Rep: OEB Doc: 13899 Rev: 0 ONTARIO ENERGY BOARD Volume: 2 14 SEPTEMBER 2004 BEFORE: P. VLAHOS PRESIDING MEMBER J. CARR VICE-CHAIR & MEMBER C. CHAPLIN MEMBER 1 RP-2004-0117 2 IN THE MATTER OF a hearing held on Tuesday, 14 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 4 14 SEPTEMBER 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 MIKE LYLE Board Counsel HAROLD THIESSEN Board Staff MARTIN DAVIES Board Staff TED ANTONOPOPLOUS 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 PRELIMINARY MATTERS: [15] HYDRO ONE NETWORKS INC. PANEL 1 - ROGER, RELICH, FRANK, WEBBER, DELLA ROSSA; RESUMED: [46] CROSS-EXAMINATION BY MR. DINGWALL: [52] CROSS-EXAMINATION BY MR. BRETT: [506] CROSS-EXAMINATION BY MR. LYLE: [680] FURTHER CROSS-EXAMINATION BY MR. WARREN: [980] QUESTIONS FROM THE BOARD: [1009] RE-EXAMINATION BY MS. ALDRED: [1080] TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY: [1131] EXAMINATION BY MR. RODGER: [1137] CROSS-EXAMINATION BY MR. WHITE: [1209] CROSS-EXAMINATION BY MR. WARREN: [1263] 10 EXHIBITS 11 EXHIBIT NO. I.2.1: LETTER FROM MR. RODGER TO MR. O'DELL DATED SEPTEMBER 10TH, 2004 [1142] EXHIBIT NO. I.2.2: PRESS RELEASE FROM THE INDEPENDENT ELECTRICITY MARKET OPERATOR DATED AUGUST 11TH, 2004 [1145] EXHIBIT NO. I.2.3: SUMMARY OF A TORONTO HYDRO INTERROGATORY RESPONSE TO A BOARD STAFF INTERROGATORY FOUND AT TAB 1, SCHEDULE 25, PAGE 2 OF THE TORONTO HYDRO RESPONSES [1148] EXHIBIT NO. I.2.4: CVs OF TORONTO HYDRO WITNESS PANEL [1154] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.2.1: TO PROVIDE REFERENCE LOCATION FOR APPROVAL TO ACCRUE CARRYING ACCOUNTS IN ACCOUNT 1508 AND 1571 [729] UNDERTAKING NO. J.2.2: TO PRODUCE AN UPDATED AND CORRECTED VERSION OF EXHIBIT I.2.3; LATER AMENDED TO: A RESTATEMENT OF WHAT APPEARS IN SCHEDULE 25 FOR THE TRANSITION COSTS, JUST THE ACCOUNT 1570 COSTS, SHOWING THE IMPACT USING THE TWO DIFFERENT ALLOCATORS ON A RESIDENTIAL CONSUMER WITH TWO DIFFERENT ASSUMPTIONS; ONE IS BACKING OUT THE 2004 AMOUNTS AND THE OTHER INCLUDES THE 2004 JUST DEALING WITH THE INCREMENTS [1295] UNDERTAKING NO. J.2.3: TO PROVIDE A BREAKDOWN OF THE COMPONENTS OF THE CUSTOMER EDUCATION ACTIVITIES THAT WENT INTO THE TOTAL OF $4.9 MILLION [1462] 14 --- Upon commencing at 9:33 a.m. 15 PRELIMINARY MATTERS: 16 MR. VLAHOS: Please be seated. 17 Good morning, everyone. Let's start by visiting the schedule. For Hydro One, we've got Mr. Dingwall this morning to complete his cross, to be followed by Mr. Brett. Is Mr. Brett here? 18 MR. BRETT: Yes, I am. 19 MR. VLAHOS: Thank you. And to be followed by Mr. Lyle, and then the Board Panel and then any redirect. And hopefully we can do all that by noon so we can have a lunch break, and Toronto Hydro is supposed to be ready, Mr. Rodger -- I can't see -- oh, that's right, Mr. Rodger was going to be absent today. 20 Mr. Sidlofsky, any...? 21 MR. SIDLOFSKY: I believe Mr. Rodger expects to be back between 1:00 and 2:00 this afternoon. 22 MR. VLAHOS: Between 1:00 and 2:00? 23 MR. SIDLOFSKY: Yes, sir. 24 MR. VLAHOS: Let's leave it until closer to then, because we can't start without Mr. Rodger. Let's hope that he can join us at about 1:00. 25 For the afternoon, that should take care of the afternoon with Toronto Hydro, and if necessary, we'll continue the next day, which would be the Thursday. Now, there was an issue, Mr. Lyle, about Enersource and the availability of the panel. 26 MR. LYLE: That's correct, Mr. Chair. We have contacted Mr. Vogel from London Hydro, and he indicates that his client can be available for Friday morning. 27 MR. VLAHOS: For Friday morning, okay. So if that's the case, then, Enersource can be ready for Monday, for Monday morning? 28 MR. LYLE: Yes, that's my understanding from Mr. Sidlofsky. 29 MR. VLAHOS: Okay. 30 MR. LYLE: I've also spoken to Mr. Adams who indicates that he can be available for Monday afternoon, and I've asked counsel for Hydro One to see if her expert witness can be available for Tuesday. 31 MR. VLAHOS: Both expert witnesses, Mr. Lowry and Mr. Adamson? 32 MR. LYLE: We have to contact Mr. Vogel to indicate to him that his expert may need to be available on Tuesday as well. 33 MR. VLAHOS: Okay. It may be that both have to be available on Tuesday. Alternatively, one on Tuesday and one on Wednesday. I'm just not sure about the order. But I'll leave that to you, Mr. Lyle, and the applicants. 34 A reminder, today, we do have to adjourn no later than 5 o'clock today. The Board has some other commitments. 35 MR. LYLE: One other point that's been brought to my attention with respect to the schedule, Mr. Chair. It appears that the hot-line message left yesterday evening may have been somewhat misleading. It indicated that Toronto Hydro would commence on Thursday. It has been brought my attention by some parties -- I don't think it will cause any difficulty with commencing this afternoon, because certainly there appear to be a number of parties here who are ready and available to commence cross-examination. But it may preclude finishing this afternoon, if that was even possible. 36 MR. VLAHOS: Okay. That's fine. We have reserved Thursday for Toronto Hydro, in any event. 37 MR. LYLE: Yes, we have, Mr. Chair. 38 MR. VLAHOS: Okay. Any other preliminary matters? 39 MR. LYLE: Yes, Mr. Chair. You will see on your dais a draft exhibit list which Board Staff have prepared. There was some confusion yesterday as to the exhibit numbers for the prefiled evidence. This is a proposed list which we will also be circulating to the parties here, and we'll be sending electronically to the parties who are not in attendance presently. 40 MR. VLAHOS: Thank you, Mr. Lyle. Does the exhibit list receive an exhibit number? No. 41 MR. LYLE: Fine question. 42 MR. VLAHOS: All right. Any other matters? 43 MR. LYLE: Not at this time, Mr. Chair. 44 MR. VLAHOS: Anybody else? There being done, Mr. Dingwall. 45 MR. DINGWALL: Thank you, Mr. Chairman. 46 HYDRO ONE NETWORKS INC. PANEL 1 - ROGER, RELICH, FRANK, WEBBER, DELLA ROSSA; RESUMED: 47 M.ROGER; Previously sworn. 48 D.RELICH; Previously sworn. 49 S.FRANK; Previously sworn. 50 V.WEBBER; Previously sworn. 51 M.DELLA ROSSA; Previously sworn. 52 CROSS-EXAMINATION BY MR. DINGWALL: 53 MR. DINGWALL: Good morning, panel. 54 I'd like to begin today's festivities with some questions about transition costs as they relate to the acquired LDCs. 55 In the amounts claimed by the applicants, in the retail settlement variance accounts and all of the other accounts that are before the Board in this application under the regulatory assets recovery proceeding, are any of the amounts claimed for costs incurred by the 87 acquired LDCs? 56 MS. FRANK: Yes, actually, some of the transition costs, as we talked about for the market-ready transition, for that account, 1570, would have been for an integrated system that would have included costs to get the rate schedules adjusted and everything ready for the acquireds, so it's not a separately identified piece, but it's part of that account. 57 And then if we were to kind of go to the other regulatory assets -- to assist me, I'm just going to look at Exhibit G, tab 1, schedule 2, where we have the balances and just walk down that list as to what would have costs from the acquireds in and which would not. 58 Starting with the 1508 accounts, the LV costs, those costs are for Hydro One's low-voltage system, and while the acquireds have some benefit from them, it is the low-voltage system cost that are there. So the allocation would go to acquireds, but the costs are literally the low-voltage system costs. 59 MR. DINGWALL: Let me stop you there. I take it that with respect to the low-voltage system costs, these are not new costs, but rather, the continuation of old costs with no new processes or infrastructure? 60 MS. FRANK: That is correct. 61 MR. DINGWALL: Okay. 62 MS. FRANK: The variance in the energy costs recoverable is only for the core Hydro One customers. This relates to a loss factor change from the .7 cent increase that happened to the commodity, so there's no costs associated with the acquireds and there would be no allocation to the acquireds for that. 63 The next two, the MARs and PILs increases in October of '01 and then the March '02, both of those are just for the acquired utilities, because it was the acquired utilities that had the delay in terms of when their rate increases happened, so those are exclusively the acquired utilities in terms of the source of that, and that's also where the costs should be allocated. 64 MR. DINGWALL: Again, I apologize for interrupting, but just so we can go on a point-by-point basis, these delays in MARs and PILs increases were the original applications which were either put on hold, or whatever, by Hydro One or by the acquired LDCs prior to acquisition? 65 MS. FRANK: I would say the process took longer to handle Hydro One's, and in some cases, certainly with the second one, the March 1, 2002, Hydro One was actually asked to delay its application to deal with the multitude of requests that the Board had to get all the LDCs approved, not just the ones that we acquired, but all the ones in the marketplace approved, so could ours come a bit later. And unfortunately, the bit later meant that the rates weren't implemented before Bill 210. 66 I would say that it was just processing. It was volume of processing that resulted in these delays. Certainly for the October 1, 2001, the first-phase increase, the Board recognized that the delay was something that Hydro One should be compensated for and directed a deferral account to be established. So it's not the acquired utilities who caused this or Hydro One, it was just the circumstances, is what I'd say. 67 MR. DINGWALL: And so I understand it, you are proposing to allocate these costs to the acquired utility? 68 MS. FRANK: It was -- the acquired utility customers did not get the rate increase at the time that they should have been increased, that everybody else's were, so yes, they go to those customers. 69 MR. DINGWALL: And those customers specifically? 70 MS. FRANK: Yes. 71 MR. DINGWALL: If you can continue with the next line item. 72 MS. FRANK: Okay. The delay in the Bill 210 costs, that, once again, is in a time period where it's all customers, so the $75 cheques, the one piece of that would have been for all customers, whether they be core or acquired customers, it's just everybody. So there is no separation as to how much is for the former or core Hydro One customers versus the acquired customers. It's the whole set. 73 MR. DINGWALL: And again, at the time that the Bill 210 rebate cheques were issued, were the same information systems and back-office systems used in respect of all the customers to perform those functions? 74 MS. FRANK: Yes, they would have been the same systems. 75 MR. DINGWALL: So at the time that Bill 210 came about, all the acquired LDCs had migrated into the same mutual systems? 76 MS. FRANK: Yes. 77 Carrying on? 78 MR. DINGWALL: Please. 79 MS. FRANK: The RRRP variance. This is a variance between what was -- what the regulation directed that the IMO should pay Hydro One and what Hydro One received, and it's just a variance because the energy levels, as it turned out in the marketplace, were different than the forecast. That one really is a result of all customers -- not just Hydro One Distribution or Hydro One acquired customers, or your core or acquired -- but all customers in the province, their energy levels being different than the IMO had forecast. That's one of the reasons why we're suggesting that that account really shouldn't be recovered from other customers, but let the regulation deal with the true-up, because you should actually go back to all customers in Ontario if they either under- or overpaid. No specific attention to acquireds. 80 The next one, the secondary environment piece, that piece was really environmental remediation on our assets from 2001 and 2002, so any assets that we would have used to serve our acquired customers, or other embeddeds or directs -- that's why there's some allocation to those -- but it isn't the assets that were the acquireds' assets. It's always been Hydro One's assets that we're talking about in this account. 81 MR. DINGWALL: So, in terms of the acquired customers with respect to these assets -- pardon me, these environmental costs -- from their perspective, pre-acquisition, they would not have seen charges or liability as ratepayers for the environmental cost; is that correct? 82 MS. FRANK: To the extent that they used our low-voltage system, where there was some environmental remediation necessary, they would have seen some costs. And today, they see the same costs. So there's been no difference to them because they've been acquired, but they always would have seen some of these costs. 83 MR. DINGWALL: Now, you said if it's with respect to the low-voltage customers. What about the acquired, non-low-voltage customers? 84 MS. FRANK: If there's an acquired -- 85 MR. DINGWALL: Well, the low-voltage system, as I understand it -- and please correct me if I'm wrong -- it may apply to some specific embedded customers, it may apply to some specific embedded LDCs, or it may apply to other customers. And for the LDCs that the low-voltage system have as customers, those same LDCs may also have customers that are not on the low-voltage system; is that correct? 86 MS. FRANK: I always think about getting the costs from Hydro One to Hydro One's customers, and not to the end customers, which is the responsibility for the LDC. I'm not aware of any of our acquired utilities not having a low-voltage component to what -- that has to go out to them. I believe they all have a low-voltage component. 13, schedule 1, page 1 of 2, which is a second set of fold-out pages, it's table 2. Do you have that? 87 MR. DINGWALL: I have that, yes. 88 MR. ROGER: Okay. On table 2, you see where that's a list of all the acquired LDCs. And the third account, starting from the left, is a deferred LV cost. And you'll see that you have -- for all the acquired LDCs, there've been costs allocated to them. So that reflects the fact that all the acquired LDCs use the LV facility. 89 MR. DINGWALL: Now, what -- for some of these LDCs, I'm just trying to understand how the low-voltage system meshes with the other distribution system. For some of these LDCs, is it conceivable that they would have customers that use the low-voltage system and then customers that do not? 90 MR. ROGER: I don't think so. All the power is being used by all the customers. The LV system is like a sub-transmission system, so it takes power from below 50 Kv to 27 Kv, 13.8 Kv, or even below, and customers would take voltages below -- would take power below those voltages, so they have to go through those facilities to be able to utilize the electricity. 91 MR. DINGWALL: Can you indicate to me what portion of the environmental costs come from the low-voltage system, and what portion of the environmental costs come from the balance of the system? 92 MS. FRANK: Mr. Della Rossa can handle that. 93 MR. DELLA ROSSA: I'd like to direct you to Exhibit H, tab 4, schedule 31. 94 MR. VLAHOS: Can we just wait for a moment. 95 MR. DELLA ROSSA: Yes. Exhibit H, tab 4, schedule 31, the response to that interrogatory explains the costs incurred, that would be the environmental costs incurred, in connection with LV facilities. And those environmental costs were not actually segregated, but I believe they would be very small for the two reasons in the interrogatory response. 96 With equipment on distribution lines as opposed to LV lines, and on a straight kilometre basis, only 13 percent of the distribution lines are categorized as LV lines. And they simply don't have the quantities or the abundance of oilfield equipment on them. 97 And the second reason is that the land assessment remediation program, which is the second environmental program, involved distribution station sites and service centers, not lines. It had nothing to do with lines. And, for the LAR program, there were only 3 sites out of 64 where the land assessment and remediation work involved the LV stations. So as a percentage, it was fairly small -- there were some LV components, but very small. 98 MR. DINGWALL: Now, with respect to the very small components of LV that really relate to the environmental cost, how does that compare to the amount of environmental costs that would then be passed on to the acquired LDC customers? 99 MR. ROGER: If I can refer you, please, to Exhibit G, tab 13, schedule 1, the first fold-out table. Do you have that? 100 MR. DINGWALL: Yes. 101 MR. ROGER: And if you look in the middle there, please, for secondary environmental account, $40,611,000 -- and if you move to the right, you'll see there that the acquireds are being allocated $344,000 for that $40 million, which is very little. And that is because we're using distribution revenue for our core customers, and LV revenues for the acquireds and embeddeds, to allocate those costs. So very little goes to the acquireds and the LV. The majority of the costs, $39 million out of the $40 million, end up with our core customers. 102 MR. DINGWALL: And would you say that the proportion of the costs being assigned to the LV customers relates accurately and closely to the proportion of causality coming from the LV facilities? 103 MR. DELLA ROSSA: In my opinion, on the environmental work, I think it's close. Again, we didn't do an individual analysis of each oilfield piece of equipment, but I think it's close. 104 MR. DINGWALL: Now, it's conceivable that at some point in the future, our market may change again and Hydro One might be divided between a transmission company and a distribution company. Can you indicate from the traditional definitions of what distribution and transmission might be, what portion of the environmental costs would likely by allocable to transmission and what costs would be allocable to distribution functions? 105 MR. DELLA ROSSA: I'm going to say at the outset that I have not done an analysis of the future -- I do have an estimate of the future environmental costs associated with transmission and distribution for the two programs in question. For the land assessment and remediation program and the PCB program, we do have estimates of future costs that I can refer to. And maybe I'll do that, if that's appropriate. 106 The future estimated environmental costs for distribution - these are just total costs, these are not net present value - is just over $74 million, and the transmission costs are just under $20 million. Those figures are as at December 31st, 2003. They have not been updated to the current period. 107 The only other qualifier is that there are some environmental costs such as spill response costs, emergency response to environmental incidents, that are not in those figures. Those figures are only the two major environmental programs and do not include other environmental costs. 108 Another example, other than spills, might be all of the environmental costs associated with planning, the transmission system, environmental assessment costs, for example, environmental planning costs associated with the reinforcement, expansion, of the transmission system, would be in addition to those costs I mentioned, as well as other environmental costs, such as spills, et cetera, which are not in those figures. So the figures I've given cover the two major environmental programs, but they do not include other environmental programs. 109 MS. FRANK: Also, the piece that Mr. Della Rossa has spoken to is future expenditures. Those are not the expenditures that we're seeking recovery here. Here we're only seeking recovery for expenditures in 2001 and 2002, no future expenditures. That would be the subject of the next rate hearing. The piece that's here are distribution costs only, and we'd always see them going to distribution customers. They are not transmission costs. 110 MR. DINGWALL: Is that because there has been no separation of transmission and distribution? 111 MS. FRANK: Transmission and distribution has been separated within Ontario Hydro, and now Hydro One. We've always run them as separate systems. The definition of what is distribution is consistent with the Board's last review as to what's a distribution asset and what's a transmission. These are only distribution costs, they are not -- there's no transmission in the amount that we're requesting. 112 MR. DINGWALL: Would you agree with me that if there was some effort under way in the future to separate the transmission and distribution functions of Hydro One, that some of the costs associated with the account 1525 might be deemed transmission if the definitions were changed to fit a changing marketplace, and that some of these costs might then, were they to be recovered over a longer period of time, might be then spread over a larger base? 113 MS. FRANK: I'm not aware of any effort under way to redefine transmission or distribution, to change the dividing line. I'm not aware of any effort. I don't know if others are. But my feeling is no matter what would happen to the organization of Hydro One, without a redefinition of what is transmission and what is distribution, these costs would stay with the distribution system. So it's not as a result of a separation in transmission and distribution that these could change but as a result of a redefinition of what a transmission asset is and what a distribution asset is, and that work, I don't think, is under way at all. 114 MR. DINGWALL: Ms. Frank, could I ask you to then continue with account 1570 in the previous analysis that we were undergoing. 115 MS. FRANK: I think we covered 1570, but I'll do it again. 1570, I'd said, was the market-ready transition, which was one integrated seasonal and there wasn't a separate piece for acquireds. It was build a new system, everybody is on the new system, we really can't break the costs out. 116 MR. DINGWALL: Can I ask whether or not any of the acquired LDCs had been making efforts to become ready for the market prior to acquisition? 117 MS. FRANK: There might have been some very early-stage work. There certainly was nothing that the utilities we acquired had done that we found that could be helpful to us in terms of our effort. So I would say nothing of value. 118 MR. DINGWALL: Well, value seems to be more of a judgment predicated on the result and whether or not you could use it. What I'm curious about it is whether or not the acquired LDCs spent money on transition. 119 MS. FRANK: There's no money in the transition account for it. We're not seeking any recovery from any money that they might have spent. I have no knowledge of them spending any money. 120 MR. DINGWALL: You made the earlier comment that none of the LDCs had made any efforts which you found value in in respect of transition, and I believe another comment was made earlier that, at the time of the Bill 210 implementation, all of the acquired LDCs were on common systems. 121 MS. FRANK: We had moved them to our system by then, so they were all on our system. When we acquired the utilities, we didn't leave them on their old billing system. What we did is we moved them all over to the Hydro One billing capability. This is one of the benefits of the acquisition and cost efficiencies of the integration is you put them all onto the existing system. 122 That was part of an integration cost. It's not in any of the deferral accounts. By the time we were actually rolling out the market-ready, they were on to the Hydro One market-ready system. We didn't maintain any separate systems. With Bill 210 and the changes we had to make there, they're once again on the Hydro One system. There wasn't anything of another system that some of the acquireds used. They were all using the Hydro One system. So I think the statements are consistent. 123 MR. DINGWALL: I think they are too. My next question is, what happened to the rate-based assets of the acquired LDCs related to billing and customer service? 124 MS. ALDRED: I'm sort of struggling as to why this is relevant. Ms. Frank has said none of these costs are in the deferral accounts. This is a hearing to determine the prudency of those accounts. I don't understand why we need to explore what the acquired utilities did before we acquired them. 125 MR. VLAHOS: Mr. Dingwall? 126 MR. DINGWALL: Certainly, sir, let me respond to that. 127 The next question or line of questions are going to be with respect to whether or not there were any adjustments in rate base of the acquired LDCs as a result of the taking out of service, which I think this is the first time we've heard of it, of the legacy CIS systems and the other systems, and whether those rate-base adjustments were reflected in the earlier MAR and PILs applications, because I believe that the return on equity for the acquired LDCs would be potentially impacted if that were the case, which may have some relevance to whether or not it's appropriate at this point in time to grant the request for relief with respect to the delay in MAR and PILs increases. 128 MR. VLAHOS: You want to understand the -- 129 MR. DINGWALL: I want to understand -- 130 MR. VLAHOS: -- the fate of the stranded assets, if any, for the 87 acquired LDCs? 131 MR. DINGWALL: That's right. 132 MR. VLAHOS: And the rate-making past or going forward or today? 133 MR. DINGWALL: Well, I think the previous MAR and PILs applications were under the presumption of a certain return on equity, and what we're hearing is that the rate base may have declined as a result of the taking out of service of a number of legacy systems. So I'm wondering whether or not that was taken into account, as that may give us some guidance on whether or not the application -- 134 MR. VLAHOS: You may proceed in asking those questions. 135 MR. DINGWALL: Thank you. 136 MS. FRANK: Going back to the setting of MARs and PILs, the rate base for each of the LDCs was based upon the 1999 rate base -- the acquireds -- was based on the 1999 rate base at that time. Subsequent to that, there would have been many reasons for change. Their systems no longer being in use certainly would have -- where they had a system, it might have been done manually -- where they had a system, taking that out would have reduced the rate base. 137 On the other hand, from '99 to 2001 and 2002 and until today, there have been a lot of assets that would have been added, just in the normal course of business. The rate base hasn't been increased for the assets that have been added over that period of time for any of the acquireds. The whole basis for setting the MARs and PILs was to actually look at your 1999 books, and whatever the rate base was, consistent with your financial statements from 1999, that was the rate base used for the calculation of MARs and PILs. There weren't adjustments for additions or deletions that would have happened subsequently. 138 It was always our understanding that the next reset of the distribution rates for the revenue-required examination -- that would be updated to whatever is appropriate today, what assets would seem to be in service and useful today. So items that are out of service would not be in the reset, but they certainly were in the MARs and PILs calculations. And that's not just for Hydro One and its acquireds, that's for the entire marketplace. That was the approach that was taken. 139 MR. DINGWALL: Would you agree with me that, as of the 2001 and 2002 applications, the value of rate base would have been assets taken out of service plus whatever efforts in transition costs had been spent? 140 MS. FRANK: No, I wouldn't agree with that. I believe that the integration costs would not have been in rate base. We would have expensed those. I think we talked about that yesterday. And what we would have in rate base today would be the assets in service today, which would -- I believe, more fixed assets, there would be more lines, more connection assets. It's a different set of assets that are there today than were there in '99. A few of the items, like some of the systems, I imagine, would have been fully depreciated by now and wouldn't be there. Some would have been written off. It's just a different set of assets. 141 MR. DINGWALL: Let me just confirm that for 1570, you are not seeking recovery of any of the costs that would have been spent by the acquired LDCs prior to acquisition. 142 MS. FRANK: That is correct. 143 MR. DINGWALL: Are you able to determine in a reasonable time frame what the value of the assets taken out of service would have been for the 87 acquired LDCs? 144 MS. FRANK: I'm not able to do that, no. 145 MR. DINGWALL: What would it involve, looking at their last filing prior to -- 146 MS. FRANK: We don't run these as separate utilities at this point in time. We run a Hydro One Distribution business. We've totally integrated these acquired utilities. We don't have any separation ability between assets that are formerly acquired and formerly core. So trying to go back and say what assets are now associated with those customers that you took over, we've done a lot of changes to them; we would have reinforced lines, we would have -- we just can't do it. 147 MR. DINGWALL: We're looking at trying to put in context 2001 and 2002 applications that are now, unfortunately, several years later, coming up. 148 MS. ALDRED: To my way of thinking, even if we hadn't acquired these utilities, they would have based their MAR and PILs on 1999 costs. So again, I don't -- I'm not sure what this information would get Mr. Dingwall. 149 MR. VLAHOS: I'm not sure what this information would get to the Board either, Mr. Dingwall. The rates have been set on the basis of the 1999 fiscal year. There would be a myriad of changes in terms of rate base, up and down. Rates have never been set on the basis of a new rate base post-1999, so I'm just not sure what you're getting to. 150 MR. DINGWALL: Maybe the more instructive question would be what the cost recovery was in those rates for CIS and billing. That's a number that would be more readily available, I would think, and then we can leave the matter for argument after that. 151 MR. VLAHOS: I'm sorry, come again? What would be the cost recovery on the expenditures -- 152 MR. DINGWALL: What were the numbers embedded in the preexisting rates for CIS and billing? 153 MR. VLAHOS: Based on 1999? 154 MR. DINGWALL: Yes. 155 MS. FRANK: For what companies? 156 MR. DINGWALL: For the 87 acquired. 157 MS. FRANK: The 87 acquired would have used the RUD model to come up with the rates. The RUD didn't have that level of detail in it. It just talked about '99 costs in total. There isn't a separation of that sort. 158 MR. DINGWALL: The next point I would like to move to is -- sorry, technology is a bit slow today, sir. Unfortunately, we can't feed caffeine to our computers. 159 Looking at an exhibit we touched on briefly yesterday, and that is Exhibit G11, schedule 1, page 11. 160 MR. WEBBER: Perhaps, Mr. Chair, if I could clarify a question Mr. Dingwall asked me with respect to this yesterday. 161 It was in the transcript at 1341. You talked about the hub being used prior to the market opening, and I said it wasn't. It was for a two-week window -- 162 MR. VLAHOS: Mr. Webber, let us just turn this up. 13? 163 MR. WEBBER: 1341. 164 MR. VLAHOS: Did you wish to change the wording of the transcript? 165 MR. WEBBER: Yes, I think it needs to be clarified. The question was: "It was not necessary to use an EBT hub prior to that time?" And I had said "no". We used it for a two-week window, March 25th to April 8th, for the preenrolment processing-only transactions, and then it was shut down again until the market opened. So just a little clarification. 166 MR. DINGWALL: I'm almost there. 1341? 167 MR. WEBBER: That's correct. 168 MR. DINGWALL: Okay. Now, this multi-coloured chart discloses, or identifies, a number of processes, software applications, whatever. Were these software applications complete when purchased, or were there labour components, as well? 169 MR. WEBBER: There were labour components, as well. 170 MR. DINGWALL: And in subsequent tables of costs, are the costs identified inclusive of labour? 171 MR. WEBBER: The tables immediately following include labour, yes. 172 MR. DINGWALL: Would that be table 1 and table 2? 173 MR. WEBBER: Yes. 174 MR. DINGWALL: Pages 12 and 13 of Exhibit G, tab 11, schedule 1? 175 MR. WEBBER: Right. Yes, as we talked yesterday, that includes the hardware, software, and labour. 176 MR. DINGWALL: I believe there was some mention earlier that there was a component of WFIS that was associated with the acquired LDCs; is that correct? 177 MR. WEBBER: I don't believe so. As Ms. Frank says, the acquired LDCs in here used this system, so it made our testing more complex, but they were just part of the system. 178 MR. DINGWALL: How were costs tracked in respect of these projects? 179 MR. WEBBER: Labour time sheets, material sheets, purchase orders. 180 MR. DINGWALL: And did the labour time sheets break out to the point where the integration of additional LDCs was incremental to Hydro One's base customer base? 181 MR. WEBBER: The setting up primarily in the CSS system of the customers of the acquired was not part of the market-ready project, so no, that was not in our time sheets. 182 MR. DINGWALL: And those costs are not being sought for recovery in this process? 183 MR. WEBBER: Correct. 184 MR. DINGWALL: Yesterday, there was some discussion of the division between transmission and distribution costs in respect of the 1570 costs. Are there any costs associated with this project which are not reflected in this application and not being sought for recovery at this time? 185 MS. FRANK: Yes. When we managed the project, we managed a project that would have had elements that benefit market opening and have broader benefit to the company, so ongoing -- well, likely, the work-flow information system that we've been talking about, having that capability not only benefits this project, but will benefit other systems that require that level of integration. So the total project, in getting -- since it was the first one that introduced work flow to Hydro One, the total project costs were originally in there, and that's why, in some of our other information, you see costs higher than the 67 that you see in table 1. You see costs that are up around the $100 million. We've removed any system cost that would have ongoing use and only left in the ones that were market-ready. So there is quite a reduction that's been made in the costs for ongoing use outside of market-ready. 186 MR. DINGWALL: Is there a particular methodology, either set out on paper or a policy, which you've used in order to determine what you viewed as market-ready versus longer term? 187 MR. WEBBER: Not set out on paper, but I can certainly talk to what we did, going through. 188 We looked at what we ended up with at the end of the day and we looked at those particular activities, tasks, the functions we talked about earlier, and some of them were clearly transmission, some of them were clearly distribution, so they would be allocated there. Some of the systems met the needs of both distribution and transmission. There were three in particular, MV-STAR and MV-WEB, and MV-PBS check, in the lower- right of that chart you're referring to. For those ones, we looked at some we could quantify, and so we used delivery points and interval meters and a number of transmission and distribution ones of each, and we allocated those costs. 189 And then the exercise Ms. Frank talks about, we talked to our strategy people and our information technology people accountable for architecture and they worked with the various business units to try to envision what was coming forward, what the systems might be useful for going forward as the market evolved and the business evolved. And they brought their minds to it and they looked at it discretely. They looked at: Could the development environment be reused, the processes, the training scripts, the systems themselves, the functionality, and they were the ones themselves, the businesses led by those groups that said, yeah, we can use this part and we can use this and we can extend that going forward. 190 So those costs were then removed from the transmission/distribution based on what they viewed the value was to each of those businesses. 191 MR. DINGWALL: Did you do that on the basis of each individual process or applications that are reflected on page 11? 192 MR. WEBBER: Yes, each of the applications were looked at. You know, there were some obvious, like, the CIS wouldn't be used for transmission, obviously, so it would get less looking-at, but, yes. 193 MR. DINGWALL: You mentioned the distinction of distribution versus transmission. Did you also make the distinction in the review of each individual module of market-ready versus long term? 194 MR. WEBBER: I'm not sure I understand your question. I think the answer is -- 195 MR. DINGWALL: Whether or not to bring these costs forward in this process totally or in part, or whether or not part of these costs or the total costs for any of these systems would be more appropriately left to 2006. 196 MR. WEBBER: We looked at our understanding of transmission and distribution business and this exercise was done two years ago, so it was done in that context. 197 MS. FRANK: I believe that you're actually asking about the costs that we decided to have use beyond market-ready within distribution -- 198 MR. DINGWALL: That's correct. 199 MS. FRANK: -- and did we look at it by system. The answer is yes, we did look at it by system. 200 MR. DINGWALL: Is there any written analysis or word product from that which you could provide, which would give us an indication of why you made the determinations in each case? 201 MS. FRANK: No, we wouldn't have anything on the why we did it. It was the judgment of the people who were involved in developing the team and the judgment of the people who do other work in systems at Hydro One in terms of how they could actually maybe make benefit of some of the system and processes that this particular project team had put in place. 202 So it's all judgment, discussions. We wouldn't have anything written down on the "why." 203 MR. DINGWALL: I'm trying to think of where to go from here in context of trying to keep this proceeding fairly reasonable. I guess what we're going to be looking at in terms of understanding where you're coming from is how we justify the costs being in this hearing versus whether or not those costs should be in 2006 hearings, and whether or not we might be setting any kind of baseline for analysis that might be useful in terms of considering the supplemental applications of the additional parties. 204 Can you give us any indication of what rationale would have been communicated to the various individuals that made these decisions on which they should base their decision? 205 MS. FRANK: We would have used the direction that we have in terms of 480, article 480, as to what's allowed in this account, and the direction is that if 75 percent of the value of the system relates to market-ready, then the costs go in; if not, they shouldn't be here. So when we've looked at systems, we've said, Is that functionality beyond, really, what the market-ready needs, and could you please separate it out so that we only put in the costs that are market-ready. And we tried to use a standard of 100 percent related rather than 75, saying, Please take all the costs out. 206 We took out, actually, $25 million worth of costs, so it was pretty substantial when it says "has broader benefit." Those costs would have gone into other systems that would have went in service in May of 2002, or maybe even a little earlier if the system was available a bit earlier, and certainly some of them were. Since most of our systems are depreciated over seven years, that's typical, there's going to be hardly anything left in those items by the time we get to a, let's say, 2006 consideration; that the costs will be primarily written off by that point in time. 207 I think that that's likely the best we can do. 208 MR. DINGWALL: Well, can you indicate for me which applications you've put forward for partial recovery, and if so, what amounts remain to be applied for in another proceeding? 209 MS. FRANK: What's in here are the transition costs that we believe, after very careful examination, truly relate to getting the market opening, and we've stripped out everything that we thought had any -- anything that was at all marginal, we took out. So you see the costs left that we believe that truly relate to transition. 210 Some of the costs that we took out, we took a hit to our bottom line. We wrote them off in that year. In other cases, the $25 million I mentioned earlier, we put those assets in service as a normal Hydro One system that we would have billed. 211 Some of that asset will remain in '06. As I say, since you've put it in in either late 2001 or 2002, there won't be a lot left to be considered in the rate base with a seven-year life, but there would be some remaining of the $25 million. 212 MR. DINGWALL: Can you give me an indication, Ms. Frank, what processes the $25 million relate to. This would be the $25 million, to be specific, that is not being brought forward in this hearing, but that you estimate are expenses that you will bring forward in 2006 and relate to the same projects. 213 MS. FRANK: Naturally, the work-flow information system that we talked about would be a big piece of that, and the other system is the CSS system. Those would be primarily I'm talking about. 214 MR. DINGWALL: And can you give me an indication of the dollar amount that's been taken out of this application and deferred to another application for each of those, please? 215 MS. FRANK: Yes, I can. The CSS would have been around $13 million - $13.5 million, somewhere in there, and the WFIS would have been $11.5 million - $12 million. 216 MR. DINGWALL: So in terms of the CSS cost that you've taken out, I'm just trying to find -- is that about 30 percent of the total? I'm looking at the costs on table 2. Is that an appropriate number for me to be looking at? 217 MS. FRANK: You likely should turn to table 3 and get the details. And it's the seco line in that table. It's $18 million, $18.6 million, and I said we took out just over $13; so what is that, 40 percent, maybe? 218 MR. DINGWALL: So with respect to the CSS, you determined that 40 percent of the project was not market-ready-related. 219 MS. FRANK: Had use beyond market-ready, yes. 220 MR. DINGWALL: Okay. And with respect to work-flow information system. 221 MS. FRANK: What's in the -- if we turn to table 6 on page 25, you'll find that we're asking for $16 million, and it was close to $12 million that we said had use beyond the market-ready system. 222 MR. DINGWALL: So again, that seems to be kind of around 40 percent of the total? 223 MS. FRANK: Roughly, yes. 224 MR. DINGWALL: I'm going to move away from this area for a moment and suggest that we look at reference G9, tab 1, page 10. 225 There were a number of questions yesterday with respect to the potential allocation of some specific costs to retailers. Do we have the reference? 226 MS. FRANK: Yes, we have it. 227 MR. DINGWALL: Okay. Can you give me an indication of what these costs stem from? 228 MR. RELICH: As I indicated yesterday, these costs are incremental costs that we, as a distributor, incur in supporting retailer activities. The costs are in two categories; the operational administration support to deal with retailers, as well as the ongoing incremental sustainment costs associated with the IT systems that are there to support retailer activity. 229 MR. DINGWALL: Are any of these costs flow-through costs from third-party service providers? 230 MR. RELICH: The majority of these costs are flow-through costs from third-party service providers. 231 MR. DINGWALL: So would these costs be costs that are charged to you, as an LDC, by a hub provider for the transmission of data? 232 MR. RELICH: A small component of those costs is as a result of costs for EBT distribution. 233 MR. DINGWALL: Where do the rest of the costs come from? 234 MR. RELICH: The other costs are from our customer-care service-provider, Energy LP. 235 MR. DINGWALL: Is that a billing fee? 236 MR. RELICH: No. As we indicated in our interrogatory response, tab 1, schedule 14, Hydro One outsourced its customer-care service-provision to a company called Energy LP. This is -- the costs here that we're speaking to are a component of those costs that are there to support retailer activities. 237 MR. DINGWALL: You've been so generous with your information, it's taking me a moment to turn that up. 238 Now, with respect to those specific fees, do you not recover monies from retailers for specific transactions under the Retail Settlement Code? 239 MR. RELICH: That specific account deals with the variance, the difference between the costs that we -- the incremental costs that we incur for providing retailer services and revenues that we get from retailers based on the pre-approved rates. 240 MR. DINGWALL: But you indicate that these costs were flow-through costs from a third-party service-provider. Would these be at rates that you negotiated? 241 MR. RELICH: Our costs are for -- are as a result of the negotiated rates, yes. 242 MR. DINGWALL: So has there been a formal cost-allocation study which would determine what the actual costs in providing these service line-items would be? 243 MS. FRANK: Maybe we should go back to your question about flow-through, because I think that might be the source of the confusion we have here. What we've got in this account is the costs that we have, and what we're taking out is the money we're collecting the from the retailers. Tables -- in Exhibit G, tab 9, tables 2 and 3 show the revenues. Those are on pages 3 and 4. And those revenues are at the rates that the OEB would have set for retailers. So isn't really a cost-allocation study for setting those rates. When the Board set those rates, they set them based upon what information was available and what they anticipated the rates would be, and the reason for the variance account is to try and track how close were those rates that were set with really very little information about how the market was going to work and what it actually is costing the LDCs to do the work. So that's why we have a variance account. No cost-allocation study. 244 MR. DINGWALL: But the rates that you're comparing, the regulated rates set by the OEB, are your negotiated rates; correct? 245 MS. FRANK: Our costs are based upon negotiations, yes. 246 MR. DINGWALL: Right. So in terms of whether or not your negotiations accurately reflect what the cost of the service provider performing those functions are, there's been no study of whether or not your negotiations and the result of those negotiations reflect actual costs; would you agree with me? 247 MS. FRANK: I would say this hearing is the time to examine if the costs that we incurred to deliver these services were seen as being reasonable and prudently incurred costs. So when you're looking at the variance, you're saying, Well, I can see what you charged the retailers based upon the information in tables 2 and 3, and the volume that you dealt with. Now, the difference between what you've got in this account and that must have been your costs. And we've provided information on our costs. And if they don't look like they were appropriate, then this will be the time to examine that. 248 MR. DINGWALL: Is it your suggestion that we should be looking at prudency of the fees that you've negotiated with your service provider in this proceeding? 249 MS. FRANK: I believe you need to look at the value we have in this variance account and determine if you believe that that is an appropriate amount that we should recover from customers. That value has behind it how much we paid to do the work. 250 MR. DINGWALL: I guess in terms of process, that leaves the question of whether or not we should be taking a look in this proceeding at the prudential review of your service-provider contracts for ongoing services. I had presumed we'd really get into that more 2006. 251 MS. FRANK: I'd agree with that comment. My feeling is what you look here is the costs that we had for this particular activity, and we've described those costs. The filing requirements from the OEB indicated we had to tell you what the costs were, and we've got information in Exhibit G, tab 9, that talks about how much is labour, how much were systems, how much was hub, how much was depreciation on systems we put in, and there were lots of interrogatory questions that followed up on the examination of these costs. So we believe we've got evidence here that allows you to say, Are the costs that we had reflected in this variance account costs that were reasonable? 252 MR. DINGWALL: Were any of these costs incurred in the period prior to market opening, prior to May 1, 2002? It looks like you've got request fees, processing fees, information request fees, et cetera. I'm presuming that leading up to market opening, with the pre-submission process, that some of these fees were incurred prior to market opening. 253 MR. RELICH: No. The costs identified here are for post-market opening activities. The market-ready project dealt with the initial transition. 254 MR. DINGWALL: Well, these are customer-specific fees that are identified based on retailer submissions; correct? 255 MR. RELICH: The revenue associated -- that we received is based on the volume of those transactions that happened post-market opening. 256 MR. DINGWALL: Right. Market opening, customers were already submitted and began receiving commodity on the date of market opening; correct? 257 MR. RELICH: I believe, as Mr. Webber identified yesterday, there was a separate process that was used for the prescreening of retailer enrolments as part of the market-readiness process. Those costs are not included in this variance account. 258 MR. DINGWALL: But on the day that the market opened, customers would have been identified with particular retailers because there would have been processing, there would have been information requests in advance of market opening in order to gain an understanding of load. These things would have happened before market opening; correct? 259 MR. WEBBER: Correct, as part of the project. 260 MR. DINGWALL: Correct. And up until the day that the market was opened, Hydro One had an affiliate in the marketplace who sold their book of business the day before the market opened; is that correct? 261 MR. WEBBER: I'm not sure. 262 MR. DINGWALL: The company was called Ontario Hydro Energy. 263 MS. FRANK: Ontario Hydro Energy -- actually, we have all of our organization charts and who we had. If I go back and find that exhibit we can at least... 264 MR. DINGWALL: It's listed as a separate subsidiary of your parent company. 265 MS. FRANK: Let's turn up 6, 21. H6, 21. If you turn to page 4 of it, you can see the companies we had as of January 2002. So that's the right time period; right? 266 MR. DINGWALL: I'm noticing from page 3 of 6 of that exhibit that Hydro One Inc., which is your indirect parent company, had a direct subsidiary called Ontario Hydro Energy Inc. 267 MS. FRANK: True. And I was going to move us to the next page, because it gives us 2002, rather than 2001. You notice on the 2002 page, that Ontario Hydro Energy Inc. -- just so we know what was that company, what that company did is they had the water heaters that used to be owned by the distribution business because that business could no longer be a distribution activity, so they took over all the water heaters, and they had done some contracts for retailers so they did have some retail contract capability. 268 This was a business that turned out not to be a very strong business for Hydro One and so we sold the business. And we sold that business, if you notice in the comment notes, Hydro One sold the assets and employees to Union Energy as of April 2002. So we got out of that business entirely. 269 MR. DINGWALL: Which was the day before market opening. 270 MS. FRANK: Well, effect at this, yes, that was the effective date. 271 MR. DINGWALL: Right. So as of that time period, and with all the presubmissions that Mr. Webber confirmed earlier, Hydro One Inc. did have an affiliate which was a sister company in the marketplace that, if it still continued to be in the marketplace to this day, might be subject if you requested treatment of these costs and might have been around to pay for some of the costs it incurred. 272 MS. FRANK: All the customers have gone to Union Energy, so that the customers still exist. And any charges in terms of retailer revenues or anything would still flow, just that it's owned by another entity. I don't know what you're questioning. 273 MR. DINGWALL: Well, many of these costs go back to a period several years ago, and in fact, the companies who were in the marketplace at the time of the incursion cost have changed significantly, have they not? 274 MS. FRANK: I question the word "significantly," but there has been some movement among retailers, yes. 275 MR. DINGWALL: At the time that many of these costs would have been incurred by Ontario Hydro Energy, those customers would have moved to Union Energy and now to Ontario Energy Savings Corporation, so you're several parties down the road from the time of incursion to the current state, are you not? 276 MS. FRANK: As retailers change, there would be requests from the retailer to get them set up, and there are fees that have been directed by the OEB to set up a new retailer, to set up those customers. We charge all those fees, compliant with the directions. So the fact that retailers turn over, there are new fees that happen when that -- that, because of the cost that we incur to deal with it, we recover. 277 MR. DINGWALL: Which retailers are you suggesting should attract the fees associated with this account? 278 MR. RELICH: I believe that the services that we, as a distributor, have to provide, we need to provide those services on an equal level to all retailers. Through the market, since market opening, there has been a fair amount of evolution in terms of number of retailers in the market. There's been some consolidation, some asset transfers between retailers. The obligations on LDCs to support and facilitate EBT transactions as well as movement of retailer-enrolled customers, and the movement of customers from one retailer to another is an obligation on all LDCs. It would have had the same impact on Hydro One as it would have on any other LDC where the retailer -- those retailers in question had customers. 279 MR. DINGWALL: Would you agree with me that any method of cost allocation, apart from what you've advocated which is two old customers instead of two old retailers, would be extremely confusing for the past period given all the movement in the marketplace? 280 MR. ROGER: We think what we are proposing here is straightforward and reflects that all customers benefit from the market opening, and retailers exist because the market was opened. So we feel that allocating the costs to all the customers, based on number of customers, is a fair methodology of allocating those costs. 281 MR. DINGWALL: Thank you, sir. 282 We now are going to move on to another area. 283 MR. VLAHOS: Mr. Dingwall, is this a good time to break, since you're moving on to a different area? 284 MR. DINGWALL: Yes, and I think caffeine will be quite necessary for the next one. 285 MR. VLAHOS: For who? 286 MR. DINGWALL: For you, sir. 287 MR. VLAHOS: It is 15 to 11:00. Let's resume at 11:00. Thank you. 288 --- Recess taken at 10:45 a.m. 289 --- On resuming at 11:05 a.m. 290 MR. VLAHOS: Please be seated. 291 Mr. Dingwall, can I just take a bit of a canvass here, how long do you think you'll be, and then I will ask the same question of Mr. Brett and Mr. Lyle. 292 MR. DINGWALL: I believe, sir that I'll be between half an hour and 45 minutes. 293 MR. VLAHOS: Okay. 294 Mr. Brett? 295 MR. BRETT: I will be 45 minutes I would say, Mr. Chairman. 296 MR. VLAHOS: Mr. Lyle? 297 MR. LYLE: I should be an hour to an hour and a half, Mr. Chairman. 298 MR. VLAHOS: Well then, with the developments this morning it would appear -- I guess it brings the question whether Toronto Hydro should be getting ready. 299 Mr. Lyle, any thoughts on this? I've got 45 minutes there plus, say an hour or so, so it looks about two and a half hours plus Panel's questions plus redirect. 300 MR. LYLE: We may -- if we're able to get to some of Toronto Hydro today, Mr. Chair, it may ensure that we can actually finish that on Thursday. 301 MR. VLAHOS: Okay. Could I ask Mr. -- I saw Mr. Zebrowski back there. Are your witness panels here, Mr. Zebrowski? 302 MR. ZEBROWSKI: Yes, they are. 303 MR. VLAHOS: So you don't mind if they wait around for the balance of the day? 304 MR. ZEBROWSKI: No, we're going to be here. 305 MR. VLAHOS: In fact, that's the best place to be; isn't it? Well, if you don't mind, maybe just keep them around. We'll appreciate it. 306 Mr. Dingwall. 307 MR. DINGWALL: Thank you, sir. 308 Yesterday, there was a general discussion of cost-allocation principles, and I believe that the company agreed that cost causation is certainly one of them. Would you also agree that another benefit or another consideration in cost allocation should be who receives the benefits? 309 MR. ROGER: That could be another criteria to be considered, yes. 310 MR. DINGWALL: Thinking specifically in terms of account 1570, which would be market-readiness, would you agree with that statement, that benefit is another additional concern that should be considered? 311 MR. ROGER: We feel that the way that we are proposing to allocate the costs is a fair way by cost causality for the account 1570, market-ready, and we've done it by number of customers, because many of the costs were related to the customers regardless of the amount of power that they consumed. 312 MR. DINGWALL: Moving on to another area, I understand that -- could you confirm for me the interest rates that have been used by the applicant in respect of this application. 313 MS. FRANK: Yes. Those interest rates have been filed in response to a Board Staff Interrogatory H1, 25. 314 MR. DINGWALL: Number? 315 MS. FRANK: H1, 25. 316 MR. DINGWALL: So for 2002, the rate was 8 percent? 317 MS. FRANK: At the fourth quarter of 2002, the rate was 8 percent. It was 8.1 in the other quarters. 318 MR. DINGWALL: So the 8.1 was the other quarters of 2002? 319 MS. FRANK: Yes. 320 MR. DINGWALL: Okay, sorry. And for first quarter of 2003, that would be 7.7; second quarter, 7.6; third quarter, 7.16; and fourth quarter, 7.14. Would that be correct? 321 MS. FRANK: Those are correct. 322 MR. DINGWALL: We note that in looking at the other applicants that were in this phase of the process, that the rates they're using are somewhat different. Can you comment on the methodology by which you've chosen the rates that you are using? 323 MS. FRANK: What we've used is our embedded cost of debt. This is the cost of debt that Hydro One actually has issued, and it's all the issued maturities divided by the amount of dead that's been issued to come up with, this is what we're paying for all our debt at Hydro One, and the money we've used to finance our projects. So that's what we've used. 324 MR. DINGWALL: Our reading of chapter 3, page 7, of the Electricity Rate Handbook seems to indicate that the interest rates for 2002 that should be in use were more closer to 6.8. That seems to be quite a variance from what you're putting forward in this case. 325 MS. FRANK: I believe that direction was for utilities who didn't have debt outstanding, that there had to be some rate that was assumed when they didn't have outstanding debt when a debt/equity ratio was given to them for establishing their revenue requirement. And the rate that was chosen was 6.8. 326 For Hydro One, it does have publicly-held debt. It's in the marketplace. Certainly, when we looked at our revenue requirement, the Board thought it was appropriate to use our actual issued debt costs rather than some number that was provided in the absence of issued debt. So we've taken the same approach here. We've used our actual issued debt costs rather than a generic-type number. 327 MR. DINGWALL: And now we move to the area of the Deloitte report, which is filed at -- as attachment B to interrogatory response H2, being Energy Probe, number 6. I'd ask you to first turn up page 11, which is entitled "Comparable Cost Summary." 328 MS. FRANK: Yes, I have that. 329 MR. DINGWALL: There are a number of different baskets in which costs are aggregated, or what appear to be comparator groups. Who designed the comparator groups for this study? 330 MS. FRANK: Are you talking about the -- you said different categories of costs, or the other utilities considered? Which piece are you asking about? 331 MR. DINGWALL: At this point I'm talking about the activities considered. So to be clear, on the individual activities, there's wholesale market requirements, which is the last line, retailer and customer requirements, which is the line second from the bottom, then billing activities, which is the line third from the bottom. Above that, there's billing activities, retailer and customer requirements, which appear to be an aggregate of the second from the bottom and the third from the bottom, and then total cost without wholesale. 332 MS. FRANK: The categories that are in here are really using article 480's costs. So when the Board identified how to track the market-ready transition costs, they set out different categories, and that's how we filed our evidence in tab G11, and the tables we've referred to many times, tables 1 and 2, have really the nine categories that were established. 333 What this table in the Deloitte study has done is picked the areas where major expenditures occurred, so items where there aren't very large costs, they haven't looked at that or done comparisons. They really picked the items that were significant expenditures. So if you look back on our table 2, you'll see billing activities was a big item for us, so they looked at that. The wholesale requirements was relatively large, it was 1.6 million. The retail customer requirements was another category the Board identified that had large costs. So those were the ones they focused on, where we spent a fair amount of money. They didn't do the full nine. 334 MR. DINGWALL: I beg your pardon? 335 MS. FRANK: They didn't do all nine of them. 336 MR. DINGWALL: So in terms of retailer and customer requirements, as it's set out in this study, would that relate to the retailer and customer requirements summary of transition costs reflected in table 2 of Exhibit G, tab 11, schedule 1, page 13? 337 MS. FRANK: Yes, it would. 338 MR. DINGWALL: I'm noticing that the amount in this comparable cost summary for Hydro One Networks is $28 million as opposed to the $25,400,000 that's reflected on table 2. 339 MS. FRANK: Certainly using current information, it should be the 25. 340 MR. DINGWALL: Then with respect to the billing activities, where would I find the comparable number for that? Would that be line 1 on table 2? 341 MS. FRANK: Yes, it would. And 28 should be the 26. 342 MR. DINGWALL: As we go further and further into the Deloitte study and we see at page 15 -- sorry. One second. 343 How did Deloitte come up with the comparable or comparator groups of utilities involved in this study? 344 MS. FRANK: Deloitte explained this exercise in the study, but what they did was they, first of all, looked for other markets that had opened or had evolved so that there would have had to have been some significant preparation on the part of the utilities to deal with the market change. So they looked to those markets and then they looked to the utilities that served those markets where they had above 500,000 customers, because you had to have a material customer base before you'd have to make some significant system changes. So that was their next cut. 345 I believe they found 29 utilities where they believed that circumstance existed, but then in the case of 10 of them, they said, These utilities, the cost information we have from them is not of a level that we're confident in. It wasn't the utility's original full costing. It was in a source that didn't give them the details or the ability to do much analysis with it. So they dropped the 10 and that left them with 19. 346 And then among the 19, what they would do, because you notice when they do the comparison, sometimes there's more utilities, sometimes there's fewer utilities, what they wanted to do was segment the information that was available, on often a relatively aggregate basis, into those bundles of work that we looked at on page 11 to try and get it into what's a billing activity, what's a retailer and customer requirement, what's a wholesale market requirement. So not all of the utilities they looked at had all of those segments. 347 So when they're on total costs, they're pretty good, but once they do this segmentation, they don't always have that kind of detail. So each one of them made the sample as large as possible where they had the detail available to have the costs associated with that category. 348 So we were on page 15. You see in this one, they can find quite a few utilities, however many, that have billing activities and retailer customer bundles. That bundling, they can find quite a few utilities where they felt -- they undertook those activities. 349 MR. DINGWALL: Now, this was phase 1 of the study, was it not? 350 MS. FRANK: Yes. 351 MR. DINGWALL: And what happened at phase 2 of the study? 352 MS. FRANK: Phase 2 of the study -- 353 MR. DINGWALL: If you can give me an overview. 354 MS. FRANK: -- is on page 20. And really, phase 1 did a cost comparison, looking at what cost the utilities, and then phase 2 really turned to our exercise and looked at our processes to get ready for market. So it was more a, Did we manage the project effectively assessment, rather than the phase 1 which looked at the dollars spent. 355 MR. DINGWALL: Now, I believe the analysis and the observations begin at about page 27 of this report. And I notice that in respect of the first application, the analysis going on an application-by-application basis, one of the criticisms that -- or one of the observations that Deloitte put forward was that there were limited capable resources and there was a requirement to use high-dollar U.S.-based consultants. Could you comment on that, please? 356 MS. FRANK: Mr. Webber will speak to this when you give him more precise -- clarify what you're speaking to. 357 MR. WEBBER: The reference? Page 27, I don't see it. Is there a paragraph? 358 MR. DINGWALL: Page 27 of the Deloitte report. 359 MR. WEBBER: Right. 360 MR. DINGWALL: On the first line at the left there's a yellow box with CSS and CODS. 361 MR. WEBBER: Oh, yes. 362 MR. DINGWALL: And on the right-hand side of the page, there's a heading "Observations." The third bullet point is the one that I'm making reference to. 363 MR. WEBBER: Right. That was largely in the early days. You may recall there was an aggressive market opening based on the November 2000 date, and when that came about, we did look to resources that had been there, done it, and they didn't exist in Ontario, obviously, and I think Alberta may have been just ahead. But we needed to look to the U.S. to bring some people in to help us understand what was facing us, what we were going to need, and what we needed to do. That's the resources they're talking about. 364 Once the market was delayed, and somewhat prior to that, but definitely when the market was delayed, we reset the project and adjusted it because we had more time to do what we needed to do. But initially, we had to pay a premium to get going to get there for November 2000. 365 MR. DINGWALL: Well, the premium seems to be based around the suggested requirement that there weren't local capable resources. Was that your observation? 366 MR. WEBBER: That had knowledge of an open electrical market, there were limited people. I wouldn't say there were none, but limited, yes. 367 MR. DINGWALL: So in terms of the early phase and the use of U.S. consultants, how much money was involved? 368 MR. WEBBER: I believe Ms. Frank can talk to that one. 369 MS. FRANK: It would have been around $5 million that would have been spent in 1999, at a very early time in this project. As part of our assessment, I mentioned earlier how we wanted to make sure every dollar in here was an essential dollar to getting ready for market opening. We looked at that 1999 work and questioned how helpful that work was to the end product. Because so little was known at that early stage about what the requirements would be that we decided the 1999 expenditures really were not that helpful to the end product, and we have written those dollars off. So they're not in here. 370 MR. DINGWALL: So when you mentioned earlier that there were a number of dollars that you took as a shareholder hit, it's amounts associated with this particular portion of the project? 371 MS. FRANK: This would be a part of it. In total, there's about right around $10 million that we took as a hit to the company, this being in the order of half of that. 372 MR. DINGWALL: Okay. Moving further down the page, in the third box, which is its eXact MR-Web PTT, in the observation column it states that: 373 "MV-WEB functionality was determined not to be needed when the OEB/IMO decided to handle the information exchange through EBTs in lieu of the web-based approach they originally required." 374 Now, we talked about MR-WEB a little bit earlier, I believe, and it seems the conclusion of Deloitte in 2002 was that functionality was actually not needed. When was it determined that the functionality was not needed? 375 MR. WEBBER: That portion of the functionality, because MR-WEB does two things as we noted, it was originally intended and developed based on an OEB requirement for all LDCs to provide historical information to retailers. You remember that was taking place two years prior to market opening as retailers were out there. So the early vision of the OEB was to provide that through a web-based facility. So we designed, built, and did, in fact, implement that as required. 376 MR-WEB also provides a utility to our staff in-house to go in and make adjustments to customer's accounts, so it's got two functions. That was mentioned earlier around that system chart that we looked at and what it does. 377 What the functionality is it's referring to here is that a decision was made, I believe in 2001, with EBT-10, that historical information would be provided to retailers going forward via the EBT system, as it had matured by that point. And so this one, although used for a year or so to help retailers, was ultimately not part of the requirements. 378 MR. DINGWALL: And the cost for this system was? 379 MR. WEBBER: I'd have to refer back to Exhibit G, tab 11, schedule 1, MR-WEB in total was just a little under a million, 978. 380 MR. DINGWALL: And again, that was inclusive of labour? 381 MR. WEBBER: Yes. 382 MR. DINGWALL: And the third bullet point under the heading "Selection process," there's reference to: 383 "eXact was procured through Excelergy originally to facilitate the development of a market hub which would have been a joint venture between OPG, Hydro One, and Toronto Hydro. This JV did not proceed and the eXact project was left for Hydro One to use for the transaction management." 384 What happened with respect to the proposed joint venture with OPG and Toronto Hydro? 385 MR. WEBBER: My understanding, a business analysis said it was something Hydro One did not want to go forward with at the time. 386 MR. DINGWALL: In reading the Deloitte notes, it seems that your purchase of the eXact product was predicated on a joint venture going forward and developing a market hub. 387 MR. WEBBER: I don't believe solely that that was the case. In fact, eXact is a requirement of the Retail Settlement Code, where you will do the level 1 and level 2 validations of all retailer transactions that come in. In other words, yes, they are talking about our customers, yes, they are a valid retailer. eXact is such a tool. It does that. We were required to do that as an LDC. So out of the three levels of validation we're required to do, eXact does two of them. 388 MR. DINGWALL: What was the cost of eXact? 389 MR. WEBBER: Again, I'll refer back to Exhibit G, tab 11, schedule 1, table 6. 5.5 million. 390 MR. DINGWALL: It sounds like eXact was quite a significant product if it could be developed to move towards the creation of a market hub. Were there any other elements which you would have had to purchase, or any other products which you would have had to purchase to go down a road of creating a market hub? 391 MR. WEBBER: Yes. Hubs do much more than eXact. eXact would have been one small component of any hub. 392 MR. DINGWALL: Would MR-WEB have been another? 393 MR. WEBBER: No. 394 MR. DINGWALL: Moving over to page 28, under the WFIS application, I'm trying to find the reference that's in my notes. 395 Looking at the third bullet point under observations, it seems there were two turnovers in product leadership due to poor performance. Can you comment on that, please. 396 MR. WEBBER: Yes. Within the project team, we had the core teams, and as we identified earlier in evidence, there were about five of those, and then each of those had subproject managers that led staff, typically six to eight people. Within the WFIS development, we had -- the first individual was replaced largely due to personality conflicts and just ability to work within the team. The second individual was replaced, just we weren't getting the desired results we expected to get out of a project manager. 397 MR. DINGWALL: There's a further comment at the sixth bullet that PTPs were being built prior to decision. 398 MR. WEBBER: That was in reference to, when I talked about yesterday, what would the role of the hub do; how would hubs work to get decisions with respect to the hubs; and how LDCs would work with them; who would pay the costs for moving the transactions back and forth? Point-to-point was a requirement of the Retail Settlement Code. We needed to get moving on it and move forward in the absence of those decisions being made in the marketplace, so we proceeded to build it based on the OEB protocol. But the hub decisions, as we noted yesterday, were eleventh-hour decisions. We couldn't afford to wait that long. 399 MR. DINGWALL: Well, it seems that at the eleventh hour there were a number of service providers in the market place offering hub services. 400 MR. WEBBER: Mm-hm. 401 MR. DINGWALL: What were you building here that they weren't offering? 402 MR. WEBBER: This was the point-to-point facility required by the Retail Settlement Code that we were required as an LDC to have in place for the self-certification process conducted in August of 2001, a year prior to the market opening. We were required to have a facility that would accept transactions from retailers to Hydro One, and that's what point-to-point does. It's the entry into our secure computing environment. 403 MR. DINGWALL: Were there hubs or hub providers operating in August of 2001? 404 MR. WEBBER: Operating as legal entities, not operating functionally as a hub. They were building the technology at the time. 405 MR. DINGWALL: So for the WFIS project, there's reference to poor performance, there's reference to time lines not having been met. How did the project do in terms of budget? 406 MR. WEBBER: Overall, as we mentioned earlier, the overall program budget increased and changed as new, you know, requirements came out. We indicated that was around $30 million. The WFIS budget would have changed too, going along with those changes and those requirements. 407 MR. DINGWALL: Out of the amounts that are being put forward for recovery in this case, and the total amounts that were eventually incurred, has the shareholder decided to take any amounts related to WFIS to its own account? 408 MS. FRANK: As we've spoken about this one earlier, there's about 11 and a half million dollars of this one where we had said it had other functionality, so we've taken it elsewhere. 409 MR. DINGWALL: There was also a discussion earlier with respect to the CSS module where you mentioned, Ms. Frank, that 5 million of the actual costs incurred were not going to be presented to ratepayers for payment either in this or in the 2006 proceeding because you didn't think that they were defensible. Do you have any costs associated with WFIS that fall into that categorization as well? 410 MS. FRANK: Yes, we have about 2 million. 411 MR. DINGWALL: Now, the Deloitte report, in its phase 2 discussion, seems to mostly be based around narrative. Did they ever provide you with any work product which addressed specific financial implications of your costs or made recommendations to you with respect to what you should do with your costs? 412 MS. FRANK: The product you see here in response to interrogatory H2, 6, is the only product that we have. We have nothing else from Deloitte's. 413 MR. DINGWALL: In discussion, did they identify or suggest specific amounts of reduction? 414 MS. FRANK: They had concern about those costs in 1999, the costs that I mentioned earlier that we have removed. They thought -- actually, their suggestion was that we had accrued them with best intentions, and therefore, we should seek recovery. We thought maybe that was more aggressive than we should have been, so we removed them. 415 MR. DINGWALL: Where would that specific discussion be reflected? 416 MS. FRANK: I believe it's on page 30, the bottom paragraph. It talks about 5.6 between '99 and July of '01, and it describes this as unusable work, but then goes on to say that, "may reasonably seek recovery for it" in the last sentence. But we're not. We agree it wasn't usable so we removed it. 417 MR. DINGWALL: Okay. Going back to page 11 in that report, which is the comparable cost summary, in looking at the differences between that table and table 2 at Exhibit G, tab 11, schedule 1, page 13. 418 MS. FRANK: I have those. 419 MR. DINGWALL: Does the Deloitte report -- is the 5.6 million that you mentioned earlier, which was referred to on page 30 of the Deloitte report, does that in any way explain the difference between the Hydro One Networks' figures reported on table 11 -- pardon me, page 11 in the comparable cost summary of the Deloitte report versus the numbers report in table 2 in Exhibit G? 420 MS. FRANK: The Deloitte report was looking at the total project, so our better comparison is actually table 1 where we are looking at the 67 million rather -- because they didn't separate the transmission and the distribution. They looked at the total project. The 73 would have included interest costs in it, so the 67 and the 73 would have been interest-enhanced. If we wanted to just look at the costs excluding interest, we should go back to the numbers in table 1 to be comparable. If you just want to look at the distribution business -- however, some of the comparators, I imagine, offered both transition and distribution, so you might not benchmark as well, I'd say you'd go to table 2 as well. 421 MR. DINGWALL: So is your explanation for the difference between the Deloitte numbers and the Exhibit G, tab 11 numbers interest calculations? 422 MS. FRANK: I was going to be on table 1, which is page 12 of the exhibit and now, yes, interest. 423 MR. DINGWALL: So in making the comments that were made at page 30 with respect to the removal of unusable expenses in the amount of 5.6, that 5.6 had been removed before the Deloitte numbers were created; correct? 424 MS. FRANK: The Deloitte had looked at the project costs over the entire piece, so they'd actually looked at the 100 million-type costs that we had earlier on, and it was their observations on that piece that the 5 million would have related to. In the final stage, when we gave them our final -- Here's our final numbers, we'd already removed the 5 million. When they started the approach of review, it was still in. 425 MR. DINGWALL: Right. But in terms of the number they're using on page 11, the comparable cost summary, that's a post number, so the 5.6 number had come out by that point? 426 MS. FRANK: Yes, it had. 427 MR. DINGWALL: As well as the amounts that you had allocated to 2006? 428 MS. FRANK: Yes. All of that had come out. This is the final number that we would have had after any write-offs we would have taken or any removals into other systems. 429 MR. DINGWALL: And Deloitte make any comments or give any guidance with respect to your separation of transition costs versus base-rates costs? 430 MS. FRANK: They took the information we provided. No comments were made on it. It was, Here are our final numbers, and they said, Okay, we'll do the comparison using your final numbers. 431 MR. DINGWALL: It seems so far - it is, of course, early in the process - that Hydro One is the only company that's claiming for something analogous to a work-flow information system. 432 MR. WEBBER: I believe I saw reference to it in London's too, but probably not of the scale or magnitude of ours, possibly. 433 MR. DINGWALL: It's an observation which I'll perhaps leave for argument. But now it's time to move on to a number of other questions with respect to some specific accounts. 434 With respect to the low-voltage adjustment resulting from RP-2000-0023, we're still not quite clear on what happened that prevented the company to implement that adjustment. 435 MS. FRANK: We had the rates established by the Board to implement the low-voltage charges. There was a timing issue in terms of when we had the rates and when we were able to implement them. Bill 210 came along and specifically directed us not to implement -- it actually referred to the schedules of the decision that we weren't allowed to implement, the two low-voltage schedules. 436 MR. DINGWALL: So there was a time when you could have implemented them and had everything in order to implement them. 437 MS. FRANK: We were ready, our billing capability was there, and we were directed not to implement it because of Bill 210. 438 MR. DINGWALL: When were you ready to implement? 439 MS. FRANK: About the same time as Bill 210 came out. 440 MR. DINGWALL: You had the rate order in August; right? 441 MS. FRANK: Yes. 442 MR. DINGWALL: And from the time of having the rate order, you weren't ready to implement? 443 MS. FRANK: We could have sent the bills out right about the same time as Bill 210. We were directed not to by the government. 444 MR. DINGWALL: We have the luxury of having followed upon the heels of other intervenors who have been quite diligent in the asking of questions, so I'm going to apologize in advance, but the last couple of questions are going to jump around a bit. 445 Was there a final audit report performed in respect of the market-ready project? 446 MS. FRANK: The market-ready project final audit would have been the one that we've filed. 447 MR. DINGWALL: Is that the one Mr. Warren requested yesterday? 448 MS. FRANK: No, that was a separate exercise. The one that we filed -- 449 MR. DINGWALL: Would that be the one dated April 22nd, 2002? 450 MS. FRANK: Yes, that's the one, and it's at H2, 7. 451 MR. DINGWALL: Right. 452 MS. FRANK: That would have been the final audit report examining the costs in the project. The one that we spoke of yesterday was not oriented to examining the costs in the project, but looking at the differential between what our project would cost and what was characterized as an ideal project would cost. And that's the audit we're going to file today. It didn't look at the costs in the project. This other one, the April 2002, looked at the costs in the project. 453 MR. DINGWALL: I'm trying to recall off the top of my head. Did the April 2002 include all the costs that you chose not to put forward in general and then specifically with respect to this case? 454 MS. FRANK: Yes, it would have been the higher level of costs. 455 MR. DINGWALL: Moving to Exhibit G, tab 3, schedule 1, page 2. 456 MS. FRANK: Yes, we have that. 457 MR. DINGWALL: On line 27 and 28, you identify the monthly costs and then the period costs for the LV recovery. So the monthly amount is looking like $2.133 million per month. I wonder if you could turn up Exhibit H, tab 2, schedule 19, attachment 1. 458 MS. FRANK: Yes, I have that. 459 MR. DINGWALL: Just in doing the simple calculations, at December 2002, based on eight months times 2.133 million, the amount in that account should have been 17.07 million. However, in the response to the interrogatories on this page, in the second reference, Hydro One reported a balance of 17.298 million. 460 MS. FRANK: And if you will carry on and look at the months of January, February and March, you'll see that we have a few other amounts that are not 2.133 million. Obviously, we had a little bit of difficulty doing multiplication in the early part of getting this account together. By the end of the period, you'll notice from April onward, 2.133 each and every month, and if you look at the bottom line amount, it is the 42.7 million we talked about. So we had corrected all early accounting multiplication-type difficulties. 461 MR. DINGWALL: So would it be fair to say, then, that looking at January, February, and March, those amounts were effectively used to correct the anomalies? 462 MS. FRANK: Yes, they were. 463 MR. DINGWALL: So there's a little bit of the fudge factor going on there. 464 MS. FRANK: No, there is no fudge factor. There is, indeed an accounting difficulty. It's a matter of getting all of the regulatory asset accounts up and booked. This was kind of a new world for us. We hadn't had regulatory assets before this whole process started with market opening, so we weren't as familiar with the accounting or the monthly reporting of it. Through 2002, if you look through these monthly balances, you'll see we had quite a bit of difficulty getting the amounts in correctly month by month. 465 We spent some time working at it, and by the time we were finishing off the 2002 and into the early part of 2003, we got our act together and our books became far more orderly. So you do notice that we're much better at it. Our focus tended to be on year-end balances and quarterly balances. We aren't quite as speedy in terms of getting the monthlies corrected. So this one, it took us, really, until the first quarter of '03 before we truly did a good job of having the books reflect the amount that's owed. 466 I would not consider it a fudge factor, but I would agree that we were a bit slow to handle regulatory asset accounting. But I will assure you that the final balances have been carefully examined before this hearing, and if we've had any difficulty, we've identified what it was and made the correction. 467 MR. DINGWALL: So for 2002, I take it that the monthly figures would probably vary as much as they did for the first three months of 2003? 468 MS. FRANK: We didn't actually book anything on a monthly basis. We just booked December '02. We just did a catch-up. 469 MR. DINGWALL: In looking at that same exhibit, being H2, schedule 19, attachment 1, page 1, how did you calculate the cumulative interest reflected in line 1 for the December '02 calculation? 470 MS. FRANK: That also would have been a catch-up exercise, going back to what the amounts would have been roughly monthly and using the interest rates. The interest rates from H1, 25. 471 MR. DINGWALL: So really what we should be looking at is December '03 back to May '02, and then looking at how the rates compared over that time. 472 MS. FRANK: Yes, that's what you should do. 473 MR. DINGWALL: Now, the next reference I'd like you to refer to is Exhibit G, tab 5, schedule 1, page 1, and for comparison purposes, Exhibit H, tab 2, schedule 19, attachment 3. 474 MS. FRANK: Yes, I have that. 475 MR. DINGWALL: Now this account records: 476 "... the difference in timing between the effective dates and the implementation dates for the distribution rates adjustments required to allow utilities to achieve the Board specified Market Adjusted Rate of Return based upon a 9.88 percent return on common equity. The first of three adjustments approved by the Board was effective October 1, 2001 but not implemented for the majority of Hydro One Distribution's 87 Acquired LDCs until February 1, 2002." 477 For this reason, net accrual and billing amounts were supposed to be recorded between October 1 and February 2002. Please explain why Hydro One recorded net accruals and billing for March and June 2002 and September 2003. 478 MS. FRANK: So then we need to refer to the Exhibit H2, 19, to answer that question. And what you see in March of '02 is a small amount, $13,000, really to correct for the prior month period, so it should have been booked until February of '02, but there was a small adjustment. Quite typically, it would be made in the following month if you'd run into a problem. So that's what happens in March. Small problem. 479 Then in June of '02, you see quite -- you know, a $200,000 reduction in the account, and what's happened there is we recognized that one of the utilities, really, the acquisition was not completed and should not have been part of this MARs and PILs piece, because that utility actually got its rate approved on its own. And when we were doing this work originally, we looked at the total energy, including that one that had their own first MAR and PIL through, on a more timely basis -- where they had their own approval for a MAR and PIL prior to our taking ownership of the utility. 480 What happened in this case is we had looked at the total energy for all acquireds, including that utility's energy for those months until February. We shouldn't have done that. So we had to remove it out because -- it had its rates in place. We shouldn't claim an amount in a deferral account as if the rates weren't in place when indeed they were. Our mistake. We caught it. We took it out. That's the June adjustment. 481 The other small adjustment in September of '03 was some difficulty we had with street lights and a correction that needed to be made to the MARs and PILs on the street lights. We didn't recognize that until we actually started preparing the evidence for this review, that we had had a slight problem with the street lights. So that's the correction that's down there. As we find a problem, we always correct the account. We believe that the balance at the end of it is appropriate and has no amounts that should be in there. We've done a pretty careful review to prepare for this proceeding. 482 MR. DINGWALL: The page I'd like you to refer to is Exhibit H, tab 2, schedule 19, attachment 4 this time. 483 MS. FRANK: Yes, I have that. 484 MR. DINGWALL: In looking at the '02 year, there seems to be no interest for seven of the eight months. 485 MS. FRANK: The interest calculation that appears in December would have been the catch-up interest calculation. 486 MR. DINGWALL: And then the negative interest in January of '03, would that have been an adjustment to the catch-up? 487 MS. FRANK: Yes, it would have been. 488 MR. DINGWALL: Now I'd like you to move to attachment 11 of the same exhibit. 489 MS. FRANK: Yes, I have that. 490 MR. DINGWALL: For the 2002 calculations, we took a look at the interest rates that you were generally using and then tried to apply them to these calculations and came up with significantly different numbers. Do you know what happened there? 491 MS. FRANK: I'd have to look at what you did. 492 MR. DINGWALL: Maybe we can ask you to confirm by way of undertaking the interest rates that you were using for those months, and then if there's a difference, we can talk about that. 493 MS. FRANK: The interest rates that we're using are as per filed in H1, 25. I can confirm that now. There may have been a problem with the balances in the account in terms of the calculation. But the interest rates, I can confirm, are the ones that are in here. 494 MR. VLAHOS: Ms. Frank, you keep referring back to HR-25 [sic]. So those amounts were prior to the first order of the Board with respect to the new Hydro One, if you like? 495 MS. FRANK: H1, 25 is a Board question asking us -- 496 MR. VLAHOS: I'm sorry, H1, 25. I apologize. I thought you meant HR-25. We never got to 25. 497 MS. FRANK: You're right, 23. 498 MR. DINGWALL: Just getting back to that, your answer to my request for an undertaking was that all times you were using the 8 percent? 499 MS. FRANK: The numbers that are in H1, 25, which vary by quarter, so 8 percent as of December '02, but they would have been 8.1 for the other quarters in '02, and into the 7s in '03. I suspect the issue is more one of what balances were being used in the calculation. But I'd have to look at what you did. 500 MR. DINGWALL: Yes. I'm looking at the magnitude of questions left, and most of them, frankly, relate to account reconciliations and rates and things like that. And I'm thinking that in terms of process, it might be more efficient for us to take those questions offline and not take up hearing time with them, and then we can address any discrepancies as need be in argument, if they're material. 501 MR. VLAHOS: That seems that it would work, Mr. Dingwall. I'm sure you will bring the matter back if it doesn't work. 502 MR. DINGWALL: I would like to take this opportunity to thank the applicant and the panel for their assistance in this process and for their forthrightness. Those are my questions. 503 MR. VLAHOS: Thank you, Mr. Dingwall. 504 Mr. Brett? 505 MR. BRETT: Thank you, Mr. Chairman. 506 CROSS-EXAMINATION BY MR. BRETT: 507 MR. BRETT: Good morning, panel. I have questions for you in two areas. The first is cost allocation on the account number 1570, the transition costs, and the second is a few questions on the LV costs. So I think I'll start with the cost allocation questions. 508 Mr. Roger, you said a moment ago -- you reiterated a moment ago that your cost-allocation policy was based on cost causation, and for account number 1570, that's the transition costs account or the make-ready cost accounts as it's referred to in the evidence, that led you to allocate that cost on a customer basis; is that right? 509 MR. ROGER: That's correct. To the customer segments based on the number of customers. 510 MR. BRETT: Right. So the customer segments based on the number of customers. And the customer segments are the embedded direct customers, your core utility, and the acquired utility customers. Are those the three customer segments you're referring to? 511 MR. ROGER: That's correct. And within the embeddeds, we have embedded LDCs and embedded directs. 512 MR. BRETT: The first one was? 513 MR. ROGER: Embedded LDCs. 514 MR. BRETT: Embedded LDCs and Embedded directs, so you really have four groups of customers. 515 MR. ROGER: That's correct. 516 MR. BRETT: And that recognizes in respect of the 1570 make-ready costs that are in account number 1570, the characteristics of that expenditure, which include, I guess, the fact that they were -- one of the major transition costs was setting up systems to allocate an appropriate share of the wholesale energy cost to each retail customer; is that so? Broadly speaking here. Or does someone else want to answer that? 517 MR. ROGER: Mr. Webber may want to help you with that. 518 MR. BRETT: I was shifting a bit there to the description of the activity as opposed to the cost allocation treatment. I apologize. 519 MR. WEBBER: That's fine. 520 MR. BRETT: We'll look at Exhibit G. Do you want to look at Exhibit G, tab 11, schedule 1, page 13? 521 MR. WEBBER: Yes. 522 MR. BRETT: That summarizes the -- that summarizes the -- 523 MR. WEBBER: Section 3. 524 MR. BRETT: -- the accounts in 1570? 525 MR. WEBBER: Yes. Section 3 is the one you just referred to, was it, the wholesale market? 526 MR. BRETT: Yes, and I was also going to refer to the billing activities, which are one, and that's a substantial -- and that's 26 million of the total 59 million; right? 527 MR. WEBBER: Yes, it is. 528 MR. BRETT: And then where would the costs go of the -- effectively the costs of accumulating the -- of using the accumulated usage to the allocated -- to the customer groups through a mechanism such as a net system load shape? Does that fit under wholesale market requirements as well? 529 MR. WEBBER: Yes. 530 MR. BRETT: That's a translation of the wholesale market data down to the level of the -- 531 MR. WEBBER: [inaudible] -- interrogates the meters, [inaudible] -- 532 MR. VLAHOS: Let me interrupt for a minute. There has to be a question and an answer. Could you gentlemen just wait for each other? The reporter has to get every question and answer. 533 MR. BRETT: I apologize. 534 MR. VLAHOS: Mr. Webber, would you repeat your last response. 535 MR. WEBBER: It was with respect to the question of the net system load shapes and meters would be in the wholesale requirements where it interrogates the meters and uses the net system and load shapes. 536 MR. BRETT: Would you agree with me, Mr. Webber, that many small customers have meters currently that record, and at the relevant time here, that record just their total energy use on a monthly or quarterly basis, different billing cycles? In other words, they don't have interval meters, typically? Let me simplify it. Small customers don't have interval meters for the most part. 537 MR. WEBBER: Correct. 538 MR. BRETT: Residential customers or small commercial customers; right? And that many large customers, including the direct customers of Hydro One and large users of other LDCs already had interval metering in place before market opening that allowed them to record their hourly usage; is that fair, broadly speaking? 539 MR. WEBBER: I believe -- 540 MS. FRANK: Yes, that would be correct. 541 MR. BRETT: And would you also agree that a portion of the transition costs, that portion of the transition costs which would relates to the creating an implied hourly load profile for energy-metered customers, that's small customers, was not required for customers that had intervaled meters; is that fair? 542 MS. FRANK: That piece would not be necessary because interval-metered customers are billed with their actual usage out of their meters. 543 MR. BRETT: Okay. Turning back to you, Mr. Roger, I take it from reading your evidence that cost causality is a basic principle of cost allocation for Hydro One. 544 MR. ROGER: Yes. 545 MR. BRETT: And you mentioned specifically in -- and I believe this is at Exhibit G, tab 13, this is your basic two, three pages of basic cost-allocation evidence, and the first page there of eight, you mention specifically, I think, that if costs are incurred for the benefit of all customers, irrespective of their energy consumption, then the number of customers would be the recommended allocator for that group of costs. Is that a fair summary? 546 MR. ROGER: Yes. 547 MR. BRETT: And then in -- if you look at schedule H -- Exhibit H, T1, schedule 44, that is a -- H1, -- Exhibit H, tab 1, schedule 44, that's an interrogatory of the OEB Staff. I don't know that you need to turn it up, but you may wish to have it in front of you. 548 MR. ROGER: Yes, I have that. Page 1, 44? 549 MR. BRETT: Yes. This is a short question, and let me preface it by saying that I understand that for the most part, H1, tab 1, schedule 44 is about rate design and not cost allocation. But with that caveat, you say in your answer to that question, in the second paragraph, I'll just read the first sentence, you say -- and we're talking about costs arising from account 1570, market-ready costs. You say: 550 "Since a large portion of the regulatory balances to date arise from account 1570 for market-ready costs, and since these costs are more customer related, the recovery method should include a fixed component." 551 Now, I take it when you say the recovery method should include a fixed component, you're speaking of the rate design for recovering that cost. 552 MR. ROGER: That's right. 553 MR. BRETT: Right. But in -- but in getting to that conclusion, you make the observation that these costs are more customer related; right? 554 MR. ROGER: That's right. This goes back to the question which was, basically, why we are proposing to do something different than was done for phase 1 where all the costs were allocated based on a volumetric charge. 555 MR. BRETT: Right. All right. 556 And then if I could take you for a moment to one other interrogatory response, and this is a response -- this is H -- Exhibit H, tab 2, schedule 12. This is a question from Energy Probe. 557 MR. ROGER: I have that. 558 MR. BRETT: Okay. The section I'm interested in is section E, part E, and the question to you is: "Applying the principle of cost causation, please allocate transition costs for each of the 10 general categories of activities among customer --" this is article 480 -- "among customer classes." 559 Now, I take it that's article 480 of the Board -- that's equivalent to the costs in 1570, is it not? I believe that's the other way of putting that. 560 MS. FRANK: Yes, that would be. 480 is the Board's handbook on giving accounting direction. 561 MR. BRETT: Right, for 1570. 562 MS. FRANK: For 1570. 563 MR. BRETT: Right. Well then, just switching over to your answer -- let me just read the question again: 564 "Applying the principle of cost causation, please allocate transition costs for each of these 10 general categories of activities among customer classes taking into account the relationship between implemented system applications and customer classes." 565 And your answer you give over on page 3, and it's at the bottom under part E -- I won't ask you to go through it all because we've just really spoken about that a moment ago. But at the top of page 4, you summarize -- well, let me just read -- let me read two of those under part E first. You say: 566 "Billing activities, customer number is the best allocator." Is that right? 567 MR. ROGER: That's right. 568 MR. BRETT: "Wholesale market requirement, customer number is the best allocator." 569 And then down to the fourth dot: 570 "Retailers/Customer Requirements could be done only to Retailers, but based on the OEB decision with respect to Union Gas and Retailer costs, all customers were allocated costs incurred serving Retailers and the number of customers is the appropriate allocator." 571 Right? 572 MR. ROGER: That's right. 573 MR. BRETT: And over the page you summarize and say: 574 "51 million out of the total $54 million of Market Ready costs fall into Billing Activities and Retailer costs. In summary, Hydro One Distribution's proposed allocation among customer groups by customers is consistent with the above analysis." 575 And then, of course, you present that material at the table at the end of your evidence; right? 576 MR. ROGER: That's right. 577 MR. BRETT: Okay, now -- in the decision, just as a slight aside here, in the decision of the Board, if you can recall, in RP-2000-0023, you had asked in that decision to recover about $8.1 million of eligible market-readiness costs that were incurred back in the year 2000; do you recall that? 578 MS. FRANK: Yes. 579 MR. BRETT: And do you recall at that time that you argued, and the Board accepted your argument, that the $8.2 million should be allocated on a number-of-customer basis. 580 MR. ROGER: That's right, and that's the way we're doing it between the four major customer groups, allocating it to them based on the number of customers. 581 MR. BRETT: So are you consistent -- and that's what you did in that case, in 0023, is it? You did the same -- you did the allocation among the same four groups, or something close to it? 582 MR. ROGER: At that time we did not have the acquired customers, but we used the same principle of number of customers between our core customers and the customers embedded in our system. And because the number of embedded customers was in the hundreds compared to the 900,000 customers, all the costs were allocated to our core customers for that interim recovery. 583 MR. BRETT: Right. I understand. 584 Okay. Now, I think you've answered this question, but I'll just ask you to it once more. You agree that the transition costs are to the benefit of all customers, regardless of their energy consumption, and this is why you have allocated the transitional costs that's in 1570, account 1570, amongst the four customer groups in this case? 585 MR. ROGER: Yes. 586 MR. BRETT: On a per-customer basis. 587 Now, would you agree -- well, having done that, you, as I understand it -- correct me if I'm wrong, that when you get to the next level down, when you get to the allocation of costs, let us say, within your core customer group, the allocation of that -- if you take that chunk of transition costs that your core -- your core utility receives out of this four-way allocation you've just discussed, and then it comes time to allocate that chunk of costs, again from 1570, to the various customer classes of your core utility, I believe what you've told us in an answer to an interrogatory is that you allocated those costs based on distribution revenue. 588 MR. ROGER: That's correct. 589 MR. BRETT: So you departed from the notion of using number of customers at that stage and went over to distribution revenue; correct? 590 MR. ROGER: Correct, and the reason is because the interim costs, the $8.15 million, was also allocated within the core customers using distribution revenues, so we wanted some consistency there in how the costs were recovered in the interim basis within the core customers, the way we're proposing to do it now. 591 MR. BRETT: Would you agree with me that if cost causality were the only factor were being considered, forget for the moment about your notion of consistency with the previous decision, and if you were looking at cost causality as the only or principal factor, then you would allocate -- you would allocate the cost among customer classes of your core utility also on the basis of a per-customer basis? 592 MR. ROGER: You could do that, and I think under Exhibit H, tab 4, schedule 42, we presented the impact of moving away from allocating the costs within the customer groups based on revenues to based on number of customers. 593 MR. BRETT: That's H, 42 -- 594 MR. ROGER: 4, 42. 595 MR. BRETT: And you say you could do that. Would you agree with me that if you were looking at cost causality as the principal criteria, that you would do it that way, aside from this question of trying to be consistent with what you did with the interim amounts? 596 MR. ROGER: It would be a valid alternative, yes. 597 MR. BRETT: All right. I'd like to turn for a moment to the question of the low-voltage rates. 598 Mr. Chairman, I don't know what your plan is. This is probably going to take me about 20 minutes, 25 minutes. I can go through it now. 599 MR. VLAHOS: Just continue on, Mr. Brett. 600 MR. BRETT: Okay. Now, panel, just by way of general background, perhaps, three general propositions to set the stage here. It is right, is it not - as you mentioned a moment ago, Ms. Frank - that the low-voltage rates were approved in the RP-2000-0023 decision on June 12th of 2002, and that rate was approved at 56 cents per kilowatt per month based on 1999 actual power usage; right? 601 MR. ROGER: That's correct. 602 MR. BRETT: And that rate, as you say, was never implemented because of the passage of Bill 210 intervening; right? 603 MS. FRANK: That's correct. 604 MR. BRETT: And since it hasn't been implemented, you have been accruing -- Hydro One has been accruing the charges for future implementation, and this is the reason why we have a balance of 45.2 million accrued by December 31st of expenditures related to this item; right? 605 MS. FRANK: Of an amount we haven't collected plus the interest we haven't collected, yes. 606 MR. BRETT: Yes. That's a much better way of putting it. And of that amount, as I understand it from your evidence, 5.424 million is attributable to the large industrial users, and that -- I take that from your table at the end of your cost-allocation evidence. That's G, tab 13, schedule 1, table 1. I don't know whether you need to look it up, but you're welcome to. But we have that as 5.424 million. 607 MR. ROGER: That's correct. 608 MR. BRETT: And the accrued charges, and I think this number comes from an interrogatory response, but the accrued charges attributable to large -- will you take, subject to check, that the accrued charges, the future accrued charges -- they are still accruing, these charges, as we speak, as we understand it, and they continue to accumulate at the rate of 3.2 million per year for the large industrial users until a decision is made to implement the rate; is that fair? 609 MR. ROGER: That's correct. That's in Exhibit G, tab 3, schedule 1, on lines 12 to 19. 610 MR. BRETT: Right. Okay. Now, with that general background, what I'd like to do, just to help my members, my client members, I want to just take you through a simple exercise of determining how we would calculate the amount that we owe in sort of a sample situation, so I'm just going to go through a couple of steps with you here, and stop me at any time if you think I'm not being clear, but I don't think you'll have any difficulty with this. 611 I'm assuming that each month, as we -- the amount -- I'm going to speak, first of all, about the actual charges that have already been accrued to the end of December of 2003, which, in this case, you've proposed a recovery method for, okay? So that's what I'm interested in, first of all, the existing charges, the ones that have been accumulated to the end of December. 612 In that case, the rate -- each month, the amount attributable to me is my average 1999 billing demand times the LV rate of 56 cents per kilowatt. Now, just a small side point, on this 1999 billing demand, is that basically -- that's an average on a month-by-month basis, is that -- so, in other words, if I was looking at the month of January now, I would relate it to the average monthly demand of January of 1999, or would it be the annual? I think it's got to be the relevant -- I think it's got to be the comparable month. 613 MR. ROGER: We took the average monthly demand per customer for 1999. So it would be one amount in megawatts that would be applied to the 56 cents. 614 MR. BRETT: Okay. 615 MR. ROGER: And it would be the same dollar amount per month. 616 MR. BRETT: Okay. I understand. So it doesn't vary by month, the demand -- I get it. You take my monthly demand for each of the 12 months and average them out, is that the idea? 617 MR. ROGER: That's correct. 618 MR. BRETT: Okay. And then the -- so if I take the 45 million -- 45.2 million for all low-voltage customers, that represents -- we know that that represents an accumulation for market opening, which was May 1st of 2002 - I'll try and slow down here - until December 31st, 2003. So that's a period of 20 months; right? 619 MR. ROGER: That's right. 620 MR. BRETT: And the part of that 45.2 million attributable to me, my hypothetical customer, individual customer now, is the -- is my 1999 average billing demand times 56 cents times 20 months; right? 621 MR. ROGER: Plus interest. 622 MR. BRETT: Okay, plus interest. And if Hydro One's proposal is approved by the Board, what you've proposed in this case is to recover that amount over 36 months, starting on April 1st, 2005; right? That's in an interrogatory response to us, which I can dig up if you need a specific reference to it, or if you can take it subject to check, it's -- 623 MR. VLAHOS: Mr. Brett, just ask the question and wait for the response, please. 624 MR. BRETT: Sorry. 625 MR. ROGER: I believe it was March 1st, 2005, not April 1st. 626 MR. BRETT: But the rest of it is right, 36 months? 627 MR. ROGER: That's correct. 628 MR. BRETT: So my monthly charge, then, will be, if I'm a 10-megawatt customer, my hypothetical customer, 10 megawatts, my charge would be 56 cents times 20 months over 36 months times 10,000, which equals -- which we get -- I get as $3,111 per month. Is that -- would you take that, subject to check? 629 MR. ROGER: Subject to check. But, again, there's no interest there. 630 MR. BRETT: Okay, there's interest. 631 MR. ROGER: And that would be only one of the variance accounts. There are other costs that are attributable to the direct customer. This would be just dealing with this particular account. 632 MR. BRETT: No, I understand -- I agree. I agree with that qualification. I'm just looking at this one account. 633 Okay, so that's the existing charges up until the 31st of December, 2003. That's what's in this account, what we're talking about today. 634 The next thing I want to look at is the same sort of exercise looking at a mechanism for recovering future balances, because these dollars are still accumulating. The rate hasn't been implemented and so we're still accumulating dollars as we go forward in this account; correct? 635 MS. FRANK: That's correct. 636 MR. BRETT: And any future charges to customers from this process would be in addition to the amount that's being requested in this process today. In other words, there will need to be at some point a separate process, either between now and 2006 rate case or at the 2006 rate case, there will need to be another process to authorize the recovery of the further accumulations in the account; correct? 637 MS. FRANK: That is correct. 638 MR. BRETT: And we don't know yet when this will be or over what period of time these charges will be collected; right? 639 MS. FRANK: There is no process established. 640 MR. BRETT: So we don't know as a customer yet how to estimate this amount, how to budget for this amount; right? 641 MS. FRANK: You could know how much you are on a monthly basis incurring because of your demand levels, so you could accrue for that. You don't know when you're going to have to pay it, but you sure could calculate when you have incurred the obligation. 642 MR. BRETT: Now, with respect to the rate change itself, you must not be pleased with the idea, or satisfied with the notion of having a rate approved but not being able to implement it. 643 MS. FRANK: We follow legislation which has told us not to implement and establish a deferral account. So we do what the legislation requires us to do. 644 MR. BRETT: Fair enough. But it's reasonable for us, I would take it, you would agree, to expect that at some point over the next two -- year or two, Hydro One will be allowed to recover the LV rate. 645 MS. FRANK: We are expecting that this hearing, the amount that goes to December '03 will be examined and recovery will be established for that amount as part of this hearing. That is our expectation. Future amounts, we expect, will be part of a future review and not be dealt with at this hearing. 646 MR. BRETT: It seemed to me you mentioned at some point in your evidence that you'd had discussions with the Ministry about this subject. Did you reach any conclusion? 647 MS. FRANK: There have been no conclusions reached in terms of when the LV rates may be implemented, when those rate schedules that the Board approved would be implemented. We don't know. 648 MR. BRETT: So in any event, at some point in the future, the near or the distant future, there will be an additional monthly charge to users of the LV system of, in my case, my example, going back to my 10-megawatt customer, it would be -- it would be 56 cents times 10,000 equals 5,600 a month; right? When the rate is implemented. 649 MS. FRANK: When the rate ... 650 MR. BRETT: Just to sum that up and look at the total future change for LV rates, we've really got -- for the existing charges to December 31st, my 10-megawatt customer can expect a monthly charge of $3,111 a month based on the -- your current recovery plan. When the LV rate itself is implemented, this will increase by 5,600, so the total will be now 8,611 per month. And when the currently still accumulating balances are allowed to be recovered, there will be a -- there will likely be a further increase that we don't know yet how to estimate. Fair enough? 651 MS. FRANK: That sounds fine. 652 MR. BRETT: Thanks. Those are my questions. 653 MR. VLAHOS: Thank you, Mr. Brett. 654 That brings us to the lunch break. Mr. Lyle, you're grabbing for the microphone? 655 MR. LYLE: I'm sorry? 656 MR. VLAHOS: I saw you grabbing the microphone. 657 MR. LYLE: No, sir. 658 MR. VLAHOS: No matters before we break? We'll have lunch for one hour, then, and return at 1:30. 659 --- Luncheon recess taken at 12:30 p.m. 660 --- On resuming at 1:33 p.m. 661 MR. VLAHOS: Please be seated. 662 Okay. There are some documents on the dais here. Would anybody like to speak to those? 663 MS. ALDRED: Yes. Those are answers to Undertakings J.1.1, J.1.2, and J.1.6. There are extra copies at the back of the chamber for intervenors. 664 MR. VLAHOS: Okay, thank you. 665 MS. ALDRED: As well, there are a couple of small mistakes in the transcript from yesterday which we wish to try to correct. Would that be -- would this be a good time to do this? 666 MR. VLAHOS: Do they change the meaning, Ms. Aldred? 667 MS. ALDRED: Not really. They make sense of a couple of sentences which otherwise don't make sense. 668 MR. VLAHOS: If it's a couple, then let's do them. 669 MS. ALDRED: Okay. In paragraph 709, the fourth sentence down should read "pole-top transformers" rather than "pull-top transformers." 670 MR. VLAHOS: Just give us a second. 671 MS. ALDRED: Paragraph 709, in the fourth sentence, it refers to "pull-top transformers," it should pole, p-o-l-e, top. 672 MR. VLAHOS: Okay. 673 MS. ALDRED: Paragraph 753, second sentence reads "...in the same proportion that those customers would have incompetent occurred LV costs" and it should read, "in the same proportion that those customers would have incurred LV costs." 674 MR. VLAHOS: Thanks. 675 MS. ALDRED: And one more. Paragraph 931, it reads: "The phase 1 was based on two southern and two distribution revenues and allocated only to our core and acquired customers." It should read: "The phase 1 was based on distribution revenues and allocated only to our core and acquired customers." 676 MR. VLAHOS: Thank you. 677 MS. ALDRED: Thank you. 678 MR. VLAHOS: Mr. Lyle. 679 MR. LYLE: Thank you, Mr. Chair. 680 CROSS-EXAMINATION BY MR. LYLE: 681 MR. LYLE: Panel, I'm going to start with some questions with respect to the RSVA account. 682 Ms. Frank, I want to take you back to an exchange you had with Mr. Shepherd yesterday, discussing the RSVA wholesale market service charge account. And in that discussion, I believe you agreed that the amount of the IMO invoice used for December 2003 is an estimate; is that correct? 683 MS. FRANK: In the amount that's in the balance for December '03, yes, it's an estimate. 684 MR. LYLE: And I believe you then said that the variance between the estimate and the actual was immaterial. 685 MS. FRANK: That's correct. 686 MR. LYLE: Can I turn you to Exhibit H, tab 6, schedule 3. 687 MS. FRANK: Yes, I have that. 688 MR. LYLE: And in answer to an interrogatory from Schools, you provided in the attached table a breakdown of the WMSC account, and towards the bottom of that page there's a line, December 2003 estimate. Do you have that line? 689 MS. FRANK: Yes, I have it. 690 MR. LYLE: And is that the estimate that's used? 691 MS. FRANK: Yes, that was the estimate used for December in the balance as at December 2003. 692 MR. LYLE: Can I turn you now to Exhibit H, tab 2, schedule 22, and that's Energy Probe Interrogatory No. 22. 693 MS. FRANK: Yes, I have that as well. 694 MR. LYLE: There's also a table attached to that interrogatory. And on page 2 of the table, towards the right-hand side of the page, there was a column titled December '03. Do you see that column, Ms. Frank? 695 MS. FRANK: Yes, I do. 696 MR. LYLE: And if you go down to the bottom of the column, the amount is 14.9 million, approximately, under the heading "Total Invoice." 697 Is that the actual invoice amount from the IMO for December 2003? 698 MS. FRANK: Yes, that appears to be the actual invoice amount. 699 MR. LYLE: So when we compare that actual invoice amount to the estimate, it's approximately $8 million difference, is it not? 700 MS. FRANK: Well, the estimate would have been a combination of items -- what we show in December is actually a true-up from the prior month as well as a current month estimate. So what we really would need to do, and we don't have it in the evidence here, would be to look to what the November estimate was, and then what we'd see in December is the difference between the November estimate and the November actual off of this table that you pointed us to at H2, 22, plus the new estimate. And that total would be the December 22 -- 701 MR. LYLE: So you're saying there's a rolling true-up. 702 MS. FRANK: There is a rolling true-up. So you can't just take the difference between the 14.9 and the 22.6 and say that's the difference, because some of it could have been the prior month's adjustment as well. 703 MR. LYLE: I see. I turn you, then, to the RSVA network and connection account, and at Exhibit G, tab 2, page 6 of your evidence. 704 MS. FRANK: Yes, I have that. 705 MR. LYLE: Towards the middle of the page, there's a statement that: 706 "If the relationship between the kilowatt-hours and kilowatt load factor were stable and consistent with the assumptions used in the original rate design, no variance would be expected. However, different time-dependant load-factor relationships between kilowatt and kilowatt-hour charges are believed to have caused the variance." 707 Can you elaborate a little bit on what those load-factor relationships were? 708 MS. FRANK: I'll start and then I'm certain Mr. Roger will add. 709 MR. LYLE: Okay. 710 MS. FRANK: But what happens here is, when we designed the rates, we had an understanding of what the load factors were consistent with data from, I believe, 1999. Subsequent to that period, as customer load growth happens, the load factor would probably increase. When there's weather differences, when you have warm summers or cold winters, that would also impact the load factor. So that when the rates were designed, and what evolved in terms of the energy levels, there would be a difference. The rates obviously are done on a historic rather than on a forecast basis, and there will always be some variability. 711 But Mr. Roger might want to add a bit. 712 MR. ROGER: What happened in our case is we set the rates for the regional transmission and then we'd plan connection based on the forecast for the year 2000, so weather-normal forecast. And basically most of the -- the charges come to us from the IMO based on the dollars-per-kilowatt basis, but we translate those for most of our customers into a cents-per-kilowatt-hour basis because they are billed by energy not demand. So there's a certain implicit load factor we had to assume. 713 When we did the rates for 2000, we looked at our core customers. We did not have the acquired customers there. When the actuals come in in 2002 and 2003, they are the acquired customers that are also paying us for the regional transmission rates. So the relationship between the dollars per kilowatt that we are billed from the IMO and the cents per kilowatt-hours that we billed our customers from 2002 and 2003 includes the acquired customers and has changed. 714 MR. LYLE: I'm turning you back to page 1 of tab 2, table 1. I note that the negative accruals in 2003 are significantly greater than the balances at the end of 2002. The acquisition of the LDCs, is that one explanation for that significant increase in the variance? 715 MR. ROGER: One of the reasons is the relationship between the dollars per kilowatt that we get billed and the cents per kilowatt-hour. Another reason is that for large customers, also we have to assume the diversity or the billing kilowatt that we're going to collect from them, because those large customers get billed on dollars per kilowatt. So we assumed something in the year 2000. When the actuals came in, the relationship is different, so we may have more kilowatts billed from the large customers than we get billed from the IMO. And this phenomena is called diversity, meaning that two customers do not necessarily peak at the same time. If they are more dispersed, more diverse, you would have more billing kilowatts to bill them. 716 MS. FRANK: However, if I could add, please. The difference that you see in the balance of '02 and '03, we had acquired all the utilities by then, so the acquireds are not the cause of the variance. There's eight months versus 12 months. That explains a bit of it. The other thing is indeed in '03, we had -- the demand increase and the energy increase were different, so it's this load factor that happened just because we had a particularly hot summer and we had demand levels increasing more than energy. But it doesn't have to do with the acquired customers. 717 MR. LYLE: Okay. I'm going to ask you a couple questions about the RSVA power account. In your evidence, you state that, because you're using accrual accounting, a variance should not arise in that account. Can you explain why that is? 718 MS. FRANK: With our approach to accrual accounting, we take the energies that we receive from the IMO and we apply the Board-approved loss factor to reduce that energy for the amount that we're going to sell to customers. Then the rate that we charge customers is higher than what we pay the IMO by exactly that same loss factor. So our approach to accrual accounting means that there is no loss differential. We've just used the same loss factor once to reduce the energies and once to inflate the price, so the amount that we pay and the amount we collect will be exactly the same. 719 MR. LYLE: Now, there was, however, a balance at the end of 2002 in that account, and you've subsequently adjusted that account to remove that balance. Can you explain why that balance arose? 720 MS. FRANK: Yes, we had a modelling difficulty with our accrual model. We identified that problem in the early part of '03 and corrected it. 721 MR. LYLE: You had a discussion with Ms. Lott yesterday and she raised the circumstance of Enersource Mississauga where there's been a reconciliation of approximately $15 million with the IMO, and at that time you were somewhat confused because she was raising it in the context of your Bill 210 costs account. As I understand it, Enersource has had a large negative balance in its RSVA power account which was reduced considerably because of this reconciliation. If there was a reconciliation with the IMO in your case, how would you account for that? 722 MS. FRANK: If there was a problem with the invoiced energies, then the amount that we would have gotten from the IMO, the corrected bill, would have been reflected in the energies that we purchased from the IMO and, therefore, in the revenues that we would accrue. So they would be impacting the power account equally and, therefore, still stay at zero. 723 MR. LYLE: Okay. I want to turn you now to account 1508. First, I just have one general question with respect to this account. 724 You are accruing carrying charges in all the subaccounts. Can you point me to a document that authorizes you to accrue carrying accounts in account 1508? 725 MS. FRANK: I believe that article 490 talks about interest on -- I'm having trouble thinking of a particular reference in that, but that's where I would look to, article 490, suggesting that interest be added to all accounts. 726 MR. LYLE: Perhaps you could undertake to provide me with that reference? 727 MS. FRANK: I certainly can. I do know that in some of them, like in the MARs and PILs ones, in the decision for the acquired utility when it said established a deferral account, it would have said add the interest. So each one may be a little bit different, but I could go find those. 728 MR. LYLE: Okay. We'll make that Undertaking J.2.1. 729 UNDERTAKING NO. J.2.1: TO PROVIDE REFERENCE LOCATION FOR APPROVAL TO ACCRUE CARRYING ACCOUNTS IN ACCOUNT 1508 AND 1571 730 MR. LYLE: Turning to tab 3, subaccount A, I understand that your proposal is to recover these amounts using fixed dollar amounts that would be charged to the embedded LDCs and the embedded direct customers. 731 MR. ROGER: That's right. 732 MR. LYLE: And just so that I'm clear on what you're seeking from the Board in this proceeding, when would you be looking for the Board to establish those fixed dollar amounts in your rates? 733 MS. FRANK: As part of this hearing. 734 MR. LYLE: So you would bring that forward -- if the Board approves the methodology in this decision, you would bring it forward for the rate order; is that it? 735 MS. FRANK: That's correct. 736 MR. LYLE: But that rate order would only take effect as of March 1, 2005; is that the proposal? 737 MS. FRANK: That's our understanding, yes. 738 MR. LYLE: You state at the top of page 4 of tab 3 that the fixed dollar amount would then be treated by the embedded LDCs as another variance account that they would need to recover from their customers as of March 1, 2005. So it's your anticipation, then, that if the approach that you are proposing is approved, that the Board would also establish rates for the embedded LDCs that would come into effect on March 1, 2005 that would allow them to pass those amounts through to their customers? 739 MS. FRANK: Yes, that would be our understanding. 740 MR. VLAHOS: Sorry, Mr. Lyle. How would that happen in terms of process? We haven't dealt with regulatory process for the other 90. How would we be able to deal with those amounts for the LV and be able to set a rate? 741 MS. FRANK: We were assuming there was some time difference between when the direction came from this review and when the rates were actually -- we'd all start recovery in March of '05, but there would be the decision in this case and the decision in the other LDCs. And the other LDCs would have hopefully a short period of time between, because we could give you that schedule for all the other LDCs. We know the amount. We've actually shared it in draft form with Board Staff previously. So it's something that we'd -- if -- depending on what you decide for the LV, readily available. 742 MR. VLAHOS: In the case of Hydro One, it's a fixed amount. You're supposing maybe the same thing for the other LDCs as well? 743 MS. FRANK: Well, we were assuming that the other LDCs just now have another variance account, and however you would determine that their other variance accounts get recovered, this one would be just another variance account that they could -- you could think that way, that it was another amount that they needed to recover. 744 MR. VLAHOS: Okay, thank you. 745 MR. LYLE: Now, I understand your alternative proposal is that if the Board does not approve a fixed dollar amount to be recovered from embedded LDCs and embedded directs, that you wish to recover the amount in the deferral account from your core and acquired customers; is that correct? 746 MR. ROGER: That's correct. 747 MR. LYLE: And if I could turn you to Exhibit H, tab 7, schedule 4. 748 MR. ROGER: I have that. 749 MR. LYLE: There's a number in there of approximately 10.8 million, which is stated to be the amount to be reallocated to Hydro One core customers if the Board does not accept your preferred proposal. Is that number correct? 750 MR. ROGER: Yes, that number is correct. The way we arrive at the number, is -- I would have to refer you to the Exhibit G, tab 13 -- 751 MR. LYLE: Tab 13? 752 MR. ROGER: -- tab 13, schedule 1, table 1. And under the -- to the right there is a segment summary, the fifth last column to the right, a segment summary. 753 MR. LYLE: Yes, I see that. 754 MR. ROGER: Under the LV column, if you go down and you line up with the row called "Deferred LV Costs," you have a number of $34,352,000. 755 MR. LYLE: I see that. 756 MR. ROGER: So that's the amount we would have recovered from the embedded LDCs and direct. We divide that number by three to give a yearly amount, which gives around 11.45 million. 757 MR. LYLE: I see. 758 MR. ROGER: And then we take the share that the acquireds would pick up, and that's around $635,000, and then the 11.45 million minus the 635 that the acquireds would recover would give us the $10.8 million. 759 MR. LYLE: So the key is that, in this interrogatory response, it's an annualized amount. 760 MR. ROGER: That's right. 761 MR. LYLE: Okay. I'm clear on that now. 762 Now, while we're on LV costs, you had a discussion with Ms. Lott yesterday and she raised the issue of the LV rate-adder that was collected from core customers. And as a result of Bill 210, that rate-adder, which should have been removed from rates as of February 2003, continued in place; is that correct? 763 MS. FRANK: That is correct. 764 MR. LYLE: And I understand your position there is that you don't intend to credit customers for any of this additional revenue that you may have earned; is that correct? 765 MS. FRANK: We believe that the rates were frozen and that revenue is, in some way, compensating for the fact that we didn't get the final phase MAR. And we're not suggesting we charge customers for the shortfall; on the other hand, we're not assuming we'd credit them for the amount of LV that was collected. 766 MR. LYLE: Now, there was also a market-ready transition cost rate-adder; is that correct? 767 MS. FRANK: Yes, there was. 768 MR. LYLE: And it did not come out of rates as it was anticipated to because of Bill 210. 769 MS. FRANK: No, it did not. 770 MR. LYLE: And how do you propose to deal with the additional evidence generated through that rate-adder? 771 MS. FRANK: That rate-adder was specifically put on and directed to reduce the balances in the transition or market-ready account, and what we have been doing is reducing the balances and we continue to reduce the balances for the first months of '04 when we continue to collect that market-ready, so we are reducing the market-ready variance account. 772 MR. LYLE: I want to turn you to tab D of -- sorry, tab 6, which is subaccount D. Can you tell me the date when this deferral account -- subaccount was established? 773 MS. FRANK: It would have been established in the orders as each one of them were approved. They're in -- I guess it's H2, 18, and then you have to look to the B schedules. I see Mr. Roger pulling it out so he might find it for us. 774 MR. ROGER: I think if you could turn to that interrogatory, H2, 18, tab B-1. On page 2, the last paragraph. This is an example of an approval of a rate order for the village of Blyth, and it says: 775 "The applicant proposed an effective date of October 1st, 2001 for the unbundled rates indicating that the new rates would be implemented February 1st, 2002. In a separate application, the applicant requested that it be authorized to record the foregone revenue which arises from PILs and the one-third MAR for disposition at a later time. The Board approves the applicant's proposal." 776 And it says: 777 "The Board will deal with the accounting details of the applicant's request to record the foregone revenue in a separate process." 778 MR. LYLE: Now, does this amount relate to subaccount C or subaccount D? Is this the deferral account? 779 MS. FRANK: This would be subaccount C that that one relates to. Subaccount D, the Board never completed the orders on them because Bill 210 interrupted them. But we used the inference from the Board's approval for the October to say they would also have approved the March if we would have gotten there. 780 MR. LYLE: But there was no explicit authorization by the Board for subaccount D? 781 MS. FRANK: No, you're quite right, there was not. 782 MR. LYLE: Now, as I understand it, once Bill 210 took effect, you stopped recording any additional amounts in this deferral account. 783 MS. FRANK: Yes, we did. 784 MR. LYLE: Given that it would have been clear at that time that you were not going to get the underlying rate order, which essentially underlay the deferral account, did you not think about writing off the entire amount of the deferral account at that time? 785 MS. FRANK: We felt, since all the other LDCs had received their -- or anybody who has asked for them, had received their second-phase increases, that it would have been reasonable to expect that the Board would have given second-phase increases, if time had allowed, to Hydro One's acquired customers. So we thought it would be appropriate for us to track these amounts at least until the point where it was clear that we would not be able to implement them, and then let the Board decide what was fair and equitable. 786 MR. LYLE: Turning, then, to tab 7, which is subaccount E. This subaccount relates to costs incurred to implement the requirements of Bill 210. Now, was this account approved by the Board? 787 MS. FRANK: This account was established under Bill 210. Bill 210 -- actually, I may have a reference. In section 79 -- 788 MR. LYLE: Point 12, sub 2? 789 MS. FRANK: Yes. You're there ahead of me. It talks about establishing a deferral account for costs to make the payment to customers. 790 MR. LYLE: Okay. Can I turn you to page 4 of tab 7, and table 2, there's four items listed. 791 MS. FRANK: That's correct. 792 MR. LYLE: And item number 1, is that the category related to costs to make the rebate payments to customers? 793 MS. FRANK: Yes, that would be correct. 794 MR. LYLE: And what about the other three items? 795 MS. FRANK: Well, part of item number 4, the education, also would have been with the $75 cheques. But the items number 2 and number 3 related to the next stages of the bill, and maybe I'll get Mr. Relich to explain what those are. 796 MR. RELICH: Item number 2 is the systems and the processes that we had to put in place to support the requirements for billing customers based on the fixed reference price, including all of the subsequent modifications that happened to the requirements around Bill 210 with respect to expansion of eligibility for the 4.3 commodity price. 797 And item number 3 is the systems and the process changes that were required to support the administration and disbursement of MPMA as directed by the Minister's directive. 798 MR. LYLE: Now, this perhaps is a question your counsel will have to address in argument, but was there any statutory authority for items 2 and 3 and a portion of 4? 799 MS. FRANK: We believe it went to intent of the legislation, that incremental costs associated with adjusting the marketplace to get customers back to 4.3, if there were incremental costs. It was explicit on the $75 cheque. However, we have seen other cases where actually the Board asked us to put an insert into our bill and said if there's incremental costs associated with that insert, could we please reflect that in a deferral account. Now, in that case, the cost was not very large so we didn't bother. But in this case, as you see, there are quite substantial costs with getting the credits on customers' accounts or doing the MPMA direction which we couldn't have known how to do until we got to Bill 210. So we interpreted the intent as incremental costs that we had to implement that legislation were there -- I guess it could be interpreted differently. 800 MR. LYLE: Now, item 4, you said that a portion of these costs related to customer education with respect to the rebate cheque; is that correct? 801 MS. FRANK: Yes, customer education on calls. 802 MR. LYLE: Would you be able to allocate which portion of that account specifically related to -- or that category specifically related to your activities around the rebate cheque? 803 MR. RELICH: We did not track the specific components with respect to the $75 rebate cheques as well as some of the ongoing -- other changes that were required for Bill 210. However, it would be reasonable to assume that a significant portion of that total cost was associated with the activities around the $75 rebate cheques. 804 MR. LYLE: But if the Board was to deny you recovery of anything that wasn't related to the rebate cheques, what do you think you would be entitled to? 805 MR. RELICH: Just one minute, please. 806 MS. FRANK: While Mr. Relich is looking for that number, might I suggest that these are incremental costs that we put in the Bill 210 account. Other people might have thought they were market adjustment type accounts and might have put in the 1570. They are not always dealt with in Bill 210. I would think that since they are incremental costs, that there should be some mechanism for recovery of them, be they here or in 1570, as long as they are covered, because they are incremental costs that the utility incurred in order to respond to the market as the government changed it. So I'm having trouble thinking that the Board would not see them as costs we should get recovery for. 807 MR. RELICH: If there was a requirement to apportion those costs in that category, a reasonable approach would be to use around 60 to 70 percent, would have been costs associated with the activities in support of the $75 rebate cheque processing and the associated requirements to provide credits to budget bill accounts. 808 MR. LYLE: How do you come to that number? 809 MR. RELICH: Just looking at some of the high-level information with respect to some of the call drivers. One of the biggest components for us was the cost associated with anticipated calls from customers, and that's the estimate that I'm using here. 810 MR. LYLE: Now, there's one other aspect of the statutory provision that we talked about, 79.12(2), the recording of an amount related to paying out the rebate cheque for the customer is dependent upon the distributor making that payment no later than December 31, 2002. Did you meet that requirement? 811 MS. FRANK: Yes, we did. 812 MR. LYLE: Moving, then, to tab 9, the retail cost variance account. On page 7, there's an amount for labour of half a million dollars. Is that purely internal Hydro One employee time? 813 MR. RELICH: No. A very small percentage of that is Hydro One -- internal Hydro One employee time. 814 MR. LYLE: So a portion of that is -- most of that is the third-party service provider; is that correct? 815 MR. RELICH: That's correct. 816 MR. LYLE: And how would that amount have been calculated, then? 817 MR. RELICH: The approach we took to determine the calculation for the -- it was really effort based. At the onset of market opening, we looked at the anticipated volume of exceptions that would have to be handled in supporting retailer activities, assessed the amount of effort that would be required to deal with those exceptions, and derive a resource -- an incremental resource requirement to support that. That was the primary vehicle by which we determined the level of effort. And then to that, the appropriate hourly rate or rates were applied to determine the costs. 818 MR. LYLE: Now, given the size of the variances that you've experienced, and Toronto Hydro and Enersource are not making any claim with respect to this account, do you see a need for this variance account, going forward? 819 MS. FRANK: This variance account was, I think, established by the Board as part of the market opening with the RSVA and the RCVA accounts, and article 490 got established. Certainly we're finding that the variances are relatively small. So there isn't an incredible need for it going forward, and I guess that's something we could have learned from having the market open for the, kind of, 20 months to the end of December of '03. So I don't believe it would cause incredible hardship if it disappeared. 820 MR. LYLE: Turning to page 9 of tab 9, there's a change in the treatment of depreciation for the 2003 year from the original filing. You've put this 2003 depreciation in the market-ready transition account instead of including it in the RSVA balance. Can you explain why you made that change? 821 MS. FRANK: Yes, I can. The systems that were built and referred to on page 9, the eXact system and the MBS, the point to point, PeopleSoft, those systems that we use in order to do the retail billing, the actual capital costs associated with building those systems is in the market-ready account. In 2002, what we did is we took the depreciation out of the market-ready account and moved them over to the RCVA account because, indeed, that's what those systems are for; they're to help with the billing of customer and handling of retail accounts. 822 In 2003, we understood the direction that we really were supposed to change that market-ready transition account, 1570, up to market opening, and beyond market opening, there really shouldn't be more dollars going in there after a short, kind of, test period. But by the end of December '02, that account, in principle, should basically be froze and only interest accumulates. 823 So our notion was, fine, we'll leave that account alone. Any depreciation that might happen, we'll let it continue to incur in that account and will not transfer it over to the market-ready account. We're just going to let it sit there. 824 When we actually came to doing the filing, we realized that we had, in error, continued to add the depreciation also to the RCVA account, so we had double-counted the depreciation, left it in market-ready and left it here. So we have taken it out of the RCVA account for '03 and left it in the market-ready. 825 MR. LYLE: Thank you. I just want to clarify one part of your discussion earlier with Mr. Dingwall. You were talking about how you would account, prior to market opening, for costs related to providing services to retailers and also for the revenues that would come in from those retailers. 826 Just so I can simply follow this, if I'd signed a contract with a retailer prior to market opening and the retailer then went and filed that with you for processing, you would have charged him a couple of different fees; is that correct? 827 MS. FRANK: Our charges to retailers commence upon market opening. 828 MR. LYLE: So you're saying that you would not have charged a retailer that filed an STR prior to market opening? 829 MS. FRANK: They would have been charged upon market opening for all of those transactions. 830 MR. LYLE: I see. So it's not that they got them free, it's that they may have filed them four months before market opening. Once market opening took place, you started charging those accounts for those STRs that had been processed prior to market opening? 831 MS. FRANK: I guess my simple answer would be yes. 832 MR. VLAHOS: Retroactively or just going forward? 833 MS. FRANK: This is for all -- any -- because we couldn't really charge them until market opening, that's when the retailers come in, so any information that they would have given us beforehand we would have loaded into the system. But we charged them for all that work, consistent with the rates that are approved, once the market opened. 834 So it's almost like some prework could have gotten done to set the account up, if that's what you're saying. 835 MR. LYLE: Yes, you would have dealt with all the STR processing so that they were ready to switch to servicing that customer as of market opening. 836 MS. FRANK: That's in the couple of months prior to market opening when we would have incurred the cost, and that cost wouldn't be in the RCVA account, it would have been in the market-ready or the 1570 account. But the revenue -- we charged them once the market opened and we would have charged them from all accounts we set up as from market opening. 837 MR. LYLE: So the revenues related to those accounts would have come into the RCVA account? 838 MS. FRANK: Yes. 839 MR. LYLE: But the costs, because they were prior to market opening, would have gone into the market-ready transition account; is that correct? 840 MS. FRANK: That's correct. 841 MR. LYLE: Now, I just had one question with respect to tab 10, and perhaps -- which is the secondary environmental deferral account, and perhaps I should just modify this question. It also relates to account 1571 and it also relates to the earlier undertaking I asked you to provide, so perhaps I should modify the undertaking and ask you as well if you can point me to any document that authorizes carrying charges for account 1525 and account 1571? 842 MS. FRANK: I do know 1525 was in the Board decision. I could give you the specific page reference in that undertaking. 843 MR. LYLE: That would be helpful. 844 MS. FRANK: I do know it's in the Board decision. My colleague has it. Okay. This was -- I guess it's -- okay, so it's in H2, 18, this is for the 1525, H2, 18, attachment A2, which would be under tab 2, and then on page 13 where it says "interest shall accrue at a rate equal to Hydro One's debt cost rate based upon the deemed capital structure in the handbook." 845 MR. LYLE: I'm sorry, could you repeat the reference, please. 846 MS. FRANK: H2, 18, attachment 2. 847 MR. ROGER: A2. 848 MS. FRANK: A2, thank you. 849 MR. LYLE: Yes, we have that. 850 MS. FRANK: Page 13, at the bottom paragraph. 851 MR. LYLE: I think we're still having some difficulty finding that, but I'll accept that answer subject to check. 852 So if we could modify, though, Undertaking J.2.1 to also deal with account 1571. 853 MS. FRANK: Yes, that's fine. 854 MR. LYLE: Turning, then, to tab 11, market-ready transition costs, and I understand from your evidence that you had recently implemented a new customer billing system. 855 MS. FRANK: Yes, that's correct. 856 MR. LYLE: When did you implement that system? 857 MR. WEBBER: June of 1988, I believe. '98, yes. Sorry, '98. 858 MR. LYLE: June of 1998. And when did work commence on that particular system? 859 MR. RELICH: The work on our customer information system started sometime in 199 -- late '94, early '95. 860 MR. LYLE: Do you have an approximate number for how much that particular project cost? 861 MS. FRANK: Between 40 and 50 million. 862 MR. LYLE: And is there any amount included in your rate base related to that particular asset? 863 MS. FRANK: Yes, there would have been. 864 MR. LYLE: Can I turn you to the Pacific Energy Group document that you filed on benchmarking. 865 MS. FRANK: Yes, we have it. 866 MR. LYLE: And there's a statement on page 16 of that document, around the middle of the page, that says: 867 "Consider first that LDCs started with billing systems of varying capability. Some had recently invested in systems that could be modified with relative ease to satisfy market-ready requirements. Others had not." 868 Do you think that statement is applicable to your CSS system? 869 MS. FRANK: I'd say yes, it is, in that we had a relatively recent CSS-implemented system, and certainly given the time elapse that it took to implement that system, it would have been easier to modify than it would have been to try to replace. 870 MR. LYLE: Is it fair to say, then, that your costs related to the incremental changes to the CSS system would be lower than a distributor that was starting from scratch? 871 MS. FRANK: It would have been lower for us to modify than to replace. I don't know that we want to speak to other LDCs and their options. 872 MR. LYLE: Well, just a hypothetical distributor who was the same size as you and was otherwise the same, except they had to build a system from scratch, it would have been more expensive for them to do that than what you did. 873 MR. WEBBER: Of relative size and the same, they would have incurred the initial capital costs, yeah, whereas we extended. 874 MR. LYLE: Now, I want to turn you to the very popular coloured chart in tab 11, page 11. And when you were talking about Mr. Dingwall, you mentioned that the systems towards the bottom right-hand of the page, MV-STAR, MV-PBS, and MV-WEB, were particularly related to dealing with transition; is that correct? 875 MR. WEBBER: I believe I stated transition and distribution, shared between the two of them. 876 MR. LYLE: Yes. 877 MR. WEBBER: Yes. 878 MR. LYLE: A distributor that did not have a transition arm, would they need to have the equivalent -- or the equivalent functionality of all the systems that we see on this page? 879 MR. WEBBER: The reason for the MV-STAR and the MV-WEB and PBS are related to interval meters and are embedded ones. So as a host LDC, yes. I'm just not sure of other LDCs that have hosts. But the MV-STAR Toronto Hydro has, and they're not a transmitter, so they would still have that for their interval meters. And a number of utilities have the MV-90, the one on the far right, which again is used for interval meters. So I think the answer is, regardless of your transmitter, you still have some requirement, but our requirements went beyond that as being the host LDC. 880 MR. LYLE: So is there an advantage for a distributor that has a transmission arm in that you can allocate the total costs of the project across both your transition arm and your distribution arm, whereas a pure distributor cannot do that? 881 MR. WEBBER: You would still have the work effort required to set up as a distributor, whether you had the transmitter or not. All the host entities in the system, provide them access to it, and those would be equal. I suppose there would be some sharing, though, you know, of the hardware. You would only buy one box to operate it on and some support costs, perhaps ongoing. Yeah, support costs for sure, ongoing. 882 MR. LYLE: Now, you talked about how you -- maybe we should start first with the global amount of the project. The figure 1.048 million, is that the amount I should be looking to as the global amount of the project? 883 MS. FRANK: The project had reached that size, yes. Yes, that's correct. In H4, 40, we talked about the actual costs getting to 1.05. 884 MR. LYLE: Now, I recall hearing a number of 1.6 million being discussed earlier this morning. Was that an amount you wrote off? 885 MS. FRANK: Yes. We talked about there being two types of adjustments, one being costs that we thought really were not helpful to the end product or, in some cases, the clarification and rules that came with article 480, what's incremental and what isn't. We wrote roughly $10 million off. And we also talked this morning about 25 million, once again, roughly -- 886 MR. LYLE: I'm going to get to that, Ms. Frank. I just want to clarify. When I look at the 1.048 number you referenced in AMPCO interrogatory Interrogatory No. 40, is that inclusive of the 10 million you wrote off or is that before that amount is deducted? 887 MS. FRANK: Yes. That's the -- that's the total amount before any deductions. 888 MR. LYLE: I see. So if I take that 1.048 number and then deduct $10 million, I get to about $95 million. 889 MS. FRANK: Yes. 890 MR. LYLE: And then you made a decision about what costs were properly allocated to market-ready transition and what were more -- had more long-term benefit; is that... 891 MS. FRANK: Yes. 892 MR. LYLE: And so that took you from 95 million down to 67 million. 893 MS. FRANK: That's correct. 894 MR. LYLE: And then you allocated about approximately 14 million of the costs to your transition arm. 895 MS. FRANK: Yes. 896 MR. LYLE: Which gets you to the $53 million -- 897 MS. FRANK: That's correct. 898 MR. LYLE: -- which you claim with carrying charges. Now, in your evidence, there's evidence as to how you allocated between transition and distribution with respect to the MV-STAR system. Can you explain how you did that? 899 MR. WEBBER: Yes. That was by the interval meters, and I provided an example that may not -- the math didn't work out quite well in the example. But it was done by the interval meters for MV-STAR, and it worked out a percentage of 45 percent TX and 55 percent DX, based on the number of interval meters. 900 MR. LYLE: Did you do the same exercise for the MB-PBS system and the MB-Web system or did you use a different approach? 901 MR. WEBBER: Yes, we did. Would you like those figures too? 902 MR. LYLE: Yes, please. 903 MR. WEBBER: MB-WEB, 27.97 TX, 72.03 DX. I'll put that back up and give you those figures again. MV-STAR, 45 percent TX, 55 percent DX; MV-WEB 44.9 TX, 55.01 DX. nMarkets, 75 percent TX, 24.99 DX. 904 MR. LYLE: Which was that? 905 MR. WEBBER: nMarkets. 906 MR. LYLE: So were there any other systems that were -- 907 MR. WEBBER: Those were the shared systems. 908 MR. LYLE: I see. 909 Now, going back to the number $95 million, which you then reduced down to $67 million for the purposes of the 1570 account. There's an amount left over of $28 million, and I recall from this morning you indicated that you would be seeking recovery of a portion of that in 2006 by putting the undepreciated amount into rate base, but your view was that there would be very little left that would be undepreciated at that point in time; is that fair? 910 MS. FRANK: That is fair. 911 MR. LYLE: Can you give me a rough estimate of how much? 912 MS. FRANK: Well, 25 million, let's assume it goes in at December of '01, so how many years -- when are we going to assume that rates get adjusted? 913 MR. LYLE: May 1, 2006. 914 MS. FRANK: So I've had five years gone by, so that amount would be -- the remaining amount would be two-sevenths of the 25. 915 MR. LYLE: Okay. 916 MS. FRANK: So what is that? 917 MR. LYLE: And of the $53 million amount that you're seeking disposition of in this proceeding, are there any assets in that amount that might be rolled into rate base in 2006? 918 MS. FRANK: No. All of those -- any -- what would have been a capital or system-type expenditure that we believed was filling the 480 primarily associated with market-ready that's in here is just in this variance account. They are not in service assets. 919 MR. VLAHOS: Mr. Lyle, can I just follow up? 920 MR. LYLE: Yes. 921 MR. VLAHOS: It would be in some book somewhere that there is an asset, so when the regulatory affairs department constructs a rate base, what do they do with it? 922 MS. FRANK: What we've done is we've treated it as a regulatory asset and assumed that we get recovery through proceedings such as this. And it would be clearly identified as a separate regulatory asset, lowered by whatever recovery we got -- like, we already are getting some recovery and recording since April of, I guess, this year, we're recording that amount. After the decision from this Board, we will reduce our outstanding balances for the regulatory assets by whatever recovery we've received, following the direction that we get from the Board. By '06, Mr. Lyle is suggesting '06, we would be considerably reduced. 923 MR. VLAHOS: So from a presentation point of view, when you construct rate base, you would have an amount that is subtracted and it would be shown as a line item; is that fair? 924 MS. FRANK: That's correct. You will clearly see the amount of regulatory assets. That will be a separate line that you can look to. You could also see how much you've reduced following the recoveries that this Board has directed. 925 MR. VLAHOS: Okay, thank you. 926 MR. LYLE: Thank you. Just a couple more questions on account 1570. I understand from your evidence that your view is that once a utility gets to a certain critical mass, there's a need for additional systems and so there's a significant bump up in costs at that -- at that point, so to speak, in reaching that critical mass of customers; is that a fair characterization? 927 MS. FRANK: Yes. 928 MR. LYLE: And from the Deloitte study, is it fair to say that that critical mass level is about 500,000 customers, in your view? 929 MS. FRANK: Deloitte's used the 500,000. It could -- they wanted to get to utilities who would have a similar type size of customer base. It's hard to know if a number below that wouldn't also require some system investment. 930 MR. LYLE: But once you've reached the critical mass that causes you to put in all of these systems, is it fair to say that there's not a great deal of incremental cost per customer as you go on from that point? 931 MS. FRANK: It's not so much the cost per customer beyond that point as maybe the complexity of rate schedules and number of rate schedules that would add to the costs rather than adding customers. 932 MR. LYLE: But setting those aside for now, the costs for a 500,000-customer utility and the costs for a 1-million-person utility are not likely to be all that significantly different, just based on the need for servicing that level of customers; is that fair? 933 MR. WEBBER: That, to me, would be a quantum leap in doubling. If you just think of the storage capacity. We've got a million EBTs a month going through our system. You need a lot of processing power to do that. So that's big. I think you're looking at smaller increments of -- you know, like every hundred thousand or something, there's differences. 934 MR. LYLE: So within a range of 100,000 customers, there's not a big incremental cost and then you've got a bump up. 935 MR. WEBBER: I'm saying that quickly without a lot of thought. But 500, for sure, is a big quantum leap. A hundred, you know, once you've got your first couple hundred, going to 300 might not be too bad, but getting to your first hundred is hard to do, you know, it would be a big step. 936 MR. LYLE: Just one other matter that relates to the materiality threshold, and I understand there's three accounts totalling about two and a quarter million dollars that do not meet the materiality threshold as spelled out in the Board's handbook, and you're still seeking recovery of these amounts. Can you explain why you're doing that? 937 MS. FRANK: The identification of the nine categories was something that happened, actually, after we spent most of the money. It was kind of a light -- here's how we want you to break them out. We believe that we incurred the costs that were necessary to be ready for market opening. The costs that we incurred in those items where the dollars were not as large were still very necessary costs. And it's our feeling it's more appropriate to look at the total rather than category by category. 938 We haven't identified which ones don't meet the individual materiality limit, but our feeling is, since they are incremental costs, they were necessary for market opening, that they should be considered and recovered. 939 MR. LYLE: Finally, I just want to address rate impact briefly and go to that other favourite chart of Mr. Roger, which is Exhibit G, tab 13, schedule 1. 940 MR. ROGER: I have that. 941 MR. LYLE: And if we look along the bottom line, we see the rate impacts for each of the individual customer classes. And I note that acquireds is an increase of 2.72 percent. Can you explain the reasons why the acquired customers experience a significantly larger increase than the core customers? 942 MR. ROGER: There are two main reasons. The first one is the truing-up of what we did in phase 1. In phase 1, we did a very simple approach of allocating the variant that we wanted to recover to our core and acquired customers, and the overcollection from our core customers also was credited to the acquired customers. It was a simple approach. 943 The second reason is that the accounts now have been looked at on an individual basis, and we tried to reflect cost causality. And many of these accounts are directly related to the acquired customers. For example, the MAR 1 and MAR 2, the cost of power seasonality, so those accounts will go directly and only to them. 944 MR. LYLE: Are there any customers of acquired LDCs who will be particularly negatively affected? 945 MR. ROGER: There may be some customer classes, depending on how we do the rate design to recover these costs, that could see impacts above the 5 percent on their total bill. 946 MR. LYLE: And are there any particular of the former acquired utilities that are particularly hard hit? 947 MR. ROGER: If I can direct you to table 2 on the same Exhibit G, tab 13. 948 MR. LYLE: Yes, I have that. 949 MR. ROGER: The one revised on June the 8th? 950 MR. LYLE: Yes, I have that. 951 MR. ROGER: There is a list there of all the acquired utilities, and the right-hand side column provides sort of an estimate of what the total bill impact would be for the utility if all the accounts here are allocated the way we're proposing to do it, with the values that we file. So, for example, if I read the first one, Ailsa Craig would have a 2.4 percent in total bill. That, of course, we have to make assumptions with respect to the commodity costs. A-i-l-s-a C-r-a-i-g. 952 So that table provides you with a list of the impacts that we estimated for all of the acquired LDCs. 953 MR. LYLE: Going back to the previous table, I'm wondering if you could undertake for me to provide, for each of the residential customer classes of the core rate classes, the dollar per month and percentage impact on the total bill of the March 1, 2005 increment that you're applying for, for a consumer that uses a thousand kilowatt-hours per month. 954 MR. ROGER: Can we turn up one of the transcript undertakings, because it may be there, J.1.1. 955 MR. LYLE: I think it's slightly different. I believe you provided that -- oh, I see, so you have actually made certain consumption scenarios in this particular undertaking response. 956 MR. ROGER: Yes, I've assumed 250 kilowatt-hours and 1000 kilowatt-hours, and then we assumed three ways of rate design. 957 MR. LYLE: Okay. What I'd like, though, is, have you actually -- when I look at these impacts, it looks like you have factored in the amount coming out of April 1, 2004 rates; is that correct? 958 MR. ROGER: This would be the impact compared to the April 1st 2004 rates. 959 MR. LYLE: What I'm looking for is stand-alone. Ignore for a moment that the April, 2004 amounts are being removed from rates and just look at the stand-alone increment for March 1, 2005. 960 MR. ROGER: What would be the basis of comparison? It would not be the current bill, because the current bills the customers are paying would be the April 1st, 2004. 961 MR. LYLE: Yes, I understand that. But if you were to disaggregate the -- 962 MR. VLAHOS: If you remove the adders, if you remove the adders that pertain to all the interim allowances, is that possible, Mr. Roger? 963 MR. ROGER: Sorry, I don't understand the remove the adders. I apologize. 964 MR. LYLE: I think what we're talking about, Mr. Roger, is if you were to look at the bills prior to the increase coming in on April 1, 2004 -- 965 MR. ROGER: Right. 966 MR. LYLE: -- and assume that that never happened and see what the increase would be if you then put in the March 1, 2005 amount. 967 MR. ROGER: Can I have a moment, please, because there may be an interrogatory that addresses that. 968 MR. LYLE: Certainly. 969 MR. ROGER: Interrogatory H6, 23, part A, asks us to take the proposed amounts to be recovered and calculate the bill as prior to April 1st, 2004, so to March 1st, 2004. So for the UR customer class, for example, it shows an impact of .27 percent and so forth. 970 MR. LYLE: Mm-hm. I believe that meets our needs, Mr. Roger. Those are all my questions, Mr. Chair. 971 MR. VLAHOS: Just one second. 972 [The Board confers] 973 MR. VLAHOS: Thank you, Mr. Lyle. The Panel -- Mr. Warren? 974 MR. WARREN: I don't know if this is the appropriate time to raise this, Mr. Chairman, but I wonder if I can raise a point. Transcript undertaking J.1.2 has been filed, it was a response to an undertaking which I asked fro yesterday, and the transcript reference is paragraph 294. I've only just now seen it. I haven't had a chance to discuss this with my friend. But if the Board would just glance at it. 975 It arises from an exchange I had with Ms. Frank, and Ms. Frank had indicated that there had been an internal audit that compared the original project estimate costs with the ultimate costs. And looking at the interrogatory response, the number, the variance, is $33 million. It's not chump change. And in order -- I think, broadly speaking, I think that all of the parties should understand the significance of that number, what it means. And perhaps more importantly, on an issue of fairness, if it is to be raised in argument on the issue of prudence, then as a matter of fairness, I think it should be put to Ms. Frank and the other panel members for an explanation of what this number means, what its significance is. 976 All of which is preliminary to my asking the Board if I might be allowed to ask a few exploratory questions of this panel to understand the significance of the undertaking response, in particular, these numbers. I appreciate I'm doing something out of order, but it strikes me, Mr. Chairman, that it's probably better that it be done if not by me than by somebody before we get to the argument stage of this case. 977 MR. VLAHOS: Ms. Aldred? 978 MS. ALDRED: My witnesses are prepared to speak to that, and we would be happy to have Mr. Warren proceed. 979 MR. VLAHOS: Okay. I believe that's a good time, Mr. Warren, for those questions. 980 FURTHER CROSS-EXAMINATION BY MR. WARREN: 981 MR. WARREN: Ms. Frank, I guess these questions are directed to you. Do you have the undertaking response in front of you? 982 MS. FRANK: Yes, I do. 983 MR. WARREN: Just by way of refreshing our memory on this, could you explain for the record what this internal audit was intending to accomplish? What was it looking for? 984 MS. FRANK: This audit was to examine the total costs that got into the project, so it's the larger number, much larger than we're requesting here. If you turn to the background page of it, which is page 2, it talks about the total budget of 111, and as of March 2002, the costs being $100 million. So it was looking at the full project before we did any removals or write-offs or capitalization. 985 And the task that the audit had was actually to say -- help us to understand how this project got to be so expensive. And could you point to what an -- if you knew everything, if you had perfect hindsight and you knew everything that you knew at the time they're doing this audit in terms of what you'd need to build a system compared to what you actually spent, what would the difference be? So this is where the idea was that if there was an ideal system, full knowledge up front, and then tell us why things are different. 986 So if you look to the executive summary, there's a summary table there, categories 1 to 5, and you see really that categories 1 and 2 are the -- the rules have changed. We've made assumptions about them or there's been some change. There's been rework that's happened, and that's the 14 million. I'm just adding the two of those together. Where, if you would have known about it the first time around and the rules didn't change, you would have saved 14 million from what you've spent. So that's the first category. 987 The next category goes to, you are trying aggressively to meet dates to be market-ready that turns out were unnecessary because, indeed, the market didn't open, so the 5.9 million and the 6.1 are chasing after, really, dates that turned out to be too early. They were what we thought at that time and what our understanding was in terms of when the market was going to open, but it didn't happen, and therefore we likely didn't take the -- if we would have known we had the whole time period, we could have operated more effectively. 988 And the final one is that we actually had all systems up and running in order to meet all the market tests and everything by August of '01, and that meant there was a period of maintaining those systems, we call it here in a hot, ready-type state, so there would be some added care costs, interest costs, and that's the 6.7. 989 So the notion was we could have, rather than spending the roughly 111 we thought we were going to end up spending, spent $33 million less. 990 Now, if we actually take that and say, How does this compare to what you're now requesting, the 67 that we have -- because this is a total, it's transition and distribution, so if we looked at that table 1 in G11, and we saw there that we were asking for 67.3, we're not asking for the 100 or the 105, we're asking for 67.3 on the combined, and here it's only about the distribution piece, so it's actually the 53.7 plus interest. Some of these items have already been removed. Particularly the items around the aggressive planning for the November 2000, those costs would be out of here because we got rid of the '99 costs, so the 5.9 would have been part of that set that we removed. 991 Some of the other costs that came out really were more oriented to take systems out and putting them in service, so the broader application rather than because the rules changed. One of the difficulties we have, particularly it's that piece that we took out and put in service, how much of that might have been driven by these versus how much is left in the project, we actually have difficulty of looking at the 53 and allocating those costs into the 53. I don't know how much is left. 992 MR. WARREN: Are all of these costs in the account 1570 the transition costs? 993 MS. FRANK: That last statement that I said, I don't know how much is left in there, I can't tell. 994 MR. WARREN: I wasn't asking -- sorry, you're one step ahead of me. My question was, should all of these be characterized as transition costs? 995 MS. FRANK: They were originally in the transition account, yes. 996 MR. WARREN: And sorry, your last observation before I asked the question was, you don't know how much, if any, of this 33 million is left in the transition costs that you're applying to seek recovery of now; is that correct? 997 MS. FRANK: I would suspect there is something left in it, but I don't know how much. 998 MR. WARREN: Okay, now, you have said with confidence that the 5.9 million is not in there; is that correct? 999 MS. FRANK: That's correct. 1000 MR. WARREN: And why is that? 1001 MS. FRANK: We had discussed that earlier, I believe, today where we had indicated that we looked at those costs in 1999 and determined -- we were talking about the Deloitte's report at the time, and we'd determined that those costs really did not have a substantial benefit to the end product and therefore we thought that they didn't meet the test and we should remove them. 1002 MR. WARREN: Now, to be fair to you, Ms. Frank, let me put this proposition to you: I don't know whether it would ever surface in my argument or anyone else's, but in the event it might, I wanted to give you an opportunity to respond to it: Would it be fair for me, or somebody else who's less rigorously fair than I am, would it be fair to them to say that some or all of the $33 million just represented management misjudgment? 1003 MS. FRANK: I don't believe that's fair, because this -- what this exercise was, with perfect hindsight, what would you have done, and certainly we'd all agree that this was not a perfect environment in terms of getting ready for market opening. There were a lot of changes that happened, a lot of times when the rules either were not available and you had to make an assumption or the rules changed. So applying a perfect hindsight test to this, I don't believe that that would be an equitable thing to do. 1004 MR. WARREN: And finally, is it possible for you, just by way of undertaking, if you can, to at least estimate how much, if any, of the $33 million is still in what's being applied for? Can that be done? 1005 MS. FRANK: My reaction is, no, that would be quite an exercise for us to do. I don't think we can do that. 1006 MR. WARREN: Okay. Thank you very much, Mr. Chairman. Those are my questions. 1007 MR. VLAHOS: Thank you, Mr. Warren. 1008 If you just bear with us, the Panel has some questions. 1009 QUESTIONS FROM THE BOARD: 1010 MS. CHAPLIN: Thank you, Mr. Chairman. 1011 I have one area of clarification for you, Mr. Roger, please. 1012 You were having some conversation, I think some took place yesterday but certainly today in your discussions with Mr. Brett, about the allocations of the market-ready costs, how it was done first on the basis of the number of customers to the four segments; correct? 1013 MR. ROGER: Correct. 1014 MS. CHAPLIN: And then, for example, within the core group then allocated on the basis of distribution revenues. 1015 MR. ROGER: Correct. 1016 MS. CHAPLIN: Okay. Now, I believe you said to him, I think he made the proposition that would it be equally appropriate to do the allocation amongst the core group also on the basis of number of customers, and I believe you said that that would be a valid alternative; is that correct? 1017 MR. ROGER: Correct. 1018 MS. CHAPLIN: So am I correct in understanding that the reason that you have proposed that it be done on the basis of distribution revenue is solely because that's the way it was done for the interim recovery? 1019 MR. ROGER: Correct. 1020 MS. CHAPLIN: And so in your view, is one way better than the other, or are they equivalent in terms of -- 1021 MR. ROGER: They are equivalent. 1022 MS. CHAPLIN: Okay. Thank you very much. 1023 MR. VLAHOS: Thank you, Ms. Chaplin. 1024 MR. CARR: I just had one question, revisiting the exchange that was had with regard to cash accounting versus accrual accounting. I guess this is probably for you, Ms. Frank. 1025 Has Hydro One -- has there been any change in accounting policy with regard to the use of cash accounting versus accrual accounting? 1026 MS. FRANK: No, there's been no change for Hydro One in terms of that approach. Always been accrual. 1027 MR. CARR: Thank you. 1028 MR. VLAHOS: Thank you. 1029 Panel, just a couple of questions on just one area, probably for Ms. Frank or Mr. Roger. 1030 What issues -- what are the decision points for the Board in terms of implementation by way of a rate order? And perhaps we can start with what is in the current rates right now for the core customers and the embeddeds? As I understand it, there are different rate cases for each of the embeddeds and there's one set of rate schedule for the core. 1031 Now, can one of you tell me as to what is contained now in those schedules and how they would have to be amended in order to -- in order to meet, I guess, the application as you have framed it, assuming no changes? 1032 MR. ROGER: If I can just start with the -- we have a rate schedule for our core customers and we have 87 different rate schedules for our acquired customers. Our proposal is that if the final amount is being allocated to each customer group based on what we are proposing here, we can then determine how that amount is going to be recovered from the customers, and this is a rate design issue. It could be through a fixed charge, a variable charge, or in proportion to the way the revenues are being collected right now between the fixed charge and the variable charge. Once that is determined, we can determine, then, what the incremental rate-adders would be that we would add to the current distribution rates, the fixed and the volumetric charge, and develop new distribution rates. And those would be the rates that we could apply, then, as of March 1st, 2005. That would be for our core and acquired customers. 1033 MR. VLAHOS: Okay. You have certain cost-allocation proposals to recover the balances of these accounts, and those are in the evidence. 1034 MR. ROGER: Correct. 1035 MR. VLAHOS: What is not there is the method of recovery or the rate design part of it? 1036 MR. ROGER: Well, we propose in the evidence also, we said that we could recover those proportionally to the way that we are collecting the distribution revenues from the customers right now. 1037 MR. VLAHOS: Okay. So you could, based on the way your application has been framed, you could have attached a set of rate schedules that would reflect all the contents of the application; right? 1038 MR. ROGER: For our core and acquireds, we could have done it based on the application here, yes. 1039 MR. VLAHOS: And the LV rate, remind me again, that's part of which schedule? 1040 MR. ROGER: The LV rate is the rate schedules that we cannot implement as a result of Bill 210 right now. 1041 MR. VLAHOS: I know. But which rate schedule is it? 1042 MR. ROGER: It's part of the -- 1043 MR. VLAHOS: Is it part of the core? 1044 MR. ROGER: It was that schedule, I believe it was F2. If you give me a moment, I can dig it up. 1045 I'm looking at interrogatory H2, 18, tab A8. H2, 18, attachment A8. And in the rate schedule -- 1046 MR. VLAHOS: Just give us a minute, Mr. Roger. 1047 MR. ROGER: Sorry. 1048 MR. VLAHOS: Okay, go ahead. 1049 MR. ROGER: Appendix A2, and you have to go quite a ways behind the rate schedules. 1050 MR. VLAHOS: How far in? 1051 MR. ROGER: Appendix A1 is the rates for our customers. 1052 MR. VLAHOS: Okay, I have it. 1053 MR. ROGER: And those are the low-voltage charges that were approved to be effective May 1st, 2002, and you'll see there the shared LV line of 56 cents per kilowatt, and then the other LV charges that would have applied. 1054 MR. VLAHOS: And those are on stand-alone schedules? You have the core, you have the other acquired, and this is a separate set of stand-alone rate schedules; is that how this works? 1055 MR. ROGER: That's correct. This is separate rates schedule. 1056 MR. VLAHOS: They are not part and parcel of the individual embedded or the core rate schedules. 1057 MR. ROGER: No, they are not. 1058 MR. VLAHOS: Are they appendices to them? This says appendix to order, but it doesn't mean it's an appendix to the rate order. 1059 MR. ROGER: I think when we did RP-2000-0023 we had different appendices for all the rate scales. So there is one, for example, for street lights, one for cemetery lights, one for losses, one for LV, so all those charges had sort of a different appendix. But when we came for the interim approval on April 1st, 2004, the only rate schedule that we amended were the rates for core and acquired customers. This was not touched. 1060 MR. VLAHOS: Okay. Thank you for that. So if the Board were inclined to accept your proposal as is, there would be -- it's just a matter of reflecting those cost-allocation proposals into the actual rates themselves, and just stop and check them. Is that all it would take? Or are in any decision points? 1061 MR. ROGER: In the case of the embedded customers we would not propose a rate schedule, we would propose a dollar value. 1062 MR. VLAHOS: Okay. 1063 MR. ROGER: That would be charged for each customer over a three-month -- three-year period. 1064 MR. VLAHOS: And that would be -- what regulatory instrument would that be? It would not be a rate schedule. It would be what? It would be just -- a decision itself would be the instrument? Is that what you have in mind? Would that be sufficient? 1065 MR. ROGER: What I had in mind is that we could provide the Board with the amount of dollars that we would need to recover from each embedded LDC customer, and then the LDC could take that as an additional variance account that they need to recover, together with all their own variance accounts, and they would add to that amount of dollars to recover from their customers. 1066 MR. VLAHOS: But you need a document from the Board, you need the authority to charge those amounts. 1067 MR. ROGER: Correct. 1068 MR. VLAHOS: So where would they show up? 1069 MS. FRANK: I suspect what we'd need to do is provide the Board with a table for each of the LDCs or direct customers with what we think the monthly charge should be. So you'd be authorizing the implementation of this schedule of charges, just a fixed monthly amount. 1070 MR. VLAHOS: Okay. So it would be another set of rate -- another rate order, if you like. 1071 MS. FRANK: Yes. 1072 MR. VLAHOS: Which will have a life of three years or something. 1073 MS. FRANK: That's correct. 1074 MR. VLAHOS: Okay. And to the extent that the Board is not inclined to accept every proposal, it can happen, then the process would be what, that the Board issues a decision and then leaves it to the company to work out the details of the rate schedules? Those would have to be checked by someone before they're signed by the Board. Now, is any judgment involved in sort of the -- into any reductions the Board may make in terms of the proposed amounts or is a pretty mechanical exercise? I'm just wondering whether this is the last time we're going to see each other here in this forum. 1075 MS. FRANK: I think it's a pretty mechanical exercise. If you disallow some areas for recovery, we reduce the balance in that item. If you say, we don't like you recovering it by revenue we want you to recover it by customers, we change the method we recover it by. So we can follow your direction pretty mechanically. There's not a lot of judgment that it would take on our part, assuming you make directions like that, Take these dollars out, Use this allocator. I think you could give us some clear direction and it would be very easy. And then we'd file the schedules, your staff would check it. 1076 MR. VLAHOS: Okay. These are all the Board's questions, Panel. 1077 Ms. Aldred, any redirect? 1078 MS. ALDRED: I had about five minutes of redirect. 1079 MR. VLAHOS: Go ahead, please. 1080 RE-EXAMINATION BY MS. ALDRED: 1081 MS. ALDRED: Mr. Webber, my first question is for you. You'll recall yesterday having a discussion with Mr. Dingwall about the hub contract that Hydro One entered into. 1082 MR. WEBBER: Yes. 1083 MS. ALDRED: And there seemed to be an implication in the questions that discussions regarding the hub contract were entered into at a very late point in the game. Is that the case? 1084 MR. WEBBER: Actually, the concept of going to hub was something that was evaluated and looked at continuously over the couple year life the project. Originally the economics weren't there, given the volume of transactions we would need to do to go through a hub. As the years moved forward, time moved on, hubs started merging, coming together. They clarified their business model, and quite frankly, their price dropped to the point that it made sense to go with them. 1085 MS. ALDRED: Do you recall how many how hub providers there were at that time? 1086 MR. WEBBER: I can think of four that existed then: EBT Express, Screening Powers, SysTrends, and Hub in a Box. 1087 MS. ALDRED: And how many hub providers are there now? 1088 MR. WEBBER: I believe just two. SPI and SysTrends, I think, are the only ones in existence. I'm not sure about Hub in a Box. It wasn't very robust. 1089 MS. ALDRED: And can you just remind the Board of the value of that contract? 1090 MR. WEBBER: Just over 100,000, I think. Yeah, approximately $100,000. 1091 MS. ALDRED: Thank you, Mr. Webber. 1092 Ms. Frank, I think these questions are for you. There was some discussion again with Mr. Dingwall around Ontario Hydro Energy. Do you remember those discussions that you had this morning? 1093 MS. FRANK: Yes, I do. 1094 MS. ALDRED: There seemed to be some suggestion in the questions that were asked of you that Ontario Hydro Energy may have benefited in some way by being able to use Hydro One's systems; is that the case? 1095 MS. FRANK: No, that's not the case. 1096 MS. ALDRED: Would there have been any opportunity for that to happen, given the codes that are in place? 1097 MS. FRANK: No, there would be no such opportunity. 1098 MS. ALDRED: Again, Ms. Frank, you were asked by Mr. Dingwall a series of questions regarding costs that were part of the total market-ready project but which were subsequently excluded from deferral account 1570. Do you remember those questions? 1099 MS. FRANK: Yes, I do. 1100 MS. ALDRED: And you told Mr. Dingwall that approximately 10 million was written off by Hydro One and about $25 million was excluded from account 1570 by virtue of the requirements published in article 480; is that right? 1101 MS. FRANK: That's true. 1102 MS. ALDRED: And would you agree with me that -- did the Board tell utilities what costs to include in account 1570? 1103 MS. FRANK: Article 480 provides that direction. 1104 MS. ALDRED: And can we understand from you that Hydro One, in fact, complied with that direction? 1105 MS. FRANK: Yes, we believe we have complied with that direction. 1106 MS. ALDRED: In your view, could other utilities have done what Hydro One did and written off some of the costs they previously recorded in that account? 1107 MS. FRANK: Yes, I believe other utilities, once they looked at 480 and re-examined their costs, may well have decided that some costs did not meet the tests and wrote some off. 1108 MS. ALDRED: And could some of the other utilities, then, have developed computer systems during '99 or 2000 or 2001 or 2002, the costs of which they did not include in account 1570 but treated in some different way? 1109 MS. FRANK: Yes, I expect that other utilities could have done that. 1110 MS. ALDRED: And are you aware of evidence that has been filed in this case that would allow the Board to analyze what has been charged to other accounts for other utilities? 1111 MS. FRANK: There has been some evidence provided, certainly in the case of London Hydro's, about a system that was built in and is in the account. I believe there is other evidence in both the Toronto and Enersource that allows them to look at what was done in the form of market-ready and is in the transition account. 1112 MS. ALDRED: Thank you. Those are all my questions. 1113 MR. VLAHOS: Thank you, Ms. Aldred. 1114 The panel is excused with the Board's thanks. 1115 We'll take our afternoon break. 1116 MR. LYLE: Mr. Chair, before we take the break, perhaps we should consider the order of cross-examination for Toronto Hydro. 1117 MR. VLAHOS: Yes, I thought it was decided, Mr. Lyle. Did someone mention that it was decided? Could somebody speak up? 1118 MR. SHEPHERD: Mr. Chairman, I think we've agreed that Mr. White will go first, followed by Mr. Warren, and then myself, and Mr. Dingwall. 1119 MR. VLAHOS: Okay. 1120 Do we know if -- I guess that will take us -- that will not finish the day, so if others want to come forward on the next day, they can do it then. 1121 Okay. It is a quarter after 3:00. We'll resume at 3:30. 1122 --- Recess taken at 3:15 p.m. 1123 --- On resuming at 3:35 p.m. 1124 MR. VLAHOS: Please be seated. 1125 Okay. Any matters before we turn to Mr. Rodger? 1126 MR. LYLE: No, Mr. Chair. 1127 MR. VLAHOS: Okay, Mr. Rodger, the panel is here, we see. 1128 MR. RODGER: Yes, we're ready to proceed, Mr. Chairman. 1129 MR. VLAHOS: Go ahead, please. 1130 MR. RODGER: If I could first ask the witnesses to go forward to be sworn in, please. 1131 TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY: 1132 A.LAM; Sworn. 1133 R.ZEBROWSKI; Sworn. 1134 J.COUILLARD; Sworn. 1135 R.DEMENTAVICIUS; Sworn. 1136 E.MORVAY; Sworn. 1137 EXAMINATION BY MR. RODGER: 1138 MR. RODGER: Mr. Chairman, before I introduce the Toronto Hydro witness panel to the Board, I'm wondering if I might have three items marked as exhibits at the outset, which I've handed out just prior to the break. 1139 MR. VLAHOS: Certainly. 1140 MR. RODGER: The first item is a letter from me dated September 10th, 2004, to Mr. Peter O'Dell. 1141 MR. LYLE: We'll mark that Exhibit I.2.1. 1142 EXHIBIT NO. I.2.1: LETTER FROM MR. RODGER TO MR. O'DELL DATED SEPTEMBER 10TH, 2004 1143 MR. RODGER: The second is a press release from the Independent Electricity Market Operator dated August 11th, 2004. 1144 MR. LYLE: I.2.2. 1145 EXHIBIT NO. I.2.2: PRESS RELEASE FROM THE INDEPENDENT ELECTRICITY MARKET OPERATOR DATED AUGUST 11TH, 2004 1146 MR. RODGER: And the third is a table. This is a summary of a Toronto Hydro interrogatory response to a Board Staff interrogatory found at tab 1, schedule 25, page 2 of the Toronto Hydro responses. 1147 MR. LYLE: I.2.3. 1148 EXHIBIT NO. I.2.3: SUMMARY OF A TORONTO HYDRO INTERROGATORY RESPONSE TO A BOARD STAFF INTERROGATORY FOUND AT TAB 1, SCHEDULE 25, PAGE 2 OF THE TORONTO HYDRO RESPONSES 1149 MR. RODGER: Thank you very much, Mr. Lyle. 1150 MR. VLAHOS: Should we give the CVs undertakings? 1151 MR. LYLE: The CVs an exhibit number? 1152 MR. VLAHOS: Yes, I apologize. We do have a set of CVs here. 1153 MR. LYLE: Yes, I believe that would be appropriate as well, Mr. Chair. We'll mark that as Exhibit I.2.4. 1154 EXHIBIT NO. I.2.4: CVs OF TORONTO HYDRO WITNESS PANEL 1155 MR. RODGER: Now, to first introduce the panel, seated closest to the Board is Anthony Lam, L-a-m, who is an economist, tariff and pricing. Next is Mr. Richard Zebrowski, Z-e-b-r-o-w-s-k-i, who is vice president of regulatory services. Next is Mr. J.S. Couillard, C-o-u-i-l-l-a-r-d. Next is Mr. Roman Dementavicius, that's D-e-m-e-n-t-a-v-i-c-i-u-s, who is system delivery manager for customer service in the information technology and services division of Toronto Hydro. 1156 Just backing up, Mr. Couillard is VP of finance of Toronto Hydro Corporation. 1157 And finally, we have Mr. Ed Morvay, M-o-r-v-a-y, who is manager of customer care, responsible for interacting with market participants and for implementing government-related changes that impact billing and customer information systems. 1158 I'm wondering if I could ask each witness if they could briefly identify the areas of the evidence which you can speak to in this proceeding, and also to describe briefly how you were involved in the various activities that are now the subject of Toronto Hydro's regulatory asset claim. 1159 Mr. Lam, if we could start with you, please. 1160 MR. LAM: Yes. I'm prepared to speak in detail in reference to all the rate impacts that's in the evidence, the allocations that are in those rate impacts, the revenue model itself that we use to accrue our revenue, any wholesale settlement questions and the RSVA accounts. 1161 MR. VLAHOS: Mr. Lam, you may have to pull the microphone -- make it straighter towards you. 1162 MR. LAM: Is that better? 1163 MR. RODGER: And how are you involved in the activities that give rise to this claim that Toronto Hydro is seeking? 1164 MR. LAM: I developed the evidence for the allocation impact analysis that's in our evidence. I also am responsible for developing the existing retail rates that was implemented in 2004. And I'm also qualified to answer any non-time of use and time of use variance accounts, as well as the premarket variance accounts. 1165 MR. RODGER: Thank you. 1166 And Mr. Zebrowski? 1167 MR. ZEBROWSKI: I will be speaking to general regulatory and rates issues, including allocation. I'm also prepared to speak to the RSVA accounts and premarket opening variance accounts at an overview level. 1168 My involvement with the regulatory assets since September 2001, I've been responsible for the regulatory services division at Toronto Hydro. Activities carried out within the regulatory services group and which are related to this hearing include preparation and filing of rates for phase 1 of the regulatory assets recovery process, the monthly calculation of the retail settlement variance accounts, and the calculation of the premarket opening variance. 1169 MR. RODGER: Thank you. 1170 And Mr. Couillard? 1171 MR. COUILLARD: Yes. I'm here to speak about accounting treatment for all the regulatory asset transactions, speak as well about the relation with our external auditors, provide support documentation for transition costs to account 1570, and I'm also in charge of all preparation for financial reporting for Toronto Hydro so I can speak to any impact on those. 1172 MR. RODGER: Thank you, sir. 1173 Mr. Dementavicius? 1174 MR. DEMENTAVICIUS: Yes. I can speak to questions that arise in the areas of deployment of systems for market opening, development strategies that we employed, the use of contractors to assist with that development, and issues and costs related to the IT area. These are mainly transition costs related to account 1570. 1175 In terms of my role, I was responsible for the conversion and the amalgamation of the former six-utility CI systems into the new Banner CS system that was employed at Toronto Hydro. I assumed responsible for the IT project management for market-readiness in January 2001. I've been a member of the EBT standards, the retail market design, and the retail market design testing working groups, and I've also been involved in helping to capture, clarify, and categorize IT costs as they relate to the transition costs for the review of our external auditors and which are now the subject of this proceeding. 1176 MR. RODGER: Thank you. 1177 And finally, Mr. Morvay. 1178 MR. MORVAY: I'm able to address questions in the areas of customer education, activities, staff training requirements, retail and/or customer requirements for market opening; the development of strategies that were employed, the use of the contractors who assisted us in the development of the market opening, and issues and costs related to the business area as they pertain to the transition costs in account 1570. 1179 As far as my involvement at the time of the regulatory assets, including transition costs, were incurred, I was the project manager representing the business requirements for market opening based on the regulations and the iterations of the Retail Settlement Code. I participated on various working groups and committees, both pre- and post-market opening, along with other market participants to formulate a collaborative approach to the implementation of a closed market changes within a mandated implementation schedule. I was also responsible for the project's status report with our internal business units to ensure we maintained progress in readiness for a market opening date that was ultimately deferred until May, 2002. 1180 I represented Toronto Hydro as a business leader in the working group delegated to develop a transition plan to help mitigate the risks associated with the market opening for market participants and for end-use customers. 1181 MR. RODGER: Thank you, sir. 1182 Mr. Zebrowski, turning to you, are you aware of any facts that may have changed -- that may have changed the amounts being claimed by Toronto Hydro since the filing of the prefiled evidence in May and Toronto Hydro's responses to interrogatories? 1183 MR. ZEBROWSKI: Yes, I am, and I would like to refer to Mr. Rodger's letter to the OEB and all parties as of last Friday. 1184 MR. RODGER: And this is Exhibit I.2.4? 1185 MR. ZEBROWSKI: Correct. 1186 MR. LYLE: It's 2.1, Mr. Rodger. 1187 MR. RODGER: Thank you. 1188 MR. ZEBROWSKI: In that letter, it described how Toronto Hydro has been overbilled by the Independent Market Operator since market opening in May of 2002 in the amount of approximately $37 million. The final impact on Toronto Hydro's RSVA balance is not known at this time. 1189 MR. RODGER: Mr. Zebrowski, in my letter, I make reference that, for purposes of this hearing and the RSVA account, that it isn't a simple matter of a dollar-for-dollar reduction in the amount claimed. I wonder if you could explain to the Board why it isn't a simple reduction and why you can't say what the definitive adjustment is at this time. 1190 MR. ZEBROWSKI: Well, there are two aspects to the adjustment. First, part of the $37 million is to be booked against various unbilled revenue accounts associated with power, transmission, and wholesale market service charges. 1191 Secondly, part of the 37 million is to be booked against the associated RSVA accounts, and it is not obvious how it will be split between these two groups of accounts. 1192 I should also add that Toronto Hydro is a public reporting company. As this adjustment could have material impact on our financial statements, we are working with our external auditors to review this adjustment and its appropriate accounting treatment. That review will also involve a review of Toronto Hydro's internal revenue accrual model. 1193 We cannot speculate on the outcome of the adjustment at this time. However, we anticipate being in a position to report back to the Board in mid-November with what we expect will be the final amount of the adjustment and its accounting treatment. 1194 MR. RODGER: And, Mr. Zebrowski, if I could ask you to clarify another matter. The IMO press release that we marked as Exhibit I.2.2, it references, in the second last paragraph, how the total uplift for the correction that we've described, and I've described in my letter of last Friday, was $31 million. That's what the press release sites. And yet in my letter of September 10th, I say that the total credit that Toronto Hydro received in connection with the error was 37.8 million. Could you please explain the discrepancy. 1195 MR. ZEBROWSKI: Yes, the discrepancy basically relates to transmission charges. In the IMO press release, in the second paragraph, it talks about only energy and uplift charges, and that relates to the 31 million. The balance of that is the transition which is also included as part of the settlement. 1196 MR. RODGER: And finally, Mr. Zebrowski, the summary chart of rate impacts that was just put into evidence as an exhibit, could you please give us an overview of what the rate impacts are both in terms of -- from the 2004 period as well as, if the Board saw fit to approve the claim, what would be the impact on rates on what those customers are paying in rates today. 1197 MR. ZEBROWSKI: Okay, maybe the simplest thing to do is simply walk across the table using one sample of customers. 1198 If we can start with the residential group, the first column indicates that the impact that these customers saw in 2004. This was the phase-1 portion of the rate recovery for regulatory assets. So the average residential customer in phase 1 saw a 66-cent increase on his bill, which represents 2.21 percent of his distribution component of his bill, or 0.7 percent of his overall bill. 1199 Next, what we've done, we've sort of got two broad columns, I guess, that indicate the two different treatments for moving forward with the allocation of these costs. The first grouping shows a transition cost being allocated by distribution revenue; the second grouping shows the transition cost being allocated by the number of customers. Both methods have been discussed so far in the proceeding, and we've illustrated both here just so that we can see the difference in impacts actually are. 1200 So to move to the first group, for 2005, using distribution revenue as an allocator, we expect the residential customer would move an additional 73 cents on the average customer's bill. And again this represents in the order of 3.08 percent of an increase on his distribution component, and 0.96 percent on the overall bill. 1201 If we were to use the other methodology of allocating costs by number of customers, that customer in 2005 would see an increase of $1.52 on his bill, which represents a percent on the overall bill of 6. -- sorry, on the distribution component of 6.36 percent, and 1.9 percent of the overall bill. 1202 They all work the same way. We could walk through the large user class. It might be an interesting one just to compare it to. In 2004, these -- the average customer saw an increase of $4,303. Method 1 for 2005, that customer will see a reduction of $498. Using method 2, the customer will see a reduction of $1,430. 1203 I think in the end, though, what this really does illustrate is that the impacts from the implementation of regulatory assets, in the overall context, is quite small. 1204 MR. RODGER: Thank you, Mr. Zebrowski. 1205 Those are all my questions, Mr. Chairman. The panel is available for any questions my friends may have. 1206 MR. VLAHOS: Thank you, Mr. Rodger. 1207 Mr. White, you're on. 1208 MR. WHITE: Thank you. 1209 CROSS-EXAMINATION BY MR. WHITE: 1210 MR. WHITE: Let me ask a question, first how you foresee the 1571, the premarket opening, some would call the seasonal variance -- purchase power variance account. Would you see that allocated to any time-of-use customers or accounts within the utility? 1211 MR. LAM: No, at this point we don't anticipate implementing any rate changes for those time-of-use customers. We only intend to apply it to the non-time-of-use customers. We did do an analysis on the time-of-use customers and we found that the difference was very insignificant. 1212 MR. WHITE: In the post-market opening period, some LDCs had what they called legacy rates where some of their customers continued to be billed on premarket opening rates until such time as all the energy consumption was -- that had been consumed at the premarket opening period had been billed. Did your utility use that approach at all? 1213 MR. LAM: Yes, we did. 1214 MR. WHITE: Once -- for those accounts in the -- for all accounts in the post-market opening period where you have interval-metered accounts or time-of-use accounts or street-lighting profile accounts, would those customers attract any significant component of the 1588 or the post-market opening energy variance? 1215 MR. LAM: No, they did not, because they were billed on the open market rates themselves, so they were not attributed to any values in the premarket opening variance account as well check. 1216 MR. WHITE: I'm not talking premarket, I'm talking post-market. 1217 MR. LAM: Or legacy rate, sorry. 1218 MR. WHITE: Okay, thank you. 1219 Was the billing error to Toronto Hydro, and I'm going to stay at 90,000 feet, I'm not looking for huge details on this, was that error at an embedded delivery point or was it at a transformer station? 1220 MR. ZEBROWSKI: Transformer station. 1221 MR. WHITE: Thank you. Once the legacy rate issue is dealt with and you move into the 2003 rate period, I'm assuming, and please correct me if I'm wrong, the amount charged to the post-market opening variance account, the 1588 account, would be relatively small; is that correct? 1222 MR. LAM: In the tune of about $4 million at this point, so -- and that's the major portion of the RSVA power account, so it's a negative number in there at this point. 1223 MR. WHITE: Would you consider this to be primarily due to change in system losses or theft of power related items or items of that nature, if I can compare with the approved loss factors? 1224 MR. LAM: No. It's strictly the difference between what we would bill at the wholesale level versus what we actually billed customers at the legacy rates. There were no losses in there. 1225 MR. WHITE: I'm not talking the legacy rates, I'm talking in the 2003 period, going forward. Any amount that was in there, what would it be largely related to? 1226 MR. LAM: There probably is some differences. 1227 MR. WHITE: And relatively small compared to the legacy rate or premarket opening issues? 1228 MR. LAM: Probably very small, yes. 1229 MR. WHITE: And that would be driven by losses and other related types of items, differences? 1230 MR. LAM: That's right. In our evidence, we did file in 2002 that there were some line losses -- actually line losses that was approved by the OEB, and we found that our line losses was at 3.2 percent versus the approved OEB of 3.1 percent. And we did adjust our RSVA power accordingly to the tune of about $500,000. 1231 MR. ZEBROWSKI: Maybe if I could add something there. In our prefiled evidence, under the RSVA accounts, it does talk about three factors that did affect the RSVA power account. 1232 One was the legacy rate issue. Secondly, there are marginal differences between what the IMO bills and what we recover from our customers. And thirdly, there is a loss adjustment as well. 1233 MR. WHITE: Going forward, if you encountered a significant variance in that account, say, in 2004 or 2005, I'm assuming that you would look to the -- seeing how legacy falls away, but I'm assuming that you would look to losses or a difference in the method of billing by the IEMO as a likely cause for that? 1234 MR. ZEBROWSKI: I wouldn't expect a large variance to occur there. I think the most typical thing that would create a large variance would be a differential between the preliminary and the final statements that we receive from the IMO. 1235 MR. WHITE: I see. If you did get a loss and it wasn't a material -- let's not call in a huge, let's call it a material change in that account, would it be an indication that you need to review your system losses and theft-of-power-related issues? 1236 MR. ZEBROWSKI: Yes, it would, and it is a normal practice for Toronto to go back and review system losses. So, I mean, we would be calculating these on an annual basis anyway. 1237 MR. WHITE: Thank you. Let's move on to another area. I'm assuming from your earlier answer, because the billing error occurred at a transformer station, that you take power from the Networks system at transformer stations in Toronto; is that correct? 1238 MR. ZEBROWSKI: Yes. 1239 MR. WHITE: Do you also take power from what Hydro One calls low-voltage facilities? 1240 MR. ZEBROWSKI: Yes, we do. 1241 MR. WHITE: Okay, you do take power from Hydro's low-voltage facilities. Why would you take it from low-voltage facilities instead of from a transformer station? 1242 MR. ZEBROWSKI: There are a few points of supply that originate outside the boundary of the city of Toronto so that they're brought to the boundary at a low voltage. 1243 MR. WHITE: When you take power from Hydro One's low-voltage system, does that power first go through a transformer station outside of your service area, then? 1244 MR. ZEBROWSKI: Yes, it does. 1245 MR. WHITE: Is it fair, then, to characterize the function of the LV system as effectively moving the available external transformer station capacity to the boundary of your utility? 1246 MR. ZEBROWSKI: In effect, that's what it does. It delivers power to Toronto Hydro. Whether it's through transmission or through LV, it's being delivered to Toronto Hydro. 1247 MR. WHITE: If it functions in a similar way to a transformer station in terms of making power available at low voltage to Toronto Hydro, would it be fair to charge such costs to your customers in the same way that other transmission charges are recovered from your customers? 1248 MR. ZEBROWSKI: Yes, that's a possible way of treating it. 1249 MR. WHITE: Would it be a fair and reasonable way to treat it, from your perspective? 1250 MR. ZEBROWSKI: Yes, it would, and probably the preferable way to treat it. 1251 MR. WHITE: Are you satisfied with Hydro's proposed three-year recovery of the historic LV charges for a reasonable time frame? 1252 MR. ZEBROWSKI: The amounts being charged to Toronto Hydro really are quite immaterial, so from that respect, I really don't have much of an opinion on it. 1253 MR. WHITE: If the recovery by Hydro One to your utility, and I'm going to ask you to speculate for a minute, and excuse me for that, if it was material, say all your load were delivered at low-voltage facilities, would you hope that your recovery of those costs would be over a similar time frame as what Hydro One's recovery of those costs would be? 1254 MR. ZEBROWSKI: In terms of impacts, that would be a fair way of dealing with the issue. I think the other perspective you have to take on this is that, in the meantime, there are still accumulating LV charges to be dealt with. So the longer you spread it out, there is this bank of LV charges that we are never getting around to dealing with. So I think you have to take into account as well. 1255 MR. WHITE: From that statement, you would -- I take it you think it's appropriate to get the LV charges in place on a going-forward basis, and then recover the historical ones over a period of time; is that what I'm hearing? 1256 MR. ZEBROWSKI: Well, again, I'm putting myself -- sorry, I'm putting myself into a position that I -- well, I don't have to be in, I guess. I'm trying to put myself in a position as if I was in a small utility where I'd be facing these kinds of costs. And to the extent that I can get them fairly represented to me in a fashion that does not impact my customers too severely over the long term, I think that's what I would want to -- want to have. 1257 MR. WHITE: Thank you very much. Am I correct, or have I missed in my readings the retail cost variance account? Are you carrying that type of account on your books? 1258 MR. ZEBROWSKI: No, we're not. When we quantify it, it did not meet the materiality criteria that the OEB had set, and therefore we didn't book anything. 1259 MR. WHITE: I have no further questions for the Panel. Thank you very much. 1260 MR. VLAHOS: Thank you, Mr. White. 1261 Mr. Warren, are you next? 1262 MR. WARREN: I am, sir. 1263 CROSS-EXAMINATION BY MR. WARREN: 1264 MR. WARREN: Panel, I'd like to begin, if I can, with understanding the amounts that are at issue in this application, and the impact of those amounts on the constituency which my client represents, that is, residential customers. 1265 Can I begin with the total amount. In the application, the amount for which recovery is sought is $95.6 million; correct? 1266 MR. ZEBROWSKI: That's correct. 1267 MR. WARREN: And what impact, if any, Panel, does the, what I'll refer to as, the IMO error adjustment, have on that amount? 1268 MR. ZEBROWSKI: We don't know. 1269 MR. WARREN: When are you going to know that, sir? 1270 MR. ZEBROWSKI: We are anticipating by mid-November. 1271 MR. WARREN: And what impact would that time frame have on any order that you would expect the Board to issue as a result of this application? In other words, would you ask the Board to defer the issuance of a decision on your application until that amount has been clarified -- sorry, that impact has been clarified? 1272 MR. ZEBROWSKI: It may depend on the size of the revision of one item. I think there's a timing issue here as well in terms of how quickly the Board can deal with this prior to setting out guidelines for our 2005 rate applications. I think these things have to be taken into account by the Board. 1273 MR. WARREN: Am I correct in understanding that directionally, that the $95.6 million is going to go down; is that fair? 1274 MR. COUILLARD: I can't speculate on that at this point. 1275 MR. WARREN: Is it possible it might go up? 1276 MR. COUILLARD: Once again, I don't want to speculate on any information as we are a new OSC registrant, and until we have firm assurance with our external auditors on the amount, we are not in the position to speculate on either higher or lower. 1277 MR. WARREN: Now, the transition cost amount for which you're seeking recovery is approximately $35 million; is that correct? 1278 MR. COUILLARD: That is correct. 1279 MR. WARREN: And the IMO error adjustment, will it have any impact on that amount? 1280 MR. COUILLARD: No, it should not. 1281 MR. WARREN: Now, I wonder, then, if I could turn to the impact on residential consumers. First of all, I'd like to understand the distinction or the difference, if any, between two exhibits. The first is the exhibit that was filed in response to Board Staff Interrogatory No. 25, which should be -- I can't begin to work on what the number is for the exhibit, Mr. Chairman, but it's schedule 25 to a Board Staff interrogatory. It is a break-out of the impact of a cost that looks a lot like Exhibit I.2.4. I apologize, Mr. Chairman, I just don't know what the exhibit number is. There are two pages to schedule 25. 1282 MR. LAM: Yes, Mr. Warren, I've got it. 1283 MR. WARREN: Mr. Lam, at a very -- I've only obviously had a very brief period of time to look at Exhibit I.2.4, but in that brief glance it would appear that the numbers on page 2 of 2 of schedule 25 to the Board Staff interrogatory are different from the numbers in Exhibit I.2.4. Am I right about that? 1284 MR. LAM: Yes, you are. 1285 MR. WARREN: Okay. And what is the reason for the change, Mr. Lam? 1286 MR. LAM: I think I made an error on this part because I might have picked the wrong spreadsheet to prepare for I.2.3. So is what supposed to have happened, if I had picked up the right spreadsheet, was to show -- the one that you show on schedule 25, the numbers would not have changed in terms of percentages. What we were trying to show was we took -- got rid of some of the columns that we felt were confusing. So what I did in error was I picked up the wrong spreadsheet and tried to clean it up to reflect the one that is in schedule 25. 1287 MR. WARREN: So am I to take it, Mr. Lam, that Exhibit I.2.4 can be discarded now because the numbers are wrong? Am I correct in that understanding? 1288 MR. LAM: Yes. Portions with the transition costs, with the distribution revenue allocation and the number of customer allocation, yes, it's wrong. But the phase-1 2001 impacts are correct in terms of what the first phase-1 recovery impacts are. 1289 MR. WARREN: Mr. Lam, I wonder if I could ask you for this: Would it be possible for the resumption of your testimony on Thursday morning for you to produce a revised Exhibit I.2.4 that has -- 1290 MR. LYLE: This is I.2.3, Mr. Warren. 1291 MR. WARREN: Oh, sorry, Exhibit I.2.3. Would it be possible, in the resumption of your testimony on Thursday morning, for you to produce a revised Exhibit I.2.3 -- 1292 MR. LAM: Yes. 1293 MR. WARREN: -- with the correct numbers? May I have that undertaking, Mr. Chair. 1294 MR. LYLE: That's J.2.2, Mr. Chair. 1295 UNDERTAKING NO. J.2.2: TO PRODUCE AN UPDATED AND CORRECTED VERSION OF EXHIBIT I.2.3; LATER AMENDED TO: A RESTATEMENT OF WHAT APPEARS IN SCHEDULE 25 FOR THE TRANSITION COSTS, JUST THE ACCOUNT 1570 COSTS, SHOWING THE IMPACT USING THE TWO DIFFERENT ALLOCATORS ON A RESIDENTIAL CONSUMER WITH TWO DIFFERENT ASSUMPTIONS; ONE IS BACKING OUT THE 2004 AMOUNTS AND THE OTHER INCLUDES THE 2004 JUST DEALING WITH THE INCREMENTS 1296 MR. WARREN: And just as a prequel to what's going to be produced on Thursday morning, would I be correct in understanding, Mr. Lam, that when we get the revised Exhibit I.2.3, it will reflect the numbers that are in schedule 25, page 2 of 2? 1297 MR. LAM: That's right. 1298 MR. WARREN: Okay. Now, looking briefly still at Exhibit I -- sorry, at schedule 25. 1299 MR. LAM: Yes. 1300 MR. WARREN: That was an attempt to demonstrate the impact, correct me if I'm wrong, that was an attempt to illustrate the impact on residential -- sorry, on all of your customer classes, of the allocation of the transition costs alone; is that correct? 1301 MR. LAM: That's right. It's an attempt to show the impacts of the transition costs if it was allocated in either the distribution revenue shares or the number of customers. 1302 MR. WARREN: Okay. Is there anywhere in the evidence, and confess, I haven't been able to find it, but correct me if I'm wrong, is there anywhere in the evidence where you have a similar break-out of the impact of the allocation of the whole $95 million on the various customer classes? 1303 MR. LAM: This is a break-up of the 95 million, except that it's recovered over a three-year period. 1304 MR. WARREN: But the transition costs are a specific category of the $95 million? 1305 MR. LAM: That's right. 1306 MR. WARREN: Okay. And it's not the whole of the $95 million -- 1307 MR. LAM: No, it's not. 1308 MR. WARREN: Sorry, just let me finish. I use the term "transition costs" to refer to those costs which are reported in account 1570, and that's not $95 million, that's -- 1309 MR. LAM: 30 -- 1310 MR. WARREN: -- $32 million; is that correct? 1311 MR. ZEBROWSKI: If I can maybe direct you to the third, the fourth, and the fifth column. The third shows the RSVA balances and the way they are allocated. The fourth column indicates the transition costs and method they are being allocated. And the fifth column indicates the premarket opening variance and how that is allocated. That should total the $95 million. 1312 MR. WARREN: Okay. Thank you for that, panel. 1313 But I take it that we can no longer rely on the data in schedule 25 because it has to be read as subject to the adjustment that will be made for the IMO error; is that correct? 1314 MR. ZEBROWSKI: That's correct. There will be an adjustment, or we anticipate there will be an adjustment. 1315 MR. WARREN: So going back then to you, Mr. Lam, what you will be producing for us on Thursday morning, the revised Exhibit I.2.3, if you could just turn up that exhibit for a moment, Mr. Lam, and when you -- the columns under "Transition Costs," are we talking about the allocation there just of the account 1570 costs? 1316 MR. LAM: Not just -- it includes the total RSVA account balances as well. 1317 MR. WARREN: So producing Exhibit I.2.3 would, in a sense, be an academic exercise because it's going to be subject to an adjustment for the IMO error; is that correct? 1318 MR. LAM: Yes, you're correct. What the intent here was to show the impacts by the different allocators for transition costs. 1319 MR. WARREN: But since the numbers are all -- the numbers may change, may well change as a result of the IMO error -- I feel a bit like a dog chasing its tail and I just got it and bit it off, Mr. Chair. 1320 The revised Exhibit I.2.3 won't be of any value to us anyway because the numbers for the RSVA will be different; correct, Mr. Lam? 1321 MR. LAM: Yes. 1322 MR. WARREN: I wonder, then, Mr. Chairman, having asked for something which I've now discarded, I wonder if I could ask for a different version of Exhibit I.2.3 to be produced on Thursday morning. 1323 And if you could do the analysis for transition costs for -- in these two columns, just for the account 1570 costs. Is that possible to do? 1324 MR. LAM: Just the transition costs? 1325 MR. WARREN: Just the account 1570 costs, which are $35 million. 1326 MR. LAM: Yes, I could. 1327 MR. WARREN: Okay. May that be understood as a revision to the undertaking that I asked for earlier. 1328 MR. LAM: In fact, if you want to see the impacts themselves, if you look at schedule 25, the original schedule 25, you'll see the transition costs broken down there by the two different proposed allocators. 1329 MR. WARREN: Sorry, you're telling me I can see that from the original schedule 25? 1330 MR. LAM: That's right. Under the original schedule 25, under transition costs, I believe it's the third -- fourth column from your left. 1331 MR. WARREN: Okay. But you and I have been using transition costs in different ways. 1332 MR. LAM: This is the $35 million -- 1333 MR. WARREN: This is just the pure account 1570 costs. 1334 MR. LAM: That's right. That's why the recovery for that one is only $11 million. 1335 MR. WARREN: And am I to understand -- 1336 MR. VLAHOS: Sorry, Mr. Warren. 1337 The total there is only $11 million. What are we missing? 1338 MR. LAM: Because it's year 1 of 3, so we expect to recover the 35 million over the next three years. 1339 MR. WARREN: Then I think, Mr. Chairman, I still need a revision to Exhibit I.2.3 that will show me the impact on residential customers of the recovery of the $35 million using the two different allocators. Can that be done? 1340 MR. ZEBROWSKI: Just to be clear, then, there has been an impact from 2004 already that's in place. There is going to be an incremental impact in 2005. And are we interested in the incremental impact, or do you want to look at the entire amount -- 1341 MR. WARREN: I want to look at both if I can, if that's possible. Is that possible? 1342 MR. LAM: I think it's possible, yes. 1343 MR. VLAHOS: Okay. In that case, Mr. Warren, maybe you'll repeat what the undertaking would produce for the benefit of the reporter. That's the same number, that's the J.2.2, further amended. 1344 MR. WARREN: J.2.3, sir, is further amended. 1345 Sorry, 2.2. That's right. Do you want me to try and restate it? 1346 MR. VLAHOS: Could you just restate that for the benefit of the reporter? 1347 MR. WARREN: What I'm asking for, Mr. Lam, and let's see if you and I can agree on it, is I'd like, in effect, a restatement of what appears in schedule 25 for the transition costs, by which I mean just the account 1570 costs, showing the impact using the two different allocators on a residential consumer with two different assumptions; one is backing out the 2004 amounts and the other includes the 2004, in other words, just deals with the increments. Have I stated it correctly? 1348 MR. LAM: Okay, do you expect to recover it in one year or three years? 1349 MR. WARREN: I want the total amount, sir. 1350 MR. LAM: Which is the total $35 million. 1351 MR. WARREN: Right, that's the total amount. 1352 MR. VLAHOS: Mr. Warren, does that complete that? It was on the basis of two different allocators? 1353 MR. WARREN: Yes, sir. I was just waiting for Mr. Lam to respond if I got it correctly. 1354 MR. LAM: Yes, I think I can provide that, yes. 1355 MR. WARREN: And just, witness panel, to state the obvious, we can't at this point know what the impact on residential consumers will be of the recovery of the amount being claimed because we don't know the amount being claimed as a result of the IMO error; is that correct? 1356 MR. ZEBROWSKI: We know the amount of the recovery being claimed, but it's the accounting treatment of that recovery that we don't quite fully know yet. 1357 MR. WARREN: Then I'm confused, I'm sorry, sir. I thought there was an issue as to whether or not the amount being claimed would change as a result of the factoring in of the IMO error. 1358 MR. ZEBROWSKI: Well, because we don't know how much it will affect these accounts, then we can't factor that in against the transition costs -- sorry, the RSVA costs that we have here. 1359 MR. WARREN: So am I right that we don't know at this point the amount being claimed? We can't know the amount being claimed. 1360 MR. ZEBROWSKI: Claimed by? 1361 MR. WARREN: By Toronto Hydro for recovery in rates. 1362 MR. ZEBROWSKI: Correct. 1363 MR. WARREN: Okay. Now, I want to -- in follow-up to a question, or in parallel to a question which I asked the folks from Ontario Hydro yesterday, the transition costs, in preparation of the market opening, there were a number of expenditures in terms of improvements in the CIS system and employee training, so on and so forth. Are those in use today, those improvements in use today? 1364 MR. DEMENTAVICIUS: Yes, they are. The CIS system was originally built to serve the amalgamated Toronto Hydro. Those costs are not part of what we're claiming in terms of replacing the CIS system for that amalgamation. So the incremental cost for market open that we've been tracking for this purpose. And they are in use today, yes. 1365 MR. WARREN: They are in use today? 1366 MR. DEMENTAVICIUS: Yes. 1367 MR. WARREN: So, Panel, would any portion of the expenditures which are being dealt with in this application be regarded as stranded assets, or are at risk of being regarded as stranded assets? 1368 MR. DEMENTAVICIUS: I don't believe so, no. 1369 MR. WARREN: Okay. In the event that the Board were to deny recovery of some or, indeed, theoretically all of the amount that's being claimed, what's the effect of that on Toronto Hydro? 1370 MR. COUILLARD: Well, if we are not allowed to recover these particular amounts, obviously we will have to take our -- be asked, in accounting terms, to take a write-off and have our shareholder basically picking up the tab for these particular costs. 1371 MR. WARREN: And your shareholder is whom? 1372 MR. COUILLARD: City of Toronto. 1373 MR. WARREN: And the City of Toronto would presumably look to its shareholders to recover that amount; is that fair? 1374 MR. COUILLARD: I can't speculate, but if you read the news, it's happened in the past. 1375 MR. WARREN: Would you agree with me, Panel, that at least at a hypothetical level, this is a zero sum game as far as my constituency is concerned? It's going to come from one or another; is that not fair? 1376 MR. COUILLARD: All things being equal, there's only one pie and ... 1377 MR. WARREN: Thanks for that. 1378 Panel, I want to turn to a different topic, and in this context, you were asked this question by a number of intervenors, but the most convenient place to turn is an interrogatory delivered by my friends at Energy Probe, and it's Interrogatory No. 10 of Energy Probe, which would be Exhibit H1, tab 2, schedule 10. I apologize, 14 and 15. Exhibit H1, tab 2, schedule 14 and 15. These are two questions that asked you about the corporate structure of -- 1379 MR. ZEBROWSKI: Sorry, it was interrogatory number 10 from Energy Probe? 1380 MR. WARREN: 14, I'm sorry. 14 and 15, I apologize. 1381 MR. ZEBROWSKI: And is it Energy Probe? 1382 MR. WARREN: Energy Probe's 14 and 15. 1383 MR. ZEBROWSKI: I'm not sure we're referring to the same thing, but carry on. 1384 MR. WARREN: I can tell you what they're about. The topic is the corporate structure of Toronto Hydro and corporate relationships with affiliates. And attached to them is a schedule which has a chart, actually, two charts which has the corporate -- 1385 MR. ZEBROWSKI: I think it was the School Energy Coalition. 1386 MR. RODGER: Could we have the reference again, please, Mr. Warren? 1387 MR. WARREN: That's taking some risk, Panel, because I've managed to confuse everybody in the room. 1388 MR. ZEBROWSKI: I think I've found it. It's the School Energy Coalition, numbers 14 and 15. 1389 MR. WARREN: I'm going to withdraw any compliment I may have intended for Energy Probe and change it to School Energy Coalition. If I didn't do that, Mr. Shepherd would berate me at the end of the day. 1390 MR. SHEPHERD: I may anyway. 1391 MR. WARREN: It should be Exhibit H1, tab 4, schedules 14 to 15. I apologize for that, Panel, and Members of the Board. Have you got it now in front of you? 1392 Now, as I understand this, the corporate structure, which is reflected on the schedule, is the ultimate shareholder is the City of Toronto, there's an intermediate shareholder of Toronto Hydro Corporation; is that correct? And it owns 100 percent of the shares of Toronto Hydro-Electric System Limited, who is the applicant in this case today; is that correct? 1393 MR. COUILLARD: Correct. 1394 MR. WARREN: And 100 percent of Toronto Hydro Energy Services Inc.; correct? 1395 MR. COUILLARD: Correct. 1396 MR. WARREN: Can you tell me when Toronto Hydro Energy Services Inc. was incorporated? 1397 MR. COUILLARD: If I can get a moment. 1398 MR. WARREN: Sure. 1399 MR. COUILLARD: It's June 23rd, 1999. 1400 MR. WARREN: And am I correct in my understanding that the business of Toronto Hydro Services -- I'll refer to it by the short form, Services, if you don't mind -- that the business of Services was, among other things, the retail sale of energy? 1401 MR. COUILLARD: In portion, yes. 1402 MR. WARREN: Of both natural gas and electricity? 1403 MR. COUILLARD: That's correct, at the time. 1404 MR. WARREN: And may I presume that one of the objectives of the creation of Services was to take advantage of the deregulation of the electricity -- or the prospect of the deregulation of the electricity market? 1405 MR. COUILLARD: Yes, we agree. 1406 MR. WARREN: And I have a recollection, sir, I hate to personalize this, but I have a recollection that I'd regularly open the pages of the Globe and Mail and see an ad from Toronto Hydro Services promoting the virtues of doing business with it. Would I be correct in my -- would I be correct in assuming that there was a reasonably aggressive marketing campaign embarked on by Services to try and induce people to buy natural gas and/or electricity from them? 1407 MR. COUILLARD: Toronto Hydro energy Services at the time was having a marketing campaign like other retailers had. I wouldn't be in a position to say it was more or less aggressive than anybody else. It's up to judgment. 1408 MR. WARREN: But certainly we would agree that it's consistent that it marketed itself through newspaper ads, radio ads, TV ads; is that correct? 1409 MR. COUILLARD: Correct. 1410 MR. WARREN: And would it have had any retail sales staff on the street knocking on people's doors? 1411 MR. COUILLARD: That's correct. 1412 MR. WARREN: Now, would we -- would you agree with me that it would be fair to assume that that marketing campaign, whether it was more or less aggressive than anybody else, had an effect on customers? Did people actually sign up with Services to purchase natural gas or electricity? 1413 MR. COUILLARD: Some customers did, some customers didn't. 1414 MR. WARREN: Did Services have its own office? 1415 MR. COUILLARD: Yes. 1416 MR. WARREN: Was it the same office as Hydro? 1417 MR. COUILLARD: My recollection is probably at the early stage, the office of Energy Services was somehow at the same office of Toronto Hydro Corporation. However, very early stage of preparation to market opening the offices were segregated. 1418 MR. WARREN: Okay. Now, I'd like you to turn up -- I'm going to boldly assume that this is Energy Probe Interrogatory No. 10, but it could be Schools, could be anybody else, but it's certainly number 10, whoever it is. I believe it's an Energy Probe interrogatory. And if I'm right about that, it would be, for the record, Exhibit H1, tab 2, schedule 10. 1419 MR. DINGWALL: Would this be where you would return the compliment that you earlier withdrew? 1420 MR. WARREN: It's a standing compliment to you, Mr. Dingwall. It only gets burnished from time to time, and I'm prepared to burnish it in this circumstance. 1421 Have you got the references? 1422 MR. COUILLARD: Yes. 1423 MR. WARREN: We're dealing here with an answer which sought to elicit information about customer education, and the first thing I'd like to clarify, Panel, is the amount that is allocated -- sorry, was expended on customer education. 1424 As one of the portions of your prefiled evidence, which would be Exhibit G1, and it's in -- at the last tab 1 dealing with account 1570, there are a number of lettered schedules to that and I'm looking at schedule C, which appears to have a breakdown of the account 1570 transition costs. So it would be the prefiled evidence -- members of the panel, it's prefiled evidence, the last tab 1, lettered tab C beneath it. Have you got that, Panel? 1425 MR. COUILLARD: Okay. 1426 MR. WARREN: Do you have it? 1427 MR. ZEBROWSKI: Yes. 1428 MR. MORVAY: The number you're referring to? 1429 MR. WARREN: I'm just waiting a moment for your counsel can turn up the reference. 1430 MR. VLAHOS: Repeat the reference again. 1431 MR. WARREN: I believe it's Exhibit G1, and it's the last tab 1, subletter C, and what it is, is a breakdown of the account 1570 transition costs. And what I'm looking for, under the heading "Customer Education Activities," I see an amount of $4.9 million; correct? 1432 MR. ZEBROWSKI: That's correct. 1433 MR. WARREN: Now, going back to the Energy Probe interrogatory response, the number being talked about there for call-centre costs is $6.7 million. And I'm wondering, is there a distinction -- what is the $6.7 million, and in particular, is that the correct number for the customer-education component of it, or is it the $4.9 million? 1434 MR. MORVAY: The call-centre activities are included in the $4.6 million. 1435 MR. WARREN: But the number given for call-centre activities is $6.7 million. How can a greater number be incorporated in a lesser number? That's my puzzlement. 1436 MR. ZEBROWSKI: It appears that that may be an incorrect number within the interrogatory response. What it appears is that we picked up the $6.7 million at the very bottom of the page under O&M expenses, operating expenses, which includes the billing activities of approximately $2 million. 1437 MR. WARREN: I apologize, you're ahead of me when you say you picked up a number at the bottom of which page? 1438 MR. ZEBROWSKI: Of the exhibit you're looking at, account 1570 transition costs, the table, where the 4.9 million showed up. 1439 MR. WARREN: Right. 1440 MR. ZEBROWSKI: Further back before the application of carrying charges, there is a figure of $4.6 million to the left? 1441 MR. WARREN: Right. 1442 MR. ZEBROWSKI: If you look down that same column to the very bottom, you will see a figure of $6.7 million. 1443 MR. WARREN: So am I to understand, then, in response to the Energy Probe Interrogatory No. 10, that the $6.7 million is, in fact, an operating expense number and not a number for customer education? 1444 MR. ZEBROWSKI: That's correct. The number should be corrected to 4.6 million in the interrogatory response. 1445 MR. WARREN: Now, panel, returning, then, to the topic of customer education, am I to understand that the entire amount of the customer education charge is the call-centre charge, call-centre cost? 1446 MR. MORVAY: No. 1447 MR. WARREN: Okay. What portion of the $4.6 million is call-centre -- more broadly, panel, can you give me a breakdown of the $4.6 million? I apologize, Mr. Chairman, I'm confusing everybody, but I need to go back one step. 1448 The number that you've just given me, panel, for the Energy Probe response, the customer education program portion of the $4.6 million was used for the call-centre activities, so there's -- call-centre was $4.6 million? 1449 MR. MORVAY: No, a portion of that customer education is related to the call-centre expense. 1450 MR. WARREN: Sorry, the total customer-education expense is $4.9 million; is that correct? 1451 MR. ZEBROWSKI: That's correct. 1452 MR. WARREN: Is there a breakdown of the components of the customer education costs somewhere in the evidence? 1453 MR. ZEBROWSKI: We don't believe it's readily available right now. It's not in the evidence, I should say. 1454 MR. WARREN: Well, let's try it bit by bit. Of the $4.9 million, how much is the call-centre cost? 1455 MR. MORVAY: We'd have to pull the number. 1456 MR. ZEBROWSKI: We don't have the numbers here with us today. 1457 MR. WARREN: Can I get an undertaking from you, panel, to provide me with a breakdown of the components of the customer education activities that went to the total of $4.9 million? 1458 MR. ZEBROWSKI: That's fine. 1459 MR. WARREN: Can that be available for Thursday morning? 1460 MR. ZEBROWSKI: Yes, it can. 1461 MR. LYLE: We'll mark that as J.2.3. 1462 UNDERTAKING NO. J.2.3: TO PROVIDE A BREAKDOWN OF THE COMPONENTS OF THE CUSTOMER EDUCATION ACTIVITIES THAT WENT INTO THE TOTAL OF $4.9 MILLION 1463 MR. WARREN: The difficulty I'm having, Mr. Chairman, is that my cross-examination on this issue is predicated on having numbers that are the exact numbers, and I don't know whether I can proceed. I've bollocks'd everything up badly enough today. I'm trying to proceed without numbers and then getting numbers Thursday morning may be very difficult. So it would be easier, frankly, sir, if I had accurate numbers to go down that last item. 1464 MR. VLAHOS: Okay, Mr. Warren. It may play out okay, because the Board cannot sit beyond 5. We were planning to break about five minutes to five. It is a quarter to five now, so this may be a good time to break. 1465 Any matters, Mr. Lyle or Mr. Rodger, before we break for the day? 1466 MR. RODGER: No, sir. 1467 MR. LYLE: No, sir. 1468 MR. VLAHOS: With that, then, let's adjourn until 9:30 on Thursday. 1469 --- Whereupon the hearing adjourned at 4:45 p.m.