Rep: OEB Doc: 1388X Rev: 0 ONTARIO ENERGY BOARD Volume: 16 14 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 Wednesday, 14 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 14 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 PATRICIA JACKSON Union Gas Limited JIM LAFORET 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 THOMAS ADAMS Energy Probe VALERIE YOUNG OAPPA, Casco, Maple Lodge Farms, Markham District Energy MURRAY ROSS TransCanada PipeLines 8 TABLE OF CONTENTS 9 SUBMISSIONS BY MS. DeMARCO: [22] PROCEDURAL MATTERS: [293] 10 EXHIBITS 11 EXHIBIT NO. K.16.1: DOCUMENT ENTITLED "BOOK OF MATERIALS, JULY 13, 2004, ELISABETH DEMARCO" [32] 12 UNDERTAKINGS 13 14 --- Upon commencing at 1:11 p.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good afternoon, everybody. We apologize for being late. The three of us were in attendance at a Board meeting and unfortunately, we were required to attend to that particular matter, and it did run a little bit late. My apologies for bringing you in at 1:00 and us not being here. 17 Before we begin hearing the oral arguments of Ms. DeMarco, are there any preliminary matters to be considered? 18 MR. SCHUCH: No, sir. 19 MR. BETTS: There being none, Ms. DeMarco, are you ready to proceed? 20 MS. DeMARCO: I am, Mr. Chair and Panel Members. 21 MR. BETTS: Please do so. 22 SUBMISSIONS BY MS. DeMARCO: 23 MS. DeMARCO: Thank you very much. 24 Today I'll be making final argument on behalf of the Coalition for Efficient Energy Distribution, and very brief financial comments on behalf of Ontario Energy Savings Corporation and Superior Energy Management, together, and secondly, TransAlta Energy Corporation. And unless the Board has any preference, I propose to first proceed with the very brief final comments on behalf of OESC and SEM, and TransAlta, and then proceed to the final argument on behalf of CEED, which is a bit more lengthy. 25 MR. BETTS: That's fine. 26 MR. SCHUCH: I wonder, Mr. Chair, if Ms. DeMarco wants to introduce her exhibit at this point or perhaps wait until later? 27 MS. DeMARCO: We can introduce it at this point. It is on behalf of CEED that that exhibit is entered, so... 28 MR. BETTS: Do we have that? 29 MR. SCHUCH: Yes. Yes, you would have a copy of that. It's already been marked as Exhibit K.16.1. 30 MR. BETTS: Okay. Thank you. 31 MR. SCHUCH: And that is entitled: "Book of Materials, July 13, 2004, Elisabeth DeMarco." 32 EXHIBIT NO. K.16.1: DOCUMENT ENTITLED "BOOK OF MATERIALS, JULY 13, 2004, ELISABETH DEMARCO" 33 MS. DeMARCO: I just need to make a few apologizes in relation to that. We had a few photocopying challenges so you do see a few of the materials inserted manually and not part of the binding. A few. My apologies for the inconvenience. 34 MR. BETTS: Did you indicate, Ms. DeMarco, that this is related to one of your particular clients rather than all three? 35 MS. DeMARCO: It is. It's in relation to CEED, which is the last of the three. 36 MR. BETTS: Thank you. 37 MS. DeMARCO: So, then, if I could start with final comments on behalf of Ontario Energy Savings Corporation and Superior Energy Management. Both OESC and Superior were active participants on two main issues of this proceeding, the first being issue 5.4, which pertains to the system gas and direct purchase gas costing studies that are included in the settlement agreement, and secondly, Issue 5.5, which pertains to the role of utility in system gas and was the subject of a motion by OESC and Superior that was decided by the Board on May the 27th, 2004. 38 In accordance with the Board's ruling on the motion on issue 5.5, the issue actually remained on the issues list to allow the company and intervenors to address any issues that may arise if any of EGD's business discussions on long-term supply arrangements became ripe during the course of the hearing. No such discussions or developments occurred. And as a result, no further discussion of Issue 5.5 occurred. And the parties were guided by the Board's ruling on the motion. 39 As a result, OESC and Superior continue to rely on the Board's decision on the motion to govern the conduct of the company in the period prior to and during the Board's subsequent consideration of the role of the utility in system gas in another forum. 40 In addition, OESC and Superior respectfully request that the Board award both OESC and SEM their costs associated with the motion on four main grounds: 41 The first being that OESC and Superior argued for the exclusion of issue 5.5 from the issues list on Issues Day, and the company opposed such exclusion on the grounds that imminent long-term supply contracts required the Board's direction. No such contracts came to the attention of the Board. 42 Secondly, we're seeking costs on the grounds that the company failed to produce any details or evidence of such contracts prior to the settlement negotiations, and thereby necessitated OESC and Superior bringing the motion. 43 Thirdly, on the eve before the motion, after all supporting materials, including affidavits of representatives of OESC and Superior, had been prepared, served and filed, the company withdrew its evidence and thereby required Ontario Energy Savings Corporation and Superior to expend additional resources to prepare to argue, essentially, an entirely different motion the next morning. 44 And last, we're seeking costs on the grounds that OESC and Superior are intervenors that do not receive intervenor funding, and therefore, were required to invest considerable resources as a result of the procedural challenges and changes presented by the company in relation to this issue. 45 And on the basis of the foregoing, OESC and Superior respectfully request that the Board award them all of their reasonably incurred costs pertaining to the motion on issue 5.5. 46 And that concludes my submissions on behalf of OESC and Superior. 47 MR. BETTS: Thank you. Questions? 48 [The Board confers] 49 MR. BETTS: The Board will consider that position. Thank you very much, Ms. DeMarco. 50 MS. DeMARCO: Thank you. And I should just ask, by way of the Board's preference, whether you prefer to ask questions throughout? It certainly would be my preference to have you interject at any point in time during any of the arguments that are ongoing, and engage in a dialogue at that point in time, if you need any clarification or have any questions. 51 MR. BETTS: Thank you. I think that would be best from our point of view as well, if that's okay with you. 52 MS. DeMARCO: Thank you, Mr. Chair. 53 So then let's move on to my second round of submissions which are in relation to TransAlta Energy Corporation, who I will refer to simply as TransAlta. 54 TransAlta owns and operates two gas-fired co-generation plants that are served by Enbridge Gas Distribution and produce electricity that is sold into the Ontario electricity grid. 55 TransAlta was an active participant in this proceeding on all issues pertaining to the company's proposed changes to the allocation of upstream transportation costs. And the evidence supports that TransAlta is the customer with the largest rate impact resulting from the agreed-upon changes in the settlement agreement, and it will ultimately face an increase in rates of nearly $3 million per year. 56 The only outstanding issue pertaining to these changes is the impact of the Board's decision on the issue of the company's proposed or contemplated change in year-end. While TransAlta takes no position on the year-end proposal itself, the company's proposed treatment of the phase-in in the context of the year-end change appears to be inconsistent with the uniform rate-making principles and is likely to add complexity and confusion to rates by having, effectively, different fiscal year-ends, one for the purpose of the actual fiscal year-end, another for the purpose of the phase-in, and possibly more than one in relation to other issues. 57 However, given the considerable rate impacts that TransAlta is facing, should the Board ultimately grant the company's intention -- or the company's request to move to a December 31st year-end, TransAlta welcomes an additional three-month period to phase-in those costs but, as a result, would respectfully request that the Board implement consistency in those changes. 58 Specifically, TransAlta would request that, should the Board decide to change the year-end or allow the change in year-end, all changes in year-end should be dealt with in a manner consistent with the Board's treatment of the phase-in, whether it's granted or not, and the timing itself. 59 And that would conclude my submissions on behalf of TransAlta. 60 MR. SOMMERVILLE: Ms. DeMarco, one of the intervenors remarked, with respect to the settlement agreement on this subject. Does that play any role in the position of TransAlta on this subject? 61 MS. DeMARCO: Certainly TransAlta agreed to and supports the settlement on this issue. It does not, however, address any impacts of phase-in. It merely addresses year 1 rate changes, year 2, year 3, and year 4 rate changes through the exhibit associated with that -- I believe it's Exhibit B, and I apologize, I don't have it with me to give you the precise reference. 62 MR. SOMMERVILLE: Thank you. 63 MS. DeMARCO: And it's my understanding that, based on the company's proposal, one of years 1 or years 2 of that phase-in could be 15 months long as opposed to 12 months long. And there is -- the company's proposal, as I understand it, is to somehow shift that extra three-month period to possibly year 3 or year 4 of the phase-in. 64 Certainly TransAlta respects the Board's full discretion in relation to the decision on the year-end proposal, and understands that there are very difficult issues on both sides of that issue. And so, without wading into the specific context and substance of the year-end discussion, TransAlta asks only that the treatment of the phase-in be consistent with the Board's decision on the phase-in. 65 MS. NOWINA: Well, just to make sure I'm absolutely clear. So, for example, if the Board were to decide to allow the change in fiscal year-end, and that the fiscal year-end becomes December, then you would expect the phase-in to be over the -- that January to December calendar year for each of the four years; is that correct. 66 MS. DeMARCO: I understand that there are two proposals on the table. One -- or two possibilities for effecting that change. One would be to commence the phase-in October 1st and finish year 1 December 31st, effectively making it a 15-month for first year; or to have year 1 start January 1st and every year after run from January 1st to December 31st. 67 MS. NOWINA: And which of those are you... 68 MS. DeMARCO: Either are fine. 69 MS. NOWINA: Either are fine. 70 MS. DeMARCO: It's just -- the distinction between a three-month period being added or a fiscal year being October to October for phase-in purposes, yet January to December for rate-making purposes presents a host of challenges that TransAlta would hope to avoid. 71 That being said, I should again clarify that we were very respectful of the very difficult issues associated with the phase-in. 72 MS. NOWINA: Thank you. 73 MS. DeMARCO: Sorry, not with the phase-in, with the year-end proposal. 74 MR. BETTS: We have no further questions on that. And, Ms. DeMarco, I'm going to have to get you to either -- your voice fades a little at the end of your sentences, occasionally, so you'll have to get a little closer to the mic for us. 75 MS. DeMARCO: I'll do my best. Is that a little bit better? 76 So that would take us to my final series of submissions, which are on behalf of the Coalition for Efficient Energy Distribution, or CEED. And just a bit about the coalition first. 77 CEED is a coalition of wholesale gas marketers consisting of EnCana Corporation, Cargo Power in Gas Markets, and Coral Energy Canada Inc. 78 In this hearing, like many of the past hearings that CEED has participated in, of the 61 issues before the Board, CEED has focussed its efforts on two issues that are integral to encouraging efficiency in the distribution of gas and facilitating competition in the sale of gas to users. 79 And, in particular, CEED has focussed its attention on the fundamental shift in natural gas policy that would result from the company's proposal in issue 4.2; namely, the company's proposal to have EGS sell natural gas commodity in the utility's name as part of transactional services, and to deduct EGS's credit costs prior to revenue-sharing. 80 In summary, CEED is strongly opposed to the utility's participation in the competitive natural gas commodity market, either directly or indirectly, through EGS. And CEED submits that efficiency and transparency in transactional services should be achieved through a clean separation of the utility and competitive functions. And to this end CEED respectfully requests the following relief of the Board: 81 First, CEED requests that the Board issue an order prohibiting EGD, and EGS on EGD's behalf, from entering into bundled or other commodity transactions to sell gas in the competitive market, unless and until the Board has expressly authorized such conduct after a full and fair consideration of the many issues and implications associated with the utility marketing and selling gas in the competitive market. 82 Secondly, CEED requests that the Board enforce its RP-2001-0032 and RP-2002-0133 decisions and prohibit EGD and its affiliates from using the information they require in providing utility services from being used to market or sell gas, or for any other purpose other than utility services. 83 Thirdly, CEED requests that the Board order Enbridge Gas Distribution to amend the EGS and EOS agreements to, first, comply with the 2002-0133 decision as it pertains to information-sharing; second, prohibit EGS and EOS from using the information acquired in the provision of utility services for any purpose other than utility services; and, third, prohibit EGD from contracting out utility services to a third party that provides competitive gas or electricity sales or services. 84 This relief is requested on five main grounds, which will form the five main parts of this final argument. 85 The first ground is that EGS and/or EGD are not authorized to enter into commodity transactions as part of or in conjunction with the transactional services that have been reviewed and approved by the Board and included in the EGD/EGS agency agreement. 86 Second, the company has not proven that the sale of commodity is necessary to optimize the value of transactional service assets in accordance with the Board's approval of transactional service activities. 87 Third, that the sale of commodity by EGD, or EGS on behalf of EGD, is detrimental to competition in the Ontario natural gas market by decreasing transparency in the market and affording the utility or its affiliates with information and opportunities that are not available to other market participants. 88 Fourth, the company has not discharged its burden to prove that the information or opportunities provided to the affiliate are not to the detriment of the competitive market. 89 And finally, the company's process and procedure to allow its affiliate to sell and market gas commodity with transactional service, in the absence of express Board authorization, disregards the Board's jurisdiction over such matters and is beyond the scope of the Board-approved outsourcing arrangements, and constitutes conduct that should be neither sanctioned nor encouraged by the Board. 90 So, moving on to my first main submission, and that is that EGS and/or EGD are not authorized to enter into commodity transactions in conjunction with transactional services. 91 First, CEED submits that EGS, nor EGD, are authorized to sell commodity either as part of or in conjunction with transactional services, and such sales are contrary to the Board's order in EB-492 and all subsequent decisions authorizing transactional services. It's interesting to actually do a bit of a memory lane trip through the Board's decisions on this issue. So, as part of the book of materials, in tabs 1 through 6, I provided the Board with both its rulings on transactional services since its first approval in 492 and settlement agreements pertaining to transactional services leading up to the instant case. 92 In EB-492, the Board first considered whether the company should be permitted to provide a defined list of transactional services, including only gas loans, off-peak storage, released storage, exchanges, and assignments. And by way of reference, that's found under tab 1 at paragraph 3.3.1 of the materials. 93 Specifically, the Board's approval was expressly limited to the use and optimization -- and I will make a bit of an issue over the term "optimization" versus "maximization." So the Board's approval was limited to the use and optimization of -- and again I emphasize -- existing facilities. And the company is thereby precluded from undertaking the purchase and sale of commodity as part of the approved transactional services by the Board. 94 Specifically, at paragraph 3.3.27 of the Board's approval which, again, is found under tab 1, the Board indicated in its decision that: 95 "The Board has examined the company's proposals to offer transactional services with the clear understanding that these proposals relate to the utilization of existing facilities. 96 "While persuaded that it is reasonable to utilize these facilities, to the extent that they are not required to serve the infranchise customers, the Board is concerned that market-based contracts may be entered into for periods of time which might result in making storage, for example, unavailable to serve future infranchise needs, resulting in an unacceptable increase in gas costs to the system customers. The Board believes it is important to avoid such an outcome." 97 So this confirms that the Board's first approval of transactional services was limited to a defined set of transactional services, specifically, peak and off-peak storage, gas loans, exchanges, transportation assignments, and now load-balancing. And that has not changed since the Board's first approval of transactional services to include commodity sales. It has never included commodity sales. 98 Further, it's noteworthy that in approving and allowing transactional services, the Board's objective was to optimize the use of the company's unused physical storage assets and contractual transportation assets, and not to maximize the revenue from the sale of such excess assets. The evidence provided by Mr. Brennan supports that there is a noteworthy difference and distinction between these two objectives. 99 Specifically, if you can turn to, I believe it's at tab 7 of my materials, at paragraph 70 -- sorry, at line 70, Mr. Brennan was asked: 100 "Would you agree that optimizing the use of the assets is not the same as maximizing the revenue from such assets?" 101 Mr. Brennan concurs: 102 "Yes. There's probably a subtle difference there." 103 And then he was asked: 104 "Given this mandate, it's safe to say that the transactional service department was not involved in the purchase and sale of commodity?" 105 He indicates that's correct. 106 Secondly, in first approving transactional services, the Board was particularly concerned with ensuring that there was no negative impact on the competitive market and looked particularly to the impact on gas costs and ratepayers. And apologies for making you do a bit of a travel through the materials, but again, back to tab 1, at paragraph 3.28 now. Just to paraphrase: 107 The Board approved the offering of transactional services, but required the structure of the contracts of transactional services to ensure that the use of utility assets did not result in increased gas costs, and required the company to provide, in its next filing, a report on the progress in marketing transactional services and provide sufficient details concerning demand and supply balances for the Board to be satisfied that the ratepayer is being kept harmless from potential increased gas costs and, in addition, that the degree of competition in storage markets was relatively unaffected. 108 So certainly the Board was concerned with the impact on competition in first approving those transactional services. 109 As a result, CEED submits that the Board's approval of transactional services was based on ratepayer and competitiveness impact analysis that no longer holds true, if the company or its affiliate is also selling commodity with transactional services; and, therefore, any such business development, new business opportunity or implementation, needs to go through full and fair consideration and re-examination by the Board before the company can be approved to undertake any such functions. 110 So, that first submission was in relation to authority from the Board. The second issue pertaining to the company's authority to provide commodity sales is in relation to the authority provided by the agreement itself. 111 Mr. Brennan has also confirmed that the company has no authority to directly or indirectly sell commodity as a transactional service, but they have been doing so since November 2002, and have had no disclosure that this was going on until at least one year later. 112 The specific EGD/EGS agreement indicates that -- CEED submits, indicates that EGS is not authorized to sell commodity as part of or in conjunction with transactional services. First, specifically, in the definitions under the agreement and the obligations of EGS, it is authorized to provide the same defined list of transactional services, namely, assignments, exchanges, load-balancing, loans, off-peak and peak storage. 113 In fact, the actual definition of transactional services is limited to these six definitions. As a result, the definition itself precludes the sale of commodity as part of the function. 114 Secondly, each of the six defined services themselves expressly refer to EGS moving other people's gas, not selling its own gas. And this is borne out in the transcript at tab 7, starting at line 267. 115 Thirdly, section 5 of the agreement, which is included at tab 13 of the materials, expressly refers to Enbridge's ability to enter into activities for related business dealings. And it is really noteworthy to look at what Enbridge Gas Services is authorized to do, and how it is authorized to do so. 116 Specifically, a review of section 5A and 5B indicate that EGS is authorized to act in only two capacities for transactional services in particular. First, EGS is authorized to act as agent for EGD in transactional services; and second, EGS is authorized to act as principal in the natural gas market for its own account. Nowhere in the agreement does it refer or authorize EGS to act as principal on account of the company. 117 The company's evidence in this case to date is that EGS has been, in fact, selling commodity in a third capacity that was not authorized by the agreement, and that third capacity is the capacity that I've just referred to. Specifically, EGS has been entering into commodity sales as principal but for EGD's account, and this appears to be clearly prohibited by the wording of section 5(b) of the agreement, which indicates that: 118 "The service provider acknowledges that when it engages in the business of gas acquisitions, gas sales, gas supply management, and gas storage, the service provider is not acting in the capacity of agent of the service recipient, and accordingly the service recipient is not liable for the acts of the service provider or its employees in this regard. The service provider will disclose to third parties the fact that it is acting as agent for the service recipient when providing the services." 119 And I'll come back to that point. 120 So, it's our submission, then, that the agreement itself doesn't authorize the company to enter into commodity sales and therefore they should not be entering into commodity sales, either directly or on behalf of -- sorry, EGD should not be entering into commodity sales, either directly or indirectly, through EGS. 121 It's interesting to note that the timing of the transfer of the outsourced functions to EGD and the company's implementation of the commodity sales plan was, in fact, conducive to clarification in the assignment and novation agreement that you have before you. 122 Specifically, the company's evidence was that it started selling commodity in November 2002. They started contemplating the plan and implementing it two months earlier, in September 2002. And you'll see by the date on the front of the assignment and novation agreement that it was entered into on October 1st, 2002. 123 So it's CEED's submission that if the company truly wanted to authorize its affiliate to enter into commodity sales on its behalf or on account of EGD, it could have done so, clearly, in express language in the assignment and novation agreement. There is no such express language in that agreement authorizing it to do so. 124 It's also noteworthy that the IGUA panel went as far as to say that EGD and EGS should not be authorized to sell commodity, either directly or indirectly. And I'll refer you to tab 9 of our materials, specifically at line 1025. Mr. Fournier was asked by Mr. Cass about the risk associated with commodity deals, and he asked specifically: 125 "Would I take it that you would agree that if the risk of these commodity deals could be addressed in the utility with insurance or some other protection, that you would not have this concern?" 126 And Mr. Fournier responds: 127 "That's a hypothetical. I still hold to my principle that I don't think that the regulated utility should be in the gas trading game. The fact that there may be some revenues credited against the cost-of-service because they're doing this activity doesn't all of a sudden make it, in my eyes, an acceptable activity." 128 So it's CEED's submissions that even though a large industrial user representing most of the large industrial users of gas might benefit from some of the additional ratepayer revenues that the company has indicated will flow from their current practice, they are indicating that it is not, in principle, supported and should not be authorized by the Board. CEED agrees. 129 I'll then move on to my second main submission, and that is that the evidence does not support the conclusion that the sale of commodity is necessary to optimize the value of the transactional services assets, and, in fact, shows that the revenue from the sale of only TS assets was growing considerably even in a challenged market. 130 First, the company's evidence as set out in lines 145-147 of tab 7, and in Exhibit K.5.1, which is just inserted into the back of your materials, indicates that the company's actual gross margin from the sale of only TS assets, without commodity, was increasing almost exponentially. 131 Specifically, the evidence indicates that TS-only gross margins grew from 5.7 million in 1998 to 14.1 million in 2001. This is nearly a threefold increase in revenues in only three years. CEED submits that by even the most conservative standards, this constitutes very significant growth in the company's transactional services revenues, without commodity, and Mr. Brennan conceded that TS was an increasing revenue business during this period. And the reference for that is tab 7 at lines 168 through 173. 132 MS. NOWINA: Before you go on, Ms. DeMarco, I want to make sure I've got the references correct there. So there's -- the reference you just gave us in the transcript, and the other reference to... 133 MS. DeMARCO: Exhibit K.5.1, and it should be inserted in your materials at the very back, after tab 18. 134 MS. NOWINA: Okay. And where in K.5.1? 135 MS. DeMARCO: Sorry, it's at page 4 of 8. 136 MS. NOWINA: The table at the bottom? 137 MS. DeMARCO: Let me just -- Yes. 138 And some of those figures were updated for actual numbers by Mr. Brennan on cross-examination, and that was at tab 7, lines -- commencing at lines 145, going through to 173. 139 MS. NOWINA: Thank you. 140 MS. DeMARCO: Mr. Brennan's evidence also indicates that even in 2002, when the market corrected, the company's gross transactional services-only margin was still $9.36 million. And CEED submits that this still constitutes a nearly twofold increase in transactional services revenue in only four years of TS operations. This is, in CEED's submission, a very significant and thriving business. 141 Nonetheless, in 2002, the company took steps in the context of the 2003 rates case to increase the company's share of transactional services revenues relative to the ratepayers' share. 142 Specifically, in the 2002-0133 settlement agreement, which is included at tab 6 of the materials, it shows that the utility took successful steps to increase the shareholder's revenues by both decreasing the guaranteed transactional services target, and increasing the shareholder's portion of the revenue from sharing from approximately 10 percent to 25 percent. 143 It's in this profitable context that it is also noteworthy that in each forecasted year, actual TS margins far exceeded the target, and thereby triggered greater shareholder dividends. Starting at tab 7, line 147, Mr. Brennan went through the numbers and indicated that in 1999 the forecast was 3.5 million, the actual gross margin was 6.9 million. In 2000, the forecast was 4.5 million, the actual gross margin was 9.9 million. In 2001, the forecast was 10.7 million, the actual was 14.11 million. And even in 2002, the actual margin of 9.36 million was greater than the forecast amount, and afforded the shareholder approximately 14 percent of the net revenue. And again, that can be found at tab 7, lines 138-172. 144 As a result, CEED submits that the evidence does not support the contention that transactional services revenue changes necessitated the sale of commodity, and such sales should not be authorized. 145 In further support of its unauthorized sale of gas, EGD or EGS contend that there were not sufficient investment-grade counter parties in a shrinking transactional services market to support asset optimization. CEED submits that that might be true if the objective was revenue maximization, but certainly we are talking about asset optimization here, not maximizing revenue. 146 In contrast to the company's proposition, the panel's evidence on cross-examination was that EGS has 17 approved creditworthy transactional services counterparties with credit ratings of at least triple B minus for physical transactions and credit ratings of A for financial transactions, which many of these transactions would fall into. And the reference for that is tab 7, lines 417-445. 147 Further, on cross-examination, Mr. Brennan confirmed prior evidence that in 2002 the company's view was that the number of creditworthy counterparties was increasing, and not decreasing, as indicated in the company's prefiled evidence. And both the prior evidence, by way of interrogatory from CEED, is included in the book of materials at tab 17, and Mr. Brennan's view is included at tab 7, at line 431. 148 Moreover, a number of other witnesses confirmed that transactional services markets were liquid enough and are liquid enough to get an assessment of fair value, and that the commodity could be purchased from any number of parties. Those references are tab 7, lines 501-509, and Mr. Fournier's evidence, which is at tab 9, lines 833-834. 149 Thirdly, on this second main part of the argument, it's CEED's submission that there is no evidence to prove that the ratepayer revenues reported as "commodity" - and I would like the term commodity reflected in quotation marks there - there is no evidence to prove that the ratepayer revenues reported as commodity will be foregone. And this has been the submission of a number of intervenors, including Schools, who appear to be afraid that they will lose the benefit of additional revenues that have been generated from the sale of bundled commodity. 150 It's with respect, Mr. Chair, that CEED submits that this is nothing other than a shell game, an attempt to inflate the benefits and value of commodity sales at the expense of the value of pure transactional services sales. The evidence on the record clearly indicates that, first, all margin amounts recorded and reported to the Board as on account of commodity is actually commodity plus transactional services, not just commodity. And that's tab 7, line 718-733. 151 Second, Mr. Jarvis expressly indicated that there is no mechanism to break out the value of the commodity portion in their accounting of the deal and the transactional services of the deal. Mr. Brennan confirmed that EGS is the only party providing transactional services to optimize EGD's assets. Mr. Fournier indicated that hundreds of parties offer gas commodity. 152 As a result, CEED submits that it is the transactional services portion of the deal that is, in fact, the scarce resource, it is not the commodity that's the scarce resources. And the true value of the bundled transaction should be enhanced by allowing parties to compete for the use of that transactional services asset, that scarce resource. 153 At the very least, CEED submits, there was no credible evidence to support the contention that the revenue from the TS portion of the bundled transaction will disappear if another competitive market participant supplies the commodity portion of the deal. 154 MR. SOMMERVILLE: Ms. DeMarco, how would that happen? What is the mechanism for that to occur within the marketplace? 155 MS. DeMARCO: We asked Mr. Jarvis a number of questions, Mr. Sommerville, as to how they proceed now. And it appears as though they solicit input or ability to provide the commodity portion or to uptake the transactional services through a series of phone calls. I would submit that that could happen through a number of mechanisms: Web posting, an exchange board, something to that effect, to allow parties to uptake the commodity portion of the transactional service deal. 156 MR. SOMMERVILLE: You're suggesting a tendering once the S&T assets have been declared surplus, that there were then be a tendering process? Is that what you're suggesting? 157 MS. DeMARCO: I'm cautious here not to provide evidence on how this might work, but, really, this is one of the critical issues that should be looked at. Only that there is a commodity market there that is liquid and able to work in co-ordination with the transactional services assets. And one of my latter submissions is that other market participants are being deprived of that opportunity. 158 MR. SOMMERVILLE: So you're going to come to that at some point in your submissions today? 159 MS. DeMARCO: In fairness, I won't get into the practicality of how it could be done, but we'll be submitting on behalf of CEED that certainly the commodity portion has, in the past, since prior to 2002, been done by other parties, and certainly could in the future be done by other parties. 160 MR. SOMMERVILLE: Thank you. 161 MS. DeMARCO: So, in conclusion on this second main part of our submissions, CEED submits that the evidence does not support the necessity of bundled commodity transactions as part of transactional services, and on the contrary, shows that the value of transactional services assets is optimized by pure transactional services sales. 162 Moving on, then, to our third main submission, which is that the sale of the commodity by Enbridge Gas Distribution and/or Enbridge Gas Services on behalf of Enbridge Gas Distribution, or on account of Enbridge Gas Distribution, is detrimental to competition in the Ontario natural gas market by decreasing transparency and affording the utility and its affiliates with information and opportunities not available to other market participants. 163 Our first submission here is that market confusion is caused by bundled commodity transactions being undertaken either directly or indirectly by the utility. Specifically, there is confusion regarding the legal relationship of the parties to the transaction, the title transfer, and the pricing components of the transaction. And as a result, such a practice is detrimental to the operation of a clear and transparent natural gas market. 164 First, on the issue of title and legal relationships, a very significant proportion of the hearing time was spent, and I'm guilty for spending that time, on trying to figure out and decipher who is selling what, in what capacity, and on account of whom. And the record includes conflicting evidence in that regard. 165 Specifically, initially, on cross-examination by Ms. Aitken, we were led to believe that they were acting as principal strictly. Secondly -- and the reference there is at tabs 8, lines 142 through 181. Just in the interests of efficiency, I have not taken the Board through each and every one of these transcript references. Do stop me if you would like me to run through. 166 Secondly, in response to cross-examine on behalf of CEED, the company indicated that, in fact, some transactions were being undertaken by EGS as principal; others were being undertaken -- on its own account; others were being undertaken by EGS as principal on account of EGD. There was considerable confusion in Ms. Aitken's cross-examination of Mr. Brennan as to who the title transferred to and from. And that, again, is included in those transcript references. It's tab 8, 142 to 181. 167 In an attempt to wade our way through much of this fog and confusion, CEED requested the transaction documents to try and gain some clarity, specifically on who is selling what, in what capacity, and on account of whom. And if I might take you to the transactional -- transaction documents, which are provided in the book of materials under Undertaking J.5.3, which is at tab 15 of our book of materials. I just want to note that there should be an insert of the two confirmation pages at that tab. If not, I've got extra copies. 168 We're not afforded much clarity here. Specifically, the group of transactional documents provide no clarification on EGS's different roles in relation to the transactional services portion of the sale versus in relation to the commodity of the sale. Nowhere, either in the confirmation or in the actual contract that supports the confirmation do we see EGS identified as principal to the transaction for the commodity portion and agent of EGD for the transactional services portion. 169 In fact, contrary to the actual outsourcing agreement, agency agreement, we do not see Enbridge Gas Services here identified as agent of EGD. And that's specifically when it's selling gas on the second confirmation, it just lists Enbridge Gas Services Inc., it does not list Enbridge Gas Services Inc. as agent of EGD. 170 So there's no indication of the EGD agency relationship. There is, therefore, no signal to the purchasers of the different -- to the purchasers of either the bundled commodity or the transactional services of the different legal rights conferred by an agent versus a principal. 171 In addition, it's very difficult to understand the separation, or no clarity's provided on the separation of the commodity or the asset in relation to the two aspects of the bundled transaction. It merely looks at though we've got some commodity being transferred, involving some transportation, but the actual specific transportation -- transactional service asset that's being used isn't clearly identified. 172 MS. NOWINA: Ms. DeMarco, without asking you to be an expert on Enbridge's contracts, is EGD mentioned in these documents anywhere, to your knowledge? 173 MS. DeMARCO: Not to my knowledge, and that is the point we'd like you to get from this. 174 And that is quite relevant, Panel Members, to the issue of title. Again, we do not see in these confirmations in these transaction documents identification of the titleholder to the assets, and from whom that title is being transferred. Specifically, we don't see clear indication that title is being transferred from EGD and not EGS. 175 As a result, CEED submits that this results in considerable market confusion regarding the legal relationships, rights, and title transfer that result from the sale of bundled commodity transactions. 176 In addition, CEED submits that considerable price confusion is caused by bundled commodity transactions. And again, referring to Exhibit J.5.3, the price for the transactional service and the price for the commodity is not broken out. 177 Often, it's difficult to determine whether or not one of the two elements of the sale even appears on the documents. Currently it does not appear as though the actual transactional service element is appearing on some of the bundled commodity sales. And the evidence on cross-examination confirms that it may not. Specifically, Mr. Whelen indicates that, in bundled transactions done by EGS, there is no way to differentiate the price of the commodity from the price of the transactional services. And the reference for that is tab 7 at line 720. 178 It's CEED's submission that this has a very serious market implication. It constitutes a move away from price transparency in relation to those transactional services, and toward what I'll call "price-muddying," a muddying of transactional services values and price with commodity values and price. And I understand that Ms. Aitken referred to this in the context of her final argument yesterday. 179 As a result of this price muddying, CEED submits that the lack of transparency might be very relevant in the future if the company ever decides to move storage or transmission assets out of the utility and/or has to establish the value of those assets. 180 In conclusion on this point, CEED therefore submits that both market confusion caused by uncertain title and legal relationships, and price muddying, are detrimental to the competitive market. 181 Thirdly, CEED submits that EGS is provided with market-sensitive and system information that other market participants are not provided with. There was a considerable amount of cross-examination devoted to this subject, specifically, Mr. Brennan, at lines 769 to 828 confirmed that EGS is provided with a very significant amount of market and system information, aggregate or otherwise, that other -- 182 MR. SOMMERVILLE: Sorry, Ms. DeMarco, what was your reference for that, please? 183 MS. DeMARCO: That's tab 7, lines 769 to 828. 184 MR. SOMMERVILLE: Thank you. 185 MS. DeMARCO: And just by way of background, Mr. Sommerville, that's the series of questions regarding the system information provided in the form of a series of reports from either Enbridge Gas Distribution or its affiliate Enbridge operational services directly to Enbridge Gas Services. That information, aggregate or otherwise, is not provided to other market participants. 186 Secondly, on cross-examination, Ms. Aitken confirmed that the confidentiality provisions in the agency agreement do not prohibit EGS from the use of that information and provide EGS with certain discretion and opportunity to use that information. And the reference for that is Ms. Aitken's cross-examination located at tab 8, lines 258-272. 187 By way of background, this issue has been an integral issue to CEED for a number of hearings before this Board, specifically, in RP-2000-0032, there was concern about information-sharing that the Board addressed. And again, in 2002-0133, CEED made several submissions that were contemplated and acted upon by the Board. 188 If I can refer you now to tab 12 of our materials, at line 830. It starts at section 6.4, which outlines the many considerations and concerns of market participants regarding information-sharing with Enbridge Operational Services and Enbridge Gas Services. And at 830 of the Board's findings, the Board acknowledged those concerns and required EGD to: 189 "...ensure that information acquired by EOS and EGS in the provision of utility services is used for utility services and for no other purpose." 190 Based on the company's use of transactional services information, which Mr. Brennan conceded was, in fact, utility services information, based on the company's use of that information for bundled commodity sales purposes on its own account and on EGD's account as principal, CEED respectfully submits that they have not complied with that portion of the Board's ruling. 191 Specifically, no amendment to the agency agreement has been made to absolutely prohibit EGS and EOS from using utility information in the provision of utility services and for no other purpose. And there appears to be a dichotomy as well that has gone on in conjunction with the Board's increasing restriction on the use of utility information and the company's activity. Specifically, CEED submits that in 2000-0032, the decision was made on December 2002, and the Board ordered the company to establish that the information provided to its affiliates was not to the detriment of ratepayers or to the competitive market. It's at that same time that, without disclosure, Enbridge Gas Services started selling bundled commodity transactions. So we've got the Board saying one thing; we've got the company doing something that looks quite opposite. 192 Secondly, in 2001-0133, we've got the Board's order to the company to ensure that utility information was used for nothing other than utility purposes. We've got the company continuing to sell commodity and growing its business in that regard. Again, we've got the Board saying one thing, and it appears as though the company is doing something entirely different. 193 So CEED therefore submits that, despite the Board's increasing restrictions and exercise of jurisdiction over these matters, the company afforded itself increased liberties and offered further competitive market services. This is precisely why CEED is requesting that the Board take a fairly strong step and amend the EGS and EOS outsourcing agreements to prohibit EGD from contracting out utility services to a third party that provides competitive gas or electricity sales services. It is only in the presence of such a prohibition that CEED believes the Board's direction will be followed. 194 MS. NOWINA: Ms. DeMarco, just so I understand what you're asking for, it's not simply that EGS not perform these bundled transactions any further, but that whomever EGD outsources the transactional services to not be in the business of commodity sales at all; is that how I'm interpreting your request? 195 MS. DeMARCO: Yes, Ms. Nowina, that's correct, and we do acknowledge that that is a strong and bold step. We have asked for such a remedy in past proceedings pertaining to Enbridge Gas Distribution, and it's our position, it's CEED's position in submissions that that is what's necessary to stop this dichotomy from occurring. 196 MR. SOMMERVILLE: That referred to affiliates; is that right? Just so that I'm clear on that. So it's not all parties who would be in the commodity trading business but affiliates that are in the commodity trading business? 197 MS. DeMARCO: Our relief requested was even-handed, in that, specifically, someone who is providing those utility services, affiliate or otherwise, should not be also providing competitive market services. 198 The fourth point on this main part is that EGS is provided with, in fact has provided itself with, competitive market opportunities that other market participants are not provided with. And I would like to take the time to take you through Mr. Jarvis's evidence in this regard. So if I could refer you to tab 7, commencing at line 684. 199 MR. BETTS: Excuse me, that was line 6...? 200 MS. DeMARCO: 684. 201 MR. BETTS: 684. Thank you. 202 MS. DeMARCO: At line 684, Mr. Jarvis is asked about the timing of some of the transactions, and it's the company's evidence that they happen very quickly and they need to realize -- they need to move quickly to realize opportunities. Mr. Jarvis confirms that that's the case. We ask him if we're talking in the order of minutes or hours, and he indicates sometimes it's minutes. And then when asked about the process, at line 689: 203 "First of all, EGS would need to be notified that excess TS assets are available; is that fair?" 204 Mr. Jarvis indicates: "Correct." 205 He's asked: "Who would notify them?" 206 Mr. Jarvis answers: "Generally in the periods when it's most active, it's the wintertime and the notification comes from Enbridge Operational Services." 207 "So EOS notifies EGS that there are excess assets available?" 208 Mr. Jarvis indicates: "Correct." 209 "Are other marketers notified of that?" 210 Mr. Brennan indicates: "No, they are not." 211 Going on from there, the question's asked: 212 "And EGS would then need to go to the market to ensure that there's no opportunity to sell the transactional service alone?" 213 Mr. Jarvis answers: "A judgment has to be made. Again, given the circumstances in the market at the time, whether we believe we have time to go to the market and canvass the sale of the service or whether our judgment that by waiting to do that opportunity will erode or, in fact, evaporate, again, depending on the day, time of day, what's going on in the market." 214 Further he's asked: "So I guess we would need to qualify your evidence in paragraph 19, specifically, at number A. 'In not every case do you go to the market to see if there is the opportunity to sell a transactional service alone.'" 215 And Mr. Jarvis responds: "There are circumstances where we know there is not an opportunity to sell a service, and that the only way to get something done within the time frame that we've got is to conduct a commodity transaction to generate that value." 216 He's asked again: "So there are circumstances where you don't canvass the market?" 217 And he agrees: "Correct." 218 And he's asked: "And you don't contact other marketers?" 219 And he answers: "Correct." 220 And again, he's asked: "And they might not have a chance to realize that opportunity?" 221 And he answers, again: "Correct." 222 And the same appears to be true when we go through the transcript in relation to the situation where there are hours involved in the transaction and the opportunity. 223 So CEED submits that we see clearly that Enbridge Gas Services is exercising its own judgment as to whether or not it, as a competitor in the market, will act upon the opportunity or whether or not it, as a controller of the transactional services, will provide that opportunity to its competitors. 224 Clearly, CEED submits, there is a conflict in these two roles that constitutes very detriment -- a very large detriment to the competitive market. 225 MR. BETTS: Ms. DeMarco, can you point or help me by pointing to any place in the evidence or in transcripts that would indicate the proportion of times that that judgment applies? 226 MS. DeMARCO: In terms of the number of transactions that occur quickly, I believe it's Board Staff 11. Let me just have a quick... 227 MR. BETTS: Take your time. I would appreciate that reference, if you could help me with it. 228 MS. DeMARCO: There's no specific reference to the quantum. It is Board Staff 11. And they're asked upon -- they're asked about the use of commodity to generate additional TS revenue and the scope expansion. And in response, the company indicates that: 229 "In the past when TS services were only offered, EGD relied on the liquidity of the market to find the counterparties who would purchase the service and then conduct their own commodity..." 230 It goes on to say why it conducted in its own name, and as a basis for conducting in its own name they indicated: 231 "Secondly, that there are certain short-term or intraday opportunities which provide significant revenue opportunity for the TS business." 232 Certainly it would be our submission that if they provide significant revenue opportunity and they are occurring a significant portion of the time, and it indicates that revenue opportunities, due to the speed with which they need to be executed, and they require the ability to use commodity. 233 And then in the transcript reference as well, let me just take a minute and find the actual reference. I believe it's both Mr. Whelen and Mr. Brennan confirm that those opportunities arise frequently. 234 It's at line 403. And it's Mr. Brennan's answers in response to questions about their whole characterization that less liquidity and the need to act quickly have necessitated the company to enter into commodity transactions. At 403 Mr. Brennan indicates: 235 "Well, I think it's just trying to say that there are short-term opportunities that you have to be able to move very quickly to be able to capture those. The current process wouldn't allow for that if we're just looking at services only." 236 And the reference is read in relation to Mr. Whelen confirming that. 237 So this, in fact, in our submissions, Mr. Chair, were the actual motivating factors for the actual move to sell commodity. So these short-term opportunities that are not brought out to the market was what motivated the company to sell commodity as part of bundled transactions. And it's significant that that's the motivating factor; it's contributing a significant amount to revenue and such revenue is not being afforded to market participants. 238 Does that adequately address your concerns, Mr. Chair? 239 MR. BETTS: That's fine, yes, thank you. 240 MS. DeMARCO: So, in conclusion on this point, CEED submits in not affording these opportunities to market participants and, in fact, deciding -- exercising its own judgment as to whether or not it will act on those opportunities, EGS controls certain market opportunities to provide commodity. And the evidence indicates $275 million worth of opportunities. And decides which one it will keep for itself and which opportunities will be available to its competitors, other market participants, other energy service providers, like the members of CEED. 241 As a result, CEED submits that this behaviour and unfair access to market opportunities is clearly detrimental to competition in the natural gas market, and submits that the numerical evidence supports this position. EGS continues to capture an increasing amount of the revenue in a market it indicates that has not grown. And I believe it's in Exhibit K.4.2, which should be at the back of your materials. 242 The year-to-date figures indicate that gross margins are in the range of $18 million for the portion of the year-to-date, which puts the revenue portion -- the gross margin in around the range of $30 million by year-end. 243 In addition to that, CEED submits that now - pardon the colloquialism - but to add insult to injury, the company is asking for all of EGS's competitive or otherwise credit costs to be subsidized by utility ratepayers. Again, CEED submits, this is another significant benefit or opportunity that is not afforded to other market participants. 244 Now, in saying that, I want you to be clear that CEED is not suggesting that utility ratepayers pick up the credit costs of its members, but certainly to show the dichotomy. As a result, CEED submits that EGD and EGS should be unequivocally prohibited from selling commodity as part of the services that it provides in transactional services. 245 Moving on to my fourth main submission, then, which is that the company has not discharged its burden to prove that the information and opportunities provided to EGS is not to the detriment of the competitive market. And there has been considerable amount of discussion of this, both in the company's final argument on this point, and in School's final argument, that appears to suggest that a reverse onus is applicable to this issue. Certainly it's CEED's submission that the law and the Board's decisions on this matter are very clear. Starting first with the law. 246 At tab 10 I've included the excerpt of the Ontario Energy Board Act, specifically one, two -- at the page numbered number 19, which I believe is the last page, at section 36(6): 247 "It is very clear that, subject to subsection 7, an application with respect to rates for the sale, transmission, distribution, or storage of gas, the burden of proof is on the applicant." 248 Certainly the burden of proof should not be placed on CEED in this regard. 249 Secondly, at tab 11 the Board's decision in RP-2000-0032 is crystal clear on this point. At paragraph 5.11.22, in the last sentence, the Board indicates: 250 "It will be incumbent on ECG --" as it then was "-- to establish to the satisfaction of the Board that it has maintained the confidentiality of information and has not provided its affiliates with information to the detriment of either ratepayers or the competitive market." 251 It's CEED's submission that, even if the Board does not view EGS's market opportunity and using information to garner the market opportunities for itself as detrimental to competition, that this section of the Board's decision requires the company to prove that no such detriment has occurred. And this plays through again in the portion of the decision that I referred you to, in the 2001-0133 decision, which is located at tab 12, and is specific to information sharing again, where the Board find that: 252 "EGD is required to ensure that the information acquired by EOS and EGS in the provision of utility services is used for utility services and for no other purpose." 253 As a result, CEED submits that the company has not discharged this burden of proof; that it has not proved that it is necessary to sell commodity as part of transactional services; it has not proved that there was no detriment to the competitive market; and it has not proved that the utility information obtained and used by the affiliate is used for the utility purposes and no other purposes. CEED would go even further and submits that the evidence suggests the contrary on each of these points. 254 As a result, in conclusion on this fourth part of CEED's argument, CEED submits that the company has not discharged its burden of proof and should not be afforded the requested relief. 255 And we're in the home stretch at this point. My fifth and final portion of the argument is that the company's -- 256 MR. BETTS: Ms. DeMarco, sorry, just before I let you get on to that last leg of your journey there. You've indicated that the evidence suggests that not only did they not satisfy that burden of proof but, in fact, that there is some detrimental effect to either ratepayers or the competitive market. Is that in reference to the evidence that you have referred to so far in your arguments? Without taking us back through all of it, can you just summarize for me the evidence that addresses that specific concern? 257 MS. DeMARCO: Certainly. 258 The first portion of evidence that addresses that concern is in relation to the market confusion, and that is specifically Undertaking J.5.3, 5.4, Ms. Aitken's cross-examination, tab 8, 142 to 181, my cross-examination, tab 7, 524 to 684. Those are on the points of market confusion. 259 Secondly, in relation to pricing, again, J.5.3, specifically tab 7, line 20, Mr. Whelen's testimony. 260 Thirdly, regarding information sharing, this is Mr. Brennan's testimony, tab 7, lines 769 to 828. Ms. Aitken's cross-examination, tab 8, lines 258 to 272. Mr. Brennan's testimony again at 795 to 798. 261 MR. BETTS: Ms. DeMarco, I can go through the record and take all of those. I wanted to see if you could tell me, express in your words, or summarize for me -- I appreciate that there is information that's moved from one affiliate to the other. Can you address specifically how that information would act in a detrimental manner to the market, appreciating your arguments about bundling commodity in the transactional services, when those things happen. Is that specifically what it's about or does it go beyond that? 262 MS. DeMARCO: I think it's best exemplified by the last situation that we saw on that third part of my argument, and that is where the information that's provided to EGS as part of its functions in providing transactional services is used exclusively by EGS to take a competitive market opportunity. It's got the transactional services information. It has a choice. The evidence indicates it exercises its judgment as to whether or not it keeps that opportunity for itself, or whether it tells the market about the opportunity. So, in that role, it's effectively a gatekeeper. But it's also got another role, Mr. Chair. It's also playing as someone who wants to get in the gate. 263 So this is definitely the problem. This is the detriment to competition. We've got an entity effectively deciding what information gets disclosed to the market, and what information it will use in playing in the market. 264 MR. BETTS: Thank you. And the 5.11.22 that you've pointed us to also refers to either/or; either a detriment to the competitive market or to ratepayers. Do you see any to ratepayers that you would like to bring to our attention? Or is it specifically competitive market issues? 265 MS. DeMARCO: This is what I have referred to as a "shell game," with respect. What you see referred to as the commodity benefits to ratepayers really isn't commodity sales benefits to ratepayers. The evidence is clear on the point, Mr. Chair, that what you see reported as "commodity" is really transactional services revenue plus commodity. And it's CEED's submissions that the real value, the real scarce resource, comes from the transactional services portion. There's no way of telling that because of the price confusion that's caused. 266 MR. BETTS: Okay. Thank you for that clarification. 267 MS. DeMARCO: If I could add that I think there is a bit of fear-mongering that has gone on, and this is CEED's submission that some fear-mongering has gone on, that there will be a lack of those ratepayer benefits if commodity is not sold. And it's our submission that the evidence has not borne that out. And Mr. Whelen's submission is that the evidence cannot bear that out, because you can't separate the two functions, you can't separate the two prices. 268 MR. BETTS: Thank you. 269 MS. DeMARCO: So, then, moving on to the last submission on behalf of CEED, and that is that the company's process and procedures, to use the company's words, to allow its affiliate to sell and market gas commodity with transactional services without Board approval or notice usurps and disregards the Board's jurisdiction over these matters and constitutes conduct that should be neither sanctioned nor encouraged by the Board. 270 The company's evidence on cross-examination indicates that they started selling gas commodity coupled with transactional services in 2002. The company's evidence, and the reference here is tab 7, lines 300 through to 393, indicates that there was no written plan for doing so. It undertook no written analysis. There was no written examination of the market impacts. There was no prior consultation with the Board and stakeholders. In fact, not a single e-mail can be attributed to this initiative. It was implemented solely through a series of conversations that started two months prior to the sale. So we've got, in September, commencement of some verbal discussions. We've got in November the implementation of commodity sales as part of transactional services, part of utility services. 271 We also have no written evidence of the internal approval process, no written evidence of Mr. Pleckaitis's final okay to proceed. It's noteworthy that this form of process and procedure did not comply with the procedures required under the agency agreement, and the reference here is at tab 7, lines 338 to 345. 272 EGS or EGD did not seek a resolution from the board of directors as they are required to do under the services schedule of the agreement, they did not seek express written authority from EGD, and they did not obtain any written directions on the process that they should follow in controlling the transactional services and offering competitive commodity sales as principal. No direction, no written direction or agreement exists whatsoever. 273 CEED submits that this conduct and implementation procedure surrounding transactional services, in effect, usurps and disregards the Board's jurisdiction that it had exercised for a number of years over transactional services, and it's also in contravention with the agency agreement between EGD and EGS. 274 If the Board were to now, as CEED submits again, if the Board were to now approve the company's proposal and grant the relief it requests, it would be tantamount to sanctioning or encouraging such conduct. 275 It's noteworthy as well that there was no mention of the commodity sales to the account of EGD for at least a year, despite the existence of another rate case, and specifically despite questions directly on the point. And if I could refer you to tab 7, line 374. 276 Mr. Brennan was presented with this CEED interrogatory from the rates case that was responded to after they began selling commodity. And that interrogatory is inserted in your book of materials, I believe it's at tab 18. And specifically, he was asked -- the company was asked whether any of EGD's affiliates or related companies currently build facilities, contract for services or enter into any other financial arrangements inside or outside Ontario, in order to enhance their or EGD's TS businesses in Ontario. 277 And the response at that time by Mr. Brennan and Mr. Rubino was, no, none of Enbridge's affiliates or related companies currently build facilities, contract for services, or enter into any other financial arrangements inside or outside Ontario, in order to enhance Enbridge's TS business in Ontario. 278 And walking through Mr. Brennan's response with him, going down through lines 383, there is a distinction attempted to be made between the company and its affiliates by Mr. Brennan. Going over to line 387, he's asked: 279 "Currently builds facilities, contracts for services or enters into any other financial arrangements inside or outside Ontario, in order to enhance their or EGS's businesses in Ontario?" 280 Mr. Brennan answers: "Yes." 281 And he's confronts: "And your answer was no?" 282 And Mr. Brennan answers: "Well, certainly they don't build any facilities. Contract for services, you can debate whether that includes commodity or not. Obviously, I didn't interpret it to mean commodity. And financial arrangements, again, no. When I wrote this, I didn't contemplate or consider commodity transactions as including the items that were listed here." 283 And further on, Mr. Brennan indicates that he now considers it to be part of transactional services. 284 Again, it's CEED's submission here that the company knew, and its evidence indicates that it was doing something to enhance its TS revenues that would fall within those categories. It did not disclose, when asked, that it was doing such activities. And now, two years after it commenced those activities, nearly two years after it commenced those activities, it's coming forward and asking the Board to -- I want to use can term "posthumously," but that might be too optimistic of me, but it's asking the Board to, in retrospect, approve conduct that it afforded itself without Board approval. 285 CEED submits that, should the Board provide that approval, it encourages that type of conduct and those type of procedures by the company, and effectively amounts to sanctioning such conduct. 286 And as a result, in conclusion on this fifth part of CEED's argument, CEED submits that the Board should neither sanction nor encourage this ask-for-forgiveness rather than implementation approach that has been implemented by the company, and should not therefore provide the relief requested by the company. 287 [The Board confers] 288 MR. BETTS: Thank you. No questions. 289 MS. DeMARCO: That concludes our submissions and final argument for the day. And specifically, CEED requests the relief outlined in the initial portion of our argument today and would request that the Panel make a finding that the company not be permitted to conduct these bundled commodity transactions. 290 Thank you. And those are our submissions. 291 MR. BETTS: Thank you very much for your submissions, and for your support through this whole process. It's been very helpful. 292 MS. DeMARCO: Thank you. 293 PROCEDURAL MATTERS: 294 MR. BETTS: I'll ask the question: Is there anything that we need to tidy up for the record or from a procedural point of view before we adjourn now to reconvene August 3rd? 295 MR. CASS: Not that we're aware of, Mr. Chair. 296 MR. BETTS: Thank you. 297 Then the last step of this hearing is to receive reply arguments from the applicant, which is scheduled for 9:30 a.m. on August 3rd. And it's my understanding that that's a vacation period for you, Mr. Cass. 298 MR. CASS: I was planning a vacation, sir, but it's not a problem at all. I'll be here on August 3rd. 299 MR. BETTS: Well, as I've done for others, to accommodate the Board schedule, I want to thank you for your flexibility as well, in accommodating the Board's schedule. 300 MR. CASS: Thank you, sir. 301 MR. BETTS: So with that - and thank you, Ms. DeMarco, for your time today and accommodating our schedule again - we will stand down now to reconvene at 9:30 a.m., on August 3rd, and receive final oral arguments. 302 Thank you all. 303 --- Whereupon the hearing was adjourned at 2:53 p.m., to be reconvened on Tuesday, August 3, 2004, at 9:30 a.m.