Rep: OEB Doc: 13DS3 Rev: 0 ONTARIO ENERGY BOARD Volume: VOLUME 2 8 DECEMBER 2004 BEFORE: G. KAISER PRESIDING MEMBER AND VICE CHAIR G. DOMINY MEMBER C. SPOEL MEMBER 1 RP-2004-0203 2 IN THE MATTER OF a hearing held on Wednesday, 8 December 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 Applications by distributors under the Ontario Energy Board Act, 1998 for approval of Conservation and Demand Management Plans. 3 RP-2004-0203 4 8 DECEMBER 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 MIKE LYLE Board Staff AL FOGWELL Board Staff ZORA CRNOJACKI Board Staff HELEN NEWLAND Coalition of Large Distributors JERRY FARRELL Coalition of Large Distributors MICHAEL JANIGAN VECC DAVID MacINTOSH Energy Probe DAVE MATTHEWS Enbridge Gas Distribution JAMES SIDLOFSKY Brantford Power Inc. & Enwin Powerlines Ltd. JAY SHEPHERD School Energy Coalition BRIAN DINGWALL CME ROGER HIGGIN Ecoanalysis ROGER WHITE ECMI 8 TABLE OF CONTENTS 9 CLD PANEL 1 - DIRUSCIO, DESNOYERS, GURAN, ARMSTRONG, BUCKLER, LU, MCKENDRY; RESUMED: [21] CROSS-EXAMINATION BY MR. SHEPHERD [CONT'D]: [29] CROSS-EXAMINATION BY MR. MacINTOSH: [199] CROSS-EXAMINATION BY MR. LYLE: [246] QUESTIONS FROM THE BOARD: [313] WRITTEN SUBMISSIONS BY GREEN ENERGY COALITION INSERTED AS REQUESTED: [389] SUBMISSIONS BY MS. NEWLAND: [428] SUBMISSIONS BY MR. SHEPHERD: [481] SUBMISSIONS BY MR. DINGWALL: [591] SUBMISSIONS BY MR. WHITE: [613] SUBMISSSIONS BY MR. MacINTOSH: [621] POLLUTION PROBE'S WRITTEN SUBMISSIONS READ INTO THE RECORD BY MR. LYLE: [661] REPLY SUBMISSIONS BY MS. NEWLAND: [680] 10 EXHIBITS 11 EXHIBIT NO. G.2.1: CRIB SHEET [385] EXHIBIT NO. G.2.2: OUTLINE OF ARGUMENT FOR SCHOOL ENERGY COALITION [480] 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:35 a.m. 15 MR. KAISER: Please be seated. 16 Mr. Shepherd. 17 MR. SHEPHERD: Thank you, Mr. Chairman. 18 MS. NEWLAND: Mr. Chairman, just before Mr. Shepherd proceeds, I just have one preliminary matter. I'd like to file a response to Undertaking H.1.1, that was given by Mr. Desnoyers yesterday, to file a printout of the Hamilton utility's corporation website insofar as it relates to the roll-out of the powerWISE program. 19 MR. KAISER: Thank you. 20 MS. NEWLAND: Copies are at the back for the parties. 21 CLD PANEL 1 - DIRUSCIO, DESNOYERS, GURAN, ARMSTRONG, BUCKLER, LU, MCKENDRY; RESUMED: 22 C.DIRUSCIO; Previously sworn. 23 R.DESNOYERS; Previously sworn. 24 P.GURAN; Previously sworn. 25 G.ARMSTRONG; Previously sworn. 26 C.BUCKLER; Previously sworn. 27 R.LU; Previously sworn. 28 D.MCKENDRY; Previously sworn. 29 CROSS-EXAMINATION BY MR. SHEPHERD [CONT'D]: 30 MR. SHEPHERD: Mr. Chairman, I hope to keep this to half an hour -- drill down fast. 31 I have four areas that I'd like to deal with. 32 First, witnesses -- and maybe, Mr. Buckler, it's easier if I do this through you. Can you look at schedule 3 of your pre-filed evidence, please. 33 MR. BUCKLER: Yes. 34 MR. SHEPHERD: What I I'm trying to do is, I'm trying to figure out what things, customer-side of the meter, are intended to save the customer on their bill, and what things are utility-side activities. And I guess the way I understand the split - and you can disagree with me, and tell me if you do - is: A program is utility-side if the capital assets acquired are owned by the utility, and the utility saves the kilowatt-hours; and a program is customer-side if the capital assets are acquired, if any are acquired, by the customers, and the customers save the kilowatt-hours. Is that a fair split? 35 MR. BUCKLER: Yeah, for the purposes of discussion, yes, I think that's fair. 36 MR. SHEPHERD: Okay. So given that, I wonder if we can go through this schedule, just briefly, and can you just point out which are utility-side and which are customer-side. 37 MR. BUCKLER: Okay. 38 MR. SHEPHERD: Go ahead. 39 MR. BUCKLER: You wanted me to? I thought you were going to go through it. 40 MR. SHEPHERD: No, I was asking you. 41 MR. BUCKLER: Alright. The first one on the list is co-branded mass market, and that would be customer-side. The smart-meter pilot -- that's a difficult one. That's probably a little bit -- that's the dividing line; the meter is the dividing line between the customer and us. So I think the investment in the meter, itself, would probably be meter-side of the investment, but some of the education that might go around this, talking about customers how to use the meter, that would tend to be on the customer-side. 42 MR. SHEPHERD: Well, and the intention there, isn't it, is that -- assuming smart meters are in this pot, the intention is that, while you would own the capital asset, because it's the meter and you tend to own the meters, it's the customer that saves the kilowatt-hours, not the utility. 43 MR. BUCKLER: That's correct, yes. 44 MR. SHEPHERD: Right. So it's sort of a bit of both, right? 45 MR. BUCKLER: Yeah. 46 MR. SHEPHERD: Design advisory. 47 MR. BUCKLER: That's the customer. 48 MR. SHEPHERD: Okay. 49 MR. BUCKLER: The load-control program would be customer. Energy-audit program is customer. TAPS program, customer. Refrigerator buy-back is customer. Electric avenue is customer. Social housing, customer. Smart meters, as we discussed before. Demand-response would be customer. 50 MR. SHEPHERD: Sorry, in the demand-response program, if you have capital assets, the customer would own them? 51 MR. BUCKLER: No, those would be our assets. There are no assets that we have claimed in here, as part of capital, that would be customer assets. 52 MR. SHEPHERD: Okay, I'll come back to that. But that, again, is a bit of both, because the assets are owned by the utility, but the customer saves the kilowatt-hours. 53 MR. BUCKLER: That's correct. Where were we? Audit retrofits and partnerships, that's customer-side. LED retrofits and traffic lights, that's the customer. Load-management programs, that would be customer. Building retrofit, customer. Load-control initiative would be customer. On-the-bill financing would be customer. Design advisory is customer. Those are most of the customer programs. 54 MR. SHEPHERD: Basically all of those, a big chunk of your stuff is customer-side programs. 55 MR. BUCKLER: Yes. And distribution-loss reduction is utility; it's on the meter. 56 MR. SHEPHERD: Yes. 57 MR. BUCKLER: Load-displacement would be utility. 58 MR. DESNOYERS: Excuse me, Chris, load-displacement would be behind the meter on the customer side. 59 MR. SHEPHERD: I'm going to come back to that in more detail in a second. It's not really a saving of kilowatt-hours, right? It's intended to generate kilowatt-hours, rather than save, so it's not conservation -- 60 MR. BUCKLER: So we reduce the customer's load. So that would be on the customer's side. 61 MR. SHEPHERD: So it wouldn't reduce the customer's load, is what I'm saying. It would reduce their load on you, but not -- 62 MR. BUCKLER: It would reduce the load that we would see on our distribution. 63 MR. SHEPHERD: Yeah, okay. Good. 64 MR. BUCKLER: Stand-by generators, that's similar: That would be on the customer-side of the meter. 65 MR. SHEPHERD: And then program support -- 66 MR. BUCKLER: Program support is, sort of, everything, I guess. 67 MR. SHEPHERD: It's neither. 68 MR. BUCKLER: Neither. 69 MR. SHEPHERD: Alright. So, let's turn to these distributed-energy programs. You have two of them. You have load-displacement and stand-by generators. And, essentially, these are to promote new amounts of distributed generation on the customer-side of the meter; right? 70 MR. BUCKLER: That's correct. 71 MR. SHEPHERD: So, in the load-displacement program, you have a program that totals, among the six utilities, about $6 million. And, if I read that correctly, about 3.9 million is CAPEX. Is that right? 72 MS. NEWLAND: Where do you see CAPEX? 73 MR. SHEPHERD: Same schedule. 74 MR. BUCKLER: $6 million? 75 MR. DESNOYERS: Chris, If I can draw your attention to this summary here. 76 MR. BUCKLER: Yeah. There's about $6 million of expenditures on that, and what was your -- what was the other part of the question? 77 MR. SHEPHERD: I just added up the CAPEX in this, and it looks like it's about 3.9 million. 78 MR. BUCKLER: Yes, that's correct. 79 MR. SHEPHERD: And I guess, what I don't understand is, typically, this sort of program involves giving customers incentives to either build or expand their DG facilities. So I don't know what the CAPEX would be for the utility. What assets would you own? 80 MR. DESNOYERS: Excuse me, Chris. I can take this, if you'd like. 81 MR. BUCKLER: Yes, Robert please take that. Just checking my menu of -- 82 MR. DESNOYERS: What we believe is -- the incentive could take the form of metering and some of the network-connection assets, the actual assets, rather than incenting in dollars. The cost of the actual assets to connect that generator to the distribution system would be covered and owned by the LDC. 83 MR. SHEPHERD: So things like -- one of the big costs of DG is the interconnect, the breakers and all that stuff, some of which are very expensive. And you are thinking you would pay for those, on your side of the meter, when normally you would ask the customer to pay for them. 84 MR. DESNOYERS: That's correct. 85 MR. SHEPHERD: I see. Is there anything else that would be in that category? 86 MR. DESNOYERS: I think that's -- the largest component is that network connection, or distribution-side connection, and any of the metering that's required. 87 MR. SHEPHERD: Okay. Because you have to have a special meter if it's a two-way meter. 88 MR. DESNOYERS: That's correct. 89 MR. SHEPHERD: Now, let's turn to the stand-by generators program. And I have the same problem there: It looks like it's about 8.1 million, which, almost all of it, 6.4 million, is CAPEX. And, again, I'm trying to figure out where's your CAPEX in stand-by generators? These are already in place, right? So you don't need an interconnect, and you don't need a meter. You've got those already. 90 MR. BUCKLER: I'd like Carmine to address that -- this question. 91 MR. DiRUSCIO: Yeah, thank you. On the stand-by generators, one of the things that we're anticipating is some synchronous switches that the customers may be required to hook back onto the grid with. So those are capital assets that may be required that the customer can't afford that we anticipate putting in on behalf of the customer in anticipation, or in exchange for, our ability to turn them on at our discretion. 92 MR. SHEPHERD: So right in our you're saying these stand-by generators, most of them, anyway, are essentially isolated from the grid. They can't dump power back into your system effectively. 93 MR. DiRUSCIO: Some of them are. Most of them are isolated from the grid, right. 94 MR. SHEPHERD: So you would then need to upgrade the interconnect and you'd also have some sort of remote management of the assets so you could turn it on; is that correct? 95 MR. DiRUSCIO: That's correct. We need the software, the hardware, the equipment to be able to remotely dispatch them. 96 MR. SHEPHERD: Then you would -- instead of asking them to pay for those upgrades, would you pay for it. But would you also incent them to let you use the asset? 97 MR. DiRUSCIO: We haven't determined that yet. In some cases, we may have to, in other cases, the savings that they get would be enough. And we haven't come to that determining -- 98 MR. SHEPHERD: On the theory that if you're paying them for peaking power when the power at peak is very expensive, you're paying them a lot already. 99 MR. DiRUSCIO: No, because they're buying that power already at peak, it depends on the type of program they may be on. If they're buying off the market then they're paying for that peak and they're getting the benefit of not having to pay for that, so -- 100 MR. SHEPHERD: Okay. Well I guess I don't understand then. I thought you were dumping this power back into the grid. But are you saying that you're actually displacing that load? 101 MR. DiRUSCIO: A lot of these generators that customers have are typically designed for their own internal loads. 102 MR. SHEPHERD: Yeah. 103 MR. DiRUSCIO: So you may have a customer that has a load of say 500 kilowatts and has a generator that may be 300 kilowatts. And in those cases, the load would simply displace the load that he's otherwise using. 104 MR. BUCKLER: Can I just explain a little bit here? 105 There's lot of emergency generators that are out there right now. Normally they're's turned on when there is sea a blackout or something like that. So the power going down and the customer has to turn the generator on and it powers up their operation. What we would like to do with these generators is have them come on during peak times when there might be shortages, et cetera. And it's inconvenient for -- the way that these generators are set up now, the customer would have to turn off their load essentially and turn on the generator because the generator would not be synchronized with the electricity on our distribution system. It would be out of phase and it just wouldn't work. And we would have to install additional equipment. 106 Rather than the customer turning their load off starting up the generator, which is a tremendous inconvenience for them, if we would put into the synchronous switches so that the customer would simply flip the switch, the generator comes on and synchronizes with our distribution system and the load is reduced that we see on our distribution system. And so these investments, this is the type of capital we're talking about. 107 MR. SHEPHERD: Good. Let me turn from that, then, to the balance of your program spending as between customer classes. And in this Schedule 3, you've reported basically two categories, the small customers and big customers, right? And I just want to get a sense of how that tracks to what those categories are going to pay for the increased rates that are the underpinning of these plans. I'm going to try to keep it at a relatively high level because I know you don't have these figures. But -- at least, Mr. Buckler, you have some of them so I'll start with you. 108 Enersource is going to spend about 8.2 million or so on these plans? 109 MR. BUCKLER: That's correct. 110 MR. SHEPHERD: And that's what your third tranche is? 111 MR. BUCKLER: That's correct. 112 MR. SHEPHERD: So if I've done the math correctly, I think that is to increase your rates by about $12.7 million. Are we in the ballpark? 113 MR. BUCKLER: At this point in time, I don't know what the amount will be. We haven't seen any of the filing guidelines from the Ontario Energy Board on what the rate increase will be and how the to take into consideration the PILs gross-up. 114 MR. SHEPHERD: Well the normal PILs gross-up would be around 50 percent, right? You divide by .647. 115 MR. BUCKLER: 50 percent -- what did you say the figure was, about 12 or $13 million, did you say, for gross-up? 116 MR. SHEPHERD: Yeah, 12.7. 117 MR. BUCKLER: That's probably in the ballpark. 118 MR. SHEPHERD: Okay. And so your residential and small commercial customers under 50 kilowatts, they are about 52 percent of your distribution revenues, aren't they? We've taken this number right from the regulatory assets filings. 119 MR. BUCKLER: Okay, I'll have to take your word for that. I can't remember off the top of my head. 120 MR. SHEPHERD: Will you accept that subject to check? 121 MR. BUCKLER: Yes. 122 MR. SHEPHERD: So that means that they'll pay somewhere around six and a half million dollars extra next year, your residential and small commercial customers? 123 MR. BUCKLER: As a result of the MARR increase had has already been predetermined, yes, I think it would be in that ballpark, perhaps. That would have to be subject to check. I don't know what the exact figure is. 124 MR. SHEPHERD: I'm not being critical, I'm just trying to get the number, that's all. So we're in the ballpark, right? 125 MR. BUCKLER: Subject to check. 126 MR. SHEPHERD: Okay. But I look at these plans and it looks to me like the residential and small commercial programs are about 24 percent of your budget plus about 6 percent for smart meters. 127 MR. BUCKLER: And where are you getting those figures from? 128 MR. SHEPHERD: I just added them up. 129 MR. BUCKLER: Well, you know, I'll have to take your word for it. 130 MR. SHEPHERD: Well I'll ask you to accept that subject to check. 131 MR. BUCKLER: Yes. 132 MR. SHEPHERD: And I guess -- I'm trying to understand here that if your budget's 8.2 million and you're spending let's say 30 percent including smart meters 30 percent including residential and small commercial, that means you are spending about 2.4 million -- out of the 6.6 million you are collecting from, you are spending 2.4 million over three years on programs for their benefit; is that right? 133 MR. BUCKLER: Subject to check of your figures. 134 MR. SHEPHERD: Would it be fair to say that that sort of ratio is common to most of the utilities? I haven't done the numbers. 135 MR. BUCKLER: I have no idea. 136 MR. SHEPHERD: I'm asking do the other utilities know what sort of balance they have in their programs? 137 MR. DESNOYERS: What we did do, Chris, was we summarized for the six LDCs. Again, I would ask you to refer to that. If not, you can borrow my copy. 138 MR. BUCKLER: Okay. You said 24 percent and that was for residential, you said, or for -- 139 MR. SHEPHERD: Yeah, 24 percent plus 6 percent for smart meters. 140 MR. BUCKLER: That's for residential? 141 MR. SHEPHERD: Residential and small commercial. 142 MR. BUCKLER: We didn't do a breakdown -- oh, and small commercial. 143 MR. SHEPHERD: You have two categories in Schedule 3. 144 MR. BUCKLER: Okay. We have done up some figures, a bit of a crib sheet here. 145 MR. KAISER: Is the crib sheet in the record? 146 MR. BUCKLER: No it's not. 147 MR. KAISER: Can you put it in the record? 148 MS. NEWLAND: Yes, sir, we certainly can do that. We don't have copies yet but maybe I can ask someone to over the break. We'll get copies and distribute them. 149 MR. BUCKLER: So reading from this, if I might, for our programs that are less than 50 -- that appeal to customers less than 50 kilowatts commercial and residential, about 47 percent of our spending is on that group of customers. The customers over 50 kilowatts, about 21 percent of our spending. Our distribution loss reduction, which is for all customers, it's 10 percent of our spending. For distributed energy, it's 19 percent of our spending. And program support is and monitoring is 2 percent. 150 MR. SHEPHERD: Okay. Thank you. 151 MR. BUCKLER: Those are the more accurate figures. 152 MR. SHEPHERD: And you're going to file that breakdown. That would be very useful. 153 MR. BUCKLER: Yes. 154 MR. SHEPHERD: Let me just ask about one specific item with relation to that and that's with respect to Toronto Hydro. Toronto Hydro has a very big CAPEX number in the residential load control program. Could you give us just summarize why that is because it's way out of whack with everybody else and I'm just trying to figure it out. 155 DR. LU: In Toronto Hydro's residential load control program that we expect a large number of the load control mechanisms will be implemented such as using smart meters and the control devices over customers' air-conditioning, pool pump, water heater and potentially the variable speed furnace, et cetera. So because we view the residential area is a largest area where we can expect to get flexibility in terms of load -- peak reduction, that's where we put our CAPEX mostly, in the residential demand-response program. 156 MR. SHEPHERD: Now these CAPEX, these are not smart meters. These are actually control devices that allow you to switch the load on and off. 157 DR. LU: That's correct as to, say -- the CAPEX are going to be spent all the way from the control device to -- all the way to linking with the buildings, et cetera, so they can integral meters, transfer communications and those sort of backbone systems. 158 MR. SHEPHERD: Is this including some of the smart meter budget, as well, in that program? Or is the smart meter budget separate? 159 DR. LU: The smart meter, so far, for the pilot, yes. But not independent to deliver that, I think, 800,000 smart meters, no, that's -- 160 MR. SHEPHERD: No. But I'm thinking of -- for example, the smart meter includes expenditures at CAPEX at the delivery point, but it also includes infrastructure CAPEX, communications, infrastructure, things like that. Is any of that included in this residential load-control program, or is that all incremental? 161 DR. LU: That would be incremental. Not the base meters, no. That has to be incremental for the load-control purposes. 162 MR. SHEPHERD: Thank you very much. 163 Now, let me turn, finally, to my final area which - you will be surprised to hear - programs for schools. And let me start with Toronto Hydro. It's only because you're the biggest, Dr. Lu. 164 Will you accept, subject to check, that the rate increase that's arising as a result of these programs for the schools in Toronto is $1.3 million? 165 DR. LU: I would say that's definitely beyond my responsibility, so I, even, wouldn't know where to check. 166 MR. SHEPHERD: Do you have any idea whether that's in the right ballpark? 167 DR. LU: No. That's not in my area of responsibility. 168 MR. SHEPHERD: Okay. Let me go at this a different way, then. Can you take me to your C&DM plan, and just highlight for us the programs that you're proposing that could be utilized by schools in Toronto? 169 DR. LU: Let me start with the overall approaches that we at Toronto Hydro are working with the school community. We have been viewing the school as, actually, the fundamental places that change, the conservation change, could start. Having said, though, you realize that we -- 170 MR. SHEPHERD: Sorry, can I just interrupt you for a second? Toronto Hydro has already worked with Toronto District School Board and Toronto District Catholic School Board extensively on demand management, isn't that right? 171 DR. LU: In communication awareness, not necessarily in the area of actual infrastructure-related issues. By saying that -- we have established an eco-school system with school boards, we have opened our winter-buying for the school for education purposes, we have delivered brochures and seminars in the schools. Those are the areas we're working on. 172 MR. SHEPHERD: And you have a long-standing, good relationship with those two boards; right? 173 DR. LU: That's correct. 174 MR. SHEPHERD: Okay, so -- go on. 175 DR. LU: So, having said that, we anticipate the school board system will benefit from this one to a greater percentage, actually. Having said so, if I look at the co-branded mass-market program, one of the initiatives we want to do, here, is to go to the schools, educating the kids. And then the kids will bring this one to their parents, to the community. So that's one way the school board will benefit by education from education purposes. 176 MR. SHEPHERD: So this is pedagogical benefits. Those are important, of course, but I do want to look at financial benefits, too. 177 DR. LU: Okay. Smart metering, school benefits. Design advisory program: School will be very welcome to participate in school renovations and new school constructions. The energy-audit program: Obviously, it's is a great partner that we would like to work with much sectors, including the schools. Actually, university is part of your clients? 178 MR. SHEPHERD: A much bigger load. 179 DR. LU: The -- you know, in terms of the TAPS with refrigerator programs, even though they are more residential-based, but the schools have those thing, too. So, if they come to us, saying they want to participate, we definitely welcome that, too. We would like to switch all the refrigerators, et cetera, in the schools, to the newer, more efficient ones, if we could. 180 MR. SHEPHERD: Many of them wish they had refrigerators, period. I guess, the bottom line here -- if Toronto District School Board called you tomorrow and said, We're enthusiastic about this, we want to participate as much as we possibly can, what would your reaction be? 181 DR. LU: I think I would be very delighted. In fact, I will probably volunteer myself to do a presentation to the constituents of the school board and -- to show them the whole plan, and ask for their participation. 182 MR. SHEPHERD: Now, I take it it's true in all of these other areas, that the LDCs are important members of your community, and your school boards are, as well. You work with them closely, and you welcome their participation, right? 183 MR. BUCKLER: Absolutely. 184 MR. DESNOYERS: Absolutely. 185 DR. LU: Yes. 186 MR. SHEPHERD: And, do I take it as true that -- while none of these programs are designed for schools, that, if you can make them work for schools, you would? 187 MR. BUCKLER: These programs are designed for all our customers, including schools. 188 MR. SHEPHERD: Understood, but, for example, you have a specific program for street lights. You don't have a specific program for schools. I'm not being critical, I'm just saying that's true. 189 MR. BUCKLER: That's correct. We don't have programs specifically targeted for schools, no. 190 MR. SHEPHERD: But, if the schools come to you and they want to find a way within these programs to make it work, you want them to do that, right? 191 MR. BUCKLER: Schools would be a very significant target for us. There's a lot of schools, they represent a lot of load, there are a lot of savings that can be achieved, and we have worked extensively with the schools in the past, and we intend to continue doing that. 192 MR. SHEPHERD: After that, I can't ask any more questions. 193 Thank you, Mr. Chairman. 194 MR. KAISER: Thank you, Mr. Shepherd. 195 Are there any other parties that have questions for this panel? 196 Yes, sir. 197 MR. MacINTOSH: David MacIntosh for Energy Probe. 198 MR. KAISER: Thank you. Mr. MacIntosh? 199 CROSS-EXAMINATION BY MR. MacINTOSH: 200 MR. MacINTOSH: Mr. Chair, Panel, my name is David MacIntosh, and I'm here on behalf of Energy Probe Research Foundation. I feel like I should be plugging something in, but I don't have that many questions. 201 There are, though, a couple of questions I have on items that I'd like some clarification. And I'd like to have you turn, first, to the Minister of Energy's letter of May 31st, which is part of A.7, and quotations from it are in some of the documents. 202 MR. BUCKLER: Yes, we have that. 203 MR. MacINTOSH: Turning, first, to the last paragraph of that letter, and the last sentence of that paragraph: The Minister states that he believes that "Reasonable new expenditures on the planning, delivery and evaluation of the following specific measures should be --" 204 MR. BUCKLER: Sorry, I'm -- which letter were you talking about? I'm not seeing that -- 205 MR. MacINTOSH: May 31st. 206 MR. BUCKLER: Yes. And which paragraph? 207 MR. MacINTOSH: First page, last paragraph, last sentence. 208 MR. BUCKLER: Yes. 209 MR. MacINTOSH: "I believe that reasonable new expenditures on the planning, delivery and evaluation of the following specific measures should be supported by the Board." 210 Turning over - and I'm not sure that they're listed in order of importance - but I notice that, right after energy efficiency is "supported behavioral and operational changes", including "the application of benchmarking". And what I'd like you to do is to indicate where, in your programs, you have included benchmarking. Perhaps each utility could point it out for us. 211 MR. BUCKLER: Can you just give us a minute to -- 212 MR. MacINTOSH: Certainly. 213 MR. BUCKLER: I guess I'm having a bit of a difficulty understanding exactly what is meant by benchmarking in this -- in the context of this particular bullet in the Minister's letter. He talks about behavioural and operational changes which I guess we've interpreted as changing the culture of our customers and our own LDCs as well. Then he says "including the application of benchmarking or smart control systems." And I'm having a little difficulty understanding -- 214 MR. MacINTOSH: Well, a smart control system -- 215 MR. BUCKLER: -- between those two words mark. 216 MR. MacINTOSH: -- could be internal audit, external audit. But it does mention benchmarking specifically. 217 MR. BUCKLER: Yes, but he says "or smart control systems." So there seems to be a replacement -- 218 MR. MacINTOSH: So what smart control system would you point to? 219 MR. BUCKLER: Could I just finish? By putting the word "or" in there it seems to imply that one is interchangeable with the other and I'm not sure that we have specifically addressed this concept of benchmarking because frankly I don't quite understand it; however, I would like to say that there are considerable -- we did file in our written evidence some forms, I believe it was Schedule 4, detailing how we intend to monitor the various programs that we implement and evaluate those programs. And if that's what is meant by benchmarking here, then that would apply to all our programs. 220 MR. MacINTOSH: Well, I guess if I took your point that "or" means interchangeable, I guess that internal audit or external audit could be a smart control system, interchangeable, perhaps, with benchmarking. But I think when we're talking about benchmarking, we're talking about comparing programs to a mark. Some standard. 221 MR. GURAN: I'd just like to add if refer to in our written evidence that was filed, Section 30. We have a section in there on monitoring and evaluation and we express our views in that area: 30, 31. 222 MR. MacINTOSH: Thank you for that. But is there any specific benchmarking in any of the programs that -- 223 MR. BUCKLER: We will be monitoring the programs for their effectiveness, the take-up by customers; the amount of load reduced. And we'll do this through smart metering systems. With the application of smart meters we'll be able to track the load for each customer when they use the electricity. We don't have that capability today with the meters that are out there. 224 MR. MacINTOSH: Well I guess I -- I'm asking if, when you were doing your research, you found some programs that you could benchmark yourself against that were out in the North American market so that you know whether or not your success was comparable. 225 MR. BUCKLER: To another jurisdiction perhaps, is that what you're -- 226 MR. MacINTOSH: To another utility, yes. 227 MR. BUCKLER: We would have the ability to do that through our monitoring, yes. We would have the ability to do that. We haven't specifically -- I don't think we've specifically captured that concept in our written evidence. 228 MR. MacINTOSH: Thank you. Now, I just have one other item that I'm curious about. What Energy Probe is hearing from your consolidated evidence is that if you don't receive final approval, that is, if each of you, each of the ten members of the coalition, do not receive final approval of the plans put forward, you will not go forward with your C&DM plans; is that fair? 229 MS. NEWLAND: Mr. MacIntosh, just to clarify the record, there are six applicants, six utility members. And you said ten, you misspoke. 230 MR. MacINTOSH: Perhaps I did. Maybe we'd like to expand it. It's very efficient to do six at once. 231 MR. BUCKLER: Would you repeat your question again, please? 232 MR. MacINTOSH: Well, what I'm asking is, if you don't receive final approval, am I correct in believing that you will not go forward with your C&DM plans? 233 MR. BUCKLER: That's correct. We need the clarity of final approval before we can commit funds to these various programs. 234 MR. MacINTOSH: So what you're telling us is you'd forego receiving the third installment of MARR unless you receive final approval of your C&DM plans. 235 MR. BUCKLER: No, that is not what we're saying. 236 MR. MacINTOSH: Well if you don't go forward, how would you receive it? 237 MR. BUCKLER: We can't commit, we will not spend the money until we do receive final approval. We will -- we can commit to spending the money at some point in the future, but we can't start spending the money until we get final approval. 238 MR. MacINTOSH: That's -- that seems to me very similar to threatening by holding a gun to your own head because if you don't go forward, you'll lose an incredible amount of money over a period of years. 239 MR. BUCKLER: No, I don't believe the two are tied together. I believe that if we proceed, you know, if we get -- first of all, I think that we will get final approval out of this hearing and that we will proceed with our programs and start spending money and receive our third tranche of MARR; however, the obligation or the requirement to receive our third tranche of rate increase is contingent upon us submitting a plan to the Board and making a commitment to spending the funds over the next three years. 240 MR. MacINTOSH: As opposed to actually spending it? 241 MR. BUCKLER: That's correct. 242 MR. MacINTOSH: Thank you. 243 Those are my questions, Mr. Chair. 244 MR. KAISER: Thank you, Mr. MacIntosh. 245 Any other parties wishing to examine the panel? Mr. Lyle. 246 CROSS-EXAMINATION BY MR. LYLE: 247 MR. LYLE: Thank you, Mr. Chair. I'll be very brief, panel. I want to start on the smart meter residential project and it's described in your evidence as a pilot project, yet when I review the evidence with respect to Toronto Hydro and Ottawa, I note that it's anticipated that capital expenditure dollars would still be spent in 2007 with respect to that project. Given the Minister's target, interim target for the end of 2007 and the Board's draft smart meter report with respect to how that interim target could be met, can you explain to me why a pilot project would still be rolled out in 2007? 248 MR. GURAN: Maybe I can explain that for the group. You're right in saying that some of the programs run one year or two years. Some of them run the full three years. As we've said before in some of our testimony, these programs are contingency upon other parts of our program which could be -- such as load control, demand response initiatives, some of these may not may not kick in or be fully evaluated for the full three-year period. Also with pricing in future years, we want to be evaluate the meters as we go forward. So there's a number of other programs that are tied into the smart meter process. 249 As we said before, there's backroom information that we have to deal with request our systems internally in our organizations and we differ from organization to organization, some are more advanced in LDCs, some aren't. So we need the full three years in some cases to move forward with that. 250 MR. LYLE: But, sir, if you're going to meet the 2007 timelines, aren't you going to have to be beyond a pilot project for residential meters by 2007? 251 MR. GURAN: Maybe -- 252 DR. LU: If I may. 253 MR. GURAN: Dr. Lu may want to speak on that. 254 MR. LYLE: Certainly. 255 DR. LU: In Toronto Hydro's plan, under the smart meter pilot program that we allocate the capital expenditures 100,000 for 2005, 1.5 million for '06, 1.5 million for '07. The intent is that, in the '04 and '05 area, that we will do piloting, in terms of testing the technologies. Currently we have two of them running. So, after the completion of this technology test, which we expect by end of 2005 -- that we will have the ability to decide which technology works the best in our distribution areas. Then we will have installed those meters into the broader areas. 256 So that's why we jump from 100,000 to $1.5 million. And in this time, the $1.5 million is the incremental cost of the meters. But, most importantly, in those two years, we'll be testing the communication mechanisms, the billing and the communication mechanisms, control mechanisms, and also we'll be looking at areas where we see the, what you call it, the different ways to increase the participation. So, that's where those capitals are allocated in the proposed three years. 257 It does not mean that. In the three years, we will not proceed with the smart meter installation. We understand that the government wants to have a large number of smart meters installed before 2007. So we put our technology test at '04 and'05, so that it will give us a comfort in terms of what meter to install. But the meter is only one component of the overall system. So that's why it will be spread over three years. 258 MR. McKENDRY: If I may add, from Ottawa's point of view. 259 MR. LYLE: Certainly. 260 MR. McKENDRY: Obviously, smart meters are new technologies. The technologies that we are coming across right now didn't even exist two years ago. Who's to know what is going to be available in three years' time? Again, we've talked about this whole thing as, basically, being a testing, piloting type of opportunity. What we are reviewing, in terms of putting investments into 2007, is to continually try to be in advance of where the market is at that point in time, maybe tying the mart smart meters to electronic thermostats, or something like that, in the home. Basically, pushing the envelope of learning in advance of the overall large-scale numbers that we understand will be required to be rolled out. 261 We believe that the numbers that we're putting forward, in terms of just piloting, testing, with this technology, sort of pales in comparison to what the overall size and scope of full meter roll-out will be in the future. 262 MR. LYLE: Just so I'm clear then, gentlemen, as I understand it, you will be rolling out residential implementation, in order to meet the 2007 targets, at the same time as you're running this pilot project, which is focused on exploring different technologies and dealing with those types of issues. Is that a fair statement? 263 DR. LU: That's correct. 264 MR. McKENDRY: That's correct. 265 MR. LYLE: Thank you. Now, with respect to the dollars that are going into your smart meter residential pilot, do any of those dollars relate to costs of early retirement of the existing meter assets? 266 DR. LU: Not to my knowledge at Toronto Hydro, no. 267 MR. LYLE: Thank you. And I just want to turn, briefly, to Hamilton Hydro, because I understand Hamilton Hydro is the only utility here that's proposing to experiment with prepaid meters; is that correct? 268 MR. DESNOYERS: That is correct. 269 MR. LYLE: And can you explain to me how you intend to roll out the pre-paid meters, in other words, which customers are going to get these meters? 270 MR. DESNOYERS: The intent would be to roll that out to a broad range of customer classes in Hamilton. So we're not intending to focus that on any one customer class. 271 MR. LYLE: So, would it be based on implementing prepaid meters for a certain area of the city? Or, if people requested a prepaid meter, would they receive it? Or will it be based on certain characteristics of customers? Can you explain that a little further? 272 MR. DESNOYERS: We were not focussing on a single geographical area within Hamilton, nor a single customer class within Hamilton. We were looking to spread that amongst several of the geographical areas, so -- above and below the escarpment for, example, east and west of our downtown core, which we believe would cover off a variety of customer classes. 273 MR. LYLE: And you're not intending, then, to target customers with a particular payment history, are you? 274 MR. DESNOYERS: That was not our intent, no. Absolutely not. 275 MR. LYLE: And, just turning to the Board's draft smart meter implementation plan, are you familiar with what the Board said about the existing prepaid meters in the province? 276 MR. DESNOYERS: No, I'm not. 277 MR. LYLE: What the Board said was that it intended to grandfather those existing, prepaid meters, but that it was concerned that those prepaid meters were not capable of accommodating critical-peak pricing. The meters that you're proposing to use in Hamilton Hydro, would they be able to accommodate critical-peak pricing? 278 MR. DESNOYERS: When we prepared the C&DM plan for Hamilton, the technical criteria wasn't available to us at that time, and it's still -- it's my understanding it's still in draft form. It would be our intent that any prepaid meters rolled out to our customer classes would, in fact, meet that technical criteria. So, unless the manufacturers of these devises can produce a meter that satisfies the technical criteria, we will not roll it out. 279 MR. LYLE: Thank you. 280 I want to turn you to your Exhibit A.7, paragraph 29. This is where you address your proposal that, so long as transfers of funds into new programs, or between existing programs, does not exceed, on aggregate, 20 percent of the C&DM budget, that no further Board approval would be required. Did I summarize that correctly? 281 MR. BUCKLER: That's correct. 282 MR. LYLE: And, if I turn to schedule 3 of that Exhibit A.7, I'm looking at the column titled "Percentage Spending of Total Budget". Just taking, as an example, Toronto Hydro, I see that the co-branded mass-market program is approximately 6.8 percent of the budget. The smart meter pilot residential program is 10.1 percent of the budget, and, turning over the page, the social housing program is 3.1 percent of the budget. I believe that adds up to 20 percent. So I understand, then, that under your proposal, Toronto Hydro could decide to not proceed with any of those programs in their entirety, shift all of that money over into programs focused on large commercial customers, or focused on distributed energy, for instance, and no further Board approval would be required. Is that correct? 283 MR. BUCKLER: That's correct. However, I'd like to point out that we would only do that if those programs -- when they're monitored and evaluated, they turn out not to be programs that would be worthy of continuance. 284 MR. LYLE: Do you expect to provide any notice to the Board when you make these changes to your programs, reallocate between programs, develop new programs? 285 MR. BUCKLER: It was not our intention to do that, unless it exceeded 20 percent of the dollar change. 286 MR. LYLE: I'm just drawing a distinction here between approval and notice. 287 MR. BUCKLER: Right. 288 MR. LYLE: It's possible that you could be proposing a 10 percent reallocation and still give notice to the Board, without requiring a new approval from the Board. That's a possibility, isn't it? 289 MR. BUCKLER: That's a possibility, certainly. We hadn't thought about that previously. 290 MR. LYLE: Thank you. 291 And just finally, gentlemen, turning to schedule 4, which is the draft forms that you intend to maintain - you may have already answered this, but I just want to be clear - how often do you intend to update these forms? 292 MR. BUCKLER: Frankly, we hadn't -- I don't think we'd gotten that far in our thinking, but, normally, for monitoring and evaluation, you have a steering committee and they meet periodically to review programs and things like that. So, depending on each utility and how they administer these programs, it could be monthly, it could be weekly, it could be quarterly that we update these forms. 293 MR. LYLE: And would it be your expectation that you would file these forms on an ongoing basis with the Board? 294 MR. BUCKLER: It would not be our intention to do that; however, if the Board requests us to do that, we can certainly do that. 295 MR. LYLE: Would you have any concern with anything being filed with the Board being publicly available? 296 DR. LU: So far as to the confidential information in this form or be used for unintended purposes, then we will have a concern. But on the other hand, if this is purely to report back to the Board that how are we doing in each program and we would not have any concerns. 297 MR. LYLE: Can you point out to me, sir -- is there anything in these forms that would contain confidential information, in your view? 298 DR. LU: The actual dollar allocations in each program, in the interest of fairness or where discussions may be, where people may have difficulties to realize this is a pilot and when you're looking at this form, it does talk about the anticipated results versus the actual results, and is the anticipated our kind of target, we will say no. Those kinds of things. 299 MR. LYLE: That's not so much of your concern being kept confidential but rather the use for which that information is put. 300 DR. LU: Correct. 301 MR. DiRUSCIO: There may be some customer information that we may want to capture in a document similar to this that we don't want to disclose for protection of the customer. 302 MR. LYLE: And I don't see any specific reference to customers here and certainly if you were going to reference specific customer information, then I take it you'd have to concern about sharing that information. 303 MR. DiRUSCIO: That's correct. 304 MR. LYLE: Certainly. 305 Just one note on the form itself on page 1, at the bottom of the page. It says "Clause B, forecasted benefits, kilowatt-hours." Would it be your intention to also forecast benefits in demand? 306 DR. LU: Yeah, actually, I should say should be a demand because the purpose is the demand -- peak demand reduction. It depends on the areas that we would have both. 307 MR. LYLE: Wouldn't it be appropriate to include both? 308 DR. LU: That's correct. 309 MR. BUCKLER: That he this is still a draft form. 310 MR. LYLE: I understand. 311 MR. BUCKLER: There's some things we have to add. 312 MR. LYLE: Thank you, Mr. Chair, those are all my questions. 313 QUESTIONS FROM THE BOARD: 314 MR. KAISER: Thank you, Mr. Lyle. 315 Dr. Lu, you are the Chief Conservation Officer, as I read your material. 316 DR. LU: Yes, I am for Toronto Hydro. 317 MR. KAISER: Toronto Hydro. How long have you had that position? 318 DR. LU: I was appointed to the position two or three months ago. 319 MR. KAISER: Is that the first time Toronto Hydro had a chief conservation officer? 320 DR. LU: That is correct, after the -- as suggested by Bill 100. 321 MR. KAISER: All right, so this is a new position? 322 DR. LU: That's correct. 323 MR. KAISER: And do you report directly to Mr. O'Brien? 324 DR. LU: That's correct. 325 MR. KAISER: And in the ordinary course, just to follow up on some of the questions that Mr. Lyle has raised, assuming for the sake of argument that the Board approves this application and you start writing cheques and spending money, how often would you report to Mr. O'Brien? 326 DR. LU: If I may elaborate on this one. Within Toronto Hydro, we have established a steering committee. Mr. O'Brien is the chairperson for that steering committee and that steering committee reports every two weeks. I was to report to them in general issues at the first meeting and the second meeting will be in bunch of investors in terms of how we are doing in terms of investors. So I meet with him and his steering committee, the C&DM steering committee, every two weeks. 327 MR. KAISER: So can we infer from that that the chief executive officer from Toronto Hydro would get an update every two weeks as to how well you are you were progressing with your third tranche initiatives? 328 DR. LU: CEO of Toronto Hydro. 329 MR. KAISER: Yes. 330 DR. LU: Not Ontario Hydro. 331 MR. KAISER: Maybe that will be your next job. 332 DR. LU: That's correct. 333 MR. KAISER: And Mr. McKendry, do you report directly to Mr. Richard? 334 MR. McKENDRY: No I do not. I report directly to Anthony Haines, who is our chief operating officer. 335 MR. KAISER: And within your organization, do you have a chief conservation officer? 336 MR. McKENDRY: We have designated a position, an energy conservation manager. That position reports to me. I've got responsibility for a variety of things, including the conservation portfolio. 337 MR. KAISER: So within Ottawa, would you have a function similar to Dr. Lu? It would be your responsibility to report to the CEO and the board of directors with respect to the progress of this plan? 338 MR. McKENDRY: That is correct. 339 MR. KAISER: And how often would you be doing that? 340 MR. McKENDRY: We are in the process of putting together our organizational structure -- way that we have discussed this is we would have an executive steering committee within the LDC that encompasses all the operational areas. There's five main groups. We will be reporting on a regular basis. That time frame has not been determined; however, this group meets on a regular basis, weekly. 341 MR. KAISER: Mr. Buckler, what's the reporting structure that you contemplate within your organization on this matter? 342 MR. BUCKLER: For Enersource, Carmine DiRuscio is the manager of our conservation programs and he reports directly to me. I report to our chief operating officer, Roland Herman who in turn reports to Gunar Cekstars, our president of Enersource Corporation. And we have a task force that's been assembled to put together our conservation programs, and Carmine DiRuscio is the coordinator for that. We haven't -- well, Carmine meets with me weekly to review progress. The main focus so far as been getting through this hearing, but once we get through this we will then roll out our implementation plan for these various programs. And Carmine will continue to report to me weekly and I will report to my boss weekly and we'll report up the ladder weekly at least, I would say, for the six months of the roll-out. 343 MR. KAISER: This may be difficult for you to estimate, but would it be reasonable for to you assume that the chief executive officer what you've mentioned would receive an update at least every two weeks as to the status of this program? Or do you know? 344 MR. BUCKLER: Yes, I would say in all likelihood it would be every -- at least every two weeks. 345 MR. KAISER: One of the things that we are necessarily faced with here is that there's little data at the beginning with which you can estimate the benefits. And what that means is we perhaps have to pay closer attention to monitoring, which you seem to have recognized in your submissions; forms and so on. Do you see any problem if it was a quarterly reporting by your company to the Board as to the progress of these initiatives? 346 MR. BUCKLER: I think generally -- I've just taken a polling across the table and I think generally that we don't see a problem with quarterly filing; however, the format of that filing, we'd like to participate in the development of that. If there's an opportunity to do that to make it easy and convenient for ourselves as well as informative for the Board. 347 I'd like to ask Richard Lu to state the case for Toronto Hydro. 348 MR. KAISER: Go ahead, Dr. Lu. 349 DR. LU: Actually in Toronto Hydro, we did consider keep a constant communication with the Board in the next three years in regards to the performance of the C&DM. We tried to balance the need for communication and also the need to simplify the process in terms of reducing the administrative cost to the minimum. So we actually -- I asked my team to produce annual report on each program that will we'll make available to the Board. We have not thought about quarterly report, but if the Board so choose, as long as it's -- have the principle in place where it's not going to be intended very exhaustive administratively, we would not have any problems. 350 MR. KAISER: Okay. And then the final question I have is that one of the features of the plan that you had put forward, that is interesting and innovative, is this collaboration between the six utilities. And you're not all riding the same horses, some are doing this and some are doing that. And, as we understand it, you may decide to move back and forth, depending on the success that, perhaps, Ottawa might have compared to Hamilton, et cetera. So I'm interested in knowing, in the same vein, would we anticipate that the CLD group would meet quarterly, say, and share results? What's the ongoing plan to maximize this learning-by-doing, if I can use that term? 351 MR. BUCKLER: Well -- 352 MR. KAISER: Or is there a plan? 353 MR. BUCKLER: The plan was to get through this hearing. 354 MR. KAISER: No, I know that. That's come across loud and clear. We're trying to get there, too. 355 MR. BUCKLER: But, no, I don't think we've turned our minds to that, formally. I've had a lot of thoughts, myself. I'd just like to say that the collaboration amongst the six utilities, I'm very proud of, first of all. We have been collaborating on regulatory issues for about a year, and, most recently, we've extended that collaboration into the conservation and demand management program. And it's been a real pleasure to be able to do that, and gain some of the efficiencies of doing that. And it's my hope - and I think it's the hope of everybody across the table, here - to continue on with that and deliver these programs, to the maximum extent possible, together. 356 MR. KAISER: Well, and you should be proud of it. And the Board has been impressed. It's hard to imagine how this Panel could have been much better prepared. So you should take some pride in that, as you do. 357 I think one thing that we would be interested in hearing, possibly in argument later today, is whether the group would contemplate some type of quarterly review of your joint plans, and whether there might be a small, but meaningful report prepared, that might even be available for the Board. 358 Thank you, gentlemen, that's all the questions I have. 359 Mr. Lyle, do you have anything else? 360 MR. LYLE: Ms. Newland may have some redirect, Mr. Chair. 361 MS. NEWLAND: Just one area of questions, Mr. Kaiser, arising from Mr. Lyle's questions and then your questions, sir. 362 Mr. Buckler, Mr. Lyle, and then Mr. Kaiser, asked you some questions about schedule 4 of Exhibit A.7, and that's the document that will be used to record program results, as I understand it. Correct? 363 MR. BUCKLER: That's correct. 364 MS. NEWLAND: And that form appears -- in that form there appears to be a place for recording actual benefits in kilowatt-hours in relation to forecast benefits; correct? 365 MR. BUCKLER: That's what the form says, yes. 366 MS. NEWLAND: And have the CLD utilities committed to achieve the forecast benefits, or is the purpose of recording this information more for a monitoring or evaluation purpose? 367 MR. BUCKLER: Could you say that again, please? 368 MS. NEWLAND: Is this a -- are the utilities committing to achieve specified targets of savings, or is this information being collected for another purpose? 369 MR. BUCKLER: No, this is a general form that was put together for, not only these programs, but future programs that might be more applicable for the second generation of conservation and demand-management programs. And we are not committing to -- we cannot commit to targets. 370 MS. NEWLAND: So you don't expect to be held to account for this information, for example, later on during the -- 371 MR. BUCKLER: That's correct. 372 MS. NEWLAND: Thank you. Those are my questions. 373 MR. KAISER: Thank you. 374 Mr. Lyle? 375 MR. LYLE: Mr. Chair, I believe the only other matter to deal with, then, is the time we're going to reconvene to hear argument. 376 MR. KAISER: Would 1:00 this afternoon be acceptable? 377 MS. NEWLAND: Could we make it 1:30, sir? 378 MR. KAISER: Fine. Is that convenient to other counsel? We'll reconvene at 1:30, then. Thank you. 379 --- Luncheon recess taken at 10:43 a.m. 380 --- On resuming at 2:17 p.m. 381 MR. KAISER: Please be seated. 382 MR. FARRELL: Mr. Chair, we've given copies to Mr. Lyle and for your colleagues of the so-called crib sheet that you have asked for. 383 MR. KAISER: Thank you very much. 384 MR. LYLE: You should find copies of on your desk and we'll mark that as Exhibit G.2.1. 385 EXHIBIT NO. G.2.1: CRIB SHEET 386 MR. KAISER: Ms. Newland. 387 MS. NEWLAND: Thank you, Mr. Chairman. Let me start by thanking you and other Board members for your indulgence, your scheduling indulgence. We had a problem with our technology which reminds me why I always prefer paper and pencil. 388 MR. SHEPHERD: Mr. Chairman, can I interrupt to ask Ms. Newland to speak closer into the mike. We're having some trouble hearing her in the back. My apologies for interrupting. 389 WRITTEN SUBMISSIONS BY GREEN ENERGY COALITION INSERTED AS REQUESTED: 390 These six applications are to some extent a test case that will set the stage for subsequent applications from other LDCs. GEC urges the Board to style its decision in this case in a manner that will provide general guidance in that regard. While the applicability of the panel's decision herein will be subject to the particulars of each case and will not be automatic, GEC submits that enunciation of general guidance will leverage the efforts made in this proceeding and we hope it will reduce the need for many of the intervenors, including the GEC, to actively intervene in all of the applications that may follow. 391 GEC submits that the content of the materials filed in support of the current applications falls far short of the level of analysis that could be made available and should be expected in the future, and the Board should so indicate. However, GEC understands that this is an unusual proceeding in its genesis and it is the start of a learning experience for all involved. GEC is heartened by the cooperative approach that the utilities have adopted which should lead to economies and an accelerated learning curve. 392 In these circumstances GEC submits that the Board should approve the applications but only if subject to some important conditions. The following are our suggested conditions with a brief review of the facts and rationale following each proposal. 393 Suggested Conditions of Approval: 394 1. Third tranche spending must be in addition to the reallocated resources that the applicants have indicated they propose to dedicate to C&DM. 395 The applicants have indicated that their current plan is to resource between 5 and 15% of their efforts from existing resources. They do so based on an analysis that such a reallocation is the most cost-effective approach and that other utility programs will not thereby suffer unduly. GEC submits that the use of existing utility staff and resources is to be encouraged where appropriate but since these resources are already funded in rates, they must be in addition to the third tranche resources to meet the Minister's condition and to not double charge customers. 396 Given the requirement to spend 100% of the third tranche funds on C&DM (broadly defined) to qualify for receipt of the third tranche, this means that the utilities must spend 115% of the third tranche amount (107% in the case of Enersource) to satisfy the requirement. 397 2. A minimum proportion (at least 50%) of total 3rd tranche should be spent on customer efficiency programs (beyond general information programs). All such programs to be expensed. 398 The LDCs have acknowledged that there was no rigorous methodology applied to determine the appropriate split between customer side of the meter versus utility side efforts. In other words, these portfolios are not optimized to obtain Athe biggest bang for the buck@. In their words, they simply sought some Abalance@ with a view toward predictability. That balance was determined in the face of several incentives and pre-existing biases including the attractiveness to the LDCs of capitalized investments that will add to rate base, the engineer's preference for the certainty of utility controlled measures, and the fear of revenue erosion from customer-side conservation (which was a logical fear when these plans were constructed prior to the Board's decision on LRAM). Not surprisingly, we see the vast majority of the budgets allocated to utility side investments or capitalized customer-related efforts rather than customer side energy efficiency. 399 While utility side efforts are laudable, there is no evidence, nor any suggestion that the utility-side efforts will be more productive than customer-side efficiency efforts. There is evidence that the utility side has been harvested to some extent already (though with less vigour since 1999) whereas the customer side is largely a fresh opportunity. Thus it is entirely possible that customer-side opportunities will include more 'low hanging fruit' and be more cost effective at the margin than many of the utility side investments being contemplated. However, we do not have the data or forecasts to make a meaningful comparison. 400 We do know that customer-side programs tend to leverage monies being spent by customers anyway, amplifying the impact of program spending. Thus, money spent on customer efficiency programs may be both more cost effective from a societal viewpoint and may be a much more effective use of limited third tranche funds. The program cost of moving a customer from buying a low efficiency air conditioner to a high efficiency air conditioner may be an incentive that is a small proportion of the customer's outlay, whereas the program cost of changing conductors and transformers may be the entire cost of the measure. Accordingly, two opportunities that have the same net societal value will soak up different amounts of the program funds available. 401 Ideally, the LDC's would optimize as they go and shift money to the highest leverage and best opportunities. However, it is unrealistic to expect a major realignment between categories once the utilities set internal budgets following this Board's ruling. The realities of internal budget competition will make it difficult to withdraw funds from the distribution engineers to give them to the customer efficiency marketers. Accordingly, while the LDCs should be encouraged to optimize both within and between plan areas, the Board should impose some reallocation at this time. 402 GEC submits that one of the goals (both explicit and implicit) in the Minister's letter of May 31st was to accelerate the development of conservation culture in the utilities as well as amongst the public. The historically engineer dominated LDCs already value loss reduction. No cultural shift is needed in that regard, only a means to fund these ventures. Customer conservation is, for the most part, not a part of traditional utility culture even though the witnesses before the Board are certainly sincere in their support for conservation. LDC management have been supportive of conservation in general but have always resisted spending money on these efforts, perhaps due to the revenue erosion implications or the apparent conflict between selling electricity and seeking its reduced use. It is this culture that needs to shift. Encouraging more of the initial efforts to focus on the customer side will assist in this regard. 403 Accordingly, we submit that the Board should require a reallocation of the 'balance'. Specifically we suggest that the LDCs be required to spend at least 50% of their budgets on customer-side efficiency and load displacement programs that are measure specific. We do not view general information or advertising campaigns as a suitable use for a significant portion of these monies, both because such efforts have unknowable results and because they are likely to be the purview of the Conservation Bureau. While some such spending may be appropriate it should not be counted toward meeting this 50% condition. 404 The attractiveness of such a reallocation is enhanced by the Board's ruling on SSM. An SSM will encourage optimization within the customer efficiency category while reducing any need for micro-management by the Board. 405 3. TRC screening based on system avoided costs and any utility specific avoided costs be conducted and filed within 6 months. All programs must pass TRC or be revised to do so or have funding re-directed to TRC positive programs. 406 Without screening (however uncertain it may be in the early years) there can be no assurance of cost-effectiveness or of a rational optimization of effort. This proposed condition will ensure that expenditures are prudent and will foster a greater focus on analysis and evaluation. 407 There was some suggestion in the testimony that all the Board need do is ensure that the third tranche monies are spent on C&DM. In GEC's submission, the Board is required by law to ensure that the utilities do not merely spend the third tranche, but spend it prudently. Utilities are investing in conservation such that the expenditures will either be utility expenditures or capital investments that may attract depreciation and return and thus impact rates on an ongoing basis. As such, the fact that the monies come from the third tranche does not remove the Board's duty to ensure that expenditures are prudent. 408 It is clear from the testimony that these utilities have limited their analysis to an initial scan of their own experiences and some experiences elsewhere. Despite the Board's request for quantified impacts where identifiable, they have not even gathered estimates of kW or kWh savings per measure installed (which could easily be done without knowing the take up, free ridership or avoided costs). While such impact assessments would not in themselves demonstrate cost-effectiveness, they are the first step in such a process. A requirement that proper analysis be done with a reasonable deadline will encourage the LDCs to engage the expertise required for this task on a timely basis. 409 It is true but insufficient to say it can't be a perfect analysis until the final results are in. Utilities should proceed based on the best information available and refine information, analysis and plans as they go. 410 The third tranche amounts to close to a quarter of a billion dollars. Surely any quarter billion dollar project deserves early cost-benefit and optimization analysis before corrective changes become too expensive and before money is wasted. 411 4. Require the publication of avoided costs by January 31, 2004. 412 We note that provincial avoided costs needed to support cost-benefit analysis are expected to be available early in the new year as a result of the joint effort of Toronto Hydro, Hydro One, Union Gas and Enbridge. We heard testimony that the finalization is delayed by concerns about confidential information and other 'corporate concerns'. In past cases before this Board GEC has witnessed an overly zealous guarding of information gathered by Union Gas, despite customers having funded that effort and despite there being little or no confidential information included. Union has often equated commercial value with confidentiality. This analysis was paid for by customers and the value to society and customers is enhanced if it is used by more utilities. The authors do not require rents from this effort. Surely there is no customer specific commercially sensitive data involved in a forecast of overall provincial generation, transmission, distribution and loss costs. We urge the Board to require publication as a means to ensure that these utilities do not needlessly delay or limit the availability of this key information that is required by all LDCs to conduct initial cost-benefit analysis and screening. 413 5. Flexibility of spending between programs and years (within the menu of approved programs and beyond) be permissible with reporting of revised portfolio makeup to the Board and intervenors on an annual basis. 414 Given the need to 'learn by doing' and to optimize plans we support this request. 415 6. Spending on smart-meter pilots be disallowed or, in the alternative, limited to 4% of total budget. 416 Smart meter expenditures could easily starve C&DM programs of funding. 417 Smart meters have been mandated by government and presumably will be funded in rates through other means. At most, the ability to fund a limited portion of pilot programs from the third tranche in 2005 (prior to the rate freeze lifting) may be desirable. Most of the utilities indicate that 12% is sufficient over the three years. Accordingly, one third of that level is required for 2005, being approximately 4%. Given that other funding from rates will follow with reasonable certainty, and the fact that the Minister did not include this in his list of priorities for the third tranche funds, as well as the potential for this effort to starve other C&DM opportunities of funding, we submit such a limit is reasonable. 418 7. Demonstration as part of subsequent reporting that the programs as implemented cover a broad range of customer segments including low income groups. 419 Conservation program expenditures will raise rates while lowering overall customer bills. However, if groups are excluded from participation over an extended period of time concerns about cross-subsidization can arise. This is of particular concern for low income groups both because they are less able to withstand these costs unless they obtain bill lowering savings and because they face higher barriers to investment in efficiency and therefore represent a large untapped conservation opportunity. 420 Even if we were to accept the position that the third tranche monies are equity being reinvested such that customers are not directly funding C&DM (a simplistic view that we do not share) the Minister's intent is to get these utilities going on C&DM under the Board's supervision with the hope that these efforts will merge with the sustainable longer term efforts that will be funded in rates on an ongoing basis. That alone suggests that the architecture need not be perfect at this early stage but should, where it is not difficult, reflect longer-term goals. Coverage of all sectors and reducing needless cross-subsidy are surely appropriate goals that can easily be included from the outset. 421 8. Enable subsequent application of variance accounts (LRAM, SSM, CEVA) as approved by the Board from time to time. 422 We take this as the Board's intent in it's ruling following the December 6th motion. 423 9. Require monitoring and evaluation and reporting of same as part of annual rate filings. 424 It would not be appropriate to await the end of the three year period to learn of progress and problems, particularly when these utilities are climbing the learning curve and when added C&DM program funding may be sought in rate applications. 425 Other matters: 426 Counsel wishes to thank the Panel for accommodating his request to submit argument in writing 427 Costs: GEC respectfully requests its costs in this proceeding and in the related motion heard on December 6th be awarded after assessment. 428 SUBMISSIONS BY MS. NEWLAND: 429 MS. NEWLAND: Mr. Chairman, I'm going to be giving a copy of my notes to the reporter and there are headings that separate the various portions of my argument. I don't intend to read those as I proceed with my remarks, but I would ask the reporter to record those headings. It will make it easier for people reading the transcripts. 430 The six distributors who comprise the Coalition of Large Distributors, the applicants in this proceeding, distribute electricity to over 1.5 million customers or 40 percent of Ontario's total. The CLD utilities are seeking the Board's final and unconditional approval of their C&DM plans in accordance with the Board's October 5th Procedural Order. Through these plans, the CLD utilities propose to invest collectively over $70 million of C&DM assets and activities. 431 This spending commitment is our response to the decision of the Minister of Energy to permit electricity distributors to apply to the Board to recover their third tranche of market-adjusted revenue requirement, or MARR, conditional on the financial commitment to reinvest in C&DM initiatives an amount equal to one year's worth of the third tranche. 432 Collectively, the C&DM plans comprise a menu of individual C&DM programs that fall into three categories: customer measures, distribution loss reduction and distributed energy. These programs also fit into the categories of programs that were listed in the Minister's May 31st letter as measures that should be supported by the Board. And this list was subsequently incorporated into the Board's own preliminary guidelines for C&DM activities issued in July. 433 The program menu selected by the CLD utilities reflects as well the Board's guidance on appropriate program choices that was included in your information bulletin that was issued in August. Now, the choice of the menu was also informed by at least four other factors: One, by each utility's historical experience with C&DM activities to the extent that they had any; two, by the experiences of utilities in our jurisdictions; three, by publicly available information on C&DM initiatives and programs in the form of published reports, expert consultant reports and the like; and finally, by advice that the utilities receive from outside consultants retained for this purpose. 434 Each individual CLD utility then proceeded to pick an initial set of programs from the menu. These choices were influenced by the facts we set out in our written evidence. I don't intend to take you to them but I would commend paragraphs 23 and 24 of our written evidence to you in this regard. 435 Now, the C&DM plans for each utility are first generation C&DM plans. What we mean by this is that they are ring fenced, in terms of total dollars that will be spent and in terms of the period over which this spending will occur. Plan spending is limited to one year's worth of each utility's third tranche or incremental MARR. These amounts are specified for each utility in the notices of application and oral hearing that the Board directed that the utilities serve and publish. Plan spending will occur between July 1st, 2004, and September 30th, 2007. 436 Now, the first generation C&DM plans comprise pilot programs in the sense that most of them are new to the experience of the CLD utilities. They have no quantitative or experiential data to draw upon, how these programs will perform in each utility's service territory. 437 Many of the programs are also pilot in the sense that they are being implemented in a limited fashion to test their efficacy and efficiency in the Ontario market. None of the programs have been subjected to rigorous or quantitative screening for cost effectiveness in accordance with a total resource test, cost benefit analysis, or any other test for that matter. The input assumptions that are required to perform such tests are simply not known to us at this time. These include factors such as avoided costs, utility costs, customer costs and energy savings per measure. 438 I would add that at this time, there are no regulatory requirements to screen first generation C&DM programs, and the FAQ posted on the Board's website confirms our understanding that the TRC test in particular is not expected to be used in respect of programs, first generation C&DM programs. 439 Now, there was quite a bit of discussion yesterday around the issue of quantification of program benefits. The Board's Procedural Order requires distributors to file information about, and I quote, "The anticipated program benefits including quantifiable benefits where they can be identified." 440 Many of the programs in the C&DM plans are expected to yield quantifiable benefits or energy savings, as opposed to qualitative benefits that are anticipated from customer awareness programs and technology enabling programs. The witnesses testified that three inputs are required to quantify program benefits: Customer utility costs, expected uptake and energy savings per measure. The CLD utilities have little or no reliable data on these factors in connection with their particular service territories. 441 Now certainly, there's data from other jurisdictions that would allow the utilities to make a theoretical or a generic determination of energy savings per measure and I think the witnesses testified to that effect; but the point here is that we don't have data from our service territories that will tell us how these programs will perform in our service territories in today's marketplace. In other words, until customer results are obtained, it's not possible to quantify benefits at this time. 442 We would hope most of the CLD programs will result in benefits and become cost effective. Indeed we hope that many of the programs will exceed our expectations. But we also acknowledge that some programs may not perform as expected. This is the reason that the CLD utilities are seeking Board approval for flexibility in how they manage their C&DM plans. During the currency of first generation C&DM, the CLD utilities will continue to evaluate and adjust the context of their plans to respond to customer demand, industry and regulatory changes, and the emergence of new C&DM opportunities and technologies. 443 So this is the reason we ask you for a flexibility provision. We're asking you to approve our ability to discontinue programs, add programs from the overall menu of programs that you approve, or reallocate dollars among programs up to a cumulative limit of 20 percent of each utility's third tranche spending obligation without the requirement of any further Board approval. 444 The CLD utilities would undertake to advise the Board of any changes to their C&DM plans as filed in this proceeding. The only question we have in that regard would be whether or not there could be some materiality threshold that would attach to that requirement, and we haven't really had enough time to think about what that might be. 445 I'd like to turn now to the issue of incremental versus total spending. This is an issue that was also discussed during the cross-examination of the CLD utility witnesses. In his December and May letters to distributors, the Minister described a utility's reinvestment commitment as "an amount equal to one year's incremental returns on conservation and demand management initiatives". And in its FAQ, the Board states that "In designing the C&DM budget, costs allocated to the C&DM plan must be incremental to the existing OM&A budget." 446 The CLD utility witnesses testified that 100 percent of their C&DM activity during first-generation C&DM will be incremental to existing C&DM activity, within each utility. They also testified that their current thinking was that C&DM plans would be implemented by leveraging internal resources, to a certain, limited, extent. This would permit the development of a conservation culture within the utilities. It would permit the retention of expertise for the future. 447 Each of the applicants also indicated that its use of internal resources represents a small percentage of the overall OM&A portion of its plan. I think the range given here, Mr. Chairman, was somewhere between 5 and 15 percent. Without an ability to leverage internal resources, the utilities will be required to out-source the implementation of the plan, or risk having these costs disqualified to the extent of the amount of non-incrementality. 448 And this leads me, now, to discuss another point, which is, how should incrementality be defined? 449 There are at least two concepts that are relevant to this issue. The first is something I refer to as the Minister's concept. In his May 31st letter, the Minister refers to reasonable new expenditures on the first page, and then, thereafter, to incremental investments. And that -- the reference to incremental investments is on the second page. 450 The CLD utilities interpret the Minister's words to mean additional, in terms of activities, as well as assets, rather than incremental for recovery in rates. The Minister did not mean, in other words, that distributors could not claim the costs of personnel who were deployed to work on C&DM activities, in our submission. 451 The second concept of incrementality is a rate concept of incrementality. Some intervenors have suggested that the cost of utilities' proposed C&DM activities may already be in revenue requirement, and, consequently, is already being recovered in rates, a so-called double-recovery notion. The CLD utilities reject this notion. Revenue requirements for electricity distributors is based on 1999 costs. At that time, the utilities were not pursuing C&DM programs, and rates were not established related to such activities that are now being proposed. 452 Since 1999, there have been no adjustments to revenue requirement to include the cost of any C&DM activity. Electricity distributors are currently operating under a first-generation, performance-based regulation framework, set out by the Board and described in the electricity distribution rate handbook. Section 2.3 of this handbook indicates that - and I'm going to quote - "PBR provides strong incentives to the utilities to continue and expand their efforts to control costs, increase efficiency, and maintain service quality." 453 If the applicant's are going to maintain their service quality, yet drive efficiencies in their operation by redeploying staff to work on the C&DM plan, this should be to the benefit of shareholders, as permitted under PBR -- under the PBR framework. 454 Mr. Chairman, in this proceeding, the CLD utilities seek an order, or orders, from the Board granting four specific heads of relief. And these are set out in paragraph 39 of our written evidence, which is Exhibit A.7. 455 The over-arching relief that we are seeking is a final and unconditional approval of each CLD utility's C&DM plan. Now, judging from the cross-examination yesterday and today, I expect it is this aspect of our application that will generate the most debate from interveners. So, in anticipation of what intervenors may argue, I want to spend a bit of time addressing this issue. 456 The CLD utilities acknowledge that their planned activities are at an early and conceptual stage. Many details still need to be worked out. Many decisions still have to be made. Put another way, we are at an exploratory and investigative stage in the development of a mature, sustainable and cost-effective long-term C&DM plan. Unlike the gas utilities, we don't have years of experience in developing and implementing C&DM initiatives. 457 Given this reality, we believe that our proposal for a pilot C&DM plan is a prudent and, in fact, a responsible response to the Minister's call for investment in C&DM activities. It is, moreover, I submit, consistent with the spirit and the intent of the Minister's directive. And, as I stated earlier, the results of these pilots will shape and inform second-generation C&DM plans. That's a principle purpose of proposing a first-generation pilot plan. 458 The point is not to make forecasts, or to set targets against which the utilities will be judged, until customer results are obtained for each of our service territories in today's market. It's not possible to commit to these targets, or to any targets or forecasts, for either kilowatt-hour savings or demand reduction. It would be premature, in our submission, to do so. 459 Final approval of the CLD utilities' pilot plan does not, I would also hasten to add, set a precedent for future second-generation plans. The approach for second-generation plans can be expected to be quite different. For starters, such plans would be developed in accordance with the Board's new C&DM framework, which is expected shortly. Secondly, we expect that most second-generation programs will be results-driven, and that utilities will be held to account in this regard. And thirdly, unlike in this proceeding, it is likely that second-generation C&DM plans will be debated in the context of requests for approval of a revenue requirement. 460 In contrast, in this proceeding, the total cost of each C&DM plan has, in effect, been predetermined in a previous revenue-requirement proceeding. And I refer here to the -- in the context of the proceeding to approve the rate handbook, and the consequential determination of each CLD utility's MBRR and MARR. 461 In this proceeding, all we're requesting is confirmation that the programs in our plans are legitimate and qualifying C&DM activities, within the meaning and intent of the Minister's letter. 462 In conclusion, we urge the Board to finally and unconditionally approve each C&DM plan as filed, including proposal for program flexibility that I mentioned earlier. A final and unconditional approval is very, very important. As the witnesses have testified, commencement of spending in accordance with the C&DM plans is completely and unqualifiedly contingent on each of the utilities receiving such approval of its plan. Interim approval will not suffice. In the uncertain environment in which we have operated since market-opening, the shareholders of each of the CLD utilities cannot put their return at risk by proceeding without such an approval. 463 Mr. Chairman, that concludes my submissions, with one exception. You asked the witnesses, before the noon break - I guess - you asked me for the witnesses to address the question of reporting and joint implementation. And I have some instructions in that regard, and I'll do my best to convey the position of the utilities on the questions you pose. And Mr. Buckler is here to help me out if I don't convey it accurately or if you have any questions in this regard. 464 What we would propose, Mr. Chairman, is as follows on the reporting issues, starting on the reporting issues: We would propose first that we would draft and submit to the Board a reporting template for discussion with the Board Staff. This template, once agreed upon, would be a basis for an quarterly report to the Board which would be a high-level progress report on where we are in terms of spending in accordance with our plans. So it would be a reporting on our spending commitments. We would not intend to include any program results in these quarterly reports. We would, however, be prepared to file an annual report in a form similar to the format in Schedule 4 to our evidence, the template that is included in our evidence. So that would be filed on an annual basis. That would be our proposal to the Board. 465 We are, in making this proposal, Mr. Chairman, we are assuming that this is what we're talking about here is a reporting function as opposed to an approval requirement for any kind of further approval. 466 You also asked us to talk about joint implementation on a go-forward basis and how we would implement on plan once we got through the hearing. And it would be our intention, the utilities' intention, to have a CLD steering committee which would meet regularly, to have a coalition or a coalition coordinator. We know that the mass-market program is going to be ruled out collectively among the utilities. Witnesses have testified to that effect. There will be joint expertise, joint partnerships, joint advertising and marketing, cobranding and a common measurement system. So that will definitely be a joint initiative. 467 We expect that our other programs will be approached in a similar manner. We will have collaborative testing and a review of programs with a view, hopefully, to group implementation similar to the mass market program. 468 I don't know if that is sufficient to answer your question, Mr. Kaiser, and Mr. Buckler might want to add to that. 469 MR. BUCKLER: I don't really have anything to add, no. 470 MR. KAISER: Thank you, that's very helpful. 471 MS. NEWLAND: Those are my submissions, unless you have any questions. 472 MR. KAISER: Mr. Shepherd. 473 MR. SHEPHERD: Mr. Chairman, I think the intervenors have agreed on an order for argument and I will go first. 474 I have an outline of our submissions. 475 MR. KAISER: Thank you, that would be helpful. 476 MR. SHEPHERD: Which I'd like to hand up to the Board. 477 Mr. Chairman, given that this is not the text of our comments but an outline of them, it may be appropriate to give it an exhibit number. 478 MR. KAISER: Fine, we'll do that. Mr. Lyle. 479 MR. LYLE: Sorry, Mr. Chair. You wish to enter it as an exhibit? We'll mark that as Exhibit G.2.2. 480 EXHIBIT NO. G.2.2: OUTLINE OF ARGUMENT FOR SCHOOL ENERGY COALITION 481 SUBMISSIONS BY MR. SHEPHERD: 482 MR. SHEPHERD: Mr. Chairman, members of the panel, the Schools we represent intend to be enthusiastic participants in the C&DM plans of these utilities. All the utilities including, in particular, these ones. The plans that are being put before you don't -- clearly don't meet the sort of standards that the Board and other parties are used to seeing, for example, when we see applications for an Enbridge Gas Distribution. And I think Ms. Newland has, in fact, acknowledged that fact. But the utilities have at least tried to respond to the government's challenge. Therefore, we will be urging the Board to grant final approval for these plans subject to certain conditions that I will outline in a few minutes and that I believe will not be a problem for the utilities. 483 First, let's deal with the problems in the plans filed. And I want to say to outset that our intention is not to be critical of the utilities; that's not what we're doing. For reasons that I will come to in a minute, they've done what they could in difficult circumstances. It is the purpose of this hearing to be critical of the plans themselves and that's relatively easy to do. 484 What are the problems? Well, of course there isn't very much detail. I don't think anybody in this room is suggesting that these plans are sufficiently detailed and well thought out to actually implement the spending of $72 million without more. I don't think anybody's saying that. The applicants have emphasized there's more work to do and we agree. 485 There's been insufficient time and resources placed on doing these plans. I'm not saying it's their fault, but the applicants appear -- Mr. Buckler may have inadvertently said exactly this; they appear to have spent more time preparing for this hearing than working on the plans because of the time frames available to them. 486 Third, the applicants have admitted countless times that they are still in the early stages of learning how to do this and the plans certainly reflect that. Not only that; with two exceptions, Ottawa and Mississauga, they have not hired individuals with C&DM with expertise to work on this initiative. They're going to, but they haven't yet. 487 They haven't done a whole lot of research. When asked what research into programs available elsewhere they have done, they had some difficulty with the question. We didn't seem to be aware, for example, of the exceptional program that have worked well in places like Vermont and Wisconsin and Washington State and elsewhere. They did some research, but clearly not enough. They didn't have time. 488 Sixth, only two have talked with their customers and -- whose active participation is crucial to the success of C&DM plans and the success of the government's initiative to create a conservation culture. Enbridge and Union, for example, have extensive consultation programs and they'll both tell you that their plans are miles better because of that process. 489 Now this is especially problematic because the utilities are, admittedly, early in the learning stages here. You know, Mr. Chairman, my father bless his soul, he's 79, a priest, he still works harder than anybody in this room. He's taught me a principle many years ago that's one of those that you never forget: The less you know, the more you have to listen. I think the applicant's would have liked that luxury in this case, but they didn't -- they weren't able to do that with a couple of exceptions. 490 Seventh, no cost/benefit analysis. This may be the biggest one. The utilities have done no cost benefit analysis on the spending of $72 million. Note that this is true that despite the fact that all of these applicants pride themselves - and justifiably so, I might say - in the care with which they make decisions to spend money. None of these utilities would run a 13 kV line down the road without a full cost benefit analysis and it must feel strange to them to be proposing this major amount of spending without having done their normal homework. It's not how they do business. 491 Eight, there's too much emphasis in these programs on the utility side of the meter. Now that's partly because the design of the initiative is such that it's in their interests to emphasize the utility side of the meter. And although we went through the programs and we saw that, that a lot of them are customer directed, most of the spending, even on the customer side ones, is on the utility side. 492 Nine, Ms. Newland alluded to the question of inclusion of non-incremental expenses. The way we look at it, the utilities, not knowing what the rules were, said, What's good management? Good management is -- leverage our current resources if we can. And that's what they said they did. They said, We'll use the people we have. They already know our service territory. They thought that would be okay. We believe it isn't, but they thought it would. 493 Tenth, finally, the programs clearly have an overabundance of CAPEX and not enough OPEX and this is, again, because of the design of the initiative which incents them, in effect, to spend on capital rather than operating expenses. 494 Now, I don't want to leave this without mentioning, and this is a little out of order in my outline, but when I looked at the speaking notes, I thought this is in the wrong place, without mentioning the strengths of the plans. Because the smartest thing they did obviously is to work together. As pointed out, Mr. Chairman, that was an excellent move and Mr. Buckler's pride in achieving that was clear and deserved. 495 But the plans themselves, if you drill down into the specific programs, they're not terrible. They're not very detailed, they're very high level. But they include a lot of good things, things have worked out he elsewhere and will probably work here. Well, they're not good enough to implement as is. We don't believe that's the case. There is a lot of homework still to be done. They are a good started start, and the utilities should be commended for what they've done to date. 496 But what about the problems? Why did they have so many problems? 497 And I said I'd come back to this, and I did, because I don't think I can go through a whole list of problems with the plans without acknowledging why. 498 Mr. Chairman, the -- we know some of these guys. Mr. McLorg, here, from Toronto Hydro, or Mr. Buckler, many of the others -- these are people we deal with extensively. We know they're responsible executives. We know they take their job seriously. And so, when you see a plan that you really can't move forward on, by itself, you have to look at the reasons. 499 And the reasons are -- start with the fact they had less than a year to prepare them, and then realize, as the witnesses said a number of times, that, until at least July, they had only a vague idea of what they've referred to as the rules of engagement. And, even today, they're not 100 percent sure of some of those rules. 500 Now, maybe they were too timid when the Minister first put the challenge to them. Maybe that's true, and I -- frankly, I think they were, and, certainly, kudos to those internally in those organizations that argued for bolder and earlier responses to that challenge. But the fact is that there's many other changes going on that these utilities have to deal with, and so their caution was not unreasonable in the circumstances, it seems to us. We would have preferred them to be bolder, but you can't fault them for being cautious in this situation. 501 Then, had -- given the fact that they had limited time to do it, and limited knowledge of the rules -- keep in mind that they started this process having limited expertise. It's hard to be handed a big budget to do something in a very short time that's not in your area of expertise. It's a little bit unfair. 502 And finally, they have a set of rules which -- as I alluded to earlier, once they figured out those rules, have built-in biases that incent utility-side expenditures and incent capital expenditures. 503 So despite the legitimate reasons for the plan's weaknesses, the School Energy Coalition is very concerned about the potential for problems in the implementation of these plans. 504 Let me tell you how seriously we take this. The way I work with my clients is that we sit down and we discuss the issues, and agree on the strategy, and then I go figure out what to say and do to implement that strategy. That's my job, I'm the lawyer. In this case, they have specifically asked me, for the first time since I've dealt with them, for some years, to say something particular in a final argument and I'm going to quote them. Quote: 505 "We believe that if the lack of detailed planning and lack of homework in program design are not corrected, the plans are likely to produce poor results. No matter how much we support conservation, school boards, along with other ratepayers, will not be happy with increased costs and no conservation results." 506 Given the problems in the plans as presented, then, I guess -- what should the Board do? Well, you have three choices. You could refuse to approve them, or approve them only on an interim basis. You would run the risk, as Ms. Newland has pointed out, that the utilities in their caution would simply not be willing to spend the money, if they don't get final approval. This could thwart what we see as an important and worthwhile government policy, and it's not worth the risk. 507 At the other extreme, you could grant unconditional approval, which is what has been requested. As my clients have noted, as I've quoted above, given the current state of these plans, there is a significant risk that one or more of these applicants will not produce good results. We're very cognizant of the fact that spending a lot of money to get poor results sets back the move to a conservation culture. None of us wants that, least of all the Board. We are supporters of conservation, and we don't want a high-profile conservation initiative, like this, to fail. 508 So, our solution, which we propose, is the following: We believe that the answer to this lies in the Minister's letter of May 31st, in which he says to the utilities -- he charges them, You be innovative. But then he turns to the OEB and he says -- he makes clear that the specific C&DM initiatives to be approved, the recovery issues and the prudence, are all in the -- the responsibility of the Board. 509 In this respect, the Minister has mandated the classic division of responsibility. The government has established the objective, and the broad rules of engagement. The utilities have the responsibility to be innovative and diligent in pursuing the objective within those rules, and the Board has the responsibility to impose discipline on the process, and make sure that it is done right, so that the ratepayers' money is well spent. 510 Now, we note that, not only is this the Board's normal role in such situations, but the Board has the additional advantage that, having just heard the evidence on market-transition costs in the regulatory assets proceeding, the Board is acutely aware of the dangers inherent in this sort of situation. You have a whole lot of utilities having to do something all at once that they're new at, and they don't have very much time to do it. 511 Indeed, the fact that the utilities are working together in this - these six major utilities are working together - is in contrast with the market-transition case, and shows that they, too, are aware of that problem. That it could be a repeat of that, if we're not careful. 512 Finally, before I get to the specific conditions, we note that the utilities, themselves, have made clear that they're looking for guidance, too. How many times did they tell the Board, yesterday, and today, that they did what the rules told them to do? How many times did they say that, if the Board wants them to do something - quarterly reporting, for example - they'll be happy to have that rule to follow. Just give them the rule to follow, and they'll do it. 513 So in order to impose the sort of discipline we think is necessary to help them to succeed, we propose that four conditions be imposed on these applications. And we think, by the way, that none of these conditions should be a problem for the utilities. 514 The first is they should revise their plans and file revised plans. And, by the way, we're not suggesting that those revised plans be debated. As long as they follow the rules that we're suggesting, as far as we're concerned, they're approved. 515 And we're suggesting five rules that should be in the plan. 516 50 percent of the spending should be on customer-side conservation-only programs. 517 75 percent should be on all-customer-side programs, so that would include distributed generation. 518 50 percent of the spending, at least, should be in operating expenses -- and this may be a problem for them, because right now they only have 40 percent: But there's inherent bias in the rules, and we think that the Board can balance that by pushing them just a little in the direction of the OPEX. It's not pushing them very much, because they've reported that, in fact, their average is 40 percent for OPEX. But what it does is, it pushes them to focus more on getting the customers to take action, rather than buying assets for themselves. And this, in turn, better promotes the conservation culture that is the goal that is at the heart of this initiative in the first place. So that's the third one. 519 The fourth is: 25 percent of the spending in 2005 -- we think that the budgets that have been presented to you reflect, a little bit, the timidity of the applicants, as we've seen already this year. The Board, in setting a 25 percent parameter, would recognize that there is a ramp-up, but would still encourage a fast start. You would be saying to them, Get on with it. 520 And finally, in this first condition, increase the budgets by 15 percent, to cover the non-incremental resources. They've said that the best way to do this is reallocate 15 percent of resources, or, in one case, 5 percent. But, because those amounts are in rates already, they shouldn't be included in the plans; you shouldn't get them twice from the ratepayers. So we think that the plan spending should be increased by 15 percent, except in that one exception, where it should be 5 percent, to ensure that the Minister's targets are met. 521 So that's the first condition. File a revised plan that meets those criteria. It involves some massaging of the plans, but we don't think it's a big change. It still stays within the framework that they're working on. 522 The second, which may be the most important of the conditions we're proposing, is that they file a full cost-benefit analysis for every program that they plan to proceed with. Now, frankly, I can't imagine any of these utilities proceeding with these programs without doing that sort of analysis, because that's not how they do business. And we believe that if the Board requires that they be filed within a reasonable time, that will give them structure in which to do that. 523 We think it's also critical that those reports be on the public record. Given the amount of money being spent, and the importance the government is placing on this initiative, we believe that public scrutiny will be a key aspect of ensuring the success of these plans. We -- frankly, we don't even think a review or hearing on these cost-benefit analysis is appropriate. Just put them up on the website. Let everybody look at them. 524 Now, some other parties may suggest that the cost-benefit analysis be reviewed by stakeholders, and, frankly, that's probably a good idea. People like Enbridge and Union do that sort of thing on a regular basis but we don't think you have to tell the utilities to do that. We think they'll do that anyway. They're trying their best and I think that given the fact that we think they're likely to do that, I think you should just let them do it. 525 The third condition we propose is a condition that was actually requested by the applicants and we were just going to ask you to change it slightly. They have asked that they be allowed to reprioritize their spending within the menu they presented to the Board, up to 20 percent of the budget. Now, once you add a cost benefit analysis, and once you set limits on plan balancing, as far as we're concerned, the limitation to the current menu is unduly restrictive. We believe that they should be able to add new programs not on the menu within the 20 percent rule, so that if they see new opportunities they can go for it. We want them to have lots of scope to use their creativity, use the stuff they're learning to maximize the C&DM benefits they can deliver. And frankly, we also want them to have the flexibility that when they get calls from their local school boards -- and I'm pretty sure they're going to be getting those within the next week, all of them -- they can react with the same enthusiasm and innovative as they expressed on the stand this morning. Let's not tie their hands any more than we have to. 526 Finally, reporting. And this has been discussed and so this may be -- I may be wasting your time with this. We propose the condition that there be a standardized, quarterly reporting of the results of these programs; that it start with the first triple-R filing after the cost benefit analysis have been filed; that it be a report card including both costs and benefits -- it's not useful to just report the costs, the benefits are important too. Now, the forms that they've provided are a good start and we agree that the standardized report should be worked out with them and with other interested parties. 527 Now, it's very important to our mind that these reports be public; however, unless something shocking arises in one of them, we see no reason to have a hearing or formal review of those reports. Let's not waste their time. Let's let them get on with it. We just want to make sure that the public sees benefits as they're being generated. We believe these utilities will deliver the benefits. If you want to create a conservation culture, as one of the witnesses said talking about LED traffic lights, give them the constant reminder of conservation. In this case, tell the public That rate increase you got, here's what we're doing with it. We're saving you money. 528 Mr. Chairman, members of the panel, thank you for listening to us in this process. Subject to speaking to costs if you feel that we should at some point, those are our submissions. 529 MR. KAISER: Thank you, Mr. Shepherd. 530 Mr. Dingwall, are you next? 531 MR. DINGWALL: Mr. Janigan is next. 532 MR. KAISER: Mr. Janigan. 533 MR. JANIGAN: Thank you, Mr. Chairman. 534 Mr. Chairman and members of the panel, we believe that the framework in process that was established by the Minister and the Board for approving the electricity distributor's C&DM programs can be found in the following documents: The first being the Minister's letter of direction of March 2003; the second being the OEB report to the Minister of March 2004; third, the OEB preliminary guidelines of July 2004; fourthly, the Procedural Order number one of October 2004; and fifthly, the OEB Frequently Asked Questions of December 2004. 535 At the outset of this argument, VECC would wish to set out its position on electricity distribution C&DM programs. Mr. Chairman, customers are facing significant increases in their electricity bills and it is imperative that they be assisted to manage their electricity use. There is all the greater need to assist vulnerable consumers who by virtue of their income, domicile, education or language barriers cannot take actions available to average consumers. 536 In the broader context, the need to conserve electricity is a critical component of meeting the electricity supply/demand balance in the province. VECC fully supports the initiative of the Minister to direct the electricity distribution utilities to develop C&DM plans for review and approval by the OEB as a condition of their entitlement to the third tranche of MARR in 2005 rates. However, with respect to the applications by Toronto Hydro, Hamilton Hydro, Ottawa Hydro, Enersource, PowerStream and Veridian, VECC is both concerned and discouraged by the response of the coalition of the large distribution utilities to the Minister's letter of May 31st, 2004. VECC is concerned because these six large utilities are the first through the gate in the approvals process and, unfortunately we believe, have set the bar so low in their initial offering of pilot C&DM programs that if others follow their lead, the result will not achieve the conservation goals established by the government. 537 VECC is somewhat discouraged that although questioned extensively on the lack of rigor of their program design, and frankly almost the complete lack of supporting benefit and cost information as well as limited consultation with its customers and other stakeholders, the applicants' response is, in effect, that, well, this is part of the money that was promised to us and trust us to spend it in the best interest of customers and the shareholder. 538 Now, Mr. Chairman, perhaps the first time in my life I have quoted this man, but President Ronald Reagan said in the context of negotiations associated with arms control, "Trust but verify." It is VECC's belief that the Minister's decision to allow the these utilities the opportunity to charge rates incorporating in the third tranche of MARR was not conditioned on a vague and optimistic hope that the utilities would spend this money on something helpful in the conservation and demand area. It was part of an overall strategy that was geared to reducing demand across the province and to give consumers the opportunity to lower their consumption and subsequent bills in the face of rising rates. 539 The utilities may think that this is first and foremost about getting those rate increases, but we would submit that this is putting the cart before the horse. 540 Mr. Chairman, Ontario should not settle for third or even second best just because the electricity distributors are new to the C&DM conservation and demand management area. There is a wealth of experience to draw on, but unfortunately, that has not been done in a way that would meet the ordinary standards of utility regulatory reporting before this Board. 541 The distributors appear to have good intentions. But as we know, the road to hell is paved with them, and hopefully not with LED traffic lights as well. In formulating VECC's position, we have considered which of the options for relief as set out in the Procedural Order number one are in the best interest of the constituencies VECC represents which, in this proceeding, include both residential customers in general, and low- and fixed-income utility customers in particular. 542 We have rejected the options of requesting the Board to either deny the applications or to grant only interim orders. On balance, VECC supports the relief requested by the applicants in the form of final orders, but as our submissions will elaborate, final orders with conditions. 543 The reason for adopting this position is our concern that any other option but approval with conditions will send less than positive signals to the remaining utilities configuring these programs and cause difficulties for the electricity customers in the long run who are facing very real increases in their bills next year from both distribution rate increases and the removal of Bill 210 price cap. 544 Now, with respect to the rationale for requiring conditions of approval, VECC's submissions in this regard propose conditions of approval which are based on key short-term objectives. These short-term objectives can be found in the Minister's letter and the Board's preliminary guidelines. 545 These include: Moving quickly from the applicant's current initial offering to a portfolio of cost-effective customer-side C&DM programs; creating an appropriate balance between customer-side and utility-network demand reduction programs; making the transition to a regulatory framework evolving from the 2006 EDR process; and finally, protecting consumer and ratepayer interests in the transition. 546 To reach these objectives, it is first necessary to understand where we are starting from by pointing out some of the main deficiencies of the applicant's C&DM programs. In VECC's view, these major deficiencies include a lack of rigor in program design including first, universality and accessibility, the lack of having a core menu of programs that customers can access regardless of the service area. 547 Secondly, the adoption of successful programs from other jurisdictions, for example, the PowerSmart programs alluded to in the evidence. As well, we find a lack of balance between customer C&DM programs and loss-demand reduction initiatives. As well, and as was indicated in the submissions of Mr. Shepherd, we also have found a lack of benefit, cost support for the programs individually, and as a portfolio. And finally, we find a failure on the part of the distribution utilities to adequately meet the Minister's direction to target vulnerable consumers. 548 Now, dealing with program designs, the applicants' witnesses acknowledged that they, for the most part, did not use professional DSM specialists, and that they did only a cursory scan of customer-side C&DM programs in other jurisdictions. In effect, they have adopted a try-it-and-see approach to selecting the customer-side portfolio. 549 The result is first, even as an initial design, it lacks a reasonable level of universality, even among the six distribution utilities before you today. In the residential sector, apart from the residential smart meter program, only one program, the co-branded mass-market program, is available to all consumers in all service areas. Even the social housing program is only available in five of the six, and customers in the social housing -- customers in social housing in Veridian's territories are out in the cold, in that respect. 550 In the commercial/industrial sector, there are only two universal programs, of which one is the smart meter program, Enersource excepted. This lack of a core menu of proven programs will also make monitoring, reporting and general regulatory oversight next to impossible. 551 Several of the programs have questionable customer benefits, especially where the municipality and the shareholder is involved. In this area, the LED lights for traffic signals program is providing capital incentives to the municipality to do what it should be doing to reduce its highways department operating costs and improve public safety. This is a curious result, when we have to incent the very actors that we are relying upon to bring the C&DM message to Ontario to do the right thing. 552 Secondly, there is a total lack of support for the selected programs, either in terms of cost-benefit analysis, or even adoption of programs with a proven track record in other jurisdictions, such as Manitoba Hydro or B.C. Hydro. 553 The pilot refrigerator buy-back program and the TAPS program are the exceptions. 554 The social housing program is based on a report prepared for the social housing agencies, but is only a placeholder that needs a detailed implementation plan. 555 What customers need, and are due, is a core menu of well-designed, cost-effective, universal C&DM programs, that have a proven track record in delivering cost-savings in other jurisdictions. VECC submits, that is the place to start in launching this vital C&DM initiative. 556 The second deficiency we perceive is the balance between customer-side and utility-network programs and expenditures. It is difficult to assess what an appropriate balance should be, given the lack of detail regarding the programs; however, the budgetary balance differs markedly between utilities. Toronto Hydro, out of a total budget of 40 million, proposes to spend 28 million, or 70 percent, on customer-side programs, whereas Enersource proposes only 63 percent, and Veridian a low 53 percent, indicating that half of its proposed expenditures are upstream of the meter. 557 All utilities are offering the same three utility-side loss-reduction and demand-reduction programs: And that is also indicative that this area is being given priority. 558 In particular, the expenditures on load-displacement generation and stand-by generation are programs that benefit the individual commercial/industrial customers, and the benefit to the distribution system, and the overall utility customers, has not been demonstrated or quantified in any extent, particularly in the case of non-dispatchable co-generation and stand-by generators. 559 It is also unclear what utility-capital expenditures are being made that lead to assets in rate base. VECC suggests that there should be a re-balancing of programs and budgets, so that at least two thirds of the total budget of each utility is allocated to C&DM customer-side programs. 560 Now, with respect to cost-benefit justification, even though the Procedural Order did not set the bar very high, and, in fact, lowered it from the Board's preliminary guidelines, the Board, in most cases associated with the programs offered by the utilities, has insufficient information to determine whether the proposed programs are cost-effective, and have a positive cost-benefit to the utility and its customers. 561 The utilities are saying to the Board and ratepayers, Trust us and we will not do things that are not cost-effective, and we will change those things that are not working to something that will work better. I've addressed what we think of that approach earlier. VECC submits that such an approach may be in keeping with the reporting requirement to municipal governments, but it is not in accord with the conduct of a regulated utility, and the ability of the regulator to exercise effective superintendence over the regulated. 562 It is particularly critical that the proposed capital expenditures, and resulting assets to be included in rate base, meet the requirement that these assets are to be used and useful for the provision of utility service. Ratepayers will be expected to pay for these assets in rates for the depreciable life of the assets, including a return to the utility's shareholder. 563 Now, finally, the most serious deficiency of the program and portfolio design is the failure to adequately meet the needs of vulnerable energy consumers. Mr. Chairman, the offering of the utilities in this proceeding falls well short of meeting the Minister's direction to target programs for these vulnerable low and fixed-income consumers. 564 First, if utilities are to be serious about responding to this direction, we find it difficult to believe that they did not know about the two studies funded by the Ministry of Energy concerning low-income customers. They were aware of the social housing study. However, as they told us yesterday, they were only aware of the low-income energy-efficiency program report, and the fact that it was being prepared when we filed it on behalf of VECC with the assistance of LIEN last Friday, December 2nd, 2004. This begs question why the utilities did not research the needs of the low- and fixed-income sector. 565 If they had, they would have understood that a social housing program only reaches a small part of the low-income customer group. For example, 96 percent of Ontario Works beneficiaries are tenants, but only 17 percent of these Ontario Works beneficiaries who rent live in subsidized housing. The vast majority live in the private rental market. 75 percent of Ontario disability-support program beneficiaries are tenants, but only 22 percent of these beneficiaries who rent live in subsidized housing. Ontario Works and Ontario Disability Support program beneficiaries live at, or below, the Status Can LICO levels -- low income levels. In addition there are low- and fixed-income senior citizens that require consideration. 566 Now VECC, of course, strongly supports the social housing program, but that, in our judgment, does not come close to meeting the needs of low-income and vulnerable consumers. 567 In January and February of 2004, a survey by the Ontario Nonprofit Association found that 158,456 households, representing more than 300,000 individuals, were on social housing waiting lists across the province. The vast majority, 76 percent of the households on the list, earn below $20,000 per year. Obviously, this is a low-income target group that would not benefit from the proposed social housing program, because they can't get into the limited amount of subsidized housing available. 568 Broadening the scope of the social housing program doesn't do it, either. To suggest dilution of the social housing budget by including other LICO customers, as some of the applicants have implied that their responses, with respect, is not appropriate. 569 According to Statistics Canada 2001 census, one in five of Ontario tenant households -- that's 265,995 households -- pay 50 percent and over of their household income on shelter costs which includes utilities. The risk of homelessness increases where shelter costs, including utilities, consume more than 50 percent of the household's pretax income. 42 percent of Ontario tenant households -- that's 564,735 households -- pay 30 percent or more of their household income on shelter costs. An acceptable housing should not exceed 30 percent of total pretax household income. 570 First, to adequately respond to the Minister's direction requires more funds allocated to the low income customers. Secondly, it requires a targeted low-income energy efficiency program designed for LICO customers not living in social housing and delivered in cooperation with the specific agencies that service the segment. 571 The majority of Ontario's LICO households living at or below the poverty line are renters. Low income households are particularly vulnerable to increases in shelter and utility costs which are difficult to absorb and could put their housing in jeopardy. Brantford Power, as far as we are aware, is the only utility to include a pilot program based on the low-income energy efficiency report for its service areas. 572 Mr. Chairman, we will come to our specific requests for conditions related to the low-income energy efficiency program at the end of our submission. 573 I now propose to make three submissions about protecting consumers in the C&DM process. The Board has ruled on the issue of whether the gross C&DM budget should be before or after tax, but there are three remaining issues, we submit, require direction from the Board. The first concerns the use of existing resources paid for in rates to deliver C&DM programs. Our position is that the expenditures should be all incremental and diversion of up to 15 percent of existing resources has the significant risk of reducing service quality. That doesn't mean experienced staff should not work on C&DM, but rather they should be backfilled and the cost should be part of the C&DM program. 574 The second issue is how to deal with the cost consequences of approval of these expenditures that will flow into 2006 and beyond, particularly since rate base capital will be recovered over the life of the assets. Our position is that all C&DM assets included in rate base be regulatory assets and meet the test of being used and useful for the provision of utility service. We suggest that the uniform system of accounts and the accounting handbook make provision to record, track and report on these assets. 575 The last matter in this area is the issue of reporting and auditing requirements, touched upon earlier by counsel for the applicant and by Mr. Shepherd. Our position is that the utilities should file quarterly reports on the progress of the C&DM programs along with their required regulatory reporting. These filings should be publicly available. Details should be worked out with Board Staff. The applicants have included some draft forms as a schedule to their evidence in chief. In addition, VECC suggests that there should be a 2005 end-of-year review provided to the Board with the objective of informing second generation C&DM plans coming out of the 2006 EDR process. 576 The ultimate accountability will be the applicant's appearance before the Board to recover amounts included in the 2005 C&DM deferral accounts authorized by the Board and the SSM of 5 percent authorized by the Board in its decision of December the 6th, 2005. 577 Finally, I'd like to turn to the matter of the orders resulting from the Board's decision in this proceeding. Procedural Order number one indicated there were three options for seeking approval of conservation and demand management programs. These were: To apply now for an interim order of the Board; B, apply now for a final order of the Board subject only to the ultimate review of the actual expenditures referred to above; or C, apply for a final order of the Board subject only to the ultimate review of the actual expenditures referred to above as part of their application for 2005 rates. 578 As noted at the outset of this submission, VECC supports the relief requested by the applicants in the order form of final orders with conditions. We have outlined why VECC takes this position and now I will address those conditions. 579 There are five conditions that we request. First, that all applicants complete the program and portfolio design and rebalancing of budgets and submit these final plans to the Board by April 30th, 2005. 580 Second, all utilities must include at least three universal -- meaning programs available to all customers -- must include at least three of the universal programs in their portfolio and be geographically accessible in all service territories other than the smart meter program for each of the residential and commercial/industrial sectors. 581 Thirdly, in addition as part of the rebalancing, all utilities must include both a targeted social housing program as proposed and a low-income energy efficiency program guided by the low-income energy efficiency report which was Exhibit G.1.3 filed by VECC on behalf of the Low-Income Energy Network in this proceeding. 582 Fourthly, the utilities should hold a stakeholder consultation prior to its submission to the Board. 583 Fifthly, the utilities report quarterly on the progress of their C&DM programs and the DR and DE programs in a standard format agreed with Board Staff. They should also provide the Board with a calendar year 2005 progress report to assist in the development of second generation C&DM programs that may arise as part of the 2006 EDR process. 584 Finally, Mr. Chairman, the prospect of higher electricity prices for the balance of the decade is an apparent inevitability as a result of the legacy of Ontario Hydro, including a enormous debt, mothballed generation, and an imminent supply shortage that will be exacerbated by the closing of the remaining coal-fired generation capacity. This reality is facing all electricity consumers in Ontario, but vulnerable consumers in particular cannot deal with the bill increases that are well above the change in their disposable income. It is vital to mitigate this diminished affordability of electricity for Ontario's most vulnerable consumers by ensuring a strong focus on reducing the per capita consumption of electricity for low and fixed income electricity customers without damaging their already frugal lifestyle. 585 This requires conservation and demand management programs specifically targeted at this LICO customer segment. That is one of the most important challenges for the government and for the Ontario Energy Board and they oversee the launch of the conservation and demand management programs as directed by the Minister in his directive to the Board in electricity distribution utilities. 586 And finally, with respect to the issue of costs, Mr. Chairman, as you know, VECC has been eligible to receive an award of costs. We would submit that we have been responsible and hopefully our participation will be of assistance to the Board. And accordingly, we request an order of the Board to recover our legitimate costs in this proceeding. Thank you, Mr. Chairman. 587 MR. KAISER: Thank you, Mr. Janigan. 588 Mr. Dingwall, are you next. 589 MR. DINGWALL: I'm next, sir. I note that there are three remaining parties to give argument. I'm in your hands as to whether or not you wish to continue through the afternoon or whether you'd like to take a break now. 590 MR. KAISER: Why don't we proceed with you and we can take a break later. 591 SUBMISSIONS BY MR. DINGWALL: 592 MR. DINGWALL: I'm going to begin by discussing some of the specific programs that have been put forward in the applications. 593 Mr. Janigan's made some mention of the LED traffic light program. I note that at paragraph 775 of yesterday's transcripts, it was indicated by witnesses for both Toronto and Hamilton that one of the drivers for the program was that there were insufficient funds in municipal budgets to really get going on these. CME is of the view that it's inappropriate for electricity rates to be used to cross-subsidize municipal activities, and takes the view that the Board should disallow any program which is, essentially, a budget shift from the municipal budget to the utility budget. A potential conflict is magnified when you take into account the potential abuse of such a practice. It's well known that many municipalities have been undertaking conservation activities for some time, and have programs in the works. To allow the inclusion of municipal programs in electricity C&DM programs presumes that there is a disconnect between shareholders and utilities, which does not make sense. 594 One of the potential conflicts is if a municipality is given attribution for one of its programs, and that attribution leads to some form of either shared savings, or lost-revenue adjustment mechanism. That opens the door to a significant cross-subsidy, and an obviation of what a normal concept of a free-rider rate would be. 595 The two programs that appear to be cross- or budget-shifting of municipal budgets into utility budgets are the LED traffic lights and, conceivably, the social housing programs. I think we need to be careful, when we look at the scope of social housing programs, to understand what the role of the municipality is versus what the role of the utility is. And yes, there's certainly a need to understand some of the challenges, and the efforts needed in order to improve social housing are significant, but the question then becomes: Whose efforts are they? Who should be the driver behind them? And, while the energy industry has a unique ability to understand some of the impact, are these essentially social programs, or are they energy programs? 596 What has not happened in the energy industry, to date, is that there's been no form of means-testing undertaken by any utility. It's a new skill set. How would a utility determine who would be eligible for such programs, in the absence of that? It seems that the programs would be best undertaken under the auspices of the agencies that traditionally deal with low-income people, because that would provide more of a clarity. 597 The next program I'd like to discussion is distribution-loss reduction. There may be some potential that expenses under this category are expenses which should be reviewed in context of distribution-maintenance budget, to determine whether any initiatives are legitimately incremental to existing distribution obligations. This is particularly important in the context of 2005, as the applicants are currently under a distribution rate cap. If a utility were able to move existing expenses and obligations into a new cost-recovery avenue, they would be in a position to increase their rate of return to the detriment of the integrity of the goals of this program. This is a scenario which brings clearly into focus the need for prudential review of the actual programs upon their completion, which, we suggest, would best be accomplished in the context of a rate case, so that all the expenses are on the table for the review. 598 Now, the essential question that's before this Board is: What is the difference between an interim approval and a final approval? And that's a question which appears to have some significant issues of process behind it, and significant issues of logistics going forward. 599 While the applicants are seeking final orders, the quality of information available, even under the testing of evidence, suggests that there is no specificity of what the programs will actually be, what the benefits will be, how they will be calculated and whether or not there will be any consistency in the programs applied for versus what the applicants actually do with the money. 600 The October 5th Procedural Order created a set of standards for applications which, depending on the level of interpretation, seem to apply to both interim and final orders. Some of the questions of interpretation which arise from that order relate to what the context is, in relation to other initiatives, including the August 30 information bulletin, which states that the Board is now prepared to provide preliminary approval of planned activities, and will base its determination on the information about the planned activities that a distributor files with the Board. The Board, in granting preliminary approval, will confirm that the proposed activities is appropriate. The Board will subsequently carry out a review of the prudence of actual expenditures. The Board anticipates that final approval will be given, providing the money spent was in accordance with the distributor's proposal, and that commitments outlined in the plan have been met, that is, did the distributor achieve what it said it would, and was it done cost-effectively. 601 When we move on, though, to the October 5th Procedural Order, some confusion begins to come into the process. At paragraph -- the Procedural Order states at one point, with respect to filing requirements, that the anticipated program benefits, including quantifiable benefits, where these can be identified, i.e., energy savings -- where the program has anticipated qualitative benefits, such as enabling technologies or customer education, these expected qualitative benefits must be described. 602 It seems that what turns in this proceeding is an interpretation of where benefits can be identified. And it's suggested that that turn -- that that question is the central one which should guide the Board in terms of whether an order provided should be an interim one versus a final one. We will believe that there are a number of questions which, if resolved in this proceeding, would be of significant assistance to additional applicants in framing their applications and in even planning for their applications. 603 First of these question is: Is it open for the Board to grant an interim order where a final one has been requested? And, related to that: If so, what are the criteria that must be met in order for a final order to be granted over an interim? And could an order be interim with respect to some plans, and final with respect to others? 604 The second area of questions we believe the Board should review in this process is: What is the level of review that would take place subsequent to a final order? And does this include confirming that distributor has achieved what they said they would cost-effectively? 605 In cross-examination yesterday, in a direct response to a question on what would be reviewed in the future, it was the evidence of the applicants that it would solely be whether or not they had spent the money, not how they spent it, not what results they achieved, and not what expected benefits they had identified that they had met. It's our view that if there are not concrete and accountable plans put in place, then there is, on the one hand, room for abuse, and, on the other hand, room for waste. 606 This is a significant amount of money that the government has identified and allocated towards conservation and demand-management measures. It's a significant amount of money because it's a significant problem. CME traditionally likes to make sure that the money is well spent, and has been, certainly, an industry leader in ensuring, through audit processes and involvements in many of the collaboratives, that that has, in fact, been done so. 607 We do have some sympathy for the applicants. In further cross-examination, at transcript 738, it was identified that residential load-management and smart meter programs really were difficult to pin down at this time, because the combination of the legislation, the guidelines, the regulations, and the orders of the Board that would implement those, and would give some background as to what the spread would be, in terms of regulated price plan -- because those matters have not been determined yet and communicated yet. It's difficult to know whether you can load-shift with a residential customer, what the effectiveness would be of a smart meter program, what the breadth of it would be, and what the timing of implementation would be. 608 So while we do have some sympathy that, on the distributor side, it must be a monumental challenge to try and put together a program where there is no regulation, we think that that's the whole crux of the question of whether an order should be interim or final, and whether a program being proposed for cost recovery, and for the authority to go out and spend the money, should be subject to any form of review or not, and what the nature of that review should be. So we believe that where programs are not readily identifiable in terms of costs or benefits that those programs should be approved on an interim basis so the companies can get on with it, but there should be the scrutiny of the final order determining, first of all, whether or not costs or benefits have been identified and subsequently realized. With respect to final approvals, the Board should grant final approvals where the information put before the Board has been sufficiently specific in order to identify costs, benefits; and then at the end of the day, once the final orders have come through and once the money has been spent, there should be that prudential review to determine whether or not programs had met their goals. 609 Now, the other intervenors have made some comments with respect to suggestions on refiling and on providing final orders subject to certain conditions. And it seems that to a certain extent, many of those suggestions are quite similar to the whole concept of an interim approval versus a final approval; however, I think that those suggestions were really more specific to this case. I think it would guide the process significantly if the Board were to give some indication as to what the expectations are with respect to the level of specificity of programs that would be required to gain an interim order with respect to costs and then subsequently what the level of specificity would be in terms of filing requirements, et cetera, to be eligible for a final order on costs. 610 Those are my submissions, sir. 611 MR. KAISER: Thank you, Mr. Dingwall. 612 Who's next? Mr. White. 613 SUBMISSIONS BY MR. WHITE: 614 MR. WHITE: I'd like to start off by applauding the Board and the applicants for going forward with a process that can leverage off the 2006 process recognizing that it's important that this type of initiative will allow Ontario to get it right going forward. We are all in a new market with huge government goals and expectations. With respect to innovation, smaller and medium-size utilities may be closer to their customers and in some cases, the proximity to those customers may help those utilities get outside the box. 615 Cost benefit analysis may well be premature as Ontario market and customer response may not be the same as elsewhere. Electric heat and water restrictions in a British Columbia environment would not be appropriate, particularly if you were looking at Vancouver, to transport into the Toronto marketplace. 616 The third tranche programs, if not the third tranche process, is new to the relatively new LDC marketplace. The third tranche relates to net income and if there's any doubt about that, one need only look to the underpinning rules for the use of the 1999 base which set the net income for the base for establishing the tranches as zero. 617 The obligation of the utilities is to spend the money, the third-tranche-equivalent dollars, on C&DM initiatives. It's important that these dollars be spent and that there be sufficient time to evaluate what the true Ontario marketplace impact is, and I think these -- I guess I don't know whether I'm allowed to call them utilities anymore, but these applicants have certainly indicated an eagerness to evaluate the effectiveness of the programs in the Ontario marketplace. This is a test which hopefully the entire industry can benefit from. 618 Those are my submissions. Thank you. 619 MR. KAISER: Thank you, Mr. White. 620 Mr. MacIntosh. 621 SUBMISSSIONS BY MR. MacINTOSH: 622 MR. MacINTOSH: Mr. Chair, panel, my submissions will be quite brief. 623 First, Energy Probe wishes to commend the six applicants for cooperating and bringing forward a joint application, and as we heard in the proceeding, to continue that cooperation as they roll out with their C&DM plans. Sharing experience among themselves which will allow them to move toward the most successful plans is most encouraging. 624 Mr. Chair, Energy Probe would like to submit that it would be beneficial to customers for the applicants to report their results quarterly by plan in a consistent format, one that will allow other LDCs to learn from their experience as well. What we would like to see, Mr. Chair, is a report composed of experience data, not merely text, on a quarterly basis. And at least annually, we would like to see program results with a cost benefit analysis by program on the public record. 625 There will be some program failures and we expect that. We want the coalition to share cost benefit analysis so that the failures are not repeated by other LDCs but the successes are replicated across the province. 626 It is not our intention to oppose final approval, subject to the stipulations submitted by the School Energy Coalition which we have considered and support. 627 We had not expected to make a cost plea today, as we will attend Friday's hearing for Milton and Brantford as well. Those comprise our submissions. 628 MR. KAISER: Thank you, Mr. MacIntosh. 629 Mr. Lyle, do you have any submissions? 630 MR. LYLE: Yes, Mr. Chair, I've been requested to read into the record -- 631 MR. SIDLOFSKY: Sorry, I apologize, Mr. Chair. 632 MR. KAISER: I'm sorry. 633 MR. SIDLOFSKY: As with yesterday, I'm not on the list of speakers at this point, but I have one concern that may be something of a procedural matter but I wonder if I could raise it, sir. 634 MR. KAISER: Yes, please, go ahead. 635 MR. SIDLOFSKY: Thank you. Mr. Chair, as you know, I'm here for Brantford Hydro and I'm not taking an active role in this proceeding and I'm not making these comments in respect of the plans of these six utilities themselves. 636 What I do have a concern with, though, is that in other recent proceedings - and the ones I can think of offhand are the Board's combined service area amendment proceeding and the phase 2 regulatory asset proceedings, the oral hearings that were conducted fairly recently - the Board had given some indication that it planned to take from those oral proceedings some general principles that it could apply to other applications that would come in the future. For the service area amendment proceeding, for any -- those principles could be applied to any other service area amendment applications that were being considered by utilities or might subsequently be brought. Certainly in the phase 2 regulatory assets proceeding, we know that there are numerous other regulatory asset application that are going to be coming along. 637 The Board hasn't given a similar indication in this proceeding that it intended to use this hearing in respect of the six large utilities as the basis for developing principles for the remainder of the conservation and demand management plans that are being put forward. My concern, though, when I hear the submissions of my friend Mr. Shepherd, as well as Mr. MacIntosh supporting them, is that what Brantford Power will find on Friday is Schools, and I'm not sure if there are other late intervenors, I know that -- my understanding is that Schools filed a late intervention letter, there may be one or two others. But my concern is that what I will -- what we will see and hear on Friday, in the context of the Brantford application, and I expect with Milton -- and, I believe, Hawkesbury, with a couple of thousand customers, has been added to that list for oral hearings, as well, on Friday - although I may be wrong about that. I've only heard that second- or thirdhand. I see Board Staff shaking their heads, No. 638 MR. LYLE: I believe you're incorrect with respect to Hawkesbury. 639 MR. SIDLOFSKY: Certainly, Brantford and Milton are on for Friday. In any event, it doesn't change my concern. My concern is that I will see a proposed solution from Schools, possibly supported by other late intervenors, that, among others things, plans be required to contain 50 percent or more of spending on customer-side conservation-only programs, that 50 percent or more of spending be on operating expenses, and less than 50 on capital expenses. It seems premature for the Board to be considering applying those principles -- if, in fact, it is considering applying Mr. Shepherd's proposed principles to applications for approvals of plans that the Board hasn't heard the merits of yet. 640 My concern is simply that, if the Board is going to adopt a solution similar to that proposed by Mr. Shepherd, it not consider that solution to be a general principle for the treatment of other applications that are going to come before it. My concern is that each of these plans - and, obviously, my principal concern today is with Brantford Power - but each of these plans should be considered on its own merits. I can tell you that Brantford Power's plan, or approximately two thirds of Brantford Power's budget for conservation and demand management would be allocated to conservation assets. That shouldn't be considered a bad thing, without the Board having heard the merits of Brantford's application. I'm simply concerned that a decision that purports to create a general principle, that 50 percent or more of spending, for example, be on operating expenses, might neglect the merits of other utilities' plans that will be coming before you. 641 MR. KAISER: Well, Mr. Sidlofsky, I think you're right. And I think that we're not going to rule on the Brantford case until we hear it. And with respect to this case, we will render a decision on this case 9:30 Friday morning, with your indulgence, before you proceed. But we take your point that, as far as general rules, if, indeed, the Board were to issue those general rules - which is by no means decided yet - that it would be wise to hear, at least, all the applications that are currently before the Board. 642 MR. SIDLOFSKY: I appreciate that, sir. Thank you. 643 MR. DINGWALL: Mr. Chairman, I was just going to leap in quickly and mention that I'd neglected to state that CME is, of course, seeking its costs, and believes that it has participated reasonably and prudently in this process. 644 MR. KAISER: Yes, thank you, Mr. Dingwall. 645 Mr. Lyle? 646 MR. LYLE: Thank you, Mr. Chair. I've been asked to read into the record the submissions of Pollution Probe and Green Energy Coalition. 647 Ms. Crnojacki is now distributing a written copy of the Green Energy Coalition submissions. 648 MR. KAISER: Did you want to take a break before doing this? 649 MR. LYLE: I'm entirely in your hands, Mr. Chair. 650 MR. KAISER: I can't remember who wanted the break, was it Mr. Dingwall? 651 Do you want us to take a break, or are you content with us to proceed? 652 MR. LYLE: I imagine Ms. Newland may want a break before she prepares her reply argument. 653 MR. KAISER: Why don't we do this: Let's take a break. That will allow Ms. Newland an opportunity to, at least, read this document ahead of time, so we'll give her a little bit of a leg up. And then you can read it into the record and perhaps file it -- perhaps I could suggest that, if it's acceptable: Maybe counsel could read it, and we could file it, rather than going through reading it into the record. 654 MR. LYLE: I'm perfectly happy with that solution, Mr. Chair, although I would suggest that I read in to the record the very brief submissions of Pollution Probe. 655 MR. KAISER: Fine. 656 We'll take 15 minutes. 657 Do you want to do that now? 658 MR. LYLE: It's very brief, Mr. Chair. It will take one minute. 659 MR. KAISER: Alright. 660 MR. LYLE: Thank you, Mr. Chair. 661 POLLUTION PROBE'S WRITTEN SUBMISSIONS READ INTO THE RECORD BY MR. LYLE: 662 Pollution Probe respectfully submits that the CLD's budgets and programs for the year 2005 should be approved. But, given the relatively low level of detail in the analysis and information, which is understandable at this early stage, the 2005 budgets and programs should be approved as pilot projects. 663 With respect to the budgets and programs for the years 2006 and 2007, Pollution Probe respectfully submits that, given the comparative unavailability of detail at this time, approval of those budgets and programs should be postponed until they can be measured against the guidelines that will arise from the 2006 EDR proceedings. And Pollution Probe respectfully requests its costs at this proceeding. 664 That is it, Mr. Chair. 665 MR. KAISER: Thank you, Mr. Lyle. 666 We'll take a 15-minute break now. 667 --- Recess taken at 3:53 p.m. 668 --- On resuming at 4:15 p.m. 669 MR. KAISER: Please be seated. 670 Mr. Lyle, do you have anything further? 671 MR. LYLE: No, Mr. Chair. The submissions of GEC will be entered into the transcript. 672 MR. KAISER: So we're not going to mark it as an exhibit, we'll just put it right into the transcript? 673 MR. LYLE: That's correct, Mr. Chair. 674 MR. JANIGAN: Mr. Chairman, before my friend commences her reply, we listened to the submissions of counsel for Brantford and with respect to the proceedings to take place on Friday and VECC has intervened in this proceeding but, frankly, wants to make sure that its resources are best applied in the best fashion. In fact, I was not planning to attend; I was hopeful that, in fact, any submissions would be filed by way of written submissions in those proceedings, potentially incorporating by reference the argument in this particular proceeding. I recognize the Board must deal with each application as it appears, but does this -- would this process of proceeding with respect to the others, Brantford and others that may occur, would that -- would we be able to meet the Board's standards with respect to participation or intervention in those proceedings by adopting this kind of procedure? 675 MR. KAISER: Well, the only concern I would have and our current intention, as I indicated, I believe, is to rule on this matter at the beginning of the day on Friday and then to hear the Brantford Milton application and my hope is to be able to render a decision that day on that application. So I -- 676 MR. JANIGAN: We can certainly accommodate that timetable as long as it wouldn't require us to physically attend. 677 MR. KAISER: Right. 678 Ms. Newland. 679 MR. JANIGAN: Thanks. 680 REPLY SUBMISSIONS BY MS. NEWLAND: 681 MS. NEWLAND: Thank you, sir. I will be brief. 682 We've heard the intervenors and in our submission, their arguments boil down to two options: Final approval as requested by the CLD utilities, or final approval as they have requested. Many of these intervenors -- VECC, Schools, Energy Probe, CME, GEC -- want to redesign our plans in various ways. They are advocating final approval in form but not in substance. We would consider, Mr. Chairman, this kind of final "approval" to be an interim approval, not the type of final approval that we seek. It would not give us the certainty to commence spending in C&DM activities that we require. 683 Those are my submissions in reply. Thank you. 684 MR. KAISER: Thank you. Anything further, Mr. Lyle? 685 MR. LYLE: No, Mr. Chair, other than to dismiss the panel of witnesses. 686 MR. KAISER: Thank you very much. We will reconvene this matter 9:30 Friday morning. 687 --- Whereupon the hearing adjourned at 4:20 p.m.