Rep: OEB Doc: 12WVT Rev: 0 ONTARIO ENERGY BOARD Volume: PRESENTATION OF SETTLEMENT PROPOSAL 3 OCTOBER 2003 BEFORE: P. SOMMERVILLE PRESIDING MEMBER A. BIRCHENOUGH MEMBER 1 RP-2003-0063 2 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Sched. B); AND IN THE MATTER OF an Application by Union Gas Limited for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, storage, and transmission of gas for the period commencing January 1, 2004. 3 RP-2003-0063 4 3 OCTOBER 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel CHRIS MACKIE Board Staff JAMES WIGHTMAN Board Staff CRAWFORD SMITH Union Gas Limited DAVID BROWN Coral Energy MIMI SINGH CME JACK GIBBONS Pollution Probe DAVID POCH Green Energy Coalition TIBOR HAYNAL TransCanada PipeLines DAVID MacINTOSH Energy Probe TANIA PERSAD EGDI 8 TABLE OF CONTENTS 9 APPEARANCES: [21] PRESENTATION OF SETTLEMENT PROPOSAL BY MR. SMITH: [43] APPLICATION BY GAS ONTARIO INC. FOR LATE INTERVENOR STATUS: [53] SUBMISSIONS BY MR. SMITH: [58] APPLICATION BY CORAL ENERGY INC. FOR LATE INTERVENOR STATUS AND THE RIGHT TO PRESENT EVIDENCE: [69] SUBMISSIONS BY MR. BROWN: [72] SUBMISSIONS BY MR. SMITH: [151] PROCEDURAL MATTERS: [196] RULING ON APPLICATIONS: [233] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:40 a.m. 15 MR. SOMMERVILLE: The Board has convened this morning in the matter of an application for just and reasonable rates, made by Union Gas Limited, bearing Board file numbers RP-2003-0063 and EB-2003-0097. 16 My name is Paul Sommerville and sitting with me is Arthur Birchenough. We have convened this morning to deal with three preliminary matters arising from the Union application. 17 First, the Board will receive and consider the settlement agreement arrived at as the result of the alternate dispute resolution process in this case. The Board has a copy of that agreement which was filed on September 22nd, 2003. 18 Second, the Board will deal with a request for late intervenor status made by Gas Ontario Inc., which request was made in writing September the 23rd, 2003. 19 And finally, the Board will deal with another application for late intervenor status made by Coral Energy Canada Inc., which request was made in writing on September the 22nd, 2003. The Board has a notice of late intervention and a notice of motion with respect to that request. 20 May I have appearances, please. 21 APPEARANCES: 22 MR. SMITH: Crawford Smith on behalf of Union Gas Limited. With me is Mr. Marcel Reghelini from Union and Bryan Goulden from Union. 23 MR. BROWN: David Brown on behalf of Coral Energy. 24 MS. SINGH: Mimi Singh on behalf of CME, and with me is Malcolm Rowan. 25 MR. SOMMERVILLE: Good morning, Ms. Singh. 26 MS. SINGH: Good morning. 27 MR. GIBBONS: Jack Gibbons on behalf of Pollution Probe. 28 MR. POCH: David Poch on behalf of Green Energy Coalition. 29 Mr. Chair, if you could add to your list, I have a scheduling matter to speak to briefly at some point. 30 MR. HAYNAL: Good morning. Tibor Haynal on behalf of TransCanada PipeLines. 31 MR. MacINTOSH: David MacIntosh on behalf of Energy Probe. 32 MS. PERSAD: Tania Persad for Enbridge Gas Distribution Inc. 33 MR. SOMMERVILLE: Thank you, Ms. Persad. 34 No other -- 35 MR. MORAN: Sorry, Pat Moran, Board Counsel, with Martin Davies and James Wightman. 36 MR. SOMMERVILLE: Thank you, Mr. Moran. 37 MR. MORAN: Sorry, Chris Mackie. Martin is in the back. 38 MR. SOMMERVILLE: Mr. Smith, we'll deal with the settlement agreement first. 39 MR. SMITH: Thank you, Mr. Sommerville. 40 There is one other matter I would like to raise, if I can, just before I begin. 41 There is a scheduling matter that Union would like to deal with at the end of this in terms of scheduling witnesses for next week. 42 MR. SOMMERVILLE: Thank you. 43 PRESENTATION OF SETTLEMENT PROPOSAL BY MR. SMITH: 44 MR. SMITH: I understand the Board has a copy of the settlement agreement, dated September 19th, 2003, and that settlement agreement contains the items which were either completely or partially settled at the settlement conference held that week. 45 And subject to any questions from the Board, we would tender it for acceptance by the Board, and I would draw your attention at the time of doing so, to page 1, where it is acknowledged and agreed by the parties that none of the completely settled provisions of this agreement are severable if the Board does not, prior to the commencement of the hearing of the evidence in this hearing, accept the completely settled portions of the agreement in its entirety; there is no agreement unless the parties agree that any portion of the agreement the Board does accept may continue as a valid agreement. 46 And I would also draw your attention to an error on page 1 at the top. It indicates "Draft ADR Agreement." This is the final agreement, and it shouldn't indicate "draft." 47 Although I suppose if the Board doesn't accept the agreement, then it is -- 48 MR. SOMMERVILLE: It becomes draft. 49 MR. SMITH: Then it becomes a draft for another time, but it is the final version of the agreement. 50 MR. SOMMERVILLE: Thank you. 51 Does anyone else wish to make submissions on the settlement agreement? 52 There being no further submissions, the Board has reviewed the agreement and is prepared to accept the agreement and approve it for the purposes of this case. 53 APPLICATION BY GAS ONTARIO INC. FOR LATE INTERVENOR STATUS: 54 MR. SOMMERVILLE: We'll move on to the next item, which is the Gas Ontario Inc. application for late intervenor status. I note that there is no one here from Gas Ontario Inc. Has there been some communication, Mr. Smith, related to this matter? 55 MR. SMITH: My office has not received any communication. I'll just check with Mr. Reghelini. 56 We have received no communication other than the notice that they intend to intervene. 57 MR. SOMMERVILLE: Do you take a position on the application, Mr. Smith? 58 SUBMISSIONS BY MR. SMITH: 59 MR. SMITH: The position we take is the same as that on the motion by Coral, that Union is prepared to agree to the intervention subject to two reservations: One, that Gas Ontario be required to take the record as it now stands, particularly given the late timing of their intervention; and two, that Gas Ontario be required to take -- either agree or take no position in respect of the ADR agreement. And I think that's important to point out for the integrity of the ADR process; that parties who elect to intervene after the ADR process has taken place be bound by the agreements previously committed to by the parties. 60 Subject to that, we are prepared to agree to their intervention. 61 MR. SOMMERVILLE: You are prepared to consent to having them enter this case so long as they take the record as they find it, take no position that is contrary to that reflected in the ADR agreement? 62 MR. SMITH: That's correct. 63 MR. SOMMERVILLE: Are those the only restrictions, Mr. Smith? 64 MR. SMITH: Yes. 65 MR. SOMMERVILLE: Are there any further submissions from any party with respect to the Gas Ontario Inc. application? 66 MR. MORAN: Mr. Chair, I just wanted to point out that in their letter requesting late intervention, in paragraph 5, Gas Ontario indicates that it reserves the right to be heard, to appear, to cross-examine on all matters raised during any hearing, to adduce evidence on specific matters of its choice related to the application and to present argument. 67 However, they haven't appeared today, and so obviously haven't given you any indication of whether they actually want to adduce evidence, and on that basis, it would be open to you to impose any restrictions that you think are appropriate, since they have chosen not to appear today. 68 MR. SOMMERVILLE: The Board will reserve on that subject. We'll take a brief recess to consider both applications for late intervention. 69 APPLICATION BY CORAL ENERGY INC. FOR LATE INTERVENOR STATUS AND THE RIGHT TO PRESENT EVIDENCE: 70 MR. SOMMERVILLE: The third item is the Coral Energy Inc. notice of motion with respect to late intervention. 71 Mr. Brown, you are the mover and we'll hear from you. 72 SUBMISSIONS BY MR. BROWN: 73 MR. BROWN: Thank you very much, Mr. Chair. 74 Perhaps before I begin my submissions I could inquire whether you have before you Mr. Penny's letter dated yesterday, October 2nd, 2003? 75 MR. SOMMERVILLE: I do not, sir. 76 MR. BROWN: Let me give it to you. It came in late last night. 77 MR. MORAN: Mr. Chair, in the same vain, there is a letter dated October 3rd from Mr. Thompson on behalf of IGUA, so I'll let you have that now as well. 78 MR. SMITH: If I might, I believe there were copies actually previously provided, they are stapled together. There are two letters from Mr. Penny dated yesterday, one to Mr. Thompson and one to Mr. Brown. 79 MR. SOMMERVILLE: Thank you, Mr. Smith. Let me just take a minute to read this correspondence. 80 MR. BROWN: Certainly. 81 MR. SOMMERVILLE: The portions of the correspondence from Mr. Penny that really relate directly to the matter before me now has to do with, I suppose, the third paragraph, which indicates that Union would consent to Coral's participation in the matter, provided they accept the record as it stands and not be allowed to file evidence at this late stage of the proceeding. That, it seems to me, is the core of the position, Mr. Smith, is that right? Basically the same position you have taken with respect to Gas Ontario? 82 MR. SMITH: That's correct, subject to my comments with respect to the ADR agreement, which are not contained in Mr. Penny's letter. 83 I would also like to apologize to the Board. Mr. Penny referred in his letter on page 2 to the language in a contract between Coral and Union. The language Mr. Penny was working from, unfortunately, was an earlier draft of the agreement. From Union's perspective, the revised, corrected language doesn't change Union's position on the merits, but nevertheless I feel it is appropriate to draw that error to your attention. 84 In addition, the basis for Union's objection is also set out in paragraphs 1 and 2, including Coral's previous participation. 85 MR. SOMMERVILLE: Thank you, Mr. Smith. I consider the ADR, having been approved by the Board, to now be part of the record. 86 MR. BROWN: Oh, yes, it would be part of the record. 87 MR. SOMMERVILLE: And I take your comments in that context, Mr. Smith. 88 Mr. Brown? 89 MR. BROWN: Thank you very much, Mr. Chair, Mr. Birchenough. 90 First of all, on behalf of Coral Energy, I want to thank the Board for agreeing to hear this matter on relatively short notice. I acknowledge that this is a somewhat unusual late intervention in as much as my client is seeking leave to adduce evidence. I think it is fair to say that Coral Energy reluctantly brings this late intervention motion before the Board. As the Board understands, Coral has participated in a number of Union cases through an industry group, the CEED coalition, which deals generally or generically with issues affecting gas users. However, the issue that Coral wishes to raise for this late intervention is very company-specific. 91 I would like to go over the background a bit, because I think it is important to the issue of Coral's request for leave to adduce evidence, and if I am a bit longer than I normally am, I apologize for that. 92 The context in which this motion must be understood is, as the Board is aware, there is a generation plant being built down near Sarnia, the Brighton Beach plant. That is a joint venture. Coral is not an owner of the plant, but Coral has entered into a tolling agreement for that plant under which Coral is responsible for securing and providing gas to the plant, and then Coral takes up any electricity generated by the plant and has the right to sell it. 93 In that context, when the tolling agreement was entered into, Coral had to figure out how it was going to get gas to the plant. Coral had negotiations with Union. Those negotiations did not prove fruitful, and so on February the 12th of last year, 2002, Coral filed with this Board a leave to construct application requesting leave of the Board to construct a short 2.6 kilometer pipeline from Ojibwe to the plant. 94 The Board issued in that proceeding a procedural order which stated that IRs were to be due on April 26, 2002. There was a dispute between Coral and Union effectively as to the price Coral should pay for gas delivery, and the reason Coral filed this leave to construct application is that when it ran the numbers, applying Union's approved tariffs, there would be a very significant profitability index. Normally the PI is one and the project can go ahead. When we ran the numbers, the numbers with the tariffs, the PI was in the neighbourhood of 10 to 12, a significant over-recovery. 95 Once the Board issued its procedural order, Union and Coral continued to meet, Coral is very practical, it wants a business solution, and in the result, in that last week of April 2002, an agreement was entered into between Union and Coral, and a gas service contract dated April the 30th was entered into between the two parties. 96 Under that contract, Union would build the pipeline. Union would provide gas delivery service to Coral, and a pricing mechanism was worked out between the parties. 97 I am not going to get into the details of the pricing. I understand that Union filed the contract with the Board on a confidential basis. Suffice it to say that the financial terms, all which sort of work within parameters and elements of the tariff, brought the actual delivery costs much closer to a realistic level. 98 On November the 25th, 2002, this Board granted Union an exemption from the requirements of Section 90 of the Ontario Energy Board Act to build the pipeline. Union went ahead, it built the pipeline, it is in the ground and has been tested. Service under the pipeline has not yet started. Given the construction schedule down in Brighton Beach, it is anticipated that commissioning gas will be required in the first quarter of 2004, and under the current timetable, operations will start in June or July of 2004 and full gas service will be required at that time. 99 Of course, the plant down in Brighton Beach is not a co-generation facility. It doesn't have any native load. It is a pure co-generation facility, it is a pure merchant-generation facility, it therefore will be dispatched on a bid basis into the IMO-administered market, and the gas costs, including the gas delivery costs will be one of the elements that go into the calculation of any bid of that electricity. So we do have a pipe in the ground down in Brighton Beach which has been put in by Union. 100 If I could backtrack a bit, as I mentioned a carrier service contract was entered into between the two parties on April 30, 2002. That contract was amended on October the 1st, 2002, by a document called the "Carriage Service Contract Clarification Agreement." In large part, that agreement came about because between April of 2002 and October of 2002, this Board had released a decision in a Union case dealing with the delivery commitment credit. In that case, the Board essentially said to Union, You've got to come back to us with a better proposal. And the reason that's important is that, as a result of that, the October 1st agreement between the parties, the contract clarification agreement, amended the pricing terms of the contract, and it amended it in such a way that Coral was to get the benefit of the financial equivalent of the delivery commitment credit. That was going to be part of the price. 101 The agreement, however, went on specifically to deal with the eventuality that the Board was going to consider Union's new proposal regarding the delivery commitment credit, and the letter that Mr. Penny wrote to me late last night, at the top of page 2, quoted, as my friend has now indicated, from an original -- from a draft version of the contract. It was clause 5(e) under the contract. 102 There are significant differences between what Mr. Penny has reproduced in his letter, because when you read that part of the letter, you can see that Union is taking the position that there is no basis for Coral's suggestion that Union agreed to implement an alternative rate-making solution. 103 I would like to read to you what the actual executed contract said in that regard because I think that will give you a very clear idea of why Coral is before you here today. 104 Clause 5(e) of the October 1st amending agreement reads as follows: 105 "If the Ontario Energy Board eliminates the DCC in a manner not consistent with Union's proposal or fails to eliminate the DCC and maintains the existing practice, then 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 customer -- Coral -- as that provided by the DCC." 106 So it is Coral's position that under that contract, Union has a contractual obligation, not to guarantee anything, but to use all reasonable and prompt efforts to propose and implement promptly an alternate rate-making solution which shall provide a comparable benefit by that provided by the DCC in the event that the Board did not accept Union's DCC proposal. 107 Which brings us then, of course, to May 8th of this year, when the Board released its decision in the Union case, the 2002-0130 case, and in that case the Board rejected Union's DCC proposal, directed that the DCC be eliminated over a phased-out five-year period. 108 As a result of that decision, the clause of the contract that I just read to you clicked in, and it will come as no surprise to the Board that once Coral learned of that decision of the Board, it got on the phone with Union and said: Okay, what now? What are you going to present and implement that will give us a comparable benefit through an alternate rate-making solution? 109 It would be an understatement to state that Coral felt extremely frustrated by the lack of response that it got from Union. The executives at Coral that deal with this matter are pretty low-key guys, but nonetheless, they are persistent. On July the 15th, a letter was written to Union saying: Where is the proposal? Time is running. 110 On August 29th, another letter was written to Union: Where is the proposal? We have a plant that's coming online next year. You haven't proposed to us an alternate rate-making solution, given that the Board has eliminate it had DCC. 111 By August 29th there had been no alternate rate-making solution proposed by Union. There had been some discussions, but no proposal. That then prompted Coral to meet with Board Staff on September the 10th, in order to explore various options. It had a plant coming up, it had to get gas supply at a fair price. 112 As a result of that particular meeting, it went back to Union, and on September the 11th, Union made a proposal. Coral could not understand the proposal. It wasn't able to reconcile the tariff-based numbers that were contained in that proposal. It sought clarification from Union and had difficulty getting it. 113 The bottom line, however, was that it did not provide any comparable economic benefit as that provided by the DCC. 114 In light of that, I received instructions from Coral to bring the motion for late intervention, because there is a high degree of frustration on Coral's part that the local distributor that does have a monopoly in the area, that did enter into an agreement with Coral where the quid pro quo was: Coral, you drop your application to self-build and we'll put together a financial package for you, has not addressed it's obligation to try and seek an alternate rate-making solution. 115 That then leads me to the real sort of issue, I guess, that is before you today, which is not so much whether or not Coral should intervene - you have seen Mr. Penny's letter - but whether Coral should be allowed to file evidence. 116 And in its notice of motion, Coral is moving before the Board not only for late intervention but for an order granting it leave to file evidence relating to the design and implementation of a rate for the delivery of natural gas by Union to the Brighton Beach Power Station. 117 I think it is fair to say that at this point in time, with the frustration experienced by Coral, it thinks that the time is ripe for this Board to consider as an issue the design of gas distribution rates which are geared to not just gas-fired generation projects, but merchant gas-fired generation projects. 118 And I wish to emphasize the difference, because Mr. Penny, towards the end of his letter of last night, in the penultimate paragraph, essentially said: Oh, there are lots of customers in our franchise area that are generators and they do all right under existing rates, so in effect, what is your beef? 119 The difference between the Brighton Beach facility and other facilities is that most of the other facilities have some sort of co-gen aspect to them, so they have a dedicated load and that brings with it a requirement to operate on a fairly consistent frequency; therefore, you are going to have a much higher load factor in terms of delivery of gas. 120 Brighten Beach, by contrast, doesn't have any native load and it is a pure merchant gas-fired generation plant. It will run at certain times, it will not run at certain times, depending completely on how the IMO market is settled. 121 Therefore, unlike any other high-volume customers where you tend to get high load factors and Union's current rates are geared towards that, a merchant gas-fired plant is a creature of a different nature, and you are going to have much more variability in delivery and load factor, and on average over a year, a much lower load factor, may well be in the neighbourhood of 50 percent or so. 122 That is a different kettle of fish than what you have in the existing rates, and I think without going into the details of the negotiations between Union and Coral, the difficulty that has been faced is that Union has tried to use existing rates to somehow squeeze Coral into the rate structure, and given the nature of a merchant gas-fire generation plant, it is a bit like trying to hammer a square peg into a round hole. 123 And so it is Coral's respectful submission to the Board that now is the appropriate time for the Board to consider as an issue the design of a rate which will be tailored to a merchant gas-fired generation plant. And that is what Coral would like to file evidence on. 124 Now, there is no other merchant gas-fired generation plant in Union's franchise area knocking on your door asking for a similar rate, and I think we are all aware of the difficulties that the electricity market in this province is currently facing with respect to trying to attract new generation. But the rate or the evidence that Coral would like to adduce would be along the lines of trying to design a merchant gas-fired generation class kind of rate. 125 In my respectful submission, and perhaps before I get to the issue of evidence, there is one other point I would like to deal with in Mr. Penny's letter. If I could ask you to go to the second page of the letter, after quoting from the draft rather than the executed contract, Mr. Penny, in the second full paragraph, then goes through and records accurately that there have been talks back and forth between Union, but at the end of the last sentence, says: Union has not failed to present or discuss alternate rate-making solutions to Coral. 126 Well, there was a proposal, but it tended to ignore the language that it had to provide comparable economic benefit as that provided by the DCC. 127 And then he goes on to say: Union certainly never agreed to implement any particular solution. And that's the problem. What the customer in a monopoly franchise area is trying to do is get the monopoly distributor to make a proposal and comply with its good faith efforts under the contract. And my client has not yet seen this letter. It came into my office. I got it at 7:30 or so last night. My clients are out in Calgary, so I e-mailed it out to them immediately. 128 But I can only imagine what their reaction to this letter is going to be. It is almost a take-it-or-leave-it kind of letter. And that is just not the way, in my respectful submission, a distributor should deal with any customer, be it large or small, but especially a customer with whom it has entered into a deal to say don't build your own line, go with us, and we'll take good care of you. 129 Anyway, that is the background. 130 If I could get to the specific issue of filing evidence, the objection of Mr. Penny, and it is quite an understandable objection, is it is too late in the day for Coral to come into this. You have got a complete record here. You now have a partial settlement agreement. You can't have intervenors coming on and mucking up the record, and in the normal course, I would understand that. 131 But the reason I have gone over the background with the Members of the Panel is to indicate to you that after the Board decision came out in May, Coral has been trying very hard to get a proposal from Union, and it has really only been within the last two to three weeks, September 11 on, that there has been anything discussed, and it just hasn't gotten anywhere. So there is an explanation for the lateness of the intervention, and also I think you can see from the issue that is raised in the correspondence, it is a significant issue and it is an issue which I submit should be dealt with in this case. 132 My reasons for submitting to you that evidence should be allowed to be filed are really four-fold in nature. 133 The first is, as you can see, there is a dispute between Union and a potential customer, a customer under a contract for whom gas will flow next year. 134 That dispute is going to have to be resolved by this Board. I took some time to read to you all of clause 5-e of the amending agreement because Union's obligation is to propose and implement an alternate rate-making solution, and where a rate-making solution comes in, this Board is engaged. 135 So one way or the other, in my respectful submission, this Board is going to have to deal with the dispute that has arisen between Union and Coral. 136 Secondly, to resolve that issue, evidence is going to have to be required. This Board is going to have to have some evidence of rate design, and I have gone over with you the unique features of a merchant gas-fired generator and how current rates just don't work into it. 137 So the second reason, in my submission, evidence should be allowed is because you have got a unique customer here, and in order for this Board to supervise and shepherd and bring into being an alternate rate-making solution, there is going to have to be an evidentiary basis for you to do it, and the current tariff just isn't the way to go. It is the source of the dispute. 138 The third issue then, I guess, is the key one, when should the Board consider this issue? As I see it, the Board really has two options: The issue can be raised as part of this case, the 0063 case, or the issue can be dealt with later. Coral might bring its own application. It wouldn't be a bypass competitive rate but it would be along that line, an application for a new rate. 139 In my submission, the first option is the fairer option for three reasons. First, as I read to you under clause 5(e) of the amending agreement, Union does bear a good faith obligation to use all reasonable and prompt efforts to propose and implement promptly an alternate rate-making solution. That is their obligation. And it is their obligation, and in my respectful submission, this application by Union is a good place in which to do that, and the appropriate place. 140 The second reason why that option, in my submission, is the best is, is as I have described to you, commission in gas is going to have to flow in the first quarter of 2004, and then the plant will be up and running June or July of 2004. So gas delivery will start in 2004, and the price for gas delivery will be a 2004 price. This is a 2004 rate case. And for that reason, in my respectful submission, it makes sense for us to deal with a 2004 issue in this case, especially when there are going to be revenue requirement consequences of any resolution to the dispute between Union and Coral with respect to the 2004 revenue requirement for Union Gas. 141 And the third reason, in my submission, that raising it in this case makes sense is a timing one. If that issue becomes part of this case, even if it's dealt with further down the road than you have got in the current timetable, at least there is a very reasonable prospect that it will be dealt with by this Board before the plant starts up in June and July of 2004. A decision of this Board will be out by then, and the dispute will be resolved. 142 If Coral had to go the other option, option number two, where it has brought its own applications, there are practical constraints in terms of the resources that is the Board has, and in my submission, it would be more difficult even an expedited basis before this Board to necessarily get an order on the same time frame as an order in the 0063 proceeding, which speaks to having it in this particular proceeding. My fourth and final submission as to why it should be done now is that Union's concern, and it is a legitimate concern, is that it wants to have an opportunity to see evidence, test evidence, and no doubt, to respond to evidence, so that is only natural, that is only fair. Natural justice requires that. 143 You have got before you four weeks of hearing, and the current panelist, as I see from what Union has handed out, has the cost allocation rate design panel down at the bottom as number 15, and the issue that Coral wishes to address and raise before the Board is a rate design kind of issue, so we'll be down at the bottom of the pile in any event. 144 I would propose that this Board sort of designate Coral's issue, if it agrees to hear Coral's issue, as sort of a phase 2(a) of this proceeding. Drop it down to the phase 2 pile, and put some sort of time lines around Coral filing evidence, Union responding and other people being able to test the evidence, of course, in a somewhat expedited basis. 145 And I guess in that regard that brings me to my friend, Mr. Thompson's letter that was sent to Mr. Gardiner today, I guess, October 3, 2003, it is a letter written on behalf of IGUA which generally supports my client's motion, and suggests that Coral be given until a week today, October the 10th, to file evidence. I appreciate Mr. Thompson and IGUA's support. I think October the 10th is a bit tight. There is going to have to be evidence filed. I think probably at the end of the next or the following week, October the 17th is a more realistic one, with opportunities to respond and go from there. 146 That may well mean, I recognize, that this issue wouldn't be dealt with in the last week of October but I think it would raise a very reasonable prospect that the issue would be dealt with in the first week of November, or shortly thereafter. And since it is a discrete issue, it probably wouldn't require all that much time, and people's timetables, hopefully, could be accommodated. 147 So in my respectful submission, by the Board accepting Coral's issue, by allowing it to file evidence, and putting the issue for treatment down at the bottom of the phase 2 pile, you address Union's interests about fairness of process, but at the same time, you would address Coral's real concern that the local distribution company is not discharging its obligations to bring forth an alternate rate-making solution as it had agreed to do under the contract with Coral. 148 So for those reasons, I would ask that the Board not only grant Coral's motion for late intervention status, but also to grant the order set out in paragraph 2, and I guess which is to give it leave to file evidence relating to the design and implementation of the rate for the delivery of natural gas by Union to the Brighton Beach station, and to impose a timetable along the lines that I have sketched out this morning. 149 Those are my submissions. 150 MR. SOMMERVILLE: Mr. Smith. 151 SUBMISSIONS BY MR. SMITH: 152 MR. SMITH: Thank you. I don't think that it is necessary for me to get into a debate about the background leading up to this. Union has a different view. Union does have a contract with this customer, but I think what my friend missed in his recitation of the background are a couple of key facts which point to the unfairness of allowing Coral to intervene and file evidence at this stage. 153 My friend is quite right that a decision from this Board with respect to the delivery commitment credit affected the contractual rights of the parties, and engaged, without getting into the merits of what Union's obligations are or Coral's obligations are, their rights under the contract. That decision was rendered in May of this year, around the same time Union was filing its evidence in this case. Coral was a member, at the time, of CEED and represented by counsel George Vegh. Coral was provided with a copy of all of Union's evidence from the time of its first filing forward. It had an opportunity from that time forward to raise its concerns to Mr. Vegh and to express them to Union, to file evidence of its own, and elected not to do so. 154 What Coral decided to do was to do nothing. Now, it did speak to Union, and as my friend points out, it was frustrated with the speed with which Union was putting to it a proposal. In fact, if my notes are correct, my friend indicated that throughout August, Coral was attempting to get from Union a proposal and didn't receive such a proposal, bearing in mind, of course, Coral's view that it is a unique generator in the marketplace. 155 The date for filing of intervenor evidence was the middle of August. If Coral believed either that they were unique and warranted a different rate-making solution, or that they had become frustrated by Union's lack of response through May through to August, they had ample opportunity, either through Mr. Vegh or the retainer of separate counsel, to file evidence and elected not to do so. And in my submission, it is manifestly unfair to come to the Board on the eve of the hearing, after all of the other intervenors have complied with the schedule or notified the Board that they needed a day or two more or however many days more to file their evidence, to come the day before, and having been represented by counsel, say, our situation is unique and we need to file evidence. 156 So in my submission, while my friend's argument with respect to the background facts have a certain superficial appeal when you look at the actual timing of what took place in this case, in my submission, there is no excuse for Coral attending now and seeking to file evidence. 157 Now, I should say with respect to the schedule that the schedule, to the extent this Board is prepared to allow Coral to intervene, I must say, I far prefer the schedule proposed by Mr. Thompson than that proposed by my friend, Mr. Brown, and I say that because what Mr. Brown's schedule fails to include, if he files evidence on the 17th, is that leaves little to no time for Union to file interrogatories, for my friend to respond to those interrogatories, and if necessary, for Union to file any responding evidence. 158 We will be outside of the hearing by that time. 159 To the extent my friend needs to file evidence, is allowed to file evidence, you have my submissions why he shouldn't be, certainly the end of next week is the only time frame that would afford Union even a modicum of ability to respond. 160 And my friend, Mr. Reghelini, also points out that my friend is not in a unique situation in that there is at least one other intervenor who was in talks with Union, negotiations with Union, Northern Cross, who is an intervenor in this proceeding, who, while negotiating with Union, was nevertheless able to file evidence, and in my respectful submission, that's the entirely appropriate thing to do. If you either feel you are unique or are in the process of negotiating a renewal of a contract or some change to your rate, the appropriate thing to do is to file evidence, continue negotiations, attend at the ADR, with the hope that a settlement is able to be achieved. If a settlement is achieved, so much the better; and if not, then you are able to raise your issues at the hearing. 161 And I should say, finally, with respect to rate design, there is ample rate design evidence on the record. My friend is able to make arguments that the T1 rate somehow should be modified or should be modified to fit his unique circumstances and that evidence has certainly been out there for -- well, since May, and he has had every opportunity to comment on it -- since the end of June, and he has elected not to comment on it. 162 MR. SOMMERVILLE: Mr. Brown. 163 MR. BROWN: Just very briefly in reply. Two weeks ago there was a breakfast meeting of the Ontario Energy Association at the Sutton Place Hotel. The president of Union Gas was the speaker at that presentation. During the course of his presentation, he applauded Union's efforts to support generation of electricity in this province. 164 He specifically referred to the Brighton Beach project as a project which Union was proud to be supporting, and yet this morning counsel for Union Gas says before this Board that Coral did nothing. 165 There will be a transcript of this proceeding. I will send that transcript to my client, and I will ask my client to send that transcript to the president of Union Gas, because in light of the efforts of Coral to get Union's attention over the course of the summer, for counsel for Union Gas to take the position before this Board that Coral did nothing is extraordinary and shows exactly why this Board has to intervene and try and supervise a dispute between a customer, who has to deal with a counter party that has a monopoly position and will not comply with its contractual obligations to bring before this Board an alternate rate-making solution. 166 And I think counsel's position for Union Gas today and the submissions that he made just speak volumes for Union's approach to dealing with these issues, and therefore, the necessity for the Board to deal with them. 167 Why did Coral not do anything through CEED? Well, for two reasons. The first reason I have already given you, CEED is an industry coalition. Coral's dispute is very company-specific. 168 The second reason is that Coral, as reasonable business people, tried to resolve the issue before going to this Board, and indeed, I think if Coral ran off to this Board without first trying to negotiate with Union, this Board would justly chastise Coral for not trying to negotiate with Union. 169 The only reason Coral is here before you today is that it just can't get Union to comply with its contractual obligations, and so there is ample explanation for the lateness of this intervention and the request. 170 The only other matter that I have by way of response, as my friend said, there is ample evidence with respect to rate design on the record. That's Union's evidence with respect to rate design. The whole problem between Union and Coral is that the existing rates don't work, and therefore, evidence of a new rate needs to be adduced before that Board, and that's what Coral is respectfully requesting that this Board allow it to do. 171 MR. SOMMERVILLE: Mr. Birchenough I believe has a question. You'll be given an opportunity to make submissions arising from the questions. 172 MR. BIRCHENOUGH: A question for Mr. Brown. You mentioned that I guess through the summer, although the onus was on Union to make alternate proposals to Coral, that no proposals were forthcoming. 173 In that period of time, did Coral make any suggestions or proposals to Union as to how this contractual dilemma could be resolved? 174 MR. BROWN: I am going by the written record. There is a letter of July the 15th of Mr. Birchenough, which in essence simply says: In light of the Board's decision that Union needs to develop a rate solution. Coral did not make a specific proposal in that letter. 175 There was then a letter of August 29th which requests Coral to present a rate-making solution. It says: Coral is prepared to respond very quickly to any proposed rate-making solution. We are ready to meet and discuss. 176 Nothing specific was put forward by Coral, in large part because Union is the entity, is the distributor that has pretty good knowledge of what operationally it can or cannot do and what is feasible on its system. 177 So it makes sense that they propose something within their operational constraints since they have the better information from which to draw, so no, Coral didn't make a specific proposal. The first proposal that came -- the frustration over the summer was that Coral was dealing with salespeople, the customer reps who dealt with Coral. And the customer reps tried to do their job. The difficulty they faced is that since this is a rate-making solution that is required, they had to bring rate-making people to the table. Rate-making people from Union never came to the table. Salespeople said: Well, they are tied up with other things. 178 So you have got to have both sides of Union at the table in order to get some sort of solution and the rate-making people just weren't there. 179 So September the 11th was the first time a concrete proposal, a numbers proposal was put forward by Union to Coral. Coral looked at the numbers, immediately went back to Union and said: We looked at the tariff on your web site, we looked at another tariff, we don't understand where you are getting the numbers from. I spoke to at least two people, it may have been three people at Union, to try and get a straight set of numbers on Union's tariff, and it couldn't, and that took the better part of several days before people were actually able to figure out whether or not Union's proposal would provide comparable economic benefit to the DCC. And once the numbers were, you know, confirmed and you ran them, the proposal didn't, and that then prompted the application to intervene. 180 Coral does not like coming before the Board to try and negotiate something which in the ordinary marketplace it would negotiate privately with a counter party, but the situation it is faced with here is the counter party is a monopoly, and if a dispute is to be resolved and the monopolist simply says it is our way or the highway, we have to come before you to try to get a resolution. 181 MR. SOMMERVILLE: Thank you, Mr. Brown. 182 Any submissions arising, Mr. Smith? 183 MR. SMITH: One brief submission. My friend, in responding to Commissioner Birchenough's comment or question and in his reply made the very point as to why evidence should be filed earlier. Not only was I not at the Union breakfast, and I think my comments earlier have been taken out of context and the record will stand for itself, but my friend's comments with respect to what happened during the summer or who Coral met with or the motivations, none of those are in evidence here today, and I am forced to take everything he says, other than to the extent that I have letters, on face value, and in my submission, it fully makes the point as to why parties should be put to putting evidence in in a timely manner, so that all parties will have a fair opportunity to respond. 184 MR. SOMMERVILLE: Thank you, Mr. Smith. 185 The Board will reserve on that. We will retire this morning and hope to come to decisions on both the Gas Ontario matter and this motion. 186 I understood Mr. Smith and Mr. Poch, that you each have scheduling matters that we'll deal with now. 187 MR. GIBBONS: Mr. Sommerville, Pollution Probe also has an issue about the Union Gas witness panel list, if we can discuss that some time, sir. 188 MR. SOMMERVILLE: We'll deal with that as soon as we have dealt with the scheduling matters that Mr. Smith and Mr. Poch wish to raise. 189 Mr. Poch, would you like to go first? 190 MR. POCH: Thank you, Mr. Chairman. I may be jumping ahead of my friend Mr. Gibbons a little bit here. 191 MR. SOMMERVILLE: Is it more convenient to deal with his -- 192 MR. POCH: I have a hunch that his concern is a premise to where we proceed with mine, so it might make more sense to hear with him first. 193 MR. SOMMERVILLE: Any problem with that, Mr. Smith? 194 MR. SMITH: None. 195 MR. SOMMERVILLE: Mr. Gibbons. 196 PROCEDURAL MATTERS: 197 MR. GIBBONS: Thank you, Mr. Sommerville. If you could turn to the document "Union Gas Witness Panels", which was handed out this morning. 198 MR. SOMMERVILLE: I have that. 199 MR. GIBBONS: And you look on page 1, sir, and issue number 12, DSM, at the very bottom of the page. 200 MR. SOMMERVILLE: Number 11 on my version. 201 MR. GIBBONS: Oh, I have a version that says number 12. 202 MR. SOMMERVILLE: I am looking at a letter -- ah, this is a revised -- this is the new and improved version, is it, Mr. Wightman? 203 MR. SMITH: New, improved and soon to be amended. 204 MR. SOMMERVILLE: Re-improved. I have that, Mr. Gibbons. 205 MR. GIBBONS: Thank you, sir. So DSM issue number 12, the bottom of the page, and if you look on the right-hand side it says the issue is "limited", and then there is a footnote number 2, which says that the DSM issue is "limited to finalizing the 2004 LRAM balance and reflecting 2002 adjustment in the 2003 LRAM." And those are certainly one of the DSM issues, but it is not the only DSM issue that needs to be addressed. 206 Sir, if you can turn up the ADR agreement that has been filed today, and if you turn to page 7. 207 MR. SOMMERVILLE: Yes. 208 MR. GIBBONS: You will notice under the issue of 2004 DSM budget and 2004 DSM target, there is not a full settlement on that issue. Pollution Probe did not agree with Union Gas on their proposed DSM budget, and DSM volume target, and so, sir, we request the right to cross-examine Union's panels on the issue of DSM budget and DSM target. 209 MR. SOMMERVILLE: Mr. Smith, that does seem to appear from the documents. 210 MR. SMITH: You are quite right, sorry. The intention of the footnote was not to exclude Mr. Gibbons. He is quite right. He, alone, has the right to put forward his position in respect of target and budget. It was simply meant to address the other parties who, of course, will be supporting the settlement agreement. 211 MR. SOMMERVILLE: Thank you. Are you satisfied with that, Mr. Gibbons? 212 MR. GIBBONS: Yes, sir. 213 MR. SOMMERVILLE: The record will speak for itself. Thank you. 214 Mr. Poch. 215 MR. POCH: Thank you. In light of that, Mr. Gibbons informed me that he may need to cross-examine my witness, Mr. Neme, who put in evidence on DSM as well, and we are in support of the settlement agreement, and Mr. Gibbons says it is possible he'll be able to avoid the need for that, depending on how the cross-examination of Union's witnesses go. So I wanted to alert the Board to, first of all, a matter of sequencing, it would make sense to schedule Mr. Neme after the Union panel, preferably with at least a day because he travels from Vermont, and with any luck, if we can avoid his attendance, and mine, for that matter. And in regard to that, unfortunately, Mr. Neme is quite constrained in his availability and disappears once we get into the latter part of the month for about a month, so I wanted to just advise the Board of the dates that he is available and request, if at all possible, that we try to fix a date, if needed. 216 MR. SOMMERVILLE: It is our expectation, Mr. Poch, and other parties, that on Monday the Board Staff will be consulting vigorously with the parties to try to establish a more detailed schedule than currently exists, and I am going to suggest, Mr. Poch, that that really -- unless you didn't plan to attend on Monday, that would be the appropriate opportunity to talk about the detailed scheduling issues which I want to emphasize we are very interested in establishing in this case. 217 MR. POCH: Mr. Chairman, I wouldn't ordinarily attend Monday. I could if it was helpful to the Board. Alternatively, I could simply put the two or three dates on the record, and ask my friend for -- Board Staff to be aware of them and other parties to hear them. 218 MR. SOMMERVILLE: That will suffice, Mr. Poch. 219 MR. MORAN: I can certainly talk to Mr. Poch when we adjourn today as well. 220 MR. POCH: I'll put on the record that Mr. Neme is presently available on the 16th, and then on the 20 and 21st, so I would simply suggest if we try targeting the 20th or 21st for him, and Union's DSM panel, which would be very brief, I would assume, be heard some time in the second week of the hearing and that might work out well. I'll leave it at that, and wait to hear back from my friend, from Board Staff. 221 Thank you, Mr. Chairman. 222 MR. MacINTOSH: Mr. Sommerville, regarding the proposed panel member number 1, risk management, which I believe Union wishes to bring forward on the first day of the evidentiary phase, Energy Probe has put together its cross-examination material, and I could pass that out so that they would have the weekend to see that. 223 MR. SOMMERVILLE: I am sure Mr. Smith won't object to that. 224 MR. MacINTOSH: Thank you, sir. 225 MR. SOMMERVILLE: Thank you, I appreciate that. 226 MR. SMITH: No, I won't. Before I begin, I think, Mr. Commissioner, that your suggestion with respect to detailed scheduling is appropriate. I would say only in response to Mr. Poch's submission that of course these panels from Union's perspective have been put together not simply because they make some sense in terms of the flow of the case, but also because of people's schedules and of course I understand Mr. Neme's concerns, but there are a number of parties who have concerns as well. 227 I had indicated before that there is a scheduling matter I wanted to raise, and my copy, like yours, was the older version, but you will see, members of the Board, number 2 is GDAR and ABC. That had originally been proposed, I believe it was number 13. It was some ways down the list. In looking at scheduling, it had originally been number 2. Those experts, the witnesses who will be testifying, the experts have to travel, and we had fit their schedule in for Tuesday, but in considering how long risk management is going to take on Monday, it occurs to Union now that that's not going to take the entire day. In fact, we don't expect it to take more than a few hours at the very outside, I would expect. So in order to make productive use of the time, Union has proposed to put forward Mr. Andrews to address the issues of GDAR and ABC and I just simply wanted to raise that to your attention, the Board's attention, and to the intervenors here. Yeah, and if parties do have a concern in that they are unable to prepare, then I suppose Mr. Andrews can be slotted back into his previous number 13, but it is Union's hope that we can make -- given that there are a considerable number of matters that need to be dealt with in this proceeding, that we can make full use of the day on Monday. 228 MR. SOMMERVILLE: Thank you. That's precisely the kind of input I think we need in order to try to -- we have a very daunting task ahead of us in this case, to complete all of the matters within the time frame that the Board thinks is appropriate. So we will need to -- all the parties will need to come armed, with the exception of you, Mr. Poch, come armed on Monday with a fairly -- fair enthusiasm for arriving at fairly demanding scheduling requirements. 229 If there is nothing else at this point, the Board will take -- it is now about 20 minutes to 11:00. We will reconvene at 11:05, and hopefully we will have a decision on the two applications for late intervention at that time. 230 Is there anything further before we rise? Thank you. 231 --- Recess taken at 10:40 a.m. 232 --- On resuming at 11:05 a.m. 233 RULING ON APPLICATIONS: 234 MR. SOMMERVILLE: Dealing first with the Gas Ontario Inc. matter, the Board, on hearing the submissions of Union Gas with respect to the application by Gas Ontario Inc., will grant the request made by Gas Ontario Inc. to become an intervenor in this proceeding effective immediately. They will take the record as they find it. 235 The Board is not inclined to permit Gas Ontario Inc. to file any evidence, having received no submissions with respect to that other than the bald request, and therefore, they will not be permitted to adduce or lead any evidence in the matter. 236 Is there anything arising from that ruling, as far as you are concerned, Mr. Smith? 237 MR. SMITH: No, there is not. 238 MR. SOMMERVILLE: Thank you. 239 Coming to the Coral Energy Canada Inc. application for late intervenor status, the Board will permit Coral Energy Canada to enter the case as an intervenor effective immediately. 240 The Board is inclined to permit this request, and its request to file evidence is also approved, on the basis that the Board has an interest in the rate design question that the intervention raises. 241 The Board is not interested in the contractual dispute that exists between Union and Coral Energy Canada Inc., but the Board is interested in the rate design question that is necessarily engaged. 242 The evidence to be filed by Coral Energy must be filed no later than October the 10th. Union will be permitted a further period of seven days to file responding evidence. All of the evidence filed in the case by either party in connection with this ruling must be filed with all of the other parties in the matter. 243 In the event that there is a settlement of the dispute between the parties, the Board will of course be interested in the outcome of that resolution, insofar as the Board's interest is in rate design issues arising. 244 We will expect that 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. 245 Is there anything arising from that ruling, Mr. Brown? 246 MR. BROWN: Just in terms of scheduling. Thank you very much for that ruling, Mr. Chair. 247 And linked to this, the witness panel list that we have in front of us, this is the Union witness panel list. 248 MR. SOMMERVILLE: Yes. 249 MR. BROWN: In terms of intervenor evidence, intervenor witnesses, they are going to be scheduled when? 250 MR. SOMMERVILLE: I would expect around the same time frame as the Union evidence. I would expect that there would be a cross-examination of the Union witnesses and then presentation of your evidence and a cross-examination opportunity for Union. 251 MR. BROWN: So deal with all evidence on an issue-by-issue basis? 252 MR. SOMMERVILLE: Yes. 253 MR. BROWN: Very good. Thank you. 254 MR. MORAN: Mr. Chair, my understanding is that because this is panel 15, that would be the end of Union's case and the intervenor panels would flow after that, and of course any evidence -- 255 MR. SOMMERVILLE: Could make it directly contiguous to the close of Union's case. 256 MR. MORAN: And we can discuss this on scheduling. 257 MR. SOMMERVILLE: Fair enough. 258 MR. SMITH: And on the basis that it is the final Union panel, I don't have an objection to that, although my understanding, and my friend Mr. Reghelini obviously has more experience in this, but my understanding is that in the normal course, just as in the civil case, Union would put its entire case in-chief in, and then the intervenors would put their case, as it were, forward. 259 So I guess if it is panel 15 -- I don't have the list in front of me, but if it is the final panel, that is fine. 260 MR. SOMMERVILLE: And what I am indicating is we would be interested in hearing the intervenor evidence directly following the Union case so we get both pieces at virtually the same time, just so they are in the right context. 261 So that you would complete your case on panel number 15 with respect to rate design, and I would expect you to put your evidence and be cross-examined accordingly. We would then expect Mr. Brown's client to put its evidence in as part of the intervenor's case at that point. 262 MR. SMITH: Thank you. 263 MR. SOMMERVILLE: It is fortuitous that it all happens at the very end of the case. 264 The other thing that I will mention is that if it appears that the resolution or solution or matter dealing with the evidence and argument with respect to this particular matter is going to unnaturally extend this proceeding, that we will consider at some point dealing with all of the other matters related to this case and all of the other rate questions that pertain to this case separately to enable this to go on; if it's necessary to sever this in some respect, we will consider that at some point. Mindful of the time frames that you have indicated, Mr. Brown, June and July of 2004, that is a bit of a different time frame than the rest of the rate implications of this case, and that may give us some opportunity, some flexibility, if the need should arise, to deal with the matter in a flexible manner. 265 Is there anything else that we need to deal with today? Any other submissions from any party? 266 In which case, we will stand adjourned until Monday morning at 9:30. Thank you. 267 --- Whereupon the hearing adjourned at 11:14 a.m.