Rep: OEB Doc: 13BF4 Rev: 0 ONTARIO ENERGY BOARD Volume: 4 17 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 Friday, 17 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 17 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: [39] CROSS-EXAMINATION BY MS. LOTT: [45] CROSS-EXAMINATION BY MR. LYLE: [151] QUESTIONS FROM THE BOARD: [344] RE-EXAMINATION BY MR. RODGER: [377] PROCEDURAL MATTERS: [388] 10 EXHIBITS 11 12 UNDERTAKINGS 13 UNDERTAKING NO. J.4.1: TO PROVIDE AN EXACT END DATE FOR THE TELESPECTRUM CONTRACT AND THE EXACT START DATE FOR THE CLIENT LOGIC CONTRACT, BOTH RELATED TO CALL CENTRE SUPPORT [306] UNDERTAKING NO. J.4.2: TO RECALCULATE THE FIGURES IN TAB 1, SCHEDULE 25 FOR A 1,000-KILOWATT-HOUR RESIDENTIAL CUSTOMER ALONG WITH THE PERCENTAGE INCREASE IN THE OVERALL BILL [339] 14 --- Upon commencing at 9:34 a.m. 15 MR. VLAHOS: Please be seated. 16 Good morning, everyone. Any preliminary matters, Mr. Lyle? 17 MR. LYLE: No, Mr. Chair, unless you'd like to address the schedule. 18 MR. VLAHOS: Yes, I wouldn't mind if we talk about the schedule for a minute. 19 PRELIMINARY MATTERS: 20 MR. VLAHOS: Let's start with the argument phase. The Panel's inclination is to have a written argument phase, for some reasons, the most important one being that we don't think the Board's regulatory agenda would allow us at some time soon to be able to sit in the room, all of us, together. So we're going to go with written argument. There will be argument in chief by the applicants, there will be argument by the intervenors, and then there will be reply argument by the applicants. 21 The Board's thinking on the number of days to allow for such argument would be seven calendar days for argument in chief, ten calendar days for the argument by the intervenors, and ten calendar days for the reply argument. If anybody has any objection to those time lines, we would like to hear about them. 22 I believe that's it for the argument. We may have more to say about, sort of, the contents of such argument in due course, but we thought we'd give you a head's up today so you can be prepared for it. 23 Mr. Rodger. 24 MR. RODGER: Yes, Mr. Chairman, just a couple of preliminary matters before Ms. Lott resumes her cross-examination. 25 MR. VLAHOS: I'm not finished with mine yet. 26 MR. RODGER: Excuse me. 27 MR. VLAHOS: You have no comment on the argument phase? 28 MR. RODGER: No. 29 MR. VLAHOS: Thank you. 30 Regarding the schedule, I, for one, am starting to be a bit concerned about completing this evidentiary portion by next Friday, so we will be sitting Monday and Friday starting at 9:00. We cannot do it on Wednesday because of other Board commitments. So Monday and Friday we'll be starting at 9:00 in the morning. I'm sorry, and Tuesday. Thank you. 31 We will have Enersource starting Monday morning at 9:00, and London Hydro should be here for Tuesday morning at 9:00. And we expect the expert witnesses, the intervenors' witnesses, that's Mr. Tom Adams and the others to be here for Wednesday. As a reminder, Thursday we're not sitting, on Thursday. And we should be able to finish by Friday. As I said, it will be very difficult to schedule -- find another day of a hearing over the course of the next two or three weeks after that, so it is a must. 32 That's all I had. Now, Mr. Rodger. 33 MR. RODGER: Thank you, Mr. Chairman. Just two preliminary matters. 34 Firstly, there was one Toronto Hydro undertaking in particular, for the record, Undertaking J.3.5, wherein I undertook to make inquiries of my client with respect to the two contracts between the distribution utility and the call centre and the competitive affiliate and the call centre. And my witnesses have advised me that both those contracts are going to be made available to me this afternoon. I'll review them. I'll then get instructions from the general counsel at Toronto Hydro. So I'll be able to report back to the Board first thing Monday morning on that particular undertaking. 35 Secondly, there is a response to Undertaking J.3.12 which I've delivered copies at the front, and over the course of the weekend, we'll be working through the various other undertakings, so there should be more produced for Monday morning, sir. 36 MR. VLAHOS: Okay. Thank you, sir. 37 Any other matters? There being none, Ms. Lott. 38 MS. LOTT: Thank you very much, Mr. Chairman. 39 TORONTO HYDRO-ELECTRIC SYSTEM LIMITED PANEL 1 - LAM, ZEBROWSKI, COUILLARD, DEMENTAVICIUS, MORVAY; RESUMED: 40 A.LAM; Previously Sworn. 41 R.ZEBROWSKI; Previously Sworn. 42 J.COUILLARD; Previously Sworn. 43 R.DEMENTAVICIUS; Previously Sworn. 44 E.MORVAY; Previously Sworn. 45 CROSS-EXAMINATION BY MS. LOTT: 46 MS. LOTT: I think I'll just start by clarifying a couple of issues from yesterday, and I guess the first one has to do with, actually, the undertaking that was asked for, Exhibit J.3.12. I just want to clarify that that had to do with establishing whether you could find a reference for a Board-established materiality threshold for regulatory asset accounts 4082 and 4084. 47 MR. LYLE: Excuse me, Ms. Lott. Mr. Rodger, has the Panel been provided with a copy? 48 MR. RODGER: They were in the in-box, Mr. Lyle. 49 MR. THIESSEN: Are there more copies? 50 MR. RODGER: Yes. 51 MS. LOTT: Are those in front of everyone now? Okay. 52 Let me just clarify that I've had a look at the undertaking -- the exhibit that was provided here, and it doesn't make any reference to materiality thresholds. Again, let me be clear, I think I noted the wrong account numbers there. I was looking for the retail cost variance account and the retail cost variance account 1518 and 1548. So if that undertaking could be further clarified to establish a reference to a materiality threshold, that is what I was looking for in that undertaking. And that does not appear to be what is provided in this exhibit. 53 MR. ZEBROWSKI: If you look at the very bottom of the page, the last paragraph, it talks -- this is in reference to the retail cost service variance accounts. It says: "The eligibility criteria under section 551 in chapter 5 of this handbook will be applied to determine the eligibility of costs for recovery through the retail variance accounts." 54 And if you turn to section 551, this is the section that deals with the four eligibility criteria for Z factors in general, those being causation, inability of management to control, prudence, and materiality. And that's what we followed. 55 MS. LOTT: Okay. Thanks very much for that. 56 And just one follow-up question based on yesterday. When I was dealing with the issue -- I think I was speaking to Mr. Lam about the issue of legacy rates from the RSVA power, and that the issue had -- I think you had stated, Mr. Lam, that the issue had arisen because of the need to finish the billing cycles for the non-time-of-use customers prior to moving them over to market-based rates. Is that -- am I correct about what you had said yesterday about that? 57 MR. LAM: In regards to the legacy rates, that's right. 58 MS. LOTT: And can you tell me what the billing cycles are for the various non-time-of-use classes? 59 MR. LAM: They could range from one and a half to maybe two and a half to three months. And I -- if you -- I think back to, if I recall, yesterday when you questioned why were there some legacy rates present in the month of August, and I believe the answer I gave you was that we felt that because of the billing cycle be based -- it took until August to clear the account. I'd like to clarify that if I can. 60 What happened in our particular case, we used accrual method versus the bill method, the actual bill method, and billing information is actually delayed by one month. So if you look at the numbers that is in our legacy rates, the numbers that show in August is actually numbers that actually happened in July but posted in August themselves. So there is a billing cycle delay itself. 61 MS. LOTT: Now, would that account for why there would be a zero for May in that -- 62 MR. LAM: That would explain that. 63 MS. LOTT: Okay. Thank you for that. So if the legacy rate credits were created solely by the non-time-of-use customer classes, wouldn't it be more appropriate to allocate this portion of the regulatory assets solely to the non-time-of-use customer classes? 64 MR. LAM: Yes, I believe that's what we proposed to do. MS. LOTT: Okay. 65 MR. ZEBROWSKI: If I could just correct that. I will withdraw that, sorry. 66 MS. LOTT: Okay. I wanted to speak to a couple questions about the issue of the September 10th -- your September 10th letter to the OEB, where you advise them about the issuing of the 37 -- approximately $37 million credit by the IMO. There was some discussion about this. I just wanted to clarify your position around this issue. 67 If time permitted in the process, would you update the 2003 regulatory assets balance for the appropriate portion of that $37.8 million credit you've received as a matter of principle -- or, as a matter of principle, is it your view that as the dollars were received in 2004, that there shouldn't be any adjustment to the 2003 balances? 68 MR. ZEBROWSKI: No. If we can, I think we would like to update those figures. I think at the same time, as Mr. Couillard mentioned yesterday, we have internal processes we have to go through as well in terms of dealing with the OSC and so on. And all this has to be completed before we can actually file those numbers. But if time permits, and before a Board decision is made on the issue, I think we would like to have those in, if at all possible. 69 MS. LOTT: So this would be a priority issue with Toronto Hydro. 70 MR. ZEBROWSKI: It is definitely. 71 MS. LOTT: So what I'm curious about, then, is when I look at your 2003 financial statements, I notice that it took your external auditors less than two months to sign off on your entire 2003 financial year-end. So why would it take this amount of time, this three months, to resolve this one issue? 72 MR. COUILLARD: If I may, the issue here is concurrent with our calendar of reporting to the OSC, so we don't want to make statements until we have all the facts. Like, we don't have all the facts to present to our external auditors right now, so when we have our case, it won't take the external auditors, like, three months to review this. In all likelihood, it will take them a week. We just need to get all the information together and prepare our case and get them in to do that. 73 MS. LOTT: Okay. Just a couple more areas here. 74 I wanted to speak to you a bit about market transition costs, and I wonder if you could turn up appendix D to your phase 2 application, which I understand is Exhibit G1, and go to tab 1C, which sets out the qualifying transition costs as of December 31st, 2003. 75 Do you have that in front of you? 76 MR. ZEBROWSKI: We have it. 77 MS. LOTT: Okay. If we look at that, and look at the billing -- first of all, I wanted to say, is it your position that all of these costs were driven by the market-opening requirements of the government's electricity industry restructuring plan? 78 MR. MORVAY: Yes. 79 MS. LOTT: So if we look down and look first at the first activity listed under there, billing activities, now, I note -- if we go back to the text that accompanies your application, and I'm looking here at page 4 where it talks about billing activities. 80 MR. LAM: Yes, we have that. 81 MS. LOTT: In the text, you indicate that the initial costs of implementing the SCT Banner customer information system with a standard level of functionality are not included in the transition costs, but, rather, what is captured is the incremental cost of customizing a system to meet the open market requirements. And in order to do this you engaged SCT Utility Systems primarily because it was their system and they were most familiar with the system's architecture; is that correct? 82 MR. DEMENTAVICIUS: That's correct. 83 MS. LOTT: I also believe that you noted in your evidence that the Banner system is not used by any other systems in Ontario. 84 MR. DEMENTAVICIUS: To our knowledge, no. 85 MR. MORVAY: Electric utilities. 86 MR. DEMENTAVICIUS: Electric utilities, yes. There are some gas utilities that use the Banner system. 87 MS. LOTT: I was curious as to why this is the case, if you're able to provide any insight into why that is. 88 MR. DEMENTAVICIUS: Why it isn't being used? No, I couldn't speculate on the section of CIS systems by any other party. 89 MS. LOTT: I understand, though, that it's used in other jurisdictions. Is that your understanding as well? 90 MR. DEMENTAVICIUS: Yes. There are many sites, certainly in the US, that use Banner SCT as their CIS and that includes gas and electric and water and other types of organizations. 91 MS. LOTT: Given that, I wonder whether Toronto Hydro made any efforts to determine if there were other contractors who would be sufficiently familiar with that Banner system to take the customization that you needed. 92 MR. DEMENTAVICIUS: Absolutely. I think we took all that into account. And we knew through our conversion process previously through 1997, 1998, 1999, and so on, we worked extensively with other contractors as well as the vendor who were able to supply the necessary type of skills to do this work. And certainly through -- for the market-readiness project, we made a concerted effort to get the best hourly rate we could for those types of services. We also were able to, from time to time, take advantage of some individuals who had some Banner expertise that we were able to draw into the project. So it wasn't just exclusively the vendor. But we did have to deal with vendor -- at least vendor non-disclosure and confidentiality type of issues, and it isn't always a case where they allow anybody that we choose to work on the system. So we had to deal with that from time to time as well. 93 MS. LOTT: Okay. 94 MR. MORVAY: But to clarify, we did use multiple vendors. 95 MR. DEMENTAVICIUS: Yes. 96 MS. LOTT: Okay, thank you. Now, as I understand the evidence, the main expense in this area of billing activities appears to be the costs associated with the SCT System Utilities' work as well as contracts you had with other contract service providers. 97 MR. DEMENTAVICIUS: That's correct. 98 MS. LOTT: I'm taking that from page 5 of your evidence. Okay. 99 Now, if we go back and look at the tab 1C, under "Billing Activities," I'm looking in that first line, I note that there was in the capital subaccount, which is A, there's about $17.5 million listed, and in the non-capital subaccount, which is the operating expenses, there's approximately 1.9 attributed to this account, and that makes a total of approximately 19.4 million, plus interest, for an overall total of about 20.8 million. I'm just wondering where the costs associated with these contractors are included, and how much are they in total? 100 MR. DEMENTAVICIUS: Well, our total for the bulk of contractors costs associated with this is about 15 and a half million dollars. We broke that out. So it is the predominant part of those costs. 101 MS. LOTT: I wonder, also, if you could give us some idea as to the additional functionalities that had to be incorporated into the billing system to meet the market opening requirements. 102 MR. DEMENTAVICIUS: I think we went through some of that. We did, in our response, attach quite extensive sort of prescreening of what we thought were going to be the functional requirements. But I think the best reference would be the self-certification requirements from the OEB for phase 1 and phase 2, which extensively laid out the functionality that all LDCs had to meet in their CIS systems. 103 MS. LOTT: What would you have considered to be the major cost drivers behind that $19.4 million balance? Which functionalities? 104 MR. MORVAY: Purchase power variance account would have been one of them. 105 MS. LOTT: Nothing else? 106 MR. DEMENTAVICIUS: It's somewhat difficult to say because I think there are significant parts of functionality that had to be built. The entire functionality dealing with retailer enrolments, retail settlement, all those things were net-new to the system. So I don't know that we've -- we certainly haven't quantified at this point any specific, say, functionality or functionalities that made up the bulk of those costs. I mean, there were some key drivers and key components of it, but it's -- if you look at -- if you were able to review the self-certification document, you would see that really it's comprised of literally many, many dozens of functions that the CIS had to carry out. Some of those might have been grouped in a particular modules or parts of the systems that are developed; others are stand-alone. It's difficult to quantify any individual ones as being main drivers, but there are some that are bigger than others, certainly. 107 MR. MORVAY: And the system interfaces are very complex as well, that tie into the Banner billing system. 108 MS. LOTT: Okay, thank you for that. 109 Looking down at the next activity, I note that Mr. Warren and Mr. Dingwall spent a considerable amount of time on customer education, so I wanted to move down and just look together at the wholesale market requirements and the retail customer requirements, with just a couple questions about that. 110 Now, as I understand it, unlike the billing activity where you're making changes to an existing system, these two activities required the development of totally new systems; is that correct? 111 MR. DEMENTAVICIUS: Yes, they were. I would qualify that by saying these were base systems, more or less, starting off the shelf but requiring some modification, customization, to meet our specific needs interfacing with our CIS system and other -- and the eXact system. So certainly as they stood coming off the shelf from the vendors, they would not have been adequate to do the job, so there was a level of customization that was required. And in these cases, Toronto Hydro-Electric had no access to the source code to do any of that development ourselves, so we basically were dependent on the vendor to provide those services, to make those changes as required. 112 MS. LOTT: Okay. Now, if we look at the amounts associated with these activities, I note that the wholesale market requirements are almost 3.5 million, the retail customer requirements are 5.1 million, with some operating expenses of almost 100,000. Those two activities added together create about $9 million before carrying costs. Would you agree that this was the first time Toronto Hydro has had to consider these is sorts of requirements and make the associated expenditures? 113 MR. DEMENTAVICIUS: Yes. 114 MS. LOTT: Okay. In your main evidence you discussed the contracts with ITRON, UTS for wholesale market requirements, and also the independent contractors such as SCP and Xcel Energy to make the necessary changes to meet the retail customer requirements that you've included in schedule C. I'm just wondering, how much of the total 9 million was associated with these contractors? 115 MR. DEMENTAVICIUS: Well, in total between the two -- to two contractors, and there's more than just ITRON and Exelergy, because we also had a contractor from Extensys who had to be involved in a great deal of the interface work between eXact and the Banner system. So between those systems, the estimate is that we roughly have about $6 million of development work by contractors for those two systems. 116 MS. LOTT: Okay, thank you for that. 117 I was also wondering if you could give us an idea of some of the new functionalities that had to be developed in these two areas, and again, as you do that, if you can particularly note which you consider to be the major cost drivers behind that $9 million balance. 118 MR. DEMENTAVICIUS: Well, all of that was new functionality. I guess if there's a main driver from the point of view of either one of those, it would have been the -- probably the extensive work that we had to do in terms of interfacing between the Banner CIS system and the eXact system. As I described, I believe, yesterday, the translation between EDI formats and XML formats was very extensive, and that posed, perhaps, the largest chunk of our task in terms of that work. 119 MS. LOTT: Okay. Thank you for that. 120 Just two other areas I have some questions left. I wanted to speak to you about the issue of allocation of transition costs, and I wondered if you could turn up your response to Energy Probe's IR No. 8, which is Exhibit H, tab 2, page 9. And I'm also interested in the associated schedule 8 that is attached to that response to Energy Probe. 121 MR. LAM: Yes, I have that. 122 MS. LOTT: You have that in front of you. Now, if I understand this schedule 8 correctly, this indicates how Toronto Hydro's current cost-allocation methodology allocates various activities cost to customer classes; am I correct about that? 123 MR. LAM: This table, schedule 8, in front of you, is filed for the 2000 rates submission for unbundled rates, and this formed the basis for most of the rate designs that we have moving forward, yes. 124 MS. LOTT: And am I correct that this was the basis for the comment in your written response that the billing and customer education activities undertaken prior to market transition were allocated 100 percent to customers? If you'll note that on the table. Is that correct? 125 MR. LAM: That's correct. 126 MS. LOTT: Could you tell me when this cost-of-service methodology was developed? 127 MR. LAM: Yeah. This cost-of-service allocation study was done in the year 2000 and was part of our rate filing for 2000. 128 MS. LOTT: So it would have been well before the advent of the market opening, obviously. 129 MR. LAM: That's correct. 130 MS. LOTT: Now, when you show in the table that the costs, as allocated, are based on the customer, do you mean do you use a strict customer count in all cases? 131 MR. LAM: I believe we did, yes. 132 MS. LOTT: You did? Okay. Are you at all familiar with cost-allocation practices by other utilities, or standard cost-allocation approaches? And I'm thinking of such of those that have been outlined by NARUC, The National Association of Regulated Utility Commissioners. 133 MR. LAM: Not that particular one, but we have a study that was done by another consultant, EES, that was part of the -- back then, the MEA and EDA model. 134 MS. LOTT: I'm just wondering, isn't it common for cost categories that would include things like metering or metre-reading or billing or even customer service to be allocated on a weighted customer basis? I mean, just to clarify, for example, to recognise the cost of issuing a bill to an industrial customer would presumably require more effort, and so the number of industrial customers would be given greater weight in the allocation process than, say, residential customers. 135 MR. LAM: I believe, yes, that's right. That's what we call the hassle factor. We believe that the general service -- in terms of meter-reading, we believe it costs a little more for the larger customers than you would for the residential, and I believe the model builds in the hassle factor which is a ratio. 136 MS. LOTT: Okay. Thank you. 137 I have just one last area. I wanted to speak to you very briefly about the Exhibit N, which is the report that was filed jointly by yourself, Enersource, and Hydro One Networks, called "Benchmarking Transition Costs of Ontario LDCs," prepared by the Pacific Economics Group. 138 MR. ZEBROWSKI: Yeah, we have it here. 139 MS. LOTT: Okay. Now, do I take it that you're generally in agreement with the findings of that report? 140 MR. ZEBROWSKI: Yes, we are. 141 MS. LOTT: Okay. If you could turn to page 22 of the report. 142 MR. ZEBROWSKI: I have it here. 143 MS. LOTT: I just wanted to read from the section 4.2.2, benchmarking methods. The first couple of sentences I'll read here: 144 "The unit cost approach to benchmarking Energy Probe offers is far too simple to be accurate. One problem is the crude measure of output employed. A more sophisticated output measure might include a breakdown between residential and larger volume customers served, the number of rates offered, and measures of the extent to which market requirements were attained." 145 Do you agree with this comment? 146 MR. ZEBROWSKI: Generally, yes. 147 MS. LOTT: Okay. Thank you, those are my questions. Thank you, Mr. Chair. 148 MR. VLAHOS: Thank you, Ms. Lott. 149 There's no other intervenor that would wish to cross-examine? There being none, Mr. Lyle. 150 MR. LYLE: Thank you, Mr. Chair. 151 CROSS-EXAMINATION BY MR. LYLE: 152 MR. LYLE: Panel, I'd just like to start by clarifying a couple of matters. Can you turn to J.2.2B. 153 MR. ZEBROWSKI: Okay. 154 MR. LYLE: And under method 2, there's four columns. 155 MR. ZEBROWSKI: Yes. 156 MR. LYLE: The third column is headed "Percentage of Overall Bill." Am I correct in saying that that should say "percentage of distribution bill"? 157 MR. ZEBROWSKI: Yes, we did clarify that. 158 MR. LYLE: Oh, I'm sorry. And if I could move you, then, to two interrogatory responses you provided to Board Staff. One is at tab 1, schedule 5, which is filed under subtab G, and the other is at tab 1, schedule 25, which is found under subtab N. 159 MR. LAM: Yes, we have that. 160 MR. LYLE: And I'm looking at the first page of schedule 25, and the RSVA power number is approximately negative $8.8 million. 161 MR. LAM: Yes. 162 MR. LYLE: And the total regulatory assets claimed is about $95.8 million. 163 MR. LAM: Yes. 164 MR. LYLE: And this answer has been updated, is that correct, on July 29th? 165 MR. LAM: Could you repeat what you mean by -- 166 MR. LYLE: Well, what I mean is that these are the most up-to-date variances that you're claiming for at this point? 167 MR. LAM: As far as we know, yes. 168 MR. LYLE: So when I move to schedule 5, and I look at the RSVA power number, it's minus 4.1 million, and that leads to a total applied for -- I'm looking down towards the bottom of the page. 169 MR. LAM: That's right. I see it. 170 MR. LYLE: There's an RSVA power number of minus 4.1 million. 171 MR. LAM: Yes. 172 MR. LYLE: And that leads to regulatory assets of 95.5 million. I take it those numbers in this particular schedule have not been updated; is that correct? 173 MR. ZEBROWSKI: It doesn't appear that this one was revised. It should be, yes. 174 MR. LYLE: Okay. I want to move you, then, back to schedule 25, and this time go to page 2. 175 MR. LAM: Yes. 176 MR. LYLE: And I recall from your discussion with Mr. Shepherd yesterday that Mr. Shepherd had some concern about the number at the bottom of the third column, $7.2 million. I believe you indicated to him that you would check the accuracy of that number and get back to him. 177 MR. LAM: Yes, I did. I was trying to get back to him today. But I did check the accuracy of that number. 178 MR. LYLE: And is it accurate? 179 MR. LAM: It is accurate in that column. What I incorrectly described was the way it was calculated. If you were to go back to page 1 of schedule 25, okay, and in RSVA power, I showed $3 million there, minus $3 million. 180 MR. LYLE: Yes. 181 MR. LAM: When I calculated that column, I took the $3 million out and moved it over only to be recovered from the non-time-of-use customers, because it was as a result of the legacy rates. So if I were to redo my calculations, I would take that $39 million, that's the subtotal of that group, minus the $3 million, and then reduce it by the amount that I received from phase 1, and that would result in that $7 million. 182 MR. LYLE: I think what I meant, perhaps, is you make the $39 million, add the 3 million to it? 183 MR. LAM: That's right. 184 MR. LYLE: Take out that 3 million -- 185 MR. LAM: That's right. 186 MR. VLAHOS: One at a time, one at a time, please. 187 MR. LAM: The correct way for the calculation is, yes, you're right, you take the $39 million and add the $3 million back to it, then move the $3 million over to be recovered strictly from the non-time-of-use customers. 188 MR. LYLE: I see. Now, I want to move you along, then -- and that would get you the $7.2 million, approximately? 189 MR. LAM: That's right. 190 MR. LYLE: I want to move you along, then, to the number at the bottom of the premarket column. And can you go back to page 1 of schedule 25 and explain to me how you calculated that number. 191 MR. LAM: Yes, I can. I took the $3 million that we just took from the RSVA power and added it onto account 1571, which shows the 21 million at this point. And that would reduce the $21 million to $17 million. And I took that 17, divided by 3, essentially. 192 MR. LYLE: Now, isn't it a little confusing to label this market premarket, then, given that the RSVA power variance arose after market opening? 193 MR. LAM: We had to report the RSVA power, but we do realize the RSVA power is a legacy -- was premarket, so it was recorded in our books under RSVA power at this point. 194 MR. LYLE: I see. I want to move you to B1A of your prefiled evidence. 195 MR. ZEBROWSKI: Okay. 196 MR. LYLE: Now, setting aside for a moment the discussion you had yesterday with Mr. Dingwall with respect to the switch-gear credit, the number in the RSVA network account is a positive number and the number in the RSVA connection account is a negative number. 197 MR. ZEBROWSKI: That's correct. 198 MR. LYLE: Can you explain how the difference in those two numbers came about. 199 MR. LAM: When we were -- when we were re-doing the transmission rates from the bundled rates to the unbundled rates, there were a couple of assumptions that we had. We knew essentially what our peak was from our bills from back then, OPG, before market opening, but we did not know what the -- okay, maybe if I take two steps back to -- just give a brief description of how network connection transmission charges are billed and how connections and transformations are billed. 200 Network transmission is based on the highest demand in Ontario, between 7 and 7 weekdays, but unfortunately connections is not. Connections is when Toronto Hydro peaks as opposed to the promised peak which is between 7 and 7 weekday. So when we unbundle the rates, we new what our peak was during Ontario's province peak, but we did not know what our offpeak hour -- numbers were. So we had a couple of assumptions there and we took the ratio of what the peak would be, and I assume at that point our numbers were too low. It was a rate design issue. So essentially when we submitted the numbers for the connection transition charges, our numbers were too low and that's why we were undercollecting. 201 Does that help? 202 MR. LYLE: I think so. I want to move to the carrying charges column on that same page. Now, there's a positive balance in the networks subaccount but there's negative carrying charges, and there's a negative balance in the connections subaccount but positive carrying charges. Can you explain how that came about. 203 MR. LAM: Can you give me a second? 204 MR. LYLE: Sure. 205 MR. LAM: If you can turn to the Energy Probe IR, I believe -- if you turn to the K tab of Energy Probe response, the evidence back to Energy Probe. 206 MR. LYLE: Yes, we have that. 207 MR. LAM: Schedule 24, page 3 of 3. That shows you a running account, how that was arrived at. 208 MR. LYLE: Can you just describe for me what it's demonstrating. 209 MR. LAM: In the accrual account, in the earlier stage in 2002, we actually have negative numbers in both the principal and the interest. But as we move down, the amounts that were on the positive side were higher than the negative side in terms of increments through the period. Another way of looking at it is the positive numbers were a lot smaller than -- the positive are a lot higher than the negative numbers as we go along the line, and that's why the interest rate did not reflect that. 210 MR. LYLE: I see. I want to move you to AMPCO's IR 26, which is found at tab 4, page 11, of Exhibit H1. 211 MR. LAM: Give me a second. 212 MR. ZEBROWSKI: Is that an AMPCO ... 213 MR. LYLE: It is AMPCO, that's correct. I'm sorry. It's School's, actually, I apologize. 214 MR. LAM: Could you repeat that, please. 215 MR. LYLE: It's tab 4, page 11, and it's School's IR 26. 216 MR. LAM: Yes, I've got that. 217 MR. LYLE: And you were asked to calculate the balance for the RSVA accounts using a billed approach and using an accrued revenue approach, and the billed approach came out at 78.7 million and the accrued revenue approach came out at 40.1 million. And I believe you just did it for three accounts, you didn't do it for the RSVA power account. 218 Now, first of all, for what time period did you calculate the accrued revenue approach? 219 MR. LAM: If you can give me a second. 220 MR. ZEBROWSKI: That's to the end of 2003. 221 MR. LYLE: Okay. Can you explain to me why those numbers don't quite seem to correlate with the numbers that you've actually applied for? 222 MR. ZEBROWSKI: There's no interest applied to these numbers. 223 MR. LYLE: I see. Now, can you then explain to me why there's such a major discrepancy between the accrued approach and the billed approach? 224 MR. ZEBROWSKI: Generally, it's just a timing difference. In the accrual method, we do accrue at the end of each month and try to bring the billings in line with the actual purchases, whereas the billed method, it's strictly what is billed on the revenue side, so that there's always a time lag from when the bills -- I guess, when the energy is consumed to when the bills are issued to the customers, and that time lag is not reflected in the -- on the revenue piece of the billed methodology. 225 MR. LYLE: And in some cases, would that lead to the billed being lower than the accrued methodology in terms of the account balance? 226 MR. ZEBROWSKI: I'm just wrestling with the word "lower." The expenses are recognized before the revenues are recognized. 227 MR. LYLE: All I'm asking, really, is -- I think your point is that the billed is not going to be as accurate in terms of balancing revenues and costs, but ... 228 MR. ZEBROWSKI: That's generally true. That's right. 229 MR. LYLE: But that in some cases it might be higher than the accrued methodology and in some cases it might be lower. 230 MR. ZEBROWSKI: I just have difficulty using "higher" and "lower" when we have numbers that are running both positive and negative here. 231 MR. LYLE: My only point, Mr. Zebrowski, is this: There's no magic to saying that billed is going to give you a higher balance on an ongoing basis than the accrued methodology in the RSVA. 232 MR. ZEBROWSKI: On the RSVA accounts, I think that's what you'll see. That's right. 233 MR. LYLE: And over time, Mr. Lam, would all these differences wash out, so to speak? 234 MR. ZEBROWSKI: They would, over a period of time. There's always -- using the billed method, there's always a time-lag differential that's reflected there, and you're never able to catch up the differential. But the billings eventually come through the system and compensate for the expenses. 235 MR. LYLE: Now, I want to turn you to this issue of the credit from the IMO, and I just want to be clear, Mr. Zebrowski, in terms of what the applicant is asking for from the Board. 236 If the Board has yet to issue its decision by the time you're able to provide updated numbers, you would be seeking the Board to incorporate those updated numbers into its decision; is that correct? 237 MR. ZEBROWSKI: If there's sufficient time for the Board to deal with the new numbers and incorporate that into the decision, yes, we would like them to do that. If that's not possible, then we're prepared to go with the numbers that we've already filed, and whatever adjustments are needed, we'll present that next year. 238 MR. LYLE: When you say "present that next year," do you mean for your March 1, 2005 rates, or when? 239 MR. ZEBROWSKI: Sorry, for the following year's rates, 2006. 240 MR. LYLE: I see. And given that we have this credit from the IMO of $37 million, and I also I understand that Enersource has had a reconciliation with the IMO of $14 million, is it fair to say that there is a greater amount of instability with respect to the balances in these RSVA accounts than might have been originally anticipated? 241 MR. ZEBROWSKI: No, I don't think that's fair. I think there is a fair -- well, quite a bit of trust in the IMO billing system. These things do happen on occasion. Nothing's perfect. In this case, it happened to be a large amount, which was unfortunate. But I think, as a general course, we can trust these numbers. And the RSVA itself is strictly an accounting exercise where we're just looking at the purchases that we've had from the IMO versus the billings that we pass onto our customers, and just trying to deal with the differences here. 242 MR. LYLE: Thank you. 243 I want to turn you, gentlemen, briefly to account 1525, and I understand an amount of 200,000 is recorded related to the cost of sending out rebate cheques in accordance with Bill 210; is that correct? 244 MR. ZEBROWSKI: That's correct. 245 MR. LYLE: And were those rebate cheques sent out to customers by the end of December 31st, 2002? 246 MR. DEMENTAVICIUS: Yes, they were. 247 MR. LYLE: So I'll turn you, then, to account 1570. Can you tell me how many customers Toronto Hydro has? 248 MR. COUILLARD: It's about 675,000, 670. 249 MR. LYLE: So once you're at that size of customer base and you've built a system that can accommodate that number of customers, are there significant incremental costs if you were going to start serving a larger customer base, say 800,000 customers? 250 MR. DEMENTAVICIUS: From an overall system point of view, probably not. But different parts of the infrastructure might require some adjustment based on, you know, a significant increase in customers, whether that's, you know, online disk storage or whether it's processing capabilities. Basically, with that kind of increase in customer volume, we may well need to -- well, it may result in expansion of our processing window for billing processes and various others. So there would be some compensation or some adjustment required. It might result in some upgrading of infrastructure for faster computing or faster servers, more storage capacity, performance-tuning, various things. But overall, it wouldn't have a significant impact on the systems themselves that have been built to support the market opening that we have today. 251 MR. LYLE: So there would not be a significant cost, then, to upgrade your system to that level. 252 MR. DEMENTAVICIUS: No, I wouldn't anticipate so. 253 MR. LYLE: Is there a point of size, when you go from 675 up to some other level, when you really would have to significantly upgrade your system? 254 MR. MORVAY: Mr. Lyle, it would, I guess, depend upon where we're increasing our customer base. If it was in interval meters, there would be some significant increase in cost. If we were increasing our customer base, initially there may be some migration costs, right, to bring those accounts over to our system. There's definitely a lot of communication costs. So there would be some transition cost to get that work done. But assuming your question is proportionate across our existing customer base, Mr. Dementavicius' answer, I would agree with, as well, that they wouldn't be significant costs on an ongoing basis, an operating cost. 255 MR. LYLE: No, but my question is, is there any point in time -- and I'm speaking in the hypothetical here because I'm not anticipating that Toronto Hydro is going to double its customer base. But is there any point in time when you would reach a critical mass, you'd be such a size, much higher, that you would have to make significant upgrades to your system? 256 MR. DEMENTAVICIUS: It's difficult to determine that at this point as to sort of what level of scalability we have in the system at what point more or less we would hit the wall and need to make some serious changes. It's difficult to surmise that. I would certainly say 100,000, 200,000, probably not. If we're getting into -- you know, getting close to, certainly, doubling the size, yes, I would think that that would have some significant impacts. 257 But one thing I forgot to mechanics is that we're still under the contract of our vendors, so any increase in size of customers actually happens in increments of 10,000 and requires additional licensing, so there would be an incremental cost in adding to that base beyond where we are today. 258 MR. LYLE: Okay. It's fair to say, though, that your marginal cost per customer, as you add customers from your current customer base, would be lower than what your marginal cost per customer has been up to this point in time; is that... 259 MR. DEMENTAVICIUS: I think that's probably fair to say. 260 MR. LYLE: Now, we had this discussion yesterday about your program costs and the reduction in your program costs, and I believe your evidence was that your program costs started out at about $44.8 million and you reduced those down by about $11.9 million for the claim you're making today. 261 MR. COUILLARD: That is correct. 262 MR. LYLE: And you also stated that about $6.5 million of that reduction is related to labour costs. 263 MR. COUILLARD: Yeah, and I want to specify it's internal labour costs, internal Toronto Hydro employees. 264 MR. LYLE: Yes. I think you also said that most of the reduction was related to applying the Board's causation test; is that fair? 265 MR. COUILLARD: Yes, that's fair to say. 266 MR. LYLE: And you also indicated that 90 percent of the costs were reviewed for causality. 267 MR. COUILLARD: I can go back, but I would say we reviewed every task that was over 100,000, and I think it adds up to over 90 percent of all the costs we have incurred. 268 MR. LYLE: And that some of the -- 269 MR. COUILLARD: Sorry, Mr. Lyle, if I may qualify. Any internal labour costs, all of them were reviewed, so, like, when I say 90 percent of the costs were reviewed, we've also made sure that 100 percent of the labour costs charged to all the projects were reviewed. 270 MR. LYLE: And some that of the 11.9 point million that you reduced your cost down by was because you took out some costs related to amalgamation. 271 MR. DEMENTAVICIUS: That's correct. 272 MR. LYLE: Can you provide me with any more detailed breakdown of the 11.9 million minus the labour costs in terms of where that $5.4 million came from, what kind of costs they were? 273 MR. DEMENTAVICIUS: I think at some level I think that's -- one of the undertakings we've been asked to do is to provide a little more summary under that. But off the top here, I believe about 4.5 million of that cost was related to the actual conversion of systems for amalgamation. There was, I think, approximately $600,000 in other CIS enhancements that were unrelated to market-readiness. I guess subject to further evaluation of those excluded costs, we would probably just have to refine -- refine that a bit and capture those major categories in terms of what's included there. But that's one of the undertakings that we're working on for next week. 274 MR. LYLE: That's very helpful. 275 Can I turn you, in your prefiled evidence, to appendix D. That's tab 1, page 10. It's the management representation document. Do you have that? 276 MR. DEMENTAVICIUS: We have it. 277 MR. LYLE: Paragraph 3 of that page, you indicate that provided assistance to the Ministry with respect to data increments so that they could analyze the impact of raising the 4.3 commodity price to apply it to larger size categories of customers. Is that correct? 278 MR. MORVAY: That's correct. 279 MR. LYLE: And then you undertook consumer education activities after the Ministry -- government did raise the price cap. 280 MR. MORVAY: That's correct. 281 MR. LYLE: And are there any of those costs that included your transition cost account that you're claiming? 282 MR. DEMENTAVICIUS: I'll let Mr. Morvay speak for the customer education part, but I don't believe that any of the work to do additional extracts or provide simulations of customer impacts and so on, those are not part of what we've included in transition costs. No, we would have taken those as operational expenditures, sort of, you know, cost of doing business and providing information. But we would not have charged those to transition costs. 283 MR. MORVAY: Any direct communications to the affected customers that would have been of smaller volume, I don't believe we would have included that postage cost, the handling cost for those. 284 MR. LYLE: I'm sorry, you didn't include the postage cost? 285 MR. MORVAY: I don't think so, for the direct mail. It would have been too small a group to grab. I don't believe we did. 286 MR. LYLE: And the postage cost would have been your only cost in doing this consumer education? 287 MR. MORVAY: No, consumer education would also mean training our staff as to what this meant to the consumers, whether they were entitled -- more customers asked about getting rebates than were entitled to rebates. 288 MR. LYLE: And are any of those costs incorporated under your transition costs account? 289 MR. MORVAY: Yeah, the training would have been. 290 MR. LYLE: And that training would have taken place during what time period? 291 MR. MORVAY: That would have taken place even before -- well, before the code went into effect. Yeah, November/December 2002. 292 MR. LYLE: So you're not claiming any costs in 2003 related to any of these activities? 293 MR. MORVAY: No. 294 MR. DEMENTAVICIUS: No. 295 MR. LYLE: Now, I also understand that, as you spoke to yesterday, that you had two different companies that were providing you with outsourced call centre support. 296 MR. MORVAY: Not at the same time. 297 MR. LYLE: No, I understand that. 298 MR. MORVAY: Yes, you're correct. 299 MR. LYLE: I believe it was first Telespectrum and then Client Logic; is that correct? 300 MR. MORVAY: That's correct. 301 MR. LYLE: And you ended your relationship with Telespectrum around the time of market opening; is that correct? 302 MR. MORVAY: Well, I got confirmation from our office, and I believe the time line -- let me just pull it out. I've asked our call centre manager to verify this because it's different from what I said. They told us that they ended Telespectrum in June of 2001 and started Client Logic in July of 2001. I have not able to get a hold of our call centre manager to verify that date. This was from her admin assistant. So I'd still like to be able to validate that with our call centre manager. She was out of the office yesterday. 303 MR. LYLE: Well, would you like to provide me with an undertaking, then, with respect to that? 304 MR. MORVAY: Definitely. 305 MR. LYLE: We'll mark that as J.4.1. 306 UNDERTAKING NO. J.4.1: TO PROVIDE AN EXACT END DATE FOR THE TELESPECTRUM CONTRACT AND THE EXACT START DATE FOR THE CLIENT LOGIC CONTRACT, BOTH RELATED TO CALL CENTRE SUPPORT 307 MR. LYLE: And when you ended your relationship with Telespectrum, did you pay any penalties or incur any other costs? 308 MR. MORVAY: No. 309 MR. LYLE: There were no requirements in the contract that if you were terminating on short notice, you would have to make any payments? 310 MR. MORVAY: Not that I'm aware of. 311 MR. LYLE: Now, would I be correct in saying that there were some changes to the EBT standards that necessitated ongoing work in 2003? 312 MR. DEMENTAVICIUS: Oh, definitely. 313 MR. LYLE: And are any of those costs included in your claim? 314 MR. DEMENTAVICIUS: No, they are not. 315 MR. LYLE: Thank you. I just have one final question. If I could take you back to tab 1, schedule 25. 316 MR. LAM: Yes, I have that. 317 MR. LYLE: Page 2. 318 MR. LAM: Yes, I have that. 319 MR. LYLE: And I want to take you to the block of columns on the right-hand side of the page for the residential customer line so that I can understand what these numbers represent. Under "Average Monthly Difference Per Customer Allocated by Number of Customers," there's $1.96 figure. 320 MR. LAM: Yes, sir. 321 MR. LYLE: And then beside that, there's the 2005 rate impact of $1.30. 322 MR. LAM: Yes, sir. 323 MR. LYLE: Am I correct that when you calculate the 2005 rate impact, you are taking the previous $1.96 and then aggregating it with the fact that the interim cost recovery is coming out of rates? 324 MR. LAM: No, that's not true. What I did here was, if I took the -- if I took the RSV account that's outstanding plus the transition costs plus the legacy rates, the premarket opening variance, and applied it across the customer base that we have, that would mean $1.96 increase per customer. But what it does there is, I took the $1.96, subtracted what was increased in the year 2004; for this group of customers, 66 cents. So in 2005, essentially, the residential customer class will see an incremental of $1.30 if I used that methodology. 325 Does that help? 326 MR. LYLE: That's what I was trying to get at in a rather clumsy fashion. 327 Can you provide for me the equivalent of that average monthly difference per customer number for a 1,000-kilowatt-hour residential customer. 328 MR. ZEBROWSKI: I think the exercise would be difficult, but the difficulty that we're facing is that we don't have actual rates to apply to a 1,000-kilowatt-hour customer. What Mr. Lam has shown here is the total dollar increment to an average customer, but to look at a specific customer and apply it to a particular consumption, you'd need to have a rate structure in place. You'd have to know how that rate increase is spread between the fixed and the variable rate components. And that will have a difference, you know, depending on the size of the customer. 329 Just to follow that through, though, this represents an average residential customer. An average residential customer is probably a little bit smaller than 1,000 kilowatt-hours, so it's not going to be that much different, I don't think, if we were to work that out for a 1,000-kilowatt-hour customer. 330 MR. LYLE: Just one moment. 331 If you were to assume that the entire amount was allocated with a variable component of the charge, could you make that calculation for me? 332 MR. LAM: Yes, we can. 333 MR. LYLE: And could you also give me the percentage increase in the overall bill for that customer? 334 MR. LAM: Yes, I can. 335 MR. LYLE: Thank you. 336 MR. LAM: Is this for residential or -- 337 MR. LYLE: That's just for residential. 338 We'll mark that as Undertaking J.4.2. 339 UNDERTAKING NO. J.4.2: TO RECALCULATE THE FIGURES IN TAB 1, SCHEDULE 25 FOR A 1,000-KILOWATT-HOUR RESIDENTIAL CUSTOMER ALONG WITH THE PERCENTAGE INCREASE IN THE OVERALL BILL 340 MR. LYLE: Mr. Chair, those are all my questions. 341 MR. VLAHOS: Thank you, Mr. Lyle. 342 Mr. Carr. 343 MR. CARR: Thank you. 344 QUESTIONS FROM THE BOARD: 345 MR. CARR: I wanted to get a little greater level of comfort with this IMO rebate that's come, and the impact on that, and how that relates to your request to proceed with the decision ignoring that. 346 First of all, this applies, or at least the accounting question is restricted to the RSVA power account only? 347 MR. ZEBROWSKI: No, it would impact all the RSVA accounts. 348 MR. CARR: Perhaps, then, could you explain very briefly what each of those accounts is. What are the credits that go into it and what are the debits that come out of it to result in the balances? 349 MR. ZEBROWSKI: Well, the IMO bills Toronto Hydro every month. Each of the billing elements within the bill are then broken out. Some are related to power, some are related to transmission connection, some are related to transmission network, and some are related to what we call wholesale market service charges. Those go into the expense side of our accounting. 350 On the other side, we, in turn, bill our customers for each of those same components, and we match them up, the billings to the purchases, and the -- we do an accrual on the side as well, and then the difference falls into the RSVA accounts. I'm not sure -- 351 MR. CARR: No, that's good. Now we get to the accrual part. So you're accruing -- you're using actual bill data from the IMO but accrued data on your revenue side of it? 352 MR. ZEBROWSKI: That is correct. 353 MR. CARR: Okay. I think I then understand. I guess the only other final thing was, the amount of 37.8 million, some of that is out of period, some of that applies, presumably, to 2004 charges received. 354 MR. ZEBROWSKI: It covers the period from market opening, May 1st of 2002, until January 2004. 355 MR. CARR: Okay. That's it. Thank you, Mr. Chair. 356 MR. VLAHOS: Thank you, Mr. Carr. 357 Panel, just the one area. I had a similar exchange with Hydro One the other day about the calculation of presentation of rate base the next time Toronto Hydro is before the Board. And Mr. Zebrowski, if I can turn to you, or Mr. Lam, based on the instructions, the accounting instructions that may exist and different instruments within the Board right now, is it clear to Toronto Hydro how to shape that rate base the next time you make an application? Or do you think that the Board has to engage in additional instructions, perhaps, as part of this decision or in a different forum? And I'm thinking of the capital losses that still have a life, capital losses that may have been recovered are still used and useful and therefore have to be netted out from rate base. 358 MR. ZEBROWSKI: I don't think we've had a difficulty in calculating the rate base. I think it's fairly straightforward the way it's outlined. In terms of using the values and things, I don't think there's been any difficulties with depreciation rate, so the book values on the books should be fairly representative of what we experience out there. 359 The one area within rate base that may require a little more work in light of market opening is the working capital allowance portion of it. What we have in place right now has been carried over from -- well, premarket opening days where a different relationship between the purchases and the sales existed and that was never adjusted for at the time of market opening, and I think that's probably worth reviewing. The utilities are in a different marketplace as well now, and I think the whole area just of working funds necessity requires scrutiny in terms of what is a fair representation that will be shown in the rate base itself. 360 MR. VLAHOS: Thank you, Mr. Zebrowski. My question was aimed mostly -- was aimed at transition costs, the capital part of it. I'm sure that part of the 2006 rates exercise, the working capital allowance would be probably center stage, I would assume. 361 Okay. And finally, in terms of the -- it's just not clear to me from the evidence, if you had an additional employee joining Toronto Hydro in the last while, during this so-called transition period -- let's talk about your department, Mr. Zebrowski, have you added an employee in the last three years, since market opening? 362 MR. ZEBROWSKI: I've had some changes -- actually my department has gotten smaller in the last number of years as people departed. Depending how far back you want to go, in the last year or two, we've probably expanded by a person or so. 363 MR. VLAHOS: That may not be a typical department. How about in a call-centre, would you say that's a constant or net increase? 364 MR. MORVAY: We haven't increased in our call-centre our full-time employees, no. 365 MR. VLAHOS: Let me speak in the hypothetical. If, because of the new market structure and the new demands on Toronto Hydro, if there were one new permanent employee added, would that employee -- would the costs associated with that employee be part of this transition costs? 366 MR. DEMENTAVICIUS: This is a question going forward, or what's in the current transition costs -- 367 MR. VLAHOS: No, what is -- is it -- in the relief that is being requested, is the costs associated with that employee in the relief that's being requested as far as transition costs? 368 MR. DEMENTAVICIUS: There are five employees included in the costs that we've put forward. These were five additional IT staff that were hired specifically to assist with and provide support for the EBT system, the ITRON wholesale metering system, as well as development of new functionality for the CIS system related to the retail market. 369 MR. VLAHOS: Okay. So only five total for the company, and they're all from the IT department. 370 MR. DEMENTAVICIUS: That's correct. 371 MR. VLAHOS: And there's no other employee that has been -- the costs of the employee been charged to any of the transition costs -- 372 MR. DEMENTAVICIUS: No, Mr. Chair. 373 MR. VLAHOS: -- being requested. Okay. Thank you for that. 374 Those are the Board's questions. 375 Mr. Rodger, any redirect? 376 MR. RODGER: Just one brief area, Mr. Chairman. 377 RE-EXAMINATION BY MR. RODGER: 378 MR. RODGER: In your discussion, panel, with Ms. Lott this morning when she was inquiring about billing activities and new functionality, and one of the functionality items that was mentioned was the PPVA. For the record, what does that stand for, please? 379 MR. MORVAY: Purchase power variance account. 380 MR. RODGER: And why did Toronto Hydro incorporate that functionality to serve that account in its billing changes? 381 MR. MORVAY: That was a requirement of the Retail Settlement Code. 382 MR. RODGER: And was this a requirement that all utilities in the province had to meet? 383 MR. MORVAY: Initially, yes. There was a directive from the Ontario Energy Board that each distributor could apply for an exemption and not have to bill a purchase power variance account and instead offer a budget billing offer to the consumer base. 384 MR. RODGER: And why did Toronto Hydro not seek an exemption for this? 385 MR. MORVAY: We were one of the initial distributors in the province to get ready for market opening, and our system development work was far enough down the road that we had incurred enough cost, time, that to pull it out and start over would have been -- would not have been a prudent move. It would have cost us more to pull it out than to leave that functionality. And that was required initially from the Retail Settlement Code. When we started designing our system for getting ready for market opening, there was no option for exemption from budget billing at that time. 386 MR. RODGER: Thank you. Those are my questions. 387 MR. VLAHOS: Thank you, Mr. Rodger. The panel is excused with our thanks. 388 PROCEDURAL MATTERS: 389 MR. VLAHOS: Just a couple of small matters. Perhaps the order of cross-examination for Monday. I'll leave that to the intervenors to work that out so they can be ready for Monday. The same applies to Tuesday for London Hydro. 390 And also, maybe I can turn to you, Mr. Rodger, the cross-examination for Mr. Adams, are you going to cross-examine, each one of you, as separate applicants, or is there any thought of combining that? Have you had any discussions on that matter? 391 MR. RODGER: No, I haven't spoken to my friends about that, but I'll undertake to do so over the course of the day and report back on Monday morning, sir. 392 MR. VLAHOS: That would be great. Thank you very much. 393 With that, then, we'll adjourn until Monday at 9:00. 394 --- Whereupon the hearing adjourned at 10:53 a.m.