Rep: OEB Doc: 129M1 Rev: 0 ONTARIO ENERGY BOARD Volume: 6 12 JUNE 2002 BEFORE: S. HALLADAY PRESIDING MEMBER R. BETTS MEMBER A. SPOEL MEMBER 1 RP-2001-0032 TRANSCRIPT VOLUME #6 2 IN THE MATTER OF the Ontario Energy Board Act, 1998; AND IN THE MATTER OF an application by The Consumers Gas Company Ltd., carrying on business as Enbridge Consumers Gas, for an order or orders approving or fixing rates for the sale, distribution, transmission and storage of gas for its 2002 fiscal year. 3 RP-2001-0032 TRANSCRIPT VOLUME #6 4 12 JUNE 2002 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel COLIN SCHUCH Board Staff JERRY FARRELL Enbridge Consumers Gas MARIKA HARE Enbridge Consumers Gas RICHARD LANNI Enbridge Consumers Gas HELEN NEWLAND Enbridge Consumers Gas TOM MOUTSATSOS CME MALCOLM ROWAN CME PAT MCMAHON Union Gas DAVID POCH GEC THOMAS BRETT OASBO IAN MONDROW HVAC Coalition TIBOR HAYNAL TransCanada PipeLines ROBERT WARREN CAC MICHAEL JANIGAN VECC JOYCE POON VECC SUSAN LOTT VECC GEORGE VEGH CEED ELISABETH VEGH CEED MURRAY KLIPPENSTEIN Pollution Probe JACK GIBBONS Pollution Probe PETER THOMPSON IGUA 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [17] ENBRIDGE CONSUMERS GAS - PANEL 4 - RESUMED [72] CONTINUED CROSS-EXAMINATION BY MR. THOMPSON: [77] PROCEDURAL MATTERS: [582] ENBRIDGE CONSUMERS GAS - PANEL 4 - CONTINUED [610] CONTINUED CROSS-EXAMINATION BY MR. THOMPSON: [615] PROCEDURAL MATTERS: [835] ENBRIDGE CONSUMERS GAS - PANEL 4 - CONTINUED [958] CROSS-EXAMINATION BY MR. MORAN: [963] QUESTIONS FROM THE BOARD: [1085] RE-EXAMINATION BY MR. FARRELL: [1288] 10 EXHIBITS 11 EXHIBIT NO. K.6.1: LETTER DATED AUGUST 1, 2000, FROM ECG, SIGNED BY MR. RIEDL, WITH ATTACHED LETTER DATED AUGUST 30, 2000 [31] EXHIBIT NO. K.6.2: LETTER FROM ECG SIGNED BY MR. RIEDL, DATED APRIL 17, 2001 [36] EXHIBIT NO. K.6.3: GUIDELINES FROM THE OFFICE OF THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS [816] EXHIBIT NO. K.6.4: ANNUAL REPORT OF ENBRIDGE INC. [1307] 12 UNDERTAKINGS 13 UNDERTAKING NO. J.6.1: TO PROVIDE EXCERPTS OF DR. BAUER'S TESTIMONY FROM EBRO 497-01 [68] UNDERTAKING NO. J.6.2: TO CONFIRM WHETHER ENBRIDGE CONSUMERS GAS RECEIVED BOARD APPROVAL TO MANAGE THE UPSTREAM TRANSPORTATION, STORAGE AND GAS CONTROL FUNCTIONS FOR ST. LAWRENCE GAS [140] UNDERTAKING NO. J.6.3: TO PROVIDE WRITTEN MATERIAL PERTAINING TO THE POWERPOINT PRESENTATION [185] UNDERTAKING NO. J.6.4 TO PROVIDE THE DATE OF THE WRITTEN LEGAL OPINION ON STRUCTURE REGARDING AFFILIATE RELATIONSHIPS CODE PROBLEMS AND CONTRACT SERVICE AGREEMENT ISSUES AS PART OF THE IMPLEMENTATION PLAN [221] UNDERTAKING NO. J.6.5: TO PROVIDE THE EXECUTION DATE FOR THE EI-ECG AGENCY AGREEMENT [271] UNDERTAKING NO. J.6.6: TO LOOK FOR ANY PAPER REGARDING THE ORIGIN OF THE IDEA TO OUT-SOURCE TO EI [551] UNDERTAKING NO. J.6.7: TO ASK BOTH EI, EOS, AND CUSTOMER WORKS TO CONFIRM THAT IT WILL PROVIDE EVIDENCE AS MAY BE REQUIRED FOR THE BOARD'S REGULATORY PURPOSES [1052] 14 --- Upon commencing at 9:35 a.m. 15 MS. HALLADAY: Please be seated. 16 Good morning. Before we begin, are there any preliminary matters? 17 PRELIMINARY MATTERS: 18 MR. FARRELL: Yes, I have a couple, Madam Chair. 19 Mr. Schuch has given us a copy of VECC's written submissions on the QRAM. We haven't had a chance to look at it yet. I propose to advise the Board whether I have anything to say about it after the mid-morning break, if that's acceptable. 20 We didn't get a copy directly, or if we did it went to the company's offices as opposed to here, so we're going to take a look at it now. 21 MS. HALLADAY: That's fine. We haven't seen it either, Mr. Farrell. It's in the Board somewhere. 22 MR. FARRELL: Well, perhaps, we can just make copies at the break, and if I have anything to say about it, we can bring copies for you, so you don't have to go searching for it, and then we'll be done with the QRAM application. 23 MS. HALLADAY: Well, I assume that we will still need Ms. Duguay's impact statement. 24 MR. FARRELL: Yes. She has prepared an alternative rider C that gives the values of the rate rider for each rate class, assuming a three-month amortization period. And she told me that she was just waiting for the calculations to be sent down. 25 So with any luck, by the break we will have that material as well. 26 MS. HALLADAY: Thank you. 27 MR. FARRELL: During Mr. Thompson's cross-examination and, perhaps, before that -- I can't remember now who asked the question. But this had to do with the letters that ECG wrote to the Board advising the Board of, number 1, the operational services transaction and then, secondly, the gas services transaction. 28 And like I did when Mr. Warren was cross-examining a prior panel, I planned to ask that those documents be produced in re-examination, but I might as well do it now, so if Mr. Thompson has any questions or anyone else has any questions on these letters, they can handle them during the course of this panel. 29 The first document is a letter dated August 1st, 2000, from ECG, signed by Mr. Riedl, who was then the president to the chairman of the board, and attached to it is a letter dated August 30, 2000, from the chairman of the board to Mr. Riedl, responding to the letter. 30 MR. MORAN: This would be, I guess, Exhibit K.6.1. 31 EXHIBIT NO. K.6.1: LETTER DATED AUGUST 1, 2000, FROM ECG, SIGNED BY MR. RIEDL, WITH ATTACHED LETTER DATED AUGUST 30, 2000 32 MR. FARRELL: And the second letter is dated -- is from ECG, again, signed by Mr. Riedl as president. That's dated April 17th, 2001. It's addressed to the chairman of the board. And as far as we can tell, there was no reply. 33 This is copied on both sides, Madam Chair, which, I'm told, accounts for the fact that the three holes are on the wrong side. 34 There are copies at the back for anyone else who I didn't give it to yesterday -- or give them to. 35 MR. MORAN: That's Exhibit K.6.2. 36 EXHIBIT NO. K.6.2: LETTER FROM ECG SIGNED BY MR. RIEDL, DATED APRIL 17, 2001 37 MR. FARRELL: Just give me a moment, please, Madam Chair. 38 I had a little yellow sticky that gave me the undertaking number for the document I'm about to file. The little yellow sticky has disappeared. 39 It was an undertaking given to Mr. Moran, and it was for the excerpt from the Alliance proceeding before the NEB that included ECG's written evidence, the testimony of Ms. Holder, Mr. Brennan, and Mr. Dan on behalf of ECG, and then the two Union witnesses, because it was a joint panel, and responses to IRs and responses to undertakings and the arguments, the whole package. 40 I believe it was -- 41 MR. MORAN: It looks like it's 3.13, the NEB-GH-3-97 transcripts? 42 MR. FARRELL: That's it. 43 So just repeat that number for me, Mr. Moran. 44 MR. MORAN: J.3.13. It was actually "G" at the time, but it's now "J." 45 MR. FARRELL: Thank you. Copies at the back. 46 As you can see, Madam Chair, there is a table of contents at the front with the documents numbered and the numbers corresponded to tabs. 47 MS. HALLADAY: Thank you. 48 MR. FARRELL: Before Mr. Thompson starts, I think Mr. Pleckaitis would like to correct something he said yesterday in terms of Mr. Letwin's position with ECG. 49 MS. HALLADAY: Thank you. 50 Mr. Pleckaitis? 51 MR. PLECKAITIS: Yes, the question I was asked by Mr. Thompson related to the ability of people within ECG, or officers or senior people within ECG, to influence the overall corporate decision-making, and I indicated that Steve Letwin, who is group vice president of Enbridge Distribution and Services and directly responsible for the Enbridge Consumers Gas business as a member of the CLT, which is the senior corporate group. 52 I also indicated -- or I think I may have been asked by Mr. Thompson whether he was an officer or not, and I said I thought he was, but subject to check. 53 In confirming that, he is not an officer of ECG. He is a member of the board of directors of ECG. 54 Jim Schultz, who is the president of ECG, reports directly to Steve Letwin, so that is a correction to what I said earlier in terms of Mr. Letwin. 55 MS. HALLADAY: Thank you. 56 MR. FARRELL: That's it. Those are all the preliminary matters I have, Madam Chair. 57 MS. HALLADAY: Thank you, Mr. Farrell. 58 Mr. Thompson. 59 MR. THOMPSON: Thank you very much. Just on the matter of documents, we had left it yesterday that Mr. Farrell and I would discuss these documents that I was seeking with respect to the planning at the conceptual level with respect to EOS out-sourcing and also EI out-sourcing. We haven't had a chance to do that yet. I understand we'll hopefully get to it at the break, so I just wanted to alert you to the fact that -- not to forget about that one. 60 MS. HALLADAY: Thank you. 61 MR. THOMPSON: Thanks. 62 And the other things I'd like to do, if I could, is have an undertaking number for the filing of Dr. Bauer's evidence to which reference was made yesterday, including the excerpts from his examination. And the company's been kind enough to give me copies but I'd like to have an undertaking number and then we can make sure we've got filed what I think is appropriate as well as what they think is appropriate from that testimony. 63 MR. FARRELL: That's fine, Madam Chair. Mr. Thompson and I can sort out what the pages are that he wants, assuming he doesn't need the whole stack. 64 MS. HALLADAY: The whole stack. 65 So, Mr. Moran, an undertaking number. 66 MR. MORAN: J.6.1. 67 MS. HALLADAY: Thank you. 68 UNDERTAKING NO. J.6.1: TO PROVIDE EXCERPTS OF DR. BAUER'S TESTIMONY FROM EBRO 497-01 69 MR. FARRELL: Madam Chair, before Mr. Thompson resumes, I'm assuming that this panel will be finished around noon or so. It would be my request, if we're finished earlier than your normal luncheon break time, that we break whenever this panel is finished, assuming it's sooner than that, so that Mr. Brennan, in particular, has a bit of a breather and can get his mind focused on the next two issues that he's going to be testifying to. So rather than just simply finishing this panel and empaneling the next, I would propose not to start the next panel until the afternoon, in a fond hope that we are finished with this panel by that time. 70 MS. HALLADAY: That's fine, Mr. Farrell. That was our intention as well. 71 MR. FARRELL: Thank you very much. 72 ENBRIDGE CONSUMERS GAS - PANEL 4 - RESUMED 73 S.McGILL; Previously sworn. 74 J.HOLDER; Previously sworn. 75 F.BRENNAN; Previously sworn. 76 A.PLECKAITIS; Previously sworn. 77 CONTINUED CROSS-EXAMINATION BY MR. THOMPSON: 78 MR. THOMPSON: Thank you, Madam Chair. 79 Panel, when we broke yesterday, we were arguing about the potential anti-competitive impacts of the EI-ECG relationship. And I wanted to, if I could, come back to that with perhaps hopefully a little more articulate preamble. 80 Just to put it in context, we understand that this EI-ECG out-sourcing arrangement commenced, is it August 1, 2001, or July 1, 2001? 81 MR. BRENNAN: The agreement is July 1st, but effectively it started August 1st. 82 MR. THOMPSON: All right, thanks. So before the start-up date, we had in ECG, full-time positions providing the gas supply planning, gas supply acquisition, risk management, transactional services and regulatory support functions; correct? 83 MS. HOLDER: Correct. One of those positions was vacant at the time but -- 84 MR. THOMPSON: Okay. And they were providing these functions for ECG. And were they also providing them for Gaz Affaire? 85 MS. HOLDER: To a limited extent. Gas Affaire has a contract with Enbridge Consumers Gas for gas supply, so in essence, because of that contract, they were performing these functions for Gaz Affaire. It's not the same type of planning or negotiating for up-streaming transportation as it would be for ECG. 86 MR. THOMPSON: All right. Well, within the -- I understand that. Within this broad array of functions, some of them were being provided by ECG for Gaz Affaire. 87 MS. HOLDER: Yes. 88 MR. THOMPSON: Were they -- were some of them being provided by ECG for St. Lawrence? 89 MS. HOLDER: Yes. 90 MR. THOMPSON: All right. So that ECG's ability to provide these utility functions for other utilities within the Enbridge family was not constrained in any way by the undertakings? 91 MS. HOLDER: I think primarily because these predate and have -- and their affiliation is somewhat different than other organizations. 92 I also want to add that when the decision was made that we should assign all costs at fully allocated costs, that the increase in cost to St. Lawrence Gas and Gaz Affaire was quite substantial to the point where, in particular, the New York State Commission refused St. Lawrence Gas to recover the costs that they were being charged by Enbridge Consumers Gas. So there was an issue that what we were providing them inside the fully allocated cost methodology was causing great pains on St. Lawrence Gas and Gaz Affaire. 93 MR. THOMPSON: So how was that solved? 94 MS. HOLDER: The costing between EOS and St. Lawrence Gas is different than it was when they were being charged fully allocated costs from Enbridge Consumers Gas. 95 MR. THOMPSON: Okay. You're talking about EOS, I'm talking about EI. 96 MS. HOLDER: Sorry, the charges were combined from ECG to St. Lawrence so it applies about both. When we talk about the fees that are being charged between EI, EOS, and St. Lawrence Gas, they are different than the fully allocated costs that we were required to charge those entities. 97 MR. THOMPSON: So the charges from EI and EOS to St. Lawrence were reduced due to regulatory pressure; is that what you're telling me? 98 MS. HOLDER: No, I think they were probably priced at what was negotiated to be the fair price. I don't know what those are. 99 MR. THOMPSON: Well, they must be better than fully allocated costs; are they? 100 MS. HOLDER: I don't know. I would assume they are, but I don't know. 101 MR. THOMPSON: I see. Okay. 102 So just looking at your financial statements and just to understand the impact of the EI-ECG arrangements, contract date July 1, effective date August 1, on the way things used to be. We see in your financial statements for 2001, this is Exhibit I, tab 1, schedule 1, appendix B, at page 32, this is the page Mr. Brett was referring you to, we see there the related party transaction with Gaz Affaire. 103 MS. HOLDER: Yes. 104 MR. THOMPSON: Which I understand to be ECG buying the gas and selling it to Gaz Affaire along with the transportation services. 105 MS. HOLDER: Which is, I believe, and again I didn't prepare these, is rate 200. 106 MR. THOMPSON: Okay. But now that gas supply planning, gas supply acquisition, and all the rest of it has been out-sourced to EI, is this transaction now coming off ECG's books? 107 MS. HOLDER: No, it is not. It is still a rate that's approved by this Board, rate 200, to be charged to Gaz Affaire for gas supply and load balancing. 108 MR. THOMPSON: Well, what about the gas sale aspect of it? Is that flowing through ECG still? 109 MS. HOLDER: Yes. ECG is selling the gas to Gaz Affaire under rate 200. 110 MR. THOMPSON: All right. So the ECG was not losing any margin with respect to the Gaz Affaire transaction as a result of the ECG-EI transaction. Ratepayers will not lose that margin. 111 MS. HOLDER: That's correct. I think that's why I was trying to explain, Gaz Affaire is somewhat different than St. Lawrence Gas, is that St. Lawrence Gas has their own gas transportation and storage and do their own load balancing, have their own gas control, have to control their own system, where Gaz Affaire is a rate that ECG charges to Gaz Affaire. 112 MR. THOMPSON: But am I correct that EI is now buying the gas that is being resold to Gaz Affaire? 113 MS. HOLDER: As our agent, yes. 114 MR. BRENNAN: Maybe I can explain just a bit. When we look at our total demand requirements, we include Gaz Affaire in those requirements. So our total portfolio includes both, what I call Ontario customers -- well, as well as Gaz Affaire. So that function that was done inside the utility is now being performed by EI, so nothing in that respect has changed. 115 MR. THOMPSON: All right. So these activities that you were performing, ECG was performing before July 1, August 1, with respect to gas supply planning, acquisition, risk management, transactional services, regulatory support, do you agree, are transmission, distribution or storage business activities? 116 MS. HOLDER: They support the business of transmission, distribution and storage. 117 MR. THOMPSON: Okay. Now, I think you told me in the spring of 2001 you had developed this concept of transferring these functions to EI. This was your brain wave, Ms. Holder. Did I get the date right, spring of 2001? 118 MS. HOLDER: Yes, I believe that was right. 119 MR. THOMPSON: Okay. And we were discussing the rationale for this, and as I understood it, you told me first one of the reasons for this concept was that EI manages pipeline capacity and it would be synergistic to put that function that ECG was performing into EI. 120 MS. HOLDER: Yes. 121 MR. THOMPSON: And then I thought you told me that another -- maybe I misunderstood you, but another reason for this concept was that ECG could not provide these types of services to other utility affiliates because it was prohibited from doing that by the undertakings; did I understand that correctly? 122 MS. HOLDER: I think it was probably more general than that, that it's difficult for us to provide, what I would call, management services to other organizations due to the undertakings. I think there is a difference between St. Lawrence and Gaz Affaire, Gaz Affaire in particular because it is a rate that's approved by the Board under rate 200. So we're really here only referring to St. Lawrence Gas and that had a long history with it and it is -- so I -- I'm trying to recall if we even asked for her permission from the Board under the undertakings to continue on managing the up-stream transportation and storage and gas-control functions for that. I have to undertake to see if we asked for permission. 123 I think if you looked at whether we felt, for example, that this -- that the undertakings would allow us to provide these services to Vector, I would say clearly we don't believe the undertakings would allow us to provide these sort of services. 124 MR. THOMPSON: And why do you reach that conclusion? Are they not transmission and business activities? 125 MS. HOLDER: No, I think we're using internal resources to sell services. 126 Now, even if -- let me even take this a further step. Even if the undertakings said we could, or we asked permission of the Board to say we could, it would have been done at a fully allocated cost methodology, and a fully allocated cost methodology is not economic in the market, which is what we have found with St. Lawrence Gas, our own affiliate. 127 MR. THOMPSON: Well, in any event, that's the way you interpret it -- sorry. 128 In any event, that's not the way I interpret the undertakings, but that's the way you did it. 129 And so this was one of the prongs for your rationale for conceiving this transaction and implementing it. Have I got that straight? 130 MS. HOLDER: Yes, but recognizing I did give some other reasons that are unrelated to what we just talked about, such as the knowledge base or the skill base that exists within Alberta. 131 MR. PLECKAITIS: Mr. Thompson, if I can add, yesterday you asked a series of questions, taking us through the history or evolution of deregulation in Ontario, and you talked about the various undertakings. 132 And I think if I recall, you characterized -- you said -- you characterized that basically what was happening was, first of all, trying to create a level playing field, the government trying to create a level playing field, or the regulator and the government, a level playing field between the electricity industry and the gas industry. 133 And secondly, the effort to try to get utilities, regulated utilities out of activities that don't need to be regulated. And I think that we acknowledge that conceptually, that's what was happening during the 1990s. 134 In my view, and again, my interpretation, the undertakings were doing the same thing. The general view was companies like Enbridge Consumers Gas should not be taking on activities that don't relate to the pure activity that they are responsible for managing, and they should not be starting to take on contractual arrangements of services for other companies that are unrelated. 135 So that's what I interpret was wanted and expected from the utilities, and the utilities were -- Consumers Gas abided by that. 136 MR. FARRELL: Before we move on, Ms. Holder mentioned an undertaking. Did you want her to check and see whether the activities were, in fact, grandfathered, because it's my understanding that they were. But I just wanted to know whether you want us to go to that -- 137 MR. THOMPSON: Sure. I think we should have a complete record. 138 MR. FARRELL: J.6.2? 139 MR. MORAN: J.6.2. That's right. 140 UNDERTAKING NO. J.6.2: TO CONFIRM WHETHER ENBRIDGE CONSUMERS GAS RECEIVED BOARD APPROVAL TO MANAGE THE UPSTREAM TRANSPORTATION, STORAGE AND GAS CONTROL FUNCTIONS FOR ST. LAWRENCE GAS 141 MR. THOMPSON: Okay. Well, then, we -- yesterday, we went from the concept that you presented to EI in some sort of PowerPoint presentation, and it moved from that stage to implementation; am I correct? 142 MS. HOLDER: Yes. 143 MR. THOMPSON: And the approval process within the corporation, again, was what? 144 MS. HOLDER: For Enbridge Inc., it was the -- this would have been discussed by the executive team of Enbridge Consumers Gas. 145 MR. THOMPSON: That's the EM -- 146 MS. HOLDER: EMT. 147 MR. THOMPSON: EMT, yes. 148 MS. HOLDER: It's the president and his reports. 149 MR. THOMPSON: Right. 150 MS. HOLDER: It would also have been -- again, needed to be approved by the CLT, the corporate leadership team of Enbridge Inc., in that Enbridge Inc. was receiving our businesses, so they had to approve that there was actual appropriate governance, appropriate personnel and structure on the Enbridge Inc. side to accept this business. 151 MR. THOMPSON: And some -- at some point, someone would have to reduce this to a business case presentation; am I correct? 152 MS. HOLDER: Yes. 153 MR. THOMPSON: This wasn't done on the back of a cigarette pack. 154 And did you do that? 155 MS. HOLDER: I had input into it. I didn't prepare the final presentation to the CLT, no. 156 MR. THOMPSON: All right. Do you have a copy of it in your possession? 157 MS. HOLDER: We're not sure. We're checking. 158 MR. THOMPSON: All right. Well, we've heard that Enbridge people are members of that committee, Enbridge Consumers Gas? 159 You listed all of the -- I keep thinking of BLG, which is my firm, and BLT, which is a sandwich. And what is that leadership group again? 160 MR. PLECKAITIS: CLT. 161 MR. THOMPSON: So CLT has a number of ECG people on it, as I recall. 162 MS. HOLDER: Actually, at the time that this decision was made, I do not believe there were any ECG employees who were a member of the corporate leadership team of Enbridge Inc. 163 MR. THOMPSON: So what happened -- 164 MS. HOLDER: When Mr. Riedl retired in May of 2001, which was prior to the moving of this -- of moving gas supply to Enbridge Inc., Jim Schultz, who replaced Rudy Riedl as president, was not a member of the CLT. 165 Steve Letwin is a member of the CLT, who Jim Schultz reports to, but he is not an ECG employee. 166 MR. THOMPSON: All right. Well, I'm -- you're checking to see if you have this document that went to the CLT, are you? 167 MS. HOLDER: Yes, I am. 168 MR. THOMPSON: All right. And assuming you have it, will you produce it, please. 169 MS. HOLDER: Subject to all the other caveats I gave earlier. 170 MR. THOMPSON: All right, so we'll put that into the -- with the other documents. 171 Now, was there another business case document that you presented to the EMT? 172 MS. HOLDER: I don't believe so. I believe it was a discussion at the EMT meeting. But again I'm having those records checked to see whether it was actually a presentation or just a discussion. 173 MR. THOMPSON: And are there minutes? 174 MS. HOLDER: No, the minutes to our EMT, the ECG executive team typically are action items only. So if there was an action item on it, it would be mentioned, but if there was no action item, I don't believe it wouldn't be mentioned. 175 MR. THOMPSON: So I believe what you're telling me if we're going to find a listing of benefits to ratepayers and benefits to anybody else in the presentation that was made to EMT, we're going to find that in your PowerPoint presentation? 176 MS. HOLDER: In my PowerPoint -- sorry, I don't have a -- I don't believe -- I did not give a PowerPoint presentation or create a PowerPoint presentation to the CLT. There was one given, I'm checking to see if I have that document. I was there when the presentation was given, but I did not prepare the presentation. 177 MR. THOMPSON: Oh, I see. So it's somebody else's presentation. 178 MS. HOLDER: Yes, it was an Enbridge-prepared presentation. 179 MR. THOMPSON: Enbridge Inc.? 180 MS. HOLDER: Yes. It was done -- 181 MR. THOMPSON: To the EMT? 182 MS. HOLDER: No, to the CLT. I don't recall if I did a presentation, PowerPoint presentation, to the ECG executive. 183 MR. THOMPSON: So is there any paper? 184 MR. FARRELL: That's what she says we're looking for and maybe the undertaking number is J.6.3, and perhaps it could be just general in terms of the documented presentation or business case as Mr. Thompson said around this discussion without trying to itemize each one and we'll respond accordingly. 185 UNDERTAKING NO. J.6.3: TO PROVIDE WRITTEN MATERIAL PERTAINING TO THE POWERPOINT PRESENTATION 186 MR. THOMPSON: Okay. 187 In terms of timing, just to get the sequence straight, the concept must have been approved; correct? 188 MS. HOLDER: Yes. 189 MR. THOMPSON: And once approved, you were then into an implementation plan of some sort? 190 MS. HOLDER: Yes. 191 MR. THOMPSON: Now, is the implementation plan in writing? 192 MR. FARRELL: I don't know whether this is responsive in an attempt to be helpful, the services schedule which is part of the response to CEED interrogatory number 44 has a section called, "Orientation." This was referred to previously, and as I read it, it deals, in part, with bringing people up to speed. So perhaps that could be the beginning. I don't know whether there was anything else but -- and I might just add that it's on page 15 of the services schedule which is the blue sheets that are part of the response to CEED interrogatory number 44 in Exhibit I, tab 3, schedule 44. 193 MR. THOMPSON: That's the contract; right? 194 MR. FARRELL: It's the services schedule that's attached to the contract, yes. 195 MR. THOMPSON: But I'm talking about -- it's long before we get to the drafting of the contract. 196 MR. FARRELL: I'm sorry. 197 MR. THOMPSON: My simple business mind says somebody had to develop a implementation plan. 198 MS. HOLDER: If you recall yesterday, I was talking about a document that I have that is for -- that outlines some risks. That was the implementation plan for EOS, so we had a very detailed implementation for EOS which we were reviewing its appropriateness for filing here. That was very detailed because of the need to change communication protocols, that you -- when you are running an operation through computers through communication systems, it was very important that we detail an implementation plan to identify that the risks and make sure that we have mitigation procedures in place for each of those risks. 199 We did not feel that that level of detail was necessary for the EI transaction primarily because we could still pick up a phone, some of the people were -- that was some overlap, the same people were involved, so there was not a detailed implementation plan. 200 MR. THOMPSON: Well, whether it's detailed or not detailed, is there a written implementation plan? 201 MS. HOLDER: No, I think the only thing that would be included is the dates that were being recommended at the time it was presented to the CLT. 202 MR. THOMPSON: So there's nothing. 203 MS. HOLDER: That's correct. 204 MR. THOMPSON: Interesting. 205 Now, Exhibit K.6.2 is the letter that was written to Mr. Laughren on April 17th, 2001. 206 MS. HOLDER: Yes. 207 MR. THOMPSON: How long after the -- after you had presented the concept was this letter written, and is this contemporaneous, almost? 208 MS. HOLDER: I don't know, because I don't recall exactly when I went -- when I was at the CLT, when this was presented. 209 Just to make a comment here, I notice this was signed by Mr. Riedl, so obviously we had made the decision prior to Mr. Riedl's retirement at the end of May. 210 MR. THOMPSON: All right. Was there any request for a legal opinion as to how this should be structured to address Affiliate Relationships Code problems, contract service agreement issues as part of the implementation plan? 211 MS. HOLDER: We did seek legal advice on how to structure this and how to assist ECG in preparing the contract. 212 MR. THOMPSON: Okay. And is there a legal opinion on structure that preceded all of this paper here that has Mr. Farrell's fingerprints all over it? 213 MS. HOLDER: I believe there was a written legal opinion. 214 MR. THOMPSON: All right. Can you give me the date of it, approximately, or undertake to give me the date? 215 MS. HOLDER: We could undertake. 216 MR. THOMPSON: And will you produce that document? 217 MR. FARRELL: Depends on what it says. 218 MR. THOMPSON: Pardon? 219 MR. FARRELL: It's privileged, so it depends on what it says. 220 MR. MORAN: J.6.4. 221 UNDERTAKING NO. J.6.4 TO PROVIDE THE DATE OF THE WRITTEN LEGAL OPINION ON STRUCTURE REGARDING AFFILIATE RELATIONSHIPS CODE PROBLEMS AND CONTRACT SERVICE AGREEMENT ISSUES AS PART OF THE IMPLEMENTATION PLAN 222 MR. THOMPSON: Well, I'm asking that it be produced, so perhaps, again, we can include that in the bundle of documents that we'll review at the break. 223 MR. MORAN: J.6.4. 224 MS. HALLADAY: Thank you. 225 MR. MORAN: Just while we're on the undertakings, we had an undertaking yesterday with respect to Ms. Holder looking for a PowerPoint presentation. And just to distinguish it, I wonder if Mr. Thompson could provide us with a quick and clean description of the last undertaking, that was the J.6.3, just for the purposes of the record. 226 MR. THOMPSON: Refresh, J.6.3 was -- 227 MR. FARRELL: I'll do it, and see whether you agree with it. 228 MR. THOMPSON: My Alzheimer's has kicked in. I apologize. 229 MR. FARRELL: The questions, as I understood it, was Mr. Thompson asked, was there a business case? And then he asked -- whether for EI or for ECG, and then he asked whether there was a presentation that was either PowerPoint or something in writing to either EI's, CLT or ECG's EMT. 230 MR. THOMPSON: Right. 231 MR. FARRELL: That's what I recall. 232 MR. MORAN: Thank you. 233 MR. THOMPSON: Ms. Holder had indicated, as I recall it, that she wasn't present at the presentation to the CLT, and that there may be a document that you were looking for pertaining to that. 234 MS. HOLDER: And you're referring to EOS? 235 MR. THOMPSON: No, EI. 236 MS. HOLDER: EI. I was present at the presentation to the CLT of Enbridge Inc.. So I was present at the time. I provided some input into that presentation. I did not prepare the presentation. 237 MR. THOMPSON: But there's written material pertaining to that presentation. 238 MS. HOLDER: Yes. And I'm looking to see if I have a copy of that at this time. 239 MR. THOMPSON: So that's undertaking J.6.3; right? 240 MS. HOLDER: Right. 241 MR. BRENNAN: Mr. Thompson, I wonder if I could just spend a few minutes here. Going back to the letter or Exhibit K.6.2, to Mr. Laughren from Mr. Riedl, if you look at the -- on the first page, second last paragraph, it talks about: "We will be putting a transition plan in place to ensure the safe and reliable supply to our customers." 242 And that transition plan, if you go to the EI contract, it talks about the transition between what was going to happen with the employees that have to now perform this operation in Calgary. And in particular -- I'm going to find the exact section -- it's at -- well, I'll go to the blue sheets, I guess, just to make sure it's the same section. 243 Towards the end, I believe. I think in the original document, as I see it's now been removed from the updated one, in the original document, it was at section -- 244 MR. THOMPSON: Was it paragraph 12 on page 4? 245 MR. BRENNAN: It was at section 11 -- actually, sections 10 and 11, it talks about the orientation and the transition measures. 246 MR. THOMPSON: And this was in the appendix or whatever -- 247 MR. BRENNAN: No, I'm sorry. This is in the actual -- 248 MR. FARRELL: It was in the services schedule. 249 MR. BRENNAN: Services schedule, attached to the agency agreement. 250 MR. THOMPSON: We've got a blue sheet one, a black-lined one and a clean one. 251 MR. FARRELL: Section 10.0 is orientation, which is what I was referring to earlier, and you told me that's not what you weren't thinking of. It explains the work that was to be done between the July 1st date and the August 1st commencement date. The former section 11.1, which deals with the length of the transition period, was moved by me when I revised this and it is now in the blue sheet version in identical text at section 1.11 on page 2, and I referred to this the other day. 252 MR. BRENNAN: Just -- do you have it, Mr. Thompson? 253 MR. THOMPSON: Yes. 254 MR. BRENNAN: Maybe just to carry on, again in the blue sheets, if you look at section 1, and in particular 1.3, it talks about several things that have to be done prior to the commencement date, what documents have to be exchanged and what software has to be transferred over to Enbridge Inc.. 255 MR. THOMPSON: Well, when was this -- my impression is, and it may be wrong, but these -- this agreement has been worked on for some time, this EI-ECG agency agreement. 256 MR. BRENNAN: It was worked on. There was a lot of work that went into this document prior to it being executed. 257 MR. THOMPSON: When was it executed; do you know? It's got no execution date on it. 258 MR. FARRELL: The agreement, which does have an execution date on it, is the attachment, the first page of the attachment, Exhibit I, tab 3, schedule 44, July 1st, 2001. 259 MR. THOMPSON: Well, it's -- this agreement is made as of July 1, 2001, but if you go to the signature page there's no date when it was signed, page 11. And then you've been working on amendments to it. Can you tell me when it was signed? 260 MR. BRENNAN: I don't have the exact date. I suspect it was sometime in July. 261 MR. THOMPSON: Well, I'll take that subject to check. Would you confirm it for me, please? 262 MR. BRENNAN: When it was executed? 263 MR. THOMPSON: Yes. 264 MR. BRENNAN: Yes. 265 MR. THOMPSON: Anyway, that's the implementation plan that Mr. Riedl was referring to when he wrote Mr. Laughren; is that what you're telling me? 266 MR. BRENNAN: Mr. Riedl talked about a transition plan. 267 MR. THOMPSON: Transition plan, yes. 268 MR. MORAN: Madam Chair, I wonder if Mr. Thompson needs a number for this. 269 MR. THOMPSON: I think we should have a number for the confirmation of when it was signed. 270 MR. MORAN: J.6.5. 271 UNDERTAKING NO. J.6.5: TO PROVIDE THE EXECUTION DATE FOR THE EI-ECG AGENCY AGREEMENT 272 MR. THOMPSON: Thank you. Okay. 273 Well, then let's just move to the impact. So that we've now got the planning, I think, clear in our mind on the sequencing of this arrangement in terms of the preparation of contracts. Just before I move on, did the legal opinion come before the contract drafting process started, or can you recall? 274 MR. BRENNAN: My recollection is that it did. 275 MR. THOMPSON: All right. So -- and part of the concept that's reflected in the documents and in the -- in your pre-filed evidence is that EI could engage in, as principal for its own account, gas acquisitions, gas sale, gas supply management and gas storage. 276 MR. BRENNAN: Well, subject to certain conditions, those being the protocols. 277 MR. THOMPSON: Fine, but the concept coming out of the gate was that EI would have the right to participate in these businesses. 278 MR. BRENNAN: Yes. 279 MR. THOMPSON: All right. And was EI then engaged in those businesses at that time? 280 MR. BRENNAN: Yes, they were. My understanding is that they were managing their capacity on the Alliance-Vector as well as managing the supply into Alliance and Vector. 281 MR. THOMPSON: All right. Okay. So then this then brings me to coming back to the anti-competitive potential of that feature of the arrangement, and let's start with it was contemplated then that EI could engage in gas acquisition on its own account. 282 MS. HOLDER: Yes. 283 MR. THOMPSON: That's an express right that this deal gives them. So just stopping there, before this deal, ECG would buy its own gas in the marketplace; correct? 284 MS. HOLDER: Correct. 285 MR. THOMPSON: Okay. After this deal, EI is in the marketplace buying gas for ECG; correct? 286 MS. HOLDER: Correct. 287 MR. THOMPSON: Buying gas for other Enbridge utilities; is that right? 288 MS. HOLDER: Yes. 289 MR. THOMPSON: And buying gas for itself? 290 MS. HOLDER: Yes. 291 MR. THOMPSON: All right. And so ECG is in a position of preferring itself in -- or other affiliates, other than ECG, in exercising this purchasing function. The arrangement has that potential? 292 MR. BRENNAN: In what way? Could you give me an example how that might work? 293 MR. THOMPSON: Well, let's say that the market price is very low on a particular day, and ECG says, Fine, I think I'll buy -- or EI says, I'll buy that gas for my own account to resell it. 294 MS. HOLDER: I think -- 295 MR. THOMPSON: The next day they'll say, Well, it's too high, but ECG needs some gas; I'll buy that for them. 296 MS. HOLDER: I think you have to understand that in the markets that we're buying gas in, that EI could buy all the gas they wanted for their own accounts, any of our affiliates' accounts, and our accounts. 297 So I don't think they would go out on one day and -- if the price is right, they are going to go out and buy gas for all their accounts on that same day. It's not like there is a shortage of supply at any of the points that we are buying gas at. 298 And Enbridge Inc. isn't large enough, or the volume that they would be buying on any given day would not be large enough to move the price at AECO, at NYMEX, or at Chicago. 299 MR. THOMPSON: Well, concentration of buying power may have some advantages, but it also may have some disadvantages. 300 All I'm saying, it's a potential for an anti-competitive result, and you have a protocol dealing with gas acquisition. It's -- I'm looking at appendix B in this blue sheet to your contract, it's at page 24 of 26. So somebody must have identified this activity as having some anti-competitive potential. 301 MR. BRENNAN: That protocol is there for when EI wants to sell gas to ECG, not necessarily EI buying gas on its own account. 302 MR. THOMPSON: Well, just explain this protocol to me in layman's terms. If you go to page 24 of 26. 303 MR. BRENNAN: Certainly. That protocol is there, as an example, when ECG goes out for bid or looking to acquire gas, it generally goes out for bids. With the arrangement now with EI doing that, EI potentially could be one of those bidders that are bidding on supplying ECG with gas. And the purpose of the protocol is just to make sure that EI did not have any advantage of being able to look at what the other bidders were providing prior to them putting in their bid for that supply. 304 So the protocols are there saying that EI has to put their bid in earlier than anyone else if they want to bid, and that those bids would not be -- be evaluated -- 305 MR. FARRELL: Excuse me. You're actually talking about appendix C. 306 MR. THOMPSON: Go to appendix B. 307 MR. BRENNAN: I'm sorry. I'm talking about the wrong one? 308 MR. THOMPSON: Protocols for gas supply acquisition. Read those three paragraphs, and then tell me what the hell it means. 309 MR. FARRELL: Well, from a contractual point of view -- I think I'm entitled to say this -- it starts with section 5(a) of the agency agreement, to which I referred you yesterday when I thought you were referring to it, but you were referring to a different paragraph 5. 310 That explains the purpose of the protocols -- 311 MR. THOMPSON: Don't retract your apology. It's too late. 312 MR. FARRELL: No. You didn't see the transcript correction. 313 But I think you have to read 5(a) before you read the protocols, so that is what Mr. Brennan was telling you about, EI being a bidder or being a counter-party. It puts it in context and then Mr. Brennan can go forward with appendix B. 314 MR. BRENNAN: Now that I know where you're talking about, maybe I'll try it again. 315 MR. THOMPSON: It helps in communication, I've often found, to listen, which I don't do very often, but -- 316 Just give us a for-instance as to what you are talking about here. 317 ECG needs some gas as step one. 318 MR. BRENNAN: Yes, that's correct. So let's say -- we are talking about appendix B? Is that where we're -- 319 MR. THOMPSON: Yes. Well, just to set the table here, ECG needs some gas. EI, as its agent, is supposed to get that gas; right? 320 MR. BRENNAN: That's correct. 321 MR. THOMPSON: And so this protocol is concerned about something. 322 MR. BRENNAN: The protocol that is included under appendix B refers to the case where EI is buying gas on behalf of Enbridge Consumers Gas, but it wants to buy it off a screen, a trading screen. So what this allows EI to do -- because ECG is not a subscriber of that trading board for example, but EI is, so EI buys off the screen on behalf of Enbridge Consumers Gas. That's all it is. 323 Now, there will be other protocols to be put in place that will be part of our revised supply procurement policies that I tried to describe a little earlier. 324 MR. THOMPSON: But is this addressing the concern of an Enbridge Inc. entity being the supplier of the gas of ECG? 325 MR. BRENNAN: Yes. 326 MR. THOMPSON: All right. And how is the ratepayer protected by this protocol? How do we know that the Enbridge family's supplier isn't getting a sweetheart deal? 327 MR. BRENNAN: On this particular one? 328 MR. THOMPSON: Yes. 329 MR. BRENNAN: Because they are buying right off the screen. The screen is the screen. 330 MR. FARRELL: The screen is the screen. And just while we're on that page, if you take your pen, it looks like there's a numerical error. B.1 and then it says B.3 and then it says B.3, so the second one should be B.2. 331 MR. BRENNAN: Maybe I should explain what a screen is, this may help. These are trading boards where sellers will put whatever gas they want to sell that particular day up on a screen. They are typically not necessarily identified as to who that party is. The group who is buying the gas will go in, look at the screen, look at the price, look at the volume that they want, look at the term and then decide for that particular day what the best price is and then put a bid in for that particular portion of gas. So it's an electronic trading board, if you like. 332 MR. FARRELL: And Mr. Brennan is referring to B.3, Madam Chair, when he's describing that. 333 MR. THOMPSON: Okay. So this protocol is trying to prevent EI from gaining an advantage from its conflict of interest position; is that a fair way to describe it? 334 MR. BRENNAN: No, I think it's just trying to make sure that everything is transparent in terms of what EI is paying for gas on behalf of ECG. 335 MR. THOMPSON: So it doesn't prevent that potential? 336 MR. BRENNAN: I'm sorry, it doesn't? 337 MR. THOMPSON: Does not prevent the potential for EI to gain an advantage from its conflict of interest position. 338 MR. BRENNAN: I don't think it gives EI an advantage at all, no. 339 MR. THOMPSON: Does it prevent EI from gaining an advantage from its conflict of interest potential -- position? 340 MR. BRENNAN: Yes, I believe it does. 341 MR. THOMPSON: And how does it prevent that? 342 MR. BRENNAN: Because EI is just buying whatever -- what they see is the best price on the screen for that particular day on behalf of ECG. 343 MR. THOMPSON: All right, and that's what it's designed to do; is it? You are trying to satisfy this Board that that conflict of interest potential has been covered off by contract. 344 MR. BRENNAN: Yes, and as part of the review that the OEB energy returns office, I guess, did with us last fall. They accepted the idea that, you know, times have changed and that there may be a need to have different protocols put in place to allow people to be buying gas off trading screens. And so again, this is part of that as well. 345 MR. THOMPSON: Now, in exercising this gas purchasing function for ECG, does EI decide the gas supply source based on the transportation route, such as Alliance-Vector or TCPL? 346 MR. BRENNAN: I'm sorry, does EI determine that? 347 MR. THOMPSON: Yes. 348 MR. BRENNAN: It depends on the duration of the gas that we're buying. If it's part of the supply program, that program would come from Enbridge Inc. back to myself, in particular. I would review that to see if that's an appropriate supply plan. If it's okay, we'll go ahead with it, if not, we'll make changes to it and then the implementation is left with Enbridge Inc. to determine the bidding, going out for the bids, if you like, and acquiring the gas. 349 MR. THOMPSON: And in terms of the gas acquisition protocols, did you say there are more to come? 350 MR. BRENNAN: . Yes, when I got steered in the wrong direction. There is the other case when they're not necessarily buying off a trading screen but they're actually going out for bids. And under that situation, if Enbridge Inc. is one of the bidders, Enbridge Inc. would have to have its bid in prior to the other bidders, and then those bids would be evaluated not by Enbridge Inc. but by ECG. 351 MR. PLECKAITIS: Mr. Thompson, we should also confirm that until those protocols are in place, that EI is specifically prohibited from bidding on those transactions themselves. 352 MR. THOMPSON: You mean as a gas supplier? 353 MR. PLECKAITIS: As a gas supplier. 354 MR. THOMPSON: So it's doing the buying, but it's not yet doing the selling. 355 MR. BRENNAN: That's correct. 356 MR. THOMPSON: But when the protocols -- and when you say "the," it's all the protocols? This and the -- these things are still a work-in-progress? 357 MR. FARRELL: It's what's described in B.2 or the renumbered B.2. They're not in place yet, as you can see when you read the text. 358 MR. BRENNAN: There's a series of protocols, one to cover off gas acquisition and another set of protocols, which we've included in the revised services schedule, to cover off transactional services. 359 MR. THOMPSON: Right, but on the gas supply, there's more to come. 360 MR. BRENNAN: Yes, and as I said, it's our intention -- then we mentioned this to the OEB energy returns officer that we will be filing those protocols as part of our update to our policy procedures manual. 361 MR. THOMPSON: Okay. All right. 362 MR. FARRELL: Just for clarity, the existing manual was filed the other day as J.4.7, the existing one that's -- it's talked about being revised in this services schedule. 363 MR. THOMPSON: Just while we're on that, you say in your evidence at Exhibit A, tab 14, schedule 3 that EI must abide by the -- these procurement policies -- well, it says, "Natural Gas Procurement Policies and Procedures." This is answer 4, paragraph 4 on page 1. 364 MR. BRENNAN: Yes, I see that. 365 MR. THOMPSON: That's -- my understanding is that's the document which Mr. Farrell just referred to; is that correct? 366 MR. BRENNAN: Yes, that's correct. 367 MR. THOMPSON: And then it goes on and says: "EI must abide by the principles established by the OEB in its EBRO 492 and 495 decisions." 368 What are those principles, please? 369 MR. BRENNAN: These principles have to do with things around transactional services, the fact that transactional services can only be, if it involves storage, one year or less, the idea that some of the information -- it has to do with the process and how the transactional services is looked at in terms of making sure that there's no impact to ratepayers, for example, when these transactional services are done. 370 And also the filing of the storage contracts with the returning officer. 371 MR. THOMPSON: Is there an extract from the decision that you could file that captures these principles, or do you have a document that states them? 372 MR. FARRELL: Yes, 6.1 and 6.2 on page 9 of the services schedule incorporates them. 373 MR. THOMPSON: Sorry, 6.1 -- 374 MR. FARRELL: And 6.2. 375 MR. BRENNAN: Now, if I recall, they are actually identified in one of the interrogatory responses, and I'm not sure which one it is at this point. There are excerpts from those decisions that talk about this. 376 MR. THOMPSON: Okay. Thank you. 377 Well, then, let's move on to the next function, that is, dealing with gas acquisition. Then we've got gas sales. Now, Mr. Vegh was -- 378 MR. FARRELL: Can I just interrupt you for a second? 379 MR. THOMPSON: Yes, please. 380 MR. FARRELL: Just for clarity, I just asked Mr. Vegh whether the interrogatory response was one of his, in other words, a response to a CEED interrogatory, and it is. And just for the record, it's in Exhibit I, tab 3, schedule 82, the response to items "Q" and "R." And it sets out excerpts from the Board's decision starting at page 10. 381 MR. THOMPSON: Thank you. 382 In terms of the gas sales function, it's clear that the concept and the agreements contemplate that EI can engage in gas sales activities. Do you regard ECG as engaging in gas sales activities? 383 MS. HOLDER: Not in the same sense. We are obligated to sell gas under approved rates. 384 MR. THOMPSON: So you don't see that -- what you're saying is you don't see competitive market gas sellers and ECG as competitors? 385 MS. HOLDER: Not in the sense I think you refer to "competition." If you are thinking of the direct purchase market where there are marketers selling gas to our in-franchise customers, we don't look at that as competition. We are indifferent whether a customer buys their gas from ECG or from a marketer. 386 MR. THOMPSON: All right. Then the other functions that are being transferred to EI are called gas supply management and gas storage; correct? 387 MR. BRENNAN: Yes, that's what it says. 388 MR. THOMPSON: And to me, these in combination are what are called transactional services; would you agree? 389 MR. BRENNAN: Yes, I guess they could be viewed that way. 390 MR. THOMPSON: And basically what the deal does is give EI, as ECG's agent, apparently, the right to use ECG assets to engage in gas supply management, gas storage activities, which together would constitute transactional services. 391 MR. BRENNAN: Not under this particular part. What this is saying is, if EI wants to enter into gas supply management and gas storage, it's using its own assets, not ECG's assets. 392 MR. THOMPSON: Sorry, where are you referring when you say that? 393 MR. BRENNAN: I'm sorry. If you go to the agency agreement. 394 MR. THOMPSON: Yes. 395 MR. BRENNAN: If you go to the agency agreement -- and if you go -- I'm assuming you're referring to section 5(a). 396 MR. THOMPSON: Well, no, I was simply referring to -- again, this is where Mr. Farrell and I get off the track, I was referring to paragraph 5 of the evidence where EI has the right to engage in gas supply management and gas storage business activities. 397 MR. BRENNAN: Right, and I think if you go to that section of the agency agreement, it sort of states the same information. 398 MR. THOMPSON: Okay. 399 MR. BRENNAN: But the point is that when they are talking about gas supply management, and in particular gas storage, they're not using our assets. If they want to do that they have to go and get their own storage assets. 400 MR. THOMPSON: All right. But they have -- they can engage in transactional services on your behalf. They are required -- they are to engage in transactional services on ECG's behalf, that's part of the deal. 401 MR. BRENNAN: Using ECG's assets. 402 MR. THOMPSON: Correct. 403 MR. BRENNAN: Correct. 404 MR. THOMPSON: Fine. And they have the right to engage in transactional services on their own account. 405 MR. BRENNAN: Yes, not using ECG's assets. 406 MR. THOMPSON: Okay. Well, you say that's pursuant to the agreement. 407 MR. BRENNAN: Yes, absolutely. 408 MR. THOMPSON: But the reality is that this agent has the right to use your assets to engage in transactional services, the same thing that the utility was doing within the utility before August 1, 2001. 409 MR. BRENNAN: As part of the agreement, the functions that EI are performing are -- at least one of them is transactional services, which is the optimized use of those assets that are not required from a day-to-day basis. 410 MR. THOMPSON: Right. And they apparently have some of their own stuff that they'd like to use to engage in this activity; is that right? 411 MR. BRENNAN: I'm not aware if they have any storage assets. 412 MR. THOMPSON: Well, they can actually get it from you, if they want, and resell it. 413 MR. BRENNAN: Again, that's when the protocols would kick in. Because if they want to bid on our assets to use for their own account, then again, they would -- there's this protocol process, bidding process. And similar to the gas acquisition, their bids have to be in prior to our -- anyone else's, and those bids will have to be evaluated by Enbridge Consumers Gas and not Enbridge Inc.. 414 MR. THOMPSON: We'll come to the protocols in a minute, but this transactional services business in the "then" scenario is big business. If you look at Exhibit A, tab 13, schedule 1, page 4, you don't need to turn this up, but the actual transactional services gross margin in 2001 was some $14 million; right? 415 MR. BRENNAN: Yes, that's correct, and if you look it has been increasing. I'm not sure whether it's going to get there this year though. 416 MR. THOMPSON: No, and I know we have a deal on the forecast and we have a deal on sharing, but we also know that your parent out there isn't going to be doing this for you now. 417 MR. BRENNAN: Right, and I just want to point out that you don't necessarily want to look at one year in isolation, that's all. 418 MR. THOMPSON: No, but it's gone from 5 million in '98 to 14 million in 2001. That's quite an upward trend in volume. 419 MR. BRENNAN: And it's coming back down this year. 420 MR. THOMPSON: Well, 10 million, chicken feed. 421 But the point is that this money was largely allocated to ratepayers, 90 percent up to the -- 90 percent up to the forecast level and then anything in excess was 75 percent to shareholders; right? 422 MR. BRENNAN: To ratepayers. 423 MR. THOMPSON: To ratepayers, sorry. 424 MR. BRENNAN: I'd like it the other way. 425 MR. THOMPSON: Anyway, their money, in large measure. 426 MR. BRENNAN: Ratepayers. 427 MR. THOMPSON: Ratepayers money. 428 MR. BRENNAN: Yes. 429 MR. THOMPSON: Because it is using the utility assets to generate it. 430 MR. BRENNAN: That's correct. 431 MR. THOMPSON: Now, this is going, if you will, to be managed off-shore by your parent which is engaged in the same business; correct? 432 MR. BRENNAN: It can. It has a right to do that, but not using ECG's assets. 433 MR. THOMPSON: Well, can it -- we'll come to the -- can you -- it can acquire the services from ECG and resell them, but you say the protocols address that. 434 MR. BRENNAN: That's correct. 435 MR. THOMPSON: We'll come to that in a minute. 436 But in terms of their ability to engage in this business, they are in the fairly unique situation of having all of the information that ECG has when it engaged in that business on its own account. 437 MR. BRENNAN: It has information, but I suggest that most of that is in aggregate form, that it doesn't necessarily -- would give them necessarily a competitive advantage or an advantage at all. 438 MR. THOMPSON: Well, they've got a lot more than any other market participant has. 439 MS. HOLDER: I would -- I don't like to do this, but I would say that there is another market participant in the same market that has even more information, and that's Union Gas. They have all our information, all their own information, and all their own information on their transactional services, and a great deal of our transactional services. 440 MR. THOMPSON: Okay. Well, maybe you should give your function to Union Gas. Why not make it a complete monopoly? 441 But the unbundling, just to put this in context, the unbundling that large volume customers and marketers anticipated, still on the drawing boards, was expected to provide the customers with the ability to use access to these assets to provide gas supply management and gas storage services; do you agree? 442 MS. HOLDER: I -- my interpretation of the unbundling is that the customers would have access to the same assets that they may be using today in a form similar to which they use them today. 443 I don't think our end-use customers are in the business of transactional services, optimizing our assets. 444 MR. THOMPSON: All right. Let's try it this way: This transactional services business activity within ECG is -- would you agree with me is still a business activity that depends on the use of regulated assets? 445 MS. HOLDER: Yes. 446 MR. THOMPSON: Okay. And so by transferring this -- the power to perform this service to an agent, who is apparently not regulated by this Board, do you agree with me you've, in effect, transferred monopoly power away from the regulated utility? 447 MS. HOLDER: No. 448 MR. THOMPSON: Well, explain why not. 449 MS. HOLDER: I'm struggling how it can be, so it's hard for me to explain why not. They are acting as our agent. They are using our assets in -- according to the rules and procedures we have put in place for them to use our assets. 450 With respect to the unbundling of rates and services or further unbundling of rates and services, we do not see that this is any way a barrier to that continual evolution of deregulation. 451 I cannot -- it's hard to explain how, in my mind, how that was transferring monopoly power. We still have the ultimate responsibility for managing these assets and ensuring that the ratepayers are adequately protected from both the security of supply, reliability, safety, and at a reasonable price. 452 MR. THOMPSON: All right. Well, let's move on to these protocols. And again, this -- these protocols, with respect to transactional services, Mr. Brennan, are there in appendix C, I think, to this schedule to the agency agreement, pages 25 and 26; right? 453 MR. BRENNAN: Yes, that's correct. 454 MR. THOMPSON: And just to understand this, this is complex. The service provider in these protocols is Enbridge Inc., EI? 455 MR. BRENNAN: Yes, that's correct. 456 MR. THOMPSON: And then Enbridge is defined in the -- somewhere as -- 457 MR. BRENNAN: As Enbridge Inc. 458 MR. THOMPSON: Yes. 459 MR. BRENNAN: An affiliate of Enbridge Inc. with the exception of Enbridge Consumers Gas. 460 MR. THOMPSON: So it's anybody in the Enbridge family, other than ECG; is that right? 461 MR. BRENNAN: Yes, that's correct. 462 MR. THOMPSON: And so when I read this, let's just take C.3 as an example, the service provider that -- if I put in there EI -- 463 MR. BRENNAN: Yes. 464 MR. THOMPSON: Will not offer, and it's got Enbridge. I could put in there EI. Enbridge Inc. will not offer itself or another affiliate a transactional service; right? 465 That's what all this means? This is somehow designed -- 466 MR. BRENNAN: Yes, what it's saying is that Enbridge Inc. cannot go out and offer transactional services without requesting bids. 467 MR. THOMPSON: Okay. And so let's say that Enbridge Inc. requests a bid for all of the transactional services capacity for 12 months and nobody responds and Enbridge puts in a bid for, let's just for the sake of argument say, $10 million which is what you forecast for the 2002 test year. Enbridge would get it, would they not? 468 MR. BRENNAN: No, not necessarily. 469 MR. THOMPSON: Well, why not? If nobody else bids, then they take it and then they have use of the assets for the year. And let's say they sell it for $14 million and they divert $4 million of that transactional services revenue into Enbridge Inc.'s pockets with no share. Is that not conceivable under this protocol? 470 MR. BRENNAN: No, I don't think so at all. 471 MR. THOMPSON: Tell me why not. 472 MR. BRENNAN: Because the bids are not being evaluated by EI, they're being evaluated by ECG, and myself in particular. And if that was the case, then I would certainly have serious concerns over something like that happening. 473 MR. THOMPSON: Well, why would you? You can say, I have my forecast bang on. 474 MR. BRENNAN: Because I have an obligation to our ratepayers. 475 MS. HOLDER: I think also you have to understand that the transactional services business, you don't necessarily know what they are at the beginning of the year, which is our evidence and all our cases and why it's so hard to strike an actual target for this business. These are -- can be created next day, can be created next month. It all depends on the weather; it depends on the forward-looking strip for natural gas prices. So at any point in time, we couldn't say, or Enbridge Inc. on our behalf couldn't say, we're going to give you all our transactional services, because they don't know what they are. 476 MR. THOMPSON: Well -- but you can say, we'll give you the right to do all transactional services on our account for the year for a fixed price of $10.7 million, which is your forecast. 477 MS. HOLDER: I don't believe that the references of the two decisions, 492 and 495 of this Board, would allow us to do such a -- to offer such a bid. 478 MR. THOMPSON: All right. Well, in any event, these -- these protocols for transactional services, there are eight of them here, Mr. Brennan, and at a high level, could you just explain -- 479 MR. FARRELL: He's not listening to your question. Just a minute. 480 MR. THOMPSON: Oh, I'm sorry. 481 MR. BRENNAN: I'm sorry, go ahead. 482 MR. THOMPSON: Is there something you wanted to add? That seemed like a long huddle for no feedback. What's the play? 483 MR. FARRELL: Make up your own question and then answer it. 484 MR. BRENNAN: Go long. 485 MR. THOMPSON: Anyway, coming back to these protocols - they are C-1 to C-8 - could you just, in layman's terms, tell me what these protocols are designed to protect against? 486 MR. BRENNAN: Yes, and there's a couple of them there, depending on the bidding process that takes place. This is a case where Enbridge Inc. sees that it has assets that it wants to take to the market for transactional services and Enbridge Inc. would like to be able to bid on those assets. So what these protocols safeguard against is that if that is the situation when we do go out for bids, written bids typically, that if Enbridge Inc. wants to be a bidder, they have to have their bid in prior to the other bidders having their bids put into place. And those bids are then not evaluated by Enbridge Inc., but are evaluated by ECG. 487 Now, the other situation there is in the transactional services business. A lot of these deals have to be done very quickly otherwise you lose any price advantage or price opportunity that you may be able to achieve. So what the protocols also include are cases where bids are done over the phone, and so there is the requirement here for all telephone conversations to be recorded and those records being kept. And again, the same situation where EI has to have its bid given to EI (sic) prior to them going to seeking bids over the telephone. 488 MR. THOMPSON: Okay. Let's just take another example where we've got -- there's a transactional services opportunity out in the marketplace. EI is there as your agent, obliged to -- well, is it obliged to maximize your transactional services revenues? 489 MR. BRENNAN: Yes, that's how I would view it, because we have a gross margin or net revenue target to meet. 490 MR. THOMPSON: And then it's there with its own, apparently, transactional services assets, and when an opportunity arises -- and so it can do it through ECG or do it through its own; one way it gets 10 percent or 25 percent depending on the level of activity that has transpired in ECG, or the other way it gets 100 percent. How do we protect against Enbridge Inc. always taking the opportunity for itself first? 491 MS. HOLDER: Well, in most cases, when we talk about transactional services, as you have even mentioned yourself, we're referring to the ability to capitalize on the assets of Enbridge Consumers Gas. Primarily, this results from our storage capacity. Enbridge Inc. would not be competing for the exact same type of services as the utility would be offering, in that they don't have exactly the same assets or in the -- to be competing with one another. 492 So if you go back to an example of an offering of peak storage, they do not have storage assets in the province of Ontario. If somebody wanted peak storage at the market in the province of Ontario, Enbridge Inc. would not be in competition. Enbridge Inc. may have storage assets in the province of Alberta, but that -- offering peak services in Alberta would not be competing with offering peak storage services in Ontario. 493 So the fact that the -- there isn't commonality, other than the Vector-Alliance pipelines, between the two entities. I can't see how we can be in competition with ourselves. 494 MR. THOMPSON: Well, there are a million ways to do these transactional services regardless of where your assets are, but how are we going to know? Let me just tell you where I'm coming from here. This thing has got a smell factor that is rather high, and it looks to me like one of the objectives here is to divert some of this transactional services revenue into EI directly. And the way they can do that is by taking these business opportunities for their own account rather than ECG's account. But how are we, that is this Board, going to monitor whether that has occurred or has not occurred if we don't have access to EI's transactional services revenue figures? 495 MR. PLECKAITIS: Can I -- if I can partially answer that. 496 MR. FARRELL: Excuse me. Can you define what you mean, "EI's transactional services revenue figures"? 497 MR. THOMPSON: The money they make from doing transactional services on their own account. 498 MR. FARRELL: Using their own assets. 499 MR. THOMPSON: Well, using assets that they have acquired under contract, or whatever. 500 MR. FARRELL: That's fine. That's fine. 501 MR. PLECKAITIS: Mr. Thompson, I guess one thing, as you referred to the smell factor, is that I would take that to be that Enbridge Inc., therefore, is deliberately trying to create a situation where it would optimize its own assets where it believes it optimizes its profits as opposed to optimizing the assets of ECG. 502 If Enbridge was motivated to do that, which I absolutely would say they are not motivated to do that, they are not allowed to do that based on the contracts we have in place, is that in theory they could be doing that whether those assets existed within ECG or not. If Enbridge was motivated to behave that way, Enbridge Inc., they could direct Enbridge Consumers Gas to not go after certain transactional service activities that they wanted to go after in the -- on their own account with their own transactional service assets that they had. There wouldn't need to be an agency agreement in place to allow that to happen. 503 MR. THOMPSON: Sorry, how would they do that? 504 MR. PLECKAITIS: Well, what you postulated was that Enbridge Inc. on one hand is managing the assets of ECG, and on the other hand managing their own transactional service assets. 505 MR. THOMPSON: I didn't postulate that, that's the fact. 506 MR. PLECKAITIS: No. What the fact is is we said they do not have their own transactional service assets. We said the storage -- they do not own any storage facilities in Ontario. So the fact is they do not, but your hypothesis is if they did that they would have an unfair competitive advantage and they would be incented to somehow take transactions to their own account as opposed to ECG's account. And I'm saying, if you believe that that could happen, why could that not happen the way the arrangement was prior to setting up the agency agreement? I don't see the difference. 507 MR. THOMPSON: Well, I guess I don't see how Enbridge Inc. could direct ECG not to participate in transactional services; is that what you're saying? 508 MR. PLECKAITIS: No, you are saying that somehow because they are being managed by the same entity, that that allows them to do it. 509 MR. THOMPSON: Right. 510 MR. PLECKAITIS: Whereas when they control the entity, that they somehow are prohibited from doing it. What's the difference? 511 MR. THOMPSON: It's less likely. I suppose they're not absolutely prohibited from trying to control the market through their directorship and ownership role, but it seems less likely when the activity is controlled by employees of the utility rather than employees of Enbridge Inc.. 512 MR. PLECKAITIS: But all of the transactions, everything that we -- that they do as our agents are available to audit just as they are today within ECG. So the energy returns officer would have full access to all of those transactions, would have access to all of the records that they are required to keep, no differently than we are required to keep when the services were provided by ECG. 513 MR. THOMPSON: You're telling me that Enbridge Inc., under the old regime, had all of the information that's now flowing to it under this information flow chart with respect to gas activities in Ontario? I have difficulty accepting that. 514 MR. PLECKAITIS: I'm not quite sure when you say "information". 515 MR. THOMPSON: Well, there's a flow chart here. 516 MR. PLECKAITIS: Yes. 517 MR. THOMPSON: It was Exhibit F. What's "F" now, "K"? 518 MR. MORAN: "K". 519 MR. THOMPSON: All right. K.4.1. I mean, it looks like the Roughrider play book. This is all a by-product of -- maybe it's the Carleton play book. Mr. Pleckaitis used to play at Carleton, and unfortunately, he had me as a coach. 520 MR. PLECKAITIS: He was a very young coach. 521 MR. THOMPSON: Anyway, this is all a by-product of putting transactional services and the other functions into EI; correct? 522 MR. PLECKAITIS: Yes. 523 MR. THOMPSON: And EOS. And all of this was going on -- 524 MR. PLECKAITIS: Shows the information flows, yes. 525 MR. THOMPSON: -- within the -- yes. 526 I mean, it's a busy chart. And then we have this, you know, Mr. Farrell's contracts here that you have to be a Wharton Ph.D. to get through. I mean, that's all a by-product of this exercise. And you seem to be telling me Enbridge Inc. could have done it anyway under the old regime? 527 MR. PLECKAITIS: What I was -- you were postulating a scenario where the parent would undertake unethical activity, in my opinion, the way you described it, and by allowing them to take care of our services as agent, as well as their own services, that they would be incented to do that. 528 And the contract has been set up specifically to prevent that from happening, as the contract did, in my opinion, is as thorough as what we would set with a third party. And I tried to explain as to -- if they wanted to do that, if they wanted to behave unethically, the avenues are available to do that to ECG prior to the setting up of the agency agreement. 529 And at the end of the day, what is the ultimate check that the Board has? I would say the energy returns officer. In terms of confirming that what Enbridge is saying is happening in terms of its transactions are available to scrutiny by that officer, just like they are -- as they were in the past, they are today. 530 MR. THOMPSON: I'm suggesting to you, the ultimate check on whether this structure is contributing to a diversion of transactional services revenues to Enbridge Inc. or not is access to Enbridge Inc.'s transactional services revenue figures. 531 MR. FARRELL: I think that's the point of debate as opposed to questions and answers. 532 MR. THOMPSON: Well, I will ask the question: Is there anything in the contract that provides ECG and this Board, intervenors, with access to that Enbridge Inc. information? 533 MS. HOLDER: No. 534 MR. PLECKAITIS: No. 535 MR. THOMPSON: This is going slower than I expected, but I think I can almost wrap up in this particular area of the "then" and "now" by just asking you a few questions with respect to the drivers of this out-sourcing of functions and utility functions to affiliates. 536 First of all, is PBR a driver of this activity? 537 MS. HOLDER: No. 538 MR. THOMPSON: So if we were still on cost of service, this would be going on; is that what you're telling me? 539 MS. HOLDER: Yes. I mean, obviously we evaluated everything based upon the regulatory regime we have at the time, but when I -- I need to correct also the record. 540 I think earlier you mentioned that this was my- if we're talking about the EI situation - that this was my brain child and that this all happened in April of 2001 or early 2001. 541 The brain child probably happened at least a couple of years prior to that. It just took a lot more convincing than I thought to not just convince our own executive that this was necessary, but also to convince EI that this was a role that they could play. 542 MR. THOMPSON: So your brain child was hatched '99, you're now telling me? 543 MS. HOLDER: Probably that early, yes. 544 MR. THOMPSON: Is there paper to support that? If there is, produce it, please. 545 MS. HOLDER: Okay. Not a problem. 546 MR. PLECKAITIS: If I could just add to Ms. Holder's answer, because I indicated yesterday that I believed that PBR incentive mechanisms are, in fact, one of the reasons that they are being pursued by regulators, including the Ontario Energy Board, is to stimulate the utility in becoming more effective, more efficient, and to streamline -- ultimately, hopefully to streamline the regulatory process. And I believe PBR and incentive mechanisms did and will cause the utility to look at out-sourcing arrangements differently than they did before. 547 Is it the only driver? No, but it is one of the factors. 548 MR. THOMPSON: I should say I'm not suggesting these are the only drivers. I'm just getting a list of what I think are drivers and ask you whether you agree or disagree, so -- 549 MR. FARRELL: Before we go on, I think we need a number for that undertaking. 550 MR. MORAN: Just going back to that undertaking, it would be J.6.6, an undertaking to look for any paper regarding the origin of the idea to out-source to EI. 551 UNDERTAKING NO. J.6.6: TO LOOK FOR ANY PAPER REGARDING THE ORIGIN OF THE IDEA TO OUT-SOURCE TO EI 552 MR. THOMPSON: Thanks. 553 One of the results of this out-sourcing of utility functions to affiliates, unregulated affiliates or apparently unregulated affiliates, is that it removes the Board's regulatory supervision somewhat by precluding regulatory supervision of the people that actually are performing the functions. Is dilution of regulatory supervision one of the drivers of this out-sourcing to affiliates trend? 554 MS. HOLDER: No, it was not. No different than we have been out-sourcing out more and more of our service and construction work. 555 MR. THOMPSON: No, but there's a difference between out-sourcing to affiliates without tender and out-sourcing to an arm's length party on a tender process. But you're telling me that this had no influence in the decision-making? 556 MS. HOLDER: That's correct. 557 MR. THOMPSON: Okay. One of the drivers appeared to me to be this effort to transfer the ability to exercise monopoly power through the use of ECG's assets to an affiliate, and that's the EI situation that we were discussing with respect to transactional services. Is that a driver? 558 MS. HOLDER: No. And back to the monopoly power, I don't see -- I still struggle with that we've transferred any monopoly power. If anything, this end of the business is the competitive business which has been recognized by this Board by allowing these types of businesses to occur at market prices as opposed to a cost-based rate established by this Board. So I don't see these transactional services, in particular, as being a monopoly. 559 MR. THOMPSON: All right. Another driver, it appears to me, is an effort to enhance your parent's returns at the expense of ratepayers, and this is the transactional services type of example that we were discussing. And then another example is to use the fully allocated costs of the utility as the pricing base. Is that a driver for this activity? 560 MS. HOLDER: I think you said two things. You asked for two different drivers there; is that correct? 561 MR. THOMPSON: Well, enhancing the parent's returns at the expense of the ratepayers. I gave you two examples of that phenomenon 562 MS. HOLDER: No. As a matter of fact, we believe that what we have done has been to the benefit of the ratepayers, not at the expense. 563 MR. THOMPSON: That will be demonstrated to us when, on rebasing? 564 MS. HOLDER: I think it's been demonstrated to you today. 565 MR. THOMPSON: Oh, okay. Well, perhaps I missed it. 566 Well, I want to just finish this topic quickly. I just have a couple of other questions. It may not be that quick, Madam Chair. 567 MR. BRENNAN: Mr. Thompson, before we break, I wonder if I could just give you an update about some of the information that we talked about yesterday. 568 MR. THOMPSON: Yes, please. 569 MR. BRENNAN: And that has to do with the number of employees that are carrying out these functions in both Edmonton and Calgary. 570 As far as EOS in Edmonton, there are a total of 16 employees, seven -- of those, seven are gas controllers, seven in nominations, one manager, and one support person; but out of those seven nomination people, four are nominating on behalf of Enbridge Consumers Gas. 571 So if you're just to isolate those ones that are doing functions just for Enbridge Consumers Gas, it would be seven controllers, four nomination people, one manager, one support, for a total of 13. 572 And in addition to that, I indicated yesterday that there were 12 individuals in Calgary carrying out the function at EI plus two vacancies. Going over the list again, I have 14 plus two vacancies. There was a new person that just came on board just a few weeks ago. 573 MR. THOMPSON: Well, I'll just follow up on that. If this arrangement was going to cost EI money, they'd never go for it. I mean that's just common sense. 574 MR. BRENNAN: Well, I think you have to look at yes, there may be more employees but they're doing more than just ECG's functions, I guess. 575 MR. THOMPSON: There has to be something in this for EI or they wouldn't go for it. And the something that's in it for EI, I'm suggesting, must be articulated in one of these business plan presentations, and hopefully we'll find out what was said. 576 MR. PLECKAITIS: Well, the overall expectation or the strategy, as I understand it, is that EI and Enbridge Operational Services was attempting to establish core competencies centrally located in providing services to all of its affiliates to ensure -- in a means of optimizing the assets of those affiliates. And it obtains efficiencies and benefits from doing that. 577 MS. HALLADAY: Now might be an appropriate time for a break, Mr. Thompson. We'll reconvene at 11:30. 578 --- Recess taken at 11:13 a.m. 579 --- On resuming at 11:45 a.m. 580 MS. HALLADAY: Please be seated. 581 Mr. Farrell. 582 PROCEDURAL MATTERS: 583 MR. FARRELL: Madam Chair, we've given you a copy of the VECC letter of comment on the QRAM application. And I can speak to it now, or if you would prefer to finish this panel, I can speak to it when we resume this afternoon, assuming we finish the panel. Your choice. 584 MS. HALLADAY: Why don't you speak to it now, and then we'll have the QRAM finished. 585 MS. LOTT: Madam Chair, I'm Sue Lott from VECC. I just wanted to point out that it actually was received in the Board's offices yesterday by fax, even though it's indicated here as received today. 586 MS. HALLADAY: That's fine. 587 MR. FARRELL: If there was any concern, I'd waive the time limit. 588 VECC, as we understand this letter, has or is proposing a significant deviation from the methodology approved in last year's settlement proposal. What they're proposing, as I understand it, is a true-up of the 2002 PGVA once the actuals are known. That alone, in terms of timing, would be a deviation from the usual process, where the balance, the actual balance in the PGVA or any other deferral or variance account for a fiscal period like fiscal 2002, the current test year, would normally be cleared by the Board in the proceeding for the following fiscal period, in this case, fiscal 2003. 589 The one-time -- so that is one deviation. The second is using a one-time adjustment as a credit instead of a rate rider. And I should mention that the notion of truing up means that customers will get their credit whenever the true-up takes place, regardless, I'm told by Ms. Duguay, of consumption over a period. As Ms. Spoel was questioning yesterday, what happens if you don't have a hot water heater fired by gas; what happens if you don't have a range that's fired by gas, and your summer consumption is very low? 590 So there is a true-up mechanism that was contemplated by the methodology of the settlement proposal last year, and it is contained -- I won't -- I will just state where it is for the record. I don't need to have you turn it up. It's the first complete bullet on -- and I'm now quoting from last year's settlement proposal, Exhibit N.2, tab 1, schedule 1, page 16. 591 It will probably be on a different page in a different location in what should have been an attachment to the QRAM application, but I'm sure you will have no trouble finding it. 592 Now, having said that it's a significant deviation, not only from the methodology in the settlement proposal but also from the norm of clearing a PGVA balance and doing the true-up for actuals, I also have to concede that it probably would cause the least amount of confusion. Because if there is a one-time credit, consumers would then see what the gas cost is, 21 cents, roughly, compared to what it had been before the price is increased. 593 So from that point of view, what VECC is proposing would avoid a double entry on the bill where the bottom line would -- some may interpret, Oh, my goodness, gas has gone down to 10 cents when, in fact, it's gone up to 21 cents. So it has that in its favour. 594 The second comment that I would make is that probably this one-time true-up, using -- because it's a credit balance -- using a credit on the bill, would probably be the easiest for ECG to administer. Now, we're not deviating from the proposal that we made when I make those remarks to you. I just wanted to fairly present what the company thinks of VECC's proposal. We favour our own for the reasons that were advanced. 595 But in either case, ECG has no intention of trying to walk away from a settlement. We just felt that the particular circumstances now warranted a modification to the settlement proposal to deal with these circumstances as opposed to saying, We don't like the settlement; we're walking away from it. That's certainly not our intention. 596 And with that I'll conclude my remarks. 597 MS. HALLADAY: Thank you, Mr. Farrell. 598 Ms. Duguay, have you filed the revised schedules, rate schedules with respect to the three-month recovery rather than a six-month rate rider? 599 MS. DUGUAY: I've got them in our office. I'm going through them. They will be available probably shortly after lunch, so I have the new rate rider as well as the supporting documentation for the two scenarios; that is, the rate rider amortized over three months and six months. 600 MS. HALLADAY: And they will be ready this afternoon? 601 MS. DUGUAY: Yes, they will. 602 MS. HALLADAY: Thank you very much. 603 MR. FARRELL: I asked her to come -- to be here with me to make sure I didn't make a mistake in making my submissions. She'll now go back downstairs and -- 604 MS. HALLADAY: And get some work done. 605 MR. FARRELL: Yes, in a manner of speaking. 606 MS. HALLADAY: Thank you, Ms. Duguay. 607 MR. FARRELL: I should just comment before Mr. Thompson resumes, Madam Chair, that we may ask you for a slightly longer-than-normal lunchtime break. What I would like to do with these witnesses, assuming we get finished, and maybe even if we don't get them finished, is just to go over the various outstanding undertakings that they made when -- except for Mr. McGill -- when they were appearing on the prior panel here, and try to get some sense of when we think we can be in a position to respond so that we can come back and tell you what our timeline is vis-a-vis the hearing schedule, so that we don't have any misunderstandings about what we can do by when. 608 MS. HALLADAY: Okay. Thank you very much, Mr. Farrell, that would be very helpful. 609 Mr. Thompson. 610 ENBRIDGE CONSUMERS GAS - PANEL 4 - CONTINUED 611 S.McGILL; Previously sworn. 612 J.HOLDER; Previously sworn. 613 F.BRENNAN; Previously sworn. 614 A.PLECKAITIS; Previously sworn. 615 CONTINUED CROSS-EXAMINATION BY MR. THOMPSON: 616 MR. THOMPSON: Thanks. 617 Panel, just to try and finish up in this area of the "then" and "now" with respect to the EI-ECG arrangements. Dealing with this information flow chart - it's Exhibit K.4.1 - it's clear, I believe, that Enbridge Inc. gets all of the information that ECG used previously to conduct transactional services business. Whether it comes through ECG or EOS, they end up with all of that information. 618 MR. BRENNAN: Mr. Thompson, you're talking about the information that's related directly to transactional services? 619 MR. THOMPSON: Yes, I am. There's nothing left out? 620 MR. BRENNAN: Well, if you follow the arrows -- I mean, the information that Enbridge Inc. gets, if you like, is the thing the -- arrow number 1, which I went through the other day, that talks about the design profiles, the storage targets. That's our -- 621 MR. FARRELL: Excuse me, you said "design profiles," you mean demand profiles. That's what number 1 says. 622 MR. BRENNAN: Yes, I'm sorry. The daily demand profiles, the storage targets, it's -- everything on that first line goes to Enbridge Inc.. 623 MR. THOMPSON: Yes, from ECG. 624 MR. BRENNAN: From ECG. 625 MR. THOMPSON: Right. I thought you said to Mr. Mondrow that in the "before" scenario, when all this was in the triangle within ECG in terms of information -- 626 MR. BRENNAN: All that information, yes, it -- 627 MR. THOMPSON: -- it resided within ECG. 628 MR. BRENNAN: Yes, that's correct. 629 MR. THOMPSON: And now as a result of these new arrangements, we have a busy flow chart as to how it flows. 630 MR. BRENNAN: Yes, that's correct. 631 MR. THOMPSON: But Enbridge Inc. is conducting the transactional services business so it needs the information that ECG had previously to conduct that business. 632 MR. BRENNAN: Right, and some of that information is being generated or -- being generated within EI itself, in terms of gas supply planning. 633 MR. THOMPSON: Okay. So at the end of the day, it ends up with everything that ECG used previously to conduct the transactional services business itself. 634 MR. BRENNAN: Yes. 635 MR. THOMPSON: All right. And so the flow chart does not prevent EI from using that information -- and just to back up. The information falls within the definition of confidential information under the Affiliates Relationship Code. 636 MR. BRENNAN: Yes, that's how we would view it and it's -- 637 MR. THOMPSON: Okay. 638 MR. FARRELL: Just a second. 639 MS. HOLDER: Sorry, I think maybe Mr. Brennan and I probably heard your words spoken differently, so if you wouldn't mind repeating your question. 640 MR. THOMPSON: It falls within the definition. The Code defines confidential information somewhere. It means "Information relating to a specific consumer, market or other customer of the utility, which information the utility has obtained in the process of providing current or prospective utility services." And you went through this with Mr. Vegh, that some of the information is confidential information. 641 MR. BRENNAN: Yes, some of it is. Some of it is not, to the extent that it's in aggregate form. 642 MR. THOMPSON: Okay. Fine. And so we were -- the flow chart doesn't prevent EI from misusing that information for its own account. You told me, I thought, earlier that's prevented by contract; is it? How is EI prevented from using that information for its own benefit? 643 MR. BRENNAN: I'm not sure that I said that, necessarily. 644 MR. THOMPSON: Well, is it prevented from using that information for its own benefit? I thought there was some contractual constraint and I just wanted to clarify it. Is there? Maybe Mr. Farrell can point to it if there is. 645 MR. FARRELL: Well, the compliance with the Code as a duty and a responsibility of ECG, but section 2 of the agency agreement itself is intended to ensure that: "The service provider agrees," and I'm just quoting now, "to do such things that are necessary to assist the services recipient, ECG, to comply with the Code." 646 So if you are saying, is there a clause in the agreement that says EI shall not act unethically, the answer is no. 647 MR. THOMPSON: Okay. Or EI shall not use information that it obtains under the agency agreement for its own account, the answer would be, No, as well? 648 MR. FARRELL: Yes, and I admit that this is an issue in argument, that we will get into arguing what an agent can and can't do under agency law. 649 MR. THOMPSON: Okay, fine. 650 The other point I just wanted to touch on, you mentioned Union has more information than ECG has for conducting transactional services business; is that right? 651 MS. HOLDER: For definitely some aspects, in that -- just many of our own transactional services come from our storage operation, which is integrated -- or "connected" is a better word, I guess, to the Union system. 652 So we are required to tell Union Gas what we are doing at all times. So Union Gas knows our activities on our business, as well as Enbridge Inc. knows what our activities are. 653 MR. THOMPSON: But so far Union hasn't out-sourced its transactional business function to its agent Duke Energy? 654 MS. HOLDER: I think what I was referring to is that their storage and transportation business is in competition with our transactional services business, yet Union Gas, who has access to a lot of our information, is going on on our own system. 655 MR. THOMPSON: So these are two monopolies competing? 656 MS. HOLDER: I think that was my point. In this end of the business, we don't classify these as monopoly services, and I think this Board has recognized that by allowing these services to be sold at a market price. 657 MR. THOMPSON: Well, if Union does what you've done, and we get Duke running the show, we'll have the mother of all monopoly/competitive transactional services businesses, because Duke is an international player in that market area; would you agree? 658 MS. HOLDER: I believe that to be true. 659 MR. THOMPSON: Now, in terms of the contract and paragraph 2 of the agency agreement, it appears that the parties -- this comes back to my smell-test concern. Here it appears that the parties contemplated that this contract might not pass the smell test, because in paragraph 2 you say: "This agreement shall also be subject to all valid applicable federal and provincial laws and to the orders, rules, and regulations of any duly constituted federal or provincial regulatory body or authority having jurisdiction over a party." 660 And so on. And it says that: "If there is after the date hereof any new order, rule, or regulation of such a body, and as a result thereof, performance under this agreement becomes materially less commercially advantageous, then the affected party can terminate on 180 days' notice." 661 So that's an out clause in the event of a regulatory order that makes the arrangement less commercially advantageous than originally perceived; is that correct? 662 MR. BRENNAN: Yes, that's what it says. 663 MR. THOMPSON: Okay. And is there something in the business case memos that will identify the factors that prompted the parties to include that out clause? 664 MS. HOLDER: I don't believe so. 665 MR. THOMPSON: What prompted it? 666 MS. HOLDER: I would think it's good contracting practice, when you're in a regulatory environment where rules can change so dramatically without necessarily a lot of say by the parties impacted, that you would put a provision in a contract that if the environment changes, such that the contract no longer makes sense, then you can exit those contracts. 667 MR. THOMPSON: This out clause isn't in the EOS arrangements? Is it implicit? It's not expressly in there, is it implicit in the EOS arrangements? 668 MS. HOLDER: I think that's fair. Recognizing in the EOS, there's one major difference, and that was there was a major capital outlay by Enbridge in order to provide that service. 669 But I would hazard a guess that most of the precedent agreements we have signed with upstream transporters also had some form of out clause, such that if the service couldn't materialize, we didn't have to contract for it. 670 MR. THOMPSON: We discussed yesterday that the fees are calculated on a fully allocated cost basis, and the reference is to ECG's fully allocated costs, as I understand it. 671 With respect to the 13 positions, could you just give me the components -- not the dollars -- but the components that go into the fully allocated costs. I assume salaries is one component, benefits is another, but are there other components? 672 MS. HOLDER: There is also -- I believe there would be some -- potentially some maintenance costs on some systems that we use. I guess, yes, the fully allocated costs cover your desktops, your office space, supervision, I believe, benefits, salaries. There would be marketing costs. There would be legal costs, HR costs, whatever -- it goes beyond salaries. 673 MR. THOMPSON: All right. Thank you. 674 MR. PLECKAITIS: Mr. Thompson, before you leave the issue of costs, just to further follow up on a question that you asked yesterday or posed yesterday with respect to the treatment of costs with affiliates. And as you've also referred to evidence filed by Mr. Bauer in previous matters before the Board, specifically EBRO 497-01. 675 Last night I reviewed his pre-filed evidence on behalf of the Consumers' Association of Canada and IGUA and the HVAC Contractors Coalition and the Ontario Coalition Against Poverty, and with respect to Mr. Bauer's evidence, and I'm not saying that I agree with all of his evidence, but with respect to his evidence related to what is the appropriate methodology under which those transactions should be costed, he indicates that there are two standards used by regulators to assess transfer pricing arrangements between utilities and affiliates. And he refers to these two standards as being, one, the no harm to ratepayers test, and the second one being the benefits to ratepayer approach. 676 His conclusion is that the no harm to ratepayer test is the preferred approach. And if I can read a direct quote from this, it's Exhibit E, section 2, page -- starting on page 12. The last paragraph, it says: "The benefits to ratepayer approach may thus lead to serious regulatory dilemmas and is, in the view of this expert, clearly inferior to the no harm to ratepayer rule." 677 And the specific reason he gives as to why that is the case, he explains that if you have to look at the benefits test, you have to then reach into the affiliate and say, in order to be symmetrical, there is a potential or perspective that the affiliate, in providing that service, could also lose money in the transaction and therefore to be symmetrical, somehow that loss needs to be factored -- or potential loss needs to be factored into the test. 678 Therefore, what I interpret is the cleaner way of doing it is the no harm to ratepayer test, which is the one that this panel indicated that -- that is the company's position in the absence of a market-based price, that the no harms to ratepayer test would be the appropriate methodology to use. 679 MR. THOMPSON: Well -- 680 MR. FARRELL: Just before you -- I just want to make sure that the record was clear. It was not Exhibit E in this proceeding, it was the EBRO 497-01, EBO 178-14, and EBRO 179-15. It was Exhibit E, section 2.0 in that proceeding. 681 MS. HALLADAY: Thank you for clarifying that, Mr. Farrell. 682 MR. THOMPSON: Well, we're going to file the complete text of Dr. Bauer's evidence-in-chief as well as excerpts from his cross-examination. But the part that you read from doesn't deal with affiliate transactions. You'll find that at page 18 and following, and we can deal with that later. 683 In any event, we have the terms of how these transactions are to be approached in this jurisdiction; we have the Affiliate Relationships Code. And the question is, as I articulated it yesterday, what "cost" means in that section. And I think there are different views. You obviously have one. Whether Dr. Bauer shares your view or not, I think, is a matter of argument, but we'll deal with that in argument. Anyway, thank you for that. 684 Let's move on, if I can, to -- my next topic is really the criteria the Board should apply when considering the acceptability of these arrangements, and when I say that, I'm referring to the ECG-EI arrangement and the ECG-EOS arrangement . 685 And I wanted to start by getting some clarification of transcript paragraph, I believe it's 149, it's in volume 4. This was Ms. Holder, when you were asked by Mr. Farrell to summarize ECG's position on the issue. 686 MS. HOLDER: Sorry, what was the line reference? 687 MR. THOMPSON: Paragraph 149. 688 MS. HOLDER: 149? 689 MR. THOMPSON: 149, yes. 690 MR. FARRELL: Volume 4. 691 MS. HOLDER: Yes, I got the right one here. Okay, I have it. 692 MR. THOMPSON: And you -- in that paragraph and then in the following two paragraphs, I took your evidence to indicate that, in the company's view, the Board should be concerned with, first of all, the cost consequences of the arrangements; is that correct? 693 MS. HOLDER: Which for 2002, there are none due to the PBR arrangement and therefore there will be cost consequences dealt with in our fiscal 2003 rate case. 694 MR. THOMPSON: All right. But the topic "cost consequences" of the arrangements is, in your view, one of the criteria that the Board should consider. 695 MS. HOLDER: And I think I was very clear in saying, "starting in 2003." 696 MR. THOMPSON: Whenever. It's a topic that should be considered. We suggest that in this case they should look beyond in considering that topic, but -- 697 MS. HOLDER: Which is not my evidence. 698 MR. THOMPSON: I just want you to acknowledge that it's a topic to be considered, in the company's view. 699 MS. HOLDER: That's not what my evidence says. 700 MR. THOMPSON: No, you're saying it's not a topic to be considered now. 701 MS. HOLDER: Correct. 702 MR. FARRELL: This was the subject, Madam Chair, of an objection I made yesterday, and I guess we're still waiting for the Board's ruling on that objection. 703 MR. THOMPSON: All right. Let's move on. 704 The other topic that you suggest the Board should consider is the safety and reliability of the delivery of natural gas. 705 MS. HOLDER: Yes. 706 MR. THOMPSON: So that's an issue that should be considered now? 707 MS. HOLDER: Always, yes. 708 MR. THOMPSON: Always. 709 And then the third topic that Mr. Farrell reminded you of was compliance with the Affiliate Relationships Code. 710 MS. HOLDER: Yes. 711 MR. THOMPSON: And that's a topic that should be considered now? 712 MS. HOLDER: Yes. 713 MR. THOMPSON: Okay. And that list of concerns suggests to me that ECG accepts that the Board has some regulatory oversight with respect to these arrangements; do we agree? 714 MS. HOLDER: Yes. 715 MR. THOMPSON: And do we agree that the Board's regulatory oversight powers are found in the OEB Act? 716 MS. HOLDER: Yes. 717 MR. THOMPSON: And perhaps, I just -- this is, again, just a layman's understanding, but there are just a couple of sections of the OEB Act that I wanted to draw your attention to. If you have a copy there, it would be helpful. 718 The first one I wanted to draw your attention to was section 19(2), which in layman's terms suggests that -- 719 MR. BRENNAN: Excuse me, Mr. Thompson, we're just trying to find it. 720 MR. THOMPSON: It's in the OEB Act, which is schedule B, page 90. 721 MR. BRENNAN: Page 90? 722 MR. THOMPSON: Nine, zero. Yeah. Left-hand side. 723 MS. HOLDER: Nine, zero? 724 MR. THOMPSON: 19(2). 725 MS. HOLDER: Oh, sorry. We heard -- we both heard 90. 726 MR. THOMPSON: It's on page 90, but it's section 19. The page is in the top left-hand corner of the -- 727 MR. BRENNAN: Well, we have one here that has -- well, we think is -- 728 MR. FARRELL: Regardless of the page, I think you may be looking at two different documents. But as long as you are looking at section 19(2), we are on the same page, so to speak. 729 MS. HOLDER: We are on a much earlier page than you are. 730 Read the section, and then we'll make sure we're looking at the same one. 731 MR. THOMPSON: All right. Well, it says that: "The Board shall make any determination in a proceeding by order." 732 So do we agree that in responding to this application, the Board will issue an order? 733 MS. HOLDER: Well, I'm not sure what it means, because it says here: "Subject to subsection 1272, the Board shall make any determination in proceeding by order." 734 MR. FARRELL: I don't think you are looking at the current version of the Act. Let me give you the current version. 735 If you don't mind, I will stand here, so I can read it myself, because I only have one copy myself. 736 MR. THOMPSON: My narrow point was do we agree that an order is going to issue at the end of this proceeding. 737 MS. HOLDER: That is the words that are written at 19(2). 738 MR. THOMPSON: Perfect. 739 And then section 23 was the next one that I wanted to draw to your attention. It says: "The board, making an order, may impose such conditions as it considers proper." 740 So do we agree the Board can impose conditions in any order that it issues? 741 MS. HOLDER: I will agree that those are the words -- like, I'm not going to guess what context this is put in, and I've only read that sentence in that clause. 742 MR. THOMPSON: And then I think Mr. Farrell or maybe it was Mr. Vegh referred you to section 36, which is the gas regulation section. And 36, sections 1 and 4, deal with orders and conditions to orders; would you agree? 743 MS. HOLDER: I would agree that that's the writing of that section. And again, I'm not about to give you an interpretation on that. 744 MR. THOMPSON: All right. What I'm coming to is this: If the Board were to find in this case that these arrangements posed a threat to safety and reliability -- I'm just focusing on your criteria now -- or constituted a breach of the spirit and intent of the Affiliate Relationships Code, does the company agree that it's open to the Board to condition an order that it makes in these proceedings to remediate these problems? 745 MS. HOLDER: I would agree that the Board need -- will make a finding, and based upon that finding and what conditions they may impose upon that finding, provided, I assume, they would not do that unless they had the powers to do that -- I will take that as given -- we would comply. 746 MR. THOMPSON: All right. Now, you've limited the criteria that the Board should consider to cost consequences, but not in this case, to reliability and safety and to compliance with the Affiliate Relationships Code. 747 Why should the criteria be limited? Why shouldn't the Board, in exercising its consideration of these arrangements, be able to take into account the broad public interest and include consideration of such things as economic efficiency, impact on stakeholders, including benefit or harm to ratepayers? Why do those criteria not apply? 748 MS. HOLDER: I don't think we're saying that they do not apply. I think cost consequences means that you would take into consideration benefits to ratepayers, and as we've stated, there are benefits to ratepayers so I would hope that they would take that into consideration. 749 MR. THOMPSON: So you -- you're not suggesting then their broad, public interest mandate has been constrained? 750 MS. HOLDER: No. 751 MR. THOMPSON: Thank you. 752 Now, the -- would you agree with me that the scope of -- depending on the findings that the Board makes, the scope of the conditions which the Board might impose are broad enough to, in effect, require the repatriation of one or more of these functions to utility personnel? 753 MR. FARRELL: I think we've reached the stage of a legal question, Madam Chair. 754 MR. THOMPSON: All right. Do you want to put your legal position on the record so we have it? 755 MR. FARRELL: I'm -- no, I don't. I want to develop it in my argument-in-chief. 756 MR. THOMPSON: All right. Thank you. 757 Let me then ask a question, if I might, about the company's position. I'm not sure if it's factual, legal or a combination of both, but to ask this question I'd like to draw your attention to the settlement agreement which is Exhibit N.1, tab 1, schedule 1, page 25. This is the scoping of this issue, 5.3. 758 MS. HOLDER: Sorry, you're going to have to give me some time to find the settlement agreement. 759 MR. THOMPSON: Exhibit N.1, tab 1, schedule 1. 760 MS. HOLDER: Okay. 761 MR. THOMPSON: Okay. 762 MR. FARRELL: What page number? 763 MR. THOMPSON: I wanted to quote starting at page 26, and perhaps what I should do is just read into the record -- put my question in context. Starting at the middle of page 26, this is the party's attempt to scope what we've been talking about for the last couple of days. "The policy aspect of this issue can be stated in the form of two questions: Should the Board restrict or otherwise condition ECG's out-sourcing of utility functions when including terms and conditions to this effect in its rate order and if so, what terms and conditions would be appropriate?" And then it goes on: "Some of the other parties believe that the contractual -- that contractual provisions are not capable of adequately addressing their concerns about out-sourcing arrangements. Therefore they believe that a Board order is necessary to impose appropriate terms and conditions to prevent conflicts of interest and other harm to customers." 764 "These parties note that unlike a Board order, the contractual provisions and protocols when made comprising ECG's out-sourcing arrangements may be amended at any time by ECG and its affiliates or their assigns. And in addition, no other person can enforce compliance with the contractual provisions and protocols." 765 "Some of the other parties also consider that the protocols contemplated by ECG's out-sourcing arrangement with EI do not address their concerns about this arrangement for two reasons: One is that the protocols would apply only to transactions in which ECG and EI are counter-parties and, as a result, the protocols do not even address the other types of conflict of interest that these parties see arising from this out-sourcing arrangement. The other reason is that the protocols are not yet available for review, according to ECG, and so these parties can only speculate at this point on whether the protocols would address their concerns about transactions in which ECG and EI are counter-parties." 766 "Some of the other parties have concerns about the broader implications of the out-sourcing of utility functions to an affiliate or otherwise. There is a concern in ECG's case that ECG is out-sourcing utility functions in advance of rebasing its revenue requirement for an incentive regulation plan. There's also a concern that the Board may lose regulatory oversight of utility functions when a utility no longer performs them." 767 The next paragraph goes on and describes ECG's view and then we have this last sentence: "The jurisdictional aspects of this issue involve the Board's power under the Ontario Energy Board Act to restrict or otherwise condition the utility's out-sourcing arrangements. ECG and other parties do not consider it useful to delineate the scope of the jurisdictional aspects prior to examining the issue during the Board's oral hearing." 768 The question I have, and whether it's legal or factual or a combination thereof, is: Does ECG accept that the Board has the power to do something about these arrangements if it feels that they do not pass the public interest test as far as the Board is concerned? 769 MR. FARRELL: It's a legal question. 770 MR. THOMPSON: So we'll have it addressed in your argument-in-chief, I would hope. 771 MR. FARRELL: Yes. 772 MR. THOMPSON: Now, the other question I have just on the jurisdiction, and perhaps you can address this in your argument-in-chief as well, my recollection is that in the consolidated marketer billing debate that went on in Union's case, that ECG submitted an argument to the effect that this function could not be out-sourced without OEB approval, or words to that effect. 773 And is that a fair paraphrase of ECG's position? 774 MR. FARRELL: I honestly don't remember at the moment. 775 MR. THOMPSON: Okay. You and I should get some pills for that. 776 MR. FARRELL: That's right, having a senior's moment. 777 MR. THOMPSON: Well, if there is any apparent conflict between your position in that case and in this case, I'd ask you to reconcile it in the argument-in-chief. 778 MR. FARRELL: We will. 779 MR. THOMPSON: Thank you. 780 MR. FARRELL: If there's a difference, we'll address the issue. 781 MR. THOMPSON: Or tell us whether it's not a difference. Thank you. 782 Okay, my last topic here is -- I'm giving the company an opportunity to comment on what I call an orderly transition, if the Board issues an order in this case that either conditions these arrangements in some fashion or requires their repatriation to utility personnel, and so I'm going to put some assumptions to you. 783 Just assume that the Board accepts the out-sourcing of the operation services to EOS but on condition that the Board through ECG and intervenors through ECG will have access to an EOS witness and documents with respect to safety and reliability matters, with respect to the costs being incurred by EOS to provide the services. 784 MR. FARRELL: Just slow down, so I can be sure we got your assumptions. 785 What was the first item? 786 MR. THOMPSON: Access to a witness and documents, EOS documents with respect to, if you will, the criteria of concern and -- such as safety and reliability matters and costs being incurred by EOS to provide the services to ECG. 787 This condition is not to preclude ECG from presenting whatever market data or cost data it believes is appropriate, but it's an access to information, if you will, condition with direct access to EOS and its documents. 788 Are you in a position to tell us whether EOS will comply with such a condition? 789 MS. HOLDER: I think -- 790 MR. FARRELL: If you are prepared to answer, that's fine. I'm just wondering if -- what's the most efficient way to go about this, whether Mr. Thompson wants to pose his questions, and if there is a need for the witnesses to consult, maybe we could use the lunch break to do that and then come back and give the answers -- or I'm in Mr. Thompson's hands. 791 I'm just suggesting if there needs to be a caucus after each question, they may be some time. 792 MR. THOMPSON: Well, I'll do whatever the company feels is best, and I may have -- well, are you in a position to respond to my question? 793 MS. HOLDER: Yeah, I think I've already responded to that question. I've said that we, Enbridge Consumers Gas, will provide all the appropriate witnesses and all the necessary information we need in order to support our case before this Board. 794 So if it requires us to ask one of the EOS employees to come to help us support our position, we would do that. 795 MR. THOMPSON: Well, I think what it requires is a contractual commitment from EOS to ECG to make a witness available and documents available if required and -- 796 MS. HOLDER: I guess -- I don't know if we need -- I mean, the onus is on us as a utility to ensure we have all that information in order for the Board to make the appropriate ruling. 797 I think if we didn't have that information, then the Board is not going to give us the ruling that we feel is appropriate. 798 MR. THOMPSON: Okay. Well, I'm taking that as probably EOS would comply with such a condition. But let's move on. 799 In terms of the EI-ECG arrangement, first of all, let's assume this scenario: Where the Board, having looked at it, concludes that it -- this deal fails to pass the public interest test and, as a result, it concludes that gas services should be provided by ECG personnel and makes an order with conditions that have that effect. 800 What I'm concerned about is an orderly, if you will, repatriation of the functions. The agreement appears to contemplate, if something like that happens, contemplate a period of 180 days to change things. 801 And my question is: Would it need 180 days or could a lesser period suffice? 802 MS. HOLDER: I would think that we would need 180 days. It's not -- we'd have to determine where the resources should reside, who should the resources be. We may have to look for new employees; we may have to train new employees. 803 Because I think the other concern I have with your line of questioning is that I know that this is a hypothetical, but I think one -- part of the information that the Board -- that you're not including in your hypothetical is the costs of doing such activities back in the utility and the loss of benefits by bringing it back into the utility. 804 MR. THOMPSON: All right. Well, I just wanted to get the view on the necessary transition time frame and I have that. 805 Now, let's assume something somewhat less draconian with respect to this EI-ECG relationship, which is an order that accepts the out-sourcing of gas services to EI but on the following conditions: First of all, the conditions designed to prevent any potential anti-competitive consequences and -- such as EI agreeing not to engage in any of the business activity that is listed in the evidence; in other words, an elimination of the right for EI to engage in this type of business for its own account and that would be condition one, to address, if you will, anti-competitive or affiliate-relationship concerns. 806 Condition two would be designed to protect ratepayers from adverse cost consequences such as direct access to EI witness and EI documents and records pertaining to the costs that EI incurs to provide the services to ECG and the revenues that EI realizes on its own account with respect to transactional-services business. And my question is: Are you in a position to indicate whether EI will make appropriate commitments to ECG so that these conditions can be complied with? 807 MS. HOLDER: I am not in a position to make that statement. I am only in a position to say that we, ECG, will provide the necessary witnesses and the appropriate information that we need to defend our case. 808 MR. THOMPSON: Okay. Now, the last question I have is, again, dealing with remedies and my client's position at the end of the day will be that we need an order from the Board to address these concerns. But I did provide you, in addition to the Board's power to grant conditions to its order, the Board has under its statute the rule-making power, I'll just draw your attention to it, it is Rule 44, I believe, or section 44 of the Act. 809 MS. HOLDER: You can read it to me, if you like. 810 MR. FARRELL: I will bring it over in a sec. 811 MR. THOMPSON: And I wanted to draw your attention to 44, sub 1, sub G. 812 MR. FARRELL: Mr. Pleckaitis asked me to read it and I will. This idea of section 44, sub-section 1 reads, "The Board may make rules, G, requiring and providing for an affiliate of a gas transmitter, gas distributor or storage company to make returns, statements or reports relating to the transmission, distribution, storage or sale of gas by the gas transmitter, gas distributor, or storage company of which it is the affiliate in such form and containing such matters and verified in such manner as the rule may provide." 813 MR. THOMPSON: Okay. So the Board has that rule-making power and I provided you the -- this morning with a copy of a guideline from the Office of the Superintendent of Financial Institutions of Canada which is the regulator of financial institutions of Canada, funnily enough. 814 MR. MORAN: That would become Exhibit K.6.3, Madam Chair. 815 MS. HALLADAY: Thank you. 816 EXHIBIT NO. K.6.3: GUIDELINES FROM THE OFFICE OF THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS 817 MR. FARRELL: Mr. Thompson enlisted me as his assistant for this purpose. 818 MR. THOMPSON: Did you have an opportunity to skim this, panel? 819 MR. PLECKAITIS: We skimmed it. 820 MR. THOMPSON: Okay. And the section I wanted to -- well, what it is -- it tells you what it is, but it's the guidelines provided by a regulator of financial institutions with respect to the out-sourcing phenomenon. The section that I just wanted to draw your attention to is found at pages 13 and 14, it's under the topic, "Matters important to OSFI in the performance of its duties," this is matters of importance to the regulator. And one of the matters is monitoring and examination of service providers; do you see that? 821 MR. PLECKAITIS: Yes. 822 MR. THOMPSON: And it says that in the first paragraph, "The regulator may find it necessary to have material out-sourcing arrangements with a view to examine or cause to be examined; to this end, the OSFI, the regulator, must be able to work with service providers in an ongoing basis -- on an ongoing basis for monitoring and examinations and in situations where FRFI or service provider experiences financial difficulty," and goes on to describe its need for access to working papers, reports and so on. And were you aware of these kinds of guidelines affecting regulated entities before this document was plunked in front of you? 823 MR. PLECKAITIS: I certainly wasn't; I don't know if others that prepared the document were. 824 MR. THOMPSON: All right. But would you agree with me that the concerns that have been expressed to you over the course of the last two days are of the type that are reflected in these guidelines? 825 MR. PLECKAITIS: Yes, I believe that that's generally correct and I -- again, I believe that the company has put together a contract and service schedules that we believe adequately addresses those types of concerns. 826 MS. HOLDER: I think it's also fair that we did just get this document, and I, like Mr. Pleckaitis, had not reviewed anything like this before. And I am not sure it's appropriate to take this document in singularity. We don't know the conditions, the environment, the regulatory rules, the acts that are in place that provide governance and do not provide governance. 827 MR. MCGILL: And I think I'd also like to say that I think the -- 828 MR. THOMPSON: Take the last word. 829 MR. MCGILL: Might as well. 830 That it would probably be the concerns of the OSFI with respect to the regulation of financial institutions are considerably different than the concerns of the OEB with respect to regulating gas utilities. 831 MR. THOMPSON: Well, whether your contracts achieve what you think they achieve, I guess the rest of it's for argument. 832 Thank you very much, panel. Thank you Board members for your patience. This went on far longer than I expected, but I hope it's been of some assistance. 833 MS. HALLADAY: Thank you, Mr. Thompson. 834 Mr. Farrell? 835 PROCEDURAL MATTERS: 836 MR. FARRELL: Before we move on, Mr. Thompson's indicated on the record and to me off the record that he will -- he's indicated that he would like to have the entire written evidence of Dr. Bauer in the other proceeding marked as an exhibit, and I don't have a problem with that, subject to what I'm about to say, and excerpts from Dr. Bauer's examination during that hearing. 837 My only concern is that Dr. Bauer's evidence in this proceeding becomes evidence only, in my view, if portions of it are put to the witnesses, and they either agree with it or disagree with whatever. And what I don't want to have is a 20- or 25-page document floated into the record and then have it used for argument purposes in regard to text that was not put to these witnesses so they could express their view on it. 838 MS. HALLADAY: Mr. Thompson? 839 MR. THOMPSON: Well, I think that's fair, and so I better just, before I sign off, then, put to Mr. Pleckaitis the affiliate transaction section of Dr. Bauer's pre-filed evidence. 840 MR. FARRELL: Maybe we could, just for the record, assign it -- an exhibit number to this now, and then we -- so we'll have it identified, and then we'll just -- I'll bring copies up after. 841 MR. THOMPSON: I think we did at the outset. It was "J" -- it was a "J," the first one this morning. 842 MR. FARRELL: Yes, it was J.6.1. I'm sorry. You're right. 843 MR. MORAN: I was going to suggest, Madam Chair, that since the document actually isn't in your hands, if Mr. Thompson could just indicate specifically where he's reading from, so that we can track it -- 844 MR. THOMPSON: Right. This is Dr. Bauer's pre-filed evidence that Mr. Pleckaitis was referring to in his testimony, and the discussion on affiliate transactions starts at page 18, 24. And then the first subtopic heading is "Transfer Pricing." And he describes different approaches to transfer pricing. 845 And on page 19, he talks in the -- about purchases from an affiliate. And he says this: "Purchases from an affiliate should only be executed if they are cheaper than production within the utility. Therefore, the appropriate rule for purchases from an affiliate should be the lower of market price or fully allocated costs of the utility when a market price is available. If no market price is available, it should be the lower of the fully allocated price of the utility or the affiliate." 846 Do you see that, Mr. Pleckaitis? 847 MR. PLECKAITIS: Yes. 848 MR. THOMPSON: Do you have any comment on that? 849 MR. PLECKAITIS: I don't agree with it. 850 MR. THOMPSON: All right. Thanks. 851 Sorry, the transcript references that I think should go in the record would be transcript 1079 to 1084 and 1107 to 1117, Mr. Farrell. They are highlighted in this version you gave to me, so I don't think I need to put those to the witnesses, or -- 852 MR. FARRELL: Can I just take a look at those? 853 MR. THOMPSON: Yes. 854 Mr. Pleckaitis referred to the substance of the discussion, which was Dr. Bauer's -- I call it a warning that you can expect -- with the removal of the requirement of prior Board approval for affiliate transactions, Dr. Bauer was saying you can expect affiliate transactions to increase, words to that effect; is that fair? 855 And that nothing could be done to stop them was really what he was saying, and that was your point, Mr. Pleckaitis? 856 MR. PLECKAITIS: Yes. Yes, that's correct, and I -- when I brought elements of this evidence into my testimony this morning, earlier today, I said that I don't -- I'm not saying that I agree with everything that Dr. Bauer has said, because I believe that there's contradictions, at least from my reading of the document, inconsistencies in how he approaches this. Because in one section, which I interpreted as the transfer pricing section, he states that the no-harm test should be used. And the reason -- the rationale he uses, as I explained, is the symmetry of the argument of using the benefits approach. 857 And yet this section, in my mind, seems to contradict his earlier statements. So there's not a consistency - that I see, anyways - in rationale as to why he's approached it one way in one type of transaction and in a different way with another transaction. 858 MR. FARRELL: The copy that was highlighted, and I gave to Mr. Thompson, was my highlighting when I was reading it myself. I am just wondering, rather than having Mr. Thompson put these pages to the witnesses, perhaps I can have them look at it during the break -- unless Mr. Moran is going to be very short indeed; I can time it. 859 MR. MORAN: I was going to say, I've been short all my life. 860 MR. FARRELL: So have I. 861 MR. MORAN: We see eye to eye on this. 862 MR. FARRELL: And just have the witnesses read it; if they have any comment when we come back, Mr. Thompson will be here and perhaps he can follow up on it. I think that's probably the more efficient way. 863 MS. HALLADAY: I agree, Mr. Farrell. 864 Is that all right with you, Mr. Thompson? 865 MR. THOMPSON: That's fine, and I should say I reserve my rights with respect to these documents that we still have to discuss, and see what we get and where we go with what we do get, if we get anything. 866 MR. FARRELL: That was the purpose of me asking for a slightly longer-than-normal lunch hour break so that I could review with the witnesses what is outstanding and try to get a guesstimate of what time is involved in doing the work that we're supposed to do in order to provide a response so I can give some guidance to the Board and the other parties as to what the road map is. 867 MS. HALLADAY: I appreciate that, Mr. Farrell. How long do you think the lunch break should be for you to accomplish these tasks? 868 MR. FARRELL: Well, I'm driven by two factors, one is how -- is the estimated -- if Mr. Moran can give one the estimated length of his examination. It would be good from my perspective if we could finish the panel, not only this panel but the next panel today and so I'm -- I have conflicting objectives; one is to try to finish this panel and the following panel today and the other is to make sure that we have enough time to discuss what has to be done and appreciate what has to be done in order to give the Board solid advice as opposed to just a guess. 869 MS. HALLADAY: Fair enough. I think that -- 870 Mr. Vegh, how long do you think you're going to be on the next issue? 871 MR. VEGH: As I advised others, I expect to be two to three hours. 872 MS. HALLADAY: And I understand VECC has got some comments as well? 873 MS. LOTT: No more than half an hour. 874 MS. HALLADAY: And we still have got Board staff's comments -- 875 MR. THOMPSON: I think that -- 876 MS. HALLADAY: -- to this panel. I know that Board members have got some questions they want to ask as well. 877 It does not appear as though we will be able to finish the second issue today, so the next question then is whether we should even start the next issue today, or whether we should take a longer lunch break and finish this issue today and start the next issue tomorrow morning. 878 Mr. Vegh, any -- 879 MR. VEGH: Well, for purely selfish reasons, I was double-booked this afternoon so if I could get back to my previous booking I would take that. But I don't want to slow down the proceeding because of that, so I'm prepared to go this afternoon or tomorrow morning. 880 MR. FARRELL: We're into tomorrow, in any event. The other concern I didn't mention is I want to make sure I allow myself enough time for cross-examination of Mr. Stauft so I can do it tomorrow or later today; I'm really in the Board's hands. It seems obvious that the next panel would not finish today even if it were to start today. 881 MS. HALLADAY: We do have to finish tomorrow by 1:00. 882 MR. FARRELL: Yes. 883 MS. HALLADAY: Just one moment. 884 MR. FARRELL: I'm just wondering, just a suggestion, whether if we could get the panel started today, we could have the direct examination and perhaps if VECC is prepared to go we could have VECC examine. 885 MS. HALLADAY: Excuse me, Dr. Higgin, could you please speak up? 886 MR. HIGGIN: Yes. We have designed our cross-examination to fill in what we think will be an extensive cross-examination from Mr. Vegh, not the other way around. 887 MS. HALLADAY: Right. 888 MR. FARRELL: Scratch that idea. 889 With the -- in any event, if we resume at say 2:30, I think that should give us -- is that enough time? Then we could complete this panel and we could either empanel the next panel and at least get the direct examination out of the way. The next panel does have two documents to explain that have been provided to everyone beforehand, so it's just a question of whether Mr. Vegh would prefer to hear it live or read it in the transcript as he prepares for his cross-examination. 890 MS. HALLADAY: Mr. Vegh, any comments? 891 MR. VEGH: Well, I'd prefer to see it live. 892 MR. FARRELL: Why don't we start the next panel tomorrow morning. 893 MS. HALLADAY: Under the caveat that we have to end at -- by 1:00. 894 MR. FARRELL: I wonder if we could start earlier, then. 895 MS. HALLADAY: That's possible. 896 MR. FARRELL: Why don't we just leave that request -- 897 MS. HALLADAY: Why don't we play it by ear. We will take a lunch break until 2:30, as Mr. Farrell has suggested, continuing on with this panel, and we'll see how it goes. 898 MR. FARRELL: That's fine, Madam Chair. 899 MS. HALLADAY: Thank you very much. 900 --- Luncheon adjournment at 12:58 p.m. 901 --- On resuming at 2:55 p.m. 902 MS. HALLADAY: Please be seated. 903 Mr. Farrell? 904 MR. FARRELL: Yes, Madam Chair. 905 Ms. Duguay has now prepared the response to undertaking QRAM-1, I think we called it, which I believe has been distributed to you and your colleagues. 906 MS. HALLADAY: Thank you. 907 MR. FARRELL: This just consists of the calculations that -- page 2 of 7 indicates the makeup of the total unit rate, it's column 1, plus column 2, equals column 3, then their backup sheets. 908 And the very last page is rider C, showing the unit values over a three-month amortization period, and they reflect the numbers in column 3 on page 2 of 7. So this would be the page in the rate handbook, were the Board to decide on a three-month period for the rate rider. 909 MS. HALLADAY: Thank you. 910 MR. FARRELL: The second thing -- there are two other documents that I think you should have. They are the dual components of Undertaking J.6.1, so I'd suggest that we label them J.6.1(a) and -- which would be the pre-filed evidence of Dr. Bauer, and J.6.1(b) would be the pages from Dr. Bauer's testimony that Mr. Thompson asked to be made part of this undertaking response. 911 Copies will be available at the back of the room. I've distributed them to the people in the room and just put them in the usual place. 912 Now, I think the way it was left with Exhibit J.6.1(b) is that Mr. Pleckaitis would review those pages over the course of the break, and if he had any comments, he would make them. I'd just like to preface whatever Mr. Pleckaitis might wish to say with just a comment that this was -- Dr. Bauer was called as an expert witness to talk about the issues in the proceeding that has been identified earlier. Mr. Pleckaitis is, obviously, not an expert witness, and so we're not having comments by someone -- and I don't mean this in a derogatory way of Mr. Pleckaitis -- but at the same level. 913 So I would like you, if Mr. Pleckaitis has comments, to understand that we're not purporting to respond to expert evidence with a layman's version. 914 And with that caveat, Mr. Pleckaitis, do you have any comments? 915 MR. PLECKAITIS: In reviewing these specific pages that Mr. Thompson had asked me to review, what Dr. Bauer basically says, I think, has already been captured on some of the earlier testimony that I made, and that is: That Dr. Bauer basically says his concern is that on rebasing, the opportunity exists for the efficiency gains that have been captured by affiliate transactions during that rebasing period. That rebasing may not be captured in -- when establishing the rebasing number in whatever go-forward regime the company would be put under. 916 So I -- my comment would be, first of all, I would agree that there is an issue there that needs to somehow be addressed, but I think the Board understands that -- when on rebasing the whole issue, how to establish the rebasing number will be an issue of contention. 917 Dr. Bauer proposes that one way of addressing it is through monitoring reporting, but I -- it's not clear to me exactly what he means by that. The evidence didn't really seem to go into any great detail on that. 918 And the other item I'd like to comment on is Dr. Bauer suggests that these lost opportunities for the ratepayer, the lost benefits, are not through an affiliate transaction or somehow lost. But I would contest that the productivity or efficiency factors that the -- that were put into the targeted PBR method already capture those efficiencies. 919 And so during the actual PBR process, I don't agree with that comment. The issue is one of rebasing and what should the rebasing number be. 920 And as I've finally also said, I do not agree with the concept of looking back into costs. But I think that's something that will be argued at the 2003 rate case. 921 MR. FARRELL: Thank you, Mr. Pleckaitis. 922 Before Mr. Moran commences, maybe we could have a scheduling update. 923 When I was offering to have the next panel here tomorrow, I -- through an inexcusable oversight -- did not take into account that Mr. Bracken, who is not an employee -- may have a timing conflict, because we were quite confident that he, with the next panel, could get on and off today. So he is not available tomorrow. 924 So what we're proposing is that we -- assuming we finish this panel today, which I hope is a good assumption, that tomorrow - as they say in the theatre business - would be a black day, or a dark day, and we would then resume on Friday with Mr. Stauft. 925 I don't know who else had plans to cross-examine Mr. Stauft, other than me. My current estimate -- I don't want to be held to it -- is probably two to three hours, which would take us until the noon break. 926 So then we considered whether to then bring the next corporate witness panel on to deal with issues 2.3 and 2.4. We could do it one of two ways: We could start it Friday afternoon, or we could resume again on Monday. 927 And I understand from Mr. Moran that the Board was thinking that, perhaps, to start the last panel on Monday. We would be finished with that panel, hopefully, by midday or early into the afternoon. 928 We would hope that we would have all the responses to all of the undertakings available by Monday. We may have some of the ones that are in writing available for distribution on Friday, maybe not in the hearing room, but certainly by fax or whatever. But we think that at this point that some of the responses would either be supplemented by the witnesses resuming and explaining them or, in some cases, responses may be totally oral. So then we considered -- and when I say "we," I don't just mean the company. 929 There's been discussions here in the hearing room over the break -- whether people would be prepared to immediately -- if they had questions, to examine, and that the preference was that people have some time to consider both the pieces of paper they were given and the explanations that may accompany them before starting -- before formulating any follow-up questions they may have. In my view, and based upon my experience, giving people some time to reflect upon what's been said, tends -- not always, but does tend to reduce the amount of follow-up questions. 930 So Mr. Thompson expressed a concern about sitting on Tuesday because he has a prior commitment in Ottawa, and so from the company's point of view, if we can do what I said we could do on Monday, then we would propose to resume on Wednesday for whatever follow-up questions there may be and that would presumably be the last day of the hearing. 931 MS. HALLADAY: Thank you. Do the intervenors have any comments? I appreciate that you've had a general discussion, but any problems with that proposed scheduling? No? Good. Then that proposed scheduling is fine. 932 MR. FARRELL: There have been discussions about an argument schedule that took place off the record, and I may want to revisit that when we see just how much -- how big the record is here in terms of what we might propose. So I would propose to discuss with everyone off the record, perhaps in the early part of next week, what that might look like and hopefully bring forward a consensus suggestion to the Board. 933 MS. HALLADAY: Thank you, Mr. Farrell, we'd appreciate that. 934 MR. FARRELL: I'm just waiting for a note here. May have a moment, Madam Chair. 935 What I was discussing with Ms. Hare, Madam Chairman, is that, I suppose in the most optimistic of scenarios, if the paper is out on Friday and the explanations are satisfactory on Monday, we may not need a Wednesday. But let's book it just in case. 936 MS. HALLADAY: Fair enough. 937 MR. FARRELL: Earlier today I mentioned that the Board hadn't ruled on the objection I had made. We have since had a discussion, we being Mr. Moran, Mr. Thompson and me, and then I have discussed with the witnesses Mr. Thompson's proposal and it is this, in my understanding: that the witnesses are prepared to give an order of magnitude numbers for the fees for both contracts. They don't have the precise numbers with them and that would be sort of subject to check in case recollection is playing tricks on them, on the basis that Mr. Thompson would not then follow up and ask questions on how did you get to that number, what does it represent and so on. So the Board and other parties would have an idea of how large, depending on your perspective, those fees are. 938 So on that basis, I'm prepared to ask the witness panel to disclose the order of magnitude of the fees payable to EI and to EOS under the contract. So therefore we won't need a ruling. 939 MS. HALLADAY: Right. Thank you. 940 MR. BRENNAN: Yes, for the EI contract, the ballpark number is $2.1 million. For the EOS agreement, it's $2.4 million. 941 MR. FARRELL: Is that -- Mr. Thompson was asking me if that's for each year. So could you just explain ... 942 MR. BRENNAN: Those numbers are for the 2002, so they're -- they vary, they increase, I guess, as you go out over the contract term. 943 MR. THOMPSON: Could you just go to the page and give us the order of magnitude for the blanks by year? That's what I was expecting you were going to do. 944 MR. BRENNAN: I don't know how quickly the -- or high they go out in 2007 without having the numbers in front of me, but I can tell you, for example, the EOS - again, subject to check - probably increases in the range of 2.6, $2.7 million by the time you get out to 2007. And on the EI, I believe it's just under -- or around $2.2 million by the time you hit 2004. 945 MR. THOMPSON: So 2.1 to 2.4 under the EI, and 2.4 to 2.6? 946 MR. BRENNAN: 2.1 to 2.2 for EI; 2.4 to 2.7, let's say, for EOS. 947 MR. THOMPSON: Thank you very much. 948 MR. FARRELL: That's it for me. 949 MS. HALLADAY: Thank you, Mr. Farrell. Is that satisfactory to you, Mr. Thompson? 950 MR. THOMPSON: Yes, that's satisfactory to me, thank you. 951 MS. HALLADAY: Thank you. 952 MR. THOMPSON: My understanding, has the company the opportunity, if they want to, subject to checking this, to file the written pages if they wish? 953 MR. FARRELL: We have that option. We may or may not exercise it, but we will -- I will ask Mr. Brennan to check to make sure that his memory isn't playing tricks on him. 954 MS. HALLADAY: The company always has the option of filing additional papers, it seems to me. 955 MR. THOMPSON: Thank you. 956 MS. HALLADAY: Okay. Anything else. All right. Mr. Moran. 957 MR. MORAN: Thank you, Madam Chair. 958 ENBRIDGE CONSUMERS GAS - PANEL 4 - CONTINUED 959 S.McGILL; Previously sworn. 960 J.HOLDER; Previously sworn. 961 F.BRENNAN; Previously sworn. 962 A.PLECKAITIS; Previously sworn. 963 CROSS-EXAMINATION BY MR. MORAN: 964 MR. MORAN: I'd like to start with you, Mr. Pleckaitis. 965 Earlier today, you discussed the two possible approaches that are available to examine affiliate out-sourcing, the two tests I think you referred to. One was the no harm to the ratepayer test, and the other was the benefit to the ratepayer test; do you recall speaking to those? 966 MR. PLECKAITIS: Yes, I was quoting from Dr. Bauer's evidence. 967 MR. MORAN: That's right. And you stated a preference, as I recall, for the no harm to the ratepayer test; right? 968 MR. PLECKAITIS: That is what Dr. Bauer's evidence said, yes. 969 MR. MORAN: Right. But I think you also indicated that that was preferable from your perspective. 970 MR. PLECKAITIS: It was consistent with what I interpret our company's position being and the rules of this Board in terms of how affiliate transactions would be priced in the absence of market pricing. 971 MR. MORAN: Yes. That's the approach the company wants to take on this question. 972 MR. PLECKAITIS: Yes. 973 MR. MORAN: On that basis, then, I take it you'll agree that, in fact, there are two choices to choose from, the one you prefer -- the company prefers, that is, and the benefit to the ratepayer one, which is the other choice; right? There's a choice from the Board's perspective. 974 MR. PLECKAITIS: Well, there's -- I was just quoting from Dr. Bauer's evidence that he indicated -- and there may be other choices out there that he didn't state. 975 I was reading from Dr. Bauer's evidence that Mr. Thompson had referred me to where those were the two choices, and he specifically said in this particular circumstance he preferred the one. And I said that that was the company's preferred manner as well. 976 MR. MORAN: All right. There's at least two choices, and there may be others, but you know of those two. 977 MR. PLECKAITIS: Yes. 978 MR. MORAN: All right. And I take it you'll agree that to the extent that the Board has that choice, then presumably, it's entitled to look at both of those tests; right? 979 MR. PLECKAITIS: Yes. 980 MR. MORAN: And to the extent that it wants to look at the test that examines the benefit to the ratepayers, the Board would have to understand that the cost is to the service provider rather than the service recipient; right? 981 MR. PLECKAITIS: That's correct. And in my evidence yesterday I believe one of the things I said, not in the same context of Dr. Bauer's evidence, is I said the problem that I saw in that type of approach is the complexity of a regulator going into -- whether it's an affiliate or an out-source provider that's a third party, where do you stop? 982 And what is supposed to be a simplification of regulation, in my mind, becomes a very complicated exercise, because even those companies then can out-source to others -- and it becomes a ripple effect. So my view, the simplest approach, and that's the way I interpret the Board, was the no harms to ratepayer approach. 983 MR. MCGILL: I think -- to just try and clarify the question, I think what it boils down to is the interpretation of the affiliate transfer pricing provisions of the Affiliate Relationships Code. 984 And the company views that as being the avoided cost in the case of situations where a market price isn't available. So I indicated, I think yesterday morning, that our standard practice is to determine if we can find comparable market prices, and if those are in existence, that's what we base our affiliate transfer pricing on. If they're not, then we rely on a cost-based price, which is reflective of the costs that we would incur to do that activity in-house. 985 MR. MORAN: Right. And that's, of course, consistent with the no harm to the ratepayer approach; right? 986 MR. MCGILL: That's correct. And it's consistent with the Affiliate Relationships Code. 987 MR. MORAN: Right. So when we look at the Affiliate Relationships Code, and I take it specifically you are referring to section 2.3.3 of -- there is a copy of the code in -- 988 MR. MCGILL: I'm sure I have one here somewhere. 989 MR. MORAN: It's in Exhibit K.4.6, Madam Chair. 990 MR. MCGILL: Yes, I've got it now. 991 MR. MORAN: When you look at 2.3.3, if I understand what you are telling the Board, your interpretation of the requirement that is set out in there is that the cost-based price that's referred to in that provision means the avoided cost to the utility for the out-sourced services. 992 MR. MCGILL: Yes, had the utility undertaken to perform those activities in-house. 993 MR. MORAN: All right. So I'd like, then, to look at the agreement itself to see where that takes us. 994 If you can turn to Exhibit 1, tab 3, schedule 44, which is the EI agency agreement -- sorry, Exhibit I, tab 3, schedule 44. If you turn to page 3 of that agreement. 995 The starting point, I guess, is that the price is the avoided cost to the utility, as you've described it. And if we look at clause 7(a), under the heading "Price Adjustment," it indicates there that: "Either party shall be entitled to propose that the fees described in the Services Schedule be adjusted as of October 1 in each year. In the event that the parties cannot agree upon such an adjustment to the service fees applicable to the Services Schedule within 30 days of the date on which a party is advised of the other party's proposal to adjust the service fees, the conflict resolution procedures set forth in section 16 below may be invoked by either party. At a minimum, the parties agree to review the subject fees and available market-pricing benchmarks every two years and to amend the fees accordingly if market-pricing benchmarks support such amendments." 996 Now, under this clause, it would be open to EI, for example, to say, I want to increase the fees; right? Either party is entitled to propose a change in the fees. 997 MR. BRENNAN: Yes, that's what it says. 998 MR. MORAN: So in the scenario where EI says, I want to increase the fees," then it's open to ECG to say, well, I don't want you to increase the fees; right? That's what it says, too. 999 MR. BRENNAN: Yes, it does. 1000 MR. MORAN: And now we have a conflict so we have to look at the conflict resolution process to see how that works out; right? 1001 MR. BRENNAN: Yes, assuming that you can't come to agreement within the 30 days. 1002 MR. MORAN: And as I understand the conflict resolution process, that's set out in section -- in clause 16 of the contract, based on the reference in section 7. It's entitled "Dispute Resolution." 1003 As I understand the clause 16, it goes through a number of levels, management levels, to see if resolution can be reached; right? 1004 MR. BRENNAN: Yes. 1005 MR. MORAN: And if it goes through all these management levels and resolution has still not been reached, then, as I understand it, it goes to binding arbitration in accordance with the appendix to the agreement. 1006 MR. BRENNAN: Yes, that's correct. 1007 MR. MORAN: And the arbitration procedures are dealt with on page 12 of the agreement, under the heading Exhibit A, "Arbitration Procedures"? 1008 MR. BRENNAN: Yes, that's correct. 1009 MR. MORAN: And as this process works, I guess you go in front of an arbitrator, you make your case, EI makes its case, the arbitrator makes a decision and it's binding on both parties; right? 1010 MR. BRENNAN: Yes. 1011 MR. MORAN: So on this point, under this scenario, we may no longer be talking about the utility's avoided cost for these services; right? We may be talking about something that's higher than that if EI is successful in the arbitration procedure; isn't that fair? 1012 MR. BRENNAN: Yes, potentially. 1013 MR. MORAN: And not only that, but if you look at section 12 in the arbitration procedure, there is a confidentiality requirement. About in the middle of the paragraph, there's a sentence that begins "All matters relating to..." Do you have that? 1014 MR. BRENNAN: Yes, I see that. 1015 MR. MORAN: "All matters relating to, all evidence presented to, all submissions made in the course of, and all documents produced in accordance with the dispute resolution procedure, or an order of the arbitrator, or created in the course of or for the purposes of the arbitration, including any award or interim award by the arbitrator, will be kept confidential and will not be disclosed to any person without prior written consent of all parties to the arbitration except as required to enforce the award or as required by law or as permitted by an order of the arbitrator made pursuant to a motion or application on notice to all parties to the arbitration." 1016 MR. BRENNAN: Yes, that's what it says. 1017 MR. MORAN: All right. How would that work if the Board wanted to look at this material? 1018 MS. HOLDER: As it says, upon written consent between the two parties, we can release that information. I'm not sure that this clause is intended to keep the price confidential in the event that we are asking for rate relief from the Board and need to disclose all our own end costs. 1019 MR. MORAN: Right. But if the price ended up being higher than the avoided costs, then the evidence in front of the arbitration -- in the arbitration process, that talks about why the price is what it is, might be of some interest to the regulator; fair enough? 1020 MS. HOLDER: That's fair, and I think if it was important for the -- this Board to know that information, we can seek relief under this confidentiality agreement from Enbridge Inc.. 1021 MR. MORAN: All right. 1022 MR. PLECKAITIS: But I think it would be very reasonable to expect that if we were to -- we had to defend our costs, which as Ms. Holder had testified before, is -- we still believe it's our full responsibility to defend our costs. 1023 And if the costs have increased beyond the starting point, which was the avoided cost, then we would have to have good explanation and reasons as to why those costs have gone up. 1024 And there could be everything from the -- you know, the circumstances have changed from when they originally started, and we'd have to provide that explanation. 1025 MR. MORAN: All right. 1026 MR. FARRELL: May I make a legal observation. Just to observe that the phrase "as required by law" would presumably include a valid order of the Board requiring disclosure. 1027 MR. MORAN: I wasn't going to put that to this panel, because it is a legal -- 1028 MR. FARRELL: Yeah. I'm prepared to offer that. 1029 MR. BRENNAN: May I make one other observation to you. If you go to page -- the first page of the agency agreement as well. 1030 That's exhibit, again, Exhibit I, tab 3, schedule 44. And under section 2, about a third of the way down that paragraph, it says: "Subject to the latter provisions of this paragraph 2, the service provider agrees to do such things as are necessary to assist the services shipping and complying with the code." 1031 So I would interpret that that they would be willing to provide information for us to be able to meet that code. 1032 MR. MORAN: All right. 1033 So what I've heard you just say, and I've heard Ms. Holder say it a couple of times over the last little while, that, in effect, you expect that EI will do the right thing and cooperate with the process to the extent that the Board needs information; right? 1034 MS. HOLDER: Yes, and I think it's in their best interest as well as our best interest to have that cooperation. 1035 MR. MORAN: Okay. And in that context, I mean, I guess you could always speculate about what you think EI might do or might not do, but they may not necessarily be bound by your view of the world. 1036 Would you have any problem if you were to ask EI to state its position with respect to providing evidence to the Board if it were necessary for the Board's purposes? And by "evidence," I mean witnesses and documents and interrogatory responses as may be required. 1037 MS. HOLDER: We'll undertake -- we'll undertake to raise this -- your concern with Enbridge Inc. and see what they're willing to do. We'll provide that as an undertaking. 1038 MR. MORAN: All right. So again, and to be very specific here, I'd like you to undertake to ask EI, the company, to confirm that, in fact, it will provide evidence as may be required for the Board's regulatory purposes. 1039 I mean, they may say no; they may say yes. I'm just asking you to ask them if they will make -- 1040 MR. FARRELL: We'll ask, but it may not be as open-ended as your question. There may be some caveats. We'll ask the question, and we'll report back on the answer. 1041 MR. MORAN: Thank you. 1042 Now, I'm not going to walk through the same process with EOS agreement -- 1043 MS. HALLADAY: Excuse me. 1044 MR. MORAN: Sorry, we need an undertaking number. 1045 MS. HALLADAY: An undertaking number. 1046 MR. MORAN: I'm going to add one more thing to the undertaking, and then I'll ask for a number. 1047 MS. HALLADAY: Okay, thank you. 1048 MR. MORAN: I won't walk you through the same process with the EOS agreement, but the questions are all the same. There is an arbitration procedure, et cetera, and an opportunity to increase the service fees. 1049 Could you put the same question to EOS as well? 1050 MS. HOLDER: Yes, we will. 1051 MR. MORAN: Madam Chair, that would be Undertaking J.6.7. 1052 UNDERTAKING NO. J.6.7: TO ASK BOTH EI, EOS, AND CUSTOMER WORKS TO CONFIRM THAT IT WILL PROVIDE EVIDENCE AS MAY BE REQUIRED FOR THE BOARD'S REGULATORY PURPOSES 1053 MR. MORAN: I have just one more area to ask you on, and it has to do with Exhibit K.6.2. 1054 MR. FARRELL: I'm sorry. Could you repeat the number. 1055 MR. MORAN: K.6.2, which is a letter from the company to the chair of the Ontario Energy Board dated April 17th, 2001. 1056 As I understand the purpose for filing this letter and the earlier Exhibit K.6.1, another letter, that was to provide evidence that the Board had been advised of the out-sourcing plans of the company; is that correct? 1057 MR. FARRELL: Well, I was the one that made the decision to ask the witnesses for it, and so it was basically to complete the record in the sense that Mr. Thompson had made reference, and, perhaps, someone before him, to these letters. 1058 So rather than having statements on the record as what they might have said, we decided to produce them, so the Board could see what was said. 1059 MR. MORAN: Okay. Thank you. 1060 I'm not sure who the right person is to answer this question, but let me draw your attention to the first two paragraphs: "I would like to advise you of our recent decision to move 12 positions responsible for gas supply and transactional services from Toronto to Calgary. All 12 employees have been offered a position at Enbridge Inc. offices in Calgary but will remain as employees of Enbridge Consumers Gas. Gas supply and transactional services employees deal on a daily basis with natural gas marketers, producers, and shippers, most of whom have Calgary offices. By locating our employees in Calgary, we hope to enhance our effectiveness in dealing with them, thereby providing better service to our utility customers." 1061 It's fair to say that we can't really interpret that as an indication that there's some out-sourcing going on; isn't that fair? 1062 MS. HOLDER: Yes, that's fair. The reason it was written this way is the 12 employees -- by the way, I'll explain why it says 12 and not 13 which our evidence says. There are 12 employees offered positions. There was a thirteenth position that was vacant. So that's why it was 13 positions from ECG. 1063 MR. MORAN: You had indicated that earlier. 1064 MS. HOLDER: The original intent was they would transfer to Calgary and remain as Enbridge Consumers Gas employees only to the end of the first year and -- which -- I'll have to -- because, again, this was referencing fiscal year 2001 impacts. I believe this was filed during ADR for 2001 rate case. So it was just addressing the issue for 2001 which, there was no change or impact on the cost consequences. 1065 MR. MORAN: All right. If you turn over to the other side of that document, the second last paragraph: "In closing, it is our expectation that this move will be as seamless as the move of the gas control and gas nominations functions of Enbridge Consumers Gas to Edmonton which occurred in the fall of 2000. The Board was advised of this move by letter dated 2000/08/01" -- that's the previous exhibit; right? 1066 MS. HOLDER: Yes. 1067 MR. MORAN: And in the paragraph above, there's an indication that you are "in the process of reviewing our organizational structure and will keep you informed of future changes which might have an impact on the 2002 test year rate case." 1068 I take it that the decision to out-source these positions, it obviously must have taken place after this letter, because this letter was indicating something different. 1069 MS. HOLDER: No, I think what this letter was doing was it was referencing -- it was dealing with the issue that we were in ADR around our 2001 rate case and people were going to start hearing that we were moving because we were going to start telling our own employees. So it was important for us to let the -- everybody including the intervenors and this Board understand what our intentions were. 1070 There was going to be no change in the -- who these people reported to or organizationally; it was only going to be a change in physical location. The intention was -- at that time we were still trying to determine the corporate structure for 2002, and I believe that's what Mr. Riedl is referring to. "We are in the process of reviewing our organizational structure and will keep you informed of the future changes." 1071 So we were aware that we wanted to change these to an out-sourcing arrangement or to Enbridge Inc. We hadn't landed on exactly what that was going to be, but we felt we would provide that information in this case. 1072 MR. MORAN: Right. But at the time of this letter, these people were still employees of ECG. 1073 MS. HOLDER: Yes. 1074 MR. MORAN: And that's what the first paragraph says, and then there's an indication that the Board would be kept informed of future changes. Was there a subsequent letter? 1075 MS. HOLDER: I don't believe so, but Mr. Riedl retired so -- 1076 MR. MORAN: It was on his "to do" list. 1077 MS. HOLDER: It might have been, so no. And it might have just been an expectation that this -- the evidence filed in this case was evidence to update the Board. 1078 MR. FARRELL: That was filed on September 25th, 2000. 1079 MR. MORAN: All right. That was -- that was just to clarify the timing of everything. 1080 MS. HOLDER: Yes. 1081 MR. MORAN: Thank you. 1082 Those are all my questions, Madam Chair. 1083 MS. HALLADAY: Thank you, Mr. Moran. 1084 Ms. Spoel. 1085 QUESTIONS FROM THE BOARD: 1086 MS. SPOEL: I just have a couple of questions. 1087 I wonder if you can turn, it's really for clarification, can you turn to the 2001 annual review and financial statements, which is Exhibit I, tab 1 schedule 1 appendix E. You may not actually need to turn it up; I think the questions are fairly straightforward. 1088 On page 32 with related-party transactions, can I take it that in some cases the money is flowing to the Consumers Gas Company Ltd. and in some cases it's flowing out from Consumers Gas Company Ltd., even those these numbers are all expressed as positive numbers? 1089 MS. HOLDER: Yes. In the case of Gaz Affaire, for instance, Gaz Affaire pays to Enbridge Consumers Gas pursuant to rate schedule 200 or rate 200, so that would be monies flowing from Gaz Affaire to Enbridge Consumers Gas. 1090 MS. SPOEL: And then I presume that the money that flows is from Consumers Gas Company Ltd. to Enbridge Services Inc., for example, for the original consulting services. 1091 MS. HOLDER: Yes. We believe from the money that's flowing from Enbridge Consumers Gas to Enbridge Services Inc., for example, would be DSM initiatives where we pay contractors such as Enbridge Services Inc. or other contractors for DSM-related services or consulting. 1092 MS. SPOEL: So these are simply numbers for information purposes as opposed to indicating what the effect on the aggregate flows in and out are? 1093 MS. HOLDER: Yes, I believe this is an accounting requirement, that we identify our related party transactions. 1094 MS. SPOEL: I also had a question from this document at page 38, which outlines your corporate governance of the Consumers Gas Company Limited, and I note that the -- there are three independent directors and three directors who are appointed by Enbridge Inc.; is that correct? 1095 MS. HOLDER: Yes. 1096 MS. SPOEL: And can I take it that Dr. Cook-Bennett and Mr. or Ms. Fatt are both independent directors, as is Mr. Tory? 1097 MS. HOLDER: Yes. 1098 MS. SPOEL: And then Mr. Trustwell, who sits on the audit, finance, and risk committee is an Enbridge Inc. appointed director? 1099 MS. HOLDER: Yes. 1100 MS. SPOEL: What sort of advice -- there's a notation here that while the board makes independent decisions, it also receives recommendations from committees of the Enbridge board of directors. I take it that's the Enbridge Inc. board of directors? 1101 MS. HOLDER: Yes, it would be. 1102 MS. SPOEL: Who act in an advisory capacity. What sorts of recommendations, for example, would they make on the human resources and compensation committee? Would they be advising the board of Enbridge Consumers Gas as to what compensation and bonuses should be received by executives of Enbridge Consumers Gas? 1103 MS. HOLDER: That could be one instance. I mean, I'm not intimately familiar with some of the -- some of the advice they would give, but pensions and benefits would be another one. There are -- some of our employees are under the Enbridge pension and benefit plan. There has been an attempt by Enbridge to harmonize our compensation and benefits package throughout the Enbridge groups of companies or businesses. So they would be offering advice around not just the salaries and bonuses, but also pensions and benefits. 1104 MS. SPOEL: If I could move to the Affiliate Relationships Code, which we looked at a few minutes ago. Again, section 2.3.3, which discusses the transfer of pricing. 1105 I guess, Mr. Pleckaitis, this question may be for you. I understand that your evidence -- that the company's view is that cost-based price is the price that it would have cost, or the avoided cost to the utility in providing the service that has been out-sourced. I'm wondering in that case why there would be two possible return components in -- or if you have any view as to why the return component on invested capital could be either the higher of the utility's approved rate of return or the bank prime rate, if that were higher? What would the purpose of having potentially a different possible rate of return be if it was the avoided cost to the utility? 1106 MR. MCGILL: I believe it's because the intent was that the cost-based price would be the avoided cost of the utility, and it's the utility rate of return that is used as a benchmark with respect to recovering the cost of using assets that the utility may have employed in conducting the function itself. 1107 MS. SPOEL: And then what would be the purpose of having an alternative of the bank prime rate if that were the case? 1108 MR. MCGILL: I think that would be to make sure that either the ratepayers or the stakeholders were being compensated properly for the use of those assets. 1109 MS. SPOEL: That's it for me. Thank you. 1110 MS. HALLADAY: Thank you, Ms. -- 1111 MR. MCGILL: One -- just one further point is that the transfer pricing provisions would apply both ways. So that if the utility was providing a service to an affiliate, you would want to make sure that that transfer price was reflective of the full cost of the utility providing that service to the affiliate. And that's why, I think, there's two references to the rate of return. 1112 MS. HALLADAY: Thank you, Ms. Spoel. 1113 Mr. Betts? 1114 MR. BETTS: First, Mr. McGill, with respect to Customer Works, I take you back to that for a minute, you -- do you know whether they are providing the services that they provide to ECG to any other groups? 1115 MR. MCGILL: Yes, they are. They are providing a similar package of services to both Enbridge Services Inc., which was formerly an affiliate company of ECG, and they're also providing a similar package of services to B.C. Gas Utilities. And they also provide similar services, again, to Enbridge Gas New Brunswick and to a more limited extent to Gaz Affaire. 1116 MR. BETTS: Are there any of those other relationships that would concern you or the company in any way regarding proprietary information? 1117 MR. MCGILL: Yes, there is a concern, and one of the things that we have built into the Customer Works agreement by way of reference, and it will be in the package of materials I file with respect to yesterday's undertakings, and that is a thing that we call the confidential data access protocol. 1118 And what that is is a document that stipulates who is the owner of the data that is used to provide services to ECG and what Customer Works can and cannot do with that information with respect to providing services to us. 1119 MR. BETTS: So you found ways of overcoming concerns about having a single party dealing with competitors? 1120 MR. MCGILL: Yes, that's correct. 1121 MR. BETTS: Okay. Thank you. 1122 If I can just continue along the Customer Works line, and I believe you indicated that this also was not tendered. I believe you did indicate that there was some research done to make sure that the values were reasonable. 1123 MR. MCGILL: Yes, that's right. 1124 MR. BETTS: And Ms. Holder indicated earlier when she was asked about why she -- why the company didn't tender one particular out-sourcing, she gave us some reasons and I wonder whether you -- I hope you haven't done this already, if you have, forgive me, but could you express the reasons for not requesting tenders on this? 1125 MR. MCGILL: Well, at the time we launched ECS, we did have a considerable amount of benchmarking material with respect to market prices. We had done a considerable amount of work beforehand, particularly in regard to justifying our customer information systems expenses, so we felt that we had a very good basis of information to move forward with respect to pricing those activities, both at an individual service basis and in aggregate. So we were confident that we had a good set of benchmarks to go forward with, to the extent that we could compare elements of the services with what other companies were paying for similar packages of services. 1126 MR. BETTS: Could you go so far as to say that you believe that that was the best possible price for that service? 1127 MR. MCGILL: I think, viewed as an overall package of services, I believe we were getting a fair price and probably the best price we could have gotten under the circumstances, yes. 1128 MR. BETTS: Mr. Pleckaitis, you were indicating yesterday, maybe it was today, all the days blend together, forgive me -- but that basically, all the ratepayers should be indifferent in terms of out-sourcing, whether that source is an affiliate or an arms-length company. And I think on pure logic, you were stating that if the services are meeting the grade and if the pricing is right, then basically that should satisfy those needs. I wonder, have you concerned yourself at all with the issue of perception that a ratepayer may have to a non-arms-length relationship and whether that creates any additional requirements or responsibilities to the parties to ensure that they are satisfied with the transaction? 1129 MR. PLECKAITIS: Yes. I think that's a very fair question to ask and the -- it's one of the reasons that I believe that we built provisions into these arrangements to pursue a market-based price wherever possible, where one is available. Because ultimately, we have to be able to satisfy our customers that we are getting -- the service that we are getting from our affiliate is at a competitive price. 1130 The intention, ultimately, is to ensure that we hold our affiliates accountable to meeting that test as a market develops. As Ms. Holder indicated, in the area of gas supply and gas control, the problem is that you can't, today, in today's market, at the time we did that, go out and get that an apples-to-apples comparison for whatever it was they were providing. But we believe over time that there will be comparative service providers that will provide similar services as the energy industry in North America changes. And that's why we have provisions in this contract that will require the affiliate - and it's written right into the contract - to seek out and provide competitive benchmarking that will allow us to satisfy that very test that you are asking for. 1131 MR. BETTS: In some of the contracts or agreements that we've reviewed, certainly the opportunity for investigating market pricing hasn't been there or we haven't got evidence that it was pursued, but I take -- did receive evidence indicating that basically it was determined that, because of the uniqueness of the arrangement, that it was important to negotiate an arrangement rather than go out on a competitive tender? In that kind of a process, do you feel any additional need for absent transparency, I guess, in the transaction? 1132 MR. PLECKAITIS: Well, first of all, I think you are correct. I tend to view those circumstances, hopefully, as more short-term as compared to long-term in nature, and that market-based pricing for competitors will be available long term. In the short term, I think it becomes a matter of what do we believe, and I can from -- our interpretation of the Board's decision in terms of how the utility should deal with affiliate transactions is that the utility needs to be able to demonstrate that where it is out-sourcing that service to its affiliate that the costs should be no greater than the cost that it would have incurred had those services been provided. It's a simple test. It's a test that allows the regular full access to the records of the utility to be able to say, these were your costs before, now -- what you're paying should be no greater. 1133 As I said before, we have tried to structure the agreement to allow the regulator to have the same access to information that they would have within the utility, but we get concerned if the transparency means getting into other areas, competitive areas of our affiliate's business that were never intended to be within the realm of regulatory scrutiny. 1134 MR. MCGILL: If I could just add something, this might help you understand. With respect to ECS and the customer care services that have transferred over to Customer Works more recently, we've gone out, we've -- through consultants, we have gone through an anonymous RFP process with respect to that, that package of services, and based on that we have got some reassurance that what we're paying is a reasonable price. 1135 We also participate in a couple of very large industry-wide benchmarking studies every year that help us validate our costs; one being the AGA EEI customer-care survey, and another one that is run by an organization called PA Consulting. And we rely on the information that we gather through those processes to help validate our costs. So we have a number of things that we are undertaking to try to make sure that what we're paying is reasonable given the alternatives are out there and what other companies are facing in the way of costs with respect to the same package of services. 1136 MR. BETTS: Thank you. 1137 And, Mr. Pleckaitis, again, on -- you brought up the point of your hope that the -- this is a short-term situation because there seems to be a lack of market-based information there. What do you see happening that's going to change the availability of the market-based pricing if nobody seems to be offering contracts out there? Or are others offering -- have I presumed that there are not contract offerings out there? 1138 MR. PLECKAITIS: Well, I think that as I said before, the whole nature of the energy industry in the world and North America is changing and the consolidation is going on and the type of service offering that Enbridge Inc. and EOS is providing, ECG today I believe will become more and more available on a competitive basis, going forward. 1139 How the industry actually shakes out, we don't know. But, again, as contemplated by the agreements, I mean the fact that we have said in our agreements that we require the affiliate, obviously in cooperation and working with us, to find market-based pricing alternatives, we anticipate that but we don't have perfect crystal balls. And at the end of the day, if a market-based comparator is not available, as Mr. McGill had indicated, there are other alternatives available that hopefully can satisfy the Board and others that the pricing that we are paying is fair given the circumstances, such as using consultants to assess the costs. 1140 MR. MCGILL: Well, another thing to bear in mind is that out-sourcing, in general, has become more and more prevalent over the last ten years; for example, with respect to call centres, 20 years ago, it was probably very uncommon for a company to contract out its call centre. If you called the Royal Bank, you probably got somebody who worked for the Royal Bank. But today when you call the Royal Bank, our company, Rogers TV, you could be getting somebody who's in Arkansas, New Orleans, in Thorold, and they are completely removed from the company they are providing the service to. I guess because it's part of my job, that's one of the things I ask. Whenever I phone a party that I deal with, whether it's a bank or whatever, I ask the person I'm talking to where they are because I'm curious to find out where that call centre is, because I'm involved in that. 1141 So it's very -- that's an example of something that 20 years ago was unheard of, to out-source that task, but today it's very, very common. And I think as out-sourcing has become a more common feature of business, in general, there have been more and more benchmarks available to validate the pricing of this kind of transaction. 1142 MS. HOLDER: I just want to add one comment more specific to the question you had, whether other companies are out-sourcing gas supply-type businesses. 1143 The one situation I'm aware of, of the three companies that I have personally spoken to wanting to do this business for us, their arrangements were somewhat different. Actually, they were even less transparent in that typically what -- well, I don't want to use the word "Enron." But what the Enrons of the world at the time were looking for at the time they would pay for was they would pay to the utility, I'll say a number, $5 million a year; we would hand over all our assets and they say, we'll deliver our gas to your city gate, to you for a market price. And the only thing you knew was going on in that transaction was the $5 million and the price of gas at the city gate. 1144 So we didn't choose to go with that model, we chose the agency agreement with our own affiliate. But that's the type of model that was out there a couple of years ago. 1145 MR. BETTS: Thank you. 1146 One other point, I think it just came out of your evidence right now, Mr. Pleckaitis, and that was the point that you've asked your affiliates to research basically competitive pricing to provide that information to you. Did I understand that correctly? 1147 MR. PLECKAITIS: In -- I was referring to the price adjustment clause of the EI contract, 7(a), and it goes: "At a minimum, the parties agree to review the subject fees and available market-pricing benchmarks every two years." 1148 So to me, that's an imposition on -- well, both parties, but on us and the affiliate, and the affiliate, this is going to be -- that is their core business now in terms of that, and saying we're holding you accountable to reach out into the marketplace and find out what benchmarking prices exist and bring those back to us for us to review and use that, compare that to what we are paying to satisfy us that we are getting a fair price; and if not, seek an adjustment. 1149 MR. BETTS: I think I was more comfortable when you mentioned it was a responsibility of both of you, in the sense that you do not feel as though it's probably more appropriate for ECG to undertake that on an independent basis so you can properly evaluate that proposal? 1150 MR. PLECKAITIS: I see your point. At the end of the day, I would view that ECG's management responsibility would be to satisfy ourselves that we've got all of the information we need to properly make a determination on that matter, and it was just the matter of the late work of assembling that data, and that I believe that the service provider, who is an expert in this area and is an affiliate, and, therefore, I think we have fairly good transparency in terms of the type of people we're dealing with, has done a thorough job in examining the market. 1151 In the event that we feel that they have not, we would push it more ourselves. 1152 MR. BETTS: I'll just ask you this one: Do you appreciate that your knowledge of parties that you're dealing with and that term "transparency" may be very different from those of your ratepayers? 1153 MR. PLECKAITIS: Yes. 1154 MR. BETTS: Thank you. 1155 If I could just -- let me just look here for a second. You've answered a lot of my questions in that little round. Thank you. 1156 Ms. Holder, I'd like to address a couple to you, if I could. First of all, we've talked about -- I've talked about, I think, the need for transparency, which is one of our primary objectives here at the Board, in the transactions that affect ratepayers. And we've also talked, or I heard you speak of the fact, that in all of the -- most of, if not all of the transactions that go on, you recognize that at any given time there may be a retrospective analysis in a regulatory environment like this of the decisions that you make on behalf of the ratepayers. 1157 I think I'm correct that you -- 1158 MS. HOLDER: That's fair. 1159 MR. BETTS: Thank you. 1160 Based on that, I think I'm somewhat surprised at the number of decisions that apparently have been made at relatively high levels between ECG and EI and EOS that seem to lack a paper trail in light of, number one, the need for transparency, and, number two, the prospects of having to explain your decisions to this Board. 1161 Can you tell us where that kind of stands. 1162 MS. HOLDER: I think the lack of paper trail in this situation stems from the fact that we're trying to dig back into the history of eight years, if you're referring to, for example, Alliance and Vector, and for the EOS, we're still going back three and four years in history, and people have changed. 1163 So it's not that the paper trail doesn't exist, it's just we're struggling to find it. 1164 I think -- I've been very pleased with what I've managed to have delivered here over the last two days from my office, going through some -- we retrieved some boxes that weren't necessarily my historic records, but we retrieved some boxes from our records. 1165 So there is a paper trail. There is, you know -- clearly, we can show when this was addressed with the executive team of ECG, and when these issues were addressed with the executive of Enbridge Inc. 1166 So there is a paper trail there. It's just that we didn't -- those questions didn't come to us in a form that we realized we needed to dig that up prior to getting here, and so it's been a struggle going back into other people's records. 1167 MR. BETTS: Do you also appreciate that the "when" question is supplemented by questions like "why" and "how" and "what," that it's -- I think if the only paper trail that was required was one that was required to answer the question "when," then we're talking about a calendar, and we're not talking about reports and submissions and so on. 1168 But I think, again, pursuing the need for transparency, I'm just wondering whether you wouldn't feel it would be wise to keep a paper trail that explained the decisions, rather than just recorded the chronology of the decisions. 1169 MS. HOLDER: Sorry, if I left you with the impression it was just the chronological order, that was not right on my part or was not my intention. 1170 We do have the decision-making trail and the analysis and the rationale behind that. And I think I've referred to one document, which I -- of course, I have some concerns about, because of some of the sensitivity of the material, but we do have the logic behind our decisions and the information, yes. 1171 MR. PLECKAITIS: Mr. Betts, I think -- the other part I'd like to add to that is my experience with Enbridge Consumers Gas is that the company listens very carefully to Board decisions. So it does not -- if the Board makes a decision on a matter and reprimands or scolds or provides direction to the utility for how it should proceed in future, it takes that very seriously and learns from that and, clearly, I believe, would follow that practice in the future. 1172 The history here, however, with respect to out-sourcing to affiliates, we've have a long history of where we've done that, and we also have Board procedures on transfer pricing. 1173 And as per that decision that I read earlier in the evidence where I indicated that the Board was satisfied that we should not be precluded from out-sourcing to affiliates as long as it's done in a certain matter, and that is that, basically, the customer is not harmed by that process. 1174 So it's that experience of history, of how we've done it in the past, a Board protocol that established the mechanism as to how the services will be provided, and recent Board decisions in terms of not saying that the utility shouldn't do that, I think that has guided our practices in these decisions. 1175 And so the evidence that we presented here is really to support -- or that we're talking about, the cost and the quality of service, not one as to what's the company's rationale and strategy and thinking behind why you've done that. 1176 So I think that context is important, at least, to understand. 1177 MR. BETTS: Fair enough. 1178 The only one I haven't posed a question to is Mr. Brennan. I'm not going to let you off the hook at this point. 1179 Mr. Brennan, you indicated earlier -- I think it was a question of Mr. Thompson's, and it was regarding protecting the interests of the ratepayer in some of the -- and I believe it was gas supply questions that might arise. Your response -- and it really isn't important to know what the question was, but your response was -- I think it was, Well, who's going to protect the ratepayer? And your response was, I am. 1180 And quite frankly, I was comforted by that, because I gained a great deal of respect for the entire panel and all those I've heard so far and, particularly, your commitment to doing your job right. 1181 But it did create another worry for me, and I'd like you to try and address it for me, and that is when Mr. Brennan is not there for any reason, it appears to me that ECG has unfortunately diluted its base of expertise in this area. 1182 What does the future hold? Is there another Mr. Brennan in the sidelines? How do you comfort the consumer there that they will be protected into the future? 1183 MR. BRENNAN: I assume you're not talking about, for example, if I'm required to make a decision on some bids that are coming back in any particular time. I think you're talking more in general, for example, if I decide to leave the company or whatever. Is that what -- or take on a different position; is that what you're -- 1184 MR. BETTS: That's right. You, obviously, have a level of expertise that allows you to assist the company in managing the out-sourced services and giving them a comfort level that things are under control. 1185 If you're not there, where do they gather that expertise and comfort? 1186 MR. BRENNAN: Well, I think there are people within the utility. We have a process within the utility that looks at bringing different people throughout the organization, getting the experience where we see individuals wanting to get into different types of businesses and making sure that they have the experience and the training to be able to carry on those functions. 1187 We want to make sure -- I mean, that's certainly a concern of ours is to make sure that it's not just one person who can look after any particular function, that there's always some process in place to make sure that those people are trained and able to step in if the case may be. 1188 MS. HOLDER: Just to -- sorry, I will just add to that. It relates somewhat to Ms. Spoel's question around what guidance does Enbridge provide to the board of Enbridge Consumers Gas, and we were talking about human relations issues. 1189 Enbridge, as well as Enbridge Consumers Gas, is very diligent on succession and planning process, which I think is what Frank has been alluding -- or Mr. Brennan has been alluding to. 1190 And it is a very formalized process. We have identified individuals who we believe can replace Mr. Brennan in the event that he wins millions of dollars -- 1191 MR. BRENNAN: I can only wish. 1192 MS. HOLDER: And by the way, those succession plans, especially for critical roles in our organization, include detailed development plans so that we ensure that those who are identified to be Mr. Brennan's successor are getting the appropriate development, such that they can replace Mr. Brennan. 1193 MR. BETTS: Thank you. That's all my questions. 1194 MS. HALLADAY: Thank you, Mr. Betts. 1195 It's always difficult to bat cleanup, and I guess you are surprised that I may even have any questions to ask after all this, but I've got a couple just to help clarify my thoughts. And if they've been asked and answered previously over the past two days, I do apologize. 1196 My first question deals with the general principle that the out-sourcing to affiliates, one issue is the cost consequences, and we don't need to worry about those cost consequences because of the targeted O&M PBR; is that correct? 1197 MS. HOLDER: For 2002, yes. 1198 MS. HALLADAY: For 2002; that's right. Okay. 1199 There may be the other side of rate-making, which is the rate base side, and my question is: What has been done, as far as the rate base side, to account for the affiliate out-sourcing? 1200 MS. HOLDER: I think I can attempt this. 1201 With respect to Enbridge Inc., the -- there was no impact on rate base by moving that function to Calgary. There was no -- there was no -- there was nothing in rate base that was moved. 1202 With respect to Enbridge Operational Services in Edmonton, at the time we made the move, the SCADA system within the utility had already fully depreciated, so by moving it out had zero rate base implications. And in actual fact, Enbridge or EOS invested the capital and are paying for that capital. We did not adjust rate base up to reflect that capital. 1203 So what I'm really trying to say is had we continued to keep the gas control functions within the utility, we would have replaced the SCADA system, and we would have been before this Board asking for an increase in rate base to reflect the cost of that SCADA system. 1204 So the costs actually are lower to the ratepayers in 2001 and 2002, because we did not invest that capital. 1205 MS. HALLADAY: So that was my next question. There aren't any stranded assets as a result of the out-sourcing and, in particular, the SCADA system. 1206 MS. HOLDER: That's correct. 1207 MS. HALLADAY: Mr. Pleckaitis, I always find it's interesting when witnesses quote decisions back that I've written, and your interpretation of what I said in mine might be different. 1208 I don't think that the Board was specifically saying we endorsed out-sourcing. What happened, as you recall, is that the 1999-0001 decision came out in December, and then we were told in January that the decision to out-source had been made. 1209 Mr. Thompson and the other intervenors were not particularly happy with that decision, and that led to the motion to rehear. 1210 I think that you'll find that that -- that's the history of it; not that we were endorsing out-sourcing and telling the company to go forward and out-source, it was in response to an out-sourcing initiative that hadn't been disclosed to the Board -- which is my next question, and that is, with respect to the EOS out-sourcing, I guess I'm concerned because in the decisions -- in the hearings before the decision was made, problems with the SCADA system, the problems with the talent pool of employees, that you were having problems, in fact, performing these EOS functions or it would seem as if there were some problems, had these ever been brought to the Board? Had these ever been addressed in any previous rate cases that this was a problem that was coming up and therefore you were going to have to do something about it? 1211 MS. HOLDER: I will deal with EOS first. 1212 It was not brought to the Board that we were having problems with the SCADA system because the SCADA system had, as I just said, outrun its useful life. Typically, you expect a SCADA system to run for five years. We had maintained it for, I believe it was seven or eight years. So we were in the process of looking for a new SCADA system. We actually had gone to tender for a new SCADA system. So that was in the works. 1213 Had we not chose to out-source, we would have been before the Board asking for the capital to replace the SCADA system. So we were working, I believe, on an appropriate plan in order to address our concerns with the SCADA system. 1214 With regards to the skill set, that was something that I think we've all sort of struggled with, and I think what happened in the industry, which maybe we should have had better foresight on, is that with the introduction of potential deregulation in the electricity business and privatization of Ontario Hydro, there was an increased activity in our marketplace for skill sets that we had primarily in the regulatory front and primarily in the gas supply front, as a lot of MEUs were wanting to get into the gas supply business. So we were seeing a draw on our resources. 1215 We were also, at the same time, seeing many of us mature to a point where it was time to move on. If you look at the individuals that have been before this Board on gas supply matters over the last five, six years, we'd all been in the business for a long time. We were all utility-grown people, to put it the best way. We all got our skill set from being within the utility and growing up in the utility business. So we were losing talent to the marketplace, as well as the industry was changing dramatically from an upstream perspective. And it's harder to get that talent grown inside that we were going to need on a go-forward basis. 1216 So that was some of our logic. I know I had a bit of discussion with Mr. Thompson around, well, all you did was train those people out there. If you were to look at the CVs of the top seven people in Calgary, they would shame many of us who are at this table as far as their upstream knowledge and their ability to run this type of business. They really do have a much more diverse background in the gas industry than the utility-grown background. And I'm not meaning to slight Mr. Brennan here but -- or myself for that matter. 1217 MS. HALLADAY: I guess it's difficult for Toronto-centric regulators to understand why you would have trouble attracting talent to Toronto. We've heard that Union Gas has trouble attracting talent to Chatham, and while we have some sympathy for that, Toronto seems to be a bit of a different proposition from our perspective. 1218 I guess my next question is, presumably, you could always buy talent. If you were willing to pay for the talent, you could always buy talent. But that talent that you would buy, that increased price you would have to pay for that talent would come under your targeted O&M PBR. 1219 MS. HOLDER: That's true, but that wasn't a driving force. As a matter of fact, we -- the employees who moved from ECG to Enbridge into a lower cost of living of either Calgary or Edmonton did have pay increases because you do have to pay more for this sort of talent than we were trying to pay within Ontario. So you're right, for the right money you probably could have bought these resources -- but then again, you still won't attract the same individuals as I believe you do in the hub of this industry. 1220 MS. HALLADAY: Thank you. 1221 I guess to follow up on a question Mr. Betts was asking, and I guess that's a question that concerns whether, because of these out-sourcing relationships and because the talent is going from ECG, we've had elimination of positions that were previously done by ECG employees; and the expertise were there and these positions have all been eliminated, whether ECG in the future will become captive to EI for these services, and to EOS? If things don't work out for whatever reason with EI, or there's problems with EI, you have just totally depleted your resources in gas supply and in operations within ECG, except for Mr. Brennan, of course. 1222 MR. PLECKAITIS: Maybe I can at least partially try to answer that because EI and EOS, at least those contractual relationships will report to me, ultimately, going forward. 1223 First of all, the contract contemplates that at some point in time, there could be a parting of ways, and we've gone through some of the provisions in the contract that would allow, through notice provisions, whatever, that eventually Enbridge or Enbridge Operational Services no longer provides that service. 1224 I've said earlier that I believe, though I don't have a perfect foresight in terms of how the energy market will develop, I believe that there will be competitive alternatives to these services, going forward. I believe other companies will establish gas control, gas supply service arrangements where they can provide services to other utilities and other companies, just the way EOS and EI potentially may evolve in that being a core part of their business. But that may not happen and we may, at some point in time, have to terminate the relationship with Enbridge Inc.. And I believe that given that these skill sets are not just resident within ECG, they reside in other companies, that if necessary, we can go acquire those skill sets from other companies as well, one of them being Enbridge Inc., and repatriate those skills back from Enbridge Inc. and hire them as ECG employees. 1225 So it's not something, obviously, that we would look forward to because we've gone down a certain path, but that option is always available to us. 1226 MS. HALLADAY: But this out-sourcing arrangement has made it more difficult to do that, then. 1227 MR. PLECKAITIS: But I believe that the ball has been set in motion, or the path of energy deregulation has been set in motion years ago, that inevitably is leading to the downsizing of the regulated utilities. As Mr. Thompson took us through the evolution on what's happened in the Ontario marketplace, the general pressure was on the regulated utility to get out of activities, number 1, that were not considered to be core monopoly businesses; second, pressure being a desire to increase sufficiencies within the utility to make those utilities as competitive as possible and to simplify the regulatory process - and that's the whole concept of performance-based regulation; and then allowing utilities freedom to act in -- as a non-regulated company would, to achieve by still maintaining its targets, to do whatever it felt was appropriate but still meeting its performance standards to drive those costs down as low as possible. And we've acted in what we thought was an appropriate fashion. 1228 MS. HALLADAY: Thank you. 1229 I've heard about this convergence of possible functions, out-sourcing functions for different utilities. I was also part of the painful case of a CIS situation, and in that, as Mr. McGill will recall with great fondness, the evidence there appeared to be that even for CIS functions, no two utilities in the hemisphere, or at least in North America, provided exactly the same functions and therefore they weren't interchangeable. It wasn't an expungable commodity even for CIS at the time, number 1; and number 2, Mr. McGill can update me on the great plans that Enbridge Commercial Services had to use, the systems it had, and out-source it and provide it for other utilities. 1230 So I guess my question is: Mr. McGill, were you successful in Enbridge Commercial Services in providing these services to arm's length third parties? 1231 MR. MCGILL: Well -- 1232 MS. HALLADAY: And then we can deal with the whole issue about how interchangeable these services are going to be in the future. 1233 MR. MCGILL: Well, with respect to CIS specifically, at the moment, Customer Works is using the CIS application under licence from Enbridge Consumers Services to provide the CIS services to ECG, Enbridge Services Inc. and Gaz Affaire. So the application is up, it's running, it's doing what it's supposed to do. 1234 MS. HALLADAY: That's good to hear. 1235 MS. HOLDER: That's one item. 1236 With respect to trying to compare one utility to the other, where it becomes difficult -- it's not so much overall, because overall, most utilities perform the same functions and deliver the same package of service to the end customer. Where it gets difficult is when you go and compare input by input across utilities, because from what we've seen, every company relies on different mixes of technology and manual labour and different processes. We operate under different regulatory regimes. Some are under cost of service; some are under incentive regulation; some have large proportions of direct purchase customers, as we do here, where other jurisdictions, they still have very few or none at all. And all those things impact the cost of operating those businesses. 1237 So, like you say, all those things have to be factored in when you try to compare the costs of one company against the other. And then it becomes even more difficult when you try to compare the costs associated with a specific input, say, like a CIS, across a number of different companies. 1238 But overall, if you look at two companies that are operating in the same jurisdiction, with the same kind of customer mix, with the same proportion of direct purchase customers, then you can start to build at least a basis of comparison at a high level. 1239 MS. HALLADAY: Right. I guess that then goes to the question I guess Mr. Betts and others have been asking, and that deals with the pricing and the ability to benchmark if, in fact, these functions are different in each utility. And especially, I understand for customer care that a call centre is a call centre; sending a bill is sending a bill. These seem to be functions that are more readily benchmarked and you were able to do that. However, gas supply and operating pipelines, it doesn't seem to me that there's going to be that number of utilities out there in a competitive market, number 1, to be able to benchmark; number 2, performing the same types of services; and number 3, that aren't captive by other, for example, distribution utilities. 1240 Ms. Holder, you look like you want to say something here. 1241 MS. HOLDER: There's -- however, for regulated utilities, there is benchmark material or benchmark studies done on cost to service customer. So though we may not have a competitive measure of the cost to provide gas supply and gas control, it is possible to get that sort of information from other utilities. 1242 MS. HALLADAY: Mr. Pleckaitis. 1243 MR. PLECKAITIS: Yes, and I would add to that I think the nature of our business is changing as well, and probably not different than other businesses that are going through similar transformation processes. 1244 If you can imagine the questions that you're asking us, I'm sure you know similar questions are being asked to other utilities in other jurisdictions, you know, questions about benchmarking and how are you going to be able to measure your -- that your affiliate transaction is at a fair price. So I think that again, North America, worldwide, these types of issues are -- at different places are coming up. 1245 And so first of all, that will in itself drive an interest between companies all over looking for comparative benchmarking. What would the pricing of a similar service be by another utility? 1246 And two, I think the -- where at one time all utilities tended to do things almost their own -- their own way of doing things, there is, again through the integration of the energy industry, certainly in North America, more commonality in approach, common standards. That in itself is being driven by consolidation and service providers saying -- I can provide -- there are efficiencies, as long as you allow technology to be leveraged around -- across multiple companies, which that, in itself, forces commonality of practices and standards, which will make it easier to see transparency in benchmarking and market pricing. 1247 MS. HALLADAY: But I'm sure you can appreciate the concerns of the Board at this time with respect to this contract -- with these contracts, with this out-sourcing proposal -- not proposal. I have been told it's not a proposal; it's been done. That the concerns we've got -- I mean, if it isn't a truly competitive situation for providing these services that you have out-sourced to your parent, truly competitive -- not that other people can do it -- I mean, it could be other people could do it at an extremely high price as well. And the benchmark could, in fact, be too high, unless there really is competition. 1248 And so far, we understand that there is not really a competitive market, truly competitive market in the sense you can go out and tender or that there's a lot of people providing these services right now. That's the problem we've got as far as the pricing is concerned, and just under the hope that one may develop in the future. 1249 There's another question, and that is, How will you price new out-source services that were never performed by the utility if, in fact, it is based on the utility's avoided costs? 1250 MS. HOLDER: Out -- sorry, out-source services that we've never performed? 1251 MS. HALLADAY: Right. I mean, at one time there were no computers, and, therefore, those services were never performed on a going-forward basis. Presumably, services will develop, the market will develop, other things will happen. 1252 MR. PLECKAITIS: So just so I understand, the for-example is something changes, say in the operational service side, and all of a sudden there is something new that's required that wasn't required before the business was out-sourced? That type of example? 1253 MS. HALLADAY: Right. 1254 MR. PLECKAITIS: So I think that was probably an area that was -- we were taken through earlier. There are provisions in the contract, first of all, that allow, all of a sudden, something that was not contemplated by the service provider or the service recipient is now needed. There are provisions to allow the party, either party, to bring forward a request to change or amend the contract, the price, or the context of the agreement, and a process to negotiate that if necessary, and, as you saw, arbitrate that if necessary. 1255 And from a regulated company's perspective, what I said was that it would be then incumbent on us to be able to demonstrate to this Board -- if the prices changed as a result of something like that, we would need to demonstrate why and how that price change was appropriate. 1256 MS. HALLADAY: I guess it was more in relation to your interpretation of the Affiliates Relationships Code. If it's always costs avoided -- if the pricing is avoided cost rather than the cost of the party providing the service that's the basis. 1257 MR. MCGILL: Well, I think under those kind of circumstances, if it was something -- some kind of brand new activity that we had never done before, we would have to determine what the best way of conducting that bit of business would be, whether it would be to try and do it internally or to find someone outside to do it for us. 1258 In some cases, there would probably be market prices for that kind of service, in other cases, there wouldn't. And then we'd be back to looking at the Affiliate Code for guidance to determine how we should price that if, indeed, we were to end up acquiring the service from an affiliate. 1259 MS. HALLADAY: Thank you. 1260 I guess my final questions just deals with the contracts and what I would call enforcement and remedies. You are asking the Board and the intervenors and, ultimately, the ratepayers to trust you that you have set up contractual provisions sufficient to protect us from the potential of these terrible things happening using affiliate transactions, EI trading on its own account, the whole issue of, in fact, profits moving outside being manipulated around so that, in fact, the efficiencies are gained in the unregulated utility and the ratepayer ends up paying the full shot for the unregulated utility getting efficiencies without the ratepayer gaining those advantages. 1261 These are some of the issues that have been brought up over the past few days. I guess my question is: What protocols or what processes has Enbridge Consumers Gas internally put in place in order to -- I'm not thinking of the right word -- but to enforce the contract? In other words, to monitor the contract to make sure that Enbridge Inc. is, in fact, performing its obligations under the contract, to audit the contract, so to speak? 1262 Mr. Brennan, we know that we're relying on you to do that for gas supply, but presumably there's some internal mechanisms and procedures that are in place. 1263 MR. BRENNAN: Yes, there are, and I can give you an example. There are audit provisions. Our internal audit has already audited the EOS group once already and came back with some recommendations already in terms of back-up to computer systems, for example, made recommendations on making sure that the documentation flow that we say is going to flow is being flowed in an effective manner. Those types of things. 1264 There are performance reviews envisioned to be done twice a year to make sure that both the EOS and the EI group are meeting the performance standards that we expect, that they're following the policies and procedures, that there are sufficient controls within there to make sure that those things are being done. Also, I guess the Board itself, through the ER office, can come in and take a look at our procurement practices as well as our transactional services based on the information that's filed -- that we have to file for transactional services. So our hope is that all those should be sufficient to make sure that the ratepayer is protected. 1265 MS. HALLADAY: Now are these processes, procedures in writing anywhere? 1266 MR. BRENNAN: Some of them are if you look at the -- in particular, I guess, the EOS contract, we have some performance measures in there, suggested ones. They are being developed now. We have agreed with the ones that are in there. They will be formally put in there once we do a formal update to both contracts and, as I mentioned earlier, there has to be that adjustment, I guess, to the EOS contract to now incorporate the functions that EI does instead of ECG. So all that will be done at one time. 1267 MS. HOLDER: I think I just want to add that, I keep preaching that one of our values is safety and reliability and it's true actually, of all of Enbridge. Enbridge very much is a group of regulated organizations and reliability is a foundation to the success of all those companies. If Enbridge Inc. was ever to allow some sort of major failure to happen in ECG, the impact upon Enbridge would be enormous. They have as much interest in ensuring reliability as we do because they would be seriously impacted if there ever was some sort of failure to service our customers. 1268 MS. HALLADAY: Ms. Holder, we don't have any doubts as far as that's concerned, at least I don't have any doubts as far as that's concerned, but the problem in my mind is that you are all fine, upstanding people who have done a very good job of defending your position in this rates hearing, but as you pointed out, you are getting older. We're all getting older. And we just know that Toronto doesn't have this large talent pool here to draw from. And unless there's some sort of systemic procedures in place that the "trust us, trust Mr. Brennan," -- we've all decided we do trust Mr. Brennan -- but you are changing the landscape from a regulatory format, whereby every year -- I know that you are maybe disappointed that you might not be coming before us every year -- but every year there was a procedure in place where there could be some level of comfort to the Board and to the ratepayers, as represented by the intervenors. 1269 Now you are taking that outside this regulatory framework, and I guess maybe my concern is that we might want something more than a, "just trust us," which leads to the last question, and that is: That deals with the contractual remedies and if in fact there is a breach of the contract by Enbridge Inc. for any reason, would Enbridge Consumers Gas be able to, or be in a position to, in fact, terminate that contract or take other legal action against its parent and shareholders to enforce remedies and damages that it would have otherwise under that contract? 1270 MR. PLECKAITIS: We would certainly be with -- fully within our contractual rights to terminate the contract for lack of performance. 1271 MS. HALLADAY: Yes, I understand that. 1272 MR. PLECKAITIS: In terms of whether we sue our parent, I would hope it would never get to that. I don't think that would be, in my mind, and I'm not the lawyer here, but a very practical solution. I mean the reality of it is, if there was an arbitration provision -- there are provisions that would require a settlement of the matter between the parent and Enbridge Consumers Gas. 1273 But as you've said, we take our contractual and our utility responsibilities very seriously. We are officers -- some of us are officers of ECG. We recognize at the end of the day we are accountable to this Board in terms of demonstrating that we've made the right decisions and -- I -- we are entering -- we're all entering into uncharted territory because the industry is changing. The expectation, again, is, I believe, that the Board and Enbridge Consumers Gas is viewing that as we move forward in time, that light-handed regulation would become a reality; that we will be judged on the basis of what is our cost and what is our performance standards and less through micro-examination of, how did you arrive at those costs and how did you arrive at those performance standards. They would become less relevant and the ultimate objective is, did you achieve the targets that you set. 1274 MS. HALLADAY: Thank you. 1275 Mr. Betts has a follow-up question. 1276 MR. BETTS: Thank you. 1277 Just with respect to the last statement and that's with -- relating to light-handed regulation, and I think that it must be said that there's a relationship between the degree of light-handedness and the degree of competitiveness in the market. And as long as that degree of competitiveness is significant, then I think it's reasonable to expect that regulation will decline. What we're looking at here, in fact, is an issue of non-competition and I -- in all due respect, I think you have to weigh that and not necessarily assume that relationships with affiliates are treated in the -- would be treated in the same respect or viewed in the same respect by the ratepayers as transactions with arms' length companies. 1278 So I think it's just important to note that the movement to light-handed regulation doesn't necessarily mean that the ratepayer will be satisfied with a total non-involvement with those kinds of relationships. 1279 MR. PLECKAITIS: And I accept that as very appropriate, but I -- my understanding -- and I'm not an expert in regulation theory, but the whole concept of performance-based targets and standards is to try to use those as surrogates for competition and say, If we establish those targets and standards appropriately, then that should force the monopoly to behave as if it was operating within a competitive environment within reasonable expectations. 1280 And I'm of a hope that at the end of the day that the Board just doesn't say that -- put such difficult handcuffs on us that, in fact, penalizes Enbridge, which is trying to compete in an inner -- be an international player in this business and say, There's something inherently wrong with affiliate transactions and, therefore, create a situation where we can't work with our affiliate, and as a result put Enbridge at a situation where it cannot compete internationally. 1281 MS. HALLADAY: Mr. Moran? 1282 MR. MORAN: Madam Chair, just with your indulgence, through an oversight, I forgot to ask to be included in my last undertaking request, the same request in relation to Customer Works, CW. 1283 I was wondering if we could make the same request to the -- to that end. 1284 MR. FARRELL: We'll expand the Undertaking J.6.7 to include Customer Works. 1285 MR. MORAN: Thank you, Madam Chair. 1286 MS. HALLADAY: Nothing else, Mr. Moran? 1287 Mr. Farrell, as always, you have the last word. 1288 RE-EXAMINATION BY MR. FARRELL: 1289 MR. FARRELL: Just a couple of record-clearing questions before -- and I have two or three other areas I'd like to go into. 1290 Mr. McGill, I think it was you, you were referring to these industry-wide surveys, and you referred to an AGA something else. Could you just use the full names of the organizations -- 1291 MR. MCGILL: Well, the AGA is the American Gas Association, and the survey is conducted jointly between the American Gas Association and the Edison Electric Institute, which is an equivalent group that represents electric utilities in the U.S. primarily. 1292 MR. FARRELL: And here's a skill tester: Could you tell me what SCADA stands for? 1293 MS. HOLDER: It's actually in the agreement. 1294 MR. BRENNAN: Supervisory Control And Data Acquisition. 1295 MR. FARRELL: Thank you, Mr. Brennan. You win a prize that I'll disclose later. 1296 I had just a couple of areas. During Mr. Janigan's cross-examination -- and I'm going from my notes, Madam Chair, as opposed to the transcript -- he was asking you questions about the Affiliate Relationships Code and in particular section 2.8.3, which deals with reporting requirements. 1297 As I recall, the question was that had you ever filed a report? The answer was, No, and I wanted to ask you, the section refers to making available to the Board upon request, and have you ever been requested by the Board to file this information? 1298 MS. HOLDER: No, we have not. 1299 MR. FARRELL: Thank you. 1300 The next area has to do with the questions that Mr. Brett put to you along with Mr. Thompson. And again relying on my notes, talking about the expertise within Enbridge Inc., and I wrote down in my quotes -- sorry, Mr. Brett, if I haven't got you precisely -- but my note says, You can't be serious; you're an oil company, meaning Enbridge Inc.. 1301 Ms. Holder, I wanted to show you a copy of the Enbridge Inc. annual report for 2001. You've read this document sometime or another? 1302 MS. HOLDER: A lot of it, yes. 1303 MR. FARRELL: The question is: As you view Enbridge Inc., is the annual report a fair depiction of the scope of the business activities that Enbridge Inc. is involved in? 1304 MS. HOLDER: Yes. 1305 MR. FARRELL: We have copies for the intervenors and the Board, if I could mark that as the next exhibit. I have no idea what the number is at this point. 1306 MR. MORAN: That would become Exhibit K.6.4, Madam Chair. 1307 EXHIBIT NO. K.6.4: ANNUAL REPORT OF ENBRIDGE INC. 1308 MS. HALLADAY: Thank you, Mr. Moran. 1309 MR. FARRELL: I'm not going to do anything more than that, Madam Chair, so -- 1310 MS. HOLDER: I was getting concerned you were going to ask me about the financials. 1311 MR. THOMPSON: Is there any strategic information you want to expunge from this? 1312 MR. FARRELL: Maybe I'll just provide these later, so we don't -- 1313 MS. HALLADAY: That's fine, Mr. Farrell. 1314 MR. FARRELL: And you've had some discussions with Mr. Thompson as well as Mr. Brett and latterly with the Board members about the talent pool in, for example, gas services is the focus of this question in Calgary compared to Toronto. And you mentioned today, Ms. Holder, about -- my note was the quality of the CVs in Calgary. I'm not going to ask you to produce the CVs or whatever, but could you tell me who at Enbridge Inc. is in charge of gas services, in other words, providing these services to ECG? 1315 MS. HOLDER: His name is Mr. Guy Jarvis. 1316 MR. FARRELL: And are you aware of his background, in general terms? 1317 MS. HOLDER: In general terms, he worked for MCM out of Michigan. Basically, he's been working for large upstream marketers, would be the best way that I could put it. I don't know if Mr. Brennan wants to add anything. 1318 MR. FARRELL: His background is in the gas business, in other words. 1319 MS. HOLDER: Yes. Sorry, yes. 1320 MR. BRENNAN: Absolutely. 1321 MS. HOLDER: Yes, very clearly. 1322 MR. FARRELL: Just give me a moment, Madam Chair. I just want to find one other exhibit that Mr. Moran referred to. 1323 It was Exhibit K.6.2, Ms. Holder. This was Mr. Riedl's letter, dated April 17th, 2001, to the Board's chair in relation to, the re line, gas transportation and services. You discussed with Mr. Moran the first paragraph and it referred to 12 employees having been offered a position at Enbridge Inc. in Calgary. I think your earlier evidence indicated that one employee transferred. Do I take it from that that 11 declined the offer? 1324 MS. HOLDER: Yes. 1325 MR. FARRELL: And do you recall when that offer was declined, roughly speaking? Like, when do you know only Mr. Serpanchy -- S-e-r-p-a-n-c-h-y -- was going to Calgary? 1326 MS. HOLDER: It all happened over a period of time. It would have been about this time that we -- I think the timing of this letter is similar to the timing of the offer letter to the employees going -- plus or minus a month or so. This is going back in time. The employees had, again going by memory, 30 days to respond. Some of those were extended because negotiations were going on, people were trying to deal with family issues. So it was a period of time, probably the May/June time frame. 1327 MR. FARRELL: Of 2001? 1328 MS. HOLDER: Yes. 1329 MR. FARRELL: Thank you. 1330 Those are my questions. 1331 MS. HALLADAY: Thank you, Mr. Farrell. 1332 Before we adjourn for today, are there any other matters? Thank you. 1333 And I would like to thank the witness panel for your help and assistance over these past few days. I'm sure you will regret not having to come in year after year for this annual review. Thank you. Your comments have been very helpful. 1334 That being said, I will confirm we are not sitting tomorrow. We are sitting starting at 9:30 on Friday morning to deal with the evidence of Mr. Stauft. 1335 That being said, we are adjourned until Friday morning at 9:30. Thank you. 1336 --- Whereupon the hearing adjourned at 4:45 p.m.