Rep: OEB Doc: 13898 Rev: 0 ONTARIO ENERGY BOARD Volume: 1 13 SEPTEMBER 2004 BEFORE: P. VLAHOS PRESIDING MEMBER J. CARR VICE-CHAIR & MEMBER C. CHAPLIN MEMBER 1 RP-2004-0117 RP-2004-0118 RP-2004-0100 RP-2004-0069 RP-2004-0064 2 IN THE MATTER OF a hearing held on Monday, 13 September 2004, in Toronto, Ontario; IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15, Schedule B; AND IN THE MATTER OF an Application by Hydro One Networks Inc., Toronto Hydro Electric System Limited, Enersource Hydro Mississauga Inc., London Hydro Inc., for an order or orders approving or fixing just and reasonable rates. 3 RP-2004-0117 RP-2004-0118 RP-2004-0100 RP-2004-0069 RP-2004-0064 4 13 SEPTEMBER 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 MIKE LYLE Board Counsel HAROLD THIESSEN Board Staff MARTIN DAVIES Board Staff TED ANTONOPOULAS Board Staff MARY ANNE ALDRED Hydro One Networks MARK RODGER Toronto Hydro-Electric System Ltd. JAMES SIDLOFSKY Enersource Hydro Mississauga Inc. PAUL VOGEL London Hydro Inc. ROBERT WARREN CAC ROGER WHITE ECMI Coalition JAY SHEPHERD School Energy Coalition SUE LOTT VECC CAROL STREET CME TOM BRETT AMPCO RANDY AIKEN LPMA BRIAN DINGWALL Energy Probe 8 TABLE OF CONTENTS 9 APPEARANCES: [29] PRELIMINARY MATTERS: [73] HYDRO ONE NETWORKS INC. PANEL 1 - ROGER, RELICH, FRANK, WEBBER, DELLA ROSSA: [143] EXAMINATION BY MS. ALDRED: [150] CROSS-EXAMINATION BY MR. WARREN: [167] CROSS-EXAMINATION BY MR. SHEPHERD: [520] CROSS-EXAMINATION BY MS. LOTT: [1047] CROSS-EXAMINATION BY MR. DINGWALL: [1288] CROSS-EXAMINATION BY MR. WHITE: [1383] 10 EXHIBITS 11 EXHIBIT NO. I.1.1: CURRICULUM VITAE OF HYDRO ONE WITNESS PANEL [398] EXHIBIT NO. R, TAB 1: PACIFIC ECONOMICS GROUP EVIDENCE [426] EXHIBIT NO. I.1.2: PRESS RELEASE DATED APRIL 9, 2002 [1366] EXHIBIT NO. I.1.3: DOCUMENT ENTITLED "ECMI INTERROGATORY NO. 1" [1398] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.1.1: TO PROVIDE A CALCULATION OF THE DOLLAR IMPACT ON RESIDENTIAL CONSUMERS [248] UNDERTAKING NO. J.1.2: TO PROVIDE A COPY OF ITS INTERNAL AUDIT DATED JULY 2000 [294] UNDERTAKING NO. J.1.3: TO PROVIDE THE RFVA CALCULATIONS ON BILLED BASIS RATHER THAN AN ACCRUED BASIS IN 2003 [614] UNDERTAKING NO. J.1.4: TO CONFIRM THAT THE ALLOCATION PROPOSED FOR 1570 IS CLOSER TO DISTRIBUTION REVENUES THAN BY CUSTOMER [983] UNDERTAKING NO. J.1.5: TO PROVIDE THE BOARD WITH EXHIBIT G, TAB 13, SCHEDULE 1, WITH THE NUMBERS CHANGED SO THAT ACCOUNT 1570 IS ALLOCATED BASED ON NUMBER OF CUSTOMERS RATHER THAN BASED ON THE ALLOCATOR CURRENTLY PROPOSED [1028] UNDERTAKING NO. J.1.6: TO PRODUCE THE AUDITED FINANCIAL STATEMENTS FOR 2001 [1127] ORAL ANSWER TO UNDERTAKING NO. J.1.4: TO CONFIRM THAT THE ALLOCATION PROPOSED FOR 1570 IS CLOSER TO DISTRIBUTION REVENUES THAN BY CUSTOMER [1277] UNDERTAKING NO. J.1.7: IN ADDITION TO UNDERTAKING J.1.3, ADD THE EXTRA NUMBER OF KILOWATT HOURS [1457] 14 --- Upon commencing at 9:30 a.m. 15 MR. VLAHOS: Good morning, everyone. 16 The Board is sitting today to commence the oral hearing dealing with the phase 2 recovery of regulatory assets before distributors. 17 For the record, my name is Paul Vlahos. My co-panelists are Cynthia Chaplin and Jan Carr. 18 As the Board has indicated in its procedural orders, the order of hearing this evidence will begin with the applicants as follows: First, Hydro One. Second, Toronto Hydro. Third, Enersource, and fourth, London Hydro. 19 Following the hearing of the evidence by these four applicants, we will hear of Mr. Tom Adams of Energy Probe, to be followed by the evidence of Mr. Mark Lowry sponsored by Hydro One, Toronto Hydro and Enersource, to be followed by the evidence of Mr. Adamson, sponsored by London Hydro. The argument phase will follow the hearing of evidence by all parties. 20 As we get closer to the end of this oral hearing, we will deal with the argument phase in more details. 21 Cross-examination will be constructed as follows: Witnesses will come forward to the dais to be sworn or affirmed, their counsel will introduce them, and if they wish, engage in direct examination. We ask that any direct examination be brief. 22 Following direct examination, witnesses will be available for cross-examination by the other parties who will be flexible on the order of cross-examination, perhaps with the expectation that Board Staff will cross-examine last. 23 The Board Panel may also have questions after all parties have cross-examined. Counsel for the witnesses will be given an opportunity to engage in redirect examination, after which the witnesses will be excused, subject to any recall, if necessary. 24 Board Staff will arrange for a hotline to keep parties informed on the status of the schedule or the case. I understand we don't have a hotline yet, but as soon as one is established, it will be communicated to you from myself. 25 We specifically ask the applicants, other than Hydro One, that is here today to keep in touch with the hotline as well as Board Staff, so that when they are needed to be here, they will be here. 26 Other than Fridays, we will be sitting full days starting 9:30 until 5:00 approximately, with morning and afternoon breaks. We will be breaking for one hour, approximately, for lunch at about 12:30. On Fridays, we will be sitting half days until about 1:00. 27 As previously announced, the Board will not be sitting on Wednesday, that's this Wednesday, September 15th, and Thursday, September 23rd. 28 At this stage, I would like to take appearances, please, starting with perhaps Board Staff. 29 APPEARANCES: 30 MR. LYLE: Thank you, Mr. Chairman. I'm Mike Lyle, I'm counsel for Board Staff. With me today is Harold Thiessen, Martin Davies, and Ted Antonopoulos from Board Staff. 31 MR. VLAHOS: Thank you, Mr. Lyle. 32 Hydro One? 33 MS. ALDRED: Good morning, Mr. Chairman. My name is Mary Anne Aldred. I'm counsel for Hydro One Networks. 34 MR. VLAHOS: Good morning. Perhaps then we can start with Mr. Warren, from that end? 35 MR. WARREN: Thank you, Mr. Chairman. Robert Warren for the Consumers' Council of Canada. 36 MR. VLAHOS: Thank you, Mr. Warren. 37 MR. SIDLOFSKY: Good morning, sir. James Sidlofsky for Enersource Hydro Mississauga Inc. 38 MR. VLAHOS: Thank you, Mr. Sidlofsky. 39 MR. RODGER: Good morning. Mark Rodger appearing as counsel to Toronto Hydro-Electric System Limited. 40 MR. VLAHOS: Mr. Rodger. 41 MR. VOGEL: Good morning, Mr. Chair. Paul Vogel appearing for London Hydro. 42 MR. VLAHOS: Welcome, Mr. Vogel. 43 MR. DELLA ROSSA: Good morning. I'm Mike Della Rossa. I'm part of the panel. I'm just sitting here because there's not room. 44 MR. VLAHOS: Okay. You'll be introduced in a little while. 45 We can start from the back there. 46 MR. WHITE: Roger White, Energy Cost Management, representing nine LDCs. 47 MR. VLAHOS: Mr. White, what do we call your group? 48 MR. WHITE: The ECMI Coalition, please. 49 MR. SHEPHERD: Good morning, Mr. Chair. Jay Shepherd for the School Energy Coalition, and with me is Darryl Seal who will be assisting me. 50 MR. VLAHOS: Thank you, Mr. Shepherd. 51 MR. DINGWALL: Good morning, Mr. Chairman. Brian Dingwall for Energy Probe, with me is Tom Adams and as well, David MacIntosh. 52 MR. VLAHOS: Thank you, Mr. Dingwall. 53 MS. LOTT: Good morning, Mr. Chair. My name is Sue Lott. I'm counsel for the Vulnerable Energy Consumers' Coalition, also known as VECC. 54 MR. VLAHOS: Thank you, Ms. Lott. 55 MS. STREET: Good morning, Mr. Chair. My name is Carol Street. I'm here as counsel for the Canadian Manufacturers and Exporters. 56 MR. VLAHOS: Good morning, Ms. Street. 57 MR. BRETT: Good morning, Mr. Chairman, Panel Members. My name is Tom Brett. I'm here for the Association of Major Power Consumers of Ontario, that's AMPCO. 58 MR. VLAHOS: Welcome, Mr. Brett. 59 MR. AIKEN: Good morning, Panel. My name is Randy Aiken. I'm here on behalf of the London Property Management Association. 60 MR. VLAHOS: Thank you, Mr. Aiken. 61 Anyone else? There being no response, perhaps at this time it would be wise to attempt to establish some order in cross-examination. 62 Mr. Shepherd? 63 MR. SHEPHERD: Mr. Chairman, the intervenors have discussed the order. 64 MR. VLAHOS: You're always ahead of us, Mr. Shepherd. 65 MR. SHEPHERD: Normally the utility that's cross-examining would go first, but we understand that the utility only group that's cross-examining is ECMI Coalition, and they've asked if they can go later and we've agreed. The order that the rate-payer groups have agreed on is Mr. Warren, followed by myself, and then I think Mr. Dingwall, Ms. Lott, and Mr. Brett. I stand to be corrected if that's not correct. 66 MR. VLAHOS: Does that cover -- does anyone else wish to cross-examine at least Hydro One? 67 Okay. Again, just to confirm, Mr. Warren, Mr. Shepherd, Mr. Dingwall, Ms. Lott, and Mr. Brett. 68 MR. WHITE: And later ECMI, as he mentioned. 69 MR. VLAHOS: I'm sorry. And ECMI, when? 70 MR. SHEPHERD: And then Mr. White at the end, as I indicated. 71 MR. VLAHOS: At the end. Okay. Sorry. Thank you very much for that and assisting the Board. 72 Before we turn to Hydro One, any preliminary matters? 73 PRELIMINARY MATTERS: 74 MS. ALDRED: Mr. Chairman, there's one scheduling matter that I wish to raise, and that is that, as everyone is aware, Hydro One has made a cost allocation proposal. The witness who will be speaking to the cost allocation evidence will not be available on Thursday and Friday of this week. I just wanted to raise that. We're in the Board's hands as to how that gets handled. 75 MR. VLAHOS: The Board's thoughts on this is that, should it be -- should we not finish Hydro One Wednesday, and should it be necessary to bring this witness back, we'll make the necessary arrangements. I would ask that parties that cross-examine in the next couple of days to see whether they could accommodate this by asking their cost-allocation questions earlier on. So we'll have a better idea, perhaps by the end of the day or perhaps by tomorrow. Thanks for bringing that to our attention. 76 MS. ALDRED: Thank you. 77 MR. DINGWALL: I have a question as well, Mr. Chairman. 78 MR. VLAHOS: Yes, Mr. Dingwall. 79 MR. DINGWALL: On July 14th, the Board made an order in RP-2004-0180, which was an application by the applicant and Hydro One Networks for a deferral account relating to pension costs. In that particular application, the Board's decision on July 14th was that the costs associated with pension underfunding were to be accumulated in a deferral account, being one of the regulatory asset accounts, 1508, for determination in the 2006 rates. 80 As we are going to be talking about the cost allocation in respect of that account in this case, I'm wondering if that presumes those costs at a later date or if cost allocation with respect to the pension costs is an issue that is similarly deferred to 2006. 81 MR. VLAHOS: Ms. Aldred? 82 MS. ALDRED: I don't believe that there's any element of pension costs included in the accounts for which we're seeking recovery today, so then it would go over to 2006. 83 MR. VLAHOS: Mr. Dingwall, is that responsive? 84 MR. DINGWALL: I guess what I was seeking clarification was from the Board as to whether or not we're talking about the cost allocation in this case and whether that for those pension assets -- or whether the cost allocation aspect of those pension regulatory assets itself would be deferred. I know we're dealing with cost allocation for that specific account as it relates to the regulatory assets that are put forward today, but I'm just wondering if that cost allocation then remains a live issue for the pension assets. So it's clarification from the Board that I'm seeking. 85 MR. VLAHOS: Well, this panel has no evidence before it in terms of cost allocation matters on this specific issues of pension costs, Mr. Dingwall, so I would assume that the whole matter will have to be deferred at its proper time. 86 MR. DINGWALL: Thank you, sir. 87 MR. VLAHOS: Mr. Warren. 88 MR. WARREN: Yes, thank you, sir. Two questions. One is a purely mechanical one. 89 Is it the Board's intention that the applications will be heard seriatim in the sense that the minute one is finished the next will begin, or is it the Board's intention to, roughly speaking, set discrete days for these to begin? For example, if we were magically finish this case on Hydro One at 2:00 this afternoon would we then be looking to Mr. Rodger to begin his case? 90 MR. VLAHOS: That's your first question. What's the second one? 91 MR. WARREN: The second one is a little more complicated, Mr. Chairman. 92 MR. VLAHOS: It's not related though? 93 MR. WARREN: It's not related. 94 MR. VLAHOS: Okay. Well, the Board's expectation is that we will try to be as efficient as possible, and that is why in my preamble I asked the other applicants to be in close touch with Board Staff so we can take full advantage of the time that we've allocated to this hearing. I would like the parties also to note that we have a pretty busy agenda ahead of us, and I'm sure all of you do as well, so that's what will guide us. So I guess seriatim to the extent that it's practical, Mr. Warren. 95 MR. WARREN: My second question, Mr. Chairman, deals with the Board's issues list, and it's this: 96 My impression, and I preface my question by saying my impression may be wrong, but my impression is that the four cases with which the Board will be dealing over the next several days are, in some measure, or the results of those applications are, in some measure, to guide the approach to the treatment of all of the other LDC applications which are in a holding pattern above us. 97 The Board's issues list does not have on it the question of what conclusions, if any, should be drawn from these applications for those other cases. And my question, Mr. Chairman, I guess, is in two subparts. Is it a legitimate line of inquiry in our cross-examination, Mr. Chairman, to examine how each of these -- to examine that issue of, if you wish, the precedent value of the way each of these utilities has approached, for example, its transition costs, the precedent value of those for treatment or approached other utilities. And secondly, at the end of the day, is it an issue that the Board expects or would want parties to address in their submissions, oral or written; that is, what implications, if any, should be drawn from these applications for the other ones? 98 Sorry if it's a bit more complicated than it ought to be, Mr. Chairman, but I don't want to embark on cross-examination on an issue which is not relevant to the Board or that they don't want to consider. So it's part of the issue. 99 MR. VLAHOS: Ms. Aldred, can I turn to you, if you have any thoughts on this? 100 MS. ALDRED: I believe this matter came up at the issues day, and if I recall correctly, there was a letter sent by one of the -- one of the counsels who was at that issues day inquiring as to whether the Board wanted to put the precedential value or the issue of guidelines on the issues list. If I recall correctly, the Board wrote back and said they did not care to put it on the issues list. So those are my thoughts. 101 MR. VLAHOS: Can I ask the counsel of the other applicants to comment, if they wish? 102 MR. RODGER: My recollection is the same as Ms. Aldred's, Mr. Chairman. It's not clear for me, the first issue that Mr. Warren raised, what the witnesses could contribute in that regard in terms of establishing some kind of precedent for the Board in any event, so I think that was part of the reason that it was deferred by that letter that Ms. Aldred referred to. 103 MR. WARREN: Mr. Chairman, if it would help for me to clarify. I don't want to play cat and mouse on this. 104 The reason that the issue has arisen, at least for me, subsequent to the exchange following the issues day, has been the exchange, if I can call it that, arising over Mr. Adams' testimony and the relevance of the issue of benchmarking. We have Mr. Adams testimony, we have the Pacific Economics Group, we have evidence now from London Hydro. And the use of benchmarking as a way to approach the analysis of these cases has really arisen largely since the issues day, and that's why it may be an issue which is particularly relevant for Mr. Lowry, but not just for Mr. Lowry. 105 I appreciate the observations of my friends' that this was -- there was an exchange following the issues day on this question, but in my respectful submission, the evidence which people have chosen to file, particularly Mr. Lowry's evidence, raises the issue of precedent value which is one of the things I intended to explore with, at least, this panel and with Mr. Lowry, which is why I asked the question. 106 MR. VLAHOS: Just a minute. 107 [The Board confers] 108 MR. VOGEL: Mr. Chair, certainly it was London Hydro's understanding that each of the applications was proceeding as a stand-alone application. It would then be for the Board, following disposition of these applications, to determine to what extent the determinations made here may or may not apply to others. 109 With respect to the benchmarking, certainly in my discussions with Mr. Lyle and some of the other parties, I think the intention of proceeding in the order that you had directed is that benchmarking won't be dealt with here through the evidence of Energy Probe and then through the reply evidence of the various applicants. But London Hydro's position would be that it should be, for the purpose of determining whether benchmarking is appropriate to consideration of transition costs, in my submission, a separate question as to the extent to which it may then apply to the Board's subsequent evaluation of the costs of other utilities. 110 MR. VLAHOS: Thank you, Mr. Vogel. 111 Mr. Lyle, any guidance from you on this? 112 MR. LYLE: Mr. Chair, I think one relevant point is that whether it's appropriate or not to use benchmarking with 94 utilities might guide the Board in whether or not it's appropriate to use benchmarking with respect to these four specific utilities. So it may be, therefore, appropriate to ask some questions with regard to the value of using benchmarking when you have such a disparate industry as we do with the distribution sector in Ontario. 113 Having said that, it's certainly open to counsel for the applicants, when questions are asked of their witness, to challenge the relevance of that question, and the Board could then rule on the relevance at that point in time. 114 MR. VLAHOS: Mr. Warren, would you feel comfortable with what Mr. Vogel and Mr. Lyle have suggested? 115 MR. WARREN: I would, sir. If I cross some line, I expect to be slapped, and we'll deal with it when it happens, sir. 116 MR. VLAHOS: Thank you, Mr. Warren. 117 Any other preliminary matters? 118 MR. VOGEL: Mr. Chair, I have a couple of brief preliminary matters. 119 The first, as the Board may be aware, London Hydro had an exchange of correspondence with the Board some time ago with respect to costs of the proceeding, and the Board had advised London Hydro that it was not necessary for London Hydro to have counsel here throughout the hearing of the other applications. So I will be requesting, as a preliminary matter, permission to withdraw during the hearing of the other applications on the basis that any matters that affect London Hydro can be addressed during London Hydro's application, if that's satisfactory to the Board. 120 MR. VLAHOS: That is, Mr. Vogel. Thank you very much. 121 MR. VOGEL: And the second matter is just with respect to the order of the calling of the evidence, I just thought I should make the Board aware, as you know, London Hydro's reply evidence consists of both Mr. Adamson's evidence as well as some related evidence from London Hydro, so that given that we're going to deal with benchmarking as a sort of discrete issue through Energy Probe and then the applicants' evidence on benchmarking, I would just like to advise the Board that it will probably be necessary for me, in addition to calling Mr. Adamson, to recall probably one or two members of the London Hydro panel at the appropriate time to deal with the benchmarking issue. 122 MR. VLAHOS: That would be acceptable to the Board, Mr. Vogel. 123 MR. VOGEL: Thank you. 124 In that event, Mr. Chair, I would request your leave at this time to withdraw until London Hydro's application. 125 MR. VLAHOS: Thank you very much. 126 MR. VOGEL: Thank you. 127 MR. RODGER: Mr. Chairman, just one point before we leave the matter, a discussion with Mr. Warren that might be helpful to raise now just to get further clarity so that this doesn't come up during cross-examination, and that is to get a sense in terms of where the line of questioning would lead going to the tests that this Board has to apply for the applications before it. This is a prudence review, which, of course, is a retrospective analysis of the information and the decisions made at the time. So it's not clear to me how that would be applied to the tests before this Board, given that benchmarking, per se, was not a requirement or part of the tests that the utilities have to meet. 128 So perhaps through you, Mr. Chairman, Mr. Warren could just maybe clarify how he sees the benchmarking related to the specific tests by which the Board adjudge this matter. 129 MR. DINGWALL: I'm wondering if that presumes -- 130 MR. VLAHOS: Mr. Warren -- 131 MR. DINGWALL: I'm wondering if Mr. Rodger's question presumes the hearing of the evidence -- presumes the determination of the value and weighting of the evidence in advance of hearing it. 132 MR. VLAHOS: That was my concern, Mr. Rodger. You're asking for comment, you're asking, perhaps, the Board's deliberations decision or something. It seems to me that it's subject to argument in terms of weight. I'm just not sure how I can respond, or anybody can respond to this. 133 MR. RODGER: It was really asked in terms of the basis for the relevance in light of the test that you're going to apply. If benchmarking was part of the prudence review, I can understand it. But I'm just concerned about the emphasis of what lessons can be taken from benchmarking for other applications, and perhaps this application. Where does that fit in, in terms of the overall test you're going to be applying. And that's why I'm having difficulty with how witnesses could respond to that type of questioning. I just wanted to get a further sense of where the line of questioning would go. 134 I'm not trying to prejudge anything. I'm just trying to understand the context of the questioning in light of the tests before the Board. 135 MR. VLAHOS: Mr. Warren, can you help us any more with this? 136 MR. WARREN: I can't, sir. I understand that Mr. Rodger is breathless with anticipation to hear my cross-examination. I'm sure everybody is. But really what he wants is a prequel of my argument, sir. I don't know, at the end of my day, how I'm going to argue this question of its relevance to the four tests that the Board posited, or standards that the Board posited. I think it's an issue which is going to have to be developed through my cross-examination of a number of the witnesses. At the end of the day, we're all free to argue whether or not it is relevant, and that's the best I can answer for Mr. Rodger at the moment, sir. 137 MR. VLAHOS: Okay. 138 Mr. Rodger, can we move on? 139 MR. RODGER: That's fine. I'll wait to see the line of questioning, sir. 140 MR. VLAHOS: Thank you. 141 Any other preliminary matters? 142 There being none, Ms. Aldred, can I turn it over to you and you can have your witnesses approach the dais to be sworn or affirmed. 143 HYDRO ONE NETWORKS INC. PANEL 1 - ROGER, RELICH, FRANK, WEBBER, DELLA ROSSA: 144 M.ROGER; Sworn. 145 D.RELICH; Sworn. 146 S.FRANK; Sworn. 147 V.WEBBER; Sworn. 148 M.DELLA ROSSA; Sworn. 149 MR. VLAHOS: Ms. Aldred, over to you. 150 EXAMINATION BY MS. ALDRED: 151 MS. ALDRED: Thank you, Mr. Chairman. I'll just go through and introduce my witnesses and their area of testimony. 152 Mr. Roger, can you please tell the Board what your area of testimony will be, and what your function is at Hydro One, please. 153 MR. ROGER: My name is Michael Roger. I'm the manager of distribution pricing for Hydro One. My area of testimony will deal with the allocation of the costs between the various customer groups and the design of the rates. At the end of each one of the variance account sections, there is a section that suggests how those costs could be allocated to the customer groups and recovered from them, and also section 13 on the evidence deals entirely with cost allocation and rate design. 154 MS. ALDRED: Mr. Relich? 155 MR. RELICH: My name is Danny Relich. I'm the manager of customer products in our customer service area. I will be speaking to the evidence found in Exhibit G, tab 7, Bill 210 costs, and Exhibit G, tab 9, retail cost/variance account costs. 156 MS. ALDRED: Ms. Frank. 157 MS. FRANK: Good morning. I'm the director of regulatory finance, and I'll provide the financial continuity and accounting through all the exhibits. As well, I have a particular responsibility for the information under tab G, 1 to 6, 8 and 12. 158 MS. ALDRED: Mr. Webber? 159 MR. WEBBER: Verne Webber. I'll be speaking to the market-ready costs account 1570. I've been with Ontario Hydro/Hydro One since 1976. I became as an electrician, held various project-management positions, one of which was the director of the market-ready project management office. Currently director of our operating strategy program. 160 MS. ALDRED: And Mr. Della Rossa? 161 MR. DELLA ROSSA: I'm Mike Della Rossa, I'm the director of health, safety and environment strategy with Hydro One, and my area of testimony will be the secondary environmental deferral account, which is account 1525, and the supporting evidence and information that goes along with that account. 162 MS. ALDRED: Thank you very much. 163 Mr. Chairman, we are not going to be going through any direct testimony this morning, so the witnesses are available for questioning by the intervenors. 164 MR. VLAHOS: Thank you, Ms. Aldred. 165 Mr. Warren. 166 MR. WARREN: Thank you, sir. 167 CROSS-EXAMINATION BY MR. WARREN: 168 MR. WARREN: Panel, I'd like to begin with just briefly trying to understand the current state of the numbers, and perhaps in this context, you could turn up your prefiled evidence, at Exhibit G, tab 1, schedule 2. 169 MS. FRANK: Yes, I have that information. 170 MR. WARREN: Panel, dealing first with the account 1508, which is the other regulatory assets, am I correct that the balance which you're seeking -- for which you're seeking recovery is some $61.7 million; is that correct? 171 MS. FRANK: That is the balance in that account, you're correct. There is an item in there where we are suggesting there may be another means to get recovery, and that's the last one on the list, the RRRP variance account. We're suggesting that that amount may be recovered through normal regulatory process rather than through this hearing, but it would be the Board's discretion as to how they want to deal with it. But that will reduce our claim by 947 in account 1508. 172 MR. WARREN: May I understand, Ms. Frank, that you're answer is that the amount may be either 61.7 or that amount less 947,000; is that correct? That's in the Board's discretion about how it handles that matter. 173 MS. FRANK: Yes, that's correct. 174 MR. WARREN: Do you have a preference as to how you wish the Board to handle that matter? 175 MS. FRANK: Our suggestion to the Board would be that they allow the regulation to deal with the RRRP variance and not deal with it here. It is an ongoing amount that will annually throw of variances and there is a mechanism already, so our suggestion would be let that mechanism work. 176 MR. WARREN: Now, turning to the market-ready account, am I correct that the amount which you're seeking to recover is 43 -- roughly $43 million; is that correct? 177 MS. FRANK: That is the amount as of December '03. The amount naturally has changed for interest and further recovery since that, but the amount we're seeking to recover at this time is the 43 million. 178 MR. WARREN: And can you tell me what the variance is, what the change is since '03? 179 MS. FRANK: At this -- well, I can tell you to Q2, '04. Would that be sufficient? 180 MR. WARREN: That's fine. 181 MS. FRANK: It would be about 41.5 million. 182 MR. WARREN: And what is the proposal for the recovery of the difference? 183 MS. FRANK: Our understanding -- 184 MR. WARREN: I'm sorry, the disposition of the difference is more accurate. Your understanding is -- 185 MS. FRANK: Our understanding is that all balances beyond December '03 will have subsequent reviews. So on all accounts, not just the market-ready, there will be interest adjustments in the RSVA accounts, there will be changing balances month by month, and our understanding is anything beyond December '03 will be the subject of a further review, possibly as part of the main distribution review. 186 MR. WARREN: Going to the proverbial bottom line, is the total amount for which you're seeking recovery, subject to the adjustments you just talked about it, is it $157.8 million? 187 MS. FRANK: I'm sorry, could you please direct me to that number on this page? 188 MR. WARREN: I'm looking at the bottom right-hand column on this page. 189 MS. FRANK: And could you please repeat the number you saw? 190 MR. VLAHOS: Do you have a blue sheet, Mr. Warren, or a white sheet? 191 MR. WARREN: Is the total amount for which you're seeking recovery some $156 million? 192 MS. FRANK: Yes, that is correct. 193 MR. WARREN: Now, my next question is: Can you tell me, Panel, what the impact the recovery of the total amount would have on a residential consumer? And I appreciate that there are different categories of residential consumer that you've defined, and if we could go through those, could you tell me, for each of the categories of residential consumer within the jurisdiction of Hydro One, what would be the impact on those residential consumers, individually, of the recovery of that amount? 194 MR. ROGER: I may be able to help you. 195 MR. WARREN: Thank you. 196 MR. ROGER: If you can turn to Exhibit G, tab 13, schedule 1. 197 MR. WARREN: Yes. 198 MR. ROGER: It's a fold-out page. 199 MR. WARREN: Yes. Which of the pages? Page 1? 200 MR. ROGER: Page 1 of 1. 201 MR. WARREN: Thank you. 202 MR. ROGER: In that table what we're doing is we're showing by customer class our own core, acquired and embedded customers, the allocation of the various variance accounts. For example, if we could look at the column titled "UR" for urban residential. 203 MR. WARREN: Right. 204 MR. ROGER: If you go all the way to the bottom, you'll see a negative value, negative .38 percent. 205 MR. WARREN: Right. 206 MR. ROGER: So the impact, on average, to the urban residential class of allocating these costs will be a reduction in the revenue requirement of .38 percent on the estimated total bill. And we're showing the numbers there for all the customer classes, the last number. 207 MR. WARREN: And the residential classes, if you can give me an overview, they are R1, R2, and R3; is that correct? 208 MR. ROGER: Including R4. 209 MR. WARREN: And R4 as well? 210 MR. ROGER: That's correct. 211 MR. WARREN: Could you give me, for the record please, what those numbers are for each of those customers? 212 MR. ROGER: For UR we estimate the impact to be a reduction of .38 percent. 213 MR. WARREN: Yes. 214 MR. ROGER: For R1, a reduction of .61 percent; for R2, a reduction of 1.05 percent; for R3, a reduction of 1.01 percent on total bill; and for R4, a reduction of 1.43 percent on total bill. 215 MR. WARREN: Mr. Roger, just as a follow-up to that question, this is -- you're seeking to recover an additional amount of some $156 million. Can you explain to me why it is that recovering an additional amount would result in a reduction in the bills for the residential consumers? 216 MR. ROGER: Yes, if I can use the same table to explain it. 217 MR. WARREN: Please. 218 MR. ROGER: The total amount that we seek to recover is 156,760,000, and you can find that balance and the total December 2003 variance balance (AA). It's the first column there on the left to the right with the numbers. 219 MR. WARREN: Right. 220 MR. ROGER: We have phase 1 recovery in 2004 of $37.9 million. That would leave 118.8 remaining to be recovered. 221 MR. WARREN: Right. 222 MR. ROGER: Recovery over three years is roughly $38 million, over three years would be roughly $38 million. We're showing next what is already included in the rates. The current rates are already recovering what we included in phase 1, which is around $15 million, and we are already recovering something for market-ready and LV. In total, we are in current rates recovering around $38 million. 223 So the net amount in total to be recovered is $1.7 million. So if I can move now to the column under the UR, the urban residential. The recovery over three years is $822,000. The current rates for that customer class is already recovering $1.1 million. So everything else remaining equal, we overcollected by around $300,000, and that's the reason that, for that particular customer class, they would see a bill reduction. 224 MR. WARREN: Thank you. And the same analysis would hold true for R1, R2, R3, and R4, is that correct? 225 MR. ROGER: For all customer classes, yes. 226 MR. WARREN: Thank you. Panel, again, at a high level of generality, and I would invite any member of the panel that feels best qualified to answer the question, what, in Hydro One's understanding, is the state of the market as it exists today? 227 MS. FRANK: Could you possibly add to that question? I don't know what you're asking. 228 MR. WARREN: Let me preface it this way: There is an amount which has been spent by Hydro One and others for market-ready transition costs, and what I want to understand, if I can, is whether or not those costs have been spent for a market which exists today or which Hydro One anticipates will exist, or whether or to what extent some or all of those costs are, in effect, stranded assets. 229 MS. FRANK: The market-ready costs, as well as some of the costs we've identified in Bill 210, deal with the market requirements as we understood them at the time. And the marketplace has certainly evolved since the market opened in May of '02, and I'd say continues to evolve. 230 What Hydro One would indicate is that we have been responsive to the needs of the market. We've prepared and met all open-market requirements. We've handled new legislation and met those requirements. So we have been there to serve whatever the market has requested of us, and we believe all the costs have been appropriately incurred in an efficient and timely fashion to be ready for whatever the market required of us. 231 MR. WARREN: Thank you for that, Ms. Frank, but it doesn't really answer my question. My question is: In your view, has the expenditure of the money for the market-readiness, has it put Hydro One in the position where it can respond to any evolution of the market that may take place over the next year or more? 232 MS. FRANK: We continue to use all the systems and processes that we put in place from market opening with the evolution of the market that has happened since it's opened. I don't know if I could speculate on what else might come, so it's a bit difficult to answer that part of the question. But all the systems we put in place are still in use. 233 MR. WARREN: Finally, by way of general introduction, I'm sure you'll be able to correct me in my chronology on this, but my recollection is that from 1998 on, Hydro One embarked on, I'm not quite sure what the fair modifier is, we'll try my modifier, a fairly aggressive program of acquiring a number of smaller LDCs. A, have I got the date for the start of that program correctly, and am I right that you did acquire a number of smaller LDCs? 234 MS. FRANK: Yes, you're quite correct. We acquired 87 small LDCs, and we did those acquisitions in 2000 and 2001. That was a consolidation period for the industry and we were a player in it. 235 MR. WARREN: Can you tell me, Ms. Frank, whether or to what extent that acquisition program affected, for example, the market-ready transition costs? 236 MS. FRANK: Yes, we'd say that it did affect the market-ready transition costs in that there were now more customer groups that we had to have rates designed for as we maintained separate rate classes for each of the customers under those acquired utilities. So our costs are somewhat higher as a result. 237 On the other hand, if each of the acquired LDCs had done their own work to prepare for market opening, we'd expect that they individually would have had far higher costs than Hydro One was able to spend to get all of them ready. So we believe it was an efficiency rather than just a higher cost. 238 MR. WARREN: Can you -- do you have any way of estimating, Ms. Frank, what the additional costs were in the market-ready category arising from your acquisition of those 87 LDCs? 239 MS. FRANK: I don't believe we would be able to do that because the time period when we're building the market-ready systems and when we did the acquisitions were really at the same time, so I don't think we can isolate the costs. 240 MR. WARREN: Thank you for that. One last question. I apologize for this Mr. Roger, and I should have pressed this a little further. 241 You indicated to me in my response to my first series of questions about the impact on residential consumers. You indicated it in terms of percentage changes in the overall bill. Can you put a number in terms of dollar figure for each of those categories on the impact on residential consumers, either annually or monthly or whatever is most convenient for you? 242 MR. ROGER: I don't think I can, because to be able do that we would need to have guidelines on how to recover the costs from the various customer groups. They could be recovered through a fixed charge; they could be recovered through a volumetric charge or a combination of the two. So to be able to do that impact at a certain consumption level for a certain customer class, we would need to establish first how we would recover the costs from the various customer classes. 243 MR. WARREN: If we did, would it be possible, Mr. Roger, if we posited each of the alternatives, volumetric charge or the other or a combination of the two, can you do an estimate for me of the dollar amount using those three alternatives? You don't need to do it as you sit here today, but if I asked you for an undertaking, could that calculation be done and the information provided to me? 244 MR. ROGER: Yes, we could. 245 MR. WARREN: Could I have an undertaking to provide that information, Mr. Chair? 246 MS. ALDRED: Yes, we'll do that. 247 MR. LYLE: We'll mark that as Undertaking J.1.1. 248 UNDERTAKING NO. J.1.1: TO PROVIDE A CALCULATION OF THE DOLLAR IMPACT ON RESIDENTIAL CONSUMERS 249 MR. WARREN: Panel, could you then turn up your prefiled evidence, please, the introductory section, which is Exhibit G, tab 1, schedule 1, and I'd like you to turn to page 3 -- sorry, I apologize, tab 11, page 3. So it's Exhibit 1G, tab 11, page 3. 250 Do you have that, panel? 251 MS. FRANK: Yes, we have that. 252 MR. WARREN: Ms. Frank, perhaps this question is directed at you. On that page, you indicate in the last full paragraph that, and I'm quoting the second sentence in the last full paragraph: 253 "Hydro One Network's leadership role extended to specific activities related to the development of the various OEB and IMO rules, codes, and standards." 254 I'd like to explore, if I can, Hydro One's perception of its leadership role. Would it include, for example, taking the lead in moving to market opening? 255 MR. WEBBER: No, it would not. What we mean in that context is early, when the market opening was evolving, we participated in various working groups to help define what EBT standards were. It was much more at a working level than what the market would be. I think it would be how we would implement the rule. 256 MR. WARREN: So if I understand the answer correctly, Hydro One felt it had a leadership role in establishing the various criteria by which -- the various categories by which the IMO and the government and the OEB should assess market-readiness; is that fair? 257 MR. WEBBER: No, at that stage it would be more in doability, how would you do it? Could your customer information system do what was envisioned to be done? Not assessment of others in the industry or to their readiness. 258 MR. WARREN: But why leadership, sir? Why did Hydro One feel it had to take the lead in those or any other categories? 259 MR. WEBBER: The words could be argued a little bit, I suppose. But we weren't sharing the groups, we weren't leading the groups. It typically would be the IMO or OEB. It would be participating on them. And we felt we needed to do that given our size, and we were host to many of the other LDCs, we felt we needed to be there and be a part of what was going on and give our advice and guidance, when asked, on what we thought the doability was of a particular action. 260 MR. WARREN: In light of the -- in light of the size of Hydro One relative to the overall market, did you feel that your leadership role extended to demonstrating the most cost-effective transition to the new market? 261 MR. WEBBER: Yes, that was certainly part of the discussion. It was cost-effective and doability and -- 262 MR. WARREN: I appreciate it was part of the discussion, but did you feel you had a leadership role in those categories? 263 MR. WEBBER: No. At the end of the day, we needed to do what we needed to do as a licensed LDC and what we were told. We were asked our opinions and we provided those. We talked about doability, we talked about long it would take -- 264 MR. VLAHOS: Mr. Webber, sorry to interrupt you, could you lean towards the microphone, please. 265 MR. WEBBER: Sorry. 266 MR. WARREN: I'm not sure that your last answer was fully captured by the reporter, so perhaps you could go over again. The question I asked you was whether or not Hydro One felt that its leadership role extended to demonstrating the most cost-effective transition to the new market or in preparation for market-readiness, and you were responding to that. 267 MR. WEBBER: We were asked our opinion, we provided our -- in our experience, what it would take to do certain things. Cost was certainly a factor in it, as well was doability, given the time constraints. But we did not set the course. We provided input to it. 268 MR. WARREN: Were you consulted by other LDCs about the measures you were taking, Hydro One was taking, in terms of preparation for market? 269 MR. WEBBER: Yes, we were part of a large utility group effort that was going on. 270 MR. WARREN: Okay. Now, one narrow question on the next page of your prefiled evidence, page 4 of 36, about two-thirds of the way through the paragraph which continues at the top of that page, you make the following observation: 271 "By comparison, those utilities that delayed their market-ready preparations were able to avoid the rework that Hydro One Networks experienced as the EBT's standards and the IMO's requirements evolved." 272 Are you able to put, panel, a number on the additional cost that arose from the need to rework? 273 MR. WEBBER: We can try. What we did, the project was initially approved for approximately 81 million. At the end of the day, it was about $30 million over that figure, and that was for a variety of reasons. And we talked to people, we ran an internal audit assessment with our finance people to try to look at where those extra incremental dollars went. And the minds of the day thought that was approximately 14 million in the changes over a period of time, interest being another category, and keeping the systems going -- two systems. 274 MR. WARREN: So approximately $14 million, in your estimate, was due to what you've described as the reworking as a result of evolving standards; is that correct? 275 MR. WEBBER: Evolving standards and accommodating the changes and retesting the systems and ... 276 MR. WARREN: Now, when you refer to an audit, sir, there is in the evidence, in response to one of the Energy Probe interrogatories, a 1999 or 2000 internal audit. Is that the audit you're referring to or is there some other internal audit? 277 MR. WEBBER: No. This was later, this was post -- it was our audit people. I'm not sure it was a formal audit, but it was our own people in finance. But it was definitely post, in 1999. This was more a looking back in retrospect on the project. 278 MR. WARREN: Now, that retrospective looking back, was that a formal audit process within Hydro One? 279 MS. FRANK: Yes, that would have been a formal audit process. Our internal auditor would have done a review of something the project management team would have examined just to give an independent, as much as an internal audit can be independent, examination of the incremental costs. 280 MR. WARREN: Ms. Frank, if the mountain of evidence which has been produced, particularly in response to interrogatories, I may well have missed that internal audit. Has it been filed in the record in this proceeding? 281 MS. FRANK: No, it's not been filed. 282 MR. WARREN: Can it be filed, Ms. Frank? 283 MS. FRANK: We have this audit. It's the July 2002 assessment of spending variance explanation, that would be the exercise that you're referring to. 284 MR. WARREN: May I have an undertaking, Ms. Frank, to have that produced? 285 MS. ALDRED: Yes, we'll produce that. 286 MR. LYLE: We'll just mark that as an undertaking. 287 MR. VLAHOS: Just to make sure the record is complete and accurate, the person that is requesting the undertaking, perhaps they can repeat for the reporter exactly what the request is. 288 MR. WARREN: It's always a challenge, Mr. Vlahos, when you ask me to do that. 289 MR. VLAHOS: I thought so. 290 MR. WARREN: Let me see if I can accurately describe it, Ms. Frank, and you can correct me if I'm wrong. If I understand it, there's a July 2000 audit which looked at the variance cost from the original estimate of the market transition project cost and the ultimate costs. Is that a fair description of what that audit was? 291 MS. FRANK: That would be a fair description. It's actually entitled of assessment of spending variance explanations. 292 MR. VLAHOS: And the undertaking is J.1.2? 293 MR. LYLE: That's correct, Mr. Chair. 294 UNDERTAKING NO. J.1.2: TO PROVIDE A COPY OF ITS INTERNAL AUDIT DATED JULY 2000 295 MR. WARREN: Ms. Frank, of the various categories of costs which are the subject of review in this proceeding, and that are described in your prefiled evidence, was there any other internal audit or assessment of those costs other than the one that we've just been discussing and is now the subject of an undertaking? 296 MS. FRANK: I'm struggling a bit with the -- you said audits that had to do with the cost examination; was that the category? 297 MR. WARREN: Sorry. Of any of the various accounts which are the subject of this proceeding and which are described in your prefiled evidence, were there any other internal audits or reviews of the costs in any of those categories individually other than the one that you've just talked about to me, the July 2002 one? 298 MS. FRANK: There are two that are filed in the evidence that -- April 2002, market-ready interim cost report, and there's another much earlier one, 1999 market-ready project review. Both of those are filed in the evidence. 299 MR. WARREN: Right. 300 MS. FRANK: In addition, there were many market-ready -- system-readiness type audits. Were we ready to meet a self-certification or was the cutoff information or backup information be adequate so that we could actually be ready for market opening. So there were a lot of technical-type audits, but that's not, if I'm understanding, what you're looking for. 301 MR. WARREN: No, it's not. Now, let me turn to the next question. 302 The external review which has been filed is the report of Deloitte's. Were there any other external reviews of the expenditures or, more broadly, the measures that were taken by Hydro One to prepare for the new market, other than the Deloitte's one? 303 MS. FRANK: Deloitte's would have been the only assessment that we had undertaken. 304 MR. WARREN: Now, if I can ask you to -- looking still at Exhibit G, tab 11, if you could go to page 31 of that, please. Do you have it, panel? 305 MS. FRANK: Yes, we do. 306 MR. WARREN: Now, under the heading "Independent Prudence Assessment," you indicate that Hydro One Networks engaged an independent firm, Deloitte Consulting, to conduct a review of Hydro One Networks' preparation for market opening. 307 Can you tell me, Ms. Frank or other members of the panel, why it is that Hydro One felt it necessary and appropriate that it undertake an independent prudence assessment? 308 MS. FRANK: The market-ready project for Hydro One was a very substantial project, and whenever we undertake a large project such as this, we'd like to learn from that; have we done a good job, have we managed the project appropriately, are there items that we could do better next time around? So it is an action that we would take at other times, and we certainly took here, to have an independent party come in and assess how well did we manage this project; are there items to be learned? 309 We had Deloitte's look at two items for us: One, project management, two, level of cost, and give us an indication of how effective we were on that side as well. So it was done here for us to be able to better understand how well did we manage this project. 310 MR. WARREN: Do I understand from that answer, Ms. Frank, that the Deloitte's study was commissioned principally for internal management purposes? 311 MS. FRANK: Yes, I think that would be a fair characterization. 312 MR. WARREN: Was it also commissioned for purposes of external review; for example, trying to persuade this Board that the expenditures had been prudently incurred? 313 MS. FRANK: It was thought that it would be helpful to this Board to have this information as well, yes. 314 MR. WARREN: Now, when you say "helpful," Ms. Frank, I'm always a bit reluctant in cross-examination to indicate my own manifest deficiencies, but I'll lead with that proposition, that can you and I agree that for anyone external to Hydro One, whether it's the intervenors, like my client, or even the Board Members, it's difficult to assess the prudence of a particular cluster of expenditures? Is that a fair assessment on my part? 315 MS. FRANK: I would say that's the task that the Board has in each of these types of reviews, and so I would assume that they feel comfortable doing that. 316 MR. WARREN: But would you not agree that having an external review, having someone independent of Hydro One take a look at your expenditures and measure them, for example, against external standards is certainly, at a minimum, very helpful in assessing whether or not those expenditures were prudent? 317 MS. FRANK: I think I had indicated earlier that we thought it would be helpful to the Board, so yes, I'd agree with that. 318 MR. WARREN: Okay. Now, Deloitte's was selected, and the Deloitte report is filed as an exhibit and it's a response to an interrogatory filed by my friends at Energy Probe, and it is marked as Exhibit H, tab 2, schedule 6. Could you turn that up, please? 319 MS. FRANK: Yes, we have that. 320 MR. WARREN: The first component of that is attachment A, and it's not paginated, but the first component of that undertaking response is a letter from Deloitte Consulting, dated May 6th, 2002. And it is framed in the first sentence as: "Thank you for the opportunity to submit this proposal to assist Hydro One." 321 Is this the proposal letter or is this a confirmation of their terms of reference? 322 MS. FRANK: This is the confirmation of the terms of reference. 323 MR. WARREN: Now, as I look at this, if you look under the heading "Scope," the first sentence -- that's on the first page. Under the heading "Scope," it says: 324 The scope of this engagement includes examining historical costs incurred through the market opening May 1, 2002, and providing information about costs incurred by other transmission and distribution companies entering open electricity markets." 325 Do I understand that this was a direction from Hydro One to take a look at other companies' costs? 326 MS. FRANK: Yes. Part of the task was to examine the cost of what we spent to prepare for market opening and what had been spent by other organizations to prepare for market opening. 327 MR. WARREN: And if I look at the fourth page of the letter, again, I apologize, panel, it's not paginated, but on the fourth page of the letter, under numbered item 4, the heading is "Gather and prepare data from other transmission and distribution companies": 328 The objective of this activity is to provide Hydro One with sufficient credible and comparable data around costs incurred by other transmission and distribution companies entering competitive electricity markets so that Hydro One can conduct a reasonable comparison of its costs with those of other firms." 329 The use of the terms, or modifiers "credible and comparable data," were those your requirements? 330 MS. FRANK: Our concern was that no two markets open in the same fashion, and therefore it would be necessary to try to look for other areas where they were opening both wholesale and retail markets, or modify for that, where the size of the entity was similar to that they would have to have the same type of system changes. So we asked for those concerns to be addressed when they looked for other comparable-type organizations and costs. 331 MR. WARREN: At any point was Deloitte asked to do a comparison with other entities within Ontario facing the same transition challenges and costs? 332 MS. FRANK: Deloitte's was encouraged to look wherever it could find a comparable circumstance. But one of the limiting factors was size, so it couldn't be a small entity because we felt small entities had other options as to how to prepare for the market and didn't necessarily have to build systems. The size constraint meant that there were very few other organizations in Ontario that they would examine. 333 MR. WARREN: Well, it's a turned out, the size constraint which Deloitte used was 500,000 to a million customers, as I recollect. You're nodding your head. Have I got that correctly? That's the universe they looked at? 334 MS. FRANK: That is correct. 335 MR. WARREN: Was that your suggestion of the size, or was that Deloitte's suggestion of the size? 336 MS. FRANK: I believe we had suggested "large" and Deloitte's put the customer count on large. 337 MR. WARREN: Now, there are a number of definitions -- I shouldn't say a number. There are three definitions I've seen of benchmarking in the evidence in this case. Mr. Adams has provided a definition of what benchmarking is, the specific economics group is provided and my recollection is that Mr. Vogel's client, London Hydro, in its reply evidence, has provided a definition of benchmarking. But at a high level of generality, can we agree that what Hydro One was asking Deloitte's to do, at least in the phase 1 part of their undertaking, was to engage in benchmarking? 338 MS. FRANK: I agree with your concern about the definitions for benchmarking. It does seem to be very complicated as to how you define that term. I think we were more simplistic than that. We just wanted some cost comparisons. So tell us how much it cost other organizations. And if benchmarking requires more sophistication and more conformity of establishing costs, if it needs to be a more rigorous statistical exercise, we weren't at that stage. We were just saying give us some data. How much did it cost other people? 339 MR. WARREN: Then let me avoid the loaded word "benchmarking," Ms. Frank, and see if you and I can agree that Hydro One certainly felt that, in assessing prudence, it was relevant to do comparisons with other entities of similar size and similar circumstances; is that fair? 340 MS. FRANK: Whenever there's a very large expenditure, we believe it's helpful to look elsewhere to see what it has cost other people to do if not the same job, at least a similar job. So yes, we would agree it's helpful. 341 MR. WARREN: Now, without drilling down through the details at this point of the Deloitte's report, is it -- am I correct in my understanding of the Deloitte's report that the criteria that they employed for comparison was, first, size and, secondly, roughly equivalent market-opening conditions. Those are the two standards they used to collect the comparators. 342 MS. FRANK: And I would say information availability would have been my third piece I would have added, yes. 343 MR. WARREN: Okay. So market size -- sorry, utility size, roughly similar market conditions, and availability to data; is that fair? 344 MS. FRANK: Yes, that would be fair. 345 MR. WARREN: Okay. Now, as I understand their report at a high level of generality, Deloitte's did the comparison and said Hydro One did well in the categories they looked at in terms of total costs; is that fair? 346 MS. FRANK: Actually, I wonder if we want to look at the page that does that in the report. 347 MR. WARREN: I was saying something positive, Ms. Frank. I thought you would agree with me in a flash. If you want to disagree, please feel free. 348 MS. FRANK: I was actually going to try to give us some data that would support that statement. 349 MR. WARREN: I'm looking first at the Deloitte report itself. It's attached, panel, to that -- it forms part of that undertaking response. When I look at the executive summary and I look at the first indented bullet item, and it says, and I quote: 350 "A comparison of the total costs and total costs without wholesale incurred by other electric distribution companies in similar situations in 12 different markets shows that the total amount spent by Hydro One Networks is at or below the mean or median spending levels." 351 That's a good thing, is it not, Ms. Frank? 352 MS. FRANK: It, indeed, is a good thing. If we go on to their cost comparison summary, which is a chart called a phase 1 chart, where they look at total costs -- 353 MR. WARREN: Could you tell us what page it is in the Deloitte report? 354 MS. FRANK: It's page 11. The 11 is a bit hard to find. It's small font in the centre of the page. 355 MR. WARREN: Okay. It's under the heading "Comparable Cost Summary." It's got some blue markings on it; is that correct? 356 MS. FRANK: That is correct. 357 MR. WARREN: Okay. 358 MS. FRANK: And if we just look at the mean or median of the market, it's just over 100, 102, 103. And Hydro One's costs for the entire market-ready project, both transmission and distribution pieces, was 73 million. I would characterize that as below the mean or the median. 359 MR. WARREN: And you took that to be a good thing. 360 MS. FRANK: Very good. 361 MR. WARREN: If I just, on that subject, go down to the third category, "Billing activities, retail and customer requirements," you appear to be above, well above the mean and the median. Is that a bad thing? 362 MS. FRANK: We actually talked with Deloitte's about that to ask them, you know, why might this be, and what they told us was that they hadn't actually been able to isolate the work as well as they might have to make them an apples to apples, to do that word you said before, the benchmarking, they hasn't done all that. So they encouraged us to look at items more in terms of the total costs. That was really the relevant level of detail that they felt comfortable with. 363 In terms of why that might be different, because we were concerned it could be higher, it could different requirements for what the marketplace required for the billing activities to look like, and also the number of customers we had may -- or customer categories, may have influenced it. We didn't draw the conclusion that it was a bad thing. 364 MR. WARREN: Now, are you familiar, Ms. Frank, with the prefiled evidence of Mr. Adams on behalf of Energy Probe? 365 MS. FRANK: I have some familiarity. 366 MR. WARREN: Mr. Chairman, I'm not sure that's -- it may well have been given an exhibit. I'm just not -- I don't know what number it's been given. 367 MR. VLAHOS: Mr. Warren, we don't appear to have an exhibit list formalized yet, so you may go ahead and just -- as long as the witness is aware of which report precisely you're talking about. 368 MR. WARREN: Let me just deal with it, then, without reference to an exhibit number, Ms. Frank. 369 Now, you say that you're generally aware of it. Hydro One, as I understand it, Hydro One joined with two other utilities, Mr. Sidlofsky's client, Enersource, and Mr. Rodger's client, Toronto Hydro, to commission the reply evidence of the Pacific Economics Group; is that correct? 370 MS. FRANK: Yes, that's correct. 371 MR. WARREN: So I presume in making the decision to retain someone to -- to retain Pacific Economics Group to reply to it, that somebody at Ontario Hydro would have familiarized themselves with Mr. Adams' evidence and felt it necessary and appropriate that there be a reply; is that fair? 372 MS. FRANK: Yes, it is fair. 373 MR. WARREN: And if it wasn't you, Ms. Frank, who was it? 374 MS. FRANK: I would have been part of the group that made that assessment with our legal counsel and our regulatory staff. 375 MR. WARREN: Now, my friend, Mr. Dingwall, whose client this evidence was, will no doubt deal with this in detail, and I don't intend to do so, but I want to just deal with it at a high level of generality. 376 As I recollect from my reading of Mr. Adams' evidence, it doesn't -- it certainly doesn't criticize Deloitte's analysis. Indeed, I am not even sure it mentions the Deloitte analysis; is that fair? 377 MS. FRANK: I don't recall seeing it where it mentions Deloitte's analysis. 378 MR. WARREN: Now, Mr. Adams' evidence posits two things at a high level of generality. He says that benchmarking is necessary and appropriate to try and assess the prudence of transition costs, and the second thing is he posits a number of individual categories of costs and says that there can and ought to be comparisons between Hydro One and, for example, Enersource and Toronto Hydro. Is that your understanding of what Mr. Adams has said? 379 MS. FRANK: Yes. 380 MR. WARREN: Now, did Hydro One take Mr. Adams' evidence to be at least an implicit criticism of the adequacy of the Deloitte's analysis of comparables? 381 MS. FRANK: No, there was no mention that I recall of Deloitte's, so we didn't see it as criticizing it. Our concern was more that it was making some generic statements that we thought said that all circumstances were the same, and we didn't believe that all market-transition circumstances were the same; that people started from a different point and ended up in a different point, and therefore, trying to do comparisons without doing, you know, simplistic -- this was a total dollars divided by the total number of customers, say, didn't take into account the complexity and the variability that occurred among the utilities in preparing for market-ready. That was our concern. 382 MR. WARREN: So just to make it clear, your answer to me was that he wasn't explicitly critical, Mr. Adams wasn't explicitly critical of Deloitte's. My question to you is: Did you feel that Mr. Adams' testimony, taken as a whole, was an implicit criticism of the adequacy of the Deloitte's prudence review? 383 MS. FRANK: I would say no. 384 MR. WARREN: Okay. 385 Mr. Chairman, when do you want to take your morning break? 386 MR. VLAHOS: If it's convenient for you, Mr. Warren, if you're going to another area. 387 MR. WARREN: I'm generically in the same area but heading to another -- 388 MR. VLAHOS: Is this a good time for you? 389 MR. WARREN: It's fine, sir. 390 MR. VLAHOS: It is, according to the clock on the wall, it says 10 to 11. We'll resume at 11:10. 391 --- Recess taken at 10:50 a.m. 392 --- On resuming at 11:15 a.m. 393 MR. VLAHOS: Please be seated. 394 Mr. Warren. 395 MR. WARREN: Just one preliminary matter, Mr. Chair. 396 MR. VLAHOS: Yes. 397 MR. LYLE: We should be entering the curriculum vitae of the witness panel in as Exhibit I.1.1. 398 EXHIBIT NO. I.1.1: CURRICULUM VITAE OF HYDRO ONE WITNESS PANEL 399 MR. VLAHOS: Thank you. 400 Mr. Warren, back to you. 401 MR. WARREN: Thank you, Mr. Chairman. 402 Mr. Roger, briefly back to you. One of the risks of taking a coffee break at any time is that you'll be told by your consultant that you're a moron and have asked the wrong question. I should be used to it be now after all these years and not ask for coffee breaks. 403 My first undertaking that I asked for, Mr. Roger, was to try and get the dollar impact on individual residential consumers of the amount that's being sought to be recovered in this case, the $156 million, and your answer, quite appropriately, in light of the way I asked the question, took me to an exhibit which showed me some offsets. There were amounts already being recovered. What I'd like you to tell me, if you can, Mr. Roger, is, let's forget the offsets, let's forget what's being recovered in rates right now, and just take that $156 million, based on the scheme of allocation that you're proposing, and can you tell me what the impact on the five categories of residential consumers would be if you just allocated that $156 million? Can you do that? 404 MR. ROGER: If we take the $156 million and assume it's recovered on a per-customer basis -- 405 MR. WARREN: Right. 406 MR. ROGER: -- the information to be able to do the calculations is in the same exhibit. That fold-out page in Exhibit G, tab 13, schedule 1, page 1. 407 MR. WARREN: Right. 408 MR. ROGER: Under the row there's a double A, which is the total December 2003 variance balance of $156 million? 409 MR. WARREN: Right. 410 MR. ROGER: If you go across for each one of the columns, you will find out how much of that is being allocated to the various customer groups. So in the case of the urban residential, the number is $3.6 million, 3.599 to be exact. 411 MR. WARREN: And then I would divide that by what in order to get the unit impact? 412 MR. ROGER: Under "allocators," at the top of the table, the allocator E, customer numbers, and in the case of UR, it's 77,791 customers. So if you take the $3.6 million divided by the number of customers, I think you will get the number that you're after. 413 MR. WARREN: Okay. 414 MR. ROGER: And the same thing for each of the other customer classes. 415 MR. WARREN: Thank you very much, Mr. Roger. 416 MR. VLAHOS: Does that make the J.1.1 redundant? 417 MR. WARREN: It does not, sir. I would still like that data as well. But I wanted at that supplementary information, thank you. 418 Ms. Frank, you and I were discussing before the break the Deloitte's analysis and Mr. Adams' evidence. Now, as I understand it from our earlier exchange, Ms. Frank, Hydro One Network joined with two other utilities to sponsor the Pacific Economics Group reply evidence; correct? 419 MS. FRANK: Yes, that's correct. 420 MR. WARREN: And at a high level of generality, I'm sure my friend Mr. Dingwall will deal with this in detail, but at a high level of generality, can we agree that the Pacific Economics reply evidence is broadly critical of Mr. Adams' use of benchmarking in this context; is that fair? 421 MS. FRANK: I believe the concluding comment is that the examination of regulatory assets is likely not the place to start with benchmarking. I believe that's his feeling. The effort that's needed and all the statistical analysis makes this point in time a difficult time to start. 422 MR. WARREN: Can you turn up the Pacific Economics Group evidence? I'm not sure that it has an exhibit number at this point, panel, but do you have that evidence? 423 MR. LYLE: Mr. Chair, I'd propose to mark it as Exhibit Q -- I apologize, Mr. Chair, I'll mark the reply evidence as Exhibit R. 424 MR. VLAHOS: Just R? 425 MR. LYLE: R, tab 1. It's prefiled evidence. It unfortunately did not receive an exhibit number prior to this. R, tab 1. 426 EXHIBIT NO. R, TAB 1: PACIFIC ECONOMICS GROUP EVIDENCE 427 MR. WARREN: In Exhibit R, tab 1, Ms. Frank, could you turn up page 21. Under the heading "4.2.1: Suitability of transition costs for benchmarking," Pacific Economics Group makes the following observation: 428 "Our discussions in sections 2 and 3 do not support Energy Probe's central contention that market-ready transition costs are particularly well suited for benchmarking." 429 Do you see that? 430 MS. FRANK: Yes, I have that. 431 MR. WARREN: Now, if you would, at the same time, turn back to page 3 of the Pacific Economics Group report. Under the heading "What is benchmarking?" The report states: "Benchmarking is the appraisal of performance using comparisons to external performance standards." 432 Do you see that? 433 MS. FRANK: Yes, I have that. 434 MR. WARREN: Now, can you and I not agree that Deloitte's was retained by you to do exactly that; that is, to appraise your performance using comparisons to external performance standards? 435 MS. FRANK: Dr. Lowry would be far more technically capable than I am to answer that question. 436 MR. WARREN: I'm sorry, Dr. Lowry did not retain Deloitte's; is that correct? You retained Deloitte's. 437 MS. FRANK: My concern is with the comment that benchmarking is -- it's the term benchmarking and what Dr. Lowry means by that term that I would like Dr. Lowry to speak to. When we retained Deloitte's, it was to do what I called a price comparison. Because I want to stay away from that technical term which has lots of specific requirements around it that I don't believe we made the request of Deloitte's to do the specific requirements in the same fashion as Dr. Lowry would speak to. So that's my concern. I'm uncomfortable with it. 438 MR. WARREN: I take your point. Let's leave out the word benchmarking. 439 Did you and I not agree earlier that Deloitte's was retained by Hydro One to appraise its performance using comparisons to external performance standards? Is that not what you told me you did when you retained Deloitte's? 440 MS. FRANK: If we leave the word benchmarking out, I'm fine with this; that we asked them to do some cost comparisons, yes. 441 MR. WARREN: Now, did you ask Dr. Lowry as part of your joint retainer of him to review the work which Deloitte's had done for you? 442 MS. FRANK: Yes, we did ask him to look at that. 443 MR. WARREN: And did he? 444 MS. FRANK: He could speak to that, but yes, I assume he did. 445 MR. WARREN: You specifically asked him to review Deloitte's work; is that correct? 446 MS. FRANK: Yes. We informed him that we had it and asked him to have a look at it. 447 MR. WARREN: And did he give you a response to that request? 448 MS. FRANK: I don't recall his response to that request. 449 MR. WARREN: That wasn't my question. Did he give you a response? I didn't ask you what his response was. Did he give you a response? 450 MS. FRANK: What I'm saying is I don't recall if he responded or what he responded. 451 MR. WARREN: Okay. And is it your expectation that he will provide a response? 452 MS. FRANK: We're going to provide him as a witness so -- 453 MR. WARREN: So I should ask him whether or not he's going to give you a response? 454 MS. FRANK: Please. 455 MR. WARREN: Okay, I'll do that. 456 Then could you turn up, please, pages 7 and 8 of the Pacific Economics Group report. At the bottom of page 7, the report says: 457 "Our research, over the years, on the costs of power distribution, for example, has revealed that potentially relevant variables include the following: Number of customers, power delivery volume, maximum demand, service quality, example, reliability." 458 Then it goes on to say: 459 "Z variables, by definition, measure business conditions that may influence benchmarks but are not explicitly identified by cost theory. Our research on total power distribution costs over the years has identified --" 460 MR. VLAHOS: Mr. Warren, when you read, please slow down a bit. 461 MR. WARREN: "Our research on total power distribution costs over the years has identified the following conditions as being potentially important in this regard: Extensiveness of the power distribution system, percentage of lines that are under ground for a station, demand-side management, example, energy conservation activity, involvement in gas distribution." 462 Now, as I read the Deloitte's report, other than looking at number of customers, they didn't look at any of those other variables. 463 MS. FRANK: Yes, that would be correct. 464 MR. WARREN: Now, if I could ask you to turn up page 12 of the Pacific Economics Group report, the second full paragraph under the heading "Transition Cost Analysis," reads as follows: 465 "We find that the transition costs incurred by LDCs through 2002 were influenced by numerous external business conditions that varied substantially across companies. These included the number and mix of customers served and the software on hand at the start of the transition. Transition costs also varied with each company's success of fulfilling the market-ready requirements, its general level of operating efficiency, and its ongoing incremental costs to provide open access services. There is no reason to think that the market-ready transition costs under consideration in this proceeding would be particularly low for large companies." 466 Would you not agree with me, Ms. Frank, that the variables that Pacific Economic Group posits there, for example, the number and mix of customers served and software on hand at the start of the transition, would be applicable to any company going into a new market, in other words, any company in transition? 467 MS. ALDRED: I'm having a bit of difficulty with these questions. They're beginning to tread into an area where Dr. Lowry has been retained to give his opinion evidence, his expert opinion. He will be here, Mr. Warren can ask these questions, but to compare my witness's answers with what Dr. Lowry is later going to testifying to strikes me as unfair. She is not -- she is not a benchmarking expert. She has tried to make that clear. In my view, these questions are getting towards questions that should really be asked of the expert when he does arrive. 468 MR. VLAHOS: Mr. Warren? 469 MR. WARREN: Mr. Chairman, I'm not asking this witness to tell me whether or not Dr. Lowry was correct in this. I'm not asking for an opinion on Dr. Lowry's work. I'm simply positing for her what it is that Dr. Lowry says was appropriate, and then asking her to compare that to what Deloitte's did, because this witness is the one who's putting Deloitte's forward as part of the evidence in this case, saying that it is objectively verifiable evidence of the costs incurred. 470 In my respectful submission, it's entirely appropriate for me to ask this witness, who, after all, commissioned Deloitte's, whether, in light of what Dr. Lowry says, is -- are the problems in this analysis, whether she believes that Deloitte's, in fact, did a credible and reliable job. 471 I'll certainly have a whole cluster of questions for Dr. Lowry, when he appears, about his report, perhaps some of them along the same lines. But it strikes me, in my respectful submission, that this witness is in the position of forming an opinion of what it is that she thinks about the Deloitte evidence in light of the other piece of evidence which she has sponsored in this case, and that's the purpose of my questions, Mr. Chair. 472 MR. VLAHOS: Continue, Mr. Warren, if you are seeking just opinions from the witness. 473 MR. WARREN: Now, what I had put to you, Ms. Frank, was this description of -- in the Pacific Economics Group report, in that paragraph, of the influence, as they put it, of a number of external business conditions that varied substantially across companies. 474 Now, certainly you and I can agree that when we read the Deloitte's report, they did not examine the external business conditions that varied substantially across companies, at least they didn't say that in their report, did they? 475 MS. FRANK: I would agree that they did not do that. 476 MR. WARREN: And would you not agree with me, Ms. Frank, that when we read the Pacific Economics Group and we see what the Pacific Economics Group says are what I would describe as minimum requirements for an adequate comparison, that Deloitte's doesn't meet those standards, does it? 477 MS. FRANK: Deloitte's does not do all the benchmarking formality that Dr. Lowry suggests is appropriate. Deloitte's is much higher level, is only an indication of total costs to get ready for the market, not the rigor that Dr. Lowry feels is appropriate for benchmarking. 478 MR. WARREN: Is Deloitte's going to testify in this case? 479 MS. FRANK: No, we did not intend to bring them forward. 480 MR. WARREN: Panel, I have just two final follow-up areas, and these relate to specific accounts. 481 The first are the deferred low-voltage costs. If you would turn up Exhibit G, tab 3, schedule 1. 482 MS. FRANK: Yes, I have that. 483 MR. WARREN: I apologize, Ms. Frank, I had one -- function of a middle-aged memory. I had one last question on that cluster of questions about Deloitte's and the Pacific Economics Group. 484 Can I assume that when you asked Pacific Economics Group, as part of the larger group, to critique Mr. Adams, that you didn't ask Mr. Lowry what he thought would have been an appropriate benchmarking analysis in the context of these transition costs? He says what he doesn't like. Did you ask him to say to you or to the Board what an appropriate benchmarking analysis would have been? 485 MS. FRANK: I believe in the first part, I put away the evidence so I don't recall what section it was exactly, but in the first part of Dr. Lowry's evidence, he indicates what good benchmarking practice is, and he identifies some of the criteria and statistical approaches that need to be taken. We did ask him for some -- give us a generic description of what benchmarking is about and describe it to us. We didn't narrowly say, for this particular circumstance, please tell us how to do benchmarking for the regulatory assets. We didn't specifically ask that narrow question. 486 MR. WARREN: Is there a reason you didn't ask him that question? 487 MS. FRANK: The question about particularly regulatory benchmarking, we asked him about benchmarking in general. 488 MR. WARREN: My question is: Why didn't you ask him for the second part of that, which is what benchmarking would have been appropriate in the particular context of these regulatory assets? 489 MS. FRANK: In our discussions with Dr. Lowry, it seemed the circumstances that will be necessary are very difficult to accomplish after the fact. 490 MR. WARREN: Thank you for that. 491 Exhibit G, tab 3, schedule 1, page 4 of 4. The LV costs, Panel, can you tell me how these costs arise? 492 MS. FRANK: Yes. The LV costs are our low-voltage costs that were approved by the Board but their implementation for our embedded LDCs and direct customers were halted because of Bill 210. Bill 210 explicitly directed us not to implement these costs, but instead to track them in a variance account. 493 MR. WARREN: And can you explain to me the difficulty or the regulatory impediment that you feel you have in recovering these costs from what you believe to be the appropriate category of customers? 494 MS. FRANK: I don't -- our feeling is that it's the Board's call as to how they would choose that we recover these costs. There is no rate at this point in time for the embedded LDCs and direct customers, but there is a mechanism that we've suggested as to how the Board might do that. I'd actually ask Mr. Roger to expand on that. 495 MR. WARREN: What is the mechanism you're proposing, Mr. Roger? 496 MR. ROGER: What we're proposing is a fixed charge. This reflects costs that have been incurred in the past so we can determine exactly, by embedded LDCs and direct customers, how much money has been accumulated since May 2002 to December 2003. We can have a fixed dollar amount to reflect that and then we can divide that, if we recover that over three years, divide it by 36 months and it would be a fixed dollar amount that would be then added to the bill for each one of the embedded LDCs and the direct customers that use the LV facilities. 497 MR. WARREN: If the Board doesn't approve that proposed mechanism, what is the result? From whom are these costs to be recovered? 498 MR. ROGER: If we are not allowed to recover those costs from those customers that incurred those costs, our proposal is to continue to recover those costs as we did in phase 1, which is from our core and acquired customers. 499 MR. WARREN: Do you not agree, Mr. Roger, that in that latter circumstance, there is, in effect, a cross subsidy of one or two customer groups to other customer groups? 500 MR. ROGER: The current rates are not based on cost allocation studies. The current rates our customers pay are based on an unbundling exercise, so they are not reflective of cost allocation studies. There are other cross subsidies that may already exist inherent in the current rates. 501 MR. WARREN: But if the current circumstance continues and more is recovered under the current arrangement, it's a continuation, certainly, of cross-subsidies; is that not fair? 502 MR. ROGER: It's possible, though, that some of the customer classes are not recovering their full costs so the cross-subsidy won't affect them. 503 MR. WARREN: My final question, panel, deal deals with the retail cost variance accounts, and if you turn up tab 9 of your prefiled evidence, that's Exhibit G, tab 9, schedule 1. 504 MS. FRANK: Yes, we have that. 505 MR. WARREN: Ms. Frank, could you tell me how it is that these costs arise? 506 MS. FRANK: Mr. Relich will answer the questions in this area. 507 MR. RELICH: These costs are a result of the market opening and they are directly related to retailer activities in the marketplace since market opening. 508 MR. WARREN: Are these costs, using the language of cost causality, these costs that were caused by the retailers? 509 MR. RELICH: Yes, that's correct. 510 MR. WARREN: Now, your proposal, looking at page 10 of 10 of your evidence, your recommendation is to allocate these costs to all customers instead of only to retailers. Now, based on cost causality, the principles of cost causality, you should recover it from the retailers; is that not fair? 511 MR. ROGER: That would be one way of looking at it. But what we tried to do there is also look at previous decisions from this Board with respect to Union Gas. And in that situation, the Board suggested that those costs would be recovered from all customers, not just from the retailers, because all customers benefited from competition. 512 MR. WARREN: Is there some mechanical or structural impediment to your recovering these costs from retailers should the Board direct that that be the case? 513 MR. RELICH: No, there is not. The Board would have to directly put in place different rates that apply to different utilities with respect to the revenue -- or the rates to be applied to retailers. 514 MR. WARREN: Assuming that that's done, there's no impediment to you recovering these amounts from retailers; do I understand that correctly? 515 MR. RELICH: Yes, that's correct. 516 MR. WARREN: Those are my questions of this panel, thank you. 517 MR. VLAHOS: Thank you, Mr. Warren. 518 Mr. Shepherd. 519 MR. SHEPHERD: Thank you, Mr. Chairman. 520 CROSS-EXAMINATION BY MR. SHEPHERD: 521 MR. SHEPHERD: Mr. Chairman, for the benefit of anybody who is listening and wondering about scheduling, I anticipate being less than two hours. 522 Witnesses, let's start with the RSVA accounts. You're aware, I guess, that the IMO has found a wholesale meter problem that's resulting in large adjustments to the RSVA accounts for some LDCs. Can you confirm that that does not affect Hydro One? 523 MS. FRANK: Yes, we can confirm that that does not affect us. 524 MR. SHEPHERD: Can you explain why that is that it does not affect you? 525 MS. FRANK: The problem was with one meter, a Toronto Hydro meter, and it affects Toronto Hydro and certainly our transmission business, but not our distribution business. 526 MR. SHEPHERD: Okay. So it's isolated to Toronto Hydro, as you understand it? 527 MS. FRANK: The Toronto Hydro meter, yes, that's correct. 528 MR. SHEPHERD: Okay. So that raises an obvious question. We've been under the impression that the RSVA accounts are sort of pretty much arithmetic. I mean, you get certain bills and they matched what you recovered or they didn't. Are there other things that we should be concerned about in terms of uncertainties of those amounts, or is this a unique situation that's not likely to arise in any other circumstance? 529 MS. FRANK: Meter accuracy, certainly, is an issue that could affect others. Every attempt is made to ensure that the meters are accurate, but obviously this one flaw is found. In theory, there could be other flaws. I do know that the IMO has done an examination to see if there are other like circumstances but haven't found others. But that certainly is another area where there could be a problem, yes. 530 MR. SHEPHERD: Okay. I wonder if you could turn to School Energy Coalition Interrogatory No. 3, which is Exhibit H6, tab 6, schedule 3, please. Do you have that? 531 MS. FRANK: You said H6, schedule 3? 532 MR. SHEPHERD: H6, tab 6, schedule 3. 533 MS. FRANK: Okay, yes, I have this. 534 MR. SHEPHERD: So there you have -- in the listing there on the attachment, you have -- after that column of figures, you have a December 2003 estimate, $22.6 million. Do you see that? 535 MS. FRANK: Yes, I do. 536 MR. SHEPHERD: So have you since filed the actual for December 2003 somewhere? 537 MS. FRANK: Our approach for how we'd actually book the IMO's wholesale market service charges is to, month by month, do an estimate, because we do not have final information before we close our books for the month, so before we close our books for the end of December, we would not have had the final IMO invoice. So what we would do, and we do this each and every month, is we'd take the roughly 20 days' worth of actual information we have from the IMO, and the remainder of the month, we estimate our share of the whole market's volume, and therefore, we apply the rates that the IMO is charging for the categories and we come up with an estimate. That estimate would be trued up, reversed the following month. So in the January -- if you were to look at the January balance, the December actual would be in there. We don't go back and adjust the December balance for the final bill. 538 MR. SHEPHERD: So, then, you know what the correct number is for December, but you didn't fix it until January; is that right? 539 MS. FRANK: We didn't fix it until January. I have examined how different that would have resulted in the variance account, and it's about between .1 and .2 of a percent, so 0.1 or 0.2, very small. 540 MR. SHEPHERD: So it's not a material difference. 541 MS. FRANK: No, it would not be. 542 MR. SHEPHERD: All right. So, again, back to the same sort of question. On the RSVA accounts, we've been assuming that they are pretty mechanistic. Here's another example where the number is actually based on some judgment; right? 543 MS. FRANK: The number always requires some true-up at the end of a period, so -- because billings are not actually done for -- on the 31st of every month or on the 30th. So, yes, there is judgment and estimate in the RSVA accounts. 544 MR. SHEPHERD: Okay. This particular one is not a material difference. In fact, I mean the way you describe it, it's not likely that you would have a material difference in that sort of estimate, from estimate to actual; right? 545 MS. FRANK: It was not material at December of '03. However, if you had in those last eight to ten days of the month, some very unusual weather or some serious event for your customers, it could get larger. 546 MR. SHEPHERD: All right. Are there any other -- aside from that example, are there any other areas of these accounts where the number is based on judgment or discretion and the amount could be material? Can you just describe where that might be, if there are any? 547 MS. FRANK: I'm having trouble with that question. It's a bit vague for me to hone in on a problem area. 548 MR. SHEPHERD: Let me be more specific. For most of these numbers you get a bill, and it's either how much you collected in rates or it isn't; and if it isn't, then you have a variance; right? 549 MS. FRANK: On the collected on rates, side, there is -- so, what did you bill customers, in our case, our evidence indicates that we don't actually use billed, we use the accrued. Our accrued approach, which is consistent with generally accepted accounting principals, GAAP, what we do is we take the energy level that we purchase from the IMO and we naturally assume our customers have used that energy in the month and so we estimate the revenue, looking at the various customer classes, allocating the energy across the customer classes after adjusting for the load loss that the Board has approved, and come up with the energy. That is an accrued approach, it's not a billed approach. 550 Billed would require lots of estimates because, once again, the reading of meters does not happen on the last day of the month, so you would have to make assumptions about trending. I'd assume that there's variability in the RSVA accounts based upon what assumptions the various utilities made on truing up or trying to determine what their final billed energies would be and, therefore, what goes into the variance account. 551 MR. SHEPHERD: Let me just follow up on that billed versus accrued approach. 552 You said in your evidence that you used the accrued approach, which is not the approach you were directed to use by the Board's procedures; right? You were directed to use the billed approach. 553 MS. FRANK: My understanding is that the intent of the Board's procedure was to determine what revenue we're collecting from customers. Our accrued approach gives you the revenue we're going to collect from customers and eliminates any timing difference that you have from the fact that your meters aren't read on a monthly basis. So I believe it does follow the intent, and the Board does talk about accruing to get the full period to the end date appropriate. So I think we're consistent. 554 MR. SHEPHERD: All right. Now, I wonder if you could go to School Energy 32, which is Exhibit H, tab 6, schedule 32. 555 MS. FRANK: Yes, I have 32. 556 MR. SHEPHERD: So we asked you, what's the dollar impact, the real-world impact of the difference between billed and accrued, and your answer was, Look to H, tab 1, schedule 26. So I'm going to ask you to look at that one. Sorry, there's a purpose to this. 557 MS. FRANK: Yes, I have that. 558 MR. SHEPHERD: I'm going to ask you to show me where the dollars are. Show me where the impact of the dollars are. 559 MS. FRANK: I don't have the calculation of the difference between billed and accrued, because we don't use a billed approach, we use an accrued approach. 560 MR. SHEPHERD: Well, you know how much your bills are at the end of any period; right? 561 MS. FRANK: Our bills at the end of a period would cover usage that differs quite significantly from what we purchase from the IMO. In some of our cases, we don't read customers' meters more than once a year, but for many of our customers we read them quarterly. For some of the large customers, we read them monthly. To go from that irregular pattern of reading meters to try to figure out what their usage was during a 12-month period takes a lot of adjustments and a lot of assumptions. You assume linear consumption, which we know is a very bad consumption because of the difference between seasonality and whether -- just taking a meter that was read in July and assuming that people used energy on the same basis 365 days of the year is not appropriate, so we don't do it. We don't make those adjustments to get to billed. 562 MR. SHEPHERD: So all the other utilities that asked for RSVA accounts did that; right? 563 MS. FRANK: I really can't speak to what all the other utilities did. I assume that most utilities take some accrual approach to get to the end of the year. GAAP does indicate that you do have to take an accrual approach for the end of the year. I assume they do something, but I don't know specifically what. 564 MR. SHEPHERD: And that would be consistent with the Board's directions which were to use the bills and then make an adjustment; right? 565 MS. FRANK: Yes, that would be consistent. 566 MR. SHEPHERD: Which is not what you did. 567 MS. FRANK: We believe we also ended up getting there. Our large number of customers who are not read or billed on a monthly basis meant the number of assumptions we would have had to use using billed data would actually put lots of error into the result, and so we felt it was far better to use our accrued approach so that you don't get temporary volume differences associated with the timing of our meter-reads, which we didn't think was the intent of this variance account. We eliminate that through our approach. 568 MR. SHEPHERD: Okay. That sounds all very sensible, I guess. What you're telling us, though, tell me if this is right, is there could be a very substantial difference, you don't know, there could be a large dollar difference between the billed approach and the accrual approach. 569 MS. FRANK: No, I don't believe there can be a large dollar difference, in that over time, if you look through a whole year, my concerns about usage at one month or another get diminished. Year in, year out, over a long enough period of time, accrued and billed will equal the same. At any moment in time it won't, but over enough months you're getting close. My suggestion, what we're talking about, a small difference. 570 MR. SHEPHERD: Okay. I guess they would end up being the same in the long term if you true up the billed and the accrued on a regular basis. But as I understand what you do, you use accrued exclusively. You don't true up to bills; right? 571 MS. FRANK: We don't take a billed approach to our revenue recognition ever. We take an accrued approach to it. What we do is examinations to see, looking at actually our billing information and then taking crude approximations, linear-type approximations, to see how far out we are, and that type of a bottom-up analysis to suggest that we're in the order of 1 to 2 percent off, if we take a full year's worth of information. 572 MR. SHEPHERD: So I'm going to ask you, then, to undertake to provide to the Board the balances in your RSVA accounts following the Board's directions precisely, that is, billed plus adjustments. 573 MS. FRANK: I believe our effort has done exactly what the Board is looking for, that we have done an examination of our accrued revenues at the end of the period; that those revenues are consistent with the usage our customers made, and this is the money that we will, timing differences aside, collect from our customers. 574 Going to the billed is going to introduce a lot of variability that's going to be temporary because we only read the meter, say, once a year or once a quarter, and will likely have far greater swings in this account. I believe that what we've done here best suits the needs of our customers, with maintaining small variances only associated with items other than the timing of the meters being read. 575 MR. SHEPHERD: Mr. Chairman, Schools may well conclude at the end of the day that the accrual method is better, but I guess our concern is that unless we know what the impact is, unless we have data, we can't determine that, we can't form a conclusion. And if we can't, presumably, neither can the Board. And so we're concerned that unless it is impossible to gather this information, that it would be valuable information for the Board to have in reaching this conclusion. 576 MR. VLAHOS: Thank you, Mr. Shepherd. I'm not sure that's impossible with the criteria, but I will ask Ms. Frank the level of effort that's required to produce what Mr. Shepherd is after? 577 MS. FRANK: The level of effort would be substantial. We do have a million customers that we're talking about with varying billing cycles. It would be an extensive effort to try to take each of those customers and determine what their usage would have been for the 12 months, starting with January 1 and ending on December 31st. Lots of assumptions about how that usage pattern happened. This is a big job. 578 MR. VLAHOS: Is it something that conceivably can be done within the scope of this proceeding? 579 MS. FRANK: We had looked at it, and our feeling was it was not something we thought, even with several weeks' worth of time, we could get together. 580 MR. VLAHOS: Ms. Aldred, you were going to... 581 MS. ALDRED: I was leaning forward to say that I had understood Ms. Frank to say that it was -- she couldn't really do it, that the records weren't kept in that way, so I guess I was going to add my voice to hers, which was it's a massive undertaking. I think she's testified that at the end of the day, it all evens out, so I'm not sure where it gets the intervenor to have this information, given the massive effort. I don't know if it really lines up to the benefit at the end. 582 MR. VLAHOS: Mr. Shepherd, we'll end up with you. But on the point that at the end of the day, there is a balance at some point, and those accounts, I guess, have a continuing life. Can you help us understand as to -- 583 MR. SHEPHERD: Mr. Chairman, our concern is that we're not sure that it does end up balancing out at the end of the day. If it did, if we were sure of that, then of course we wouldn't be pursuing it. We could, at the very least, for the period involved, get the actual billed amounts related to each of these accounts. The actual billed amounts is not difficult. I'm sure the CIS system will spit those out very quickly. Without any adjustments, the actual billed amounts will at least give us an indication as to whether, for the period, there's a big difference between billed and accrued, or a little difference. 584 MR. VLAHOS: Ms. Frank, I'm not sure -- can you help me follow this, actual billed amounts, is that a different exercise? 585 MS. FRANK: I'm trying to ponder that as well. You're saying if I looked for what we actually billed customers, so a customer that I might have billed -- and go to the date of the bill, ignore when they used the power? 586 MR. SHEPHERD: Yes. 587 MS. FRANK: So that means -- 588 MR. SHEPHERD: Just tell us billings during the period, actually billed during the period. 589 MS. FRANK: Bill during the period. Sometimes the usage could well be many months earlier, so it would bear very little resemblance to when the power was purchased from the IMO. But you want us to ignore that and just take what we billed? 590 MR. SHEPHERD: Well, that would be true if you were doing a month, but it wouldn't be true if you were doing the year. Generally speaking, years balance themselves out. You don't bill customers less often than a year. 591 MS. FRANK: We read customers once a year so some customers only get read once a year and billed. 592 MR. SHEPHERD: But not less than that. If you do a year, generally speaking, billed and accrued should be pretty similar, subject to weather adjustments, right? 593 MS. FRANK: To the extent that I don't read them in December, there will still be a difference. 594 MR. SHEPHERD: But you wouldn't -- 595 MS. FRANK: And the ones that I read less frequently tend to be isolated customers so they're only accessible, say, in the summer months when you can get on their boat and get to their cottage, type of thing. There still will be some variance, but we can get bills -- they're just not going to match the timing at all in terms of when we purchased any of these pieces from the IMO, any of the RSVA accounts. So while it's possible to gather it from the bills, making no modifications, I don't see how that would be helpful. 596 MR. SHEPHERD: Mr. Chairman, it seems to me that if you bill -- if you read somebody's meter in July, once a year, and you take that data or the bills for the year, that you'll have 12 months' worth of usage for any given customer. And so, yes, it's possible that the year before the 12 months' usage was different than this year, over the course of the whole system, except for weather, it shouldn't be significantly different. And it will at least give us an order of magnitude difference between accrued and billed. 597 MR. VLAHOS: Well, I'm a little lost. If you have a July reading for the previous 12 months, I'm not sure what that does to the accuracy of the December 2003 figures. That's what I'm trying to understand, Mr. Shepherd. I'm at a loss as to how probative that information would be for you and for us to deliberate and decide that. Maybe I can look to my colleagues here. 598 [The Board confers] 599 MR. VLAHOS: Ms. Frank, with this revised characterization of what -- you know, the billed -- you put on the record that you question the usefulness of that information. In terms of effort, how much would it take to produce that sort of billed information that Mr. Shepherd has asked you for, without going to the December date necessarily? 600 MS. FRANK: Just taking what we billed each of the customers at any time during that 12 months, say, '03 period, it would take inside sort of a week to gather that information. 601 MR. VLAHOS: So the minimum effort required to satisfy Mr. Shepherd would be one week? 602 MS. FRANK: Yes, that's our estimate. 603 MR. VLAHOS: With the questions of the value of it, as you put on the record. 604 MS. FRANK: Yes. 605 [The Board confers] 606 MR. VLAHOS: Ms. Frank, the decision of the Panel is to provide the billed amount as you have described it in terms of -- not the multi-weeks' effort, as Mr. Shepherd and you have communicated had to be changed in the last few minutes, okay? I want to make sure the record is clear as to what you're going to provide, so could I ask you to repeat for the benefit of the reporter and for the benefit of Mr. Shepherd as well and the Board. 607 MS. FRANK: What I'd suggest we do is we look at every bill that's issued to all of our customers through all of 2003 - I'm going to suggest one year, 2003 - and add up the amounts by RSVA account, so by wholesale market service charge, transmission, and connection charges and power charges, to allow us to get them into the four accounts that customers actually make payments on; what they were billed in those areas for every customer bill. But I'd only do it in aggregate rather than by customer -- the information I'd provide would be really the four numbers. I'm not suggesting I provide each customer's bill, just the four numbers. 608 MR. VLAHOS: Four numbers being the... 609 MS. FRANK: Total customers that were billed for wholesale market service charge, the total amount for Networks, the total amount for connection, and the total amount for power. 610 MR. VLAHOS: Mr. Shepherd, is that -- 611 MR. SHEPHERD: Mr. Chairman, I'm fine with that. 612 MR. VLAHOS: Let's give that a number then, Mr. Lyle. 613 MR. LYLE: Sure. We'll mark that as J.1.3. 614 UNDERTAKING NO. J.1.3: TO PROVIDE THE RFVA CALCULATIONS ON BILLED BASIS RATHER THAN AN ACCRUED BASIS IN 2003 615 MR. VLAHOS: Ms. Frank, do you intend to put any caveats on those numbers or to simply put the numbers there and let Mr. Shepherd lead to whatever he wants to lead? 616 MS. FRANK: I'm certain we'll talk about some of the final bill problems that we have for bills that get finalized in one year for a prior year, some new customers that don't get billed for their usage until the following year even though they've been using power for several months. I'm certain we'll have many qualifiers on the use of the information. 617 MR. VLAHOS: Thank you for that. 618 Mr. Shepherd. 619 MR. SHEPHERD: Thank you, Mr. Chairman. 620 I'd now like to turn to Account 1525, which is the miscellaneous deferred debits. 621 My understanding is the only thing you have in that account is your environmental remediation costs; is that correct? 622 MS. FRANK: Yes, the amount that we have here is only the secondary environmental remediation accounts. 623 MR. SHEPHERD: Okay. Tell me if this is right: The actual costs in 2001 and 2002 totalled $35 million, and you have an additional $5 million or so of interest to December 31st of 2003; is that correct? 624 MS. FRANK: Yes, that is correct. 625 MR. SHEPHERD: Here's my first confusion. I couldn't figure out how you ended up with $5 million of interest on $35 million that wasn't spent that long ago. It seemed like a lot of interest at today's rates. Have you got somewhere in the evidence of the calculation of that interest, or could you tell us how it ended up being so much? 626 MS. FRANK: In the evidence we have both the interest rates and the interest amount. If I take one second, I can likely find an interrogatory that lists the evidence. 627 MR. SHEPHERD: We couldn't find the actual calculation for this. That's why I'm asking. Maybe I missed it. 628 MS. FRANK: At Exhibit H2, schedule 19, attachment 8. I'll give you a minute to get there. 629 MR. SHEPHERD: Excellent. Thank you. 630 My second confusion, which hopefully you can resolve as simply as the first one, relates to why these costs are being claimed in this proceeding at all. And for that, I'd like to take you to Exhibit H1 -- H, tab 1, schedule 1, attachment A, which is your 2002 financial statements. Unfortunately, the pages in this are not numbered, which is a bit confusing, but I'm going to be looking at note 2 of your 2002 financial statements, and to the fourth page of that note. 631 MS. FRANK: Yes, I have that. 632 MR. SHEPHERD: Okay. So you see a number of bullets at the bottom of that page dealing with specific types of regulatory assets; right? 633 MS. FRANK: Yes. 634 MR. SHEPHERD: And the second bullet deals with these particular amounts, that is, environmental remediation; right? 635 MS. FRANK: Yes. 636 MR. SHEPHERD: Okay. So if I read this right, and correct me if I'm wrong, financial statements sometimes have a language of their own, if I read this right, what you did is you estimated your future expenses on environmental remediation and allocated $151 million of that to the distribution business; do I have that right? 637 MS. FRANK: Maybe I could stop for a moment and explain -- when you asked originally what we had in 1525, I'd said what we're asking for is the secondary environment. What we actually have in 1525 is a primary environment and a secondary environment. 638 The primary environment is actually an accounting -- a GAAP requirement to look at all future liabilities that you may have for environmental clean-up activities, and that amount is an amount that we'd looked at future expenditures and then assessed the total present value of doing that work, and we set up a regulatory asset, assuming that when we do the work we'll be able to seek recovery for it, and the liability, the regulatory liability is also set up. 639 In addition, for the period of 2001 and 2002, we have the item that we call secondary environment. Now, this is work that's already been done. It was work we did in '01 and '02 to clean up both land assessment and remediation issues and PCV issues. Those dollars were spent. We didn't get recovery for that because when our last rates were set, we tried to mitigate the impact on customers and sought a deferral account. So the amount that we've got in our evidence is only that second piece, the secondary environment. The note that we're referring to here is looking at the total, both the primary and the secondary, the future expenditures and the past expenditures. 640 MR. SHEPHERD: Okay. So let me understand this. Accounting principles say that if you have a liability, you have to show it on your balance sheet as a liability; right? 641 MS. FRANK: Correct. 642 MR. SHEPHERD: And so you had to calculate, what's the net present value of future environmental remediation that we know about today, and you got to a number for the distribution business of $151 million, and so you had to show that as a liability on your balance sheet. 643 MS. FRANK: That's correct. 644 MR. SHEPHERD: For future expenditures; right? 645 MS. FRANK: Yes. 646 MR. SHEPHERD: But that's a liability that you would expect to recover from the ratepayers, so you also show it as an asset on your balance sheet as a regulatory asset that you expect to recover essentially when you spend it; right? 647 MS. FRANK: That is true. 648 MR. SHEPHERD: And, in fact, your estimate went out to the period up to 2020; right? 649 MS. FRANK: That's the period over which we assumed we'd do the remediation or deal with the environmental issues. 650 MR. SHEPHERD: Okay. Now, included in that 151 million is the work you did in 2001 and 2002; right? 651 MS. FRANK: Yes, it is. 652 MR. SHEPHERD: Okay. Which you're calling secondary. But it's not different from the other work, it's just that at this point it's been done, and you haven't collected it as you expected to? 653 MS. FRANK: That is the distinguishing factor. One is work that we're going to do, which we call primary, and the work that we've done we call secondary. 654 MR. SHEPHERD: Okay. And as I understand it from looking at this note, what you planned at that time, you had a rate mitigation plan, and what you planned was to take that what you thought then was 28 million and ended up being 35 million, to take that $28 million and basically amortise it over the whole period to 2020 and collect it from ratepayers during that period. Isn't that what this note says? 655 MS. FRANK: That was our thinking at the time, yes. 656 MR. SHEPHERD: Now, did you actually get that plan approved? 657 MS. FRANK: Clarify from whom are you wondering if we got approval, please. 658 MR. SHEPHERD: It says here: "Under Hydro One Networks' mitigation plan reviewed with the OEB," which is the plan to amortise it over -- until 2020; right? 659 MS. FRANK: The OEB approved the establishment of a deferral account for the collecting of the environmental costs. The OEB approved no recovery or the absolute amount that was in there. Both of those items were items that needed to be dealt with at a subsequent review, which is this particular proceeding. 660 MR. SHEPHERD: Well, that's not what this says, is it? What this says is: 661 "Under Hydro One Networks' rate mitigation plan reviewed with the OEB, that portion of the regulatory asset related to the actual distribution expenditures incurred in 2001 and 2002 will be amortised to results of operations on a straight-line basis over the period 2003 to 2020 inclusive." 662 So, tell me whether I'm wrong, I read that that you proposed and the Board accepted that you would take those expenditures and you would amortise them up till 2020; is that right? 663 MS. FRANK: We received no direction from the Ontario Energy Board as to how to amortize it. We had a suggestion that the Ontario Energy Board establish the deferral account, yet no direction in terms of recovery, so there is no direction that we have from the Ontario Energy Board as to how to recover this amount. 664 MR. SHEPHERD: So tell me what "reviewed with the OEB" means? 665 MS. FRANK: The OEB was provided as part of the rate mitigation plan a description of the nature of the work that we wanted to delay and an estimate as to how much it would cost. There was a suggestion that in order to mitigate the impact on customers, there could be a lengthy period over which you'd recover it, but all we got back was the establishment of a deferral account. That was it. 666 MR. SHEPHERD: Okay. So I'm just misunderstanding it. "Reviewed it" doesn't mean approved about. It means you told them about it but they didn't say anything about it; right? 667 MS. FRANK: We got no direction on how to deal with this amount. Actually, the examination of the appropriateness of the amount was also delayed until this hearing, so both what and over what period are the subject of this review. 668 MR. SHEPHERD: Well, but -- your note, these are your financial statements, right, so this has to be accurate. You're not allowed to say something in your financial statements that's not precisely accurate, are you? 669 MS. FRANK: True. 670 MR. SHEPHERD: Okay. So what it says is that those amounts will be amortised through results of operations over that period, but that's not what you're saying today. It was your intention but nobody actually worked it out; it wasn't decided. 671 MS. FRANK: I would say that was our plan. We thought that's what was going to happen. It didn't happen. 672 MR. SHEPHERD: All right. And why was it that you wanted to do it until 2020? 673 MS. FRANK: The only reason for taking that long period of time, and it is a very long period of time if you spent the dollars in 2001 and 2002, to wait for recovery all the way until 2020, is that we were concerned about the rate impact on customers and how large the rate increase was going to have to be. So we said, to mitigate the rate impact on customers, we would take a very long period of time. If there would be a way to recover the dollars more quickly without seeing large rate increases, it would be far more beneficial to do it quickly. That means that the people who see the improvement in terms of the environmental clean-up are closer to the people who pay for it rather than their children. So intergeneration equity would suggest recover more quickly, as long as the impact on customers is not so great that it's an incredible burden to current customers. 674 MR. SHEPHERD: Well, that's not entirely correct, is it? I mean, the expenditures you made in 2001 and 2002, they weren't related to environmental damage in 1999, they were related to environmental damages in 1960 and 1970, like that; right? So there was already an intergenerational equity problem, even if you charged it in 2001 and 2002; correct? 675 MS. FRANK: You just exaggerate the problem if you extend the recovery over more years. But there already is a problem from the time you recognize the environmental issue, when it's just an issue that becomes industry-known and when you would have incurred the problem. Yes, there already is some intergenerational problem, how quickly you can clean things up because you didn't even know they existed. But delaying recovery once you've already spent the money, you exaggerate the problem. 676 MR. SHEPHERD: Now, what happened between early 2003, which is when your 2002 financial statements would have been prepared; right? Early 2003? 677 MS. FRANK: Yes. 678 MR. SHEPHERD: What happened between then and now -- or I guess between then and January of this year, to change your thinking on when this should be recovered? 679 MS. FRANK: I guess one thing would actually be this review of the regulatory assets and not in isolation just the environment, but all regulatory assets. And the determination of what the rate impact would be on customers. As you can see from our schedule 13, the impact on customers' bills are not at the same kind of level as when we were doing RP-2000-0023 when there were very large customer impacts that had to be mitigated over three years. Now we're talking about something that's over a four-year period, and the customer impacts are not nearly as great as they were back in the previous hearing. So it does seem that it's now, without unduly burdening the customers, possible to get this recovery over a shorter period of time. And I think that would be a primary change. 680 The other change is that we had assumed that there would be -- there was supposed to be three phases to the RP-2000-0023. The third phase was that rates were supposed to be increased in a final phase that Bill 210 stopped, and I think that also is a factor in terms of what our thinking was and when we would be able to get recovery. 681 MR. SHEPHERD: Two things about that. 682 First of all, it's true that you were supposed to start recovering this in 2003, and you couldn't because of Bill 210; right? 683 MS. FRANK: That's correct. 684 MR. SHEPHERD: But what I'm trying to understand here is, you were concerned with rate mitigation in 2001 when you originally proposed this plan to amortise $28 million, and now you're asking for the ratepayers, over four years, to pay $157 million but you think that in that case rate mitigation isn't necessary, whereas $28 million, it is necessary? I don't understand. 685 MS. FRANK: The amount that we're asking for here, the 156, is over a four-year period, which one could say was a type of mitigation rather than all at once in one year. And when we look at the total bill impact, it is not like the numbers that we had in -- for the 2001 period. There we were talking about, in our case, bills needing to go up by four, followed by another 28 and another 28. That's a lot of increases. We're not talking about this here. It's nowhere near the order of magnitude on customers bills, and still being able to deal with the recovery over a four-year period. 686 MR. SHEPHERD: Well, in fact, I guess, from the customers' point of view, their bills are going up a lot more this year than in 2001; right? Because this year they've got big commodity increases as well; right? 687 MS. FRANK: If you're saying total bill impact for customers -- 688 MR. SHEPHERD: Yes. 689 MS. FRANK: I'm sorry, I can't tell you how much the commodity is resulting in the bills going up. I do know from the distribution side of it, the increases are quite small. 690 MR. SHEPHERD: Yes, but you're aware that your customers are hurting from rate increases this year. You're aware of that; right? 691 MS. FRANK: Customers' bills are going up. I'm not aware of how much the hurt is, no. 692 MR. SHEPHERD: Okay. It looks like, and I'm inviting you to correct me if I'm wrong here, but to the objective observer, or the outsider, I guess, it would look like the difference between last year and this year is the government said you can go recover your regulatory assets and you said, Well, why don't we just throw this in and see whether we can get it? Why wait 20 years if we can get it in four years? Is that part of the thinking that went into this? 693 MS. FRANK: There was no explicit different direction on the various deferral accounts. Some, you know, one year, some 20 years. There was no such direction. When we looked at the impact by taking the direction literally, and say over the four years, we did not get concerned by the impact on customers. It seemed well within the -- they are going to pay for it sooner or later. If it's later, they pay interest on it. It seemed like you could clean this one up and get rid of it. 694 MR. SHEPHERD: All right. I'm going to ask you, then, to -- 695 MR. VLAHOS: Mr. Shepherd, are you moving to a slightly different area? 696 MR. SHEPHERD: I'm just finishing off this one, Mr. Chairman. If I can have five minutes, I can nail it down, so to speak. 697 MR. VLAHOS: That's fine. 698 MR. SHEPHERD: I'm going to ask you to turn to the 2003 financial statements, which is attachment B of that same exhibit, and thankfully, in that one they are numbered. I'm looking at page 16, note 11, to the 2003 financial statements. 699 MS. FRANK: Yes, I have that. 700 MR. SHEPHERD: And the environmental liabilities and the regulatory assets for environmental, they match each other; right? 701 MS. FRANK: This is in total for Hydro One. I'm struggling because there's a -- we have other entities. We have a transmission business and a remote business, so they wouldn't match the distribution regulatory assets, no, because it's only a subset of the total that you're going to see here. 702 MR. SHEPHERD: No, but on your financial statements, the two numbers have to be the same; right? For the primary environmental liabilities, they have to be the same; right? 703 MS. FRANK: For the primary, yes. 704 MR. SHEPHERD: Okay. And so here you see in this note, you have a revaluation adjustment of $64 million, which, if you go back to note 7, that talks about the fact that the rules changed on how much you had to clean up PCBs and you didn't have to clean them up as fast or as much; is that right? 705 MS. FRANK: I'm actually going to ask Mr. Della Rossa if you're going to talk about this. 706 MR. SHEPHERD: I did this on purpose so you could participate. 707 MR. DELLA ROSSA: Thank you. 708 Perhaps I can answer the questions on the change to the numbers. 709 The number was reduced $64 million because of a change in the draft regulations regarding PCB phase-out and destruction. Just to provide a bit of background on that, the federal government has been active over the past four years developing PCB phase-out and destruction schedules, and the latest draft regulation exempts pull-top transformers from the aggressive PCB phase-out schedule that had been proposed earlier. So we did an evaluation of our system in terms of the number of pull-top transformers, the number that could potentially be contaminated with PCBs, and we determined that a reduction of $64 million was appropriate because the PCBs in those transformers could be eliminated through attrition rather than through a proactive program of inspection, testing, phase-out, et cetera. 710 MR. SHEPHERD: Now, that doesn't relate to the 35 million you'd already spent in 2001 and 2002, right, because you'd already spent that? 711 MR. DELLA ROSSA: We spent a portion of that on PCB phase-out and destruction. A portion was also spent on land assessment and remediation as well. 712 MR. SHEPHERD: No, my point's a different one. The $64 million reduction is a reduction of future anticipated costs. You couldn't reduce the money you'd already spent in 2001 and 2002 because you'd already spent it; right? 713 MR. DELLA ROSSA: That is correct. 714 MR. SHEPHERD: Okay. Does that mean that, in effect, the money you spent in 2001 and 2002 was spent faster than you needed to, or you spent more in light of the subsequent change in the regulation? 715 MR. DELLA ROSSA: The subsequent change in the regulation meant that some of the money that we spent in 2001 and 2002 was spent earlier than it would have been spent had we known in advance that the regulation was going to change. 716 MR. SHEPHERD: Well, it's not just earlier, is it? As you indicated, part of this was attrition which would allow you not to spend any money at all on some of the remediation, and so wouldn't that apply to the 2001 and 2002 expenses as well? 717 MR. DELLA ROSSA: It would apply to a small portion of the expenses, because ultimately, when the equipment comes out of service through failure, through upgrades, the PCBs in the equipment have to be managed. They have to be stored, they have to be inspected, they have to be destroyed. So that particular expenditure would have occurred anyway. It would have occurred later instead of earlier. 718 MR. SHEPHERD: But at the end of the day, it's not a bad thing, right, because at least the environment got cleaned up faster. 719 MR. DELLA ROSSA: That's correct. 720 MR. SHEPHERD: So now, over this period of 20 years that you have this remediation estimate, that -- the amount you have to collect from the ratepayers over that time is now cut in half, in effect, roughly, because of this reduction of $64 million; right? 721 MR. DELLA ROSSA: The total amount estimated today would be roughly half, yes. But not just PCBs. This environmental deferral account -- sorry, the primary environmental account includes much more than just PCBs. 722 MR. SHEPHERD: So I guess the question here, then, is if you had this 35 million that you were originally planning to collect over 20 years, and you're already now saving 64 million over those 20 years, why would you try to speed up the 35 million rather than just leave it to that period when, in fact, there's no net cost to the ratepayers? They're actually saving money anyway. 723 MS. FRANK: We have already talked about the 35 million relating to a different account than the primary. They are two quite different accounts: Money already spent; money that we might spend in the future, that we currently forecast we're going to spend in the future. The money we've spent, a four-year recovery period has the benefits of coming closer to when we actually spent the money to people who see the cleaner environment, pay for it more quickly. The impact on customers is not so large that we have to worry about mitigating it over a 20-year period. I distinguish the two as really quite unrelated. 724 MR. SHEPHERD: Mr. Chairman, this would be a very good time to break, if it's convenient for you. 725 MR. VLAHOS: Thank you, Mr. Shepherd. 726 It is 20 minutes to 1:00. Let's resume at 2:00. 727 --- Luncheon recess taken at 12:40 p.m. 728 --- On resuming at 2:00 p.m. 729 MR. VLAHOS: Please be seated. 730 Any preliminary matters? 731 MR. LYLE: No, Mr. Chair. 732 MR. VLAHOS: Anyone else? I have a hotline number which is 416-440-7608, and that will be updated, Mr. Thiessen, what, on a daily basis? 733 MR. THIESSEN: Every evening. 734 MR. VLAHOS: Every evening, okay, the updates for the schedule of the hearing. 735 All right, Mr. Shepherd. 736 MR. SHEPHERD: Thank you, Mr. Chairman. 737 Witnesses, I'd like to turn now to account 1508, the other regulatory assets account. You have a few subcategories there, but I really am only interested in asking you a couple questions of clarification about the low-voltage charges. 738 As I understand it, you were recovering the low-voltage transmission costs prior to market opening, through the wholesale bulk-power purchase rate administered by OPG; right? 739 MS. FRANK: Yes, that's correct. 740 MR. SHEPHERD: And at market opening, there was a change because you couldn't collect them that way anymore, and so new rates had to be established for them to collect them, in part from your distribution customers, and the balance from the embedded LDCs and directs that were benefitting from the service; right? 741 MS. FRANK: That's correct. When the rate was unbundled, we needed new rates. 742 MR. SHEPHERD: And the Board considered that in RP-2000-0023 and ordered a new rate structure for you to collect those amounts; right? 743 MS. FRANK: Yes, that's correct. 744 MR. SHEPHERD: But you couldn't actually implement those new rates due to Bill 210, so the Board allowed you to establish a deferral account to record them until you were allowed to implement the new rates; right? 745 MS. FRANK: Yes, that's correct. 746 MR. SHEPHERD: And to date, that account totals $45 million, and it's accruing at a further $26 million a year, essentially indefinitely into the future, until you get to charge it through implementation of the new rates; right? 747 MS. FRANK: The amount was 45,200,000 as of December 31st, so today it's quite a bit higher than that. And you're correct in terms of the annual increments of $26 million. But it's higher than the 45 that's in this evidence because the evidence only goes to December of '03. 748 MR. SHEPHERD: And so this year you're going to have another 26 million, and a bunch of that has accrued already this year. 749 MS. FRANK: Yes, it has. 750 MR. SHEPHERD: Okay. Now, Hydro One's proposed that you charge a fixed per kilowatt fee to all embedded LDCs that are connected to the LV system to recover that amount; that's right? 751 MR. ROGER: If I can clarify that. It's a fixed dollar amount, it's not per kilowatt we're proposing to do. 752 MR. SHEPHERD: A fixed dollar amount. Do you mean you just divide the total by the number of connected LDCs and they each get a pro rata share? 753 MR. ROGER: The $25.6 million is composed of $16.4 million for embedded LDCs, 3.2 for direct customers, and 6 million for acquired customers. What we're proposing is to split the $45.2 million in the same proportions that those customers would have incompetent occurred LV costs, and that would translate into a fixed dollar amount per customer that we could then recover over three years. 754 MR. VLAHOS: I'm sorry, per year customer, not the LDC customer? You said fixed dollar amount per customer, that's Hydro One's -- 755 MR. ROGER: No, sorry, it's for embedded customers. It would be the embedded LDCs or the embedded directs. 756 MR. VLAHOS: Right. 757 MR. SHEPHERD: So you're proposing to split it up by customers, by number of customers, in effect? You're going to divide it up by segments based on this ratio you just talked about, but then within the segments, you're planning to bill by number of customers? 758 MR. ROGER: Let me try to explain it again. We have around $16.4 million that are attributable to all the embedded LDCs. Each one owes a share of the LV charges that make up that $16.4 million. Let's say that utility A owes 1 million out of that 16.4 share, so we would allocate to that LDC 1 over 16.4 times the amount that we need to recover. Once we have that for that particular LDC, it would be assigned to that LDC based on a fixed dollar amount. 759 MR. SHEPHERD: I understand that. But what we're talking about is how you get the million dollars. Let's say the utility owes a million dollars a year for this service. How is that million dollars calculated? 760 MR. ROGER: The million dollars was calculated applying the LV charges that were approved that we're not allowed to collect from those customers. 761 MR. SHEPHERD: Okay. So that was a fixed per-kilowatt fee, 56 cents; right? 762 MR. ROGER: Most of the LV charges are related to the shared LV line, which is 56 cents per kilowatt. But it's applied to 1999 billing quantities, so that's a fixed amount. 763 MR. SHEPHERD: Okay. So do I understand correctly, then, that the proposal -- I couldn't find this in your material and that's why I'm asking -- the proposal you're making is to allocate this exactly on the basis that the Board decided in RP-2000-0023; is that right? Same ratio exactly? 764 MR. ROGER: For each customer, we know what LV facilities they use, so we applied the proper rates to determine how much each customer owes us. So in the case of the embedded LDCs that is $16.4 million per year out of the $25.6 million that accumulates each year. For each LDC and for each embedded direct customers, we would know what their proportion is of the total $25.6 million that accumulates every year. 765 MR. SHEPHERD: Sorry, perhaps my question wasn't phrased clearly enough. The Board told you in RP-2000-0023 exactly how this should be charged to the embedded LDCs; right? 766 MR. ROGER: They approved seven different charges, yes. 767 MR. SHEPHERD: Okay. And what you're proposing is to use precisely that ratio, no changes, to catch up the 45 million; is that right? 768 MR. ROGER: To divide the $45.2 million between those customers, yes. 769 MR. SHEPHERD: In exactly the same way as the $26 million a year was supposed to be divided, according to the Board's decision. 770 MR. ROGER: Yes. 771 MR. SHEPHERD: Okay. Now, your alternative proposal is, if the Board's not willing to do that, then you're proposing to charge it to your own core customers in order that you get to recover it; right? 772 MR. ROGER: Core and acquired customers, yes. 773 MR. SHEPHERD: Okay. Now, if you did that, that would be inherently unfair, right, because they are not the ones getting the service; is that right? 774 MR. ROGER: That's the reason it's not our preferred approach. 775 MR. SHEPHERD: Okay. Now, if you go ahead the way you're planning to go ahead, am I right in assuming that this directly tracks cost causality for these costs? 776 MR. ROGER: If we have a mechanism to be able to recover those costs from the embedded LDCs and the directs, yes. 777 MR. SHEPHERD: Well, the mechanism you have specifically proposed which tracks the Board's earlier decision, that tracks cost causality; right? 778 MR. ROGER: Yes. 779 MR. SHEPHERD: Okay. I'd like to turn, then, to account -- your transition costs. And tell me if this is right: When you cut through all the bells and whistles and everything and all the details, basically you spent $57 million for computer hardware, software, and implementation relating to billing, settlements, and customer care; is that right? 780 MR. WEBBER: Yes, it would be. 781 MR. SHEPHERD: I realize I'm oversimplifying. So before I get to the nitty-gritty of that dollar amount, as I'm sure you're aware, a lot of people are wondering how much duplication went on when each of the LDCs in the province tried to satisfy their obligations to get ready for the market opening. You spent 50 or $60 million; Toronto spent 20 million; Enersource spent 10 million. And between everybody, all the LDCs spent, what, $150 or $200 million on exactly the same thing? And I guess what I'm wondering is, there wasn't a whole lot of collaboration and I'm wondering if you can tell us why there wasn't a whole lot of collaboration in that. 782 MR. WEBBER: The aggressive market opening, I think, killed a lot of it, as well as all the changes taking place amongst the utilities at the time. Hydro One did work with and talk with some of the other utilities, and it quickly became apparent that we all had different starting places, we had different systems in place. Some had just put in customer systems; some needed to buy them, and given nobody was really certain where it was going, getting alliances and partnerships together just didn't seem to happen. 783 MR. SHEPHERD: If you had had more time, could you have saved some money by collaborating on this stuff? 784 MR. WEBBER: It would be pure speculation, but if you could get one system built to service a number of entities, that would be cheaper. But time might have done that. 785 MR. SHEPHERD: In fact, to a certain extent, you did that, right, because you acquired a whole bunch of LDCs and standardized? 786 MR. WEBBER: And thus they avoid doing their own things -- their own market-ready effort, so they avoided costs within their market-ready effort. 787 MR. SHEPHERD: You acquired 87 LDCs, right, during that time? 788 MR. WEBBER: Yes. 789 MR. SHEPHERD: And is it fair to assume that one of the reasons why some of them agreed to be acquired was because it was so hard to get ready for the market that they basically didn't have much of a choice? 790 MR. WEBBER: I would assume so, but... 791 MR. SHEPHERD: Okay. Let's turn to the system you actually built. 792 The architecture of that system is set out in Exhibit G, tab 11, schedule 1, page 11. Can you get that out? I'm sure you're familiar with this chart. 793 MR. WEBBER: Yes, I have it. 794 MR. SHEPHERD: All right. So tell me whether I understand this right: All this stuff around the outside, basically you established a bunch of functions that had to be delivered in the system. From an architectural point of view, you established a bunch of functions, and for the most part, you bought off-the-shelf solutions for those functions using, sort of, best-in-class decision making. You'd go to whoever had the best solution for a particular component, and went out and bought it; right? 795 MR. WEBBER: Yes. 796 MR. SHEPHERD: And then -- and that was almost entirely external vendors. I can't see anything there that you wrote yourself. 797 MR. WEBBER: Actually, we did the CODS system; it was one we developed ourselves. 798 MR. SHEPHERD: Oh, did you? My mistake. 799 MR. WEBBER: And the CSS we did modifications to it. It was an existing CAP legacy system. It's noted in white in there. And MBS was also one we developed in-house as well as point to point, but the rest, you're correct, the exact, the WFIS, MB-Star are all external products. 800 MR. SHEPHERD: And so what you around the outside you have all these functional things, and then WFIS, as I understand it, it connects all the solutions. It's basically, sort of, a sophisticated work-flow engine that operates as a kind of middleware; is that right? 801 MR. WEBBER: That's exactly right. 802 MR. SHEPHERD: It's what makes everything work with everything else because you have a whole bunch of different vendors. 803 MR. WEBBER: Yes, and integrates all of the systems and their functions. Something happens on a Monday and another system processes on a Saturday, WFIS ensures that it moves between them on those two days. 804 MR. SHEPHERD: And it also makes sure that you can use common data sets, so if you have data in one component, it's usable from the other components of the system? 805 MR. WEBBER: Right. 806 MR. SHEPHERD: Okay. Now, that system as a system, it was basically a new system that you put in place; right? There were some old components, but basically the architecture was new and overall it was a new system, from your point of view? 807 MR. WEBBER: Correct. 808 MR. SHEPHERD: Okay. And we've noted that you spent 57 million on that, but you actually spent more on that, right, than 57 million? 809 MR. WEBBER: I don't -- 810 MR. SHEPHERD: Because some of it was allocated to transmission? 811 MR. WEBBER: No. WFIS did not go to transmission. 812 MR. SHEPHERD: The whole system, I'm talking about the whole -- 813 MR. WEBBER: Oh, the whole architecture of systems? That's in an interrogatory, H1, 40, I believe. Sorry, my mistake, H4, 40, on page 2 of 2. 814 MR. SHEPHERD: Go ahead. 815 MR. WEBBER: 2 million for the hardware, 18 million for the software, 14 million of the labour. Now, there were some processes in that too, processes in systems. The 58 external labour. 816 MR. SHEPHERD: Okay. But only part of that was allocated to distribution; right? 817 MR. WEBBER: That's correct. 818 MR. SHEPHERD: So how much was allocated to transmission? 819 MR. WEBBER: Back in our evidence on table 1, on page 12 of 36 of schedule 1, the back page of the system chart you were just looking at. 820 MR. SHEPHERD: Okay. 821 MR. WEBBER: And on there, transmission, 13.581 of the overall costs. 822 MR. SHEPHERD: Okay. Now, how much of the total cost was allocated as acquisition costs of the LDCs you acquired? 823 MS. FRANK: The LDCs had no separate integration or acquisition costs included in any of these deferral accounts. All you see in the deferral account is the costs associated with building the market-ready system. All of our acquired customers are being billed out of this integrated system. There isn't a separate system for acquireds. And actually, their integration cost is not here. 824 MR. SHEPHERD: The 87 acquired LDCs, they all had various systems of one sort or another for billing and CIS, et cetera; right? 825 MS. FRANK: And they all moved to the system at Hydro One. 826 MR. SHEPHERD: Just back up a stage. They all had their own systems when you bought them; right? 827 MS. FRANK: They would have had some mechanism of billing their customer. I don't know if they had systems or what they did. 828 MR. SHEPHERD: And it was a broad range, wasn't it, from people who did it by pen and ink to people who had relatively sophisticated off-the-shelf billing software; right? 829 MS. FRANK: There was quite a range of what the customers did, yes. 830 MR. SHEPHERD: Is anyone on the panel here an accountant? 831 MS. FRANK: I'm in accounting, yes. 832 MR. SHEPHERD: So in normal accounting rules, when you acquire a company and you have expenses to integrate it into your existing operations, those expenses are typically part of your acquisition costs, aren't they? 833 MS. FRANK: Maybe be a bit more specific and I can answer your question. 834 MR. SHEPHERD: If I'm Subway and I want to acquire Mr. Submarine, normal accounting rules would say that my acquisition cost has to include the cost of changing all the signs, for example, and integrating the systems so that they can be Subway stores; right? 835 MS. FRANK: The costs that we have included is the amount that we paid for the utility, and then our ongoing costs to operate them would include any changes that need to happen and likely would reflect what we would be willing to pay for the company. A company where we had to make no changes, we'd be willing to pay more than a company where we had to incur a lot of costs to get them compliant with our processes or upgrade their system or whatever. I was struggling with your earlier -- 836 MR. SHEPHERD: I'm trying to drive at something else. When you acquire a company, you typically have expenses to make that company work within your system, upfront expenses to make it work within your systems; right? 837 MS. FRANK: There are integration costs, and indeed there were integration costs for all of our acquired LDCs. But all I said was those costs are not in these accounts. 838 MR. SHEPHERD: Okay. 839 MS. FRANK: But we did incur costs to integrate them, yes. 840 MR. SHEPHERD: And integration costs are typically part of your acquisition costs; right? They are treated, for accounting purposes, as a cost of acquisition; correct? 841 MS. FRANK: You have choices as to how to treat them. We didn't include them with the acquisition costs. We had integration costs. They certainly would have been reflected in the year in which we made the integration costs, so we expensed them rather than capitalised them, if that's what you're asking. 842 MR. SHEPHERD: So one of the things that happened when you acquired all these LDCs is that you solved their problem of getting ready for the market; right? 843 MS. FRANK: That is true. 844 MR. SHEPHERD: Because you had one standardized system for everybody that cost you $70-odd-million; right? Correct? 845 MS. FRANK: Well, for our distribution system, it cost us 53 million. 846 MR. SHEPHERD: Okay, 53 million. Close enough. And so I guess what I'm trying to understand is why some portion of that cost wasn't allocated to the acquisition of those LDCs, because some portion of it was used to integrate them into your system, wasn't it? 847 MS. FRANK: We didn't allocate a portion of the costs to the acquisition costs, but we are expecting those customers to pay for the deferral account recovery. So we're not just charging our former core customers for the system; we're also suggesting that our acquired customers should make a contribution as well. 848 MR. SHEPHERD: How much did you pay for those 87 LDCs, roughly? 849 MS. FRANK: I'm sorry, I wouldn't know that number off the top of my head. 850 MR. SHEPHERD: It was a big number; right? 851 MS. FRANK: It would have been a sizable number, but I don't know what it was. 852 MR. SHEPHERD: You're not recovering that number from the ratepayers, right, any of the ratepayers? 853 MS. FRANK: We bought the assets. Those customers continue to be served from those assets. Therefore, they are paying for the service of those assets. So yes, I would say I'm recovering those costs from the utilities that I purchased, their customers are paying for the assets. 854 MR. SHEPHERD: Let me just clarify that for a second. Where you buy the utility and you buy it for exactly the amount of the rate base, a price equivalent to rate base, in other words, equivalent to the net amount of the balance sheet, then that rate base will continue and you'll be recovering it over time through depreciation and ROE, et cetera; right? 855 MS. FRANK: That's true. 856 MR. SHEPHERD: And if you paid a premium -- and you did pay a premium on some of these? 857 MS. FRANK: On some of these we saw an ability to pay more than the assets because we knew we could get some efficiencies out of the purchase, and therefore, we would be willing to pay a premium knowing that we could operate them more cost effectively than the former utility. So the revenue from their customers would have justified a higher price than what their assets were worth, and so we would have paid a premium. 858 MR. SHEPHERD: That premium doesn't go into rate base, does it? 859 MS. FRANK: The premium does not go into rate base, but the revenues are still sufficient to earn a reasonable return on the rate base. 860 MR. SHEPHERD: So then, if you allocated an additional cost to those purchases, for example, part of this was treated as an integration cost, then that wouldn't go into rate base either, would it? 861 MS. FRANK: All of these deferral accounts are not being suggested they would go into rate base. They have separate recovery, so a system that the acquireds also benefit from, we're not suggesting we add it to rate base for them. 862 MR. SHEPHERD: Sorry, again I asked my question ineloquently. Right now, these amounts are treated as transition market-readiness costs; right? 863 MS. FRANK: Yes, they are. 864 MR. SHEPHERD: If they were instead treated as costs of acquisition of the LDCs, or some portion of them was, then you'd have to figure out what's the right accounting treatment for those costs; right? 865 MS. FRANK: I wouldn't see them as integration costs. Maybe that was why I had trouble with your earlier question, because I don't see them as integration costs. Integration costs, to me, would have related to getting their customers over to our billing system. That's an integration cost. If you're going to move a customer from their old billing approach to your system and there's costs incurred in setting them up on your billing system, those costs are not here. Those are integration costs. This is building a new tool that changes the tool that you have today and building new processes, and all the people who use our system, our core and our acquireds, are going to use the new tool. To me it's not an integration cost. 866 MR. SHEPHERD: Was there any incremental costs to building that system so that it could include 87 acquired LDCs? 867 MS. FRANK: I think this morning we indicated it was a more expensive system because we had more rate schedules, more customer classes that we had to deal with than it would have been if we hadn't had the acquireds. But we haven't separated that. The total cost as one bundle here. 868 MR. SHEPHERD: Okay. So before I leave transition costs, you had an interim recover of $16.3 million to December 31st, 2003; right? 869 MS. FRANK: Yes, we did. 870 MR. SHEPHERD: And those rates, the rates that included that interim recovery, remained in place for the first three months of this year as well; right? 871 MS. FRANK: Yes, they did. 872 MR. SHEPHERD: And then they were replaced by the phase 1 recovery of regulated assets; right? 873 MS. FRANK: That's true. 874 MR. SHEPHERD: And so, correct me if I'm wrong, what happened when phase 1 kicked in was that that $8.15 million a year that you were recovering in the interim recovery, you backed that out and you put in instead the 25 percent that you were allowed under phase 1; is that right? 875 MS. FRANK: That is, in effect, what happened. In reality, what we did is we just added the increment, so we left the rates in place and we added the difference, but it's the same effect. 876 MR. SHEPHERD: The point is you weren't double counting, you weren't recovering twice? 877 MS. FRANK: No. 878 MR. SHEPHERD: Just as an aside, those first three months of this year, you recovered a few million dollars as an interim recovery. Where does that get accounted for? 879 MS. FRANK: Over 2 million, say 2.4 million, would have been recovered in that first quarter. And what happened was that the deferral account balance would go down for that. So if we weren't looking at December '03 and we were looking at, say, June '04, you'd see that the reduction for recovery was not the 16.3 but was actually -- well, it was actually 18.7. So we would reduce the account for the '04 amounts. As we said earlier, this only deals with December '03. Anything beyond that, be it interest, be it recoveries, all get dealt with when we deal with items for '04 and beyond. 880 MR. SHEPHERD: Okay. You're anticipating having more -- that was transition costs; right? 881 MS. FRANK: We're expecting that there will be deferral account balances kind of across -- this account will continue to have interest until the money gets reduced. Other accounts like the RSVA accounts that expect actually principal amounts to continue to occur, and there may be other deferral accounts that the Board directs at some point in time. We don't expect this exercise will clear all balances in the deferral accounts. We do expect it to be an ongoing process. 882 MR. SHEPHERD: My question was specifically about transition costs, 1570. Do you expect that you will accrue any additional amounts in 1570 this year? 883 MS. FRANK: There would be interest costs that would accrue in 1570. 884 MR. SHEPHERD: That's the only thing? 885 MS. FRANK: That's the only thing. 886 MR. SHEPHERD: And so these interim recoveries, they were for 1570, right, specifically? 887 MS. FRANK: Yes, yes, they were. 888 MR. SHEPHERD: So why wouldn't the ratepayers get a credit for them in this process? I don't understand that. 889 MS. FRANK: This process only deals with the period to December '03. Any recoveries that we got subsequent to that, we'll take off of the interest that would accumulate in that account. And then if we find that we are under, we'd naturally expect that when you look at balances beyond December '03, that you deal with whatever that accounts balance was, positive or negative, you would clear it later. 890 MR. SHEPHERD: Okay. So I want to move from the actual numbers and how you recovered these from ratepayers. Conceptually, tell me whether this is correct, this process has three steps: Step one is figure out what the right amount is that you're entitled to recover. Step two is allocated to the various rate classes or in your case, to your various segments and then to the various rate classes. And step three is figure out how you then recover it from the members of those classes; right? 891 MR. ROGER: That's correct. 892 MR. SHEPHERD: Okay. So it's basically the same as you do rates on an annual basis; right? It's the normal process of revenue requirement, cost allocation, rate design; yes? 893 MR. ROGER: Yes. 894 MR. SHEPHERD: It's correct, isn't it, that the -- in a perfect world, the proper way to allocate costs is on the basis of cost causality; right? 895 MR. ROGER: If that's a main principle that they use, that's correct. 896 MR. SHEPHERD: Sometimes you have to adjust that for other factors, like rate shock, or sometimes there's other things that balance it, but step 1 is make sure you allocate to get the right people paying the costs that they cause; right? 897 MR. ROGER: That's correct. Sometimes you can also use simplicity as another criteria to allocate the costs. 898 MR. SHEPHERD: Okay. So you would -- are there circumstances in which you would think that it's appropriate to allocate a major cost, a material cost, the simpler way even though you know it doesn't track cost causality? 899 MR. ROGER: No, we would always prefer to use cost causality as a main criteria. 900 MR. SHEPHERD: So I wonder if you could turn up Exhibit G, 13, 1. Exhibit G, tab 13, schedule 1. This is that wonderful big chart of your proposed allocation. Do you have that? 901 MR. ROGER: Table 1? 902 MR. SHEPHERD: That's schedule 1, yes -- sorry, table 1, it says on it. Yes, that's right. Do you have that? 903 MR. ROGER: Yes, I do. 904 MR. SHEPHERD: And there's actually two of these in the evidence; right? There's one that was originally filed and there's one marked, "revised June 8, 2004." That's the current one? 905 MR. ROGER: Yes, that's the current one. 906 MR. SHEPHERD: Thank you. And can you confirm that this is your chart of how you're proposing to this Board to allocate the regulatory assets to your customer classes, acquireds and embeddeds; right? 907 MR. ROGER: Correct. 908 MR. SHEPHERD: And if I understand this chart correctly, you've got this section at the top which is the various allocators. You're just, sort of, setting out the raw data because you're using different types of raw data to allocate different levels. So section -- the top area is those -- the raw data for those allocators; right? 909 MR. ROGER: Right. 910 MR. SHEPHERD: Okay. And so, for example, line A shows distribution revenues, and it shows, for example, that of the 742 million you billed in 2003, 127.9 million was the R1 class, just to pick an example, and 71.3 million was the G3 class. 911 MR. ROGER: Yes. 912 MR. SHEPHERD: And so just -- will you accept, subject to check, that the implication of that is that if you use A, distribution revenue, as your allocator, that means that R1 is going to bear 17.24 percent of the cost, 127.9 divided by 742, and G3 is going to bear 9.61 percent, which is 71.3 divided by 742 million; is that right? 913 MR. ROGER: I haven't done the math, but it sounds correct. 914 MR. SHEPHERD: Subject to checking those numbers. 915 MR. ROGER: Yes. 916 MR. SHEPHERD: That's the concept anyway. 917 MR. ROGER: Yes. 918 MR. SHEPHERD: Then if you go down to line 3 -- sorry, line C there, you're making some adjustments to the figures in A. Can you describe what that difference is, how that works? 919 MR. ROGER: The first line A, if you look at the acquireds column, you see that it's $40.1 million as a distribution revenue. 920 MR. SHEPHERD: Yes. 921 MR. ROGER: Under row C, you'll see that it's $6 million. The $6 million reflects the LV revenues we would collect from the acquired customers, while the $40.1 million reflects the distribution revenues we collect from the acquired customers. 922 MR. SHEPHERD: So C is just backing up the -- backing out the LV amount? 923 MR. ROGER: C would take for our core customers, their distribution revenues, and for the acquireds and the embeddeds, the LV revenues. 924 MR. SHEPHERD: Okay. And then line D, what you're doing is you're splitting up by megawatt hours. This is the energy allocator; right? 925 MR. ROGER: Correct. 926 MR. SHEPHERD: So, for example, your phase 1 allocation uses this allocator; doesn't it? 927 MR. ROGER: Could you repeat the question, please. 928 MR. SHEPHERD: The phase 1 -- the allocation of the phase 1 recovery, was it based on this line D, energy? 929 MR. ROGER: No. 930 MR. SHEPHERD: No? Okay. Then what was it based on? 931 MR. ROGER: The phase 1 was based on two southern and two distribution revenues -- two southern and two distribution revenues, and allocated only to our core and acquired customers. 932 MR. SHEPHERD: So that allocator isn't actually here anywhere. 933 MR. ROGER: Correct. 934 MR. SHEPHERD: Then E is actually two lines, it's two different customer numbers. One is including the acquireds and the others is not including the acquireds; right? 935 MR. ROGER: That's right. 936 MR. SHEPHERD: Okay. So then the next section, as I understand it, takes each of the balances in the accounts and it allocates it based on an allocator that you've set out here under the column "allocators"; right? 937 MR. ROGER: Right. 938 MR. SHEPHERD: So let's just take an example. Look at the line 1525, "secondary environmental." Do you see that line? 939 MR. ROGER: Yes. 940 MR. SHEPHERD: So -- and there's that $40.6 million we were talking about earlier, and the allocator says: "Distribution revenue core plus acquired and embedded LV revenues," so that's that line C above, right, that allocator? 941 MR. ROGER: Right. 942 MR. SHEPHERD: And so then, for example, 7.336 million being allocated to R1 is 18.1 percent of the total. 943 MR. ROGER: Yes. 944 MR. SHEPHERD: And that's because, if you see in line C, you've got your percentages there, 18.1 percent is for that class; right? 945 MR. ROGER: Right. 946 MR. SHEPHERD: Okay. And so if you take a look over to G3, I'm concentrating on G3 because that's where your schools are, if you go over to G3, you have 4 million and change being charged to that class for 1525, and that's 10.1 percent of the total; yes? 947 MR. ROGER: Right. 948 MR. SHEPHERD: Okay. And the logic behind that is that distribution revenues, by rate class, are very close to asset utilization by rate class; right? 949 MR. ROGER: Right. 950 MR. SHEPHERD: And so environmental remediation costs are caused by asset utilization and therefore it makes sense, if you have a proxy for asset utilization, distribution revenue, you should use that proxy because it closely tracks cost causality; correct? 951 MR. ROGER: Distribution revenues for our customers and LV revenues for the acquireds and the embeddeds, yes. 952 MR. SHEPHERD: And you're saying that's a good proxy for asset utilization and, therefore, that closely tracks cost causality; is that right? 953 MR. ROGER: For this particular account, yes. 954 MR. SHEPHERD: Perfect. You don't actually have data that supports the connection between distribution revenues and asset utilization, do you? 955 MR. ROGER: No, we don't. 956 MR. SHEPHERD: But it sort of stands to reason because a big chunk of your revenues are based on rate base, which is asset utilization; right? 957 MR. ROGER: That's correct. 958 MR. SHEPHERD: Okay. And the point here is to make sure that each customer group pays their fair share. 959 MR. ROGER: Right. 960 MR. SHEPHERD: So in the case of environmental costs, that makes a lot of sense to us, and I think that's true of all your allocations, but we do have some questions about 1570, market-ready costs. So this is the cost of setting up your billing and customer care systems, what we talked about earlier, the 57 million? 961 MR. ROGER: Yes. 962 MR. SHEPHERD: And the 43 million you see there in the chart, that's just the net of the 57, less the 16 you've recovered; is that right? 963 MR. ROGER: Yes. 964 MR. SHEPHERD: Now, you're proposing to allocate -- why don't you describe -- that allocator there, segments via customer, then among classes via distribution revenues, explain what that means. 965 MR. ROGER: What we propose to do is between the main customer groups, the core, acquireds, and embedded customers, to allocate to them based on the number of customers within each of those groups. And once we have the amount of dollars within each group, within the acquireds, within the core, and within the embedded, to do it based on distribution revenues. 966 MR. SHEPHERD: The general effect of that is that the overall allocation pretty closely tracks distribution revenues, doesn't it? 967 MR. ROGER: I think it would be closer to number of customers than distribution revenues. 968 MR. SHEPHERD: Well, let's just take an example to see whether that's right. I'm looking at G3, totally by accident, and will you confirm that the percentage being charged to G3 is about 9.6 percent, roughly? 969 MR. ROGER: Subject to check. I can't do it here. 970 MR. SHEPHERD: And will you confirm that G3, on line A, is about 9.6 percent of your total revenues? 971 MR. ROGER: Subject to check. 972 MR. SHEPHERD: And will you confirm that G3, in terms of number of customers, is, in fact, 1.27 percent of your customers? 973 MR. ROGER: Subject to check, yes. 974 MR. SHEPHERD: Okay. So then, actually, that allocation is a lot closer to distribution revenues than it is to numbers of customers, isn't it? 975 MR. ROGER: I would have to check that. 976 MR. SHEPHERD: Okay. Could you undertake to tell us -- to provide us with that information? 977 MR. ROGER: Yes. 978 MR. SHEPHERD: Okay. 979 MS. ALDRED: Can we just have a repetition of what that information is? 980 MR. SHEPHERD: Well, I asked a specific question, is it true that the allocation proposed for 1570 is closer to distribution revenues than by customer, and the witness said he'd have to check, and I'm asking him to check and give us the answer in writing. 981 MR. ROGER: That's fine. 982 MR. LYLE: We'll mark that as J.1.4. 983 UNDERTAKING NO. J.1.4: TO CONFIRM THAT THE ALLOCATION PROPOSED FOR 1570 IS CLOSER TO DISTRIBUTION REVENUES THAN BY CUSTOMER 984 MR. SHEPHERD: Now I'm going to read you a quote from the evidence of Toronto Hydro, sir. In Toronto Hydro, tab 1 of their binder of interrogatory responses, at page 11, in response to a Board Staff interrogatory, they say, and I quote: 985 "If rates were to track cost causality, it would be more appropriate to allocate transition costs by number of customers." 986 Do you agree with that statement? 987 MR. ROGER: Yes, and I think that's what we're doing here. We're allocating the costs of the segments based on number of customers. 988 MR. SHEPHERD: Well, if you allocated 1570 based on number of customers across the board, then isn't it true that the amount that you would allocate to G3 would be $520,000, not 3.8 million? 989 MR. ROGER: I haven't done that calculation so I can't confirm that number. 990 MR. SHEPHERD: Okay, well, why don't we do it, okay? You have -- above, you have 14,273 G3 customers. Do you see that? 991 MR. ROGER: Yes. 992 MR. SHEPHERD: Out of a total of 1,123,509 customers. 993 MR. ROGER: Yes. 994 MR. SHEPHERD: Can you confirm that that's 1.27 percent? 995 MR. ROGER: Sounds about right. 996 MR. SHEPHERD: And can you confirm that -- can you tell us what 1.27 percent of 43,057,000 is? 997 MR. ROGER: One percent would be around half a million dollars, $430,000. 998 MR. SHEPHERD: So then ballpark is somewhere around 500 to 550 would be the correct allocation by number of customers, wouldn't it? 999 MR. ROGER: Subject to check, yes. 1000 MR. SHEPHERD: Okay. So then Toronto Hydro has said the proper allocation for transition costs, if you're using cost causality, is by number of customers, that would mean that you should be allocating to that class somewhere around $500,000; right? 1001 MR. ROGER: Yes. 1002 MR. SHEPHERD: Okay. I'm going to read you a quote from paragraph 6.02 of the RP-2000-0023 case. In that case, in addition to dealing with LV charges, Hydro One also got approval for interim recovery of transition costs; do you recall that? 1003 MR. ROGER: Yes. 1004 MR. SHEPHERD: So I'm quoting the Board's decision here. It says: 1005 "Networks also submitted that the pertinent cost driver to determine the allocation of market-readiness transition costs was the number of customers." 1006 Did Hydro One, in fact, take that position in that proceeding? 1007 MR. ROGER: Yes. 1008 MR. SHEPHERD: And you agree with that today, that that's the right way to do it; correct? 1009 MR. ROGER: That's correct. 1010 MR. SHEPHERD: So then do I take it that you would agree with me that the correct amount to be allocated to G3 is around $500,000? 1011 MR. ROGER: Subject to check. 1012 MR. SHEPHERD: And then so I take it, then -- can I get your, I don't know what word to use, I've never had this happen to me before, commitment to amend your application accordingly? 1013 MS. ALDRED: No, no, we won't amend our application accordingly. 1014 MR. SHEPHERD: I guess I shouldn't have gone for the last question. 1015 It's true, isn't it, that in RP-2000-0023, the Board agreed with your statement that market-readiness should be allocated on number of customers, didn't they? 1016 MR. ROGER: Yes. 1017 MR. SHEPHERD: And they approved interim recovery on that basis; right? 1018 MR. ROGER: Yes. 1019 MR. SHEPHERD: And is it true that the 16.3 million that you've recovered has been based on that allocator? 1020 MR. ROGER: If I can have a moment, please. 1021 The 16.3 was allocated to our core customers, and it was recovered through a fixed and a volumetric charge. 1022 MR. SHEPHERD: But it was allocated by class based on number of customers, wasn't it? 1023 MR. ROGER: Yes. 1024 MR. SHEPHERD: I wonder if you can undertake to provide the Board with Exhibit G, tab 13, schedule 1, that's this table we've just been looking at, with the numbers changed so that account 1570 is allocated based on number of customers rather than based on the allocator currently proposed. 1025 MR. ROGER: Yes, we can do that. 1026 MR. SHEPHERD: Thank you. 1027 MR. LYLE: We'll mark that as Undertaking J.1.5. 1028 UNDERTAKING NO. J.1.5: TO PROVIDE THE BOARD WITH EXHIBIT G, TAB 13, SCHEDULE 1, WITH THE NUMBERS CHANGED SO THAT ACCOUNT 1570 IS ALLOCATED BASED ON NUMBER OF CUSTOMERS RATHER THAN BASED ON THE ALLOCATOR CURRENTLY PROPOSED 1029 MR. SHEPHERD: Mr. Chairman, those are my questions. 1030 MR. VLAHOS: Thank you, Mr. Shepherd. 1031 Mr. Dingwall, are you ready, sir? 1032 MR. DINGWALL: Actually, intervenors have had some discussions among themselves, and Ms. Lott has agreed to precede me in that I've got a commitment at 4:30 that I can't miss. 1033 MR. VLAHOS: Okay. 1034 Ms. Lott, can you give us an idea -- where is she? 1035 MS. LOTT: Sorry, hi. 1036 MR. VLAHOS: Can you give us an idea of how long you'll be? 1037 MS. LOTT: I'd say probably more than a half hour but less than an hour. It would be to closer to the hour but -- 1038 MR. VLAHOS: So we can obviously do Mr. Dingwall today. Mr. Dingwall, I'm sorry, are you the one with the conflict today or is Ms. Lott? 1039 MS. LOTT: No, I have no conflict. 1040 MR. VLAHOS: Who has the conflict? Mr. Dingwall, you have to go, you said? 1041 MR. DINGWALL: Yes, I have to leave early today. 1042 MR. VLAHOS: So you're not going to be on today, then. 1043 MR. DINGWALL: That's correct. 1044 MR. VLAHOS: That's fine. 1045 Ms. Lott, then. 1046 MS. LOTT: Thank you very much, Mr. Chairman. 1047 CROSS-EXAMINATION BY MS. LOTT: 1048 MS. LOTT: I wanted to start by asking a couple of questions around the issue of recovery of retail cost variances. And I apologize if I don't know who I'm supposed to be directing questions to, but you can determine from my questions who should answer. 1049 I just wanted to start with confirming my understanding of your proposals with respect to the allocation of the retail cost variances. Am I correct in saying that these are variances between the revenues that you receive from retailers and the costs that are associated with serving them? Is that correct? 1050 MS. FRANK: Yes, that would be correct. 1051 MS. LOTT: Do you agree that the intent of the retail service fees that the Board has approved is that they cover the incremental costs of servicing or providing services to those retailers? 1052 MS. FRANK: Yes, that's our understanding of the intent. 1053 MS. LOTT: Okay. Now, as I understand it, these variances arise because the rates that were initially approved by the OEB were based on estimates as to what the actual costs of servicing the retailers would be. Is that your understanding as well? 1054 MS. FRANK: Yes, it is. 1055 MS. LOTT: Now, given this background, and the fact that the OEB has already adopted the view that retailers should pay for these services, I wondered if you could turn up your response to and interrogatory from the Consumers' Council of Canada, and that's Exhibit H, tab 7, schedule 6. 1056 MS. FRANK: We've got it. 1057 MS. LOTT: You've got that in front of you? Okay. I think there's been some reference in your answers this morning to Mr. Warren made to this. Here you explain that your proposal to allocate the retail cost variances to core, legacy and acquired customers is based on the view that this Union decision that you reference requires retail costs to be allocated to all customers. Would you agree that that's what that reference of the quote 5.66 refers to? 1058 MR. ROGER: Yes. 1059 MS. LOTT: Okay. Now, isn't it fair to conclude that in the case of electricity and the incremental costs that are associated with providing services to retailers, that the Board, in fact, has already decided by virtue of the fact that they have approved rates to be charged, that it is appropriate to charge retailers for these services; would you agree with that? 1060 MR. ROGER: That would be one way of doing it, yes. 1061 MS. LOTT: Okay. That certainly has been the way that the Board has decided to do it by virtue of that decision. In which case, why shouldn't the retailers, then, be responsible for the variances between the revenues and the actual costs? 1062 MR. ROGER: That would be one way that it could be done. If we would have an opportunity to bill the retailer, we could recover the costs from them. But we are proposing here that all customers benefit out of the retailers existing, and all customers could pay for this cost. 1063 MS. LOTT: But would you also agree that the other way might be a better way of doing it? 1064 MR. ROGER: It's another way of doing it, I'm not sure it's a better way. 1065 MS. LOTT: Okay. But it would be an acceptable alternative? 1066 MR. ROGER: Yes. 1067 MS. LOTT: Okay. Now, as I understand your proposal, and here I'm referencing Exhibit G, tab 9, schedule 1, page 10, and I think you've already put this in evidence this morning, but I just wanted to confirm that these variances are going to be allocated to customer classes based on the number of customers. If you could pull that up, and if I am correct about that if you could confirm that. I'm looking there on that page 10 at lines 15 and 16. 1068 MR. ROGER: Yes, and I was looking also at table 1, at Exhibit G, tab 13. 1069 MS. LOTT: Right. Okay. 1070 MR. ROGER: And the foldout page there. And there we say that it's number of customers. 1071 MS. LOTT: Right. Okay. That's good. Now, if you are going to base this allocation on the rationale of the Union decision which we've just quoted from Exhibit H, tab 7, schedule 6, then shouldn't the allocation be based on volumes or energy, which is also -- if we look at that paragraph, 5.66, of the OEB decision, it does say that these should be recovered through a volumetric charge. 1072 MR. ROGER: You can still allocate the cost to the customer groups based on the number of customers. You can recover it afterwards from the customers based on a volumetric charge. 1073 MS. LOTT: But as I understand the Union decision, it did allocate it based on energy; is that correct? 1074 MR. ROGER: I would have to check that. What it would do is -- basically, it would do it based on a volume allocation instead of number of customers, that the embedded customers would capture almost half of those costs, because by volume, they consume almost the same amount than our core and acquired customers. So you would be shifting cost responsibility, when you use number of customers to energy, mostly to the embedded customers. 1075 MS. LOTT: Okay, thank you. 1076 I wanted to ask a few questions around the issue of the Bill 210 implementation. I wondered if you would have the ability to pull up the Mississauga IR response to the OEB Staff, and this is IR No. 5, tab 5 -- sorry, tab A, page 6. 1077 MS. FRANK: Could you repeat it again, please. 1078 MS. LOTT: It's OEB IR No. 5, tab A, page 6. And I'm interested in looking at the last two paragraphs on that page. It's page 6 of 30. 1079 MS. FRANK: Yes, we have it. 1080 MS. LOTT: Okay, thanks. Now, if we look at the last two paragraphs on that page, Mississauga indicates that the initial claims to the IMO for funds required to address the differences between the spot price and the 4.3 cents that they were to be charged to low-volume and designated customers resulting from Bill 210 was based on an estimate, and that when the final reconciliation was done for the first year, Mississauga was then required to refund the IMO, I think it's just over $13 million, which it states that it did in March 2004. 1081 Would you agree that that's what that evidence states? 1082 MR. RELICH: Yes, I believe that is correct. 1083 MS. LOTT: Okay. Now, I'm just wondering if Hydro One went through a similar process of estimating the funds that would be required from the IMO to implement the 4.3 cents charge, and then did you perform a reconciliation. 1084 MR. RELICH: Yes, I believe there was a reconciliation done with respect to the IMO settlements. 1085 MS. LOTT: Okay. When was that completed? 1086 MS. FRANK: The IMO reconciliations, it wasn't a one-time event. What happens is on a monthly basis, when we know we're going to be making rebates, in this case, for the Bill 210, the $75 cheques, we cut those cheques for customers in December and we asked for money from the IMO to make that payment in December. Then as designated customers got identified and the number of customers who needed to get credits on their bills to get them back to 4.3 were identified, that work would have carried on January, February, March. I believe by the end of March we would have primarily finished with that. So any month there could have been reconciliations. I'm having trouble saying when was the one reconciliation done. 1087 MS. LOTT: Okay. Just one minute, please. 1088 My only question around that is whether the December 2003 balances capture all the reconciliations that were done up until that time? 1089 MS. FRANK: Actually, I'm having trouble with -- we're in the account -- Bill 210, we call it subaccount E. Is that where you're asking questions on? 1090 MS. LOTT: Yeah, but I'm really focusing on the impacts of that. 1091 MS. FRANK: There are no -- then that's what I was having difficulty with the question, because what we've got in Bill 210 is our cost to administer the program, to build the processes and the systems, to handle the call handling. We don't actually have reconciliations with the IMO. Those amounts between the IMO and us are cleaned up, hopefully most of it on a monthly basis, but if not, the next month. There's nothing in the variance account that reflects over or underpayments to the IMO for Bill 210. 1092 MS. LOTT: Okay. Thanks very much for that. 1093 I wanted to move on to the issue of deferred environmental costs, and I wanted to point to evidence that you've submitted in Exhibit G, tab 10, schedule 1. I'm going to be making some reference to that. Have you got that in front of you? 1094 MS. FRANK: Yes, we do. 1095 MS. LOTT: Okay. Now, as I understand it, the associated deferral account was approved by the OEB as part of your August 2002 rate order; is that correct? 1096 MS. FRANK: Yes, that's correct. 1097 MS. LOTT: Okay. And this deferral account was part of an overall rate mitigation plan for 2001 and 2002 that allowed Hydro One to undertake the associated environmental remediation work, but to recover the costs at a later point in time as opposed to in the 2001 and 2002 rates. Is that also a correct understanding? 1098 MS. FRANK: Yes, that's correct. 1099 MS. LOTT: Okay. Now, at the time that you did that rate filing, it was estimated that the spending for the environmental remediation in these two years would be about $28 million; am I correct about that? 1100 MS. FRANK: Yes, that is correct. 1101 MS. LOTT: Okay. And this was the revenue requirement reduction that was included in your original rate application that you filed in January 2001; is that correct? 1102 MS. FRANK: Yes, that's right. 1103 MS. LOTT: Okay. And I understand also that this -- this deferral of the environmental costs was also part of an overall rate mitigation plan that you put forward in that same filing, and I gather the other aspects of that included reducing costs and delaying expenditures. 1104 MS. FRANK: And lowering return. 1105 MS. LOTT: Okay. Now, as I think has come out in the evidence previously, you actually spent over $35 million in 2001 and 2002, and that this is the amount that you're now seeking recovery for? 1106 MS. FRANK: Yes, that is correct. 1107 MS. LOTT: Okay. And plus interest would make a total of $40.6 million; is that correct? 1108 MS. FRANK: Yes, it is. 1109 MS. LOTT: Okay. My question is whether or not -- if you could let us know when you became aware that these expenditures were going to become more than that 28 million during this two-year period? 1110 MS. FRANK: I'll ask Mr. Della Rossa to speak to that. 1111 MR. DELLA ROSSA: With respect to the expenditure over and above the 28 million, I can't provide a definitive answer as to a date when we knew that we would exceed the $28 million, but I will make a couple of comments surrounding the $28 million. And one is that it truly was an approximation of the value of the environmental remedial work that was required. It was the approximate amount of the planned expenditures. And at the time, because of the nature of the programs, there was quite a bit of uncertainty as to what the final number would be. And as you see in the evidence, there was additional work that was required to be done that was important to do for environmental reasons, for regulatory reasons, for health reasons. It was important to do and we undertook to do that work in 2001 and 2002. 1112 MS. LOTT: Do you know -- I know you said you couldn't give a date, but do you know whether it would have been before April 2002 that you would have known that it would have been more than 28 million? 1113 MR. DELLA ROSSA: Some of the work was done before that date, yes, it was. 1114 MS. LOTT: Now, I note in the Board's August 2002 decision that's referenced on your 2001 and 2002 rates, that the oral proceeding for that decision took place in April of 2002. My question is, if you had some information at that point, why didn't you advise the Board at that time that the amounts that you were deferring were going to be higher than the original 28 million projected? 1115 MR. DELLA ROSSA: I believe at the time the amount that would be exceeded was not deemed to be significant. Approximately 5 million of that was interest, and the balance was work that was done because it was important to do and it was not deemed to be a significant amount that we would have to communicate on. 1116 MS. LOTT: Okay. Given that, my final question on this would be, in the 2000 statements, the financial statements, you talk about the forecasted future there. I'm also wondering if you could produce the 2001 audited statement? Do you have that so that you could produce it for us today, or could you undertake to produce those? 1117 MR. DELLA ROSSA: Can you repeat what statement you're looking for? 1118 MS. LOTT: I'm looking for the audited financial statements for 2000 and 2001. 1119 MR. DELLA ROSSA: The audited corporate financial statements? 1120 MS. LOTT: Just for distribution. 1121 MS. FRANK: The 2001 definitely exists. I'm a little bit uncertain about the 2000. But if they existed -- 1122 MS. LOTT: Okay. If you could produce 2001, that would be great. 1123 MS. FRANK: Okay. Yes. 1124 MS. LOTT: So could that be as an undertaking? 1125 MR. VLAHOS: Yes, it will have to be. Mr. Lyle. 1126 MR. LYLE: We'll mark it as J.1.6, Mr. Chair. 1127 UNDERTAKING NO. J.1.6: TO PRODUCE THE AUDITED FINANCIAL STATEMENTS FOR 2001 1128 MS. LOTT: Thank you. I wanted to ask a few questions about the issue of the March 2002 delay in the market-adjusted rate of return and payment in lieu of taxes. 1129 I don't know who will speak to that issue. I wonder if you could turn up Exhibit G, tab 6, schedule 1, which talks about this. 1130 MS. FRANK: Yes, I have that. 1131 MS. LOTT: Okay. And I'm interested in looking at page 2 of this, and I'm looking at the first paragraph there where you note that the applications for the 86 acquired LDCs were initially filed with the Board in March 2002, with a May 1st implementation date, but they were subsequently amended on May 6th, 2002. I'm correct that that's what that says? 1132 MS. FRANK: Yes, it does. 1133 MS. LOTT: Okay. Could you advise us as to what was the nature of the amendment, and specifically why was the amendment required? 1134 MS. FRANK: At that time, we were discussing with Board Staff, I believe, a treatment for taxes for the second phase MAR and PILs adjustments. And some adjustments occurred in how we were treating PILs, so we refilled with the new approach for PILs. 1135 MS. LOTT: And would it be fair to assume that this amendment also led to further delays in the OEB consideration of those applications? 1136 MS. FRANK: Yes, it would be fair to say that it led to a delay. 1137 MS. LOTT: Thank you. I wanted to move on to a couple of questions around deferred LV costs, and I wanted to specifically look at, again, Exhibit G, tab 3, schedule 1, and I'm also -- it would be useful to refer to Exhibit A, tab 3, page 4, so if you would like to turn up both of those references. 1138 MS. FRANK: Help me with the second reference. 1139 MS. LOTT: Exhibit A, tab 3, page 4, I'm looking at. 1140 MR. VLAHOS: Perhaps Staff can help us. What is that exhibit, Mr. Lyle? 1141 MR. LYLE: I'm not sure, Mr. Chair. 1142 MS. LOTT: It was the original filing on January 28th, 2004. 1143 MR. ROGER: It was the phase 1 -- 1144 MR. VLAHOS: Oh, the phase 1. 1145 MR. ROGER: Exhibit A, tab? 1146 MS. LOTT: Tab 3, schedule 1. 1147 MR. ROGER: I have that. 1148 MS. LOTT: Do you have that in front of you? Okay, thank you. 1149 Now, I just wanted to -- 1150 MR. VLAHOS: Just a minute. I don't think we have that. Do we have that, Mr. Thiessen, on the dias here? 1151 MR. LYLE: I'm afraid we don't have copies of that material, Mr. Chair. 1152 MR. VLAHOS: Is this part of the record in this proceeding? 1153 MR. LYLE: It is part of the proceeding, Mr. Chair, so I do believe it is part of the record. 1154 MR. VLAHOS: Okay. That's fine. 1155 MS. LOTT: So everyone has those references before them? 1156 MR. VLAHOS: Go ahead. 1157 MS. LOTT: Thank you. 1158 I just wanted to ensure that I understand the treatment with respect to the legacy customers. If I look at the discussion on page 2 of this Exhibit A, tab 3, schedule -- oh, I'm sorry, I'm confusing myself now. I'm talking about the Exhibit G reference, if we could pull that up, and I'm interested in page 2 of that. And I note in the first paragraph, lines 1 to 4, it says that in the June 2002 decision the OEB ordered that an additional 12.9 million of LV costs be incorporated into the rates for Hydro One core or legacy customers effective May 1st, 2002. 1159 That's correct? You agree with that? 1160 MS. FRANK: That's correct. 1161 MS. LOTT: However, at the same time, and I wanted to reference back to Exhibit A, and I'm interested in the footnote that appears at the bottom of page 4. So I'm looking at page 4 of 4 of Exhibit A, tab 3, schedule 1. You have found that footnote reference? 1162 MS. FRANK: I have it, yes. 1163 MS. LOTT: Which indicates that since the rates were being changed on October 1st as opposed to May 1st, you were going to be recovering 10 months of LV costs over a five-month period, and as a result, an extra 12.9 million would be incorporated into the rates. Am I correct about that? 1164 MS. FRANK: It was an issue around the timing of when the rate got approved and when we could implement it. So in order to collect the 12.9 million, we would have to collect it for the remaining months of the year at double the rate. So that was what the five-month period to collect 10 months of -- 1165 MS. LOTT: Okay. And how was this incorporated in those legacy customers' rates? Did you do it -- build it into the monthly customer charge or the volumetric charges, or did you do a combination of those two? 1166 MR. ROGER: Can I have a moment, please? 1167 MS. LOTT: Sure. 1168 MR. ROGER: We did it to the both the fixed and the volumetric charges. 1169 MS. LOTT: A combination, okay. Thank you 1170 . Now, I presume that your original intent -- your intent was to remove this double recovery when the rates were adjusted on March 1st, 2003, but I understand that when the passage of Bill 210, you were unable to do this and core customer rates continued to overcollect the LV costs. Is that a correct interpretation? 1171 MS. FRANK: Yes, that's correct. 1172 MS. LOTT: Okay. Now, I just wonder if you could pull out the table that has already been referred to in Exhibit G, tab 13, schedule 1, which is this table 1 that we've been referencing in some questions. 1173 Now, I just have a general question related to what I was just asking you about. I'm just wondering, since this schedule only seems to account for the original $12.9 million in LV revenues from April 1st 2004 onward, where in the calculation do core customers get credit or recognition for the fact that they paid that 12.9 million too much between March 2003 and March 2004? 1174 MS. FRANK: Actually, we have answered that question from Board Staff. So if we would turn up response to interrogatory H1, 49. 1175 MS. LOTT: Let me pull this out here. I have it in front of me too. 1176 MS. FRANK: Okay. What we were identifying at that point in time is that when the Bill 210 came along and froze the rates, the rates were frozen to include this LV rate that was really double what the request was, because it was a five-month period to recover 10 months' worth of cost. It also froze the ability for us to get our final phase rate increase. In effect, Bill 210 says what you've got is what you're going to get until such time as rates are set. 1177 As a result, we are quite a bit short from what we had anticipated the revenue we were going to get from customers. We had thought that our next phase of rate increase, which would have come in March '03, would have given us about $50 million, 5-0, from our core customers, and we didn't get to proceed that. As a matter of fact, we were told we couldn't accrue it or we couldn't defer it or anything. It was just gone. It also froze the collection that we had from the LV. Our feeling is when it froze not being able to get the increase, it froze that we could hang on to the 12.9. So our notion is: That money is taken into revenue and we're not suggesting we give it back to customers. On the other hand, we're also suggesting that the customers do not have to pay the phase 3 rate increase either. So our feeling is that Bill 210 froze all these things. 1178 MS. LOTT: Okay, thank you. I just wanted to move -- I have a couple of areas left. I wanted to move with a couple questions around recovery of deferred LV costs from customers, and I wanted to look at, again, Exhibit G, tab 3, schedule 1, and pages 3 and 4. 1179 MS. FRANK: Okay, we're there. 1180 MS. LOTT: Okay. Now, I understand from the exchange that took place with Mr. Warren this morning on behalf of the Consumers' Council of Canada, that your preferred approach is to recover these costs from the embedded LDCs and the embedded directs since these were dollars that would have been billed to these customers except for the passage of 210; is that correct? 1181 MR. ROGER: That's correct. 1182 MS. LOTT: And I think you also said this morning, and if you could confirm this, that you're also proposing that if no mechanism can be found to do this within the current legislative environment, then the dollars should be allocated to Hydro One's core customers. And these are the same customers who are already paying their share of LV facilities, and, as we have just discussed, are already paying more than they should already. Am I correct, though, that that's what you suggested this morning, that that's where you would allocate those dollars? 1183 MR. ROGER: If we can't recover those costs from the embedded customers, we propose to continue to recover them from our core and acquired customers. 1184 MS. LOTT: Okay. And is -- am I correct that your rationale for this, and here I'm looking to your response to a VECC IR, which is Exhibit H, tab 5, schedule 5. 1185 MR. ROGER: I have that. 1186 MS. LOTT: You have that in front of you? I'm looking at line 42 where you state that it continues the approved interim recovery implemented in April 1st, 2004, and that is the justification that you're using; is that correct? 1187 MR. ROGER: That's correct. 1188 MS. LOTT: And would you also agree that the purpose of phase 2 is to confirm the amounts to be recovered on a final basis, and also the methodologies to be used in recovering these amounts from customers? 1189 MR. ROGER: Yes. 1190 MS. LOTT: As a result, would you also agree that the methodology used in phase 1 doesn't represent a Board-approved methodology for the purpose of determining any kind of precedent. Wouldn't you agree that it's a result of these phase 2 proceedings that, in fact, will set that precedent? Would you agree with that? 1191 MR. ROGER: Phase 1 did not look at cost causality. It was a simple approach that was used to start recovering those costs. 1192 MS. LOTT: Also, I would like to confirm, did Hydro One follow the methodology that was set out by the Board in its phase 1 filing guidelines for allocating regulatory asset costs to be recovered to customer classes? 1193 MR. ROGER: The guidelines suggested that we use for RSVA accounts, energy to allocate to the various customer groups, and for all the other variance accounts, to use distribution revenues. We use for all of the accounts distribution revenues, knowing that it was an interim recovery that would be trued up as part of phase 2. 1194 MS. LOTT: Okay, thank you. And as an alternative to your proposal, I would like to ask why, if the costs cannot currently be recovered from the appropriate customer classes at this time, why didn't you use the same approach as with the RRRP variance accounts which would be to maintain the balances and then to seek to recover from the embedded directs and LDCs when circumstances would allow for that? 1195 MS. FRANK: There is under -- actually, the circumstance is quite different. For RRP, there is in legislation an annual true-up mechanism that should get the amount that's collected reset annually. That's what's in the regulation. There is no such similar treatment for this one. We believe that this is the time that we need to look at the LV and get the deferral account recovered. There isn't an annual true-up mechanism in regulation that we can look to to solve this problem if we don't get it resolved here. 1196 Also, the fact that the dollar magnitude is quite different for these two, one being under a million and this one being 45 million and growing at 26 million a year, leaving this one around for a bit of time to have some future recovery is quite a hardship for the company. 1197 MS. LOTT: Well, wouldn't you then suggest that that would mean that we should solve the problem now and do it correctly from now? 1198 MS. FRANK: We'd certainly like the problem solved now, yes. 1199 MS. LOTT: Okay. I just have two other topic areas. I wondered if you could just turn up your response to VECC Interrogatory No. 3, which is Exhibit H, tab 5, schedule 3. 1200 MS. FRANK: Yes, we have that. 1201 MS. LOTT: You've got that in front of you? 1202 MS. FRANK: Yes. 1203 MS. LOTT: And if I'm correct in understanding the response to this question, you're stating that the reason why the RSVA power has a zero balance has to do with the fact that you used accrual accounting, which means that revenue and costs are both based on the energy purchased during the month, and that you're assuming for accounting and accrual processes that the losses on its system are going to be equal to the OEB-approved losses; is that correct? 1204 MS. FRANK: Yes, that's correct. 1205 MS. LOTT: Okay. Now, am I correct about this, that the Hydro One's OEB-approved losses are based on historical losses as observed in 1999; is that correct? 1206 MS. FRANK: Yes, that would have been the basis that the OEB approved our losses on. 1207 MS. LOTT: Okay. And is it fair to say that actual losses for, for example, 2002 or 2003 could be different from the OEB-approved value? 1208 MS. FRANK: They could be different, yes. We don't know that they are different. 1209 MS. LOTT: Okay. But they could be. 1210 MS. FRANK: Yes. 1211 MS. LOTT: It's possible. 1212 MS. FRANK: Yes. 1213 MS. LOTT: Do you have any information on what the actual losses were for 2002 or 2003 and how they do compare with your approved amounts? 1214 MS. FRANK: No, I don't have that information. 1215 MS. LOTT: Okay. Now, to the extent that the actual losses for 2002 or 2003 are different from the approved losses, could you help me understand where this would show up in your accounting records? 1216 MS. FRANK: In our accounting records, so in our financial statements, I guess you mean -- 1217 MS. LOTT: That's what I'm thinking. 1218 MS. FRANK: -- they would appear as an unbilled revenue component on the balance sheet. 1219 MS. LOTT: Sorry, if you could repeat that. 1220 MS. FRANK: As unbilled revenue on the balance sheet. 1221 MS. LOTT: Okay. My last couple of questions have to do with market-ready costs. 1222 I wanted to refer to your evidence, which is Exhibit G, tab 11, schedule 1, page 1. 1223 MS. FRANK: Yes, we have that. 1224 MS. LOTT: You've got that in front of you, okay. 1225 Now, if I'm looking at lines 6 and 7 there, you've stated that these costs, the market-ready costs, were incurred to modify business systems and practices to meet market opening requirements; is that correct? 1226 MR. WEBBER: Yes, it is. 1227 MS. LOTT: Would you agree that the main purpose behind the market opening was to allow for competition in generation and permit customers access to varied power supply arrangements, such as participation in the IMO market or to allow contracting through a retailer? Would you agree with that? 1228 MR. WEBBER: Yes. 1229 MS. LOTT: And would you agree that the overall objective behind all of this, without getting into any kind of debate as to, you know, whether this actually worked, was to benefit all customers, again through lower generation costs. Would you agree with that? 1230 MR. WEBBER: That's my understanding. 1231 MS. LOTT: Okay. Would you also agree that the structure and rules of the market and the resulting functionality of the systems required to support open access were a key driver in determining the level of market-ready costs? 1232 MR. WEBBER: I believe so. You're saying it was complex and it was big? Yes. 1233 MS. LOTT: Okay. Would you also agree that, having defined the system requirements based on the functionality required, while costs may vary somewhat by the number of customers the system has to handle, that the costs are by no means directly proportional to the number of customers? Would you agree with that? 1234 MR. WEBBER: There would be variance on the customers. It wouldn't be linear. If you just had a few customers, you could do things manually. Once you reached a certain threshold, complexity would come into it, too. So definitely a variance on customer. 1235 MS. LOTT: Okay. So is it fair to say that the number of customers is not a key cost driver for the level of market-ready costs? 1236 MR. WEBBER: It's probably a cost driver. A key one? Yeah, it's in there. I mean, if you have to bill a million customers, it's going to cost money to bill a million as opposed to 10,000. 1237 MS. LOTT: Would you agree that it's one of many -- 1238 MR. WEBBER: It's one of many. 1239 MS. LOTT: -- cost drivers. 1240 MR. WEBBER: Yes. 1241 MS. LOTT: Now, given that context, it would seem to me that this in an area where, in the Union decision that we had made reference to previously in response to the Consumers' Council of Canada Interrogatory No. 6, which we've made reference to is Exhibit H, tab 7, schedule 6, I would suggest to you that this is directly applicable, because in this case, the objective similarly was to increase competition for the commodity, this time we're talking about electricity and not gas, that hopefully would lead to lower prices for all purchasers of electricity, and just as the Union decision notes, large-volume customers would benefit more than low-volume customers, the transition costs should be recovered on a volumetric basis. 1242 Would you agree that there is an applicability to that decision based on those factors? 1243 MR. ROGER: It's one alternative. 1244 MS. LOTT: Okay. Those are my questions, thank you. 1245 MR. VLAHOS: Thank you, Ms. Lott. 1246 We'll take a break now, the afternoon break, and we'll come back in 15 minutes. That will make it a quarter to 4:00. 1247 Mr. Dingwall, do you still wish to go tomorrow as opposed to today? Unless you can finish it by 4:30. 1248 MR. DINGWALL: I can't finish by 4:30, sir. 1249 MR. VLAHOS: Maybe it will be best to wait till the morning for you. 1250 MR. DINGWALL: Would you like me to fill in half an hour, sir? 1251 MR. VLAHOS: Yes, unless Mr. White is prepared -- oh, he's there. 1252 MR. WHITE: I would prefer going later, if it pleased Board. I have some additional work in terms of preparation for this, unfortunately. 1253 MR. VLAHOS: How long do you think you'd be? How long do you think you'd be, Mr. White? 1254 MR. WHITE: In terms of cross? 1255 MR. VLAHOS: Yes. 1256 MR. WHITE: I would guess an hour. 1257 MR. VLAHOS: Okay. Why don't we do this, then, why don't we come back and Mr. Dingwall will go first, and that will take us to 4:30, Mr. Dingwall, or 4:00? 1258 MR. DINGWALL: Preferably closer to 4:15, if the Panel doesn't mind. 1259 MR. VLAHOS: I guess I'm a little uncomfortable losing 45 minutes. Mr. White, during the break, can you try to assist the Board by trying to reshape your questions, or give some thought as to how you may want to approach it, and if you don't finish today, you can continue tomorrow. Thank you, sir. We'll be back at a quarter to. 1260 --- Recess taken at 3:30 p.m. 1261 --- On resuming at 3:48 p.m. 1262 MR. VLAHOS: Please be seated. 1263 Any matters, Mr. Lyle? 1264 MR. LYLE: No, Mr. Chair. I understand Mr. Dingwall is going to proceed until approximately 4:15. 1265 MR. VLAHOS: This is one matter. Yes, Ms. Aldred? 1266 MS. ALDRED: I think Mr. Roger is in a position to address a couple of the undertakings on the record, if that would be acceptable, or he can do it tomorrow morning. 1267 MR. VLAHOS: That were given to -- 1268 MS. ALDRED: They were given to Mr. Shepherd. 1269 MR. VLAHOS: Okay. Mr. Shepherd is here so that would be quite acceptable, yes. 1270 MR. ROGER: If I am allowed, Mr. Shepherd, if I can refer you to interrogatory Exhibit H -- 1271 MR. VLAHOS: Which undertaking is that, Mr. Roger? 1272 MR. ROGER: J.1.4, and J.1.5. 1273 MR. VLAHOS: Okay. And J.1.4, just remind us? 1274 MR. ROGER: It was to confirm that by using distribution revenues, the G3 class would capture around 9.6 percent of the cost. 1275 MR. VLAHOS: Right. 1276 MR. ROGER: And J.1.5, was if we use the number of customers, the G3 class would capture 1.27 percent of the cost. And that information is found in interrogatory Exhibit H, tab 4, schedule 42. 1277 ORAL ANSWER TO UNDERTAKING NO. J.1.4: TO CONFIRM THAT THE ALLOCATION PROPOSED FOR 1570 IS CLOSER TO DISTRIBUTION REVENUES THAN BY CUSTOMER 1278 MR. VLAHOS: It says "capture" is that good enough for you? 1279 MR. SHEPHERD: That deals with J.1.4 quite well. J.1.5 is the entire spreadsheet, G, 13, 1, because if you change the allocator, all of the numbers change quite significantly. And I understand, sir, that that's a spreadsheet, so it's a matter of just changing the allocator for that line and everything else will change accordingly. 1280 MR. ROGER: That's correct. 1281 MR. SHEPHERD: So I think J.1.5 is still outstanding, Mr. Chair. 1282 MR. VLAHOS: Mr. Roger, if you don't mind, just provide the revised spreadsheet based on the different input per Mr. Shepherd's request. 1283 MR. ROGER: Will do. 1284 MR. VLAHOS: Thank you. 1285 MR. VLAHOS: Ms. Aldred, anything else? 1286 Mr. Dingwall. 1287 MR. DINGWALL: Thank you, Mr. Chairman. 1288 CROSS-EXAMINATION BY MR. DINGWALL: 1289 MR. DINGWALL: Good afternoon, Panel. My name is Brian Dingwall and I'm counsel to the intervenor group Energy Probe Research Foundation. 1290 A couple of the questions arising from some of the other matters that have been asked of this panel beforehand, to begin with. 1291 Did Hydro One, or any of the acquired LDCs, have any customers on time-of-use rates pre market opening who changed or reverted to non-time-of-use or interval meter rates at or near market opening? 1292 MS. FRANK: Well, we definitely had customers on time-of-use before market opening, and after market opening we didn't have customers on time-of-use. We're struggling a little bit about when exactly they switched. 1293 MR. DINGWALL: I guess, then, the follow-up on that would be, do you know what happened to those customers and how they would be recognized or identified in the context of this proceeding? 1294 MS. FRANK: Well, the one area where it affects the regulatory assets is in the -- I guess it's tab 12, G, 12, where it's the cost of power seasonality, and in that one, it talks about excluding time-of-use customers. So this would have been before market opening when we still had time-of-use customers, and the energies that we had in here would have excluded anybody who was a time-of-use customer. So that's one place where it impacts this application. I'm not aware of another place. 1295 MR. DINGWALL: Are your filings with respect to regulatory assets in this case consistent with the information filed about the Board under RRR filings? 1296 MS. FRANK: Are you talking about the quarterly filings that we do? 1297 MR. DINGWALL: Yes. 1298 MS. FRANK: We have -- our interrogatory responses that identify the -- any differences. There have been a few minor modifications, updates. I could take a couple of minutes to identify where those responses are. 1299 Do you have a particular account you're looking for, or just everything? I'm sorry, Mr. Dingwall, do you have -- 1300 MR. DINGWALL: Everything. 1301 MS. FRANK: Everything. 1302 MR. VLAHOS: That's a pretty huge question, Mr. Dingwall. It probably could have been asked in an interrogatory, if it hasn't been asked. Hopefully, it has been asked. 1303 MR. DINGWALL: Since we're at the end of the day, sir, maybe it would be best for the witness panel to get back to me on that one tomorrow morning and I'll move on with another question, so that we're not sitting here watching people get paper cuts. 1304 MR. VLAHOS: Give an undertaking, or you're prepared to ask the question again. It's your choice. 1305 MR. DINGWALL: I'll be prepared to ask it again in the morning when it might be a little bit cleaner for the record. 1306 MR. VLAHOS: All right. Why don't we do that, then. 1307 MR. DINGWALL: My next number of questions relate to the multicoloured exhibit on Exhibit G, tab 11, schedule 1, which appears at page 11. 1308 MR. WEBBER: Yes. 1309 MR. DINGWALL: Now, I understand that this is, today, the kind of sum total of the systems that were put in place for market-readiness; is that correct? 1310 MR. WEBBER: Yes, it is. 1311 MR. DINGWALL: And I understand that Hydro One Networks was an active participant in a lot of the testing operations that were done in respect of systems in advance of market opening; is that correct? 1312 MR. WEBBER: Yes, it is. 1313 MR. DINGWALL: Now, these were, I think, called operational dry runs, and there were two of them. 1314 MR. WEBBER: The ODR runs from the IMO, and then there was some retail market testing too, yes. 1315 MR. DINGWALL: Now, were all of these systems -- which of these systems were in place or not in place through the dry run exercises? 1316 MR. WEBBER: They were all in place that needed to be with the version, for instance, of EBT standards that was being used with those particular tests. In other words, the system would be there, but upgrades would take place as new requirements came up, some of which came out after the test. 1317 MR. DINGWALL: So then, in terms of sequence, my understanding is the first operational dry run was with the IMO; is that correct? 1318 MR. WEBBER: Yes. 1319 MR. DINGWALL: So in looking at this map of various systems, which of these were in place and functioning on the date of the operational dry run with the IMO? 1320 MR. WEBBER: I believe they all were. I would have to take the dates of the operational dry run, but we fully participated in the dry run, and that would have been the end market systems and the MV-star systems that were required for that. So, subject to check, if you have a concern with that, I believe they were all there that were necessary. 1321 MR. DINGWALL: Can you give me a rough estimate as to what the date was of the operational dry run? 1322 MR. WEBBER: If you can give me a moment to check. 1323 I can't find it in the evidence here, but it took place just in the weeks leading up to the market opening, I believe it was the 12 weeks before it, so that would put it in the first quarter of 2002. 1324 MR. DINGWALL: Okay. And was the operational dry run with retailers in relatively the same time frame? 1325 MR. WEBBER: No. The testing -- well, roughly, but it lagged it a little bit. It was just prior to the market opening. It took place -- it ended 60 days prior to the market opening on May 1st, because we started processing EBT transactions. 1326 MR. DINGWALL: So 60 days prior to May 1st, 2002, would have put you at March 1st, 2002; is that correct? 1327 MR. WEBBER: Approximately, yes. 1328 MR. DINGWALL: And that's when you began processing EBT transactions? 1329 MR. WEBBER: Yes, for the preenrolment phase. 1330 MR. DINGWALL: Right. I would like you to then turn to Board Staff Interrogatory No. 15. 1331 As I understand this, this interrogatory is a response to a question about when Hydro One entered into a contract with a service provider for EBT services. Could you describe that contract. 1332 MR. WEBBER: I'll ask Mr. Relich to describe the contract. 1333 MR. RELICH: Yes. This contract is for EBT transaction processing services to be provided to Hydro One Networks by the SBI Group. 1334 MR. DINGWALL: Now, where would this contract fit in that whole interlinking of services reflected on G, tab 11, schedule 1, page 11? 1335 MR. WEBBER: Technically, it interfaces with our point to point in the lower left corner, where it shows EBT transactions going to retailers. You could substitute hub in -- put hub in there between the retailers. 1336 MR. DINGWALL: Well, if you were processing EBT transactions before -- or on or about March 1st, and you didn't enter into this contract until March 25th, what were you doing before March 25th? 1337 MR. WEBBER: The retail market test was not approving the interactions of systems. The OEB was looking for could -- market participants, retailers, and LDCs, could their systems internally process things, so it was moving data, sometimes by disk, coming in and out. And then you would process it. 1338 We also did tests with the hub, though, prior to the market opening. The preenrolment process, again, was not through the hub. The customer-information files were on disk again. It was a one-time activity that would not carry on once the market opened. 1339 MR. DINGWALL: Sorry, what was the one-time activity that would not carry on? 1340 MR. WEBBER: The preenrolment processing, the 60-day activity taking place prior to market opening. I could go into a bit more detail if you'd like. There was two years of retail enrolments, and there was a lot of concern with customers who would have signed with a number of retailers may have moved during that period of time, and all LDCs were asked to go through a preenrolment process and validate that the customers were in fact our customers and still our customers. That was an activity that all LDCs went through. That's the activity that I'm referring to that took place 60 days prior to the market opening. 1341 MR. DINGWALL: And it was not necessary to have an EBT hub provider before that time? 1342 MR. WEBBER: No. There were no transactions flowing until the market opened, through the hub. 1343 MR. DINGWALL: It seems, in looking at your time lines for the various projects, that many of the contracts and service providers began somewhat before this time, in fact, well in advance of March 2002. Were there any other service-provider contracts entered into this close to market opening? 1344 MR. WEBBER: Not as part of the project. The other contracts were the service providers that provided the systems initially and worked with us on the systems. The only external service is the hub that supports the market-ready effort. 1345 MR. DINGWALL: I'd like you to move to interrogatory response H2-1, attachment B, which is an example of project status reports, and page 5 of that response. 1346 MR. WEBBER: Yes, I have it. 1347 MR. DINGWALL: The line at the top of the document is "MRP milestones and key activities report for February 18, 2002." 1348 MR. WEBBER: I'm sorry, I've got a different page 5. You're into one of the attachments, I believe? 1349 MR. DINGWALL: That's right. 1350 MR. WEBBER: Attachment B? 1351 MR. DINGWALL: Attachment B, that's right. 1352 MR. WEBBER: Yes. 1353 MR. DINGWALL: There's a section at the bottom of that document entitled "Issues," and the first issue identified there is relationship with hubs. 1354 MR. WEBBER: Mm-hm. 1355 MR. DINGWALL: Could you explain that issue to me, please? 1356 MR. WEBBER: Yes. The role of the hubs -- that was talking to our confusion on what the role of the hubs were. There were four hubs at one time in the market, the EBT Express, Systrends, SPI, and Hub in a Box, and what wasn't clear was, if a retailer chose to join up with one hub and an LDC joined up with another one, who would pay to move transactions between hubs? This referred to one of the hubs telling us that they would expect us to pay them whether we had a contract with them or not, to move EBT transactions into us. And it was just unclear who would pay for that. Would that be a retailer cost, an LDC cost? Whose cost? The hub's cost? That had not been determined at that point in time. 1357 MR. DINGWALL: And how did that issue resolve itself? 1358 MR. WEBBER: The hubs, I believe, have decided to work as virtual hubs. I've been away from it for a couple years, I'm not sure if that's a protocol, but that is, I believe, how they're working today, because I believe there are two now, Systrends and SPI hub that still exist, to my knowledge, today. We have joined with one and we are not paying to move the transactions, so... 1359 MR. DINGWALL: I guess you entered into a contract. That's obviously what Board Staff Interrogatory No. 15 indicates. 1360 Did Hydro One, at any point in time, have the intention of becoming a hub itself? 1361 MR. WEBBER: Not in market-ready project. We were referred to as that sometimes with our point-to-point solution, because our point-to-point solution, as the retail settlement code mandated, would allow retailers to interact with us and hubs to work with us. It was not a hub, although some people thought of that, in that it could not go back out in between market participants. It was strictly into us and push out. So the answer is no, in that sense. 1362 There was some discussions early on between Hydro One, I believe, in Toronto, and a few others on a joint partnership on probably relating to the EBT Express. But it didn't go anywhere within Hydro One. 1363 MR. DINGWALL: I'm going to make reference to a document which I'll ask to be considered as an exhibit in this proceeding, and have copies which I believe Ms. Aldred has passed to the witnesses. There are more for Board Staff and Board. 1364 I'll ask the panel, while having a quick look at that, to also turn up Board Staff Interrogatory No. 41. 1365 MR. LYLE: Mr. Chairman, we'll mark that exhibit as Exhibit I.1.2 1366 EXHIBIT NO. I.1.2: PRESS RELEASE DATED APRIL 9, 2002 1367 MR. VLAHOS: Mr. Dingwall, I know it's not a long press release, but it has been available to the witnesses before the break? 1368 MR. DINGWALL: Yes, it was. 1369 MR. VLAHOS: Thank you. 1370 MR. DINGWALL: I've given away all my copies. 1371 I'm looking at the first paragraph of this press release, and I'm seeing that the culmination of this announcement from April 9th, 2002 is that the new company formed by the merger of the three companies mentioned in the headline of the press release is then called the SPI Group. 1372 Now, Board Staff Interrogatory No. 15 indicates that the contracting party with whom you entered into the EBT hub contract was the SPI Group, but that was in March before this announcement and before this merger. So what was the name of the company that -- one of the predecessor companies that you entered into the hub contract with? 1373 MR. RELICH: Our contract is with the SPI Group. 1374 MR. DINGWALL: Who was it with originally? 1375 MR. RELICH: Our contract terms and conditions are with the company called SPI Group. That was entered into agreement in March of 2002. 1376 MR. DINGWALL: And is that who you originally entered into the contract with? There seems to be a bit of a gap, and maybe you can explain this to me, between March 25th, 2002 and April 9th, 2002. April 9th is the date the merger is announced. I'm not sure if it took place before it was announced, but it seems that there are a number of predecessor companies involved prior to that date. Was your agreement with the predecessor or with the merged entity? 1377 MR. RELICH: I can't speak to the accuracy and the validity of the information in the press release. However, our contract is with the SPI Group. 1378 MR. DINGWALL: Okay. I'm noting that the SPI Group is described in the bottom paragraph on the first page as being partly owned by Ontario Power Generation Inc. and Toronto Hydro Corp. The interrogatory at Board Staff 41 asks about whether or not you were doing business with affiliates. Did OPG come to mind as an affiliate at that time? 1379 MS. FRANK: No, it did not. We were thinking within Hydro One and the various other companies that we operate under Hydro One. We weren't thinking to our shareholder and other companies they owned, being OPG -- being owned by the Ontario government, and that being Ontario Power Generation, or OPG. 1380 MR. DINGWALL: Okay. It's a very interesting point, but maybe we can leave a dramatic pause as it's 4:15 and I'll continue in the morning with this. 1381 MR. VLAHOS: Okay, Mr. Dingwall, thank you. 1382 Mr. White. 1383 CROSS-EXAMINATION BY MR. WHITE: 1384 MR. WHITE: Yes. I have a previous interrogatory which I have provided to counsel for Networks, and I have copies available for Board Staff and the Board Members and other interested intervenors. 1385 I will get to that interrogatory in a few minutes, if that's okay. 1386 First, I'd like to start with the retail settlement account, and my question, I think, is to Mr. Roger, because he indicated that the Union Gas decision that all customers should pay the costs associated with retail settlement variance accounts -- I'm sorry, the retailer accounts, not the retail settlement variance accounts, the retailer accounts, on the basis that all customers benefit from a competitive market. Is that a correct characterization of what you said? 1387 MR. ROGER: Yes. 1388 MR. WHITE: Would embedded distributors benefit from a competitive market? In other words, do they have the option of going to third parties as well, or is that the criteria? 1389 MR. ROGER: Can I have a moment, please? 1390 Mr. Relich tells me no, they can't go to retailers, the embedded LDCs. 1391 MR. WHITE: So they are in some ways disadvantaged when compared with other customers that might be able to, in a competitive market, go to a third party; is that a fair assessment of what I've heard? 1392 MR. ROGER: If a customer can buy from a retailer at the commodity price, they may have to pay a premium. If an LDC is buying the commodity at a spot market price, they wouldn't have to pay a premium. 1393 MR. WHITE: But if they could go to a retailer, they might have the opportunity to get it at a lower price as well. Is that part of the option or part of the considerations of the competitive market? 1394 MR. RELICH: I believe in the current market structure, the LDCs have a different role to play than end-use customers or retailers. So I do not believe that the current market was envisioned where retailers would be taking a position in the marketplace with respect to commodity. 1395 MR. WHITE: Thank you. 1396 I'd like to talk for a few minutes about -- and maybe now is as good a time as any to look at the interrogatory that's been handed out. In that interrogatory -- 1397 MR. LYLE: Mr. White, can we mark that as an exhibit, please. Exhibit I.1.3 is a document entitled "ECMI Interrogatory No. 1. 1398 EXHIBIT NO. I.1.3: DOCUMENT ENTITLED "ECMI INTERROGATORY NO. 1" 1399 MR. WHITE: The key thing is the date of it. It's the previous proceeding. 1400 If I go to Hydro One's response, part C, it says that: 1401 "Networks currently has the appropriate metering in place to separate embedded-delivery points and volumes from directly-connected delivery volumes." 1402 When I compare that with the response to the ECMI's current interrogatory, Exhibit H, tab 3, schedule 18, there was an indication that most of the metering is in place. And I'm wondering how we've gone to all of the metering being in place to most of the metering being in place. 1403 MR. ROGER: The interrogatory in RP-2000-0023 was dealing with the meters required to bill for energy or commodity and transmission charges. The interrogatory in this proceeding deals with billing for LV facilities. 1404 MR. WHITE: If you read part F of the historical interrogatory it says: 1405 "How many embedded delivery points can be accumulated through one meter as is generally done with the present wholesale delivery point?" 1406 There's an indication that you may have to meter some of these taps separately. And I think the interrogatory was not necessarily limited to commodity, but also volumes that might be used for allocating LV charges. It wasn't just a volumetric hearing for commodity that we were dealing with, it was the LV charges. 1407 MR. ROGER: I may not be able to help clarify that. I wasn't part of that proceeding. I joined the company after that proceeding, so I don't know what the intent was of the question and how it was answered. 1408 MR. WHITE: Okay. 1409 MR. ROGER: But my understanding was that it was in response mainly to commodity and transmission. 1410 MR. WHITE: Okay. Maybe we can go a little farther down that road. There are -- let's talk for a minute about LDCs who are embedded or maybe partially embedded. The 1999 LV charges which are identified are charges allocated to the total utility load, are they not, based on the 1999 cost allocation system? 1411 MR. ROGER: The total utility load that goes through the LV facilities, yes. 1412 MR. WHITE: Only through the directly-connected LV facilities? 1413 MR. ROGER: Yes. 1414 MR. WHITE: Because my understanding was that in 1999, the LV charges were allocated to all distributors in the province through a common cost-of-power allocation, not just to -- not just to the delivery points -- those with delivery points that were, in fact, directly connected. 1415 MR. ROGER: And that's the reason also that the rate -- originally when we proposed as part of RP-2000-0023, it was 17 cents per kilowatt, because it was going to apply to the total load of the LDC, the LV supplied and the non-LV supplied. The decision at that hearing was that only the LV-supplied LDC should pay for the LV facilities, and the rate went up then from 17 cents per kilowatt to 56 cents per kilowatt, and it only applies to the LV-supplied load. 1416 MR. WHITE: Just so I'm sure I understand this, because it's an important point, so if you had a utility which was connected at a transformer station and also connected through LV facilities for a small portion of its load, it would only pay the 56-cent -- or only have allocated the 56 cent per kilowatt against the load which was connected to the LV system; is that correct? 1417 MR. ROGER: If a utility supplied both to the transmission system at voltages above 50 kV and through the LV facilities at voltages below 50 kV, the 56 cents would apply only to the load supply through the LV facilities below 50 kV. 1418 MR. WHITE: Yes, but if it were connected to a TS, it would be connected at the breaker at low-voltage level, but it would be a transformation connection and if it owned the lines at that point on, it would be, for those delivery points, a transmission- system customer as opposed to an LV or imbedded customer for those embedded delivery points. Is that correct? 1419 MR. ROGER: If the utility owns the feeder out of that station, yes, that's correct. 1420 MR. WHITE: Thank you. And you would suggest that billing on the basis of connected load, LV-connected load, would be consistent with the user-pay principle? 1421 MR. ROGER: I think that was the argument that was used to agree on what the rates were going to be. 1422 MR. VLAHOS: Mr. White, I'm just trying to get the full benefit of your cross-examination, but I'm just a little lost as to what are we after here? Are you -- is it cost-allocation issues that have been decided back in the 0023, or does this have something to do with -- just give me some assistance, please. Maybe it's getting too technical for me. 1423 MR. WHITE: Let me see if I can move to a more general level. 1424 If I read the Board findings from that previous decision, it contemplated Hydro coming forward with a notion of rather than billing on the 1999 dollar figures, to actually look and put in place the metering and look at the more complex billing which would be consistent with an LV charge of, say, 56 cents a kilowatt, if that's the right charge for that scenario, that would apply to LV facilities' directly-connected load. Because the 1999 figures were used, it was unclear to me whether the intent was to use the total load for the LDC based on 1999 values, which would have been the amount included in the wholesale cost of power to them, or whether it was, in fact, the connected LV loads. And I think Mr. Roger has sorted me out on that, and he's saying that it was on the basis of the connected load for 1999 as opposed to the total utility load. 1425 MR. VLAHOS: Okay. That's the context. 1426 MR. WHITE: I think I -- I think I heard from Mr. Roger that that's what is, in fact, being proposed here, the 1999 LV loads as opposed to the 1999 total utility loads. 1427 MR. VLAHOS: Yes. 1428 MR. WHITE: I'd like to talk, or ask some questions about some things which can produce differences between billed kilowatt hours -- kilowatts by the utility and the volumes that they might pay for. And I think we heard earlier that if the loss factors were wrong, that any -- to the extent they were wrong, they would show up in the unbilled revenue account for Hydro One; is that correct? 1429 MS. FRANK: The question related to where would you find them, I think it was Ms. Lott's question, in terms of where would any differences and loss factors appear on our financial statements, and it was in the unbilled revenue. 1430 MR. WHITE: To the extent that items like theft of power changed from year to year, would they also appear in the same spot? 1431 MS. FRANK: Yes, they would. 1432 MR. WHITE: If the loss factor is established, and I think a review of the approved loss factors indicates that most of them were based on the historical 1999 loss factors, but I think a more detailed review will show that the estimated LV losses were produced from a 1987 or thereabouts study, so it's a slightly different period. And this goes to one of Mr. Roger's earlier comments, and maybe the verification of the difference in where the sources from the loss factors are would be in order. 1433 If the loss factors were wrong, would that produce an ongoing growing difference in the -- in that unbilled revenue account, whether it be positive or negative? 1434 MS. FRANK: If the loss factors were different than what the Board had approved, they could differ for each of the classes. There was different loss factors approved for primary versus secondary customers versus embedded customers. And they wouldn't have to be different in a consistent fashion. They might be out a little bit on any one of them. So it's hard to know if they would be a growing and consistent difference. They might offset and, you know, be fine. 1435 Even with that, items like the theft of power one, that could change year by year. So what might result in -- you know, if there are a lot of crackdowns and people aren't stealing power anymore, that might reduce the losses. In years where people have been more inventive and have found new ways, that may increase the losses. So I think it would be difficult to say that there's a consistent trend that one could expect to see because of a change from what the Board-approved loss factors are. It's hard to know what they would be today. 1436 MR. WHITE: Thank you. 1437 With respect to the undertaking for Mr. Shepherd with respect to the accrual versus the billed method, I'd like some assurance that the kilowatt hours billed by Hydro One and the kilowatt hours billed to Hydro One by the IMO will be part of that summary. 1438 MS. FRANK: I don't believe it was to be part of the summary. My understanding of the undertaking was it was to be four numbers; what was the revenues off of the customers' bills for wholesale market service charges, for networks, for connections, and for power. So there were no energy levels with that. There were four numbers. That was my understanding of the undertaking. 1439 MR. WHITE: In order to get at the total amount that's in those variance accounts, you need both the cost side and the revenue side. It's not just the customer bill side, is it? 1440 MS. FRANK: I thought the piece that we were attempting to compare was the accrued revenue to the billed revenue, so that's what I thought the intent of the interrogatory was. 1441 MR. VLAHOS: Are you happy with that? 1442 MR. SHEPHERD: Mr. Chairman, I'd be happy with the gloss that Mr. White is adding on it, that is to track the energy as well as part of those numbers. I believe the same system that would spit out the dollar numbers also spits out the kilowatt numbers. You can correct me if I'm wrong, witnesses. 1443 MR. VLAHOS: Ms. Frank, your thoughts? 1444 MS. FRANK: Are we staying on the customer bill side or are we adding -- I really want a better understanding of what's required. So you're now saying dollars and energies on the four categories? Is that what you're telling me, eight numbers now? 1445 MR. SHEPHERD: I think I'm just agreeing with Mr. White. 1446 MS. FRANK: I don't know what Mr. White is asking for. 1447 MR. WHITE: I think there's one kilowatt hour number that's tracked through the system, that is, what's delivered -- 1448 MS. FRANK: The kilowatt hours. 1449 MR. WHITE: Kilowatt hour, yeah, that has losses associated with it that will help us get a better understanding or a more complete understanding of that account. 1450 MR. VLAHOS: Ms. Frank, are you okay with that? 1451 MS. FRANK: So I'm adding one number, kilowatt hours for power. 1452 MR. VLAHOS: Okay. So J.1 -- 1453 MR. LYLE: J.1.7, Mr. Chair? 1454 MR. VLAHOS: You want a new number? 1455 MR. LYLE: We can add it to a previous number if you wish. 1456 MR. VLAHOS: Seven it is. 1457 UNDERTAKING NO. J.1.7: IN ADDITION TO UNDERTAKING J.1.3, ADD THE EXTRA NUMBER OF KILOWATT HOURS 1458 MR. WHITE: Let's go back to Mr. Roger for a minute. If the Board were to order you to recover post market opening purchased power variance, how would you allocate it with respect to the customer classes? 1459 MR. ROGER: Which variance account are you talking about, please? 1460 MR. WHITE: Post market opening purchased power. 1461 MR. ROGER: Are you referring to account 1588? 1462 MR. WHITE: I think so, yes. 1463 MR. ROGER: The balance is zero at the end of December 2003 for that account. 1464 MR. WHITE: Yes, I understood that. My question was, if the Board were to order you to recover an amount, how would you allocate amounts in that account? I know there is zero there now, but if, through this process, the amount changes, how would you allocate it? 1465 MR. ROGER: It would have to be through the energy commodity. 1466 MR. WHITE: Thank you. Earlier there was a question, if the Toronto billing error would, in any way impact on Hydro One, and I think the answer was no, at that time. And I'm wondering, would the answer be the same if it was an LV delivery point? 1467 MS. FRANK: Are you asking if it was a meter of another utility rather than Toronto Hydro; is that what you're asking? 1468 MR. WHITE: No, Toronto Hydro could have LV-embedded delivery points as well as transformer-station delivery points. 1469 MS. FRANK: Then the answer would stand. It would not impact Hydro One's distribution charges. 1470 MR. WHITE: It wouldn't impact on your variance accounts either? 1471 MS. FRANK: No, it would not. 1472 MR. WHITE: Okay. Thank you. That's it. 1473 MR. VLAHOS: Thank you, Mr. White. 1474 It is twenty to 5:00. Mr. Lyle, we're in your hands. 1475 MR. LYLE: I'm in your hands, Mr. Chair. Would you like me to proceed, or do you want to wait until tomorrow morning? 1476 MR. VLAHOS: Can I just confer with my Panelists? 1477 [The Board confers] 1478 MR. VLAHOS: The Board will break for the day, Mr. Lyle, because we may have some questions from Mr. Dingwall for tomorrow. So we'll adjourn for today, then, until 9:30 in the morning. It would appear also that Toronto Hydro may be on for the afternoon. Mr. Lyle, could you communicate that -- oh, Mr. Rodger is here. 1479 Mr. Rodger, how would that play with your client? 1480 MR. RODGER: I've canvassed that with my clients and also with a few of the other intervenors. The other intervenors would generally prefer if we started on Thursday, to give them time to prepare as originally anticipated. In the morning tomorrow, I won't be hearing room on a personal matter. I'll certainly be back by 1:00. My preference would be to review the transcript of tomorrow morning before we started. But if the Board insists, then I'm sure we could accommodate you and start after the lunch break. I think our preference would be to start on Thursday. 1481 MR. VLAHOS: Just a moment, please. 1482 [The Board confers] 1483 MR. VLAHOS: Mr. Rodger, the Panel would prefer if Toronto Hydro would be ready to come sometime after lunch, let's call it for 1:00, unless we find out otherwise. But let's stick with the schedule of 1:00 so that the other parties that are here or who are listening in or reading the record will be here for 1:00. Hopefully we'll finish with Hydro One by that time and still give us some time for a lunch break. If not, then we'll just have to bring in the Toronto Hydro witnesses a little later than 1:00. So if you can get them ready for 1:00, it would be appreciated. 1484 MR. RODGER: That's fine, sir. 1485 MR. SIDLOFSKY: Sir, I should mention, Enersource is scheduled to follow Toronto Hydro. One of Enersource's witnesses will not be available on Thursday and Friday for religious reasons. It was anticipated that -- as Mr. Rodger said, that Toronto Hydro would be commencing on Thursday, and we had expected that Enersource would be commencing on Monday so that the hearing would flow. We seem to be proceeding a little quicker than expected. But I can't have one of Enersource's witnesses here for Thursday and Friday. 1486 MR. VLAHOS: Mr. Sidlofsky, I would rather you confer with Board Staff on this matter tonight and then we can revisit that tomorrow. 1487 MR. SIDLOFSKY: Certainly. 1488 MR. VLAHOS: Thank you. Any other matters? 1489 MR. SHEPHERD: Mr. Chairman, can I just ask a question of clarification? Are we having a lunch break at the normal time tomorrow, and after lunch, starting Toronto Hydro, or are we going to start -- 1490 MR. VLAHOS: We're hoping to have lunch from 12 to 1. 1491 MR. SHEPHERD: 12 to 1. 1492 MR. VLAHOS: Yes. 1493 MR. SHEPHERD: Excellent. 1494 MR. VLAHOS: With that, then, we'll adjourn until 9:30. 1495 --- Whereupon the hearing was adjourned at 4:45 p.m.