Rep: OEB Doc: 12YPG Rev: 0 ONTARIO ENERGY BOARD Volume: 1 16 JUNE 2004 BEFORE: R. BETTS PRESIDING MEMBER P. NOWINA MEMBER P. SOMMERVILLE MEMBER 1 RP-2003-0203 2 IN THE MATTER OF a hearing held on Wednesday, 16 June 2004, in Toronto, Ontario; IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Schedule B); AND IN THE MATTER OF an Application by Enbridge Gas Distribution Inc. for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, transmission and storage of gas commencing October 1, 2004. 3 RP-2003-0203 4 16 JUNE 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 JENNIFER LEA Board Counsel COLIN SCHUCH Board Staff JAMES WIGHTMAN Board Staff FRED CASS Enbridge Gas Distribution Inc. DENNIS O'LEARY Enbridge Gas Distribution Inc. TOM LADANYI Enbridge Gas Distribution Inc. MICHAEL CADOTTE Union Gas Limited ROBERT WARREN CAC & CCC MICHAEL JANIGAN VECC ROGER HIGGIN VECC PETER THOMPSON IGUA JAY SHEPHERD School Energy Coalition DAVID POCH Green Energy Coalition MELANIE AITKEN Direct Energy Marketing Limited ELISABETH DeMARCO CEED, OESC, Superior Energy Management, TransAlta Energy Corporation MALCOLM ROWAN CME CAROL STREET CME MURRAY KLIPPENSTEIN Pollution Probe BRIAN DINGWALL Energy Probe VALERIE YOUNG OAPPA, Casco, Maple Lodge Farms, Markham District Energy MURRAY ROSS TransCanada PipeLines 8 TABLE OF CONTENTS 9 APPEARANCES: [22] DECISION ON SETTLEMENT PROPOSAL: [32] PRELIMINARY MATTERS: [40] ENBRIDGE GAS DISTRIBUTION INC. PANEL ON MOTION - HARE, CULBERT: [68] CROSS-EXAMINATION BY MR. SHEPHERD: [79] CROSS-EXAMINATION BY MR. THOMPSON: [371] CROSS-EXAMINATION BY MR. JANIGAN: [648] CROSS-EXAMINATION BY MR. DINGWALL: [714] CROSS-EXAMINATION BY MS. STREET: [741] CROSS-EXAMINATION BY MS. LEA: [768] RE-EXAMINATION BY MR. CASS: [839] PROCEDURAL MATTERS: [859] ENBRIDGE GAS DISTRIBUTION INC. PANEL ON UNION GAS STORAGE CONTRACT - SMALL, BRENNAN, CHARLESON: [884] EXAMINATION BY MS. PERSAD: [889] CROSS-EXAMINATION BY MR. THOMPSON: [927] PRELIMINARY MATTERS: [1087] ENBRIDGE GAS DISTRIBUTION INC. PANEL ON UNION GAS STORAGE CONTRACT - SMALL, BRENNAN, CHARLESON- RESUMED: [1100] CROSS-EXAMINATION BY MR. THOMPSON: [1104] CROSS-EXAMINATION BY MR. DINGWALL: [1441] 10 EXHIBITS 11 EXHIBIT NO. K.1.3: DIAGRAM OF YEAR-END SCENARIOS [138] EXHIBIT NO. K.1.4: IGUA DOCUMENTS BRIEF ON MOTION [407] EXHIBIT NO. K.1.5: MOTION DOCUMENTS FROM ENBRIDGE [877] EXHIBIT NO. K.1.6: IGUA DOCUMENTS BRIEF REGARDING UNION GAS STORAGE CONTRACT [931] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.1.1: BREAKDOWN THE $5.1 MILLION REFERRED TO IN THE EXHIBIT NUMBER GIVEN BY MR. THOMPSON [1018] UNDERTAKING NO. J.1.2: TO PROVIDE AMOUNT PAID FOR WESTERLY TRANSPORTATION UNDER THE M12 RATE SCHEDULE [1046] UNDERTAKING NO. J.1.3: TO PROVIDE AN UPDATE OF EXHIBIT A3, TAB 2, SCHEDULE 5, ATTACHMENT B [1156] UNDERTAKING NO. J.1.4: TO FILE EXCERPTS FROM THE STORAGE CONTRACT DATED NOVEMBER 1977 [1227] UNDERTAKING NO. J.1.5: TO FILE A COPY OF THE MARCH 11 WRITTEN NOTICE THAT UNION SERVED ON ENBRIDGE IN PARAGRAPH 2 OF EXHIBIT A3, TAB 2, SCHEDULE 5 [1305] UNDERTAKING NO. J.1.6: TO FILE A COPY OF THE KINGSTON DECISION [1373] UNDERTAKING NO. J.1.7: TO PROVIDE THE RFP FOR INCREMENTAL STORAGE [1494] UNDERTAKING NO. J.1.8: TO PROVIDE A SUMMARY OF THE FOUR RESPONSES TO THE RFP, INCLUDING ITEMS SUCH AS TERM, DELIVERABILITY, VOLUME, INJECTION WITHDRAWAL [1520] 14 --- Upon commencing at 9:35 a.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good morning, everybody. Can you hear me at the back? You can't. How about that? Testing, 1, 2, 3, is there any sound coming out there at all? That's better. We have lights and everything. Perfect. 17 Now how is the volume at the back? Thank you very much. 18 Today is the first day of the evidentiary portion of the hearing of application RP-2003-0203 submitted by Enbridge Gas Distribution Inc. for an order or orders approving or fixing rates for the sale, distribution, transmission and storage of gas in their fiscal year 2005. 19 The first item of business will be for the Board to issue the decision on the acceptability of the settlement proposal filed on June 10th, 2004 and orally presented to the Board in a hearing on June 14th, 2004. 20 I will once again introduce the Board Panel, being made up of myself, Bob Betts, the Presiding Member, and fellow Board Members, Paul Sommerville and Ms. Pamela Nowina. 21 Before we get to the presentation of the decision, are there any parties appearing today that were not able to introduce themselves at the settlement proposal hearing on June 14th? If so, could I see them today. 22 APPEARANCES: 23 MR. CADOTTE: Yes, Michael Cadotte for Union Gas. 24 MR. BETTS: Thank you. Any other parties? 25 Thank you, Mr. Cadotte. 26 MR. DINGWALL: I'm sorry, sir, Brian Dingwall on behalf of the Energy Probe. 27 MR. BETTS: Mr. Dingwall. Mr. Janigan, I see you there, and I'm not sure -- oh, I -- 28 MR. JANIGAN: Mr. Warren entered an appearance on behalf of me. 29 MR. BETTS: Yes. 30 MR. JANIGAN: Thanks very much. 31 MR. BETTS: Okay. We will proceed, then, to read our decision on the settlement proposal. 32 DECISION ON SETTLEMENT PROPOSAL: 33 MR. BETTS: The Board has reviewed the settlement proposal and heard the presentation by the applicant's counsel on June 14th, 2004. 34 The Board finds that the settlement proposal as filed provides a reasonable resolution of the settled issues and will accept the settlement proposal as the basis for its decision on those issues. 35 With respect to issues of confidentiality, the Board is prepared to accept the language in the settlement proposal at this time. The Board notes that it may be required to make further determinations on confidentiality matters in this proceedings, as examples: In hearing evidence on the deferred taxes issue, issue 12.1, and with remembrance raised by persons not party to the settlement agreement respecting the treatment of or characterization of confidential materials. The Board will consider such issues on the specific merits. 36 With respect to the comments in the settlement proposal regarding the Natural Gas Policy Review Forum, the Board notes the assumptions made about funding for participants and the issues to be considered at the forum. The Board also notes that parties to the settlement proposal have agreed that if the subject issues are not included in a funded Natural Gas Policy Forum, that they should be considered in an appropriate alternate forum such as a subsequent rate case or a generic process which would provide funding for the full participation of all stakeholders. 37 While this Panel of the Board is supportive of the participation of intervenors in the consideration of the issues in question, this Panel cannot determine the nature or extent of funding for the referenced forum. Likewise, this Panel cannot establish the list of issues that the forum will address. The Panel, however, is of the view that the agreement of all parties on the importance of a generic hearing of certain issues, and the benefits of full intervenor participation in those issues, should influence the conduct of the forum, or some similar generic hearing of the issues. 38 Are there any questions of clarification required? Thank you. 39 Before we begin the hearing, are there any preliminary matters to be dealt with or considered by the Panel? Mr. Cass? 40 PRELIMINARY MATTERS: 41 MR. CASS: None. 42 MR. BETTS: Ms. Lea? Anyone else? Thank you. 43 Then as we left on -- as we concluded on June 14th, it was understood that we would first deal with the matters associated with the motion filed on June 11th and specifically we would be allowing parties the opportunity to cross-examine Ms. Marika Hare regarding the information contained in an affidavit sworn by her on June 11th, which accompanied the motion. 44 Mr. Cass, is that still the plan? 45 MR. CASS: Yes, that is the plan, Mr. Chair. If I might just address a few comments to that. 46 MR. BETTS: Please do. 47 MR. CASS: Ms. Hare is here and ready to come forward to be cross-examined on her affidavit. A request has been made that she be joined on the witness stand by Mr. Kevin Culbert, and the company has Mr. Culbert here available to take the witness stand with Ms. Hare to be cross-examined on the subject matter of the motion. 48 In addition, Mr. Chair, I might point out that when the settlement proposal was presented to the Board, Mr. Thompson indicated a possible issue about whether the witness, for one piece of evidence, Mr. John Todd, might be disqualified on some particular basis that Mr. Thompson may raise. We have asked Mr. Todd to be here. It is certainly the company's position that if there is to be any issue raised about whether Mr. Todd is or is not disqualified, that questions in that regard should be put to him. 49 MR. BETTS: Thank you, Mr. Cass. 50 Are there any comments or submissions from parties with respect to that statement? 51 MR. THOMPSON: Yes, Mr. Chairman. My intent is to cross-examine Ms. Hare on her affidavit. I do not agree that Mr. Todd is properly a witness with respect to anything I ask of Ms. Hare. It's to get the company's information. I take the position, and will take the position in argument, that he is disqualified as a witness for the company for a number of reasons. But the questions I have are of the company witness with respect to the issue and not of Mr. Todd. 52 MR. BETTS: Mr. Shepherd. 53 MR. SHEPHERD: Mr. Chairman, we were the one that suggested that Mr. Culbert join this panel because there's some technical issues in this that he may assist with, and we're happy to treat his evidence as co-extensive with Ms. Hare's. We agree with Mr. Thompson that Mr. Todd is not properly before the Panel yet because he's not yet a witness and he shouldn't be asked to give any oral evidence until such time as he is properly a witness. 54 MR. BETTS: Any further submissions? 55 MR. CASS: If I might respond, if others had finished. 56 MR. DINGWALL: We have no desire either way to cross-examine Mr. Todd. So whether or not he's a witness that's material to us, we have no desire to cross-examine him. 57 MR. BETTS: Thank you, Mr. Dingwall. 58 Mr. Cass. 59 MR. CASS: Just one sentence, really, in response, Mr. Chair. There is no intention of putting Mr. Todd on the witness stand to address the merits of his evidence as attached in draft form to the affidavit of Ms. Hare. The only purpose for which I submit that Mr. Todd should join the witness panel is that simple fairness dictates that if someone is going to be suggesting that he is disqualified, that he have an opportunity to respond to that. 60 MR. BETTS: The Panel will reserve its decision on that. If we, in fact -- if it's concluded that somebody feels Mr. Todd should be called as a witness, we'll consider the merits of that request at that time and hear submissions on that. 61 So, Mr. Cass, if you would then please invite Ms. Hare and Mr. Culbert to the witness stand. I believe Mr. Culbert was sworn in yesterday or Wednesday -- no, Monday. 62 MR. CASS: He was sworn, yes, Mr. Chair. 63 MR. BETTS: So Ms. Hare will be sworn in now. 64 MR. KLIPPENSTEIN: Mr. Chair, Murray Klippenstein here. While the witness is being sworn, I have attended this morning for a decision on the settlement proposal and in case any procedural matters came up, and I wonder if I can be excused because I don't propose to be involved in this morning's evidence. 65 MR. BETTS: Thank you very much. Most certainly. 66 MS. DeMARCO: Mr. Chair, this is Lisa DeMarco on behalf of CEED and OESC and SEM and TransAlta Energy Corporation. We would be in the same position as Mr. Klippenstein and throughout the proceeding intend to proceed surgically and appear, without any disrespect to the Panel, from time to time if that's at your convenience. 67 MR. BETTS: Thank you. The Panel will not object to that. It's quite an appropriate way for you to manage the costs of these proceedings, so please feel free to do that. Does anyone else have to leave at this point? You're welcome to leave, thank you. 68 ENBRIDGE GAS DISTRIBUTION INC. PANEL ON MOTION - HARE, CULBERT: 69 M.HARE; Sworn. 70 K.CULBERT; Previously Sworn. 71 MR. BETTS: The witnesses are both sworn in, so please proceed, Mr. Cass. 72 MR. CASS: Yes, Mr. Chair. Given that this is a cross-examination on an affidavit, I don't propose to ask any introductory questions. I process that the matter simply proceed to cross-examination. 73 MR. BETTS: Thank you. Then may I have an indication, at least at this stage, who would like to cross-examine either one of these witnesses? 74 MR. SHEPHERD: Mr. Chairman, we've talked among the intervenors and I think we've agreed that I will go first, followed by Mr. Thompson. I think there may be some others as well that wish to cross-examine. 75 MR. BETTS: Thank you. As usual, you all are very efficient and I appreciate you sorting out the order. 76 So I have Mr. Shepherd, Mr. Thompson. Anyone else? Mr. Janigan, Mr. Dingwall. Thank you. We'll proceed on that basis, then. 77 Mr. Shepherd, would you please begin your cross-examination. 78 MR. SHEPHERD: Thank you, Mr. Chairman. 79 CROSS-EXAMINATION BY MR. SHEPHERD: 80 MR. SHEPHERD: Ms. Hare, let's start with paragraph 9 of your affidavit. Could you turn it up, please. There you describe the relief Enbridge is requesting in this motion. Do I understand correctly that what you would like to do is withdraw your application for a change in year-end, withdraw your application to set rates for the stub period October 1st to December 31st, 2005, but that you plan to come back with a new 12-month application for the period January 1st to December 31st, 2005; is that correct? 81 MS. HARE: That's correct. 82 MR. SHEPHERD: And as I understand your evidence, the point of that is to deal with the change of years based on fuller, more complete evidence? 83 MS. HARE: That's correct. 84 MR. SHEPHERD: Now, could you please turn to paragraph 11 of your affidavit. I understand you to be saying there that in the alternative, Enbridge wants to file additional evidence late with a view to completing the record so that the change of year-end issue can be dealt with in this rate case; is that right? 85 MS. HARE: Yes. Yes, Mr. Shepherd. 86 MR. SHEPHERD: And if the alternative request is granted by the Board, you believe that this issue can still be considered in this hearing, just at the end of it? 87 MS. HARE: Yes. 88 MR. SHEPHERD: And if that's not possible, you propose in paragraph 15 of your affidavit to split the hearing into a two-phase hearing, the first now and the second maybe in the fall; is that right? 89 MS. HARE: Either in the fall or some time mid-July, end of July/August. Whatever suits the Board. 90 MR. SHEPHERD: And also if I understand paragraph 14 correctly, you're seeking a new Procedural Order dealing with the late-filed evidence. This is still in the alternative. So you would want a Procedural Order dealing with interrogatories, with intervenor evidence on the subject, similar issues; is that right? 91 MS. HARE: Yes, if the Board decides that we should proceed in this hearing. 92 MR. SHEPHERD: Now, all of this is because you were surprised to learn that the intervenors were alleging some kind of overearnings; is that correct? 93 MS. HARE: That's correct. 94 MR. SHEPHERD: Now, just so we understand what we're talking about, let's turn to paragraph 5 of your affidavit. Correct me if I'm wrong, if I understand this correctly, what you're saying is the intervenors are alleging that the annualized ROE for the 15-month period for which you're proposing to set rates is more than 11 per cent and that creates an overearnings position; is that right? 95 MS. HARE: That's the statement that the intervenors put in the settlement proposal, yes. 96 MR. SHEPHERD: And it is true that the annualized ROE for that 15-month period is more than 11 per cent; isn't that right? 97 MS. HARE: I believe that's true. 98 MR. SHEPHERD: It's 11.066; is that correct? 99 MR. CULBERT: That's a forecast at this point, yes. 100 MR. SHEPHERD: Yes. And it's also true that as a result, the dollar amount of the return on equity for the 15 months, if the rates are unchanged for the entire 15-month period, will be about $20 million higher than the allowed rate of 9.69; is that right? 101 MR. CULBERT: If one is to assume that the benchmark ROE that's allowed for one-quarter during the year is exactly one-fourth of an annual ROE, that calculation would be correct. 102 MR. SHEPHERD: It's around 20 million. And grossed up in terms of the rate impact, then, is about 30 million? 103 MR. CULBERT: Assuming your calculation is correct, yes. 104 MR. SHEPHERD: Sorry, assuming my calculation is correct? I thought these were your numbers, Mr. Culbert. 105 MR. CULBERT: They're my numbers, but they're based on your assumption that you should simply measure what the company earns in a quarter versus one-fourth of an annual allowed ROE. 106 MR. SHEPHERD: I'm just trying to get the numbers right, I'm not trying to argue the substance of it. 107 MR. CULBERT: Based on your assumptions, those numbers are correct. 108 MR. SHEPHERD: Okay. And if I understand your evidence correctly, I guess this is for you, Mr. Culbert, Exhibit E to Ms. Hare's affidavit, you prepared that? 109 MR. CULBERT: Yes. 110 MR. SHEPHERD: In fact, I might as well ask you now: Do you adopt Ms. Hare's affidavit as your evidence as well? 111 MR. CULBERT: Yes. 112 MR. SHEPHERD: Thank you. So do I understand correctly that in the stub period, the actual ROE that you're currently projecting is about 70 per cent higher than the 9.69 per cent level; is that right? It's about 16.5, or something like that, on an annualized basis? 113 MR. CULBERT: Are you annualizing the stub period by itself? 114 MR. SHEPHERD: Yes. 115 MR. CULBERT: Subject to checking the calculations, I would agree. 116 MR. SHEPHERD: It's about that; right? It's 4. -- 117 MR. CULBERT: If you simply multiply 4.143 by four quarters it would be 16 point something per cent. 118 MR. SHEPHERD: Okay. So the School Energy Coalition, because of our pedagogical bent, has prepared a visual aid to help us with that. And I wonder, Mr. Chairman, if it would be useful for us to mark this as an exhibit with respect to this motion. 119 MR. BETTS: Thank you. We'll ask Ms. Lea to do that for us. 120 MS. LEA: Thank you. My first task in the hearing, this is unfortunately a little more complicated, I was wondering if I could ask the applicant whether it has devised a numbering system for the exhibits in the hearing. I note that we used K for motion materials on Issues Day, so I was proposing to mark this as a K exhibit as it's on a motion, and begin the L series with exhibits filed during the hearing. And if anyone has anything to suggest other than that, I'm happy to do that. 121 MR. LADANYI: If I can respond to that, actually, realized the way we gave those initial exhibit numbers that this would cause a problem. I was going to suggest that we still continue with the Ks. That would make the exhibits comparable to the exhibits we had in the previous proceedings rather than more difficult to find. But possibly we could just continue in that series so today could be, let's say, 1 point whatever it is, we'll just continue with that series, and then everything will work afterwards. 122 MS. LEA: Yes. Unfortunately, the Issues Day exhibits received K.1 numbers. 123 MR. LADANYI: Yes, I know, and I was suggesting that this could be K.1.5 or whatever would be the next one for the first day, and after that we would be fine. 124 MS. LEA: If that will make it easy for you. And you wish to keep the motion materials and the evidence on the May hearing under the same series, K? 125 MR. LADANYI: Yes, we would. Yes. 126 MS. LEA: That's fine, then. I think we got up to K.1.2, so this would be K.1.3, please. 127 MR. BETTS: Sorry, I get finicky about this stuff. I just want to understand -- 128 MS. LEA: I didn't realize it was a problem until I got in the room, sorry. 129 MR. BETTS: I'm glad you brought it up. What will be the terminology we use for the second day of hearing? 130 MS. LEA: Two point whatever. Unfortunately, that means that Issues Day and today are both being labelled as K.1 if we continue in that -- 131 MR. BETTS: I can deal with that. Let's proceed on that basis. 132 MS. LEA: I'm glad someone knows what's going on around here. Thank you. 133 MR. BETTS: What will we call this exhibit? 134 MS. LEA: Diagram of year-end schedule? 135 MR. SHEPHERD: Diagram of year-end scenarios. 136 MS. LEA: Diagram of year-end scenarios, thank you. 137 MR. BETTS: Thank you. 138 EXHIBIT NO. K.1.3: DIAGRAM OF YEAR-END SCENARIOS 139 MR. BETTS: Please proceed, Mr. Shepherd. 140 MR. SHEPHERD: Thank you. 141 So, Ms. Hare, if you look at the top chart on this exhibit, this has the sort of march of years, and in each year, assuming the ROE remains at 9.69, you budget and you expect to get 9.69 per cent as your ROE; correct? 142 MS. HARE: Yes, over a 12-month period. 143 MR. SHEPHERD: So each 12 months you end up with that percentage. 144 MS. HARE: Yes. 145 MR. SHEPHERD: Mr. Culbert, it doesn't really matter whether the ROE goes up or down, right, the concept's the same, that -- 146 MR. CULBERT: It doesn't matter whether the ROE goes up or down -- 147 MR. SHEPHERD: In terms of the concept of getting whatever the formula is, 100 percent of the formula each time. 148 MR. CULBERT: Correct, as long as each quarter returns a certain amount of the 9.69, or whatever the allowed formula is, it would do so forever after for every year that the company exists. 149 MR. SHEPHERD: Wonderful. Now, I'd ask you to look at the second graph. We were trying to visualize what the problem is here, and I'm hoping you'll be able to help us. In the second graph, you have the test year the same as the previous graph, and then you have, starting on January 1st, 2006, you have year after year that, again, is the allowed rate. But you have -- then sandwiched in between them you have this one stub period that produces more than 9.69; do you see that? 150 MR. CULBERT: Yes. 151 MR. SHEPHERD: And you have that little red block, of course accidentally it's red, that is the amount by which the ROE exceeds the formula in that period; do you understand that? 152 MR. CULBERT: Yes, I understand. 153 MR. SHEPHERD: So the question, I guess, that I'm asking, and maybe this is the issue that is before the Board: Is when do the ratepayers get that red block back? 154 MR. CULBERT: The ratepayers aren't entitled to receive any of the red block back. What your chart fails to show for each of the years ended at September 30th or December 31st is how the company earns that allowed annual ROE that the Board approves, how it earns that return in any quarter of the fiscal year. 155 MS. HARE: Mr. Shepherd, my understanding is that this is the very issue we wanted to raise with the Board and make sure the evidence is complete so that the Board understands what the issue is with respect to year-end. This has nothing to do with the motion as to why we feel that we need to complete the record. This is the evidence that we would expect to argue before the Board when the issue comes up. 156 MR. SHEPHERD: Ms. Hare, it's not appropriate for me to argue with the witness. The point of my question was to ensure that the Board understands precisely what the issue is on which you're asking to lead additional evidence, and that's well within the ambit of my cross-examination. 157 Sorry, Mr. Chairman, I should have spoke through my -- my apologies. 158 MR. BETTS: That's fine. Thank you. 159 MR. SHEPHERD: Now, this stub period, Mr. Culbert, we talked earlier about the rate of return, the ROE, for that period on an annualized basis being about 16.5. That's actually wrong, isn't it? Because you're asking for an increase in rates during that period, aren't you? 160 MR. CULBERT: We had asked for an inflationary increase in rates for that quarter. 161 MR. SHEPHERD: And would you agree, subject to check that the result of that would be an annualized ROE in the stub period of 17.6 per cent, according to your own filing? 162 MR. CULBERT: Subject to check. I'd have to look into that. I'm not sure. 163 MR. SHEPHERD: And finally, do I understand correctly that this red block, that's about $30 million; right? 164 MR. CULBERT: According to the assumptions you've made, it's approximately $30 million. 165 MR. SHEPHERD: I'm trying to avoid arguing the substance. I'm trying to use the parameters. 166 MR. CULBERT: If I use the assumptions you've given to me, that's what the amount would be, approximately. 167 MR. SHEPHERD: All right. Now, Ms. Hare, back to you. Both of your claims for relief on this motion are based on the need to have a fuller evidentiary record; that's right? 168 MS. HARE: Yes. 169 MR. SHEPHERD: So in paragraph 6 of your affidavit, you tell us that in December, you didn't anticipate that anyone would raise the issue of overearnings in the stub period. 170 MS. HARE: That's correct. 171 MR. SHEPHERD: I guess I'm having some problem with that. When you decided to apply for rates for a 15-month period, didn't you project costs, revenues and other financial information, including ROE for that 15-month period? 172 MS. HARE: We filed for a 12-month period, and then for the additional three months, we suggested that rates would be increased by 90% of CPI. 173 MR. SHEPHERD: Not the question I'm asking. You put an application before the Board to set rates for 15 months; is that correct? 174 MS. HARE: No, we did not. We put an application before the Board for a 12-month period and then for a further three months. 175 MR. SHEPHERD: And 12 plus 3 is 15. 176 MS. HARE: Yes, it is, but the application was very clear that it was for a 12-month period. 177 MR. SHEPHERD: And this is intended to be a cost-of-service application, right? 178 MS. HARE: Yes, it is. 179 MR. SHEPHERD: So in cost of service, when you ask for rates for a period of time, don't you collate the cost of service for that period of time? 180 MS. HARE: For 12 months, yes, that's what we put forward. 181 MR. SHEPHERD: So why didn't you ask for -- why didn't you calculate the cost of service, the revenue requirement, the ROE, for 15 months? 182 MS. HARE: Because we set rates on a 12-month period. That's how rates are set. 183 MR. SHEPHERD: But wouldn't it be simpler, if you want rates for 15 months, to give the Board the information they need to set rates for 15 months? 184 MS. HARE: Well, first of all, the information we put forward was based on 12 months and we put the information as best we could, on a 12-month period, and we suggested how the additional three months would be handled. 185 MR. SHEPHERD: You had enough information to provide 15 months of cost-of-service data, didn't you? 186 MS. HARE: No, we didn't at the time we filed. We subsequently produced additional material so the Board could look at cost-of-service type of information for the further three months, but when we filed, we only had cost-of-service information for 12 months. 187 MR. SHEPHERD: And why is that? 188 MS. HARE: Because the budget was done on a 12-month period. 189 MR. SHEPHERD: And what happened between then and now to make the information suddenly available? 190 MS. HARE: The people in the budgets department put together what the budget would be for the additional three months. 191 MR. SHEPHERD: EGD is a subsidiary of a public company; right? 192 MS. HARE: Yes. 193 MR. SHEPHERD: And so as a public company, doesn't Enbridge Inc. have to report quarterly? 194 MS. HARE: Yes. 195 MR. SHEPHERD: And doesn't it have to project quarterly as well, provide financial guidance and do projections on a quarterly basis, Mr. Culbert? 196 MR. CULBERT: Yes. 197 MR. SHEPHERD: And in order to do that, it would have to have quarterly information for its major subsidiaries. 198 MR. CULBERT: Presumably, yes. 199 MR. SHEPHERD: So then you would have had the information available in December, wouldn't you? 200 MS. HARE: For cost-of-service information from October 1st, 2005 until the end of December, no, we didn't have that information. 201 MR. SHEPHERD: So then I wonder if you could turn to Exhibit A9, tab 1, schedule 3A, please. 202 MS. LEA: Could you repeat that, please, Mr. Shepherd. 203 MR. SHEPHERD: That's A9, tab 1, schedule 3A. 204 MR. BETTS: Mr. Shepherd, give the Panel a moment to sort this out, please. 205 Thank you very much. Please proceed. 206 MR. SHEPHERD: I'm sorry, Mr. Chairman, I should have given you forewarning about what I was going to be relying on. 207 MR. BETTS: It's not your fault. Sooner or later we had to open these books, and you had to be the one to make us do it first, that's all. 208 MR. SHEPHERD: I hope you won't hold it against me. 209 Ms. Hare, eventually you did file information, cost-of-service type information relating to the stub period, didn't you? 210 MS. HARE: Yes, we did. 211 MR. SHEPHERD: But you didn't file information on the three months, what you did is filed an overlapping 12-month period; isn't that right? Isn't that what this exhibit is? 212 MS. HARE: That's right. 213 MR. SHEPHERD: So here you said, We'll tell you what the information is for the 12 months ended September 30th and we'll tell you what the information is for the 12-month ended December 31st. 214 MS. HARE: That's correct, because rates are set on a 12-month period and there are certain assumptions that are made, for example, ROE is set on a 12-month period, not on a three-month or a 15-month. 215 MR. SHEPHERD: I wonder if you could go back to Exhibit A9, tab 1, schedule 3, not 3A, just 3, page 2, which is paragraph 5. As I understand it, you got the December 31st year-end data, and tell me whether I'm reading this right, by taking nine months from the test year, the information you already had, and adding three-month data from the stub period; isn't that right? 216 MS. HARE: That's correct. 217 MR. CULBERT: Correct. 218 MR. SHEPHERD: So then you had the three-month data available to you? 219 MS. HARE: We collected that data probably the period from February to March in order to produce that schedule, yes. 220 MR. SHEPHERD: And you filed the schedule on April 8th. 221 MS. HARE: Yes. 222 MR. SHEPHERD: I wonder if you could then turn to Exhibit I, tab 16, schedule 125. 223 MR. BETTS: Could we have the reference again, Mr. Shepherd? 224 MR. SHEPHERD: Mr. Chair, it's I, 16, 125, School Energy Interrogatory 125. 225 MR. BETTS: I must admit it was much easier when I had all of my books spread out on the table like I did in the last proceeding. 226 MR. SHEPHERD: I'm sure they'll end up there, Mr. Chair. 227 MR. SOMMERVILLE: Which schedule was that, Mr. Shepherd? 228 MR. SHEPHERD: This is 125. 229 MR. BETTS: Thank you. We will get quicker. Go ahead. 230 MR. SHEPHERD: Ms. Hare, do you have that? 231 MS. HARE: Yes. 232 MR. SHEPHERD: Can you confirm that you received that interrogatory on February 20th? 233 MS. HARE: If that was the date they were due, subject to check, yes. 234 MR. SHEPHERD: And this is the interrogatory response which you filed on March 12th; right? 235 MS. HARE: Yes. 236 MR. SHEPHERD: You refer to another interrogatory, School Energy, 129, just a few pages on. 237 MS. HARE: Right. 238 MR. SHEPHERD: And if I could take you to that, you say that you'll file overlapping 12-month information instead of the 15-month information that was requested; is that right? 239 MS. HARE: That's right. 240 MR. SHEPHERD: Why didn't you just file the information that was requested? 241 MS. HARE: 15-month information? 242 MR. SHEPHERD: Yes. You could have; right? The 12-month information was created the same way. 243 MS. HARE: I don't think we could have provided information on a 15-month cost-of-service basis for the same reason I stated before. All of our models, all of our presentations are on a 12-month basis. 244 MR. SHEPHERD: Ms. Hare, you just admitted that you did the second 12-month set by doing three months and adding it to the previous nine months. So if you had the three months, three months plus 12 months is 15. It's not hard. 245 MS. HARE: But the presentation that we show is always based on 12 months, not 15 months. 246 MR. SHEPHERD: So you didn't file it because you've always done it that way? 247 MS. HARE: Sorry, we didn't file it when it was first requested because we didn't have the information. When we had the information, we showed it on a 12-month basis because we know what the ROE is on a 12-month basis, we know what cost of capital is on a 12-month basis. We don't have the models to do it on a 15-month basis. 248 MR. SHEPHERD: You developed the models later for the evidence you're asking to file late? 249 MR. CULBERT: The evidence that we're asking to file late still isn't developed on a 15-month set of calculations, it's developed quarterly, i.e., it uses segments of whatever our models are that are in existence and develops quarterly information. We still do not have 15-month models designed for rate design, budgeting, supporting information, revenue requirement calculations. They are not developed on a 15-month basis. 250 MR. SHEPHERD: Mr. Culbert, Exhibit E to the affidavit has an ROE for a 15-month period in it, doesn't it? 251 MR. CULBERT: Right. 252 MR. SHEPHERD: How do you get ROE if you don't have all the cost-of-service information calculated? You didn't just guess, you calculated? 253 MR. CULBERT: Right, I calculated it on a quarterly basis and accumulated quarterly amounts. 254 MR. SHEPHERD: It's still right. 255 MR. CULBERT: Correct. 256 MR. SHEPHERD: Did you have to build a new model to do that or just a new spreadsheet? 257 MR. CULBERT: No, I had to use a 12-month model and then for the fifth quarter in question I had to use that 12- month model and only insert one-quarter's worth of information. 258 MR. SHEPHERD: Ms. Hare, do you recall the first time the intervenors advised you of the problem with the ROE calculation for the stub period? 259 MS. HARE: The first time the intervenors advised us of the problem of the stub period? 260 MR. SHEPHERD: With the ROE issue, the one that we're talking about, the red block. 261 MS. HARE: No, I don't. I recall when one intervenor, School Energy Coalition, advised us that they thought it was a problem. 262 MR. SHEPHERD: Was it raised during the consultations prior to this case? 263 MS. HARE: No, it was not. 264 MR. SHEPHERD: Well, certainly by February you knew that the intervenors were concerned with this, didn't you? 265 MS. HARE: No, I did not. 266 MR. SHEPHERD: Well, there was a technical conference on February the 6th. Was it not raised at the technical conference? 267 MS. HARE: Not to my recollection. And to refresh my memory I looked at my notes and I looked at the notes that our reporter takes and there was no mention of a problem with ROE. There was mention, and this was certainly an issue that was raised by intervenors, was that there was discomfort with the use of CPI as the inflationary index for the three months. But the issue of whether or not the ROE is appropriate for the three months, to my best recollection, was not raised at the technical conference, nor was it raised in the consultations that we had with intervenors in advance of that. 268 MR. SHEPHERD: It wasn't actually the use of CPI that bothered people, was it? Wasn't what people complained about many times to you that you were not using cost of service after the Board told you in the 2004 case not to index again? 269 MS. HARE: Yes. 270 MR. SHEPHERD: And so many intervenors said to you well in advance of April, say, well in advance, that you should be filing 15-month cost of service; isn't that right? 271 MS. HARE: Well, I'm not sure that they said file 15 months. What was said was file cost-of-service type information so they could see whether or not 90 per cent of CPI compared to what the costs and revenues would be in the three-month period. Mr. Shepherd, that's a very different issue than looking at ROE for a three-month period. 272 MR. SHEPHERD: Well, if you had filed 15 months cost-of-service issue, the 11 per cent would have appeared, wouldn't it? 273 MS. HARE: Not if we filed it for the three months or the way we did present the cost-of-service information, which was on a 12-month period. 274 MR. SHEPHERD: You were asked in an interrogatory on February 20th to file 15-month cost of service. Had you done that, is it or is it not correct that that would have shown 11.066 ROE? 275 MR. CULBERT: It likely would have shown that. What it wouldn't have shown is what the benchmark ROE is from Board-approved perspective for 15 months, which is not established. 12 months approved ROE is established. 15 months or three months are not established guidelines. 276 MR. SHEPHERD: Is it true, Ms. Hare, that as late as April 22nd, you met with my clients, at your request, and discussed this issue in detail and the issue of ROE was put to you with visual aids; isn't that true? 277 MS. HARE: Yes, it was. But, Mr. Shepherd, that really was the first time that that was discussed, and that wasn't discussed with all intervenors, it was just with your client. 278 MR. SHEPHERD: I'd ask you to turn to Exhibit I, tab 16, schedule 158. 279 Now, it's true, isn't it, Ms. Hare, that after you refused to answer 125, you were asked again to provide that information on April 16th; correct? 280 MS. HARE: Yes, that's correct. 281 MR. SHEPHERD: And you still didn't answer it. 282 MS. HARE: No, we didn't answer because we couldn't answer, and it was because of this interrogatory that I requested to meet with your client to discuss the information that you're asking for and to see if there was a different way that we could show your client the information that you're getting at. 283 MR. SHEPHERD: This is the very same evidence that you're seeking to file late, isn't it? 284 MS. HARE: I'm not sure that's quite true. What we're seeking to do is to complete the evidence so that the Board has got the best information before it in order to make the best decision. 285 MR. SHEPHERD: You'll forgive me if I say this, that the way you've gone about it appears to be awfully convoluted. If people keep asking you for 15 month information and you want 15 months of rates, why didn't you just give it to people? Why didn't you just put it -- you see, what the problem is, it looks like you were trying to hide the ROE impact. I'm not suggesting that's true. You understand that it looks like that. I'm trying to understand why you just didn't do it in the first place and do it then. 286 MS. HARE: Mr. Shepherd, it may look like that to you. I don't believe that's what it looks like, and I don't believe that's a fair characterization of what happened. I might just say we had five meetings with intervenors from the time that we started putting our application together. The meeting where this change in year-end was discussed didn't really receive any discussion about ROE or 15-month period. We received in total 1,064 interrogatories; there were 27 on this issue. It really wasn't raised as a major issue until fairly late in the game. And at that point, I might say, we were trying to be helpful and to provide the information. We didn't have it on the 15-month period. 287 MR. SHEPHERD: It is true, isn't it, that the company has in the past packaged its information for the Board to achieve its financial information to receive the result it wants; isn't that true? To make it look the way that looks best for the company. 288 MS. HARE: I don't know if we package it any particular way that looks best for the company as opposed to just showing the information. 289 MR. SHEPHERD: Just as an example, it's true, isn't it, that with respect to the deferred taxes issue, that the company deliberately ensured that the taxes paid by Rentco, the rental asset company, was approximately $5 million a year because that's what the company was asking the Board to allow them to recover; isn't that true, and haven't you admitted in evidence? 290 MS. HARE: Mr. Shepherd, I'm not a witness on that issue. 291 MR. SHEPHERD: I'm asking whether that is a regulatory strategy of the company. 292 MS. HARE: No, it is not a regulatory strategy to try to package information in a way that suits the company's purpose as opposed to putting the information forward in a way that we believe the Board requires. 293 MR. SHEPHERD: Okay, let me turn to something else. Oh, just let me ask you, when did you retain Mr. Todd's company? 294 MS. HARE: We called Mr. Todd's company the afternoon of the meeting that we met with you. 295 MR. SHEPHERD: April 22nd? 296 MS. HARE: It was on April 22nd. We didn't retain him at that point. We called him and a member of his firm came to meet with us the next day. 297 MR. SHEPHERD: And when were they retained? 298 MS. HARE: Shortly after that. 299 MR. SHEPHERD: And when was their evidence first prepared? 300 MS. HARE: Last Friday when the motion was filed. 301 MR. SHEPHERD: Six weeks later. 302 MS. HARE: When we met with Mr. Todd's firm, it was to see whether or not the issues that you raised on behalf of your client, whether somebody else would look at it the same way, because we certainly looked at the change in year-end from the different perspective. I wanted to get an independent view as to whether or not there was any merit in the way that your client was suggesting we look at the change in year-end. The idea wasn't at that point that evidence would be filed. I felt that it was too late, at that point, to introduce evidence that wouldn't be ready until the week before ADR. I was also hopeful that we'd settle the issue in ADR which would mean that evidence wouldn't be required. 303 MR. SHEPHERD: Let me turn to something else. Ms. Hare, year-end is applicable for three purposes, correct: Financial reporting, taxation and regulatory. 304 MS. HARE: Yes. 305 MR. SHEPHERD: Now, for financial reporting purposes, and I looked for this in the evidence, I'm sure I've heard this somewhere and I don't know where I heard it, do I understand correctly that the company plans to do audited financials for the 12 months ended December 31st, 2004, and consolidate those into EI's results for December 31st, 2004 EI results; is that right? 306 MS. HARE: That's what Enbridge Inc. is planning to do, yes. 307 MR. SHEPHERD: Okay. So then for financial reporting, the change in year-end is happening this year. 308 MS. HARE: That's correct. 309 MR. SHEPHERD: Now, for taxation purposes, if I understand correctly, the company plans to defer the year-end change to 2007 or so, to wait until the large corporations tax is gone? 310 MS. HARE: That's correct. 311 MR. SHEPHERD: And that's just to avoid double taxation; right? 312 MS. HARE: That's right. 313 MR. SHEPHERD: So your request to withdraw and refile is predicated on a need for regulatory purposes to do this in 2005; right? 314 MS. HARE: We would like to do it in 2005, yes. 315 MR. SHEPHERD: So why wouldn't you just wait until your 2006 rate case? If you don't have enough evidence in this case to deal with this issue, why don't you just withdraw it and put it in your next rate case? 316 MS. HARE: Because it would mean doing two budgets, one on a calendar year for reporting purposes and one for regulatory purposes. 317 MR. SHEPHERD: But you're already doing that, aren't you? 318 MS. HARE: I don't believe we are for 2004, no. 319 MR. SHEPHERD: So you're going to end up with a situation in which you have financial reporting changed in 2004, regulatory changed in 2005, you hope, and taxation in 2007. 320 MS. HARE: Yes. 321 MR. SHEPHERD: But it's not okay to have 2004, 2006, and 2007 for those three same changes? 322 MS. HARE: No, it would be preferable to do from a regulatory perspective in 2005. 323 MR. SHEPHERD: Okay. Now, today the Board accepted the settlement proposal of the parties in this matter, and as I understand that settlement proposal, you can correct me if I'm wrong, that deals with most aspects of this rate case for the entire 12 months ended September 30th, 2005; right? 324 MS. HARE: That's correct. 325 MR. SHEPHERD: So, then, if you file a cost-of-service application for the 12 months starting January 1st, 2005, doesn't that mean you have to go over nine months that have already been decided? 326 MS. HARE: No, because we wouldn't make any changes to the nine months. We wouldn't change the O&M for the those nine months or the rate base or the ROE. 327 MR. SHEPHERD: So then the application you want to make in the fall is an application for three months of rates? 328 MS. HARE: No, it would be for 12 months of rates. 329 MR. SHEPHERD: But you've just said those 12 months are already set. 330 MS. HARE: We would put forward a cost-of-service application, but the difference would be the nine months of information would be exactly the same as what's approved in the settlement proposal. 331 MR. SHEPHERD: So you would be seeking a rate change effective January 1st, 2005? 332 MS. HARE: No, not necessarily. 333 MR. SHEPHERD: Well, that's sort of a yes/no question, Ms. Hare, sorry. 334 MS. HARE: I'm sorry, put the question to you again, please. 335 MR. SHEPHERD: Is it your intention to seek a rate change on January 1st, 2005? 336 MS. HARE: No. We would be asking for rates to be set on that 12-month period. The implementation of those rates would be a different issue. 337 MR. SHEPHERD: And your expectation, then, would be that the rates set in this hearing now would continue until September 30th, 2005, at which time there might be a change in rates? 338 MS. HARE: Yes. 339 MR. SHEPHERD: And of course in order to do that, you'll have to file cost-of-service information for that three months; right? 340 MS. HARE: For the 12 months. 341 MR. SHEPHERD: It will include the three months; right? 342 MS. HARE: Yes. 343 MR. SHEPHERD: Let me finally turn to your alternative grounds for relief, the late-filed evidence. If this evidence is accepted by the Board on Friday, I assume that the company agrees that there should be interrogatories on that evidence? 344 MS. HARE: Yes. 345 MR. SHEPHERD: And I assume that, as well, the company agrees that intervenors should be at that point free to obtain their own experts to review these issues? 346 MS. HARE: Yes. 347 MR. SHEPHERD: And with time to prepare written evidence and have interrogatories and responses on that? 348 MS. HARE: Yes. 349 MR. SHEPHERD: So I'm not sure I can figure out how you plan to shoehorn this all into this particular hearing. Can you take us through that? 350 MS. HARE: Well, my assumption was, first of all, the evidence that was filed in draft, when it's finalized, would not be any more extensive than what's filed. So it's nine pages for Mr. Todd, one page for Mr. Gruending, two pages from Mr. Culbert. It didn't strike me that it would take very much time for intervenors to send us interrogatories on what would in total by less than 15 pages, nor would it take us much time to respond. So what I wasn't sure about is whether or not intervenors would want to retain experts or not. You asked me do I believe that time should be allowed for that, and the answer would be yes. But whether intervenors chose that option, I'm not sure. So from the time that the evidence is finalized and interrogatories are asked and responded to, I didn't think that would take more than ten days total. 351 MR. SHEPHERD: Including finding and retaining experts? 352 MS. HARE: No. I'm just speaking about posing interrogatories to the company and the company responding to the interrogatories. 353 MR. SHEPHERD: So you're anticipating that the intervenors would ask questions of your expert without experts of their own? 354 MS. HARE: That was my assumption. It might be an incorrect assumption, but that was my assumption. 355 MR. SHEPHERD: And -- 356 MS. HARE: I might say that was my assumption based on the fact that intervenors often don't hire experts. 357 MR. SHEPHERD: This is a situation where the company, with all of its expertise, still figured it had better go outside and get an expert. 358 MS. HARE: Yes. 359 MR. SHEPHERD: It wouldn't be a surprise if intervenors with less resources did the same. 360 MS. HARE: Well, we retained an expert because we thought an interview would be helpful to the Board. 361 MR. SHEPHERD: Now, if, instead, there has to be a second phase of this hearing, I'm just trying to understand, how is that different from your first ground of relief, withdrawal and refiling of the case? It amounts to the same thing, doesn't it? It's procedurally different, but it's the same thing in the end. 362 MS. HARE: I think there isn't much difference, yes. 363 MR. SHEPHERD: And from the Board's point of view, I understand that the company would rather not have to budget two ways for next year, but from the Board's point of view, how is either of those options better than simply dealing with this issue in the next rate case? 364 MS. HARE: I'm sorry, repeat the question, please. 365 MR. SHEPHERD: From the Board's point of view, how is either of these options better than simply dealing with this in the next rate case, when everybody has lots of time to file expert evidence, et cetera? 366 MS. HARE: I don't know from the Board's perspective which is preferable. I can only speak from the company's perspective. We would like to have the change in year-end dealt with. 367 MR. SHEPHERD: Those are my questions, Mr. Chairman. 368 MR. BETTS: Thank you, Mr. Shepherd. 369 Mr. Thompson. 370 MR. THOMPSON: Yes, thank you, Mr. Chairman. 371 CROSS-EXAMINATION BY MR. THOMPSON: 372 MR. THOMPSON: Just so you know where I'm coming from, Ms. Hare, my client's position is that issue 13.1 stays on the list, it ought not to be removed, and my client's position is that you should not have a right to prefile any further evidence with respect to the issue. So that's, at the end of the day, where we'll be coming from, and my questions are pertaining to matters relevant to that position. 373 I'd like to start, if I could, with paragraph 7 of your affidavit. It's really at paragraph 5 and also paragraph 7. This is where the amount of $30 million is mentioned. That amount first appears in the language of the intervenors' position in the settlement proposal, as you mentioned. And I took it from the answers that you gave to Mr. Shepherd that there's no quarrel about the amount, the quarrel is about entitlement; is that fair? 374 MS. HARE: I'm sorry, entitlement in terms of whether the ratepayers are entitled to $30 million? 375 MR. THOMPSON: That's right. I thought Mr. Culbert indicated that. It's not a question of amount, it's a question of entitlement. 376 MS. HARE: Well, I think the quarrel is whether or not there should be any amount, because the quarrel is how does one look at what the ROE should be in a three-month period. I think that's the quarrel or the disagreement that we've got with intervenors. 377 MR. THOMPSON: Well, let me just pick it up with Mr. Culbert, then. 378 I understood you to say to Mr. Shepherd when he asked you when do ratepayers get this red block back, that's the $30 million, right, that we're talking about? 379 MR. CULBERT: Correct. 380 MR. THOMPSON: And your answer, as I noted it, was it's not a question of when you get it back, it's a question of whether ratepayers are entitled to get it back. Is that what you said? 381 MR. CULBERT: It's a question of whether that number is an overearnings or not, or whether it's simply earnings that the company would otherwise earn regardless of whether it changed its year-end or not. 382 MR. THOMPSON: But as to the facts of the calculation of the amount, I took it that there was no dispute as to the calculation of the amount. It's $30 million assuming there's no increase in the stub period, as you've requested. About $30 million. 383 MR. CULBERT: The calculation of $30 million is correct assuming that the benchmark ROE for that three-month period is simply one quarter of an annual ROE which is not established. 384 MR. THOMPSON: And assuming you do not get a rate increase for the stub period, as you've asked for? 385 MR. CULBERT: Correct. 386 MR. THOMPSON: All right. And there's no quarrel with the fact that ratepayers will not get this amount back if the issue is not resolved at some time. 387 MS. HARE: I'm not sure there's anything to get back. That's why we're having a problem with how you're phrasing the question, Mr. Thompson. 388 MR. THOMPSON: Let's put it this way: The intervenors' claim for the overearnings adjustment is part and parcel of issue 13.1. 389 MS. HARE: Correct. 390 MR. THOMPSON: Okay. That issue is not going to go away. It has to be argued. 391 MS. HARE: Yes. 392 MR. THOMPSON: Okay. And there's no dispute about that, it has to be argued? 393 MS. HARE: That the issue has to be argued, yes, it does. 394 MR. THOMPSON: At some point. Thank you. And what you're proposing is to take the issue out of this case; right? 395 MS. HARE: That's one of the alternatives that we put forward, yes. 396 MR. THOMPSON: Well, your first proposal is to take it out of this case. 397 MS. HARE: Yes, and in the alternative -- 398 MR. THOMPSON: Is to leave it in but let us have more evidence? 399 MS. HARE: Yes. 400 MR. THOMPSON: Okay. Let's talk about the taking it out of this case. What you're asking the Board to do is to allow you to take an issue out of this case that arguably has value to intervenors of about $30 million. That's what you're asking the Board to do. 401 MS. HARE: Yes. 402 MR. THOMPSON: Okay. And in your affidavit, in paragraph 10, you make reference to the Board's Rules of Practice and Procedures with respect to withdrawal of an application; do you see that? 403 MS. HARE: Yes. Yes. 404 MR. THOMPSON: Just pausing there, if I might, Mr. Chair. I placed on the dias, and it has been circulated this morning, a brief entitled: "Documents Brief of the Industrial Gas Users Association." Perhaps it would be appropriate to mark that at this time. 405 MS. LEA: K.1.4. 406 MR. BETTS: Thank you. 407 EXHIBIT NO. K.1.4: IGUA DOCUMENTS BRIEF ON MOTION 408 MR. BETTS: And how will we describe that again? 409 MS. LEA: Documents brief on motion? 410 MR. THOMPSON: Yes. 411 MR. BETTS: Thank you very much. Please proceed. 412 MR. THOMPSON: The IGUA documents brief on motion. 413 MS. LEA: Thank you. That would be a better description. 414 MR. SOMMERVILLE: That's K.1.3? 415 MS. LEA: K.1.4. 416 MR. THOMPSON: If you go to tab 1, Ms. Hare, of K.1.4. Just for the record, I gave you notice of these documents yesterday by letter and didn't have the material with me until this morning, but I assume you had a chance to look at the rules? 417 MS. HARE: Yes, I did. 418 MR. THOMPSON: Thank you. And if you go to Rule 20, that's a rule with respect to withdrawal. Is that the rule to which you were referring in paragraph 10 of your affidavit? 419 MS. HARE: Yes, it is. 420 MR. THOMPSON: And if you go to Rule 20.05, it reads: 421 "If the Board has reason to believe that a withdrawal or discontinuance may adversely affect the interests of any party or may be contrary to the public interest, the Board may hold or continue the hearing." 422 Do you see that? 423 MS. HARE: I do see it, yes. 424 MR. THOMPSON: Okay. And does the company accept that that principle is engaged by your application to remove issue 13.1 from the proceedings? 425 MR. CASS: Well, Mr. Chair, these are questions about the Board's rules that I think should properly be addressed in argument. If Mr. Thompson wants to address argument about what the rules mean, then I will be in a position to respond to that argument. It will certainly be my position that Rule 20 is talking about withdrawal of an application. There is no proposal here to withdraw the entire application. But you can readily see just by my making that comment, that we're into argument, we're not into matters of evidence. 426 MR. THOMPSON: Well, with respect, we're into matters contained in paragraph 10 of Ms. Hare's affidavit where she cites the Rules of Practice and Procedure that with respect to circumstances where an applicant may withdraw. I suggest I'm entitled to cross-examine on that paragraph. How far I can get with it is another matter, and I don't intend to go much farther. I think it's a bit unreasonable for Mr. Cass to be taking the position it's a matter of argument when the statement is contained in paragraph 10 of Ms. Hare's affidavit. 427 Is this argument in your affidavit, Ms. Hare, or is it fact? 428 MS. HARE: Well, Mr. Thompson, paragraph 10 sets out that in looking at the Board's Rules of Practice and Procedure, I found 20 which talks about withdrawal of an application. But what I'm trying to say in paragraph 10 is that I couldn't find what -- where it said how you withdraw an issue as opposed to the entire application. Now, I may be wrong about how I looked at the Rules of Practice and Procedure. I was relying on my counsel in drafting the motion. But that's what paragraph 10 is referring to, is the withdrawal of an application. 429 MR. THOMPSON: All right, well, let me ask you this, then. Whether what you're seeking to withdraw is an application or simply an issue within the ambit of an application, does the company accept that the principle that should apply in the determination of the request is the principle reflected in Rule 20.05? 430 MS. HARE: I don't know, Mr. Thompson. 431 MR. THOMPSON: All right. Well, I'll take that as an acknowledgment that it's arguably applicable. 432 Would you agree with me that the withdrawal of the issue from these proceedings adversely affects the interests of intervenors in these proceedings? 433 MS. HARE: No, I do not. 434 MR. THOMPSON: And why doesn't it? 435 MS. HARE: Because rates are being set on a 12-month period, and we've settled a number of issues on the 12-month period. I don't see how the interests of intervenors are affected. What we're saying is we'll come forward with an application to address the three-month period affected by the change in year-end. So the intervenors' arguments can be made in the fall when they have better evidence and when the company has better evidence. 436 MR. THOMPSON: Well, are you, in effect, saying we're not adversely affected because you're right and we're wrong? 437 MS. HARE: No. I'm saying that all parties will have an opportunity to present evidence before the Board and the Board will be able to look at that evidence and make a determination as to who's right and who's wrong. 438 MR. THOMPSON: Well, I'll come to that in a minute, but we've had every opportunity to do that in this case, I suggest. This issue arose as part of your application to, in effect, fix rates for 15 months. 439 MS. HARE: I suggest, Mr. Thompson, we haven't had a chance in this application because much of the argument really arose very late in this whole proceeding in terms of how one intervenor looked at the issue in terms of what the ROE should be. That wasn't an issue that was raised from the time of filing up until probably April. 440 MR. THOMPSON: All right. Well, I'll come back to some of the points you made there in a moment. 441 Let's just move on to some further questions which are presented to you on an assumption that the Board has a discretion to either permit you to remove or not to permit you to remove this issue from the issues list, okay? And I say relevant to an exercise of that discretion are a number of topics, and one of them is whether the withdrawal that you seek is going to be permanent or temporary, and you've made it clear this withdrawal is temporary. 442 MS. HARE: Yes. 443 MR. THOMPSON: The second is whether the removal adversely affects the interests of ratepayers. I say it does. It eliminates this claim for an overearnings adjustment. And in this particular case, that's of significance, I suggest, because, and I put this to you as a question, in this case, do you agree you have a temporary revenue requirement increase related to this deferred taxes issue? 444 MR. CASS: Did you mean to say deferred taxes, Mr. Thompson? 445 MR. THOMPSON: Yes, rental program deferred taxes. You're seeking to boost up revenue requirement by $18.4 million per year, and that will be temporary, it's for two years. That's set out in issue 12.1 in the settlement -- 446 MS. HARE: No, I understand the issue. I don't understand how it relates to what year talking about. 447 MR. THOMPSON: We have the case where the company, in its deferred taxes claim, is seeking a temporary increase in revenue requirement over two years of about $37 million; right? 448 MS. HARE: Yes, and that's an issue that's before the Board. 449 MR. THOMPSON: And you're seeking to remove an issue from this case which has an overearnings adjustment in favour of ratepayers of about $30 million. 450 MS. HARE: Well, I don't agree with an overearnings adjustment. 451 MR. THOMPSON: Allegedly an overearnings adjustment. That's the intervenors' position. You're seeking to remove that from this particular case. 452 MR. CULBERT: We're seeking to provide the best possible information for the Board to review in determining what the allowed ROE is for that three-month period, and we don't believe the Board has that information before it. 453 MR. THOMPSON: You're seeking to remove the issue from the case. 454 MR. CULBERT: At this time, correct. 455 MS. HARE: Yes. 456 MR. THOMPSON: All right. Now, another factor relevant to the Board's exercise of discretion as to whether you should be permitted to remove or not permitted to remove is, I suggest, your reasons for seeking to remove it, and one of them is, as you've indicated to Mr. Shepherd, you want the opportunity to present the claim in a different context. 457 MS. HARE: That's correct. 458 MR. THOMPSON: All right. Now, why should the Board give you the opportunity to present the claim in a different context? 459 MS. HARE: Because I would expect that the Board would want full evidence before it in making a decision and the best evidence before it when making a decision. 460 MR. THOMPSON: This case was based on an application for rates for 15 months? 461 MS. HARE: No, it was based on 12 months with the request to change year-end and set rates for the additional three months. 462 MR. THOMPSON: Let me put it this way: Had the rate order that you currently seek -- if the rate order that you currently seek in this case is granted, you will have rates for 12 months ending September 30, 2005 and rates for a further three months ending December 31, 2005. 463 MS. HARE: Yes. 464 MR. THOMPSON: So the application, as framed, was for a period of 15 months. 465 MS. HARE: We applied for 12 months plus three months which adds to 15 months, but we applied for rates on a 12-month period. 466 MR. THOMPSON: I understand your point about the 12-month cost of service. But the rate order that you're seeking, I think you would agree, would operate, if granted, from January 1, 2005 -- sorry, from October 1, 2004 to December 31, 2005. 467 MS. HARE: Yes. 468 MR. THOMPSON: All right, for 15 months. And now you're saying, Well, we'd like to change that. We'd like to have rates approved that will operate until September 30, 2005? 469 MS. HARE: Yes. 470 MR. THOMPSON: And that's the settlement proposal rates? 471 MS. HARE: Yes. 472 MR. THOMPSON: And then you say, We'd like to have the opportunity to come in with a new application for rates January 1, 2005 to December 31, 2005. 473 MS. HARE: Yes. 474 MR. THOMPSON: All right. And you don't feel you're precluded from doing that by the settlement proposal? 475 MS. HARE: No, I do not. 476 MR. THOMPSON: All right. And would you just explain why you form that conclusion, given that the settlement proposal results in an order fixing rates that will have effect to September 30, 2005. That revenue requirement is determined by the Board. 477 MS. HARE: Yes. 478 MR. THOMPSON: And you want to come in later this year and have a new revenue requirement encompassing nine months of that period determined by the Board. 479 MS. HARE: Well, what we would see is that we would be presenting the information on a different 12-month period, and then the Board would determine how rates should be set for the three-month period. And what we're suggesting is that we would show cost of service for a 12-month period starting January 31st, going to the end of December. 480 MR. THOMPSON: Let's assume -- I won't argue with you. Let's assume that, following the argument of this motion, the Board concludes that the change of context that you wish to present is not available to you because of the settlement proposal. On that assumption, would you still be seeking to remove this issue, 13.1, from the issues list in this case? 481 MS. HARE: I think we'll be guided by whatever the Board decides. 482 MR. THOMPSON: All right. Now, another reason why you want to remove this issue is for this opportunity to, I'm going to use the word, "bolster" the evidence with respect to the issue in this case; is that another reason why you want to remove this issue from the list? 483 MS. HARE: There actually is very little evidence on this issue that has been filed, so, yes, we would like to file more complete evidence. 484 MR. THOMPSON: Well, do you agree the matter is largely a matter of argument and not evidence? 485 MS. HARE: No, I do not. 486 MR. THOMPSON: All right. Well, let's move, then, to the opportunities that you've had to deal with this particular issue. 487 Now, would you agree with me that the issue or the topic of stub period stuffing was raised at an early stage in this process? I think it was on Issues Day. That's Mr. Fournier's phrase. Does it ring a bell? 488 MS. HARE: No, it does not ring a bell on Issues Day. 489 MR. THOMPSON: Does it ring a bell later? 490 MS. HARE: Yes, it does. 491 MR. THOMPSON: What is your recollection as to when the bell went off? Was it at the beginning of ADR or was it prior thereto? 492 MR. CASS: I think Ms. Hare is having a difficulty here because she's -- she shouldn't be speaking about discussions at ADR in this proceeding. 493 MR. BETTS: I think we probably all understand that any discussions that took place during or inside the ADR process should not be made public. Is that where you were heading, Mr. Thompson? Is that what you were asking for? 494 MR. THOMPSON: I was just trying to get a point in time. But if the recollection is it's within a confidential discussion, then I'm happy with that. 495 Is your recollection it was in the ambit of some confidential discussion? 496 MS. HARE: Yes, it was. 497 MR. THOMPSON: All right. Okay. Now, in terms of the opportunity to deal with the issue, Mr. Shepherd -- as I understand it, Mr. Shepherd's client had meetings with you with respect to the issue before the ADR commenced; am I correct? 498 MS. HARE: That's correct. 499 MR. THOMPSON: Could you just tell me when? Was it one meeting or a series of meetings, and when they took place or it took place? 500 MS. HARE: There was one meeting on April 22nd. 501 MR. THOMPSON: And then prior -- 502 MS. HARE: I might -- 503 MR. CASS: Sorry, did Ms. Hare have an opportunity to finish her answer? 504 MS. HARE: I was going to say that I also had meetings with your client, Mr. Thompson, on two occasions with respect to issues in this rate case, and on one of those occasions I mentioned the change in year-end and it received next to no discussion with the board of IGUA. 505 MR. THOMPSON: Yes, and I think you called Mr. Fournier about that yesterday, and he indicated to you that the priority issues for IGUA at the time of those meetings were the rate design issues -- the cost-allocation-related rate design issues. 506 MS. HARE: That's absolutely true. But my point is that I couldn't have understood what the position of various parties were when nobody was raising this as an issue until Schools came and explained in detail on April 22nd what their position was. 507 MR. THOMPSON: Okay. We're now at June the -- what? 508 MS. HARE: 16th. 509 MR. CASS: 16th. 510 MR. THOMPSON: June 16th. Do you agree that there were interrogatories asked about the stub-period issue? 511 MS. HARE: The interrogatories that were asked about the stub period really focused on the inflationary index. There were no questions until the School Energy interrogatory about the ROE issue. 512 MR. THOMPSON: In any event, following the meeting with Mr. Shepherd and his client -- were you at that meeting, by the way? 513 MS. HARE: Yes, I was. 514 MR. THOMPSON: You thought it appropriate to get some advice on this topic. 515 MS. HARE: Yes. 516 MR. THOMPSON: And that's when you contacted somebody at Mr. Todd's firm. Was that Mr. Riedl? 517 MS. HARE: No, it was Mr. Bacon, Bruce Bacon. 518 MR. THOMPSON: And having done that, you then made a conscious decision not to meet any evidence with respect to the issue. You thought the topic might go away during the ADR, I thought that's what I heard you say. 519 MS. HARE: Maybe I should explain what the context of that contact with Mr. Bacon was. He did come to meet with us on Friday, April 23rd. We explained what the issue was to him. He was going on vacation and said he would think about it for a week or so. The next meeting was May 4th and again, it was really an exploratory meeting as to different perspectives at looking at this issue with change in year-end. It was a few days after that, I think it was May 9th or 10th, that Mr. Todd sent us some information that might have been helpful in terms of evidence. But at that point, with ADR starting on the 18th, I didn't see that we could do anything with that information and, as I mentioned, I was hopeful that the issue would be settled. 520 MR. THOMPSON: All right. The bottom line is you didn't do anything about it before ADR started. 521 MS. HARE: That's correct. 522 MR. THOMPSON: All right. And now, in this motion, one of the grounds that you rely on to justify your request to be allowed to put further evidence in, either if the issue remains on the list in this case or later, is the completion of the record argument. 523 MS. HARE: Yes. 524 MR. THOMPSON: Okay. And with respect to your review of the Rules of Practice and Procedure on this topic, amending the evidentiary record to complete it, did you review Rule 11, which you'll find at the first page under tab 1, Exhibit K.1.4? 525 MS. HARE: No. At the time that the affidavit was written and the motion was produced, I personally didn't look at number 11. Perhaps my counsel did, but I didn't. 526 MR. THOMPSON: Okay. Well, that rule says that: "The Board may order an amendment to the evidentiary record that may be necessary for the purpose of a complete record." 527 That's what the rule says. And is the company taking the position that it can determine in any case as it moves along whether the record with respect to an issue is complete or incomplete? 528 MS. HARE: No, the company is not making that determination. We're going to the Board and asking if we can complete the record. That was the purpose of filing the motion as opposed to just bringing forward information into evidence. 529 MR. THOMPSON: But whether the existing record is complete or incomplete with respect to this issue to enable the Board to decide it, I suggest, is a matter that the Board can only determine after there's been cross-examination on the existing record. 530 MR. CASS: Well, again, Mr. Chair, we're getting into Mr. Thompson's argument here and I don't think it's fair for him to be putting his argument to the witness. I'll be only too happy to respond to Mr. Thompson's arguments on Friday. 531 MR. THOMPSON: All right, I'll move on. 532 I'd like to turn now to paragraphs 11 and 12 of your affidavit briefly, Exhibits A and B, which are drafts, as I understand it, of the additional evidence that you wish leave to adduce, and discuss the nature of this evidence. 533 First of all, in terms of Exhibit C to your affidavit, this is evidence from a corporate witness, an Enbridge Inc. Corporate witness; am I correct? 534 MS. HARE: Yes, it is. 535 MR. THOMPSON: And there are a number of Enbridge Inc. Corporate witnesses on the witness list? 536 MS. HARE: Yes, there are. 537 MR. THOMPSON: All right. By itself, you believe you should be given the opportunity to adduce further evidence from another corporate witness? In other words, if you didn't have Mr. Todd's piece in here, would you be asking to have this issue removed from the list in this case on the basis that you wanted an opportunity to put in evidence from another corporate witness? 538 MS. HARE: I'm sorry, Mr. Thompson, the way you posed the question, I'm not sure how to answer. But let me just say, we would like to introduce Mr. Gruending to the witness panel on this issue. I'm not sure if that's what you're asking. 539 MR. THOMPSON: Even if Mr. Todd's evidence is excluded on other grounds, you would be asking to remove this issue from the issues list because you want an opportunity to adduce a one-page statement from Mr. Gruending. 540 MS. HARE: The issue being removed from this case is the option we put forward to refile in the fall, in which case we would have Mr. Gruending, director of investors relations on the panel. I don't see how it relates to Mr. Todd's evidence. 541 MR. CASS: I don't know whether this helps, Mr. Chair, but the draft evidence attached as exhibits to the affidavit is the evidence that the company puts forward if the Board determines that the appropriate course of action is to proceed in this case. I don't think the company is intending to say this is exactly what the evidence would be if the other option that is followed is an application later this year. It probably would include this. It might include other things. I don't think the company has directed its mind as to what the evidence would be in the context of another application later this year. This is the evidence that the company proposes if the ultimate decision is to proceed in this case. 542 MR. THOMPSON: All right. That's helpful, thank you. 543 Now, let's turn, then, to the evidence of Mr. Todd. Now, I have to -- perhaps I should preface this with remarks to the Board Chair. Perhaps I can make this statement and then take it from there. 544 Mr. Todd first surfaced as a supporter of the company's position with respect to this issue during the ADR, and I wanted to confirm that with the witness and I wanted to have the witness confirm that the arguments that he makes in his draft evidence are, in essence, the same arguments that he put forward during this process. And my argument will be on the motion that that circumstance disqualifies Mr. Todd from being a witness for the company in these proceedings because of the provisions from the rules that pertain to discussions during the course of the ADR. So that's where I'm headed with some confirmation questions, but I wanted to alert you that it's in this delicate area of ADR discussions. 545 MR. BETTS: Maybe I'll invite submissions on the request for that -- those two pieces of information to be included on the public record. 546 Mr. Cass, do you have any submissions? 547 MR. CASS: Yes, I do, Mr. Chair. Thank you. 548 MR. BETTS: First of all, is there anyone that has any submission they'd like to make in support of the direction that Mr. Thompson is heading? 549 Then Mr. Cass. 550 MR. CASS: Mr. Chair, to state my position up front, I most certainly object to a line of questioning that apparently is intended to get into what was discussed during ADR. The company, in its motion, I believe, has not said anything about what was or was not said at ADR. The company's motion takes off from the wording of the settlement proposal which is on the public record in this proceeding. The company did not, for example, embark on any comparison between what Mr. Todd has in his evidence and what may or may not have been said at ADR. 551 I suggest that if the company had done that, we would have been met with the position that that's quite improper. In fact, that apparently is what Mr. Thompson now proposes to do, is to try to compare the evidence that is a matter of public record with discussions that may or may not have occurred in ADR. I submit it's just as improper for Mr. Thompson to go there as it would have been for the company to go there. The evidence is what it is as presented in this proceeding on the public record. What connection it may or may not have with discussions during ADR I submit is not an appropriate matter for consideration. 552 Thank you, Mr. Chair. 553 MR. BETTS: Mr. Thompson. 554 MR. THOMPSON: Well, I wasn't going to do a comparison of what was said there compared to what's in his testimony, other than a very high-level characterization. But perhaps I won't even go there if I can get the confirmation on this record that Mr. Todd first surfaced as a supporter of the company with respect to this issue in ADR. If I can have that confirmation on the record, then I think I can make my argument to you on Friday, without getting into this comparison business. 555 MR. BETTS: Mr. Cass, with that focus, are you still -- I think Mr. Thompson is asking did Mr. Todd attend at the ADR and support a company position. I think that's what he's going to be asking. Do you find that objectionable? 556 MR. CASS: Mr. Chair, if it's important to Mr. Thompson's argument to be able to say what he just put to the Board, that from the intervenors' perspective, Mr. Todd first surfaced during ADR, I don't want to throw an obstacle in front of him arguing that. I'm content to let him argue that. Of course I'm concerned about anything that gets into discussions at ADR, but I don't -- I don't have any objection to him arguing the point on the basis that he's described. 557 MR. BETTS: Certainly I think we all understand the rules that the material that was discussed in the ADR is not for public consumption, nor are any of the positions of any of the parties. I don't see at this point a problem with identifying those that participated and on whose behalf they participated. To that extent, I'd allow you to continue, Mr. Thompson. 558 MR. THOMPSON: Thank you, Mr. Chairman. 559 Can you just confirm for the record, then, Ms. Hare, that Mr. Todd first surfaced at the ADR as a supporter for the company with respect to this issue? 560 MS. HARE: Should I answer that question? Yes? 561 MR. BETTS: As far as I'm concerned, yes, please. 562 MS. HARE: Thank you. Yes, he did. 563 MR. THOMPSON: Thank you. 564 Now, in terms of the company's reliance on the evidence of Mr. Todd, first of all, would you agree with me that this issue that intervenors raise is essentially a regulatory rate-of-return issue? 565 MS. HARE: Yes, it is. 566 MR. THOMPSON: And would you agree with me that Mr. Todd is not an expert in rate-of-return matters. I've never seen him present evidence. 567 MR. CASS: Well, I'm -- 568 MR. THOMPSON: Well, you've attached his CV to your draft evidence. Does the company consider Mr. Todd an expert in rate-of-return matters? 569 MS. HARE: I consider him an expert in regulatory matters. 570 MR. THOMPSON: Now, Exhibit B to your affidavit is a copy of Mr. Todd's -- 571 MR. BETTS: Mr. Thompson, I don't want to interrupt and I don't want to break your train of thought, but if you could think of an appropriate time to schedule our morning break, I'd like to kind of squeeze that in before 11:30, if we could. 572 MR. THOMPSON: This would be fine, Mr. Chairman, if this is convenient to you. 573 MR. BETTS: I would be much happier if it was okay with you. 574 MR. THOMPSON: That's fine with me. 575 MR. BETTS: Okay. Then let us break, then, at this point. It's now five after eleven. We'll allow 20 minutes, so we'll aim to be back here at 11:25. We will recess until that time. Thank you. 576 -- Recess taken at 11:05 a.m. 577 --- On resuming at 11:28 a.m. 578 MR. BETTS: Thank you, everybody. Please be seated. Thank you. And thank you for allowing us to interrupt your cross-examination, Mr. Thompson. Please proceed. 579 MR. THOMPSON: Thank you. 580 I think at the break, panel, I had drawn your attention to Exhibit B to your affidavit, Ms. Hare. Just keep your finger on the first page of that. That's the first page after the page marked Exhibit B, which is entitled: "Personal Information of John D. Todd." 581 Just let me ask a general question, first. Speaking generally, is the company concerned with potential or actual conflicts of interest that its witnesses have with EGD? 582 MS. HARE: Are we concerned that there's a conflict of interest between Mr. Todd and the company's position? 583 MR. THOMPSON: No, I'm asking you a general question. Let's just forget about Mr. Todd. I'm just talking about witnesses generally. 584 MS. HARE: Are we concerned about conflicts of interest generally? Yes. 585 MR. THOMPSON: Potential or actual conflicts of interest that your witnesses may have with EGD. 586 MS. HARE: Yes, I think we are. 587 MR. THOMPSON: Could you explain why the company has these conflict of interest concerns? 588 MS. HARE: Generally? 589 MR. THOMPSON: Yes. 590 MS. HARE: Because I think that it speaks to the credibility of the witnesses' testimony if there's a conflict of interest or if there's a perceived conflict of interest. 591 MR. THOMPSON: Does the company, again speaking generally, attempt to avoid conflicts of interest in the witnesses that it retains or tenders? 592 MS. HARE: Yes. I would think so, yes. 593 MR. THOMPSON: Okay, then, let's look to Mr. Todd specifically with respect to the conflict of interest issue, and the first reference I wanted you to look at is page 16 of the settlement proposal, Exhibit N.1, tab 1, schedule 1, pages 16 and 17. I think I've got this wrong. Excuse me. I've given you a bum steer there. I think I'm trying to -- excuse me. 594 MR. CASS: It starts at the bottom of page 18. 595 MR. THOMPSON: Yes, it's issue 5.4, the system gas and direct purchase topic. And that issue, issue 5.4, is an issue that has not been resolved on its merits; would you agree? It's been deferred to another proceeding. 596 MS. HARE: Yes, that's correct. 597 MR. THOMPSON: Okay. And if you look at the bottom of page 19, in the evidence that's been filed with respect to that issue, there's a reference to Exhibit A3-5-4, participating marketers study. 598 MS. HARE: Yes. 599 MR. THOMPSON: And would you agree with me that that's evidence from Mr. Todd? 600 MS. HARE: Yes, it is. 601 MR. THOMPSON: And would you agree with me that the company's position with respect to this issue is adverse to the position that Mr. Todd outlines in that testimony? 602 MS. HARE: No, no, I would not say that, because Mr. Todd didn't advocate any position in that testimony. He undertook the study according to the terms of reference that were developed. He doesn't advocate a particular position in that study. 603 MR. THOMPSON: Well, let me -- he describes a factual situation in that study with respect to fully allocated costs; is that fair? 604 MS. HARE: He undertook the study the way the terms of reference required him to undertake that study. That study actually -- in that study he does not take a position. 605 MR. THOMPSON: Well, as he shouldn't. He's not an advocate, he's a witness. 606 MS. HARE: That's correct. 607 MR. THOMPSON: He describes some facts about fully allocated costs and there's some conclusions drawn from those facts as to amounts; correct? 608 MS. HARE: That's correct. 609 MR. THOMPSON: All right. Let me put it this way: When this issue is litigated on its merits, will the company be cross-examining Mr. Todd? 610 MS. HARE: I actually don't know, Mr. Thompson, because the issue was put to the Natural Gas Policy Forum, and the expectation would be that in that policy forum, there would be a review as to how system gas should be costed. And then, when it comes to our particular case, whether it's 2006 or beyond, it might not be an issue because in the Natural Gas Policy Forum there might be a decision as to which way system gas should be costed. So whether or not we ever cross-examine Mr. Todd or not, I'm not sure. 611 MR. THOMPSON: Well, would you agree with me that there's a potential for the company to be cross-examining Mr. Todd on the facts that have been outlined in that exhibit? 612 MS. HARE: There could be. 613 MR. THOMPSON: So there's the potential for a conflict. 614 MR. CASS: Well, that's a legal conclusion, I think, Mr. Chair, that Mr. Thompson has drawn, that this is a potential for a conflict. Again, this can be addressed in argument, if he's attempting to draw a legal conclusion about what represents a conflict. 615 MR. THOMPSON: I'll move on. 616 Let's go to Exhibit B, then, to your affidavit that I mentioned earlier, Ms. Hare, the personal information of John Todd. Again, just as a general question, when the company -- with its concerns about conflicts of interests and its witnesses, does it investigate the issue in any fashion, potential or actual conflicts? 617 MS. HARE: I certainly didn't in this case. 618 MR. THOMPSON: You did not. 619 MS. HARE: I did not. 620 MR. THOMPSON: You see on the first page here of Mr. Todd's CV, he states: "Founded Econalysis Consulting Services Inc." 621 Do you see that? 622 MS. HARE: Yes, I do. 623 MR. THOMPSON: Now, what conclusion did the company draw from that statement? Did the company conclude that he had an ownership interest? 624 MS. HARE: I don't know for a fact whether he does. I'm assuming he does. 625 MR. THOMPSON: All right. You didn't investigate it? 626 MS. HARE: No, I did not. 627 MR. THOMPSON: You make that assumption. That's fine. 628 Now, in terms of Econalysis Consulting Services Inc.'s role in this proceeding, can we agree that consultants Roger Higgin and Joyce Poon advise VECC? 629 MS. HARE: Yes, we do. 630 MR. THOMPSON: And can we agree that VECC supports the overearnings adjustment, and I'll put that adjustment in quotes because you don't agree with that word, which ratepayers seek to obtain in this proceeding? 631 MS. HARE: I don't know that for a fact, Mr. Thompson. 632 MR. THOMPSON: All right. Do you know that they don't support it? 633 MS. HARE: No, I don't. 634 MR. THOMPSON: So you haven't drawn any conclusions about VECC's position with respect to this issue? 635 MS. HARE: No, I have not. 636 MR. THOMPSON: Well, assuming they support the position, would you see that as a conflict of interest? 637 MS. HARE: No, because Mr. Todd informs me that within Elenchus Consulting Services there are three divisions and they are kept separate. So as I understand it, the division that Mr. Higgin and Ms. Poon are in don't speak to the division that Mr. Todd works in. 638 MR. THOMPSON: All right. Well, we'll argument whether that's a reasonable conclusion to draw. 639 Let me move to my last topic. I'm just trying to, I guess, understand the ambit of your emotion. Assume issue 13.1 stays in these proceedings -- 640 MS. HARE: Yes. 641 MR. THOMPSON: -- with or without further evidence. What happens to 13.2? And let me put the question this way: Is your request to withdraw 13.2 severable from your request to withdraw 13.1? 642 MS. HARE: No, they go together. 643 MR. THOMPSON: They go together. 644 Thank you very much, Mr. Chair, those are my questions. 645 MR. BETTS: Thank you, Mr. Thompson. 646 Mr. Janigan. 647 MR. JANIGAN: Thank you very much. 648 CROSS-EXAMINATION BY MR. JANIGAN: 649 MR. JANIGAN: Ms. Hare, the evidence that Enbridge seeks to introduce in the event that you were unsuccessful in persuading the Board to remove issues 13.1 and 13.2 that has been filed together with your affidavit relates to two matters; one would be the regulatory treatment of the stub period, and the second, the effect of the change upon markets. Would you agree with that characterization? 650 MS. HARE: Yes, I would. 651 MR. JANIGAN: And it strikes me that both of those issues are ones which Enbridge should have foreseen might have been raised in the course of the hearing and would have filed evidence to meet in the ordinary course of a rates application; would you not agree? 652 MS. HARE: No, I don't agree, and I don't agree, Mr. Janigan, for several reasons. One is that when we looked at the change in year-end, we looked at what happened when Union Gas changed its year-end and we spoke to Union Gas and this was not an issue that was raised in their proceeding when they changed year-end. We also had a meeting with Board Staff mid November, November 19th actually, and no one from Board Staff raised as an issue the rate of return. We had, as I mentioned when Mr. Shepherd was cross-examining me, we had several meetings with intervenors and again this wasn't raised as an issue. 653 So given change in year-end was -- you know, it's a new issue, it's not something that's done repeatedly, I don't believe there's any way I could have anticipated what the issue would have been. 654 MR. JANIGAN: Well, are you saying in relation to a particular issue, the evidence that you choose to file is dependent upon the initial response of the intervenors and Board Staff? 655 MS. HARE: No. If an issue is one that occurs in each and every rate case, the company has experience in knowing what information has to be filed. In this case, we had no experience with what had to be filed. We filed information that we thought was required to change the year-end and to adjust rates for a three-month period. The way the issue evolved is quite different than we saw it when we filed the evidence. 656 MR. JANIGAN: Does your evidence reference the Union treatment of -- 657 MS. HARE: No, it does not. 658 MR. JANIGAN: I'm concerned that you've indicated that this was one of the factors that influenced you to -- that influenced the degree of evidence that you offered in this case, that why you wouldn't reference that particular matter, at least as an explanation for why there is -- 659 MS. HARE: Because looking at the Union Gas case, when the year-end was changed, there's next to nothing. It seemed that it was a routine matter that was approved. So it didn't give us any indication as to what would be the crux of the issue or what evidence we would require. 660 MR. JANIGAN: Well, having done that exercise of investigating the Union decision and deciding that, in fact, it did not provide much comfort in terms of resolving the issues, why at that point in time would you not choose to offer more evidence on regulatory treatment, given the fact that that particular precedent wasn't helpful? 661 MS. HARE: I don't know what else we would have filed. 662 MR. JANIGAN: What about the effect of the change on markets? Isn't that something that would ordinarily would be anticipated as a question that might arise in the context of this proceeding? 663 MS. HARE: No, because we didn't think that there would be any change in markets as a result of changing year-end. 664 MR. JANIGAN: And this was something that came up in terms of your consultations with intervenors? 665 MS. HARE: Yes. 666 MR. JANIGAN: Okay. So that arose as a direct result of the response of the intervenors to the proposed changes? 667 MS. HARE: Just very recently. It did not arise from the meeting that we had in November with intervenors. 668 MR. JANIGAN: Now, I believe you covered with Mr. Shepherd, and I can't recall the answer that you gave at that time, why the company didn't provide a full and complete answer to the Schools' Interrogatory 158 at that time it was asked. Can you refresh my memory on what you said? 669 MS. HARE: At that time it was asked, we didn't have the information prepared in a format that could be filed. 670 MR. JANIGAN: Okay. And Exhibit E to your affidavit is now a supplementary response to that interrogatory; is that effectively what it is? 671 MS. HARE: It is. But even then, I'm not sure if it fully answers what the interrogatory was asking. Perhaps Mr. Culbert could answer. 672 MR. CULBERT: When we responded to that interrogatory, we said we would look at ways of providing information to the best of our ability, and that's what we've provided in that Exhibit E. 673 MR. JANIGAN: I guess, why does it appear here as an Exhibit E to a motion rather than filed as a supplementary in due course? 674 MS. HARE: Because it doesn't -- it still doesn't fully answer the interrogatory that was requested in 158. 675 MR. JANIGAN: I wonder if you could turn up paragraph 16 of your affidavit, Ms. Hare. And I believe you indicate here that an alternative approach would be for the Board to fix or approve rates for the stub period only based on the forecast of costs in the stub period. My question is: What about revenues in the stub period? Shouldn't projected revenues as well as costs be taken into account in determining just and reasonable rates for the stub period? 676 MS. HARE: Yes. 677 MR. JANIGAN: And at paragraph 16 you indicate that the company will update schedules at Exhibit A9, tab 1, schedules 1, 2, and 3 to reflect the settlement proposal. 678 MS. HARE: Yes. 679 MR. JANIGAN: Can that be done by way of transcript undertaking? 680 MS. HARE: Yes. I just -- Mr. Culbert told me the other day this was about three weeks' worth of work, so it's whether the time lines fit. 681 MR. JANIGAN: So it's not likely that you could do it before the submissions on the motion on Friday. 682 MS. HARE: No. 683 MR. CULBERT: No. We're in the process of completing an update of that information based on the update information the company filed recently of $85.4 million. But to take it to the state of the ADR-negotiated revenue requirement deficiency would require a considerable amount of work and probably take in and around three weeks' worth of work. 684 MR. JANIGAN: Good. I wonder if you could turn up VECC Interrogatory 137. That's Exhibit I, tab 18, schedule 137. And I wonder if you could confirm that the company plans to apply for a new revenue requirement and rates for the test year, calendar year 2006. 685 MS. HARE: Yes. 686 MR. JANIGAN: And when will any excess in the return for the stub period October 1st, 2005 and December 31st, 2005 be known? Would it be before or after the rate order for the rates effective January 1st, 2006? 687 MS. HARE: Mr. Janigan, I don't know what you mean by "excess." 688 MR. JANIGAN: Well, we're going back to the nub of the dispute. 689 MS. HARE: Yes, we are. 690 MR. JANIGAN: What about -- I guess let's put it in general in terms of the financial returns for that period. Will they be known -- likely be known before or after the rate order for rates effective January the 1st, 2006? 691 MS. HARE: No. 692 MR. JANIGAN: Okay. 693 MS. HARE: No. Hopefully not, because hopefully we'll be in perspective rates which means we'll have to have a 2006 rate order sometime end of November, December of 2005. 694 MR. JANIGAN: Now, in the event that the intervenors were successful in their view of what constitutes an excess, would there be any proposal to adjust the calendar 2006 revenue requirement for such excess? 695 MS. HARE: That's not the company's proposal, no. 696 MR. JANIGAN: And is there anything in place at this time by which the calendar 2006 revenue requirement could be adjusted based upon the returns from the test year, from the previous test year? 697 MS. HARE: No. 698 MR. JANIGAN: Now, do you agree that the company's proposal to remove issues 13.1 and 13.2 and the alternatives creates significant uncertainty for ratepayers as to what rates will be in place to the end of calendar 2005? 699 MS. HARE: No, I don't. If we look at the adjustment based on inflation that the company proposed, or if we look at it the other way when we put forward costs for 200 -- for that three-month period, the adjustment in rates is a very small amount. 700 MR. JANIGAN: It's the magnitude in rates that compels that conclusion that there would be no uncertainty. 701 MS. HARE: That's how I would define uncertainty, is not knowing what the rates would be. And if the adjustment is very small, I don't that that would create uncertainty. 702 MR. JANIGAN: Now, any uncertainty, presumably, would be cleared up if we, in fact, set the just and reasonable rates for October 1st, to December 31st, 2005 in the context of this proceeding. 703 MS. HARE: Yes. 704 MR. JANIGAN: I just want to follow up on a question of Mr. Thompson on Exhibit B, in particular in relation to personal information of John Todd, that particular page. I don't have the page. It's Exhibit B. I don't have the page number for that. 705 In particular, I wonder if you -- if I could ask you: Do you have any reason to believe that confidential information from Econalysis Consulting Services Inc., information confidential to Enbridge Gas has been shared between Elenchus Research Associates and Econalysis Consulting Services Inc.? 706 MS. HARE: I don't believe that is the case. 707 MR. CASS: Mr. Chair, if I might interject at this point, just to remind everyone, once again, that Mr. Todd are here, if there are any serious issues about these sorts of things that are being suggested in the questions, he can be brought forward to answer them. I don't see that there's any difficulty with that. 708 MR. JANIGAN: I don't need to call Mr. Todd. Do you have any reason to believe that any confidential information has flowed in the other direction? 709 MS. HARE: No, I don't. 710 MR. JANIGAN: Okay. Those are all my questions. 711 MR. BETTS: Thank you, Mr. Janigan. 712 Mr. Dingwall. 713 MR. DINGWALL: Thank you, sir. 714 CROSS-EXAMINATION BY MR. DINGWALL: 715 MR. DINGWALL: Just a couple of simple questions to try and put this in focus. As far as your shareholder is concerned, you have changed your year-end, have you not? 716 MR. CULBERT: For financial reporting, yes. 717 MR. DINGWALL: So your shareholder will be reporting in its financial year-end results 15 months of Enbridge Gas Distribution revenues for this coming year. 718 MR. CULBERT: At the end of December 2004, correct. 719 MR. DINGWALL: Going back to the visual aid provided by our Schools groups, would you agree with me that if you were to take the 2005 period plus the stub period for a total of 15 months, that over that time those two periods put together would create a higher return on equity than there would be for simply the year ended September 31st, 2005. 720 MR. CULBERT: That there would be a higher return for 15 months versus 12 months? 721 MR. DINGWALL: For those 15 months, that there would be a higher return on equity for those 15 months versus simply the 12 months of year ended September 30, 2005 722 MR. CULBERT: I would agree that 15 months of information would produce a higher return on equity than 12 months, yes. I'm not sure if I understand -- 723 MR. DINGWALL: If you were to add, then, that stub period onto the calendar year ended December 31st, 2006, as an additional 15-month period, for that 15-month period, would not again the return on equity be higher than the normal return on equity would be for the 12-month period year ended December 31st, 2006? 724 MR. CULBERT: I would say it depends on what your determination of a normal return on equity is. If your determination of a normal return on equity is simply five-fourths of a Board-approved formula ROE, then I would agree with you. But that doesn't take into account what the company, a seasonal company of Enbridge Gas Distribution's nature would earn in any particular quarter during the year. 725 MR. DINGWALL: Which is where we have the dispute. 726 MR. CULBERT: Correct. 727 MR. DINGWALL: Now, I believe that if this matter is deferred in some fashion, the company will, in its application, be seeking an increase in rates for whatever subsequent period is applied for. That was in the original 13.2 of the issues list. 728 MS. HARE: For the three-month period? 729 MR. DINGWALL: Yes. 730 MS. HARE: Yes. 731 MR. DINGWALL: And for the subsequent 12-month period, which would be beginning with the new year-end, would the company then be seeking an increase in rates at that time? 732 MS. HARE: Not necessarily an increase in rates. We would be filing for new rates. But rates sometimes decrease, as we see in this rate application. 733 MR. CULBERT: We would perform a review of the next 12 months' worth of cost-of-service information and volumes and revenues associated with those volumes to determine, in fact, what the revenue in existing rates would determine the company would be collecting versus the revenue requirement of the company. Whether that would produce an increase in rates or a decrease in rates, we don't know at this time. 734 MR. DINGWALL: Given the sheer volume of questions that have preceded me, I'm going to draw the line at that one. Thank you very much. 735 MR. BETTS: Thank you, Mr. Dingwall. 736 I was going to say before we go to Board Counsel, are there any other questions, or are there any intervenors that would like to cross-examine this panel? 737 MS. STREET: I wonder if I could just ask a few questions, Mr. Chair. 738 MR. BETTS: Sorry, you are? 739 MS. STREET: Carol Street on behalf of Canadian Manufacturers & Exporters. 740 MR. BETTS: Thank you. 741 CROSS-EXAMINATION BY MS. STREET: 742 MS. STREET: Ms. Hare, I don't want to get into the actual substance of Mr. Todd's comments in any depth, but I just want to understand one thing he's saying in principle and that's on page 7 of Exhibit B, under the heading "Determining the fair 15-month rate of return in practice." Do you see that? 743 MS. HARE: Yes. 744 MS. STREET: What he seems to be saying is that the most straightforward way of deriving the appropriate 15-month annualized ROE is to make certain assumptions, and the second assumption that he sets out at line 12 is that the customer volumes and costs from October 1, 2005 through December 31st, 2005 will be identical to customer volumes and costs for that same quarter in the preceding year. Do you see that assumption? 745 MS. HARE: Yes, I do. 746 MS. STREET: And he would then apply the customer volumes and costs from 2004 to 2005; am I understanding that correctly? 747 MS. HARE: Yes. 748 MS. STREET: And so I take it, then, that Mr. Todd is proposing that you would take the actual volumes and costs for October 1, 2004 to December 31, 2004 in order to calculate the following year's rate on equity; is that correct? 749 MS. HARE: I'm not sure if that's exactly what he's proposing. As I understand this evidence, what he's saying is you'd look at the same period from one year to another because otherwise you compare -- if you're comparing different quarters, the first quarter to the second quarter, you'll get very different results. So as I understand he's saying, you look at the same quarter year after year to see what the normal return is in that quarter. 750 MS. STREET: Right. But if he's talking about the actual volumes and actual costs -- 751 MS. HARE: Yes. 752 MS. STREET: -- from October 1, 2004 to December 31, 2004, then I take it those actual volumes and costs won't be able to be calculated until after December 31st, 2004. 753 MS. HARE: Yes, but I think it's the concept that he's explaining here. So whether or not it's 2004 to 2005 or the concept of looking at the same quarter from year to year, I think is what he's explaining here. 754 MS. STREET: But you'd agree with me that he does refer to that specific quarter in 2004. 755 MS. HARE: Yes, he does. 756 MS. STREET: And so if he's taking the actual volumes and costs for that period, then those figures won't be identifiable until sometime after December 31st of 2004. 757 MS. HARE: If that is exactly what he's suggesting, that would be correct. But I'm not sure that that is what he's suggesting as opposed to, in concept, explaining how this should be looked at. 758 MR. CULBERT: Can I interject here, sorry. I'm looking at the paragraph starting at line 12 of Mr. Todd's evidence, and I believe he's saying for rate-setting purposes, if you were to look at the volumes and costs for that period. So I believe he's looking at it from a forecast perspective, that what you would use for determining the October 1st, 2005 through December 31st, 2005 period would be a quarter of similar budgeted information for October 1st, 2004 through December 31st, 2004. 759 MR. SHEPHERD: Mr. Chairman, I'm sorry to interrupt, but I'm increasingly uncomfortable that we're discussing evidence that's not on the record. Particularly, we're discussing it without the witness here. 760 MS. LEA: Yes, we -- 761 MR. CASS: The witness is here actually, Mr. Chair. 762 MR. SHEPHERD: I wonder whether this line of questioning and answers are appropriate in the circumstances. 763 MS. STREET: That's the end of my questions. I just wanted to identify how helpful the evidence is in any event. But I'm finished my questions, thank you, Mr. Chair. 764 MR. BETTS: Thank you. I think the Panel was getting a little uncomfortable as well because the value of the evidence won't be tested until or unless it's brought forward in this hearing. So I'm glad -- and I appreciate your interjection, Mr. Shepherd. 765 Are there any other questions from intervenors at this stage? 766 Board Counsel, do you have any questions? 767 MS. LEA: I have a few thank you, sir. 768 CROSS-EXAMINATION BY MS. LEA: 769 MS. LEA: Ms. Hare and Mr. Culbert, I'm going to ask you a few questions which go back to matters which you've already discussed. Pardon me if they seem repetitive, but I wanted to get some clarification of a couple of matters with respect to the company's intentions. 770 As I understand it, in the first alternative that you propose in your affidavit, if that motion was granted; that is, that issues 13.1 and 13.2 were removed from the list and the evidence withdrawn, just tell me what you plan to do then. 771 MS. HARE: We would plan to refile sometime in the fall asking for a review of the change in year-end and how rates should be set for the three-month period that's affected by the change in year-end. 772 MS. LEA: Do I understand that you would file a rate application for rates, then, beginning January 1, 2005? 773 MS. HARE: Not necessarily to have those rates implemented January 1st, but the presentation would be looking at that 12-month period. 774 MS. LEA: That, I think, is where my confusion begins. I need to understand a little more clearly what exactly, at this time at least, you would be proposing to do in that application. 775 MS. HARE: Actually, Ms. Lea, as I understand it, that's exactly what Union Gas did. They had one quarter that was already approved in rates and then they used that quarter and moved forward to change the year-end. So what we'd be proposing to do is essentially the same concept, only use three approved quarters. 776 MS. LEA: And the three approved quarters would be January 1 to September 30 of '05? 777 MS. HARE: That's correct. 778 MS. LEA: Would you propose, then, that rates change during that period? 779 MS. HARE: Not necessarily. That would be up to the Board in terms of implementation. 780 MS. LEA: I'm asking you what you would propose, not what the Board might order. Would you propose or do you know at this time whether you would propose that rates change for the period January 1 to September 30, '05. 781 MS. HARE: I don't know at this time. 782 MS. LEA: So it is possible then that you could be seeking a change in rates, it's possible that you could be seeking a change in rates beginning January 1, '05. 783 MS. HARE: We would be looking at all costs and revenues for a 12-month period. Nine months of that information would be the same. If there's an increase in the last quarter, rates would be set on an annual basis for 12 months, but depending on when they're applied, so, for example, if there is an increase in the last quarter, it really would mean that that's factored into rates for the entire year. But if they are not implemented until the last quarter, actually, then the company doesn't collect all of the increase. 784 MS. LEA: Yes, I think I understand that statement. What I'm trying to understand, though, is in this application, have we embarked on a waste of time because we're setting rates for only three months? 785 MS. HARE: No, because all of the elements that go into rate-making would be the same. 786 MS. LEA: Would you undertake an ADR process and a filing process similar to what we've just gone through for your application beginning January 1, 2005? 787 MS. HARE: I'm not -- I was going to say I'm not sure that that would be necessary given that nine months would be the same information. But it might be. 788 MR. CASS: If I might point out the obvious, Ms. Lea. The Board usually decides those elements of the process. 789 MS. LEA: I'm aware of that and I accept that we all know that. I'm just trying to understand what the company's proposal would be. 790 MS. HARE: The company is trying to demonstrate what the rates would be in the last three months, and the company uses a Board-approved ROE that's set based on a 12-month period, so that's what we'd be putting forward, is presentation on a 12-month period to establish what the rates should be in that last quarter. 791 MS. LEA: But as I understand your evidence, during -- as a result of that exercise, it is possible that the rates could change, and I say "could" change from January 1, 2005, because of the appropriate rates for the last quarter. Is that what I heard you say earlier? 792 MS. HARE: I'm not certain what our proposal is at this time. We'd be looking at -- that's why we'd like to take time to develop it. But I think you asked me hypothetically, could it -- 793 MS. LEA: Yes. 794 MS. HARE: -- and the answer would be, yes, it could. 795 MS. LEA: The second thing that I didn't understand very well was why you couldn't wait to change your year-end until the next rate application, and I think a couple of my friends asked you questions related to that. Could you just indicate what reasons the company has for not being willing to wait for a change of year-end? 796 MS. HARE: To do it in 2006? 797 MS. LEA: Yes. 798 MS. HARE: Because for the year, then, 2005, we'd have to do two exercises for budgeting purposes and for reporting purposes, one on a calendar year and one for rate-making purposes on a fiscal year. 799 MS. LEA: And that one on the calendar year, is it done for the first category of year-end? I'm sorry, my mind has slipped, it happens with age. The owner of your company, you've already changed year-end as far as they're concerned. 800 MS. HARE: They will be at the end of this year, yes. 801 MS. LEA: So there would be two budgets for that purpose and also for rate-making? 802 MS. HARE: Right. 803 MS. LEA: Is there any other reason? 804 MS. HARE: Not that we can think of. 805 MS. LEA: I wanted to look into also the question of the timing if the Board denies the first part of your motion; that is, to remove the issues, but grants the second part; that is, to file additional evidence. You had some discussion with Mr. Shepherd on that. And there was one aspect of that discussion that I just wanted to clarify with you. 806 If we had a phase 2 as opposed to add on to the end of this phase, you indicated that that would be practically the same as refiling or filing an application under alternative 1. As I recall, that question was asked of you. Can you explain that answer? 807 MS. HARE: Because there already is information in this filing showing - I think we actually went to that schedule - showing the comparison on a 12-month period from January 1st until the end of December. 808 MS. LEA: All right, thank you. I think I understand now. 809 If the Board denies both aspects of your motion, can you please tell me what evidence exists on the record with respect to this issue now from the company? 810 MS. HARE: Do you want me to describe what it is? 811 MS. LEA: No, just give me the numbers if you -- 812 MS. HARE: It's in the settlement proposal under issue 13.1 and 13.2. 813 MS. LEA: Okay. Maybe I can just have a look at that. 814 MS. HARE: I'm sorry, it's on page 42. 815 MS. LEA: Thank you. 816 MR. CASS: Ms. Lea, may I clarify through you, Mr. Chair, when you say evidence on this issue, do you mean change in year-end or the more specific issue raised by the intervenors in the settlement proposal? 817 MS. LEA: That's partly why I was turning to the ADR agreement. Thank you, Mr. Cass, that's a good clarification. 818 Can you tell me, Ms. Hare, when I look at the items listed under 13.1, for example, whether any of this evidence or all of it or whatever, some of it, deals with the precise issue on which you and the intervenors have the disagreement, which is the ROE? 819 MS. HARE: I'll ask Mr. Culbert to correct me if I'm wrong. I think none of it relates to the issue that's being raised by the intervenors. 820 MS. LEA: None of the interrogatories? 821 MS. HARE: That's correct. 822 MS. LEA: So as far as you're aware, there's no evidence from the company and no evidence from the intervenors on this issue on the record at all? 823 MS. HARE: That's my belief, yes. 824 MS. LEA: If the Board denied both aspects of your motion, would you call a witness to testify on this aspect of the issue? 825 MS. HARE: I'm sorry, Ms. Lea, if the issue continues but we don't file additional evidence, would we bring forward witnesses? 826 MS. LEA: You have witnesses that are going to testify on the year-end generally or -- 827 MS. HARE: Yes. 828 MS. LEA: Yes. Could those witnesses testify to this also? 829 MS. HARE: Yes, they could. But that is actually why we'd like the opportunity to introduce additional evidence, because instead of this coming out through interrogatories on the stand or through cross-examination on the stand, we could present the evidence in a coherent manner. 830 MS. LEA: I understand, thank you. 831 So you have witnesses other than Mr. Todd that could speak to it, but they have not filed any evidence on this record either, yet? 832 MS. HARE: That's correct. 833 MS. LEA: Thank you very much. Those are my questions. 834 Thank you, Mr. Chairman. 835 MR. BETTS: Thank you, Ms. Lea. 836 Mr. Cass, before you begin your redirect, if you have any, I'd like to follow the same practice as we have in the past where you would go through your redirect, then the Panel have an opportunity to ask questions and then you will be invited for a second round of redirect based on our questions. 837 Do you have any redirect? 838 MR. CASS: Just one area of clarification, if I might. 839 RE-EXAMINATION BY MR. CASS: 840 MR. CASS: Panel, Mr. Thompson asked questions about whether there is any issue around the $30 million number that has been referred to a number of times today. Is that number affected by the outcome of issues in this proceeding? 841 MR. CULBERT: Yes, it would be. 842 MR. CASS: Is it affected by the outcome of settled issues or disputed issues or both? 843 MR. CULBERT: That number was calculated at a point in time. It would be affected by amounts that had been removed from or reduced the company's updated deficiency of 85.4 million. So to the extent the company has agreed to that reductions in that deficiency in revenue requirement, they would have an impact on the rates that would then be in place and collected over the volumes in the October through December period. 844 MR. CASS: All right. I hope that was clear, Mr. Chair. I think I understand it. 845 Again, perhaps just to come back to it, I'm not sure if it was fully understood. Could you just explain, Mr. Culbert, the impact in relation to settled issues and issues in this hearing on the $30 million number. 846 MR. CULBERT: To the extent that the settled issues in the ADR were agreed to as a reduction in the revenue requirement, that does have an impact on the rates that will be in place in the October through December period. Therefore, any reduction in the revenue requirement that was agreed to compared to what the costs are in that October through December period, if there's a difference in costs from that period versus what is embedded in the 12 months that we've agreed to as a reduction in the deficiency, it would reduce the amount of revenues that the company is allowed or able to collect in the October through December period. 847 Okay, and as Marika is pointing out, the issues that are going to hearing may have an effect on the rates in that period as well. I don't know what the impacts of those would be at this time. 848 MR. CASS: Thank you, Mr. Chair. 849 MR. BETTS: The Board Panel's questions have already been answered. Thank you very much. You've covered the subject very, very well. I believe at this point I'd like to keep going, if we can, until around 1:00 or so, and then we'll take a break, and as indicated, we will forfeit our afternoon break in order to finish up by 4:00. 850 So are we in a position to call the next witness panel? 851 MR. CASS: Yes, we are, Mr. Chair. Ms. Persad will be the counsel responsible for that panel, so if you don't mind a little bit of shuffling at the counsel table, yes, the next panel is ready to proceed. 852 MR. BETTS: Thank you. I'd like to thank Mr. Culbert and Ms. Hare for their attendance in this matter. Thank you very much. We may see you later. 853 Perhaps, just in the interest of everybody's legs and other body parts, why not take a five-minute break, stretch your legs, and that will allow the next panel to set up. So we'll break now and return, let's say, 25 minutes after 12. 854 --- Recess taken at 12:15 a.m. 855 --- On resuming at 12:27 a.m. 856 MR. BETTS: Thank you, everybody. Please be seated. 857 Ms. Persad, unless something has popped up during our short break, I would say, are you ready to call your witnesses? 858 MS. PERSAD: Actually, something has popped up. Mr. Shepherd asked me to advise you that he has a procedural matter to raise. 859 PROCEDURAL MATTERS: 860 MR. SHEPHERD: Mr. Chairman, I didn't want to interrupt the flow of the cross-examinations earlier. A question arose during the course of this morning as to what information relating to ADR is not confidential, and the suggestion -- we were talking about whether Mr. Todd attended, and the suggestion was made that identifying the attendees at ADR and who they supported was not confidential. And I'm very concerned about that and I wanted to get the Board's guidance on whether, in fact, that was the intention or whether the intention was in this particular case, with all parties agreeing that this information need not be confidential, and a particular company witness or proposed witness attended, that that particular piece of information did not need to be confidential. But I didn't want it to be a sort of a general rule that we now all have to follow, that when we bring somebody to ADR supporting our position, anybody can say that they were there and that they supported our position. 861 MR. BETTS: Thank you. 862 Before I respond, are there any other comments that anyone would like to make on that same point? 863 Ms. Lea. 864 MS. LEA: Thank you. I have to say I agree to some extent with Mr. Shepherd that I think that I would be uncomfortable with the idea that, other than identifying which parties attended at ADR, that we identify who was there and what they were supporting. It's the "what they were supporting" that troubles me. 865 I took it from the discussion this morning that what was occurring was that, in this particular circumstance, Mr. Cass was agreeing that, on behalf of his client, that in this case they were agreeable to saying what Mr. Todd -- basically, that he had supported the company and it was in that circumstance of his consent that the matter proceeded. I might be wrong about that, sir, but that is how I took the discussion this morning. 866 MR. CASS: I think that's correct, Mr. Chair. Mr. Thompson had indicated his intention to make a certain argument depending on whether there was confirmation that Mr. Todd was there at the settlement conference. I had indicated that on behalf of the company, we didn't want him to be prevented from making that sort of argument, we didn't want to throw up an obstacle in front of the argument, so in that context it was agreed, I believe, that there was no objection to that particular piece of information coming out, but only in that specific instance. 867 MR. BETTS: Thank you. Any more comments or observations? 868 MR. THOMPSON: Yes, Mr. Chair. I would say that it was a Todd-specific acknowledgment. 869 MR. BETTS: Thank you. And certainly I am happy for that clarification. I appreciate it myself as well. That decision will be considered only with respect to the particular question of Mr. Todd's attendance at that ADR. 870 MR. SHEPHERD: Thank you, Mr. Chair. 871 MR. BETTS: Thank you for clarifying that. 872 Ms. Persad. 873 MR. THOMPSON: Mr. Chair, just one other procedural matter I thought I should raise. 874 MR. BETTS: Yes. 875 MR. THOMPSON: I don't know whether the motion and affidavit were marked as exhibits, but perhaps they should be if we're going to be referring to this in argument on Friday. I'll leave it in your hands, but I don't think they have numbers yet. 876 MS. LEA: The company did not give a number to the affidavit of Ms. Hare, I understand. No. If it's acceptable to all, we'll call the package which includes the affidavit, or else we'll have to keep pulling it apart, Exhibit K.1.5, K.1.5, motion documents from Enbridge. 877 EXHIBIT NO. K.1.5: MOTION DOCUMENTS FROM ENBRIDGE 878 MR. THOMPSON: Thank you. 879 MS. LEA: Thank you. 880 MR. BETTS: Thank you. Are there any other procedural matters? I should have asked that initially. 881 Ms. Persad, would you please introduce your panel. I believe one has been sworn in so far. 882 MS. PERSAD: Yes, that's correct, Mr. Chairman. The company has three witnesses to present on this panel, and I believe Mr. Small was sworn in on Monday, so there would just be Mr. Brennan and Mr. Charleson to swear in today. 883 MR. BETTS: Thank you. Ms. Nowina will swear them in at this time, then. 884 ENBRIDGE GAS DISTRIBUTION INC. PANEL ON UNION GAS STORAGE CONTRACT - SMALL, BRENNAN, CHARLESON: 885 D.SMALL; Previously Sworn. 886 F.BRENNAN; Sworn. 887 D.CHARLESON; Sworn 888 MR. BETTS: Thank you. Please proceed. 889 EXAMINATION BY MS. PERSAD: 890 MS. PERSAD: So the witnesses are, seated closest to the panel, Mr. Don Small. He is the manager, gas cost knowledge center. Mr. Frank Brennan, the director of energy, policy and analysis. And Mr. Dave Charleson, manager of energy strategy. I believe these witnesses are well-known to the Board as they have testified in a number of previous occasions. 891 First, if I could ask Mr. Brennan and Mr. Small if I -- if my understanding is correct, you'll be speaking to the evidence listed under issues 5.1 and 11.1 in the settlement proposal, those are at pages 17 and page 37 respectively, in relation to gas costs and storage costs. 892 MR. BRENNAN: Yes, that's correct. 893 MR. SMALL: That's correct. 894 MS. PERSAD: I believe you'll be speaking to an exhibit that was filed on June 14th, this past Monday, marked as A3, tab 2, schedule 5, and attachments; is that correct? 895 MR. BRENNAN: Yes, that's correct. 896 MS. PERSAD: And was that evidence and the related interrogatory identified in the settlement proposal at those pages prepared by you or under your direction, and do you adopt it for the purposes of your testimony on these issues? 897 MR. BRENNAN: Yes, they were, and yes, I do. 898 MR. SMALL: Yes, I do. 899 MS. PERSAD: And if I turn to you, Mr. Charleson, I see your name is on the bottom of the evidence that was filed on Monday, Exhibit A3, tab 2, schedule 5. Was that evidence prepared by you or under your direction, and do you adopt it? 900 MR. CHARLESON: Yes, it was, and yes, I do. 901 MS. PERSAD: I just have a few questions for the panel. 902 Mr. Brennan, assuming the Board accepts the settlement proposal, what is the company seeking under issues 5.1 and 11.1 in relation to gas costs, transportation and storage costs out of this hearing? 903 MR. BRENNAN: Well, as the settlement proposal states at page 16, the parties accept the company's forecast of gas, transportation, storage costs for the test year with the exception of the Union storage contract, that being LST039. The company is seeking the Board's approval of the cost consequences of this new storage contract for rate-making purposes. 904 MS. PERSAD: Mr. Small, how are those cost consequences identified in the evidence? 905 MR. SMALL: The company's 2005 gas cost forecasts, prior to the adjustments for the ADR, can be found at Exhibit D1, tab 2, schedule 1, page 2, and included in that forecast are the impacts of the new Union Gas storage agreement. And just on page 16 of the ADR settlement, there is a spot in the agreement that identifies the impact of the new storage agreement if you were to compare -- the impact it would have on the 2005 revenue requirement if you were to compare the new storage agreement versus cost-based rates, if you will. 906 The other thing I just wanted to bring to your attention was that 11.1, where it discusses the deferral accounts, in the settlement agreement it talks about the 2004 Union Gas deferral account, and that that account would capture in it the impacts of the new storage agreement subject to the Board's approval. And that was discussed, as I said, at 11.1 and that's page 36 of the agreement. I just thought I'd mention that for the Board's convenience. There's a description of the 2005 Union Gas deferral account found at Exhibit A8, tab 1, schedule 1. And the only reason I bring that up is because the 2004 Union Gas deferral account is similar in nature and it describes the purpose of the Union Gas deferral account, which is to capture or record the difference between the rates assumed as part of the forecast and the actual rates. So I guess I just wanted to mention that there will be dollars captured in the Union Gas deferral account, whether it's the variation between cost-based rates and what we've got in our forecast for 2004 or the new market -- or the negotiated contracted rates and what's in the four rates. So there will be some dollars in 2004, it's just a matter of which dollars, if you will. 907 MS. PERSAD: And Mr. Brennan, could you please describe the nature of the contract and why you believe the Board ought to approve the cost consequences in this case. 908 MR. BRENNAN: Yes, certainly. 909 The evidence at A3, tab 2, schedule 5 describes the new storage contract and transportation contracts. The company reached agreement with Union Gas to replace the existing storage and transportation contract, referred to as the S&T contract, if you like, with a new storage and transportation contract effective April 1st, 2004. The new storage contract, that being LST039, is for the same capacity as the existing contract, that being 21,259,700 gJs, or 19.9 Bcf. The term of the contract is for ten years. 910 The terms and conditions of the storage service will be the same as those found in the S&T contract until the company receives approval from the Board to recover the rates for the new storage charges over the period April 1st, 2004 and December 2005, or March 31st, 2006 if the Board does not approve the recovery of those costs in rates. 911 The charges for the new storage contract are at negotiated prices under Union's C1 storage and transportation rate schedule. The Board, in its RP-2004-0137/EB-2004-0216 decision, has approved the parties' to the period of and storage capacity of this particular contract, with the exception -- with the condition, I guess, if you like, that Union filed the executed copy of that contract. 912 Enbridge believes that the Board should approve the new storage contract for several reasons. The first is outlined in the attachment B to our evidence, outlines that there are benefits of approximately $8.6 million to ratepayers over that ten-year period based on NPV basis. Now, that does not incorporate the latest changes to Union's rate schedule that was just recently approved. If we incorporate those changes to that rate schedule, those particularly relating to the storage, that benefit would increase to $11.8 million over that ten-year period. 913 We believe this contract also provides assurances to ratepayers that the company will have access to storage over this ten-year period, so it provides some certainty to our ratepayers that storage will be available. It also provides additional deliverability above the standard service. The standard service, as I understand it, provides a deliverability of 1.2 percent. This contract allows us to have 1.4 percent deliverability. 914 It also provides us with additional flexibility on the injection period. The standard service allows for firm injections up to the end of October. Under this contract, we have firm injections up to the middle of November. And then also, which I feel is very important in that it's probably unusual from most contracts, is that this contract allows the company to reduce its capacity by 20 percent in any year, provided that we give Union two years' notice. This has not been factored into the $8.6 million net present value. So if the company was able to go out and develop additional storage that was less expensive than the rates under this contract, then there would be additional savings to ratepayers as a result of that. 915 The contract is also assignable, and there is also no requirement for storage to be emptied by the end of June 30th -- by the end of June, as is the practice, I believe, in the standard service that Union is offering. 916 So basically, based on these benefits, we firmly believe that the contract is in the best interest of ratepayers and the Board should approve the recovery of these costs in rates for 2005. 917 MS. PERSAD: Thank you, Mr. Brennan. Thank you, panel. The panel is available for questioning. 918 MR. BETTS: Thank you. 919 Has there been any agreement on the order of cross-examination? 920 MR. THOMPSON: Yes, Mr. Chair. It's agreed that I'll lead off with this panel. 921 MR. BETTS: And who else will be cross-examining this panel? I'm just going to note that if I can. That was Mr. Dingwall, Mr. Janigan, Mr. Shepherd, thank you, Ms. Aitken. 922 Anyone else? 923 MR. DINGWALL: I believe Ms. DeMarco might have had some intention to cross-examine. I'm not sure if she's here. 924 MR. BETTS: Okay. Well, if she arrives, we will certainly allow her to do so. 925 Mr. Thompson, please proceed. 926 MR. THOMPSON: Yes, Mr. Chairman, thank you. 927 CROSS-EXAMINATION BY MR. THOMPSON: 928 MR. THOMPSON: I have placed on the dias another documents brief from IGUA with respect to this issue. It's a documents brief of IGUA re Union Gas storage contract. It's about an inch thick and has five tabs. 929 MR. BETTS: Thank you. We're all set. 930 MS. LEA: That documents brief, should we call it IGUA documents brief regarding Union Gas storage contract, K.1.6? 931 EXHIBIT NO. K.1.6: IGUA DOCUMENTS BRIEF REGARDING UNION GAS STORAGE CONTRACT 932 MR. THOMPSON: Thank you very much. 933 MR. BETTS: Thank you. Please proceed. 934 MR. THOMPSON: If I could just start, panel, by drawing your attention, witness panel, to Exhibit N1, tab 1, schedule 1, page 16. This is the statement of the issue with respect to this matter. 935 MR. BETTS: For ease of reference, what was the number again? 936 MR. THOMPSON: That's issue 5.1. 937 MR. BETTS: Thank you. 938 MR. THOMPSON: And it indicates in the scoping part of the first paragraph, the scoping part of this issue, that Enbridge disclosed this new contract with Union in updated evidence filed April the 26th, 2004; is that correct? And the reference is to Exhibit A2-3-3. 939 MR. BRENNAN: That's correct. 940 MR. THOMPSON: And was that the first disclosure of the company made under this arrangement? 941 MR. BRENNAN: We're just trying to remember whether or not it was raised in the technical conference earlier on, and we're not quite sure whether it was or not. 942 MR. THOMPSON: Subject to check, can I take it that it was the first disclosure? 943 MR. BRENNAN: Yes. 944 MR. THOMPSON: Thank you. Okay. And would you then turn to the evidence that's been filed as Exhibit A, tab 2, schedule 5, and there was a covering letter with that material that was dated June the 14th of 2004. And I just wanted to confirm this on the record, that this evidence that was now filed A3, tab 2, schedule 5, was circulated in draft on May 17, 2004, during the settlement conference. 945 MR. BRENNAN: Yes, that's -- 946 MS. LEA: Which day, sir? 947 MR. THOMPSON: May 17, 2004, during the settlement conference. 948 MS. LEA: Thank you. 949 MR. BRENNAN: Yes, that's correct. 950 MR. THOMPSON: And it's that evidence that contains the description of what I'll call the old S&T contract and its component parts and then the new S&T arrangements and their component parts. 951 MR. BRENNAN: Yes, including the transportation contracts as well, yes. 952 MR. THOMPSON: All right. So I want to start, if I could, with the old S&T contract, and that's referred to in paragraph four 4 of Exhibit A3, tab 2, schedule 5. Do you see that? 953 MR. BRENNAN: Yes, I do. 954 MR. THOMPSON: You tell us there that the old contract is broken down into five parts, and you identify the parts; is that correct? 955 MR. BRENNAN: Yes. 956 MR. THOMPSON: And then in the last sentence you tell us: "The services provided under the S&T contract," that's the old one, "are charged under Union's M12 storage and transportation rate schedule." 957 MR. BRENNAN: Yes, that's correct. 958 MR. THOMPSON: Is that correct? And am I correct that the charges under Union's M12 storage and transportation rate schedule are cost-based charges? 959 MR. BRENNAN: Yes, they are. 960 MR. THOMPSON: All right. 961 MR. THOMPSON: Just running quickly through the parts of the old contract, starting in the second sentence of paragraph 4, you say: "Part 1A deals with dehydration service." Were the charges for that service under the old contract cost-based charges? 962 MR. BRENNAN: That's my understanding, yes. 963 MR. THOMPSON: Part two deals with easterly and westerly transportation service on the Dawn-Trafalgar transmission system. Were the charges under the old contract cost-based charges? 964 MR. BRENNAN: Yes, that's my understanding. 965 MR. THOMPSON: Well, you've used the phrase "your understanding." 966 MR. BRENNAN: Yes, it is. 967 MR. THOMPSON: You're the one who understands this, I hope. Is that right? 968 MR. BRENNAN: Yes. 969 MR. THOMPSON: Okay. Part 3 deals with the Grey-Simcoe at Parkway exchange service. Are the charges for that service cost-based, and do they appear in the M12 rate schedule? 970 MR. BRENNAN: I don't believe they do, no. I'm not sure. I think it's just an exchange of gas. 971 MR. THOMPSON: So are they cost-based under the old contract? 972 MR. BRENNAN: I can't remember, quite frankly, and I don't think that it really makes that much difference per se in that that exchange agreement no longer exists. 973 MR. THOMPSON: Okay, so that's out. 974 Part 4 deals with general matters relating to heat content and quality of gas. Are there any charges associated with those topics? 975 MR. BRENNAN: No, not that I'm aware of. 976 MR. THOMPSON: Okay. So then this old contract is then replaced with three new contracts; am I correct? 977 MR. BRENNAN: Yes, that's correct. 978 MR. THOMPSON: And they are described in answer 5 of this testimony, Exhibit A3, tab 2, schedule 5, page 2. 979 MR. BRENNAN: Yes. 980 MR. THOMPSON: Let's just run quickly through them, then, please. You describe these three new contracts and the first is a new storage contract and it has a number, and that's attached as attachment A to your evidence. 981 MR. BRENNAN: Yes, that's contract LST039. 982 MR. THOMPSON: And the charges you've agreed to under that contract are not cost-based; is that right? 983 MR. BRENNAN: They are based on the C1 storage and transportation rate schedule. 984 MR. THOMPSON: All right. So they exceed the cost-based charges under existing rate M12. 985 MR. BRENNAN: Yes. 986 MR. THOMPSON: All right. And do we have the amount by which the charges under that contract exceed the cost-based charges under the old S&T contract? 987 MR. BRENNAN: Yes. I believe if you go back to the -- 988 MR. THOMPSON: There is a document attached to your testimony, it's Exhibit A3, tab 2, schedule 5, attachment B, that has comparator numbers. Is that where you wanted to take us? 989 MR. BRENNAN: No, I was going to take you back to Exhibit N1, again back to the settlement document. 990 MR. THOMPSON: N1, tab 1, schedule 1, page 16? 991 MR. BRENNAN: That's correct. 992 MR. THOMPSON: Okay. 993 MR. BRENNAN: And in the third paragraph, partway down there's a sentence that reads: 994 "For the period April 1st, 2004 to September 30th, 2005, Union's charges to Enbridge Gas Distribution for storage services under the new contract are estimated to exceed the charges for the cost-based storage service of approximately $5.1 million." 995 MR. THOMPSON: Okay. And that amount relates to the LST039 storage contract; am I right? 996 MR. BRENNAN: Yes, that's correct. 997 MR. THOMPSON: And that amount breaks down between amounts forecasted to be recorded in the 2004 deferral account and then part of it relates to the 2005 test year. 998 MR. BRENNAN: That's correct. 999 MR. THOMPSON: Could I just have the breakdown, if you have it. If not, I'll take an undertaking. 1000 MR. BRENNAN: We don't have it at our fingertips. We'll do an undertaking. 1001 MR. THOMPSON: An approximation would suit me, but if you want to be precise. 1002 MS. LEA: Would you name the undertaking, please? 1003 MR. SMALL: Before we do that, maybe we can just have one moment. 1004 MS. LEA: I'm sorry. 1005 MR. BRENNAN: I think we're better off taking it as an undertaking. 1006 MR. THOMPSON: Okay. 1007 MS. LEA: What would be the name of the undertaking, Mr. Thompson? 1008 MR. THOMPSON: To break down the 5.1 million contained in Exhibit N, tab 1, schedule 1, page 16, between the amount forecasted to be recorded in the 2004 Union Gas deferral account. Is that the right account, Mr. Small? 1009 MR. SMALL: Mr. Brennan and I were just discussing this. The $5.1 million represents the costs associated with the new storage contract from April 1, 2004 to December 2005. 1010 MR. THOMPSON: Yeah, 18 months. 1011 MR. SMALL: 18 months, yes. So of that 5.1, there will be dollars associated in the 2004 Union Gas deferral account, that's correct. 1012 MR. THOMPSON: Pieces of it will be in the deferral account and then part of it will be reflected in the 2005 rates. 1013 MR. SMALL: That's right. 1014 MR. THOMPSON: That's the breakdown. 1015 MR. BRENNAN: Mr. Thompson, I just wanted to make one clarification. When we calculated the $5.1 million, what we simply did is if you take a look at the difference between cost-based rates and the rates that we negotiated with Union for that period April 1st, 2004 to September 2005, it's not necessarily the same calculation -- we didn't get the same number if you looked at what we were going to be trying to recover in rates over that time frame. 1016 MR. THOMPSON: I'm not so sure I understood that, but let's get the breakdown by way of undertaking and then you can clarify. 1017 MS. LEA: Undertaking J.1.1 to breakdown the $5.1 million referred to in the exhibit number given by Mr. Thompson. 1018 UNDERTAKING NO. J.1.1: BREAKDOWN THE $5.1 MILLION REFERRED TO IN THE EXHIBIT NUMBER GIVEN BY MR. THOMPSON 1019 MR. THOMPSON: Thanks. 1020 Back to Exhibit A3, tab 2, schedule 5, page 2, where you describe the -- I'm not so sure that you do describe it. Three new contracts, you say, replaced the old S&T contract. We've described the new storage -- we've discussed the new storage contract. And then we go on, I think the second contract is an easterly Dawn to Parkway/Lisgar/Kirkwall firm transportation contract, and that's M12079. Do I understand correctly that the charges under that contract remain cost-based under M12? 1021 MR. BRENNAN: Yes, that's correct. 1022 MR. THOMPSON: All right. And then there's a third piece, a westerly Parkway to Dawn firm transportation contract, C10050. Now, are the charges under that contract cost-based under M12 or something greater? 1023 MR. BRENNAN: No, they are not. They are basically a negotiated rate or within a range. 1024 MR. THOMPSON: So are they negotiated under the C1 rate schedule? 1025 MR. BRENNAN: That's correct. 1026 MR. THOMPSON: To what extent do those costs exceed the cost-based charges for those services under the old contract; Is that in the evidence anywhere? 1027 MR. BRENNAN: I guess the best way to describe it, when we had the original S&T contract, as was mentioned, it incorporated several parts. The part that -- part 2 that dealt with the transportation aspect included both easterly and westerly transportation. At that point in time, to the best of my knowledge anyway, we were not paying for any westerly transportation. The only charge we paid was on the easterly transportation, and that was at cost-base rates. So anything we pay here is going to be greater than what we paid under the old contract. 1028 MR. THOMPSON: I think what you're telling me is -- well, is the charge for westerly transportation under M12 zero, i.e., no charge? 1029 MR. BRENNAN: It will be zero for a certain portion of the contract. 1030 MR. THOMPSON: I'm talking about under the old -- 1031 MR. BRENNAN: I'm sorry, under the old. 1032 MR. THOMPSON: Under the old. 1033 MR. BRENNAN: Under the old, there was no charge. 1034 MR. THOMPSON: All right. And was the no charge in accordance with the M12 cost-based rate schedule? 1035 MR. BRENNAN: I'm not sure. I'm not sure it was even covered under the M12 rate schedule. 1036 MR. THOMPSON: Let me put it this way: If the M12 cost-based rate schedule continues until March 31, 2006, what will you pay for this service, zero? 1037 MR. BRENNAN: I'm not sure. I'd have to check. I don't know. 1038 MR. THOMPSON: Would you check and provide a response to that question on the record. 1039 MS. LEA: J.1.2. Perhaps we could get a short description of the undertaking. 1040 MR. THOMPSON: It would be a description of the M12 charges that would prevail under contract C10050 if that contract is not approved as proposed by the company. Is that clear enough? 1041 MR. BRENNAN: I'm not sure that's what you're asking, at least not what I thought you were asking. I thought you were asking if we were not to go forward with the C10050 contract and revert it back to the rate M12 rate schedule, what would we be paying for westerly transportation. 1042 MR. THOMPSON: Right. That's what I was asking. Let's call it that. 1043 MS. LEA: All right. So the amount paid for westerly transportation, then, is really -- 1044 MR. BRENNAN: Under the M12 rate schedule. 1045 MS. LEA: Under the M12 rate schedule is really the crux of the matter. All right, thank you. 1046 UNDERTAKING NO. J.1.2: TO PROVIDE AMOUNT PAID FOR WESTERLY TRANSPORTATION UNDER THE M12 RATE SCHEDULE 1047 MR. THOMPSON: So that's the three pieces of replacement of the old contract. 1048 MR. BRENNAN: Right. And as the evidence states a little further on, when we talk about the C1 transportation, there's a component there that is at no charge to the utility. That's the -- that volume is related to the injection volume that we have under the storage contract. And for that volume above that, up to, I believe it's stated here at paragraph 10, our total westerly requirements are 600,000 gJs a day. And so the difference between the 600 and the injection rights of approximately 163,000, I believe, is 436,000, so we would pay a negotiated rate on the 436,000 beginning April 1st, 2006. 1049 MR. THOMPSON: I have a couple more information questions, and then it might be a convenient time to break, Mr. Chairman, if that would be appropriate. 1050 MR. BETTS: Thank you. 1051 MR. THOMPSON: The first one is, am I correct that each of these contracts is conditional on the company obtaining approval for the recovery in its rates and charges of the services effective April 1, 2004 in this case? 1052 MR. BRENNAN: No. 1053 MR. THOMPSON: Well, explain that. 1054 MR. BRENNAN: The contract LST039 is the only one that has that condition, if you like. 1055 MR. THOMPSON: So you're telling us the condition is only in LST039? 1056 MR. BRENNAN: That's correct. 1057 MR. THOMPSON: So the other two, the company is stuck with them even though they may exceed cost-based charges -- well, sorry, one of them is cost-based -- 1058 MR. BRENNAN: Right. 1059 MR. THOMPSON: -- and the other one is not. So you're stuck with that regardless. If the Board doesn't approve the cost consequences of that contract for rate-making purposes, the company has to eat something. 1060 MR. BRENNAN: Yes. 1061 MR. THOMPSON: And the "something" that you have to eat will be clarified by way of undertaking response? 1062 MR. BRENNAN: Well, I'll be telling you what it would be if we were to continue to pay the M12. 1063 MR. THOMPSON: So it may be eating a negative. Is that what you're -- 1064 MR. BRENNAN: No, I'm telling you what... 1065 MR. THOMPSON: All right. So finally, in terms of information, if you could just go to Exhibit A3, tab 2, schedule 5. 1066 This appears to show in the second line -- 1067 MR. BRENNAN: Mr. Thompson, you're referring to the attachment? 1068 MR. THOMPSON: Yes, I'm sorry, attachment B. This indicates to me that for the period April 4 -- April '04 to March '05, the difference between existing cost-based and what you've negotiated is about 4.630 million. That's in column 1, third last line, cost difference. 1069 MR. BRENNAN: That's correct, but it's not all related to the storage contract itself. 1070 MR. SMALL: If I could just add, Mr. Thompson, too, as part of his chief examination, Mr. Brennan mentioned that the net present value, if you took into consideration the January 1, '04 Union-approved tolls, that net present value would increase up to $11 million. What you would have to do is substitute in the $4.9 million in column 1 for April to March '05, and in column 2, April '05 to March'05 with the updated information for the new tolls. So this table was prepared assuming the tolls prior to January 1. So you would have to substitute a number of $6.7 million. So the differential between cost-based rates and the negotiated rates is less. 1071 MR. THOMPSON: Union's rates to M12 went down. 1072 MR. SMALL: On the transportation they did, but on the storage they actually increased. 1073 MR. BRENNAN: Yes, and particularly the deliverability charge for storage has increased, I think it was -- the unit rate was .647 going to 1.0 something. 1074 MR. THOMPSON: All right. Well, I'll just ask this last series of questions, and you'll probably have to do it by undertaking response. I think you're telling me this document is out of date in terms of Union's current M12 cost-based charges? 1075 MR. BRENNAN: What we're providing here was the analysis that we had done at the time to determine whether or not we should enter into a contract with Union Gas. 1076 MR. THOMPSON: All right. Let's leave it at that, then. So at the time you did the deal, the cost-base for the period April '04 to March '05 were about 4.631 million below what you've negotiated? 1077 MR. BRENNAN: Again, it's a combination. We didn't just look at the storage contract in isolation. We looked at the whole deal, if you like, which included not so much the M12 transportation, because that was at a cost-based rate, and that would be the same in both scenarios; the scenarios being the existing M12 contract plus market-based rates starting in 2006 versus the new contract and the associated C1 transportation. So there is some transportation costs differential in there as well. It's not just all storage. 1078 MR. THOMPSON: I'm just looking at the first two columns information-wise. This is telling me that the cost-based -- the different between cost-based under M12 and what you've negotiated and are asking the Board to approve is about 4.631 million to March '05 and about 6.758 million to March '06. Is that what this document is trying to tell me? 1079 MR. BRENNAN: Yes, for storage and transportation. 1080 MR. THOMPSON: This would be a convenient time, Mr. Chair, to break. 1081 MR. BETTS: Thank you, Mr. Thompson. 1082 We will then break now and we will reconvene after a lunch break at 2:30. 1083 --- Luncheon recess taken at 1:10 p.m. 1084 --- On resuming at 2:30 p.m. 1085 MR. BETTS: Thank you, everybody. Please be seated. 1086 Through our lunch break were there any preliminary matters that arose? 1087 PRELIMINARY MATTERS: 1088 MS. PERSAD: Before Mr. Thompson starts again, I can advise that the panel has answers to undertakings. 1089 MR. BETTS: Sorry? 1090 MS. PERSAD: The panel has answers to undertakings that they gave this morning. 1091 MR. BETTS: Thank you very much. That's great. And perhaps we should start off with that, then, Ms. Persad. 1092 MR. SMALL: Yes, this morning Mr. Thompson asked, and I believe the undertaking was J.1.1, asked us if we could provide him with a breakdown of the $5.1 million that's identified as part of the ADR settlement agreement on page 16. I've got that breakdown and the -- it's broken down this way: 1093 For the period April '04 to September '04, there's $1.35 million that would be captured as part of the 2004 Union Gas deferral account. There would be -- for October '04 to March '05, there would be $1.35 million that would find its way into our gas costs for 2005. And then for the April '05 to September '05 period, there's $2.4 million that gets captured as part of our forecasted gas and storage balances. And that totals the 5.1. 1094 MR. BETTS: Thank you. And was there another -- 1095 MR. BRENNAN: Yes, there was. This had to do with, earlier before the lunch break, Mr. Thompson asked what the charge would be for M12 westerly transportation if we were to stay with the M12 rate schedule. That charge, there is no demand charge. The only charge would be fuel. 1096 And the other thing I'd like to point out is that under the terms of the negotiations that we had with Union, part of the agreement was that we would not pay any westerly transportation for the first two years. So there are no westerly transportation charges for fiscal 2005 and fiscal 2006. They only start, I believe, April 1st, 2006. 1097 And just as another clarification for Mr. Thompson, I believe my understanding is that in the settlement agreement, that the parties did not dispute, I believe, the recovery of costs under the transportation contracts. It was only the storage contracts that was under dispute. 1098 MR. THOMPSON: I don't know that I'd agree with that, but... 1099 MR. BETTS: Thank you. I think with that, then, Mr. Thompson, back to you. 1100 ENBRIDGE GAS DISTRIBUTION INC. PANEL ON UNION GAS STORAGE CONTRACT - SMALL, BRENNAN, CHARLESON- RESUMED: 1101 D.SMALL; Previously Sworn. 1102 F.BRENNAN; Previously Sworn. 1103 D.CHARLESON; Previously Sworn 1104 CROSS-EXAMINATION BY MR. THOMPSON: 1105 MR. THOMPSON: Just on the last point, what's the basis for that understanding? The evidence that was filed was only in draft form. We hadn't had really any interrogatories or opportunity for interrogatories to understand how this old contract was subdivided into new. 1106 MR. BRENNAN: It says here: "The parties are unable to reach agreement on the cost consequences for rate-making purposes for the new contract for Union storage." And it says: "The parties accept the company's forecast of gas transportation storage costs for the test year with the exception noted below," and the only exception below was the Union storage contract. So unless -- 1107 MR. THOMPSON: Well, maybe we're splitting hairs there. The cost under the transportation contract are cost-based? 1108 MR. BRENNAN: I'm sorry? 1109 MR. THOMPSON: The costs under the transportation contract are cost-based? I thought we went through that. The M12079 firm transportation contract is cost-based, the same as they would be in the existing M12. 1110 MR. BRENNAN: The easterly are cost-based. The C1 is not cost-based, but it's a moot point because there are no charges for 2000 and -- 1111 MR. THOMPSON: So we're on the same page. 1112 MR. BRENNAN: I just wanted to make sure that the only thing that was in dispute, as I understand, was the storage contract. 1113 MR. THOMPSON: All right. Well, I won't dwell on that any further. I'd like to just come back, if I might, to Exhibit A3 tab 2, schedule 5, attachment B, if you can put your finger on that, and then if you take a look at paragraph 13 of the evidence, A3, tab 2, schedule 5, page 3, and then paragraphs 14 and 15. 1114 You tell us in paragraph 13 that the company analyzed two scenarios and then in paragraph 14 you tell us that the first scenario assumes the continuation of the services under the S&T contract from April 2004 to March 31, 2006. Am I correct that that's the scenario depicted in Exhibit A3, tab 2, schedule 5, attachment B? 1115 MR. BRENNAN: Yes. That scenario is listed under attachment B as existing M12 contract plus market price contract, and the idea was there that there would be M12 cost-based rates for the first two years and then moving to market-based rates beyond that. 1116 MR. THOMPSON: Right. And then the second scenario described in paragraph 15 assumes new storage contracts with Union effective April 1, 2004. Am I correct we don't have that scenario shown in an exhibit? 1117 MR. BRENNAN: Yes, under the -- under that same exhibit, if you look right under that line that I just referred to, you'll see LST039 storage and C105 -- 0050 transportation contract. So that's the other scenario where we have, if you like, phased in market rates to about 2008 and then levelized for the remaining -- the ten-year term. That's the second scenario. 1118 MR. THOMPSON: All right. Maybe I'm misunderstanding this and not being clear. 1119 In line 1 on this document, you're showing market rates in columns 3 and following at 20.6 million, approximately. 1120 MR. BRENNAN: That's correct. 1121 MR. THOMPSON: All right. What would market rates be in columns 1 and 2, the same number, $20.6 million? 1122 MR. BRENNAN: No. Maybe I can explain. The first two columns, there are no market prices. 1123 MR. THOMPSON: And why is that? 1124 MR. BRENNAN: Because the scenario, the first scenario, scenario 1, if you like, assumed that we would continue to pay cost-based rates for 2005 and 2006, the first two years. So if the contract expired March 31st, 2006, then we would move to market-based rates and that's what you see there with the $20 million, going forward. 1125 MR. THOMPSON: I understand that. But I guess what I'm asking is, what is an estimate of the market rates? You're trying to tell us in line 2 that you've made a deal below market. 1126 MR. BRENNAN: Yes. I think if you look at the $20 million in April 2006 to March 2007, that number of $20 million is our estimate -- well, it's not our estimate, actually, it's -- we went out with a request for proposal for storage last fall, and what these dollars reflect are the average of the bids that we received for storage. And so if you look at the line below that, the dollars that are in there for storage are phased in over the first four years and then carry on for the remaining six years, a levelized amount. 1127 MR. THOMPSON: All right. 1128 MR. BRENNAN: So in the second scenario, they're all market-based rates or negotiated rates. 1129 MR. THOMPSON: All right, on negotiated rates. But is a reasonable surrogate for market prices in columns 1 and 2 the $20.6 million? 1130 MR. BRENNAN: Yes, it's fair to say. 1131 MR. THOMPSON: All right. So is it fair to say that the estimated market prices today for storage are about five times cost-based storage rates -- or, sorry, four times? Cost-based are something in the order of less than $5 million in column 1 and 6 million something in column 2. Sorry, cost-based are 4 million nine in column 1 and 4 million 936 in column in column two. 1132 MR. BRENNAN: Yes, I see that. 1133 MR. THOMPSON: And the 20 million is about four times that number? 1134 MR. BRENNAN: That's correct. 1135 MR. THOMPSON: So is it fair for me to conclude at a high level that cost-based storage charges are about one quarter of your estimate of market based? 1136 MR. BRENNAN: Yes. 1137 MR. THOMPSON: All right. And this scenario you haven't shown us -- 1138 MR. BRENNAN: The only clarification there, Mr. Thompson, would be that we know today that the 4.9 million in the first two years there is probably understated simply because Union's storage rates have increased. 1139 MR. THOMPSON: Yeah, I -- 1140 MR. BRENNAN: So that would probably be up around over $6 million now. 1141 MR. THOMPSON: Okay. So maybe it's not four times, more like three times. 1142 MR. BRENNAN: I take your point. 1143 MR. THOMPSON: And the scenario you haven't shown, compared to what you've negotiated, is a scenario assuming the continuance of cost-based rates beyond March '06; correct? 1144 MR. BRENNAN: That's correct. 1145 MR. THOMPSON: Could you show that please by way of undertaking response, or can we just assume that it's in the approximate order of about one-third of the market? 1146 MR. BRENNAN: Yeah, I mean, we can do that. There's not an issue of coming up with those numbers, I guess, is the question, as to whether or not - I guess we have a difference of opinion here - as to whether or not March 31st, 2006, whether we would be required to go to market-based rates in any case. 1147 MR. THOMPSON: Yes. 1148 MR. BRENNAN: So that's -- 1149 MR. THOMPSON: And I'm happy with an order of magnitude, if it's approximately one-third of your estimate of market-based, I can live with that for the purposes of my cross-examination. 1150 MR. BRENNAN: I think for the most part all we're going to do is take Union's existing M12 cost-based storage rates and just run it out for the ten years because we have no other basis, unless we just want to assume some sort of escalator. 1151 MR. THOMPSON: Then maybe you better update your estimate of Union's cost-based M12 to give us the -- 1152 MR. BRENNAN: We'll update this table to show the $8.5 NPV going to $11.8 million which will reflect the most recent costs for the Union storage and then, if you like, we can show another line in there that shows the cost-based rate going up for the ten years. 1153 MR. THOMPSON: All right. 1154 MR. SCHUCH: Mr. Chair, I think that would be Undertaking J.1.3. And maybe Mr. Thompson could reiterate the title of that undertaking. 1155 MR. THOMPSON: I would describe it as an update of Exhibit A3, tab 2, schedule 5, attachment B, as described by Mr. Brennan on the record. 1156 UNDERTAKING NO. J.1.3: TO PROVIDE AN UPDATE OF EXHIBIT A3, TAB 2, SCHEDULE 5, ATTACHMENT B 1157 MR. THOMPSON: Okay. Let's then move on, if I might. You tell us in your evidence at paragraph 6 that in terms and conditions of the historic service will be the same as those contained in the S&T contract until something happens; is that right? 1158 MR. BRENNAN: Yes, as listed there at A and B, those two. 1159 MR. THOMPSON: Okay. And the agreement which is attached as attachment A to the evidence under Article 8 that's at page 11, as I read it, says the charges under the old contract continue until you've got the approval you're seeking from the Board. 1160 MR. BRENNAN: That's correct. 1161 MR. THOMPSON: Is that right? Okay. So you really can't forecast an increase in these costs for the period April 1, 2004 through to December 31, 2005, without forecasting that the Board's going to approve the request that you make. You're actually paying the charges under the old contract? 1162 MR. BRENNAN: Yes, we are. And there's a clause in there that says if the Board does approve the contract, then there is an adjustment charge, you'll see that in paragraph 8.05, that allows us to go back and capture that difference, if you like, between cost-based rates and the C1 rate. 1163 MR. THOMPSON: Okay. But it's sort of the cart before the horse, isn't it? You ask for relief and then in order to forecast the costs associated with the relief that you seek, you have to forecast that the Board is going to grant the relief that you seek. 1164 MR. BRENNAN: Well, we just want to make sure that the -- if the Board does not approve the recovery in rates that we're not left with costs that we can't recover. 1165 MR. THOMPSON: But you don't incur the costs until the Board has actually approved the costs that you haven't incurred. 1166 MR. BRENNAN: Right. 1167 MR. THOMPSON: Strange, isn't it? 1168 And if I read these papers correctly, the upshot of all of this is that the old contract basically continues if the Board doesn't approve these arrangements that you've made. 1169 MR. BRENNAN: No, that's not true. The contract, the only contract that -- well, the contract that's in effect today is the LST039. 1170 MR. THOMPSON: You're correct. What the arrangements say is, the prices under the old contract prevail until you get the approval you're looking for. 1171 MR. BRENNAN: Correct. 1172 MR. THOMPSON: And the new arrangements, in effect, come to an end on the same date the old arrangements would come to an end if you don't get the approval you're seeking? 1173 MR. BRENNAN: Yes. 1174 MR. THOMPSON: So I say substantively that is, in effect, the old arrangements continuing until such time as you get the approval. 1175 MR. BRENNAN: You could argue that the arrangements continue but it's not the contract. The old S&T contract no longer exists. 1176 MR. THOMPSON: Again, rather unusual deal, isn't it? 1177 MR. BRENNAN: In what way? 1178 MR. THOMPSON: Well, you have an old contract that you say expired March 31st, 2006, you make a deal with Union to replace it with three new contracts, but you agree that the prices under the old contracts will continue and that the new deal will expire on the same day that the old deal would have expired if you don't get the approval that you're seeking from the Board. It strikes me as an odd arrangement. It doesn't strike you that way? 1179 MR. BRENNAN: Not at all. 1180 MR. THOMPSON: Now, in terms of the impacts of these cost increases, do they affect the system gas ratepayers only or system and direct purchase? 1181 MR. SMALL: The cost allocation would be no different than how storage and transportation costs are handled today. So as part of the cost allocation rate design, storage costs would be allocated to the various rate classes dependent upon their responsibility for storage costs. 1182 MR. THOMPSON: Right -- 1183 MR. SMALL: So there's no difference. 1184 MR. THOMPSON: I accept that but does that, therefore, impact both system gas and direct purchasers? 1185 MR. SMALL: Yes, that's correct. 1186 MR. THOMPSON: Okay. Now, this deal was done in the spring of 2004; is that correct? 1187 MR. BRENNAN: We reached agreement in principle in February of 2004. 1188 MR. THOMPSON: Okay. And if you look at tab 5 of Exhibit K.1.6, you'll see there the inaugurating document with respect to this natural gas review process that is referenced in the settlement agreement dated October 24, 2003, and one of the questions that is posited there is: Should the Board continue to regulate storage and if so, how? Correct? 1189 MR. BRENNAN: I see that, yes. 1190 MR. THOMPSON: So would you agree with me that the manner of the regulation of storage was known to be under review as of October 24, 2003. 1191 MR. BRENNAN: Well, I view this as something where the Board is looking at whether or not it should continue to regulate storage. I mean right now, our view is that storage is still regulated, albeit in some cases at range rates for market prices. I think what this review, as I see it, is whether or not the Board should go to the next step and actually not regulate storage at all from a rate perspective as opposed to... 1192 MR. THOMPSON: Well, I would suggest to you, Mr. Brennan, that it was known by October 24th, 2003, that the question, Should the Board continue to regulate storage, and if so how, was a question that was up for review. Will you agree with that or disagree with that? 1193 MR. BRENNAN: Well, that's what this document says. I mean my interpretation of that is whether or not it should continue to regulate storage. 1194 MR. THOMPSON: The scope of the review was a matter of, perhaps, disagreement between parties, but the topic was up for review; correct? Do you accept that? 1195 MR. BRENNAN: I can accept what's written there. 1196 MR. THOMPSON: And I would suggest to you that the possibility of the continuance of the cost-based storage was within the ambit of that review. 1197 MR. BRENNAN: Well, I, quite frankly, don't understand why it would be, given that the Board has, in past, already approved contracts that were -- that included market-based pricing, if you like; one was for Gaz Metropolitain and one was for Kingston Utilities, as I understand. 1198 MR. THOMPSON: Well, then why did you have a condition in the contract. See, if market base was a slam-dunk -- 1199 MR. BRENNAN: It just seemed to be a prudent thing to do. 1200 MR. THOMPSON: All right. And I suggest it was a prudent thing to do because of this pending review process. You wanted to protect yourself; is that correct? 1201 MR. BRENNAN: We just wanted to make sure that if, for whatever reason, the Board did not allow us the recovery of those costs in rates, that we could revert back to the old rates. 1202 MR. THOMPSON: Okay. In terms of the term of your -- the old arrangement with Union, your counsel was kind enough to send to me some documents, some extracts out of the old arrangements dealing with this issue. And I'm pleased to report they only deal with this issue because I understand the document is a very substantial one. 1203 MR. BRENNAN: Yes, it is, very. I can't remember the number, 17 or 18 amendments to it over the 26-year period of the contract. 1204 MR. THOMPSON: And I don't have copies of this material available for the panel, so what I'd like to do is pose the questions and then ask the company if they wouldn't mind just filing the excerpts that they produced for me by way of undertaking response, if that is appropriate. 1205 MR. BRENNAN: That's fine. 1206 MR. THOMPSON: Okay. So the initial term, if I read it correctly from the old contract, was a 20-year term? 1207 MR. BRENNAN: Yes, it was. 1208 MR. THOMPSON: From, I believe, 1977, is that correct, or '78. 1209 MR. BRENNAN: I believe it was 1977. 1210 MR. CHARLESON: Yes, it was November the 1st, 1977. 1211 MR. THOMPSON: Okay. And that contract contains a clause, Article 5.01, it's the term clause that, as I read it, requires Union to give you three years' notice of its intention to terminate the contract. 1212 MR. BRENNAN: That's correct, with the last year being not 12 months but 17 months. 1213 MR. THOMPSON: Okay. And so that would make the contract, when it was in the 20-year format, terminable in April of 1998; have I got that right? 1214 MR. BRENNAN: Yes, I believe that's correct. 1215 MR. THOMPSON: Okay. So the end of March, I believe, 1998. And then there was -- so if I could just stop there and ask you to undertake to file the excerpts from that contract that Ms. Persad sent to me yesterday. 1216 MR. BRENNAN: Yes. 1217 MR. THOMPSON: Could I have a number for that, please. 1218 MR. SCHUCH: Yes. Mr. Chair, that would be Undertaking J.1.4, to file excerpts from the storage contracts. 1219 MR. THOMPSON: Yes, the storage contract dated, I believe, November 1977. 1220 MR. BRENNAN: And in particular, just so we're clear because it is a very lengthy document, you're referring simply to paragraph 5.01 for now? 1221 MR. THOMPSON: For now, but I was really asking that just the package that Ms. Persad sent to me of the excerpts from that contract, which includes the index, be filed. 1222 MR. BRENNAN: Fair enough. Thanks. 1223 MS. PERSAD: Including the amending agreement? 1224 MR. THOMPSON: Well, that was the second document, I'll come to that in a second. That's the original contract. 1225 MR. BRENNAN: The only other thing that I'd like to point out, Mr. Thompson, in that same document, at paragraph 18.03, under the heading "Notices," that it states that all notices shall be in writing. 1226 MR. THOMPSON: Thank you very much. 1227 UNDERTAKING NO. J.1.4: TO FILE EXCERPTS FROM THE STORAGE CONTRACT DATED NOVEMBER 1977 1228 MR. THOMPSON: So the effect of that particular contract provided for it to terminate March 31, 1998, provided Union gave you three years' advance notice. 1229 MR. BRENNAN: Three years plus -- 1230 MR. THOMPSON: Five months? 1231 MR. BRENNAN: -- five months. 1232 MR. THOMPSON: Okay, three years plus five months, so 41 months' notice. 1233 MR. BRENNAN: And if neither party gave notice then the contract is continued. 1234 MR. THOMPSON: Okay. Well, let me move forward, because there then is an amending agreement, an amending agreement as I understand it, with respect to the arrangement we've just been discussing, and I believe that the amending agreement is dated in September of 1988. Would you take that subject to check? 1235 MR. BRENNAN: I'll take that subject to check. 1236 MR. THOMPSON: All right. And in section 8 -- sorry, on page -- 1237 MR. BRENNAN: Sorry. Yes, it's September 28th, 1988. 1238 MR. THOMPSON: And then on page 5 of the amending agreement, under the heading "Section 8, Part 1 - Term," it says: 1239 "Section 5.01 of the storage and transportation contract is amended by deleting the operative term of 20 contract years and by substituting the operative term of 26 contract years." 1240 Have I read that correctly? 1241 MR. BRENNAN: Yes, you have. 1242 MR. THOMPSON: Okay. And that, then, would take the termination date of the contract to March 31, 2004. 1243 MR. BRENNAN: That's correct. 1244 MR. THOMPSON: Okay. And then if you would be good enough to go to the information at tab 1 of the IGUA documents brief, which is excerpts from the Board's decision in this EBRO 494-03 proceeding. I drew these decisions to your attention yesterday and hope you've had a chance to review them. 1245 MR. BRENNAN: Yes, I was up late last night reading them. 1246 MR. THOMPSON: Good for you. So was I. And if you'd be good enough to go to the first decision of August 29, 1997, really not the main one at -- the main one is a few pages in dated September 26, 1997. It's a decision of Dr. Higgin, Mr. Dominy, and Ms. Drozed. I hope I pronounced that correctly. 1247 And if you would be good enough to turn to page 33 of that decision, paragraph 2.5.33, what we have there is the Board's decision dealing with a renewal right of M12 storage contracts; do you agree? 1248 MR. BRENNAN: Which paragraph are you referring to? 1249 MR. THOMPSON: I'm referring to paragraph 2.5.33. If you go back to page 26 you'll see the heading: "Renewal of storage contracts." 1250 My proposition is that under this decision, EGD appears to have a right to renew the cost-based storage contract for a period of up to two years from its termination date. First of all, do you agree that the company has that right to renew under that decision? 1251 MR. BRENNAN: If you just give me a moment to read it. 1252 MR. THOMPSON: Yes. 1253 MR. BRENNAN: Yes, it says: 1254 "The Board directs Union to provide the parties with the existing M12 contracts with an opportunity to renew their M12 contracts for a period of up to two years." 1255 MR. THOMPSON: Yes, and then it goes on and says: "... provided they give notice of such renewal 18 months prior to the date of expiry of the existing contracts." 1256 MR. BRENNAN: Right. And then to go a bit further: "Contracts for such renewal shall be completed and filed with the Board as required by section 22 of the Act..." and so on. 1257 MR. THOMPSON: And further: 1258 "The renewal will be at the approved M12 rate applicable at the time of renewal, whether that be a cost-based rate or a market-based rate." 1259 MR. BRENNAN: Right. 1260 MR. THOMPSON: Right. Did EGD exercise this right of renewal to take the contract from 2006 -- sorry, from 2004 to 2006? 1261 MR. BRENNAN: No. The contract was never altered. The contract was the contract that we have. We haven't changed that contract to incorporate any of this language, to my knowledge. 1262 MR. THOMPSON: Okay. So you -- well -- 1263 MR. BRENNAN: Essentially, we're working under the terms of the contract that we had in place. 1264 MR. THOMPSON: So, what, you just ignored this right of renewal for a further two years of cost-based service? 1265 MR. BRENNAN: No, I think what we were looking at was going back to the Board's decision in RP-1999-0017 where the Board approved that when M12 contracts expire, they will go to the market-based pricing. 1266 MR. THOMPSON: Well, that's fine, but you still had this right to extend the cost-based aspect of the arrangement by a further two years, and I think you're telling me you didn't do anything about it. 1267 MR. BRENNAN: There's nothing in our contract that allowed us to do it at the time. 1268 MR. THOMPSON: Yeah. Well, there's no renewal rights in the contract, that's why the Board dealt with it in this case. In any event, the bottom line is you didn't exercise that right. 1269 MR. BETTS: I think, Mr. Thompson, you can proceed or -- 1270 MR. BRENNAN: Yes, I'm sorry. 1271 MR. THOMPSON: I'm sorry, did you wish to add something? 1272 MR. BRENNAN: No. 1273 MR. THOMPSON: I thought you were huddling to add something to your response, that's why I was waiting. 1274 MR. BRENNAN: No, I guess our view was that under the contract, as we read it at the time, was that Union had to provide us with written notice. They gave us written notice March 11, 2002, and if you add the -- if you then take it to the next November, which is part of the contract, part of the clause that states that, and you add the three years and the five months, you get to March 31st, 2006. So from our perspective, that's when the contract would have expired, which in essence, I guess, is two years beyond the 2004. 1275 MR. THOMPSON: Well, you can read the arrangements operating -- anyway, let's just leave it there. Did you consider this right of renewal in the Board's 494-3 decision? 1276 MR. BRENNAN: No. 1277 MR. THOMPSON: All right. So the notice that Union gave you, you mentioned in paragraph 2 of the material, was March 11, 2002, and under the express terms of the Article 5, I think it was, that the -- 1278 MR. BRENNAN: 5.01. 1279 MR. THOMPSON: 5.01, that terminated the contract on March 31, 2006. 1280 MR. BRENNAN: That's correct. 1281 MR. THOMPSON: That would operate to terminate the contract on March 31, 2006? 1282 MR. BRENNAN: Yes. 1283 MR. THOMPSON: Is that what you said? 1284 MR. BRENNAN: Yes. 1285 MR. THOMPSON: All right. So there doesn't seem to be any dispute as to the expiry date of the S&T contract, that's what the contract says, that's the expiry date. 1286 MR. BRENNAN: Certainly that was our perspective. 1287 MR. THOMPSON: Well -- 1288 MR. BRENNAN: Union had a different view, obviously. 1289 MR. THOMPSON: Well, did it have any merit, apparently not if we read the contract. 1290 MR. BRENNAN: Well, I think Union relied on other communication, testimony, whatever, that while it was verbal, suggested that the contract would have expired March 31st, 2004. 1291 MR. THOMPSON: Yes, and you pointed out to me earlier that the contract calls for written notice. 1292 MR. BRENNAN: That's correct. 1293 MR. THOMPSON: The first written notice you got was March 11, 2002. 1294 MR. BRENNAN: Correct. 1295 MR. THOMPSON: And the effect of that was to terminate the contract on March 31, 2006 -- 1296 MR. BRENNAN: Yes. 1297 MR. THOMPSON: -- correct? So what was the dispute with Union Gas that had some merit? 1298 MR. BRENNAN: Well, obviously they still strongly felt that because of previous discussions, testimony by witnesses, interrogatory responses from previous hearings, all suggested that the contract expired March 31st, 2004, and that it was intended that that contract would expire on that date. 1299 MR. THOMPSON: Is the March 11, 2002 notice that Union gave to you in the record yet? 1300 MR. BRENNAN: Not that I'm aware of, no. 1301 MR. THOMPSON: I see. Would you undertake to file a copy of that, please? 1302 MR. BRENNAN: Yes. 1303 MR. THOMPSON: We'd better have a number for that, please. 1304 MR. SCHUCH: Mr. Chair, that will be Undertaking J.1.5. 1305 UNDERTAKING NO. J.1.5: TO FILE A COPY OF THE MARCH 11 WRITTEN NOTICE THAT UNION SERVED ON ENBRIDGE IN PARAGRAPH 2 OF EXHIBIT A3, TAB 2, SCHEDULE 5 1306 MR. JANIGAN: Can we say what that was again. 1307 MR. THOMPSON: That was the March 11 written notice that Union served on Enbridge in paragraph 2 of Exhibit A3, tab 2, schedule 5. 1308 Now, is there any mention in that document of all of these discussions, interrogatories, what you just described? 1309 MR. BRENNAN: No, there wasn't. 1310 MR. THOMPSON: I see. 1311 MR. BRENNAN: What it did state though was that the contract expired March 31st, 2004. 1312 MR. THOMPSON: Okay. But that was without merit, based on the language of the contract. 1313 MR. BRENNAN: From our perspective, the contract expired March 31st, 2006. 1314 MR. THOMPSON: Okay. But then at some point after that notice you embarked upon negotiations with Union. 1315 MR. BRENNAN: Yes. 1316 MR. THOMPSON: And the upshot of those negotiations is Enbridge's agreement that the old contract would come to an end on March 31, 2004, without certain approvals from the Board. 1317 MR. BRENNAN: Well, it was a little more complicated than that. The process started almost a year ago, I guess. Union wanted to discuss the issue of when this contract actually terminated. We were concerned that -- well, we obviously had disagreements on both sides. We were of the view that it expired March 31st, 2006; they felt March 31st, 2004. You know, there's meetings, several meetings back and forth with no resolution. Our concern was whether or not, you know, at some point there could be some legal action or litigation to determine what the date was going to be. We felt we had a pretty strong case. 1318 During that process, though, Union -- we did mention to Union that to avoid any lengthy legal process, that we would be prepared to consider entering into a contract as of April 1st, 2004, as long as we could demonstrate that, in doing so, there was a benefit to our ratepayers in doing it. And that was the only reason that we would even consider it. 1319 MR. THOMPSON: So did the -- well, you said these discussions, if I understood you correctly, started in March -- around the spring of 2003; is that a fair characterization? 1320 MR. BRENNAN: It may have even been -- 1321 MR. THOMPSON: You said about a year ago. 1322 MR. BRENNAN: Well, yes, actually some of them started in January of 2003. They carried on into June of 2003. 1323 MR. THOMPSON: All right. And you talk about threatened litigation. Did Union threaten litigation in writing? 1324 MR. BRENNAN: I don't think I used the word "threaten litigation," but it was our concern that it could result in Union wanting to take it to the next step. 1325 MR. THOMPSON: Well, did they threaten litigation? 1326 MR. BRENNAN: No, they did not. 1327 MR. THOMPSON: Okay. So how could you be acting to avoid potentially expensive litigation, which is what you say in paragraph 3 of the evidence, if they hadn't even threatened litigation? 1328 MR. BRENNAN: Well, we knew that over that time frame we weren't getting anywhere. Union -- you know, we're a very large customer of Union and we do a lot of dealings with Union in other aspects of the business, and we were hoping to come up with a resolution to this dispute that would satisfy both parties. 1329 MR. THOMPSON: Well, I'm still puzzled by that. I don't know how anyone concludes that what they're doing is being done to avoid potentially expensive litigation if litigation hasn't been threatened. 1330 MR. BRENNAN: Well, it was certainly always in the back of our mind that that was definitely a possibility. 1331 MR. THOMPSON: Back of whose minds? 1332 MR. BRENNAN: Our minds. 1333 MR. THOMPSON: Your minds. And it was in the back of your minds because of what? 1334 MR. BRENNAN: Well, whether or not these other pieces of information could stand up in court as to whether or not it was actually notice to terminate the contract. 1335 MR. THOMPSON: Now, did you take the initiative to negotiate the -- to have these discussions with Union? Did Union take the initiative? 1336 MR. BRENNAN: No, Union took the initiative. 1337 MR. THOMPSON: Union took the initiative. And is there any correspondence dealing with these discussions, or is this all in notes and minutes and that? 1338 MR. BRENNAN: It was just verbal meetings. 1339 MR. THOMPSON: Just verbal. And then you made your deal in principle, I think you said, around the beginning of 2004; is that -- 1340 MR. BRENNAN: Yeah, just let me explain what the process was. When we -- about a year ago, we had our -- one of our several meetings to discuss the issue and what was agreed to was that, first of all, Union would provide us with their best offer for a new contract. At the same time, Enbridge was going to go out to the market to obtain bids for similar storage for the same period. And then what we would do was we would look at those bids. If Union was the most attractive, then we would sit down with Union at that point and say, Okay, you are the most attractive bidder, but we still want to be able to demonstrate to our ratepayers that whatever we negotiate is in the best interest of our ratepayers. And from that perspective, that's how the discussions, if you like, negotiations, started. 1341 So then Union came back with what I call their first offer, and it went back and forth over a period of almost six months. 1342 MR. THOMPSON: At the time you started these discussions, am I correct that Enbridge was proposing to unbundle its storage from utility assets? 1343 MR. BRENNAN: Just going from memory, I believe those discussions were after we had withdrawn our unbundling proposal. 1344 MR. THOMPSON: Is Enbridge still considering unbundling storage assets from utilities assets? 1345 MR. BRENNAN: Not at this time. 1346 MR. THOMPSON: I see. Would you agree with me that market-based storage rates is a benefit to Enbridge if it unbundles its storage assets from its distribution assets? 1347 MR. BRENNAN: If it unbundled and went to market-based rates? 1348 MR. THOMPSON: Yes. 1349 MR. BRENNAN: It may or may not. I don't know. 1350 [Audio feedback] 1351 MR. BETTS: Go ahead from there. I don't know what causes that but... 1352 MR. THOMPSON: Thank you. 1353 So just to, I guess, wrap this up, if the Board declines to accept your forecast that market-based rates are going to prevail, then cost-based rates continue until March 31, 2006. 1354 MR. BRENNAN: If the Board denies the recovery of these costs in rates then cost-based rates continue until March 31st, 2006. 1355 MR. THOMPSON: And is it the company's expectation that the review referenced in tab 5 of the IGUA documents brief, Exhibit K1, tab 6, that includes the question, Should the Board continue regulate storage, and if so how, is it the company's expectation that that review will be completed by March 31, 2006? 1356 MR. BRENNAN: I have no estimate as to when that proceeding could be finished. 1357 MR. THOMPSON: Well, you seem to be able to forecast that the Board is going to go with market-based rates, but you can't forecast the timing of the review? 1358 MR. BRENNAN: Well, the reason we're saying the Board is going to market-based rates is because of previous decisions already. I mean if you want to go and look at RP-2004-041/EB-2004-0221, Union Gas and Kingston Utilities, it tells you right in there that the Board essentially has accepted market-based pricing for storage for a ten-year term. 1359 MR. THOMPSON: That is in what decision? It is not in this brief, is it? 1360 MR. BRENNAN: No, it's not. 1361 MR. THOMPSON: It's another decision. Would you undertake to file that decision, please. Thank you. 1362 MR. BRENNAN: That's RP-2004-0141/EB-2004-0221. It's a storage contract between Union Gas Limited and Kingston Utilities. 1363 What it was, it was the Board's decision I'm talking about dated May 26th, 2004. 1364 MR. THOMPSON: All right. Well -- 1365 MR. BRENNAN: And my understanding, they also approved, I don't have the document with me, the Board approved market-based pricing for a GMI contract with Union as well. 1366 MR. THOMPSON: That's -- I accept that. 1367 MR. SCHUCH: Is that an undertaking? 1368 MR. THOMPSON: Yes, please. 1369 MR. SCHUCH: Mr. Chair, that would be Undertaking J.1.6. 1370 MR. THOMPSON: Just to file a copy of the decision that you -- 1371 MR. BRENNAN: The Kingston one. 1372 MR. THOMPSON: Yes. 1373 UNDERTAKING NO. J.1.6: TO FILE A COPY OF THE KINGSTON DECISION 1374 MR. THOMPSON: The current Board policy, I think I state this fairly, is that cost-based rates prevail for infranchise customers, have I stated that correctly? 1375 MR. BRENNAN: The current? 1376 MR. THOMPSON: Yes. Cost-based storage rates. 1377 MR. BRENNAN: For infranchise customers? 1378 MR. THOMPSON: Yes. 1379 MR. BRENNAN: Yes, I believe that's correct. 1380 MR. THOMPSON: And would you agree with me that there are those that contend that that principle should be extended at least to cost -- at least to Ontario LDCs. It's a position that's out there and that I suggest is part -- falls within the ambit of the review; do you agree with that or disagree with that? 1381 MR. BRENNAN: I don't know whether there's parties out there or not. I know that there's certainly -- and again, referring to the RP-1999-0017, when Union raised the issue of whether or not existing M12 storage contracts, when they expired, to go to market-based rates, there were parties that supported that and I believe there was one party that didn't support it and I believe it was one of the parties that supported it. 1382 MR. THOMPSON: In, what, 2000 -- 1383 MR. BRENNAN: I believe it was RP-1999-0017. 1384 MR. THOMPSON: That's in tab 2 and then there's another case, RP-2001-0029 where the positions were changing. But positions with change from case to case, Mr. Brennan, such as positions on cost allocation and rate design. 1385 MR. BRENNAN: I guess it's known to happen. 1386 MR. THOMPSON: Yes, it's known to happen and it's known to emanate from EGD on occasion; correct? 1387 MR. BRENNAN: I agree, but I think in my view that's the most recent position, as I understand it, where the Board has landed on what should happen to those M12 contracts when they expired, and that was what we were relying on when we made our decision. 1388 MR. THOMPSON: Yeah. And what I'm suggesting is all of that is under review as a result of the 2003 notice, but I'll argue that. I've tried to put in the brief the information that -- 1389 MR. BRENNAN: I have to admit that if that is the case, then I'm -- I -- given that the storage contract with Kingston Utilities, which I just mentioned, was approved in May of this year, again, allowing Union to charge a market-based pricings that if there was a concern around that issue, then the Board would have highlighted that in its decision. And likewise, it would have raised the same issue when Union went forward with its application to provide storage service for Enbridge as part of this contract that we're just talking about. 1390 Again, it didn't raise the issue that this was something that should be a part of the discussion of the natural gas policy review. 1391 MR. THOMPSON: Well, the approval that you're talking about for Kingston and the approval that you're talking about for Enbridge are the approvals under the section of the Act dealing with storage contracts; right? 1392 MR. BRENNAN: Fair enough. 1393 MR. THOMPSON: It's not approvals for rate-making purposes. 1394 MR. BRENNAN: But it was clear in those decisions that Union was charging market-based prices. 1395 MR. THOMPSON: Okay. But if the approval under the section of the Act, I've just forgotten what it is, dealing with storage contracts made the costs recoverable for rate-making purposes, then you would not have a clause in your contract dealing with that topic. 1396 MR. BRENNAN: If -- yes, that's correct. 1397 MR. THOMPSON: So the clause is in there for a reason. 1398 MR. BRENNAN: Yes. 1399 MR. THOMPSON: And just go to the clause for one second because again, it's somewhat -- well, its wording raises a question in my mind. This is in Article 4 of the contract that is appended as attachment A, to the testimony, Exhibit A3, tab 2, schedule 5, and I'm looking at Article 4.04. 1400 Just before I ask questions on this, my understanding is this contract has not been signed yet. 1401 MR. BRENNAN: It has not been executed. 1402 MR. THOMPSON: But are there disputes about the language of the clauses? 1403 MR. BRENNAN: Not at all. The reason we haven't executed yet, we are waiting to finish off the two transportation contracts so they can all be executed at the same time. All of them are ready to be executed now. 1404 MR. THOMPSON: All right. And then if you look at Article it says: "Despite section 4.01," just stopping there, 4.01 makes the term of this contract ten years? 1405 MR. BRENNAN: That's correct. 1406 MR. THOMPSON: So: 1407 "Despite 4.01, this contract shall be terminated on March 31, 2006, if the following conditions are not satisfied or waived." 1408 Now, under what circumstances would you waive the protection of this clause? 1409 MR. BRENNAN: I can't think of any. 1410 MR. THOMPSON: So can you tell me why that waver provision is in there? 1411 MR. BRENNAN: Union held the pen, we didn't have issue with that if they wanted to put that in there. We weren't prepared to waive it. 1412 MR. THOMPSON: You aren't prepared to waive it unless you get the green light from the Board in this proceeding or in some other rates hearing; is that right? 1413 MR. BRENNAN: No, what it says here, as far as I'm concerned, is that as I interpret it and have read it and understood it to mean, is if the conditions are not satisfied as listed below there by that date, then basically, what happens is that for the most part we revert back to the cost-based rates until March 31st, 2006. 1414 MR. THOMPSON: Okay. So the deadline date is October 31st of this year. If you haven't got the Board approval that you're seeking by that date or a later date -- 1415 MR. BRENNAN: Or a later date. 1416 MR. THOMPSON: -- that you may agree upon, then the term of the deal is two years and the cost-based prices prevail. 1417 MR. BRENNAN: Correct. 1418 MR. THOMPSON: All right. And you're not going to waive that under any circumstances? 1419 MR. BRENNAN: It's not our intention to, no. 1420 MR. THOMPSON: And then subparagraph (a) describes part of the condition and then it goes on: "...and (b), shall have received an order from the OEB approving or fixing rates that allow shipper to recover from its ratepayers shippers's budget for the charges and rates under the section 8.01 during the period from the approval date through December 31, 2005 or such earlier date as shipper may determine." 1421 Can the December 31, 2005 condition be satisfied if your position on the motion is sustained and issues 13.1 and 13.2 are removed? 1422 MR. BRENNAN: I'm not familiar with -- I know there's an issue around the period between October through to December of 2005, but that's why we put in the language, "Or such earlier date as shipper may determine," not knowing what the resolution was going to be. 1423 MR. THOMPSON: So when we shake it all down, the options are these: The Board can wait until the review that's contemplated in the forum has been completed and deal with the market-based rates issue versus cost-based rates issue in that review or the Board can deal with it in this rate case. 1424 MR. BRENNAN: Yes, and we obviously would prefer that they deal with it in this rate case because we feel that we negotiated this contract making sure that there was benefit to ratepayers and I think this contract is of great value to the ratepayers in terms of what its representing in the NPV of over $8 million over the ten-year period, the flexibility that we got in some of the storage characteristics. My view -- and the ability to ratchet down to 20 percent in any one year, I don't know of another contract that you're allowed to do that. 1425 So I think this is -- you know, we have an opportunity here, if we can develop storage at lower costs than the market-based rates that are under this contract, then that is of significant value to the ratepayers. 1426 MR. THOMPSON: Well, cost-based beyond the spring of 2006 would make the ratepayers better off than what you negotiated. 1427 MR. BRENNAN: Assuming that that's where the Board's going to go. But everything we've seen over the last three or four years is that the Board is moving more and more towards market-based pricing. It started off when it approved some of the contracts where Union wanted to sell excess storage. I think these were the Bentpath-Rosedale storage projects, the Century I, Century II where they were selling that capacity at market-based prices, leading all the way up to its RP-1999-0017 where it said that M12 customers -- ex-franchise customers, that they will be going to market-based pricing, and when it approved the Kingston contract and when it approved our contract with Union. 1428 MR. THOMPSON: The -- where market-based prices will be in 2006 will depend on market conditions at that time; correct? 1429 MR. BRENNAN: I agree. And my view of it is that market-based prices are not likely to go down. My view is that there continues to be a demand for storage, certainly in our franchise which is very heat-sensitive. We don't see our need for storage decreasing over the next ten years. Not only that, but if you look at the availability of storage in southwestern Ontario, there seems to be less and less opportunities to develop storage. So all of that would suggest to me that prices are certainly not going to go down; if anything, they're going to go up. 1430 MR. THOMPSON: Let me ask this last question: Were any of these, what I would describe as, elaborate arrangements with Union made by Union and Consumers in attempt to get some sort of prejudgment of this issue before the review is completed? 1431 MR. BRENNAN: Absolutely not. 1432 MR. THOMPSON: Thank you. Those are my questions. 1433 MR. BETTS: Thank you, Mr. Thompson. 1434 I did note initially that there was interest from, I believe it was, Mr. Dingwall, Janigan, Shepherd Ms. Aitken and possibly Ms. DeMarco. Is that still the interest list? And is there any need for a different order to be taken other than the order I just expressed? Mr. Dingwall, please proceed. 1435 MR. DINGWALL: Sir, am I correct in understanding that the Board would like to limit the balance of the afternoon to 4:00? 1436 MR. BETTS: That's a target we would like to aim for. 1437 MR. DINGWALL: Okay. 1438 MR. BETTS: Can you do that? Does that cause a complication in any way? 1439 MR. DINGWALL: No. If it's necessary to continue tomorrow morning, I'm certainly happy to do that as well, and I will be at the Board's disposal as to when you wish to dispose of me. 1440 MR. BETTS: Okay. Thank you. Please proceed. 1441 CROSS-EXAMINATION BY MR. DINGWALL: 1442 MR. DINGWALL: Gentlemen, can you tell me if the storage contract is assignable by Enbridge. 1443 MR. BRENNAN: You're referring to the LST039 contract? 1444 MR. DINGWALL: That's correct, Mr. Brennan, I am. 1445 MR. BRENNAN: Yes. If you look at paragraph 13.01, it says: 1446 "Shipper may not assign this contract without the written consent of Union, the approval of the Board, and financial assurances required by Union." 1447 So our view, while it says that, on the surface, it doesn't look like it's assigned, but our view is that's there's no reason why Union would not assign this contract. The only concern they would have is making sure that whoever it was assigned to was a credit-worthy party and that it had approval of the Board that Union did not necessarily need that storage for its own purposes if it was being assigned to someone, say, outside of Ontario. 1448 MR. DINGWALL: Okay. And I'm going to apologize in advance for leaping around all over the place. Mr. Thompson, with his customary thoroughness, has limited my list somewhat. 1449 In trying to understand the time line associated with these discussions, it appears that everything kind of began in January of 2003 in terms of Union giving Enbridge some suggestion that the contract would possibly terminate or be ripe for discussion for termination prior to the 2006 end; is that correct? 1450 MR. BRENNAN: No, I think you have to look further back than that, because when they gave us the notice, it was March 11, 2002, is when they gave us the notice. 1451 MR. DINGWALL: Which would have applied to March 31st, 2004? 1452 MR. BRENNAN: I'm sorry? Yes. Yes, correct. 1453 MR. DINGWALL: So subsequent to the 2002 notice, were there negotiations or discussions, or did it begin, as I understood from a moment ago, January of 2003. 1454 MR. BRENNAN: No, nothing really happened for the longest time, unfortunately. I mean it didn't really make a difference to Enbridge at the time. I mean we were prepared to let the contract expire in 2006 from our perspective. So it was really in Union's court, I guess, as to when and if they did want to approach us to enter into any discussions. 1455 MR. DINGWALL: But did the assignment -- pardon me, the termination notice give an indication of the date that they understood it to be terminated, which would be 2004? 1456 MR. BRENNAN: That's correct. And we had -- I called them up -- well, they already knew ahead of time, because -- the reason I did was because they had indicated to me that the contract was going to be -- well, what happened was they sent me a copy of what the new terms of the contract would look like effective April 1st, 2004, and my response was, That's nice, but you didn't give us notice yet, so our understanding is that, from reading the contract, that this contract doesn't expire until March 31st, 2006. So at that point in time, that very same day we got the letter. 1457 MR. DINGWALL: What did the terms of the contract look like with respect or in comparison to what you've now filed, the one that they sent you which flagged you to the difference they had in respect of dates? 1458 MR. BRENNAN: Generally, much higher rates, less flexibility in terms of when we can inject gas on a firm basis, the deliverability; also the issue that we had to have storage empty by the end of June. There was a series of things that they had put in that letter that obviously were not attractive to us. 1459 MR. DINGWALL: Now, when you received their termination notice, that was in advance of your 2004 rate filing, was it not? 1460 MR. BRENNAN: I would think so. I would like to think so given that it was March 11, 2002. 2004, that was sort of -- I'm not sure there was an application, I guess, but basically it was running off the 2003 rate case in terms of rates, anyway. I'm not sure when that was filed. 1461 MR. DINGWALL: Well, what I'm trying to understand is, when the company became of the mind that there was some dispute and some uncertainty with respect to the 2004 costs, given that there's no interpretation out there on Union Gas's side that your storage contract expires partway through that rate year? 1462 MR. BRENNAN: No, I mean our position was that it was always March 31st, 2006, so we felt strongly and felt we had a good case as to why that should be the case. 1463 MR. DINGWALL: But now you're putting forward in this case some degree of retroactivity going back to 2004 because of costs put forward under the new contract. 1464 MR. BRENNAN: Well, yeah, we have negotiated a new contract with Union; that commences April 1st, 2004, that's correct, which is -- 1465 MR. DINGWALL: And -- sorry to interrupt. Go ahead. 1466 MR. BRENNAN: And the reason we did that, for the reasons I've stated already, because we think it's of great value to ratepayers and to the benefit of ratepayers. 1467 MR. SMALL: Just to maybe clarify as well, I mean any costs that we would have paid to Union from April 1, 2004, through to September 2004 would have been captured as part of the 2004 Union Gas deferral account anyway, in any respect. The purpose of -- you establish the Union Gas deferral account based on the amounts that are underpinning in rates so to the extent that there's any variation in what you pay to Union, whether it's a toll change or whatever, it goes to the deferral account. 1468 MR. BRENNAN: No, I was just saying that any costs that we would have incurred... 1469 Sorry. Carry on. 1470 MR. DINGWALL: So I take it that I'm correct in stating that there was nothing in any forecasts related to 2004 costs or consequences that anticipated or disclosed any suggestion that there might be a problem with this contract? 1471 MR. BRENNAN: That were identified in the filing of our 2004 rate case? 1472 MR. DINGWALL: That's correct. 1473 MR. BRENNAN: That's correct. 1474 MR. DINGWALL: Thank you. Now, a ten-year storage contract is a fairly big thing in terms of utility budgets; isn't it? 1475 MR. BRENNAN: I don't think so, not really, considering that the first contract was 26 years. Any contract for transportation, you know, if that transporter is required to build new facilities would be a minimum ten years, if not 15 years as we've seen in Alliance and Vector, so long-term contracts I don't think are out of the norm, especially I think with probably storage contracts more than anything else. As I said early, in my view, our market or our need for storage is not going to go away over the next ten years. We have 1.7 million customers, many of them heat-sensitive customers that require load balancing and we do that through the use of storage. 1476 MR. DINGWALL: Where did the corporate direction come from with respect to the 10-year term? 1477 MR. BRENNAN: It was something that Union proposed, and given what we thought were the benefits that we could achieve if we had a shorter contract we may not have been able to achieve the savings that we've demonstrated here with a 10-year contract. 1478 MR. DINGWALL: Did you ever consider or suggest a shorter-term contract? 1479 MR. BRENNAN: No, simply because when we first ran through their first proposal, it would have had a negative impact in ratepayers so that wasn't going to work, and the only way it was going to work, if there had to be some adjustments to the rates, and the only way you could do it was to make sure that we had a long enough period that at market-based rates relative to what the market was saying the value of storage would be, that you would be able to recover those dollars. 1480 MR. DINGWALL: Is there anything else coming out of your discussion? 1481 MR. BRENNAN: No. 1482 MR. DINGWALL: In the fall of 2003, according to some of your answers to Mr. Thompson, there was consideration of some alternate scenarios for storage as well as a request for proposal that went out; is that correct? 1483 MR. BRENNAN: Yes. In the fall of 2003, we went out with an RFP for incremental storage. 1484 MR. DINGWALL: And these are referenced at Exhibit A3, tab 2, schedule 5, page 4, paragraph 14. 1485 MR. BRENNAN: Yes. When we make reference there to the first scenario where we said the market price of the new storage is based on the average of two storage proposals from other storage providers received in response to a storage RFP in the fall of 2003. 1486 MR. DINGWALL: Would it be possible to get a copy of the RFP? 1487 MR. BRENNAN: The request? 1488 MR. DINGWALL: The request for proposal? 1489 MR. BRENNAN: You mean the request itself? 1490 MR. DINGWALL: Yes. 1491 MR. BRENNAN: I don't see a problem with that. 1492 MR. DINGWALL: Could I have that as an undertaking, please. 1493 MR. SCHUCH: Mr. Chair, that would be Undertaking J.1.7, a request for the RPF for incremental storage. 1494 UNDERTAKING NO. J.1.7: TO PROVIDE THE RFP FOR INCREMENTAL STORAGE 1495 MR. BRENNAN: That's correct. 1496 MR. BETTS: You just read that as being a request for the RFPs. 1497 MR. BRENNAN: It's the request for the proposal for incremental storage. 1498 MR. BETTS: The RFP. 1499 MR. BRENNAN: So we'll provide the request, we'll not provide the responses. 1500 MR. DINGWALL: I'm not asking for the responses. We'll get there. 1501 With respect to the RFPs that we've just identified, you've just used the word incremental storage. 1502 MR. BRENNAN: I may have misspoke myself. I don't know whether we identified whether it was incremental or not. I think we just asked for bids for storage. 1503 MR. DINGWALL: Do you know what volumes you were looking for? 1504 MR. BRENNAN: Well, for the most part, it was, if not identical characteristics of the proposal that Union had given us in terms of volume, deliverability, injection rates and things like that because the idea was we wanted to get something as close as we could to the Union bid. 1505 MR. DINGWALL: And would these terms be fully set out in the RFP? 1506 MR. BRENNAN: I'm going from memory here, but yes, those terms would all be set out as to how much space we were looking for, what sort of deliverability we'd be looking for, what term we'd be looking for. 1507 MR. DINGWALL: To what types of companies would these proposals have gone? The evidence says you've got two responses, how many more companies did it actually go to? 1508 MR. BRENNAN: No, we had more responses than that, we only chose those because those two were the closest to the storage service that Union was offering. One bid had, in fact, relied on synthetic storage which we discounted and I can't remember the reason for the other one. I think there was four in total, four or five in total. But we took the two that were most closely matched in the service that we would be getting from Union. 1509 MR. DINGWALL: Can you maybe describe for me in some detail why some of these others may not have matched? You mentioned the synthetic storage which you had some concerns with. Do you recall what took the other one off the table? 1510 MR. BRENNAN: I can't offhand, no. It may not have matched the volume or the deliverability that we were looking for. I can't remember offhand. 1511 MR. DINGWALL: But could it also have been term? 1512 MR. BRENNAN: Could have been term. I can't remember. 1513 MR. DINGWALL: I'm trying to think of a way to phrase the question to avoid the unnecessary production of confidential information and the associated healthy discussion that usually attends upon that. I'm wondering if it's possible for the company to indicate the significant terms and conditions of the four responses, if necessary, on a confidential basis as they relate to term, deliverability, volumes, injection, withdrawal, and other significant terms that may have led the company to either accept or discount the particular proposals. I don't think we need to know who they're from. 1514 MR. BRENNAN: We didn't accept any of them at the end of the day, obviously, but I mean, the terms of -- 1515 MR. DINGWALL: Well, you used two for comparison purposes, Mr. Brennan, I want to know the details of the other two as well. 1516 Could I have that as an undertaking, please? 1517 MR. BRENNAN: Well, I think that we could probably provide you that information, but obviously, we're not going to provide the pricing information that would be related to those. 1518 MR. BETTS: Let's accept that as an undertaking and if the company feels any portions of that needs to be redacted you could provide it on that basis and we'll consider any objections that might come from that. 1519 MR. SCHUCH: Mr. Chair, that would be Undertaking J.1.8, a summary of the four responses to the RFP, including items such as term, deliverability, and volume. 1520 UNDERTAKING NO. J.1.8: TO PROVIDE A SUMMARY OF THE FOUR RESPONSES TO THE RFP, INCLUDING ITEMS SUCH AS TERM, DELIVERABILITY, VOLUME, INJECTION WITHDRAWAL 1521 MR. DINGWALL: Injection, withdrawal. Since the language "including" is not complete, I'm sure the company will provide the other salient details. 1522 Now, with respect to price, Mr. Brennan, you raised the objection that there may be some confidentiality associated with that. 1523 MR. BRENNAN: Yes, that's correct. 1524 MR. DINGWALL: If the parties are not named who were the responders, would that mitigate that concern about confidentiality? 1525 MR. BRENNAN: I'm not sure whether or not there's other way of identifying who the party is. The only thing I could suggest is, if we are able to contact those parties, and they agree to provide that information as long as their names are not disclosed, we may be able to do something there. 1526 MR. DINGWALL: If you could undertake to contact the parties, that would be most appreciated. 1527 MR. BRENNAN: We will attempt to do that. 1528 MR. DINGWALL: Was the 20 percent rate of reduction that you spoke with Mr. Thompson about one of the terms associated with the request for proposal? 1529 MR. BRENNAN: No, it was not. 1530 MR. DINGWALL: I'm trying to understand to whose benefit that right of reduction goes to. 1531 MR. BRENNAN: It's clearly the ratepayers. I mean the only reason we would elect to, if you like, rachet down 20 percent or approximately 4 Bcf storage would be if the company was able to develop storage at a price less than the negotiated rate we would be paying Union. So that benefit, then, would all go to ratepayers. 1532 MR. DINGWALL: I'm looking at the clause that's associated with the 20 percent reduction, which I believe is 5.02 on page 9. 1533 MR. BRENNAN: I'm sorry, whereabouts are you? 1534 MR. DINGWALL: Clause 5.02 of the contract, which is on page 9 of it. This is the contract filed as attachment A -- Exhibit A3, tab 2, schedule 5. 1535 MR. BRENNAN: I have that. 1536 MR. DINGWALL: Now, from what I can see there, Mr. Brennan, would you agree with me that it's not just the company who would have the ability to develop this alternate facility but also an affiliate of the company? 1537 MR. BRENNAN: Yes, that's correct. 1538 MR. DINGWALL: And if the affiliate -- correct me if I am wrong, but there's nothing in this particular clause that says that the new facility has to be less in terms of cost than what this existing arrangement is at. 1539 MR. BRENNAN: That's right. But obviously from our perspective, there's no reason why we would want to activate the clause if it wasn't in the interest of ratepayers. 1540 MR. DINGWALL: One of the interesting things that tends to happen in these developing markets is that new monopoly services become open to competition, competitive markets develop, and new providers come about. How come the storage space reduction doesn't give the company the ability to go to a new service provider? 1541 MR. BRENNAN: It was just part of the negotiation. That was one of the things that we insisted on towards the end of the contract that we had an ability to rachet down. We thought that this gave our ratepayers great value, or at least the opportunity to reduce their rates even more. 1542 MR. DINGWALL: But if Enbridge has no affiliates that go into this business yet other new market players emerge, you don't have the ability to take advantage of that. 1543 MR. BRENNAN: No, nor did we have it for the 26-year contract that we had previously. Nor would we likely have it if we waited until 2006 to renegotiate our contract with Union. 1544 MR. DINGWALL: Given the regulatory uncertainty at this time, which you clearly allowed for in this contract by the ability to revert back to the old pricing and terminate it in the event that approvals are not received before this Board, is the company undertaking any further efforts to benchmark storage pricing, seek out new terms or new arrangements? 1545 MR. BRENNAN: We continue to have requirement for additional storage and we'll be going out shortly probably with an RFP for incremental storage requirements. 1546 MR. DINGWALL: And given what's developed in the transportation market over the last five years, is the company anticipating looking at decontracting as part of its future storage contracting requirements? 1547 MR. BRENNAN: Decontracting with whom? 1548 MR. DINGWALL: Having the ability to generically reduce, not just in the case of affiliates, but generically reduce the amount of storage that you can contract for or that you have under contract depending on the way that the markets develop? 1549 MR. BRENNAN: Going forward, you mean? 1550 MR. DINGWALL: Yes. 1551 MR. BRENNAN: We can certainly try and request that. Whether we are successful, I don't know. 1552 MR. DINGWALL: The company had plans at one point in time to separate out storage from the regulated entity to an affiliate; is that correct? 1553 MR. BRENNAN: We had plans at one point, yes, that's correct. 1554 MR. DINGWALL: Now that type of opportunity doesn't really stay on the table if you don't have a long-term storage contract, does it? 1555 MR. BRENNAN: I don't know what the length of term would have to do with that decision. 1556 MR. DINGWALL: Are you familiar with the unbundling of storage in other markets in North America, Mr. Brennan? 1557 MR. BRENNAN: No, not really. When you say "other markets," are you referring to outside of Ontario? 1558 MR. DINGWALL: Outside of Ontario, yes. 1559 MR. BRENNAN: No. 1560 MR. DINGWALL: I'm thinking of Ohio, Pennsylvania. 1561 MR. BRENNAN: No, I'm not. 1562 MR. DINGWALL: It might significantly inform future processes if the company were to keep that in mind and the potential of stranding assets with ratepayers in the event that long-term contracts are negotiated in advance of unbundling. 1563 MR. BRENNAN: Well, I can tell you, as I mentioned to Mr. Thompson earlier, there are no plans at this stage to unbundle storage at Enbridge. 1564 MR. DINGWALL: Would you agree with me that in the event that Enbridge went to some form of daily balancing for all customer classes, that the need for storage would be less the utilities need to administer and become more of a market factor. 1565 MR. BRENNAN: Could you repeat that one more time. I'm not sure I understood the first part. If customers... 1566 MR. DINGWALL: If the service of the competitive market, the direct-purchase market, went from the current methodology to daily balancing of loads, would not Enbridge's need to have storage backstopping direct purchase in other market sectors decrease significantly? 1567 MR. BRENNAN: I don't think necessarily. I think you may need a different type of storage to be able to do that, but not necessarily getting rid of storage in and of itself, no. You may need storage that has a higher deliverability, for example, I suppose. You may have more of a peaking type storage as opposed to a seasonal storage, but I still think you'd need storage. 1568 MR. DINGWALL: I'm just going to take a quick minute to confer with my client and my notes to take advantage of the precedent set by Mr. Brennan and Mr. Small. 1569 Thanks, gentlemen, those are my questions. 1570 MR. BETTS: Thank you very much. Your timing was excellent, too. 1571 I'm going to ask, if I can, if the other three parties who have indicated an interest in cross-examination had any idea how long they might be. Mr. Janigan? And I'm not contemplating continuing tonight. This would be to determine our schedule for tomorrow. 1572 MR. JANIGAN: Fifteen minutes, 20 minutes on the outside. 1573 MR. BETTS: Thank you. 1574 Mr. Shepherd. 1575 MR. SHEPHERD: Ten minutes, Mr. Chairman. 1576 MR. BETTS: Thank you. 1577 And Ms. Aitken? 1578 MS. AITKEN: Something around 20 minutes. 1579 MR. BETTS: Thank you. 1580 I think, then, with that we will conclude the first day of evidentiary hearing today. We will begin again tomorrow morning at 9:30 a.m. and we will continue with the cross-examination of this panel. And I would hope that we will be able to get into the risk management topic tomorrow, so I would ask that the witness panel be available for that as well. 1581 Are there any questions that might arise as a result of that? If not, we will adjourn now to reconvene tomorrow morning at 9:30. 1582 --- Whereupon the hearing adjourned at 4:05 p.m.