Rep: OEB Doc: 1388Y Rev: 0 ONTARIO ENERGY BOARD Volume: 17 3 AUGUST 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, 3 August 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 3 AUGUST 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 PRELIMINARY MATTERS: [15] REPLY SUBMISSIONS BY MR. CASS: [38] REPLY SUBMISSIONS BY MS. PERSAD: [350] SUBMISSIONS BY MR. KLIPPENSTEIN: [456] FURTHER REPLY SUBMISSIONS BY MS. PERSAD: [473] REPLY SUBMISSIONS BY MR. O'LEARY: [745] FURTHER REPLY SUBMISSIONS BY MR. CASS: [890] 10 EXHIBITS 11 EXHIBIT NO. K.17.1: BRIEF SUBMITTED ON BEHALF OF ENBRIDGE GAS DISTRIBUTION INC. FOR REPLY ARGUMENT ON ISSUE 12.1, DEFERRED TAXES [32] EXHIBIT NO. K.17.2: COMPENDIUM OF DOCUMENTS SUBMITTED ON BEHALF OF Enbridge GAS DISTRIBUTION INC. FOR REPLY ARGUMENT ON ISSUE 5.1, UNION GAS STORAGE CONTRACT; ISSUE 11.2, 2005 CASDA; ISSUES 15.1 AND 15.2, RATE DESIGN [354] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:34 a.m. 15 PRELIMINARY MATTERS: 16 MR. BETTS: Thank you, everybody. Please be seated. 17 Good morning, everybody. I think many of us have been on vacation, and I hope everybody who has been has enjoyed it. Today is day 17, and what I believe is or should be the final day of hearing of evidence and arguments around application RP-2003-0203. The Board has heard arguments in chief from the applicant and received oral and/or written arguments from intervenors in the matter as well. We're scheduled today to receive final arguments from the applicant. 18 Before we begin, are there any preliminary matters for the Panel's consideration? 19 Thank you. There appear to be none. And Mr. Cass, or Ms. Persad, or Mr. O'Leary, are you ready to proceed at this point? 20 MR. CASS: Yes, we are, sir. 21 MR. BETTS: And can you give us a rough estimate of time, just for planning purposes? And maybe to confine you a little bit -- but, no, there's no restrictions time-wise. 22 MR. CASS: Well, our best estimate, Mr. Chair, I think, would have us finishing not too late in the afternoon, I think. By that I'm thinking in the 3:00 to 4:00 time frame. I hope. 23 MR. BETTS: We're with you as long as you need us, anyway. So, with that, then, I'll ask you to please proceed. 24 MR. CASS: Mr. Chair, the issues in reply argument will be addressed by the same counsel for the company in respect of each issue as was the case during argument in chief. However, there will be a slight change to the order. So, perhaps to begin with, I'll just indicate the order in which we propose to address the issues and who will be dealing with each one. 25 I will lead off as I did in argument in chief, with deferred taxes. Then the company proposes to address risk management, transactional services, and DSM, which will be issues that Mr. O'Leary will make submissions on. 26 Following those, the reply argument would proceed to the Union Gas storage contract, CASDA, and rate design, all of which would be addressed by Ms. Persad, and then again, as in argument in chief, I would conclude with submissions on the change of year-end. 27 MR. BETTS: Thank you. 28 MR. CASS: Mr. Chair, for the purposes of the deferred taxes argument, I handed around a brief of items that I will refer to. I've put one on each of your desks. I've also provided it to Board Staff. 29 I've gone so far, Mr. Chair, as to take the liberty to highlight portions of this brief. The purpose of that is to make the reply argument on deferred taxes, I think, go more quickly, because the sections that I'm going to be referring to are actually highlighted. 30 MR. BETTS: Thank you. And perhaps we should enter that as an exhibit. 31 MR. SCHUCH: Yes, Mr. Chair. That would be Exhibit K.17.1. Brief submitted on behalf of Enbridge Gas Distribution Inc. for reply argument on Issue 12.1, deferred taxes. 32 EXHIBIT NO. K.17.1: BRIEF SUBMITTED ON BEHALF OF ENBRIDGE GAS DISTRIBUTION INC. FOR REPLY ARGUMENT ON ISSUE 12.1, DEFERRED TAXES 33 MR. CASS: Then, finally, just by way of clarification, Mr. Chair, I had one item that I might refer to at the end of the day when I come to the change of year-end argument. So I just tucked it in the back of each person's brief. That's why -- I hope that each person who has a brief also has a loose item. That actually relates to the change of year-end argument as opposed to deferred taxes. 34 MR. BETTS: And Mr. Cass, would you like to enter that now as an exhibit or later? 35 MR. CASS: It is actually Exhibit J.9.1. 36 MR. BETTS: Thank you. I see that now. Thank you very much. 37 MR. CASS: So, having said all of those things, Mr. Chair, I'll then proceed with the company's reply argument on deferred taxes. 38 REPLY SUBMISSIONS BY MR. CASS: 39 MR. CASS: As a starting point for these submissions, I will begin with two different contentions that were made during the intervenors' submissions. A number of times the statement was made that the deferred taxes issue was complicated. And one intervenor in particular actually went so far as to suggest that the company had intentionally obfuscated the evidence. 40 That was said at 14 transcript, paragraph 211-12. 41 That's one intervenor contention that I'd like to start by addressing. 42 The other was made by counsel for SEC, and this argument was to the effect that, in order to give the company what it has asked for on deferred taxes, there's a series of different decisions that the Board would have to go through. That was an argument made by counsel for SEC at 12 transcript, paragraph 202. 43 In response to both of those points, Mr. Chair, what I wish to stress from the outset is that, in fact, the company's position on deferred taxes is really quite a straightforward one. It is not unduly complicated. It doesn't involve any obfuscation of evidence, and it doesn't require the Board to make this series of different decisions that was alluded to by one counsel. 44 For clarity, the company's position is as follows: Prior to the unbundling of the group of ancillary programs on October 1, 1999, the gas utility owned a group of rental assets. Prior to unbundling, the utility's business activity of renting this group of assets was referred to as the "rental program," and it was determined by the Board to have provided benefits to gas ratepayers through lower gas distribution rates in the amount of $50 million. 45 And then, also prior to unbundling, a significant amount of unrecorded deferred taxes had accumulated in respect of this group of assets. In the 179-14/15 decision, and I will come to this -- I will actually come to look at the decision a bit later -- the Board decided that by way of the notional utility account, recognition should be given to the benefits provided to gas ratepayers and that up to $50 million could be drawn from the notional utility account to pay deferred taxes as they became due. 46 The company says that when the Board spoke of benefits in the 179-14/15 decision, it was referring to the benefits provided by the group of rental assets held in the utility prior to unbundling. And similarly, the company says that when the Board spoke of deferred taxes becoming due, it was referring to deferred taxes in respect of that same group of rental assets. 47 When the issue was looked at on this basis, it does not in any way need to become complicated. This is, in fact, why in argument in chief I endeavoured to explain that, with a particular group of assets such as the group of rental assets that were formerly owned by the utility, if one does not mix in other assets or other activities, such as activities or assets of the unregulated businesses, the deferred taxes becoming payable associated with this group of assets is easily identifiable after crossover. Again, I went through this in an argument in chief, and I won't, of course, repeat it. But, with reference to Mr. Boyle's evidence, and specifically Exhibit K.7.1, during argument in chief, what the company addressed was that the amount and timing of the deferred taxes becoming payable in respect of that particular group of assets that was formerly the utility's rental program is readily ascertainable by comparing book depreciation after crossover to capital cost allowance after crossover. 48 This is not a complicated or mysterious calculation. What the company determined by means of this calculation is that the amount of deferred taxes that became payable in respect of this particular group of assets up to May 7, 2002, was the 23.9 million-dollar figure that the Board has heard repeatedly. 49 In my submission, no one has cast any doubt on this calculation, or pointed out any obfuscation in the basis that the company presented to arrive at the $23.9 million figure. It's not the company's position that raises a series of different issues that the Board must dispose of in order to decide in the company's favour. The company's position, in my submission, is quite uncomplicated, namely, that the relevant deferred taxes are those that became payable in respect of the group of rental assets that was unbundled from the utility, that is, the utility's rental program. 50 I'd also like to stress that, in my submission, the company's position regarding deferred taxes payable in respect of this group of assets unbundled from the utility is entirely consist with, in my submission, all of the decisions that the Board has issued on the deferred taxes subject to date. And it's at this point that I'd like to take the Board to some of the decisions. I hope to move fairly quickly through this and, again, the decisions have been highlighted to expedite the argument. 51 At tab 1 of the brief, Exhibit K.17.1, I have included excerpts from EBO 179-14/15 decision. And I will be coming back to this from time to time during my submissions. 52 I included in these excerpts some of the opening paragraphs of the decision, specifically, paragraphs 2.1.1 to 2.1.3, and I've included a small amount of highlighting there, just by way of illustrating this point that what the Board was talking about in this decision was the deferred taxes associated with that group of assets that was formerly held within the utility. 53 So you'll see that at paragraph 2.1.2, the Board makes reference to the rental program within the regulated utility. In my submission, it's clear that when the Board is using these words it's talking about the rental business that was, at that time, operated by the utility. In fact, the reason it was called the rental program was because it was one of a group of ancillary programs formerly owned by the utility that were unbundled in 1999. 54 So, in fact, at paragraph 2.1.1, the Board can see reference to some of the other programs, like merchandise sales program, customer maintenance program. That's why it was the rental program. It was one of these -- this group of ancillary programs. 55 Then at 2.1.3, the Board will see the reference that what was being talked about in this decision was unrecorded deferred income taxes in relation to the program." 56 Another example of the Board's use of terminology in this decision can be found if one skips over to paragraph 3.3.20. In the first bullet there, the Board states: 57 "The company may choose to transfer the assets to an affiliate or sell the program to a third party." 58 This is in the context of the deferred taxes discussion. 59 Again, when the Board uses the words "the assets of the program," it can't be talking about assets or businesses in an unregulated utility. The company, being Enbridge Gas Distribution, as it is now named, would not have been in a position to transfer or sell those assets. When the Board is talking about assets or program in this decision, it's talking about the utility's rental program. 60 And then, just skipping back to paragraph 3.3.19, one page before what we were just looking at, this is, I think, probably some of the key wording that the Board used in its 179-14/15 decision on the subject of the deferred taxes. 61 So again, I've highlighted the words to make this a little quicker, but perhaps I will read the entire highlighted portion from paragraph 3.3.19, because it is, in my submission, somewhat important. The first highlighted sentence reads: 62 "While finding that ratepayers should not be responsible for the deferred tax liability, per se, related to the rental program, the Board believes that there should be some recognition of the benefits they have received in the past." 63 That's the sentence upon which the company's repeated submission about recognition of benefits is based. In my submission, the Board very clearly indicates there that there should be some recognition of these benefits that ratepayers receive. 64 And moving on to the next sentence, it reads: 65 "The Board therefore would accept the provision of a notional utility account in the amount of $50 million after tax to allow the shareholder to use the value of these past ratepayer benefits to pay a portion of the deferred taxes associated with the rental program" -- and, if I could just emphasize those last five words -- "as they become due". 66 Again, it's in relation to the rental program and, in my submission, the Board is clear in this decision what it was talking about when it referred to the rental program. 67 So, in my submission, this decision indicates that draw-down of the notional utility account is based on deferred taxes becoming payable in respect of the group of rental assets that was transferred out of the utility. 68 Now, I said that in my submission all of the Board's decisions that I am aware of on deferred taxes have been consistent on this, so I have included a couple of other decisions. Again, I don't think that we need to spend too much time on it, because I think the terminology remains the same throughout the decisions. But just if I could quickly ask the Board to turn up tab 2 of the brief. This comes from Mr. Thompson's exhibit, I think it was Exhibit K.7.3, at tab 2B; it was the Board's decision on the review motion following the 179-14/15 decision. 69 MR. BETTS: Mr. Cass, if you don't mind me interrupting for just one moment, something that would help us to proceed is to understand whether -- how you would like to deal with questions from the Panel. Would you prefer that we wait until you completed a section or would you prefer that we ask questions when they arise? 70 MR. CASS: I would prefer that they be asked at any time, sir, including when they arise. 71 MR. SOMMERVILLE: I have a question, Mr. Cass. You've referred us to paragraph 3.3.20, the three bullets in which the Board, in the 179-14/15 case, outlined some options that may arise. And you've referred us to the third bullet which talks about transferring the assets to an affiliate or to sell the program to a third party and the Board goes on to say: 72 "In these circumstances, any proceeds from the sale or transfer would be available to address the related tax consequences." 73 What do you think that means? 74 MR. CASS: Mr. Sommerville, if I recall correctly, that was one of the points that was addressed in what we've been loosely calling the 135 decision, and the company's argument on that would be in those materials from the 135 decision. I hesitate to sit here and suggest what the Board meant by certain statements. I would have interpreted this to mean that, to the extent that, as a result of a sale, there were not deferred taxes becoming payable in respect of the group of rental assets that I've been focusing on, then that would be relevant. But if one goes on -- in the third bullet, it does -- the third bullet does seem to contemplate that, even in the event of a sale, that there can or will be a draw-down of the notional utility account, because it does go on to say: 75 "To the extent that the company proposes to utilize any or all of the account, the Board's approval of the consequences would be required. Consideration of rate shock may dictate the degree of amortization." 76 So I interpret this to mean that the sale on its own does not, as was contended in the 135 case, eliminate the opportunity to make a draw-down of the notional utility account. It continues to require the company to come and show that there were deferred taxes that became payable in respect of the transferred rental assets before the sale and I think that's what the 135 decision says. The 135 decision recognizes that there was a sale, and it says. So it's only deferred taxes that became payable up to the time of the sale that can be drawn from the notional utility account. 77 MR. SOMMERVILLE: Okay. One way of reading that bullet would be to say that if the proceeds of the sale cover the outstanding tax liability, assuming that it all ripened immediately, that to the extent that there were excess deferred taxes that were not covered by the proceeds of sale, that they could be drawn down through the notional account. That's one way of reading that paragraph. 78 I just want to be fair in sort of wrestling with this subject matter, that that's one way of reading that section. 79 And, in fact, the three bullets I would not regard as being sort of dispositive of the issues. They seem to indicate that there's some options. But as we read them as a clue as to what the Board had in mind, that's certainly one interpretation of that bullet. 80 MR. CASS: Yes, I understand that, Mr. Sommerville. That would be one interpretation, and I think what I'm saying is that the interpretation that I have offered is the one that one would need to apply in order to not only reflect the letter and spirit of this decision but also the 135 decision. Because if one were to apply the type of interpretation that you're talking about to these words, then, in my submission, that interpretation becomes a little problematic when applied to the 135 decision, where the Board knew about the sale of Centrica, it knew about the proceeds, and it said that what is important is the deferred taxes, if any, that became payable up to the time of the sale, notwithstanding what it knew about the sale and the proceeds. 81 So, again, my submission would be that the consistent interpretation that would apply to both this and the 135 decision is that the proceeds of a sale would be relevant if they reduced or eliminated deferred taxes becoming payable on the transferred rental assets. 82 MR. SOMMERVILLE: Thank you. 83 MR. BETTS: Thank you. You may proceed. 84 MR. CASS: I was just going to touch on a couple of other decisions to show the consistency of the Board talking about deferred taxes in relation to the company's rental program assets. 85 And I'll just do this very quickly. 86 So, at tab 2 of Exhibit K.17.1, as I indicated, I have included extracts from the decision on the review motion in the 179-14/15 proceeding. Again, they're highlighted. So in the first paragraph the Board can see the reference to the 179-14/15 decision and the statement that: 87 "Portions of the decision with reasons that are the subject of the request for review or rehearing are those portions that address deferred taxes associated with the company's..." 88 And if I could stop to emphasize the word "the company's", "...rental program." 89 Again, I've highlighted a couple of more portions of 24 decision but I won't go to all of them. The point is the same, that when the Board is talking about these deferred taxes, it's in relation to the utility's rental program. 90 At tab 3 of the brief, I have included, I think, the entirety of the 135 decision, and just for the record, that is officially RP-2002-0135. And if I could ask the Board to turn to the last page of the decision proper, that being the second-last page at tab 3. I've again highlighted the words to try to expedite the argument. 91 So, at paragraph 59, the Board confirms what it is that can be drawn from the account, and it says: "Draws are conditional upon deferred taxes associated with the rental program being payable." 92 Again, the point is just simply to emphasize the consistency of this terminology by the Board through its decisions. 93 The Board then goes on, in paragraph 60-62, to talk about assets, rental program assets. In some sentences it's clear that the Board has to be talking about the assets as they were within the utility. So, for example, the last sentence of paragraph 60 refers to the option of "transferring the rental program assets to an affiliate," again, as we already discussed, or selling to a third party. It's clear that when the Board is using the words "rental program assets" it must be talking about those that were within the utility, because that's all that could have been transferred or sold to a third party. 94 So, unless the Board is, without telling anybody, switching its terminology when it talks about assets and rental program assets and changing the terminology to sweep in assets of unregulated businesses, in my submission, there's really only one consistent interpretation of all these decisions, which is that the assets were transferred out of the utility. 95 I won't harp on that anymore, unless there's any question. 96 MR. SOMMERVILLE: I have a question, Mr. Cass. Surely a difficulty is that the assets when they came out of the utility first went to EG -- the services company. 97 MR. CASS: Yes. 98 MR. SOMMERVILLE: And then were shortly thereafter segregated precisely into the rental company. And then there was the lease-back arrangement with the services company. So that the set of circumstances is basically an isolation of these assets, even though they are fully included in what could be called: "The rental program" on an ongoing basis. And that, had they been fully included, if that subsequent transfer to the rental company had not occurred, and they'd been maintained in the services company, that the deferral tax burden, there might never have been a crossover with respect to these assets; that in terms of new additions to the rental program, properly described or described in one interpretation of events, there never would have been a ripening of deferred taxes in any event, and the only thing that causes any ripening of deferred taxes is this -- some have suggested a kind of unnatural isolation of the assets. And if we take the rental program as a whole, that there never was a deferral tax burden. That if we take the additions into account, into the rental program, there never was a deferred tax burden that rested on the company. 99 Surely that's a difficulty. Could you respond to that? 100 MR. CASS: Yes. I understand the point that you're making, Mr. Sommerville, and it is a point, of course, that intervenors have made, in this case and in the 135 case. 101 Mr. Sommerville, in my submission, if one looks at the rental assets that were transferred out of the utility, just for simplicity, I'll continue to call those the transferred rental assets -- wherever one were to place those, wherever they went, those assets on their own would experience crossover, and in my submission it would be a straightforward calculation to determine the deferred taxes becoming payable. 102 Whether they were isolated, whether they were left in ESI, the deferred taxes becoming payable for those assets, the transferred rental assets, would be the difference between CCA and book depreciation after crossover. 103 So, really, it's an issue, and I think you highlighted this, Mr. Sommerville, I think it was you, in argument in chief, it's an issue of what assets are you talking about? Are you talking about the rental program as it existed in the utility? Or is one talking about the assets on an ongoing basis as they may be added to within unregulated businesses after unbundling? 104 If the company's submission is correct, it's the transferred rental assets, and wherever those assets might exist at a point in time, one can in a fairly straightforward fashion, measure the crossover effect and the deferred taxes becoming payable. 105 If the Board's decision were that one has to look at the other assets with those, well, then, yes, you do get into these issues about what was going on in ESI, what was going on in Rentco, and poor potentially this issue of what would have gone on if they'd all be kept together. 106 In my submission, though, it's the transferred rental assets that had this deferred tax liability associated with them prior to unbundling, and it's that deferred tax liability associated with those assets that the Board is talking about in all of these decisions. 107 Now, and then the other thing, as I already submitted in argument in chief, Mr. Sommerville, I believe that the intervenor point that you're referring to is the very point that was addressed in paragraph 60 of this 135 decision. Now, IGUA submitted that this was just hypothetical and that there was still an opportunity to come back with facts. In my submission, I don't read paragraph 60 as hypothetical at all. 108 "The intervenors argue that Enbridge Gas Distribution's ability to draw on a notional utility account..." the word "account" is missing in the quote, "...should be limited to the amount which would have been payable in taxes had the assets been kept within the first affiliate and operated on an ongoing basis rather than transferred to a second affiliate and operated on a wind-down basis. In our view, the language in the Board's EBO 179-14/15 decision does not support this interpretation." 109 In my submission, that's not hypothetical; that's the Board saying what the 179-14/15 decision meant. And what I'm attempting to go back to the wording of each of these decisions and bring out that the Board was talking about deferred taxes associated with that group of assets that was in the utility and that was transferred out of the utility. 110 MR. SOMMERVILLE: That analysis, I think, leads us back to the third bullet, in 179-14, in paragraph 3.3.20, and talks about the proceeds of sale and their applicability to related tax consequences, which -- I wonder if you could direct me to the portion in 135 that says that the proceeds of the sale are not relevant to the calculation of deferred taxes for the purposes of this application. 111 MR. CASS: Well, yes, Mr. Sommerville -- the Board, if I may, in the 135 decision -- I'm not sure that it specifically talks about the proceeds of the sale. I'll just quickly refer you to some of the areas where the Board refers to the sale. 112 In paragraph 14 of the decision, the Board reflects the evidence before it that on October 1st, 1999, Enbridge Gas Distribution transferred the rental business to its affiliate, Enbridge Services Inc. The rental business was eventually sold to Centrica North America on May 7, 2002. 113 Skipping over to paragraph 35, the Board sets out the position of Enbridge Gas Distribution that I'm now referring to, and again, I don't see that the Board specifically refers to "proceeds of sale" but it says: 114 "Enbridge Gas Distribution held that the EBO 179-14/15 decision does not contemplate that the sale of the rental program to a third party on May 7, 2002, would affect the recovery of the amount recorded in the notional utility account." 115 And then, against the background of that, in paragraph 61 - this is the determinative part of the Board's decision - the Board indicates: 116 "The rental program assets have been sold to a third party. As such, neither Enbridge Gas Distribution nor its affiliates bear any further tax liability post the date of the sale in relation to those assets." 117 The Board then goes on to find and order Enbridge Gas Distribution is entitled to recover from the notional utility account an amount after taxes equal to the deferred taxes that became payable from the date of unbundling to the date of that sale. 118 So, Mr. Sommerville, you're quite right if you were implying or suggesting that the Board does not actually talk about the proceeds of sale. However, the Board clearly talks about the sale. The Board clearly had the evidence in front of it about the proceeds, and I can take you to that in a minute. And, in that context, what the Board determined was that the effect of the sale was essentially to set the cut-off date for the deferred taxes becoming payable. So, with the sale in mind, the Board concluded that the company was entitled to recover the deferred taxes from the date of unbundling to that cut-off date, May 7, 2002. 119 MR. SOMMERVILLE: Thank you. 120 MR. CASS: So, you're right, if your point is that the Board doesn't actually say "proceeds of sale," I would have to agree with that. I've referred you to what I think are the key parts of that decision. 121 I will come back, perhaps, because I was going to talk a little bit more about the background to the 135 decision, so perhaps I'll come back and, of course, reiterate where the Board had the clear evidence about the proceeds of sale. 122 MR. SOMMERVILLE: Thank you. 123 MR. CASS: Now, if I may, perhaps I would try, at this point, an analogy to explain the company's position and to explain my submission that I'm making that I think that this is a more straightforward issue than certain of the intervenors would present it to be. 124 The analogy that I would ask the Board to think about is one to a situation where one might be talking about capital gains tax payable, as opposed to deferred taxes payable. 125 So a fact situation, for example, where this analogy might apply would be a situation where one taxpayer is looking to sell a capital asset to another. And as it happens, the vendor of this asset has purchased it at quite a low price, and is concerned about capital gains tax becoming payable when it sells the asset. 126 This concern is discussed between the parties and they reach an agreement whereby the purchaser agrees to buy the asset at a particular price, and also, the purchaser agrees to reimburse the vendor for some or all of the capital gains tax that becomes payable in respect of the sale of that asset by the vendor. 127 So the vendor ultimately files a tax return that does indeed show capital gains tax being payable in respect of the sale of that asset. Now, the vendor's tax return also includes the results of all the other things it does, whether this would be other taxable income, perhaps even other capital gains or losses, deductions, and so on, of the vendor. 128 In my submission, the actual cash taxes that that vendor has to pay bears absolutely no relationship to the vendor's agreement with the purchaser that the purchaser would pay capital gains tax that becomes payable on the sale of that particular capital asset. 129 The purchaser's responsibility, under its agreement, would be determined by looking at capital gains taxes payable in respect of that particular asset regardless of the actual cash taxes payable by the vendor. I would submit this would be so even if the vendor had other capital gains and losses in respect of the sale of assets in exactly the same class as the asset that was sold to this purchaser. 130 For the purpose of determining the purchaser's responsibility, one wouldn't mix into this calculation capital gains and losses on assets other than the one that the purchaser bought. 131 Now, the suggestion was made in this case that by looking at the deferred taxes payable on the transferred rental assets, that's somehow creating a hypothetical taxpayer. Well, in the analogy that I've described, Mr. Chair, I would submit that looking at the capital gains taxes that became payable on that particular capital asset purchased by the purchaser doesn't have anything to do with creating a hypothetical taxpayer. Even though the vendor may have had many capital gains and losses in respect of assets just like the one sold to the purchaser, there's nothing hypothetical about looking at the capital gains tax associated with the one asset in which there was an agreement to reimburse. 132 Now, suppose that there was a disagreement between the vendor and the purchaser. The vendor says to the purchaser, I'd be happy to show you every piece of information you want to see about the capital gains tax that became payable in respect of the asset I sold to you. And the purchaser says, Well, you've incurred capital losses on other assets. These capital losses on other assets perhaps you set off against the capital gain on this asset. I want to see all of your tax information about capital losses on other assets. I want to see all of -- to see all of your tax planning information. I want to know exactly how much tax you paid in cash. 133 I suggest to the Board that in these circumstances it would not be the vendor that would be complicating the issue; it would be the purchaser wanting to bring in all these unrelated issues that would be creating complications around the issue. 134 Similarly, what the company has done in this case is determine that deferred taxes that became payable in respect of a certain group of assets, those being the rental assets that were unbundled from the utility, the transferred rental assets. In the company's submission, it's the intervenors that have turned the calculation of deferred taxes payable in respect of that group of assets into something far more complicated than it should be. 135 One theme of the intervenors' submissions is to try to bring into the Board's consideration of this issue evidence about activities in the non-utility, unregulated companies. The activities by these unregulated companies that the intervenors wish to draw the Board into considering include corporate tax planning, unregulated business activities that generate tax savings, and the sale two and a half years after unbundling of a whole collection of unregulated businesses to Centrica. 136 It should come as no surprise to anyone that the issue is going to be complicated when the Board is asked to mix together all of these unregulated activities with the deferred taxes that became payable in respect of the transferred rental assets. 137 However, to the extent there is any confusion, I submit, it's not the making of the company, because the company has been consistent in its position that these unregulated activities are not relevant to the issue under consideration. 138 Now, the notion of some intervenors seems to be that, to the extent that the unregulated affiliates managed to achieve success in both the operation and sale of their businesses, then the ability to draw on a notional utility account should be reduced. One can see this, for example, at VECC's submissions, 15 transcript, 496 and 514. 139 This argument seems to assume that recovery from the notional utility account was conditioned on unregulated affiliates achieving no better than mediocre results from the various businesses after unbundling from the utility. However, the 179-14/15 decision does not say that recovery from the account will be permitted only if unregulated affiliates achieve mediocre results after unbundling. The notional utility account, in my submission, was about two fundamental things. One, giving recognition to past benefits received by gas ratepayers from the utility's rental program; and, two, using the value of those benefits to pay deferred taxes as they became payable in respect of that same group of assets. 140 IGUA said in its submissions -- this is in 14 transcript, 417 -- that it is incorrect to characterize the notional utility account as an award of compensation for benefits to ratepayers. I don't believe that the company has attempted to characterize the account as an award of compensation, but what the company has tried to do is simply pick up the words of paragraph 3.3.19 of the 179-14/15 decision, and I took the Board to those words already in these reply submissions -- to the effect that there should be some recognition of the benefits that gas ratepayers receive and that the account will allow the shareholder to use the value of these ratepayer benefits to pay a portion of the deferred taxes as they become due. 141 Now, it's important to bear in mind, I submit to the Board, that the benefits that the Board said in that case should be given recognition were real benefits in the form of reduced gas distribution rates. This also can be seen from the 179-14/15 decision, if the Board doesn't mind going back to tab 1 and starting at paragraph 3.3.16. In fact, the issue is framed by the Board at the end of paragraph 3.3.15. At the end of that paragraph, one can see that the Board framed this issue about who benefited from the lower cost of the deferral of taxes in respect of the rental program. 142 At 3.3.16 the Board goes on to respond to the question and sets out a number of bullets. The first bullet is that: 143 "If the forecast rate of return for the rental program was higher than the overall allowed rate of return, utility rates would have been set to reflect the higher return from the program, and ratepayers would have benefited." 144 And then at 3.3.17, the Board goes on to consider whether, in fact, on a forecast basis, there was a sufficiency, and looking at a ten-year period from 1989-1998, in the first bullet of paragraph 3.3.17, the Board decides that there was a total sufficiency of $50 million over that period. 145 So, in fact, because there was a sufficiency from the rental program, because it did achieve higher than the overall allowed rate of return, the effect was to actually reduce gas distribution rates. 146 Now, the second bullet of paragraph 3.3.17 goes on to talk about some other benefits that are not directly impacting gas distribution rates. These includes incremental gas sales and improvement in system-load factor. So there were these other benefits. But the $50 million is a sufficiency from the rental program that, because, on a forecast basis, the rental program was earning more than the Board-approved allowed return, the effect of this was to reduce gas distribution rates. 147 MS. NOWINA: Mr. Cass, can I ask a question? 148 MR. CASS: Certainly. 149 MS. NOWINA: It's going back a little bit to your discussion on tax planning. 150 If this were not a deferred tax situation but a situation where the taxes were paid when the income was received. So if we're looking back in time when these assets produced the income, when they were part of the utility, if at that point when they had the tax liability, tax planning had happened, involving all the EG companies, do you expect that if it had happened at that time that the ratepayers would get no benefit from that tax-planning activity? 151 MR. CASS: I'm sorry. Ms. Nowina, I just want to be sure I understand the question. 152 There was a benefit of taxes being deferred, as they were, a flow-through tax accounting. 153 MS. NOWINA: Sure. 154 MR. CASS: So what the Board was looking at in this decision was who got that benefit, and decided that the ratepayers at least got $50 million of benefit from the rental program because of sufficiency. 155 Now, you're saying that if the taxes had not been deferred -- 156 MS. NOWINA: I'm really going tax planning. I'm not discussing the benefit of the $50 million. 157 MR. CASS: But were you saying, if the taxes had not been deferred, because that would then have taken away that benefit to have the deferral. So it would have been like a disbenefit. 158 MS. NOWINA: All right, then let's not use that analogy. I'll talk about tax planning in different way. So is the tax planning that did take place, which allowed the company to pay less in cash taxes once everything was calculated. Is there not some argument that the shareholder should benefit, at least from a proportion of that tax planning, as all the EG companies do, I assume, because tax planning takes place? That is, that it's the mix of companies and their position, or the mix of assets and their position, that allows the tax benefit to be achieved, it isn't what one particular company or set of assets do, but it's all of them together that allows the tax benefit. 159 So, if these assets or the taxes related to them are being -- are part of the responsibility of the shareholder, should not some of the benefits of the tax planning go to the benefit of the shareholder as well? The ratepayer, I'm sorry, as well? 160 MR. CASS: I'm not sure I'm going to be responding to your question, Ms. Nowina, because I'm not sure I understand it, but the way the ancillary programs were regulated prior to unbundling, of course the Board compared the programs to the Board-allowed rate of return and decided whether there should be an imputation of revenue, for which the shareholder would be responsible, or whether on a forecast basis there was a sufficiency. 161 So the shareholder had a symmetrical treatment in terms of those ancillary programs to the extent that on a -- sorry. I'm not sure that there even was a symmetrical treatment. But to the extent that there was a shortfall on a forecast basis, the shareholder was at risk for an imputation of revenue. Whereas, to the extent that there was a sufficiency, the ratepayers enjoyed the benefit of that sufficiency over the Board-allowed rate of return. So I probably should not have used the word "symmetrical." 162 So in that context, I'm sorry, I'm just trying to understand how one might think that there might be something additional that ratepayers should enjoy. They didn't take the risk, on a forecast basis, of the programs earning less than the Board-allowed rate of return. The shareholder took that. 163 But on the up side, to the extent that the programs could achieve more than the forecasted rate of return, the ratepayers were entitled to that in the form of reduced gas distribution rates. Now, what the Board said in the 179-14/15 decision is $50 million before tax of that sufficiency above the Board-allowed rate of return that ratepayers have enjoyed from the rental program should go into this account. 164 I'm just struggling with the notion that there would be more for ratepayers than enjoying the sufficiency above the Board-allowed rate of return for ancillary programs on a forecast basis, and not taking the risk for a shortfall under the Board-allowed rate of return. 165 MS. NOWINA: Perhaps I'm confusing the question. 166 If we put aside the fact that the benefit that's being discussed and was decided upon in previous decisions, and however, that benefit was not to be fully received by the company, it was to be capped by the deferred taxes payable, whatever that meant, and so it's the deferred taxes payable that I'm discussing. So you've calculated the deferred taxes payable without taking into account the tax planning. I understand some of the motivation for that; I certainly understand that it's the correct thing for the company to do, was to do the tax planning. 167 My question is, when that tax planning takes place, would there not be an argument to be made that the ratepayer should receive some of the benefit of that tax planning, as well as the company itself receiving. 168 MR. CASS: I see, I'm sorry, Ms. Nowina, I was thinking about the time before unbundling; you're talking about after unbundling. 169 Yes, I will be addressing this as I go through my submissions. I would say two things. 170 First of all, the deferred taxes associated with the transferred rental assets become payable through the crossover effect. The main ability to do tax planning in respect of those transferred rental assets is to take the maximum capital cost allowance - and I will be indicating later in my submissions that that's what the evidence is that the company did - it took the maximum capital cost allowance in respect of those transferred rental assets to ensure that the deferred taxes becoming payable for those assets was minimized. 171 Now, in respect of other activities, other corporate tax planning, other activities of the unregulated businesses, in my submission, these are things for which the shareholder is at risk or the shareholder is providing economic value. For example, the other activities of the unregulated businesses, and whatever tax effects those might have -- the shareholder has the downside of those activities, and the risks of those activities; and the tax benefits, such as they may be, of those activities should be, in my submission, for the shareholder's account. 172 And I will be addressing this in a little more detail as I go through my submissions. 173 The tax planning activities had an economic value and an economic cost to the shareholder. So, in my submission, the ratepayers shouldn't get the benefit of tax planning where the shareholder has the cost or has given up the economic value. 174 MS. NOWINA: Thank you. 175 MR. CASS: Sorry I took so long. 176 MS. NOWINA: It's okay. 177 MR. CASS: Sorry, I'm just going to get back to the stream of my submissions. I'm sorry. 178 Now, IGUA has made the suggestion that, in the 179-14/15 case, that there was some sort of misleading evidence from the company's witnesses about the prospects for the rental program. In my submission, it should be remembered that, in the 179-14/15 case, it was not the company's proposal to unbundle the rental program. Quite the contrary. The company's proposal in that case was to wind down the program in a measured and orderly fashion within the utility. 179 So if, in fact, the company had a crystal ball and it was able to know that or to even, in its prediction, think that together with a collection of other businesses, the rental program could be sold two and a half years later for a material gain, or that rental rates could be successfully increased after unbundling, it's hardly likely that the company would have been proposing a complete wind-down of the program within the utility. 180 And if there was an effort to enhance shareholder returns, to use wording that IGUA has used, one would have expected, rather than this wind-down proposal, that the company would have been hastening to unbundle the program so that these gains could be achieved through unbundling. 181 Instead, the company proposed a wind-down of the rental program which was strongly opposed by intervenors. The Board denied the wind-down proposal and made clear its view that regulatory policy favoured a pure utility. I believe in argument in chief I took the Board to that reference in the 179-14/15 decision. 182 So, in these circumstances, the company's shareholder was put in the position where it had to make the best of the situation, and it did so at its own risk, in relation to unbundled businesses, not at the risk of the ratepayers. 183 So the steps that Enbridge took at its own risk to make the best of the situation, such as increasing rental rates, or tax planning, or achieving a sale to Centrica, in my submission, are not relevant to the draw-down of the notional utility account. The shareholder was fully responsible for the downside of unregulated activities. 184 For example, if the rental rate increases had caused an unexpected erosion of customer base, the shareholder would have been fully at risk. And Mr. Boyle addressed this in his testimony, which I've included at tab 4 of the brief. 185 I might just say, in passing, there is a table of contents at the front of the brief which gives the evidentiary references from which all the various excerpts are taken, in case the Board needs the actual references to the evidentiary record. 186 Turning to tab 4 of the brief, one will see Mr. Boyle's evidence in response to a question by Mr. Thompson about whether the company was planning this increase in rental rates in 1999. Mr. Boyle said: 187 "I don't think we were planning this amount, actually. What we determined was that we had to try and do that to make the business profitable at the level sufficient for the risks that were being taken in a non-utility context with stand-alone costs. We didn't know if it would stick or not, or if we would lose a lot of rental water heater customers, but that was the only option available to us in order to make it sufficiently profitable. Whatever occurred, that was the risks and the rewards, again, of a non-utility asset and the non-utility business, and the risks and rewards that we took on. If it didn't stick or we lost a lot of customers and there were a lot of removals, there could have been significant costs that the non-regulated business would have incurred, and that was our risk." 188 Similarly, with respect to changes in value of assets over the time frame after unbundling, Boyle gave similar testimony about this being -- about the increases in value and the shareholder being at risk. So, at the next page of tab 4, I've included an extract from volume 8 of the transcript, paragraphs 1274 and 1275, where Mr. Boyle explains that, after unbundling, the market changed significantly and there was an increase in the value of these types of assets. 189 And then -- I won't read all of these excerpts because they are highlighted. Then the next transcript excerpt at tab 4 is from volume 9, paragraph 1227, where Mr. Boyle testifies again: 190 "The non-utility businesses took on that risk. It could have gone up in value, it could have gone down. Whatever it was, the risk of that business was a non-utility asset..." and so on. 191 If Enbridge's efforts to make the most of the rental program after unbundling had been successful, I think we can all be sure that intervenors would not have been offering to help out or would not have been saying that recovery from the notional utility account should be enhanced. These activities were a shareholder risk after unbundling. 192 Now, another theme of intervenor submissions was that ratepayers should somehow receive the benefit of the $42 million credit from Revenue Canada that was discussed in the 179-14/15 case. 193 Just by way of background, the events giving rise to this credit are described in detail in the answer to Undertaking J.9.5. I'm not going to attempt to repeat what is said in that undertaking response. I think it states much more clearly than I could what the background was. 194 In short, the $42 million credit related to rental program installation costs reported on 1997, 1998, and 1999 tax returns, that is, before unbundling, and an issue -- the credit related to an issue as to whether these installation costs should be deductible as an expense or capitalized. 195 It's interesting to note that when this point about the $42 million credit came up in this case for the first time, the comment was made, This seems to have been overlooked by everyone to date. That's at 7 transcript, paragraph 216, which is included at tab 4 of the brief, but I don't think we need to turn it up. 196 One wonders how, after five years of contention over issues relating to the rental program deferred taxes, this issue, if it's at all a legitimate one, could have been overlooked by everybody until this case. 197 In the company's submission, there's a simple explanation as to why this point has not come up before. The reason is it's not consistent with the words of the 179-14/15 decision. In the 179-14/15 case, the central issue about deferred taxes was who should bear the responsibility for the unrecorded deferred taxes of approximately $168 million. 198 The issue was whether the responsibility for these deferred taxes should be borne by the ratepayers or by the shareholder. This is actually stated quite clearly in the Board's decision on the review motion, that such was the issue in the 179-14/15 case. Again, we don't need to turn it up, I don't think, but it's at tab 2 of the brief. It's from Exhibit K.7.3, tab 2(b), page 5. 199 In that review decision, the Board, I think, states quite clearly what the issue was around deferred taxes and responsibility as between shareholder and ratepayer. 200 Now, going back again to the 179-14/15 decision at tab 1, I did say that I would be coming back to this repeatedly, and I apologize for skipping back to it over and over. 201 The $42 million credit was discussed at paragraph 3.3.1 of the decision. So, at paragraph 3.3.1, what the Board says about the credit is that: 202 "In the Board's view, whoever is responsible for the payment of the deferred taxes should be entitled to this credit." 203 In other words, the credit is going to follow the Board's decision on a central issue as to responsibility. Whoever the Board decides is responsible, gets the credit. That's, in my submission, what paragraph 3.3.1 says. 204 In my submission, the credit was not linked in any way to how much deferred taxes might become payable or be paid. It was simply linked to the Board's decision on the responsibility for deferred taxes. 205 The Board's decision on responsibility is at paragraph 3.3.11. I'm sorry I didn't highlight this. But at 3.3.11, the Board makes its decision that: 206 "The deferred taxes..." again, same wording -- "...associated with the rental program should be the responsibility of the shareholder." 207 And then in the last sentence of that paragraph: 208 "As noted above, the $42 million credit for tax overpayment should therefore be credited to the shareholder." 209 So, in other words, once the Board made its decision as to responsibility, the tax credit just followed that decision to the representative party. 210 There's nothing in the decision, in my submission, which says that the $42 million was credited "on a string," so to speak, which could be pulled back depending on what deferred taxes actually were payable or paid. 211 Similarly, there's nothing, in my submission, in the Board's discussion of the notional utility account, which suggests that draw-down of the account is in any way affected by the $42 million credit. In fact, intervenors treat the $42 million credit as if it's like another notional utility account that's operating ahead of and in prior to the $50 million notional utility account. So, in other words, the intervenors say the shareholder can only keep the amounts recorded in the $50 million notional utility account to the extent that the money is actually paid to pay deferred tax liability. But then, even before the company can get to that, the shareholder must apply the $42 million credit to pay deferred taxes and this shareholder can only keep such part of the $42 million credit as is actually used to pay deferred taxes liability. 212 In my submission, this is a complete fiction. This is not said anywhere in any Board decision, and in particular, not in the 179-14/15 decision. When the Board addressed the $42 million credit in the 117-14/15 decision, it did not say that the shareholder can only keep such part of the credit as is actually paid towards deferred taxes liability. When the Board addressed the $50 million notional utility account in 179-14/15 decision, it did not say that a draw-down of some sort of the $42 million credit comes into play before the notional utility account. Now -- sorry? 213 MR. SOMMERVILLE: Mr. Cass, doesn't the difficulty here arise from the fact that the $168 million figure is made up, $42 million of it, is made up of the credit? 214 And, however else one might look at it, it's hard to look at that $168 million figure and say that that's an operating figure, when the $42 million credit forms part of it. Isn't that the difficulty? 215 MR. CASS: Yes, I -- 216 MR. SOMMERVILLE: How do we resolve that? 217 MR. CASS: Yes, I think that's so, Mr. Sommerville. But I believe that the Board in the 179-14/15 case resolved what should happen with the credit. In other words, it should just go to whatever party the Board ultimately determines to be responsible for deferred taxes. The Board did not say that it then becomes relevant in the determination of what deferred taxes you have paid or payable. So, yes, it's part of the $168, but it had a separate and distinct disposition in the 179-14/15 case. 218 MR. SOMMERVILLE: But it never came out of the $168 million figure. I mean, if having gone into the deferred taxes, the quantum of the deferred taxes, at $168 million, it went to the ratepayer, then surely the deferred taxes amount should have been reduced to that same extent. Should it not? 219 MR. CASS: Sorry, I'm sorry, Mr. Sommerville, you said if it went to the ratepayer? 220 MR. SOMMERVILLE: Well, if the credit goes to the shareholder as being the party responsible for deferred taxes, then the overall amount of deferred taxes which we started at $168 million, 42 million of which was comprised of this tax credit, well, then surely the $168 million should be reduced to the same extent, once that credit is realized, and that any calculation respecting deferred taxes following that should be net of the credit to the shareholder of the $42 million. 221 MR. CASS: Yes, Mr. Sommerville. I'm sorry, I don't have it with me, but in the record there are the accounting entries that were made within Enbridge Gas Distribution as a result of the 179-14/15 decision, and just going by memory, there was the credit of the $42 million. There was the notional utility account set up as a regulatory asset of $50 million. And so out -- I'm sorry, I'm going entirely by memory here so I'm trying to envisage the entries. 222 The difference between the 168, with the reduction of the $42 million, had to be recorded as deferred taxes. They had not been recorded to date. So, as a result of the 179-14/15 decision, the $126 million was what was recorded as deferred taxes; as you say, the 42 had to come down out of the 168. So, with $126 million being recorded as deferred taxes, it was then the $50 million regulatory asset in the notional utility account, and then the remaining $76 million was a direct hit to the retained earnings of Enbridge Gas Distribution because of the way all those entries worked. 223 But, yes, you're right: The 42 million came off the 168. And the amount of deferred taxes that were then recorded was the 126. And the 126 less the 50 in the notional utility account is where the $76 million dollar write-off of retained earnings came from. 224 MR. SOMMERVILLE: Thank you. 225 MR. CASS: Now, one of the submissions, or perhaps the main submission intervenors made in connection with this $42 million is that ratepayers have an entitlement to get this money back, so to speak. It was said by one party: "We've already given them $42 million to pay deferred taxes." 226 That was at 12 transcript, 284. 227 In my submission, it is absolutely wrong to think that the ratepayers gave the company the $42 million. And this, again, comes back to the whole discussion of benefits of the rental program in the 179-14/15 decision. The $42 million, I think everyone is clear, is an amount that related solely to the rental program formerly operated by the utility. And as we saw starting at paragraph 3.3.15 of the decision, the Board analyzed who benefitted from the rental program over a time period from 1989 to 1998. 228 The Board specifically found that, over that time period, the rental program generated this $50 million sufficiency on a forecast basis, again, that had been applied to reduce rates for gas distribution ratepayers, because, on a forecast basis, the returns of the program over that ten-year period were exceeding the Board-allowed rate of return. 229 Now, there was also evidence about what the shareholder got over that same ten-year period in the 179-14/15 case. And this, of course, then goes beyond the forecast basis to look at actual returns. And in the 179-14/15 case, on an actual basis, the evidence was that there was a shortfall between actual and forecast earnings for the rental program that was borne by the shareholder. 230 This is from Exhibit K.7.2, tab 7. The extract is included at tab 5 of the brief that I've handed up. 231 Again, I've highlighted the portions to make this quicker, so I will not read all of the highlighted portions. But at tab 5, if I could just start at the bottom of page 5 -- this is referring to what happened in the 179-14/15 case, in fact, going back to EBO 497. It says also: 232 "In EBO 497 the company filed an undertaking response which showed over the same ten-year time period the actual return to the company's shareholder based upon actual performance of the ancillary programs." 233 Just to depart from the quote for a minute, that's -- so this is all of the ancillary programs together. 234 "This undertaking response showed a cumulative shortfall in ancillary program earnings going to the shareholder in the amount of $85 million. In EBO 179-14/15, a more specific undertaking response was filed to provide the earnings from the rental program alone over the ten-year time period." 235 Departing from the quote again, so this now isn't all ancillary programs, this is the rental program. Back to the quote: 236 "This undertaking response revealed a cumulative shortfall in rental program earnings flowing to the shareholder of approximately $70 million, indicating that the shareholder was significantly worse off than the forecast amount in rates." 237 So, the point is that when one looks at the rental program before unbundling, and one looks at who was benefitting as between the ratepayer and the shareholder over the ten-year period assessed in 179-14/15 case, the ratepayers did not give the company $42 million. The ratepayers actually received lower gas distribution rates, while on an actual-versus-forecast basis over the same time period, the shareholder was incurring what I would call a significant shortfall. 238 Now, the benefit, the $50 million that the ratepayers received in lower gas distribution rates over that time period, that ten-year time period, was supposed to be used to pay deferred taxes in respect of the transferred rental assets, in the company's submission, and deferred taxes becoming payable was supposed to be the trigger for the shareholder's recovery of up to $50 million of this benefit. 239 In my submission, it turns the 179-14/15 decision on its head to suggest that the shareholder should somehow now be required to provide more money to ratepayers in addition to the $50 million benefit recognized by the Board and recorded in the notional utility account. 240 MR. BETTS: Mr. Cass, just one question for clarification. You've referred to the shortfall, the actual shortfall that was being experienced by the company. This shortfall, again, if I recall your words, was the difference between forecast and actual? 241 MR. CASS: Correct. 242 MR. BETTS: It wasn't necessarily a loss? 243 MR. CASS: Well, Mr. Chair, so rates were set on a forecast basis by comparing the performance of the rental program to the Board-approved return. So, if the rental program was achieving more than the Board-approved return on a forecast basis, this means that embedded in rates was that benefit that was delivered to ratepayers. That's embedded in rates. 244 Now if, on an actual basis, the rental program doesn't actually achieve that forecast, then the shareholder, yes, is incurring the difference between what was embedded in rates and what is actually happening. 245 MR. BETTS: Thank you. 246 MR. CASS: Now, in argument in chief, the company, I think, spent some time explaining how issues raised in this case by intervenors had previously been argued in some detail in the 135 case. And I want to try to avoid any repetition of what was discussed in argument in chief, but of course points relevant to this did arise from intervenor submissions. 247 The intervenors' response seems to be a suggestion that this Panel of the Board should proceed without regard for what happened in the 135 case, or in previous cases, generally. CAC, for example, and I'll use CAC in these submissions, although I believe that CCC's arguments were essentially the same on these points as CAC; I won't keep repeating both sets of initials. 248 CAC argued that this Panel of the Board is not and should not be bound by the decisions of previous Panels of the Board. That's at paragraph 98 of the CAC submissions. 249 In fairness, though, CAC went on to state that in order to ignore previous decisions, this Panel is required to conclude that, and I'm quoting: 250 "Those decisions were based on the evidence before those panels and that the evidence in this case is fundamentally different." 251 In my submission, the problem with this argument by intervenors is that no one has pointed to any evidence in this case that is so fundamentally different as to cause the Board to reach a different decision than it did in 135. 252 Now, in order to avoid repetition and simplify this, what I did in Exhibit K.17.1 is, I collected at tabs 6, 7, and 8, the items that had been presented to the Board on particular issues that have resurfaced in this case. 253 Again, I don't want to belabour this. I just wish to quickly point out to the Board what is at these tabs. 254 So, at tab 6, is material presented to the Board on the issue about increased rental rates. The first item, and these are all just extracts, are -- the first item is an extract from the intervenor notice of motion in that case about increased rental rates, the second item is evidence from Mr. Fournier's affidavit on that subject, and the third item is an excerpt from intervenor argument in chief on that issue. 255 And I've done the same at tab 7 for the issue about the sale to Centrica. And again, I had said earlier in my submissions that I was going to point out, when I came here, the fact that there was clearly evidence before the Board in the 135 case about the proceeds from the sale to Centrica, and evidence about a net gain. So one sees that at tab 7, in the notice of motion, item F, referring to the proceeds of sale and the net gain. One sees evidence from Mr. Fournier on that. And one sees it throughout the arguments. I've included the argument in chief, the Enbridge argument, and the reply argument. 256 If I could ask the Board, at tab 7, just to look in six pages. At paragraph 79 -- this is the intervenor argument in chief for the 135 case. So at paragraph 79 it is stated, and I'm quoting: "Because the completion of the sale to Centrica PLC eliminates EI's exposure to the rental program deferred taxes liability, and because the gain from the proceeds of sale of $210 million after taxes exceeds the upper limit of the notional utility account..." and I'm skipping ahead, "...the moving parties submit that there is no basis for authorizing a draw." 257 Now, in IGUA's argument it was stated that all the Board was asked to do in the 135 case was consider the proceeds of the sale to Centrica. It certainly is true that the intervenors were arguing that the Board should consider it. However, the reason they were arguing the Board should consider it was because it was their position that it would eliminate exposure to deferred taxes liability, and any basis for a draw- down. 258 In my submission, it's the same point that's being made in this case. It may be that the number is somewhat different, but that, in my submission, is no fundamental difference because the number has the same effect if one accepts the intervenor argument. The number is still greater than the upper limit of the notional utility account, and there's no difference to that number that changes anything that was already argued here before the Board in the 135 case. 259 So, again, I don't want to spend a lot of time on it because I did it in argument in chief, but the company's arguments on this point are set out in the extract at this tab. And the reply argument on the same point is set out at this tab. 260 Similarly, and again, I'll just describe it rather than taking the Board through it, at tab 8 are the extracts from the record of the 135 case dealing with the intervenor position that the Board ought to look at the assets in ESI and the assets in Rentco on a combined basis. Perhaps I could just refer the Board to one example of the type of evidence that was presented by or at least referred to by intervenors in the 135 case, on that issue. And that is, again, six pages in, this time at tab 8. 261 Six pages in at tab 8 the Board will see intervenor argument in chief on this issue about looking at what we're now calling Rentco and ESI, on a combined basis. The statement there is that: 262 "IGUA has received expert advice which indicates that had the rental program remained with ESI after October 1, 1999, then little or none of the unrecorded rental program deferred taxes as at September 30, 1999, would likely have become payable before May 7, 2002." And so on. 263 Now, I recall IGUA making the submission that the evidence before the Board in 135 was just extracts from previous company proceedings. In fact, here's a reference to expert advice that IGUA had at the time of that proceeding. 264 Again, I've already addressed this when I was dealing with questions earlier in these submissions. But in paragraph 60 of the 135 decision, in my submission, the Board decides this issue about looking at the entities on a combined basis. But I've included the extracts from the materials in the 135 case at tab 8. 265 So, again, coming back, CAC's submission was that for the Board to -- the submission was that the Board is not bound by these previous decisions and that the Board, in order to not follow the decisions, is required to conclude that there is fundamentally different evidence in this case. In my submission, the evidence is not fundamentally different. 266 CAC did, I think, try to give an example of how the evidence is fundamentally different in this case, and what it was was in relation to a submission that in 179-14/15 it was Enbridge Gas Distribution's position that the rental program could not be operated profitably and could only be sold at a loss. That contention is made at paragraph 80 of the CAC argument. 267 So what CAC seems to be saying is that the evidence in 179-14/15 was fundamentally incorrect because it was based on evidence that the company would receive no benefit, either from ongoing operation of the program or the sale of the program. And that can be seen more clearly, I think, from paragraphs 81 and 95 of the CAC argument. 268 However, this also was a point that was, in my submission, raised and very fully explored in the 135 case. Now, for that purpose I've included extracts from the materials that led up to the 135 case at tab 9 of the brief. 269 The first item is an extract from the IGUA notice of motion in the RP-2001-0032 case, which was supported by Mr. Fournier's affidavit. 270 At item D of the grounds for this notice of motion, page 2 of tab 9, one can see this point that the relief in the 179-14/15 case, according to intervenors, was premised on certain assertions, these being, allegedly, that the rental program could not be operated as a profitable business -- that's in small Roman numeral (i) of paragraph D, small Roman numeral 3 of paragraph D: "The rental program could neither be transferred to an affiliate nor sold to a third party except at a loss." 271 The support for that was the affidavit of Mr. Fournier. That's the next portion of the extracts at tab 9 of the brief. In paragraph 7 of Mr. Fournier's affidavit one sees his evidence about these assertions allegedly made in the 179-14/15 case. Then the next extract at tab 9 is extracts from intervenors' argument in chief on this point. At paragraph 6 of the argument in chief, for example, in paragraph 6(a), one will see the reference to "overly pessimistic predictions." Paragraph 6(c) goes on: "EGD's pessimistic predictions with respect to the demise of the rental program and the erosion of its returns did not materialize. Exactly the opposite occurred. The business continued to flourish and was expanded." 272 And I've gone on through tab 9 to highlight a number of different items of material on this same point that were presented to the Board in the 135 case. It's really quite extensive, and I won't go through it in detail, given the amount of time I've already taken today. 273 The point is that this submission made by CAC that something is fundamentally different in this case because there was evidence in 179-14/15 case about the prospects for the business that was incorrect, this itself was a point that was fully addressed and canvassed in the 135 case. 274 So CAC has set up this test that there needs to be something fundamentally different in this case from previous cases, but its own example, in my submission, does not meet the test because what is being said here by CAC, as an example of something fundamentally different is, in fact, a point that was fully canvassed in the 135 case. 275 I'd like to move on and deal with some other intervenor submissions. Unfortunately, a complete response to every single submission made by intervenors on the subject of deferred taxes would require far more time than I have. My effort in the general submissions that I made at the outset of this argument was to try to present the company's position in a general fashion that, I think, does address many of the points raised by intervenors. This does, though, leave some particular points that I think I need to touch on before concluding reply argument on deferred taxes. 276 First, the Board was presented with certain tables and charts in argument by SEC. These were included in SEC's argument brief, Exhibit K.12.1, at pages 68, 70, and 71. As far as I know, these tables and charts were never introduced during the evidentiary portion of the hearing. No witness ever had an opportunity to comment on these items. 277 As well, SEC and others in their arguments relied on calculations that were never put to the witnesses for comment. The company submits that the value and reliability of these sorts of calculations is definitely open to question if they aren't presented to witnesses during cross-examination for comment. And, in an attempt to demonstrate this, what the company has done is, it has taken certain of the SEC tables and it has endeavoured to re-present these tables in the fashion that the company believes they should have been presented. Now, if this had been raised during the evidence, this would have occurred much earlier during this proceeding, but unfortunately the tables came forward for the first time in SEC's argument brief. 278 So, at tab 11 of the brief that I've handed up is the company's attempt to correctly re-present the numbers that were provided, the tables that were provided by SEC in its argument. I won't take the time to go through this in detail because, just looking at tab 11, the Board can see how detailed this is. In an effort to expedite reply argument, what the company has done is it has provided a set of explanatory notes that accompany each table and that endeavour to explain the differences between what the company has done and what SEC did. 279 The first item at table 1 is a retained earnings presentation that responds to the first table presented by SEC at Exhibit K.12.1, page 68. 280 The second item at tab 11 of the company's brief is an effort to correct and respond to the table presented by SEC as the second table on page 68 of Exhibit K.12.1. I believe that SEC had entitled it a simplification of rental program deferred taxes account. Sorry, SEC's title was "Simplification of Deferred Taxes Account." So, in its table 2, the company has followed similar terminology. 281 After these two tables are the explanatory notes that explain the differences in the calculations as between SEC and the company. Again, I won't go through the explanatory notes in detail, but if I could just highlight what the company has endeavoured to do. 282 Turning to the first page of the explanatory notes, there's a reference to table 1. It points out under that reference: 283 "The purpose of this table is to provide a complete calculation of the various entries, both direct and indirect, related to deferred taxes for the rental program that would have impacted/consolidated retained earnings for Enbridge." 284 It then goes on to state why the more detailed analysis is important. And there are three bullets there that, I think, essentially generalize what the company has done to try to re-present the SEC table on this subject. Following that general explanation, there is a detailed series of points explaining the company's presentation as opposed to that of SEC. 285 Skipping over to page 3, there's a description of the purpose of table 2: 286 "The purpose of this table is to provide a complete calculation of the deferred tax account and the cash impacts related to the deferred taxes for the rental program, direct and indirect. SEC presented a simplification of the deferred tax account as part of its closing argument that combined cash and non-cash elements to arrive at a number which SEC considered to be excess recovery. 287 "Table 2, while providing a comparison of the SEC calculation with the complete calculation, distinguishes between amounts that would flow through the deferred tax account and through the cash account, and clearly shows that there is no excess deferred tax recovery and, in fact, there is a cash shortfall related to the deferred taxes." 288 Again, following that general description, there is a line-by-line explanation of what the company has done to re-present SEC's numbers. 289 Then, coming to page 60, the company summarizes what these calculations show. I'll just highlight a few sentences from the summary on page 6: 290 "In summary, the complete calculation in table 1 and table 2 each clearly show that if SEC's proposal were accepted, the company would be worse off by $111.2 million." 291 Skipping down a few sentences: 292 "Even with a recovery from the notional utility account in the amount of $23.9 million, as requested by the company, there will still be a cash shortfall related to deferred taxes of $50.7 million." 293 The reference to the calculations is provided for that. 294 "As such, the company's request is less than the shortfall as experienced related to deferred taxes. However, the request adheres to the Ontario Energy Board's December 2003 decision that the company is only able to request recovery from the notional utility account to the extent deferred taxes became payable." 295 So, all the explanations are there. I won't take the Board's time in going through it line by line. 296 Another -- I'm sorry, I'm going on a little more, a little longer than I expected, but I'm coming to the end. 297 Another point that I feel needs to be addressed that came up in SEC's argument was the analogy to an employee who claims $500 for the cost of a business trip but actually spends only $50 for gas to ride with a friend. This was at 12 transcript, paragraph 243 to 246. 298 SEC said that this is similar to the situation where, through tax-balancing transactions, Rentco was able to make use of tax credits available from elsewhere in the Enbridge organization. However, SEC's analogy was not an apt one. The analogy assumes that nothing was provided by the employee that makes up the difference between the $50 spent on gas and the $500. While in the Rentco situation, full value was provided by Enbridge in the form of tax credits available from elsewhere in the organization. 299 This shortcoming in SEC's analogy was recognized by, I think, Mr. Betts, who offered a different analogy during SEC's argument. Mr. Betts drew an analogy to a situation where the employee uses a personal credit to pay for the business trip, and the credit was one that the employee could have used elsewhere. That was at 12 transcript, paragraph 249. 300 Now, when presented with this analogy, SEC said this would absolutely -- I'm quoting that word, "absolutely" -- change the analysis. SEC said that if you use something of value for the employer's benefit, then whatever the value was to you, you should get reimbursed for it. 12 transcript, 252. 301 This then moved the issue into a consideration of whether, in applying tax credits within Rentco, Enbridge was using something of value to it. SEC said that Enbridge had $822 million of unused losses and that losses were expiring faster than Enbridge could use them. That's at 12, transcript 253. 302 The evidence in this case was crystal clear that Enbridge used something of economic value when it applied those tax credits within Rentco. For example, during cross-examination, SEC asked Mr. Boyle whether deductions are "cash in the bank," and Mr. Boyle said: 303 "In some cases, yes, because we could have used those deductions elsewhere at points in time." 304 That's 8 transcript, paragraph 319. 305 On another occasion, Mr. Boyle testified: 306 "There was an economic cost incurred by Enbridge Inc. elsewhere in order to use the deductions in Rentco." 307 That's 8 transcript, 115. 308 Now, the evidence in this case includes annual reports of Enbridge Inc. for the 2000, 2001 and 2002 years. These were filed in response to IGUA Interrogatory No.36. Extracts from them have been included at tab 10 of the company's -- of the brief for reply argument on deferred taxes. 309 So, at the page of tab 10, in the area that I've highlighted, one can see a discussion of unused tax loss carry-forwards. This is an excerpt from the 2000 annual report. It's indicated there that losses expire as of a certain date, and one can readily see that the expiries in 2000-2003 are relatively quite modest, .1 million in 2001, .5 million in 2002, to .7 million in 2003. Very modest numbers in relation to the numbers that arise from the tax planning that occurred in this case. 310 The next page at tab 10 is a similar extract from the December 21 annual report. It starts out by saying: "At December 31, 2001, the company has recognized a benefit of unused tax loss carry-forwards of $660.9 million." 311 Again, it sets out the expiry dates of the tax-loss carry-forwards." 312 Under the Income Tax Act of Canada, as I understand it, and I think it's paragraph 111(1)(a), there's a seven-year carry-forward for unused losses of this nature. And I think that perhaps -- I don't know this, I'm not a tax expert, but perhaps that explains in part the reason why there's a presentation as to how these numbers expire in the future. 313 But moving over to the third page, which is the 2002 annual report, one will see the number that was referred to by counsel for SEC. It states: 314 "At December 31st, 2002, the company has recognized the benefit of unused tax-loss carry-forwards of $822.4 million." 315 That's the number that was referred to in argument. The point here is that the benefit of that has been recognized. The company would not have been able to recognize that full $822.4 million if some part of it was going expire without being used. 316 Again, the other point, as I've already said, is that looking back to the 2000 and 2001 annual reports, one would have seen that the expiry amounts for unused losses in the years up to 2003 were really very modest. The sale to Centrica of the rental program, of course, occurred in May of 2002. 317 So, in my submission, the evidence in this case is crystal clear that Enbridge used something of economic value when it applied tax credits within Rentco. There was evidence both from Mr. Boyle on that and we have as well this information from the annual reports that confirms what Mr. Boyle said. 318 And the other thing to bear in mind, in looking at these numbers from the annual report, is that to the extent that there are new tax-loss carry-forwards being generated at any particular point in time, they themselves have a seven-year carry-forward under the income tax law of Canada. 319 SEC also suggested, during its argument, that the Board should -- and I'm paraphrasing here, but something to the effect -- listen to them on the deferred taxes issue because of the principled approach it took on the intervenor theory regarding an overearnings adjustment arising from a change of year-end. 320 The company submits that changing positions on one issue does not give any added credibility to any party on another totally unrelated issue. 321 So, having addressed those individual submissions from intervenors, I propose to conclude the company's reply argument on the notional utility account. 322 Again I come back to what I submit is an important starting point, which is the Board's determination in the 179-14/15 decision that recognition should be given to $50 million of benefits provided to gas ratepayers and that these benefits took the form of lower gas distribution rates. This was the original basis of the notional utility account upon which the company now seeks to draw. 323 CAC argued in this case that the appropriate approach for the Board is to consider the actual draw-down and the benefits which Enbridge Gas Distribution received from the ongoing operation and sale of the rental business. That was at CAC argument, paragraph 102. 324 I've already discussed in some detail the evidence that before unbundling the shareholder of Enbridge Gas Distribution incurred a shortfall between forecast and actual returns from the rental program, and I've also discussed the 179-14/15 analysis of the benefits that the ratepayer received. 325 The Board heard evidence in this case about the further impact of rental programs deferred taxes on Enbridge Gas Distribution. As I've already alluded to, when the ancillary programs were unbundled Enbridge Gas Distribution took a $76 million hit, if I could use that word, to its retained earnings as a result of these deferred taxes. That's at Exhibit K.7.4, tab D, paragraphs 9 and 7. 326 At that time, the notional utility account was recorded as a regulatory asset, but following the decision in the 135 case, Enbridge Gas Distribution wrote off $26 million from the notional utility account. This meant a $26 million reduction of Enbridge Gas Distribution's income in fiscal 2004. That's at Volume 9 of the transcript, paragraph 639. 327 To the extent that Enbridge Gas Distribution is not able to recovery the remaining amount of approximately $24 million remaining in the account, this will mean a further hit to the company's earnings. That's at 9 transcript, paragraphs 624-629. 328 So, of the $50 million benefit to ratepayers that the Board said should be recognized and that was reported in the notional utility account, $26 million is now gone. As far as the remaining $24 million is concerned, the company has endeavoured to follow the 135 decision to the letter and has presented in this case, with appropriate verification from KPMG, the amount of deferred taxes that became payable between October 1, 1999, and May 7, 2002. 329 The company's verification included going back to the source documents and examining adjustments to the amounts from the source documents which were relatively small and which were necessary to determine the deferred tax impacts specifically related to the transferred rental assets. 330 The company went further and provided additional schedules to show the adjustments as compared to the source documents. This can be found at Exhibit A8, tab 5, schedule 2, appendix 2. It's at Exhibit A8, tab 5, schedule 2, page 2, paragraph 6 and page 3, paragraph 10. 331 As I alluded to earlier, the evidence in this case shows that Enbridge claimed the maximum CCA, thereby minimizing the deferred taxes associated with the transferred rental assets that became payable. This is at Exhibit A8, tab 5, schedule 1, page 5, and Exhibit I, tab 16, schedule 121. And it's also at 8 transcript, paragraph 476. 332 I won't go through his evidence in detail, but Mr. Boyle went to great efforts to make clear that Enbridge acted prudently "every step of the way," I think, were his words, in its approach to the deferred tax liability. Some of the discussion of that can be found at 8 transcript, 536, and 548 to 550. 333 So, in light of all that of that at least one intervenor, I think, used the word "greedy," and I quote, to describe the company's position. I suggest to the Board that this leaves to the imagination what word one could possibly use to describe the intervenor position. The intervenor position apparently is that ratepayers, who were determined not to be at risk for the $168 million deferred tax liability in the 179-14/15 case, who were determined to have received a benefit of $50 million in lower gas distribution rates from the rental program, should not give up a single penny of the $50 million toward deferred taxes that became payable but should, in fact, be awarded with a further windfall from the company's shareholder amounting to more than $30 million -- I think that's before tax. But at least amounting to more than $30 million. 334 For all of these reasons, and for the reasons given in argument in chief, the company submits that the Board should reject the intervenors' submissions and should allow draw-down from the notional utility account in the manner proposed by the company. 335 I'm sorry for the length of that. It was a little longer than I had expected. 336 MR. BETTS: Thank you, Mr. Cass. 337 [The Board confers] 338 MR. BETTS: We were just trying to contemplate, really, I'm certain we all need a break at this point, so that's a certainty. We'll take a short break. Let's make it a 20-minute break, that will bring us back here at quarter to 12. And we will continue, then, for perhaps a shortened period and then a lunch break following that. 339 We will return, then, at 11:45. 340 --- Recess taken at 11:25 a.m. 341 --- On resuming at 11:49 a.m. 342 MR. BETTS: Thank you, everybody. Please be seated. 343 Mr. Cass, we do not have any further questions. I left it kind of open as we parted. 344 And who is next? I believe it's Ms. Persad; is that correct? 345 MS. PERSAD: Well, you guessed correctly. It wasn't the original plan that we outlined to you at the beginning of the day, but circumstances have changed. 346 Mr. Klippenstein has notified us that he has some comments to make in relation to an e-mail that we sent out to intervenors last week, notifying them that we would be making some submissions with respect to rate implementation and timing of the Board's decision. And Mr. Klippenstein wanted to just respond to those remarks. However, I wasn't going to raise them until I came to that issue, which originally was scheduled from this morning's schedule to be this afternoon. But because we didn't want to keep Mr. Klippenstein here all day, we thought we would address those now. 347 And so the way that would change the order that Mr. Cass gave you this morning is, I will be doing my issues before Mr. O'Leary and, in fact, I'll be changing the order of my issues somewhat, dealing with rate design right now, then moving to the 2005 CASDA, then the Union Gas storage contract, and then Mr. O'Leary will address his three issues, and then Mr. Cass will conclude. 348 That's right. And Mr. Klippenstein will deal with his rate design comments once I finished my submissions on the rate design issues. 349 MR. BETTS: Very well. Thank you. Please proceed. 350 REPLY SUBMISSIONS BY MS. PERSAD: 351 MS. PERSAD: So, Mr. Chairman and Board Members, I have also passed up to you a compendium of documents to which I intend to refer during these arguments. And because I had originally assumed that I'd be dealing with the arguments in the order that I did in the argument in chief, that's the way the compendium is designed. 352 However, if we're looking to the rate design issues first, then the first tab that you'll be referring to is tab 27 of the compendium. And I will just note that there is a table of contents at the front of the document which tells you exactly what the evidence references are. 353 MR. SCHUCH: Mr. Chair, that would be Exhibit K.17.2, compendium of documents submitted on behalf of Enbridge Gas Distribution Inc. for reply argument on issues 5.1, Union Gas storage contract; 11.2, 2005 CASDA; 15.1 and 15.2, rate design. 354 EXHIBIT NO. K.17.2: COMPENDIUM OF DOCUMENTS SUBMITTED ON BEHALF OF Enbridge GAS DISTRIBUTION INC. FOR REPLY ARGUMENT ON ISSUE 5.1, UNION GAS STORAGE CONTRACT; ISSUE 11.2, 2005 CASDA; ISSUES 15.1 AND 15.2, RATE DESIGN 355 MR. BETTS: Thank you. 356 MS. PERSAD: Thank you. 357 So, first I'll deal with issue 15.1, which is the removal of rate seasonality. And like Mr. Cass, Mr. Chairman, I would invite the Board to ask any questions that it may have during the course of my argument. 358 So, parties opposing the company's proposal on this issue are three: Energy Probe, Pollution Probe, and Green Energy Coalition. And these parties ask the Board to reject the company's proposal on two grounds; namely, the perceived adverse effect on energy conservation behaviour, and two, cost causality. And I will deal with each of these points in turn. 359 First, with respect to energy conservation. The primary ground for opposition to the company's proposal is on this basis, that these intervenors perceive a negative, adverse effect on consumer energy conservation efforts, with particular emphasis on water-heater-only customers. The company submits that there is no reason for the Board to reach this conclusion. Simply put, the company believes that removing seasonality is immaterial to the consumer. Logically, then, it should not have any impact, positive or negative, on consumer behaviour. 360 The company's evidence explains that the relative impact of the approximately 28 cent per cubic metre commodity price very likely overshadows consumer attention to the two and a half cent seasonal differential in distribution rates. And that evidence is reference volume 6 of the transcript, paragraph 453. 361 And the company bases its conclusion on the minimal change in the payback period for high-efficiency furnaces relative to mid-efficiency furnaces. And this evidence is given at Exhibit I, tab 18, schedule 115. 362 And the other evidence references with respect to the minimal bill impact of removing seasonality -- and just to recap what that evidence was, it's 50 cents per month increase on the high end and approximately 7 cents per month decrease for the typical rate 1 customer. 363 The fact that the customer group intervenors, that is, VECC, CCC, IGUA, Schools, and CME, are supporting the company's proposal, I submit, serves as further evidence that the proposed change is immaterial to them; otherwise, I expect that those groups would have made their views known. 364 The company does not object, in principle, to having peak/off-peak pricing signals. However, we submit that the delivery rate seasonality is not the appropriate mechanism by which to achieve that aim. 365 The company believes that the quarterly derivation of rates through the QRAM process adequately addresses the need to reflect gas market price signals in rates. And the QRAM price signal is effective because it is significant relative to the delivery charge, it is simple, and it changes rates on a quarterly basis should the trigger be met. 366 At some point, I suggest, there is a diminishing return from the effort required to produce various types of price signals. And the current rate seasonal differential is an example of that diminished return threshold having been reached. 367 In the company's view, the customer is more concerned with the overall bill impact rather than the impact of the individual elements of the bill. Moreover, the delivery charge seasonality is not actually reflected on the bill in express terms, like the commodity charge. Therefore, the company questions whether individual customers would even be aware that there is a seasonal differential, let alone allow it to influence their consumption pattern. 368 Now, opposing parties rely upon CME Interrogatory No. 77, and this is the first reference that I'll refer you to in your compendium, under tab 27. They refer to this to support their conclusion that rate deseasonalization will have an adverse effect on water heater loads. And in this respect they're referring to parts B and C of the company's interrogatory response, which I'll just recap briefly. 369 Part B states that, according to that research, 22 percent of the customers who converted to natural gas in fiscal 2003 installed a natural gas water heater compared to 70 percent in fiscal 2000." 370 Then it goes on to talk about erosion of market share. And then part C says that: 371 "Union Gas is experiencing similar market share erosion." 372 Now, I suggest that the question of why the installation of gas water heaters is declining is not a simple question to answer, and the evidence on the record really does not provide the Board with that answer. Whereas the intervenors would have the Board believe that the existence of rate seasonality influences the consumer's or developer's choice of whether to install a gas water heater, the intervenors offer no evidence to support that assertion. 373 I suggest that that evidence would be difficult to obtain. What the evidence does indicate is that gas water heater usage and installation is influenced by factors other than rate seasonalization, and this is indicated in another interrogatory response, which is copied for you under tab 28 of your compendium. And that is CME Interrogatory No. 62. If I could just ask you to turn that up. 374 What that interrogatory response indicates is that in the company's view equipment costs are what drive decisions of whether to install gas water heaters. And here I'm referring to the introductory remarks in the response. I'll just read into the record: 375 "When assessing the competitive position of various energy sources, it is important to consider the purchase price of equipment, the cost of installation, and the ongoing operating costs. Natural gas water heaters are at risk of losing market share due to higher equipment cost." 376 And then it goes on to explain why there is a higher equipment cost and how that cost is increasing, which I won't read. But even if gas rates do factor into consumers' decisions to install a gas water heater, there is no evidence to suggest that consumers identify the delivery component of those rates as separate from any other element of their overall gas bill. And again, I suggest that it really is the bottom line of the gas bill upon which consumers focus, rather than its individual line items. 377 I further submit that the research referred to in the previous interrogatory response I referred you to, CME's No. 77, really is no support for the intervenors' position because it shows that the existence of a rate seasonal differential did nothing to prevent erosion of the company's water heater market share. Also, the fact that Union Gas is experiencing similar market-share erosion implies that the less frequent installation of gas water heaters is an industry-wide phenomenon, and not specific to Enbridge Gas Distribution. 378 Finally, I suggest that if the company believed that its proposal would indeed have an adverse effect on load and gas-system costs, as the intervenors suggest, the company would not have made its proposal. And intuitively, I think it is fair for the Board to assume that the company is adverse to a decrease in load and an increase in gas system costs. 379 So I conclude my remarks on the energy conservation factor by advocating that if the Board agrees with the company's view that the bill impacts of removing rate seasonality are indeed immaterial, then the intervenors' arguments with respect to the perceived effect on consumers' energy conservation behaviour are irrelevant, because by definition, an immaterial impact does not influence behaviour. 380 So the second point I turn to on this issue from intervenors' arguments is with respect to cost causality. And Energy Probe is alone in its resistance to the company's proposal to eliminate rate seasonality on cost causality grounds. They advocate that rate seasonality sends directionally correct economic signals, albeit modest ones. 381 The company's response to this is that the company's proposal to remove seasonality in rates does not offend cost causality or other rate design principles, for that matter. As stated in the argument in chief, the current seasonalization in rates only partially reflects the incremental cost of delivering gas in the winter months. And this is because it only accounts for the annual cost of delivered storage from Tecumseh and Union Gas. And the other elements of the winter delivery incremental cost are captured as load-balancing costs in the PGVA. And this is appropriate because the company's gas cost purchases are annualized or averaged over a 12-month period. 382 In any event, cost causality is only one consideration of rate design. Other factors must also be considered in designing rates, recognizing that precise cost causality is not achievable, given the company's large and diverse customer base. And these other factors include considerations such as administrative expedience and customer impacts. 383 In this case, the company's proposal recognizes that because the partial reflection of cost causality in rate seasonalization is an immaterial price signal, in the company's view, for consumers, it causes more confusion than assistance. In addition, maintaining seasonalization is an administrative burden for the company and is unjustified in light of the fact that no other Canadian utilities incorporate seasonality into their rate structures. 384 Energy Probe also suggests that the benefit of deseasonalization would be de minimus, to which I reply that the company would not be making this proposal if that were the case. 385 Now, all intervenors who advocate denial were proposing that the company study options for increasing the seasonality in distribution rates and/or instituting seasonal load-balancing charges. What intervenors have failed to recognize or acknowledge, in making that proposal, is that the company removed the seasonal element in the load-balancing charge in a previous case, and that is in the RP-2001-0032 case. They did that with the agreement of all of the intervenors. And I've copied for you the excerpt from that settlement proposal. It can be found under tab 29 of your compendium. If I could ask you to turn that up. And at page 46 of that settlement proposal you'll see what I'm referring to about how the company removed the seasonal element in the load-balancing charge. Under the first bullet -- that doesn't sound promising. 386 Under the first bullet of that issue, 12.1, rate design, ECG's proposal to change the allocation and recovery of carrying costs related to gas and inventory, it deals with other matters of rate design and cost allocation, but the portion of it that I would like you to reference is in the first bullet, starting with the first sentence: 387 "ECG's proposal is intended to achieve a better matching between costs and revenues, and thus, to promote fairness among the rate classes by means of two changes." 388 And they speak to one but it's the second one that's relevant for our purposes. And it's in the second-last sentence: 389 "The other change is an extension of the period, 12 months instead of 4, over which the allocated costs are recovered. The allocated costs would continue to be recovered in the delivery charge for general service customers and otherwise in the gas supply load-balancing charge." 390 So this is the change that the company effected in that case. And I note that none of Energy Probe, Pollution Probe, or Green Energy Coalition, participated in either the discussion or the settlement of that issue. 391 In the result, I submit that further study of the rate seasonalization issue would only really be recreating the wheel. And, as such, it really is not necessary in the circumstances. Moreover, the Board should reject the intervenors' submissions because, in the company's view, the QRAM process provides adequate enough price signals to influence energy choice, and to encourage energy conservation. And the company believes that the QRAM process is the proper avenue through which to provide such signals, given the fact that gas supply costs are annualized. 392 So in summary on that issue, 15.1, I simply urge the Board to accept the company's proposal to remove rate seasonality for all rates except rate 135. And, unless there are questions on that issue, I can move to the next. 393 So, the next issue is issue 15.2, dealing with an increase in the rate 1 customer charge. 394 And four intervenors made submissions against the company's proposal to increase the rate 1 customer charge from $10 to $11.25. And they are VECC, CCC, the Green Energy Coalition, and Pollution Probe. All other parties supported the company's proposal. 395 Both VECC and CCC suggest that the company should somehow be less committed to its proposal in light of its revenue neutrality. I wish to assure the Board that this is not the case, and note that typically all cost allocation and rate design proposals the company puts forward are revenue-neutral. 396 The company remains committed to the reasonableness and equity of the proposed change for the reasons set out in the argument in chief, and those are, just briefly, I'll summarize: A better reflection of cost incurrence, reduction of interclass cross-subsidies in rate 1, modest bill impacts, and parity with other utilities, such as Union Gas and Toronto Hydro. 397 Now, the Board must weigh the company's rationale against the intervenors' concerns about customer impacts and conservation signals. 398 And, first, I will deal with the customer impacts. Although the company acknowledges that some rate 1 customers will experience an overall increase in their bill, that increase is very modest, less than $9.50 per year or 80 cents per month for the most impacted of customers. And these customers constitute only 1 percent of the company's customer base. 399 By the same token, as a reflection of the revenue neutrality of the company's proposal, of course, other rate 1 customers will experience an overall modest decrease in their bill of the same magnitude. And the company submits that these bill impacts ought to be acceptable to consumers and to the Board, given the company has made no change to this component of the bill for almost five years. 400 Now, the evidence states that prior to 2000, customers experienced an increase in the monthly customer charge of approximately $1 per year for three consecutive years, and in this respect, Mr. Chairman, Board Members, I refer you to tab 30 of the compendium, the second page in, and it is Exhibit I, tab 18, schedule 117 from the record. And it gives you the schedule of Board decisions and the monthly customer charges. From 1996 to 2000, it went from $7 to $10, approximately a $1 increase per year. And this was acceptable to the Board in those years. And there's no evidence to suggest that it was unacceptable to consumers. 401 Now, the intervenors rely on a monthly customer charge focus group analysis from 1996 to support their claim of customer resistance and conservation concerns. And that report, the excerpts to which I will refer, is at the back of that same evidentiary reference, under tab 30 of your compendium. 402 In my submission, that report does not substantiate the intervenors' positions for the reasons stated by the company's witnesses, namely, that the survey was looking at a much larger increase, that is, to 100 percent recovery of the fixed costs, in the customer charge. And the cost of the commodity in 1996, when that study was done, was significantly lower than it is today relative to the delivery charge. 403 And the portions of that study to which I'll refer you are very brief. If I could just refer you to page 1 of that study, which is the second last page of that excerpt, it's the first bullet under the second bolded paragraph. It starts: 404 "Raising fixed charges to the level of full cost recovery was not a well-received scenario, particularly among small commercial/industrial customers." 405 And so this is all I want to refer to you, to confirm that this is what the study was looking at. It was looking at full cost recovery of the fixed charges. 406 And if you would flip the page over, chart G from that study, you can see from the options that consumers were looking at a much larger increase than what we're speaking of here. It was going from $7 per month as the current customer charge to, eventually, a $20 per month customer charge, either within one year or over a number of years, phased-in. So, it is a much larger increase we were looking at in that study. 407 Therefore, I submit that the conclusions of that study really are inapplicable to the proposal before the Board in this case. 408 Now turning to another concern, and that is the impact on low-income consumers, VECC rallied against the company's proposal on the basis that its low-income constituents would be adversely affected. Unfortunately, VECC gave no support for its claim, and I suggest that the evidence sheds doubt on that conclusion. 409 Oh, yes. I was looking for my evidence reference. I knew I had it copied in here. It's under tab 31, the second page in. And this is from volume 15 of the transcript, paragraphs 595 to 596, during Mr. Janigan's cross-examination. 410 Sorry, it's not 595, it's 528 to 531. Mr. Janigan asks: 411 "Now, in telecommunications, there is a high degree of correlation between the income of the customer and the amount of telecommunication services that he or she consumes. Is there any such correlation in natural gas?" 412 Ms. Collier responded: 413 "Not that I am aware of. Not -- I'm not aware of that. We haven't performed such a study to say that low-income earners are low-volume users. I think it would depend on the amount of appliances they have in their dwelling and other factors such as that. But we haven't performed any such analysis to determine that." 414 Mr. Janigan asks: 415 "Or more particularly, whether low-income customers tend to be low-volume customers. You wouldn't be able to say?" 416 Ms. Giridhar responded: 417 "Well, as Ms. Collier said, we haven't done a study, but intuitively, a low-income customer would probably live in a smaller house -- home, but I would also question whether they would have perhaps the same level of insulation as a newer home or a larger home. So I think it's difficult to conclude on that basis that a small-volume customer is necessarily, or the low-income customer is necessarily a small-volume customer." 418 So I suggest that VECC's conclusions don't acknowledge that smaller, poorly insulated homes may consume more gas than larger, energy-efficient homes. 419 In any event, Mr. Chairman, I submit that although the company is sympathetic to economic hardship that some ratepayers may experience, the company does not and has never set rates on the basis that lower income consumers ought to be subsidized by higher income customers. This is not a principle of rate design, and the company would have no way of knowing the customers' income levels in applying such a principle. 420 So, moving on to another concern of VECC, and that is the company's adherence to various rate design principles. VECC also questions the company's adherence to those principles by pointing to the company's varying percentage recovery of fixed costs in different rate classes. And that's Volume 15 of the transcript, paragraph 600 from VECC's argument. 421 To this the company responds that its proposal is quite consistent with rate design principles, if you look more closely at the cost incurrence in the various rate classes. Inter-class cross subsidy is the greatest when capital costs are homogeneous for the entire rate class but volumes are not, such as we have in rate 1. 422 For all other rate classes there is greater heterogeneity in capital costs in volumes. In these other rate classes it is appropriate from a cost causality perspective to require the higher-volume customers to make a greater contribution towards fixed costs of that class, and the minimum-volume threshold for large-volume rates, that is, 340,000 cubic metres per year, does not negate the fact that there is a large range of consumption patterns within the class. And that it is to the tune of up to 100 million cubic metres in some rate classes. And I don't want to leave you with the impression that I'm just giving you this evidence off the top of my head. It is in an interrogatory response that I've copied for you, under tab 32 of the compendium, really in reference to a different issue, but nonetheless, the evidence is on the record. And it's really part K of that response that I'm referring to. And it's three pages in from the excerpt that's copied. It explains the tables that are provided at the back. It says: 423 "The tables provided separately for each rate class show the projected annual volumes by customer, total revenue based on the current methodology..." et cetera. 424 And so these tables that are attached simply show the varying ranges of volume consumption of customers, at the customer level, for the larger-volume rate classes. 425 The company also considers load factor differences between the minimum volume threshold for large-volume rate classes, and that is, while volume may drive customer-related costs, load factor drives capacity costs. And for a distribution company whose costs are mainly driven by capacity requirements, it is appropriate to seek homogeneity in capacity utilization rather than in volume. 426 The company further submits that the only way it really would be possible to achieve homogeneity in both capacity utilization and size would be to increase the number of rate classes or to proliferate rates, which really is undesirable from both an administrative and a regulatory perspective. So for these reasons I suggest that VECC's comparison of the company's proposed rate 1 changes to how other rates are derived is unsustainable. 427 Now to address the phase-in approach that VECC and CCC suggest. Both of those intervenors offer a compromise of either a smaller increase in the customer charge than proposed or a phasing in of the $1.25 increase over a two- or three-year period. The company urges the Board to reject these proposals because of the relative modest impact of the proposed increase. And because the Board-approved increases for Union exceed the company's proposal by 75 cents after one year, and by $2.75 after Union's two-year phase-in is complete. 428 And just briefly in response to the conservation concerns of this portion of the intervenors' arguments, I refer the Board back to the submissions I made earlier with regard to rate seasonality, and submit simply that the proposed changes will have an immaterial impact in the company's view on customer behaviour relative to the commodity cost impacts. 429 So, in the result, I ask that the Board accept the company's proposed increase to the rate 1 customer charge. And that concludes my submissions on issue 15.2. 430 MR. BETTS: Thank you. And the Panel has no questions on that issue, Ms. Persad. 431 MS. PERSAD: Okay. So Mr. Klippenstein will be happy that I'm now getting to the part that he's here to respond to. 432 And so before concluding those issues, there are some submissions I wanted to make to the Board regarding rate implementation and timing of the Board's rate order and the upcoming QRAM application. And I wanted to advise the Board in that regard, that the company did notify intervenors of its intention to make these submissions by way of an e-mail sent by Ms. Hare to all intervenors on Thursday of last week, so that they could be here to respond if they so chose. 433 And my submissions are these: In order to implement final rates by October 1 and incorporate the October QRAM adjustment on the appropriate rate base, the company requires receipt of a Board decision by the end of August. Now, we appreciate that this is a very ambitious timeline, especially given the complexity of the outstanding issues before the Board. 434 The dilemma that the company faces is that, in the settlement proposal, it has committed to implement the various cost allocation changes on October 1, 2004. In addition, the prescribed QRAM timelines necessitate filing of the QRAM application and supporting evidence in the first week of September. 435 So, in order to address all of these rate design and rate implementation issues in a way that minimizes rate retroactivity and reduces the inherent complexity of the required changes, the company has devised somewhat of a rate implementation plan or proposal. And the company's proposal attempts to ensure that customers will receive the benefit of the reduction in distribution rates on a timely basis. 436 I note that the proposal assumes an early Board decision, that is, by the end of August, on the rate design issues only. An explanation for which I will address after I outline the elements of the proposal itself. 437 So there are four elements to the company's proposal. The first being that the company will design interim 2005 rates based on the settlement proposal commitments and the Board's early decision on the rate design issues, and will file a draft rate order in the first week of September. 438 The second element is that the company will then use these rates as the basis for the rates derived for the October QRAM application also to be filed in the first week of September. 439 The third element is, subject to the Board's approval of the two interim rate orders, that is, the QRAM rate order and the 2005 rate order, the company will implement interim rates on October 1, 2004. 440 And the fourth element is that the company will adjust rates to incorporate the remaining aspects of the Board's final decision on 2005 rates, when received, and will address issues of retroactivity at that time, if necessary. 441 Now, the company's rationale for requesting an early decision on the rate design issues is as follows. The outstanding issues before the Board include some cost items that will have implications for the level of rates, such as deferred taxes and transactional services, and some rate design issues, such as issues 15.1 and 15.2. And those rate design issues have implications for the recovery of the revenue requirement over the entire year. 442 The reason why the company is requesting that the Board issue an early decision to deal with the rate design issues, in particular, is in order to keep their revenue-neutral effect intact. That is, although the removal of rate seasonality and an increase to the customer charge for rate 1 are revenue-neutral over a 12-month period, they would not be revenue-neutral over a subset of the year, that is, nine months of the year, if rates are implemented on January 1 instead of October 1. 443 These changes would be revenue-neutral only if all charges billed from the start of October 1 were "unbilled" and "rebilled" at the new effective rates. 444 So, you can probably appreciate how this would be very cumbersome from an administrative perspective for all 1.6 million customers, and it would likely cause a lot of customer confusion. 445 Typically, the company uses a rate-rider mechanism, or a unit rate adjustment, applied to volumes to effect retroactive adjustments. These rate riders work well for adjustments to the level of the rate, but they never were intended to effect revenue-neutral rate design changes. 446 The company submits that it will be more expedient, therefore, and straightforward from a customer perspective, and less administratively cumbersome for the company to address all of the rate design issues together, prior to October 1, which is why we are requesting an early decision on those items. 447 In contrast, other rate adjustments necessitated by the Board's decision will only affect revenue requirement, and can be more easily implemented at a later date with a one-time adjustment or rate rider to incorporate any retroactive component. 448 So that, Mr. Chairman, concludes my submissions on the rate design issues and the timing of their implementation. I'd be happy to answer any questions if you have any. 449 MR. BETTS: Could you be specific in, I think, for the record, just identifying which issues you feel then would fall into that early-decision group? 450 MS. PERSAD: Yes. The only issues that would fall into that group, Mr. Chairman, are the two rate design issues, issue 15.1 and issue 15.2. 451 MR. BETTS: Okay. Thank you. 452 And I know that Mr. Klippenstein is here to comment on that. Are there any other intervenors present that wish to comment on that, this particular proposal? Mr. Klippenstein, or -- first, Ms. Persad, was there something else? 453 MS. PERSAD: Sorry, I just had one point to add, if that's okay, and that is, the company would appreciate even an early decision, with reasons to follow, on those points, if that would work better for the Board. 454 MR. BETTS: Thank you very much. 455 And Mr. Klippenstein, your comments. 456 SUBMISSIONS BY MR. KLIPPENSTEIN: 457 MR. KLIPPENSTEIN: Thank you very much, Mr. Chair, and Members of the Panel. I'm very appreciative of the accommodation provided by the company and the Panel in terms of the timing of my presentation. 458 I received, as did other intervenors, the notice from the company about their intention to raise the timing issue. And I appreciate the fairness with which they've proceeded in providing that notice and their reasons for it. And that is why we're here today. 459 Pollution Probe supports the request for an early decision with respect to the 15.1 and 15.2 issues that Ms. Persad has mentioned. As you may have noted, Pollution Probe opposes the company's substance on those issues, so we haven't changed our position on that. We do, however, support the procedural issue, namely, the early timing. 460 We've reviewed the reasons and this was of special interest to Pollution Probe because you might recall that Pollution Probe also asked, on an earlier issue, for consideration of an early decision on the issue 10.1, in which Pollution Probe suggested that the Board give the company an early direction pertaining to bringing forward a proposal for a large boiler market transformation program with the necessary budget, so that the program could potentially be in place for January 1, 2005. 461 And what made that situation special was that the government had announced a multi-billion dollar program for funding renovations to schools. That situation, I mentioned at the time, made that a unique or special circumstance in which it might make sense for the Board to consider an early decision, and the same logic and the same reasons I provided then would seem to apply here. 462 In other words, this seems to be a special circumstance, in that a fair number of customers can benefit significantly from an early decision. And obviously, it's possible that an early decision might be a burden for the Board, considering everything else the Board has to do. But if it's not a significant decision for the Board to make a separate decision on one or both of those items, it might be a case where it is creative and sensible to do exactly that, in terms of timing. 463 And that would, in my respectful submission, represent admirably responsive regulation by this Board, by that I mean responsive to one or two special opportunities. 464 So, on that issue of timing, Pollution Probe would support the request of the company. And those are my submissions. And again, thanks to the Board and the company for accommodating my submissions. 465 MR. BETTS: Thank you, Mr. Klippenstein. The Board has no questions on your submissions. 466 Ms. Persad, we'll probably try to find a break, let's say, shortly after one. So you find an appropriate time, or let us know how you're proceeding with your submissions, as to an appropriate time to break. 467 MS. PERSAD: Yes. 468 MR. BETTS: And Mr. Klippenstein -- 469 MR. KLIPPENSTEIN: I wonder if I might be excused? 470 MR. BETTS: I was anticipating your question. And I certainly have no problem with your excusing yourself. 471 MR. KLIPPENSTEIN: Thank you, very much. 472 MS. PERSAD: And with any luck, Mr. Chairman, I will likely get through the 2005 CASDA portion of my submissions before the lunch break. That would be appropriate timing. 473 FURTHER REPLY SUBMISSIONS BY MS. PERSAD: 474 MS. PERSAD: So, if I might turn to that issue. I also have some evidence references copied for you in your compendium, beginning at tab 18. But I'm not going to refer to those right away, just if you could have it in hand. 475 But first with respect to the scope of this issue. After having read all of the intervenors' arguments on it, it appears that the only aspect left for the Board to deliberate on is whether the judgment-related costs are in or out of the 2005 CASDA. 476 The company interprets most, if not all of the intervenors' submissions to be supportive of the company's proposal to establish the 2005 CASDA and to at least record in it the costs of defending the Garland action, including the costs of experts such as actuaries required. And this position makes sense in light of the decade of history behind this particular deferral account. 477 Indeed, no intervenors argued expressly in opposition of the account's establishment on this basis. But if I am incorrect in this interpretation, then I would simply argue that opposition of the account proper is answered by the historical context in which it was established and accepted year after year by intervenors and the Board, and 2005 ought to be treated no differently. 478 The questions that Mr. Sommerville posed to Mr. Dingwall in the course of Mr. Dingwall delivering reply argument that the Board -- implies that the Board acknowledges this. And this is the first transcript reference, which I don't think you need to look at directly, but it's copied under tab 18 of your compendium. 479 But the other point upon which parties are ad idem, as confirmed by the settlement proposal, is that the question of recovery of the judgment-related costs from ratepayers is a matter best suited to a generic process, although we appreciate that the Board is not in a position to make a ruling on that submission in this case. So I will therefore focus the remainder of my submissions in response to intervenors' opposition to including the judgment-related costs in the 2005 CASDA. 480 But before I do that, I want to acknowledge the fact that two intervenors, Schools and Union, supported the company's proposal for inclusion of such costs in the account. 481 And I will borrow from Ms. Jackson's -- that's Union's counsel's -- categorization of the parties arguments in opposition to the company's proposal, as I believe that her categorization does capture the essence of the submission that were made. In fact, the company adopts all of the submissions made by Union on this issue, and I will attempt to not be repetitive in my response. 482 So the intervenors are opposing the company's proposal on basically two grounds: Those are prematurity and the implication of recovery. 483 Dealing with the first ground, then, prematurity. Intervenors put forward the uncertainty of the timing and quantum of the judgment-related costs as a reason for the Board to deny inclusion of those costs in the 2005 CASDA. I urge the Board to reject this reasoning because according to the company's evidence, it is quite likely that the company will incur the said costs sometime within the 2005 test year, as the Supreme Court has already passed judgment and some transcript references for that are Volume 5 of the transcript, paragraph 998 and paragraphs 1353-1356. 484 In contrast, the intervenors offered the Board no evidence to support their skepticism about this timing, and so the Board ought to accept the company's evidence on this point. The company agrees with the intervenors that the quantum is indeterminable at this time, and this was noted several times by the company's witnesses in the transcript, Volume 5, paragraph 1096 or 1288. 485 But this is no reason to deny recording of those costs, I suggest. In my submission, the exact opposite logic applies. In other words, one of the reasons why a deferral account is appropriate in the circumstances is that the company cannot budget for these costs. If the company could make such a determination, it would have included in the company's budget for the test year. 486 So, on prematurity in general, I agree with Ms. Jackson's submissions that it really is a red herring. If nothing happens in 2005 that would cause the company to incur judgment-related expenses, then no one will be any worse off than they are today. The Board should therefore reject the prematurity rationale. 487 MR. BETTS: Ms. Persad, just one question. And it relates specifically to that. 488 You did indicate that it is quite likely -- and those were your words -- that there would be costs incurred in 2005. And are you specifically referring to judgment costs? 489 MS. PERSAD: I am. I am, Mr. Chairman. I did not copy those specific transcript references that I quoted to you, but I can give you those again, if you like. It's in the evidence. Yes, they are specifically related to judgment costs. 490 MR. BETTS: That's fine. Thank you. 491 MS. PERSAD: So, on to the second point of intervenors' arguments, and that is the implication of recovery. I suggest that these submissions should also be dismissed by the Board. I referred to these in the argument in chief as under the category of the eligibility criterion. 492 As both Union and Schools point out, because the Board did not entertain submissions or evidence on the recovery debate in this case, the Board ought to be wary of wading into these waters on either side of the debate. Just as the intervenors suggest that questionable eligibility tilts the scales in favour of denial, I submit that possible eligibility tilts the scales in favour of acceptance of the company's proposal. 493 On balance, although the company maintains that there certainly is a possibility of eventual recovery of costs from ratepayers, I suggest that the approach the Board should take to this point is to exclude it from consideration. In that way, no prejudgment of the recovery issue can be implied by anyone. And on this point, I also commend Ms. Jackson's submission about section 36(4.2) of the OEB Act to the Board, and its clarity that the Board's annual review of non-commodity deferral and variance accounts involves a determination of both whether and how the amounts recorded in the account shall be reflected in rates. 494 And I did copy that portion of the Act for you. It can be found under tab 19 of the compendium. You are likely familiar with it, so you need not turn it up, but it is there for your reference. 495 In law, therefore, the Board is certainly not precluded from making its determination of whether the amounts recorded in a deferral account are recoverable in rates after the account has been established. 496 In fact, there are several examples in the Board's history of the Board denying recovery of deferral account balances. And I don't want to dwell on these too much, but I have provided for you a few examples of this, and copied them for you in your compendium. 497 The first would be an Enbridge Gas Distribution example, and it's RP-2001-0032 decision, the decision with reasons copied under tab 20 of the compendium. That case was dealing with the company's 2002 test year rate case. And the Board at paragraphs 3.12.35 to 3.12.41 of the decision gave their reasoning for why they were disallowing the $11 million out of the total $12.4 million in the notional deferral account related to the costs of transportation on the Alliance pipeline. 498 I've also provided for you a couple of examples from some previous Union cases in the following two excerpts in your compendium. The first is Union Gas EBRO 418 decision. It's from July 1986, so it's quite historical, and the Board in that decision, if you look under the heading: "Premium account 4," look to the end of that paragraph on page 81, the Board finds that: 499 "Delay is due to Union's mismanagement, applying the principles established in EBRO 377-1 and subsequent cases, and recognizing the delay caused by mismanagement, the Board will disallow accumulated interest and any return on the unamortized balance in the account." 500 And then I've also given another example in the subsequent excerpt copied under tab 22, from a more recent case, EBRO 486 of Union's, -04, and in this case the Board disallowed 5.14 million of winter gas cost purchases from Union's PGVA, and that's in paragraph 3.2.14 of that decision. 501 So, for the intervenors to suggest that the Board would somehow be tying its hands by accepting the company's proposal, I suggest is unfounded. The Board has never felt so bound in the past. 502 The intervenors suggest some alternatives to establishing a deferral account. And they are an accounting order and a tracking order. And I'll deal with each of these in turn. First of all, an accounting order. 503 For the most part, I did address to the accounting order alternative in the argument in chief, but as a quick summary of those submissions... 504 MR. SOMMERVILLE: Excuse me. 505 MS. PERSAD: Bless you. 506 MR. SOMMERVILLE: Thank you. 507 MS. PERSAD: The company's response is that deferring this issue to an accounting order application would not be the most efficient or appropriate approach to take because, one, the nature of the accounting order applications is normally more routine than a rate case; two, the company would be unsure of when it would be appropriate to apply for an accounting order, given that judgment-related amounts could be incurred by the company at different points during the test year; and, three, several other parties are admittedly affected by the late payment penalty issue, including other Ontario utilities, the government, and possibly businesses in other industries. 508 So, short of a generic hearing type of accounting order proceeding, the Board would still have to grapple with the same kinds of issues in adjudicating a subsequent accounting order application by the company as it is facing now. 509 Therefore, in essence, we would be no further ahead with an accounting order application than we are today, and we will have wasted more of the Board's and the parties' scarce time and resources in getting there. 510 I suggest, therefore, that the accounting order really is not a viable option in the circumstances. 511 MR. BETTS: Ms. Persad, one point you made was that we would be "no further ahead" in considering an accounting order at that time. Surely you would -- we would have, in fact, the results of a judgment at that time to consider. 512 MS. PERSAD: Yes, thank you, Mr. Chairman. 513 My point on that is that it is possible that the company could be incurring these judgment-related amounts at different points in the test year. There are two amounts, I think, that we're dealing with here. There are the costs of the plaintiff and there are the judgment amounts themselves. And we're not sure if those are going to be dealt with together or if they're going to be dealt with separately. Indeed, we have no evidence on that point. 514 My other -- I'm sorry, I just lost track of what else I was going to say. But that's my main point in relation to that. 515 And then the other point is that we're dealing here with a more generic type of issue, I would suggest, so that the Board would still have to grapple with those larger policy issues if it was dealing with an accounting order application from the company. 516 MR. BETTS: Thank you. 517 MS. PERSAD: So, the second alternative that intervenors put forward was the tracking account. And the specific -- the intervenors, in particular, who pursued this alternative were IGUA and CME. And in response to questions from you, Mr. Chairman, Ms. Street described this tracking account as a spreadsheet like a computer program kept separate from the books of account used to record the judgment-related costs. And this is at 14 transcript, paragraph 146 to 154. 518 In the company's submission, a tracking account is even less viable than an accounting order, because from an accounting perspective, a tracking account is a fictional concept; in other words, it doesn't exist. 519 Now, luckily, you don't have to take my word on that because I am certainly not an accountant, but I can refer the Board to the testimony of Mr. Ladanyi, who is an accountant, in the course of which he responded to Mr. Thompson that: 520 "There is no such thing as a tracking account in the Board's uniform systems of account." 521 And that's at volume 5 of the transcript, paragraphs 1050 to 1065. 522 Now, Mr. Thompson, on behalf of IGUA, suggested that the account that he was proposing be used for the tracking of costs was the same as that which was used for the Alliance and Vector tracking of costs relative to TransCanada PipeLines' costs, and this was illustrative of the type of account that the Board should establish in this case. 523 And in this regard I would ask you to turn up that transcript reference under tab 23 of your compendium. That's from volume 14 of the transcript, paragraphs 385 to 394, in fact, that whole page. 524 I won't bring you through it all but I did want to copy it for you for your quick reference. The point that I want to make here is that the difference in this case is that the notional account set up to record costs related to the Alliance and Vector transportation pass relative to TransCanada PipeLines were, as the name of the account suggests, notional. 525 In contrast, the CASDA costs that the company seeks to record therein are very real, and they will have to be expensed, as incurred, if there is no deferral account in which to record them. 526 Now, IGUA and also Schools - the Schools reference is 12 transcript, 142 - take issue with the company's need-to-expense claim, with IGUA suggesting that the company's auditors could decide whether the amounts recorded in the tracking account could be expensed now or later. Mr. Chairman and Board Members, this is another incorrect assertion, I suggest, as far as the rules of accounting are concerned. And, thankfully again, you need not take my word for it. What I've copied for you in the compendium under tab 25 is an excerpt from the CICA handbook, section 3290 of the CICA handbook, which deals with contingent liabilities, of which the Garland judgment for the company is one. 527 And I'll refer you specifically to section (12) at the third page in of that section, which reads: 528 "(12) The amount of a contingent loss should be accrued in the financial statements by a charge to income when both of the following conditions are met: 529 (a) it is likely that a future event will confirm that an asset had been impaired or a liability incurred at the date of the financial statements; and 530 (b) the amount of the loss can be reasonably estimated." 531 Then it goes on to talk about disclosure. 532 But my submission is that, as the future event of a court determination of some judgment amount the company must pay is quite certain, and the amount of the loss will be reasonably estimated either sometime before or when those judgments are received, both of the CICA handbook conditions are satisfied for accruing the Garland judgment contingent loss. 533 So, in response to Mr. Thompson's submission, I suggest that the company's auditors have no discretion whether to expense the judgment-related amounts at the point they become sufficiently determinable. 534 MS. NOWINA: Ms. Persad, can I ask you a question on that? 535 MS. PERSAD: Absolutely. 536 MS. NOWINA: And I'm not an accountant either, so this might be a difficult discussion from non-accountant to a non-accountant. 537 But even if the deferral account were allowed, with a strong caveat in the wording of the decision saying that it makes no determination as to future recovery, would the auditors not still have to look at that and see whether or not these tests applied? 538 MS. PERSAD: Sorry, I'm not sure that I completely understand the premise of your question. 539 MS. NOWINA: Well, if it's being recorded as a deferral account, if it's recorded as a deferral account, then the auditors still have to look at it in terms of the likelihood that that amount will be recovered, or will be an expense to the company, a liability to the company? 540 MS. PERSAD: If I could just confer for one moment, please. 541 MS. NOWINA: Sure. Yes. 542 MS. PERSAD: Yes, the simple answer to your question is yes, that the auditors will have to make that determination of whether it is a regulatory receivable. 543 MS. NOWINA: Okay. Thank you. 544 MS. PERSAD: So it is for these reasons that I urge you to reject the idea of establishing a tracking account. Which brings me to my conclusions, and I wish to leave the Board with the company's summary rationale for why accepting the company's proposal is the most attractive option both from a practical and a principled perspective. 545 Practically, permitting recording of the judgment-related costs in the 2005 CASDA disposes of this issue until the time that the recovery issue is ripe. Whether that be in some type of generic proceeding or in a future rates case, the Board need not deal with it again until that time. 546 If the deferral account alternative were denied on the other hand, the company could be applying for an accounting order at some point, likely in the near future, in the context of which the Board will likely be faced with the same kinds of arguments it is hearing today, as we discussed earlier. 547 On a more principled basis, however, the deferral account option is far more preferable from the company's perspective because of the obvious adverse effect expensing such large items before a determination on the recovery issue has been made will have on the company. And in this regard, I have copied some transcript references for you, which I would ask you to turn to. And these are under tab 26 of your compendium. 548 First, at Volume 5 of the transcript, paragraph 1083, Mr. Ladanyi stated in response to questions from Mr. Thompson: 549 "Well, suppose that there are costs incurred in 2005 and there is no deferral account. Then such costs would be expensed, and they would immediately go to the earnings -- against the earnings of the company, and therefore the shareholder would be immediately bearing that cost." 550 If I could ask you to turn the page to paragraph 1288 of that same volume, 5. Again from Mr. Ladanyi, in response to questions from Mr. Dingwall: 551 "Essentially, if we didn't have the account, the company would expense these costs. They would be an immediate hit to earnings. So therefore, the company's earnings would be reduced for 2005, if this event occurred in 2005, by that amount, whether it's 30 million or 50 million or 1 million, we cannot tell right now because we don't know what the amount is." 552 And then on to the next page, at the bottom of the page, paragraph 1415, starting with a question from Board Counsel, Ms. Lea: 553 "I guess that's what I was trying to determine. If you have to record amounts against earnings in 2005, in theory, you could be allowed recovery at a future time and have an extraordinary gain to put towards earnings in another year; is that not the case?" 554 And Mr. Ladanyi responded: 555 "I'm not a financial expert, but I think that most companies try to avoid having losses in one financial period and gains in another one. I mean, that affects the company's ability to raise debt and, as you know, Enbridge is a company that requires a lot of debt refinancing to keep making investments, and for example, in plant, for Enbridge Gas Distribution, for mains and services, to provide service to an additional, let's say, 50,000 customers each year. So there is a lot of demands on the company to keep raising money and having a large fluctuation in earnings would be a very, very serious consequence, and we would -- I think the Board would like to avoid that." 556 That's the end of those transcript references. 557 So, Mr. Chairman, having a deferral account in which to record the amounts, I suggest, will enable a clean, efficient, and non-prejudicial adjudication of the recovery issue, when that issue is mature for consideration. 558 MR. BETTS: The Panel has no further questions on that issue either, Ms. Persad. 559 MS. PERSAD: Thank you. 560 MR. BETTS: We have one more -- you have one more issue to cover? 561 MS. PERSAD: I have one more, the Union Gas storage contract issue, which will be a little bit more lengthy, and then Mr. O'Leary has three, and then Mr. Cass. 562 MR. BETTS: I think then it would be appropriate to break for lunch at this point. Just in case you are unable to keep up this pace and get us all completed on time, we're going to have a shorter lunch than normal, but we found a half an hour just didn't work. So let's try for 45 minutes. We'll aim to be back here -- well, let's press it and say 1:45, we will reconvene. Thank you. 563 --- Luncheon recess taken at 1:05 p.m. 564 --- On resuming at 1:48 p.m. 565 MR. BETTS: Thank you, everybody. Please be seated. 566 Thank you. Welcome back from our short lunch break. 567 Were there any matters that arose during the lunch break that I should be aware of? 568 MS. PERSAD: No. 569 MR. BETTS: Then, Ms. Persad, please continue. 570 MS. PERSAD: Thank you, Mr. Chairman. 571 I will now address issue 5.1, dealing with the Union Gas storage contract. And I've also copied some materials for your compendium in relation to this issue, which I'll draw your attention to as I come to them. 572 Intervenors made various arguments in opposition to the company's proposal that the Board approve the cost consequences of the Union Gas storage contract, which I'll refer to herein as just "the storage contract" in the rest of these submissions. 573 But before getting into the finer points of the intervenors' arguments, I just want to make the general observation that I believe the Board can take a relative amount of comfort with the company's position on this issue, given the Board's prior approval of the storage contract in the RP-2004-0137 decision, other than the cost consequences of it. 574 But in short, I submit that the Board should approve the cost consequences of the storage contract because of the many benefits the ratepayers will receive, and those are clearly outlined in the company's evidence. 575 And intervenors, I submit, have not raised any reasonable grounds upon which to challenge the prudence of the company's decision in entering into this contract. 576 For the purpose of my response I've grouped the intervenors' arguments into three categories, and those categories are: 1, the prematurity of the contract in the context of the Natural Gas Forum; 2, whether the company has sufficiently justified the benefits of the contract; and 3, the motives of the company for entering into the contract. 577 So, first and foremost, dealing with the prematurity question vis-a-vis the Natural Gas Forum. With the exception of the Schools Energy Coalition, intervenors argued that approving the cost consequences of the storage contract would be premature at this time because of the Board's intention to review, amongst other things, the regulation of storage and transmission in the Natural Gas Forum. 578 The School Energy Coalition didn't reference the Natural Gas Forum specifically, but did imply in their argument that the Board has not already decided that the company's previous M12 contract with Union shall be renewed at market-based rates. And they did this in characterizing what they called "the crux of this issue," issue 5.1, as depending upon the assumption that, in 2006, Union will be allowed to commence charging Enbridge market rates for storage. 579 The company agrees with Mr. Shepherd that this really is the crux of the issue because, once the Board has determined whether it will follow its previous decisions, the question of whether to approve the cost consequences of the storage contract becomes a much easier one to answer. In the company's submission, the Board ought to approve the cost consequences of the storage contract and find that the company's decision to enter into the contract was prudent, regardless of what direction discussions in the Natural Gas Forum may take. 580 In the company's view, the Natural Gas Forum ought not to distract the Board from accepting the cost consequences of the storage contract in this case. And I have four reasons for stating this. 581 The first is that there really is no indication that the Board will consider issues already decided in previous Board decisions in the Natural Gas Forum. So we must ask ourselves, then, what will the Board, or what is the Board likely to consider in that forum? 582 To date we have been told, and this is pursuant to an exhibit already filed as Exhibit K.8.1, that in broad terms, the Natural Gas Forum will address the regulation of storage and transmission. Now, since the intervenors delivered their arguments, the company has had the advantage of receiving an even more recent Board announcement, on July 21, 2004, which I have copied for you in your compendium, concerning the Natural Gas Forum. And I believe this sheds more light on the debate of what will be considered there. 583 So, if I can take you to that, it's under tab 1 of your compendium, and in this communication, the Board states that the Natural Gas Forum will take -- there are three steps that the Board sees at this point. There's going to be a preparation of discussion papers; there are plans for a technical conference; and, following that, there will be the preparation of policy papers. 584 And what I wanted to draw your attention to, first and foremost, is the preparation of discussion papers, because it's in here that the Board gives some more detail on what they intend to consider, or, at least, the consultant intends to consider, with respect to that initial document regarding storage and transmission. 585 And here I draw your attention to the bottom of that first page, where it starts: 586 "The storage and transmission paper will provide an analysis of the market conditions that exist in Ontario and within the North American context, including the changing role for storage assets, potential system impacts associated with increased levels of gas-fired electricity generation, and perspectives on variations in the level of investment in storage and transmission infrastructure. The next major section will provide a review of how other jurisdictions have dealt with storage." 587 And then the final component of this paper will provide policy alternatives and provide criteria for evaluating these alternatives, et cetera. 588 And then, of course, the Board will have a technical conference, which is stage 2 of it, and at this stage, the Board knows that the parties may wish to engage their own experts, either to identify other policy options or to consider and comment on the policy options identified. And then the Board will produce policy papers on these various matters. 589 And then the Board says that it will then commence another process respecting the implementation of any regulatory instrument at that stage. 590 But I suggest, Mr. Chairman, that nowhere in the text in this Board communication is it stated that the Board will reconsider whether Union's M12 customers, upon renewal, and whose contracts have already been approved by the Board, will be charged market-based rates for storage services. 591 And nor does the text suggest, in my submission, that the discussion paper will be considering the more generic issue of whether all Ontario end-users should have access to storage at cost-based rates. Instead, I submit that the text suggests that the Board will likely be looking more to building upon policies that have been formed in previous decisions, rather than creating policies that contradict previous decisions. And I also suggest that, if the Board were contemplating the latter, it would have made these explicit in its notice to interested parties. 592 But nevertheless, the company does not presume to know what the Board's intentions are. Only the Board knows that, and I am sure that the Board wouldn't want to fetter its discretion in any way, at this time, deciding what the Natural Gas Forum will consider. 593 The company can only, as it has done in the case of the storage contract, take direction from the Board's previous decisions and existing policies in conducting its business affairs. 594 And so this takes me to my second point regarding the Natural Gas Forum, which is this. The company's actions in entering into the storage contract were based upon its interpretations of previous Board decisions, which are clear in directing that Union's M12 customers will be paying market-based rates for storage upon renewal of their existing contracts. 595 Now, in contrast to the company's interpretation of how events have evolved, the intervenors' submissions assume that the Board will reverse its past decisions and policies with respect to storage regulation, or at least look at them very seriously. The company suggests that this is unlikely, which is why the company felt comfortable entering into the storage contract on the terms it did. And more particularly, the intervenors' submissions fail to acknowledge that the Board has been reviewing the regulation of storage for the past several decades, since the Board's inception. In fact, that really is part of the Board's mandate under the OEB Act. 596 The Board regulates, amongst other things, rates for the storage of gas in addition to regulating the construction of the rate-related facilities and certain other aspects of storage activities, such as storage contracts. 597 I suggest that there really is nothing especially extraordinary or novel about the Natural Gas Forum that should cause the Board to halt or suspend its normal oversight and regulation of storage while the policy debates continue. And this is especially so when you consider that the Board's history on this issue has been very consistent. 598 In other words, the debate of whether it is appropriate to be charging market-based rates for storage is really not a new issue. Several of the Board's past decisions have dealt with the issue of market-based storage services being provided by both Union and Enbridge Gas Distribution. 599 Now, admittedly many of these decisions relate to short-term storage services. The details of which I wasn't proposing to get into here because it really is long-term storage services that this case is concerned with. But if the Board wishes, I can give a brief synopsis of those short-term storage services decisions. I do have them listed here. I didn't copy them for your compendium, but I can give that synopsis if you wish. 600 MR. BETTS: I think the listing would be helpful, but you don't need to give us a synopsis. 601 MS. PERSAD: Okay. Well, briefly, Mr. Chairman, then, those decisions date back to 1989, in my list. And they start with EBO 166 for Union Gas, which dealt with a blanket approval for short-term storage contracts, for less than one year in term, and less than 2 Bcf in volume. 602 Then we move to EBO 190 for Enbridge Gas Distribution, which granted a similar blanket approval, then EBO 192 and 199, just building upon those issues, really. And then in 1996, EBRO 492, which dealt with rate 330 of Enbridge Gas Distribution, and the transactional services side of storage services, EBRO 495, which followed that case and built upon it, and then finally in that series, we get to Union's RP-1999-0017 case, which extended that blanket approval to Union's northern and eastern operations area. And that was at paragraph 5.6 of that decision. 603 But with respect to the long-term storage services, I'd like to also briefly mention the highlights of the previous Board decisions. Union cases EBRO 486/02 and EBRO 494/03, and RP-1999-0017 culminated in the Board's approval for Union to renew existing ex-franchise cost-based storage contracts at market prices. And here I'd like you to refer to, under tab 2, I've inserted the fuller excerpt in loose form for your reference because the original copying, unfortunately, we only copied one page of the Board findings in that case. It is from RP-1999-0017. And here we're dealing with the Board's findings regarding treatment of market-priced storage. 604 If I could just refer you to paragraph 2.499 of that decision, page 140. The Board states: 605 "The Board notes that in EBRO 494/03, issued in 1997, the Board gave approval to the application of market-based rates to certain ex-franchise storage contracts under certain terms and conditions." 606 Then if I could skip to the next paragraph, 2.500. 607 "The Board notes that with the exception of VECC, no parties argued against the renewal of M12 contracts at market-based rates." 608 And then it goes on to talk about what VECC's opposition was based on, and so on. 609 But then if I could refer you over to the next page, which is where the Board decision lies, paragraph 2.504 states: 610 "The Board grants Union's proposal to renew existing ex-franchise cost-based storage contracts (M12) at market prices." 611 And then the Board goes on to talk about how the market premiums are going to be dealt with. 612 But leading up to the 0017 decision, the Board dealt with the transition issues in EBRO 494/03, and in that case, which Mr. Thompson did refer to in his cross-examination, the Board alerted Union's existing M12 customers, which include Enbridge Gas Distribution, to the possibility of moving to market-based rates for storage being offered to them by Union, and stated that existing M12 customers should be given an opportunity to make necessary adjustments to their supply arrangements, "to reflect a new market structure and storage allocation philosophy." 613 And I have copied that portion of the decision for you under tab 3 in your compendium. If I could just draw your attention to paragraph 2.5.35, which states: 614 "The Board notes that all three M12 storage customers are Canadian LDCs and the Board accepts that for the most part these contracted storage volumes are required to serve their in-franchise customer needs and are not contracted for the purpose of resale to a secondary market. The simultaneous contracting for transportation capacity to the LDC's transportation area provides for greater certainty in this regard." 615 And then in 2.5.36, to which I just referred: 616 "The Board recognizes that in any transition there is the prospect for perceived discriminatory treatment of different customers with similar service requirements. The Board is of the view that the existing M12 customers are different from potential new customers for Union's storage services since they have established their existing business arrangements based on their historic access to Union's storage services at cost-based rates." 617 And then to the quote I referred to: 618 "The Board believes that such customers should be provided an opportunity to make necessary adjustments to supply arrangements to reflect the new market structure and storage allocation philosophy." And so on. 619 And at paragraph 2.5.37: 620 "According to the evidence, some 18 months to three years' lead time is required to make alternate arrangements for large volumes of storage should this be necessary." 621 So the Board recognized that some lead time is required to put such arrangements in place. 622 And finally, and I didn't copy this decision but I will mention it, the Board's decision in Union's Century Pool Development Phase I development application has a range or various numbers associated with it: EBLO 268, EBO 206, 207, 208, EBRM 111. It dealt with Union's request for Board approval of storage contracts at prices resulting from an open-season bidding process. And one of the storage contracts that the Board was asked to approve, which is what I will refer to more specifically, was between Union and Utilities Kingston, an Ontario municipal utility. And the result of the Board's approval in that case is that end-users in Ontario were now paying market prices for storage services from Ontario-based storage facilities. And on May 26 of this year, the Board again confirmed its acceptance of the Utilities Kingston arrangement in RP-2004-0141, EB-2004-0221, and that is filed as Exhibit J.1.6 in this proceeding, and copied for you under tab 3. And it is in this proceeding that the Board-approved a ten-year gas storage contract between Utilities Kingston and Union. 623 There have been other Board decisions that have addressed the issue of storage deregulation involving other parties, but I haven't included those here. But an example would be the CanEnerco case. 624 The last decision I want to mention in the long-term storage services list is the Board's decision in RP-2004-0137, EB-2004-0126, copied for you under tab 5 of the compendium, which has already been referenced several times in these proceedings, including in the argument in chief, but I believe it bears mentioning again in this context because the Board's approval of the storage contract in that proceeding is wholly in line with all of the Board's previous decisions on the storage regulation topic. 625 And again, I feel the need to emphasize that the Board expressed no concerns with the storage contract in that case, despite the fact that the Natural Gas Forum had already been introduced several months prior. 626 So, if the Board were contemplating a departure from or reversal of past decisions and policies, I suggest that the Board would have taken the opportunity to notify Union of this in that proceeding. There is nothing on the record to suggest that the Board didn't have that opportunity. 627 Board denial of the recovery of the cost consequences of the storage contract on the presumption that the Natural Gas Forum will reconsider the rates to be charged to Union's M12 customers for storage services would, in the company's submission, be directly inconsistent with not just one but three of the Board's recent decisions, and indirectly inconsistent with many more of those decisions. 628 Moreover, I suggest to the Board that such an outcome would be inappropriate in this case. Many parties other than the company would be adversely affected by such a decision, including, most obviously, Union and Utilities Kingston. The company itself has certainly relied upon the Board's past decisions in conducting its business affairs for the past several years, and that the company commenced negotiations with Union for this storage contract back in 2003 is a case in point. And the transcript reference for that is volume 1 of the transcript, paragraph 1317. 629 As has already been discussed, Utilities Kingston has also entered into market-priced storage contracts with Union, in reliance upon the Board's decisions, so that Ontario utility will have based its long-term gas supply forecast and plans on those contracts. 630 And most directly affected by a Board decision of this nature is Union Gas, recognizing that Union is an intervenor in this case, I will not presume to speak for them; however, I do raise Union's stake in this issue as something that the Board should consider in its deliberations. 631 I suggest that Union didn't contemplate that the Board may be considering a possible renewal -- a reversal of direction, rather -- or Union likely would have made final submissions on this point. 632 The company also suggests that its own reliance upon the Board's very clear decision in RP-1999-0017, and other related decisions, in entering into early negotiations with Union for the storage contract, is entirely appropriate and not to be second-guessed by intervenors' desire for reconsideration of the Board's decision in that case, which brings me to my third point about the Natural Gas Forum. 633 And that is, in contrast to the Board's consistent history, the positions that some intervenors are taking in this case appear to be quite inconsistent with past positions they have taken regarding market-based rates for storage. And this is particularly in reference to arguments made by IGUA and CAC in the RP-1999-0017 case, which I've copied for you, first under tab 6. 634 In the 0017 case -- this is IGUA's argument from that case, and I'd refer you to page 42, paragraph 131, at the bottom of the first page, it states: 635 "IGUA accepts as reasonable the company's proposal to renew existing M12 customers and to charge incremental M12 demand at market rates." 636 Of course the company in that case is Union. And then IGUA goes on to suggest that: 637 "The issue is who should get the benefit of the margins recorded in the revenue deferral accounts..." 638 Then if I can refer you to tab 7, and CAC's argument in that case, CCC's in this case, paragraph 133 on the next page, 26: 639 "CAC does not object to the renewal of ex-franchise contracts at market-based rates. CAC does not, however, support the proposal by Union to essentially eliminate the deferral account that captures the market premium..." et cetera. 640 So nowhere in these arguments of IGUA or CAC did those parties make a distinction between Enbridge Gas Distribution and Union's other M12 customers. Instead, the balance of their arguments focused on how the market premium associated with the storage services that Union would be providing would be divvied up. And in cross-examination on this issue, in this case, IGUA's witness, Mr. Fournier, suggested that, in his mind, Union was to only charge market rates to ex-franchise customers who are ex-Ontario. 641 In this regard, I'd like to bring you to some of those transcript references which I've copied for you under tab 8 of the compendium, out of volume 9 of the transcript. Starting with Mr. Cass's question at paragraph 1031: 642 "I believe you've summarized IGUA's position, and you would agree with me that the Board has in previous cases addressed the issue of when these M12 contracts come up for renewal, whether they should move from cost-based rates; right?" 643 Mr. Fournier responded: 644 "I know they've been discussed in a number of cases in the past. I don't think the Board has ruled definitively on how -- well, again I'll give you my understanding, and correct me if I am wrong. My understanding is, certainly, in the case of Union Gas, that Union's storage costs for its own system requirements are to be cost-based, but that Union is allowed to charge customers that are ex-franchise market-based rates." 645 And turning the page over to 1035: 646 "I've always had the understanding, but I haven't gone back and checked in depth past decisions, but it was my understanding that ex-franchise really meant ex-Ontario, that the rates that Union was to charge, in other words, Enbridge, for storage, should also be -- should be also market-based rates. But I don't have any reference for that. That's just what I had in my own mind." 647 Skipping down, again, to Mr. Cass's question: 648 "Okay. We can come to that. Let's just come back, then, to your understanding of these decisions. Did you look at any of these decisions before formulating IGUA's position with respect to the new Union storage contract for Enbridge? 649 "Mr. Fournier: I think the position that we will be taking, we'll be taking in argument. I'm not sure that we have come to the -- I can't sit here today until I've had a good chance to go through with Mr. Thompson what he's learned through cross-examination. I can't say to you this is our defined, explicit position today. 650 "Mr. Cass: I see. So IGUA hasn't actually landed on its final position, Mr. Fournier? 651 "Mr. Fournier: I haven't had a chance to sit down with Mr. Thompson." 652 So I would suggest that Mr. Fournier was visibly uninformed about IGUA's position, and these excerpts indicate that Mr. Fournier needed to confer with his counsel, Mr. Thompson, before actually determining what position IGUA would be taking on this issue. 653 And my reason for taking you to this reference really is to simply note the inconsistencies in IGUA's position. And as a sophisticated all-issues intervenors, with very experienced counsel, I suggest it is very unlikely that it would have been an oversight for either IGUA or CAC to not make the ex-Ontario distinction for Union's M12 customers in their arguments in the 0017 case. 654 And this is especially so in light of the fact that other parties in that case, such as VECC, were quite express in their opposition to Union's proposal on precisely these grounds. That is, VECC expressed concerns about VECC customers in Enbridge Gas Distribution's franchise area having to pay market-based rates for storage. 655 Both CAC and IGUA represent customers in both Union and Enbridge Gas Distribution franchise areas and so it is understandable that they would be torn in their views given the opportunity for their Union constituents to benefit from the market premium that Union will be charging Enbridge Gas Distribution. And as Mr. Fournier stated in his cross-examination, as the president of IGUA, he must balance the interests of his estimated 47 members in what positions IGUA takes in these rate cases. And I've also copied this transcript reference for you. It's the next page to the others that I've been referring you to under tab 8. And it starts at Volume 9 of the transcript, paragraph 1060. And I don't think I need to go through all of that. But Mr. Fournier talks about balancing the interests of his 47 members. 656 So, Mr. Chairman, I suggest that consistency in approach and policy is desirable. And I submit that the Board has achieved this on this issue. But I also suggest that the Board should be very wary of relying upon the inconsistent submissions of IGUA and CCC in this case, because it isn't clear how those intervenors have struck an appropriate balance of the views of their various constituents. 657 So this finally brings me to my fourth point about the Natural Gas Forum, and that is that approval of the cost consequences of the storage contract in the company's submission does not tie the Board's hands to explore various policy options for regulating storage in the Natural Gas Forum. And in this regard I note that the Natural Gas Forum is a policy forum. It is not a forum in which to debate fact-specific issues or contracts. Even if the Board decides to reconsider its current position with respect to the appropriateness of market-based pricing for Union's M12 customers, and for Enbridge in particular as a result of that forum, the Board will still have to deal with proposals regarding specific contracts on an individual basis as they come forward. 658 The company suggests that it is the individual circumstances that ought to inform the general debate, rather than the other way around. And this is especially true in this case where the Board has before it a contract for which Board approval has already been obtained, at least for the amount of storage, the term and the parties, and the pricing for which is premised also on a fairly recent Board decision, that is the 0017 Union case. 659 The point is simply that the Natural Gas Forum is a policy forum and it may or may not deal with the issues that will enlighten the debate of whether it is appropriate for the company to recover the cost consequences of the storage contract. So the company submits that the Board ought not to delay its consideration of the storage contract, therefore, to some indeterminable time after the Natural Gas Forum has run its course. A delay of this kind could result in, at the end of the day, the company and ratepayers having missed out on the many benefits of the storage contract, because it would be necessary either to renegotiate the contract with Union on less favourable terms, possibly, or to enter into another storage contract with another service provider on possibly less favourable terms. And I would remind the Board in this regard of the 18-month lead time that the company would require to put such services in place. 660 The company suggests that the evidence is clear that the company will require the contracted-for 20 Bcf of storage capacity, and likely more, at least for the ten-year term of the storage contract. And the transcript reference for this is Volume 1, paragraph 1429 and paragraph 1475. 661 So unless this Board Panel can say with certainty that, as a result of the Natural Gas Forum, the larger Board will reverse its direction from Union's 0017 case, the company submits that ratepayers will very likely be worse off than they will be if the Board approves the cost consequences of the storage contract in this case. 662 Mr. Chairman, the company doesn't presume to know what the Board is intending to do in the context of the Natural Gas Forum. And certainly the Board is free to take whatever direction it deems appropriate after hearing and considering the views of interested parties. 663 However, the company submits that history implies a regulatory commitment to movement to market-based rates for storage, and the company has simply acted on that message in entering into the storage contract with Union. 664 And related to the point I made about delay, I also submit that it isn't appropriate for the Board to suspend consideration of utility contracts for services that will be required on an ongoing basis because of continued policy debates. This approach would have a strong adverse effect, I suggest, on regulatory certainty, and companies' abilities to maintain fluid operations while those policy issues are being considered. 665 So, in conclusion on my submissions regarding the Natural Gas Forum, I urge the Board to conclude that the company was prudent in entering into the storage contract and the mere existence of the Natural Gas Forum does not negate the advisability of approving the cost consequences of that contract. 666 So having now admittedly dealt with the crux of the issue, are there questions on that before I move on? 667 MR. BETTS: No, the Panel has no questions. Thank you. 668 MS. PERSAD: So I'll attempt to address the other arguments the intervenors made in a more cursory fashion, because those arguments really are secondary to this main point, in my submission. 669 And as an introduction to those other arguments, I note the support from certain intervenors for approving the cost consequences of the storage contract, should the Board not be embarking upon a reversal of policy with respect to market-based pricing in the Natural Gas Forum. 670 And one of those intervenors is the Schools Energy Coalition on behalf of which Mr. Shepherd stated -- and this is at 12 transcript, 52. It's under -- where is it? Under tab 9 of your compendium. At paragraph 52, Mr. Shepherd stated: 671 "So, if this is all about whether the Board will allow Union to charge market-based rates starting April 2006, is that a likely scenario? If it is a likely scenario, then the Board should approve the cost consequences of this contract. That seems self-evident to us. There's a net savings to the ratepayers. Why wouldn't you do that?" 672 And VECC reached a similar conclusion in its argument. I also copied this transcript reference under tab 10, at paragraph 368 -- this is from Volume 15 of the transcript -- the second sentence there: 673 "However, in the event that the Board does not want to reconsider cost-based storage and is of the view that the 0017 proceeding and the recent approval of the storage contract between Kitchener and Union has already established a principle of moving to market-based rates, VECC is of the view that Enbridge's negotiated contract in the long run is likely to be in the best interests of ratepayers when considering the fact that this negotiated contract is deemed to be at a better price than the market. 674 "In addition, --" in the next paragraph, "-- according to the Enbridge witness, it is his expectation that if the contract was to be renegotiated for April 2006, the market price of storage is likely to increase." 675 And then VECC goes on to talk about the many benefits of the contract. But quite simply, Mr. Chairman, the company agrees with the School Energy Coalition and VECC on their positions and urges the Board to accept that position. 676 Now, whereas these intervenors acknowledge the obvious benefits of the storage contract, other intervenors don't take the same view. And these other intervenors challenge the benefits of the storage contract and the company's motivation for entering into the contract. 677 And first dealing with the benefits. Now, outside of the costs versus the market price debate, Direct Energy is the only intervenor that made substantive submissions on the contract benefits issue. Of note is the fact that Direct does not represent a customer group, and I counsel the Board to consider whether Direct Energy really has the best interests of ratepayers at heart, as Direct implied in its submissions. 678 But also on this point, I commend to the Board the first prong of its test for prudence, that being that decisions made by a utility's management should generally be presumed to be prudent unless challenged on reasonable grounds. And a reference for that is from the RP-2001-0032 decision, which I don't think you need to turn up. But it is under tab 11 for you. And it's just that first prong of the prudence test. 679 With respect, Mr. Chairman, Direct Energy raises no reasonable grounds upon which to challenge the company's decision to enter into the storage contract. 680 Dealing with the cost benefits of the contract first, the company doesn't deny that costs charged to the company's ratepayers would likely be lower if cost-based rates for Union storage were to continue. The magnitude of this cost benefit is undeterminable, though, because we simply don't know what Union's cost-based rates would be beyond 2006. 681 Now, both IGUA and Schools attempt to quantify this with their own calculations, what this benefit might amount to. However, I do caution the Board not to rely upon those calculations as those numbers are really untested, and they are based upon some very broad and sweeping assumptions that we have no way of confirming, such as what will the cost-based rate be. 682 In any event, I submit that the proposal of cost-based rates continuing is likely an irrelevant consideration, given past Board decisions on this point, as I've already described in detail. 683 But further regarding the cost benefits, Direct Energy questions the strength of the company's MPV analysis on grounds that the bids the company received were not the subject of negotiation, and the company should have done something more than just send out an RFP for a ten-year deal, such as supplement with other benchmarks. This is from Direct's argument, volume 15, transcript paragraph 766 to 772. 684 Now, Mr. Chairman, the company does not know what Direct Energy would suggest that the company use as other benchmarks. I would advise that a party either does a competitive tender or benchmarking, but not both. Presumably, receiving competitive bids would be the preferred alternative to industry benchmarks. And this is indicated by the Board's most recent version of the Affiliate Relationships Code for Gas Utilities, which I have copied for you under tab 12 of the compendium, specifically section 2.3.5, at the second page: 685 "A fair and open competitive bidding process shall be used to establish the market price before a utility enters into or renews a contract with an affiliate." 686 In the company's submission, what this section of the new code illustrates is that the competitive bidding process is sufficient for the Board, even when there's the added concern of the company dealing with its affiliates. In this case we're dealing with an arm's length party, Union Gas, so there ought to be no need for any suspicion or concern. 687 Also, Direct Energy suggests that the company should have entered into negotiations with those parties whose bids the company rejected, like it did with Union. But, Mr. Chairman, the company submits that it simply does not make sense why it would waste valuable time and resources in pursuit of proposals that are unattractive in the first instance. The fact that the two most comparable proposals received by the company were averaged in the company's filed analysis was also raised as a point of concern by Direct. And I address this point rather sheepishly, actually, because it involves an area in which I noticed early on Friday morning that the record was not actually complete. The company had not fully responded to a question from the Chair in its interrogatory -- or in its undertaking responses. 688 So, if I could just take you to the transcript references for that, and explain what I'm talking about, and they're under tab 13 of the compendium. And it starts with cross-examination from Ms. Aitken for Direct Energy. She stated: 689 "Well, I guess I'll just state what our concern will be on the record, and if there's any need to respond to or deal with it, we can perhaps do so at a later date. 690 "The concern I would have is to be able to have all of us review the particulars of the lower bid, just because, if there was, for example, a differential between the two that you've averaged, you might be losing real sight of a perhaps more competitive proposal which has been muted by averaging of the higher." 691 Mr. Brennon stated: 692 "No, I can assure you that the two we averaged were reasonably close, very close actually, once you factored in all aspects of terms of where that storage is, and taking it to a common point." 693 If you turn over to the next page, Mr. Sommerville, you followed up on those questions of Mr. Brennan, and you asked Mr. Brennan, at paragraph 380: 694 "Mr. Brennan, Ms. Aitken asked you about the differential between the two bids that you used arising from the RFP process. Your answer was to the effect that the bids were quite close. I wonder if you could quantify that in response to the undertaking related to that RFP." 695 Mr. Brennan responded: 696 "As to how close those two bids were?" 697 The Chairman said "Indeed." 698 "Mr. Brennan: Certainly." 699 Unfortunately, Mr. Chairman, when I look back at the undertaking response which is copied under the next tab, Undertaking J.1.8, the company failed to make that clarification in its undertaking response, and so that question was never answered. I did, on Friday morning, when I noticed this, I did phone Ms. Aitken and let her know that I would be raising this with the Board, and to ask her if she had any concerns with it. And she stated that she didn't, as long as, if the company were to now complete the undertaking, if the Board were to request the company to do that, that Direct Energy simply be afforded the procedural protection of responding to that evidence if it were filed. 700 So I simply leave that question with the Board, whether they want the company to complete that undertaking response. 701 MR. BETTS: Thanks. Let me consider that. Continue with your submissions. 702 MS. PERSAD: I will, Mr. Chairman. 703 And so, regarding the confidentiality issue which Direct also raised as a concern, the company offered in this undertaking response, J.1.8, to provide the Board with copies of the proposals, if the Board required this. 704 In this regard, I point you to the last paragraph of the undertaking response on page 2, which states: 705 "Notwithstanding the above, if the Board believes that disclosure of the market price information from the two comparable proposals would be useful to its determination of this issue, the company would be willing to disclose that information to the Board only on a confidential basis, but to no other party, for the reasons given." 706 And Direct acknowledges that this is a fair position to take on confidentiality, given the commercial sensitivity of the information that the company is trying to protect. 707 So the company suggests that the Board is not foreclosed from taking the company up on that offer should the Board feel that the averaging of the two proposals does not afford the Board sufficient insight into the company's MPV analysis. 708 Moving on to some other points that Direct Energy made, and Energy Probe, in this case, who both expressed some trepidation about the ten-year term of the storage contract in the context of a changing market. And in response, I refer the Board to my earlier submissions regarding the Natural Gas Forum, and specifically to the point that the market for storage services is not experiencing any more change today than it has been for the past several years. In other words, the changing market argument is a red herring. 709 In any event, as I stated in argument in chief, the Board has already approved the ten-year term of this contract in its RP-2004-0137 decision. So term is an issue that the Board should not be entertaining in this case. 710 If the Board is reconsidering the term issue, however, the company's view is that ten years is an appropriate term for the nature of the storage services for which the company has contracted. And evidence of this fact are the offered terms of the other proposals received by the company for similar services, summarized in the attachment to that Undertaking J.1.8, under column 5, it expresses the term that the various proposals gave. And they're also around ten years. 711 So, to conclude on this benefits issue in general, I submit that the noted benefits of the storage contract that are outlined in the evidence and in argument in chief are largely uncontroverted and even supported by some intervenor groups whose constituents stand to benefit from them, and the company recommends that the Board support its decision to enter into this storage contract at this time because there is no guarantee that these same benefits will be available if the present opportunity is missed. 712 So I'm almost through this issue, Mr. Chairman. Moving on to the third portion of what the intervenors' area of opposition was, and this is the motives of company for entering into the storage contract. Some intervenors attempted to ascribe suspicious motives to the company in the way it negotiated the early renewal of the storage contract, complaining of untimely disclosure of information, a less than adversarial negotiating tone and the apparent prevalence of shareholder interests. I urge the Board to reject these insinuations as completely unsubstantiated because they are based upon erroneous assumptions and facts and are clearly refutable on the evidence. 713 As noted in the argument in chief, Mr. Brennan stated that the only basis upon which the company would agree to consider an early termination of its existing storage contract with Union was if, as a result, the company could demonstrate that there was a benefit to its ratepayers in doing so. And that was the only reason the company would consider it. 714 And I don't think you need to turn up the transcript reference, but it is copied for you under tab 15. It's at paragraph 1318. 715 And on the disclosure issue, intervenors failed to acknowledge that the storage contract itself was already the subject of a public Board proceeding from early this year. The company should not be asked to bear the blame for intervenors having not participated in that proceeding. 716 In accordance with the Board's approval of the storage contract on April 1, in that proceeding the company advised parties in this case of having reached an agreement in principle with Union in its evidence filed in this case on April 26th. The further details of that evidence were provided to intervenors during the course of the settlement conference, as acknowledged by Mr. Thompson, the transcript, 14 transcript, paragraph 323, and then filed formally with the Board immediately following the settlement conference. Union and Enbridge Gas Distribution were in negotiations up until the time that Union made its application to the Board for approval of the contract, and the company submits that until the terms of the contract were concluded, as between those parties, it would have been premature to advise intervenors of the fact that the negotiations were taking place. 717 During the course of its negotiations, Enbridge Gas Distribution was also considering proposals from other parties, and so would not even have been in a position of any certainty to advise that it would be entering into a contract with Union. And finally, intervenors have offered no reasons for why the timing of the company's disclosure of the details of the storage contract in this case have hampered the intervenors' ability to make representations on the issue. So the Board ought, therefore, to give no weight to their submissions in this regard. 718 Much was also made by the intervenors of the apparent friendly tone of the negotiations between Enbridge and Union that culminated in the storage contract. But the company submits that there's no need for the Board to have any concern on this basis. The evidence clearly states that Union and Enbridge Gas Distribution were in disagreement over the legal interpretation of the termination date of the existing S&T contract. And this is Volume 1 of the transcript, paragraph 1317. 719 Now, regarding the litigation threat, there does not need to be an actual demand letter served in order for there to exist a potential for litigation. Whenever you have a legal dispute between two parties there is a potential for litigation. The fact is, as explained by the witnesses -- and this is at Volume 2 of the transcript, paragraph 217, and I don't think you need to pull it up -- the understandably close business relationship between Union and Enbridge Gas Distribution as the two largest LDCs in Ontario and as parties who have had business dealings with each other for many years, both companies would have wanted to avoid getting to the stage of a demand letter or written threats of litigation by finding a mutually acceptable solution to their dispute. 720 Both IGUA and Energy Probe make overtures about the motivations of the company in relation to its parent company, Enbridge Inc., and their intention to develop storage for sale at market-based rates. And this is the last portion of my submissions, Mr. Chairman, on this point. IGUA's statement that the company filed an application to separate storage assets is simply incorrect. And they make that statement at Volume 14 of the transcript, paragraph 309-310. 721 The company has never filed such an application. Although it is correct that the company discussed with intervenors on past occasions the possibility of making such an application, which Energy Probe acknowledged in their argument, those discussions were never formalized into any regulatory proceeding. And neither can the Board ascribe any particular position with respect to storage to the company without evidence on this point. 722 Unlike the other intervenors who participated in Union's 0017 proceeding, the company itself did not even advocate any position in that case. So you can't even look to that case to find out what the company's position on storage is. Therefore, I suggest that the intervenors' submissions on the company's apparent motivations are completely unfounded. 723 And the very last point I want to address on this argument is the suggestion by VECC that the company set up -- if the Board is going to grant or approve the cost consequences of the storage contract, that the company set up a deferral account for those costs and defer them to the 2006 year or beyond. And VECC suggests that this would be appropriate because the contract was legally set to expire in 2006. 724 The company's response is simply that this is not appropriate because the costs that it is incurring in 2004 and 2005 are very real costs, and the customers who will be receiving the benefits of those services are 2004/2005 customers, and the fact of the early renewal of the contract does not entitle customers to receive cost-based rates. The only thing that customers are entitled to receive in terms of rates are whatever the Board approves rates will be. And there's no Board decision stating that customers will be paying cost-based rates for Union storage until the year 2006. I also suggest that in all likelihood, the nature -- the heat-sensitive nature of the customers who are customers for the company 2004/2005, will likely also be customers in 2006 and beyond. So I suggest that it is simply not appropriate to set up such a deferral account for these costs. 725 So, in conclusion, I counsel the Board to confirm the Board's past decisions and to accept the cost consequences of the storage contract and permit the company to deliver the contract's many benefits to its ratepayers. 726 [The Board confers] 727 MR. BETTS: The Panel has no questions. Thank you. 728 MS. PERSAD: Thank you. 729 MR. BETTS: I'm looking at the time, and I think you had 15 minutes left, Mr. O'Leary. 730 MR. O'LEARY: That's more than I need, sir. 731 MR. BETTS: I don't want to put any pressure on you. Can you just give me an estimate of how long you might need? 732 MR. O'LEARY: I have taken the liberty to try to reduce some of my submissions, in light of the time, and I'm estimating that I will be about an hour and change, of course depending on the extent of any questions from the Panel. And then I believe Mr. Cass is forecasting something of about an hour or thereabouts. 733 MR. BETTS: Okay. I think what we'll do, even to complete your submissions we'd be pressing everybody to sit here for -- that would be over two hours. So let's take a short break. And I'd ask everybody to kind of stick around, but it'll just be a refreshment break for, say, ten minutes. Let's try to be back here at 3 o'clock. And we'll determine then what we'll do with the rest of the day. Thank you. 734 --- Recess taken at 2:50 p.m. 735 --- On resuming at 3:00 p.m. 736 MR. BETTS: Thank you, everybody. Please be seated. We'll just talk about timing for a bit. The Board panel will have to end today's activities by 4:00 o'clock. That, based on Mr. O'Leary's suggestion of time, would make it virtually impossible for him to -- or very difficult for him to complete his submissions. And Mr. Cass may be similar. 737 The panel has agreed on making one statement, first of all, that may assist or shorten Mr. Cass' presentation. The Board will not need to hear submissions on the change of fiscal year-end. We would like to hear your arguments focused on the use, or the rates that would be applied in the stub period. Typically, at this point -- well, basically, I guess, to argue the company's position with respect to the application of the Consumer Price Index as an escalator. 738 And with that, I'll allow you to contemplate what you might do with the rest of the day, which is about an hour long. If we cannot complete the rest of your arguments within that hour, Board panel would make itself available for either three hours tomorrow afternoon or Friday morning starting at 9 a.m. 739 Sorry. Thank you for the correction. That would be Thursday afternoon. The Board panel is not available tomorrow. We would be available Thursday afternoon for three hours, starting at 1 o'clock, or we would be available on Friday morning at 9 a.m. Would you like to take a minute to consider your options? 740 MR. CASS: Mr. Chair, starting with my part of the argument, with the clarification statement that you've made, I don't have that much left to say. I would say perhaps 15 to 20 minutes, including some closing comments that I had hoped to make to the Board. 741 So then it's just a matter of what Mr. O'Leary can do with his submissions, because I really don't need that much more time. 742 MR. BETTS: Mr. O'Leary. 743 MR. O'LEARY: Mr. Chair, I do believe that I can expedite matters as I proceed. Hopefully that won't be at the expense of our reporter, who would have to hear me speak a little bit quicker, but I do plan to make my argument a little more disjointed than I had intended, but in the interests of completing today, I'm willing to give it a go. 744 MR. BETTS: Let's proceed on that basis. And certainly I invite the court reporter to ask people to slow up or ask for a repeat of any statements. Go ahead, Mr. O'Leary. 745 REPLY SUBMISSIONS BY MR. O'LEARY: 746 MR. O'LEARY: Thank you, Mr. Chair. I may also ask the panel to interrupt me at any moment if you have a question, and I'll do my best to entertain it. 747 My first area is dealing with the issue of risk management. As you know, the company's evidence is set out at A3, tab 3, schedule 2, table 1, and its table 1 lists the recommendations for change which the company proposes to implement following Board approval. 748 I should note that of the ten changes recommended, only a minority were specifically addressed in argument by the several intervenors who were opposed to the approvals that the company seeks. 749 And, before launching into the company's response to the submissions specifically of the intervenors, it's important once again just to highlight the genesis of those recommendations. 750 Risk Advisory, which was the third party entity which was retained, was done so, as you'll recall, as a result of the settlement agreement with the fiscal 2003 rate case. And all parties agreed that the company should retain that firm, and that that firm would go forward and make its review and recommendations about the risk-management program. And that they -- all parties knew there would be a cost to that, and there would ultimately be a report which would then be presented to the Board in a proceeding like this one. 751 The Risk Advisory report and the oral evidence that Mr. Simard, one of the company's principals, are the only independent expert evidence on the record. I should note that there was no challenge in any of the intervenors' submissions as to the expertise of Mr. Simard, so it appears to be that there was a complete acceptance of both Risk Advisory and Mr. Simard as being both qualified and expert in respect of risk-management matters. 752 It's important to note that the recommendations of Risk Advisory and Mr. Simard are based upon their extensive knowledge of risk-management programs operating throughout North America. Risk Advisory is not proposing to take the company and ratepayers into uncharted waters. Risk Advisory opined at page 7 of their report that: 753 "The company's approach to the management of ratepayer exposure to volatile energy prices has significant commonality with other North American utility risk-management programs that have received regulatory approval." However, Risk Advisory noted that several changes should be considered to improve the over-all program performance. It is clear from the evidence that this improvement in over-all program performance is relative to other risk-management programs in North America. For example, at volume 2, paragraph 728 of the transcripts, Mr. Simard noted that relative to the standards that RiskAdvisory has seen amongst other gas utilities "the 10 percent restriction on volumes is more conservative than they have seen elsewhere". 754 Again, one of the purposes of RiskAdvisory being retained was to consider the company's risk-management program relative to other utilities and, where appropriate, recommend changes that have been effective elsewhere. The company is pleased that the table 1 changes it proposes, with the exception of the treatment of the costs of the proposed customer survey, are supported by the CCC and Consumers' Association of Canada. The support of these intervenors is significant because they represent the smallest customers and the largest class of customers directly impacted by the risk-management activities. 755 In CAC's written argument, at page 9, it is correctly noted that, and I quote: 756 "There has been no evidence presented in this proceeding to demonstrate that the stage 1 changes proposed at this time represent such a wholesale shift in policy or would adversely affect any party." 757 This is precisely the company's evidence, that there will be no increased risk from a ratepayer's perspective, as a result of what the company is proposing, and the reference for that is volume 2, paragraphs 518 and 786. 758 What will occur is an improvement in the company's ability to address price volatility. It is also noteworthy that, in addition to CAC and CCC, VECC supports recommendations number 3 and 4 as set out in table 1 of the company's prefiled evidence. No intervenor argued that the risk-management program should be discontinued as of this time. 759 This is undoubtedly due, at least in part, to the report of RiskAdvisory, which expressed positive views as to the program's operation in the past. It may also stem from the fact that the Board, on March 18th, 2004, approved changes to the Union Gas risk-management program in the RP-2003-0063 decision, with reasons. There, as here, Union was required as a term of an earlier settlement agreement to engage an independent consultant to conduct an assessment of Union's risk-management plan. 760 Like RiskAdvisory, Union's expert consultant reviewed Union's current program and set out proposals for improving it. One such recommendation was that Union's program allow for a longer term hedged perspective. This, the company submits, is similar to the RiskAdvisory recommendation, and one of the areas that is before you for approval, of allowing the company to hedge out into the future a full 12 months at all times. 761 Well, I won't get into the decision in great detail but the Board's findings are contained at pages 16 and 17 of the Union Gas decision. There the Board found that Union's risk-management program does provide value to ratepayers and is, therefore, appropriate. And the Board approved the proposed changes to the program. 762 You'll recall that several intervenors - Energy Probe and Direct Energy - argued, in effect, that the proposed changes to the company's risk-management program would negatively impact the competitive markets, both without any evidence to support such assertions. On this issue, the Board's finding in the recent Union Gas decision is relevant. At page 16 of its reasons the Board states, and I quote: 763 "Unconvinced that Union's risk-management program inhibits competitive commodity markets or that such programs are inherently anti-competitive, hedging activities are available to marketers as well. The Board is unclear why a risk-managed quarterly price with adjusted variances is any more or less anti- competitive than a non-risk-managed price. No price currently offered to Ontario residential or small general service customers is entirely representative of the spot or forward natural gas markets in North America." 764 Given that the company will be in a position to proceed to implement the first phase of the RiskAdvisory recommendation shortly following the Board's decision in this proceeding, it is submitted that the ratepayers of Enbridge Gas Distribution should similarly benefit from the changes proposed by its experts and those that the intervenors agreed to retain, RiskAdvisory, in the same way as the ratepayers of Union Gas have and will continue to benefit from the program improvements recommended by their experts. 765 Turning specifically to the arguments of intervenors, you will find that their arguments can neatly be broken down into two areas. One relates to the timing of the implementation of the recommendations by RiskAdvisory, essentially saying not before the Natural Gas Forum. And the other relates to several of the proposed changes themselves. 766 Turning first those arguments that focussed on the recommendations themselves, while it may not be surprising, it remains inconsistent that after all parties agreed to retain RiskAdvisory and to do so for the purposes of suggesting improvements, that where the expert consultants have now come back and made recommendations that do not fit neatly within their own representational interests, such intervenors now look for ways to avoid the recommendations that are made. 767 Undoubtedly some intervenors hoped that the consultant would report back that the risk-management program was a failure and should be disbanded. We know that this is precisely the opposite of what RiskAdvisory found ask what they stated in their report. Others, perhaps, hoped that RiskAdvisory would conclude that the company's risk management team possessed the foresight and, frankly, the luck necessary to promise to ratepayers that the company would always be able to beat market prices in the future. 768 Not only did RiskAdvisory say this was not possible, they recommended against it and have suggested wording changes to the objectives to ensure that no one is misled into believing that this is one of the objectives of the risk-management program. 769 In its argument in chief, VECC appeared to attempt to re-open the debate about the objective of the company's risk-management program, preferring one that emphasizes beating market prices. VECC referenced in its argument a snippet of the oral evidence of a Mr. Snell, who apparently gave evidence on behalf of Union Gas in the RP-2003-0063 proceeding as some sort of support for the renewal of the debate in these proceeding about the risk-management program of the company. In the end, the decision of the Board in Union Gas at page 16 reads as follows: 770 "Recent volatility in the gas markets has put an increased emphasis on the issue of commodity price volatility. The evidence presented by Union indicates moderate success from past practices. 771 The Board then went on in its decision to note that parties like VECC and gas marketers such as OESC supported the continuation of the program. It is noteworthy that there was no reference to beating the market. We would invite the Panel to look at the decision in 2003-0063 to see if there is any reference to the beating of the market, even in the Board's summaries of the positions taken by the various parties, in my review of it, I could see no such reference. 772 So the suggestion that there was some approval for that in the 0063 proceeding, we submit, is just incorrect. 773 As noted by the company in its oral evidence, beating the market is not and has not been an objective of the risk-management program. And that's Volume 2, paragraph 592. Mr. Simard clearly stated that he does not recommend attempting to beat the market. Volume 2, paragraphs 568 and 571-574. Plain and simply, there is absolutely no basis to find in this proceeding that the company should adopt as an objective the goal of trying to beat market prices. 774 Turning to the proposal to eliminate the 10 percent hedge and cap on hedgable volumes, it should be recalled that the elimination of this restriction does not increase the volume of hedgable volumes but rather only the rate at which volumes are hedged when the model calls for the hedging of gas volumes. Under the existing methodology, only 10 percent of the volumes that should be hedged, according to the model, can be hedged at one time. It can then take up to 10 days for these volumes to be hedged, at which time, if the model continues to indicate that conditions warrant the hedging of additional volumes, an additional 10 percent would be hedged. This process could then continue and be repeated again and again until all hedgable volumes were hedged. 775 So, as long as the model still dictates or suggests that hedgable volumes should be hedged, over time you would still reach the same point where you would with the elimination of the restriction. But the concern raised by RiskAdvisory in respect to the existing methodology is that the delay in responding to a hedging signal could mean a loss of opportunity, given a passage of time. Specifically, Mr. Simard stated at Volume 2, paragraph 531, that: 776 "The benefit of removing the 10 percent constraint is that the company will be better able to defend ratepayers against an increase in gas costs in excess of the tolerance amount." 777 A little further on this point, I should note that the evidence of Mr. Simard was selectively and only partially reproduced in VECC's oral argument and in its book of references. While Mr. Janigan correctly noted that Mr. Simard accepted that by averaging into a position, you raise the possibility of being able to establish a hedge price that is more attractive than the one you might establish if you executed the hedge immediately, Mr. Janigan failed to take the Board's attention to the balance of Mr. Simard's evidence at the following paragraph, before he even asked an additional question, where Mr. Simard stated: 778 "However, one has to remember that the opposite is equally true, that by delaying the entry into the position, there is just as strong a likelihood that you'll end up with a price that is less attractive than the price that could have been locked in, and I think the thrust of the policy is that there is a process undertaken whereby Enbridge determines, when it is in a position that it has an unacceptable risk or its ratepayers have unacceptable risk. And as soon as it is determined that there is an unacceptable risk level, we would argue that what should be done is that steps are taken as quickly as possible to bring that risk level back down within tolerance levels requests." 779 There is no reference on the record which supports a finding that the elimination of the 10 percent cap or the extension of the company's ability to hedge out a full 12 months would result in potential prejudice to ratepayers. In respect to the proposal which would allow the company to hedge out 12 months at any point during a fiscal year, it allows the company to seize opportunities to risk-manage price volatility for the looming winter months in the next fiscal year, something that it presently doesn't have the capability of doing. 780 While the exact methodology will be brought forward in respect of this 12-month forwarding in a subsequent QRAM application, the company is presently seeking approval in principle for it. I should note that when the company does bring forward the precise methodology, at that point intervenors would have an opportunity to comment during that QRAM application in respect of the methodology. 781 It is probably also helpful to put the proposal to hedge out 12 months into perspective. As noted by CAC, CCC, at paragraph 32 of its argument, Union has the ability to hedge out up to five years. 782 Here, as the Board also found in the recent Union Gas proceeding, there was no evidence to support the finding that the changes recommended by RiskAdvisory and proposed by the company will have any impact, let alone a negative impact, on the competitive market. It should be recalled that reducing price volatility works both ways, while price increases are muted, so are price decreases. 783 Turning briefly now to those intervenors that asked that the matter essentially be deferred until the Natural Gas Forum. Of course, the most recent information is the July 21st, 2004 notice from the Board in respect to the Natural Gas Forum. The company acknowledges that this forum will consider issues that could affect the continuation of the risk-management program in its present form. This being said, the company remains doubtful that the forum will delve into the detailed mechanics and minutiae of operating Union and Enbridge's risk management programs. It is far more likely that higher level policy issues will be considered. However, it is submitted that it is not logical to fail to implement risk-free improvements that benefit ratepayers based upon sound expert advice simply because a broader context forum is pending. 784 Relative to the crystal-ball gazing about what the outcome of the Natural Gas Forum will be, one thing from this case is certain: Implementing the RiskAdvisory report recommendations at this time poses no risk or cost to ratepayers, aside from the cost of the customer tolerance survey which is proposed. 785 While it is certainly difficult to predict the outcome of the forum, if history is any indication, then it is probably safe to say that it is unlikely, so long as system-gas remains a reality, that risk-management activities will be discontinued. 786 At page 37 of its report, RiskAdvisory referenced its experience in every Canadian jurisdiction, excluding Prince Edward Island, and its experience in 12 U.S. states. The report goes on to say that: 787 "RiskAdvisory is not aware of any regulated utility that at one point was engaged in risk-management activities on behalf of its ratepayers subsequently terminating its risk-management program." 788 The report also notes that: 789 "In Canada, there is only one major gas utility, ATCO, that does not engage in risk-management activities, and, even in ATCO's case, its customers understand that rebate programs from the Alberta government would be available in a high-priced environment to provide a safety net against price volatility." 790 Even if the Board were to order the company out of system gas at some point in the future, following the Natural Gas Forum, thereby eliminating the need for a risk-management program within the company, system gas remains a reality today, and will likely, in the company's view, continue in the future. So long as system gas does continue, the company submits that the value of its risk-management program, as confirmed by RiskAdvisory, should continue. 791 It is submitted that the mere chance of the Board ordering utilities in Ontario out of system gas at some future point should not be the justification for making no risk improvements to the existing risk-management program, which I should note, and this is an important point, such changes are not irreversible. There is no limitation that would be placed upon the Board's discretion and decision-making authority in respect to the forum by virtue of its decision approving the company's recommendations in this proceeding. Indeed, even in respect of the customer survey, it is submitted that there would be value in that survey for that entity -- if the company were to be ordered out of system gas, that entity that's ultimately responsible for the default supply would certainly view the customer survey as of value to reflect the customers' tolerance levels. 792 In respect of the treatment of the costs of that survey, which the company has estimated at $80,000, it should not come as a surprise that they were not included in the O&M budgets, there was no agreement in respect of the survey, and it would be presumptuous to anticipate expending such monies before we had Board approval. 793 Risk management is a separate issue on the issues list, and costs associated with it were not settled as part of the O&M settlement. 794 The company submits that it is appropriate to record such costs in the PGVA consistent with other gas-related costs. Currently, gains and losses associated with the risk-management program are charges against the PGVA. Accordingly, the company submits that the costs of the customer survey, which directly relate to the risk-management program and commodity costs, are appropriately charged against the PGVA. 795 In conclusion, the changes proposed by the company will enhance the program's primary objective of reducing price volatility for ratepayers. As noted by Mr. Pleckaitis at volume 2, page 513, the principal driver for the company proposing to implement these changes is price volatility, and a consensus within the industry that the unprecedented price volatility that we have seen during the last three years is likely to continue. 796 Taken as a whole, the changes that the company proposes do not amount to a wholesale or radical change from the methodology presently in place. Any suggestion to the contrary is simply not borne by the evidence. And none of Schools, Energy Probe, or CME pointed to any evidence in their argument that the company's proposals amount to a wholescale change to the risk-management program. 797 The company submits that if any intervenor really believed that the RiskAdvisory recommendations amounted to a major change to its program, that intervenor would have attempted to demonstrate through some form of evidence the significance of the change from the perspective of the affected ratepayers. This did not occur. 798 The fact is that risk-management programs are supported by key ratepayer groups, as I said earlier, CAC and CCC. And recently, we know that the Board approved, in the Union Gas decision in March of this year, the continuation of that plan, including changes to the Union risk-management program. It is submitted that neither the changes proposed by the company here, nor the expectation of the Natural Gas Forum, are such that there should be any delay in the implementation of the program improvements. 799 Finally, you will recall that Mr. Pleckaitis stated, while under cross-examination, at volume 2, paragraph 1266, that the company's customers believe it is the company's responsibility to address the issue of unprecedented price volatility which has occurred over the last number of years. The fact that the intervenor groups who represent so many of the company's customers, CAC and CCC, support the proposed changes, is support, in our view, for what Mr. Pleckaitis just stated. Customers want to implement the changes now. 800 This is what the company and a majority of those ratepayers which benefit from the risk-management program request from the Board at this time. 801 Mr. Chair, those are quick submissions on risk management. 802 MR. BETTS: The Board Panel has no questions on that issue, Mr. O'Leary. 803 MR. O'LEARY: Thank you. And thank you to our court reporter. 804 I'm now turning, Mr. Chair, to transactional services. You'll recall from our argument in chief several weeks ago, there were -- I noted, I started by noting five factual observations. 805 The first was that by undertaking transactional services both with and without the commodity, there has been a substantial benefit to ratepayers. 806 The second observation was that -- was made in the bundling of the commodity with the sale of the utility's assets has significantly enhanced transactional services gross margin. 807 In submission, the reality of these two observations has been borne out by the position which has been taken, by and large, by the representatives of those ratepayers who benefit from transactional services. Ratepayer groups favour the continuation of bundled TS in some form. 808 By contrast, those intervenors who do not represent ratepayer groups oppose the bundling of commodity with the utility surplus assets under any realistic scenario. The distinction is highlighted solely to underscore what I said several weeks ago, namely, that TS generates significant benefits to ratepayers, and this includes transactions bundled with the commodity. This is, no doubt, why ratepayer groups support the continuation of bundled TS. 809 I will first deal with the continuation of bundled transactions and then, in the latter part, turn to the sharing formula. 810 The company notes that the School Energy Coalition, IGUA, CAC, CCC, VECC, and, at least for fiscal 2005, CME, all support the continuation of commodity-bundled TS in one form or another. 811 It appears that each supports the principle of maximizing the value of utility assets for ratepayers. The company submits that each of these intervenors, if afforded the opportunity, would say that there is no meaningful difference between the principle or goal of the utility optimizing existing facility versus the principle or goal of maximizing the value or revenue from the same facilities, as suggested by CEED ratepayer groups, are anxious to maximize revenue from surplus assets. And if the full value for these assets requires bundling of TS with a commodity like storage, so be it. 812 Stated differently, all of the ratepayer groups support the company continuing to bundle commodity with traditional TS. The non-ratepayer groups oppose it. 813 The conclusion which obviously follows is that there must be no evidence of any negative impact on ratepayers. And looking back, the reason why this is important is looking back at prior Board decisions in respect of TS, and going back to EBRO 492, it should be recalled that that was a primary concern; namely, was there a negative impact on ratepayers? That was a primary concern of the Board at that time. 814 Clearly, we now have all of the ratepayers in support of TS continuing, including bundled TS. Therefore, the Board should be confident that there is no negative impact on ratepayers. 815 The next question which need be asked is, what evidence exists that bundled TS has a negative impact beyond ratepayers? The company submits that there is absolutely no evidence of any negative impact on any entity or the competitive market generally as a result of the bundling of commodity with TS to date, and there's no evidence that this will have a negative impact in future. It should be noted that several of the intervenors have already made similar arguments to that of the company. Indeed, Mr. Shepherd on behalf of School Energy Coalition, argued at Volume 12, paragraph 97, that: 816 "There was no evidence whatsoever that allowing bundled transactions will reduce competition in the natural gas marketplace or give EGS a competitive advantages. None of the company's witnesses made any admissions to that effect. Not even close." 817 Then CCC/CAC argued at paragraph 9 of its argument that: 818 "There was no evidence presented in this case of an adverse impact from bundled transactions on the market or EGD's ratepayers." 819 The company concurs with these observations. 820 It should be recalled that bundled TS began in November 2002. In answer to Undertaking J.5.2, the company produced a copy of Mr. Frank Brennan's transactional services update, which was distributed at a stakeholders meeting in November 2003. This update indicated the results for fiscal 2003 and the fact that TS revenues were generated from commodity-related TS, totalling $10.5 million. 821 Intervenors opposed to the bundling had from at least this date to contact relevant players of the market and retain appropriate experts for the purposes of creating an evidentiary record here in this proceeding in support of their submissions. Yet none of Direct Energy, CEED, and Energy Probe so proceeded. Indeed, it is probably safe to assume that major players in the market were well aware of the bundled transactional service activities taking place well before the October 2003 date, as many of the bundled transactions were undoubtedly undertaken on behalf of members of non-ratepayer groups. 822 Unfortunately, no witnesses were produced by any of these intervenors. Therefore, neither the company, nor the Board had the ability to ask questions about the timing of their knowledge of such bundled transactional service activities, nor the alleged impact on the competitive market. 823 Even if we assume that October 16, 2003 is the first time that these non-ratepayer groups became aware that bundled TS was ongoing, there has been no explanation as to why they did not produce an expert economist or other expert to opine as to the impact on the competitive market. The company would also suggest that there is no explanation given for why even a lay witness was not produced to speak factually as to the impact on the various members of these associations. 824 This is not, as suggested by CEED, a situation of the company asking the Board to impose a reverse onus. Quite the contrary. The company has filed substantial written evidence, produced four senior witnesses for cross-examination. The evidence of these witnesses is at that the bundling of commodity with traditional TS services enhances value to ratepayers, all of whom solidly support its continuation. 825 But the company's evidence went much further. The company's witnesses made it clear, during cross-examination by counsel for CEED, that bundled transactions happen very quickly and that the company must move very quickly to realize these opportunities. Mr. Jarvis not only acknowledged in but stated that at times the opportunity only lasts minutes. And that's found at Volume 5, paragraph 684-687. 826 Company witnesses also stated at Volume 4, paragraph 387 that the substantial value of transactions being conducted is very short-term in nature. At volume 5, paragraph 736, Mr. Brennan confirmed under cross, again by counsel for CEED, that the bundling of commodity with from additional TS is done only if there is greater value to do it, and when the company couldn't necessarily sell the transactional service by itself. In those situations, the company proceeds and introduces the commodity. This answer is consistent with the company's prefiled evidence at paragraph 19, that EGS offers services that include the use of commodity to generate additional TS revenue, provided that there is no opportunity to sell the transactional service alone for similar value. 827 Next, one should also keep in mind the nature of the transactional services involved. In its prefiled evidence at paragraph 5, A2, tab 5, schedule 1, there is a description of the company's transactional service. This paragraph reads: 828 "Utility assets are used to offer services such as peak storage, off-peak storage, loans, exchanges, load-balancing and transportation assignments, for terms of one year or less. These services are typically offered on an interruptible basis." 829 And I'll stop there. But clearly, none of these activities, bundled or not, are of interest to residential and small commercial entities. Only sophisticated players contract for TS. 830 Next, it is important to understand the environment in which transactional service opportunities arise. In answer to a question from counsel for School Energy Coalition, Mr. Jarvis stated in Volume 4, paragraph 624: 831 "There are a number of circumstances, however, over the last few years with the extreme volatility that has gone on in the marketplace, that significant value that's being generated in this TS business now is being generated by day by day by day. We know assets available today, there is an opportunity to generate money today, and we do that. Many, many, many times, it is not practical or in certain circumstances possible to go out within the timelines, within which the business is transacting to find a counterparty who will buy your service and then they will go out and arrange the commodity on both ends. 832 "So the ability to transact..." This is a continuation of the quote by Mr. Jarvis: 833 "So the ability to transact the commodity in the short-term arena allows us to execute with far more speed, allows us to ensure that when value is there, you can capture it. As opposed to the time lag, and it doesn't seem like a lot of time, but we are talking minutes, minutes, and here value comes and goes." 834 The company's evidence has been consistent throughout. Bundled TS occurs where traditional transactional service offerings of similar value do not exist. They occur in terms of short-term opportunities which arise on a day by day basis. The fact that such opportunities must be immediately seized or lost speaks to the suggestion by those intervenors who advocate some sort of tendering process to be implemented. Again, no evidence was adduced to support such a means of proceeding. Surely some witness could have been retained to prepare written evidence and appear to be cross-examined about a tendering process which would allow for bids from competing players wishing to bundle with the company's traditional TS offerings. 835 There was no evidence on this point. Indeed, the only statement on the record is that of Mr. Thompson, who said in his argument, in response to a question from you, Mr. Sommerville: 836 "Believe me, I've encouraged marketers to present some evidence about how a tendering process would work," and he doesn't know why they haven't. 837 And that's found at Volume 14, paragraph 367. 838 As well, T evidence of company witnesses was that at many points within the footprint of eastern Canada, there was very transparent pricing for bundled TS. And this relates to the issue that was raised by CEED about a lack of -- or alleged lack of transparency. 839 This only makes sense given that the purchasers of the company's TS offerings are sophisticated players. There are nine who are pre-approved, and an even smaller number who are active. Such players are intimately aware of the prevailing price for the commodity and have purchased TS assets on prior occasions. If a pricing update is required or some competitive comparison is needed, such players have the ability to determine whether the bundled TS offering of the company is reasonable. 840 There is also something very hollow in the non-ratepayer groups' argument that some unfair advantage arises out of the fact that the utility and EGS act as the gatekeeper of the sale of TS assets. Even non-ratepayer groups would have to admit that some entity has to be responsible for ensuring that utility assets are prioritized for the use and needs of ratepayers. 841 Someone or something has to say: No, there is no available storage or transportation capacity for sale for ex-franchise customers because of infranchise ratepayer needs. Surely, the non-ratepayer groups would not suggest that a non-ratepayer commercial entity, motivated by financial self-interest, should act as the gatekeeper. The company submits that only those who are intimately involved in the utility's operations and are current to the second about the infranchise needs of ratepayers and the existence of any temporary surplus assets should act as the gatekeeper. 842 Ultimately, such decisions must fall within and be carried -- and be subject to review by the Board, and no market player is subject to such regulatory oversight. 843 The final point I wish to make on this is that, to the extent that a third party was willing to take over the transactional service activities, if one existed, to the extent that the O&M budget of $700,000 was not attractive to them, that any increase over and above that amount would, of course, eat into the margin left for the ratepayers and the shareholder. 844 The company submits there is nothing confusing about how transactional services have been carried on. The evidence is clear. The commodity portion of bundled transactions is bought and sold in the name of EGS as principal. Yes, all of the margin is paid to EGD, but it is EGS that buys and sells the commodity portion of the bundled TS as principal. This activity is not covered by the agency agreement, and hence there is no breach of that agreement as implied by CEED. 845 In the end, non-ratepayer groups attempted to respond to Mr. Shepherd's observation that there was absolutely no evidence in support of a contention that there's a negative impact on the market in several ways. I've addressed the one assertion relating to the reverse onus by CEED already. 846 The other approach taken by Direct Energy was to minimize the importance and need of evidence by saying, and I quote from their argument: 847 "This isn't a matter of evidence, this is a matter of simple logic." 848 Well, the company, Mr. Chair, begs to differ. If there are real negative impacts on the competitive market, these should be demonstrated through evidence, not simply asserted in argument. 849 The company's submission is that the non-ratepayer groups have raised theoretical concerns about potential theoretical competitive market. The company submits that this is no basis to prohibit an activity which clearly benefits ratepayers, and the company submits there's no evidentiary basis to order the discontinuance of bundled TS. 850 The question which now follows is how those bundled TS should occur in future. You'll recall that it is the company's preference that the commodity portion be undertaken in the name of the utility. That's an important preference, because there were intervenors that argued that the proposals put forward by the company were an attempt to increase the revenues ultimately paid to the parent EI. The company's preference is for the commodity portion to be undertaken in the name of the utility, which, as noted in evidence, would mean there are small, perhaps no credit costs or risks of a very minor nature that are associated with that. 851 So it is not the company's intention to attempt to increase the revenues payable to EI. 852 The issue to ratepayers should be, what additional risk does the utility assume by undertaking the commodity in its own name? In regard to that issue, there are five points I will briefly allude to. 853 First, the company has not incurred any cost arising out of counterparty failure to perform in the past. And fiscal 2005 will, as the Board notes, be the ninth year of transactional service activity. That's in the prefiled evidence at paragraph 27. That's the best evidence of the real risks to ratepayers: There haven't been failures in the past. 854 Second, the company pre-approves counterparties, and this practice has continued despite a loss of liquidity in the market. The company has stated at volume 4, paragraph 691, that if commodity is conducted in the name of EGD, it would establish very specific exposure limits for counterparties, and A-rated would be 15 million, triple B would be 10, triple B minus 5. 855 Third, at volume 4, paragraph 763, Mr. Jarvis stated that 100 million is the company's estimate of the maximum exposure over a two-month window. You'll recall, in response to Undertaking J.4.3, the maximum two-month credit exposure during fiscal 2003 was $113.1 million, consistent with what Mr. Jarvis had said. 856 Fourth, similar restrictions could be followed, such as the limitation presently on EGS entering into contracts with an aggregate value of no more than $50 million for less than one year. Volume 4, paragraph 201. 857 Fifth, the company has stated in evidence that it would continue its prudent and conservative practices of only dealing with triple B minus or better. And it should be noted that the company did lead evidence through Mr. Whalen about the probability of default, and this is a probability as calculated by the credit-rating agencies for an institution. It's very small. At volume 4, paragraph 683 to 684, it's .01 percent of your exposure in any given year. 858 With these safeguards, the company submits that the risk to ratepayers is de minimus and therefore should not be of concern. What should be noted, and this is important because it would lend additional support and comfort to ratepayers, is that any real risk of default is first borne by the shareholder in that, if the Board approves the sharing proposal put forward by the company, $8 million is embedded into rates. The company must then earn that $8 million, and it is only after that amount is earned that there are any additional revenues to pay off any risk or the shareholders' share at that point. 859 In other words, the $8 million is guaranteed whether a counterparty defaults or not. The practical reality of it is that the shareholder is the first who sees the risk, and this acts as a significant incentive for the company to continue its conservative prudent management of risk-management activities. 860 In the alternative, should the Board decline the company's request to undertake the commodity in the name of the utility, the company's preference is for the Board to order that the credit costs associated with EGS undertaking the commodity in its name be deducted from gross margin and that the amount of such costs be established by third party, with the amounts being recorded in the TSDA, for review and disposition pursuant to Board order in a subsequent proceeding. 861 It is the company's evidence that such credit costs are not insignificant because they involve tying up the capital of EI or the purchase of appropriate insurance in the event of default. 862 While there was debate about the quantum of credit costs, several intervenors quite rightly noted in argument that it is appropriate for legitimate credit costs to be deducted from gross margin. Each of Schools, CME, and IGUA said so much in argument. The company submits it therefore would be most appropriate to allow the company to establish the credit costs by means of the independent third party, and to record it in the TSDA for review by intervenors and the Board in a subsequent proceeding. 863 Turning next, and very briefly, to the sharing methodology proposed by the company, once again the company is proposing that $8 million be embedded into rates. This means that, in any given year, either the revenue deficiency is decreased or the revenue sufficiency is increased. Either way, the distribution rates payable by ratepayers are $8 million less than they otherwise would be, as $8 million must then be earned through transactional service activity for the shareholder just to break even. When one adds to that the expected O&M costs of $700,000, it means that $8.7 million need be earned before the shareholder receives a dime. 864 To the extent that the $8 million guarantee is increased, the shareholder is put at risk of a loss. For example, using the figures suggested by several intervenors of embedding $11.25 million into rates, when one adds to that the O&M costs, it means in effect that transactional services must earn $12 million before the shareholder receives or recovers anything. 865 I should note that none of the intervenors took exception to the proposal of the split of 75/25 in terms of the transactional services deferral account, and indeed, if you even do the math in terms of the amount they suggested to be embedded into rates, it works out to a 75/25 split, as well. 866 However, the company submits that $11.25 million puts too much of the shareholder at risk, whereas the gain to the ratepayer is only an increase in the timing by which it receives that additional amount, because if the amount is recorded in the transactional services deferral account, they're going to see it clear to new rates in the subsequent year. 867 For that reason, the company submits there should be this proper balancing between the risk of loss to the company and the benefit to ratepayers. 868 I should point out, in terms of this risk issue, that in 2002 the gross margin for transactional services was only $9.36 million, yet from Exhibit K.4.2, the forecast budget for that year was $10.01 million, so the company did not meet its target in that year, and this highlights the risk of not necessarily meeting the targets for the estimates for the coming fiscal year. 869 Should the Board prohibit any further bundled TS, the company has asked for the embedded amount to be $4.5 million, with the next $1.3 million going to the shareholder, and then the TSDA would be split on 75/25 basis. In terms of the stub period, all parties seem to be in agreement with the proposal that there simply be a pro rata use of whatever the Board approves here as 25 percent of that figure would be used during the stub period. 870 And that is the Reader's Digest version of our argument, Mr. Chair. 871 MR. BETTS: The Board Panel has no questions on that one, Mr. O'Leary. 872 MR. O'LEARY: I will be very brief with DSM, then. 873 Turning first to the issue of Pollution Probe's large boiler market transformation program, the company accepts that such a program will, over time, tend to increase the market share of high-efficiency boilers and that there will be resulting societal benefits. Indeed, it appears that all intervenors seem to agree that that program will produce those results, it's really a question of timing. 874 As stated earlier, the company is a signatory to the settlement agreement. It therefore supports the DSM budget and gas savings target set out in the settlement agreement. However, the company also believes that Pollution Probe's request for an order that this market transformation program be developed, Pollution Probe does have ratepayers and the Province's best interests in mind. The only concern that the company has is that whenever this program ultimately goes forward, that there are sufficient resources made available for its development and implementation. 875 So our comments will be restricted to the ramifications of a Board order in this decision. Certain intervenors argued that the amounts to be expended on this market transformation program should be taken out of the settlement agreement budget, and the company is concerned by that submission, because it would significantly impair the company's ability to achieve the volume target of 76.9 million cubic metres for several reasons: 1, monies that are already included in that settlement agreement will then be focussed on the market transformation program as opposed to those programs which the company has planned to expend the monies; secondly, that means that there will be a lighter response to any of those programs in terms of the volumes actually saved, given that the company will have devoted less resources to those other programs. 876 It's unlikely, in the company's view, given the timing, should the Board even order the development of the market transformation plan on short notice as Pollution Probe has suggested, it is unlikely that in fiscal 2005 there will be any real volume savings. Yes, there may be entities that will implement sooner, but it takes time for the CEO and the Board to decide to proceed with such changes. There's the necessary time to create the specifications and to ensure that the large boiler will meet the system requirements of a particular entity. It's submitted that just when you look at the timing of it, it's unlikely that there will be any large amount of volume savings flowing from the market transformation program. The concern is that that will negatively impact on the other programs that the company has in mind for fiscal 2005. 877 Secondly, we reiterate our concern about the use of a deferral account. I won't say anything further than to say that the company requests that if the Board should order the company to come forward with a market transformation plan for implementation in fiscal 2005 and to record the costs in the deferral account, that the Board make it clear in its decision that those costs, if properly expended on the market transformation program, will be clear as to the rates, so we don't get into a large debate in a subsequent proceeding about whether the amounts are approved or not. 878 I'd also like to make the point that, absent receiving additional funding, it would mean that the staff that are presently ear-marked to undertake the company's DSM programs will spend time on what undoubtedly will be a time-consuming project, and that, absent additional budget, those staff will not be -- or there will not be additional staff, therefore, to focus on this new program as well as the ones that we're planning to do so. Again, it's Ms. Clinesmith's evidence that it will take about four months to undertake the necessary communications with prospective participants and to put the plan together. 879 In respect to the stub period, Mr. Chair, I won't reiterate what we said last time. The company has proposed what someone referred to as "safeguards" during the stub period for the SSM. The company is, frankly, surprised that there was opposition to these safeguards, because they were well intentioned to, in fact, avoid having a debate about whether there would be gaming or anything of that nature. The company would, therefore, be very satisfied to have the settlement agreement to proceed as worded and the fiscal 2005 SSM to be calculated on the 12-month basis. And then the stub period would live and die on its own merit, and using the same methodology. 880 However, if the Board is inclined to accept the safeguards, I might only add that there appears to be only one that is at issue. Mathematically, I believe it was either EGD or Pollution Probe who stated, if you take the 12 months and add it to the three months, and if you've been successful in both periods, it has no mathematical difference on your SSM recovery, so that shouldn't be an issue. If you fail in both periods, well, there's no issue either. So the only issue is, if you're successful in the first 12, what's the impact of being unsuccessful in the next three months? 881 The company's submission is that you should not, in effect, penalize the company by adding to the methodology a three-month period which Mr. Ryckman said will be challenging and difficult to achieve by virtue of the fact that historically we never have achieved 25 percent of the volumes in the first three months of the fiscal year. Again, we'd be satisfied by treating both the SSMs separately. 882 Again, Mr. Chair, thank you. Those are our submissions. 883 Are there any questions? 884 MR. BETTS: Questions? No questions, again. You speak, obviously, very quickly, but you cover everything. 885 MR. O'LEARY: Normally I'm criticized for that. 886 MR. BETTS: And does that conclude the issues that you were -- 887 MR. CASS: It does, Mr. Chair. 888 MR. BETTS: -- planning to address? 889 And Mr. Cass, we've had a signal from Panel Members that you offered maybe 15 or 20 minutes, and we're certainly prepared to extend the time to allow that to happen. 890 FURTHER REPLY SUBMISSIONS BY MR. CASS: 891 MR. CASS: That's much appreciated, Mr. Chair, and I may even do a little better than that. Thank you very much, sir, and Panel members. 892 At the risk of cutting just a few seconds into that 15 to 20 minutes, I just wanted to come back, if I may, because Mr. Sommerville had asked me a question during the deferred taxes submission, about the point in the Board's 179-14/15 decision, as to whether proceeds of sale would be available to address tax consequences. 893 It occurred to me as I was sitting here afterwards, that in argument in chief I had actually read a paragraph that was relevant to that and I just wanted to give the reference. 894 The point, Mr. Sommerville, if I may, is that I believe in that decision the Board was talking about a sale or transfer to an affiliate by the company, as opposed to an ultimate sale by an unregulated business. 895 And there were submissions in the 135 case as to why a sale by an affiliate would be different. That's at Exhibit K.7.2, tab 7, pages 13, 14. And the paragraph that I had actually read in argument in chief as to why a sale by an affiliate is different from a sale by a company, or I should say, the sale by a company was different is 13 transcript, 86. I'm sorry for cutting in for a few seconds, but I wanted to give that reference. 896 MR. SOMMERVILLE: Thank you, Mr. Cass. I appreciate that. 897 MR. CASS: Mr. Chair, given the Board's clarification about the change of year-end issue, I propose to say nothing about the arguments that have been made by a few intervenors regarding so-called overearnings mechanisms for the so-called stub period, should the change of year-end be approved by the Board. Mr. Chair, you asked me to address the indexing mechanism. I've looked back in the time available, while Mr. O'Leary was speaking, to argument in chief. I think much of what I might refer the Board to on the indexing mechanism was referenced, if that's a correct word, in the argument in chief. Really, there were three fundamental points that the company sought to make in argument in chief. 898 First that the indexing mechanism is a reasonable proxy for cost-of-service in the so-called stub period. Second, that there are real cost pressures that were specifically identified that would operate in the stub period. And third, that by means of the process described in the evidence and in argument in chief, the company had tested the reasonableness of the outcome of the indexing mechanism for the stub period. 899 Now, all of that was covered in argument in chief at 13 transcript, paragraphs 548 to 543 [sic]. I've checked that transcript and I believe that the evidentiary references are stated there. I won't repeat them. I don't think that I could state any better than the evidence does, in any event, what was said there on those three propositions. That really covers much of what I would have to say on the indexing mechanism. 900 There are a few points that were made in intervenor arguments that I will address quickly. 901 It was suggested, in one argument, at least one argument, that in the 2004 decision, this Board had made a statement regarding an indexing mechanism of this nature and had essentially told the company not to do this again. That argument was made at 12 transcript, paragraph 344. I've looked at the 2004 decision and I don't see anything quite like that. The actual words in the 2004 decision that I've been able to find are as follows: 902 "It is not intended that the acceptance of this methodology in this proceeding should be relied upon by utility applicants as an indication that the Board will routinely accept such proposals in the future." 903 That's as close as I've been able to come to a reference such as was referred to in intervenors' submissions. 904 Another argument on this point was that there are no special circumstances in this case justifying the application of an indexing mechanism. That was at 12 transcript 346. The special circumstances, though, are the change of year-end proposed by the company. The change of year-end is what gives rise to this so-called stub period from October 1st to December 31st, 2005, and I think the relatively few examples of regulatory treatment of such a change that have been brought forward in this case do reveal that this is not an everyday sort of occurrence. 905 Now, other arguments were addressed to whether the company needs an increase in rates for inflation. These were the matters that I believe are addressed in the evidence referred to in argument in chief that I've given the Board the references for. These include, for example, the response to VECC IR No. 136, and evidence at volume 11 of the transcript, paragraph 734. Also, there was prefiled evidence that's referenced in argument in chief in the portion of the transcript that I've already referred to. 906 Now, no evidence was led or even brought out by intervenors on cross-examination, in my submission, to show that this company evidence about cost pressures operating in the stub period and about testing for the reasonableness of the indexing result is wrong. Intervenors make bald assertions in argument about the extent to which the increase is justified, but the Board does know from the evidence in this case that there will be -- there is predicted to be some level of inflation that will operate in respect of the stub period, and that there are specific cost pressures that have been described in the evidence. 907 So the company's submission on this aspect of the case is quite simply that, unlike its evidence regarding the need for the inflationary increase, bald assertions in argument by intervenors are really of no value to the Board in determining what the rates should be for the stub period. In the company's submission, it's the evidence that the Board should base its decision on, and the evidence can be found at the references that I've described. 908 That's all that I propose to say, Mr. Chair, on the indexing mechanism. As I alluded to earlier, I do have some closing comments that the company wished me to make to finish off this reply argument. They will not be long. And I would just appreciate the opportunity to finish off with some comments both about some aspects of intervenor arguments that are of concern to the company, but also about some positive aspects of the case. 909 MR. BETTS: Please proceed, Mr. Cass. 910 MR. CASS: Thank you, sir. 911 Mr. Chair, the company's perception is, based on the experience of recent years, that there's an attitude of some intervenors that no rate case before this Board is complete without an attack on the credibility of witnesses. Even in this case where the issues, in the company's view at least, that went to hearing can hardly be said to turn on issues of credibility, witnesses were accused of providing misleading evidence. 912 The company submits that it's one thing for the witnesses and the intervenors to disagree on points that are raised during cross-examination. That's, I would suggest, almost to be expected during a hearing that that sort of thing would happen. However, it is quite another thing for witnesses to come to this Board always under the threat of an attack on their integrity if they don't agree with intervenor positions. 913 Now, I won't take the time to respond in detail to the allegations that have been made about witnesses in this case. I will just take a couple of examples. 914 SEC made a deliberate, disparaging and unwarranted attack on Mr. Boyle for allegedly making misleading statements but, in my submission, provided nothing more than vague allusions to what these misleading statements might have been. This was at volume 12 of the transcript, paragraphs 162 to 163. 915 Mr. Boyle, as the Board is aware, is the Assistant Treasurer of Enbridge Gas Distribution. He's testified before this Board on a number of occasions and he's never had his ethics, integrity or professionalism challenged in this fashion before. Indeed, the company submits that during the hearing itself, as the Board would have seen, and throughout the entire process of this case, Mr. Boyle was very open in providing information that went well beyond what the company considered to be relevant on the issue that he was addressing. 916 Indeed, as counsel for SEC pointed out, Enbridge put all of their tax-planning information in a room and let counsel look at it. This was at volume 7 of the transcript, paragraph 328. Counsel for SEC went on to say that: 917 "Enbridge filled the boardroom full of more tax planning information than any of us would want to see, and counsel spent two days going through this information document by document." 918 Therefore, Mr. Chair, the suggestion by SEC that Mr. Boyle has done anything other than his very best to openly address the issues raised by intervenors is an unwarranted and harmful mark on Mr. Boyle's reputation. 919 The company submits this also undermines the fairness of the hearing process in that witnesses who come here and disagree with intervenors apparently become exposed to a personal attack for doing this. 920 I'll just quickly give two more examples. IGUA said that there were representations made by Mr. Boyle and others that turned out to be factually incorrect. This was at 14 transcript, paragraph 486. The example that IGUA's counsel gave immediately after that statement was what he referred to as the company's claims in the 179-14/15 case. Well, Mr. Boyle was not even a witness in the 179-14/15 case. This is apparent from the list of witnesses at paragraphs 1.3.3 to 1.3.6 of the 179-14/15 decision. 921 In our submission, it was patently unfair of IGUA to leave this Board with the impression that Mr. Boyle gave some sort of suspect testimony in that case. 922 Another example concerns testimony by Mr. Brennan who's also testified before this Board on many occasions. In response to one question from IGUA, Mr. Brennan used the simple words "absolutely not." IGUA referred to this two-word answer in argument, and said: "Me thinks he doth protest too much." 923 Well, the implication of this, again, is that there is something to suspect about Mr. Brennan's testimony. In other words, the mere fact that a witness dare to disagree with a question puts the testimony of that witness under suspicion, according to these types of submissions that were made to the Board. 924 IGUA also made a general submission about the fact that witnesses from Enbridge Inc. appeared on some witness panels. This was at volume 14 of the transcript, paragraph 293. The purpose of including these witnesses on the witness panels purely and simply was to endeavour to provide the Board with the best possible evidence. It certainly appeared to the company that intervenors seized the opportunity to direct many questions to witnesses from Enbridge Inc. 925 In fact, it's ironic that on the deferred taxes issue, IGUA earlier brought a motion in which it requested an order for production and discovery by way of interrogatories from non-parties, being the former affiliates engaged in the operation of the rental program after October 1st, 1999. That motion is at tab 1 of Exhibit K.7.3. 926 Mr. Betts will also recall that in the fiscal 2003 case IGUA joined with two other intervenors in a motion that requested, among other things, that summonses be issued to the chief financial officers of Enbridge Inc. and a number of affiliates, requiring them to testify at the hearing. 927 In short, when it suits its purposes, IGUA is not at all shy about demanding that witnesses from Enbridge Inc. and affiliates should provide evidence for rates proceedings. In this case, though, we have IGUA criticizing the fact that witnesses appeared on some witness panels when the company's sole purpose in doing that was to give the Board the best possible evidence. 928 Now, before completing these comments, and I don't have too much more, I won't take too much more of your time, I did want to just make some very positive observations about this proceeding before the Board, if I may. 929 First, the company joins with intervenors who have remarked on the success that was achieved during the settlement conference process. In fact, the company believes that, as well as the successful settlement conference, that there were a number of other elements of this case that show an increasingly cooperative relationship between the applicant and intervenors. One example is the stakeholder consultations that occurred outside of the Board's formal process and that were referred to a number of times in the evidence. 930 As a result of these productive discussions between intervenors and the company, settlement was facilitated on a number of difficult issues, such as this change in upstream cost allocations and the EnVision project. 931 Another example is the effort that Mr. Shepherd described to find a cooperative basis upon which to approach the deferred taxes issue in order to deal with what he described as a boardroom full of documents. I've just referred to his argument in that regard. 932 Now, while the parties were not able to settle the deferred taxes issues in its entirety, of course, the cooperative approach referred to by Mr. Shepherd, I think, did mean that the Board was not faced with difficult issues about production of documents from this vast amount of material that Mr. Shepherd was allowed to review. 933 Among the other positive developments that occurred in this case, the company would like to include the Board's initiative to conclude with oral argument. Whether or not this will be workable in every case is perhaps an open question and remains to be seen. However, the company does believe that the change was a success in this case, particularly because of the ability to respond to Board questions as they arise during the course of argument. 934 The company believes and expects that all stakeholders believe that the objective should be to ensure that the Board has heard all that it needs to reach a just and reasonable decision, and the ability to answer questions during oral argument, I think, is a good step in ensuring that that does take place in rate cases. 935 So with those closing comments, Mr. Chair, I conclude the company's reply submissions and I do, again, wish to thank the Board for going a little over time to accommodate the arguments made by the company. 936 MR. BETTS: Thank you. We certainly appreciated everybody's efforts to put things into high gear. I trust you weren't forced to leave anything out of your arguments, but we do appreciate your support in doing that. 937 I think I can say on behalf of the Panel, first of all, thanks to everybody that was here. And I did this, I believe, on day 16, and I thanked all of the intervenors at that time and our Board Staff and the applicant, and also our court reporter team, today particularly, did an outstanding job of keeping up with things. 938 But it has been a very efficient and effective process, from our point of view. We were interested in how the -- well, let's call it an experiment with oral arguments would go, and I would say that we were all satisfied so far. And I believe -- or time will tell whether it will result in a more timely or better decision. I would expect that timeliness is the only question rather than anything else. But it has been very, very good for us. We've learned a lot. I think we covered all of the issues completely. It's now in our court to try and deliver a decision as quickly as possible. 939 We did hear the request for an early decision on certain issues and we will try to satisfy that request. It will be our objective to deliver either a decision without reasons or a shortened decision with reasons on those issues during the month of August. 940 I think with that, on behalf of the Board Panel once again, thank you all for your participation. Thank you to all people, I believe, for interfering with their vacation schedules. I appreciate that. I'm glad we didn't take any more than this one day to do that. 941 With that, I'm ready to terminate the hearing process and say thank you once again. Good day, everyone. 942 --- Whereupon the hearing concluded at 4:16 p.m.