Rep: OEB Doc: 1388R Rev: 0 ONTARIO ENERGY BOARD Volume: 11 6 JULY 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 Tuesday, 6 July 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 6 JULY 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. TANIA PERSAD Enbridge Gas Distribution Inc. MICHAEL CADOTTE Union Gas Limited ROBERT WARREN CAC & CCC JULIE GIRVAN 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 JACK GIBBONS 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 PRELIMINARY MATTERS: [19] ENBRIDGE GAS DISTRIBUTION INC. PANEL 1 ON CHANGE IN YEAR-END - HARE, RYCKMAN, GIRIDHAR, ROSS, RYCKMAN, GRUENDING; RESUMED: [49] CONTINUED CROSS-EXAMINATION BY MR. THOMPSON: [56] CROSS-EXAMINATION BY MR. DINGWALL: [289] CROSS-EXAMINATION BY MS. DEMARCO: [405] CROSS-EXAMINATION BY MS. GIRVAN: [544] CROSS-EXAMINATION BY MR. ROWAN: [618] CROSS-EXAMINATION BY MR. WIGHTMAN: [692] RE-EXAMINATION BY MR. CASS: [725] PROCEDURAL MATTERS: [797] 10 EXHIBITS 11 EXHIBIT NO. K.11.1: REVISED EXHIBIT F, TAB 1, SCHEDULE 1 [78] EXHIBIT NO. K.11.2: MONTHLY ACTUAL HISTORICAL PERCENTAGE VOLUME AND O&M BREAKDOWN 2000 TO 2003 [297] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.11.1: TO PROVIDE THE HISTORICAL TRANSACTIONAL SERVICES REVENUES ON A MONTHLY BASIS FOR THE YEARS 2001, 2002 and 2003 [305] UNDERTAKING NO. J.11.2: TO INQUIRE AS TO WHETHER OR NOT THERE IS ANY ADMINISTRATIVE LAG IN THE REPORTING OF TRANSACTIONAL SERVICES, VOLUMES AND REVENUES AND INDICATE WHAT TYPE OF ADMINISTRATIVE LAG THERE MIGHT BE AND WHEN THAT WOULD TRADITIONALLY OCCUR [357] UNDERTAKING NO. J.11.3: TO UPDATE TABLE 3 HISTORICAL DSM PERFORMANCE FOR THE YEARS 2000 THROUGH TO 2004 ADDING THE PREFILED VOLUMETRIC TARGET IN EACH OF THOSE YEARS, PROVIDING A PERCENTAGE CHANGE BETWEEN THE PREFILED VOLUMETRIC TARGET AND THE ACTUAL THAT WAS ACHIEVED IN EACH OF THOSE YEARS [651] UNDERTAKING NO. J.11.4: TO DETERMINE WHETHER THE CPI UPON WHICH IT PROPOSES TO BASE ITS INDEXING IS CHAIN-WEIGHTED [708] UNDERTAKING NO. J.11.5: TO PROVIDE A BREAKDOWN OF THE REVENUE REQUIREMENT [717] 14 --- Upon commencing at 9:35 a.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good morning, everybody. Good morning, witnesses. Thank you for coming back this morning. 17 Today is day 11 of the hearing of application RP-2003-0203. We concluded yesterday partway through the cross-examination of the company's panel with respect to the proposed change in fiscal year-end. Mr. Thompson had begun his cross-examination and will resume this morning. I also had indications from Mr. Dingwall, Ms. DeMarco, Ms. Girvan and Mr. Rowan that they had intended also to cross-examine this panel today. 18 Before we begin that, are there any preliminary matters for the Panel's consideration? 19 PRELIMINARY MATTERS: 20 MR. CASS: Yes, Mr. Chair. The company has some undertaking responses available for filing. I believe they've been passed around to everyone including the Board members, there are five in total. They are all from yesterday. And without summarizing them, the numbers are Undertakings J.10.3 and then J.10.6 to 10.9 inclusive. 21 MR. BETTS: Thank you. Anything further, Mr. Cass? 22 MR. CASS: Yes, Mr. Chair. You'll recall yesterday when Exhibit K.10.1 was filed, column T had been dropped on the coloured version. Later, a black and white version was filed with column T, I think that was identified as Exhibit K.10.3. We do actually have the complete filing, that is the assumption page that was on the front of K.10.1 plus the colour page with the column T included. A reasonable approach might be simply to substitute this for K.10.1 if the Board would wish to have the complete colour version of the chart. 23 MR. BETTS: I think that's an appropriate way to handle that. That will cause 10.3 to be a duplicate, am I correct? 24 MS. LEA: Yes, a black and white duplicate of 10.1. 25 MR. BETTS: That's fine. 26 MS. LEA: The only confusion that may arise is if there was reference to 10.1 in its partly incomplete state, it may be a little confusing on the record for people to then look at the new 10.1 and see that column T is there. I hate to be complicated about this. Would it be better to substitute it for 10.3, perhaps, which is a complete one? I don't know. 27 MR. CASS: That would be fine. I'm not fussy about the numbering at all. 28 MS. LEA: Me neither, I just ... 29 MR. BETTS: We accept the complicated methodology of counsel in this case. 30 MS. LEA: Which one? 31 MR. BETTS: We're going to substitute this for 10.3. 32 MS. LEA: Okay. Thank you. Then this is Exhibit 10.3 revised. Thank you. 33 MR. BETTS: I hope the questions get easier through the day. 34 Thank you. Anything further? 35 MR. CASS: Finally, Mr. Chair, I understand that the witnesses have some corrections from yesterday's transcript. Perhaps I might just turn that over to the witnesses to explain the corrections. 36 MS. HARE: Mr. Cass, we thought we'd consolidate them over lunch and do them after lunch. 37 MR. CASS: All right. I'm sorry, Mr. Chair that's the disadvantage of not communicating with the witnesses while they're under cross-examination. I'm sorry about that. 38 MR. BETTS: Thanks, then we'll do that after lunch. 39 And is that everything, Mr. Cass? 40 MR. CASS: Yes, it is, sir, thank you. 41 MR. BETTS: Are there any other -- Ms. Lea. 42 MS. LEA: Thank you, sir, one minor matter. I have passed out to the parties who are here today a draft argument schedule. If anyone is proposing to make argument in this proceeding and I haven't given them a draft schedule, please let me know and I'll provide one. Those who are reading by transcript, if you wish to present argument and you haven't spoken to me yet, contact me and I can e-mail you a copy of the draft or include you in it. Thank you. 43 MR. BETTS: Thank you. And anything from any intervenors? 44 MR. THOMPSON: Yes, Mr. Chairman, I have one preliminary matter, it's the response to Undertaking J.9.6. This was an undertaking given by Mr. Fournier to produce a letter to counsel to the extent that it addressed the change in fiscal year-end issue. I have the letter here and everything in the letter but the text dealing with change in fiscal year-end has been redacted on the grounds of solicitor and client privilege, so it is confined in scope to what Mr. Fournier undertook to produce. 45 MR. BETTS: Thank you. 46 Are there any other preliminary matters? 47 Then once again, I welcome back the company's panel, and I know you're all experienced evidence givers and you know that you are still under oath. And with that, I'll allow Mr. Thompson to continue his cross-examination. 48 MR. THOMPSON: Thank you, Mr. Chairman. 49 ENBRIDGE GAS DISTRIBUTION INC. PANEL 1 ON CHANGE IN YEAR-END - HARE, RYCKMAN, GIRIDHAR, ROSS, RYCKMAN, GRUENDING; RESUMED: 50 M.HARE; Previously sworn. 51 K.CULBERT; Previously sworn. 52 M.GIRIDHAR; Previously sworn. 53 W.ROSS; Previously sworn. 54 N.RYCKMAN; Previously sworn. 55 C.GRUENDING; Previously sworn. 56 CONTINUED CROSS-EXAMINATION BY MR. THOMPSON: 57 MR. THOMPSON: Ms. Hare, Mr. Culbert, yesterday we were talking about the 2004 decision in the overearnings protection that was factored into that decision, and arising out of that discussion, I have one informational question that I left with Mr. Cass last night and I understand you're in a position to put the information on the record. In the material at Exhibit F2, tab 1, schedule 1, we have a revenue deficiency calculation for the 2004 bridge year; is that correct, Mr. Culbert? 58 MR. CULBERT: That's correct. 59 MR. THOMPSON: And I appreciate this issue of overearnings in 2004 will come up later because it's actual overearnings that is in issue, but I wanted this exhibit revised in this record to remove what I understand you have posted here, which was the write-down of the notional utility account by an amount, I've forgotten the amount, but it's taking it down to 24 million roughly. 60 MR. CULBERT: Yes, that's correct. 61 MR. THOMPSON: Okay. And you've recorded that in this particular deficiency calculation and that's giving rise to this gross revenue deficiency of $35.9 million? 62 MR. CULBERT: That write-off of $26 million actually occurred in the company's December results, that's correct. 63 MR. THOMPSON: But it's showing up in this calculation. 64 MR. CULBERT: Yes, it's a charge to your income statement in the three-month period ending December 2003, so it is part of this six and six result, which is six months of actuals and six months of estimate. 65 MR. THOMPSON: Well, I'll save for argument later whether it's appropriate to charge it to that year, but my question is, would you undertake to revise this Exhibit F to tab 1, schedule 1 to remove the write-down from it? And there's also an issue between the company and IGUA with respect to the appropriate return for 2004. You have it at 9.69 and the Board's formula if applied for 2004 would produce a rate of 9.41 percent, I understand; is that correct? 66 MR. CULBERT: That's correct. 67 MR. THOMPSON: So can I get an undertaking that you will revise this schedule, remove the write-down, and recalculate the deficiency or sufficiency in earnings using the allowed rate of return of 9.41 percent? 68 MR. CULBERT: Yes. In fact, I've already done the calculation per your request last evening and I can provide that today as whatever undertaking would be assigned to it. 69 MR. THOMPSON: Well, if you could just put it on the record, then that would -- the number is on the record and that would solve the problem. Or would you prefer to file a replacement sheet? Perhaps that's best. 70 MR. CULBERT: Yeah, we have the sheet here so we might as well file it as a signed undertaking. 71 MS. LEA: Is it prepared and ready now? 72 MR. CULBERT: Yes, it is. 73 MS. LEA: All right. Mr. Thompson, shall we simply file this as an exhibit? 74 MR. THOMPSON: Yes. 75 MS. LEA: Thank you. That would be Exhibit K.11.1. What was the original exhibit number? 76 MR. THOMPSON: Exhibit F2, tab 1, schedule 1, page 1. 77 MS. LEA: Thank you. 78 EXHIBIT NO. K.11.1: REVISED EXHIBIT F, TAB 1, SCHEDULE 1 79 MR. THOMPSON: So just to close this off, Mr. Culbert, doing the calculation in the manner we have suggested produces an indicated revenue sufficiency of $8.9 million. In other words, the overearnings -- if this pattern continues through 2004 and we're right as to how the revenue sufficiency should be calculated, this is indicating an overearnings scenario. 80 MR. CULBERT: Yes, this uses your assumptions and at this point in a six-and-six forecast, six months of actuals and six months of a forecast, if the $26 million was disallowed as an expense in the company's income statement, which is already charged to income, and we were only allowed to earn 9.41 as the benchmark for an overearnings calculation, this in fact at this point in time is the estimate of the gross revenue sufficiency. 81 MS. LEA: Thank you. I'm sorry to interrupt. That's Exhibit K.11.1. 82 MR. THOMPSON: Thank you very much. 83 Now, just a couple of points that flowed from our discussion yesterday and related in part to Exhibit K.10.3, and let me just sort of set the table here with respect to this matter. 84 As you're probably aware from my cross-examination, we take the view if the Board finds that the costs of equity that the company incurs in the stub period are one-quarter of the annual allowed cost of equity, then the rates that you proposed for the stub period will overrecover. We were discussing this in the context of Exhibit K.10.3, which is illustrative, and at the close of my examination yesterday, I was pointing you to cases 2 and 3 in the middle of the page which really highlight the issue. 85 In the illustrative situation, you're suggesting equity in the stub period, costs of equity are 50 million, and we suggest that they're 30 million and you'll see those shown in cases 2 and case 3. The difference of 20 million or the 30 million, the amount that we were discussing in the context of calculations done by the company was described as going into the bank yesterday, during a cross-examination, and staying there. 86 Can I just clarify from one of the witnesses on the panel that the 30 million that we've been discussing, or the lesser amount that results from different revenue requirement scenarios in 2005, when you say it's going into the bank, does that mean it goes to retained earnings? 87 MR. ROSS: Yes, that 30 million does go to retained earnings. 88 MR. THOMPSON: Okay. 89 MR. ROSS: And it is 20 million less than would have gone to retained earnings under the no-change scenario. 90 MR. THOMPSON: And it's retained earnings from which dividend payments are made? 91 MR. ROSS: That's correct. 92 MR. THOMPSON: All right. And just on the reporting of the five quarters, I guess I had understood your application to be to change the fiscal year-end commencing with the 2005 fiscal year, but I think I now properly understand it to be two things: the request for a change in fiscal year-end; and if that's approved, then for accounting and reporting purposes, you'll implement that in 2004. Is that right? 93 MR. GRUENDING: The latter point at the parent level, at the EI level. 94 MR. THOMPSON: At the parent level, okay. So EI will implement it in 2004 at the parent level. Will EGD implement it for financial reporting in 2004? 95 MR. ROSS: Well, for 2004, Enbridge Gas Distribution will still prepare financial statements for the year ended September 30th, that is, to provide continuity of earnings and also to provide support for its rate case. In addition to that, it will provide audited financial statements for the three months ended December 31st, 2004. 96 MR. THOMPSON: And you will be providing those to the public and to the parent; is that correct? 97 MR. ROSS: Correct. 98 MR. THOMPSON: And then the parent uses those to do its five-quarters reporting of EGD; is that the way it works? 99 MR. GRUENDING: That's correct. 100 MR. THOMPSON: Okay. And so it's the parent, then, who will report five quarters for EGD in the 2004 year, and then is it EGD that reports five quarters of results in 2005? 101 MR. ROSS: EGD then would, in 2005, have financial statements for the year ended December 31st, 2005; would also show the five quarters and would prepare a proforma financial statement that would exclude that first quarter for comparative purposes. 102 MR. THOMPSON: Okay. And when EI does this reporting for 2004, and this is the five quarter reporting for 2004, and here I'm looking at Exhibit I, tab 16, schedule 158, that's Mr. -- your response to one of Mr. Shepherd's interrogatories, at page 2 of 5, we see here that the annualized return, and again this is the period October '04 to December '05, but it's showing the annualized return for five quarters to be 11.066 percent. Correct? 103 MR. CULBERT: It's showing Mr. Shepherd's interpretation of how you would annualize five quarters of information. The company does not believe that it's truly indicative of what the company earns on an annual basis. The only way to determine what the company earns on an annual basis is by adding up any four consecutive quarters on lines 1 or 4 of that document. 104 MR. THOMPSON: Well, let me ask Mr. Gruending this: When EI reports the five quarters for EGD in its 2004 financials, I understood you to say you will be showing the enhanced return that that produces but that the market will somehow discount. 105 MR. GRUENDING: Yes, we would clearly identify it as a non-recurring item in the market. 106 MR. THOMPSON: Okay. So will EI be reporting returns from EGD in 2004 that will reflect this type of a number that we're seeing her at page 2 of 5 on schedule 158, an annualized return in the order of 11 percent? 107 MR. GRUENDING: I don't think we disclosed any percentage ROE, we never do for a subsidiary, but we would report and separately identify the net earnings attributable to that subsidiary for the fifth quarter. 108 MR. THOMPSON: With language like what, the earnings are enhanced because of reporting five quarters but this is a non-recurring item, something to ... 109 MR. GRUENDING: No, there's -- I can point to the annual report for 2003, within the MD&A section, there is an inventory, if you like, page 17 -- 110 MR. THOMPSON: I've lost mine. Read it to us. What does it say? 111 MR. GRUENDING: There's a variety of examples there for different investments, but they would say something to the effect of, without speculating too much it would say: Enbridge Gas Distribution includes earnings for the quarter ended December 31st, 2005, which represents a fifth quarter of earnings, and it lists them under a title called Significant Factors or Variances Affecting Consolidated Earnings are as follows. 112 MR. THOMPSON: So that's signalling there's an enhancement of earnings here because of five quarters of reportings, is that the objective of that text? 113 MR. GRUENDING: Yeah, to fairly disclose what is recurring. 114 MR. THOMPSON: All right. So it's in there as an enhancement of earnings but clearly intended to transmit to readers this will be non-recurring. Is that fair? 115 MR. GRUENDING: I think that's fair. 116 MR. THOMPSON: Okay. Now, just assuming Mr. Shepherd's got the annualized return calculation right in terms of estimating the measure of five quarters when you're going from October '04 to December '05, or October '03 to December '04 in the case of EGD and that it produces an annualized return in the order of 11 percent, you will agree with me that that's 131 basis points above the OEB-allowed equity return of 9.69 percent, that's just mathematics. 117 MR. CULBERT: You're comparing the 11.066, Mr. Thompson, to the 9.69 is what you're doing? 118 MR. THOMPSON: I'm taking just taking a flat rate of 11 to the 9.69 and I make it 131 basis points. 119 MR. CULBERT: I can't disagree with your math, but we definitely disagree with Mr. Shepherd's calculation of that annualized return. You can't take anything other than four quarters of a seasonal business in determining or trying to indicate what its annual return is. It's simply incorrect. 120 MR. THOMPSON: Well, we will leave that for later. 121 Let's move on then. In terms of Exhibit K.10.3, and what you were attempting to do with this document, what I understood you to be suggesting was that somehow your retained earnings at the -- well, let me back up. What you seem to be suggesting is that the retained earnings at the end of a transition or stub period that arises because you're moving from a fiscal year-end of September 30 to a year-end of December 31, you seem to be suggesting that retained earnings at the end of the stub period should be the same as they would have been had you not requested the transition to a new fiscal year. Is that what you're trying to say here? 122 MR. ROSS: That is correct, yes. 123 MR. THOMPSON: Okay. But that really goes to the manner of the Board's treatment of costs of equity. In other words, the Board doesn't regulate the utilities on a retained earning basis, it regulates them on a cost incurrence basis, would you agree? 124 MR. CULBERT: It regulates us on a cost incurrence basis, but it also regulates us from a fair return principle as well and seeing that the company earns that type of return in that three months, regardless of whether it's reported as the first quarter of the next fiscal year or simply within a delayed reporting of those earnings in a fiscal 2005 year, it would result in the same fair return to the company for that three-month period. 125 MR. THOMPSON: All right. Well, I guess the only point I wanted to make here on this exhibit is if you look at case 2, which is your scenario where you say the cost of equity incurred under your argument in the stub period is $50 million, retained earnings go from 1,320 million to 1,370 million; correct? 126 MR. ROSS: That's correct. 127 MR. THOMPSON: I'm looking at columns F and H at line 21. 128 MR. ROSS: Correct, yes. 129 MR. THOMPSON: Okay. And that assumes that you're right as to how this equity in the stub period should be treated for cost incurrence purposes. On the other hand, if we're right, the amount is 30 million not 50 million and retained earnings at line 32 move from 1,320 to 1,350; correct? 130 MR. ROSS: That's correct. 131 MR. THOMPSON: So in either scenario, retained earnings go up and then thereafter they go up at the rate of 120 million a year. 132 MR. CULBERT: They would only go up every year thereafter by 120 million if we had a significant increase in rates as of January 2006 to get rates back to a normal level. So in fact, if rates do not go back up at the start of January of 2006, in fact we probably would be even lower in terms of cumulative retained earnings, but this one-time reduction in retained earnings would continue forever and the company would never recover that lost earnings. 133 MR. THOMPSON: Well, no, I'm just looking at your example. For every four-quarter period after the stub period, that's $120 million of retained earnings. 134 MR. CULBERT: Correct. If we're allowed to increase rates back to what a level would be that we were able to recover 9.69 percent which would have to occur. 135 MR. THOMPSON: Well, I didn't think was reflecting any rate increase scenario. 136 MS. GIRIDHAR: Actually, it is. We need to keep in mind that if we look at a test that is different from the one we have always had, which is to equate revenues and costs over a 12-month period, if the suggestion is that we do that for the three-month period alone, you've got a reduction of $30 million in this example. What that then means is that the rates which recover the $120 million over four quarters will not do so now over the new 12-month period; therefore, you would need an increase in rates just to be able to recover the $120 million. And that increase would have to be equivalent to a $30 million reduction in that quarter. 137 MS. HARE: Mr. Thompson, what this illustration is demonstrating is the proposition that the company discussed yesterday, which is that the change in year-end has no economic consequences and so neither the shareholder nor the ratepayer should either benefit or be disadvantaged because of a change in year-end. That's the point that we were making yesterday and the precedents that I discussed yesterday illustrate that same point that in other jurisdictions when -- and in fact in this jurisdiction in the case of Union Gas, when there was a change in year-end, there was no review of what the ROE should be in this stub period because it really had no economic consequences. So there shouldn't be a detriment to the shareholder, which is what is shown in 3 and 4, when there would be a reduction in earnings. It should be completely neutral to both the shareholder and the ratepayer. That's what this illustration is demonstrating. 138 MR. THOMPSON: Well, we'll argue that later. But just on the point of the $120 million in the four quarters after the stub period, in case 2, at line $19, which is your case, you show in column M 120 million; right? 139 MR. ROSS: That's for the year ended December, yes. 140 MR. THOMPSON: Right. And so the four quarters following the stub period produces $120 million in your illustration. 141 MS. GIRIDHAR: Yes. If I could just explain one thing, Mr. Thompson. 142 MR. THOMPSON: Pardon? 143 MS. GIRIDHAR: If I could just explain one thing here. 144 MS. DeMARCO: I'm sorry, Mr. Chair, we can't hear Ms. Giridhar at the back of the room. 145 MS. GIRIDHAR: I'm sorry. If you look at column -- sorry, row 17, which is the company's case, and column H, you see that the revenues are 800 million in that quarter. Now, in case 3, revenues on line 28 in column H, the same column, are 780 million, so you've had that rate reduction in that quarter. 146 Now, if you were to look at that same quarter in column L, you've got the assumption that the volumes are exactly the same. To produce 800 million in that quarter then requires a rate increase compared to what we had four quarters prior, which must mean that rates have to go up such that you can earn $120 million over those four quarters. 147 MR. THOMPSON: All right. Well, so -- 148 MS. GIRIDHAR: Which would suggest that the reduction shouldn't have occurred in the same place because the construct of rate-making always is that, over the operating cycle, if that operating cycle produced or repeated itself all the time, you really should not have any change in rates. So that one-time reduction in rates has to be compensated by an equal increase in rates in the following four-quarter period. 149 MR. THOMPSON: I'm just trying to understand you and I'm understanding you better now. But in your case, you're showing $120 million in column M at line 19, and that's based on, as you point out, revenue at line 17 in column H of 800 in the stub period and the same number in the later period; is that right? 150 MS. GIRIDHAR: That's right. 151 MR. THOMPSON: Okay. And then what you're showing -- I think what you're telling me is in case 3, you're showing revenue of 780 in the stub period, not 800, so it's down 20 million. 152 MS. GIRIDHAR: That's right. 153 MR. THOMPSON: Right? And then you're pointing out that for this scenario in the next four quarters to play out, you're comparing column L, the 800 for December '04, saying that's 20 million above December '03; therefore, this line is reflecting a $20 million rate increase from the first quarter on. 154 MS. GIRIDHAR: That's right. 155 MR. THOMPSON: That's what you're trying to point out. 156 MS. GIRIDHAR: Yes. 157 MR. THOMPSON: Okay. And the point of that is what? 158 MS. GIRIDHAR: I think the point of that is that in cost-of-service rate-making, you're setting rates over a 12-month period, for four quarters, so the test is to equate revenues and costs over a 12-month period. You've now changed that test such that you equate revenues and costs over a three-month period. What that then shows is that those rates would then be insufficient to recover costs over a 12-month period. So this is a one-time reduction in rates that has to be immediately compensated for by an equivalent increase in rates for the next fiscal year. Because that 780 million, if it were to continue, assuming volumes remain the same, would mean that you do not get $120 million over four quarters. 159 MR. THOMPSON: But you seem to be saying, Well, because this reduction will be temporary, therefore we should not consider it on its merits; is that what you're saying? 160 MS. GIRIDHAR: I'm saying that rate-making in this jurisdiction, as approved by the Board, has always been on the basis of a 12-month ROE and on the basis of a rate structure that yields different contributions to that annual ROE over the four quarters. To change that now to a construct that says revenues have to equal costs in every quarter is something that the Board has never approved and it's also something that the company shareholders have never received, if you compare quarter over quarter. So this would mean a radical departure from the way the Board has set rates and therefore for the next 12-month period, you would need an increase back, because the test would now go back to being revenues equal costs over 12 months as opposed to revenues equal costs over three months. 161 MR. THOMPSON: Well, we're dealing with a very unique transition situation where there is this enhancement to EI's earnings through the process as far as we're concerned, and you seem to be building on this point that Mr. Culbert mentioned in chief yesterday, Well, rates will go down but they may have to go up later. 162 MS. HARE: Mr. Thompson, where is there an enhancement in earnings when the earnings are the same as they would have been in any quarter? We strongly disagree with the concept of any enhancement. They are the earnings that would have been the earnings in that quarter. 163 MR. THOMPSON: Well, I'm not going to argue with you again. But let's move on with the point I wanted to make with respect to Mr. Culbert's evidence where he was suggesting this situation, call it overrecovery of costs of capital, this situation is temporary. That was one of your points, wasn't it, Mr. Culbert? And that seems to be Ms. Giridhar's point, that this overrecovery is temporary. 164 MR. CULBERT: There is no overrecovery and it isn't temporary. The company would continue to earn those returns in that three-month period over time. All that would happen is if the rates did decline in that three-month period, is the company's earnings would be impaired by that $20 million. 165 If this were a competitive business environment and regulation wasn't required, if there were five to ten distribution companies all with the same type of customer profile, et cetera, and one of those companies decided to change its year-end, it wouldn't reduce its rates for that three-month period because it decided to change its year-end. It would simply look at what it should be doing for that three months which is continuing to charge the rates that the other companies are charging and that they are earning for that three-month period. It's simply reporting an additional three months of earnings which is the same as it would have reported in the next fiscal year regardless. 166 MR. THOMPSON: It would depend on the rate design. If one distributor had a full, fixed cost recovery rate design, I agree with you, they wouldn't change their rates. If another one has a full -- recovering everything in commodity or through-put-related items, then it may have to change its rate design. It's a rate design question. 167 MS. GIRIDHAR: It goes back to the issue of cost-of-service, the issue being that rates are designed such that the company earns a fair rate of return over its operating cycle. Therefore, the test that's applied for this utility, and most gas distribution utilities because we are different from the TransCanada comparison you made yesterday which is a business-to-business operation, really, the test has always been that you equate revenues and costs over the company's operating cycle. The company's operating cycle is always 12 months; it is never three months. So you're departing from the cost-of-service principle that has always applied. 168 If you incorporate that three months into a 12-month period, the earnings are no different, and I think that's the point you need to keep in mind. If your hypothesis is always that you have to equate revenues and costs over a whole year and then if you want to test for a subset of that year which is one quarter, you always need to look at that in the context of three other quarters because that's how you set rates. If you want to look at it only on a quarterly basis, then the question you need to ask is, What do I earn in that quarter in all other years, because that's the standard. 169 MR. THOMPSON: Well, who asked for quarterly rates in the first place? Enbridge Gas Distribution; right? You probably wished you never opened that door. But let's move on. I just want to -- on this point about whether it's -- 170 MS. HARE: Sorry, Mr. Thompson, if I may, we did ask for rates for a three-month period and we asked for an escalator based on indexing. That's a very different issue than what we're talking about now, which is looking at ROE on a three-month basis. And I think that this whole issue has become unduly complicated when really it's a simple issue. We wanted to change the year-end. We asked for an escalator based on inflation because we are a rapidly growing utility which puts us in a different situation than some of the other companies that have asked for a change in year-end. But the point that was being made yesterday and today is that never has a jurisdiction, in looking at the change in year-end, looked at the stub period with a different ROE than on a 12-month basis, so there are really two very different issues that are being debated. The escalator we're quite prepared to discuss and justify why we needed an increase for three months, but the ROE issue on three months is a completely different issue which has no precedents. 171 MR. THOMPSON: In terms of a temporary change in rates, let's just leave it at that, temporary change in rates, the fact that a claim leads to a one-time change in rates that is temporary is no reason for rejecting its consideration, would you agree, and there are many examples where the company has come forward with such claims, i.e., Y2K costs, deferred taxes on rental program assets, for example. 172 MS. HARE: That's right. If it's right in principle, and we're suggesting that the intervenors' argument is wrong in principle. 173 MR. THOMPSON: Let's move on then to a -- 174 MS. GIRIDHAR: Sorry, Mr. Thompson, I just wanted to add one thing. The escalator that we're requesting for that three-month period, in a sense, what that's saying is that once the Board approves an annual ROE of 9.69, given our rate design structure which is also approved by the Board, we normally earn 4.057 percent in the three-month period from October to December. I think what the escalator is saying is that if we did not have some adjustments for costs in the quarter October 2005 to December 2005, we would be earning an ROE that's less than 4.057 and in fact, Mr. Culbert's exhibit, I believe, showed that it would be 3.914. 175 Now with the escalator, what that then shows is the ROE in that period is 4.143, which indicates that, I mean, you could interpret that as saying that that escalator was intended to be a proxy and like all proxies it's not exact and so instead of giving you 4.057 it's giving you 4.143, which is a different issue from arguing that it should be 2.5 in that quarter. It's a totally different issue and it is something that would lead to confiscation of earnings because you always earn 4.057 in that quarter. 176 MR. THOMPSON: You're earning 4.057 in that quarter because of your rate design not because of a cost incurrence. 177 MS. GIRIDHAR: That's been the rate design that's always been approved by the Board and the test has been based on a 12-month basis. 178 MR. THOMPSON: That's not the rate design that's always been approved, you change your rate design constantly. You had, for example, upstream cost allocation that's been changed. You're never bound, it seems, by prior Board precedent on rate design matters. 179 MS. GIRIDHAR: If I might just make a comment here, I think I mentioned that yesterday that if, in fact, our rate design recovered our fixed costs for fixed charges, the customer charge for rate 1 would have to go up from $10 a month to approximately $33 a month and I would suggest that rate design is an outcome of regulatory process. Our attempt to increase that $10 to 11.25 did not win complete settlement and that was a contested issue. So I would suggest that the company is not entirely free to change rate design on a basis that it's not acceptable to its customers. 180 What we were talking about in cost allocation, however, is mimicking cost incurrence between rate classes, I do view that as a different issue. 181 MR. THOMPSON: I'd like to move on to a rate implementation issue and if you could just assume, if you would, that an adjustment of the type we've suggested is found by the Board to be appropriate. And the question is, should it be implemented on a three-month basis or should it be spread out over 15 months. My client prefers the 15-month spread-out option, does the company have any preference in this regard? 182 MS. HARE: I don't know if we can speculate, Mr. Thompson. 183 MR. THOMPSON: So you have nothing to offer on that point? 184 MS. HARE: No. 185 MR. THOMPSON: Whether it's three or 15, it doesn't matter, your position is it's a claim of no merit, you're hanging tough with that position? 186 MS. HARE: Yes, sir. 187 MR. THOMPSON: That's fine. Let's move on then to what I call other stub period implications. 188 Ms. Giridhar, you were discussing with Mr. Shepherd the phase-in of the cost allocation changes, do you recall that? 189 MS. GIRIDHAR: Yes. 190 MR. THOMPSON: And the agreement contemplates that these will be phased in commencing October 1, 2004 and every October 1st thereafter for four years, as I understand it? 191 MS. GIRIDHAR: That's correct. 192 MR. THOMPSON: And then the question is, if you get the change in year-end approved and you then, for regulatory purposes, present a case based on a test year commencing January 1, 2006, as I understand it, the question is should the phase-in in year 2 take place, instead of October 1, January 1, 2006; is that the issue? 193 MS. GIRIDHAR: That's correct. 194 MR. THOMPSON: Okay. 195 MS. HARE: Exception that, Mr. Thompson, what we stated yesterday was that year 2 phase-in would start October 1st, 2005, so the issue really would be in year 3, does year 3 start October 1st, 2006 or January 1st, 2007, and the reason we put that forward is because we thought that the benefit to the small-volume users is really in the first two years so that after that, if year 3 starts on January 1st, as a matter of convenience, so that we don't have the mismatch between October 1st, and January 1st, then we would approach the intervenors and the Board at that point. 196 Now, if it turns out that there isn't really a lot of additional work associated with the mismatch so that Ms. Giridhar is wrong and there isn't that work involved, then we might just leave it October 1st so that it is a four-year phase-in with each year starting October 1st. But we want to leave that flexibility as to when year 3 phase-in starts. 197 MR. THOMPSON: Well, there is an issue as to when year 2 phase-in starts. It could be January 1, 2006? 198 MS. HARE: Yes, it could be. I just wanted to make sure that everybody understands what the company's proposal is because she said it would start October 1st. 199 MR. THOMPSON: I thank you for clarifying that. I don't think I caught that yesterday. You're saying you want to keep your options open for a year 3 phase-in and following. 200 MS. HARE: Correct. 201 MR. THOMPSON: Okay. I just want to understand the information base that you need to administer this phase-in and I had assumed, and perhaps improperly, that you need cost allocation studies; is that right? 202 MS. GIRIDHAR: That is correct. 203 MR. THOMPSON: And so my understanding was that you would be converting your cost allocation studies to studies starting January 1, 2006 when you change your test year; is that right? 204 MS. GIRIDHAR: That is correct. 205 MR. THOMPSON: Okay. And so with that understanding, I then asked myself, Well, would we not be creating headaches by sticking with the October 1, 2005 date for year 2 rather than going to January 1, 2006? Are we creating headaches by doing that? 206 MS. GIRIDHAR: Well, it's certainly a little more administratively cumbersome and that's been my opinion, but it's not undoable. What we would do is that when we set the first year of the phase-in as of October 1, 2004, we would have a cost-allocation study for the fiscal 2005 year. 207 Now, essentially similar to our QRAM approach, every subsequent quarter we look at that cost allocation study as our base and we accept the drivers that are inherent in that cost allocation study for the purpose of rate setting. What this would mean is that when we do the second year phase-in as of October 1, 2005, we are still using the 2005 cost allocation study as the base to make the change. 208 Now, as of January 1, 2006, we will now have a new cost allocation study because your drivers would have changed not a whole lot, but somewhat. And that is what I suggested yesterday to Mr. Shepherd, that this duplicates some work because in the January quarter, then I would want to do -- I would presume there would be some amount of minor tweaking to adjust for the fact that your drivers have changed, but it should not be very significant. And from the perspective of the low-volume customers, the reduction in their rates would be substantially correct whether it's estimated as of October or January, except that if you do it as of October, you might have some minor adjustments to make in January. But it does not delay the entire benefits to the January date, which is the merit in that proposal. 209 MR. THOMPSON: All right. And Mr. Shepherd's point, I guess, as I understood him, is that if you delay year 2 phase-in to January 1, 2006, his clients carry the can for three months longer or something; is that -- 210 MS. GIRIDHAR: That is correct. 211 MR. THOMPSON: That's what he thinks. 212 MS. HARE: His client and rate 1 customers. 213 MR. THOMPSON: Right. Okay. But the company seems to be saying, We want to get on this January 1 time frame the following year at the latest. Administratively, it makes more sense, doesn't it? 214 MS. GIRIDHAR: It is definitely administratively easier compared to the proposal that we have. 215 MS. HARE: But it's a balance between fairness to all rate classes and administrative ease. 216 MR. THOMPSON: Does the company really care whether year 2 is October 1, 2005 or January 1, 2006? 217 MS. HARE: Well, I think we do, Mr. Thompson. If we didn't care, we wouldn't have proposed the change in allocation in the first place. It was really driven by what we thought was a fair allocation. 218 MR. THOMPSON: No, no, we've bought into your change in the allocation. This is just timing of year 2. Is that a big issue for the company or does it really matter? 219 MS. HARE: Excuse me, Mr. Chair, we just need a minute. 220 MR. BETTS: Go right ahead. 221 MS. GIRIDHAR: The company's proposal to implement the phase-in of year 2 as of October 1, 2005 is a balance between fairness and, of course, the administrative ease issue, and we believe that the balance is struck when you actually implement that change as of October 1, 2005. And the reason why we say that is because the bulk of the benefits to the low-volume customers occur over the first two years. 222 By the time you reach year 3, that trade-off between fairness and administrative ease actually tilts over to the administrative ease side, which is why we would say that at that point we might come forward and request that the phase-in implementation schedule be altered a little bit. But if you view it as a trade-off between what's easy to do and what's fair, we believe that the solution would be that we defer that point to January 1 of 2007. 223 MR. THOMPSON: Well, why should we leave it until coming forward? Why don't we just have the Board in this case direct that year 3 will be January 1, 2007? That would be administratively convenient, wouldn't it, and on balance that's fair? 224 MS. HARE: That would be fine with the company. 225 MR. THOMPSON: All right. Thanks. Now, the transactional service revenues deferral account in the stub year, I just want to make sure I understand the company's proposition here. It's, as I understood it -- Ms. Hare, you're suggesting that the transactional services revenues in the stub period, $2 million will be embedded -- sorry, let me back up. Whatever's embedded in rates in 2005 will remain embedded in the stub period. 226 MS. HARE: That's correct. 227 MR. THOMPSON: Okay. And then in terms of the sharing fulcrum for the stub period, assuming it's 8 million that's embedded in rates, then it would be one-quarter of what's embedded in rates becomes the sharing fulcrum? 228 MS. HARE: That's correct. 229 MR. THOMPSON: And so if it's 8 million embedded, that's 2 million for the stub period, and then anything over $2 million in transactional services revenues would be shared 75/25; is that the idea, or have I got... 230 MS. HARE: No, there would then be the share that goes to the company which would again be a quarter of whatever's decided. So if the same formula applies, then it would be -- on a fiscal year, it's the first 8 million to ratepayer, then the next 2.7 would go to the shareholder. So it would be the first 2 million to the ratepayer and then the next 675 to the shareholder, and then there would be 75/25 sharing. 231 Now, if the Board decides on a different sharing formula for 2005, then again it would be one-quarter of whatever the Board decides. 232 MR. THOMPSON: Okay. And is there anything in the evidence that shows the forecasts of transactional services revenues in the quarter? 233 MS. HARE: No, there's not. 234 MR. THOMPSON: Can you help us with that? I mean... 235 MS. HARE: No, there hasn't been a forecast that's been done for that period. 236 MR. THOMPSON: Do you mean to say that no one knows the transactional services revenue pattern? 237 MS. HARE: Well, I did ask what the pattern was. This was because Energy Probe had suggested over the weekend that they would be asking for this. So I do know, for example, for 2003, in the first quarter, it was 18 percent of the total that was achieved in the first quarter; 17.9 percent, actually, in the first quarter, but that's for 2003. We are looking to get 2002 and 2001 results to see what the pattern is. 238 MR. THOMPSON: All right. I'll leave that for Energy Probe. I understand the proposal now. 239 The last area I have is with respect to the DSM/SSM proposal, and I hesitate to even put my toe into this water as it's being handled by my colleague, Mr. DeRose, but let me just test it quickly. And I guess this is for you, is it, Mr. Ryckman? 240 MR. RYCKMAN: Yes. 241 MR. THOMPSON: Under the settlement agreement, as I understand it, you had your targets set for a 12-month period. 242 MR. RYCKMAN: Yes, in the SSM as well. 243 MR. THOMPSON: And the SSM operates around a savings target; is that right? 244 MR. RYCKMAN: Yes, it operates around a pivot point which is the TRC benefits that are generated by the volume target in the mix of programs. 245 MR. THOMPSON: And so there is in the current agreement a 12-month target. 246 MR. RYCKMAN: Yes, we have a 12-month volumetric target of 76.9 million cubic metres. 247 MR. THOMPSON: And if you exceed that target, then you're into bonus country. 248 MR. RYCKMAN: The incentive would be applicable after that. 249 MR. THOMPSON: And I understand you to be proposing a target for the three-month period which is roughly 25 percent of the 12-month target. 250 MR. RYCKMAN: That's correct. 251 MR. THOMPSON: And you regard this target as aggressive. 252 MR. RYCKMAN: Yes, I do. 253 MR. THOMPSON: But in any event, that's the performance target that you're proposing for the three months. 254 MR. RYCKMAN: Yes, that's correct. It's 25 percent of the 76.9, and again, the 76.9 that's been agreed to for the 12-month period is 30 percent higher than our prefiled evidence so we do regard that as a stretch. And once again, if we look back historically, typically within that period, October through December, we achieve 15 percent of the annual target within that period of time so yes, I would agree with that. 255 MR. THOMPSON: Okay. And so just stopping there, simplistically, my mind says you've got the 12-month target and the three-month target. If you exceed your 12-month target, you should get a bonus; if you don't, you shouldn't. If you exceed your three-month target, you should get a bonus; if you don't, you shouldn't. And the proposals that are set out in Exhibit A7, tab 1, schedule 1 seem to have a bundling of targets that produce, first of all, a 15-month target possibility; is that one scenario you're proposing? 256 MR. RYCKMAN: That's one scenario that we're proposing, and once again, the reason we brought this forward was to address any concerns that there may be around gaming. From my perspective, treating those two periods in bullet point 1, your 12-month period that we've agreed to, plus the three months is the same as looking at them on aggregate if you surpass the target in both of those periods. 257 MR. THOMPSON: Well then, if we just go to the first bullet point, I read it -- this is at Exhibit A7, tab 1, schedule 1, appendix 1, page 3. 258 MR. RYCKMAN: Yes. 259 MR. THOMPSON: The scenario that you're making here is if you exceed your 12-month target and you exceed your three-month target, you would get the bonuses based on 15 months; right? 260 MR. RYCKMAN: Based on the aggregate of those two periods, yes. 261 MR. THOMPSON: Is that anything different than getting the bonus based on target 1 and the bonus based on target 2, are they just additive? 262 MR. RYCKMAN: Yes. 263 MR. THOMPSON: So this is -- this prevails whether we have the 12-month and a three-month target or a 15-month target. 264 MR. RYCKMAN: The 96.1 million cubic metres that's described there is the sum of the 76.9 and the 19.2. 265 MR. THOMPSON: All right. The next scenario is, if you don't make your 12-month target -- well, tell me what the second scenario is. 266 MR. RYCKMAN: The second scenario is where we generate the TRC we generate an incentive within the 12-month period, then the company is eligible for the incentive based on that for the 12-month period. 267 MR. THOMPSON: So if you beat the 12-month -- if you exceed the 12-month target you get your bonus? 268 MR. RYCKMAN: Yes, correct. 269 MR. THOMPSON: And so what's the third scenario? 270 MR. RYCKMAN: The third scenario is if we're in a situation where we don't achieve the -- or generate an incentive within the 12-month period but do generate it within the three-month period, that we would evaluate it on the aggregate of those two periods and once again, this is to address any potential concerns that parties could have around some of the 12-month period volumes migrating into that three-month period so it's really to address any potential concerns around gaming, if you will. 271 MR. THOMPSON: But is this last scenario a two bonus? 272 MR. RYCKMAN: No, in this case, we haven't -- if we haven't achieved the threshold for an incentive in the 12-month period, what we're saying is and we have in the three-month period, we'll look at them on the aggregate of those two periods. 273 MR. THOMPSON: Okay. You're saying if I don't make my 12-month target but I make enough in my three-month target to, in combination, bring me over the 15-month target, I want a bonus over the 15 months. 274 MR. RYCKMAN: Essentially what it's saying is the three-month period is a separate period so to the extent that there's an SSM applicable for that period we would be eligible for it, but there could be concerns by some parties that, for instance, if you didn't make your 12-month period you held back on those program performance results and put them into the three-month period thereby elevating the three-month performance, and what we're saying is we would evaluate it on the aggregate of the two. So any overage in the three-month period would have to be sufficient to offset the deficiency in the 12-month period before we would be applicable or an incentive would be applicable. 275 MR. THOMPSON: And is this better, all of this better than just sticking with the 12-month and the three-month? Separate targets, you don't make one you don't get, if you make one you get, if you make two, we add them together and you get. 276 MR. RYCKMAN: Well, I think it is in that it does address any potential concerns for gaming. You know, certainly we would do have a 12-month agreement so one could conclude that the three-month period is a separate period and has its own threshold, but I do feel it's better because it does address any potential for gaming. So we'd put that in as a safeguard and I think it's an appropriate way to address it. 277 MR. THOMPSON: Okay, all right. Thank you very much. Thank you very much, Mr. Chairman, those are my questions. 278 MR. BETTS: Thank you, Mr. Thompson. 279 Maybe I could just survey those who would like to cross-examine this panel just to get roughly an idea of roughly how long you might require. Mr. Dingwall. 280 MR. DINGWALL: I do have some questions and I estimate somewhere between 15 minutes and half an hour. 281 MR. BETTS: Thank you. And Mr. -- 282 MR. ROWAN: About the same amount of time, about 15 to half an hour, but that depends upon the answers of course. 283 MR. BETTS: Thank you. Ms. DeMarco. 284 MS. DeMARCO: Mr. Chairman, I imagine somewhere around 15 minutes would be appropriate for me as well. 285 MR. BETTS: Ms. Girvan. 286 MS. GIRVAN: I would expect five minutes. 287 MR. BETTS: Thank you. I think Mr. Dingwall, we'll proceed with you as we had planned and assuming that you're no more than half an hour, I'm not trying to press you to that time, but we'll probably break following your cross-examination. 288 MR. DINGWALL: Thank you, sir. 289 CROSS-EXAMINATION BY MR. DINGWALL: 290 MR. DINGWALL: I'd like to move the panel in the far more sensible and established direction of considering the demand-side management for a moment. Mr. Ryckman, has the company had the opportunity to follow up on a request made last week with respect to putting together historical monthly figures on what volumes and spending have been for DSM? 291 MR. RYCKMAN: Yes, we have and I have that here. 292 MR. DINGWALL: Does the company have any objection to that being entered as an exhibit? 293 MR. RYCKMAN: No, I do not. 294 MR. DINGWALL: Thank you. I wonder if we could have that as the next exhibit and I'll thank my friends for the assistance in the distribution. 295 MR. SCHUCH: This will be entered as Exhibit K.11.2, Mr. Chair, monthly actual historical percentage volume and O&M breakdown 2000 to 2003. 296 MR. BETTS: Thank you. 297 EXHIBIT NO. K.11.2: MONTHLY ACTUAL HISTORICAL PERCENTAGE VOLUME AND O&M BREAKDOWN 2000 TO 2003 298 MR. DINGWALL: Now before I move on to questions with regard to this particular document, Ms. Hare, in response to questions from Mr. Thompson earlier this morning you indicated that the company was looking into assembling and providing historical numbers with respect to transactional services. Would that be for approximately the same time period as the DSM information provided? 299 MS. HARE: I asked for 2001, 2002, and 2003. I didn't ask for 2000. 300 MR. DINGWALL: Okay. And would this information be coming forward on a monthly basis? 301 MS. HARE: Yes. I do have it monthly for 2003, and I hope to have the other two years by the end of the day today. 302 MR. DINGWALL: Okay. I'm wondering then, if I could have, as an undertaking, that the company produce historical transactional services revenues on the monthly basis for the years 2001, 2002, and 2003, please. 303 MS. HARE: Yes. 304 MR. SCHUCH: That would be Undertaking J.11.1. 305 UNDERTAKING NO. J.11.1: TO PROVIDE THE HISTORICAL TRANSACTIONAL SERVICES REVENUES ON A MONTHLY BASIS FOR THE YEARS 2001, 2002 and 2003 306 MR. BETTS: Mr. Dingwall, would you just state that undertaking again for me? 307 MR. DINGWALL: Certainly. That the company produce historical transactional services revenues on a monthly basis for the years 2001, 2002, and 2002. 308 MR. BETTS: Thank you. 309 MR. DINGWALL: Turning back to the document which Mr. Ryckman was kind enough to provide, I notice in looking at a monthly basis that there seems to be a significant leaning towards September as a month in which many volumes and expenditures are recorded in respect of demand-side management; is that correct? 310 MR. RYCKMAN: Yes. 311 MR. DINGWALL: And then looking to the figures for both spending and volumes in October, it seems that there's a significant drop in that subsequent month; is that correct? 312 MR. RYCKMAN: Yes. 313 MR. DINGWALL: Can you take me through that and explain why that occurs? 314 MR. RYCKMAN: Sure. There's -- well, a variety of reasons. One is certainly the composition of the program so the underlying portfolio of programs, and what I mean by that, if you look at a school education-type program, it's not typically running over the summer so it will be disbursed amongst the other months -- 315 MR. BETTS: Sorry, I'm going to have to get you to face the mic. 316 MR. RYCKMAN: Sorry, I don't mean to be rude by having my back to you slightly here. If you look at the portfolio programs that are within the DSM inventory, if you will, they have different patterns so it's not consistent from program to program. An example of that is where we may have an education program that typically wouldn't run over the summer months so you typically wouldn't have expenditures associated with that program over that period of time. If you look at residential heating programs, typically, the busier periods, based on what I've been told, are in the spring and in the fall, so certainly those are areas that are quite busy. 317 If we look in the commercial market sector, what we're seeing right now is activity levels are picking up and will continue to pick up over the course of the summer and once again, September seems to be quite an active month. 318 If we look in the industrial sector, once again, we tend to see this large activity in the fall, and once again, it's based on businesses conducting upgrades, if you will, over the course of the summer, sometimes some businesses shut down for a couple of weeks over the cost of the summer. So they're different from program to program. 319 There's also an issue of administrative lag that occurs as well, so in the industrial area, in particular, we do see some administrative lag where, at the end of the year, paperwork is getting caught up in businesses. So that administrative lag exists on the company side as well as the customer side. So there's a number of reasons why that activity does happen the way it does over the course of the year but once again, I would say that it's the underlying portfolio of programs that is the main driver of that. 320 MR. DINGWALL: I'm noticing that on the bottom lines of -- under each category, you've got a column that addresses the averages on a quarterly basis. 321 MR. RYCKMAN: Yes. 322 MR. DINGWALL: And it's looking like the average for the volumes for the last three months of your previous regulatory year-end was around 42 percent for the volumes; is that correct? 323 MR. RYCKMAN: That's correct. 324 MR. DINGWALL: And then moving on the next month, which would be the first month of each new regulatory year, the monthly average looks like it's somewhere between 3 and 4 percent for that next month; do you agree with me? 325 MR. RYCKMAN: For the next month? 326 MR. DINGWALL: For October. 327 MR. RYCKMAN: Four percent. 328 MR. DINGWALL: Would that not tend to lead to the conclusion that administrative lag was one of really the key drivers between the significant difference between September and October? 329 MR. RYCKMAN: Administrative lag is a part of it but it's not -- certainly in the industrial -- in the industrial area, I would say that administrative lag is probably 50 percent of that effect. That doesn't hold true to the other program areas. 330 MR. DINGWALL: Well, September, is it not, is the last month of your regulatory year-end for the purposes of reporting the results of demand-side management programs; is that correct? 331 MR. RYCKMAN: Yes. 332 MR. DINGWALL: And given that September appears to be consistently twice the volume and close to twice the spending of the previous months, the Augusts, does that not lead to the conclusion that a number of things get caught up in September for reporting purposes? 333 MR. RYCKMAN: As I mentioned, there is an aspect of administrative lag but it's not the only aspect. Once again, you've got to look at the underlying programs. If you look at a program such as taps, for instance, shower heads and pipe wrap, theoretically, that could occur at pretty flat levels over the course of a year. But, you know, in 2003, I think we saw a spike in activity during the summer months and a component of that is the door-to-door type of activity. So during the summer when the weather is a little better, people are more apt to undertake that type of activity. So once again, I think you have to really look at these -- 334 MR. BETTS: Mr. Ryckman, sorry, you're going to face forward. 335 MR. RYCKMAN: Sorry, I keep migrating here. 336 What I was saying if you look at the taps program, for instance, which I said is shower heads and pipe wrap, theoretically, you could undertake that at a pretty flat level month over month. But in 2003, we saw a spike of activity in the summer months where people were out doing more door-to-door type of activities so to say that all of the impact in the final quarter is due to administrative lag isn't an accurate assumption, in my mind. 337 MR. DINGWALL: Most of your programs are annual, are they not? 338 MR. RYCKMAN: Yes. 339 MR. DINGWALL: So previously, October, November, and December, would have been the months in which the programs would have had their start for the year; is that correct? 340 MR. RYCKMAN: I'm not so sure I would characterize it as a start because we don't wind a program down on September 30th and then reinitiate it on October 1st. The programs typically continue year over year. 341 MR. DINGWALL: Would you agree with me that whatever administrative lag there is is really based on the reporting requirements of a regulatory year-end? 342 MR. RYCKMAN: I would agree that some of that activity that you see or some of the elevated results that occur in the final quarter are due to lag. 343 MR. DINGWALL: And if the regulatory year-end were to change, that there might be some spillover of that administrative lag into a subsequent period; would that be correct? 344 MR. RYCKMAN: I think that's fair. You might see some of that lag spill over into October, certainly no later than November, in my opinion. 345 MR. DINGWALL: Would you agree with me that the reporting lag, the administrative lag that we've spoken about, has some elements of discretion about it? 346 MR. RYCKMAN: Yes. 347 MR. DINGWALL: Moving on to transactional services, is the panel aware of any trends which weight the volumes of transactions to particular months or quarters of the year? 348 MS. HARE: No. 349 MR. DINGWALL: That would be information which would likely be derived from the historical information you'll be producing. 350 MS. HARE: Yes. 351 MR. DINGWALL: Is there any administrative lag in the reporting of transactional services to Enbridge Gas Distribution? 352 MS. HARE: I frankly don't know, Mr. Dingwall, if it's -- I could ask the question and report back after the break. 353 MR. DINGWALL: That would be appreciated. Could we have that as an undertaking, please? 354 MS. HARE: Yes. 355 MR. SCHUCH: Mr. Chair, that would be Undertaking J.11.2 and perhaps I could have Mr. Dingwall summarize the undertaking. 356 MR. DINGWALL: The undertaking would be for the company to inquire as to whether or not there is any administrative lag in the reporting of transactional services, volumes and revenues. 357 UNDERTAKING NO. J.11.2: TO INQUIRE AS TO WHETHER OR NOT THERE IS ANY ADMINISTRATIVE LAG IN THE REPORTING OF TRANSACTIONAL SERVICES, VOLUMES AND REVENUES AND INDICATE WHAT TYPE OF ADMINISTRATIVE LAG THERE MIGHT BE AND WHEN THAT WOULD TRADITIONALLY OCCUR 358 MR. BETTS: Thank you. 359 MR. DINGWALL: I wonder if we could then embellish that by asking the company to indicate what type of administrative lag there might be and when that would traditionally occur. 360 MR. ROSS: Just for clarification, Mr. Dingwall, when you talk about administrative lag, you talk about lag between what? 361 MR. DINGWALL: I talk about lag between the time that a transaction would occur and the time when a transaction might be reported to Enbridge Gas Distribution. 362 MR. ROSS: Okay. So typically, that would be -- if a transaction, for example, had occurred in the month of June, it would be reported in the month of July, is that the answer you would like? 363 MR. DINGWALL: Yes, or if a transaction were with respect to a certain, I don't know, a loan of gas or a sale of excess storage, when the revenues for that would likely be booked. So you might have to get down by a transaction-by-transaction basis looking at types of transactions in order to report what type of lag there might be in the recording of those if there's any difference between them. 364 MR. ROSS: Thank you. 365 MR. BETTS: And the company did agree to the slight extension or -- of the undertaking. 366 MS. HARE: Yes. Yes, we did. 367 MR. DINGWALL: Thank you. 368 MR. BETTS: Mr. Sommerville has a question about that. 369 MR. SOMMERVILLE: With respect to that undertaking, are we talking about when the transactions are booked, when they are reflected as the recurring rates or are we just talking about the gap between one department of the company reporting a transaction to another? Those are two different things. One talks about when the transaction actually happens and the others -- the purchase of gas, for example, in a particular month, and whenever that is reported within the company, it would show as having occurred on the date of the transaction. 370 What I'm concerned about is we end up getting a report about a bookkeeping function that doesn't really reflect anything that shows up on the real records of the company. 371 Do you know what I'm getting at? 372 MR. ROSS: Yes, I do, and perhaps I can clarify. What I do know about our recording of transactional services is that these are commonly summarized on a monthly basis and hence, they would be reported in that month. 373 If I go to Mr. Dingwall's more detailed question about which transactions are reported when, that would be the subject of an undertaking but generally, whatever transaction had occurred in the month would be reported in that month. 374 MR. SOMMERVILLE: Thank you. 375 MR. DINGWALL: I'm trying to keep to my forecast as well and avoid any administrative lag of my own. 376 My final series of questions are for Mr. Gruending and whoever else might wish to chime in. 377 I understand that Enbridge Inc. declares its dividend on an annual basis; is that correct, to common shareholders? 378 MR. GRUENDING: It's declared quarterly by the Board. It's commonly increased -- 379 MR. BETTS: Mr. Gruending, I'm sorry. 380 MR. GRUENDING: Am I not close enough? Sorry. 381 I was saying the board declares its dividends quarterly and that on occasion, it will increase the dividend and that's been the pattern. 382 MR. DINGWALL: And has the pattern over the last three or four years been to increase the dividend on an annual basis? 383 MR. GRUENDING: Yes, it has. 384 MR. DINGWALL: And for this current year, I understand that Enbridge Inc. has reported its first quarter's results and has increased its dividend for this year; is that correct? 385 MR. GRUENDING: That is correct. I think it increased the dividend in late January of 2004. 386 MR. DINGWALL: Now, I understand that in raising the dividend rate, Enbridge Inc. has looked forward to projected year-end results; is that correct? 387 MR. GRUENDING: It looks at the -- of course dividends are paid with cash and it looks forward on its subsidiaries' cash balances as well. 388 MR. DINGWALL: One question that I've heard asked over the past day and a half, and I apologize if it's come up a couple of times, but has Enbridge Inc., for its own reporting purposes, committed to its investors that Enbridge Gas Distribution's year-end for Enbridge Inc.'s reporting procedures will be changed to a calendar year-end. 389 MR. GRUENDING: Have we promised it, do you mean? Or what is the question? 390 MR. DINGWALL: For Enbridge Inc.'s purposes, has Enbridge Gas Distribution Inc.'s year-end changed? 391 MR. GRUENDING: No. I think the proceedings of this case are public and the investment community is aware of the proposed change that we're discussing today and the undertaking, I think, to the investment community is that should we be successful, we would do it as soon as reasonably possible. 392 MR. DINGWALL: So for Enbridge Inc.'s forecasting of results, have they taken into account the prospective year-end change? 393 MR. GRUENDING: I think the gas utility continues to budget on a quarterly basis and the consolidation of budgets, if you like, has, I think, factored in a change in year-end, but it's -- I think it's easily amended if we're not successful with that today. 394 MR. DINGWALL: So currently, Enbridge Inc. then has forecasted the year-end change in terms of its business outlooks? 395 MR. GRUENDING: Mr. Ross has reminded me of another point that may be relevant here and that's the earnings guidance the company has provided, which it does annually, does not factor that in, i.e., the company has normalized it out on its own so that it's comparable to 2003 consolidated results. 396 MR. DINGWALL: Thank you. Those are my questions. 397 MR. BETTS: Thank you, Mr. Dingwall. 398 I think it's an appropriate time to take a short refreshment break. Let's aim to return at 25 minutes after 11:00 and we will resume with cross-examination by Ms. DeMarco. 399 --- Recess taken at 11:05 a.m. 400 --- On resuming at 11:30 a.m. 401 MR. BETTS: Thank you, everybody. Please be seated. 402 Thank you. Before we begin Ms. DeMarco's cross-examination, were there any preliminary matters that arose during the break? There appear to be none. 403 Ms. DeMarco. 404 MS. DeMARCO: Thank you, Mr. Chair. 405 CROSS-EXAMINATION BY MS. DEMARCO: 406 MS. DeMARCO: Just by way of context for the Panel, my questions are not focused on the change in year-end proposal itself but rather on the impacts of the proposal. 407 In order to determine those impacts, I wonder if we can just rally the wagons, circle the wagons here, and look at the possible outcomes in relation to your proposal. If I understand them correctly, and please forgive me for what is probably a gross oversimplification. The first would be to the Board grants the company's proposal and allows an indexed increase in an annualized ROE for that quarter; correct? 408 MS. HARE: Is that one option? 409 MS. DeMARCO: Yes. 410 MS. HARE: Certainly. 411 MS. DeMARCO: And the second would be that the Board would agree with the ROE approach currently being advocated by the intervenors and applies a mean ROE annualized and divided by four for the quarter. Is that the second main option? 412 MS. HARE: That's a possible outcome, yes. 413 MS. DeMARCO: And as I understand it, the company opposes that proposal on the basis that this quarter needs to be looked at in the context of a whole year because the activity levels are very different. There's more revenue in that quarter. Is that fair? 414 MS. HARE: Yes, that summarizes why we don't agree with that approach. 415 MS. DeMARCO: So this quarter is not like any other quarter. 416 MS. HARE: That's correct. 417 MS. DeMARCO: Okay. And then the third would be that the Board makes the $30 million adjustment that has been contemplated and applies the mean annual ROE for a quarter, and if I understand your direct testimony yesterday, if that adjustment is made, the company intends to withdraw its proposal to change its year-end? 418 MS. HARE: No, Ms. DeMarco. What the company was suggesting is that if the Board determines that a change in year-end comes with a $30 million adjustment, we would hope that the Board then says the company is free not to change its year-end, because that would be our preference, is then not to change our year-end. 419 MS. DeMARCO: And would that be the same with a $20, million price tag? 420 MS. HARE: Yes, it would. 421 MS. DeMARCO: And a $10 million price tag? 422 MS. HARE: Yes, it would. 423 MS. DeMARCO: And a $5 million price tag? 424 MS. HARE: Any price tag that results because of looking at ROE on the quarter of the annual, the company would object to because we would believe that earnings are confiscated, that there's no reason for looking at it in that manner. 425 MS. DeMARCO: And I note that in the exhibit produced by Mr. Culbert yesterday there was a $4.5 million discrepancy figure that contributed to the 3.194 percent return. I apologize. I don't have the exhibit number. 426 MS. HARE: Yes, Ms. DeMarco, but that relates not to the issue we were talking about right now, it relates to the escalator that we applied for. And that, in our view, is very different than looking at ROE on a quarterly basis. That would be the case where the Board determines that either an adjustment isn't required or maybe it's not a full 90 percent of CPI, but something in between. 427 MS. DeMARCO: Okay. I understand that now. Thank you for that clarification. 428 I guess the last possibility would be the Board -- would be for the Board to simply order you to continue with your existing rates for the stub period; is that fair? 429 MS. HARE: Yes. That would be an option as well. 430 MS. DeMARCO: Okay, great. Now I'd like to address two specific impacts of those eventualities or potentialities, as they might be. One would be on the issue of the phase-in, and I should identify that I'm asking those questions on behalf of TransAlta, and the second would be the impacts in relation to transactional services, and I should identify that I'm asking those questions on behalf of CEED. 431 First of all, in relation to the phase-in, just a bit of background, the company did have a Board-approved cost allocation methodology that allocated upstream transportation costs based on a 60/40 load-volume split; is that fair? 432 MS. GIRIDHAR: That's right. 433 MS. DeMARCO: And the company has proposed and the intervenors have agreed to change that methodology to 100 percent volumetric methodology; is that correct? 434 MS. GIRIDHAR: That's correct. 435 MS. DeMARCO: And that settlement is reflected at page 51 of 59 of the settlement agreement, which is Exhibit N1, tab 1, schedule 1? 436 MS. GIRIDHAR: Page 59? 437 MS. DeMARCO: Fifty-one. 438 MS. GIRIDHAR: Yes. 439 MS. DeMARCO: And do you want to take a minute to refresh your memory of that settlement. 440 MS. GIRIDHAR: Yes. 441 MS. DeMARCO: And it's fair to say that the rate impacts on certain customers are significant, quite large, even with the phase-in; is that fair? 442 MS. GIRIDHAR: The rate impact is capped 9 percent per year, so yes, a customer rate class would have an impact up to 9 percent on a T-service basis that excludes the commodity. But on a burner-tip basis, the percentages are obviously a lot lower. 443 MS. DeMARCO: I'm sorry, I can't hear you. 444 MS. GIRIDHAR: Sorry. 445 MR. BETTS: Ms. Giridhar is in between mikes, and that's her problem, so she has to stretch her neck to get to one. 446 MS. GIRIDHAR: What I was saying is under the phase-in proposal, the rate impacts are capped at 9 percent calculated on a T-service basis, that means it excludes the cost of the commodity. So yes, the rate impacts could be significant but they are capped at 9 percent, excluding the cost of the commodity. Once you put the cost of the commodity in, it would be a lower percentage. 447 MS. DeMARCO: And if I can refer you to appendix B of that tab, which is table 2, page 1 of 1, and just for ease of reference, it's right in front of the tab, the last page before tab 2. Those are the specific annualized rate impacts for the phase-in of the broader changes, cost allocation changes; is that fair? 448 MS. GIRIDHAR: That is correct. 449 MS. DeMARCO: And for a company like TransAlta, that is, a clean gas-fired cogeneration plant taking gas under rate 115, it's fair to say that the costs of the phase-in are 9 percent, 9 percent, 9 percent, and 3 percent in year 4? 450 MS. GIRIDHAR: These impacts were calculated at the rate class level, not at the level of a particular customer. So to the extent that TransAlta's load profile might not be exactly the average load profile for rate 115, the percentage impacts could be a little different. But obviously I could not do such an exercise at the level of a customer, I'd have to do it at the level of the rate class. 451 MS. DeMARCO: So subject to check, would you agree with me that TransAlta's rate impacts are, in fact, higher than the average rate class? 452 MS. GIRIDHAR: Subject to check. 453 MS. DeMARCO: Great. And subject to check again, would you agree with me that we're talking about approximately a $3 million a year rate increase ultimately for TransAlta, subject to check? 454 MS. GIRIDHAR: Subject to check. 455 MS. DeMARCO: Okay. So the issue, then, we've got this phased in over four fiscal years, and the company's change in year-end proposal, then, I guess presents the issue of which fiscal years. Is that really the essence of what we're debating here? 456 MS. GIRIDHAR: Yes, assuming that the year-end change does occur, there would be the issue whether you then delay the phase-in at some point so that it coincides with the new -- newly determined fiscal year or whether you stay with the current implementation schedule, which is October 1, which is synchronized with our current fiscal year. 457 MS. DeMARCO: So it's from when to when that we're debating now; is that right? 458 MS. GIRIDHAR: That's right. 459 MS. DeMARCO: And that could be October to October for each of the four years? 460 MS. GIRIDHAR: Yes. 461 MS. DeMARCO: And it could be from October to October in year 1 and then January to January years 2, 3 and 4? 462 MS. GIRIDHAR: The company is proposing that it should be October to October in years 1 and 2, and that as of year 3, the company's preference was -- would be to synchronize them as of year 3. But it's up to the Board to determine yearly how this should go through. 463 MS. DeMARCO: So that would be yet another possibility. October to October year 1 and 2, January to January year 3 and 4. 464 MS. GIRIDHAR: Yes, year 2 would actually be October to December. 465 MS. DeMARCO: Right. October to December, that's right. Okay, thank you. And the third would be to, again, October to October years 1, 2, and 3, subject to January in the last year. 466 MS. GIRIDHAR: Yes. As I mentioned before, really there's a trade-off here because the phase-in is intended to moderate the rate impacts for large-volume customers but also provide the benefits of the change to small-volume customers. So what was laid out was a four-year phase-in, and in terms of the implications for a year-end change, we obviously want to balance off that issue of fairness for all customer rate classes versus the administrative burden of carrying on with an implementation schedule that does not match the fiscal year for the company. And that was why we proposed that a good trade-off might be to follow the schedule for the first two years, because the bulk of the benefits to the small-volume customers actually happens in the first two years, and then as of year 3, the administrative ease issue could take precedence and perhaps at that point we would synchronize the implementation. 467 MS. DeMARCO: I'd like to ask you a few more questions about that trade-off and the balance. Specifically, today you've referred to it as benefits and impacts in terms of the changes. Yesterday you referred to it as a subsidy. It's not, in fact, a subsidy, is it? 468 MS. GIRIDHAR: Well, the cost allocation methodology that we proposed and which was accepted by all parties more closely mimics operation factors and cost incurrence for all rate classes. So, I mean, we could get bogged down in semantics, but what that really says is that's the right way to allocate costs and that's the right way to change for those costs, because these are upstream costs and the company has a strict pass-through approach to these costs. So to the extent that our rates do not reflect that costing approach, then you could argue that there is an inherent subsidy in that it's not reflecting -- 469 MS. DeMARCO: But that hasn't been argued, has it? 470 MS. GIRIDHAR: No, so I suppose you could refer to it in terms of benefits or impacts or ... 471 MS. DeMARCO: So with your proposal, you've indicated that if you maintain the October to October schedule, you would need to do further tweaking, was your word, to reflect further changes in the imbalance of the fiscal year-end. You can appreciate, Ms. Giridhar, that someone that's facing a $3 million rate increase would like to know what that tweaking would entail. 472 MS. GIRIDHAR: Absolutely. 473 MS. DeMARCO: I wonder if you could take me through the rate schedule and give me some idea of what that might include. 474 MS. GIRIDHAR: I'm not sure that I could take you through the rate schedule -- 475 MS. DeMARCO: Sorry, the table, the specific table. 476 MS. GIRIDHAR: Okay. Let me describe what that would refer to. As part of our cost allocation study, we allocated costs based on certain cost drivers or cost allocation factors. These factors include, for instance, annual volume, peak-day capacity, space requirements, as well as customer numbers, at a high level. And because we do a cost allocation study every single year under cost-of-service regulation, these drivers may, in fact, change from year to year depending on the volume profile of the customers in each rate class. The reason I call it tweaking is because you don't expect big changes in these allocation factors. They tend to be fairly stable. But to the extent that you may add, say, more residential customers than large-volume customers in any particular year, you might have a shift in the peak-day capacity allocation factor, for instance. 477 So what I'm suggesting here is that if we keep year 2 on the current fiscal year cycle, which is October to September, then we would be doing the second year of the phase-in based on those embedded cost allocation factors for fiscal 2005. If there is some difference in those cost allocation factors for the 2006 year, then it would be my suggestion that we would want to true up for that in January. And I call that tweaking because generally you don't have big changes in cost drivers from year to year because, you know, you've got a fairly large customer base and any increments that tend to happen in any one year tend to be a small proportion of the total. 478 Beyond that, however, I couldn't tell you that, you know -- it's likely to be minor. I couldn't really quantify that at this point. 479 MS. DeMARCO: Can you guarantee it will be minor? 480 MS. HARE: Of course, Ms. DeMarco, the tweaking that Ms. Giridhar is speaking to has nothing to do with the increase that your customer or any other customer in that class will be paying as a result of the cost allocation that's been agreed to. 481 MS. DeMARCO: You can appreciate, Ms. Hare, that timing and business certainty are important factors in each and every business, particularly in your own, given your year-end proposal; right? 482 MS. HARE: Mm-hm. 483 MS. DeMARCO: So as I understand it, Ms. Giridhar, you would do the year 2 phase-in based on year 1 cost allocation numbers. 484 MS. GIRIDHAR: That's correct. 485 MS. DeMARCO: So there would be a rate change at that point and then there would be a further rate change in January. 486 MS. GIRIDHAR: Yes, I would view the January adjustment with respect to this proposal to be a minor tweaking where you would just true up. So, again, if I might just give you an example here, let's say that using the cost allocation model for -- or the cost allocation study for 2005 says that rate 1 gets 45 percent of peak-day costs, and let's say when we update the study for 2006, the allocation factor ends up being 45.5 percent instead of 45 percent, then when I do the tweaking in January, I would actually reflect that 45.5 percent at that point in time. But in terms of the phase-in or the increment of 9 percent, that would happen in October. And again, these changes tend not to be major because you already have a customer base of 1.6 million customers to which you might add 50,000 customers in that year, but these should not be significant. In fact, they're fairly stable year after year. 487 MS. DeMARCO: Is there any way that a customer could predict what that tweaking would look like? 488 MS. GIRIDHAR: Well, I guess I could look at the cost allocation factors for the 2005 year and maybe compare that with the preceding year to see what that change is. 489 MS. DeMARCO: You could do that. Could a customer do that? 490 MS. GIRIDHAR: Not unless I provided them with the numbers. 491 MS. DeMARCO: And so that tweaking could result in an increase in rates in January? 492 MS. GIRIDHAR: Or a decrease. 493 MS. DeMARCO: Right. 494 MS. GIRIDHAR: A very, very sleight increase or a slight decrease. I should mention again, though, that in terms of a cost-of-service model there's really no guarantee of rates for any customer rate class. The presumption is that the act of setting rates using cost-of-service results in just and reasonable rates, but we certainly don't guarantee rates for any rate class for a month-year period. That's part of the normal process that we have in place. And I don't view this as any different from that, because, for instance, all other costs are going to be allocated based on the newly developed cost allocation factors for that year. 495 MS. DeMARCO: And you've attempted to provide some certainty around those cost allocation numbers and the phase-in in the settlement proposal? 496 MS. GIRIDHAR: That's right. I've called this estimated rate impacts because they are estimated at a point in time. But I did say that the 9 percent phasing in would obtain under any of these circumstances, so the actual unit rate number may be a little different because the underlying costs are different. For instance, this was done prior to ADR, so right away it doesn't incorporate the $60 million deficiency number, so on and so forth. But the 9 percent is what was quantified in the settlement agreement. 497 MS. DeMARCO: And it's fair to say specifically in the settlement agreement, you acknowledge that all parties relied on these estimated impacts in reaching the agreement to accept a differential phase-in period of four years? 498 MS. GIRIDHAR: Yes. As I said again, I would use it as it's laid out here. You would not see an increase in excess of 9 percent based on just the phase-in issue that comes out of that. 499 MS. DeMARCO: Is the ultimate impact of the phase-in combined with the change in year-end proposal in relation to the cost allocation changes, is the largest portion of that the change in the T-service credit, the elimination of the T-service credit? Is that fair? 500 MS. GIRIDHAR: Actually, the T-service credit is being retained until the completion of the phase-in. 501 MS. DeMARCO: Right. And would it be that completion date that would be affected? 502 MS. GIRIDHAR: I don't want to make this more complicated than it is already, and I don't know how much background information to provide in this situation, but T-service credit is one of the variables that impacts -- or that determines your rate impact. The approach I have taken, really, is to look at all of the factors that change or all of the proposed changes in combination, and when you do that, the T-service credit is certainly an important one but it's not the only one. So if you're asking me to isolate the impact of the elimination of the T-service credit, I would suggest that at the end of the fourth year, the impact is a small one because, as you know, it's really being phased in over four years, so the dual impact of any one variable is small because it's a composite that I'm trying to reflect, so I don't know if that -- 503 MS. DeMARCO: In terms of the timing, Ms. Giridhar, are we really talking about October 2007 versus January 2008; is that -- 504 MS. GIRIDHAR: No, no. We're talking about January 2007 versus October 2006. 505 MS. DeMARCO: And that would be the commencement of year 4. 506 MS. HARE: Year 3. 507 MS. GIRIDHAR: Year 3. We're really talking of a delay in the phase-in by three months in the third year, so instead of being effective October 1st, 2006, it will become effective January 1, 2007. 508 MS. DeMARCO: Now, pertaining to the T-service credit specifically, are we really talking October 2007 or January 2008 for its elimination? 509 MS. GIRIDHAR: Well, depending on, again, which way we go, if we -- if year 3 commences January 2007, then the elimination of the T-service credit will be January 1, 2008. 510 MS. DeMARCO: So there are only two possibilities here; is that fair? 511 MS. GIRIDHAR: That's right. That's right. 512 MS. DeMARCO: October 1997 or January 2008. 513 MS. GIRIDHAR: That's right. 514 MS. DeMARCO: Okay, thank you. And just remind me why the elaborate adjustments and tweaking is being undertaken in relation to the phase-in that was contingent on what was going to happen on the phase-in -- the year-end change anyway? 515 MS. GIRIDHAR: Actually, if I could point to the table, it's Exhibit N1, tab 1, appendix B, you will see that there is a column that says "Reduction to General Service," and in fact you see that year 1 has the highest reduction to general service customers of $33.8 million; year 2 has an $8 million reduction; and year 3 has a $6.9 million reduction. So really the commencement date of the phase-in dictates when that reduction happens to these customers. I think Mr. Shepherd pointed out a $2 million number. What he was referring to was that if you've got an $8 million reduction in the second year, and in this instance if you were to assume on average that it's 2 million per quarter, a three-month delay would result in a $2 million reduction that does not happen as at the end of fiscal year as envisaged in this appendix. 516 MS. DeMARCO: Until three months later. 517 MS. GIRIDHAR: Oh, I'm sorry, were you asking me about the tweaking or about -- the tweaking becomes necessary if your rate phase-in occurs on an October to October cycle and the year-end, in fact, were to change from January to December. Was that your question? 518 MS. DeMARCO: It was in relation to why you wouldn't simply, whatever the outcome on the year-end decision was, adhere to the same year-end decision for the phase-in to avoid the additional complexity of tweaking. 519 MS. GIRIDHAR: So, in other words, why are we undertaking an administrative -- an additional administrative exercise when, in fact, coinciding the two would result in saving work for us. And I believe that was the same question Mr. Thompson asked us and we said there's really a balance of fairness to customer groups versus the administrative burden, and the company's view is that in year 2, the best balance is struck if you give them that $2 million reduction as of the October time frame, but that in year 3 you've passed on the bulk of your benefits, I believe it's more like 80 percent, correct me -- I can confirm that subject to check. But if you've passed on approximately 80 percent of the benefits in the first couple of years, then for year 3 that same question, is the administrative burden worth it, might elicit a different response, and it might be that year 3 you really don't need to go through that tweaking and the burden, let's just implement it the same time as the fiscal year. 520 MS. DeMARCO: And I understood that in your answers to Mr. Thompson, that instead of waiting and adding additional uncertainty and coming back at a later date, you would consider, and I believe it was you, Ms. Hare, who indicated, providing some certainty around the timing of that. 521 MS. HARE: Yes. I indicated the Board would be -- sorry, the company would be agreeable to having January 1st, 2007 as the start of year 3. If that's the Board's decision, we would certainly think that's a good compromise. Additionally, Ms. DeMarco, we could leave it to the 2007 rate case and deal with it then. 522 MS. DeMARCO: Let me now move on to transactional services. As I understand it, your proposal is to take the annual target and divide it by four. 523 MS. HARE: Yes. 524 MS. DeMARCO: But that, as I understand it, wasn't appropriate in relation to the ROE. 525 MS. HARE: No. No. It's an apples-to-oranges comparison. 526 MS. DeMARCO: Pardon me? 527 MS. HARE: Well, I don't see that the two are comparable at all. 528 MS. DeMARCO: They both relate to sales of services and commodity, don't they? 529 MS. GIRIDHAR: The ROE on a quarterly basis, again if I might just reiterate what I said earlier, is an outcome of the fact that we set rates such that revenues equal costs over a 12-month period, and the fact that we recover a lot of our charges through volumetric charges and the fact that we have deferring volumes in every quarter. The drivers for transactional services costs is not what I've just described here. I'm not an expert on transactional services, but I'm presuming it's got its own cost driver and it was believed that a quarter of an annual amount was appropriate in that instance. 530 MS. DeMARCO: You've indicated that it includes -- that the driver for the ROE includes things such as commodity sales and volumetric activity. 531 MS. HARE: I'm sorry, Ms. DeMarco, I don't see that the two are comparable at all. On the one case, we're saying ROE is set by the Board based on a 12-month cycle, and here we're talking about transactional services that the alternate way would be to look at the historical results in terms of revenue generated from TS, and if that turns out to be 20 percent, I mentioned that in the first quarter of 2003, it's 18 percent. Now, I don't have the other numbers, but let's assume it's 20 percent. Well, then we could argue for 20 percent instead of the 25 percent. But if you do the arithmetic, it's really such a small difference that it just seemed practical to say that we'll just settle on 25 percent of whatever the Board decides the TS should be in terms of sharing and what's embedded in rates. 532 MS. DeMARCO: So practicality would govern in relation to TS -- 533 MS. HARE: As opposed to arguing what the historical revenue is in each quarter. 534 MS. DeMARCO: But practicality wouldn't govern in relation to -- 535 MS. HARE: That's what we suggested. It just seemed to us to be a practical solution. But that certainly isn't the case with how ROE is set or what an ROE in three months represents. 536 MS. DeMARCO: Your proposal seems to relate to an assumption that commodity sales will be permitted by the Board. What is the proposal in the event that the Board does not permit the company to sell -- 537 MS. HARE: Ms. DeMarco, I didn't make that assumption. I used the 8 million as an example, but it would be whatever the Board decides in TS. So if, for example, the Board decides that the company should no longer undertake commodity sales and reduces the amount that's embedded in rates, let's just for the ease of my arithmetic assumes that it should only be $4 million embedded in rates, then we'd still suggest it's one-quarter, so a million for the three-month period, and then a quarter of the shareholders' percentage. 538 MS. DeMARCO: So would it be fair to characterize the company's proposal in relation to the year-end change impacts on transactional services to be the current Board-approved sharing mechanism quartered. 539 MS. HARE: Yes. 540 MS. DeMARCO: Those are my questions. 541 MR. BETTS: That completes your questions, Ms. DeMarco? Thank you very much. 542 Ms. Girvan. 543 MS. GIRVAN: Thank you, Mr. Chair. 544 CROSS-EXAMINATION BY MS. GIRVAN: 545 MS. GIRVAN: Panel, I just had one point that I wanted to clarify on the year-end issue. You stated that if rates go down in the quarter commencing October 1st, 2005, that they'll have to go up again January 1st, 2006. Would you agree that irrespective of this issue, rates may go up but they may well go down January 1st, 2006 for a whole host of reasons? 546 MS. HARE: Yes, that's true. 547 MS. GIRVAN: So it's not really as you implied that it's a fait accompli that rates would necessarily go up January 1st, 2006. 548 MS. HARE: Well, no, they would. If rates go down because of an adjustment to the ROE, they would certainly go up by that amount. Now, there could be offsetting factors which also then influence the rates such as increase in volumes or increase in O&M. Those would all be a factor. But the amount of increase due to ROE would result in an immediate increase three months later. 549 MS. GIRVAN: But the rates wouldn't necessarily go up. That's what I wanted to clarify. 550 MS. GIRIDHAR: I think what we were trying to demonstrate in all of this is isolating the impact of the year-end change, so obviously when you are trying to look at an issue like that, you have to assume that everything else remains the same because clearly, then you can't isolate the change of the impact you're discussing. So in that context, yes, rates would go up. 551 MS. GIRVAN: Okay, thank you. The next set of questions is for Mr. Ryckman. I don't know if you're in the right position there to -- on DSM. 552 MR. RYCKMAN: I'll try and move. 553 MS. GIRVAN: The proposed savings target for the 12-month period is 76.9 million cubic metres and the proposed stub period target is 19.2 million cubic metres; is that correct? 554 MR. RYCKMAN: Yes. 555 MS. GIRVAN: Would you agree that when we look at these targets, that EGD and specifically you and your staff certainly have much better information than the Board and intervenors about whether or not or to what extent those targets are achievable? 556 MR. RYCKMAN: Yes, I would agree with that. 557 MS. GIRVAN: So other than looking at what's been achieved in the past, we really have no idea whether those targets will be easy to achieve or will not be easy to achieve. 558 MR. RYCKMAN: Well, I think one can look at history as an indicator of what to expect in the future. If you look back to the 2002 program year, for instance, where there was the highest performance that we've had in the history of the program, we did 79.5 million cubic metres. During that time, we've had some very effective programs that are no longer available to us, and we've provided evidence in past proceedings on this. An indication or example of that would be the water heater set point reduction program which is no longer available to us; we had the efficient purchase -- water heater efficient purchase program which is no longer available to us; we had a thermostatically controlled construction heater program that's not available to us. And also in 2005, one of our programs anticipated co-funding from EnerCan, and we had increased the participants in that program, we had doubled them from 5,000 to 10,000 in anticipated of that funding. We've been advised that that funding is not likely to be available for us, yet we have maintained the participant level at 10,000, so we didn't decrease that. 559 So I think with all of these considerations, one could look at history and look at some of these changes and draw the conclusion that the target that we have today, which is close to the all-time high in 2002, is an aggressive target. 560 MS. GIRVAN: But you would agree with me that you have certain market information, research customer information that the rest of us don't have. 561 MR. RYCKMAN: Yes. 562 MS. GIRVAN: Thank you. Would you agree with me that the SSM is an incentive? 563 MR. RYCKMAN: Yes. 564 MS. GIRVAN: It's not a guarantee, is it? 565 MR. RYCKMAN: No. That's correct. 566 MS. GIRVAN: And would you also agree that it's really there to really encourage you to work hard to exceed your target? 567 MR. RYCKMAN: Yes. I think it's designed to make us work hard to deliver greater benefits to customers, absolutely. 568 MS. GIRVAN: Is there a penalty associated with the current SSM? 569 MR. RYCKMAN: No, there is not. 570 MS. GIRVAN: So if you don't reach your target or exceed your target, the company isn't really financially penalized, is it? 571 MR. RYCKMAN: That is correct. 572 MS. GIRVAN: On the other hand, if you exceed your target, the payment to shareholders comes directly from ratepayers. 573 MR. RYCKMAN: It would be a portion of the benefits that ratepayers would enjoy, so once again it's based on 18 percent of the TRC benefits over and above the pivot point or the target, so customers would be enjoying 82 percent of those benefits. 574 MS. GIRVAN: Would you agree that some customers would be and some probably wouldn't be? 575 MR. RYCKMAN: In terms of the DSM benefits, there are obviously those customers that participate directly in the programs which have a benefit and there would be some benefits to non-participants in terms of reduced storage transmission costs, those sorts of things. 576 MS. GIRVAN: Okay, thank you. Now, to be clear about the SSM, I'd like to get a sense of potential payouts, and what I'm going to do is refer to an exhibit that is probably deeply buried in everyone's binders, so I've asked Mr. Schuch to make some copies and provide them to the Board. But I think you're aware of the exhibit that I referred you to yesterday which is Exhibit I, tab 30, schedule 16. 577 MR. RYCKMAN: Yes. 578 MS. GIRVAN: And what that is, it's a response to an interrogatory from my clients CAC and CCC, from the Green Energy Coalition's expert, Mr. Neme. 579 MR. RYCKMAN: Yes. 580 MS. GIRVAN: What that exhibit does is it asks Mr. Neme to calculate the level of SSM payouts to EGD under the current SSM model assuming a number of scenarios. Have you reviewed that document? 581 MR. RYCKMAN: Yes, I have. 582 MS. GIRVAN: And can you just help me as to whether or not you agree with Mr. Neme's calculations or if they're in the ballpark of what you would expect in terms of SSM calculations. 583 MR. RYCKMAN: I haven't reviewed the underlying assumptions or the calculations, but for discussion purposes, I think they're useful. 584 MS. GIRVAN: Okay. So if we specifically look at number 4 on that exhibit -- 585 MR. RYCKMAN: Yes. 586 MS. GIRVAN: -- which says "assume a target of 80 million cubic metres," which is in the ballpark of your proposed target for the 12-month period, "and actual savings achieved of 90 million cubic metres --" 587 MR. RYCKMAN: Yes. 588 MS. GIRVAN: "-- the SSM payout is $3.9 million"? 589 MR. RYCKMAN: Yes. 590 MS. GIRVAN: So you agree that's in the ballpark of what would be expected? 591 MR. RYCKMAN: Yes. Once again, I would agree that's in the ballpark, and that would be roughly 18 percent of the TRC benefits and the customers would enjoy the other 82 percent of whatever that sum would be, yes. 592 MS. GIRVAN: Just for clarification, would that number have to be grossed up to figure out exactly what's recovered from customers? 593 MR. RYCKMAN: When you say "grossed up", I'm not sure I follow. 594 MS. GIRVAN: Reflect the income tax change -- income tax effect. So essentially, if the ultimate payout to shareholders is 3.9 million, you'll have to recover something more than that from your customers. 595 MR. RYCKMAN: I'm not sure on that. 596 MS. GIRVAN: You're not sure. 597 MR. RYCKMAN: No. 598 MS. GIRVAN: Okay. So with respect to your proposals on the SSM that you've set out in your evidence, which is found at Exhibit A7, tab 1, schedule 1 -- 599 MR. RYCKMAN: Yes. 600 MS. GIRVAN: -- would you agree with me that with respect to the SSM, what you're really saying is we're happy to calculate it on a 15-month basis, and I quote your last paragraph in that evidence on page 3 which states: 601 "In summary, the SSM would be calculated based on the settlement agreement volumetric target of 76.9 million unless an SSM was being claimed in conjunction with the stub period, at which time the calculation would be based on the aggregate target and results for two periods." 602 Would you agree with me that what you're really saying is you're happy to calculate the SSM on a 15-month period as long as you exceed or meet your target? 603 MR. RYCKMAN: No. What the bullet point set out is we would calculate it based on a 15-month -- on the aggregate of the two periods if we surpassed it in both -- if we surpassed the target in both of those periods or if we surpassed it only in the three-month stub period. 604 MS. GIRVAN: But really, if you achieve the target in the 15 months, the combined target, you're happy to calculate the SSM on that combined basis. That's what you're proposal is. 605 MR. RYCKMAN: Yes. 606 MS. GIRVAN: So if it works out for you and you exceed your target, you want it calculated on a 15-month basis, but if it doesn't work out and you don't exceed your targets, you want to have the option to calculate the SSM in a different way; is that correct? 607 MR. RYCKMAN: Mathematically, doing them as separate periods, a 9 and a 3, or as a 15-month period, my understanding is exactly the same. I think there may be some confusion around the fact that these benefits, in Chris Neme's response to this interrogatory, and once again, this isn't my evidence. I'm just drawing my conclusions. I think if you're looking at it and you say, Well, in item number 1, for instance, I've got a $3.8 million payout, in item number 4, I've got a $3.9 million payout, so it would appear that aggregating them to provide you some extra incentive. I don't think that's really what's happening here. You've got a stepped rate block -- a stepped rate function on the SSM mechanism, so for the first 10 percent of the overage, overachievement, if you will, you would enjoy an 18 percent -- 18 percent of that overage. The bases are changing here. He's using a 60 million m3 base and an 80 million m3 base, so the budget points are changing. In our proposal we have a budget of 96.1 million for the aggregate of the two periods or 96 or 76.9 for the 12-month period. So there's a little confusion there. 608 MS. GIRVAN: All I'm really asking, Mr. Ryckman, is this is an unusual request in that at the end of the day you want to wait to see what the results are before you calculate the SSM. 609 MR. RYCKMAN: I would be quite fine with calculating them as two separate periods. The proposal we have put forth was to provide safeguards and I think it effectively does that. But if it was the will of the Board to calculate these as two distinct periods, I would be fine with that. 610 MS. GIRVAN: Just back to my original question, though. Is this not an unusual proposal or something different in that you're going to wait to see what the results are before the calculation is made? 611 MR. RYCKMAN: I'm not sure I understand the context. I mean, we're trying to lay out the ground rules of how that calculation would occur in advance of the actual period, and all SSMs are counted with actuals, so I'm not sure I understand. 612 MS. GIRVAN: All I'm saying is that at the end of the day, you will be calculating the SSM -- what this proposal essentially does is allows you at the end of the day to look at the results and then calculate the SSM in the way that benefits the company. 613 MR. RYCKMAN: I don't see that there's any extra benefit to the company with this proposal. I think what it does is provides a safeguard in the event that we don't achieve it within the 12-month period but we do achieve it within the three-month period. So by looking at it on aggregate in that scenario where we surpass in the three-month period, we actually have to make up any difference in the 12-month period before we even qualify, whereas if there were two separate periods we would actually qualify for an incentive in the three-month period. So I think in that scenario, the company is worse off than if there were two separate periods. 614 MS. GIRVAN: Okay. Thank you, those are my questions. 615 MR. BETTS: Thank you, Ms. Girvan. 616 Mr. Rowan. 617 MR. ROWAN: Thank you, Mr. Chairman. All of my questions are for Mr. Ryckman. 618 CROSS-EXAMINATION BY MR. ROWAN: 619 MR. ROWAN: First, has the company prepared a DSM plan for the stub period that identifies how it intends to save the 19.2 million cubic metres at a cost of $3.7 million? 620 MR. RYCKMAN: Currently, right now we don't have a detailed plan based on the 19.25, no. 621 MR. ROWAN: You don't have a plan. 622 MR. RYCKMAN: Basically we have -- we have got our existing programs, but we don't have a detailed plan for that period, no. 623 MR. ROWAN: Could you explain why you don't have a plan in as much as I would assume, and please correct me if I'm wrong, that you've known in about this stub period for quite some time. 624 MR. RYCKMAN: Yes. I didn't really perceive the stub period issue to be an overly complex issue. Certainly our budget is incorporated within the mechanism that the company proposed within the escalation factor. To the extent that we've been successful in negotiating budgets, end-targets and mechanisms for whole year periods, and we were successful in doing it for the 12-month period this time, I didn't see it as an overly complicated issue. So based on that, it was really -- we looked at it as for this three-month period we would have a set budget so that should enable us to assess what an appropriate target would be. So I don't really think I saw it as an overly complex issue. 625 MR. ROWAN: Well, given that you don't have a plan, can one assume that you're going to essentially extend the current plan through to the end of December 2005 and that you're going to do it in a seamless way. In other words, you're not going to gear up October 2004 and then gear down September 2005 and then gear up again in October 2005, and then gear down at the end of December 2005. Could you just explain how you propose to go about implementing for that 15-month period. 626 MR. RYCKMAN: Yes. Essentially, as I mentioned, we don't have a formal plan, but as I mentioned previously as well, from year to year, we don't see wholesale changes in the programs that are there. We see some that drop off and some that come on. So it's an extension of the existing plan in some senses and really you don't have this kind of stop September 30th and stop October -- or start October 1st effect, so a lot of the existing programs are continuing over that period of time. 627 MR. ROWAN: Now, if I recall correctly, yesterday you referred to the savings allocation and you wanted to ensure that the stub period volumetric target included the assumption of 100 percent savings allocation if the company piggybacked onto someone else's program; is that correct? 628 MR. RYCKMAN: Essentially what we're looking for there is consistency in the way that allocation is being treated for the 12-month period. So in the settlement agreement, and all parties that participated signed off on the fact that the allocation would be held at those levels for that period, so to the extent that those underlying programs haven't changed, I think that needs to be assessed up front. For instance, if you were to change the allocation on some of those programs, then the 19.25 should be reduced as well. And an example of that would be if a determination was made that our influence resulted in 70 percent of a program and another party's was in 30 percent, then our target would be 75 percent of the total. So you need to reflect that up front as well as after. You don't want to strike a budget and then make these changes after the fact in the way you're actually tracking the actual performance. I think you want consistency in those two. 629 MR. ROWAN: Well, given that you have, and let's assume that the hundred percent savings allocation continues through the stub period, would you agree, then, that if there are any new joint programs added, that the savings target should be increased over the number of joint programs that you have right now? 630 MR. RYCKMAN: I'm sorry, could you just restate that, please. 631 MR. ROWAN: Well, I thought I just heard you say that if the savings allocation of a hundred percent was reduced to less than a hundred percent, then the volumetric target should be reduced to compensate for that percentage reduction. 632 MR. RYCKMAN: I wouldn't say to compensate but to recognize, yes. 633 MR. ROWAN: To recognize. My question to you, then, was: If you engage, during that stub period, in new or expanded joint programs with other parties where that hundred percent savings allocation assumption continues, would you not agree that the volumetric target should increase from the 19.6 -- 2, I'm sorry. 634 MR. RYCKMAN: I'm struggling with the question a little in trying to understand the linkage between the increased target and the savings allocation in that regard. If we had new programs that were coming into place, we would have to ascertain what the savings allocation would be up front, and to the extent that that was agreed to, then I think that needs to be maintained when you're assessing actual performance. 635 MR. ROWAN: Well, you've already indicated to me, Mr. Ryckman, that you don't have a plan for the stub period so therefore we cannot look at the components of what you intend to do during the stub period which might include the addition of the company piggybacking on other people's energy conservation programs for which you're going to claim 100 percent of the savings, even though your contribution might be considerably less than 100 percent. And my concern is, just so that you're aware, that during the stub period, you're going to be able to go out there and gain additional savings through new joint programs that were not part of the 12-month DSM plan which you have filed, and you haven't filed anything for the stub period. 636 MR. RYCKMAN: Well, we have filed for the stub period and I don't think it's -- when I stay we don't have a plan, I mean, we have an existing DSM framework and portfolio program, so I don't think it's as if you're starting from ground zero. This is a three-month period following a 12-month plan so there isn't tremendous divergence from that. To the extent that we have the opportunity to leverage additional opportunities with partners or through whatever means, I think it's a success story. I don't see it as a deficiency in any way, shape or form. I think we should be looking for ways to enhance the performance of programs, and the SSM recognizes the company's efforts in doing that, in my opinion. Once again, we get 18 percent at the very peak, the top of the band, we get 18 percent of the benefits and 82 percent of the benefits would flow to customers. So to the extent that we can find ways to deliver more savings, I don't see that as a deficiency. 637 MR. ROWAN: I'm not suggest it's a deficiency. All I'm really getting at is the comment you made also yesterday to the extent that the $19.2 million was a very aggressive target, and we don't know whether it's aggressive because we have no idea what programs that you are proposing and how many of these additional joint programs are included during this stub period for which, through very little effort, you could be getting significant additional credit in terms of volumetric savings. 638 MR. RYCKMAN: Certainly, you know, if we think about the timing of additional programs as well, they are likely to come on, you know, mid to late 2005, so I don't know that they would be producing tremendous benefits during the stub period. I would hope that they would, but I don't know that they would. Your reference to $19.25 million, it's cubic metres is actually what the target is, it's 19.25 cubic metres -- million cubic metres is the target. 639 Again, if we look at the all-time high in 2002 when we had some very productive programs that I mentioned before, we achieved the total of 79.5 million cubic metres for the year, so we are certainly very close to that. In addition, the target is 30 percent over what we prefiled. Then if you take that 30 percent, apply it to the fact that we usually do 15 percent in this quarter, you have a target in the order of 11.5 million cubic metres, and that's based on a base that already has 30 percent extra built into it. You come up to 19.25, you're roughly 67 percent above that. So there is considerable stretch that's built into that number. 640 MR. ROWAN: Well, let's go to this 30 percent number that you keep referring to, which is 30 percent above the prefiled 2005 volumetric target. Would you agree that since the SSM incentive was introduced in 2000, Enbridge's prefiled volumetric targets have always been well below the Board-approved targets and in most cases, if not all cases, well below the actual targets achieved? 641 MR. RYCKMAN: I would characterize it in that since the SSM has been implemented, our performance has been above target. I don't agree with your characterization. I think it's important to note that in 2002 we actually did not hit the volumetric target. We missed it slightly. In 2003, we were roughly 6 percent over target. So I don't agree with your characterization. 642 MR. ROWAN: Well, perhaps not. It all has to go to this concept of gaming that you folks have introduced. There are more ways to game the system than just on SSM. One of them is to -- so I'm told, so I've experienced, is to low-ball the volumetric target and to then inch your way up or be perceived to inch your way up, but in fact get a target that is easily achievable and the SSM incentive is very considerable for the company. 643 But may I address your attention to Exhibit A7, tab 1, schedule 1, page 8, and on that is table 3. It shows a historical DSM performance from 1995 to fiscal 2003. 644 MR. RYCKMAN: Yes. 645 MR. ROWAN: I wonder whether you would be prepared to update that table by adding the prefiled numbers from 2000 through to 2003 and perhaps even adding 2004, the information that is available, and providing a percentage change between your prefiled and the actual for each of those years? 646 MR. RYCKMAN: Yes, we could do that. 647 MR. SCHUCH: Mr. Chair, that would be Undertaking J.11.3. 648 MR. ROWAN: Thank you. 649 MR. BETTS: Can we have, in a short phrase, a description of that. 650 MR. ROWAN: It would be to update table 3 historical DSM performance for the years 2000 through to 2004 adding the prefiled volumetric target in each of those years and providing a percentage change between the prefiled volumetric target and the actual that was achieved in each of those years. 651 UNDERTAKING NO. J.11.3: TO UPDATE TABLE 3 HISTORICAL DSM PERFORMANCE FOR THE YEARS 2000 THROUGH TO 2004 ADDING THE PREFILED VOLUMETRIC TARGET IN EACH OF THOSE YEARS, PROVIDING A PERCENTAGE CHANGE BETWEEN THE PREFILED VOLUMETRIC TARGET AND THE ACTUAL THAT WAS ACHIEVED IN EACH OF THOSE YEARS 652 MR. RYCKMAN: I would just like to say on that, consideration would have to be given for the fact that during settlement the plan changes, so when we come forward with a plan, we may have objectives that are changed to reach settlement in some cases and that needs to be considered in the context of that as well. And an example of that is when you're driven towards short-term savings, if you will, you may abandon some things that we brought forward in the past, such as market transformation, new program development, those sorts of things. You may have to, you may be forced to abandon those sorts of activities to deliver short-term volumetric targets, so this is that pressure we've spoken on in the past. So I think it's important to keep that in context when looking at that type of exhibit. 653 MR. ROWAN: Well, we may or may not agree as to whether that's a relevant comment. But in any event, could I direct your attention to K.11.2, that was the monthly actual historical percentage volumes that Mr. Dingwall referred to this morning. 654 MR. RYCKMAN: Yes. 655 MR. ROWAN: Would you agree that the June-July-August periods are the lowest gas consumption months for the company, by and large? 656 MR. RYCKMAN: June, July and August? That's not my area of expertise in terms of aggregate, but I would expect it to be somewhat lower. 657 MR. ROWAN: In those months? Could you explain, then, why in terms of the volume percentages which are shown for the years 2000, 2001, 2002, 2003 for those months, that the claimed savings in those months ranged from 23 percent - this is an aggregate for those months - to 51 percent for the whole year? In other words, while the company sold less gas to customers during those months, it seemed the customers were tremendously interested in energy conservation during summer, the summertime, and that they were saving gas in a very remarkable way. What's this -- could you explain this inverse relationship between gas consumption and energy conservation that seems to be shown by the information that you provided to Mr. Dingwall. 658 MR. RYCKMAN: These are program performance results, so it's not -- it's not a history of gas consumption, so they're different things. 659 MR. ROWAN: Are you saying that people during the summer are more likely to engage in energy conservation than they are in those months where they are receiving significant gas bills, like October, November, and December? 660 MR. RYCKMAN: In some cases, that may be true. Once again, you have to look at the programs and the specifics of the program. If you look at the agricultural industry, for instance, the slowest times we've had, looking at 2003 as an example, is December and April which is typically the peak time of their industry. So I don't think you can just draw the conclusion that gas prices are lower so I don't consider it. I mean, if you think of a solar blanket for pool heating, although my overall consumption during the summer may be low, pool heating can be part of my overall energy bill and I may still want to engage in purchasing a solar blanket to help curb some of that. I don't think you can just draw a completely linear comparison. 661 MR. ROWAN: I certainly don't want to get into a discussion about solar blankets. But the number sold and the consumption -- the savings from consumption of solar blankets is not a high ticket item, is my understanding. But leave that as it may, if you give me -- if you take a look at September, you just referred to, it depends on the distribution of where those savings come from. September is a very high savings month. It -- in fact, on average it's 42 percent of total savings come in September. Could you tell me, for 2000, 2001, 2002, and 2003, where those savings came from in terms of residential, commercial and industrial? 662 MR. CASS: Excuse me, Mr. Chair, I hesitate to interrupt but I've been patiently waiting to see if there's a linkage between these questions and the change in year-end issue. If there is such a linkage, it's escaping me, and I don't know whether Mr. Rowan can help us with that or if we can get these questions back more on track in relation to something that this panel is dealing with. 663 MR. ROWAN: I'd be happy to respond to Mr. Cass. The relationship has to do with this SSM claim and the approach that the company is taking. It is, on the one hand, saying the target for the stub period is an aggressive target, claiming that it's an aggressive target, suggesting that only 15 percent of the savings come in the stub period of October, November and December, yet it is prepared to go with a volumetric target of 25 percent of the previous 12 months. That's where the linkage is, Mr. Cass. Does that satisfy ... 664 MR. BETTS: I'm correct in saying your focus is on how the company intends to handle the SSM in the stub period. 665 MR. ROWAN: And I only really have one final question area, and that is perhaps, Mr. Ryckman, you could explain how bullet 1 on page 3 of Exhibit A7, tab 1, schedule 1, how does that deal with the issue of gaming? 666 MR. RYCKMAN: Essentially that deals with the issue of gaming in that it tries to address any concern of migration of results from one period to another. 667 MR. ROWAN: So here the approach would be that the 15 months would be treated as a whole and that any savings that were achieved during that 15 months would be -- would be assessed on the aggregate of the 12 months plus three months, in other words, a 96.1 million cubic metre target. 668 MR. RYCKMAN: That's correct. 669 MR. ROWAN: Could you explain how bullet number 2 deals with gaming. 670 MR. RYCKMAN: Bullet number 2 basically falls -- well, it falls in line with the settlement agreement that we have for the 12-month period, so it is setting out a scenario where the company is eligible for the incentive within the 12-month period as per the agreement. If it does not achieve -- overachieve in the three-month period, it wouldn't be eligible for an incentive for that three-month period. 671 MR. ROWAN: But my question was: How does it deal with gaming? 672 MR. RYCKMAN: I'm not sure that -- well, I think the three scenarios work together. The intent was, you know, we've got two scenarios that address gaming or potential for gaming, in my opinion. The middle bullet point really reiterates what's in the settlement agreement. 673 MR. ROWAN: So basically what you're saying is even if you don't achieve the combined total, you want to have a fallback position to the 12-month total in terms of the potential for SSM -- an SSM incentive, and I suppose one could say if it doesn't look like you're going to achieve it in the -- achieve your target in the stub period, there is some potential for gaming by clawing back -- recording savings that could have been recorded in the October/November area in the September area. 674 MR. RYCKMAN: The company hasn't engaged in gaming and doesn't condone gaming so that is not a scenario that would play out. What this is is setting out the settlement agreement that we have and all participating parties, including CME, signed off on that agreement. 675 MR. ROWAN: We signed off on the 12 months. 676 MR. RYCKMAN: Yes, and that's what that bullet speaks to. 677 MR. ROWAN: What I would ask you: Why is the company not willing to sign off on a combined, 12 plus three month, in other words, total volumetric target of 96.1 cubic metres. 678 MR. RYCKMAN: We have viewed this from the beginning as two distinct periods and that has been the premise for the decisions we have made up until this point. And we have agreement on the 12-month period so they are separate periods. 679 MR. ROWAN: Those are my questions, Mr. Chairman. 680 MR. BETTS: Thank you, Mr. Rowan. 681 Before we take -- go on to questions from Board Staff, the Panel needs a short break, so allow us, perhaps, ten minutes. We'll resume here at ten minutes to one. 682 --- Recess taken at 12:40 p.m. 683 --- On resuming at 12:50 p.m. 684 MR. BETTS: Thank you, everybody. Please be seated. 685 We can resume now. I believe in that short break, I doubt there were any preliminary matters that arose, so we can proceed now with questions from Board Staff. 686 MS. LEA: Thank you, sir. Mr. Wightman has a few questions, but are we missing a witness? 687 MR. ROSS: We've just gone to find him outside. 688 MS. LEA: I'm sure the delay will be momentary. 689 MS. HARE: Sorry, Mr. Chairman. 690 MR. BETTS: Please proceed. 691 MR. WIGHTMAN: Thank you, Mr. Chair. 692 CROSS-EXAMINATION BY MR. WIGHTMAN: 693 MR. WIGHTMAN: Panel, and I don't know, whoever feels most comfortable, I've just got a few clarification questions regarding your proposal to index the stub period with, I believe, 90 percent of the increase in the CPI. Is it your understanding that the CPI is a measure of prices of final goods and services bought by some sort of typical household? Is that what it's supposed to represent? 694 MS. GIRIDHAR: Yes. 695 MR. WIGHTMAN: Thank you. Does it include imported goods and services, sporting goods made elsewhere, home entertainment stuff? 696 MS. GIRIDHAR: I am really not an expert on the basket that goes into the ... 697 MR. WIGHTMAN: Okay. Does it include food and energy prices? 698 MS. GIRIDHAR: I imagine it would. 699 MR. WIGHTMAN: Are you aware whether something called the core CPI, where they take the CPI but they remove the effects of food and energy, and have you given any thought as to whether the core CPI would be better than the CPI that's generally published? 700 MR. ROSS: Subject to check, I believe that the CPI that is included here is the one that excludes food and energy. 701 MR. WIGHTMAN: Okay. Can you let me know, some other measures of inflation, I believe, like the GDPPI, the gross domestic product price index, is often revised after it's published. Can you tell me if that's true for the CPI? 702 MR. ROSS: I believe it is published regularly and revised accordingly, according to new information, particularly the one that includes food and energy. 703 MS. HARE: Mr. Wightman, the CPI we intend to use is the same one that was used in 2004 and that was used throughout the period of targeted PBR. It's the Ontario CPI based on a consensus forecast. 704 MR. WIGHTMAN: Thank you. One last question about the CPI and then I've just got one other short line of questions. 705 Some of the other price indices, they've turned to a statistical method called chain-weighting, because to remove a bias in the measurement due to an assumption that the bundle never changes, do you know if they do this with the CPI that you're intending to use? 706 MS. HARE: We don't know, but we could take that as an undertaking and respond back in writing. 707 MS. LEA: Thank you. I think Mr. Wightman is seeking an undertaking on that. That will be J.11.4, please. Can we restate the undertaking then. As I understood it, it was to determine whether the CPI upon which the company proposes to base its indexing is chain-weighted. 708 UNDERTAKING NO. J.11.4: TO DETERMINE WHETHER THE CPI UPON WHICH IT PROPOSES TO BASE ITS INDEXING IS CHAIN-WEIGHTED 709 MR. WIGHTMAN: Okay. That's all on that line I have, panel. I'd just like to turn briefly to EGD's costs. 710 And if we could focus on the test year, delivery-related costs, that is, with the commodity and then with the upstream pipe removed, and so we could talk about the test year revenue requirement just delivery-related. I'm wondering if we could get a breakdown according to three categories, and the percentages and the amounts of your delivery-related test year requirement, and that would be the amount for capital, which I presume would include a grossed-up ROE, interest and depreciation, that sort of thing, and then presumably the other two would come out somehow to the O&M, but then labour, the percentage of your delivery-related revenue requirement that's for labour, and then the percentage for materials. 711 MS. LEA: I presume you'll need to do that by way of undertaking? 712 MS. GIRIDHAR: Yes. 713 MS. LEA: 11.5, then, breakdown of the revenue requirement. Thank you. 714 MS. GIRIDHAR: I just want to ask one clarifying question. It's a bit of detail, if you will. Are you asking this question from the perspective of what's recovered in respect of delivery charges or just the overall company operating costs? 715 MR. WIGHTMAN: No. You have a revenue requirement of -- well, somewhere -- this is with gas costs, it was somewhere around 3 billion, close to 3 billion, and about 1.9 of that was gas costs, and there's 8 or 900 million left somehow, and some of that, if I look at it is interest, some of it is the return on the 1 billion of equity, and that would need to be grossed up, some of it is to cover O&M and that would cover labour and materials. Out of that what's left, after you take the pass-through costs out, what portion of your costs relate to capital costs, what to labour, and what to materials? That's of the delivery-related parts. 716 MS. GIRIDHAR: Okay, thank you. 717 UNDERTAKING NO. J.11.5: TO PROVIDE A BREAKDOWN OF THE REVENUE REQUIREMENT 718 MR. WIGHTMAN: Just two quick questions. Is there any evidence to show that EGD's input price costs move one for one with the CPI that you're proposing to use? Is there any historical evidence that you've filed in respect of that? 719 MS. HARE: Not in this rate case, no. 720 MR. WIGHTMAN: And is there any evidence to show that the capital costs rise at the same rate as the CPI does year in, year out historically? 721 MS. HARE: Not in this case, no. 722 MR. WIGHTMAN: Thank you very much, panel. Those are my questions. 723 MR. BETTS: Mr. Cass, any questions in re-examination? 724 MR. CASS: Yes, thank you, Mr. Chair. 725 RE-EXAMINATION BY MR. CASS: 726 MR. CASS: I'm sure you will all recall that during Mr. Shepherd's cross-examination he used an analogy to a bank account. Could the panel please comment on how the bank account example compares to the company's business? 727 MR. ROSS: Well, the bank example compares relatively closely to the business in the sense that the business generates income or profits which, to the extent that they are collected from customers and are then paid to suppliers, generates a cash balance. In the example that Mr. Shepherd presented earlier, I believe it was Exhibit K.10.2 in which we analyzed -- we compared the bank account to the return that the business actually generated on a quarterly basis, we discussed the issue of, for example, being above the rate of return, and hence, generating cash that would be in the bank and that cash then would be used up in quarters 3 and 4, hence, being at zero at the end of the year. 728 Well, that example actually reflects the business to the sense that it is a continuing business and would continue, then, from quarter to quarter to quarter. And our position on that example and that analysis was that a change in year-end would not affect that bank account in any way. In other words, the money in that bank account would always exist irrespective of the period generated to analyze what income stream had been earned and whatever period had been accumulated to define whatever fiscal year the company actually had. 729 MR. CASS: During Mr. Thompson's cross-examination, a proposition that underpinned many of his questions was that the cost of equity in the stub period is one-quarter of the annual ROE. Could the panel please comment on that proposition. 730 MS. GIRIDHAR: We have an annual cost-of-service approach to rate-making which means we equate revenues and costs over a 12-month period. Because we don't do that test on a monthly or a quarterly basis but only design rates to recover it over the 12-month period, it means that the difference between revenues and costs is not equal to zero in every single month or every single quarter. What that then means is that the return on equity that is the outcome of the company's annual ROE and the rate-setting process varies by quarter, and I believe that's what the evidence of Mr. Culbert showed as well. So the concept that the cost of equity accrues on a monthly basis is really not the paradigm, if you will, for this company and the way it's regulated, because the outcome of the rate structure and the annual ROE mechanism doesn't lead us to that conclusion. We have varying ROEs over each quarter. 731 MR. CASS: Thank you. Can the panel please elaborate on the extent to which costs will or will not go down as a result of the proposed change in year-end. 732 MS. HARE: The O&M costs you're talking about, Mr. Cass? 733 MR. CASS: Well, Mr. Thompson, I think, was focused on cost incurrence and talking about costs generally and so it's relation to that line of questioning that I'm asking the panel to elaborate. 734 MS. HARE: Well, certainly our costs will not go down because of the change in year-end. In fact, what we're projected is an increase in costs over the last three months to account for the 17,000 customers that are projected to be increased in those three months. There are inflation, there are additional load -- there are a number of cost pressures, and that's why we expect costs to go up. There is certainly no indication of why they would go down. 735 MR. CASS: Thank you. 736 MR. GRUENDING: If I could add a point to that, one of the costs we talked about was the cost of equity, and if we were to confiscate earnings from the company for that period, in fact, I think the long-term costs of equity would rise recognizing that there was this anomalous confiscation. 737 MR. CASS: Thank you. Mr. Thompson also had some questions about dividend payments being paid from retained earnings. Can the panel comment on whether the dividend paying position of Enbridge Gas Distribution will or will not be affected by the change in year-end. 738 MR. ROSS: No. The change in year-end will have no effect on the ability of Enbridge Gas Distribution to distribute earnings, and in fact those dividends are paid out of the retained earnings at any given point in time. The fact that the year-end is three months later would not change that position as to what would be available for distribution. 739 MR. CASS: What about the converse? What about if the intervenor argument prevailed? Could you comment on how that would affect the dividend-paying position of Enbridge Gas Distribution. 740 MR. ROSS: Well, if the intervenor argument prevailed, yes, it would affect the ability of Enbridge Gas Distribution to pay dividends because the level of retained earnings would be reduced, there would be less to distribute, and as a result there would be less payable to shareholders and would have quite a significant effect on that ability to pay those dividends. 741 MR. CASS: All right. And that leads me into some questions that Mr. Dingwall asked during his cross-examination. He had some questions about increases in dividends paid at the Enbridge Inc. level. Can the panel comment on whether there's any connection between the year-end change and increased dividends at the Enbridge Inc. level? 742 MR. GRUENDING: Maybe I'll take that. There is no connection. The dividend increase at the Inc. level was made in early January reflecting an earnings base that is normalized to exclude the fifth quarter, if you like, in this sense. So there is no relation. 743 MR. CASS: Thank you. And there were questions about the inclusion of what we could loosely refer to as a fifth quarter in Enbridge Inc. results. Can you please explain, Mr. Gruending, the expected result of that in financial markets. 744 MR. GRUENDING: Again, just to -- yeah, to do that, the investment community values the equity in Enbridge Inc. on a variety of methods but mostly on a run rate expectational basis and therefore they typically normalize out, if you like, non-recurring items, one-time negatives, one-time positives that inflate reported earnings. So that's a well-practiced event and we expect that would be the case with this fifth quarter, as you put it. 745 MR. CASS: If we could just clarify your terminology, Mr. Gruending, you used the term "run rate." What does that mean? 746 MR. GRUENDING: Sorry to use jargon. Run rate is, I guess, another word for earnings power, what you could expect the following 12-month, or whatever measurement period you're using, to be with -- again, by taking out non-recurring items. 747 MR. CASS: Okay. And moving on to some questions asked by Ms. DeMarco, at the very beginning of her cross-examination, she described the company's approach to the stub period and if I got her words correctly, she described it as an indexed approach to ROE. Can the panel clarify whether that is the company's approach to the stub period. 748 MS. HARE: No, it's not. And if I agreed with Ms. DeMarco that that is indexed to ROE, I misheard what she said. It's indexed to the Ontario CPI for the three months. 749 MR. CASS: Thank you. And the only other area is I understand that the panel does the transcript corrections, and given that it looks like we may finish here before lunch, I wonder if the panel would be able to deal with the transcript corrections from yesterday's evidence. 750 MR. BETTS: Perhaps just to tidy up this portion, we'll just see if the Board Panel has any questions and then we'll move to that. 751 [The Board confers] 752 MR. BETTS: The Board Panel does not have any questions of this witness panel so please proceed with the clarification of the panel. 753 MR. CASS: I don't know which witness or which corrections, Mr. Chairman, again not having been communicated with the witnesses about their evidence. Perhaps we could just let them speak up and identify -- 754 MS. HARE: Yes. I think we all have some. I have three. The first is paragraph 88 -- 755 MR. BETTS: And are they all related to volume 10? 756 MS. HARE: Yes, they are all volume 10. 757 MR. BETTS: And paragraph. 758 MS. HARE: 88. 759 MR. BETTS: Thank you. 760 MS. HARE: The second to last line. It now reads: "Then it's not the company's decision to proceed to change its year-end," it should read "Then it's not the company's desire to proceed to change its year-end for rate-making purposes." 761 MR. BETTS: Thank you. 762 MS. HARE: The next is paragraph 763. The last line reads "notional deference taxes," it should be "notional deferred taxes." 763 And the last one that I have is paragraph 1130. It reads: "Now as it turned out, that threshold was not pure," it should be "That threshold was not pierced." 764 MR. BETTS: Thank you. 765 MR. CULBERT: I only have two corrections, Mr. Chair. 766 MR. BETTS: Go ahead. 767 MR. CULBERT: Paragraph 452, in the third sentence from the bottom states: "Would produce a certain revenue requirement deficiency/efficiency," "efficiency" should read "sufficiency." And the only other correction I have is on paragraph 576, almost in the middle of the page, my reply states. "Of course it doesn't. It's being reported here as "parliament" it should read "a part of" so "parliament" will be replaced with "a part." 768 MR. BETTS: Thank you. 769 MS. GIRIDHAR: I have two corrections as well, Mr. Chair. Paragraph 467, the fourth line reads: "Is that we are trying to substitute" it should say "is that you are trying to substitute." I have one more in paragraph 923. The first sentence reads: "If you make the assumption that any introduction in that deficiency," it should say "any reduction in that deficiency." 770 MR. BETTS: That was reduction? 771 MS. GIRIDHAR: Reduction. 772 MR. ROSS: Mr. Chair, I have two changes as well. On paragraph 107, and it's the second sentence and I'll start reading it: "You'll notice at line 6 we are depicting" as opposed to "expecting" the revenue. 773 Then on line -- paragraph 411, should read "Mr. Chairman, you are asking for rate inflation for one quarter" so substitute the word "inquiry" for "inflation." And at the very end of that paragraph, "and that actually would result -- would be about 3 percent", "that actually would be about 3 percent" as opposed to "naturally". 774 MR. BETTS: Thank you. 775 MR. GRUENDING: Mr. Chair, I have three as well. Line 594, instead of "15 quarters," it should read "15 months." 596, insert the word "not", "that is not correct." And finally -- 776 MR. BETTS: Sorry, Mr. Gruending, take me to that one again. 777 MR. GRUENDING: Sorry, line 596. 778 MR. BETTS: Sorry, the reference? Paragraph? 779 MR. GRUENDING: Paragraph 596. 780 MR. BETTS: 596, thank you. And it should read? 781 MR. GRUENDING: "Not correct." 782 MR. BETTS: Thank you. 783 MR. GRUENDING: Insert the word "not." 784 Finally, paragraph 1038, I think we've attributed the second and third sentences to myself, they probably should be to Mr. Thompson, if you read that. 785 MR. BETTS: So the sentences specifically that you feel are Mr. Thompson's are "what you're seeking ..." 786 MR. GRUENDING: I think his would begin, "and this is what I want to nail down ..." to the end of that paragraph. 787 Would you agree with that, Mr. Thompson? 788 MR. THOMPSON: I think so. It has that sort of snotty flair to it. 789 MR. BETTS: Mr. Thompson, you do agree with that change? 790 MR. THOMPSON: Yes, I do. 791 MR. BETTS: Even if they weren't your words, you don't mind them being attributed to you. Thank you very much. 792 MR. RYCKMAN: None for me at this time. 793 MR. BETTS: Thank you, Mr. Ryckman. 794 Then I believe that concludes the evidentiary portion of this proceeding and I'd certainly like to, on behalf of the Board Panel, thank the witness panel for their contribution to the proceeding. You have been very helpful on a difficult issue and we've appreciated your assistance, as I'm sure the intervenors have as well. 795 I think I'll save many of my thanks towards the end when we do arguments as well, but it would be appropriate, I think, to pass on my ongoing thanks to the court reporter who does a great job for us and still has some work to do as we receive oral arguments, which I've witnessed to be their biggest challenge as people kind of read quicker than they speak. And thanks to all of the participants, the intervenors, the company, the applicant, and certainly Board Staff for their support as well. We thank you all and it has been a very efficient proceeding at this point. 796 That brings us to the next item which is, in fact, the scheduling of the oral arguments. 797 PROCEDURAL MATTERS: 798 MR. BETTS: I have here, and I think I'll place it into the record in the form of a transcript to make certain everybody understands it, but it is my current understanding that we, the Board Panel, will be receiving arguments on the following schedule: 799 Mr. Shepherd on July 8th, starting at 1:30 p.m. Mr. Cass will provide his argument in-chief on July 9th at 9:30 a.m. Then on July 12th, starting at 11:00 a.m. will be Ms. Street, Mr. Klippenstein and Mr. Thompson. On July 13th, starting at 9:30 a.m., will be Mr. Dingwall, Mr. Janigan, Ms. Aitken and Ms. DeMarco, and then finally on August 3rd, starting at 9:30 a.m., we will receive the reply arguments from Mr. Cass on behalf of the company. 800 I should have noted in there on July 15th, there's an expectation that by the end of the business day, Mr. Warren and Mr. Poch will have filed their written arguments because they are unavailable to provide them orally. And I would ask any parties reading the transcripts, if they've either been omitted because they haven't spoken to Ms. Lea yet or if those schedules are a problem, to please contact Ms. Lea who will coordinate their arguments. 801 I also would just like to ask the applicant if they could review the status of undertakings and perhaps on Tuesday, I would expect you will be here, you could indicate to the Board what the status of those are. Any that are available should be filed by then. If they aren't available, perhaps you could project the date or time by which we will have received those. 802 MR. CASS: Yes, sir, we can do that. 803 MR. BETTS: Okay. I think that covers everything that the Board Panel has to provide in terms of housekeeping. Are there any items that any other parties would like to bring forward at this point? Then thank you very much. 804 We will adjourn now to reconvene on July 8th, at 1:30 p.m. Thank you all very much. 805 --- Whereupon the hearing was adjourned at 1:19 p.m.