Rep: OEB Doc: 13BFB Rev: 0 ONTARIO ENERGY BOARD Volume: NATURAL GAS FORUM - TECHNICAL CONSULTATIONS ON STORAGE - VOLUME 3 29 SEPTEMBER 2004 BEFORE: R. BETTS PRESIDING MEMBER C. CHAPLIN MEMBER 1 RP-2004-0213 2 IN THE MATTER OF a hearing held on Wednesday, 29 September 2004, in Toronto, Ontario; IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15, Schedule B; AND IN THE MATTER OF an Application by Hydro One Networks Inc., Toronto Hydro Electric System Limited, Enersource Hydro Mississauga Inc., London Hydro Inc., for an order or orders approving or fixing just and reasonable rates. 3 RP-2004-0213 4 29 SEPTEMBER 2004 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 GEORGE VEGH Board Counsel BEVERLEY JAFFREY Board Staff LAURIE KLEIN Board Staff MIKE BERMON ICF Consulting Canada Inc. LEONARD CROOK ICF Consulting Canada Inc. CHRIS HAUSMANN Hausmann Consulting DAVE CHARLESON Enbridge Gas Distribution DAVE MATTHEWS Enbridge Gas Distribution TOM LADANYI Enbridge Gas Distribution JIM GRANT Enbridge Gas Distribution FRED HASSAN Enbridge Gas Distribution MARIKA HARE Enbridge Gas Distribution IAN MONDROW Direct Energy GIA DeJULIO TransAlta Energy GREG BADEN Coral Energy PAUL KERR Coral Energy MURRAY ROSS TransCanada Pipelines GORDON POTTER Ontario Energy Savings Corp. CHRISTOPHER GAFFNEY Ontario Energy Savings Corp. MARK ISHERWOOD Union Gas Limited BRUCE HENNING Union Gas Limited STEVE POREDOS Union Gas Limited MIKE PACKER Union Gas Limited TOM ADAMS Energy Probe GERRY HAGGERTY Superior Energy ELISABETH DeMARCO Superior Energy DAVID POCH Green Energy Coalition ROGER HIGGIN Vulnerable Energy Consumers Coalition JOYCE POON Vulnerable Energy Consumers Coalition JACK GIBBONS Pollution Probe PETER SCULLY Federation of Northern Ontario Municipalities JIM McPHERSON TransCanada Gas Transmission East FRANK BRENNAN Aegent Energy Advisors Inc. PETER FOURNIER Industrial Gas Users Association FRANK BASHAM Talisman Energy Inc., Canadian Association of Petroleum Producers GREG STRINGHAM Canadian Association of Petroleum Producers BOB FRASER Canadian Association of Petroleum Producers, EnCana JEFFREY MAYER MxEnergy Inc. ROLAND GEORGE Purvin & Gertz BRYAN GORMLEY Canadian Gas Association JIM GRUENBAUER City of Kitchener DWAYNE QUINN City of Kitchener JAY SHEPHERD City of Kitchener JULIE GIRVAN Consumers' Council of Canada JASON STACEY Sithe Energy JUDY ALLAN Self-represented CHRIS MACKIE Self-represented 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [15] NATURAL GAS FORUM - TECHNICAL CONSULTATIONS ON STORAGE: [36] SUBMISSIONS BY MS. DeJULIO: [37] SUBMISSIONS BY MR. BADEN: [77] SUBMISSIONS BY MR. FOURNIER: [108] DISCUSSION PERIOD: [136] SUBMISSIONS BY MR. GRANT AND MR. LADANYI: [295] DISCUSSION PERIOD: [356] SUBMISSIONS BY MR. POREDOS AND MR. HENNING: [401] DISCUSSION PERIOD: [442] PROCEDURAL MATTERS: [672] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:00 a.m. 15 PRELIMINARY MATTERS: 16 MR. BETTS: Good morning, everybody. I'd like to have everybody take their seats if they will, please. That was fast. 17 Good morning. My name is Bob Betts, I'm a Board member, and one of the pair that is sponsoring this process. With me today is Cynthia Chaplin and the two of us will, more or less, guide this process. I think most of you, if not all of you, have sat through one or the other of the first two days of this session, but I will remind everybody that this is not a formal Board hearing process. We are not sitting as adjudicators. Ms. Chaplin and myself are sitting simply to guide the process, to sponsor it as it goes forward through the Board, both internally and externally, toward the end of developing, hopefully, some meaningful policy that will guide the Board in the future in the natural gas sector. 18 I will introduce for those of you who may be attending for the first day today some of our support team, staff. We have Laurie Klein and Beverley Jaffrey who have guided us through to this stage, and thankfully they've done it very efficiently. 19 We also have Mike Bermon and Leonard Crook who have represented the Board's interest from a consulting point of view and done a great job at developing the policy or the discussion papers for our review. 20 Today we will be concentrating our discussions on gas storage. We have spent the first two days having a good close and hard look at system gas and it's been very valuable from our point of view, and I have a feeling that the next two days, today and tomorrow, will be equally valuable. 21 I think we can turn the mike now over to our facilitator, Chris Hausmann, who has been very effective at keeping us on track and on time, and I believe he has a few housekeeping items to cover as well. 22 So thank you everybody for attending, and welcome, and we look forward to a good hard working day. 23 MR. HAUSMANN: Thank you, Mr. Chair. 24 Good morning, everyone. Just bear with me, please, while I run through some of the rules for -- perhaps if there's anybody who wasn't here in the last few days, just for reminder's sake. 25 First of all, with respect to signing in, there's a sheet out in the lobby next to the name tags and the muffins and coffee, the blue sheet. Please be sure to check off your name at some point today. If you don't find your name there, write it in and put in a check mark so we know who's here. 26 With respect to the sound system, try not to turn your mike up because we get feedback and that doesn't work very well. And when you do speak, if you don't have a mike in front of you, there is a designated mike over there. We've already got somebody sitting at it. 27 MS. DeMARCO: Just temporarily. 28 MR. HAUSMANN: That's okay. But there are other seats that are empty. Just find a seat with the mike. Also, before you speak, because this is also being webcast, please remember to state your name and who you represent; it's also helpful for the court reporter here. And when you do speak, please try to speak in a measured pace so that she can keep up with everybody. 29 If you have a presentation to make or submission to make and you haven't provided the updated or revised version, please be sure to get the updated version to Laurie Klein and, perhaps, if you have an extra copy, we can give it to the reporter as well and that way she can follow along. 30 We have today on the agenda three presentations this morning and two this afternoon, and I'll get back to that in a moment. Just to be sure that everybody has the updated agenda. There have been some changes over the last couple of days. The main difference in the last version is that lunch is one hour today from 11:45 to 12:45, and served in the north room next door here. We do have to be out of that room by 1:00, so please govern yourselves accordingly. 31 Last item here with respect to the transcripts, if anybody has reviewed the transcripts from the last couple of days and has some items to bring to the Board's attention with respect to corrections, not -- you can't change what you said, as the chair told us yesterday, but you can certainly correct words that may be spelled incorrectly or didn't get caught right. 32 Are there any corrections to the transcript at this time? Well you can make those at any point in time over the coming days. 33 With that, we can then turn to our presentations. We have three this morning, TransAlta Energy, Coral Energy and the Industrial Gas Users' Association. That's the order they're going to come in, not quite what you see on your agenda, but they've chosen to go in that order. So I will turn the mike over to Gia DeJulio of TransAlta. 34 MS. DeJULIO: Thank you. 35 MR. HAUSMANN: Please turn any cell phones off. I keep forgetting to say that. 36 NATURAL GAS FORUM - TECHNICAL CONSULTATIONS ON STORAGE: 37 SUBMISSIONS BY MS. DeJULIO: 38 MS. DeJULIO: Good morning, my name is Gia DeJulio, and my remarks this morning -- I'm representing TransAlta Energy and TransAlta Cogeneration LP. My message today is brief and rather uncomplicated, but let me give you the context of TransAlta's interest in the gas market in Ontario. 39 TransAlta Energy owns and operates a 575 megawatt, gas-fired plant in Sarnia, and through TransAlta's Cogeneration's majority ownership of TransAlta Power LP, it operates three other plants, a 68 megawatt plant in Windsor on Union's system, and for which TransAlta manages an unbundled Union storage contract, a 108 megawatt plant in Mississauga on Enbridge's system and a 68 megawatt plant in Ottawa, also on the Enbridge system. Enbridge provides bundled storage service for the two plants and all of these three latter plants have power-purchase agreements with the OESC. 40 TransAlta finds that Ontario's natural gas market and the associated regulatory regime do not align with the electricity sector, and this results in inefficiencies that are likely reflected in higher Ontario electricity prices. This Natural Gas Forum, therefore, is frankly a golden opportunity to make the necessary connections between the new design of the Ontario gas system and the related needs of gas-fired power generation sector, particularly in light of the significant expected growth in that demand. 41 I've listed here some examples of the disconnection between the gas and electricity systems. For example, the different operational requirements and the different regulatory regimes when dealing with different LDCs, which is unlike electricity when dealing with the IMO. 42 There is lack of flexibility in storage injection and withdrawal parameters. That makes it difficult to make changing power generation demands. As well, mandatory receipt and delivery point obligations result in inefficiencies for operators, particularly for TransAlta with four plants in Ontario. And frankly, TransAlta believes they could optimize the consumption of gas at their four plants if it had better and unrestricted movement of gas between and across the LDC franchises. 43 Gas operations do not adapt to changing power sector needs, such as the switch from base load to a dispatch generation plant. 44 So the results of this disconnect is that we have a duplication of operational systems, and, of course, this results in increased transaction and administration costs. Without the ability to pass through the increased gas-related costs through existing long-term power-purchase agreements, TransAlta and perhaps other gas-fired generators could be subject to a rate shock. So in general, if inefficiencies in the gas sector will be passed on to gas-fired generators, some will likely be reflected in higher electricity prices over time. 45 Generators need flexibility in both storage and transportation in order to contribute to efficient electricity prices. 46 TransAlta does not want to be prescriptive in its recommendations, but it proposes the following: Among other things, the removal of unnecessary operational differences and duplications among the LDCs, in order to allow for a seamless movement of gas across the province; increased flexibility in storage injection and withdrawal parameters, with the intention of meeting the rapidly changing electricity generation demand; increased flexibility in receipt and delivery points, and in the obligations to delivery to those; a menu of rate options in order to accommodate changing power market realities, for example, gas supply delivered to a peaker plant might be better priced, with a greater proportion at a variable rate, while a base-load plant might be better suited with fixed-demand charges for a greater proportion. 47 TransAlta is asking for Board recognition of the potential for rate shock and, thus, some protection from gas distribution, storage and transportation rate increases. 48 TransAlta suggests that the Board may want to consider consolidating certain regulated service functions across the LDCs, possibly by an ISO. And, a little bit off topic, but TransAlta does support the LDCs continuing to have a role in offering system gas. They believe this participation will benefit all gas users by allowing needed investments in infrastructure and supply to occur more quickly than if the LDCs have no role in system supply. 49 TransAlta asks the Board to take the necessary steps to maintain and ensure the reliability of the Ontario gas distribution system for existing users prior to and during the addition of 2,500 megawatts of proposed, new, gas-fired generation. 50 In conclusion, like the other participants, TransAlta thanks the Board for the opportunity to share its views and comments, and to be considered by the Board in its deliberations. Thank you. 51 MS. CHAPLIN: Cynthia Chaplin. Ms. DeJulio, could you explain for me, in a bit more detail, where the rate shock comes from, or where the potential for rate shock comes from? 52 MS. DeJULIO: The potential for rate shock is that TransAlta has long-term power purchase agreements with the OESC. And these agreements are closed for many years, and they do not allow TransAlta to pass through their increased costs that they may experience in their price of gas supply. And this shock is, basically, to TransAlta having to balance, or meet, or to continue to receive the same revenues, but their costs increase greatly. 53 MS. CHAPLIN: And, I mean, I understand the issue about the costs increasing. Is it your expectation that those costs are increasing, or they have increased, or -- and is it around load balancing, strictly? 54 MS. DeJULIO: I believe that, generally, prices are rising for gas and, hence, for electricity. TransAlta expects that with some -- without some major improvements to the gas infrastructure in the province, as we are designing a new gas infrastructure, there will be a very tight gas supply situation, and this could result in quite increased costs. So TransAlta is supporting whatever actions the Board can take in the design of the market to improve the supply of gas into the province of Ontario, and to improve the flexibility of moving that supply within the province. 55 MS. CHAPLIN: So would I be correct in saying, you're looking -- you're hoping that there will be improvements that not only help you control your delivery charges, but also help you minimize your commodity charges? 56 MS. DeJULIO: That's right, both commodity and transportation, yes. 57 MS. CHAPLIN: And, amongst your list of recommendations, you had a point about removing unnecessary differences amongst the LDCs. 58 MS. DeJULIO: Yes. 59 MS. CHAPLIN: Are you in a position to, sort of, tell us what you feel the key differences are that the Board should address? 60 MS. DeJULIO: Right now, I understand that TransAlta has an unbundled arrangement on Union. They manage their storage independently -- they can manage their storage -- self-manage their storage. They do not have that option, I believe, on the Enbridge system, and Enbridge can correct me if I'm wrong on that. 61 However, frankly, it's like there's this wall between the LDCs. And to move gas from one franchise to the other is extremely difficult, and requires a herculean effort to get coordination and cooperation among the parties that are required to do that. So TransAlta is, frankly, hoping that those barriers could be removed, and there could be a very smooth -- a smooth flow of gas between franchises. 62 MS. CHAPLIN: Because you'd like to balance across your four plants and be able to use them, balance them, sort of, on an integrated basis. 63 MS. DeJULIO: That's correct, take advantage of weather difference across the province and pricing differences across the province. 64 MS. CHAPLIN: Okay. Thank you. 65 MR. BETTS: Thank you. Bob Betts here. 66 You indicated that generators need flexibility in both storage and transportation. Can you help me understand if there are differences between generators and other large-volume direct purchasers? And, if there are differences, what are those differences? And the answer may be that they're the same. 67 MS. DeJULIO: Well, I'm less familiar with others, but I'm certain that there are merchant arrangements, well, TransAlta has merchant arrangements planned in this area, and then there's power-purchase agreement arrangements. So there are obviously differences in the way those contracts are written, and the obligations under those, and what the pricing -- I assume, what the pricing is in those contracts. Does that help at all? 68 MR. BETTS: I'm aware of those differences. I was wondering if you could help me understand if there are any other, I guess, more specific and detailed differences that the generator would highlight as a very important area requiring change, let's say, that another direct-user, or manufacturer, or whatever, might not feel is as necessary. Timing issues, seasonality issues -- I'm not sure what it might be, I'm looking for you to help me. 69 MS. DeJULIO: Right. For example, power plants, if they are dispatched plants versus an industrial, is that what your question refers to? 70 MR. BETTS: Yes, let's use that as a comparison. 71 MS. DeJULIO: There are, obviously, industrials that operate 24 hours a day, like a steel plant. And, certainly, I would think that the -- I'm not certain that the flow of gas to their facility is very constant, and that would not be the case, necessarily, with a dispatched electricity generation plant. It may be only dispatched five by 16, or it may only be dispatched on a seasonal basis. And, right now, I don't believe that the LDCs have much flexibility in the way gas is delivered to those plants, relative to the way it might be delivered to an industrial plant. 72 The storage obligations, you know, the withdrawal, the injection, I don't know if there's flexibility -- I don't believe there's enough flexibility to reflect the needs of a power plant, which would be very different from a large industrial, operating 24 hours a day. 73 MR. BETTS: Thank you, that was helpful. Those are all our questions, thank you. 74 MS. DeJULIO: Thank you. 75 MR. HAUSMANN: Thank you, Ms. DeJulio. 76 We'll move on to our second presentation, then, Mr. Greg Baden, representing Coral Energy. We're just getting on screen here. 77 SUBMISSIONS BY MR. BADEN: 78 MR. BADEN: By way of introduction, my name is Greg Baden. My title is vice-president of power for Coral Energy Canada, and you'll notice on the slides that we have a reference to Shell Trading on the bottom. Coral is part of the Shell Global Trading Network, and I guess we're slowly converting our name, now, from Coral Energy to Shell Trading, over time. 79 My comments today, relating to the discussion paper, really refer to two of the questions that were asked in the discussion paper, in terms of, is the present system, in terms of storage, consistent with developments in the market? And will the market make the necessary infrastructure investments under alternate storage structures? 80 Coral's involvement in the Ontario energy market -- we are a large gas supplier. I think currently we -- our deliveries to Ontario represent about 15 percent of Ontario's gross gas demand. In addition, in July, we -- with the start-up of Brighton Beach -- 81 MR. HAUSMANN: Excuse me, Mr. Baden, I'm getting messages that you're not being heard. 82 MR. BADEN: I'll try and get a little closer. 83 So Coral has a large presence in the gas market in Ontario, and recently in July, with the start-up of the Brighton Beach power plant, we are now, in effect, a merchant generator. Our role in Brighton Beach is we are the exclusive supplier of natural gas and marketer of the power generated. We control the dispatch of that facility. So we do have, like TransAlta, some experience in the market in terms of generators, and I think that some of the comments that I'm going to make are parallel very much with what TransAlta said, but perhaps with different perspectives. 84 Certainly gas-fired generation is going to play a bigger role in Ontario. I think right now, yesterday at the 18-month outlook by the IMO, there's about 5,000 megawatts of installed capacity in Ontario. By 2009, there could be more than 7,000 megawatts, depending on the results of the current RFPs. In terms of volts, that 7,000 megawatts probably represents about 50,000 gJs an hour of demand, possibly more, depending on the efficiency of that. 85 If all that generation were to operate on a 16-hour typical on-peak cycle in the electricity market, it would represent close to a Bcf of a day of demand. So it represents a significant block of demand. It will have, I think, a significant effect on the gas market in Ontario. 86 Characteristics of gas generation certainly make it very valuable. It is not going to be a base-load plant. These plants will tend to run on peak, 16 hours, Monday to Friday, 16 hours a day, Monday to Friday. 16 hours starting at 7:00 a.m. to 11:00 p.m.; rush hour in the electricity market. Gas is also suitable as peaking generation to meet those short-term one-hour or two-hour peaks that can occur. They are also very valuable in terms of filling in if there is an outage in a base load plant. You can have a power plant like Brighton Beach go from zero to full output at 580 megawatts in two hours. Peaking plants can be on and synchronize to the grid in as little as 30 minutes. 87 What I've shown there on the bottom chart has been the output from Brighton Beach. This is public information, since it started on July 16. You can see it is off and on, it is not a base load plant, and this is a typical characteristic of a gas-fired generator. So there we've had days up to 500 megawatts, and off the next hour, and back on. This is a characteristic of gas-fire generation that is important. And some of the difficulties in dealing with scheduling gas TransAlta spoke to. 88 I apologize for this chart, but this is about the only way I could figure out to explain it. The top half of the chart deals with scheduling in the day ahead and real time markets in electricity, and the bottom three lines deal with scheduling in natural gas. 89 In trying to explain the problem, the easiest way to, sort of, capture it is that the gas day runs from 10:00 a.m. to 10:00 a.m., and the electricity day runs from midnight to midnight. In order to get gas delivered on the next gas day, you have two nomination windows, one between 10:00 and 11:00 a.m., these are eastern times, and at a subsequent evening window at about 5:00 p.m., and that would be for delivery starting at 10:00 a.m.. 90 Now, on a real-time market, you may not know until three hours in advance as to whether you're going to run or not. So for a gas generator, you either have to take a risk and assume you're going to run in that real-time market and schedule gas, or not schedule gas and at the last minute try and scramble to get gas. 91 With the introduction of a day-ahead market, we will know by 5:00 p.m. the day before that we are likely going to run on the on-peak time. There is still an issue in that from 7:00 a.m. on -- if you look at an on-peak schedule on electricity from 7:00 a.m. to 11:00 p.m., there's still a few hours in the morning from 7:00 a.m. to 10:00 a.m. when you may not have scheduled gas for delivery that day. It's the end of the gas day and there are very little -- very limited options for dealing with that situation. I apologize for the complexity of this chart, but I'm trying to illustrate the point in terms of the differences in the scheduling days and the constraints that gas-fired generators deal with. TransAlta referred to that also. 92 Giving the importance of electricity to the consumers, ultimately the cost of the generator becomes public interest in that if it costs more to schedule gas on short notice, if it costs more to -- if there is additional risk involved and generators simply have to cover that risk, it ultimately results in higher costs of electricity. There's inefficiencies in the market, and I think this is an interest, I think a public interest, and something that the OEB, perhaps, should consider. 93 So finally in response to the two questions, and the first one in terms of, Is the present system consistent with the developments? No, at this point, the system has not caught up with the development of dispatchable generation and certainly gas-fired generation is going to play a very large role in Ontario. 94 The kinds of new services that would be useful to a gas-fired generator are things like additional nomination windows through the day or no-notice gas, a service where a generator can simply take a certain quantity of gas without notifying the LDC. That's certainly a premium service, and I'm not saying that generators shouldn't pay for that. Or advanced park and loan services where you can park or borrow gas effectively from the LDC or the pipeline under prearranged agreements or prearranged terms. Those are the kinds of service that would help a gas generator deal with the scheduling risk and ultimately, I think, make the overall generation more cost effective, more efficient. 95 And will a market develop the investments? I think, yes. Given the appropriate policies and regulations, the market will develop, but it's something, I think, at this point, needs to be addressed and both generators and LDCs sitting down to work out the solutions to these issues. 96 I thank you very much for the opportunity. 97 MS. CHAPLIN: Cynthia Chapman. 98 Thanks, Mr. Baden. I guess, first, I'd like to start off with respect to storage. Would you sort of echo the comments and concerns regarding flexibility for injection and withdrawal that were explained by Ms. DeJulio, because you didn't really comment much on that. 99 MR. BADEN: Certainly, additional flexibility on storage would be very useful. I think gas-fired generations tends to be characterized as very high-volume, low-load factor loads. We need the ability to inject and withdraw large quantities, but do not require large storage capacity to hold significant volumes of gas. We need the ability to inject large quantities on an hourly basis and withdraw large quantities on an hourly basis, but we don't necessarily need days or weeks of capacity in that storage. 100 MS. CHAPLIN: And you towards the end there, you identified some particular areas or particular services; additional nomination periods, no-notice gas, and advanced park and loan services. What has the nature of your discussions been with LDCs to date, if you're able to share that with us? I guess I'm trying to get a sense of, is there some cooperative discussion going on or not? 101 MR. BADEN: At this point, I'm not aware of any cooperative discussion. We've certainly had discussions about services with the LDCs. It generally, at this point, has been within the context of their existing rates and tariffs. We haven't got beyond that, no, we haven't. These types of services are now -- are available in some areas in the United States where there's been a lot more gas generation than there has been in Ontario. 102 MS. CHAPLIN: Are there particular areas where you think we should look to? 103 MR. BADEN: I think in the midwest there have been even hourly services available, hourly rather than daily balancing, hourly balancing services that have been developed. I think there are opportunities to look at what some U.S. jurisdictions have implemented and look at those services in terms of would they fit in Ontario. 104 MS. CHAPLIN: Thank you. 105 MR. BETTS: Thank you. And I had no further questions. Thanks. 106 MR. HAUSMANN: Thank you, Mr. Baden. 107 That takes us to our third presentation this morning, Mr. Peter Fournier representing the Industrial Gas Users' Association. Mr. Fournier. 108 SUBMISSIONS BY MR. FOURNIER: 109 MR. FOURNIER: Good morning. I'll start off just by identifying IGUA's interest in the storage issue by noting that only a few, to my knowledge, at least, IGUA members hold storage in Ontario in their own right. Those that do certainly consider it a very important element of their system operations. INCO is one of my members who do hold their own storage, and they are here, represented by Mr. John Butler. They considered it was important enough to have him come down and report back on what's happening here. 110 As I identified yesterday in the -- in our supply submission, virtually all members, my members, rely upon storage that's held by the LDCs and the storage that's used by the LDCs to provide the balancing banking services for industrials, and I won't bore you with going back over it today. 111 But I would like to digress just for one minute to respond to the concerns expressed by Ms. DeJulio about the difficulties of moving gas between the LDCs; and, indeed, it's more than just that, it's between the delivery areas. She has plants that she identified, or at least interests, in the southwestern delivery area of Union south, here, in the Toronto CDA of Enbridge, and in Ottawa, which is the EDA. 112 The problem is not, somehow, a lack of cooperation on barriers, at least, in my submission; the problem is not barriers between the utilities. I think the utilities operate together fairly well. The problem is something called TransCanada PipeLines. 113 As a very good illustration of this, and when Enbridge is up, perhaps they'll speak about it, but in this current rate year of 2004, Enbridge Gas Distribution changed some contracts for its supply in -- where I live, in Ottawa, in the EDA, and attempted to get the movement of some gas from Dawn via TransCanada in the EDA, and they couldn't get it this year. So if Enbridge can't move gas itself between its CDA, or its storage interests in Dawn, and the Ottawa area, then certainly there are problems. 114 I have members with plants in all of the different delivery areas. They try and move -- we have the same problem with flexibility, but it's not, in my humble submission, the fault of the LDCs, or the regulation of the LDCs in this province, it's a problem with TransCanada, mainly with capacity, and what they can do and not do. 115 With respect to storage, IGUA's position is that gas distribution customers in Ontario should continue to receive storage services at OEB-approved cost-based rates unless a fully open, competitive and robust in-storage -- in-province storage market condition is established, one which fosters storage costs lower than the current cost-of-service based rates. 116 The current storage assets which are used to serve Ontario were developed as utility assets, and the costs of those have been recovered over time from ratepayers. Ratepayers should continue to have access to storage at cost-based rates that reflect the origin and development of the utility investment in these assets. If conditions are created to replace the current, near-monopoly storage services with a fully-open, competitive, robust, in-province storage market, under conditions that result in lower in-province storage rates than what current cost-based rates are, then market-based rates might be considered. 117 But the conditions would have to include the disposal by the LDCs of their current storage assets, at least those which are used to provide in-province storage. That should be done in an open, fully arm's-length sale, or auction process, and probably on, I would suggest, a by-pool or by-cavern basis, in order to achieve conditions whereby there would be multiple storage cavern operators. The LDCs should continue to own and operate the storage field pipeline and injection withdrawal facilities as a utility operation 118 Revenues from the proceeds of the sale of the storage assets should be shared between ratepayers and the utility on a percentage-share basis which reflects the current appreciated versus un-depreciated proportions of the rate base. 119 Storage is an integral component of the LDC system of operations. It's essential for meeting peak-day market requirements, and for managing the flow of gas streams of large-volume, direct-purchase customers. Even if the storage assets were sold and put under market-based rates, the LDCs would themselves continue to require substantial storage capacity to operate their systems. Given that reality, the merits of moving to market-based rates should be considered very, very carefully. 120 Now, IGUA has no objection to the further development of storage, by whomever, to serve non-province markets as non-utility operations, and we do not object to the -- to storage charges for such services to be market-based. 121 I'd like to comment on the consultant's study. The study concluded, at page 33, that the current system -- referring to storage, the current system is inefficient, unfair, and not transparent. The study also notes, at page 13, that infranchise storage is "offered at embedded, heavily-depreciated cost-of-service rates, and is therefore cheap compared to market-based storage." Well, I'm an economist, and I think the method which results in lower rates for the end users is an example of efficiency, not inefficiency. 122 The current process results in very low rates for infranchise customers; is that unfair? The storage rates are subject to cost-of-service review and regulatory process; is that not transparent? 123 As for the gas-supply report, the consultant's study seems to be biased in favour of those parties. And I assume those are the current and potential new storage operators who would like to see storage priced at market-based rates so they can realize greater profits. But it certainly disregards the interests of Ontario's consumers, whether they be residential, commercial or industrial. The interests of Ontario consumers is to have access to reasonably-priced storage. 124 The consultants have concluded that cost-based rates for storage are inefficient, that they're unfair and not transparent, but they evidently prefer a market-based pricing alternative. However, they fail to provide any information which demonstrates the efficiencies and the fairnesses that they expect from market-based pricing. The study does suggest, at page 16, that Union's current cost-of-service based rates are some 30 to 50 percent lower than its market-based rates. 125 In the recent Enbridge 2005 rate case, both IGUA and the Schools Coalition attempted to determine what a conversion from cost-of-service-based storage rates to a market-based system would mean for Ontario ratepayers. And the -- I'm talking of the combined storage costs of both Union and Enbridge. IGUA concluded, in that rate case, that market-based rates would cost about $150 million more per year, while the Schools concluded about $120 million more. Whatever the number, it appears to be significant. 126 Now, we hardly call that difference an efficient result, nor do we believe that much higher costs would be fair or reasonable for Ontario ratepayers. Presumably, all of that extra revenue would go to the profit of storage capacity holders. 127 The report also appears to be ignorant of the nature of Ontario storage operations. Ontario storage is not, as seems to be suggested at page 1, based on depleted gas fields. Nowhere does the study appear to acknowledge that, in Ontario, storage caverns are derived from salt deposits, which is a very expensive process. It takes time to create new caverns, and there are water treatment disposal issues to consider. The report fails to measure quantitatively a storage price required to foster new storage capacity developments at market-based rates, compared to the merits of having the LDCs continue to develop capacity on a rolled-in cost-of-service basis. 128 The report suggests at page 15 that there's a need for more flexibility in Ontario storage operations providing, and I quote, "greater ability to take advantages of arbitrage opportunities that can provide benefits to Ontario overall." 129 Let me suggest that residential, commercial, and industrial customers do not engage in arbitrage nor, I suggest, should the regulated LDCs. The only beneficiaries here would be the marketers, who would love to sell gas stored in Ontario intended to meet peak demand conditions in Ontario for very high prices in Chicago at times when there are price spikes. While Ontarians freeze, the marketers are doing okay. 130 The consultant's definition of fairness is evident on page 29 when they say: "From a fairness perspective, new and existing infranchise customers have access to cheap storage which limits the ability of other storage providers to market their storage." 131 Now, the authors acknowledge on page 7 that virtually all of the storage in Ontario is owned by Union and Enbridge, thus the other storage providers they must be referring to must be operators in the United States, in Michigan and down stream. Now, surely the consultants are not suggesting that Ontario storage charges should be increased so that Michigan storage operators can compete. Shades of softwood lumber. Surely the Ontario regulator cannot give any credence to such a complaint. 132 Finally, it's not clear what transportation charges the report refers to at page 30 when they state: "Transportation and distribution charges for LDC storage and independent storage must be on an equal basis." 133 They refer to tolls. Well, the reference to tolls suggests a reference to upstream or downstream pipeline transportation costs which, except for Union's Dawn-Trafalgar line, are all subject to regulation of the National Energy Board. Thus, I don't understand the relevance of their observations. 134 IGUA's conclusions are that there is no compelling need to deregulate storage service charges for Ontario customers or consumers. A change to market-based rates might be contemplated in the future if conditions can be established under which a fully robust competitive market can operate and where there is a reasonable demonstration, in advance, that lower storage costs can be realized. If lower storage costs from a change to market-based rates cannot be assured, no change from the status quo should be contemplated for the Ontario requirements. 135 Thank you. 136 DISCUSSION PERIOD: 137 MS. CHAPLIN: Cynthia Chaplin. Thank you, Mr. Fournier. 138 You did make some comments regarding what the role would be for new incremental storage in Ontario if that were to be developed. For example, if it were to be developed by non-LDC parties. What is IGUA's position, is it that that storage would be at market-based rates for customers outside Ontario? I didn't quite understand. 139 MR. FOURNIER: Well, I think we have a current base storage requirement in Ontario which the LDCs currently have or set aside to serve their Ontario requirements. I know that Union Gas has additional storage that it sells, for example, to Gaz Metro, at market-based rates and presumably to others. I'm not sure if Enbridge or Tecumseh storage sell some capacity to their non-franchise customers. But as far as IGUA is concerned, anybody can come in, if they can meet the Ontario government environmental and other requirements to want to build a new storage facility, God speed. Yes, it would be -- unless they want to serve the core market, as I recall, during the Ontario requirement, they -- if they're serving the non-franchise or non-Ontario core market, market-based rates obviously yes, certainly. 140 MS. CHAPLIN: And if they were to serve within Ontario markets, you would see that being more appropriately regulated or regulated rates? 141 MR. FOURNIER: If I came along and I built a big storage cavern tomorrow and Enbridge came to me and said we'd like to take 5 Bcf a day of that capacity to use for our infranchise market, this would create, I think, an interesting hearing. Because if IGUA was there, I think IGUA would argue that capacity should be, as long as there is adequate current storage capacity that has been developed via ratepayer payment of that development in the past. That is the capacity that should be dedicated to the Ontario market. 142 So Enbridge would have to demonstrate that it's got -- in this case, my example, it's used every square foot of its current storage and has obtained from Union what it can get, and the only way they can serve this growth market is by taking this 5 Bcf of capacity from this new storage operator. 143 Should that be storage at market-based or cost-based rates? That's a good question. I don't know. If the only way that we can get that additional capacity is market-based, then perhaps that small component it has would have to be priced at market-based. It's not a situation we're at today. 144 MS. CHAPLIN: So you would see that as Ontario's -- within Ontario demand for storage resources grew, that to the extent that the current LDC facilities are marketing outside Ontario, that should be withdrawn; would that be correct? 145 MR. FOURNIER: Well I think there are two kinds, and I hope that when Union and Enbridge come up they can shed better light on it than I can, but my understanding is there are, more or less, today two kinds of storage we have. We have the storage that's been developed to serve the Ontario market in the past that was there at the time we, sort of, unbundled. We unbundled the market in when, 2000, 2001, somewhere around there, '99. At that time, there was some storage that was being sold to non-inprovince customers such as Gaz Metro, and that capacity went market-priced from cost-based. And I assume it's so for other parties such as some of my members and probably some marketers. 146 If the Ontario market grows and we need more storage capacity, and presumably we do as the electrical consumption of gas for gas-fired grows, and certainly the kind of load that my colleagues were talking about here suggests they need storage, as that kind of thing grows, I think there's a fairness question if -- you certainly wouldn't want to see, for example, Union Gas taking its storage capacity away from Gaz Metro and dedicating it to an Ontario Power Generation customer only because he's here in Ontario. Gaz Metro's storage interests are equally important for Canada and for my members. 147 Probably as a current out-of-province contract comes up for renewal, it's a good question. I mean, I haven't really thought it through and I'm struggling with trying to give you an answer to, What would IGUA do in this case? I don't know, to be absolutely honest with you. It's a very good question. I will think about it and I'll try to respond to that in our written submissions. 148 MS. CHAPLIN: Okay. Thank you very much. 149 MR. BETTS: We have no further questions. Thank you. 150 MR. HAUSMANN: Well, ladies and gentlemen, we are early, very early. We've completed our presentations, then the next stage would be into our discussion. We usually take a break at this time but we've only been underway for less than an hour, so I would propose that we carry on with the dialogue and we'll take a break at the appropriate time a little bit later. 151 So why don't we just -- we usually give the ICF consultants the first question in the dialogue. So if Mr. Bermon or Mr. Crook have any questions, I was wondering if Ms. DeJulio -- 152 MR. HAUSMANN: She's just taken a break. She's been suffering from a cold. 153 MR. BERMON: Perhaps I can just get Mr. Baden's observation on the question -- 154 MR. HAUSMANN: Here she comes. 155 MR. BERMON: -- that's on the table, and Ms. DeJulio might want to comment, as well. But, if the situation arises where storage is a finite resource, and there is a new and instant demand for additional requirements in the province, perhaps Mr. Baden and Ms. DeJulio could comment on how an allocation of that resource ought to be made so that users could get access to that resource. 156 MR. BADEN: You're suggesting that there wouldn't be the possibility of new storage facilities? 157 MR. BERMON: That's right. Well, not on the -- perhaps, not developed in time to meet the demand. 158 MR. BADEN: I'm not sure that I could really give you an answer on that, other than, I mean, it becomes a question, I think, of priorities in terms of, in this case, the cost of electricity, if it affects generators, and the cost of gas to LDC customers. And I think those are objectives that have to be weighed. 159 I'm not sure. I think that's almost a decision that would have to rest with the Ontario Energy Board in terms of, should storage capacity in that situation be allocated some or -- storage capacity be allocated to generators in order to manage -- help manage electricity costs. I think that's an issue that would have to be addressed. 160 MS. DeJULIO: I'm sorry, I wouldn't have advice to the OEB on how to make that decision. 161 MR. HAUSMANN: Anybody from the audience? Chris Mackie. 162 MR. MACKIE: My name is Chris Mackie, and I have a question for Ms. DeJulio of TransAlta, to clarify her concerns on the injection withdrawal flexibility issue that she raised. 163 Ms. DeJulio, I have to assume, I don't know otherwise, that TransAlta has entered into a gas storage contract with Union Gas, for example, for the operation of gas storage related to the 575 megawatt Sarnia plant that you operate; is that correct? 164 MR. MACKIE: That's a good assumption. And I would assume, based upon -- in my former life, as a staff member, in the gas storage contracts I was required to review, that that gas storage contract would establish maximum daily withdrawal rates and, at other times during the injection season, perhaps, minimum daily injection rates; would that assumption be directionally correct? 165 MS. DeJULIO: I'm not familiar with the storage contract, but my personal experience in reading those contracts, I would believe that would be, generally, the right direction. 166 MR. MACKIE: That's the way the gas storage contracts are presented to the Board, and that's the way the Board has traditionally approved them, but I have knowledge of your specific contract. 167 If that is the case, can you just elaborate on the additional flexibility that you're seeking and why, perhaps, TransAlta should be allowed to trump the system, given that Union is operating an integrated storage system and needs to take the needs of all its storage customers into consideration? 168 MS. DeJULIO: I don't believe I used the words that TransAlta would want to trump the system. 169 MR. MACKIE: That was my interpretation of what you're seeking. 170 MS. DeJULIO: And I would suggest TransAlta is not seeking that. TransAlta is simply seeking the ability to meet its, frankly, difficult consumption needs with power plants, which change over the course of a day, or change over the course of a week, or over the course of a season. And my understanding is that there are some limitations and restrictions on that withdrawal and injection -- on those requirements for withdrawals and injections on their contract. 171 And also, more important, perhaps, is moving gas, for example, along the -- from Dawn to Parkway. That is extremely -- there is a lot of restrictions there, and that is where TransAlta is seeking some flexibility. 172 MR. MACKIE: Thank you. 173 MR. HAUSMANN: Mr. Ladanyi. 174 MR. LADANYI: Tom Ladanyi from Enbridge Gas Distribution. 175 Yesterday and today, I hear the word "inefficiencies" when different parties other than utilities are speaking, and there's always an allusion that, somehow, gas distribution utilities are operating inefficiently and you are looking for improvements in efficiencies. But I pose a question both to Mr. Baden and Ms. DeJulio, and the question is: Because you both used the word "inefficiencies," aren't those really -- inefficiencies, in fact, physical restrictions that you are talking about? 176 For example, if a gas-fired merchant power plant is far away from storage, far away from a transmission pipeline, obviously there is going to be physical restrictions on how much gas can be got to that plant in a short period of time. And if the plant is located close to storage, if it's located close to a transmission pipeline, the ability of the LDC is going to be, obviously, governed by that. 177 So what you might see as inefficiencies, actually, is a requirement for the LDCs to build far more physical gas mains than would be required at any one time, and having it sitting, as a standby plant, to wait for the gas-fired merchant power plant to come onstream. And somebody would have to pay for this spare capacity. 178 So these are some issues that the OEB would have to grapple with. Are you supporting, then, large expansions of the distribution systems to meet your needs? 179 MR. BADEN: I think it's a very good point you bring up. No, we're not advocating expansions, large expansions of the distribution system. I think, in terms of locating gas-fired generators, or generation facilities, consideration should be given and -- to locating close to interprovincial or international pipelines. And I think what we're seeking, in addition, you know, to those kinds of considerations, are additional services that can be provided through the LDC in cooperation with those interprovincial pipelines, the TransCanada, that would deal with the scheduling issues that arise, just because you're dealing with two commodities that have, essentially, different days and different requirements. 180 I think that issue, in terms of location of generators, is something that should be discussed, perhaps at the OEB level, in terms of what signals need to be sent to developers; that embedding yourself deep, particularly a large generation facility embedded deep inside a distribution system, may not be the right place. 181 If you look at the U.S., typically, gas generation facilities are built close to large interstate pipelines. So I hope that answers ... 182 MR. LADANYI: That's a good answer. Thank you. 183 MR. HAUSMANN: Ms. DeJulio, any comments on that? 184 MS. DeJULIO: I like his answer. 185 MR. HAUSMANN: Yes. 186 MR. HENNING: This is Bruce Henning, from EAA, representing Union. 187 I want to clarify something on the gas-day/electric-day issue, because I've had to try to put together that chart -- by the way, yours is even cleaner than mine is, when I try to deal with it. 188 My understanding on the gas-day/electric-day issue is that the gas system is operating on the days approved, 10:00 a.m. to 10:00 a.m., central time, North American Standard, and that each of the utilities generally operate from their 12:00 midnight -- 12:01 to 12:00 midnight the next day, on the local time. So I just -- is that your understanding, as well? 189 So if Ontario tried to move the gas day to be consistent with the electric day here in Ontario, it would then no longer match the rest of North America, nor would it match the electric day in, say, Chicago or Wisconsin? 190 MR. BADEN: I don't think -- I hope I didn't give you the impression that I was suggesting that, the gas day or the electricity day, one should move to meet the other. I think, as you say, the gas day is a North American standard, and I don't see that there needs to be a change in that. I think what we need to find, or develop, are services that deal with those differences between a gas day that's 10:00 a.m. to 10:00 a.m. and an electricity day that's midnight to midnight. 191 MR. HENNING: Thank you. 192 MR. GRANT: Jim Grant from Enbridge Gas Distribution. A question to Ms. DeJulio and Mr. Baden. Would it be fair to say that, generally speaking, the matters that you've raised today, which are very good ones, fall under a broad category of rates and services as opposed to policy, broad policy of the Board? In other words, if you had flexibility that you're seeking to redesign rates or the offering of services, would that solve some of the issues that you've raised today? 193 MS. DeJULIO: I would suggest that yes, certainly, some of the issues that TransAlta has raised today could be solved through new rates, perhaps common rates across franchises, but I suspect that not all problems could be solved that way. We heard from Mr. Fournier about the problem with going between delivery areas, and I mentioned also, you know, moving from Dawn to Parkway. So I'm not certain whether rates alone can solve that. 194 MR. GRANT: Thank you. And then just one follow-up quick question to Mr. Baden. In listening to you discuss your needs with respect to injection and withdrawal from storage facilities and your need for capacity, do you have any sense, generally speaking, assuming the types of plants you're talking about, the kind of capacity that you're looking for and the kind of injectability and deliverability that you're looking for? And by way of example, the peak-day to annual ratio within the gas system overall is roughly 1.7 to 1.8 percent, but your needs, I think, are going to be quite different. Do you have any sense of what they would be? 195 MR. BADEN: Yeah. I think -- well, we are looking for services that provide very high levels of injection/withdrawal, but not necessarily many days of capacity. I mean, we need to deal with a situation that may only be there for two or three days until we can get something scheduled and nominations lined up. So the ability to, perhaps, inject as much as -- say in the case of our plant at Brighton Beach, the ability to inject maybe 30 to 40,000 gJs a day for two for three days in order to get a situation lined out would be very useful. But typically, storage services are really designed for seasonal use, so that's not available right now. 196 MR. GRANT: Thank you. 197 MR. FOURNIER: Peter Fournier, I wonder -- I've had a chance to give more thought to the very good question of Ms. Chaplin and I would just want to add, I think, that I would hope Enbridge and Union would be watching the evolution of the Ontario market and watching the need for growth in the passage of, sort of, inprovince requirements and would be able to, in a timely way, expand the current storage capacity. I think this would be a good question to put to them this afternoon. 198 It makes sense to me that the cheapest way to expand Ontario capacity is for Union or Enbridge to do it as part of their role in rate base, because much of what they hold is well depreciated today. The actual -- it's the same capital cost to them as presumably to somebody else, but they can roll it into their rates. 199 So I think, in part, it would be, I hope, a solution that Enbridge or Union would see this need, both in the inprovince requirement coming and the -- hopefully would take steps to expand. But I guess the financial incentive has to be there for them too, and that's where you get to the question of cost-base versus market-based. 200 So hopefully they'll address that, in part, this afternoon. 201 MS. DeJULIO: Could I go back to Ms. Chaplin's question as well. You know, you were asking about the rate shock. 202 MS. CHAPLIN: Mm-hm. 203 MS. DeJULIO: My understanding is that TransAlta has experienced a considerable increase in the gas distribution rates as a result of changes in the cost allocation for upstream transportation and load-balancing costs in Enbridge's area. So I think that over -- what they've done is they've -- I think that they've taken these increases and been able to agree to phase them in - it's about a $3 million per year increase - and they've been phased in in their plants in Mississauga and Ottawa for over four years. But nonetheless, they still do face these increased costs and they cannot pass them through under their PPA. So, I guess, I just looked up some specific examples here and I just wanted to get back to you on that. 204 MS. CHAPLIN: Thank you. 205 MR. HAUSMANN: Yes, sir. 206 MR. STACEY: My name is Jason Stacey representing Sithe Canadian Holdings. 207 We've noticed ourselves the slow pace of development of new services from the LDCs for gas-fired generation and I just wanted to ask the panel if they have thought of what kind of incentives or policy directions would be needed to spur the development of these new services that are required from the utilities? 208 MR. FOURNIER: Peter Fournier, let me lead off on that. 209 I think one of the concerns of the utilities with respect to their storage assets today is the very fact that they are depreciated to some extent. Depreciation reduces the net rate base upon which you earn a rate of return, hence their return on the storage assets is less today than it was when they first built the things. And we've seen similar situation arise back in the late '70s with one of Canada's first oil pipelines, TransMountain Pipeline, now owned by Duke, reached a point about being 65 to 70 percent depreciated. 210 The pipeline operator went to the National Energy Board and said, Look, we're not making any money on this pipeline anymore. We're not going to invest in it anymore. So the Board had to make some rather unique determination of how to keep the shareholders and owners of TransMountain at the time still interested in operating a pipeline. And they did it by deeming a rate structure with a much higher equity ratio than had been the case before they did that change. 211 It's something that you might want to look at with respect to Enbridge and Union's assets. I'm not sure at what state they're depreciated. I'm sure if they had an opportunity to earn more on their storage assets, they would love that and probably be more enthusiastic in expanding on it. 212 Having said all of that, I don't know what IGUA's position would be if this came before you. Just speaking with my own experience, what happened with TransMountain. But that may, Jason, be one situation. If we need more storage, particularly to serve this growing, expanding, I guess, like it or hate it, gas-fired generation of electricity market, if we don't have enough storage to serve the existing Ontario market then we must do something to accommodate that without jeopardizing or hurting the interests of the non-franchise or non-province storage holders who have a very legitimate and valid need of taking Ontario storage, particularly Gaz Metro. 213 So I think we have some interesting discussions and deliberations ahead. There's one guy called Solomon that you might want to go out and hire and see if he can sit with you on the Board and bring you all of his wisdom, because you may need it. 214 MS. DeMARCO: I have a question for Mr. Fournier. It's Elisabeth DeMarco with -- 215 MR. STACEY: Jason Stacey here. Did any other members want to comment on my question? 216 MR. BADEN: I guess at -- I would maybe just add one more comment or offer one more comment in terms of policy or direction from the Ontario Energy Board. That perhaps -- recognizing the unique nature of natural gas-fired generation, that, perhaps, the way to deal with it is a separate rate class to deal with gas-fired generators, and allow the LDCs to develop products and services to deal with that specific rate class, and the issues that it raises. 217 MS. DeMARCO: Elisabeth DeMarco, with McLeod Dixon. I have a question for Mr. Fournier. 218 You've expressed concerns about the notion of efficiency in market-based storage options, and who may profit from such pricing. Can you comment on the role of the LDCs, currently, as providers of competitive storage options through your transactional services businesses, or S&T services that are offered competitively? 219 [Mr. Fournier's answer redacted from transcript as requested and agreed to by all parties] 220 MS. DeMARCO: Thank you. 221 MR. HAUSMANN: Ms. Hare. 222 MS. HARE: Marika Hare, for Enbridge Gas Distribution. 223 And I didn't want to cut Mr. Fournier off. On the other hand, transactional services is a matter before the Board right now, in terms of our rate case, with an outstanding decision. 224 MR. FOURNIER: I wish you had cut me off -- 225 MS. HARE: I should have cut you off, but, Mr. Fournier, I'd never do that. On the other hand, I don't think it's fair to actually discuss a matter that's before the Board right now. 226 MR. FOURNIER: No, I absolutely agree, and I wish you had cut me off, because I would have, I think, respected -- in fact, I think Mr. Betts is on that Panel, so it's even more of a conflict. I apologize, I thought that was dealt and done with, so I don't think it's appropriate to address an issue you haven't issued your decision on. So disregard everything I said. 227 MR. BETTS: Just by way of clarification, the Board is constantly facing additional information, on a daily basis, whether they read it in the newspaper, whether they hear it -- read it in other transcripts, and so on, so don't necessarily be concerned about the fact or the -- don't be concerned about that necessarily changing or influencing a decision that's being considered. 228 MR. FOURNIER: I hope it wouldn't, because I haven't worked for the National Energy Board for 12 years. I'm very alert and conscious of the fact that, once you've got a hearing and things are being deliberated, you're not trying to actively reargue your case, or reinforce it, or something like that, and I had no intention. It was honestly responding to Ms. DeMarco and I certainly -- so I hope you make your decision independently of whatever I said today. 229 MR. HAUSMANN: I'm sure he has been duly instructed to disregard those comments. 230 MR. BETTS: In reality, the issues that we're talking about over these six days, I don't think there's any Board member that isn't involved with some aspect of these questions, at some level, so we just have to do our job appropriately, and concentrate within every one of those other hearings on the evidence that we've heard in those hearings, and not be influenced by these other proceedings. But I appreciate this actually being put on the table. I was a little bit -- certainly it's -- much of what I'm hearing I've heard before, in a different forum, in a different room, but thank you for the clarification. And let's go ahead on that basis. 231 MR. HAUSMANN: Any other comments, questions, observations on the presentations this morning? Somebody at the back, second row. 232 MR. PACKER: It's Mike Packer from Union Gas. There were a couple of references to rate shock and changes to distribution rates. I wondered if the panel might comment on whether their comments were, in the Union case, at least, specifically directed towards the elimination of the delivery commitment credit? Or whether they had concerns with other aspects of our delivery rates? 233 MS. DeJULIO: This is Gia DeJulio from TransAlta. 234 Certainly, the elimination of the delivery commitment credit has caused a rate shock for TransAlta, and, I suspect, for most others in the Union franchise. We talked a little bit earlier about -- some of these problems that TransAlta's experienced could possibly be solved with changes to rates. And therefore, I would suspect that, yes, there are some Union rates that probably could be adjusted with respect to storage injection and withdrawal and, you know, the prices of those, or the way that those are managed, the way those services are provided, that could improve the situation for TransAlta. 235 MR. BADEN: I guess the comments I was making were not going back to deal with issues related to the phase-out of the DCC, this is on a go-forward basis, in terms of the need for additional and new services. 236 MR. HAUSMANN: Mr. Ladanyi? 237 MR. LADANYI: Yes, if I can go back to Mr. Fournier. You're the only one who actually dealt with the very extreme proposal that the utilities should be required to dispose of their storage assets, and I think you talked about the auction, as well. And if I could just explore this with you a little bit more. 238 It's your view that the utilities, and any affiliated company, should be completely out of the storage business, so that the purchasers of this storage assets would be non-utilities, such as marketers? Or who would be the purchasers, in your mind? Or can the utilities themselves still retain some storage assets? 239 MR. FOURNIER: Well, I think -- Peter Fournier, IGUA. 240 Certainly our base position is that utilities should continue to hold storage assets and provide cost-based rates. But if, notwithstanding that, it's determined we should go to a market-based system, then, in fairness, I think, the -- and in order to achieve the kinds of -- at least, the benefits of market-based prices, which presumably are lots of competition, and lots of providers, in other words, to have lots of competition. For that to be so, then I recommended then to hold an auction on, probably by-pool or by-cavern basis which -- without restrictions on who are the purchasers. So yes, the utility, at least your parent, I don't know whether you meant parent or you -- 241 MR. LADANYI: Either, the parents in both utilities, Duke and Enbridge. 242 MR. FOURNIER: Where I would want to see some kind of restrictions put in place was that the -- we wouldn't have a case, say, of Enbridge, if you have very deep pockets, for whatever reason, you buy everything. You buy all of Union's, you buy all of your own from this auction basis of each separate little pool, you end up holding the whole works as 100 percent. That wouldn't achieve that kind of multiplayer, lots of competition, market-based price which is to the advantage of the consumer situation. So I certainly have no suggestion that you should be prohibited from owning and operating, but I think in order to get that situation, if we go to this market-based system, that the conditions are such that there are a multitude of players given the opportunity and, indeed, do buy the assets. 243 I'm not a lawyer. I don't know what powers the OEB would have to limit somebody from consolidating and buying it all. I wouldn't want any single party, whether it's one of the utilities or one of the pipelines or one of the marketers or Peter Fournier, to be able to buy all these storage assets and hold them all and congregate them. That would be contrary to what, I think, proponents of a market-based storage system should be supporting. They would want to see, as I would suggest, a multitude of players so we have true competition. 244 How you achieve that, I don't know. I think we're best served under the current system of leaving utilities holding the assets to serve the Ontario requirement. That may not be where the world is going and -- but to get then to a different state, I think you need some kind of way to require that there's a multitude of players, but I wouldn't restrict anybody from -- including myself, to be able to buy all the storage assets. 245 MR. LADANYI: Thank you. 246 MR. HAUSMANN: Thank you. Follow-up, Mr. Packer. 247 MR. PACKER: Just to follow up to my earlier question. One of the responses was that there were possibly concerns around the pricing of injection and withdrawal storage services. And I just -- I wanted to make sure I understood what that meant. Are current storage injection/withdrawal services priced at cost? Is the panel suggesting that it should be priced at something less than cost and that somebody else should, potentially, pick up the difference, or what exactly are you asking for in that context? 248 MS. DeJULIO: This is Gia DeJulio with TransAlta. 249 I'm not asking for rates to be something less than cost and for somebody to subsidize those. Frankly, my understanding is that TransAlta needs flexibility in storage and injection, and if that can be accommodated in a physical -- obviously it's a physical requirement, but physical requirements can sometimes be managed. Physical needs can sometimes be managed through financial requirements, so if there is some creativity there, then so be it. 250 MR. HAUSMANN: Do we have anybody else, comments, questions, opinions? Does the Board have any other questions? Brian. 251 MR. GORMLEY: Bryan Gormley, CGA, sorry for the delay. 252 I just had one other question that I think I'd like to direct towards -- to probably TransAlta or other members of the panel if they're interested, and I guess it's around the concept of storage. You identify that there's the lack of flexibility in the current system, and I'm wondering why it is when you are in the operation or the construction of consideration of what facilities you need around your power assets, why you wouldn't consider building onsite storage to deal with your storage needs as well. It seems as though you've identified that as a need, so I'm just curious why you are looking to get the flexibility out of the other systems. 253 MR. BADEN: I think the cost of building onsite storage would generally prohibit that option. The quantities required would be, on a daily basis, fairly large. I don't think, at this point, that that really would be a feasible option. 254 MR. GORMLEY: In TransAlta, same answer, I assume. 255 MS. DeJULIO: That would be a very good answer, yes, for TransAlta. 256 MR. HAUSMANN: Mr. Betts. 257 MR. BETTS: Just one follow-up question if I can. I think both Coral and TransAlta have answered this, but the question was put to you: Do you see the need -- are there policy issues here that need to be dealt with in terms of gas storage or transportation from your perspective? And I sense that the answer was, and correct me if I am wrong, that you didn't really see a significant policy question here, but there was more issues of flexibility, there were issues, perhaps of rates and rate regulation and those kinds of things. If I'm incorrect in that, I'd like to have that clarified. 258 MS. DeJULIO: Gia DeJulio. 259 I think some of the policy issues might apply to commonality across LDCs, and we're seeing that coming up in the GDAR and perhaps that's where it's being addressed. Perhaps there's room for it to be addressed here too. I'm not sure. 260 MR. BETTS: Thank you. Thank you. And any clarification from Coral? 261 MR. BADEN: I think in terms of policy direction, the issue that was brought up through questions in terms of the location of some of these facilities may be an issue that needs to be dealt with through policy rather than rate-making. I think -- and perhaps at some point the Board may need to consider policy in terms of, sort of, the dual public interest of electricity and gas or gas-fired generator in terms of the cost of service in transporting storage and delivery of gas to gas-fired generator and how that affects the cost -- the price of electricity ultimately. That may come up. 262 MR. BETTS: Thank you. And I started with that lead because I wanted then to look to IGUA and get your comments, if you could, to focus in on what you see to be policy concerns, if there are any. And I didn't sense, in fact, from what you were saying that you thought there was a great need for policy change, but correct me if I am wrong. 263 MR. FOURNIER: Well the area that your question to my independent power colleagues, each of them, prompts me. And I confess my ignorance; I'm not as conversant as I should be with your own role as an advisor to the Ontario government in terms of policy. If you see an area, I don't know whether the OEB can independently give advice to the government or you only react to the government's request to tell us what you think. Investigate subject X and report to us on it. 264 If you have a scope to provide advice to the Ministry, to the Minister, then I think there is a genuine problem with respect to transportation. There is a genuine problem of serving Union north. It's a long way from storage and really has to be served by, effectively, back hauls or by diverting gas going south and then taking gas from storage and moving it on to the other markets. There are especially problems with TransCanada PipeLines in its capacity. It is capacity tight in the eastern part of the province. And there are problems with operationally TransCanada and its tariffs and its contracts, at times, an unwillingness to accommodate diversions of gas, or switches of delivery points between one delivery area and another, which my members have faced who have plants in -- multiple plants in different parts of the province, and trying to move gas from plant A, which may be up at Thunder Bay, and the company has another plant, say, in Napanee, Ontario, and can't move the gas from one plant to the other. It's the same kind of problem that Ms. DeJulio has mentioned. 265 There's a problem with TransCanada that, certainly, many of us who are involved with TransCanada are trying to work on and resolve. But I believe that the role of the provincial governments, as an intervenor in the NEB's regulatory process, and as a participant in the TransCanada task force, is a very powerful presence. 266 You're not representing commercial interests, you're representing the interests of a very large population. So, if there is scope for you to provide some policy advice to the Ministry on what would be beneficial for Ontario, beneficial for the utilities in managing their affairs, beneficial for large industrial users to manage their affairs, and beneficial for the independent power producers to create new power generation facilities in the province, then something has got to be done which addresses the current hurdles we have in moving gas readily around this province via TransCanada. Like it or not, it's a monopoly, and it's there. 267 MR. BETTS: Thank you. 268 MR. HAUSMANN: I'll go to Ms. Girvan, and then I'll say what I was going to say. 269 MS. GIRVAN: Julie Girvan, through the Consumers Council. 270 This is a question for TransAlta and Coral. I am just wondering, the ICF set out a number of options with respect to storage and storage pricing, option 1, which is essentially leaving the status quo in place versus a whole movement along the spectrum to a whole different model, and I just wanted to know if you had any positions, or preferences, in terms of those particular options, and what you would support -- whether you support the existing pricing mechanisms in place, infranchise and exfranchise, or whether you see the need to move to some different structure? 271 MS. DeJULIO: This is Gia DeJulio. In TransAlta's submission, we did not comment specifically on the options, but we did throw out the idea that the Board might consider consolidated -- consolidating the regulated storage functions performed by the LDCs into one arm's-length entity, such as an independent system operator. That was our submission. We suggested it might facilitate some efficiency, and provide the needed operational flexibility. 272 We did acknowledge that the assets are depreciated, and that any new facilities, any new storage facilities that would be build would likely be built at higher costs. Obviously, TransAlta is concerned that these higher costs could be passed through to customers, and customers, the existing customers on the system, have already paid for these assets, and we do not want to see any kind of rate shock with the development of new storage. So those are TransAlta's submissions. 273 MR. BADEN: I don't think I would add a whole lot other than what TransAlta has -- 274 MR. HAUSMANN: Give us your name, please. 275 MR. BADEN: Greg Baden. I think, generally, we favour market solutions. But, in this case, I think there has to be recognition given to the regulated assets and the infranchise customers, and there may have to be -- there should be that recognition, and perhaps a middle road, in terms of some market services and some regulated storage. We're not saying, and I don't think anything we've suggested so far, in terms of new services, that these new services should somehow benefit or -- from any kind of regulated asset. 276 MS. GIRVAN: Thank you. 277 MR. HAUSMANN: Do we have anybody else out there with something they want to add to this discussion? I'm getting the sense that we're kind of running out of dialogue here, and that's why I've carried on beyond the scheduled break time, and maybe we should -- if we break now it's going to be a long break. We have -- 278 MR. BETTS: I think we can just move the schedule ahead. The only risk is that we might finish early, unless anybody has a problem with that. 279 MR. HAUSMANN: The other risk is that there may be people who were planning to be here for that this afternoon who are going to miss it, but that's probably not a big risk. 280 MR. BETTS: That's true. And I think, from our point of view, and to address that point, that we have an expectation that everybody's here all the time. So I trust that -- that for the record, if there's an expectation that someone is to be on at a given day, they should be here at the beginning of the day, and stay until the end of the day. So there is an expectation that everybody's here that should be here. But it might be worth while to ask if -- and this afternoon's panel, I see Enbridge and Union, and would representatives from those two companies be able to comment, is everybody here that needs to be here, for that panel? 281 MR. PACKER: We are here, Union is here. 282 MR. BETTS: Union is here, and Enbridge has indicated the same thing. It looks as though we can proceed with the panel presentations. So let us go ahead with the break, and we'll just move the schedule ahead, accordingly. 283 MR. HAUSMANN: It's 20 to 11:00. We'll reconvene at five to 11:00, and continue on from there. 284 MR. FOURNIER: Peter Fournier. Could I just ask one question. Would it be appropriate to ask the court reporter to delete the comments that I made in response to the question of Ms. DeMarco from the transcript? And I would -- I think it would be appropriate that that be done. 285 MR. BETTS: Let me just ask if there's any parties present that would object to that portion of the transcript being deleted. I see here that nobody would -- oh, Ms. DeMarco? 286 MS. DeMARCO: Mr. Betts, I have no problem with the deletion, and it wasn't, in fact, responsive to the question that I think I asked. 287 MR. BETTS: Then thank you. I saw no objections to that, so we will have that portion deleted. And, Mr. Fournier, maybe you can just work with the court reporter to make certain she understands what portion should be deleted. Thank you. 288 --- Recess taken at 10:40 a.m. 289 --- On resuming at 11:00 a.m. 290 MR. HAUSMANN: Can we reconvene, please? Take your seats. 291 Our first presentation -- 292 MR. BETTS: Can we have everybody please be seated. 293 MR. HAUSMANN: Thank you very much. 294 Our first presentation is from Enbridge, Mr. Jim Grant and Mr. Tom Ladanyi. I'll turn the mikes over to them. 295 SUBMISSIONS BY MR. GRANT AND MR. LADANYI: 296 MR. GRANT: My name is Jim Grant, I'm the Director of Storage Services for Enbridge Gas Distribution and my responsibilities include the operation of our Tecumseh gas storage facilities in southwestern Ontario. We want to thank you, the Board, and everyone for giving us the opportunity to make the presentation today. The presentation that I'm going to give essentially summarizes the paper that we have filed and that is on the Board's website. 297 In dealing with the issues that are raised in this process around gas storage, what I want to do in this slide is just lay out a little bit of an introduction as to how we've approached the situation and approached the issues that have arisen. 298 As many you of you know, EGD is the second largest storage owner and operator in Ontario. Our operation is currently dedicated to Enbridge Gas Distribution infranchise needs, and we provide a service, in addition to that, to Union Gas. There's about 90 Bcf of service to EGD, about 6.7 Bcf to Union Gas, and a further 1 Bcf of contract with St. Lawrence Gas, which is a small utility in upstate New York. 299 We believe that the OEB storage policy is of crucial importance to the energy market in Ontario, not just today and tomorrow, but in the past as well. And in trying to deal with these matters we've taken a look at both the past and the present. 300 We feel that the ICF paper is a very good starting point for discussions in this process. We think that they tackled some tough issues in a very short space of time, and one of the things that we think comes pretty clear through their paper and elsewhere is that the market, as it exists today, is integrated. It is competitive, and it is in need of some policy direction. 301 Historically, policy has been set in a number of different ways. Going way back in time to something called the Langford Report, we reviewed that report ourselves and felt that there was principles that were laid out in that report that was written way back in 1962 that still applied today, yet there are others that are not applicable today because of the sophistication of the market today. 302 We also took a look at the Board's Act and we found some direction there around the storage matters. And those are appended -- some discussion of that is appended to our paper. I won't get into it today in the presentation, but it's appended to the paper that we filed with the Board. 303 Finally, let my say that over the years, the Board's decisions have, on an incremental basis, set policy in the storage area. We heard some discussion earlier today about transactional services. The Board has rendered decisions, both in the Enbridge case and the Union case, over time that have has set some policy around how it is to treat transactional services. 304 The Board also has issued numerous facilities decisions and has tackled issues that relate to small storage operators as well as large storage operators. The CanEnerco decision from 1998 is quite instructive around policy, we believe. 305 Looking ahead, we believe that it's time that the Board introduces a mix of both regulation and deregulation into the picture, and that this will meet a public interest test. 306 Finally, let me say that storage owners and developers can provide services to balance requirements for the electricity generation market, and we heard some of that discussion earlier today. I'll come back to that a little later in my presentation. 307 The key here though, of course, is that we need a good OEB policy framework to do it, and that includes pricing of regulation and deregulation policies. 308 For those of you who are not aware, this is our system, most of our system, down in the Lambton County in southwestern Ontario. These are our reefs. They are all depleted natural gas and oil reservoirs. We don't have any salt caverns. We store a total of 11 storage pools in the counties, Lambton County, Kent County and down in the Niagara region about 98 Bcf. We have about 98 Bcf of capacity. Peak-day deliverability is about 1.75 Bcf a day. 309 We have 151 storage wells in our operation, roughly 50,000 horsepower and some fairly tightly -- in terms of geographic area, a fairly tight area of gathering lines and transmission lines. These are twin 30-inch transmission lines that run from the plant straight down to Dawn. That distance is about 13 miles. 310 With respect to the ICF paper, we believe that it explores some of the alternatives, and I'll get into comments in a second. We believe that they've proposed some good criteria, and we have some suggestions on some improvements that can be made to those criteria as well as what we believe should be some kind of a weighting process around the criteria. 311 Clearly, and I don't think that this was within their mandate, but it does not answer the question of what is best. What is best for Ontario? The Forum process will, hopefully, inform the Board on that question. 312 Now, getting right to the ICF paper itself and looking at the scenarios that have been laid out, we have carefully read each of the scenarios and come to the following conclusions. With respect to model 1, which is essentially the status quo, it is an option that's available to the Board. The Board could go through this process and decide that things are just fine the way they are, but we believe that it doesn't, from a policy perspective, address the long-term interests of the industry and stakeholders. 313 And just as importantly, we feel that it doesn't deal with some of the fundamental issues. And some of these issues have come up in other jurisdictions, and the ICF paper takes us through some of that, but essentially they boil down to the appropriate market signals in the marketplace, and some incentives, some kind of policy that will encourage storage development in that particular jurisdiction. And I think Ontario falls into that category as well. There is some need for policy in that area. 314 So model 1, the status quo, doesn't really address these fundamental issues. 315 Model 1(b), we view the same issues are there as above in model 1. We agree that it would improve some transparency in terms of pricing of existing storage, but we view that really as a first step to some much longer-term objective that the Board should have. We don't believe that it's a necessary first step. It doesn't have to be that one separates the storage operation from the distribution operation, either notionally, all within the same corporate entity, or removing it and setting up a separate corporate entity. 316 If the Board were to do that latter, in essence, we would be back to the future, because that's the way Tecumseh gas started out. Tecumseh was a separate, legal entity, 50 percent owned by Imperial Oil and 50 percent owned by Consumers Gas for a good number of years. So again, we don't believe that that's a necessary first step, although, obviously, it's a policy option for the Board. 317 Model 2 in the ICF paper is perhaps the most radical of the alternatives that are put forward to the Board. 318 Let me, first of all, start by saying, however, that Enbridge Gas Distribution is not opposed to full-market pricing for storage in an end-state. So eventually, we believe that you should get to a point where all storage in Ontario is priced at market. That provides the correct market signals. 319 The debate, really, is, how long is it going to be before one gets to the end-state? And you probably would -- will hear a wide range of views on that. Model 2 is a very revolutionary approach to it that basically says, Just get on with it, and do it quickly, and come what may; so let the chips fall wherever they may, and let's just get on with it. We don't believe that that is the appropriate model. 320 We believe the Board can stay focused on an end-state that has full-market pricing for all storage at some future date, but there needs to be some logical sequencing, some logical steps to get there, and I'll get to that in a few seconds. 321 So, really, when you think about the issues around model 2, the first issue that crops up is the notion of any kind of forced divestiture of assets, or capacity, or capabilities, of our existing operation. Enbridge Gas Distribution is clearly opposed to that, and, indeed, I've heard some discussion earlier this morning about auctioning. Regardless of what way you put it, forced auctioning or divestiture is not in the cards from Enbridge Gas Distribution's standpoint. 322 We believe that it would impair market evolution, in fact, if you were to do that. Underline the word "evolution" in that sentence. We feel it's most appropriate to take an evolutionary approach here and, not inconsequentially, there are very serious legal issues to moving down the road on a model 2 type of situation, and I won't get into them, but they are very significant. 323 So, really, we believe that it's not time for this kind of change in the storage market. The Board can stay focused on an end-state where there is eventual market-based rates, but it's much more prudent to take an incremental approach over that period of time. 324 And, of course, the Board, from a policy standpoint, has to be concerned about the public interest. We don't believe model 2 would meet any kind of a public-interest test. It would immediately raise rates to end-use customers, it would expropriate investor value, and it would send very negative signals, obviously, into the investment community in Ontario. 325 The other comment that I'll make on model 2 is that the jurisdictional experience that is noted in that model, while we believe it has, probably, some application, or is of some interest in this process, we would urge the Board to be very careful in simply trying to replicate that kind of situation in -- into Ontario. The factual situation is different here in Ontario. The fact is we have very inexpensive storage today, embedded in the utilities, and that isn't necessarily the situation in other jurisdictions. 326 Now, I suppose if we sat here and said, The cost-based rates that are embedded in utilities' rates for storage are much higher than the market-based rates, that would be a totally different factual situation, and may cause the Board to say, Well, let's look to these other jurisdictions that had a similar factual base, and see if there's some learning from that. But we don't believe that's the situation. As I say, we've got very inexpensive storage embedded in rates today. 327 And, of course, the other thing is weather. Our province is much more weather-sensitive, and, therefore, load balancing. Not just storage, but load balancing more broadly is of crucial importance to the proper operation of gas distribution and transmission infrastructure. 328 Moving, then, to model 3. Enbridge Gas Distribution supports this type of model, and I've got some qualifying remarks around this. 329 So, once again, what we support here is the idea of an incremental approach, where the Board can make changes over time to the way it regulates. So, in other words, the Board can start out and try to define what it needs to regulate and what it doesn't need to regulate, and have a mix of regulated services and rates, juxtaposed to unregulated services and rates. There's nothing wrong with that. 330 We believe there's two threshold issues, though, that should be before the Board before you move in this direction. And, boiled down, they look like the following: 331 The Board needs to take a look at the competitive market for transactional services. What the Board should do here, I believe, is take a look at how competitive that market is. Enbridge Gas Distribution has been in that business for some period of time. It is highly competitive. 332 The Board should go through a process where it hears submissions, and perhaps even evidence - I'm not suggesting it has to be a formal proceeding - but it certainly hears submissions on the competitive market for transactional services as it relates to Ontario, and, more broadly, northeastern North America. 333 In the end, we believe that the Board can conclude that it is competitive, and that would lead to a natural outcome of deregulation; deregulation not just on the rates, but deregulation of any of the rate-making implications of transactional services. I think that was sitting on 50 percent of Mr. Fournier's thinking earlier this morning, but I think that's what he was saying. But essentially, we believe that the market is competitive enough for the Board to forebear on the regulation of transactional services. 334 Secondly, and this is important from a policy standpoint, there is a need for new storage development in Ontario. We also believe that the market there is competitive. So that threshold issue, or question, should be considered by the Board, and we believe the Board can conclude that it is a very competitive market. 335 And let me pause here just for a moment. I'm not just talking about a competitive market for storage development, but really for load balancing, because it's load balancing that the new power generators really need, whether it's from storage or any other source. So those competitive prices are out there for many of those services today, so it's kind of, I think, incumbent upon the Board, when it's looking at new storage development in Ontario, to think broadly about load balancing, as well. We believe that the Board can conclude that it is a competitive market and therefore, can forebear, forebear on the regulation of rates. 336 Now, in the paper, and I'll come back to this in my summary, but in the paper, we do say that we believe that the Board very effectively has regulated the facilities' side of the storage business, and that the Board ought to continue to regulate the facilities' side. So that would mean designation of storage areas, approval to inject, store and withdraw gas, approval to build pipelines and even to drill wells. We believe there's efficiencies in the process that the Board can introduce, but, by and large, those facilities should still be regulated by the Board, the facility's construction. 337 So, coming back to model 3, we believe that it's a good option that provides cost-of-service storage services and rates for core customers. And it let's the OEB determine the pace of transition from the existing status quo situation to the eventual end-state of full market-based pricing for storage. 338 So, let's think about this as an example. If you were to define your core group of customers, provide cost-of-service-based storage rates to that group, one could say that that would last for five years, or, if the Board felt that it should be longer, it could be 10 years. That period of time can be lengthened or shortened, depending on how the Board feels the market is developing over time, the broader market for storage services. So, if the Board felt that it was not in the public interest to move to fully-market-based gas-storage services for, say, 10 years, that's something the Board can decide through that process, and have all that flexibility. 339 Finally, model 3 provides a strong incentive to the industry for growth and it corrects pricing signals at the margin. So in new storage pool development, deregulation of those rates allows those developer to charge market-based rates. That's a strong incentive to the industry. We have capacity today that's been developed over time and is depreciated. Well, you just simply don't develop new capacity as those kinds of low rates. You simply can't do it. I'll come back to this again in another slide. I want to give you some perspective on storage development. This next slide does that. 340 What I've done here is, here we have roughly 240 Bcf in Ontario, and that's out of the ICF paper. Make note that about 70 of that Bcf is already priced at market-based rates today. It's in the Union system, it's excess to their infranchise needs, but it's priced, 70 of the 240 -- is priced at market-based rates today. 341 In terms of the storage development in the last five years within Ontario, about 21 Bcf. And 7 Bcf was your Ladysmith pool, which was put in service in 1999, and Union has developed the Century pools. And when you add those two components together you get about 21 Bcf. 342 Market-based volume in Ontario. The note 5 simply makes the point that Union is selling the storage that it's developed at the margin on both, sort of a mixed basis, cost- and market-based arrangements. 343 And of course the Board has before it some pending storage developments. Two smaller operators have made application to the Board. 344 Looking right over here to the right-hand side of the page, look at Michigan. A huge amount of storage sitting there. That is all within Michigan and Ontario or within the Michigan basin, a pinnacle reef belt, excellent storage both in Michigan and in Ontario in terms of quality. They've got 623 Bcf developed. They recently developed 81 Bcf in that marketplace, and it's all been priced at market-based rates. 345 So next door we've got some things going on that, in terms of development and the pricing of that, have been absolutely key, I believe, to making those projects go forward. 346 Conclusions, then, and I won't -- these are really taken right from the paper and I won't bother everybody with all of the details, but let me quickly go through it. We believe that the Ontario public interest can be served through competition, where such competition exists to the satisfaction of the regulating authority. We believe the Board should take into account when setting policy. 347 We believe that it is prudent for the Board to adopt a middle ground of views in this process, and many elements of option 3 fit reasonably well within that middle ground. It gives you the option of going forward, really, on an incremental basis, making small changes that are bite-sized, that the market can absorb and understand, end-use customers can absorb and understand. In that regard, the Board can preserve the existing regulated low-cost, high-reliability aspects of our operations at Tecumseh for the exclusive use of Enbridge Gas Distribution utility and its core customers. 348 Some storage services such as TS, as I mentioned, and new storage development should be deregulated, subject to a competition review by the Board. And as I said, facilities should be regulated, we believe, by the Board, their construction. 349 There's been some discussion in the last couple of days on the utility's role in terms of overall system planning. Overall system planning on the gas side of the industry has been done, we believe, very effectively by LDCs, both Enbridge and Union, over the years. We're pretty good at it. We've done it for years and we believe that the regulated utility should still play a crucial role in the efficient planning of all gas infrastructure, including storage. Does that mean that the LDC has to acquire all of its storage in Ontario? No. I think the LDC can look for load balancing from many different areas to fit its needs. 350 The ICF paper has given you a range of policy options. In our view, option 2 is not an acceptable alternative for Enbridge Gas Distribution. 351 We discuss a couple of important criteria that should be added to the matrix that ICF has put together, that being an investor or shareholder incentive. That ought to be a criteria for the Board in deciding on a model. Does a particular model or policy direction provide enough incentives to the industry to go out and develop new storage and be creative in how it provides services to an emerging sector, that being gas-fired electricity generation? 352 Finally on a practical level, there has to be some operational considerations given to this, and we heard some of this earlier today. There are operational issues with immediately providing a service, for example, from our facilities to people like Coral, but these are not insurmountable issues at all. These are things that we can overcome, and we can overcome them pretty quickly. 353 For example, high deliverability at certain times of the year that a power plant would need can be delivered today from our facilities at certain times of the year. If we have coincident peaks, however, of demand from the gas side as well as the electricity side, that's what we need to think through. That's where we need to maybe change out some hardware, add some compression, do something in order to provide that additional service. So operational acceptability is a key criteria for the Board, I believe, in terms of setting policy. 354 In that regard, we believe that we are at the ready to provide service to electricity generators as long as we have the right pricing signals from the Board, the right regulation and deregulation signals from the Board as a matter of policy. And that applies as well to developers of new storage capacity and deliverability in the province. Once again, you've got to have the right risk/reward paradigm. You've got to have the right regulatory environment that rewards risk takers and allows for deregulation where it should exist. 355 I think that's it. Thank you for your time. I probably took more than 15. I apologize. 356 DISCUSSION PERIOD: 357 MR. HAUSMANN: Thank you, Mr. Grant. We have lots of time today, so that's why I didn't give you lots of warning. 358 Questions from the Board? 359 MS. KLEIN: Laurie Klein. 360 What are your set of criteria to, say, it's a competitive market? 361 MR. GRANT: Yes. There are a number of tests that other regulators use. In fact, the ICF paper discussions one of those tests, and I think that's a test that FERC tends to rely on. So the Board, from a policy standpoint as far as I understand, anyway, would have quite a lot of flexibility in determining what tests it would like to hear on this competitive question. But I think tests that have been sent by other regulators would certainly be important ones for the Board to consider. So the FERC-type test would be relevant. 362 There may even be some relevance to a test that has been applied on the forbearance question in other industries, such as in telecommunications. So there may be those types of tests that the Board would want to hear evidence on and that may be determinative from the Board's standpoint. 363 MR. HAUSMANN: Anybody else? Cynthia. 364 MS. CHAPLIN: Cynthia Chapman. 365 You indicated that it would be, sort of, for the Board to decide what the timing might be for a transition to market-based rates. Do you have a view, at this point, as to how long you think that that should be expected to take? 366 MR. GRANT: My view is that the Board should deregulate in the areas that I've described as a first step. I think the Board should then give it some time, perhaps as much as four or five years, to see how things are going, and with a target. And I don't want to sound too prescriptive about this, but if the target was in the range of 8 to 10 years out, that's probably a long enough time for all parties, whether it's ratepayers or anyone else, to adjust, for the industry to adjust. 367 MS. CHAPLIN: And would that timing be suitable in terms of meeting -- I guess it's because you're saying it, but I guess I want to just confirm that that timing is acceptable from the investor or shareholder perspective. 368 MR. GRANT: I think, obviously, if the right conditions are there, in other words, if you're going to move to market-based rates, don't go down the road of option 2 where there's forced divestiture that's clearly not acceptable to us. But if the right conditions are there, I think, from an investor standpoint, sooner rather than later, which would put us at the closer end of that range. 369 MS. CHAPLIN: And, correct me if I am wrong, but is it your position that you would be in a better position to address the needs that have been identified by the electricity generators under the market-based regime than under the cost-of-service regime? 370 MR. GRANT: Absolutely. 371 MS. CHAPLIN: And could you, perhaps, expand a bit on why that's the case. 372 MR. GRANT: I think it really goes to that incentive component of the criteria I was explaining. Clearly, if you go to market-based rates, there is a stronger incentive to really hop to it and change out your infrastructure where you need to do it, and to search for commercial solutions that these customers are looking for, without going through elaborate regulatory processes around rates and the implications that go with it. 373 MS. CHAPLIN: Thank you. 374 MR. BETTS: I have a couple as well. It's Bob Betts here. 375 First of all, you were referring to, at one point, a price-signalling effect that the market and, in fact, the consumer could benefit by if there was a competitive rate structure around storage. Can you expand on that a bit? Are you actually talking about the beneficial effects of a price signal on storage as impacting the marketplace, or is that not overshadowed by the commodity price? I'd appreciate your comment. 376 MR. GRANT: Well, I think -- let me just focus for a second here on storage, so I'll -- and I will get to your broader question about commodity. I think that, in a theoretical construct, if all of the stars are aligned, meaning all of the right components are there in the marketplace and you have market-based pricing for anything that you're talking about, whether it's storage or anything else, then the end-use customers make rational decisions, rational decisions on what is needed for that particular sector of the industry, so how much storage do I really need, how much -- or is it really load balancing that I need; and if it's load balancing, where should I get that from, and what are those clear price signals to me. That way I can make a rational decision in that market end-state. 377 So that is what I meant, I guess, when I made that comment around pricing, because it really does create a more efficient overall market for people that are in the market, whether you're an investor or a user of the services, of the storage services. 378 With respect to the commodity side of things, my understanding is that the recent debates have really been around the role of the utility and the role of system gas within the marketplace. I personally believe that system gas can coexist in the marketplace, even in an end-state, with a whole bunch of other offerings, as long as it's properly priced, as long as it reflects all the appropriate costs that it should reflect. 379 So I don't see a particular need to exit, although I think a purist would argue would me. A purist would say, Look it, if you're going to exit, whether it's storage or commodity, then you just exit. You deregulate and you allow full pricing on all aspects of the energy market. 380 MR. BETTS: You indicated that you felt that the -- I think the ratepayer, in general, or the consumer, in general, could benefit from a competitive market, assuming that there was a competitive market in place, and Ms. Klein maybe led to this, but I'd like your impression whether the shares that exist now in the Ontario market, the shares of storage availability would suggest that there could be a competitive market without some form of divestiture. 381 MR. GRANT: Yes, and that's an important distinction that we should make here. When we're talking about the storage market, we're not just talking about Ontario, and this would presumably be part of the analysis that was done for you in a competitive market study. Fundamentally, what you're talking about is Michigan storage, Ontario storage, and even New York storage in terms of the physical storage. 382 Additionally, there is notional load balancing that's out there. But focussing for a moment on the physical storage assets themselves, that's essentially the market you're looking at. You're looking at Michigan and Ontario and New York. There are interconnections between -- especially Michigan and Ontario, and an interconnection in New York as well. 383 Those interconnections introduce a very efficient transfer of the molecules between these jurisdictions. And when you think about Michigan, and then moving forward on their market-based pricing, it really says to you, I believe, Look at the market in total, Michigan/Ontario, decide whether that is competitive, decide on what the market shares are for all the players in that market, and then ask yourself whether it's time to forebear. 384 MR. BETTS: Thank you for that clarification. 385 Another point you were making was a recommendation that, over time, we could or should move to a market-based rates storage, but I also heard at one point in your presentation that you wanted us to disregard what is happening in other jurisdictions because, generally, our prices are better than theirs where we have inexpensive storage. My feeling was that the movement to competitive pricing was partially based upon the concept that there might be an increase in rates and, therefore, that would support further investment, et cetera, et cetera. 386 So how do you balance the prospects of increased rates and, therefore, eliminate the need to consider those other jurisdictions that are facing higher costs? 387 MR. GRANT: Yeah, that's a tough issue that the Board needs to deal with, I guess. My thinking has landed on this hybrid approach of regulation and deregulation and move incrementally for the kinds of reasons that you've stated. In other words, part of the public interest is going to be that you have low-cost storage; that's a fact. Part of the public interest is going to be that competitive markets, at the end of the day, are more efficient than regulated markets, so that's also a part of your consideration, I guess. 388 So this tension, the natural tension between the low-cost storage that exists now and the prospect of a better day when there's an end-state, where there's a fully-competitive marketplace, that can be bridged through a kind of incremental policy approach, where you're monitoring -- where you're saying, We're going to preserve what it is that's good about the existing market and gradually introduce reforms so that we can get to, eventually, an end-state. And in that way, you're doing that balancing as you go along between the need for many core customers -- in fact, all core customers would want a continuation in some form of the lost-cost storage that exists today for some period of time. It's that balancing -- it's a tough issue. 389 MR. BETTS: My final question relates to a statement that you made that there were legal issues, and I think you were speaking specifically about the concept of divestiture when you spoke of those -- 390 MR. GRANT: Yes. 391 MR. BETTS: -- and you clearly indicated that you weren't going to talk about that, but I'm not sure I'm going to let you get away with that. I would at least like to understand what the foundation is for that. I don't need a description of what's involved, but the foundation for that statement. 392 MR. GRANT: Yes. There are a number of issues that come up, and I have to preface my remarks by saying I'm not a lawyer, so I'm not going to speak from a legal perspective on this matter. But the issues that come up really relate to, in essence, expropriation. It's an expropriation of value or assets or capacity; if you go down the road where a regulator is attempting to force a utility that has storage rights, for example, has acquired those rights over many years, and holds those rights in a legal sense, forcing somehow those storage rights, or assets, or capacity to be given up by that private-sector investor, and given to, presumably, another private-sector investor, whether it's a marketer or large industrial customers or some other intermediary. The first issue the Board needs to look at, I guess, is whether it has the power to force this sort of thing under its Act, whether it has these expropriative powers to force that situation. 393 At a practical level, let me say divestiture or auction process presumes that you have a willing seller and a willing buyer. Well, I guess one of my messages is that in option 2 that the ICF paper has put together, you wouldn't have a willing seller. They would be forced to divest of a key asset like this in some kind of a process, and then have a regulator, kind of, divide up the spoils. That, to us, runs completely counter to the fundamental rights that we believe we have, ownership rights on those assets and those storage rights. 394 MR. BETTS: Thank you very much. 395 Those are all our questions, thank you. 396 MR. HAUSMANN: Well, Mr. Chair, it's now quarter to 12:00. So I think if, with everybody's agreement, we will break for lunch and we'll continue with the presentations after lunch. We will reconvene at 12:45 sharp. Thank you. 397 --- Luncheon recess taken at 11:45 a.m. 398 --- On resuming at 12:45 p.m. 399 MR. HAUSMANN: Welcome back, ladies and gentlemen. Thank you very much for being so prompt and timely. 400 We'll proceed with the presentations now. Union Gas is going to make a presentation with Mr. Steve Poredos and Bruce Henning in two parts. Mr. Poredos. 401 SUBMISSIONS BY MR. POREDOS AND MR. HENNING: 402 MR. POREDOS: Good afternoon. My name is Steve Poredos, and I'm the Director of Capacity Management for Union Gas. Union would like to thank the Board for the opportunity to present our ideas and positions on the particular issues within the Forum. 403 Originally, due to time constraints, we had actually cut the presentation. I'm just going to speak to the highlights of our presentation from Union's standpoint. We also submitted a companion paper from the Energy Environmental Analysis Inc., EEA, which actually does deal with competition, competition in the storage markets. And I think it's very relevant to some of the questions that were asked this morning. We've asked Mr. Henning from EEA to do a short presentation, if we can actually find it, on the computer. If not, we will do it from our slides, just speak to it after my presentation. 404 The EEA paper does draw three conclusions that we wanted to bring forward in terms of competition. The conclusions are that there are no barriers to entry that would prevent a workable competitive market of storage providers in Ontario, that at minimum the market that Union competes in is within the Great Lakes basin, perhaps even larger, and the third point being that storage services market in Ontario is competitive. 405 Now, let me summarize Union's position on the consultant paper. 406 Union supports the status quo model with respect to utility storage ownership and operation, the priority of storage services for the base requirements of infranchise customers, the cost-base rates for infranchise base needs, and market-based rates for all others. However, Union does not support the status quo for the approval of storage contracts or the continuation of the S&T deferral accounts which we believe should be rolled in and included within the parameters of the regulatory regime. 407 Union strongly opposes any forced divestiture of company-owned assets, and we recommend the Board not require approval of any storage contracts for party firm or amount. We also recommend the Board regulate new storage capacity only from a technical and environmental perspective. Union believes the storage service market in Ontario is competitive and, as we'll show later through the study that EEA did, that Union or any other third-party provider cannot influence the market pricing or set discriminatory pricing through the variety of readily available alternatives to storage services and the number of providers for those services. 408 As such, Union believes a regulation and approval of storage contracts, that today are limited to 2 Bcf for any individual customer and/or a 17-month term, should be eliminated and that the Board should only regulate new storage capacity from a technical and environmental standpoint. 409 The discussion paper seems to suggest that the LDCs, in some way, were restricting new development. Union Gas supports third-party development of storage. It enhances the Dawn hub and creates value for Ontario customers and the Ontario economy. Economics drives storage development, and markets will choose the best option or alternative. 410 Storage development competes for capital on a North American basis. In our view, future storage prospects are limited, carry more risk, and are located further from a liquid trading point such as Dawn. However, the market is working. There is a demand for storage services, and clearly there is an interest from storage developers in Ontario. Union treats all third-party storage consistently with regard to transportation tolls to and from the proposed storage facilities. The Board has the option of dealing with transportation services to and from the storage pool without radical, structural changes that were proposed within the consultant's study. 411 The discussion paper also seems to suggest that there are restrictions to take away capacity from Dawn to Parkway, and that's somewhat confused Union from a standpoint that short-term and long-term Dawn to Parkway capacity is available in the secondary markets and can be purchased. Union will build incremental capacity if there is sufficient commitment for firm, long-term contracting to justify the investment. 412 Union is conducting an open season as we speak to gauge the customer interests and level of commitment. I would also like to comment that all customers that have cost-based storage are also free to purchase incremental services, either from Union or from a third party, if they require services that they're not getting from Union itself, in the open market. Now, those may be at market-based rates. They may not be at cost. 413 With regard to storage pricing, the discussion paper mentions a possible scenario of taking infranchise cost-based storage to market-based rates. Union is not opposed to moving to market-based rates for all customers, but that would require significant change to the regulatory framework to make it meaningful. Any regulatory framework that takes the difference between the cost-based rates and market-based rates and rebates it back to customers within the franchise has done nothing. We're back to where we are today. So is that an effective way to change the market? You really are not achieving the economic efficiency that the goal was set out to achieve. 414 Union does not have any unregulated storage provider or affiliate managing its storage assets, as was suggested in the discussion paper. The discussion paper also suggests that customers have some right to the underlying storage assets. In Union's opinion, customers receive and pay for only those services that they consume, and customers do not acquire the storage asset itself by paying a regulated rent. 415 Union has submitted evidence in regard to a functional separation of storage assets in response to the Board's directive on lines of business reporting, and that evidence, which was widely accepted by the Board and stakeholders, concluded that there were identifiable benefits to functional separation. In fact, that study suggested that there would be incremental costs which would be passed on to customers and increasing their rates. 416 Before I conclude, I'd also like to comment on some of the issues that were brought up this morning from TransAlta and, I believe, the Brighton Beach prospect. There was an issue regarding the gas day and the electric day, and from Union's perspective, we are working with these customers to do everything we can to provide those services, if we can provide them. In terms of the difference between the gas day and the electric day, there is work being done in the United States through the North American Energy Standards Board which is trying to bring those two pieces together on a North American basis. Union works with a North American pipeline, so we have to be in line with that. Once that's concluded, we will accept the work that's done there and align with it. 417 In terms of some of the services that were mentioned this morning, Union, I believe, from what I understand, we are working with those electric generators to try to provide the service that they are requesting. Some of those services, however, will require incremental capacity or incremental facilities that will have to be paid for by someone. The question will be, where's that cost going to be allocated to reserve the assets for instantaneous storage, for incremental transportation on the system? 418 In summary, I would like to repeat that Union does support the status quo model in terms of the storage ownership and operation, priority of service for the base requirements of infranchise customers, cost-based rates for infranchise base needs and market-based rates for all other needs. Union does not support the status quo for approval of storage contracts, nor the continuation of the S&T deferral account in the manner which it is today. And Union strongly opposes any forced divestiture of company assets. We recommend that the Board not require approval of any storage contracts for party term and amount, and we recommend that the Board regulate only -- new storage, only, from a technical and environmental perspective. 419 Those are my comments, and I'll pass it on to Bruce to discuss the competition paper. Or would you prefer to ask questions first? 420 MR. BETTS: Let us hear the whole presentation, and then we'll hear questions. 421 MR. HENNING: I'm looking here and the -- there were actually several different -- unfortunately, it doesn't appear the one is on -- the particular slides are there, but that's all right, I will be able to speak from them. 422 My name is Bruce Henning, with Energy and Environmental Analysis, and Union Gas sponsored our participation in this conference. 423 What I'm going to talk about here is something that was -- a summary of which was on the website with the filed documents, a study that we have done looking at storage issues. And, as an overview, there are basically three conclusions that we draw, and we'll talk about how we reach them. 424 One is that natural gas storage in Ontario competes in a broad geographic market that is workably competitive. And that leads us to believe that, as such, it's not appropriate, or advisable, to place restrictions on market-based service offerings, for example, the size or the term of those offerings. 425 The second conclusion is that the economics and the market requirements, including flexibility, which gives optionality as well as operational capability, will be what will drive storage development in this marketplace. 426 And that, finally, the changes in the contracting oversight requirements for storage customers can improve the efficiency of storage markets, and benefit storage customers, and Ontario, as a whole. 427 When we started looking at this, we recognized that there are a number of things that drive the value of storage. Storage provides seasonal and short-term price arbitrage for the commodity. It can be a substitute for pipeline capacity. It provides load balancing and operational support, including the kind of hourly deliverability and the pressure support requirements that are very important to power generation sectors. 428 When we started looking at this, we went through a process to look at what the competitive options were, competing against storage. And, in addition to physical storage in other locations, storage in Ontario competes with financial derivatives, NYMEX, as well as other over-the-counter derivatives, and, as well as, pipeline capacity, and also competes with the market-priced spot gas transactions. And when you're looking at the storage market, you have to look at all of those things. 429 We took it from the perspective that says that relaxed regulation of storage is appropriate, when a workably competitive market would exist. And EEA, along with Professor Richard Schwindt from Simon Fraser University, went through the process of conducting a competitive analysis of storage. 430 Now, the traditional analysis looks at a market-power test to say whether or not a participant can substantially increase prices to maximize profits over a sustained period of time. Now, in order to do that, you need very detailed information regarding price elasticity, own price elasticity, price elasticity for all of the substitute competitive markets, and, frankly, that rarely is available and trustworthy in that kind of basis. 431 The more traditional way to look at this issue is to look at market concentration and barriers to entry, and that's what we wound up doing. 432 There's a presumption that, if a market is not concentrated, that the participants cannot exercise market power. When you go through this concentration analysis, as we did, it's a multi-step procedure. The first thing is to define the relevant product market. Then you go through defining what the relevant geographic market is. And then you apply a concentration metric to that -- to measure that market. 433 Now, the Canadian Mergers Evaluation Guidelines defines a 35-percent share for individual firms, and a 65-percent share for the four-firm concentration. In the United States, we often use what's called an HHI index of market concentration, and a number that's less than .18 is deemed to be an unconcentrated market. 434 Now, when we go through and look at the issues of storage to define the relevant geographic market, we used a several-step process there. We evaluated the physical infrastructure, allowing for potential competition from other markets, we looked at the market behaviour, to confirm the boundaries of the regional markets, and then we applied a quantitative and a qualitative analysis to market behaviour. 435 The key is to recognize that the value of storage in the marketplace is reflected by the prices of gas in that location, and compared to the prices in other locations and at other times. So when we went through and we looked at this marketplace, we looked at the price-correlation coefficients on the geographic basis to determine where prices were highly correlated to the prices in Ontario, and then we looked at the physical infrastructure, the degree that you would have constraints, and what the behaviour in that market was. And what we found was that, when you looked at that, at a minimum, Ontario storage competes with storage throughout the Great Lakes basin. 436 Now, arguably, the relevant geographic market extends even beyond that, and beyond to other products, such as we talked about before, pipeline capacity, spot market purchases, and the others. But our view was, if we looked at the market concentration for storage only, and concluded that if you -- even with that limited definition of the substitutes, and the appropriate geographic market, you found that you had an unconcentrated market, that that would be sufficient to show the competition in that area. 437 When we did that, and I wish I could bring up the slide, but you'll find in there, when we're looking at the overall levels, we looked at this from both the perspective of the working gas, as well as deliverability. And, with the publicly-available data on both, we found that the four-firm concentrations for the working gas in the relevant market was at .59, and for the peak -- for the deliverability it was .60. So, in both cases, we found this to be meeting the guidelines. The HHI indices were at .128 and .125, respectively. 438 So what we came to -- the conclusion is that it's not a concentrated market. We wanted, though, to step beyond that, and even though the presumption would be, in an unconcentrated market you can exercise market power, we went one step beyond that and looked at the issues of barriers to entry. And what we recognized was that existing storage developers in Ontario, and the entire Great Lakes region, all of those others are constraining Union's ability to exercise any market power. There is competition from other pipeline expansions and new storage providers, and there aren't barriers to entry that could be exercised by Union in any of these other jurisdictions. So, they don't have the ability to hinder that. 439 In fact, if you look at the proposals right now, there is an awful lot of storage that's been proposed to be developed in Michigan, additional storage to be proposed in New York, Pennsylvania and other markets, that wind up competing with Union's. 440 So given that -- our recommendation is, given that it is a workably competitive market, we think it's not reasonable to offer restrictions on the terms of the market-based. 441 So, with that brief run down, I would be happy to answer any questions, and I know that Steve would, as well. 442 DISCUSSION PERIOD: 443 MS. CHAPLIN: Cynthia Chaplin. Would Union be prepared to provide that study to the Board? 444 MR. POREDOS: Absolutely. Our intent was to provide that study as our final position paper, whenever the date is, October 27th, or later. So yes, that will be part of our submission. 445 MS. CHAPLIN: Would you consider providing it in advance of that, for the benefit of all parties to review before their final submissions? 446 MR. POREDOS: That -- I would have to look to EEA, whether they're prepared to be completed. I would suspect that I would prefer that we have the time to finalize the study, from our standpoint. 447 MR. HENNING: From the perspective -- in terms of what the numbers are, the tables and so forth are, in fact, in the power point presentation which the Board has. Other elements of it, it's just a question of whether we can -- we are trying to make sure that we have the most up-to-date data in it, and gone through and done the final clearing. So I'm not exactly sure what date that will be. We'll provide it to the client as soon as we can. 448 MS. CHAPLIN: Okay. Thank you for that. 449 Mr. Poredos, going back to some of your comments early on - I'm just looking at my notes - you made the observation that you wouldn't be in a position to set discriminatory prices. 450 MR. POREDOS: That's correct. 451 MS. CHAPLIN: What would you say or how would you respond to the potential proposition that through Union's control of transportation services, that they may be able to discriminate, in some way, through the combination of storage services and transportation services. 452 MR. POREDOS: We don't discriminate against any customer. I guess that's what I was trying to put forward. We use the same criteria to allocate costs for transportation, regardless of whether it's a storage provider or other. And a good analogy would be the storage providers could sell their storage in whatever location they are. They could be in northern Ontario, they could be in Michigan. Someone would have to buy transportation services to bring it to market. 453 Now, a lot of providers will want to come to a liquid point, be it Dawn or somewhere else. To do that, you have to have transportation capacity to get to a liquid point where you actually can transact or provide incremental services that you may not be able to do at that location where your pool is. So we are consistent in the way we do that. Now, having said that, if the Board feels, through issues that are brought in front of the Board, that there should be some other methodology that Union should use, that's a matter of discussion that we still have to have. 454 MS. CHAPLIN: Thank you for that. 455 MR. BETTS: I'd like to ask you a fairly general or generic question, which probably could have been addressed to Enbridge as well. You, particularly, have indicated that the Board should not be considering the rate regulation - I may be paraphrasing - but the rate regulation when it considers new development or new storage development. The facilities are certainly something that the Board should continue to regulate, but not necessarily the rates and, therefore, the rates would be, I presume, structured on a competitive market basis. 456 With that being said, I wonder if you can tell me what the advantage is to move the existing storage to anything other than its existing cost-of-service structure. 457 MR. POREDOS: You're talking about existing storage that is cost-based today? 458 MR. BETTS: As it is today. Certainly, the issue -- I think you're suggesting that the Board should allow new storage to develop on a competitive basis because that would support investment. I think that's where you were heading with that. What would be the driving force in causing the existing storage to move away from cost-of-service, in that there would be an apparent increase in rates, let's say? 459 MR. POREDOS: I think what we were trying to say is, in effect, we don't believe that there is an incentive to move existing cost-based rates to market if the Board continues to take the position that they're going to take the difference between cost-based rates and market and rebate it back to customers. So we're saying that the existing status quo is, basically, not a bad place to be. 460 Where we have to compete is at the margin, and at the margin we compete with other storage providers from new storage in Ontario, or Michigan, or existing storage in Michigan, or other parts, that is sold at market. So we're not competing for the infranchise customer. I guess if we can say that. We're competing at the margin for storage services, which is a competitive market. 461 MR. BETTS: Thank you. I understand your point now. Thanks. That's all of our questions. Thank you. 462 MR. HAUSMANN: Mr. Fournier. 463 MR. FOURNIER: I'm -- Peter Fournier, Industrial Gas Users' Association. 464 I have a question for both Enbridge and Union. Let's assume you continue to be regulated by the Ontario Energy Board. Let's assume you continue to be suppliers of gas, that you have a system-supply role, therefore. And let's assume that in order to fulfil that system-supply role, you need to have storage assets as part of your tools to meet the system-supply requirement. And assume that you then go out and sign a storage contract, the pricing of which is market-based. Would you accept that the cost of that market-based storage contract would be subject to review by the OEB, and that the price therein would be disclosable, if required, for that review of the appropriateness of the costs that you've incurred? 465 MR. POREDOS: Steve Poredos from Union. 466 From our standpoint, the suggestion we made in terms of regulation of storage is the limitations that are put on the amount of storage that a customer can contract for. And we have to get prior approval for that 2 Bcf limit today on both amount, party to and term. So if it's longer than 17 months, we also have to get a prior approval for that customer to be able to use the storage. 467 We're saying that that should be removed, and, under that case, the Board should not review those or have a need to review those because we're in a competitive marketplace. If we're selling at market, we're making the conclusion that it's a competitive marketplace, therefore, the Board should not have to regulate. 468 From that standpoint then, the issue about new storage is the same thing. You would regulate on the basis of environmental and technical issues, but not regulate on the basis of term, party or amount. 469 MR. GRANT: Jim Grant from Enbridge. 470 My response is similar. If the Board had already concluded that the market for storage was such that it was in the public interest to allow those market-based rates, and then if subsequent to that a utility went out, the distribution utility went out and acquired those services in a reasonable process and got market prices, I would think that would be strong evidence of a just and reasonable regulated rate at the end of the day. The Board is always free, I would assume, to ask the utility whether it's gone through a proper due diligence process, in other words, has it gone through a proper RFP process to get at those just and reasonable market prices. 471 MR. FOURNIER: If I could just follow up. I recognize that most of your costs do not get detailed scrutiny in a rate case, but the potential is there for a stakeholder, an intervenor, or indeed for the Board itself. For example, if you are purchasing automobiles, or new computers, or rubber boots for your workmen, whatever it is, the scope is there for someone to say, How much did you spend on your rubber boots? How much did you pay? In order to say, If you had gone to Wal-Mart, you know, you would have paid half the price. So you paid too much and your cost-of-service is too high because you've gone to too expensive a supplier. 472 And it's for that reason I ask, that even though you've purchased a contract at market-based rates -- when you go out and buy rubber boots you're buying them in an economy. Rubber boots are not regulated in price. So what is the distinction that allows for a review of the prudence of a purchase of rubber boots and the prudence of a purchase of storage at market-based price, in your eyes? 473 MR. POREDOS: I guess, the first comment I would make is that you mentioned that there isn't detailed scrutiny of our costs. I think there is. It is at the determination of the Board whether those costs are prudent or not when we go through a rate case. So I think we do have the opportunity to review those. 474 The issue here, though, is that if we are in a competitive market, the sale price will be at a market-based rate. The costs are what the costs were, and if at the end of the day the Board wanted to see what those contracts were or what we're selling it at, I mean that's at the privilege of the Board to do that. What we're saying is, that they do not need to regulate a market that is competitive. 475 MR. LADANYI: Tom Ladanyi for Enbridge. 476 Currently, for example, in construction contracts, we go out for tender and we receive bid prices at market-based construction costs. And these are normally included in our rate base when the asset is placed in service, and the Board can scrutinize those costs. The Board is not demanding that the construction contractors provide the services at cost to pipeline companies. That would be a ridiculous requirement. 477 So the fact that there is some market-based price in existence doesn't preclude the Board from asking what those prices are. The Board can't reach into the construction company's cost base and find out what their actual cost of providing the service is. 478 MR. FOURNIER: I agree with that. You've answered, I think correctly, my question. Normally you wouldn't look at it, but if somebody thinks you've paid too much, you can challenge it, you can defend that. That's all I'm asking. 479 MR. LADANYI: Yes. 480 MR. FOURNIER: Thank you, very much. 481 MR. LADANYI: Yes. 482 MR. HAUSMANN: Ms. Allan? 483 MS. ALLAN: A question for Steve. You've talked about the Board moving away from regulating the party, term and amount. How would you see that? Your presentation actually uses the word "forebear." And, more specifically, do you see that kind of a determination coming out of this process, or some other process? 484 MR. POREDOS: That was our intent - Steve Poredos - that when, in fact, the competition issue should be reviewed through this process, that that part of the market, at the margin, is competitive. And, under that circumstance, it would not be a requirement for the Board to regulate that part of the market. 485 Did I answer your question? 486 MS. ALLAN: Thank you. 487 MR. HAUSMANN: Mr. Mackie? 488 MR. MACKIE: I wanted to come back to this question, or this issue of the Board's review of the gas storage contracts. I think there's some misunderstanding as to the purpose of the Board's review of gas storage contracts under the present OEB legislation. 489 In my experience, the Board does not review those contracts with regards to reviewing the price that the utility has entered into with another party. In fact, the gas storage contracts I reviewed generally had the price, the price removed from the contract. But the Board does have, I would claim, a valid interest in ensuring that the interests of its infranchise customers are not jeopardized by the utility entering into a contract of a particularly large volume. 490 So that, through the discussion and interrogatory process that would take place in reviewing these contracts, Board Staff would first -- or the Board, through Board Staff, would first establish if this contract that's being entered into would not jeopardize the utility's responsibility or commitment to, first of all, meet the requirements of its infranchise customers; and secondly, the Board also has, and certainly had, a professed desire to see a competitive market in the exfranchise gas storage contract, and was, therefore, looking at the actual volumetric size and the term of those contracts. 491 And you can certainly quibble about whether 2 Bcf in 17 months is the appropriate parameters. I would not argue that. I'd still claim, however, that there is an interest in the Board having some oversight over those gas storage contracts so that all parties seeking gas storage have a fair shake at what's on offer. 492 MR. POREDOS: Steve Poredos. I think that the utility -- we accept our responsibility for infranchise customers; in fact, that's what we're saying in the presentation. We accept that the infranchise have the first right for priority for storage services. So we accept that. 493 In Union's case, we've got about -- somewhere around 80 Bcf right now allocated to infranchise customers, and 70 Bcf allocated to exfranchise customers, that is, sold at market. Of that 70 Bcf, if we require some storage for infranchise, what happens is we, in fact, go and claw back exfranchise storage, and bring it back in at cost to infranchise customers. And that's how we manage that piece. 494 So, from a strictly utility standpoint, there's probably no need for us to develop new storage to satisfy infranchise customers. We've got lots; we'll just claw it back from exfranchise. That does have an economic impact on our S&T services and some of the rebates that the infranchise customers do get. 495 Having said that, if we believe that the -- it is a competitive market in the exfranchise services, or in the market, there is no need for the Board to evaluate each one of those contracts individually, and having to have a restriction on it, to have prior approval. In fact, in some cases, it may deter the market by having that prior approval because, if a customer is already at 2 Bcf, the next .1 of a B, they have to go get approval prior to them using that next incremental piece, and it usually takes about 60 days. And we're not complaining that it's long, but it takes 60 days to get approval. The customer then has lost that time of 60 days in a market that's very volatile, where they could have captured some opportunity, whereas another customer, who hasn't been at 2 Bcf, had the opportunity to jump on that opportunity within that 60 days, and has a competitive advantage against the one that is at the top of the limit. Again, if you are in a competitive market, you should not have to regulate that. 496 MR. HENNING: This is Bruce Henning. If I might add, the flip-side of that is, during that 60-day period, other storage providers that have the opportunity and do move in quickly, without the loss of time, can go in and capture that particular sale to that customer, and that works to the disadvantage of the Ontario customers, in that it's no longer maximizing what can be generated in terms of the producer and consumer surplus from the storage assets. I mean, it's a loss of economic efficiency. 497 We've talked a lot about economic efficiency, and what we need to be thinking about here is the elements of -- at the margin for the development of new storage. Are you sending the right price signals? Are you putting together the right amounts of attracting capital? The customers who are seeing the delivered price of gas, are they getting the right price signals, and can they sell back gas instead of taking that storage? They compete in that market, too. 498 So the issue is, with a competitive market having that delay, it sacrifices some economic efficiency from the perspective of the utility providing it at a -- with a portfolio of assets, recognizing their responsibility to need to be able to provide that storage service to franchise customers. That's how they are going to run their portfolio. And they're going to have a staggered portfolio in term of size of contracts, and term of contracts, and they're not going to put themselves at risk for not being able to serve their franchise customers' requirements. 499 MR. HAUSMANN: Any more comments up here? Mr. Kerr? 500 MR. KERR: Thank you. Paul Kerr, from Coral Energy. A question of, I guess, clarification, or elaboration, if you will, from Mr. Grant. 501 In response to, I think, a question Ms. Chaplin asked, to paraphrase, was -- Enbridge supports moving directionally towards market-based rates, and the question was: Do you feel that, at market-based rates, you will be better able, or enabled, to meet the needs of electricity generators? And I believe your answer to that was yes, that market-based rates would accomplish that. Could I ask you to elaborate, again, on why that is? 502 MR. GRANT: Certainly. Jim Grant with Enbridge. Let me, first of all, say that the type of scenario that you're describing, one doesn't have to wait until the end-state. You can move in that direction now. So, in other words, at the margin, providing a service, there's a competitive market today, and we can move in that direction to market-based rates for that service. 503 Clearly, it provides, in any market-based rates, provides a proper price signal into the market at the margin, and so from an economic point of view, that makes sense. 504 But secondly, and I think this is -- I'm paraphrasing my answer that I gave earlier, it provides an incentive to investors to step up to that demand that's out there and provide that service. 505 Does that answer your question? 506 MR. KERR: So my impression, then, would be that you can provide those services now - and I do accept that some of them do require physical investment in new facilities and such - but, generally, you're saying that at cost-of-service-based, or under the current mechanisms that we have, those just are not enough. There's no reason, I guess, if you will, there's no incentive, for the LDC to provide the services that are needed by generators, whereas, if there were an economic incentive, then those services could be provided. 507 MR. GRANT: That's fair. That's fair to say that. And, as I said, the threshold question from the Board, from the Board's point of view, from a policy standpoint, is, is this market competitive or isn't it? And, if it is competitive at the margin, then let's conclude on that matter and then move on to pricing at market-based rates at the margin. 508 MR. KERR: Thank you. 509 MR. POREDOS: Could I just ask a point of clarification - Steve Poredos - just to make sure I understand from Union's standpoint. What you're suggesting is that you're not getting the service that you require for infranchise services? 510 MR. KERR: No, no, that -- my question was simply clarification from Mr. Grant. 511 MR. POREDOS: Because, if you're asking in Union's territory, Brighton Beach, if there is a service that you require, I mean, it will be something we need to discuss. And if there's investment, it would be done as we normally do for infranchise customers. I'm not sure that we necessarily would have to go to market rates, I guess, to provide you with service. I guess that's what I was wanting to make sure of, at least at the Brighton Beach operation. 512 MR. KERR: That's fair, and we deal closely with Union and I respect your saying you don't need that move to market-based rate. 513 MR. POREDOS: For infranchise services, absolutely we're saying that. 514 MR. HAUSMANN: The gentleman back here. 515 MR. GRUENBAUER: Jim Gruenbauer from the City of Kitchener. 516 I just had a couple of questions for Mr. Poredos and perhaps his colleague from the EEA. I wanted to, just for the record -- we're an unbundled storage and transportation customer of Union Gas, so my questions are in that context. 517 Steve, if I understood you correctly, you're requesting forbearance, I think you used the phrase, at the margin on a going-forward basis with respect to the issue that Ms. Allan raised about the Board not requiring to approve the term or the parties or the amount of the storage contract. Would that apply to an "infranchise" customer where an existing storage contract exceeded those parameters, either by term or amount? Or to put it another way, would we, in the model going forward, have recourse to the Board if there was some dispute or discussion required with respect to the renewal of an arrangement for an infranchise customer that exceeded those amounts? 518 MR. POREDOS: First of all, let me just make a comment regarding your comment that you're an unbundled customer. 519 MR. GRUENBAUER: Semi-unbundled is probably a better word. 520 MR. POREDOS: Thank you. You are not an unbundled customer yet. You have a T-service which is a semi-unbundled service, so we still balance your load. That's the connotation. You don't manage your storage individually, so to speak. 521 In terms of our position, what we're saying is that any base requirements for infranchise customers as are approved by the Board through formula or otherwise, those would be at cost-based rates. If a customer, infranchise, requires incremental service that they may be using to do some business elsewhere or whatever, those would be at market-based rates, that's correct. And if they are market-based rates, they are a competitive service which does not require the Board to approve them. 522 MR. GRUENBAUER: Jim Gruenbauer for the City of Kitchener. 523 So if there is an allocation of infranchise storage, then it doesn't fall within this ambit of forbearance. 524 MR. POREDOS: If it's sold at market, yes, it would be outside of the Board's approval is what our request is. 525 MR. HAUSMANN: Jim, for the reporter, could you spell your last name please. 526 MR. GRUENBAUER: Yes, G-r-u-e-n-b-a-u-e-r. 527 Thank you, Mr. Poredos. If you could just clarify the position around treatment of the S&T deferral accounts on a going-forward basis. 528 MR. POREDOS: The only comment we're making here is we're not debating the sharing mechanism or the amount of it. What we're saying is, rather than having 2 or 3 or 4 different sharing buckets as we have today, one of them being the S&T bucket, that should all get rolled into one sharing mechanism, and I think that will be discussed on Monday through our rates position. That's all we're asking. 529 MR. GRUENBAUER: Thank you. 530 My question for the gentleman from EEA was, if I understand the study correctly, we're looking for evidence of market power and storage by looking at things like barrier to entry and market concentration. Was there some consideration given to what might be perceived to be restrictive terms and conditions of either access or renewal, or things like lack of transparency, with respect to the operation and utilization of storage in what's supposedly a competitive market? 531 MR. HENNING: I think the way I would answer that question is that we have looked at the elements of storage service and how it winds up being reflected in the price behaviour in different locations. To the extent that you're talking about any potential restrictive terms and conditions that are really abhorrent to the practices of the North American natural gas industry, I would say that that would be reflected in different price behaviour and those kinds of locations. And frankly, we didn't see any of that. And any of those areas where we would see that kind of abhorrent price behaviour, we would say that was not part of the relevant geographic market. 532 Did we go through a process of trying to evaluate all the terms and conditions of service and certain of those aspects? No, we didn't. But I think to the extent that we saw something that really deviated from the standard practices, we would have seen that in the price behaviour, and we didn't see any. 533 MR. GRUENBAUER: Thank you. 534 MR. BASHAM: Frank Basham from Talisman Energy and also with CAPP. Although from the standpoint of the question that I'm going to put to you gentlemen, this question is coming from Talisman. 535 Can you comment, both Enbridge and Union, can you comment on whether and how you work with Ontario natural gas producers to develop or evaluate storage opportunities here in the province? I just want to try and understand the general process by which you go about procuring additional storage or developing additional storage in the context of some of the existing gas and oil reservoirs that are present here or depleting. 536 MR. POREDOS: Steve Poredos from Union Gas. 537 I'm not directly involved with that piece of it, however, there are properties that are potential properties that some storage providers may have rights to through leases, land leases and so forth. We have a program where we are working with partners to try to develop some of those leases in terms of moving forward and ensuring that it is a viable project, let me put it that way. I'm not exactly sure how many of those we have under agreement right now, but I think it's at least one or two that we're looking at. 538 Now, those prospects may never come to fruition because they may be too expensive, too small, too far away, whatever, but we're trying to find the ones that are the highest priority. 539 Now, Union does not have the rights to all the prospects out there, so third-party developers may be doing the same thing on their own or with partners. We know of some of those, but certainly not all of them. And that's the way we work with the storage providers. 540 MR. BASHAM: Thank you. 541 MR. GRANT: Jim Grant from Enbridge Gas Distribution. 542 We're not actively out there searching for partners at this point to pursue this type of development, but that doesn't mean that we couldn't. We have, in the past, been developing storage within Ontario, and we would be remiss if we didn't look around and look at potential partners and business combinations that would allow us to grow the business. 543 MR. HAUSMANN: Ms. DeMarco. 544 MS. DeMARCO: I have two series of questions. The first is in relation to your study, Mr. Henning, regarding competition. And if I could just echo Ms. Chaplin's comments that certainly I think the full and detailed discussion of the policy issues that we are getting at now would be very much furthered and expanded upon by having that study in advance of the final comments to allow for consideration. That would be great. And I'll look to the Board members to tell me if these questions would be better placed after having received that study. So I'll just -- 545 MR. BETTS: Sorry, your voice is fading on me, Ms. DeMarco. 546 MS. DeMARCO: Sorry, I have a bit of a cold as well. 547 I have a series of questions in relation to Mr. Henning's study, and have echoed Ms. Chaplin's request for the study in advance to fulfil full consideration of the contents thereof, and really assisted the Board to the maximum in looking at the policy issues that it covers. And I'm going to look to the Board, in asking these questions, as to whether or not now is the appropriate time, or whether it's best to look at the study first and then have that interchange. 548 MR. BETTS: Yes, Ms. DeMarco, I don't think the opportunity will really exist to allow you an opportunity to question the study after it's presented if the parties don't want to present it until the end. So I think this is your opportunity, and I'm -- neither Ms. Chaplin nor myself want to force anybody to submit their information prior to that final submission if they choose not to. So I just encourage you to try and ask your questions at this point and try to get to your answers. 549 MS. DeMARCO: Great. Thank you so much. 550 A few questions about timing, Mr. Henning. Was the conclusion of the appropriate geographical market initially reached prior to assessing many of the competition parameters? 551 MR. HENNING: If I'm understanding the question, the answer is no. I mean, recognize, as we said, what we wound up doing here was we identified all of the different services that are out there that are, at least, partial substitutes to storage, in the way you would look at it, in terms of how they would be substituted, the degree of that. We then looked at the storage, specifically. And when we looked, then, at the pricing behaviour, and the physical connectivity of those storage assets in and around the Ontario market, we reached our conclusion that the relevant geographic market was at least as big as the Great Lakes basin and the storage facilities that we identified. 552 It was at that point that we did the concentration analysis, and the calculations for that, and found that, using both the U.S. and the Canadian guidelines, this would be deemed to be an unconcentrated market, for both capacity and for storage deliverability. 553 That being said, we also then recognized that there are all of these other services that compete; but we deemed it to be sufficient if, in the narrow product definition, and with, probably, a more narrow geographic market than could be justified, you found a competitive market. Expanding it further would only, in some sense, make it less concentrated and more competitive. So, the geographic market, you build it up from the elements of that. You don't draw a circle around it and say, Well, is this big enough to be competitive? Well, if not, can we justify expanding it? And so forth. It was the other way around. 554 MS. DeMARCO: In relation to the price correlation and the coefficients used to determine where prices were highly correlated to Ontario, what time period was that done over? 555 MR. HENNING: Let me see if I can pull out the exact time period. We did it over several different breakouts of multi-year time period. We were using gas daily, daily price data published by Platts. And, if I can flip quickly through a chart here, I can probably answer your question. Beginning in January of 1999 through August of 2004, but then breaking it out with different sub-time periods, looking at yearly, winter season and summer season in each of those periods, as well as the period as a whole. 556 MS. DeMARCO: Thanks very much. 557 And then the last technical, what I'll call a technical question, in relation to the assessment of the four-firm concentration, the deliverability concentration, is it fair -- do I understand correctly that those assessments and analyses were done specific to storage, and not storage and partial-substitution services, i.e., storage plus transportation? 558 MR. HENNING: That is correct. They were done with respect to storage. But I would say that we built them up to -- but on the basis of corporate ownership in those markets. So we didn't assume that any -- that two affiliates, even if they were subject to codes of conduct and were prohibited from dealing in anything other than arm's-length transactions, we actually put them together, as if they were a single entity, from an ownership perspective. 559 MS. DeMARCO: But pipe wasn't included? 560 MR. HENNING: We were not looking at the pipe-capacity portions of that. We have looked at those elements in terms of concentration of -- on the pipe side, both the ownership issue, but, more importantly, the capacity under contract to shippers. But we did not include that in this concentration analysis here. 561 MS. DeMARCO: Thank you. 562 At the Board's indulgence, one further question for Mr. Grant in relation to offering, as recommended, combined regulated and unregulated storage services. How would stakeholders, and in particular electricity generators, ensure that there would be no cross-subsidization between the regulated and unregulated storage services offered, and between distribution and unregulated storage services? 563 MR. GRANT: Jim Grant with Enbridge Gas Distribution. 564 I think, at the outset of the process, option three contemplates a definition of what's core and what isn't. So the first step along the way, to answer your question, is to get those definitions nailed down, and to get those specific services that are associated with those core customers nailed down. 565 And so, for example, and this is just an example, if, in doing that, one were to say, All right, here's the existing operation and here's the existing customers and -- that will be regulated, let's work up a cost of service that takes into account all costs associated with providing that service, and only those costs, no other costs, in that way, the Board and intervenors could be assured that they were -- that those costs, if you will, were streamed into those regulated rates, and were not in any way finding their way into anything else. So that would be a first step along the way. 566 I'm sure there are other checks and balances that the Board can put in place to satisfy any other concerns you might have. 567 MR. HAUSMANN: Mr. Crook, do you have a question? 568 MR. CROOK: Yes, Leonard Crook, ICF. Ms. DeMarco, I think, asked my question in a slightly different way, but I'll ask another one. 569 I'm hearing some differences between Union and Enbridge, I think, about how you would approach this, and I would like to hear some elaboration on that, so -- and if I could ask some follow-on questions, as that is elaborated. Thank you, Mr. Grant. 570 MR. GRANT: Could you just -- Jim Grant with Enbridge Gas Distribution. If you could just elaborate on what those perceived differences are, then I could answer. 571 MR. CROOK: Well, I think you are -- seem to be more willing to take affirmative steps to segregate, perhaps, the costs associated with a core service from the costs associated with any kind of market-based service along the lines of the option 3 that was proposed. 572 I thought I heard Union making a similar point, but I wasn't quite sure if -- theirs seems to be a little different. They were saying they could accept option 1, with the exception of certain things. It sounded like maybe -- that sounded more like option 3, but I wasn't positive about that either. Maybe the differences are none, maybe they are subtle, but they seem to be a little different, to me, and I'm not quite sure what they are. And you aren't either. 573 MR. GRANT: Jim Grant from Enbridge Gas Distribution. I can confirm that your understanding of how we would proceed under option 3 is correct; that once you define that core group of customers, you define a regulated service which is likely to be a single-cycle type of service in a storage context, and then you price that according to its costs. And you would have some kind of a process where you would debate those costs, and you would settle on what those costs are, and what that rate is. So it would be a very, sort of, disciplined process. That's how I view option 3 proceeding. 574 MR. POREDOS: I think, at the end of the day, when we look at all the pieces, Union and Enbridge are probably not that far apart. I think that, in reading Enbridge's paper, we probably fall closer to the back-off position you guys present in option 3, which says to deregulate the transactional services, which is our S&T account, and deregulate new storage, and new storage is priced at market. So we agree on that. 575 From our perspective, you don't necessarily have to deregulate the rate or the price of exfranchise storage, because we already have what we call range rates for exfranchise so -- and that range has given us plenty of room to negotiate a market rate. So, if we continue that, it's not an issue for Union. 576 I think the difference really comes down to where Union believes that, unless we fundamentally change the position of charging infranchise customers market-based rates and then taking the difference between market and cost and giving it back to customers, you're achieving -- you haven't achieved anything. You're doing what you're doing today. So why throw all this into the pot when you've got other issues you're going to have to deal with? How do you set market rates for infranchise customers? Is it an annual rate? Is it a long-term rate? Is it a daily rate, monthly rate? There's a whole bunch of issues as to how that rate is going to get set, so is it really worth the effort of going through that just to end up to where we are today? 577 MR. HENNING: If I might just add one thing. One of the slides that was put into our presentation looks at the intrinsic value on a seasonal basis of gas put into storage. And it's just a measure of the value of storage. There are lots of other things in there, but it's simply looking at the difference between the weighted average of the withdrawal price from the injection season price from the previous year. And it bounces around an awful lot and some years it's negative. So when you start thinking about a market basis, what you run into is that you wind up looking at the market price in storage based off of last year's behaviour, when, in fact, you won't know what next year's weather actually looks like. And for market-based participants, there are ways that they are going to hedge their risk and they are going to wind up looking at that and coming up with an educated position. 578 If, in fact, all you are doing is then pricing it the same way and then taking back, you wind up with the same efficiency point of view as if you provide it on the cost-of-service basis to those infranchise customers anyway. So long as the margin for the new storage in attracting investment, you're seeing what that market price looks like. 579 And our interpretation of looking at the Ontario market, and in particular the fact that Union's mix of exfranchise and infranchise service and how that competes in the market with Chicago and with Michigan and with New York and Pennsylvania, that marginal signal is being sent with that basis and it should go forward. The restrictions in terms of size and the term of the contract may be just preventing both Union and the customers of Ontario from maximizing that potential, and that introduces what we think is a little inefficiency. 580 MR. CROOK: Let me just throw this out. For the existing storage, should customers be able to resell their unutilized injection withdrawals that are in storage. Should the existing customer be able to resell that? 581 MR. POREDOS: Steve Poredos from Union Gas. 582 From an infranchise bundled customer's position, we don't believe that's appropriate because they are a bundled customer. However, having said that, we do have bundled rates and we've had them in place for at least two years, maybe longer, which customers can go to an unbundled rate which separates transportation, storage and it provides a contract that is very -- exactly the same, I should say, and as an exfranchise storage contract. It has injection parameters on it. The customer can use that storage in any way they'd like. If they want to take that storage to market and make -- sell it into New York state or whatever, that's their opportunity. They still have to serve their infranchise market. 583 Unbundled storage today is given to those customers at cost-based rates, so they have the opportunity to uplift their opportunity, so to speak, the dollars, by selling it in other places if they can manage it better than Union can as a utility. And that's their -- that's what people are saying. So Union believes that that storage can be used in any way they particularly want to use it. 584 MR. GRANT: Jim Grant, Enbridge Gas Distribution. 585 My answer is similar, but there are a few qualifiers that I'll add. 586 I agree with respect to the bundled customer. With respect to an unbundled customer and in the context of what we're talking about today, I think what we would be really looking at is a situation where it's non-grandfathered customers at the end of the day. I think the Board, from a policy perspective, has to be very careful about this. 587 The way I see it happening is that if it was a non-grandfathered group of customers or customer, there would be an allocation of capability that went with that individual customer, depending on their needs. And it's likely to be an allocation of single-cycle-type service, so there would be terms and conditions that restrict that customer's ability to -- on the injection cycle and on the withdrawal cycle. So the Board would have to be very careful on those terms and conditions in designing that rate. 588 And perhaps at a higher level, from a policy perspective, the Board would have to be careful that that piece of storage that was unbundled at an unbundled rate was not, in effect, marked up by an intermediary for use by, ultimately, a core group of customers or a group of customers that the Board felt it would not be in the public interest to have it marked up. 589 So in other words, the Board would have to be assured that if it's decided that there's cost-based storage flowing to a premise, to a customer that's a core customer, that no one has the chance to somehow get in between that relationship, mark it up, and charge market-based rates through some other arrangements like an unbundled rate. 590 MR. HAUSMANN: The gentleman at the back. 591 MR. ROSS: Murray Ross from TransCanada PipeLines. 592 I had a question for Mr. Poredos of Union Gas. You talked about the 2 Bcf limit and 17-month limit as far as restricting selling of storage and whatnot. I was wondering if you could elaborate on that for me. 593 MR. POREDOS: Under Article 22, or something like that, the Board has to approve, and it's prior approval, any contract that is larger than 2 Bcf and 17 months in length. So if a customer's already bought 2 Bcf and they want another Bcf, we would have to go into the Ontario Energy Board and get approval for them to be able to use that next B. 594 MR. ROSS: Can I ask, are the same restrictions applicable to Enbridge? 595 MR. GRANT: Jim Grant here, with Enbridge Gas Distribution. 596 We are casting our minds back as to whether it's the precise parameters that Union has. If it isn't the precise parameters, it's close. It's the same kind of limitation that we work with, give or take a bit. 597 MR. POREDOS: Steve Poredos. 598 Just to clarify, I was just told that I said just "and." It is 2 Bcf and/or 17-month duration, longer than. So it could be and/or. 599 MR. ROSS: And it's 2 Bcf per customer? 600 MR. POREDOS: Yes, per individual customer. 601 MR. HAUSMANN: Mr. Kerr, you had a question? 602 MR. KERR: Thank you. Paul Kerr from Coral Energy. 603 Just to move a little bit further on an issue like this. I mean, it's something that you don't run into every day, but it's an example, I suppose, of what we were trying to get at this morning where we try to connect the topics of rates and services and policy. And I guess this would be, you know, an example where there's a policy matter that really is influencing you, if you will, in what you're able to do. 604 I guess I would put it to both parties. Open question, the same question as this morning in terms of identifying what other examples of policy-type things can you think of that might be impeding your ability to react either quickly enough or appropriately enough to service the needs? 605 And I'm obviously biased towards the generation sector, but -- a little example, too, was, I think, raised by Enbridge, the issue of location. And that restrictions aren't -- or problems of efficiency aren't always a matter of process but possibly physicality and location. And location-based pricing, I guess, I would throw out as an issue that has a policy problem or obstacle, if you will, moving to location-based pricing as opposed to postage stamp. 606 Again, just issues that influence services and both parties could -- can you think of other areas of the regulatory oversight that influence or hinder your ability to provide services that you're being asked of or that you might anticipate being involved in in the future? 607 MR. GRANT: Jim Grant, Enbridge Gas Distribution. 608 The short answer to your question is, other than those that we've discussed today from our standpoint, I don't see any other policy issues. If we can get these cleared up expeditiously, then Enbridge Gas Distribution can provide a service very quickly. And even if that involves, as it probably would, some kind of facilities in order to provide the kind of deliverability and flexibility that your -- that you would want as a customer. I did mention some procedural efficiencies that the Board could explore around facilities, and once again, that's sort of in my submission today. 609 So other than those things that have been said today, I don't have anything else to add. 610 MR. POREDOS: Steve Poredos, Union Gas. 611 I find a bit of difficulty in answering your questions. Other than the ones that we've put forward, which we are very close to and have had an issue with, it's somewhat difficult for us to conceive the new services, I guess, because there are only a few generators today in the marketplace. And there's debates about where they're going to locate, what kind of services do you actually need. Then we have to figure out what kind of facilities we require to provide those services and then say, Just a minute here, is there another way I can do it. There's a dialogue here that hasn't happened yet. 612 From my standpoint, I think, there's been a big expectation that 2500 megawatts are coming on and you have got to have these services ready for us today without having the dialogue of what the services actually are. Where do you need them? Is it just a single customer or is it a group of customers? How do I deal with that without having the dialogue and knowing what kind of facilities we need to have to put in place? Our issue is that some of the requests that we've gotten are almost impossible for us to say that yes, I can serve you or I can't. 613 The obvious one that I can use is you want no-notice service as a generator, which if I were in your shoes, I would do the same thing, because it's great. The problem is our job is to maximize the operation of that system, both storage and transportation, every single day. And we schedule that to be full as it possibly can to make money for ourselves and to get money back through the S&T services for infranchise customers. The piece that you guys want to get first thing in the morning, it's already been scheduled. So do I give up the S&T revenue to schedule you every day, and then you don't use it and I've lost the opportunity, or do I do something else? 614 Those are the types of issues that we need to deal with as an industry together, and I think that's the way we're going to deal with this thing. And we're ready to talk about it, the issue is that you're not going to resolve them today. It's going to be a bit of, Well, we can do this, but we need to bill this, and somebody's going to have to take on those costs. Who is going to take on those costs? 615 MR. KERR: No, I agree. Thank you. I mean you mention a valid point in terms of some of the issues. And objectives conflict, and this is where the Board -- and I guess, my point is that there is need for further discussion and policy debate and development around things, as you say. I mean, is capacity or scheduling ability made available to the transactional services group and thus not then available for, you know, the electricity generation needs or desires of the province? And what are the consequences of that? There's trade-offs that we need to understand that are there. Thank you very much. 616 MR. HAUSMANN: Mr. Mackie. 617 MR. MACKIE: Chris Mackie. 618 I'd like to ask a question on a topic which hasn't been addressed by this panel and it is this: If the Board were to accept the proposition that all new storage development in the province should be developed at unregulated market rates, have Enbridge and Union given any thought to an appropriate model and level of compensation for the gas-storage leases that are required to develop new storage capacity? 619 I ask this question because the level and adequacy of compensation always comes before this Board as a part of the facility application when a utility brings an application seeking designation, authorization to inject, and leave to construct. 620 MR. POREDOS: Steve Poredos, Union Gas. 621 I think that the question you ask has already been debated by the Board. In fact, I was not part of the hearing, but there was a hearing earlier this year that reached a settlement with landowners, and I think at that point, that is the model that we would use going forward. This new development is no different than the development we've developed over the last 20 years or whatever. Everyone should be compensated in a similar way and in fact, during that hearing, it was pretty obvious that Union's compensation rates are higher than anywhere in the area, including the U.S. So we are already at the top of the compensation ladder, if I can call it that. 622 MR. MACKIE: If I can just respond to that. The historic model that's been in effect before this Board for the last 20, 30, or 40 years is a compensation based upon so many dollars per acre per annum, and that is generally allied to all the lessors within a certain pool and it's indexed at regular intervals. I think in Union's case, every 10 years it renegotiates with all its lessors a new level of compensation, bearing in mind the sorts of CPR or inflation rate that's taken place over that 10-year period. 623 It's my belief and expectation that as we develop rules at market-based rates, and particularly as multiple injection/withdrawl phases occur within pools, within what has been historically the 12-month injection/withdrawl cycle, that landowners are going to be looking towards a greater share of the economic benefit in this pools. And my question, really, was directed along the line: Have Union and Enbridge looked at any alternative models beyond the X number of dollars per acre, per annum. 624 MR. POREDOS: Steve Poredos, Union Gas. 625 I can't answer whether we have or we haven't because I wasn't part of that discussion, so I'll leave it at that. But it may be an issue that needs more discussion. 626 My point really is that, again, Union has 80 Bcf of exfranchise storage, or the other way around. 80 Bcf of infranchise storage, 70 Bcf of exfranchise which today is at market and is being cycled and used in the way that it will generate the maximum amount of revenue. So I'm not sure that there is a distinction between the next marginal Bcf of storage developed to the one I developed yesterday. So I'm not sure there is a real distinction there, but I do not know whether we've looked at other compensation methods. 627 MR. GRANT: Jim Grant, Enbridge Gas Distribution. We have not looked at other types of compensation approaches, but let me say this. 628 First of all, we are currently in the process of reviewing our policy on these matters and in so doing we're taking account of a couple of things. Number one, the present proceeding that Steve mentioned and the outcome of that proceeding, we're taking that into account. The second thing that we take into account is our contractual agreements with those landowners. What are the terms and conditions of those agreements, as they govern that relationship with the landowners? 629 I will say, by way of comment, that it's my understanding in that Union Gas proceeding at some point in the proceeding there were some landowners who held the view that because of the TS activity in the current set up, that that ought to somehow be, at the end day, worked into a formula. And, of course, at the end of the day, that was not part of the formula, and all landowners agreed that that was just and reasonable to exclude that from their formula. 630 MR. HENNING: If I might add one thing from the perspective of other jurisdictions. In many of the jurisdictions in the United States there, in essence, is a one-time, up-front payment per acre to those who have the rights to storage caverns. And one of the implications, if you will, of the fact that this is indeed, in our opinion, a competitive market, is that to the extent that the cost structure in one location for developing gets to be more expensive than developing in other competitive regions, storage development is going to happen elsewhere. 631 So regardless of the compensation mechanism or formula, if you will, ultimately, it's going to look in terms of the overall level of the compensation and what's the cost of developing the incremental storage in Ontario versus Michigan. 632 MR. HAUSMANN: Well, if there are no other -- sorry. 633 MR. BETTS: I have a couple more questions that have popped up as a result of things that I've heard or maybe I was thinking about what was said. I wanted some clarification, and I'll probably address this to Union, and Enbridge may want to answer as well, but clearly you've established a different, in my mind, a different regulatory rate structure for infranchise versus exfranchise customers. How would you view an Enbridge infranchise customer need in that framework? 634 MR. POREDOS: In our view, our franchise is Union's franchise and those customers would be at cost. If you're asking the question, Mr. Betts, about if I was to sell storage to Enbridge, would I sell it at cost or market, our position is market. The reason for that being there is no way of guaranteeing that, and I'm not accusing Enbridge of doing this, but any other utility, that they wouldn't take that storage and use it for exfranchise purposes. Is that actually being used for infranchise or are they creating additional value from it in the exfranchise market? And in that case, why would that value go away from Union's shareholder and Union's infranchise customers. 635 So we see anyone outside of our franchise being an exfranchise customer, and those should pay market-based rates. 636 MR. BETTS: And I wonder, Mr. Grant, would you care to respond to that? 637 MR. GRANT: Jim Grant, Enbridge Gas Distribution. 638 I probably should not, given that the matter is before the Board in another proceeding, and the Board is in the process, I assume, of rendering its decision on that. So I probably should refrain on commenting. 639 MR. BETTS: I certainly respect that and I'm aware of that proceeding. I'm not sure that there's a clear connection between the two issues, but that's fine and I'd leave it at that. 640 I'd like to ask a question, probably of Enbridge. All of these things are before proceedings in one form or another, and I don't know that that's a good reason not to get it into this Forum, so it can be considered for policy. But all that being said, I'm trying to be practical as well as adjudicative. 641 With respect to the proposal that the future might want to consider a deregulated transactional services environment, how would you picture that functioning? Who would be the operators and how would it function? 642 MR. GRANT: Well, Jim Grant, Enbridge Gas Distribution. 643 I see it functioning in one of two ways, again, depending on the Board's decision on whether this is truly a competitive market and it ought to forebear. So in other words, if the answer to the question about transactional services market is that yes, this is a fully competitive market, Ontario's public interest is, therefore, served by the fact that this is a fully-competitive market and we, the OEB, can forebear on this. 644 If that is the decision of the Board, then I don't think the Board needs to worry about who is actually providing service, as long as the Board is satisfied that it's a fully competitive market. 645 If, on the other hand, the Board decides that it's not a fully-competitive market, or at least at this point in time is not, then the Board has choices in front of it as to who provides that service and, as I've said in the paper, what kind of further incentives may be appropriate to move forward from a policy standpoint. 646 So I hope that answers the question. 647 MR. BETTS: Well, let me try to put you on the spot and be a little more specific about it. Would you see the utility potentially providing that service? 648 MR. GRANT: Potentially. The utility could, as a non-utility venture, if it were a competitive sort of thing. In other words, the corporate entity could provide that on a non-utility basis. 649 MR. BETTS: Could you see any parties arguing that that creates an unfair advantage because of the other services that the utility provides? 650 MR. GRANT: I'll go back to my checks and balances point, that being that even in that scenario, the Board could still look to the utility itself and say, Look, we want certain checks and balances in terms of information flows and that sort of thing. If the Board felt that that was crucial to the proper functioning of both the utility and the marketplace, the Board would have the jurisdiction to say that to the utility. 651 MR. BETTS: That's all our questions. 652 MR. HAUSMANN: I see Mr. Scully has gone to the designated mike. 653 MR. SCULLY: Yes just a few questions. Peter Scully, FONOM. 654 This is a follow-up question to you, Steve. You said that you do have some customers who have unbundled storage contracts. Am I correct in understanding that, some utility customers infranchise? 655 MR. POREDOS: There are -- there's a very small piece, I believe it's with Direct that they've -- Direct, the marketer, has taken some of the customers in the direct-purchase base service into an unbundled service to see how it would work for them. So it's a very small piece of their total market that they're working with. I believe that just happened during the summer. I don't have all the detail behind it, but we have very few that have moved to the unbundled service. 656 MR. SCULLY: So you weren't talking about a -- I think it's T-1 large industrial customers. 657 MR. POREDOS: My only distinction to Jim Gruenbauer was that T-service is not unbundled to the extent that we still balance their storage for anything that's not burnt at the plant or whatever. So it's a semi-bundled service, it is not unbundled. Unbundled services, in our definition, as Union, are the services that separate transportation from storage. You operate each on its own. And the storage contract is exactly the same as an exfranchise contract that, I believe, has 1.2 percent deliverability up to 20 percent until you get to 20 percent of your inventory, and then it rachets down one rachet to .8, I believe, and then there's injection restrictions. So that's a contract, okay. But you manage that as you please, when you please, how you please. You can balance that every day or whatever, but you can't go below zero. So that's the difference between T-service and unbundled service in Union's franchises. 658 MR. SCULLY: And another follow-up question: Is Union currently selling some storage to Consumers Gas at above -- at market prices versus cost-of-service prices? Is that an existing fact. 659 MR. POREDOS: Assuming that this is not information that shouldn't be discussed, Union has signed a contract with Enbridge which is a longer-term contract that has pricing in it that is above cost. And that is now in front of the Board, and I believe it was discussed at the Enbridge case. 660 MR. SCULLY: Now to the question I really want to ask. It's about my clients who are sitting up there in northern Ontario. They're picking up some TCPL UDC charges. I think they figured in the last rate case as somewhere around $6 million plus per year. And as I understand it, that's because there isn't sufficient storage available to them in the way Union operates its system to take the TCPL at 100 percent load factor. Am I correct in that or confused or what is the situation? 661 MR. POREDOS: Well, in some of the points you are correct; in others, I think that there is some clarity to be had. 662 Yes, in the northern -- the way we operate the northern area, we have to take some UDC on the TCPL pipeline to be able to contract for enough capacity to serve you on a peak day. On any other day other than a peak day, that capacity is not full. Now, we will try to fill it and get it down to storage if there is capacity on TCPL to get it to storage and then capacity to get it back to your franchise or your area on the days that you need it. 663 Now, having said that, when Centra and Union merged, and I believe it was back in '97, '98, northern customers had 14 Bcf of storage allocated to them. Today, you have slightly more than 14 Bcf allocated to you; I believe it's 14.6. So you've got the same amount of storage that was there years ago, and as the merger of the rates for south and north has gone through a merger of the rates, you are treated exactly the same as a southern customer in terms of allocation of storage. 664 Having said that, I have to get the storage to your franchise area, to where you live, and that means that I have to take it through somebody else's pipeline, and those costs are reflected within your rates, okay? 665 Now, the other thing I'd like to mention is you don't normally pay for -- I shouldn't say normally. You're forecast to pay $6 million of UDC, however, if we don't incur the UDC, you get a rebate back in your rates at the end of the year, depending on how much UDC we actually take. And this year, I don't believe we've taken any summer UDC in the north yet, but I can't -- that is just off the top of my head remembering what the numbers were. 666 So I don't think you are in a position that you are paying $6 million regardless. You would be paying that if we do take the UDC. If we don't take the UDC, you would not pay that, you would get rebated back to you. 667 MR. SCULLY: Thank you. 668 MR. HAUSMANN: Well, I think we've probably run out of questions and comments, from the looks of it. It's 2:15. We will adjourn for the day and reconvene -- 669 MS. DeMARCO: I just have one very quick follow-up question. If they take more than $6 million worth, do they have to pay additional to the $6 million forecasted? 670 MR. POREDOS: Of the UDC? That would be a discussion we'd have to have at a rate proceeding. UDC, right now, we don't anticipate that we would take more UDC in a normal year. If you had really warm weather, then we could end up with more UDC. But we would try to mitigate that as much as possible. So I can't say that you wouldn't or you wouldn't. We might be able to mitigate all of it. If the market wants that pipe or that molecule somewhere else, we might be able to get rid of the cost. 671 MR. HAUSMANN: Okay. Anybody else? Is that it? Thank you. We will adjourn until tomorrow morning at 9:00, and we'll continue with the second day of -- 672 PROCEDURAL MATTERS: 673 MR. BETTS: Chris, if I can. Just before everybody leaves, just a couple of wind-up remarks. 674 First of all, we will be doing the same thing for gas storage as we did for system gas, which is to try and develop some particular questions that have arisen at this table that we would like all or any of you, or some of you, to respond to in your final submissions. We're in the process of that now and we will finalize that tomorrow. 675 Tomorrow, we will be continuing with the gas storage, with another panel with a different perspective, and we look forward to that. We're presuming it will only be a half a day, so people can catch up on their work those half days. 676 There was a question put to us also about -- and it was Enbridge, if I want to point the finger, asking for a little more time to prepare their submissions for the Board versus the projected date, I think, of October 27th. I'm going to -- I don't have the answer right now, but I'm going to ask a question that will help us conclude it. 677 I'd like to have any input from parties out there regarding the idea of delaying that submission, and I'm sure all of you would say that's great. The only thing I would say is that it might have the effect of delaying the Board's determination of the matter, or the Board's final publication of its policy papers. 678 With that as a possible outcome, does anyone object to the idea of some extension being given as a remedy requested by Enbridge? 679 Mr. Shepherd? 680 MR. SHEPHERD: Mr. Chairman, are you talking about a lengthy delay or are you talking about a few days? Because that would make a difference to us. 681 MR. BETTS: Well, the person who requested it isn't here right now. Perhaps Ms. Hare can help. 682 MS. HARE: What we are really thinking, and really we were thinking for the benefit of all parties, the last technical conference finishes on October 5th, so it wouldn't particularly get a problem to get the first paper in; but everybody, I think, is going to be putting in submissions on three issues, all due the 27th, and so what we were thinking is that we would benefit by having an extra week or two. That's what we had in mind. 683 MR. BETTS: So let us assume it's the prospect of a couple of weeks. 684 MR. SHEPHERD: In that context, we wouldn't have a problem with that. 685 MR. BETTS: Any other parties want to provide us their input? 686 MR. PACKER: I think Union Gas would support another week or two in order to pull together the material that would be of assistance to the process. 687 MR. BETTS: Certainly the Board is of the opinion that quality is, let's say, as important -- more important than timeliness in this particular case. We've waited a long time to get here, but we certainly want to get to the right point when we do arrive. So we will take that, then, under advisement and try and let you know tomorrow whether or not we can extend those dates. 688 So with that -- oh, Ms. Hare? 689 MS. HARE: Marika Hare, for Enbridge again. Just a follow-up question. Does the Board envision, then, giving parties the opportunity to comment on other people's submissions? I mean, through this Forum, we have a fair idea of the positions being taken. But once we see them in writing, would there be the opportunity, then, to comment on each other's submissions? 690 MR. BETTS: No, the Board doesn't anticipate that you'd get one more kick at the can. 691 Any other questions? Thank you all, and we'll see you all tomorrow morning at 9:00. 692 --- Whereupon the hearing adjourned at 2:22 p.m.