it look at the Fort Erie operations or the Cornwall operations, or both? 451 MR. CURTIS: Both, but I would argue the lead would be the Fort Erie operations given our long-standing operations there and the fact that we purchased Cornwall Electric last October, and we are now working with Cornwall Electric in terms of combining the standard operations. 452 MS. LEA: The last part -- 453 MR. CURTIS: We are now working with Cornwall Electric in terms of coming up with standard operating procedures. 454 MS. LEA: Okay. If the Granite Power distribution system requires any improvements to achieve Fortis standards, are you prepared to make those improvements? 455 MR. CURTIS: Yes. 456 MS. LEA: And what time frame do you estimate for achievement of Fortis standards with respect to this system? 457 MR. CURTIS: Hard to say, because it would depend on individual situations. Generally, with a stable system such as a distribution system, it's something you create a long term plan and work at over time. You identify immediate deficiencies and attack those immediately, others you build into your long term planning. 458 MS. LEA: What is long term with respect to a distribution system? 459 MR. CURTIS: It could be anything from five to ten years at least. 460 MS. LEA: Turning to the question of the public interest benefits to be gained from this application, you have stated in your application that the transaction will materially benefit the customers of Granite Power Distribution Corporation. Could you provide examples of these benefits? 461 MR. CURTIS: Certainly I guess the best example would be the reception we've received in Gananoque since the public announcement of this transaction. We've had numerous phone calls and contacts from repairs in Gananoque and other customers of Granite Power stating that they are looking forward to the closing of the transaction, looking for information about Fortis Ontario. 462 We also made a presentation to municipal council, at the end of which we received an ovation, which I think is highly unusual for a utility. 463 MS. LEA: Okay. I guess my question didn't go to what public reception have you received, although I thank you for the update to your information on consultation. 464 Your application asserts that there will be benefits to the public, and I'd ask you to give us examples of the benefits. 465 MR. CURTIS: Well, one, as has been indicated, we will be coming to the Board with a rate application very shortly after closing, should we be successful, and we believe in that case the public will benefit through the transparent rate setting process, the fact that they will have unbundled rates, and the fact that they will have access to retailers. We also believe that the Fortis Ontario standards in terms of operating the utility will be beneficial just based on our experience. 466 MS. LEA: You spoke to this briefly before, the distribution company presently has an exemption from compliance with section 26(1) of the -- or section 26 I guess, I don't know the sub -- of the electricity Act. You indicated that you intend to waive that exemption; am I right? 467 MR. CURTIS: I'm not sure of the technical requirements, but that's essentially our intent, yes. 468 MS. LEA: Okay. Your intent, as I understand it, is to provide non-discriminatory open access to the distribution system. 469 MR. CURTIS: Yes. 470 MS. LEA: One moment please. 471 In the application in tab A at paragraph 2.3.4, you've indicated that you have no plans to implement rate harmonization. Do I gather from this that not only will the rate application be transparent, but that it will be specific to the ratepayers that are presently served by Granite Power Distribution Company? 472 MR. CURTIS: Yes. 473 MS. LEA: You've indicated -- sorry, I don't have a reference for you, but you have indicated in your application that their economic efficiencies will result from association with the Fortis group of companies. Can you be more specific about that? 474 MR. CURTIS: Difficult to characterize at the moment. Certainly the operations in Gananoque will be managed in conjunction with our operations in Cornwall, Fort Erie, and Port Colborne, so, there are some efficiencies as a result of that. How much they are and how they relate to other expenditures that we will be incurring in terms of, for instance, getting computer systems up and running to handle the new rates. It's hard to estimate at this time. 475 MS. LEA: One of the reasons I ask that question is you indicate in your evidence that you will maintain a service centre in Gananoque. Does this mean that local operation and maintenance and emergency call local service will continue? 476 MR. CURTIS: Well, the service centre will be predominantly focused on where customers can have direct individual contact. We believe that is important that the only connection not be telephone calls. 477 In terms of the reliability and that, I mean the operation would be structured so that there is reliable service that the customers can count on. 478 MS. LEA: I guess what I'm trying to do is jive the two statements together. You've talked about economic efficiency, but you're also talking about maintaining a certain standard of service, and I need to understand whether the standard of service will be compromised to gain operational efficiencies or whether economics will be compromised to maintain a standard of service, or whether those two are, in fact -- 479 MR. CURTIS: Our experience has been, as we've expanded in Ontario, that the -- any efficiencies to be gained are not in the areas of customer service, be that office personnel or line crews and planning and whatnot. Any efficiencies are more on the -- behind the scenes in terms of administration, billing, things like that. We believe that we can continue to provide the same level of service. 480 MS. LEA: In a general sense what will be the effect of this transaction on the employees of the acquired companies? 481 MR. CURTIS: As indicated, we intend to keep an office there, and we do -- we have a system there that we need to operate. I can't comment on individual employees. 482 MS. LEA: You've indicated in your application at 2.6.1 and 2.6.2, there had been some discussion about the environmental policies and programs. Just one moment, I'll turn that up. 483 What are the environmental policies and programs of CNPL and its affiliates? 484 MR. CURTIS: We do have a -- an environmental policy, which I don't have with me on hand, however, we do try to get our operation so that they are client with ISO-14001 and our operations and Port Perry and Port Colburne are, and in time -- that is not a simple process. 485 MS. LEA: What about programs specifically directed at consumers, energy conservation or something like that. Do you have such programs in any of your distribution utilities? 486 MR. CURTIS: We have energy education. For instance, we visit schools and talk to the children about the dangers of electricity, and -- so those are some of the things that we do. That would be an example that comes to my head. 487 MS. LEA: At the present time you do not have demand side management programs, for example? 488 MR. CURTIS: No it's our understanding that that whole area is something that's being looked at by the government of Ontario. 489 MS. LEA: The Board received a letter of concern from the Township of South Frontenac. Have you had an opportunity to look at that letter? 490 MR. CURTIS: Yes. 491 MS. LEA: Just let me see if it's on the exhibit list. I think it is. 492 I don't see the letter listed on the exhibit list, but I can certainly make it an exhibit at this time, just to be sure. 493 Does the Board panel have the letter from the Township of South Frontenac? 494 MR. SOMMERVILLE: I have it here somewhere. Yes, I do. 495 MS. LEA: As I don't presently see it on the exhibit list, why don't we -- or the Board make it Exhibit J.1.1, just so we can refer to it as necessary. 496 MR. SOMMERVILLE: Thank you, Ms. Lea. 497 EXHIBIT NO. J.1.1: LETTER DATED MARCH 13, 2003 TO THE BOARD FROM THE TOWNSHIP OF SOUTH FRONTENAC 498 MS. LEA: So the letter dated March 13th, 2003 -- 499 MR. SOMMERVILLE: Do all parties have a copy of this letter? 500 MS. LEA: I thought it been copied to you? One moment, please. 501 MR. SOMMERVILLE: Thank you, Ms. Lea. 502 Do you have a copy, Ms. Lea? I can share with my colleague. 503 MS. LEA: Thank you. That's okay. I think I've taken the quote out of it I need. Thank you -- thank you, sir. Thanks very much. 504 I think the speed with which we proceeded to hearing subsequent to the intervention date has had an effect on who has been receiving copies. Now that I look at the letter it doesn't look like it was copied to anyone except the applicant. 505 All right, so the Township is concerned about water levels, and I was wondering if you were willing to comply with the request that they make, which I guess would be, are you willing to work with the Township as to ensure a well-defined process by which water levels are controlled for the inland lakes they are concerned about, if, in fact, you acquire the generation plants as proposed? 506 MR. CURTIS: Yes, it would be our intent to increase the communication with the Township and to work with them without, however, compromising our ability to -- you know, we have certain rights and we have requirements in terms of running these plants, but we will be working closer with the Township. I think it's in our best interest over the long run that we develop a good working relationship with them. 507 MS. LEA: I understand that Parks Canada as well has an effect on the operation of the generation facilities? 508 MR. CURTIS: Yes. 509 MS. LEA: I guess the bottom line is I just want to be assured that communication would continue and be effective with respect to these bodies. 510 MR. CURTIS: Yes. 511 MS. LEA: Thank you. One moment. 512 If I could just have a moment Mr. Chairman, to determine if there are any other questions that I have neglected. 513 I gather, sir, that the hydro electric plants that you're proposing to acquire are to a certain extent run of the river, but they do have some storage capability as well? 514 MR. CURTIS: Yes. 515 MS. LEA: Thank you. Thank you very much. 516 Those are my questions, Mr. Chairman. 517 MR. SOMMERVILLE: Thank you, Ms. Lea. 518 It's now 12:30. Now, we can carry on if that suits scheduling for parties. I'm prepared to hear submissions on that subject. Normal practice would be to break, and you could commence your cross-examination, Mr. Rodger, upon our resumption. Similarly, Mr. Meunier, cross-examination could follow our break or if you want, we can proceed now. Whatever the balance of convenience for the parties is, we're prepared to accommodate. 519 MR. RODGER: I think Mr. Chairman, I would prefer to take a break for lunch, so -- Ms. Lea has touched on some of the issues, so that would give me a chance to look through my notes and see where I am. 520 MR. SOMMERVILLE: Very good. We will reconvene at 1:30. Thank you. 521 --- Luncheon recess taken at 12:26 p.m. 522 --- On resuming at 1:36 p.m. 523 MR. SOMMERVILLE: Thank you very much, please be seated. 524 I think as I was referring to the Statutory Powers Procedure Act earlier today, I referenced section 10, and I think I was reading from an old version. It should have been reference to section 9, Statutory Powers Procedure Act. 525 Are there any preliminary matters. 526 MR. FISHER: No, Mr. Chairman. 527 MR. SOMMERVILLE: Mr. Rodger, are you prepared to cross-examine? 528 MR. RODGER: Yes, thank you Mr. Chairman. 529 CROSS-EXAMINATION BY MR. RODGER: 530 MR. RODGER: Mr. Curtis, I'd like to start with a couple of clarification matters. I believe you had stated to Ms. Lea that assuming these transactions are approved by this Board that Granite Power Distribution Corporation will remain for, at least some time, an entity after the transaction closes; is that correct? 531 MR. CURTIS: Yes. 532 MR. RODGER: Does the same apply to Granite Power Generation Corporation? 533 MR. CURTIS: Yes. 534 MR. RODGER: In your filing application, and again I believe Ms. Lea made reference to this in part 4.1.2 to the effect that both parties will be in compliance with all applicable codes and rules before and after completion of the proposed transaction, and these rules and codes, of course, are all pursuant to the existing legal regime. 535 I take it you'd agree with me that after closing of this transaction, Granite Power Distribution Company and Granite Power Generation Company will both be subject to the Ontario Energy Board Act as amended and the Electricity Act as amended? 536 MR. CURTIS: That would be my understanding. 537 MR. RODGER: And on the issue of the current exemption that Granite has concerning open access, I believe you indicated Ms. Lea that -- or perhaps it was in chief -- that your company would be prepared to waive the exemption to ensure non-discriminatory open access. I believe that exemption is pursuant to regulation and I'm not sure it can just simply be waived by you. And I'm wondering if you would be prepared to give us an undertaking, for the record, that after closing you would write to the Government of Ontario and ask them to rescind the exemption formally. 538 MR. CURTIS: I don't know what the sort of legal requirements are. What we stated was our intent; in terms of how we go about it, I see it as really being part of the rate application; you know, if it has to be some parallel process, we will look into that. 539 MR. RODGER: You're not adverse to seeking that kind of rescinding from the province formally? 540 MR. CURTIS: I'm not adverse to it. We just have to look into it. 541 MR. RODGER: I'd like to turn to the consumer benefits associated with this transaction. Again, this makes reference to various issues on Section 2 to 3 of the filing requirements, which you were required to provide information about. 542 Would you agree with me, Mr. Curtis, that one of the significant benefits your company brings through this transaction is to bring financial stability and comfort that the Granite companies that you're acquiring will no longer about in distress under your ownership, as under CNP ownership? 543 MR. CURTIS: Well, certainly, they would become part of Fortis, which is a large, you know, public company, with responsibilities to match with that. You know, I can't speak to what the rates will be until we have a rate application that's been approved. 544 MR. RODGER: I guess I'm not thinking of rates. I'm just thinking of overall financial stability of these two companies. That's going to be eliminated once this transaction closes, I take it? 545 MR. CURTIS: That would be our intent. 546 MR. RODGER: Because if you -- Ms. Lea had made reference to schedule 3.2.3 and it just had to do that CNP was prepared to assume all liabilities of Granite, and this 3.2.3 makes reference to the statement contained in the schedule that the market opening and the current regulatory framework have caused and are causing significant financial loss to the purchased companies and the business. 547 And I take it that once this deal closed, that statement is irrelevant as far as Canadian Niagara Power is concerned? 548 MR. CURTIS: Sorry, where are you referring to? 549 MR. RODGER: I'm referring to schedule 3.2.3 and it's the second paragraph, and I believe Ms. Lea also made reference to this. 550 MR. SOMMERVILLE: Is it 3.23? 551 MR. CURTIS: 3.23(a), I believe. 552 MR. RODGER: I beg your pardon, Mr, Chairman. Thank you. 553 MR. SOMMERVILLE: Thank you. 554 MS. LEA: Schedule 23 in the 3 series. 555 MR. SOMMERVILLE: Thank you. 556 MR. CURTIS: I can't speak to the current ownership in that situation. As we've indicated, our intent will be to bring to the Board a rate application following closing, and one of the aspects of that will be the fact that we're looking to provide normal rates, which would include the pass through of the cost of power to those -- to all customers, and then, of course, some of those, we assume, will be governed by Bill 210 in terms of having a 4.3 cent rate. 557 MR. RODGER: Mr. Curtis, my question wasn't with respect to rates around this year. It was simply that -- I'm not asking about the Campbell's position now. I'm saying once you, CNP, assumes ownership of these two companies, this statement we see -- that I've just referred to in 3.23 is irrelevant as far as CNP is concerned because you won't have these issues once you own these companies. 558 MR. CURTIS: It is our plan to address -- 559 MR. RODGER: What does that mean? You mean that your -- that this statement still applies to CNP after the transaction closes. You believe the market opening and the current regulatory framework would continue to cause significant financial loss? 560 MR. CURTIS: No, we believe we will be able to rectify the situation, which a rate application is part of that. 561 MR. RODGER: Can you be more specific of how this changes under your ownership. I'm trying to get the intent on the customer benefit. If the customer benefit is financial stability, what is it about you having ownership of the company that does away with this historical concern that the Campbells have? 562 MR. CURTIS: Well, as you are aware -- 563 MR. MCLEAN: Excuse me. May I just interrupt. I am very sorry, Mr. Chair. The vendor here is Granite Power Corporation. And if I may ask my friends when they refer to the vendor it's Granite Power Corporation. There are no individuals involved in this matter before you. My friend continues to refer to a surname. It's the vendor corporation that's at issue here. 564 MR. SOMMERVILLE: I think that's a fair comment, Mr. Rodger. 565 Can you answer the question, please, Mr. Curtis? 566 MR. CURTIS: Thank you, Mr. Chairman. 567 Granite Power Distribution currently has unbundled rates, and -- sorry, bundled rates and purchases the power from Hydro One, and as indicated, our intent would be to bring the system with the OEB rate handbook or rate application to the Board, at which point what we're requesting of the Board is the approval of interim rates, such that we can commence as soon as, you know, possible, to providing our customers in Gananoque with standard OEB rates consistent with the rest of the province, and then, of course, those would then be subject to the final rate determination, hence the open, transparent process. 568 And that, I believe, would allow then for the Granite Power Distribution to operate in a manner financially consistent with most LDCs in the province. 569 MR. RODGER: So your answer is it's the ability and the process of unbundling that will do away with this concern in your mind. 570 MR. CURTIS: It's a significant aspect of it, yes. 571 MR. RODGER: What is it specifically about the unbundling that's going to remove this grave concern and significant financial loss? How does unbundling do that? 572 MR. CURTIS: Traditionally across all jurisdictions, the idea of a distribution company is that it's not subject to commodity risk. We see that within Fortis, within most of our utilities. For instance, in Newfoundland, they buy the power from Newfoundland-Labrador Hydro and pass it on to the customers. Likewise, in the Caribbean, the cost of power is dependent upon the cost of oil and that's passed through to the customers. So the key element in the whole unbundling of rates has been the transfer of the commodity risk to the final customer, and of course, recently, subject to Bill 210, so that would be the key element that currently does not exist. 573 MR. RODGER: Well, let's stick with the theme of your intention around rates, and changes in rate levels that came out of this proposed transaction, and here I'm referring to section 2.3.6 of the MAADs filing guidelines. 574 We've heard about your intention both in the evidence and today, and your commitment to a transparent rate-making process and I want to be absolutely clear that we both have a common understanding of what we exactly mean by unbundling. 575 You agree with me when I say -- when we talk about unbundling, that means separating the cost of power from the distribution charges? 576 MR. CURTIS: That would be the separation of cost of power transmission, debt reduction charge, wholesale market charges, and the cost of power. 577 MR. RODGER: But in the context of what you're proposing, your intention about rates, when you unbundle, when you go for a rate order after closing, the issue will be establishing your distribution charges, it won't be to deal with transmission or other parts of the bill. 578 MR. CURTIS: No, our intent would be, as I said, we would look to the established rates consistent with all the distribution companies and they all almost require rates for their transmission rates, their wholesale market rates and distribution rates. 579 MR. RODGER: Yes, but a critical part for your unbundling for your own rate hearing would be to separate that cost of power from distribution charges. 580 MR. CURTIS: Yes. 581 MR. RODGER: And, as you've agreed that these new companies, or the former -- or the Granite companies under your ownership are within the existing legal regime of the Energy Competition Act, the OEB Act, the Electricity Act, you're aware that the OEB has a rate handbook by which rates are unbundled. You're aware of the rate handbook? 582 MR. CURTIS: I'm aware of the rate handbook, yes. 583 MR. RODGER: Specifically on this issue of unbundling cost of power from distribution charges, I just want to make one reference to section 4.2 of the rate handbook and that's page 4.6. And this has to do with -- 584 MR. FISHER: Excuse me, Mr. Chairman. I think we're getting off on an area that has to do more with rates than the application before us. 585 MR. SOMMERVILLE: I think it's fair, Mr. Fisher, for some questions with respect to the rate intentions. I don't see any difficulty with that. 586 I do take your point. This is not a rates application, and I would expect that all of these questions and all of these answers are subject to the Board's primary obligation, to establish just and reasonable rates in the ultimate rate application that has been undertaken by the applicant. 587 So I'm prepared to permit this line of questioning to some extent. 588 MR. RODGER: I think if I'm permitted Mr. Chairman, you'll see that this does go to intent. 589 And reading from page 4.6 of the rate handbook as follows: "For those electricity distribution utilities with local generation there is an additional step to the cost of power calculations. First, the cost of local generation is determined. Second, the amount of purchased and locally generated electricity in kilowatt hours is used to obtain a weighted average cost of power. Third, the weighted average cost of power is used to adjust the purchase cost of power proportionately across rate classes and time of use periods." 590 Now, being mindful of the chairman's words this morning around the confidentiality decision, we talked about an irrevocable undertaking to provide the information necessary to have a transparent rate hearing, is it your intention in that rate filing to, firstly, provide all the historical data on the distribution business for that rate proceeding? 591 MR. CURTIS: I think in terms of specifics like that, because we have not finalized our rate application, I can't answer that question. 592 MR. RODGER: Is it your intention? If you're so committed to this transparent process, would it be your intention to file that historical data? 593 MR. CURTIS: It would be our intention to file all necessary data and all data required by the Board. 594 As I say, I can't get into specifics right now what will or will not because the application hasn't been finalized and it's dependant on the closing of this transaction first. 595 MR. RODGER: Right now, as far as you're intention goes, there's nothing in your mind or your company's mind that would say we will not be filing that historical distribution information? 596 MR. CURTIS: I can't say that we will be filing historical distribution information, yes. 597 MR. RODGER: Secondly, I'm referring now to this paragraph that I've just read in the handbook, is it also your intention to provide historical cost of power information at the upcoming rates proceeding? 598 MR. CURTIS: Well, a distribution utility would be purchasing power, so included in the distribution financial statements will be its cost of power. 599 MR. RODGER: And finally, is it your intention to comply with this part of the rate handbook that I just referred to, that you provide historical cost of power information for local generation, and then separately provide cost of power information for power you purchase from Hydro One? 600 MR. CURTIS: I think it's important to recognize that the rate handbook was designed for rate applications a few years ago and there have been significant changes since then, including the market opening. So while we are trying to design a rate application that is consistent with it, we have to, you know, make any modifications that reflect changes in the market since then. 601 And that hasn't been finalized yet. I don't want to get into -- I'm not able to answer specifics like that. 602 MR. RODGER: So is the answer yes or no? 603 MR. CURTIS: The answer is, I don't know. 604 MR. RODGER: You don't know. So you don't know your intention. You can't tell me -- you've told me about this commitment to a transparent process. You've told me that these Granite companies under your ownership are within the framework of the Ontario Energy Board Act, but you can't tell me your intention is to comply with the OEB's rate handbook? 605 MR. CURTIS: You've asked about a specific section in the rate handbook, and that's getting into very detailed specifics about the rate application, and we're just not able to answer that right now. 606 MR. RODGER: Why is it so difficult? You've agreed to me that unbundling essentially is to provide the cost of power historically and distribution charges, and now you're having difficulty saying whether you're prepared to provide that information in the context of the OEB's own rules, which you've agreed to be subject to. 607 MR. CURTIS: What I believe we indicated was that it's important as part of this process to be setting distribution rates and all the other rates. 608 Cost of power in the open market is -- that's available from the IMO and now subject to Bill 210, subject to the fix or the ceiling provided by the government. 609 MR. RODGER: I agree with you that the future cost of power is irrelevant, but do you agree with me that the historical cost of power is crucial in unbundling of rates and will be crucial at your upcoming rate application? 610 MR. CURTIS: No, I do not. 611 MR. RODGER: Why is it not relevant, not crucial? 612 MR. CURTIS: Again, we're looking forward, and the cost of power was historically what you bought it for, and now will be a flow-through. That is the whole intent was to get commodity risks flowing through a distribution company so that what is responsible for is making return on its rate base and covering the operating and maintenance cost. 613 MR. RODGER: So is it fair to conclude that given what I've referenced in the rate handbook that your intention to come forward with a rate application that could be quite different than what the OEB is requiring in the rate handbook that currently is one that every other utility has used to unbundle rates? 614 MR. CURTIS: No, I don't think it's significantly different. I mean with any rate application, you adjust to local situations, and we have experience with that ourselves, Cornwall Electric and Port Colborne, so as I said the intent is to come forward with an application that's consistent with the rate handbook. But obviously will have to reflect the changes of the time and passage of years since it was originally put forth. 615 MR. RODGER: Are you suggesting, Mr. Curtis, that you may not unbundle rates and look at the cost of power -- look at that historically? Your intent is to look at the cost of power going forward to unbundle rates? Is that the change that you would make to what the handbook prescribes? 616 MR. CURTIS: Again, you're asking for specifics about something we haven't -- 617 MR. RODGER: Just asking about intent. 618 MR. CURTIS: Again, that's specifics that -- as indicated, our intent is to come to the Board with a rate application that breaks out the various components. The exact mechanics of the calculations have not been finalized. 619 MR. RODGER: But you can certainly tell me today that the mechanics are not the OEB's rate handbook, particularly the section I've referenced for you specifically? 620 MR. CURTIS: I don't have enough knowledge to answer that. 621 MR. RODGER: Given what you've heard from the Town this morning and its concern, would you have any objection to agreeing, on behalf of Canadian Niagara Power, that if the Board was to approve this transaction that it makes as a condition of approval that you provide a historical distribution data at the rates proceeding, it be publicly available, and that you provide the cost of power historic information at that rates proceeding and provide the cost of power separately for local generation, separately for Hydro One; would you agree to that condition? 622 MR. CURTIS: No, we would not. Generation business is an unregulated business. We have not provided that information with respect to our own applications in the past, nor do we believe that it will be relevant to the rate application process. 623 MR. RODGER: I take it that you don't think that historical cost of power information is relevant to unbundling of rates? 624 MR. CURTIS: I don't believe so, and probably not. 625 MR. RODGER: All right. Again, you've acknowledged that after this transaction close, assuming it's approved, the two Granite hydro companies will be subject to the existing legal regime and that includes Bill 10. Can you tell me is it your intention to comply with Bill 210, and by that I mean Bill 210 proposes a commodity rate freeze for eligible customers. 626 Is it your intention to satisfy that obligation? 627 MR. CURTIS: Upon having control of this company, and going forward, yes. 628 MR. RODGER: And Bill 210 also freezes distribution rates until 2006. Is it your intention to honour that obligation under Bill 210? 629 MR. CURTIS: Well, Bill 210 freezes rates unless you receive, I believe, first permission. I'm not sure of the exact wording here, but basically of the Ministry -- Minister or Ministry of Energy allows you to make a rate application, which Granite Power Distribution has received and which will be making its rate application under. 630 So compliance with Bill 210 does not necessarily indicate a rate freeze. 631 MR. RODGER: So is it your intention to increase distribution rates, notwithstanding Bill 210? 632 MR. CURTIS: It is our intention to apply for distribution rates because none do currently exist. 633 MR. RODGER: Is it your intention to increase distribution rates from what they are presently? 634 MR. CURTIS: We don't know what they are presently because they are fully bundled. 635 MR. RODGER: Is it your intention to increase the rate of return on equity on the distribution business, as it is currently? 636 MR. CURTIS: Again, because you're dealing with a rate structure which currently does not have the full pass through of the commodity, any reference to rate of return, you're comparing apples and oranges because they've got the commodity risk. 637 Our intent would be to move towards a structure whereby we are not subject to that commodity risk, and as a result would be looking for a return consistent in the industry for running a distribution operation. And right now there's a maximum of 9.88, and there's various other rules how you can come up with your distribution rates. 638 MR. RODGER: Is it your intention to seek a full 9.88 return on equity in your pending rate application? 639 MR. CURTIS: Well, it is our intention to try to be, wherever possible, consistent with the rate handbook, but we don't know where that will end up, just like for a variety of utilities, municipal utilities and otherwise, their actual return varied significantly, depending on their cost structures. 640 MR. RODGER: Would it be your intention to seek a lower return on equity in order to be consistent with most other LDCs in Ontario as a result of Bill 210? 641 MR. CURTIS: What do you mean by, sorry, consistent? It's our intent to apply for a rate structure that will be consistent with most other LDCs. 642 I do not know what the final rates will be. However, it is my belief that they will be, kind of similar to those of surrounding communities, but we don't know the final answer at this time. 643 MR. RODGER: Is it your intention that all this information will be publicly available for part of the rates application, or would you say that your own rate of return is going to be confidential and not disclosed? 644 MR. CURTIS: No, it will not be confidential. 645 MR. RODGER: Just on the service centre, Ms. Lea talked about this, your intention to maintain the service centre. Are you aware of what services are in Gananoque at present around their service centre? Is it bill I paying, is there a vehicle fleet there, do line crews work from that facility? 646 MR. CURTIS: Yes, I'm aware. 647 MR. RODGER: What is the scope of services at that service centre at present? 648 MR. CURTIS: I don't have every service, but there is a customer service department staff of three where they send out the bills, and, you know, receive customers, and receive mail and payment and whatnot, and there is a line crew that operates out of there. 649 MR. RODGER: Is any of the existing services, to your knowledge, going to be changed after this transaction closes, or will all the services that are there today be there after closing? 650 MR. CURTIS: Well, in one respect they will all be changed, because we will be changing, for instance, systems and procedures and things like that. 651 We have indicated that we do intend to keep the customer service department in Gananoque so that people have places to talk to people, and come pay their bills, and if they have issues, come to deal with a person. 652 With respect to beyond that, that's always in, sort of, a state of flux. But certainly one of the aspects that is key is providing good response times, and whatever we do set up, whether it's in the service centre or elsewhere will be designed so that we can provide appropriate and, we think, probably better response times. 653 MR. RODGER: Ms. Lea also took you through the indemnity that's in place in the share purchase agreements surrounding this rebate issue, your Bill 2 0. I'm not going to go through that again. But I take it you've acknowledged that the whole issue about whether eligible customers in the Town of Gananoque, whether they're eligible for that refund or not, that remains an unresolved issue today. Would you agree with that? 654 MR. CURTIS: Yes, we would acknowledge that we have heard either through the mayor or customers in Gananoque concern about the fact that they did not receive a rebate, and that is an issue for our customers. 655 MR. RODGER: And would you support, again, if the Board were to grant this -- approval for these transactions, does CNP support having this issue of the rebates, whether the ratepayers are entitled to it or not, to have that matter being a proper one to be heard at the pending rates proceeding, so it can be determined once and for all? 656 MR. CURTIS: First of all, we don't believe that that would be appropriate to be at the rate proceeding. Rates are established with regard to what the rates will be on a go-forward basis. This strikes me as being somewhat of a historical issue and should be separate from any rate-setting process. So that's one. 657 Second, we would not support raising that as an issue, but if the Board desired to enter into a process to address it, we will cooperate to the fullest with the Board. 658 MR. RODGER: So it would be fair to say that while you may not endorse it, you wouldn't object to the Board making that a condition? 659 MR. CURTIS: We will cooperate with the Board. 660 MR. RODGER: Would you object? 661 MR. CURTIS: I can't speculate on that. 662 MR. RODGER: If you don't think the rates proceeding is a proper forum to hear about rate refunds, do you think this proceeding is the right forum? 663 MR. CURTIS: No, because this is to focus on the issue of whether we can be the acquisitor of Granite Power generation and distribution, which again are very different subjects. 664 MR. RODGER: So if the ratepayer in Town came to you and said "CNP, we've heard about your transparent and open process. Where do I go to get this issue resolved", how would you respond? 665 MR. CURTIS: CNP is not currently the owner of these two companies, nor was it the owner when this issue was created, so we will respond by -- with that message, that, you know, it's not -- you know -- the Ontario Energy Board is there to facilitate issues along those lines. 666 MR. RODGER: So you don't see it as an issue for the upcoming rates hearing, your upcoming rates hearing? 667 MR. CURTIS: That's correct. 668 MR. RODGER: You had a discussion with Ms. Lea as well about your due diligence on the state of the infrastructure, and you talked about the work you did. You talked about your system in Fort Erie perhaps being the best example of the types of standards that you have. 669 In terms of infrastructure, just so I can gauge some element of the state of the infrastructure, how would your Fort Erie system compare to the Granite system? Is there a way you can help us understand that, what the state of the system is? 670 MR. CURTIS: I guess we would state that while recognizing that the system in Gananoque is older, due to the fact that it's an older neighbourhood with very slow growth, but having recognized that, we would state that the quality of the infrastructure is on average similar to that of what we see in parts of Fort Erie and other areas of Ontario in which Fortis Ontario operates. 671 MR. RODGER: Is there parts of the Granite distribution system or generation assets that you would say are substandard; holes, wires, transformers? 672 MR. CURTIS: There's only, as you would find in any system, isolated incidents. One, we're aware of a transformer at one of the substations which is hot, heating. That's not unusual. And the requirement to rectify that, are -- you know, can be handled within any normal maintenance budget. 673 There's also, I think -- our intent, again, within the normal budgeting process to enhance the spill protection in another one of the substations which is located near a river. Again, we intend to bring it to the Fortis Ontario standards. 674 MR. RODGER: Those are all my questions. 675 Thank you very much, Mr. Chairman, and Mr. Curtis. 676 MR. SOMMERVILLE: Thank you, Mr. Rodger. 677 Mr. Meunier. 678 MR. MEUNIER: Thank you. 679 CROSS-EXAMINATION BY MR. MEUNIER: 680 MR. MEUNIER: I wanted, Mr. Curtis, to start by going back to section 1.4.5 of the application that was referred to by the Board lawyer in terms of the indication that you propose to continue to provide local service based the Town of Gananoque, and I'd like you to confirm that that would apply to the customers in the City of Kingston. 681 MR. CURTIS: The customers in the City of Kingston would be served out of this office, yes. 682 MR. MEUNIER: Would you be prepared to amend the submission to specify and recognize that approximately 10 percent or 400 customers out of 3,800 customers are located within the boundaries of the City of Kingston? 683 MR. CURTIS: I think that's already noted in the submission on page 3. GPDC has approximately 38 customers in the Town of Gananoque and in the rural area to the west. 684 MR. MEUNIER: So I'll repeat my question; would you be prepared to indicate more specifically that those customers are located in the City of Kingston? 685 MR. CURTIS: We acknowledge that some of those customers are located in the City of Kingston. 686 MR. MEUNIER: You've answered some questions in terms of customer service through questions of both counsel and indicated the level of service that you were going to be achieving. 687 Can I assume that those answers that relate to customer service would also apply to customers in the City of Kingston? 688 MR. CURTIS: Yeah, our responses apply to all our customers, potential customers. 689 MR. MEUNIER: You've indicated that you would be prepared to undertake communication and enter into a process with South Frontenac in a relationship to water level, as they have expressed a concern. Would you commit to the same undertaking with the City of Kingston? 690 MR. CURTIS: I'm sorry, with respect to what, please? 691 MR. MEUNIER: To adjustments in water level, that would be a concern that was raised by Mayor Leonard of South Frontenac. 692 MR. CURTIS: Oh, certainly. I assume then that the catchment areas of the lakes that are supplied at generation fall within the City of Kingston? 693 MR. MEUNIER: Some of them do. 694 MR. CURTIS: Yes, no problem there. 695 MR. MEUNIER: Have you to date contacted the mayor or other officials of the City of Kingston? 696 MR. CURTIS: I don't think so. I know it is the intent of one of our employees to meet with the mayor in Kingston as we look forward to serving some of your residents, and just with the process of establishing a rapport and a line of communication. 697 I don't know if any contact has been made with that purpose, but I don't believe it has. 698 MR. MEUNIER: So you -- I heard you talk about your intentions in terms of meeting with officials of the Town of Gananoque and also the reception you got there, so you don't have any hesitation in terms of having the same type of relationship with the City of Kingston's officials? 699 MR. CURTIS: No, we think it's important to have relations with the city's officials in all the communities in which we operate. 700 MR. MEUNIER: Thank you. 701 On the same page 5, there's a reference in 1.3.4 indicating that, "After the transaction, GPDC will continue to have its existing franchise area, which includes the Town of Gananoque." Are you in a position to indicate what that refers to? 702 MR. SOMMERVILLE: Sorry, Mr. Meunier, could you give me that reference again, please. 703 MR. MEUNIER: So it's the same page 5, and it's the first reference at the top of the page. It's 1.3.4. 704 MR. SOMMERVILLE: Thank you very much. 705 MR. CURTIS: Sorry, I couldn't quite understand the question. 706 MR. MEUNIER: Our interest is to understand the indication that after the transaction that GPDC will continue to have its existing franchise area. We're trying to understand what that refers to. 707 MR. CURTIS: Well, my understanding of distribution service customer right now, most of which are if the Town of Gananoque and a number of which are located west, which I believe now is in the City of Kingston and I'll confirm, yes, it would be our intent to continue to serve those customers. 708 MR. MEUNIER: Are you under the impression that after the transaction that you would have franchise rights that exist right now with the existing companies? 709 MR. CURTIS: Well, I believe our right to those granted under the electricity act and the Ontario Energy Board Act which provide rights and our obligations, so those would continue, yes. 710 MR. MEUNIER: Is there any provisions in that franchise that would give you the ability, to your knowledge, to have or ask for exemption under the rate application? 711 MR. CURTIS: Sorry, I'm to -- I'm sorry again. I'm not sure I'm following the question. 712 MR. MEUNIER: So we are not familiar as to the nature of this franchise, and the question we're asking is that to your knowledge, is there any rights contained within this franchise reference that would give you the ability to seek some type of exemptions under a rate application? 713 MR. CURTIS: To our rights -- to our knowledge any rights that we have would be consistent with our rights and obligations as a distributor anywhere. We really don't consider these -- there's no difference. I mean they're customers wherever they are. I mean if you're serving people, they're your customer and you have a responsibility to do that. 714 MR. MEUNIER: Continuing on the rate front, are you familiar with the utility Kingston rate schedule as it exists right now? 715 MR. CURTIS: No, I am not. 716 MR. MEUNIER: What would be your view as a company in terms of the competitive nature of the rates that you would be seeking in relationship to the rates of similar customers within the City of Kingston? 717 MR. CURTIS: I don't know the answer to that question, and I think that would be best be addressed in the rate application. 718 MR. MEUNIER: In terms of intent, without knowing the details, would it be your company's business view that you would seek to at least match or better the abutting City of Kingston utility -- utility Kingston electricity rates? 719 MR. CURTIS: Our intent would be the rates would be designed, as stated earlier, consistent with the rate handbook. How those rates would compare with surrounding utilities, I do not know. 720 MR. MEUNIER: And you have no business intent, in terms of, what would be your company's general position in that regard? 721 MR. CURTIS: Again, rates vary significantly, depending on timing, when infrastructure was put in place, the cost of that, the density. There's all sorts of issues that affect rates, so -- and until we go through the rate process, it's hard to answer those questions. 722 MR. MEUNIER: Can I assume that when you do make a rate application, that your intent is to have those rates apply equally to both your City of Kingston customers and the Town of Gananoque customers? 723 In other words, you're not going to be making a separate rate application for those 400 customers? 724 MR. CURTIS: I'm not 100 percent sure on that one, but I believe the intent is to have the system rates. 725 MR. MEUNIER: What is your company's intent after the purchase in terms of holding the newly acquired assets in terms of time frame? Are you looking at selling those assets in turn within a short time frame? 726 MR. CURTIS: Our corporate strategy is one of trying to grow our business through acquisition and we believe there will be a, sort of, consolidation of utilities. 727 Having said that, as part of a publicly traded company, we're also looking after the interests of the shareholders, so we will look at any opportunities, but as our core business is in distribution and generation, generally speaking our intent will be to serve our customers and continue in that business. 728 MR. MEUNIER: In the context of opportunities, I assume that you have seen our March 18th letter submitted to the Board. And in that context, are you familiar or were you familiar with the City's interest in terms of acquiring assets that are located physically within the City of Kingston? 729 MR. CURTIS: I have seen the letter. Any -- during any negotiating process, it is normal for a vendor not to indicate, unless exclusivity is given, whether they are in communication with another potential purchaser. So we're not aware of any interest Kingston may or may not have in these utilities. 730 MR. MEUNIER: Can you indicate to us at what time, date, I should say, and how you were informed of the availability for sale of those assets? 731 MR. CURTIS: Any sort of -- normally when you're involved in acquisition, there is a process prior to reaching a definitive agreement which can vary in length and term depending on the factors and normally all that whole process is confidential to the parties. 732 So I can't answer that question. 733 MR. MEUNIER: I'm not asking for details on the process but I was asking for how you were -- you came to be aware that those assets were for sale and roughly how long ago was that. 734 MR. CURTIS: Our response is I think that's between ourselves and the vendor. I don't think that is germane to this application before the Board. 735 MR. SOMMERVILLE: Mr. Meunier, could you help with that. I'm not sure exactly how it -- how your question goes to the appropriateness of this transfer of shares. 736 If you can help me, I'd be appreciative. 737 MR. MEUNIER: We'd like, when our turns come to be making submissions to the Board, about our disappointment in terms of the ability of City of Kingston to have had a competitive chance in a competitive market to acquire those same assets. 738 MR. SOMMERVILLE: I noted that in your notice of intervention. 739 It is a matter that the Board can't address particularly. I'm certainly not going to stifle your opportunity unduly to register your disappointment on that score, but I just have to remind you that the focus of our activity in this proceeding is to consider the public interest in the share agreement that has been entered into, and giving that effect from a regulatory point of view. 740 And the negotiating history, unless you can bring it somehow into focus for that consideration, is something that I don't see particular relevance. 741 MR. MEUNIER: I appreciate that, Mr. Chair, and perhaps I can address that in my own submission. 742 MR. SOMMERVILLE: Thank you. 743 MR. MEUNIER: Thank you. 744 I would like to close by asking, and subject to the direction of the chair, if you would indicate your company's interest in terms of in the future if the City of Kingston was interested in acquiring those assets, would you be receptive to such a request? 745 MR. SOMMERVILLE: That's a fair question. 746 MR. CURTIS: No. We are always receptive to talking to other utilities, either about the sale of our assets or the sale of those utility's assets. So I think we would welcome the opportunity to sit down and talk to you about either of those transactions. 747 MR. MEUNIER: Thank you, Mr. Chairman. 748 MR. SOMMERVILLE: Thank you, Mr. Meunier. It is now 2:30, we would proceed to argument -- I beg your pardon. 749 Re-direct. 750 RE-EXAMINATION BY MR. FISHER: 751 MR. FISHER: Thank you, Mr. Chairman. 752 As far as the rebate matter that was exchanged in your conversation, question and answer with Mr. Rodger, I'd like to get something clarified as between an initial answer I thought I heard and a later one. 753 And if I could have some latitude on what I thought I heard, just to ensure that we're all in agreement here is that I thought I had heard you say that this matter with respect to the commodity issue would be addressed in whatever proceeding the Board decided it should be addressed in, keeping in mind that the rate application and the distribution licence application will be filed simultaneously, and that if it comes up, if the matter dealing with the commodity price comes up in that proceeding or proceedings, then CNPI will do what it needed to do; is that correct? 754 MR. CURTIS: Yes. 755 MR. FISHER: That's all I have, Mr. Chair. 756 MR. SOMMERVILLE: That's the extent of your redirect? 757 We are now at the point where we would go to argument. 758 In terms of -- I would suggest we take a short break. The order of argument, I would expect, would have -- have the parties discussed the order of argument in any way, shape or form. I will seek advise from the Board counsel in the break with respect to that order. 759 We will stand adjourned for ten minutes. We will reconvene at -- by my watch, 20 minutes to three. Thank you. 760 --- Recess taken at 2:30 p.m. 761 --- On resuming at 2:45 p.m. 762 MR. SOMMERVILLE: Please be seated. Thank you. 763 Ms. Lea, I think you are scheduled to begin. 764 MS. LEA: Thank you. 765 Thank you, Mr. Chairman. 766 CLOSING ARGUMENT BY MS. LEA: 767 MS. LEA: In these matters, Board staff doesn't actually take a position on the application, but we will attempt to assist parties and the Board by giving our impression of the facts in the filings and in the oral evidence that we've heard today and raising any other points that we invite other persons and parties in this hearing to address. 768 The Board has several matters before it today for approval. There is a section 86 application before the Board. Canadian Niagara Power Inc. seeks to acquire greater than 20 percent -- actually 100 percent of the voting securities of a distributor Granite Power Distribution Corporation and section 86(2)(a) of the Ontario Energy Board Act states that such an acquisition requires leave of the Board and the Board is to consider the application and grant a refuse leave pursuant to section 86(6). 769 There is no specific test in the legislation for leave under section 86, as everyone here is familiar with. The Board has a general duty to decide in the public interest, and it must also be guided by the objectives set out in section 1 of the Ontario Energy Board Act, so when I come to discuss the evidence related to the section 86 application, I'll refer to those objectives. 770 Another matter before the Board today is the reviewing of proposals under section 80 and 81. Canadian Niagara Power Inc. is affiliated with CNPL, Canadian Niagara Power Limited. CNPL is a generator, so CNPI's acquisition of an interest in a distributor requires notice to the Board under section 81. CNPL is also proposing to acquire the voting securities of Granite Power Generation Corporation, and as that company is an affiliate of a distributor and transmitter, CNPI, and it is acquiring an interest in a generator, notice to the Board is required under section 80. 771 The Board has issued a notice that it will review these proposals and is proposing and is proceeding to review them in tandem with a section 86 application before it today. 772 The tests for section 80 and 81 reviews are contained in sections 82(2) and (3). I don't think section 82(2)(b) is argued here today, so as I understand it, the test for each of these proposals is that the Board shall make an order approving the proposals if the impact of the proposal would not adversely affect the development and maintenance of a competitive market. And here we're talking about an electricity market, this application did not deal in gas. 773 I'd like to make some comments first with respect to the section 80 and 81 reviews. In some, as Board staff understands it, the evidence suggests that the impact of the proposals will not adversely affect the develop and maintenance of a competitive electricity market. The evidence as it's filed suggests that the acquiror's market share of generation in the province of Ontario, that is CNPL's share, would be less than 1 percent after the proposed transaction. The Granite Power Generation plants are characterized as base load hydro-electric plants. They are run of the river with some storage capabilities. Their water flow is impacted by Parks Canada and other interests of municipalities in the region. 774 They are not must-run facilities, and the generating facilities are not registered market participants with the IMO. 775 CNPI has indicated that retail competition and open access will be permitted in the service area of Granite Power Distribution, and this should improve, in fact, competition in the market. 776 Now CNPL does own Cornwall Street Railway Light and Power Company Limited which is a distributor, and also Cornwall District Heating Limited -- I think that's the name of it; correct me if I'm wrong -- which is a natural gas fired cogeneration facility. Cornwall Electric is not connected to the IMO-controlled grid, and as a result, neither the distribution system nor the generation facility will, in combination with these other acquisitions, will adversely affect the development and maintenance of a competitive market, so the new acquisitions in combination with the old one should not be a problem. 777 There's also the Rankine generating plant, which is a hydro electric facility near Niagara Falls. The evidence indicates that the water rights agreement with the Province of Ontario specifies this generation facility has a right to generate 74.6 megawatts. It generates at OPGI's request and operates at 25 Hertz. Given all these facts, this suggests also that the consolidation of this generation facility with the proposed acquisitions will not affect the development and maintenance of a competitive market. There doesn't appear to be any market power danger in that situation. 778 CNPI -- Ms. Jaffray has very helpfully provided me with the correct name of that district heating limited. It's CDH District Heating Limited. Thank you. 779 CNPI owns two transmission lines, one which connects Fort Erie distribution system to Hydro One's line at Niagara Falls, and the second interconnects between Fort Erie and the facility of Niagara Mohawk Power in the United States. But the geographic isolation from the Gananoque -- or the Granite Power system, as well as the characteristics of those transmission systems do not suggest to staff that there will be any impact on the development and maintenance of a competitive market. 780 So in sum, then, the fact that the single company will own all these facilities in combination does not appear to us to create a market power issue. 781 There was a concern about an answer that was given that suggested that the facilities could be serving a load pocket. Where that does occur, there is a danger of a possible abuse of market power, but the evidence that we've heard today suggests that there may not be a true load pocket involved at all, as the needs of the distribution customers can be supplied from the Hydro One supply of power if necessary. And also, the fact that open access will be available on the distribution system also mitigates any danger of market power abuse, as the generation plants will be price takers. 782 I don't think I have any other comments, then, with respect to the 80 and 81 reviews. 783 With respect to the section 86(2)(a) application: The applicant did address in its prefiled evidence the effect of the proposed transactions on each objective the Board must consider under the section 1 of the Act. That's how the filing requirements are set out. Starting with facilitating competition, I've already talked quite a bit about that with respect to the 80 and 81 reviews, and the commitment of the applicant to non-discriminatory open access supports this objective of the Board under the Act. 784 The second objective of non-discriminatory access, as I understand it, there will be no change to any access to CNPI's current distributors, and there will be improved access to the existing Granite Power distribution system, so we don't expect any negative results and probably positive results under that objective. 785 The third objective is to protect consumers with respect to prices, reliability, and quality of electricity service. CNPI and that group of companies have experience in running of distribution systems similar to the one they are proposing to acquire. They are a licensed distributor in Ontario and are currently operating similar electric utilities and they should be competent to operate this one. They have committed to meet or exceed Board standards in the running of the utility and they have also agreed to maintain a service centre in Gananoque and to meet or exceed the required response times. They indicated that in their written filing. 786 Also their commitment to transparent rate making should assist the -- customers with respect to pricing, and we understand the rate application will be specific to the consumers served by Granite Power Distribution at present. 787 There were a couple of matters in the examination by Mr. Rodger which appeared to resile slightly from the commitments that the applicant made in its initial filing. I didn't fully understand the applicant's position and I invite the applicant to address its response with respect to its intention to comply with the rate handbook. 788 I would make the comment that my understanding of the evidence that was provided during my questioning of the applicant indicated that the applicant would certainly comply with any finding requirements imposed by the Board in any rate application that it would make, and the Board does have the power to ensure that the necessary information is on the record with respect to this. 789 So I would invite the applicant to address, then, what -- or to clarify what its commitments are with respect to filing a rate application. 790 I also did not fully understand the evidence about the rebate for -- the $75 and other consumer rebate issues. 791 I heard the -- I think the heard the applicant say that he does not regard this as a rates issue. I wasn't sure whether that was because the payment of that amount is a legislative requirement or because there may be a licence compliance issue involved because the current licence does require the licensed entity to comply with the legislation, or whether it wasn't an issue he was going to address because it didn't occur -- it has occurred in the past and he's only so far proposing to acquire these companies. 792 In any event, I invite the applicant to clarify that matter. 793 There was also the answer the witness may be affected in part by the provisions of 9.1(g)(4) of the agreement in this regard. 794 I would note for consideration of parties who may be turning their minds to this issue that section 79.1, which is the requirement to pay the low volume consumers an amount of $75 is modified by section 79.1.8 and 79.1.9 which deals with PPVA accounts and equal billing. And some evidence from the rates case may concern those matters, and therefore some evidence in the rates case may be relevant to this determination as well. 795 So I would invite the applicant to clarify the record in that regard, or at least make clear in his submissions the position of the applicant. 796 The fourth objective that the Board has asked to have regard to is to promote economic efficiency. I took from the evidence that was given today that the people -- that CNPI is not yet clear as to what efficiencies may be gained. They intend to investigate the question of efficiencies, but they have not yet determined what they might be. 797 There is an indication in the filing that the purchaser will examine ways to reduce costs of operation, but it appears from the evidence today that CNPI is also mindful of service commitments towards customers in both Gananoque and Kingston. 798 The fifth objective of the Act is to facilitate a financially viable electricity industry. The evidence of the applicant suggests that the purchaser will be able to run the distribution utility as a financially viable entity. This is a small purchase relative to the asset base of the Fortis group of companies. The financing is internal, no additional debt will be taken on therefore, and interest coverage ratios will not be affected. 799 We heard evidence today that the purchaser, presumably with an understanding of all the liabilities of Granite Power Distribution and Generation is willing to purchase those companies and assume those liabilities subject, of course, to any provisions in the agreement. 800 The sixth objective is to promote conservation efficiency or cleaner energy sources. It doesn't appear that the proposed purchaser presently has DSM programs in place in its existing utilities. We heard some evidence that there would be some environmental programs that could be made available to the acquired companies. I didn't hear much evidence on this objective at all, so I don't see any particularly positive effect on this objective coming out of this transaction. However, there is no evidence, either, that there will be a negative effect. 801 In regard to the public interest in general, the applicant does accept that the obligations under the licence will survive this transaction and has accepted the liabilities under the Environmental Health and Safety issues that were raised today, subject to the agreement between the parties. The applicant has also indicated that he will work with local governments or the companies will work with local government on issues of concern to them. 802 In general it appears to staff that the approval of these applications and proposals may have some benefit to the public interest, and in sum, I didn't -- there is little or no evidence that there will be a detriment to the public interest and to the objectives of the Act here. So the -- the proposals and application appear to be neutral or positive with respect to the objectives of the Act. 803 So subject to any questions Mr. Chairman, those are my submissions. 804 MR. SOMMERVILLE: Thank you, Ms. Lea. 805 No questions from the Board, Ms. Lea. 806 Mr. Fisher. 807 MR. FISHER: One moment to consult, please, Mr. Chairman. 808 CLOSING ARGUMENT BY MR. FISHER: 809 MR. FISHER: Thank you, Mr. Chairman. I just needed to consult on a few issues raised by my friend Ms. Lea on this. 810 First off, as a final argument, Ms. Lea has graciously covered a lot of what I was going to state in respect of the section 86(2)(a) requirements, the 80 and 81, and a lot to do with public interest, so I have no need to repeat that. 811 So I would like to simply go to the issues that Ms. Lea raised in terms of clarification. And the first one had to do with the rate handbook and some misunderstanding or clarification required in this regard. 812 And I believe what the applicant is saying in terms of compliance with the rate handbook is that the applicant will comply with the rate handbook to the fullest extent that it can, unless there are inconsistencies with it, and then it will have to, you know, make some other adjustments in its rate application. But realizing the fact that whatever diversions there are from the requirements of the rate handbook, that the applicant would have to justify those diversions. 813 Secondly, as far as the consumer rebate issue is concerned, the applicant recognizes that this is a matter of legislation, and whether it is a -- pursuant to the electricity distribution licence or the actual section in Bill 210. Nonetheless as mentioned, the applicant proposes to file its rate application and electricity distribution applications at the same time, and as that matter -- if and when that matter arises in those proceedings, the applicant will provide whatever information is necessary and do what it needs to do in response to the Board's inquiries and decision. 814 I think that's all I need to say. Thank you very much. 815 MR. SOMMERVILLE: Thank you, Mr. Fisher. 816 Mr. Rodger? 817 CLOSING ARGUMENT BY MR. RODGER: 818 MR. RODGER: Thank you very much, Mr. Chairman. 819 The recent past has been a time of considerable uncertainty for the Town around this issue, and we're hoping that this proceeding marks a time where we're closing the door on the past and opening a new door to a much more predictable and stable future with respect to providing reasonable and reliable electricity in the Town of Gananoque. 820 The Town supports the applications before the Board, but the Town's support is with three conditions that we would like to spell out, which we would ask you incorporate into your approval of these transactions. 821 And in the Town's submissions, all three of these conditions are needed to satisfy your section 1 responsibilities under the Ontario Energy Board Act, 1998, particularly with respect to protecting the interests of consumers with respect to prices. 822 The three conditions pertain as follows, one, to the Bill 210 rebate issue, and two, with respect to ensuring that there will be transparency in the upcoming rate application. 823 First with respect to the rebates. The Town is very pleased that Mr. Curtis, on behalf of Canadian Niagara Power, acknowledged that Granite Power Distribution Company and Granite Power Generation Company are subject to the electricity act and the OEB Act> and Bill 210. 824 The question of the rebates is a huge concern for the Town and its ratepayers. We understand there are hundreds of thousands of dollars of ratepayer rebate money at risk, and there is a concern that this money simply gets lost in the process. 825 We have heard Mr. Curtis say that he doesn't believe this is the forum for it. We haven't challenged him on that today. The Town believes the proper place for this review is this impending rates application that has been talked about today. 826 And we would also say that -- we took from part of Mr. Curtis's testimony the sense that they were bound to do whatever the Board prescribed, but the rebate issue really wasn't their issue per se, and we would disagree with that. 827 As soon as CNP becomes the owner of these companies, this is their issue. 828 So the first condition of approval that we would strongly offer to the Board is that the question of whether low-volume consumers and designated consumers as defined by Bill 210 are entitled to the rebates and the other benefits under the legislation, that these matters be directed by you in this approval process to be heard and reviewed and considered at the pending Granite Power Distribution Company's application for unbundling rates, and we would also add and underscore Mr. Curtis's statements whereby he said that Canadian Niagara Power would not object if the Board made this a condition of approval. 829 Secondly, with return to rates, the Town has a, let's say, a mixed reaction to the evidence as heard today, concerning the intention of the Canadian Niagara Power Company's> own rates. 830 On the one hand, its -- the Town is very pleased that Mr. Curtis has stressed the transparency and the openness of the rate making process on a go-forward basis. On other hand, we're frankly surprised and disappointed that there does seem to be some uncertainty as to the intention to follow the rate handbook. 831 As Mr. Fisher has clarified, I believe his clarification was that they will try and comply with the handbook, but there may be inconsistencies. I'm not sure what that means. There may be adjustments made to the rate handbook. I don't know what that means. There may be diversions from the rate handbook. I don't know what that means. 832 So we believe that this is a critical issue, given the emphasis on transparency, and we're also surprised and disappointed on the issue around whether historical data will be provided. And I won't repeat all the issues about the historical distribution data, the historical cost of power data, but our condition, Mr. Chairman, really goes to formalize your comments this morning about this idea -- the commitment of CNP to transparency of being an irrevocable undertaking to provide all historical and other necessary information to ensure that the Town finally gets some transparency as to how rates are determined for their community. 833 Therefore, we have two conditions of approval that we're putting forward on the rates question. The first is for the Board to specifically require that Granite Power Distribution Company file its application for the unbundling of rates pursuant to the OEB rate handbook for distributors, and secondly, to require Granite Power Distribution Company to provide all necessary and relevant historical data pertaining to, firstly, the distribution business of Granite Power, secondly, to break out separately the cost of power paid to Hydro One, and thirdly, to break out separately the cost of power paid to local generation, that is the LDCs affiliate generation company, Granite Power Generation. 834 And those are our submissions, Mr. Chairman. As you know, the Town has requested that it be entitled to costs in this proceeding. We've been given that standing and we will make the submission pursuant to the Board's direction at that time. 835 Thank you, sir. 836 MR. SOMMERVILLE: Thank you, Mr. Rodger. 837 Mr. Meunier? 838 CLOSING ARGUMENT BY MR. MEUNIER: 839 MR. MEUNIER: Thank you, Mr. Chair. 840 As we had presented in our submission of March 18, the City of Kingston had two main interests. Its first interest was in the matter of the customers in a residence that reside in the City of Kingston and the assurances and protection that they would receive in terms of the impact on them of a new operator. 841 We are also equally satisfied and support the application for acquisition, and we had noted with much less detail, but fully support the conditions that have been presented by the Town of Gananoque in terms of both the rebate and in terms of the rate application. 842 We would add one small caveat in terms of the rebate, and that is that once the decision has been made during the rate application on the rebate, we would also like some assurances that there will be communication to the customers about the decision on the rebate, because we have had a lot of phone calls -- our councillors have had a lot of phone calls in terms of whether or not these people should be receiving the rebate or not. 843 In terms of the second interest of the municipality, our city council wanted us to make sure that we're here today to indicate to the Board, as I've indicated a few minutes ago, their dissatisfaction in terms of their ability to have had a competitive opportunity to acquire those assets. We're unsure as to what could have been done differently or what the Board can do in that regard, but we wanted to indicate clearly that it was the desire of the municipality of Kingston to acquire the assets within the municipality, and we want to indicate that that desire is based on a couple of concerns. 844 First, it is our belief that through Utilities Kingston, the municipality has been able to improve the quality and the cost of service, the delivery of electricity to the City of Kingston and we will assert that if we had had the ability to acquire those assets that we could extend that same to those 3 or 400 City of Kingston customers. 845 We also had a concern in terms of the fact that by experience, because of the low number of customers in the City of Kingston in terms of the previous operator, that we have not been able, in times of either emergency -- and I can cite one example a few weeks ago when we had another minor ice storm in the Kingston area where we had to send fire trucks after electricity trucks to be able to get answers in terms of the operation of the system -- that we do have some concerns. This valley has some concerns to having access during emergency or regular service to a small number of customers that may not be the main focus of interest to a larger operator. 846 So that remains a concern, and hopefully that will be addressed by the new operator in the future. 847 And the last request from the municipality was to indicate and petition the Board in terms of whether there's a possibility to ask that subsequent to the present transaction that there be an ability for the municipality to be considered in terms of acquiring the assets that are within the City of Kingston or some type of clause that would specify that in the case of future sale that may or may want be short term or medium term, that we have some right of first refusal, in terms of having access to, and I repeat, a competitive approach to acquiring those assets. 848 So that would be the submission, and I guess we did in our letter indicate that -- and I don't know the proper terminology, but that we were subject also to be awarded costs. 849 So thank you very much, Mr. Chairman. 850 MR. SOMMERVILLE: Thank you, Mr. Meunier. 851 MR. MCLEAN: Excuse me, Mr. Chair; if I may, on a point of order. Would you provide me the indulgence of making comment regarding the rebate issue at some point either before or after Mr. Fisher's submissions to you? 852 MR. SOMMERVILLE: It seems to me, Mr. Mclean, that the application is being prosecuted by Mr. Fisher. 853 MR. MCLEAN: Yes. 854 MR. SOMMERVILLE: And if there's a submission that you particularly wanted to have before the Board, that is the appropriate vehicle for that to occur. 855 MR. MCLEAN: Mr. Chair, I agree, and if I may, we came here, though, responding to a notice that dealt with an application for approval of an acquisition, not an application with respect to the matter of whether the rebate is required or not, and a submission, sir, that with respect, that are made to you here today to assume that Granite Power Corporation has no interest in the issue with respect to the rebate and of course it has an interest. 856 So I wish, with respect, to address the comments that my friend makes with respect to whether or not the rebate would be attached as a condition to a hearing before this Board, and simply to reserve -- and I think I'm making my submission -- simply to reserve my position that this Board may or may not be the appropriate forum for determination of an issue that involves a construction of law to the application of facts, sir, to which facts have not yet been brought forward or any evidence including in front of you, sir. 857 MR. SOMMERVILLE: Thank you, Mr. Mclean. Your position has been noted. 858 MR. MCLEAN: Thank you. 859 MR. SOMMERVILLE: Mr. Fisher, do you have any reply submissions. 860 MR. FISHER: Yes, I do, could I have five minutes to put them together, please? 861 MR. SOMMERVILLE: Sure. 862 MS. LEA: I had one comment to make, sir, on the record, which I can do very quickly. 863 I neglected in my submissions to indicate that the Board has received several letters of comment from individuals and I'm sure the panel is aware of them and has them, but I always like to put on the record that the Board has received letters of comment from individuals and these will form part of the public record for consideration by the panel when it comes time to make its decision. 864 MR. SOMMERVILLE: Thank you. 865 MS. LEA: Thank you. 866 MR. SOMMERVILLE: We'll stand adjourned until the half hour. Thank you. 867 --- Recess taken at 3:21 p.m. 868 --- On resuming at 3:33 p.m. 869 MR. SOMMERVILLE: Please be seated, thank you. 870 Mr. Fisher. 871 REPLY ARGUMENT BY MR. FISHER: 872 MR. FISHER: Thank you, Mr. Chairman. First off, the applicant strongly opposes any conditions attached to the Board's decision in this matter. The Town has requested that these -- sorry, just to back up. 873 In requesting these conditions be attached, the Town has provided no precedent that this is a practice of the Board to accept conditions proposed by an intervenor. 874 As far as the rebate issue is concerned, if -- excuse me. The issue before the Board here is the approval of a transaction and does not in any way prevent a party from raising the question of the rebate at any future proceeding, and for the record, I just want to clarify something. Mr. Curtis did not say that he would not object to this being made a condition of the approval. 875 Secondly, regarding the rate handbook, the applicant has the right to apply for rates in any manner it wishes, as long as it can justify any diversion from the rate handbook, and the Board accepts that justification. If the Board were to impose this condition on the applicant, it would limit the applicant's ability in this regard. 876 And thirdly, with respect to the provision of historical information, the Town in its request is trying to predetermine information required for a rate application that may not be relevant, and the applicant will be making filings that the Board requires for the rate application and it will be up to the Board and the applicant to determine the information required. 877 Those are my responses. Thank you. 878 MR. SOMMERVILLE: Thank you, Mr. Fisher. 879 It is the Board's hope to try to issue a decision in this matter today orally, which I think would probably suit the balance of convenience for all parties. 880 Now, that requires that my colleague and I break for -- I'm going to suggest 20 minutes, bringing us to 4 o'clock, at which time we will return to advise as to whether been able to reach a decision and be able to deliver a decision today or not. 881 I think that's worth shooting for. Are there any comments or submissions with respect to that? 882 MR. FISHER: No, Mr. Chairman, not from me. 883 MR. SOMMERVILLE: So we will retire to reconvene at 4 p.m. at which time we will either be delivering our decision or indicating to you that we will have to adjourn and issue a decision at a later time. 884 So we will rise until 4:00 Thank you. 885 --- Recess taken at 3:37 p.m. 886 --- On resuming at 4:01 p.m. 887 MR. SOMMERVILLE: Thank you very much. Please be seated. 888 The Board has been able to reach a decision in this matter. 889 DECISION: 890 MR. SOMMERVILLE: As I indicated in my opening remarks, by way of application on February the 25th, 2003, Canadian Niagara Power Limited filed an application with this Board requesting the Board's leave pursuant to section 86(2) of the Ontario Energy Board Act for its acquisition of all of the outstanding voting securities of Granite Power Distribution Company from Granite Power Corporation according to the terms of the share purchase agreement which has been filed as part of this application. 891 Canadian Niagara Power Limited indicated that it was going to assign its rights to purchase the shares of the generation company, Granite Power Generation Corporation, to its affiliate Canadian Niagara Power Incorporated. 892 MS. LEA: Other way. 893 MR. SOMMERVILLE: I beg your pardon, Canadian Niagara Power Limited. 894 At the same time, Canadian Niagara gave notice of its proposal to the Board pursuant to section 80 and 81 of the Act respecting its purchase of an interest in a distribution system to wit the operation of Granite Power Distribution Company, and the acquisition by its affiliate CNPI of an interest in a generation system to wit the operation of Granite Power Generation Company. 895 MS. LEA: I think -- 896 MR. SOMMERVILLE: I think that's correct. Is it not, Mr. Fisher? CNPI has an interest in the generation system? 897 MR. FISHER: No, it's CNPL. 898 MR. SOMMERVILLE: I beg your pardon. 899 Madam Reporter, we may need to just go over that just to make sure that I get those references accurate at the end of the day. This is, as you can appreciate been done rather hastily, and I apologize for transposing these initials. Canadian Niagara Power Limited is a generator and Canadian Niagara Power Incorporated is a distributor. 900 The Board has issued a notice of review and the Board's approval of the proposal is required pursuant to Section 82 of the Act. The Board issued the notice of review on March the 6th, 2003. 901 The City of Kingston and the Town of Gananoque registered interventions, although neither have indicated that they oppose the granting of the order sought by the applicant, and in fact, both indicated that they supported the application, subject to some conditions. 902 I'd like to thank all of the parties for their exceedingly constructive attitude today. It's been a great help to the Board in its consideration of this matter. 903 The Board, having considered all of the evidence and the various submissions of the parties, we are satisfied that the applicant has demonstrated that the proposed transaction is in the public interest. Given the undertakings by the applicant, and I'll return to that in a moment, Canadian Niagara Power Inc. respecting its intention to file an application for permanent rates and to regularize its licensing status, the Board does not believe that it is necessary or visible to impose any conditions on its approval. 904 The reasons for that, and I want to go into some detail respecting that, dealing first, Mr. Meunier, with the proposal that you made with respect to a right of first refusal respecting any future opportunities to purchase assets or any aspect of the operation. That is not a matter that the Board can competently address in the course of one of its orders. We noted with great interest the intention obviously made in good faith by the applicant to establish and maintain highly cordial relationships with its neighbouring communities, and we would anticipate that that represents the most effective vehicle for you to pursue the interest that you've expressed here. 905 The specific request that you've made is something that the Board simply can't offer in the course of a decision of this nature. But we respect your interest in that, and we note that the applicant expressed a willingness to entertain whatever interactions may arise. 906 With respect to the specific conditions that you proposed on behalf of the Town of Gananoque, Mr. Rodger, the Board considers them, generally speaking, to be redundant insofar as -- let me deal first with the question of the filing of specific information in connection with the rates application. 907 The panel of the Board dealing with that rates application has the responsibility in the course and the confines of that case to make a determination with respect to just and reasonable rates. In doing so, it has the power, and the Board exercises this power as required, in order to ensure that the absolutely necessary important and useful information respecting any application is before it. And I can assure you that the Board does exercise that power where it is important to do so. 908 It is important for all the parties to realize that parties propose and the Board disposes. And the Board through its statutory mandate has the obligation to establish rates upon receiving an application which has been approved by the Minister under the current legislative regime, and to consider in its own way, according to its rules, the distribution rate handbook among them, as to what represents a competent application. 909 And the Board insists upon the competence and adequacy in those applications in dealing with licence applications for rates -- pardon me, rates applications. 910 So I regard it as redundant to attempt to instruct a subsequent panel about what may or may not be required standard of information for its purposes. 911 I take your point and your interest very seriously, and I know that the subsequent Board dealing with the rates application will do so as well. 912 Similarly, in dealing with the question of the rebates, the idea that we should make as a condition of this approval the inclusion of the rebates in the subsequent rates case, it's important to know that Bill 210 established a positive legislated obligation on the part of licencees to pay a specific sum to a specific category of consumers, and that was subject to some exemptions. 913 The consideration of the conformity with or non-compliance with that requirement may require engagement in more than one proceeding, including the rates proceeding, and the licence application that the applicant had undertaken to bring. It may also be involved in a consideration of non-compliance with licences, so it would be inappropriate for this panel to say in the context of a rates hearing that that's where that rebate issue ought to be heard. 914 The consideration of that issue will require consideration in probably more than one proceeding in order to be fully resolved. 915 I also noted with -- pardon me, the panel noted with considerable interest and pleasure the unqualified indication from the applicant that they would cooperate in the consideration of that issue with subsequent panels dealing with the rebates question. 916 And I think the transcript will show, and I certainly made a note of it as it occurred, that undertaking. 917 So once again, I think that that licence condition is redundant under those conditions. I take your position very seriously, but I think it is best addressed in the fashion with which we are approaching the subject. The transcript of this proceeding will serve as a beacon to subsequent panels dealing with the subject and I know that the applicant expects that, and I expect that all of the intervenors will do likewise. 918 The Board determines that based on the evidence, the impact of the proposals would not adversely affect the development and maintenance of a competitive electricity market and that approval of the acquisition by CNPL of an interest in Granite Power Distribution Company -- I beg your pardon, CNPI of an interest in Granite Power Distribution Company is in the public interest and that approval of the acquisition by Canadian Niagara Power Limited of an interest in Granite Power Generation Corporation is likewise in the public interest. I think I got it right that time. Practice makes perfect. 919 Therefore, the Board orders that Canadian Niagara Power Inc. is granted leave to acquire all of the issued and outstanding shares of Granite Power Distribution Corporation from Granite Power Corporation. The Board further orders that Canadian Niagara Power Inc. shall forthwith advise the Board confirming the date that the transaction closes. The Board further orders that the acquisition by Canadian Niagara Power Inc. of an interest in an electricity distribution system in Ontario is approved pursuant to subsection 82(3) of the Act. The Board further orders for the acquisition by Canadian Niagara Power Limited of an interest in an electricity generation system in Ontario is approved pursuant to subsection 82(2)(a) of the Act. 920 The Town of Gananoque and the City of Kingston shall file with the Board and serve on the applicant their respective claims for costs no later than April the 1st, 2003. The applicant may file with the Board and the respective intervenors any objections it may have with respect to those claims for costs within ten days of that day. 921 Now, there is an issue with respect to the consequential matter and an issue with respect to the licence, the interim licence of Granite Power Distribution Limited, the distribution company. 922 How do we propose to deal with that, Mr. Fisher? 923 PROCEDURAL MATTERS: 924 MR. FISHER: I've spoken with Ms. Lea on this matter and we believe that the best way would be for the applicant to send a letter to the Board's Secretary on the day of closing requesting an extension of the interim licence to continue until such time the permanent licence has been granted to the applicant. 925 MR. SOMMERVILLE: As I read the agreement, the share purchase agreement, the transaction is scheduled to close on April the 1st; is that correct? 926 MR. FISHER: Yes. 927 MR. SOMMERVILLE: So your proposal is that you would send to the Board on that date contemporaneous with the closing a request for an extension of the licence. 928 MR. FISHER: That is correct, Mr. Chairman. 929 MR. SOMMERVILLE: And that would be a request for an interim extension pending the determination of the licence application you're making to the Board to regularize the licensing situation. 930 MR. FISHER: Correct. 931 MR. SOMMERVILLE: That's an acceptable solution. I do want to urge upon you the concern that the Board has had over the course of these last weeks and months with respect to the licensing situation and the continuation of service, and if there is any indication, I'm asking to you indicate -- if there's any indication of any interruption or change in that plan that you would advise the Board as soon as possible so that we can ensure that the licensing matter and the continuation of services is in no way in question respecting the closing this transaction. Is that satisfactory? 932 MR. FISHER: Absolutely, sir. 933 MR. SOMMERVILLE: Thank you. 934 Are there any comments or submissions from any other parties at this time? 935 Are there any other consequential matters that need to be addressed by the Board? 936 MS. LEA: I'm not aware of any, sir. 937 MR. SOMMERVILLE: There being none, this matter is concluded. 938 Once again I would like to thank everyone for their exceedingly cordial and constructive approach to the matter. This could have been much more difficult than it was. 939 Thank you all, and a safe trip to Gananoque and Kingston as the case may be, and even you guys going home in Toronto. Have a safe trip home. 940 Thanks. 941 --- Whereupon the hearing concluded at 4:17 p.m.