Rep: OEB Doc: 1389B Rev: 0 ONTARIO ENERGY BOARD Volume: 3 16 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 Thursday, 16 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 16 SEPTEMBER 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 MIKE LYLE Board Counsel HAROLD THIESSEN Board Staff MARTIN DAVIES Board Staff TED ANTONOPOULOS 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: [19] TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY; RESUMED: [54] CROSS-EXAMINATION BY MR. WARREN: [60] CROSS-EXAMINATION BY MR. BRETT: [395] CROSS-EXAMINATION BY MR. SHEPHERD: [445] PRELIMINARY MATTERS: [717] TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY; RESUMED: [793] CROSS-EXAMINATION BY MR. SHEPHERD: [799] CROSS-EXAMINATION BY MR. DINGWALL: [905] CROSS-EXAMINATION BY MS. LOTT: [1335] PROCEDURAL MATTERS: [1450] 10 EXHIBITS 11 12 UNDERTAKINGS 13 ORAL ANSWER TO 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 [34] ORAL ANSWER TO 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 [47] UNDERTAKING NO. J.3.1: TO PROVIDE LIST OF QUESTIONS AND ANSWERS PROVIDED TO CALL-CENTRE EMPLOYEES [245] UNDERTAKING NO. J.3.2: TO PROVIDE INFORMATION ABOUT HOW LONG A COMMON CALL CENTRE WAS IN PLACE [248] UNDERTAKING NO. J.3.3: TO DETERMINE IF THE SAME EXTERNAL CONSULTANTS USED BY TORONTO HYDRO FOR MARKET READINESS PREPARATION WERE USED BY ENERGY SERVICES [278] UNDERTAKING NO. J.3.4: TO PROVIDE ERNST & YOUNG REPORT ON MARKET-READY COSTS [362] UNDERTAKING NO. J.3.5: TORONTO HYDRO-ELECTRIC SYSTEM LIMITED UNDERTAKES TO MAKE INQUIRIES OF BOTH THE APPLICANT AND ITS AFFILIATE COMPETITIVE COMPANY TO REVIEW CONTRACTS PERTAINING TO THE call-centre IN TERMS OF ANY COMMON USE OF A CALL SERVICE PROVIDER [475] UNDERTAKING NO. J.3.6: TO PROVIDE ANY REPORTS MADE, FOR EXAMPLE, BY THE VP, FINANCE TO THE CFO, BY THE CFO TO THE AUDIT COMMITTEE, BY THE AUDIT COMMITTEE TO THE BOARD, OR ANY COMBINATION OF THOSE, THAT SETS OUT THE RATIONALE OR THE DETAILS OF THE 11.9 MILLION [505] UNDERTAKING NO. J.3.7: TO FILE A CORRECT RESPONSE TO ENERGY PROBE INTERROGATORY 29 AS WELL AS A SUMMARY DOCUMENT INDICATING WHAT OTHER NUMBERS SHOULD BE CORRECTED TO REFLECT THIS CHANGE [957] UNDERTAKING NO. J.3.8: TO PROVIDE IN A SIMILAR FORMAT THE COSTS FOR THE ITEMS EXPRESSED IN EXHIBIT G, TAB 11, SCHEDULE 1, TABLES 4 AND 6, DIFFERENTIATING THROUGH FOOTNOTES, WHERE NECESSARY, IF THE PRODUCT IS NOT EXACTLY THE SAME, AND INDICATING SUCH [1180] UNDERTAKING NO. J.3.9: TO PROVIDE MONTHLY CALL VOLUMES FOR THE YEARS 1998 AND 1999, WHERE POSSIBLE, INDICATING AN AVERAGE TALK TIME IN SECONDS [1257] UNDERTAKING NO. J.3.10: TO PROVIDE REASONING BEHIND THE ZERO BALANCE IN THE MAY ENTRY OF TAB 2, SCHEDULE 30, TABLE 9 [1366] UNDERTAKING NO. J.3.11: TO PROVIDE AN EXPLANATION OF THE DECEMBER 31, 2003 BALANCE OF 489,000 IN THE LINE LOSS ADJUSTMENT COLUMN IN SCHEDULE 30, TABLE 10 [1379] UNDERTAKING NO. J.3.12: TO PROVIDE A REFERENCE THAT WOULD SET OUT MATERIALITY LIMITS FOR THE RETAIL SERVICES AND SERVICE TRANSACTION REQUEST ACCOUNTS SET BY THE OEB [1410] UNDERTAKING NO. J.3.13: TO PROVIDE AMOUNTS WITH USE CONSISTENT WITH BOARD REPORTING GUIDELINES OF JANUARY 15TH FOR THOSE TWO ACCOUNTS, THE RETAIL COST VARIANCE ACCOUNT AND THE RETAIL COST VARIANCE ACCOUNT FOR RETAIL AND FOR SERVICE TRANSACTION REQUESTS [1420] 14 --- Upon commencing at 9:30 a.m. 15 MR. VLAHOS: Please be seated. 16 Good morning, everyone. Any preliminary matters, Mr. Lyle? 17 MR. LYLE: I believe Mr. Rodger has some preliminary matters, Mr. Chair. 18 MR. VLAHOS: Mr. Rodger. 19 PRELIMINARY MATTERS: 20 MR. RODGER: A couple of matters at the outset. The first has to do the organization of our materials. As the Board's fully aware, there's been several thousand pages of documents similarity submitted over the course of the various applicants, and I just want to review briefly the approach that Hydro One took in organizing in hope it might aid my friends when they go through their questions in referring to the evidence. 21 The first is you could refer to our May filing, our phase-2 filing, which I believe Board Staff has marked as Exhibit G1. And if you go to the index page of Exhibit G1, and you'll see that our material is divided into four basic categories, A, B, C, and D tabs. Given that this entire exhibit was marked G1, you'll see that there is an initial tab 1 at the outset of this index. That can just be taken out. I think things will go simpler if you take that initial tab 1 out. And thereafter, for example, if you wanted to see the transition cost component of this exhibit, you would simply go down to tab D, and you'll see at tab D1, the management representation with respect to this account and thereafter the subtabs A through G deal with the specific items as outlined on the index. So that's how we've organized the main exhibit. 22 Secondly, if you can turn to the binder of the Toronto Hydro interrogatory responses, and that's been identified as Exhibit H1 by Board Staff. You'll see the very first page of that binder is an index with the various parties indicated by tabs 1 to 7. I brought extra copies of this first index page in the event that some parties may have misplaced it, or it's otherwise not in the book. But the way this is organized is, for example, you go to tab 1, which is the OEB interrogatories. At that first tab, you have the interrogatories and the answers given. And then what follows in the subsequent tabs marked alphabetically are schedules that go to support the answers. 23 So you will see, for example, if you go to page 2 of the interrogatory responses, question 1, which asks for Toronto Hydro-Electric Systems audited financial statements and they say they are at schedules 1A and 1B, those are the first two tabs. 24 Now, I indicated when we filed this material in July that the tabs A through K don't correspond to the schedules as identified in the answers. They were simply put in as a way to organize the materials. So I perhaps should have refreshed everyone's memory to that letter at the outset. But that was done for organizational purposes rather than a corresponding tab A, schedule A. So I hope that might help parties as we move through the procedure today. 25 The second preliminary matter: I have -- the Panel has prepared answers to the undertakings that were given on Tuesday. This is J.2.2 and J.2.3. And I'd like to request from the Board that the witnesses speak to these undertaking answers prior to Mr. Warren resuming. In one part of the interrogatory -- or the undertaking response, Toronto Hydro has provided additional information that was requested, but the thought being that it might be of interest and might result in questions from other intervenors, so the idea is if the Panel can just take everyone through this, it might just go more smoother for everybody. 26 And those are the preliminary matters, Mr. Chair. 27 MR. VLAHOS: Thank you, Mr. Rodger. 28 The three documents here, two of them read Exhibit J.2.2. There's two different documents, one of them says page 1 of 2, and then the second document says page 2 of 2. Is that how that's organized? 29 MR. RODGER: That's correct. 30 MR. VLAHOS: So it's one bundle. 31 MR. RODGER: That's right. And the third undertaking J.2.3 is one single page. 32 MR. VLAHOS: Okay. 33 That would be okay, Mr. Rodger. I think the witnesses can expand on those responses. 34 ORAL ANSWER TO 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 35 MR. ZEBROWSKI: In that case I'll begin. I guess I'll refer to Exhibit J.2.2, page 1 of 2 in the attachment. What we have handed out here is a revised version of the schedule that was distributed at the start of our proceeding on Tuesday. And we carefully checked the numbers to make sure they match the schedule that was attached to our schedule in Board Staff Interrogatory No. 25. If the Board will note, the figures presented are not materially different from the version provided on Tuesday. However, the important point in this case is that the customer impacts resulting from the recovery of the regulatory assets are still very small for all types of customers, which was the main point we wanted to highlight on Tuesday when this table was first presented. 36 Consequently, we believe at this stage that any further adjustments made to our claimed RSVA amounts as a result of the current revision undertaken following the IMO billing error will result in extremely small customer impacts. Also, I would like to point out that when this matter was discussed with Board Staff a few weeks ago, it was suggested that any changes to the regulatory asset amounts following the current review could easily be adjusted for in the 2006 rate filing. We do not -- we did not receive any indication from Board Staff that it was necessary to interrupt this hearing and the related approval process. On that basis, Toronto Hydro believes that this outstanding matter should not impact or delay a decision by the Board with respect to the quantum to be approved for recovery as the potential RSVA impact on a customer-by-customer basis is expected to be very minor and could easily be adjusted in the future. 37 MR. LAM: Good morning. As requested on Tuesday, I was asked to produce a table to show just the recovery of account 1570, which is the $35 million, and the request was to show that what would be the recovery, the full recovery of that prior to 2004 rate increase. 38 Just a note, in 2004 rate increase, what was recovered there was strictly RSVA accounts only, there were no transition costs whatsoever in the 2004 rate year. So what I've attempted to do here in this case is to -- I take the two methods that's being requested, method 1 being distribution revenue allocations, and method 2 is allocating by number of customers. 39 Now, if you will allow me, I'll go through the spreadsheet itself. On the first column, it says "Account 1570." This is the total account where transition costs are $35 million. What I did here was I allocated that $35 million in the various different customer classes, as you can see; residential, general service customers under 50, general service customers over $50, and so on. What I did there was I took the impacts of that allocation, in this case residential class of $14 million allocated by the distribution revenue allocations, and divided it over a 36-month period. That is the three years of recovery that we have in front of us. And the impact to -- monthly impact to a residential customer is 67 cents a month. That 67 cents represents 2.80 percent of our distribution bill, and 0.87 percent of the total monthly bill. 40 If you move over to method 2, again, the same methodology of allocating is done here for account 1570. I took the $35 million, allocated it into the various customer classes, and if you look at account 1570, the first column under method 2, under the residential class, you see a $30 million allocation. And taking the $30 million allocation, I divide that to the customer class and determine what the average increase is over a 36-month period. And the result is $1.45 would be the monthly increase per customer, and that represents 6.06 percent of the distribution bill, and 1.88 percent of the total bill. 41 I'd also like to point out -- 42 MR. VLAHOS: Mr. Lam, you don't have to speak too close to the microphone. I know you took me for my word. It will probably get a better -- receive it better if you don't get too close. 43 MR. LAM: Thank you, Chair. 44 Again, at the bottom there's a note, if you were to look at schedule 25 in the response to the OEB IR 25, in schedule 25, in that particular spreadsheet, I have included $200,000 for 1525 in the transition costs, so the numbers might be a little bit different if you do the math on schedule 25 of the OEB IR 25 spreadsheet -- 45 And I think another point is, in method 2, under "number of customer allocations", the second last column from the right, it shows -- it should say percentage of "all distribution billing" and not "overall bill." I think there was a typo there. 46 MR. RODGER: And Mr. Couillard was to speak to the second undertaking. 47 ORAL ANSWER TO 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 48 MR. COUILLARD: The second undertaking was to provide a detailed customer education activities expense, including account 1570. It's marked as Exhibit J.2.3. It's pretty self-explanatory here. 49 The call-centre costs, 3.652; training, 515,000; AFDUC, 443,000, or $4.6 million, which is exactly the amount included in the $32 million that was accumulated at the end of December 2002. And if you add the interest to bring the balance as of December 31st, 2003, it's 313,000, for a total of $4.9 million, which you can refer -- which is included in the $35 million that we are claiming for account 1570. 50 MR. RODGER: Thank you, Mr. Chair. 51 MR. VLAHOS: Thank you, Mr. Rodger. 52 Any other preliminary matters? There being none, Mr. Warren, are you ready to proceed? 53 MR. WARREN: Thank you, sir. 54 TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY; RESUMED: 55 A.LAM, Previously Sworn. 56 R.ZEBROWSKI, Previously Sworn. 57 J.COUILLARD, Previously Sworn. 58 R.DEMENTAVICIUS, Previously Sworn. 59 E.MORVAY, Previously Sworn. 60 CROSS-EXAMINATION BY MR. WARREN: 61 MR. WARREN: Panel, I'd like to sort out, if I can, the three documents which have been filed this morning. 62 The first document to which you referred, Panel, is given the number Undertaking Response J.2.2. This is a revision, as I understand it, of the exhibit which you filed at the commencement of your testimony on Tuesday, and that filing was given Exhibit I.2.3, is that correct? 63 MR. LAM: I believe so. 64 MR. WARREN: Now, we then have -- and that contains, if I understand it, Panel, it's intended to demonstrate, according to what you told us a moment ago, that the allocation of the -- allocation of what, just the transition costs or the total amount as it stands now? What's the amount that we're dealing with in the first of the J.2.2 exhibits? 65 MR. ZEBROWSKI: This is the entire value of the regulatory asset amount that we're claiming for. 66 MR. WARREN: Which is what? As it stands now without the IMO error, corrected. 67 MR. ZEBROWSKI: 95,860,000. 68 MR. WARREN: And this exhibit was introduced on the basis that the impact on the per-customer basis will be diminimus; is that correct? Do I understand that correctly? 69 MR. ZEBROWSKI: That's correct. We're basically trying to demonstrate that the impacts to all customers are very small. 70 MR. WARREN: Now, the second of the J.2.2 undertaking responses to which Mr. Lam spoke a amount ago deals with the allocation just of account 1570; is that correct? 71 MR. LAM: That's true. 72 MR. WARREN: Mr. Chairman, perhaps I could ask through you, or make this suggestion: I wonder if it would be more helpful for the record if these two filings were given some distinguishing feature, because they're both marked Exhibit J.2.2 and they speak to different things. And I'm wondering, it's not my function, but I'm wondering if perhaps they could be marked A and B, or some other distinguishing characteristic, so we can keep them separate in the record. 73 MR. LYLE: I think A and B would be appropriate, Mr. Chair. 74 MR. VLAHOS: Let's do that, then. 75 MR. LYLE: Let's make it clear which one we're marking as A. 76 MR. VLAHOS: Page 1 of 2 would be A, J.2.2A, and then page 2 of 2 would be B. 77 MR. WARREN: Just for the record, Exhibit J.2.2A is the allocation of the full $95.8 million; correct, Panel? 78 MR. LAM: That is correct. 79 MR. WARREN: And J.2.2B is the allocation just of account 1570, which is, roughly speaking, some $35 million; is that correct? 80 MR. LAM: That's correct. 81 MR. VLAHOS: Mr. Lam, on the second set of columns, transition costs, the total of $95 million is not transition costs, it's all, isn't it? 82 MR. LAM: Is that A or B, Mr. Chair? 83 MR. VLAHOS: This is the A. Is it transition costs, or it's -- because that pertains to the total of $95 million. 84 MR. ZEBROWSKI: All we're trying to demonstrate here, Mr. Chairman, is the fact that the transition costs themselves have been allocated in two different ways. The balance of the accounts have been allocated consistently under both methodologies, but it's only -- the methodology has only changed for the transition cost component of it. 85 MR. VLAHOS: All right, thank you. 86 MR. WARREN: Sorry, Panel, then I'm still confused about how we should read Exhibit J.2.2. As I understood the earlier answers, you have -- what Exhibit J.2.2A is is the demonstration of the allocation of the full $95.8 million, and what you have chosen to do is to demonstrate the impact allocating at two different methodologies; is that correct? 87 MR. ZEBROWSKI: Yes. All we've done between the two exhibits, one, J.2.2 -- J.2.2A is a reflection of all the $95 million in terms of how that gets allocated. 88 MR. WARREN: If I could just ask you to pause for a moment there. To Mr. Vlahos's question, the $95.8 million includes items which are more than transition costs; is that correct? 89 MR. ZEBROWSKI: That is correct. 90 MR. WARREN: So that would it not be more accurate, sir, to label the two columns on the right of Exhibit J.2.2 the regulatory assets, or something like that, and not transition costs, to avoid confusion down the road? 91 MR. ZEBROWSKI: It could be. As I said before, though, all we're trying to do here is to distinguish the fact that the transition costs themselves are really the only differentiator between the last two columns. 92 MR. WARREN: I apologize, panel. You're going to have to explain that to me. I'm sure the Panel understands it, but I don't understand the distinction. 93 MR. LAM: Maybe I can take a stab at this. What we did was the $95 million was to reallocate -- we had RSVA power -- all the RSVA accounts and one portion of it. What I did there was allocate it based on distribution revenue. 94 MR. WARREN: Right. 95 MR. LAM: And I took the transition costs at $35 million. What I attempted to do there was do it both ways; right? And I did it both ways. One was distribution remedy allocation and the other was number of customer allocation. And then there was another portion which is the pre-market variance, and I applied it according to just the time-of-use customers. 96 What happened with the $95 million, even though they make up different proportions, all things being equal, the only thing that changed between the two methods was just the transition cost allocation themselves. The other two allocations, the RSV accounts and the pre-market opening variance, stay the same. So I would have one set of increases based on RSV accounts, based on the method that was in the RUD model, and I have the transition costs based on what was in the current -- is in the current RUD model, and I applied the pre-market opening variance on what is in the RUD model. Then I went back to the same model I had, and all I changed in that particular second version is to change the transition costs allocation itself. 97 MR. WARREN: But the numbers, Mr. Lam, in J.2.2, the numbers that are reflected in the two columns to the right are not just transition cost numbers, they're all of the 95 million -- 98 MR. LAM: That's right. Maybe what we should have worded is that the $95 million is only the transition costs where the allocation is being changed. 99 MR. ZEBROWSKI: If it's strictly a labeling concern, I can suggest maybe a label for those two sets of columns in the part A. Let me just throw that out. In the middle set, we could entitle them "Regulatory Assets with Transition Costs Allocated by Distribution Revenue," and the set of columns on the right we could label, "Regulatory Assets with Transition Costs Allocated by Number of Customers." 100 MR. WARREN: Thanks for that, panel. 101 Now, to the second component of your testimony, when you talked about the potential impact of the IMO error -- that's my gloss on it just for shorthand purposes -- as I understand your testimony in response to my questions on Tuesday, you don't know the -- do you or do you not know the quantum of that error? 102 MR. ZEBROWSKI: We know the quantum of the error from the IMO. 103 MR. WARREN: Which is how much? 104 MR. ZEBROWSKI: $38 million. 105 MR. WARREN: What you don't know is how it's going to be treated for accounting purposes; is that correct? 106 MR. ZEBROWSKI: We haven't completed our assessment of that and what the impact of that will be on our financial statements. 107 MR. WARREN: Now, you indicated that, until you have completed that review, you won't know if the impact will be positive or negative on the current number for the regulatory assets recovery; correct? 108 MR. ZEBROWSKI: That is correct. 109 MR. WARREN: And you won't know that until November at the latest? 110 MR. ZEBROWSKI: We're anticipating them in November. 111 MR. WARREN: Now, do I take it from your answers that it's possible that the $95.8 million may increase by $38 million? It's possible. 112 MR. COUILLARD: No, it's not possible that it will increase by $38 million. It is not anticipated. The total quantum of the error of $38 million impacts a lot of different accounts that are not only regulatory assets accounts, and that's the major reason why we are not in a position to discuss the total impact here as of today. We have to wait until November. 113 MR. WARREN: Would you -- 114 MR. COUILLARD: Sorry, Mr. Warren, if I can just precise my answer here. There are impacts on other areas of Toronto Hydro financial statements that could present -- that could be material to a financial statements reader, and it is not -- we're not anticipating these impacts to be in the regulatory assets area. However, given indication on the quantum on the regulatory assets area might indicate -- might indicate some other -- some other issues within the entire financial picture of Toronto Hydro, and that's why at this point we are not in a position to share the information. 115 MR. WARREN: Sir, I appreciate your answer, and I'll get back to the analysis in a moment. But to put it in context, you indicated that the sensitivity was because you are, and I checked the transcript, an OSC registrant; is that correct? 116 MR. COUILLARD: Correct. 117 MR. WARREN: Your shares aren't publicly traded, are they? 118 MR. COUILLARD: We're a bond issuer, so we're subject to the regulation. 119 MR. WARREN: So some portion of the $38 million is for regulatory assets, but you don't know that number -- and if you did, you wouldn't want to say it for the reasons of the constraints of impact on bond-holders; is that correct? 120 MR. COUILLARD: If I can quantify -- if I can qualify the answer here. The way our revenue models and our RSVA models, accounts, are being calculated, the impact of the IMO correction also impacts other accounts, and therefore, if we were to quantify the regulatory assets at this point, it might give indication to financial statements readers of other potential errors in -- or issues in our financial statements. So that's why we cannot provide this information at this point. 121 MR. WARREN: Sorry, all I wanted was an answer to the question. You know the number and won't reveal it, or you don't know the number and wouldn't reveal it in any event. 122 MR. COUILLARD: Sorry for the confusion. I would answer both. We have an idea of the number. We have not confirmed the number right now with our external auditors, and that's the process we're in. We've been working -- management has been working with our external auditors to make sure that the numbers are all accurate and that we can move -- we can come forward with appropriate disclosure. 123 MR. WARREN: If I understand your answer, then, to -- given in your supplementary examination-in-chief this morning, it is that, since the impact is likely to be de minimus, you would like -- you feel that the Board should issue a final order arising out of this application, and then any subsequent adjustments can be made in the next fiscal year; is that correct? 124 MR. COUILLARD: Yes, that is correct. 125 MR. WARREN: Is there any element of prudence in the amount in the RSVA account? Is there any prudential judgment that goes into what's in the RSVA account? 126 MR. COUILLARD: No. These are purely mechanical calculations. 127 MR. WARREN: Thank you for those answers, panel. 128 MR. WARREN: This is the spreadsheet which shows the allocation of account 1570. Do you have it? 129 MR. LAM: Yes, I have. 130 MR. WARREN: Now, you've got two allocation methods; one is the distribution revenue method and the other is the number of customer allocations. Can you indicate to me, Mr. Lam, which method Toronto Hydro is proposing the Board accept? 131 MR. LAM: I think you'll find in response to the OEB IR 25, we did have a position there. I believe we feel that the transition costs, if we're able to track cost causality, should be allocated by the number of customers, which is method 2. 132 MR. WARREN: When we broke the other day I was talking about the components of the customer education activities that went into the total $4.9 million, and you've provided Undertaking Response J.2.3 this morning. Now, I'd like to stay with that, if I can, for a moment. There is, as I understand this exhibit, no component for advertising; is that correct? 133 MR. MORVAY: That's correct. 134 MR. WARREN: And if I understand the pre-filed evidence and the interrogatory responses, and in particular Energy Probe Response number 10 -- I'll take a stab, Mr. Chairman, for the record, at giving that an exhibit number; it would be Exhibit H1, tab 2, schedule 10. Have I got that right, Mr. Rodger? 135 MR. RODGER: I believe it's tab 2, and it's page 10 of 24. 136 MR. WARREN: Okay. So there was money, as I understand it, spent on advertizing, but do you know the amount of money that was spent on advertizing as part of the customer education program? 137 MR. MORVAY: No, I don't have that number handy, that was spent on advertizing. 138 MR. COUILLARD: On advertizing itself that we're claiming in account 1570? 139 MR. WARREN: I want to know, is part of -- to clarify, as part of the education campaign that was undertaken by Toronto Hydro with respect to the new market conditions and market opening, do I understand that as part of the -- broadly speaking, let's forget about account categories and what's claimed here, broadly speaking, as part of that customer education, there was money spent on call centres; correct? 140 MR. COUILLARD: That is correct. 141 MR. WARREN: Plus there was money spent on print media and advertizing; is that correct? 142 MR. COUILLARD: No. We have not claimed money for print advertizing. If I can -- are you qualifying print advertizing like ads in newspapers or TV ads or stuff like that? 143 MR. WARREN: I've got a more important qualification for you, panel, and that is I'm not asking what's claimed here. I want to know what was spent, regardless of whether it is claimed here. Was money spent on print advertizing in the Toronto Sun or The Globe and Mail, whatever it happens to be. 144 MR. RODGER: Mr. Chairman, it's not clear to me why that's relevant to matters before this Board, since we're talking about the review of the amounts being claimed, and the witness versus said they're not claiming any advertizing costs as part of this application. 145 MR. WARREN: Mr. Chairman, the reason it's -- it's relevant for a number of reasons, Mr. Chairman, and the most important of these is this: This application, in its essence, is about prudence review. What was spent, why it was spent, what decisions lay behind deciding to spend something, and also a decision about what was to be included and not included. Now, the decisions about what was included are obviously important, but the decision, in my respectful submission, the decision about what's not included is equally important, and it's important particularly in the context where, as here, we have an affiliated company which, according to the prefiled evidence and the interrogatory responses, is driving some of the costs for which relief is being claimed in this case. 146 Now, if it were the case, Mr. Chairman, that a decision was taken, and I can only speculate, to exclude some costs that would otherwise have been included in the account as Ontario Hydro included them in an account, to exclude them because, for example, they were linked to, in some way, the activities of the affiliate, then there may be a question as to whether or not, for example, the costs that are included, the call-centre costs, could similarly have that linkage. 147 For that reason, in my respectful submission, questions about the reasoning -- what money was spent, first of all, and secondly, why it was included or not included, are just as relevant to the prudence review as the narrow questions about what did you do with the money for which you're seeking relieve. 148 It's for those reasons that I'm asking the questions, Mr. Chairman. 149 MR. VLAHOS: Just a moment, please. 150 [The Board confers] 151 MR. VLAHOS: Mr. Warren, Mr. Rodger, the Board will allow this line of questioning. 152 Mr. Warren. 153 MR. WARREN: Thank you, sir. 154 My question, panel, was this, simply to refresh your memory: For the customer education campaign, was money spent on advertizing, by which I mean any of the various media, whether it's television, radio, or print media? Was money spent on advertizing? 155 MR. COUILLARD: Can you be precise within which company within Toronto Hydro? 156 MR. WARREN: The applicant, Toronto Hydro-Electric. 157 MR. COUILLARD: Toronto Hydro-Electric Systems? Yes, I believe so. 158 MR. WARREN: Okay. Do you know the overall amount that was spent on advertizing? 159 MR. COUILLARD: Once again, may I just qualify, is it advertizing -- Toronto Hydro does several different types of advertizing, they could advertise on green energies, which was not related to the matter we're discussing here. 160 MR. WARREN: I'm trying to focus only on advertizing which addressed the circumstances of, or the conditions of, or the results of the change to a new market and the market opening. 161 MR. RODGER: I think would be helpful, since we're looking at the whole range of advertizing costs, I think if I may, the witnesses should also consider restructuring costs, incorporation costs, the transition from a commission to a corporation since it could be a whole bundle of costs, although not relevant to the claim, may be part of the restructuring. 162 MR. WARREN: Well, I'm dealing, Mr. Rodger, only with the question of advertizing, and if there were ads put out how they were restructuring in the new companies, we'll get to that. But I'm talking about advertizing to alert the public, as Ontario Hydro -- sorry, Hydro One Networks felt the need to advertize. Was there advertizing spent by Toronto Hydro-Electric System Limited, the applicant, on the issue of or the subject of the new market or the new market conditions? 163 MR. RODGER: Again, I think to be fair, Mr. Warren, at the time of the incorporation, I can recall there was a branding campaign to let the public know that it was no longer a public utility but a corporation under the Ontario Business Corporations Act. So to get an accurate answer, they have to understand there's a whole scope of market-readiness, of which incorporation was one part. 164 MR. COUILLARD: At this point, it was a wide range of marketing campaign, at the same time touching, like, several different topics, and sometimes within the same ads. So it would be very difficult right now to quantify an amount, if any, that really strictly relates to the issue related to market opening. 165 MR. WARREN: Can you give me a global amount that was spent? 166 MR. COUILLARD: I do not have these numbers handy. 167 MR. WARREN: Can you get that number? 168 MR. COUILLARD: It might be very difficult for us to actually pull all these records in a short time frame basis. 169 MR. WARREN: Can you tell me, sir, why it is, then, that a decision was taken not to include any of these advertizing costs in account 1570? 170 MR. COUILLARD: As part of the prudence review that we undertook, we felt that the costs related to advertizing were not -- as I mentioned, there was a wide range of marketing campaigns, and it was -- it would have been very difficult to pinpoint specifically some of the marketing campaign and allocate them specifically to the opening of the market. And therefore, we didn't feel that we would be able to meet the criteria put forward in article 480. 171 MR. WARREN: And was one of the considerations the fact that -- for example, Mr. Roger mentioned the branding campaign. Was one of the considerations to not include the fact that part of the branding campaign was to identify your affiliated company, Toronto Hydro-Electric Services Limited? 172 MR. COUILLARD: No, it was not. 173 MR. WARREN: Do you know, sir, if any of the advertisements put up by Toronto Hydro-Electric System Limited referred to the affiliated company, Services? 174 MR. COUILLARD: I can't speak to this right now. 175 MR. WARREN: Now, if you would turn up your prefiled evidence, panel, Exhibit G1 -- if I try again, I'll get it wrong, but I will try. Exhibit G1, appendix D, page 10. This is the text which deals with the transition costs. And I'm looking at the bottom half of the page under the heading "Staff Training Requirements." Do you have that? 176 MR. COUILLARD: Yes, we do. 177 MR. WARREN: Does the Panel have that, Mr. Chairman? 178 MR. VLAHOS: Yes. 179 MR. WARREN: Looking at the last full paragraph, it reads, and I quote: 180 "TH Electric Systems outsourced Call Centre Telespectrum, was provided with scripted questions and answers relating to current market trends such as aggressive door-to-door sales pitches by retailers and recommended information that the customer should seek before signing any contract." 181 Now, if you could keep your finger on that response and turn up your response to Energy Probe Interrogatory No. 10, which is Exhibit H1, tab 2, page 10 of 24. And looking under the heading "Customer Education," it says: 182 "The customer education portion of 4.6 --" it says 6.7 million, but I understand should be $4.6 million; is that correct? 183 MR. COUILLARD: That's correct. 184 MR. WARREN: "... of $4.6 million was used only for Call Centre activities and not for external communications as described above. Our largest single expenditure was the costs associated with maintaining an outsourced Call Centre over the two-year transition period, to answer the higher volume of customer inquiries received each time another government announcement was made (e.g. market opening deferred) or when a retailer was engaged in marketing door to door or due to newspaper advertisements." 185 Now, when we talked on Tuesday, I asked you the question whether your affiliate, Services, was engaged in advertising in the newspapers, and the answer was yes. And when asked the question whether or not Services, your affiliate, had door-to-door salespeople, I believe your answer was yes. 186 Now, given that, are we to understand, then, sir, that some of the call-centre costs were driven by your affiliated company, Services? 187 MR. COUILLARD: We don't believe that our affiliate was driving the cost of the call-centre. At the time, if we remember, if I might do a bit of history here, Toronto Hydro was the last -- one of the last retailers to actually get into marketing for market opening, and a most of the questions that were received by the call-centre were mainly related to overall design, overall -- like, definition of what is a retailer, and it would be impossible to a know, keep track of where the questions were arising from. Was it from the retailer or from the government? We're not in a position to comment on that. 188 MR. WARREN: Well, I appreciate that answer, panel, but I'm looking at your own pre-filed evidence on page 10 which says: "TH Electric Systems Outsourced Call-Centre Telespectrum was provided with scripted questions" -- 189 MR. VLAHOS: Mr. Warren, slow down, please. 190 MR. WARREN: -- "and answers related to current market trends such as aggressive door-to-door sales pitches by retailers." And then in Energy Probe Interrogatory No. 10 you again refer to one of the drivers for the call-centre costs as the activities of retailers. One of those retailers was Services; correct? 191 MR. COUILLARD: That is correct. 192 MR. WARREN: And certainly the logic of it was that some portion -- you can't say how much -- but some portion of those call-centre costs was driven by the activities of your own affiliate; correct? 193 MR. COUILLARD: I cannot agree with these statements, because once again, there were different retailers out there with different tactics. It is impossible to elaborate, was it Direct Energy, as an example, here, more aggressive in driving more of the calls; and was Energy Services driving a portion of the call. There's no way to quantify this amount. That's why I'm not in a position to answer. 194 MR. WARREN: I'm not going to flog this horse beyond the point of decomposition, sir, but I'm going to ask you one more time. I didn't ask you, panel, to quantify how much was driven by Toronto Hydro-Electric Services Limited. I simply wanted you to agree with me that the logic of your own pre-filed evidence is that some portion of those costs must have been driven by the activities of your affiliate. Would you not agree with that? 195 MR. RODGER: That's the third time the question has been asked and -- 196 MR. VLAHOS: I agree, Mr. Warren. I think you've gotten as much as you could out of this panel. 197 MR. WARREN: May I just say for the record -- 198 MR. COUILLARD: I can't answer that. 199 MR. WARREN: -- I disagree with the proposition that it's ever been answered, but I can move on, sir. 200 Now, when you refer to the call-centre, sir, as I understand your evidence, the were in fact two call-centres; one was your own and one was an outsourced call-centre? 201 MR. MORVAY: Yes. 202 MR. WARREN: And those call centres, either your own or the outsourced one, were they shared at all, to any extent, with Toronto Hydro-Electric Services Limited? 203 MR. MORVAY: Was our outsourced call-centre shared with Toronto Hydro-Electric Services? 204 MR. WARREN: With either one of them. 205 MR. MORVAY: I'm not sure I know what you mean by shared. 206 MR. WARREN: Did they share the same space, sir? Were there common employees answering -- were there common employees or contractors answering questions for both Services and for Toronto Hydro-Electric? 207 MR. MORVAY: Toronto Hydro-Electric had our call-centre, that's our main call-centre, and we contracted out to an outsourcer at another physical site. 208 MR. WARREN: And did the outsourcer simultaneously do work for Services? 209 MR. MORVAY: We are Electric Services Limited. 210 MR. WARREN: Sorry. Toronto Hydro-Electric Services. 211 MR. MORVAY: We are Toronto Hydro-Electric Services. 212 MR. WARREN: The affiliate, Energy Services. 213 MR. MORVAY: I'm not aware. I'm not aware whether they did or not. 214 MR. WARREN: Can you undertake to find out for me, sir, whether or not the outsourced call-centre was working simultaneously for the Energy Services Limited? 215 MR. MORVAY: We can do that. 216 MR. COUILLARD: I can answer this question. Yes, at the time, the call-centre -- the same outsourced company was used to deal with the overflow of calls. 217 MR. WARREN: Sorry, the same outsourced centre -- I have to understand that question. So the same outsourced centre was used by both Toronto Hydro-Electric Services Limited and for Energy Services Limited. 218 MR. COUILLARD: At one point in time, yes. 219 MR. WARREN: For how long, do you know? 220 MR. COUILLARD: I would have to take an undertaking on that. I don't have the detail. 221 MR. WARREN: Just hold that undertaking for a moment, sir. Can you tell me, how was the cost of that call-centre allocated as between the Energy Services company -- Energy Services Limited and Electric Services Limited. 222 MR. MORVAY: We paid our own costs for the calls and the CSRs, call service representatives, that were working for Toronto Hydro Electric Systems. I'm not aware of any charges that Toronto Hydro-Energy Services was try to allocate to our cost base. 223 MR. WARREN: That wasn't the question I asked. The question is, how were they allocated? 224 MR. COUILLARD: I can answer this question. In order to align our policies with the Affiliate Relationships Code, Toronto Hydro Energy Services and Toronto Hydro-Electric Systems were dealt separately, through separate contracts. There was no link between the two, although it was the same service provider for overflows of calls. But Toronto Hydro Energy Services were getting their own bills, with their own report on number of calls, and the same thing for Electric Systems. 225 MR. WARREN: And was the discretion left to the call-centre operator as to whether or not cost A should go to one and cost B should go to another? Who made the decision about that? Was it the call-centre? 226 MR. COUILLARD: I would have to take an undertaking on this particular issue, to give you the actual process. 227 MR. WARREN: Can you give me, then, an undertaking to tell me, first, for how long was a common call-centre used for Services and Energy, for the two of them? 228 And secondly, what was the process engaged in for the allocation of costs between the two of them? And in the context of the latter, what I'm particularly interested in, who made the decision to allocate which costs to which one? 229 MR. COUILLARD: Just for the record, there's no allocation in here. Like, there's two different -- there were two different phone numbers. So that's why I'm trying to -- like, receive a call and Toronto Hydro has an automated system so it goes through our normal call-centre, overflow goes through our service provider, they automatically know it's an Electric Systems call. If they call the Toronto Hydro Energy Services number -- Energy Services do have their own call-centre, so it automatically goes to the service provider, they automatically know that it's an Energy Services call. So I'm just a bit puzzled with how to answer that Mr. Warren. 230 MR. WARREN: Let me tell you what my dilemma is. If I place a call, if I had placed a call to Toronto Hydro-Electric Systems Ltd., it goes to the outsourced centre, and I say, what about this Energy Services company, what can you tell me about it? Is it possible that the call-centre person who was working for Toronto Hydro-Electric Services Limited was also answering questions about the Energy Services company? 231 MR. MORVAY: No, they were not. We were very clear with all our customer services reps that they were not to provide information regarding the retail affiliate. If a customer wants to ask, what should I do as far as choice, they were told, they should be talking to family members, friends, et cetera. Does that answer your question? 232 MR. WARREN: And they were not referred in that phone call to the other number? 233 MR. MORVAY: If the customer was asked -- if the customer asked the customer service rep, Do you have a number for a specific retailer, whichever that retailer was, most of the retailers did provide us with the number of their call-centre, we would provide that, whichever retailer the customer was asking about, as a courtesy. We would not provide the phone number if not asked. 234 MR. WARREN: I'm going to get back to an undertaking in a moment, Mr. Chairman, and I haven't lost sight of it. But I want to follow up on that cluster of questions. 235 Now, you refer, I believe, in your interrogatory response to Energy Probe to questions and answers, Q and As that were provided to your call-centre people; correct? 236 MR. MORVAY: Correct. 237 MR. WARREN: And those Q and As, were they developed by you or were they developed by your consultants? 238 MR. MORVAY: They were developed by our internal staff, our supervisors, as well as some of the Q and As that were on the Ontario Energy Board's web site. 239 MR. WARREN: And those Q and As were provided to whom? 240 MR. MORVAY: They were provided to our customer services reps. 241 MR. WARREN: And can I get an undertaking to produce those Q and As? 242 MR. MORVAY: Yes, that will probably take until Monday. I can try for tomorrow. I'm not sure if I can get them, but I should be able to pull them up. 243 MR. WARREN: Sorry, may I have an undertaking on that, please. 244 MR. LYLE: We'll mark that as Undertaking J.3.1. 245 UNDERTAKING NO. J.3.1: TO PROVIDE LIST OF QUESTIONS AND ANSWERS PROVIDED TO CALL-CENTRE EMPLOYEES 246 MR. WARREN: Returning to the other undertaking, panel, can you provide me with the information about how long a common call-centre was used? Can I get an undertaking for that? 247 MR. LYLE: J.3.2. 248 UNDERTAKING NO. J.3.2: TO PROVIDE INFORMATION ABOUT HOW LONG A COMMON CALL CENTRE WAS IN PLACE 249 MR. RODGER: Just to be clear, are we dropping the query about the cost allocation amongst that common call-centre in light of the answer of the witnesses? 250 MR. WARREN: Well, we're dropping it for a number of reasons, one of which is the answer given by the witness. 251 MR. WARREN: Now, panel, as I understand your prefiled evidence, you did use external consultants for part of the customer education campaign; is that correct? 252 MR. MORVAY: That's correct. 253 MR. WARREN: And are the -- I believe your prefiled evidence, if I recollect it, indicated that you used three different external consultants; is that correct? 254 MR. MORVAY: I'd have to verify that, but that sounds correct. 255 MR. WARREN: Subject to correct, you used three. Can you tell me whether or not those consultants were also used by the Services company? 256 MR. MORVAY: Just give me one second, please. 257 Now, could you just repeat your question? 258 MR. WARREN: That's always a challenge, sir. My question was: Were the external consultants used by Toronto Hydro-Electric System Limited the same consultants used by Energy Services Limited? 259 MR. MORVAY: Not that I'm aware of. 260 MR. WARREN: Is it possible they were, sir? 261 MR. MORVAY: As they were consultants, they could have worked for anybody they chose, but not that I'm aware of. 262 MR. WARREN: Are the costs of the consultants included, if I turn up Exhibit J.2.3, are the costs of the consultants included in the call-centre costs? 263 MR. MORVAY: Yes. 264 MR. WARREN: And do you know what the cost of the external consultants was? 265 MR. MORVAY: Yes. 266 MR. WARREN: How much was it? 267 MR. MORVAY: In total, with all three consultants under the training category, it's approximately $260,000. Actually, there is -- sorry, $300,000. 268 MR. WARREN: Can you, panel, undertake to advise me whether or not -- undertake to inquire and determine whether or not the same consultants that were used by Toronto Hydro-Electric System Limited were used by Services Limited? 269 MR. COUILLARD: This will be a very, very large undertaking, because we would have to ensure -- go through all the financial records of Energy Services to see, like, you know, if there is any matching of names, and then further to any matching, actually try to understand the type of work, whether it was related to the market or not. 270 MR. WARREN: Can't you just pick the phone and ask somebody, sir? Did you use consultants X, Y, and Z, and what did you use them for? 271 MR. COUILLARD: Well, it's a bit more complex than that. 272 MR. WARREN: Probably a long phone call, but isn't -- 273 MR. RODGER: Let the witness finish answering, please, Mr. Warren. 274 MR. COUILLARD: Thank you. Mr. Rodger. 275 This is something we could probably produce early next week if you want this undertaking. 276 MR. WARREN: I'd like an undertaking, please. 277 MR. LYLE: J.3.3. 278 UNDERTAKING NO. J.3.3: TO DETERMINE IF THE SAME EXTERNAL CONSULTANTS USED BY TORONTO HYDRO FOR MARKET READINESS PREPARATION WERE USED BY ENERGY SERVICES 279 MR. WARREN: I'd like to turn to the third and final topic of my cross-examination, and that is, broadly speaking, the question and nature of the prudence reviews that were undertaken by Toronto Hydro. In that context, would you turn up the response to Energy Probe Interrogatory No. 1, which is Exhibit H1, tab 2, at page 1 of 24. Do you have it? 280 MR. COUILLARD: Yes. 281 MR. WARREN: As I understand that -- does the Panel have it, Mr. Chairman? 282 MR. VLAHOS: Yes. 283 MR. WARREN: As I understand that response, panel, there was an internal review that was undertaken under the leadership of Ms. Kennedy; is that correct? 284 MR. COUILLARD: That's correct. 285 MR. WARREN: And the objective of that review, as I understand it, was to do what? What were you trying to do? 286 MR. COUILLARD: We wanted to make sure that the amount that we're seeking for recovery in account 1570 was actually following the criteria in article 480 so we can claim these amounts. 287 MR. WARREN: And that review was undertaken -- turning a little bit further along in the interrogatory response, it's marked schedule 1 and it's on the letterhead of Toronto Hydro, and it's a document dated May 18, 2004. It's from Dennis Cook. Do you have that document? 288 MR. COUILLARD: Yes, we do. 289 MR. WARREN: Now, as I read that document, and correct me if I'm wrong, that you had originally reported transition costs in the amount of approximately $44.8 million; correct? 290 MR. COUILLARD: That is correct. 291 MR. WARREN: And as a result of the internal audit that was undertaken by -- is this the one by Ms. Kennedy? 292 MR. COUILLARD: Yes, she was in charge of the review. 293 MR. WARREN: And in consultation with your external auditors, Ernst and Young, that amount was reduced by approximately $12 million; is that correct? 294 MR. COUILLARD: 11.2 million, to be precise. 295 MR. WARREN: Okay. Just so we've got the numbers right, as I look at the text that we're just looking at, it says $11.9 million. 296 MR. COUILLARD: Sorry, you're correct. I apologize. 297 MR. WARREN: Now, it was reduced, and I understand that this was a joint decision of your internal audit team and Ernst & Young that some $11.9 million of what you originally felt were a transition cost should be dropped from that category; is that correct? 298 MR. COUILLARD: I wouldn't qualify that as "originally felt." Some of the numbers that we had accumulated, thinking they might qualify as transition costs, were then removed. 299 MR. WARREN: Now, if I turn to the next page of that document, schedule 2, I see two tables. The first table, as I read it, shows the original number of $44.8 million that Toronto Hydro felt was transition costs; correct? 300 MR. COUILLARD: That is correct. 301 MR. WARREN: And it's broken down according to non-labour, labour, and non-labour and labour stub period not split. So it's categories that are labour and not labour; is that correct? 302 MR. COUILLARD: Yes. 303 MR. WARREN: If I then go down to table 2, we have the qualifying costs of $32.8 million, or what you claim were qualifying costs, but the categories are different. They are broken down according to billing activities, customer education activities, and so on and so forth; correct? 304 MR. COUILLARD: That is correct. 305 MR. WARREN: Is there any way, sir, is there anything in the prefiled evidence, and as Mr. Rodger pointed out there's a thousand pages of it - and it may be there, and I apologize if it is because I missed it - is there anything in the prefiled evidence that shows me where the $11.9 million reductions were in the categories that are shown on table 2? 306 MR. COUILLARD: No, it is not in the prefiled evidence. 307 MR. WARREN: Now, let's take, for example, customer education activities. This is table 2 on that page. The $4.6 million is what you're claiming in this application. Can you tell me what that number was before the reduction of $11.9 million? 308 MR. COUILLARD: I need a moment for this. 309 We don't have this information, the split, readily available. 310 MR. WARREN: Well, if we just sort of bookmark that exchange for a moment, because what I'm -- I want to return to it if I can. But more broadly speaking, panel, is there a written analysis or report from either the internal audit team or your external auditors which explains the $11.9 million reduction, explains it in the sense of where the reductions were taken and the rationale for those reductions? 311 MR. COUILLARD: There's no report, neither from internal or external auditors. However, the reason why we actually removed the $11.9 million was because it was not meeting the criteria as set in article 480 for recovery. 312 MR. WARREN: Now, somebody exercised a judgment that they weren't meeting the criteria; correct? 313 MR. COUILLARD: That is correct. 314 MR. WARREN: That judgment was exercised by your internal audit team in combination with Ernst & Young; correct? 315 MR. COUILLARD: No, I would disagree. This judgment was made by the internal staff of Toronto Hydro, and it was provided to Ernst & Young. But it was not -- Ernst & Young did not participate in the decision-making of the reduction. 316 MR. WARREN: Something must have been presented to Ernst & Young which allowed them to concur in this assessment? 317 MR. COUILLARD: The concurrence came with the audit of the 2002 and 2003 financial statements. Ernst & Young signed these statements and they were aware of the criterias for qualification for recovery of account 1570. It should be assumed that, as part of audit procedure, Ernst & Young would have looked at that and make sure the amounts were accurate. 318 MR. WARREN: What I'm trying to get at, sir, is -- I'm sure it's painfully evident, and I'm not an accountant or an auditor, but it strikes me that if you're going to move from a category of qualifying to nonqualifying an amount of $11.9 million, you wouldn't do it on the back of an envelope or a casual conversation over the water cooler at Toronto Hydro. There must have been some report or analysis or some document that said, This is why we think it should be reduced by $11.9 million. Am I wrong about that? 319 MR. COUILLARD: You're right in principle. We did a thorough review of every -- costs were allocated by bucket and by activities and activities. As this memo, if I right characterize it, from Mr. Dennis Cook is explaining, we went through every bucket and applied the article 480's criterias in order to decide if we were going to seek for recovery or not. So if that constitutes for you an internal document, I mean, there's a whole -- like, a whole review that was -- like, we worked a lot on all the different accounts and did a thorough review of all the different -- everything that was included for recovery. 320 MR. WARREN: Was that reduced to writing, that review? My question is, when I look at this internal review, which was produced in response to the interrogatory from my friends at Energy Probe, I look at the two tables I've looked at and the text which follows it, there is no explanation for the rationale that I can find for the reduction of $11.9 million, beyond the broad statement that somebody feels they don't meet the 480 criteria. Is there something more than this document that exists that would explain it? 321 MR. COUILLARD: We did a very thorough review, but there's no summary report, like, showing every cost, like, what -- like, a decision for -- like, we did for everything. You know, we went through the entire 44 million and then we decided, after looking at every individual expense that was allocated to these accounts, that some of them, and mainly internal labour, were not qualifying, and mainly the causation criteria. Most of our decisions not to submit these costs were related to the causation factor. 322 MR. WARREN: But there's no document that I can look at or which the Board can look at which explains the rationale for each of these individual judgements; is that correct? 323 MR. COUILLARD: That is correct. 324 MR. WARREN: Now, did you have any external review of -- external or, if you wish, independent review of that judgment process to seek independent validation, if you wish, of the correctness of those judgments? 325 MR. COUILLARD: By external review, I would -- we did not engage any external parties to specifically look at criteria or looking at a recovery of the expense. However, our external auditors sign our financial statements for 2002 and 2003, and they had to look at these accounts in making sure that these expenses were recoverable. Otherwise, they wouldn't have let us put these expenses on our balance sheet at the time. 326 MR. WARREN: But you don't know what -- first of all, I take it that Ernst & Young was not asked specifically to do a review of your analysis of qualifying and non-qualifying costs; is that correct? 327 MR. COUILLARD: That is correct. 328 MR. WARREN: Do you know if Ernst & Young produced for your senior management any assessment of that component of your financial statements? 329 MR. COUILLARD: They did not. 330 MR. WARREN: So I take it that there is nothing in existence at Toronto Hydro which would be roughly parallel to -- sorry, let me get to this in a minute. 331 Did you internally at Toronto Hydro conduct any assessment of your transition costs in comparison to the transition costs of any other utility in similar circumstances? Did you use, for example, any external benchmarks or comparators to assess your performance? 332 MR. ZEBROWSKI: No, we didn't. 333 MR. WARREN: And may I conclude from that that there is nothing in Ontario Hydro that would be the equivalent of the Deloitte's report that Toronto Hydro commissioned for its own purposes -- sorry, Hydro One Networks. 334 MR. ZEBROWSKI: Could you repeat that, please. 335 MR. WARREN: That's just being mean. 336 I take it, panel, that there is nothing at Toronto Hydro which is the equivalent of the Deloitte's report that was produced by Hydro One Networks in which, in their phase 1 of that report, compared their performance in market-readiness to any external benchmarks or external comparators. 337 MR. ZEBROWSKI: No, there isn't. 338 MR. WARREN: Okay. Is there anything at -- why was that, sir? Why did you not undertake that kind of review to see how you were doing in relation to others? 339 MR. ZEBROWSKI: I'm not sure it was even considered, really, by Toronto Hydro to undertake that kind of a venture. There's cost benefits involved in it. We felt that we were very prudent in terms of our management of the whole transition process. We were confident in how we approached it. There was a lot of time and effort put into it. We were one of the first utilities off the market and preparing for market opening. There was nothing to indicate to us that there were any problems that we wanted to go back and review. I'll leave it at that. 340 MR. WARREN: Well, I'll return to that topic in a moment. But in response to one of the questions I asked of Hydro One Networks, they produced Exhibit J.1.2, which is an internal audit which they undertook which, roughly speaking, compared their original estimate of what it would cost for market-ready program with what it ultimately cost. Have you seen that exhibit? 341 MR. ZEBROWSKI: No, I haven't. 342 MR. WARREN: Perhaps your counsel could provide you with a copy of the exhibit. 343 MR. LYLE: Mr. Chair, Board Staff do have a copy of that document. 344 MR. ZEBROWSKI: Okay. We have it in front of us. 345 MR. WARREN: Now, the actual details of the analysis, panel, are really not -- they are not material to my question. But broadly speaking, as Mr. Frank described it in her testimony to me in response to my questions on Monday or Tuesday, Ms. Frank said that this review was undertaken to try and compare what was the variance between what the market-ready program would have cost under ideal circumstances and what it actually cost as a result of what they say was rule changes and changes in dates. 346 May I assume that Toronto Hydro didn't undertake a similar analysis? 347 MR. DEMENTAVICIUS: Perhaps I can help with this one. Although we did not undertake this similar analysis that Hydro One did at the stage in which they did their analysis, Toronto Hydro, in the early stages of preparing for market opening and what market opening would mean to the organization, did have E&Y do basically a study, benchmark, if you will, otherwise looking around at other deregulated countries or jurisdictions in terms of what deregulation, what open market kind of -- well, meant to them in terms of cost and resources, really getting some kind of quantum idea in terms of how big is this likely going to be. And from that assessment which spent, I believe, about four to six months in 1996, I believe the time frame was - actually, it might have been 1997, I don't recall the exact time frame - but out of that assessment came, basically, a ballpark number that gave us some idea of the nature of the likely types of changes that would be required in the system, the types of resourcing it would require in terms of manpower to get that work done, and sort of the quantum costs that we might expect to see out of this venture. 348 I think we basically, as we went through market-open preparations, we basically were well within lines of that initial estimate, not knowing -- you know, what we knew when we started certainly was only a partial, you know, information in terms of where we would have to go. But based on the information we had at that time and that place, those estimates basically gave us some comfort level that we were basically in line with our overall program in delivering what we needed to do for market opening. 349 MR. WARREN: That was a report that was commissioned by you from Ernst & Young; is that correct? 350 MR. DEMENTAVICIUS: I believe so, yes. 351 MR. WARREN: And that included, as I understand your answer, reference to circumstances in other jurisdictions; is that correct? 352 MR. DEMENTAVICIUS: That's correct. And I think they spanned the world. They looked at the experiences in the UK, Scandinavia, the US, they looked at various jurisdictions in terms of -- 353 MR. WARREN: I'm sorry, sir. 354 MR. DEMENTAVICIUS: No, go ahead. 355 MR. WARREN: And did it refer to specifically -- the experiences of specific utilities in those other jurisdictions? 356 MR. DEMENTAVICIUS: Utilities of similar size, yes, they tried to -- at least tried to look at utilities that were of a similar size as Toronto Hydro was in terms of getting some sense of what those costs might be. 357 MR. WARREN: Now, in the thousand pages of prefiled evidence, I haven't seen that report. May I conclude that it's not in the record in this case as yet? 358 MR. DEMENTAVICIUS: I do not believe it is anywhere to be found in any of the evidence we prefiled. I don't know where it might be at this point. 359 MR. WARREN: Can I get an undertaking for you to produce it for me, please? 360 MR. DEMENTAVICIUS: We can certainly try to find it. 361 MR. LYLE: That's Undertaking J.3.4. 362 UNDERTAKING NO. J.3.4: TO PROVIDE ERNST & YOUNG REPORT ON MARKET-READY COSTS 363 MR. WARREN: Now, when you got to the end of the process, panel, did you look back at the Ernst & Young report to see how it is you had done in comparison with that original estimate? 364 MR. DEMENTAVICIUS: Not to any great extent. I guess basically it was a ballpark number that gave us some kind of sense for what we might expect. It was very difficult to compare it. It would have been comparing apples and oranges at that point, because whatever was required in other jurisdictions or other deregulated markets was not necessarily the model that the Ontario market was rolled out in. Some similarities, some large differences. So it wasn't, I guess, a very fine -- at least a good comparator in terms of lining things up totally. But basically it gave us a sense of the magnitude and how we did against that in terms of our own preparation. 365 MR. WARREN: Now, have you looked at the claimed costs for some of the other utilities, even in the context of this broad proceeding, to compare how you did with how they did? 366 MR. DEMENTAVICIUS: We've certainly seen some of those cost that is have been published in evidence, yes. 367 MR. WARREN: Well, I'm going to pick an example of another applicant, happily represented by the same counsel, Enersource Mississauga. They're claiming total transition costs of $11.2 million. You're claiming total transition costs of $35 million. Would you take those numbers, subject to check? 368 MR. DEMENTAVICIUS: I believe those are the numbers, yes. 369 MR. WARREN: Did you do an analysis of that and say, Why the devil is somebody next door a third the cost of us? Did you ask yourself that question? 370 MR. DEMENTAVICIUS: I would say we looked at those numbers with some interest in terms of how other utilities managed it. Having said that, though, we are three -- four times the size of Enersource. That size difference does matter in terms of preparation in what we had to do to put our systems in place. We did not land on the same CIS systems or the same, necessarily, other systems in terms of our metering systems or our spoke software, and so forth and so on. 371 So it's very difficult to compare what Enersource or anybody else did against what Toronto Hydro-Electric did, since we are not -- basically had not selected the same systems to begin with. And when these decisions were made in terms of moving forward and customizing market-readiness, in many cases, the system we selected and landed on, whether it was more functionally rich than someone else's system, that had a -- basically had a big role to play in terms of how much customization they would required. 372 So we didn't do an analysis of Enersource's selection and -- 373 MR. WARREN: Sorry, you did or did not? 374 MR. DEMENTAVICIUS: Did not. 375 MR. WARREN: Because as I read their prefiled evidence, and we'll get to it next week, they had a CIS system, you had a CIS system. It cost you $20.1 million to upgrade to CIS for market-readiness. It cost them $8.1 million to upgrade for market-readiness. Now, that's a $12 million difference. Did you analyze their circumstances to say, Gosh, why were they starting from roughly the same place so much cheaper? 376 MR. DEMENTAVICIUS: No, we did not, and I don't think it's necessarily that we're starting from the same place. You know, Toronto Hydro had to go through the whole effort of amalgamating six systems into a very large system to serve the needs Toronto Hydro-Electric, so by no means did we even start at the same place from that point of view. Because we started that process quite early, the functionality within the system we selected may not have been at the same level as the system that Enersource landed on once they decided how to go forward with market opening. So, again, it's not an easy thing to compare. We're comparing apples and oranges and we're at totally different starting points and we landed on different solutions for different reasons. 377 MR. WARREN: Would it not be fair to say, sir, that when you say you started from different places and you made different choices, that you have not engaged in a detailed analysis of what it is that Toronto Hydro did compared to any other utility anywhere, including Enersource Mississauga, correct? 378 MR. DEMENTAVICIUS: Correct. We have not. 379 MR. WARREN: Those are my questions. Thank you very much, sir. 380 MR. VLAHOS: Thank you, Mr. Warren. 381 It is time for the morning break. We will return at 11:20. Now, before we -- I'm sorry, 11:15. 382 Before we rise, I have Mr. Shepherd going next -- 383 MR. SHEPHERD: Mr. Chairman, Mr. Brett has indicated that he only has about 10 minutes and so he is going to be preceding me. 384 MR. VLAHOS: All right. Mr. Brett and then Mr. Shepherd and then Mr. Dingwall. 385 MR. DINGWALL: That's correct, sir. 386 MR. VLAHOS: Anyone else that will like to cross-examine? 387 MS. LOTT: I will be going after Mr. Dingwall. 388 MR. VLAHOS: Thank you, Ms. Lott. 389 No one else? Okay. We shall return at 11:15. 390 --- Recess taken at 10:55 a.m. 391 --- On resuming at 11:18 a.m. 392 MR. VLAHOS: Please be seated. 393 Mr. Brett. 394 MR. BRETT: Thank you, Mr. Chairman. 395 CROSS-EXAMINATION BY MR. BRETT: 396 MR. BRETT: Good morning, panel. I have a few questions, mostly informational in character. Mr. Lam, I think they're probably for you. 397 MR. LAM: Okay, Mr. Brett. 398 MR. BRETT: At least to start with. I'd like to turn up your response to Board Staff interrogatory, tab 1, question 25. It's under the title "Allocation Recovery," and it's question 25 of the Board Staff. It's marked here as tab 1, page 11 of 12. 399 MR. LAM: Yes, I have that. 400 MR. BRETT: Okay. And the question to you was does Toronto Hydro-Electric System Limited have a position on allocation of these costs. You were asked about regulatory costs in their entirety, the larger number; and if so, provide an allocation of these costs to customer costs; if so, provide a methodology. And then you gave an answer there as follows, you started talking off talking about the RSBA and premarket opening and said that those costs should be allocated on a kilowatt-hour basis, and then you went on to discuss the bulk of the transition costs, which were customer accounting and billing, et cetera, et cetera, computer software, and you went on at the end to observe that it would be more appropriate on the basis of cost causality to allocate transition costs, that's what those would be, the account 1570 costs, for the most part, by numbers of customers; right? 401 MR. LAM: That's correct. 402 MR. BRETT: And then you went on to observe in the final paragraph, short paragraph there, and I'll just quote this because I want to ask you a bit about it: 403 "However, it should be noted that rate impacts are not significantly different than those deriving from the existing OEB methodology of allocating transition costs to the customer classes by distribution revenue." 404 And when you refer to existing OEB methodology, I take it you're referring to the method that the OEB used on the phase-1 proceeding? 405 MR. LAM: That's correct. 406 MR. BRETT: And then you go on to say, in respect of these differences, then, or lack of difference in impact, you say: 407 "Please refer to schedule 25 for THESL's proposed allocation, which shows rate impacts using both methods described herein." 408 I wonder if you would turn with me to schedule 25, and this is the original schedule 25, the nicely coloured one here, which is tab 1, schedule 25, page 2 of 2. 409 MR. LAM: Did you say the colour one or -- 410 MR. BRETT: This one here, the original one, what I'm calling the original one. Tab 1, schedule 25, page 2 of 2. 411 MR. ZEBROWSKI: There was a revision to the table. I think Mr. Lam is trying to clarify that you have the revised version of it. 412 MR. BRETT: I have all the versions, but I think what I'm looking at is the original version, at least I hope I am. I'm looking at something that's labeled tab 1, schedule 25, page 2 of 2. 413 MR. LAM: Yes, I have that. 414 MR. BRETT: And I'll tell you how we can test this, if you like. What I want to ask you about are the two columns under the title "Transition Costs"; right? 415 MR. LAM: Yes. 416 MR. BRETT: In my version of this, if I take the first line, look at residential, I have -- if the 1570 costs, account 1570 costs otherwise known as the transition costs are allocated on the basis of distribution revenue, the residential class get 4.724073 million. Now, is that the one I should be looking at? That's the one I have in front of me in any event. 417 MR. LAM: They both show the same numbers. 418 MR. BRETT: All right. Well, I think, in any event, this document that I have in front of me is sufficient for my purposes. So I want to direct you to the transition costs, two columns there, and on the left -- the left of those two is allocation by distribution revenue, and on the right, number of customer. And I'd like you just to observe with me that the residential customer would get -- if number of customers was used as an allocation, the residential class would get 10,232,575; right? 419 MR. LAM: That's correct. 420 MR. BRETT: And as I said a moment ago, if distribution revenue were used, they would get 4,724,073. 421 Now, if we go down to the general service, over 50 kilowatts, if we looked at the distribution by customer allocation, that class would attract $164,411; correct? 422 MR. LAM: Correct. 423 MR. BRETT: And then the -- but the same class, if distribution revenue were used as the allocator, would attract 2,717,985; right? 424 MR. LAM: Right. 425 MR. BRETT: And finally, if we went to large-use customers, in which my clients reside, under the number -- using the number of customer allocation factor, that class would attract $802; right? 426 MR. LAM: That's true. 427 MR. BRETT: And under the -- using the distribution revenue, it would attract 514,038; right? 428 MR. LAM: Right. 429 MR. BRETT: Now, the allocation, then, to any of those three groups, the dollars that those classes attract of the transition costs does differ, correct, depending on whether you use numbers of customers or distribution revenue? 430 MR. LAM: Correct. 431 MR. BRETT: And if, for example, we used distribution revenue rather than numbers of customers, then what we see here, looking at this table, is that the -- using distribution revenue, rather than using numbers of customers, results in a lower allocation by several million to the residential class, a lower allocation -- sorry, a higher allocation by a couple million dollars to the general service class, and a higher allocation by about $500,000 to the large-users class; correct? 432 MR. LAM: Yes, that's right. 433 MR. BRETT: And the number I've been given here is that you have something in the order of 46 large-use customers? If -- 434 MR. LAM: Yes. 435 MR. BRETT: -- that were the case, then the average difference for a large-use customer would be in the order of $11,000 a year. It would be slightly over $10,000 a year in respect of this particular account; correct? 436 MR. LAM: Could you repeat that, please. 437 MR. BRETT: I'm just doing the division there. I understand that if you took -- I'm taking the $514,000 and dividing it by 46. If I do that, I get about $11,000. So on an average basis, I mean not all the customers are the same size, obviously, but if we just made a simplifying assumption, on an average basis, the difference there would be about $11,000 a customer. 438 MR. LAM: A year. 439 MR. BRETT: A year. 440 MR. LAM: That's right. 441 MR. BRETT: Okay. Thank you very much. Those are my questions. 442 MR. VLAHOS: Thank you, Mr. Brett. 443 Mr. Shepherd. 444 MR. SHEPHERD: Thank you, Mr. Chairman. 445 CROSS-EXAMINATION BY MR. SHEPHERD: 446 MR. SHEPHERD: Let me clear up a few things that arose in earlier cross-examinations, witnesses. 447 Mr. Warren was asking you about the outsource call-centre deals that you had for Electric Systems and Energy Services; do you recall that? 448 MR. COUILLARD: Yes, I do. 449 MR. SHEPHERD: Can you provide the two call-centre contracts? Can you undertake to table those, please? 450 MR. COUILLARD: There's confidentiality provisions in until our contracts, Mr. Chairman, so providing a call-centre contract of an affiliate that is not subject to this hearing, I'm just trying to see where you -- what you're trying to -- what are we trying to accomplish here? 451 MR. SHEPHERD: I guess my concern, Mr. Chairman, is it's incumbent on Toronto Hydro to demonstrate that they are in compliance with the Affiliate Relationships Code in this particular case, with these expenses they've claimed, and they've said the way they complied is they had two separate contracts that were entered into independently. I don't see how the Board can confirm to see they've complied with the code unless they table those contracts. These contracts are -- have been completed and executed, like, they are no longer outstanding contracts. They're done. So confidentiality is not really a serious issue here. 452 MR. VLAHOS: Mr. Shepherd, I just wonder, how would Toronto Hydro, the utility, provide a contract for an affiliate with a third party? 453 MR. SHEPHERD: Well, my experience with this Board's practice is that the LDC that's regulated by the Board has a responsibility to show their compliance with the code. If they are not able to because their affiliate refuses to provide documentation, that's the problem for the LDC. They are not able to demonstrate their compliance. All they can do is go ask their affiliate whether they will cooperate or not. 454 MR. VLAHOS: Mr. Rodger? 455 MR. RODGER: I'm not sure I see the relevance for the matters before the Board, Mr. Chairman. What we could do is undertake to confirm that two contracts were put in place. I haven't seen the contracts myself. I don't know what's in there, what's confidential, what's not. But presumably we could provide the Board with information that yes, there were two contracts, they were both independently executed by two completely different corporations. Would that be enough to satisfy my friend? 456 MR. SHEPHERD: Mr. Chairman, what I'm really looking for is what are the prices? Did, for example, the unregulated affiliate get a price break because the regulated company was contracting with the same people? Were the two contracts signed by the same person on the same day? That would indicate to us that there might be some connection between them. Were there any provisions within them, for example, cross defaults, that if the affiliate defaulted on theirs, there was a default on the LDCs? There's a number of things that could be in the contract that we don't know because we haven't seen them that would connect the two. And the only way to determine that is to look at them. 457 MR. DINGWALL: I'd like to add the comment that in addition to the concerns that Mr. Shepherd has raised as potentially flowing out of the contract terms and conditions, there might also be concerns with respect to the relative levels of service quality and how that might impact. There would be also the need to ensure that there was a separation on both sides of the contract preventing common employees from performing functions for both parties. And in addition, one example that I can think of where there would be a clear conflict would be if there was a premium with the affiliate contract with respect to the enrolment of customers, because obviously that would create a driver for the service provider to use whatever was at its disposal in terms of information or in terms of processes to gain an additional economic benefit beyond the mere provision of services over time. 458 MR. VLAHOS: Mr. Rodger, over to you again, because you hadn't had an opportunity to hear Mr. Dingwall before. 459 MR. RODGER: Well, there's several questions that the parties have raised. What I'd suggest is this: I haven't seen these agreements before. Go back and see what's in at least one for the distribution company. I can't speak to the affiliate company because they're not my client and they're not part of this proceeding. So all I can undertake is to make some inquiries and I'll report back to the Board. 460 MR. VLAHOS: Okay. By when, Mr. Rodger? This is off the record, reporter. 461 MR. RODGER: We'll certainly do our best so I can review the distribution contract, hopefully at some point today or tomorrow. For the Energy Services company, that may take a little longer. 462 [The Board confers] 463 MR. VLAHOS: Mr. Rodger, the Panel will accept your suggestion and we'll hear back from you. 464 MR. RODGER: Thank you, sir. 465 MR. SHEPHERD: Mr. Chairman, can I have an undertaking number for that, please? 466 MR. VLAHOS: The undertaking will read what, Mr. Shepherd? Your words. 467 MR. SHEPHERD: I think the undertaking is to provide the two call-centre contracts, and Mr. Rodger would then come back, if he didn't feel it's appropriate, and say it's not appropriate to provide them. 468 MR. VLAHOS: I'm not sure that's how I've read Mr. Rodger's suggestion, or how the Panel has considered it. 469 MR. SHEPHERD: I'm sorry. 470 MR. VLAHOS: Mr. Rodger will get back to us once he has an opportunity to review the contract or contracts, and then we'll take it from there. And I would just ask Mr. Rodger to do that as soon as is practical, Mr. Rodger. 471 MR. RODGER: Yes, I will, sir. 472 MR. LYLE: We'll mark that as J.3.5, Mr. Chair? 473 MR. VLAHOS: Mr. Rodger, would you word that undertaking for the reporter. 474 MR. RODGER: That counsel to Toronto Hydro-Electric System Limited undertakes to make inquiries of both the applicant and its affiliate competitive company to review contracts pertaining to the call-centre in terms of any common use of a call service provider. 475 UNDERTAKING NO. J.3.5: TORONTO HYDRO-ELECTRIC SYSTEM LIMITED UNDERTAKES TO MAKE INQUIRIES OF BOTH THE APPLICANT AND ITS AFFILIATE COMPETITIVE COMPANY TO REVIEW CONTRACTS PERTAINING TO THE call-centre IN TERMS OF ANY COMMON USE OF A CALL SERVICE PROVIDER 476 MR. VLAHOS: Thank you. 477 MR. SHEPHERD: Witnesses, the second sort of little clean-up area I'd like to ask about is your discussion with Mr. Warren earlier about the $11.9 million reduction in the transition costs. You've indicated that there was no documentation for that, and I guess I'm having some trouble understanding that. Who ultimately decided, who was the senior person who ultimately authorized that $11.9 million reduction in your claim? 478 MR. COUILLARD: It was the vice-president, finance. 479 MR. SHEPHERD: And what documentation did the vice-president, finance, have in front of him to support that decision when he made it? 480 MR. COUILLARD: Well, for example, a portion of it -- a portion of the costs is labour, so he would have, like, the names of the people and the value of their time and what they were actually doing in the project. And as mentioned in our exhibit, in the report, internal labour was the biggest amount carved out of the $44 million. And as for the other portion, the other $6 million of costs, it would be on an invoice-by-invoice basis, and by asking questions to the people directly involved with these expenditures, then they concur if it was qualifying or not under 480. 481 MR. SHEPHERD: Okay. So you didn't just hand him all the invoices and all the play slips and say, There's $11.9 million in here; right? You must have given him some kind of summary or something where he could figure out where it came from. 482 MR. COUILLARD: There's accounting record details, if that's what you're asking. For example, our system can show time sheets on a weekly basis, and you charge your time to a project, so if there is a multiple task for project within the market-readiness, then it would show -- we would have been able to run a report at the time. 483 MR. SHEPHERD: No, that's not what I'm asking. Your vice-president, finance, did not go to your GL or subaccounts and look at each one individually himself; right? 484 MR. COUILLARD: It was a materiality amount, and everything over a certain threshold was looked at from an invoice-by-invoice basis. 485 MR. SHEPHERD: And your VP finance did that personally? 486 MR. COUILLARD: With other people in the team which are named in the report. 487 MR. SHEPHERD: So what happened is the other people in the team actually checked the details and said, Here's our totals to the VP, finance. 488 MR. COUILLARD: No, the VP, finance reviewed the details of everything that was not included -- over a threshold amount. We had a vouching number amount for materiality purposes. So we reviewed everything above certain amount and the VP finance did the detailed review. 489 MR. SHEPHERD: A write-off -- it was a write-off; right? You were deciding not to recover $11.9 from the ratepayers; right? 490 MR. COUILLARD: Correct. 491 MR. SHEPHERD: So your internal decision-making process allows the VP, finance to do that without reporting to the CEO or the board? 492 MR. COUILLARD: No, it was actually -- from my recollection, I would presume it was included. It might have been included in some board minutes. But from the perspective that none of the amounts, for example, was, like, $10 million on an invoice, it was on an invoice-by-invoice basis that these were looked at, so -- and in the end, the CFO of the corporation looked at the final process and ensured that the $11 million was -- she was actually comfortable putting that forward in front of the auditors. 493 MR. SHEPHERD: So then the CFO presented it to the board and said, We want to write off this $11.9 million, is that okay? 494 MR. COUILLARD: No, it was not board -- the board does not make the decision if the write-off is appropriate or not. This decision is made by management. And it could be presented to the board if management feels necessary -- feel that it's necessary from a material perspective. 495 MR. SHEPHERD: And as far as you know, it was or was not presented to the board? 496 MR. COUILLARD: I can't recall any specific item on the board. However, during these periods, Toronto Hydro went to extensive variance analysis review which the board and our shareholders review on a quarterly basis, so any variance would have been explained to the different people reviewing our financial records. So, you know, $11 million is a significant number, so at the end of 2002, when the actual write-down, because more a write-down than a write-off, was accounted for, the people within the corporation were -- like, people making -- like, the board and our audit committee along with senior management, obviously, saw that there was this reduction of regulatory asset. 497 MR. SHEPHERD: Can you then undertake to determine whether either a report to the CFO or a report to the audit committee or a report to the board was made detailing that $11.9 million? And if there was any of those three reports, to file that, please? 498 MR. COUILLARD: Can you just help me a bit here. Just specifically ask me where you want me to look, because there's a broad range of financial reports that are produced by Toronto Hydro, and so I -- board minutes you want us to review? 499 MR. SHEPHERD: I'm not going down the path of asking for the board minutes. But I am asking if a report was made, for example, by the VP finance to the CFO, by the CFO to the audit committee, by the audit committee to the board, or any combination of that, that set out the rationale or the details of the 11.9 million, that we could have that. 500 MR. COUILLARD: I can take this undertaking. 501 MR. SHEPHERD: Thank you. 502 MR. LYLE: We'll mark that as Undertaking J.3.6. 503 MR. SHEPHERD: Was that explanation okay? 504 MR. VLAHOS: I believe that's clear, reporter, is it? Thank you. 505 UNDERTAKING NO. J.3.6: TO PROVIDE ANY REPORTS MADE, FOR EXAMPLE, BY THE VP, FINANCE TO THE CFO, BY THE CFO TO THE AUDIT COMMITTEE, BY THE AUDIT COMMITTEE TO THE BOARD, OR ANY COMBINATION OF THOSE, THAT SETS OUT THE RATIONALE OR THE DETAILS OF THE 11.9 MILLION 506 MR. SHEPHERD: Those are the two little clean-up things, and I just have two areas of questioning in my cross-examination, witnesses. 507 The first has to do with your RSVA accounts. As I understand it, you're asking for $39 million from the ratepayers in the RSVA accounts, right, roughly? 508 MR. ZEBROWSKI: 39.5 million. 509 MR. SHEPHERD: Close enough. And the IMO has found a wholesale meter problem that's resulting in an adjustment of some $38 million, of which, some part of it is going to adjust the RSVA accounts, but you can't tell us the number right now; is that right? 510 MR. ZEBROWSKI: A portion of it, we're anticipating, will go against the RSVA account. 511 MR. SHEPHERD: And you have a number, what that portion is, you just don't want to tell us. 512 MR. ZEBROWSKI: I wouldn't even characterize it that way. We've done some preliminary analysis, so we may have some idea what those numbers may be, but it's -- it's an ongoing process. We're still trying to validate a lot of the numbers. We're trying to approach it from different perspectives. And some of the numbers we're seeing, quite frankly, don't make sense to us. It's too preliminary for us to even comment on it at this point. 513 MR. SHEPHERD: Well, I understood Mr. Couillard to say he had a number. Didn't you say that earlier today? 514 MR. COUILLARD: Under the same characteristic that my colleague just pointed out, like we've done preliminary numbers, but we are not in a position right now, until these numbers are validated, to put them forward. Maybe if I can just qualify here. I don't have a number that I will put forward to my auditors and say, This is the number I want you to check, so I'm not that far down the path yet. 515 MR. SHEPHERD: The number you have right now, would it reduce the RSVA accounts claim? 516 MR. RODGER: I think Mr. Zebrowski yesterday said that Toronto Hydro, given its status with the OSC wasn't prepared to speculate on the number, and I think you've been given the answer here, Mr. Chairman. I'm not sure how speculation is helpful. 517 MR. SHEPHERD: Mr. Chairman, that's why I'm asking the question so I can get a refusal and challenge the refusal. In my view, there is no legal justification for this applicant, this LDC coming before its regulator to say to the regulator, By the way, I'm not going to tell you the facts you need to make your decision. They have no justification for that, and they have not indicated any OSC rule that says that. And I'd invite them to. 518 MR. RODGER: I think the panel has said again to Mr. Warren this morning that when this was first raised with Board Staff a short time ago, the process that we were proceeding by was to maintain our application as it stands and as it was filed in May, and that's in my letter of last week as well, and that we will provide the definitive number and how the RSVA account will be adjusted at that time. 519 MR. SHEPHERD: Mr. Chairman, last I heard, Board Staff didn't make the decisions here, the Board does. 520 MR. VLAHOS: I take, then, the panel will -- sticks with the answer that they cannot provide anything, that that would be speculation. 521 MR. ZEBROWSKI: We can't provide a meaningful number at this time that anybody would have any kind of confidence in. 522 MR. VLAHOS: Over to you, Mr. Shepherd, as to where you want to go next. 523 MR. SHEPHERD: Well, I guess in argument, where we're going to go with you, Mr. Chairman, and you'll see from that why the questions, is if the difference is material, then the right thing for the applicant to do is to withdraw the RSVA component of their application until they have the number that they want, until they know how much they're asking for. If it's an immaterial number, if it's $100,000, that's fine, let's keep going and we'll fix it later. If it's $10 million, it's wrong for them to ask for 39 if they really only need 29. So we need to have some idea of whether it's bigger than a bread box if we're even going to discuss it. 524 MR. VLAHOS: So the onus is always on the applicant, Mr. Shepherd, so if they are not willing to produce anything, then would that aid your argument in terms of not paying anything? 525 MR. SHEPHERD: Well, absolutely, Mr. Chairman, and the bigger the fuss I make and the bigger they resist, the stronger my argument later. 526 MR. VLAHOS: Okay. Did you make enough fuss? 527 MR. SHEPHERD: I did. 528 I'm not going to flog this horse again, but I do have a different perspective on the issue. And for that, witnesses, one of your customers is Toronto District School Board, yes? 529 MR. ZEBROWSKI: Yes. 530 MR. SHEPHERD: And they, in fact, pay you around $40 million a year or so? 531 MR. ZEBROWSKI: We can't clarify that. 532 MR. SHEPHERD: Well, you don't have a lot of customers that pay you $40 million a year, do you? 533 MR. ZEBROWSKI: No, we wouldn't. 534 MR. SHEPHERD: Okay. So they would be, like, one of your top ten; right? 535 MR. LAM: Yes, they would be. 536 MR. SHEPHERD: I'm not that far out, am I, Mr. Lam? 537 MR. LAM: If you total all of those accounts together, yes, they would qualify as one of the top ten, yes. 538 MR. SHEPHERD: Okay. I'm just looking at -- let's see, which one will I -- J.2.2B. Why don't we look at that? Now, if I understand the method 1 section of J.2.2B, what that does is it allocates $35 million on the basis of distribution revenue; right? 539 MR. LAM: In method 1? Yes. 540 MR. SHEPHERD: Okay. And what it says is that the general service over 50 kilowatt group pays a little over 1 percent of their total bill if you allocate that way for $35 million; right? 541 MR. LAM: Yes, that's what the number shows. 542 MR. SHEPHERD: And general service over kilowatt, that would be most of your schools; right? 543 MR. LAM: I don't think -- I can't quantify that, because I believe they are quite a big -- there are quite a few customers over the 1 Megs well, which is intermediate. 544 MR. SHEPHERD: Okay. All right. Over 1 meg? 545 MR. LAM: Which would be characterized by the general service intermediate use. 546 MR. SHEPHERD: But you have schools over 1 meg? 547 MR. LAM: I believe there a couple in there that would be. I'm not positive. 548 MR. SHEPHERD: Okay. Let's just stick to over 50 kilowatts here because I don't want to make it too complicated. 549 So if schools have a $40 million bill, let's say just hypothetically, if they have a $40 million annual bill, then what you're saying with this 1.07 percent here in over 50 kilowatts, you're saying that the $35 million, their share of that is $400,000 a year; right? Roughly. 550 MR. LAM: Roughly, yeah. 551 MR. SHEPHERD: Okay. And so if, for example, if the 39 million you're asking in RSVA accounts, the RSVA accounts are split up by distribution revenues; right? 552 MR. LAM: Yes. 553 MR. SHEPHERD: Okay. 554 MR. LAM: In account 1570, yes. 555 MR. SHEPHERD: I'm not asking about 1570. The RSVA accounts we're talking about right now, right, the $39 million? 556 MR. LAM: But this table you see in front of you is only reference to account 1570, which is the transition costs. 557 MR. SHEPHERD: Well, what it does is splits up $35 million based on distribution revenues, doesn't it. 558 MR. LAM: That's right. 559 MR. SHEPHERD: So it doesn't matter what $35 million it is, it will still split up the same way, wouldn't it, if it was distribution revenues. 560 MR. LAM: That's one way of doing it. 561 MR. VLAHOS: One at a time, please. 562 MR. SHEPHERD: I'm sorry, Mr. Chairman. 563 MR. LAM: That's one way of calculating it, yes. 564 MR. SHEPHERD: So let's say the IMO adjustment is $35 million. If it is, right, and the RSVA accounts are split up by distribution revenues, would I be right in saying that TDSB, Toronto District School Board's bill goes down by $400,000; right? 565 MR. LAM: I don't know that. 566 MR. ZEBROWSKI: No, because as we said before, part of that $38 million is being allocated to unbilled revenue, it's not all flowing back into the regulatory asset accounts. 567 MR. SHEPHERD: I asked a hypothetical question. I said if the adjustment, the IMO adjustment to the RSVA accounts is $35 million, then that reduces TDSB's bill by $400,000; right? 568 MR. ZEBROWSKI: I'm sorry, I can't answer the question, only because I don't know where the $400,000 came from originally. I didn't follow that. 569 MR. SHEPHERD: I said hypothetically their annual bill is 40 million, and we'll file evidence if we have to to show that, and 1 percent of it is 400,000. And Mr. Lam agreed that that's the allocation to over 50 kilowatt, right, 1 percent, 1.07? 570 MR. LAM: Yes. 571 MR. SHEPHERD: So ballpark impact would be $400,000; right? 572 MR. ZEBROWSKI: We'll accept that. 573 MR. SHEPHERD: And of course, if the number is less, if the IMO adjustment is only 17 and a half million dollars, then it would be half that; right? 574 MR. ZEBROWSKI: Yeah, I mean -- just give me a moment here. 575 Could you repeat the question, please. 576 MR. SHEPHERD: Let me come at it a different way. Any significant change in the RSVA claim is going to have a material impact on a customer that pays you $40 million a year; isn't that true? It's going to be a six-figure number or so. I'm trying to get orders of magnitude here, Mr. Zebrowski. I'm not trying to trap you. 577 MR. ZEBROWSKI: I realize that. It's just the words being used, "material difference," I wouldn't consider it material on the overall bill. In total dollar terms, because we've aggregated it altogether, it could be considered material. But as a percentage, I would not consider it material. 578 MR. SHEPHERD: Okay. Now, let me turn to 1570 transition costs. And as I asked Hydro One the other day, and I'll ask you the same thing, when you cut through all the bells and whistles, this is really $35 million for computer hardware, software, and implementation associated with billing, settlements, and customer care. Basically, is that true? 579 MR. COUILLARD: That is correct. 580 MR. SHEPHERD: So the first question is -- is the issue about the duplication between the various LDCs, you spent 35 million, Hydro One spent 57 million, Enersource spent, I don't know, 10 million, something like that. Between all of the LDCs, they spent $150 million on this. And I guess I'm wondering, and perhaps you could comment on, why there wasn't more collaboration between the LDCs to keep the overall to the ratepayers down. 581 MR. DEMENTAVICIUS: Maybe I can take that one. This is not to say that some attempt hadn't been made on looking for the possibility of collaborating with other LDCs. Prior to embarking on our own customization of our system, we did take some -- make some attempts to see whether there was some common ground that we could find with other LDCs to, perhaps, reduce those costs. 582 There was a real sense of urgency here. As we all know, the original market opening date was November 2000. In order to strike up some collaborative effort between LDCs, especially where they're using different CIS systems, different vendors who, in many cases, will not cooperate to protect their own intellectual property and their proprietary rights to their systems, the urgency is the key factor here; that we don't have trial to strike up legal agreements, to make the kind of arrangements we need to deal with those types of collaborative efforts. 583 So I think after initial overtures, after looking at initial possibilities, it was deemed to be probably more prohibitive to try and venture and try to make those type of arrangements than it was to get on with our tasks and get ready for market opening in the best way we could, and that basically came down to most LDCs doing it their own way. 584 Now, there may have been some room for collaboration for those LDCs who landed on the same vendor, same CIS system, to make some mileage out of the collaboration, but for those of us who had one of CISs, there really wasn't the room. 585 That's to underplay some of the key areas where collaboration did take place. The EBT spoke hub architecture was a key collaborative effort on the part of all market participants. I can't quantify how much we might have saved, but I might venture to say that market may not have opened when it did if that had not taken place. 586 The EBT standards working group was a huge collaborative effort to try to reduce the costs to the marketplace and not have market participants solve their problems individually or in pairs. 587 The working groups in terms of retail market design was a huge collaborative effort. The retail market design testing group was a huge collaborative effort. So I think it downplays the aspect of collaborative efforts in the marketplace by trying to poke us strictly on whether or not we were able to design collaboratively or create common code that we could use, which was going to be problematic to begin with. 588 If you've been in the industry, you really see, even in the case where LDC vendors working on different parts of the system -- where an LDC may have more than -- may have several vendors working on different parts of their system, that is very difficult even to get those vendors to collaborate in a -- let's say an effective manner to reduce their costs, and we certainly ran into that problem at Toronto Hydro-Electric. 589 So I think the overall question in terms of more collaboration, I think it's a difficult one to answer. I believe that many utilities made an effort to look for those collaborative opportunities. Not too much came to fruition. I believe London PC did have some success in finding an opportunity like that. We did not, nor do I believe too many others did. But that certainly does downplay some of the parts of the market-readiness that really benefited from -- everybody in the marketplace, retailers, LDCs, hub providers, collaborating extensively to make sure not only were able to get to market at the earliest opportunity, but to reduce each of our costs in getting there as well. 590 MR. SHEPHERD: Do I take it that with respect specifically to the 1570 costs, the primary reason why there wasn't more collaboration was the short fuse? 591 MR. DEMENTAVICIUS: That was certainly a very prime driver. Having -- let's say collaboration is one thing. Even individual decisions that utilities made in terms of their solutions and the way they solved their problems in getting ready for market was constrained by the urgency. Any one of the LDCs may well have said -- may look back at this today and say in retrospect, hindsight being 20/20, If we knew that we had more time, we would have done some part of this differently. We might have been able to reduce our costs. We may not have to hire a bunch of external contractors to do this part of the system. But we didn't have the hindsight, or at least the benefit of hindsight. We had to deal with the urgency we had, the short timelines that we had, and to get the job done as quickly as we could with the resources we had at our disposal. 592 MR. SHEPHERD: Is it fair to say that -- can you guess that had you had sufficient time to do this in a reasoned and orderly way, that these costs might have been materially lower across the board? Is that reasonable to assume? 593 MR. DEMENTAVICIUS: I can't quantify it, but I would say, given a different way -- ways and means of solving the problem, and a different time line, yes, I would have expected that costs across the board would likely have been less than are being reported today. 594 MR. SHEPHERD: Now, one of the specific things that Toronto Hydro had which made it more difficult for you to work with other people, correct me if I'm wrong, is that you had this amalgamation of the six entities; right? 595 MR. DEMENTAVICIUS: We had the amalgamation. I don't know whether it made it more difficult to work towards market opening. I think where it had the impact was that our resources were constrained; that having gone through these multiple conversions and the amalgamation, just about all our internal resources were relegated to supporting the system post-amalgamation. Remember, too, this was leading up to Y2K, so we had that issue in front of us. 596 So when it came down to getting on with the task of market opening and developing the customizations we needed for the system to move to market opening, we really had to look outside our own organization for external help to get that job done. 597 MR. SHEPHERD: Did you consider at any time allocating some component of your transition costs, of the ones you've claimed here, to treating them as costs of the amalgamation as opposed to costs of the market transition? 598 MR. DEMENTAVICIUS: We accounted for costs to amalgamation and the various conversions, and through that process that Mr. Couillard went through in terms of return allotted, we basically removed all those costs that had anything to do with conversions, amalgamations, and basically getting our system ready to move on to the next level, which was to build for market opening. Those costs were all removed from our transition cost submission. 599 MR. SHEPHERD: So do I understand that in that $11.9 million somewhere are some things that you said, you know what, this isn't really about the market, this is really -- this was driven by the fact that we had to amalgamate; is that fair? 600 MR. DEMENTAVICIUS: That's fair, yes. 601 MR. SHEPHERD: Okay. All right. Let me turn to the allocation of these costs, which is a subject near and dear to our hearts. And I'm going to ask you to look at -- well, let's start with J.2.3, which you just filed this morning. This is about $5 million of costs that were -- that are being claimed in 1570 for customer education. Do you have that? 602 MR. DEMENTAVICIUS: Yes, we do. 603 MR. SHEPHERD: Is it reasonable to assume that none of those calls are from school boards? 604 MR. MORVAY: No, it's not reasonable. 605 MR. SHEPHERD: You think the school boards had to call you to find out what was happening in the market? 606 MR. MORVAY: Anyone could have called us. We really don't ask the customer who's calling what their company is or who they are calling about. They are calling about an account. If they provide an account number, we provide the information. 607 MR. SHEPHERD: So you think that some of your customer education costs were to educate Toronto District School Board, for example, what was happening with their electricity bills. 608 MR. MORVAY: We didn't exclude anybody from our communications regarding market opening. 609 MR. SHEPHERD: I'm not asking what your intent was. I was asking what you think actually happened. 610 MR. MORVAY: Can you be more specific about what actually happened? 611 MR. SHEPHERD: Yeah. Do you think any material part of this $5 million, anything more than $1.95, say, was to help the schools understand what was happening to their electricity bill? 612 MR. MORVAY: Yes. 613 MR. SHEPHERD: Okay. Let me turn to J.2.2A. Do you have that? 614 MR. ZEBROWSKI: Yes, we do. 615 MR. SHEPHERD: Now, as I understand this, the column that's headed up "2004 Phase 1 Monthly Impacts," what this is is right now in the bills for your customers are these average amounts, these average impacts to recover phase 1; is that right? 616 MR. ZEBROWSKI: Yes, that's right. 617 MR. SHEPHERD: And so, for example, in -- you have this column, "percent of overall bill," 2.5 percent for over 50 kilowatts; do you see that? 618 MR. ZEBROWSKI: Yes. 619 MR. SHEPHERD: So if you have a customer that has a $40 million a year bill, then you would assume that right now you're charging them a little over a million dollars a year for phase 1; right? 620 MR. ZEBROWSKI: On a collective basis, that would be about a million dollars. 621 MR. SHEPHERD: Okay. Is it correct that the proper way, the class -- let's not say proper, that's loaded -- the classic method of allocating costs between classes is based on cost causality; is that correct? 622 MR. ZEBROWSKI: That's the first approach I think you would take, and you would try to maintain that as closely as possible. There would be other considerations as well. 623 MR. SHEPHERD: And the reason why you do that is because it's considered to be the fairest way of allocating; correct? 624 MR. ZEBROWSKI: Fairness is in the eye of the beholder. Yeah, I think fairness can be looked upon in different ways. I wouldn't necessarily call it fair. I think if the approach -- traditionally, we're trying to allocate costs back to the customers who drive those costs, and that's the reason we try to do it that way. 625 MR. SHEPHERD: Okay. I'm not sure I understand what the rationale was embedded in that. Perhaps you could rephrase it. 626 MR. ZEBROWSKI: It's more of a user-pay kind of approach, is really what we're trying to achieve. Maybe an example where that hasn't been followed is maybe the current energy rates where we have an inclining block structure. I think that would not follow a traditional cost-based approach. 627 MR. SHEPHERD: And the reason you've done that is for other public policy reasons. 628 MR. ZEBROWSKI: Because there has been other directives that have driven things that way; that's right. 629 MR. SHEPHERD: In fact, when you're doing cost allocation, correct me if I'm wrong, step 1 is allocate the costs on a basis of cost causality, and then step 2 is, should we adjust this for some other reason, like public policy or whatever. Is that the correct way to do it? 630 MR. ZEBROWSKI: That would be the correct -- yeah, the first step is on a cost-causality basis. There would be other considerations. Simplicity, for instance, relative to the kind of costs there are there. There may be any number of things to look at. 631 MR. SHEPHERD: I wonder if you could turn to tab 1 of your binder of interrogatory responses, at page 11. You've seen that with Mr. Brett. This is your answer to Board Staff Interrogatory No. 25. Do you have that? 632 MR. ZEBROWSKI: Yes, we have it. 633 MR. SHEPHERD: And so do you see towards the bottom, near to the bottom, you say, I quote: 634 "If rates were to track cost causality, it would be appropriate to allocate transition costs by number of customers." 635 Now, do you agree with that statement? 636 MR. ZEBROWSKI: Yes, I do. 637 MR. SHEPHERD: And I'm going to read a quote from a case of this Board. This is RP-2000-0023, this is a Hydro One rate case. In paragraph 602 of that case -- Hydro One, in that case, got interim recovery of transition costs. And the Board's decision says: 638 "Networks also submitted that the pertinent cost driver to determine the allocation of market-readiness transition costs was the number of customers." 639 Do you agree with the position of Hydro One in that proceeding? 640 MR. ZEBROWSKI: Well, to the degree it's consistent with what we've said here, yes. 641 MR. SHEPHERD: Okay. But in your filing, you've allocated transition by distribution; right? 642 MR. ZEBROWSKI: That was not our recommended approach. We merely put it down here. We knew it was a methodology that the parties were looking at, and we felt it was best to illustrate the differences between the two methodologies. But we are recommending that we allocate transition costs by number of customers. 643 MR. SHEPHERD: Okay. And can you take a look at the schedule 25, which is the one that you looked at with Mr. Brett. 644 MR. ZEBROWSKI: Yes. 645 MR. SHEPHERD: Do you have that? 646 MR. ZEBROWSKI: Yes, I do. 647 MR. SHEPHERD: Okay. And correct me if I'm wrong, but there it says that transition costs are allocated $2.7 million a year, this is per year, right, to over 50 kilowatts on a distribution-revenues basis. 648 MR. LAM: Yes, it is. 649 MR. SHEPHERD: And $164,000 per year for three years if they are allocated on a number-of-customers basis. 650 MR. LAM: Yes. 651 MR. SHEPHERD: Now, you have about -- now, you have less than 10,000 customers at over 50 kilowatts; right? 9,400, something like that. 652 MR. LAM: It's about that neighbourhood, yeah. 653 MR. SHEPHERD: And you have how many in the residential classes? 654 MR. LAM: About 56,000 customers -- no, 560,000 customers. 655 MR. SHEPHERD: 560,000, okay. So the difference for the over 50 kilowatt class is actually more than 7 and a half million dollars over three years, depending on which way you allocate; right? 656 MR. LAM: Could you repeat that, please. 657 MR. SHEPHERD: The difference in the two allocation of methods of transition costs for over 50 kilowatt general service class is more than 7 and a half million dollars over three years; right? 658 MR. LAM: If you take the difference between those two methods times three, yeah, about that. Yes. 659 MR. SHEPHERD: Okay. Now, that's only for three years because the first year, the phase 1, you've actually recovered all on the basis of distribution revenues; right? 660 MR. LAM: In phase 1, there was no transition costs in there. It's strictly just RSVA accounts. None of the transition costs were recovered in phase 1. 661 MR. SHEPHERD: Okay. 662 MR. VLAHOS: Can I just clarify that, Mr. Shepherd. So the 25 percent that Toronto Hydro received, it was -- it did not cover the full RSVA amounts and therefore did not go into the transition costs; is that what you're saying, Mr. Lam? 663 MR. LAM: That's right, Mr. Chair. 664 MR. VLAHOS: All right, thank you. 665 MR. SHEPHERD: So when you've done your claim in phase 2, you've deducted all of the interim recoveries from RSVA and deducted none of them from the other accounts; right? 666 MR. LAM: That's correct. 667 MR. SHEPHERD: Okay. That's good. I wonder if you can turn to Exhibit G13, 1. This is not Exhibit G, this is a Hydro One's allocation spreadsheet. Can you take a look at that? G13, 1. 668 MR. ZEBROWSKI: Which part of that are we looking at again? 669 MR. SHEPHERD: It's a big spreadsheet. 670 MR. ZEBROWSKI: We have it. 671 MR. SHEPHERD: Do you have it? 672 MR. ZEBROWSKI: Yes. 673 MR. SHEPHERD: That looks like probably an Excel spreadsheet; right? 674 MR. ZEBROWSKI: It would appear so. 675 MR. SHEPHERD: So I wonder if you could prevail upon Hydro One to give you a copy of that and put your data into that so that we can see, on the same basis as they presented it, your proposed allocation of your costs. 676 MR. ZEBROWSKI: I would strongly resist doing that. A couple of reasons. 677 First of all, Hydro One has different allocation process involved here because they are allocating between legacy customers, acquired customers, and LDCs. It's an allocation process that we don't have to go through at all. It doesn't pertain to us. 678 Secondly, trying to take somebody else's spreadsheet where it's this complicated and trying to understand it, it's going to -- it's too onerous a process, really, to go through. 679 MR. RODGER: And I think as well, Mr. Shepherd, I think you asked an interrogatory on this, and I think the response was identical to Mr. Zebrowski's, they refused to provide that information. 680 MR. SHEPHERD: Mr. Chairman, what I'm trying to do is I'm trying to get some consistent presentation. I understand that it looks like a big complicated spreadsheet, but the fact is the Board went through it the other day and I didn't get a sense that anybody had a problem understanding it once they went through it. And now that we've figured out -- and this is a very consistent way of understanding the allocation process and what its impacts are. And it seems to me that it would benefit all of us, and I'm going to ask the same thing of Enersource and London Hydro, if they were all presented the same way, and so we looked at what each of the applicants has presented and it looks like the most thorough one, the one that gives us the best information is the Hydro One spreadsheet, and frankly, it doesn't look to me like it isn't more than a few hours' work to put in the right numbers. 681 MR. VLAHOS: Mr. Shepherd, I think you should proceed asking the witnesses as to how they can accommodate your needs in terms of understanding what the impacts are as -- you know, let Toronto Hydro be separate from Hydro One in this respect. You may want to state what you need, sir, and whether those needs can be accommodated through a different presentation of a spreadsheet, but not necessarily to repeat exactly what Hydro One has done. 682 MR. SHEPHERD: Okay. Well, then, Mr. Chairman, the alternate way to do this is, I wonder if the witnesses can undertake to provide us, to provide School Energy Coalition, or anybody else who wants it, I guess, the Board, with the raw data that would go in the top section, the allocator section, for your rate classes. So you see G13, 1, has an allocator section which splits up, for example, kilowatt-hours and distribution revenues et cetera by rate class. So can you provide us with that raw data by rate class for those categories? 683 MR. ZEBROWSKI: This is far more detailed than the kind of allocators that we've been using, or we even need to use at Toronto Hydro. Maybe rather than simply trying to duplicate what Hydro One has here, maybe we could sort of define what kind of statistics it is exactly that you're looking for, it may be helpful. 684 As I read it here, you're looking at the distribution revenue by class of customer, you're looking at the number of kilowatt-hours consumed by class, and you're looking at the number of customers within each class. 685 MR. SHEPHERD: That's right. Those are the only three allocators that are under discussion for Toronto Hydro's application; right? 686 MR. ZEBROWSKI: That's right. 687 MR. SHEPHERD: So can you provide us with that data by class? 688 MR. ZEBROWSKI: I'm sure we can. 689 MR. LAM: Can I answer that? 690 MR. ZEBROWSKI: Sure. 691 MR. LAM: If you look at phase 1 Toronto Hydro submission, in the RUD model, those numbers for the year 2000 -- 1999 base year and the 2000 and the estimated 2002 numbers are in there. We can provide that if you so need it. That would provide you the number of customers, the kilowatt-hours for all rate classes, plus the kilowatts for all customers that have a demand meter. 692 MR. SHEPHERD: And can you also provide the distribution revenues by class? 693 MR. LAM: I believe it's part of the RUD model submission as well. 694 MR. SHEPHERD: But it's buried in the model; right? 695 MR. LAM: It's in the model. It's not buried. It's a table itself. 696 MR. SHEPHERD: All right. 697 MR. RODGER: Perhaps I could suggest that Mr. Shepherd could look at that over his lunch break and that might satisfy his requirements. 698 MR. VLAHOS: Just another suggestion, Mr. Shepherd, if you put us on notice that you'll follow the same request of the other -- of the remaining utilities, so leaving Hydro One aside, perhaps you can talk with counsel and see what may be possible so we don't have to go through the same exercise every time. That would satisfy your uniformity, if you like, your standards -- 699 MR. SHEPHERD: What we're going to ask. I have two follow-up questions to try to get to where I'm trying to go here, Mr. Chairman. The first is we're going to ask Hydro One if they will provide us with a live copy of their spreadsheet. They have an undertaking to provide us with a revised version, and we're going to ask them to provide it live. And then -- 700 MR. VLAHOS: Sorry, Hydro One, you said? 701 MR. SHEPHERD: Hydro One. And I think they're going to respond to that undertaking today and we're going to ask them for a live version. 702 And then secondly, we're going to ask these witnesses, if we produce what we ask them to produce, will they check the numbers for us and tell us whether they're right. 703 MR. VLAHOS: And this all goes for what purpose, Mr. Shepherd, so we can put it into context? 704 MR. SHEPHERD: One of our key arguments is going to be a change in allocation. We want to be able to say to this Board, Here is the dollar impact on these customers of doing it this way. And rather than trying to dig it out of all sorts of different types of formats, which we've already seen this morning was confusing, we'd like to have one straightforward format that we can say to the Board, here's the four of them, here's how much it means. And we're prepared to do the work to achieve those numbers if the witnesses will provide the data and we'll check to confirm that they're accurate. 705 MR. RODGER: Mr. Chairman, if I might. 706 MR. VLAHOS: Yes. 707 MR. RODGER: It seems to me that Mr. Shepherd and his client had ample opportunity to introduce their own evidence sometime ago on cost allocation, they chose not to file anything. And with great respect, I don't think this helps the process to try and manufacture this evidence during cross-examination. 708 MR. VLAHOS: We'll leave it on the basis, Mr. Shepherd, that we'll take our lunch break now, and perhaps you can talk to the presenters of the three utilities, aside from Hydro One, and see, you know, what can be accomplished. 709 MR. SHEPHERD: Okay. 710 MR. VLAHOS: If there's still a difference of views, then the Panel may hear from you. 711 MR. SHEPHERD: Thank you, Mr. Chairman. 712 MR. VLAHOS: With that, it is 12:25. We'll resume at 1:30. 713 --- Luncheon recess taken at 12:25 p.m. 714 --- On resuming at 1:38 p.m. 715 MR. VLAHOS: Please be seated. 716 Mr. Shepherd. 717 PRELIMINARY MATTERS: 718 MR. LYLE: I wanted to bring to your attention that Ms. Aldred has filed two undertakings for Hydro One , those being Exhibit J.1.5 and J.2.1. I believe you have copies of those. 719 MR. VLAHOS: Yes, the Panel has those. Thank you, Mr. Lyle. 720 Anything else, Mr. Lyle? No? 721 MR. LYLE: No, Mr. Chair. 722 MR. VLAHOS: Mr. Shepherd. 723 MR. SHEPHERD: Mr. Chairman, my friend, Mr. Rodger, assisted me at the break by drawing my attention to a page in the RAM model that I would -- 724 MR. VLAHOS: Perhaps I would ask staff when an acronym comes up, or a term of art, perhaps, Mr. Thiessen, you can just leave a piece of paper with the reporter. 725 MR. SHEPHERD: I just have a couple of questions about those numbers. 726 Before I get to those, Hydro One has filed Exhibit J.1.5, and I've advised Ms. Aldred that I'm going to ask this. I'm going to ask that Hydro One provide us in live form, in electronic form live, and I wonder if Ms. Aldred could advise us whether they're willing to do that. 727 MR. VLAHOS: Mr. Shepherd, perhaps you can advise us whether there are any developments on my invitation to talk to the other people present in terms of the standardization of the table you're looking for. 728 MR. SHEPHERD: Mr. Rodger can speak for himself, but the counsel for Toronto Hydro and Enersource, I believe, have advised me that they're not prepared to provide a standardized spreadsheet of the sort I'm asking for. 729 MR. VLAHOS: Not even a hard copy? 730 MR. SHEPHERD: No. 731 MR. VLAHOS: Okay. 732 MR. SHEPHERD: Rather than fight about it, my intent, if it's agreeable to the chair, is this data is all in the tables and we're entitled, in argument, to put the data in whatever format that we think will help the Board, and so we'll provide you with spreadsheets using data in the evidence in the standardized form. 733 MR. VLAHOS: Mr. Rodger, can I ask you, is all the data in the materials provided? 734 MR. RODGER: I believe it is, Mr. Chairman, but I'm a little unclear from Mr. Shepherd's last response. As I say, I've directed him to materials as he's described in the phase 1 filing of Toronto Hydro dated January 23rd, 2004. I thought I understood that this gave him the raw data he needed to go out and run his own model. But maybe I'm incorrect in that. 735 MR. SHEPHERD: That's correct. 736 MR. RODGER: Okay. I'm concerned with Mr. Shepherd's last comment that we give the impression that on final argument he would intend to produce, what to me would be, new evidence in terms of raw data Toronto Hydro and other utilities have provided him, and somehow that makes its way into final argument. I would have thought that if Mr. Shepherd has an approach to cost allocation, as I mentioned before the break, that it should be introduced as his own exhibit, as, for example, Mr. Adams did on benchmarking. So I think I would be concerned that the Board clarify to what purpose Mr. Shepherd is using this, and the way that he introduces this into this proceeding, if he intends to rely on it. 737 MR. VLAHOS: Mr. Rodger, why, then, the objection by Toronto Hydro? If the data is in the material, then what is the issue, from Toronto Hydro's perspective, as to why they cannot present that data in a certain format? Maybe I'm not -- 738 MR. RODGER: I thought part of Mr. Shepherd's request, and maybe I stand to be corrected, is that after running whatever variables Mr. Shepherd's client thought would be appropriate, that somehow Toronto Hydro was then to validate the results, and thus my point that if an intervenor wants to put forward a different approach, they've got the data, they can use whatever model they want. I'm just not sure why it's incumbent upon us to -- 739 MR. VLAHOS: You're referring to a live model, are you? 740 MR. RODGER: Well, either. 741 MR. SHEPHERD: Mr. Chairman, I thought I had made clear that I've withdrawn that request. We'll deal with it, simply, in final argument, and we'll take information that is on the record and divide and multiply in the appropriate ways to make our arguments. We won't add any new information. 742 MR. VLAHOS: All right. Mr. Rodger raises the point that he is not sure as to the -- if this document is not part of the evidence now, that there may be an issue in the argument phase. Right, Mr. Rodger? 743 MR. RODGER: That's correct. I'm not sure how under Mr. Shepherd's scenario one would test that. 744 MR. SHEPHERD: If -- sorry, Mr. Chairman. 745 MR. VLAHOS: Go ahead. 746 MR. SHEPHERD: If Toronto Hydro files information and we wish to show that if you add it up, it produces a certain result, it is not, to my experience, normally the practice of this Board that we're required to have an expert witness come in and show that you add up their figures and you get a certain result. We can simply put it in our argument that, if you add them up, this is the result you get. And similarly, multiplying and dividing and everything else. We're not going to do anything other than that. 747 MR. RODGER: Sounds like an exhibit to me, Mr. Chairman. That's what Toronto Hydro has done. We've added various numbers and we've -- you have the form here of what we've prefiled. 748 MR. VLAHOS: Well, I'm not so certain, Mr. Rodger. This is all information that has been adduced in the public record, and the public record does include phase 1 matters. So I'm just not sure I'm there with you on that. It may go to accuracy, in which case you'll point out that, you know, the School's argument contains errors in the data they referred to. But I would have thought that if the request by Mr. Shepherd is a presentation of the data that already exists in the record in a certain fashion, I'm a little problematized as to why that's objected to. 749 MR. RODGER: Perhaps Mr. Shepherd could then just restate again what he would be looking for Toronto Hydro to do. 750 MR. VLAHOS: Why don't you do that, Mr. Shepherd. Why don't you tell us exactly -- just visualize this spreadsheet, and tell us what you need and why. 751 MR. SHEPHERD: What we actually asked for was the equivalent of G13, 1, using the allocators and the rate classes for Toronto Hydro and the amounts of their RSVA accounts. And the allocators, the rate classes, and the amounts of their RSVA accounts are all matters that are on the public record today. So we were simply asking for a calculation. I, in fact, did the calculation over lunch so I don't need it anymore. 752 MR. VLAHOS: Can I ask the witnesses, what is the problem with that, in providing that in a hard copy? 753 MR. ZEBROWSKI: I believe, Mr. Chairman, it's really understanding the Hydro One model. It is a complicated spreadsheet that they have there. It has items in it that Toronto Hydro does not use. It will take a period of time to go through the model and understand how each cell references each other. And, well, finally, then, we have to slot our data into the appropriate locations within that model. If it was a simple spreadsheet, I think it could be done fairly readily. 754 MR. VLAHOS: Let's forget Hydro One for a minute. Can we simplify the format for the other three utilities, starting with Toronto Hydro? 755 Mr. Shepherd, can I go back to you as to what would you like in a spreadsheet to assist you from Toronto Hydro? 756 MR. SHEPHERD: The spreadsheet I did at lunch has the percentage allocators by each category, kilowatt-hours, kilowatt-hours non-time-of-use for 1571, distribution revenues, number of customers, et cetera. It has the amounts to be claimed and calculates the amounts for each category of regulatory asset for each class. It's a very uncomplicated spreadsheet. And then, of course, at the end of it, you have to back out what's already been collected to determine what the incremental rate impact is per class in years two, three, and four, phase 2. 757 MR. VLAHOS: Now, with that, Mr. Rodger? 758 MR. RODGER: Well, if Mr. Shepherd has already done this, why doesn't he just print off a copy of it, and then I'll get the panel to check it? Isn't that the easiest if the work has already been done? 759 MR. VLAHOS: Have you done it? 760 MR. SHEPHERD: Yes. 761 MR. VLAHOS: You have done it. Any problem with submitting it? 762 MR. SHEPHERD: I have no problem with that. I think that was my original request, in fact. 763 MR. VLAHOS: Is it typed? 764 MR. SHEPHERD: It's an Excel spreadsheet, so it is. 765 MR. RODGER: I'd be delighted to have an undertaking from Mr. Shepherd. 766 MR. VLAHOS: That would be a first. Okay. Mr. Shepherd, would you need that now in order to proceed with your cross-examination? 767 MR. SHEPHERD: No, I'm fine. 768 MR. VLAHOS: Why don't you just file that now, if you have it, and Staff would be manner happy to make copies and distribute it? 769 MR. SHEPHERD: I can't do that because I don't have a printer. I'm happy to e-mail it to Mr. Rodger. 770 MR. VLAHOS: Well, the rest of the parties would need it as well. 771 MR. SHEPHERD: What I would propose is, if this is agreeable to Toronto Hydro, I would e-mail it to them in live form so they can check it, and they can then -- if it's acceptable, they can then provide it to you in hard copy and say, These numbers are correct. 772 MR. VLAHOS: Okay. That seems to be fine. The only other request I would make is if I can get Staff involved in this, because I'm just trying to think ahead, if something else, information that's contained would be useful to the Board. 773 Would that be acceptable to both of you gentlemen? 774 MR. SHEPHERD: That's fine. 775 MR. VLAHOS: Mr. Thiessen, you're charged with this? 776 MR. THIESSEN: Sure. I'll just check with my lawyer. 777 MR. VLAHOS: Okay. That seems to take care of that request for Toronto Hydro. 778 MR. SIDLOFSKY: Excuse me, sir, if I might interrupt you. On behalf of Enersource, obviously this is the same question that's going to come up for Enersource and London Hydro. If it would be possible for Mr. Shepherd to do his spreadsheet and provide it to me as well so that I can speak to our clients, Enersource, about this. It may save a bit of time on Monday. 779 MR. VLAHOS: The more the merrier, and then I would include Mr. Vogel of London Hydro. 780 MR. SHEPHERD: I'm, of course, happy to do that, Mr. Chairman, but I've already used up my lunch hour doing the one, so I would have to do it tonight. 781 MR. VLAHOS: That's fine. Even if the panel is excused, we can hear from Mr. Rodger in due course that the numbers are acceptable. 782 MR. SHEPHERD: Thank you, Mr. Chair. 783 MR. VLAHOS: With that -- sorry, did somebody speak up? Let's go to the other issue about Hydro One. 784 MR. SHEPHERD: Okay. 785 MS. ALDRED: If it would assist the Board, we can provide the live version. I don't know whether it would be this afternoon, but probably by tomorrow morning. And we could -- I don't know how we would do it. Maybe e-mail people or we could bring a disk, obviously. Either one. 786 [The Board confers] 787 MR. VLAHOS: If you can e-mail it to the Board, Ms. Aldred, then the Board will probably -- can put it on its own web site so it can be available to all. Would that work, Mr. Thiessen? 788 MR. THIESSEN: I don't know if we have a place for it on the web site. I don't know if that worked. I think I've received plenty of e-mails from the various parties, and I think everyone has an e-mail address, including me and all the other parties, so I think it could be e-mailed around. 789 MR. VLAHOS: Okay. So you can e-mail it to Mr. Shepherd and Board Staff as well, Mr. Thiessen, and then Mr. Thiessen will undertake to e-mail it back to the participants of this proceeding. Would that be okay? Okay. 790 MR. SHEPHERD: Mr. Chairman, do we need an undertaking number for that, or is that simply part of the previous one? 791 MR. VLAHOS: No, it's a direction of the Board, I guess. 792 Okay. Anything else? 793 TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY; RESUMED: 794 A.LAM; Previously Sworn. 795 R.ZEBROWSKI; Previously Sworn. 796 J.COUILLARD; Previously Sworn. 797 R.DEMENTAVICIUS; Previously Sworn. 798 E.MORVAY; Previously Sworn. 799 CROSS-EXAMINATION BY MR. SHEPHERD: 800 MR. SHEPHERD: I just have a number of number confusions here that I want to try to figure out. 801 I'm looking for the famous schedule 25 allocation. Do you have that? 802 MR. LAM: Yes, I do. 803 MR. SHEPHERD: Okay. So here's what I'm trying to figure out. There's a number there, 7,228,786, do you see that, at the bottom under RSVA? 804 MR. LAM: Yes. 805 MR. SHEPHERD: And I guess what I'm trying to understand is, that's one-third of the RSVA recovery that you're proposing in phase 2; is that right? 806 MR. LAM: Okay. What I did here was I -- if you turn to the page before this, it's page 1 of 2, schedule 25. At the top of that page, there's 1580 -- account 1580, 1584, 1586, and 1588. What I did there was I added them up and subtracted what was already received for the phase 1. In phase 1, recovered $21 million, minus $39 million, divided by three. 807 MR. SHEPHERD: And so here's my problem. I didn't get 7.2 million when I did that math. 808 MR. LAM: One second. Check the $21 million number in Mr. Lam's answer. 809 Unfortunately, I don't have the spreadsheet itself references to check on it. Could I take an undertaking to look at it before we -- during the break, and get back to you on that? 810 MR. SHEPHERD: That would be fine. 811 Mr. Chairman, before we -- 812 MR. VLAHOS: Sorry, go ahead. We're conferring here. 813 MR. SHEPHERD: Sorry, go ahead. 814 MR. VLAHOS: That's okay. Go ahead. 815 MR. SHEPHERD: Before we get to that undertaking, I do have a couple of other questions in this area, and maybe that will flesh out this undertaking. 816 MR. VLAHOS: Go ahead. 817 MR. SHEPHERD: The second part is I'm looking at page one of schedule 25 that you referred us to, and it says, "Recovered in the 2004 rate year 21,082,401"; do you see that? 818 MR. LAM: Can you repeat that, please. 819 MR. SHEPHERD: It says "recovered in 2004 rate year, 21,082,401." 820 MR. LAM: Yes. 821 MR. SHEPHERD: But then I see a little higher under account 1571, 21,082,401 and I'm going to ask, is the fact that those two are equal accidental? 822 MR. LAM: The sheet you're looking at, does it have a blue colour on it, or is this white? 823 MR. SHEPHERD: Blue. 824 MR. LAM: There's been an update to that. 825 MR. SHEPHERD: This is dated July 9th. Okay. So -- 826 MR. LAM: There's an update to this dated July 29th. 827 MR. SHEPHERD: Okay. I have it. So I still don't get 7.2 million times three, if I do the math -- you see the problem? 828 MR. LAM: Yes. I'll check on that. 829 MR. SHEPHERD: Okay. And then I want to ask another question about that, is I'm looking at the sheet 3 of the RAM model that my friend Mr. Rodger kindly referred me to for the data, and it has the RSVA claim in phase 1 which says 23,611,125. 830 MR. LAM: Right. 831 MR. SHEPHERD: So that's not, in fact, what you collected? 832 MR. LAM: Okay. The 23,611,125 is a true-up situation, because we were supposed to recover $21 million within a ten-month period, but we recovered it in a nine-month period. 833 MR. SHEPHERD: You lost me. Try again. 834 MR. LAM: We were supposed to recover rates in the -- $21 million spread over a ten-month period. 835 MR. SHEPHERD: Okay. 836 MR. LAM: But because we couldn't do that, we had a rate increase in April as opposed to March, and we had to recover an -- $21 million in, actually, 11 months instead of 12 months. 837 MR. SHEPHERD: Yes, I remember that. 838 MR. LAM: And if you take $21 million -- let me do the math. 839 MR. SHEPHERD: And you gross it up by twelve-elevenths? 840 MR. LAM: Yeah, that's right. It is in the application, by the way. 841 MR. SHEPHERD: So, then -- so, then, the data here on this sheet 3 where it says, "2002 regulatory asset RSVA allocations," that list of allocations to rate classes, that's not correct; is it? 842 MR. LAM: Can you repeat that. 843 MR. SHEPHERD: I'm looking at the sheet Mr. Rodger referred me to, sheet 3 of the RAM model in phase 1. 844 MR. LAM: Right. 845 MR. SHEPHERD: It has this chart, "2002 statistics by class," kilowatts, kilowatt-hours, et cetera. And one of the columns is, "2002 regulatory asset RSVA allocations." Do you see that column? 846 MR. LAM: Right. 847 MR. SHEPHERD: And that totals 23.6 million. So those allocations to each rate class, they aren't correct, are they? 848 MR. LAM: They are -- they are correct in actually designing the rates to recover $21 million, because if you were given -- if you've got to recover $21 million in 12 months but you're only given 11 months to recover it, what you do is adjust that revenue requirement by appropriate ratio and use that number to design your rates to recover the revenue requirement in 11 months as opposed to 12 months. So in actual reality, we only recovered $21 million. 849 MR. SHEPHERD: Okay. So if I look at that column, I see, for example, under residential class, it says the allocation of the RSVA accounts to the residential class is $5,000,035 and change? 850 MR. LAM: That's right. 851 MR. SHEPHERD: That's actually not what you collected from the residential class, you collected eleven-twelfths of that from them. 852 MR. LAM: That's right. 853 MR. SHEPHERD: So if I took eleven-twelfths of each of those numbers, then I would get the actually amount you are currently collecting in 2004 from each of your classes; right? 854 MR. LAM: I believe that's the math, yes. 855 MR. SHEPHERD: Okay, wonderful. 856 MR. LAM: By the way, it's the way most of the LDCs apply for phase 1 because of timing. If you look at the other LDCs, it's designed the same way. 857 MR. SHEPHERD: I understand. No problem with the eleven-twelfths. I want to make sure we have the right numbers. 858 Do I understand correctly that 1575 is allocated by kilowatt-hours but excluding time of use; is that right? 859 MR. LAM: Just give me a second. 860 Yes. It has not been recovered yet. It is supposed to be recovered in the next rate year. 861 MR. SHEPHERD: Oh, no, I understand that. But you're proposing to recover it on the basis of kilowatt-hours, excluding time of use. 862 MR. LAM: That's right. 863 MR. SHEPHERD: Okay. Let me just ask you one more -- and I'm looking at J.2.2A. 864 MR. LAM: Yes, I have it. 865 MR. SHEPHERD: Okay. So tell me whether this is right. The first column, 2004 phase 1 monthly impacts, that's how much you're collecting right now per customer, per month, for each class. 866 MR. LAM: Roughly. 867 MR. SHEPHERD: So if we took your number of residential customers and multiplied by 12 and by 66 cents, we'd get the total -- we'd get that, whatever it is, 4.6 million that you're collecting from them this year; right? 868 MR. LAM: It would not be exact, because what I did in this particular case is a simplistic way of trying to measure the impacts of the two methods that were in discussion here. If you were to do that math, it would not be equal. There would be some differences. 869 MR. SHEPHERD: But it will be within half a percent, say? 870 MR. LAM: Half a percent in residential class and the customers under 50, but the -- maybe a little bit bigger in other customers. 871 MR. SHEPHERD: And that's -- 872 MR. LAM: But it would be in the ballpark area. 873 MR. SHEPHERD: And that's because you did sort of a -- you used a sort of a ballpark, like a shortcut? 874 MR. LAM: What I tried to do here is I tried to make sure I was comparing apples to apples and use the same, how you say, revenue requirement for each class of customers. 875 MR. SHEPHERD: Well, let's just take general service over 50 kilowatts, all right? 876 MR. LAM: Okay. 877 MR. SHEPHERD: You have 9,484 customers in that class; correct? 878 MR. LAM: Including the time of use, yes, roughly. 879 MR. SHEPHERD: Sorry, including time of use? 880 MR. LAM: If you add the schedule we had in -- that Mr. Rodger gave out, if you add 9,427 and 1,284, that would be the total number of customers over 50 kilowatts. 881 MR. SHEPHERD: No, I'm asking about the class, general service over 50 kilowatts, non-time-of-use, in 2002, it was 9,427; right? 882 MR. LAM: That's right. 883 MR. SHEPHERD: Okay, so that's the number, 9,427. We multiply that by 12 and by a 56.25, we get $6,363,000. So should I -- is it reasonable to say that's how much you're currently collecting from that class, 6,365,000, roughly? 884 MR. LAM: Pretty close. 885 MR. SHEPHERD: And that's all allocated on kilowatt-hours because it's only RSVA accounts you're collecting. 886 MR. LAM: That's right. 887 MR. SHEPHERD: And then back to J.2.2A. If you look at the next column, the transition costs using the distribution revenues allocation. If I understand this right, this is the -- this is how much more you're asking for from each class in 2005 as compared to 2004, assuming that allocation for that category. 888 MR. LAM: That's correct. 889 MR. SHEPHERD: So, again, if I took 9,427, that's in that same class, general service over 50 kilowatts, times 12 months, times $11.16, there's an additional $1,262,000 that you're asking. That's in addition to the 6 million 4 that you're already getting, you're asking for another 1,262,000 in 2005 from that class; right? 890 MR. LAM: If the math is correct, that's right. 891 MR. SHEPHERD: And conversely, if you use the customer -- number of customers allocation for transition costs, then you would take that 11.41 that you see in the next column times 12 times 9,427, and you would see that you would reduce what you're asking for from that class by 1 million 290; right? 892 MR. LAM: Roughly, yes. 893 MR. SHEPHERD: So the swing is about two and a half million dollars, which we saw on that other spreadsheet is approximately where it was, about $2.6 million difference depending on your allocation method. 894 MR. LAM: Yes, in the ballpark, yes. 895 MR. SHEPHERD: Is there somewhere in your evidence, this is my last question, you'll be happy to know, is there somewhere in your evidence where you break down the entire $95.9 million and you say how much each class ultimately pays of that? Is there one place where that is? 896 MR. LAM: It might be in schedule 25. Let me just check. 897 If you look at schedule 25, you really want to dig -- get into the numbers, what schedule 25 shows you, essentially, is moving forward from 2005 onwards, is that $95 million minus the 21 that was recovered in phase 1, so if you -- if you're adding phase 1 in there, that would be the full recovery of the $95 million spread over four years. 898 MR. SHEPHERD: Okay. So we can actually, from schedule 25, we can calculate what -- 899 MR. LAM: Yes, you could. 900 MR. SHEPHERD: But as far as you know, there's nowhere in the evidence where you've actually taken the 95.9 and broken it out by class. 901 MR. LAM: Not by itself. I took the $95 million and took out phase 1, what was recovered. 902 MR. SHEPHERD: That's great. Those are all my questions, Mr. Chair. 903 MR. VLAHOS: Thank you, Mr. Shepherd. 904 Mr. Dingwall. 905 CROSS-EXAMINATION BY MR. DINGWALL: 906 MR. DINGWALL: Good afternoon, panel. My name is Brian Dingwall. I'm here in the capacity as counsel for Energy Probe Research Foundation. I'd like to begin following along the thread of Mr. Shepherd's area of examination, which would be with respect to some of the specific accounts that are being claimed here. 907 In respect of the first series of questions, I'm going to ask that the panel look at two documents, the first of them being page 8 of the first section of the prefiled evidence in respect of phase 2 -- 908 MR. VLAHOS: Mr. Dingwall, would you pull your microphone down a bit. Your microphone, just pull it down a bit. Stretch it out. Okay. That's better. 909 MR. ZEBROWSKI: Could you repeat that, please. 910 MR. DINGWALL: The first of the two documents that I'll be asking you to refer to, and it may be handy to have both open at the same time, would be page 8 of the phase 2 prefiled evidence, in the first section, the section that begins with the index. The second document that I'd like you to refer to is a schedule that's been filed in response to an Energy Probe interrogatory, and yes, we finally get to use our own, which would be schedule -- it's W in the IR response binder, section 2, response W. 911 MR. LAM: Yes, we have it. 912 MR. DINGWALL: In Energy Probe Interrogatory No. 29, we sought a monthly and annual breakout of annual net accrual costs underpinning account 1586, and in the schedule 29 response that I've asked you to refer to, in the column at the far right under each year, those appear to be the annual summaries underpinning that account. 913 Now, with respect to page 8 in the other binder, it appears that for 2003, a customer credit of $1.599 million was identified -- I'm sorry, 2002, and for 2003, a customer credit of $2.087 million was identified. 914 MR. ZEBROWSKI: I'm sorry, is that a question? 915 MR. DINGWALL: You can either take it subject to check. But since you now have the documents in front of you, I presume you can confirm that. 916 MR. ZEBROWSKI: That is correct, yes. 917 MR. DINGWALL: Thank you, Mr. Zebrowski. 918 And that these amounts are based on the cumulative balances prior to the inclusion of interest arising from the annual net accruals which, for 2002, and this is where we go to the schedule 29, is $1.655620 million, and for 2003 is $366,369. Would you agree with that? 919 MR. LAM: Could you repeat the statement again, please. 920 MR. DINGWALL: So the net accruals reflected in schedule 29 for the two years would be 1.656 million for 2002 and 366,000 for 2003. This would be in the far right columns on schedule 29, the fifth line down for each. 921 MR. LAM: Okay. Yes, we see it. 922 MR. DINGWALL: Now, with respect to the 2003 calculation, it appears that, in order to read the net accrual amount of $366,000, the switch-gear credit was applied to the other amounts within that summary; is that correct? The switch-gear credit is the fourth line item in that summary. 923 MR. ZEBROWSKI: I'm just having a little difficult interpreting what you're meaning here when you say it was applied. It was applied to which? 924 MR. DINGWALL: As I understand it, the calculation begins with the connection revenue, which is the first line -- we're looking at December 31, 2003. And the amount for connection revenue is 110,057,000 and change, and deducted from that would then be the connection expense, revenue minus expense, leading to -- okay, yeah. Then the next line item on your chart would be invoice adjustment, which would again be a deduction of, in this case, 1,141,000. 925 MR. LAM: This is an invoice, it's not an adjustment added on. 926 MR. DINGWALL: Right. And then the next line item is the switch-gear credit. 927 MR. LAM: Right. 928 MR. DINGWALL: And in order to get to the amount of 366,000, which is the net accrual, which, in this case, is a credit, those five columns are added together, the pluses and the minuses, to reach that $366,000 minus. 929 MR. LAM: I'll check the math. They're supposed to, but I'll check the math. 930 MR. DINGWALL: Right. So it's supposed to, and that's its intention. Right. And for 2003, we believe that this calculation is correct. 931 MR. LAM: Okay. 932 MR. DINGWALL: Is the same methodology supposed to apply to 2002? 933 MR. LAM: I believe it is. 934 MR. DINGWALL: If I could trouble you to get out the back of an envelope or calculator or something like that and just see -- take a quick check and see if those amounts do add up for 2002. From our calculations, they appear not to. 935 MR. LAM: Yes, you're right, they don't. 936 MR. DINGWALL: And what appears to be missing for 2002 is the switch-gear credit of $4,782,900.28 937 MR. LAM: Yes, I believe that's so. Subject to check, yes. 938 MR. DINGWALL: Okay. Could I then ask you to undertake to check that, and in the event that the figures on the filed response to Energy Probe Interrogatory No. 29, which is reflected at tab W in schedule 2 of the interrogatory responses, is incorrect, could I then ask you to undertake to file a new corrected exhibit as well as indicate throughout the balance of the filing what other numbers should be corrected to reflect this change. 939 MR. LAM: Yes, I could do that. 940 MR. LYLE: We'll mark that as J.3.7. 941 MR. VLAHOS: Just to be clear, would that be sort of an impact statement, Mr. Dingwall. Assuming that calculation is wrong, once it's corrected, then it's an impact statement on what, specifically? Just go back to the full evidence and to change every number may be problematic. Are you looking for a specific impact on what? Regulatory assets to be recovered or... 942 MR. DINGWALL: Well, it looks like one of the regulatory accounts, being 1586, the recovery sought for that is around $4.7 million too high than what's being claimed. 943 MR. VLAHOS: All right. And the next -- I guess my question is: What would you like to see changed in the filing? 944 MR. DINGWALL: Well, the filing would have to be updated and corrected where necessary in order to reflect the calculation error, and obviously reduce the amount sought for recovery by, if this is the correct amount, $4.7 million, sir. 945 MR. VLAHOS: Okay. That's fair. I understand that. It's just whether it's necessary. We're not going to go back through thousands of interrogatories, for example, where that number may appear, or answers to interrogatories. 946 MR. DINGWALL: No, it really reflects what's being sought to be recovered, so it would really be the summary numbers, sir. 947 MR. VLAHOS: So we'll leave that to the company, in its wisdom, as to tell us what's relevant and -- 948 MR. DINGWALL: That's correct, sir. 949 MR. VLAHOS: All right. 950 Witnesses, are you okay with this? 951 MR. ZEBROWSKI: Yes, we are. 952 MR. VLAHOS: Reporter, are you okay with the request? You are? 953 MR. ZEBROWSKI: Just to be clear, just to correct the spreadsheet, am I correct in that or any subsequent items that may flow out of that as well? 954 MR. DINGWALL: To the extent that the relief requested in your application changes as a result of this, then obviously, in some form of summary document that would be sufficient to clarify that for this proceeding, then that should also be reflected. 955 MR. ZEBROWSKI: Okay. In terms of timing, to redo the spreadsheet, I don't think it will take very long. We may need a bit of time to see how it flows through the rest of the system. Would Monday be all right? 956 MR. DINGWALL: I don't intend on re-examining on the matter. I presume you're just correcting your filing if this is, in fact, an error. 957 UNDERTAKING NO. J.3.7: TO FILE A CORRECT RESPONSE TO ENERGY PROBE INTERROGATORY 29 AS WELL AS A SUMMARY DOCUMENT INDICATING WHAT OTHER NUMBERS SHOULD BE CORRECTED TO REFLECT THIS CHANGE 958 MR. DINGWALL: The next area we'd like to move on to, if everyone is in a position to do so, would be account 1571. 959 Now, the balances for account 1571 are reflected at appendix C2, flag A -- sorry, C2, tab A. Now, Energy Probe IR 24 we ask for monthly breakouts of all the RSVA amounts. And the response provides information on 1580, 1584, and 1588 but not 1571. Was interest charged on account 1571? 960 MR. ZEBROWSKI: There is no interest applied to this account. 961 MR. DINGWALL: There was no interest charged on this account, Mr. Zebrowski? 962 MR. ZEBROWSKI: That's correct. 963 MR. DINGWALL: And is that consistent with the methodology applied to all the other accounts with respect to interest? 964 MR. ZEBROWSKI: No. I believe this is the only account that there is no provision for adding carrying charges to it. 965 MR. DINGWALL: And that's based on your interpretation of what the requirements for transition costs in RSVA accounts were? 966 MR. ZEBROWSKI: Yes. I'm just trying to recall exactly where it's specified -- I think between the Distribution Rates Handbook and Accounting Procedures Handbook, it did specify where interest was to be applied, and that's what we followed. 967 MR. DINGWALL: Okay. Now, in looking at C2, B, at the bottom of page 4, on the bottom, a description of unbilled revenue is described for 2001. 968 MR. LAM: Could you repeat that, please. 969 MR. DINGWALL: C2, B, page 4, in the prefiled evidence. 970 MR. ZEBROWSKI: Okay. 971 MR. LAM: Yes. 972 MR. DINGWALL: And on the next page, the methodology for 2002 is set out, and the approaches seem quite different. Can you explain the reason behind your difference in approaches. 973 MR. ZEBROWSKI: Just to be sure, are we looking at account 1571? 974 MR. DINGWALL: Yes. 975 MR. ZEBROWSKI: On page 4 and 5. And which paragraph are we looking at? 976 MR. DINGWALL: We're looking at the second last paragraph, page 4, and the last paragraph of page 5, I believe. And the question, Mr. Zebrowski, is it appears that unbilled revenue for 2001 and 2002 appear to be accounted for differently. 977 MR. LAM: I can take that, I believe. In 2001, it was a difference between what the demand in energy split was from cost of power. We were told to track that by the Board, I believe, for 2001 and 2002. But in 2002, the premarket opening variance was calculated slightly different, because those were based on the -- I believe it was based on the wholesale energy surcharge difference. 978 Let me take a second. I believe I have the answer. 979 Okay. In 2002, what happened was because of the seasonal differences between when the market opened versus what the cost of power was prior to the market opening, obviously there was a seasonal difference. In that particular case in 2002, we took whatever the meter-reading routes were at the point and determined -- up until the end of April, and determined how many days of unbilled revenue there was in 2002 after market opening. Using that methodology determines what the bulk of the $23 million was. But in 2002, it's strictly the cost of power change coming OPG between the demand energy split that has a direct impact on the cost -- on our expense and revenue. 980 MR. DINGWALL: So prior to May 1st, 2002, Toronto Hydro serviced some small-volume general-service customers under an optional time-of-use rate; is that correct? 981 MR. LAM: That's right. 982 MR. DINGWALL: And the rates for those customers more closely matched the cost of power than rates charged to non-time-of-use customers; is that correct? 983 MR. LAM: Prior to market open, yes. 984 MR. DINGWALL: Yes. And in a function related to market opening, Toronto Hydro eliminated the optional time-of-use rate for small-volume customers. 985 MR. LAM: They only apply to non-time-of-use customers, not the optional time-of-use customers. This $9 million is really coming from the non-time-of-use customers. 986 MR. DINGWALL: Mr. Lam, Mr. Adams reminds me of a couple of points of departure that may have led to some confusion. Rather than beginning to talk about how you've tracked costs on the cost side, I'd like to move on to the cost recovery side. 987 MR. LAM: Okay. 988 MR. DINGWALL: So we're moving away from tracking the costs as they're incurred and now looking at recovery. And you've -- we've looked at the fact that Toronto Hydro was having time-of-use rates for small-volume customers, and that that did cease at market opening. Now, the rates for these customers more closely matched the cost of power than rates charged to non-time-of-use customers; would you agree with that? 989 MR. LAM: Yes, I do. 990 MR. DINGWALL: Prior to market opening. 991 MR. LAM: Yes, I do. 992 MR. DINGWALL: Now, subsequent to market opening, Toronto Hydro eliminated the optional time-of-use rate for small-volume customers, and we understand that there were many of these customers, a number of whom are Energy Probe supporters, who were concerned about the loss of time-of-use meters. Are you aware of that, the concerns of the customers? 993 MR. MORVAY: Yes, I am. 994 MR. DINGWALL: In Energy Probe Interrogatory 20, Energy Probe sought additional information on account 1571 which is reflected in schedule 20B to the Energy Probe interrogatory responses, and that is reflected at letter J and it's page 1 of interrogatory binder with 2J -- tab J. 995 MR. LAM: Would that be schedule 20B? 996 MR. DINGWALL: Yes. 997 MR. LAM: Yes, I've got that. 998 MR. DINGWALL: We note there that the calculations of the costs to be visited on the non-time-of-use customers for account 1571 included the optional time-of-use revenues in the non-time-of-use revenues. Can you explain that? 999 MR. LAM: Could you please repeat that again. 1000 MR. DINGWALL: Certainly. We note there that the calculation of the costs to be visited on the non-time-of-use customers for 1571 include the optional time-of-use revenues in the non-time-of-use revenues. 1001 MR. ZEBROWSKI: If I recall the question correctly, maybe to simplify this, in the bottom part of that table in the first line where it says "non-time-of-use customers," cost of power revenue, optional time-of-use is included, yes. The optional time-of-use customers were lumped in together -- these are the small optional time-of-use were lumped in together with the non-time-of-use customers. 1002 MR. DINGWALL: So does that not suggest that they're having to pick up the costs for 1571? 1003 MR. ZEBROWSKI: It does. It's an anomaly in the methodology mainly because we have one class of residential customer after market opening, and there's no way of differentiating them. We would have to set up an entire new class of customer again and allocate costs separately to them and bill them separately with different rates and so on. But it's part of the transition process. That's the way the billing system works. 1004 MR. DINGWALL: Do you know approximately, Mr. Zebrowski, how much residential time-of-use customers you had before market opening? 1005 MR. MORVAY: Approximately 1,800. 1006 MR. DINGWALL: And do you know the cost -- rather, the cost that's being attributed to them as a result of them moving to the general service class? 1007 MR. ZEBROWSKI: I'm sorry, would you repeat that again. 1008 MR. DINGWALL: What is the 1571 impact on those customers? 1009 MR. ZEBROWSKI: If it's a residential customer, that customer will see the same impact as all the other residential customers. 1010 MR. DINGWALL: Would it be fair to say, though, that they did not contribute, these 1,800 customers, to that variance? They were on a time-of-use rate before that. 1011 MR. ZEBROWSKI: In a general sense, that would be true. I mean, without having -- having had the opportunity to go through and quantify them separately, that would be true. 1012 MR. DINGWALL: Is there any way that you could quantify it so that we have a ballpark idea of how much money is involved for the total of these 1,800 customers? 1013 MR. LAM: Maybe to help you along, if you look at schedule 25 of the -- in the response to the OEB Staff IR 25, the premarket allocation for the residential classes in there, it's about $2 million. And if you take that $2 million, divide it by the number of customers and divide it by 12, that would give the average impact to the optional time-of-use customers before market opening. There's a column that says, "Premarket." 1014 MR. DINGWALL: And the amount there is $1,981,172? 1015 MR. LAM: The amount under the "Premarket" is 2,000,018. 1016 MR. DINGWALL: Okay. 1017 MR. LAM: If you take that and divide it by the total number of residential customers on record, divided by 12, that would be the monthly impact for the optional time-of-use customers that were there before market opening. 1018 MR. DINGWALL: Okay. 1019 MR. LAM: That would be a ballpark area. 1020 MR. DINGWALL: Right. I take it individual volumes would be based around individual consumptions. 1021 MR. LAM: That's right. 1022 MR. DINGWALL: Okay. With respect to 1571, before we move on to something less numerical, how are losses embedded and costs allocated to time-of-use customers? 1023 MR. ZEBROWSKI: There's no current allocation of losses. On a customer's bill, there's an uplift to account for losses. So depending on the customer's own consumption patterns, then they will see some -- whatever the appropriate allocation is of losses. 1024 MR. DINGWALL: So would it be fair to say, then, that from Toronto Hydro's perspective, losses are allocated on an consumption factor, on an individual customer basis, rather than by class? 1025 MR. LAM: By the customer's consumption, yes. A ratio will be applied to the customer's consumption on a monthly basis. 1026 MR. DINGWALL: And is there no separation of the time-of-use versus non-time-of-use customers for that calculation? 1027 MR. LAM: After market opening, there was no distinction between those two classes. They all were lumped into one class. 1028 MR. DINGWALL: So moving back to schedule 20B again, which is the response to the Energy Probe interrogatory we were referring to a couple minutes ago. 1029 MR. LAM: Yes, I've got that. 1030 MR. DINGWALL: Please confirm that the cost of power for time-of-use customers was based on revenue for time-of-use customers. 1031 MR. ZEBROWSKI: I'm not sure we're following along. Are we referring to something specific on the chart here? 1032 MR. DINGWALL: I think rather than bog down in this, because this might be more of an interpretive question, we can probably talk BTU offline. What we'll do is move on to another area. 1033 I'm mindful of the clock as well, sir, and I'll take guidance as to when you think we should take the afternoon break, and what the appropriate level of caffeine might be for everyone in this room. 1034 MR. VLAHOS: Are you begging for a break? We hear you. Why don't we break now. Can you tell us how long you have, Mr. Dingwall? 1035 MR. DINGWALL: I estimate another half hour to 25 minutes. We're moving from the numerical heavy conferencing session of the cross-examination more to the fluid and fascinating and flamboyant section. 1036 MR. VLAHOS: I would argue we should just jump into it, but I am a little concerned that I would like to finish this panel by today, and we do have Ms. Lott and we have Mr. Lyle as well, so I would ask you to keep that in mind. 1037 We will break for 15 minutes and we'll resume at 3:00. 1038 --- Recess taken at 2:45 p.m. 1039 --- On resuming at 3:07 p.m. 1040 MR. VLAHOS: Please be seated. 1041 Okay, Mr. Dingwall, now you've got us all excited, you better deliver. 1042 MR. DINGWALL: I would have thought $4.7 million of savings might have helped in that regard, but let me see what I can do. 1043 MR. VLAHOS: I should not comment on this. 1044 MR. DINGWALL: We'll leave that for the performance-based intervention proceeding coming up in discussing a shared savings mechanism. 1045 I notice, gentlemen, that Toronto Hydro-Electricity System is not making a claim in this proceeding for a retail cost variance account; is that correct? 1046 MR. ZEBROWSKI: That's correct. 1047 MR. DINGWALL: And that because the cost structure you've established within your utility and with your various service providers brings in sufficient revenues through the STR funds to cover the costs of providing those functions? 1048 MR. ZEBROWSKI: What we did is we accumulated the total costs and we accumulated the total revenues. The difference was not a large difference, and there's a materiality limit that is defined and it did not exceed the materiality limit and therefore it basically became irrelevant. We didn't file it. 1049 MR. DINGWALL: Okay. There was a question on interrogatories about the sharing of corporate services between THESL and THESI, THESL being the regulated entity and I being the affiliate, and I believe the response to the interrogatory was that there were no shared services; is that correct? 1050 MR. COUILLARD: That is correct. Maybe just to qualify. None of the shared services, per se, are included in this claim. For more clarity, sorry, Mr. Dingwall, for example, there's a corporate payroll function that prepares payroll for the entire corporation, and human resources, different groups, and so some of these groups will provide services to Energy Services; some of these groups will provide services also to Electric Systems and other affiliates of Toronto Hydro. However, none of the costs related to these corporate groups have been allocated into any of the accounts that we're seeking for recovery. 1051 MR. DINGWALL: During the period in which amounts were accumulated in the accounts that are the subject of this proceeding, were there any shared management between the two companies? 1052 MR. COUILLARD: Yes, there was some shared management. However, if you want to make sure we're on the same wave length, no cost of this shared management is included in our claim. 1053 MR. DINGWALL: Can you indicate in which roles, and let's stay at the senior level, at which roles there were shareholder roles between management of THESI and THESL? 1054 MR. COUILLARD: Are you asking if people in Electric System were also performing activities for people in other affiliates? I'm just trying to see where you're going. 1055 MR. DINGWALL: The only affiliate I'm concerned with at this point is the commodity affiliate, which would be Toronto Hydro Energy Services Inc. 1056 MR. COUILLARD: To answer that, there was one chair -- there was one president/chief executive officer for Toronto Hydro Corporation, and under him, obviously, were all the affiliates. So if that qualifies as being shared services, this would be. There was one payroll function for the entire corporation. 1057 MR. DINGWALL: Well, the president of Toronto Hydro Energy Services Inc., did not that person also hold a role within Toronto Hydro-Electricity System Limited? 1058 MR. COUILLARD: No. 1059 MR. DINGWALL: Hilda Mackow was not the vice-president of customer service. 1060 MR. COUILLARD: She never held both roles at the same time. She worked at Toronto Hydro-Electric System in the function you mentioned, and then she was appointed and transferred into Toronto Hydro Energy Services when Energy Services was created. But she never held both roles at the same time. 1061 MR. DINGWALL: Can you indicate to me, and I know there's an IR response so do your best efforts at this point in time, the date upon which Toronto Hydro Electric Services Inc. was established? 1062 MR. COUILLARD: It was established, my recollection, I think, is June 23rd, 1999, at the time. 1063 MR. DINGWALL: And I take it that that establishment date was based on a date of incorporation; is that correct? 1064 MR. COUILLARD: That is correct. 1065 MR. DINGWALL: And I would assume from that, and you can agree with me or not as you wish, that prior to the time of incorporation, there was some degree of corporate planning around the establishment of the affiliate; would that be correct? 1066 MR. COUILLARD: We're not directly -- at the time, were not directly involved with corporate planning or corporate management, so I -- unfortunately, I can't answer that. 1067 MR. DINGWALL: "You" being none of the individuals on this panel? 1068 MR. ZEBROWSKI: No. 1069 MR. DINGWALL: In schedule 23, which is reflected at Exhibit 1M of the Board Staff interrogatory responses, there's a document entitled "Toronto Hydro Corporation Policy Manual." 1070 MR. COUILLARD: Yes. 1071 MR. DINGWALL: In looking at this manual, it looks like there were very specific authorities in place for Toronto Hydro-Electricity System Limited with respect to the purchase of services, equipment, material contracts, et cetera, that required processes and sign-offs at different corporate levels; is that correct? 1072 MR. COUILLARD: That is correct. 1073 MR. DINGWALL: And I'm seeing here an issue date of February 2000 with a review date of February 2001; is that correct? 1074 MR. COUILLARD: That's what the document says. 1075 MR. DINGWALL: Okay. Do you know, sir, whether or not there was any such policy in place before February of 2000? 1076 MR. ZEBROWSKI: I'm personally going from memory here, but time of amalgamation, there was a short policy manual that was put together that did include a signing authority piece in that. 1077 MR. DINGWALL: With respect to your personal recollections or understanding of how this document works, in the event that a project or a variation on a project or an acquisition of some form gives rise to some concern that it may exceed what's been approved to date, what is the process there? Where do the approvals go to? 1078 MR. ZEBROWSKI: And you're speaking now to the old policy? 1079 MR. DINGWALL: Well, let's take it from -- let me take a step back for a second and say, were there any contracts, as a result of this application, specifically with respect to account 1570, that were entered into prior to February 2000? 1080 MR. DEMENTAVICIUS: I would say yes, because we basically had to sign agreements and contracts for many of our software solutions and vendors prior to these -- to this date. Those went through a process of RFPs as well as approvals beyond a certain limit that managers had, which would then go to VPs for approval or, in the instance of -- if it exceeded VP's limits, then it went to the president or CEO for their approval. So there were contracts that were signed for the purpose of market-readiness prior to this document's date, yes. 1081 MR. DINGWALL: But from what I'm gathering from what you've just said, sir, it sounds like there was a somewhat similar process in which RFPs were required if the contract was over a certain size, and executive sign-off was required if the contract was of a certain financial size; is that correct? 1082 MR. DEMENTAVICIUS: That's correct, yes. 1083 MR. DINGWALL: It sounds like the corporation had a fairly finite set of authorities around entering into contracts; is that correct? 1084 MR. DEMENTAVICIUS: That is correct. 1085 MR. DINGWALL: Did the corporation have - and just so we're clear, when I'm referring to a corporate entity at this point, I'm referring to the applicant - a process for what would happen in terms of authorities when a contract or project showed signs that it would exceed what had been approved? 1086 MR. DEMENTAVICIUS: I don't know how formalized it was prior to this point, but the process normally was based on, once projects were approved and purchase orders were also approved and created, that there was a limit to those purchase orders. If they exceeded -- the value of the purchase orders or equipment or otherwise was exceeded within a certain percentage, it was still within a manager's jurisdiction to approve a one-time increase. Beyond that level, then it went to the VP or the CIO to approve. And if it exceeded those limits, then it would have to go to the CEO or president for any further extension or increase to the value of the purchase order for any service or equipment or software that was purchased under the original agreements. 1087 MR. DINGWALL: Now, I'm looking through here and I'm seeing that there are spending limits that seem to attract -- be attributed to each particular level of role within the company. For new projects, do you know what the limits of authorities for approval were at, say, the manager, vice-president, and president levels? 1088 MR. COUILLARD: Are you asking for prior to the implementation of this policy or after -- like, for the period covered by this policy that we're -- 1089 MR. DINGWALL: Let's talk about the period covered by this policy to start. 1090 MR. COUILLARD: Okay. Well, the approval limit you're seeing here, the same concept we're using right now, is an approval limit based on purchase order by purchase order, in purchasing terms, if you might allow me. From an overall project perspective, there is always reporting and, like, analysis on how we're doing versus expected costs, or costs report to senior management where senior management will be able to review the costs that we've spent and compare to what portion of the work we've achieved so far. 1091 If I may get into a bit more details, without talking too much bean-counting language, I apologize if I do, we're going through usually purchase order by purchase order. So if you have multiple vendors or multiple contractors that you would use, you would set up purchase orders in the system. And these purchase orders, depending on the value, would be approved by the specific approver based on the value that you've seen here in the policy. And from time to time, in the particular case that we're looking at, Toronto Hydro had a steering committee that was reviewing the allocation of all the costs and compared them to where we were and where we thought the costs were. 1092 Being cognizant of the fact that the initial expectation on costs tends to evolve because of the change in the market and because of some of the complexities that were introduced through new legislation along the way. 1093 MR. DINGWALL: So it sounds like there was a fairly close documentary process around the tracking of the costs, the monitoring of the project as a whole, and ensuring that there was visibility to management; is that correct? 1094 MR. COUILLARD: That would be a fair statement. 1095 MR. DINGWALL: And this would be through reports made to this steering committee? 1096 MR. COUILLARD: It would be through reports made to the steering committee. Most times verbal reports were -- there were some monthly meetings or any type of updates that were given to senior management on the project. It was a very high-profile project for Toronto Hydro, so obviously there was a lot of visibility within the company. 1097 MR. DEMENTAVICIUS: I think, as well, you've probably seen reference in our submission to the role of a project management office as well, and that was part of their role as well, to aggregate this information on a week-to-week or month-to-month basis to bring ti forward to the VPs for review as to the status of the project, which included spending against budgets as well as progress against milestones and time lines towards market opening. And those same individuals, or PMO office, also reported to the senior executive on a regular basis as to the overall status of the project and the spending. 1098 MR. DINGWALL: And I take it that, in looking at your approval authorities, the document that I've been referring to for the past little while, that there is a requirement to reduce these matters in writing, to be clear over when an authority is exceeded, where a new authority is granted, and the fact -- or documenting the whole process; that there is authority of management being exercised in the control of the budget; is that correct? 1099 MR. DEMENTAVICIUS: That's correct. 1100 MR. COUILLARD: If I may qualify here, it's all system-driven, and it's from a purchase-order perspective. Let's say we engaged one of our suppliers and we do a purchase order for $50,000 and there's no more money in the purchase order, and another purchase order, well, then, the same approval limit will go and there's an audit trail from the purchase order. Typical purchasing policy that most companies have. 1101 MR. DINGWALL: So would it be fair to say, then, that management had a fairly close understanding of when projects were on budget and on time and when they weren't, and what financial ramifications there were of the change from being on budget and on time to being beyond budget and beyond time? 1102 MR. DEMENTAVICIUS: Through the length of the project, yes, I think management had a pretty good idea how things were flowing, how we were doing against budget, how we were doing against the final deliverables, yes. And if I might add, also at that point, being well involved in taking steps where there were possible concerns about risks or overruns where vendors were not able to deliver according to their specified time lines or commitments, they were well involved in mitigating those types of, let's say, project shortfalls or surprises as well. 1103 MR. DINGWALL: Now, we've seen in the evidence of other applicants, most notably Hydro One, as we've had the chance to test that evidence over the last few days, examples of project management reports and final summaries of those reports in which they indicate where they thought they were, where they thought they went off track, what they did to remediate; yet I'm not seeing similar types of reports in the filings made by Toronto Hydro in this case. What can you give us to give us that visibility that this effort was, in fact, taking place? 1104 MR. DEMENTAVICIUS: From the point of view of reporting at the highest level, as I said, the project management office did provide, I guess for the sake of giving it a label, project status review reports that basically tracked actual, say, progress against known or defined milestones. That was done at a high level, basically flagging those areas that were on track versus those that might be slightly off track or those that had some amount of serious risk. So that reporting was done. They certainly did ongoing updates of spending against budgets, so that information was normally presented in those venues as well. Is that the type of reporting that you're asking about? 1105 MR. DINGWALL: Yes. I'm just trying to figure out what the best way to bring it into visibility in this proceeding would be, and if you can maybe give me an indication of the frequency of the types of reporting or the levels of reporting, and where information such as budget adherence might be reflected, and the types of reports, then maybe that can inform what my next set of questions and possible undertakings might be. 1106 MR. RODGER: If it's helpful, Mr. Dingwall, some of these matters are addressed in Toronto Hydro response to Energy Probe Interrogatory No. 1. If you look at page 4 of 24, you'll see that these working group meetings and the basis of reporting are described in the answer. 1107 MR. DINGWALL: Just a moment, Mr. Rodger, as I use my page-turning skills. 1108 MR. RODGER: So tab 2, page 4 of 24. 1109 MR. DINGWALL: Are you referring, Mr. Rodger, to the document entitled "May 18, 2004, Transition Costs Audit File"? 1110 MR. RODGER: No, this is the response to your interrogatory question, behind tab 2, page 4 of 24, if you look at the answer of that page, you had asked to identify committee members and positions, any minutes of meetings having to do with overall market opening. 1111 MR. MORVAY: I can also comment that prior to market opening, probably about two months prior, the Ontario Energy Board had included Pricewaterhouse Coopers in the transition to market opening, and there were weekly status meetings that we had with Pricewaterhouse Coopers to advise them of our progress and our risks. 1112 MR. DINGWALL: So, Mr. Couillard, in respect of looking at this response, and in context of the previous discussions that we've had, would the written reports, then, be the reports that would go to the steering committee from each of the groups with respect to budget adherence? 1113 MR. DEMENTAVICIUS: Yes, the PMO would compile that information from the financial systems and bring that forward as a summary report on project spending to the steering committee. 1114 MR. DINGWALL: And would that report be reflective, as Hydro One's reports were to a certain extent, of various reasons why things were on or off track? 1115 MR. DEMENTAVICIUS: I have not seen Hydro One's reports. But, yes, we would be flagging risks, issues, reasons why we may be currently off track, and what steps are being taken either from a project delivery point of view or spending point of view to try to bring things on track. So those types of issues and remedial steps would be flagged for those reports to the steering committee. 1116 MR. DINGWALL: So, then, for the purposes of gaining an understanding of what efforts you were making and what visibility of information there was to management in the control of all of this, for us to understand that and have an open view into it, it would really be the reports going to the steering committees that would best aid us; is that right? 1117 MR. MORVAY: I would rely more on even the self-certification 1 and 2 as we reported to the Ontario Energy Board as our readiness. 1118 MR. DINGWALL: Mr. Morvay, that doesn't really address budget, though, does it? 1119 MR. MORVAY: No. 1120 MR. DINGWALL: So could I then have an undertaking to provide a copy of the reports to the steering committee for the period that the transition costs were incurred. 1121 MR. DEMENTAVICIUS: I do not have a good feeling that we have a lot of the regular reports. There may be some out there, but we're talking about activities that took place three and four years ago, and I don't have a comfort level that the people who were part of the PMO pretty much are all no longer with the organization. Whether there's a file of their reports to the steering committee available for us to pull from, I have no idea at this point. 1122 I personally -- I'm pretty sure that I have not kept a record, or at least saved copies of the ongoing weekly or monthly reports on an ongoing basis, so I don't know that I could get my hands on them. So whether they exist or not to the point where some could be pulled up for review, I can't answer that at this point. 1123 MR. RODGER: I think as well that I would object to that undertaking as going to the level of detail which is just not needed for this proceeding. I think if my friend goes to appendix A of the main prefiled exhibit, in appendix A we established several -- eight pages of significant restructuring dates and milestones affecting LDCs, and if my friend has questions as to these changes or requirements and the impact on original budgets, I think that's appropriate and that might give some immediate context for why budgets and projects change. But, as I say, we would object to that undertaking as an undue amount of work, particularly given this stage of the hearing. My friend has the interrogatory response that I referred to earlier for some time, and they have -- they had that information for some time. 1124 MR. VLAHOS: Mr. Dingwall? 1125 MR. DINGWALL: In looking through to -- 1126 MR. VLAHOS: Sorry, Mr. Dingwall, are you going to request that information? Do you have a response to Mr. Rodger? 1127 MR. DINGWALL: I'm thinking through that, sir. 1128 MR. VLAHOS: Okay. 1129 MR. DINGWALL: I'm wondering, sir, if it might be more helpful to come back to this question in a moment. What I'd like to find is whether or not there might be other documents. What I appear to be hearing is that, yes, the company followed all the approval authorities that it had in terms of budgets and keeping things on time and on budget, and the management having visibility into that. I'm finding it puzzling that those records would vanish at the time when they're seeking regulatory approval of the amounts that they're trying to claim and suggesting there now is no paper to back that up. So I'm wondering if I might ask a series of questions with respect to some of the audit working papers and see what that might elicit before coming back to whether or not I need this information and need to formally request it at that point, sir. 1130 MR. VLAHOS: Go ahead. 1131 MR. DINGWALL: The document entitled "Transition Costs Audit File" makes reference in a number places to the phrase audit working papers. 1132 MR. COUILLARD: I'm sorry, where are you referencing? 1133 MR. DINGWALL: For example, materiality calculations are said to be included in the attached audit working paper for the audit results. 1134 MR. RODGER: Could we have the reference, please, Mr. Dingwall. 1135 MR. DINGWALL: Page 8. 1136 MR. RODGER: Of? 1137 MR. VLAHOS: Of what? 1138 MR. DINGWALL: Tab 2, schedule 1. 1139 MR. COUILLARD: We have it. Yes, Mr. Dingwall. Yes, we have that. 1140 MR. DINGWALL: Now, have these audit working papers been produced? 1141 MR. COUILLARD: They are not part of the evidence. 1142 MR. DINGWALL: So they are not part of the evidence in chief and they are not part of the interrogatory responses. 1143 MR. COUILLARD: That is correct. 1144 MR. DINGWALL: And can you give me an indication of what would be reflected in the audit working papers? 1145 MR. COUILLARD: The audit -- as mentioned in the memo, or the report that we have here, the working papers were produced -- were going into the detail of every area of our financial records where costs were being accumulated in conjunction with this proceeding. And we're talking about account 1570, obviously, here, transition costs. And going into the detail on these costs, providing suppliers, and then doing an analysis on cost - all the four criteria of article 480 - and obtaining required approval for different levels of the people responsible for the activities as far as the costs following 480 or not, should we claim costs or not. 1146 MR. DINGWALL: So they really go into the substance of the background behind the conclusions made in the audit report; is that right? 1147 MR. COUILLARD: They go into the nitty-gritty detail from dollar -- like, a $1 invoice to, you know, to a $50,000 invoice. However, if I may qualify, our threshold for review was at the $100,000 -- any task, and when I talk about task, we can compare that to a bucket, for example, there's a fair amount of different tasks in the project, and any task over $100,000 was reviewed. And just by memory, we reviewed over 90 percent of all the costs using this materiality. 1148 MR. DINGWALL: So is this a large document? 1149 MR. COUILLARD: Yes. 1150 MR. DINGWALL: How many pages? 1151 MR. COUILLARD: I never counted them so I can't -- 1152 MR. DINGWALL: Could you lift it? 1153 MR. COUILLARD: I haven't worked out in a while. With help probably at one point. 1154 MR. DINGWALL: Are there summary documents which summarize the working papers? 1155 MR. COUILLARD: That's the report that was filed. Tab 1 -- sorry, that's what -- the exhibit you're referring to right now. 1156 MR. DINGWALL: Right. I'm looking for a way to get beyond the global categories of billing activities, wholesale market requirements and retailer customer requirements, to gain an understanding of the project. 1157 MR. RODGER: Well, again, with respect, Mr. Dingwall, I wonder whether appendix A I referred to in the main exhibit of all the milestones since the restructuring was announced to market opening might be helpful in terms of that identifies a specific number of dates that the utility had to meet, changes to policy, and so on. And I'd suggest that an exploration of those areas would give the basis and the factors why costs changed. So I think you do have the information to explore that, other than looking at every lunch and pencil receipt for the past three or four years. 1158 MR. DINGWALL: Well, what we're looking at is an eight-page document with the alternative, then, of getting a document which, in Mr. Couillard's younger years, he might have been able to lift. And I'm wondering if there's mid-ground somewhere or some way of finding that to gain more visibility into this. This is a prudential review. 1159 MR. COUILLARD: There is no summary of the whole -- like, if you're trying to nail down between this report and the nitty-gritty detail, no, we don't have a summary of the nitty-gritty detail, which, correct me if I'm wrong, would be somewhere between what we have here and all the detail. 1160 MR. DINGWALL: I'll come back to this. I'll ask the witnesses to look at, and I've given Mr. Rodger the reference to this before, Exhibit G, tab 11, schedule 1, page 11, from Hydro One Networks. The phase 2 binder. 1161 MR. DEMENTAVICIUS: Is this the chart you're talking about? 1162 MR. DINGWALL: That's right. This is a list of various systems and applications that Hydro One found it necessary, in their application, to put forward in order to add on to their existing systems to become ready for the retail market, and suggested that all or part of these were transition costs. Can you indicate to me that which of these systems, or which similar systems Toronto Hydro has included in transition costs? 1163 MR. DEMENTAVICIUS: Okay. We do have some commonalities here since we both have employed the ITRON suite of MV systems. So although there are different versions and different functionality that Hydro One is using versus Toronto Hydro, I wouldn't say at any point we were using the same software in the same manner, but we do have the MV-PBS system, we do have the MV-STAR system, and we do process our remote, interrogated meters through the MV-90 system. We do have the MV-WEB system. We are using our eXact software as our interface between V-Hub and our CIS system, although, again, it's at a different version level. They've drawn a point-to-point interface to the for EBT transfer. We don't use point-to-point, we are going through the hub, so our eXact system interfaces to the SPI hub. 1164 MR. DINGWALL: Can I stop you there for a second? Is that because you translate immediately to XML and you're not trying to do anything more special than that? 1165 MR. DEMENTAVICIUS: No, we don't -- well, that's a rather simplified way to look at it, because one of the biggest challenges we had was that the Banner CIS system was built using EDI transfer protocols, and as probably most people in this room know, the EBT hub system, that architecture works on XML. So an awful lot of our work in terms of our eXact and additional custom code that had to be built for Toronto Hydro had to do the task of translating from XML to EDI to get it into the CIS system and back from EDI back out through the eXact software in XML format to be processed at the hub. So there may be differences there in terms of what Hydro One does versus what we have to do because of the way the CIS system was architected. 1166 Beyond that, yes, we have a CIS system. As opposed to this diagram, I don't know whether these are all existing, but our CIS system deals with billing as well as retail settlement and all those other functions as well. We don't have a piece, like a PeopleSoft here specifically for retail billing. We integrated that into our CIS system under the SET Banner system. 1167 MR. DINGWALL: So with respect to these, then, that you've talked about, you mention that you have some common systems. Were all of these common elements that you mentioned things that you needed to build into your system in transition, or were many inherent in your system beforehand? 1168 MR. DEMENTAVICIUS: The only part of the system that we had inherent was the MV-90 processing, because prior to market opening, we had interval metered customers and we used the MV-90 system to interrogate those meters. Otherwise, the rest of the MV suite we had to build, implement in our system and do the appropriate customisation to interface with our CIS system and the eXact integration piece or the interface piece specifically for market opening. Those are all net new add-ons for market opening. 1169 MR. DINGWALL: So with respect to these add-ons, I take it there's a software component and a labour component for each; is that correct? 1170 MR. DEMENTAVICIUS: That's correct. 1171 MR. DINGWALL: Can you provide an undertaking to break out for these the software component of cost and the labour component of cost? 1172 MR. DEMENTAVICIUS: We can give you that right now. We've basically done some of that number crunching. For the -- what we'd call the wholesale market requirements that really deal with the MV systems, we've estimated about $170,000 in hardware, just under 1.3 million in software licenses, and development work, just under 1.6 million, and internal labour of people that we brought into the organization specifically needing to help to support that development and support those systems, another additional $82,000 or so. Those are the main pieces of that. The overall costs for wholesale requirements of developing those systems before interest was about $3.5 million in our system. 1173 MR. DINGWALL: Now, Hydro One has broken out some of theirs on a component basis. You mentioned that eXact was one of the suites that you employed to some extent. Can you give us your costs of the software component and the labour component of that? 1174 MR. DEMENTAVICIUS: Not totally, but I can give you part of it. Software license and development, to some degree, based -- strictly based on the -- let me back up, excuse me. Software licensing for the eXact piece was $200,000. Beyond that, there was an additional approximately $400,000 from the vendor in terms of doing custom development to meet our specific needs, going forward, to use the eXact piece. So overall, that part of it was about $600,000. Beyond that, of course, there was some -- some of the costs that were kind of -- went across boundaries that they needed to serve the CIS interface as well as an eXact, or might have bled over to the necessary code on the ITRON side of the MV systems, I don't have those broken into those pieces. But I think, roughly speaking, the rough species was about $600,000 of expenditure on our part. 1175 MR. DINGWALL: If I can stop you there. It might be helpful if you can turn to pages 20 and 25 of Hydro One Network's Exhibit G, tab 11, schedule 1. 1176 Table 4, which is at page 20, shows Hydro One's costs for a number of the MV suites. Table 6 shows Hydro One's costs for a number of the other projects. I'm wondering if you can undertake to provide in a similar format your costs for those similar items, differentiating through footnotes, where necessary, if the product is not exactly the same, and indicating that. 1177 MR. DEMENTAVICIUS: There's a possibility, going through all the gory detail, that we might be able to ratchet some of these costs into somewhat this format. Again, we've only the three pieces, I guess four pieces here, STAR, WEB, PBS, and eXact. Again, there's some bleeding across lines here in terms of how much effort that might have been expounded by, say, the ITRON people for the purposes of building an interface that needed to serve eXact in terms of some of the processing, or some of the work that was done by a contractor for the CIS system that also had some effort that was required to be spent to deal with interfacing to eXact or otherwise. So I don't think there would be a whole lot of precision to it, but we could probably provide some ballpark numbers in comparison in that format. 1178 MR. DINGWALL: Thank you. I wonder if we could identify that for the record as an undertaking, Mr. Lyle. 1179 MR. LYLE: Yes, J.3.8. 1180 UNDERTAKING NO. J.3.8: TO PROVIDE IN A SIMILAR FORMAT THE COSTS FOR THE ITEMS EXPRESSED IN EXHIBIT G, TAB 11, SCHEDULE 1, TABLES 4 AND 6, DIFFERENTIATING THROUGH FOOTNOTES, WHERE NECESSARY, IF THE PRODUCT IS NOT EXACTLY THE SAME, AND INDICATING SUCH 1181 MR. DINGWALL: Now, moving back to the document at tab 2, schedule 1, and page 2 of that document. With respect to any of the functions related to wholesale market requirements, did Toronto Hydro make a determination that any of its software or programs or initiatives were not, or partially not transition costs and related more to the general functions of the utility in continuity to the premarket functions? 1182 MR. DEMENTAVICIUS: Can we have the reference again? I'm a little lost where we are. 1183 MR. DINGWALL: Tab 2, interrogatory responses, then the lettered tab A, the document says tab 2, schedule 1. Page 2 is a summary of the qualifying transition costs being applied for. 1184 MR. DEMENTAVICIUS: And the question, again, was? 1185 MR. DINGWALL: In looking at wholesale market requirements, for example, did Toronto Hydro spend any monies in addition to what's being claimed here that Toronto Hydro believes were more properly allocated to non-transition, and standard pre-market functions? 1186 MR. DEMENTAVICIUS: Basically, I think anything that we would have subtracted from transition costs would have been internal staff labour costs, people who were there when this work started and continued to work with Toronto Hydro. In terms of software or external costs, these systems were net new and all those costs in terms of developing the code and the requirements towards the market opening are all part of the transition costs. So what's been excluded would probably be primarily internal labour costs. 1187 MR. DINGWALL: Would any of these internal labour costs be with respect to the CIS system? 1188 MR. DEMENTAVICIUS: We certainly have also -- this goes across the board for all systems where we've excluded labour costs that are not part of the net-new people that were hired for the organization. So if there were any staff working on the project, those costs have been subtracted as well. 1189 MR. DINGWALL: Prior to amalgamation, how many of the amalgamated utilities were using the Banner CIS system? 1190 MR. DEMENTAVICIUS: Of our preamalgamated -- 1191 MR. DINGWALL: Yes. 1192 MR. DEMENTAVICIUS: None. We all basically had, I believe -- unless I'm wrong, pretty much all had either home-grown systems. I believe that Scarborough a vendor-supplied system. Nobody was using Banner. 1193 MR. DINGWALL: So when did you begin putting together the Banner system? 1194 MR. DEMENTAVICIUS: Well, the review or, let's say, the search for a new system started almost in parallel, I believe, and Mr. Morvay can probably correct me because he was closer to this, but the Toronto office as well as the Etobicoke office started about the same time in terms of looking for a new CIS system prior to amalgamation. Once amalgamation was basically upon us, one of the first things that happened was that there was a voluntary separation package that went out, and unfortunately for us, we lost about 80 percent of our IT staff. The result of that was that there were no longer need for two groups to go on looking at a new system. They were consolidated into a single group, working as part of the Toronto group, to select a new system. And through a process of assessment of many vendors and many systems, the team came to the conclusion that the Banner system would best suit the needs of the amalgamated Toronto Hydro, as well as position it to go forward into the market-readiness capabilities. 1195 MR. DINGWALL: So I take it, then, that prior to market-readiness, everybody, then, was on the same system at that point, and none of the costs being claimed are the start-up Banner costs. 1196 MR. DEMENTAVICIUS: That's correct. Yes, if I -- sorry, take the dates here, just to put it into perspective, the Toronto office itself went live on the Banner system in June of 1999, and during that process, we were busy trying to convert and move the other five systems to Banner, although we went through a stage of moving them to another holding system which was a Scarborough system until we were able to get the Toronto office live on Banner. And then basically the final conversion happened in July of 2000, to move the remaining 400-odd customers -- 400,000 customers to Banner, and that was now the amalgamated system that went basically live in the summer of 2000. 1197 So with those costs, although they were tracked because we had sort of a consolidated view of market opening activities as well as what we called the unified CIS activities, we tracked them as part of an overall program. But as we went through this audit of costs, transition costs, we took all those conversion costs, amalgamation costs, out of the submission. 1198 MR. DINGWALL: Moving on to electric business transaction hubs, when did Toronto Hydro contract with its hub provider? 1199 MR. MORVAY: I believe we signed our contract, I'd have to confirm the date, but I believe we signed it in -- somewhere around March of 2002, or even January of 2002. 1200 MR. DEMENTAVICIUS: Well, I don't want to contradict, but we knew we needed to go forward to build that capability. I believe the initial agreements, and this was when the EBT Express hub, I believe those agreements were signed to go forward to build this capability in late '99 or early 2000. So basically we had to be moving on towards that end goal of having the capability of processing EBTs through the marketplace. I think what Mr. Morvay may be referring to is, sort of, the follow-up final agreement after the merger or acquisition of -- through SPI of the EBT Express hub. When that was formulated, there was probably a new agreement put in place sometime in 2002. 1201 MR. DINGWALL: So originally in 1999, Toronto Hydro contracted with EBT Express? 1202 MR. DEMENTAVICIUS: Yes, we did. 1203 MR. DINGWALL: And was that as a result of an RFP process? 1204 MR. DEMENTAVICIUS: I wasn't part of that process. I don't know the details of that venture. I really can't speak to it. 1205 Let's -- well, maybe back up a step. RFPs, really, are something that you perhaps can do when you've got known vendors and providers out there. I think we were working here in what was unknown territory, and it wasn't like there were existing hub providers to any great extent available in the marketplace to provide -- you know, send RFPs to get quotations. I believe Toronto Hydro did determine at a corporate level that the EBT venture might be a good business venture to be in, and that was probably one of the drivers for start-up. 1206 So as far as any formal RFPs or the actual process of determination of EBT Express and moving for that point, I do not have details as to those early days of genesis for EBT Express. 1207 MR. DINGWALL: I guess I'll have to reach into the corporate memory banks and ask for an undertaking to determine whether or not there was an RFP for the initial contract with EBT Express. 1208 MR. COUILLARD: Can I just -- we're not claiming any costs relating to EBT Express here, so I'm just trying to see the relevance in producing such information. 1209 MR. DINGWALL: Are there no transition costs being recovered in respect of hub and spoke? 1210 MR. DEMENTAVICIUS: Not for EBT Express. What is being recovered is interface work to make our eXact software communicate and work with the hub provider. There is no development cost or otherwise to do with an EBT Express or an SPI or any other entity as part of our transition costs. What is being claimed is the work that we needed to do internally to communicate between our Banner CIS system and the hub provider. In this case, start-up would have been EBT Express, but prior to market opening, it changed to SPI Group. So there are no transition costs here as far as the hub entity itself. 1211 MR. DINGWALL: Is there an identification of the amount of time spent by Toronto Hydro-Electric System Limited employees on that project, on working with EBT Express? I realize you're not claiming some, but I'm wondering if you have tracked the time. I wonder if we have a non-utility elimination here. 1212 MR. VLAHOS: For what purpose, Mr. Dingwall? 1213 MR. DINGWALL: Well, what we're looking at, Mr. Vlahos, is a significant claim for labour in respect of numerous projects with respect to market opening. And what I'm wondering is, are these legitimate transition costs for labour or were the base utility bodies being used for projects, that are not being accounted to in context of distribution costs, that were to benefit potentially the shareholder? 1214 MR. VLAHOS: I just wonder how that jibes with the directions under article 480 which talks about incrementality. Can you help me with that? 1215 MR. DINGWALL: Well, the labour costs associated with transition costs. Transition effectively means all the efforts that the LDCs would have had to go into to accommodate market opening. And if the LDCs had to hire additional people or contract out for additional people, and it certainly seems that Toronto Hydro has a significant contracting expense, because all the bodies that would have been otherwise available for that project or other distribution work were being used for shareholder projects, then that raises the question of whether or not the claimed transition costs are reasonable. 1216 MR. DEMENTAVICIUS: I don't know whether this might clarify it, but there were no staff from an IT perspective or any contractors that I employed for our market-readiness that had any dealings or work provided to EBT Express. Now, we did have one contractor who we contracted to do specifically the work I talked about in terms of our interface between our CIS system and eXact system and the hub, who was -- also had staff employed and contracted to the EBT Express project, but they were not part of our project. So those resources were totally separate, and there was no billing or charging of Toronto Hydro-Electric for any EBT Express development purposes. It was a separate entity with its own separate budget and, I guess, strategic plan, and so on, and had nothing to do with our own readiness activities. 1217 MR. DINGWALL: Would you admit, though, sir, that a number of people had to be contracted for labour to support the readiness activity? 1218 MR. COUILLARD: Yes. And, in essence, referring to article 480 of causation here, they were hired because we needed them for market-readiness. Toronto Hydro does not keep, you know, some IT staff in case, you know, there's a change in the market and then we can use these resources and avoid the causation factor. So all the people in the IT staff were working on normal development activities or normal CIS-support activities, and therefore I strongly believe that what we are claiming as external contract labour are meeting the article 480 causation criteria. 1219 MR. DINGWALL: Is it your evidence that all the LDC employees were working on strictly LDC projects and not EBT Express projects or anything else like that? 1220 MR. DEMENTAVICIUS: As far as our IT and business resources, yes, strictly on LDC projects. We had nothing to do with any work happening at EBT Express. 1221 MR. DINGWALL: How about the creation of the spoke product? 1222 MR. DEMENTAVICIUS: The spoke product was a combination of some of our own staff working on that, but again, we didn't have the skill sets in-house to do a whole lot of that work. So we did contract with the best, I guess, expertise we could find, and it happened to be the same people who were working on the EBT Express project, because they already had acquired the necessary skills to help us deal with our interface issues. So it seemed prudent on our part to employ a contractor who already knew very well what was happening in the marketplace, how the architecture would work, and what they would need to do to help us to deal with any gaps between the eXact product and our CIS system. 1223 MR. DINGWALL: Moving along to call-centre costs. Tab 2, schedule 17 of the interrogatory responses, which is in letter tab H. 1224 MR. MORVAY: We have it. 1225 MR. DINGWALL: I recall from the morning that there was an undertaking to provide the time or the duration of the contract that Toronto Hydro entered into the call-centre for overflow call services. You don't recall whether or not it was the totality of the period reflected in this response, or part of the period? 1226 MR. MORVAY: I'm not sure what you're asking me, the totality. 1227 MR. DINGWALL: This exhibit provides the monthly call volumes for Toronto Hydro-Electric System Limited from January of 2000 until December of 2003. In earlier discussions with Mr. Warren, there was some discussions with respect to an outsourced call-centre that was used by THESL in order to perform what was referred to as overflow calls, meaning calls in excess of what would be the normal utility expected call volume; correct? 1228 MR. MORVAY: Correct. 1229 MR. DINGWALL: And you gave an undertaking to Mr. Warren this morning to indicate the time period for which that contract was in effect specifically. I'm wondering if generally you can recall whether or not that contract was in effect for the full four years reflected in this call volume statistic, or a part of the four years? 1230 MR. MORVAY: Actually, we did have a call-centre contractor for this full four-year period. However, we did change call-centre contractors just after market opening. So if I'm answering your question as honestly as I can, we did have two call-centre contractors, and I believe we engaged the first one in the fourth quarter of 1999. I'm still just trying to confirm the dates. 1231 MR. DINGWALL: So before January of -- January of 2000, was there an overflow call-centre in use? 1232 MR. MORVAY: Yes. 1233 MR. DINGWALL: When was it that the LDC began using an overflow call-centre? 1234 MR. MORVAY: I need to confirm that date, but I think it was December 1999. 1235 MR. DINGWALL: December 1999? 1236 MR. MORVAY: Yes. 1237 MR. DINGWALL: Okay. And I take it that that confirmation will come back in the response to the earlier undertaking? 1238 MR. MORVAY: Yes. 1239 MR. DINGWALL: Do you have call statistics for the years 1998 and 1999? 1240 MR. MORVAY: I think you just asked 1988 and 1999? 1241 MR. DINGWALL: Sorry, 1998 and 1999, although '88 was a good year. 1242 MR. MORVAY: 1998? I probably could put something together. That's going back so far I'm not even sure what systems we were on at that time as far as capturing the statistics. We've had a change in our call-centre managers a couple times as well who was maintaining those statistics. But I could try and get those numbers. 1243 MR. DINGWALL: If you could, that would be appreciated. I think that would show us just what the difference between the previous call volume profile was and then the total amount that you've then claimed as a transition cost for incremental call volume. 1244 MR. MORVAY: Let me clarify, though, that we indicated earlier that we're in the process of amalgamation and there are some economies of scale. When you're looking at more than one call-centre, there is churn if you don't have enough staff on there -- there is economies of scale when you have one call-centre as opposed to three or four or five call centres, answering the calls for each CIS. I'm not sure of how many offices we had at what time during 1998 and 1999. 1245 I believe we had a Scarborough office, North York, Toronto, so -- 1246 MR. DINGWALL: If you want to label your statistics with qualifications on what things were like before amalgamation in 1999 -- 1247 MR. DEMENTAVICIUS: Certainly, the call-centre was not amalgamated or consolidated until well after amalgamation, so we were operating with multiple call centres from the previous utility's -- 1248 MR. MORVAY: And multiple CISs -- 1249 MR. DEMENTAVICIUS: And multiple CISs for some period of time. 1250 MR. LYLE: Do you wish that to be an undertaking, Mr. Dingwall? 1251 MR. DINGWALL: I beg your pardon? 1252 MR. LYLE: You do want the undertaking? 1253 MR. DINGWALL: I would like the undertaking, yes. 1254 MR. LYLE: J.3.9. 1255 MR. VLAHOS: Would you repeat the undertaking. 1256 MR. DINGWALL: Yes. I request of the applicant that they provide monthly call volumes for the years 1998 and 1999, where possible, indicating an average talk time in seconds. 1257 UNDERTAKING NO. J.3.9: TO PROVIDE MONTHLY CALL VOLUMES FOR THE YEARS 1998 AND 1999, WHERE POSSIBLE, INDICATING AN AVERAGE TALK TIME IN SECONDS 1258 MR. DINGWALL: Moving on to a couple of brief general questions. 1259 Did the applicant provide PEG Group, who were the authors of the reply evidence, with a copy of the Ernst & Young assessment that's been mentioned earlier today prior to PEG Group writing their response to the Energy Probe evidence? 1260 MR. DEMENTAVICIUS: No, we wouldn't have. But in terms of discussion this morning, it's really the first time I recall that activity taking place well before market opening. So, no, we're not even sure, at this point, where we'd get our hands on the report. I'm confident somebody has it, but no, it wouldn't have been provided to anybody at this point. 1261 MR. DINGWALL: What is Toronto Hydro's previous experience with benchmarking studies as a participant? 1262 MR. ZEBROWSKI: I'm not sure I understand the question. As a participant where? 1263 MR. DINGWALL: Well, in the past five years, have you participated in any benchmarking studies with respect to your costs of any fashion? 1264 MR. VLAHOS: Mr. Dingwall, it appears the panel has a problem answering that question. It's quite a large question. Can you help us understand as to what -- what the question goes to? Maybe the witnesses can be more assisted. 1265 MR. DINGWALL: Has Toronto Hydro participated in any cost benchmarking studies in the last five years? 1266 MR. ZEBROWSKI: I mean, there are different types of studies. There are some very broad studies and there are some very narrow studies. We have taken part in certainly some. 1267 MR. RODGER: Mr. Zebrowski, we're into September, it must be still fishing season, but this is such a broad question. Again, I think it's unfair that, during cross-examination, well after the interrogatory stage has come and gone, that witnesses be put in this position. 1268 MR. VLAHOS: I'm not sure about that specific one, Mr. Rodger, because the so-called benchmarking or comparison is sort of a late thing that has come into the proceeding. But I still want to understand. Is there a way that you can be more specific? It's just a wide question, Mr. Dingwall. They probably need some time to think about what they participated in and the level of participation. So can you help them with that, and perhaps you can leave it on the basis that they can respond to it at a later time as an undertaking. 1269 MR. DINGWALL: Do you recall the Bailey study in 2000 in which Toronto Hydro participated on distribution costs. 1270 MR. ZEBROWSKI: Not off the top of my head. Perhaps if you can give me some detail, I may remember it. 1271 MR. DINGWALL: I think some of the other participants were Entergy BGNE, Consolidated Edison of New York, Detroit Edison. The study, or rather, a presentation with regard to the study which was made to an utility in Argentina is reflected in the response to Board Staff Interrogatory No. 5, at page 11 -- 1272 MR. ZEBROWSKI: No, I'm not familiar with that. 1273 MR. DINGWALL: Toronto Hydro is listed as a participant in that study. 1274 MR. ZEBROWSKI: That was a surprise to me too. I'm not familiar with that. 1275 MR. DINGWALL: Would you then undertake to provide me with a list of the studies over the past five years in which you participated, the basis upon which they've been undertaking, and these would be studies with respect to benchmarking. And then from that list, I may have some further requests offline to see copies of those studies in advance of Dr. Lowry's evidence. 1276 MR. ZEBROWSKI: Could you narrow it down in terms of what type of benchmarking we're looking at? What are we benchmarking? 1277 MR. DINGWALL: Utility cost benchmarking. They might be with respect to specific cost factors, they might be with respect to distribution costs. 1278 MR. ZEBROWSKI: I'm just having difficulty getting my head around this. 1279 MR. DINGWALL: Well, there can't be a lot of them, Mr. Zebrowski. Would there be a lot? 1280 MR. ZEBROWSKI: I'm just trying to think here a little bit in terms of what we have done in the last number of years. We've done some very preliminary kind of studies, trying to look at Toronto Hydro compared to other North American utilities. Trying to find whether there are certain comparators that we can look at, very inconclusive type of things at this point in time. We've tried to take a survey of the utilities that are out there to see what we can find. And basically we assess how simple a benchmarking approach would be for us. 1281 Roman here tells me just now that we've done some PC desktop studies, and these are some very narrow kind of issues. I mean, if there's a particular area that you're focussing on -- I mean, is it overall O&M expense for the utility, then I can look into something that would be relevant to that. But, I mean, like I say, it can be very, very broad or very, very narrow in scope, so I'm not quite sure what you're driving for. 1282 MR. DINGWALL: Well, let me turn that around. I'm not sure of the number of studies there might be, or the menu of what their scopes might be. Can you give me any indication of what you participated in? I've picked a fairly short time frame. 1283 MR. VLAHOS: Can you give us the purpose of that undertaking, Mr. Dingwall, so I can -- the Panel can follow this and perhaps confer? What is the purpose of that undertaking? What is the value to the Board? How are you going -- what are you testing? 1284 MR. DINGWALL: What we've been looking for -- well, what's come up as a result of, first of all, Mr. Adams' evidence, and then subsequent to that, the responding evidence on behalf of London Hydro of Mr. Adamson, and then Toronto Hydro together with Hydro One Networks and Enersource, is some question of what the appropriateness of benchmarking might be. And in response to that, what -- the question that's raised in our minds is, Well, what's their experience of it? 1285 MR. RODGER: Mr. Chairman, isn't there a more fundamental question here? The Board has to apply certain tests which it has clearly set out in its guidelines and the correspondence leading up to this hearing. Benchmarking, in and of itself, is no where mentioned as a test that Toronto Hydro or any other utility has to meet. It may be something that my friend from Energy Probe would like to see at some point in the future, but it is not relevant to the tests before this Board. 1286 MR. DINGWALL: Well, the question of whether or not benchmarking is an issue in this proceeding, and the extent to which it's an issue, seems to be begged by the evidence filed by Mr. Rodger on behalf of his clients. They're disputing its appropriateness from a very broad sense, and frankly, that's why I think the experience of the applicant, giving us at least a listing of what they've been involved in, would help inform that process. I'm not asking them to produce everything that they've ever done in that regard, I'm merely asking to see what's there and then we can see what's relevant from that perspective. I'm not getting a definitive answer from the panel right now on them knowing what they've even done. 1287 MR. VLAHOS: Well, assuming you had that list, Mr. Dingwall, and if you had it in the next day or two, business day or two, then what? What is your plan? 1288 MR. DINGWALL: Then my plan would be to see what, on that list, co-relates to Dr. Lowry's evidence, potentially, to the cost parameters that we're dealing with here, and then go from there and seek production. 1289 MR. VLAHOS: And recall this witness panel? 1290 MR. DINGWALL: I don't think so, because the evidence would speak to itself and really be something that could be produced and relied upon in terms of dealing with the benchmarking discussion. So if anything, it would be -- I know London Hydro is looking at putting together witnesses with Mr. Adamson from their management, so it's conceivable that, with Mr. Lowry, either a similar thing might be said or, frankly, I'd like to see what of Toronto Hydro's experience went to the instructing of Mr. Lowry. 1291 MR. VLAHOS: Mr. Zebrowski, do you have any thoughts on this? I would like the Panel here to confer, the Board Panel. 1292 MR. ZEBROWSKI: Yes. The discussion around benchmarking related to this process we're in right now was directly related to transition costs and how -- really, Mr. Adams' evidence proposed, really, a screening mechanism for identifying utilities that should undergo some further scrutiny in terms of the regulatory assets, particularly the transition costs that they've claimed for. To produce a broad-based list of any kind of benchmarking study that Toronto Hydro has conducted, I don't quite see the relevance to that. If there was benchmarking that we had conducted relative to the transition costs that we've incurred, then I'd be more than happy to present that, but I have difficulty in tying the two of them together. 1293 MR. VLAHOS: One moment, please. 1294 [The Board confers] 1295 MR. VLAHOS: Mr. Dingwall, the Panel's decision is it will not require Toronto Hydro to respond to that undertaking. 1296 MR. DINGWALL: Turning to the question of the overall amount of Toronto Hydro's transition costs claim, have you had a chance to look at the Deloitte study filed by Hydro One? 1297 MR. ZEBROWSKI: No. 1298 MR. DINGWALL: That saves us some time. Just a general question: Given that the CIS project was new and premarket opening and seemed to be contemplating so many things, why are the transition costs associated with CIS so high? 1299 MR. DEMENTAVICIUS: I think as maybe a summary statement on that, I think they're high because the number of requirements to do with serving customers, with retail settlement, with all the variations that we're required to meet market-opening requirements, were very, very extensive. The other software that were part of the sort of overall architecture to serve the marketplace were, to greater extent, already prepackaged and, to some degree, ready to function in this world. They were doing far less in terms of functional requirements and serving far fewer of the needs of the market. The bulk of the requirements really had to do with CIS capability, and that's why the costs may appear to be skewed in favour of CIS changes. 1300 MR. DINGWALL: But what I have a difficulty in understanding is why Toronto Hydro, being of such an optimal size in terms of utility size, having supposedly all these efficiency gains from amalgamation at a time somewhat in advance of market opening, had such a relatively high cost associated with developing and changing its CSI -- CIS, relative to the other applicants? 1301 MR. DEMENTAVICIUS: Well, I'm not sure what's being compared to. I think I stated earlier, one of the, perhaps, efficiencies of amalgamation was the overall reduction in headcount and savings -- organization in terms of operational costs. But the downside or the negative if I have impact was that our IT resources were decimated. We lost 80 percent of our people. The result of that is in terms of going into market ready and preparations for market-readiness, we had to extensively rely on vendors for the kind of resources required to deal with the requirements of the marketplace. If we had, you know, those hundred or so IT people after amalgamation, I think it's a good bet we would have been able to do a whole lot of this work internally with some guidance from the vendors, because they were the experts on the architecture and the overall systems capabilities. But we would have been able to reduce our costs substantially. As it was, we were basically forced to deal with, you know, U.S. vendors at U.S. hourly rates, and to deal with needing to find our resources for this massive undertaking outside the bounds of our own organization. 1302 MR. DINGWALL: What happened to all the employees who were decimated by the packages? Did they go elsewhere? 1303 MR. DEMENTAVICIUS: Many went out on their own, became consultants as such. There were a group that were deferred because the Toronto group needed those people to help with the conversion with the amalgamated system, so there were some employees that were asked to stay on for a period of time. But beyond that, I don't have an awful lot of an idea as to where they went. We certainly had an opportunity, where it fit our needs, to bring some back to help us to defer some of those higher contractors costs by being able to bring back some employees at far lower rates to help with system support or some part of the development work. But I can't answer for, you know, where 100-odd IT people went once they took their packages. 1304 MR. DINGWALL: But would you say that the number of IT people that were -- that left the employment of the utility prior to -- post amalgamation was 100 people? 1305 MR. DEMENTAVICIUS: I don't have the exact number. As I said, I don't the figure as to where we were prior to amalgamation and what our total IT headcount was. But I'm fairly comfortable that our loss was something in the order of 75 to 80 percent of overall IT staff between the six organizations. 1306 MR. DINGWALL: So 75 to 80 percent of overall IT staff. How many people would that be? You can give me a ballpark number. 1307 MR. DEMENTAVICIUS: 100 to 150 might be a reasonable number. And I don't have information at my disposal in terms of what each of the six utilities had in terms of overall IT staff and resources at that time. So I'm really guessing that we had something in the order of, perhaps, 200 or 225 total employees, and when the amalgamation happened and those who chose to leave left, we had internally something in the order of about 660 to 70 employees left. Unfortunately, very few of them were in the area of CIS system support. We had a fair number of network support people and technical support people, operators and such, but we were particularly heavily devastated in the area of CIS development staff. 1308 MR. DINGWALL: So these individuals would not have been -- I guess CIS development is a fairly senior role, is it not? 1309 MR. DEMENTAVICIUS: I wouldn't say it's a senior role, whether you're doing financial development or CIS development. But in this case, moving to a new CIS totally unknown to even the people who would've been previously supporting CISs, even having a number of them remain, we would have been at a disadvantage of not having possibly the right skill sets and right knowledge in place to totally avoid having to use extensive ex-personal help on the project. But that was a moot point since they weren't there to begin with, so we had to pursue other avenues at the time -- the clock was ticking, and we all knew November 2000 wasn't very far away, and we still had to get through Y2K and everything else. In terms of post-implementation support of an amalgamated system, that took probably the rest of the year 2000 just to settle the CIS system down to where it was operating in a normal fashion to support the business. 1310 MR. DINGWALL: Was there no understanding that these may be key people who should be retained by the utilities? 1311 MR. DEMENTAVICIUS: I would say, from my point of view and others that I've spoken to, we tried to make that case well known and understood to management. I can't speak totally for the decisions of our HR director as such. But I think overall, I would say I think it was deemed to be unfair to restrict, you know, voluntary separation packages to any group of employees, regardless of the impact that it might have. But I can't speak to it with any great... 1312 MR. DINGWALL: What broad level of compensation was there for your IT employees before this package was put out there? 1313 MR. DEMENTAVICIUS: What broad -- 1314 MR. DINGWALL: How much did you pay these people a year? Average individual, ballpark. 1315 MR. DEMENTAVICIUS: I'm not sure that's relevant to this case. 1316 MR. DINGWALL: Well, a bunch of people left your employment right before Y2K and market opening, and you're trying to justify a bunch of transition costs for high-priced consultants. 1317 MR. RODGER: The panel had no control over that. That seems to be the implication of the question. They just said they had no control over this restructuring. 1318 MR. DEMENTAVICIUS: And these employees all left by April, I believe, of 1998, so it was well before we knew any of the details of market opening or what that might mean in terms of resources. 1319 MR. DINGWALL: With the relief of the panel, Mr. Rodger can relax a bit, and those are my questions. 1320 MR. VLAHOS: Thank you, Mr. Dingwall. 1321 Ms. Lott, do you know how long you need? 1322 MS. LOTT: I think I would -- 1323 MR. VLAHOS: I hope you're a better forecaster than Mr. Dingwall is. 1324 MS. LOTT: I would need more than 25 minutes. I think I wouldn't be more than 45. 1325 MR. VLAHOS: Okay. 1326 MS. LOTT: I definitely would take you beyond 5:00, I think, today. 1327 MR. VLAHOS: And Mr. Lyle? 1328 MR. LYLE: Probably half an hour to 45 minutes, Mr. Chair. 1329 [The Board confers] 1330 MR. VLAHOS: Ms. Lott, we'll continue until about 5:00 and as long as the reporter doesn't need a break right now. 1331 Reporter, do you need a stretch break? 1332 Why don't we put in 15 or 20 minutes, and then you can continue tomorrow. 1333 MS. LOTT: Okay. Thanks very much. 1334 MR. VLAHOS: Okay. 1335 CROSS-EXAMINATION BY MS. LOTT: 1336 MS. LOTT: Hello, gentlemen. My name is Sue Lott, I'm counsel for VECC, the Vulnerable Energy Consumers' Coalition. 1337 I wanted to start with a couple of questions about the RSVA for power. And I apologize, I don't quite know who to direct questions to, so I'll just say "the panel," and you can determine. 1338 I wonder if you can turn up Exhibit H, tab 1, page 8. It's your response to an interrogatory, Board Staff No. 19. 1339 MR. ZEBROWSKI: Yes, we have that. 1340 MS. LOTT: If you'll note in the second paragraph, you state that you use the accrual method of revenue and cost reporting. I note that your description of your methodology sounds very similar to that which was used by Hydro One, which they described in their testimony on Monday, and some of you might have been present. I just wanted to go over it and see how similar, in fact, it might be between you and Hydro One. 1341 Hydro One stated that they start with an estimate of the energy purchased from the IMO for the month, and I note that if you look at the third paragraph, you indicate that you also start with the total kilowatt-hours taken. I'm just wondering if you can confirm, in your case, if this is an estimate as well. 1342 MR. ZEBROWSKI: It is to the degree that at the end of the month, when we prepare our financial statements, we have statements from the IMO that would probably cover about half the month, and for the other half of the month, we try to estimate a number which, in the end, is actually a fairly good estimate. But in the end, it is an estimate, you're right. 1343 MS. LOTT: Okay. I note in the same sentence of the same paragraph you indicate that you also deduct the distribution losses. I wonder if you can confirm for me whether you use the Board-approved loss factor, or are you using some other estimate of losses? 1344 MR. ZEBROWSKI: It is the Board-approved loss factor. 1345 MS. LOTT: Okay. And then if I'm correct about this, am I right that this adjustment for the losses then yields the quantity of energy that is sold to customers, which you then allocate to the customer classes; and then from that, you estimate the revenues based on the Board's approved rate. Am I correct about that process? 1346 MR. ZEBROWSKI: That is correct. 1347 MS. LOTT: Does your process for posting the monthly values for each of the RSV accounts, does that also include true-ups for the previous months based on actual purchases from the IMO, as Hydro One indicated they do? 1348 MR. LAM: Yes, we do. 1349 MS. LOTT: Okay. But what I understand is, unlike Hydro One's RSVA for power, yours doesn't have a zero balance; is that correct? 1350 MR. ZEBROWSKI: That's correct. 1351 MS. LOTT: Now, to help me understand why this is, I wonder if you could also turn up your prefiled evidence, Exhibit G1, and I'm interested there in tab 2, schedule 30 -- sorry, I think it's interrogatory responses, I apologize. Tab 2, schedule 30, A and B. It's behind tab U, I understand. It has two tables, tables 9 and 10, and it's titled "RSVA Accounts." 1352 MR. ZEBROWSKI: Schedule 30, A and B? 1353 MS. LOTT: That's correct. 1354 MR. ZEBROWSKI: Okay, I think we have it here. 1355 MS. LOTT: Okay. Now, as we look at this schedule, I'm just wondering if there are, in fact, three reasons why this balance isn't zero. The first I wanted to point out is under table 9, the legacy rate credits in 2002, which you discussed on Tuesday, I understand, with Mr. White. I'm just wondering if you could describe to me what these are. You'll see that that's listed in table 9, the third line under summary, "Legacy Rates." I wonder if you could just describe these, as to what these are, for me. 1356 MR. ZEBROWSKI: What happened was, at market opening, ideally it would have been good if we had been able to prorate every customer's bill through the market opening period so that -- the period prior to market opening, we would charge the legacy rates, and for his consumption after market opening, he would be charged the new rates. However, our billing systems were not capable of dealing with that massive a change to deal with the prorating. 1357 So what we did is we continued on with the existing legacy rates until that billing cycle had completed, and for the next billing, it went out at the new approved rates. And what we did, we quantified, then, the difference between the two rate structures for each of those customer billing cycles from the date of market opening until the date of the next bill. 1358 MS. LOTT: Can I ask you what customer classes were involved there? 1359 MR. LAM: They were mostly non-time-use customers, customers with no-service type meters. 1360 MS. LOTT: And why did they last until August 2002? I note this on table 9. 1361 MR. LAM: We had to wait for the whole -- all the billing cycles to go through the system. I believe if you look in August, there's not that much left in August. So it took about roughly until August for the legacy rates to get cleared from the billing system. 1362 MS. LOTT: If we go back to looking at the table, I'm wondering why there's no entry there for May 2002. You have zero as the balance there. 1363 MR. LAM: I can check on that. I don't know. 1364 MS. LOTT: If we could make that an undertaking, then. 1365 MR. LYLE: That's J.3.10. 1366 UNDERTAKING NO. J.3.10: TO PROVIDE REASONING BEHIND THE ZERO BALANCE IN THE MAY ENTRY OF TAB 2, SCHEDULE 30, TABLE 9 1367 MS. LOTT: Thank you. 1368 MR. VLAHOS: Ms. Lott, if I may, was it -- this was not specific to Hydro One -- I'm sorry, Toronto Hydro. Was if generic, Mr. Lam, for all the LDCs in the province? 1369 MR. LAM: It was an option given by the Board. 1370 MR. VLAHOS: It was an option. 1371 MR. LAM: Yeah. 1372 MS. LOTT: Okay. The second thing I wanted to note there was, if we look down at table 10, if you look at the December 2003 and we look at the line loss adjustment line and carry that over, you can see that there's an entry there of 489,000, almost half a million. I'm just wondering if you can explain what this is and indicate why there isn't a similar entry for that for 2002. 1373 MR. LAM: Could you please repeat that. 1374 MS. LOTT: Yes. I'm looking at -- if we move on the same exhibit here, schedule 30, A and B, if we move down to table 10 which is dated 31st December, 2003, and the line loss adjustment column, which is the third down from the summary at the very top there, and you carry that over to December, and the number amount is 489,000 and some. My question relates to what that is and why is there no similar entry for 2002. 1375 MR. LAM: Again, I'd have to check on that. 1376 MS. LOTT: Okay, if we could make that an undertaking. 1377 MR. LYLE: That will be J.3.11. 1378 MS. LOTT: Thank you very much. 1379 UNDERTAKING NO. J.3.11: TO PROVIDE AN EXPLANATION OF THE DECEMBER 31, 2003 BALANCE OF 489,000 IN THE LINE LOSS ADJUSTMENT COLUMN IN SCHEDULE 30, TABLE 10 1380 MS. LOTT: And the final thing I wanted to note, if you look at the power revenue to LDC from customer, and then the line power expenses, which is found just below the summary on each of those tables. If you look at the figures month by month, there seems to be a slight -- very slight difference each month between the revenues and the costs posted. I'm just wondering why this would be the case if the revenues are based on Board-approved rates and Board-approved loss factors. 1381 MR. LAM: It would probably be billing cycle differences from month to month. Revenue is based on the number of customers you actually read that month, so that would explain that. 1382 MS. LOTT: So would you expect to see some minor variances each year, even if the actual losses were the same as the approved OEB losses built into the retail rates? 1383 MR. LAM: From month to month, you might not see a major difference if it was totalized for the whole year, if you take the billed and unbilled. So the answer is, yes, you'll see a variance month to month, depending on the cycle. 1384 MS. LOTT: Okay, thank you. I wanted to move on now to a couple of questions, if I can continue for the moment. Okay. I have a couple of questions around the issue of treatment of losses. I just wanted to look at the allocation of these balances. 1385 I understand that you agreed in response to the OEB Staff IR 25 that these balances should be allocated to classes based on energy; am I correct about that? 1386 MR. ZEBROWSKI: That's right. 1387 MS. LOTT: Now, you don't have to turn to it because I really just want to focus here on clarifying the definition of the customer group in each case. In their evidence, Hydro One has suggested that the RSVA balances for power should be allocated to all customers that are not market participants. Does Toronto Hydro distribute power to any IMO-registered market participants? 1388 MR. ZEBROWSKI: Yes, I believe we have a couple of them. 1389 MS. LOTT: Okay. Now, correct me if I'm wrong here, but my understanding is that your approved loss factors are also used by the IMO in recognizing distribution losses associated with deliveries to market participants; is that correct? 1390 MR. ZEBROWSKI: I believe that's correct. 1391 MS. LOTT: So does this mean that the adjustment for the losses captured in the RSVA for power, does this mean that it captures the cost implication of the difference between the actual and approved losses, not only for non-market participants served by Toronto Hydro but also for market participants? 1392 MR. ZEBROWSKI: These are all the losses on the distribution system. 1393 MS. LOTT: Okay. Thank you for that. I wanted to ask a couple questions now about the retail cost variance account. I wonder if you could turn up your response to one of VECC's interrogatories, number 16, and that's Exhibit H, tab 5, page 6. Do you have that in front of you? 1394 MR. ZEBROWSKI: Not yet. 1395 MS. LOTT: It's page 26 of 27. 1396 MR. ZEBROWSKI: Okay. 1397 MS. LOTT: How many of Toronto Hydro customers were served by retailers in 2003? 1398 MR. MORVAY: In 2003? 1399 MS. LOTT: Yes. 1400 MR. MORVAY: Approximately 225,000. 1401 MS. LOTT: You state here that you received retail services and service transaction request revenues, but that the variance amounts were less than the materiality threshold for regulatory assets, and I believe you also made reference to this in response to a question from Mr. Dingwall just a few minutes ago. I'm aware that the OEB has established materiality threshold criteria for market-ready costs, and that's in account 1570, but I'm not aware of any materiality threshold for any of these accounts. Can you point us to a reference that specifically sets materiality limits for these accounts, the retail services and service transaction requests? 1402 MR. ZEBROWSKI: I'm sorry, I don't know off the top of my head. I have seen it. If memory serves me correctly, I believe it was in the Distribution Rate Handbook, but I'd have to check where that was. 1403 MS. LOTT: Can you do that? 1404 MR. ZEBROWSKI: Yes. 1405 MR. LYLE: Are you seeking an undertaking, Ms. Lott? 1406 MS. LOTT: Yes, it is. 1407 MR. LYLE: J.3.12. 1408 MR. VLAHOS: I want to make sure the reporter gets the proper description, so could you give that to her, please, or perhaps -- 1409 MS. LOTT: I'm looking for a reference that would set out materiality limits for the retail services and service transaction request accounts set by the OEB. 1410 UNDERTAKING NO. J.3.12: TO PROVIDE A REFERENCE THAT WOULD SET OUT MATERIALITY LIMITS FOR THE RETAIL SERVICES AND SERVICE TRANSACTION REQUEST ACCOUNTS SET BY THE OEB 1411 MS. LOTT: Do you agree that the intent of the retail service fees that the Board has approved is that they cover the incremental costs of providing services to retailers? 1412 MR. ZEBROWSKI: That's our understanding of that, yes. 1413 MS. LOTT: Now, as I understand it, the variances arise because the rates that initially approved by the OEB were based on estimates as to what the costs of servicing retailers would be. Is that your understanding as well? 1414 MR. ZEBROWSKI: Yes, that's correct. 1415 MS. LOTT: And do you agree that one of the purposes of the variance account was to identify the actual costs of servicing retailers, and then track the difference between this cost and the revenues that are actually collected? 1416 MR. ZEBROWSKI: Yes, that's right. 1417 MS. LOTT: Okay. Given this, and since you say you've recorded the amounts, I wonder if you could give us an undertaking to file amounts with use consistent with Board reporting guidelines of January 15th for those two accounts, the retail cost variance account and the retail cost variance account for retail and for service transaction requests. 1418 MR. ZEBROWSKI: Yes, we can make that available. 1419 MR. LYLE: We'll make that J.3.13. 1420 UNDERTAKING NO. J.3.13: TO PROVIDE AMOUNTS WITH USE CONSISTENT WITH BOARD REPORTING GUIDELINES OF JANUARY 15TH FOR THOSE TWO ACCOUNTS, THE RETAIL COST VARIANCE ACCOUNT AND THE RETAIL COST VARIANCE ACCOUNT FOR RETAIL AND FOR SERVICE TRANSACTION REQUESTS 1421 MS. LOTT: Would you like me to keep going? 1422 MR. VLAHOS: Yes, you have another five or seven minutes. 1423 MS. LOTT: Okay. I have another area here in terms of talking about premarket opening line loss variances. 1424 I wonder if you could turn up your response to an OEB Staff Interrogatory No. 5, and that's in Exhibit H, tab 1, page 3, and I'm also interested in the associated schedule 5 with that. Do you have that? 1425 MR. ZEBROWSKI: We have it. 1426 MS. LOTT: Thank you. If we could start looking at that schedule, I wanted to look at the 2003 regulatory assets recovery part of that page, and the fourth line from the bottom where there's an entry called "Premarket Opening Line Loss Variance." And that's account 1571. And if we go across, we note that that amount is about -- approximately $2.9 million. Would you agree that that is correct? 1427 MR. ZEBROWSKI: Yes. 1428 MS. LOTT: Now, if we go back to your written response, and here I'm looking at page 3 of, as I indicated before, Exhibit H, tab 1. Do you have that in front of you? 1429 MR. LAM: Yes, we do. 1430 MS. LOTT: Okay. I note that, just looking at the last sentence of the second paragraph, and I'll just read it here, it says: 1431 "Since the OEB did not include this variance in phase 1 of the regulatory asset recovery, Toronto Hydro adjusted the 2002 regulatory assets by $2.9 million." 1432 Would you agree with me that account 1571 is one of the accounts listed in the OEB's January 15th, 2004 letter with respect to the accounts that should be included? 1433 MR. ZEBROWSKI: That was account 1571? 1434 MS. LOTT: Yes. 1435 MR. ZEBROWSKI: Is included as part of the recovery for regulatory assets, that's right. 1436 MS. LOTT: So shouldn't this account be included now in the phase 2 deliberations? 1437 MR. ZEBROWSKI: What this relates to, prior to market opening, we implemented a wholesale energy surcharge, and with that rate, for expedient implementation of that rate, the Board approved a fixed line loss factor, I believe it was about 5 percent, and increased the rate to .735 cents per kilowatt-hour, I believe, which, of course, the 5 percent is different from our line loss factor at Toronto Hydro. 1438 What we did is we tracked the difference in the value of those line losses, which was a requirement of the Board, but there was never any direction given by the Board in terms of including that amount within the regulatory assets. We simply accumulated it within the account 1571 initially just to keep track of it. It was really just a place-holder, but then when we made the regulatory asset filing, we did back it out. 1439 MS. LOTT: So is it your position that it should be included in the phase 2 deliberations? 1440 MR. ZEBROWSKI: We've removed that figure from the phase 2. 1441 MS. LOTT: Okay. My final question in this area is: As you may or may not be aware, there are other utilities that used too low a loss factor prior to market opening and are seeking recovery for the difference. Would you agree that if the OEB were to accept the view you seem to be implying, that these amounts are outside the regulatory assets to be considered at this time, then not only should they accept your exclusion of the credit due to customer, but they should also reject applications by other LDCs seeking recovery of any positive balances due to premarket opening lost variances? 1442 MR. ZEBROWSKI: I'm not making any kind of judgment call here at all. We simply just followed the OEB direction on this item. 1443 MS. LOTT: So you don't have a -- you're not indicating any view one way or the other, but you wouldn't disagree if the Board took that path. 1444 MR. RODGER: I think you have your answer, Ms. Lott. He's not taking any position on your question. 1445 MS. LOTT: Okay. Thank you. That's the end of that little piece of questions, so I'm happy to stop, if you'd like. 1446 MR. VLAHOS: That would be fine, Ms. Lott. 1447 MS. LOTT: And I don't have too many more for tomorrow morning. 1448 MR. VLAHOS: Oh, that's down to what, now? 1449 MS. LOTT: I would say probably 15 more minutes. 1450 PROCEDURAL MATTERS: 1451 MR. VLAHOS: Okay. It does bring into question, though, London Hydro's appearance tomorrow. Mr. Lyle, I'm just wondering out loud here whether it would make sense to have London Hydro stay for tomorrow, or should we ask them to come back next week. It wouldn't appear -- at least it didn't appear half an hour ago that we would be able to get to them after the morning break, so that would mean only a couple of hours. It's a half day tomorrow. 1452 MR. LYLE: Yes. 1453 MR. VLAHOS: I just don't know whether we should give London Hydro an option, if they're here, they plan to stay tonight, they're welcome to -- we're more than happy to have you tomorrow. But we'd like to give you an option. Could someone from London Hydro just come forward and give us their views? 1454 MR. WATTS: You're asking us if we would like to appear tomorrow? 1455 MR. VLAHOS: Could you come forward, please. 1456 Mr. Watts, would you just identify yourself for the record. 1457 MR. WATTS: Yes, I'm Bernie Watts, CEO of London Hydro. 1458 MR. VLAHOS: The issue is whether -- we will finish with Toronto Hydro, it would appear, within an hour, hour and a half maximum, tomorrow. Would you still be willing to continue tomorrow after that, or would you rather have your people go home and then we can schedule for next week? 1459 MR. WATTS: It's at your discretion, sir, but I would prefer if we could leave it until Monday. 1460 MR. VLAHOS: Okay. Until Monday. 1461 Then, Mr. Lyle, I think Enersource was scheduled for Monday, so -- 1462 MR. LYLE: That's correct. Would you prefer to switch them to Tuesday, Mr. Chair? 1463 MR. VLAHOS: Would Tuesday be okay, Mr. Watts? 1464 MR. WATTS: No problem. 1465 MR. VLAHOS: Okay. So let's do it Tuesday, then, for London Hydro, with our apologies and thanks at the same time. 1466 So tomorrow, then, we'll just finish Toronto Hydro and we'll have an early day. And that, Mr. Lyle, would -- that means something has to be scheduled for the extra witnesses. 1467 MR. LYLE: Yes, Mr. Chair. We'll take care of that. 1468 MR. VLAHOS: And we can deal with those matters tomorrow? 1469 MR. LYLE: Certainly. 1470 MR. VLAHOS: Okay. 1471 Any matters before we adjourn for the day? There being none, until tomorrow at 9:30. 1472 --- Whereupon the hearing adjourned at 5:03 p.m.