Rep: OEB Doc: 12WWB Rev: 0 ONTARIO ENERGY BOARD Volume: 14 27 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 27 OCTOBER 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel JAMES WIGHTMAN Board Staff CRAWFORD SMITH Union Gas Limited MARCEL REGHELINI Union Gas Limited MIMI SINGH CME RANDY AIKEN London Property Management Association, Wholesale Gas Service Purchasers Group BRIAN DINGWALL Energy Probe, HVAC Coalition, Distributed Energy Association PETER SCULLY City of Timmins, City of Sudbury, FNOM ROBERT ROWE Enbridge Gas Distribution Inc. PETER THOMPSON Industrial Gas Users Association ALICK RYDER City of Kitchener ROBERT WARREN Consumers Association of Canada JAY SHEPHERD Ontario Public School Boards Association DWAYNE QUINN City of Kitchener MICHAEL JANIGAN VECC 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [18] UNION GAS LIMITED - PANEL 9; HYATT, FAY, SANDERS, SHERVILL [28] EXAMINATION BY MR. SMITH: [33] CROSS-EXAMINATION BY MR. WARREN: [104] CROSS-EXAMINATION BY MR. RYDER: [255] CROSS-EXAMINATION BY MR. JANIGAN: [590] CROSS-EXAMIANTION BY MR. SHEPHERD: [950] CROSS-EXAMINATION BY MS. SINGH: [1055] CROSS-EXAMINATION BY MR. THOMPSON: [1174] 10 EXHIBITS 11 EXHIBIT NO. M.14.1: NATIONAL POST ARTICLE DATED OCTOBER 9, 2003, "HOUSING STARTS MAY HIT 14-YEAR HIGH" [655] EXHIBIT NO. M.14.2: MOCK-UP OF ENBRIDGE GAS DISTRIBUTION BILL [890] EXHIBIT NO. M.14.3: CROSS-EXAMINATION REFERENCE BOOK, PANEL 9, FROM THE ONTARIO PUBLIC SCHOOL BOARDS' ASSOCIATION [948] EXHIBIT NO. M.14.4: SPREADSHEET ENTITLED, "CUSTOMER ADDITIONS DATED 24 OCTOBER 2003" [1067] 12 UNDERTAKINGS 13 UNDERTAKING NO. N.14.1: TO PROVIDE A RECONCILIATION BETWEEN THE 5 BCF REFERRED TO BY MR. NEWBURY IN VOLUME 9, AT PARAGRAPH 1137, WITH THE 3.3 BCF OF CONTINGENCY SPACE SHOWN ON EXHIBIT J.5.61 [385] UNDERTAKING NO. N.14.2: TO PROVIDE THE MARCH 1ST AND MARCH 31ST PLANNED AND ACTUAL CONTROL POINT LEVELS FOR THE YEARS 1999 TO 2004 INCLUSIVE [581] UNDERTAKING NO. N.14.3: TO ADVISE WHAT CMHC OUTLOOK THE BLUE-PAGE UPDATE REFLECTS AND WHETHER OR NOT THERE ARE ANY CHANGES REFLECTED IN THE NEW CMHC OUTLOOK [651] UNDERTAKING NO. N.14.4: TO PROVIDE YEAR-TO-DATE SEPTEMBER ATTACHMENT NUMBERS [679] UNDERTAKING NO. N.14.5: TO COMPUTE THE IMPACT UPON THE O&M EXPENDITURES PROJECTED FOR 2004 IN THE EVENT THAT THE PREVIOUS PRACTICE OF AMORTIZATION OF PIPELINE INTEGRITY O&M EXPENDITURES OVER FOUR YEARS HAD BEEN MAINTAINED [768] UNDERTAKING NO. N.14.6: TO PROVIDE FURTHER DETAIL AS TO THE FLEXIBILITY OF THE CURRENT UNION SYSTEM TO DEAL WITH MISCELLANEOUS CHARGES [885] UNDERTAKING NO. N.14.7: TO PROVIDE THE ACTUAL CAPITAL AND O&M EXPENDITURES ON THE PIPELINE INTEGRITY MANAGEMENT PROGRAM FOR 1999 [1139] 14 --- Upon commencing at 9:39 a.m. 15 MR. SOMMERVILLE: Thank you, please be seated. 16 Thank you, this is the continuation of the Union Gas application for rates for 2004. 17 Are there any preliminary matters that we need to deal with before we begin the examination and cross-examination of the next panel? 18 PRELIMINARY MATTERS: 19 MR. SMITH: Yes, Mr. Chairman, there are four undertakings that Union Gas has provided answers to and they are Exhibit N.6.10, Exhibit 6.12, Exhibit N.8.4, and Exhibit 9.10, and those have been circulated and they are at the back of the room as well. 20 MR. SOMMERVILLE: Thank you. 21 MR. SMITH: There is one other preliminary matter. 22 Mr. Shepherd delivered some cross-examination materials for this panel earlier this morning. I've not had an opportunity to review those. I've spoken to my friend, Mr. Shepherd, and his cross-examination will be put off at least until the afternoon so I'll have had an opportunity to review that at lunch. 23 MR. SOMMERVILLE: Thank you very much. Is there anything else? 24 I note that we do have some revised times for cross-examination and that probably, almost certainly means that our Thursday day off will be a day on and that we will have to sit on Thursday and not have the day off on Thursday. 25 So if that creates any specific difficulties, please indicate them now or at the not too distant future, because we will make a definite decision on that, probably before the end of today. 26 Mr. Smith. 27 MR. SMITH: Thank you, Mr. Chairman. If I could have the panel members sworn. 28 UNION GAS LIMITED - PANEL 9; HYATT, FAY, SANDERS, SHERVILL 29 L.HYATT; Sworn. 30 B.FAY; Sworn. 31 J.SANDERS; Affirmed. 32 P.SHERVILL; Previously sworn. 33 EXAMINATION BY MR. SMITH: 34 MR. SMITH: Mr. Hyatt, I understand that you are the manager of system planning at Union Gas. 35 MR. HYATT: That's correct. 36 MR. SMITH: And you've been in that position since 2002. 37 MR. HYATT: That's correct. 38 MR. SMITH: And I gather you've been with Union since 1973. 39 MR. HYATT: That's correct. 40 MR. SMITH: And you have a bachelor of applied science in civil engineering from the University of Windsor. 41 MR. HYATT: Yes, I do. 42 MR. SMITH: And I understand you've testified before this Board on a number of occasions, most recently in RP-2000-0017. 43 MR. HYATT: That's correct. 44 MR. SMITH: And are you responsible for the preparation of evidence at B.1, tab 4? 45 MR. HYATT: Yes, I was. 46 MR. SMITH: And were you responsible for the preparation of interrogatories in response to that evidence? 47 MR. HYATT: Yes, I was. 48 MR. SMITH: And do you adopt that evidence? 49 MR. HYATT: Yes, I do. 50 MR. SMITH: Mr. Fay, I understand you're responsible for Union's storage facilities? 51 MR. FAY: That is correct. 52 MR. SMITH: And I understand that you have a BSc in civil engineering from University of Waterloo. 53 MR. FAY: That is correct. 54 MR. SMITH: And you obtained that in 1980? 55 MR. FAY: Yes, I did. 56 MR. SMITH: And I understand that you were responsible for the preparation of evidence at B.1, tab 6. 57 MR. FAY: That's correct. 58 MR. SMITH: And responsible for the preparation of interrogatories in respect of that evidence. 59 MR. FAY: Yes. 60 MR. SMITH: And do you adopt that evidence? 61 MR. FAY: I do. 62 MR. SMITH: Mr. Fay, I understand that there are a couple of corrections you'd like to make to your evidence. 63 MR. FAY: I have two changes to my evidence as a result of some blue-page updates. 64 In my prefiled evidence, Exhibit B.1, tab 6, page 1 of 3, line 7, $1.85 million should read $1.68 million. This change is to reflect the blue-page update to B.3, tab 2, schedule 2, page 2 of 6. And in addition, on page 3 of 3 on line 15 of my prefiled evidence, the $959,000 should read actual cost of $508,000. This change reflects the blue-page update of Exhibit B.4, tab 2, schedule 2, page 2 of 6. I have no further changes to my evidence. 65 MR. SMITH: Subject to those corrections, do you adopt your evidence? 66 MR. FAY: Yes, I do. 67 MR. SMITH: Thank you. 68 Mr. Sanders, I understand that you are the manager of operations engineering in Union Gas? 69 MR. SANDERS: That's correct. 70 MR. SMITH: And I understand that you've been in that position since 2000? 71 MR. SANDERS: Yes, I have. 72 MR. SMITH: And I understand you've been with Union Gas since 1981, with the exception of a brief period with the Nuclear Activation Services Limited? 73 MR. SANDERS: That's correct. 74 MR. SMITH: And I understand that you have a bachelor of applied science in civil engineering from the University of Waterloo. 75 MR. SANDERS: Yes, I do. 76 MR. SMITH: And I understand that you were responsible for the preparation of evidence at B.1, tab 5? 77 MR. SANDERS: That's correct. 78 MR. SMITH: And you were responsible for the preparation of interrogatories in respect of that evidence? 79 MR. SANDERS: Yes, I was. 80 MR. SMITH: And do you adopt your evidence? 81 MR. SANDERS: I do. 82 MR. SMITH: Mr. Shervill, I understand that you've previously testified in this proceeding? 83 MR. SHERVILL: Yes. 84 MR. SMITH: And you are the director of channel management, Union Gas. 85 MR. SHERVILL: Yes. 86 MR. SMITH: And you have been since 1999? 87 MR. SHERVILL: Yes. 88 MR. SMITH: And on this subject that we're dealing with today, I understand you've been responsible for the preparation at B.1, tab 3? 89 MR. SHERVILL: That's right. 90 MR. SMITH: And D.1, tab 10. 91 MR. SHERVILL: That's correct. 92 MR. SMITH: And were you responsible for preparing answers to interrogatories in respect of that evidence? 93 MR. SHERVILL: Yes, I was. 94 MR. SMITH: And do you adopt that evidence. 95 MR. SHERVILL: I do. 96 MR. SMITH: I understand that you have a slight typographical error that you'd like to correct on the record. 97 MR. SHERVILL: Yes, at Exhibit D.1, tab 10, page 1 of 3, at line 12, the line reads: "These four charges include delivery, storage, transportation... And rather than "a fixed monthly charge," it should be changed to a "commodity charge." 98 MR. SMITH: And is that consistent with your white-page evidence? 99 MR. SHERVILL: Yes, it is. 100 MR. SMITH: Thank you, Mr. Shervill. 101 Mr. Chairman, there being no other matters for examination in chief, I tender this panel for this cross-examination. 102 MR. SOMMERVILLE: Thank you. 103 Mr. Warren. 104 CROSS-EXAMINATION BY MR. WARREN: 105 MR. WARREN: Panel, my name is Robert Warren, and I appear for the Consumers' Association of Canada, and I have questions in two areas. One is the pipeline integrity management program and the second is the rate rider, so I guess, Mr. Sanders and Mr. Shervill, you are the two who are responsible respectively for those areas; is that correct? 106 MR. SANDERS: That's correct. 107 MR. WARREN: Mr. Sanders, can I begin with you with the pipeline integrity management program. I'd like to begin first by getting the numbers to make sure I understand the numbers. 108 As I understand the blue-page update evidence which appears at Exhibit B.1, tab 5, appendix D, you are seeking to recover in this proceeding $9.3 million in capital and $6.5 million in O&M costs; is that correct? 109 MR. SANDERS: Yes, that's correct. 110 MR. WARREN: In addition to which, do I understand it, Mr. Sanders, that there is an amount for which you're seeking recovery in respect of the 2003 deferral account? 111 MR. SANDERS: That's correct. 112 MR. WARREN: And reading again Exhibit B.1, tab 5, appendix A, is that amount approximately $3.3 million? 113 MR. SANDERS: Yes, that's right. 114 MR. WARREN: So the total amount in respect of the pipeline integrity management program you're seeking to recover is some approximately $19 million; is that correct? 115 MR. SANDERS: That's correct. 116 MR. WARREN: And finally, sir, do I understand it that you are proposing seeking Board approval to end the deferral account for the pipeline integrity management program; is that correct? 117 MR. SANDERS: That's right. 118 MR. WARREN: I'd like to begin briefly, Mr. Sanders, with what I understand from your prefiled evidence is the origin or providence of this program which is the coming in force of Ontario regulation 210-01; is that correct? 119 MR. SANDERS: That's correct. 120 MR. WARREN: And could you describe very briefly for me, Mr. Sanders, exactly what it is that structure of that -- first of all what the structure of the regulation is and secondly, precisely what it is it requires in respect of pipeline integrity management? 121 MR. SANDERS: I'll do my best. The regulation that was brought into effect was to manage and deal with the specific category of pipelines that operates at a specified minimum yield stress of greater than 30 percent. For those pipelines, this regulation required a management system to inspect those pipelines using a method of in-line inspection and direct assessment that previously was not in place on a wide-scale basis across Union's facilities. 122 In addition to that, the regulations require -- 123 MR. WARREN: Sorry. May I interrupt you at that point. What you have said is the in-line inspection and direct assessment, is that the action which has the odd verb "pig-to-pig"? 124 MR. SANDERS: Yes, it does. The device is commonly referred to as a pig, or the process is pigging the pipelines. 125 MR. WARREN: So pigging is in-line inspection; is that correct? 126 MR. SANDERS: Yes, it is. 127 MR. WARREN: Thank you. Sorry for that. Go ahead, please. 128 MR. SANDERS: Okay. So the second component of that would be a records management system around those facilities and that process. The third component would be the condition monitoring program which includes the in-line inspection and the direct-assessment methods, as well as some other operating practices, it would be around that operation. And finally a mitigation program, and that mitigation program would consist of the repairs, the remediations that would result through the inspection or condition monitoring. 129 MR. WARREN: Would I correct in understanding, Mr. Sanders, that the practical effect of the regulation is not to require you to replace pipe but rather to inspect it and to replace it or otherwise repair it if necessary; is that fair? 130 MR. SANDERS: That's fair. 131 MR. WARREN: Now, if you could turn up briefly an interrogatory -- a response to an interrogatory from my client, it's Exhibit J.7.16. 132 MR. SANDERS: Okay. 133 MR. WARREN: Mr. Sanders, if you could begin by looking at page 3 of 3 of that exhibit. You were asked to project the cost for each of the ten years of the integrity management program. First of all by way of preliminary, am I correct in understanding that it is anticipated that this program will last 10 years? 134 MR. SANDERS: That's correct. 135 MR. WARREN: And will you accept, subject to check, that the 10-year forecast cost is something in the order of about $150 million in total? 136 MR. SANDERS: Yeah, that's approximately correct, yeah. 137 MR. WARREN: Okay, thanks. 138 Now, if you could just, stay with that exhibit for a moment, and going back to page 1 of 3. In order to complete this, Mr. Sanders, if you could have also your prefiled evidence at Exhibit B.1, tab 5, appendix D. 139 MR. SANDERS: Okay. 140 MR. WARREN: Now, as I understand -- I'm looking, Mr. Sanders, and members of the panel, at Exhibit J.7.16 in the answer portion in that section which is headed, "line 2 remediation for lines pigged in 2004." And this is a breakout, as I understand it, Mr. Sanders, of the numbers that appear on Exhibit B.1, tab 5 appendix D in certain categories; is that correct? 141 MR. SANDERS: Yes, that's correct. 142 MR. WARREN: Okay. Now, looking at column A on the appendix D, you were forecasting for 2004 certain expenses in categories -- sorry, column A, line 1 is making lines pigable and complete pigging, that is the obligatory inspection process; is that correct? 143 MR. SANDERS: Not exactly. A number of the pipelines that we have in service were not constructed to accept an in-line inspection tool, therefore we have to remove certain fittings and sections of the pipeline to allow the device to pass through the pipeline. So that would actually be the capital cost and construction process. 144 MR. WARREN: Okay. And your evidence is that that is required in order to comply with a mandatory component of the regulation; is that correct? 145 MR. SANDERS: Yes, it is. 146 MR. WARREN: Now, if I look at the second line, remediation for lines pigged in 2004, that is a cost and it's some $1.6 million in capital and O&M; is that correct? Will you take that subject to check? 147 MR. SANDERS: I'm sorry could you repeat that again? 148 MR. WARREN: Line 2 is the forecast cost of the mitigation component of the program that will flow from the results of the pigging; is that correct? 149 MR. SANDERS: That's correct. 150 MR. WARREN: And the total forecast O&M cost there, I'm asking you to take it subject to check, is about 1.6 or $1.7 million in forecast expenses; is that correct? 151 MR. SANDERS: Yes, that's correct. 152 MR. WARREN: And that is your forecast of what you may have to spend, depending on the outcome of the pigging process that line 1 reflects; is that correct? 153 MR. SANDERS: That's correct. 154 MR. WARREN: And depending on the accuracy of the forecast, it may be more or less than the $1.6 million; is that fair? 155 MR. SANDERS: That's fair. In the process, we don't know exactly what we're going to find until the pigging process is completed, but that is based on our history and our experience to date. 156 MR. WARREN: Now, flowing from that, Mr. Sanders, if the Board accedes to your request to end the deferral account, then as a practical matter, if Union spends -- if Union finds, as a result of its pigging, that it requires less than $1.6 million, let's say, for example, that you have to spend only $1.4 million, you will have, in any event, recovered the increment of $200,000 in rates; correct? 157 MR. SANDERS: That's my understanding, yes. 158 MR. WARREN: And if Union spends -- finds that it spends $1.8 million, then the additional $2 million beyond what you've recovered in rates, what happens to that? 159 MR. SMITH: $200,000? 160 MR. WARREN: I'm sorry, $200,000. 161 MR. SANDERS: Yes, I'm not familiar with exactly on what the details of the implications of rate would be, but we would absorb that through the shareholder cost. 162 MR. WARREN: Now, is there a -- what is the extent the discretion to expend in any given year the amount, the mitigation amount? Sorry to be thus imprecise, but let's assume for a second, using my example, that you -- the results of your pigging lead to the conclusion that you would have to spend what amounts to $1.8 million in order to mitigate what you've discovered. Can the extra $200,000 be deferred for example, to the next fiscal year or must it be done in the fiscal year in which you've discovered the problem? 163 MR. SANDERS: Because we're actually undertaking a number of concurrent projects in any given year, our ability to manage the total is -- has been rather good so far. The -- it is an estimate on what we're going to find over all those pipelines that will be having been pigged that year. The timing is dependent upon the nature of the anomaly or defect we find. Some cases, we have to do those by code, replace them immediately. In some, they can be deferred for a period of time, it just depends on the severity of the defect. 164 MR. WARREN: I'm wondering, sir, what is the rationale for the elimination of the deferral account in light of the fact that some of the spending is discretionary and some of it is purely forecast and may not be required at all? 165 MR. SANDERS: My understanding, in the application of a deferral account would be where an expenditure is not understood or is a new expenditure, something that hadn't been done in the past, given that this is year 3 of the project or program, I believe we're fairly confident in our ability to manage those costs as they have been reported. So we don't anticipate any significant deviation from those costs. 166 MR. WARREN: Let me frame the question somewhat differently. What harm would accrue to Union if the deferral account were left in place to capture either excess spending or under spending from the forecast? What harm would accrue to Union if you didn't have the deferral account -- sorry, if you did have the deferral account? 167 MR. SANDERS: If we continued with a deferral account; is that your question? 168 MR. WARREN: Yeah. 169 MR. SANDERS: I'm not familiar with the details in the accounting process or what exactly the implication would be in that, but simply that we would be treating that differently than the majority of the other programs and be a separate program to manage. As I said before, in our estimation, this really is no different now than any other long-standing program that we would have in place. 170 MR. WARREN: My final question in this area, sir, is, is there evidence in the record of this proceeding by which the Board can assess the reasonableness of the IMP program in relation to what is required by the regulation? 171 MR. SANDERS: If I understand your question correctly, is there something that the Board could compare our program to, to understand whether or not we're being reasonable; is that correct? 172 MR. WARREN: A comparison is part of it, sir, but you're forecasting spending some $16 million plus the $3 million from the deferral account which is, I think you'd agree, a substantial expenditure in the forecast year; is that correct? 173 MR. SANDERS: That's correct, yeah. 174 MR. WARREN: And it is based, sir, on your evidence, as I understand it, of your chosen response to a regulatory requirement and my question is: Is there any evidence in the record by which the Board could assess whether or not, by some objective measure, this is a reasonable or proportionate response to the regulatory requirements? 175 MR. SANDERS: The one area I might offer is the time line for the program. The regulator, the TSSA, would prefer that we actually complete the program sooner rather than later. We've offered a 10-year program to get that work done as something that is reasonable. The work itself and the cost, I think that would be done through our normal process of managing those projects to the extent that we do any other capital or O&M program. 176 So I would imagine that the best answer would be the time line, completing this project over a 10-year time frame rather than a shorter time frame. 177 MR. WARREN: Would Union from any objection, Mr. Sanders, to an independent audit or assessment of the reasonableness and the proportionality, if I can put it that way, of its response, its proposed response to the regulatory requirements? 178 MR. SANDERS: I don't believe we'd have any objection to that, but the TSSA, in fact, has audited our program. In fact, we just completed an audit from the TSSA and I believe that they will continue to audit our program. 179 MR. WARREN: You'd agree with me that as far as the TSSA is concerned, if you offer them a Cadillac where a Volkswagen would do, the TSSA is indifferent to the model as long as they feel that the job would get done; is that fair? 180 MR. SANDERS: I would imagine their mandate is safety and reliability of the assets, yes. 181 MR. WARREN: Thank you very much, sir. 182 I'd like to turn to the rate rider portion which, Mr. Shervill, I understand is your mandate. And just so I understand the numbers, you are seeking to recover in rates in fiscal 2004 some $3.8 million; is that correct? 183 MR. SHERVILL: That's correct. 184 MR. WARREN: And this is set out at Exhibit D.1, tab 10, page 3. It's an updated blue page; is that correct? 185 MR. SHERVILL: That's correct. 186 MR. WARREN: Now as I understand your evidence, Mr. Shervill, as it appears as D.1, tab 10, there are two principal drivers for the rate rider proposal. One is the volatility of natural gas prices; is that correct? 187 MR. SHERVILL: Yes, that's one, sir. 188 MR. WARREN: And a second principal driver is on the consequences of delays in obtaining approval and the implementation of rate changes; is that correct? 189 MR. SHERVILL: Yes, that's correct. 190 MR. WARREN: Now, Mr. Shervill, you're also, not you personally, but Union is proposing an amendment to its -- sorry, to be more precise a revision to the QRAM process in this application; is that correct? 191 MR. SHERVILL: Yes, that's correct. 192 MR. WARREN: And as I understand, the thrust of that revision is that forecast changes in commodity costs will be recovered on a prospective rather than a retrospective basis; is that correct? 193 MR. SHERVILL: That's my understanding. 194 MR. WARREN: And would I be correct in understanding that if the Board accepts your proposed revision to the QRAM process -- 195 MR. SMITH: Sorry, if I can interrupt my friend, the Board has accepted it as part of the complete settlement. 196 MR. WARREN: Given that the Board has accepted the revisions to the QRAM process, Mr. Shervill -- thank you, Mr. Smith -- let me put the question, the proposition to you crudely, does that not effectively eliminate the risk of after-the-fact charges arising from volatile natural gas prices? 197 MR. SHERVILL: Not entirely, Mr. Warren. Can you just give me a moment? If I can refer you to Exhibit J.18.117. 198 MR. WARREN: Yes, I have it in front of me. Thank you. 199 MR. SHERVILL: Item D, that interrogatory response provides that: 200 "The emphasis by the Board on more timely and prospective implementation of rate orders does not affect the reasons for proposing to have rate-rider functionality of the CIS system. Union's proposing to develop this capability in response to comments of the Board and Board Staff suggesting that rate riders presented on the bill are desirable and preferred by intervenors for disclosure of deferred recovery separate from the rates themselves." 201 MR. SOMMERVILLE: Mr. Shervill, if you could go a little more slowly, the reporter is having difficulty. 202 MR. SHERVILL: I'm sorry. 203 "In addition, the more timely implementation of rates does not impact the potential use of rate riders for the prospective recovery and disposition of deferral account balances." 204 MR. WARREN: Mr. Shervill, with the greatest of respect, I had read your answer to Exhibit J.18.117 and I was either foolish enough or grumpy enough to ask you the question notwithstanding your answer in that. And I get back to the question because I don't believe that J.18.117 exactly answers the question I asked you which is: Given that the Board has accepted the change, the revision to the QRAM process, and given that the purpose of the QRAM revision, as I understand it, is to allow you to recover forecast changes in commodity costs prospectively and thereby eliminate the risk of after the fact recovery of commodity price changes, given all of that, has that not eliminated the risk of after the fact changes in rates as a result of volatile gas prices? 205 MR. SHERVILL: Well, I'm not entirely sure, Mr. Chairman, that it eliminates the likelihood of after the fact changes, but it also deals only with one of the primary rates that we're dealing with and there is the prospect for out-of-time adjustments to any of the other three rates that are being provided for in the rate rider as well. 206 MR. WARREN: I appreciate that, Mr. Shervill. But again, the context of my question was driver number one, which is commodity costs, and you're asserting that the changes to the QRAM process is not going to eliminate the risk of after-the-fact charges for changes in commodity rates; is that right? You used the word not entirely which -- 207 MR. SHERVILL: No, I said I wasn't sure it would entirely. 208 MR. WARREN: Wasn't sure. 209 Is there not a high degree of likelihood that it's going to eliminate the risk of after-the-fact charges, Mr. Shervill? I mean, isn't that why you're doing it in the first place? 210 MR. SHERVILL: It certainly does if we employ the prospective recovery activity, then that would be the case, but I'm not in a position to state that the Board is always going to approve that approach. 211 MR. WARREN: All right. Can I then turn to the second driver which we have agreed are delays in obtaining approval and implementation of rate changes. Can you take me through the history, this is in the evidence, in your prefiled evidence but I'm not sure I understand it exactly. Can you take us through the history of the last four years beginning in 1999 on how many occasions in the last four years has a delay in obtaining approval in implementation of rate changes resulted in an after- the-fact rate charge? 212 MR. SHERVILL: Again, I think the evidence lays this out at page -- Exhibit D.1, tab 10, page 3 of 10, lines 11 through 20, and talks specifically about the circumstances of trying to implement rates for the years 2000, 2001, and 2002. And as you can note there, that the rates for the year 2000 that would normally have been implemented on or about January of 2000 were not implemented until November of 2001, and the rates for 2001 and 2002 were implemented in January of 2003. 213 MR. WARREN: As a result of the -- one of the after-the-fact rate charges, there was a significant public, and if I may put it, political response to that delay; is that not fair? 214 MR. SHERVILL: There was certainly a customer response to that, and I believe some politicians picked up on that, yes. 215 MR. WARREN: And as a result of the customer response, everyone, the Board, the utility and the intervenors have been sensitized, whether they want to be or not, to the danger inherent in significant after-the-fact rate changes; is that not fair? 216 MR. SHERVILL: I think that's fair, yes. 217 MR. WARREN: And would you not say that it's fair that as a result of that sensitization process, I apologize, I don't even know if that's a word, but as a result of that, is it not fair that everyone is now working diligently to ensure that that doesn't happen ever again; is that not fair? 218 MR. SHERVILL: I know the company is certainly working hard to make sure that we do everything we can to try and get those decisions as early in the process as possible, Mr. Warren, yes. 219 MR. WARREN: I want to turn briefly, sir, to exactly what is being prepared and let me ask which I hope is the dumbest question of the day in this proceeding, and that is the distinction between a rate rider on the one hand, and changes in the text, explanatory text in the bill that would explain the rationale for changes in the rates. Do you understand the distinction? 220 MR. SHERVILL: Yes. 221 MR. WARREN: What is the difference between a rate rider and that kind of explanatory text? 222 MR. SHERVILL: Well, very simply put, the line item on the bill is a function of having the systems in place in order to generate an adjustment to a primary rate for the customer and show it on the bill, and the description that you're talking about is simply a verbalization of what that extra line item represents to the customer. 223 MR. WARREN: At the present time, as I understand your prefiled evidence, you have four line items on each bill each month; is that correct? 224 MR. SHERVILL: That's correct. 225 MR. WARREN: And the line items represent the commodity charge, the storage component of it, the transportation charge and a delivery right; is that correct? 226 MR. SHERVILL: That's correct. 227 MR. WARREN: And what you're proposing is to build a system that would allow you, if necessary, to have four more line items on the bill; is that correct? 228 MR. SHERVILL: That's correct; to show the adjustment to each of those primary rates, yes. 229 MR. WARREN: So that if, in the worst case, if there were a requirement to have changes in all four categories, what you're proposing to spend the $3.8 million on is to allow you to do that; is that correct? 230 MR. SHERVILL: That's correct, as it did in July of 2003. 231 MR. WARREN: Okay. And do I understand your evidence, Mr. Shervill, that the -- what these four items would do is you would have the ordinary bill and then you'd have the four line items that would show the components of the additional charges in each of the four categories; is that correct? 232 MR. SHERVILL: That's my understanding. I -- I honestly haven't seen a bill mock-up because we haven't done that work yet, but that's my understanding of how it would occur, yes. 233 MR. WARREN: You've anticipated one of my other questions, there is yet no bill mock-up? 234 MR. SHERVILL: The work has not been done. 235 MR. WARREN: I'm presuming, Mr. Shervill, that in order for that to make sense to the recipient of the bill, you'd have to have an explanation for why there were four items and what those four items meant; correct? 236 MR. SHERVILL: That's correct. 237 MR. WARREN: In addition to which you would have to have an explanation those were not there in perpetuity but they were there for a particular period of time; is that correct? 238 MR. SHERVILL: Yes, it is. 239 MR. WARREN: Now, can you just help me out why it is that couldn't be accomplished by -- let me preface the question by saying: Am I right in assuming, Mr. Shervill, that you do not need any changes to the system in order for you to put more words on the bill that are simply explanatory text; is that fair? 240 MR. SHERVILL: I would have to check with my colleagues who are in the billing on that. There are a limited number of lines available for us to do that kind of description. 241 MR. WARREN: Assuming, for the moment, for the sake of discussion, that there are no impediments to that that, you can add text, and given what you've just told me, that you're going to have text on it that's going to explain what those four line items are, why can't the objective be the -- the objective that you have in this proposal be accomplished by text which says that there will be increases in the four line items that you see for X amount of time in Y amount? Why can't that be done in the text? 242 MR. SHERVILL: We're getting a little bit beyond my area of expertise, Mr. Warren, in terms of how the intricacies of generating those numbers and getting them actually translated on to the bill exist, but certainly those experts in our shop who are doing this tell me that we do need this investment in order to do the bill calculations and have them link up with the systems that govern our bill print function in order to make that happen for the customer. 243 MR. WARREN: Really what I'm trying to get at, Mr. Shervill, is I take it that the collective concern, because you said there have been expressions of concern from Board Staff and from the Board itself, the collective concern that this is trying to address is that consumers understand what these additional charges are in the amount, they understand how long they're going to be on the bill, and they understand what the drivers for them are; is that not correct? 244 MR. SHERVILL: Yes, that's correct. 245 MR. WARREN: And my question is: Do you have any evidence that consumers need these four separate line items as opposed to simply an explanatory text which tells them those three data points, why, how long and in what amount? Do you have any evidence that supports the fact that the consumers need that additional information? 246 MR. SHERVILL: Well, I think it's -- it's a function of the company needing to have that capability in order to describe it properly to customers. And for us to be able to keep on file 24 months of information for each customer for each primary rate and each adjustment to those primary rates requires a fairly sophisticated database that needs to be in place in order to make sure that we're able to do that in a way that customers can understand and for us to keep track of that. It's not simply a matter of describing what the rate change has been, it's a matter of also tracking that data through all of our integrated systems to make sure we're able to keep track of it for 24 months. 247 MR. WARREN: My question to you was a different one. It was: Do you have any evidence that the customers need this? And I take it the answer is no, and what you've given me is a response that Union requires this in order to have a breakout of information in the event that a customer calls to ask. 248 MR. SHERVILL: That's, in essence, that's absolutely right. And customers called in record numbers to ask, I might point out 83,000 of them called the last time we had to do this kind of out-of-period adjustment. That to me is ample evidence that customers want to see more price transparency, and this is the way in which to provide that to them. 249 MR. WARREN: Those are my questions. Thank you very much, Mr. Chairman. 250 Mr. Chairman, I want to apologize for having to scramble to the room at unseemly haste, but I have to be somewhere else on the other side of the city in about 20 minutes, so I have to leave. 251 MR. SOMMERVILLE: Good luck, Mr. Warren. 252 MR. WARREN: Thank you, very much. 253 MR. SOMMERVILLE: Mr. Ryder. 254 MR. RYDER: Thank you, sir. 255 CROSS-EXAMINATION BY MR. RYDER: 256 MR. RYDER: I act for the City of Kitchener, and Mr. Quinn is with me, the director of utilities there. And I understand that questions relating to how you derive your design-day requirements on your total system is in your competency. 257 MR. HYATT: That's correct. 258 MR. RYDER: And I think J.1.36 is your response respecting the design-day demand for the entire system. 259 MR. SMITH: I'm sorry, Mr. Ryder, I didn't catch that number. 260 MR. RYDER: J.1.36. 261 MR. HYATT: That's correct. 262 MR. RYDER: And then J.5.17 -- sorry, J.5.73 is your response for the -- as to what is the design-day demand for the City of Kitchener with a T3 class. 263 MR. HYATT: That is correct. 264 MR. RYDER: Thank you. Now, Mr. Fay, do I understand that questions relating to the storage system are your competency? 265 MR. FAY: Yes, you are correct. 266 MR. RYDER: So on a design day, that is a 44 degree day, I take it, Mr. Fay, you're responsible for getting the gas out of storage and Mr. Hyatt is then responsible for getting the gas on the transmission system to the customers who need it on the design day? 267 MR. FAY: Yes, that is correct. 268 MR. RYDER: Now, Mr. Hyatt, can I ask you to turn to Exhibit J.1.36. And this is a description as to how you reach your -- how you derive your requirements? 269 MR. HYATT: That is correct. 270 MR. RYDER: And paragraph 7 and 8, on the second page, shows how you derive your design-day requirements for the contract customers. 271 MR. HYATT: That is correct. 272 MR. RYDER: And so the T3 group would be covered by paragraph 7 and 8 on page 2? 273 MR. HYATT: Yes. 274 MR. RYDER: As well as the T1 group? 275 MR. HYATT: Yes. 276 MR. RYDER: And I guess the other bundled-contract customers? 277 MR. HYATT: That's correct. 278 MR. RYDER: And is the basis of the determination of the daily demand requirement is a 44-degree day? 279 MR. HYATT: Yes. 280 MR. RYDER: Now, in J.5.73, can I ask you to turn that up? We asked you what the peak day demand was for the T3 class. 281 MR. HYATT: Yes, and we provided the design-day demand of that class. 282 MR. RYDER: And you provided it in gigaJoules. 283 MR. HYATT: That's correct. 284 MR. RYDER: Can you convert that to 103m3? 285 MR. HYATT: Yes, it is 2,557 103m3 per day. 286 MR. RYDER: Thank you, sir. And so peak-day demand, I take it, is different from contract demand, or CD? 287 MR. HYATT: Design-day demand is the amount that we would expect the customer to use on the 44-degree day. 288 MR. RYDER: And I understand that Kitchener's CD is 1,911 103m3; can you take that subject to check? 289 MR. HYATT: Yes, I could. 290 MR. RYDER: So there's a difference between peak-day demand and CD, or there can be? 291 MR. HYATT: Yes. 292 MR. RYDER: And especially for a customer with a high heat-sensitive load? 293 MR. HYATT: That is correct. 294 MR. RYDER: Okay. And I take it a customer can avoid creating a new CD by employing certain mechanisms in the customer's contract? If you're uncomfortable with that question, I can ask it elsewhere, I believe. 295 MR. HYATT: Can you ask that question again? 296 MR. RYDER: You've agreed with me for the moment that the CD for the T3 class which is the City of Kitchener, is 1,911, and we know that the peak-day demand is 2,557. So I'm saying that am I correct that a customer can avoid creating a new CD in its contract by employing certain mechanisms that exist in these contracts to stay at the CD level? 297 MR. HYATT: That's really outside my area, but I believe that there is something that allows that to happen. 298 MR. RYDER: All right. Thank you. 299 Now on a design day, to your bundled customers, using T3 as an example, your obligation is to deliver 2,557 units to the customer; correct? That's your requirement. 300 MR. HYATT: Our design-day demand is the 2,557 for the City of Kitchener. 301 MR. RYDER: Yes. So that's what you've got to deliver to Kitchener on a demand day? 302 MR. HYATT: Yes. 303 MR. RYDER: And you do that, I understand, by the combination of deliverability from storage, and gas delivered by Kitchener to Union; is that correct? 304 MR. HYATT: Yes, there would be volumes that would be delivered from storage plus volumes that would be delivered by the City of Kitchener to Union. 305 MR. RYDER: Which you then transport to the city? 306 MR. HYATT: That's correct. 307 MR. RYDER: And so consumption within the city, or within any of your bundled customers, equates to deliverability plus gas delivered to Union? 308 MR. HYATT: Yes. 309 MR. RYDER: And then turning that around, deliverability, therefore, equates to consumption minus gas delivered to Union. 310 MR. SMITH: I'm sorry, do you mean deliverability or delivery. 311 MR. RYDER: Deliverability, I'm talking about gas from storage. 312 MR. HYATT: Could you just restate that last equation? 313 MR. RYDER: My last equation is just a restatement of the first one that you agreed to, is that deliverability from storage equates to consumption minus gas delivered to Union by the customer. 314 MR. HYATT: That's correct. 315 MR. RYDER: All right. Now, deliverability is the rate of flow from storage, Mr. Fay? 316 MR. FAY: That is correct. 317 MR. RYDER: And so the amount of gas delivered from storage in a 24-hour period of high demand depends on the deliverability rate, the percentage which expresses the level of deliverability from storage. 318 MR. FAY: Deliverability is the rate at which gas is withdrawn from storage, yes. 319 MR. RYDER: Yes. So if you have a low deliverability rate, then in a 24-hour period, you can deliver less gas than if you have a high deliverability rate. 320 MR. FAY: Yes, that is correct. 321 MR. RYDER: Right. Now, I think we were told by the gas supply panel that the high deliverability storage comes from special pools. 322 MR. FAY: Deliverability comes from all pools. There's no dedicated facilities. There are certain pools that have higher deliverability than others, yes. Each pool is different and has different characteristics, all of them being different. 323 MR. RYDER: So can you describe just how Union does provide its high deliverability storage? 324 MR. FAY: Yes. High deliverability storage is provided by a number of means. First off, by carrying inventory in storage in order to support deliverability, also by drilling wells, installing compression and configuring the pools and scheduling the withdrawals in such a way that the gas is positioned in the right pools at the right time. 325 MR. RYDER: So included in that, you tell me, is a notion that some of the pools have to be kept full in reserve for a peak day? 326 MR. FAY: Yes, we would keep certain pools at a higher pressure than other pools, yes. 327 MR. RYDER: Now, when the -- I understand that the deliverability for the SPS service, storage-peaking service, is rated at 1 -- no, is rated at 10 percent; am I correct? 328 MR. FAY: Yes, the SPS service was developed for the unbundling proposal as part of RP-1999-0017 application before the Board. And that storage-peaking service, we are not in an unbundled environment, we are currently in a bundled environment right now, so we don't really have an SPS service as it stands right now, or no customers have it. 329 MR. RYDER: The percentages that express the level of deliverability, 10 percent, 1.2 percent, whatever, and we'll come to those in a minute, I take it that that means that if your deliverability from a pool is 10 percent, that means you can withdraw 10 percent of its full capacity in a 24-hour period. 330 MR. FAY: Sorry, could you repeat the question? 331 MR. RYDER: I'll come back to it. When the gas that was originally earmarked for the delivering the SPS service in 0017, was it anticipated that that would come from the higher deliverability pools as opposed to the other pools? 332 MR. FAY: Yes, that would be correct. There would be a combination of facilities which would be used to meet the SPS service, but there was no dedicated facilities dedicated directly to that service. 333 MR. RYDER: All right. And so because of either compression or the nature of the pool or the configuration of pools, the deliverability from the pools varies from pool to pool. 334 MR. FAY: Yes, deliverability varies from pool to pool. 335 MR. RYDER: And -- but when it reaches -- when it leaves Dawn, the gas from the high deliverability pools commingles from the gas from the lower deliverability pools. 336 MR. FAY: Yes, that's correct. When we do our storage planning, really what we do is we take the total supplies that Mr. Hyatt would provide on the Trafalgar-Panhandle lines and Sarnia markets and take that in aggregate, and we also take the supplies coming in from the various supply point, Great Lakes, Vector, those various pipelines, and what we do is we do an integrated plan to meet those requirements. 337 So there's no colour coding of molecules to say one customer's gas is in this pool, another customer's gas is in another pool, so we look at it in an aggregate basis. There's no distinction made in the storage plan as to whose customer's gas is in what pool or where it's coming from. It's a matter of meeting their deliverability requirements, which is the total supply on the system. 338 MR. RYDER: So on a peak day, when the high deliverability pools are used, it's fair to say that they contribute to the storage service for all customers, including T1, M7, M9, et cetera? 339 MR. FAY: As I indicated, we don't colour code the molecules, we don't say that certain gas is in one pool versus another. All customers are lumped into an aggregate supply, an aggregate demand and those calculations are done. 340 MR. RYDER: So your answer would be yes. 341 MR. FAY: No, I'm not sure it would be yes, no. If you would repeat the question. 342 MR. RYDER: Well, because the molecules from the high deliverability pools are commingled with the molecules from the low deliverability pools coming from storage, is it fair to say that the high deliverability pools contribute to the storage service to all customer classes? 343 MR. FAY: In the bundled environment, that is probably correct, which is what we're in now. The SPS was envisioned as part of an unbundling proposal which was a matter for another hearing, number 17. 344 MR. RYDER: Can I ask you to turn to J.5.87. 345 MR. FAY: Yes, I have it. 346 MR. RYDER: And this shows the deliverability for a number of classes as of EBRO 494 and then as of 499 and in this case. I take it that the percentages mean that these customer classes can take the stipulated percentage of their space on a peak day; is that right? 347 MR. FAY: I'm sorry, I didn't develop this interrogatory, Mr. Kitchen and Mr. McMahon developed these deliverability levels. 348 MR. RYDER: Who was responsible for determining the availability of deliverability? 349 MR. FAY: As I indicated before, the total inventory -- sorry, the total demand on the system and the total supply that is used to develop a total withdrawal volume from storage. We don't look at the individual customer classes, we don't say that X amount is coming out for the T3s, X amount is coming out for the M2s. The aggregate is given to Mr. McMahon and Mr. McMahon does the allocation between the various rate classes so I'm not aware of how he goes about doing that rate class allocation. 350 MR. SMITH: Mr. McMahon will, of course, be here along with Mr. Kitchen in the future. 351 MR. RYDER: All right. Just going back to the high deliverability pools, were they ever used to serve any customer class apart from M2? 352 MR. FAY: Sir, as I said, I do not -- I do not classify customers to certain pools. I look at it in aggregate so I cannot say that the peaking pools were used for M2s or for T3s. 353 MR. RYDER: Thank you. 354 Can I turn to the role of contingency space. Mr. Fay, do you determine how much contingency space is required to operate Union's system? Are you involved in that determination? 355 MR. FAY: I am involved, however, the decision is made jointly with the capacity management group and also our integrated supply planning people, Don Newbury and Steve Poredos. 356 MR. RYDER: Can I ask you to turn to J.5.61, and this is an interrogatory response by you and Mr. Newbury? 357 MR. FAY: Yes, that is correct. 358 MR. RYDER: Can you tell us how you arrived at the various numbers which break out the 9.1 of contingency space that is shown on the interrogatory? 359 MR. FAY: The three components which Mr. Newbury had described earlier in these proceedings included managing weather variance, forecasted versus actual, backstop supply failures and also operational integrity. 360 The weather variance is determined by looking at various weather stations and 24-hour previous forecasted numbers to determine what the difference between the forecast and the actual weather would be on any particular day during the winter. 361 We evaluated three weather stations in the south, 11 weather stations in the north, to come up with those numbers. The supply-failure backstopping was arrived at in discussions with our ISP and capacity management people with respect to what the expected back stopping supply failures would be and the operational integrity numbers were developed in discussions with our gas control coordination group and also our group to arrive at the variance that would be expected in any of the components that were developed there, coming up with a total of 3.5 for operational integrity. 362 MR. RYDER: And the 3.3 Bcf for weather variance, that is to handle the variance that occurs over the complete winter season as opposed to a peak-day requirement? 363 MR. FAY: I believe that Mr. Newbury had discussed this in previous testimony, but it is to manage both seasonal and for peak day. 364 MR. RYDER: And the assessment of the amount set aside for that purpose would depend on which customer classes were included in the service or included in the contingency? 365 MR. FAY: I'm sorry, could you repeat that question? 366 MR. RYDER: You have assessed that 3.3 Bcf is required for managing weather variances. So you know what customer classes are covered by that. 367 MR. FAY: The weather variances is covered by -- is used for the M2s, rate 01, and rate 10 customers. 368 MR. RYDER: Thank you. 369 Now, when I think Mr. Quinn was examining the gas supply panel on October 17th, we learned that there is 5 Bcf of contingency space that was filled on November 1, 2002, and that sat there throughout the winter to cover late-season withdrawals. Where does that number fit into the numbers in this interrogatory? 370 MR. FAY: I think to be clear on that, Mr. Isherwood had indicated that in previous testimony, I believe on day 9, line 1159. 371 MR. RYDER: Paragraphs 1159. Just while you're at the transcript, Mr. Fay, I was referring to Mr. Newbury's statement at paragraph 1137 about the 5 Bcf put in there on November 1st and kept filled. And you want me to go to 1159 now? 372 Just by way of observation, Mr. Fay, isn't Mr. Isherwood's statement at 1159 about a different topic? Isn't he dealing with backstopping, whereas, I was dealing with contingency space? 373 MR. SMITH: Why don't we just let Mr. Fay answer the question. 374 MR. FAY: I think what I'm pointing out in Mr. Isherwood's response is that contingency space is managed by Union and all of the contingency space is managed by Union. How that space is used, whether it's 5 Bcf at the end of the winter or used during the season, we manage it to manage all the risks throughout the year. 375 MR. RYDER: All right. So dealing with the weather variance amount of 3.3 Bcf, how does that square with the 5 Bcf that Mr. Newbury was referring to in volume 9 at paragraph 1137? 376 MR. FAY: Sir, I cannot answer to Mr. Newbury's gas balance questions. That would be an issue that he would look at in terms of balancing his molecule requirements for the year and certainly that would be a matter for Mr. Newbury. 377 MR. RYDER: Can I leave an undertaking with you to reconcile the two? 378 MR. SMITH: Well, Mr. Chairman, this sounds actually like a question where we've sort of gone at it a little bit backwards. The interrogatory, of course, was prepared long before Mr. Newbury testified. To the extent my friend wanted to put the proposition to Mr. Newbury, Mr. Newbury testified some time ago. We don't plan on having him back. And I haven't reviewed the transcript, but I'm advised Mr. Newbury did speak to this very issue, in fact, that is my recollection. So I would object to taking interrogatories to ask Mr. Newbury -- conducting, in effect, a further cross-examination of him. 379 MR. SOMMERVILLE: I think to the extent that what we're talking about is really a reconciliation, not really arguing with Mr. Newbury's original answer, I think the undertaking is probably the appropriate way of handling this. 380 I mean, I think we need to be reasonably respectful of the order of witnesses to make sure that there's not a lot of spilling back forth, but I think in a situation like this where there's a reconciliation at issue, it is really the elegant and appropriate approach to it. So I will ask the company to make its best efforts to make that reconciliation. 381 Mr. Ryder, perhaps you could, for the record, and convenience of all, stipulate your undertaking. 382 MR. RYDER: Yes, if the company could provide a reconciliation between the 5 Bcf referred to by Mr. Newbury in volume 9, at paragraph 1137, with the 3.3 Bcf of contingency space shown on Exhibit J.5.61. 383 MR. MORAN: That would become Undertaking N.14.1, Mr. Chair. 384 MR. SOMMERVILLE: Thank you. 385 UNDERTAKING NO. N.14.1: TO PROVIDE A RECONCILIATION BETWEEN THE 5 BCF REFERRED TO BY MR. NEWBURY IN VOLUME 9, AT PARAGRAPH 1137, WITH THE 3.3 BCF OF CONTINGENCY SPACE SHOWN ON EXHIBIT J.5.61 386 MR. RYDER: Now, historically, Mr. Fay, has there been a use of contingency or an allocation of contingency for direct-purchase customers who have drafted the storage so that their banked accounts -- they've drafted it so much that their banked accounts are in a negative position? 387 MR. FAY: I'm sorry, that's outside of my area. 388 MR. RYDER: Okay. In your withdrawal plan, do you allow for any contingency to cover direct-purchase customers that have drafted the storage? 389 MR. FAY: Again, I cannot answer that. That would be Mr. Newbury. 390 MR. RYDER: What about March park? Is the reserve for contingency altered due to March park? 391 MR. FAY: Again, I can't answer that. 392 MR. SMITH: There is another panel coming up to deal with March park, it's the load balancing panel. 393 MR. SOMMERVILLE: And I think that objection is well taken, that we really are talking about either evidence that has preceded this panel or which will follow. 394 MR. RYDER: All right. Thank you. 395 Just one last question which I think is within your area, Mr. Fay, the number that you set out in Exhibit J.5.61, do you take responsibility for those numbers? 396 MR. FAY: I provided input into what those numbers are. Certainly as I indicated earlier, they are developed as part of a cooperative effort between various departments. 397 MR. RYDER: And you were part of the group that finalized those numbers? 398 MR. FAY: Well certainly in the -- with respect to these numbers here, which were for RP-1999-0017 settlement agreement, I wasn't -- I was not manager of the group at that time. 399 MR. RYDER: All right. I was referring to -- the numbers on J.5.61, which is an interrogatory you answered. 400 MR. SMITH: Mr. Ryder, sorry, in fairness, the answer does say, "As presented to the Board-approved RP-1999-0017 settlement agreement, the system integrity space is made up of the following components." 401 MR. RYDER: Well the question simply asked you for the breakout of the amounts and functions of storage contingency space. I take it storage contingency space is now called system integrity space; right? 402 MR. FAY: In the unbundled application, which was RP-1999-0017, we refer to it as a system integrity space. In the bundled environment, I believe Mr. Newbury made the distinction between contingency space and system integrity space, but certainly, I -- these numbers here as per the question, which states for the 2002-03 season, these were the numbers that were and still are provided as part of 2002-03 season. Numbers are different for '03-'04. 403 MR. RYDER: What's the -- well look at J.1.60. 404 MR. FAY: Could you repeat that number again, please? 405 MR. RYDER: J.1.60. 406 MR. SMITH: J.1.60. 407 MR. RYDER: Now, you signed off, amongst -- with others on this interrogatory as well. 408 MR. FAY: Yes, that is correct. 409 MR. RYDER: All right. And I see that the number continues to use a component of the infranchise storage, it's categorized as a component of infranchise storage. 410 MR. FAY: That is correct. 411 MR. RYDER: I'm on page 1 -- sorry, I'm on page 2. And I see that the numbers for contingency have varied since -- throughout the years. I'm at table B, Mr. Fay. 412 MR. FAY: Yes, I've got it. 413 MR. RYDER: And line 8, can you reconcile those numbers with the 9.1 Bcf noted in J.5.61? 414 MR. FAY: Table B is in petaJoules, it's not in Bcf. The 9.7 petaJoules is the 9.1 Bcf. 415 MR. RYDER: All right. If I could just have a minute, Mr. Chairman. 416 Now, you've told us that high deliverability meets customer demand on a peak day. 417 MR. SMITH: That's not quite what his evidence was, Mr. Ryder. His evidence was that some of the gas from some of the pools might come from those pools. 418 MR. RYDER: All right. Are you at all familiar with the excess over average or excess over aggregate method for allocating storage space? 419 MR. FAY: I do not apply the excess over average calculation, that's a function of the sales group, I believe. 420 MR. RYDER: And so you can't tell me whether it reflects the requirements of a customer in normal weather only? You can't address that? 421 MR. FAY: No, I cannot. 422 MR. RYDER: All right. And so where I would I go for that? 423 MR. SMITH: That has been canvassed in some respects already, but in addition, it will be -- it can be dealt with in the cost allocation rate design panels which will be coming up. 424 MR. RYDER: Now, when we looked at the various percentages by which high deliverability is expressed with the gas supply panel, we were referred to you. I take it that the referral should really be to Mr. Kitchen? 425 MR. SMITH: I think we'll have to hear the question. 426 MR. RYDER: Well, it's the percentages in Exhibit J.5.87. 427 MR. FAY: Yes, they were prepared by Mr. Kitchen and Mr. McMahon. 428 MR. RYDER: All right. So the referral should be to them and not to you. 429 MR. SMITH: That's correct. 430 MR. FAY: Yes. 431 MR. SOMMERVILLE: Is this a convenient time to take a break, Mr. Ryder. 432 MR. RYDER: Yes, thanks. 433 MR. SOMMERVILLE: We'll take 20 minutes and reconvene at 11:20. 434 MR. RYDER: Thank you. 435 --- Recess taken at 11:00 a.m. 436 --- On resuming at 11:27 a.m. 437 MR. SOMMERVILLE: Thank you, please be seated. 438 Mr. Ryder. 439 MR. RYDER: Thank you. 440 Just before we leave off the issue of deferring to other panels, I don't want to get deferred to outer space, Mr. Fay, that's my concern, and I take it that Mr. McMahon and Mr. Kitchen are not responsible for the operations of Union? 441 MR. FAY: They're not responsible for the operations of storage. 442 MR. RYDER: Yes, and you are. 443 MR. SMITH: I think Mr. Wellard is responsible for the operations of Union. 444 MR. RYDER: But you have a role? 445 MR. FAY: I'm responsible for the planning, system planning of storage, yes. 446 MR. RYDER: And so Mr. McMahon and Mr. Kitchen, they don't have any role in determining the amount of storage space, for example, reserved for infranchise, that's left with the operations people? 447 MR. FAY: I don't believe it's for the operations group, I think it's more customers have storage space based on their contracts or what the sales group feels that their needs are, so I'm not sure it's the operations group that determines individual customer class space allocations. 448 MR. RYDER: All right. Well, I just ask you to go along with me for a minute because, for example, in J.1.60 there were four witnesses who signed off on this interrogatory. 449 MR. FAY: That's correct. 450 MR. RYDER: You being one of them. 451 MR. FAY: Yes. 452 MR. RYDER: And so I don't want to be deferred to a witness who has already given testimony and is not available to respond to some of these questions, if you can understand my drift. 453 MR. FAY: I can understand, yes. 454 MR. RYDER: Now, with respect to the -- but I take it that your group provides data to the cost allocations and the rate design people to help them perform their functions? 455 MR. FAY: Yes, that is correct. 456 MR. RYDER: And with respect to the data on storage, who provides the data on the allocation of deliverability levels? 457 MR. FAY: I provide the allocation people with the total deliverability from storage which is the aggregate of all of the demands and all of the supplies to Mr. Kitchen and Mr. McMahon. They use that information and then allocate between the various rate classes to recover costs. 458 MR. RYDER: Who makes the determination as to what amount of deliverability level is needed to serve a customer on a peak day? 459 MR. FAY: For various customers it would be the sales group, in some cases. 460 MR. RYDER: Even though it's not an operational question. 461 MR. FAY: Most of those are within various rate schedules. I do not know how -- the sales group would come up with a forecast of deliverability from storage that they would have as a result of a combination of all the rate classes. That information is then passed on to Mr. Hyatt which looks at the total demand on the system and then that total demand I take and determine the amount of gas coming from storage in aggregate. 462 MR. RYDER: All right. Dealing with the issue of deliverability from storage, and the data you provide on that to the cost allocation group, is that data expressed in terms of the deliverability needed for peak days or for a normal -- or for an average day? 463 MR. FAY: The data that I provide to cost allocation is peak day. 464 MR. RYDER: And for transportation demand, I take it that the answer is the same, you provide the numbers of what is needed on a peak day for each customer class? 465 MR. HYATT: Yes, the number -- we provide the volumes for the design peak day for each of the -- for the transportation volumes, for the infranchise customers. 466 MR. RYDER: All right. So you break it down into customer classes? 467 MR. HYATT: We only break it down into general service and contract. 468 MR. RYDER: And the contract then would be a group including all the contract classes? 469 MR. HYATT: Yes. 470 MR. RYDER: So there's no separate breakout for the individual classes? 471 MR. HYATT: We would have provided -- we do provide to the cost allocation group the design day demand by contract customer class. 472 MR. RYDER: Now, for deliverability, you don't break it down that much, I take it, Mr. Fay? 473 MR. FAY: No, I use an aggregate number. 474 MR. RYDER: Sorry, Mr. Hyatt, back to you, when you break it down, you break it down on a class-by-class basis? 475 MR. HYATT: We provide to the cost allocation group a breakdown by class of customer. 476 MR. RYDER: All right. 477 MR. HYATT: Design-day demand. 478 MR. RYDER: And so for Kitchener, it would be 2,552 103m3 as peak day -- sorry, 2,557 103m3 was the peak-day demand? 479 MR. HYATT: That's correct. 480 MR. RYDER: Now, Mr. Fay, going back to Exhibit J.1.60 at table B, this shows the amount of storage available for infranchise and exfranchise. 481 MR. FAY: That is correct. 482 MR. RYDER: And and I take it S&T, is S&T part of exfranchise? 483 MR. FAY: That is my understanding, yes. 484 MR. RYDER: Is there any part of S&T included in infranchise? 485 MR. FAY: I'm not sure what the distinction between -- for example, S&T may include a T1, T3, I don't know who deals with the T1, T3s. 486 MR. RYDER: Well, during the year, if a contract customer goes out of business and needs -- sorry, that the infranchise storage requirement is reduced, do you know where that freed up space goes to? 487 MR. FAY: No. As I said, I only get the aggregate numbers from Mr. Hyatt on the demand side and the supply side, so we don't look at it from the customer class point of view. We don't break down, for example, in this space allocation, Mr. Newbury would provide the infranchise Union requirements and the total exfranchise. 488 So Mr. Newbury would collect all of the infranchise space requirements and exfranchise requirements that are shown on this table here, table B. 489 MR. RYDER: Well, this table at J -- table B at J.1.60 shows the amount injected into storage for infranchise as of November 1st of each year; is that correct? 490 MR. FAY: No, I believe it shows what the annual requirements are. I'm not sure that it does show what's in storage on November 1. 491 MR. RYDER: All right. The annual requirements. 492 And I take it that during the course of the winter, the annual requirements can change, the requirements set for that year can change? 493 MR. FAY: I assume that during the year, yes, usage patterns will change, yes. 494 MR. RYDER: And what I'm really asking for is if you can tell me what the changes were in the last year and what happened to the gas that was freed up as a result? 495 MR. FAY: I'm sorry, that would be Mr. Newbury who looks after the gas balance in terms of how those would influence the total available in storage. He does the gas balance. 496 MR. RYDER: All right. Mr. Newbury is not going to come back and give evidence, he's done, I take it. So can I ask you to, as an undertaking, ask the company to -- dealing with the 2002 year, which is the last complete year, show the adjustments on table B of J.1.60 to reflect the changes in the storage usage during the course of the year and the purposes to which that change usage were devoted to. 497 MR. SMITH: Sorry, Mr. Chairman, I suppose I should -- I will renew my objection. This is not a reconciliation request as Mr. Ryder's earlier question could be characterized, this is simply a question that should have been put to Mr. Newbury. And I should also say, I don't know whether or not it's even possible to do what Mr. Ryder is asking the company to do. I'd of course, have to ask Mr. Newbury that. 498 MR. SOMMERVILLE: I wonder about whether panel 13, whether this may not fall within the scope of what they're going to address, or may address, or could address this question. 499 MR. RYDER: Well my suggestion for the purposes of getting on with matters is that we reserve to panel 13 and then see what happens. 500 MR. SOMMERVILLE: I think that's -- 501 MR. SMITH: Sorry, I was going to say that that seems like a sensible way to approach it. Although if they're not the appropriate panel, then the boat will have passed on Mr. Newbury and I'd have to renew my objection. 502 MR. SOMMERVILLE: Fair enough and we'll deal with your request for an undertaking at that time, Mr. Ryder, but let panel 13 be forewarned that this question is coming up and -- 503 MR. SMITH: Yes, thank you. 504 MR. RYDER: Now, Mr. Hyatt, I understand that you determine the winter-peaking service forecast as part of the gas supply plan. 505 MR. HYATT: Yes, we would determine the difference between what our system capacity is and what our requirements are and that difference would be -- it can be classed as a shortfall, and that shortfall we would fill by non-facility options such as a winter-peaking service. 506 MR. RYDER: So the status of the transmission building program determines whether or not there's a WPS requirement, a winter-peaking service requirement. 507 MR. HYATT: It's really a combination of the demand on the system, the facilities we have in place, and the deliveries we have at Parkway. All of those three items go forward to determining what our shortfall is on a system in any given year. 508 MR. RYDER: And when a shortfall is forecasted, are you involved in the determination as to whether it's necessary to contract for a winter-peaking service? 509 MR. HYATT: We would provide that information to the capacity management group and the acquisitions group, and they would take that buy the services that they deemed to be needed. 510 MR. RYDER: So are you involved in the selection of a winter-peaking service from the various options presented by the providers that are out there? 511 MR. HYATT: No, that's really done by the acquisitions group. 512 MR. SMITH: Mr. Isherwood did testify to the winter-peaking service. 513 MR. RYDER: Let me take you back to October 20th, volume 10, at paragraph 313, which I believe is a referral to you, Mr. Hyatt, of this question. 514 MR. SOMMERVILLE: What was the paragraph reference? 515 MR. RYDER: Paragraph 312 and 313. 516 In paragraph 312, I asked: "So do you anticipate a winter-peaking requirement for further use after 2004-2005? 517 Mr. Isherwood: Larry Hyatt is actually the fellow who does the converting the whole system into a winter-peaking service forecast. Directionally I would see the requirement continuing until we do a build directionally." 518 So I took that as a referral to you of the questions, Mr. Hyatt, as to the contracting for winter-peaking service. 519 MR. HYATT: I believe what Mr. Isherwood was saying here is that I would do the determination of the difference between our system capacity and the requirements, and the difference being that shortfall would be the amount that we would need to go out and provide a non-facility option such as winter-peaking service. 520 MR. RYDER: Well, I'm sure Mr. Isherwood didn't want to defer us to outer space, so I'm going to proceed and ask my questions of you and see what you can do to answer them until I'm done. 521 Are you familiar with winter-peaking services? 522 MR. HYATT: Yes, I am. 523 MR. RYDER: And do you know how they work? 524 MR. HYATT: In general. 525 MR. RYDER: And do they have a demand component and a variable component? 526 MR. HYATT: I'm not aware of exactly that detail. 527 MR. RYDER: I take it that when you purchase a winter-peaking service, it's not always the case that you actually receive the service, it's sort of an insurance policy that it's there to be called on. 528 MR. HYATT: There are a number of ways that the acquisitions group, Mr. Isherwood's group, I believe that they have a number of ways that they can contract for those types of services. 529 MR. RYDER: And one such way, is it not, is to have the services available to be called on and you have a right to call on it, but it's at your option as to whether or not the services are called on. 530 MR. HYATT: That may be one of the options Mr. Isherwood has. 531 MR. RYDER: And in that event, the company would pay a demand charge for the service, whether or not it was called on. 532 MR. HYATT: I don't know. 533 MR. RYDER: Well, I'd say, Mr. Chairman, that this is a case where Mr. Isherwood did defer us and he should have been more responsive and less quick to defer us, and so I would ask that you allow me to put undertakings to the panel and if they need Mr. Isherwood to answer the undertakings, so be it. 534 MR. SMITH: Well, Mr. Chairman, with respect, Mr. Hyatt's evidence and Mr. Isherwood's evidence are entirely consistent and that is that, Mr. Hyatt, as he's testified to before and as Mr. Isherwood indicated, the shortfall as it were, between facilities capability and design-day demand, that number is something that Mr. Hyatt has indicated he prepares and that is exactly what Mr. Isherwood indicated. 535 The particular specifics of the shape of the winter-peaking service, I don't see Mr. Isherwood deferring that question to Mr. Hyatt at all, nor do I see the question having been put to him. 536 MR. RYDER: Paragraph 313 says: Does the converting the whole system enter into a winter-peaking forecast? 537 MR. SOMMERVILLE: The thing we have to avoid is playing -- we're getting into a situation where we have to be scholarly about each panel and the four corners of each panel's containment, and that requires a fair amount of care on both sides from the applicant and the intervenors to try and mark this appropriately. 538 I'm inclined, Mr. Ryder, to permit you to ask a limited number of questions respecting the winter-peaking service simply because Mr. Isherwood, I think completely unintentionally, did appear to defer some of this issue to Mr. Hyatt. 539 I think I understand exactly what Mr. Isherwood was doing, he was indicating that Mr. Hyatt's overall tabulation creates the apparent requirement for a winter-peaking service and not that he was deferring to Mr. Hyatt the detail with respect to what the winter-peaking service would consist of or how it would look. 540 Having said that, I think it's an important part of the evidence and I think that it's worth undertaking this, but I urge parties, both sides, to be blunt, open, and cooperative with respect to what the four corners of any given panel's responsibilities are. 541 So with that, Mr. Ryder, if you want to seek some undertakings, we'll entertain them. 542 MR. SMITH: Mr. Chairman, I think that makes a good deal of sense and it certainly wasn't our intention to be confining Mr. Ryder in any respect. I should point out, perhaps the best way to deal with this is Mr. Ryder can put his questions on the record in firm of undertakings, Mr. Isherwood will be returning to testify in terms of load-balancing and he will come prepared to provide his answers at the outset of his testimony. 543 MR. SOMMERVILLE: I really think that is a very useful exercise, and panel 13 does seem to deal with a number of the issues that are arising here. So let's make it an undertaking with the idea that it can be answered from the witness box if that's the most appropriate way to deal with it. 544 MR. SMITH: Thank you. 545 MR. RYDER: Was one or more winter-peaking services included, Mr. Hyatt, in the plan for 2002, 2003? 546 MR. HYATT: Could you repeat that question? 547 MR. RYDER: Was one or more winter-peaking service included in the plan for 2002/2003? 548 MR. HYATT: I'm not sure I understand the words, "was one or more". 549 MR. RYDER: Well, was there one or was there two or three? 550 MR. HYATT: During the 2002/2003 winter, we forecast a shortfall of about 23,000 gJs a day on the Dawn Trafalgar system. A winter-peaking service was not purchased for that shortfall. What was the agreement was that in the event that we needed that level of service, we had a design day, we would go and purchase those needed supplies on the open market. 551 MR. SOMMERVILLE: I believe that question was asked and answered. I can't find the reference, Mr. Ryder, but I believe that question was put to Mr. Isherwood. 552 MR. SMITH: That's my recollection. 553 MR. SOMMERVILLE: As I said, that may not be of much help. There is a reference, Mr. Ryder, paragraph 325 in volume 10. I think it's the same question. It was put to Mr. Newbury but answered, I think, by Mr. Simpson. Or is that a different question? 554 MR. RYDER: Well, I was asking if it was planned for as opposed to being purchased. I think your answer is that none was planned for. 555 MR. HYATT: What my answer was is that we did have a shortfall of 23,000 gJs a day. That shortfall did exist. Rather than buying a winter-peaking service ahead of time, we made the decision that we would buy those volumes on the day they were needed in the event that they were needed. 556 MR. RYDER: And can I ask the same question with respect to the previous winter? 557 MR. HYATT: We did not have a shortfall that winter. 558 MR. RYDER: Did you have a planned shortfall? 559 MR. HYATT: No, we did not. 560 MR. RYDER: I'm coming to my last topic and it relates to Union's control points for storage on March 1st and March 31st. So those are the two control points for storage, are they, Mr. Fay? 561 MR. FAY: We have a design-day calculation and Mr. Newbury will look at -- which I am responsible for, is the design-day calculation. Mr. Newbury is responsible for developing the March 31st design point because it is a molecule issue; whereas my design-day number is a deliverability calculation. 562 MR. RYDER: And the purpose for the March 31st -- I take it that on each of these points, the design day, March 31st and March 1st levels are set, levels of what is required to be in storage at the time? 563 MR. FAY: Yes, that is correct. 564 MR. RYDER: And the March 1st -- sorry, the design-day level is what is required to meet your deliverability on a 44 degree day, you told us that. 565 MR. FAY: March 1st, yes, that is correct. 566 MR. RYDER: And March 31st is to provide for withdrawals in April? 567 MR. FAY: In the event that we have colder-than-normal weather in April, yes. 568 MR. RYDER: Now, have the levels -- is there any evidence on the record that shows the levels between 1999 and 2004 in these March 1st and March 31st dates? 569 MR. FAY: I cannot comment. 570 MR. RYDER: Am I correct in thinking that they are lower in 2004 than they were in 1999? 571 MR. SMITH: I'm afraid I've lost the plot, as it were. Which levels are we speaking about? 572 MR. RYDER: The control point levels at March 1st and March 31st. 573 MR. FAY: I can't speak for the March 31st because Mr. Newbury does the gas balance, so I don't know what the March 31st numbers are. In terms of design day, they will vary depending on the facilities that are in the ground, the demands on the system, the supplies coming in, in any area of the system, whether it's Parkway or whether it's Dawn. So they will vary. 574 MR. RYDER: Can you provide the numbers between 1999 and 2004 for both dates? 575 MR. FAY: Just for clarification, is that for March 1st and March 31st? 576 MR. RYDER: Yes. 577 MR. SMITH: We'll need to -- for the purposes of the undertaking are you asking for planned or actual? 578 MR. RYDER: Well, both. 579 MR. SMITH: I assumed that would be the answer, but I thought I should be clear on the record. 580 MR. WIGHTMAN: That will be N.14.2, to provide the March 1st and March 31st planned and actual control point levels for the years 1999 to 2004 inclusive. 581 UNDERTAKING NO. N.14.2: TO PROVIDE THE MARCH 1ST AND MARCH 31ST PLANNED AND ACTUAL CONTROL POINT LEVELS FOR THE YEARS 1999 TO 2004 INCLUSIVE 582 MR. RYDER: Those are my questions, thank you. 583 MR. SOMMERVILLE: Just so we're clear there, you may have questions for to Mr. Isherwood with respect to the winter-peaking service, and we'll deal with any perceived shortfall that arises as a result of his answers given. Is that a fair characterization, Mr. Smith? 584 MR. SMITH: Yes, that's fine, Mr. Chairman. It was actually my understanding that Mr. Ryder was going to put his questions on the record and Mr. Isherwood would provide the answers. 585 MR. SOMMERVILLE: Let me say that it may be worth while if -- some communication with the applicant to indicate the areas that you specifically wish clarification on. I think that would be best. 586 MR. RYDER: That's fine. 587 MR. SMITH: Thank you. 588 MR. SOMMERVILLE: Who's -- it's hard to make out the geography from here. Mr. Janigan? 589 MR. JANIGAN: Thank you, Mr. Chairman. 590 CROSS-EXAMINATION BY MR. JANIGAN: 591 MR. JANIGAN: I'd like to deal with the issue of customer attachments and I'd like to ask you to turn up the B.1, tab 3, appendix B. And I would note that -- and this is in the blue-page update, and I note that even in your update, the 2003 customer attachments are still declining substantially from 2002, in fact, by about 12.9 percent. Would you agree? 592 MR. SHERVILL: Subject to check, yes. I haven't done that calculation, Mr. Janigan. 593 MR. JANIGAN: Okay. And in addition, the 2004 forecasted customer attachments, I believe, of 27,015 is also lower than the 2002 actuals by some 2,700 which is an effective drop of 9.2 percent from the 2002 actual levels. 594 MR. SHERVILL: Yes, sir. 595 MR. JANIGAN: And one of the drivers for your forecast of customer attachments is the CMHC forecast; is that correct? 596 MR. SHERVILL: Yes, it is. 597 MR. JANIGAN: And in the VECC interrogatory, IR 34.8, VECC requested the CMHC reports that Union relied upon to generate the attachment forecast and as I understand it, Union's response was that Union is contractually prohibited from divulging the contents to third parties. Have I got that correct? 598 MR. SHERVILL: I believe that's what the interrogatory says. That was Mr. Fogwill's response, sir. 599 MR. JANIGAN: So the Board cannot have or will not have those independent forecasts before it to determine if Union's attachment forecast is consistent with what their experts are saying about housing starts; correct? 600 MR. SHERVILL: I believe that's the case, yes. 601 MR. JANIGAN: Now, once again referring to 34.8, the interrogatory, VECC interrogatory, there is an economic forecast that Union relied upon to generate its customer attachment forecast; am I correct? 602 MR. SHERVILL: Yes, that was certainly one of the things that we rely on, yes. 603 MR. JANIGAN: And for 2000 and 2004, the economic outlook is for stronger growth in GPD compared to 2002; am I correct? 604 MR. SHERVILL: Yes, sir. 605 MR. JANIGAN: And in Union's economic outlook, there is also a lower level of unemployment forecast in 2003 and 2004 relative to 2002; is that correct? 606 MR. SHERVILL: Yes, that's correct. 607 MR. JANIGAN: And disposable income is also expected to be higher in 2003 and 2004 relative to 2002? 608 MR. SHERVILL: Yes, it goes up every year. 609 MR. JANIGAN: And would you agree that a stronger performance in the economy and improved disposable income, lower unemployment levels are all factors that support a strong consumer confidence level? 610 MR. SHERVILL: Those along with interest rates and some other factors, yes. 611 MR. JANIGAN: And would you also agree that the positive outlook of the economy, increased income levels, interest rates, lower unemployment levels, all lend itself to generating stronger housing starts? 612 MR. SHERVILL: Not all of them, no. I think if you look at the five-year mortgage rate, it is a full point higher than it was in 2002. 613 MR. JANIGAN: Now, what monthly CMHC forecast did Union rely upon in generating the blue-page update? 614 MR. SHERVILL: Excuse me, sir, could you repeat the question? 615 MR. JANIGAN: Yes. What monthly CMHC forecast did Union rely upon when you generate the blue-page update that we've been referring to? 616 MR. SHERVILL: I'm sorry, I'm not sure of that, Mr. Janigan. Our forecast group generally does that as part of our macroforecast, so I'm not sure what month it was. 617 MR. JANIGAN: Okay. I wonder if I could refer to you an article which appeared in the National Post on October 9th, 2003, and I wonder if that could be contributed. I've got two handouts. 618 I wonder if you have that -- 619 MR. SHERVILL: Yes, I do. 620 MR. JANIGAN: -- in front of you? 621 And in this article, entitled, "Housing starts may hit 14-year high," it basically sets out that according to CMHC, that housing starts are on pace to hit a 14-year high, and that it was going to have to revise upward a forecast it made just two months ago. 622 MR. SHERVILL: Yes, I see that. 623 MR. JANIGAN: And CMHC had called for, it indicates in the article, from Bob Dugan, the chief economist from CMHC, that CMHC had a called, for 2003, 203,200 starts this year, down slightly from the 205,034 in 2002, but the market has been on fire since the call was made. 624 And further, it goes on to state that year to date actual starts are 6.7 percent ahead of last year's pace. 625 Do you see that? 626 MR. SHERVILL: I do see that, yes. 627 MR. JANIGAN: Has this boom outlook been reflected in Union's revised update? 628 MR. SHERVILL: Well, I'd note firstly, Mr. Janigan, that this forecast from CHMC is Canada-wide, and we're really only talking about Ontario and our portion of Ontario. 629 If I can just give you some contrasting data: Under the year-to-date actual starts where Mr. Dugan says that they're 6.7 percent ahead of last year's pace Canada-wide, in fact, in our service area we're about 5 percent behind last year's pace. 630 And where they talk about in the next paragraph, actually it's the end of the same paragraph, urban multiple starts increased 20.7 percent compared to the same period in 2002, it notes a concentration in the large metropolitan areas, principally the GTA, I note that that is up from 14.2 percent in the CMHC report that came out earlier this summer just in August. 631 So what that tells me is that most of those starts, at least the ones in Ontario, are in the highly urbanized areas like the GTA, and it also tells me that the rest of Canada is more buoyant than Ontario is right now. 632 In fact, the CMHC from August says that the starts were up in all regions except Ontario which suffered a slight set back. 633 MR. JANIGAN: Let me just look at some of the elements in the answer that you've given me. You indicated that notwithstanding the statistics were across Canada, that this year, housing starts in the Union area are down 5 percent? 634 MR. SHERVILL: That's my understanding, about 5 percent, that's correct. 635 MR. JANIGAN: Okay. Now, but you don't know whether or not the information that this article reflects has been reflected in your blue-page update? 636 MR. SHERVILL: Well, since we do track CMHC and we read all of their reports as they come out -- 637 MR. JANIGAN: Yes -- 638 MR. SHERVILL: -- then I would say that the data applicable to our service area has been put in the blue-page update. 639 MR. JANIGAN: What was the date of the blue-page update? 640 MR. SHERVILL: Well, let's see, it was filed in August of this year, Mr. Janigan. 641 MR. JANIGAN: Now, it seems to me, and this is just simply my reading of the article, it seems to me that this information that is contained in this article is reflective of information gathered after that point. Did it not seem to you? 642 MR. SHERVILL: I'm sure it's a combination of data from before and after, but it is an update, absolutely. 643 MR. JANIGAN: And it says that it had to revise upward a forecast that it made just two months ago. 644 MR. SHERVILL: That's correct. 645 MR. JANIGAN: So it's likely that the information contained in this particular revised outlook has not been reflected in your blue-page update. 646 MR. SHERVILL: It's possible, but again, as I say, our experience within our own service area suggests to us that while the rest of Canada may be advancing at a faster pace, Ontario is still not. 647 MR. JANIGAN: I guess I'm in a conundrum to find out how I can find out that information if the information is confidential and cannot be revealed and to compare it between the revised outlook that CMHC seems to be reflecting and that outlook that was reflected of your blue-page update. 648 Can you undertake possibly to advise us whether or not -- when the CMHC outlook -- what CMHC outlook the blue-page update reflects and whether or not there are any changes reflected in the new CMHC outlook? Is that possible? 649 MR. SHERVILL: Yes, we can do that. 650 MR. WIGHTMAN: That will be Undertaking N.14.3. 651 UNDERTAKING NO. N.14.3: TO ADVISE WHAT CMHC OUTLOOK THE BLUE-PAGE UPDATE REFLECTS AND WHETHER OR NOT THERE ARE ANY CHANGES REFLECTED IN THE NEW CMHC OUTLOOK 652 MR. SOMMERVILLE: While we're at it, Mr. Janigan, I think we'll give this newspaper article an exhibit number. 653 MR. JANIGAN: Thank you. 654 MR. WIGHTMAN: That will be the National Post article October 9th, 2003, "Housing Starts May Hit 14-year High." That will be M.14.1. 655 EXHIBIT NO. M.14.1: NATIONAL POST ARTICLE DATED OCTOBER 9, 2003, "HOUSING STARTS MAY HIT 14-YEAR HIGH" 656 MR. SOMMERVILLE: Thank you, Mr. Wightman. 657 MR. JANIGAN: Now, Union has projected, I believe, the 13-percent downturn that we alluded to earlier in housing starts? 658 MR. SHERVILL: Again, subject to check, I haven't done the calculation, but downturn from what period to what period, Mr. Janigan? 659 MR. JANIGAN: From 2002. 660 MR. SHERVILL: To 2004? 661 MR. JANIGAN: No, I believe to 2003. I believe when we went through it earlier it was 12.9 percent or 13 percent from 2002 to 2003, and then from 2003 to 2004, I believe the figure we used was -- 662 MR. SMITH: 2,700. 663 MR. JANIGAN: -- 2,700, which was a drop of 9.2 percent from the 2002 actual levels. 664 MR. SHERVILL: Yes, sir. 665 MR. JANIGAN: Now, I believe I heard you say earlier that, in fact, the actual starts this year are about 5 percent less than 2002 -- 666 MR. SHERVILL: That's correct. 667 MR. JANIGAN: -- am I correct on that? 668 MR. SHERVILL: That's my understanding, yes. 669 MR. JANIGAN: And as I understand it, there's a London Property Management interrogatory response, J.18.21, and if I've read this correctly, as I understand it, that the attachments in the north for the first six months of 2003 are in excess of 2002 by about 38 percent and in the south, the attachments were in excess of 2002 by 35 percent. Am I correct on that? 670 MR. SHERVILL: Yes, that looks to be the case, Mr. Janigan. 671 MR. JANIGAN: Okay. And it would appear to me at first blush that from the information given in the revised CMHC forecast, as well as these attachment figures, that Union's 2003 attachment forecast is likely to be higher than the 2002 actuals. 672 MR. SHERVILL: Well, it's always dangerous to assume a full year's activity based on the first six months. I would agree that in terms of the tracking, year-to-date June, comparing year to year, that we seem to be further ahead in 2003 than 2002, but I don't believe that at the end of the year, that's where we'll be. 673 There was a large number of attachments that came on in the latter half of the year in 2002. 674 MR. JANIGAN: What is the most recent actual attachment numbers available to Union at this time? 675 MR. SHERVILL: I believe we have year-to-date September numbers, and I don't believe I have those with me but -- 676 MR. JANIGAN: Would you undertake to provide those? 677 MR. SHERVILL: Yes. 678 MR. WIGHTMAN: N.14.4. 679 UNDERTAKING NO. N.14.4: TO PROVIDE YEAR-TO-DATE SEPTEMBER ATTACHMENT NUMBERS 680 MR. JANIGAN: Now, in terms of the implications -- financial implications of what we're talking about, I wonder if you could turn to J.7.1.11, which is an answer to the interrogatory from the Consumers' Association of Canada. 681 MR. SHERVILL: Sorry, what was that reference again? 682 MR. JANIGAN: It was J.7.11. 683 MR. SHERVILL: Yes, I have that. 684 MR. JANIGAN: And the question that was put to Union was: What would be the overall impact on the revenue deficiency if the customer forecast attachment for 2004 of 20,310 was increased by 5,000, and what would be the impact if attachment forecast was increased by 10,000? 685 The answer was, that a assuming that an additional 5,000 commerce were attached in 2004 mid year, the deficiency would be reduced by .1 million. And an additional 10,000 customers would reduce the 2004 deficiency by .2 million, and I take it once -- this is also a mid-year attachment figure we're talking about. 686 MR. SHERVILL: Again, I believe so. 687 MR. JANIGAN: If a customer is attached in 2003, I would assume that the revenue generated by this customer in 2004 would be for a full year of revenue; am I correct? 688 MR. SHERVILL: Yes. 689 MR. JANIGAN: And as a result, a customer attachment in 2003 will have a greater impact in reducing the 2004 revenue deficiency than a customer attachment in 2004, on average. 690 MR. SHERVILL: On average, that seems to be the case, yes. 691 MR. JANIGAN: Okay. Now, would the simple arithmetic of increasing 5,000 in customers, 5,000 customer attachments, in 2003 have the impact of reducing the 2004 revenue requirement by .2 million? 692 MR. SHERVILL: Could you repeat that question, please? 693 MR. JANIGAN: Well I'm just using the arithmetic from this interrogatory, and I was wondering whether or not if you increased 5,000 customers in 2003, would that have the impact of reducing the 2004 revenue requirement by .2 million? 694 MR. SHERVILL: Based on the calculations I guess that Mr. Fogwill and Ms. Elliott have provided in J.7.11 that would stand to reason, yes. 695 MR. SMITH: If I could assist Mr. Janigan, there is a specific calculation that Ms. Elliott goes through and she will be here this afternoon or tomorrow if you care to expand on that. 696 MR. JANIGAN: That's associated with customer attachments? Is that what you're saying, Mr. Smith? 697 MR. SMITH: Well, with respect to what 7.11 was getting at, the revenue deficiency impacts. 698 MR. JANIGAN: Okay. And she would be also be able to deal with any impact to rate base or revenue requirement and rates in general, I would assume; would I be correct, Mr. Smith? 699 MR. SMITH: Well, I don't think it will be Ms. Elliott dealing with that, it will be Mr. McMahon and Mr. Kitchen. 700 MR. JANIGAN: Okay. 701 MR. SMITH: That deal with whatever the impact is on rates. 702 MR. JANIGAN: And as I understand it from Exhibit B.1, tab 3, appendix B, the 2004 forecast of customer attachments in 2004 is expected to be 4.21 percent higher than the 2003 forecast? 703 MR. SHERVILL: Again, subject to check, that looks about right. 704 MR. JANIGAN: Okay. Mr. Chairman I'm moving into another area here. I was wondering if this might be an opportune time for the break. 705 MR. SOMMERVILLE: Thank you, Mr. Janigan. 706 We'll break until 2:00. 707 --- Luncheon recess taken at 12:25 p.m. 708 --- On resuming at 2:02 p.m. 709 MR. SOMMERVILLE: Thank you, please be seated. 710 Mr. Janigan. 711 MR. JANIGAN: Thank you, Mr. Chair. 712 MR. SOMMERVILLE: Thank you. 713 MR. JANIGAN: I'd like to turn to the area of pipeline integrity costs, and I understand that the capital cost of the 2004 pipeline integrity program is 9.349 million, according to your update at B.1, tab 5, appendix B. 714 MR. SANDERS: That's correct. 715 MR. JANIGAN: And in that same table, it shows that the capital cost of the pipeline integrity program for 2003 is 7.474 million, making it a 25 percent increase in capital cost for the pipeline integrity in 2004 over 2003? 716 MR. SANDERS: Yes, that's correct. 717 MR. JANIGAN: And when we look at the O&M cost, gross O&M cost for pipeline integrity at Exhibit B, tab 5, appendix C updated, we note that the corresponding figures for 2004 and 2003 are 6.52 million for 2004, and 3.77 million for 2003; is that correct? 718 MR. SANDERS: That's correct. 719 MR. JANIGAN: And those costs represent about an increase of 72 percent in O&M from 2003 to 2004 versus the 25 percent increase in capital cost from 2003 to 2004; am I correct on that? 720 MR. SANDERS: That's correct. 721 MR. JANIGAN: Now, how does Union determine how to book pipeline integrity costs as an O&M expense versus a capital expenditure? 722 MR. SANDERS: The cost for the O&M and the capital would be determined, I believe, by the general accounting practices that would apply with any other work. 723 MR. JANIGAN: Does this involve the exercise of judgment? 724 MR. SANDERS: No, the rules are defined for what would be considered O&M and capital. An example of that might be, in a particular pipeline repair, what repair would be O&M and what repair would be capital. There are defined parameters that we would use to make that distinction. 725 MR. JANIGAN: And would that distinction be associated with whether or not that particular activity had a benefit that was greater than the individual year? Would that be one distinction? 726 MR. SANDERS: I'm sorry, I'm not sure I understand the question. 727 MR. JANIGAN: Well, in looking to classify the cost, would one of the criteria used to classify the cost would be whether or not the activity or expense had a benefit for greater than that one year? 728 MR. SANDERS: Not that I'm aware of. It is predefined. For example, on the length of the repair, so if it's five metres or longer, then it's capital, if it's less than five, it would be operating and maintenance expense. 729 MR. JANIGAN: Sorry, when you refer to length of the repair. Do you mean -- 730 MR. SANDERS: If I was replacing a section of pipeline, for example. 731 MR. JANIGAN: And the length, when you refer to the length of time, is it the length of time that the repair would last, is that what you're saying? 732 MR. SANDERS: No, sir. I refer to the length of pipe that would be replaced. As an example, if it was five metres or longer, you would use it as a capital expense, if it was less than that it would be an operating expense. 733 MR. JANIGAN: I'm sorry, I thought you said years rather than metres. I should be back at the front table. 734 So when you're looking at operating and maintenance expenditures, for example, for personnel, how do you classify whether or not they should be put in O&M or capitalized expenditures based on that criteria? 735 MR. SANDERS: The staff cost would be associated with the activity that they would be involved with it would be the same determination. 736 MR. JANIGAN: So the fact that an inspection and repair of a pipeline will have a benefit of longer than one year does not militate for a treatment as capital rather than operating? 737 MR. SANDERS: Not that I'm aware of, no. 738 MR. JANIGAN: And I note that in your appendix D at Exhibit B.1, tab 5, that the largest portion of the O&M expense comes from inspection and repair. That's at 80 percent of the total O&M costs. Am I correct on that? 739 MR. SANDERS: The largest component that I see is on line 1, making lines piggable and completing pigging. So if that's what you're referring to as inspection, that's correct. That would not include any repair in that cost. 740 MR. JANIGAN: So I'm trying to understand the criteria breakdown. The inspection and repair is by and large treated as an O&M expense -- the inspection to see whether or not it needs repair is treated as an O&M, whereas, the actual repair is a primarily a capital expense; is that a fair... 741 MR. SANDERS: Maybe to help out, the inspection cost that is O&M is the actual running of the tool or device for inspection, so that would be the pigging process, it would be the O&M expense. In the repair, it can either be capital or O&M. 742 MR. JANIGAN: Is there any element of inspection that is treated as capital? 743 MR. SANDERS: No, not that I'm aware of. 744 MR. JANIGAN: Now, prior to Union's last rate case, Union amortized the pipeline integrity O&M expenditures over four years; is that correct? 745 MR. SANDERS: If you're referring to prior to 1999? 746 MR. JANIGAN: I believe it was prior to RP-2002-0130. Perhaps if you could turn up Exhibit 34.16(C) it might be of assistance. 747 MR. SANDERS: Okay. All right. Thank you. I've got it. 748 MR. JANIGAN: Am I correct on that point that it was prior to the last rates case, which was RP-2002-0130, Union amortized the pipeline integrity O&M expenditures? 749 MR. SANDERS: Yes, that's correct. 750 MR. JANIGAN: So it was changed in the context of the last rates case; have I got that right? 751 MR. SANDERS: Yes, the change, as I understand it, was associated with the change in the regulation and the introduction of the new program. 752 MR. JANIGAN: And did Union change this -- was this effective in the last year of the PBR as well, this change? 753 MR. SANDERS: Yes, in 2003, it was a deferral account, it was established to handle the cost for the integrity program and that was as a result of a material change occurring during the PBR mechanism. 754 MR. JANIGAN: Now, you had maintained the amortization method for the last year of the PBR, would you have reached the PBR threshold of 1.5 million for actual incremental costs for 2002? 755 MR. SANDERS: I don't know is that. 756 MR. JANIGAN: Is it something you could find out? 757 MR. SANDERS: Yes, I think we could undertake to do that. 758 MR. JANIGAN: Could I have that undertaking? 759 MR. SMITH: Just before we provide the undertaking, I just might inquire what the relevance of the undertaking is given that my understanding is that that deferral account was cleared already and we're going forward. So I'm not sure what the relevance of the 2002 deferral account is. 760 MR. JANIGAN: I guess it relates to the financial significance of the practice of discontinuance of the amortization methodology. It can be approached in another fashion to obtain that significance on a forward-looking basis if my friend would be more happy with that or happy with that result. 761 MR. SMITH: I think I would be just because I'm not sure the relationship with costs -- previously-incurred costs to the new costs under a new regulation, new 10-year program, that's the trouble I have. 762 MR. SOMMERVILLE: Mr. Janigan. 763 MR. JANIGAN: Well, I'm -- I would be satisfied if we, instead of looking backward as it were, we looked forward to the impact upon the current costs if the previous practice of amortization over a four-year period of O&M expenditures had been maintained. Is that satisfactory? 764 MR. SOMMERVILLE: Yes, I think that's -- that's certainly an undertaking that the Board would be interested in. 765 MR. WIGHTMAN: For the record, could Mr. Janigan state the undertaking. 766 MR. JANIGAN: It would be to compute the impact upon the O&M expenditures projected for 2004 in the event that the previous practice of amortization of pipeline integrity O&M expenditures over four years had been maintained. 767 MR. WIGHTMAN: N.14.5. 768 UNDERTAKING NO. N.14.5: TO COMPUTE THE IMPACT UPON THE O&M EXPENDITURES PROJECTED FOR 2004 IN THE EVENT THAT THE PREVIOUS PRACTICE OF AMORTIZATION OF PIPELINE INTEGRITY O&M EXPENDITURES OVER FOUR YEARS HAD BEEN MAINTAINED 769 MR. SOMMERVILLE: Thank you, Mr. Wightman. 770 MR. JANIGAN: Now, Union is proposing to dispose of the 2003 forecast of $3.3 million deferral account balance to customers in this proceeding; am I correct on that? 771 MR. SANDERS: That's correct. 772 MR. JANIGAN: And how much of that balance has actually been accrued? 773 MR. SANDERS: From my interpretation if I look at the under Exhibit B.1, tab 5, appendix B calculation that shows how the amount for the deferral activity was arrived at, the components of all those costs that were incurred are detailed in that exhibit. I don't know if that answers your question. 774 MR. JANIGAN: Yes, but my question is: Have these dollars already been spent in 2003? 775 MR. SANDERS: Yes, all the activity that is listed there is completed in 2003. 776 MR. JANIGAN: And the dollars have been spent? 777 MR. SANDERS: Yes. 778 MR. JANIGAN: Okay. And in addition to clearing the forecasted deferral account of 2003, Union is going to recover 2004 forecasted pipeline integrity costs of -- as set out in appendix D; am I correct? 779 MR. SANDERS: That's correct. 780 MR. JANIGAN: And as I understand it, Union is not proposing a deferral account approach associated with pipeline integrity expenditures for 2004 and beyond. 781 MR. SANDERS: That's correct. 782 MR. JANIGAN: And can you tell me the reason for no deferral account is being proposed. 783 MR. SANDERS: Sure. As I mentioned, the last -- or during the PBR period, regulation change occurred in 2002, came into effect in 2002 so under that mechanism, it was the material change in how we would treat the -- those costs. For 2004, as a base case, we were just treating it as we would any other long-standing program. 784 MR. JANIGAN: Well -- and I think Mr. Warren touched upon this in his examination. How do we know that in each year there will be a spending upon this particular program to be carried out as per the projections? 785 MR. SANDERS: The schedule that we have developed to complete the program within 10 years allows for a sufficient amount of work to incur the costs that we've defined. We've defined at least out for a specific number of years the specific projects that we are going to be completing so I don't anticipate any issue in incurring those costs. 786 MR. JANIGAN: Is the material that you presented in this evidence the only detailed plan that you have that identifies the pipeline sections and where Union will carry out the pigging and the remediation work? Is this the level of -- is this currently the level of detail that's in existence in Union's plans or is there a more specific, detailed, plan? 787 MR. SANDERS: No, there are more detailed plans on the specific projects that we have identified out for a number of years. 788 MR. JANIGAN: Well, is there something -- and clearly we're concerned that Union has the ability and -- without the deferral account, to forecast the amount of work and then essentially to shuffle the amount off to another year while at the same time it's collecting the rate of return on the specific work. 789 What kind of confidence can we have or what kind of measures can we hold Union to to try to adjudge its progress on this, apart from what you've set out in the evidence? 790 MR. SANDERS: Well, as I mentioned earlier, the technical regulator, the TSSA would like us to get this program completed sooner rather than later, and what we've tried to do is balance the cost and the ability to complete the work safely and reliably and to the full extent. We will be audited by the TSSA on a regular basis to ensure that we're complying with the regulation. So to the extent that there is concern that we would not complete the work, I think that the TSSA would certainly work towards the goal of making sure that we do. 791 MR. JANIGAN: Have you carried out any benchmark studies to compare the costs of what you had planned in terms of pipeline integrity to what other companies have been doing? 792 MR. SANDERS: No, we haven't. 793 MR. JANIGAN: I think Mr. Warren asked you whether or not there was any independent audit and you suggested the regulation authority, but there's no -- been no scrutiny as to the independent scrutiny of the amount of the costs per se. 794 MR. SANDERS: That's correct. 795 MR. JANIGAN: And are there any industry impacts or exposure to Union for not carrying out the pipeline integrity programs as mandated in the codes? 796 MR. SANDERS: I'm not sure I understand the question when you say industry impacts. 797 MR. JANIGAN: Yes. In the event that you did not carry out this program in the way in which the regulating authority wished you to carry out this program, you didn't meet the codes, is there any exposure or are there any penalties or financial impacts to Union in the result? 798 MR. SANDERS: I'm not aware exactly what the implication would be, but I hadn't contemplated not fulfilling our regulatory requirements. 799 MR. JANIGAN: I'm just looking to what other incentives you have to complete this within the time frame that you've proposed. Is there any other -- 800 MR. SANDERS: No, not that I'm aware of. 801 MR. JANIGAN: I'd like to turn to storage. And in particular, I'd like to look at your gas chromatograph, that project. And as I understand it, on this project you're proposing to spend $2 million in capital on the installation of gas chromatographs to each of the measurement and control stations? 802 MR. FAY: Yes, that's correct. 803 MR. JANIGAN: And this technology is to track the amount of energy in storage at any given time? 804 MR. FAY: Yes, it tracks the energy being injected and withdrawn from each of the individual pools. 805 MR. JANIGAN: I wonder if you could turn up our VECC Interrogatory 34.22. 806 MR. FAY: Yes, I have it. 807 MR. JANIGAN: And it appears to indicate that the industry standard to transact in energy for the United States-based companies dates back to 1998; is that correct? 808 MR. FAY: FERC regulated energy transactions in the U.S. I believe in actually the 1997-'98 period, yes. 809 MR. JANIGAN: And while there isn't a requirement to convert to energy in Canada, you have to align the U.S. interconnects many Canadian pipelines have converted to; is that correct? 810 MR. FAY: We've started to transact in energy units, yes. 811 MR. JANIGAN: And according to this IR response in paragraph C, Union converted it's S&T customer contracts to energy and required nominations for all customers to be placed in energy as of November 1st, 1998. 812 MR. FAY: That is my understanding, yes. 813 MR. JANIGAN: And Union is currently carrying out its operations in energy; correct? 814 MR. FAY: For storage and transportation business, yes. 815 MR. JANIGAN: Okay. And nominations in energy as well? 816 MR. FAY: That is correct. 817 MR. JANIGAN: And as I understand it from your answer to paragraph B, this chromatograph technology has been around as far back as the '50s. 818 MR. FAY: It was developed in the '50s. The development of chromatographs though at that time were not reliable, could not do frequent sampling, and also without the development of the computer and the necessary processing units to store the information, it really hasn't been effective until probably the mid 1980s. 819 MR. JANIGAN: So by 1998, this technology would have been more reliable than the '50s, let's say? 820 MR. FAY: The technology is actually still developing as per today. 821 MR. JANIGAN: I take it it would be more reliable, you mentioned the 1980s as sort of a point where it developed enough reliability for its use; am I correct on that? 822 MR. FAY: In certain circumstances. For monitoring pipelines with fairly good gas quality and fairly minimal changes in the gas quality, gas chromatographs provided an effective way; however, they still had significant maintenance problems, maintenance issues. Until the development of the newer technologies, the newer versions of the chromatograph, storage, because of its wide variation in the gas compositions that go into and out of storage, it probably wasn't until the early '90s that gas chromatograph became an effective means to monitor storage gas in and out. 823 MR. JANIGAN: Okay. So by the early '90s, it was an effective means to monitor storage gas. 824 MR. FAY: Yes, certainly by then. 825 MR. JANIGAN: And this technology was used in the United States when the standardization change to energy came into effect back in 1998? 826 MR. FAY: Yes. 827 MR. JANIGAN: Now, is it Union's view that this technology -- I guess I'll ask the question directly: Why was this technology not implemented in the PBR period if it was in the state of reliability it was, and in 1998, the U.S. had changed to energy? 828 MR. FAY: Well actually, Union Gas has had chromatographs at the Dawn compressor station and in major receipt points and delivery points on the system since that time, and we have measured the energy volumes in and out of the system with chromatographs. 829 What we haven't had is the chromatographs on the individual pool sites which monitor the gas going in and out, but in the total system we did know what the energy inputs and outputs to the system were. 830 MR. JANIGAN: I guess the question is, why did you wait from 1998 to 2004 to propose the program that you're now proposing to put into rates in a cost-of-service regime? 831 MR. FAY: We were requested in September of 2002, I believe, to review energy balancing in the storage facility to provide better response to customer requirements in terms of energy balancing. In March of 2003, we provided a report to the financial reporting team looking at it to marry it up with our gas care and customer care systems to provide a better way of tracking the energy units going in and out of storage. 832 MR. JANIGAN: Who made the request in 2002? 833 MR. FAY: It's FRISB, is the Financial Reconciliation of Inventory Storage and Balance. 834 MR. JANIGAN: That's a Union department? 835 MR. FAY: It was a group formed to investigate how to transact in energy units within Union Gas. 836 MR. JANIGAN: Do you have any idea why that request wasn't made prior to 2002? 837 MR. FAY: No, I have no knowledge of that. 838 MR. JANIGAN: I'd like to turn to your Vector pipeline interconnect to Dawn compressor. And I believe your evidence is at Exhibit B.1, tab 6, page 3. 839 MR. SANDERS: Yes, I have that. 840 MR. JANIGAN: And Union proposed for 2003 to construct a Vector tie-in to the Dawn compressor station yard that was to take place in the spring of 2003. 841 MR. FAY: Excuse me, could you restate that question, please? 842 MR. JANIGAN: As I understand it, Union proposed, for 2003, to construct a Vector tie-in to the Dawn compressor station yard to take place in the spring of 2003. Have I misstated any -- 843 MR. FAY: No, I believe you're correct. 844 MR. JANIGAN: Okay. Now, has that tie-in been completed? 845 MR. FAY: Yes, it was completed. 846 MR. JANIGAN: And did the capital cost of the project come in at the estimate of $959,000? 847 MR. FAY: No, as I indicated this morning, the actual cost of that tie-in was around $508,000 as per our blue-page update. 848 MR. JANIGAN: And does Vector pipeline receive any benefits from Union because of this separate tie-in within the Dawn compressor station? 849 MR. FAY: Not that I'm aware of. 850 MR. JANIGAN: As I understand it, this tie-in results in higher line pressure and thus reduces the need for compression. 851 MR. FAY: The proposed plan is to separate the Great Lakes transmission deliveries from the Vector deliveries. At the time that Vector was proposed, the pressures were expected to be very close between Vector and Great Lakes; however, after a number of years of operational experience, we noticed that the average Great Lakes pressure and the Vector pressure differed by 22 to 39 pounds. As a result, we were actually having to pinch the gas down from Great Lakes in to meet the Vector operating pressure and as a result, we were wasting horsepower and fuel. 852 Our proposal was to connect the Vector pipeline to the G header which takes it over to E plant and connect it down into F header, and that allowed us to access A plant, which is our reciprocating compression in the South Dawn plant. Those units are a little bit more efficient in terms of fuel usage and as a result, we were able to propose about a $250,000 annual savings in fuel. 853 MR. JANIGAN: Now, without this tie-in, would Union have had to build compression? 854 MR. FAY: No, I don't believe so. 855 MR. JANIGAN: You wouldn't have required additional compression to serve the new Brighton Beach facility, would you? 856 MR. FAY: No, we would not. 857 MR. JANIGAN: Now, I'd like to turn to the issue of the rate rider. And according to Union's evidence, I believe Union's proposal is for four line items per customer associated with the rate rider. Am I correct on that? 858 MR. SHERVILL: I believe so, Mr. Janigan. It's to provide up to -- a rate rider for each of the four primary rates, yes. 859 MR. JANIGAN: Okay. And according to Union, the Banner CIS, the Union Banner CIS that uses Oracle as a database platform, it can't accommodate the addition of the four new rate rider line items so an enhanced version of Oracle must be implemented; have I got that correct? 860 MR. SHERVILL: In lay terms, yes, I guess that's fair. 861 MR. JANIGAN: Why can't the existing Oracle platform handle this data? 862 MR. SHERVILL: Well I understand in each of those line items requires software capacity in Oracle. It's needed in order to accommodate the incremental data that would be required for the rate riders and it's also needed to help maintain the processing speed of the rest of the system for that incremental data that's there. So it's, in some respects, a partitioning of some of the existing data and some of the new data so that the whole system doesn't bog down with the incremental data requirements. 863 MR. JANIGAN: The system wouldn't be fast enough with all that data that would be in the four data lines, I take it; is that it? 864 MR. SHERVILL: That's my understanding, yes. Again, this is not exactly my area the expertise, but that's what I'm told. 865 MR. JANIGAN: Okay. Now, if only one line for the rate rider was included, would that result in an increased burden for the existing Oracle database? 866 MR. SHERVILL: That certainly would increase the data requirement for the database, yes. 867 MR. JANIGAN: Do you know if the existing Oracle platform can handle that, if it was just one line? 868 MR. SHERVILL: As I understand it, we are at the limits of our Oracle database requirements at present. 869 MR. JANIGAN: So it couldn't. 870 MR. SHERVILL: That's my understanding. 871 MR. JANIGAN: Now, in the evidence, Union indicates that the Banner system is capable of handling miscellaneous charges, but it can't handle different miscellaneous charges occurring each month; is that -- have I summarized that correctly? 872 MR. SHERVILL: Do you have a reference for that, Mr. Janigan? Sorry. 873 MR. JANIGAN: I believe it's on page 1 of the evidence, Exhibit D.1, tab 10, page 1, I think it's the update. Lines 13 and 14. 874 MR. SHERVILL: Yes, I have it, and yes, that's indeed what it does say. 875 MR. JANIGAN: I'm curious that if you have a number of miscellaneous charges in a year, each miscellaneous charge would replace the previous miscellaneous charge and would be, in effect, the equivalent to an additional line item, would it not? 876 MR. SHERVILL: Well, it would depend on whether or not it was something that was required for all customers or not. Some of these miscellaneous charges may be only for a small subsegment of the customer base. 877 MR. JANIGAN: Well let's say extrapolating from my example, why would it be impossible to have a rate rider as a miscellaneous charge essentially being reborn each month? 878 MR. SHERVILL: Well, again, I believe it has to do with the amount of time that we have to keep that information on file, as part of the database, for 24 months, so they do add up. It may be miscellaneous and random for the time when its billed, but the information must be kept intact. So it's adding to the data storage requirement that we would have to maintain. 879 MR. JANIGAN: Is it possible to get a little more detail on the miscellaneous charge flexibility that you do have? In other words, is there someone that you could speak to and provide that by way of an undertaking? 880 MR. SHERVILL: Yes, I guess we could do that. 881 MR. WIGHTMAN: Undertaking N.14.6. 882 MR. SOMMERVILLE: I wonder if we could have a restatement of that undertaking. 883 MR. JANIGAN: It's an undertaking to provide further detail as to the flexibility of the current Union system to deal with miscellaneous charges. 884 MR. SOMMERVILLE: Thank you. 885 UNDERTAKING NO. N.14.6: TO PROVIDE FURTHER DETAIL AS TO THE FLEXIBILITY OF THE CURRENT UNION SYSTEM TO DEAL WITH MISCELLANEOUS CHARGES 886 MR. JANIGAN: And I wonder if I could take you to a photocopy of Enbridge Gas mock bill, and I just wanted to refer to it for a few minutes here. 887 Panel, if you have this -- 888 MR. SOMMERVILLE: Why don't we give this a number, Mr. Janigan. 889 MR. WIGHTMAN: This mock-up of the Enbridge Gas Distribution bill is Exhibit M.14.2. 890 EXHIBIT NO. M.14.2: MOCK-UP OF ENBRIDGE GAS DISTRIBUTION BILL 891 MR. JANIGAN: I wonder if I could take you to, it's a bit hard to read but it follows in sequential order, it's 18, which I believe is the rate rider surcharge and it's a single item on the bill. Do you see that there? 892 MR. SHERVILL: It's a little hard to read, but I think it's underneath delivery charge called surcharge. 893 MR. JANIGAN: Yes. 894 MR. SHERVILL: Yes. 895 MR. JANIGAN: I'm curious why or if, and I suppose this will come out in the undertaking concerning the flexibility of miscellaneous charges, why your system can't produce this one line similar to Enbridge? 896 MR. SHERVILL: I guess it will come out in that answer, Mr. Janigan, but my understanding is that we have limited capacity to add new lines to our bill, having already gone through unbundling and added a number of new lines to the bill already. 897 MR. JANIGAN: Okay. Now, with the four lines, is Union proposing to have the capability of four separate rate riders on customer bills? 898 MR. SHERVILL: Yes, that's correct. 899 MR. JANIGAN: Now, I'm looking to your evidence and I know Mr. Warren touched upon this briefly in his cross-examination that dealing with the customer preference to know what the total bill is and define the breakdown of the charges. 900 As I understand it, Union has done no specific research to examine this issue and you're unable to say what the preponderance of customer preference is. 901 MR. SHERVILL: Yes, I believe our evidence states that. 902 MR. JANIGAN: Is this kind of research particularly costly? 903 MR. SHERVILL: Well, if you want a statistically significant answer to the question, it can be very costly, yes. 904 MR. JANIGAN: But assuming that, for example, they added a question into the multi-question surveys that are done periodically by research companies and perhaps did some focus groups on top of that, surely, the cost would be much less than $100,000; do you agree with that? 905 MR. SHERVILL: I'm not sure, Mr. Janigan. We'd have to look into that. Certainly adding a single question to an omnibus survey would be less expensive than $100,000, but would that give you the kind of insight that you would need to land on an accurate determination of customer opinion on that topic, I'm not sure. 906 MR. JANIGAN: Now, according to the blue-page update, the cost of this functionality is 3.8 million. It seems from the breakdown of the costs that this is, in effect, a rebuilding of the entire billing database; am I correct in that? 907 MR. SHERVILL: I don't believe so, no. Again, you're stretching my area of expertise a little bit there. 908 MR. JANIGAN: Now, who will own this billing system, Banner or Union? 909 MR. SHERVILL: Well, the system is already owned by ADS, it will continue to be owned by ADS. 910 MR. JANIGAN: What's the remaining period of this contract with ADS? 911 MR. SHERVILL: I believe it runs until 2006. 912 MR. JANIGAN: Okay. And can you tell me what the impact of rates would be if this 3.8 million were amortized over the remaining period of the contract with ADS? 913 MR. SHERVILL: I haven't done that calculation, Mr. Janigan, but I do know that that question was asked of Ms. Elliott earlier in the proceedings and I believe she said that that was not an acceptable option. 914 MR. JANIGAN: Okay. Did she ever give the answer in a numerical fashion, do you know? 915 MR. SHERVILL: I don't recall, but I don't believe so, no. 916 MR. JANIGAN: In any event, I'll get that opportunity with Ms. Elliott, I assume, when she returns. 917 One last question and I'm afraid that it's slightly out of turn, dealing with, once again, the Dawn compressor station. In our Interrogatory 34.24(B), J.34.24(B). 918 MR. FAY: Did you say D or B? 919 MR. JANIGAN: B as in boy. 920 MR. FAY: Thank you. Yes, I have it. 921 MR. JANIGAN: And I believe it's in schedule 2, page 1. I'm looking at the cost of the storage plant C gas generator overall of 1.005 million, and I'd like to compare that to the capital costs required for the complete overhaul of the Dawn compressor station of 1.414 million. 922 MR. FAY: I'm sorry, we've got the wrong page. You said schedule 2, page 1 of 4. 923 MR. JANIGAN: Page 1 of 4, yes. 924 MR. FAY: Yes, okay. 925 MR. JANIGAN: And line 2, I believe, gives the -- 926 MR. FAY: Yes. 927 MR. JANIGAN: -- cost. 928 MR. FAY: I have that. 929 MR. JANIGAN: And I'm attempting to compare the 1.005 million that's listed here for the storage plant C generator overhaul cost to the cost of the overhaul of the Dawn compressor station of 1.414 million. This comparison would seem to imply that the estimate cost of the Dawn compressor station is too high. Can you comment on that? 930 MR. FAY: The only comment I would make is that the repairs or the overhaul work that needs to be done on the E plant is probably more extensive than the C plant, either that or the contract labour price for doing the overhaul on E plant is probably higher. 931 MR. JANIGAN: And this would have been submitted to competitive bidding, would it? 932 MR. FAY: I do not know that. 933 MR. JANIGAN: Is there any other place we can look for evidence that would enlighten us as to the applicability of this comparison? 934 MR. FAY: Well, first of all, the plant C gas generator overhaul of $1 million that you're looking at is a 2000 calendar year cost and the upgrade that we're looking at this year is 2003 so obviously there is inflation and certainly the E plant is a different unit than the plant C gas generator overhaul. So I expect that there would be some differences with respect to the other two, but no, there is no other information in the filing to provide more detail. 935 MR. JANIGAN: Okay. Thank you, Mr. Chairman those are all my questions for this panel. 936 MR. SOMMERVILLE: Thank you, Mr. Janigan. 937 Who is next? Mr. Shepherd? We would look, Mr. Shepherd, to take our afternoon break at around 3:00. Would it be better to take it now, Mr. Shepherd? 938 MR. SHEPHERD: That would be great, Mr. Chairman. 939 --- Recess taken at 2:50 p.m. 940 --- On resuming at 3:03 p.m. 941 MR. SOMMERVILLE: Thank you, please be seated. 942 Mr. Shepherd. 943 MR. SHEPHERD: Thank you, Mr. Chairman. 944 Mr. Chairman, School Boards' has tabled a cross-examination reference book which I believe you have copies of. 945 MR. SOMMERVILLE: Yes. 946 MR. SHEPHERD: I wonder if we could get an exhibit number for that. 947 MR. WIGHTMAN: Exhibit M.14.3, Cross-Examination Reference Book, Panel 9, from the Ontario Public School Boards' Association. 948 EXHIBIT NO. M.14.3: CROSS-EXAMINATION REFERENCE BOOK, PANEL 9, FROM THE ONTARIO PUBLIC SCHOOL BOARDS' ASSOCIATION 949 MR. SHEPHERD: My questions are all for Mr. Shervill. 950 CROSS-EXAMIANTION BY MR. SHEPHERD: 951 MR. SHEPHERD: Mr. Shervill, you're familiar with the decision of this Board in EBO 177-15. 952 MR. SHERVILL: I'm familiar with the outcome, yes. 953 MR. SHEPHERD: Were you involved in that at all? 954 MR. SHERVILL: No, I wasn't. 955 MR. SHEPHERD: This proceeding dealt with the need for the new CIS system; correct? 956 MR. SHERVILL: Yes. 957 MR. SHEPHERD: And I wonder if you could go to tab 1 of our materials, this is an excerpt from the Board decision and there, in paragraph 2.2.1, the Board refers to an assessment of your old system by the Wilson Group; are you familiar with that? 958 MR. SHERVILL: With the assessment? 959 MR. SHEPHERD: Yes. 960 MR. SHERVILL: Generally, yes. 961 MR. SHEPHERD: And if you see in 2.2.1, one of the things that the Board described what the Wilson Group concluded and they said that they agreed with Union's management and I'll quote: 962 "The existing CICS, while wide in scope and rich in functionality, was deficient in technical architecture. That deficiency made CIS changes both costly and time consuming." Do you see that? 963 MR. SHERVILL: Yes, I do. 964 MR. SHEPHERD: And if you go on to 2.32.3, you'll see in the third sentence it says, and I'm quoting: 965 "Wilson concluded that these proposed changes," and those are changes in the marketplace that were expected, "would require an extremely flexible CIS with multicompany and multiservice capability deployed over the next three to five years." 966 And finally, if you could turn to paragraph 2.2.14, the Board in its findings noted that one of the reasons why they approved the new CIS was the lack of flexibility of the existing one; do you see that? 967 MR. SHERVILL: Yes, I do. 968 MR. SHEPHERD: Now, just let me stop you there. Obviously the concern that we're trying to address here is we're having a hard time understanding why you need $3.8 million to put a rate rider in when you spent tens of millions of dollars on a system that was supposed to be very flexible. Perhaps you could comment on that. 969 MR. SHERVILL: Well, in fact, the system is flexible, Mr. Shepherd. It has sufficient flexibility to accommodate the changes we're proposing to make now to put in place rate rider capability. It's just at that those changes will take some expense to accomplish, but the system is certainly flexible enough to do them and at the same time to accommodate GDAR changes and other changes to our system. 970 MR. SHEPHERD: So the comments on flexibility in this proceeding, in the EBO 177-15 proceeding, those weren't saying that the system could do a lot of things, they were saying that if you spent some more money you could make it do a lot of things; right? 971 MR. SHERVILL: Well, I can't speak to all of the outcomes, but that's certainly one of the outcomes, designing a system that has that flexibility to accommodate unforeseen changes in future is one of the elements that would be encompassed by the kind of flexibility that was designed into the system, yes. 972 MR. SHEPHERD: Perhaps you could turn to tab 2 of these materials. And you'll see on the first page there, this is an excerpt from one of your exhibits in that proceeding and you're talking about the various functionalities in the proposed system. And if you look under the heading, "managed charges," it says in the second paragraph: 973 "Included are energy and non-energy charges to all residential, commercial, multi-family and industrial sectors of customers, and included is the ability to simulate and test new rates or charge structures. The system supports interim rates and retroactively calculates charges upon finalization of the rate structure." 974 Now, I take it this is not saying, Mr. Shervill, that you could build this, this is saying that the system that you are asking for approval to build would have this; right? 975 MR. SHERVILL: Yes, that's correct. 976 MR. SHEPHERD: So it would have the ability to simulate and test new rates or charge structures; right? 977 MR. SHERVILL: Well, I believe that's what it says, yes. 978 MR. SHEPHERD: But that wouldn't include simulating and testing, for example, rate riders. 979 MR. SHERVILL: That's correct. 980 MR. SHEPHERD: I wonder if you could turn to tab 3. And tab 3 is again an excerpt from another part of your evidence in that case. And if you turn to the second page under number 3, it says, that the new software: 981 "Facilitates changes in rate structure including revised transportation zones, blocks, rates, and pricing of merchandise and miscellaneous services." 982 Now was this intended to say that this functionality would be built in or that you'd be able to do it later if you paid for it? 983 MR. SHERVILL: I believe it's saying that this is the flexibility that would be built in. 984 MR. SHEPHERD: So this would will already be there, you'd already be able to do these things without any additional cost if the Board approved this package; is that right? 985 MR. SHERVILL: I believe that's correct, yes. 986 MR. SHEPHERD: And so, for example, where it -- it talks about the deficiency in the existing functionalities and it says just down towards the bottom of the page, "price changes are simplified." And that's something that would already be in there, yes. 987 MR. SHERVILL: Yes for the primary rate, that's correct. 988 MR. SHEPHERD: And similarly if you wanted to go to seasonal pricing you could do that and you wouldn't have to spend more for it; right? 989 MR. SHERVILL: Again, that's my understanding, yes. 990 MR. SHEPHERD: And then if you could turn to page 7 of 16, if you look under number 9, and I'm just hitting the highlights here, Mr. Shervill, at the end of number 9 says and I quote: 991 "Extensive number of product services with appropriate descriptions can be accommodated." 992 Again, do I understand this to mean you could build it -- you could spend more money to build in new things or the accommodation of these things is already built in for the original price? 993 MR. SHERVILL: In this case, again, I think it would depend on what kind of product or service you were thinking of, but as I understand it, it would be -- it could be accommodated. There may indeed be some incremental cost to accommodate a new service that wasn't contemplated at the time. 994 MR. SHEPHERD: I wonder if you could turn to tab 4 of these materials. And the fourth page has the heading, "Billing." Now this document is a function mapping summary; do you know what that is? 995 MR. SHERVILL: Yes, I believe it's comparing the old system to the new system against some industry standards and talking whether or not the new system would be able to deliver the functionality required. 996 MR. SHEPHERD: Now, if you look on the first page of this tab you see what the headings are, and the last two on the right are, "Resolved Union Deficiency," and "Resolved Centra Deficiency;" do you see that? 997 MR. SHERVILL: Yes, I do. 998 MR. SHEPHERD: And the reason for that was because at the time this was approved there were actually two CIS systems that you had to deal with; right? The Union one and the Centra one. 999 MR. SHERVILL: That's correct. 1000 MR. SHEPHERD: And the Union one was better but Centra didn't want to go to it, and so you decided you wanted approval for a brand new one for both companies; right? 1001 MR. SHERVILL: Well, they were different. I'm not sure about the better, but that's a relative measure but certainly, yes, the proposal was to go to one new one. 1002 MR. SHEPHERD: Okay. So back to page 4 of 11 for a second. You see there the heading service billing energy. Do you see that? 1003 MR. SHERVILL: Yes, I do. 1004 MR. SHEPHERD: And it says under the column which is deficiencies, it says: "Limited to gas service fundamental design based on one customer, one service and one meter all tightly connected and with limited flexibility to provide alternate options." 1005 Now, further on where it says under the heading, Banner CIS degree of support, high, and resolves Union and Centra deficiencies, yes and yes. 1006 So I take it this means that the limitation of only having a single billing option for energy is removed in the new system; right? 1007 MR. SHERVILL: Well, I don't know whether removed is the right word. Certainly, I would read from this that the new system intended to provide the capability of providing more than one service. 1008 MR. SHEPHERD: Okay. 1009 MR. SHERVILL: Which is, in fact, what the new CIS system has today. 1010 MR. SHEPHERD: Expect that when you want to add a rate rider you have to spent $3.8 million. 1011 MR. SHERVILL: Well, as I say, Mr. Shepherd, there are two ways in which we can accomplish what we're trying to do with customers here. One way is to add a rate-rider capability and pay the $3.8 million, and the other way is to include those incremental charges in the existing primary rate capability and try to describe it in a brochure to the customers explaining what the change is. The reaction we got when we last tried to do that, when we implemented 2001 and 2002 rates, was a significant concern on the part of our customers for the lack of transparency that provided. 1012 We're simply trying to provide another option for the Board's consideration here. 1013 MR. SHEPHERD: Okay. I wonder if you could turn to tab 6 of these materials, please. These are excerpts from the transcripts of these proceedings, and if you could turn to the third page of that tab, this is the cross-examination by Ms. Lee of Mr. Wellard. 1014 MR. SHERVILL: Yes, Mr. Wellard. 1015 MR. SHEPHERD: Sorry. And if you see starting at line 16 -- 1016 MR. SHERVILL: Sorry. Is this the page with 45 at the top, Mr. Shepherd? 1017 MR. SHEPHERD: No, this is the page before that. 1018 MR. SHERVILL: Okay. Yes. 1019 MR. SHEPHERD: At line 16 it says: "We felt that by going with the SCT Banner system," now that's the current system you have; right? 1020 MR. SHERVILL: That's correct. 1021 MR. SHEPHERD: "Because we weren't sure how the businesses were changing, that we wasn't to a system that was rules driven and table driven, that it gave us a tremendous amount of flexibility and that's where we went initially to build that for ourselves." 1022 Now let me just stop there. A system that's rules driven and table driven, it means you can change things fairly easily; right? 1023 MR. SHERVILL: I believe so. I think that's what Mr. Wellard was trying to say, that that was one of the ways in which to build flexibility into this system. 1024 MR. SHEPHERD: And the reason you wanted that was because there was going to be a lot of changes in the future that you didn't know about, right, that you didn't know what the changes would be, you just knew there would be lots of them; right? 1025 MR. SHERVILL: Well, we knew what some of them would be. We knew that there was considerable desire to unbundle our rate. But we also expected there were others that we didn't know about. 1026 MR. SHEPHERD: And in tab 7, if you can look at the second page of that tab, this is the cross-examination of Mr. Wellard by my friend, Mr. Thompson. 1027 Mr. Thompson is asking about the benefits of this new system to IGUA, to the Industrial Users, and Mr. Wellard says at the bottom of 26: 1028 "One of the largest values of the system is the fact that it is rules based and table driven so it basically allows a company to renovate or reengineer its business processes." 1029 And he also goes on to say: 1030 "If we can reduce those costs through reengineering and renovation, it will drive down costs to IGUA and any one of our clients." 1031 So do I understand that the point of building in flexibility was to reduce costs; right? 1032 MR. SHERVILL: I'm sorry, I'm not following your reference here, Mr. Shepherd, you're on the second page of that two-page insert? 1033 MR. SHEPHERD: The second page of the tab which is starting at line 26. 1034 MR. SHERVILL: Line 26. 1035 MR. SHEPHERD: It goes over to the top of the next page. 1036 MR. SHERVILL: I don't have a next page, sorry. 1037 MR. SHEPHERD: There should be a page marked 306. Do you not have that? 1038 MR. SHERVILL: Oh, yes, I do. Sorry. Okay. Yes, I have it. 1039 MR. SHEPHERD: And so my question is: One of the main reasons for building flexibility into the system which costs you tens of millions of dollars was over time, to drive down the cost to the customers; right? 1040 MR. SHERVILL: Yes, that's correct. 1041 MR. SHEPHERD: At the time that you asked for approval for this new CIS system, did the company advise the Board that every change that was not currently contemplated would cost several million dollars? 1042 MR. SHERVILL: I'm sorry, I don't know whether that comment was made or not. 1043 MR. SHEPHERD: Well, I wonder, I didn't find anything in the evidence in that case. I wonder if you could undertake to advise us whether the company gave the Board any notice of the substantial change costs that would arise in the future with this system? 1044 MR. SHERVILL: We'll do our best. 1045 MR. SMITH: Well, sorry, Mr. Shervill. First of all, I guess we should make an inquiry to see whether or not what Mr. Shepherd is asking us to do is possible. Going back now six years in time and to the extent Mr. Shepherd has already checked the record, there are people at the company that we might be able to make some inquiries of, but there certainly -- I don't think we could even purport to say today that any sort of search would be exhaustive. 1046 I should also note that the premise of Mr. Shepherd's question is entirely unfounded in that he presumed that all of the costs cost multimillions of dollars. We know in fact in this proceeding that, for example, the GDAR costs are considerably less than those of the rate-rider functionality and there may have been other changes along the route. So I guess we can make a preliminary inquiry to see what he can find out, but I don't want us to be taken to going back at least seven or eight years to -- six or seven years to try and figure out what someone may have said, or a letter. 1047 MR. SHEPHERD: Mr. Chairman, I want to be able to say in argument that the company gave the Board no notice of charges of this type, and I can't prove that except by the company telling us that. 1048 MR. SOMMERVILLE: Well, with respect, I think you can. There is a transcript in the proceeding. There are exhibits in the proceeding. And I think asking Mr. Shervill to make inquiries of people around the company as to whether that proposition was put to the Board at that time is kind of the long way around to get that. I think you've put the proposition to Mr. Shervill. I think the applicant is on notice of what it is that you intend to argue and there is a record that both parties can rely upon. And I think that's a better way of handling this than a kind of, if I may say so, a bit of an amorphous undertaking by Mr. Shervill. 1049 So I think the company has notice of what it is that you intend to argue. I don't want to prejudge or challenge to your ability to do that, but I would think that having gone through this exercise, you put that proposition to the witness and that, you know, your ability to argue that is certainly not impaired at this stage and that there is a record to rely upon and the applicant can go to and that you can go to and include it in your argument. 1050 MR. SHEPHERD: Thank you, Mr. Chairman. And Mr. Chairman, those are all our questions. 1051 MR. SOMMERVILLE: Thank you, Mr. Shepherd. There is no undertaking, Mr. Wightman. 1052 Who is next in line? Mr. Thompson? 1053 MR. THOMPSON: I think Ms. Singh wanted to go before me. 1054 MR. SOMMERVILLE: Ms. Singh, please. 1055 CROSS-EXAMINATION BY MS. SINGH: 1056 MS. SINGH: Good afternoon, panel. 1057 I want to ask a couple of questions in the area of customer attachments and pipeline facilities, a couple of different questions and hopefully I won't be duplicating the questions of my colleagues that preceded me. 1058 First of all, I have tabled and circulated amongst the Board and everybody at the back something called "customer additions" which is a table with the date on the top of it, and there are copies at the back if anyone doesn't have one. 1059 I was wondering, Mr. Chairman, with your permission if I could get an exhibit number for this table. 1060 MR. SOMMERVILLE: This was provided to the applicant earlier, Ms. Singh? 1061 MS. SINGH: It was. There was a small problem. There was a copy that was provided on Friday to the applicant and to the Board, and there were some changes made to that so I was asked to e-mail it over the weekend which I did do but apparently they didn't receive it. So I brought additional copies this morning and in addition, I can advise the Board that there are only arithmetic calculations on this table, there is no new evidence, it's extracts from Union's evidence. 1062 MR. SOMMERVILLE: The purpose of my question is just to ensure -- we do have a practice that where there is an attempt to give the applicant notice of document of this nature, and I take it that in substance, in substance, that was accomplished. There were some revisions. 1063 Do you have any comment about the document, Mr. Smith? 1064 MR. SMITH: No, no comment. 1065 MR. SOMMERVILLE: We'll give it a number. 1066 MR. WIGHTMAN: The spreadsheet entitled, "Customer Additions," with the date of 24 October 2003 is Exhibit M.14.4. 1067 EXHIBIT NO. M.14.4: SPREADSHEET ENTITLED, "CUSTOMER ADDITIONS DATED 24 OCTOBER 2003" 1068 MR. SOMMERVILLE: Thank you. 1069 MS. SINGH: Thank you. Thank you. 1070 I understand that Union forecasts its new customer attachments month by month to a regional market assessment of new housing and construction activities to arrive at the number of forecasted customers. And you did review a little a little bit of that evidence with Mr. Janigan this morning; is that correct? 1071 MR. SHERVILL: Our forecast isn't really done month by month. It is done based on a variety of sources for the entire year. We do our best to try and calendarize that forecast to give us an idea of how our capital expenditures associated with that will flow, and I believe it was Mr. Warren I might have gone over that with this morning. 1072 MS. SINGH: May I direct your attention, first of all, to Exhibit B.1, tab 3, and kind of under the heading, forecast of test year customer attachments. Do you see that? 1073 MR. SHERVILL: Yes, I have it. 1074 MS. SINGH: Okay. And I see there that Union has set out its actual and forecast customer additions from 2000 to 2004, which were then modified by the blue-page update; is that correct? 1075 MR. SHERVILL: In the appendix attached to that evidence, yes. 1076 MS. SINGH: Okay. And you'll see, looking at the Exhibit M.14.4 that the CME has prepared that we've taken your numbers from page 2, together with the update, and set them out at line 5; do you see that? So you'll see in line 5 that you have -- first of all, starting with line 1, maybe that's a better way to start, you'll have the original and forecast for 2003 and 2004, and then going down to line 5, we start with the years 2000, 2001, 2002, which is column D, column E is 2003; and finally 2004, the forecast with the blue-page updated evidence is found at column F. 1077 MR. SHERVILL: Yes. 1078 MS. SINGH: Is that correct? Subject to check, am I correct in my understanding that for 2004 Union is forecasting approximately a 4.2 percent increase in customer additions over its revised 2003 forecast? 1079 MR. SHERVILL: Yes, that's correct, it's gone from 25,923 in 2003 to 27,015 in 2004. 1080 MS. SINGH: Okay. Thank you. Subject to check, would you agree with me that the customer additions three-year average from 2000 to 2002, looking again at line 5, was 25,196, and based on that three-year average, Union is forecasting that customer additions will increase by 2.9 percent in 2003, and by 7.2 percent in 2004, and you'll see these at column F, line 9. 1081 So in 2003, I believe the number is 25,923 and again in 2004, as you just mentioned, 27,015. 1082 MR. SHERVILL: That's correct. 1083 MS. SINGH: Thank you. And you've outlined in your evidence that some of the reasons for this 7.2 percent increase in 2004 include things such as new home construction market, an increase in interest rates, and consumer confidence; is that correct? 1084 MR. SHERVILL: Well, we forecast 27,015 based on a number of factors that go into our forecast assumptions, including what interest rates are forecast to be, what housing starts are forecast to be from a variety of sources and the general economic conditions that are expected for that period of time. 1085 MS. SINGH: Thank you, Mr. Shervill. I was wondering if you could elaborate on what conditions are forecast to exist in 2004 over 2003 that would result in over a thousand more customer attachments in 2004. 1086 MR. SHERVILL: One moment. 1087 We base that upon a variety of things. We talked to all the home builders in our area to get their outlook for 2004. We look at the economic circumstances, the GDP, the CMHC forecast, the global insight forecast, TD bank provincial housing start forecast, and we use that to develop a provincial housing start forecast estimate. And we use the CMHC regional estimates as well for that. 1088 Then we -- that generally produces what we call a macro forecast, we work at it in two stages. We take that macro forecast and we give it to our sales managers and their operational colleagues in the field and ask them to do a micro forecast by evaluating the business conditions in each of our districts and talking to the home builders, and we refine that macro forecast based on that consultation. 1089 Given all of those factors taken together our forecast for 2004 is what it is, 27,015 attachments broken out as shown in Exhibit B.1, tab 3, appendix B updated. 1090 MS. SINGH: Now, I know when you were having a discussion with Mr. Janigan, you undertook at Undertaking 14.4 to provide us with the most recent customer attachment forecasts for 2003 and I was wondering -- 1091 MR. SHERVILL: I believe that was actual attachments. 1092 MS. SINGH: Actual attachments, that's right. And I'm wondering, the blue-page update is based on five months of actuals; is that correct for 2003? 1093 MR. SHERVILL: The blue-page update? 1094 MS. SINGH: Yes. 1095 MR. SHERVILL: The blue-page update was filed in August. I believe it was year to date June, so I think it was six months actually. 1096 MS. SINGH: So would you be able to tell us, as part of the undertaking to Mr. Janigan, how many customer attachments were actually made to date in 2003? 1097 MR. SHERVILL: To June? 1098 MS. SINGH: Is that as far as you can take it? 1099 MR. SHERVILL: Well, we've taken an undertaking to take it to September, which is I believe the most recent update. 1100 MS. SINGH: Okay. 1101 MR. SHERVILL: So we already have an undertaking to that effect. 1102 MS. SINGH: I just want to make sure I was getting that information. Thank you. 1103 I'm wondering now if you could, please, turn up Exhibit B.1 at tab 2, the blue page. 1104 MR. SMITH: Is that B as in Bob? 1105 MS. SINGH: Yes. 1106 MR. SHERVILL: Yes. 1107 MS. SINGH: Page 4. 1108 MR. SHERVILL: Yes. 1109 MS. SINGH: And am I correct in my understanding, looking at page 4, that as of today's date, Union is forecasting 6,705 additional customer attachments over its original 2004 forecast. 1110 MR. SHERVILL: That's correct. 1111 MS. SINGH: And this will require an additional 5.5 million in capital? 1112 MR. SHERVILL: Yes, I believe that's Ms. Elliott's evidence, in that 5.5 million in capital is an aggregate number. I think the largest issue there is the number of the incremental customer attachments, but there may be other factors in there as well. 1113 MS. SINGH: And would you agree that, subject to check, that the average cost of these additional 6,705 customer attachments is approximately $820. 1114 MR. SHERVILL: You're simply dividing the 6,705 into the 5.5 million. 1115 MS. SINGH: That's correct. 1116 MR. SHERVILL: Again, as I say, I think there may be some other factors involved in that. That's an aggregate number that for the most part reflects the increase in attachments but may also reflect some other things, but I think the simple math is correct. 1117 MS. SINGH: Okay. Would you also agree, subject to check, that if Union has overestimated its 2004 customer attachments relative to the three-year average from 2000 to 2002 of 25,196, that Union's capital budget for customer attachments will be about 1.5 million too large? 1118 MR. SHERVILL: I'm sorry, I'm not following how you get there. 1119 MS. SINGH: If we take the three-year average from 2000 to 2002 of 25,196, and if you have overestimated your 2004 numbers of 6,705 by a thousand, and that would roughly -- you've got a budget of 5.5 million, that that would reduce that budget of 5.5 million by 1.5 million, subject to check. Does that sound right? I'm not asking you to do the math. 1120 MR. SMITH: Well, sorry, I mean, the number of attachments and the forecast for number of attachments, Mr. Shervill is here to testify to. The actual financial ramifications of that, Ms. Elliott and Ms. Brodie Lumley are the next panel and are prepared to deal with these. 1121 MS. SINGH: Okay. You'll see the calculation if you want to look at it on Exhibit M.14.4, it's from lines 10 to 13, and you'll see that 1.5 million and how that was arrived at, a very simple calculation. 1122 MR. SOMMERVILLE: Ms. Singh, I think Mr. Smith's point is you can certainly ask this question of Mr. Shervill, but I would expect that given the qualifications that he's already introduced, you may want to put it to Ms. Elliott. 1123 MS. SINGH: Okay. Thank you. I'll do that. 1124 MR. SOMMERVILLE: Tomorrow. 1125 MS. SINGH: Thank you. And I'm wondering if you could comment on what, in your view, and maybe this is again a more appropriate question for Ms. Elliott in which case I'll stand my question down until tomorrow, but what would, in your view, be the consequence for ratepayers in 2004 if the customer attachment budget is larger than it needs to be? Do you feel that this is a question that you comment on or should I -- 1126 MR. SMITH: I think that that will have to wait for Ms. Elliott. Indeed, I believe her name is attached to it in a interrogatory that bears some resemblance to that question. 1127 MR. SOMMERVILLE: I think a very similar question was asked earlier and I think Mr. Shervill felt capable of answering the question so I'm going to let the question stand. You might want to repeat it, Ms. Singh. 1128 MS. SINGH: If you could just comment on the consequence for ratepayers in 2004, if the customer attachment budget is too large, be it 1.5 million or something else. 1129 MR. SHERVILL: Well, hypothetically, we would be collecting more money than we needed. 1130 MS. SINGH: Would there be a mechanism to give that to share in the benefit of that or any kind of after the fact reconciliation, could that be done? 1131 MR. SHERVILL: I think we're probably better off letting Ms. Elliott handle this question. 1132 MS. SINGH: Okay. Thank you, Mr. Shervill. 1133 I'll just move on now to a few questions related to the pipeline integrity issue. And here, if you could turn up Exhibit B.1 at tab 5, please. 1134 MR. SANDERS: Okay. 1135 MS. SINGH: I see on page 4 of the white pages, lines 8 through 10, and of course we know that that's been updated by the blue page, that Union has set out its actual and forecast capital and O&M costs for pipeline integrity for '99 plan, 2002 actual, 2003, and 2004. Could you advise what the 1999 actual capital and O&M costs were? I didn't see that in the evidence. Maybe I just missed it. 1136 MR. SANDERS: Yeah, in 1999, the costs for the integrity were part of that amortized amount that we discussed earlier. I don't have the actual costs for 1999 with me, but we can find those. 1137 MS. SINGH: Could we get an undertaking for this? 1138 MR. WIGHTMAN: Undertaking N.14.7, Union undertakes to provide the actual capital and O&M expenditures on the pipeline integrity management program for 1999. 1139 UNDERTAKING NO. N.14.7: TO PROVIDE THE ACTUAL CAPITAL AND O&M EXPENDITURES ON THE PIPELINE INTEGRITY MANAGEMENT PROGRAM FOR 1999 1140 MS. SINGH: And O&M costs. 1141 MR. SOMMERVILLE: That was included, yeah. 1142 MS. SINGH: Thank you. 1143 Subject to check, am I correct in my understanding that Union is proposing to increase its 2004 O&M costs by about 83 percent over 2003, going from 2,780 in 2003 to 5,110 in 2004. 1144 MR. SANDERS: I'm not sure where you're arriving, which totals? Is this for the overall program? 1145 MS. SINGH: Yes, it is, O&M, overall. 1146 MR. SANDERS: In appendix C. 1147 MS. SINGH: Taken from page 4, you'll see that the total O&M for 2004 with the blue-page update is 5,110, and for capital, it's set out there on page 4 is 8,150, but with the blue-page update of an additional 840,000, it's 8.9 million; is that correct? And so all I'm saying is that the difference between the 2003 plan of 2,780 and the 2004 plan of 5,110 is an increase of 83.8 percent. Subject to check. 1148 MR. SANDERS: Yes, I haven't done the math but yes, there was an increase or an increase as defined in the blue-page update from '03 to '04. 1149 MS. SINGH: And subject to check, that's an 83.8 percent increase from 2003. 1150 MR. SANDERS: Sure, okay. 1151 MS. SINGH: Could you explain the basis for such a large increase. 1152 MR. SANDERS: Okay. In each year there is a defined number of projects that we would undertake. In 2004, the increase in the number of projects accounts for a significant amount of that increase. You also have a compounding factor on top of that because of the remediation from the projects of the pipelines that were investigated from the previous year. 1153 MS. SINGH: Is the 2004 forecast increase in O&M an ongoing cost or is it a one-time cost? 1154 MR. SANDERS: There are a number of separate components to the O&M cost from year to year. There are some costs that would be one-time costs and some that would be ongoing. We have laid out the program over the ten years, and in those ten years there will be components of that O&M in each year. 1155 MS. SINGH: Do you have any sense of what that might be from year to year? 1156 MR. SANDERS: Sorry, what the O&M costs per year will be? 1157 MS. SINGH: Yeah, or what might carry forward and what might not? Are there components that are only for 2004 and components that will extend beyond? 1158 MR. SANDERS: There may be some specifically. I'm looking at the level that we've reported in appendix D, the -- each of those major categories will continue for the life of the program, for the ten years. Some of those costs are now part of our standard operating practice that would be ongoing costs, the life of the facility. To answer your question specifically, are there some that will not continue beyond 2004, I believe the only one that we would have that I can identify at this time is the development of the risk application, which was a specific software application and database designed to use around the pipeline integrity program. So that is the only one-time cost that I can identify at this time. 1159 MS. SINGH: Thank you. And I think that I heard you give evidence to Mr. Janigan and others that you intend to spend the 8.9 million in 2004. 1160 MR. SANDERS: That's correct. 1161 MS. SINGH: And that you would be concerned that if you did not spend the 8.9 million that the TSSA would potentially find you not to be compliant with your proposed schedule. 1162 MR. SANDERS: Yes, that's correct. 1163 MS. SINGH: Can you advise, finally, whether all of the 2004, 8.9 million pipeline integrity capital expenditures are required, strictly speaking, to meet the regulatory requirements. And related to that, if not, how much is, strictly speaking, required by law and how much is not? 1164 MR. SANDERS: If you refer to appendix D, I'm sorry you keep mentioning the 8.9 million, but in appendix D under the capital costs we have the 9.146 which is the subtotal for the capital. Is that what you're referring to? I realize 8.9 was before the blue-page update. 1165 MS. SINGH: Yes. 1166 MR. SANDERS: Okay. So which components of this are specifically related to regulatory compliance is your question? 1167 MS. SINGH: Yes. 1168 MR. SANDERS: Okay. Lines 1 to 6, all of those components are specifically related to the regulation change from 2002 in Ontario Regulation 210. In lines 7 to 9, again all of those are related to code requirements, either CSA code requirements or the Ontario Regulation. So all of those are either indirectly or directly related to compliance with regulations or codes. 1169 MS. SINGH: Thank you. Those are my questions. 1170 MR. SOMMERVILLE: Thank you, Ms. Singh. 1171 Mr. Thompson. Any idea as to your time frame, Mr. Thompson? 1172 MR. THOMPSON: I would think 20 minutes, maybe give or take five minutes either way. 1173 MR. SOMMERVILLE: Thank you. 1174 CROSS-EXAMINATION BY MR. THOMPSON: 1175 MR. THOMPSON: Panel, I'd like to start with you, Mr. Hyatt, Exhibit B.1, tab 4. This is where you talk about the design-day demand. You were discussing this with Mr. Ryder, and you indicated to him the design-day demand is considered from the perspective of facilities planning as well as from the perspective of facilities operations if I understood you correctly; is that right? 1176 MR. HYATT: Yes. We would develop a facilities plan that would meet those -- the demands on the system, and that would forecast any future facilities. In the short term, we would expect to be able to forecast for the upcoming winter what the operational needs to be. 1177 MR. THOMPSON: So it's design-day demands that cause facilities to be constructed; have I got that straight? 1178 MR. HYATT: That's correct. 1179 MR. THOMPSON: So I'd like to just find out how these design-day demands are developed, and it's in that context that I draw your attention to the blue sheets, page 1, Exhibit B.4, tab 4. And here you -- if we go to the white sheets, you tell us that on page 2 of 7, you say the design-day requirements are developed using the most recent volume forecast. 1180 And then in the blue-sheet update, you tell us that the design-day demand got updated for actual consumption in 2002-2003 winter and then updated for different forecasts for the 2004 period, as I understand it. Is that what happened? 1181 MR. HYATT: That's correct. 1182 MR. THOMPSON: Okay. So what I'd like to understand, if you could just tell us how it works. Let's assume you -- well let me back up. The demand forecasts that are prepared by the demand group, we have the general service forecasts, we have the contract demand forecasts, and then we have the S&T forecasts; right? 1183 MR. HYATT: That's correct. 1184 MR. THOMPSON: Okay. And let's just say, for the sake of argument -- and those are annual forecasts; is that correct? 1185 MR. HYATT: That is correct. 1186 MR. THOMPSON: And for the sake of argument, let's assume that the contract forecasts -- sorry, the general service is a thousand units a year, the contract is a thousand units a year, and the S&T is a thousand units a year. That's forecast number one. 1187 Now, can you tell me how the actuals for the 2002-03 winter affect the -- well, before we do that, taking that forecast, how do you then develop the design-day demand which is a peak-day requirement? Right? 1188 MR. HYATT: Yes. We did respond to a question from Board Staff which was J.1.36. 1189 MR. THOMPSON: Keep going. I'll get it. 1190 MR. HYATT: This went through the process of how we would develop the design-day requirements and it breaks it out into the three components, the infranchise, general-service customers, the contract customers in the southern area, and the customers that require transportation from Dawn to Parkway or Dawn to Kirkwall. 1191 At paragraphs 4 through 6, we talk about how we develop the demand for the infranchise general-service customers, and basically that is, knowing the total volume that's flowing up any given lateral, we can take the total volume less the volume for the contracts and that results in the general-service volume for each lateral. 1192 We do a regression of that general-service volume against the actual degree days that we experience for the 2002/2003 winter and we extrapolate that out, using a linear regression, to a 44 degree day. 1193 To forecast the future, we would apply a growth factor which is based on the winter season volume, the through-put volume for the winter season year over year, and that factor is applied to the base 2002/03 winter volume to forecast the future. 1194 For the contracts in the southern area, we would do a similar approach. We would do a regression between the actual usage and the degree days, and that's in paragraph 7 and 8, and forecast those out to a 44 degree day as well. And we would apply any forecasted growth that was forecast for the contract market to that area. 1195 The total design-day demand for the southern area would be the sum of the general-service design-day demand plus the firm-contract demand. 1196 There are a number of customers that we haul volumes to the northern and eastern areas along the Dawn-Trafalgar system and that's noted in paragraph 10. And in paragraph 11, we talk about the customers that require transportation from Dawn to Parkway or Dawn to Kirkwall. And in that case, we use the contract demand specified in those particular contracts. 1197 MR. THOMPSON: Okay. Again, just at a high level, we know that the general service annual demand is based on 20-year trend weather; is that right? 1198 MR. HYATT: That is correct. 1199 MR. THOMPSON: And my understanding is that contract volumes as well as S&T volumes are done on a contract basis, they're not driven by a weather-normalization factor; is that correct? 1200 MR. HYATT: That's correct. 1201 MR. THOMPSON: So just so I can understand this in a very simplistic way. If we assume that the general service group is operating at about 40 percent load factor, and the contract is at about 75 percent load factor on average, and the S&Ts are 100 percent load factor, it would follow to my simple mind that on the peak day, 40 units would be allocated to general service -- no, sorry -- well, you tell me, on the peak day, how that plays out under this design-day demand approach that you use? 1202 MR. HYATT: I'm not sure I can do it under those parameters. 1203 MR. THOMPSON: All right. Well, what I was getting at is I was trying to figure out how the actual influences the design-day demand and then how the revised forecast influences the design- day demand. Is there some simple way you can describe that to me? 1204 MR. HYATT: The actual, the 2002/2003 winter actual numbers create a new base design-day demand. On to that base design-day demand we reflect the growth that's happening in each of the marketplaces. The general service is basically a growth factor. If we were seeing that the winter season volume for 2004 was, let's call it, 4 percent larger than the actuals for the 2002/03 winter, we would increase that base design-day demand for the general service by 4 percent. 1205 For the contracts, we would look at the specific forecasted increases in contract demand for each of those accounts and add those to the base design-day demand for the 2002/2003 winter. 1206 MR. THOMPSON: Okay. Now, what relevance is the 44 degree-day assumption in the context of the 20-year trend weather assumption? Are they related in any way or are they unrelated? 1207 MR. HYATT: They are not related. 1208 MR. THOMPSON: So what's the basis for the 44 degree-day assumption? Is that, like, as cold as it's ever gotten, or what's the basis for that? 1209 MR. HYATT: That is the value that we use for designing the entire system, at least the southern area, and that would be an estimate of a very cold temperature. 1210 MR. THOMPSON: All right. And you then, having developed your design-day demand forecast for the test year, does it then indicate that you have sufficient facilities to meet that demand, less facilities than is required? Take us from that calculation to the use of that calculation for planning. What does it tell us? 1211 MR. HYATT: Using the design-day demand, we can input those volumes into our system model and we can determine whether this system can meet those demands with the existing set of facilities. If there's not enough capacity to meet those volumes, we have the opportunity of either building or planning for additional facilities or alternatively for looking for another non-facility option such as winter-peaking service. 1212 MR. THOMPSON: And for 2004 then, what was the result? Are there sufficient facilities to meet the design-day demand or are you planning for something else? 1213 MR. HYATT: Yes, at Exhibit B.1, tab 4, page 3 of 3, for the 2004/2005 winter, we're proposing to look for non-facility options of 92,800 gigaJoules per day. 1214 MR. SMITH: Is that blue page or white page, Mr. Hyatt? 1215 MR. HYATT: That is blue page. 1216 MR. THOMPSON: So the non-facility requirements are then peaking service or commodity; is that... 1217 MR. HYATT: It's either a winter-peaking service or something else that the acquisitions group might be able to find. 1218 MR. THOMPSON: All right. Thank you. 1219 Okay. Now, mentioned to Mr. Ryder, if I understood you, that you develop this design-day data and then you give it to somebody for cost allocation and rate design purposes; is that right? 1220 MR. HYATT: Yes. 1221 MR. THOMPSON: And so do you know how those people use that data to design rates to recover the costs associated with those facilities or is that something for another panel? 1222 MR. HYATT: That would really be for the rate design panel. 1223 MR. THOMPSON: Now, the other aspect of the matter is operations. On a day-to-day basis, are you the person who identifies what's excess on any particular day? 1224 MR. HYATT: That would really be the capacity management group that would define the volumes that are available on a day-to-day basis. 1225 MR. THOMPSON: Anybody from the capacity management group on this panel? 1226 MR. HYATT: No, there isn't. 1227 MR. THOMPSON: Have they come and gone or -- 1228 MR. SMITH: That was Mr. Poredos. 1229 MR. THOMPSON: He's been here already? 1230 MR. SMITH: He has been and the gas supply panel have also come and gone. 1231 MR. THOMPSON: Okay. Well, can any of you folks help me with what happens with excess capacity? Does it go to the S&T group for disposition? Everybody's looking blank. You can't help me? 1232 MR. HYATT: I'm sorry. 1233 MR. SOMMERVILLE: I think we had that question -- that question was asked and answered earlier, Mr. Thompson. 1234 MR. THOMPSON: Thank you, Mr. Chairman, I haven't had a chance to review the transcripts. 1235 MR. SOMMERVILLE: I think it was Mr. Newbury. 1236 MR. THOMPSON: Okay. 1237 I think these are -- I'll follow up with the cost allocation rate design people. 1238 Turning to another aspect of your testimony, Mr. Hyatt, the pipeline system expansions. In the white sheets you forecast about 75 million of transmission expansion, that's now down to 25 million. Can you, in 25 words or less, tell us what prompted these reductions? 1239 MR. HYATT: The 75 million to 25, that was capital dollars? 1240 MR. THOMPSON: Capital dollars, yes. I took that from B.3, I think, tab 2. 1241 The yellow sheet was about 25 million at line 2 and the white sheet was, big picture, 74 million plus. 1242 MR. HYATT: Yes. If you look at Exhibit B.1, tab 4, page 2 of 2, updated -- I'm sorry, page 2 of 3 updated. 1243 MR. THOMPSON: Yes. 1244 MR. SOMMERVILLE: Sorry that was B.1, tab -- 1245 MR. HYATT: Four. 1246 MR. SOMMERVILLE: Thank you. 1247 MR. HYATT: You'll notice that the exfranchise volume for 2004-2005 dropped from 4,131,900 gigaJoules to 3,962,504, and that was one exfranchise customer that had -- we had originally planned that we would come on line in 2004 and in the update, that customer increase had reduced from 170,000 gJs a day down to 38,000 gJs a day. 1248 MR. THOMPSON: That was Enbridge Gas Distribution; right? We expressed concern about this in our interrogatory J.17.10 about Enbridge apparently contracting for service on your system to meet its incremental requirements on Vector, I think it was. And then this expansion to serve that requirement disappeared, came off the books. Where did Enbridge get their capacity, do you know? 1249 MR. HYATT: I'm not aware of that. 1250 MR. THOMPSON: All right. So is that a permanent, as far as you're aware, permanent cancellation of an expansion or a deferral or do you know? 1251 MR. HYATT: We would, as demands grew on the system, we would schedule that next expansion on the system to meet those needs. So it would be -- it will be a deferral rather than an elimination of the next section of blue pages. 1252 MR. THOMPSON: So assuming incremental demands come along, you'll expand that Dawn-Trafalgar system, that's what you're saying. 1253 MR. HYATT: That's correct. 1254 MR. THOMPSON: And then just quickly on the Panhandle, you're originally forecasting quite a significant increase there and then that is no longer on the -- no longer being budgeted. Can you explain the reason for that? 1255 MR. HYATT: Yes. In the original evidence, we had forecast a 36,900 volume of exfranchise activity on the Panhandle system, and associated with that was incremental capital facilities. The blue-page update of the forecast indicated that that volume wasn't going to be needed, and so we delayed the facilities on the Panhandle system. 1256 MR. THOMPSON: Was that a particular project that got cancelled that you can share with us? 1257 MR. HYATT: No, that was not a particular project. 1258 MR. THOMPSON: So it was incremental demand to serve an existing client, existing customer? Is that what you're saying? 1259 MR. HYATT: It was volumes that would move across our river crossing at -- in the Windsor area. That's where the exfranchise volumes would move, would be from Dawn through to Ojibwe and across the river crossing into Michigan. 1260 MR. THOMPSON: It was an exfranchise transaction not an infranchise transaction? 1261 MR. HYATT: That's correct. 1262 MR. THOMPSON: Sorry, I misunderstood that. 1263 Okay, if we could just then turn quickly to your white-page testimony B.1, tab 4, page 4 of 7 where you talk about Parkway commitments and then you talk about Parkway commitment for unbundled customers at page 6 of 7. I'd just like to get a status report on these Parkway commitments. 1264 In your testimony, you talk about -- at page 4, lines 17 and 18 your TCPL turnback policy; do you see that? 1265 MR. HYATT: Yes. 1266 MR. THOMPSON: And my understanding of that is that if a direct-purchase customer in your system was acquiring deliveries through TCPL capacity that was contracted to Union, on the occasion of the annual renewal of the TCPL capacity, that customer or customers generally would be given an opportunity to tell Union how much they wished Union to turn back. Is that a rough description of the turnback policy? 1267 MR. HYATT: I don't remember seeing it as a percentage. I believe that's an approximation. 1268 MR. THOMPSON: All right. Is it your understanding that there is a portion of the DCQ for direct purchasers served in Union's infranchise area that is still subject to the Parkway commitment? 1269 MR. HYATT: Yes, I believe that's true. 1270 MR. THOMPSON: Could you undertake to find out what that proportion is for me? 1271 MR. SMITH: Mr. Chairman, I'm advised that Mr. Kitchen is probably the best person to answer that and I suppose we have forewarning now, but Mr. Kitchen will come prepared to provide that answer. 1272 MR. THOMPSON: Okay. And should I be asking the questions about the Parkway commitment for unbundled customers to Mr. Kitchen, would that be best posed there, Mr. Smith? 1273 MR. SMITH: Maybe the best thing to do is to put the question forward so I can know what the question is and then I'll think about it. 1274 MR. THOMPSON: Okay. In this text, Mr. Hyatt, the company notes it's begun discussion with marketers concerning migration of their contracts to the unbundled service and the company reiterates that in its view it still needed 22 days of call at Parkway for anyone who elected to take the unbundled service. Is that currently the situation and does that call apply to all of the unbundled volumes or part of the volumes or do you know? 1275 MR. HYATT: To date, there's no one that has taken the unbundled service, but we were looking at if customers wanted that, we would require a 22-day delivery at Parkway at our call. 1276 MR. THOMPSON: No, I understand that and that's obviously one of the impediments to the service being taken up, and my question is, is there any further update on the length of the call or the percentage of volumes subject to the call or should I be asking that of Mr. Kitchen? Maybe he could take it as notice and just deal with it, would that be possible? 1277 MR. HYATT: Only what we filed as to the size and the volume that the 22-day call is limited to is the best information that I have at this point. 1278 MR. THOMPSON: Thank you, all right. 1279 Mr. Fay, could I turn to you, this is Exhibit B.1, tab 6 with respect to storage and you were having some discussions with Mr. Ryder about this subject. Do you know what allocator is used to determine the access rights of direct purchasers to storage? 1280 MR. FAY: No, I do not. 1281 MR. THOMPSON: All right. Do you have any idea whether direct purchasers enjoy access to this contingency storage space that Mr. Rider was talking about, system integrity storage space on a no-cost basis, or should that be directed to the rate design cost allocation group? 1282 MR. SMITH: I was just going to say that issue was canvassed with Mr. Newbury who testified that all customers are covered. 1283 MR. THOMPSON: Sorry. All right. I'll move on. 1284 Mr. Sanders, your testimony at B.1, tab 5 with respect to pipeline integrity, that's been pretty much flogged to death, but pipeline integrity costs are sort of motherhood-type costs. Are these costs in the Union system related to the transmission lines primarily? 1285 MR. SANDERS: They're defined by the specified minimum yield strength of the pipeline, and we have pipelines operating above 30 percent which is the criteria that is used for the regulation both as transmission and distribution pipelines. 1286 MR. THOMPSON: TransCanada PipeLines incurs these pipeline integrity costs and Union is a participant in TransCanada's case. TransCanada has deferral account treatment for these costs. Does anybody on the panel know whether Union, in TransCanada's case, opposed or supported or did not oppose TransCanada's use of a deferral account for these costs? 1287 MR. SANDERS: I'm not aware of that, no. 1288 MR. THOMPSON: Okay. Finally, Mr. Shervill, on this rate-rider cost, again that one's been flogged pretty well as well, is there any scenario that you can foresee where these total costs of $3.8 million will be less than $3.8 million? 1289 MR. SHERVILL: On the assumption that we proceed to put in place the rate rider subject to the Board's approval? 1290 MR. THOMPSON: Yes. 1291 MR. SHERVILL: No, I believe that costing in the blue-page update is a fairly tight costing. 1292 MR. THOMPSON: Okay. Thank you very much. Those are my questions. Thank you, Mr. Chairman. 1293 MR. SOMMERVILLE: Thank you, Mr. Thompson. 1294 Mr. Aiken and Mr. Dingwall, we're going to adjourn for the day at this stage. Does that create any difficulties for either of you? 1295 MR. AIKEN: No. 1296 MR. DINGWALL: It actually creates some gratitude. 1297 MR. SOMMERVILLE: So we'll adjourn for the day to reconvene tomorrow morning at 9:30. Thank you. 1298 --- Whereupon the hearing was adjourned at 4:20 p.m.