Rep: OEB Doc: 12RX9 Rev: 0 ONTARIO ENERGY BOARD Volume: ISSUES DAY 11 JULY 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. BIRCHENOUGH MEMBER 1 RP-2003-0063 EB-2002-0087 EB-2003-0097 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15, Schedule B; AND IN THE MATTER OF an Application by Union Gas Limtied 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 EB-2002-0087 EB-2003-0097 4 11 JULY 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 JENNIFER LEA Board Counsel CHRIS MACKIE Board Staff JAMES WIGHTMAN Board Staff CRAWFORD SMITH Union Gas Limited BILL FARQUHAR Northern Cross Energy ALICK RYDER City of Kitchener DAVID POCH GEC & CIELAP MURRAY KLIPPENSTEIN Pollution Probe BRUCE MacODRUM CME MALCOLM ROWAN CME JAY SHEPHERD OPSBA BRIAN DINGWALL HVAC, DEA, MX Energy, Enerby Probe DAVID MacINTOSH Energy Probe SHANE FREITAG ECNG PETER SCULLY City of Timmins JEFF NICHOLS CEED JIM BARTLETT TransCanada PipeLines TIBOR HAYNAL TransCanada PipeLines BARBARA BODNAR Enbridge Gas Distribution 8 TABLE OF CONTENTS 9 APPEARANCES: [19] PRELIMINARY MATTERS: [51] CONSIDERATION OF ISSUES LIST: [137] 10 EXHIBITS 11 EXHIBIT NO. 1: TWO-SIDED DOCUMENT, EXCERPTS FROM UNION'S 2002 EVALUATION REPORT. [386] EXHIBIT NO. 2: LETTER TO CHAIR OF OEB, MR. LAUGHREN, FROM MINISTER OF ENVIRONMENT AND ENERGY, CHRIS STOCKWELL, DATED JULY 2, 2002. [389] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:30 a.m. 15 MR. SOMMERVILLE: Thank you very much. Please be seated. 16 Good morning. My name is Paul Sommerville. I'll be the Presiding Member in this proceeding today. Sitting with me is Arthur Birchenough. 17 We are convened today in the matter of an application for rates made by Union Gas Limited, an application that relates to the year 2004. The case has been designated with the file number RP-2003-0063. 18 The purpose of our proceeding this morning is to consider the issues list as it emerged from the Issues Conference recently held. I would like to hear appearances in the matter. 19 APPEARANCES: 20 MR. SMITH: Crawford Smith, counsel for Union. With me is Mr. Marcel Reghelini on my right, and Mr. Bryan Goulden on my left. 21 And if I may, sir, just one other matter that I was hoping to have dealt with today in addition to the issues list, and something we discussed with Staff. There are two outstanding applications for intervenor status by the Association of School Board Officials and the School Boards. 22 MR. SOMMERVILLE: After appearances, Mr. Smith, I will ask for preliminary matters. Thank you. 23 MR. SMITH: Thank you. 24 MR. FARQUHAR: Bill Farquhar. I'm here representing the interests of Northern Cross Energy. 25 MR. SOMMERVILLE: It's Farquhar? Thank you. 26 MR. QUINN: Good morning, sir. Dwayne Quinn, City of Kitchener. 27 MR. RYDER: Yes, sir. I'm counsel to the City of Kitchener. 28 MR. SOMMERVILLE: Thank you. 29 MR. POCH: Good morning, Mr. Chairman, Mr. Birchenough. David Poch, representing the GEC and CIELAP, the Green Energy Coalition and the Canadian Institute for Environmental Law and Policy. 30 MR. KLIPPENSTEIN: Good morning, sir. Murray Klippenstein for Pollution Probe. 31 MS. LEA: Jennifer Lea, Board counsel. 32 MR. MacODRUM: Mr. Chairman, my name is Bruce MacOdrum, M-a-c-O-d-r-u-m. And I'm representing Canadian Manufacturers and Exporters. 33 MR. SOMMERVILLE: Thank you, Mr. MacOdrum. 34 MR. MacODRUM: And also here for Canadian Manufacturers and Exporters is Malcolm Rowan. 35 MR. SHEPHERD: Jay Shepherd for the Ontario Public School Boards' Association. 36 MR. DINGWALL: Good morning, Mr. Chairman, Mr. Birchenough. My name is Brian Dingwall. I'm here in the capacity of counsel for HVAC Coalition Inc., counsel for the Distributed Energy Association, counsel for MX Energy Inc., and counsel for Energy Probe. In addition to that, Mr. David MacIntosh is also here from Energy Probe. 37 MR. SOMMERVILLE: Mr. MacIntosh. 38 MR. FREITAG: Good morning, Mr. Chairman. My name is Shane Freitag, that's F-r-e-i-t-a-g. I'm here on behalf of ECNG, and with me is Mr. Scott Hubert. 39 MR. SCULLY: Good morning, Mr. Chairman. My name is Peter Scully. I'm here on behalf of the City of Timmins. And by way of a heads-up, I believe the City of Sudbury is going to instruct me to make an application for late intervenor status. 40 MR. SOMMERVILLE: Okay. Thank you, sir. 41 MR. NICHOLS: My name is Jeff Nichols of Macleod Dixon, representing the Coalition for Efficient Energy Distribution. 42 MR. SOMMERVILLE: Thank you. 43 MR. NICHOLS: Thank you. 44 MR. BARTLETT: Good morning, Mr. Chairman. I'm Jim Bartlett, representing TransCanada PipeLines. 45 MR. SOMMERVILLE: I see Mr. Haynal. Good morning. 46 MR. HAYNAL: Good morning. I am also for TransCanada PipeLines. Thank you. 47 MS. BODNAR: Good morning, Mr. Chairman. Barbara Bodnar for Enbridge Gas Distribution. 48 MR. SOMMERVILLE: Thank you, Ms. Bodnar. 49 Are there any other appearances? 50 Preliminary matters. Mr. Smith? 51 PRELIMINARY MATTERS: 52 MR. SMITH: Yes, Mr. Chairman. As I indicated earlier, there are two outstanding requests for intervenor status, one by a group called OASBO, which is the organisation of school board officials, and another by OPSBA, which is - I just want to make sure I've got it right - the Ontario Public School Board Association. 53 Mr. Penny, also from Torys, had written to the Board back in June, June 19th, 2003, objecting to both applications, and as I indicated to staff earlier this week, we had hoped to have that matter decided today, before we get too far along the process. Mr. Shepherd is here and has filed evidence on behalf of his client, and as Mr. Penny put out in his letter, it's Union's position that these organizations effectively represent the same interest and that there should be one but not both of them at this hearing. 54 Now, I do notice that Mr. Brett is not here. Nevertheless, I would like to have the matter decided. We had advised Mr. Brett on Tuesday and Wednesday of this week that we would like to have this issue addressed today and we're prepared to proceed. 55 MR. SOMMERVILLE: Just before I hear from you, Mr. Shepherd, I'll just ask if there are any other preliminary matters that the Board needs turn its mind to. 56 There being none, Mr. Shepherd, you heard Mr. Smith's comments with respect to the objection of Union to the intervention of both of, I suppose, if I can put it that way, both the School Boards' organisation that you represent and the school officials organisation that has filed through Mr. Brett's office. 57 MR. SHEPHERD: Mr. Chairman, just before I start, I did receive a call from Mr. Brett yesterday morning, and this is obviously unofficial, but if it might assist the Board. He advised me that he was going to be out of town today and that's what I know about why he's not here, but I thought I'd let you know. It was evidently a pre-existing commitment that he couldn't get out of. 58 MS. LEA: Yes, I can confirm that, Mr. Chairman. He also left a message for Board Staff that he regretted very much being unable to attend but a pre-existing commitment prevented that attendance. 59 MR. SOMMERVILLE: Thank you. 60 MR. SHEPHERD: Mr. Chairman, my friend and his colleague have put the issue to you as two representatives of School Boards'. But actually, from OPSBA's point of view, it is an issue of whether OPSBA is entitled to intervenor status. It is not really appropriate for us to comment, and I won't comment on whether OASBO should have intervenor status. But OPSBA's position is that we meet the requirements to be an intervenor, and that we have been diligent in every respect in doing what we have to do to be responsible as an intervenor before this Board. 61 And if you will indulge me, I'll spend a couple of minutes and take you through that. I should start by saying that OPSBA is -- 62 MR. SOMMERVILLE: Mr. Shepherd, should I regard these remarks as your formal submission with respect to subject matter? 63 MR. SHEPHERD: Yes, Mr. Chairman. 64 MR. SOMMERVILLE: Thank you. 65 MR. SHEPHERD: And you have evidence, by the way, Mr. Chairman, an affidavit from the executive director of OPSBA, that forms the factual basis for my submissions. 66 MR. SOMMERVILLE: I do have that affidavit before me, as well as the correspondence that Mr. Smith alluded to from Mr. Penny, together with the interventions made by Officials and School Boards' respectively. And I do have a letter dated June the 4th from Mr. Brett that outlines his client's reaction to the objection raised by -- initial reaction to the objection raised by the applicant in this case. 67 MR. SMITH: I should say, at this time, that I don't have it and neither does my client. 68 MR. SHEPHERD: I have never seen that letter, Mr. Chairman. In fact, I called the Board a couple of weeks ago -- 69 MR. SOMMERVILLE: Let me just double-check here. 70 MS. LEA: Dated June 11th? 71 MR. SOMMERVILLE: Actually, I don't have that. Let me just indicate precisely what I've got. Yeah, that's the notice of intervention dated the 11th day of June. That's what I have in front of me, as well as Ms. Anderson's affidavit and Mr. Penny's letter of the 19th. 72 MR. SHEPHERD: Thank you, Mr. Chairman. 73 Mr. Chairman, OPSBA is an organization whose members are public school boards and those members are major customers of utilities. 74 It also has, supporting its interventions at the Ontario Energy Board, the three other organizations whose members are actually school boards, being the Ontario Catholic School Trustees Association, and the two French-language organizations which are named in the affidavit. 75 Together, the members of those four organizations use between 3 and 4 percent of the natural gas used in this province, and spend more than $150 million on natural gas commodity and distribution costs each year. And that has been going up. 76 OPSBA, prior to the Enbridge 2003 case, was not involved in energy hearings, but as a result of a decision with respect to Union last year which involved a large retroactive amount, which people in the room may recall, OPSBA's members came to OPSBA and said, We have a big problem here. What are we going to do about it? Energy suddenly is right at the top of our agenda. 77 And as they got into it, they developed a strategy for dealing with it that involved a very proactive approach to it, Mr. Chairman; they decided to be involved in policy and regulatory and management, all the aspects of the energy file, because it's a lot of money to them. 78 This is a potentially -- the energy area is a potentially huge impact for schools. And you should understand, Mr. Chairman, that the schools don't look at this as a dollar figure or as a natural gas issue, or anything like that. They look at it as, do they have to close another library; do they have to cut another music program. And their goals in participating in this process are to keep libraries open and to keep music programs going, that sort of thing. They are not really engaged, from a policy point of view, on the energy side. They're education-focussed. 79 So OPSBA formed a committee and developed this strategy. But their first step, and this is important to emphasize, their first step was to go to the other organizations that are involved in this area. There are, essentially, seven organizations involved; the four organizations that represent School Boards', and the three organizations that represent, at different levels, their senior management. 80 The four organizations that represent School Boards' immediately signed up because it was critical to them right away. Over the course of the last six months, OPSBA has been actively trying to get the rest of the organizations together in a coalition. The council of senior business officials, which is essentially the chief financial officers of the boards, if you like, that sort of level, has become involved in this coalition already. And the next step is to bring the council of directors of education, who are essentially the CEOs of the board, on side, and the formal presentation for that is scheduled for September 19th. But, of course, as you can imagine, there have been a lot of ongoing discussions about how that will work. Coalition-building is, as some of the people in this room know, a time-intensive process. 81 And at the same time, OPSBA has been talking to OASBO on many occasions over the last six months about mutual involvement, but I have to tell you that they have not yet found a way to work together. And I'm not characterizing that in any way, Mr. Chairman. I'm just stating the fact that they've talked; they haven't found a way to work together. 82 MR. SOMMERVILLE: Let me interrupt you, though. Is the difficulty in coming together under one organization, is it related to the issue of rates for gas? That's the question that I have. If there are ancillary issues, other matters that are of interest and concern, and where there's divergence of interest between those organizations and their failure to come together, that has a different meaning. But if their failure to come together is related to the question of rates for gas, then I'm -- do you see my... 83 MR. SHEPHERD: I understand. Let me see if I can characterize this. And frankly, you know, the organizations have these meetings mostly without me. But I've been at some of them, and I have a sense. 84 I think it's fair to say that the inability to come together is related to the regulatory aspects, that is, gas regulation. It's not something else in the relationship that is getting in the way. And I think that there are problems with differences of philosophy as to how you approach the regulatory process, and how you approach the utilities, and some of that is described in Ms. Anderson's affidavit. 85 And Mr. Chairman, they're working on it very hard. There have been countless meetings this week, I assure you, and more scheduled as early as Monday. And they've been hampered, of course, by the fact that this is the budget season for school boards, which means that many of the people involved are simply not available, yet you will have read the paper this morning, I think, that City of Toronto is announcing its budget today. And so you can imagine the City of Toronto people have been a tad busy in the last few weeks. 86 So, Mr. Chairman, active efforts have been made to bring the Coalition together. I should tell you as well that OPSBA has spent a lot of time figuring out how to intervene efficiently. It's not, actually, most efficient to have counsel do everything. Lawyers tend to be more expensive than normal people. And so OPSBA has decided to bring on a technical consultant with more expertise, for example, in rate design and things like that, at a lower cost with a higher expertise in those areas, and will probably also bring on a demand management specialist to assist the regulatory process and the School Boards' in that area. This is a major file for the School Boards'. They are very actively engaged in it right now. 87 It's also an expensive process, I should tell you, and they're very conscious of that, which is one of the reasons why the coalition-building is important, not just for this Board but also for costs. 88 I was going to spend a couple of minutes and talk about how OPSBA has intervened responsibly in the last rate case, that is the Enbridge 2003 case, and I'm not going to spend a lot of time on that, Mr. Chairman, but let me just make two brief points. 89 I draw your attention to the final arguments of OPSBA, the final argument and the DSM argument in the Enbridge 2003 case, because I think you'll get a very good sense of how OPSBA tries to be a very responsible intervenor. OPSBA doesn't try to mow the same grass as other intervenors. For example, one of our biggest issues is demand-side management. And we were there every day monitoring that process, although I was working on my laptop doing other things most of the time. But the fact is that there are a number of intervenors covering that ground, and so OPSBA, in fact, didn't participate in cross-examination on anything. Everything was covered; we didn't need to talk. 90 And those are, in general, my instructions: Try to be very constructive with the process. 91 On the other hand, on things, for example, rate retroactivity, we were right there, front and center, because that was an issue on which we had already taken the lead. A better example might be, you may not be plugged into the Enbridge case, but there was an issue on manufacture at gas plants. We assessed that nobody was going to engage that issue thoroughly. And so, if you look at the final arguments, OPSBA spent the time to do the extra effort and engage that issue thoroughly, whereas others took a less extensive approach to it. 92 So the point is that OPSBA understands that its role is to assist the Board and to avoid wasting the Board's time and duplicating what other people are doing. And that's true whether the other person is OASBO or GEC or CAC. 93 One final point, Mr. Chairman. Our basic position is that, as a matter of law and as a matter of serving the public interest, it's important that an organization and coalition whose members are significant customers of the utilities should be an intervenor in these proceedings. 94 However, we're also practical and if this Board allows both OPSBA and OASBO here, there's an issue of how much it costs. And it's OPSBA's position that during this time when the coalition efforts are continuing, it's our view that it is not unreasonable for this Board to require reduced costs to OASBO and OPSBA, if we're both allowed to be here, and, for example, half of our normal costs, so that the process is not burdened with an additional cost because of that. I'm not asking you to do that, Mr. Chairman, but I'm not objecting to it if that's the result, is the point. 95 MR. SOMMERVILLE: Thank you, Mr. Shepherd. 96 MR. SHEPHERD: And I think those are our submissions, Mr. Chair. 97 MR. SOMMERVILLE: Mr. Smith, I would like to hear from you, but one of the issues I'd like you to address -- Mr. Brett is not here today, and I'm a little sensitive about making a determination. You're seeking a ruling today on this subject matter. And I think that circumstances are such, because of the nature of the issue, that an earlier resolution is better than otherwise. But I'd like you to address the question Mr. Brett is not here today, and we are dealing with some interests of his client. Did he get any indication that this matter was going to be raised this morning? 98 MR. SMITH: Mr. Chairman, I can respond to that. I spoke to Mr. Brett on both -- I'm sensitive to the issue of having his client's interests disposed of while he's not here. I would say to that, first: I spoke to Mr. Brett on both Tuesday and Wednesday that I was going to be seeking a determination of this issue today. I was advised by Mr. Brett, and Mr. Shepherd, that there would be a meeting, as Mr. Shepherd alluded to, of the two groups this past week. I believe the meeting was on Wednesday. He had hoped to reach a resolution. Obviously a resolution of the internal dispute was not reached. Mr. Brett was well aware we were going to proceed today. Unfortunately, I have received no communication from his office. Checked my voice mail before walking in this morning at 25 after 9, and unfortunately didn't hear from him, and I don't have any written communication from him, nor does my client. 99 So, although I'm alive to the issue, I do feel his clients have had adequate notice. And I would say as well, although two groups have sought intervenor status on this, they do represent the same customers. And they do represent the same, in effect, interest group. And although they have separate counsel, I do think it's a bit of a mischaracterization to say that they are not here in that sense, although Mr. Brett isn't, in all fairness. 100 MR. SOMMERVILLE: I'll consider your submission on that point. In your reply submissions, Mr. Smith, could you address the -- it wasn't a suggestion, but the possibility that Mr. Shepherd raised that a reduction in costs related to the matter might be an approach. If you could address that as part of your submissions, I think that would assist the Board. 101 MR. SMITH: I will. Thank you. 102 As set out in Mr. Penny's letter, which you indicate you have a copy of, essentially, it is Union's position - and if I can ask you just to turn to the first page of the letter and I think this comes through, frankly, quite clearly in Ms. Anderson's affidavit as well - that there are the school boards, and then there are a subset of the school boards which are the officials of the school boards. Neither group purports to represent a different group at the end of the day. Both applications and, as Mr. Penny said, their web sites, indicate that the school officials in their case represent institutional customers of Union Gas, i.e., the School Boards'; and the school officials indicate that they represent the same group, public school boards and Union's franchise area. Now, we know that Mr. Shepherd, in fact -- it may be more than that; it may be beyond the public school boards. So, in fact, I think the waterfront is covered on that area. 103 So, at the end of the day, what I think you have is, you have two groups that represent the identical interests, school boards in Union's franchise area; identical Union customers, school boards in Union's franchise area; and have identical concerns, that is, the cost of the natural gas community in Union's franchise area. And I say with respect there is absolutely no precedent for having the same group of customers with the same interest represented by more than one set of counsel. And the case law on that, I say, is quite clear. And Mr. Penny's put out an extract of the Stadium Corp. case on page 2, and it indicates that: 104 "Proposed intervenors must be able to offer something more than the repetition of another party's evidence or a slightly different emphasis on arguments made squarely by the parties." 105 And I say, with respect, that if this matter proceeds with the same group represented by two different counsel, we are going to have exactly that problem. We are going to have - and possibly, as I understand it, although I wasn't here - worse, where the same group is taking through different counsel diametrically opposed positions. And that puts Union in a very difficult position of having to respond, in effect, to the same customer asking or expressing two different concerns. 106 And if I might, it might be an appropriate time to respond to Mr. Shepherd's submission, or his suggestion, as you put it, that this can be dealt with in costs and with respect, I don't think that really gets to the issue. That's part of it. But there's more than Mr. Shepherd's costs at the end of the day; there is the difficulty that Union has put in of having to respond to these two different concerns. 107 There's also the time that's going to be taken up. Both groups have indicated that they want to be able to participate in all aspects of the hearing through two counsel, through cross-examination, interrogatories, written argument, oral argument, and that is going to take not only Mr. Shepherd's client's costs, Mr. Brett's client's costs, but that's a cost on the ratepayers and that's a cost on Union, and that's a cost, frankly, on everybody else here, who will have to endure what I say is an unnecessarily lengthy proceeding. 108 So, subject to any questions, those are my submissions. I rely entirely on Mr. Penny's letter. And I should say as well that it comes out quite clearly in Ms. Anderson's affidavit, whether advertently or inadvertently, that there is going to be duplication; that they've tried to resolve the problem of duplication and have been unable to do it. There is obviously at work here, unfortunately, an internal political problem that cannot be resolved or can't be resolved in the time period that's been allotted. And I say that, with respect, this process should not be held hostage to that internal dispute. 109 MR. SOMMERVILLE: Thank you. 110 MS. LEA: Mr. Chairman, I just wanted to interject this so that Mr. Shepherd has an opportunity to respond to it if he so chooses. In the message left yesterday for Board Staff, the impression that we received from it was that Mr. Shepherd's arguments today before you would be in the nature of a joint submission from the two parties. As a consequence, if you are considering the possible unfairness of making a ruling today, you might ask Mr. Shepherd to indicate whether or not I have the correct impression from the message that was left by Mr. Brett. Thank you. 111 MR. SOMMERVILLE: My concern is - thank you, Ms. Lea - my concern is that Mr. Brett was aware that this matter was going to be dealt with today, and you can characterize your remarks any way you want to, Mr. Shepherd. If Mr. Brett was aware that this matter was going to be dealt with today, then that gives me some ease in dealing with the subject matter today. If that's not the case, then I have to deal with that in a different way. 112 MR. SHEPHERD: Mr. Chairman, I can clarify one thing for you. My submissions are not in the nature of a joint submission. I had a discussion with Mr. Brett about that question, and I made clear to him, very clear to him, that I was not making joint submissions, and in fact indicated to him that I could not speak in any way to whether OASBO should be an intervenor in any way. My instructions are very explicit on it. 113 MR. SOMMERVILLE: Thank you. I rather gathered that from your submission. 114 A brief opportunity for reply, Mr. Shepherd, to Mr. Smith's submission. 115 MR. SHEPHERD: Mr. Chairman, I'm only going to reply to one of Mr. Smith's comments. I think everything else has been canvassed. And that is his comment that there are additional costs being wasted other than the costs of the intervenors, as it were. It's my submission that that's not the case. 116 There is always a danger that two intervenors, whether their interests are similar or not, will plough the same ground. I think if you look at the Enbridge 2003 case, you will see that neither in interrogatories, nor in ADR, nor in cross-examination, nor in argument have these two intervenors ploughed the same ground in any way that's wasteful to the Board's time. When there was cross-examination, if I asked a question or pursued an area, Mr. Brett did not. This was not because of co-ordination, this is simply because intervenors shouldn't do that, no matter who they are. 117 And so I don't believe there is an additional waste there that would cost the ratepayers or anyone else any money. 118 MR. SOMMERVILLE: Thank you. 119 I think it's worthwhile to resolve this issue now, before we proceed any further this morning, and accordingly the Board will retire. It is now... Let me use my watch rather than that clock. It's now roughly 10 after. We'll reconvene at 25 minutes after. If we are unable to reach a determination on this subject, we'll announce that at that point. Otherwise, we will be giving a determination with respect to that. So we'll stand adjourned until 10:25. Thank you. 120 --- Recess taken at 10:07 a.m. 121 --- On resuming at 10:25 a.m. 122 MR. SOMMERVILLE: Thank you. Please be seated. 123 The Board has made a determination on this subject. 124 The issue arises through the applicant's submission that the intervention of both of the Ontario Association of School Business Officials and the Ontario Public School Boards' Association ought not to stand. The Board has determined that it is not inclined to disallow the intervention of either of those but will address the matter through a reduction in the accessibility of costs to each of those organizations. 125 Specifically, the Board will not permit the organizations to each submit an independent costs claim but will only recognize a single body of costs with respect to the participation of both parties, so that only those costs attributable to the typical costs related to one representation for the two groups will be recognized by the Board. 126 In addition, the Board has significant powers to control its own process and will exercise them to ensure that the two organizations attune their participation in this case acutely on a day-to-day basis, to ensure that this is not a duplication of effort or waste of anyone's time. 127 And, Mr. Shepherd, let me indicate that the Board does recognize the very able counsel that you provide to your client and that Mr. Brett provides to his. This is not in any way a reflection of that, but has to do with the conformity of the organizations that you represent and the very similar interests that they represent. 128 The Board will be very vigilant to ensure that on a day-to-day basis, the participation of each of you will not result in duplication. Further, the Board is even more concerned with the idea of divergent points of view from each of the two organizations, and that it is -- well, the Board is not going to pre-state how it will regard any submissions made in the future, but where there is radical divergence between the submissions of each of these entities, that will tend to diminish the weight that the Board affords to either. And so we would be looking, once again, for the parties, the School Boards' and School Officials, to bring their submissions into some form of consistency to avoid that outcome. 129 Is there any misunderstanding about our determination in this matter? 130 MR. SHEPHERD: Mr. Chairman, thank you very much. 131 Just one small point of clarification. Is it your order that the two organizations submit a single bill of costs or, rather, that they submit separate bills of costs but that, ultimately, the total will be comparable to a single bill of costs? 132 MR. SOMMERVILLE: I'm perfectly happy with the second option that you outlined there. I know that in my initial statement I indicated that it would be a single body, but I'm prepared to accept the idea that each of you would submit separate ones, so long as the quantum in the end is equivalent to the representation of one lawyer -- you guys can work out how you want to arrange that between yourselves. 133 And I'm sure the applicant will impose its own discipline on that process as well. 134 MR. SHEPHERD: Thank you, Mr. Chairman. The order is then clear to us. 135 And Mr. Chairman, my client has asked me to go on the record as apologizing to this Board for wasting your time with this issue. 136 MR. SOMMERVILLE: I don't regard it as such, Mr. Shepherd, but the record does show that now. Thank you. 137 CONSIDERATION OF ISSUES LIST: 138 MR. SOMMERVILLE: We will proceed now to a consideration of the issues list. What I would propose, subject to submissions of anyone, is that we will deal with them in the order in which they appear in the issues list unless someone wants to bring a couple of them or three of them together to be considered as a kind of block. 139 But what I would propose to do as well is, I'm assuming that the contest, in effect, is between Union and someone who proposes to include the item as part of the issues list. What I would normally do is simply ask the party who wishes it to be included to give me brief submissions as to why it should be added. I'll give Union an opportunity to reply. And then a further brief opportunity to the proponent to reply to the argument or the submissions of Union on that subject. 140 Does anyone have any comment with respect to that proposal? 141 MR. POCH: Mr. Chairman, some of us may be here to support the issues of others, but I would suggest, I would certainly follow the practice, and I assume that the Board would prefer that we will simply remain silent, that you won't take silence as an indication of dissent, and only speak up if we only have something novel to add. 142 MR. SOMMERVILLE: Indeed, in which case -- thank you, Mr. Poch, for your comment. Because what I would tend to do is have anyone who wants to speak in support of the inclusion of a matter to speak following the proponent's submissions. And then let anyone who opposes the inclusion to speak following Union's submission, and then to provide that single opportunity for rebuttal to the proponent. 143 That's the way I would propose to proceed. And I suppose we can begin with the first item on the list, which, as I see it, is under "administration and policy," that's section A, item number 6. 144 MR. RYDER: That's mine, the City of Kitchener's issue. 145 MR. SOMMERVILLE: Thank you, Mr. Ryder. 146 MR. RYDER: Yes. This is an issue that is proposed by the City of Kitchener, and the city owns and operates a gas distribution utility so it approaches this issue from the perspective of its own public utility responsibilities. 147 It takes service from Union, storage and transportation services from Union, under the T3 rate schedule. And the T3 rate schedule is a contract rate. So the issue that I'm addressing now is the same for all of the contract customers. And that would be the customers under M4, M5A, M7, T1, and T3. They're all contract customers. 148 Now, for all of these contract rates, the service is subject to the condition that the customer must first enter into a contract with Union. And I've left some materials on your table, just to your right, two books. I hope you have those. I left them to the corner beside Mr. Birchenough. 149 MR. SMITH: I'm sorry if there is some confusion. I had put a pair of books up there as well. 150 MR. SOMMERVILLE: Yes, I have this, Mr. Ryder, now. 151 MR. RYDER: And in tab 1 I've put out the currently proposed T3 contract. And you can see on page 1 that the service under T3 is applicable to a customer who renders into a carriage service contract with Union. And that clause is also found in the T1s, and there are similar clauses to that effect in the other contract rate schedules. 152 Now, the contract that underpins the T3 service we've set out in tab 2. And without going into any detail, the terms in the contract are equally as important and necessary to reflect service as the terms in the rate schedule. 153 The rate schedule is approved by the Board, subject to the Board's approval, during a rate hearing; the terms of the contract are not, generally speaking. And the only exception to that is for the storage component, which is just one component of the contract. If it's large enough to come within the requirements of section 39 (2) of the Act, then it's subject to Board approval. But most of the contracts for the contract customers don't meet that qualification, and even for the City of Kitchener, which does, that would only apply to the storage-related terms of the contract, not the other terms. 154 So we've got two documents which underpin the service, the regulated service: The contract on the one hand and the rate schedule on the other. And Union is still very much a monopoly provider when it comes to the negotiation of contracts. But for all practical purposes, there is no regulatory oversight for the negotiation of contracts so that if a customer or a would-be customer meets an impasse in the negotiations, there is no place to go because there's no regulatory oversight. And the results, I say, are often unsatisfactory. 155 And tab 3, at the last page -- this was a proposal that Mr. Quinn received that he didn't accede to. On the bottom of the last page you can see that Union was requesting that if we have agreement on all the matters of substance to Kitchener, that it would have to remain quiet for five years and not be able to bring these matters forward in the 0017 case and in subsequent cases for the five-year term. So that would include today, for example, if we had acceded to that. What he was obliged to accept is shown in tab 4 at page 3. And so his silence was effectively purchased for the 0017 proceeding. You see that clause in the bottom of the page, and then on the final page you can see the issues that he was to remain silent on. 156 Now, I may be wrong... 157 MR. SOMMERVILLE: Perhaps you could just help me with those references, Mr. Ryder. I'm not sure, when you say that the items that are not... Oh, I see. On 3 of 5, "The city of Kitchener will not submit any evidence discussed during the ADR process", et cetera. Is that the reference you're making? 158 MR. RYDER: Yes. 159 MR. SOMMERVILLE: Thank you. 160 MR. RYDER: That's the agreement that he did sign. At that stage he's obliged to sign it because there's no effective recourse, as I say. 161 Now, I'm sure Union will try to justify that clause. I may be wrong, but I don't think that that requirement should be asked of a customer who was obliged to enter into a contract with Union. The negotiations should be limited to the terms of the contract, and not to sort of extraneous conditions that Union imposes. But the point I wish to make is that, whether that was a reasonable request or not, the point is that if a customer objects to a contractual demand put on a customer by a monopoly provider, there is no real recourse for a customer's objection. So -- because there is no practical, regulatory oversight. 162 MR. SOMMERVILLE: Thank you. 163 MR. RYDER: I think the Board's jurisdiction and regulatory responsibilities covers both the terms and in the rate schedule and the terms in the contract, because both sets of documents, both documents, relate to the provision of a regulated service and so the issue here, really, is whether and how the Board should exercise that jurisdiction. 164 And if allowed, it will be my submission that there are a number of ways to provide regulatory oversight which are administratively practical, which I don't need to get into now. We're at the beginning of the hearing. But I think they should be addressed during the hearing. So I submit this issue is, A, relevant, and B, subject to a practical resolution. 165 Those are my submissions. Thank you. 166 MR. SOMMERVILLE: Is there anyone else who would like to speak in support of the inclusion of this item in the issues list? 167 MR. DINGWALL: Thank you, Mr. Chairman. 168 Energy Probe would like to lend its support to the City of Kitchener in respect of this proposed issue. 169 MR. SOMMERVILLE: Thank you, Mr. Dingwall. Are there any other submissions in support? 170 MR. SHEPHERD: Mr. Chairman, School Boards' also support the City of Kitchener. 171 MR. SCULLY: The City of Timmins would support that position also. In our submission, you're missing half of the package if you're only regulating the rate schedules and ignoring the contractual terms which can affect the actual cost of the service. 172 MR. SOMMERVILLE: Thank you, Mr. Scully. 173 MR. FREITAG: ECNG would also support the position. 174 MR. SOMMERVILLE: Thank you. Mr. Smith. 175 MR. SMITH: Thank you, Mr. Chairman. I have two submissions to make in response to this issue. The first is there is no regulatory gap; the second of which is that this issue is purely hypothetical. 176 Turning to the first submission, no regulatory gap. Kitchener has, in my submission, framed this as an access-to-service issue. And the way I believe my friend Mr. Ryder put it was, If you don't like the terms, you have no recourse. And I say that, with respect, that is absolutely incorrect; that, if a party is denied access by Union to its distribution service, that party has a right under section 42(3) to make an application to the Board to compel Union to provide the service. And because I have the Act right here, I'll just read it: 177 "Upon application, the Board may order a gas transmitter, gas distributor or storage company to provide any gas sale, transmission, distribution or storage service or cease to provide any gas sale/service." 178 And I say, then, that if the City of Kitchener or, frankly, any other party, were being denied access, that it could avail itself of its rights under the statute, and that, if it had a case, that it could make out to the Board that the Board would be in a position to compel it to provide service. 179 And I say on the second point that this issue is, with respect, entirely hypothetical. The City of Kitchener, as they've put in their materials, has a contract with Union. That contract doesn't expire until March of 2005. So whatever the terms of the contract are, they were agreed to by the City of Kitchener. They've signed the contract. And I say that if this Board -- this Board is not in a position to entertain a dispute or an argument as to the terms of that contract when it's already in place until such time as a renewal occurs. And if a renewal occurs, and if there is the problem of access, well, then, the City of Kitchener, or anybody else who is similarly situated, can bring the appropriate application for a disposition of the access issue. But the terms themselves have been agreed to by the parties. 180 And I'm a little bit in your hands on this, but I should say that this issue, as at least it's been framed by the number of other intervenors who support it, is a little bit like issue A9. And I have some submissions I would make with respect to A9 and the jurisdiction of this Board and the appropriateness of this Board overseeing the negotiation process. And in a nutshell my submission will be that the jurisdiction of the Board is conferred by section 36, its primary jurisdiction is to set just and reasonable rates. And the day-to-day negotiation of the contracts entered into by Union, subject, of course, to the Board's rate-making jurisdiction and the Board's rule-making power, the negotiating process is left up to Union as, from a practical perspective, I think it must be. 181 And I can make those submissions now, although my friends at TCPL, I think, have got a full set of submissions they'd like to make. So perhaps it would be more appropriate -- sorry, ECNG -- just to wait to have that heard. 182 But my primary submissions in response to the City of Kitchener: One, there is no regulatory gap at all here, there is a route; and two, the issue is moot. 183 And I'm not going to go through it in detail, but in my brief of authorities which I provided you, the very first tab, the first case is a decision of the Court of Appeal Ontario in the Tamil Co-operative Homes Inc. case. And I don't propose to go through it, but the court simply sets out there that an issue is moot where there's no live controversy between the parties. And the court indicates that it's important for the preservation of judicial resources, and I say regulatory resources, and it's appropriate for the property determination of matters, to have a proper factual foundation. And that proper factual foundation, at least with respect to the City of Kitchener, is not present in this case because there is no contract up for renewal, at least not today. 184 MR. SOMMERVILLE: I did not understand Mr. Ryder to be suggesting that he wanted to renegotiate any portion of the existing contract. 185 Now, I may have misunderstood him, and I would expect him to address that subject in his reply, but my impression was that he was not trying to renegotiate or to insert or delete terms from the existing contract but, rather, was addressing a, for want of a better term, kind of structural element that he saw as part of the rate structure that required a contract to be entered into. And it was a process kind of issue rather than detail related to that specific contract. 186 I just want to be fair to you and to him. And my understanding was, he wasn't trying to renegotiate the contract in this hearing but, rather, addressing the question of how do we deal with this contract requirement in these rate schedules. 187 MR. SMITH: And I say in response to that, I agree that I don't think Mr. Ryder is looking to renegotiate the contract that's already in place. My submission, and this is perhaps why I alluded to A9 before, because A9 specifically addresses the process, the issue -- I'm responding to the issue as it was framed by the City of Kitchener, and really, I understood this to be precondition to access to service. This is, as I understood it, an access issue, and a gap in a regulatory oversight. And as that issue is framed, the direct response to that is, there is no gap. 188 And if Mr. Ryder is putting in the materials from 2000 to say, We were done wrong in the process, in 2000, I say in response to that, and I'll say further, that that right under section 42(3), if it were as Mr. Ryder describes it, he could have availed himself of it three years ago and elected not to. 189 Now, general process questions, I'm prepared to respond to those, again, but I think in fairness, I should probably save my full submissions to that. 190 MR. SOMMERVILLE: Fair enough. You may find some comfort in the idea that it's our intention not to make determinations on each of these as we go along, but rather to consider all of the issues and then come back at the end of the day. 191 So any submissions you may want to make that may touch back on this subject matter in connection with the subsequent issues, will clearly colour our thinking on that subject. 192 MR. SMITH: Thank you, Mr. Chairman. And I should say, just as a final submission -- I apologize -- under tab 4 of my friend's materials, and my client, Mr. Reghelini, will correct me if I've got the issue wrong, but as I understand the dispute, and what actually happened in this situation -- I'm looking at page 3 of 5 -- this contract, as I understand it, was negotiated prior to Union's 1999-0017 case. 193 The issue being addressed here is, Union was in that hearing looking for a determination on the shape of the unbundling of its services that was going to take place. And this contract, and this provision, as I understand it, is intended to prevent Kitchener, which was negotiating ahead of the actual case, from, in effect, re-opening the contract, or changing the contract terms by taking a different position than they had agreed to in the contract at the case itself. 194 So I think that the term, however it was arrived at, is perfectly understandable. 195 MR. SOMMERVILLE: Thank you, Mr. Smith. The Board's interest, of course, is not much in the specifics of this contract or how it was arrived at. 196 MR. SMITH: I appreciate that. 197 MR. SOMMERVILLE: Is there anyone else who would like to speak against the inclusion of this item on the issues list? 198 In which case, Mr. Ryder, you have a brief reply. Thank you. 199 MR. RYDER: Yes. With respect to those two points, section 42(3), that is not a practical resolution to resolve impasses during contract negotiations. There are some 600 contract customers. You can't expect them to be willing to submit to the formalities the expense and the delays of a formal application to the Board. That's like breaking an egg with a hammer. We don't need that. We don't need a formal application to break a log jam during negotiations. We need some regulatory oversight that can be provided, I think, expeditiously and cheaply; that would not disturb the operations of the Board or interfere with its scheduling as a number of applications under section 60 -- 42(3) would undoubtedly do. 200 There are far better ways and useful ways of addressing these problems. 201 Also, we can't wait. 42(3) seems to contemplate that it can be used if the company has terminated its services to us. We can't wait until the gas stops flowing to go, we have public-utility responsibilities of our own. We just need a short, quick, regulatory intervention to keep the negotiations going and keep red herrings out of them. 202 With respect to the suggestion that it's hypothetical, because our contract will continue through 2005, at that stage we will be in a customer review process, perhaps, and there will be contract negotiations. And the customer review process, I'm not sure is the place to address contract impasses. Again, that would be addressing a contract impasse in the middle of a formal hearing which is far too cumbersome and far too costly, in terms of time, to be helpful. 203 So what is needed is a remedy which can be obtained cheaply, which is available and practical to customers of all sizes, and one that can issue a remedy, you know, within a few days as opposed to the month that would be occasioned if it was submitted in a customer review process. Thank you. 204 MR. SOMMERVILLE: We'll defer on the inclusion of this matter, as I indicated earlier. 205 The next item is regulatory approach for 2005. 206 MR. RYDER: That's mine as well. I can be quick on this. 207 The first submission is that under section 36(3), the Act gives the power to decide the question of the regulatory approach that is to be followed. So that's your decision. And so I submit that it's an issue which the Board must decide whether or not it's on the issues list. And it should be on the issues list, if you are obliged to decide that issue. 208 Secondly, there are a number of issues scattered through the issues list which address whether PBR first generations worked or not. And these issues by themselves are meaningless. They really only relate to the regulatory-approach choice for 2005. If you decide that the first generation worked or could be made to work better then you may opt to direct that the regulatory approach 2005 and beyond is PBR or you may not. 209 But the concern here is that if you leave this issue off the issues list until the end of, say, Phase 3, then in reality you will have your ability to make the decision which the Act gives you to make will be restricted because the only evidence you will have before you is PBR evidence. And you won't be in a position to adopt any other regulatory approach without telling Union to come back with a new application, which will involve delays which won't help anybody. 210 So I think this is an issue which should be addressed up front and put on the issues list. 211 Thank you. 212 MR. SOMMERVILLE: Is there anyone else who wishes to speak in favour of the inclusion of this item. Mr. Freitag? No? Mr. Smith. 213 MR. SMITH: Thank you, Mr. Chairman. I have two main submissions as to why this issue should not be on the issues list. 214 The first is that Union has the right to frame its application in the manner in which it decides; in other words, Union can ask for a PBR in 2005 and it is open to the Board to make a determination on that, whether that's appropriate or not. But it's Union at first instance who has that right. 215 Second, I would say as an overriding issue really, this matter is premature. The Board has made a procedural order, as I understand it, that deals with this hearing. It deals with Phases 1 and 2 of this hearing, covering the revenue requirement and rate design. Phase 3, PBR, whether it worked -- whether it should be in place for 2005 and beyond, is for the future. That will be a different, in effect, a different proceeding. And my friend, Mr. Ryder, will in no way be precluded from making any of the arguments he would like to make with respect to the merits of PBR at that time. So I say, with respect, that it's premature. It is a different -- as my client put it, it's a different phase of this proceeding, but nevertheless, it is still, we are a long way from that, and it is still very, very much premature. 216 MR. SOMMERVILLE: Anyone else who wishes to speak against the inclusion of this item? 217 Reply, Mr. Ryder. 218 MR. RYDER: Well, I think you have my points. Thanks. 219 MR. SOMMERVILLE: The Board will defer on that subject. The next item is A8: "Publication and appropriateness of Union's policies". 220 MR. RYDER: This is my last issue. 221 Can I ask you to turn to tab 5 at page 22, which is the -- I don't know why we recopied the entire ADR agreement. This is the ADR agreement of the last case. And you'll see that publication of Union's policies was addressed in the ADR agreement. 222 This issue relates to policies which affect the provision of Union's regulated services and programs, so these policies are subject to regulation, and they should be exposed to regulatory oversight. 223 And as a first step, as I say, the issue was addressed in the ADR agreement last time. And if you could turn to the second page, 22, paragraph 5 of the agreement on this point, it says that: 224 "All parties accepting will defer consideration of this issue to the 2004 rate case, that when parties will be free to raise any issue regarding the availability", et cetera. 225 Well, this issue falls squarely within that understanding that Union signed last time. So we're not asking for anything that was not agreed to in the ADR agreement. So it's a matter of regulatory oversight that falls within your jurisdiction. It was essentially agreed that we could raise it this time. And with respect to the working group established by the ADR agreement, we have not seen, to date -- at least I haven't -- any of the policies that are critical to my client, like the DCC policy and the priority-of-service policy. So I think they've met and they've listed some 39, 40-odd policies. There's been a draft of one-third of one policy. So the ADR process is not adequately addressing this issue, I submit. Thank you. 226 MR. SOMMERVILLE: Just, you mention the priority-of-service policy that has not been dealt with. It occurs to me that, pursuant to paragraph 4 of that settlement agreement, that it was not anticipated that that would, in fact, be dealt with. 227 MR. RYDER: Right, right. 228 MR. SOMMERVILLE: But you're saying that you now want that subject matter or may want that subject matter dealt with pursuant to paragraph 5? 229 MR. RYDER: Yes. 230 MR. SOMMERVILLE: And perhaps you could help me, Mr. Ryder. The priority of service policy, was that the only exclusion with respect to the publication of policies? 231 MR. RYDER: Well, yes. Except for the determination as to whether a protocol or something fell into the policy category. 232 MR. SOMMERVILLE: Okay. Does anyone else wish to speak with respect to the inclusion of this matter? 233 Mr. Smith. 234 MR. SMITH: Thank you, Mr. Chairman. 235 I think it's appropriate to start first with the issue as it's set out on the issues list. And it says, "Publication and Appropriateness of Union's Policies." 236 My first of two submissions is that, on its face, this issue is vastly overbroad; that even if you were to limit this to the publication and appropriateness of Union's regulated -- the policies relating to Union's regulated business, that that inquiry will take up a huge amount of time; and not only will it take time but it will take this Board's focus and everyone's focus away from what are really the issues in this hearing. Because there may well be policies that have nothing to do or that nobody is interested in, but we could end up on an inquiry as to those policies, at least as this issue is framed on its face. 237 Which brings me to my second submission, and it ties in with the settlement agreement, because, interestingly, I've included it in my materials as well. If there are specific policies that are of issue, we have no objection to putting them on the issues list. In fact, we've asked Mr. Ryder to do that: Specify which policies you would like us to discuss, and we'll do it. 238 And when it comes to the general publication of policies, Union's agreed to that. Union is not resiling from that agreement. In fact, there is a group that is working on this out of the ADR process came a working group which, as I understand it, has met on a couple of occasions and will continue to meet; which is looking at -- let me back up. 239 Union has agreed that all of its written policies will be published. Union is endeavouring to make those available on its web site. With respect to unwritten policies, as I understand it, there is a working group that is meeting that is looking at which of its unwritten policies should be reduced to writing and is looking at putting those on the web site. 240 So when it comes to publication I say there is no issue at all. When it comes to the appropriateness of those policies, then I say, specify which policies you would like to have included on the issues list, and they will be. 241 My friend Mr. Ryder has acknowledged that there are some 30 to 40 policies that he knows of. Simply pick and choose which policies you'd like included. 242 Now, I should say, with respect to item 4, I understand that there is a policy which relates to priority of service. Union does not object to the publication of that policy. I understand, however, that there is a distinction between the policy and how that operates in practice. And there are operational aspects to that policy. 243 In other words, interruptible customers, such as the City of Kitchener, should not be aware of the operational aspects of the policy. If they were, they could play the system, gain the benefit of the interruptible rate without any risk of interruption, to the detriment of all of the ratepayers who benefit when there are S and T sales in the 75/25 splitting. And that is why that was excluded on number 4. 244 So regardless of how this shapes out, I have to say that absolutely the operational aspects of that policy should not be on the issues list. That was agreed to. And it's imperative that that not be included on the issues list. But you have my submissions generally speaking on publication and appropriateness. 245 Thank you. 246 MR. SOMMERVILLE: Is there anyone else who wishes to speak against the inclusion of this item on the issues list? 247 MS. LEA: I just have a clarification question if possible. Mr. Smith, pardon me, because I'm not as familiar with the evidence in this matter personally as I might be: Has Union reported on the progress of the working group's deliberations at this juncture? It was indicated that you would do that in time for the IRs? 248 MR. SMITH: I stand to be corrected. It is not contained in the evidence Union has reported verbally, and I believe has sent a letter -- no, will be sending -- will be sending a letter to update everybody on the status of the working group. It thus far has simply reported verbally. 249 And frankly, I'm advised Mr. Goulden is on the working group, as is Mr. Wightman, I believe, and is happy to give whatever report you would like right now or following the meeting. 250 MS. LEA: Okay. I'm not sure it's for our own edification so much, because I certainly can ask Mr. Wightman, but there was certainly an undertaking made in the ADR agreement. And we were wondering whether a possible way of resolving this issue, and of course Mr. Ryder will speak to this, is to put on the issues list that there is a progress report to be delivered with respect to the working group's progress. And you've indicated that Union would be willing to speak to or discuss specific concerns Mr. Ryder has. 251 Did I understand you correctly? 252 MR. SMITH: Yes, that's correct. I don't think we'd have any problem putting on the issues list compliance with that undertaking. 253 MS. LEA: No, I think you misunderstand me. 254 There were specific policies -- 255 MR. SMITH: No, no -- and -- no, you understood me quite correctly. If there are specific policies which Mr. Ryder or anybody else would like discussed, Union is prepared to have those. What Union objects to is what it perceives to be a vastly overbroad issue. But if there are specific policies, yes, let's set them out and they will be available and there will be discussion on them. 256 MS. LEA: Thank you for that clarification. 257 MR. BIRCHENOUGH: Question for Mr. Smith, just for my own clarification. Are we to understand that in fact, the policy regarding priority of service for the interruptible service has been published and is available and that you are specifically objecting to publishing or discussing the procedures that implement that particular policy? 258 MR. SMITH: Mr. Reghelini will respond to that. 259 MR. REGHELINI: With respect to the priority of service for interruptible services, this policy has been canvassed in prior proceedings, and while there is no document as yet that sets it out web site, Union has described how it deals with interruptible services in interrogatory responses that have been filed with the Board and have been discussed in prior proceedings. 260 So, in our view, the operational aspect of it is not the policy. It's how -- the operational aspect of it is what Union does on a day-to-day business. But generally, at a high level, our policy is to ensure system integrity first and then to maximize the economic value of the services sold on the system, such that all customers benefit. 261 Does that respond to your question? 262 MR. BIRCHENOUGH: Thank you, Mr. Reghelini. 263 MR. SOMMERVILLE: Mr. Ryder, in your reply, I wonder if you could address the suggestion that Mr. Smith has made that the issue as described in the issues list, the proposed issues list, is overly broad and that it is reasonable to expect a definition of those policies which you want to bring into issue, rather than simply say all policies. 264 MR. RYDER: Yes. Well, I wish they'd told me that before argument. But it's still an issue. We could probably list the issues precisely that we want to remain on the issues list. But the first thing, when my friend says that there is no issue with respect to publication, well, he's wrong. There is. We've waited six months and I haven't seen a policy yet. 265 So they're willing to produce it but we don't know when, and we don't know whether I'll still be practicing law when they finally produce their policies. 266 So I would like the issue of policies to remain on the issues list so that we've got some basis for dealing with it. We will undertake, by letter, to inform Union and the participants of the limited number of policies that we want publish and examined by the Board. But without it on the issues list, we are not in a position to confidently rely on the working group, because they're just not producing policies. 267 MR. SOMMERVILLE: Mr. Smith, I see you wanting to make a comment. And Mr. Ryder, do you object to Mr. Smith -- 268 MR. RYDER: Just one other -- with respect to the priority-of-service policy, I hear that that is broken down between policy itself at a high level and how it operates. And, frankly, we say you can't separate the two. The issue is whether that particular policy should be subject to regulatory oversight. So it's an issue. And we may be wrong on that issue; my friend may be right on that issue; but it should be on the issues list for debate and determination. 269 Now, Mr. Reghelini had some observations which are of sort of a technical, practical nature, and Mr. Quinn, who is also on the working group, if you would permit it, would like to address that. 270 MR. SOMMERVILLE: I think that would be helpful. Mr. Quinn. 271 MR. QUINN: Thank you, sir. Just wanted to -- I'll concern my comments to that point of level-of-priority service. There is not a policy produced yet. And my friend Mr. Reghelini has differentiated policy from practice, but our concern is when practice converts firm contractual rights from firm into interruptible. If the policy is not produced in a way that it can be adjudicated, we have no recourse in determining if that practice is consistent with past Board additions. In our view it has not been consistent with past Board decisions but without publication we have no recourse to have determination of that. 272 Thank you. 273 MR. SOMMERVILLE: Mr. Smith. 274 MR. SMITH: I didn't want to engage in ping pong, so I'll be very, very brief. 275 I think it is unfair to Union to say that Union has been sitting on this. The working group reached a consensus as to the manner in which they wanted to proceed with respect to the publication of Union's policies. The result of that decision is that, although it's only been working for six months, Mr. Ryder's dissatisfied with that process. But his client is part of that process. They elected to proceed with one policy first, to test-drive it, as it were, how this group would work, and that's why they are where they are at, not because Union has been sitting on its thumbs. 276 I should say just, finally, there clearly is a distinction between operation and practice when it comes to priority of service and the parties recognized that in ADR. So I think it's a mischaracterization to say that these things cannot be settled. 277 And finally, with respect to Mr. Quinn's comments, if there was a problem and Union had breached the contract, as I understand him to be alluding to, there is recourse available to him in the courts. 278 MR. SOMMERVILLE: The Board will defer on this subject. It occurs to the Board that this may be an area where the parties at some point, in the course of the day, might be able to refine this issue in some manner that might bring it a little closer. The Board will make a determination, but will also listen to a further submission on this point if this particular matter might be refined somewhat, upon consent of Kitchener and Union and the applicant, to narrow the scope, perhaps, and to -- well, as simple as that. So we'll defer on that but ask the parties to perhaps try to sharpen this just a touch. 279 The next item is "The process by which Union makes changes to existing standard contracts". 280 MR. FREITAG: Thank you, Mr. Chairman. That's my issue. I'm here representing ECNG. 281 MR. SOMMERVILLE: Mr. Freitag. 282 MR. FREITAG: ECNG's interest in this particular issue is arising from its role as agent for a number of customers. Its particular interest is in relation to the bundled-T contract, the terms and conditions of service, and the collection service agreement. 283 I think listening earlier to A6 this morning, I think there is a lot of similarities to that issue, and I guess, you know, my submissions, our submissions, will try not to reiterate some of the earlier comments that were made. I think there is a number of points that are, however, appropriate to make at this juncture. I think, firstly, it's timely that the Board deal with this and look at this issue in terms of process, what mechanisms are available. And I say it's timely because these contracts have gone through the consultation process that the Union underwent last year; that most customers are now in the process of having to look at these contracts, a number of them for the first time; customers are coming forward and, frankly, are somewhat frustrated with the process, or lack of process thereof. So I think it is timely for the Board to address this issue. 284 Like A6, we don't see the regulatory mechanism that is in place for customers to address it. While I can appreciate Union's position that we could bring a matter before the Board, again, I would agree with the earlier submissions that that's very costly. And that's not the nature of, really, what I think most customers want. They want a streamlined process to deal with the issues that are in front of them. They do not want to have to deal or look at every contract that is dealt with by Union. So this is not something that would be infringing on, sort of, the commercial day-to-day issues. 285 The second point I would make is that we believe this is firmly within the jurisdiction of the Board. Reference was made earlier to section 36(1), I believe. I think section 36(4) talks about the Board... I'll just quote that, that: 286 "An order under the rate section may include conditions, classifications or practices applicable to the sale, transmission, distribution, or storage of gas." 287 So I think it's firmly within the Board's jurisdiction to look at this issue. 288 The third sort of submission I'd make in relation to this is really into relation to the contract development process (sic). I know Union made great efforts to involve a number of customers, but, frankly, the people that were involved in this are not good representation of all the customers that were involved. I think that, as a result, the consultation process was not as complete as it could have been. I think the product, as a result, the contracts, are lacking in some clarity. My intent is not to go into the different provisions therein, but there are a number of provisions that we would raise in the course of this proceeding that we think the Board would see of interest. 289 We think that, I guess, flowing into one of my other points, that by allowing this issue to take place and continue on the list, it will allow, I think, appropriate IRs to be filed. That will, I think, allow the issue to be fully before the Board and to the Board to get a better understanding of the process and lack of process in some of the issues pertaining to these contracts. 290 I guess my last point was just simply to let the Board know that I've spoken with counsel to IGUA. Counsel to IGUA is supportive of having this issue remain on the issues list. Unfortunately, he's not able to attend but wanted me to indicate to the Board that he was supportive of wanting this issue to continue on the list. 291 Thank you. Those are my submissions. 292 MR. SOMMERVILLE: Does anyone else wish to speak in support of the inclusion of this item on the issues list? 293 MR. RYDER: Yes. Well, the City of Kitchener sees this as another aspect of issue 6, and so we support it. 294 MR. SOMMERVILLE: Thank you, Mr. Ryder. Anyone else? Mr. Smith. 295 MR. SMITH: Thank you, Mr. Chairman. 296 As I understand the issue, and as it's framed, what is at issue is how does Union or what is the process that Union goes through when a contract which has expired is up for renegotiation? 297 And the factual backdrop necessary for that is that Union has just gone through a period of standardizing all of its contracts. And that has taken a number of -- a couple of years at a minimum. And through that process, as my friend Mr. Freitag alluded to, there was consultation with various customers, there were focus groups held, there were e-mails sent out, there were faxes sent out. And the contracts themselves, the terms and conditions have been posted on Union's web site since May of 2002. That's the factual backdrop. So there has been consultation. There is a process. 298 From a jurisdictional standpoint, I say, however, with respect, that this Board does not have the jurisdiction to impose on Union a process by which it negotiates its contracts. This Board has the jurisdiction to set just and reasonable rates and to impose on those certain conditions under section 36(4). 299 If you look, however, at the statutory scheme, it is apparent that the management of Union, as it must of necessity be, is left to Union's managers. And that includes negotiating contracts. 300 If you look, for example, at section 39(2) -- and my friend Mr. Ryder referred to that section earlier -- section 39(2) deals with contracts for storage facilities, or storage agreements. And it specifically provides that: 301 "No storage company shall enter into an agreement or renew an agreement with any person for the storage of gas unless the Board, with or without a hearing, has approved..." 302 And then: 303 "A, the parties to agreement or renewal; B, the period for which the agreement of renewal is to be in operation; and C, the storage that is the subject of the agreement or renewal." 304 And in addition to that, if you look at section 36(1), when it discusses the setting of rates, the section reads that: 305 "The Board shall set just and reasonable rates...which is not bound by the terms of any contract." 306 So I say that the legislature has turned its mind specifically to the Board's power with respect to the imposition of terms of a contract. 307 And the legislature has decided that, subject to section 36(1), section 39(2), and in particular 39(2), that this is not an area that the Board should regulate. The Board should set rates and make rules. Once those are in place, the actual negotiation of the contracts is left to Union, provided, of course, it fits within those parameters as previously set by the Board. And load balancing is a good example of that. Load balancing and the terms of load balancing in the contract are for Union to negotiate, subject, however, to where they have an impact on rates. And of course, that will then be the subject of the hearing. 308 And that evidence is before the Board. So the Board will have to consider load balancing. But the process by which Union goes about negotiating its contracts has to be left to Union. And from a practical perspective, I'm at a bit of a loss to understand how this issue would, in any event, play out practically, whether or not the intervenors or the customers would like to negotiate in front of this Board as though all 600 contracts had to be renewed as part of a mini hearing, as it were. I say that's unworkable. The legislature has recognized it's unworkable and that it shouldn't be on the issues list. 309 And looking at section 39(2), it would not be necessary if the Board had the authority that my friends say that you have. 310 MR. SOMMERVILLE: Does anyone else wish to speak against inclusion of this item on the -- 311 MS. LEA: I have a question of clarification, sir, if possible. Possibly this is to Mr. Freitag as much as to my friend Mr. Smith. 312 In listening to the submissions made by my friends, it appears that the concern is related only to bundled T3 contracts; is that right, sir? 313 MR. FREITAG: It's related to the collection service agreement, terms and conditions and the bundled T. The bundled T incorporates the terms and conditions of service. 314 MR. SOMMERVILLE: The reason I ask the question is that the phrase "existing standard contracts" is very broad. And if everybody is in agreement that it relates only to a subset of those things, then perhaps we can, at least in considering the issue if it is to be included on the list, narrow it so that we know exactly what we're talking about. So perhaps if Mr. Freitag and my friend Mr. Smith would wish to speak to that, that's a suggestion. 315 MR. SOMMERVILLE: I think in that architecture, Mr. Smith, you get to answer first. 316 MR. SMITH: Well, I always appreciate the narrowing of issues. 317 MS. LEA: You don't want it at all... 318 MR. SMITH: As a preliminary matter, I should say A6 and A9, it seems, no matter how this is decided, must be conflated. But I don't think an issue that relates to jurisdiction can be reduced. If the Board doesn't have the jurisdiction whether it's related to bundled T or not, I think, is irrelevant. The Board doesn't have the jurisdiction. 319 MS. LEA: Thank you. 320 MR. SOMMERVILLE: In that connection I have a question, Mr. Smith. Mr. Freitag referred to 36(4), and that's an order under this section. That's the rate-making section: 321 "...may include conditions, classifications, or practices applicable to the sale, transmission, distribution, or storage of gas, including rules respecting the calculation of rates." 322 In your view, is the consideration of the contracts which are a precondition to the applicability of these rate schedules, and seemingly an integral part of them, how do you reconcile those things? 323 MR. SMITH: I reconcile them by starting first, Mr. Chairman, with the language of the issue as it's drafted, which is the process by which Union makes changes to existing standard contracts. 324 That issue, in my submission, does not engage section 36(4) on its face, because what we're talking about under this issue, as I understand it, is "How do you, Union, consult with us, customer?" 325 And that I say is not engaged by sections 36(4), which has to be read looking at the initial words of the section: "An order under this section." Under 36(1), you have to look back to the rates. When you're making rates, yes, there are terms and conditions that need to be included. And those are the subject of this hearing. The appropriateness of those, and they will be included in a rate order, but the process by which Union then goes out and negotiates or drafts its standard contracts, I say, is not engaged in section 36(4). 326 And I should say that's why I said, subject to 36(4), and your rule-making power under section 44, for example, GDAR, Union cannot enter into a contract that would conflict with GDAR. But once GDAR's in place, Union is free to contract, so long as it fits within those parameters. 327 MR. SOMMERVILLE: Thank you. Mr. Freitag, in reply. 328 MR. FREITAG: Thank you. Mr. Chairman, I respectfully disagree with my friend. I think you do have jurisdiction. I think that most of the things that you find in your terms and conditions of service are inextricably linked with rates, for instance, the force majeure provisions. The force majeure provisions are provisions that this Board has dealt with in the past; clearly it has jurisdiction to deal with that. Late-payment fees are contained within the terms and conditions; again, inextricably linked to rates. The request or the requirement now to post performance assurances, which I think is of concern to many customers. Union has a right now, under the existing terms and conditions, to request performance assurance, even where there is no grounds for insecurity. And each of these go to the issue of how rates are set. 329 If there is no risk because they are completely secured by customers, then that goes to the issue of, presumably, what risk premium, what debt-equity ratio they should have. I think each of these issues are inextricably linked, and for my friend to suggest that you do not have jurisdiction I think is unreasonable. 330 MR. SOMMERVILLE: I'm not sure that that's what Mr. Smith said. I don't think Mr. Smith addressed those specific heads of terms and conditions. But what he was suggesting is that for the Board to, as an outcome, and we're not dealing with outcomes, particularly, in this proceeding, but as an outcome of a consideration of the process -- the outcome of this process is the Board determining what the process ought to be for the arriving at those terms. And that's what he says the Board doesn't have jurisdiction to do. I think that's right, Mr. Smith? 331 MR. SMITH: Absolutely. I mean, just looking at the language of the issue as it was framed, what I thought we were talking about is process, and to the extent the issues that Mr. Freitag has now specifically enumerated relate to rates and are appropriate for discussion. I'm not saying that the Board doesn't have jurisdiction over it. 332 And as my client has just advised me, Union wouldn't object to a interrogatory as to how the specific items impact on rates. What Union does object to is the process. 333 MR. SOMMERVILLE: Mr. Freitag. 334 MR. FREITAG: Yes. And I think it's fair to say perhaps we could have specified the issue a little clearer. 335 But I think it's both what is contained within those contracts, which I think the Board clearly has jurisdiction to deal with, and I think it is the fact that there is not a process in place to allow customers to deal with those issues in a meaningful way. 336 So, short of coming to the proceeding and arguing through the course of a rate case, they simply have no mechanism to allow these contracts to work their way through. 337 So they have issues with the substance of the contracts, clearly, but they also have issues about how they can best address the substance of them. And I think the practices of the Board or the rules of the Board, there's got to be some jurisdiction to allow, some mechanism to allow affected customers to come to the Board and seek redress without having to go through participating in a rate case which would incur considerable expense not only to that customer but to all the customers that would be other intervenors, which, frankly, I don't think would be a very good use of the Board's time or any of the intervenor funding in respect of this. 338 MR. SOMMERVILLE: The Board will defer on this question as well. It does seem to us that there may be more emphasis on this question of process, rather than a -- and this relates to the submissions on A6 as well -- it seems that there is a necessary linkage between the contractual terms and the rate schedule. That's explicit, it seems, and that what's being urged upon the Board is some mechanism for -- and this will be where the difficulties may arise, as to how easy or difficult that process may be. The Board clearly ought not to get into a position where it's trying to negotiate terms of contracts. 339 But finding some language for this particular heading that may give those urging inclusion some comfort that there is some mechanism that, where it breaks down, there is some kind of recourse, that that may be something that you may want to talk about in the intervening period before we make a determination on this. And I urge you to try to do that. 340 We've given you some indication of what our thinking is at this stage, and I'm not trying to prejudge that subject matter at all, but to give you a fair opportunity to address that. 341 So we'll defer on that. And I think we'll take a morning break at this time. What I propose to do is break at about a quarter after 1, and then reconvene at 2:15 for the lunch period. Mr. Farquhar, are you coming from Alberta today? 342 MR. FARQUHAR: Yes, I am. 343 MR. SOMMERVILLE: Now, do you have travel arrangements that are of... 344 MR. FARQUHAR: My flight leaves at 7 o'clock this evening. 345 MR. SOMMERVILLE: So you should leave now. 346 MR. FARQUHAR: Gee, I really wanted to talk, too. 347 MR. SOMMERVILLE: I'm being facetious. 348 It may be that you may want to talk to some of your colleagues here and if you want to raise the issues that you want to raise at some specific time frame, that the Board will entertain that. 349 MR. FARQUHAR: That would be appreciated. 350 MR. SOMMERVILLE: So, without further ado, we will stand adjourned until, let's take until noon and we'll come back till 1:15. Thank you. 351 --- Break taken at 11:42 a.m. 352 --- On resuming at 12:04 p.m. 353 MR. POCH: Mr. Chairman, we had a little discussion about schedule, over the break. Mr. Farquhar has a flight at the end of the day. There are three counsel here for the DSM issue, that alone, just the one issue, including myself, and I'm also from out of town hoping I can actually leave earlier. And Mr. Farquhar has kindly agreed that the best order might be for that one issue to go first, followed by Northern Cross's issues, followed by any that remain. That way everyone can make the best use. 354 MR. SOMMERVILLE: That's satisfactory to the Board. Unless there are other submissions, we'll proceed, then. 355 MR. NICHOLS: May I engage the Board for a second here. My client is here just for several uncontested issues or issues that weren't highlighted as contested and just wants to confirm that those issues will not be raised. And if I can do that. 356 I would also like to seek leave so I may excuse myself from the rest of the proceedings. 357 MR. SOMMERVILLE: Mr. Nichols, you have the floor. 358 MR. NICHOLS: Thank you. I just want to confirm that issues A1, D1(1), D1(5) -- 359 MR. SMITH: Sorry, I lost you on the third one. 360 MR. SOMMERVILLE: Slow down for a second, please. You lost me on the first one. 361 MR. NICHOLS: A1. 362 MR. SOMMERVILLE: Yes. 363 MR. NICHOLS: D1.1, D1.5, D1.6, D7, H4.1, H4.2, H13 and item number I. 364 MR. SOMMERVILLE: And what you're seeking specifically, Mr. Nichols, is? 365 MR. NICHOLS: Is just confirmation that these issues are uncontested and they will not be spoken to. 366 MR. SMITH: I'm afraid that every one of them is contested. 367 [Laughter] 368 No, none of them are contested. 369 MR. SOMMERVILLE: That could have changed your day, Mr. Nichols. 370 MR. NICHOLS: So may I have leave to excuse myself from the rest of the proceedings? 371 MR. SOMMERVILLE: You can. 372 MR. NICHOLS: Thank you. 373 MR. SOMMERVILLE: Thank you very much. Mr. Poch. 374 MR. POCH: Thank you, Mr. Chairman. I'm addressing item D.8.6. D.8.6, which is DSM variance account for DSM O&M expenditures. 375 By the way, Mr. Chairman, I should just say, the context we find ourselves in, Union hasn't completed their DSM filing in this case because they're waiting for the next phase of DSM consultations to complete first in hopes that there may be some proposals arising out of that. And that's, just by way of explanation, because you'll see there's 8.7, someone has -- this word got snuck in after I left, but it says "placeholder." And just by way of explanation, presumably, if nobody comes forward with a proposal for a very targeted shareholder incentive, as is being discussed informally, then that one may go by the wayside at some point in the future. That's just to explain that. 376 MR. SOMMERVILLE: Thank you. 377 MR. POCH: But with respect to 8.6, this is a topic with some history, Mr. Chairman. As the Board will be aware, Enbridge has a demand side variance account and has had for several years. In the first view years of that account, Enbridge underspent budget and I believe several millions of dollars were returned to ratepayers. 378 In the post-shareholder incentive years with Enbridge, where they now have an incentive to go after DSM, it's worked the other way. It's given them the headroom to pursue programs that are performing well. And they've been using it up to a cap of, I think, 20 per cent is what's been typically approved without further Board attention. 379 So it's an account that can work in either direction. And as the Board will be aware, DSM is in a little different situation than most other utility spending. It's not like pipe management where the company has to get the job done, and if they can do it cheaper then there's some benefit of prospective regulation. There's some benefit to them having the incentive to be able to pocket a little money if they find a way to do it cheaper, and hopefully we'll all reap that benefit in subsequent years. 380 With DSM, because it is, in a sense, an optional activity, there's no set amount that has to be obtained in any given year. Ideally, we'd love to see all of the cost effective of DSM obtained, but the world doesn't stop, there isn't a safety issue, for example, if they don't. 381 The reliance on simply that incentive doesn't work, and so it's been recognized in several ways. We need to deal with DSM somewhat differently. 382 And the concern we have is in both directions, that if -- we don't want to give Union the incentive to underspend, forego customer benefits that could have been obtained by added conservation because they can pocket the money. Also, if things are going well, if there is good customer uptake, a program is well received by the public, we don't want to place, in effect, a cap on that program if it's cost-effective for the utility, for the customers, for everybody, just because the company would then have to dig into its pocket deeper. 383 The matter has been considered at least twice in past hearings. My friend has filed a brief of authorities. Mr. Penny filed it on behalf of the utility. And at tabs 4 and 5 are excerpts from the 493/94 decision and the 0017 decision. I'll be referring to those. 384 I'll also be referring to two individual pieces of paper that I've handed up to you and to my friend earlier today. One is a two-sided document which is excerpts from Union's 2002 evaluation report. This is a document provided by Union. But I do not believe it is yet on the record in this case. Presumably, it will be at some point. So it might be appropriate to give that an exhibit number, Mr. Chairman, since it doesn't already have one. 385 MS. LEA: For the purpose of this issues day proceeding, we'll just give this Exhibit 1. Just call this Exhibit 1. We don't have an exhibit list yet, Mr. Poch. We'll call it Exhibit 1 for today's proceeding. Thanks. 386 EXHIBIT NO. 1: TWO-SIDED DOCUMENT, EXCERPTS FROM UNION'S 2002 EVALUATION REPORT. 387 MR. POCH: Secondly, Mr. Chairman, is a letter which exists in the Board's public files and has certainly been referred to before the Board before. That is a letter from the then-Minister of Environment and Energy, Chris Stockwell, to the then-chair of the OEB, Mr. Laughren dated July 2, 2002. I'll be referring to that. Again, it may be, for ease of reference, appropriate to give it a number. 388 MS. LEA: Exhibit 2. 389 EXHIBIT NO. 2: LETTER TO CHAIR OF OEB, MR. LAUGHREN, FROM MINISTER OF ENVIRONMENT AND ENERGY, CHRIS STOCKWELL, DATED JULY 2, 2002. 390 MR. POCH: Thank you. 391 Turning first to the 493/94 decision, which is at tab 4 of my friend's materials, at paragraph 4.5.53, page 116 of the decision, the Board accepted Union's argument that a DSM VA wasn't necessary, and I'll read the relevant section: "The Board is not persuaded of the need for a deferral account to track DSM expenditures or that an LRAM or shareholder incentive is needed at this time. 392 "As noted above, the companies are committed to continued improvement of the 1997 DSM plan and do not support the need for further incentives." 393 And the reference above, at least with respect to DSM VA, the Board canvasses the utility's position as paragraph 4.5.40, which is on page 113 of the decision. And there it is recited: 394 "The companies did not agree that a variance account was needed. In the event of DSM activities being moved out of the regulated business, costs and transfer pricing would be dealt with at that time, as noted in the ADR settlement agreement. They submitted that tracking of DSM expenditures has improved, and in any case, expenditures on a calendar as opposed to fiscal year basis is accurate and complete." 395 So, the Board accepted that reasoning, in the one hand, if it was moved out of the utility, it would be dealt with it in another context. That didn't come to be, but with respect to the basic proposition that the utility was getting better at their forecasting of -- budget forecasting and so on, so there wasn't this need to pick up a variance. 396 The matter arose again in the 0017 case which was the base case for the PBR period just ending. 397 Behind tab 5 of my friend's booklet. And at paragraph -- on page 175 of that decision, paragraph 2.654, we have Union's position: 398 "The company argued that since the range of benefit to cost ratios for pursuing incremental DSM inherent in the company's DSM proposal are all positive, such rewards are incentive enough to pursue incremental DSM such that a DSM VA is unnecessary." 399 And they go on to say they believe that DSM VA would be inconsistent with PBR, because the PBR should give the company an incentive to conserve money. 400 And indeed -- I don't have a handout for you, Mr. Chairman, but that is the consistent with the evidence in that case, it was Mr. Fogwell, and the transcript reference, should you find a need to refer to it, is at transcript 2106 of that hearing record, where he explained that the company at the time was proposing a shareholder incentive which was going to give the company 15 per cent of the total resource cost benefit of any incremental DSM, and that that incentive was large enough that it would overcome any incentive the company might have to pocket the budget allocated; that it could earn more by going after incremental DSM and spending O&M through the proposed shareholder mechanism than it could by simply pocketing the budget. 401 The Board at page 180 of the decision I was just referring to simply accepted the company's position that DSM VA is not consistent with a PBR regime. 402 In my respectful submission, the Board erred, because the PBR regime applicable to DSM, or proposed for DSM at the time was the SSM. The Board, having rejected the SSM in that application, had put DSM in a position of not being, in effect, subject to performance-based regulation. The impact of it was that Union was left with an incentive to underspend DSM, rather than go after additional savings, however they fared on program performance, be it under or above target, presumably, if they had spent more they could have achieved more. 403 And the incentive for them was not to catch the Board's fire by walking away from DSM altogether, to try to perform on a volume basis what they had predicted, but obviously, if they can pocket some money there was some incentive for them to do that. 404 Which brings us to the new facts, if you will, that underlie the timeliness of this matter being brought before you in this case yet again. 405 And that is the two-sided piece, Exhibit 1, that I've handed up to you. There on the side labelled table 3.3, we see what has, in fact, happened on DSM spending. And if you look at the two columns entitled: "Budget costs" and "actual costs," you will see that from 1997 forward, in each and every year, Union has, in fact, underspent its DSM budget. Now, this particular sheet only covers the program aspects to have budget; it doesn't capture all the overheads. And we have simply tallied the subtotals there. And they had budgeted over that period of six years, $15.772 million, and they spent $11.94, for a difference of almost $4 million, which Union has been able to -- Union's shareholders have been able to enjoy rather than to spend on further DSM. 406 And just overleaf, Mr. Chairman, table 3.1, is a more detailed breakout of the 2002 year, the most recent one for which we have information. 407 And we've provided this just to note that there is a distinction between the program numbers that I've just referred to and the total numbers which would also capture indirect costs, but that just shows that, even for that one year, for example, even after capturing all the overheads in budget and actuals, there's still -- in the one year we were able to put $1 million in the shareholders' pocket. 408 So the facts as they've unfolded directly contradict the argument that Union made back in 493/94 where they said: "We're getting better at this forecasting. You don't have to worry. You don't need a DSM VA." 409 Further, the context of the more recent decision, the 0017 decision, was one where we were entering PBR, we were entering unbundling, and the Board went on, in that portion of its decision that's reproduced in my friend's brief -- I won't read it to you but you may be familiar -- you may recall the Board made a number of observations about this changing context. And really, I think underlying message from the Board in that case, the reason the Board did not go for the SSM, the stated reason, was simply it wasn't the time to start messing with the DSM, to start changing the structure of DSM. The factual world was changing. The regulatory structure was changing. The policy context was changing. 410 And since that time, we now have experience with PBR and, more importantly, we have a much clearer policy context and direction from government. We have the passage of the amendments to the Board's Act. Which now refer to promoting DSM in section 2(5) of the Board's Act, rather than simply facilitating. And it says promoting it consistent with government policy from time to time. And that's why I provided you with Exhibit 2, as an example where, at the bottom of the first page -- this is a letter, of course, with respect to electricity, but it does refer to gas -- the bottom of the first page, it says: 411 "The government of Ontario welcomes activities undertaken or supported by energy utilities that help customers to conserve energy or move energy use from peak to off-peak time periods." 412 And overleaf: 413 "In short, DSM has been a component of natural gas regulation for several years and the government would welcome its introduction into the framework of the electricity sector." 414 So I think that's a fairly clear statement that the government, in general, is happy to see this kind of activity being promoted. So I think that that ambiguity is no longer with us. 415 So that's the situation, Mr. Chairman. We think the context has changed since the earlier decisions. And the facts have certainly changed, at least 4 million of those facts. And that's why we'd like to have this issue on the list this year. 416 Thank you. 417 MR. SOMMERVILLE: Would anyone else like to speak supporting the inclusion of this? 418 MR. KLIPPENSTEIN: Yes, Mr. Chair. Pollution Probe would like to support the inclusion of this issue. 419 I'm not sure I would go so far as my friend so as to say that the Board erred in its earlier decision, but I think it is useful to keep in mind one of the aspects of that decision that summarizes Union's arguments. And that's found in the file materials of the company at tab 5, on page 175, which my friend Mr. Poch referred to. 420 And the last sentence on that page says: "The company concluded that the only circumstance in which a DSM VA would be necessary would be if the Board considered that an increased emphasis on DSM was appropriate and that higher targets were necessary." 421 I just want to highlight the phrase "if the Board considered that an increased emphasis on DSM was appropriate," and in my submission that, respectfully, is the situation we are in now. And that's why it's, perhaps, a good time for the Board to have a second look at this now, by adding this to the issues list. And of course, obviously, by adding it to the issues list, the Board is not prejudging whether or not it will actually occur. But Mr. Poch highlighted some reasons to think that an increased emphasis on DSM was appropriate. 422 And I won't go through them, but not only was that decision some five years ago, and times have changed, there is some very clear emphasis, such as by the amendment of the statute itself, to show that there is an increased emphasis on DSM as a very useful tool. 423 Now, secondly I would just note that Enbridge has a DSM VA that is working together with some of the other DSM tools, such as an LRAM that also appears on the issues list, so that there is not only some live experience in that context that shows that, in fact, it is actually working as a set of DSM tools, I think the evidence shows that in Enbridge's case, there's been literally hundreds of millions of dollars of bill savings that have benefited the people of Ontario because of the DSM. 424 Also, there's some suggestion that if it's working well with Enbridge, for reasons purely of consistency it makes sense to have some -- or at least consider extending it in this context. And the fact that it seems to be working well in Enbridge's case simply highlights again that these decisions were some five years ago, and maybe it's time to have a look with the benefit of experience. 425 A third reason, in my respectful submission, to include this on the issues list, is that this is a useful working addition to the other issues related to DSM, in other words, the LRAM, the other issues, and the more specific tools there are in that package, the more likely it is that in the ADR process, the parties will be able to work out an agreement that can be a settlement that will, in the various -- will serve the interests of the various parties. By having the possibility of a DSM VA discussion, you increase the chance of settlement and you increase the chance of a better settlement because parties may come up with a more effective DSM package. So that's a good reason, in my submission, to add it on the list. But there's the obvious problem of: Is this just going to, failing a settlement, increase the hearing unduly, in terms of time? 426 The reality is that this is not a new issue; it's been considered many times before. So, in my submission, it would be dealt with mainly by argument. Pollution Probe wouldn't call any evidence on the DSM VA. So it wouldn't have a major downside of hearing time costs. But it would have a significant upside in terms of the options available for a DSM package both in the ADR process and in the actual Board hearing. So it actually can be part of a better DSM solution. 427 And fundamentally, the issue at some point does come down to the question of incentive and the concern that, without a DSM VA, there is a hidden subtle but real incentive to underspend on this important activity. I won't repeat what Mr. Poch said, but in that sense this incentive makes it particularly compatible with the PBR framework because that's the purpose of PBR, is to use incentives. And so, in that sense, the DSM VA is a very compatible part of the PBR package, and in Pollution Probe's submission there can be some real conservation benefits from a DSM VA. That's been proven, I would submit. So it's a good item to add. 428 Thank you. 429 MR. SOMMERVILLE: Is there anyone else who wishes to -- 430 MR. MacODRUM: Mr. Chairman, we do not object to the concept of a DSM VA as addressed in this hearing, so we don't object to 8.6 being on the issues list. I just would want to make it clear, though, that we don't necessarily agree with the outcome of those deliberations, that they would be as suggested by my friend Mr. Poch. 431 And finally, I just wanted to, while I have the microphone, item 8.7 is not listed as a contested issue, but, Mr. Chairman, I'd like to address that following the discussion of this issue if that's possible. It's called a "placeholder" but I do have some concerns about issue 8.7. 432 MR. SOMMERVILLE: Thank you. 433 MR. SHEPHERD: Mr. Chairman, School Boards' strongly support the inclusion of this issue. I guess I'll just be brief because my friends have, really, covered it fairly well. 434 As a practical point of view, it seems to us that if you're a gas distribution utility, your focus is on maximizing through-put and -- during PBR, of course, and cutting costs as well -- because those are the things that drive your bottom line. We have a situation when there is no DSM VA where there is another focus, and that is to underspend on DSM. I'm not suggesting the utility is acting in some improper way. I'm saying we're giving them an incentive to, if you're an executive there, and you have a million dollars that you can get if you underspend on DSM VA, that will get your attention. And we think that's a bad signal. 435 And so now what we're talking about is should this be on a issues list. And I think it's fairly self-evident that it's been a while since it was fully considered and a lot of things have happened since then and in particular, the substantial success of Enbridge in expanding its DSM program. So I think it's an appropriate time to talk about this. 436 Those are our submissions. 437 MR. SOMMERVILLE: Anyone else? Mr. Smith. 438 MR. SMITH: Let me begin by saying that I agree entirely with my friends that this issue has been much canvassed. And on not one but two separate occasions, this Board has reached the conclusion that a DSM VA is unnecessary. And I say that my friends are not entitled to a third kick at the can, as it were; that this Board has fully considered the reasons why it's inappropriate to have a DSM VA; and that nothing in my friends' submissions has changed that. 439 And my friend took you to the cases that -- the decisions that I've reproduced at tabs 4 and 5, and I would invite you to take a look at pages 116 at tab 4 and page 180 at tab 5. And, as my friend Mr. Poch fairly pointed out, it's at those pages that the Board reached the conclusion that a DSM VA is unnecessary. And if I can at this point just take up Mr. Poch's submission that there has been -- or the Board erred in the PBR context and I say, with respect, looking at table 3.3, I think that that could not be, or unless I've read it incorrectly, could not be correct. It seems to me that looking at the bottom, the 2002 results, what has happened is Union has managed to reduce from 1997 to 2002 its actual gas throughput, so it's reduced its volume, and it's doing it more efficiently. And I would have thought that that's exactly what PBR was for. 440 And I say on that as well that there is nothing, and my friends have -- Mr. Shepherd actually pointed this out clearly, I would submit -- there is nothing special about a DSM VA that can't be said about any deferral account. Union always has an incentive to do more with less. And that's the same with any deferral account, a labour-cost deferral, or any other O&M expenditure. And why should DSM, which accounts for a very, very small portion of Union's total O&M budget, be treated any differently? 441 And these are arguments that the parties have canvassed not once but twice and the Board has rejected, and I say that there is no reason why this Board should occupy its time to the parties' expense dealing with this issue, whether or not Pollution Probe calls evidence. It will take time in argument, and no doubt these things will take time. 442 MR. SOMMERVILLE: Mr. Smith. Is there anyone else who wishes to speak against the inclusion of this item on the issues list? 443 Mr. Poch, in reply. 444 MR. POCH: I think you've heard most of my points in short, Mr. Chairman, both the policy context that the Board operates under since this was last considered, and the facts have changed as I've outlined. 445 Thank you, Mr. Chairman. 446 MR. SOMMERVILLE: Thank you. The Board will defer on this matter as in the others, and we'll move on to -- Mr. MacOdrum, you indicated you wanted to address in some fashion 8.7 and I invite you to do that now. 447 MR. MacODRUM: I'll be very brief, Mr. Chairman. I'm not exactly sure what the term, in this context, "placeholder" means. I have to be very careful when I say "in this context". Because I suggested on an issues day in another place at another thyme the term "placeholder" be used. But we object to the inclusion of 8.7 on the issues list and the reasons for that are very simple. No evidence has been filed -- 448 MR. POCH: Mr. Chairman. I object, I'm sorry. I was in attendance when DSM was discussed and nobody -- earlier in the week. Nobody suggested at that time that this should not be on the list. We agreed that this was an uncontested issue. We have not come today prepared to argue that this issue be on or off the list. I made comments earlier about how the word "placeholder" got stuck in, and I don't know that much turns on it, but I object to this. This is an abuse of process. 449 MR. SOMMERVILLE: What I'd like do is hear Mr. MacOdrum finish his remarks, and, Mr. Poch, I'll ask you to respond directly to that. And Mr. Smith, you will also have an opportunity to respond at that time. Mr. MacOdrum, please continue. 450 MR. MacODRUM: Well, I think I'm sensitive to my friend Mr. Poch's concerns that we're catching him by surprise. And perhaps if I could recharacterize my remarks even if the matter remains on the issues list in this way, just to raise them as concerns, that I mean, I just point them out to the Board's attention that there is no evidence filed on the SSM; that, we understand that Union will not be presenting evidence on SSM or on a pilot SSM, and there's been no discussion at the DSM consultative about an SSM, and there is no DSM consultative currently scheduled to discuss this. And I guess it is basically the appropriateness of going forward, or what the scope of this issue even means in that context. 451 So, I think to address the concerns of my friend Mr. Poch that I'm catching him unawares, I would restate my comments as concerns rather than objections. 452 MR. SOMMERVILLE: Thank you, Mr. MacOdrum. 453 MR. POCH: Mr. Chairman, I'd just alert you to my earlier comments when I noted where I found this word "placeholder" there, just to explain to the Board, the context here is that Union hasn't finished filing their DSM case. Discussions have commenced between Union and the parties. I think Union agreed to this issue because they are trying to keep an open mind on this. They are not interested in a broad SSM ala the Enbridge one, but they are entertaining, at least, a narrower, more focussed one. And it was in that context that we put this issue on here. 454 They well may, and if my friend will correct me if I am wrong, they well may file evidence proposing such an incentive, if we can work something out. Alternatively, we may well file something. 455 So, you know, I did alert the Board that this issue could disappear if nobody files anything, but certainly discussions are underway, and the evidence has not been finalized. So this is here so that those discussions aren't fruitless. 456 MR. SOMMERVILLE: Mr. Smith? 457 MR. SMITH: Mr. Chairman, Union -- we don't object to the inclusion of this. We agreed to it earlier in the week. It's not Union's intention to file any evidence on this proposal. I understand this to be Mr. Poch's issue and his client may well file evidence. But we're certainly not going to object at this stage. 458 MR. SOMMERVILLE: Mr. MacOdrum, I sense that the status of this item is more in the becoming than the being, at this stage, and I think our inclination would be, we've heard your concern about it, and it's a perfectly legitimate expression, I think, but I'm not sure that we're in a position where we would move to remove this from the list. And I think you would get your opportunity to express your concerns about whatever proposals may come forward in the course of a proceeding, if, in fact, that happened. 459 MR. MacODRUM: With only the one addendum -- we've just heard from the applicant confirming that they do not intend to file any evidence on this issue. I guess if they do not intend, it would be interesting to hear from Mr. Poch whether he intends to file evidence. Because if he doesn't, then you're left with what kind of an issue is it? There could be all kinds of issues which no parties intend to file any evidence on, but what kind of a list is it then? It seems to me that how can you have an issue on which there is not going to be any evidence. So I would just invite you, perhaps, to ask Mr. Poch if he can advise whether he's going to file evidence on this topic or not. 460 MR. SOMMERVILLE: Thank you for that invitation, but I think what Mr. Poch has indicated is that he may or may not file evidence. And I think he is holding out some -- and I'm not trying to be difficult, Mr. MacOdrum, but I think the inclination is, in a context like this, that we're probably better off to include this subject matter. You will have the full opportunity to address this in the most pointed fashion in the course of the proceeding. And as Mr. Poch has indicated, if no evidence is filed on this subject matter, that will be eloquent as to the status. And if, in fact, evidence is filed on it down the road, that you'll have an opportunity to engage accordingly. 461 MR. MacODRUM: Thank you, Mr. Chair. That addresses my concerns. 462 MR. SOMMERVILLE: Thank you, Mr. MacOdrum. 463 MR. POCH: Thank you, Mr. Chair. 464 MR. SOMMERVILLE: Thank you, Mr. Poch. 465 As I indicated, the Board will defer on 8.6. I think you have a sense of where we're at at 8.7. We're not going to move to remove that at this stage. We'll await developments on that subject. 466 Mr. Farquhar, I think you're up. 467 MR. FARQUHAR: Thank you very much, Mr. Chairman. 468 MR. POCH: Mr. Chairman, just to interrupt, I think a few of us are going to take leave from you, and just so I don't interrupt my friend's flow... If I may. 469 MR. SOMMERVILLE: I think we will try to make determinations on those subjects today. If in fact, that happens, that will be available in the transcript, which by the usual magic, will be available by the end of the day, and you can access them. 470 MR. POCH: Thank you, Mr. Chairman. With your leave, I'll take my leave. 471 MR. FARQUHAR: Thank you, Mr. Chairman. 472 I'm here under the assumption that our letter that was presented at the technical conference of July 4th -- excellent. 473 We're here today to reemphasize some of the points there and augment to make sure that the issues we've presented get included. 474 MR. SOMMERVILLE: Just for the record, I think you're referring to a letter dated July the 7th, 2003. 475 MR. FARQUHAR: Yeah, sorry, I'm looking at -- 476 MR. SOMMERVILLE: From Mr. David R. Thompson, President of Northern Cross Energy Limited. 477 MR. FARQUHAR: That's correct. 478 MR. SOMMERVILLE: I have that letter. 479 MR. FARQUHAR: Excellent. I'm under the assumption that the Board will include the contents of that letter, plus what I'm about to present today in your decision as to whether to include these issues in the subsequent proceedings. 480 MR. SOMMERVILLE: If you could just indicate for us, Mr. Farquhar -- do you have a copy of the list? 481 MR. FARQUHAR: The list of issues? Yes. 482 MR. SOMMERVILLE: Yes. If you could just identify specifically which of those you are addressing, that will help us administrate. 483 MR. FARQUHAR: I guess the point -- it's actually a good point. 484 The only issue that I think was not contested by Union in our letter was that of just and reasonable rates. Okay? 485 The issues that were we -- there's two main issues, Mr. Chairman, there's the one of whether the M16 tariff is appropriate for gas storage in and out, moving gas in and out of storage, and the issue of the aid to construct. 486 We chose to break apart the inappropriateness of M16 into four subquestions for lack of a better description, of which C, within that letter, I think is uncontested by Union, and then the remaining points within our letter are the points contested by Union. 487 MR. SOMMERVILLE: I was referring to the issues list. And maybe I can... It looks to me as though paragraph 7 -- 488 MR. FARQUHAR: Yes. 489 MR. SOMMERVILLE: -- of H, and all subparagraphs, that's paragraph 7, 7.1, 7.2, 7.3, do you have that list before you? 490 MR. FARQUHAR: Yes, I do. 491 MR. SOMMERVILLE: Okay. And I think those are issues that you will be addressing? 492 MR. FARQUHAR: Yes, in conjunction with B.3.1. 493 MR. SOMMERVILLE: The construct policy? 494 MR. FARQUHAR: Yeah. 495 MR. SOMMERVILLE: Very good. And those are the four? 496 MR. FARQUHAR: Yes. 497 MR. SOMMERVILLE: Thank you. 498 MR. FARQUHAR: I guess by way of background information, Northern Cross has just recently applied to convert the Ashfield pool to gas storage in the Goderich area. Our letter supports the need for additional gas storage in Ontario, and we feel that the issues we've tabled not only affect our project but have an effect on any other gas storage project that could be proposed in the province in the future. 499 Addressing the issue 3.1, the aid-to-construct policy. Specifically, I have, I guess, four points I want to bring up, a bit of a background and then some other issues. 500 In negotiations with Union, with regards to constructing a custody transfer meter, which would be the meter that is required to meter gas that is taken off Union system and injected into our reservoir and then subsequently to meter the gas that comes out of the reservoir and returns back to Union's system, it's a costly item and it's a necessity to facilitate the project. 501 We were instructed by Union in negotiations that Northern Cross was required to pay 100 per cent of that cost. And we were also informed that they would be building the facility, and then they would be billing us. And then we would return that asset back to them for their ownership and that the cost would not be rolled into the rate base. 502 We've reviewed what material we could find on Union's aid-to-construct policy, which includes, I guess, guidelines that came out of EBO 188, and also what we could find within the submission, which is, I believe it's the initiation of service. 503 We cannot find anything that addressed the issues that we have brought up in this regard. 504 Now to the issues. 505 The issue as we see it is very basic. If a party is paying a significant portion of the cost of a facility, they should a right to control that cost and ensure that the facility not only meeting Union needs but our operational requirements. You can understand when we're operating this facility we have large gas compressors that will be returning gas back to their system. We have different modes of operation than Union would. And we need to have some mechanism under which we can influence the design of that meter -- which also affects the cost -- to meet our needs. Notwithstanding, we do not intend to subvert the basic needs of their specification, which speak to safety and codes. We wouldn't be going there. 506 We think that this is an integral part to a gas storage project. The cost of these meters can be extremely high and it affects the economics of the project. We would be proposing to revise the aid-to-construct policy to include some type of, well, say, third-party benchmarking or the possibility of outsourcing the construction of that meter station to assure the fact that ourselves as the person who's paying the bill is paying a fair price. We would also ask that the aid to construct include some kind of verbiage to impel Union to be fair with regards to taking into account our needs as an operator in the design of that facility. 507 That concludes my points on 3.1. 508 MR. SOMMERVILLE: Thank you. 509 MR. FARQUHAR: Do you mind, Mr. Chairman, going through them point by point or do you want me to do the... 510 MR. SOMMERVILLE: I think it's probably better if you continue on. Mr. Smith, I will hear submissions from you on this subject, but it seems to me if Mr. Farquhar wants to continue through the remaining three issues, that's probably as neat a way of handling this as any. 511 MR. FARQUHAR: Okay. 512 MR. SMITH: I have no problem with Mr. Farquhar working up a head of steam. 513 MR. FARQUHAR: Thank you. The second point really speaks to, since the issue of just and reasonable rates has really been accepted, the way I could describe our next issue is one of, really, attacking the relevance of the precedent of M16. I think I need to go back to some of our negotiations and the flavour of our negotiations with Union. 514 In negotiating the rates for our project, whenever Northern Cross brought up any point which violated the methodology and design of M16, Union immediately put their hands up and said: I'm sorry, we're bound by this precedent. We feel that the issues that they have contested are integral to calculation of that rate. It speaks to design; it speaks to methodology. In our opinion, the M16 is based on a hybrid of what a transporter would pay, like a C1, for the gas going into the reservoir, and what producer would pay on an M13 coming out. And we object to that methodology. Okay. 515 Now, our other comments are with regards to attacking the precedent itself, and how the precedent came about. You know, firstly the M16 rate came about when the Chatham D pool was converted by CanEnerco them. We've had lengthy discussions with the principals of CanEnerco and it's become very clear that the terms and conditions of that M16 contract were basically told to CanEnerco. There was very little negotiation. 516 But we do wonder, how does somebody leverage negotiations with a company who controls all gas transmission and the vast majority of existing storage and probably perceives you as a competitor in gas storage? 517 Also, a smaller point in this. There is only one existing deal right now, only one contract in the M16. Does that mean that that contract is the precedent for all future negotiations? In other words, we have just one contract which dictates policy in the future. Secondly on this point, and it speaks to what I alluded to before as being a potential competitor to Union and the gas storage market. We question whether the cost-allocation procedure used in the rate design is consistent with how costs are allocated to Union's own storage facilities. We would be competing with Union in the gas storage business. We feel we have the right to establish whether this is a level playing field in this regard. 518 And that speaks directly to the issue 7.2: "Are M16 transportation rates now applied and are they intended to be applied in to all future transportation associated with all storage facilities within Ontario". And it also touches a little bit on 7.3, Mr. Chairman. 519 Thirdly, Northern Cross feels the design structure of the M16 contract doesn't properly reflect the true service that is being provided by Union or for that matter, the service the merchant storage facility provides to Union. It is important to understand the location of Northern Cross Energy's pool relative to Union's system. We would be connected to the Stratford-Goderich leg, where gas only flows in one direction. In other words, we cannot take physical delivery to Dawn but would be charged transmission costs as if we could. 520 Another way to look at it is the amount of gas consumed and produced on that leg would be exactly the same regardless of whether we put our project in or not. 521 Because of these simple facts, Northern Cross has always questioned the applicability of the M16 rate design in our case. We have always fete that Union and Northern Cross are actually entering more into a swap of storage facilities. We would be satisfying their customers in winter months which frees up capacity elsewhere in their system. 522 I leave you on this one point. It's very interesting to note that in other jurisdictions, namely Alberta, TransCanada PipeLine does not charge operators of storage facilities transportation in and out. There are no fees. They feel that once the gas is on their system, the transportation is either paid already by the producer or the consumer. 523 Thank you. 524 MR. SOMMERVILLE: Thank you. Does anyone else want to speak in support of this -- the inclusion of this item, or these items? I beg your pardon. 525 MR. DINGWALL: Energy Probe would like to lend its support to the inclusion of these items. 526 MR. RYDER: Yes, Kitchener does as well. As we understand what is being said is that it relates to the development of the storage options available to customers in Ontario and we support that. 527 MR. SOMMERVILLE: Mr. Smith. 528 MR. SMITH: Mr. Chairman, allow me to tackle these in reverse order. Unfortunately Mr. Farquhar and I were not able to meet earlier this week, but as I now hear him with respect to H7.1, .2, and .3, and without getting into the merits of his submissions at all or the underlying issues, it's my submission that those issues are all captured by 5.6, which deals with the rate design for, amongst other rates, the rate design for M16. 529 And as I understand Mr. Farquhar's submissions, he will be able to make all of those submissions in respect of the M16 rate. And I suppose it would be my submission, then, that we can eliminate, subject to Mr. Farquhar having a different view, we can eliminate issue 7 and I should say it's unfortunate, the way this developed is simply Mr. Farquhar wasn't available. And these things happened. 530 MR. SOMMERVILLE: You're suggesting it's redundant? 531 MR. SMITH: Absolutely. And I should say that that has always been the essence of the objection. We just haven't had an opportunity to flesh that out. 532 And I will be repeating that submission with a number of other items. And I should just say that during the process while this was developed on Tuesday and Wednesday, I think a number of us recognized that perhaps this was a bit more of a topics list than an issues list that might need reconfiguration following ADR. But particularly H7, I think, is redundant. 533 MR. SOMMERVILLE: Thank you. Mr. Farquhar also raised a question with respect to the cost of -- or the capital contribution. 534 MR. SMITH: Sorry. I apologize. B.3.1. 535 MR. SOMMERVILLE: Right. Aid-to-construct policy. 536 MR. SMITH: An aid-to-construct policy. And my submission, if I can just... As I write these things down... My submission with respect to B.3.1, the aid-to-construct policy, is at a first instance, this issue is also redundant, in that, under B.3 Union's compliance with EBO 188 is squarely in issue. If you look, sir, at the -- it's on the first page, second line: 537 "Compliance with EBO 188 decision, including appropriateness of terms and conditions. Aid-to-construct policy." 538 MS. LEA: Where do we read this? 539 MR. SMITH: And so I say that 3.1 is captured in 3, and I say, in addition, that the issue of the policy itself, not whether the policy is being followed but whether the policy is good or bad or otherwise with respect to the M16 customers was dealt with squarely in EBO 188. 540 And if I can ask the Board to turn to tab 3 of my brief of authorities, page 19. Well, if Mr. Farquhar -- I would just - - sorry, I didn't bring enough copies but I'm quite content to show it to Mr. Farquhar. It's item 4.3.4. And I'll just read it: 541 "The Board agrees with the parties that the common criteria for contributions in aid of construction should apply to all customer classes. If there is a reasonable expectation of further expansion, the contribution in aid of construction is expected to take into account the future load growth potential and timing of any such expansion." 542 So I would say that this issue of whether or not M16 should have a particular aid-to-construction policy has been dealt with, and what we are quite prepared to entertain in this hearing is whether or not Union is complying with whether Union's policies comply with EBO 188. 543 And I would say as well, I guess this comes back to issue A, that Union's policy with respect to aid to construct, if it hasn't been published, will be made available. 544 MR. SOMMERVILLE: I understood Mr. Farquhar to be saying not necessarily that the compliance with 188 is the issue that he wants to test, but rather, I guess to use the word that's emerged earlier in this proceeding, the appropriateness of the policy in this kind of situation. And if I understand you correctly, that -- 545 MR. SMITH: That issue has been canvassed. 546 MR. SOMMERVILLE: The issue's been canvassed... 547 MR. SMITH: And determined in EBO 188. 548 MR. SOMMERVILLE: Okay. I think what Mr. Farquhar is suggesting is that he would like to revisit the appropriateness of the policy as it applies to M16 or, I guess more specifically, to customers identical to himself in this proceeding. 549 Is that a fair characterization, Mr. Farquhar, of what you had in mind? 550 MR. FARQUHAR: Exactly. I do not see anything in the current policy that addresses these issues. Not even close. 551 MR. SOMMERVILLE: And I guess what he's saying is that it's the content of that policy that's at issue, not necessarily your compliance with the existing policy. I just want to be fair in terms of where we're -- of what we're actually discussing. 552 MR. SMITH: Then let me say this, that the issue of particular aid to construct policies for having different policies for different customers was canvassed in EBO 188. Nothing has changed, or I haven't heard any evidence to suggest that anything has changed since then. And, in particular, that's the case, given that the gas distribution access rule, which I understand was passed very recently, provides in it that utilities or gas distributors shall comply with EBO 188. 553 And, of course, you'll be familiar that there was an extensive consultation process in GDAR, the net result of which the Board has, in effect, I submit, confirmed EBO 188. And therefore, again, I don't think that my friend should be entitled to, in effect, a third kick at the can and compliance with EBO 188, to the extent it's in issue, is available. 554 MR. SOMMERVILLE: I don't want to be -- I'm not trying to be difficult on this point, but as I look at B3 it says, in the sentence that you quoted: 555 "Compliance with EBO 188 decision, including appropriateness of terms and conditions. Aid to construct, calculation of charges, possibility of total charges." 556 Is that appropriateness? Should I read that to include "appropriateness of the aid to construct" and the terms and conditions? Or should I be more narrow about that? 557 MR. SMITH: This may not be the most elegantly worded paragraph, and we took a stab at doing it, so I suppose we are to blame. But what we were attempting to get at there was the compliance by Union, its policy. How does that comply with EBO 188? That's how that should be read. 558 The Board has determined already the appropriate policy Union should have in place. Now we can ask ourselves, has Union measured up to the Board's decision? 559 MR. SOMMERVILLE: Thank you. That helps us in crystallizing what it is we're considering. 560 I think I asked if anybody else wanted to -- or maybe I didn't -- if anybody else wants to speak to encourage the Board to exclude this issue or these issues? 561 MR. SMITH: I'm sorry. I just didn't mean to jump in, but in connection with the compliance aspect, Union has filed its policy. It's in evidence in this hearing. So it's definitely open for testing as it complies with EBO 188. But it has put the evidence forward. 562 MR. SOMMERVILLE: Thank you. Mr. Farquhar, you have a right to reply. 563 MR. FARQUHAR: Yes. 564 It's a subtlety, but important also, that the EBO 188 decision, I think, talked specifically about distribution. New business guidelines. 565 I guess I pose this as a bit of a question. What we're talking about here is a non-distribution issue. It's really a transmission issue. And from that standpoint I don't think what we're bringing up was contemplated. But the issues are still not the same. I think a distributor would still have the same issues. Are we being charged a fair price for the meters to our new subdivision or whatever? 566 The issues still remain, sir, and are not addressed in the EBO 188. But I would also bring up that I think it's very distribution orientated and definitely does not include the issues that Northern Cross is bringing up specific to that of a storage project. 567 MR. SOMMERVILLE: Thank you. The Board will defer on this issue, or these issues, the four that you have addressed, Mr. Farquhar. 568 MR. FARQUHAR: Yeah, I'm sorry. I wanted to rebut the point 7, the issue of the redundancy of the issue. And to a certain extent, it's an education on my part. Previous counsel told us that if we did not attack the M16 as a precedent itself, that it would be a fait accompli, and we would have accepted the rate methodology of M16 as the precedent. And as long as it can be established within the guideline that Union's counsel mentioned that we can still attack that precedent within the rate hearing, then that's fine. 569 So I pose that as a question, sir. 570 MR. SOMMERVILLE: I think, and you can correct me if I am wrong, Mr. Smith, I think Union counsel has very fairly indicated that number 5, the rate design proposals including the M16 among others, would include the issues that you have raised in paragraph 7. 571 MR. FARQUHAR: Okay. 572 MR. SOMMERVILLE: You will not be, as I understand it, inhibited in your participation in this case with respect to that. 573 MR. FARQUHAR: Thank you. 574 MR. SOMMERVILLE: So the issue that's really outstanding is the aid to construct. 575 MR. FARQUHAR: Yes. 576 MR. SOMMERVILLE: So the Board will defer on that subject. And we will move on. 577 And Mr. Farquhar, you may not be familiar with the process here. I would invite you to probably contact Mr. Wightman, and Mr. Wightman can keep you apprised of the outcome of this proceeding and going forward. 578 MR. FARQUHAR: Thank you. 579 MR. SOMMERVILLE: Let me just see where we are. 580 MS. LEA: D1.7 and H6 are the ones that I have outstanding. 581 MR. SMITH: I believe we also have B3.2. 582 MS. LEA: That is correct. Yes, sir. 583 MR. SOMMERVILLE: So we have B3.2. D1.7. 584 MR. SMITH: And -- 585 MR. SOMMERVILLE: H? 586 MR. SMITH: -- H6. 587 MS. LEA: I think it may be the same proponent for all three. I don't know. 588 MR. SMITH: I believe that was Mr. Walsh. 589 MR. SOMMERVILLE: Is Mr. Walsh here? 590 MR. SMITH: Going once, going twice. 591 MS. LEA: Thank you. 592 Mr. Chairman, as far as I can gather, Mr. Walsh did appear at issues day, did not remain to the end of the time and Ms. DeMarco was communicating certain aspects to have issues day to him, including the fact that Union was contesting certain of the issues he had put forward. 593 So our understanding is that that fact, that they would be contested today, was communicated to him. The only thing I can suggest, we could attempt to contact him over the lunch break, or we could presume that if he wanted to have these matters argued, he would be here. I don't know which of the two to presume. 594 MR. SOMMERVILLE: It's now 1:12 or so. Unless someone objects, I'm going to suggest that if Mr. Wightman would be good enough to try to contact Mr. Walsh and outline to him the fact that there is no proponent for his issues, I think that's the appropriate way to approach it. 595 In the absence of Mr. Walsh, I think it's probably also fair to indicate that the Board would be in a difficult position in including these items without a proponent, and you may want to communicate that to Mr. Walsh as well, Mr. Wightman. 596 MS. LEA: Unless there was another person who wanted to propose those issues. 597 MR. SOMMERVILLE: Yeah, unless there's another volunteer. 598 MR. SMITH: A white knight. 599 MR. SOMMERVILLE: I see no white knights here. Mr. Ryder? 600 MR. RYDER: I just thought perhaps I should advise you that the parties supporting issues 6 and 9 have agreed-upon language, common language, for both issues. So we could eliminate one of them. 601 MR. SOMMERVILLE: Would you be good enough to provide that language to Board staff so that we can look at that over, or at least as soon as we get back. 602 MR. SMITH: I should say I was not party to those discussions, so I don't want it to be understood that I've actually seen or agreed to that language. 603 MR. SOMMERVILLE: Thank you for that correction, Mr. Smith, because I did assume that. 604 But Mr. Ryder, if you could make that language available to Mr. Smith and Board staff, that may facilitate, or not, our consideration of that issue at the end of the day. 605 So, barring Mr. Walsh's arrival, the Board will spend some time during this break in deliberating on the various issues that are outstanding. We will not be spending much time on A6 and S9, because we'll want to hear what the new formulation of those questions is. 606 We will determine, we will discuss those issues as matters of principle but not in detail. 607 So we'll stand adjourned until 2:15. And is there anything further at this stage? 608 We stand adjourned. Thank you. 609 --- Recess taken at 2:12 p.m. 610 --- On resuming at 2:24 p.m. 611 MR. SOMMERVILLE: Thank you very much. Please be seated. 612 Are there any matters that we need to deal with prior to the Board giving its determination on the variety of outstanding matters? 613 MS. LEA: I think there were two, possibly. I have one preliminary matter, and that is to indicate that we did attempt to contact Mr. Walsh over the lunch period and failed to contact him in person; left a message with him and also with Ms. DeMarco, who on at least on one occasion did provide some communication from him. But we were unable to ascertain any of his intentions with respect to today so I think we will just have to treat it as he is not here. 614 MR. SOMMERVILLE: Thank you, Ms. Lea. 615 MR. SMITH: We do have a couple of other matters. Before I get to them, I'm let Mr. Reghelini speak to an undertaking that Union had provided -- I should have said it at the preliminary matters but it just slipped my mind -- that we had given to Mr. Mackie on Tuesday or Wednesday relating to questions, IRs, on the cost-allocation front. 616 MR. REGHELINI: Thank you. 617 During the issues conference, technical conference, there were a number of issues that parties were suggesting or that, in Union's view, could be dealt with in terms of the cost-allocation and rate-design issues as you see framed here today on the draft issues list. And Union gave the undertaking that it would not object to any interrogatory submitted by intervenors concerning the cost allocation and rate design, given the issues as they are framed today. And that allowed us to streamline the list so that we didn't have to list every cost-allocation issue or rate-design issue. 618 MR. SOMMERVILLE: Thank you, Mr. Reghelini, that's very helpful. 619 MR. SMITH: And Mr. Chairman, there were two other matters, before you give your determination. You had earlier indicated that the parties might benefit from speaking with respect to A8 and listing of the various policies. And I'm pleased to report we've been able to do that, and we have come up with a short list. So perhaps I can just read it into the record. 620 MR. SOMMERVILLE: Thank you. 621 MR. SMITH: A8, formally reading publication and appropriateness of Union's policies, should now read "publication and appropriateness of the following Union policies: 622 "1. DCC administration policy 623 "2. DCC clawback 624 "3. Level of priority of service 625 "4. Authorizing to exceed contract parameters 626 "Bullet, authorized versus unauthorized 627 "Bullet, CD 628 "Bullet, withdrawal rights; and 629 "Bullet, injection rights" 630 And then I will hand up -- my friend Mr. Ryder had indicated earlier that he and Mr. Freitag had been able to come up with joint language for A6 and A9. I've reviewed that and I will have a copy passed up to the Board. Union nevertheless maintains its objection and would simply add on the language that it highlights the objection that we had put on the record before, which is that this Board doesn't have the jurisdiction to impose what my friends have now spelled out specifically as a dispute resolution mechanism and that there's just no authority for that in the statute at all. Thank you. 631 MR. SOMMERVILLE: Thank you, Mr. Smith. That's very helpful. 632 MR. RYDER: Well, I don't think that expresses our claim. We weren't saying that Union should provide a dispute resolution mechanism. We're saying that the Board should provide regulatory oversight. 633 MR. SOMMERVILLE: That's how I understand it. 634 MR. SMITH: That's exactly how I understood it, Mr. Ryder. I apologize if I wasn't clear, that the Board does not have the jurisdiction to impose a dispute resolution mechanism. 635 MR. SOMMERVILLE: With respect to the change in language for A.8, is that language... I've listened to it. Is that consistent with everyone's understanding, Mr. Freitag? 636 MR. FREITAG: I think A.8 was for -- 637 MR. SOMMERVILLE: The publication of -- oh, Mr. Ryder. I beg your pardon. 638 Mr. Ryder, the publication of those specific policies? 639 MR. RYDER: Yes. 640 MR. SOMMERVILLE: So that comes off the contested list and the Board will make no determination with respect to that. 641 MR. RYDER: Thank you. 642 MR. SOMMERVILLE: Apart from the overall list. 643 Let me come back to this language, this new language with respect to A.6 and 9, and we'll deal with A.7. 644 The Board is, partly because of the vagueness of the language that the specific item has, the Board is not inclined to include regulatory approach for 2005 as an issue in this proceeding, with the following caution. The Board fully expects that there will be an unimpeded or uninhibited opportunity for an evaluation of the existing PBR plan, its effectiveness, its strengths and weaknesses, and the Board may require, either of its own motion or on the urging of other parties, may require the production of information or evidence to consider and implement alternatives to Union's phase III PBR proposal. 645 So the danger that I thought I heard you express, Mr. Ryder, that there would be a fait accompli at the time the phase III matter is being considered, that is, it is within the Board's contemplation that there will be a full opportunity to evaluate the existing PBR, and we may require the production of evidence at that time to enable the consideration and implementation of an alternative plan. 646 But it's our view that including this in this proceeding is not appropriate. 647 The next item relates to B.3.1. And the Board will approve the inclusion of a modified version of 3.1 which will read as follows: 648 "3.1: Union's aid-to-construct policy related to facilities required for or by independent storage operators just and reasonable." 649 Item number 3.2: "In the absence of a proponent, will not be added to the list." 650 Similarly, item D.1.7 will not be included. 651 The next item is D.8.6. In light of the fact that there has been a change in the regulatory environment or regulatory context with respect to DSM and conservation matters, and in the interest of exploring or considering or being able to evaluate in some measure the consistency with the other major gas distribution company, the Board will permit the consideration of the DSM variance account for DSM O&M expenditures. That will be included in the issues list. 652 Item H.6 will not be included in the issues list. 653 And item H.7, as indicated earlier in the proceeding, is redundant and is considered by the parties to be included in paragraph H.5. 654 The Board would like a few minutes to consider the new language for A.6 and A.9. I'm not anticipating that -- we have had some discussion on this subject and we'll consider this language and reconvene very shortly. It's now 25 to 3. We'll reconvene at quarter to 3. 655 --- Recess taken at 2:35 p.m. 656 --- On resuming at 2:45 p.m. 657 MR. SOMMERVILLE: Please be seated. Thank you. 658 The items on the proposed issues list which were A.6 and 9 were combined to read: 659 "The provision of regulatory oversight of contracts and dispute resolution mechanism where conditional to a regulated service." 660 As I said, that language replaces what used to be A.6 and A.9. 661 The Board will include that issue as part of the issues list. 662 And I think that concludes our proceeding for today. Is there anything... 663 MR. SCULLY: Mr. Chairman, I'm not sure that I need to raise this, but my client's concern is with -- and I apologize for having been unable to attend the technical conference days. It's concerned with the differential in rates between the northern zone and the southern zone. So we want it understood that we're able to discuss that question both in terms of cost allocation and rate design. 664 MR. REGHELINI: Mr. Chairman, I think that's covered by the undertaking I gave with respect to cost allocation/rate design. So I believe that can -- 665 MR. SCULLY: I'm happy with that observation, Mr. Chairman. 666 MR. SOMMERVILLE: There's also H.5, which seems to be reasonably broadly drawn. 667 MR. SCULLY: Yes. I raise it just as a matter of caution, because in previous proceedings it has transpired that somebody would say: Oh, I'm sorry. That wasn't spelled out in the issues list so you can't talk about it. 668 MR. SOMMERVILLE: Well, you have a reference on the record now, Mr. Scully. 669 MR. SCULLY: Thank you, Mr. Chairman. 670 MR. SOMMERVILLE: Unless there is something further, we will adjourn. 671 I'd like to thank the counsel, both present and those who have left, for their very able and constructive work today. It has made our job much easier, and I am very appreciative as I know Board staff are. So thank you very much. And we're adjourned. Thank you. 672 --- Whereupon the hearing concluded at 2:47 p.m.