Rep: OEB Doc: 12WWM Rev: 0 ONTARIO ENERGY BOARD Volume: 23 7 NOVEMBER 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. BIRCHENOUGH MEMBER 1 RP-2003-0063 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF an Application by Union Gas Limited for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, storage, and transmission of gas for the period commencing January 1, 2004. 3 RP-2003-0063 4 7 NOVEMBER 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel NEIL YEUNG Board Staff JAMES WIGHTMAN Board Staff MICHAEL PENNY Union Gas Limited CRAWFORD SMITH Union Gas Limited MARCEL REGHELINI Union Gas Limited PETER THOMPSON Industrial Gas Users Association ROBERT WARREN Consumers Association of Canada DAVID BROWN Coral Energy TIBOR HAYNAL TransCanada PipeLines GEORGE VEGH CEED, OESC, Superior Energy Management, Union Energy, TransAlta BRIAN DINGWAll Energy Probe ROBERT ROWE Enbridge Gas Distribution Inc. PETER SCULLY City of Timmins, City of Sudbury, FNOM 8 TABLE OF CONTENTS 9 CORAL ENERGY CANADA INC. - PANEL 1; BADEN, TODD, ZARNETT [23] CROSS-EXAMINATION BY MR. WARREN: [27] CROSS-EXAMINATION BY MR. THOMPSON: [155] CROSS-EXAMINATION BY MR. VEGH: [355] CROSS-EXAMINATION BY MR. DINGWALL: [374] CROSS-EXAMINATION BY MR. PENNY: [422] CROSS-EXAMINATION BY MR. MORAN: [541] RE-EXAMINATION BY MR. BROWN: [716] FURTHER CROSS-EXAMINATION BY MR. MORAN: [739] PROCEDURAL MATTERS: [752] 10 EXHIBITS 11 12 UNDERTAKINGS 13 UNDERTAKING NO. N.23.1: TO PROVIDE THE CONVERSION FACTOR USED BY CORAL TO CONVERT Bcf TO METRES CUBED [438] UNDERTAKING NO. N.23.2: TO ADVISE WHEN CORAL ENERGY CANADA INC. SIGNED THE CARRIAGE-SERVICE CONTRACT CLARIFICATION AGREEMENT [491] UNDERTAKING NO. X.N.23.3: TO PROVIDE SPECIFICS OF TOTAL ANNUAL GAS COSTS, TOTAL ANNUAL OPERATING COSTS, ON SOME KIND OF LINE-BY-LINE BASIS SO THAT WE CAN SEE WHAT THE MAKEUP OF THAT IS AND THAT SHOWS UNION'S DELIVERY CHARGE AS A PERCENTAGE OF THOSE TOTALS [528] UNDERTAKING NO. N.23.4: THE COMPANY RESPONDED TO A QUESTION WHICH DEALT WITH THE $25 MILLION WEATHER HEDGE AS A PERCENTAGE OF THE COMMON EQUITY RATIO. WHAT AMOUNT DOES THE $25 MILLION PRETAX EQUATE TO IN TERMS OF ROE BASIS POINTS? [736] 14 --- Upon commencing at 9:30 a.m. 15 MR. SOMMERVILLE: Please be seated. 16 This is the continuation of the Union Gas Limited application for rates for 2004. 17 Are there any preliminary matters that we need to deal with, Mr. Brown? 18 MR. BROWN: No, sir. 19 MR. PENNY: Mr. Chair, just to let you know that we'll have a series of additional answers to undertake -- transcript undertakings later today, but rather than -- we wouldn't interrupt the flow now and we would deal with it later. 20 MR. SOMMERVILLE: Thank you, Mr. Penny. 21 Mr. Warren. 22 MR. WARREN: Thank you, sir. 23 CORAL ENERGY CANADA INC. - PANEL 1; BADEN, TODD, ZARNETT 24 G.BADEN; Sworn. 25 J.TODD; Sworn. 26 P.ZARNETT; Sworn. 27 CROSS-EXAMINATION BY MR. WARREN: 28 MR. WARREN: Mr. Baden, I just want to deal with one number issue and it's not a confidential number, this number may well be in the existing voluminous record, and if it is I apologize for asking for it again. But can you tell me what percentage of the operating costs of Coral would be represented by the transmission costs? 29 MR. BADEN: When you say "transmission," you're referring to gas transportation -- 30 MR. WARREN: I'm sorry, gas transmission, yes. 31 MR. BADEN: In terms of the total gas cost, transmission would -- and this is just off the top of my head, I don't have that number here, but I would guess it to be in the neighbourhood of about -- depending on the price of gas, about 5 percent of the commodity cost, 5 to 8 percent, probably. 32 MR. WARREN: And in terms of the overall cost of Coral's operation at the Brighton Beach facility, what percent would the gas transmission cost represent of the overall operating costs of Coral at that facility? Same number or ... 33 MR. BADEN: You mean in total? 34 MR. WARREN: Total. 35 MR. BADEN: On an annual basis, it would represent probably in the neighbourhood of 1 to 2 percent. 36 MR. WARREN: Thank you, sir, for that information. 37 When we concluded our exchange yesterday, Mr. Baden, we were at the stage of discussing the Board's decision in RP-2002-0130 case, and for short-form purposes, I'm going to refer to it as the 0130 case. That was the case in which Union had proposed to eliminate the DCC and to pay a DCC equivalent. 38 Now, can you and I agree, I just want to make sure that you and I have a common understanding of what that decision represented, can we agree, first of all, that the Board, in that decision, ruled that Union had to eliminate the DCC but could not pay a DCC equivalent to customers; can we agree on that? 39 MR. BADEN: I'm sorry, could you repeat the question. 40 MR. WARREN: Can we agree that the -- reduced to its essence, that portion of the 0130 decision that dealt with the DCC ruled that Union had to eliminate the DCC but could not pay a DCC equivalent to its customers? 41 MR. BADEN: Yeah, I believe that that is my understanding of it. 42 MR. WARREN: And you and I have agreed that the CSC, the carriage-service contract, provided that Union would pay a DCC equivalent to Coral; correct? 43 MR. BADEN: Yes. 44 MR. WARREN: Now, could you turn up, please, from the record in this case, Exhibit H.1, tab 1, it's the reply portion of Union's evidence, at page 9 of 18. 45 MR. BADEN: I'm not sure I have it. I have it now. 46 MR. WARREN: Having it in front of you, I've given you the wrong page reference. If I could ask you to turn to page 3 of 18, I'm sorry. Do you have that now? 47 MR. BADEN: I have 3 of 18. 48 MR. WARREN: Beginning at line 2, the following appears: 49 "In other words, Coral and Elenchus/BDR are seeking approval of a customer-specific rate equivalent to the rate that would have been paid by Coral had the Board approved Union's previously proposed method to eliminate the DCC." 50 Can we agree on the accuracy of that statement? 51 MR. BADEN: I'm not sure I would agree that we were seeking a customer-specific rate as essentially a revenue equivalent in terms of the annual payment to Union. 52 MR. WARREN: If we took out the words "customer-specific" and put in "revenue equivalent," are you satisfied with the accuracy of the statement? 53 MR. BADEN: Yes. 54 MR. WARREN: The next sentence then reads: 55 "This amounts to a request by Coral that the Board vary the RP-2002-0130 decision with respect to the DCC elimination for Coral and Coral alone." 56 Would you not agree that that's an accurate statement in light of what you and I discussed this morning? 57 MR. BADEN: I don't believe we have asked the Board to vary its decision. 58 MR. WARREN: I agree that you're not formally doing that, sir. You and I are in agreement on that. But we have agreed on the following steps, that the Board in the 0130 directed that the DCC be eliminated without the payment of a DCC equivalent; we've agreed on the second step which is that the CSC contemplated the payment of a DCC equivalent. And to that extent it's in effect, if not in quorum and substance, an request to vary the 0130 decision, is it not? 59 MR. BADEN: I don't believe it is. 60 MR. WARREN: Can we agree this far: That it would appear on the surface to be directly contrary to what the Board ruled Union could not do in the 0130 decision? Can we agree that far? 61 MR. BADEN: No, I don't think we can agree to that. 62 MR. WARREN: All right. Now, can you and I agree at a broad level of sort of general principles, see if we can agree -- I'm desperately seeking something we can agree on, Mr. Baden. Let me see from a high level of generality. Upper only high-minded people operate like you and me, Mr. Baden. 63 Can you agree that reasonable people acting in goof faith may disagree on what constitute regulatory principles. Can we agree that far? 64 MR. BADEN: In that I'm not a regulatory expert, I'd say generally, we could probably agree to that. 65 MR. WARREN: Let me be so bold to try a second step. Can you and I agree that reasonable people, acting in good faith, may disagree as to how those regulatory principles may be applied in any particular circumstance? 66 MR. BADEN: I'm not sure that I can agree that regulatory principles can be applied differentially, if that's what -- if I've got the meaning of your question correctly. 67 MR. WARREN: Well, let me drill down, then, to something specific and take you to page 9 of Union's reply evidence. That's H.1, tab 1. Do you have it in front of you? 68 MR. BADEN: Page 9 of 18? Yes. 69 MR. WARREN: Looking beginning at line 22: 70 "Union diligently reviewed possible rate-making alternatives. Union was, however, somewhat reluctantly driven to the conclusion that based on the Board's RP-2002-0130 decision with respect to the DCC elimination, that well-established principles of rate design approved by the Board in the design of Union's rates and past regulatory precedent, there is no reasonable rate-making solution that will yield the same benefit to Coral as the benefit provided by the DCC at its pre-RP-2002-0130 level of," whatever the number is. 71 Now, Union is, if I can put a gloss on that statement, Union is saying, as I understand it, that its interpretation of the 0130 decision in concert with its reading of well-established principles of rate design, have precluded it from coming up with an alternate rate. Is that a fair reading of what's said there? 72 MR. BADEN: That's fair in terms of Union's opinion, yes. 73 MR. WARREN: And can we go this far, Mr. Baden: Can we agree that the Board, in the exercise of its jurisdiction, could reject your proposal, the Coral proposal, based on its interpretation of the 0130 decision and past regulatory precedent? The Board could do that, could it not? 74 MR. BADEN: Well, I believe the Board could do that, yes. 75 MR. WARREN: Now, I'd like to take you, against that background, to your prefiled evidence, Exhibit K.37, beginning at page 8. And beginning in section 3.2 -- do you have it in front of you? 76 MR. BADEN: Yes, I do. 77 MR. WARREN: Beginning in section 3.2, under the heading "Rationale for Coral Energy's Proposal," you cite three separate rationale for your proposal; correct? Actually, there are four. It ends on page 14. 78 MR. BADEN: Yes. 79 MR. WARREN: Now, the first of the rationale, which appears on page 8 is, and I quote: "The proposal is consistent with the public interest considerations embodied in the CSC." 80 Now, if you'd just hold your finger on that and turn over to page 10, rationale number 3 is: "The proposal will take into account the unique characteristics of gas-fired merchant generators." 81 Do you see that? 82 MR. BADEN: Yes, I do. 83 MR. WARREN: Can you tell me, first of all, what are the public interest considerations embodied in the CSC? 84 MR. BADEN: I hope you don't mind if I just take a second to refresh my memory here. 85 I believe if I can paraphrase, I think it's the third paragraph in that section, the terms and conditions of the CSC provided Coral Energy with an acceptable rate-making solution to its need to secure gas transportation in a timely manner, provided Union with an acceptable revenue stream over the life of the lateral to recover its pipeline costs and provided a significant Coral Energy contribution to systems cost over the 20-year term. 86 MR. WARREN: I've read that particular statement with some care, and as I read that, my interpretation of it is that the CSC was a good deal for the two parties; is that not a fair summary of what that says? 87 MR. BADEN: It was a good deal, and under the original terms of the deal. 88 MR. WARREN: Does that not risk, though, correct me if I'm wrong, conflating or, if you wish, confusing the private interests of the two parties. It was a good deal for them with some public policy consideration. Or to put the matter another way, Mr. Baden, where is the public policy consideration in the deal being good for the two parties? 89 MR. BADEN: I believe in terms of Union's interest and representing other consumers on the Union system, other consumers were going to benefit from the fact that Coral was making a contribution to system costs and had made a 20-year commitment to make those contribution to system costs. 90 MR. WARREN: So that's how we should understand the public policy element of this; is that right? 91 MR. BADEN: Yeah, I would think that is a key consideration. 92 MR. WARREN: Now, the second rationale you've expressed, beginning at the bottom of page 9, is the following: 93 "The proposal will provide investigators with confidence that regulatory changes will not undermine the fundamental tenets of the contract that define the understandings upon which investments are made." 94 Now, yesterday in our exchange we went over the provisions of both the CSC and the clarification agreement, and in doing so, can I summarize some part of our exchange in this way: We agreed both the CSC and the clarification agreement contemplated, either directly or by implication, that the rate proposals would have to be approved by this Board; correct? 95 MR. BADEN: Yeah. I think I understand your question. Would the rate proposals in the CSC have to be approved by this Board? And the answer would be yes. 96 MR. WARREN: And further, when we talked about the clarification agreement, the new section 5(e), I pointed you to three different, what I described as, risks and all of those risks were tied up with the need to obtain regulatory approval. 97 MR. BADEN: Well, I want to clarify one thing. The last statement in terms of: 98 "Union will use all reasonable and prompt efforts to propose and implement promptly an alternate rate-making solution which shall provide a comparable economic benefit to the customer as provided by the DCC." 99 That obligation is not qualified by the words "this needs to be approved by the OEB." In our discussion yesterday, you asked me would it be reasonable to assume, I think, that the Board would need to approve that. In the contract, that's not clarified. 100 MR. WARREN: I know. But you said to me yesterday that your understanding was that the Board would need to approve it; right? 101 MR. BADEN: I said I'm not a regulatory expert on this matter and that I would accept your understanding of that, I believe. 102 MR. WARREN: Do you now wish to quarrel with my understanding of it? 103 MR. BADEN: The words in the contract are clear. There is no comment there that says that particular clause requires OEB approval. I'm not quarreling with you, I'm simply pointing out the words in the contract. 104 MR. WARREN: So am I now to understand that the wording -- the change which you embodied in 5(e), that you were going to accept what we've acknowledged as risks regardless of what the Board decided; is that fair? 105 MR. BADEN: In terms of the contract wording, there may have been a risk, but the contract is not clear on who bears that risk. 106 MR. WARREN: Sorry, the contract is not clear on who bears the risk? 107 MR. BADEN: Well, it's clear under that contract, Coral would not bear that risk, at least that would be our interpretation of it. 108 MR. WARREN: Now, can we just continue this on. Turn up page 10 of your prefiled evidence. Looking at the paragraph which continues on the top of page 10, the second clause, beginning in the third last sentence, I quote: 109 "If regulatory changes change the rules unfairly or arbitrarily, investors will not be prepared to commit their capital projects in Ontario." 110 I want to understand the implications of the statement, "Regulatory changes change the rules unfairly or arbitrarily." Is it Coral's position in this case that the Board's decision in the 0130 case was reached unfairly or arbitrarily? 111 MR. BADEN: I don't believe it -- I mean, again, I'm not an expert on it, but I don't believe that it's necessarily unfair or arbitrary. I think in the decision, the decision simply didn't consider, in this particular instance, the effect that it would have on the agreement between Union and Coral. 112 MR. WARREN: Sorry, the decision didn't consider the effect on Coral and -- let's assume for a moment that it didn't, and to that extent, is it Coral's position that it's arbitrary or unfair? 113 MR. BADEN: Well, in that instance, the decision and its effect appears, to us, to be unfair. 114 MR. WARREN: And you and I have agreed that Coral didn't intervene in that proceeding and didn't lead any evidence with respect to the implications of a decision for this contract; correct? 115 MR. BADEN: We did file a letter of support for Union's proposal. 116 MR. WARREN: And that is in the evidence? Was it? 117 MR. BADEN: I believe it is. 118 MR. WARREN: Now, I just want to understand this. The Board's -- so was the Board's failure to specifically acknowledge in its decision or the implications of the letter, that makes the decision arbitrary or unfair? 119 MR. BROWN: Mr. Chair, my friend is asking a legal question. Coral is not taking issue with the procedural fairness that resulted in the 0130 decision. 120 MR. WARREN: All right. Thank you for that, Mr. Brown. 121 My difficulty, Mr. Chairman, in asking questions which, on the surface, appear to be legal questions is these assertions appear in the evidence of this witness, and this is the only witness I can ask these questions of. And I simply want to understand which decisions are -- Coral feels are unfair or arbitrary, and in what way, which is why I'm pursuing these questions. 122 MR. SOMMERVILLE: I think that's a fair question, keeping in mind Mr. Brown's concern that it's perhaps not quite appropriate to tax this witness with procedural niceties. But in terms of the overall thrust of the evidence, I think your question is well put and I'll ask the witness to answer. 123 MR. WARREN: I won't ask you, Mr. Baden, about the Rules of Natural Justice. But I take it from your counsel's assertion that it's not Coral's position that the 0130 decision was, in some way, arbitrary and unfair. My question then is: If that's the case, then what else are you referring to as having been arbitrary or unfair if it wasn't the 0130 case? 124 MR. BADEN: Excuse me. I think what I'd characterize or what we'd characterize not the regulatory decisions or the decisions of the Board are unfair or unreasonable. They can have an effect on parties, like Coral, that appear to be unfair or unreasonable. It's not quarrelling with the nature of the decision but rather the impact it can have, in this case, on specific terms within a contract. 125 MR. WARREN: You're unhappy with the effect of the decision on Coral; is that what you're saying? 126 MR. BADEN: Yes. 127 MR. WARREN: Okay. And -- 128 MR. TODD: Mr. Chairman, if I could assist in terms of regulatory process, which is not Mr. Baden's area -- 129 MR. WARREN: Mr. Chairman, I'm not sure of Mr. Todd's request. The question was for Mr. Baden, and frankly, I didn't need any clarification from Mr. Todd. 130 MR. TODD: Well, would the panel like any clarification? 131 MR. SOMMERVILLE: It's our practice, Mr. Warren, to allow the panel, where indicated, amplify an answer by one panel member from another panel member. I think if Mr. Todd wants to provide some context, I think that would be consistent with our practice. 132 MR. TODD: The concern, and this flows back to the original question of Mr. Warren, which was a quote from Union's evidence referring to the Union evidence and the Elenchus/BDR evidence, so we're swept up in the same comments. The issue here is there can be far-reaching consequences far beyond what the Board or any party in a proceeding can contemplate. 133 In this particular case, in ruling on the DCC, because of the clause 5(e) which was added to the contract, Coral believed it had a remedy and would have a de facto bypass competitive rate, and the way things have spun out, it did not. That is not to suggest there's anything wrong with the DCC decision. In fact, my evidence is that the decision is absolutely correct and this whole story further demonstrates that. 134 What is at stake here or what is at issue here is the decision -- the consequences around a de facto bypass competitive rate and whether 5(e) could have been acted upon subsequently by Union, which has nothing to do with the DCC issue or the DCC decision, but is an indirect consequence of that decision which justifies consideration. 135 MR. WARREN: Sorry, Mr. Todd, there may be unanticipated consequences of a decision of the Board; is that the general sort of rubric of your statement? 136 MR. TODD: Yes. I think that it's -- certainly when I looked at the story and read 5(e), my conclusion would have been that I would have not expected the consequences that have come about for Coral to have been the result. I would have expected that there was another solution. And it's reasonable that they were, and if this evidence had been before the Board, they may not have seen this as a consequence either. They may have anticipated that -- I can't speak for the Board, but they may have anticipated that a solution would have been brought forward. 137 MR. WARREN: So may I understand this, Mr. Todd, that there are unintended consequences of the position you urged the Board to take in the 0130 decision; is that right? 138 MR. TODD: I urged the Board to take a position on a matter of principle. They agreed with the principles I put forward. Those principles around the DCC had consequences because Union used the DCC as a vehicle to create what was a de facto bypass competitive rate and they were not prepared to come up with an alternate way to come up with the same result, despite an undertaking to do so. 139 MR. WARREN: I just want to understand, Mr. Todd. Is this your apologia for having urged the Board to take the position that had unfortunate consequences? Is that what we're to understand? 140 MR. TODD: No. What you should understand is that there are two completely distinct issues here. You have cast this as a revisiting of the DCC argument and decision. I view this differently. The fact that Union was able to create a de facto bypass competitive rate, using the DCC, just is further demonstration that the DCC was an inappropriate vehicle to be used in that way and manipulated that way. 141 What Union was doing was offering a competitive bypass rate so that Coral would not proceed with its bypass application. That's a totally different issue than DCC. The DCC just happened to be a convenient way to get the result that was wanted. It was taken away. The issue is that because Coral no longer had the opportunity to advance with its -- in practical terms, with its bypass application, should the Board consider allowing Coral to have a competitive rate, given the circumstances. That's not a retraction of the DCC; that's not saying the DCC was something that should have been retained. It's got nothing to do with the DCC. 142 MR. WARREN: Mr. Baden, may I return to you, please. I want to put the following scenario to you, sir -- sorry, before we do that, just glancing briefly at rationale number 3, which appears on page 10: "The proposal will take into account the unique characteristics of gas-fired merchant generators." 143 I believe you said in response to your counsel, Mr. Brown, yesterday that you regard yourself as being the only gas-fired merchant generator in Ontario? 144 MR. BADEN: I said fully merchant gas-fired generator. 145 MR. WARREN: There are other gas-fired, for example, co-gen facilities; is that right? 146 MR. BADEN: Yes. 147 MR. WARREN: Now, I want to put the following scenario, sorry to use that awful cliche, the following scenario to you to see if I can get Coral's position on the record: 148 I'll posit the following set of circumstances to you: If the Board were to say that there may be merit in gas-fired electricity generation facilities, whether co-gen or merchant generation, there may be some merit in them getting a rate which reflects their particular circumstances, if the Board were to say that, but were also to say that the Board wants to understand the implications of that kind of rate for a unique industry and would want to see how a rate for that particular segment were designed to see its implications, for example, for other M1 customers or M2 customers, and on the basis of that reasoning were to say to Union, for example, Come back in your next rates case and see if you can propose a rate which reflects the circumstances of that generation; but in the meantime, Coral, you are going to pay the rate that Union has proposed, would that be an unacceptable solution to Coral at two levels? Number one, on Coral's individual level and, two, from Coral's reading of public policy considerations? 149 MR. BADEN: It's, number 1, very difficult for me to answer until I could see the details of the rate that Union would propose. So in terms of me saying whether that would be unacceptable to Coral on any aspect is difficult until I could see what Union would propose as an alternate rate-making solution. 150 I think our concern is we had a credible bypass option and we were seeking something equivalent to that which the terms originally proposed by Union provided. And we would hope, I guess we would wait to say what the rate -- under that set of circumstances, we'd wait to see what Union proposed. 151 MR. WARREN: Thank you, Mr. Baden, and thank you, Mr. Chairman. Those are my questions. 152 MR. SOMMERVILLE: Mr. Warren. 153 Mr. Thompson. 154 MR. THOMPSON: Thank you. 155 CROSS-EXAMINATION BY MR. THOMPSON: 156 MR. THOMPSON: Mr. Baden, I represent the Industrial Gas Users Association. I have a few questions for you. 157 First of all, you've described Coral as part of the Shell Group; is that correct? 158 MR. BADEN: Yes. 159 MR. THOMPSON: And would it be fair for me to conclude that Coral is a sophisticated participant in the natural gas industry? 160 MR. BADEN: We're a significant player in the trading and marketing of natural gas, yes. 161 MR. THOMPSON: And is it fair for me to suggest that Coral is knowledgeable in production, transmission, and distribution issues with respect to natural gas? 162 MR. BADEN: Coral is a trader and marketer, so to the extent -- I would not say we are sophisticated in the production end of that business. Transmission end-use, yes. 163 MR. THOMPSON: Is Coral a shipper on TransCanada? 164 MR. BADEN: Coral holds contracts on TransCanada. 165 MR. THOMPSON: Is Coral a shipper on Alliance-Vector? 166 MR. BADEN: I don't believe. We may do some short-term shipping on alliance. 167 MR. THOMPSON: Does Coral pay the posted tolls on TransCanada? 168 MR. BADEN: That's not my level -- exact nature. But I would assuming we would pay the contracted rates, yes. 169 MR. THOMPSON: Okay. Is Coral aware that the tolls on TransCanada are rolled-in tolls, they're not incremental? 170 MR. BADEN: I understand that, yes. 171 MR. THOMPSON: All right. Does Coral currently sell gas to other large volume customers in Ontario? 172 MR. BADEN: We have a number of customers in Ontario, yes. 173 MR. THOMPSON: And are some of them on Union's system? 174 MR. BADEN: Some of them are on the Union system. 175 MR. THOMPSON: And some of them on Enbridge's system? 176 MR. BADEN: Yes. 177 MR. THOMPSON: Is Coral aware that both Union and Enbridge have a rolled-in rate-making system? 178 MR. BADEN: I'm -- yes. 179 MR. THOMPSON: Is it fair to suggest that Coral is one of the big boys and is able to look after itself? 180 MR. BADEN: I guess I could accept that characterization of us, yes. 181 MR. THOMPSON: Okay. Does Coral subscribe to the sanctity of contracts principle? 182 MR. BADEN: Yes, very definitely. 183 MR. THOMPSON: Which means that contracts are to be performed in accordance with their terms? 184 MR. BADEN: Absolutely. 185 MR. THOMPSON: All right. Well, what do you say your contractual obligation is under this April 30, 2002 contract as amended and clarified? 186 MR. BADEN: We have an obligation in exchange for services provided by Union to pay the rates so described in that contract. 187 MR. THOMPSON: Right. And the rate described in the contract as amended is a demand charge for firm service that is actually higher than the demand charge in the currently posted toll; correct? 188 MR. BADEN: That was the deal based on 1999 rates. 189 MR. THOMPSON: All right. And the contract calls for a mix of firm and interruptible service; is that right? 190 MR. BADEN: Yes. 191 MR. THOMPSON: Is Coral objecting to that now? 192 MR. BADEN: No. Those terms are acceptable to us. 193 MR. THOMPSON: Okay. And under the contract as amended, what's Union's contractual obligation? 194 MR. BADEN: To provide the service described in the contract. 195 MR. THOMPSON: Okay. And in addition, it has this best-efforts obligation with respect to a rate-making solution to your concern? 196 MR. BADEN: Well, as it was amended, a reasonable-effort obligation. 197 MR. THOMPSON: All right, reasonable efforts. So is it fair to say that up until the time Union or someone else comes up with a rate-making solution that's acceptable to this Board, Coral pays the T1 demand charge for firm service. 198 MR. BADEN: Yes. 199 MR. THOMPSON: And it pays the price that it's contracted to pay for the interruptible service for which it's contracted? 200 MR. BADEN: Yes. 201 MR. THOMPSON: Does Coral consider Union to be in breach of its reasonable-efforts obligations under the contract? 202 MR. BROWN: Well, perhaps at this point I would intervene, Mr. Chair, and say that's really a legal matter. Coral is before this Board on a regulatory matter, but I don't think it appropriate for that question to be put to this witness. 203 MR. THOMPSON: Fine. I'll move on. 204 MR. SOMMERVILLE: Thank you, Mr. Thompson. 205 MR. THOMPSON: Given that your contractual commitment is to pay the T1 demand charge for firm service and the proposal in the testimony, at page 13, this is Mr. Todd's material, is for the Board to approve the revenue requirements that result from the terms, conditions, and pricing contained in the CSC dated April 30, 2002. My suggestion to you, Mr. Baden, is that doesn't help you. Do you agree? 206 MR. BADEN: I'm not sure -- no, I do not agree. 207 MR. THOMPSON: Well, the terms, conditions, and pricing contained in the CSC dated April 30, 2002, as we sit here today, are that you pay the demand charge. 208 MR. BADEN: Yes, and we get a delivery commitment credit. 209 MR. THOMPSON: No, sir, that's gone under the clarification agreement. 210 MR. BADEN: Yeah, failing an alternate rate-making solution proposed by Union. 211 MR. THOMPSON: Right. So that the terms, conditions, and pricing contained in the CSC dated April 30, 2002, as we sit here today, is that there is no DCC credit. 212 MR. BADEN: It's being phased out; I understand that, yes. 213 MR. THOMPSON: And what you get under the terms and conditions of the April 30 contract as amended, if you go to the clarification agreement in Exhibit X.21.1, is exactly what every other customer gets. We get the DCC until it's eliminated; right? 214 MR. TODD: Mr. Thompson, you're referring to a statement in my evidence -- 215 MR. THOMPSON: Sorry, I'm referring to a clause -- 216 MR. TODD: Sorry, going back -- 217 MR. THOMPSON: Excuse me, I'm referring a clause in the contract. I'm cross-examining Mr. Baden. You'll get your chance later. 218 MR. TODD: As long as there's an opportunity to clarify the statement in my evidence that you're quoting and which you were reading intent into. I can clarify what that statement means coming from an economist, not coming from a lawyer. 219 MR. THOMPSON: I'll come back to you, Mr. Todd, please. 220 Mr. Baden, do you have 5 -- well, it's actually paragraph 2 of the clarification agreement? 221 MR. BADEN: Paragraph 2? 222 MR. THOMPSON: Yes. And it's the one that deleted 5(d) of the CSC and replaced it with another clause; correct? 223 MR. BADEN: Yes. 224 MR. THOMPSON: And the clause reads: 225 "For the obligated DCQ, Union shall provide customers with delivery commitment credit for all obligated DCQ volumes actually delivered in the amount as specified in rate schedule T1 as amended from time to time by the OEB." 226 That's what it says. 227 MR. BADEN: And it further goes on to suggest: 228 "Subject to section 5(e), if the OEB amends or eliminates the DCC, customers shall receive the same rate-adjustment treatment as approved by the OEB subject to section 5(e). The said rate-adjustment treatment will be applied to the monthly demand charge as set out in 5(a)(i)." 229 MR. THOMPSON: And so the Board would do -- decide to eliminate the DCC and phase it out, and as a result, Coral will receive the DCC in the amounts approved by the Board as it's phased out; correct? 230 MR. BADEN: Yeah, failing an alternate rate-making solution, that's what Coral will pay. 231 MR. THOMPSON: And I'm suggesting to you that's what every other direct purchaser receives as well. 232 MR. BADEN: Okay. 233 MR. THOMPSON: Do you agree? 234 MR. BADEN: Well, I'm assuming every other ratepayer that did not have a bypass option available and effectively a bypass competitive rate. 235 MR. THOMPSON: Well, we'll come back to that in a minute. 236 Now, Mr. Todd, you wanted to say something about proposal number 1 at page 13 of your evidence? Did I understand that correctly? 237 MR. TODD: Yes. Well, I just wanted to apologize if the statement in legal terms was not accurate. The intention of that statement was to utilize, shall we say, the understanding of this, which was to use the number -- we're not meant to use the blank number as the charge which was the net effect of the way the original contract was written prior to the caveats. That's what the intent of that statement was. And I apologize -- 238 MR. THOMPSON: So you would like to amend that, would you? What should it now say, Mr. Todd? 239 MR. TODD: It would be -- well, in part, we were writing around the confidential number, so frankly what I'd like to amend it to say is -- to put in the number that was in the original contract as the term. That was the intent of the statement. 240 MR. THOMPSON: Well, what I suggest you wanted to say is something to the following effect: You want the Board to necessitate for Coral something it gave up through arm's length negotiations. 241 MR. TODD: I presume we'll get to that, and that comes down to the clause 5(e) and whether it is reasonable, and that's in a regulatory form, to have suggested that Union has used all reasonable and prompt efforts to propose and implement promptly an alternate rate-making solution, or whether it has not. In other circumstances where it has been -- wanted to come up with rate-making solutions, it has. Now, rate 100 and rate 77, although rate 100 was previously Centra, those were rates that they came up with as rate-making solutions for particular situations. They are able to do it. 242 MR. THOMPSON: You're putting forward your proposal, as I understand it, as a rate-making solution that falls within the rate-making solution clause of the contract; is that right? 243 MR. TODD: No. What we were trying to illustrate was that Union has a responsibility for coming up with its proposal for a rate-making solution, and we were attempting to point out that there are rates that would do it. What Union intended by an alternate rate-making solution is unclear. Did they mean a rate for Coral? Did they mean a new rate class? We don't know. All we're saying is there are rates that would do the job and, therefore, if Union were directed to come up with a rate that produces the result, they could. 244 When they've been directed in the past to come up with new rates, such as rate 77, that was a direction from the Board, they did. It's not difficult. 245 MR. THOMPSON: Right. All I'm saying is what I said to Mr. Baden, I'll say to you: Until somebody comes up with a proposal that's acceptable to the Board, contractually Coral has to pay the demand charge. That's the situation in which we sit here today; correct? 246 MR. TODD: Yes. And maybe it will take some urging from the Board to get Union to do what is suggested in 5(e). 247 MR. THOMPSON: And the revenue limit proposition that Coral is advancing here, in effect, embeds a DCC payment for Coral. That's its effect; correct? 248 MR. BADEN: I would not characterize it as embedding a DCC payment. It's simply specifying a revenue level that is consistent with the option we had. 249 MR. THOMPSON: You had. 250 MR. TODD: I'm suggesting creating a competitive bypass rate is what -- 251 MR. THOMPSON: Well, let's -- Mr. Todd, you were involved in this case, we're told, until October of 2003; is that correct? 252 MR. TODD: In this current case, yes. 253 MR. THOMPSON: And this characterization of these arrangements as a de facto competitive bypass arrangement, that's your characterization? 254 MR. TODD: That's correct. 255 MR. THOMPSON: So that first surfaced in October of 2003, once you became involved in this; correct? That characterization. 256 MR. TODD: Those words, you may want to ask Coral itself as to whether, in those words or not, they saw it as the same thing. 257 MR. BADEN: The negotiations we had with Union, I think the evidence is there that as the negotiations proceeded, the numbers changed, the rates continued to come down. In February 2002, we filed a leave to construct a pipeline and subsequent to that there were additional proposals that met or came very close to what Coral's alternative was in building its own pipeline. 258 MR. THOMPSON: Well, let's look at some of those -- 259 MR. BADEN: And I think that can be characterized, in effect, as a bypass -- an alternative rate to a bypass option. 260 MR. THOMPSON: You're doing that now. 261 MR. BROWN: Well, let the witness, with all due respect, Mr. Chair, fully answer the question. 262 MR. BADEN: I think Coral's intent was very clear. We were attempting a bypass of Union's system. The rate offered by Union was competitive with that option and we gave that option up. I don't know how else to characterize it. 263 MR. THOMPSON: The negotiations, sir, took place around the T1 rate schedule and the DCC. And if you just look at some of the paper, that's perfectly clear. Start, for example, at tab 15, with the first letter, June the 6th, 2001. This is Mr. Shorts' letter to you. We see in item 4 the service you've been quoted under is a T1 contract service -- carriage-service contract; right? 264 MR. BADEN: The letter states that, yes. 265 MR. THOMPSON: And then if you go to the analysis form I think you referred us to in your examination-in-chief, which is the last page under this document, we see "ATCO/Coral T1 Analysis"; right? 266 MR. BADEN: Yes. 267 MR. THOMPSON: And then the next page, again, the analysis form, this is a further evolution, "ATCO/Coral T1 Analysis"; right? 268 MR. BADEN: Yes. 269 MR. THOMPSON: And then December 21, 2001 letter, which is under the next tab, again, "T1 Service," T1 distribution service appears in several paragraphs of this letter; correct? 270 MR. BADEN: Yes. 271 MR. THOMPSON: And then we go to your agenda for the meeting which is the next tab, and we see in item 1, discuss issues around T1 usage; correct? 272 MR. BADEN: Yes. 273 MR. THOMPSON: And then in your own schedule, it's the last page under that tab, up in the top left-hand part, we see again a reference to the T1 rate schedule, "last proposal firm T1"; do you see that? 274 MR. BADEN: I see that. 275 MR. TODD: Mr. Thompson, we are not disagreeing, we are actually ad idem on this. The definition of de facto in the New Collins Dictionary is: "Existing, in fact, whether legally recognized or not." 276 So the point of using the word "de facto" was to say that legally, i.e., from your perspective, this is not a bypass competitive rate because it was done in terms of T1. From a business perspective, although it's not recognized legally, this is a de facto bypass competitive rate and that's why the qualifier was in there. So we agree that legally it's not a bypass competitive rate. From a business perspective, it is. 277 MR. THOMPSON: The words "bypass competitive rate" are yours that came up in October, but the documentation throughout, including the contract, April 30, 2002, refers to the T1 toll schedule; correct, Mr. Baden? 278 MR. BADEN: Yes, it does. 279 MR. THOMPSON: And it was an arrangement that was negotiated on the basis of that posted toll schedule and on the basis of an OEB amount of DCC -- OEB-determined amount. That's the framework for the deal. 280 MR. BADEN: It is the framework for the deal. I think it's the application. If the ultimate rate that Union offered us was available at the beginning of the negotiation in 2000, why was that not offered? Why did it take until we had filed leave to construct for that offer to be given to Coral? 281 MR. THOMPSON: All right. Well, let's just move, then, to the leave to construct. Was there an alternative request for relief in that application for approval of a competitive bypass rate; do you recall? 282 MR. BADEN: My memory is not clear on that. I don't believe there was a request. 283 MR. THOMPSON: And that application, as Mr. Warren has pointed out, was resisted not only by Union with a competing application but also by intervenors such as IGUA? We intervened in that case; do you recall? 284 MR. BADEN: Yes, there were intervenors in it. 285 MR. THOMPSON: And would you agree that based on the Board's decision subsequent to the CIL case, which is in your cross-examination brief, that Coral had an uphill battle with respect to attempting to obtain a leave-to-construct approval or a competitive bypass rate? Were you familiar with those subsequent cases? 286 MR. BADEN: I am somewhat familiar with the CIL case. I wouldn't characterize it as an uphill battle. I think we definitely realized it was not going to be a cakewalk, that no one would oppose our application. 287 MR. THOMPSON: Okay. And so once obtaining this arrangement with Union, there was a term in the letter of intent, which is under this tab 15, that you would withdraw the applications both before the NEB and the OEB; is that -- 288 MR. BADEN: There is a term, yes. 289 MR. THOMPSON: And so there was no adjournment of the application until you saw what happened to the DCC. You didn't convert it to an application for approval of a competitive bypass rate. You withdraw the applications; right? 290 MR. BADEN: That was the terms of the understanding with Union, that we would withdraw that rate. 291 I guess the question I have is if it was not a bypass opportunity, why would Union be concerned with the withdrawal of the application? 292 MR. THOMPSON: Well, I guess the way I would put it: If you thought you had a competitive bypass rate as a result of your dealings, then why would you not seek approval of it from the Board? 293 MR. BADEN: At that point, within what we had, it was not our obligation to seek approval of the Board. 294 MR. THOMPSON: Well, you had an application pending before the Board. If you'd brought this out into the open where others could have scrutinized it, perhaps you'd be on better footing. But you didn't do that. 295 MR. BADEN: We're in a competitive market where information related to our commercial terms is considered sensitive. We were not willing to expose those to the marketplace and our competitors. The arrangement between Union and us was fair and reasonable but it was confidential. 296 MR. THOMPSON: Okay. Well, the fact of the matter is you didn't bring it forward for scrutiny or Board approval either in the leave-to-construct case or in the subsequent two Union cases where the DCC was under attack; right? 297 MR. BADEN: That's true. 298 MR. THOMPSON: Okay. And what brings you now to the table is that the DCC is gone and your rates are going up. 299 MR. BADEN: That brings us to this table in addition to the fact that we have, on several occasions over the last few months, petitioned Union to provide us with an option and they have not done so. 300 MR. THOMPSON: Well, I guess I say to you, Mr. Baden: Welcome to the club. Because IGUA members and other T1 customers had some pretty significant impacts as well. Have you looked at the attachments to Union's reply evidence, H.1, tab 1, and if you go to the back, you'll see the impacts of the DCC removal and the impact on the T1 and M7 customers. 301 MR. BADEN: I can see that. 302 MR. THOMPSON: Okay. And if you look at the M7 customers, the average impact, 34 percent increase in their delivery costs and one of them is as high at 67 percent; right? 303 MR. BADEN: I definitely understand that. Ours were 85 percent. 304 MR. THOMPSON: So you topped the list. 305 MR. BADEN: But I don't -- do any of those customers also complete in electricity market and have the ability -- not ability, but essentially will affect the electricity prices and all electricity consumers in Ontario. 306 MR. THOMPSON: Well, let me just finish here. If you go to the rate T1, which is the next page, you'll see that the impact there, on average, 36 percent increase in delivery costs, and the top of the range was 72 percent; do you see that? So significant impacts on other industrial users of natural gas in Union's franchise area. 307 MR. BADEN: I see that, yes. 308 MR. THOMPSON: And, Mr. Todd, there's an excerpt from Mr. DeRose's cross-examination of you, also attached, and you sort of poo-pooed these increases as not being significant, not being significant enough to prompt the Board not to eliminate the DCC. 309 MR. TODD: For the reasons I had put forward which was that the DCC credit had no value attached to it and therefore it was, in effect, a subsidy of direct purchase from some customers generally, which may have had a rationale at one point in time but no longer did. And the Board accepted that position and therefore, in interest of cost-based rates, went that route, which was the right decision in that case on the DCC. 310 MR. THOMPSON: Mr. Baden, you indicated, I think in response to some questions of Mr. Warren yesterday, that you didn't know that Mr. Todd had attacked the DCC before you retained him; is that right? 311 MR. BADEN: I was not aware of that, no. 312 MR. THOMPSON: All right. When did you first learn that? 313 MR. BADEN: Just a few days ago, actually. 314 MR. THOMPSON: Did that concern you? 315 MR. BADEN: It does, yes. 316 MR. THOMPSON: All right. We'll leave it there. 317 Now, when you shake it all down, is really what you're after some form of incremental rate-making? 318 MR. BADEN: No. We reached an agreement that did provide a significant contribution to other -- to the system costs. So we're not talking about an incremental toll or tariff. We are prepared to pay that and were prepared to pay what was original terms. And we've characterized it and believe we -- the terms offered by Union were in response to our bypass option. 319 MR. THOMPSON: Well, you've kind of painted yourself into a corner contractually. But do you agree that any rate-making solution should, in fairness, apply to those customers that are similarly situated as Coral? 320 MR. BADEN: Similar in circumstance, I would agree. 321 MR. THOMPSON: Okay. Are you aware of the number of customers who are served off either, in Union's north or in Union's south, what is a dedicated line to their plants? 322 MR. BADEN: I'm not aware of the number, but I could agree that there are, no doubt, customers like that. 323 MR. THOMPSON: And the longer they've been on the system, the probability is they've paid for their line many times over under rolled-in rates; would you agree with that? 324 MR. BADEN: It probably is likely. 325 MR. THOMPSON: Well, there are some in the north, like TransCanada Power, that just straddle the transmission line. The only thing they have is a meter. 326 MR. BADEN: I understand that, but that was in a different time, before the opening of the electricity market in Ontario. 327 MR. THOMPSON: Now, your counsel put on the record here yesterday that there may be something that can be done, was the way I interpret it, under the interruptible pricing under the rolled-in rate regime. Did I understand that that's a concept that Coral would like to explore? 328 MR. BADEN: That's a concept we are willing to explore. 329 MR. THOMPSON: I see. Well, I guess what I'd suggest to you is you might want to include IGUA and others when you start exploring these rate-making concepts because we might be able to help you solve your problem. But if it's to be solved under the parameters of interruptible pricing, we'd like to be involved. Can we? Are you going to do this in the open when you're dealing with class rate-making? 330 MR. BADEN: in terms of negotiating a contract between Coral and any other party, I do not generally invite others to attend those sessions and participate with Coral. 331 MR. THOMPSON: I understand that. But -- 332 MR. BADEN: If we are talking principles of -- there may be opportunities to discuss principles at an open forum. 333 MR. THOMPSON: Okay. But as a matter of contract as between you and Union, we're down to somebody coming up with a rate-making solution. That's what the clause says. 334 MR. BADEN: Yes. 335 MR. THOMPSON: Okay. And I guess all I'm encouraging you to do is to include the other stakeholders in that aspect of the discussions. 336 MR. BADEN: I think that we would be open to suggestions from other stakeholders in terms of discussions on possible rate-making alternatives. But it would not preclude -- it would not include discussion, detailed discussions on terms of contracts for Coral. 337 MR. THOMPSON: All right. 338 Now, does this plant -- I'm just interested in the interruptible option. Does the plant have dual-fuel capacity? 339 MR. BADEN: It does not. 340 MR. THOMPSON: And when you call for gas and you need to have it, what's if it's interrupted? Do you not operate? 341 MR. BADEN: If it's interrupted, there are alternatives. I mean, our -- the location of the plant and its nearness to the Ojibway interconnection with the U.S. pipeline in Michigan provides some flexibility for us in that if Union were unable to deliver gas to us from Dawn, we could source gas in Michigan and deliver it at Ojibway and, in effect, not be constrained by Union and -- other issues with Union system outside of that. 342 MR. THOMPSON: Okay. So you can tolerate -- with this flexibility, you can tolerate interruptions on the Dawn to -- the interconnect with your plant line -- 343 MR. BADEN: If there is congestion there, we have the alternative of attempting to source gas in Michigan. 344 MR. THOMPSON: Okay. 345 Now, finally, who pays? Is it actually Coral or the partnership, limited partnership, that pays these costs under the contract? Is this coming out of Coral's margin or the plant's margin? 346 MR. BADEN: Which cost exactly are you referring to? 347 MR. THOMPSON: The demand charge under the T1 arrangement as it currently -- 348 MR. BADEN: Coral pays that. Coral's obligation is to arrange and deliver gas to the power station. 349 MR. THOMPSON: Okay. So it's not coming out of the project's margin, then. 350 MR. BADEN: Sometimes I wish it would, but it does not. 351 MR. THOMPSON: Well, another contracting issue, I guess. 352 Thank you. Those are my questions. 353 MR. SOMMERVILLE: Thank you, Mr. Thompson. 354 Mr. Vegh. 355 CROSS-EXAMINATION BY MR. VEGH: 356 MR. VEGH: I do have a couple of questions, panel. I have a couple of questions on behalf of TransAlta. 357 Mr. Baden, you identified TransAlta earlier as a generator that is both a co-gen operation and has a component of merchant power as well, so I have some questions from that perspective relating to the more general issue of the unique characteristics of gas-fired merchant generators and how the distribution rate design may take that into account, and that's really in part three of your prefiled evidence. 358 In particular, at page 13, the second full paragraph refers, in the current tariff, to the high-load-factor requirements. I take it that's a concern from the perspective of a merchant gas-fired generator, the high-load-factor requirements? 359 MR. BADEN: Yes, it is. 360 MR. VEGH: Just generally, what sort of solution would Coral see as a prescription to that concern? 361 MR. BADEN: Well, I can provide maybe a little bit of detail in terms of why it is an issue. It hasn't, I don't think, been pointed out at this point that in addition to an obligation to deliver a firm volume daily, there is a restriction on -- not a -- there is a specified amount of firm redelivery capacity that is available on an hourly basis. And despite the characterization of this facility as a high-load-factor facility, when you consider the hourly restriction for firm service, we're, in effect, only taking -- we're only able to redeliver less than half of our hourly requirements to the power station under firm. It is -- you get to the characterization of an annual load factor being very high by adding both the interruptible and firm deliveries on an hourly basis against the firm DCQ obligation. 362 So this plant, every hour it operates, will deliver less than half by firm and more than half by interruptible, so that that high-load-factor requirement is a challenge every hour we operate. We have to arrange interruptible -- well, we have to arrange the full volume of the gas, but only half is actually firm redelivery capacity. 363 MR. VEGH: And so can I take from that, then, that your prescription would be to have greater flexibility around both daily and hourly delivery obligations? 364 MR. BADEN: Yes. And I think that's -- you know, one of the reasons -- one of the reasons, perhaps not highlighted here in terms of pursuing a bypass, was to give ourselves that degree of flexibility in terms of managing our deliveries and redeliveries. 365 MR. VEGH: Another area I noticed not in your prefiled evidence but in the evidence at tab 14 of your brief, going into page 5, under the heading "Carriage-Service Contract Operational Problems," there's a discussion on that page around storage. Is storage flexibility also a concern from the perspective of a merchant gas-fired generator? 366 MR. BADEN: In this particular case it is an issue. The storage in the storage injection withdrawal rights help us on a day -- within a day basis, as I think I mentioned yesterday. The storage is very useful if we anticipate operating, say, eight hours in a particular day and, due to other circumstances in the market, our dispatch order is reduced, say, to just operate four hours. We've scheduled gas for eight hours and now we have to do something with that gas. The storage will help us with intraday issues. 367 Similarly, if we had anticipated operating four hours and were required to operate additional hours, storage helps on that. But storage doesn't help us deal with the quantity of gas that we would be obligated to deliver if the plant was not operating. It's simply -- we couldn't put enough gas in the ground under the terms of the storage agreement to deal with that firm obligated delivery. 368 MR. VEGH: Sorry, I have laryngitis I'm having a -- luckily I have only one more question. In terms of those concerns about the flexibility around storage, could you briefly outline what the prescription would be to address those limitations? 369 MR. BADEN: I think that's why in the comments I made yesterday we said one of the other key factors in looking at the offer that Union provided under the carriage-service contract -- well, it's not even specified under the carriage-service contract, but it was in the discussions that we had with Union, that led us to believe that we would be given flexibility in terms of that firm obligated delivery on the days when the plant was not operating. Union's characterization I think was, in effect, that they simply couldn't handle the volume of gas that we would be obligated to deliver if the plant wasn't running. 370 MR. VEGH: Thank you, sir, those are my questions. 371 MR. SOMMERVILLE: Mr. Vegh. 372 Mr. Dingwall. 373 MR. DINGWALL: Thank you, sir. 374 CROSS-EXAMINATION BY MR. DINGWALL: 375 MR. DINGWALL: Is it Coral's position that whatever rate might end up being negotiated or might emerge as a result of this process would apply as of the commencement of service, whether retroactively so or otherwise? 376 MR. BADEN: Yes. 377 MR. DINGWALL: I take it that the rate that emerged from the original agreement was the result of some significant negotiations; would that be correct? 378 MR. BADEN: Yes. 379 MR. DINGWALL: And I take it, given the characteristics of negotiations, that the initial starting point of Union Gas was somewhat higher than where you ended up. 380 MR. BADEN: Yes. 381 MR. DINGWALL: And would you contribute the filing of an application for what is effectively bypass as being a factor which led to the reduction of the rates through the negotiation process? 382 MR. BADEN: Yes, I think it was a very key factor. 383 MR. DINGWALL: Then here we are at the beginning of the process when the first contract was put in place. Did you have any sense of what the status of comfort that the province and the OEB had with what the capacity in the electric generation market was at that time? 384 MR. BADEN: At that time, going back when the contract was put into place in April of 2002, I think it was beginning to get very uncomfortable with the level of supply. I think -- I don't -- I'm trying to recall some of the IMO reports at that time. Some of them were still indicating that there was more than adequate reserve expected in the province. There were certainly lots of concerns being voiced in other forums about the situation of electricity supply in the province. 385 MR. DINGWALL: And I take it, given the magnitude of this type of project, you would have made efforts to contract -- not to contract but to contact or solicit the interest of other government agencies. Did Coral do anything like that? 386 MR. BADEN: I'm not sure, contacts of soliciting other agencies. In what context? 387 MR. DINGWALL: With a context of seeing whether or not the political climate or the economic climate would, frankly, welcome a development of this size and for this purpose. 388 MR. BADEN: Well, I mean, definitely ATCO and OPG had been very active on that prior. I mean, at the time that Coral entered the scene, a great deal had already been done in terms of Brighton Beach. But we had made contact to, you know, get some feel for what the views were going forward in this market. 389 MR. DINGWALL: And how would you describe the feedback that you got at the time? 390 MR. BADEN: We were always very generally welcomed in this market; that we were seen as exactly what the policy had intended, which was to bring new players into the electricity market and to create a market where there was active competition. 391 MR. DINGWALL: And was it that encouragement that also led you to have a favourable view of your bypass application? 392 MR. BADEN: No. I mean, we dealt with the commercial aspects of the electricity market. The concept of a bypass was not discussed, other than the commercial arrangements with Union. We did not go beyond that. 393 MR. DINGWALL: Would it be fair to say that the price that resulted from the negotiation would have been an indication of the parties' understandings or perceptions of what the reception that the bypass application have received had it gone forward? 394 MR. BADEN: I'm not sure I can answer that. I think we looked at it purely on commercial terms. I am driven to get the very lowest costs in all areas. In a competitive market, that's the only way you survive. 395 MR. DINGWALL: Okay. 396 Moving on to Mr. Todd, I tried, frankly, to read your resume but it was too many pages for me to concentrate on. Given your background in Ontario regulatory matters, specifically with respect to gas and electric, do the current gas rates and connection policies fully contemplate the benefits to customers who also receive electric services, given our somewhat challenged generation portfolio? 397 MR. TODD: No, they do not. There is nothing in current gas rates structures which are, shall we say, further the objective of stimulating generation in the electricity sector. 398 MR. DINGWALL: So what extent, if any, would you say that these policies even anticipate cross-commodity benefits to customers? 399 MR. TODD: We're at the beginning of a new era, and a little bit shaky at that right now, so things have not caught up. So they were designed prior to the Energy Competition Act. Rates were designed prior to the opening of the market last year. So they have not contemplated it. 400 MR. DINGWALL: Have you put forward any positions with respect to bypass in the past, Mr. Todd? 401 MR. TODD: It may be a question of remembering everything in my CV as you do in reading it, Mr. Dingwall. I mean the issue has been discussed with various clients over the years. I don't believe I've ever put forward my position. But there's been a lot of task forces and so on where I'm sure my views have been expressed in a public forum. 402 MR. DINGWALL: Well, since the time that the electricity market moved from the stage of being theoretical, paternal, and -- well, I'll hesitate to use the adjectives. But since the time before the advent of a competitive, I use that in quotation marks, electricity market, since that time have you put forward any positions of your own with respect to bypass? 403 MR. TODD: No, I think it's fair to say that this situation has been the first stimulus to me really thinking through the issues, which I have done. To some extent, in preparation of the evidence, but that was on a tight turnaround, to a great extent since then. 404 MR. DINGWALL: From the time you put forward your evidence with respect to the elimination of the DCC, were you aware of Coral's bypass application or had you contemplated bypass for merchant generation in the formulation of that DCC evidence? 405 MR. TODD: I was aware of Coral's application because it was done -- being worked on, in part, by people in my office. I had been involved with Sythe and their application, so I was aware of merchant power plants generally in that side of the marketplace. Frankly, I did not see that, and still do not see that, as having any relevance to the DCC issue. The DCC issue is a totally different issue of principle. The issue of merchant power plant generation is a separate issue. If you require bypass rates or a special rate class, that decision has nothing to do with the existence or non-existence of the DCC. 406 MR. DINGWALL: So would it be fair, then -- well, let me ask the question more directly. So at the time of the DCC evidence, did you have any idea that Coral would be structuring a contractual arrangement which would base its pricing around the use of the DCC to effectively try and achieve the bypass goal? 407 MR. TODD: No. 408 MR. DINGWALL: So at the time of your DCC evidence, the current situation that we're addressing here wasn't even contemplated; would that be fair? 409 MR. TODD: That would be fair. 410 MR. DINGWALL: Thank you very much, gentlemen. Those are my questions. And Ms. Zarnett. 411 MR. SOMMERVILLE: Thank you, Mr. Dingwall. 412 Mr. Rowe? 413 MR. ROWE: No questions. 414 MR. SOMMERVILLE: Mr. Haynal? 415 MR. HAYNAL: Thank you. No questions. 416 MR. SOMMERVILLE: Mr. Penny, I think you're next. I think we'll take our morning break and reconvene at just after 20 minutes after the hour. Thank you. 417 --- Recess taken at 11:00 a.m. 418 --- On resuming at 11:25 a.m. 419 MR. SOMMERVILLE: Thank you. Please be seated. 420 Mr. Penny. 421 MR. PENNY: Yes, thank you, Mr. Chairman. One of the problems for a lawyer coming last is that the questions all get answered early, and since, as I was saying a moment ago, I'm always the first to complain when there's repetition, I'm not going to indulge myself so I will not be asking about anything that's already been covered and I will, therefore, be very brief. 422 CROSS-EXAMINATION BY MR. PENNY: 423 MR. PENNY: Mr. Baden, my name is Michael Penny. I represent Union Gas in this proceeding. 424 The other day you had indicated in answer to a question from Mr. Brown that you had put some of the correspondence in to your material, which was in Exhibit X.21.1, and I simply wanted you to confirm that the correspondence that you have put into that brief does not represent all of the correspondence passing between Union and Coral with respect to the negotiation of either the CSC or the amending agreement. 425 MR. BADEN: Yes. There is other correspondence. 426 MR. PENNY: And there were, in fact, many memos and scenarios and e-mails and letters that went back and forth covering all kinds of issues and all kinds of combinations and permutations of possible services. 427 MR. BADEN: Yes, and a number of meetings also. 428 MR. PENNY: Okay, thank you. 429 Looking at your brief, X.21.1, would you turn up, please, under tab 15, it's the fourth document in, I believe, if I've counted the blue pages correctly. You were asked about this earlier by a couple of people. It's a spreadsheet which I understand was prepared by Coral which has three columns, and at the top there's a fax ID line, just to help you find it, that's got 10/31/2003. Do you have that? 430 MR. BADEN: Yes, I do. 431 MR. PENNY: And in order to avoid cross-examining on the numbers which appear here which you wish to be kept confidential, I think we have what we need to argue the case if you will provide us simply with the conversion factor that Coral used to convert a Bcf into a 103m3. Can you either provide that now or undertake to provide that conversion factor, please? 432 MR. BADEN: I'll undertake to provide that. My memory is not clear enough here to provide that in significant enough detail. 433 MR. PENNY: All right, thank you. 434 May that be given an undertaking number, then, please, Mr. Chairman. 435 MR. MORAN: Mr. Chair, Undertaking N.23.1, to provide the conversion factor used by Coral to convert Bcf to -- 436 MR. PENNY: Metres cubed. 437 MR. MORAN: -- metres cubed. 438 UNDERTAKING NO. N.23.1: TO PROVIDE THE CONVERSION FACTOR USED BY CORAL TO CONVERT Bcf TO METRES CUBED 439 MR. SOMMERVILLE: We have not, up to now, put time constraints on undertakings, but we are right against the end of this proceeding and argument in chief is scheduled for Monday. Is that undertaking achievable prior to Monday? 440 MR. BADEN: I believe we can have it by Monday, yes. 441 MR. SOMMERVILLE: Thank you. 442 Perhaps, Mr. Penny and Mr. Moran can make some arrangements for over the weekend, if that's necessary, so that that information could be imparted. Thank you. 443 MR. PENNY: Thank you, sir. 444 Mr. Baden, I believe you'd agree with me that Union had the discretion under the agreement with Coral to authorize deliveries by Coral than were less than the contracted DCQ. 445 MR. BADEN: Yes. 446 MR. PENNY: And if you would look with me at the amending agreement for a moment, which is the second last -- I think the second last document at Exhibit X.21.1, under number 2, the amended 5(d). Do you see that? 447 MR. BADEN: Yes, I do. 448 MR. PENNY: And the first sentence says: 449 "For the obligated DCQ Union shall provide customer with the delivery commitment credit, or DCC, for all obligated DCQ volumes actually delivered." 450 MR. BADEN: Yes. 451 MR. PENNY: And so you could be authorized by Union to deliver less gas, but if you did deliver less, you would not get the DCC on that amount. 452 MR. BADEN: Yes. 453 MR. PENNY: Thank you. Now, you also told us the other day that Mr. Higgin had been retained for Coral's leave application and he worked for Econalysis. 454 MR. BADEN: At the time, yes. 455 MR. PENNY: Am I also not right that Joyce Poon was also retained? 456 MR. BADEN: I believe Joyce was doing some of the work for Roger. 457 MR. PENNY: And she also works for Econalysis? 458 MR. BADEN: Yes. 459 MR. PENNY: And I understand the work that she was doing on the leave application was as an expert on the economics of the project? 460 MR. BADEN: Yes. 461 MR. PENNY: And in fact, Ms. Poon was listed in your application as a witness for Coral in that application? 462 MR. BADEN: She may very well have been. I don't recall. 463 MR. PENNY: And she was a co-author of the evidence that was contemplated to be filed? 464 MR. BADEN: She would have been, yes. I just don't recall right now. 465 MR. PENNY: Now, was Ms. Poon aware that Coral was negotiating with Union about a possible contractual or rate solution to what Coral was after? 466 MR. BADEN: I'm not sure that she would be aware. She was retained to deal with the matter dealing with the pipeline. The negotiations that were occurring between Union and Coral at the time were being conducted purely by Coral staff. 467 MR. PENNY: I understood that, sir, and you said that yesterday. My question was more specific, and that was: Was she aware that Coral was negotiating with Union? 468 MR. BADEN: I'm not aware that she was aware. I was never in a meeting where Ms. Poon was present. The only meetings that were conduct where Econalysis was present was with Mr. Higgin. 469 MR. PENNY: All right. And was Ms. Poon or Mr. Higgin aware that the DCC was, as you said yesterday, one of the key factors in Coral's decision to give up its leave application? 470 MR. BADEN: I'm not sure that Mr. Higgin would have been aware. It was not, to my knowledge, discussed in front of him the status of the negotiations with Union at any time in which we were dealing with the matter of the application. 471 MR. PENNY: Well, did you explain to Mr. Higgin or Ms. Poon why you were withdrawing the leave application? 472 MR. BADEN: The application was filed, Mr. Higgins work with us was completed, and it was sometime after that that the application was withdrawn. 473 MR. PENNY: My question to you, sir, was: Did you explain it to either Mr. Higgin or Ms. Poon why the application was being withdrawn? 474 MR. BADEN: If we explained, it would have been nothing more than we had agreed to terms with Union. Again, the terms of that contract are confidential. 475 MR. PENNY: All right, thank you. Now, the first Board decision on the DCC, that was in RP-2002-0029, that came out on December 20, 2002? 476 MR. BADEN: Yes. 477 MR. PENNY: And that was a Friday? 478 MR. BADEN: I don't recall if it was. It could very well be. 479 MR. PENNY: Now, it's my information that Mr. Shorts phoned you on Monday, the 23rd of September and left you a message to the effect that the decision had been released and that the Board had not approved Union's proposal. Is that consistent with your recollection? 480 MR. BADEN: I can't recall exactly, but I'll take it that he did call me. 481 MR. PENNY: And I understand further that Coral was having trouble accessing the Board decision on the Board's web site, and as a result, Union faxed the relevant portion of the decision to you on Friday, September the 27th. 482 MR. BADEN: I recall that, yes. 483 MR. PENNY: And it's also my information that Coral and Union did not start discussing the terms of the amending agreement for another week or two after that date. 484 MR. BADEN: Well, it could not be very long after that date, the 27th of September, given that the agreement was executed on October 1st. 485 MR. PENNY: Well, I guess that was my next question, was the agreement is dated October 1st, 2002, but it's my information that Coral, in fact, did not sign this agreement until same in November of 2002. Can you confirm that? 486 MR. BADEN: I can't confirm that at this time. I'd have to go back through what records I could find. 487 MR. PENNY: Could you undertake to do that, please? 488 MR. BADEN: I will try. 489 MR. MORAN: Mr. Chair, Undertaking N.23.2, to advise when Coral Energy Canada Inc. signed the carriage-service contract clarification agreement. 490 MR. SOMMERVILLE: Thank you. 491 UNDERTAKING NO. N.23.2: TO ADVISE WHEN CORAL ENERGY CANADA INC. SIGNED THE CARRIAGE-SERVICE CONTRACT CLARIFICATION AGREEMENT 492 MR. PENNY: Now, at tab 14 of X.21.1, there is a simulation, it's called "Schedule 1, Simulation of Daily Operating Hours of Merchant Power Plant"? Do you have that, Mr. Baden? 493 MR. BADEN: I'm sorry, what page? 494 MR. PENNY: Well, the pages aren't numbered. It's about -- 495 MR. BADEN: Oh, the first schedule? 496 MR. PENNY: I think it's schedule 1. 497 MR. BADEN: Yes. 498 MR. PENNY: And it's a simulation. My question to you, sir is: Does this simulation reflect any possible effects of congestion in southwestern Ontario on the dispatch of your facility? 499 MR. BADEN: It does not. 500 MR. PENNY: Did you run any simulations incorporating congestion as a potential factor in daily operating hours for your facility? 501 MR. BADEN: No, we did not. At this time we're not aware of any congestion in southwestern Ontario. 502 MR. PENNY: And the Windsor area, of course, is close to the U.S. energy markets. 503 MR. BADEN: It is. 504 MR. PENNY: And there is plenty of cross-border transmission access in the Windsor area? 505 MR. BADEN: Yes. 506 MR. PENNY: And is one of the reasons the facility was built in Windsor at this location because of that ready access to U.S. markets? 507 MR. BADEN: It was attractive to Coral because there was access to the U.S. market, but the structure of the Ontario market does not allow us to directly deliver to the U.S. market. In other words, the way the Ontario electricity market works, in order to get a dispatch order to turn the plant on, we have to offer to the Ontario energy market that electricity and sell it at the price that clears. If we wish to export, we then, in turn, have to buy back the energy from the Ontario electricity market for delivery at an intertie and arrange, then, for ongoing delivery to cross the international border. 508 MR. PENNY: I take it from that that this simulation also does not reflect the potential for exports in operating -- in daily operating hours. 509 MR. BADEN: This simulation, based on the historical numbers of the day, would reflect any cross-border activity that was occurring. In other words, if there were imports or exports occurring at that point in time, the price settled should, more or less, reflect that activity. 510 MR. PENNY: All right, I understand. Thank you. 511 Now, the subject of interruptible service has come up once or twice. It's, again, my information that early on in the negotiation, Union raised with Coral the possibility of relying entirely on interruptible service. 512 MR. BADEN: I believe it was discussed off and on, yes. 513 MR. PENNY: And prior to the CSC, Coral rejected that option. 514 MR. BADEN: Well, we had weighed various alternatives, yes, and perhaps rejected -- I guess we did reject interruptible service. 515 MR. PENNY: That particular one, yes. 516 MR. BADEN: Yeah. 517 MR. PENNY: And has Coral raised the possibility of moving to interruptible service with Union since then? 518 MR. BADEN: Yes. 519 MR. PENNY: And when, roughly? 520 MR. BADEN: I talked to Mr. Shorts a few days ago to bring this up. 521 MR. PENNY: All right, thank you. 522 I wanted to -- I did want to follow up on a question that Mr. Warren asked you about the percentage of costs, of operating costs that were represented by Union's delivery charge, and I, first of all, wanted to make sure that when you answered Mr. Warren this morning, he was talking about transportation charges and my question to you is: Specifically dealing with Union-only delivery charge, what percentage of Union delivery charge is -- what percentage -- sorry, what percentage of the total landed cost of gas is Union's delivery charge and what percentage of your total operating cost is represented by Union's delivery charge under section 5 of the CSC? 523 MR. BADEN: The answers I gave this morning to Mr. Warren were -- reflect that situation, and I was referring only to Union transportation charges. 524 MR. PENNY: All right. And you used the expression that you were guessing and so I wanted to be a little more precise about that. Can you either provide me with -- well, let me put it this way: Can you provide us with the specifics of total annual gas costs, total annual operating costs, on some kind of line-by-line basis so that we can see what the makeup of that is and that shows Union's delivery charge as a percentage of those totals? 525 MR. BADEN: Yes, I can undertake to provide that. 526 MR. PENNY: All right, thank you. 527 MR. MORAN: Mr. Chair, that will become Undertaking N.23.3. 528 UNDERTAKING NO. X.N.23.3: TO PROVIDE SPECIFICS OF TOTAL ANNUAL GAS COSTS, TOTAL ANNUAL OPERATING COSTS, ON SOME KIND OF LINE-BY-LINE BASIS SO THAT WE CAN SEE WHAT THE MAKEUP OF THAT IS AND THAT SHOWS UNION'S DELIVERY CHARGE AS A PERCENTAGE OF THOSE TOTALS 529 MR. PENNY: Thank you, Mr. Baden. Those are all my questions. 530 MR. SOMMERVILLE: I just wonder with respect to that last undertaking, is there confidentiality associated with that? 531 MR. PENNY: I suspect it rather would be, and I'm happy that it be dealt with on that basis. 532 MR. BROWN: I think that's a fair assessment. 533 MR. BADEN: My understanding is it would be on a confidential basis. 534 MR. SOMMERVILLE: I'm suggesting that probably -- I don't want to complicate matters, but probably the way for that to be accomplished is for you, Mr. Brown, so that you have confidence that that communication is appropriately protected. 535 MR. MORAN: Mr. Chair, I was going to suggest instead of giving it the usual N number, perhaps we could mark it as X.N.23.3. 536 MR. SOMMERVILLE: I'll leave that to the parties, how they want to handle that, so that the information is appropriately protected. 537 MR. BROWN: Thank you. 538 MR. SOMMERVILLE: Thank you, Mr. Penny. 539 Mr. Moran. 540 MR. MORAN: Thank you, Mr. Chair. 541 CROSS-EXAMINATION BY MR. MORAN: 542 MR. MORAN: Mr. Baden, just a minor point to start with. If I could take you to page 10 of your evidence, I just want to follow up on a couple of questions that Mr. Warren put to you. This is with respect to the statement in your evidence about regulatory decisions changing the rules unfairly or arbitrarily, which a serious matters, obviously, for a regulator. 543 I think you indicated to Mr. Warren that what you were really trying to get at with this sentence was the fact that Coral was unhappy about the effect of the Board's decision on Coral specifically; is that right? 544 MR. BADEN: Yes. 545 MR. MORAN: All right. And to the extent that you had an agreement with Union and to the extent that you chose to keep that confidential and chose not to share it with the Board, it really wouldn't be open to accuse the Board of changing the rules unfairly or arbitrarily in relation to that contract, would it? 546 MR. BADEN: No, it would not be fair. 547 MR. MORAN: All right, thank you. 548 Now, I'd like to focus in on trying to put some fences around what the scope of the problem is that you're here to raise with the Board, if I could, and I'd like to take the approach -- take an approach that's based on looking at the T1 rate schedule that you've contracted under and distinguish, I guess, between the logistics of operating under T1 versus the price that gets charged under T1. 549 To start that off, if you could turn to Exhibit X.21.1, tab 14. If I understand what is set out in the first, I guess, five pages of text at tab 14, am I correct in understanding that what you're describing there is -- what you're intending to do is create a picture of the kind of operation that Brighton Beach is going to be carrying out once it starts service? 550 MR. BADEN: It essentially reflects our expectation of how Brighton will operate, yes. 551 MR. MORAN: So as we go through it, there are things like the fact that, although you're a high-volume user, your load factor is going to be a hundred percent or zero depending on what's happening in the electricity market. That's one of the things that comes out of there; is that right? 552 MR. BADEN: Essentially on an hourly basis we're either zero or a hundred percent. 553 MR. MORAN: Right. And it can be variable during the day, it can be variable day by day and it can be variable week by week, and so on. 554 MR. BADEN: Yes. 555 MR. MORAN: All right. And it's fair to say that your operation, given the way you've described it, is essentially weather-dependent, isn't it? On very cold days, more electricity is needed and you would be engaged as a higher-price producer, and on very warm days, because of air-conditioning needs and so on, you're more likely to be engaged as well. 556 MR. BADEN: Typically in Ontario, yes. 557 MR. MORAN: Right. And then if we turn to the first table, schedule 1 in the same tab, as I understand what we have here, it's a simulation using actual clearing prices for the year starting October 1, 2002 through to September 30th, 2003; right? 558 MR. BADEN: Yes, it is. 559 MR. MORAN: Which, I think we can agree, includes a cooler-than-usual summer; right? 560 MR. BADEN: Yes. 561 MR. MORAN: And if we were to look at the equivalent period the year period, we'd have a warmer-than-usual summer to look at. 562 MR. BADEN: Yes. But the period also includes, if you'll notice, February and March, very high rates too, that I don't believe are typical of Ontario. 563 MR. MORAN: Right. The front end of this table reflects a colder-than-usual winter. 564 MR. BADEN: Yes. 565 MR. MORAN: And if we looked at the equivalent period, we'd have a warmer-than-usual winter in the previous year. 566 MR. BADEN: Yes. 567 MR. MORAN: So this isn't put forward to reflect what would be a typical running operation, it's just one year and it's not intended to do anything more than tell you what would have happened last year if you were running based on the rates that are -- 568 MR. BADEN: It's intended to be an illustrative example. 569 MR. MORAN: And, of course, over 20 years the weather is going to change; right? 570 MR. BADEN: Yes. 571 MR. MORAN: Now, as I understand it, then, based on what you've set out here, when you went to contract with Union, you were being driven by the desire, I guess, to reduce all the costs that you were facing, one of the costs being distribution charges from Union. 572 MR. BADEN: Yes. 573 MR. MORAN: And because the more you can reduce those, the better your margin is and the lower the price is that you can bid in at. 574 MR. BADEN: Yeah. Essentially, the lower the price we can offer, the more hours we will offer and we increase our chances of recovering our fixed and earning some money on our investment. 575 MR. MORAN: All right. So, again, is it fair to say that the issue wasn't so much whether you fit very well within the T1 rate class but rather, when you looked at the T1 rate and factored in the DCC, which was part of that rate class at that time, regardless of whether you could fit very well in it, the money side of it worked. The logistics side may not have worked very well, but the price side did. 576 MR. BADEN: Yes. It was an attempt to round a square peg. But it got rounded sufficiently to get us in there, yeah. 577 MR. MORAN: Right. And, of course, while that was unfolding, the issue was also before the Board being debated and ultimately the Board came out as it did, eliminating the DCC. 578 MR. BADEN: Yes. 579 MR. MORAN: So your round peg -- or your square peg doesn't fit so well into the round hole anymore. 580 MR. BADEN: Yes. 581 MR. MORAN: Okay. To understand the size of the problem, you've already talked about, I think in response to Mr. Warren, and we're going to get some more precise information in response to Undertaking X.N.23.3, but the percentage of your total costs attributable to Union is pretty small. 582 MR. BADEN: It is, but it's one of the very few things that we can now actually control. 583 MR. MORAN: Or at least attempt to control by hoping to persuade the Board. 584 MR. BADEN: Yes. 585 MR. MORAN: And again, to understand the size of the problem that you're facing, going into 2004, when do you plan to start up? 586 MR. BADEN: When the contract was written, we had anticipated that we would be starting in the spring of 2004, sometime March/April. It now looks like it will be June/July of 2004. 587 MR. MORAN: All right. So in June/July of 2004 -- 588 MR. BADEN: That's full operation. Commissioning will start probably in January, we'll start taking small quantities of gas. 589 MR. MORAN: All right. So the small quantities of gas don't raise the price issue as much as the full bore operation. 590 MR. BADEN: Yes. 591 MR. MORAN: So, again, to understand the size of the problem, for you it starts somewhere, I guess, June/July, you say? 592 MR. BADEN: Yes. 593 MR. MORAN: All right. And as things currently stand under T1, the DCC hasn't been fully phased out yet, has it? 594 MR. BADEN: That's true. 595 MR. MORAN: Okay. So under your current contract, you'll pay the T1 price that you've -- that's in your contract but you'll get, as I understand it, three-fifths of the DCC back as a credit; right? 596 MR. BADEN: Yeah, I think -- yeah. 597 MR. MORAN: So at least for the balance of 2004, the difference is two-fifths of the DCC. 598 MR. BADEN: To be accurate, the contract takes effect January 2004. Even though we will not start using significant quantities of gas until June/July, the obligation starts January 1, 2004. So we will begin delivering or have an obligation to deliver that firm quantity as of January 1 and pay the demand charges starting January 1. 599 MR. MORAN: All right. So for the entire year, 2004, you're going to get three-fifths of the DCC as a credit back? 600 MR. BADEN: Yes. 601 MR. MORAN: And that's what the clarification agreement establishes. 602 MR. TODD: On the actual volumes as opposed to the obligated DCQ. That's changed. 603 MR. MORAN: Now, as I understand the theory that was originally behind the DCC, the idea there was that when people were actually delivered to a certain point in the system, they're helping everybody who uses the system by avoiding the need to build new transmission facilities depending on where they deliver, and that was the basis for the credit; right? That was the theory behind the credit at least; isn't that right, Mr. Todd? 604 MR. TODD: The theory in the original discussions which were outside of Board hearings was on that basis, with some discussion of obligated deliveries at the eastern end. But the Board decided in an early case that the DCC repaid wherever it was delivered. 605 MR. MORAN: Right. 606 MR. TODD: So in a sense that rationale actually never came into force. I believe that, sort of thinking back to the evidence in the DCC case, I think the primary rationale was really just helping getting -- to put it very, very simply, to help getting the direct-purchase market going. 607 MR. MORAN: All right. So the original theory got diluted and then the rationale appeared to change to, let's just try to stimulate the direct purchase market by... 608 MR. TODD: That was my read of the series of events. 609 MR. MORAN: All right. But for your purposes, Mr. Baden, you didn't care about any of that stuff, you were just looking at the economics; and when you looked at the economics, incorporating the consideration of the DCC, the price worked for you. 610 MR. BADEN: Yes. 611 MR. MORAN: All right. Now, you've indicated that the purpose of your operation is to sell electricity into the IMO-administered market, and I think as I understand schedule 1 in tab 15 of -- tab 14 of X.21.1, the simulation that we see here is what happens when you're bidding into the spot market; right? 612 MR. BADEN: Yes. 613 MR. MORAN: And of course the IMO-administered market is not limited just to the spot market, there's a bilateral market as well that's also administered. 614 MR. BADEN: Yes. 615 MR. MORAN: And do I understand it correctly, based on what we have here, is that Coral intends only to play in the spot-market side? 616 MR. BADEN: The nature of this facility does not really lend itself to entering into a long-term base-load contract. We would not be competitive against a base-load generator offering someone a 7 by 24 contract. 617 MR. MORAN: Right. So it may be that you won't enter into long-term contracts, but not all contracts are long term on the bilateral side; isn't that true? 618 MR. BADEN: But the nature of the base-load contract could be one day to one year or longer. It is the nature of the delivery service in the obligation to provide energy on a 24-hour basis that we would have difficulty with this facility providing for. 619 MR. MORAN: All right. So are you then saying that you're only playing on the spot-market side and that's it? 620 MR. BADEN: Essentially right now, until there are, say, a day-ahead market developed in Ontario, yes. 621 MR. MORAN: And if there was a day-ahead market, how would that change things for your operation? 622 MR. BADEN: Well, it would reduce our scheduling uncertainty in that we would be able -- we would get notification from the IMO a significant number of hours prior to the day of delivery just how many hours a day we would be required to offer -- to dispatch, and it would be a firm offer from the IMO. In other words, if they said to us -- and through the day-ahead market, You are going to be required tomorrow to operate eight hours, then we would know for certain that we would operate eight hours and schedule gas appropriately for that. And that's different than the realtime market where we're going hour by hour for the 24 hours. 623 MR. MORAN: Right. So more certainty and -- 624 MR. BADEN: Yes. 625 MR. MORAN: -- a better ability to plan would result from that. 626 MR. BADEN: Yes. 627 MR. MORAN: And possibly more running hours would as a result as well. 628 MR. BADEN: Possibly, yes. 629 MR. MORAN: All right. I'd like to turn to rate-making principles because I think that's why you're here. 630 Would you agree, Mr. Todd, that the addition of a customer shouldn't add costs that would be borne by other ratepayers that aren't in that customer's class? 631 MR. TODD: The addition of a customer -- not absolutely. I mean, in a portfolio approach, which is used by Union Natural Gas, for example, to who actually add costs to other customers. It could spill over to other classes. But the portfolio or the individual, however the PI is done, should not have a cost -- not be subsidized by other classes or other customers. 632 MR. MORAN: Right. The objective is to get rates in place that will have the customers paying for the costs that they incur. That's the objective, even if it's not a hundred percent met because of other reasons; right? 633 MR. TODD: Yes. 634 MR. MORAN: So you agree, then, that the rates -- that the rates that are developed should be based on ensuring that the ratepayers are paying the costs that they create. 635 MR. TODD: Yes, recovery of causal costs. 636 MR. MORAN: All right. And if we turn again in the same exhibit, X.21.1, at tab 2, I think there's an excerpt from The Joy of Ratemaking -- or sorry, The Process of Ratemaking -- I have to credit the court reporter with that joke. 637 MR. TODD: There's little joy in ratemaking. 638 MR. MORAN: In the first page of text, page 1016, judging by the page number, it must be a lengthy process. 639 MR. TODD: The book, or ratemaking, or both. 640 MR. MORAN: In the section entitled "Intraclass Relationships" that begins near the bottom of the page, there's a statement in the last paragraph under that heading: 641 "It has also long been held that different charges for the same service within a class are discriminatory and unlawful." 642 Would you agree with that proposition? 643 MR. TODD: Yes, assuming that classes are appropriately defined. 644 MR. MORAN: Right. So to the extent that Coral continues to be operating under a T1 carriage-service contract with the relief it's seeking here, that outcome wouldn't be consistent with this principle, would it, because you'd have a T1 customer who's being charged differently than the other T1 customers. 645 MR. TODD: If there being -- there's two issues there. One is within the T1 class there is negotiation. Remember, we have CSCs for each customer; they can differ. So it would be -- the customers do, presumably, all the contracts are confidential, but customers do presumably pay different amounts for service, but that's part of the structure of that class and it operates appropriately on an overall basis. 646 In addition, in the resolution of this particular situation, if there was a recognition, given the facts of the Coral situation, that they should have not only de facto bypass competitive rate but a de jure bypass competitive rate, then I assume they would not be in the rate class, they would be a stand-alone. In the alternative, of course, the rate-making solution -- the potential rate-making solution would be to create a separate rate class that they would be captured by. 647 MR. MORAN: In fact, if you set up a new rate, automatically it follows, as night follows the day, that you create a new class because rate ties to a class. It applies to as many people as exist who fit the parameters that that rate's designed to apply to; right? 648 MR. TODD: Yes. And the way I would class it, the rate class, even if it has one, or even the rate class with zero customers in it, a customer who meets the criteria automatically qualifies. There's no Board process required to say this person gets that rate. 649 MR. MORAN: Right. 650 MR. TODD: A competitive bypass rate, each one is a one-off. In a sense, you could create a bypass competitive rate class as a group, but by the nature of a bypass competitive rate, they would be allowed in through sort of the Board controlling the doors and saying you're in and somebody else isn't in based on meeting a set of criteria which are a little more judgmental than their own rate class which simply says here's a quantity or characteristic of consumption that qualifies you. 651 MR. MORAN: Right. So there are two approaches. One approach would be to set up a set of rules that will apply to somebody who qualifies for a competitive bypass rate but the specific rate will vary from person to person. Is that what you're suggesting? 652 MR. TODD: Yes, that -- conceptually that would be a rate class of bypass competitive rate customers, if you want. Each one would have a separate competitive bypass rate application. It would be judged on its own merit, and each one that would be accepted could potentially have a separate rate. 653 MR. MORAN: And that's not currently something we have in Union's rate schedule; right? 654 MR. TODD: That's currently we do not have. That would be a rate-making solution, and arguably, as suggested here, that could be a -- flow from the 1998 Energy Competition Act, and subsequent events, that that would be an inappropriate innovation in this market. 655 MR. MORAN: Right. And it's appropriate to recognize that's what it is, it is an innovation because, in fact, it exists in no rate schedule for any utility in Ontario at the moment, electricity or gas; right? 656 MR. TODD: It would be an innovation. Rate-making solutions are often innovations. 657 MR. MORAN: All right. And the alternative approach I think which you referenced is one where you look at the characteristics of the customer, and based on the characteristics of that customer's usage of gas, if there isn't a suitable rate class, then you might think about creating a rate class that fits those characteristics and then come up with a rate structure that appropriately applies. 658 MR. TODD: Yes. And for example, you could have a rate class defined as being some measure of high volume, low load factor, which has been discussed. There certainly are precedents where end use is actually recognized in a rate class, I mean different rates have been struck historically for heating customers versus other customers, things like that, which does offer a volumetric impact. But the Board has the power to distinguish it in any way it wants. For example, it could say that it will create a rate class that consists of people who qualify for bypass competitive rates under public policy principles. So you could have customers with very similar load characteristics that might fit in and not fit in. 659 From the broader public policy perspective, the rationale for that kind of approach is, in order to get low-cost electricity production properly located by having rates that are not postage stamp rates wherever you put in a merchant power plant in Ontario, but actually ensure that they are located in low cost locations which is critically important for a low load factor plant. Essentially you want these kinds of plants in bypass competitive locations; otherwise, they are going to be very inefficiently using the larger transmission and distribution system, whatever their gas is flowing through, and you have this very high volume, low load factor creating inefficiencies. 660 So you need this kind of approach to get a locational -- the right locational response which fits into our -- today's competitive energy market. 661 MR. MORAN: I mean that's the principle that applies not just to somebody who wants to produce electricity, I mean that's a principle that would apply to any number of people who might use gas who want to be competitive in their markets as well. 662 MR. TODD: Which is why you may want to specify that as being high load factor -- sorry, low load factor high volume, because those are the characteristics that create this special problem of location is even more critical than customers who are comparatively high load factor. 663 MR. MORAN: Right. Now, I think we've talked about two approaches, and then I think while you were talking about the second one you mentioned a third one which might focus on end use. Again, if that was an approach, end use is not something that typically been used in Ontario; right? 664 MR. TODD: Typically it's not. I mean, it's not ruled out from the rate-making process. It's something that would require special circumstance. And the reason I raise that is that if you're talking about merchant power plants, for example, as the end use, it's a proxy for saying there's a public policy rationale for looking at electricity market plus gas market, and really, it might be saying that one of the criteria for bypass competitive rates is public policy objectives which spill over to both markets and we know that merchant power plants will qualify for that because that's the nature of what they're doing. 665 MR. MORAN: All right. And in the context of considering that objective with respect to power electricity producers, would you agree that even for that objective, it's inappropriate for that competitive market to be subsidized by gas users? 666 MR. TODD: Yes. The PI should be positive on a case-by-case basis, not on a portfolio basis. 667 MR. MORAN: Right. And I take it, Mr. Baden, you're not looking for a rate that would involve any component of subsidy by Union's gas ratepayers for your electricity market activities. 668 MR. BADEN: No, we're not. 669 MR. MORAN: Okay. If you could turn -- I don't know if you have the transcript from yesterday. 670 MR. TODD: No, we don't. 671 MR. MORAN: It's Volume 22. 672 MR. TODD: Thank you. 673 MR. MORAN: If you could just turn to paragraph 904 in Volume 22. 674 MR. TODD: Following Mr. Kitchen on philosophical issues? 675 MR. MORAN: That's right. 676 MR. TODD: Your questioning? 677 MR. MORAN: Right. My question to Mr. Kitchen was: 678 "All right. So at the end of the day what the Board really has to understand, then, is whether in fact there is merit to the suggestion that a merchant generator is a special category of customer different from other categories of customers." 679 And then there's Mr. Kitchen's answer: 680 "Well, different from other categories of customers, but also perhaps different from other electrical generators. And we've talked a lot about the south but there's also electric generators in the north like TCPL or -- so, you know, it's not just a southern issue and it could also reach into Enbridge's franchise area." 681 Is there anything in those two paragraphs that you would disagree with, Mr. Todd? 682 MR. TODD: No, I mean, whatever is decided to be appropriate, if you're creating a rate class, you know, that fits. 683 MR. MORAN: This interchange relates to the second approach that we discussed, which is creating a -- looking at whether there should be a separate rate class. 684 MR. TODD: Yes. Now, operationally, in terms of what you're trying to accomplish, there may be consideration also of upstream facilities, and one of the issues that's relevant in my analysis of the Coral situation is that because it's connecting not to the Dawn-Trafalgar line but to the Ojibway line and it's connected -- therefore, almost bypassing Union's system and can bring in gas from the U.S., it puts it in -- that location, and anybody else in that location, is in a fairly unique situation. And off the top, I'm not sure that it would be the same on the TCPL line operationally, although the principles would apply equally well in both locations. But the feasibility in terms of which the access to upstream facilities might be quite different if you're located on the TCPL line versus being located on the Ojibway line. 685 MR. MORAN: All right. So these would be things that would have to be looked at. 686 MR. TODD: Yes. 687 MR. MORAN: All right. Okay. If you could then go back a couple of pages to paragraph 857, I asked Mr. Kitchen if he were to look at somebody like Coral coming forward saying, We're not like other customers, we think we need a different rate and therefore a different rate class, I asked him what process he would follow in order to determine if that were appropriate. And would you disagree with what he indicates in the paragraphs from 857 to 859? 688 MR. TODD: In the first paragraph, no. As I recall, I was sitting there nodding my head as he was talking. In carrying on with the second paragraph as well? 689 MR. MORAN: Yeah. So you agree with paragraph 857 of his answer? 690 MR. TODD: 858, yeah. 691 MR. MORAN: Sorry, 858, yes. 692 MR. TODD: I'd broaden it slightly in the sense of the traditional approach and, I would say, the traditional approach that fits with the pure monopoly mindset is: Let's just look at costs and load factors. 693 My view of the world is that the Energy Competition Act '98 has been a sea change and the sea change is going to be washing through the industries. One of the ways is that we may have to bring public policy into -- you know, policy considerations into motivating review of some of the rate designs. I'm not saying how that would happen, but I think that can be a factor as well, particularly -- and it's relevant to this discussion which is looking at power plants that will be feeding into the IMO-administered market. 694 MR. MORAN: Right. Okay. And there's a fourth possibility, I guess, as well as the three that we've discussed and that is the issue of whether another rate class might work better taking interruptible service; isn't that right, Mr. Baden? 695 MR. BADEN: Yes. We've indicated that we might be willing to look at an interruptible rate. 696 MR. MORAN: And you haven't landed anywhere on that approach at this point. As I understand what you said a while ago, you said you started the discussion at least in the last few days with somebody at Union? 697 MR. BADEN: Yes, I had the conversation. 698 MR. MORAN: So -- 699 MR. TODD: It should be pointed out, Mr. Moran, that in the contract the interruptible rate is significantly different -- the maximum in the tariff, and of course, what Coral is saying is that operationally, it's feasible to operate with interruptible and as I understand it, it's because of the Ojibway connection. But, of course, the rate is the key issue. The rate that's in the contract right now would be appropriate in terms of achieving the desired net result. 700 MR. MORAN: I'm sorry, the rate that is in the contract right now -- 701 MR. TODD: That's in the contract right now for interruptible service, if that was used for a hundred percent of the volumes, that rate would produce a result which is equivalent to the expectation in the original contract, and therefore, would be a rate-making solution. 702 MR. MORAN: So that remains to be explored further; right? 703 MR. BADEN: Yes. 704 MR. MORAN: All right. So I think where we are, then, we've got four possible approaches to solving what you think is a problem for you. The DCC credit, at least three-fifths of it, is still available to you this year. Does that mean we have a little bit of time on our hands that we can use to focus on which of those four approaches might be the best one to do? 705 MR. BADEN: Well, in Coral's view, we would like a solution as soon as possible, recognizing that -- I mean, good decisions sometimes take time and, you know, we're not in a position to suggest, I think at this point, that we want a decision tomorrow. We want a good decision. 706 MR. MORAN: Right. It's fair to say, of course, from the Board's perspective, the Board would probably have to take into account the implications of a solution for Coral vis-a-vis other customers, such as the T1 customers who might also have similar profiles or who may have similar characteristics that match whatever solution seems to make sense; right? 707 MR. BADEN: Yes. 708 MR. MORAN: All right. And I think the Board at the outset, when you came in as an intervenor, indicated that you could participate in the hearing but it may make sense to separate it off if it -- based on how the issue unfolds. I take it you wouldn't have a huge objection if the Board separated it, if that was important to do, in order to focus on the issue more carefully? 709 MR. BROWN: Well, perhaps on -- I don't mean to unduly interrupt my friend, but perhaps this is a matter best left for final argument, because I think a number of things have to be laid out for the Board's consideration in this regard. 710 MR. SOMMERVILLE: I agree with that, Mr. Brown. 711 MR. MORAN: I think those are all my questions, Mr. Chair. 712 MR. SOMMERVILLE: Mr. Moran. 713 MR. MORAN: Thank you, panel. 714 MR. SOMMERVILLE: The Board has no questions. 715 Redirect, Mr. Brown? 716 RE-EXAMINATION BY MR. BROWN: 717 MR. BROWN: I think really, Mr. Baden, the only question by way of re-examination that seems to be left after all this time is one that was asked by my friend, Mr. Thompson. Mr. Thompson's question to you is that he suggested that the negotiations between Coral and Union Gas were negotiations around the T1 schedule, and in that regard, you may recall that he took you to tab 15 in Exhibit X.21.1 and took you through various pieces of the correspondence. Just to sort of refresh your memory as to the structure of his question, he took you to the first fax of June 6, 2001 to which, on page 5, there was the ATCO/Coral T1 analysis schedule? 718 MR. BADEN: Yes. 719 MR. BROWN: And then he took you to the next tab and pointed out that the schedule was entitled T1 analysis and took you to a December 21 letter and indicated that T1 was referenced there, and then took you to an agenda of a meeting in March 2001 and pointed out the T1. 720 My simple question to you is if you turn a bit further in at tab 15, which would be the next document after -- well, two documents after the minutes of that meeting to which Mr. Thompson took you, we have the carriage-service contract which is dated April 30, 2002; do you see that? 721 MR. BADEN: Yes. 722 MR. BROWN: If you could turn three pages into section 5(a)(i), under the services and charges, at (i) the contract reads reads: 723 "The monthly demand charge for the firm daily contract demand of," a certain amount "per day of," and then there's a sense per m3 per month referenced there. 724 MR. BADEN: Yes. 725 MR. BROWN: To your knowledge, was that sense per m3 per month number part of the T1 schedule at that time? 726 MR. BADEN: To my knowledge, it was not. 727 MR. BROWN: Thank you, sir. That's the only question I have. 728 MR. SOMMERVILLE: Thank you. 729 Mr. Brown, does that close the evidentiary portion of your case? 730 MR. BROWN: It does indeed, Mr. Chair. 731 MR. SOMMERVILLE: Is there any further evidence to be led by intervenors in this matter? 732 MR. THOMPSON: Mr. Chairman, could I just speak to one issue dealing with evidence. It arises out of an undertaking response, Exhibit N.15.7. The company responded to the question I asked which dealt with the $25 million weather hedge as a percentage of the common equity ratio. On reflection, the way they've done this is not what I was after. I did speak with Mr. Reghelini and I understand that Mr. Reghelini spoke with Mr. Penny and what the company is prepared to provide for us by way of an additional -- or supplement to this undertaking response is what amount the $25 million pretax equates to in terms of ROE basis points. So if I could just have a number given to that, and I appreciate the company's willingness to provide this, but it is an evidentiary issue. 733 MR. SOMMERVILLE: Thank you. 734 MR. MORAN: That would be Undertaking N.23.4. 735 MR. SOMMERVILLE: Thank you very much. 736 UNDERTAKING NO. N.23.4: THE COMPANY RESPONDED TO A QUESTION WHICH DEALT WITH THE $25 MILLION WEATHER HEDGE AS A PERCENTAGE OF THE COMMON EQUITY RATIO. WHAT AMOUNT DOES THE $25 MILLION PRETAX EQUATE TO IN TERMS OF ROE BASIS POINTS? 737 MR. MORAN: Mr. Chair, just in relation to the very last question that Mr. Brown put to Mr. Baden, I think there's a question of clarification that, with your permission, I'd like to ask. It will take me one minute. 738 MR. SOMMERVILLE: Proceed. 739 FURTHER CROSS-EXAMINATION BY MR. MORAN: 740 MR. MORAN: Mr. Baden, looking at the section of the contract that Mr. Brown took you to when he referred you to the demand charge price that's set out in paragraph 5(a)(i). 741 MR. BADEN: Yes. 742 MR. MORAN: Is that the result of factoring in the DCC? 743 MR. BADEN: Yes. 744 MR. MORAN: All right. So to understand it, then, when we look at the clarification agreement, the T1 price got put back in and then the paragraph with the DCC followed; right? 745 MR. BADEN: Yes. I think, in effect, the clarification agreement was straightening out the logic in the contract. 746 MR. TODD: To be precise, though, in doing the calculation, I think we've both done it, if you plug all the numbers in you come up with a different price which is lower. This price was in there which produces the bypass competitive amount, but is actually, by our calculations is not the number that falls out of the obligated DCQ and the demand levels and so on. But it explicitly was derived from -- including the DCC credit but it's not actual the number consistent with the equation. 747 MR. MORAN: I understand. I just wanted to understand the mechanism that was at work behind that number. 748 Thank you, Mr. Chair. 749 MR. SOMMERVILLE: Any questions arising from that, Mr. Brown? 750 MR. BROWN: No, Mr. Chair. 751 MR. SOMMERVILLE: You have an opportunity, Mr. Penny, for rebuttal evidence. 752 PROCEDURAL MATTERS: 753 MR. PENNY: Yes, Mr. Chairman, and that is an issue that I wanted to address, the dreaded prospect of reply evidence. 754 On October the 3rd, of course, Coral brought a motion for late intervention status, and in granting the motion, the Board -- I have the transcript page, I'll just read it rather than having you trying to haul it up. 755 But the Board indicated that it was inclined "... to permit the request that its request to file evidence," "its" being Coral, "is also approved on the basis that the Board has an interest in the rate design question that the intervention raises." 756 And then the Board went on to say: 757 "The Board is not interested in the contractual dispute that exists between Union Coral Energy Canada Inc., but the Board is interested in the rate design question that is necessarily engaged." 758 And then finally the Board indicated that: 759 "We will expect the Coral Energy rate design matter will be dealt with by panel 15 as part of the rate design element of the case and subject to the scheduling thereof." 760 Union, of course, followed that ruling and did deal with this issue as a rate design issue, not as a contractual issue, and Union put in only the evidence of Mr. Kitchen who is, of course, responsible for Union's rate design. 761 Now, in the reply evidence and the oral testimony that we heard yesterday, principally, we frankly heard rather more about the contract and the negotiations and what was on offer and why at particular points in time than I expected to, given the Board's ruling on the scope of the intervention and the issues that were raised by the intervention. Mr. Kitchen, as you've heard, was not involved in the negotiation of the Coral contract or the amending agreement, and you've seen from the documents that there were several Union employees who were involved, including Mr. Shorts. And I have to say, frankly, that Union does not necessarily agree that what you've heard from Coral about the contract negotiations is necessarily accurate, complete, or understandable without further explanation. 762 But given your ruling on what the issue is, I don't think, and the company doesn't think, it would assist the Board in carrying out its mandate to set rates to call more evidence about the contract negotiations. The dilemma is I don't want it to be said later that because Union didn't get into these issues and call further evidence on it that we somehow accepted everything that was said. We don't necessarily accept it, we just don't think it's relevant to this case, having regard to your ruling. 763 So unless the Board tells Union that the ruling on the scope and purpose of Coral's intervention has changed, or that the context in which the issue will be dealt with has changed, i.e., by panel 15, the rate design panel, we don't propose to lead any reply evidence because all it would be would be evidence about the contract negotiations and responding to some of what we heard from Mr. Baden. 764 Again, this would be, though, on the basis that we don't necessarily accept Mr. Baden's account as a necessarily complete or entirely accurate of everything that happened. 765 MR. SOMMERVILLE: Thank you, Mr. Penny. The Board reconfirms the basis upon which Coral's late intervention was granted, which is that the Board is exclusively interested in the rate design issue that has presented by the evidence of the witnesses, both during the cross-examination of the Union witnesses and during this evidentiary portion of the Coral case. The Board is not interested in the contractual relationship between the parties, nor interested particularly in the chronology of those events, the details of the incidents surrounding the negotiations and so on, except as they may bear directly on the rate design issue. 766 Is that sufficient clarification for your purposes? 767 MR. PENNY: Yes. May I understand from you, then, Mr. Chairman, that you're, in effect, saying it would not be of assistance to the Board to hear from Mr. Shorts on who said what to who in the negotiations? 768 MR. SOMMERVILLE: That's correct. 769 MR. PENNY: All right, sir. 770 MR. SOMMERVILLE: Mr. Brown, is there anything you wish to say in connection with that? 771 MR. BROWN: Well, simply two points, I guess, perhaps by way of where we intend to go. Certainly the evidence that Coral led was designed to comply with the Board's ruling and have, as its end point, providing sufficient facts, to understand the rate or the pricing issues that fell out. 772 Two things. First, Union Gas, in its reply evidence, disagreed with Coral's characterization of the rate or the price being charged for gas delivery as a bypass competitive rate. It is certainly my intention on behalf of Coral to argue in final argument that there was an understanding that what fell out was a bypass competitive rate, and that is one of a number of factors that the Board should take into account in considering the rate design issue. 773 The second point that I would wish to raise is that Mr. Penny said twice that Union does not necessarily agree that was heard from Mr. Baden regarding the back and forth with Mr. Shorts was accurate. Well, there is the rule in Brown and Dunn in terms of fairness to witnesses , and my friend has had an opportunity, through cross-examination, to indicate whether Mr. Baden is completely off-base or essentially what has been said reflects what was discussed. So I do have a concern that if my friend is going to say, Well, don't believe anything Mr. Baden says, that's not fair. 774 MR. SOMMERVILLE: I didn't hear Mr. Penny say that. I think the question that presents itself to me as far as the blow-by-blow description of the course of negotiations is its genuine relevance to the rate design issue, and everything that happened in the context of those negotiations that does not bear on that specific issue is really not of much interest to us in accordance with our ruling, and that accordingly -- I take your point with respect to the question of the -- and I frankly would have entertained -- if an objection had been made yesterday with respect to much of the evidence surrounding the course of negotiations, my inclination would have been to regard those -- much of that as relating to the question of the bypass rate and its appropriateness and that, I expect, will be a matter that Mr. Penny or Mr. Smith will want to argue, as you will want to argue, but with respect, the characterization of the course of negotiations by either party really is not of any interest to us. 775 So the question of whether there's a bypass competitive rate that was presented and that that was an issue somewhere, that is a relevant issue, but the respective characterization and chronology of incidents within the course of negotiation is not. Does that -- 776 MR. PENNY: I think that is a fair characterization, Mr. Chairman. With respect to this issue of the bypass competitive rate, Mr. Brown is absolutely right and Union has its evidence on that point and we'll be, of course, relying upon it. I simply don't want it said that because we didn't bring Mr. Shorts to confirm that, that our evidence is somehow deficient. That's really the only point. 777 MR. SOMMERVILLE: I cannot conceive of a situation in which you would be barred from arguing that in your argument in chief, and Mr. Brown, if you have a problem of that, I think you should mention that. 778 MR. BROWN: Not at all. I think we both appreciate what the point of the argument is that the Board is interested in. 779 MR. SOMMERVILLE: Thank you. 780 MR. PENNY: Thank you, sir. 781 MR. SOMMERVILLE: In which case the -- 782 MR. PENNY: Sorry, just moving on to another topic, which is -- sorry, I don't want to keep everyone from lunch, but given that this is probably -- this will be the last open transcript opportunity to deal with this, I wanted to advise the Board, and we haven't passed copies up to the Board, but we can have them -- in fact, we do have them. 783 We've managed to get answers for all undertakings except those that have just been given by the rates panel, so that takes us -- there are now only 28 outstanding that were given by Mr. Kitchen and Mr. McMahon and they're working on those now. So what we've got here in this bundle is 12.1 , 12.2, 15.5, 16.7, 17.1 and 17.2, 18.1, 18.3, 19.9, 19.11, and 19.14. And we have, as I've said, only the cost allocation and rate design ones remaining, and they'll be done shortly. 784 MR. SOMMERVILLE: Thank you, Mr. Penny. 785 MR. PENNY: Thank you, Mr. Chairman. 786 MR. SOMMERVILLE: That does close the evidentiary portion of this case. I'd like to reiterate the Board's extreme appreciation to the parties for their excellent demeanor in the course of the matter. It's made things very -- as enjoyable as it could be. 787 Mr. Penny and Mr. Smith, we expect argument in chief on Monday morning, commencing at 9:30. 788 MR. PENNY: Yes, sir. 789 MR. SOMMERVILLE: And we'll stand adjourned until then. 790 MR. PENNY: Thank you. 791 MR. THOMPSON: Mr. Chairman, could I just make one point about the argument schedule. I know intervenors have to respond two weeks from Monday, but in view of the fact that Coral has some specific rate proposal in mind, I'd certainly invite Coral to provide intervenors with their argument before next Monday so they'd have an opportunity to address it rather than trying to anticipate it. Would that be possible, Mr. Brown? 792 MR. BROWN: Before next Monday? 793 MR. THOMPSON: No, no, before the deadline that intervenors have to comply with, so we'd have a few days to consider what you're specifically proposing. 794 MR. BROWN: Well, Mr. Chair, my friend does raise an interesting question inasmuch as this is Union's application, but Coral, in a sense, is asking for certain relief within the application both -- that raises two issues; one, the timing of when Coral puts its argument in and I guess, secondly, Coral's ability to reply to any responses that might be made to that submission. 795 With respect to my friend's submission, I think probably we could submit the argument on the Thursday or the Wednesday before intervenor argument is due. However, if that is the way Coral's position is being treated in this hearing, I'd respectfully ask for some ability to reply to submissions that are made in response to Coral's submissions. 796 MR. SOMMERVILLE: I'm wondering if this -- thank you for raising it, Mr. Thompson. I think it's an important amendment to our schedule that we should consider. 797 I wonder if it may not be worthwhile for Mr. Moran to canvass the parties on this understanding that we are sympathetic to the point you're raising, Mr. Thompson, and also with respect to your right of reply, Mr. Brown, so that if we could perhaps canvass the parties and come up with a schedule, keeping in mind that every additional date that we create moves the ultimate decision, or could have the effect of moving the ultimate decision down by a corresponding period. But that's an outcome that's worth the extension, it seems to me. 798 So consistent with those principles, I'll ask Mr. Moran to canvass the parties, and we'll address the subject on Monday morning and put it on the transcript. And if you want to make further submissions at that point, if there is no consensus that emerges, we'd be happy to hear them at that time. 799 MR. THOMPSON: Thank you, Mr. Chairman. 800 MR. SOMMERVILLE: Is there anything else that we need to deal with before we do adjourn? 801 Until Monday morning at 9:30. Thank you. 802 --- Whereupon the hearing was adjourned at 12:35 p.m.