Rep: OEB Doc: 13BF5 Rev: 0 ONTARIO ENERGY BOARD Volume: 5 20 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 Monday, 20 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 20 SEPTEMBER 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 MIKE LYLE Board Counsel HAROLD THIESSEN Board Staff MARTIN DAVIES Board Staff LEE HARMER 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: [18] ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: [50] EXAMINATION BY MR. SIDLOFSKY: [57] CROSS-EXAMINATION BY MR. WHITE: [112] CROSS-EXAMINATION BY MR. WARREN: [159] CROSS-EXAMINATION BY MS. LOTT: [434] PRELIMINARY MATTERS: [827] ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: [833] CROSS-EXAMINATION BY MR. DINGWALL: [841] MOTION BY ENERGY PROBE: [989] SUBMISSIONS BY MR. DINGWALL: [990] SUBMISSIONS BY MR. SHEPHERD: [1000] SUBMISSIONS BY MR. RODGER: [1011] SUBMISSIONS BY MR. SIDLOFSKY: [1019] FURTHER SUBMISSIONS BY MR. DINGWALL: [1035] ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: [1068] CROSS-EXAMINATION BY MR. DINGWALL: [1075] DECISION ON MOTION BY ENERGY PROBE: [1241] ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: [1250] CROSS-EXAMINATION BY MR. DINGWALL: [1257] CROSS-EXAMINATION BY MR. BRETT: [1288] CROSS-EXAMINATION BY MR. SHEPHERD: [1344] CROSS-EXAMINATION BY MR. LYLE: [1777] QUESTIONS FROM THE BOARD: [1899] RE-EXAMINATION BY MR. SIDLOFSKY: [1962] 10 EXHIBITS 11 EXHIBIT NO. I.5.1: CURRICULUM VITAES OF ENERSOURCE HYDRO MISSISSAUGA WITNESS PANEL [79] EXHIBIT NO. I.5.2: SPREADSHEET ENTITLED, "ENERSOURCE REGULATORY ASSETS ALLOCATIONS" [1591] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.5.1: TO PROVIDE A BREAKDOWN OF ALL OF THE CONSTITUENT ELEMENTS OF THE $1.073 MILLION IN CUSTOMER-EDUCATION COSTS [323] UNDERTAKING NO. J.5.2: TO PROVIDE THE DATES WHEN ENERSOURCE CORPORATION PROVIDED CALL-CENTRE SERVICES TO FIRST SOURCE ENERGY [397] UNDERTAKING NO. J.5.3: TO PROVIDE INFORMATION ABOUT THE AGREEMENT BETWEEN ENERSOURCE CORPORATION AND THE UTILITY WITH RESPECT TO CALL-CENTRE SERVICES; AND TO, WHERE POSSIBLE, PROVIDE THE SAME INFORMATION ABOUT THE AGREEMENT BETWEEN ENERSOURCE CORPORATION AND FIRST SOURCE ENERGY [416] UNDERTAKING NO. J.5.4: TO PROVIDE INFORMATION WITH RESPECT TO THE COSTS OF RETAILER SERVICES AND TO PROVIDE THE ANALYSIS FOR THE 2003 COSTS, SHOWING STAFF AND COMPUTER ASSET COSTS, TOTALING APPROXIMATELY $506,000, SUBJECT TO MINOR ADJUSTMENTS [552] UNDERTAKING NO. J.5.5: TO PROVIDE A BREAKDOWN OF COSTS OF $49,130 RELATED TO PROGRAMMING CHANGES BETWEEN IN-HOUSE AND EXTERNAL CHARGES [621] UNDERTAKING NO. J.5.6: TO VERIFY THE DESCRIPTION CONTAINED IN APPENDIX NO. 5, SIXTH LINE ON THE CHART, ENTITLED "NON-TIME-OF-USE KILOWATT-HOURS AT AN AVERAGE COST-OF-POWER RATE WHERE IT SAYS F EQUALS D TIMES C [666] UNDERTAKING NO. J.5.7: TO PREPARE AND PROVIDE A FURTHER VERSION OF THE APPENDIX NO. 5 TABLE AS TO TIME-OF-USE CALCULATION, USING APPROPRIATE ESTIMATES AS TO THE ACTUAL TIME-OF-USE KILOWATT-HOURS BILLED IN EACH MONTH [675] UNDERTAKING NO. J.5.8: TO PROVIDE THE NUMBER OF TEMPORARY EMPLOYEES HIRED, FOR HOW LONG, AND AT WHAT COST [799] UNDERTAKING NO. J.5.9: TO VERIFY THE DESCRIPTION CONTAINED IN APPENDIX NO. 6, SIXTH LINE ON THE CHART, ENTITLED "NON-TIME-OF-USE KILOWATT-HOURS AT AN AVERAGE COST-OF-POWER RATE WHERE IT SAYS F EQUALS D TIMES C [855] UNDERTAKING NO. J.5.10: TO PROVIDE COPIES OF THE SERVICE LEVEL AGREEMENT BETWEEN ENERSOURCE AND ITS AFFILIATE [1248] UNDERTAKING NO. J.5.11: TO CONFIRM WHETHER THE DIRECTION TO PLACE PROGRAMMING COSTS INTO ACCOUNT 1525 CAME FROM A BOARD DIRECTIVE OR THE ACCOUNTING PROCEDURES HANDBOOK, AND WHEN THE DIRECTIVE WAS GIVEN [1807] UNDERTAKING NO. J.5.12: TO PROVIDE AN ESTIMATE OF THE IMPACT PER MONTH FOR A 1,000-KILOWATT-HOUR RESIDENTIAL CUSTOMER, IF THE ENTIRE INCREASE WERE APPLIED TO THE VOLUMETRIC CHARGE, THE ANSWER TO BE EXPRESSED BOTH DOLLARS PER MONTH AND AS A PERCENTAGE OF THE TOTAL BILL [1896] 14 --- Upon commencing at 9:02 a.m. 15 MR. VLAHOS: Please be seated. 16 Good morning, everyone. Any preliminary matters? 17 MR. LYLE: No, Mr. Chair. Sorry, Mr. Rodger has one. 18 PRELIMINARY MATTERS: 19 MR. RODGER: Good morning, Mr. Chair. Just three preliminary matters before Enersource begins. 20 Firstly, with respect to Toronto Hydro's undertakings given last week generally, this morning we filed responses to Undertakings J.3.1 to J.3.13, and J.4.1 to J.4.2, and copies of those are provided to the Board and also to my friends. Now, within that group of undertaking responses, there were two I had been asked to speak to particularly, that I would like to do now. 21 The first was in response to Undertaking J.3.5, which is the undertaking I gave to make inquiries of both Toronto Hydro-Electric System Limited and its affiliate, the Energy Services Retailing Company to review certain contracts in relation to the call centre in terms of a call-centre provider. If I could just briefly review the response for the record. 22 The response is: The review of the agreements indicate the following: "THESL, that's Toronto Hydro-Electric System Limited, and the retailer each have their own separate agreement in place with the call service provider. One agreement has THESL as the party to the contract and the second agreement has the retailer as the party to the contract. Each agreement indicates a different effective date, July 16th, 2001, for THESL, and November 16th, 2001 for the retailer. Each agreement cites a different business address. For THESL, 5800 Yonge Street, Toronto, and the retailer, 777 Bay Street, Toronto. The signing official for the THESL agreement was the vice-president of customer care. The signing official for the retailer agreement indicates Toronto Hydro Energy Services Inc. officer. 23 "Different officials from the call service provider were shown as signatories to each agreement. For the THESL agreement, the call service signatory was the senior account management officer. For the retailer, the call service signatory indicates the senior solution delivery officer. 24 "The general terms and conditions of the agreements are not the same. For example, the THESL agreement includes multiple provisions concerning the requirements and obligations arising from the Affiliate Relationships Code. There are no cross-default provisions in either agreement. The agreements indicate that no pricing advantage has been extended to the retailer. Both THESL and the retailer pay the same amount for the same services rendered pursuant to each agreement, and both agreements continue to be in effect and are clearly identified as being confidential and proprietary." 25 The second undertaking response I'd like to speak to is J.3.7, and this undertaking was a result of questions that my friend, counsel for Energy Probe, put forward regarding tab 2, schedule 29, of the Energy Probe Interrogatory 29, and the question was whether there was a $4.7 million error as a result of the calculations from that table, and if I could read the response: 26 "Tab 2, schedule 29 contained in the response to Energy Probe IR 29 is correct as originally filed by THESL. There is no $4.7 million correction required. The issue is one of presentation of the figures set out in tables 7 and 8, schedule 29. THESL received a one-time switch-gear credit in the amount of $4.7 million from Hydro One in December of 2002, and this amount had already been included in the December 2002 revenue along with other revenue adjustments. To have added the $4.7 million in table 7 would have been to double-count this credit. For 2003, the switch-gear credit is recorded monthly as set out in table 8 and, therefore, is captured correctly in the formula deriving RSVA." 27 The final preliminary matter, Mr. Chairman, you had asked on Friday whether Hydro One, Enersource, or Toronto Hydro intended to cross-examine Mr. Adams, and we don't anticipate that any of us will be cross-examining him at this time. 28 Those are the preliminary matters, sir. 29 MR. VLAHOS: Thank you, Mr. Rodger. So I heard you well, there's no intent at the present time to cross-examine? 30 MR. RODGER: That's correct. 31 MR. VLAHOS: Thank you. 32 MR. DINGWALL: With regard to those, sir, I don't know that I heard Mr. Rodger's correctly, but is there no intention to produce the contracts referred to in the first undertaking? 33 MR. RODGER: That's correct. Toronto Hydro believes the information that's presented is what was asked and all that is needed for this proceeding. 34 MR. VLAHOS: Mr. Dingwall, did you... 35 MR. DINGWALL: I'm going to review the transcript and the phrasing of the undertaking, but I may seek to revisit this point, sir. And I notice, Mr. Shepherd, whose undertaking it was, is not in the room, so it's conceivable as well that he may seek to revisit the point of production, as I believe the undertaking related to the production of the documents. 36 MR. VLAHOS: That's fine, sir. 37 There's one question, Mr. Rodger, for one of the undertakings. Just one question, Mr. Carr. 38 MR. CARR: Thanks. Mr. Rodger, just on the J.3.5, the one that you just went through with regard to the contracts? 39 MR. RODGER: Yes, sir. 40 MR. CARR: The second-last bullet, I wonder if I could get some clarification. It says: "The agreements indicate that no pricing advantage has been extended." Does that statement mean that the agreement says specifically there is no pricing agreement, or is that just your or someone else's judgment that -- 41 MR. RODGER: Yes, it was meant to reflect, sir -- as I recall, when this first came up, I think it was Mr. Shepherd, there was the concern that somehow costs had been picked up by the regulated entity that would essentially subsidize the competitive business, and the pricing is identical in both agreements. There's a dollar per hour for services rendered that's identical in both documents. There's another price for other types of IT work, for example. It's identical in both documents. 42 MR. CARR: So that could have said, then, that the pricing is identical in both documents. 43 MR. RODGER: Yes. 44 MR. CARR: Thank you. 45 MR. VLAHOS: Okay. Any other matters? 46 There being none, just for Wednesday, we indicated last week that we were not going to be able to commence until 9:30. The Board can now sit at 9:00 on Wednesday. So every day this week we'll commence at 9:00, and we're sitting every day this week except Thursday. 47 Okay. With that, Mr. Sidlofsky, can we turn to you? 48 MR. SIDLOFSKY: Certainly, sir. Thank you. Perhaps the Enersource witness panel could be sworn first. We have a fairly large panel for you this morning. We have six members of Enersource staff. 49 MR. VLAHOS: Perhaps they can come forward one at a time. 50 ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: 51 R.AMAR; Sworn. 52 N.WOLFF; Sworn. 53 C.BUCKLER; Sworn. 54 J.RAYCRAFT; Sworn. 55 S.POTOCNIK; Sworn. 56 G.ROSATI; Sworn. 57 EXAMINATION BY MR. SIDLOFSKY: 58 MR. SIDLOFSKY: Thank you, Ms. Chaplin. 59 Mr. Chairman, if I might introduce the members of the Enersource panel to the Board. 60 Starting from the immediate left of Ms. Chaplin -- excuse me, the immediate right, Ralph Amar. Beside him, Norman Wolff. To his right, Chris Buckler. To his right, Johanna Raycraft. To her right, Sonja Potocnik. And finally, to my immediate left, George Rosati. 61 What I'd like each witness to do is indicate their current position with Enersource, the areas of evidence to which they can speak, and if they could please indicate for the Board how they were involved in the various activities that are now the subject of Enersource's regulatory asset claim. 62 Perhaps I could start with Mr. Buckler. 63 MR. BUCKLER: Yes. My position is vice-president of customer service in regulatory affairs for the Enersource Corporation. My areas of evidence are general regulatory issues and broad questions on Enersource's market-readiness project. And my involvement in these -- in this -- in the market-readiness effort was I acted as project manager responsible for the Enersource market-readiness project. I had high-level responsibility for customer service, billing, wholesale, and regulatory affairs. 64 MR. SIDLOFSKY: Ms. Raycraft. 65 MS. RAYCRAFT: I am the manager for Enersource Corporation. I'm able to speak to Enersource's evidence regarding the implementation of information systems in preparation for the opening of the new electricity markets. I was Enersource's project manager for the implementation of the information systems during Enersource's market-readiness project. 66 MR. SIDLOFSKY: If I could just ask all of the members of the panel just to move their microphones down a little bit, that may help some of those sitting back a bit. Thank you. 67 Mr. Amar. 68 MR. AMAR: My name is Ralph Amar. I'm the manager, rates and regulatory affairs, Enersource Corporation. I'm able to address questions regarding the allocation of the proposed regulatory asset account recoveries to Enersource's rate classes. I was responsible for regulatory issues related to Enersource Hydro Mississauga, including quarterly reporting required by the OEB. 69 MR. SIDLOFSKY: Ms. Potocnik. 70 MS. POTOCNIK: Manager of customer service, and I'm able to address questions of Enersource's billing system and call-centre. I was involved in matters of business policy relating to Enersource's market-readiness project and the implementation of modifications to our billing system. And I also managed the call-centre. 71 MR. SIDLOFSKY: Mr. Wolff. 72 MR. WOLFF: At present, I am the controller for Enersource Corporation. I'm able to address questions regarding the financial records for the regulatory assets and regarding Enersource's financial policies. I was responsible for Enersource's financial reporting, and I'm currently responsible for the preparation of financial statements and the financial management of Enersource. 73 MR. SIDLOFSKY: And finally, Mr. Rosati. 74 MR. ROSATI: I'm the settlement manager. I'm able to address questions pertaining to the implementation of Enersource's settlement system and to settlement transactions with the IMO. I was responsible for wholesale settlement. That included responsibility for the implementation of the wholesale settlement system and the interfaces to it and the other systems, including the billing system and the metering system. 75 MR. SIDLOFSKY: And, sir, those are the members of the Enersource panel. I've provided the Board and the parties with copies of the CVs of these witnesses. I believe the Board has a number of copies up at the front. 76 MR. VLAHOS: Yes, we do have them. Thank you. 77 MR. SIDLOFSKY: Perhaps we could have them marked, sir. 78 MR. LYLE: We'll mark that as Exhibit I.5.1. 79 EXHIBIT NO. I.5.1: CURRICULUM VITAES OF ENERSOURCE HYDRO MISSISSAUGA WITNESS PANEL 80 MR. SIDLOFSKY: Mr. Chair, before I make the Enersource panel available for cross-examination, there's one issue I would like to address with Mr. Buckler, if I might. 81 MR. VLAHOS: Certainly. 82 MR. SIDLOFSKY: Mr. Buckler, are you aware of any amendments since the filing of Enersource's prefiled evidence? 83 MR. BUCKLER: Yes, I am. I would draw your attention to Enersource's Interrogatory 5 at tab A, page 6, on -- 84 MR. SIDLOFSKY: Excuse me, Mr. Buckler, if I could ask you to move a little closer. 85 MR. BUCKLER: Sorry. I would draw your attention to Enersource's response to Board Staff Interrogatory 5 at tab A, page 6 of Enersource's interrogatory responses. The total balance claimed by Enersource in respect of the regulatory asset accounts was $15,933,484. That was the amount shown in our prefiled evidence. Please note that Enersource, a power RSVA account, in response to OEB Staff Interrogatory No. 5. Enersource revised its 2003 balance for that account from negative $13,316,398 to negative $91,746. This is because effective November 30th, 2002, as a result of Bill 210 and its regulations, utilities became entitled to claim from the IMO the difference between the spot market price of energy and the 4.3 cents per kilowatt-hours charged to low-volume and designated consumers. These claims would initially be based on estimated differences. These estimates were submitted monthly to the IMO by Enersource. 86 On the basis of the estimates, Enersource Hydro Mississauga Inc. was effectively in the amount of $13,225,172. When the differences between the estimated and actual values were reconciled earlier this year, Enersource credited the IMO for the $13,225,172. 87 Enersource made a further adjustment in response to Staff Interrogatory No. 5. We removed an amount of $3,043 from activity 7 in transition cost account number 1570. Those adjustments changed Enersource's total regulatory asset balance to $28,721,488. 88 MR. SIDLOFSKY: Before adjustment. 89 MR. BUCKLER: There are several reasons for that. Firstly, the adjustment relates to 2002 and 2003 transactions, and we believe that that brings it within the appropriate period for recovery at this time. Enersource had no way of making the adjustment or even knowing what the adjustment was prior to 2004. 90 Secondly, if Enersource cannot recover this adjustment now, then until it can be adjusted, Enersource has effectively paid that money out twice, once to the IMO and once to its ratepayers. 91 Thirdly, if this adjustment is not recovered now, there will be some form of rate instability to our customers for the coming year, because Enersource's customers will see a reduction of $13 million, just over $13 million, in their rates, but in 2006, or whenever the RSVA power account is next cleared in the future, the $13 million will have to be recaptured at that time resulting in another fluctuation in customer billings. 92 And lastly, fourthly, delaying recovery of this repayment to the IMO will be providing a loan to its customers which simply is not necessary. 93 MR. SIDLOFSKY: And finally, Mr. Buckler, we heard last week about the adjustment that will affect Toronto Hydro's RSVA accounts, the adjustment made by the IMO. Is this similar to the IMO's adjustment in respect of Toronto Hydro? 94 MR. BUCKLER: No, it's not, it's not similar at all. In Toronto Hydro's case, the adjustment is apparently the result of a meter-related error in their billings. In Enersource's case, this is an adjustment resulting from the reconciliation of estimated market prices with actual prices as between the IMO and Enersource. 95 Since this adjustment was made, Enersource has adjusted its estimating processes, and we are continuing to monitor that account. 96 MR. SIDLOFSKY: Thank you, Mr. Buckler. 97 Mr. Chair, those are my questions. The witnesses are available for cross-examination. 98 MR. VLAHOS: Thank you, Mr. Sidlofsky. 99 I turn to intervenors. Is there an order? Mr. Warren, I'm looking at you. 100 MR. WARREN: I think I'm the default position, Mr. Chairman. 101 MR. VLAHOS: Default being first? 102 MR. WARREN: Default being first. 103 MR. SHEPHERD: I think, Mr. Chairman, Mr. White is going first. 104 MR. WARREN: I'm not the default position. 105 MR. VLAHOS: Let's get an order here. Mr. White first, okay. And then? 106 MR. SHEPHERD: We had agreed on an order on Friday, Mr. Chairman, but I don't actually have it with me. Perhaps one of my colleagues could -- 107 MR. VLAHOS: It doesn't matter. Let's go Mr. White, Mr. Warren, Mr. Shepherd? 108 MR. SHEPHERD: I would like to go later down the list, Mr. Chairman. 109 MR. VLAHOS: Later down the list. Who else is here? Mr. Dingwall. Okay. Anybody else here? There's not much later on the list, Mr. Shepherd. Okay then, Mr. Shepherd, and then Mr. Lyle. 110 Mr. White. 111 MR. WHITE: Thank you, Mr. Chairman. 112 CROSS-EXAMINATION BY MR. WHITE: 113 MR. WHITE: Good morning, panel members. My questions are of a general nature, but I'm interested in some of the specific aspects of them and whatever information you can provide to help all present understand what you're going through as you address some of these account issues. 114 With respect to the premarket opening purchase power variance account, I prefer to call it, are you claiming any amounts associated with that? I think it's the 1571 account. 115 MR. AMAR: Yes, we are. 116 MR. WHITE: Okay. In terms of the allocation of those amounts to customers, are any of them -- are any of those amounts being allocated to your time-of-use customers? 117 MR. AMAR: In the submission, I believe it's our response to Interrogatory No. 27 from the Board Staff, we did not allocate any for the time-of-use customers. 118 MR. WHITE: In the post-market opening period, did you have what, in the industry, are generally called legacy rates, that is, where customers continue to be billed at premarket opening commodity rates until such time as all the energy used in the billing period is post-market opening energy? 119 MS. POTOCNIK: We prorated the transition bill over market opening so that the customers paid the legacy rates up until the market opening date, and the balance of the usage was charged at the -- at that time the spot market rate and the unbundled charges. 120 MR. WHITE: So what that means is that there were no legacy rate issues for your utilities because of the pro-ration? 121 MS. POTOCNIK: No, there was not. 122 MR. WHITE: Thank you. If you were to look at adjustments to the post-market opening purchase power variance account, and I believe the account number is 1588, if you were to look at the period in 2003, is the amount charged during that period, are they useful to the utility in assessing what losses might exist in the distribution system or what errors might exist in the allocation of, say, transformer station losses? 123 MR. AMAR: I believe for account 1588, basically we followed the guidelines. We have not provided for any additional adjustments for line losses. 124 MR. WHITE: I wasn't looking for -- all right, let me see if I can phrase the question differently. 125 What types of -- what would be the cause behind amounts that are being placed in that account, the variances, during 2003? 126 MR. AMAR: In 2003, we have -- in our prefiled submission, we had an amount of $13.3 million negative. Then in response to Interrogatory No. 5, we adjusted that, as was said -- as was mentioned previously, we adjusted that by $13.2 million. And -- 127 MR. WHITE: Excuse me, I'm looking for the amount that's left over after that major adjustment which was well explained this morning. 128 MR. AMAR: So you're talking about the $91,000, then? 129 MR. WHITE: Yes. What would have produced that number? 130 MR. AMAR: Could be line losses. Could be -- 131 MR. BUCKLER: There's a number of things that contribute to the variance in that account. One of them, as mentioned previously, is the estimate between spot market prices and 4.3 cents for our designated customers. It's the difference between the estimate that we make and the actual cost. 132 Another reason for the variance in that account is the losses on our distribution system, the difference between the assumed loss that we use to bill our energy at versus the actual losses in our system which vary every day of the -- you know, and from year to year. And losses comprise many things, real energy losses as well as theft of power, et cetera. And other variances may be the result of timing differences between billings and our energy purchases. 133 MR. WHITE: Thank you. Can we go now to the deliveries to your system? One of the items which is being discussed at these hearings relates to the LV systems from Hydro One Networks Inc. Do you currently face any potential LV charges due to an LV connection to your utility? 134 MR. AMAR: Yes, we do. 135 MR. WHITE: Do you currently take power from transformer stations located within your service area? 136 MR. AMAR: Within our service area, yes. 137 MR. WHITE: For the cases where you take power at LV voltage, why do you not take that power at a transformer station? 138 MR. AMAR: If I understand your question, I think we have four delivery points which I considered embedded within the Hydro One... 139 MR. WHITE: How did they come about? 140 MR. BUCKLER: I'm not sure that it's easy for this panel to answer that question. 141 MR. WHITE: That's fair. 142 MR. BUCKLER: It was a long time ago, and there was a choice made, I presume, in the engineering of our distribution system where it was thought to be cost-economic at the time not to build a transformer station within Enersource Hydro Mississauga but instead provide the supply from Ontario Hydro from just outside our boarders in Oakville or Brampton or somewhere, and that's the reason. 143 MR. WHITE: Is it fair to characterize the function of the LV station as making transformer station capacity available at the utility boundary which may or may not have been available at other transformer stations within your boundaries. 144 MR. SIDLOFSKY: Excuse me. Sir, I'm not sure how far we're going with this and how relevant it is to the regulatory asset claim, but I'll leave it to the Board. 145 MR. VLAHOS: Mr. White? 146 MR. WHITE: This hearing is being asked to look at the LV charges and potentially the recovery mechanisms for those LV charges by LDCs. And while we're only talking about four delivery points for Enersource, we may be talking about significant delivery points for other LDCs. So to the extent that these answers may help the Board understand how the LV system came into existence and what it does, I'd like to just ask a couple more questions in this area. 147 MR. VLAHOS: All of it eventually will come to rate-making? 148 MR. WHITE: Eventually, but not in these questions. Probably in argument. 149 MR. VLAHOS: Please proceed. 150 MR. WHITE: Thank you. 151 All right. I'll try again. Is it fair to characterize the LV system as effectively making transformer station capacity available at your utility boundary which may or may not have been available at other transformer stations located within your boundary? 152 MR. BUCKLER: That's correct. 153 MR. WHITE: Thank you. If you were asked to recover these -- if Hydro One is granted permission to recover these LV charges from distributors, would it be fair and appropriate for your utility to recover those charges in a similar period to which Hydro One levies them on your utility? 154 MR. BUCKLER: Yes. 155 MR. WHITE: Thank you. 156 Mr. Chairman, those are my questions. Thank you to the panel. 157 MR. VLAHOS: Thank you, Mr. White. 158 Mr. Warren. 159 CROSS-EXAMINATION BY MR. WARREN: 160 MR. WARREN: Thank you, sir. 161 Panel, could I begin with the evidence you provided in your examination-in-chief this morning. 162 First of all, could you explain for me the reason for the adjustment to the RSVA account in the amount of $13 million. How does that arise? 163 MR. WOLFF: The $13.225 million is a result of a difference between estimate and -- an estimate of the difference on the consumption of the low-volume and designated customers that we provided to the IMO on a monthly basis, as required by Bill 210. So the $13.225 million is a result of a reconciliation process that compared our estimate to the actual consumption. 164 MR. WARREN: On the basis of the estimate that you provided, you were refunded certain sums by the IMO; is that correct? 165 MR. WOLFF: That's correct. 166 MR. WARREN: On the basis, then, of the reconciliation, you have to give the money back; is that correct? 167 MR. WOLFF: That's correct. 168 MR. WARREN: Okay. When did this reconciliation process take place? 169 MR. WOLFF: The reconciliation process took place at the end of March 2004. We subsequently refunded the IMO on April 15th. 170 MR. WARREN: Could you turn up please, panel, in connection with this your response to Board Staff Interrogatory No. 27, which, Mr. Chairman, if I read the exhibit list correctly, should be Exhibit H2, tab A, schedule 27, and in particular, appendix 4 to that interrogatory response. 171 For your assistance, panel, appendix 4 provides a breakdown of the allocation of the total amount being claimed to various customer classes. Do you have it? 172 MR. BUCKLER: Yes. 173 MR. WARREN: Can you tell me first, panel, does the data set out on appendix 4 reflect the original claim for recovery of $15 million or the now claim of some $28 million? 174 MR. AMAR: I'm sorry, I didn't hear the question. Could you repeat it, please. 175 MR. WARREN: Does the data set out on appendix 4 reflect the original total claim of some $15 million or does it reflect the adjusted claim of $28 million? 176 MR. WARREN: It presents the adjusted claim of $27.8 million. 177 MR. WARREN: I'm sorry, it reflects the new data; is that correct? 178 MR. AMAR: I'm sorry? 179 MR. WARREN: It reflects the amount that you spoke of in examination-in-chief this morning. 180 MR. AMAR: That's right. 181 MR. WARREN: Okay, thank you. 182 Panel, let me turn to some general questions. I don't know whether you were present for this, but in the course of my cross-examination of the Toronto Hydro folks last week, they indicated that they had commissioned a study or assessment of the costs that a number of utilities in comparable circumstances had incurred in preparing for market transition. They did this, as I understand it, in advance of their embarking on the transition process. 183 I don't know, Mr. Rodger, whether that undertaking has been answered. I haven't seen them this morning. 184 But do you remember my asking for that and their giving an undertaking to provide that study? 185 MR. BUCKLER: Yes, I think so. Yes. 186 MR. WARREN: Now, can you tell me whether or not Mississauga Hydro undertook a similar study? 187 MR. BUCKLER: No, we did not. 188 MR. WARREN: The evidence that was given last week indicates that Hydro One Networks did an internal audit after the fact to measure or compare their actual costs against their forecast costs, and the internal study has been provided in response to undertaking, and is given the number J.1.2. Do you recollect that exchange with them? 189 MR. BUCKLER: Yes. 190 MR. WARREN: Can you tell me whether or not Hydro Mississauga undertook a similar study? 191 MR. BUCKLER: No, we did not. 192 MR. WARREN: Hydro One Networks' evidence which is provided at Exhibit H, tab 2, schedule 6, it's a response to an Energy Probe interrogatory, indicated that they had Deloitte's measure their overall performance against those utilities which Deloitte's felt had made transitions in similar circumstances. Are you familiar with that exhibit, or do you know of its existence? 193 MR. BUCKLER: I know of its existence. Well, it was mentioned in the testimony, and that's where I heard about it. 194 MR. WARREN: And can you tell me, sir, whether Hydro Mississauga commissioned a similar study, whether from Deloitte's or anybody else? 195 MR. BUCKLER: No, it did not. 196 MR. WARREN: Would you agree with me, sir, that each of those studies or assessments, Toronto Hydro's, if you wish, pretransition cost study, Hydro One Networks' post-study internal audit and its post-transition study of Deloitte's, have in common an attempt to measure the performance of those utilities, whether by reference to external comparators or to their own internal standards? Would you agree with me on that? 197 MR. BUCKLER: Sorry, could you repeat the first part of that question. 198 MR. WARREN: Would you agree with me, sir, that each of the studies which I've just asked you about and which have been discussed in the testimony have in common an attempt to measure the performance of those utilities whether against external comparators, in the case of Deloitte's and the original Toronto Hydro study, or against their own internal standards, which was the case with undertaking response J.1.2, in which Ontario Hydro measuring their performance against their original internal estimates. Would you agree with me that those studies have those things in common? 199 MR. BUCKLER: Well, it's difficult for me to answer that question because I haven't seen either of the studies. All I've heard is the testimony given by the various parties. And so I would presume that that's the case, but not having read them, I don't know. 200 MR. WARREN: You haven't, I take it, taken the time since those studies were produced, in the case of Deloitte's, or then Undertaking J.1, to actually examine them; is that the case? 201 MR. BUCKLER: That's correct. We did not examine them. 202 MR. WARREN: Now, as I understand your response to Energy Probe Interrogatory No. 11, which, for the record, Mr. Chairman, is Exhibit H2, tab 2, schedule 11. I want to make sure that I understand it correctly. Panel, do you have that interrogatory response? 203 MR. BUCKLER: Energy Probe 11? 204 MR. WARREN: Yes. 205 MR. BUCKLER: Yes. 206 MR. WARREN: As I understand it, you, that is, Mississauga Hydro, commissioned or undertook no internal audits or external audits performed specifically on the transition costs, nor did any auditor review EHMI's overall performance in preparing for market-readiness; is that correct? 207 MR. WOLFF: Yes, that's correct. 208 MR. WARREN: And I noticed, in particular, the modifier "specifically" there, which begs the question of whether or not you had commissioned or undertaken any internal audits or external audits with respect to any other aspects of the market-readiness. But in the last sentence of this interrogatory response, or the second last sentence: 209 "EHMI's external auditors reviewed account 1570 only in the context of their annual financial audit of all EHMI's accounts." 210 So I take it that there were, if we leave aside the word "specifically", there were no internal or external audits or assessments of Mississauga Hydro's performance; is that correct? 211 MR. BUCKLER: That's correct. 212 MR. WARREN: Okay. Now, if we can, for a moment, engage in the somewhat artificial exercise of forgetting what it is we're about this morning that we're before this Panel of the Energy Board in this exercise, do I take it, sir, that Mississauga Hydro has a board of directors? 213 MR. BUCKLER: That's correct. 214 MR. WARREN: And Mississauga Hydro has a shareholder in the form of the City of Mississauga; is that correct? 215 MR. BUCKLER: That's correct. 216 MR. WARREN: Now, did you provide, sir -- sorry, panel, for either your board of directors or your shareholder, any reports, any assessment, of the performance of Mississauga Hydro, either on a stand-alone basis or in relation to any other utility, in preparing for the new market? 217 MS. RAYCRAFT: I'm not aware of what reporting would have gone to the board in terms of -- 218 MR. VLAHOS: Ms. Raycraft, if I could remind the witnesses, when you speak, could you address the microphone, please. Thank you. 219 MR. BUCKLER: Yes, there were reports to the commission. Prior to our having a board, when the market-readiness program started, we had a commission, and then at some point along the line, it was changed from a commission to a board. And there were reports that went to our commission and to our board from time to time, yes. 220 MR. WARREN: And did those reports, sir, compare, for example, Mississauga Hydro's costs to those of any other utility -- or the experience of any other utility? 221 MR. BUCKLER: Not in any level of detail. We participated on a -- with some other utilities, Hydro One, Toronto Hydro, Ottawa Hydro, and the Ontario Energy Board, on a market-readiness working group, and we had frequent meetings. And sometimes we would report each other's progress internally and to our board of directors and commission. But there was no level of detail, you know, to compare costs for particular systems or something like that, no. 222 MR. WARREN: You say there was no level of detail. Were there any comparisons on those reports at all, or just no comparisons in detail? 223 MR. BUCKLER: Not to the extent that I think you're requesting, where you would consider it a benchmarking type of exercise. It would just -- we would report on our progress to date. And usually we were on schedule, sometimes we were a little behind schedule on certain items, and we might report that another utility was behind in a different area or ahead in another area. That was the extent of the comparisons. 224 MR. WARREN: I want to, panel, stay away from the term and concept of benchmarking in these questions, and my questions are really directed to the question of whether or not you were providing your board of directors with any comparison data to indicate whether or not you thought or were reporting to your board that your costs were reasonable. Any comparison data at all? 225 MR. BUCKLER: No. 226 MR. WARREN: None whatsoever? Okay. 227 Now, if you would turn up Ontario Energy Board Staff Interrogatory No. 22, which, Mr. Chair, I believe is at schedule H2, A, schedule 22. Do you have that, panel? 228 MR. BUCKLER: Yes. 229 MR. WARREN: Now, this interrogatory posits the information that the amount applied for, and I'm quoting, in the question, the prequel to the question: 230 "In account 1570, transition cost, on a per-customer basis, was approximately $41 per customer. For EHMI this amount is approximately $73 per customer." 231 And you were then asked the question, and I quote: 232 "Enersource Hydro Mississauga's transition costs per customer appear to be significantly higher than the other distributors. Please provide a rationale for the higher-than-average costs reported in this account." 233 Your answer, then, is: 234 "Not knowing the composition of other distributors' costs, EHMI cannot state how its costs differ from those of other distributors, as discussed in EHMI's means submission. It is very complex to compare one utility against another. EHMI submits that the transition costs for which it seeks approval are legitimate and justified." 235 Now, can you tell me, panel -- would you agree with me, first of all, that in your response to the Board Staff interrogatory, you don't quarrel with the accuracy of the numbers that have been provided to you; correct? 236 MR. BUCKLER: That's correct. 237 MR. WARREN: Can you tell me whether or not, when you were given that -- was that the first time, sir, when you received that interrogatory, that you were aware of that apparently significant difference on a per-customer basis in the transition costs between Hydro Mississauga's experience and those of others? 238 MR. BUCKLER: No. We became aware of it when some -- when we were told about the selection process for us having been chosen for this hearing. We were told that we were selected because we were a large utility, firstly, and that our transition costs, as the transition costs for the other utilities involved here, were higher -- were relatively high. 239 MR. WARREN: And who told you that information? 240 MR. BUCKLER: I don't recall exactly. It was Staff at the Ontario Energy Board. 241 MR. WARREN: And when, approximately, would you have been told of that? 242 MR. VLAHOS: Just for the record, that's an official OEB document, Mr. Warren. I believe it's in one of the procedural orders. 243 MR. WARREN: I'm sure you're right, sir. 244 MR. VLAHOS: I just don't want the record to -- 245 MR. WARREN: I was not in my question suggesting there was anything sub rosa about this. I just don't remember, in all of the document, when it took place. I'm trying to get a date, that's all. There's no suggest that there's anything untoward about the providing of the information. 246 When would that have been, sir? 247 MR. BUCKLER: Yes, thanks to the panel at the front -- in addition to us having been told by Board Staff, it was also in the materials sent out to us. I don't recall the exact date. 248 Ralph, do you remember when that was? It would have been January or ... 249 MR. AMAR: I believe that was May -- 250 MR. VLAHOS: For the record, I think that Mr. Thiessen there is trying to dig out all the procedural orders. 251 MR. THIESSEN: That would be May 5th. 252 MR. LYLE: I believe Mr. Thiessen is indicating there was a letter of May 5th of the Board, of this year, that set out the rationale for why the five distributors that were originally included in this proceeding had been chosen. 253 MR. VLAHOS: Okay. Thank you, Mr. Lyle. 254 MR. WARREN: Now, panel, when you got that information about the apparently -- and I'm using the Board Staff interrogatory modifier "significant difference" between the cost per customer of Hydro Mississauga and others, did you transmit that information to your board of directors? 255 MR. BUCKLER: No. 256 MR. WARREN: Did you transmit that information to your shareholder? 257 MR. BUCKLER: To our shareholder? No. 258 MR. WARREN: Now, I take it, sir, that you were neither asked for nor provided an explanation to either your board of directors or your shareholder for that, apparently, significant difference. 259 MR. BUCKLER: That's correct. 260 MR. WARREN: And after learning the information about this apparently significant difference, did Hydro Mississauga undertake any study or audit or assessment to determine an explanation for this apparently significant difference? 261 MR. BUCKLER: No. 262 MR. WARREN: It strikes me, panel, and I ask for your response to this, it strikes me that, in doing apparently not doing anything about that information, it strikes me that Hydro Mississauga at a minimum was somewhat incurious about why the differences arose; is that fair? 263 MR. BUCKLER: No, I don't think that's fair at all. We saw the figures, we had some discussion amongst ourselves about the differences in the figures, and that was about it. Frankly, it didn't concern us very much. We knew that there were different things going on at different utilities. The fact that our cost per customer is relatively high doesn't worry me at all. In fact, you know, it doesn't embarrass me, if that's what you think that should happen here. We're quite proud of the fact that we have a very robust system that we've implemented. And not only that, but we got our system in on time, we met the schedule from the government, and it didn't concern us tremendously. 264 MR. WARREN: You, that is Hydro Mississauga, joined with two other utilities, Hydro One Networks and Toronto Hydro, in jointly retaining the Pacific Economics Group; is that correct? 265 MR. BUCKLER: That's correct. 266 MR. WARREN: Can you tell me when you retained the Pacific Economics Group? 267 MR. BUCKLER: I don't recall the exact date when, you know, we engaged them. It was sometime after the -- we received the evidence from Energy Probe, which was in April. 268 MR. WARREN: Can you tell me, sir, what the terms of the retainer were for Pacific Economics Group? What were they asked to do? 269 MR. BUCKLER: Pardon me? How much did we pay them? 270 MR. WARREN: Well, I'll get to that in a minute, but I want to know the terms of the retainer, sir. What were they asked to do? 271 MR. BUCKLER: They were asked to comment on benchmarking. 272 MR. WARREN: They were asked to comment on benchmarking generally or as it was reflected in Mr. Adams' testimony? 273 MR. BUCKLER: They were asked to comment on the approach put forward by Mr. Adams, and to comment on the relevance of using benchmarking for these particular transition costs. 274 MR. WARREN: Did Hydro Mississauga, as part of its retainer for -- sorry, of the Pacific Economics Group, ask that organization to establish any usable benchmarks by which Hydro Mississauga could assess its own performance? 275 MR. BUCKLER: No. 276 MR. WARREN: Did Mississauga ask the Pacific Economics Group, whether as part of that retainer or separately, to do any assessment of the apparently significant difference on a per-customer basis between Hydro Mississauga's transition costs and those of other utilities? 277 MR. BUCKLER: No, we did not. We didn't feel that there was any relevance in doing that. It would have been with hindsight. This was a one-time only project and there was no real benefit to be gained from that kind of exercise. 278 MR. WARREN: Would you finally, sir, in the context of this line of cross-examination, turn up your prefiled evidence. 279 And, Mr. Chairman, I'm looking at Exhibit G2, at the very first tab, it's the overall prefiled evidence at page 4. I apologize. I'm not sure how to more accurately describe it. 280 MR. BUCKLER: Is it under tab 1? 281 MR. WARREN: I believe it's under tab 1, yes. 282 MR. BUCKLER: Page 4? 283 MR. WARREN: Page 4. 284 MR. BUCKLER: I believe I have it. 285 MR. WARREN: Looking at the numbered paragraph 12, you indicate that: 286 "Enersource Hydro Mississauga joined with two other LDCs, Toronto Hydro-Electric System Limited and EnWin," that's spelled E-n-W-i-n Powerlines Limited, "to establish a common set of principles that they each adopt and recommend to the OEB as the appropriate framework for its review of the individual regulatory asset applications before it." 287 Can you tell me when it is that you joined with those two other utilities to establish that common set of principles? 288 MR. BUCKLER: I don't recall the exact date. Do you have any recollection? 289 MR. WARREN: Roughly speaking, panel. I don't need the hour or the minute. Can you tell me, was it in response to the Board's letter of May 5, or was it prior to that? 290 MR. BUCKLER: I think it was probably prior to May 5. 291 MR. WARREN: Okay. Can you tell me, sir, as part of the decision to join with others in establishing a common set of principles, did those three -- did the three utilities share information about their experience in terms of the transition costs? 292 MR. BUCKLER: We had discussions about the different costs that we had, but we didn't do any real comparison of those costs, no. 293 MR. WARREN: Would you agree with me, sir, that one of the propositions that appears or, if you wish, is threaded through this prefiled evidence to which we're referring is the proposition that it's effectively impossible to compare transition costs from one utility to another because of their different complex circumstances; is that fair? 294 MR. BUCKLER: Well, in relation to transition costs, yes. 295 MR. WARREN: Okay. Now, may I conclude, sir, from that that you were -- that in advancing that proposition, you were advancing it in response to at least the Board Staff's data that the transition costs for Hydro Mississauga were higher, or significantly higher, than those of other utilities. You were meeting that argument; correct? Or you were advancing an argument to meet that data; correct? 296 MR. BUCKLER: I'm sorry, which argument is it that you're referring to? 297 MR. WARREN: The argument that you can't compare -- 298 MR. BUCKLER: Yes. 299 MR. WARREN: But at the same time, do I understand your answer that you did not undertake, at least with those other two utilities, any comparison of data or any comparison of your circumstances; is that fair? 300 MR. BUCKLER: That's correct. We did not do any comparison with the other utilities. As I said before, it didn't seem relevant because the costs were behind us. We had already done our market-readiness exercise quite some time ago, and the benefit of hindsight now is not really relevant. 301 MR. WARREN: Can I finally, sir, in the context of this evidence, ask you in the same prefiled evidence to turn up page 16, numbered paragraph 36, subsection C. 302 MR. BUCKLER: Yes. 303 MR. WARREN: I quote: "LDC should be entitled to be considered to have acted prudently, notwithstanding that they have taken different approaches and arrived at different decision with respect to sector-wide common issues." 304 Did you compare with the other two utilities with which you joined the different approaches and the different decisions that you'd taken? 305 MR. BUCKLER: No. 306 MR. WARREN: How, then, did you know, sir, in preparing this pre-filed evidence, that you had taken different approaches and arrived at different decisions, if you didn't compare them? 307 MR. BUCKLER: Well, we knew that we had different billing systems, and other different systems, as well, so we knew that our starting points were different, and we knew that our points were different, because we didn't all finish our market-readiness at the same time. And we didn't have to discuss that at any length to realize that. It was fairly intuitive. 308 MR. WARREN: Thank you for that answer, panel. 309 Finally, sir, on two technical issues. Turning to the question of customer-education cost, the pre-filed evidence indicates that the -- in the category of customer education costs, you're claiming some $1.037 million; is that correct? The reference I have, panel, is Exhibit G2, it's the final evidence dealing with the transition costs account 1570, looking at pages -- top of page 12, I see the following statement: "The costs of the consumer communications were $1.073 million" 310 MR. BUCKLER: Are you sure you have your numbers right there? 311 MR. WARREN: Well, I'm asking you if I have my numbers right, panel, because you know them better than I do. 312 MR. SIDLOFSKY: Mr. Chair, I think that would be tab D1, and I believe Mr. Warren is referring to the top of page 12 within that tab. 313 MR. WARREN: All I'm trying to do, there's nothing -- uncharacteristically, there's nothing tricky about this, panel. I just want to get the number right and figure out what goes into making up the number. Under the category of transition costs, customer education, is it $ 1.073 million? 314 MR. BUCKLER: Yeah, we wanted to make sure it was right, too. Yes, that is the correct figure. 315 MR. VLAHOS: 73 or 37? 316 MR. WARREN: 73. I'm sorry if I misspoke, sir. $1.073 million. 317 MR. BUCKLER: Yes. 318 MR. WARREN: You're quite right, sir. Never trust a lawyer on any account. But we have now agreed on the number. Can you tell me what goes to make it up? And the reason specifically for my inquiry on this is you refer on the preceding page, page 11, to custom communications in local Mississauga newspapers, but elsewhere in your testimony, and particularly in your evidence in response to certain interrogatories, you refer to call-centre costs. So I'd like a breakdown, if you can provide it for me, panel, of what goes into the $1.073 million. How much of that are the ads, and how much of it are call-centre costs? 319 MR. WOLFF: The ads are the majority of the costs. There are some small customer service costs in that amount. However, to give you the exact amounts, I'd have to follow up on that. 320 MR. WARREN: Can I get an undertaking for you to provide me with a breakdown of all of the constituent elements of the $1.073 million in customer-education costs? 321 MR. BUCKLER: Yes. 322 MR. LYLE: We'll mark that as Undertaking J.5.1. 323 UNDERTAKING NO. J.5.1: TO PROVIDE A BREAKDOWN OF ALL OF THE CONSTITUENT ELEMENTS OF THE $1.073 MILLION IN CUSTOMER-EDUCATION COSTS 324 MR. VLAHOS: Mr. Buckler, the reason I was asking whether it was 1.037 as opposed to 73, I'm looking at the -- at least on my binder here, it's the very last tab, under B, and there is one page that sets out the summary of transition cost balances through December 31st, 2003, and the figure is 1.037763. I just want to note that for the record, in case there's an error. 325 MR. BUCKLER: Yes. I saw that myself, and at first when I thought you were asking about that number, I thought you were making a mistake on that number. That's a different number than what's on page 12. 326 MR. WARREN: So what's the right number, sir? 327 MR. WOLFF: I believe the right number is 1.037. 328 MR. WARREN: Finally, sir, and this may be apparent from the interrogatory responses and the pre-filed record, but I'd still like it on the record, am I correct in my understanding that Enersource Hydro Mississauga at no time has had, or now has, an affiliate engaged in the retail sale of energy; is that correct? 329 MR. BUCKLER: Can you ask that question again, please? 330 MR. WARREN: Am I correct that Enersource Hydro Mississauga at no time has had, or has now, an affiliate engaged in the retail sale of energy? 331 MR. BUCKLER: That is not correct. At one time there was an affiliate that did retail electricity. The name of that company was First Source Energy. And that company is no longer in business. 332 MR. WARREN: Can you tell me when -- for what period did First Source Energy exist? 333 MR. BUCKLER: Exist, or do business? 334 MR. WARREN: Well, let's do both, sir. From a legal point of view, when did it come into existence and when did it terminate? 335 MR. BUCKLER: It came into legal existence, I believe, prior to market-opening. It would have been around the summer of 2001. And it continued in business until sometime after market-opening -- sorry, until sometime after Bill 210 came in effect. So it was around -- we terminated dealings of the company around May of 2003. 336 MR. WARREN: And what was its legal relationship to -- if any, to Enersource Hydro Mississauga? 337 MR. BUCKLER: Well, it was an affiliate of Enersource Hydro Mississauga. 338 MR. WARREN: Did it have a common parent? 339 MR. BUCKLER: In a sense. Could I explain? 340 MR. WARREN: Please. 341 MR. BUCKLER: Enersource Corporation, through an affiliate, owned a portion of First Source Energy. I believe it was 57 percent. The other 43 percent was owned by Veridian Corporation. 342 MR. WARREN: And the business of First Source Energy was what? 343 MR. BUCKLER: The business was to sell retail energy on a competitive basis throughout Ontario, to all customers. 344 MR. WARREN: You say retail energy. Was that both electricity and natural gas, or just electricity? 345 MR. BUCKLER: Just electricity. 346 MR. WARREN: And did it share premises at any point with Enersource Hydro Mississauga? 347 MR. BUCKLER: It had the same mailing address as Enersource Hydro Mississauga; however, it was in a separate wing of the company, with a separate door and -- a separate lockable door. 348 MR. WARREN: Did it have personnel in common? 349 MR. BUCKLER: No. 350 MR. WARREN: Did it have management in common? 351 MR. BUCKLER: With Enersource Hydro Mississauga? 352 MR. WARREN: Yes. 353 MR. BUCKLER: No. 354 MR. WARREN: Were there any shared services between the two entities? 355 MR. BUCKLER: No. 356 MR. WARREN: Did it have a call-centre? 357 MR. BUCKLER: Yes, it had a call-centre. 358 MR. WARREN: Was it the same -- 359 MR. BUCKLER: Sorry, it had call-centre services. 360 MR. WARREN: Were they the same call-centre services as Enersource Hydro Mississauga? 361 MR. BUCKLER: Yes. There were shared services. The call-centre was provided by Enersource Corporation, and they provided -- and an external service-provider, as well, at different points in time. 362 MR. WARREN: Enersource Corporation was the parent -- is the parent of Enersource Hydro Mississauga; is that correct? 363 MR. BUCKLER: That's correct. 364 MR. WARREN: And it also owned 57 percent of First Energy; is that correct? 365 MR. BUCKLER: That's correct. 366 MR. WARREN: Now -- 367 MR. SIDLOFSKY: Just so the record is clear, that's First Source. 368 MR. WARREN: Sorry, First Source, right. 369 Now, as I understand your evidence, there was -- Enersource Corporation provided a call-centre for both entities; is that correct? 370 MR. BUCKLER: That's correct. 371 MR. WARREN: In addition to which there was an external call-centre; is that right? 372 MR. BUCKLER: That's correct. 373 MR. WARREN: Who was the external call-centre provided by? 374 MS. POTOCNIK: The name of the company was Procore. 375 MR. WARREN: Procore? 376 MS. POTOCNIK: That's correct. 377 MR. WARREN: And was it an external for both First Source Energy and Enersource Hydro Mississauga? 378 MS. POTOCNIK: At different times. 379 MR. BUCKLER: Yes. 380 MR. WARREN: I'm not sure I understand what that means. Was Procore ever an external call-centre provider for the two of them at the same time? 381 MS. POTOCNIK: I don't believe it was at the same time. 382 MR. WARREN: Now, with respect to the provision of services by -- call-centre services by Enersource Corporation, over what period of time was that service provided, first, to Enersource Hydro Mississauga; do you know? 383 MS. POTOCNIK: Can you repeat the question, please. 384 MR. WARREN: Enersource Hydro Mississauga had received call-centre services from its parent Enersource Corporation. I want to know over what period of time is that the case. 385 MS. POTOCNIK: They're still providing it, to some extent, partially, and they always have. 386 MR. WARREN: So it's been continuous? 387 MS. POTOCNIK: Yes. 388 MR. WARREN: Since when? 389 MS. POTOCNIK: Since we've been in existence. 390 MR. WARREN: So that would be from, what, 1999 on? 391 MS. POTOCNIK: Yes. 392 MR. WARREN: Okay. During that period of time -- sorry, over what period of time did Enersource Corporation provide a call-centre service to -- for Source Energy? 393 MS. POTOCNIK: I don't know the exact dates. It was soon after market opening, I believe. 394 MR. WARREN: Can you undertake to provide me the dates on which Enersource Corporation provided call-centre services to First Source Energy? 395 MR. BUCKLER: Yes, we can do. 396 MR. LYLE: We'll mark that as Undertaking J.5.2. 397 UNDERTAKING NO. J.5.2: TO PROVIDE THE DATES WHEN ENERSOURCE CORPORATION PROVIDED CALL-CENTRE SERVICES TO FIRST SOURCE ENERGY 398 MR. WARREN: Now, panel, can you tell me what the commercial relationships were with respect to the call-centre between Enersource Corporation, first, and Enersource Hydro Mississauga? Was there a discrete or separate agreement for the provision of call-centre services between Enersource Corporation and Enersource Hydro Mississauga? 399 MR. BUCKLER: Yes, there's an agreement for all services provided by Enersource Corporation to Enersource Hydro Mississauga. 400 MR. WARREN: Is that agreement in the record? 401 MR. BUCKLER: On the record? 402 MR. WARREN: Is it anywhere in the evidence to this point? 403 MR. BUCKLER: I don't believe so, no. 404 MR. WARREN: Can you undertake, please, to provide a copy of that agreement, please, between Enersource Hydro Mississauga and Enersource Corporation with respect to the provision of all services, including call-centre services. 405 MR. SIDLOFSKY: Sir, before Mr. Buckler answers that, my friend has now had several months to ask for an agreement like that. There have been interrogatories between relationship between Enersource Hydro Mississauga and its affiliates. It's not clear to me why this is being raised now as opposed to when interrogatories were filed, sir. 406 MR. VLAHOS: Mr. Warren. 407 MR. WARREN: Well, sir, the issue, in my respectful submission, is simply the issue of cross-subsidy and whether it existed in these relationships. And whether the information was asked for now or at some other point, Mr. Chairman, it strikes me that the issue is not timing but relevance. In my respectful submission, information about the corporate relationships and the agreements and the way the costs were paid and what monies were paid is relevant, sir, and on that basis, I would ask for that, as I was going to ask for that agreement between Enersource Corporation and First Source Energy for the provision of the call-centre services. 408 MR. SIDLOFSKY: Sir, Mr. Warren's questions relate to the provision of call-centre services. I expect that Enersource staff could certainly review the agreements and provide information to Mr. Warren on the terms of provision of call-centre services. It's not clear to me that Mr. Warren needs to review the entire agreement between Enersource Corporation and its utility, Enersource Hydro Mississauga, to get the answer to his question about call-centre services. 409 MR. WARREN: That's fine, sir. All I need is that portion of the agreement dealing with call-centre services. And my collateral question to the panel, if they can provide it, is the agreement that existed between Enersource Corporation and First Source Energy with respect to the provision of call-centre services. Can that be provided? 410 MR. BUCKLER: Between Enersource Corporation and First Source Energy? 411 MR. WARREN: Yes. 412 MR. SIDLOFSKY: Sir, that's an agreement between Enersource Corporation and First Source. I expect that members of the panel can make inquiries to determine whether that would be available. That's not an Enersource Hydro Mississauga agreement. 413 MR. VLAHOS: Mr. Warren, this morning, we had a similar undertaking, I believe, for Toronto Hydro, and Mr. Rodger has spoken to it. He has actually provided an undertaking that spoke to certain matters that were under consideration. From what I hear from the witnesses, they are willing to provide the language that pertains to the agreement between Enersource Corporation and the utility with respect to the call-centre services. And, Mr. Sidlofsky, would you accommodate the Board by providing, in the same fashion as Mr. Rodger, with respect to the Enersource Corporation and First Source Energy with respect to the call-centre services? 414 MR. SIDLOFSKY: I will make an effort to do that. 415 MR. LYLE: We'll mark that as Undertaking J.5.3. 416 UNDERTAKING NO. J.5.3: TO PROVIDE INFORMATION ABOUT THE AGREEMENT BETWEEN ENERSOURCE CORPORATION AND THE UTILITY WITH RESPECT TO CALL-CENTRE SERVICES; AND TO, WHERE POSSIBLE, PROVIDE THE SAME INFORMATION ABOUT THE AGREEMENT BETWEEN ENERSOURCE CORPORATION AND FIRST SOURCE ENERGY 417 MR. WARREN: Finally, panel, First Source Energy, at the time that it was in business, did it market its service through media advertising, whether television, radio or print; do you know? 418 MR. BUCKLER: Can you give me that list a little slower, please. I know that some of them -- 419 MR. WARREN: In the time that First Source Energy was in existence -- these questions are exactly analogous to questions that I asked to Toronto Hydro the other day, and it is whether or not First Source Energy was promoting its services through the media, whether print or television or radio; do you know? 420 MR. BUCKLER: It was not through television or radio. I can't recall if there were any advertisements in newspapers or not. I think most of the advertising was done through direct mail. 421 MR. WARREN: And do you know if First Source Energy had sales representatives going door to door? 422 MR. BUCKLER: They did not. 423 MR. WARREN: Those are my questions for this panel. Thank you. 424 MR. VLAHOS: Thank you, Mr. Warren. 425 [The Board confers] 426 MR. VLAHOS: Okay. The Panel will take a break now. It is 10:22, and we will return at a quarter to 11:00. 427 --- Recess taken at 10:22 a.m. 428 --- On resuming at 10:50 a.m. 429 MR. VLAHOS: Please be seated. 430 Okay. I understand that Ms. Lott would like to precede Mr. Dingwall. 431 MS. LOTT: That's correct, Mr. Chairman. 432 MR. VLAHOS: Go ahead, Ms. Lott. 433 MS. LOTT: Thank you very much, Mr. Chairman. 434 CROSS-EXAMINATION BY MS. LOTT: 435 MS. LOTT: Good morning, panel. My name is Sue Lott. I'm the counsel for the Vulnerable Energy Consumers' Coalition. I'd like to start this morning with asking you some questions around the retail settlement variance accounts. 436 Now, I couldn't find an explicit statement in your materials, so I wonder if you could clarify for me whether you use the billed or accrual approach to calculating the RSVA balances. I apologize again, I'm not sure who to direct my questions to, so I'll just direct them to the panel. 437 MR. WOLFF: We use the accrual approach. 438 MS. LOTT: Okay, thank you. 439 Now, I wonder if we could look specifically at one of the RSV accounts, and I'm pointing you to your May 2004 phase 2 application. If you could turn up Exhibit G.2, appendix B, tab 5B. 440 MR. SIDLOFSKY: For the panel, that's the May 31st filing; is that correct, Ms. Lott? 441 MS. LOTT: That's correct. And I'm interested in the account that deals with -- account number 1584 for 2003. 442 MR. BUCKLER: Which account was that for, again? 443 MS. LOTT: Account 1584. Do you have that in front of you? I'm going to be asking you questions about page 2 of that, specifically. 444 MR. BUCKLER: Yes, we have that. 445 MS. LOTT: And if I'm correct, what you show here on the first page is the monthly balances and carrying-cost calculation for that account for 2003, and am I correct that you show in the second page the monthly details regarding the billings and invoices related to that account? Is that correct? 446 MR. WOLFF: That's correct. 447 MS. LOTT: I wonder if we could start, as I indicated, with the second page, which is entitled "Enersource Hydro Mississauga Detailed Retail Settlement Variance for December 31st, 2003." 448 I wanted to point you to the first line under where it's entitled "Billing," under column B, and if we look over to column D, January, the January figure of $3,589,665. I'm just interested in knowing whether or not that figure represents the value of bills issued in January, 2003, for network charges, or is it an estimate of the network charges that will be received, based on January 2003 kilowatt and kilowatt-hours usage by customers. 449 MR. WOLFF: That number does include an estimate. 450 MS. LOTT: Okay. And could you clarify if the estimate of the network charges that are to be received in the month -- is this based on estimated purchases from the IMO, or actual purchases? 451 MR. WOLFF: Well, the estimate, in fact, doesn't take into account our purchases. The estimate takes into account our customer consumption, and we use that consumption to pro-rate for the number of days in the month since their last bill. 452 MS. LOTT: And how is that determined, the customer consumption? 453 MR. WOLFF: The customer consumption is taken from their last actual meter-reading, and then calculated for the period from their last billing to the end of the current month, so for January it would have been a January 31st date. 454 MS. LOTT: January 31st, okay. 455 MR. WOLFF: That's right. 456 MS. LOTT: Thank you. And when you're making this estimate, do you use the OEB-approved loss factor; and if not, what do you use? 457 MR. WOLFF: We use the OEB-approved, yes. 458 MS. LOTT: Okay. Then if I could take you down to the second line below billing, where it says "Less IMO Invoices," and again, if we look at the January entry there of $2.5 million, does this represent an actual invoice for January or an estimate of the IMO invoice based on the estimate of power purchased from the IMO? 459 MR. WOLFF: I'm sorry, are you referring to the $2,638,856? 460 MS. LOTT: Yes. 461 MR. WOLFF: That number includes actual billings, from data we receive daily from the IMO, as well an accrual that we record at the end of every month, based on our actual consumption data. 462 MS. LOTT: And what is the source of the actual consumption data? 463 MR. WOLFF: This is our own internal records, from our settlement system. 464 MS. LOTT: Okay. And would the same response as you've just given me apply to the third line that says "Less Hydro One Invoices", as well? 465 MR. WOLFF: The Hydro One invoices are a little less scientific. It is based on estimates, and our best estimates at the time that we prepare the accrual. It is trued-up month-to-month, so whatever slight variance there may be from the actual to the estimate is actually caught up in the following month, once we receive the invoice from Hydro One. 466 MS. LOTT: Okay. Now, I just wanted to take you down to the footnote attached to this table. Here you indicate that -- you say, I'm quoting here, "this table may be different from the monthly general ledger balances on which the carrying charges were calculated in accordance with article 490 of the APH." 467 Could you describe for me, first -- on what basis are the billings entered into the general ledger accounts, and how does it differ from what is shown here? 468 MR. WOLFF: I'm sorry, could you repeat that question again? 469 MS. LOTT: Yes, based on what you've indicated in the footnote here, I'm wondering -- on what basis are the billings entered into the general ledger account, and how does that differ from what is shown in this table? 470 MR. AMAR: The Hydro One invoices are entered into the system as we receive them. In some instances, we receive them late. In fact, on one occasion, I believe, right at the beginning, there was some uncertainty as to whether or not Hydro One should be invoicing us, and we received four invoices, probably somewhere in April, something like that, and then we would have processed them in the general ledger at that time. 471 What this table shows, it's -- we have attempted to actually allocate them, as much as possible, within the proper months. 472 MS. LOTT: But am I correct that the carrying costs aren't calculated using these numbers? 473 MR. AMAR: The carrying charges are calculated on whatever general ledger balance we have at the time, we are actually calculating the carrying charge. When we decide to calculate the carrying charge, we take the general ledger balance that we have at that time and we just apply the calculation. 474 MS. LOTT: Are the IMO invoices entered into the general ledger when they're received? 475 MR. AMAR: I'm sorry, the IMO? 476 MS. LOTT: Yes, I'm just taking you now to the question around the IMO invoices, based on this table. 477 MR. WOLFF: We receive IMO invoice information daily, and that goes directly into our system on the same day we receive it, but it's for the prior day's consumption. 478 MS. LOTT: And then are the billings entered as they're issued? 479 MR. WOLFF: The billings are posted normally the same day, sometimes the second day, depending on the day the batch was issued, but yes. 480 MS. LOTT: And finally on this topic, I wanted to look at the issue of losses. I'm wondering, is the variance shown at the bottom right-hand of this table we're at, on page 2, where we have the total, total figure being $2,549,465. It's hard to read from that. 481 MR. BUCKLER: That's correct. 482 MR. AMAR: Yes. 483 MS. LOTT: Okay. Is that variance impacted by any difference between your actual losses for the year and the OEB-approved loss factors? 484 MR. AMAR: I'm not sure I understand your question. But I believe what you're asking is -- first of all, if we start with the billing item, when we bill our customers, their loss factor is taken into consideration. Is that... 485 MS. LOTT: But just so I can confirm, you do use the OEB-approved loss factor; is that correct? 486 MR. AMAR: That's correct. 487 MS. LOTT: Okay. Thank you for that. 488 I would like to speak a little bit now -- ask some questions about the RSVA for power, and I wondered if you could pull out, still looking at your May 2004 phase 2 application, tab B7B, which deals with the RSVA for power. 489 MR. BUCKLER: Yes, we have that. 490 MS. LOTT: You have that in front of you, okay. Now, if we look at that table, it shows, from what I can see, a credit of approximately 2.7 million owed to customers before carrying costs. 491 MR. WOLFF: I'm sorry, you said 2.7 million? 492 MS. LOTT: Sorry, I misspoke, I meant 12,677,858. 493 MR. WOLFF: That's correct. 494 MS. LOTT: But if we take into account the refund that Enersource was required to make to the IMO in 2004, am I correct that the balance, and this would be before the inclusion of the carrying costs, becomes roughly 500,000 to be recovered from customers? Am I correct about that? 495 MR. WOLFF: That's approximately correct, yes. 496 MS. LOTT: Okay. And I understand from one of your responses earlier to a question of Mr. White this morning that one of the reasons for this variance, again, is the difference between the actual and OEB-approved losses; is that correct? 497 MR. BUCKLER: That's correct. 498 MS. LOTT: Does Enersource have any distribution customers that are IMO market participants? 499 MR. ROSATI: No, we do not. 500 MS. LOTT: Okay, thank you for that. 501 I wanted to ask a question about the 1588 -- requested adjustment to account 1588 balance. So I wonder if you could turn up your response to a Board Staff Interrogatory No. 5, which is found at Exhibit H2, tab A, and I'm looking at page 6 of that. It's page 6 of 30. 502 MR. BUCKLER: Yes, we have that. 503 MS. LOTT: You have that in front of you? Now, in the bottom half of the page, under the heading, "Justification for Adjustment of Account 1588 Balance," you do discuss this adjustment, and if I'm correct, you indicate that the balance is due to the 2004 repayment to the IMO for the 2002-2003 credits to manage the impact of Bill 210; is that correct? 504 MR. BUCKLER: That's correct. 505 MS. LOTT: And if we could also pull up in relation to this issue your response to the OEB Staff Interrogatory No. 12, which is -- again we're in the same exhibit, H2, tab A, and I'm looking at page 14 where that is found, question 12, 14 of 30. Do you have that in front of you? 506 MR. BUCKLER: Yes. 507 MS. LOTT: Here you indicate that the adjustment was due to errors in the estimates as to the credits that would be required in the first -- would be required in the first several months of 2003. Am I correct about that? 508 MR. BUCKLER: I don't see the word "error" in there. 509 MS. LOTT: You used the term "overstated." 510 MR. BUCKLER: Yes. 511 MS. LOTT: You say that -- 512 MR. BUCKLER: Yes. 513 MS. LOTT: So you would agree with me that the estimate was overstated? 514 MR. BUCKLER: Yes. 515 MS. LOTT: What I'm struggling with is why did it take Enersource so long to make the reconciliation, and why the amount was so large. 516 MR. BUCKLER: We anticipated that question, actually. There were large variances in this account prior to us having to start making these statements, and it wasn't apparent to us that it was the estimates that were causing this variance. And we had planned to do a reconciliation of the actual estimates -- a reconciliation of the estimates, at some time, and we finally got around to it at the end of 2003. And then it became apparent, at that time, that it was a large variance, and it was due to the estimate. 517 MS. LOTT: Okay, thank you. 518 I wanted to move on, again, with some questions around retail cost variance accounts 1518 and 1548. So I'm wondering if you could turn up your main application, G2, appendix 6, schedule 1, and I'm also looking at your response to an interrogatory by School's, which is Interrogatory No. 3, which is found at Exhibit H2, tab D, page 3. 519 MR. BUCKLER: Which -- 520 MS. LOTT: Sorry, I hope I've got that correct, it's application -- I'm being told I misspoke myself. Exhibit G2, appendix C, schedule 1, which is your main application. 521 MR. BUCKLER: And that's accounts 1518 and 1548? 522 MS. LOTT: That's right. 523 MR. BUCKLER: Yeah, we have that in our evidence. What was the interrogatory you were referring to? 524 MS. LOTT: The interrogatory is your response to School's Interrogatory No. 3, which is found at Exhibit H2, tab D, page 3. 525 MR. BUCKLER: Yes, we have that. 526 MS. LOTT: Page 3 of 25. Okay. Now, in the -- if we look at the main application, I'm looking here on lines 21 to 23 where you state that, and I'm quoting: 527 "Enersource has not accumulated RSVA costs because we found it was not a cost-effective undertaking." 528 Do you see the reference I'm -- 529 MR. BUCKLER: Yes. 530 MS. LOTT: And that is correct? Okay. I also wanted to then note that, in your response to the School's interrogatory, you explain further, if we look at that response, where you're talking about that, while EHMI employees all fill out time sheets, that the administrative effort that was involved in tracking the time associated with providing retail services makes it uneconomical to do so. Am I correct about my interpretation of your answer to that interrogatory? 531 MR. WOLFF: Yes, that's correct. 532 MS. LOTT: Now, what I'm struggling to try to understand, given today's environment and the widespread use of computerized systems, why there would be significant costs involved in adding another line to the time sheets and having employees fill it in while they are putting in time about these other activities, and then having the results being able to be accumulated. 533 MR. WOLFF: It's uneconomical due to the fact that we have a number of different employees that spend a relatively small amount of their time on providing these retailer services. Tracking their costs means we do have to record them on a time sheet, and that time sheet has to be entered, and the resulting extra administrative effort is deemed to be uneconomical. 534 MS. LOTT: Okay. Now, still looking at your response to that interrogatory, I note here again, if we look at the first sentence, you've indicated that the largest cost for provision of retailer services is staff wages. Now, I noted that, in its determination of the costs associated with retailer services, Hydro One Networks included the costs associated with operating and maintaining the RSVA-related computer systems and the ongoing costs associated with the systems related to the delivery of electronic business transactions for the provision of STR requests and processing. Did you also include such costs when arriving at the conclusion that staff costs would make up the majority of these costs? 535 MR. WOLFF: I'm sorry, could you repeat the question, please. 536 MS. LOTT: Well, I just wanted to make a comparison. In its determination of the costs associated with the retailer services, Hydro One Networks included costs associated with operating and maintaining the computer systems, the RSVA-related computer systems, and the ongoing costs associated with the systems related to the delivery of electronic business transactions for the provision of STR requests and processing. I'm wondering if you also included such costs when you made that determination that staff costs made up the majority of these costs. 537 MR. WOLFF: Yes, we did. 538 MS. LOTT: Now, I noted also that in the case of Hydro One, who provided detailed cost information, that labour costs account for less than 20 percent of total retailer-services costs. Do you have any explanation for the wide discrepancy in the results, comparatively speaking? 539 MR. WOLFF: For 2002, the staff costs were higher than our hub and spoke, which are the computerized resources for that. That did change for 2003. In 2003, our rate for our hub and spoke increased significantly and therefore changing it. So for 2002, it is true that the staff costs were higher than the computerized costs, but for 2003, that did change. 540 MS. LOTT: I'm wondering if there is an actual analysis for the 2003 costs that you could provide to us. 541 MR. WOLFF: We do have an estimate, and that estimate totals over $506,000. It's not complete in that it includes all of those staff that spend a relatively small amount. But it is available. 542 MS. LOTT: Could you clarify whether or it does or does not include staff. 543 MR. WOLFF: This analysis? 544 MS. LOTT: Yes. 545 MR. WOLFF: It does include staff. 546 MS. LOTT: It does include staff. 547 MR. WOLFF: And it includes the computer asset costs. 548 MS. LOTT: Could you then provide that to us? 549 MR. WOLFF: I could, subject to some minor adjustments, yes. 550 MS. LOTT: Okay, thank you. That would be an undertaking. 551 MR. LYLE: We'll mark that as J.5.4. 552 UNDERTAKING NO. J.5.4: TO PROVIDE INFORMATION WITH RESPECT TO THE COSTS OF RETAILER SERVICES AND TO PROVIDE THE ANALYSIS FOR THE 2003 COSTS, SHOWING STAFF AND COMPUTER ASSET COSTS, TOTALING APPROXIMATELY $506,000, SUBJECT TO MINOR ADJUSTMENTS 553 MR. WOLFF: What number was that? 554 MR. LYLE: J.5.4. 555 MS. LOTT: Thank you for that. 556 Now, just staying with your response to the School's interrogatory, would you agree that one of the purposes behind the Board's decision to establish the RCV accounts was to obtain information for setting rates in the future? 557 MR. BUCKLER: Yes, I believe that's the case. 558 MS. LOTT: You would agree with that? 559 MR. BUCKLER: Yes. 560 MS. LOTT: Now, I note that right now you claim -- and, again, I'm looking back to your response to the School's interrogatory, your last sentence -- that, because of the way the current distribution rates were set, that Enersource is absorbing the difference between costs and revenues; is that correct? 561 MR. BUCKLER: Yes, that's what we said. 562 MS. LOTT: Okay. However, on a going-forward basis, when distribution rates are reset, for example, for 2006, if retailer rates are not recovering costs, isn't it possible that distribution customers will be subsidizing retailer services? 563 MR. BUCKLER: I suppose that's the case, yes. However, if we were to collect it now as one of the regulatory assets, we would be recovering it from our customers regardless. 564 MS. LOTT: And how do you propose to set retailer-service rates at the proper level for cost recovery, if you don't know the costs? 565 MR. BUCKLER: We don't actually set those rates. Those were rates that were set by the Ontario Energy Board and given to us. We did not propose those rates. We were -- you know, we were given that. 566 MS. LOTT: Okay. 567 MR. BUCKLER: And we consider them to be accurate at this point in time. And as Norm pointed out, we did do an estimate of the costs. We didn't track the actual costs, but we did do an estimate of what it costs us to maintain these transactions, and they are, as we expected, roughly equal, but slightly more than, the revenues we receive. 568 MS. LOTT: Okay, thank you. 569 I wanted to move on to a couple questions around the issue of the Bill 210 rebates, and I wonder if you could turn to -- I'm looking for account 1525 which captures the Bill 210 related costs, which is found at Exhibit G2, appendix C, tab 2, if you could pull that. 570 MR. BUCKLER: Okay. 571 MS. LOTT: Do you have that in front of you? Thank you. 572 MR. BUCKLER: That's account 1525, is it, just to confirm? 573 MS. LOTT: That's correct. 574 MR. BUCKLER: Yes. 575 MS. LOTT: Now, as I understand it, looking at this, that there are two components to the costs being claimed there. One is the costs associated with issuing the Bill 210 cheques, which I understand is a cost of $199,689, and then there's a second for the customer information -- the CIS programming changes, which cost $49,130, for a total of $248,819. Am I correct about that analysis? 576 MR. WOLFF: The programming changes refer to those efforts in 2003, only. There was a portion of costs that was included in transition costs. With that exclusion, yes. 577 MS. LOTT: Okay. I'm just wondering if you could explain to me -- if we look at line 21, which indicates an amount of $184,607, where you indicate that the cost incurred to December, 2002, to administer this initiative was $184,000 -- and I'm talking here about the customer rebate program -- and then back on line 11, you indicate that that amount is $199,689. I wonder if you could explain to me the difference between those two figures. 578 MR. WOLFF: The $184,607 reflects the costs up to the end of 2002. We had made every effort to capture all the costs through accruals, but had fallen short. The remainder of the costs were through invoices received in 2003 and recorded in that account. 579 MS. LOTT: Okay, thank you for that. 580 Now if we could turn to appendix 1 of Exhibit H2. 581 MR. BUCKLER: Yes. What account is... 582 MS. LOTT: It's the revised amount sought for recovery for the March 1st, 2005, rate adjustment. It's the first appendix, I think, of the IR responses. 583 MR. BUCKLER: Okay, yes. 584 MS. LOTT: Do you have that in front of you? 585 MR. BUCKLER: Yes. 586 MS. LOTT: Okay. Now, I just have two questions about looking at this, and then going back to account 1525. The first is that, throughout the evidence, there have been a number of adjustments made to the account 1525 balance for carrying costs, and I'd like to be clear whether, at the end of the day, you were including carrying costs in the amount claimed for this account. 587 MR. AMAR: The reason why we have removed the carrying charges from account 1525, it's because when we transferred the amount to -- from 1570 to 1525, it was December 31st, 2003, and so we had already applied the carrying charges to account 1570. So the carrying charges are included in account 1570. 588 MS. LOTT: The other question I wanted to ask was, there appears to be a difference between the $248,819 total that we discussed previously, in my previous question here, and if we look at the appendix 1 table there, there's an amount of 231,909, if you look down under "Total" and over from account 1525 - I think it's line 6 - with the amount of 231,999 which is included in this revised amount sought for recovery. I wonder if you could just reconcile those two figures for me. 589 Would it be easier to make that an undertaking? 590 MR. BUCKLER: No. Just bear with us for a second, please. 591 MR. AMAR: The difference is 16,820, and that's the amount shown on the reconciliation that's at the bottom of this schedule. 592 MS. LOTT: And why was that amount removed? 593 MR. AMAR: It's removed because, if you go to the prefiled evidence -- we don't seem to have the same reference numbers, but it's the December 31st, 2002 similar report -- I'm sorry, 2003 -- 594 MR. BUCKLER: In our prefiled evidence -- 595 MR. AMAR: -- and so we had an adjustment there of 16,820, and we're just carrying it. And that's where the explanation is. 596 MS. LOTT: I'm still not clear about the reason for the adjustment. 597 MR. AMAR: Maybe we can make it an undertaking. 598 MS. LOTT: Okay. That would be an undertaking? 599 MR. LYLE: J.5.5. 600 MR. VLAHOS: Is the reporter clear on this? No. Perhaps, Ms. Lott, you can just give us some words. Let's put it on Mr. Amar. Mr. Amar, can you tell us what you're going to provide for Ms. Lott? 601 MR. AMAR: We'll provide an explanation of the difference between the 13,499, I believe, I don't have it in front of me any more -- yes, the difference between the 248,819 and the 231,999. 602 I'm just wondering whether we could avoid that. If we go back to this December 31st, 2003, in the prefiled evidence, you'll see that under "Carrying Charges" and account 1525, the carrying charges are 16,820. So we are -- at the bottom we are subtracting it, we are actually removing the carrying charges, because we found out that we would be calculating the carrying charges twice and so it's only an adjustment that we have to make. 603 MS. LOTT: Is that because the carrying charges associated with this account were left in the transition costs? 604 MR. AMAR: They were applied. 605 MS. LOTT: Yes. 606 MR. AMAR: Actually calculated in account 1570, the transition costs. 607 MS. LOTT: Okay, thank you for that. 608 MR. VLAHOS: No reason for the undertaking, then? 609 MR. BUCKLER: Are you satisfied with that so we don't need an undertaking? 610 MS. LOTT: Yes, thank you. 611 Now, if we look at the activities associated with the programming changes, back to your Exhibit G2, appendix C, tab 2, if we go back and look at line -- I'm looking at line 16 and 17. You indicate that in-house resources assisted with making the required modifications; is that correct? 612 MR. WOLFF: That is correct. 613 MS. LOTT: And in-house resources were used for the programming changes as well? 614 MR. WOLFF: Not all of them, no. 615 MS. LOTT: So am I correct that the $49,130 that's claimed for recovery only includes the external consulting services provided by Utility Solutions; is that correct? 616 MR. WOLFF: No, that's not correct. There was a combination of Utility Solutions, which is our programmer for our system, and some in-house. 617 MS. LOTT: Are you able to break that down between the in-house and Utility Solutions, that amount of 49,130? 618 MR. WOLFF: I don't have those figures here, but I could break them down, yes. 619 MS. LOTT: Okay. Could we make that an undertaking, then. 620 MR. LYLE: J.5.5. 621 UNDERTAKING NO. J.5.5: TO PROVIDE A BREAKDOWN OF COSTS OF $49,130 RELATED TO PROGRAMMING CHANGES BETWEEN IN-HOUSE AND EXTERNAL CHARGES 622 MS. LOTT: If I could move to your response of a VECC Interrogatory No. 7, and that's found at H2, tab E, and I'm looking at page 7 where that question -- it's IR 7, I think it's 7A, if I'm not correct -- that's correct, 7A is the question. Do you have that before you? 623 MR. BUCKLER: Yes, we have that. 624 MR. WOLFF: Yes. 625 MS. LOTT: Thank you. Here you show that the in-house staffing costs being claimed was part of that $187,607 in costs associated with the Bill 210 rebated cheques. Was this temporary staff that you brought in? 626 MR. WOLFF: No, it was internal staff. 627 MS. LOTT: Then why are the costs considered to be incremental, as you've suggested in response to the question below that, which is 7B? 628 MR. WOLFF: These staff that participated in these activities, their responsibilities that were -- while they were absent undertaking these activities, would have to be performed by other people within our department or within the company. And since they have full-time jobs, they would have had to incur overtime to fulfil those duties left behind by the others. So in that respect, they're considered incremental. 629 MS. LOTT: Okay, thank you. 630 I wanted to move to a couple questions about the premarket opening and energy variances, and I'm looking at Exhibit -- this is for 2002, I'm looking at Exhibit H2, appendix 5, if you could turn that up. 631 MR. BUCKLER: Yes. That's account 1571? 632 MS. LOTT: Yes, that's correct. 633 MR. BUCKLER: And is that for 2003? 634 MS. LOTT: It's for 2002. 635 MR. BUCKLER: 2002. 636 MS. LOTT: Appendix 5. 637 MR. BUCKLER: We have a different numbering system. I apologize, but we have a different numbering system on our files. 638 MS. LOTT: I'm sorry, it's response to Energy Probe, to question 12A, and it's stated "Account 1571 Pre-Market Opening Energy Variance, from January 1st, 2002, to April 30th, 2002." 639 MR. BUCKLER: Yes, we have that. 640 MS. LOTT: You have that in front of you, okay. 641 Now, if we look at that table -- now, as I understand it, what you're doing in each month, in the first three lines, is you're setting out the cost of power billed for the month, the kilowatt-hours purchased, and then you're calculating the average cost of power for the month; is that correct? 642 MR. AMAR: That's correct. 643 MS. LOTT: Then, in the next two lines, I assume you've recorded the number of kilowatt-hours associated with the time-of-use customers, and then calculated by subtracting the kilowatt-hours attributable to non-time-of-use customers; is that correct? 644 MR. AMAR: That's correct. 645 MS. LOTT: Okay. Now, could you confirm if the kilowatt-hours that you've reported here in the second line are those purchased from the OPG, or an estimate of the total kilowatt-hours billed, after allowing for losses? 646 MR. AMAR: Those are purchases from OPG. 647 MS. LOTT: Sorry, purchased from? Could you confirm for me whether the revenue time of customer -- sorry, time-of-use kilowatt-hours represent the kilowatt-hours actually billed to the time-of-use customers? Or the time-of-use -- to kilowatt-hours billed, but then also marked up for distribution losses? 648 MR. AMAR: We have not provided for any distribution losses. 649 MS. LOTT: So it's actually billed to time-of-use customers; is that right? 650 MR. AMAR: Just a moment, please. I'm sorry. 651 MS. LOTT: Okay. 652 MR. AMAR: Sorry about that. We did not provide any losses. We did not adjust the billed kilowatt-hours by any losses. 653 MS. LOTT: Then is it reasonable to conclude that the calculation overstates the non-time-of-use kilowatt-hours, since the calculation of time-of-use kilowatt-hours also captures the losses associated with serving time-of-use customers? 654 MR. AMAR: I believe we have an interrogatory somewhere where we answer this question. And since account 1571 variance is made up of F minus G, which is the non-TOU kilowatt-hours at average cost-of-power rate and the revenue billed to non-TOU customers, since neither of them were adjusted by line losses, I would think that the variance would be an accurate variance. 655 MS. LOTT: How have you accounted for the losses associated with serving time-of-use customers? 656 MR. AMAR: We have not accounted for losses. 657 MS. LOTT: Okay. I just wanted -- staying with that appendix no. 5 chart, I just wanted to go down to the sixth line on the chart, which is entitled "Non-Time-of-Use Kilowatt-Hours at an Average Cost-of-Power Rate." 658 Now, you've indicated in the chart that this line is the product of lines D and C. I believe if you check, isn't it, in fact, really line E times line C? Because -- isn't what you're doing here is taking the estimate of the non-time-of-use kilowatt-hours and multiplying it by the average cost-of-power rate to come up with the cost of power for the non-time-of-use kilowatt-hours? Is that correct? 659 MR. AMAR: I'll have to check that. 660 MS. LOTT: So that will be a difficult one to describe, but could that be an undertaking, then, to -- 661 MR. LYLE: J.5.6. 662 MS. LOTT: To confirm the calculation -- 663 MR. VLAHOS: Sorry, I was going to ask Mr. Amar to state it for the record, as to what he's undertaking to do. 664 MR. AMAR: The undertaking would verify the description that's in appendix no. 5, where it says F equals D times C, and that may be wrong, just the description of that, not necessarily the calculation. 665 MS. LOTT: Is that clear to the reporter? Okay, thank you. 666 UNDERTAKING NO. J.5.6: TO VERIFY THE DESCRIPTION CONTAINED IN APPENDIX NO. 5, SIXTH LINE ON THE CHART, ENTITLED "NON-TIME-OF-USE KILOWATT-HOURS AT AN AVERAGE COST-OF-POWER RATE WHERE IT SAYS F EQUALS D TIMES C 667 MS. LOTT: Now, my difficulty in this calculation is that in January you have roughly 3.5 million time-of-use kilowatt-hours. If you look there on the chart over line D, under January, you have almost 3.5 million, 3,458,344, as opposed to -- if you look further into February, March, April, we have over 200 million in each of the next two months, which leads to a significant variance for January. 668 MR. AMAR: Right. That's due to the accruals and the reversal of the accrual of the previous month. It shows -- it is visible in January, but over a long enough period, it becomes an accurate figure. 669 MS. LOTT: I note that there's a higher amount of kilowatt-hours attributed to time-of-use customer in April and that the kilowatt-hours may balance out, but the difficulty I have is that while the kilowatt-hours will balance out, the dollars don't. And my question to you on that is, if I look at the difference between the January, 2001, cost of power of 7.537 cents and the April cost of 6.177 cents, then for every 100 million kilowatt-hours of time-of-use customer-energy I price at the April rate, as opposed to the January rate, the variance will be increased by 1.36 million. And I'm making that calculation by taking this 7.537 minus 6.177 which is 1.36 cents, and then I'm multiplying that by 100 million kilowatt-hours. Am I correct about that? 670 MR. AMAR: Yes, I understand. And all we've done here is take the figures that were available to us and apply what we understood was the procedure recommended by the OEB. 671 MS. LOTT: Is it possible for you to re-do this table with the appropriate estimates as to the actual time-of-use kilowatt-hours billed in each month, and provide us with a correct version? 672 MR. AMAR: We could try. 673 MS. LOTT: Okay, if that could be also an undertaking. 674 MR. LYLE: J.5.7. 675 UNDERTAKING NO. J.5.7: TO PREPARE AND PROVIDE A FURTHER VERSION OF THE APPENDIX NO. 5 TABLE AS TO TIME-OF-USE CALCULATION, USING APPROPRIATE ESTIMATES AS TO THE ACTUAL TIME-OF-USE KILOWATT-HOURS BILLED IN EACH MONTH 676 MS. LOTT: I wanted to move to a couple questions around the issue of transition costs, which is account 1570, and I'm wondering if you could turn to your phase 2 submission, Exhibit G2. And I'm interested in looking at page 9 of the main text under the first tab. 677 MR. SIDLOFSKY: Sorry, Ms. Lott, that's immediately following tab 1? 678 MS. LOTT: It's the very first tab; that's right. 679 MR. SIDLOFSKY: Thank you. 680 MR. BUCKLER: I believe we have that. 681 MS. LOTT: You have that in front of you, okay. 682 Now, if I look at that, I'm looking here at line 17 of that page 9, you indicate that the total amount for transition costs as of December 31st, 2003 are $12,397,597; is that correct? 683 MR. BUCKLER: Just give us a second, please. 684 MS. LOTT: I'm finding that on line 17 of page 9. 685 MR. BUCKLER: Okay, we have that. 686 MS. LOTT: You have that in front of you, okay. 687 I'm correct that that amount, the 12,397,597, is the total amount for transition costs as of December 31st, 2003, as per your phase 2 filing? 688 MR. WOLFF: Yes, that's correct. 689 MS. LOTT: Okay. And if I could also take you to, at the very end of that exhibit, appendix D, tab 1B, it's the very last page in the whole thing. 690 MR. BUCKLER: Yes, we have that. 691 MS. LOTT: Okay. Am I correct that that indicates that that total is comprised of over $11 million in accrued costs and over $1.3 million in carrying costs? 692 MR. WOLFF: That is correct. 693 MS. LOTT: Is that correct? Now, during the interrogatory process, this total, before removing regulatory costs on the ground of immateriality, was revised to 11,980,291, as per appendix 1 of Exhibit H2; am I correct about that? 694 MR. WOLFF: That is correct. 695 MS. LOTT: Okay. Now, what's confusing me is that the carrying charges reported in appendix 1 are exactly the same as in your phase 2 filing, and that amount, as I indicated, was over 1.3 million - it's exactly $1,359,590 - but the reconciliation in the box at the bottom of the page, I'm looking there at appendix 1, this suggests that the change from the time of the phase 2 application was due to a change in carrying charges. Am I correct about that? I'm looking at the box at the bottom of that page that says "Reconciled to Previous Submission." 696 MR. AMAR: I'm sorry, could you repeat -- 697 MS. LOTT: And the adjustment for that account number, 1570. 698 MR. AMAR: You're talking about the 101,556? 699 MS. LOTT: I'm looking at the 417,306, where it says "Carrying Charges Adjustment Account 1570." I hope we're on the same page there. I'm looking at appendix 1 of the interrogatories, Exhibit H2. Appendix 1 of the interrogatories, Exhibit H2. 700 Just to make this -- to simplify this question, was the adjustment in carrying costs or in the market transition costs themselves? 701 MR. AMAR: It says "Carrying Charges Adjustment," so it's in the carrying charges. 702 MS. LOTT: So if it's an adjustment, why is the carrying charge the same in both. 703 MR. AMAR: You mean in the prefiled evidence and in the interrogatory? 704 MS. LOTT: That's right. 705 MR. AMAR: That's because it just moved to the interrogatory. 706 MS. LOTT: But you've indicated -- sorry, you've indicated it's an adjustment. 707 MR. AMAR: It's a required adjustment, yes. It's an adjustment that we have to make. 708 MS. LOTT: So am I correct that you lowered the carrying charges for the interrogatory response? 709 MR. AMAR: I don't believe so. I'm sorry. Just a minute. 710 MR. VLAHOS: Ms. Lott, I was just wondering, trying to speed things up, if it's possible for you to state what the issue is and let the witnesses take it back and, by way of undertaking, respond. I'm just worried about the time that it is taking. 711 MS. LOTT: Yes, I understand. 712 MR. AMAR: If we go back again to -- 713 MR. VLAHOS: Mr. Amar, just one second. 714 Ms. Lott, would you want to listen to this answer one more time and see if it's satisfactory to you? 715 MS. LOTT: Okay. 716 MR. VLAHOS: Okay. Let's try, Mr. Amar. 717 MR. AMAR: If we go back to December 31st, 2003 in the prefiled evidence, you'll see that there is at the bottom the -- an adjustment for 417,306, and it says "Required Adjustment." And so all I'm doing in the interrogatory response is to show it again so that I was hoping it would be clear to everybody, but -- 718 MS. LOTT: Maybe what would be easier if we could just go away and sort this out between ourselves, if that's possible, rather than me trying to clarify if right now and I'll just move along to -- 719 MR. VLAHOS: That's fine. 720 MS. LOTT: -- with another question area. Thank you. 721 Okay. I just have two more topic areas to cover, and this one involves the issue of inclusion of internal staff time. And I wonder if you could bring up your response to Board Staff Interrogatory No. 25, which is Exhibit H2, tab A, page 27. 722 MR. BUCKLER: Yes, we have that. 723 MS. LOTT: You have that in front of you. Now, am I correct that you indicate in your answer that you used time sheets to track the internal time spent by Enersource employees on the market-ready project; is that correct? 724 MR. WOLFF: That is correct. 725 MS. LOTT: Now, were all the employees associated with the market-ready project working full time, or were some using the time sheets to help track that portion of their time that was spent on the transition activities? 726 MR. WOLFF: Some employees worked full time and some were not entirely full time. 727 MS. LOTT: Okay. If you could turn up your response to a VECC interrogatory, and that's 9I, and it's located at Exhibit H2, tab E, page 14. Do you have that? 728 MR. BUCKLER: Yes. 729 MS. LOTT: Okay. Here you indicate that total internal labour costs of roughly $1.6 million. Do you see where I'm looking at, page 14 at the top. Can you tell me how many full-time employees this figure represents? 730 MR. WOLFF: No, I don't have this information with me. The employees, they come through at different hourly rates, so... 731 MS. LOTT: Okay. Was this all of the time tracked to market-ready through time sheets, or is the 1.6 million only a portion of the total time recorded against market-ready? 732 MR. WOLFF: I'm sorry, I didn't understand your question. Could you repeat it, please. 733 MS. LOTT: I'm just wondering whether this represents all of the time that was tracked to market-ready through the time sheets, or does that 1.6 million represent only a portion of the total time recorded against the market-ready? 734 MR. WOLFF: The majority of the time was allocated via time sheets, whether the employee was spending all of their time on the project or not. There were some entries made as a result of people spending time but not filling out time sheets. Does that answer your question? 735 MS. LOTT: Thank you. 736 Now, if I go down to the bottom of the same page in response -- page 14, in response to this interrogatory, you indicate here that internal labour costs should be considered incremental since the time of the employees allocated to the market-readiness initiative were back-filled by new employees. 737 Now, are you saying here that employees were brought in in all cases to back-fill for existing employees working on the market-ready? 738 MR. WOLFF: In most cases there were employees brought in to back-fill. Of the cases that were not, we had employees spending a portion of their time, not all the time, and by reason that I gave earlier, that however the employees' duties that were missed as a result of spending on the market-readiness project were performed by other employees, and since they had full-time jobs, they would have had to incur overtime charges to provide those services or back-fill those tasks. 739 MS. LOTT: Is it your position that full-time charges were incurred for all this work -- sorry, overtime charges? 740 MR. WOLFF: Now, we didn't charge overtime to the project, but there was overtime incurred to back-fill these employees as they spent some of their time. And I'm saying that the charges that we incurred for overtime for supplying some small percentage back-filling would have exceeded the amount of time that we allocated to the project at straight time for the original employee. 741 MS. LOTT: I assume that you're aware of the OEB's record-keeping requirements associated with justifying the inclusion of internal staff as transition costs? 742 MR. BUCKLER: Yes, we are. 743 MS. LOTT: Have you maintained the necessary records required to support these internal labour costs as incremental? 744 MR. WOLFF: Are you asking for that information? Is that... 745 MS. LOTT: If you have it. Are you able to provide it? 746 MR. WOLFF: I would have to go back and search our records. I'm not saying that it's immediately available. 747 MS. LOTT: Okay. 748 MR. SIDLOFSKY: I'm sorry, sir, does Ms. Lott want a time sheet for every employee? 749 MR. VLAHOS: I'm not sure there's an undertaking yet, Mr. Sidlofsky. 750 MS. LOTT: If we could just go to page 9 of the January 2003 letter, it does indicate that -- and on reading from it, "when this is the case, i.e., a new employee is hired to back-fill, the utility must present a full explanation of the situation." 751 MR. WOLFF: But these were not new employees. 752 MS. LOTT: But didn't you indicate that there were some new employees? 753 MR. WOLFF: Yes, there were some. And I understood that the line of questioning was based on the overtime question. 754 MS. LOTT: We're just looking for this information for the new employees. 755 MR. WOLFF: Oh, I'm sorry, I misunderstood. We can provide that. Again, it's not immediately available, but we can go back in our records. 756 MR. VLAHOS: Ms. Lott, can you explain it to us? What are you looking for? And then we can turn it over to the witness panel. You're seeking to find out the costs associated with new employees that have been attributed to -- that are part of the transition costs? 757 MS. LOTT: That's correct. 758 MR. VLAHOS: Mr. Wolff, what can be made available, and what's the level of effort? 759 MR. WOLFF: The level of effort requires us to go back into our records and identify all the people that were moved over on a full-time basis to the project, and then to track back and determine who was their replacement. So we'd have to go back to our records through '99, 2000, and determine these costs. 760 MR. SIDLOFSKY: Sir -- sorry, sir, it's just not clear why this is being asked for now. 761 MR. VLAHOS: I'm trying to understand the issue itself, Mr. Sidlofsky. 762 Can I just ask some questions, panel. There were certain existing full-time employees that were lent, if you like, to the transitional effort, so there was some back-filling exercise for those jobs. In some cases, there would be -- the person would be full time and in some cases part time, so you had to back-fill this. And you did that by other extra time, overtime, or new employees. 763 MR. WOLFF: It would have been a combination, yes. 764 MR. VLAHOS: And new employees, are those permanent employees? What do you mean by "new employees"? 765 MR. WOLFF: These new employees, under the requirements of the market opening, a lot of the people that were full time on market-readiness continued to be in these new positions that were created for the need of the new market. 766 MR. VLAHOS: So those new positions would still have existed after market opening. 767 MR. WOLFF: Correct. 768 MR. VLAHOS: But you have characterized those as part of the market opening costs. 769 MR. WOLFF: So during the time period of market opening -- getting ready for the market opening, the people that worked on the project were best familiar with the requirements, and as the marked opened, these people were put into positions that reflect the new requirements from the market opening on an ongoing basis. Now, once the market opened, those people -- the cost of those peoples' time was not put into the market opening costs, they would be recorded on an ongoing basis as part of our operations. Is that clear? 770 MR. BUCKLER: Maybe I could just add to that a little bit. 771 For the market-readiness project, we brought in extra people to help out why we built our systems and got them ready for market opening. Then after market opening, we retained those people to continue -- there were additional operating routines that were required as a result of the new market, so those people were retained to carry out those new billing routines, for example, and other routines, settlement systems, operations, after the market opening. 772 MR. VLAHOS: Okay. So the costs associated with those new employees premarket opening, those were charged to the transition cost account. 773 MR. WOLFF: That is correct. 774 MR. VLAHOS: Now, Ms. Lott, I'm trying to understand the issue is from VECC's perspective so we can take it from there. 775 MS. LOTT: I think what we're just trying to understand is to what extent the back-filling was temporary, or to what extent these people were retained as permanent staff. 776 MR. SIDLOFSKY: And, sir, doesn't Ms. Lott have an answer? Those staff weren't -- the costs associated with those staff weren't kept in transition costs after market opening. 777 MS. LOTT: Well, I think it just -- it goes to argument as to what is the definition here of incremental costs. 778 MR. VLAHOS: Okay. I'm just a little concerned about how much work it may take the company. Is there a way that we can deem a amount and then we can leave it to argument? What's the total cost that you have attributed to that account for those new employees? 779 MR. WOLFF: I'm sorry, for the new employees -- 780 MR. VLAHOS: Is there a total cost for -- I guess it's an incremental cost. What is that cost attributed to transition costs for those new employees? 781 MR. WOLFF: Well, we have internal costs allocated to the project of about $1.6 million. 782 MR. VLAHOS: The internal costs are what, that's paying someone overtime? 783 MR. WOLFF: No, there would be some full-time costs of the people that were full time in the project; there would have been some time of our employees that spent a portion of their time that we would have allocated via time sheets, and those people would have been back-filled by other people in the organization by incurring overtime to perform any missed tasks that needed to be performed. 784 MR. VLAHOS: Ms. Lott, I guess the issue is whether if you hire a new employee -- if the utility hires a new employee, whether those costs should be associated with the transition costs. That's your issue. We just don't know the breakdown of that $2.7 million, I guess -- 785 MR. WOLFF: The 1.6. 786 MR. VLAHOS: I'm sorry, the 1.6. 787 MR. WOLFF: So are we looking for a breakdown of the $1.6 million? 788 MR. VLAHOS: Would that help, Ms. Lott? 789 MS. LOTT: Yes. 790 MR. VLAHOS: Breakdown for what, Mr. Wolff? What breakdown, Mr. Wolff, can you provide the Board? 791 MR. WOLFF: You have to understand that all of the time is allocated via time sheets, so in order to provide this information, I'll have to go through all the time sheets, add up all the hours, and -- it's a process that involves a significant amount of time, and it's not going to be done by, you know, tomorrow. That's a concern that I have. But if -- 792 MS. LOTT: Maybe we can go at it from another direction, would be just to look at how many temporary staff were brought in and for how long? Would that simplify it? And the cost. 793 MR. WOLFF: That I can do. So temporary employees? 794 MS. LOTT: That's correct. For how long, and the cost. 795 MR. WOLFF: So temporary is defined as anyone who was hired for the purposes of this project, and when the project was complete -- 796 MS. LOTT: And subsequently released. 797 MR. WOLFF: Subsequently released, okay. 798 MR. LYLE: Undertaking J.5.8. 799 UNDERTAKING NO. J.5.8: TO PROVIDE THE NUMBER OF TEMPORARY EMPLOYEES HIRED, FOR HOW LONG, AND AT WHAT COST 800 MS. LOTT: Thank you. 801 I just have one last area with some questions on allocation of transition costs, and I'm wondering if you could turn up your response to VECC Interrogatory No. 1A, and that's found at Exhibit H2, tab E, page 1. 802 MR. BUCKLER: Yes, we have that. 803 MS. LOTT: You have that, okay. Here we asked you about the industry changes driving the transition costs you incurred, and you indicated that you were not in a position to identify them. You give the CIS system as an example and note the various requirements that it had to meet. Now, would you agree that all of these changes were necessitated by the change to meet the requirements of an open market that would permit customers to access -- to access power through various supply arrangements, including purchase from the IMO, and in the case of larger customers or contracting with a retailer in the case of smaller customers? 804 MR. BUCKLER: That's correct. 805 MS. LOTT: And would you agree, without getting into any debate here as to whether it worked, that the purpose underlying the introduction of an open market was to create competition in the production and retail supply of power with the goal of lowering generation costs? 806 MR. BUCKLER: Yes, that's correct. 807 MS. LOTT: Okay. I wonder if you could now turn up your response to Energy Probe IR 5, and that's found at Exhibit H2, tab B, page 5, and it's page 5 of 27. 808 MR. BUCKLER: Yes, we have that. 809 MS. LOTT: You have that? Okay. And here Energy Probe asked if you could characterize your transition costs as being relating to customers, demand, or energy from a cost-causality perspective, and you indicated that this was not possible for reasons similar to those that you gave in response to the VECC interrogatory, and suggested that the guidelines issued by the OEB for allocating these costs were appropriate. Am I correct about characterizing those responses that way? 810 MR. BUCKLER: That's correct. 811 MS. LOTT: Could you remind us how the OEB guidelines directed these costs to be allocated? 812 MR. AMAR: The guidelines for the April 1, 2004 rate adjustment applied kilowatt-hours for the RSVA accounts, and for interim portion of the regulatory assets, I believe, distribution revenue. 813 MS. LOTT: And why do you believe that this approach is appropriate if there is no clear cost driver for your transition costs? 814 MR. BUCKLER: We have some problems with the other two alternatives. Allocating by customer charges, in our opinion, is not correct. Allocating by customer charge would mean that a residential customer would pay exactly the same for market opening as a large industrial customer consuming large amounts of energy. 815 It can be argued, and I'm not arguing it, but we could argue that allocating based on kilowatt-hours is a far more -- is a more appropriate method of allocating costs in this particular case, because larger consumers of electricity who benefited from the competitive market would pay more based on their consumption of electricity for setting up the competitive market. 816 I'm not sure that either of those is appropriate. Those are opposite ends of the spectrum, and allocating by distribution revenue is a reasonable compromise between those two alternatives. 817 MS. LOTT: Okay, thank you. Those are my questions. Thank you, Mr. Chairman. 818 MR. VLAHOS: Thank you, Ms. Lott. 819 Mr. Dingwall, can you give us an idea of what time you need? 820 MR. DINGWALL: I'm estimating about an hour, sir. 821 MR. VLAHOS: Okay. Well, perhaps, then, we can break for lunch now. It is 12:15, and we'll return at 1:15. 822 --- Luncheon recess taken at 12:15 p.m. 823 --- On resuming at 1:17 p.m. 824 MR. VLAHOS: Please be seated. 825 Any preliminary matters? 826 MR. SIDLOFSKY: Just one item, sir. It actually comes from a request that Mr. Adams made of me at the break. 827 PRELIMINARY MATTERS: 828 MR. SIDLOFSKY: In Mr. Buckler's last response before the lunch break, he stated that allocating by customer charge is not correct. This was in his brief comparison of different methods of allocation. And I'd just like to clarify for the record whether that was intended to be allocation by number of customers or customer number as opposed to customer charge. 829 MR. BUCKLER: It was allocation by number of customers. 830 MR. SIDLOFSKY: Thank you, sir. 831 MR. VLAHOS: Thank you. 832 Any other matters? There being none, Mr. Dingwall, I've got you down for one hour, you said. 833 ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: 834 R.AMAR; Previously Sworn. 835 N.WOLFF; Previously Sworn. 836 C.BUCKLER; Previously Sworn. 837 J.RAYCRAFT; Previously Sworn. 838 S.POTOCNIK; Previously Sworn. 839 G.ROSATI; Previously Sworn. 840 MR. DINGWALL: Thank you, sir. I may end up speaking quickly towards the end. We'll see what happens. 841 CROSS-EXAMINATION BY MR. DINGWALL: 842 MR. DINGWALL: Good afternoon, panel. My name is Brian Dingwall, counsel for Energy Probe in this matter. 843 I'd like to start by going back to Undertaking 5.6 which was an undertaking to the Vulnerable Energy Consumers' Coalition. I understood that the correcting of the formulas for schedule 5 might also have some impact on the formulas for appendix 6 to the Energy Probe interrogatories, which would be interrogatory 12A from Energy Probe. 844 Do you have the reference? 845 MR. BUCKLER: Yes, we have it. 846 MR. DINGWALL: I understand that the same formula should have been used for both schedule 5 and schedule 6; is that correct? 847 MR. AMAR: I'm sorry, I didn't hear the question. 848 MR. DINGWALL: I understand that the same formula should be used for both schedule 5 and schedule 6; is that correct? 849 MR. AMAR: Yes. I'm sorry, yes. 850 MR. DINGWALL: Could you then seek an undertaking to correct or, rather, update schedule 6 by the same fashion in which you've undertaken to update schedule 5? 851 MR. AMAR: You are referring to the description of the calculation? 852 MR. DINGWALL: That's correct. 853 MR. AMAR: Okay. Thanks. 854 MR. LYLE: We'll mark that as J.5.9. 855 UNDERTAKING NO. J.5.9: TO VERIFY THE DESCRIPTION CONTAINED IN APPENDIX NO. 6, SIXTH LINE ON THE CHART, ENTITLED "NON-TIME-OF-USE KILOWATT-HOURS AT AN AVERAGE COST-OF-POWER RATE WHERE IT SAYS F EQUALS D TIMES C 856 MR. DINGWALL: Moving on to some general questions, I understand from your exchange this morning with Mr. Warren that Enersource, the regulated entity, receives customer services from another affiliated party; is that correct? 857 MR. BUCKLER: Yes. 858 MR. DINGWALL: Could you give me an indication of the global scope of services that the regulated company receives from its affiliate? 859 MR. BUCKLER: I'll attempt to. This may not be an exhaustive list, but IT services, regulatory services, billing, customer service, collections, settlement services -- oh, yeah, finance, financial services, accounting. Anything else? I think that's the majority of them. 860 MR. DINGWALL: Sorry, did I understand billing to be one of those services? 861 MR. BUCKLER: That's correct. Oh, and human resources services. 862 MR. DINGWALL: Are these services -- let me ask another question before we get there. Was it disclosed in the prefiled evidence that these services were being provided by an affiliated company? 863 MR. BUCKLER: I'm not sure if it's mentioned specifically in the prefiled evidence. I'd have to go back and check every word, but -- 864 MR. DINGWALL: Well, I couldn't find it either, so let's leave that for the moment. 865 MR. BUCKLER: Yeah. 866 MR. DINGWALL: This kind of confuses me a bit so maybe you can help me through this: Does the party providing the services have a name, first of all? 867 MR. BUCKLER: Providing the services? Yes, it's Enersource Corporation. 868 MR. DINGWALL: Okay. So, then, for the purposes of keeping the record straight, when I'm referring to Enersource Corporation in the future, I'll try to be referring to the shareholder, and when I'm referring to the applicant, I'll be referring to Enersource Hydro Mississauga Inc., and hopefully I'll be consistent. 869 Now, in order for Enersource Corporation to provide these services to the applicant, I presume that Enersource Corporation has some form of billing system; is that correct? 870 MR. BUCKLER: That's correct. 871 MR. DINGWALL: And is that the CIS that's being referenced in this application? 872 MR. BUCKLER: Sorry, could I go back to the previous question you asked, who owns the billing system or who has the billing system? 873 MR. DINGWALL: Well, does Enersource Corporation, the service provider, use a billing system? 874 MR. BUCKLER: It uses a billing system, yes. 875 MR. DINGWALL: And who owns that billing system? 876 MR. BUCKLER: Hydro Mississauga owns that billing system. 877 MR. DINGWALL: Hydro Mississauga being the applicant. 878 MR. BUCKLER: That's correct. 879 MR. DINGWALL: And on what basis does Enersource Corporation gain the ability to use this system from the applicant? 880 MR. BUCKLER: Through a shared-services agreement, or a service-level agreement. 881 MR. DINGWALL: I believe you mentioned earlier this morning that someone within the family of companies is considering the offering of billing services to third parties; is that correct? 882 MR. BUCKLER: Someone within the services company? 883 MR. DINGWALL: I'm not sure which entity it would be, so maybe you can help me out with this. This morning your evidence was, correct me if I'm wrong, that if other parties came to you for billing services, you'd be happy to provide them; is that correct? 884 MR. BUCKLER: I don't remember saying that, but I think that's correct, yes. 885 MR. DINGWALL: And does the shared-services agreement provide a payment to the applicant for the use of the billing system? 886 MR. BUCKLER: Yes, it does. 887 MR. DINGWALL: And does the shared-services agreement provide a fee for services for the performing of the billing function? 888 MR. BUCKLER: Yes, it does. Just to clarify, the billing system is owned by Hydro Mississauga, and the shareholder, or Enersource Corporation, the owner, provides the resources to run that billing system. 889 MR. DINGWALL: How does it provide those resources? 890 MR. BUCKLER: Well, it has staff inside Enersource Corporation, and they run the billing system and produce the bills, and then charge Hydro Mississauga for that. 891 MR. DINGWALL: Do these services include changes to the billing system on an ongoing basis? Well, let's start you with the hypothetical, and then we'll get historical. 892 If, as a result of one of the many proceedings before the Board, somehow the billing format is changed, under your service level agreement, who would make the changes to the CIS to accommodate that, and who would pay for those changes? 893 MR. WOLFF: So if it's an external consultant who makes the programming changes to our billing system, then that invoice goes directly to Hydro, Enersource Hydro Mississauga. 894 If we have internal staff, these would be Enersource Corporation staff -- if it's a capital-type project, that capital-type project would have an area where those time sheets for that person would be allocated to, and that is the vehicle on how the Hydro company is charged for changes to its systems. 895 MR. DINGWALL: You've mentioned Enersource Corporation staff charging Enersource Hydro Mississauga staff -- 896 MR. WOLFF: Well, charging the company. 897 MR. DINGWALL: -- charging the company, the applicant. 898 Now, historically, looking at the transition costs that have arisen with respect to alterations to the CIS, who would have been performing those services, and charging those services to which entity? 899 MR. WOLFF: The corporate re-organization, where Enersource Corporation actually came into existence, was effectively put in place on January 1st, 2001. So in the midst of the transition preparation period, we went from all of the staff being under the Enersource Hydro Mississauga umbrella -- sorry, not all of the staff, a portion of the staff moved up into Enersource Corporation. Those staff were based on the departments which Mr. Buckler has just mentioned, staff such as Human Resources, Finance, Customer Service, and those types of services. 900 Now, the way that we appropriately distribute the costs out of the Enersource Corporation company is through specific allocations of departmental costs, based on usage of all the different companies, both regulated and non-regulated. 901 MR. VLAHOS: Mr. Dingwall, can I just interject for a minute. I'm trying to understand the context a little better. 902 Enersource Corporation provides services -- owns and provides services for what other companies other than the utility, the electricity -- 903 MR. WOLFF: We have a non-regulated, sort of a holding company that has two specific businesses. We have an Enersource -- actually, if I can refer you to, is it, appendix -- 904 MR. DINGWALL: Tab 10. 905 MR. WOLFF: Tab 10. There's a corporate structure that will make this discussion a little more clear. So at the top you'll see Enersource Corporation. Does everybody have that schedule? 906 MR. VLAHOS: Go ahead. 907 MR. WOLFF: So Enersource Corporation provides services to Enersource Hydro Mississauga as well as our Enersource Services companies. The Enersource services companies are non-regulated. Enersource Hydro Mississauga is regulated by the OEB. 908 The allocation of these specific departments is based on specific need from the individual companies. The majority of costs are used to run the Hydro businesses, but there are some costs that the services companies require, and they are allocated appropriately. 909 MR. VLAHOS: So from the utility's perspective, you have no ownership of the IT or the regulatory services, so are you employees of Enersource Corporation? 910 MR. WOLFF: Yes, we are. 911 MR. VLAHOS: You are. You're not employees of the utility. 912 MR. WOLFF: No, we're not. The operations group, the engineers, the technicians are employees of Enersource Hydro Mississauga currently. But our time is allocated to the utility. 913 MR. VLAHOS: So maybe you can ask the question differently. What is owned by the utility, in terms of the corporate services? 914 MR. WOLFF: Well, the utility does own all of our computer assets, so all of the hardware and software. Enersource Corporation provides the human resources to effectively run and maintain those assets, and the utility is appropriately charged for those services. 915 MR. VLAHOS: Okay. So IT -- so IT is owned by the utility, but the services are provided by the corporation. 916 MR. WOLFF: Right, the human requirements, yes. 917 MR. VLAHOS: Right. And then billing is owned by the utility as well, but it serves the -- it serves the corporate -- 918 MR. WOLFF: Well, the corporation, per se, does not have any billings, okay? The only user of the billing system is the Hydro. There are no other users within the context of this family of companies. 919 MR. VLAHOS: Okay, I think I understand you now. Thank you. 920 MR. DINGWALL: So looking at this on an asset-by-asset basis -- the general comment you've made, Mr. Wolff, is that the computer systems reside within the applicant. Does that include also the settlement systems -- 921 MR. WOLFF: That's correct. 922 MR. DINGWALL: -- that are used for wholesale settlement and retail settlement. Now, there was some discussion this morning about the call-centre -- whose employees, I understand from the previous evidence, reside in Enersource Corporation -- also performing call-centre services for the affiliate, which would be First Source Energy. Have I got that right? 923 MS. POTOCNIK: That was in the past. 924 MR. DINGWALL: Right. As I understand it, as of March of last year, First Source Energy's assets were sold to a third party; is that correct? 925 MR. BUCKLER: I think it was May it was sold. 926 MR. DINGWALL: May, okay. Now, during the time that call-centre services were provided to First Source Energy, I presume that the customer service representatives would have had access to some sort of computer terminal which would have First Source's client database on it; is that correct? 927 MS. POTOCNIK: They were two different sets of employees using two different systems. 928 MR. DINGWALL: And how did they divide up the two systems? What's the difference between the two systems they were using? 929 MS. POTOCNIK: First Source had a system that was configured for a retailer. It wasn't the same system that the regulated company was using. 930 MR. DINGWALL: Were there some elements in common? 931 MS. POTOCNIK: It was developed using the same logic and then modified. 932 MR. DINGWALL: So where is that system today? 933 MS. POTOCNIK: Maybe Johanna can answer that. 934 MS. RAYCRAFT: The system would be dormant now, as First Source is no longer using the system. 935 MR. DINGWALL: In terms of development, were both of these systems based around the same CIS platform? 936 MS. RAYCRAFT: Yes, they were. 937 MR. DINGWALL: So, in terms of cost allocation, what Mr. Wolff was referring to earlier, how were the costs kept separate for the development of the system that would have been used by First Source, versus the system that would have been used by the applicant? 938 MR. WOLFF: Those costs, in the same way that we tracked the market transition costs, were actually allocated to a completely different company. Those costs, again, are completely separate with, you know, every intent that it was not included in transition costs, nor within the asset base of Enersource Hydro Mississauga. 939 MR. DINGWALL: Were these tasks performed by the same people? 940 MS. RAYCRAFT: The development of the First Source application was performed by the same development team, but not at the same time. 941 MR. DINGWALL: And from what I understand of your evidence, Mr. Wolff, the way that these costs were separated were through the mechanisms of time sheets? 942 MR. WOLFF: That being one of them. Any invoice that was applicable to that project, of course, was allocated over there to ensure that it was kept distinct, yes. 943 MR. DINGWALL: Now, we've talked about the CIS systems. With respect to the settlement systems, did First Source Energy use the settlement system platform? 944 MS. RAYCRAFT: I'm not sure. 945 MR. ROSATI: They used a modification of one of the components that Hydro uses, so a variation of just one component. 946 MR. DINGWALL: Can you give me some more information about what the functionality of that would have been? 947 MR. ROSATI: It would have been used for some of their more complex rates where, for example, they would have a blocked rate and a variable rate all in one contract, along those lines. 948 MR. DINGWALL: And how were their -- how was their use of that settlement system, then, tracked in terms of costs? 949 MS. RAYCRAFT: Development or use of that system? 950 MR. DINGWALL: Well, I guess there's two ways that you can charge for that, either based on the development or on the use, or a combination. How was it done? 951 MS. RAYCRAFT: The development would have been billed directly to them, to First Source. 952 MR. VLAHOS: Ms. Raycraft, could you just straighten the microphone a bit. 953 MS. RAYCRAFT: Sorry. Development for First Source would have been charged directly to First Source itself. In terms of the use of the applications, they are completely separate, completely separate instances from an IT point of view. 954 MR. DINGWALL: And would there have been appropriate firewalls separating the two applications? 955 MS. RAYCRAFT: They were completely secured independently. 956 MR. DINGWALL: Now, moving back to the customer service function, what is the basis upon which Enersource Corporation charges the applicant for those services? 957 MR. WOLFF: On an ongoing basis, we allocate, I believe it's 100 percent, because the Hydro company is the only company that utilizes those services. 958 MR. DINGWALL: Are the fees based on an hourly rate? 959 MR. WOLFF: No, they are based on actual costs. 960 MR. DINGWALL: When you say "actual costs," is there some form of margin for the shareholder that derives from these services? 961 MR. WOLFF: None. It is exactly a cost-allocation process. The corporation is designed to be an entity with zero profits, so all of the costs that are incurred by that entity will be distributed based on need of the different companies across the different family of companies. 962 MR. DINGWALL: Are there any companies which are making a negative return currently? 963 MR. WOLFF: Yes. 964 MR. DINGWALL: Is there a cost-allocation model which sets out what the cost-allocation formulas were for the various companies from the period of the transition costs being claimed? 965 MR. WOLFF: Again, I just want to reiterate that that cost-allocation formula did not come into existence until January of 2001, okay. So for the 1999 and the year 2000, there would have been no cost allocations, but yes, there are models. 966 MR. DINGWALL: So up until January 2001, all the transition costs accumulated were in the hands of the previously regulated entity prior to separation; is that correct? 967 MR. WOLFF: That is correct. But also after January 1st, 2001, the transition costs continued to accumulate in the Hydro company. 968 MR. DINGWALL: The applicant, you mean. 969 MR. WOLFF: I'm sorry, the applicant. 970 MR. DINGWALL: And the costs subsequent to January 1, 2001 will be reflected in the service-level agreement that the shareholder -- that Enersource Corporation has with the regulated company? 971 MR. BUCKLER: That's correct. 972 MR. DINGWALL: I realize that there was a question this morning asking the applicant to review that agreement and talk about relevant sections. I'm going to ask that the agreement be produced, which is a step further than this morning's undertaking. 973 MR. VLAHOS: Mr. Sidlofsky? 974 MR. SIDLOFSKY: Sir, there have already been interrogatories about the relationships between Enersource Hydro Mississauga and any of its affiliates. If Mr. Dingwall has any questions about that relationship, he has a panel of witnesses to answer those questions. It's not clear to me at this point, and two months after the interrogatory responses were filed, why it's necessary to produce the agreement at this point. There's a panel of Enersource witnesses here to answer any questions Mr. Dingwall might have about the utility and its unregulated affiliate. 975 MR. DINGWALL: I'd like to respond to that. I'm kind of surprised with the objection given the fact that today seems to be the first time that anyone in this room has learned, apart from the applicant, the existence of a significant outsourced arrangement of basic utility functions with an affiliate. And looking at the level of disclosure that's come about in this case compared to what's been provided by the other applicants, Hydro One Networks and London Hydro, for example, the sheer paucity of detail at this point is significant. So I'm asking a question about something that, first of all, we've discovered today and, second of all, what should frankly be a basic filing requirement in these transition cost recoveries. 976 MR. VLAHOS: Mr. Dingwall, it appears to me that this is something -- you're going to have to make a submission, which you're starting to do now, and I'll have to let all the other parties in the room also comment, if they wish, on that request, so this is as good a time as any to make or complete your submissions you started. You do want, what, the shared-services agreement? Is that the document that you're after? Which document is that? 977 MR. BUCKLER: It's a service-level agreement. 978 MR. DINGWALL: I believe Mr. Buckler used the term "service-level agreement." 979 MR. VLAHOS: Service-level agreement. Which governs what? 980 MR. DINGWALL: Which governs the relationship and terms and conditions between Enersource Corporation, the shareholder, and Enersource Hydro Mississauga, the applicant. 981 MR. VLAHOS: Okay. Did you want to complete your submissions on this, sir? Because I'll have to put it on the floor for others to comment as well. 982 MR. DINGWALL: Essentially, the -- 983 MR. VLAHOS: The way it's going to work, you're going to make the submissions, the other parties will make submissions that they are in support of your submission, followed by parties that may be in opposition to your submission, with the applicant going last. And if Mr. Lyle wishes to jump in at any point, he's welcome to do so. And then we'll go back to you for some response, final response. So go ahead, sir. 984 MR. BUCKLER: May I add a clarifying point to your earlier comment about no where was it identified that these service types allocation -- I'm just looking at the response to Energy Probe's question 20, and that would be in tab B, the question -- the question reads: 985 "Please identify all shared services between Enersource and any affiliates over the period applied for relief. Please detail the transfer pricing approach used for any shared services." 986 The response to that question: "All services provided by an affiliate to EHMI and included in account 1570 consist of labour charges only. These labour charges are valued at cost and do not include any allocated costs." 987 So in that respect, we have identified that the labour is coming from an affiliated company at times, and that they're being allocated to account 1570. 988 MR. VLAHOS: Thanks, Mr. Wolff. I'm going to put it back to Mr. Dingwall, then, to commence his submissions on this. 989 MOTION BY ENERGY PROBE: 990 SUBMISSIONS BY MR. DINGWALL: 991 MR. DINGWALL: Thank you, sir. 992 This is somewhat of an abbreviated proceeding, given the time frame that the Board has had to implement transition costs. It was originally forecasted, in earlier procedural orders, that the proceeding would have taken place some time ago, and would possibly have been subject to a paper review, only, of what the prudential compliance of the utilities had been at that point. In the early procedural orders, the opportunity was only given for one round of interrogatory submissions. 993 In context of that, and in comparison to what a more fulsome hearing in front of this Board would be -- in gas cases, there are customarily several rounds of interrogatories, followed by informational meetings with the utilities, followed by alternative dispute resolution processes, during all of which there is a presumption that the gathering of information will continue as matters are discovered. 994 Energy Probe Interrogatory No. 20, and its response from the applicant, give no scope of what the breadth of the outsourcing arrangement related to -- specifically, transition costs and their flow-through of a service level agreement, might have been. So at this point in time, it's today's proceeding before this Board that discloses the magnitude of the service level agreement between affiliates in this case. And I submit that in respect of that, it's not an untimely request to have that agreement provided. 995 In addition, it's my further submission that the applicant should have provided this either with its initial filing or in a more proactive fashion with respect to the interrogatory responses. I note, in looking through the interrogatory responses, that there are a number which request copies of service agreements or other agreements which have given rise to many of the transition costs sought for recovery in this proceeding. I also note, in reviewing the filings of some of the other applicants, that rather than hang non-production on the rung of confidentiality, many of them have gone to the service providers and sought the ability to produce documents, and have done so. It seems to be somewhat natural that, in a hearing seeking prudential recovery of costs, that we have access to the service agreements under which those costs are identified. 996 MR. VLAHOS: Thank you, Mr. Dingwall. 997 Who wishes to follow Mr. Dingwall on the side of the -- for production of the document? It's more of a -- I would call it a motion, if I may. 998 MR. SHEPHERD: Mr. Chairman, I would. 999 MR. VLAHOS: Okay, Mr. Shepherd. 1000 SUBMISSIONS BY MR. SHEPHERD: 1001 MR. SHEPHERD: Mr. Chairman, this is not the first time Mr. Sidlofsky has used the "it's too late to ask for that" argument, and we heard it also from Mr. Rodger earlier, I think. And with respect to my friends, I think that mischaracterizes the process of this Board. This is not like a lease between parties where private litigants are fighting each other before a court. Our job, all of our jobs here, is to make sure that everything that this Panel needs to see to make its decision is in front of this Panel. And yes, we take positions on behalf of our clients, but that doesn't change what our ultimate job is, to make sure you have everything in front of you that you need. 1002 So with the greatest of respect to Mr. Sidlofsky's position, I think Mr. Warren had it right earlier today when he said that the issue is not what time I'm asking for this, the issue is, is it relevant. And if it is, then, unless there's some overriding reason why it's unreasonable to ask for it now - for example, if an intervenor is abusing the process by failing to ask interrogatories and lying in wait until later, or if the intervenor is asking for things where the amount of information is patently unreasonable - unless there is something like that, it's the job of the applicants to deliver whatever this Panel needs to look at. And I don't think the argument "it's too late" is even a consideration for the Board. 1003 Those are our submissions. 1004 MR. VLAHOS: Thank you, Mr. Shepherd. 1005 Looking around the room, Mr. White, do you have any submissions? 1006 MR. WHITE: No submissions. 1007 MR. VLAHOS: Ms. Aldred, any submissions? 1008 MS. ALDRED: No. 1009 MR. VLAHOS: No. 1010 Mr. Rodger? 1011 SUBMISSIONS BY MR. RODGER: 1012 MR. RODGER: I would just support Mr. Sidlofsky and ask the Board to consider that, for all these information requests that the intervenors have been raising, it seems to me the fundamental question is where does the request fit into the test the Board's applying in this particular case. 1013 The issue, as I understood the question from Mr. Shepherd and Mr. Dingwall, is, was there any cross-subsidization. That seems to be the concern that, through the restructuring process, somehow the regulated entity was giving an unfair advantage to its affiliate company. 1014 But to basically have the position that, you know, everything is potentially relevant in this case defeats the whole purpose of this proceeding, which is to look at the individual LDCs and to provide some kind of basis for the other 95 LDCs in the province. So it really, on balance, isn't clear to me what additional information will be received through this, and I believe it does set a dangerous precedent for the other 95 utilities that you have to deal with. 1015 Presumably what's produced here, which everyone has already acknowledged is thousands of pages, is going to be replicated 95 times if everyone was to be treated fairly. And I don't think that's the intent of this process, and I think administratively it's unworkable. 1016 So yes, potentially, I suppose, every lunch receipt could be relevant, but that really shouldn't be the standard by which these utilities are coming forward. And I think that asking for this agreement at this time is just another example of, frankly, a fishing expedition, which could keep us here for weeks if it's decided that anything could be relevant to this hearing. I don't believe that was the purpose, so I would resist that, Mr. Chairman. 1017 MR. VLAHOS: Thank you, Mr. Rodger. 1018 Mr. Sidlofsky, back to you. 1019 SUBMISSIONS BY MR. SIDLOFSKY: 1020 MR. SIDLOFSKY: Sir, I'm a little concerned about Mr. Dingwall's suggestion that there's only one round of interrogatories here. Yes, thankfully there was only one round of interrogatories, and that resulted in upwards of a thousand across the five utilities. Happily, we didn't have another round. However, if Mr. Dingwall wasn't satisfied with the answers he got - and in fact, as Mr. Wolff noted, there was an answer to Energy Probe Interrogatory No. 20 - Mr. Dingwall was certainly at liberty to at least write to the applicant, write to us, or bring his motion to require further -- a more fulsome response to that question. 1021 The panel has already advised the Board what services were provided by Enersource Corporation to Enersource Hydro Mississauga, so if Mr. Dingwall was at all concerned, in retrospect, about the completeness of the answer to Interrogatory No. 20, he has his answer now. He's certainly free to ask about the costs that were incurred by Enersource Hydro Mississauga in respect of that services agreement. But, as Mr. Rodger indicated, this opens up the possibility of a multitude of agreements, a multitude of documents being requested by parties that could have been requested previously, and if they didn't receive them previously, could have been the subject of motions prior to this proceeding. 1022 The Board had initially anticipated one day per utility for this proceeding. We've gone beyond that, but the Board has been moving quite expeditiously in this. This will certainly delay that process. 1023 Again, sir, we have a panel of five witnesses here who are speaking on behalf of Enersource Hydro Mississauga. If Mr. Dingwall has questions about the costs that are being charged across to Hydro Mississauga by Enersource Corporation, these witnesses are able to provide those answers; and if they're not able to provide those answers as to costs, they may be in a position, depending on what the question is, to provide undertakings to give those answers. 1024 I would ask that the hearing move on, sir. 1025 MR. VLAHOS: Thank you, Mr. Sidlofsky. 1026 Mr. Lyle, I'll ask you if you have any views at this stage before I talk to my colleagues. 1027 MR. LYLE: I just have one question of clarification, Mr. Chairman, which was whether this service agreement has already been filed with the Board under the Board's reporting requirements in any previous time. 1028 MR. BUCKLER: No, it has not. It's not required to be. 1029 MR. LYLE: Thank you. 1030 That's it, Mr. Chair. 1031 MR. VLAHOS: Thank you, Mr. Lyle. Just to start off a couple of questions, Mr. Sidlofsky, any confidentiality issues to this objection? I'm just not sure where you stand on this. 1032 MR. SIDLOFSKY: Sir, I'm not in a position to speak to the contents of the agreement or the confidentiality provisions in that agreement. Certainly, though, this is an agreement between Enersource Hydro Mississauga and a third party. Yes, it's an affiliate of Enersource, but I'm -- you know, I'm not in a position to say that that could be freely released without the consent of the counterparty to that agreement. 1033 MR. VLAHOS: Okay. We may have some questions of the panel. I just want to go back to Mr. Dingwall, then, as I should have done, before I asked my question. 1034 MR. DINGWALL: Certainly, sir. 1035 FURTHER SUBMISSIONS BY MR. DINGWALL: 1036 MR. DINGWALL: In listening to Mr. Rodger and Mr. Sidlofsky's response, there seems to be this big looming specter, almost like an iceberg, of on-going disclosure requirements that will slow down the process. However, in looking at the schedule I'm seeing, we're well on track. We haven't had a lot of requests for documents, noting, of course, that Hydro One produced a significant volume of its documents voluntarily. I think what this comes down to is a request for a document that, on its face, appears to be quite material in showing a relationship between an applicant and its affiliate for services which are being claimed as costs in an application for regulatory asset recovery. I think the relevance of the document is quite clear. I don't think the production of it is burdensome. I think in context of the timeliness, it also seems quite clear from the record that the relationship only became known today. 1037 Those are my submissions. 1038 MR. VLAHOS: Just a moment, please. 1039 [The Board confers] 1040 MR. VLAHOS: Mr. Buckler, can you help this Panel -- remind this Panel, or just help us understand as to what may be the current provisions in what are known as triple Rs, reporting requirements -- I'm sorry, I don't know the full name of it, record-keeping and reporting requirements, if I'm correct. What do they provide for in terms of those service agreements? 1041 MR. BUCKLER: I'm not sure. I'm not sure, without reviewing the triple Rs, as you say, what is required. I don't believe it requires that a service-level agreement be provided as part of those submissions. What's required in the Affiliate Relationships Code is that you have a service-level agreement, which we have, but there's no requirement to actually submit it. 1042 MR. VLAHOS: Is this the definitive word? Because you sound a bit tentative as to whether that is necessarily the case. 1043 MR. BUCKLER: For the triple Rs? 1044 MR. VLAHOS: The triple Rs or the Affiliate Relationships Code as to what needs to be produced for the Board, and also whether that kind of agreement is to be deemed confidential. 1045 MR. BUCKLER: I don't believe it's deemed to be confidential, no. Can I just consult for a second? 1046 MR. VLAHOS: Certainly. 1047 Mr. Lyle, if you have any information, you can jump in any time. 1048 MR. LYLE: I could provide some clarification with respect to the Affiliate Relationships Code, Mr. Chair. Unfortunately, I'm not sure exactly what the triple Rs require. But the Affiliate Relationships Code does provide that the Board may obtain the service agreement, upon request, from the utility. 1049 MR. BUCKLER: That's my understanding as well. You're required to have one, and presumably produce it if requested by the Board. 1050 MR. VLAHOS: Okay. So that does not mean there is no confidentiality issues, then. If the Board wishes this to be produced, there are no confidentiality issues around it. I don't think we can answer that question now. 1051 Mr. Dingwall, I was going to ask you, is it possible for you to continue your cross-examination and give us an opportunity for the Panel to address this issue at the break, and then come back with a decision? Or do you need that decision in order for you to continue your cross-examination. 1052 MR. DINGWALL: What I can do, sir, and you can let me know if this is of any use or not, is to proceed with my cross-examination and adjourn it pending, 1, your decision, and, depending your decision, 2, review of the document. 1053 MR. VLAHOS: And if the Board were inclined to order production of the document, can you tell us, can you assist us as to how this will play into your cross-examination today? 1054 MR. DINGWALL: Having not seen it, sir? 1055 MR. VLAHOS: Yes. 1056 MR. DINGWALL: I can't. 1057 MR. VLAHOS: So you need to see the document in order for this -- in order for you to continue your cross-examination. 1058 MR. DINGWALL: Let me throw out the alternative possibility that, upon seeing the document, I may not need to continue it. There may be elements of the document which reflect on argument only rather than further disclosure. 1059 MR. VLAHOS: Well, I'm not sure where that puts the Panel in terms of -- if the decision is that the document should be produced, do we adjourn this hearing, because obviously you need to see the document. 1060 MR. DINGWALL: You're trying to figure out whether you need to go into another room now and think about the or after I'm done? Is that essentially the question, sir? 1061 MR. VLAHOS: Well, Mr. Shepherd, help. 1062 MR. SHEPHERD: Mr. Chairman, I'm reading from the reporting and record-keeping requirements. This is what they say about affiliate relationships for distributors: 1063 "A distributor shall provide in the form and manner required by the Board annually by April 30th information on affiliate arrangements and transactions for the preceding calendar year as follows," and then it lists four pieces of information, none of them are the SLA, service-level agreement. There doesn't appear to be another reference in the reporting and record-keeping code to service-level agreements that I can see, if that is helpful to you. 1064 MR. VLAHOS: I don't know. 1065 [The Board confers] 1066 MR. VLAHOS: Mr. Dingwall, would you continue your cross-examination, please, to the best you can with other areas, and then the Panel will deliberate on this matter during the afternoon break. 1067 MR. DINGWALL: Certainly, sir. 1068 ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: 1069 R.AMAR; Previously Sworn. 1070 N.WOLFF; Previously Sworn. 1071 C.BUCKLER; Previously Sworn. 1072 J.RAYCRAFT; Previously Sworn. 1073 S.POTOCNIK; Previously Sworn. 1074 G.ROSATI; Previously Sworn. 1075 CROSS-EXAMINATION BY MR. DINGWALL: 1076 MR. DINGWALL: My next question is with respect to the pre-filed evidence for phase 2, at the first tab, page 16. 1077 In this particular section, the applicant puts forward the principles that it suggests be considered in determining a review of prudence. And would you not agree that a prudential review could be well informed by reviewing the results of similar parties contracting for the same services? 1078 MR. BUCKLER: Sorry, was that a question? 1079 MR. DINGWALL: That was a question. 1080 MR. BUCKLER: Could you repeat it, please. 1081 MR. DINGWALL: Fortunately, it's written down. Yes, I can. Would you not agree that a prudential review could be well informed by reviewing the results of similar parties contracting for the same services? 1082 MR. BUCKLER: Similar parties? 1083 MR. DINGWALL: Similar parties contracting for the same services. 1084 MR. BUCKLER: I suppose if you could find two parties that were perfectly similar and were contracting for perfectly similar -- exactly the same services, yes, you could compare them. 1085 MR. DINGWALL: Well, Mr. Buckler, in terms of your company itself, what aspects of your company do you believe are unique, and not reflected anywhere else in Ontario? 1086 MR. BUCKLER: Our billing system, for example, is unique. 1087 MR. DINGWALL: Are you saying that it's unique because there's no one else using the same system? 1088 MR. BUCKLER: That's correct. 1089 MR. DINGWALL: Are there any other facets of uniqueness that reflect your company? 1090 MR. BUCKLER: Well, there are interfaces between all of our systems, so we have -- we may have some systems that are same -- the same as at other utilities, but -- you couldn't find two utilities that have the same total systems, with all the same interfaces amongst them, as well. 1091 Johanna, maybe you could say a little more about which systems might be similar. 1092 MS. RAYCRAFT: We have a unique billing system. And in addition, we have -- we may have business processes which are quite distinct from other people's business processes, and -- 1093 MR. VLAHOS: Sorry, Ms. Raycraft, you have to speak up a bit. Come a bit closer to the microphone and speak up. 1094 MS. RAYCRAFT: I'm sorry. We may have business processes which are unique to Hydro Mississauga. We may have unique software and unique software modifications. 1095 MR. DINGWALL: So it sounds like a lot of your uniqueness relates to the billing system and the software. 1096 MS. RAYCRAFT: I'm an IT person. 1097 MR. DINGWALL: You're an IT person. Are there any other factors of uniqueness which single your utility out? 1098 MR. BUCKLER: Our size, I suppose. There are other utilities generally at the same size as us; however, going across all 90-some-odd utilities, they vary vastly in size and number of customers, so that's another factor of difference. There are many, many factors that are different. We are not experts on all the other utilities that are out there, so it's difficult for us to say what the differences are. 1099 MR. DINGWALL: Okay. For my next series of questions, I'm going to ask you to move through to, I believe the reference is, 1D1, appendix 1, and this is the section entitled "Enersource Hydro Mississauga Inc. Reporting of Transition Costs, Account No. 1570." 1100 MR. BUCKLER: Yes, we have that. 1101 MR. DINGWALL: In looking at page 1 of that, there's an indication that there were some instances where Enersource's uniform purchasing policy was not followed. Can you give me an indication of what the cases were where the purchasing policy was not followed? 1102 MR. WOLFF: Specifically, reading from the document, I assume your question is with reference to line 21; is that correct? 1103 MR. DINGWALL: That's correct. 1104 MR. WOLFF: So a lack of multiple vendors in a particular service prevented Enersource from obtaining three quotes required by the policy. 1105 Point 2, in other cases, Enersource had already been working with particular service-providers, and it was prudent for Enersource to extend those service-providers' retainers to cover related activities. For example, Utility Solutions was the vendor selected to provide revisions to Enersource's CIS system, to fulfil the requirements for market-opening. 1106 As these requirements evolved, based on new regulatory information, Utility Solutions was requested to provide programming provisions without sourcing-out new vendors. 1107 MR. DINGWALL: Mr. Wolff, can you give me some instances where there were -- there was a lack of multiple vendors for particular services? 1108 MS. RAYCRAFT: For Utility Solutions, that was one. In another case, we viewed -- we had an agreement for expertise in market-ready requirements, and that contract was also extended for other services related to market-ready requirements. 1109 MR. DINGWALL: So in speaking of Utility Solutions, looking through to page 4 in this area, Utility Solutions was not the builder of your CIS; is that correct? 1110 MS. RAYCRAFT: They were not the builder of the CIS; that's correct. 1111 MR. DINGWALL: The builder of your CIS was another company who also bid on the production of -- on the services that were to be used? 1112 MS. RAYCRAFT: That's correct. And I believe the selection process is described in this section D. 1113 MR. DINGWALL: So are there only two companies providing CIS modification services? 1114 MS. RAYCRAFT: When we were considering what to do to incorporate -- or to get the functionality that we needed for market-opening, we had a very short time frame, and we knew that we could not convert to a new system before November 2000, at that time these decisions were being made. And as modifications to our CIS for billing-engine are considered by us to be quite high risk, we knew we needed experience in the exact CIS that we had. Utility Solutions had on their team some of the original designers of that application, and so we were confident that they could make the required modifications. 1115 MR. DINGWALL: Now, this new CIS was something that you implemented in 1999. 1116 MS. RAYCRAFT: That's right. 1117 MR. DINGWALL: Did it not have any flexibility at the time that you implemented it? 1118 MS. RAYCRAFT: It had a great deal of flexibility, which was one of the reasons that we chose it, but it did not immediate the unique Ontario market-opening requirements. 1119 MR. DINGWALL: What were some of the challenges that it could not meet? 1120 MS. RAYCRAFT: It could not process XML transactions. It could not do the change-location transactions. It could not -- I could go on and on. There were a lot of things that needed to be modified in order to meet the exact requirements of the Ontario market. 1121 MR. DINGWALL: Well, the XML functions, correct me if I'm wrong, but is that translating existing information into the XML format in order to communicate with the hub? 1122 MS. RAYCRAFT: That's correct. 1123 MR. DINGWALL: And is that not a piece of shelf software that some of the other applicants have spoken to so far? 1124 MS. RAYCRAFT: It's -- there are products that we are using now, but in order to create the data for that XML, you need to modify the system in order to have those export files available, and to create the transactions that feed those XML transactions -- or those XML transactions. 1125 MR. DINGWALL: Now, you had two quotes for this -- for the enhancements to the system. 1126 MS. RAYCRAFT: Yes. 1127 MR. DINGWALL: And I note that one seems to be weighted more towards the upfront cost and the other one seems to be with less upfront cost but, at the end of the day, seems to have produced a significant number of hours of modification time. What was the difference in the specifications between the two quotes in terms of what they would be charging for the upfront cost and what you would be getting for it? 1128 MS. RAYCRAFT: I'm not sure, are you comparing the Orcom solution that we outlined in D? I think in our submission we described that Orcom had a suggested solution which was considered to be too expensive. And also, we had doubts, through our experience in the conversion, about how prudent it was to be relying on them under tight deadline conditions, such as market opening by November 2000. And when we combined that with the price, we decided that that would not be the best course of action, particularly in view of the fact that becoming compliant by November 2000 was a licensing requirement. 1129 MR. DINGWALL: So you had doubts about the ability of the vendor to meet the deadlines? 1130 MS. RAYCRAFT: In addition to the pricing, the two things together. 1131 MR. DINGWALL: I note, from looking at page 5 and page 6, that both companies appeared to quote for two components, and please feel free to correct me if I'm wrong in categorizing them. The first component being a revised software platform, and that would be Orcom's first component, and Utility Solutions had an initial component not really described but with a dollar value attached to it that seemed somewhat higher than Orcom's. I believe Orcom's initial investment, as they categorize it, was $675,000 U.S., whereas Utility Solutions' initially investment was 1.15 million U.S. 1132 MS. RAYCRAFT: Yes. I'm sorry, what was the question? 1133 MR. DINGWALL: What is the difference in the functionality between what the two utilities were quoting for upfront? 1134 MS. RAYCRAFT: At the time it wasn't so much the functionality that was causing the price differences, it was the different approaches that they were taking to providing the software. One vendor was proposing an application solution provider where they would provide us services, and the other one was offering to modify the code for us. 1135 MR. BUCKLER: If I could just add to that. The application solution provider means that they would run the system for us down in the U.S. with their own staff, do the billing for us, essentially, and I believe -- well, they would do the billing down there for us at U.S. salaries. So they gave us an upfront price for making the modifications. And then what we perceived to be an exorbitantly high charge for providing services to us in a multiyear contract. And the Utility Solutions' proposal was simply to modify the system that we had, and we would run it ourselves, paying in Canadian dollars, with our own staff, but at a higher upfront cost. And when we compared the two in the long run, the Utility Solutions alternative was far cheaper. 1136 MR. DINGWALL: So if I can understand that further, Mr. Buckler, Orcom was the first company you were referring to, and they were the $675,000 upfront fee followed by $142,000 a month for them to provide the billing service for you? 1137 MR. BUCKLER: That's correct. 1138 MR. DINGWALL: And Utility Solutions had the upfront cost of $1.15 million, and then in addition to that, they would have provided you with the hourly rate of $120 U.S. per hour. 1139 MR. BUCKLER: For any services beyond what was initially perceived to be the extent of the modifications. 1140 MR. DINGWALL: Now, at the end of the day, what's been the labour component in addition to the upfront cost for Utility Solutions? 1141 MR. WOLFF: The total costs in Canadian dollars paid to Utility Solutions is $6,023,348. Now, that does include the upfront cost, but I'm not sure about exchange rates. 1142 MR. DINGWALL: So if I were to compare the two, the relevant amount would be either 6 million Canadian or the aggregate of 675,000 U.S. plus 140,000 U.S. a month for the transition costs; is that correct? 1143 MR. BUCKLER: No, I don't think that's a fair comparison. Comparing the $6 million is comparing all the changes that were required as specifications changed over time. Requirements changed over time from the -- because of the market. So to assume that the ASP platform proposed by Orcom would have remained at $675,000 is likely not correct. It probably would have been considerably higher as well. 1144 MR. DINGWALL: Now, the Orcom quote seems to presume that they would have been providing a service bureau service to you subsequent to that. Did you ask them to quote separately on what their fee would be for remediating the system and then providing simply care or modification subsequent to that? 1145 MS. RAYCRAFT: I believe we did get a quotation at length from them, but it was still not acceptable. 1146 MR. DINGWALL: And why was that unacceptable? 1147 MS. RAYCRAFT: The same. The price and the delivery risk. 1148 MR. DINGWALL: Are you saying that the price was higher than the price quoted by Utility Solutions for the initial component? 1149 MS. RAYCRAFT: I don't recall what the price was at this point in time, but I remember that during the evaluation, we felt that their delivery would be very high risk. 1150 MR. DINGWALL: At the time that you initially contracted for the CIS, did you not have any contractual ability to modify the system through the vendor? 1151 MS. RAYCRAFT: My understanding was that if we were willing to pay them to do it, they would have modified the system for us; that's true. 1152 MR. DINGWALL: And at the time that you contracted for the CIS, did you take a look at all -- at what would be involved in making modifications to the system, and whether or not there would be competition amongst vendors at that point? 1153 MS. RAYCRAFT: I don't believe -- as far as I know, we did not, but then we did not know what the requirements were going to be for market-ready in any precise way. 1154 MR. DINGWALL: Has the CIS itself been the subject of a prudential review in a rates hearing? 1155 MR. BUCKLER: No. 1156 MR. DINGWALL: I'm going to ask you to move on to page 11 of the same section. Now, if this was covered earlier, I wholly apologize. Did customer communications include advertising costs? 1157 MR. BUCKLER: Yes. Sorry, yes. 1158 MR. DINGWALL: Okay. And I believe you mentioned earlier with the amount of something like $90,000; is that correct? 1159 MR. WOLFF: I'm sorry, I don't remember the amount I specified earlier. 1160 MR. DINGWALL: Okay. I'm noting that your co-applicant, Toronto Hydro, did not include advertising costs in its claim for customer education. Did you have some discussions as to the commonality of your positions in respect of this particular item? 1161 MR. BUCKLER: No, we didn't. 1162 MR. DINGWALL: Next I'd ask you to turn to page 14 of the same exhibit. 1163 MR. BUCKLER: Did you say page 14? 1164 MR. DINGWALL: I did. 1165 MR. BUCKLER: Yes. 1166 MR. DINGWALL: I'm noting that under section 8, at line 22, the bulk of the costs associated with market opening under regulatory requirements seem to relate to the hiring of fixed customer service representatives. Over what time period were these customer service representatives in service during the transition cost recovery period? 1167 MS. POTOCNIK: The customer service reps were hired in May of 2000 in anticipation of market opening in November of 2000. 1168 MR. DINGWALL: And these were six additional customer service representatives? 1169 MS. POTOCNIK: Yes. 1170 MR. DINGWALL: Prior to this point in time, how many customer service representatives did you have? 1171 MS. POTOCNIK: Nine. 1172 MR. DINGWALL: And were these part of the outsourced customer call-centre or were these part of the affiliate customer call-centre? 1173 MS. POTOCNIK: I don't understand your question. 1174 MR. DINGWALL: I had understood, and please correct me if I'm wrong, from earlier in the morning that, in addition to using the utility call-centre through Enersource Corporation, that there was a time period that you contracted with a company called, was it Procore for additional customer service personnel? 1175 MS. POTOCNIK: Procore started providing services to us in 2002. 1176 MR. DINGWALL: So then these six employees would be Enersource Corporation employees; is that correct? 1177 MS. POTOCNIK: Yes, they were. 1178 MR. WOLFF: Can I add a point of clarification? At the time they were hired, they would have been Enersource Hydro Mississauga employees, and then the fundamental change would have happened on January 1st, 2001. As at January 1, 2001 they would have become Enersource Corporation employees as part of the company restructuring. 1179 MR. DINGWALL: And were these employees retained after the period of market opening? 1180 MS. POTOCNIK: These employees were retained, but they were moved into other areas within the company. 1181 MR. DINGWALL: Customer service? 1182 MS. POTOCNIK: Some of them went to billing within the customer service division. 1183 MR. DINGWALL: So still within the same basic function; is that -- or same department; is that correct? 1184 MS. POTOCNIK: It's a different department, the same division. 1185 MR. DINGWALL: Just so I understand, customer service, in my mind, means people answering the phone and then looking up records on a screen and speaking to the customers about the records. What would be different about billing? 1186 MS. POTOCNIK: The billing department actually produces the bills. They actually run the billing system. They review billing edits, they post the bill batches and send files to be printed. They produce the retail settlement -- retailer settlement invoices. They do back-billing when there's billing errors. They don't deal directly with the customer. 1187 MR. DINGWALL: So these additional six employees were hired in 2000? 1188 MS. POTOCNIK: In May of 2000. 1189 MR. DINGWALL: In May of 2000. I wonder if you could turn up Board Staff Interrogatory No. 23. 1190 MR. BUCKLER: Yes, we have it. 1191 MR. DINGWALL: The response to this interrogatory seems to suggest that the increased volume of customer calls began in May of 2002; is that correct? 1192 MS. POTOCNIK: Those were the highest call volumes in 2002. 1193 MR. DINGWALL: I wonder if I could also ask you to turn up Energy Probe 18. 1194 MR. BUCKLER: Yes, we have it. 1195 MR. DINGWALL: In section A to that response, there is an indication of the numbers of customer service representatives for the years 1999 to 2003, and that number seems to begin, at 1999, at the number of nine representatives, moving incrementally to four more representatives in 2001 and 2002. I'm just trying to reconcile that with page 14 of 1D1 which indicates that you had to hire six new customer service representatives. 1196 MS. POTOCNIK: We hired six new customer service reps. Two of them back-filled for two people that we pulled out of the call-centre as testers for the CIS project. 1197 MR. DINGWALL: So of the 320,000 identified as a market opening regulatory requirement cost relating to the six people, would it be fair, then, to say that two of those people, of the six, were replacing existing positions? 1198 MR. WOLFF: That is correct. To clarify, the other four people, okay, were available for other activities when the market opened. So there were a number of customer service tasks, over and above the testing activities, that they were utilized for. We made every effort to ensure that they did not sit still and that they were being utilized for the market-opening project. 1199 MS. POTOCNIK: They also back-filled for training. We had to pull all staff to go through training sessions for the new market rules and the changes to the system, and so we needed staff to, you know, carry on the activities that were required while the training was going on. We needed staff to prepare the training materials in the "train the trainer" aspect. 1200 MR. DINGWALL: Am I missing something here? You're claiming for the need for additional customer service people, but out of the six that you're claiming for, you only used three or four in customer service roles? 1201 MS. POTOCNIK: The market didn't open in November 2000, as we were anticipating. 1202 MR. DINGWALL: But when the market did open, you went from having nine customer service representatives to having 13 customer service representatives; correct? 1203 MS. POTOCNIK: That is correct. They also had other duties assigned to them as well. 1204 MR. DINGWALL: I guess what I'm not clear on is, you've put forward for recovery for a particular role, yet the evidence seems to indicate that what's incremental -- that what you put forward for was more than you were actually using in that role and that some of the people were filling incremental needs based on legacy employees. 1205 MR. WOLFF: Just to clarify, the intent was to have two of the six fully focused on market-opening activities. The other four were utilized for back-filling other customer service people that were involved in the project, as well as back-filling for testing when other staff were not initially involved in the market preparation, and in order to absorb some of the higher call volumes that at that time we expected and did achieve in 2002. 1206 MR. DINGWALL: What I'm trying to understand, and maybe you can point me to some information that might clarify this, is the difference between, on a role-by-role basis, what you had in legacy rates for bodies performing functions versus the people that you then identified as being necessary for transition. Because if we just look at this one example alone, I'm looking at the incremental change in customer service moving from nine bodies to 13 bodies, new in terms of what you're claiming, you're claiming for six bodies rather than the incremental four. 1207 MR. WOLFF: The remaining two were used solely for market-opening purposes. So, in effect, the four were back-filling and the other two were solely dedicated to the market-transition activities. 1208 MR. VLAHOS: Mr. Dingwall, can you tell us how long you have still? 1209 MR. DINGWALL: How long of my hour, sir? 1210 MR. VLAHOS: You're a half hour over your hour. 1211 MR. DINGWALL: Yes, I am, sir. I'm down to a final series of questions, pending, of course, the Board's decision on that other matter, and that should be, I would think, within half an hour quite easily, and I'm very comfortable if you turn off the mic if I reach that point and haven't stopped. 1212 MR. VLAHOS: I'm sorry, so another half hour? 1213 MR. DINGWALL: At the most, sir. 1214 MR. VLAHOS: No, sir, I would like to break at about 3:00. Could you condense that to 15 minutes, please? 1215 MR. DINGWALL: Did Enersource -- did the applicant track its budget versus its actual for any of the components of transition costs? 1216 MR. BUCKLER: Yes, we did. 1217 MR. DINGWALL: And is that reflected in any internal reporting? 1218 MR. BUCKLER: We have scattered files, notes, on -- historical notes on what went on during the market-readiness project, and in some of those notes are some remaining information on budgets. 1219 MR. DINGWALL: I take it that with the significant purchasing policy that you had, that you would have had to have estimates for particular projects and segments; is that correct? 1220 MS. RAYCRAFT: Yes. 1221 MR. BUCKLER: Yes, that's correct. 1222 MR. DINGWALL: So, for example, in context of your CIS project and the multiple changes that, no doubt, took place, that you would have had an initial estimate followed by tracking of where you were in context of that estimate as well as any change requests? 1223 MR. BUCKLER: Yeah, that was the case. But I should point out that the prime focus of the steering committee and the project manager in the market-readiness project was not on cost control. It was on ensuring that we met the requirements from the Ministry and the Ontario Energy Board for the market-readiness, and to ensure that we got it done on time. That was the main focus. 1224 MR. DINGWALL: So was there any internal audit ever done of the costs? 1225 MR. BUCKLER: No, there was not. 1226 MR. DINGWALL: Was there any external audit done by your parent corporation of the costs? 1227 MR. WOLFF: No, there was not. 1228 MR. DINGWALL: In the costs that you're seeking to recover for regulatory requirements, I take it that that does not include any time that you might have spent with industry associations discussing these issues; is that correct? 1229 MR. WOLFF: When you mention "industry associations," could you be a little more specific? 1230 MR. DINGWALL: Well, let's start with a couple of different categorizations, and then maybe you can respond to each. The Board, obviously, had its various working groups and committees putting forward various standards, such as electronic business transactions and the Retail Settlement Code. If you had employees of either corporation involved in those, were there costs allocated to the applicant for their participation in those efforts? 1231 MR. WOLFF: Yes, I believe so, through the time sheets. 1232 MR. DINGWALL: And would there have been costs put forward for recovery as transition costs for the efforts of employees of either corporation in any working group or subcommittee that would have been part of the Electricity Distributors Association or the entity that it was known as at the time? 1233 MR. WOLFF: Yes, there was. 1234 MR. DINGWALL: We're just going to switch computers to one that has the question more fully set out. 1235 It might be an opportune moment, sir, to take the break, and I anticipate maybe five minutes upon return? 1236 MR. VLAHOS: Okay. We'll do that, Mr. Dingwall. It is ten to 3:00, and we'll return at ten after 3:00. 1237 --- Recess taken at 2:50 p.m. 1238 --- On resuming at 3:15 p.m. 1239 MR. VLAHOS: Please be seated. 1240 Okay, Mr. Dingwall, Mr. Sidlofsky, the Board has considered the matter of production of the service agreement. 1241 DECISION ON MOTION BY ENERGY PROBE: 1242 MR. VLAHOS: Mr. Dingwall, I would ask you to finish your cross-examination on that issue today, and because of that, we'll give you another up to 25 minutes, if you wish to take that amount of time. 1243 As for the document itself, Mr. Sidlofsky, it has to be produced to the Board, to this hearing, as soon as practical, and could you make arrangements for it to be delivered to Board Staff so that -- in case you're not here, so it can be entered as evidence, and all that would be part of the evidentiary record for submissions at the argument phase. 1244 Okay? With that, Mr. Dingwall, back to you. 1245 MR. DINGWALL: Thank you, sir. 1246 MR. LYLE: Just one moment, Mr. Chair. I'll mark that as Undertaking J.5.10. 1247 MR. VLAHOS: That's fine. Thank you. 1248 UNDERTAKING NO. J.5.10: TO PROVIDE COPIES OF THE SERVICE LEVEL AGREEMENT BETWEEN ENERSOURCE AND ITS AFFILIATE 1249 MR. DINGWALL: Thank you, sir. 1250 ENERSOURCE HYDRO MISSISSAUGA INC. PANEL 1 - AMAR, WOLFF, BUCKLER, RAYCRAFT, POTOCNIK, ROSATI: 1251 R.AMAR; Previously Sworn. 1252 N.WOLFF; Previously Sworn. 1253 C.BUCKLER; Previously Sworn. 1254 J.RAYCRAFT; Previously Sworn. 1255 S.POTOCNIK; Previously Sworn. 1256 G.ROSATI; Previously Sworn. 1257 CROSS-EXAMINATION BY MR. DINGWALL: 1258 MR. DINGWALL: I'll finish up my cross-examination with a few clean-up questions. 1259 The first is: With respect to account 1571, I understand that the applicant is seeking interest in respect of that account; is that correct? 1260 MR. AMAR: Yes, we are. 1261 MR. DINGWALL: A general question. I understand that the applicant is also a corporate member of the Consumers Council of Canada; is that correct, Mr. Buckler? 1262 MR. BUCKLER: Yes, I believe so. 1263 MR. DINGWALL: And my final question for context is, in looking at the applicant, you folks had a billing system in place that was brand new right at the time of beginning to prepare for market opening. As the road became clear, as everybody saw the path kind of looming out of the fog, it would seem that in a situation like that, that would be the ideal circumstance to be in in order to implement an efficient and financially incremental billing system that would have the flexibility, or should have had the flexibility to deal with all the market conditions. What happened? 1264 MR. BUCKLER: That was the plan. That was the plan. There were two reasons why we went out to buy the new billing system. One was because of year 2000 issues. We had a legacy system prior, and that legacy system was not -- was not able to -- would have had to be significantly modified for year 2000, and so it was considered to be better to go out and buy a new system that would be -- that would have the year 2000 functionality built into it. 1265 In addition to that, we knew that eventually a new market would be coming to us, competitive market, and we would have to make the transition. With our old legacy system, it was very inflexible, and it would have been very difficult to make the modifications for the new market. 1266 So those are the two reasons why we decided to go out and find a system that would solve both problems at the same time. I believe that had we not acquired that new billing system, it would have been far more costly to modify our legacy system. 1267 Furthermore, there were no billing systems out there that were perfectly adapted, that you could buy off the shelf and plug them in and they would fit the Ontario market. It almost seemed, at times, that the Ontario market was being difficult, you know, just to be different. 1268 And so in spite of our best intentions -- well, I don't know. Maybe I shouldn't say that. It would have been a lot worse had we not acquired this new billing system. 1269 MR. DINGWALL: Let me just take your last statement for a second there. Would it have been a lot better if you had acquired a different billing system with more flexibility and more vendors who would be able to modify it after the fact? 1270 MS. RAYCRAFT: We chose our billing system based on the functionality that it provided on a long-term basis for the call-centre. At the time we acquired it, the decisions were made late in 1997 on the selection process, and implementation was throughout 1998 and finishing in 1999. The system is quite flexible, and we need -- because Enersource is a larger utility in Ontario, we need a certain amount of -- a high degree of functionality compared to the other systems that are available in the market. And I believe we did choose the right system in 1997, when we were doing that. 1271 MR. DINGWALL: Here we are in 2004 and we're facing more changes in the marketplace and in the structuring. Is it still the right system? 1272 MS. RAYCRAFT: We are keeping up with all the requirements as they change, on time. 1273 MR. BUCKLER: I believe it is the right system. Even looking back, I may we made -- we have -- we made the right choice in picking the system that we did for our needs at Enersource Hydro Mississauga. 1274 MR. DINGWALL: Thank you very much, panel. Those are my questions. 1275 Thank you, Mr. Chairman. With another commitment, I'll be taking my leave, with your -- 1276 MR. VLAHOS: Thank you, Mr. Dingwall. 1277 Mr. Shepherd. Also, I see Mr. Brett here. Mr. Brett, do you intend to cross-examine? 1278 MR. BRETT: Yes, I do, sir. 1279 MR. VLAHOS: How long do you need? 1280 MR. BRETT: Five to ten minutes. 1281 MR. VLAHOS: Mr. Shepherd? 1282 MR. SHEPHERD: I will be an hour, and it will be a real hour. 1283 MR. VLAHOS: Okay. Did you wish Mr. Brett to go first? 1284 MR. SHEPHERD: If he wishes, that would be fine. 1285 MR. VLAHOS: Mr. Brett, would you like to go now? 1286 MR. BRETT: Yes, I thank my colleague for that kindness. I would like to go now, if that's all the same, with your permission, Mr. Chairman. 1287 MR. VLAHOS: Please go ahead. 1288 CROSS-EXAMINATION BY MR. BRETT: 1289 MR. BRETT: I'll just sit where I am. I'm probably talking behind some witness, but the witnesses can just face the front. Don't feel any need to look at me here. 1290 MR. VLAHOS: It's hard to resist, Mr. Brett. 1291 MR. BRETT: Well, I won't... 1292 I think this question is for Mr. Amar, it's for whoever is most directly concerned with cross-allocation and rate design, but in any event I'll -- 1293 I'd ask you to turn up, if you could, it's an Energy Probe interrogatory -- the Exhibit number is H, tab 2, schedule 12, page 3. So it's an Energy Probe interrogatory not of you but of Hydro One. That may be a bit of a challenge. 1294 MR. BUCKLER: Yes, that's a challenge. We don't... 1295 MR. BRETT: I see your counsel is going to get the volume for you. 1296 MR. SIDLOFSKY: Could I just have the reference again, Mr. Brett? 1297 MR. BRETT: It's Exhibit H, tab 2, schedule 12. 1298 MR. AMAR: We have it. 1299 MR. BRETT: Okay, thanks. If you look, first of all, on page 1, there's a question. I draw your attention to -- and I'm just going to read this out. I draw your attention to section E. It's a question about transition costs, about account 1570, as you can see from the preamble -- by the title, and E says: 1300 "Applying the principle of cost causation, please allocate transition costs for each of the ten general categories of activities among customer classes, taking into account the relationship between implemented system application and customer classes." 1301 And then if you look over on page 3, under part E, which is on line 30, you can see the answer that Hydro One put up there, and it says: 1302 "Hydro One Distribution analyzed the components of account 1570, market ready. A summary follows: Billing activities, customer number as best allocator; wholesale market requirements, customer numbers as best allocator; IMO requirements, part of wholesale market requirements, thus again customer number; retailer/customer requirements could be done only to retailers, but based on the OEB's decision with respect to Union Gas and retailer cost, all customers were allocated cost incurred serving retailers, and number of customers is the appropriate allocator." 1303 The fifth bullet: "Regulatory costs are small and number of customers is also an appropriate allocator." 1304 And finally, over the page on page 4 -- 1305 MR. VLAHOS: Mr. Brett, could you slow down a bit, please. She's trying to get every word. 1306 MR. BRETT: I'm sorry. 1307 MR. VLAHOS: I know there's a tendency to speed up as -- 1308 MR. BRETT: Speed up as we read, I'm sorry. 1309 MR. VLAHOS: Go ahead. 1310 MR. BRETT: The bullet at the top of page 4: "51 million out of the total $54 million" -- and these are Hydro One numbers, of course -- "of market-ready costs fall into billing activities and retailer costs. In summary, Hydro One Distribution's proposed allocation among customer groups by customers is consistent with the above analysis." 1311 Do you concur with this analysis in general terms? 1312 MR. AMAR: I'll let Mr. Buckler answer that question. 1313 MR. BRETT: All right. 1314 MR. BUCKLER: Unfortunately, no. 1315 MR. BRETT: You do not. 1316 MR. BUCKLER: No, I don't. 1317 MR. BRETT: Would you agree with me that, if cost causality were the only factor being considered in determining which allocator to use for the costs involved in 1570, the allocation among customer classes should be on the basis of the number of customers? Do you agree with that proposition? 1318 MR. BUCKLER: For these types of costs, normally, yes, I would. 1319 MR. BRETT: Normally, yes. 1320 MR. BUCKLER: Normally, yes, but not in the case of transition costs, no. 1321 MR. BRETT: I'm a bit confused. For these types of costs, normally, yes, but because they're called transition costs, you have a different view? 1322 MR. BUCKLER: That's correct. Perhaps I could explain? You weren't here earlier when I gave an explanation that perhaps kilowatt-hours is a better allocator than number of customers -- 1323 MR. BRETT: Sorry, kilowatt-hours? 1324 MR. BUCKLER: Kilowatt-hours, correct. It could be argued that kilowatt-hours may be a better allocator of these costs than customer -- number of customers. And the reason is -- 1325 MR. BRETT: Now -- 1326 MR. VLAHOS: Mr. Brett, let the witness finish. 1327 MR. BUCKLER: And the reason is the term "causation." In this particular case, I don't believe it's the customers that are causing these costs. I believe that the decision to go to a competitive market was a government decision, and the proper way of allocating these costs should not be based on cost causation, but on the -- on the basis of where the benefits are accruing. In going to a competitive market, the premise was that customers would save energy on their bills, and that was the rationale behind going to a competitive market. And to do anything else, to base that decision on anything else would have been irrational. 1328 So the larger the consumer of energy, or the more energy that a consumer used, the more they would save in going to a competitive market. And the best allocator, therefore, would be kilowatt-hours. It could be argued that kilowatt-hours are a better allocator. 1329 Now, it's our opinion that a reasonable compromise between assigning costs by customer and assigning costs by kilowatt-hours is to assign costs by distribution revenue. 1330 MR. BRETT: Let me clarify that. You said variously that it could be argued that the best allocator is kilowatt-hours, but you've also said that the best allocator is kilowatt-hours. Then you just said at the end of your comment that the best allocator is neither of those two, but is distribution revenues. What's your position? 1331 MR. BUCKLER: Our position is that distribution revenue is the best allocator, as a compromise between kilowatt-hours and number of customers. Could I just add something to that? 1332 MR. BRETT: Why not. 1333 MR. BUCKLER: The reason I don't think that number of customers is appropriate, is because allocating these transition costs on the basis of number of customers would mean that a residential customer would pay exactly the same for these transition costs as a large industrial customer, and I just don't feel that that's fair. 1334 MR. BRETT: But you -- I take it that you -- you said a moment ago that the large industrial customers would get larger savings from moving to an open market system than small customers, and I suppose no one could quarrel with that. Well, perhaps someone could quarrel with that. But in any event, that's an allocation, if you -- if you're basing your -- if you're basing your conclusion on the fact that somehow the larger customer would get greater savings, you'd agree with me that that's a, for want of a better word, a benefits-based approach to cost allocation. You look to see where the benefits are and then you say, Well, you benefitted, therefore, you -- you benefitted the most from this so you should pay -- you should pay accordingly. Is that correct? 1335 MR. BUCKLER: That's correct. 1336 MR. BRETT: But don't you agree that the traditional basis of utility cost allocation has been on a cost basis? Not a benefits basis, a cost basis. You analyze where -- how the costs are incurred, and on behalf of whom, and you allocate the costs on that basis. That is how cost allocation has always proceeded in public utility theory and practice. Is that not the case? 1337 MR. BUCKLER: I don't know whether that's the case or not. I don't believe that in every single -- 1338 MR. BRETT: You don't know that's the case. You're head of regulatory affairs for Enersource. You don't know what utility practice is in these regards, historically and theoretically? 1339 MR. VLAHOS: Mr. Brett, this gets too close to arguing with the witnesses. 1340 MR. BRETT: All right. That's all my questions, then, Mr. Chairman. 1341 MR. VLAHOS: Thank you, Mr. Brett. 1342 Mr. Shepherd. 1343 MR. SHEPHERD: Thank you, Mr. Chairman. 1344 CROSS-EXAMINATION BY MR. SHEPHERD: 1345 MR. SHEPHERD: Witnesses, I wonder if you could turn up schedule 13 of your interrogatory responses. This is your financial statements for the year ended December 31st, 2003. And I'm looking at page 11 of your 2003 financial statements. Do you have that? 1346 MR. WOLFF: Yes, we have that. 1347 MR. BUCKLER: Yes. 1348 MR. SHEPHERD: Thanks. So if you look at note 5, you'll see this is a summary of your regulatory assets as of the end of December, 2003; correct? 1349 MR. WOLFF: Note 4 or note 5? 1350 MR. SHEPHERD: Note 5. 1351 MR. WOLFF: Note 5 is a description of our -- I'm sorry, you're in 2003 or 2002? 1352 MR. SHEPHERD: '03. 1353 MR. WOLFF: I'm sorry. My apologies. Sorry. Yes. 1354 MR. SHEPHERD: Okay. And if I look at the total there, you have to net out the assets and the liabilities to get the net amount; right? You have to deduct the liabilities from the assets to get the net? 1355 MR. WOLFF: Deduct the liabilities from the assets? 1356 MR. SHEPHERD: Yes, you have a regulatory liabilities section and a regulatory assets section. You have to net the two to get the amount you're allowed to actually claim; right? 1357 MR. WOLFF: Yes. 1358 MR. SHEPHERD: Okay. And so you've got about 15.4 million there; right? 1359 MR. WOLFF: Approximately, yes. 1360 MR. SHEPHERD: So then I take it that the 13 million isn't in these numbers yet. 1361 MR. WOLFF: At the end of 2003? 1362 MR. SHEPHERD: Yes. 1363 MR. WOLFF: The 13 million has not been added back to those numbers. 1364 MR. SHEPHERD: Exactly. And so if you add the 13 million, that's how you reconcile the total to what you're claiming; right? 1365 MR. WOLFF: Not entirely. 1366 MR. SHEPHERD: Okay. Well, you can help me there, but let me ask a couple of specific questions. The deferred transition cost numbers and the power variance numbers are out -- are different from what you're claiming by several hundred thousand each. I wonder if somewhere in the evidence there's a reconciliation from your financial statements to what you're claiming. 1367 MR. AMAR: If you refer to the response to Interrogatory No. 5 of Board Staff, it refers to appendix 4, sorry, and you have this report with a reconciliation at the bottom. 1368 MR. SHEPHERD: Sorry, did you say appendix 4? 1369 MR. AMAR: Of the interrogatories. Sorry, I have the wrong one. Appendix number 1, I'm sorry. 1370 MR. SHEPHERD: Appendix 1. I see. Okay, thank you. 1371 Let me just follow up for a second on that 13 million. You actually received that money back from the IMO; right? 1372 MR. WOLFF: No, we paid it to the IMO. 1373 MR. SHEPHERD: Sorry, you paid it to the IMO. 1374 MR. WOLFF: That's correct. 1375 MR. SHEPHERD: Okay. I'm going to turn to account 1570, transition costs. And most of this was computer hardware and software, wasn't it, and related training and implementation? 1376 MR. WOLFF: I'm sorry, are you looking at a specific schedule or ... 1377 MR. SHEPHERD: Your account 1570, $12 million, it's mostly computer hardware, software, and training and implementation; right? 1378 MR. WOLFF: A significant portion of it, yes. 1379 MR. SHEPHERD: And it's related to customer care, billings, and settlement, basically. 1380 MR. WOLFF: Yes. 1381 MR. SHEPHERD: I wonder if you could, and you may not have this there, look at Hydro One Exhibit G11, schedule 1 - I have it here, Mr. Sidlofsky; I'll give it to you - at page 11. It's the architecture of the Hydro One system, so you may want to pass it down. 1382 Can you tell me whether your system has a similar architecture to this? 1383 MS. RAYCRAFT: I believe in our -- I believe in the information that we've provided we have a diagram. 1384 MR. SHEPHERD: I understand that. I guess the -- 1385 MS. RAYCRAFT: It's a lot simpler -- 1386 MR. SHEPHERD: For people who are knowledgable in the area, comparing one diagram to another is easy. For people who are not knowledgable, it may be useful if you can just tell us, at a very broad level, how your system differs architecturally from the Hydro One system. 1387 MS. RAYCRAFT: Before I comment, I should say that it looks like both these documents are conceptual in nature and at a reasonably high level, and I'm not sure how their high level compares to the high level that we've prepared. 1388 However, they do have some similarity in that they have a billing system, they have what looks like a product that is processing retailer transactions, they have products that are managing interval data, and it looks like -- so those are similar, to a certain extent. 1389 MR. SHEPHERD: Some of them are the same products that you are using; right? 1390 MS. RAYCRAFT: Some of them look like they are the same products. 1391 MR. SHEPHERD: But is yours designed with a comprehensive piece of middleware, like a work-flow engine in the middle, to connect everything? 1392 MS. RAYCRAFT: No. We are, however, managing a lot of the new communications for market-ready through our retailer transaction processor, which is why you can see lines between settlements to the retailer transaction processor down to the CIS. 1393 MR. SHEPHERD: Understood. So you connect some components through a functional component rather than through a separate integrating unit; right? 1394 MS. RAYCRAFT: Right. 1395 MR. SHEPHERD: That makes it cheaper, doesn't it? 1396 MS. RAYCRAFT: I cannot comment on the costs of their implementation at all. 1397 MR. SHEPHERD: All right. 1398 MS. RAYCRAFT: And I also can't comment on the rationale that they would have used for coming up with this configuration versus the rationale we used. 1399 MR. SHEPHERD: I'm not asking you to be critical of their system. You have a much smaller than they do; right? 1400 MS. RAYCRAFT: Yes. 1401 MR. SHEPHERD: Much less complex. 1402 MS. RAYCRAFT: Much less complex. 1403 MR. SHEPHERD: And you spent a lot less money on your system; right? 1404 MS. RAYCRAFT: I presume so. 1405 MR. SHEPHERD: Okay. 1406 You say in your response to one of the interrogatory responses, School Energy No. 11, that you offered your system to other utilities to license it, I guess, and they didn't take you up on that offer. Do you know why they didn't? 1407 MR. BUCKLER: Well, in one case, we bid on a utility -- small utility that wanted to have billing services provided to them, and we bid on it and we didn't have the best price, is my understanding. Well, I'm not sure that it was all price. Actually, they ended up deciding to go with another utility that was closer to them, and they perceived that they would get better service. I'm not sure how much price entered into the picture. 1408 MR. SHEPHERD: But you did make fairly concerted efforts around the time of market opening to try to sort of share this cost with other utilities; right? 1409 MR. BUCKLER: Yes, we did. 1410 MR. SHEPHERD: But I understand that the problem was that there just wasn't enough time to do that; is that right? 1411 MR. BUCKLER: That's correct. Early on in the process, there simply wasn't any time to consider -- well, not collaborating but working with or amalgamating with other utilities. We only have one year. Between when we were notified of the market opening date to actual opening date was one year, and typically to set up and install a billing system, for example, it takes considerably longer than one year. 1412 MR. SHEPHERD: Well, you had an advantage, didn't you, in that you just put in a brand new system; right? 1413 MR. BUCKLER: Yes. 1414 MR. SHEPHERD: Which presumably was state of the art for the time. 1415 MR. BUCKLER: Yes. 1416 MR. SHEPHERD: And just as an aside, because you just bought that new system, I assume that your cost of transition would have been lower because you didn't have to deal with a lot of old legacy problems, it was pretty up to date already; is that fair? 1417 MR. BUCKLER: Yes, that's correct. 1418 MR. SHEPHERD: Do you have any idea how much you saved because you had a new system in place? 1419 MR. BUCKLER: No. 1420 MR. SHEPHERD: Was it, you know, millions? 1421 MR. BUCKLER: I'm not sure it would have been possible at all, at any cost, to use our old legacy system. 1422 MR. SHEPHERD: But the alternative, presumably, would have been, as some other utilities did, if you had a really old system and you had to get to market ready, you'd just go out and buy a brand new system; right? That would have been more expensive than what you did; true? 1423 MR. BUCKLER: I'm not sure what -- you mean for us? We had a brand new system. 1424 MR. SHEPHERD: If you hadn't had a brand new system and you had to get ready for the market, then you couldn't fix your old system; right? You couldn't have made it ready for market; correct? 1425 MR. BUCKLER: That's correct. 1426 MR. SHEPHERD: So you could be, instead, asking the ratepayers to pay for a whole new system today. If you didn't already have a new system from '97, you could being for a whole new system today, couldn't you? 1427 MR. BUCKLER: I suppose, yes. 1428 MR. SHEPHERD: And that would be more expensive than what you're asking for now; right? 1429 MR. BUCKLER: Conceivably, yes. 1430 MR. SHEPHERD: Now, you talked earlier with Ms. Lott about -- no, sorry, I think Mr. Dingwall, about the fact that you were getting services from Enersource Corporation as part of your transition costs; do you recall that? 1431 MR. BUCKLER: That's correct. 1432 MR. SHEPHERD: And did we get the total amount included in your transition costs that was billed from Enersource? Do you know what that number is? I didn't hear it during the cross. I wonder if you know what it is. 1433 MR. WOLFF: Are you referring to all the billings from Enersource Corporation to Hydro that landed in transition costs? 1434 MR. SHEPHERD: That's right. 1435 MR. WOLFF: No, we don't have that as the internal labour transition from being Hydro to Enersource Corporation. 1436 MR. SHEPHERD: I don't want to put you to a lot of trouble getting an exact number, but do you have a ballpark figure of how bit that number is? Is this something I need to ask questions about or is it, like, $50,000? 1437 MR. WOLFF: It would be more than $50,000. 1438 MR. SHEPHERD: Is it millions? 1439 MR. WOLFF: Considering our total internal labour is 1.6, if you just assume an average over the time frame, we would have about one and a half years in the corporate environment and one year in the Hydro environment, so it might be a ratio of 4:3 or something like that of the 1.6. 1440 I just want to make the point that the rates that were applied for the people when they were in the Hydro company and the rate for their time applied to transition costs was identical to the rate that we would have applied when those same identical people were employees of Enersource Corporation. There was no effective change in rates, and in that respect, everything was kept as if it would have been done in the Hydro business. 1441 MR. SHEPHERD: The labour rates that are being charged, are those what are being referred to as fully-loaded rates, or were they just salary and benefits, or somewhere in between? 1442 MR. WOLFF: They were exclusively salary plus benefits. No added costs, no administration fees of that sort. 1443 MR. SHEPHERD: So, for example, the person's office or computer, all those sorts of things, those were not included? 1444 MR. WOLFF: That's correct. 1445 MR. SHEPHERD: Okay. So your ratepayers sort of got a benefit from your parent company because of that; is that right? 1446 MR. WOLFF: To some extent, there were some decisions made where we decided to utilize internal labour. For project management, for example, after we had received very expensive proposals from the likes of KPMG, PWC and Deloitte & Touche. So I believe that our customers saved significant dollars in that context alone by using internal labour. 1447 MR. SHEPHERD: That wasn't quite what I was asking. Let me deal with the narrower question. In order to allocate fairly from your parent company, you would have to allocate all the costs associated with an employee if that employee is working on your work; right? Not just the salary and benefits cost, because they still have to have an office and all those other things; right? 1448 MR. WOLFF: For the purposes of transition costs, yes. 1449 MR. SHEPHERD: Okay. But you didn't allocate those other things so your ratepayer got a benefit because they got these people cheaper; right? 1450 MR. WOLFF: Okay. They were not allocated in transition costs, but they are allocated out of the corporation to the Hydro business on an ongoing basis as part of the operating costs. 1451 MR. BUCKLER: To answer your question, as far as transition costs, yes, they are lower because of the allocation that we did. 1452 MR. SHEPHERD: And are you still using that allocation method for post-transition cost allocations? 1453 MR. WOLFF: Yes, we are still allocating costs out of the corporation into the Hydro. 1454 MR. SHEPHERD: And you're still allocating on an incremental basis, or are you allocating fully allocated now, fully loaded? 1455 MR. WOLFF: Are you talking about hours that are allocated into Hydro projects? 1456 MR. SHEPHERD: Yes, today. 1457 MR. WOLFF: It depends on the project. 1458 MR. SHEPHERD: Okay. 1459 MR. WOLFF: Typically, our capital expenditures for building systems are not fully loaded. 1460 MR. SHEPHERD: So can you turn to OEB Staff Interrogatory No. 25. You were talking about this with Ms. Lott earlier. And tell me whether I understand this correctly, because there's a whole lot of back and forth about it and I just want to make sure I got it clear. 1461 You had to set up new systems and modify old systems to get ready for the open market and you had to do it in a hurry. So you decided that the most efficient way, from a management point of view, was to use your own staff as much as possible rather than outside consultants. It would be cheaper, it would be faster, they would already know what they were doing. So you got them to put aside what they were already doing and do this as their new priority item, and those are the costs, in essence, that you're seeking to recover in these transition costs, the labour costs. Is that about right? 1462 MR. WOLFF: Well, I just want to clarify that we didn't use internal staff as simply the lowest cost alternative. Our staff were used when we had the expertise in-house and we needed something done quickly. For the most part, our largest amount of our costs are from Utility Solutions, which are external to Enersource Corporation, and they provided the majority of the programming requirements. 1463 MR. SHEPHERD: I understand. I'm just talking about the 1.6 million right now. 1464 MR. WOLFF: Oh, the 1.6? 1465 MR. SHEPHERD: The point was it was cheaper and they already knew what they were doing so it was more efficient. 1466 MR. WOLFF: I wouldn't say it was cheaper. There were reasons where time was of the essence, where in order to bring someone externally, you'd have to sit down and spend the time with the person, be it a consultant or new employee or whoever it is, and explain about our business processes, how do we set that up in the system that we have, and it just -- it's -- it would have taken too much time to bring in an external person. So I don't want to say that cost was the ultimate driver. It's not. It was a time issue. 1467 MR. SHEPHERD: All right. I guess I'm a little thrown at a loss here because I thought you were saving money by doing that. 1468 MR. WOLFF: That happened to be a benefit of doing that, but it's not -- I wouldn't say it's the driver for the decision. 1469 MR. SHEPHERD: I guess, you know, most of the other utilities -- well, the ones that we've seen so far primarily used outside contractors, and they seemed to manage to get the job done in the right time frame, with outside contractors. Why would it be different for you? 1470 MR. WOLFF: I honestly can't comment on other utilities. If they had people who could, you know, spend absolute all amounts of time to bring the consultants up to speed very quickly, then perhaps that's the answer. But I can't specifically comment on that. 1471 MR. SHEPHERD: Now, one of the things you said is that, by assigning these internal resources to the market-readiness product, you had to do two things; you had to pay overtime to some people, whether those people or other people, to get their regular jobs done, and you had to back-fill by hiring new people to, sort of, cover the fact that those people weren't available. Is that right? 1472 MR. WOLFF: That is correct. 1473 MR. SHEPHERD: Now, you did a third thing, didn't you? Didn't you also defer some projects that you would have done during that period? 1474 MR. BUCKLER: Yes, I believe that's -- there were some projects that we wanted to get done that we weren't able to do because of the people -- like, particularly Johanna Raycraft here, because she was assigned to the market-readiness project, we were not able to get other projects done. That's correct. 1475 MR. SHEPHERD: Okay. You got them done eventually? 1476 MR. BUCKLER: Yes, we did. 1477 MR. SHEPHERD: You just had to do them later. 1478 MR. BUCKLER: Correct. 1479 MR. SHEPHERD: Okay. So I assume, then, that the component that's overtime, do you have an idea of how much of this 1.6 million is represented by overtime? 1480 MR. WOLFF: The actual overtime is not included in the 1.6. The way we adjusted for that was to take the person who was participating in the activities, was to take their time and allocate it to the project -- 1481 MR. SHEPHERD: No, I understand that, Mr. Wolff. But as I take what you're saying, you're justifying the 1.6 as being increment by saying you spent extra in overtime and you spent extra in back-filling, and so I'm trying to get how much those numbers are, because they should total 1.6 million or more; right? 1482 MR. WOLFF: That's correct. 1483 MR. SHEPHERD: So how much extra overtime did you spend? 1484 MR. WOLFF: That number I don't have at my fingertips. 1485 MR. SHEPHERD: Well, you have a record of your overtime over this period, total overtime bill? 1486 MR. WOLFF: Yes. 1487 MR. SHEPHERD: So presumably we could track it and we could see that, during the period of market transition, your overtime bill was higher? 1488 MR. WOLFF: Yes. 1489 MR. SHEPHERD: And we could figure how much it was higher than your average; right? 1490 MR. WOLFF: There's a number of factors. I wouldn't say any variance in overtime is strictly due to one project. 1491 MR. SHEPHERD: Okay. 1492 MR. WOLFF: That number would significantly exceed 1.6. But if that's the process you'd like to use, I'm sure that it would ... 1493 MR. SHEPHERD: If we did that exercise, and I'm not suggesting we do, but if we did, would we find that the overtime bill for those months totalled 8 or 900 or a million dollars more than you typically had? 1494 MR. WOLFF: I would suggest it's more years than it is months, but I would expect yes, that the overtime costs were higher. 1495 MR. SHEPHERD: Okay. Then let me turn to the component that's back-filled employees. Do you have somewhere in the evidence -- aside from the six call-centre employees that we talked about, do you have in the evidence the number of additional staff you hired to back-fill? 1496 MR. WOLFF: I don't believe it's in the evidence, no. 1497 MR. SHEPHERD: Can you give us an idea of how many it was, and when? 1498 MR. BUCKLER: I'm not exactly clear on your question. Can you repeat that. 1499 MR. SHEPHERD: You hired some additional employees to back-fill the work that your allocated staff did, so although the staff that you allocated weren't incremental and therefore you wouldn't normally be able to claim them as a transition cost, they weren't incremental, the costs that they caused, the back-filled employees, was incremental, so we need to know what that was. So I'm asking how many employees, and when. Just give me a rough idea. 1500 MR. BUCKLER: There were at least two other people. For example, George Rosati, here, came out of our street-lighting department and was moved over to settlements eventually, and we had to back-fill his position. We had to hire a new IT person to back-fill for Johanna who worked on the project. There were some other settlement people that we brought into the settlements department. 1501 MR. SHEPHERD: Now that you've gone through the transition, and indeed after Bill 210 you sort of didn't need as much long-term -- didn't have as much long-term requirements, for a while, anyway, has your staff complement gone down? 1502 MR. BUCKLER: No. No, it hasn't. 1503 MR. SHEPHERD: Okay. The result of using internal resources to do this, which is unusual - most of the other utilities didn't - that was a benefit for your ratepayers because they got a new system, it was well-designed and robust, it was on time, and it was at a relatively low cost; right? 1504 MR. BUCKLER: Well, yes, the first part, fine. I'm not sure about the "relatively low cost" part. Relatively low cost compared to the alternatives we were faced with, yes. Not necessarily relative to all other utilities. 1505 MR. SHEPHERD: Okay. But then you have a problem, don't you? You have $12 million -- well, 1.6, I guess, is what we're talking about, that isn't actually incremental. The costs you're asking for aren't actually incremental, are they? 1506 MR. WOLFF: On what basis? 1507 MR. SHEPHERD: Well, you were spending them anyway, and you're still spending them. 1508 MR. WOLFF: Are you talking about the employees that were allocated to the project out of their regular jobs? 1509 MR. SHEPHERD: Yes. 1510 MR. WOLFF: The full-time ones or the part-time ones? 1511 MR. SHEPHERD: Any of them. 1512 MR. WOLFF: Well, the 1.6 is all incremental in respect that, whenever we took somebody off from their regular duties, someone had to perform those duties. If one of those people left a gap in the operations of the Hydro, or whatever it was, somebody else had to pick that up. 1513 Now, considering that somebody else would have had a full-time job, there would have been overtime issues or overtime costs incurred. And, considering that overtime is paid at double-time at Enersource, I would expect that those overtime costs would be higher than what the regular costs are for that person. 1514 MR. SHEPHERD: I'm not disagreeing with you, Mr. Wolff, that the overtime and the back-filling costs are incremental. But you're not asking this Board to allow you to recover overtime or back-filling costs, are you? 1515 MR. BUCKLER: That's correct. 1516 MR. SHEPHERD: So the costs that you are asking to recover, those actual costs are not incremental, are they, because you were spending them anyway; right? 1517 MR. BUCKLER: No, I believe they are incremental for the reasons we stated. These positions were back-filled, either back-filled or we incurred overtime to move them into the market-readiness project. 1518 Just to go back -- I'd like to clarify your previous question where you asked, are these employees not incremental because they are still working for us. I'd just like to clarify that a little bit. 1519 Yes, these employees are working for us, but in a different capacity. During the market-readiness project, for example, George Rosati and a number of people we brought into the billing department were involved in working on market-readiness at that time. They were implementing capital systems and capital expenditures, and so those are part of the transition costs and those were incremental employees. 1520 However, since market-opening, these employees are now running the systems on an operating basis and we're incurring operating costs for those same employees. They are not doing capital any more, they are doing operating. And we have not received a rate increase to recover those costs, and this is a drain on our net income. And we're looking forward to the re-basing in 2006 to be able to recover those costs. 1521 MR. SHEPHERD: If this Board were to determine that this 1.6 million is not incremental, for the reasons we just discussed, and indeed you've heard the other counsel, you know the arguments are going to be made; right? If the Board were to determine that those costs were not incremental, I take it that what you're saying between the lines - tell me whether this is correct - is that really would be penalizing you for good management; is that correct? 1522 MR. BUCKLER: I think so, yes. 1523 MR. SHEPHERD: I think I understood you to say earlier, in your discussion with Mr. Dingwall, that the same development team that developed the solutions for market-readiness also developed the First Source solutions; is that right? 1524 MS. RAYCRAFT: Yes. 1525 MR. SHEPHERD: So tell me whether I've got this right: If it would cost you, say, $100,000 to develop a particular functionality, to get ready for the market, and it costs you $120,000 because First Source needed something as well, a variation on it, et cetera, then you'd have to allocate that extra $20,000 to First Source, wouldn't you? 1526 MS. RAYCRAFT: The way the development proceeded was that First Source had a set of unique business requirements which were submitted to the development team for quotation and then they implemented them. 1527 MR. SHEPHERD: Well, but they were working on the same things, weren't they? 1528 MS. RAYCRAFT: First Source had unique requirements which the distribution company does not have. As an example, the distribution company sends a usage transaction, never receives one, and it's different for the retailer. 1529 MR. SHEPHERD: But I take it that what you allocated to First Source was the marginal cost of the additional work that they needed, none of the base costs of the development work; right? 1530 MR. BUCKLER: I wouldn't characterize that as a marginal cost. We allocated our time that we spent on the Enersource billing system to Enersource Hydro Mississauga, and we allocated our time for the First Source billing system to First Source. And I wouldn't characterize it as incremental, no. 1531 MR. SHEPHERD: What did you do with time that was spent on both at the same time, common issues? 1532 MS. RAYCRAFT: The First Source development started after the bulk of the Enersource requirements were finished. 1533 MR. SHEPHERD: So Enersource had already spent all its money, pretty well. 1534 MS. RAYCRAFT: The bulk of development was completed. 1535 MR. SHEPHERD: So, then, First Source only had to spend the additional costs where the development team hadn't already solved the problems; right? 1536 MS. RAYCRAFT: They were required to pay for their unique requirements. 1537 MR. SHEPHERD: Okay. I'm going to ask you a few questions now about cost allocation. 1538 You had a discussion about cost-causality with Mr. Brett just a few minutes ago, and you'll be aware that I'm going to go down a similar path. 1539 MR. BUCKLER: I hope it's as pleasant. 1540 MR. SHEPHERD: It will be most enjoyable. Let's start with the motherhood statement. The correct way to allocate cost is on the basis of cost causality; right? 1541 MR. BUCKLER: Normally, yes. 1542 MR. SHEPHERD: Are there times when you shouldn't use cost causality? 1543 MR. BUCKLER: Yes, I believe under certain circumstances, cost causality may not be the most -- the appropriate allocation method. 1544 MR. SHEPHERD: And, in fact, if I understood your exchange with Mr. Brett correctly, that's essentially what you were saying to him, is that -- tell me whether this is right: That normally you would use cost causality, but in this case you should look at the overall benefit to each class rather than cost causality; is that right? 1545 MR. BUCKLER: That's correct. 1546 MR. SHEPHERD: Okay. Now, Toronto Hydro has said in answer to Board Staff interrogatory -- you don't need to turn it up, I've quoted it more than once already -- if rates were to track cost causality, it would be more appropriate to allocate transition costs by number of customers. Do you agree with that? 1547 MR. BUCKLER: Can you just repeat that again. I believe you said by number of customers; is that correct? 1548 MR. SHEPHERD: That's right. 1549 MR. BUCKLER: No, I don't agree with it. 1550 MR. SHEPHERD: Well, okay, you agreed with me that there's a distinction between cost causality and benefit; right? And your argument is, use benefit; correct? 1551 MR. BUCKLER: In this particular case, yes, for transition costs. 1552 MR. SHEPHERD: If you use cost causality, then you would allocate by number of customers, wouldn't you? 1553 MR. BUCKLER: No, and let me explain. I don't believe straight number of customers is the appropriate method. I believe a weighted number of customers might be more appropriate for cost causality, normally for billing charges, because there's additional functionality that may be put into a billing system for large customers as opposed to residential. There's additional checks you have to put in because the bills are so much larger. And that to assume the billing costs are exactly the same for a large customer as for a small customer is not appropriate. 1554 MR. SHEPHERD: The difference is not material, is it? 1555 MR. BUCKLER: Well, that's a relative term. To a residential customer, having to pay exactly the same as a large commercial customer, I would -- it might be considered material. 1556 MR. SHEPHERD: We're talking fairness, though. Are any of the members of the panel accountants? 1557 MR. WOLFF: Yes, I am. 1558 MR. SHEPHERD: Mr. Wolff, you know what material means; right? 1559 MR. WOLFF: In the context of financial statements? 1560 MR. SHEPHERD: Accounting, yes. 1561 MR. WOLFF: Yes, I do. 1562 MR. SHEPHERD: Okay. So it's true, isn't it, that the cost of rendering a bill for a large customer versus the cost of rendering bills for residential customers, the difference is not a material difference, from your point of view; true? 1563 MR. WOLFF: In the context of a financial statement? 1564 MR. SHEPHERD: In the context, yeah, of a financial statement. 1565 MR. WOLFF: It would, in all likelihood, be immaterial. 1566 MR. SHEPHERD: You said, Mr. Buckler, earlier that one of the reasons why you thought transition costs should not be allocated by number of customers was that the cause of those costs was not something internal to your system but a government decision. Did I understand that correctly? 1567 MR. BUCKLER: No, not quite. I said that the cause was not a customer -- customers weren't causing that additional cost for transition costs, it was the government that was requiring us to move to a new competitive market. 1568 MR. SHEPHERD: But you're not suggesting that that's what cost causality means, are you? 1569 MR. BUCKLER: Yes, I am. 1570 MR. SHEPHERD: That who makes the decision is part of the issue of how the cost is caused? 1571 MR. BUCKLER: Not specifically worded that way, no. What I'm saying is that the customers did not have a choice in going to the competitive market and therefore did not, you know, choose to incur these extra costs. The government decided to go to a competitive market, with a premise that, in the long run, energy costs would be reduced for customers. 1572 MR. SHEPHERD: The customers didn't decide to build Darlington either, did they? Not that I recall anyway; isn't that right? 1573 MR. BUCKLER: No. That decision was made by -- not by the government necessarily, but by the generating company. 1574 MR. SHEPHERD: Okay. And was the fact that Ontario Hydro had to make that decision, was that relevant to how you would allocate that for rate purposes? 1575 MR. BUCKLER: I presume they made that decision to be able to serve their customers. 1576 MR. SHEPHERD: Okay. You talked about who gets the benefit of market opening, and I guess -- you know, I don't act for large industrial customers so maybe I'm wrong, but I thought most of the large industrial customers were largely getting the benefits of an open market already in the sense that they all had negotiated rates, didn't they, prior to market opening? The large industrial customers. 1577 MR. BUCKLER: The large commercial customers in Mississauga, most of them did not have -- 1578 MR. SHEPHERD: Did not. 1579 MR.. BUCKLER: -- negotiated rates, they had -- were obtaining prices on the spot market. 1580 MR. SHEPHERD: Okay. And so how did they benefit from market opening? 1581 MR. BUCKLER: Well, I don't believe they have benefited yet. The premise was that in the long run they would benefit from lower prices of energy. 1582 MR. SHEPHERD: Because they -- 1583 MR. BUCKLER: As compared to what they would have paid for the same energy had the market not been deregulated. 1584 MR. SHEPHERD: Because deregulation would increase the liquidity of the market and thus drive the rates down; is that right? 1585 MR. BUCKLER: That's correct. 1586 MR. SHEPHERD: But that didn't happen. 1587 MR. BUCKLER: No, it did not. 1588 MR. SHEPHERD: Yet. 1589 Now, I'm going to show you a three-page spread sheet entitled "Enersource Regulatory Assets Allocations." And I've provided this to the Board and to the witnesses, and I have copies here for other parties. 1590 MR. LYLE: We'll mark that as Exhibit I.5.2. 1591 EXHIBIT NO. I.5.2: SPREADSHEET ENTITLED, "ENERSOURCE REGULATORY ASSETS ALLOCATIONS" 1592 MR. SHEPHERD: Mr. Wolff, can you identify this document? 1593 MR. WOLFF: According to the title on the top left, "Enersource Regulatory Assets Allocations." Is that -- 1594 MR. SHEPHERD: But what I'm asking is, these are numbers that you've worked out with the intervenors and consider accurate? 1595 MR. BUCKLER: No, actually, it was Ralph Amar that worked those out. 1596 MR. SHEPHERD: Mr. Amar, you were sitting quietly at the end. I didn't notice you. 1597 MR. VLAHOS: Mr. Shepherd, if you are going to be referring to this document extensively, perhaps you can make one copy available to the reporter. 1598 MR. SHEPHERD: I'm sorry, I thought I provided one. 1599 Mr. Amar, you've checked these numbers and they're accurate? 1600 MR. AMAR: Subject to the changes I've pointed out. 1601 MR. SHEPHERD: Okay. Well, can you take a look at this and tell me whether this incorporates the changes that you made. 1602 MR. AMAR: The changes? 1603 MR. SHEPHERD: Yes. 1604 MR. AMAR: The first one was the kilowatt-hours non-TOU. I believe that you had assumed that we did not have any TOU customers, so I changed the percentages for GS greater than 500 and large customers to zero percent. 1605 MR. SHEPHERD: Mr. Amar, let me stop you there for a second. Rather than go through the various changes, which would just embarrass me anyway, I realize unintentionally, can you just tell me whether the numbers now reflect the changes you made? 1606 MR. AMAR: Yes, I believe they are. 1607 MR. SHEPHERD: Thank you. And so I'd like you to look at the first page of this exhibit, and about halfway down the page is a line that says "Total Allocation." Do you see that? 1608 MR. AMAR: Yes. 1609 MR. SHEPHERD: And tell me if I'm correct, that line represents the total amount to be collected from each rate class for all of your regulatory assets over four years based on particular class allocation assumptions; right? 1610 MR. AMAR: That's correct. 1611 MR. SHEPHERD: And, in fact, the assumptions on this first page, those are the ones that you have proposed; right? 1612 MR. AMAR: I'm sorry, what assumptions are you talking about? 1613 MR. SHEPHERD: The assumptions for allocations in this first page of the exhibit are the ones that you have, in fact, proposed in your filing; is that right? 1614 MR. AMAR: I believe the percentages that are shown above, which is what allocates the dollars, came from you, if I'm not mistaken. 1615 MR. SHEPHERD: Okay. You're proposing to allocate the RSVA accounts by kilowatt-hours. 1616 MR. BUCKLER: No, actually, we're proposing to allocate them based on distribution revenue for transition costs. 1617 MR. SHEPHERD: Oh, well, that screws me up. But you collected your first year based on kilowatt-hours, didn't you? 1618 MR. AMAR: Kilowatt-hours and distribution revenue. 1619 MR. SHEPHERD: That's right. The RSVA component you collected on kilowatt-hours, and the balance, the interim amount, you collected on distribution revenues. 1620 MR. AMAR: That's correct. 1621 MR. BUCKLER: That's correct. 1622 MR. SHEPHERD: All right. So if -- if I understand this correctly, the -- this shows that if you allocate RSVA accounts based on kilowatt-hours, and transition costs based on distribution revenues, and energy variances, 1571, based on non-time-of-use kilowatt-hours, which is constant throughout, then the total amount, the total bill, for the residential ratepayers is about 9.4 million, right, over the four years? 1623 MR. AMAR: Yes. 1624 MR. BUCKLER: That's correct. 1625 MR. SHEPHERD: And if we move across that line, we see that, for example, the large customers would be 1.3 million; correct? 1626 MR. AMAR: I'm sorry, you are -- are we talking about the total allocation costs? 1627 MR. SHEPHERD: Yes. 1628 MR. AMAR: Yes. So you have, for residential, you have $9.4 million. Is that what you -- 1629 MR. SHEPHERD: Large customers would be 1.3 million? 1630 MR. AMAR: That's correct, yes. 1631 MR. SHEPHERD: And that's ten large customers; right? 1632 MR. AMAR: That's correct. 1633 MR. SHEPHERD: So that's $130,000 each, roughly. 1634 MR. AMAR: Yes. 1635 MR. SHEPHERD: And for the general service over 50 kilowatt, that's the class near and dear to our heart, it's 11 million; right? 1636 MR. AMAR: That's correct. 1637 MR. SHEPHERD: Okay. And then if you go down a couple of lines, you'll see a line that says "Total Collection Phase 1." Do you see that? 1638 MR. AMAR: Yes. 1639 MR. SHEPHERD: And that line shows how much each class is actually paying in 2004, out of the total regulatory assets being collected in phase 1; correct? 1640 MR. AMAR: That's correct. 1641 MR. SHEPHERD: And those are the actual numbers you're collecting in rates this year. 1642 MR. AMAR: That's correct. 1643 MR. SHEPHERD: Okay. So then you have a line "Remaining to Be Collected." That's what you have to collect in the next three years; right? 1644 MR. AMAR: That's correct. 1645 MR. SHEPHERD: So if you divide that by three, you see a line each year for three years, that's how much -- on this assumption, that's how much you would collect from each rate class in each of the next three years; right? 1646 MR. AMAR: That's right. 1647 MR. SHEPHERD: So, for example, in 2004, you're recovering right now about $1.8 million from your residential customers; right? $1,786,000? 1648 MR. AMAR: Yes. 1649 MR. SHEPHERD: And so that leaves you with about 7.6 million to collect over the next three years? 1650 MR. AMAR: Yes. 1651 MR. SHEPHERD: And that means you have to collect 2.5 million a year? 1652 MR. AMAR: That's correct. 1653 MR. SHEPHERD: So they're going to have to pay - and you've added down at the bottom, the increase over phase 1 - $735,000 more next year than this year for this, on that set of assumptions; right? 1654 MR. AMAR: That's true. 1655 MR. SHEPHERD: All right. And that's -- you have about 150,000 residential customers? 1656 MR. AMAR: That's correct. 1657 MR. SHEPHERD: So, then, that's about $5 per customer, isn't it? 1658 MR. AMAR: Okay. 1659 MR. SHEPHERD: Roughly. Sorry, I didn't hear ... 1660 MR. AMAR: Yes. 1661 MR. SHEPHERD: And, in fact, if you collected on this basis, the $2.5 million would be about $17 per residential customer, wouldn't it? Will you accept that, subject to check? 1662 MR. AMAR: Okay. 1663 MR. SHEPHERD: And that's about $1.43 per month. 1664 MR. AMAR: If you say so. 1665 MR. SHEPHERD: I'm not out by an order of magnitude, am I? 1666 MR. AMAR: Let me check. 1667 MR. BUCKLER: We'll accept that, subject to check. 1668 MR. SHEPHERD: Thanks. And now can you turn to the large-volume customers. 1669 MR. AMAR: Yes. 1670 MR. SHEPHERD: If I understand this, you're collecting 700,000 and change from those ten customers in 2004; right? 1671 MR. AMAR: Yes. 1672 MR. SHEPHERD: But with this allocation, you only need to collect about 200,000 each year for the next three years, once the allocations are all worked out; right? 1673 MR. AMAR: That's correct. 1674 MR. SHEPHERD: So they're going to save an average of about 50,000 a year, each one of them. 1675 MR. AMAR: That's right. 1676 MR. SHEPHERD: Now, I wonder if you could, then, just take a look at general service over 50 kilowatts. 1677 MR. AMAR: Okay. 1678 MR. SHEPHERD: If I understand that correctly, it says that in 2004 you're collecting about $2.2 million from that class. 1679 MR. AMAR: That's right. 1680 MR. SHEPHERD: And on these allocations, that would increase to $3 million a year; is that right? 1681 MR. AMAR: That's correct. 1682 MR. SHEPHERD: Will you confirm that there are 3,832 customers in that class currently? 1683 MR. AMAR: I can't remember. 1684 MR. AMAR: I'm sorry, what was the -- 1685 MR. SHEPHERD: 3,832. It's embedded in the formula. 1686 MR. AMAR: That sounds reasonable, yes. 1687 MR. SHEPHERD: Okay. So, if I understand this right, each of those customers is going to end up paying, on this allocation, anyway, just under $3,000 in regulatory assets; right? 1688 MR. AMAR: How much did you say, I'm sorry? 1689 MR. SHEPHERD: 3,000. 1690 MR. AMAR: Where did you get that, again? 1691 MR. SHEPHERD: I just divided 11 million by 3,832. We're in the ballpark; right? 1692 MR. BUCKLER: Yes. 1693 MR. AMAR: Yes. 1694 MR. SHEPHERD: Would you accept, subject to check, that between the two school districts in your area, Peel District and Peel Catholic, you have 356 schools in your franchise area? 1695 MR. AMAR: Subject to check. 1696 MR. SHEPHERD: Now, in that list of 3,800 and change customers, each school is actually treated as a separate customer; right? That's how you -- 1697 MR. AMAR: I believe so, yes. 1698 MR. SHEPHERD: So even though you only have two district school boards paying the bills, it's actually 356 customers for billing purposes; right? 1699 MR. AMAR: Okay. 1700 MR. SHEPHERD: So do I understand this correctly, then, that this allocation would result in those two school boards paying about $825,000 over four years for regulatory assets? 1701 MR. AMAR: Maybe you can tell us how you got it. 1702 MR. SHEPHERD: 356 times 2,900, actually. 1703 MR. AMAR: And the amount was, I'm sorry? 1704 MR. SHEPHERD: Well, we rounded it to 3,000, but it's actually 2,900, is the three-year total. 1705 MR. AMAR: I cannot get the figures. 1706 MR. BUCKLER: What was your end number? 1707 MR. SHEPHERD: 825 over the next three years. 1708 MR. BUCKLER: What was the total amount you had for all the schools? 1709 MR. SHEPHERD: 356 schools. 1710 MR. BUCKLER: Yes. What was the -- 1711 MR. SHEPHERD: $825,000. 1712 MR. BUCKLER: It would be in that ballpark, yes. 1713 MR. SHEPHERD: Okay. So now I wonder if you could turn to the second page of this exhibit, and can you confirm that this is the same spreadsheet, essentially -- 1714 MR. AMAR: Yes. 1715 MR. SHEPHERD: -- but just changes the allocations of 1525 and 1570 from distribution revenues to number of customers; is that right? 1716 MR. AMAR: That's correct. 1717 MR. SHEPHERD: Okay. And so this shows, doesn't it, that on this basis, your residential customers would pay, instead of $9.4 million out of the regulatory assets, they would pay about $15.4 million; is that right? 1718 MR. AMAR: That's right. 1719 MR. SHEPHERD: And that means that instead of billing that class two and a half million dollars a year for the next three years, you would have to bill them four and a half million dollars for the next three years; right? This is the line "each year for three years" in that rate category. So you have four and a half million in this example and two and a half million in the previous example; is that right? 1720 MR. AMAR: That's right. 1721 MR. SHEPHERD: Okay. 1722 MR. AMAR: You're talking about the four and a half million? 1723 MR. SHEPHERD: That's right. 1724 MR. AMAR: Okay. 1725 MR. SHEPHERD: And if I had my math right, that's about $30 a customer per year? 1726 MR. AMAR: Okay. 1727 MR. SHEPHERD: It's in the ballpark; right? Sorry, you can't nod, you have to actually verbalize. 1728 MR. BUCKLER: Hang on. 1729 MR. AMAR: $30, yes. 1730 MR. BUCKLER: Is that a yes? 1731 MR. AMAR: Yes. 1732 MR. SHEPHERD: And so instead of, what did we have, $1.43 a month in the first example, this would be about 2.50 a month, roughly. 1733 MR. AMAR: Okay. 1734 MR. SHEPHERD: Is that about right? 1735 MR. AMAR: Yes. 1736 MR. SHEPHERD: Okay. But now if we go over to the large-volume customers, again, there's ten of them; right? On this allocation, you would have already collected enough from them at the end of this year. You've already overcollected, in fact; right? 1737 MR. AMAR: That's right. 1738 MR. SHEPHERD: And so you would actually end up paying them an average of about $700 each over the next four years -- no, sorry, they would end up paying an average of about 7,000 over the four years, the ten of them; right? 1739 MR. AMAR: Over the three years? 1740 MR. SHEPHERD: No, I've got that wrong. See, the decimal points get you if you're not -- if you're a lawyer. They would end up paying, on this allocation, they would end up paying about $7,000 over the four years, and that would be about $70,000 each; right? 1741 MR. AMAR: Yes. 1742 MR. SHEPHERD: Now, if you go over to the general service class, over 50 kilowatts, this shows that instead of collecting $11 million from that class, on this allocation you'd collect 7.7 million; right? 1743 MR. AMAR: That's right. 1744 MR. SHEPHERD: And so in the next three years, where before we saw that you were going to collect $3 million a year from them, in the next three years, you would collect $1.8 million a year from those 3,800 customers; right? 1745 MR. AMAR: That's right. 1746 MR. SHEPHERD: And so that's about $300 each, roughly, per year? 1747 MR. BUCKLER: I thought there were 3,000 customers. 1748 MR. SHEPHERD: There's 3,800 customers. 1749 MR. AMAR: 3,840. 1750 MR. SHEPHERD: So 3,800 into 1,829 and change -- 1751 MR. BUCKLER: You said about 300. I think that's a bit low. 1752 MR. AMAR: 476, maybe. 1753 MR. BUCKLER: $450. 1754 MR. VLAHOS: Another line to the schedule, Mr. Shepherd, would have saved us a lot of time. 1755 MR. SHEPHERD: It's true, isn't it, that the result of this is that the schools would pay somewhere in the order of 110 or $120,000 per year less under this allocation than the previous allocation; is that right? 1756 MR. AMAR: I would have to see the calculation. 1757 MR. SHEPHERD: Am I in the ballpark? Is it a six-figure number? 1758 MR. AMAR: I'm sorry, I have no idea. I would have to look at the calculation. 1759 MR. SHEPHERD: Okay. And just to complete this, the third page of this uses the distribution revenue allocator for RSVA accounts and number of customers for rebate cheques and transition costs; is that right? 1760 MR. AMAR: That's correct. 1761 MR. SHEPHERD: And what it demonstrates, tell me whether this is correct, is that your distribution revenues allocator for RSVA accounts versus the kilowatt-hours allocator doesn't produce a very big difference, does it, in the totals? 1762 MR. BUCKLER: For some classes that may not be true, but it does produce a bigger difference for other classes. For example, large users, it drops from a total of 698,000 to less than half that, 288,000. 1763 MR. SHEPHERD: Exactly. 1764 MR. BUCKLER: But for -- no, you're correct, for general service greater than 50 and for residential, there's not a heck of a lot of difference. 1765 MR. SHEPHERD: Okay. Why are you proposing to allocate RSVA accounts based on distribution revenues rather than kilowatt-hours? 1766 MR. BUCKLER: That's not what we're proposing. What we're proposing is to do transition costs by distribution revenue and RSVA by kilowatt-hours. 1767 MR. SHEPHERD: Oh, yes. Oh, yes. Okay. 1768 Finally, on this spreadsheet, you've added at the bottom of the first page something called a "Comparison Percentage of Overall Revenue." Can you describe what that is. 1769 MR. AMAR: What that is is basically a summary of the three scenarios. So we have example 1, example 2, and example 3. 1770 MR. SHEPHERD: And the summary is percentage change from 2004 to 2005 based on total bill, not distribution bill, total bill; right? 1771 MR. AMAR: That's correct. 1772 MR. SHEPHERD: So, for example, the increase for -- no, I'll leave it alone. 1773 Mr. Chairman, I believe that's exactly one hour. Thank you. Those are our questions. 1774 MR. VLAHOS: I got the emphasis on the "exactly", Mr. Shepherd. That's pretty good, actually. Excellent. 1775 Mr. Lyle. 1776 MR. LYLE: Thank you, Mr. Chair. 1777 CROSS-EXAMINATION BY MR. LYLE: 1778 MR. LYLE: Given the time, I'll also try to be brief. 1779 If I could turn you to Board Staff IR No. 5, I'm looking at tab A, page 6 of 30. 1780 MR. BUCKLER: Yes, I have that. 1781 MR. LYLE: Thank you. Towards the bottom of the page, the last paragraph, you state that: "The reconciliation between estimate and actual values of the monthly claims was to be performed after a period of one year, i.e., November 30, 2003." 1782 Can you tell me why that reconciliation was to be performed at that time? Was that at the initiative of the utility or was there some other obligation imposed on the utility? 1783 MR. BUCKLER: There was no obligation to do this reconciliation. The only objection was to provide an estimate to the IMO for the difference between spot market prices and 4.3 cents for designated customers. However, we felt that it would be a good thing to do a reconciliation to find out the true figures. We did it on our own initiative. 1784 MR. LYLE: Is it possible that some of what led to the overestimation of kilowatt-hours that would be billed at the 4.3 cents price was an overestimation of the number of customers that were eligible to be billed at the 4.3 cents price? 1785 MR. ROSATI: I would say it was more an overestimation of usage pertained to low-volume and designated customers rather than number of customers estimated for. 1786 MR. LYLE: So you say "more". Is it possible that some portion was related to misestimating the number of eligible customers? 1787 MR. ROSATI: Well, I would say it's an estimate, and inherent in any estimate there's some discrepancy between actuals. So I think the main driver was an overestimation in usage. 1788 MR. LYLE: Are you aware of any customers who were billed 4.3 when they were not actually, as it turned out, eligible for the 4.3? 1789 MS. POTOCNIK: There were some that were moved when we did a review based on their annual usage, because they may have been eligible at one time and then if they were -- they become no longer eligible because their usage goes up, then we would move them. 1790 MR. LYLE: But none that you're aware of because they were mischaracterized in the first place; is that correct? 1791 MR. BUCKLER: I don't believe so. 1792 MR. LYLE: Thank you. 1793 Now, just moving to the RCVA account, and you had a discussion with Ms. Lott earlier today where you clarified that you had not tracked the costs that would be recorded in this account. Can you tell me, in your view, is the RCVA account a mandatory account, or is it at the discretion of the utility as to whether to have this account? 1794 MR. AMAR: I believe it was in the guidelines. 1795 MR. BUCKLER: In hindsight, it's probably a mandatory requirement, yes. 1796 MR. LYLE: So by not tracking the costs, you're really undermining the mandatory nature of that account, are you not? 1797 MR. BUCKLER: I think so, yes. 1798 MR. LYLE: Thank you. 1799 Now, moving you to account 1525, can I just clarify for the record that you actually paid the rebate cheques by December 31st, 2002? 1800 MS. POTOCNIK: Yes. 1801 MR. LYLE: Thank you. 1802 And you're also claiming an amount of 49,000 for programming changes resulting from Bill 210. Is there any document you can point me to, whether it's a statute or any Board document, that indicates that such costs are to be recorded in a deferral account? 1803 MR. WOLFF: I don't remember the exact document, but in the Accounting Procedures Handbook there was a description of account 1525 that described all costs pertaining to the implementation of Bill 210 was to be included in that deferred debit account. So part of the implementation of Bill 210 was to revise our system in order to -- 1804 MR. LYLE: Now, was that Accounting Procedures Handbook or was it some communication that came later from the Board? 1805 MR. WOLFF: I believe it was a communication that came from the Board, however, I can't be 100 percent sure. This was in -- I'm not sure if it was approximately in the middle of the year of 2003 when we received that, when I was made aware of it. 1806 MR. LYLE: Perhaps you can undertake to check that reference. Make that Undertaking J.5.11. 1807 UNDERTAKING NO. J.5.11: TO CONFIRM WHETHER THE DIRECTION TO PLACE PROGRAMMING COSTS INTO ACCOUNT 1525 CAME FROM A BOARD DIRECTIVE OR THE ACCOUNTING PROCEDURES HANDBOOK, AND WHEN THE DIRECTIVE WAS GIVEN 1808 MR. LYLE: Now, still on account 1525, Ms. Lott tried to clarify that this morning, and I'm going to try again and see if I have any better luck. I want to turn you to your prefiled evidence, C, tab 2. And there's two pages of text followed by two tables, and I want to turn you to the second table. 1809 MR. BUCKLER: Yes, we have that. 1810 MR. LYLE: I'm looking at the second column from the right that's headed "Adjustments Debit/credit." 1811 MR. AMAR: Yes. 1812 MR. LYLE: And there's an amount of 213,545 recorded in there. What does that amount represent? 1813 MR. WOLFF: Those costs reflect the reallocation of some of the Bill 210 costs that were originally recorded in our transition cost account. 1814 MR. LYLE: Okay. 1815 MR. WOLFF: So in 2003, we moved them out of transition costs and put them into 1525. 1816 MR. LYLE: Now, you applied for 199,000 plus carrying charges related to the $75 rebate; is that correct? 1817 MR. WOLFF: No, it would have been 199,000 plus 49,130. 1818 MR. LYLE: But this first line just states processing costs of the $75 rebate. 1819 MR. WOLFF: I'm sorry, for the $75 rebate, yes, it would have been 199,689. 1820 MR. LYLE: So this $213,000 number, does that include carrying charges already? 1821 MR. WOLFF: Again, the 213 reflects all of the costs that we moved out of -- I'm sorry. Yes, those amounts include carrying charges. 1822 MR. LYLE: Okay. So then I move over to the closing balance line and it goes to 227. Have you added carrying charges again to get to that number? 1823 MR. AMAR: I'm sorry, can I -- if you look at the previous report. 1824 MR. LYLE: The previous table? 1825 MR. AMAR: Which is the one that calculates the carrying charges. 1826 MR. LYLE: Mm-hm. 1827 MR. AMAR: And you see that we have applied -- we have calculated $16,820 in carrying charges. 1828 MR. LYLE: Mm-hm. 1829 MR. AMAR: Then it was removed, and that's what we explained earlier this morning. 1830 MR. LYLE: Yeah, and I understand that, sir. What I'm trying to clarify is this table because I don't quite understand why it seems to -- all of the different permutations that happen here. It seems that you add in carrying charges perhaps a couple of times, and then you seem to -- when we get further down, you deduct 16,820 and then you deduct these two separate amounts which also add up to a similar number. And so I'm a little confused to what you've done with all of these different ... 1831 MR. AMAR: Well, the table you were referring to previously, the total is $248,819, which is in agreement with the general ledger balance column before the carrying charges. 1832 MR. LYLE: Yes, I understand that. But what's the $282,000 number further up? That includes carrying charges for -- total carrying charges; is that correct? 1833 MR. AMAR: I'm sorry, the 200 and -- 1834 MR. LYLE: There's a $282,741 number which is the total for the table. 1835 MR. AMAR: Yes. At that point it would, because later on we are showing an adjustment of 16,820. 1836 MR. LYLE: Well, let's go to that. First of all, number 1, there's an adjustment of 16,820, and you say it's because you transferred from account 1570, therefore not applicable. What do you mean by "therefore not applicable"? 1837 MR. AMAR: Well, we already calculated -- we already applied it to account 1570, so if we had calculated it here, we would have duplicated the carrying charges. 1838 MR. LYLE: So there are carrying charges in 1570 recorded still with respect to this amount. 1839 MR. AMAR: That's correct. 1840 MR. LYLE: And you're still claiming for that. 1841 MR. AMAR: Yes. 1842 MR. LYLE: Now, can I turn you to line 2 which says "Adjust Processing Costs," and you reduce by 13,856. What was that for? 1843 MR. AMAR: I have a note here that says VECC, 7F, so we'll try that, VECC, 7F. And it looks like we have the explanation here. 1844 MR. LYLE: Mm-hm. 1845 MR. VLAHOS: What is the explanation, Mr. Amar? 1846 MR. AMAR: I'll read our response. 1847 "The three required adjustments as to shared account 1525. The first one is AFUDC applied to account 1525 after the asset was substantially complete, 13,856. AFUDC applied to account 15 --" 1848 MR. VLAHOS: A little slower, please. I want to make sure the reporter gets every word. 1849 MR. AMAR: "AFUDC applied to account 1525 after the asset was substantially complete, negative 3,246." 1850 So what we're doing here is we're making a correction to our prefiled evidence in which we had wrongly included AFUDC charges, and so now we're correcting for it. 1851 MR. LYLE: Can you tell me, are you aware of any document that authorizes carrying charges with respect to account 1525? Because you are still recovering carrying charges related to these funds. 1852 MR. AMAR: That's correct. I'm sorry, I don't recall. 1853 MR. LYLE: So I'll move on, then, briefly to transition costs, and I have just a couple of very brief questions. 1854 This has been gone over quite a bit, but I just want to clarify clearly for the record. You talked about the $1.6 million that was allocated to internal labour costs, and I understand that a portion of those internal labour costs were costs related to employees of Enersource Corporation; is that correct? 1855 MR. WOLFF: That is correct, yes. 1856 MR. LYLE: And has Enersource Corporation billed you for anything else other than some portion of this 1.6 million that is recorded in your account 1570 account? 1857 MR. WOLFF: The main allocations out of Enersource Corporation into the transition costs were labour, driven by time sheets. If there was somehow an invoice that went incorrectly to the wrong company, it would have been reallocated across; however, those would have been fairly few and far between. But that ... 1858 MR. LYLE: To the best of your knowledge, with respect to the transition activity, the only service that Enersource Corporation was providing you and billing you for was labour? 1859 MR. WOLFF: That's right, effective January 1st, 2001. Correct. 1860 MR. LYLE: And I understand that into 2003, there were a number of changes to the EBT standards that required further work to your systems. Are any costs related to those activities recorded in the 1570 account? 1861 MS. RAYCRAFT: If they were -- did we record costs in 2003? 1862 MR. WOLFF: Other than a reallocation of 1525 costs, there were no charges recorded in 1570. 1863 MR. LYLE: Thank you. 1864 Now, I want to turn you, then, to account 1571. You applied carrying charges totaling about 1.1 million for 2002 and 2003, but you didn't apply carrying charges in 2001. Can you explain why the difference? I'll give you a reference. It's tab C, tab 3 of your prefiled evidence, on page 2. 1865 MR. AMAR: We didn't try to calculate them. 1866 MR. LYLE: You just decided not to bother, is that what you're saying, for 2001? 1867 MR. AMAR: Well, 2002 is more appropriate; it's closer to market opening. And in 2001, we had not calculated them and we had reported to the OEB a number of times with the carrying charges, so we left it. 1868 MR. VLAHOS: Mr. Amar, I didn't follow that last part. A number of times you had, what, reported to the OEB? 1869 MR. AMAR: We had reported a number of times to the OEB on these accounts, with the carrying charges -- or the way it is here shown, and so we didn't bother to go back and make an adjustment for this particular submission. 1870 MR. VLAHOS: And, I'm sorry, you would have been -- you would have reported those as part of which process? 1871 MR. AMAR: The quarterly reporting to the OEB. 1872 MR. VLAHOS: I see, okay. All right, thank you. 1873 MR. LYLE: Now, are you able to point me, sir, to any document that authorizes carrying charges for account 1570? 1874 MR. AMAR: No. 1875 MR. LYLE: And you're aware that Toronto Hydro has not claimed carrying charges for account 1570, are you? 1876 MR. AMAR: Yes, I'm aware of that. But I have know knowledge of any document that tells me not to apply it. 1877 MR. LYLE: Okay. 1878 Finally, I want to turn you back to the spreadsheet that Mr. Shepherd provided, which is Exhibit I.5.2, for the record, and turn you to page 2 of that document. 1879 If I could turn you to the second box from the bottom in that document, under the residential column, and I understand what you've done is that you're allocating the remaining amounts which are uncollected from 2004 across three years; is that correct? 1880 MR. SIDLOFSKY: Sir -- 1881 MR. AMAR: Is that the one -- 1882 MR. SIDLOFSKY: Mr. Chair, if I could just step in before Mr. Amar answers. Just to make clear, it's what Mr. Shepherd has done. This is Mr. Shepherd's spreadsheet. 1883 MR. LYLE: Fair enough, Mr. Sidlofsky. I'm just referring you to the numbers and asking, am I correct in saying that what's being done in that second box, is allocating the amounts that are uncollected in 2004 across three years? 1884 MR. AMAR: Are you referring to the one that says "Each Year For Three Years"? 1885 MR. LYLE: Yes, I am. 1886 MR. AMAR: Yes. 1887 MR. LYLE: What I'd like you to do is to undertake to provide for me, based on the methodology that's used on this page 2, which is allocation of 1570 and 1525 on number of customers, provide for me, for a 1,000-kilowatt-hour residential customer, the impact per month for that customer and the impact on the total bill, assuming that the entire increase is applied to the volumetric charge. 1888 MR. AMAR: I'm sorry, impact per month and based on the total bill? 1889 MR. LYLE: Impact per month in dollars, and impact per month as a percentage of the total bill. 1890 MR. BUCKLER: There would have to be some assumptions about the rate design that would have to be -- 1891 MR. LYLE: Yes, and I indicated that -- I'm basing on the rate design being on the volumetric portion. 1892 MR. BUCKLER: Strictly on the volumetric portion? 1893 MR. LYLE: Correct. 1894 MR. BUCKLER: Yes. We can make an estimate of that. 1895 MR. LYLE: We'll make that Undertaking J.5.12. 1896 UNDERTAKING NO. J.5.12: TO PROVIDE AN ESTIMATE OF THE IMPACT PER MONTH FOR A 1,000-KILOWATT-HOUR RESIDENTIAL CUSTOMER, IF THE ENTIRE INCREASE WERE APPLIED TO THE VOLUMETRIC CHARGE, THE ANSWER TO BE EXPRESSED BOTH DOLLARS PER MONTH AND AS A PERCENTAGE OF THE TOTAL BILL 1897 MR. LYLE: Those are all my questions. 1898 MR. VLAHOS: Thank you, Mr. Lyle. The Board has some questions. 1899 QUESTIONS FROM THE BOARD: 1900 MR. VLAHOS: Mr. Carr. 1901 MR. CARR: I just wanted to revisit -- you'll hate me for this, but it was the very first thing that was discussed in morning, in fact it was the evidence that you presented -- related to the correction, I guess, is perhaps the way to put it, of an amount charged by the IMO to you, and your suggestion that you did, in fact, want -- notwithstanding the fact that that correction was outside the period of these deferral accounts, you did want it -- to modify the balance of the deferral accounts to include that correction. And my understanding of what you said was that the reason for doing that was because it would avoid, on the one hand, putting customer rates down, and then back up by an equivalent amount a year later; am I correct in that? 1902 MR. BUCKLER: That's correct. 1903 MR. CARR: And what I wanted to do, if you could just clarify and refresh my memory, is -- what was your justification for recommending that we consider doing that, as distinct from the situation that Toronto Hydro faces with an IMO charge correction? You indicated that there was some difference between your situation and Toronto Hydro's. 1904 MR. BUCKLER: The difference only related to the source of the adjustment. Their adjustment was because of a billing error, because there was a metering issue, as I understand it. I don't know all the details of their problem. Whereas our discrepancy is resulting from overstatement of an estimate which rendered the bills that we were getting from the IMO to be too low, essentially. 1905 MR. CARR: But in either case, an incorrect amount was charged by the IMO and was being corrected by an adjustment outside the deferral account period; is that not correct? 1906 MR. BUCKLER: Yes, that's correct. But the parties involved are a little different. In our case, we had to pay money back to the IMO, and in this case, there's money being paid from -- or, it's a bill reduction for the utility from the IMO that will be passed on to customers. 1907 MR. CARR: So the difference may be in just the direction of the adjustment as between Toronto Hydro and yourselves; is that what you're saying? 1908 MR. BUCKLER: Pretty much, yes. 1909 MR. CARR: Thank you. 1910 MR. VLAHOS: Ms. Chaplin. 1911 MS. CHAPLIN: Could I just ask you again to turn back to the Exhibit I.5.2 entered by Schools, that Mr. Shepherd prepared. You've got it? 1912 MR. BUCKLER: Yes. 1913 MS. CHAPLIN: Am I correct -- I got a little confused because I thought -- anyway, am I correct that your proposal is for the RSVA balances to be allocated on the basis of distribution revenue, and for transition costs to be allocated on the basis of number of customers? 1914 MR. BUCKLER: No, that's not correct. 1915 MS. CHAPLIN: Okay. 1916 MR. BUCKLER: Our preference is that -- the allocation method shown as number 1 on that exhibit is the one that we prefer. 1917 MS. CHAPLIN: Mm-hm. 1918 MR. BUCKLER: In other words, transition costs by distribution revenue, and RSVA by kilowatt-hours. 1919 MS. CHAPLIN: Okay. So it's number 1, and you did -- and I believe you did agree that the numbers on that page are correct. 1920 MR. BUCKLER: That's correct. 1921 MR. AMAR: That's correct. 1922 MS. CHAPLIN: Then one last area. If I could ask you to turn in your pre-filed evidence to -- it's appendix D, it's the material about transition costs, and behind tab 1, the table that appears at page 3 of 17. 1923 MR. BUCKLER: Yes, we have that. 1924 MS. CHAPLIN: I'm actually looking at the bottom of the table, which is actually at the top of page 4. And there you have 8B and 8C, which are the Government Refund Program and Bill 210 requirements. Am I correct that those are the two amounts that you have transferred out of the transition account and transferred into 1525? 1925 MR. WOLFF: The 8B dollars, the 184,607, was transferred into 1525. The 40,387 was inadvertently left in the transition costs, so it remains there now. 1926 MS. CHAPLIN: So it remains in transition costs but is more accurately characterized as an amount that should be in bill -- I mean, in account 1525? 1927 MR. WOLFF: That's correct. 1928 MS. CHAPLIN: And does that amount differ -- in your discussion of account 1525, there is an amount identified, I believe, in the order of 49,000 or something? 1929 MR. WOLFF: $49,130. 1930 MS. CHAPLIN: Are those two different amounts? 1931 MR. WOLFF: Those are two separate amounts. One was incurred -- the 40,387 that's in this table was incurred up until the end of 2002. The remaining 49,130 was incurred in early 2003. 1932 MS. CHAPLIN: Thank you for that. And one final thing. So if those are more accurately account 1525, the remaining item under regulatory requirements -- now I'm back on the prior page, page 3 -- would be the amount of approximately 412,000 for market opening? 1933 MR. WOLFF: That's correct. 1934 MS. CHAPLIN: Okay. And would you have any comment on that regarding the materiality aspect of that -- the materiality standard? 1935 MR. WOLFF: The materiality, as stated on page 2 of 17, is $144,995 for the formula set out in APH 480. The market opening, at 411,684, once the $40,387 is removed, would put it below materiality. 1936 MS. CHAPLIN: And are you still proposing to recover that amount? 1937 MR. BUCKLER: I believe in our pre-filed evidence we took the position, yes, that regardless of the materiality level, by account -- it should be based on the total, in our opinion. And yes, we are still requesting that. 1938 MS. CHAPLIN: Okay. Thank you very much. 1939 MR. VLAHOS: Mr. Buckler, just questions in one area, and again the same schedule I.5.2, Exhibit I.5.2. Your proposal is what appears as page 1 of my document, right, which says "Allocations of Transition Costs by Distribution Revenue and RSVA by Kilowatt-Hours." 1940 MR. BUCKLER: That's correct. 1941 MR. VLAHOS: Okay. And, as you would anticipate, there will be arguments that there would be other allocation methodologies, such as on your second page, okay? 1942 MR. BUCKLER: That's correct. 1943 MR. VLAHOS: So let me turn to the second page for a minute. I just want to get your understanding. I understand this is not your document, it's not your exhibit, but I want to get your interpretation or understanding of this. 1944 We had, on an interim basis, we had certain costs that are being recovered today on interim basis based on distribution revenue for the transition costs; correct? 1945 MR. BUCKLER: That's correct. 1946 MR. VLAHOS: And kilowatt-hours for the RSVA; is that correct? 1947 MR. BUCKLER: That's correct. 1948 MR. VLAHOS: It is correct, okay. So if I look at the schedule 2, to the extent that the Board will be inclined to accept something different, such as number of customers for transition costs but still RSVA -- I'm sorry, still kilowatt-hours for the RSVA balances, is there an issue about the rate changes being only prospective as opposed to retroactive? How do you read this document, because I'm not sure what it tells me. 1949 Does it tell me that I have to change the rates in 2005 by a certain amount to collect the balance of the regulatory assets based on certain methodology regardless of what I collected to this point, or does it tell me that I have to go back and undo what I've already done? 1950 MR. BUCKLER: I think, essentially, it's going back undoing what has been done already. That's how I read that. 1951 MR. VLAHOS: And what do you get that from so that I can look at it more closely? 1952 I think the Board has a prerogative to ask counsel the question. Mr. Shepherd, can you tell me what was -- what's behind those numbers? 1953 MR. SHEPHERD: Yes, Mr. Chairman. The spreadsheet allocates the total amount of regulatory assets on a certain set of assumptions, a certain set of allocation assumptions, and then backs out the dollar amounts collected in 2004 by class. So you're correct, that what it would do is it would go back to the beginning of 2004 and allocate everything on those assumptions. It's retroactive in that respect, yes. 1954 MR. VLAHOS: Okay. So in addition to any rate impacts going forward, prospectively, then there's an issue of a one-time adjustment as well. 1955 MR. SHEPHERD: Well, I would have thought not, Mr. Chairman, but I don't want to stray into argument. It was certainly our understanding that phase 1 was an interim recovery and, therefore, it would be corrected subsequently. 1956 MR. VLAHOS: That's fair. Thanks for the clarification. 1957 MR. SHEPHERD: Thank you. 1958 MR. VLAHOS: These are the Board's questions. 1959 Mr. Sidlofsky, any redirect? 1960 MR. SIDLOFSKY: Just a couple, sir, and I promise I'll be very brief. 1961 MR. VLAHOS: Okay. 1962 RE-EXAMINATION BY MR. SIDLOFSKY: 1963 MR. SIDLOFSKY: This is for Mr. Buckler. Very early, I believe, in Mr. Warren's cross-examination you were asked about First Source Energy, and specifically you were asked when First Source Energy came into existence and when it ceased operation. And I think your answer was that it came into existence in about -- in or about the summer of 2001 and it ceased operation sometime after Bill 210 came into force, and you had thought that was May 2003. 1964 Now, you'll recall in that exchange with Mr. Warren that there was a question, or there was an issue about whether the coming into existence related to its legal existence or its business activities, and I'm not sure that you really finished answering Mr. Warren's question. The discussion there wound up being about the legal existence of the corporation, but when did it actually carry on business? 1965 MR. BUCKLER: It actually carried on business -- we had some employees working from the summer of 2001, a small number of employees in First Source. And I can't recall exactly when it was incorporated, but they started to do business, I believe, sometime around the end of 2001 and they continued to do business until -- when the contracts were sold off, until beginning of May 2003. 1966 MR. SIDLOFSKY: Thank you. 1967 Mr. Amar, you were asked a couple of questions by my friend Mr. Lyle about authorization for carrying charges under a couple of accounts. One of them was account 1525, I believe, and the other one was account 1571. 1968 Can I assume that Enersource Hydro Mississauga made regular quarterly filings with the Ontario Energy Board? 1969 MR. AMAR: Yes. 1970 MR. SIDLOFSKY: Were those required by your -- by the reporting and record-keeping requirements? 1971 MR. AMAR: That's correct. 1972 MR. SIDLOFSKY: Was information about carrying charges filed as part of those filings? 1973 MR. AMAR: Yes. 1974 MR. SIDLOFSKY: Did you ever receive any contact from the Board or Board Staff about the propriety of those carrying charges? 1975 MR. AMAR: No. 1976 MR. SIDLOFSKY: And how long would you have been recording and filing those carrying charges with the Board? 1977 MR. AMAR: In the case of 1571, for the year 2002, and in the case of 1525, we've seen that we actually did reverse it, but in effect we did charge for the balance that we had during 2003, I believe. 1978 MR. SIDLOFSKY: Sir, I think I'll leave it there. Thank you. 1979 MR. VLAHOS: Thank you, Mr. Sidlofsky. 1980 The panel is excused with our thanks. 1981 For tomorrow, London Hydro, and Wednesday we are going to have all three, Mr. Adams, Mr. Lowry, and Mr. Adamson being here, starting with Mr. Adams first. 1982 With that, any matters before we adjourn for the day? There being none, we'll see you tomorrow at 9:00. 1983 --- Whereupon the hearing adjourned at 5:15 p.m.