Rep: OEB Doc: 13BFC Rev: 0 ONTARIO ENERGY BOARD Volume: NATURAL GAS FORUM - TECHNICAL CONSULTATIONS ON STORAGE - VOLUME 4 30 SEPTEMBER 2004 BEFORE: R. BETTS PRESIDING MEMBER C. CHAPLIN MEMBER 1 RP-2004-0213 2 IN THE MATTER OF a hearing held on Thursday, 30 September 2004, in Toronto, Ontario; Natural Gas Forum - Technical Consultations on Storage 3 RP-2004-0213 4 30 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 BILL FARQUHAR Northern Cross Energy DARRYL SEAL School Energy Coalition PETER MILNE School Energy Coalition JAY SHEPHERD School Energy Coailtion PETER BUDD Tribute Resources 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 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: [103] SUBMISSIONS BY MR. GIBBONS: [104] SUBMISSIONS BY MR. SEAL AND MR. MILNE: [137] SUBMISSIONS BY MR. SCULLY: [168] SUBMISSIONS BY MR. FARQUHAR: [211] DISCUSSION PERIOD: [250] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:04 a.m. 15 PRELIMINARY MATTERS: 16 MR. BETTS: Good morning, everybody. I think we'll bring this session to order now. We're still waiting on a couple of presenters. We're all now familiar with Toronto traffic and can understand, based on what happened yesterday morning. I understand there's another truck accident on the QEW or something today, so it's quite probable that they are sitting in a very frustrated state on the highway somewhere. 17 So we're going to begin with some opening remarks and some housekeeping items. We'll decide, at that point, if they haven't arrived, whether we'll continue with the presenters that are here, or whether we'll pause for another few minutes and grab another coffee. We'll make that decision a little bit later. 18 I think everybody's been here before, but just for formality's sake, I'll introduce myself. Bob Betts, a Board Member and a fellow Board Member sitting to my left is Cynthia Chaplin, and we are sitting in a non-adjudicative way at this Forum. We are here, basically, to guide the process. There is not a decision that coming directly out of this, although it is our hope that what we are learning here will certainly inform the policy of the Board as it goes forward. 19 A couple of our housekeeping items, if I could. First of all, we were considering a request by Enbridge to allow for additional time for submissions from parties. Originally, that has been scheduled for October 27th, and we're agreeable to a two-week extension. That should make it November 10th for submissions. And I'm going to ask, I can only ask, I cannot demand or direct, there is one piece of evidence -- let's not call it evidence -- it's a submission by Union or an expert on behalf of Union, a study from EEC. 20 MR. HAUSMANN: EEA. 21 MR. BETTS: EEA, pardon me. I depend on my fellow Board Member to keep me straight with those things. 22 And we would ask that since, apparently, that was very close to completion, that they make an effort to submit that on the 27th, as was originally planned, so that it's available to parties for their review and consideration. So that would be the only exception to the November 10th submission date, was a request to Union to submit that evidence on the 27th as was originally planned. 23 Mr. Quinn from the City of Kitchener also asked the Board for some guidance as he was to respond to our request for input on criteria to consider the various options. He asked that we try to help him by providing him with the Board's expectation of where we're heading with this. And I indicated at that time that I didn't want to end up guiding the process too much, but both Ms. Chaplin and myself felt the best way to deal with that was to restate the opening -- some of the opening lines in which we really identified what our objective was here, and perhaps that could guide Mr. Quinn in his answer. 24 Again, he was looking for the Board's overall objective in this Forum, in this proceeding, and also where we were heading. And I just wanted to restate this one line that may give him that guidance and that is: We're hoping that this Forum will assist to analyze different pricing and regulatory mechanisms that would best suit a competitive market and facilitate investment. 25 So it's that objective that we still hold to be very important, and it may be that you identify others that the Board should be considering and we would welcome those to be put to us as well. 26 One other item that has popped up before and I would like to table again. There have been at least two occasions where parties have indicated that they were reluctant to have certain things stated in this Forum because of the Board's active review of similar questions in other forums. And I think, specifically, the easiest way is to make it clear. I am presiding over two other proceedings before the Board: One, the Enbridge 2005 rate application, and the other one, the Tribute Tipperary gas-storage application. 27 Both of them certainly having similar issues in them as those that are being discussed here today and over the whole period. I don't find a problem in dealing with that. Certainly, all of the Board Members will, when we're dealing with questions before us from a proceeding, we very consciously concentrate on the evidence in the record in that proceeding, and I also feel that the issues at point in those sessions are not necessarily being directly reviewed here. 28 But what I would do is to encourage any parties, and many of the parties in those proceedings are here, if they feel as though we're entering into an area of sensitivity, I would encourage you to inject your thoughts at that time, and Ms. Chaplin and I will be guided by those submissions and make a decision accordingly. 29 So, if Ms. Hare did earlier, that was very appropriate and much appreciated. So if similar situations occur, we would encourage anybody that's aware of the particulars to inject their thoughts into the process. I don't think we need to say anything more about that. 30 That pretty well covers the introductory items from my view, other than, again, we're looking forward to hearing some different views on gas storage today. I am looking forward into getting into that. But I will turn the proceeding over to our facilitator, Mr. Hausmann, and he can once again cover some of the housekeeping items and we'll decide whether we'll proceed with the panelists here or whether we pause. 31 MR. HAUSMANN: Mr. Chairman, Ms. Girvan had a question for you. 32 MS. GIRVAN: Julie Girvan from the Consumers' Council. This really goes to Mr. Betts' comments just now about the process. We were thinking that what might be helpful is, we've got the discussion papers and we've heard submissions, we've got written submissions, we have issues that have been specifically identified for the Board to address, and it might be useful, and I don't know if the Board would find this useful, to have some sort of idea about structure of the submissions in terms of outline or scope of issues. Because it seems to me, we have, within each of the three broad categories, a very broad scope of issues, and I just wondered if the Board could potentially give us some further indication. 33 I realize you've set out issues, specific issues, you want, for instance, to hear about in system gas, but I suspect that people will be commenting much broader on that set of issues. So I just am, sort of, struggling with at the end of the day how we could focus the submissions in a way that would be useful to the Board. 34 MR. BETTS: Thank you. 35 [The Board confers] 36 MS. CHAPLIN: Cynthia Chaplin. 37 I think what we were proposing is that you use the list of key questions as a -- it's a suggested structure and a suggested scope of submission. Clearly we do not want to limit people if they feel that there are other important issues that are not covered on that list of key questions. However, we would actually encourage you, if you think there is important things that are not on that list of key questions, to tell us in advance so we can, by the end of this process, have, sort of, as comprehensive yet manageable list of questions as possible. Is that helpful? 38 MS. GIRVAN: Yeah, it's helpful though I look at, sort of, the discussion papers and I see option 1, 2, and 3 and I wondered to what extent -- 39 MS. CHAPLIN: I guess I'm suggesting you can step away from that and focus on the list of key questions which, to some extent -- like, for example, I think one of the questions is, you know, what is your preferred option. That could be one of the options in the discussion paper. It could be some other option that you are identifying subsequent to all of the discussion. 40 MS. GIRVAN: So to move away, really, from the three options as discussed in the discussion paper. 41 MS. CHAPLIN: To not limit yourself to the three options. 42 MS. GIRVAN: Okay. 43 MR. BETTS: Thank you. And did that answer the question for you? 44 MS. GIRVAN: Yes, I'm just looking. I think -- I think most people would find it useful if we had some kind of structure, but if you would prefer for us to simply answer the questions that have been defined by Board and, in addition, to which, answer or just basically address other issues that we feel are important, that's fine. I'm just trying to think, at the end of the day when the Board gets its stack of submissions, how it's really going to sort out -- how that's really going to be organized. That's really what I'm struggling with. 45 MR. BETTS: Excuse us. Let us confer for a moment. 46 [The Board confers] 47 MR. BETTS: I think the Board has made the best decision, not to make a decision in this matter. What we're going to do is put it back to you folks. We'd ask anybody that has that same question, as has been posed, to stick around for a few minutes when we conclude today, and Staff will meet with you and, perhaps, the group can come up with what they think would be an appropriate format to follow. 48 Certainly, your point of trying to have some commonality would be very, very useful and beneficial to the Board. And if anybody is wanting to find that common format and structure, that might be the way to do it. So we'll ask either Ms. Klein or Ms. Jaffrey, or both, to meet with interested parties at the end of this session, hopefully around noon. 49 MS. GIRVAN: Thank you very much. 50 MR. SCULLY: Mr. Chairman. 51 MR. BETTS: Mr. Scully? 52 MR. SCULLY: Peter Scully from FONOM. On that question of general organization of what we're doing here. When I read the discussion papers, I found them extremely helpful in framing what we were talking about here, but I was left with a number of questions. There were things in there, I thought, where did they get that, and I don't understand that. There doesn't seem to be any opportunity to investigate those matters. 53 When I made my initial filing of our presentation, I said I would try to get together a list of those questions. I haven't had the time yet. But, somewhere along the way, if other people feel the same way I do, I think there's some discovery yet to be made, if we could accommodate that. 54 MR. BETTS: Does anyone have -- anyone else have a submission on that particular matter, or a comment? Ms. DeMarco? 55 MS. DeMARCO: Thank you. Lisa DeMarco, McLeod Dixon. 56 Certainly, I think, if the consultants were made available for interchange that was public, to answer any outstanding assumptions, that would be useful, and available to everyone in informing their submissions, going forward. Certainly, from my own perspective, I don't imagine that to be an exhaustive, very lengthy proceeding, but one or two key facts or figures, or even references for such facts or figures, I think, would be useful. 57 MR. BETTS: And Mr. Shepherd? 58 MR. SHEPHERD: I mean, I agree that, hindsight being 20/20, it might have been a good idea to have the consultants answering questions as part of the process along the way, because we certainly had lots of questions about the papers. But it looks to me, on at least the first two subject areas, like the papers have become a launching point, and a lot of other stuff has gone on now, and we're no longer debating the papers. We're debating the issues themselves, and so, would it be useful to do that? Yes, but I think the disruption to the process might be more than its worth. 59 MR. BETTS: Any other submissions? 60 MR. SCULLY: Just to follow up on that. We're going to have a little bit of a break here, from the first group of hearing days to the second. I wonder if we couldn't utilize that, and not interrupt the process, maybe do a little written question thing. I certainly wasn't suggesting we interrupt the process. It looks like we're going to need all of the time we have available. 61 [The Board confers] 62 MR. BETTS: Ms. DeMarco? 63 MS. DeMARCO: I'm sorry, Mr. Chair, it just occurs to me that the two questions are possibly linked, in terms of the format, and not being constrained in what can be in the submissions, and the access to, certainly -- to the consultants, or to touch upon things in the consulting papers. And I think, if the expansive approach to the format is taken, that might accommodate many of the concerns arising around the papers as a launching pad, versus a narrow approach to the submissions being taken and not having the opportunity to address them, some assumptions in the papers. So it might be that we have a balance between the two issues before you right now. 64 MR. BETTS: First of all, both Ms. Chaplin and I agree with the picture that was painted by Mr. Shepherd, that those papers have been a launching pad. They are not necessarily, now, determining direction. So that might help a little bit. 65 What I think might work, or I'll offer this, and see if you have any comments on it, is the possibility of going into an informal interrogatory process which -- what I'm suggesting is that, perhaps by e-mail or handwritten note, or whatever, you could pose a question to our consultants, and they will endeavour to respond on a timely basis; is that possible, gentlemen? And that, if you could focus on the questions that you feel are very key to your submissions, I think that would be helpful. We'll circulate all of the questions and all of the answers to all parties, and then that would be one way of dealing with that. But it may very well be that after the discussion about form and format, much of this may be resolved. 66 Mr. Shepherd? 67 MR. SHEPHERD: Yes, just one housekeeping matter, then, Mr. Chairman. If there's going to be even an informal interrogatories process, can we have a last date when there will be answers tabled, so we know when we can start finalizing submissions? Because, if there's new evidence coming in, then we can't really write submissions, until we've seen it all. 68 MR. BETTS: Yes, I think what I could probably give you is a deadline for all questions, and I think it would only be fair for the -- for our consultants to see the nature of the questions before they decided how long it was going to take to answer them. So, is it -- would it be out of the question to ask all parties to forward their questions to, I would say, Board Secretary, by the end of the day today? 69 Ms. Hare? 70 MS. HARE: Actually, I'm a bit troubled by this discussion of interrogatories, because the discussion papers actually do make a number of statements that we believe really go without support. And so, are we now treating this as evidence? And do we have to be comprehensive in pointing out those areas that we think are not substantiated in the report? If so, we certainly need more than a day; on the other hand, if there are just some areas of clarification, we can probably do that. 71 MR. BETTS: Thank you for that. And certainly, the latter is what the Board would be expecting. This would not be a matter of completing an evidentiary record, or anything else. It would be simply a matter of you, the parties, understanding the -- or clarifying the points that are being made in the position papers. 72 MS. HARE: Thank you. 73 MR. BETTS: And, I think, it's only so far as you feel you need that for your benefit. The Board doesn't feel as though that's a significant step in this. We're more interested in your views at this point than, necessarily, your counterviews to the papers. 74 MR. SHEPHERD: Mr. Chairman, I think - Jay Shepherd - I think there are a number of parties, because of other commitments, who would have some difficulty going back and organizing those questions by the end of the day today. I think perhaps Monday might work, but I think -- as you know there's a lot of things going on and people in this room are committed to a lot of other things, so they may just not have any physical time today to do that. 75 MR. BETTS: I'm a little concerned that this might be turning into a pretty significant transfer of information, and I'm of the feeling, and I believe my fellow Board Member feels the same way, we don't want to get diverted by this. As Mr. Shepherd indicated, that was the launching pad. Its importance now is for you to be able to express your views relative to it and then go on to your positions so that we can understand those fully. 76 So I'd hate for this to become a focus of the proceeding. So it's for clarification only. And I understand Mr. Shepherd's point that we have to make sure that people are aware of it, but I also want to remind everybody that our expectation is that anybody that is in this process is here today, now, and every day, and they should be aware of what's going on. 77 So let me put it this way: We won't go to Monday, Mr. Shepherd, but I'll allow until noon tomorrow afternoon for interrogatories. Let's not call them interrogatories, because that does take on a different connotation, for questions of clarification. And our consultants will review that and respond as quickly as they can, based on the quantity and quality of the questions that are being asked. 78 MR. SCULLY: Having opened a can of worms, you understandably are a little afraid of, could we put on the qualification that any inquiries should be limited to factual ones? For instance, I see them saying 60 percent of the gas comes into Ontario, goes back out, but Ontario's the largest market in Canada and I just trip over that. How can 60 percent leave for somewhere else and only 40 percent be consumed here if this is the largest market? Just things like that that I want to get at. 79 MR. BETTS: Sure. And that -- 80 MR. SCULLY: I don't see being able to ask, How could you conclude that storage is inefficiently used? 81 MR. BETTS: That's a fair differentiation, and certainly I would hope that nobody would get into that kind of conceptual question. Mr. Basham. 82 MR. BASHAM: Thank you, sir. Frank Basham for CAPP. 83 I just want to register in the strongest possible terms that even though our role in proceeding has been very, very limited, we are operating on the assumption that the ICF piece is -- let's call it a major background piece to the deliberations of this proceeding. And we are not -- we had not contemplated any kind of examination on that. Had we known about that, we would have launched a fairly major set of examination questions on that, call it interrogatories or whatever, but we take it -- we take your word for what it is, namely that it is a launching piece. 84 We accept the document in that spirit and we do agree with your decision that it can be subject to points of clarification, but it is not an examination piece. So we actually have been resourcing and operating on the assumption that that's the flavour of this proceeding. 85 MR. BETTS: I can say that your assessment in correct. 86 MR. BASHAM: Thank you. 87 MR. BETTS: So please continue on that basis. 88 MR. BASHAM: We just don't have resources on the spot to turn over something overnight, but clarification, yes. 89 MR. BETTS: I think this has been a very useful discussion. So I think we welcome it here and I'm glad we were able to straighten out some of that so we can proceed on to the next step. Thank you. 90 Anything else? Have we got all of our panelists here yet? There's still one missing. 91 MR. HAUSMANN: Is the presenter for Northern Cross Energy here? Oh, there you are. Please feel free to come up -- there is another chair there if you can sort of slip around the end. 92 MR. FARQUHAR: I'm comfortable here. 93 MR. BETTS: That probably works just as well. Well, we've managed to organize our time very well and I'll turn this back to Mr. Hausmann. 94 MR. HAUSMANN: Thank you, Mr. Chair. 95 Just a couple of reminders, you've probably all heard these, but in the interest of clarity and making sure that we're all on the same page, please remember to sign in at the sheet that should be out in the lobby. Just check your name off. If your name isn't on there, please write it in. 96 Please be sure to turn off cell phones. I've already heard a couple ringing here this morning and they are rather disruptive during a presentation. 97 If you have a presentation to give that is different from what you have submitted to the Board or if you haven't submitted one to the Board, please provide it in electronic or hard copy at some point during the day. The agenda today is pretty straightforward. We carry on through until just after noon. We have really just half day. We have four presentations this morning with some questions of clarification from the Board and then a break, and then we get into the discussion. 98 Are there any people who wish to put any transcript corrections on the record from the previous days at this time? 99 MS. DeJULIO: It's Gia DeJulio from TransAlta. 100 Yesterday, in paragraphs 39 and 52, there was the use of an acronym and the acronym should be OEFC. Thank you. 101 MR. HAUSMANN: Anybody else? Okay. 102 In that case, the order we're going to proceed in is a little different than what's on your agenda. We will start with Pollution Probe, Mr. Gibbons, then we'll go to School Energy Coalition, then to Federation of Northern Ontario Municipalities and then Northern Cross. So, Mr. Gibbons, if you would like to begin. 103 NATURAL GAS FORUM - TECHNICAL CONSULTATIONS ON STORAGE: 104 SUBMISSIONS BY MR. GIBBONS: 105 MR. GIBBONS: Thank you, Mr. Hausmann. I'm Jack Gibbons from Pollution Probe, and we appreciate the opportunity to speak to the Board for a second time in the Natural Gas Forum and are looking forward to our third presentation next week. 106 As I mentioned when I spoke here a couple of days ago, Pollution Probe believes the key objectives for the regulation of the natural gas utilities in Ontario should be: To ensure, first of all, secure gas supplies; second, stable and reasonable prices; and third, lower energy bills for Ontario's consumers. 107 We believe those should be the key objectives of OEB gas regulation for basically three very simple and straightforward reasons. 108 First of all, it's what the customers want. In terms of industrial energy consumers, their spokespeople in Ontario have repeatedly stressed this is what they want. They've been loud and clear and articulate. If you were to ask residential customers, commercial customers, or institutional customers, they would say this is what they want too. 109 The second reason why we think these are the appropriate objectives for the gas regulation is that we believe that these goals, secure supplies, stable and reasonable prices, and lower bills, are absolutely key to maintaining the competitiveness of Ontario's economy and to create jobs. Ontario is an energy-importing province. We're not an energy-producing province, and it's absolutely essential that we have stable and secure supplies at reasonable prices. It's absolutely in the best economic interest of this province to focus on energy efficiency to reduce the imports of fossil fuels from other provinces or other jurisdictions and instead, develop an energy efficiency system in Ontario that will reduce costs, make us more competitive and also will hopefully be able to create export-related jobs for the Ontario economy. 110 The third reason why we think these goals are important is that they help protect public health. The Ontario Medical Association has been very forceful on this issue. According to the Ontario Medical Association, air pollution is a public health crisis in Ontario. The OMA tells us it kills 2,000 people a year in this province, and costs the Ontario economy over $10 billion a year. Switching from dirty fossil fuels to relatively clean natural gas will lead to a dramatic reduction in air pollution, and that will protect public health. 111 To encourage that type of fuel switching, we need people to have faith there are secure supplies at reasonable prices. 112 Now, we believe that the goals for natural gas regulation that we have outlined are basically truisms. They are truisms that every politician you meet, every elected politician in Ontario, would adhere to, would support, and virtually every energy consumer would support. But despite the fact that we believe that our objectives are truisms, are basically self-evident truths, I think it's very instructive. 113 If you look at the consultant's report, Discussion Paper on Gas Storage in Ontario, and you look at the last page, page 40, where they outline their suggested seven criteria for evaluating these gas storage issues, and if you look at their seven criteria, none of them - none of them - are the same criteria that we have articulated this morning. And I think that indicates that there is a huge disconnect - a huge disconnect - between the values of the consultants and the values of energy consumers in this province. 114 Now, the key issue for today's discussion is the regulation or deregulation of natural gas storage assets. We believe that if our objectives are accepted, it clearly follows that Ontario's low-cost storage assets should remain subject to OEB regulation. Deregulation of these low-cost storage assets would simply lead to higher prices for consumers and higher profits for Enbridge Inc. and Duke Energy. Such an outcome would not be good for Ontario. 115 Now, in terms of the deregulation of utility assets, we've seen this movie before in Ontario, and the results weren't pretty. And I'm referring to the deregulation of residential hot water heaters. As most people who are from Ontario are aware, for many years, Enbridge and Union Gas had a residential water heater rental program. This was an excellent customer focus program. Customers loved that program. It meant that they could rent water heaters at a low cost. It was absolutely hassle-free. When they wanted a water heater, all they had to do was phone up the gas company. The gas company would install it, the gas company would pay to install it, and rent it. If there was ever a problem, if it were broke down, you called the gas company, they were there immediately, and they fixed it, hassle-free. You didn't have to go to Home Depot to choose a gas water heater, figure out which was the best one, you didn't have to get the up-front capital, and you didn't have to find a contractor to install it. This was an excellent program the customers liked. 116 Not only was it good for the participating customers, it was good for the utility's system. Water heaters are a base-load use. They improved the load factor of the gas utility's systems, and that led to lower rates for all customers - for all customers. It was very beneficial for all customers. It was good for public health, because this water heater was so successful, it was so customer-focused, that natural gas water heaters got a huge market share. They pushed out electric water heating and, therefore, replaced it with the natural gas option, which is much more energy-efficient, much more cleaner, and much less polluting than electric water heaters that were powered by dirty, coal-fired power plants. 117 It was also great for energy efficiency. As a result of their water heater rental programs, the natural gas utilities, in their procurement practices, were able to demand of the water heater manufacturers that they improve the energy efficiency of these water heaters. That resulted in efficiencies, greater energy efficiency in the province, at an absolutely low cost. It was the most cost-effective DSM program ever. This, again, benefited customers in terms of lower bills. 118 So we had this excellent program. Customers loved it. There were absolutely no complaints about it. It passed the market test at a huge market share. But what happened? It was deregulated. The water heater programs, assets were taken out of rate base and sold to the utility, or the utility's parent, at book value. 119 Then what happened? Well, basically, two things happened. Rates were jacked up. That didn't help consumers. And these assets were ultimately sold by the utility, or their parent company, to a third party at a price way, way above book value. So what happened? Customers were worse off, dramatically worse off; the shareholder was a lot richer. That is not good regulation. And that mistake should not be repeated with respect to the utility storage assets which provide huge economic and security-of-supply benefits to Ontario's energy consumers. 120 Thank you. 121 MR. BETTS: Questions from the Board? 122 MS. CHAPLIN: Cynthia Chaplin. Sorry, if I could just have a moment. 123 I would like to go back to the comments you made regarding the criteria that appear in the ICF paper. 124 MR. GIBBONS: Right. 125 MS. CHAPLIN: And I, too, am looking at the list. Now, I take your point that the same words do not appear, but is it your position that those criteria there are in contradiction to the criteria you've suggested? 126 MR. GIBBONS: I'm not sure that they're necessarily in contradiction, but I would suggest that - maybe this just reflects my huge ego - that our criteria are better, and should be the main focus, and maybe these are second-order criteria. 127 MS. CHAPLIN: Thank you for that. And your conclusion -- I mean, you gave a long and impassioned description of the water heater program experience. Am I to take it that what I am to read across -- as regards your position in storage, is that if storage, in any way, was deregulated, the inevitable result is higher prices for customers and higher profits for shareholders? 128 MR. GIBBONS: Absolutely. 129 MS. CHAPLIN: Thank you. That's clear. 130 MR. BETTS: Thank you. And I - Bob Betts here - and I certainly got the same thing as Ms. Chaplin did from your presentation. 131 One point, one of the objectives that you expressed, which certainly sounds to be sound objectives, was security of supply. Do you see the deregulation of gas storage facilities assisting in gas supply or improving the security of gas supply or diminishing that or having no effect? 132 MR. GIBBONS: Well, certainly, it will lead to higher prices. And I don't think I can make dogmatic statements one way or the other about security of supply. But, at the moment, the regulated storage assets -- as I understand it, the priority is serving Ontario needs, the needs of Ontario customers. We believe that is completely appropriate. I think, in a deregulated market, there would not be priority for Ontario consumers, and I think that could potentially reduce our security of supply, if those great assets, those great Ontario assets, are no longer -- their priority is no longer to serve Ontario customers. 133 Certainly, as you are well aware, the government is hoping that there will be new gas-fired generation in Ontario, and that will be used, at least partly, for peaking purposes. And to fulfil that peaking function, and ensure the lights stay on in Ontario, we'll definitely need a lot of gas storage. 134 MR. BETTS: Thank you. No further questions. Thank you. 135 MR. HAUSMANN: Thank you, Board Members. 136 That takes us to our next presentation, the School Energy Coalition, Mr. Seal and Mr. Milne. 137 SUBMISSIONS BY MR. SEAL AND MR. MILNE: 138 MR. SEAL: Thank you, Mr. Hausmann. Good morning. My name is Darryl Seal, and I'm here today on behalf of the School Energy Coalition. 139 School Energy Coalition represents all of the interests of the publicly-funded schools in Ontario, in the areas of energy regulation and policy. Schools are major users of energy in the province, including natural gas. Together, they pay approximately 2 percent of the total energy bill of the province, and upwards of $150 million of schools' annual operating budgets go towards the supply and delivery of natural gas. 140 With respect to the issues that we are here discussing today, schools are principally interested in two areas of storage. One is keeping energy bills as low as possible for schools and ratepayers in Ontario, so I can confirm Jack's assumption that schools are certainly interested in low energy bills. And the second is encouraging the unbundling of energy services to afford Schools the opportunity to only pay for those services which they need, and also to facilitate clearer cost accounting. 141 In principle, Schools does not support the divestiture of LDC storage assets, paid for by the ratepayers, or a move to full market-based rates, unless 100 percent of those benefits of those decisions are provided to the ratepayers who have paid for these assets in the first place. For the purposes of today's presentation, we don't want to focus on Schools particular views on storage, we will leave that for our submissions and after consideration, all the information that we've been able to gather from these presentations. But instead, we feel that the process at this point would benefit greatly from some perspectives on the storage and transportation issues in the province that may not have been addressed in some of the other presentations that we've seen to date. 142 So to that end, with me today is Peter Milne of Peter J. Milne & Associates, an energy consulting firm based in Calgary, and Mr. Milne will be providing his views on Ontario's storage and transportation markets. 143 Mr. Milne. 144 MR. MILNE: Good morning, members of the Board, Mr. Hausmann, panel members, and ladies and gentlemen. 145 My name is Peter Milne and I'm very pleased to be here on behalf of the School Energy Coalition, not to represent or advocate the Coalition's interest, but to bring my perspective to the issue of natural gas storage and transportation in Ontario. 146 I've been involved in the natural gas industry for 30 years, more than half of those years have been spent as a consultant acting for a wide range of clients in several different jurisdictions. And I never cease to be amazed at the ability of the gas industry to generate a steady stream of challenging interests or challenging issues. It's been great stuff for consultants, as I should add. 147 Unfortunately, I was unable to be here for yesterday's discussion of storage, but I have been able to read some of the briefs that were presented. Between yesterday's presentations and the points that have been made or will be made by my fellow panel members this morning and the discussion paper prepared by ICF, the real challenge will be to avoid repeating many of the excellent points that have already been expressed. 148 To reduce this risk, what I want to do this morning is to frame the storage issue in a slightly different manner, a manner that might shed additional light on the questions or issues surrounding storage and transportation in the province. My point will be that upstream transportation and existing storage facilities in Ontario and the regulation of those facilities will not be the only storage transportation issues on a going-forward basis. A further issue will be short-haul transportation downstream from the market hubs and existing storage sites to the various Ontario distribution systems. In other words, the efficient management of the so-called transportation triangle, including the possibility of LNG being delivered into the east end of the triangle by the end of the decade. 149 The trend today amongst all classes of Ontario customers is to purchase a bundled gas supply delivered to an LDC delivery area at a uniform daily rate for most or all of their gas requirements. It's an all-in service where the marketer supplies the commodity and makes all the transportation arrangements for a single, market-based price. The customer then contracts or arranges with its LDC for load balancing and distribution service to the burner tip. Both these LDC services are provided at regulated, cost-based rates. There can be little question that, from the end-user's perspective, this is a simple, no fuss, low-cost, effective regime that requires little day-to-day involvement or management by the customers. 150 From a more global perspective, the charge is sometimes heard that, in economic terms, the artificially low cost of regulated storage in Ontario results in an inefficient or excess amount of storage capacity being used by Ontario gas consumers. 151 In my own mind, I'm not convinced that this is a valid argument or concern. End-users and consumers do not make the decision of how much storage capacity to contract for load balancing. Consumers simply contract for a load-balancing service. It's the LDCs that decide how much storage capacity is necessary for load balancing and how much storage capacity is available to sell on the open market. Given the incentive systems in Ontario which reward LDCs for marketing excess storage capacity, it is unlikely that LDCs are reserving too much storage capacity for infranchise use because of its low cost. 152 If the parties believe that not enough storage capacity is available or that the market price is too high, it's not because too much capacity is being reserved for infranchise use. 153 Today, Ontario's storage capacity, both regulated and unregulated, is used largely to mitigate price volatility and increase liquidity at the Dawn hub, and to facilitate the efficient use of pipeline capacity upstream of Dawn. All very important roles. 154 Today's mix of regulated and market capacity would appear to function reasonably well. That is not to say that it is not possible to improve the competitiveness of the market-based capacity or the efficient use of infranchise capacity, and several useful suggestions have been made by participants yesterday. And as I said at the outset, the Dawn and Tecumseh storage sites, upstream storage and transportation may not be the only storage issues on a going-forward basis. 155 Today and into the future, a growing issue will be short-haul transportation downstream from the existing storage and market hubs. As gas demand grows in Ontario, including the demand for power generation with its unique load curves, the Union and TransCanada transmission systems, as well as each of the distribution systems, will be challenged to implement efficient transportation load management systems closer to the load centres that optimize pipeline capacity between market hubs, such as Dawn, and the distribution systems through to the burner tip. 156 This is my characterization of the Ontario transportation triangle. As I noted, storage at Dawn largely optimizes upstream transportation capacity, that is, capacity upstream of the triangle, not downstream pipeline capacity. Today, there are few facilities or services in place to optimize the pipeline facilities that make up the triangle, and these are limited largely to LDC interruptible rates, distribution rates. New gas-powered electricity generation would put significant pressure on the triangle, and to take the pressure off the triangle as gas demand grows, more storage or storage surrogates will be needed to be implemented downstream of Dawn. 157 Some of the issues specific to storage in short-haul transportation within the triangle that may arise will include or could include: First, the storage injection and withdrawal service on TransCanada to complement STS, or storage transportation service, which will allow LDCs to divert gas destined for their delivery areas to Dawn to continue to offer Ontario T-service to all customers. The high priority attached to this service may become an issue, given some of the concerns expressed by others about access to storage. 158 Unlike upstream pipeline capacity, pipe capacity in the triangle is tight today, and the second issue will be how to encourage creditworthy parties to enter into long-term contracts needed to support the construction of new short-haul capacity on the TransCanada and Union Gas systems. And who should hold this capacity? LDCs? Marketers? End-users? And there is there a risk that short-haul capacity in the triangle could be diverted from Ontario markets to external or export markets? 159 The third question is the feasibility of LNG peaking facilities strategically located near major load centres within the triangle. These could be owned by private interests, and service contracted to LDCs or power generators. I don't have any specific project in mind, but I recall, some years back, Consumers Gas, now Enbridge, proposed to build an LNG storage facility east of Toronto. In any event, in today's world, to promote the timely development of such facilities, regulation should be limited to safety and environmental factors, only. 160 A further issue will be the encouragement of creative arrangements between power generators, industrial users, particularly those with fuel-switching capabilities, and marketers, that allow parties to interrupt or divert gas supply, under prescribed conditions. The objective here would be to facilitate the movement of the gas around the triangle, to try and move it into the places, or into the hands of consumers that need it most. 161 The last issue that I've identified is the design of new LDC services and rates to meet the needs of power generators. For example, no-notice service and intra-day nominations, these services can be very complex to design, and could involve short-term use of line pack on the triangle, or on the distribution system, which will require close cooperation of pipelines and LDCs. 162 I would encourage parties that are wrestling with these issues, and, no doubt, other issues, to think of the triangle not so much as a transportation system but more as a large, horizontal storage system. 163 Three factors that will determine the extent that these issues will be realized are the rate of growth, pace of growth of Ontario gas requirements, particularly for power generation; the extent to which U.S. northeast shippers on TransCanada do, or do not, re-contract for up to 1 petajoule a day of pipeline capacity to Iroquois and Niagara that expires in 2007, 2008; and third, the realization of an LNG terminal at Gros Cacouna, in Quebec, which could release up to 500 million a day pipeline capacity across the triangle. 164 I apologize if I have strayed too far from the forum agenda. Certainly, there are issues surrounding today's regulation of the major storage sites in southwestern Ontario, and many of these have been thoroughly canvassed by those who have preceded me. What I have tried to do is to identify another important issue, and that is the efficient management of transportation downstream of the existing Ontario storage sites, or so-called triangle. Thank you. 165 MR. HAUSMANN: Board questions? 166 MR. BETTS: Yes, we have no questions for the presenter. Thank you. 167 MR. HAUSMANN: Thank you. In that case, we'll move on to our third presentation by Mr. Peter Scully, Federation of Northern Ontario Municipalities. 168 SUBMISSIONS BY MR. SCULLY: 169 MR. SCULLY: Thank you, Mr. Moderator. 170 First, a little diversion. I never thought that I would be in the position of being an apologist for the Ontario Energy Board and its regulatory role, but, going back to what Mr. Gibbons had to say about deregulation of the water heater market in Ontario. In a previous life, and this is by way of a bit of a confession, I was general counsel for the utility which is now Union's northern region. And one day, my president came in to me and said, You know, we really need to make a bit more money here for the shareholders; how could we do it? We have looked at the regulatory process and had not-all-that-successful an experience lately; have you got any other bright ideas? And I said, Well, we're sort of regulated when it comes to the water heater rental business, but, then again, we aren't, because the rates aren't fixed. So let's bump them up 30 percent, and it will take them about two years to catch up to us. And that's exactly what happened. So there is a good side to what the OEB did. There was flexibility there that utilities could use, and did use, to their own advantage. 171 And I think we should bear that in mind when we think about deregulation of storage. I want to make it plain that my client's position is not that storage be deregulated, but that it be freed up for use by others. We're quite happy that Union and Consumers continue to own the storage that they now own, and that it be regulated on a cost-of-service basis. We just want to see it freed up for use by other parties in the deregulation process. 172 When I think of -- well, maybe another diversion first. One of the problems that I see in what is happening in this process is that we're dealing with utilities that aren't used to marketing their services as services to the deregulated market. Let me explain that. 173 In my second life in this industry, I was a partner in a direct-sales company for a period of about 10 years. And that began almost coincident with deregulation in 1988, '89. And my experience there was that we weren't treated by the utilities as customers, which we really were, and which the direct purchase people are today. We were some sort of new beast on the block, and nobody knew how to deal with us. 174 By way of contrast, if you look at an organizational chart for Union or Consumers, and you look at their sales force, you'll see that they have a plethora of large-volume industrial salespeople, and a fair group of people who deal with the smaller markets. I mean, that's -- it's a big organization. 175 When you turn to the direct-purchase part of their business, which is, what, at least 50 percent of their business, or more, you'll have a little group of people who are designated to deal with that, and they are very much dedicated, and sometimes ingenious. But if you're on the other end of the relationship, you don't have that feeling of being coddled, welcomed, courted. Nobody, when I was in the direct-purchase business, ever showed up and took me out to lunch to try to sell me a new direct-purchase scheme that Union or Consumers had dreamt up. So I think there's, let's say, a structural, historical, factor at work in this process of deregulation and freeing up the assets. 176 When I think of storage, I keep being reminded of that old joke that I think you all know, about the people who got to investigate what sort of beast they were dealing with, but they had sort of blindfolds on, they could only feel a certain part. In the end, it turns out to be an elephant, but there are all sorts of speculations about what is really being dealt with. 177 And, from my perspective, dealing with storage, when it comes to my clients, I'd say their particular blinders cause them to think of storage as not an elephant but a wall. 178 Yesterday, if you look at the transcript or you were here, you would have heard Union's reply to me about why, in the northern zone, there is a burden, I would put it, on the customers up there having not been able to take TransCanada PipeLine's transportation service at 100 percent load factor because, for some reason or another, there isn't enough storage either available or there isn't transportation available to utilize that storage to get to 100 percent load factor utilization. I, frankly, don't understand exactly what that problem is, but it's a wall, you know. You think this should be easy to do and then bang, you run into it. I think that that's something that needs to be looked at and that it's part of the key to us and the Board effectively using storage. We've got to get through that wall, somehow or other, or at least understand it better. 179 My other experience with storage came from being -- when I was in the direct-purchase business. We did some consulting for the City of Kitchener, and among other recommendations to them were that they move to gain control, essentially, of upstream pipeline and storage. We looked around and Union had a rate on their books which looked like it might fit. It was called T3. And if I had to characterize that experience, how I felt and maybe how the City of Kitchener felt as we went through that process, we would have felt we were dealing with an octopus. Because every time you went to pick something up, some arm reached over and grabbed it away or said no, you can't do that, how about this, and now we have to deal with this. 180 The process involved, I think, something like a year and a half. It involved one application by Union and Kitchener to the Ontario Energy Board to say, Would you please help us sort out this negotiation of our contract? We don't seem to be able to do it by ourselves. For instance, when we said we'd like this service, there was no contract for it, it had to be invented. But that was an approved rate by the OEB that everybody thought was sitting there and available. 181 So there's some real difficulties, we feel, historical and ongoing, to the rationalization of storage utilization in the province. In our initial presentation, we said that we noted that the discussion paper on storage made this point, and that's at page 16 of the discussion paper, where they say: "Under the current system, it is unclear how well the market for storage is functioning and, in fact, storage appears to be an inefficient market." 182 We like that statement. I must say that when it comes to the portion of discussion paper directly beneath it which offers some rationale for that statement, we don't agree with those reasonings, and we have some questions that we will be posing in the next day or so on those subjects. But it's -- we liked seeing that statement out on the table. It certainly suited our assessment of the situation and, I suspect, that of many others. 183 Just to double back to what, sort of, a wall we may be dealing with in northern Ontario. The other factor that operates for the northern Ontario system, for my clients, is that Union says to us, Because of the way things are, you really can't get into our storage or transportation. We're going to look after you. In southern Ontario, we can offer unbundled rates, but for one reason or another, and they really do remain unclear to me, Union Gas says, We're going to have to babysit you in northern Ontario. 184 I suggest that that's not a productive and maybe not, I suspect not, a necessary position. We all need to learn a lot about storage, even the consultants in their expertise, use words such as storage "appears" to be inefficient. That indicates to me that we're not the only ones for whom there's a very steep learning curve. The problem for my clients in northern Ontario is the word seems to be if you want to learn about it, there's no school that you can go to. That hasn't opened yet and I -- we're not happy with that. 185 Thank you very much. 186 MR. HAUSMANN: Questions from the Board. 187 MS. KLEIN: Laurie Klein. 188 In your submission, you said that, "regulatory incentives for developing any storage." What would "they" be? 189 MR. SCULLY: I'm sorry. 190 MS. KLEIN: In your submission, I believe it's the last sentence, you talk about regulatory incentives for developing any storage. What would "they" be? 191 MR. SCULLY: I guess, one would be if the perspective storage developer could see that there was an expedited procedure for an application for developing a new pool. You might even consider dangling a carrot in front of them and saying, You're a new boy on the block, we'll let you have -- and this is presuming you stick with cost-of-service regulation for storage -- we'll let you have whatever return we've been allowing in our formula plus 1 percent or 2 percent. I think there are lots of things that could be done to broaden the base of storage that's out there available for parties. 192 MS. CHAPLIN: Cynthia Chaplin. 193 Mr. Scully, would I be correct in summarizing your presentation today to be, you perceive that either, on the one hand, there may be some services available that your clients have not been able to use and/or there may be further as-yet-developed services which might be of use to your clients but that you feel there's not sufficient transparency or sufficient commitment on behalf of the current storage providers to seriously address that issue, those issues. Would that be sort of a fair summary? 194 MR. SCULLY: Exactly. That's a good summary of our position. We also think that when it comes to the people in southern Ontario, there's not as much available even as there seems to be. The good news is there's lots of storage for you, the bad news is we can't get storage to you from here to there. We heard yesterday Mr. Lanzos [sic] say that he has one client who may be trading in his own storage, but he doesn't know, and it's brand new. And I think when we get into what's actually happening, and I hope that's part of this process, in storage and it's utilization it's very, very thin aside from what the utilities themselves are doing. 195 I keep hearing that, Hey, it's a competitive market and there's lots of storage available in Michigan. Well, if my clients come to me and say, Get me some of that Michigan storage, I have to tell them, that's more than a wall, that's a wall beyond a labyrinth beyond the wall. This is going to be very difficult. 196 MS. CHAPLIN: Perhaps I'll just invite you to elaborate as to, sort of, the specifics around the difficulty of that. I think that would be helpful for us. 197 MR. SCULLY: The first thing is, you've got Union telling us we can't even use all of their storage that's supposedly dedicated to us as part of their system because of some constraint. That's the first wall you've got to get over. Saying to Union, Well, let's use some Michigan storage, I'm sure the reply is going to be, Well, if we can't get your stuff to storage in Dawn, we sure can't get it across the river and into Michigan. You know, in my mind, you don't have to get gas physically anywhere. There are all kinds of back-hauls, and trade-offs, and it seems to me that that sort of thing can be done. But I just know, from past experience, it seems to be that you just run into, Sorry, we just can't do that. 198 MS. CHAPLIN: So what you appear to be advocating is for some creative discussion and service development to address your clients' needs. 199 MR. SCULLY: Yes. 200 MS. CHAPLIN: And how do you see, kind of, Board policy being able to further that, or facilitate that? 201 MR. SCULLY: Well, you have a great stick to wield, as a regulatory agency. Maybe you can say to Union and Consumers, I want to see a liberal storage and transportation contract on the table next year, I want to see something that Sudbury can use, and I want to see their rates change so that there is a rate schedule there that's available to them, and it's backed up by a contract that they can read, and we can read and we've approved. I think that's doable. 202 MS. CHAPLIN: Okay. Thank you very much. 203 MR. BETTS: Thank you. And I -- it's Bob Betts here. I think it follows up on that. I had this question in mind, and you may have touched on it right there. You started off saying that, and correct me if I've got this wrong, you started off by saying that you're not in favour of deregulation of gas storage; you simply were trying to free up storage for the use of others. Did I capture that in a few words? 204 MR. SCULLY: That's correct. Maybe what we're advocating is more active regulation of cost-of-service storage. I've forgotten the buzz word, but "proactive" is a word I hate. 205 MR. BETTS: Specifically, with that storage that you're contemplating being freed up for the use of others, were you seeing it being used under a regulated cost-of-service framework or a market-priced rate structure? 206 MR. SCULLY: I think cost-of-service is the way to go, and it's a viable route. 207 MR. BETTS: Under both cases, you're contemplating it being regulated, and not even that component being deregulated? 208 MR. SCULLY: Yes. 209 MR. BETTS: Thank you. No further questions. 210 MR. HAUSMANN: Thanks, Mr. Chair. That takes us to our last presentation this morning, by the Northern Cross Energy. I'm sorry, I don't have your name. 211 SUBMISSIONS BY MR. FARQUHAR: 212 MR. FARQUHAR: My name is Bill Farquhar. 213 First of all, thanks for allowing Northern Cross to speak here today. Northern Cross has been, I guess, an active producer and explorer of gas in Huron County for close to 20 years. 214 I'd like to compliment ICF for their report. It's almost like gas storage 101 for Ontario, and, at minimum, it's very comprehensive and thought-provoking. 215 I guess, by way of background, Northern Cross, over the last year and a half, has been trying to develop a pool within Huron County: The Ashfield Pool. We also have two other pools in the area that are suitable for gas storage. The Ashfield Pool, we were going to try to use as a storage facility, to support a small power-producing project. So, to a certain extent, we're kind of a mini poster-child for a lot of the issues that are being dealt here. 216 And, to make a long story short, in going through the regulatory process in our communications with Union with regards to get suitable transportation, it's been a very enlightening process, to say the least. 217 Our position with regard to transportation services in and out of Dawn, as they apply to parties who are not proximal to Dawn, are extremely well-documented in a number of proceedings. We feel that, for storage purposes, the tradition of indexing transportation services back and forward to Dawn is prejudicial, and, as simply put, if you continue to index transport costs to the Dawn hub, it stands to reason, if you want to develop storage facilities away from Dawn, the farther you go away, the less economic they become. 218 It's Northern Cross's position, and other parties' position, that a lot of the low-hanging fruit near Dawn has already been converted. And I think the province may be confronted with the possibility of reviewing that transportation cost, to try to induce development of pools not proximal to Dawn. 219 Northern Cross is currently participating in the review of the M16 rate schedule, which touches upon a lot of those issues. And we are hoping to demonstrate that, in certain circumstances, that those transportation costs can be lowered significantly, at absolutely no cost to the consumer. 220 Let me give you our example. We are embedded within a distribution service. If Northern Cross chooses to convert the Ashfield Pool to storage, the amount of gas that's consumed by the consumers within that distribution service is exactly the same, regardless of whether that storage pool is put in or not. The benefits to the distribution system? Added security of supply. The benefits to the LDC? Unloading of the Dawn-Parkway system during peak seasons. 221 If those are true benefits, and the amount of gas that is flowing through the distribution system the same, why are we paying such high transportation fees for the right to provide that benefit? There's some argument that says that -- and there's certainly jurisdictions outlined here in the report, and also precedents in Alberta, that treats transportation as merely a flange-to-flange operation. In other words, storage is looked at as not so much a transportation issue, but one of gas coming onto the system, and off the system. 222 Now, there's a number of arguments, and that dovetails one of Northern Cross's initiatives, and that is, we feel that there is an opportunity for, at minimum, Ontario to utilize what spare capacity there is within their existing systems, especially within distribution systems. If future storage developers are willing to accept a lower status of service, an interruptible-type service - in other words, they have basically almost free access to whatever capacity is available at that time - that, in Northern Cross's opinion, is an option that we have that I think, we think, will not pass any cost on to the consumers. It can develop some additional storage for the province, and alleviate what I think we all consider to be the need for additional storage. 223 One thing that Northern Cross agrees with the report significantly, and it looks like there is a heated agreement on this fact, that there is a need for additional storage development, especially in light of increased power demands. It's not so much going to be a question of a global standpoint. These storage facilities may have to be positioned proximal to where the power is demanded and needed. So I'm not sure whether the province can take a step-back-and-wait approach, and hope that, globally, Michigan will help develop storage for them, or they, themselves, may back off on their own current domestic requirements to support consumers to satisfy those needs. 224 Having read through all these papers, I guess -- I'm a simple man. To me, it seems like a bit of an analogy where the province owns a '53 Chev, and the '53 Chev has been an excellent car. It's been running for years and years and years. But the province has information that, Well, you know, we might need a new car. Nobody really wants to pay for the car. 225 The gap is one of -- everybody agrees that storage is required. What's not within the report, and arguably probably was not part of the mandate is, where is that storage going to come from? Do you choose to develop it within the province? Which Northern Cross suggests is prudent because after all, it is an Ontario asset. 226 The other position of ours is we submit that the current transportation environment for those pools outside of Dawn is punitive, and chances are those pools will never be developed. 227 As far as streamlining the regulatory process, I can comment to the effect that the province of Ontario could streamline the process by possibly looking at other regimes and possibly coming up with more of a cookie-cutter approach to how applications should look. Right now, there is not exactly, what I would call, a "this is what a successful storage application should look like." So to a certain extent, the Board and Board Staff get a mixed bag of applications. So the process becomes quite lengthy. I think the Ontario Energy Board can streamline the process by possibly looking at other jurisdictions. 228 I know as an engineer that's operated in Alberta for years and years and years, I've been spoiled rotten. Because to put in an application for something, I merely go to the guidelines and there it is; it's all laid out. A successful application would be boom, boom, boom, boom, boom. And if there was a gap and something that could be done to help streamline, that would be my suggestion to the Board, and Northern Cross would be more than willing to help participate in that type of finding at a later date. 229 As I alluded to before, to me what option we choose here in this process, a lot of it is predicated on the gap between what the needs are, both short- and long-term, and where that storage is coming from. Obviously, the larger the gap, the more forward-thinking the province needs to be, and possibly proceeds away from the status quo. Northern Cross feels that with the status quo at this time, Ontario could get themselves in a situation where they are reactionary. And with the natural gas industry being dove-tailed to power, I think the consequences could be dire. 230 Northern Cross, therefore, really throws our back behind option 3 which, in our opinion, does the best to satisfy both worlds. We can see certainly a lot of parties' concerns with regards to maintaining low cost of service, but on the other hand, using my analogy about the '53 Chev, somewhere along the line we have to provide the impetus to buy a new car. 231 One of the comments in ICF's report that we agree with wholeheartedly is -- one of the issues is, how does the province share the profits it gets from storage? Well, it's a pretty basic business concept that if you have an asset that is generating profits for you, why don't you reinvest back into that asset? That concludes my talk. 232 MR. HAUSMANN: Thank you, Mr. Farquhar. 233 Questions from the Board? 234 MS. CHAPLIN: Cynthia Chaplin. 235 Thanks, Mr. Farquhar. I believe you indicated that an interruptible transportation option would be acceptable; was I correct? 236 MR. FARQUHAR: Yes. 237 MS. CHAPLIN: Would your preference be for a different type of service though? 238 MR. FARQUHAR: We think that within a distribution system, that it's actually not prudent for a storage provider to hold firm service. By a storage provider within a distribution system, what they're doing is they are, in a certain extent, negating the benefits from storage. If a storage provider goes into a distribution service and, say, takes all their remaining firm service, any other end-user of gas, as soon as they put in an application to Union to get a new facility, immediately triggers a system expansion. So where is the benefit from storage with regards to possibly postponing capital investors into infrastructure? 239 Second of all, a lot of storage providers don't physically use their storage. As stated in the report, a lot of storage now has really become financial transactions. Especially in a low cost-of-service situation where the demand charges are not that high, you actually could have a party embedded in a distribution system holding firm service and not moving gas. That negates the benefit of offloading the benefit during peak seasons, which would be a benefit to the Unions and the Enbridges of this world. 240 So hopefully you can see the link where I'm going here. There could be wins for the system by developing that interruptible market. The gap in Northern Cross's position right now, and self-admittedly, is we don't know how the Ontario market itself would accept an interruptible service. Everything here seems to be firm; locked in firm. And I would have loved to have come with a nice study for you, but I'm afraid that's not available. 241 All we can do is talk about our own experiences and what's happened with our own situation of trying to develop a power project on an interruptible basis. 242 MS. CHAPLIN: Thank you. 243 MR. BETTS: Along the same line, with respect to your willingness, in fact, preference to deal in an interruptible mode, maybe you could explain to me how that would affect, either in a positive way or a negative way, the viability of the operation of a storage facility? Does it impact at all that you may not have supply when you think you need it? 244 MR. FARQUHAR: Especially in a power facility, if you are using it to augment a power facility, it would put more of an onus on you to probably carry more gas in inventory to support your project than need be. But we feel that the offset associated with lower fees, associated with accepting a service, would benefit the economics of that type of arrangement, or, for that matter, be able to be passed off to a would-be contractor for just straight storage. 245 We see it, at minimum, as a way of letting possibly the free market utilize unutilized capacity within a distribution system, but not supplanting the major purpose of a distribution system. The purpose of a distribution system is to distribute to end-users, not to be the benefit of storage providers as a financial instrument. 246 MR. BETTS: Thank you. Yes, that answers my question. And that's all of the Board's questions. Thank you. 247 MR. HAUSMANN: Very good. Well, we're at 10:30, so I think we'll take our break now, and we'll reconvene at quarter to 11:00 to carry on with our discussion. 248 --- Recess taken at 10:30 a.m. 249 --- On resuming at 10:45 a.m. 250 DISCUSSION PERIOD: 251 MR. HAUSMANN: Could I please ask people to take their seats and we can reconvene. 252 If people would take their seats, we will start the discussion. We've got a little over and hour until our scheduled adjournment time. We've had a practice over the past several days of giving ICF an opportunity to ask the first question, which gives all of you a chance to think a little bit more about what you would say. So Mike or Leonard, do you have any questions? 253 MR. CROOK: Yes. To Mr. Scully, I wanted to follow up with a question about Michigan storage. We were told yesterday that, I guess, Michigan is a viable substitute for storage in Ontario, and I'd like to hear more about what you see are the issues with acquiring storage or the inability to acquire storage outside of Ontario, and particularly in Michigan. And if any of the other panelists have some knowledge and can address that. 254 MR. SCULLY: I guess, my position is, I keep hearing it but I've never heard about anybody doing it. My plea to the room would be, could somebody stand up if they have actually got some and tell us about it. That's the state that I'm at. I suspect that it's largely lusory storage. 255 MR. CROOK: And the reason it's lusory is the other issue that we heard from some of the other panelists, that storage may be available but the transportation is somehow inaccessible? 256 MR. SCULLY: That may be it or maybe the Michigan rates are 20 percent higher than Union's. I just don't know. 257 MR. CROOK: Mr. Milne, I was wondering if you had any thoughts on this? 258 MR. MILNE: Peter Milne. 259 Speaking to parties over the years that have looked at it, the feeling that I've come away with is that the big hurdle, and I gather that others have raised this point as well, is the transportation facilities between Michigan storage and the Ontario storage systems and transportation system. There are facilities in place today, two or three smaller pipes that are in place, some of them are bidirectional and -- but whether -- to what extent those facilities are fully utilized, I don't know. But presumably, I think, large -- I would expect that large-scale movement of gas back and forth between Ontario and Michigan would probably require additional transportation facilities than what are there today. 260 MR. HAUSMANN: Yes, Mr. Basham. 261 MR. BASHAM: Frank Basham for CAPP. 262 I have a question for Peter Milne. And Peter, we talked a little bit over the break about this coming to you, but in your diagram of the triangle, the gas triangle, the gas pipeline triangle with TransCanada on the northern segment and the Dawn hub and then Montreal and North Bay, I wonder if you could explain to us from your perspective the contribution that a trading hub at North Bay would make to the deliberations of this discussion today. And in particular, some of the points you raise in your paper in the context of the fact that we know that North Bay does not necessarily, at this point in time, have any of the trading attributes of a liquid trading hub, for example, like Dawn. 263 MR. MILNE: My view would be -- let me start again. Today we have, as you pointed out, a liquid trading hub at Dawn. If a liquid trading hub were to emerge at North Bay and Montreal, I think that that would add significantly to the liquidity and the ability to move gas around the triangle which would, I think, be a positive development for the province. However, will a trading hub emerge at North Bay or even Montreal? It's hard for me to speculate at this point. Obviously, there aren't the characteristics at North Bay that there are today at Dawn that facilitate a trading hub. Whether that will change in the future through some services that will allow traders at North Bay to somehow have access to Dawn storage or other storage within the triangle, I don't know. 264 MR. BASHAM: And if I may, just a quick supplementary. In respect to what you describe as the downstream triangle, downstream of Dawn, are there any other physical facility features in that triangle that would assist in some of the deliberations before this Forum? I think you referred, if I'm not mistaking, to -- was it you who referred to on-site storage? Peak shaving storage, LNG peak shaving storage, that kind of thing? Are there any other physical contributions that might be made within that downstream triangle to these deliberations on storage or transportation? 265 MR. MILNE: Are you referring to physical facilities in addition to storage? 266 MR. BASHAM: Yes. Or was it just the short-haul service concept that you introduced at the end of your paper. 267 MR. MILNE: I was referring to both short-haul facilities downstream from Dawn as well as, to the extent that they're feasible, perhaps smaller, more-localized storage facilities. They may not be salt caverns or geological storage facilities and may have to be something more mechanical like an LNG system, but to the extent that they can be justified and that they are somewhere in the triangle, they are going to make a more positive contribution to the efficient use of facilities in the triangle than facilities located at the -- in the existing sites at Dawn and Tecumseh, or even for that matter into Michigan. 268 MR. BASHAM: Thanks, Peter. 269 MR. HAUSMANN: Thank you, Mr. Basham. Any other questions? 270 Mr. Shepherd. 271 MR. SHEPHERD: I have two questions. I have a question for Mr. Gibbons and one for Mr. Farquhar. 272 MR. HAUSMANN: Can you speak up please. 273 MR. SHEPHERD: Sorry, I'm usually the one complaining I can't hear. 274 First, for Mr. Gibbons, you drew the analogy to the water heater situation and you will recall, of course, that one of the primary reasons why the water heaters ended up deregulated was because they were being cross-subsidized by delivery rates. And when that cross subsidy was taken away, they ceased to be regulated. So I guess what I'm wondering is, is it your view that storage in Ontario is currently being cross-subsidized by delivery rates? 275 MR. GIBBONS: I disagree with your assumption that water heaters were cross-subsidized. That was the allegation of the people who wanted to deregulate the water heater business for their own self-interest. They claimed it was cross-subsidized. If my memory serves me correct, they got the OEB to change the rules for allocating costs to water heaters to penalize one or more of the gas utilities for continuing to have a regulated water heater business. 276 I would say there was a very aggressive attempt by certain business interests to undermine that program, and they were able to persuade the Board to take actions that did so. In my view, that was not in the public interest and not in the customers' interest. 277 With respect to gas storage, is it cross-subsidized? I don't know. I don't have enough factual information at my fingertips to answer that. 278 MR. SHEPHERD: I guess a follow-up to that, if it were, does it make sense to at least get the allocation of the costs within the LDCs? Even if you keep cost-based rates for storage, and keep the storage in the LDCs, do you think it makes sense to make sure your cost allocation between the functions is correct? 279 MR. GIBBONS: Yes. We certainly -- Pollution Probe certainly supports good cost allocation, but, you know, there has to be a caveat to that. Cost allocation is an art, not a science. There's always judgment. And so, yes, we support good cost allocation, but, I mean it's not a simplistic procedure, and there's judgment involved. 280 MR. SHEPHERD: And the last one for you, Mr. Gibbons. I guess I was a little surprised at the position you were taking because, normally, Pollution Probe takes a very strong position supporting price signals in the market, market-price signals, to support DSM. And so your support for cost-based storage, I mean, I understand why it's fair, and we support it, too, but it seems to be inconsistent with the promotion of DSM through market-price signals. I wonder if you could comment on that. 281 MR. GIBBONS: Well, this question was raised -- I spoke a couple of days ago. There's no question, higher prices promote conservation. But that isn't the only issue, you know, that this province faces. We have to protect our industries. And we've heard from representatives of industrial energy consumers that they need to be protected. Quite frankly, yes, raising prices can promote conservation and certainly, I think in a general principle, Pollution Probe would support a balanced approach of raising prices over time. If it's done correctly, and fairly, that could certainly promote conservation. 282 But I think you have to remember a couple of things. We have had, experienced, very large price increases for both electricity and natural gas in this province over the last few years, very significant price increases. And whether it is appropriate to achieve -- have even further price increases now, as a tool of public policy, I don't think so, personally. 283 The second thing is, if we do want to raise prices, and if there is a belief that storage assets are sold at too low a price, I mean, there's two ways you can do that; one, you can deregulate it, and raise the prices by allowing Duke Energy and Enbridge Inc. to make huge profits at the expense of energy customers. I don't think that's in the best interest of the people and the businesses of Ontario. 284 The alternative way to do that, if you think these storage assets are priced too low, is for the government of Ontario to establish a royalty for storage assets, and/or a tax on storage assets, to raise the price. And under that scenario, you would get the benefit of higher prices, and all those extra revenues accrue to the government of Ontario, and are used to finance good public services, like schools and hospitals, instead of flowing out of the province to Texas, or somewhere else. 285 MR. SHEPHERD: I notice the accidental reference to Schools there, Jack, thank you. 286 MR. GIBBONS: Personally, with children in the public school system, I believe in a strong public school system. I think it's -- I think it's the foundation of the future prosperity of this economy, this province. We are moving to a knowledge-based economy, and that is the key resource. 287 MR. SHEPHERD: So you'll agree to our proposal that Schools shouldn't have to pay for energy. 288 I had one question for Mr. Farquhar. As I understood what you were saying, there is a punitive - your word, "punitive" - transportation rate for storage downstream to Dawn, and, as a result, it makes it less economic sense. I've got that right? 289 MR. FARQUHAR: Not so much downstream, just not proximal to Dawn. 290 MR. SHEPHERD: But, for example, what I was getting to is, Mr. Milne is talking about the need for more flexibility within the Ontario triangle and, presumably -- or, I'm asking, would the transportation rate problem that you're talking about apply to all -- to a big area of the province downstream of Dawn? 291 MR. FARQUHAR: As it applies to storage providers, yes, because I think storage is quite unique, in that a storage provider basically stores gas, it takes gas off the system, but benefits the system by putting it back on. Have I missed your ... 292 MR. SHEPHERD: I guess what I'm asking is, if that transportation rate problem is fixed, will that free up additional downstream storage within the Ontario system? 293 MR. FARQUHAR: I think it's a move in the right direction. What Northern Cross is proposing is the benefits to accrue from that would be limited to the extent of the spare capacity that's available. We also think there is possibly inroads, also, as to parties who want to develop storage projects based on firm. I think there's also some inroads that can be made there, also. But we think that the low-hanging fruit is one of that of developing a lower-priority service to firm. 294 MR. SHEPHERD: Thank you. 295 MR. HAUSMANN: Gentleman at the designated seat. 296 MR. GRUENBAUER: Yes, Jim Gruenbauer, for City of Kitchener. First, I just wanted to thank Mr. Betts for clarifying on the record this morning the objectives of this process, on behalf of Mr. Quinn. I think it will be helpful to our submissions. I suspect I will be drafting them, so I'm grateful for it as well. 297 My question, I guess -- I've got to start by framing this, so I apologize if I stumble through this a little bit. In listening over the past few days, it strikes me that gas balancing and transportation services within the Ontario market seem to be required on a going-forward basis, particularly under these scenarios involving the power market and conversion of the coal plants, which could have a dramatic impact on the use of gas within the province. I hear the panel agreeing that, you know, in our vernacular, going forward, we're going to be short pipe, we're going to be short storage; how best to add those resources under various scenarios. 298 Having come from the utilities, we used to work on optimization models. Gas send-out is one, in particular, that comes to mind where you'd do projections, and try and have the model solve for an optimum solution, under various scenarios. 299 I was struck by Mr. Betts' comment this morning about analysis being required to formulate good policy, and I guess my question to the panel would be, and again, not to generate lots of additional work for consultants down the road, would they view some integrated analysis, and potential optimization of a mix, going forward; would that be helpful? Because, also, some of the problem is, some of the infrastructure that's required is outside the jurisdiction of this Board, and I'm not quite sure how they are going to influence the NEB, or whoever, in having some of these various options and tools expedited as we need them. So, it's a pretty complicated question, but I hope it makes some sense and is helpful. 300 MR. HAUSMANN: Who would like to begin with that? 301 MR. SCULLY: Jack says he'll take it. 302 MR. GIBBONS: I defer to Mr. Milne. 303 MR. MILNE: I would certainly agree that it's not going to be simple, it's going to be complicated, if for no other reason, because -- 304 MR. HAUSMANN: It's Mr. Milne speaking, just for the record. It's webcast, so we like to give our name at the beginning. I didn't say that at the outset. I apologize, sorry. 305 MR. MILNE: There's going to be difficulties, as you noted, because of different jurisdictions. You've got NEB jurisdiction over TransCanada. You've got OEB jurisdiction over the gas distribution systems. There's going to be -- there will be challenges that -- between LDCs. In order to make the facilities operate at their most efficient level downstream of Dawn is going to take coordination between the LDCs and TransCanada, and sometimes that isn't always easy. 306 In addition, to make maximum use of the facilities, we're going to see -- have to see a movement of gas over those, and between those facilities, you're going to need, perhaps, a greater level of coordination and cooperation between LDCs which sometimes isn't always easy. And to ensure that new storage capacity is constructed on a timely and efficient basis, we're going to need, perhaps, a different regulatory model that will make it easier and simpler for parties to go on to invest in storage facilities. 307 We're going to need to make it easier, as I mentioned, for industrials and power generators and marketers to move gas amongst themselves to ensure that the gas gets to where it is needed most in a timely fashion. So I think certainly there's going need to be -- there's a need for much more corporation and coordination amongst all of the various parties and jurisdictions. 308 MR. GRUENBAUER: Thank you. 309 MR. HAUSMANN: Anybody else from the panel? 310 Mr. Ladanyi, yes. 311 MR. LADANYI: Tom Ladanyi for Enbridge Gas Distribution. 312 I heard Mr. Seal mention an idea that comes up every once in a while in this room. And in fact, it's an idea that comes up mainly in this room and nowhere else in the world outside, and I always wonder if it's an idea that's somehow affected by the ventilation system. And that's the idea that the customers somehow gain ownership of an asset by being a customer. So I mean, I could buy coffee at Starbucks every day for five years and I would not expect to own that Starbucks franchise. I might have spent a lot of money there. You could buy an ice cream cone at Laura Secord's in the basement here every day, and not own Laura Secord. You could rent an apartment for 30 years, and not expect to own the apartment building. But yet somehow you can be a customer of a gas utility business for one day, and yet you will gain ownership of storage assets. 313 So if you can explain to us how this "ownership of storage assets" logic works, and also, for example, could you differentiate for us whether somebody who has been a gas customer for ten years would own more of the storage assets than somebody who has been a gas customer for a year, whether industrial customers would own more of the storage assets by being customers than, for example, residential customers. How would this ownership acquisition work in your mind? 314 MR. SEAL: I don't pretend to have an ownership principle on how the ownership of a storage asset should be divvied out amongst the different parties, be they one-day users of the system or long-term users. I think the point that I was trying to make was that these storage assets have been invested with ratepayer money, and to that extent, that ratepayers have sunk their money into that and have a right to the benefits of that system. 315 MR. LADANYI: Sort of like my money at Starbucks somewhere, so I should own at least a chair at Starbucks or something. 316 MR. SEAL: It'd be great if you could do that. 317 MR. LADANYI: It's an interesting idea, and we'll have to explore it in some future proceeding. 318 MR. SCULLY: I have a reply to that too. Peter Scully from FONOM. 319 If there was one Starbucks in your world and you were forced to pay for his building where he did the coffee from and buy his coffee machine, you would have an ownership interest in it, and that's what's happened in the utility business. People who are the consumers did put up the money, and as to the ownership and the length of being a customer, that -- we sort of have a little communistic principle there. It has to operate. It doesn't matter one day or 30 years, you all own the same. 320 MR. LADANYI: Like Air Canada. You would own a piece of it by being a frequent flyer. 321 MR. SCULLY: Right. 322 MR. LADANYI: That's interesting. I have some additional questions. Since you, Mr. Scully, answered my question without being asked -- you were talking about a concept whereby customers, I presume in northern Ontario, who currently don't get the benefit of storage would somehow be allocated storage. Do you expect the Board to do this or how would this allocation of storage to customers happen? Would it be taken out of the utilities' hands and somehow, somebody outside would allocate the storage to these people? How would that work? 323 MR. SCULLY: No, my concept is that the utility would have storage rates available to everybody, just the same way as they post their R-1 rates or consumers general service rate. It would be a rate looked into and approved by the Board, available to anybody who wanted to step up to the Board and buy it. There would be no dedication of storage. You, of necessity, if you signed up for that rate, would have a certain entitlement, but there wouldn't be a parcelling out and -- you know, Sudbury would get the left corner of Dawn for 20 years or something. That's not what I had mind at all. 324 MR. LADANYI: So you're suggesting you don't think it's allocated efficiently now. You think there is some more efficient way of doing it. 325 MR. SCULLY: I just don't think there's adequate access to it. 326 MR. LADANYI: The last one is for Mr. Gibbons. 327 You were saying that we will need more storage in Ontario to meet the needs of gas-fired generation. What kind of incentive do you have in mind for developers of storage? How would these new storage fields be developed without additional incentives? 328 MR. GIBBONS: Well, utilities are subject to rate-base regulation in Ontario, and that's a huge incentive, in my view, to make new investments. Under rate-base regulation, that's how you increase your earnings per share, by increasing your rate base. And I've never met a utility that's subject to rate-base regulation that isn't very eager to add to rate base. 329 MR. LADANYI: But essentially aren't -- you're saying you want other players to get into the field, is what I was getting at, some more investment money than the utilities. Or you feel the utilities would be the main vehicles for these investments? 330 MR. GIBBONS: We didn't make a statement about that this morning. 331 MR. LADANYI: Okay. 332 MR. GIBBONS: And the question is whether, you know, additional storage investment should be limited to Union and Enbridge or other players should be allowed to be involved. We don't have a position on that, but we do say that when that question is investigated, the criteria that the Board should use to make a determination on that issue are the criteria that we have put forward. You know, security of gas supplies, reasonable and stable prices, you know, lower bills, those are the criteria, and we believe the Board should investigate it and have a factual, empirical investigation, and make a determination based on the facts of what options are the best way to achieve those objectives we have enunciated. And that might mean it's just Enbridge and Union or it might mean that there should be many new companies allowed in. We don't have enough of the facts at our fingertips to give an opinion today on that issue. 333 MR. LADANYI: Thank you. 334 MR. HAUSMANN: The gentleman from Sithe. 335 MR. STACEY: Jason Stacey representing Sithe Canadian Holdings. 336 I was wondering, Mr. Milne, if we could get your view on the appropriateness of cost-based versus market-based rates for LDC storage and load balancing. 337 MR. MILNE: Peter Milne speaking. 338 Mr. Stacey, at this stage of the analysis, or my own analysis, my view would be that existing storage facilities that are in Ontario LDC rate bases should remain there at cost-of-service rates. On a going-forward basis, any new storage facilities that are constructed would be built, whether they be built by the LDC or others, would be built outside of the regulated rate base and priced at market-based pricing, be they small storage sites, LNG sites or expansions to the existing facilities. It would appear to me that in today's world that it should be feasible to build those and operate those in an unregulated fashion. 339 MR. STACEY: And for the power generation market, would you say, say for a new storage development by the LDC, market-based pricing or rates off of that, and then if -- how would you distinguish service from that versus, say, an existing storage facility under cost-of-service, or -- I guess, yesterday, you -- if you reviewed the transcript, it appeared to me that from the utilities, market-based rates for storage and load balancing would be a great incentive for more timely and more options for power generators. And I'm just wondering how, if we had a world of cost-of-service and market-base, how we could meld the two, or what you thought about that. 340 MR. MILNE: Peter Milne speaking. In the world that I was just describing, I would expect that an LDC -- if an LDC contracted, either with an unregulated affiliate or with a third party, for additional storage capacity for the purpose of load balancing, that that capacity would be, and the cost of that capacity, even though it's priced at market rates, would be included in the utility's revenue requirement, and allocated out through its cost-of-service-regulated load-balancing rates. Does that answer your question? 341 MR. STACEY: Yes. 342 MR. HAUSMANN: Mr. Grant? 343 MR. GRANT: Thank you. Jim Grant from Enbridge Gas Distribution. Just a couple of questions for Mr. Milne. 344 A few minutes ago, I think, Mr. Gruenbauer was asking you a question about the system and how it operates and the planning of that system; I'm talking, here, about the gas distribution, transportation and storage systems, in total. And it is fair to say that these systems have been planned and coordinated for many, many years by the LDCs. So my question to you is this: Is your thinking that the LDCs need to do some more learning on how they are planning and coordinating that system role to take account of new demands on their system? Or are you advocating much more wholesale changes to the entire planning and operating system for gas here in Ontario? 345 MR. MILNE: Peter Milne speaking. I wouldn't characterize the changes in LDC operation as -- that I've been talking about, or discussing, as wholesale changes. What I'm suggesting is that what's going to be required as we go forward and need to adjust the system, particularly to accommodate a different kind of load, that is, power-generation load than what the LDCs have traditionally been managing, is going to take a level of -- a different level of coordination and cooperation between the LDCs and the pipelines, the LDCs and its customers, and a different and, perhaps, a more flexible level of regulation overseeing all of the various parties. 346 MR. GRANT: Thank you. The second question I had for you, and I'm going to try to paraphrase and I hope I get it right. I think, at some point in your presentation, you indicated that the incentive systems that reward LDCs for marketing excess capacity works well, i.e., the current incentive system. Did I get that right? 347 MR. MILNE: I think what I said is that there is an incentive system. Whether the LDCs view that it works well, I'm not sure. But there is an incentive system that rewards LDCs for storage capacity that they are able to market in the open marketplace. 348 MR. GRANT: And the fact that one LDC has excess capacity, and the other LDC does not have excess capacity, does that have any policy implications for the Board? 349 MR. MILNE: Peter Milne speaking. What, in my mind, it would suggest is, it would -- that situation should encourage the Board to open up the market for storage capacity in a way that would encourage and allow third parties to enter the market and develop and market storage capacity to the LDCs, and to others. 350 MR. GRANT: So, at the margin, would the LDCs be excluded from participating in whatever incentives the Board had for development in that area? 351 MR. MILNE: Peter Milne speaking. No, I wouldn't -- I would discourage the Board, and others, from limiting who can play in the storage market. The LDCs obviously have a lot of experience, and they have storage facilities at hand. I think it would be a mistake to limit or prohibit them from participating in the market. 352 MR. GRANT: Thank you. 353 MR. PACKER: It's Mike Packer for Union Gas. I had a couple of follow-up questions for Mr. Scully that came out of the dialogue that he had with Board Members. 354 I think I understand Mr. Scully's position to be that the main issue that he would like addressed in this forum is that there isn't sufficient transparency or commitment on behalf of the utilities to develop new services. When you were asked how the Board policy could assist in that, the response, I think, that was provided was that the Board could direct the utilities to bring forward a storage and transportation contract sometime over the next year for the City of Sudbury. 355 I guess I have two questions: Are you really looking for a contract for a municipality or city? And secondly, how does that request reconcile to the service-offerings that are currently available, meaning bundled service, T-service, and unbundled service, in the north? 356 MR. SCULLY: Well, I just threw out an example. I just don't think there are enough alternatives available to the customers in northern Ontario. While I speak for Sudbury and Timmins and the rest of the municipalities in northern Ontario, I'm also saying, for the large-volume industrials, that it seems to me there's some space there for some innovative thinking and rate-making that would open up access to storage in southern Ontario. And that goes for Consumers Gas, too. I happen to be more familiar with Union Gas, and you are our service provider, but I wouldn't limit it to that. 357 For instance, we keep -- we've heard from Northern Cross that one of the things they are stumbling over is the transportation rate to and from Dawn. And I don't understand why there isn't a postage-stamp rate available. In other words, it doesn't matter how close or how far you are to Dawn, you pay the same rate to move the gas. That sort of thing is what I have in mind to encourage the access to storage. 358 MR. PACKER: Maybe just another follow-up question, then. Your comments were in the context of services that we provide, or could provide, to third-party storage developers, as opposed to end-users? 359 MR. SCULLY: No, I'd say both. 360 MR. PACKER: Another question for Mr. Scully. In terms of your suggestion that, possibly, more storage could be made available for northern Ontario consumers, do you accept that that should be the function of optimizing the system, meaning there may be more cost alternatives to storage, for example, pipeline capacity, and that that should be factored into they situation? 361 MR. SCULLY: Certainly. Whatever is the lowest cost, most efficient. 362 MR. HAUSMANN: Mr. Shepherd. 363 MR. SHEPHERD: Jay Shepherd. 364 This question is for anybody, although I suspect it's for Mr. Milne in the end. My friend from the City of Kitchener asked -- what I took him to be asking is: Should somebody be sitting down and doing a more disciplined analysis of what's going to be needed when and how the storage and transportation options fit into each other, sort of like a strategic plan for storage and transportation and the system liquidity. And I took Mr. Grant to be saying, Well, we're doing that at Enbridge, and Union is doing that, and TransCanada PipeLines is doing that, and indeed there are other people doing that planning from their own perspective. And I guess the question that that begs is: Is there a role in storage, right now, for some sort of strategic planning exercise where somebody does sit down and say what are we going to need, what are the scenarios, and what are the specific things that we should be looking at? As opposed to this more broader policy, sort of, how do we make the decisions question, a -- somebody doing an actual model. Is there a role for that, or is that not appropriate now? 365 MR. MILNE: Peter Milne speaking. 366 Models, a few years ago, were very much in vogue, but I think increasingly and particularly in today's more fast-moving and changing environment, they're difficult -- it's very difficult to work with them. That's not to say that somebody shouldn't be thinking ahead in terms of how different aspects of the system should be operating, and one aspect of the system, as I have suggested this morning, is the so-called transportation triangle. And there has been, over the course of the last couple of years, a lot of thought being given to how the TransCanada system should be structured and tie into this end of the system, and I know as well that both the LDCs, Union and Enbridge, have certainly been giving a lot of consideration to the question. 367 But I think what's perhaps going to be important, going forward, is that because things aren't fluid and changing, that rather than trying to pretend that either the utilities or TransCanada or any organization, government organization or otherwise, has a fix on how the world should -- what the world's going to look in five or ten years from now, I think history has shown that can be a very dangerous path to follow. Instead, I think what's needed is a review of the -- what I understand this Forum is trying to do, a review of the nature of the regulatory environment that will govern the parties that are trying to position themselves to take advantage of opportunities that are going to emerge going into the future. 368 And I think what's really needed is to provide those parties with as much flexibility as possible, and to not just get -- be focussing just simply on one part of the system. I think you need to look beyond just single parts of it and be thinking about how we can make the whole system more flexible, more responsive, so that the resources end up located in the right place and power plants get located in the most-efficient locations and the right expansions are constructed on both the TransCanada system and on the LDC system. 369 MR. SHEPHERD: So I take it what you're saying is we don't need a master plan, what we need is to get the rules right for people playing in this sandbox and they'll build the sandcastle you want or that you need. The market will deliver. 370 MR. MILNE: Peter Milne speaking. 371 That's my view, sir, yes. 372 MR. HASSAN: Fred Hassan on behalf of Enbridge. 373 I have a few questions for Mr. Milne and a few for Mr. Scully. 374 With respect to the Ontario storage market, is it part of a larger overall market, Mr. Milne? 375 MR. MILNE: Peter Milne speaking. 376 Yes, it is. The Ontario storage facilities that currently exist are, I guess you could say, really an integral part of the North American gas market. 377 MR. HASSAN: And over the years, this market has developed and more pricing information has come into the market over time, and more parts of the market have become priced more on market factors than either mandated prices or regulated prices; is that fair to say? 378 MR. MILNE: Would you repeat the question, please? 379 MR. HASSAN: Over the years that I've known you, anyway, since the beginning of deregulation, we started out with, for instance, in 1988, renegotiated agreements, those agreements had fundamental constraints in them in terms of arriving at a market-based price. And as I recall, in some of the work that you did back at that time was to track pricing in the marketplace to establish a price database. And over time, in the last 15 years, what's happened is we've had the creation of NYMEX, tremendous price information coming into the market, which allowed for gas to be priced, the commodity component to be priced in the market; is that fair to say? That we've gradually gotten better to move towards market-based pricing on the supply pieces, and in some cases, some of the other components; is that fair? 380 MR. MILNE: Peter Milne speaking. 381 Yes, indeed, that's is a fair comment. Particularly at certain points such as Dawn and AECO and Chicago, there is -- the improvement in price discovery is immense over the past decade. 382 MR. HASSAN: And the general trend is towards, on almost all of the components that relate to natural gas, to move towards market-based discovery of those components and pricing of those components, in part because of a move not only on gas but also on power; is that fair to say? 383 MR. MILNE: Yes, I think that's a fair generalization, but there are still elements and sectors of the system that are not as transparent and that -- where market pricing is not as widely relied upon. Certainly Dawn, AECO, Chicago and any pieces of pipe between those systems, the market is able to put a value on those systems or a price on those systems readily, and that price is relatively transparent. 384 Where improvement is still needed or where further progress is still needed is segments of pipeline and -- in market areas that are, how do I say, downstream from the hubs. For example, the market for capacity from Dawn to the Union EDA or Consumers EDA is not nearly as liquid or transparent as the market for secondary pipeline capacity into the CDA or into Dawn. 385 Similarly, the price of gas delivered to Iroquois, or, again, the Union EDA, Consumers EDA, is not nearly as liquid or as transparent as the market for gas at Dawn or Chicago. 386 MR. HASSAN: And, in part, that's due to the fact that we are now just seeing the emergence of those markets, and price discovery. For example, movement on the Montreal line 10 years ago, in the summertime, would have been relatively low load factor, but over the last three years, because of power generation, you have relatively high load factors in the summertime for movement from, say, Parkway, or Dawn, to the Montreal area. So we have an evolution taking place in that triangle; is that fair? 387 MR. MILNE: Peter Milne speaking. Yes, certainly and the expectation is that it's going to continue to grow. 388 MR. HASSAN: Yes, and there are better price signals for both storage and, in your triangle, in those various components along the triangle emerging, as I said, over the last two years, and expected more as we move forward. 389 MR. MILNE: Peter Milne speaking. I would agree, but I think it's got -- it's not at the same level as it is at the hubs. And, certainly, it's going to improve, and I think any improvement would be a good thing, would be a positive development. 390 MR. HASSAN: And part of that is making sure that all the pieces work synchronously together, including storage; is that fair to say? That you put price signals into the marketplace, on the key components, so that people can get enough information, and value, as it relates to those parts. Do market-based prices do that? 391 MR. MILNE: Peter Milne speaking. Absolutely. That's what, I think, so much of the effort that has gone into developing competitive markets in Ontario, and elsewhere, competitive gas markets, over the years, has tried to achieve. It's trying to achieve gas prices that are, one, truly competitive, and, two, that are transparent, that will enable end-users, suppliers, marketers, to respond quickly and accurately, and in that way allocate resources, allocate gas supply, in the most effective and efficient manner. 392 MR. HASSAN: Yesterday, Mr. Grant spoke about Enbridge's gradual approach towards moving towards market-based pricing with respect to their facilities. So if, over time, Enbridge were to move its new storage facilities, I understand you would support those being developed at market-based rates. But if, over a period of three, four, five years, the price signals that we just talked about were to emerge such that Enbridge could move to market-based rates for its entire storage, would you be comfortable with that? 393 MR. MILNE: Peter Milne speaking. I think market-based rates and prices are critical to directing marginal investments, marginal gas flows. It's not clear to me that taking existing storage facilities that are in rate base, cost base, and charged out at cost-based tolls, taking those now, or in two or three years, or gradually over any period of time, and moving them to market-based prices, is going to have much effect or impact on -- a positive effect or impact on the timely and efficient location of new storage facilities required in the province. 394 MR. HASSAN: Thank you, Peter. 395 Mr. Scully, as it relates to the TransCanada tariffs, what are the differences between tariffs for gas delivered at, say, Thunder Bay versus gas delivered at Dawn? 396 MR. SCULLY: Off the top of my head, there aren't any. 397 MR. HASSAN: Well, you're incorrect. There is a substantial difference in tariff between Thunder Bay and Dawn and -- 398 MR. SCULLY: The level of the rate, or in the structure? 399 MR. HASSAN: The rate. There is a different rate for delivery to TransCanada's delivery points on the west end of Ontario as compared to the southwest delivery area, which just recently changed, as compared to delivery into the Montreal area. 400 MR. SCULLY: Montreal is no longer in the eastern zone; is that what you're telling me? 401 MR. HASSAN: Well, there has been a change in the zoning in Ontario. Thunder Bay has always had a different tariff than southwestern Ontario has had. There are different transportation tariffs in Ontario today, and there have been for some time. But yet, it appears you want a postage-stamp rate for transmission from northern Ontario to Dawn, and back, where today, you know, people are paying for the cost of services that they are acquiring from transmission companies. Whether it's in Ontario, or whether it's in Michigan, or whether it's in New York, there are transmission cost differences, and that is reflected in the basis of differences between the various trading hubs. 402 So, if your clients are already exposed to transportation differences, why should the rest of Ontarians pay for a cross-subsidy for a storage service for a more remote area, as compared to someone who is located in closer proximity? Are you suggesting a different methodology for costing as it relates to TransCanada tariffs, or as it relates to the commodity, or as it relates to just the Ontario transmission, or all those pieces? 403 MR. SCULLY: Peter Scully for FONOM. Fred, you and I both know that there are ways to accommodate the situation. Postage-stamp rates versus distance-of-transmission rates are the outstanding example in the industry. And I'm saying, simply, that there is room for accommodation. It doesn't cost that much more for all of the people in Ontario to give everybody an equal break in Ontario. 404 MR. HASSAN: I'm just trying to land on whether the principle is one of a different method in tolling that you're seeking, or an application of a tariff that has already been established and you're seeking to have that averaged out on behalf of your clients? Or are you seeking to have that averaged out on behalf of all clients in that zone? 405 In other words, if your clients are at the extreme west end, and Union is handling their transmission to, say, Thunder Bay, that the Thunder Bay customers would also be cross-subsidized, whereas the North Bay customers, who are in a different zone, would not get the same tolling treatment? 406 MR. SCULLY: Well, put quite simply, I'd say all of Union's customers, be they in Windsor or Lake of the Woods, should be in the same basket, one way or another, whether that takes Union gathering in all of those TCP tolls, and leveling them, and the cross-subsidization that that might involve. Whatever it takes. 407 MR. HASSAN: Thank you. 408 MR. HAUSMANN: Thank you, Mr. Hassan. 409 Ms. DeMarco? 410 MS. DeMARCO: Thank you. Lisa DeMarco, McLeod Dixon. 411 I have two questions. I think one of them is most likely for the consultants in drafting the paper; the second is for Mr. Milne. 412 My question for the consultants is in relation to the discussions that Mr. Shepherd, and Mr. Grant, and Mr. Milne have been having about a master plan for system optimization. I'm just curious as to whether ICF, in formulating the storage paper or any of the other papers, made use of its integrated planning model in coming up with any of the options? 413 MR. CROOK: Leonard Crook with ICF. 414 No we didn't. 415 MS. DeMARCO: And my second question is for Mr. Milne in relation to the discussions you've been having about the broader market that we're talking about, mainly storage and transportation as an alternative to storage. Would it be your view that in assessing competition in that market, in the storage market, you'd also need to consider pipe as well? 416 MR. MILNE: Peter Milne speaking. 417 Yes, indeed. In many respects, storage and pipe are substitutes for one another, and any analysis in terms of how much storage and where to locate the storage has to include as well the transportation facilities that are or may not be required as a result of any particular storage facility. 418 MR. HAUSMANN: The gentleman at the designated mike. 419 MR. BUDD: Good morning. My name is Peter Budd. I am here on behalf of Tribute Resources. I have a few questions, if I may, for the panel. 420 First I'd like to start with Jack Gibbons. Perhaps I missed this, but maybe you could just help me. In respect of storage, I think I heard you say that storage is valuable and we probably need to have more of it in Ontario if we're going to convert our coal plants to gas. Is that a view you -- 421 MR. GIBBONS: Absolutely. 422 MR. BUDD: And where I'd like to ask you for some help is, how do we go about pricing the new storage that we bring on? And I'm coming from the perspective that we probably can't build new storage on the cost-of-service rates that are historic, that you, I'm sure, are aware of. We probably have to build it based on increased, sort of, incremental costs that are out there for the new construction of these facilities. How do we build that in? 423 MR. GIBBONS: Well, I guess it's not obvious to me why it couldn't be rolled in with utilities' existing assets, as I think is the norm for everything else that they do. But quite frankly, your question is how is it most appropriate to price a new storage asset. And quite frankly, Pollution Probe doesn't have a recommendation in that area. That's beyond our area of expertise. We're making some -- our submission is making some high-level comments on many things that, I guess, are high-level and I think pretty self-evident, but in terms of those specific, technical questions, that's beyond our area of expertise. I defer to people like Mr. Milne. 424 MR. BUDD: Can I try one more, because I've got some for Mr. Milne in a moment too. He's not off the hook either. 425 Mr. Farquhar, of course, is sitting on the panel beside you and he's got a project that he'd like to bring on at some point, and therefore he's a private developer. He's not a standard utility like an Enbridge or a Union. Would you suggest that the storage prices that he would be able to obtain would be open-market storage service charges? Would that be acceptable to Pollution Probe? 426 MR. GIBBONS: Well, again, sir, we don't have a position on that. Pollution Probe, you know, is limited. It's a small organization, and they've only hired one person to deal with OEB matters and that person only works part-time on OEB matters, and quite frankly, you know, I got a huge ego but it's not so big that I actually think I know the answer to that question. So I'm going to defer it to, hopefully, people who will give you an intelligent answer. 427 MR. BUDD: Thanks, Jack. 428 Over to you, Peter Milne, if I could. You spoke earlier, when you were giving your presentation about a new regulatory model which would be needed to ensure that new storage gets built. You spoke about having more cooperation and coordination. Can you put a little more meat on the bones as to what kind of new regulatory model that you're speaking of that you think this Board ought to follow? 429 MR. MILNE: Peter Milne speaking. 430 What I had envisaged, Mr. Budd, is that new storage facilities constructed in the province would not be subject to economic regulation by this Board or any other board. That the cost and price of the storage, of new facilities, would be something that would be negotiated between the parties or determined in the marketplace. 431 Is there something further you would want me to elaborate on? 432 MR. BUDD: I understand the basic concept. When you spoke about a regulatory model, I thought you might be referring to something more detailed. For example, over the last day or so, we've heard people talk about the fact that we need to get more coordination between the electricity and the gas markets. The utilities are expected to offer more detailed, sort of, instant services to gas cogenerators. Is there something there that you're referring to in this new regulatory model? 433 MR. MILNE: Peter Milne speaking. 434 What I'd like to see is a trend towards an environment that would enable parties to move, and parties including power generators, marketers, LDCs, end-users, being able to move more quickly and easily to put in place arrangements that have been commercially negotiated between themselves. The only -- the test being that, to the extent that these relationships, negotiated relationships and agreements, do not require explicit or implicit support by ratepayers in general, then there's -- not being underwritten by ratepayers, then there should be no real need for economic regulation. I don't know if I can be more helpful than that. 435 MR. BUDD: The only part that remains on that is that this Board has had a historic practice of not, say, assigning rate classes to specific types of end-use customers. You're aware of that kind of history here? 436 MR. MILNE: Yes, sir. 437 MR. BUDD: So one of the things that's come in front of the Board the last day or so is the idea that maybe it's time to change that and maybe there is a need for power generators to have specific rate classes. Did you hear that idea, or maybe you didn't have an opportunity to read the transcript. 438 MR. MILNE: I'm sorry. Unfortunately, I wasn't here yesterday. 439 MR. BUDD: What would be your view that this Board might consider that, given the movement or the importance of electricity generation from natural gas, that there be separate rate classes with specific terms and conditions for service customized for electricity generation from the fuel source gas. Do you think that's a change this Board ought to consider or leave it the way it is? 440 MR. MILNE: Peter Milne speaking. 441 To the extent that power generators have unique loads and load patterns that either impose costs or contribute benefits to the overall system that are different than other customer classes, then, in principle, I could see a place for rates specifically designed for power generators. 442 MR. BUDD: Thank you. 443 Now, if I could turn to you, Mr. Farquhar, for a moment. You have referred to a focus on firm service, and I think the Northern Cross position is that firm service shouldn't be necessary or necessarily available to storage providers; is that right? 444 MR. FARQUHAR: No, storage providers within embedded distribution system. 445 MR. BUDD: Okay. And my question to you is: What if a storage developer actually wants firm service from the utility, embedded in that utility, and is prepared to pay for it? Should they be prevented for contracting for that kind of service. 446 MR. FARQUHAR: If, in the position of the Board, that's not the best utilization of those assets, yes. 447 MR. BUDD: And in respect of system expansion, which I think you referred to, in your view, what are the criteria for system expansion? So say there's a number of storage developers that are out there that want to develop storage, such as, for example, in the area that you referred to. When does the Board know, when does the utility know, what the right point is to go ahead with the system expansion? 448 MR. FARQUHAR: I guess at the point where the amount of storage or, for that matter, end-use justifies that expansion from an economic standpoint. I don't -- I see the Board as really playing a regulatory role on that point. I'm still very free-market when it comes to that. 449 MR. BUDD: All right. Just on a hypothetical, because I think it's important that we be clear about this, that if a number of storage developers have a project and can demonstrate to the utility that they are prepared to take service, and that service outstrips the available capacity at that point, then that might be a scenario under which those developers get together with the utility and say, It's time to build another pipe. 450 MR. FARQUHAR: Oh, absolutely. 451 MR. BUDD: Thank you. I have no further questions. 452 MR. HAUSMANN: Thank you, Mr. Budd. 453 We're nearing the end of our morning schedule. Are there any remaining comments or questions out there? One more, Mr. Gruenbauer, and then Ms. Allan, is it? Go ahead. 454 MR. GRUENBAUER: Jim Gruenbauer for City of Kitchener. Not a question but a comment. 455 I just wanted to say I loved Mr. Shepherd's sandbox analogy in his exchange with Mr. Milne. And I'd make the observation that when you're playing in the sandbox, sometimes some kids won't even let you see the toys, let alone play with them as long as you'd like. 456 MR. HAUSMANN: Ms. Allan? 457 MS. ALLAN: Just a comment, really, not specifically to this panel, but a comment. Over the last four days, I have heard a lot of comments in the room that this particular format has worked fairly well, perhaps a lot better than some of the formats that we've used in the past, and I just wanted to congratulate or compliment whoever picked the format. We've tended to stray today into cross-examination. I wonder, perhaps, if we might want to put security guards on the doors to keep out the lawyers, but that's probably too radical for the Board. 458 MR. BETTS: I have a comment, but I wanted to ask a couple of questions, actually, before we leave this. The comment is, there's a lot of lawyers in the room and it's still working pretty well. And I think the key is that I think we came with a state of mind and a framework that we could work within, and everybody wanted to contribute and everybody wanted their views expressed, and they've cooperated very well. So far, so good. And thank you for that positive input. 459 Cynthia and I will be happy to pass that on to the Board. I think the Board has seen some good results from these kinds of forums in the past, and this will encourage them to keep going with this kind of informal process. 460 If I could, I'd like to ask a couple of questions. First of all, I found this to be a very valuable session, from a personal point of view, and I appreciate everybody's input. But if I could just ask a couple of questions. They were very similar to others that have been asked. But Mr. Budd, for example, was talking about a particular -- the concept of the Board moving, or being a little more open-minded about special rate classes for specific end-users. And I wonder, and I address this one to Mr. Farquhar, could that be of assistance, for example, for a storage operator? Could it solve any of the problems? 461 MR. FARQUHAR: Yes, and that's because -- but it would take a -- it would take a change from the perspective that storage is not so much a transportation issue, it would -- you would -- I guess what we're advocating is, on-the-system/on-the-system, sort of a postage stamp type of arrangement. That would facilitate the development of pools that are appropriate away from the Dawn hub, and still provide all the benefits associated with storage, or, for that matter, system expansion and everything there. 462 The indexing to hub might be a very, very good way of regulating costs and accounting for costs within a consumer-based, low, indigenous-producing area, but I think it falls on its face when it comes to storage. And there's certainly other jurisdictions that have taken a different approach in that vein. 463 MR. BETTS: Thank you. And another question, and it kind of surrounds the issue of market-based or competitive market pricing for storage facilities. I don't want to suggest that I know the motives for doing that; I think I do. But let's assume for the moment that the motives for doing that was to increase the incentive available to an LDC to do two things: One, to develop new and more storage; and two, to optimize the use of the storage that they have available. So if the motive was incentive, and it's a reasonable motive for any company, that if they have restricted resources, it's a question of where they're going to put those resources, to what use, so if there was some incentive that would cause them to put them to those two uses, that might help. 464 and I look perhaps to Mr. Gibbons, and perhaps to Mr. Milne, for their comments on -- Mr. Gibbons first, and I appreciate, and I heard very clearly your point about, Let's not just raise prices in here, let's keep that as an objective, a fair objective. If there were some other form of incentive that could be developed -- first of all, if we accept the fact that incentive is necessary, I'm not sure you do, but if we did accept that, would some other form of incentive perhaps be useful or considerable in that case? 465 MR. GIBBONS: Well, in terms of getting new storage assets by Union or Enbridge, we've had, in Ontario, a great system for many, many years to encourage them to expand rate base, not only for storage assets but for distribution assets, and that's rate-base regulation. Under rate-base regulation, as you increase your rate base, you increase your earnings per share. And that's, you know, what investor-owned companies are driven by, that's their goal of their shareholders, is to increase earnings per share, and that's what rate-base regulation allows them to do. 466 So, you know, under rate-base regulation, the utilities, if anything, they're guilty of gold-plating, putting in too much rate base. And so I don't think the OEB has to worry about that. We've got -- as long as you stick to rate-base regulation, these utilities will do everything possible to expand rate base and storage assets and other assets. I think there's just no need to have a fear of that, unless their parent corporation is constrained because of financial difficulties, which may be the case for Duke Energy. But it's certainly not the case for Enbridge Inc., to the best of my knowledge. 467 So I don't think that's something you have to worry about one bit. Utilities love adding rate base. And, you know, I think that was dealt with. The Board had a generic hearing on the rate-of-return equity for the gas utilities a little while ago. We had experts like Dr. Booth, we had experts like Peter Case, who was a financial analyst, and they confirmed that utilities love to add rate base, and doing that leads to higher earnings per share. So I think there's absolutely nothing to worry about in that regard. 468 In terms of when they have the rate base, is there a need for additional incentives to incent them to optimize the use of those assets better? I think quite possibly there can be. I think an argument can be made for that. And my recollection is that, for one or both of the utilities, they have had special incentives that have been agreed to in ADR agreements to use some of their assets more effectively, some kind of shared savings incentives. 469 So, in principle, again, Pollution Probe would have no problem with those type of incentives to motivate them to use the existing assets more efficiently. 470 MR. BETTS: And Mr. Milne, have you got anything you could add to that, or a different viewpoint for that matter? 471 MR. MILNE: Peter Milne speaking. 472 I would agree with Jack's point. I don't think in today's regulatory environment that -- or I think in today's environment that there is enough incentive for regulated LDCs to construct more storage facilities if they believe that they can justify the use of additional facilities before the Board. I think the advantage of going to a market-based system for new storage facilities, be they constructed by the LDC or by third parties, is first, you will create an opportunity for other parties to enter into the storage business. And second, I think it brings a level of discipline to the storage market with respect to where and how much new storage capacity to construct that, with all due respect, may be more effective than the regulated environment that utilities operate in today. 473 MR. BETTS: Thank you. 474 The last question, and it was one that I think was started off with Mr. Gruenbauer from the City of Kitchener and then Mr. Shepherd and Ms. DeMarco also got into it, and it's one that's of interest to me. I think I've heard clearly from people over the last few days that there is a downstream transportation issue, and we've all indicated that it's cross-jurisdictional, it's cross-corporate, it's kind of a mess because there are a lot of players in it and all of the players haven't been able to get together to talk about it. 475 Perhaps someone could comment and perhaps -- I think I would certainly benefit from any comments that might be received in submissions further, but is it important for somebody to take the lead in bringing those groups together in one Forum in an effort to address the future problems that are foreseeable at this point and try to come up with a collective solution, a collective model, if we want to use that term, for dealing with those circumstances? 476 I will pose that to anybody to the group. I'm really posing it to the group, but you guys are being forced to answer it. So anyone that would like to comment on that? 477 MR. SCULLY: Can I have a try at that? Peter Scully for FONOM. 478 One thing that occurs to me is that under the existing Ontario Energy Board legislation, I think it's open to the government to give directions to the Board. I've never completely understood how that works, but if the Minister has a real bee in his bonnet, apparently he can tell you about it without being accused of interference. 479 By the same token, I think it works backwards. If you write a report that says, We've had the benefit of the input of all of these different bodies in this proceeding, or maybe some other future proceeding, and that includes TransCanada PipeLines, and the government of Quebec, and whoever, and maybe the state of New York, and here's what we think should be done on an overall basis, general plan. I think maybe that is open to you to recommend back up that Mr. McGuinty, or whoever, to convene his own get-together of the political -- the people with political will to maybe make some radical changes. 480 MR. BETTS: Anyone else like to comment on that. 481 MR. MILNE: Peter Milne speaking. 482 I think, as I said, or at least I tried to say earlier, any effort to create a plan, I think, should focus more on process than on specifics. I shudder to think of a model telling us where to build the next LNG facility or where to locate the next power generation plant. I think those kinds of decisions need to be kept to the marketplace, to the players who are prepared to put their money where their mouth is. What's important -- and I think to the extent that bringing forums like this and perhaps higher-level forums amongst energy ministers to portray the environment and provide parties with an assurance that the environment will be stable in which that they can make these long-term, capital-intensive decisions will be -- will definitely be a positive step forward. 483 MR. BETTS: Thank you. 484 MR. HAUSMANN: Mr. Chairman, as always happens, more dialogue creates more dialogue. I see we've got three people -- two people. Mr. Gruenbauer is back and Ms. DeMarco has got her hand up. So Mr. Gruenbauer, go ahead. 485 MR. GRUENBAUER: Just very quickly. Jim Gruenbauer, for the City of Kitchener. 486 An analogy or comparison that might be helpful is, we had a cross-jurisdictional and industry-cooperative massive effort to explain why we had the August blackout last year. I'm not suggesting that something like that is necessarily going to happen on a going-forward basis, but it strikes me that the level of cooperation that we need going forward gets the horse before the cart. So we're doing something proactively rather than explaining down the road why you know certain -- the system was strained beyond its capability to handle it and we missed the opportunity to plan for it appropriately and make some adjustments and, if necessary, make either small changes or wholesale changes. So it happens within this flexible regulatory framework that we get the efficient resource allocation that Mr. Milne is referring to. I agree with that. But as I say, it just strikes me. We've got an opportunity here to get the horse before the cart so let's take it. 487 MS. DeMARCO: If I could arrive at the same point taking a different pathway. I think it would be very difficult, based on the traditional regulatory rate case model, to address, for example, the concerns raised by TransAlta and Coral yesterday about interLDC efficiencies, efficiencies that need to be achieved between franchises without a forum other than the existing singular LDC rate cases. 488 MR. BETTS: Right. Thank you. 489 MR. HAUSMANN: It looks like we've -- our agenda makers have done a pretty good job again giving us just enough time or the right amount of time. So with that, I will let the chair make any closing remarks he may wish, and then we will adjourn until Monday. 490 MR. BETTS: Thank you. And thanks everybody, another great two days. Thank you all for your participation. 491 I will remind everybody that can be here for Monday, and I appreciate that some of you, the subjects of your expertise are now behind you, I encourage everybody that's been part of this to continue to read the transcripts. Things may pop up in those that will affect your specific area, but I truly do hope that everybody that's here will be here on Monday morning at 9:00 to enter into discussions about rate regulation and focusing primarily on PBR. That's the thickest paper, by the way, if anybody hasn't noticed already, so there is certainly plenty to talk about and we would appreciate your input. 492 We hope to be able to circulate later on this afternoon -- I shouldn't say that -- as soon as we can, the questions that we feel are appropriate for the section that we've just covered. And we would appreciate again, and it may be by e-mail that we get it, but if you, in looking at that list, feel as though we've missed something important, we'd encourage you to e-mail back to us and suggest that something else be considered as well. Or different wording for that matter. So please do that. 493 Okay. I think then that is it. I want to just, once again, thank you all and say I'm looking forward to starting a new subject with all of you on Monday morning. Thank you, and with that, we can adjourn. 494 --- Whereupon the hearing adjourned at 12:17 p.m.