Rep: OEB Doc: 12WW6 Rev: 0 ONTARIO ENERGY BOARD Volume: 11 21 OCTOBER 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. BIRCHENOUGH MEMBER 1 RP-2003-0063 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF an Application by Union Gas Limited for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, storage, and transmission of gas for the period commencing January 1, 2004. 3 RP-2003-0063 4 21 OCTOBER 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel JAMES WIGHTMAN Board Staff MICHAEL PENNY Union Gas Limited CRAWFORD SMITH Union Gas Limited MARCEL REGHELINI Union Gas Limited ROBERT WARREN Consumers Association of Canada MIMI SINGH CME JACK GIBBONS Pollution Probe MURRAY KLIPPENSTEIN Pollution Probe GEORGE VEGH CEED, OESC, Superior Energy Management, Union Energy, TransAlta PETER SCULLY City of Timmins, City of Sudbury, FNOM VINCE DeROSE Industrial Gas Users Association BRIAN DINGWALL Energy Probe, HVAC Coalition, Distributed Energy Association DAVID POCH GEC 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [16] UNION GAS LIMITED - PANEL 2; ANDREWS [41] CROSS-EXAMINATION BY MR. MORAN: [43] UNION GAS LIMITED - PANEL 12; SHERVILL, FARMER [490] EXAMINATION BY MR. SMITH: [494] CROSS-EXAMINATION BY MR. KLIPPENSTEIN: [553] PROCEDURAL MATTERS: [752] RULING: [796] UNION GAS LIMITED - PANEL 12; NEME [823] EXAMINATION BY MR. KLIPPENSTEIN: [826] CROSS-EXAMINATION BY MR. POCH: [862] CROSS-EXAMINATION BY MR. SMITH: [880] PRELIMINARY MATTERS: [903] UNION GAS LIMITED - PANEL 8; BIRMINGHAM, LAFORET [910] EXAMINATION BY MR. PENNY: [914] CROSS-EXAMINATION BY MR. WARREN: [958] CROSS-EXAMINATION BY MR. VEGH: [1283] 10 EXHIBITS 11 EXHIBIT NO. M.11.1: E-MAIL FROM CHUCK FARMER DATED FRIDAY OCTOBER 17TH, 2003, WITH ATTACHMENT ENTITLED SUMMARY OF UNION'S RESEARCH AND EVALUATION COMMITMENTS RESULTING FROM THE 2002 AUDIT AND AUDIT REVIEW [540] EXHIBIT NO. M.11.2: DOCUMENT ENTITLED POLLUTION PROBE CROSS-EXAMINATION REFERENCE BOOK DATED OCTOBER 17TH 2003 [558] EXHIBIT NO. M.11.3: COPY OF AN E-MAIL FROM JUDITH RAMSAY TO JACK GIBBONS DATED MONDAY 20TH, 2003, 4:48 P.M. [567] EXHIBIT NO. M.11.4: DOCUMENT ENTITLED, "MATERIALS FOR USE IN CEED'S CROSS-EXAMINATION ON AFFILIATE ISSUES" [1288] 12 UNDERTAKINGS 13 UNDERTAKING NO. N.11.1: TO ADVISE WHAT THE MATERIAL CHANGES WERE TO CHAPTER 4 BETWEEN THE SECOND LAST DRAFT AND THE FINAL RULE [168] UNDERTAKING NO. N.11.2: TO PROVIDE WHAT THE O&M EXPENSE WOULD BE FOR 2004 IF THE $540,000 WAS AMORTIZED OVER THE REMAINING LIFE OF THE CONTRACT [432] UNDERTAKING NO. N.11.3: TO PROVIDE THE CALCULATION FOR TRC BENEFITS FOR UNION'S 2004 FORECAST [646] UNDERTAKING NO. N.11.4: TO ESTIMATE THE ADDITIONAL COST REQUIRED IN A DSM BUDGET TO ACHIEVE THE 85.8 MILLION CUBIC METRES OF DSM SAVINGS IN FISCAL 2004, DERIVED FROM A COMPARISON WITH ENBRIDGE [700] UNDERTAKING NO. N.11.5: TO PROVIDE AN ESTIMATE OF WHAT AMOUNT FROM THE DSM BUDGET WOULD BE ALLOCATED TO RESEARCH OVER AND ABOVE THE $250,000 ALREADY ALLOCATED [750] UNDERTAKING NO. N.11.6: TO PROVIDE A SAMPLE OF THE COMMUNICATION BETWEEN UNION GAS AND DUKE ENERGY GAS TRANSMISSION CORPORATION WITH RESPECT TO THE RELEASE OF ASSETS FOR SALE TO THE MARKET [1424] 14 --- Upon commencing at 9:40 a.m. 15 MR. SOMMERVILLE: Thank you, please be seated. 16 PRELIMINARY MATTERS: 17 MR. SMITH: Mr. Chairman, there's just one preliminary matter before Mr. Moran begins his cross-examination, and that's to advise for the record that there are four undertakings which have now been answered by Union and which have been provided at the back of the room. They are Exhibit N.4.2, Exhibit N.4.5, Exhibit N.6.7, and Exhibit N.9.5, and I understand that the Board has been provided with copies of those exhibits as well. 18 MR. SOMMERVILLE: Thank you very much, Mr. Smith. 19 MS. SINGH: Good morning, Mr. Chairman, just one other preliminary matter. I have given Mr. Moran, and have put at the back of the room, a corrected Exhibit M.9.1, and one of the corrections is to delete line 8 from the original M.9.1 because some of the formulas were missing. 20 MR. SOMMERVILLE: Right. Are the other corrections highlighted or is that the only correction that -- 21 MS. SINGH: The other corrections include adding the column to show the cross-referencing between line Exhibit J.17.22 and the line numbers down the left-hand side of the column. 22 MR. SOMMERVILLE: Right. 23 MS. SINGH: In addition to that, there's a calculation addition at line 6 adding up the totals for the five and six direct and in -- 24 MR. SMITH: Mr. Chairman if I might respond to this exhibit, the concern I have with the exhibit, of course, is it's, in effect, an attempt to put in evidence after the fact, after Ms. Elliott has commented on the errors. She is not going to have the opportunity now for the record to comment on what I understand are more than simply corrections, even if they were corrections I might have been objection, but it's more than corrections. It's additional material that has been put on this on this exhibit which Ms. Elliott doesn't have an opportunity to respond to, and if it simply is math that's being done, in my submission, that could easily have been done in argument. So in my submission, it's inappropriate to tender additional evidence in this fashion. 25 MR. SOMMERVILLE: Ms. Singh. 26 MS. SINGH: There really is no additional evidence, first of all, and secondly, Ms. Elliott was not commenting on the numbers, she was asked to assume that they were correct. And the changes are simply, you know -- they're not substantive changes to this document. They're corrections. There's one line that's been taken out because it was wrong and for the assistance of the Board and the intervenors, there's been a column that's been added to cross reference the line exhibit numbers, but if Mr. Smith would prefer that I highlight the changes, I would be happy to do so, Mr. Chairman, and refile the corrected Exhibit M.9.1 tomorrow. 27 MR. SOMMERVILLE: Thank you, Ms. Singh. We did have a discussion about this exhibit, Mr. Smith. I'm sure you've read the transcript. 28 The idea was that this was a simple arithmetic extrapolation of the material on J.17.22 and on that basis and on the basis of the assumption that the material was accurate, the questions were put. So I don't think there is the question of evidence being created and recreated. 29 I believe Ms. Elliott did, in fact, comment on line 8 and indicated in her testimony that line 8 really didn't hang together, didn't make sense, and that's the reason for the deletion, I think, of the material. So on the basis on which this material was initially accepted, I'm prepared to accept this correction and with all the limitations pertaining to it. 30 MR. SMITH: Mr. Chairman. 31 MR. MORAN: This should be marked Exhibit M.9.1 corrected. 32 MR. SOMMERVILLE: Thank you. 33 Are there any other preliminary matters? 34 MR. SMITH: No, Mr. Chairman. 35 MR. SOMMERVILLE: We will proceed with the cross-examination of Mr. Andrews by Mr. Moran and then proceed to the DSM material immediately following that. 36 MR. SMITH: Yes. 37 MR. SOMMERVILLE: And ultimately, we'll get to the affiliate group. 38 MR. SMITH: The affiliate group and here and they are ready and raring to go. 39 MR. SOMMERVILLE: And that will happen no sooner than the noon break as indicated yesterday. Just from the standpoint and convenience of parties, that seems to be the way to go. So without further ado, Mr. Moran, you're up. 40 MR. MORAN: Thank you, Mr. Chair. 41 UNION GAS LIMITED - PANEL 2; ANDREWS 42 W.ANDREWS; Previously sworn. 43 CROSS-EXAMINATION BY MR. MORAN: 44 MR. MORAN: Mr. Andrews, I'd like to start with the GDAR compliance component of your evidence. As I understand it, the cost that you're seeking to recover relates to the compliance steps that have to be taken to comply with chapter 4 of the GDAR. 45 MR. ANDREWS: That is correct, sir. 46 MR. MORAN: And the capital cost is $4.78 million? 47 MR. ANDREWS: That is correct. 48 MR. MORAN: And the O&M component is 1.3 million? 49 MR. ANDREWS: That is correct. 50 MR. MORAN: All right. And I think yesterday you agreed that although Union has to take these steps in order to be in compliance with the rule, Union is still responsible for establishing prudence. 51 MR. ANDREWS: Yes, I agree with that. 52 MR. MORAN: All right. If you could turn to the updated evidence, D.1, tab 12, page 2. 53 MR. ANDREWS: I have that. 54 MR. MORAN: At line 9 you indicate that Union stated: 55 "In light of Union's experience with recovering the costs of offering an unbundled storage service, Union is not prepared to expend significant funds without certainty with respect to the recovery of the cost associated with GDAR compliance. For this reason, Union is not prepared to incur costs beyond the scope and analysis phase without a determination by the Board on the recovery of all the GDAR costs." 56 What experience were you referring to there? 57 MR. ANDREWS: We were referring to the experience with respect to the enabling unbundling hearing when Union came in to present the cost to implement the changes to systems in order to offer the unbundled service. There was a lot of discussion, seemed to be a lot of discussion about why we even made the expenditures in the first place, so we wanted to avoid that. Initially, when we put the prefiled evidence together, we wanted to avoid that discussion this go around. 58 MR. MORAN: You wanted to avoid having that discussion after the fact; is that what you're suggesting? 59 MR. ANDREWS: Well, we recognized that in order for us to comply with the chapter 4 requirements, it clearly would require us to spend a significant amount of money to do that, and we were also faced with a deadline, March 2004. So in order to get from here to there, we have to spend money prior to getting Board approval. So that was our concern going into this thing. 60 MR. MORAN: Isn't it true that from time to time, Union does spend money prior to getting Board approval for the recovery of those costs? 61 MR. ANDREWS: Yes, that is correct. 62 MR. MORAN: And that's what the prudence test is all about, it looks at how the decision was made and then the Board determines whether it was a prudent decision before it allows recovery; right? 63 MR. ANDREWS: Oh, I agree with that, Mr. Moran, and I think in this updated evidence I think you have to read further than lines 9 and 10 that Union has determined that yes, in fact, by virtue of having the opportunity to present the costs in this rate proceeding that we are, in fact, willing to undertake to continue to spend the dollars necessary to implement the chapter 4 requirements in March of 2004. So we basically took a different tact or a different approach and included in that approach was to occasionally and periodically submit updates to the Board. 64 The first update that we had submitted, which is included as appendix A, which is a letter dated June 27th, the rationale for that letter was to keep the Board apprised of our progress number one, and number 2, to indicate to the Board how much money we had spent to date and where we were going with our expenditures so that we didn't want the Board to be surprised and if they thought that there was something there that was unreasonable, that would be a good time for the Board to speak up before we went any further. 65 MR. MORAN: All right. And if the Board wasn't prepared to deal with it at this time and rather, to deal with it in the usual way after the fact, does that mean that Union wouldn't be willing to come into compliance with GDAR? 66 MR. ANDREWS: No, not at all, sir. Again, the letter -- the rationale for the letter that we had sent, and we're going to be sending another one given that we've concluded the design phase, was simply to give the Board an opportunity to gauge our progress, to see how much money we had spent to date, to see how much we intend to spend, going forward, so that if the Board thought that we were being excessive in our approach, then that might be an opportunity for the Board to speak up at that time. 67 MR. MORAN: All right. Now, you're seeking approval for recovery of chapter 4 costs but, as I understand it, you also want a variance account to go with that? 68 MR. ANDREWS: Yes, that is correct. We want a variance account to capture any variances with respect to the costs associated with implementing the chapter 4 requirements, so that would include the $4.78 million of capital costs and that would include the one-time O&M of 540,000 associated with ADS making the changes to Banner. 69 MR. MORAN: Right, which is separate from the GDAR issue; right? 70 MR. ANDREWS: Which is separate from the GDAR issue? 71 MR. MORAN: The rate-rider component. 72 MR. ANDREWS: No, I'm not talking about the rate-rider component, Mr. Moran, I'm talking about the fact that we need ADS to make some changes to the Banner system in order to comply with chapter 4 requirements. So in my evidence, I indicated that there are costs associated with that of 540,000. 73 MR. MORAN: I understand. So at the end of the day, what you want from the Board is a ruling that says this is a good idea, go ahead and spend that money; and if you spend more money, you'll get that as well. Go ahead and set up a variance account. You will be kept whole, regardless. 74 MR. ANDREWS: Correct. 75 MR. MORAN: Now, you indicated that you went with the consultant Sapient because they were the ones who did the original Union Line project. 76 MR. ANDREWS: That was one of the reasons, yes. 77 MR. MORAN: Right. Since they built it, they understood it. 78 MR. ANDREWS: Well, they built it; they understood it. They understand direct purchase like no other consultant out there, and chapter 4 requirements are all about direct purchase. You have to understand that we have been facilitating these types of transactions now for several years, and within the past year, well, since July of 2002, with our Union Line application. 79 So they know the application, they know direct purchase, and they also took it upon themselves to study up on the gas distribution access rule. And not only that, but they also bring to the table their fixed-price, fixed-term approach, which helps us to manage the scope and manage the prudency of the costs. 80 MR. MORAN: Okay. If you could turn to Exhibit D.1, tab 12, page 4 of 11, the original prefiled evidence. 81 MR. SMITH: Is that page 4 of 11, Mr. Moran. 82 MR. MORAN: That's correct. 83 MR. ANDREWS: I have that. 84 MR. MORAN: At line 7, you indicate that: 85 "Union plans to engage the same external consultant it used to develop the Union Line system that supported the unbundled storage service. The costs of developing Union Line were reviewed and approved by the Board in RP-2002-0078, enabling unbundling. Union - with assistance from its principal consultant, Sapient, designed and implemented Union Line. Union Line is an online customer transaction system currently used to manage direct purchase transactions, including STRs. While the principal focus of systems enhancements needed to comply with chapter 4 of the GDAR will be on Union Line. Union will also need to make some changes to its contract administration and customer information systems to complete the plan." 86 All right. So as it says here, Union Line was examined in the RP enabling unbundling proceeding. As I recall, you were a witness in that proceeding? 87 MR. ANDREWS: That's correct. 88 MR. MORAN: Okay. And the purpose of Union Line was to make Union's systems friendlier to direct purchase transactions, right, more accessible, in other words? 89 MR. ANDREWS: Well, the purpose of the enabling unbundling hearing was for us to be able to bring the unbundled service to market. In order to do that, based on a thorough review of our systems, it was determined that we had to make some significant changes, which included developing the online transactional capability known as Union Line. 90 MR. MORAN: Right. And that included the management of STRs, right, service transactions requests? 91 MR. ANDREWS: That's correct, as we know them today. 92 MR. MORAN: And then the Board made its decision in July of 2002; correct? 93 MR. ANDREWS: That's correct. 94 MR. MORAN: Essentially saying, Go ahead, it makes sense to make those changes and to do the Union Line project. 95 MR. ANDREWS: That's correct. 96 MR. MORAN: So at that point you've got the green light for Union Line, so you go ahead with it and that's when that project started taking shape? 97 MR. ANDREWS: Well, no, actually the project -- we had started the project long before we had got the decision. We were into the build phase by the time we got to the hearing portion of the proceeding. 98 MR. MORAN: Okay. And at that point, the -- as I recall, you had divided it into two phases; you had phase 1, which was the design -- the scope and design phase? 99 MR. ANDREWS: I'm not sure that that corresponds to the definition of the phases. What you're referring to when you talk about scope and design, those represent various phases in the project itself. Is that what you're referring to? 100 MR. MORAN: That's correct. The costs you were seeking to recover in relation to phase 1 was $7.5 million; right? Do you recall that? 101 MR. ANDREWS: Yes, I do. 102 MR. MORAN: And then phase 2, which would include the build, you were seeking a further $8.2 million; right? 103 MR. ANDREWS: I don't think that's the distinction between the two phases. It wasn't broken up based on scope, design and build. Those definitions that you're referring to refer to the actual project itself, and I don't recall that we had presented the cost along those lines. 104 MR. MORAN: Do you have a copy of that decision available to refresh your memory? 105 MR. ANDREWS: I don't have it with me. 106 MR. MORAN: Or would you prefer to take it, subject to check? 107 MR. ANDREWS: I'll take that, subject to check. 108 MR. SMITH: Sorry, I'm actually not -- I'd prefer to get the decision, because I don't think Mr. Andrews is actually taking the definitions -- his earlier response to your question suggested that he actually disagreed that this project was broken up the same way as the enabling unbundling hearing was broken up. 109 MR. SOMMERVILLE: I think that's fair, Mr. Smith. 110 MR. MORAN: So, Mr. Andrews, if you have a copy of the decision handy, if you could turn to part 5.3.3. And if you could just read that part, it's about six or seven paragraphs. 111 MR. ANDREWS: 5.3.3? 112 MR. MORAN: Yeah. It starts -- the first paragraph number is 5.64. 113 MR. ANDREWS: Yes, that I have. 114 MR. MORAN: All right. Why don't you just take a minute to read the paragraphs 5.64 through 5.70. 115 MR. ANDREWS: I've read that. 116 MR. MORAN: So again, just to go back over it, the primary component of the cost associated with enabling unbundling had to do with the Union Line system; is that right? 117 MR. ANDREWS: Yes, that's correct. 118 MR. MORAN: And we had the two phases; phase 1 was the $7.5 million and phase 2 is the $8.2 million; correct? 119 MR. ANDREWS: Yes. 120 MR. MORAN: For a total of $15.7 million? 121 MR. ANDREWS: That's correct. 122 MR. MORAN: All right. Now, in the meantime, of course, the GDAR process was also underway; isn't that correct? 123 MR. ANDREWS: Yes, I do recall that. 124 MR. MORAN: And in fact, it was underway prior to the release of this decision in July of 2002. 125 MR. ANDREWS: Yes, that's correct. 126 MR. MORAN: It had been going for over a year at that point. 127 MR. ANDREWS: Yes, there had been a series of ongoing discussions, yes, that's true. 128 MR. MORAN: And from the outset, one of the components in the proposed rule was the chapter that dealt with STRs; isn't that correct? 129 MR. ANDREWS: Yes, there was a chapter that talked about service transaction requests. That was in several changing drafts, that's correct. 130 MR. MORAN: And ultimately, that component compare carried through from draft to draft with some refinements; right? 131 MR. ANDREWS: Well, what carried through was the fact that there was going to be a series of articles relating to service transaction requests, but what did not carry forward was the exact articulation of each of those articles. In other words, these were very much works in progress from draft to draft. 132 MR. MORAN: Right. But the issue with respect to the management of STRs was not a new issue for Union; right? And that's why you came forward with Union Line and that's what the GDAR was also addressing; isn't that right? 133 MR. ANDREWS: Yes, in that regards, as I think I indicated earlier, we had been facilitating these kinds of transactions for several years, we just didn't call them service transaction requests. But yes, we had been dealing with those and we automated a lot of that with the implementation of Union Line. 134 MR. MORAN: Right, and the primary concern as I recall it, was the amount of time it took to process an STR, that was one of the major issues; wasn't it? 135 MR. ANDREWS: Yes, among other issues, that's correct. 136 MR. MORAN: Yes, and there was a certain lack of flexibility as a result so that when customers signed up with a retailer they often had to wait for many months before they could get switched; isn't that correct? 137 MR. ANDREWS: Well, our lead times then and now are basically 60 days if you're adding a customer to a direct-purchase contract. So we didn't really change anything there with the implementation of Union Line, so if took many, many months that wasn't anything to do with our processes. 138 MR. MORAN: But you were trying to improve the accessibility of the system to STRs? 139 MR. ANDREWS: Yes, because we recognized that with the onset of the unbundled service that we'd be dealing with hundreds and thousands of more transactions, so that was, again, one of the principal drivers for making those changes. 140 MR. MORAN: And chapter 4 of the GDAR as it ultimately came out in the final rule simply formalized the requirement to accommodate an STR process; isn't that right? 141 MR. ANDREWS: Yes, it basically put the rules in writing for the first time, that's correct. 142 MR. MORAN: Right. Okay. So we have the Union Line process that's designed to create a more accessible system for STRs, we have the GDAR process, a process that was leading to a refinement, a codification, if you want, of the STR rules, right, two parallel processes? 143 MR. ANDREWS: Yes. 144 MR. MORAN: And then ultimately, the Board's decision in the unbundling application came out in July 2002; right? 145 MR. ANDREWS: That's right. 146 MR. MORAN: And the GDAR came out in December of 2002. 147 MR. ANDREWS: That's right. 148 MR. MORAN: And there was no particular surprises in the chapter 4 portion of the rule, was there? 149 MR. ANDREWS: Well, I don't know that I'd say that there were or weren't any surprises. As I said earlier, the entire gas distribution access rule was very much a work in progress so every chapter, every article was undergoing review, undergoing change throughout that entire process. So you know, at the time that we were working on the system development for Union Line, there was nothing in place that was final that we could have looked at that would have guided our hand when we built the systems for the enabling unbundling. 150 MR. MORAN: Would you agree that there were no material changes to chapter 4 from the previous rule? 151 MR. ANDREWS: I would absolute not agree with that. There were very material changes to chapter 4. Absolutely. Because I recall seeing several drafts and I participated at Union Gas in providing some comments through our regulatory department, and I would say that the STRs that you see today are not the STRs that you saw in some of the earlier drafts. 152 MR. MORAN: Right. You've referred to looking at several drafts. My question was, would you agree that there was no material changes in the final version from the previous draft, the last draft that went out? 153 MR. ANDREWS: No, I wouldn't agree with that. 154 MR. MORAN: All right. What were the material changes? 155 MR. ANDREWS: I don't recall off the top of my head, sir. 156 MR. MORAN: All right. Perhaps you could undertake then to advise what the material changes were in chapter 4 from the draft immediately prior to the release of the final rule. Would you do that, sir? 157 MR. ANDREWS: I assume that we have that draft. I don't have that draft but I presume if we have it. 158 MR. SMITH: Is Mr. Moran referring to the October 11, 2002, report of the Board attached to which was a draft rule? 159 MR. MORAN: That's correct. 160 MR. SMITH: Well, that's fine. There are, subject to check, of course, there are no changes as Mr. Moran knows between the October 11th, 2002 report of the Board -- 161 MR. MORAN: All right. 162 MR. SMITH: But there were changes between the June draft of the report and the October draft of the report and we can provide that. 163 MR. MORAN: That would be fine. Would you be able to do that, Mr. Andrews? 164 MR. ANDREWS: Yeah, I guess I can comment on the differences, I guess, if that's what you're looking for. 165 MR. MORAN: Your counsel has just confirmed that, in fact, there were no material changes from the draft rule that was issued prior to the final rule, and so now I'm taking you to the second last draft and can you undertake to advise what the material changes were to chapter 4 between the second last draft and the final rule? 166 MR. ANDREWS: Yes, I can do that. 167 MR. MORAN: All right. Mr. Chair, that would become Undertaking N.11.1. 168 UNDERTAKING NO. N.11.1: TO ADVISE WHAT THE MATERIAL CHANGES WERE TO CHAPTER 4 BETWEEN THE SECOND LAST DRAFT AND THE FINAL RULE 169 MR. MORAN: Just before we leave the chapter 4 issue, chapter 4, I think as you've agreed, codifies the rules for the processing of STRs; right? 170 MR. ANDREWS: That's right. 171 MR. MORAN: And included in this is the concept of what people refer to as customer mobility; is that correct? 172 MR. ANDREWS: That's right. 173 MR. MORAN: So if a customer is signed up with a particular marketer and for whatever reason chooses to end that relationship, and either go back to system gas or sign up with another marketer, the customer has the ability to do that to make the STR, and you're required to process it subject to certain requirements in the rule; right? 174 MR. ANDREWS: That's right. 175 MR. MORAN: Okay. Now, chapter 6 of the GDAR, as I think you agreed yesterday, is currently in the appeal process. 176 MR. ANDREWS: That's correct. 177 MR. MORAN: And you're not, at this point, seeking to recover any costs associated with compliance with chapter 6, are you? 178 MR. ANDREWS: That is correct. 179 MR. MORAN: And chapter 6 is the section that says that you have to accommodate vendor-consolidated billing as well as distributor-consolidated billing; right? 180 MR. ANDREWS: That's correct. 181 MR. MORAN: And the third option, of course, is split billing which my means everybody just sends their own bill out; right? 182 MR. ANDREWS: That's right. 183 MR. MORAN: And as I understand it right now, currently you're able to accommodate distributor-consolidated billing because that's what you do for ABC; right? 184 MR. ANDREWS: That is correct. 185 MR. MORAN: So the real issue is the vendor-consolidated billing, the option where the marketer would be the person to collect for both distribution costs as well as commodity costs? 186 MR. ANDREWS: That's right. 187 MR. MORAN: Now, when did you first engage Sapient for the unbundling exercise? 188 MR. ANDREWS: The first engagement we had with Sapient was back to the fall of 1999, and I think we had, I think, three engagements that led us up to the implementation of Union Line application in July of 2002. 189 MR. MORAN: And when you retained them, knowing that the GDAR process was underway because it had started before the unbundling application was dealt with, what discussions did you have with Sapient regarding the potential for system requirements to meet GDAR? 190 MR. SMITH: Sorry, Mr. Chairman, Mr. Moran's question presumes that the GDAR process started in 1999, and my recollection is that it didn't start until 2000. 191 MR. ANDREWS: That's my recollection as well. I have no recall of anything relating to GDAR the first time we engaged Sapient. 192 MR. MORAN: All right. You engaged them in 1999? 193 MR. ANDREWS: That's right. 194 MR. MORAN: The Right. The GDAR process starts soon after; right? There was a staff consultation prior to the formal process; isn't that correct? 195 MR. ANDREWS: Well, there was, but unfortunately I just don't recall those dates, Mr. Moran. But I can tell you that the first time we engaged Sapient, we had no discussion on what's known as gas distribution access rule. 196 MR. MORAN: Right. So having engaged them and then the GDAR process starts, what discussions did you have with Sapient at that point with respect to the potential need to make system enhancements for that purpose? 197 MR. ANDREWS: I don't recall that we had any discussions pertaining to the gas distribution access rule; that our focus primarily was leading up to the facilitation of the unbundled service. 198 MR. MORAN: Right. 199 MR. ANDREWS: Now, we did talk about -- and when you're engaging with a consultant like Sapient, we did talk about potential changes to our business model. But I don't recall specific discussions at all about GDAR. 200 MR. MORAN: And prior to the July 2002 decision on the enabling unbundling application, what discussions did you have with Sapient with respect to potential implications for meeting GDAR? 201 MR. ANDREWS: Well, again, we didn't have any specific discussions. We didn't talk about any of the emerging drafts that were out at the time. We did talk about GDAR in general, that there was a process to formalize and codify the rules, as you've described them, but that was the extent of any discussion that we would have had. 202 MR. MORAN: All right. So you have a consultant who's working on the Union Line project for you and, as you've indicated, that project is intended to make the system more accessible with respect to the STR -- the management of STRs; right? 203 MR. ANDREWS: That's right, the STRs as they were defined at the time, which, you know, are based on the current rules even though they are unwritten. So basically you are asking the consultant to help you design a system to facilitate something that is noble and certain. Those are the rules that apply today, right, not based on a set of rules that may or may not apply in the future. 204 MR. MORAN: Right. And there was a specific discussion of STRs going on in the GDAR process; right? 205 MR. ANDREWS: Yes. 206 MR. MORAN: Those very same rules, unwritten as they were at the time. 207 MR. ANDREWS: Well, when you say "the same rules," and from the perspective of designing systems, you have to be very careful, I wouldn't necessarily say they were the same rules. There were rules around service transaction requests, even though when didn't call them that; that when you are designing a system, you have to be absolutely crystal clear and very specific with respect to each one of those rules. And if you've read the gas distribution access rule, there's something like 60 articles in chapter 4 and none of those were in effect at the time. 208 So I just have to be careful in terms of when you say -- we designed Union Line to facilitate STRs as we knew them then, which, as we know them now, those are the current rules in place, even though they're unwritten. But we didn't have anything else. GDAR was not in order, hadn't been implemented. So it was just, as you say, an ongoing series of discussions. 209 MR. MORAN: So what were the instructions you were giving to Sapient in order to maintain an appropriate level of flexibility so that, in the event that a GDAR ultimately got issued, you'd be able to accommodate that without significant additional expense? 210 MR. ANDREWS: Well, generally speaking, what we designed was a system that we refer to as being scalable, so that we recognize that -- we knew that there would be future changes, whether those changes would be driven by regulatory compliance or whether they would be driven by the business; in other words, the introduction of new services. 211 But absent having something specific in your hands to say, Okay, I want you to design to these specifications based on these rules, it's difficult to say just how flexible you're going to be at the end of the day. But we recognized that, you know, an add to -- a system to direct purchase, taking a customer from direct purchase to system, in general, is probably going to be a sustainable kind of transaction even through GDAR and we are able to at least accommodate that much. But the specific rules, we did not have those in our hands. 212 MR. MORAN: All right. So the system is designed to accommodate transactions that require customers to be switched from system to marketers; right? 213 MR. ANDREWS: Right. 214 MR. MORAN: From marketer to marketer? 215 MR. ANDREWS: Right. 216 MR. MORAN: And from marketer back to system; right? 217 MR. ANDREWS: Right. 218 MR. MORAN: That's what you were designing for. 219 MR. ANDREWS: Based on the rules at the time, yes. 220 MR. MORAN: Right. And when you look at chapter 4, those are the things that you have to be able to do; right? You have to be able to switch customers from system to marketer, from marketer to marketer, and from marketer back to system; right? 221 MR. ANDREWS: Well, that's correct, Mr. Moran, but there can be a world of difference between the "how" you make those transactions work. And the chapter 4 requirements impose a great deal more process on the -- on those transactions than the current rules that we currently work by. 222 MR. MORAN: All right. So you say there are some gaps, in other words, between the current system and what needs to be in place in order to comply with the rule. 223 MR. ANDREWS: Yeah, because there are gaps between the rules. 224 MR. MORAN: All right. What are those gaps? What are the specific gaps that the IT system doesn't manage? 225 MR. ANDREWS: Sure. I'll give you an example. 226 The rules that we work by today are such that the way we process, let's say, an add to redirect purchase, so a vendor submits an electronic transaction and says, I want to take Mr. Moran and put him on a contract with me. Now, we validate that transaction when it first comes in and we use the account number so that the vendor has correctly included Mr. Moran's account number, and then that transaction is accepted. And once it's accepted, it will be processed and implemented. So we tend to refer to that process as a binary process; in other words, it's either accepted or it's rejected. 227 If you look at the chapter 4 requirements, there's a whole lot more process in place. So what happens today now, under the new rules, is that yes, there will be a validation process, and as you know, the validation now is expected to include the additional information; not just the use of the account number but also a couple of other pieces of information which we have an exemption from the Board for. But once it's validated, then it has to go into a pending state. Well, that has to be coded into your systems so it has to be coded into your databases. That's not there today. 228 Now, it may be pending and there may be some additional information that's required. GDAR says you have 30 days, the vendor has 30 days to basically come forward with that new information. So you have to start an internal clock. That's not there today. 229 That transaction could be overwritten by another STR. There are rescind rules. Rescind rules have 14-day clocks, so you've got clocks within clocks. None of that is there today, and that imposes a great deal more process than what have. You have a number of transitive states; so you have pending states; you have suspended states. All of these things are included in those GDAR rules that are not there today, so it is a much more complicated process. 230 MR. MORAN: All right. So in light of the fact that the GDAR process was unfolding and this -- these issues were being discussed, nevertheless, you chose to go ahead and finalize the Union Line project and wait to see what happened; right? Is that what it comes down to? 231 MR. ANDREWS: Well, our decision to move forward and finalize the Union Line project had nothing to do with the GDAR; it had everything to do with enabling the unbundled service that we said we were going to do, and when we were going to do it. 232 MR. MORAN: Right. And that unbundled service, has it been taken up yet? 233 MR. ANDREWS: No, it has not been taken up, but it will be taken up next spring. 234 MR. MORAN: And that issue was rigorously canvassed in the enabling hearing, wasn't it? 235 MR. ANDREWS: That's true. 236 MR. MORAN: Thank you. 237 At any point did you consider slowing down the build of the Union Line process to accommodate what might come out of GDAR? 238 MR. ANDREWS: No, we really had no reason to do that because we had an ADR settlement that said that we were going to implement that service, and we had no idea how long it would take for the GDAR process to land with a formal role. Business carries on, sir, so we really had to carry on with our business. 239 And we did know that once GDAR landed, we had no doubts whatsoever that we would continue to be able to use Union Line in our existing system to be able to accommodate chapter 4. So it kind of speaks to the flexibility that we had designed into our systems. 240 MR. MORAN: Now, you discussed the issue of exit fees yesterday, and as I understand the proposal that you want to run with, you want to be able to deal with exit fees but you have some concerns about the size of them and you have some concerns about how you would actually go about collecting them and whether you would allocate partial payments to them; right? 241 MR. ANDREWS: Among other concerns, that's correct. We have concerns with respect to what that will do to our own customer equity if customers see these large fees on their bills, yes, we have a number of issues with that. 242 MR. MORAN: But despite those concerns, you have a proposal before the Board that would end up, if accepted, seeing those amounts show up on a bill from Union to a customer; right? 243 MR. ANDREWS: No, I wouldn't characterize it that way. Again, our rationale for putting that into evidence was simply to give the Board a courtesy heads up that even though we're asking them to approve our ability to continue to offer the service, we didn't want to blind side them if, let's say, a month or two later we came up with an enhancement. 244 As I indicated yesterday, this is very much an early work in process. We do not have the internal green light to go ahead with this so we're simply still studying the ramifications of offering this feature and trying to make a determination whether we will go forward or not, and we have not made that decision yet. 245 MR. MORAN: So at this point, then, if I understand you, you're not sure if Union is actually going to put exit fees on its bill. 246 MR. ANDREWS: That is correct. 247 MR. MORAN: Okay. Based on the concerns that you highlighted yet; right? 248 MR. ANDREWS: That's correct. And I think the other issue as well is that, as I mentioned yesterday, that the business model that we're looking at is not one where we would take the collection risk, so perhaps at best it only becomes a billing service. We will put it on the bill, we'll attempt to collect it, we may attempt to collect it for one or two or three months and then we'll revert it back to the marketer. We've had discussions with marketers on that and at the end of the day, I don't know whether or not that will even be acceptable to them. So they may not see that as a value add. 249 MR. MORAN: Okay. If we look at the GDAR as a whole, we've got the STR process and we have the billing options; right? 250 MR. ANDREWS: Right. 251 MR. MORAN: And the billing options focus on the collection of the distribution costs, right, and the commodity costs, those two costs? 252 MR. ANDREWS: Yes. 253 MR. MORAN: And that's in the context of having a situation where you've got a customer who has signed up with a marketer and therefore, there's an agreement that you're not a party to between the marketer and the customer with respect to the commodity; right? 254 MR. ANDREWS: That's right. 255 MR. MORAN: And sometimes in those agreements, there's a provision made for exit fees; right? 256 MR. ANDREWS: Yes, that's my understanding. 257 MR. MORAN: All right. So if somebody exits a contract for whatever reason, there may be an issue, a dispute between the customer and the marketer; right? 258 MR. ANDREWS: Yes. 259 MR. MORAN: And that dispute may involve an exit fee; right? 260 MR. ANDREWS: Yes, I -- yes. 261 MR. MORAN: And would you agree that by putting the exit fee on the bill, that you're becoming involved in that dispute peripherally at least? 262 MR. ANDREWS: Well, yeah, we're definitely becoming involved. We would certainly be a party in the middle, but we wouldn't be involved to the extent that we would mediate that dispute or anything like that. 263 MR. MORAN: No, but from the customer's perspective, whatever issue they have with the marketer, they're now looking at you, the distributor, trying to bill them for the amount that they're disputing with the marketer; right? 264 MR. ANDREWS: Yes, in a regard, I agree, yes. 265 MR. MORAN: And if we look at the rule, and the rule is in the evidence, right, it's attached at appendix A to Exhibit D.1, tab 12? 266 MR. ANDREWS: That's correct. 267 MR. MORAN: If you could just turn that up, please, at section 4.1. 268 MR. ANDREWS: What section was that, Mr. Moran? 269 MR. MORAN: In a moment I'll take to you a specific section, I just wanted to have it ready. 270 MR. ANDREWS: I have it. 271 MR. MORAN: So there's a contract between the marketer and the customer; right? 272 MR. ANDREWS: Yes. 273 MR. MORAN: That's a two-way relationship; right? 274 MR. ANDREWS: Yes. 275 MR. MORAN: The customer has obligations and rights? 276 MR. ANDREWS: Yes. 277 MR. MORAN: And the marketer has obligations and rights? 278 MR. ANDREWS: Yes, presumably. 279 MR. MORAN: And sometimes the relationship will break down and there's a dispute and for whatever reason one or other of those parties may choose to terminate the contract; right? 280 MR. ANDREWS: Presumably, yes. 281 MR. MORAN: Or get out of it. There may be a breach, there may be a dispute, but that's between the two of them. 282 MR. ANDREWS: That's correct. 283 MR. MORAN: And then if we look at part 4.1.3 of the rule, it says that: 284 "Nothing in chapter 4 of this rule shall be interpreted as in any way interfering with the contractual rights or obligations of gas distributors, gas vendors, or consumers, or the remedies available to gas distributors, gas vendors, or consumers to enforce those contractual rights or obligations." 285 Right? 286 MR. ANDREWS: Yes. 287 MR. MORAN: Would you agree that by putting an exit fee on a bill that you might be affecting the remedies available to either consumers or marketers? 288 MR. SMITH: Well, that seems like a legal question. 289 MR. ANDREWS: I have to agree with that, Mr. Moran, I'm not a lawyer, I'm not a legal expert. 290 MR. MORAN: That's fine you've already agreed that by putting it on the bill you're getting involved in some way in any event; right? 291 MR. ANDREWS: Yes. 292 MR. MORAN: And by trying to bill the exit fee, it would look like you're taking the side of the marketer, at least for the purposes of the requirement to pay the exit fee; isn't that fair? 293 MR. ANDREWS: Well, I wouldn't characterize it as taking the side of the marketer, I would characterize it as if we did offer the service, much like today with ABC we have an agreement that we will put the commodity on the bill, transportation on the bill, storage on the bill and perhaps the exit fee, so I wouldn't say we're taking their side, we're fulfilling our obligation by virtue of the collection-service agreement that we have with the marketer. 294 MR. MORAN: All right. So there's something in a collection-service agreement that says, if the marketer wants to charge an exit fee you have to put it on the bill; is that correct? 295 MR. ANDREWS: Well, we don't have that language in the collection-service agreement now, but yes, it would have to reflect that, yes. 296 MR. MORAN: And one of the other requirements under the rule is to come up with service agreements; isn't that correct? 297 MR. ANDREWS: Yes, chapter 3 requirement does require a service agreement. 298 MR. MORAN: Okay. And is this issue being addressed in the context of what would go into the service agreement? 299 MR. ANDREWS: This issue of exit fees. 300 MR. MORAN: Yes. 301 MR. ANDREWS: No. 302 MR. MORAN: It's not. 303 MR. ANDREWS: No, what we're doing with chapter 3 is that we're simply looking at how we will construct the service agreement, but the issue of exit fee hasn't entered into our thinking or discussions at this point. 304 MR. MORAN: So you're not at the content part of the process yet; is that what you're saying? 305 MR. ANDREWS: As far as the service agreement for chapter 3, it's a work in progress. 306 MR. MORAN: All right. So theoretically the service agreement could say, Whoever is responsible for doing the billing will collect the exit fees; right? Or alternatively, whoever is doing the billing won't collect the exit fees. Those will be the two options; right? 307 MR. ANDREWS: Yeah, I think it's fair to characterize our situation with the chapter 3 service agreement construction that we're not looking to recreate things that are already there. So I earlier referred to our collection-service agreement which is where we would likely see any new language associated, perhaps, with exit fees. I frankly, at this point, because we haven't had an internal legal review, I don't know if there would be any changes required, but that would happen in the collection-service agreement not the service agreement we've referenced in chapter 3. 308 MR. MORAN: All right. The collection-service agreement you would have with a marketer is a way of regulating the relationship between you and the marketer; right? 309 MR. ANDREWS: Well, it's a contract for a service. 310 MR. MORAN: That's right. 311 MR. ANDREWS: I'm not sure when you say "regulate." 312 MR. MORAN: Maybe that's the wrong word. It governs the relationship between you and the marketer; right? 313 MR. ANDREWS: With respect to providing the billing and collection service, yes. 314 MR. MORAN: Right. And chapter 3 of the rule is entitled Gas Distributor/Gas Vendor Relations; right? 315 MR. ANDREWS: Yes. 316 MR. MORAN: So are you suggesting that the collection-service agreements are some how outside the scope of chapter 3 and not to be considered therefore? 317 MR. ANDREWS: No, not at all, Mr. Moran. I think what I was trying to speak to was how we were going to construct the service agreement under chapter 3 rather than simply get rid of the existing contracts we have in place. We have a collection- service agreement, we also have the bundle-T transportation agreement. I think our thinking right now is that the agreement reference in chapter 3 will likely be an umbrella contract which will reference existing contracts and then incorporate anything new and the new piece, I think, would be references to chapter 4. 318 MR. MORAN: Okay. Could you turn up chapter 3, the rule, please, page 5. Looking at section 3.2.2, it says a service agreement shall at a minimum include the following matters and then we have a list of things; isn't that correct? 319 MR. ANDREWS: Yes, that's correct. 320 MR. MORAN: And if you go down to the fifth bullet point, it says: 321 "Terms and conditions of billing arrangements including payment, interest and overdue accounts, and account finalization procedures." 322 Do you see that? 323 MR. ANDREWS: I see that. 324 MR. MORAN: Would you agree that that would cover the issue of exit fees? 325 MR. ANDREWS: It would cover the provision of a billing and collection service, yes. 326 MR. MORAN: Right. So to the extent that exit fees are an issue in the billing context, you'd have to think about it; right? 327 MR. ANDREWS: That's correct. 328 MR. MORAN: And at a minimum, the service agreement would have to deal with it; right? Well, that's what 3.2.2 says. 329 MR. ANDREWS: No, I agree. But as I said earlier, the actual construction of the service agreement may be such that we aren't going to reproduce or recreate what's already there in the collection service agreement. So the service agreement that will emerge from chapter 3, our plan at this point is to simply reference, make a reference to the collection service agreement. 330 MR. MORAN: All right. So you may adopt the existing agreements as the service agreements for the purpose of compliance with chapter 3? 331 MR. ANDREWS: That's correct. 332 MR. MORAN: All right. I gotcha. And I think you indicated that, right now, the current service agreements don't include language with respect to exit fees? 333 MR. ANDREWS: Well, there's nothing specific in the language in the current collection service agreement that would reference or speak to exit fees. But, again, absent an internal legal review, I don't know whether or not we would need to include anything more than what's already there. Again, because this is very much an early work in progress, we haven't got to the point yet where we're examining the contractual language of your collection service agreement. 334 MR. MORAN: Right. And that kicks in, I guess, consideration of 3.2.1 of the rule which talks about a service agreement that's in a form approved by the Board. Presumably, the current collection service agreements are not approved by the Board; right? 335 MR. ANDREWS: That's correct. 336 MR. MORAN: And what's the process for getting that Board approval that you envisage at this time? 337 MR. ANDREWS: Getting Board approval for the service agreements? 338 MR. MORAN: The service agreements. But for the form of service agreement as required by 3.2.1. 339 MR. ANDREWS: Well, there is a requirement for the service agreement to go into force December 1st of this year, so that is our plan at this point. Now, the Board had -- there was a requirement that we were supposed to file a draft of that service agreement in April of this year, but the Board waived that requirement. So at this point I'm not entirely sure just what the process is, going forward, given that we have an implementation but we don't have a -- no longer have the requirement to file the drafts. 340 MR. MORAN: No, that's fair. 341 Now, with respect to chapter 6, it's currently under appeal; it was appealed to the Divisional Court and the appeal was dismissed; right? 342 MR. ANDREWS: That's right. 343 MR. MORAN: And Union and Enbridge are currently seeking leave to appeal to the Court of Appeal. 344 MR. ANDREWS: That's right. 345 MR. MORAN: Since the appeal was dismissed, of course, the rule is in force and chapter 6 is part of that rule that requires compliance. What is your plan with respect to the system requirements that are required to accommodate the three billing options? Presumably you can already accommodate what you're doing because you're doing it; right? This is the distributor-consolidated billing and the split billing. 346 MR. ANDREWS: That's right. 347 MR. MORAN: So what's left with respect to -- in terms of system requirements, with respect to accommodating vendor-consolidated billing? As I understand it, it's a question of providing volume data and meter data to the vendor so that they can prepare their own bill; right? 348 MR. ANDREWS: Well, quite frankly, Mr. Moran, I really don't know what's required for vendor-consolidated billing, and the reason I say that is because, if you take a look at chapter 4 for the service transaction requests, there are some 60 articles in there that go along way to articulating the specific rules, the "how" in terms of how we're going to process service transaction requests. 349 If you look at chapter 4, there's a simple reference to, you know, you will offer vendor-consolidated billing. At this point I really don't know what that means. I don't know the rules under which we're going to do that. So at this point I can't simply take chapter 6, give it to Sapient and say, There you go. Build it. 350 MR. MORAN: All right. So have you turned your mind to it? 351 MR. ANDREWS: No. 352 MR. MORAN: No, all right. Now, in the RP-2000-0078 decision, the Board indicated the following at paragraph 5.6.5: 353 "An important element of the value of the proposed system changes is the ability of the proposed changes to be leveraged to enable marketer-consolidated billing and other services in the future and without significant further design, expenditure or delay. The Board expects that the systems developed to enable access to unbundled services, which are the subject of this proceeding, will be able to be relied upon to accommodate marketer-consolidated billing without significant system change or significant additional expenditure, in the event that such functionality may be required." 354 So if I understand the answer to my last question, you really haven't turned your mind to what, in fact, the Board wanted you to turn your mind to back in July of 2002; is that fair? 355 MR. ANDREWS: I'm not sure I'm clear in terms of what you think the Board wanted us to turn our minds to back in July of 2002. 356 MR. MORAN: Did you not understand what this paragraph meant? 357 MR. ANDREWS: This paragraph didn't say that we had to design a solution for vendor-consolidated billing, but we did design a solution to enable the unbundled service. And we do know that if and when we do have to offer or we will facilitate vendor-consolidated billing, we will use the same systems that we are currently using today. It will be a combination of our contract system, Banner system, and Union Line, so that much we do know. 358 MR. MORAN: All right. But in asking you to turn your mind to that issue in paragraph 5.65 in its decision of July 2002, what did you do to turn your mind to that issue and -- when you were dealing with Sapient? 359 MR. ANDREWS: Well, again, absent having any specific design requirements or business requirements in front of you, not knowing what the business model is going to be for vendor-consolidated billing, there isn't a whole lot you can do; other than the fact that we knew now, as we do know now, that we will utilize those same systems if and when we do offer the vendor-consolidated billing. 360 So you try to be as flexible as possible, but, again, we had nothing in front of us to be able to say, well, this is exactly what it's going to look like, you know, if and when that time does come. 361 MR. MORAN: All right. You were able to accommodate the distributor-consolidated billing; right? 362 MR. ANDREWS: Yes. 363 MR. MORAN: And that's part of what was designed into Union Line; right? 364 MR. ANDREWS: That's correct. 365 MR. MORAN: And when that was being designed and built into Union Line, what consideration was being given in order to ensure flexibility for vendor-consolidated billing in the event that that might be required? 366 MR. ANDREWS: The only flexibility, the only issue on flexibility is whether or not we would be using the same systems. But, again, you don't -- we didn't have anything in front of us. We didn't have any design specifications. We had nothing in front of us to tell us exactly what it would look like, and I can't stress that point too often, Mr. Moran. Unless we know the specific business requirements, then you really don't know exactly what you're going to be getting into if you -- down the road when you do have to offer the service. 367 MR. MORAN: Well, what's involved here for marketer-consolidated billing, the marketer needs access to the volumes that are metered; right? 368 MR. ANDREWS: Well, I think you have to ask yourself, just what is this model going to look like. When you talk about billing, you know, is it just creating and rendering a bill, or is it managing all of the customer interfaces, all of the points of contact that you could have with a customer? So, for example, if a customer calls and says, I want to change the service address, will that model contemplate a situation where the consumer will call the vendor first? 369 I mean, we heard a lot about billing is about relationship management, and managing the relationship with the consumer goes well beyond just rendering a bill. So we don't know if this model -- if the vendors want to basically manage all of those touch points, in which case it isn't just about sending volumes and sending metering information, you're changing your entire business model around the customer contact. We just don't know that. 370 MR. MORAN: If the marketer wants to be responsible for customer contacts, what does that have to do with Union Line? 371 MR. ANDREWS: It has everything to do with Union Line, because if the consumer, for example -- you know, if the vendor says, Listen, you know, if the customer changes the service address, we want to manage this relationship so we want them to call us first, whether it's to change service address; maybe to move a meter, whatever that may be. We have to know about this, so our presumption is that we will then get instructions from the vendor, through Union Line, basically informing us of what their customers -- what their customers want to have done. 372 MR. MORAN: And Union Line has been set up for that purpose, to allow access to marketers, right, to get information from the Union system? 373 MR. ANDREWS: It has been set up with specific data requests in mind. So it isn't just a general system where you can just simply submit any request for any piece of data. It has to be built so that today we can handle STRs, but let's say if a vendor wants to submit a change of address request, that's not built in yet. The general capability is there but not for that specific transaction. 374 MR. MORAN: All right. So if I understand what you've said, essentially you're waiting to see where things lead to between Union and the marketers before you figure out how you're going to comply with chapter 6, the billing chapter. 375 MR. ANDREWS: I think first we have to see where the court case goes and depending where that goes, I guess that will determine, I guess, the future path. 376 MR. MORAN: Leaving aside the court case, assuming that you have to comply, you're waiting essentially to see what shakes out. You didn't deal with the issue in any particular way from a design perspective? 377 MR. ANDREWS: That's correct because we don't have a good idea in terms of what the business model is, so our approach would be that we want to work with the vendor who has the capability to bill and we would drive out what that business model would look like. 378 MR. MORAN: All right. Now, the rate-rider functionality issue, what's the dollar figure again? I don't recall the dollar figure associated with that. 379 MR. ANDREWS: I'm really not the witness responsible for that, sir. Sorry. 380 MR. MORAN: Who would the witness be? 381 MR. SMITH: That's Mr. Shervill. 382 MR. MORAN: Shervill. Thank you. So your part of the Banner software has to do with GDAR chapter 4 compliance, that's the $540,000 one-time O&M charge; right? 383 MR. ANDREWS: That's correct. 384 MR. MORAN: All right. Now as I understand it, the Banner software was originally in the hands of an affiliate of Union's, Enlogix? 385 MR. ANDREWS: Yes, that's correct. 386 MR. MORAN: And now it's a third party that's dealing with it, a party called ADS? 387 MR. ANDREWS: Alliance Data Systems, yes, ADS. 388 MR. MORAN: The Banner software, in fact, was sold to ADS, is that what happened? 389 MR. ANDREWS: I believe so, yes. 390 MR. MORAN: And with respect to the need to upgrade the Banner software that this third party owns, the price tag associated with that is $540,000? 391 MR. ANDREWS: That's correct. 392 MR. MORAN: All right. And you're treating it as an O&M expense; right? 393 MR. ANDREWS: Yes, we are. 394 MR. MORAN: But for their purposes, it's an enhancement to a capital asset; right? 395 MR. ANDREWS: Yes, it is. 396 MR. MORAN: So their capital asset enhancement is your O&M expense, in other words? 397 MR. ANDREWS: Yes. 398 MR. MORAN: All right. Now, they have a service agreement with you; right? 399 MR. ANDREWS: Yes, they do. 400 MR. MORAN: For which they charge a fee for the services that they provide. 401 MR. ANDREWS: Yes, they do. 402 MR. MORAN: And what's the term, remaining term in that contract? 403 MR. ANDREWS: I am not the expert. I don't manage that contract, Mr. Moran. 404 MR. MORAN: You don't know how many years are remaining on that contract? 405 MR. ANDREWS: No, I don't. 406 MR. MORAN: Perhaps your counsel can assist you, I don't think so it's particularly controversial. 407 MR. SMITH: I don't know the answer. The contract is on the record in the evidence, but I don't have it in front of me. 408 MR. MORAN: All right. Was any consideration given to simply renegotiating the fee to accommodate this cost so that it would be spread over the remaining life of the contract? 409 MR. ANDREWS: I'm not aware of -- I'm not aware of the nature of the discussions that would have taken place between the group and our company that's responsible for administering that contract and ADS. 410 MR. MORAN: Who is responsible in Union for administering that contract? 411 MR. ANDREWS: It resides in our asset operations group. 412 MR. MORAN: And is there a panel that will be able to speak to this issue? 413 MR. ANDREWS: I'm not aware that there is. 414 MR. MORAN: ADS owns the software, it's a capital asset of theirs, they charge a fee that's presumably intended to recover their investment with a return; right? 415 MR. ANDREWS: I presume so. 416 MR. MORAN: And there is a capital enhancement to their capital asset. Wouldn't it make sense for the fee to cover this issue as opposed to a one-time O&M charge? 417 MR. ANDREWS: Well, again, I'm not the expert on that contract, but I would suggest that in order for the -- they're going to spend money to make those enhancements, so they're going to have to recover those costs one way or another. 418 MR. MORAN: Sure. 419 MR. ANDREWS: So whether they increase their fee or whether they charge a one-time charge, there's a couple of ways that you could do that. 420 MR. MORAN: Right. Would you be able to -- I know you won't have this information, but if it were to be added to the fee and amortized, in effect, over the remaining life of the contract, could you indicate what the increase, the O&M expense increase would be associated with that scenario? 421 MR. ANDREWS: I guess I could try. I'm just not familiar enough with the contract and the terms and conditions. 422 MR. MORAN: You might have to draw assistance within the company -- 423 MR. ANDREWS: It's not a question of might have to. 424 MR. MORAN: You would have to. 425 MR. SMITH: Sorry, I understand, Mr. Chairman, that Union's been advised that ADS is not actually prepared to do that, to increase the fee. Now, it's a separate question as to whether or not Union should amortize the $540,000, but the practical reality is ADS is not prepared to increase the fee to recover the $540,000. 426 MR. MORAN: Why don't we put it this way, Mr. Andrews, if you were to amortize this $540,000 over the remaining life of the existing contract, how much would you be claiming in O&M or seeking to recover as an O&M expense in place of the 540,000? 427 MR. ANDREWS: I don't know because I don't know the remaining term of the contract. 428 MR. MORAN: Right, but presumably you can find that out and get whatever assistance you need to provide that information. Would you be able to do that, please? 429 MR. ANDREWS: I just want to make sure I'm clear. So you simply want me to divide 540 by the remaining years of the term of the contract? Yeah, I can do that. 430 MR. MORAN: Thank you. 431 Mr. Chair, that would be Undertaking N.11.2, an undertaking to provide what the O&M expense would be for 2004 if the $540,000 was amortized over the remaining life of the contract. 432 UNDERTAKING NO. N.11.2: TO PROVIDE WHAT THE O&M EXPENSE WOULD BE FOR 2004 IF THE $540,000 WAS AMORTIZED OVER THE REMAINING LIFE OF THE CONTRACT 433 MR. SOMMERVILLE: Thank you, Mr. Moran. 434 MR. MORAN: Now, with respect to the 540,000 itself, how did that figure arise? Did the folks at ADS say, All right, we understand what we are you're looking for and here is what it's going to cost you. Is that basically how the process unfolded? 435 MR. ANDREWS: Yeah, basically I was not a party to those negotiations or discussions, but there would have been a separate statement of work that would have been created essentially the contract with ADS to make the necessary systems changes to Banner and what we would have had to have done was we would have had to provide them with those specifications but the way we went about that was that they participated in the design phase with Sapient, it was a nine-week engagement, so they had a representative in the room so they could hear firsthand what it was that we needed to have done to Banner to accommodate chapter 4 requirements. And we had already made an estimate of those costs, but as a result of that, that allowed them to basically come up with a price tag for those changes. 436 MR. MORAN: All right. Are they using Sapient to do this work or are they using someone else? 437 MR. ANDREWS: No, they're not using Sapient. The reason I referenced Sapient is that during the design phase when you bring together a number of people you bring together you have the Sapient personnel, you have the Union IT personnel, you have the subject matter experts at Union Gas, and we also invited ADS to participate so they could hear what was being designed so, in other words, for them they have to understand what's in scope for them with respect to the impact to Banner then they can take that back, but they will do the work themselves, I presume. 438 MR. MORAN: All right. What steps did you take to ensure that the $540,000 was, in fact, a reasonable charge? 439 MR. ANDREWS: Well as I said, Mr. Moran, I was not a party to those negotiations or discussions so I relied upon those who administered and managed that relationship to basically, I think, affect the reasonable price.