Rep: OEB Doc: 13891 Rev: 0 ONTARIO ENERGY BOARD Volume: 2 10 AUGUST 2004 BEFORE: R. BETTS PRESIDING MEMBER P. NOWINA MEMBER P. SOMMERVILLE MEMBER 1 RP-2003-0253 2 IN THE MATTER OF a hearing held on Tuesday, 10 August 2004, in Toronto, Ontario; IN THE MATTER OF the Ontario Energy Board Act, 1998; AND IN THE MATTER OF an application by Tribute Resources Inc. and Tipperary Gas Corp. for an order designating a gas storage area; AND IN THE MATTER OF an application by Tribute Resources Inc. and Tipperary Gas Corp. for an order authorizing the injection of gas into, storage of gas in, and removal of gas from a gas storage area; AND IN THE MATTER OF an application by Tribute Resources Inc. and Tipperary Gas Corp. for an order granting leave to drill two wells in the proposed designated storage area; AND IN THE MATTER OF an application by Tribute Resources Inc. and Tipperary Gas Corp. for an order approving or fixing just and reasonable rates for the storage of gas. 3 RP-2003-0253 4 10 AUGUST 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 GEORGE VEGH Board Counsel ZORA CRNOJACKI Board Staff KATHI LITT Board Staff CHRIS LEWIS Tribute Resources and Tipperary gas Corp. JOHN CHINNECK Tipperary Storage Landowners' Association JONI PAULUS Northern Cross Energy FRANK THIBAULT Market Hub Partners Ltd. MARILYN BROADFOOT Huron County Federation of Agriculture and Landowner GLENN LESLIE Union Gas 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [23] DECISION: [58] PROCEDURAL MATTERS: [64] TRIBUTE/TIPPERARY PANEL 1 - WALSH, McCONNELL, GORMAN, FISHER, LOWRIE, JORDAN, FRANCIS; CONTINUED: [81] CONTINUED EXAMINATION BY MR. LEWIS: [91] PRELIMINARY MATTERS: [669] TRIBUTE/TIPPERARY PANEL 1 - WALSH, McCONNELL, GORMAN, FISHER, LOWRIE, JORDAN, FRANCIS; CONTINUED: [705] CONTINUED EXAMINATION BY MR. LEWIS: [713] CONTINUED CROSS-EXAMINATION BY MR. VEGH: [744] 10 EXHIBITS 11 EXHIBIT NO. E.2.1: AMENDING AGREEMENT DATED JULY 27, 2004 [258] EXHIBIT NO. E.2.2: AMENDING AGREEMENT WITH MR. GOFF BRAND [284] EXHIBIT NO. E.2.3: AMENDING AGREEMENT WITH ADRIAN BRAND [285] EXHIBIT NO. E.2.4: LETTER FROM THE MUNICIPALITY OF CENTRAL HURON, DATED JULY 3RD [309] EXHIBIT NO. E.2.5: RATE-MAKING METHODOLOGIES [520] EXHIBIT NO. E.2.6: LETTER FROM CRICH HOLDINGS & BUILDINGS LIMITED DATED AUGUST 9TH, 2004 [576] EXHIBIT NO. E.2.7: LETTER FROM CANADIAN IMPERIAL BANK OF COMMERCE DATED AUGUST 9TH, 2004 [577] EXHIBIT NO. E.2.8: SUMMARY OF EXPECTED CHARGES TO TRIBUTE/TIPPERARY BY UNION UNDER THE M16 CONTRACT [624] EXHIBIT NO. E.2.9: AUTHORIZATION TO INJECT, STORE, AND REMOVE GAS, DRAFT NUMBER 2, DATED AUGUST 10, 2004 [693] EXHIBIT NO. E.2.10: BOARD STAFF PROPOSED CONDITIONS OF APPROVAL, APPLICATION TO DRILL A WELL, DRAFT NUMBER 2 [694] EXHIBIT NO. E.2.12: THE EXCERPT FROM THE BOARD'S DECISION IN RP-1999-0017 [1320] 12 UNDERTAKINGS 13 ORAL ANSWER TO UNDERTAKING F.1.1 TO PROVIDE INFORMATION REGARDING WHO, AMONG THE APPLICANTS, WILL BE RESPONSIBLE FOR LANDOWNER COMPENSATION [52] UNDERTAKING NO. F.2.1: TO ADVISE WHETHER OR NOT THE APPLICANT IS PREPARED TO AGREE TO BRING THE CURRENT ABANDONED WELL PLUGS UP TO THE CSA STANDARDS IN SECTION 13.3.1, AS A CONDITION OF APPROVAL [830] 14 --- Upon commencing at 9:33 a.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good morning. I see we fooled everybody by being on time this morning. You'll have to watch yourselves. 17 Good morning again, everybody. This is day 2 of the hearing in application RP-2003-0253 submitted by Tipperary Gas Corporation and Tribute Resources Inc. in connection with the Tipperary storage pool project. 18 Yesterday we concluded the day, having heard part of the cross-examination from Mr. Vegh with respect to the first witness panel. 19 Before we begin the day, are there any -- are you having trouble hearing me? Is anybody else at the back having -- okay. Maybe it's just my use of the mike. How's that? 20 MR. LEWIS: That's better. 21 MR. BETTS: > Okay, thank you. The mikes are very directionally sensitive, so maybe we can all remember that and try to have it pointed right at your mouth if possible, and I'll try and remember as well. 22 Are there any preliminary matters for the Panel's consideration? Yes, Ms. Broadfoot. 23 PRELIMINARY MATTERS: 24 MS. BROADFOOT: Huron County Federation of Agriculture begs leave, if the county president attends tomorrow and Thursday, that he may make comments following the landowners' presentation or their comments. 25 MR. BETTS: Can you give me any indication of the subject matter of the presentation to the Board? Just to explain the Federation's position. I don't want to put words in your mouth, but can you help me with that? 26 MS. BROADFOOT: Yes. This matter is a precedent-setting situation because there are other pools inside of the geographic form of Huron County. And because they're owned by farmers, we really want to see that all things are done well this time, and we don't want to have to be representing or coming back hearing after hearing for each possible situation. 27 MR. BETTS: Okay. Can I have submissions on this request from any other parties. Mr. Lewis, any submission? 28 MR. LEWIS: I don't want to appear to be difficult, but before we would want to -- we would be in agreement to that proposal, I would like to know a little more about the nature of these representations, because this intervenor has not pre-filed any evidence. So as not to be caught by surprise, it would be useful, I guess, before finally deciding what our position is on this, to see in more detail the nature of these concerns or comments. I'm not really clear, based on what Ms. Broadfoot has said, where the Federation of Agriculture is coming from or what their position is going to be. 29 MR. BETTS: Are there any other submissions? 30 MR. CHINNECK: Mr. Chair, I would speak in support of the motion that the Federation be allowed to speak. This is a significant development in the County of Huron, and I think that it would be helpful for the Board to have some information from the wider perspective of this agricultural group that represents the farmers of that region. So we would support that. 31 MR. BETTS: Thank you. 32 And any further submissions for our consideration? 33 Ms. Broadfoot, any reply to those submissions? 34 MS. BROADFOOT: I would draw your attention to the fact that we did file questions in the first round. And we have concerns that would apply to all farmers and all agricultural activities. 35 MR. BETTS: Now, it is reasonable, Ms. Broadfoot, for any party to be aware of -- if evidence is to be given, to be aware of it in advance so that they can react to it. Is there any way you can help Mr. Lewis with his request? In other words, that he be made -- be informed as to the nature, at least, of the presentation being made? 36 MS. BROADFOOT: Actually, I feel that it will likely be more of a general statement on the impacts to agriculture and the general approach to the agricultural community. I don't think you're going to have a lot of "hard, hard evidence." 37 MR. BETTS: Sorry, your voice is... 38 MS. BROADFOOT: I'm sorry. 39 MR. BETTS: You don't think we'll have? 40 MS. BROADFOOT: I'm not so sure that you're going to come in and say there's a lot of hard evidence that Mr. Lewis might be concerned that he's dealing with. It's comments on the feelings and the concerns and the approaches to activities like this. 41 MR. BETTS: Thank you. I'll just confer with the Panel for a moment. 42 [The Board confers] 43 MR. BETTS: Yes. The Board is -- would be pleased to hear from the president. However, we respect the fact that Mr. Lewis has a right to know what's going on, and we ask you and the presenter, I believe, the president of the Federation, to be in communication with Mr. Lewis some time today to prepare him in advance for what is likely to be presented so that he could cross-examine if necessary. 44 MR. LEWIS: Thank you. 45 MR. BETTS: Thank you. 46 Any other preliminary matters? 47 MR. LEWIS: Mr. Chairman, I have answers to the two undertakings that were given yesterday, and I don't know whether it's an appropriate time to put those answers on the record now, or whether you would prefer to see it done a little later? 48 MR. BETTS: No, actually, this would be a very good time to do that, in preliminary matters, so please proceed. 49 MR. LEWIS: Ms. McConnell, I'll remind you you're still under oath, you gave an undertaking yesterday to check to see who will be paying the landowner compensation, which of the two applicant companies. Do you have an answer to that undertaking? 50 MS. McCONNELL: Yes, I do. Tribute Resources Inc. and Tipperary will both be paying the compensation to the landowner. 51 MR. LEWIS: And, Mr. Fisher, you gave an undertaking, it was -- pardon me, before I move on. The answer that was just given by Ms. McConnell was the Undertaking F.1.1. 52 ORAL ANSWER TO UNDERTAKING F.1.1 TO PROVIDE INFORMATION REGARDING WHO, AMONG THE APPLICANTS, WILL BE RESPONSIBLE FOR LANDOWNER COMPENSATION 53 MR. LEWIS: Mr. Fisher, you gave an Undertaking F.1.2. I understand you've prepared an exhibit that is essentially a revision of the reservoir monitoring program to contain certain specific directions, and could you -- will you -- we'll pass this out as an answer to that undertaking. Do you adopt that as the answer to your undertaking? 54 MR. FISHER: I do. 55 MR. LEWIS: And this is a document entitled "Tipperary North Storage Operations, Reservoir Monitoring Program." In the bottom left-hand corner, there's a notation "James Fisher, August 9th, 2004." So perhaps we could hand that out as an answer to that Undertaking F.1.2. 56 MR. BETTS: And we will -- we may -- there may be questions that arise as a result of these undertakings, and thank you very much for delivering them so promptly. Are there any other preliminary matters? 57 The Board has considered the request for an amendment to the application and is prepared now to deliver its decision on that. 58 DECISION: 59 MR. BETTS: On August 9, 2004, the applicant requested leave of the Board to amend the application by asking for an order from the Board to set fair and equitable compensation rates. Subsection 38(3) provides: 60 "The Board shall set compensation where there has been a failure to come to an agreement between the applicant and the landowners." 61 Consistent with this, the Board's practice is generally promote determination of fair and equitable compensation through appropriate negotiation and settlement processes between landowners and the gas storage operator. While the Board's legislation does not preclude the gas storage operator from applying to the Board to set fair and equitable compensation rates, and the Board recognizes that the operator may need to reach a timely settlement with the landowners, the Board must ensure that natural justice prevails and all parties are provided a fair opportunity to participate in the process. 62 The Board is not satisfied in this case that either full efforts to achieve settlement have been completed or that sufficient notice has been provided to all parties with respect to the application to the Board to set compensation rates. Therefore, the Board will allow the application to be amended as requested by the applicant, but the Board will establish a separate phase of this proceeding to deal with the application to set compensation rates. That phase will be commenced following reasonable negotiations and settlement efforts and appropriate notice of this application to all affected parties. 63 Are there any questions? Thank you. Are we going to proceed with -- are we ready to proceed with cross-examination, Mr. Vegh? 64 PROCEDURAL MATTERS: 65 MR. VEGH: Thank you, sir. I thought I'd give a bit of an update as to where we are now and how the parties plan to move forward. If we take a look at the issues list, which is at Exhibit E.1.1, the case in chief, and my cross-examination so far, has gone, working through the list, through issue 1 and into issue 2(b), so the last issue that I cross-examined on before the break -- before breaking yesterday was the delta pressuring. That's issue 2(b). 66 Counsel for the applicant and I talked about how to address the rest of this case in terms of the evidence going in, and the approach that we propose taking, subject to the Panel's approval, would be for, if there's any completion of the issues of cross-examination by any other parties up to the end of issue 2(b), they could complete that cross-examination. We would then -- or the applicant will then complete the rest of the case in chief by swearing a new panel, and this new panel, as I said, will complete the applicant's case in chief, and then we will then go back to the order of cross-examination following through the rest of the issues. 67 I say I've completed my cross-examination up to issue 2(b). I obviously haven't had a chance to review the undertakings that were provided this morning. But I understand that the panel members who provided those undertakings will continue to be on the panels going forward in any event, so I don't think, I don't think that will create a practical problem. 68 MR. BETTS: So, Mr. Vegh, from your point of view you would be ready, at this point, for the two witnesses to be added to this panel and receive their evidence in chief? 69 MR. VEGH: I understand that, except that I've heard this morning that there is a party who does want to ask some questions under issue (a), and perhaps up to issue 2(b), and I've just been informed of that this morning, so... 70 MR. BETTS: Well, I will ask for submissions at this point from any parties with respect to that proposal, and we'll hear if there are any concerns. Does everybody understand the proposal, first of all? And if so, may I have your submissions on it. 71 MR. LESLIE: Mr. Chairman, Glenn Leslie. It seems to me that it might be easiest for everyone if Mr. Vegh just completed his cross on the subjects that he's got to cover, and then others could cross-examine on whatever they have as opposed to trying now to deal with four or five issues in cross-examination, then coming back to Mr. Vegh. That's just an observation. I personally don't have anything on those first five issues. 72 MR. BETTS: Are there -- 73 MR. LESLIE: But if Mr. Vegh could just complete his cross-examination, then the rest of us could ask whatever questions we have. And the panel is now a comprehensive panel, I think, to deal with everything. 74 MR. BETTS: It's my understanding that the -- well, perhaps before I take other submissions, Mr. Vegh, can you respond to that? 75 MR. VEGH: Just to the point, the panel that we have now is the panel, really, for issue 1. It's not a comprehensive panel. There will be a couple of individuals added to the panel to address the rest of the issues in the list. And that's why we thought this would be a good place to break and put in the rest of the case in chief. So far the case in chief has only gone to issue -- to the end of issue 1(b). And the case in chief does not address the rest of the issues on the list. 76 MR. LESLIE: Sorry, Mr. Vegh. I misunderstood. And I counted wrong, I guess. I thought everybody was here. Sorry. 77 MR. BETTS: Any other submissions on the suggestion? 78 MR. LEWIS: Yes, Mr. Chairman. And again, I'm really in the panel's hands on this, but it seems to me as a practical matter, if I heard my friend Mr. Vegh correctly, rather than having cross-examination by other counsel on the issues that Mr. Vegh has cross-examined on to date, it would seem to me to make more sense to simply swear the additional two witnesses, let the applicants' case go in in chief in its entirety, and then let Mr. Vegh continue -- complete his cross-examination on all remaining issues, and then any other counsel wishing to cross-examine would be able to cross-examine on any and all issues; rather than trying to somehow segment this into a cross-examination on a few of the issues now by other counsel, and then have them return later. 79 My preference would be to see our case complete in chief, and then all cross-examinations completed on all issues. 80 MR. BETTS: Can I assume, then, based on submissions so far, that everybody's in agreement with that change? Okay. That's great. Let us proceed on that basis. So we will need to swear in two more witnesses, I understand. And Ms. Nowina will do that. 81 TRIBUTE/TIPPERARY PANEL 1 - WALSH, McCONNELL, GORMAN, FISHER, LOWRIE, JORDAN, FRANCIS; CONTINUED: 82 P.WALSH; Previously Sworn. 83 K.McCONNELL; Previously Sworn. 84 J.GORMAN; Previously Sworn. 85 J.FISHER; Previously Sworn. 86 J.LOWRIE; Previously Sworn. 87 H.JORDAN; Sworn. 88 D.FRANCIS; Sworn. 89 MR. BETTS: Thank you, and the witnesses have been sworn in. So Mr. Lewis, if you would like to present the rest of your case in chief, please proceed. 90 MR. LEWIS: Thank you, Mr. Chairman. 91 CONTINUED EXAMINATION BY MR. LEWIS: 92 MR. LEWIS: Ms. Lowrie, when was Mr. Jordan retained as your land man? 93 MS. LOWRIE: In August of 2003. 94 MR. LEWIS: And who was the applicants' land agent before Mr. Jordan? 95 MS. LOWRIE: Murray Brown was our agent until the end of 2001, and then we just did -- we did leasing in-house, and Kathy McConnell handled the in-house leasing. 96 MR. LEWIS: And why was Mr. Murray Brown's retainer terminated? 97 MS. LOWRIE: We weren't happy with his relationships with landowners. 98 MR. LEWIS: Based upon? 99 MS. LOWRIE: Based upon complaints with landowners and things that came to light about his conduct. 100 MR. LEWIS: Mr. Jordan, could you just give us a brief run-down on your educational background and your experience as a land man. 101 MR. JORDAN: I have a Bachelor of Education from Lakehead University. I have a Master's of Arts and Geography from the University of Waterloo; Bachelor of Environmental Studies from the University of Waterloo. I incorporated myself as an independent land man in '89 and have been serving the Ontario industry since then in dealing with subsearches of titles, negotiating between landowners and companies to gain oil and gas rights, gas storage lease rights, surface agreements, pipeline right-of-ways. We also administer documentation to get those contracts. We also disperse royalty interest in production for a variety of companies in Ontario and outside of Ontario. 102 MR. LEWIS: And you've been doing this since 1989? 103 MR. JORDAN: Yes. 104 MR. LEWIS: And in regard to the applicant, Ms. Lowrie's already indicated that you were retained in August of 2003. Can you tell us what you were retained to do? 105 MR. JORDAN: I was asked to come in to assist them in inquiring about land rights, starting with the compressor site with the surface agreement -- acquiring the land rights, particularly the surface agreement for the compressor site that was proposed, pipeline right-of-way easements, and any outstanding oil and gas matters for the DSA. 106 MR. LEWIS: And what about the issue of compensation? Were you retained in respect of that as well? 107 MR. JORDAN: Yes. We were to follow through on all aspects of the application in relation to the landowners. 108 MR. LEWIS: Do you adopt the pre-filed evidence that bears your name in connection with these proceedings? 109 MR. JORDAN: Yes, I do. 110 MR. LEWIS: And the interrogatory answers relating to that pre-filed evidence? 111 MR. JORDAN: Yes. 112 MR. LEWIS: Do you have any corrections to that evidence? 113 MR. JORDAN: No, I don't. 114 MR. LEWIS: Ms. McConnell, I'm wondering if you could come up and -- to the enlarged schematic here. And this is for ease of cross-referencing this against the pre-filed evidence. 115 What we have on the easel here, perhaps you could read the title block in lower right-hand corner? 116 MS. McCONNELL: I will try very hard to speak up. 117 The title block at the bottom says: "Map Showing Landowner Area Inside and Outside the DSA." 118 MR. LEWIS: And I believe this comes from volume 1 of the applicants' pre-filed evidence. Coloured tab 1, white tab 2, page 6, there's a smaller version of this very plat. 119 Ms. McConnell -- 120 MR. BETTS: Mr. Lewis, could you just give me that reference again. Colour? 121 MR. LEWIS: Volume 1, colour tab 1, white tab 2, page 6, I believe. 122 MS. McCONNELL: Yes. 123 MR. BETTS: Thank you. 124 MR. LEWIS: Could you firstly outline for us there where the two unitized areas respecting the pool are. 125 MS. McCONNELL: There are two unitized areas contained within the proposed DSA. The unitized areas are outlined in green -- slow down, too -- are outlined in green. The unit to the south is called the south Tipperary unit agreement, and the unit to the north is called the north Tipperary unit agreement. 126 MR. LEWIS: And when were these areas unitized? 127 MS. McCONNELL: They were unitized in 1977. 128 MR. LEWIS: And I'm wondering if you can tell us a bit about the production history of the pool since unitization. 129 MS. McCONNELL: The units went into production in 1980, and they've produced mostly since 1980 to the present day. 130 MR. LEWIS: And what was produced? 131 MS. McCONNELL: Gas. 132 MR. LEWIS: And how many producing wells are within those two unit areas? 133 MS. McCONNELL: Currently, there are three producing wells within the unit area. One well is Tipperary number 2 in the south Tipperary unit. The next well is Zurich et al Goderich number 1A in the north Tipperary unit. And Zurich et al. number 2 also in the north Tipperary unit. 134 MR. LEWIS: Okay. And are these wells currently producing? 135 MS. McCONNELL: No, they were shut in in June of this year. 136 MR. LEWIS: And why was that? 137 MS. McCONNELL: To provide pressure build-up information. 138 MR. LEWIS: Can you, as best you can, show us on that plat that you're referring to the facilities that relate to the production wells and set-up. 139 MS. McCONNELL: Basically, the line runs -- this well's now abandoned so the line has been decommissioned. 140 MR. LEWIS: Which line are we talking about? 141 MS. McCONNELL: The gas-gathering line. The gas-gathering line runs from Tipperary number 2 on an angle up to Zurich number 1, and then across the field again up to Zurich number 2, and then directly to the east, to the battery site where the gas and the water are gathered. 142 MR. LEWIS: Okay. And you're referring to a line. Can you just tell us, like, where's the line, the gas line that you've just described, located? 143 MS. McCONNELL: The gas-gathering line is buried in the ground below plough depth. 144 MR. LEWIS: And you mentioned a battery site. Whose lands is the battery site located on? 145 MS. McCONNELL: The battery site is located on Dwayne Feddes' land, approximately in this location. 146 MR. LEWIS: And how many acres constitute this battery site? 147 MS. McCONNELL: I would -- probably about two acres. 148 MR. LEWIS: And I notice that Mr. Feddes owns more lands immediately adjacent to this battery site. Can you just show us, with your finger on that plat, where Mr. Feddes' other lands are. 149 MS. McCONNELL: Mr. Feddes owns the entirety of this lot, which is lot -- excuse me, lot 38 of concession 9. 150 MR. LEWIS: And you mentioned something about a tank battery. What -- since this is not oil, what is the tank battery -- what's the purpose of the tank battery? 151 MS. McCONNELL: The purpose of the tank battery is to collect waters associated with the production of the natural gas. 152 MR. LEWIS: And what kind of water is that? 153 MS. McCONNELL: It would be brine, oil-filled brine. 154 MR. LEWIS: And what's done with that brine? 155 MS. McCONNELL: The brine is trucked away by Harold Marcus Limited. 156 MR. LEWIS: In terms of facilities, are there any access roads or other type of facilities relating to what I'm going to call the prior production operation? 157 MS. McCONNELL: Yes. There is a driveway into the Tipperary number 2 well that comes off the Bayfield line directly north. To the Zurich number 1A well, there's a driveway that comes directly from the road into the well. And there is not an established driveway into the Zurich number 2 well anymore, but we do have an area around the well. 158 MR. LEWIS: Now, you're referring to "the road." Can you show us where -- I understand there's a township road that runs through the proposed designated storage area. 159 MS. McCONNELL: Yes. 160 MR. LEWIS: Can you outline for us where that road runs. 161 MS. McCONNELL: There's a concession road called the Tipperary line that runs north/south through the middle of the pool. 162 MR. LEWIS: And that's a gravel road, I take it? 163 MS. McCONNELL: Yes, it is a gravel road. 164 MR. LEWIS: Now, can you -- and I believe Mr. Walsh touched on this yesterday, but can you just point out for us the location of the new injection well, which I understand is partly drilled at this point in time. 165 MS. McCONNELL: Yes. The well's currently being drilled. It is located on the McCulough property at this location. 166 MR. LEWIS: And can you tell us why the -- this is the property of Mr. Elwin McCulough? 167 MS. McCONNELL: Yes, it is. 168 MR. LEWIS: And what are the lots and concessions? Can you give us that? 169 MS. McCONNELL: Certainly. This is lot 41, lot 40, 39, 38, 37. This is concession 9 on the -- 170 MR. LEWIS: No, no, I'm sorry. Mr. McCulough's property. 171 MS. McCONNELL: Oh, I'm sorry. 172 MR. LEWIS: What's Mr. McCulough's lot and concession? 173 MS. McCONNELL: Mr. McCulough's lot and concession is lot 39 and concession number 9. 174 MR. LEWIS: And can you tell us why the site for the injection well was chosen on Mr. McCulough's property. 175 MS. McCONNELL: The location was chosen for geological and geophysical reasons. By that I mean it was chosen so that we could core the caprock, and it was also chosen to improve the 3-D seismic and also to give us a sufficient setback into the productive part of reef for horizontal drilling. 176 MR. LEWIS: Does the applicant have the necessary drilling rights over Mr. McCulough's lands to drill this injection well? 177 MS. McCONNELL: Yes, they do. 178 MR. LEWIS: Thank you. 179 Mr. Jordan, how many landowners within the proposed designated storage area have you personally met with? 180 MR. JORDAN: I have met with all the landowners with the exception of Elwin McCulough. 181 MR. LEWIS: And why didn't you meet with Mr. McCulough? 182 MR. LEWIS: At the request of his nephew, Bruce MacKenzie, I wasn't directly to speak to Mr. McCulough, but to go through Fred Dutot for any information. I was asked not to speak to Mr. McCulough directly, and to go through Fred Dutot. 183 MR. LEWIS: Can you just lean closer to the microphone so we can all hear you. 184 I understand you had a meeting with the landowners at the, I think it's called the Homeville Hall, which is a public hall near the designated storage area sometime in November 2003. Can you tell us what the purpose of this meeting was? 185 MR. JORDAN: Tribute arranged to have a meeting with the landowners and the DSA, an informal meeting to get together to show the -- discuss with the landowners the project proposal that was coming and that we had assembled a -- Tribute had assembled a new team of personnel to do the project and to introduce it to the landowners and to take away any questions and concerns the landowners might have had back to Tribute. 186 MR. LEWIS: And in terms of Tribute's team at that time, who attended that meet -- that public meeting? 187 MR. JORDAN: It was Jane, Dereck, Kathy, myself. 188 MR. LEWIS: Maybe I can ask who on this panel did not attend that meeting? 189 MR. JORDAN: Philip didn't attend because he was in England, and -- 190 MR. BETTS: Sorry, can you use last names for us? 191 MR. JORDAN: Oh. I have to think about this one. Mr. Gorman, Mr. Walsh, and Mr. Fisher were not in attendance. 192 MR. LEWIS: I understand that you had another meeting at the same town hall in approximately a month later, in December 2003. Can you tell me the purpose of this meeting? 193 MR. JORDAN: Stantec, who did the environmental assessment for the project put together the meeting which was a public open house to invite anybody that was interested to come and ask questions about the project. The full crew was, on behalf of Tribute, was there. And I tried to direct landowners that had specific questions to our individuals on the team that would be best suited to answer those. 194 MR. LEWIS: And I understand that you did a water well survey. Can you explain what that involved? 195 MR. JORDAN: We spoke with every landowners along the proposed pipeline route and in the DSA, in a form we had them provide us their contact information, and on a sketch locate their water well and their septic field, which was packaged up and given to Stantec for use in a groundwater survey. 196 MR. LEWIS: And I understand you did a pipeline survey. Could you explain what this entailed? 197 MR. JORDAN: Again, I met with all the landowners along the proposed pipeline line and in the DSA that would be impacted by the pipeline. I surveyed people on both sides of the route for, again, on a form method, so they could write down any comments or concerns they would have. That was summarized and delivered to the municipality for them to reflect on in dealing with their, their easement that we'd asked them for along the roadway. 198 MR. LEWIS: How would you generally describe your relationships with the DSA landowners since you became involved in this project? 199 MR. JORDAN: Oh, the landowners have been very friendly and co-operative in moving the project forward. 200 MR. LEWIS: And how did they contact you if they have inquiries? 201 MR. JORDAN: I've given every landowner I've met with, and maybe more than once, my business card. I've also directed them to contact me at this time with any question or concern that they may have. 202 MR. LEWIS: Does the applicant have petroleum and natural gas leases covering the entire designated storage area, or proposed designated storage area, pardon me? 203 MR. JORDAN: They have leases on everything except for two parcels. 204 MR. LEWIS: And perhaps you can just come around again to the plat that we have up here that was -- that Ms. McConnell referred to earlier, and show us the two properties that you do not have petroleum and natural gas leases on. 205 MR. JORDAN: The Graham Feddes property is 65 acres, 63 acres of it is under lease. The two-acre parcel is not under lease. The other -- 206 MR. LEWIS: Sorry. Go ahead. 207 MR. JORDAN: The other landowner is the Vermue property. It entails 233 acres. There's a lease on 80 acres. There's 80 acres that would be in the new DSA, and the rest would be outside. 208 MR. LEWIS: So just if we can go back to the Feddes property. If I heard you correctly, you do have a P&NG lease on the bulk of Mr. Feddes' lands. That's Dwayne Feddes, is it? 209 MR. JORDAN: Right. The original landowner lease that was in here was granted before Mr. Feddes took ownership of the property. At that time, the two-acre strip was owned by the municipality as road-widening. We don't take -- there's no requirement for municipalities, they don't want to enter into oil and gas leases all in small parcels so it was never leased when it was unitized. Since then the municipality has deeded it back to the adjoining landowner because they didn't want it any longer. Therefore, there's no lease on that. 210 MR. LEWIS: And this is a strip of land that runs along the Township road that's approximately two acres in area. 211 MR. JORDAN: Right, about 50 feet wide and the length of the face of the property. It was bad road conditions back in the early days and the landowner made arrangements with the municipality to get more space in there. 212 MR. LEWIS: And as I understand it from Ms. McConnell, the applicant does have a surface lease over that two-acre strip that it had with the municipality for the location of its water tank battery. 213 MR. JORDAN: Yes, the surface agreement for the use of the surface for the tank battery. 214 MR. LEWIS: And the other property that you showed, the Vermue lands, I'm somewhat confused as to what portion of the Vermue lands you do not -- that lie within the DSA that you do not have a P&NG lease for. 215 MR. JORDAN: Again, the original leases in here were taken by the previous landowner on all the property. When the south tip was unitized, the company at that time surrendered away the outside acres. So, you know, they thought, with their information, they had captured enough of a unit. And it's very typical that you surrender your outside acres if you don't need to hold it for any reason. 216 MR. LEWIS: So, again, can you just show us, within the DSA. 217 MR. JORDAN: Okay. 218 MR. LEWIS: That portion within the DSA, that portion of the Vermue lands that you do not have P&NG rightings for. 219 MR. JORDAN: This part we do not have. This part we do have. 220 MR. LEWIS: Can you describe for us the efforts that you've made to obtain P&NG leases over the unleased Vermue lands and the unleased Dwayne Feddes lands. 221 MR. JORDAN: We prepared oil and gas leases at the same rates as existed on the other landowner leases to keep all the payments in line with the other leases and it wouldn't interrupt the unit agreement that was in place. And that would have been for the north Tip. and south Tip. pools for Vermue and Feddes. 222 MR. LEWIS: And when did you provide copies of those leases to these two landowners? 223 MR. JORDAN: My initial meeting with them was on October 27th. 224 MR. LEWIS: Of 2003? 225 MR. JORDAN: 2003. 226 MR. LEWIS: And why weren't they signed? 227 MR. JORDAN: Mr. Vermue is a new farmer to Canada from Holland, and the lease is a very difficult document for someone to pick up. I did sit down, explain the details of the lease with him. And he wished to have it reviewed and subsequently has taken it to a lawyer for review, and we haven't heard back on it. 228 Mr. Feddes, I talked to him. He had several issues that -- that he had with the lease, or conditions he wanted done in order to grant the lease - that was in a submission earlier - of which we have agreed to do all on except for one, which is the decommissioning of our tank battery site and the removal of the production gas pipeline, because until the pool is designated for storage, it's still a producing operation, or capable of producing. 229 MR. LEWIS: Does the applicant have gas storage leases over all the lands within the proposed designated storage area? 230 MR. JORDAN: We have gas storage leases on all the properties except for that portion that Mr. Feddes and Mr. Vermue have that is the same situation as the oil and gas lease. 231 MR. LEWIS: And what efforts have you made to obtain gas storage leases from Mr. Dwayne Feddes and Mr. Vermue? 232 MR. JORDAN: In the same fashion, we offer them the same gas storage arrangements that was consistent with the other landowners in the pools. 233 MR. LEWIS: And what was their reaction to -- I take it you tendered on them documents for their signatures? 234 MR. JORDAN: Yes, we did, at the same time we had tendered the oil and gas leases. 235 MR. LEWIS: And why didn't they sign the gas storage leases? 236 MR. JORDAN: For the same reasons that were stated for the oil and gas leases. 237 MR. LEWIS: I understand that you've made an offer of compensation to all landowners within the proposed designated storage area for oil and gas rights, gas storage rights, and damages. 238 Can you tell us about that? I take it that offer is in the pre-filed evidence? 239 MR. JORDAN: Yes. There is an offer that was put together for compensation that was delivered out when the application was originally sent in, which was consistent with the price at that time for gas storage pools. 240 Subsequently -- 241 MR. LEWIS: If we can just get on the record here. This offer, and I believe it's labelled "Draft Agreement," is in the -- in the pre-filed evidence at Exhibit C.1.1, which I believe is volume... 242 MR. JORDAN: That offer was delivered to landowners on -- 243 MR. LEWIS: No. I just want to get on the record where it is so that we can cross-reference that. 244 MS. McCONNELL: In the interrogatories. 245 MR. LEWIS: I'm sorry. 246 MS. McCONNELL: In the very first -- 247 MR. LEWIS: Exhibit C.1.1 is a large binder entitled "Response to Interrogatories by Tribute/Tipperary," and it's in answer to question 108 at tab 13. And it's entitled "Amending Agreement." 248 So, when was that initial offer of compensation made? 249 MR. JORDAN: It was delivered on May 14th, to all landowners. 250 MR. LEWIS: And did you get any response from Mr. Dwayne Feddes or Mr. Vermue in regards to that initial offer? 251 MR. JORDAN: I do believe that the Tipperary Storage Landowners' Association sent in a letter of rejection of the offer 252 MR. LEWIS: Okay. Did they give any reasons why? 253 MR. JORDAN: There was an issue of -- what we were offering was the same as Union's last agreement earlier this year. And the issue was that the Union contract terminates in 2008, and our application doesn't really have an expiry date on it, nor did the offer. 254 So what was proposed between -- or worked out between Mr. Dutot on behalf of his land people and myself was to write an additional clause into the amending agreement that would sort of say that Tribute was willing to -- or both parties were willing to maintain the status quo of whatever Union's getting and paying to their Lambton landowners, we would be doing the same, subject to either party having the right to make an application to the Board to change those rates at any time, to remove us from the landowner group having to come before the Board on a scheduled termination date of the contract. 255 MR. LEWIS: Okay. So I take it, from what you're saying, that a subsequent amending agreement was tendered to the landowners in regards to compensation. And perhaps it's an appropriate time now to make that an exhibit and have this witness identify it. 256 MR. BETTS: We'll need an exhibit number for that, please. 257 MS. LITT: E.2.1. 258 EXHIBIT NO. E.2.1: AMENDING AGREEMENT DATED JULY 27, 2004 259 MR. BETTS: Exhibit E.2.1. Thank you. Shall we just describe that as "Amending Agreement?" Or would you like to be more specific? 260 MR. JORDAN: That's -- well, it's sort of a live document, and that's, yeah, that's the name it's just called. 261 MR. LEWIS: Perhaps it might be more helpful to describe it as the July 27th, 2004 amending agreement. 262 MR. BETTS: Thank you. 263 Please proceed. 264 MR. LEWIS: Mr. Jordan, can you identify Exhibit E.2.1? 265 MR. JORDAN: The one we -- this one? 266 MR. LEWIS: Yes. 267 MR. JORDAN: This was a version I had underlined changes to assist Mr. Dutot from the one that was previously referenced in the evidence, to assist him in seeing what changes we had suggested to the amending agreement. 268 MR. LEWIS: And this document was tendered or delivered to whom? 269 MR. JORDAN: It was delivered or faxed to Fred Dutot for his review, as we were discussing what is now clause 7 of that document. 270 MR. LEWIS: And at the time you provided this to Mr. Dutot, you understood that he was representing who? 271 MR. JORDAN: Well, the Tipperary Storage Landowners' Association. 272 MR. LEWIS: And what did Mr. Dutot -- what was Mr. Dutot's reaction to Exhibit E.2.1 when it was provided to him? 273 MR. JORDAN: The document itself, the numbers, the values, were fine. The only question he had was -- outstanding was the wording of clause 7, of which he advised me he was going to take it to counsel for their review of the words. 274 MR. LEWIS: And clause 7 is the clause that pertains to? 275 MR. JORDAN: It's the renewal or the -- a method of changing the rates under the amending agreement. 276 MR. LEWIS: And the compensation offer as represented by Exhibit E.2.1, what is it based on? 277 MR. JORDAN: It's based on the last -- I don't know the -- it went to the Energy Board here in the spring. I don't know the reference of the order. But the Lambton Landowner Association and Union Gas Limited agreed on their ten-year contract of rates. And so it's based on that. 278 MR. LEWIS: And was that the case that Mr. Vogel represented the Lambton Landowners' Association in connection with? You don't know. 279 MR. JORDAN: I wouldn't know that, no. 280 MR. LEWIS: Okay, now, you indicated that you tendered this offer to Mr. Dutot on behalf of the Tipperary Storage Landowners' Association. What about Mr. Goff Brand and Mr. Adrian Brand, who I understand are not represented by that association? What attempts were made to offer them compensation? 281 MR. JORDAN: My hopes were that in dealing with the larger group of the Tipperary Storage Landowners' Association, agreeing and approval of the text of the amending agreement would be done first, being that I like to keep all the landowners on the same document and same playing field, but being that Mr. Brand and Mr. Adrian and Goff Brand are not represented we did endeavour to have them execute an amending agreement of the same nature which has been executed and we can provide to you. 282 MR. LEWIS: Perhaps it might be convenient to enter two more exhibits which were documents that were signed last night by Mr. Goff Brand and Adrian Brand. 283 MS. LITT: Exhibit E.2.2, amending agreement with Mr. Goff Brand. Exhibit E.2.3, amending agreement with Adrian Brand. 284 EXHIBIT NO. E.2.2: AMENDING AGREEMENT WITH MR. GOFF BRAND 285 EXHIBIT NO. E.2.3: AMENDING AGREEMENT WITH ADRIAN BRAND 286 MR. BETTS: Thank you. 287 MR. LEWIS: Mr. Jordan, I'm wondering if you can tell us what you did last night in regards to the execution of these two documents. 288 MR. JORDAN: I contacted, during the day yesterday, Mr. Goff Brand and Adrian Brand separately; discussed with them that we had -- whether or not they remembered the agreement that we had sent to them and that they were in agreeance to it and that we asked if they would sign an amending agreement last night to present to the Board today of their consent to the -- to that agreement. Which they did. So last night I drove up to meet with them, and back again. And they were very happy to co-operate with Tribute on their -- on their project. They are original landowners, Goff Brand was the original landowner in there when the wells were drilled and he's got a 49 percent interest in the south Tip pool so he's a major landowners up there. As a land man, I like to try to make sure that all my landowners that I'm sort of representing to the company as well, and vice versa, that we're all on an even playing field at all times. It is a community up there. 289 MR. LEWIS: And I understand that you had some discussions with Mr. -- and are these gentlemen related to one another? 290 MR. JORDAN: Are they brothers? I -- I... 291 MR. LEWIS: You're not sure. 292 MR. JORDAN: I'm not sure. 293 MR. LEWIS: I understand that you had some discussions with them when you met them last night regarding their participation in this hearing. And I also understand that, if the Board sees fit, they are prepared to come here and attend at the hearing and make their position known. Can you tell us about those conversations? 294 MR. JORDAN: I did ask them both directly if they would be willing to come here and address the Board, for anything they needed to address. And they said they would; they don't need to. They wish -- they didn't feel they needed to. They felt that the Board would look after their best interest of them. I asked about if they would have any, any reason for recourse if the Board made any discussion or opinion on their behalf. And they didn't have any reason to open up anything after this case goes through for any reason. They feel that they're well represented by Tribute's application and the Board's interest. 295 MR. LEWIS: But if the Board does have any questions of them, they are prepared to come and attend, and answer any questions or concerns that any of the parties that have chosen to attend the hearing would like to put to them. Is that fair to say? 296 MR. JORDAN: They will come if you wish. You can also -- they did say you could phone them if you wish to do it, try to reach by phone as well. 297 MR. LEWIS: Again, I hate to ask you to get up again, but I think it might be instructive to do that. If you could come back to the enlarged plat here. 298 I'm wondering if you could show us where the proposed pipeline and compressor station will be located. 299 MR. JORDAN: I don't think we have a map that goes far enough north, but the proposed pipeline is to come from the, from the well out to the -- 300 MR. LEWIS: When you -- just if I can interrupt, when you say "the well," you mean the injection well that has been partially drilled. 301 MR. JORDAN: Right. The proposal would be for -- the injection well is to be along this alignment. A pipeline would be then out to the municipal road, and then up the east side of the Tipperary line seven kilometres to where the Union tie-in is, where the compressor site would be located on a severed piece of property. 302 MR. LEWIS: And do you know the approximate cost to construct this pipeline? 303 MR. JORDAN: The estimated price of the pipeline is $750,000. 304 MR. LEWIS: And can you tell us what arrangements -- you can probably sit down -- what arrangements you have made with the municipality of Central Huron for a pipeline easement? 305 MR. JORDAN: In discussing the request for the easement with the municipality, was one reason we did the pipeline survey, so we wouldn't have their office inundated with phone calls from the landowners. 306 So with the survey and the concerns of the landowners, we asked the municipality to grant the easement, which they are in favour of but they won't grant it until after the pool's been designated for storage. And then they'll put the easement to, to their Council for approval then. 307 MR. LEWIS: And I'd like to mark as a -- I think it will be Exhibit E.2.4 a letter which this witness can identify in a moment. It's a letter from the municipality of Central Huron, addressed to Mr. Jordan's company, regarding this issue. 308 MS. LITT: Exhibit E.2.4: Letter from the municipality of Central Huron, dated July 3rd. 309 EXHIBIT NO. E.2.4: LETTER FROM THE MUNICIPALITY OF CENTRAL HURON, DATED JULY 3RD 310 MR. LEWIS: Mr. Jordan, can you identify this as the letter that you received in regards to the pipeline? 311 MR. JORDAN: Yes, it is. 312 MR. LEWIS: And there's a reference in that letter to an easement that they've drafted for your consideration. Have you received any draft easement agreement? 313 MR. JORDAN: Yes. Just the other day I have received the amended draft agreement that they would be prepared to take to Council with. 314 MR. LEWIS: And -- that's fine. 315 What about securing a compressor site? 316 MR. JORDAN: The compressor site is on -- or is off the property of Budd Yeo. He's the landowner who went to ask for a surface agreement on to build the site, but he would prefer to have it severed, which was fine with us as well. It would put the -- any liability and any other kind of issues directly on the company. 317 MR. LEWIS: Just so we're clear here, where is Mr. Yeo's property? 318 MR. JORDAN: He is 7 kilometres up the road from the site, adjacent -- there's the Union Gas pipeline, a train track, and then Mr. Yeo's land, so... 319 MR. LEWIS: And when you mentioned "severed," what are you referring to? 320 MR. JORDAN: We will -- we had gone through and had application of severance of the two-acre parcel at the request of Mr. Yeo. It has gone through severance pending rezoning. 321 MR. LEWIS: Is it the applicants' intention to purchase that property from Mr. Yeo? 322 MR. JORDAN: Yes. Yes. There's agreements in place for that. 323 MR. LEWIS: And that's Mr. Yeo's preference? 324 MR. JORDAN: Yes. 325 MR. LEWIS: Do you see any impediments to securing title to that compressor site property? 326 MR. JORDAN: Problems, no. We'll have to put on a site plan survey with the municipality, so there are site plan controls. 327 The other issues are, Tribute cannot sell the -- like, when they decommission the site or whatever in the future, they cannot sell the property, it has to go back to the adjoining landowner. 328 MR. LEWIS: But the approvals have been -- 329 MR. JORDAN: Oh, the approvals are all in place. The municipality and the County of Huron, yes. The County of Huron and the municipality of Central Huron. 330 MR. LEWIS: I understand that the Ministry of Natural Resources have made some suggestion about expanding the proposed designated storage area to the north. In response to that proposal, did you contact any landowners located north of the proposed designated storage area to discuss this proposal? 331 MR. JORDAN: The north boundary of the pool is in alignment of the original unit. The Ministry of Natural Resources has something called spacing units which this line would then -- 332 MR. LEWIS: I'm not sure that it's necessary to go into that kind of detail. Suffice it to say that the Ministry did make suggestions for certain reasons about extending that boundary north, and perhaps you can just describe for us the efforts you made to contact the landowners and get their reaction to being included in the extended DSA. 333 MR. JORDAN: Okay. Well, we advised Mr. Dutot, being the chairman of the landowners commission there, that we were going to go ahead and talk to these landowners. Steve Feddes, went and spoke with him about extending the boundary -- 334 MR. LEWIS: Can you outline his property for us that lies within and outside? 335 MR. JORDAN: Right. He owns all this piece in here. He had no problem in allowing the boundary to go north. 336 MR. LEWIS: Do you have a lease over his property? 337 MR. JORDAN: We have leases on those properties. 338 MR. LEWIS: Both gas storage and P&NG? 339 MR. JORDAN: Yes. 340 MR. JORDAN: Postill, we had no lease -- Postill, P-o-s-t-i-l-l, we had no storage lease and oil and gas lease on their property. We went to them and asked them for the same reason, that the Ministry wants to move it north, can they participate. The executed leases involves consent for the boundary to move north. 341 And Steenstra's -- Steenstra's property, same thing. We went and talked with them. We have oil and gas and storage leases with them, and they had no problem if the boundary moved north as well. 342 I spoke to Guindon and she didn't want to -- G-u-i-n-d-o-n -- and she didn't wish to execute any consent for the boundary. 343 MR. LEWIS: And I understand that all of those affected land -- can you just show us the area so we're clear as to what the MNR was suggesting might be an extension of the northern boundary of the pool. 344 MR. JORDAN: You move this red line that's proposed up to the road. 345 MR. LEWIS: And have the landowners that you've just talked about, have they all been served with the notice of application? 346 MR. JORDAN: Yes. 347 MR. LEWIS: And they're all represented by the TSLA? 348 MR. JORDAN: I don't know. They would have been outside when the TSLA was formed. 349 MR. LEWIS: Have any of the landowners, either directly or through the TSLA, ever contacted you looking for crop damages resulting from the applicants' operations on their lands? 350 MR. JORDAN: No. There's not really any formal application for damages. We've had -- there's -- we talked to the tenant farmer that farms the McCulough property and discussed compensation prior to going in, which was fine. That was Fred Middleton. 351 MR. LEWIS: But I'm talking about anyone who has contacted you claiming that there are crop damages to be paid for damage that's occurred. 352 MR. JORDAN: No. 353 MR. LEWIS: I understand that you received a request from Mr. Dwayne Feddes and Mr. McCulough regarding the decommissioning of your production facilities as they relate to their lands. 354 MR. JORDAN: The gas-gathering pipeline that -- 355 MR. LEWIS: Is that true? Did they -- 356 MR. JORDAN: Yes. 357 MR. LEWIS: Can you tell us about that. 358 MR. JORDAN: Sure. The gas-gathering pipeline that Kathy showed going across -- going across the properties Mr. Feddes and Mr. McCulough would like to have removed, and the tank battery site be decommissioned and removed as well. 359 We're sort of in a Catch-22, that those are production facilities until such time that storage would be designated. But we have given them a letter of undertaking to take the pipeline out of the field when we decommission it. And it's our intent to dismantle and clean up the tank battery site, as outlined under the lease. 360 MR. LEWIS: So if I'm understanding you, if these orders that the applicants applied for are granted, the applicant is prepared to undertake to decommission its production facilities from the Feddes lands and the McCulough lands and to restore these lands to the same condition, so far as practicable, as existed before the use of the same by the applicant in accordance with the terms of the existing P&NG leases that you have with those landowners? 361 MR. JORDAN: Yes, they are. 362 MR. LEWIS: Ms. McConnell, are you aware of the landowners' concerns from their pre-filed evidence about the potential environmental impact that the two old plugged wells within the field may cause? 363 MS. McCONNELL: We are aware of their concerns, and we do take their concerns very seriously. So, as a result, I gathered -- 364 MR. LEWIS: Firstly, if you could just explain for us. There are -- are there two plugged wells in the field. 365 MS. McCONNELL: There are a total of five plugged wells in the field. 366 MR. LEWIS: Okay. And in particular, the ones that are referred to in the landowners' pre-filed evidence are two that were plugged in the 1950s. 367 MS. McCONNELL: That's correct. 368 MR. LEWIS: Do you know how those wells were plugged? 369 MS. McCONNELL: They were plugged using a wooden bridge and lead plug method. 370 MR. LEWIS: Okay. And as I understand their concerns, if this pool is approved and delta pressured, they're concerned about the integrity of those plugs. Is that -- 371 MS. McCONNELL: That's correct. 372 MR. LEWIS: And maybe you could describe for us what you've done to look into that concern. 373 MS. McCONNELL: I went to the oil, gas, and salt resources library in London, and conducted a data search of three storage pools that are currently undergoing delta pressuring. Those pools are known as the Dawn 47, 49 pool, the Dawn pane 59, 85 pool. Both of those are operated by Union Gas. And I also looked at the Kimball Colinville pool. All three of these natural gas storage reefs had wells that were plugged in a similar manner. 374 MR. LEWIS: What was the date that those other wells were plugged? 375 MS. McCONNELL: They were plugged anywhere from 19 -- from the 1920s to the late 1950s. 376 MR. LEWIS: And what was the result of that investigation? 377 MS. McCONNELL: I found that they have been subjected to pressures equal to what Tribute is proposing to pressure the reservoir to. 378 MR. LEWIS: And -- 379 MS. McCONNELL: And they, I'm sorry, and they have not leaked, to my knowledge. 380 MR. LEWIS: And did you have discussions with any officials at the MNR as to whether these old plugged wells overlying these delta pressured reefs have somehow been compromised through pressuring? 381 MS. McCONNELL: I spoke with Mr. Terry Carter and Mr. Jug Manocha of the MNR, Ministry of Natural Resources, and both did not know of any old plugged wells that have leaked over natural gas storage reefal reservoirs. 382 MR. LEWIS: So, in your opinion, what is the likelihood of the -- any of the plugged wells and, in particular, the two that were plugged in 1950 being compromised upon the delta pressuring of this reef. 383 MS. McCONNELL: I do not believe that any of the plugged wells will leak. We still use the lead plug and wooden plug method to plug wells to this day. And I believe, I believe it will provide an effective seal. 384 MR. LEWIS: And in your view, what is the likelihood of the water table lying above this reef being affected as a result of the delta pressuring of this pool? 385 MS. McCONNELL: I do not believe that these wellbores will provide a pathway for contamination of the fresh-water zone. 386 MR. LEWIS: And by this wellbores you mean? 387 MS. McCONNELL: The plugged wells. 388 MR. LEWIS: Mr. Gorman, in your experience, when a well is plugged and several years go by, what happens to the wellbore? 389 MR. GORMAN: Well, we've got to look at what happened when the plugs were set. On top of these plugs just to remove any misconception that may occur, the wells generally filled with drying cuttings or fluid. And, as with the passage of time you get caving in and filling in of the hole and the compaction above these plugs which will further enhance the stability and the integrity of the plugs. So in general -- well, not in general, I concur with Ms. -- 390 MS. McCONNELL: Ms? 391 MR. GORMAN: Ms. McConnell's comments in this regard, and I believe these plugs are good plugs and they won't compromise the "integrity." 392 MR. LEWIS: Ms. McConnell, I'm wondering if you could tell us what your role in the designing of the new injection well was. 393 MS. McCONNELL: I have designed the drilling program for the new injection well. The drilling program contains how the well is drilled, what casings will be run, how the casing will be cemented. 394 MR. LEWIS: I'm wondering if you could just come up to the easel. And we have another enlargement of a schematic that's in the materials. Perhaps you could put that up on the easel while I make reference to where it can be found in the pre-filed evidence. Volume 1 of the applicants' pre-filed evidence, the coloured tab 4, white tab 4, page 2. And perhaps you could just read into the record the title on this document appearing at the top. 395 MS. McCONNELL: The title of this diagram is entitled -- well, called: "Wellbore diagram - completed horizontal well." 396 MR. LEWIS: I believe you indicated you designed the casing program for this well. I'm wondering if you could, in a moment, when everyone's found it, if you could sort of take us through and explain how this well has been cased, making particular reference to the potable water zone. 397 MS. McCONNELL: Okay. If you can imagine a well is drilled, it's basically a circular hole in the ground. This picture is meant to represent that circle, if you cut it in half. It's a pictorial reference or a pictorial diagram of a well. 398 MR. LEWIS: Of? 399 MS. McCONNELL: Of our proposed horizontal well. As you can see or I'm going to try and describe, there are four casings in this well. This blue area up here represents the fresh water. This blue area down here is a sulphur water zone. What we have done is we have driven this first casing into the bedrock, which provides a seal against the bedrock and helps to protect the fresh water. The next string we drill is 15 meters plus or minus into the bedrock. This casing is cemented to surface, which again provides a layer of protection for the fresh water. 400 The next casing is then drilled and placed into the F shoe or F unit. It is also cemented to surface when we -- 401 MR. LEWIS: Could you just show us where the cement is shown on this illustration? 402 MS. McCONNELL: Certainly. The cement is represented by this dotted, shaded area. The next string that would be placed in the well is this string right here. It will be our production string. It is also cemented to surface. Each of these casing strings when we cement them to surface are also pressure-tested. By that I mean that we apply pressure to the casing before we industrial it out to ensure that the casing has integrity. It's also how we test our blowout preventers. 403 MR. LEWIS: Sorry, could you just say that -- I missed that. I think the reporter missed it. Could you just say that again? 404 MS. McCONNELL: We pressure-test the casing before we drill out the cement. Like, there's usually -- when you're done cementing, there's usually cement up in the casing. So we pressure-test the casing. Then we drill out our cement about half a meter below the shoe, and then we again test, we then test the integrity of the formation below the shoe, and we are essentially testing the integrity of the base of the casing. 405 MR. LEWIS: And is that known as blowout prevention? 406 MS. McCONNELL: It's part of what we do. I mean, what you're testing is the integrity of the well. 407 MR. LEWIS: And I understand that there is a standard CSA Z341.1 which specifically imposes a requirement on casing a well such as this, an injection well, into the vicinity of the water zone. Can you describe what that requirement is, and relate it to the casing program you've describe -- you've designed here for the applicants' injection well? 408 MS. McCONNELL: The CSA standard 341.1 states that you must have one cemented string between the potable water zone, protecting the potable water zone. We have four casing strings and three cemented strings protecting the potable water zone. 409 MR. LEWIS: And so why have you exceeded that standard? 410 MS. McCONNELL: We believe in protecting the fresh water, and we believe in completing a well properly. 411 MR. LEWIS: Who will supervise -- I understand you supervised the drilling of the well to the stage it's at now; is that correct? 412 MS. McCONNELL: Yes. I was a supervisor and an examiner. So I was out for all the cement jobs. I was out when we ran all the casing in the hole, when we did the cement jobs, when we did the pressure-tests. 413 MR. LEWIS: And who will supervise the drilling of the final horizontal leg of this well? 414 MS. McCONNELL: I will be the supervisor. 415 MR. LEWIS: And can you just make reference to the schematic, and show us where that horizontal well will go? Right here, just... 416 MS. McCONNELL: Oh. The horizontal -- 417 MR. LEWIS: Where are you at right now with this well? 418 MS. McCONNELL: Okay, where we're at right now is, the production casing is not in the well. The horizontal leg has not been drilled. This -- the vertical portion of the well is still being drilled. 419 MR. LEWIS: Okay. 420 MS. McCONNELL: What we propose to do, upon completion of drilling activities, is to plug this well back up into what I call the intermediate casing, the F shale or the F unit casing, and then we will bring in a rotary rig with directional people and we will drill the well horizontally into the gas pay. 421 MR. LEWIS: Has the drilling of this well thus far been conducted safely? 422 MS. McCONNELL: Yes, it has. 423 MR. LEWIS: And how will the remaining drilling be conducted? 424 MS. McCONNELL: It will be conducted in a safe manner, in compliance with the CSA standards, the Ministry of Natural Resources acts and regulations, and with the Ministry of Labour acts and regulations. 425 MR. LEWIS: And in your opinion, what is the likelihood of environmental problems, such as water table contamination, occurring because of this well in the future, after delta pressuring? 426 MS. McCONNELL: There is no chance of contamination along this wellbore path. 427 MR. LEWIS: Has this well been appropriately designed, in your opinion? 428 MS. McCONNELL: In my opinion, it has. 429 MR. LEWIS: I understand that two of the existing producing wells are being converted to observation wells. 430 MS. McCONNELL: Yes. One, Tipperary south number 2, which is located in the south Tipperary unit, has been mostly converted into an observation well. 431 MR. LEWIS: Can you explain for us how that -- 432 MS. McCONNELL: Mostly? 433 MR. LEWIS: No, how that well has been converted. 434 MS. McCONNELL: What we have done is, not every string of casing was cemented to surface because these wells were completed back in the '70s. So we have gone in and we have performed remedial cement jobs on the casings in the well, so they now meet the CSA standard. We have pressure-tested the casing to ensure that it has integrity. 435 MR. LEWIS: And the purpose of all this is to what? 436 MS. McCONNELL: The purpose of all this is to bring the well into compliance with the CSA standard Z341.1. 437 MR. LEWIS: And you've indicated you've done that in one well. And what are your intentions with respect to the second well? 438 MS. McCONNELL: We plan to take the Zurich number 2 well and convert it into an observation well, and we will cement all the casings to surface. We will pressure-test the casing, and we will run a casing evaluation log in compliance with the Z -- CSA Z341.1 standard. 439 MR. LEWIS: Can you explain your use of corrosion logs relating to these two wells. 440 MS. McCONNELL: We we will run casing evaluation logs on these wells when they are completed, when the remedial action is completed. 441 MR. LEWIS: And what's the purpose of that? 442 MS. McCONNELL: A casing evaluation log, the first time you run it, it provides you a baseline so that you know how your casing starts out. And then you -- under the CSA standard, you must run a casing evaluation log every five years so you can tell if your casing has been subjected to any corrosion. 443 MR. LEWIS: And in your opinion, what's the likelihood of environmental problems, such as the water table being contaminated, occurring because of these two observation wells once delta pressuring occurs. 444 MR. LEWIS: I do not believe there will be any contamination along these wellbore paths into the fresh water zone, or any other zone. 445 MR. LEWIS: Mr. Fisher, how will the environmental impacts of injection and withdrawal activities be mitigated in the day-to-day operations of this pool after designation? 446 MR. FISHER: As I mentioned yesterday, the station and the pipeline and the well all form a closed-loop system. That is, the gas comes up, Union's line, it goes through a metering station they've built onto our compressor, through the compressor into a pipe, into the pool, back up through the casing and the wellhead, through the line and back onto Union, essentially. 447 This portion of the system will be built in accordance with existing standards and guidelines. And there should be no impact from those facilities at all. 448 The exception would be the emissions from the engine. Fuel is taken off the line so that the compressor can be driven by an engine. And the emission standards and noise standards will be designed -- or taken into consideration during the design stage. 449 In addition, it's possible - we don't know - that water may come out of the pool at some point during withdrawals. It's really a guess. But rather than take a chance, we're going to install a piece of equipment called a dehydrator, and it's essentially set up to strip the water from the gas, and that water is vented to the atmosphere. 450 So, closed-loop system, and the exceptions are managed in the way that all the other storage assets in Ontario are currently managed. 451 While we're doing the design and construction for the station, we'll be preparing a set of operation and maintenance manuals. At that time we'll also be arranging for operations, personnel, and identifying if there's any training that needs to be done to ensure that they're capable of carrying out the operation guidelines that we specify. We'll be using consultants and past experience to help us put these operation and maintenance manuals together. 452 The operations side, essentially, is a guide, as you can imagine. The intricacies of the station can be fairly complex, but we'll be laying out during normal course of operations, This is what the pool looks like in this situation, this situation, this situation; this is what you do, A, B, C; in the event of X event happening, you need to do Y. 453 So it will be laid out so that a person can safely manage the asset, and effectively ensure that the system is operating safely. 454 There also will be a maintenance aspect. We can do corrosion inspection of the pipe, corrosion inspection of the casing -- 455 MR. LEWIS: I understand that -- if I can just interrupt you, there's some standards that apply to the pipeline corrosion inspections and well and compressor station corrosion inspections. 456 MR. FISHER: Yes. Both Z341 and Z662, the pool and pipeline specs, lay out the need for inspection and the way the manuals will be put together. There's an additional manual, CSA Z31, I believe, that lays out what operating manuals should include, and we'll be following that. We don't want to skimp here. 457 So I think the last variable included in the operations manual will be an emergency response plan. And our team coming down here at 9 o'clock this morning, Eglinton traffic, and we're not from Toronto, gosh, we've got to be there in 30 minutes and there's been a traffic accident. The reality is unexpected events occur, and what we'll be doing is sitting with a consultant and documenting what we believe the realm of accidents could be, to the best of our ability, obviously, and writing down the steps for a person to conduct themselves in the event of an accident. 458 That would -- that would consist of the bulk of what we do. 459 MR. LEWIS: Dr. Walsh, why is the applicant injecting a horizontal well for injection/withdrawal purposes when there are already wells in this pool? 460 MR. BETTS: Mr. Lewis, just before you begin another line of questioning, I'm just wondering if you can find an appropriate point for a break. 461 MR. LEWIS: I'm going to be about another three minutes with this segment. 462 MR. BETTS: Okay. 463 DR. WALSH: Well, the answer to that is that in order for us to have the types of deliverability required to make this pool economic, the existing vertical wells do not have that kind of deliverability related to them. 464 As a result, a horizontal well, based on both myself and Mr. Gorman's experience in regards to the success of horizontal drilling technology in other storage pools in Lambton County, have proposed the drilling of this well. And we believe that it will provide the kinds of deliverability that will be required to make this pool economical. 465 MR. LEWIS: Do you see any impediments to the drilling of this horizontal leg? 466 DR. WALSH: No. I mean, it's done -- it's done all the time now in Ontario. We understand the geology of the pool. We understand the appropriate wellbore path. We intend on drilling the horizontal leg through the known permeable sections as defined by the vertical wells. And we anticipate that because it will be horizontal in nature, that it will encounter greater amounts of reservoir than the vertical wells have to date. 467 MR. LEWIS: And can either you or Mr. Gorman comment on the engineering of the well path? 468 DR. WALSH: Well, I would say that, first of all, as I just said, the path has been determined and the evidence has been filed in that regard. And, again, from a practical standpoint, there is no practical reason - I think Mr. Gorman can confirm this - that we cannot achieve that wellbore path. 469 MR. LEWIS: So, in your opinion, it's been engineered properly? 470 DR. WALSH: In my opinion it has. 471 MR. GORMAN: And mine as well. 472 MR. LEWIS: Perhaps this is an appropriate time for the morning break. 473 MR. BETTS: Thank you, Mr. Lewis. I appreciate that. 474 We will break now, and we will reconvene -- let's make it in a half-hour, so reconvene at 11:30. 475 --- Recess taken at 11:04 a.m. 476 --- On resuming at 11:32 a.m. 477 MR. BETTS: Thank you, everybody. Please be seated. 478 Were there any preliminary matters that arose during break? Mr. Lewis, please continue with your examination in chief. 479 MR. LEWIS: Thank you, Mr. Chairman. 480 Mr. Francis, I'm wondering if you could give us a brief run down on your credentials and your experience in the gas storage business. 481 MR. FRANCIS: Certainly. I'm a CGA by trade, and August 2003 I was hired as an independent consultant by the Tribute group to provide primarily sales and marketing expertise to this project, and specifically, for example, to arrange commercial terms with Union Gas or other potential third-party customers of this storage. 482 Prior to August 2003 I was employed by Union Gas Limited in their sales -- sorry, their transportation and -- storage and transportation/sales and marketing group, primarily responsible for selling storage services and transportation. 483 The storage services sold during my six-year tenure with Union Gas included anything from short-term, off-peak, peak storage, to longer term storage services such as century pool assets. 484 MR. LEWIS: Do you adopt the pre-filed evidence bearing your name filed in these proceedings? 485 MR. FRANCIS: Yes, I do, with one minor revision. 486 Volume 1, coloured tab 2, use of storage tab. Tab 6. The firm storage service precedent agreement. There's a misprint on page 1, second paragraph. It should read "Ontario" instead of "New York." That's a misprint. 487 MR. LEWIS: And do you adopt the answers to the undertakings given by you in connection with your evidence? 488 MR. FRANCIS: Yes, I do. 489 MR. LEWIS: I understand that the applicant initially applied for forbearance from the setting of rates under section 29 of the Act. And I'm wondering if you can just describe for us why that initial relief was abandoned and an amended application filed claiming range rates. 490 MR. FRANCIS: Yes, now, we had several discussions with Board Staff with regards to rates. And it was recommended by, by Board Staff that we include and file for rates as well within this application. It was felt that the application was incomplete without rates, and the general sense was, it would help to move things along if rates, rates, were included. Now, we discussed the C1 range rates that Union operates under -- 491 MR. LEWIS: When you say "we," that would be? 492 MR. FRANCIS: Board Staff and Tipperary. 493 MR. LEWIS: And you were involved in those discussions? 494 MR. FRANCIS: Yes. It was discussed -- C1 range rates that Union utilizes was discussed and it was agreed that they would be appropriate for this storage application. 495 Having worked for Union Gas within the C1 range rates for several years I was comfortable, having watched them evolve over the years and having been part of several storage open seasons, that they would be applicable for this, this storage project. 496 MR. LEWIS: So, based on your experience, and in your opinion, is the C1 range rate that the applicant has applied for, Union's C1 range rate, just and reasonable in regards to this project? 497 MR. FRANCIS: Yes, I believe it is. Having worked within the C1 range rate, having sold over 100 Bcf, billion cubic feet of storage over the years, I recognize the flexibility that this asset would bring, this asset would bring to, to users in Ontario. And the range rate allows us to capture the market, market value, fair market value, for storage. 498 MR. LEWIS: And based on your -- how did that rangerate evolve over time? 499 MR. FRANCIS: Basically, it's, it's evolved as open seasons have progressed and the need for the range to get wider has basically set the precedent so that storage services could be placed at fair market values. 500 MR. LEWIS: The OEB Act requires that the rate that we're applying for be what is called: "Just and reasonable," and I guess in reviewing that concept, the term "just and reasonable" is a relative one, depending on whose perspective it's being viewed from. I'm wondering, in connection with that term, could you discuss various interest groups who may be looked at in determining whether this is just and reasonable? 501 MR. FRANCIS: Maybe I'll start with, with, with the end-users as a potential customer. 502 MR. LEWIS: By "end-user" you mean -- 503 MR. FRANCIS: Large industrials in Ontario, for example. 504 MR. LEWIS: Okay. 505 MR. FRANCIS: Okay? 506 That end-use customer would have the option to contract for storage services at the market-based rates captured within the C1 range rate. That customer will have the ability to purchase cheaper summer gas with price certainty for withdrawals in the winter. The benefit being that you would avoid the higher-priced volatility that winter markets could present. In addition, you have the benefit of stable, reliable supply, close, close to market. 507 So benefits for, for end-use customers, again, tie into the price certainty with being close to -- being close to markets. 508 MR. LEWIS: What about from the perspective of a vendor of storage services like the applicant here if this application is successful? From their perspective, can you comment whether this rate is just and reasonable? Or perhaps if you're not comfortable with this maybe one of the other witnesses... 509 MR. FRANCIS: Well, Jim might be appropriate -- 510 MR. FISHER: I think as a vendor I would broaden that term a little bit to include someone that is in the business of buying and selling storage services. And within that context, I would refer more specifically to the dreaded demon energy trading and marketing companies that sit on the fences waiting like huns to move in. 511 We, as an energy trading and marketing company, are in the business of participating in the commodity markets to make money. And I think that would be the same as a storage vendor. And speaking personally, I've bought long-term storage in Ontario. I've bought long-term storage in Alberta. Specifically in Ontario the century pools that Dereck referred to, I was a counterparty in that. 512 I've also brought a great deal of short-term storage under the existing C1 rate structure. The point that I think is important here, I guess, is two-fold. First, from my perspective both as a vendor and a buyer of storage, it's, it's -- I'm a price-taker. And by that I mean the market has set the value. To a limit. There's room for negotiation or arbitration based on the different counterparties and what their needs are. But when I go to contract for storage, I have a set of requirements internally that govern the way that I value that storage as well as the procedures and approvals required internally for us to carry out the actual transaction to execute it, if you will. 513 The underlying point there, I think, is that people who enter into the agreements do so of their own free will. There isn't the need an end-user would have to transact this which could, in turn, allow others to capture rent for some purpose, other than the pure rent market affords. 514 So, within that context, it's my firmly-held belief that the rates are just and reasonable. 515 MR. LEWIS: Mr. Walsh -- Dr. Walsh, do you have anything to add to that? 516 DR. WALSH: Well, I think what I'd like to add is that we have to recognize that storage is important to the province of Ontario, and that, when we're looking at a rate mechanism that needs to exist in order to encourage additional development of storage in the province, a rate similar to the mechanism that Union has in its C1 rate allow it is opportunity for the market to price storage and allows the developer of storage to understand what the value is for their storage as they develop it. And without that kind of mechanism, it makes it extremely difficult to promote the development of storage in this province. 517 So, from the standpoint of the vendor, I believe that this type of rate mechanism is just and reasonable, and provides for further development of storage in the province. 518 MR. LEWIS: I'd like to introduce another exhibit. I've provided counsel with a copy of this yesterday. 519 MS. LITT: Exhibit E.2.5, "Rate-making Methodologies." 520 EXHIBIT NO. E.2.5: RATE-MAKING METHODOLOGIES 521 MR. BETTS: Thank you. 522 MR. LEWIS: I don't know if the witnesses -- there's a couple of extra copies for the witnesses. 523 Mr. Francis, I understand that you had a hand in the preparation of this document, and perhaps you could take us through it and explain what it is that you're trying to illustrate with this document, bearing in mind that many of us are not as familiar with these storage concepts as you might be. 524 MR. FRANCIS: What I've tried to do with this exhibit is, at a very high level, demonstrate the applicability of the range rates which represent the market. And as indicated on this exhibit in the center column by the Xs and Os, I want to try to demonstrate how it's applicable to both historical cost-of-service methodologies, which are represented on the left-hand side, and how they're applicable for both -- for market-based rate methodologies indicated on the right-hand side. 525 So, working on the left-hand side, LDCs, local distribution companies, such as Union and Enbridge, this is the methodology that they currently operate under. They must go through extensive cost-allocation studies, and from those cost-allocation studies, the rates are designed. 526 Now, as a private storage company, we believe that the cost-allocation studies are not suitable and appropriate, and the reasons for that -- 527 MR. LEWIS: Not suitable and appropriate to the applicant? 528 MR. FRANCIS: To the applicant; correct. And the reasons being, the resources required and the costs incurred to undertake such a cost-allocation study are extensive, and could perhaps be beyond the means of private storage companies. 529 Secondly, as a private company, some of the costing information could be considered market-sensitive and of a confidential nature. And -- 530 MR. LEWIS: Why would that be? 531 MR. FRANCIS: Well, you would have information about your project, negotiated terms with vendors, for example, that you may not want to share with the public. 532 MR. LEWIS: Why would that be any different than the Union situation, for instance? 533 MR. FRANCIS: Well, Union is a public company. These assets would be developed with private investor dollars and as such would be for view of the private investors, okay? 534 And the third reason why we don't think there are -- a cost-allocation study is appropriate is the fact that Union has undertaken several of many of these cost-allocation studies over the years, and has they have evolved, the range rates have widened, and basically they are at a position right now where they're capturing the market quite adequately. And we feel that if we were to undertake such a cost-allocation study, we would most likely end up somewhere within the existing C1 range rate. 535 Now, continuing on with this diagram, it's from this process, this methodology, that Union's allowed to basically bring ex -- unutilized in-franchise capacity to the exfranchise market. So capacity that in-franchised customers aren't utilizing, Union can bring to the market under the C1 range rates and sell at market-based rates. 536 The return from the sale of those assets are split between the ratepayers and the shareholders, recognizing that the ratepayers helped to build, with ratepayer dollars, those storage assets. And they receive benefit from a cost-of-service reduction through the sale of those excess assets. 537 And shareholders need a mechanism or an incentive to continue to bring that excess storage capacity to the market. Without that incentive, there's a chance that that capacity could go unutilized. 538 Moving to the right side, looking at the market-based rate methodology, in this situation, it's entirely different. You have private storage companies funded by investors, okay? I think the key point to be made here is, the risk is significant for those private storage companies. They negotiate terms and conditions with counterparties of which they take on counterparty risk, credit risk, and they also have to raise the capital for that project. 539 Now, the private storage companies must have access to the market rates, which, as we can see from the diagram, you still can do that within the existing C1 range rate. 540 Now, as the private company has taken on 100 percent of the risk, we would expect to see the return flow back to the private investors, okay? 541 In summary, I just want to just highlight and comment one more time that the C1 range rates are a suitable mechanism to handle both your historic cost-of-service methodology and market-based methodologies. Regardless of which side you come in at, those range rates will serve the need of both in allowing for commercial terms to be negotiated at fair market value. 542 MR. LEWIS: Can you comment on the competitiveness of the market for gas storage services in Ontario. 543 MR. FRANCIS: I believe we have -- we've adequate competition at this point in Ontario, certainly for shorter term storage services. And by "shorter term," I mean one year or less; a season of summer injections for winter withdrawals. 544 At any point in time a customer wishing to contract for storage services could pick up the phone and, within a 200-kilometre radius of, let's say, Dawn, receive quotes within a tight range, say 5 cents, for the service, so if it's storage services asked for, from three or four different storage companies. 545 I think Ontario runs the risk of becoming less competitive as we see, heading down the road, demands for storage increasing without a corresponding, you know, development of new storage. So we run the risk of losing that competitiveness in Ontario. 546 MR. LEWIS: Mr. Fisher, do you have anything to add to that? 547 MR. FISHER: Yes. I think building on Dereck's earlier statement. He'll pick the phone up and get three numbers back within a few cents. It's an easy matter for me, before I pick up the phone, to determine what that number is based on readily available information, allowing slight movement for what others might pad it with or use as different discount factors, et cetera. But we're all price-takers in this situation. 548 MR. LEWIS: And how would you determine, roughly, the value of storage at any point in time? 549 MR. FISHER: The short answer is, at places like Dawn and Parkway, there are multiple counterparties. The term we would use there is they're highly liquid. They're liquid to the point where we can get on the phone to a broker, or we can access, in most situations, a screen that will actually show bids and offers out on terms for Dawn. When I go to value summer and winter differentials, then it's a simple matter of looking at discount rates, which are my internal way of measuring the value of money and adjusting cash flows, and plink, here comes the number. Readily available numbers. 550 MR. LEWIS: So in your view, is the storage service market in Ontario competitive? 551 MR. FISHER: Definitely. 552 MR. FRANCIS: Yes. 553 MR. LEWIS: Pardon? 554 MR. FRANCIS: Yes. 555 MR. LEWIS: Yesterday, during cross-examination, Dr. Walsh, while he was being examined by Mr. Vegh, was asked whether the applicant intends to just store gas as part of its operations, or whether the applicant also intends to sell gas. And I believe that Dr. Walsh gave an answer, but also deferred or prospectively deferred that question to Mr. Francis. And I'm wondering if you could respond to that. 556 MR. FRANCIS: The business model that we're working from, and the economics that underpin this storage project, have us being a storage service provider, negotiating with third parties to basically lease out the storage space. 557 Now, having said that, there could be situations, market conditions, that would dictate the need or the desire to sell the storage molecule. The sale of that molecule would occur outside or at an exfranchise point outside of Ontario. 558 For example, a TransCanada pipeline point, on their site of the meter in Michigan, okay. Recognizing, I think it's important to comment that the market that we work within isn't just Ontario. It ranges from Chicago to points in Michigan, through Ontario, into Quebec, and into the northeastern United States. So we would contemplate the sale of those molecules to happen at a point other than in Ontario. 559 MR. LEWIS: I believe in your pre-filed evidence there is a document entitled: "Storage services contract," which is Appendix B to the document that you referred to in your correction earlier entitled: "Firm storage service precedent agreement." And for everyone's reference, that, the service -- sorry. The storage services contract that I've just referred to is at volume 1 of the Applicants' pre-filed evidence, colour tab 2, tab 6. And it's Exhibit B. 560 Are you familiar with that document -- 561 MR. FRANCIS: Yes, I am. 562 MR. LEWIS: -- Mr. Francis? 563 MR. FRANCIS: Yes, I am. 564 MR. LEWIS: And how are you familiar with it? 565 MR. FRANCIS: Basically, that document and the terms and conditions within that document were developed recognizing that the contract that we put before potential third-party customers must be consistent with other storage contracts available in the marketplace. To remain competitive, we, if I can use the term, must compare apples to apples between storage providers so I would call it very close if not identical to some of the other contracts used as an industry standard. 566 MR. LEWIS: And in your opinion, are the terms of that acceptable? 567 MR. FRANCIS: Yes. 568 MR. LEWIS: Ms. Lowrie, I'm wondering if you can describe for the Board and everyone here today how the applicant intends to finance the completion of the project, if these applications are successful. 569 MS. LOWRIE: The project will be financed through the limited partnership of -- Tipperary Gas Corp. is the general partner of the limited partnership. It was set up this way for tax reasons, and, as the profits and the cost flows through. We have several letters demonstrating -- 570 MR. LEWIS: Perhaps... 571 MS. LOWRIE: Okay. 572 MR. LEWIS: If you can just generally describe how and where the money is coming from, and then we'll enter these letters as exhibits. 573 MS. LOWRIE: Okay. Crich Holdings & Buildings, Donald Crich has been my partner since 1989 in the oil and gas production/exploration business. He's a real estate -- he owns apartment buildings and is a real estate developer. His real estate assets, I think, are around $150 million, and he has other assets as well. He has agreed to finance the project and, in fact, has financed it to this date. He paid for the 3-D seismic and has invested in flow-through shares in Tribute. He has invested approximately 1.2 million to date to bring the project to this phase. 574 MR. LEWIS: Okay. Perhaps we could enter as exhibits in the following order a letter from Crich Holdings & Buildings Limited dated August 9th, 2004, and the second exhibit being a letter from Canadian Imperial Bank of Commerce dated August 9th, 2004. 575 MS. LITT: First is Exhibit E.2.6. The second, Exhibit E.2.7. 576 EXHIBIT NO. E.2.6: LETTER FROM CRICH HOLDINGS & BUILDINGS LIMITED DATED AUGUST 9TH, 2004 577 EXHIBIT NO. E.2.7: LETTER FROM CANADIAN IMPERIAL BANK OF COMMERCE DATED AUGUST 9TH, 2004 578 MR. BETTS: Thank you. 579 MR. LEWIS: And making reference to these letters, could you briefly explain what's anticipated in terms of injections of funds to complete the project? 580 MS. LOWRIE: To date, units have been issued in the Limited Partnership. As funds are needed to complete the project, additional units will be issued to Mr. Crich for the development of the project on designation 581 MR. LEWIS: So, in your view, based upon your discussions with Mr. Crich and assurances as received in these letters, do you feel that the applicant possesses the necessary financial capability to complete this project? 582 MS. LOWRIE: Yes, he does I've been in partnership with him since 1989, and he's always done what he says he's going to do. He's a great partner. 583 MR. LEWIS: And does the applicant have, based on Mr. Crich's backing, the necessary financial capability? 584 MS. LOWRIE: Yes, they do. 585 MR. LEWIS: And does the applicant possess the necessary expertise to own and develop and operate the proposed DSA? And perhaps that question's better directed to Mr. Fisher, who it's intended to be the manager and operator of it. 586 MR. FISHER: I'm sorry. Could you repeat the question. 587 MR. LEWIS: Yes. Certainly. Does the applicant possess the necessary expertise to own and develop and operate the proposed DSA? 588 MR. FISHER: Yes, definitely. 589 MR. LEWIS: And can you elaborate on that? 590 MR. FISHER: There has been a team of experts in each of the areas affected with respect to the development, construction and completion of the pool. There are resources and expertise in place to complete the operations side of it. The financial resources are in place. It's a proven technology. And it's just a question of completing the contractual arrangements and we'll have an operational asset. 591 MR. LEWIS: Can Union's gas delivery system provide service to support the applicants' storage project? 592 MR. FISHER: Yes. The Union system needs to essentially take gas that was intended to flow to distribution customers, flow it through to the storage facilities where it can be held until it's needed. In turn, the gas will flow back on to Union's system, then to its customers. So first services is building facilities to accommodate the tie-in, and then completing contractual arrangements to govern the flow into and out of the storage, using Union's system. We'll also need Union to help us get information to understand the operation of their system. That will help us best size and design the associated equipment to match the reality of the application. 593 And I would add, Union to date have been very courteous and respectful in their dealings, prompt, excellent. 594 MR. LEWIS: And in terms of the services that have been contracted for with Union, perhaps, Mr. Francis, you could explain for us what those services are and describe briefly the contracts that have been entered into. 595 MR. FRANCIS: We've entered into two agreements with Union Gas. The first agreement being the M16 contract, which basically allows us to flow our volumes or transport our volumes to and from the storage pool and Dawn. Within the M16 contract there are firm parameters which allow us to sell our storage at Dawn on a firm basis. Very important to that contract and the commercial arrangements. 596 The second contract we've entered into is a hub-balancing agreement, which was put in place in the event of extreme weather, unusual circumstances, where Union could not physically inject or withdraw into our storage pool. The balancing agreement with Union allows us to keep our markets whole at Dawn, and continue on with our commercial arrangements as originally contracted for with third parties. 597 MR. LEWIS: And how much of Union's firm service in the Huron area is the applicant availing itself of? 598 MR. FRANCIS: We've taken all of the firm capacity, and in addition any incremental or interruptible capacity our business model has, has basically looked at those numbers and our facility will be able to handle all of the capacity that Union can provide under the M16 contract. 599 MR. LEWIS: All of the interruptible as well? 600 MR. FRANCIS: Firm and interruptible. 601 MR. LEWIS: And I'll put this question to anyone on the panel who feels they can answer it. 602 Is it appropriate for an embedded storage provider to hold firm service on a distribution system? 603 MR. FISHER: I would like to answer that. 604 My views on this point are very strongly held, based on operational experience and commercial experience. Being with the Huns, we sometimes didn't play nice with each other, if you will, by that I mean the other Huns. 605 MR. LEWIS: Can you be more specific? 606 MR. FISHER: This is a business service, and we have a group of investors, and they are putting their capital at risk. They are looking to get rewards by putting that capital at risk, and they are bringing people in to manage the project. The responsible manager will identify the various risks that are involved, and set about trying to manage those risks. 607 Now, in order to capture full value for these assets, that project manager is going to need to enter into firm contractual arrangements to provide services on a firm basis for supply and redelivery of gas. 608 Underpinning those firm obligations, you must have firm injection and withdrawal supply capabilities that back them up. To enter into such an agreement on an interruptible basis is done by people in industry, and I've seen people suffer extreme consequences for doing so. It's unwise; it's foolish. 609 MR. LEWIS: You mean extreme financial consequences? 610 MR. FISHER: Absolutely. Now, most contracts will have wording that allows one to address failure to deliver, and usually it's a penalty of some kind. But that's not what Tribute is proposing to do here. 611 We're going to structure services, price them for the C1 schedule, offer them to the market, and in turn provide those services. To do that, we need to have a firm distribution agreement on Union's system. 612 If there is no more space left after we've entered into a contract by our free will, Union is not bound not to provide further pipe by putting it in the ground or enter into some other contractual arrangement with third parties outside of ourselves. That's none of our business. Our business is underpinning the contractual arrangements that we have with respect to our asset. 613 MR. LEWIS: And, Dr. Walsh, do you have anything to add to that? 614 DR. WALSH: Well, a different note but on the same issue. 615 I have concerns somewhat when we're talking about the fact that we'll be tying into what I would have regarded as a transmission system of Union's as opposed to a distribution system. The Goderich-Stratford line, as I am aware, is a transmission system. 616 Now, I recognize that that transmission system feeds into smaller diameter pipe, lower pressure pipe, that one would classify as a distribution system, and that essentially what we're going to be doing with this storage is replacing molecules or providing molecules that would end up in that localized area. And although contractually under the M16 contract we would be moving gas to Dawn, the fact is the gas is going to more than likely stay there as it's being consumed. 617 So the storage itself, in fact, that we're developing is going to be of a benefit to the local distribution system. It's going to allow the opportunity to reduce the volatility of gas pricing, because we have greater supply. 618 So, in regards to this issue, I believe if one wishes to classify the Goderich to Stratford transmission system as a distribution system, I would argue that we could also argue that the Panhandle transmission system from Windsor to Dawn, which also has linkages to distribution pipe, is also -- you know, is basically the same thing; and that all storage in Ontario in some way is connected to a distribution system. 619 So the short answer is that it is appropriate for an embedded storage provider to hold firm service, because other storage operators, when we were with CanEnerco, we had firm service on the Panhandle line from Windsor to Dawn. So I do believe it's appropriate. 620 MR. LEWIS: Thank you. 621 Mr. Francis, I'm wondering if you could summarize for us Union's M16 charges to the applicant under its transportation contract. And I know you've prepared a summary that we can enter as an exhibit, which might be convenient to everyone here, and you can then take us through that briefly. 622 MR. FRANCIS: Sure. 623 MS. LITT: Exhibit E.2.8, "Summary of Expected Charges to Tribute/Tipperary to Union Under the M16 Contract." 624 EXHIBIT NO. E.2.8: SUMMARY OF EXPECTED CHARGES TO TRIBUTE/TIPPERARY BY UNION UNDER THE M16 CONTRACT 625 MR. BETTS: Thank you. 626 MR. FRANCIS: Just working through this exhibit -- 627 MR. LEWIS: Who prepared this exhibit? 628 MR. FRANCIS: I prepared the exhibit. 629 Working through this exhibit, you can see the charges are broken into two basic components: basic charges and authorized overrun charges. 630 MR. CHINNECK: Excuse me, sir. I'm sorry, I wonder if I could get a copy of that last exhibit. I haven't been getting copies of exhibits and I -- 631 MR. BETTS: Yes, please. I'm glad you brought that up. It's important that all of the intervenors get copies of the same exhibits we've been referring to. 632 MR. CHINNECK: I missed a number of them. 633 MR. LEWIS: Sorry, I've been handing them to Ms. Litt, and I thought she was putting them on the window sill there. 634 MR. BETTS: One system that works pretty well. If you can, perhaps Staff can determine how many copies we need up here. And there is a table at the back of the room, and you could simply place extra copies there and parties can go and get them as required. 635 MR. FRANCIS: Working through the basic charges, we have a customer charge of $502 per month. We have a demand charge of $22.125 per 103M3 per month for daily contracted demand. We've a commodity charge under a summer scenario from the Dawn -- from Dawn to the pool of $2.349 per 103M3, plus fuel -- 636 MR. BETTS: Just for clarification for the record, the 103M3 can either be read as 10 cubed, M cubed, or 10 to the power of 3, M to the power of 3, just so the record is straight. 637 Please continue. 638 MR. FRANCIS: Plus fuel of .741 percent. There's a winter commodity charge, which is from the pool to Dawn, that charges zero, but we do have fuel at .601 percent. So there is no winter commodity charge. 639 Looking at the authorized overrun charges, we've a commodity charge from Dawn to the pool in the summer scenario, April 1 to October 31, of 3.076 per 103M3, plus fuel of .741 percent. And in the winter scenario, the commodity charge from the pool to Dawn, .727 per 103M3, plus fuel of .601 percent. 640 MR. LEWIS: So there should be a percent after -- at the very end of... 641 MR. FRANCIS: Correct. 642 MR. LEWIS: Ms. Lowrie, are you at all familiar with the Affiliate Relationships Code for gas utilities, dated July 31, 1999? 643 MS. LOWRIE: Yes, I am. 644 MR. LEWIS: And are you aware that it applies to the Tribute -- 645 MS. LOWRIE: And Tipperary. 646 MR. LEWIS: -- Tribute Resources Inc. and Tipperary Gas Corp.? 647 MS. LOWRIE: Yes. 648 MR. LEWIS: And what is your intention, if these applications are approved, with respect to that code? Are you applying -- are you intending to apply for an exemption? 649 MS. LOWRIE: Yes, I am. 650 MR. LEWIS: Are you aware of any other corporations that have recently applied for and obtained an exemption? 651 MS. LOWRIE: I believe that NRG recently applied for an exemption and -- 652 MR. LEWIS: And obtained it? 653 MS. LOWRIE: -- and obtained it. 654 MR. LEWIS: In regards to the draft conditions of approval, and I don't believe these are an exhibit at this point in time -- do we have a copy of the draft that was circulated by the Board approximately four or five days ago? 655 MR. VEGH: Mr. Lewis, we actually don't have those. We don't have copies of those now. We don't have copies of the draft conditions of approval that were circulated earlier, and I understand that there were some changes to that draft anyway. And in any event, we don't have sufficient copies of that -- of the draft that incorporates the changes. If you would like, we can -- 656 MR. LEWIS: I'm wondering if we could -- 657 MR. VEGH: We could discuss this at lunch and have these -- 658 MR. LEWIS: That would be very helpful. I have -- I literally have two or three more very brief questions. And I apologize for being unprepared on this one. I have not seen the second draft, and I would appreciate receiving it. Perhaps we can deal with this, if, Mr. Chairman, if it suits the Panel, if we could perhaps break for lunch early today and then come back, and I can finish the evidence in-chief, hopefully, over the break we can have a look at those draft conditions of approval, and we'll wrap up the case in-chief very shortly after lunch, and open the panel up for cross-examination. 659 MR. BETTS: That would be fine from the Board. Did you want to finalize any questions before then or are you looking to break at this point? 660 MR. LEWIS: Because the last couple of questions by and large deal with the draft conditions of approval, I would like to have a look at the revision of that, perhaps get copies, put them into evidence, and as I say, I'll be very brief after we return from lunch. 661 MR. BETTS: Okay. And can I -- perhaps someone can advise the Board as to whether all parties have seen that draft. 662 MR. VEGH: The original Board Staff proposed conditions of approval were circulated to all parties. The applicant/respondent had some comments on the draft. I don't believe those comments -- Mr. Lewis can help me, I'm not sure if the applicants circulated their comments to all parties. But the original draft conditions as circulated by staff were provided to all parties. 663 MR. BETTS: In fact, I'm not even sure -- what I am hope -- what I expect is that all parties will be given a copy of that draft during the break, is what I would like to see done. 664 MR. VEGH: Thank you. We'll ensure that. 665 MR. BETTS: Okay. We will break, and because there will be some activities going on, we'll allow a little bit longer, maybe an hour and 15 minutes. So let's reconvene at 1:30. Thank you. 666 --- Luncheon recess taken at 12:16 p.m. 667 --- On resuming at 1:32 p.m. 668 MR. BETTS: Thank you, everybody. Please be seated. Welcome back from our short lunch break. I hope everybody got done what they had to get done. Before we begin, are there any preliminary matters for the Panel's consideration? 669 PRELIMINARY MATTERS: 670 MR. LEWIS: One very minor one, Mr. Chairman. I had an opportunity over the break to review that portion of the transcript dealing with the Board's ruling on our application to amend the application regarding the section 38(3) matter, and I would just like to seek the Board's indulgence to be able to consult with my client this evening, and possibly make further submissions on that point tomorrow. 671 MR. BETTS: We would welcome further submissions, with respect to changing the application or... 672 MR. LEWIS: No, no. With respect to the evidence that has now been presented, which the Board didn't have the benefit of hearing before making this ruling, and possibly where we may go with this issue. I realize you have made a ruling, but I just want to think about it tonight, if possible, and possibly revisit the point tomorrow. 673 MR. BETTS: I'm sure we'll welcome your comments. And not to dissuade you or anything, but remember what happens when you ask the umpire to change his decision. 674 MR. LEWIS: I appreciate that. 675 MR. BETTS: And we'll have to listen carefully, because everybody had the opportunity to make submissions to the Board, and I'll be cautious that this was something that could not have been provided at that time. So I'll say yes on a guarded basis. 676 MR. CHINNECK: Sir, I wonder if I might comment about my friend's request. I find that to be a most unusual request and highly inappropriate. I believe that you have made a decision about that issue, and it should be left where it is. There are other avenues that are available to my friend, if he's not happy with the decision, he can appeal it, but it seems highly irregular for him to request that the matter be revisited once you've made a decision. 677 MR. BETTS: Would you care to reply to that, Mr. Lewis? 678 MR. LEWIS: I'm simply asking to make submissions in regards to where we're at with the record, and where we might be going, and I would invite my friend to make any submissions in reply to mine that he feels necessary to make, subject to the Board's direction on that. 679 And the submissions for what they are will be something that the Board will have to take away and decide upon, bearing in mind your caution that once the umpire's made a ruling, it may be very difficult to get him to change it. 680 MR. BETTS: Yeah. And, in fact, I think if that's the direction you're heading, which is to change the ruling, it would not be appropriate to ask us to reconsider that at this time. 681 MR. LEWIS: Again, I just got it and reviewed it at the break. I don't know what the direction is going to be. I just would like to seek the right to possibly make some more submissions. If you feel I'm going in the wrong direction and you would like to cut that off, that's fine. 682 MR. BETTS: What I will allow is, tomorrow, you can ask the same question, with a little more detail on what it is that you want to provide a submission on. And with the assistance of my Panel members, we'll rule at that time whether it's appropriate to hear those submissions. 683 MR. LEWIS: Thank you, Mr. Chairman. 684 MR. CHINNECK: Sir, perhaps I could request, then, if he's going to do that, that my friend give me some notice of the detail that he's going to be providing you tomorrow so I can prepare to address that submission. 685 MR. BETTS: I think that's a reasonable request. So, if that is your intent, please provide that to all of the intervenors as well, and to Board counsel. 686 MR. LEWIS: Thank you. 687 MR. BETTS: Okay. Any other preliminary matters? And we have not finished -- or have you -- sorry. 688 I'm lost from lunch. Have we completed our delivery of our case in chief? 689 MR. LEWIS: No. There are a couple of very brief questions that will arise out of the draft 2 conditions of approval, and perhaps it might be convenient to, with my friend Mr. Vegh's concurrence, put these in as another exhibit, since I intend to ask my client a couple of questions on them. 690 MR. VEGH: So perhaps I'll speak to these documents for the purpose of having them filed as exhibits. 691 There are three documents. The first is entitled -- well, the first is called an "Authorization to Inject, Store, and Remove Gas, Draft Number 2, dated August 10, 2004." And that will be Exhibit E.2.9. 692 The second document is again dated August 10, 2004: "Board Staff Proposed conditions of approval, Application to Drill a Well, Draft Number 2." And this is E.2.10. 693 EXHIBIT NO. E.2.9: AUTHORIZATION TO INJECT, STORE, AND REMOVE GAS, DRAFT NUMBER 2, DATED AUGUST 10, 2004 694 EXHIBIT NO. E.2.10: BOARD STAFF PROPOSED CONDITIONS OF APPROVAL, APPLICATION TO DRILL A WELL, DRAFT NUMBER 2 695 MR. BETTS: By the way, there's no need for a dot after E. So that would be E2.10 or 2 dot 10. 696 MR. VEGH: And then the third document, E.2 dot -- the third document is a cover page reading "MNR TSLA and Applicant's Comments on Draft One of the Board Proposed Draft conditions of approval." So what these three documents are, then, the first E2.10 is the Board Staff proposed conditions of approval as originally provided to all the parties, and this draft number 2 incorporates the comments of the MNR and of the applicants to the original Board draft. So this would be draft conditions to the order to authorize -- to inject, store and remove gas, at E2.9. 697 MR. CHINNECK: Excuse me, sir, if I might. Are these documents currently before the Board and the other participants? Because I certainly don't have them. 698 MR. VEGH: There should be additional copies on the back shelf, and Staff is handing some more out now. 699 E2.9 and E2.10 incorporate the comments of the MNR and of the applicant's in the original draft that was circulated and E2.11 incorporates the comments of all parties. 700 MR. BETTS: And Mr. Vegh, you might have covered this, but can we make certain that the description of 2.9 and 2.10 include the draft number which is draft number 2? You probably stated that already, but just to make certain, just in case there's changes from this point forward. Both of those were draft 2, I believe. 701 MR. VEGH: They are both draft 2, that's right. 702 MR. BETTS: Do you have any comments on those, Mr. Vegh, or... 703 MR. VEGH: Just to -- just to describe what they are. So Board Staff has, as I say, proposed these to the, to the applicants and to all parties, and Board Staff proposes that these conditions are appropriate as conditions of the orders requested. 704 MR. BETTS: Thank you. And Mr. Lewis? 705 TRIBUTE/TIPPERARY PANEL 1 - WALSH, McCONNELL, GORMAN, FISHER, LOWRIE, JORDAN, FRANCIS; CONTINUED: 706 P.WALSH; Previously Sworn. 707 K.McCONNELL; Previously Sworn. 708 J.GORMAN; Previously Sworn. 709 J.FISHER; Previously Sworn. 710 J.LOWRIE; Previously Sworn. 711 H.JORDAN; Previously Sworn. 712 D.FRANCIS; Previously Sworn. 713 CONTINUED EXAMINATION BY MR. LEWIS: 714 MR. LEWIS: Yes. Ms. Lowrie, I'm wondering if you could indicate to us whether you've had an opportunity to review Exhibits E2.9 and E2.10, being the Board's proposed draft conditions of approval as identified. 715 MS. LOWRIE: Yes, I have. 716 MR. LEWIS: And are there any of those conditions that cause you any concern. 717 MS. LOWRIE: No, there are not. Attached to condition 1.6, I would like it to say: 718 "Adequate fresh water supplies to all affected landowners until the problem is rectified." Full stop. 719 MR. LEWIS: So, apart from putting some time limit on that to make it clear that the supply of fresh water, potable water, will -- in the event of a problem, would not go on indefinitely after the problem was rectified, are there any other issues or concerns that you have with respect to these draft conditions of approval? 720 MS. LOWRIE: No. 721 MR. LEWIS: And subject to the amendment that you've described, is the applicant prepared to accept these conditions of approval if these orders are granted? 722 MS. LOWRIE: Yes, we are. 723 MR. LEWIS: And to abide by them? 724 MS. LOWRIE: Yes. 725 MR. CHINNECK: Sir, again, I apologize for being difficult here. I just wasn't able to follow the last inquiry because I was trying to locate the document at the rear of the room. And I'm not sure exactly what it was that the witness indicated she was prepared to -- how she wanted to amend the document. 726 MR. BETTS: Mr. Lewis, would you just take your witness through that again. 727 MR. LEWIS: Certainly. 728 MR. CHINNECK: So are we on document E.2.10? 729 MR. LEWIS: Ms. Lowrie, if you could just go to the document E.2.9, which is the draft number 2, "Authorization to Inject, Store and Remove Gas," which are the Board Staff-proposed conditions of approval relating to those issues, and in particular, .1.6 on that document, and explain for us again what amendment you would like to see to that condition of approval. 730 MS. LOWRIE: At the end of the paragraph, just add "until the problem is rectified." 731 MR. LEWIS: Thank you. 732 MR. BETTS: Thank you. That was clear. Thank you both. 733 MR. CHINNECK: Thank you. 734 MR. LEWIS: Ms. Lowrie, in the event that these applications -- this application and the relief sought is granted, when would you like to see or receive the Board's decision relating to these matters? 735 MS. LOWRIE: As soon as possible. If we could possibly receive a decision by September 1st, we would like to drill the horizontal well this fall, subject to rig availability. You can't construct in Huron County in the wintertime. And if possible we would also be trying to put the pipeline in. The township would prefer early construction because they delayed the paving of the road, I believe, pending our project. Sorry. 736 No, it's difficult to construct. We will not construct the road in the winter. 737 MR. LEWIS: Thank you. That completes my examination-in-chief of this panel of witnesses. 738 MR. BETTS: Thank you very much. 739 And I will turn to Mr. Vegh at this point and allow him to begin his cross-examination. Could I have an indication from parties representing intervenors at this stage who does intend to ask - and I don't need to know even the nature of the questions - but who does intend to cross-examine this witness panel? 740 Mr. Chinneck. Yes. Yes. So I'm seeing three representatives. Ms. Paulus, do you have a -- oh, yes, I got all three -- three hands. 741 MS. PAULUS: Sir, I would add, though, it's not anyone's intention to be duplicative, so it's hard to say whether we will be cross-examining, depending on the questions that precede us. 742 MR. BETTS: Fair enough. And thank you for that. And certainly the Board would support anybody's desire to be efficient in that sense. 743 MR. BETTS: And Mr. Vegh, would you please proceed with your cross-examination. 744 CONTINUED CROSS-EXAMINATION BY MR. VEGH: 745 MR. VEGH: Thank you, sir. I'll be cross-examining in accordance with the issues list. 746 So the next issues I'll be dealing with are issues 2(c) and (d) -- 747 MR. LEWIS: Excuse me, just before we begin, it might be helpful if we could get copies of the issues lists in front of the witnesses. Do we have any additional copies in the room? Thank you. 748 Can we maybe get -- I think it might be more convenient, with a panel of this size and length, to maybe have an extra copy or two. Thanks a lot. Thank you. 749 MR. VEGH: Ms. McConnell, these questions in this section will be for you. So if you could just pull up, if you would have available, Board Staff IR 56, the applicants' response to Board Staff IR 56, as well as a copy of the CSA standard Z341. We discussed that yesterday with some other witnesses, and as a reminder, that's at schedule 5 of the MNR's evidence that was filed in this case. Do you have it? 750 MS. McCONNELL: I have CSA -- which version? 2002? 751 MR. VEGH: Series '02. 752 Okay. I wanted to ask you some questions around the abandoned well. 753 MS. McCONNELL: Around which well? I'm sorry? 754 MR. VEGH: The abandoned well. 755 MS. McCONNELL: Yes? 756 MR. VEGH: Now, why were these wells abandoned? These wells were used in gas production when the area was used for that purpose? 757 MS. McCONNELL: Which wells specifically? I can go through the list if you like. 758 MR. VEGH: Sure. How many abandoned wells are there? 759 MS. McCONNELL: There are five abandoned wells. 760 MR. VEGH: Okay, so maybe you could tell me a bit about the wells. 761 MS. McCONNELL: Okay. Imperial 397 and Imperial -- 762 MR. BETTS: Ms. McConnell, you may have to ignore Mr. Vegh and just talk to that microphone for us. 763 MR. VEGH: I'm used to it. 764 MS. McCONNELL: Imperial 397 and Imperial 368 were drilled in 1953 and did not encounter producible quantities of natural gas, so they were abandoned upon completion of drilling operations. There is a well called Zurich-Goderich number 1, which was drilled to 77 metres. It was classified as a lost hole. When the drilling tools became lost at the bottom of the hole, they tried to recover them and they couldn't, so they abandoned the well. They then moved the rig over, I believe it was, 3.4 meters and they drilled another well. 765 The next well that was abandoned was the Moffat Lake-Goderich 3-37-9 well. It was drilled in 1974. It produced for only one year, in 1990, and it was abandoned in 2000 as it was not capable of production. 766 The Tipperary number 4 well was drilled in 1983; actually, drilled beyond the reef to the Precambrian formation. It did not encounter any oil or gas. The well was plugged back to the Queenston formation. It was suspended until 1985, when it was finally abandoned. 767 The Shell-Goderich well was drilled in 1979. It produced until late 1999, and it was finally abandoned in December of 2000, because it was no longer capable of production. 768 MR. VEGH: And who owns these wells? 769 MS. McCONNELL: The Shell/Goderich well is on Clearwood Resources well bond. I don't believe that it has been removed. The rest of the wells were owned by other companies. 770 MR. VEGH: Now, will the ownership of these wells be transferred to the applicants? 771 MS. McCONNELL: I don't believe so. They've been abandoned. 772 MR. LEWIS: Just for clarity's sake, and I don't mean to interrupt your cross-examination for any other reason other than clarity, when you say the wells are owned by someone, could you clarify what you mean by that? Would that be the ownership of the P&NG leases on which the wells were located, or -- or who the operator of the well is? 773 MR. VEGH: The reason for my interest -- sorry, just a minute. 774 The reason for my interest is, I was going to ask some questions around these wells, and around the abandonment or bringing up to standards of these wells. And so I wanted to just identify who was going to be responsible to ensure that CSA standards with respect to the safety of these wells will be complied with. That's where I'm going with my, with my questions around ownership and whether there will be a transfer of ownership. I'm really looking for: Who will be responsible to ensure the safety of these wells? 775 MS. McCONNELL: Tribute and Tipperary will be responsible. 776 MR. VEGH: Now, if you can -- there were two wells in particular that you talked about in your evidence and that are addressed in IR 56. These are the two wells that -- that was Board Staff IR 56. These are the two abandoned wells that are plugged with lead plugs. 777 MS. McCONNELL: Yes. 778 MR. VEGH: Could you turn, please to Interrogatory 56? 779 MS. McCONNELL: Yes, I have that in front of me. 780 MR. VEGH: And the two wells that were abandoned, I guess, in 1953 and plugged with the -- well, with the lead plugs, those are wells Imperial 368 and 397? 781 MS. McCONNELL: That's correct. 782 MR. VEGH: And behind the answer to Interrogatory 56 is a diagram of a number of wells, but the two first diagrams are 368 and 397. 783 MS. McCONNELL: That's correct. 784 MR. VEGH: Now, when I look at these wells, I understand that in both of these diagrams it indicates that these wells are under fresh water? 785 MS. McCONNELL: Pardon me? 786 MR. VEGH: These wells go beneath fresh water? 787 MS. McCONNELL: They go through the fresh water? 788 MR. VEGH: They go through the fresh water? 789 MS. McCONNELL: Yes, they do. 790 MR. VEGH: And this fresh water for both of these wells, that's used for drinking water and for irrigation and feeding livestock? 791 MS. McCONNELL: I believe so. 792 MR. VEGH: And so, if gas were to leek upward from these wells, it would leak into the water? 793 MS. McCONNELL: Eventually it might. It would also leak into other porous formations first. If there's porous formations between the gas zone and the fresh water. 794 MR. VEGH: But it could leak into the water as well. 795 MS. McCONNELL: If the plugs leak it could, yes. 796 MR. VEGH: Yeah. 797 DR. WALSH: I'm sorry, Mr. Vegh. If I might just add a comment to your question. I'd like to point out that the two wells that you've referred to did not encounter any gas in the Guelph formation. So, in regards to your question, I'd like to point out that those two -- I can show you on the cross-section. Would you like me to do that? 798 MR. VEGH: Sure. 799 DR. WALSH: Great. You will recall yesterday we had reviewed the cross-section, which I believe is helpful in understanding the geology. And we had two wells. We had Imperial 368, which you've referred to in your recent question, as well as Imperial 397. In the case of Imperial 397, we see that there was no gas encountered in the reef itself. And as a result, the likelihood of any gas migrating up through the abandoned wellbore, through the plug and infiltrating into the upper water zone is unlikely, if not impossible. 800 In the case of the 368 well, while we do note a gas puff when they initially drilled, there was no gas at the completion of that well. The gas had dissipated. So our interpretation is that there was a very, very, very small pocket of gas that had been encountered. It depleted itself during the drilling. And at the time they plugged this well, there was no communication between that well and the known reservoir which again, then, reduces the likelihood -- in fact, probably eliminates the likelihood that the gas storage operation will provide gas through that abandoned well, through the plugs, to the water surface. 801 I just thought I should point that out. 802 MR. VEGH: No, that's, that's very helpful. And so you're saying, for Imperial 397, there was never any contact with gas. The evidence in IR 56 classifies Imperial 368 as a gas show, and notes that it did encounter gas? 803 MS. McCONNELL: Yes, it does say that but it also goes on to say that it could not be detected after three hours. 804 MR. VEGH: Right. So just to see where we are on this, and I understand your point, Mr. Walsh, about the likelihood of gas coming up, and you say it's very unlikely, so I wanted to ask Ms. McConnell, then, about the current caps that are in place. And your evidence earlier on, which indicated that you thought those caps were satisfactory. 805 MS. McCONNELL: I believe that lead plugs are a viable method of plugging. I believe they do provide a very effective seal. 806 MR. VEGH: Sorry, that's right. Your evidence that the plugs, you thought, were an acceptable method of plugging and that they were an acceptable seal. 807 MS. McCONNELL: Also, I was going to add that when they do plug with the lead plugs, they put the plug in place and then they totally empty out the hole and they wait for a period of time, usually an hour or so, and then they check to make sure that the water and/or the gas is shut off, and if it's not, then they place another lead plug in there. 808 MR. VEGH: Now, the current CSA standards on -- excuse me, the current CSA standards on plugging abandoned wells, that's set out in section 13.3.1 of the document that we're looking at, the CSA standards? 809 MS. McCONNELL: Yes. 810 MR. VEGH: And those standards require cement plugs. Is that right? 811 MS. McCONNELL: Yes, it does. 812 MR. VEGH: So the lead plugs that you're talking about do not meet the current standards? 813 MS. McCONNELL: They meet part of the standard. They're also a bridge plug. And I believe that same section also says -- maybe it's not that section -- section B does also say that the: 814 "The initial plug shall also isolate the reservoir from the wellbore." Which the lead plug has done. 815 MR. VEGH: Now, these standards as I read them, they're cumulative, though, aren't they? All requirements (a) to (e)) of 13.3 apply? 816 MS. McCONNELL: No, you're correct. There's no cement in those holes. 817 MR. VEGH: So they do not comply with modern standards. They may have been compliant at the time the wells were abandoned but they do not meet modern standards? 818 MS. McCONNELL: That's correct. 819 MR. VEGH: In terms of all the wells, has a risk assessment been conducted of all the wells penetrating the storage zone? 820 MS. McCONNELL: Yes. 821 MR. VEGH: But what -- are the results of those assessments presented in the evidence? 822 MS. McCONNELL: I guess they're in the diagrams and in the explanation of question 56. 823 MR. VEGH: Okay. So no additional comp -- the assessments were made and the entire results of the comments are in 56? 824 MS. McCONNELL: Yes. 825 MR. VEGH: Okay. So, given that there's a general adherence to the CSA, are the applicants prepared to bring the -- or to agree as a condition of approval specifically to bring the current plugs up to current CSA standards? 826 MR. LEWIS: Perhaps we could give you an undertaking to review that request and get back to you in the morning after we've had a chance to discuss the implications of that. 827 MR. VEGH: Thank you. So that's undertaking... 828 MS. LITT: F.2.1. 829 MR. VEGH: F.2.1, which is to advise whether or not the applicant is prepared to agree to bring the current abandoned well plugs up to the CSA standards in section 13.3.1, as a condition of approval. 830 UNDERTAKING NO. F.2.1: TO ADVISE WHETHER OR NOT THE APPLICANT IS PREPARED TO AGREE TO BRING THE CURRENT ABANDONED WELL PLUGS UP TO THE CSA STANDARDS IN SECTION 13.3.1, AS A CONDITION OF APPROVAL 831 MR. BETTS: Thank you. 832 MR. VEGH: Thank you. I wanted to ask some questions going into the environmental assessment impact, and I don't think I have to ask you to turn that up. Perhaps you could just confirm whether my information is correct. 833 The applicants have retained a company called Stantec Consulting to prepare an environmental assessment as part of this application? 834 MS. McCONNELL: That's correct. 835 MR. VEGH: And is Stantec or any of the principals of Stantec associated with Tipperary or Tribute or any of the principals of Tipperary or Tribute? 836 MS. McCONNELL: I'm sorry, I don't know. 837 MR. VEGH: You don't know? 838 MS. McCONNELL: No, do I not. 839 DR. WALSH: I can answer that. They're not. 840 MR. VEGH: They're not. They're an independent company? 841 DR. WALSH: Yes, they are. 842 MR. VEGH: Now, that report contains a storage pool environmental management plan at chapter 6 of the report. Are the applicants prepared to agree as a condition of approval to inject and withdraw gas to comply with the plan in chapter 6 of the report? 843 DR. WALSH: Yes. 844 MR. VEGH: Thank you. 845 I have some questions around compensation, which is actually later in the issues list at III(g), but I think it fits better here in terms of mind flow, so indulge me, if you would. 846 I'd like to ask these questions by reference -- I guess most of these questions, Mr. Jordan, will be to you. I'd like too ask them by reference to a few documents that you should have available. One is the map at schedule A to the notice of application. That's right. That's a map that's been blown up on the easel. 847 And I'd also ask you to turn to or to have available the amending agreement which was filed today as Exhibit E.2.1. And that will be it for now. There will be some more paper coming, but this is a good place to start. 848 The reason -- the first point I'd like to address on Exhibit E.2.1 is the categories of compensation that are set out -- that are set out at page 2. And I want to use this document now, not so much for the contents of this particular proposal to the landowners but as a handy way of having a checklist of compensation -- of areas or components of compensation to ask you some questions around. 849 MR. JORDAN: Okay. So I'm... 850 MR. VEGH: So I'm going to ask you some questions, as I say, first around the categories or components of compensation. And it's easiest, I think, to just start at the bottom with category number 5, surface rights compensation. 851 Now, just let me know if I have this right in understanding what are these categories of compensation. Surface rights, these are -- am I right that these are for facilities -- rights for facilities and associated damages that could relate to construction, operation, and maintenance, things such as wells, access roads, gathering pipelines? 852 MR. JORDAN: It would be for permanent use of the landowners' facilities. So if we have -- take away surface acreage for our operations, it will reflect that acreage in that category. 853 MR. VEGH: So these are surface rights for ongoing operations -- 854 MR. JORDAN: Yes. 855 MR. VEGH: -- and that's a broad category. 856 MR. JORDAN: Right. 857 MR. VEGH: Okay. So when you -- with that category in mind, can you -- you could use schedule A in your book, or you could stand up, if you'd like, but could you just identify for me which of the landowners in the storage area are receiving compensation for surface rights? 858 MR. JORDAN: Currently? 859 MR. VEGH: Or are proposed to. 860 MR. JORDAN: During our proposed storage? 861 MR. VEGH: Yes. 862 MR. JORDAN: Kathy can correct me if I'm wrong on all this stuff, too. We have a surface agreement/arrangement, I guess sort of in draft form, being it's not signed, on the McCulough place/property that would set out -- it's more or less -- just less than two acres; it's 50 feet by 1,500 feet. And the idea was to identify it in a document form, and then put all our facilities on that. 863 So, as far as your question goes for surface, we're looking at the two-acre -- almost a two-acre parcel in there for a laneway. Besides the laneway, we'll have our pipeline. On the surface agreement, we've agreed to have up to a maximum of up to three wellheads, a pipeline, and the roadway. 864 There will be an observation well up on the Feddes property. 865 MR. VEGH: I'm sorry, on which property? 866 MR. JORDAN: On Dwayne Feddes' property, the observation well. 867 MS. McCONNELL: Zurich number 2. 868 MR. JORDAN: Zurich number 2? 869 MS. McCONNELL: Yes. 870 MR. JORDAN: Thank you. And that should probably have a roadway to it. 871 MS. McCONNELL: We -- if I can add. We discussed with Mr. Dwayne Feddes that we would not put a roadway into that well; we would simply fence an area around that well. 872 DR. WALSH: The intent, of course, from an observation standpoint, then, would be to go out and check pressures on that or have some sort of digital recording of it. And Jamie, perhaps, will have to address that, or Joe can -- or Mr. Gorman can, if you'd like. 873 But I think in regards to the observation wells, what the lease will entitle us to do is access those observation well in regards to doing corrosion logging to make sure that the well continues to be competent under storage operations. 874 MR. JORDAN: The same for the observation well on lot 40. Lot 40 of the Brand property, there is an observation well, and there will be a road into that well. 875 At the end of the day, we should have an observation well with a road, an observation well with no road, a road with our wellheads and a pipeline, and that will be the impact that's left on the lands. 876 MR. VEGH: So, then, there are three landowners with whom you will have a surface rights -- or with whom you require surface rights agreements for the operation, and those are McCulough, Feddes, and Brand? 877 MR. JORDAN: We don't require the surface rights agreement. We have the right, under the gas storage lease, to use and occupy acreage we require for our operations. In discussing, on the McCulough property, with Mr. Dutot and the landowner and the farmer -- tenant farmer who farms it, for their convenience in farming techniques, the road straight in was a negotiated route in. And the idea of the surface agreement was to set out some boundaries so that both parties know -- you know, more or less put a fence up. But it's not required. Under the storage lease, we have a right to occupy that and just deem that rate of compensation. 878 MR. VEGH: Okay. So let me -- I think I understand you, but let me just put it this way: There are three landowners who will be receiving surface rights compensation. 879 MR. JORDAN: Yes. 880 MR. VEGH: And those are McCulough, Feddes, and Brand. 881 MR. JORDAN: Yes. 882 MR. VEGH: And the applicants and those landowners have agreed to the compensation level, or have they agreed to the level of compensation? 883 MR. JORDAN: Brand, in our filing this morning of the amending agreement, accepts those compensation levels. 884 MR. VEGH: Right. 885 MR. JORDAN: And in discussion with Tipperary Storage Landowners' Association, those rates were acceptable to them as well. 886 MR. VEGH: Okay. So for Feddes and McCulough, to the extent that they agreed to this amending agreement that we're looking at -- 887 MR. JORDAN: At that price, yes. 888 MR. VEGH: Yeah, at this price. 889 MR. JORDAN: On that one. 890 MR. VEGH: E.2.1. To the extent that they agree, then they have agreed to the compensation levels? 891 MR. JORDAN: Right. 892 MR. VEGH: But those are the only two other parties whose agreement is outstanding on this issue; is that right? 893 MR. JORDAN: None of the TSLA persons in the pool have signed an amending agreement. 894 MR. VEGH: Right. I understand that. 895 MR. JORDAN: Oh, yeah. 896 MR. VEGH: And the only two that you're seeking to sign for the purposes of nailing down your surface rights are these two, McCulough and Feddes. 897 MR. JORDAN: Yes. 898 MR. VEGH: Now, so that was issue number 5, surface rights. Now, gas storage/wells compensation. Again, can you show me on the map which landowners would be entitled to gas storage/ well compensation? 899 MR. JORDAN: The if there's a wellhead on your property, then you would deserve compensation. So the observation well on Mr. Brand's property, the observation well on Mr. Feddes' property, and the gas storage well for wells that would be drilled on Mr. McCulough's property. 900 MR. VEGH: I'm sorry, who's the third? 901 MR. JORDAN: Mr. McCulough's property. 902 MR. VEGH: So it's the same three people? 903 MR. JORDAN: Yes, it is. 904 MR. VEGH: Now, the next two categories, gas storage rights compensation and -- 905 MR. BETTS: Mr. Vegh, sorry, it's me up here. I know you never know where the voices are coming from. I just needed to confirm with Ms. Litt for a second and have her run an errand for the Panel. Thank you. That little diversion was, I've asked if it's possible to get a portable microphone for the presenters which might resolve some of the problem we're having. If that's possible, that's going to help; if it isn't, then we'll do our best. So sorry to interrupt. Please continue. 906 MR. JORDAN: I'll try to speak louder. 907 MR. BETTS: Please continue. 908 MR. VEGH: Thank you. As I read categories 2 and 3, gas storage rights compensation and outside buffer acreage compensation, those two are related, aren't they? They're both being -- they're both being compensation for the lease of storage and for petroleum and natural gas rights. They just distinguish the level of compensation, depending on where the acreage is, if it's inside or outside the boundary; is that right? 909 MR. JORDAN: That's correct. The compensation would be everything that's acreage inside the DSA that's proposed, and that would be at the rate of 92.50 per acre. And any of the residual leases that fall outside of that area would be, the outside or the buffer acreage would be at the 27.79 an acre. 910 MR. VEGH: And how far out are the boundaries for the areas considered to be outside of the storage area? What are the outer boundaries of the acreage that's covered? 911 MR. JORDAN: For the DSA itself or for the outside acreage leases? 912 MR. VEGH: The outside acreage. 913 MR. JORDAN: It would be wherever there are acreages under leases, that -- whether they're adjacent or not adjacent to the pool wouldn't matter. It would be under the contract of the lease where the outside acres are. As long as they hold the lease on those acreages they can pay it. They have the right to surrender back those leases back to the boundary if they so desire. 914 MR. VEGH: So it's determined by the P&NG leases? 915 MR. JORDAN: And storage. They all cover similar acres. Depending on land tenure, it could change the acreages. 916 MR. VEGH: And we have talked about the state of agreement with the landowners in the area. But, again, I just want to have it clear for the record. The pre-filed evidence was that, I believe, that Tribute had signed storage rights compensation agreements with 18 of the 21 landowners but I understand it's now 19 of the 21 landowners have signed agreements? Is that right? 917 MR. JORDAN: It would be if there's two missing. I don't know how many exactly there are. Two are missing. Yes. 918 MR. VEGH: Okay. And the two that are missing, could you repeat that again for the record, who are they? 919 MR. JORDAN: Dwayne Feddes. That's his parcel here. 920 MR. VEGH: Yeah. 921 MR. JORDAN: 63 acres of the 65-acre lot are under leases. Two-acre parcel that was deeded back by the municipality is not under leases. 922 MR. VEGH: Right. 923 MR. JORDAN: But it's subject to a surface agreement for the tank bed. The other one is the Vermue, 233 acres. This portion is currently under lease. 80 acres. This portion is not under lease. And only a portion of that would be required to be in the DSA, only 80 acres of that. 924 MR. VEGH: Okay. So for those who have agreed to compensation, and for the parcels or the portions of land for those who still have some outstanding pieces but have also agreed to compensation, what is the current level of compensation for the gas storage leases? 925 MR. JORDAN: Prior to storage? 926 MR. VEGH: Yes. As in your agreement. You said you have agreements that they've agreed to compensation, and I'd like to know what is the compensation they've agreed to. 927 MR. JORDAN: One dollar, two dollars. 928 MR. LEWIS: I'm suggesting that, unless you have questions that follow from this, that we give you an undertaking to -- 929 MR. JORDAN: It's filed. The leases are in the evidence. 930 MR. LEWIS: We can get the leases out and have a look at them or we could undertake to look at them and provide you with an answer on this later. I'm not sure... 931 MR. VEGH: We don't have to go through a major production pulling all the documents out. I just wanted to get a -- I wanted to compare what the landowners are currently entitled to with what the most recent offer is. So even a ballpark would work for those purposes. 932 MR. JORDAN: I think it's one or two dollars an acre. It was consistent with the rest of the pool. 933 MR. LEWIS: But in fairness, I believe that the provisions I alluded to the other day in the lease, there were the old provisions, and then there is a mechanism in the lease that's triggered by an offer and a delay, and I think I referred to the paragraphs in the storage lease. So this witness can perhaps help you through that, what the old level of compensation was, but there is a mechanism in the leases, in the language themselves, that talks of an offer being made, and if no reply is received within so many days, then there's language that follows as to what that compensation would be. 934 So I'm just not clear, from your question, whether you want a detailed explanation of the old level of compensation before any offer was made, or whether you want a detailed understanding, an explanation, of this offer mechanism in the lease that is provided for contractually in the case of moving to a DSA, as we're doing here. 935 MR. VEGH: Okay. So I think what I'd like to know is, what level of compensation the landowners are currently entitled to. So I guess the way to explain that to me is to go through the operation of the lease and lay it out for me. 936 MR. JORDAN: Do you want to go through this on a generic term or on a specific lease term? 937 MR. VEGH: Maybe you could grab a lease as a sample that would be standard, and could use that for all of them unless there's something unique for the particular one you chose. 938 MR. JORDAN: Well, we'll take Mr. Goff Brand's lease. 939 MR. VEGH: And where would I find that? 940 MR. JORDAN: Storage -- 941 MR. LEWIS: Volume 2 of our pre-filed evidence. Green tab 5. White tab 4. Buff tab 5. 942 MR. VEGH: We obviously need some more tabs. 943 MR. LEWIS: Yeah. ABC would have been good. 944 MR. VEGH: Okay. 945 MR. JORDAN: Now, that's the storage lease. 946 MR. BETTS: Can I have the final tab number? I've got the green, I've got the white... 947 MR. LEWIS: It's 5. 948 MR. JORDAN: It's 5. Okay. So if you keep your finger on that spot. 949 MR. LEWIS: Let's just deal with this one. 950 MR. JORDAN: The storage lease? Okay. The storage lease. The storage lease is, in this case it's talking -- 951 MR. VEGH: I'm sorry, which lease are we talking about? I have the Brand one out. 952 MR. JORDAN: The Brand lease. So we're talking about this piece here, 106 acres. And the compensation rate in there is $1 an acre. 953 Further to that, the use of surface for storage, near the bottom of the page, is set at $300 an acre. 954 MR. VEGH: Could you identify the clauses as you go through it. No, just the numbers. 955 MR. JORDAN: The first page of the document is the general page. Page 2 is the first -- 956 MR. VEGH: Slow down. 957 MR. JORDAN: The document general page is page 1. The first page of the lease, page 2. Three-quarters of the way down there's a rental of $160 a year that gets paid. There's a provision further down for $300 for every acre used that utilizes surface for storage. 958 MR. VEGH: Okay. 959 MR. JORDAN: The next page is a description. The page after that, dot paragraph 16, 17, and 18, Mr. Lewis went through the details of this yesterday. But in clause 17, it talks about the residual gas payment we made, which is -- 960 MR. VEGH: Okay, but we're not at the residual gas yet, right? We're just looking at the storage... 961 MR. JORDAN: Okay. Those are the monetary keys of the storage lease, those three items. 962 MR. VEGH: Okay. So the mechanism under 16, then, without -- well, could you just walk through it, the mechanism, then, as it works under 16. So there's a current entitlement, but before you inject any gas, you have to give a -- 963 MR. JORDAN: We make an offer. 964 MR. VEGH: Make an offer. 965 MR. JORDAN: Right. 966 MR. VEGH: And with this particular landowner, your offer -- so explain to me sort of the chain of events, then. So what steps have you taken in terms of making the offer contemplated in clause 16? 967 MR. JORDAN: When they -- when Tribute filed in December, they made an offer at that time to all the landowners, which was equivalent to the current rate that Union was paying their storage acreages elsewhere. 968 MR. VEGH: Right. 969 MR. JORDAN: The landowners, Tipperary Storage Landowners' Association, wrote to reject that on the basis that there was an ongoing hearing of compensation review with Union and the Lambton group. 970 When that hearing and the Board agreed to those rates, and we got ahold of those numbers, we sent out a subsequent offer of those -- of those rates to the landowners again, to all the landowners. 971 MR. VEGH: And the subsequent offer, is that in the -- or at least the quantum of the subsequent offer, that's what's in this -- 972 MR. JORDAN: Yes. 973 MR. VEGH: -- document, E.2.1. 974 MR. JORDAN: Right. The only thing that would be different from the Lambton arrangement with its landowners with Union is the clause 7 we had put in, which is the method of changing compensation. 975 MR. VEGH: And so where are we now, then, in terms of compensation? I have a better understanding of this, then, for the gas storage rights compensation; that the offer has gone out in accordance with clause 7. That offer is -- you're telling us that that offer has effectively been rejected. 976 MR. JORDAN: Right. 977 MR. VEGH: So where do you go from here? 978 MR. JORDAN: Well, we talked to Mr. Dutot further about the wording of clause 7; that we agreed to put something in there not to have a deadline that we had to come back to the Board, you know, with a small landowner group and one company versus a large picture. We were happy to go ahead and, just for the convenience and everything -- you know, Union's going to be setting rates and it's simpler just to say, Okay, whatever they're paying, because we've demonstrated that, what Union's paying their landowners, we're willing to pay our landowners. 979 And the provision clause we added to that was, if Tribute doesn't like those rates down the road some day, or the landowners don't like the rates down the road some day, either party can file an application and come here and discuss rates. 980 So we didn't want to have like a ten-year horizon, or when Union's comes up in 2008, we have to start all over again with rates. We'll just let them slide through, we'll let them go through. So when those numbers come up, if they're still acceptable to the economics, we'll maintain those prices. But it's open to either party to bring an application to change rates. 981 MR. VEGH: So is it your understanding, then, that the only difference between the applicants and the landowners' association now is over the -- 982 MR. JORDAN: The wording of clause 7. 983 MR. VEGH: -- the wording of clause 7? 984 MR. JORDAN: Yes. 985 MR. VEGH: And you're still talking about that, I hope? 986 MR. JORDAN: We're talking. We're waiting to hear back. They took it to their lawyer for rewrite. 987 MR. VEGH: Okay. 988 MR. LEWIS: And if I can just add something here. In all fairness, Mr. Chinneck this morning provided me with a proposal in regards to this matter, and I frankly have not had an opportunity to carefully look at it or discuss it with my client. But we hope to do that tonight, and we'd have more to say about that later. 989 I believe the proposal involves something other than just the timing of when these rates would be adjusted. But again, I haven't had an opportunity to fully evaluate it and discuss it with my client. 990 MR. VEGH: Can I ask you, Mr. Jordan, before turning to the next area of compensation, that is, residual gas, you did mention in your examination-in-chief that you've been asked, I guess by the MNR, to consider extending the storage area north to the -- well, how would you describe that, north to what boundary? 991 MR. JORDAN: North limit of lot 36, being the next concession road. 992 MR. LEWIS: The next concession road. 993 MR. VEGH: The next concession. And you described the reaction that you got to that proposal from the affected landowners. 994 MR. JORDAN: Right. 995 MR. VEGH: And, as I recall it, the two landowners who were affected other than Ms. Guindon were supportive of expanding the boundary north, but Ms. Guindon was basically non-responsive to your request? 996 MR. JORDAN: Right. 997 MR. VEGH: And so what's the applicants' position on this? Is the applicant prepared to expand the boundary north? 998 MR. JORDAN: There is a third landowner. This little square here, the Postill property, they were unleased when the request came from the MNR. We went out and leased them, and they're on -- they're agreeing to have that boundary moved over their property as well. And they've signed that consent. 999 MR. VEGH: So what's the applicants' position? Is the applicant prepared to move the boundary north to that concession? 1000 MR. LEWIS: I'm wondering whether that question might be better answered by either Ms. Lowrie or Mr. Walsh. 1001 DR. WALSH: Yes. We are not prepared to adjust the proposed designated storage area at this time. We have no evidence. I mean, the proposed designated storage area is based on a number of criteria. 1002 First and foremost for us is the geological and engineering evaluation in determining the appropriate amount of acreage that is required in order to safely undertake storage operations, without the risk of having gas injected into a reservoir that might extend beyond the proposed designated storage area. 1003 Based on our evaluation, we feel that the proposed designated storage area is more than sufficient to meet those needs. So we do not see a reason for extending it from that standpoint. 1004 MR. VEGH: I guess the reason, and we're sort of not speaking on behalf of MNR, but as I understand it, Mr. Jordan, you did raise this issue in your evidence this morning, so I wanted to get some clarification around it. I understand the reason for contemplating the expansion of the storage area north is so that it does not cut across a tract of land. Is that the reason? 1005 MR. JORDAN: Yes. Basically, the tracts now established by the MNR... 1006 MR. BETTS: I think, Mr. Jordan, if we don't need the drawing it might be best if you grab a mike, and that will help the court reporter. 1007 MR. JORDAN: It cuts across the spacing units that are now established by the MNR. 1008 MR. VEGH: And what are the consequences of cutting across a spacing unit? 1009 DR. WALSH: Well... 1010 MR. JORDAN: I'm not sure when the new configuration of spacing units was applied by the MNR on these properties, but historically, a standard lot is to cut into eight segments, one length wise, and then bisected into eights, eight tracts, which the original unit boundaries followed. So so subsequent to that, the MNR has changed their track configuration to one third of the lots in a stand-up fashion. So each lot has three vertical spacing units. So the line that used to be the centre line along the old track methods is now cutting across six new track methods. 1011 To answer your question on spacing units, to be consistent with MNR's request, is that the MNR prefers to have all lands in a track under, under an arrangement so that by -- you're not leaving people out of interest in a spacing unit which would be deemed for production or drainage or other use. So if you're going to drill a well at a certain depth, there's a spacing unit size required. Everybody in that spacing unit is to participate in the production of that piece. So what we're doing here is, by the new track configuration, cuts them in half, so we're now isolating the north half that no one could drill a well on those acreages. 1012 DR. WALSH: From a practical standpoint, of course, the fact that the acreage that we owned in the Tipperary north unit essentially meant that any party who wished to drill a well in the lands to the north of the proposed designated storage area would have been required to approach us to enter into an arrangement to pool our interests for the purposes of drilling a new well. 1013 So, when we looked at the issue as it relates to the new MNR policy, we didn't feel from a practical standpoint that what we were proposing in regards to the designated storage area was really causing that much trouble, other than it now appeared to be in conflict with the new policy of the MNR. 1014 MR. VEGH: So I guess the concern, then, Mr. Jordan, just to -- then Mr. Walsh, we'll get to your point as well. But first Mr. Jordan. The concern was that by effectively cutting across an area, the impact of the storage area cutting through the -- cutting through someone's area is that the part on the boundary outside of the area becomes sterilized from being able to drill a well. 1015 MR. JORDAN: That's right. 1016 MR. VEGH: And there's no compensation for that sterilization. 1017 MR. JORDAN: Well, in fact, the leases that are along the north edge cover to the road and may be brought in as -- may be held as outside acres. 1018 MR. VEGH: For those who have a lease? 1019 MR. JORDAN: We have leases on all those up there, across the top, now. Now, if it stays where it is, we have the option of dropping those lands by surrendering. 1020 MR. VEGH: So the only person who would be kept out of this would be Ms. Guindon, then, because you don't have a lease with her; right? 1021 MR. JORDAN: Yes. The lease -- the original lease, I think it's the Smith lease, covered most of the property on the west side. And since then the land's been sold and divided up with new landowners. So, yes, she is under an existing lease. 1022 MR. VEGH: She is under an existing lease? 1023 MR. JORDAN: Yes. 1024 MR. VEGH: So is she getting -- but she's not getting compensation for an out -- is she getting any compensation? 1025 MR. JORDAN: She should be getting year-end acreage rental payments under the unit operation agreement, and proportionate of the gas storage acreage rental. 1026 MS. McCONNELL: If I may add... 1027 MR. VEGH: Just before you do, Ms. McConnell, I don't want to lose this train. Now, have you filed the lease that you're referring to that provides an entitlement to compensation to Ms. Guindon? Is that lease in the record? 1028 MR. JORDAN: Ms. Guindon's lease itself? 1029 MR. VEGH: Yes. 1030 MR. JORDAN: What are you asking for? Sorry? 1031 MR. VEGH: Ms. Smith? The document that entitles Ms. Guindon to compensation is which document? 1032 MR. LEWIS: If I could -- I would like to object to this line of questioning any further on this. And my reason for doing it is as follows: The Ministry of Natural Resources have not in their pre-filed evidence insisted that the boundary be extended to the north. The only reason that this evidence was dealt with in chief was to try to show the cooperative efforts of the applicant in addressing the Ministry's concerns that were stated prior to them pre-filing their evidence. 1033 The additional acreage that was taken under lease and the efforts that were made to canvass the landowners to the north's views of being included in the unit. I do not see this on the issues list. And anything beyond a general inquiry of this as it was addressed in chief, I would submit, is irrelevant to the issues in this case. I don't see anywhere in the case where the Ministry are now insisting that this boundary be extended to the north. 1034 So I would ask that the Board, perhaps, rule on the scope of the cross-examination on this point. 1035 MR. BETTS: Mr. Vegh. 1036 MR. VEGH: All that I'm trying to understand, this was an issue that Mr. Jordan raised in-chief. There is no pre-filed evidence on this at all. And Mr. Gordon -- Mr. Jordan's point in-chief was that all the landowners except one were agreeable to this proposal. And he then mentioned that that one objecting landowner is entitled to compensation. And my question, my only question for -- so it's for completing the record here, is to ask where -- what -- where Is the evidence that indicates that that landowner is entitled to compensation? 1037 MR. LEWIS: Again, I understand what you're asking. I'm not sure of the relevance of what you're asking as it relates to the issues on the revised draft issues list, Exhibit E1.1. 1038 The reason the evidence was tendered, as I explained, was to try to show the cooperative efforts that the applicant has made to address MNR concerns prior to their prefiled evidence and prior to an issues list existing. 1039 I think we're getting quite -- I would submit we're getting quite far afield with this, and my friend or my witness can point to you the lease, but I would ask, Mr. Chairman, that we try to restrict where we're going with this issue on cross-examination. 1040 MR. BETTS: I think, in a sense, Mr. Lewis, you've opened this can of worms with the evidence in chief. And I think certainly everybody has to understand why it was brought up and where it was going. The very fact that your witness indicated that MNR had indicated a desire to have this considered and that your client has gone so far to discuss this with the landowners leads the Panel to want to understand all of the implications as well. So I won't accept that objection at this point. 1041 MR. JORDAN: The gas storage. 1042 MR. BETTS: Please answer. 1043 MR. JORDAN: The gas storage lease is on tab 11. We are on 5 with Brand. Move back to tab 11. 1044 MR. LEWIS: Volume? 1045 MR. JORDAN: Volume 2, white tab 4, yellow tab 11. The lease is in the name of William John Smith. It covers all of lot 36, concession 9, which includes the Guindon property. So the lease covered off the whole lot. Subsequently it was sold as a parcel to Guindon, so she inherited that portion of the lease. 1046 In respect of oil and gas lease, it would be white tab 8. It should be number 11 as well. Number 11. They're in the same book. I need book 3. So the oil and gas would be white tab 8, yellow tab 11, oil and gas lease. 1047 MR. CHINNECK: Sorry, I wonder if you could repeat that again. 1048 MR. JORDAN: White tab 8, yellow tab 11, is the oil and gas lease. It covers the entire lot 36, concession 9. 1049 MR. CHINNECK: Thank you. 1050 MR. VEGH: Thank you. 1051 MR. JORDAN: No problem. 1052 MR. VEGH: Okay, so I wanted to ask, then, about the next category -- the next category of compensation. The next area of compensation, that's residual gas compensation. 1053 And it may help to answer that question if you could -- well, you or whoever else - I'm not sure if this is you, Mr. Walsh, or you, Mr. Jordan - but if you could pull up a document we've looked at, which is the Tipperary reef report, figure 10, both the original, which is in book 1, orange tab 3, white tab 2. 1054 So the original is book 1, orange tab 3, white tab 2, figure 10, and the revised version of figure 10 is in Exhibit E.1.4. 1055 Now, first having a description of residual gas compensation. The description in Exhibit E.2.1 of residual gas compensation says that residual gas is made available to the -- well, only for the Tipperary unit area. Is that right? 1056 MR. JORDAN: It states that, yes. 1057 MR. VEGH: And if we go to the original figure 10 of the prefiled evidence, that figure 10, the gross gas -- gross gas isopach, and as I understand this document that we looked at yesterday, the dotted line, the thick dotted line on this map sets out the unit area. Is that right? 1058 MR. JORDAN: Yes. 1059 MR. VEGH: And in -- and the contoured lines within the -- within the reef set out where -- well, where there is gas, where there is residual gas. 1060 MR. JORDAN: As described by Mr. Walsh, yesterday. 1061 DR. WALSH: But -- 1062 MR. VEGH: Right? 1063 DR. WALSH: Yes. I'd just like to comment, though, that as it relates to residual gas compensation, that particular diagram is not pertinent. 1064 MR. VEGH: No, I guess not, because your letter on compensation or the applicants' letter on compensation only provides compensation for residual gas that's in the unit area. 1065 DR. WALSH: As it pertains to the definition within the unit operating agreement. 1066 MR. VEGH: That's right. So if there's gas outside the unit area, outside the original unit area, or residual gas outside the unit area but still within the designated storage area, underneath or under this description of residual gas compensation in the offer from the applicants, the landowners are not entitled to compensation for that gas; is that right? 1067 DR. WALSH: If the landowners did not have a working interest in the gas under the terms of the unit operating agreements, they are not entitled to any residual gas payment. 1068 MR. VEGH: Even though these landowners actually had gas? 1069 DR. WALSH: Yes. Yes. I guess the short answer is yes. 1070 MR. VEGH: So could you explain, then, why there would be no compensation for gas to a landowner who owned gas? Why is the compensation only to landowners within the unit area? 1071 DR. WALSH: Because the determination of the compensation was based on the unit operating agreements which represented an agreement amongst all of the landowners, as it pertains to where the gas existed for the purposes of gas production. 1072 The residual gas determination is based on the remaining gas in the reservoir after we have produced some gas out. And any attempt that we might want to make in regards to defining or allocating new interests in gas reserves based on any follow-up interpretation would require, in our minds at least, 100 percent of the affected landowners' agreement. That we do not have. 1073 MR. VEGH: So if the Board were to determine that compensation should be given to those who had residual gas and therefore lost the value of residual gas, then the Board should do that by reference to -- the Board could do that by reference to the residual gas in the storage area as opposed to residual gas in the operating unit. 1074 DR. WALSH: It could if it felt that we could comfortably determine who had what percentage of the residual gas remaining in that pool. 1075 MR. VEGH: Okay. So let's look, then, at the evidence's treatment of that question of who has residual gas in the pool. 1076 The additional evidence at figure 10 indicates the existence of residual gas by reference to this perimeter we've talked about yesterday, where the zero line moves inwards to the center. Anyone on the inside of that zero line perimeter, under this drawing, has residual gas. 1077 DR. WALSH: Those -- this map is indicative of the gross gas isopach. What we're looking at here is a reservoir that contains gas. Let's be quite clear. That doesn't necessarily mean that that's the productive portion of the reservoir. Just because gas exists within the porous space does not necessarily mean that that gas could be produced or is producible. 1078 So when it comes to determining landowner interests in the gas within the reservoir, we have to take into account producibility of that pool. We have what we call unitization agreements and unitization procedures which result in unit operating agreements. 1079 As you see in this evidence here, while we are talking about the existence of gas on a gross basis, the primary purpose of this evidence is to indicate where we feel gas may exist or does exist for the purposes of defining the outer limits of the reservoir, or the potential outer limits of the reservoir in order to determine an appropriate designated storage area. For the purposes of determining interests in production, it's not appropriate. What I might point out is that the unit operating agreement, and most unit operating agreements typically look at the extent of gas based on what we call an aerial basis. It does not take into account volumetric calculations based on mapping. It takes into account a surface area per se. 1080 And based on that surface area calculation, landowners' working interests are derived. That is the methodology that I believe was used, and I could undertake to confirm that. That was the process that was used in determining the working interests of the landowners, or their percentage interests, in the gas, in the Tipperary North Pool and Tipperary South Pool. Because that is an accepted method for determining interests, and has been agreed to by all the landowners at one point in time, the agreement of which has carried on to subsequent owners of those lands, it is our position that that remains the only appropriate method for determining payout of the value of the residual gas. And it is not inconsistent with the manner in which that has been done in prior storage developments. 1081 MR. VEGH: Thank you for that answer. So if we were interested in identifying the interests, then, for -- in production for the purposes of the producing unit area agreement, that's what -- that's what we would be looking at. And you made that point very clearly. But you've also said that what this map shows you is where gas may or does exist. 1082 DR. WALSH: That's correct. 1083 MR. VEGH: And so, if someone wanted to -- or if the Board wanted to provide compensation to owners of residual gas, one way to do that is to look at, well, where does gas exist or where may it exist? And do the owners who had that gas, or are there owners who had that gas entitled to compensation for that gas? 1084 DR. WALSH: The Board may choose to accept a methodology consistent with the methodology used in the original determination of the unit operating agreements. But basing it on this new technical evidence, or interpretation. And, as the applicant, we're more than happy, obviously we're dealing with the whole. We're looking at a volume of residual gas for which the landowners still have an interest. And we would pay out on that whole. How the whole is distributed, though, needs to be done on a fair and equitable basis. And the only existing arrangement that has been done on a fair and equitable basis is the existing unit operating agreements. I would leave it at that. However, if the Board felt in its wisdom that they should take the information that we've provided in the revised figure 10, and would choose to arbitrarily -- I shouldn't say arbitrarily but unilaterally -- determine what landowner owns what, we would pay out based on that because in the end, the consequence to us is still the same amount of compensation just split differently than what's being proposed in our application. 1085 MR. VEGH: So it's really just an issue of allocation among landowners, and if this little corner that is outside of the unit operating agreement is effectively excluded from compensation and should from some measure or otherwise be entitled to compensation, then the applicant's indifferent -- because the applicant's kept whole, it's same amount of compensation, it's just how that's divided among the unit holders. And if some group is unfairly left out, then it's just a matter of some group is receiving too much and some group is receiving too little; is that fair? 1086 DR. WALSH: Well, what I think is important to note is while it may be of no consequence to us, it's certainly of consequence to those parties who have been notified of our application and have been made aware of our proposal in regards to compensation for residual gas who may now be unfairly treated as a result of any change being proposed by the Board at this stage. I am sure there are individuals who are not here -- I think the Brands, in particular, who might take exception to the fact that we're discussing an alternative way to provide residual gas compensation. 1087 MR. VEGH: Well, we have to discuss it if we're going to find the right way, aren't we, Mr. Walsh? 1088 DR. WALSH: Absolutely. I just wanted to make it clear on the record. 1089 MR. BETTS: Mr. Vegh, it's 3:00, and I know I said earlier, that we would not break in the afternoon, but we did take an earlier lunch than usual. I think that probably a short, perhaps ten-minute break, might be appropriate. That would allow us to be fresh for the last 50 minutes of the hearing. 1090 So let us break now, and we will reconvene at 3:10. 1091 --- Recess taken at 2:58 p.m. 1092 --- On resuming at 3:18 p.m. 1093 MR. BETTS: Thank you, everybody. Please be seated. 1094 During that short break, did any preliminary matters arise? 1095 Mr. Vegh, can you continue with your cross-examination, please. 1096 MR. VEGH: Thank you. 1097 I wanted to turn now to issue III, the order to -- the request for an order to drill a well. 1098 Ms. McConnell, the first questions are for you, and then I think, Mr. Walsh, the rest would be probably directed at you -- directed to you. 1099 Ms. McConnell, you were effectively the -- effectively the designer of the wells? 1100 MS. McCONNELL: Yes. 1101 MR. VEGH: And what is your -- what is the anticipated design life of the wells? 1102 MS. McCONNELL: I would like to defer that to Mr. Gorman. 1103 MR. GORMAN: That's a question that has been in the minds of, I think, storage companies for a number of years as far as design life goes. 1104 A production well is normally drilled and it's anticipated that within 25 years or so, that that will be the end of the life. However, with storage wells, it's assumed that they will continue on indefinitely, hence the CSA standards. 1105 As far as -- I may be wrong here, but I don't think there is a specific design life requirement. I could be in error. 1106 MR. VEGH: Well, is there -- can you give us, just for the record, a -- is there a reasonable range that you would expect this design life to fit into? What's been the experience with the design life of a well? 1107 DR. WALSH: All I can rely on is my experience in the industry, having started with Union Gas in 1984, so the past 20 years. I'm unaware of any problems that haven't been able to be solved; in other words, you might have had some corrosion issues with a wellbore. But some of the storage fields in Ontario have been in existence for quite a long time, 40, 50 years, and as a result, I would think that the answer to your question is, at least that long, and perhaps, as Mr. Gorman has said, a lot longer than that. 1108 MR. VEGH: Thank you. 1109 Ms. McConnell, did you encounter any problems in cementing the new well that you gave some evidence on? 1110 MS. McCONNELL: When we did our cement job on the surface casing, which is the 340-millimetre casing, we cemented it. We had full circulation throughout the cement job, but we did not get returns, cement returns, to surface. But we performed a remedial cement job on that string and we now have cement to surface on that string. But when we were drilling the 245-millimetre casing, which is the F unit string, we had problems with the hole, with -- we had problems with the hole in that we lost -- the hole ended up being bigger than it should have due to the nature of the rock that we drilled through from about the base of the casing at -- surface casing at, I believe it's 88 meters, to about 150 meters. 1111 When we cemented that hole -- when we cemented that string of casing in, we had water returns to surface, but we did not have cement returns to surface. We do not have cement to surface currently on that string, but we are planning to do a remedial cement job to bring the cement to surface on that casing. 1112 MR. VEGH: And could you just outline what is the relevance of -- you mentioned cement to surface. What does that mean? Why is that relevant? 1113 MS. McCONNELL: The CSA requires you to have the casing cemented to surface. And we also -- that's our company policy, to have the casing cemented to surface. 1114 MR. VEGH: And any of the issues that you described, were any of those problems or issues, were any of those unanticipated? Or are they the anticipated sorts of issues you face when drilling a well? 1115 MS. McCONNELL: They were not unanticipated for this well. 1116 MR. VEGH: They were not unanticipated? 1117 MS. McCONNELL: Correct. 1118 MR. VEGH: So they were anticipated? 1119 MS. McCONNELL: Yes. Sorry. 1120 MR. VEGH: Thank you. 1121 Now, there are a number of existing wells, and we've talked about the abandoned wells. Is it possible to carry out storage operations using any of these existing wells? 1122 MS. McCONNELL: On the two existing wells, the casing is quite small; I believe it's a 3.5-inch casing. So, subject to Mr. Gorman, I don't believe that would be... 1123 MR. GORMAN: It's possible to carry out storage operations. It's really not feasible. These wells have -- are better used as observation wells rather than as injection/withdrawal wells. Standards in Ontario for injection/withdrawal wells involve a 7-inch casing. That reduces your friction loss; it enables you to run certain size tools in the hole, enables you to do standard type tests. Therefore, they are deemed to be not suitable as injection/withdrawal wells. 1124 MR. VEGH: Now, I understand - I think, Mr. Walsh, this was your evidence - that you'd plan to drill horizontal wells? 1125 DR. WALSH: That's correct. 1126 MR. VEGH: And these wells will have a greater flow than vertical wells? 1127 DR. WALSH: That's correct. 1128 MR. VEGH: And their flow performance will determine your ability to meet your injection and withdrawal obligations under your -- the applicants' injection and withdrawal obligations under their storage contracts, or their proposed commercial arrangements? 1129 DR. WALSH: That's correct. 1130 MR. VEGH: So if the flow performance is less than expected, then you may have to come back to the Board to seek approval for drilling additional wells. 1131 DR. WALSH: That's correct. 1132 MR. VEGH: And are there any other consequences from that? 1133 DR. WALSH: Well, the risk, of course, is that by coming back we have to -- in drilling another well, we have to, of course, file an application, so there will be added costs associated with that, as well as the added costs associated with drilling the additional well. 1134 MR. VEGH: Now, I understand that the productivity of the well may also be impacted by the presence of oil; is that right? 1135 DR. WALSH: I wouldn't agree with that. The design of the horizontal well is being done in such a manner that we are going to -- our horizontal leg will be suitably -- or will be a suitable distance away from the minor oil shows that existed at the time of discovery. 1136 MR. VEGH: So you mentioned these minor oil shows, and I believe the answer -- or the evidence on this is that there were about 1,300 cubic metres of oil found; is that to your recollection? 1137 DR. WALSH: Subject to check, I think that's right. 1138 MR. VEGH: And so what are the consequences of the presence of this quantity of oil? 1139 DR. WALSH: Well, there are no consequences to us, as we see it, for the storage operation in that, as opposed to pulling the pressure in the reef down to extremely low pressures, we're at a point now where we're going to be injecting gas to the first level, which represents the cushion. And from that point on, the gas that we inject will be the working capacity or working storage volume. 1140 So the minimum pressure that we will be at on a storage operation will be that cushion pressure, and that cushion pressure will be sufficient enough to isolate any heavy fluid such as oil or any water, although there was not much water discovered initially in this reef, to keep it sufficiently away from the wellbore, therefore minimizing or not allowing the opportunity for any heavy fluid such as oil to show up during storage operation. 1141 MR. VEGH: So to summarize in a sentence, what would you characterize the consequences being of this amount of oil being found? 1142 DR. WALSH: We see no consequence to it. 1143 MR. VEGH: And, Ms. McConnell, I believe you referred in your evidence that there are provincial standards respecting the safety of drilling operations; is that correct? 1144 MS. McCONNELL: That's correct. 1145 MR. VEGH: And those are found in CSA Z341 that we've talked about? 1146 MS. McCONNELL: I believe there are drilling standards, and they're also in the Oil, Gas and Salt Resources Act. 1147 MR. VEGH: And the provincial operating standards issued under that Act as well? 1148 MS. McCONNELL: Correct. 1149 MR. VEGH: And in addition to that, there are the proposals in chapter 6 of the Stantec report that we've already alluded to? 1150 MS. McCONNELL: Yes. 1151 MR. VEGH: And I take it from your responses earlier that the applicants do not have any reservations about agreeing to comply with all of those requirements as a condition of approval for operating the wells? 1152 MS. McCONNELL: That's correct. 1153 MR. VEGH: Okay. With that, then, I'd like to turn to the issue of rates, which is part 4 of the issues list. And Mr. Francis, I think most of these questions will be directed to you. 1154 Mr. Francis, the evidence I'll be asking you to speak to is what's been filed as a -- well, at least in my documents, it's an attachment to the amended application, and it's called: "Addendum to the pre-filed evidence of Dereck Francis." It's a three-page -- well, it's three paragraphs of evidence in a three-page rate schedule that attaches as schedule A, Union C1 rate schedule. 1155 MR. BETTS: Could I have a reference again, please? 1156 MR. VEGH: I have it in my materials as an attachment to the amended -- the first amended application behind tab 1, sorry behind tab 2 of book 1. 1157 MR. BETTS: Thank you. With a little help, we have it now. 1158 MR. VEGH: Thank you. And, Mr. Francis, I'll also be referring to the document you provided this morning, Exhibit E2.5, the rate-making methodology chart you put together. And before going into the rates that you are seeking approval for, could you provide for me a little bit of a description of the nature of the services that -- you know, what's the business opportunity -- what's the business that Tribute will be engaging in? What's the nature of the services you'll be providing? 1159 MR. FRANCIS: Yeah. Tribute will engage in selling storage capacity to third parties, primarily a Dawn-based service. 1160 MR. VEGH: And who are the third parties? 1161 MR. FRANCIS: Third parties could range from either marketers, producers, end-use customers, or perhaps LDCs. 1162 Just a point of clarification the list described would be considered exfranchise customers. 1163 MR. VEGH: What do you mean by exfranchise? 1164 MR. FRANCIS: Marketers, producers and other LDC customers, perhaps as an Enbridge or GMI who would contract for exfranchise services. 1165 MR. FISHER: It's our understanding that Board approval is required for selling storage to infranchise customers. 1166 MR. VEGH: Yeah, but you are asking for Board approval to sell storage. 1167 MR. FRANCIS: I believe the rates that we've applied for apply to assets being sold to exfranchise counterparties. 1168 MR. VEGH: I just wonder if getting into this point of ex -- could you explain to me what you mean by exfranchise versus infranchise? You don't have a franchise, do you? 1169 MR. FRANCIS: No, we don't have a franchise. 1170 MR. FISHER: Not yet. 1171 MR. FRANCIS: I guess it's an industry terminology representing customers who are -- customers other than -- in industry terminology that refers to customers who are not infranchise customers, so anyone who is not in an infranchise area would be considered an exfranchise customer. 1172 MR. VEGH: And what are the infranchise areas? 1173 MR. FRANCIS: Union's distribution system. Enbridge franchise areas. 1174 MR. VEGH: Now, you will be selling to can custom -- will you not be selling to customers who are within Union or Enbridge's distribution areas? 1175 MR. FRANCIS: Perhaps. 1176 MR. VEGH: So, again, I'm just wondering if the term "exfranchise customer" really means anything in this context. Maybe we'll -- 1177 MR. FISHER: I think on the issue, we'd tend to look for the Board's direction in the sense that we wouldn't necessarily care, as long as the appropriate credit requirements were met. However, that said, the customer would need to meet whatever the approvals of the Board were at the time. So we'd be cognizant of that when we tried to structure a deal. 1178 MR. VEGH: Mr. Francis, just maybe as a matter of nomenclature, let's see if we're speaking the same language here. 1179 My understandings of the difference between exfranchise and infranchise customers for gas distribution utilities regulated by the Board is that the Board is that the Board grants franchises to distribution company. And customers who are within the distribution company's franchise receive distribution services. And those distribution services have embedded within them a storage -- or actually a load-balancing service which makes use of storage assets. 1180 So customers within a distribution franchise who were purchasing distribution services are considered infranchise customers, and customers who are not within the distribution service area but may purchase services from the distributor, whether the storage service is transportation transportation, transmission, those are considered exfranchise customers. That's my understanding. Is that your understanding of the difference between infranchise and exfranchise customers? 1181 MR. FRANCIS: I would agree with that explanation. 1182 MR. VEGH: Okay. So, given you are -- Tribute is not seeking a franchise from the Board for providing distribution services, I don't see a distinction between exfranchise and infranchise customers when it comes to Tribute. Is it -- 1183 MR. FRANCIS: Right. 1184 MR. VEGH: Am I missing something? 1185 MR. FRANCIS: Correct. 1186 MR. VEGH: Okay. So your proposal here is to sell storage service to whoever in the market may want to purchase storage services. 1187 MR. FRANCIS: Correct. 1188 MR. VEGH: Whether that's a broker or a marketer or a large industrial or a gas LDC, really has no impact on your business model, they're just a customer. 1189 MR. FRANCIS: That's correct. 1190 MR. VEGH: Okay. Now, in servicing those customers, you will be offering firm storage services; is that right? 1191 MR. FRANCIS: Yes, firm storage services at Dawn. 1192 MR. VEGH: Firm storage at Dawn. 1193 And Mr. Fisher, I think it was you who said that to offer firm storage services to customers, you really need a firm transportation rate to back that up, so that you can meet your contractual obligations. 1194 MR. FISHER: In my opinion, yes. 1195 MR. VEGH: Okay. Now, do you have -- and so you have this firm transportation service from Union that you've arranged through the M16 contract. 1196 MR. FISHER: Yes. 1197 MR. VEGH: Now, do you have firm transportation services in any neighbouring jurisdiction such as Michigan, New York, for firm transportation services. 1198 MR. FRANCIS: Not at this point in time. 1199 MR. VEGH: No. So the plan now is that you'll be selling these -- you'll be selling storage services to customers in the province of Ontario. 1200 MR. FRANCIS: That's correct, at Dawn. 1201 MR. VEGH: At Dawn. 1202 MR. FISHER: As a point of clarification, the title transfer point is distinguished from the location of the customer, so when you say "selling in Ontario," it could be the customer isn't necessarily in Ontario, right. 1203 MR. VEGH: But they would accept delivery in Ontario. 1204 MR. FISHER: Or at an exfranchise meter point, if required. 1205 MR. VEGH: Now, I had hoped that we had gotten rid of the idea of exfranchise. 1206 MR. FISHER: So did we. 1207 MR. VEGH: But you raised it. So what do you mean by that? 1208 MR. FISHER: Oh. In previous evidence, the issue of selling gas came up, if we were a storage service provider. And it was my understanding that Dereck said we would only sell gas exfranchise. 1209 MR. VEGH: So you would only sell gas outside of the province of Ontario. 1210 MR. FRANCIS: That's correct. 1211 MR. VEGH: Now, the customer for that gas, would that customer be an in-Ontario customer, effectively receiving title to the gas exfranchise, or outside the province? 1212 MR. FRANCIS: That could occur, certainly. 1213 MR. VEGH: So, in that case, what's the difference between selling gas to that customer at Dawn and selling gas to that customer at a delivery point outside the province? 1214 MR. FRANCIS: You would need to tie that sale with a transportation type of service to move the gas to that delivery point outside of Ontario, which we would -- which we would contract for. The customer wouldn't necessarily see that transportation arrangement behind the scenes. 1215 MR. VEGH: Now, if the customer is in Ontario and you have a seamless arrangement whereby you deliver gas to that customer outside of Ontario, how does that gas then come to the customer to be able to use inside of Ontario? 1216 MR. FRANCIS: The customer could contract for a transportation service and move it through the grid in Ontario to their -- to their required point of view consumption. 1217 MR. VEGH: And would you do that for the customer, too? 1218 MR. FRANCIS: No, I would deliver the contract for the storage service to be at the point, either at Dawn or at that exfranchise point. 1219 MR. VEGH: So the customer will take title to the gas outside of Ontario and also physical possession of that gas outside of Ontario, and the customer would be responsible to bring that gas into Ontario? 1220 MR. FRANCIS: Correct. 1221 MR. VEGH: Now, why is it that you would be selling gas to customers outside of Ontario? What is the synergistic value between doing that and offering this storage service? 1222 MR. FRANCIS: There may be market conditions, and I can use an example where places are extremely high in New York State on a given day. Within our storage field, if we have extra molecules, it may be advantageous for us to transport those molecules out of the province and meet that short position in the New York market, capturing high prices and favourable economics. 1223 MR. VEGH: Now, that opportunity arises whether you have a storage pool in Ontario or not, doesn't it? 1224 MR. FRANCIS: It could. However, the extra gas or the length that we have in the storage pool may be at economics below what the current market is on that day that we would choose to move exfranchise. 1225 MR. VEGH: Right. So this gas sale opportunity that Tribute could see available, that's the same gas sale opportunity that anybody in Ontario who happens to have excess gas could find available; is that right? 1226 MR. FRANCIS: That's correct. 1227 MR. VEGH: So, in that sense, Tribute will be operating, basically, as a wholesale marketer of gas. 1228 MR. FRANCIS: For that particular transaction. 1229 MR. VEGH: That's right. So the -- but you're prepared to say that you wouldn't participate in those transactions where you are actually selling gas to someone in the province. 1230 MR. FRANCIS: That's correct. 1231 MR. VEGH: Now, Mr. Fisher, I can't help it, but you're the one who referred to the Huns earlier on, and I seem to have a recollection of these wholesale marketers, and I think Enron might have done this, and perhaps Duke, I don't know, that there was a concern about these marketers at that point selling -- you had price regulation or restrictions on their ability to sell gas in California, so what they would do is export gas out of the state and then import it back in. I think they call that a ricochet or a rebound. Do you recall the term? 1232 MR. FISHER: I'm not aware of that being done with gas. It's my understanding it might have happened with power, but I'm not aware of it happening with gas. It's possible it did and I didn't know about it. 1233 MR. VEGH: Now, when we talk about the exfranchise transactions here, I guess that's what I'm getting at, and that's the concern. The concern would be simply, say, a meter bounce outside the province, so that's kind of an artifice to avoid the restriction on selling gas outside of Ontario, if you're just transacting outside the problem and using that, as I say, as an artifice to avoid the restrictions in Ontario. 1234 So how can the Board be comforted that that's not what's going on if you will be engaging in gas sales outside of the province? 1235 MR. FRANCIS: As described earlier, the market that we operate within has some big centers - Chicago, a number of points in Michigan, and particularly points further east in New York State and the northeastern coast. 1236 Traditionally, the further east you go with natural gas molecules, the higher the value is. So to give assurance to the Board, I would certainly, if I was trying to find the best home or the best sale for those molecules, I would be looking further east and trying to capture the highest price. 1237 I think if you were to look -- historically, Dawn traditionally wouldn't be one of those highest points on a peak-type day that covers a good portion -- portion of that market. 1238 MR. VEGH: So the comfort, then, would really come from, you know, the way the market operates. 1239 MR. FRANCIS: That's correct. 1240 MR. VEGH: Okay. Now, Ms. Lowrie, you mentioned earlier that the applicants will be seeking an exemption from the Affiliate Relationships Code for gas utilities, and that includes storage companies. You appreciate that in that exemption, the Board would have the authority to either grant the exemption or not grant the exemption. We don't know at this stage whether that exemption will be granted or not. 1241 MS. LOWRIE: Yes, I do. 1242 MR. VEGH: And until -- or unless and until an exemption is granted, the provisions of the Affiliate Relationships Code would apply to Tribute. 1243 MS. LOWRIE: Yes. 1244 MR. VEGH: And you're prepared to proceed with this application on that basis? 1245 MS. LOWRIE: Yes. 1246 MR. VEGH: Now, the services -- I'm sorry, the rates, then, Mr. Francis. The rate schedule -- the proposed rate schedule that was attached to the addendum to your evidence, it's pretty well identical to the Union's C1 rate, isn't it? 1247 MR. FRANCIS: We did adopt the Union C1 rates. 1248 MR. VEGH: Yeah, in our review, we couldn't find a material difference between the two. 1249 And the Union C1 rate is effectively a range rate that allows Union to sell storage services where, at the top of the range, there's an estimate of the maximum amount for those services that the market may be prepared to pay. 1250 MR. FRANCIS: That's correct. 1251 MR. VEGH: And Enbridge has a similar rate in place for transactional services. 1252 MR. FRANCIS: That's correct. 1253 MR. VEGH: And I've used the term "transactional services." Both Enbridge and Union categorize the services under these -- these -- categorize the services under these range rates as transactional services; that's your understanding of the term? 1254 MR. FRANCIS: Yes. 1255 MR. VEGH: And will you accept, subject to check, because you did talk this morning about the cost-of-service issue, but subject to check, and I can give you the evidence -- I'll give your counsel the evidence reference afterwards, if you would like, but subject to check, would you agree that the cost of service for storage for ex -- for transactional services for both Enbridge and Union is as follows: 1256 Their cost is about in the range of 40 to 50 cents an Mcf, and the market rate for their services is around 80 cents to $1 for Mcf? 1257 MR. FRANCIS: I would agree. 1258 MR. VEGH: You would agree with that range? So there's quite a premium, isn't there, that's available to Enbridge and Union between the cost of service and the rate available for them to sell these services at market rates? 1259 MR. FRANCIS: Depending on market conditions, yes. 1260 MR. VEGH: Yes. And, in fact, we've talked about the C1 rate. That's not really a cost-of-service rate at all, is it? 1261 MR. FRANCIS: No, it's a range rate that allows that unutilized capacity to be sold at market prices. It's wide enough that it captures the full range of expected market values. 1262 MR. VEGH: And in terms of the premium that we talked about for Enbridge -- that's available for Enbridge and for Union, and I don't expect you to provide exact figures because it's clear that you're not asking for a Board rate of return here, but does Tribute anticipate earning the same type of premium on its storage services as is earned by Enbridge and Union? 1263 MR. FRANCIS: In my opinion, I think the returns could be a little smaller, given the cost to develop this facility in Huron County, the transportation charges to get the molecules to Dawn. So, again, just the sheer location of this facility, I think the premiums would be somewhat reduced. 1264 MR. VEGH: So the premiums would be a little smaller. 1265 MR. FRANCIS: I would think so. 1266 MR. VEGH: Okay. And as we've -- as we've already indicated, C1 is not a cos-of-service rate, anyway. 1267 MR. FRANCIS: That's correct. 1268 MR. VEGH: And that's why I have some questions about your Exhibit E2.5, which sets up -- down the left side of the page is historic cost-of-service methodology, and then the right side of the page is your market-based methodology, and I was sort of questioning the relevance of this, because when we're looking at the C1 rate or the range rates that is in the middle column, they really bear not resemblance to the historic cost-of-service methodology. 1269 MR. FRANCIS: I think the key point in the tie-in, to bring the left column to the middle column, the range rates, is the unutilized capacity that Union has on any given year. They have the ability now to move into the transactional services world and sell those assets at market rates. So I think that they are somewhat linked in the fact that, if there is unutilized capacity, you now have a mechanism to sell them at market-based rates. 1270 MR. VEGH: So this left-hand column here, the historic cost-of-service methodology, that would apply to what we called infranchise storage for Enbridge and Union? 1271 MR. FRANCIS: That's correct. 1272 MR. VEGH: And then the excess, which is available for a range rate, is completely outside of that column anyway? 1273 MR. FRANCIS: I believe it falls out of, out of the unutilized infranchise capacity. 1274 MR. VEGH: Okay. 1275 MR. FISHER: Well, the relationship I think the sheet is trying to make relates to risk, where the risk of cost-of-service storage is borne by ratepayers, as opposed to the risk of an investment being borne by the shareholders. And I agree that cost of service doesn't apply -- the range rate doesn't apply to cost-of-service storage insofar as you look past the distribution of the revenues. 1276 MR. VEGH: Just for the -- I understand what you're saying. So for the purposes of making this document, perhaps, speak more to that, that difference, the only -- when I look at the right-hand side, the only -- at the top you see private storage company, bids and contracts determine price. So if you were to have an equivalent for the utilities' side, instead of private storage company in that box, you would say excess assets. 1277 MR. FRANCIS: Excess assets. 1278 MR. VEGH: Bids and contracts determine price for both. 1279 MR. FRANCIS: Correct. Correct. 1280 MR. VEGH: But instead of financial covenants underpinning contracts, it would be Mr. Fisher's point, ratepayers. Going down the box on the right-hand side, to make a comparison between what Tribute is proposing and what is in place for the utilities, in the top box, where it now says: "Private storage company," the utility equivalent would be excess assets? 1281 MR. FRANCIS: That's correct. 1282 MR. VEGH: The middle box, where it now says: "Bids and contracts determine price," that would be true for excess assets. 1283 MR. FRANCIS: So it's transactional services, yes. 1284 MR. VEGH: In both cases, bids and contracts determine price. 1285 MR. FRANCIS: Yes. 1286 MR. VEGH: Not cost of service. 1287 MR. FRANCIS: That's right. 1288 MR. VEGH: And then the bottom box, instead of -- the bottom box where it is now "Financial covenants underpin contracts for Tribute," that would be basically ratepayers. 1289 MR. FRANCIS: That's right. 1290 MR. VEGH: And the box beneath, where you talk about the returns, or where this chart talks about the returns, on chart E2.5, the premium that we've talked about for Enbridge and for Union, when we look at the utility side of the sheet, the return is split between shareholder and ratepayers, that premium -- 1291 MR. FRANCIS: Yes. 1292 MR. VEGH: -- is divided between shareholders and ratepayers and largely in favour of ratepayers. 1293 MR. FRANCIS: Correct. 1294 MR. VEGH: The shareholder component is just a small incentive to encourage the use of assets for these purposes? 1295 MR. FRANCIS: Correct. 1296 MR. VEGH: So, Union and Enbridge earn these premiums that we've talked about, these handsome premiums, but effectively credit back much of the premium to their ratepayers so that their shareholders are not really authorized to keep a lot of that premium for themselves. 1297 MR. FRANCIS: That's correct. 1298 MR. VEGH: Now, in this case you're asking the Board to allow the shareholders of Tribute and Tipperary to keep whatever premium is available for themselves. 1299 MR. FRANCIS: That's correct. 1300 MR. FISHER: Over Tribute's costs of putting the project in. 1301 MR. FRANCIS: The returns. 1302 MR. VEGH: That's right. And you've said the returns will be a little tighter than what Union and Enbridge realize. 1303 MR. FRANCIS: Yes. 1304 MR. VEGH: That's what we're talking about, these returns? 1305 MR. FRANCIS: Yes. 1306 MR. VEGH: And the, I guess, the rationale for this that you're putting forward is that the shareholders take the risk of the investment in that asset? 1307 MR. FRANCIS: That's right. On any given year there's no guaranteed return. Some years it may be minimal, depending on the premium. Some years it may be favourable. 1308 MR. VEGH: So that risk is borne by the shareholder so the shareholder should get the available rewards as well? 1309 MR. FRANCIS: And -- yes. 1310 MR. VEGH: Now, Mr. Francis, as you're aware, in the cost of service model that you've talked about, the regulator does include this concept of risk in setting a regulated rate of return. 1311 MR. FRANCIS: I agree. 1312 MR. VEGH: But you're not requesting the Board here to determine a regulated rate of return even if there is a higher risk -- 1313 MR. FRANCIS: No. 1314 MR. VEGH: -- than what would be available to a regulated utility? 1315 MR. FRANCIS: That's correct. 1316 MR. VEGH: Now, you've stated in your evidence, and I think you've all taken a turn repeating today, your belief that the storage market in Ontario is competitive. 1317 MR. FRANCIS: Yes. 1318 MR. VEGH: And I've given your counsel a copy of an OEB decision. And you should have -- sorry, an extra of a copy of OEB decision in RP-1999-0017. And there are additional copies on the back shelf for those who don't have them. 1319 And I believe the Board Members have them as well. So why don't we mark this document as Exhibit E.2.12, and the excerpt from the Board's decision in RP-1999-0017. 1320 EXHIBIT NO. E.2.12: THE EXCERPT FROM THE BOARD'S DECISION IN RP-1999-0017 1321 MR. VEGH: I'd like to take you -- you're familiar with this case, Mr. Francis? 1322 MR. FRANCIS: Vaguely, yes. 1323 MR. VEGH: I'd like to take you to page 142 of that excerpt, paragraph 2.506. And I'll just read the Board's finding to you. The Board's decision reads: 1324 "Based on the evidence in this proceeding, the Board is unable to determine whether storage service can evolve to become workably competitive. The Board believes that it is wise to exercise care with respect to long-term contracting of storage, and to keep options open for the design and development of the storage market in Ontario." 1325 So my question for you, Mr. Francis, is are you aware of any subsequent Board decision which concluded that the storage market in Ontario is competitive? 1326 MR. FRANCIS: I'm not aware of any. 1327 MR. VEGH: Now, you mentioned earlier that -- I believe it was you and I may be wrong -- that Tribute had applied in its original application for an order for forbearance that the Board not set the rates re storage. 1328 MR. FRANCIS: That's correct. 1329 MR. VEGH: Right. And that -- and that order -- now, to get an order for forbearance, I'm looking for the exact wording, but the general test is that, in order for the Board to determine that it should not -- that it should forbear from regulation, it should be satisfied that competition is sufficient to protect the public interest; is that your understanding generally? 1330 MR. FRANCIS: Yes. 1331 MR. VEGH: And so the original application made that request for forbearance on that ground, and just for the record, that's... 1332 MR. LEWIS: Section 29. 1333 MR. VEGH: Section 29(1). And that was the request for the application, for the Board to make a determination of forbearance. And section 29 reads that: 1334 "The Board may do that if it finds as a question of fact that the licensee, person, class or product, service or class of services, is or will be subject to competition sufficient to protect the public interest." 1335 Now, I don't know if you're aware of this, but the Board has not yet had the opportunity to apply that test in a proceeding; you're aware of that? 1336 MR. FRANCIS: I am aware. 1337 MR. VEGH: And are you also aware that other regulators, including energy regulators in North America have the authority to effectively not set -- not set a rate, that is, to forbear from setting rates as well? 1338 MR. FRANCIS: Yes, I am aware. 1339 MR. VEGH: And so, for example, FERC has the authority to do that, the Federal Energy Regulatory Commission? Pardon me? 1340 MR. FRANCIS: Yes. And in applying -- in this application, apart from the statement that the storage market was competitive, there was no evidence offered, no expert economic evidence on the nature of the storage market in Ontario and whether, in fact, it was competitive? 1341 MR. FRANCIS: That's correct. My comments were based on personal experiences working for Union Gas within the local market, selling short-term and long-term services. 1342 MR. VEGH: So there was no evidence, for example, on what would be the relevant geographic market for storage? 1343 MR. FRANCIS: That's correct. 1344 MR. VEGH: No evidence on the relevant product market? 1345 MR. FRANCIS: That's correct. 1346 MR. VEGH: No evidence on the size of firms in the market. 1347 MR. VEGH: Or market concentration. 1348 MR. FRANCIS: Correct. 1349 MR. VEGH: Or ease of entry? 1350 MR. FRANCIS: Correct. 1351 MR. VEGH: This is probably a good time to break. I think I finished on this issue and was going to go to a new area. 1352 MR. BETTS: Thank you. And I assume there still are a few that you would like to cover in cross for tomorrow morning. So, thank you. 1353 Then it is an appropriate time to break for the day, and we will reconvene tomorrow morning. Something that I'll ask all of you to give some thought to is the Board's preference to hear oral arguments at the conclusion of the evidentiary portion, and we would be aiming to hear those oral arguments shortly after the conclusion of the evidentiary portion. So just allow that to work around in your minds, and I'd prefer to hear some recommendations from you if the Board needs to make a decision on when it will be, we're happy to do that, but if there's a schedule that works well for everybody, that would be fine too. 1354 Something else that would be helpful: I know that there are, at least probably, there are three parties that would like to cross-examine these witnesses. If you could agree among you, as to the order that you would like to go in, that would be helpful, and I would be happy to follow whatever order you would prefer. 1355 With that, let us break now, and we will reconvene tomorrow morning, same place, 9:30 a.m. Thank you. 1356 --- Whereupon the hearing adjourned at 4:01 p.m.