Rep: OEB Doc: 12QQP Rev: 0 ONTARIO ENERGY BOARD Volume: VOLUME 5 20 MAY 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. C. SPOEL MEMBER 1 RP-2003-0044 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF applications by Centre Wellington Hydro, Veridian Connections Inc., EnWin Powerlines Ltd., Erie Thames Powerlines Corp., Chatham-Kent Hydro Inc., Essex Powerlines Corp., Cooperative Hydro Embrun Inc., and Hydro One Networks Inc. pursuant to subsection 74(1) of the Ontario Energy Board Act, 1998 to amend Schedule 1 of their Transitional Distribution Licences. 3 RP-2003-0044 4 20 MAY 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 JENNIFER LEA Board Counsel GORDON RYCKMAN Board Staff DONALD ROGERS Hydro One Networks MARY ANNE ALDRED Hydro One Networks ANDREW LOKAN Power Workers' Union JAMES SIDLOFSKY Hamilton Hydro, Hydro Ottawa, Hydro Vaughan, Markham Hydro, Brantford Power ANDREW TAYLOR Great Lakes Power SUE LOTT VECC CAROL GODBY EnWin Powerlines, Erie Thames Powerlines, Essex Powerlines DENNIS O'LEARY Wirebury Connections MICHAEL McLEOD Centre Wellington Hydro ANDY CHAN Centre Wellington Hydro GAYE-DONNA YOUNG Newmarket Hydro GAYE-DONNA YOUNG Newmarket Hydro GAYE-DONNA YOUNG Newmarket Hydro GAYE-DONNA YOUNG Newmarket Hydro 8 TABLE OF CONTENTS 9 APPEARANCES: [20] PRELIMINARY MATTERS: [49] SUBMISSIONS ON JURISDICTIONAL ISSUE: [61] SUBMISSIONS BY MR. ROGERS: [62] SUBMISSIONS BY MR. LOKAN: [132] SUBMISSIONS BY MR. SIDLOFSKY: [186] SUBMISSIONS BY MR. TAYLOR: [219] SUBMISSIONS BY MS. LOTT: [237] SUBMISSIONS BY MS. GODBY: [272] SUBMISSIONS BY MR. O'LEARY: [332] SUBMISSIONS BY MR. McLEOD: [370] SUBMISSIONS BY MS. YOUNG: [405] REPLY SUBMISSIONS BY MR. ROGERS: [419] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:30 a.m. 15 MR. SOMMERVILLE: Thank you all for coming. 16 The Board has convened this morning in the matter that has been given file number RP-2003-0044. This is a matter that arises from Procedural Order Number 4, specifically a subparagraph of item number 1 on the issues list relating to the Board's jurisdiction with respect to existing customers and service-area amendment applications. 17 The Board, first off, would like to thank the parties for the excellence of their submissions in this matter which the Board has received and reviewed. 18 The order of proceeding that I propose is to begin with Hydro One making its presentation. I would like all of those that are substantially like-minded and are prepared to identify themselves as such to follow directly Hydro One. We will then deal with those who are -- who take a markedly different position to that taken by Hydro One, and we will give Hydro One, as the framer of this issue, the right of reply at the conclusion. 19 Unless there is comment with respect to that order of proceeding, I'd like to proceed to appearances. 20 APPEARANCES: 21 MR. ROGERS: Good morning, sir. My name is Donald Rogers and I appear for Networks. 22 MR. SOMMERVILLE: Thank you. 23 MR. ROGERS: And with me is Ms. Aldred, with whom I think you are familiar. 24 MR. SOMMERVILLE: Indeed. Welcome. 25 MS. GODBY: Good day, Mr. Chair. My name is Carol Godby, from Harrison Pensa. I represent EnWin, Essex, and Erie Thames Power, and beside me is Mr. Southam. 26 MR. SOMMERVILLE: Mr. Southam is assisting you, Ms. Godby? 27 MS. GODBY: Mr. Southam is, yes, the expert from RDII Utilities who is representing the same utilities. 28 MR. SOMMERVILLE: Thank you. Normally it's not required that persons assisting need identify themselves for the record during appearances, but thank you. Mr. Lokan. 29 MR. LOKAN: Yes, sorry. Andrew Lokan, for the Power Workers' Union. 30 MR. SIDLOFSKY: Good morning, sir. James Sidlofsky for Toronto Hydro-Electric System Limited, Hamilton Hydro Inc., Hydro Ottawa Limited, Brantford Power Inc., Hydro-Vaughan Distribution Inc., and Markham Hydro Distribution Inc. 31 MR. SOMMERVILLE: Thank you, Mr. Sidlofsky. 32 MR. O'LEARY: Mr. Chair, Dennis O'Leary for Wirebury Connections Inc. 33 MR. SOMMERVILLE: Mr. O'Leary. 34 MS. LOTT: Sue Lott; I'm counsel for the Vulnerable Energy Consumers Coalition, VECC. 35 MR. SOMMERVILLE: Ms. Lott, that's L-o-t-t? Thank you. 36 MR. McLEOD: Michael McLeod for Centre-Wellington Hydro Ltd. and Veridian Connections Inc. 37 MR. CHAN: Andy Chan for Centre Wellington and Veridian Connections Inc. 38 MR. TAYLOR: Andrew Taylor, counsel for Great Lakes Power Limited. 39 MS. YOUNG: Gaye-Donna Young, Newmarket Hydro Limited. 40 MR. SOMMERVILLE: I'm sorry, could you -- I wonder, you don't have a microphone there. It's Ms. Young? 41 MS. YOUNG: Yes. 42 MR. SOMMERVILLE: I wonder if you could find a -- thank you very much. 43 MS. YOUNG: Gaye-Donna Young, Newmarket Hydro Limited. 44 MR. SOMMERVILLE: Thank you very much. 45 Are there any other appearances? 46 MS. LEA: Jennifer Lea, Board Counsel. 47 MR. SOMMERVILLE: Ms. Lea. 48 Are there any preliminary matters, before we got to the presentation of argument? 49 PRELIMINARY MATTERS: 50 MS. ALDRED: Mr. Chair, if I could just advise other counsel in the room that, as you're aware, we did not provide copies of our authorities and I do have excerpts over here on the side if any counsel was unable to access them by the references we provided. 51 MR. SOMMERVILLE: I think I do have your references. 52 MS. ALDRED: Yes, you do, sir. We provided them to the Board. 53 MR. SOMMERVILLE: Thank you. 54 Ladies and gentlemen, we have a small technical deficiency. We will rise for 5 minutes and return. 55 --- Recess taken at 9:40 a.m. 56 --- On resuming at 9:45 a.m. 57 MR. SOMMERVILLE: Thank you. Please be seated. 58 Thank you for your indulgence. 59 Mr. Rogers. 60 MR. ROGERS: Thank you, sir. 61 SUBMISSIONS ON JURISDICTIONAL ISSUE: 62 SUBMISSIONS BY MR. ROGERS: 63 MR. ROGERS: Good morning, Members. I have prefiled, as everyone else has, an outline of my submissions and so I hope I won't disappoint you when I tell you that I'll be quite brief this morning. 64 I would just like to go through my written submissions, and I'll follow them in the order I presented them there. But I won't be long as I know you have many people who would like to say something this morning. 65 The issue before the Board this morning is of paramount importance to my client, and I dare say to some of the other distributors in the room today. This issue is fundamental to the orderly organisation of electricity distribution in this province. 66 The question before the Board that we were asked to address was whether the Ontario Energy Board has jurisdiction to make an order which would have the effect of transferring a distributor's existing customer to another distributor. And we're dealing with jurisdiction as opposed to policy this morning, because there are two arguments here, of course; one is that you do not have jurisdiction, and so I have maintained; but secondly, there are policy arguments that will also apply, perhaps in due course, to this issue, but we're going to concentrate this morning on the jurisdictional argument. 67 First of all, sir, and Ms. Spoel, the Ontario Energy Board, like all administrative tribunals, is a creature of its statute. I'm not going to belabour the point; it's well known. We must look to the statute to see what powers you have. 68 There are four main reasons why I submit to you that the Board does not have jurisdiction to make an order which, in effect, appropriates existing customers, and the first of those is the fact that there is no legislative authority for you to do so. 69 The Ontario Energy Board Act does grant wide powers to the Board. It allows it to grant licences to distributors. It allows you to prescribe conditions to those licences which are quite wide-ranging. And section 70 of the Act, with which I know you're very familiar, sets out a code that is to govern the powers of the Board concerning the conditions to be attached to licences. 70 And I've attached section 70 to our written submission for your convenience. But nowhere there in section 70 is there any authority conveying to the Board the power to effectively transfer a distributor's existing customers to another distributor. 71 There are some reasons for that, I submit. First, a distributor has an affirmative obligation to serve customers. Section 28 of the Electricity Act mandates that a distributor has an affirmative obligation to connect a customer lying along the distributor's system. My client, and other distributors too, but my client in particular, through its duty-to-serve obligations in the recent past and, in my client's case, in the long-distant past, have spent a great deal of capital to attach customers throughout its franchise area. Many of those attachments have been, in my client's case in particular, marginal from an economic standpoint because of the electrification of Ontario. Those customers are pooled; those costs are borne by the customers in the pool, and decisions around this issue that you will make will affect those customers who happen to be grouped in a particular cost-allocation pool. 72 Large investments have now been made by my client, and other distributors here, to attach these customers. And there's the obvious concern that that capital commitment that has been made will be eroded if those customers are to be transferred to another utility. 73 Now, I concede that the Board does have power to grant licences which overlap, and that section 70(6) of the Act says that where such overlapping occurs, there shall not be restriction in the licence to another person within the same area, and the licencee shall claim any right of exclusivity. 74 But the key provision in this regard, as far as your legislation is concerned, is subsection 70(13). These provisions are found at tab A of the written brief I've filed. Section 70(13) provides: 75 "A licence under this part shall not require a person to dispose of assets or to undertake a significant corporate reorganisation. A licence under this part shall not require a person to dispose of assets." 76 Now, if the Board, through its licence amendment procedures, were to make an order which either explicitly transferred customers, which I submit you clearly do not have the jurisdiction to do, or which has the inevitable effect of transferring a distributor's existing customers to another, this would contravene section 70(13), in my submission. Because if the existing customer was transferred to the expanding utility, the connecting assets of the old utility, or the existing -- or the franchised utility would be bypassed and rendered useless and investment would be lost. The utility, in effect, would be disposing of its asset because they no longer had value. And it might even force it to undertake a significant corporate reorganisation if this was widespread enough. And that, I submit, would contravene section 70(13). 77 This argument all comes back to the basic theory of regulation here; that a utility has both obligations and corresponding rights that go along with those unique obligations. And talking about this a little more later, but it might be worth emphasising now, a public utility is a creature with a very strong public duty to serve. It must serve customers who are along its service area. 78 Going along with that very serious obligation which forces utilities to spend great amounts of capital is a corresponding right to expect protection of those assets throughout their useful life. And that is why we have section 70(13), I submit, to protect those assets. 79 Now, the second point I'd like to move to is the expropriation of property argument, that is the expropriation of assets without proper compensation. I will not spend a great deal of time on this. I have given you the case of Manitoba Fisheries and the Queen, which reaffirms the well-known principle that property is not to be expropriated without compensation. And legislation which does not specifically provide for expropriation shall not have the indirect result of bringing that about. In other words, if the legislature intended property to be appropriated or expropriated, it would have explicitly given you the power to do that. And that has not occurred in this case. 80 Of course, there's a fairness argument too, and the case that I've given you simply states that rule of law that the power of expropriation must be explicitly granted by enabling legislation coincides completely with fair play in our society, that assets cannot be take without proper compensation. 81 I have referred you as well to the case of Kingston and the Ontario Energy Board, which is a gas case and is different from this case, but there are some certain similarities essentially there. I think what happened was that Kingston wanted to take over the assets of the gas utility but allow the gas utility to continue to run them. I believe that's right, unless I've got that reversed. 82 In any event, the court held there that: 83 "In our opinion, the Board's power to order Union to continue to provide service does not extend to ordering Union to make its assets available against its will to some other party for that purpose. The proposal of Kingston may fall short of a formal expropriation. Nevertheless, it takes away from Union a property right it enjoys; namely, the ability to deny others the possession, use and enjoyment of its property." 84 And further on, and this is really the point that I wish to make this morning, the court held this: 85 "Kingston should not be permitted to now do indirectly what the legislature has expressly renounced with the retroactive repeal of section 62 of the Public Utilities Act. 86 Now, that section doesn't apply here, and this case is somewhat different. But the position is that the court explicitly held that Kingston should not be allowed to do indirectly what it cannot do directly. My submission to the Board is you do not have the power to expropriate property directly and therefore you do not have the power to do that indirectly by making orders which have the inevitable effect of causing assets to be bypassed, rendered useless, and, in effect, expropriated. 87 I will say that there is a provision in your Act, and this is in our written submission, section 83, which does allow a municipal corporation -- well, it's the previous governing body. Actually, there is a provision in the existing legislation in section 86. But the old section, which was applied to municipal expansions, did provide a code permitting the acquisition from one utility by another, and it provided a mechanism to establish the transfer price. Provision was made for arbitration; there was a whole code established for this to happen; it was time-limited. So that when the legislature intended that this should happen, it made a specific code in the legislation to allow for it. 88 Now, can I move on to the next -- briefly, the next argument, and that is this question about your objects, the objects in the Act. This is referred to quite a lot by parties before they know section 1 of your legislation. And of course, your powers are to be exercised for the purposes of the Electricity Act and the Ontario Energy Board Act. Those purposes include, in addition to the facilitating competition in the sale of electricity, protection of the interests of consumers and the promotion of economic efficiency. 89 It's my submission to you that it would be contrary to the interests of consumers and economic efficiency to encourage or permit the bypass of facilities. If you look at these objects, and I submit that these are often misconstrued, particularly with respect to this issue of facilitating competition, clearly the objects do wish to facilitate competition in the sale of electricity. But if you look carefully at these objects, the section directs the Board to be guided by an objective of facilitating competition in the generation and sale of electricity. Competition in the generation and competition in the sale of electricity does not talk about competition of distribution assets or transmission assets. 90 When it does refer to transmission assets or distribution assets, it provides a different direction. In subparagraph 2, the object is to provide generators, retailers and consumers non-discriminatory access to transmission and distribution. So that's how distribution and transmission facilities fit into this scheme. They provide -- or there should be provided non-discriminatory access to those facilities. But not competition in the construction of facilities. Open access to the existing, high-cost capital infrastructure. 91 If you look down to subparagraph 4, it again mentions transmission and distribution, and it talks there about economic efficiency, economic efficiency in transmission and distribution of electricity. 92 Now, economic efficiency, in certain circumstances, is best advanced by a properly regulated monopoly. And my submission to you is that distribution assets are most economically efficient when they are done -- provided in a monopolistic system properly regulated by you. The reason for that is that these facilities are extremely expensive. You want to have one distribution system, with open access to all, with the ability to vie the actual energy from more than one source but use -- utilising the one capital distribution system with its high cost, regulated by the regulator and not duplicated by unnecessary competition. 93 So that economic efficiency expended favours the argument that I made earlier, and I'll make it again in a moment in another context, that a distribution company, which has expended millions of dollars in building a system to serve its customers which obligation is a legal obligation, must have a concomitant protection of those assets in order to make this system work. 94 And I submit to you that we've never contemplated in this legislation that there would be competition for the construction of assets like distribution assets. Clearly we want to have competition with respect to sources of supply, and with open access to this system, but not in the replication of the system itself. And that is found at page 9 and it has to do with the regulatory theory. I've already touched on that a bit. These things all dovetail together. It's a good thing that the legislation, as I submit it should be interpreted, coincides with the regulatory theory which lies behind it. 95 The fundamental principles of utility regulation provide, and I'll say it again, that utilities have obligations and they have rights. They go together; you can't have one without the other. And they are summarised in the text which I've excerpted for you at tab D, the regulation of public utilities. I've just taken a couple of pages, pages 118 and 120 out, and I've attached them at tab D for your convenience. And I'd like to read, just for a moment, from it if I could. It's tab D, and I've highlighted the relevant excerpts. 96 The bottom of the page, page 118, the author outlines some of the obligations that I have been talking about this morning. He points out there that there are four major obligations, but I want to just read the first, if I could. 97 "First, they are obligated to serve all who apply for service. Within a market service area and within the limit of its capacity, the ability to serve, a public utility must be prepared to serve any customer who is willing and able to pay for the service. At times, this requirement means that a business must provide capital investment in rural areas where it is not profitable to do so, or must maintain an unprofitable type of service." 98 That applies to my client. 99 "The price of services in such cases may not be based on cost but often are subsidized by other services offered by the company. Most commonly, this requirement means that a public utility must build capacity ahead of demand growth reserve capacity or margin." 100 That's the point I would like to dwell on for a moment, if I could. What the author is pointing out is that the requirement that we've been talking about requires a prudent utility to plan ahead for expansion, and to build its assets in the most efficient way by planning for future growth. That's the essence of the issue before you. These utilities have built an infrastructure which anticipated the additional growth of its existing customers. It's also anticipated growth of new customers, but we'll leave that for another day. 101 A good utility will plan for expanded utilisation of its customers, and it will size its facilities to meet that demand. If we're not careful, I submit, you will we encouraging utilities to plan to a very short planning horizon, because while utilities spend capital with load anticipated 10, 15, 20 years down the road, when it makes economic sense to do so, when you're building the facility to oversize to accommodate additional growth, if that additional-sized facility is at risk of being rendered useless because the anticipated additional growth is siphoned off by a neighbouring utility who did not have the duty or obligation -- or which did not have the duty or obligation to plan for that additional growth. 102 So I submit to you that it is of fundamental importance for the Board to recognise that it should be encouraging utilities to plan in the most economic way for the benefit of all of its customers and all of us who consume electricity in Ontario, and that means to plan for growth within its franchise area, securing the knowledge that its assets will be protected from poaching by other utilities who have not had the obligation to plan for that growth. 103 And on the next page, page 119, the author does refer to this parallel right that goes along with the duty to serve, and he says: 104 "All businesses, regulated and non-regulated, have certain rights. The most important general right is the legal protection of private property. In addition, however, public utilities have four rights that are largely the result of their special status." 105 And over the page he talks about this: 106 "When they furnish adequate service at reasonable rates, public utilities have the right of protection from competition from an enterprise offering the same service in the same service area. A public utility must receive a certificate of public convenience and necessity from the appropriate regulatory agency, and a franchise generally dealing with use of city streets or with city utility service from the relevant local governmental unit prior to commencing operations. In turn, such certificates and franchises, while not exclusive, offer a public utility some freedom from competition in a service area." 107 And that is the essence of the argument on the policy side. So those are my submissions. 108 In summary, I would just say that the legislation, with good respect, does not give you the power to transfer existing customers to the new utility. The objects of the legislation are consistent with the proposition that those customers should be protected by the existing -- for the existing utility. And the public policy argument supports the argument that capital expenditures made within a franchise area to meet the duty or the obligation to serve should be protected. Thank you. 109 MR. SOMMERVILLE: Thank you, Mr. Rogers. 110 I think the Board will adopt the practice of asking questions of presenters at the time their presentation is made, rather than sort of saving up questions somehow. 111 Ms. Spoel, do you have questions? 112 MS. SPOEL: Mr. Rogers, I just want to clarify a couple of points in your argument. 113 When you refer to section 70(13) of the Act, you mentioned with respect to existing customers that if existing customers were transferred, the connecting assets would be bypassed and rendered useless. I'm probably paraphrasing here from my notes, but I think that was the gist of your argument. 114 MR. ROGERS: Yes. 115 MS. SPOEL: And I just want to understand. When you talk about an existing customer, if you're discussing a customer, and I'm thinking specifically of the Hastings Manor case that we dealt with last week, where a new connection was required regardless of who provided the service, whether that -- you would consider that to be a disposition of assets under section 70(13), or whether it's only where there's already a connecting asset. I realise it's a fine point. 116 MR. ROGERS: I understand the point. I'm not completely familiar with that case, but I think I understand what it's about. 117 My answer would be this: With great respect, I think your decision was beyond your jurisdiction, because in my submission, the utility had planned for that incremental growth. I understand in that case the actual connecting facility at the end of the line was not the one to be used; they would have to build themselves -- similar to the other utility, I believe that was the fact of that case. It makes it a little murky, I do agree. 118 But this utility had planned for that additional growth, and other parts of the infrastructure were sized to accommodate that growth. 119 And so I would submit to you that -- and may I just make one point in answer to your question, I think it points out something that has troubled me somewhat about the process here, and it's no one's fault, but we're talking about hypothetical cases. 120 I know in your case it wasn't hypothetical, but I've been talking in hypothetical language, and it's sometimes hard to -- and I think that the Power Workers' Union's brief, as a matter of fact, speaks to this, about how difficult it is to establish hard-and-fast rules in abstract cases. 121 But my submission is this, just to answer your question, that that's an existing customer. The growth that that customer was contemplating would have been -- would have been planned to some extent by the utility, and the fact that they would have had to construct some new physical connection to attach, that you not alter the situation. 122 MS. SPOEL: But is that a jurisdictional issue or a policy issue? I mean, I certainly understand as a policy issue, which we'll deal with later, that that would be one of your arguments, and we would expect that to be one of your arguments -- well, I would assume it was one of your arguments. I'm wondering, strictly on a jurisdictional basis, under section 70(13), is that -- and I raise it, because you specifically mention connecting assets as being the issue, and if there were -- I mean, if you could think of a bigger hypothetical, some larger piece of property where clearly it wasn't even close, but it happened to be in the same legal ownership, you know, some 2 or 300-acre piece of property where someone was going to build in the other corner, just as a hypothetical situation, would you still consider to be that -- an issue specifically under section 70(13) and not a policy matter? 123 MR. ROGERS: I have to concede it's at the outer limits of my jurisdictional argument, and I think the argument has to be on jurisdiction. I think I can make a stronger argument on policy, but on jurisdiction that -- it's an indirect doing of what you can't do directly. 124 But I do concede it's at the outer limits of the jurisdictional argument. 125 MS. SPOEL: Thank you. 126 MR. ROGERS: And you know, the argument does pale always in law. This happens. I mean, you get right to the margin, and that's pretty close to it. 127 MS. SPOEL: Thank you. I appreciate that. 128 MR.. SOMMERVILLE: I have no questions, Mr. Rogers. 129 The next presenter -- Mr. Lokan, I could look at you. I think the position would be closely linked to this one. I'll hear from you now, please. 130 MR. LOKAN: Yes. 131 MR. SOMMERVILLE: Thank you. 132 SUBMISSIONS BY MR. LOKAN: 133 MR. LOKAN: Thank you. 134 First of all, we do adopt the submissions of Hydro One, and I will try to move through my related submissions quite quickly. 135 I have five points to make: First, that the Board does require statutory authority to transfer an existing customer, as with anything else; second, that far from that authority being in the statute, there are many contraindications in the statutory scheme that would argue against being there; thirdly, I'm going to address the presumption against taking without compensation, expropriation without compensation; fourthly, I'm going to touch on the efficiency concerns; and fifthly, I'm going to address the point of whether the Board should consider deferring the subject to another case. 136 On the need for a statutory grant of power before this Board can make any particular order, that's trite law and, I think, recognized by all parties in this room. 137 I have, by way of authority, given a brief excerpt from the leading text on administrative law, Brown and Evans, and it didn't quite make its way into the authorities, but I did provide a looseleaf today. 138 MR. SOMMERVILLE: Thank you, Mr. Lokan. 139 MR. LOKAN: That principle, it's stated in this excerpt right at the beginning of chapter 13 as being a fundamental principle of public law. It's also mentioned in a variety of cases, including the Hughes Boat Works case relied upon by Mr. Sidlofsky. That's all I have to say on my first point. 140 On the second point of contraindications in the statutory scheme, this groups together, really, my points 1, 2, and 3 on my written submissions. In particular, I ask you to take note of section 70(13) for the reasons given by Mr. Rogers. 141 Certainly, there is an express prohibition against an order that assets be transferred, which may be implicit in many cases where a transfer of customers would be at issue. Even if it isn't, and we're talking about entirely new connections, then there's a result of a stranding, a rendering useless of existing assets, which may practically put the utility in a position of having to dispose of them. And it may be an indirectly -- a result that would amount to the same as an Order of a transfer of assets. 142 I would also rely on the very detailed list of conditions in section 70(2) that the Board may impose upon a licence. There are two relevant principles of statutory interpretation here, which I've given in their Latin form, the ejusdem generis and expressio unius principles. 143 And just speaking in plain English on this, ejusdem generis refers to the principle that where you have a list, and there's a debate about another item not on the list, the other item, if it's to be included, should be of the same kind, of the same type. And I would submit to you that an order that existing customers be transferred is not of the same type as any of the conditions -- specific conditions that are listed in 70(2). 144 The other principle of expressio unius est exclusio alterius just means if you have said something very specifically, by implication you have excluded what you haven't said. So if you go through this list and say, You can do this; you can do this; you can do that; you can do that, you would really expect a transfer of existing customers. It's such a fundamental and important item, you'd expect it to be there if that power was intended to be vested in the Board. The silence of that section speaks volumes when it comes to transfer of customers. 145 In my paragraph 3, still within this topic of contraindications in the statutory scheme, I refer to section 59 of the OEB Act. 146 Section 59 of the Act does explicitly set out some circumstances in which a distributor can have its business taken away, but there it's express. It's business and assets; and moreover, it expressly includes in 59(11) what you do about compensation. I have included these provisions at tab 1, by the way, of my book of authorities. 147 59(11) says when you're within the terms of -- the limited terms of section 59, and you do have an order that business and assets be taken away, that it will be without compensation. So the legislature turned its mind expressly to that. 148 Now, that brings me to my third point, which is the general principle that you can't expropriate without compensation as a principle of common law, fairness, and statutory interpretation. 149 I would ask you to note the provisions of the former Bill 185 amendments to the Power Corporation Act. Those appear at tab 2 of my authorities. 150 As Mr. Rogers said, where it was the legislature's intent that customers be transferred, existing customers be transferred, there was a complete statutory code, and I'm going to simply give you some references there without asking you to turn to them. 151 Please, would you look at section 83.2(1), (3), and (29), and 83.3(4) and (8)(e), and 83.6(3). These provisions talk to matters such as the fact that customers will be transferred; the fact that customer records may be transferred; the distribution assets that will go with the transfer; the method of fixing the price for the transfer. 152 If you are to have a transfer of any part of the customer network, this is the kind of legislative detail you would expect and need to see. And since this bill no longer applies, this provision no longer applies, I think you could infer very strongly the legislature did not intend the provisions that we're talking about to be a kind of a back-door Bill 185. 153 Now, I have also included the Manitoba Fisheries case for the common law presumption. I would ask you to turn up tab 3 of my authorities to point out a couple of things about this case. Although it's a very different context, the context of the fisheries, there are some similarities with what we're talking about at present. 154 If you look at page 3 of 13, at tab 3, you'll see that what we're talking about here, you had some existing fisheries, commercial fisheries, in the province of Manitoba. The federal government passed a statute which gave a new federal corporation a monopoly. It became unlawful, it was prohibited to then sell fish commercially. Only the corporation could do so. 155 You can see that on page 3, at point number 2, the Act created the Freshwater Fish Marketing Corporation, that's the federal corporation, 156 "and gave to it the exclusive right to carry on the business of fish exporting from Manitoba ..." 157 Now, down the bottom of the page you'll see some admissions by the defendant that what happened is that the existing customers of the fisheries, of the commercial fisheries, up until the date of the Act, effectively were transferred to the new Crown corporation. So it's a case about customers. They were served, to a certain point, by the commercial fisheries, including the plaintiff, and then beyond that point by the federal Crown corporation. And it was the same customers, really; no other change. That, by the way, had the effect of stranding some assets, the physical assets of the fisheries company, who was the plaintiff, were no longer useful for anything. Not a lot of things you can do with a fishing boat other than fishing. 158 If you could look now at page 5, down the bottom, you will see that the Supreme Court of Canada treats those customers as an asset. It's the customers that were really what was taken away here, and what the case is about. Mr. Justice Ritchie writing for the court says: 159 "In my view, the appellant's suppliers and customers who it had acquired and cultivated over the years constituted one of its most valuable assets ... And on the following day that asset was completely extinguished and the suppliers and customers were left with no choice but to do business with the..." federal corporation. 160 That relates to Mr. Sidlofsky's submissions for Toronto Hydro, that customers are an asset. 161 If you look briefly at page 7, you'll see in the middle of the page indented, not the paragraph starting with 1 but the one below it, the statement of the common law presumption: 162 "The recognised rule for the construction of statutes is that, unless the words of the statute clearly so demand, a statute is not to be construed so as to take away the property of a subject without compensation." 163 Now, in the Manitoba Fisheries, it was quite clear that the taking away of the property was explicit in the statute, it was the necessary result of the statute, so the debate then became, well, is compensation implicit or not. Here I would ask you to go back a step. We have nothing explicit and we're arguing about whether the implicit term of the statute would allow a taking of the property. I would submit that this same presumption can be used to say, unless it's clear, there simply is no power to expropriate at all. 164 And finally, at page 13 of the case, you'll see the holding of the court, first full paragraph: 165 "It will be seen that, in my opinion, the Freshwater Fish Marketing Act and the Corporation created thereunder had the effect of depriving the appellant of its goodwill as a going concern and consequently rendering its physical assets virtually useless and that the goodwill so taken away constitutes property of the appellant for the loss of which no composition whatever has been paid." 166 The court then found that there was a right of compensation. 167 We're in a very similar situation here. If a customer or customers are ordered to be transferred, that's a taking away of customers or goodwill and a rendering of physical assets useless in the same way. 168 I'll simple submit that on this topic of expropriation that when you look at Bill 185, when you look at the express provisions of section 59, including the rule that there shall be no compensation there, and you look at the Manitoba Fisheries case, those, cumulatively, are a very, very strong indication that it was in no way intended here that existing customers could be taken from a utility. 169 My fourth point was that there are reasons of efficiency that would militate against finding such jurisdiction. I address that in paragraphs 5, 6 and 7 of my written submissions, and I don't think I have much to add to what Mr. Rogers has said there. Obviously, every time you strand assets, you've done something which is not in the public interest and not consistent with the way utilities are supposed to work. 170 My fifth and final point is that this Board should consider deferring this question to a more appropriate case. There are some nine or so applications before the Board to do with new customers, and speaking for myself, I have found it enormously useful to see some of the actual fact situations in which these issues arise in the expedited hearings. I think that's probably be true for the Board as well, and true for all of the parties. 171 There's nothing like a bit of factual context to bring out what the principles should be and how they might conflict. The trouble with doing it for new customers here is that, except for perhaps the odd marginal case as well like Hastings Manor, where we're not quite sure where it is in relation to the border, we don't have any new customers cases before us on the combined proceedings, so we're all being asked to take a stab in the dark and, on the basis of hypotheticals that we may or may not be able to think of, try to assist the Board with principles. 172 I suggest it would be a more prudent and wise course to say if you're not going to rule on the jurisdictional point saying there is no jurisdiction to do this, to say, Let's think about this and the policies that might apply and the way in which the jurisdictional arguments might work when we have one or more actual factual contexts, one or more cases. That means everybody knows what they're talking about. 173 Those are my submissions. 174 MR. SOMMERVILLE: Thank you, Mr. Lokan. 175 MS. SPOEL: Mr. Lokan, I have one question. And, Mr. Rogers, if you have the answer for that, I didn't think of it until Mr. Lokan's submission. Is there a definition anywhere in any of the statutes of what a customer is? I know there is a definition of a consumer, but is there a definition of what actually constitutes a customer? 176 MS. ALDRED: I don't believe there is, Ms. Spoel, no. 177 MS. SPOEL: I assumed not, or someone would have referred to it. 178 MR. LOKAN: Bill 185 did refer to customers -- 179 MS. SPOEL: I know it does; I saw that in there. But since it no longer applies, I just wondered -- because, again, you can think of all kinds of circumstances where -- I might be an existing customer of Toronto Hydro -- I am existing customer, in fact, of Toronto Hydro. If I move, I'm still a customer of Toronto Hydro. They consider me to be the same customer, but actually I'm actually at a new address. So does a customer refer to a parcel of land? Does it refer to the individual who pays the bill? Does it refer to a building? I just wondered if there's anything any -- not from a policy point of view, perhaps, but from a legal, jurisdictional point of view, any reference anywhere in the legislation that anyone knows of that would help us on this. 180 MR. LOKAN: I don't think I can help on that. 181 MS. SPOEL: Thank you. That was it. Thank you. 182 MR. SOMMERVILLE: I have no questions, Mr. Lokan. 183 Are there any others who wish to -- who wants to go next? 184 Mr. Sidlofsky. 185 MR. SIDLOFSKY: Sir, I'd be happy to go next. And of course, Mr. Lokan's submissions have built on those of Mr. Rogers, and I'll expect you'll find my submission even shorter than that of Mr. Lokan. 186 SUBMISSIONS BY MR. SIDLOFSKY: 187 MR. SIDLOFSKY: The Toronto Hydro position, and I should note that the submission was made to the Board on behalf of Toronto Hydro. The other clients that we represent here this morning are in support of that submission, but it is a Toronto Hydro submission. Just to make sure we are all clear on that. 188 MR. SOMMERVILLE: Thank you. 189 MR. SIDLOFSKY: I will touch briefly on five items. First is the jurisdiction of an administrative tribunal, and I think it's already been made fairly clear what the position on this side of the room is, and that is that an administrative tribunal's jurisdiction is limited by its enabling statute. 190 We have included the Hughes Boat Works case in our submission, the reference to that case. I've provided a copy of it to the panel and to the other counsel here today. I don't propose to get into the particulars of that case. I believe that it seems to be settled law in the room here that the jurisdiction of an administrative tribunal is limited by its enabling statute. 191 And you'll see in the Toronto Hydro submission that we've cited the relevant portion of that decision where Mr. Justice Reid held that: 192 "It is accepted that tribunals are established to perform tasks frequently in a particular way, but always with a limited frame of action. The limits are set by the legislative charters to which each tribunal owes its authority. Tribunals have no inherent powers. Any they have must spring from legislation." 193 Now, in the Toronto Hydro submission we go on to note that not only is there no express authority granted the Board to deal with the transfer of existing customers, but those provisions that do appear to deal with the transfer of assets either prohibit them outright or contemplate an agreement between willing parties. 194 First, -- the first reference I would make is to section -- subsection 70(13) of the OEB Act, and I don't propose to spend a great deal of time on that. It's already been dealt with by both Mr. Rogers and Mr. Lokan. But clearly a license shall not require the disposition of assets or a significant corporate reorganisation. 195 The service area of each distributor in the province is set out in its license. Clearly any attempt to either establish a new service area or expand another distributor's service area to take over existing customers would involve an amendment to the incumbent distributor's license as well as the incoming or new distributor. 196 So clearly we are brought into the realm of license conditions and license amendments by purporting to deal with existing customers. 197 The second reference is to section 59, and you've already heard a couple of references to that. The one item that I wanted to point out here that's highlighted in the Toronto Hydro submission is that there's a great deal of activities -- a great deal of activity that can be carried on by an interim licensee under section 59 of the OEB Act. Clearly the provisions of section 59 appear to be contemplating fairly rare circumstances, and that is where the interim licence is necessary to ensure the reliability -- the reliable supply of electricity to consumers. These obviously aren't circumstances that would happen every day. This is clearly where there's been some failure on the part of the existing or incumbent distributor. 198 But in any event, the interim licensee can take possession and control of the business, can order the -- excuse me, the Board can order the incumbent distributor to surrender the possession and control of its business, and without a hearing, the Board can amend or suspend the incumbent distributor's licence. The interim licensee has the power to maintain and add to the property of the business, receive the income and revenue of the business and dispose of its assets in the normal course. But one thing it can't do under subsection 59(10), one thing the Board can't do is order the transfer of the distributor's assets to the interim licencee. 199 Another situation, then, where the Act contemplates the transfer of assets and specifically prohibits it. 200 Finally, the third example is the section 86 MAADs process with deals with the sale, lease, or other disposition or transfer of a distribution system, or part thereof. And clearly the transfer of customers is the necessary implication of any transfer of the distribution system; however, the MAADs process - mergers, acquisitions, amalgamations and divestitures - is a consensual process that contemplates applications made to the Board by willing parties to transfer assets and to dispose or -- dispose of or transfer a distribution system. 201 So simply to restate, those appear to be the circumstances under which the Board contemplates -- excuse me, under which the legislation contemplates the transfer of assets. In no situation is the Board given the authority to transfer those assets -- to transfer assets of existing customers. 202 Now, this leads me to the third point from our submission, which is the suggestion, it's the submission that customers are intrinsically tied to the notion or the concepts of assets. Clearly, the entire purpose of a distribution system is to serve customers. If there's no customers, there's no need for a distribution system. And the only way a distribution system can generate revenue is through the conveyance of electricity to real customers. A basis for the evaluation -- excuse me, for the valuation of the system, if we were to step back to the mergers and acquisition process, clearly the basis for the valuation of the system is on the basis of the numbers of customers and the loads of those customers. Customers are inseparable from the hard assets of the distribution system. 203 Rate-making and rate design in the Board handbook, analysis of impacts of rates on customers; all of these are intrinsically related to customers. You can't treat, I suggest, you can't treat the physical assets of the distribution system in a vacuum. They are clearly tied to the customer. 204 And because the customer is inextricably bound to the physical infrastructure of the distribution system, and because the Board has no jurisdiction, in our submission, to transfer assets, or to require the transfer of assets, the Board should likewise have no jurisdiction to transfer customers. And that is supported by the Manitoba Fisheries case that Mr. Lokan has pointed out to the Board, where the Supreme Court found that the appellant's suppliers and customers, and this is at the bottom of page 5 of Mr. Lokan's copy of the decision, where the Court holds: 205 "In my view, the appellant's suppliers and customers who it had acquired and cultivated over the years constituted one of its most valuable assets as of April 30th, 1969. And on the following day that asset was completely extinguished and the suppliers and customers were left with no choice but to do business with the Freshwater Fish Marketing Corporation." And the decision goes on at that point. 206 The fourth item I would defer to Mr. Rogers's discussion on this, this is the submission by Toronto Hydro that the transfer of existing customers or the assumption by the Board of the jurisdiction for the transfer of existing customers is contrary to the guiding objectives of the Ontario Energy Board Act. I won't make an additional submission on that. I think that's already been covered by Mr. Rogers on behalf of Hydro One. 207 And finally on the public policy aspect of it, again I won't purport to repeat the comments of my friends, but in addition to the Hydro One comments, Toronto Hydro notes in its submission that distributors are already financially stressed across the province. Bill 210 created new pressures by freezing distribution rates and further delaying distributors' recovery of their transition costs to 2006 or later. There are hundreds of millions of dollars in transmission costs that are outstanding. Various Ontario distributors have already been placed on credit watch with negative implications by Standard & Poors, and allowing the transfer of existing customers would further destabilise the distribution sector in Toronto Hydro's submission. 208 Those are my comments. I would be happy to answer any questions that the Board may have. 209 MR. SOMMERVILLE: Thank you, Mr. Sidlofsky. 210 MS. LEA: Sir, did you give me these, and did you want me to put to the Board this case? 211 MR. SIDLOFSKY: Sorry, I had given you copies -- additional copies for the panel. 212 MS. LEA: Right. And you want me to provide those? 213 MR. SIDLOFSKY: If you would, please. 214 MS. LEA: I'm sorry, I didn't hear you on that. Thanks. 215 MR. SOMMERVILLE: Thank you, Mr. Sidlofsky. 216 MR. SIDLOFSKY: Thank you, sir. 217 MR. SOMMERVILLE: Mr. Taylor. 218 MR. TAYLOR: Sure. 219 SUBMISSIONS BY MR. TAYLOR: 220 MR. TAYLOR: I'd like to take this opportunity, then, to add a point, Mr. Chair. I concur with all the submissions that have been made before me. 221 The only thing I wish to add, though, is the real issue here is about the stranding of assets and, you know, we've gotten into the issue of transferring customers because it ties into the stranding of assets. That's the ultimate effect. 222 So to address the issue of whether a customer is a new customer or an addressing customer, it raises a concern for me because I think that we might be focusing on things that are irrelevant, because the real issue is whether or not there's going to be stranding of assets. And I can think of some examples where, if we get tied up on whether a customer is a new customer or an existing customer, there could be some loopholes that circumvent the primary concern, and that is to avoid the stranding of assets. 223 One example could be if there is a facility or a customer that's connected and that customer changes ownership, would that customer be considered to be a new customer for the purposes of this jurisdictional question? Or the issue that you raised, Ms. Spoel; say there's a property and a new facility being built on the other end of the property. Is that a new customer or an existing customer? And I would ask the Board not to focus on the identity of the customer, rather, whether or not there is a facility that is connected. 224 So in the example, the first one I gave, where there is the customer who is connected and there's a change in ownership, does that open the door for the Board to allow a different distributor to come in and service that customer? Well, the answer would be, in my submission, no, the Board doesn't have jurisdiction because that would lead to the stranding of assets. 225 And the same thing, the same principle can be applied to the second example I gave with regards to the new facility being built. 226 That's the only concern I wanted to raise. It's not about identity. 227 MR. SOMMERVILLE: Mr. Taylor, much of the discussion or the presentation so far has been based on the idea of expropriation of assets and that sort of thing, and you've emphasised the stranding of assets. Does the status of a given distribution asset as fully depreciated, the age of the asset, should that be a consideration in whether the asset is stranded or if the asset is stranded in part, or is there -- can you help the Board in that respect? 228 MR. TAYLOR: We're actually now starting to get into the same area of the Transmission System Code proceeding, where the same questions were raised, and I represent Great Lakes Power in that matter as well. In terms of book value being associated with an asset being stranded, I would submit that you can't simply look at whether or not an asset is completely depreciated to determine whether or not it's stranded; that there can still be some value associated with an asset even though, on the books, it has no value. And in fact there are still associated costs with an asset even if it's been completely depreciated, or if it's been decommissioned. 229 So in terms of looking at it from an accounting perspective, I don't support that. 230 MR. SOMMERVILLE: Just sort of a follow-up question, and that relates to the end of the useful life of the asset. That was a phrase Mr. Rogers used. Would you -- would the position be the same? I suspect it would, from what you have just said, that if the asset lost its useful life, that it still could be considered a stranded asset under some circumstances. 231 MR. TAYLOR: I would say if the asset had no market value, then it wouldn't be stranded. If it had any market value, then it could be stranded. 232 MR. SOMMERVILLE: Thank you. 233 Who's next? We're trying to, without characterising the submissions, and I'm sure that we won't, is there -- are we sort of moving down the spectrum of association with the original presentation materials? 234 Ms. Lott, are you prepared to proceed? 235 MS. LOTT: Certainly. 236 MR. SOMMERVILLE: Thank you. I'll hear from you now. Thank you. 237 SUBMISSIONS BY MS. LOTT: 238 MS. LOTT: I'm going to make two very brief submissions about our own submission, which really focuses on the issue of jurisdiction, and then with respect to the really important issue we view in terms of our ratepayers we will present who are low and fixed-income residential ratepayers, the issue of the stranding of assets could result from however customers may be transferred from an existing to a new distributor. 239 Our first submission in this area about the Board's jurisdiction is that we don't believe the Board has the jurisdiction under the applicable legislation, which is the Ontario Energy Board Act and the Electricity Act, to make an order that would have the effect of transferring a distributor's existing customers to another distributor. But we -- it is also our submission that notwithstanding how you may -- might determine this issue of customer transfer, that the Board does have the authority under the Ontario Energy Board Act to impose conditions of licence on a new distributor in keeping with its overall public interest issue here, with respect to the treatment of stranded assets and other financial concerns that might arise from the transfer of existing customers from an incumbent distributor to that new distributor, in keeping with its overall public interest mandate. 240 So specifically on the first matter of the jurisdiction, in our submission, we just pointed to the general restructuring initiative that was undertaken by the provincial government which put in place the amendments to the Ontario Energy Board Act and the Competition Act, essentially to facilitate competition in the electricity industry and competitive choice. And we understand that the objectives under section 1 of the OEB Act deal specifically with competition in generation and retail sales of electricity. In our view, it would make little sense that choice would be encouraged in only some components of the industry, while imposing on distribution customers a transfer to the effect that this would oust the incumbent distributor. 241 In our view, the intent of the legislation was to facilitate customer choice, and that pertains both to new and existing customers. So, in this case, we would argue that the new distribution entity must be chosen by that customer. And we point to, as others have already, section 70(6) of the Ontario Energy Board Act which indicates clearly that a licence is non-exclusive. So this, in our view, means that the legislation appears to contemplate situations where there would be one distributor. It is therefore logical to infer that there would be no automatic transfer of customers from an existing to an applicant distributor. 242 We also, as others have, pointed to section 28 of the Electricity Act, which just outlines the obligation of the distributor to connect and sell electricity if a building or other person of that building requests a connection. Again, this suggests to us that there is a premise here of customer choice. 243 On the second matter of -- which we believe is a very important issue for us, about the effect of a transfer of existing customers, and I think it was posed by Hydro One as to what the treatment should be accorded through the assets that remain. We again point to the Board's general powers to impose conditions on licences to distributors under section 70(1) of the Act. But we also looked for some authority to support our position that the Board does have the authority to ensure that, where this issue of stranded costs arise, that customers of the incumbent utility are kept harmless. And we provided for the Board a case which dealt with actually the main public utility commission, called Kennebec Light and Power District. And it does deal with a very similar circumstance between -- it involved a dispute between two electric distribution distributors, concerning the expansion of one distributor into the service area that was serviced by an existing distributor. 244 One of the issues that was raised by the public advocate in the dispute was the commission's powers with respect to the treatment of stranded assets of the incumbent utility. And the commission held in its decision that an aspect of their authority to act in the public interest might also include that ratepayers of the incumbent utility are held harmless. And we brought you to -- I apologise there's no numbering on the pages of our case excerpt, but it is page 7, and it is the bottom paragraph of that case that we excerpted, where the Commission states: 245 "We agree with those comments that, in considering whether to authorise service by a second public utility, we must determine the overall public interest which may include many other issues other than whether there is a public need for the service. These issues could, as noted above, include the effect on existing utilities and their customers." 246 So just to sum up our two major points. We would argue that there's very little legislative evidence and policy support for a position that would advocate the Board to impose a transfer of customers from an incumbent to a newly licensed distributor without some element of customer choice. 247 But in the event that there is a transfer, whether that arises due to customer choice or the Board's authority to impose a transfer, we would argue that it's within the powers of the Board, acting in the public interest, to ensure that the economic consequences of such a transfer are not unfairly visited upon the incumbent distributor's customers. And we would suggest that the resolution would devolve first a common resolution by the distributing parties; and, failing that resolution, to be determined by the Board. 248 MR. SOMMERVILLE: Sorry, could you just restate that last sentence for me, please. 249 MS. LOTT: We would suggest that the resolution of such a matter would devolve first upon a resolution by the parties themselves, and failing that resolution, to be determined by the Board. 250 Those are our submissions. Thank you. 251 MS. SPOEL: Ms. Lott, I just want to make sure I understood part of your argument, the part that relates to a circumstance. 252 You mentioned that the legislation contemplates that there could be two distributors operating in an area, and that there is a premise of customer choice and therefore the possibility of transfer of an existing customer from one system to the other. 253 Are you saying, then, that if utility A and utility B are both available and able to serve a customer, that the customer can choose to switch from A to B and that utility A, from which they had been receiving service, would be forced to let them go, if their choice was to go? 254 MS. LOTT: That's correct. 255 MS. SPOEL: But that then there would be some compensation. I understand the rest of your argument there. 256 MS. LOTT: That's correct. To make sure that the rest of the ratepayers are held harmless for that term. 257 MS. SPOEL: And who would pay that compensation, the customer or the utility B? 258 MS. LOTT: Well, I would think the utility -- the second utility. 259 MR. SOMMERVILLE: Just so I understand your submission. You would propose that utility A and utility B would work out what that compensation would be so that the existing customers of utility A, the losing utility, would be held harmless with respect to the transfer of that customer. 260 MS. LOTT: That's correct. 261 MR. SOMMERVILLE: And that if either of those -- if they were unable to agree, that I guess one or other of them could make a submission to the Board under some process for us to determine what the balancing contribution ought to be. 262 MS. LOTT: That's correct. 263 MR. SOMMERVILLE: Thank you. 264 It's now five to eleven. We'll take a short break. We will reconvene at 11:15. 265 Perhaps the parties may want to discuss, in the interim, who wants to go next, and that would be appreciated. Thank you very much. We'll resume at 11:15. 266 --- Recess taken at 10:55 a.m. 267 ---On resuming at 11:20 a.m. 268 MR. SOMMERVILLE: Thank you very much. Please be seated. 269 Who's next? 270 MS. GODBY: Good day, sir. My colleagues have graciously agreed to let me speak first. 271 MR. SOMMERVILLE: Thank you. 272 SUBMISSIONS BY MS. GODBY: 273 MS. GODBY: I can say, first of all, that we are in agreement with VECC's position. 274 I wish to address three issues in my submissions, two of which I won't elaborate on, other than to say our licence-amendment applications on behalf of EnWin, Essex and Erie Thames do not affect existing customers; and secondly, we are of the view that where existing customers could potentially be impacted by licence-amendment applications, they do remain customers of the incumbent distributor unless otherwise ordered by the Board. 275 And the third issue, which is the crux of the issue in this case, is that we would submit that the Board does indeed have jurisdiction to order -- to make an order to transfer existing customers. And we say this, sir, for three reasons. 276 First of all, we believe that it's expressly permitted by section 70(2)(c) which are your licensing -- your abilities to impose conditions on a licence application, read together with section 70(6) of the Act, and 70(6) is the non-exclusivity provision. 277 Secondly, the transfer of existing customers do not lead inexorably to the conclusion that there will be a contravention of section 70(13) which is the forced disposition of the assets. 278 And our third proposition is that customers are not assets of a distribution company. 279 I think it is fair to say that parties are in general agreement that distribution licences are non-exclusive unless otherwise specifically indicated, and that is pursuant to section 70(6). Section 74(2) which deals with licence amendments is a wide-open provision in that it allows any person to make such an application. That provision is not restricted, nor does it preclude existing customers from making such an application, and we feel that that is indeed significant. 280 Section 70 (2)(c) gives -- section 70 (1), in fact, gives the Board powers to impose conditions on the licence. Section 70(2)(c), and if I can quote this section from the Act: 281 "The Board may require" -- require -- "the licencees who enter into agreements with other persons on specified terms approved by the Board relating to its trading or operations or for the connection to or use of any lines or plant owned or operated by the licensee or the other party to the agreement." 282 We submit that this provision invests the Board with the authority to transfer existing customers if, in the view of the Board, such an order is consistent, first of all, with the objectives of the Act; and secondly, if it meets the criteria that are hereby -- that are in this proceeding established. 283 In cases where there may be an issue with respect to the stranding of assets, the Board can require that the new distributor enter into an agreement with the incumbent distributor to make whole that incumbent distributor so that there is, in effect, no contravention of section 70(13. 284 Assets cannot be stranded if compensation is paid. And how that compensation is determined, whether it be based on the undepreciated capital costs or net present value, how that methodology is imposed is not the subject of this particular proceeding today. And it does not go to the issue of jurisdiction, we submit, but it can be dealt with. 285 Now, we know that the Board has the authority to impose conditions on the distributor's use of assets already because of the current practice that's in place vis-a-vis incumbent distributors -- I'm sorry, embedded distributors, I beg your pardon. 286 This practice that is currently engaged in allows an embedded LDC to use a host LDC low-voltage system and pay the host a low-voltage charge. 287 Now, the customers who take power from the host distributor system are not, in fact, customers of the host distributor but are, in fact, customers of the embedded LDC. And, in our view, this is an example of the Board having the authority to place conditions on the use of the distribution system, contrary to my friend's argument, that that in fact cannot be done. We say it can. 288 In our view, Members of the Board, there's no distinction between these existing customers, in fact, and any other existing customer who may wish to switch distributors. There is no restriction in the legislation, no express restriction in the legislation of the Board's authority to consider an order to transfer existing customers. What is prohibited is the forced disposition of assets, but not an order to transfer existing customers. 289 Now, we agree that there should be no forced sale. We agree that there should be no uneconomic bypass. We agree that there should be no duplication of facilities. And we agree that there should be no stranding. And we agree with these things, not simply because there's a prohibition, but we agree with them fundamentally because they're fair principles, they're fail principles of competition. And it would be fundamentally unfair to the distributor making the investment that they weren't able to recapture that if these principles were not abided by. 290 So in summary, we are of the view that an order which would have the effect of transferring existing customers does not inevitably lead to a contravention of section 70(13). 291 If I could deal just for a moment with the legislative intent. My understanding is that Hydro One has argued that because distribution, the word "distribution" is excluded from section 1(1) of the OEB Act, which talks about facilitating competition, that therefore distribution is, in fact, excluded from that, that the distribution sector is excluded from competition. However, that section specifically delineates generation and sale of electricity. It's our submission that that sale must include something other than the price of the commodity itself. So, in effect, the sale is the act of getting the electricity from the customer -- from the generator to the end-user which necessarily incorporates, or would include distribution and connection charges. 292 Competition, therefore, we say, extends to the distribution sector. This is further supported by the fact that we have an unbundling of distribution rates. This would be, in our view, rather a moot exercise if, in fact, competition was not extended to the distribution sector. Unbundling, in our submission, in our respectful submission, is a necessary precursor to competition. 293 We would go one step beyond that, in fact, and refer to the distribution rate handbook, and we would note that the Board has affirmed competition is good for consumers in section 2.3.1. And I'm just going to quote a paragraph from that handbook. 294 "Customers benefit from PBR through the prescribed productivity factor and from potential gains through increased efficiency. By creating incentives that normally accrue in a competitive market, PBR brings the benefits of competition and preserves the important service quality standards." 295 PBR is meant to function as a surrogate for competition in the distribution rate handbook, and given this, we would submit that, in our respectful submission, it would be incumbent upon the Board to be consistent with the objectives of the Act, and to introduce real competition into the distribution sector where that mechanism is available. And we submit that this is one mechanism by which real competition can be introduced into the distribution sector. 296 To further support this argument, I would refer you to section 1(4) of the OEB Act, wherein my friend has already referred that the OEB is to be guided, the Board is to be guided by the objectives to promote economic efficiency in generation, transmission, and, yes, distribution. 297 Now, economic efficiency, in our view, is not simply a consideration of whether or not assets will be bypassed. It goes beyond that and, in fact, involves a consideration of much more, including customer choice and the financial sustainability of the companies. 298 Now, one of the ways in which economic efficiency is fostered is through competition. Monopolies lead to higher prices, higher costs, and unsustainable financial positions, and we would respectfully submit that this is not the current regulatory philosophy. There is a move away from monopolies and there is a move away from the heavy-handed regulation which is associated with monopolies. Rather, the move is to light-handed regulation and to let the market determine the competition. Market reliance is what's going to govern competition. 299 One of authorities which we have provided to the Board in our submissions is a case which is a CRTC case, and we are of the view that it offers some important insights or guiding principles, if you will, of deregulation in a local wires monopoly. 300 And if I can just refer you, and I apologise for the length of the case, but if I could refer you, first of all, to page 31, if we go to the last paragraph: 301 "In the opinion of the Commission, restrictions on entry into the local market should be removed and principles of open access, unbundling and co-location should be pursued. The applications and solutions required to meet the needs of users in today's environment are not always possible if entry is restricted. Users should have the flexibility to obtain solutions from any supplier or mix of suppliers. This means that barriers to entry on the supply-side of telecommunications, including those that restrict telephone companies, should be reduced. Conversely, service providers must have the means to access and serve subscribers without technical barriers to entry." 302 And if we can just go to the next page, the first paragraph, this is page 32, the top paragraph: 303 "The Commission is of the view that the potential exists for meaningful local competition in basic telecommunications and in many of the information-based telecommunication markets. The Commission also considers that encouraging that potential will lead to benefits, such as productivity improvements and the introduction of even more innovative services." 304 And if I can go down to the last sentence in that paragraph: 305 "The role of the commission should be to ensure that the right economic and technical conditions for open access are in place, while ensuring that access remains affordable wherever local markets are not workably competitive." 306 And the next paragraph, and this will be the last reading from this reference: 307 "Consistent with the above, the Commission finds increased competition in the local telecommunications market to be in the public interest." 308 We are of the view that those principles enunciated by the CRTC in that case are as equally applicable here. My friend has cited a case with respect to, I believe it's Kingston and Union Gas, and we would submit that it's distinguishable primarily because of the operation of section 70(2)(c). Now, that case stood for the proposition that part of property ownership is the right to exclude others from using your property, and we say that 70(2)(c) specifically gives the Board the right to require that those types of agreements be entered into. 309 If I could have a moment. I made some notes actually in response to my friends' arguments. If I could just find them. 310 MR. SOMMERVILLE: Sure. 311 MS. GODBY: Thank you for your indulgence, sir. 312 MR. SOMMERVILLE: Thank you. 313 MS. GODBY: The other authority relied upon, and I'm not sure of who the author was, but it was a text referred to by my friend Mr. Rogers regarding the regulation of public utilities. Again, once again, we would reiterate that it is, in fact, inapplicable because simply of the operation of section 70(2)C). 314 In addition, there is a presumption inherent in that text which he referred to, wherein there are adequate services at reasonable rates which are furnished by that utility, and presumably an application is going to be made by an existing customer, for instance, to transfer simply because there may not be adequate services or reasonable rates. So those preconditions to basically protect the utility from competition may not be met in every case. In some cases they will be, but in others they may not. 315 Thirdly, this is not a case where we deal with franchises. This is not a franchise case. There was reliance on the Power Corporation Act, and it would be our respectful submission that that is not appropriate in this instance. I understand that it was brought up as a basis for statutory interpretation, but this is a statute whose genesis was in 1906. It was replaced by the Energy Competition Act, not the Energy Competition in Generation and Local Wires Monopoly Act, and in our view it is not appropriate or applicable in these proceedings. It's been repealed, and it is the product of an older philosophy where monopolies existed and competition did not. 316 The last point which we would like to address is this issue of customers being assets of the distributor. And it is our respectful submission that they cannot be, they cannot be considered as one and the same. 317 Ms. Spoel asked whether or not there was a definition of a customer in the Act, and there is not; however, there is a definition of consumer, and it is separate and distinct and has its own definition apart from the distribution system, which is a defined term in the Act. And the distribution system, which is defined under section 56 of the OEB Act, is a system for distributing electricity, and it includes structures, equipment and equipment designed for that purpose. It does not refer to customers, nor should it. 318 My friend, Mr. Sidlofsky, has referred to the rate handbook and the principles, as he said, for rate termination. Now, the rate handbook, as we understand it, refers to a methodology for rate unbundling, and the methodology by which that's done takes into account physical assets and the dollar value associated therewith. It does not refer to customers. 319 And the case provided in support of that proposition, we would submit, is distinguishable in two ways. First of all, it was a case where -- and that's the Fisheries case, I believe, it's the case where expropriation -- property was expropriated without compensation, and we're certainly not suggesting that that be done; and secondly, the use of the language "customers as assets" is, in our view, a figurative term, it's not speaking literally, customers as assets, and therefore is distinguishable on that basis. 320 Fundamentally, however, customers cannot be considered assets of distribution companies because the local distribution company, in setting its rates, must go to the Board for the approval of its rates. 321 Now, if the customers were the assets of a company, just like the wires, then how would the interests of the customer differ from the interest of the distributor? If customers were, indeed, assets of the local distribution company, why would the local distribution company need the Board's approval for the rates? Why would the Board need to protect the customer? Why, indeed, would the local distribution company need to be accountable to its customers, if they were one and the same? 322 To suggest, in our submission, that customers are assets, in order to trigger an automatic contravention of section 70(13) is an untenable stretch, we would say, in the construction of the statute. 323 For all of those above reasons, the licensing conditions, the non-exclusivity, the customers not being assets, reveal certainly the intention to introduce competition to the distribution sector, and an intention of the legislature to give the Board, certainly, the jurisdiction to make orders with respect to transferring existing customers. 324 I would note as well that there's certainly no provision in the legislation grandfathering the rights of existing customers to remain with the utility they are currently being serviced by. And in fact, if you interpreted that, that the Board does not have that jurisdiction, in our view, it would be discriminating, and unnecessarily discriminating, between existing customers and new customers, whereby the new customers would be allowed the benefits of competition in the distribution sector and the existing customers would not be able to have those benefits accrue to them. 325 The argument, in summary, that there may be stranded assets is not an argument that goes to the Board's jurisdiction in this case. 326 Those are our submissions. 327 MR. SOMMERVILLE: Thank you, Ms. Godby. 328 I have no questions, Ms. Godby. Thank you. 329 Who's next? 330 MR. O'LEARY: Mr. Chair, I believe I'm next up. 331 MR. SOMMERVILLE: Thank you, Mr. O'Leary. 332 SUBMISSIONS BY MR. O'LEARY: 333 MR. O'LEARY: I thought I should begin by offering a short description of the business of Wirebury Connections Inc., since it's somewhat unique. Wirebury Connections Inc. is in the embedded distribution business, and I'll offer two examples. One is that of a green field, a property that's ripe for development. Wirebury will work with the developer and will offer electrical distribution services to the developer. It then becomes the customer of the host distribution company, in the sense that the service territory of Wirebury will fall within the existing -- the overlapping service territory of the post distribution company. 334 In the sense that Wirebury becomes the customer of the host distributor, there are no stranded assets; therefore, many of the concerns that have been raised by Mr. Rogers and others that suggest that your jurisdiction is limited as a result of that simply doesn't exist in Wirebury's situation. 335 The other example I offer is that of a multiunit building, residential or commercial, and Wirebury will work with the owner of that building. That building is presently serviced by a bulk meter and Wirebury will -- its connection point, will be downstream of that bulk meter and will offer distribution services to the unit owners or renters of that building, and thus, they become the customers, as Ms. Godby indicated, they become the customers of the embedded distributor and Wirebury becomes the customer of the host distributor. Again, there are no stranded assets in that situation. I think that's an important point that I will allude to in my submissions in a moment or two. 336 In general, Mr. Chair, Wirebury takes the position that when the Board makes any order which distributor's license to expand or change its service territory into a territory already served by an incumbent distributor, the Board does not or should not have the jurisdiction to unconditionally order existing customers of the incumbent licence distributor already serving that service territory to transfer to the newly authorised distributor. 337 Wirebury submits that, as a matter of policy, it is not in the public interest to unconditionally permit or require customers of an incumbent licence distributor to be connected to another distributor; becomes licenced (sic) to serve an overlapping service territory or an area embedded within the service territory of the host LDC. 338 Wirebury submits that, in making its determination in respect of this motion, the Board ought to focus on the balancing goals that are set out in the OEB Act and in the Electricity Act, and many of my friends have now referred to that, and it is the objectives set out there that we submit are important. 339 And I may refer you to them, and Mr. Rogers took you to it originally, and we have a much different interpretation to be placed on those objectives. Starting with objective 1.1 under the Ontario Energy Board Act, which reads: 340 "To facilitate competition in the generation and sale of electricity and to facilitate a smooth transition to competition." 341 First of all, I note the word "competition" is raised twice in that objective. Perhaps we should simply say that that word should be underscored. 342 Secondly, the term "sale", we respectfully submit, should not be so limited as Mr. Rogers would suggest, as we concur with the submissions of Ms. Godby, that that word should be interpreted as meaning everything downstream of the generator, which would include the sale by the generator; that would include, too by the consumer and LDC. The term has been specifically adopted by the legislature because it's different from the term "retail" which has its own definition in the Act, and the word "supply" which is the word that's used under the Supply Code. "Sale" is intended, we submit, to mean more than simply the retailing of the commodity. 343 And we say that is consistent with what the legislature has expressed as its intent under the Electricity Act, under section 28, and that is to provide customer choice. And that by the amendments that the legislature has made to both the Energy Board Act and with the entire Electricity Act which, by comparison, is a substantially different regime than that exists under natural gas, and we submit that all the comparisons to the natural gas regulated industry are inappropriate in the context of so fundamentally a different Act and regulatory regime. We submit that those -- the Electricity Act and the amended Ontario Energy Board Act, which specifically reference competition, are not limited to including competition within the distribution business. 344 And that leads to the second objective under section 1, which reads: 345 "To provide generators, retailers and consumers with non-discriminatory access to transmission and distribution systems in Ontario." 346 We respectfully submit that that means that -- non-discriminatory means competition within the distribution business. 347 Accordingly, Wirebury submits, although we do somewhat agree with Hydro that the Board does not have jurisdiction to unconditionally make orders which transfer existing customers of incumbent distributors, it takes the position that there may be situations where such transfers, when requested by the customer, would be permissible. And that's the customer choice, as we say, under the Electricity Act. 348 Wirebury agrees with the position taken by Southwestern, at pages 4 and 5 of their submissions, that in the event that a customer of an incumbent distributor applies to be served by another distributor, then the Board can order that the new distributor serve that customer as long as an arrangement can be made whereby the incumbent distributor continues to be paid for the use of the facilities, if that remains the case. Alternatively, in the event that the incumbent distributor's facilities will no longer be used, then an order would be made for the customer requesting the switch to compensate the incumbent distributor for its stranded assets. 349 Again, it's our position that in respect of Wirebury, because of the fact that we are operating a customer out of the host distributor, there will not be the situation of a stranded assets. But that is something that the Board will have to consider on a case-by-case basis, which is something that the Power Workers' have argued; that you look at factual circumstanced in each respective case and that if you're not in a position today to make such a finding. 350 In Wirebury's submissions, such an approach is the best way to recognise to give effect for the purposes of the Ontario Energy Board Act and the Electricity Act. It provides a response to the concerns raised that the forced transfer of existing customers would effectively force the disposal of assets, something that the Board cannot order as a condition of licence under subsection 70(13). In this respect it should be noted that Wirebury does not agree or accept the argument made by Hydro One and others that existing customers constitute assets. 351 And I smile -- a smile came to my face when the thought arose that all of a sudden Wirebury would become an asset of Hydro One, because we are then the customer. It seems somewhat at odds with the characterisation that Mr. Rogers has suggested, that Wirebury, as the customer of Hydro One, becomes one of its assets. 352 Through Wirebury's suggested approach, compensation would be paid for assets used for wheeling power and/or assets that are not to be used. The wheeling power is the term that I raise specifically and fall back on what I said earlier, that as the customer of the host distributor, Wirebury will be making use of the connection assets of the host distributor. Wirebury has applied for, under Bill 210, as the Board may be aware, rate applications were terminated and applications had to be made to the minister for approval to proceed with rate applications. 353 Wirebury made an application for two types of rates; one, its distribution rates; and secondly, a wheeling rate which, some have called it a low-voltage rate. Someone might also call it a low-voltage transmission rate. But effectively, it is the usury charge payable to the host distributor for the use of their connection assets. 354 And the Minister of Energy recently approved Wirebury's request for the right to proceed before the Board to seek both its distribution rate approval and approval for a wheeling rate, which would mean that there will be some revenue payable to the host distributor in respect of its use of their assets. 355 Wirebury does not accept or agree with Hydro One's position as set out in paragraph 23 of its written submissions that any expansion of designated service areas should carry a condition pursuant to section 70 restricting the expansion to new customers not already connected to an existing distributor. As noted in our written submissions, a real issue may arise at some point in the future as to the definitions of the new and existing customers, but it is our position today, Mr. Chair, Ms. Spoel, that that is a policy matter that is not intended to be dealt with by this motion. 356 Again, we support the Power Workers in respect of their submission that these need to be dealt with on a case-by-case basis, depending on the facts. 357 While customer choice and competition to connect new customers are not being discussed today, Wirebury does wish to make it clear that it does not agree with the positions put forward by Hydro One on bypass, plant duplication, customer choice, and distributor competition. Wirebury does not agree with Hydro One's submission found at paragraph 21 of its submissions that the interests of consumers at large are best protected by a properly regulated distribution monopoly. Wirebury submits that Hydro One's position is not consistent with the new electricity regulation regime, and instead reflects an historical situation that is not meant to continue indefinitely. 358 In support of that, Mr. Chair, I reference again the letter from Mr. Baird that specifically authorised Wirebury to proceed with its application for approval of its rates, distribution rates, and its wheeling rates. It was made clear in the application to the Minister for those approvals that we, Wirebury, intend to operate as an embedded distributor, and using the two examples that I gave to you right at the beginning of my submissions, it was quite clear that that was the nature of the business and that approval has been received to look for wheeling rates. 359 Finally, Wirebury would also like to respond to the comments made by Hydro One about its historic obligation to serve and the impacts that historic obligation should have on this motion. In response, Wirebury points out if there was no such obligation to serve in the enabling legislation, and past practices and statutes are not applicable to the electricity framework as enacted in the current legislation. 360 The relevant obligation in the electricity industry as determined by the two acts is the obligation to connect at section 28 section 28 of the Electricity Act. 361 This obligation is continual on two prerequisites; one, on customer choice, which I've referred to; the second is the existence of adjacent facilities. Hydro One fails to mention the first of these conditions in its written submission. Thus, an existing distributor has no obligation to connect the customer who seeks to be connected by another distributor. This is in keeping with the recognition that licences are non-exclusive, and the fact that competition is to be fostered. 362 In addition, nothing in the enabling legislation would prevent an existing or new customer from requesting service from any LDC, including the incumbent distributor, an adjacent distributor, or a new and existing embedded distributor. 363 Just in closing, we did note and agree with Mr. Rogers' submission in several respects. The first is, Wirebury agrees with Hydro One that the Act does contemplate overlapping of service territories. We also concur with his characterisation that the Act does not contemplate the granting of exclusivity to any LDC. 364 But where we depart from Hydro One, and this is the significant departure, is in respect of the importance of customer choice. And it's Wirebury's submission that, under section 70, the jurisdiction exists for the Board to impose conditions, as Ms. Godby referred to, that would address any of the inefficiencies that might arise in the event of a decline or if there are stranded assets. 365 However, there are situations, and Wirebury is it, where we submit there will not be a concern about stranded assets, and that there will be a continuation of a revenue stream to the host distributor. And for that reason, we take and oppose Hydro One's submissions in that respect. 366 Subject to any questions, those are our submissions. 367 MR. SOMMERVILLE: Thank you, Mr. O'Leary. 368 I have no questions, Mr. O'Leary. Thank you. 369 MR. McLEOD: I believe I'm next, Mr. Chair. 370 SUBMISSIONS BY MR. McLEOD: 371 MR. McLEOD: The following submissions are being made on behalf of Centre Wellington Hydro Ltd. and Veridian Connections Inc., and, for the record, each distribution company has made its own separate application to the Board to expand their respective service territories as provided for in section 74(1) of the Ontario Energy Board Act, and the applications form part of this proceeding. 372 We have reviewed the stated issue as posed by Hydro One Networks in respect of the Board's jurisdiction and pursuant to Board Procedural Order Number 4 in this proceeding. We've also reviewed the written positions of the parties who have responded to the Procedural Order and the stated issue. 373 Our submission on the issue of jurisdiction for the Energy Board in the above-noted matter, as stated by Hydro One Networks Inc., is that the Board can, upon the review of evidence in an application, amend the licenced service area of a distributor without causing or having the effect of transferring existing or potentially new customers from one distributor to another. 374 The stated issue questions whether or not the Board can, 1, issue an order that would have the effect or direct result of transferring the existing customers of one distributor to another; or, 2, only consider amendments that would have the effect or direct result of transferring new customers. 375 In our submission, the existing legislation, and we consider the Electricity Act and the Ontario Energy Board Act in this case, is clear in respect to this stated issue. The Board is guided at all times by the objects of the two Acts as stated in section 1 of each statute. I'm not going to repeat those; they've been mentioned several times today. 376 As the province's energy regulator, the Board is properly empowered by the Ontario Energy Board Act legislation, and the implementing regulations that guide electricity restructuring as it's being implemented in the province. When an electricity market is being restructured, the regulator must have the administrative and legislative flexibility to adjust the change in regulatory conditions, as well as the demands of customers, businesses, distributors and the government. 377 We know that electricity market restructuring, by its very nature, is in a state of flux. Traditional monopoly distribution services must be able to adjust to market changes as economic and efficient alternatives are demanded and competitive forces emerge. 378 Our submission is that the Board is sufficiently empowered by the existing legislation to deal with this reality, but it must be vigilant in balancing all competing interests. It grants licences, pursuant to section 57, to distributors and others who want to be market participants. It can issue interim licences in the case of emergencies. It can amend licences, pursuant to section 74, where it finds that it's in the public interest to do so. 379 It is important that we keep in mind why we are here today, before the Board, discussing the stated issue. The issue is, first and foremost, in our opinion, about the customer and the customer's right and privilege to exercise choice. And we cannot lose sight of that fact. It is not appropriate to consider customers as physical assets that should be considered as a regulated component of a distribution company, and we are not here to discuss the expropriation of property per se, although this is expressly allowed in section 99 of the Ontario Energy Board Act. 380 "Nothing in the legislation prevents customers, either new or existing, from selecting their distributor of choice for whatever reason they have. We do recognise that, for practical purposes, these choices may be limited, however. It is also not the decision of the distributor or the Board, it is ultimately the decision of the customer working with the distributor." 381 The stated issue raises the matter of a need for clear definitions of terms such as existing customer, new customer, non-discriminatory access, assets, bypass, service territory, lies along property rights, et cetera. 382 The lack of clarity in definitions, and this came up earlier today, terms and conditions that impact license amendment applications, will continue to impede regulatory efficiency and certainty through the course of electricity restructuring in Ontario. 383 In the absence of clear definitions, we submit that "existing customers" means metered customers who are currently connected to the distribution network and are paying for distribution services provided by that network. "New customers," on the other hand, have the potential to become connected through a distribution network but are not yet connected. We submit that the existing customers are customers of the distribution network they are connected to. However, these customers should not be considered to be captured by the distributor, even though they are connected to it and are paying for these services. Clearly, there's a contractual arrangement between the provider of the distribution service and the purchaser of those services. 384 Where this arrangement cannot be satisfied, both a customer and a distributor have choices to make. The Board has, through the OEB Act, an ability to establish conditions of license, pursuant to section 70, rules, codes, and other regulatory tools to guide these arrangements. 385 Since the OEB Act clearly indicates in section 70(6) that there is no exclusive franchise unless otherwise stated in a license, the license area amendment is likely to occur for either one or both of the following reasons: 386 First, a new customer has asked for a connection to a distributor that is not the incumbent distributor; or, second, the distributor has made a legitimate business decision to offer distribution or network services to new customers as a result of economic or technical developments on lands contiguous to its existing service area or areas. 387 When a service-area amendment application is made to the Board, the Board must carefully consider and weigh the advantages and disadvantages of approving an amendment by taking into account the needs and desires of the customer, both existing and future customers, who are paying for the network service, as well as ensuring the viability of the distributor or the distributors who provide and maintain the services for those customers in a restructured market. As a result, it should be expected that some degree of network competition should exist at or near the boundaries of the utility. 388 This careful balancing act strongly suggests that the customers' needs should be considered first. Consequently, there is no effect or direct transferring of customers. The expectation is that customers will make their own decisions concerning connections to any licenced distributor offering network services in any area of the province of Ontario. A decision of the Board does not have the effect of transferring any customer who has a choice to select an alternative distribution service. The Board does not have the power to effect the transfer of customers, except in the case of emergency, as in section 59(1) of the Energy Board Act. 389 A license amendment offers customers, when and where it is practical and feasible, an alternative to connect to a distributor offering competitive rates and/or services. There is no obligation on the customer to connect or transfer to an alternative service. It simply becomes the customer's choice to do so if they wish. 390 Customers who are sensitive to prices, and that could be commodity or service, are likely to seek alternatives, and this is good news. This is good news for both the customer and it is good news for the distributor, because the search for alternatives drives incentives for change and stimulates innovation in the energy sector. We are now beginning to see these changes develop quickly in the Ontario marketplace. The requirement for service-area amendments is an example of this change and why we are here before the Board in this matter. 391 Customer choice and the independence of customers to be free to make their own choice to suppliers in the competitive energy market is the foundation of electricity restructuring in Ontario and, indeed, across North America. It is not a matter of cherry-picking or poaching of customers by a distributor; this is customer choice. It's our submission that the distributor's customers remain connected to the distributor's network and that the Board, in approving an amendment of a distributor's licence does not have the effect of taking, capturing or transferring those customers to another distributor. The amendment simply offers customers the potential of an alternative provider of network services that they pay for. 392 That completes our submissions. 393 MS. SPOEL: Mr. McLeod, I'm just trying to make sure I understand exactly -- I'm just trying to understand exactly what your proposition is, and maybe I can use an example which may or may not come up in any of the cases we have before us over the next few months. But it always helps to think in a concrete example. 394 Are you suggesting that if one distributor is applying for an amendment to their service area - let's assume an area contiguous to the one they're already serving, although I'm not sure that makes any difference - that if there were some existing customers of another distributor in that area, that we would have the jurisdiction, if we thought it appropriate for policy reasons and so on which we won't get into today, but we would able, should we think it the right thing to do, to amend the service area of the -- the applicant service area so that there are overlapping service areas, which I think the legislation contemplates, or at least it doesn't set it as non-exclusive. So there's a possibility of two; that you would have overlapping service areas, and that the applicant distributor would serve the new customers in that area, and the existing customers would have the choice of staying with the existing provider, or their existing distributor? 395 And perhaps the new customers would have the choice -- when I say "new", I'm thinking of new buildings. Maybe you can call them customers. New consumers or sources of load, if you want, would have the choice of who to connect to and the existing customers, if the lines went along their -- were within some reasonable distance of their property, would have the choice to abandon their old distributor and sign up with the new one? Is that what you're suggesting could be a scenario? 396 MR. McLEOD: It could be a scenario. I think the message we're trying to get across is it's not a simple solution. There are complexities in the market, certainly at boundaries, where these kinds of things could happen. Overlapping jurisdiction in terms of service area probably makes sense in certain cases, and in other cases that might not make sense. The issue of whether or not, for example, the case of distribution lines running parallel across a regional road or something along that line, and the customer has the opportunity or the choice, in our position -- could ask for connections to either one of the two service providers. And I think that's what we're trying to say. It should be the customer's choice. 397 It may make absolutely no sense, in certain circumstances, that there's any opportunity for the customer to choose here. I think at the same time we're also saying -- suggesting that the customer just can't flip from one distributor back and forth at will. This all becomes part of connection agreements, service agreements, all the other things contemplated by codes, to look after those customers as well. 398 All we're suggesting is where there's a reasonable and efficient opportunity for customers to have choice, to select their provider, they should be given the privilege of doing so. 399 MS. SPOEL: And are you also saying, Mr. McLeod, that if there was a service-area expansion that included some already-served customers, that those customers would not be required to transfer to the new distributor, unlike, for example, where you have a sale or merger? 400 MR. McLEOD: That's correct. 401 MS. SPOEL: Thank you. 402 MR. SOMMERVILLE: I have no questions, Mr. McLeod. Thank you. 403 Ms. Young, I think you have the distinction of being the last speaker in chief. 404 MS. YOUNG: And I'll be brief. 405 SUBMISSIONS BY MS. YOUNG: 406 MS. YOUNG: Newmarket Hydro is adopting its written submissions. 407 MR. SOMMERVILLE: Thank you. It is now 12:15 -- just a moment. 408 [The Board confers] 409 MR. SOMMERVILLE: Mr. Rogers, you have, as I indicated at the beginning, a right of reply. It's now 12:15. It seems to me that there may be some, perish the thought, some economy of effort here if we broke for 15 minutes to allow you an opportunity to prepare that reply. We'll reconvene at 12:30 with a view to concluding your submission before we rise for the day. 410 Do I have any comment on that proposition? 411 There being none, we will rise until 12:30, and we'll here from you at that time, Mr. Rogers. 412 MR. ROGERS: Thank you. 413 MR. SOMMERVILLE: Thank you. 414 --- Recess taken at 12:15 p.m. 415 --- On resuming at 12:32 p.m. 416 MR. SOMMERVILLE: Thank you very much. Please be seated. 417 Mr. Rogers. 418 MR. ROGERS: Thank you. 419 REPLY SUBMISSIONS BY MR. ROGERS: 420 MR. ROGERS: I have tried to keep these reply submissions brief, and I'll try to group them together under headings. 421 First of all, I think for the first time in my life, I've been criticised as a defender of the Power Corporation Act. That certainly was not my intention. I was not a great fan of the Power Corporation Act. I agree, it's distinct, gone, and buried forever. 422 All I was talking about was the 1994 amendment to the Power Corporation Act as an example of how this kind of a transfer of assets would be governed, if that was the intent of the legislature, and that is not found in the present legislation. 423 I point out, by the way, that although I was criticised as well for my espousing some of the benefits of a regulated monopoly, Ontario Hydro was never regulated. My client now is regulated by this Board. I agree it's a different world, but it's a regulated world. And to make sense of this entire scheme, while customer choice is obviously very important, so too is the inherent benefits of a properly regulated monopoly in certain circumstances. 424 My point simply was that it makes sense to protect high-cost capital assets in the present situation, and that the old policy considerations about monopoly that I read to you, that's a new book but it's an old policy because it made sense 50 years ago, it makes sense now; only build expensive facilities once and let everybody use them. 425 Now, let me deal, first, with Ms. Godby's point, which was echoed by others, that there is some inherent power in the Board to mandate or order existing customers to change utilities. Most people who spoke did not believe that was the case, but there is an argument advanced by Ms. Godby that section 70(1)(c) enables you to do that. 426 Now, I submit it does not. I submit that the points that I and others made about statutory interpretation is the key here, that if the legislature really intended you to have that wide-sweeping power, it would have granted it explicitly. You wouldn't have to torture the language of sections 70(2)(c) to get you there. That language, really, if you read it, is intended to permit the Board, in certain circumstances, to require companies who, by agreement, to enter into practical arrangements whereby the use of any line or plant owned or operated by the licensee, or the other party of the agreement, may be made available to the other agreeing party. It's an ability given to you to rationalise the use of some existing facilities in a practical situation. That's all it does, in my submission. It doesn't authorise you to order the transfer of assets or of customers from one utility to another. 427 Now, the parties who basically, I think, were opposed to what I was submitting to you this morning, and my friend Ms. Godby and also Mr. O'Leary, on behalf of Wirebury, and I don't want to short-change other people who probably want to be included on the list, but -- that would be Mr. McLeod, too. I can feel his discomfort back there. You know, there's really actually a lot of agreement here between parties, even those who say they disagree with my client's position. 428 For example, if you take Mr. O'Leary, on behalf of Wirebury, in his written submission on behalf of Wirebury, and I ask the Board to consider this in your deliberations, he states at page 7 -- I'm sorry, paragraph 7, page 2: 429 "Wirebury respectfully submits that it is in the public interest that any amendments to a distributor's license which are granted ought to enable the distributor to connect new customers in its new service area. Wirebury also respectfully submits that, as a matter of policy, it is not in the public interest to unconditionally permit or require customers of an incumbent licensed distributor to be connected to another distributor who becomes licensed to serve an overlapping service territory, or an area embedded within the service territory of the host LDC." 430 Over on the next page, at paragraph 9, he says on behalf of his client: 431 "Customers who are currently connected to and metered by a licensed distributor should not be allowed to unconditionally switch to another distributor as this would create inefficiencies in the provision of distributor services, such as unnecessary administrative and regulatory costs, plant duplication, and stranded assets or costs. If existing customers are allowed to switch, i.e., to replace their existing meter connection, and with a new connection from another distributor, the customer requesting the switch should pay all of the associated costs, including disconnection costs and the costs of any stranded assets or unrecovered costs." 432 And then down at paragraph 10, he states: 433 "In Wirebury's submission, allowing competition for existing customers would precipitate border disputes, create added risk for established distributors, and increase costs for their system customers." 434 And then he goes on. So there's a fair bit of agreement in the underlying principle that we're considering here. 435 I notice as well that Ms. Godby really also agrees fundamentally on the underlying problem that we're trying to address here. I noted carefully in her comments that she said that her client agreed that there should be no forced sale of assets, there should be no uneconomic bypass, there should be no duplication of assets and there should be no stranding of assets. Those are the fundamental principles underlying my argument. 436 By the way, others said that I was against competition, or implied that I was against competition, and that regulation was somehow incompatible with competition and really we should just open this thing up and let's everybody compete. Regulation is and is intended to be a surrogate for competition in certain limited circumstances. I agree competition is a good thing. I agree competition promotes efficiencies. But in certain circumstances, when you have a large capital cost asset that everybody can use without discrimination, regulation is the proper surrogate for competition, not duplication of assets. 437 So that my friends and I really are in basic disagreement about a lot of the fundamental principles here. Mr. O'Leary, on behalf of Wirebury, I'll just say, has a letter from the minister which I have not seen, and my client, I don't think, has seen, but as I understand it, it allows him to make an application, on behalf of his client, to the Board for rates, and I think that's as high as it goes. We will have to see later what that looks like and what the implications might be. So I don't really want to get into that at the moment. I'll reserve my client's position if that application is made. 438 The last thing I'd like to say is that almost everybody agreed that if you're going to allow some type of switching here, that there has to be some compensation provision so that the existing utility is compensated. Now, I do want to say that my friend, Mr. McLeod, did not say that. He didn't mention compensation for the utility who will be left with these assets underutilised. And, of course, the utility really speaks for its customers. 439 When I talk about my client, I'm talking about all the thousands and thousands of customers which it has. And if my client is disadvantaged because it loses some dense growth for which it has planned on the perimeter with another utility, it's the remaining customers who bear the cost of that, because their average costs will increase. And that's what regulation is designed to do, is to protect all of the customers that use electricity. 440 Now, if, however, my friends say, Well, that's fine, we can switch one customer to another and then we can -- I think VECC suggested that it was the inquiring utility that should compensate the embedded utility. I think that was a common thread of others who spoke, that somebody has got to compensate the embedded or the incumbent utility who's losing this growth for which it has planned. Well, I ask myself, Wait a minute, now, the reason people are going to choose -- customer choice, by and large, is going to be based on cost, by and large. Now, I've read some of -- I know people say they want to be part of the community and so on. But by and large, it will be cost. 441 Now, if a customer or a group of customers chooses to go with another utility because of the low cost, and that new utility then says -- is forced by the Board or somebody to say, Well, wait a minute, the old utilities has just foregone a revenue stream on which it was counting of a million dollars, let's say, so you have to pay a million dollars to the old utility, well, the acquiring utility is just going to say, We'll get that from our customers; we'll have to raise our rates. So I don't know where this circle gets you, really, number 1, from a logical standpoint. 442 And secondly, consider this: The Board is to be the arbiter of this? Every time there's an application to hook up a new customer, whether it's a person, a building, and they can't agree on what the compensation should be, there's going to be a case before the Ontario Board? The practical implications of this are staggering. With great respect to my friends, that's why it's not a very good idea. 443 Those are my submissions. Thank you very much. 444 MR. SOMMERVILLE: Thank you, Mr. Rogers. 445 MS. SPOEL: Mr. Rogers, I think the question of whether it's a good idea -- sorry, I think the question of whether it's a good idea and so on is going to be part of our hearing in the main proceeding here. I guess the question I have for you is: You referred to Mr. O'Leary's submissions on behalf of Wirebury about the -- the people can't unconditionally switch or sign up, whatever. 446 MR. ROGERS: Yes. 447 MS. SPOEL: I guess the question, on a jurisdictional issue only, because that's what we're here to deal with today, is can they do it conditionally, in your opinion? Or is it not possible to do it at all? Because I understood earlier today that Hydro One Networks' position was that it couldn't be done at all, and I'm wondering if that is still your position or if -- if, in an appropriate case down the road, whether it can be done if the appropriate conditions are met. 448 MR. ROGERS: Yes. 449 MS. SPOEL: I think that might be where the different arguments lie today. 450 MR. ROGERS: It could be. There has been some overlapping with all of us between jurisdiction and the policy. I agree, it's hard to separate them. I have not changed my submission to you. My client feels exactly the same way. The Board does not have the jurisdiction, in our respectful submission, to do that, even with conditions. 451 Now, you're asking me, might there be a case down the road somewhere, and this gets us into the discussion you and I had this morning, as you approach the margin, there will be a case, it may be very compelling some day, where you have jurisdiction to do something like that. But as a basic proposition, I submit to you, for the reasons I stated earlier, you do not have the jurisdiction to actually mandate the transfer of a customer or to take steps which has the effect of transferring an existing customer, because it will strand assets and that is tantamount to an expropriation. 452 MS. SPOEL: Thank you. 453 MR. SOMMERVILLE: The Board would like to thank, again, all the parties for their very excellent materials and submissions in this matter. 454 The Board will reserve its decision. We will issue a decision in due course, as quickly as we can responsively do. 455 There is a standing date, being May the 29th, for the filing of further evidence by applicants in the broader proceeding, and that date stands until further notice. It's our hope to not impinge on that time frame unduly. 456 Unless there are any further submissions, the Board will stand adjourned. Thank you. Safe trip home for everyone. Thank you. 457 --- Whereupon the hearing adjourned at 12:47 p.m.