Rep: OEB Doc: 12YP4 Rev: 0 ONTARIO ENERGY BOARD Volume: 8 16 DECEMBER 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. BIRCHENOUGH MEMBER A. C. SPOEL MEMBER 1 RP-2003-0044 2 IN THE MATTER OF a hearing held on Tuesday, 16 December 2003 in Toronto, Ontario; 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 Ltd., 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 16 DECEMBER 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 JENNIFER LEA Board Counsel ROBERT GORDON Board Staff CAROL GODBY Southwest Applicants MICHAEL ENGELBERG Hydro One Networks Inc. MARYANNE ALDRED Hydro One Networks Inc. MARK RODGER LDC Coalition JAMES SIDLOFSKY LDC Coalition ANDREW LOKAN Power Workers Union DENNIS O'LEARY Wirebury Connections Inc. SUE LOTT VECC MIKE McLEOD Veridian Connections Inc. and Centre Wellington Hydro Ltd. SCOTT STOLL Westario Power GAYE-DONNA YOUNG Newmarket Hydro 8 TABLE OF CONTENTS 9 HYDRO ONE NETWORKS INC. - PANEL 1; CHAMBERLIN, HUMPHREY; RESUMED [19] CROSS-EXAMINATION BY MR. O'LEARY: [22] CROSS-EXAMINATION BY MS. GODBY: [344] CROSS-EXAMINATION BY MS. YOUNG: [479] CROSS-EXAMINATION BY MR. McLEOD: [490] CROSS-EXAMINATION BY MS. LEA: [525] RE-EXAMINATION BY MR. ENGELBERG: [651] PROCEDURAL MATTERS: [712] 10 EXHIBITS 11 EXHIBIT NO. E.2.1: COLOURED CHART PRODUCED BY WIREBURY [308] EXHIBIT NO. E.2.2: EXCERPT FROM THE ELECTRICITY DISTRIBUTION RATE HANDBOOK [422] EXHIBIT NO. E.2.3: ALBERTA ENERGY UTILITIES BOARD CASE [457] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:38 a.m. 15 MR. SOMMERVILLE: Thank you. Please be seated. 16 Are there any preliminary matters that we need to deal with before we recommence? 17 Mr. O'Leary, are you ready to proceed? 18 MR. O'LEARY: I am, Mr. Chair. Thank you. 19 HYDRO ONE NETWORKS INC. - PANEL 1; CHAMBERLIN, HUMPHREY; RESUMED 20 J.CHAMBERLIN; Previously sworn. 21 B.HUMPHREY; Previously sworn. 22 CROSS-EXAMINATION BY MR. O'LEARY: 23 MR. O'LEARY: Good morning, gentlemen. 24 DR. HUMPHREY: Good morning. 25 MR. O'LEARY: Perhaps I could start with a couple preliminary questions. Could you tell me when each of you were individually retained by Hydro One or your firms? 26 DR. HUMPHREY: When? 27 DR. CHAMBERLIN: I think it was July. 28 DR. HUMPHREY: Yes, about that time frame. 29 MR. O'LEARY: So about a month prior to the time of the filing of Hydro One's prefiled evidence; is that fair to say? 30 DR. HUMPHREY: Yes, I think so. 31 MR. O'LEARY: And did you participate in the preparation of Hydro One's prefiled evidence? 32 DR. HUMPHREY: Not to my knowledge. We had casual conversations about issues but our focus was on the writing of our paper. 33 MR. O'LEARY: Thank you, Ms. Powell, for moving back. It allows me to see the witnesses. 34 Both of you, I presume, read Hydro One's prefiled evidence and are supportive of what it says and stands for. 35 DR. CHAMBERLIN: Yes. 36 MR. O'LEARY: Also as well, Mr. Humphrey? 37 DR. HUMPHREY: Yes. 38 MR. O'LEARY: Did you also have a chance to read their application for the service area amendment which is also a part of this combined proceeding? 39 DR. HUMPHREY: I don't think so. 40 DR. CHAMBERLIN: I don't remember seeing it. 41 MR. O'LEARY: You are aware that Hydro One is looking for approval of the service area amendment in this proceeding? 42 DR. HUMPHREY: I'm aware that it's an issue generally. I don't know about any specific request for an amendment. 43 MR. O'LEARY: All right. Is it then coming to you as a surprise that Hydro One is looking to expand into the territory of another existing distribution entity? 44 DR. HUMPHREY: I would say I'm not aware of that. 45 MR. O'LEARY: Just going back to your evidence yesterday about your experience, let me ask, first of all, I understand, I think this is taken for granted, neither of were you born in Ontario. 46 DR. CHAMBERLIN: That's correct. 47 MR. O'LEARY: Fair to say? 48 DR. HUMPHREY: Yes. 49 MR. O'LEARY: And my notes indicate that you did not reference any specific involvement in an Ontario energy proceeding in the past, or am I mistaken; did I miss something? 50 DR. HUMPHREY: That's correct. 51 MR. O'LEARY: Is it fair to say that neither of you are intimately familiar with the Ontario energy market? 52 DR. HUMPHREY: I'm familiar with it in general terms and worked with the old Ontario Hydro on some of the generation questions. 53 DR. CHAMBERLIN: And I worked with Ontario Hydro and Consumers Gas over the course of much of the '90s on a number of studies. In fact, at one point I had an office in Toronto. 54 MR. O'LEARY: And did I also understand from your evidence yesterday that neither of you have conducted detailed economic analytical studies of the impact of new distribution or embedded distribution, which is one of the issues in this proceeding, on incumbent host distributors in the United States? 55 DR. HUMPHREY: I have not conducted those kinds of analyses; that's correct. 56 DR. CHAMBERLIN: I cannot recall it coming up so I guess the answer is no. 57 MR. O'LEARY: And my understanding from your evidence yesterday was that, in fact, there are no examples of it in the United States. 58 DR. HUMPHREY: No, there are embedded situations in the United States. 59 MR. O'LEARY: I see. There are some embedded situations in the United States, but there is nothing in your paper that I have seen, at least your contribution, Mr. Humphrey, which would indicate that there is analytical evidence that the existence of that embedded distribution is having a financially negative impact on the host utility or its customers. 60 DR. HUMPHREY: The embedded situations are in defined areas. I'm not aware of economic studies of the impact of that. 61 MR. O'LEARY: Thank you. And would it be fair to say that you both understood that in Ontario, there already exist a number of embedded distribution entities? 62 DR. HUMPHREY: That's correct. 63 DR. CHAMBERLIN: Correct. 64 MR. O'LEARY: Fair enough. And neither of you were asked by Hydro One to undertake any sort of an economic analysis as to the harm that those existing embedded distributors are causing Hydro One? 65 DR. CHAMBERLIN: Nor were we asked to investigate the reason for the establishment of the particular structure as it exists. What we were asked to do was examine the economic principles and the regulatory precedence behind the creation of uncertain service territory boundaries. 66 MR. O'LEARY: All right. Well, we'll come to some of those concerns that you have, but just at a general level, you'd agree with me that we do have, on the ground here, literally dozens of embedded distributors in this province and there would be the possibility of examining the situation here on the ground to determine if there truly is a harm to Hydro One and its ratepayers as a result of the existence of those embedded distributors, but you haven't done that for the purpose of this proceeding; is that fair to say? 67 DR. CHAMBERLIN: That's fair to say. I think that would be a very comprehensive analysis to determine whether or not all ratepayers in Ontario would be better or worse off with or without different service circumstances. 68 MR. O'LEARY: And you are not here to say the existing situation is harmful from the perspective of the overall distribution industry in Ontario? 69 DR. CHAMBERLIN: No. 70 MR. O'LEARY: Now, you don't need to turn this up, but at page 1 of your prefiled evidence you state that the electricity distribution industry continues to be a natural monopoly. 71 Perhaps I could ask you a few questions about what your view is about a natural monopoly, starting with what are the traditional activities of a distribution or what's involved in the distribution of electricity? You would agree with me that there is the construction of the infrastructure; right? 72 DR. CHAMBERLIN: Yes. 73 MR. O'LEARY: There is the maintenance of that infrastructure over time. 74 DR. CHAMBERLIN: Yes. 75 MR. O'LEARY: There are the billing and collection functions. 76 DR. CHAMBERLIN: Yes. 77 MR. O'LEARY: There is the meter reading and recording function. 78 DR. CHAMBERLIN: Yes. 79 MR. O'LEARY: And there is the customer care function. 80 DR. CHAMBERLIN: Yes. 81 MR. O'LEARY: Those are the major ones that we can summarize; can you agree with that? 82 DR. CHAMBERLIN: Generally. 83 DR. HUMPHREY: Yes. 84 MR. O'LEARY: And as I understood your interrogatory response to Board Staff No. 6, which is at J.8, tab 10, s. 34, page 1: 85 "Networks admitted in theory that metering, billing and customer service can be provided by a retail service company or another entity and that outsourcing these services would tend to lower overall utility costs if the outsourced cost of service is less than the utility cost of service." 86 That makes sense, doesn't it? 87 DR. CHAMBERLIN: That's just a mathematical conclusion. 88 MR. O'LEARY: And do you know whether Hydro One actually outsources any of those functions? 89 DR. CHAMBERLIN: I don't. 90 MR. O'LEARY: Do you know, Mr. Humphrey? 91 DR. HUMPHREY: I don't. 92 MR. O'LEARY: Would it surprise you if I told you that they do? 93 DR. HUMPHREY: No, it would not. Most utilities outsource functions. 94 MR. O'LEARY: Fair enough. And as I understand your evidence as well, is it fair to say that one of the overriding objectives of every existing distributor is to provide service at the lowest overall cost? 95 DR. CHAMBERLIN: Well, yes, consistent with other factors like provisional reliability and safety and customer service and things like that. To provide the lowest overall cost is not to build any. 96 MR. O'LEARY: Fair enough. They have to take into account all of those safety considerations as well, but in the end the goal, ultimately, is to provide service at the lowest overall cost. 97 That's the objective? 98 DR. CHAMBERLIN: Subject to the considerations that I mentioned. 99 MR. ENGELBERG: Dr. Chamberlin, could I ask you to speak up a little bit. I can hear Dr. Humphrey but I'm having a little trouble hearing you. 100 DR. CHAMBERLIN: Yes. 101 MR. O'LEARY: Could I turn that around and say, if the objective is to provide the overall lowest cost, and leaving aside issues of safety, we're presuming that's taken into the mix when the decision is made. Could it also be said that where a distribution entity has the ability and is aware of a lower cost outsourcing service opportunity than its own in-house costs, that, in fact, it's causing harm to its ratepayers by not outsourcing that function? 102 DR. CHAMBERLIN: I suppose as a hypothetical that could be so if there were no other considerations which there could be in terms of the provision of service in rural areas for example, with staff that's required there to serve that or something of that kind. 103 MR. O'LEARY: Well, is it limited only to rural areas, or how about in an urban area? 104 DR. CHAMBERLIN: I was using that as an example. 105 MR. O'LEARY: Oh, okay. And indeed isn't it logical to conclude that, in fact, by using a third party service provider, that third party service provider may very well have preferable or better economies of scale than the local distribution entity? Because it's not solely engaged in that one particular function, it's doing a number of tasks at the same time, therefore, making it more economic and less costly to perform that function. 106 DR. CHAMBERLIN: Well, if you're asking us whether outsourcing sometimes makes sense, because outsourcers can specialize in certain functions and have reduced costs, yes, we agree with that. 107 MR. O'LEARY: Thank you. 108 In respect of those functions that I described before, the construction, the maintenance, the billing, the collecting, the meter-reading, the customer care, would you agree with me that where those items are outsourced to a third party, that those third parties are not directly competing with Hydro One? 109 DR. CHAMBERLIN: In the ordinary circumstance where an outsourcer is hired to provide those services, it's ordinarily not competing. 110 MR. O'LEARY: Right. And how about those that are just available, the other construction entities that might be considered by Hydro One that are available to outsource that function? Would you agree with me that their existence does not mean they are directly competing with Hydro One? 111 DR. CHAMBERLIN: I think their existence doesn't necessarily mean that they are competing with Hydro One. Whether there's an arm's length transaction to engage their services or not might have an effect on them. 112 MR. O'LEARY: Right. Well, just, perhaps, I'm not being clear in the question, but there's a -- I'm suggesting to you, I believe it's accepted as fact, that there are a number of entities out there that provide a number of functions as third party service providers, and I'm simply asking you whether or not the existence of this independent third party service provider can be said to be directly competing with Hydro One? 113 DR. CHAMBERLIN: Well, I think the existence cannot be said to be directly competing. Whether they compete or not is a matter of behaviour and activity, not existence. 114 MR. O'LEARY: All right. Thank you. And isn't it fair to say that you would conclude that, as you did, they're not directly competing with Hydro One, because they're not operating and owning distribution lines down the same street as Hydro One? 115 DR. CHAMBERLIN: They wouldn't be competing in that business; correct. 116 MR. O'LEARY: Okay. And is it fair to say that those functions, therefore, those functions which I identified, the meter-reading, the construction, that those functions, then, may not form part of a natural monopoly, that it's the wires that form the natural monopoly? 117 DR. CHAMBERLIN: I'd say the essential part of the natural monopoly is the part that is related to the fixed costs associated with it, so that would be wires, substations, transformers, physical equipment in the ground, things like that. 118 MR. O'LEARY: All right. So once it's in the ground, you have the natural monopoly. 119 DR. CHAMBERLIN: It's the fixed cost component that forms the basis for that -- 120 MR. O'LEARY: Well, if it's not -- sorry. If it's not in the ground, then there are no fixed costs as yet. 121 DR. CHAMBERLIN: Substations are on the ground, not necessarily in it. 122 MR. O'LEARY: Fair enough, or overground and the overhead wire -- 123 DR. CHAMBERLIN: It's the asset nature that is relevant. 124 MR. O'LEARY: All right. Thank you. 125 Now, as I understand it, Hydro One has taken the position that the service area amendment process, which it asked this Board to adopt, should not permit new distributors to enter into the system, such as the Wirebury models. And the basis for that is this position that the province is already taken up completely, and the existing LDCs constitute natural monopolies. 126 Yet, sir, you've told me now that there are functions of distribution that could be carried on by entities which are not part of that natural monopoly; is that fair to say? 127 DR. CHAMBERLIN: Yes. 128 MR. O'LEARY: All right. And in support of its position, Hydro One has made reference to and quoted in its prefiled evidence at page 2 of 22, and perhaps I could ask you to go to that. 129 At the top of page 2, if I can just provide you with what I understand Hydro One is doing, there is an attempt by Hydro One to indicate that the government of Ontario in the past supports its position, and it quotes from a White Paper put out by the Ministry of Energy, I believe in 2000, and states that: 130 "An early move to competition provides the best prospect for reasonable rates and improved service options; however, transmission and local distribution remain natural monopolies and are not amenable to competition." 131 Then it cites page 18 of that document. 132 First of all, do you agree with that statement? 133 DR. CHAMBERLIN: I generally agree with that statement. 134 MR. O'LEARY: All right. Now, knowing what we've just discussed about the fact that there are certain service providers out there that provide functions which are not part of the natural monopoly and who do not directly compete with Hydro One, I'm wondering if I can actually turn you to the White Paper at page 18, and we can have a look at what the government actually said. 135 For the record, for your convenience, it's found at Exhibit J.8, tab 12, schedule 1. It was a response of, I believe, Hydro One to Wirebury interrogatory number 1. And at page 18, what the government stated was: 136 "An early move to full competition provides the best prospect for reasonable rates and improved service options; however, transmission and local distribution remain natural monopolies and are not amenable to direct competition." 137 So, in fact, the government has qualified the word "competition." 138 Would you agree with me, sir, that by including that word "direct," that the government is limiting its reference to the areas of natural monopoly to just the wires? 139 DR. CHAMBERLIN: I wouldn't like to put words in their mouth, but what I would mean by that would be something different. 140 MR. O'LEARY: Well, you wouldn't take words out of their mouth, would you, sir? 141 DR. CHAMBERLIN: No, but "direct" doesn't mean necessarily what you said. If I were writing that and wrote "direct," I would be implying that competition or competitive forces can be introduced into the distribution or the transmission business through indirect means like performance-based rate-making or competitive standards or things of that kind. It doesn't necessarily mean something else. 142 MR. O'LEARY: All right. Well, then, perhaps we can just agree on one thing, then, is that by the fact that they've used the word "direct," the government is not intending to say that distribution industries should not be subject to any competition. It's not prohibiting competition. It's saying it's not amenable to direct competition, which is something less. 143 Can we say that? Can we agree on that? 144 DR. CHAMBERLIN: I think -- it seems to me that it's saying it's not amenable to head-to-head kinds of competition with another firm attempting to provide distribution services. I would agree with that, yes. 145 MR. O'LEARY: Which I thought we came back and agreed that in -- that those, the natural monopoly part of it are the wires. It's the infrastructure in or on the ground. 146 DR. CHAMBERLIN: Well, what we said is that those kinds of -- there are certain functions that are traditionally performed by a distribution utility that can be outsourced, and sometimes those can be outsourced at lower costs, and that that outsourcing is not necessarily a competitive activity. 147 MR. O'LEARY: Right. And if it makes sense to outsource all of those functions, then aren't we, when we pare it all down, aren't we to a situation where the natural monopoly is simply the infrastructure that has been constructed? 148 DR. CHAMBERLIN: In the extreme case, it would be. 149 I guess one qualifier to that would be that there is infrastructure which isn't necessarily physical, that is, information technology kind of infrastructure, for example. 150 MR. O'LEARY: All right. Well, we're going to come to some of that in a minute or two. 151 DR. CHAMBERLIN: Okay. But I think the implication that you've given me, I think, now was that it had to be physical, and that isn't necessarily true. It could be information technology or anything else which is a fixed asset where costs fall when spread over, raise volume. 152 MR. O'LEARY: Well, if I could perhaps restate the implications you'd agree with it. I'd suggest to you that by eliminating the word "direct," the attempt was made to suggest that the government was saying that Hydro One and other LDCs in this province should not be subject to any competition. I'm suggesting to you, sir, that by the use of the word "direct" they intended to limit the competition -- sorry, to minimize that statement and to allow competition outside the natural monopoly. Do you agree with that? 153 DR. CHAMBERLIN: You are asking me what the intent of somebody was and I wouldn't know. 154 MR. O'LEARY: Thanks. If I may now turn you, sir, to -- and this relates somewhat to the application which unfortunately you are not familiar with, but I'm sure Ms. Powell will be happy to pull up anything if you need to refer to it, but in your prefiled evidence, page 4 first paragraph, Networks states that it: 155 "... believes customer choice can be a criterion in determining the service provider for new or prospective customers where the preferences expressed do not result in a detrimental impact or loss to customers." 156 You'd agree with that, would you, sir? 157 DR. CHAMBERLIN: Yes. 158 MR. O'LEARY: So is it fair to say that you're not suggesting that service area amendments be prohibited absolutely, that there are occasions where customer preference should be given appropriate accord and the service area amendment approved. 159 DR. CHAMBERLIN: I would generally agree with that. I think the one caveat would be that I think it would be all customer preference, not the preference of just the customers in question. 160 MR. O'LEARY: All right. But on that note, I'm presuming that the surrogate for all customers, aside from the customer seeking the change, the surrogate for that would be the host distributor who would be able to demonstrate through its resources whether or not there would be harm on its ratepayers. 161 DR. CHAMBERLIN: I think that would be the important factor. Whether it's up to who to prove, I don't have an opinion, but I think you can follow the facts through about whether they would be deleterious impacts in terms of increased costs or increased rates. That's the fact of the matter. 162 MR. O'LEARY: And in fact, in Hydro One's application for a service area amendment, it states at page 2 of 6, lines 11 and 12: 163 "Networks submits that this section of the Act," and it was referring to 70(6), "allows for situations where one local distribution company has customers in the territory of another local distribution company." 164 It's citing that section as a legal basis for its application to amend the service territory of a neighbouring LDC, and you understand that that is Hydro One's position? 165 DR. CHAMBERLIN: I'm hearing you say that it is. 166 MR. O'LEARY: If I'm incorrect I'm assuming your counsel will take me to the incorrect passages and it will get revised. 167 As I understand it, the two customers in question are specifically Telus, which is a telecommunications carrier, and a crematorium. Do you have any idea where these entities are located relative to the service boundary of Hydro One? 168 DR. CHAMBERLIN: No. 169 MR. O'LEARY: It wasn't evident to me how far inside the service territory they were, but it appears from the wording of Hydro One's application that they say, this is page 2 and 3 of 6 as part of its application, that they are situated close to the boundary of the neighbouring LDC. 170 My belief would be that that application does not involve an expansion into an immediately contiguous area, that, in fact, one or both of these areas may be some distance inside the territory of the neighbouring distribution entity; but you don't know? 171 DR. CHAMBERLIN: I don't know the facts of the application, no. 172 MR. O'LEARY: Do you have a problem with that from an economic and analytical standpoint, the fact that it's not immediately contiguous? 173 DR. CHAMBERLIN: I would want to review the facts of it. The issue that we're dealing with is the uncertainty around the service area boundaries, but not necessarily the service area amendment per se. So I don't know whether there are facts that I would agree with or not. 174 MR. O'LEARY: But aren't you suggesting that Hydro One then, if it is seeking an amendment which is going to place a project well inside the service territory of a neighbouring LDC, won't it be creating uncertainties? 175 DR. CHAMBERLIN: I think there is a difference in the situation between a specific service area amendment and attempting to establish a policy in which service area boundaries would themselves be uncertain. 176 MR. O'LEARY: Become? Sorry, I missed that. 177 DR. CHAMBERLIN: Would themselves become uncertain per se, and it's the latter issue we're dealing with not the former. 178 MR. O'LEARY: When you say the service area boundaries become uncertain, are you suggesting, sir, that the service area boundaries as they exist in Ontario are, from an economic standpoint, the optimal boundaries? 179 DR. CHAMBERLIN: No. 180 MR. O'LEARY: And is it also fair to say, because I believe Hydro One is opposing the suggestion that certain LDCs should expand out to their municipal boundaries, would it also be your view that there is no basis for saying that municipal boundaries, the political boundaries in various municipalities in Ontario, are the optimal basis for service areas? Is that also fair to say? 181 DR. CHAMBERLIN: Yes. 182 MR. O'LEARY: All right. Then isn't it fair to say that where a case can be made out for a service area amendment, that its appropriate for this Board to consider it, and if made out, approve it. 183 DR. CHAMBERLIN: Certainly. 184 MR. O'LEARY: All right. And the fact that it may well take place not immediately on the border of a neighbouring LDC, but may well occur deep inside the distribution territory of the host, if the economic case can be made out for that particular project, isn't it fair for this Board to approve that? 185 DR. CHAMBERLIN: I think if the facts merit it, sure. 186 MR. O'LEARY: Now, in your evidence yesterday and also in the prefiled evidence of Hydro One, one of the -- well, I take it as being the most significant issue is the concern about the creation of uncertainty with utility planning that you believe will arise and occur in the event that the service area amendments are permitted. 187 I first of all wanted to ask you, during your introduction yesterday, there was certainly a great deal of discussion about your economics backgrounds, I didn't hear anything from a system planning background. Do either of you have any actual system planning experience, aside from the rate-making consequences of it, but can you tell me whether you have any experience in that regard? 188 DR. CHAMBERLIN: Sure. I started my career building system planning models to analyze alternative nuclear generation configuration and things like that. At the Electric Power Research Institute, I was the project manager responsible for the generation planning models for several years and I've since built several generation planning models and run several. 189 MS. GODBY: Dr. Chamberlin, would you mind speaking up just a bit. 190 DR. CHAMBERLIN: Sorry. 191 MR. SOMMERVILLE: I will adjust the volume. I have that power. 192 DR. CHAMBERLIN: I wish I had that power. 193 MR. SOMMERVILLE: But there is a limitation and if we get feedback, I'll have to readjust. 194 DR. CHAMBERLIN: I'll try to sit closer to the mike. 195 MR. O'LEARY: You might pull the mike down a little. See if that helps. 196 So your experience is related to the generation modelling not long-term planning for a distribution utility; is that fair to say? 197 DR. CHAMBERLIN: I probably have more experience building and operating generation planning models than I do either transmission planning models or distribution planning models. I have done distribution planning from the economic perspective and the financial planning perspective, not necessarily what's the size of the transformer, the service drop or the line that should go here. That's an engineering function. My background is economics. 198 MR. O'LEARY: Yes, neither of you are engineers, is that fair to say? 199 DR. CHAMBERLIN: Yes. 200 MR. O'LEARY: So when you were qualified as experts yesterday, there is a limitation on your expertise in terms of utility planning and the rate-making consequences of that; is that fair to say? 201 DR. CHAMBERLIN: I wouldn't limit it that much. 202 For example, I do a fair amount of planning with the -- I would call the modern generation, the generation planning models, which are portfolio supply planning models. I'm doing a fair amount of that right now, so I wouldn't limit it to rate-making. 203 MR. O'LEARY: All right. Well, with those comments, I would refer you back to a comment or a response, Mr. Chamberlin, you made yesterday to a question by my colleague Ms. Lott, who was seated over here, and my notes indicated -- and it was towards the end of the day -- you said that -- we're talking about system planning -- if you don't know where customers are, you don't know where to put the distribution line. 204 Do you recall saying something like that, sir? 205 DR. CHAMBERLIN: I said if you don't know where customers will be, I think is what I said, you wouldn't know where to put the line. 206 MR. O'LEARY: I'll stand -- I haven't checked it in the transcript, but I will accept that friendly amendment. 207 Doesn't that statement point out the inherent uncertainty of utility planning in that how can you know today where customers are truly going to be in five or ten years out? 208 DR. CHAMBERLIN: Well, the point is it's easier to know if you know what the service territory is that you serve than if you don't. 209 So there's no question that there is uncertainty in planning. The issue here before us is would creating uncertain service territory boundaries add additional uncertainty to that? 210 MR. O'LEARY: Well, perhaps, we can just -- you can work with me, and we can try and do a little comparison of the uncertainty you say that is going to arise from this service area boundary issue and the existing uncertainties which exist. 211 Will you agree with me that the economic conditions today, two years out, five years out, are both very unpredictable and will have a very direct impact on the growth and load that is actually utilized in future? 212 DR. CHAMBERLIN: It'll definitely have an impact on it, yes. 213 MR. O'LEARY: All right. And municipal changes in zoning, something that is in the political sphere, you'd agree with me that changing one area from farmland to either high-density residential or to an industrial, or just leaving it the way it is will also have an impact on the utility planning process? 214 DR. CHAMBERLIN: Yes. 215 MR. O'LEARY: All right. And that's something that's outside the control of this Board; correct? 216 DR. CHAMBERLIN: Sure. Correct. 217 MR. O'LEARY: Changing taste of customers, would you agree with me that despite best-laid plans, that provinces and municipalities sometimes get it wrong, and people actually decide to move here rather than where they -- the government was hoping or the utility was hoping they would go. Would you agree with me that consumers' tastes have an important impact on ultimate utilization of load? 218 DR. CHAMBERLIN: Yes, and that that is somewhat uncertain. 219 MR. O'LEARY: Would you agree that the timing and the construction and nature of the type of a development is determined by the particular owner of that property or the developer, that ultimately, it is his or her or their company which is going to decide the size, subject to appropriate zoning, but they may not decide to fill it out completely to the density that the zoning permits. 220 Would you agree that that creates uncertainty in that you don't know what it is that builders or owners are actually going to do down the road. 221 DR. CHAMBERLIN: I agree that that's another source of uncertainty. There are many. 222 MR. O'LEARY: Well, there is one other that I was going to raise with you. I didn't want to go through the entire list, but the other is the issue of -- and -- of what I refer to as "local generation," either self generation or distributed generation. 223 Would you agree that where a project, whether new or old, undertakes and constructs local generation facilities where it's supplying itself or perhaps supplying or proposing to supply into the distribution grid, that that's going to have an impact on the load forecasts of the utility? 224 DR. CHAMBERLIN: It could. I guess it depends on the nature of backup service and things like that. 225 The point is, on top of all of those sources of uncertainty that you've raised, if the service territory boundary is uncertain, you have a market share forecasting problem. So you have all of the sources of uncertainty that already exist, and now you have to forecast the market share that you think you'll capture and its location. It's that source of uncertainty that I'm discussing. 226 MR. O'LEARY: I understand that, but I'm at -- in the latter issue, in terms of the self-generation, are you familiar with the situation in Ontario today in terms of the availability of supply? 227 DR. CHAMBERLIN: What I understand is that there's a projected potential shortage in the future. 228 MR. O'LEARY: All right. And would it come to you as a surprise if I told you that many believe that the government of Ontario is going to promote self-generation and steps to help ease that potential shortfall. 229 DR. CHAMBERLIN: I read something like that in the papers. 230 MR. O'LEARY: Sure. Wouldn't you agree with me that that represents a much greater degree of uncertainty than the mere possibility that an applicant will apply for a service area amendment? 231 DR. CHAMBERLIN: I don't know that I have a relative -- or opinion about the relative magnitude of that. I don't think that's the point. 232 The point is on top of all of those uncertainties that you've mentioned, you would now have to forecast market share, which is another potentially significant source of uncertainty. 233 MR. O'LEARY: Did you want to take a moment to think about the relativity of it all? 234 DR. CHAMBERLIN: I don't think it matters. I think -- I think you're adding a level -- you would be adding a level of uncertainty on top of the existing uncertainty. 235 MR. O'LEARY: Well, without accepting that there is any further uncertainty created, we'll come to that in a little bit. 236 But would you agree with me that the uncertainty created by the mere risk that a host distributor would face of service area amendment application would be de minimis relative to the list that I just walked you through, including the possibility of local generation. 237 DR. CHAMBERLIN: No, because that would depend on a whole host of things, including the rate-making processes and procedures and stranded cost recovery and things of that kind, so it potentially is a large problem. It might be a small problem. 238 MR. O'LEARY: All right. So then we can agree to disagree, but you'd agree with me, at least, that at least the service area amendment applicant should be given the opportunity to try and demonstrate that the service area amendment is in the best interests of the public? 239 DR. CHAMBERLIN: Well, I think that's what we're doing to a certain extent today is trying to determine whether or not there is a -- a belief or a basis for a belief that those kinds of amendments would be in the public interest. And I think it's the public interest that should drive those decisions. 240 MR. O'LEARY: But if in a particular service area amendment application it could be shown that there will be no negative -- material negative impact on the host distributor in terms of this creation of uncertainty, would it not be appropriate to deal with it at that time rather than come up with a general prohibition against such amendments in this proceeding? 241 DR. CHAMBERLIN: Well, you're isolating the effect of uncertainty on the undesirableness of these kinds of amendments and considerations. I think that's one factor. I think there are a number of other factors that are discussed in the evidence. 242 I don't think the uncertainty is the most important factor. I think it's a relevant factor. 243 MR. O'LEARY: Is it your understanding that Hydro One and other distribution entities in the province presently utilize and operate on the basis of good utility practice? 244 DR. CHAMBERLIN: I don't know. 245 MR. O'LEARY: It's a common standard. You would accept that that is the standard to which utilities are held in Ontario? 246 DR. CHAMBERLIN: I think it's generally true that utilities are held to standards of comparable practice. 247 MR. O'LEARY: And is it fair to say that you wouldn't expect that any utility or Hydro One would not continue to practice on the basis of good utility practice or comparable practice, simply because there is a risk that a service area amendment application may be brought in its service territory at some point in the future? 248 DR. CHAMBERLIN: I would think regardless of the outcome of this issue that the incumbent utility would continue to be held to standards of good comparable practice. 249 MR. O'LEARY: All right. And yesterday in your evidence in chief, you had several comments about the evidence of Mr. John Todd, who has filed a paper on behalf of a party in this proceeding, Wirebury, and my notes indicate that one of the significant concerns was -- is apparent -- related to the valuation of stranded costs upstream, and you use the word that his valuation tended to ignore some upstream costs. Is that fair to say? 250 DR. CHAMBERLIN: Yes. 251 MR. O'LEARY: I just want to examine with you a little further what these upstream costs might be. As you've probably been told, the Wirebury business model involves connecting to a host distribution entity and utilizing its upstream capacity. Do you understand that to be the business model of Wirebury? 252 DR. CHAMBERLIN: Yes. 253 MR. O'LEARY: All right. So we have a situation where a project is going to proceed and, in fact, the utility planning from the past is actually being proven to be correct and it is being utilized. I'm trying to understand where there is an underutilization or a stranding of the wires or the capacitors or the transformers where that load is actually being taken from the very facilities that the host built for that development or a development of that nature. 254 DR. CHAMBERLIN: Well, the issue is, if there wasn't a stranding I don't see how it could take place. If there was no impact on the remaining customers of the incumbent, that would mean that the fixed cost contribution that would otherwise come from the customer in question, the contested customer, that would be fully returned to the existing ratepayers of the incumbent. It's hard for me to see that there would be an economic advantage that could be created unless there was an underrecovery of that fixed cost component in those stranded costs. So I don't think the model makes sense unless there is a less than full recovery of the stranded costs. 255 MR. O'LEARY: All right. Well, we're just staying with the stranded costs now. In terms of those stranded costs, if there actually is utilization of upstream facilities that are in the ground and an appropriate wheeling rate is paid for the use of those upstream facilities, there is a revenue stream that is being paid to the host distributor for those facilities. 256 DR. CHAMBERLIN: Well, there is a variety of possible revenue streams. The only one which is compensatory is the full fixed cost contribution that would otherwise be paid by those customers. 257 MR. O'LEARY: All right, but that refers to the stranded. If there's stranded, where something is underutilized or not utilized, and I'm still trying to understand what's not utilized, what's stranded in the event of a Wirebury-type business connecting to an existing distribution entity that has the capacity, has the plant in the ground? 258 DR. CHAMBERLIN: Well, it comes back to the question of whether the business model works without there being a stranded investment. So I suppose one possibility is that Wirebury intends to provide its own billing services or its own customer care services, which I think might make sense, or other physical structures beyond those that had been put in place to serve that portion of the service territory. 259 MR. O'LEARY: Sir, are you saying that you don't believe the Wirebury business model is going to work? 260 DR. CHAMBERLIN: I think it doesn't make sense unless there is a stranding of costs. 261 MR. O'LEARY: Are you aware that the Wirebury business model involves sourcing -- outsourcing, I should say, to third-party service providers who are able to provide lower cost distribution functions? 262 DR. CHAMBERLIN: Well, those distribution functions are those which would have been otherwise performed by the incumbent utility. 263 MR. O'LEARY: Well, if the incumbent utility has inherent cost structures that exceed that of the third-party service provider, you told me earlier that, in fact, those ratepayers may be harmed by either the refusal or the inability of the host to outsource. Here we have an opportunity for an entity to do just that, are you suggesting that's not in the public interest? 264 DR. CHAMBERLIN: Well, there's still stranding of costs of investments that are put in place to service those investments. I'm sure you could find a situation where you could, through customer density issues or others, find customers that could be served at a lower cost than the existing rate for the incumbent. 265 MR. O'LEARY: Well, okay. Can we agree on this, that in the event that a service area amendment application is brought forward, that the host distributor would have an opportunity to say to the applicant that, Oh, we've got all these stranded assets. This is how much we have to be compensated to ensure that there's no negative rate impact on the host utility. 266 DR. CHAMBERLIN: Well, I think it would certainly be desirable to have a generic kind of a proceeding to determine what the formulae were going to be and methods and so on for the calculation of the stranded costs. But having said that, an application like that, if it were to take place, there ought to be that kind of analysis and comparison. 267 MR. O'LEARY: I take it, then, you agree with Mr. Southam's evidence yesterday suggesting that the System Code should be amended so you include in it a methodology for valuing the stranded cost, if any. 268 DR. CHAMBERLIN: If there is a decision to allow overlapping service territories or embedded service territories in competition with incumbents, then there needs to be a mechanism to deal with the stranded costs, otherwise you have a situation where the remaining ratepayers of the incumbents are subsidizing the customers of the new ventures. 269 MR. O'LEARY: Just stay with -- I'm having difficulty with what these stranded costs are. If the actual upstream plant is being used and the incremental cost of connection is paid pursuant to the distribution code and there is a revenue stream through the wheeling rate, I'm trying to understand what stranded costs continue to exist? 270 DR. CHAMBERLIN: Well, I don't believe the wheeling rate that's in place, if you are referring to the low voltage rate, I don't believe that was established in order to calculate the amount of stranded costs that would result from this kind of activity. 271 MR. O'LEARY: Fair, I agree with that. 272 DR. CHAMBERLIN: So I believe it to be undercompensatory for this purpose. 273 MR. O'LEARY: But I thought the purpose of determining the value of the stranded costs was the attempt to come up with the appropriate amount of compensation, and it's that valuation that we're talking about here. 274 DR. CHAMBERLIN: Okay. So if you're asking me to assume a situation in which there was a wheeling rate which was fully compensatory in terms of stranded costs, I can do that. 275 MR. O'LEARY: Maybe we're going at cross purposes here. I thought the test that you're proposing that the Board put into effect, should it permit future service amendment applications to proceed, is that there would be a valuation model for stranded costs, perhaps separate and apart from a wheeling rate. And just I'm trying to understand what it is that that model is attempting to capture. And the specific situation that I'm putting to you is that all of the upstream facilities that are in the ground and which were planned and thought and intended for a particular project are in fact being used so there is no underutilization, what stranding takes place? 276 DR. CHAMBERLIN: Well, in the situation where there was a wheeling rate which was fully compensatory in terms of stranded costs, there wouldn't be stranded costs because that rate would compensate for the stranding. 277 MR. O'LEARY: All right, and then maybe I'm just going at cross purposes. What is fully compensatory? What are those upstream costs that you see Dr. Todd is ignoring? 278 DR. CHAMBERLIN: Well, the fixed cost component of the rate that the customers would otherwise pay would represent contributions towards fixed costs from those customers. That would be the first estimate of what that stranded cost would be, everything that goes into that fixed cost recovery. So that's all the physical assets, all the customer service activities, all the billing system activities and everything else. 279 MR. O'LEARY: Okay. Thank you. That's where I thought. We've talked about the fixed assets and if they are being utilized, and an appropriate wheeling rate is there for usage over time and there's no underutilization, we can set that aside, because there are no fixed costs that are underutilized or stranded, but you're referring to things like customer service. I assume you're talking about, for example, if we can use one, meter reading and the staff that the host distributor has hired for the purposes of undertaking meter reading. Is that one example you're saying that they've got costs fixed? 280 DR. CHAMBERLIN: I would be more concerned with fixed costs or the fixed costs I suppose associated with the meter reading activity rather than the salaries of the meter readers or something like that. 281 MR. O'LEARY: All right. And in the event that, for example, the applicant was proposing to put in interval meters which would be read remotely, you'd agree with me that under your scenario you would be looking at some sort of upstream loss as a result of the existing host distributor's fixed costs in the meter reading equipment? 282 DR. CHAMBERLIN: Well, there would be remaining fixed costs in the meter reading equipment or the trucks or whatever else, and those fixed costs would then have to be recovered by somebody, and the somebody would presumably be the remaining customers of the incumbent utility. 283 MR. O'LEARY: And is it not possible that the host distributor is already operating that function through an outsourced third party entity? 284 DR. CHAMBERLIN: It's possible. 285 MR. O'LEARY: And if that is the case and it's done on the basis that there's a per-meter-read cost, that, in fact, there would be no fixed cost that would be included in the formula? 286 DR. CHAMBERLIN: Depends, I guess, on the contract between the outsourcer and the incumbent, but I can imagine a situation where there would not be. 287 MR. O'LEARY: So the -- what, again, you're telling me is that we have to look at it on case-by-case basis to determine whether or not there truly are any upstream stranded fixed costs; is that fair to say? 288 DR. CHAMBERLIN: I think one can establish principles, and it would be helpful to do that. The specifics would probably best be examined on a case-by-case basis. 289 MR. O'LEARY: Well, and the principle that I understand you to be saying in agreement with Mr. Southam is that there needs to be an examination of the stranded costs, but you're not suggesting that the Board should absolutely not entertain an application which would consider such issues. That's not your position, is it, sir? 290 DR. CHAMBERLIN: No, my position is if the Board were going to allow these kinds of applications, it would be desirable to have a formula agreed to for stranded cost recovery. 291 MR. O'LEARY: All right. Just one further question. Is it also possible that where a service area application is made that, in fact, in respect of certain functions that the host utility may be stretched already? In other words, if that customer had gone to the host utility and said, I'm going to construct several high-rises with, you know, a thousand customers, that the existing utility might not at that particular time, point in time, given the vicissitudes of the business be in a position to handle one aspect of the distribution function. And that, in fact, there would be net savings in that it doesn't have to invest further in infrastructure? 292 DR. CHAMBERLIN: Well, I suppose in that specific instance, that's possible. 293 MR. O'LEARY: Just one second, Mr. Chair. 294 Mr. Chamberlin or Mr. Humphrey, I was going to ask you several questions about the onus, and you've already, I think, said that you weren't here to give an opinion as to who should have the onus of proving harm or not -- or disproving harm. And so you're not here to give your views as to the onus that this Board should impose on an applicant or a responding host distributor; is that fair to say? 295 DR. HUMPHREY: I'm not clear about what you're asking. 296 MR. O'LEARY: I'm sorry. Earlier on there was a question that -- I believe it was Mr. Chamberlin said that he wasn't here to give an opinion as to who should have the onus of proving harm or the lack of harm to an existing utility, the host utility. 297 DR. CHAMBERLIN: I think that's a legal issue. 298 MR. O'LEARY: So just as a practical matter, you'd agree with me, though, that all of the information necessary to demonstrate harm, that all of the costs that would be important and relevant for the Board to consider whether the valuation of stranded costs, if any, exist, that that is all in the hands of the incumbent distributor? 299 DR. CHAMBERLIN: I don't know if it all is. I think a substantial amount of it is. 300 Again, I would deal with the issue in a generic kind of a proceeding in terms of establishment of a formula, et cetera. 301 MR. O'LEARY: Just as a practical matter, do you not consider it -- would you agree with me that it's difficult to prove a negative? 302 DR. CHAMBERLIN: Sure. But, you know, there are a variety of ways to get information, like information requests and things of that kind. 303 So I haven't thought through -- I think there are legal issues. There are some practical issues. I don't know what my recommendation would be. 304 MR. O'LEARY: Thank you, sir. 305 We passed out a little earlier a nicely-coloured map of the Region of York. I wonder if I could just use this. This is to assist in several questions that I have. 306 MS. LEA: We'll mark it for identification as Exhibit E.2.1, please. E.2.1. 307 MR. SOMMERVILLE: Thank you, Ms. Lea. 308 EXHIBIT NO. E.2.1: COLOURED CHART PRODUCED BY WIREBURY 309 MR. O'LEARY: I only thought that the map might facilitate my questions a little. It's not intended to -- because it's a political relief map, not -- it's a system map. But for the purposes of my next series of questions, I'd ask you to look at the lower right-hand corner of the region of York, which is obviously the brighter area. Go to the south-east corner of the map and you'll see the -- there's about -- let's just limit it to the four concessions that are east of the built-up area of the town of Markham, which are north of the city of Toronto, which are to the west of what I understand is the service territory of Veridian, and for which -- and just for the purposes of our discussion, let's assume that presently those concessions are served by Hydro One. 310 I'm not suggesting that as a matter of fact, because I don't know, but would you agree with me that what we have here is a situation where an owner of property or a developer might look at this and say, I'd like to request an offer to connect from each of the Toronto Hydro, Markham Hydro, Veridian, and Hydro One, that with their economic interests in mind, they are going to seek out what they hope is in their best interests and ask for offers to connect from each of those entities. 311 DR. CHAMBERLIN: You mean if it were possible to do that, because the boundaries were uncertain? 312 MR. O'LEARY: I'm just asking you whether or not it strikes you as being something that might happen, that a developer might very well, that's located in any of those four concessions say, Let me see what I can do in terms of connecting up with any one of those four distributors. 313 DR. CHAMBERLIN: I think if a developer thought he could get a better deal from one or the other or might -- 314 MR. O'LEARY: Sure. Yeah. That's all I was asking, sure. It makes sense that they might pursue it. 315 And for the purpose of our discussions, also assume that the Board has permitted the Wirebury-type model of business to exist as well. So you have a fifth option which involves, as I've said earlier, a connection with the entity that already has a line running adjacent to the development property in question. 316 And I'm trying to understand, just for the purposes generally, if ultimately that developer determines that the lowest cost of service is through the Wirebury model, and the Wirebury model was arrived at after a valuation of the stranded assets, and there's an appropriate wheeling rate that's paid for the use of that host distributor's facilities over time, how is it that that decision is not in the public interest? 317 DR. CHAMBERLIN: Well, so you're asking me to assume that the -- that the wheeling charge is fully compensatory, that the remaining customers of the incumbent utility don't pay for any of that, that there are not additional costs associated with the uncertainty created by the uncertain service boundary, that there are not additional transaction costs associated with either services that Wirebury might put in place and offer or additional transaction costs associated with dealing with one or more of these kinds of models. If I assume all of those things, I don't think it's necessarily not in the public interest. But I just don't think those are reasonable assumptions. 318 MR. O'LEARY: But all those things can be raised in the context of a service area amendment application. If they truly exist, they can be valued and they can be dealt with. And if it makes that Wirebury-type project uneconomic for the developer to proceed, the developer will say, I'm not going to proceed. Isn't that fair to say? 319 DR. CHAMBERLIN: I think that's fair to say. 320 MR. O'LEARY: Therefore, is it not fair to say that you should leave the decision about whether or not a service area amendment application is truly going to have any harm on an existing utility until that service area amendment application is brought before the Board? 321 DR. CHAMBERLIN: I think if you thought of these one at a time it might be possible to say that, but I think the issue we're dealing with is a good idea, it's a good policy to establish a regime in which there could be, I don't know, hundreds of those kinds of applications. I'm not sure there is. 322 MR. O'LEARY: You're concerned about the flood gates? 323 DR. CHAMBERLIN: I'm concerned about a number of issues, but the regulatory cost and the regulatory burden I think is one issue. 324 MR. O'LEARY: At the end of the day, if we know what the process is, if we know what the test is for the valuation of stranded costs, if parties act, as we anticipate, in good faith, is it fair to say that where your concerns are addressed in those models that we really don't have anything which is a detriment to the public or harm to the existing utility? 325 DR. CHAMBERLIN: First of all, I already said I think those assumptions are unlikely. Second, we haven't discussed issues of what I would consider to be cream skimming or setting these kinds of models in high density sorts of areas that are relatively lower cost to serve compared to other areas and compete with the low cost embedded system against a postage stamp kind of system elsewhere. 326 MR. O'LEARY: Again, I come back simply to the question of these are issues that undoubtedly will be brought forward as part of that valuation model of the stranded costs; correct? 327 DR. CHAMBERLIN: I don't know that they all would be, and so you're asking me to assume what the proceeding would consist of and how it would take place and how it would unfold and what the outcome might be. I just don't know. 328 MR. O'LEARY: I'm suggesting that if you are saying something should be included in that valuation it should be stated. But it sounds to me that there is an opportunity with each service area amendment application for the host utility to indicate these are the detrimental impacts and these are the costs that flow from that, and then the decision is made by that the owner, the customer, as to whether or not they are prepared to pay those costs. And isn't that element of competition in the public interest? 329 DR. CHAMBERLIN: I don't think it is. 330 MR. O'LEARY: And you don't think that the existence of competition of that nature is going to encourage existing utilities to seek out even greater efficiencies? 331 DR. CHAMBERLIN: No, I think it would encourage existing utilities to offer things that look like load retention rates, matching concession and things like that, which would have the same effect as a non-compensatory stranded cost recovery. 332 MR. O'LEARY: So it's status quo and competition, in your view, has no place in the Ontario market? 333 DR. CHAMBERLIN: I don't know of anybody other than a couple of people in this proceeding who have indicated that they thought that distribution service function was amenable to competition. I certainly don't. 334 MR. O'LEARY: Mr. Chair, those are our questions. Thank you. 335 MR. SOMMERVILLE: Thank you, Mr. O'Leary. 336 Ms. Godby, are you prepared to proceed at this stage? 337 MS. GODBY: Yes, I am. 338 Gentlemen, would you like me to move up to the front? 339 DR. CHAMBERLIN: It would be good to see you. 340 MS. LEA: There's room up here too. 341 MR. SOMMERVILLE: Ms. Godby, we normally take our break around 11:00. If you see a point around there that is a natural break in your cross-examination... 342 MS. GODBY: I think, Mr. Chair, that we probably won't be longer than 11:00. 343 MR. SOMMERVILLE: Thank you. 344 CROSS-EXAMINATION BY MS. GODBY: 345 MS. GODBY: Let me just take a few minutes to get organized, gentlemen. 346 Gentlemen, as I understand it, you're advocating for exclusive geographical service areas; is that correct? 347 DR. CHAMBERLIN: Yes. 348 MS. GODBY: And if I understood your evidence correctly this morning when you were answering Mr. O'Leary's questions, I didn't hear you say that you knew right now what the optimal size for those territories would be; is that correct? 349 DR. CHAMBERLIN: That's correct. 350 MS. GODBY: So they could be narrow, they could be broad, they may include rural and municipal areas; is that right? 351 DR. CHAMBERLIN: Yeah, we didn't do a study, and I don't know that anybody has, of optimal size of service territories in Ontario. 352 MS. GODBY: But certainly you don't feel that the status quo is appropriate at this time? 353 DR. CHAMBERLIN: I don't have an opinion about whether the status quo is appropriate or not. What we do have an opinion about is the integrity of the service territory boundaries. 354 MS. GODBY: Well, let's get to that. If I could turn you to page 5 of your evidence, if you just go to the first full paragraph on that page, which begins with the second sentence here, if I can begin there: 355 "As a result of the significant cost advantages accorded a market by virtue of being served by a single electric distributor, utilities are generally granted an exclusive franchise to serve a specific geographic market in return for their obligation to serve all customers in that market. This has generally been referred to as the regulatory compact, an agreement between a regulatory agency and utility that essentially grants the utility the right to provide exclusive service within a certain area." 356 So in your model you're advocating for an exclusive type franchise area; correct? 357 DR. CHAMBERLIN: Well, we're saying that that's been the long-standing approach in utility regulation. 358 MS. GODBY: And that this long-standing approach is applicable in the Ontario marketplace? 359 DR. CHAMBERLIN: I don't know any reason why it wouldn't be, yes. 360 MS. GODBY: And would you agree with me that the Ontario Energy Board Act certainly does not give the authority to the Board to create exclusive franchises? 361 DR. CHAMBERLIN: Well, as we discussed yesterday, not you and I, but as I guess Bruce and I discussed yesterday, there is a provision for non-exclusivity in the electricity market, subject to several goals and objectives and criteria that should be considered. 362 MS. GODBY: But currently, the Act does not provide for the right to create exclusive franchises; correct? 363 DR. CHAMBERLIN: The Act certainly provides for non-exclusivity in the electricity market. 364 MS. GODBY: There is no explicit right in the Act for exclusive franchises to be created? 365 DR. CHAMBERLIN: I don't know that there is. 366 MS. ALDRED: That's really a legal question which we'd be happy to address in submissions, but I'm not sure it's a fair question for these witnesses. 367 MS. GODBY: Well, as I understood Dr. Chamberlin's preliminary statement this morning, he was retained to provide advice in the context of the current regulatory and legislative regime. 368 MR. SOMMERVILLE: I think the question is fair enough. It may be that the witness is not fully competent to dispose of that question and I would expect that it will be the subject of further comment in argument as the proceeding advances. So I'm not going to disallow the question, but I fully expect the parties will return to this subject in argument. 369 MS. LEA: The reference of the section might assist as well, because the witness had a copy of it beforehand. 370 MS. GODBY: I can certainly provide it. 371 DR. CHAMBERLIN: We recognize that the Act establishes non-exclusivity in the electricity market and we recommend that that non-exclusivity provision be interpreted narrowly and not broadly. 372 MS. GODBY: And, sir, are you aware of how franchises have traditionally been created in the province of Ontario? 373 DR. CHAMBERLIN: No. 374 MS. GODBY: So if I told you that it was done primarily through the -- or was done through the Municipal Franchises Act, then you wouldn't disagree with me? 375 DR. CHAMBERLIN: It wouldn't surprise me, no. 376 MS. GODBY: Mr. Chair, I'm sorry, I've got copies here for Ms. Lea as well as the Panel. It's just a copy of an excerpt of Bill 35. 377 Dr. Chamberlin, could you just review the title of the Act with me, please. 378 DR. CHAMBERLIN: You want me to read it? 379 MS. GODBY: Yes, please. 380 DR. CHAMBERLIN: It says: 381 "Act to create jobs and protect consumers by promoting low-cost energy through competition to protect the environment, to provide for pensions, and to make related amendments to certain Acts." 382 MS. GODBY: Okay. And if we go to the first page, I think it's the only page that you have there, can you read outloud for the record section 21(1). 383 DR. CHAMBERLIN: 21(1) says: 384 "The definition of 'public utility' in section 1 of the Municipal Franchises Act is repealed and the following substituted: 'Public utility' includes waterworks, natural and other gas works, steam heating works, and distributing works of every kind except electricity distribution systems ('services publics')." 385 MS. GODBY: So the electricity distribution systems are specifically excluded from the Municipal Franchises Act; would you agree with that? 386 MS. ALDRED: My witness doesn't have the other Act in front of him. I know I've already objected, and you've told me that she can ask these questions. I'm just concerned about the fairness of the question. He doesn't have it in front of him. 387 MS. GODBY: Mr. Chair, I'm simply asking the witness to agree whether or not that definition specifically excludes public distribution systems. In my view, it's a fair question. 388 MR. ENGELBERG: I would add that, I don't think it's very helpful to ask an expert economist, who has been called here to give certain expert evidence, to comment on an act that he has never seen before and give his opinion as to whether it includes certain things and not other things. 389 MS. GODBY: Mr. Chair, with the greatest respect, these experts have been called to provide expert advice as to what kind of models would work in this legislative environment. I think it's only fair to put questions to them as to what the legislative environment is and whether or not their models can be appropriately implemented here in Ontario. 390 MR. SOMMERVILLE: I'll give you a right of reply, Mr. Engelberg. 391 MR. ENGELBERG: I would reply that that is exactly what the witnesses are not here to do. They are not to comment on the legislative interpretation of the statute in Ontario. 392 They are here to give their opinion on what they believe would work from an economic and practical point of view and what would not work, but not as to what the legislation permits or does not permit. 393 MR. SOMMERVILLE: I think your point is exactly correct, but I don't think that inhibits the question. I think that Ms. Godby's question is really asking the witness to do nothing more than to read what is a matter of public record and something that we can take notice of, in any event. 394 How much genuine probative value that has remains to be seen, and so I'm not going to prevent the question. 395 In fairness to you, Ms. Godby, I think it's -- asking these witnesses to draw legal conclusions, we will reach a point at some point where we're going to say that that really isn't of any probative value, and we may intervene at that stage. But at this stage, I don't think we're there. 396 So I'm going to permit the question with the sort of qualification that I've indicated. 397 MS. GODBY: Well, at the risk of further objections, I just have -- I have one further question along that line, then. 398 Given what we've read so far, and given your answers with respect to the provisions in the Energy Board Act, which was referred to, the non-exclusivity provisions, would you agree that there appears to be no mechanism for implementing the model that you've suggested in your -- 399 MR. SOMMERVILLE: This, I think, is a question that I have to intervene on, and that relates to the actual wording of the section in the Ontario Energy Board Act, which, as I read the section, doesn't prohibit exclusivity. It presumes non-exclusivity in the absence of other factors. 400 I would think, subject to argument, and we will certainly hear argument on that subject to make up our mind about that at that point, but the clear language of the section seems to indicate that if the Board decided to do so, the Board could impose exclusivity on a -- or create exclusivity on a licence. 401 And so I'm just -- the suggestion to the witness that that's not available may be overreaching. 402 MS. GODBY: Fair enough, Mr. Chair. 403 If you could give me a moment, please. 404 Gentlemen, if we could turn to page 3, then. 405 DR. CHAMBERLIN: Of our -- 406 MS. GODBY: Sorry. Of your prefiled evidence. 407 And the first paragraph there, I'm just going to read from your prefiled evidence: 408 "In fact, the fundamental design of utility deregulation assumes that electricity distribution is more economically efficient as a monopoly and thus open access rules, rates, and tariffs were developed to promote competition in electricity production but not in electricity distribution." 409 Are you familiar with section 11.3.3 of the Distribution Rate Handbook in Ontario? 410 DR. HUMPHREY: No, I'm not. 411 MS. GODBY: You didn't refer to that in preparing your economic model? 412 DR. CHAMBERLIN: No. 413 MS. GODBY: I believe, Ms. Lea, that the Board actually -- oh, no, I don't think that they had a copy of our distribution -- the section or the relevant sections that I'm going to refer to in the Distribution Rate Handbook, so if I could just pass that out. 414 MS. LEA: Certainly. 415 MS. GODBY: I believe it's on the second page, gentlemen -- 416 MR. SOMMERVILLE: Sorry, Ms. Godby. I think it may be convenient to mark this for identification. 417 MS. LEA: Certainly. Did you also wish to mark for identification the excerpt from Bill 35 that was passed out earlier? 418 MR. SOMMERVILLE: I don't think so, just because of the nature of the two documents. 419 MS. LEA: All right. Then this excerpt from the utility -- the Electricity Distribution Utility Rate Handbook from Ms. Godby. 420 MS. GODBY: Yes. 421 MS. LEA: Yes. Thank you. So that excerpt will be E.2.2. 422 EXHIBIT NO. E.2.2: EXCERPT FROM THE ELECTRICITY DISTRIBUTION RATE HANDBOOK 423 MS. GODBY: If we just go down to the bottom of the first page dealing with distribution and wheeling service, and as I read that provision, it provides for a wheeling rate. And would you agree with me that wheeling rates generally are associated with situations of open access? 424 DR. CHAMBERLIN: I don't know. Wheeling rates have been in place prior to situations of open access. It's simply a rate that's charged for the transportation of power from one place to another. 425 MS. GODBY: And I've reviewed your report and -- all 19 pages of it, and I see that the last page, which is devoted to the Ontario sector, does not refer to embedding. Would you agree that embedding is a significant feature of the Ontario distribution system? 426 DR. CHAMBERLIN: Well, it's our understanding that there are a number of embedded utilities within Ontario. 427 MS. GODBY: So you wouldn't disagree with the evidence of Mr. Southam that it is a fairly significant feature? 428 DR. CHAMBERLIN: I don't know whether I think it's significant or not. I understand that there are a number of them. 429 MS. GODBY: But you haven't conducted any analysis to determine how significant it is or -- 430 DR. CHAMBERLIN: No. 431 MS. GODBY: Okay. So your report, would I be correct if I were to say that your report, in fact, does not deal with this issue at all, embedding at all? Throughout the context of your entire report? 432 DR. CHAMBERLIN: Well, to the extent that embedding produces uncertain service territory boundaries, uncertainty in forecasting, underutilization or stranding or fixed assets, or some of the other undesirable consequences of uncertain service boundaries, then it does. 433 MS. GODBY: But certainly there's no specific reference in your report to embedding in the Ontario context; is that correct? 434 DR. CHAMBERLIN: No. What we were asked to do is to lay out the general principles that we think ought to be considered prior to the establishment of uncertain or overlapping service territory boundaries and that's what we did. We weren't asked to develop a characterization of the existing situation and the application to it. 435 MS. GODBY: Thank you. 436 At page 17 of your report, if we go down to the third paragraph on that page, and I noted with interest that you had mentioned that there are franchise structures across North America, which does include some instances in which there appears to be distribution competition either within cities or along territorial boundaries, but am I correct that you didn't devote any time in your report to a consideration of what those were? 437 DR. HUMPHREY: We did review extensively what those instances were. 438 MS. GODBY: Okay, but you didn't discuss them in this report. 439 DR. HUMPHREY: They appear in later interrogatories. 440 MS. GODBY: Okay. Could you tell me what jurisdictions they refer to? 441 DR. HUMPHREY: We looked at every single state within the United States and described the exclusivity or non-exclusivity arrangements in each state in a summary fashion. 442 MS. GODBY: Let me just follow up with that. Are you stating that in every state there were instances of competition appearing, or are you -- 443 DR. HUMPHREY: No, just the opposite. 444 MS. GODBY: So I've asked you to provide me with some specific examples. So can you tell me which states, which jurisdictions? 445 DR. HUMPHREY: There are some small communities in Texas that allow this. 446 MS. GODBY: And what was it about Texas? Can you tell me the significant features? Was there embedding in Texas or what? 447 DR. HUMPHREY: The significant driver of the situation in Texas was the authority of municipal governments to create municipal utilities. 448 MS. GODBY: On the last page of your report, you deal with the issue of fixed costs. I know that you spent some time with Mr. O'Leary on this and I just want to make sure I understand this. In the last paragraph on page 19, you advise that: 449 "When an incumbent loses a portion of the established service territory, the fixed costs associated with the distribution plant put in place for a group of current or planned customers must be shifted to remaining customers increasing their rates." 450 So if we were to agree on what these fixed costs were, assuming that we had agreement, isn't it true that if the fixed costs travelled with the existing customers, there should be no affect on the -- sorry, the exiting customers, there should be no affect on the remaining customers? 451 DR. CHAMBERLIN: That would be true if there were no other sources of increased costs that were due to an overlapping on uncertain service territory boundary, and I think that there are other sources of costs. But with respect to those fixed service costs themselves, if the stranded cost recovery rate were fully compensatory then those would not be shifted to the remaining customers. 452 MS. GODBY: The case that you referred us to, I believe that it's a Canadian jurisdiction case, the Alberta case which was photocopied for our benefit yesterday, that's a case of the Alberta Energy Board. Can you tell me whether or not you are aware if the Alberta Energy Board has the authority to grant exclusive franchise for utilities? 453 DR. HUMPHREY: I'm not aware of that situation regarding that authority. 454 MS. LEA: Sorry to interrupt. Hydro One provided photocopies and I passed them out yesterday. 455 MS. GODBY: Oh, thank you. I had assumed the Board had some. 456 MS. LEA: Why don't we give this an exhibit number for identification also. It would be E.2.3. 457 EXHIBIT NO. E.2.3: ALBERTA ENERGY UTILITIES BOARD CASE 458 MS. LEA: Copies were given to my friends yesterday. 459 MS. GODBY: I think we just may have one more question. 460 Assuming the exclusive franchise model couldn't be implemented here in Ontario or adopted in Ontario, have you given any thought to how the concerns that you've outlined, I believe they're at pages 8 and 9 of your report, could be mitigated against? And those are the nine concerns that you had listed. 461 DR. CHAMBERLIN: You're asking us to assume that if it were not within the legal authority of the Board to establish generally certain franchise exclusive boundaries, were there things that could happen what would minimize those effects? 462 MS. GODBY: Did you give any thought to how you -- yeah. 463 DR. CHAMBERLIN: I gave a little bit of thought to it. I suppose you could say if stranded costs were fully recovered in a fully compensatory charge, that stranded cost recovery and subsidies from the existing ratepayers of the incumbents would not be generally harmed. I don't think there is a way to mitigate the harm associated with the uncertainty and planning and things of that nature. I think there would generally be additional costs associated with the overlapping service boundaries to firms with two sets of trucks going through a territory and things like that. So I think some of them could probably mitigate it, I don't think they all could. 464 MS. GODBY: But you didn't give specific thought to how they might be mitigated in the event that your proposal -- the proposal put forth, the model put forth were not adopted? 465 DR. CHAMBERLIN: Other than the considerations I just mentioned, no. 466 MS. GODBY: Thank you very much. 467 Those are my questions. 468 MR. SOMMERVILLE: Thank you, Ms. Godby. I keep looking at that clock and I think that clock is wrong. By my watch it's 11:05 and once we leave this room, this one is better, so we'll a adjourn until 20 minutes after 11:00. 469 Ms. Young, you will be asking questions at that time followed by Mr. McLeod. 470 Mr. Stoll, will you have questions of this panel? 471 MR. STOLL: I don't believe so, no. 472 MR. SOMMERVILLE: Thank you very much. 473 --- Recess taken at 11:05 a.m. 474 --- On resuming at 11:27 a.m. 475 MR. SOMMERVILLE: Thank you. Please be seated. 476 I have assumed that everyone knows that transcripts are available the day of the hearing, that if you have an interest in reviewing them, they're available typically around -- if we finish around 4:30, it's typically ready around 5:30 or 6:00. And today, I would expect, without putting undue burdens on the court reporter, that sometime in mid-afternoon today's transcript will be available. 477 Ms. Young? 478 MS. YOUNG: Thank you. Maybe I will shift over so we can see each other. 479 CROSS-EXAMINATION BY MS. YOUNG: 480 MS. YOUNG: Due to the nature of embedding whereby upstream facilities or assets continue to be utilized regardless of who the distributor is, would you agree that the issue of planning uncertainty is mitigated in this case? 481 DR. CHAMBERLIN: It's possible that it is, if the embedding model is that all of the upstream facilities of the incumbent utility are fully utilized and fully paid for through stranded cost recovery. 482 MS. YOUNG: Are you aware that the Distribution System Code, appendix B, economic model, accounts for upstream costs, that there is upstream costs that LDCs can put in that model and that we can clearly identify what those costs are? 483 DR. CHAMBERLIN: I haven't reviewed what's in that formula, so we did speak to the issue of what would be required to get full stranded cost recovery and to keep the remaining ratepayers of the incumbents from essentially subsidizing the customers of the new embedded. 484 MS. YOUNG: Okay. Thank you. 485 That's it for me. Thanks. 486 MR. SOMMERVILLE: Thank you, Ms. Young. 487 Mr. McLeod? 488 MR. McLEOD: Thank you, Mr. Chair. And I'm very pleased to announce that, thanks to Mr. O'Leary, Ms. Godby, and Ms. Young, I have cut my questions down significantly. 489 MR. SOMMERVILLE: Thank you. 490 CROSS-EXAMINATION BY MR. McLEOD: 491 MR. McLEOD: Gentlemen, you indicate that -- in your evidence that the typical utility planning horizon is ten years or more, and I just want to explore this for a little bit. 492 When you're thinking about that, are you thinking about large-scale utilities, small-scale utilities, medium-size utilities? Give me a sense of what that ten-year planning horizon involves and what are we really talking about? 493 DR. CHAMBERLIN: Well, most utilities that I've worked with do a planning cycle typically every year or every two years in which one looks out over some lengthy planning period. Ten years is not unusual. Sometimes it's longer. 494 In the old days -- by the "old days" I mean ten years ago -- it wasn't unusual for that planning horizon to be 30 years or longer. 495 Essentially, the length of the planning horizon should be long enough to capture a significant portion of the lifetimes of the equipment that are being analyzed. 496 MR. McLEOD: Okay. So the focus is really on the asset base as opposed to things such as -- well, I guess, that would probably include the capital expenditures that may have to be spent over that period of time. 497 Would it include such things as policy development and corporate business planning, and things like that? Or is it really just focussing on the asset side? 498 DR. CHAMBERLIN: Typically utility planning processes take place in a scenario kind of an environment, where one looks at what would happen in this set of policy conditions or that one. 499 MR. McLEOD: Okay. And then for this ten-year planning horizon, are we talking about large-scale utilities? Would this be typical as opposed to small-scale utilities? They'd just be opposite of each other. 500 I'm trying to think of something small that might be in the order of, say, a 20,000-person customer-based utility versus a million customer-based utility, for example. 501 DR. CHAMBERLIN: Well, I've worked with utilities that range from several million customers down to as low as, I don't know, tens of thousands, I suppose. 502 And I'd just say I would generally agree that larger utilities with more intensive capital expenditure programs tend to look farther out than smaller ones. But I've done planning work with municipal utilities with - I don't know how many to characterize - 40,000 customers who typically look out 10, 20 years. 503 MR. McLEOD: Okay. So with the utilities you've worked with or dealt with over the years of experience you have with distribution companies, is there an example, or can you think of any example where -- examples where joint use - and trying to characterize this as something that might be familiar to you - a joint use planning exercise where the utilities, if they're shoulder-to-shoulder or nearby utilities, sit down and actually plan capacity and expansions and things like that over time? 504 DR. CHAMBERLIN: I can think of examples where utilities have jointly planned, because they would either jointly own a transmission facility or jointly own a generation facility or are part of a reliability council or other means in which the reliability considerations of a region as a whole would be taken into account. 505 MR. McLEOD: Okay. So it's really -- really at the higher level of the larger high-voltage -- probably at the high-voltage side of things rather than a low-voltage side; would that be correct? 506 DR. CHAMBERLIN: That's been my experience. 507 MR. McLEOD: Okay. Do you find -- and I just want to follow that just one more little area that's just popped into my head. Do you find that that is typically is a worthwhile exercise, it's been helpful to utilities, it's been helpful to regional planning, I suppose, in terms of this -- I'm thinking of regional planning in the electrical sense -- on a go-forward basis? 508 DR. CHAMBERLIN: I think it's fair to say that it's -- especially the reliability considerations are usefully jointly planned. 509 MR. McLEOD: Okay. I've got another question here, and I just want to -- and I'm just changing gears just a little bit, and it has to do with communications and customers. Just based on your experience, I think your comments might be helpful in this. 510 In a situation where there's an incumbent distributor and it has an infrastructure that is remote from a potential customer, somebody wants to possibly be connected, and a neighbouring distributor has infrastructure that -- with available capacity in the immediate vicinity of that customer, okay. So we've got some distance here we're talking about. 511 Would you agree that overall distribution system efficiency might be enhanced by facilitating that customer's connection to the neighbouring distributor? Let me go through that again. 512 If you've got a customer who is looking to connect to a distributor, but the incumbent's distributors, the incumbent's infrastructure is fairly remote from where this customer is, but there's a neighbouring utility that could serve them and has the capacity to do so, do you see the efficiency overall increasing or being of benefit, or do you see it decreasing? 513 DR. CHAMBERLIN: I don't know that one could say certainly either way. It would depend on how communication was handled and where the maintenance or service facilities were dispatched and staged and things like that, so I -- 514 MR. McLEOD: So that they get it -- it sort of goes back to what you were saying earlier. There's a lot of factors that are involved in this, and some of them could be exactly where facilities are located -- 515 DR. CHAMBERLIN: Yeah. 516 MR. McLEOD: -- in service areas and things like that, okay. 517 And just a couple minor things that, sort of, go on through that. 518 What process do you think would be helpful to put in place to deal with changes in licence distribution service areas, and in this sense -- and I'm thinking about the communications and dealing with end-use customers. Do you have any... 519 DR. CHAMBERLIN: I don't think I've given that any consideration. 520 MR. McLEOD: Okay. That's fine. 521 Those are all my questions. 522 MR. SOMMERVILLE: Thank you, Mr. McLeod. 523 Ms. Lea? 524 MS. LEA: Thank you. 525 CROSS-EXAMINATION BY MS. LEA: 526 MS. LEA: Gentlemen, I'm Board Counsel. 527 I wonder if I could begin by asking you to look at page 18 of your own evidence, please. 528 On page 18 under the title "Conclusions and Implications for Ontario," in the second paragraph, the last sentence of that paragraph, you talk about some of the effects of the erosion of the established service franchise territory. And one effect that you note is to encourage the investment in redundant equipment. 529 I wonder if you could tell me what that's about, please. 530 DR. CHAMBERLIN: Well, again, it depends on whether we're talking about overlapping service territories or embedded service territories. 531 But in either event, if the service territory is being competed in with alternative distribution service providers, it seems likely that each of the suppliers would have infrastructure built to do billing, to provide customer service kinds of functions, do meter-reading, to do all of the distribution service activities that take place, and that much of that involves capital investment. 532 MS. LEA: So you're not merely talking about a duplication of wires but a duplication of all customer service functions? 533 DR. CHAMBERLIN: Yes. 534 MS. LEA: I wonder if I could ask you to look at an interrogatory that was answered by EnWin to the Ontario Energy Board Staff. So the exhibit number is I-5, tab 10, and it's schedule 5, where a duplication of facilities is discussed. And if you don't have a copy, I can provide it. It's a little obscure. 535 Again, that reference, I-5, tab 10. And then there is a series of questions and I'm looking at question 5, OEB interrogatories answered by EnWin. 536 DR. CHAMBERLIN: We have it. 537 MS. LEA: Thank you. On the second page of that answer, in other words, I-5, 10.5, continues over the page, the last paragraph of that answer deals with -- it begins: 538 "The mechanism proposed for stranded assets is concerned with the economic duplication of facilities." 539 This answer goes on to assert that if the customer pays for the construction of a duplicate facility and so on, that construction cannot be said to be uneconomic from the standpoint of the incumbent. I'm not reading all of the answer, but I wonder if you could and give me your comment about that answer, please. 540 DR. CHAMBERLIN: Well, I'll make a brief observation, I guess, upon reading it and that's two things. One is, ordinarily one speaks of stranded cost recovery with respect to the assets put in place by an incumbent utility that are stranded by virtue of the loss of sales that would take place due to some change. So this seems to be somewhat different. 541 And ordinarily from an economic point of view, the issue of whether a customer paid for the capital costs associated with a redundant investment wouldn't be material. From society's point of view, there's more investment made into the distribution function than needed to happen. 542 MS. LEA: You're saying it's a suboptimal use of that capital investment? 543 DR. CHAMBERLIN: Yes. 544 MS. LEA: I suppose that if the existing facility was in need of replacement or had reached the end of its useful life, then we don't have the same problem? 545 DR. CHAMBERLIN: I think at that point it wouldn't be redundant. 546 MS. LEA: Thank you. 547 When you deal with the issue of stranded costs the way that you have been explaining it throughout your evidence, do you make any distinction between stranded costs that would arise from an embedding, a new distributor embedding in an incumbent's territory, and a new distributor who expands out from his existing territory into the contiguous territory of an incumbent distributor? Do you make any distinction in the way that stranded costs might occur or how they should be assessed given those two different scenarios? 548 DR. CHAMBERLIN: Mostly not. And the exception might be that I can imagine a situation in which if the embedded utility were to take place in the way you suggested in the Wirebury model and the customers continued to use the facilities put in place by the incumbent that might take place in an ongoing -- something like a wheeling charge that was fully compensatory to the incumbent; whereas, in the other instances, assets might be stranded and not used so there might be something like an exit fee. 549 So the mechanism for the recovery might be different but the means or the costs that are stranded are not. 550 MS. LEA: Okay. Thank you. 551 On a societal basis, I wonder if you could explain, and you have discussed this in part with other counsel, you've indicated that cream skimming will produce societal losses, and I was wondering how that occurs given that the losses of the incumbent utility in terms of its contribution to fixed costs is offset by the gains on the side of the completing utility? Wouldn't the additional revenues to the competing utility help that utility lower its average costs, offsetting on an overall basis than the higher average fixed costs faced by the incumbent, would it not be a netting out? 552 DR. CHAMBERLIN: Well, it's possible that it could be a netting out if the stranded cost recovery were fully compensatory and if the customers in question had average use characteristics, for example. But suppose they didn't, suppose they were denser than average and the costs to effect that service were lower than average or that those customers had higher than average usage characteristics and so paid greater than average revenue per unit of consumption? 553 MS. LEA: Why would that make a deference if the loss on one side was balanced by the gain of the entire revenues on the other? 554 DR. CHAMBERLIN: It depends on how the stranded cost mechanism is implemented, if it's a per kWh or essentially a peeling out of the fixed cost component of the rate. So it could be a wash, again, with the caveats that I had mentioned before assuming that there were no additional costs that were the result of uncertainty in the planning kind of function or increased transactions costs or duplication of investments and things like that. 555 MS. LEA: Yes. At page 11 of your evidence you discuss that aspect and suggest that the increased risk due to the uncertainty of service areas will increase costs overall so that it isn't a complete net out. Have I understood you correctly there? 556 It's page 11, the end of the second full paragraph on that page. The resulting uncertainty adds risk to the planning process and will result in higher costs in the long run to both systems. 557 DR. CHAMBERLIN: Yes. 558 MS. LEA: Okay. Now, are you aware that legislation which preceded the current Ontario Energy Board Act did allow municipalities to pass a bylaw which would essentially allow them to take over portions of Ontario Hydro, as it then was, of its service territory? Are you aware of that? 559 DR. CHAMBERLIN: No. 560 MS. LEA: I don't want to ask you for a legal interpretation, so yourself or your counsel stop me when I get there. This bylaw more or less said that the municipality could take over parts of it -- there was an appeal to a board, not this Board but the Ontario Municipal Board -- and there was also the detailed calculation for the transfer of assets from Hydro One to the municipality if such a transfer did occur. And the reason that I raise this is to understand how, when we look at the history of service area amendments or perhaps the risks that are involved in service area amendments, whether your client has borne a similar risk in the past to the one that you are afraid that they and other utilities will bear now? 561 DR. CHAMBERLIN: I would think not. I mean, it's not unusual that there are service area amendments that result from a variety of circumstances and I suppose you could say that's business as usual and sort of built into the planning process, and ordinarily the compensation for those takes place in a valuation of that part of the system which is usually a negotiation between the sides or an adjudication. 562 In this instance, we're talking about overlaying that with a whole new uncertainty over the meaning of the service area boundary itself, and that seems to me to be significantly more uncertain than the sort of business as usual case. 563 MS. LEA: I'm not sure I understand the distinction, sir, I hesitate to go into it with you because I'm pretty ignorant of the previous situation, as you must be having not read it. But what I'm trying to understand is what really drives the risk that you are afraid of with respect to this increased uncertainty? If this Board was to grant overlap, is that the biggest risk? If it was to grant some amendments but not others, is that as big a risk? 564 Could you give us some assistance if this Board was contemplating some service area amendments, how to rank or evaluate how much risk it's creating by its orders? 565 DR. CHAMBERLIN: I don't know that I could do that without having done a valuation of the relative costs of each of those. I believe that overall, the most significant feature is the loss of economies of scale associated with the efficiencies of having more units to spread fixed costs over, but I think the uncertainty in risk has some undesirable effects that include higher costs. I just don't -- I have not undertaken to quantify the relative magnitude of each of the issues that we've raised. 566 MS. LEA: All right, thank you. That's fine. 567 I wonder then if we to look at some of the information that you've provided to the Board on other jurisdictions and the way they've dealt with these issues, and I wanted to refer first to the South Alberta Rural Electrification Association case which has been become Exhibit E.2.3 in this matter. 568 You've had an opportunity to review this case as you've cited in your report; is that correct? 569 DR. HUMPHREY: That's correct. 570 MS. LEA: And the Alberta Utilities Board did state, as you indicate, that distribution function in the province there is still regulated and a customer has no opportunity to choose a service provider; is that correct? 571 DR. HUMPHREY: That's correct. 572 MS. LEA: Did you have a look at the legislation on page 2 of that decision? If you look at the bottom of page 2, section 5(1) of the Electric Utilities Act of Alberta is citing, and it seems to be a very clear statement that a customer must buy the electricity from the owner of the electric distribution system in whose service the area the property is located. It's a pretty restrictive section with respect to customer choice; would you agree? 573 DR. HUMPHREY: Yes. 574 MS. LEA: And there's no comparable section in Ontario legislation, as far as you're aware? 575 DR. HUMPHREY: As far as I'm aware, yes. 576 MS. LEA: Thanks. And then we see that the statement by the Board, it first appears on page 3 of that decision in the first paragraph which follows the quote immediately above section 4.2. 577 The Board states: 578 "The wires part of the industry is still regulated, providing no opportunity for a customer to choose his own wire services provider." 579 Would you agree with me, having read this decision, that this was -- this premise was an understood thing; that it wasn't so much a question in this case as a statement of what was understood and the current status in Alberta? 580 DR. HUMPHREY: I agree. 581 MS. LEA: Are you aware, and you may not be, and -- it seems to indicate in the case that nobody argued about that premise here. Can you give us any more information as to whether any argument about that premise was made. 582 DR. HUMPHREY: I am not aware of any argument about that premise. 583 MS. LEA: Okay. Thank you. 584 Another interesting point of the Alberta decision is that it emphasizes the importance of discussions, good-faith discussions and negotiations between two utilities where a service area amendment is being contemplated; would you agree? 585 DR. HUMPHREY: Yes. 586 MS. LEA: And so you would agree with the Alberta Utilities Board that it is desirable that two utilities where such a question may arise should negotiate in good faith with each other and attempt to resolve the matter rather than to bringing it to the Board? 587 DR. HUMPHREY: I very much agree, yes. 588 MS. LEA: And so you would advise your client, were anyone to approach it seeking to discuss a service area amendment, that your client negotiate that in good faith with the applicants? 589 DR. HUMPHREY: With some limits regarding the circumstances in that particular case, but generally, yes. 590 MS. LEA: The next case that you've summarized that I found interesting was the -- on page 12 of your evidence. I don't have a copy of this one, but I don't want to go into it in much depth, and this is the Rural Electric Cooperative v. Expanding Municipal Utilities matter. 591 I guess what I'm trying to figure out is it looks as if the municipalities had the right to expand into rural areas. What was going on here in this particular jurisdiction? 592 DR. HUMPHREY: In this particular jurisdiction, the municipality has, if you will, local control that is not fully -- let's say the legislative situation was not entirely clear, because there are ambiguities between what a municipality can do and what a state regulatory authority can do. 593 In this case, the municipality wanted to expand, but the courts had the authority to prevent it for the reasons cited. 594 MS. LEA: Okay. And what is it that you think that this Board, in considering its decision in this case, should take from that particular example that you've cited in your paper? 595 DR. HUMPHREY: Well, in this case there was -- the concern was the impact of a rearrangement of service territory on rural customers and that that was not fully taken into account in the proposed municipal expansion. 596 MS. LEA: Okay. Thank you. I would like to ask you to turn to an interrogatory that you answered for Board Staff. It's Exhibit J.8, tab 10, schedule 31, and it's the one that you discussed briefly with Ms. Godby in which you provide us with an excellent list of situations in various U.S. jurisdictions regarding territory exclusivity. And thank you very much for the information in the interrogatory. It's extremely helpful. 597 The one place that I wanted to ask you about was Rhode Island. Rhode Island appears on page 4 in the list, and when we look at note 10, it says: 598 "Rhode Island's electric restructuring law of 1996 states that no distribution company can provide distribution service to customers in another distribution company's service area that is willing..." I guess that's the second distribution company "...that is willing to provide service at comparable terms and prices to customers of a non-regulated power producer." 599 I found that a little difficult to understand. Am I correct in understanding that there's some decision or weighting that is made by some authority that decides whether the incumbent distributor can provide the service that the customer needs, wants, should get, and if not, then another distributor is to serve? Can you assist us there? 600 DR. HUMPHREY: Well, of all the 50 states, that's the one I probably know least about, frankly, and I can say for certain that there is no competition at the distribution level in Rhode Island, but I would be glad to provide additional background for the record if that's warranted or desired. 601 MS. LEA: It just seemed of all these -- of all these jurisdictions to be a rather peculiar thing. I'm not insisting on an undertaking being given, unless the Board panel believes that it would be helpful to understand that better. I was hoping that you might have more insight, but I don't think it's fundamental to our decision. 602 MR. SOMMERVILLE: I don't think an undertaking is necessary, Ms. Lea. Thank you. 603 MS. LEA: All right. Thanks very much. 604 I wonder, then, if you could comment on the comparability of the telecom analogy that's been brought up a couple of times in this hearing. Probably the best statement of that occurs in an answer to an interrogatory response by the Southwest applicants to the Vulnerable Energy Consumers' Coalition. And that was handed in yesterday as a separate two-page answer. It was question 6 of an IR response to VECC by the Southwest applicants. I think I mentioned this to your counsel yesterday as something I might ask you about. So if they could provide you with a copy, that would be great. 605 I don't need you to read the whole answer, but I'd like to understand, since you mentioned it in your report, your assessment of how comparable competition in telecom is to the competition that we're discussing here. 606 DR. CHAMBERLIN: I guess the short answer is not very. 607 MS. LEA: And what are the reasons for that? 608 DR. CHAMBERLIN: Well, I think it's helpful to not talk about competition in the telecom sector as a whole but to talk about it as it's staged in, because competition did stage into the telecom sector. 609 I think it was 20 years ago that the market for long-distance service or long-line service was made competitive, driven largely by technological changes. 610 As I understand what happened is Southern Pacific Railroad had built a number of telephone lines along their rights-of-way, had excess capacity on those rights-of-way, and was selling that to commercial and industrial customers, kind of creating a bypass situation that needed responding to. 611 But it -- it has taken roughly 20 years since that time in order to create a competitive situation in the local telephone service market, and that's happening and has been happening over the last few years driven largely by the technological change that -- explosion of use of mobile phones and cell phones. 612 Again, that creates the bypass situation in which the, sort of, equivalent to what I think of as the distribution sector, the local telephone calling network, is going to be bypassed unless there's a means to create some kind of competitive environment. 613 MS. LEA: And you don't see a similar technological ability affecting the distribution -- electricity distribution sector at the present time? 614 DR. CHAMBERLIN: Well, the only thing that would seem to me to be close would be a widespread economic deployment of distributed generation. For example, if fuel cells ever became cheap, and the horizon for the economic fuel cell wasn't always, you know, eight or ten years out, as it's been for the last 20 years, but actually became to be, that would be, I think, a comparable sort of introduction of technology to cell phones. 615 MS. LEA: Thank you. 616 The last topic I wanted to discuss with you was, I guess, when should the Board grant service area amendments? I think I heard you say in your evidence that you have said -- I think you said something about when the applicant can provide more economically efficient service to the customer than the incumbent. 617 Did I hear you say that, or is that a misquotation of what you've said? 618 DR. CHAMBERLIN: Well, it sounds like what I would have said, but it's what I believe. 619 I think there are always going to be situations where a customer or a group of customers are at the end of the lines of the distribution network of an incumbent and might be served more cheaply by somebody else. There might be other -- other reasons that are, kind of, common and traditional in the industry that would make that happen. Fundamentally, it's an economic and practical consideration. 620 MS. LEA: Okay. So what types of factors, or what do we put into the equation to measure the comparable economic efficiency of these two services? 621 DR. CHAMBERLIN: Well, one would be the willingness of both parties to make the exchange, because that would be pretty strong evidence that it made sense to both of them. 622 Factors other than that, I suppose, would include a cost to serve those customers by one or the other party without there being subsidy by existing ratepayers of either party. 623 MS. LEA: Would you consider the following to be prerequisites? I understood that you are submitting that the Board should take a narrow view of its jurisdiction to alter service areas; is that correct? 624 DR. CHAMBERLIN: Yes, particularly with respect to its potential authority to make service areas non-exclusive as opposed to the alteration. 625 MS. LEA: I understand. Would you think that identified customers is a prerequisite to what you would advise this Board to have in place before it grants an area? In other words, not granting an area without having identified a customer. 626 DR. CHAMBERLIN: I don't even know that I would go that far. I think the view should be narrow and should limit, to the extent feasible, practical and economic, the granting of any non-exclusive service territory. 627 MS. LEA: If consent does exist between the applicant and the distributor, should the Board automatically grant the amendment or should it enter into some type of analysis of the economic efficiency of that from a societal point of view if the customer and two distributors are all consenting? 628 DR. CHAMBERLIN: I think if the customer and the two distributors are all consenting, I'm not sure there would be an additional review that would be required. 629 MS. LEA: One moment, please. 630 Another couple of things I wanted to ask you about possible prerequisites to the Board granting amendments. Would it be your position that the Board should ensure that losses to the incumbent, including upstream underutilized assets, be adequately compensated before a service area amendment is made? 631 DR. CHAMBERLIN: Again, are you asking me about amendments or are you asking me about non-exclusive territory? 632 MS. LEA: I'm asking you about amendments, individual amendments. I've heard your evidence and I'm not asking you about whether the Board should grant overlapping service territories. I think I've understood that. I'm now focusing on your testimony that the Board should grant certain service area amendments, which I think I've heard you say a number of times. I'm trying to understand, what are the parameters of that for you? 633 DR. CHAMBERLIN: With respect to compensation? 634 MS. LEA: Not necessarily compensation. There are a whole list of things that the Board might consider in deciding whether or not to grant an individual amendment. 635 DR. CHAMBERLIN: In addition to the considerations of consent between the two distributors and the customer, the issues of who can serve it more cheaply, who can serve it more practically, who can serve it more readily, there may be other considerations in terms of effect on service territory boundaries or things of that kind. 636 MS. LEA: I guess what I was trying to get at earlier was: If we had consent of all three parties that we've mentioned, do we enter into that discussion at all? 637 DR. CHAMBERLIN: I don't know that we do unless there's some reason that's been advanced by some other party that might be compelling that would indicate that we shouldn't. 638 MS. LEA: If we don't have consent between the two distributors, the customer wants to go with the applicant distributor, the incumbent is resisting, what are the circumstances under which such an amendment might be granted without creating the difficulties and problems that you have laid out in your evidence? 639 DR. CHAMBERLIN: I think the primary one would be compensation. 640 MS. LEA: Compensation. Okay. 641 Would notice to the incumbent distributor be something that should have to be demonstrated by the applicant so at least the incumbent distributors had an opportunity to consider the matter? 642 DR. CHAMBERLIN: I think that would be helpful. 643 MS. LEA: And what about the information to be provided to the customer in making his preference? As I asked an earlier witness panel, should the Board enquire into the reasonableness of the customer's preference? 644 DR. CHAMBERLIN: I recall that question and answer from yesterday and I'm not sure, because I agree that reasonable people have different assessments of the reasonableness of a decision. A customer might not make a decision solely on the basis of price and might make it on some other basis, and that could be reasonable, so I don't know. 645 MS. LEA: Thank you very much. 646 Those are my questions, Mr. Chair. Thanks. 647 MR. SOMMERVILLE: Ms. Aldred, redirect? 648 MS. ALDRED: I think Mr. Engelberg will be doing it. 649 MR. SOMMERVILLE: Mr. Engelberg. 650 Oh, I beg your pardon. The Board has no questions. 651 RE-EXAMINATION BY MR. ENGELBERG: 652 MR. ENGELBERG: Throughout your evidence and the evidence of Mr. Southam, the word "stranded" has been used and sometimes the word "underutilized" has been used. I'd just like to give you the opportunity to clarify that here. I think when Mr. Southam was asked about it yesterday, he said that when he uses the term, referring to stranded assets, that he is including within that term assets that become underutilized by virtue of the amendment in the service territory or the overlapping. 653 Is that your understanding too? When you use the word "stranded," do you mean only an asset that is totally unused as a result of the transfer or an asset that is underutilized as well? 654 DR. CHAMBERLIN: No, I mean both. And I summarize that, I suppose, in shorthand by saying the measurement of the stranded costs is the contribution towards fixed costs that would otherwise come from the customers in the contested area. 655 MR. ENGELBERG: Thank you. 656 Now, you were asked by Mr. O'Leary about your familiarity with what has gone on in Ontario. You referred to the Alberta decision in your paper and you also referred American states. Can you comment on the differences and similarities between the scheme in Ontario for electricity distribution and in American states? For example, is the Ontario situation unique, is it similar, is it comparable, is it different? 657 DR. CHAMBERLIN: Well, every jurisdiction has somewhat different characteristics. I don't know of any that exist in Ontario that are significantly different or would lead us to different conclusions compared to those in the United States. 658 MR. ENGELBERG: Well, in Ontario, for example, we have a number of LDCs in various parts of the province. Are there American states that have that feature as well? 659 DR. CHAMBERLIN: I think in the TVA service territory there's something like 320 distributors and in the Pacific northwest and Bonneville service territory there's something like 130. So I don't think it's a unique feature of Ontario at all. 660 MR. ENGELBERG: Also with regard to your Ontario experience, has either of you participated in electricity restructuring in the province of Ontario? 661 DR. CHAMBERLIN: I participated in the lead up to the hearings that took place in the '96-'97 time frame. I think for Ontario Hydro I helped with a number of restructuring analyses. I apologize, I can't recall whether I ever took that to an appearance, I know I wrote testimony. 662 DR. HUMPHREY: And I have participated in two ways: One, helping the old Ontario Hydro think through the generation issues, and I also appeared before the McDonald commission. 663 MR. ENGELBERG: Thank you. 664 Now, moving on to another topic, I believe you were asked regarding a possible theoretical situation that might arise if a host utility, an incumbent utility, were stretched and had difficulty in serving a particular development or a high-rise building; do you recall that question? 665 DR. CHAMBERLIN: Yes. 666 MR. ENGELBERG: Are you aware of any situation that is before us today in which the host utility has come to the conclusion that it is stretched and cannot serve development or a building within its territory? 667 DR. CHAMBERLIN: No. 668 MR. ENGELBERG: If that situation were to exist and the incumbent utility were stretched and could not serve, would there or would there not be a stranded cost, as defined by you, that would remain for the ratepayers of the incumbent utility to pay? 669 DR. CHAMBERLIN: There certainly would be stranded costs. I think the issue under discussion in that instance was whether or not there would be stranded costs associated with that particular, call it a stretched activity, and there may not be if that investment were avoided as a result of a creation of the overlapping service territory. 670 MR. ENGELBERG: And how about what you referred to as the upstream costs? 671 DR. CHAMBERLIN: They would continue to be stranded. 672 MR. ENGELBERG: They would be stranded? 673 DR. CHAMBERLIN: They would continue to be stranded. 674 MR. ENGELBERG: Thank you. Now you told Ms. Godby in your cross-examination that certain things either can't be compensated for or are difficult to be compensated for such as uncertainty that would arise from a situation of transfer, embedding, overlap. What did you mean by uncertainty? 675 DR. CHAMBERLIN: Well, what I meant is -- was a situation in which the uncertainty created over the overlapping service territory or embedded service territory resulted in an altered level of investments, shorter lead time, planning processes, lines put in place later than they would otherwise be, substations put in different locations, smaller substations put in place, things like that that would result in higher overall costs but would be difficult to represent in any kind of a stranded cost formula that I'm aware of. 676 MR. ENGELBERG: Would borrowing be an example of that, difficulty in borrowing, or would that fall outside of that category? 677 DR. CHAMBERLIN: No. If there were increased risk that was perceived by investors as a result of the uncertainty in the service territory, you'd expect that that would translate into a higher cost of capital. 678 MR. ENGELBERG: Who would bear the higher cost of capital of the borrowing? 679 DR. CHAMBERLIN: The ratepayers. 680 MR. ENGELBERG: Of the incumbent? 681 DR. CHAMBERLIN: Of the incumbent. Well, it could also be the shareholders of the other entity as well if they had more risk and that translated into a higher cost of capital for them. 682 MR. ENGELBERG: Thank you. 683 Now my friend Ms. Lea from the Board referred you to the Alberta decision. Could you take a look at that. Do you have that in front of you? That's the South Alta Rural Electrification Association case. 684 DR. CHAMBERLIN: Oh, that's it. Thanks. 685 MR. ENGELBERG: Now, Ms. Lea pointed out to all of us some of the differences in the Alberta situation. I wanted to take you to a couple of places in the decision as well. 686 If you take a look at page 3 of the decision, Section 25 of the Hydro and Electric Energy Act, subsection 25(2), it says: 687 "Approval under this section shall not be given unless the Board is satisfied, having regard to the availability of any other source of electric energy and to any other circumstances, that it is in the public interest having regard to those circumstances and the present and future need for the extension of electric service throughout Alberta." 688 I'd like to take you to two more sections, and then I want to ask how you think these items are applicable to Ontario. On page 8 of the case, of the decision, the third paragraph, it says: 689 "The Board recognizes that its governing legislation contemplates changes to service area boundaries. However, it is of the view that such changes would only be appropriate where clear and compelling reasons establish that such an alteration would be in the public interest. While the determination of the public interest would generally involve an assessment of the application's impacts on safety, costs, and security of service, the Board considers each application to be unique." 690 And finally, the last one I'd like you to look at is on page 10, the first paragraph under the heading "Board Findings and Directions": 691 "After carefully considering all of the evidence prepared and presented by the parties, the Board denies South Alta's application for an alteration to its service area boundary. In the Board's view, South Alta failed to demonstrate how the alteration would be in the public interest. South Alta provided no evidence to show that there were clear safety efficiency, service, or cost advantages, or, for that matter, any unique circumstances that would warrant approval of the application." 692 My question for you is that you have stated in your paper that was filed as part of Hydro One's prefiled evidence from an economic point of view the dangers, the risks, the uncertainty that could result in the particular case of service area amendments being made embedding and overlapping. How do you feel about the items that the Alberta Board stated that were to be taken into consideration before such amendments were made? 693 Do you think that model would be helpful compared to your economic assessment of the risks? 694 DR. HUMPHREY: Well, I agree that that list is helpful. I might add some items to it. But what is especially important, in my view, is the primary criteria is the public interest. 695 MR. ENGELBERG: When you refer to the public interest, I believe in your evidence in chief you were talking about distinguishing between the ratepayers of the applicant and the ratepayers of the incumbent. 696 DR. HUMPHREY: That's correct. 697 MR. ENGELBERG: And how do you say you make that comparison? What does the public interest consist of? Is it both, the ratepayers of both? Is it the ratepayers of all, or each one? 698 DR. HUMPHREY: Well, the public interest flows from the general mandate of a utility to provide economic, efficient, safe, et cetera service. It also flows from the sharing of the costs of that service across all customers, as well as non-economic considerations and public policy considerations, such as the protection of rural customers or other public interest objectives of the regulatory authority. 699 DR. CHAMBERLIN: But from an economic perspective, it's the economic impact on all of the customers and not just some of the customers. 700 MR. ENGELBERG: Thank you. 701 Now, you stated, just at the end of the questions being asked by Ms. Lea, that the customer, when you got into the issue of reasonableness, the customer might have an interest that you would not consider reasonable. Can you characterize any of those interests? 702 DR. CHAMBERLIN: Well, I didn't say that I might not consider it reasonable. I said that reasonable people might disagree about what reasonable was. And reasonable is in the eye of an individual. 703 So for example, a customer might have a reasonable preference for a lower rate or might have a reasonable preference for a different quality of service, perhaps more or less reliable service. 704 MR. ENGELBERG: In the case of a subdivision where the subdivision hasn't been built, and the utility is dealing with the developer, and the developer is the one who makes the choice, and there are going to be 500 lots in the subdivision, would you expect the -- there to be a possibility that the developer might have different interests than the eventual homeowners? 705 DR. CHAMBERLIN: Yes, I do. I think that would be a situation in which the -- I don't know what the meaning of the choice made by the developer would be. I wouldn't know how to apply a reasonableness criteria to it, other than what's in his interest. 706 MR. ENGELBERG: Thank you very much. 707 No further questions. 708 MR. SOMMERVILLE: Thank you very much. 709 The panel is excused. I hope you have a safe trip home. 710 DR. HUMPHREY: Thank you. 711 MR. SOMMERVILLE: Thank you. 712 PROCEDURAL MATTERS: 713 MR. SOMMERVILLE: Mr. Rodger, we're in your hands, to some extent; it's 12:15. We could wait until tomorrow to begin and end Dr. Yatchew's testimony, or if you want to put him in the box now for examination in chief, what's your preference? 714 MR. RODGER: I think, sir, we would prefer to start fresh in the morning. We have to set up a projector for a group of slides that Dr. Yatchew wants to use, and I think our preference would be just to, rather than break up the presentation, just go right through in the morning, if that suits the Board? 715 MR. SOMMERVILLE: Are there any submissions with respect to that subject matter? 716 In which case, we will adjourn until tomorrow morning at 9:30. 717 Ms. Spoel has just reminded me that it would be appropriate for you to take your materials with you, because this room is going to be used for another purpose this afternoon, so unless you want them read and used against you later, you should take them with you. 718 If there's nothing else, we'll stand adjourned until 9:30 tomorrow morning. 719 --- Whereupon the hearing adjourned at 12:17 p.m.