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FILE NO.:   EB - 2007- 0680

VOLUME:     5

DATE:       December 10, 2007

BEFORE:     Paul Sommerville    Presiding Member

            Paul Vlahos         Member

            David Balsillie     Member

                    THE ONTARIO ENERGY BOARD

               IN THE MATTER OF the Ontario Energy
               Board Act, 1998, S.O. 1998, c.15
               (Sched. B);

               AND IN THE MATTER OF an application by
               Toronto Hydro Electric System Limited
               pursuant to section 78 of the Ontario
               Energy Board Act, 1998 for an order
               approving    just    and    reasonable
               distribution rates and other charges
               for electricity distribution to be
               effective May 1, 2008.

             Hearing held at 2300 Yonge Street,
          25th Floor, Toronto, Ontario, on Monday,
         December 10, 2007, commencing at 9:33 a.m.

                            VOLUME 5

B E F O R E:


PAUL VLAHOS               MEMBER

                      A P P E A R A N C E S

PETER FAYE                 Board Counsel

CHRISTIE CLARK             Board Staff

MARK RODGER                Toronto Hydro-Electric System

BASIL ALEXANDER            Pollution Probe

ROBERT WARREN              Consumers Council of Canada

MICHAEL BUONAGURO          Vulnerable Energy Consumers

JOHN DeVELLIS              School Energy Coalition

KIMBLE F. AINSLIE          Energy Probe
        I N D E X     O F    P R O C E E D I N G S

Description                                          Page No.

--- Upon commencing at 9:33 a.m.                            1
PRELIMINARY MATTERS                                         1
THESL - Panel 3: CONTINUED                                  1
     IVANO LABRICCIOSA; Previously sworn.
     ASHEEF JAMAL; Previously sworn.
     ROBERT WONG; Previously sworn.
     EDUARDO BRESANI; Previously sworn.
     SUSAN DAVIDSON; Previously sworn.
CROSS-EXAMINATION BY MR. FAYE                               1
--- Recess taken at 10:48 a.m.                             49
--- On resuming at 11:18 a.m.                              49
RE-EXAMINATION BY MR. RODGER                               70
QUESTIONS BY THE BOARD                                     79
--- Luncheon recess taken at 12:25 p.m.                    88
--- On resuming at 2:02 p.m.                               88
PREMILINARY MATTERS                                        88
THESL - PANEL 5:                                           89
     J.S. Couillard; Previously sworn.
     Susan Davidson; Previously sworn.
     Dino Priore; Sworn.
     Ben La Pianta; Sworn.
     Ivano Labricciosa; Previously sworn.
EXAMINATION BY MR. RODGER                                  90
CROSS-EXAMINATION BY MR FAYE                               95
QUESTIONS BY THE BOARD                                    123
CROSS-EXAMINATION BY MR. WARREN                           132
--- Recess taken at 3:39 p.m.                      145
--- On resuming at 4:04 p.m.                       145
--- Whereupon the hearing adjourned at 5:00 p.m.   178
              E X H I B I T S

Description                          Page No.

                   U N   D E R T A K I N G S

     Description                               Page No.


IN 2008 AND 2009 TEST YEARS.                          64


VARIANCES.                                             68

EXHIBITS.                                                 137

 1        Monday, December 10, 2007
 2        --- Upon commencing at 9:33 a.m.
 3        MR. SOMMERVILLE:    Thank you.    Please be seated.
 4        Today is the fifth day of oral evidence in the matter
 5   of Toronto Hydro-Electric System's application for rates,
 6   which has been designated EB2007-0680.
 7        Are there any preliminary matters?

 9        MR. RODGER:    Good morning, Mr. Chairman.      Just one.
10   We've handed out a response to Undertaking T3.2, and Mr.
11   Faye will distribute that to you.      And I've also provided
12   copies to my friends.    That's the only preliminary matter
13   that I have, sir.
14        MR. SOMMERVILLE:    Thank you.
15        Are there any preliminary matters from any other
16   party?
17        I think, Mr. Faye, you were in the middle of your
18   cross-examination.    Are you prepared to proceed now?
19        MR. FAYE:   Yes, I am, Mr. Chair.
20        MR. SOMMERVILLE:    Thank you.    Please do so.
21        THESL - PANEL 3:
22        Ivano Labricciosa; Previously sworn.
23        Asheef Jamal; Previously sworn.
24        Robert Wong; Previously sworn.
25        Eduardo Bresani; Previously sworn.
26        Susan Davidson; Previously sworn.

28        MR. FAYE:   Good morning, panel.

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1        We left off last day at the sustaining-capital
 2   category on Exhibit D1, Tab 7, Schedule 1.       That's our road
 3   map we're following here.    And the next category of
 4   expenditure that I'd like to look at is in the little page
 5   there, "Metering."
 6        The numbers here are shown on Exhibit R1, Tab 1,
 7   Schedule 4.8.    I'll be referring to that and to a couple of
 8   others, if you turn that up while we're looking at this
 9   summary sheet.
10        Between 2006, the historical year, and 2007, the
11   bridge year, we have a fairly significant increase in
12   metering costs, and similarly throughout the rest of the
13   test years.
14        I understand you to have said, last day, that part of
15   this increase is due to requirements of the independent
16   system operator to refurbish your bulk metering.        Do I
17   recall that correctly?
18        MS. DAVIDSON:    Yes, that's correct.
19        MR. FAYE:    Looking at the evidence, another
20   significant reason for an increase appears to be the plan
21   to install suite metering in condominiums.       Is that fair to
22   say that too?
23        MS. DAVIDSON:    Yes.
24        MR. FAYE:    And that's why I've turned you to R1, T1,
25   Schedule 4.8.    If we look on page 3 of that schedule,
26   there's a chart, a table in the middle of the page, and it
27   lays out the estimated number of suites, I think is what
28   I'm looking at here, that would need to be converted in

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1   each of the test years.
 2           If I add those up, there's 1,500 in 2008; 6,000, 2009;
 3   7,500 in 2010.      That gives me a total of 15,000.       Would you
 4   agree with that?
 5           MS. DAVIDSON:   Yes.
 6           MR. FAYE:   And the cost per suite is $550, right?
 7           MR. SOMMERVILLE:    Mr. Faye, I'm sorry I have to
 8   interrupt you.      We're having a technical problem here.       Our
 9   transcript is not rolling.
10           --- Reporter confers.
11           MR. SOMMERVILLE:    That's okay.    We can manage from
12   here, if we can just take it up from here.          Thank you very
13   much.
14           Mr. Faye, please continue.     If you could recap, that
15   might be useful.      Thank you.
16           MR. FAYE:   So we're now looking at metering, and I
17   think the Schedule -- Exhibit D1, Tab 7, Schedule 1, our
18   road map to capital, demonstrates that there's a fairly
19   significant increase in metering expenditures over the test
20   years compared to the historical year.
21           One of the reasons for that was mentioned last day,
22   and it concerns the need to upgrade bulk metering
23   facilities to comply with the Independent Electricity
24   System Operator Regulations, I would say.
25           And another one that appears to be reasonably
26   significant as well is the plan to install individual
27   metering, Smart Metering, in condominium suites that are
28   presently bulk metered.

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1        And so we've asked that the panel look at Exhibit R1,
 2   Tab 1, Schedule 4.8, and in the middle of the page is a
 3   chart that lists the number of suites projected to be
 4   converted to individual metering.      And in 2008 there's
 5   1,500; 2009, 6,000; and 2010, 7,500.      That's a total of
 6   15,000 units over the test period.      And the average cost of
 7   each of those would be $550.
 8        If we add the capital, net capital requirement line at
 9   the bottom, I get 8.2 million.      Is that approximately what
10   you would get too?
11        MS. DAVIDSON:    That's correct.
12        MR. FAYE:    Now, can I turn you to Exhibit R1, Tab 1,
13   Schedule 4.7?
14        MS. DAVIDSON:    Yes.
15        MR. FAYE:    And here I'm looking at Appendix "A".       That
16   has a chart that takes up most of the page, and in the
17   middle of that chart there's an entry called "Conversion of
18   bulk meter buildings".
19        Is this the same buildings?      Are these the
20   condominiums that we're talking about?
21        MS. DAVIDSON:    Yes, they are condominiums.
22        MR. FAYE:    If we look at the numbers, in the test year
23   the units appear to be 3,549.     That's 2008.    2009, 8,060.
24   2010, 9,420.    And I wonder if you could just explain why
25   there would be such a difference between that and the last
26   chart we looked at.
27        MS. DAVIDSON:    Yes, I can.    I think the confusion
28   might lie in the word on the Tab R1, 01, 4.07, where it

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1   says "Conversion of bulk metered buildings".         And that's to
 2   convert bulk meter -- retrofit bulk meter buildings.           But
 3   it's also any new condominiums.      The additional amount are
 4   new condominiums that might request meters moved to Smart
 5   Meters.
 6        So there's an additional -- the 15,000 is for
 7   retrofits, and the additional amount of approximately 6,000
 8   is for new condominiums.
 9        MR. FAYE:    And the numbers that are in our Schedule
10   D1, Tab 7, Schedule 1, the numbers for metering, do they
11   include both of these categories, both the retrofits and
12   the new?
13        MS. DAVIDSON:    The D1, Tab 1 --
14        MR. FAYE:    D1, Tab 7, Schedule 1.
15        MS. DAVIDSON:    Yes.   Yes, it does.     It includes both.
16        MR. FAYE:    Okay.   If I could just ask you, on that
17   same appendix -- this is the bulk metered appendix -- it
18   shows 1,920 units to be converted in 2007.        Have you
19   actually accomplished that?
20        MS. DAVIDSON:    Very close to that number, yes.
21        MR. FAYE:    Were they mostly new developments, or were
22   they partly suites that were being converted to bulk
23   metering or to suite metering from bulk metering?
24        MS. DAVIDSON:    We have seven pilots right now, and we
25   chose to have those pilots with new condominiums, and
26   that's a reflection of those numbers.
27        MR. FAYE:    Okay.   Has your experience been, on costs,
28   that the costs to install this in a new application is less

                          ASAP Reporting Services Inc.
                (613) 564-2727                     (416) 861-8720

 1   than retrofitting?      Is that fair to say, or no?
 2        MS. DAVIDSON:      The cost of the pilots -- because we
 3   haven't completed our retrofitting now, we're estimating it
 4   will be slightly larger for the retrofits, slightly higher
 5   cost than the condominiums, because there may be more work
 6   to do as we convert them over to the new metering system.
 7        MR. FAYE:      How much less would it be to do a new
 8   development compared to the 550?         Do you have figures so
 9   far on what it would cost to do new ones?
10        MS. DAVIDSON:      It's costing to do new ones
11   approximately $500 a unit.
12        MR. FAYE:      Could I turn you to Exhibit R1, Tab 6,
13   Schedule 9?     This is a project plan for individual suite
14   metering and condominium buildings.
15        MS. DAVIDSON:      Yes.
16        MR. FAYE:      This is a Toronto Hydro internal planning
17   document, is it?
18        MS. DAVIDSON:      Yes, and as you'll note, it's a draft.
19        MR. FAYE:      Yes.   Yes, I did note that.
20        I'd like to turn you to page 8.         Bottom of that page
21   is a chart, and it sets out alternative metering
22   installations, and here's where we find the $550 per suite
23   number.   But I note that there's an option, individual
24   Smart Meters at 160.       I wonder if you could explain why the
25   individual Smart Meter wouldn't be a good application here,
26   and why this integrated electronic Smart Meter system is
27   necessary.
28        MS. DAVIDSON:      The current individual suite metres

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   require a large meter base to contain the size of the
 2   meter.   And this is a reflection of our average cost of our
 3   Smart Meters right now.         The condominium requirements have
 4   not built a large area for metering to allow for this size
 5   of meter rooms, or meter areas, and the integral electronic
 6   meter is a much smaller unit and can be attached directly
 7   to the electrical panel and uses up virtually no space.
 8        And the electronics, the electrical meter passes the
 9   data to a small item attached to the wall where it picks up
10   information electronically.
11        MR. FAYE:      That sounds like the actual meter is going
12   to go in the suite; is that right?
13        MS. DAVIDSON:      No.    It may in some situations, in a
14   retrofit.     But in the current models that we're working
15   with right now, it's linking right into the base panel that
16   is located on the floors of the condominiums.           It's not in
17   the suite.
18        MR. FAYE:      Okay.     So did I understand, then, that on
19   each floor of the typical condominium that would be
20   retrofitted, there would be a main distribution panel?
21        MS. DAVIDSON:      That's correct.
22        MR. FAYE:      Much like you have in your house.       And you
23   would put all the Smart Meters in that enclosure or that
24   room, whatever it happens to be.         Then you would go up to
25   the next floor, do the same on that.         But you don't go to
26   each individual suite?
27        MS. DAVIDSON:      That's correct.     And there may be only
28   one panel for every three floors.

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1           MR. FAYE:   Okay.
 2           MS. DAVIDSON:   Something like that.
 3           MR. FAYE:   Okay.   There's no intermediate solution
 4   here, somewhere between 160 and 550, do I gather?
 5           MS. DAVIDSON:   No, sir; we haven't been able to find
 6   anything that's in between at this point in time.           We
 7   certainly have been looking out on the market to try and
 8   find all the different alternatives, and we have an RFP
 9   out, as we speak, to try and get any type of product that
10   would supply this need.
11           MR. FAYE:   And to put the conventional Smart Meter
12   right in the suite and open up the distribution panel in
13   the suite, and take whatever wire is necessary to get over
14   to your meter, it would look like that thing on the side of
15   your house, about this big around, and sticking out of a
16   wall?
17           MS. DAVIDSON:   Yes, it would.
18           MR. FAYE:   Now, it occurs to me from the condominiums
19   that I've seen, most of these subpanels in a condominium
20   are in a utility room, washer/dryer sort of thing in there,
21   and they're not really in the main living areas, where it
22   would be unsightly to see this vast metre standing off the
23   wall.    Have you looked into the possibility if that's the
24   case, that if it's in a utility room, you know, people
25   might not object to having one of those meters sitting in
26   their suite?
27           MS. DAVIDSON:   Absolutely.    In our conditions of
28   service, we offer both options, and certainly, if, as we

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   move forward, we discover that that's the most appropriate
 2   configuration, we certainly would use that configuration.
 3        MR. FAYE:    No problem with your automatic meter
 4   reading system picking up signals from the Smart Meters in
 5   that situation?    The apartment buildings are no different
 6   than houses, are they, in that way?
 7        MS. DAVIDSON:    We have already installed Smart Meters
 8   in a significant number of apartment buildings in the City
 9   of Toronto.    Prior to the late ‘80s, many apartment
10   buildings were individually metered.      And those in the
11   Etobicoke, North York, and Scarborough area.        We have
12   replaced them with our Elster Smart Meter, and have been
13   able to read them quite successfully.
14        MR. FAYE:    Still on page 8 of that draft report, look
15   up in the middle of the page, under the heading
16   "Financial".    The second sentence says:
17             "To be competitive with other metering service
18             providers, Toronto Hydro will need to provide
19             individual unit-integrated metering, at no cost
20             to the developer or condominium corporation."
21        If neither the developer nor the condominium
22   corporation are going to pay, who is going to pay?
23        MS. DAVIDSON:    The cost will be embedded in our rates.
24        MR. FAYE:    I'm interested in this reference to "other
25   meter service providers" here.     It appears that the reason
26   you have to do this for nothing is that someone else is
27   willing to do it for nothing, and in that case, I wonder
28   why you wouldn't just let them do it.      Why charge your

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1   ratepayers anything if someone else could put these meters
 2   in for nothing?
 3          MS. DAVIDSON:   Well, sir, we look upon this group as
 4   our customers.     We bulk meter them at the front end, and we
 5   have an opportunity to meter them as well.         But also, we've
 6   been approached by developers.       The developers and the
 7   residents look upon Toronto Hydro as the viable Hydro
 8   supplier, and look upon us as the supplier of power, and
 9   want to interact with Toronto Hydro and have us supply this
10   metering service.
11          MR. FAYE:   Just to clarify something you said at the
12   beginning of that, that you look upon the condominium
13   owners, the individual condominium owners, as your
14   customers, they've not been your customer in the past;
15   right?   It's the condo corp that's your customer?
16          MS. DAVIDSON:   Yes, it is the condo corp, but these
17   are potential customers of Toronto Hydro, to clarify.
18          MR. FAYE:   I understand.    And would the developers be
19   willing to pay any kind of a premium to deal with Toronto
20   Hydro versus dealing with an independent meter service
21   provider?    They seem to want to deal with you.        Will they
22   pay for that privilege?
23          MS. DAVIDSON:   I haven't approached them on that
24   basis, but that's possible.        I haven't approached them that
25   way.
26          MR. FAYE:   Okay.   So other than the fact that Toronto
27   Hydro would like to have these condominium owners as their
28   customers, and the developer, for whatever reasons, would

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1   prefer to deal with THESL than dealing with independents,
 2   is there any other persuasive reason why your ratepayer
 3   should foot the bill for $550 a piece when someone else
 4   will do it for nothing?
 5        MS. DAVIDSON:      Well, when we started down this
 6   venture, there was regulation that was proposed by the
 7   Ontario Government that it was going to be mandatory for
 8   suite owners to have individual metering.
 9        And as we move forward from a conservation point of
10   view, I think it makes eminent sense to be able to allow
11   people to control the amount of consumption that they have
12   within these units.
13        And, though they were modified somewhat, as we moved
14   down this path, with those regulations we felt there was an
15   obligation to provide this service to our customers.
16        MR. FAYE:      Now, I understand the intention of getting
17   as many people on Smart Meters as possible, in order to
18   further the province's demand reduction objectives, but how
19   is that thwarted by having someone other than THESL put the
20   meters in?     It seems to me that as long as the meter goes
21   in there, you achieve that objective.
22        MS. DAVIDSON:      Yes, I would agree, as long as the
23   meter is in there.      But we've had so many requests from
24   different boards to offer this service to the condominium
25   owners that we're changing our conditions of service to
26   only allow suite metering.        If they choose to go with
27   another provider, they're absolutely welcome to do that.
28        MR. FAYE:      Okay.   You've obviously investigated what

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   other meter service providers are offering to the market,
 2   or you wouldn't have concluded that you had to do it at a
 3   zero cost, right?
 4        MS. DAVIDSON:     That's correct.
 5        MR. FAYE:    Could you explain to us, how do they
 6   recover their costs?      Why would they be giving it away for
 7   nothing?
 8        MS. DAVIDSON:     I don't believe they give it away for
 9   nothing.   Of my investigations, suite owners are asked to
10   sign a 25-year contract, at times, with retailers, to --
11   and I would assume that the provider of the meter is
12   amortizing their costs over 25 years and they are charging
13   a rate to those customers based on that amortization.
14        So, you know, it's -- to say it's free to them, no, in
15   reality it's not free to them.      They will be paying for it
16   through their bills that they have over the next 25 years.
17        MR. FAYE:    And when you say "retailers", you're
18   talking about commodity retailers?
19        MS. DAVIDSON:     There's different people who are
20   selling this product in the market, who are retailing it in
21   the market.   Oh, I don't --
22        MR. FAYE:    But I understand you to say that it's tied
23   selling.   It's tied to purchasing the commodity from that
24   retailer as well?    Or no?
25        MS. DAVIDSON:     No, it's not.
26        MR. FAYE:    Okay.    So these are just retailers --
27        MS. DAVIDSON:     They're not buying energy.      They're not
28   buying energy from the retailer.

                          ASAP Reporting Services Inc.
                (613) 564-2727                     (416) 861-8720

 1          MR. FAYE:   All right.    So this retailer is a retailer
 2   supplying Smart Meters.
 3          MS. DAVIDSON:    Correct.
 4          MR. FAYE:   And they're signing a 25-year contract to
 5   say that -- say what?      What are they signing a contract
 6   about?
 7          MS. DAVIDSON:    They're signing a contract to charge
 8   the customers a distribution charge, and the charge for
 9   energy to -- for those suite owners to pay the -- actually,
10   the balance of the bulk meter bill.        So the suite owners
11   are paying for the full cost of their energy.
12          MR. FAYE:   Okay.   Now I understand.     They're going to
13   levy a distribution tariff --
14          MS. DAVIDSON:    That's correct.
15          MR. FAYE:     -- as though they were a sort of a pseudo-
16   LDC.
17          MS. DAVIDSON:    That's correct.
18          MR. FAYE:   Okay.   And of course, if you get them as a
19   customer, you would be able to apply your usual
20   distribution tariff to the bill, would you?
21          MS. DAVIDSON:    That's correct.
22          MR. RODGER:    But just to clarify, Mr. Faye, my
23   understanding is -- and Ms. Davidson can speak to this --
24   that these sub-distributors, if I can call them that, do
25   not have a rate order from this Board.         It's just
26   whatever's negotiated between them and the developer, the
27   condo corporation.
28          MR. SOMMERVILLE:    Just on that point, would it not be

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1   subject to the regulation -- they'd be subject to licensing
 2   by this Board if they purported to charge anything more
 3   than cost recovery, right?
 4        MR. RODGER:     That's correct.     And you may be aware of
 5   a dispute about what cost is, and it does seem to be an
 6   unresolved area, certainly an area of contention within the
 7   industry.
 8        MR. SOMMERVILLE:      Just so that the record is clear on
 9   that, there is a regulation that governs the amount that
10   they can.    There may be some disputes about what the cost
11   recovery means, but that would be the basis of the charge.
12        MR. FAYE:     Thank you.    That's much clearer.     Now I do
13   understand what the competitive market is there.
14        And I wonder if I could just ask you a couple more
15   clarifying questions on that.       If an independent meter
16   service provider gets in there and applies these individual
17   suite meters, who renders the bill?
18        MS. DAVIDSON:     They render the bill.
19        MR. FAYE:     And how would Toronto Hydro then treat the
20   energy flowing into that building?        Is that still a bulk
21   metered thing to you?
22        MS. DAVIDSON:     Yes, it is.    It's still bulk metered.
23        MR. FAYE:     So you would be kept whole.      You would be -
24   -
25        MS. DAVIDSON:     That's correct.
26        MR. FAYE:     -- collecting exactly what you're
27   collecting right now.
28        MS. DAVIDSON:     That's correct.

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1          MR. FAYE:   The meter service provider would be picking
 2   off a distribution tariff that may or may not be regulated.
 3   It seems there's some debate about that.         If you would get
 4   them, you would be abandoning your bulk metering tariff,
 5   and you would be picking up the individual suite tariff.
 6          Now, at the bulk metering level, is there any
 7   distinction between the per-unit -- I mean, per unit of
 8   electricity -- charge for distribution services, as opposed
 9   to the per-unit distribution charge that would apply to
10   individual condo suites?
11          MS. DAVIDSON:   I believe there is a difference in the
12   charge.   I think that the panel that's talking on rates
13   would be able to speak more effectively to that than I
14   could.
15          MR. FAYE:   Okay.   And then probably my next question,
16   they would be better to speak to, too.         If you do get all
17   these people as your customers, they would all pay your
18   fixed monthly fee, your fixed monthly charge, right?
19          MS. DAVIDSON:   Yes, they would.
20          MR. FAYE:   Okay.   Thank you.
21          Oh, you wouldn't know.     I was going to ask you whether
22   any of your affiliates are interested in pursuing this kind
23   of business, but you probably wouldn't know, so I won't ask
24   you.
25          MS. DAVIDSON:   Actually, I do know.      I have had
26   discussions with other affiliates in the past couple of
27   weeks, and there are definitely other affiliates that are
28   going into this market.      There are some that are already

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1   very active in this market.
 2        MR. FAYE:     Okay.
 3        MR. VLAHOS:     Sorry, does that preclude THESL, the
 4   distribution company, to also do this sub-metering, or not?
 5        MS. DAVIDSON:     I'm sorry, could you repeat your
 6   question?
 7        MR. VLAHOS:     You're talking about affiliates being
 8   interested in doing this, I would call sub-metering.
 9        MS. DAVIDSON:     When he said "affiliates", I meant
10   other LDC companies, not affiliates of Toronto Hydro.
11        MR. VLAHOS:     All right.    Okay.
12        MS. DAVIDSON:     Other LDC companies that I know are
13   involved in this.
14        MR. VLAHOS:     Okay.   All right.    Let me rephrase the
15   question then.
16        Does THESL, the distribution company, can they do sub-
17   metering today?
18        MS. DAVIDSON:     I guess we've differentiated between
19   sub-metering.     Yes, we can do sub-metering today.       We
20   differentiate sub-metering from suite metering.
21        Sub-metering means that there's a bulk meter at the
22   front of the building, and then there's individual
23   meterings below, so that you would have to net out the bill
24   to find out the difference between the common areas.
25   That's our classification for sub-metering.
26        Suite metering means that we are not bulk metering.
27   We're individually metering even the common areas, as well
28   as the suites.

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 1        MR. VLAHOS:   So you wouldn't have a situation where
 2   you have both a bulk meter and sub-meters?
 3        MS. DAVIDSON:     We could have in an unusual situation
 4   when we're doing a retrofit.     Depending on the
 5   configuration of the wiring of that building, it may be
 6   necessary to handle the metering somewhat differently.        But
 7   that's not our strategy.
 8        MR. FAYE:   I'll just summarize, so that -- to dispel
 9   any confusion.   I think what I heard you say is that there
10   is an opportunity for THESL to be involved in this
11   individual condo suite metering; that in the test years
12   there appear to be about 15,000 suites that could come your
13   way or could be available to you; and that the total budget
14   for converting is $550 per unit, for a total of about
15   $8.25-million in the test years.      Is that a fair summary?
16        MS. DAVIDSON:     That's for the retrofits?
17        MR. FAYE:   Just the retrofits, yes.
18        MS. DAVIDSON:     Yes.
19        MR. FAYE:   Okay.    Can I turn you to page 3 of that
20   same draft report we've been looking at?       And up towards
21   the top of the page:
22             "A search of our banner customer information
23             system suggests that close to 300,000 existing
24             condominium suites may be candidates to have
25             individual metering installed."
26        So the 15,000 we're talking about in the test year is
27   one-twentieth of the total possible market here, excluding
28   any new developments.    This is just retrofits?

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 1           MS. DAVIDSON:    I need to qualify that statement.             That
 2   includes all of our apartment-dwellers, as well as
 3   condominiums.       That's any building that is bulk metered
 4   that has suites within them.        So it also includes
 5   apartments, rental.
 6           MR. FAYE:    So we should strike the word "condominium"?
 7           MS. DAVIDSON:    Yes.
 8           MR. FAYE:    Close to 300,000 existing suites.
 9           And I think I've read elsewhere in here that you're
10   not attempting to pursue any market of rental suites.
11           MS. DAVIDSON:    Not at this stage.
12           MR. FAYE:    But you might in the future?
13           MS. DAVIDSON:    It's not in our plan right through the
14   full test year.       So I can't speak to another five to ten
15   years out.
16           There's a good rational reason why not.        When we did
17   an investigation of our worst portion of bad debt, it
18   tended to come from tenants in apartments.          We want to be
19   very careful about when we move forward in that area.
20           MR. FAYE:    But for the sake of argument, we could take
21   this 300,000 number as an ultimate sort of number.               The
22   market wouldn't be bigger than that?
23           MS. DAVIDSON:    No.
24           MR. FAYE:    And if each one of those cost the $550, I
25   think a simple multiplication -- I get 165 million -- would
26   have to be spent to convert all 300,000.          Do you agree with
27   that?
28           MS. DAVIDSON:    Subject to check.

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 1         MR. FAYE:   And so the benefits are, THESL gets to
 2   charge these new customers the fixed monthly fee and
 3   distribution rates; and it gets to put the 165 million
 4   potential in rate base, make a rate of return on it.
 5   I'm sort of still struggling with what is the offsetting
 6   benefit, if someone else out there will do this for
 7   nothing?
 8         Why would your ratepayers want you to pay $165-million
 9   to get into a business that's in a competitive market that
10   someone else can do cheaper?
11         MS. DAVIDSON:   I believe it comes down to the fact
12   that our customers are approaching us and they want us to
13   supply this service, and we feel that when we looked at the
14   finances of this from a business case point of view,
15   there's a fair break-even point on our costs of what's
16   built into our rates from a distribution point of view.
17         There could be the option, over time, of looking at
18   the costs from a different point of view, and we could have
19   different rates for this group.
20         MR. FAYE:   Am I correct in assuming that there would
21   also be operating and maintenance sort of costs associated
22   with this increased volume of suite meters?
23         MS. DAVIDSON:   Yes, there would be.
24         MR. FAYE:   I'm looking at Exhibit R1, Tab 3, Schedule
25   17.   That's R1, Tab 3, Schedule 17.      It's an interrogatory
26   from the Consumers Council of Canada.
27         MS. DAVIDSON:   Yes.
28         MR. FAYE:   If I just quickly sum a full year in which

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 1   this system would have matured, and you're doing all of the
 2   suite metering, accounts receivable, collections and call
 3   centre activities, if we look at 2009 as a sample year, it
 4   looks like the costs would be about $775,000 a year, and
 5   that increases a little bit in 2010, I think, presumably
 6   because you would have more of these meters in and
 7   therefore, pro rata, it would be a bigger amount.
 8           MS. DAVIDSON:   Correct.
 9           MR. FAYE:   But if we took $750,000 per year as the
10   amount that it's going cost to service the needs of
11   customers with -- 15,000 of these customers -- and prorate
12   that against the possible 300,000 they might ultimately put
13   in, we would be looking at 20 times $750,000 as an increase
14   in OM&A costs; right?
15           MS. DAVIDSON:   I think it would be slightly less than
16   that.    As I indicated, the 15,000 is retrofits, and we have
17   new customers that would join us, in the neighbourhood of
18   about 6,000 customers.       So it would be 21,000 customers.
19           MR. FAYE:   All right.
20           MS. DAVIDSON:   So slightly less.
21           MR. FAYE:   You're saying the 775,000 in this table is
22   to service 21,000 customers?
23           MS. DAVIDSON:   That's correct.
24           MR. FAYE:   All right.    So 21,000 as against 300,000 is
25   a 15-fold -- so we're probably talking in the neighbourhood
26   of $10- to $12-million additional OM&A required to service
27   the suite metering on top of the capital costs?
28           MS. DAVIDSON:   That is possible.     I don't believe that

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 1   our call centre costs and our collection costs would
 2   continue at the same rate, as when we get into this the
 3   first time.    The call centre cost, I don't think, is
 4   linear.   It will only be for new customers coming in that
 5   we will have those costs.
 6        This is just the new set-up, et cetera.          So that that
 7   doesn't just quadruple up.
 8        MR. FAYE:     Okay.   Yes I appreciate that.      I think
 9   that's a fair comment.      I think the point to be taken here,
10   though, is that -- and correct me if I’m wrong -- a meter
11   service provider who goes ahead and puts all this metering
12   in is going to bear the OM&A costs of doing that.          It won't
13   cost Toronto Hydro anything in OM&A costs?
14        MS. DAVIDSON:     I'm sorry, could you repeat that
15   question?
16        MR. FAYE:     If a meter service provider does the suite
17   metering and you just maintain your bulk metering, you
18   don't experience any of these increases in O&M costs for
19   suite metering management, for lack of a better term?
20        MS. DAVIDSON:     That's correct.
21        MR. FAYE:     Okay.   Turning to Smart Meters, since we
22   sort of have been moving in that direction.         Could I ask
23   you to turn up Exhibit R1, Tab 1, Schedule 9.1?          I'll be
24   referring to that in the following questions.
25        MS. DAVIDSON:     Yes, sir.
26        MR. FAYE:     Turn to page 4.    There's a table in the
27   middle of the page that lists what I think are expenditure
28   numbers for Smart Meters in 2007 and then the test years.

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 1           I'm looking at the number $33,178,000.       And I guess
 2   I'd like to ask a couple questions.         First one is, does
 3   that include any 2006 Smart Meter costs, or is that just
 4   the 2007 costs?
 5           MS. DAVIDSON:   That's just the 2007 cost.
 6           MR. FAYE:   And do I take your application to mean
 7   you're applying to the Board to include your 2007 Smart
 8   Meter costs in rate base, rather than continue with the
 9   deferral account?
10           MS. DAVIDSON:   That's correct, to have it in rate
11   base.
12           MR. FAYE:   The costs that are covered, and I'm still
13   on the minimum functionality bit here, it's just a big
14   number, and there doesn't appear to be any detailed workout
15   of how that number is arrived at.         Would you agree that in
16   the combined proceeding there was a work plan A worksheet
17   method developed in order to justify the costs, and that's
18   how the 2006 costs were decided?
19           MS. DAVIDSON:   That's correct.
20           MR. FAYE:   Do you have that kind of worksheet workup
21   for the 2007 numbers?
22           MS. DAVIDSON:   I don't have it here with me.
23           MR. FAYE:   Could you undertake to provide it, because
24   it seems that in order to consider whether or not to
25   approve that amount, the Board would have to know how it
26   was calculated and be able to determine that it was
27   calculated in accordance with the combined proceeding
28   directions?

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 1        MS. DAVIDSON:     I do know that when we took the
 2   information apart that we were very careful to include only
 3   minimum functionality in the line around minimum
 4   functionality.     And there were 14 or 15 different items
 5   that were included in that, to do with the customers under
 6   50 KW, the installation and labour cost, the WAN cost, the
 7   AMI cost, et cetera.
 8        MR. FAYE:     Yes, and I think that's all part of the
 9   package that Board Staff would need to evaluate whether
10   these numbers have been developed in accordance with --
11        MS. DAVIDSON:     And this up for 2007?
12        MR. FAYE:     Well, 2007 is not yet complete, so I'm
13   assuming that this is a prospective number?
14        MS. DAVIDSON:     That's correct.     It's not an accurate
15   number at this point.
16        MR. FAYE:     How close to being complete are you on the
17   --
18        MS. DAVIDSON:     Oh.   Well, we're into December.         We
19   won't have closed off our books until sometime into January
20   or February, and we certainly can supply the final numbers
21   at that stage.
22        MR. FAYE:     How are your costs to date tracking against
23   estimate?
24        MS. DAVIDSON:     Very close to budget.
25        MR. FAYE:     And the number of units installed?
26        MS. DAVIDSON:     We're going to be installing over
27   205,000.
28        MR. FAYE:     And was that the forecast amount for the

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 1   year?
 2           MS. DAVIDSON:   Yes.
 3           MR. FAYE:   And that would bring you to a total of how
 4   many installed?
 5           MS. DAVIDSON:   A little over 400,000.
 6           MR. FAYE:   Okay.   If you could undertake to provide
 7   the details of costs, units installed, and whatever else
 8   was required as documentation for the 2006 justification,
 9   if you could do that for 2007?
10           MS. DAVIDSON:   For the minimum functionality?           But
11   that's once we finally have closed off our books, with our
12   final costs?
13           MR. FAYE:   Well, you're still carrying all these
14   numbers in variance accounts.        Am I right?
15           MS. DAVIDSON:   Correct.
16           MR. FAYE:   Okay.   In order for Board Staff to sort of
17   analyze whether 33,178,000 is the right number for the 205
18   units, I think they need that analysis of costs to date, as
19   -- whatever the latest costs to date you have, and
20   prospective costs to finish out the year, and the number of
21   units to coincide with the date of actuals and the
22   prospective units yet to be installed.
23           Whatever was required in the 2006 documentation, I
24   think the Board Staff would need to look at the same thing.
25   Would you agree?
26           MR. RODGER:   And Mr. Faye, just -- and to advise the
27   Board that, of course, that entire proceeding was held in-
28   camera, and all the information.         This exhibit -- and I'll

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 1   speak to my client at the break -- it would also be filed
 2   on those same terms.    It would be filed in confidence.
 3        And if there are other specific rate-making type
 4   questions pertaining to the Smart Metering, certainly panel
 5   7 can answer the detail.
 6        But in any event, we'll undertake to look for this
 7   information, but I just wanted to give that proviso, that
 8   like with the former hearing, it would be filed in-camera.
 9        MR. SOMMERVILLE:     And available on the same terms.
10   That is, where parties have executed the form of
11   undertaking, that they would be eligible to receive that
12   document --
13        MR. RODGER:    That's correct, sir.
14        MR. SOMMERVILLE:     -- pursuant to the undertaking.
15        So we'll look to -- are the terms of the undertaking
16   clear, Mr. Faye?
17        MR. FAYE:     I'm sorry?
18        MR. SOMMERVILLE:     Are you clear about the terms of the
19   undertaking, the actual -- what you're asking Ms. Davidson
20   to provide?
21        MR. FAYE:     I'm afraid I'm not familiar enough with all
22   the details of the combined proceedings, since it was
23   confidential --
24        MS. DAVIDSON:     Yes.
25        MR. FAYE:     -- to be able to elaborate on all of the
26   details needed.    So that's why I've sort of --
27        MR. SOMMERVILLE:     Well, why don't we come back to
28   this, then?   You can make some inquiries about that.         We'll

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 1   come back to this.      And the undertaking can be defined
 2   precisely.     It will be subject to the confidentiality
 3   rules, the filing rules associated with that.
 4        You mentioned, Mr. Rodger, that panel 7 would be in a
 5   -- may be in the best position to comment on some of those
 6   inputs.   Assuming we got definition of the undertaking
 7   around noon today, Ms. Davidson, do you have any sense as
 8   to when you might be able to prepare the material?
 9        MS. DAVIDSON:      We'll probably -- because we have to
10   project forward from the end of November --
11        MR. SOMMERVILLE:       Right.
12        MS. DAVIDSON:      -- our costs through December, and the
13   units that are going to be installed, it would probably
14   take me a day or so to do that.
15        MR. SOMMERVILLE:       Okay.    The sooner that can happen,
16   the better off we are, so that panel 7 is -- everybody's
17   kind of ready for panel 7, come Thursday, I guess, is when
18   we're going to -- oh, pardon me, Tuesday, which is
19   tomorrow.
20        Anyway, I'll leave that question open until we define
21   the terms of the undertaking.        The sooner we can get that,
22   the better, and if there are some simplifying assumptions
23   that you might be able to make to sort of -- compromise to
24   some extent the pristine accuracy of your projection, but
25   if there are some simplifying assumptions that you can
26   make, that may be a good cost benefit if we can get the
27   document sooner.
28        MS. DAVIDSON:      Absolutely.

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 1        MR. SOMMERVILLE:      Thank you.
 2        MR. RODGER:    And do we have a number, at least, for
 3   that undertaking, Mr. Faye?
 4        MR. FAYE:   That would be T5.1.
 5        MR. SOMMERVILLE:      The terms of which are to be
 6   determined.
 7        MR. RODGER:    Yes.
11        METERS, FOR 2007.

12        MR. SOMMERVILLE:      That will be a confidential
13        undertaking.    And I wonder if we could just make that
14        clear in the number of the undertaking.        So that's
15        T5.1 (confidential).
16        And I'll leave it to you, Mr. Rodger, when the time
17   comes to file that, to make sure that the distribution is
18   according to the understanding.
19        MR. RODGER:    Yes.
20        MR. SOMMERVILLE:      Thank you.
21        MR. FAYE:   Now, following along from the 2007 numbers,
22   you've included the 2008 numbers as well, and I'm assuming
23   that you would like the Board to pre-approve those
24   expenditures for Smart Meters in rate base?
25        MS. DAVIDSON:    Yes.
26        MR. FAYE:   I'm sorry, is that correct?
27        So far, you have been using variance accounts to
28   collect both the costs of installing these and the revenues

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 1   you received from rate rider.     Could you describe -- or
 2   perhaps this is a question for another panel, but can you
 3   describe how those costs will be treated if you go to rate
 4   base with those numbers?
 5        MR. RODGER:   I think if we could defer this question
 6   to the next panel, Mr. Faye.
 7        MR. FAYE:   Okay.    Are you able to talk to the beyond-
 8   minimum functionality issue?
 9        MS. DAVIDSON:    Yes, I am --
10        MR. FAYE:   Why --
11        MS. DAVIDSON:    A portion of it, yes.
12        MR. FAYE:   Could you just take us through the 2007
13   numbers and without getting into specifics about why
14   they're beyond-minimum functionality, could you explain why
15   the Board ought to approve that for you?
16        MS. DAVIDSON:    A large portion of beyond-minimum
17   functionality is -- I can explain it in twofold.
18        Number one, it is to install interval meters for our
19   commercial customers that are greater than 50 KW.        In the
20   original minimum functionality, it did not include that
21   group of customers.   And as we move forward and seals are
22   expiring, we're installing interval meters so we have a
23   consistent platform for all of our customers.
24        The other portion of it is our technology build that
25   we're working on right now to prepare our systems for a
26   Web-based system for customers, and to get our systems
27   ready to feed to the IESO for the MDM/R, and as well as
28   prepare for time-of-use billing.      And I believe those costs

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 1   should be covered by the ratepayer.
 2        There's a few other issues, such as:       We have the EBT
 3   settlement data that we have to start passing information
 4   through to retailers.    We're looking at training and
 5   development of our staff, which was not included in the
 6   minimum functionality, as well as all our process changes
 7   around how we're going to manage the time-of-use billing.
 8        MR. FAYE:   Is that information that you just got
 9   through -- does that appear in the evidence somewhere that
10   I can make a reference?
11        MS. DAVIDSON:   If you turn the page, the reference
12   you're referring to right now, from page 4 back to page 3.
13   The question was:
14             "The proposed capital expenditure will meet the
15             minimum functionality criteria listed in Appendix
16             'A'.   THESL has also included..."
17        The question was did it include minimum functionality.
18             "THESL has also included capital costs that are
19             outside those costs specifically."
20        And it lists what's outside minimum functionality.
21        MR. FAYE:   Okay.    I guess the final question on that
22   is, was it part of the plan to put Smart Meters in for
23   customers greater than 50 KW, or was it strictly, the
24   800,000 target of the government by 2010, was that
25   residential?
26        MS. DAVIDSON:   You know, when I looked at the original
27   proposed legislation and the proposed -- it was for 44, 43
28   or 44 million customers in the province.       Certainly that

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 1   number includes commercial customers, as well as
 2   residential customers.
 3        Once you start down the path of having a certain
 4   platform for metering, maintaining a mechanical metering
 5   device and a methodology just doesn't make business sense,
 6   and we moved to the commercial entity.
 7        I know at one stage they talked about minimum
 8   functionality, and that was to capture for a period of time
 9   what was in an RFP that was going out.       But in that RFP
10   there's always -- there were quotes for commercial
11   customers as well.    And so it's always been our
12   understanding that it's all the meters in the province
13   would be interval metres.
14        MR. RODGER:     If I could interject and refer Mr. Faye
15   to the decision of this Board in the combined metre
16   proceeding, this was also an issue in that case, and the
17   Board did approve Toronto Hydro to serve this particular
18   class of customers with Smart Meters for some of the
19   reasons and others that Ms. Davidson has described in that
20   proceeding.
21        MR. FAYE:   Okay.    Thank you.
22        If I could just have a moment, Mr. Chair?
23        MR. SOMMERVILLE:     Just as you're conferring there, Mr.
24   Faye, I note that there was a reference to 44, 43 or 44
25   million customers.    I think that's probably 4.3 or 4.4.
26        MS. DAVIDSON:    It is.   Yes, please correct that.       It's
27   4.3 million or 4.4 million customers.
28        MR. SOMMERVILLE:     Thanks.

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 1        MR. FAYE:     My final question on Smart Meters relates
 2   to the 2006 expenditures.      I'm looking at Exhibit R1, Tab
 3   1, Schedule 9.1.    This is an interrogatory by the Board
 4   Staff.   It appears to turn up a difference between the
 5   amount that THESL spent on Smart Meters in 2006 at 34.1
 6   million, versus the amount that the Board approved them to
 7   spend.   That number was 23.9 million.
 8        MS. DAVIDSON:    Sorry?
 9        MR. FAYE:     Can you comment on that?
10        MS. DAVIDSON:    I'm sorry; I see the 34.1 million.        And
11   what was the other number?
12        MR. FAYE:     I'm looking now at the combined proceeding
13   numbers.   Most of it's blacked out because it was
14   confidential, but there is one number in there.         Total
15   capital costs ought to be 23.896 million.        Is that number
16   familiar to you?
17        MS. DAVIDSON:    Could you say which page it's on?
18   We're talking about R1, Tab 1, 9.1?
19        MR. FAYE:     Yes, that's where I've picked up the $34-
20   million number.
21        MS. DAVIDSON:    Yes.    And when was the other number?
22        MR. FAYE:     The other number is in the Board combined
23   proceeding on Smart Meters, which --
24        MR. RODGER:    I think, Mr. Faye, this again would be a
25   question that Mr. McLorg could answer on the next panel.
26        MR. FAYE:     Okay.   We'll defer to the next panel.
27        MR. RODGER:    All right.
28        MR. FAYE:     Okay.   Sorry for the confusion there.

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 1        I'm going turn now to the next section on the capital
 2   sheet, and that's engineering capital.         I only have a
 3   couple of questions on this.
 4        The category shows increased spending from the
 5   historical year.     From 2006 to 2007 the increase is about
 6   2.2 million.    That's about 10 percent.
 7        From 2007 to 2008, the increase is 3.2 million.
 8   That's about 14 percent.
 9        From 2008 to 2009, the increase is 0.6 million, or
10   about 2 percent.
11        And finally, between 2009 and 2010, the increase is
12   0.8 million, or about 3 percent.        Would you agree generally
13   with those numbers, subject to check?
14        MR. JAMAL:     Yes.
15        MR. FAYE:     Can I ask you, are these increases related
16   directly to the increase in capital spending that's
17   proposed?
18        MR. JAMAL:     The primary reason for the increase for
19   the test years has to do with the eligibility of the people
20   whose costs are being capitalized.        There are two areas
21   that have significantly changed.        They are the capacity
22   planning and policies and standards departments.          Their
23   numbers have increased in those groups.         The eligibility of
24   those groups is the primary cost cause of the increase in
25   engineering capital.       In the prior years, in 2007, we
26   undertook a review of the applicability of engineering
27   reclass, based on the APH, and we identified those two
28   groups as eligible for capitalization.         And we hadn't been

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 1   doing that in the past.
 2        MR. FAYE:     What was the APH?
 3        MR. JAMAL:     I'm sorry.    The Accounting Procedures
 4   Handbook.    I believe it's article 230 that described that
 5   section.
 6        MR. FAYE:     If I understand you right, prior to this
 7   change, these folks were being charged off against
 8   something else entirely.
 9        MR. JAMAL:     They were not being capitalized, yes.
10        MR. FAYE:     And the work that they do, the reason that
11   you thought that they ought to be charged to capital, is
12   because they're involved in these capital projects somehow?
13       MR. JAMAL:     Yes.
14        MR. FAYE:     All right.    So my original question, that
15   the increased engineering costs are because of the capital
16   program, would you agree with that?
17        MR. JAMAL:     Primarily, yes.
18        MR. FAYE:     Okay.
19        MR. JAMAL:     Sorry.   Excuse me.    It is partially due to
20   that, and the fact that these individuals -- I think,
21   again, it was the methodology.       In hindsight we should have
22   probably capitalized these costs in the past, and then now
23   they're being capitalized because we think they're
24   appropriate.
25        MR. FAYE:     What I heard you say was it's not entirely
26   due to the increase in capital.       Some of the base load
27   capital that you always did --
28        MR. JAMAL:     Yes.

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 1           MR. FAYE:    -- would attract some of their costs as
 2   well?
 3           MR. JAMAL:   Yes.
 4           MR. FAYE:    All right.      Do you contract any of your
 5   design work out?
 6           MR. LABRICCIOSA:      No, we don't, sir.
 7           MR. FAYE:    Is it possible to contract this kind of
 8   work out?
 9           MR. LABRICCIOSA:      I guess it would be, if other
10   industries knew all our standards and knew our practices
11   and had the experience we had.          I suspect the answer could
12   be yes.
13           MR. FAYE:    Are there consultants out there that might
14   have those, do you know?        Or have you checked to see?
15           MR. LABRICCIOSA:      They wouldn't have our standards,
16   no.
17           MR. FAYE:    And by your standards, would you explain
18   what you mean by standards?          This isn’t a quality control
19   standard you're talking about; this is something else,
20   isn't it?
21           MR. LABRICCIOSA:      There would be design and
22   construction standards.
23           MR. FAYE:    Right.    And those design and construction
24   standards would be compiled in binders or they would be on
25   a database?
26           MR. LABRICCIOSA:      Yes.
27           MR. FAYE:    And so that information could be
28   transferred to an outside consultant for his use?

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 1        MR. LABRICCIOSA:      Yes, as much as you can transfer
 2   knowledge through books and materials.
 3        MR. FAYE:     If the Board decides not to approve all of
 4   the requested capital, is it fair to say that the
 5   engineering capital that we've just seen on this sheet
 6   would also be reduced?
 7        MR. LABRICCIOSA:      I'm not sure your question -- is
 8   your question aimed at design or planning?
 9        MR. FAYE:     Well, when I originally conceived the
10   question, it was certainly focussed on design, but now I've
11   heard Mr. Jamal say that there are other components of your
12   engineering department that are also involved in capital,
13   and if one of those components is planning, then I guess
14   I'm including both of those.
15        MR. LABRICCIOSA:      The planning group really focuses
16   going forward.     If your question is aimed at design and you
17   started off by explaining it as or stating the question as
18   if we didn't approve the capital, I would conclude from
19   that we wouldn't need the designs that go with that.            And
20   from a design perspective, I would say, the answer would
21   be, there would be a change in design costs for certain.
22        From a planning perspective, we're looking forward, so
23   we still have the challenges ahead of us that we talked
24   about in the sustaining capital program, all the studies,
25   all the work that has to go into prioritization, developing
26   models, designing better models going forward, doing better
27   analyses.
28        MR. FAYE:     Okay.   Thank you.    And then just one last

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 1   question on that subject.
 2           If there would be a reduction in engineering capital,
 3   and considering the fact that you said that you do 100
 4   percent of your own engineering work, should I conclude
 5   that you would have to reduce staff in engineering if part
 6   or all of the capital, increased capital budget, was
 7   denied?
 8           MR. LABRICCIOSA:    Again, if it was just strictly on
 9   the capital side, I would suspect you would have to shift
10   resources from capital to operating and undertake an
11   operating element.      There's still engineering work involved
12   in the operating side: setting up work orders, organizing
13   work, works management activities, those kinds of things.
14           MR. FAYE:   But presumably that's ongoing right now
15   too, isn't it?
16           MR. LABRICCIOSA:    Well, there's an element built into
17   this going forward that the capital is to offset future
18   OPEX, or operating expenses, again, beyond -- the
19   expectation is -- beyond this rate filing.
20           So the suspicions would be, if we stopped capital
21   entirely, we would see an increase in operating expense or
22   maintenance expense.
23           MR. FAYE:   And the engineering input to that is what?
24           MR. LABRICCIOSA:    From the designer's perspective, it
25   would be setting up the works programs to execute that
26   work.
27           MR. FAYE:   So, for instance, if we take a transformer
28   as an example, if I understand you right, if you don't

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 1   replace the capital in a timely fashion, then it costs you
 2   more in maintenance.      Someone has to go out there and fix
 3   the machine more often.
 4        But that sounds to me like a trades type of activity,
 5   and I'm wondering where the engineering involvement is to
 6   send a truck out to change some components in a
 7   transformer.
 8        MR. LABRICCIOSA:      Again, it's execution of work, and
 9   there would be -- if that workload increases, there would
10   be more people involved in setting up that program.
11        MR. FAYE:    But that program is done by the engineering
12   department or by the works -- the construction or
13   maintenance department, whatever you have?
14        MR. LABRICCIOSA:      It would be the engineering group
15   which sets up the work-management activities.
16        MR. FAYE:    Okay.    Thank you.
17        I'd like to turn --
18        MR. JAMAL:    Excuse me, just one more note.      You asked
19   a question about outsourcing or contracting out the capital
20   design costs.    Even if we were to outsource those costs,
21   they would make it into the capital program anyway, because
22   they're directly associated with capital programs.            So
23   you're just shifting a type of expense from one to the
24   other, even though the engineering reclass would reduce.
25   If they're capital-related activities, it would be
26   capitalized.
27        MR. FAYE:    Yes.    Thank you.    That wasn't quite the
28   focus of my question.      I was getting more at how do you

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 1   handle peaks and valleys of your work program.
 2        MR. JAMAL:     Okay.
 3        MR. FAYE:    And I was suggesting that perhaps
 4   contracting out the peaks would allow you to have less
 5   staff internally.    But thank you for the clarification.         It
 6   was useful.
 7        I'd like to turn now to the next category on this
 8   sheet, and it's subtitled "General plant".        The first
 9   section is "Information technology".       And here I'd just
10   like to run through the numbers and get them confirmed,
11   that from 2006 to 2007 the increase is 5.7 million, about
12   37 percent.   From 2007 to 2008, the increase is 6.8
13   million.   That's about 32 percent.      In 2009 there's a small
14   decline to 27.2 million, and in 2010 a larger decline to
15   22.3 million.
16        Overall, in the bridge and test years, there's almost
17   $100-million in IT spending, which is about 40 million more
18   than would have occurred if the 2006 level of spending was
19   maintained.
20        I know that's a long statement, but generally would
21   you agree with what I've said?
22        MR. BRESANI:    That is correct.
23        --- Reporter appeals.
24        MR. BRESANI:    Yes.
25        MR. FAYE:    Can you give us a quick summary of what's
26   involved in that extra 40 million of spending?         Over and
27   above what you always did spend, why do you need to spend
28   another 40?

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 1        MR. BRESANI:     Do you want the explanation from 2006,
 2   2010, or just the test years?
 3        MR. FAYE:     Well, I've come up with this 40 million by
 4   comparing the test years to the historical year.
 5        MR. BRESANI:     Right.
 6        MR. FAYE:     So I'm saying if you just continued with
 7   whatever you were doing in the historical year, you would
 8   spend $60-million.     But you have added some other
 9   activities here that bring you up to 100, and I'm
10   interested in what those other activities are.
11        MR. BRESANI:     Just to give you some summary background
12   of the framework, in 2006, one of the major changes that we
13   have in the organization was that -- you recognize that we
14   didn't have the right level of disciplines, managing our
15   portfolio projects.    And we have different costs in
16   different areas.
17        So I was also hired in 2006, and one of the first
18   things that I did was to look at the status and the state
19   of our portfolio projects, how we manage the best
20   information technology, and then put forward a framework
21   called a COBIT framework.      COBIT stands for control
22   objectives for information technology.
23        One of the key concepts in COBIT is to ensure that you
24   manage the front end, so when you go back to the 2006
25   historical year, you see that in information technology,
26   you have 15 million.    But you have, in the line below, just
27   the other, GEAR, SCADA -- or, sorry, two lines below, in
28   the other category, you have GEAR, SCADA, CIS planner --

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 1        --- Reporter appeals.
 2        MR. BRESANI:   In the other category, you have GEAR,
 3   SCADA, CIS.   Those costs are also costs for information
 4   technology that were not located in the information
 5   technology responsibility centres, but were distributed in
 6   some other, you know, business cost centres.
 7        So if you add that number to the $15.2-million, then,
 8   you know, the historical year is going to come up to around
 9   20 million, subject to check.
10        MR. FAYE:   Okay.
11        MR. BRESANI:   So the increase will be actually lower.
12        As you see in 2007, the same situation occurs.           And
13   you have to add the 20.9 to the 3.2 to give you an overall
14   picture of what that is.
15        But there's two key elements of the increase that goes
16   from the 20-, 21-, $22-million to the $27-million in the
17   2008 and 2009 test years.    And then 2010, it goes back
18   again to this $22-million level.
19        And the reason of 2008 and 2009 increase in the spend
20   is basically driven by two main projects, one of them being
21   the replacement of our customer information system, which
22   has an overall cost of around $18.7-million.
23        And there's a significant effort that we're putting,
24   in addition to that, to refresh our office infrastructure,
25   which at this point in time is becoming obsolete because of
26   the versions we're in.
27        MR. FAYE:   When you say "office infrastructure", what
28   did you mean by that?

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 1        MR. BRESANI:   Office -- the software that we use for
 2   desktop productivity, for example the Windows version in
 3   your desktop servers, the Office 2007 PowerPoint, Word,
 4   Excel, those type of tools.
 5        MR. FAYE:   So this sounds like mostly software.         It's
 6   not hardware.
 7        MR. BRESANI:   That is correct.     Well, it's both.     The
 8   component includes desktops and includes the software in
 9   the desktops.
10        MR. FAYE:   Okay.   I appreciate your summary there.          It
11   does clarify things.     And I'll accept that we do need to
12   add together the "information technology" line and the
13   "other" line to come up with a true comparison.
14        If I do that, then, in the historical year you would
15   have spent about $20-million, then?
16        MR. BRESANI:   Right.
17        MR. FAYE:   And I have to add that 3,228,000 in the
18   "other" line for 2007 to the "information technology" line,
19   and that's going to bring me up to around 24 million.         So
20   the difference between 2007 and 2006 is about 4 million.
21        And do I understand you to mean that the explanation
22   is the replacement of the CIS mainly, and replacement of
23   office infrastructure for that $4-million?
24        MR. BRESANI:   The million jump between 2006 and 2007
25   is driven by other components.     The jump between 2007 and
26   2008 is driven by the new customer information system and
27   by the office refresh.
28        Between 2006 and 2007, one significant effort that we

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 1   put was in replacing our communications infrastructure, for
 2   example.   We have some major projects, like the outage
 3   management system, the distribution management system, and
 4   our GEAR projects, the graphical information system, that
 5   were being delivered in the 2007 year.
 6        MR. FAYE:    Okay.   Just one more quick question on this
 7   office infrastructure thing.      This sounds like the routine
 8   sort of replacement that you have to do all the time.          You
 9   know, desktop computers get obsolete.       Software gets
10   superseded by new versions.      Why would that be an
11   explanation for an increase of spending?        One would think
12   that that would be in your base spending.        You had to do
13   that in 2006 for some of your machines, I'm sure.
14        MR. BRESANI:    That is correct.     We should normally do
15   that as a matter of business.      I joined this organization
16   two years ago.    The previous organizations, my experience,
17   that's the way that has been handled.       In Toronto, in
18   THESL, that was not the case.      So we still have, for
19   example, 41 percent of our desktops using Windows 2000 and
20   49 percent of our desktops using Office 2000, which are
21   products that are already without support from Microsoft.
22   The support was withdrawn in 2006.
23        We need to catch up, and we need to refresh those
24   installations, because we are already having issues because
25   of these different versions.      To give you a simple example,
26   we installed call centre software in our workstations.          We
27   did all the testing that we needed to do in Windows XP.
28   And what happened is that we found a significant amount of

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 1   problems, and when we went to look at what the problems
 2   were, is that all of the desktops that were with Windows
 3   2000 installed were failing.
 4        We had to go and redo the testing and reinstall the
 5   software, and so on and so forth.
 6        MR. FAYE:   These major systems that you're talking
 7   about here, are these off-the-shelf type applications or
 8   are you custom-writing them?
 9        MR. BRESANI:    Our strategy and our direction is always
10   to try to buy off-the-shelf products, as opposed to develop
11   ourselves and support them.
12        MR. FAYE:   If you do buy off-the-shelf products, do
13   you often have to modify them to make them fit the THESL
14   sort of routine of doing things?
15        MR. BRESANI:    Our direction is to try to keep them --
16   there's a term called vanilla.     So with the least amount of
17   changes as we can.
18        MR. FAYE:   Is it possible that some of these systems
19   could be hosted by an external resource rather than inside
20   THESL?
21        MR. BRESANI:    Yes, it is possible.
22        MR. FAYE:   Have you looked into that possibility?
23        MR. BRESANI:    When I joined the organization, I
24   explored that possibility.     We've already made an
25   investment in having dual data centres.       So we have enough
26   capability to handle not only the production environment
27   but also our disaster recovery environment.       When we've
28   gone to vendors, and I've discussed this with several

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 1   different vendors, the economical cost benefit analysis
 2   doesn't lend itself to outsource these to other companies.
 3   I haven't seen any opportunity of the outsourcing being at
 4   a lower cost than doing the hosting ourselves.
 5        MR. FAYE:      I'd like to turn you to an Exhibit R1, Tab
 6   5, Schedule 48.
 7        --- Witness panel confers.
 8        MR. BRESANI:      Okay.
 9        MR. FAYE:      Looking at page 2.     In the second
10   paragraph, there's a statement that:
11                "Producing reports from this repository is time-
12                consuming and requires IT involvement."
13        And in this, we're talking about a data repository.
14   Can you describe what the IT involvement mentioned here is?
15        MR. BRESANI:      Yes.    As you can see, there's a number
16   of technologies that are used in this system or this
17   application, including the technology that we use to get
18   reports from, you know, this data repository.           So anytime
19   that a user, a customer, wants to request a new report or
20   wants to see something in a different way, they cannot do
21   that by themselves.      They have to call an IT customer rep
22   and the IT person has to do the design, do the actual
23   coding and then send that code to execute in the repository
24   to obtain the new report.
25        MR. FAYE:      Okay.   Now, looking at page 3.      The
26   suggestion in the middle of this paragraph -- there's a
27   statement:
28                "This will result in productivity gains by IT&S

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 1               staff and enable the business to improve their
 2               processes."
 3        This is in the context of changing to some other way
 4   of doing things, better computer ability or new software.
 5        Do I take it that to mean that, once your new
 6   software's in, individual users of the system would be able
 7   to query it themselves, get their own reports out, and not
 8   have to rely on IT staff to write some subroutine to get
 9   the data?
10        MR. BRESANI:     That is the direction and that's the --
11        MR. FAYE:     Then that would suggest that as time goes
12   on you would need less and less IT staff.         Is that a fair
13   conclusion to draw?
14        MR. BRESANI:     That is correct.
15        MR. FAYE:     And does the application demonstrate that
16   over the years IT costs go up or go down?         I mean, sorry,
17   IT staff costs?
18        MR. BRESANI:     The application demonstrates that during
19   the day, IT staff are kept constant at 101, or 101.5 FTEs.
20        MR. FAYE:     But no decrease?
21        MR. BRESANI:     No decrease, because there's two sides
22   to the equation.     One side is, we are implementing new
23   systems, so we need new resources to support the ongoing
24   operation of those systems.
25        And on the other side, we are applying and executing
26   some specific activities to lower the requirements for
27   these new FTEs so that we avoid a linear increase on the
28   resources that we need because of the new applications that

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 1   we are receiving.
 2        MR. FAYE:     The new applications, as I understand it,
 3   are less IT staff-intensive, if I can put it that way; you
 4   need less people to run those applications than you did to
 5   run the older ones?
 6        MR. BRESANI:     You are talking specifically about the
 7   management information or business intelligence.          What we
 8   want in business intelligence is that the users become more
 9   self-sufficient.     But we have a number of applications that
10   we are proposing as part of our portfolio that will improve
11   the throughput and productivity and enable the business
12   units to acquire some additional IT support.
13        MR. FAYE:     I'm sorry, can you repeat the last
14   sentence?    I didn't quite catch that.
15        MR. BRESANI:     We are proposing a number of
16   applications.
17        MR. FAYE:     Yes.
18        MR. BRESANI:     That will require increased IT support.
19        MR. FAYE:     Those applications are not the ones we just
20   looked at here that were going to require less IT support?
21        MR. BRESANI:     The reference that you are making
22   specifically in this section is for the business
23   intelligence application.
24        MR. FAYE:     All right, and so what I hear you saying, I
25   think, is, the productivity gains that you've got out of
26   that, that business intelligence system, where IT doesn't
27   have to hold people's hands anymore, those productivity
28   gains are applied to new systems that require more IT staff

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 1   involvement; is that fair?
 2        MR. BRESANI:     That's fair.
 3        MR. FAYE:    And, overall, you net to zero.       You don't
 4   increase staff, you don't decrease staff?
 5        MR. BRESANI:     That is correct.
 6        MR. VLAHOS:    Mr. Faye, if I may, just to clarify
 7   something from Mr. Bresani.      Mr. Bresani, when you talk
 8   about the user or customer, I wasn't clear whether you were
 9   talking about a utility customer or an IT customer/client.
10        MR. BRESANI:     Right.   When I talk about users and
11   customers, to me the business users are my customers.
12        MR. VLAHOS:    Right, okay.     Thank you for that
13   clarification.
14        MR. FAYE:    My final few questions in this section
15   concern the level of capital expenditures and the
16   interrelationship of those expenditures year to year.
17        The first question is:      The capital expenditures that
18   you've asked for in the 2008 test year, if those are
19   approved, does that necessarily commit the Board to
20   approving the 2009?    Are these related?      "If you start,
21   you've got to finish" sort of expenditures?
22        MR. BRESANI:     The way we've positioned this is as a
23   portfolio of programs.     The nature of IT programs is that
24   they are multi-year in order to achieve the benefits that
25   we need.
26        Many of the programs will start with a setting up of
27   the infrastructure.    Once you set up the infrastructure,
28   then you can build on top of that infrastructure to get the

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 1   systems up and running.
 2        If you have the investment in the infrastructure and
 3   don't commit to invest in the next following years to add
 4   the application layers on top of that infrastructure, then
 5   you will not obtain the benefits of the program.
 6        MR. FAYE:     So you're pretty much committed to the
 7   expenditure.    If you commit to it in one year, there are
 8   costs attributed to future years that you simply can't
 9   avoid, if you're going to make the project successful?
10        MR. BRESANI:     That is correct.
11        MR. FAYE:     And is the same true between the 2007
12   bridge year and the 2008 test year?
13        MR. BRESANI:     The 2007 bridge year is a special case,
14   because in 2007 we were wrapping up programs that started,
15   you know, before.    Basically, we are starting a new cycle
16   in 2008 with a set of applications and an infrastructure
17   that is based on our overall concept of enterprise
18   architecture.
19        And in order to achieve the benefits that I believe
20   that an organization like THESL should have in the future,
21   to support the challenges that we face both from
22   operations, financial governance, and regulatory
23   compliance, we need to put in place these programs and
24   deliver on them.
25        MR. FAYE:     I'm not sure you answered my question.     I
26   guess what I'm getting at is, have you spent money in 2007
27   that necessarily commits you to spending something in 2008
28   on new systems?

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 1           MR. BRESANI:   There's some programs that we started in
 2   2007 that commits us to complete in 2008, for example the
 3   implementation of voice-over IP, changing our network
 4   infrastructure from analogue into voice-over IP.           So we
 5   started in 2007, and we need to continue in 2008.
 6           Another project that we've started work in 2007 that
 7   requires us to continue in 2008 is our customer information
 8   system.    For example, we're applying to spend -- we already
 9   spent $2.7-million in 2007, and we have additional
10   expenditure in 2008 and 2009.
11           MR. FAYE:   Okay.   Thank you.
12           Mr. Chair, I'm going to move to another section.          It
13   looks like a timely opportunity for a break.
14           MR. SOMMERVILLE:    We'll break for the morning break
15   and reconvene at 11:15.       Thank you.
16           --- Recess taken at 10:48 a.m.
17           --- On resuming at 11:18 a.m.
18           MR. SOMMERVILLE:    Thank you.     Please be seated.     Mr.
19   Faye.
20           MR. FAYE:   The next section I'd like to look -- is
21   that on?    Next section I'd like to look at is fleet and
22   equipment, and if we look at our summary of capital under
23   that category, there are some increases from 2006 to the
24   test years.     It looks to be 2 million, 2 million-3,
25   something of that nature.
26           The explanation for the bridge year increase is just
27   below a chart on Exhibit D1, Tab 9, Schedule 1, if I could
28   ask you to turn to page 2 of that exhibit.          All ready?

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 1        MR. LABRICCIOSA:      Yes.
 2        MR. FAYE:      Look at the paragraph below the table:
 3               "The increase in the bridge year is attributed to
 4               the addition of 20 vehicles to the overall fleet.
 5               These vehicles are required to support the
 6               additional hiring of trades and technical staff
 7               to support the investment plans in 2008, '09, and
 8               '10."
 9        Part of these, if I understand that right, are going
10   to be the trucks that the apprentice crews use.          And do I
11   also understand that part of it is to do with the
12   additional work that will be going on on capital projects,
13   not necessarily done by apprentices, but additional
14   vehicles needed to resource those projects?
15        MR. LABRICCIOSA:      Well, they're all interrelated.        I
16   think we're hiring staff for those projects, and again,
17   it's driven by resources, which in turn is really driven by
18   the plan.
19        MR. FAYE:      So it would be true that some of it is for
20   the apprentices, some of it's for normal staff that are
21   using the trucks?
22        MR. LABRICCIOSA:      It's really the additional trucks we
23   have to add to the fleet for the plan and the resources.
24        MR. FAYE:      Well, let me put it a different way:        If
25   you didn't have this increased workload and capital, you
26   wouldn't necessarily need those extra trucks?
27        MR. LABRICCIOSA:      That's correct.
28        MR. FAYE:      Does the same reasoning apply for the

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 1   2008, 2009, 2010 years; those increases there, are they
 2   related to capital as well?
 3           MR. LABRICCIOSA:    No, what's happening in the actual
 4   bridge year is we're adding 20 trucks to the fleet.              So
 5   that budget really is the expense for the procurement of
 6   those 20 vehicles.      There are no sustainment dollars,
 7   essentially, in '07, in the bridge year.
 8           What you see in the test years are the sustainment
 9   dollars for the fleet.       So, essentially, there are 20 net
10   new vehicles in the bridge year, and in the test years it's
11   the sustainment plan.
12           MR. FAYE:   I'm not sure if I understand what you mean
13   by "the sustainment plan."        Is that the capital plan for
14   sustaining capital or --
15           MR. LABRICCIOSA:    No, it's just the existing fleet
16   that we have --
17           MR. FAYE:   Just to replace?
18           MR. LABRICCIOSA:    That's correct.
19           MR. FAYE:   So in 2006 you spent about 6 million, and
20   that would be a sustaining expenditure as well, I'm
21   assuming.
22           MR. LABRICCIOSA:    That's correct.
23           MR. FAYE:   Then there's this bump-up because you're
24   going to take on an extra 20 vehicles in 2007; I understand
25   that.    But why wouldn't the fleet costs go back the down to
26   2006 level in 2008?      If there are no additional vehicles
27   being purchased there, why would the sustaining part of the
28   budget need to be any higher?

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 1           MR. LABRICCIOSA:    Essentially, we've missed the
 2   sustaining investment in '07, which is now split out over
 3   the test years.
 4           MR. FAYE:   All right.    I understand.
 5           So I could take the 2 million in 2008, that's above
 6   historical, plus about 2 in 2009, and the same in 2010, 2,
 7   4, 6.    And that's about equal to what you spent in 2006.
 8   That's how those figures get rationalized?
 9           MR. LABRICCIOSA:    That's correct.
10           MR. FAYE:   So the 8,289 is the cost of 20 vehicles and
11   nothing more?
12           MR. LABRICCIOSA:    Essentially.
13           MR. FAYE:   All right.    I think I read somewhere that
14   of those 20, 12 are big trucks; is that right?
15           MR. LABRICCIOSA:    I don't know where you read that.
16           MR. FAYE:   Are 12 of them going to be big trucks; do
17   you know that?
18           MR. LABRICCIOSA:    That's subject to check.      I'd have
19   to take a look at it.
20           MR. FAYE:   Looking at page 3, middle of the page, the
21   guidelines for vehicles considered for replacement.              And
22   the first category is large vehicles.         These would be
23   bucket trucks, digger trucks, things of that nature?
24           MR. LABRICCIOSA:    Correct.
25           MR. FAYE:   The first criterion is that the vehicle
26   needs to be older than ten years old.         And I wanted to ask
27   you, are we talking about the vehicle in isolation from the
28   mounted equipment or are we talking about the vehicle and

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 1   mounted equipment together on that 10-year criterion?
 2         MR. LABRICCIOSA:    It would be both in terms of the
 3   assessment, because it is an assembled unit.        But on
 4   occasion, we would decouple those and remount the aerial
 5   device on another chassis.
 6        MR. FAYE:   In your experience at THESL, how long would
 7   you normally get out of one of the aerial devices -- more
 8   commonly known to people, I think, as buckets; right?
 9        MR. LABRICCIOSA:    Correct.   I don't have that
10   information right in front of me, but I know that we
11   mentioned that somewhere in the filing.
12        MR. FAYE:   Okay.   So it is --
13        MR. LABRICCIOSA:    It's longer than 10 years, though.
14        MR. FAYE:   You can use the boom on, say, two trucks
15   before the boom has had it.
16        MR. LABRICCIOSA:    That's correct.     That's generally
17   the rule of thumb.
18        MR. FAYE:   How are the old work vehicles disposed of
19   when you get around to replacing them?
20        MR. LABRICCIOSA:    We generally strip them and send
21   them off to auction.
22        MR. FAYE:   And that's an external auction house?
23        MR. LABRICCIOSA:    That's correct.
24        MR. FAYE:   I'm assuming you also have small vehicles
25   in your fleet; it isn't just work equipment.
26        MR. LABRICCIOSA:    Yes.
27        MR. FAYE:   What kind of transport equipment do you
28   have in the fleet?

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 1        MR. LABRICCIOSA:     The types of vehicles?
 2        MR. FAYE:   Yes.
 3        MR. LABRICCIOSA:     Passenger, compact passenger
 4   vehicles, vans, pickup trucks and cube-type vans.
 5        MR. FAYE:   Do any of the THESL employees have company
 6   vehicles for their personal use?
 7        MR. LABRICCIOSA:     Are you referring to field forces or
 8   everyone in THESL?
 9        MR. FAYE:     Everyone in THESL, I would think.
10        MR. LABRICCIOSA:     Under the compensation policy,
11   you'll see there are executive vehicles that are owned by
12   THESL and provided to the executives.
13        MR. FAYE:   That's part of your contractual agreements
14   with each executive, is it?
15        MR. LABRICCIOSA:     That's correct.
16        MR. FAYE:   How many would there be in that category,
17   do you think?
18        MR. LABRICCIOSA:     About a dozen.
19        MR. FAYE:   A dozen.    And the average unit value would
20   be about what?
21        MR. LABRICCIOSA:     I'd have to check the compensation
22   policy, but, subject to check, I guess, it would be in the
23   range of 30 to 40,000.
24        MR. FAYE:   Thirty to 40,000.     If there's about a
25   dozen, and let's say it's 40,000, we're talking about
26   $500,000 in capital costs here.      This is in your fleet;
27   your fleet is in your rate base as an asset?
28        MR. RODGER:     I think there's been an error on the

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 1   record.   I think Mr. Labricciosa said that they own these
 2   vehicles, and I believe it's a lease.
 3        MR. FAYE:    Are these leased?
 4        MR. LABRICCIOSA:     That's correct.
 5        I wasn't sure if your question was referring to
 6   leasing or owning at this stage.
 7        MR. FAYE:    No, I understood you, when you said "own",
 8   I meant is it your rate base.      Are you earning a rate of
 9   return on it?
10        MR. LABRICCIOSA:     No.
11        MR. FAYE:    But these are leased vehicles, so they're
12   expensed in the year they're incurred.
13        MR. LABRICCIOSA:     Yes, they are leased vehicles.
14        MR. FAYE:    Okay.   I'd like to turn to facilities next,
15   and on the facilities summary of capital budget, there's
16   some fairly significant increases in expenditure here.         I'd
17   like to turn you to Exhibit D1, Tab 9, Schedule 2.
18        We're looking at the chart on page 2 of that schedule,
19   and we see from that that the bridge year -- or, sorry, the
20   historical year to bridge year, there's an increase of
21   about $8-million in expenditures there.
22        I understand from the evidence that there's an overall
23   strategy here to consolidate work centres, and I wonder if
24   you could just give us a capsulation of what the plan is
25   there.
26        MR. LABRICCIOSA:     I can speak to it at a high level,
27   but there is a person on panel 5 that can speak to it in
28   detail, so I'm wondering whether we want to reserve those

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 1   questions for that panel or start here?
 2        MR. FAYE:      How detailed can you get?
 3        MR. LABRICCIOSA:        I mean, I can talk about the
 4   strategy.     That's not a problem.      But it depends on how far
 5   you --
 6        MR. FAYE:      Well, I have some fairly detailed questions
 7   on costs and things of that nature.          Are you able to speak
 8   to those?
 9        MR. LABRICCIOSA:        Probably not.
10        MR. FAYE:      Anyone else in the panel there able to
11   speak to costs on the facilities?
12        MR. LABRICCIOSA:        I don't think so.
13        MR. RODGER:      I think, Mr. Faye, that Mr. Couillard of
14   the next panel would be able to deal with your detailed
15   questions.
16        MR. FAYE:      I think I'm going to have to reserve all of
17   my questions for Mr. Couillard.        They're all detailed
18   financial questions.        So I'll move to the summary line of
19   our summary of capital schedule here.
20        Before I do that, perhaps you could just tell me what
21   these things are.      What is AFUDC, under "total general
22   plan"?
23        MR. JAMAL:      AFUDC is the allowance for funds used
24   under construction or during construction.
25        MR. FAYE:      Okay.    And that's a subject that we're
26   going to address somewhere else.
27        All right.      At the "total expenditures" line, compared
28   to 2006, the bridge year is about $50-million higher, and

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 1   the test year is about $140-million higher.          That's the
 2   2008 test year.      The 2009 test year is about $140-million,
 3   $150-million, maybe; and 2010, around $150-million as well.
 4        I guess my question is, you have a lot going on in
 5   every one of your capital categories.         You've got a huge
 6   underground replacement program for cables.          You've got
 7   some large transformer and municipal-station construction
 8   to handle.     You've got Smart Metering to do.        You've got a
 9   big metering project that -- if it comes through for you,
10   the Smart Meters in condo units.
11        And then in information technology some significant
12   projects that have to be managed there.          Facilities, you're
13   trying to sort of amalgamate five or six locations into
14   three.   And I wonder if the organization is structured and
15   staffed at the top levels to manage that kind of huge
16   program happening all over the place.
17        How do you propose to keep control of these programs?
18        MR. LABRICCIOSA:       I guess, speaking at a high level,
19   we do have quite a few programs underway, as you described,
20   Mr. Faye.     And at the very end of the day, I think we've
21   put together in front of you our plans to execute on those
22   projects.
23        It's in the five volumes of binders that we filed with
24   the OEB, plus all the interrogatories.          So we feel fairly
25   confident we've put together a good plan.
26        As far as executing on that plan, we spent the better
27   part of, through amalgamation and up to this point, doing
28   business transformation, adopting tools, processes, and

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 1   skilling ourselves in the right way for project management
 2   for these kinds of challenges.
 3        We have, you know, management control and reporting
 4   systems.    We talked about our IT investments that
 5   continually are used to support our efforts in these areas
 6   to manage these multi-years, multi-phase, complex type
 7   projects that you see in front of you.
 8        MR. FAYE:     If we looked at the bridge year, the $213-
 9   million, on the latest cost accounting that you've got, how
10   are you doing according to that?        Have you spent that on
11   schedule?
12        --- Witness panel confers.
13        MR. LABRICCIOSA:      We believe we are on track to
14   complete that program, yes.
15        MR. FAYE:     Do you have any numbers for the latest
16   month-end that you might have had summarized on your
17   financial systems?
18        MR. LABRICCIOSA:      Not with us here.     I think
19   throughout the filing we quote, I think, end of September
20   numbers.
21        MR. FAYE:     September?
22        MR. LABRICCIOSA:      I don't have it in front of me.       I
23   know when I'm reading through the interrogatories, the
24   financial numbers we quote usually are end-of-September
25   numbers.
26        MR. FAYE:     So that would be three-quarters of the way
27   through the year.
28        MR. LABRICCIOSA:      That's correct.

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 1        MR. FAYE:   And just on a pro rata basis, that would
 2   mean you had spent somewhere in the neighbourhood of 150
 3   million of the 213.   Does that ring a bell?
 4        --- Witness panel confers.
 5        MR. LABRICCIOSA:     Yes.
 6        MR. FAYE:   So you would expect to complete all the
 7   2006/7 projects on schedule and complete the spending of
 8   that 213 million; is that right?
 9        MR. LABRICCIOSA:     Yes, I feel confident we have that
10   program under control.
11        MR. FAYE:   How much was carried over from the 2006
12   capital budget to 2007?
13        MR. LABRICCIOSA:     I'm just conferring with the panel
14   on all the individual programs we did undertake.        If you
15   just give me a second?
16        MR. FAYE:   Sure.
17        --- Witness panel confers.
18        MR. LABRICCIOSA:     Sorry it took us a while, but we're
19   trying to give the best answer we can without having all
20   the data in front of us.
21        Essentially, based on what the panel's telling me, the
22   programs we've undertaken, which include the likes of Smart
23   Meters, information technology, and the distribution
24   capital, are essentially complete in 2006.       So very little
25   carryover, if any.
26        MR. FAYE:   Okay.    And 2007 sounds like it's going to
27   be a similar-type year, with very little carryover?
28        MR. LABRICCIOSA:     That's correct.

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 1           MR. FAYE:   And can I ask you to look at Exhibit D1,
 2   Tab 6, Schedule 2?
 3           MR. LABRICCIOSA:    We have that schedule in front of
 4   us.
 5           MR. FAYE:   Look down the second column of that chart -
 6   - sorry, the third column, "Net expenditures".           Do I
 7   understand that to be equivalent to carryover?           Or am I
 8   misreading this page?
 9           MR. LABRICCIOSA:    "Carryover", I guess, might be a bit
10   of a misnomer.      Because we've talked about these multi-
11   phase type projects, projects don't lend themselves to
12   start and stop; totally complete in any one given fiscal
13   year.    We have projects in mid-stream that are not
14   necessarily carryover but essentially are construction
15   work-in-progress.
16           In other words, the construction cycle lends itself to
17   start in November and finish in March.          So that project,
18   while it's under construction, would be considered
19   construction work-in-progress, or CWIP.          So those numbers
20   would represent that amount.
21           MR. FAYE:   Do you have a sort of a breakdown of the
22   30.8 number -- that would be 30.8 million in the 2008 test
23   year?    What kind of projects are in that number?
24           MR. LABRICCIOSA:    What type of detail were you looking
25   for?
26           MR. FAYE:   Well, I appreciate your explanation that a
27   project starting late in the year probably doesn't go in
28   service until the spring, if it's of any size.

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 1        At the same time, if it starts late in the year, you
 2   wouldn't expect to see a whole lot of money spent on it
 3   either.   It would be mostly spent in the new year.           I'm
 4   thinking of more distribution-type projects that form a
 5   good part of your budget and of which each would go in
 6   service and be capitalized, and wouldn't be showing as
 7   work-in-progress.   As soon as they're ready to be
 8   energized; right?
 9        So if the 30.8 is an IT project that spans from year
10   to year, and doesn't go in service until the third year, I
11   could understand that.    But if this is a bunch of
12   distribution projects, each discrete and each capitalized
13   when they're complete, that's the sort of detail I'm
14   looking for.
15        MR. LABRICCIOSA:    Yes.    Would it be helpful if we
16   described, say, for the underground projects, and this
17   being that step year, for civil construction?        So
18   essentially, even the civil build goes first and the
19   electrical comes in afterwards; essentially that whole
20   project, civil, and electrical, are -- you know, it's not
21   really called complete until that project or those elements
22   are brought together because of the way they sequence them.
23        Does that help?
24        MR. FAYE:   Yes, it does, if that's what that 30.8 is.
25   If that's civil construction associated with an electrical
26   project that has to be energized before you capitalize,
27   that's a completely adequate answer.
28        But is that the case?      Is this 30.8 civil

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 1   construction?
 2        --- Witness panel confers.
 3        MR. LABRICCIOSA:     Yes.   That's predominantly the
 4   answer to that question, at least for that first year.        But
 5   I'm also being told there are information technology
 6   projects that, again, are multi-phased or multi-year.
 7   Until that comes on stream, again, it would show up in that
 8   particular bucket or category; as well as design costs for
 9   projects before they're built.     Some of those elements add
10   to that number as well.
11        MR. FAYE:   Considering that you have this ongoing
12   project of replacing cables and having civil work
13   associated with them, and that sort of theme runs right
14   through all the test years, shouldn't I expect to see the
15   same sort of level occurring in 2009?      That would be the
16   level of construction work-in-progress?       Why do I only get
17   3 million happening there?
18        MR. LABRICCIOSA:     Well, again, when you look at the
19   lumpiness of the change -- in other words, you've seen in
20   the capital plan, we moved from 157 to 213, and then 213 to
21   294, those kinds of step increases.      You would tend to see
22   some of that, that type of effect, showing up in this
23   particular table.
24        If you see the shift of work going from predominantly
25   overhead to underground, and the sequence I've just
26   described, you would see the same kind of effect manifest
27   itself in this table as well, where, again, if you’re a
28   predominantly overhead system years prior to that, where

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 1   work is completed in much shorter intervals, you would tend
 2   to see smaller numbers in that CWHIP category.         If you go
 3   to the underground projects where, again, you do a civil
 4   piece, larger project, larger cost, an electrical piece, in
 5   sequence, it would show up in there.
 6         So I think you're seeing a combination of things in
 7   that one data point.
 8         MR. FAYE:   Yes, I think I'm still not understanding
 9   it.
10         The underground direct buried category actually
11   increases in 2009.    It's 45 million in 2008, 54 in 2009.
12   So if we have got 30 million, and some part of that
13   understandably is not this kind of construction, maybe it's
14   IT, but I think I heard you say really part of that was
15   construction work-in-progress that started in 2007 but
16   wouldn't be capitalized until 2008, and now I have in 2008
17   50 percent more work than 2007, and yet my work-in-progress
18   is a tenth of what it was, I'm just having trouble
19   rationalizing why that would be.
20         --- Witness panel confers.
21         MR. LABRICCIOSA:    Again, because there are many
22   factors contributing to that one data point that you
23   referenced, 2008 test, for example.       I mean, in dialoguing
24   with Mr. Bresani on IT, the 18 million spend in CIS is
25   really sitting in CWIP for 2008 and will not be completed
26   until 2009.   There are those kinds of anomalies that come
27   into play to make that one data point look a little out of
28   place.

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 1        MR. FAYE:     All right.     Well, I appreciate the
 2   difficulty of discussing this when you don't have all the
 3   details in front of you.     I wonder if you could undertake
 4   to provide some detail on the 30.8 in 2008 test year, and
 5   the 3.1 in the 2009, so that we can understand, you know,
 6   why those numbers should be radically different from each
 7   other.   That will be T5.2.
 8        UNDERTAKING NO. T5.2:        TO PROVIDE DETAIL ON 30.8, 3.1
 9        DATA IN 2008 AND 2009 TEST YEARS.

10        MR. LABRICCIOSA:     If I understand you correctly,
11   Mr. Faye, it's breaking out the 30.8 and 3.1 in 8 and 9
12   test years.
13        MR. FAYE:     Yes.   I'd like to turn you now to Exhibit
14   D1, Tab 3, Schedule 2.
15        MR. LABRICCIOSA:     Okay.
16        MR. FAYE:     Looking at page 2 of that schedule, this is
17   a variance analysis chart that lists the variances between
18   the 2006 approved expenditure for a variety of capital
19   categories and the 2006 actual.
20        I just wanted to ask you about a couple of these
21   categories here.    In the equipment category, there's a
22   significant variance of 13.8 percent.        I wonder if you can
23   comment on why there would be such a large variance there.
24        --- Witness panel confers.
25        MR. JAMAL:     Some of that variance -- actually, there
26   are two categories that somewhat net out to each other.
27   There is another category called Other Distribution Assets.
28   There are some offsets between those two categories, I

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 1   think due to the assumption that in 2006 approved, we
 2   assumed a higher number of leased vehicles, as I understand
 3   it.   I wasn't here at the time, but that's what the
 4   analysis showed.      But I think it was recorded in the other
 5   category.
 6         MR. FAYE:     So the overexpenditure in equipment is due
 7   to recording leased vehicles in there that might better
 8   have been recorded in the other distribution-assets
 9   category?
10         MR. JAMAL:     I believe in the approved, it's in one
11   category; in the actual, it's another.
12         MR. FAYE:     Okay.
13         MR. JAMAL:     I believe.
14         MR. FAYE:     These would be the leased vehicles we were
15   talking about before?
16         MR. JAMAL:     Yes.   Again, I think in the approved, I
17   think we had assumed that there were going to be leased
18   vehicles, and I think -- if I again recall properly – that
19   they were actually purchased in the historical year and
20   recorded as other distribution assets, or grouped in with
21   other distribution assets.
22         MR. FAYE:     I just want to be clear on this.       In my
23   previous inquiry, we were talking about passenger vehicles
24   dedicated to executives, and those were the ones that --
25   the response from Mr. Rodger was that these were leased,
26   not owned.
27         Are these are another group of leased vehicles you're
28   talking about, or are they the same?

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 1        MR. JAMAL:      No, I believe they're -- in the approved
 2   ear, there was the assumption that the fleet vehicles were
 3   capitalized.     There were some leased capital vehicles in
 4   the fleet.
 5        MR. FAYE:      In the approval -- the equipment says 116.6
 6   approved.     And you're saying -- do I understand you to be
 7   saying that that figure was generated assuming that there
 8   would be some leased vehicles?        And then, subsequently, the
 9   vehicles turned out to be purchased, and that's why you
10   spent $16-million more?
11        MR. JAMAL:      No.    Again, I'm not sure which categories
12   in which it looks like that.        The leased vehicles -- and
13   this is subject to check -- that the leased vehicles -- the
14   fleet leased vehicles were assumed to be leased in the 2006
15   approved year, and then in 2006, in the actual year, I
16   believe they were purchased.
17        --- Witness panel confers.
18        MR. JAMAL:      But subject to check, that's what I
19   believe.
20        MR. FAYE:      So purchased, not leased.
21        MR. JAMAL:      Purchased, not leased.
22        MR. FAYE:      Okay.   And now my question is, which
23   vehicles are these that we're talking about?           Are these the
24   ones that we talked about previously, the executive leased
25   vehicles?
26        MR. JAMAL:      I believe those are construction vehicles.
27        MR. FAYE:      Construction vehicles?
28        MR. JAMAL:      Yes.

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 1           MR. FAYE:    Okay.    So are we talking about big bucket
 2   trucks?    Are we talking about half-tonne trucks that people
 3   drive around in?
 4           MR. JAMAL:    It's apparently a combination of vehicles.
 5           MR. FAYE:    And if they had've been leased, are you
 6   saying that they would have appeared in the other
 7   distribution-assets category?
 8           MR. JAMAL:    I believe it was just a grouping issue.        I
 9   think how they're presented it -- in theory it should be
10   part of the equipment, including the vehicles.           It's just
11   the way it was grouped for presentation purposes.
12           MR. FAYE:    Do you consider a leased vehicle an asset?
13           MR. JAMAL:    It depends on if it meets the
14   capitalization criteria.         There are certain criteria for
15   accounting purposes.         If it meets that criteria, it's
16   capitalized.
17           MR. FAYE:    And is this chart, you know, according to
18   GAAP, or is this a regulatory chart?
19           MR. JAMAL:    The capitalization is determined according
20   to GAAP, and then it's categorized in these different
21   categories, depending on the regulatory groupings.
22           MR. FAYE:    Okay.    So a leased asset can appear in rate
23   base?    Is that what I'm hearing?
24           MR. JAMAL:    A leased asset can appear in rate base.
25           MR. FAYE:    Do executive vehicles fall into that
26   category?
27           MR. JAMAL:    I'm sorry, if they meet the lease
28   criteria, they would be capitalized; correct.

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 1        MR. FAYE:      Would you undertake to find out whether
 2   your leased executive vehicles are in rate base?
 3        MR. JAMAL:      Sure.
 4        MR. FAYE:      Thank you.    That will be T5.3.

 7        MR. FAYE:      And could you also undertake to confirm the
 8   explanation that you've just given between the equipment
 9   and the other distribution asset variances?
10        MR. JAMAL:      Certainly.    Yes.
11        MR. FAYE:      That will be T5.4.
14        VARIANCES.

15        MR. FAYE:      Just a couple of more questions, and I
16   think I'm going to be done here.
17        On a general level, if the Board allows the increase
18   in CAPEX for 2008 and beyond, do you anticipate that there
19   would be a decrease in the operating expenses in your
20   system, and, if so, when would you start to see those
21   decreases?
22        MR. LABRICCIOSA:        The simple answer would be yes, we
23   would expect to see, as you replace aging assets with new
24   assets, that you wouldn't have to repair them under
25   emergency conditions because they're failing for some time.
26   And depends -- in general, it would be outside of the rate
27   filing period of three years.        And again, it would depend
28   on the asset classes and expected end of life.

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 1         MR. FAYE:    Okay.   So we can't point to anything in the
 2   evidence at this time that would show a decline in OM&A
 3   expenses because of the rebuild of all the plant.
 4         MR. LABRICCIOSA:     So there's actually a couple parts
 5   to that.    One would be emergency repairs; so one wouldn't
 6   expect those.     You still have to maintain the pieces of
 7   equipment, so you would have your standard maintenance
 8   programs.
 9         MR. FAYE:    Yes.
10         MR. LABRICCIOSA:     And there's also emergency work as a
11   result of storms and, call them externalities, that we
12   can't control, in terms of the distribution system.
13         So I would expect, if weather patterns stay as they
14   are today, we would expect that level of response activity,
15   and that would be OM&A.      I would expect the maintenance to
16   stay relatively stable, in terms of, you would still have
17   to look after it.     And I would expect the emergency repairs
18   to decrease.
19         MR. FAYE:    And we would see that somewhere past the
20   2010 test year.
21         MR. LABRICCIOSA:     I would expect.
22         MR. FAYE:    Next rate application.
23         All right.    Mr. Chair, I have about a half an hour to
24   45 minutes left on facilities, but it appears that that
25   would be better directed to the panel with Mr. Couillard on
26   it.   And so I'm finished all my questions, then.
27         Thank you so much to the panel.       You were very
28   gracious.

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 1          MR. LABRICCIOSA:    Thank you.
 2          MR. SOMMERVILLE:    Mr. Rodger, redirect?
 3          MR. RODGER:   Thank you, Mr. Chairman.

 5          MR. RODGER:   Mr. Labricciosa, if I could start with
 6   you.   Back last week during the exchange that you had with
 7   my friends from Pollution Probe -- and you had a series of
 8   questions back and forth, and the hypothesis that appeared
 9   to be put to you, that if Toronto Hydro were to spend more
10   money on CDM and distributed generation, you may need less
11   for your capital plan -- do you recall that discussion?
12          MR. LABRICCIOSA:    I do, sir.
13          MR. RODGER:   I want to see if I can highlight the key
14   issue here you put before the Board, and if I could use the
15   analogy of the water sector.
16          You know, Toronto, a lot of homeowners like a nice
17   green lawn, and they water their lawns with municipal
18   water.   And let's also say they had the option of buying
19   water off a truck.     That would be the equivalent of the
20   distributed generation.      Trucks go around.     You can buy the
21   water from them.
22          But let's say the city or the province decided, "We
23   want to put a stop to this.       We have to conserve water.      We
24   don't want you buying water from a truck.         We don't want
25   you to use water at your house to water your lawns."
26          Would either of those CDM initiatives, to stop using
27   municipal water or the distributed-generation equivalent --
28   buying water from a truck -- would that do anything to help

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 1   your infrastructure problem if your pipes are still rotting
 2   under the ground?
 3           MR. LABRICCIOSA:    No, sir.    We have an aging
 4   infrastructure.       It's failing.    It's underperforming in
 5   contrast to what our customers expect.          It needs an
 6   investment to replace it.
 7           MR. RODGER:    You also had a discussion with my friend
 8   about CDM plans generally, and the OPA's role now in that
 9   area.    But that really wasn't explained.
10           Could you provide me with your understanding of, what
11   role does the Ontario Power Authority now have with respect
12   to the development of CDM plans?
13           MR. LABRICCIOSA:    To my knowledge, they are in charge
14   of and have funding for CDM activities and work and effort.
15   So essentially, we partake in that by applying to the OPA
16   for approval of funding to conduct CDM-type initiatives
17   within the City of Toronto.
18           MR. RODGER:    So is Toronto Hydro somehow now less
19   interested in CDM?
20           MR. LABRICCIOSA:    No, sir.
21           MR. RODGER:    Now, Pollution Probe also put a
22   proposition to you, but there was no answer recorded in the
23   transcript.     Well, first of all, let me back up.
24           The whole discussion about a third line to Toronto,
25   that's not part of this application, is it?
26           MR. LABRICCIOSA:    That is not part of this
27   application; that's correct.
28           MR. RODGER:    And my friend put to you the proposition,

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 1   in effect, that distributed generation can avoid the need
 2   for a third point of supply.        Do you agree with that
 3   statement?
 4        MR. LABRICCIOSA:       No, sir.
 5        MR. RODGER:      Now, you also had a discussion with the
 6   Consumers Council about the nature of forecasts contained
 7   in your application.       And Mr. Warren, I believe it was,
 8   seemed to be critical about your forecasted expenditures
 9   and your actual expenditures, and that this should be a
10   concern for the Board.
11        Mr. Labricciosa, in your c.v., you have some 22 years'
12   experience in the distribution sector; is that correct?
13        MR. LABRICCIOSA:       Yes, sir.
14        MR. RODGER:      In your experience, can you recall any
15   project whose costs you forecast perfectly?
16        MR. LABRICCIOSA:       No, sir.
17        MR. RODGER:      And in the 700 pages of capital projects
18   filed with the Board, do you expect that any of those
19   forecasts will be bang on the penny?
20        MR. LABRICCIOSA:       If they are, we are extremely lucky.
21        MR. RODGER:      It's not likely?
22        MR. LABRICCIOSA:       No.
23        MR. RODGER:      And would you agree with me that what
24   you're asking for in this capital plan is that the Board
25   approve an overall capital budget; is that fair?
26        MR. LABRICCIOSA:       Yes.
27        MR. RODGER:      And if the Board approves it, is the
28   result you'll have a construction of projects that best

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 1   meet the actual conditions that Toronto Hydro faces over
 2   the test years?      Is that fair?
 3        MR. LABRICCIOSA:       Yes.
 4        MR. RODGER:      Can the OEB have confidence that you'll
 5   manage your capital spending based upon the budgets that
 6   this Board approves?
 7        MR. LABRICCIOSA:       Yes, they can.    Our history has
 8   shown that we're able to manage a portfolio within reason.
 9        MR. RODGER:      And am I correct that this would be the
10   same approach that you took, whether you got approvals for
11   one year, or three years?
12        MR. LABRICCIOSA:       It's the only prudent thing to do in
13   terms of the situation we face with service delivery to our
14   customers.
15        MR. RODGER:      Now, you also had a number of questions
16   from my friends about this multi-year test year approvals
17   that you received over the years 2008, 2009, and 2010.
18   From a capital program perspective, can you describe for me
19   the harm that will occur if you do not get the three-year
20   approvals?
21        MR. LABRICCIOSA:       Not getting this three-year
22   approval, right now, requires us to come back, likely, in
23   front of this Board a year from now.         Our team, first of
24   all, has put a great deal of effort -- some 50 engineers
25   and technicians contributed to the formation of this plan
26   in front of you.      Over a thousand person-hours and a
27   million dollars went into crafting what's in front of you
28   today.

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 1        While no one can really predict the future perfectly,
 2   we think we have a good outlook.        We know what we need to
 3   undertake, and we have a plan based on what we know today
 4   and what we think will happen tomorrow in terms of new
 5   technologies and impacts that could impact this plan.
 6        We feel very confident this plan encapsulates what we
 7   think will happen going forward.
 8        By coming back with a refiled plan a year from now
 9   means all that effort we put in to get this in front of you
10   today, while it would not have to be repeated for another
11   three-year period, we certainly would put an equivalent or
12   reasonable amount of effort into trying to put that one-
13   year plan back in front of you, and we'd pretty much have
14   to start almost immediately next year, to start doing that.
15        While we focussed our energy on putting this together
16   for regulatory compliance, that means some of the things we
17   want to do to get better plans out there -- it means we
18   either will have to hire people to do that, or we'll have
19   to put that on hold while we continue to comply with the
20   one-year rate filing.
21        That means something else gives in that equation.
22        When we talk about the types of investments we need in
23   terms of the underground infrastructure, we talked a lot
24   about, and a lot of questions, around how these things
25   sequence.    And again, it's not as easy as just with
26   precision you can pull out a piece of bad equipment, put
27   another piece in.     There's a lot of co-ordination with
28   other agencies.     We talked about co-ordination with the

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 1   City, Bell, Rogers, other utilities, water and the roads,
 2   and to pull all that together and sequence it in the right
 3   way requires a great deal of effort.
 4           This plan really reflects a lot of that co-ordination
 5   in place today.       Not having this approved means we would
 6   have to go back and start again in terms of the co-
 7   ordination, to try to get these parts and pieces in play.
 8   That means equipment doesn't get replaced.          That means
 9   service will drop.
10           Essentially what I'm really saying in a roundabout way
11   means not approving this plan today means more effort
12   earmarked at putting another plan in front of this Board,
13   less effort in actually getting out there to execute the
14   work.
15           MR. RODGER:    You also had an exchange with one of my
16   friends about rate impacts of the sustaining capital plan.
17   And your answer, again -- I believe it was to Mr. Warren --
18   is, from an asset perspective, that that wasn't one of your
19   considerations.
20           Remember that exchange?
21           MR. LABRICCIOSA:    I do, sir.
22           MR. RODGER:    Is it your evidence that customer rate
23   impacts are irrelevant or not important to Toronto Hydro
24   when it puts together its application?
25           MR. LABRICCIOSA:    No, sir, it is important to Toronto
26   Hydro.    But if I can clarify, at that time, as part of
27   being responsible for the asset management decisions of the
28   organization, I'm really looking at system performance and

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 1   asset replacement, not rates.
 2        MR. RODGER:      So there is another group --
 3        MR. SOMMERVILLE:       Mr. Rodger, I just want to
 4   intercede.     Redirect properly is directed to questions that
 5   raised some doubt where the answer given by the witness was
 6   avoidably ambiguous.
 7        I don't think that is the case with respect to the
 8   last question that we had.        If you could focus your
 9   redirect on genuine examples where the Panel has been
10   unable to give its answer in a clear, unequivocal fashion -
11   -
12        MR. RODGER:      Yes, thanks.
13        MR. SOMMERVILLE:       -- I'd appreciate it.      Thank you.
14        MR. RODGER:      Thank you for those answers.
15        If I could turn to you, Ms. Davidson, there did seem
16   to be some confusion in the record in my notes when you had
17   the exchange with Mr. Faye about the submetering, and he
18   asked you about how could certain submetering agencies do
19   something for free, and Toronto Hydro may have to charge.
20   Do you recall that?
21        MS. DAVIDSON:      Yes, I do.
22        MR. RODGER:      Could you give us any further help in
23   your understanding about how this industry then works, for
24   example?   If you have a developer of a condominium
25   building, what's your understanding of what a business
26   arrangement is that would allow a submeter provider to come
27   into that new development?
28        MS. DAVIDSON:      The submeter provider will come into

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 1   the development, making a number of offers, and they will
 2   frequently offer to install the asset, the meter, at no
 3   cost to the developer.       However, there is a commitment that
 4   all the residential suite occupants will sign a contract to
 5   pay a form of a distribution rate, or a form of a rate that
 6   offsets the cost of that meter installation.
 7        Also, the group that is selling those meters will be
 8   the biller of that customer, and will continue with the
 9   billing operation for that 25-year period.
10        Thus, the company that's selling those meters are held
11   whole through that period of time, eventually, but one of
12   the areas that's still up in question, those retailers will
13   be licensed.     There is still discussion around the approval
14   of those different rates that will be charged to those
15   customers.
16        MR. RODGER:      And are you aware, are there any
17   financial incentives that may pass from the submeter
18   provider to the developer, that you're aware of?
19        MS. DAVIDSON:      I've heard third-hand that that does
20   occur, that there are funds that are given to the developer
21   -- and when I say "third-hand" it's actually from
22   developers to people that are very credible people -- that
23   funds are given to the developer on an up-front basis to be
24   able to install those meters.
25        MR. RODGER:      Just to understand what that means, if
26   I'm the submeter provider, you're the developer of a
27   condominium, I pay you per-suite to install my meter into
28   your building?

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 1        MS. DAVIDSON:      You pay me a certain amount of money to
 2   be able to do that, yes.
 3        MR. RODGER:      Let's explore one situation where I'm not
 4   sure of the answer, where you provide the submeter for the
 5   bulk area, or the bulk meter, and then behind the bulk area
 6   someone else puts in the suite meters.          If there's a
 7   situation where the power that you are delivering to the
 8   bulk meter was fine, but something else has happened from
 9   the bulk meter to the individual suite meter and there's a
10   power outage for those residential condo owners, who do
11   those condo owners call if there's a power outage?
12        MS. DAVIDSON:      They would call my call centre.
13        MR. RODGER:      And they may not be your customer,
14   though?
15        MS. DAVIDSON:      That is correct.
16        MR. RODGER:      So what would your call centre tell these
17   customers?
18        MS. DAVIDSON:      That they would have to speak to their
19   condominium board, who is our customer.
20        MR. RODGER:      And finally, turning to you, Mr. Bresani,
21   you described the productivity benefits associated with the
22   IT program, but I don't think you identified is there any
23   financial benefits that you could speak to, associated with
24   this initiative that you've described?
25        MR. BRESANI:      As part of a portfolio of projects that
26   we are proposing from 2008 to 2010, we've come up with a
27   set of benefits following our framework and the governance
28   methodology, and the amount of benefits amount to around

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 1   $15-million per year, starting in 2011.
 2        Now, those $15-million per year are not only cost
 3   reactions, but they include cost avoidance and improving
 4   productivity to deliver our capital work and operations.
 5        MR. RODGER:    Thank you.    Those are my questions.
 6        MR. BALSILLIE:    Thank you, Mr. Chairman.

 8        MR. BALSILLIE:    My questions, I guess I only have one,
 9   really.   It's to Mr. Labricciosa and Mr. Bresani.        And
10   they're related to, instead of going forward, looking back.
11        I think, Mr. Labricciosa, you said that previously
12   there had been a lack of investment, and I think you used
13   the term "riding the wave."      This morning, Mr. Bresani said
14   that they didn't necessarily follow the normal course of
15   business in the refresh of the IT systems.
16        Now, we've just heard that we should have confidence
17   going forward, and history has shown that we are able to
18   manage this portfolio.
19        I guess my question really is:       What's different now?
20   Where have we come from?     Where are we today?      And why
21   should we think things are so much better or different?
22        MR. BRESANI:    Let me start with that.      Myself, I would
23   like to ensure that we can portray that the organization
24   has matured, in terms of the project management, focus,
25   skills, and disciplines that we are trying to implement.
26        Part of that overall mind frame and frameworks is
27   driven by the information technology aspects of how to
28   manage portfolios, but from a business perspective, there's

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 1   also a significant push on improving those project-
 2   management skills.
 3        So that moving forward, what we see is that the
 4   framework of governance that we are putting in place will
 5   allow us to deliver the projects successfully in the next
 6   test years.
 7        MR. BALSILLIE:     Compared to where you were previously?
 8        MR. BRESANI:    That is correct.
 9        MR. BALSILLIE:     At one time I was an Assistant Deputy
10   Minister responsible for IT.      We were looking at a refresh
11   on an every two- to four-year period of all the equipment.
12        Is that all built in now, in the new IT systems that
13   you're talking about?
14        MR. BRESANI:    That is correct.     That's part of the
15   work that we are doing in building the basic infrastructure
16   that we need to deliver the projects that we have in the
17   future.
18        MR. BALSILLIE:     So in 2014 we won't be still relying
19   on Windows XP?
20        MR. BRESANI:    Definitely not.
21        MR. BALSILLIE:     All right.
22        MR. LABRICCIOSA:     I think from the systems perspective
23   -- and I don't want to give the impression that I wasn't
24   around.   I probably am part of that problem that you
25   define, in terms of history.
26        Prior to amalgamation we were six different companies,
27   each sort of having its own strategy around assets, and
28   probably at a different maturity level around decision-

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 1   making around replacement versus repair, and so on.
 2           So at amalgamation I think we were so internally
 3   focused at trying to bring the six companies together, get
 4   to a common platform, and we spent several years doing
 5   that, that we had a very short-sighted, very narrow view of
 6   the future, and, in fact, it was very much a short-term
 7   plan.
 8           I think the difference today, and why I will try to
 9   convince you that you should be confident in us in terms of
10   this plan, we finally looked out ten years.          This is the
11   first time we've developed a ten-year outlook.
12           We spent a lot of effort pulling the data, pulling the
13   systems, pulling our knowledge together over the last four
14   or five years, that we can now actually spend most of our
15   time looking outward.
16           So historically, we had a very short-sighted view,
17   maybe a one- or two-year view ahead of us, and not that
18   long a view in the past, which would sort of explain why
19   not a lot of capital investment at that time.
20           But I could certainly say with a lot of confidence, we
21   now have a very good long-term view in front of us.
22           MR. BALSILLIE:   Okay.    My final question, Mr.
23   Chairman, is:     You've now got the plan.       You've got
24   everything.     If we were to pour the funds in there, you can
25   buy the capital, and you've got the staff.          You're going to
26   have the trucks, you're going to have the IT systems, and
27   everything is going to rock and roll in 2008.           You talk
28   about being confident going forward.

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 1        You're going to be able to spend at that level through
 2   the year 2008?
 3        MR. LABRICCIOSA:    That's correct.
 4        MR. BALSILLIE:    Thank you.
 5        MR. SOMMERVILLE:    Mr. Vlahos?
 6        MR. VLAHOS:   Thank you, Mr. Chairman.
 7        Mr. Labricciosa, just one area.      And I appreciate the
 8   clarification provided to the questioning from your
 9   counsel, in terms of whether you're looking for overall
10   budget approval, an envelope kind of a thing, as opposed to
11   a line-by-line.    I think you clarified for the record, and
12   that was my initial question.
13        But that also led to my second question, and it still
14   remains, and that is -- and I do understand at the end of
15   the day, if you receive an approved amount to be reflected
16   into rates, a funding mechanism, I guess, to correspond to
17   your budget that you propose, and it may be a corporate
18   decision as to how that amount would be viewed -- but I
19   want to ask you, from a systems perspective, and as part of
20   the senior management team, would you view that amount as a
21   cap or as a minimum?    How would you view that amount?
22        MR. LABRICCIOSA:    I'm not sure what you mean by the
23   term "cap".   I mean, essentially --
24        MR. VLAHOS:   A maximum amount, a maximum amount that
25   you can spend, on capital for year 1, 2, or 3.
26        MR. LABRICCIOSA:    I guess the only way I can answer
27   your question is, if you gave us the funding, we would
28   spend it on the projects that we would have in front of us.

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 1        We wouldn't expect -- our plans are such that we would
 2   not expect, unless it was a major consequence -- the
 3   amounts that we reflect here to deviate substantially one
 4   way or the other.      Some projects may go up, over, or under,
 5   but generally there's a bit of a balancing act that would
 6   take place.
 7        So from that perspective I would see it as a cap, in a
 8   sense that I don't think we would overspend that amount,
 9   should it be approved.
10        MR. VLAHOS:      And why not, sir?     That's what I'm trying
11   to get to.     Why would you feel that if it is necessary for
12   the integrity of the system to spend that extra amount of
13   money, why wouldn't you do that?
14        MR. LABRICCIOSA:       You know, that's a good question.
15   We've had some thoughts about this from the asset-
16   management perspective.
17        One of the reasons we're kind of in the situation
18   we're in today is, if you look back historically, when we
19   had these growth periods through the '70s, into the '80s,
20   assets went in at sort of a record pace.
21        And essentially, they're now in -- as their lifespan
22   is coming to an end, it's kind of a lumpy investment and
23   reinvestment that's required going forward.          So
24   essentially, what we're trying to do is smooth it out,
25   while still keeping performance contained.
26        So you know, essentially, if you -- you know, I guess
27   the question, if you take it to the extreme, would be,
28   "We'll give you 1.17 billion today.         Spend it, replace the

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 1   system."    I don't think that would be a wise thing to do,
 2   because 20 years from now we're going to need that same
 3   investment or more to basically replace the whole thing.
 4        So we wouldn't overinvest, for the same reason we
 5   wouldn't underinvest, because it causes problems
 6   downstream.
 7        MR. VLAHOS:     Okay.   Thank you for that.
 8        I am still trying to sort of zero in on the issue that
 9   is in my mind, and that is, if you get "X" dollars approved
10   for the -- whether it's one year, two years, or three
11   years, it doesn't matter, okay?       It can work under either
12   scenario.    But if you get that "X" dollars approved, that's
13   going to be reflected in rates.       Okay?
14        A funding mechanism, if you like.
15        Then you would not risk, if I can just put some words
16   in your mouth --
17        MR. LABRICCIOSA:      Sure.
18        MR. VLAHOS:     You will not risk going above that
19   amount.    Why?   Are you aware that the company can come back
20   and say, "Well, you know, what the Board authorized in
21   rates was 'X' millions dollars, but we had to spend 'X'
22   plus something."     I'm assuming that "plus something" is a
23   significant variation.
24        MR. LABRICCIOSA:      Mm-hmm.
25        MR. VLAHOS:     What is your understanding, as a senior
26   corporate officer, that you cannot come back to the Board
27   and say, "And by the way, we spent more, and we can
28   substantiate it, and therefore going forward the rates will

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 1   reflect that amount"?
 2          MR. LABRICCIOSA:    I suspect we can come back to the
 3   Board, again, with good reasoning, if, you know, "X" over
 4   the amount is a Z-factor, an extraneous factor, if you want
 5   to call it that.
 6          MR. VLAHOS:   No, my point is it does not have to be.
 7          MR. LABRICCIOSA:    Mm-hmm.
 8          MR. VLAHOS:   I don't want to get into ratemaking.
 9   You may feel disadvantaged, but if we allow 10 -- just pick
10   a number, okay -- and you spend 12, the next time the rates
11   are reset, you, of course, will ask for a cost of service
12   that will reflect the 12; right?
13          MR. LABRICCIOSA:    Correct.
14          MR. VLAHOS:   And with the understanding that you will
15   have to justify why you went over what was authorized in
16   rates, okay?    You understand that, don't you?
17          MR. LABRICCIOSA:    Mm-hmm.
18          MR. VLAHOS:   But I take it from you that you're not
19   willing to take that risk.
20          MR. LABRICCIOSA:    Again, it's a bit of a balancing
21   act.   I may be hesitant in taking that risk, just trying to
22   understand all the factors that could come into play.           I
23   would suspect any business would not overspend outside of
24   its capabilities and drive the company into receivership.
25   I'm not saying that's the case here.        I guess that would be
26   the other extreme.     But essentially, if we needed to invest
27   more in the system, I suspect, we would put that case in
28   front of someone, be it the senior executive team, or

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 1   shareholder, put it in a plan, or the OEB, and then go
 2   forward with that, if that's what's required.
 3           MR. VLAHOS:   My point is, it does not have to be
 4   before the OEB yet.
 5           MR. LABRICCIOSA:    Sure.
 6           MR. VLAHOS:   If you feel that it's critical for you to
 7   spend "X" amount of money over what has been authorized in
 8   rates, then you do so; and you're prepared to come to the
 9   Board the next time that you're rebasing, so that, as long
10   as you convince your senior management or your
11   shareholders, I guess, that's all it would take.           And
12   that's my proposition.
13           MR. LABRICCIOSA:    Sure.
14           MR. VLAHOS:   But you don't have to come back to the
15   Board at that point.       You can simply wait it out, and you
16   spend the money, and eventually, the next time you're
17   before the Board, that rebasing exercise will reflect your
18   expenditure, your overexpenditure, as long as it's
19   justified.     There is a prudent stance, if you like.
20           MR. LABRICCIOSA:    Sure.   We would not only have to be
21   held accountable to -- not only the shareholder, if you
22   like, but to the public as well, through this whole
23   process.
24           MR. VLAHOS:   Those are my questions.      Thank you very
25   much.
26           MR. SOMMERVILLE:    I have just one area, Ms. Davidson.
27   It relates to Smart Meters and it's really just a matter of
28   perhaps nomenclature or clarification.

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 1         The Board Panel in the combined proceeding related to
 2   Smart Meters approved at a level of rate adders for the
 3   participating companies, in which your company was one.
 4         I'm wondering how you regard, and how the company
 5   regards the revenue received through that rate adder with
 6   respect to the overall treatment of Smart Meters.
 7         One way of looking at it is simply as capital
 8   contribution with respect to capital.       Is that how you see
 9   it?
10         MS. DAVIDSON:   With respect, sir, I don't think that I
11   have the financial background to respond to that question.
12         MR. SOMMERVILLE:    Okay.
13         MS. DAVIDSON:   Okay?
14         MR. SOMMERVILLE:    Mr. Jamal.
15         MR. JAMAL:   Could you repeat the question?
16         MR. SOMMERVILLE:    Well, in a recent proceeding before
17   the Board, the Board approved a rate adder for the
18   companies related to Smart Meter implementation plans which
19   had been filed.    And that provided for an increase in
20   rates, a line on the bill, in effect, that provided for an
21   additional stream of revenue for the company, to enable the
22   company to implement the Smart Meter program.
23         I'm wondering about the treatment that the company
24   gives that amount of money that is coming in on a monthly
25   basis.   I don't know exactly -- was it 38 cents?        I think
26   it was 38 cents that Toronto Hydro was permitted to collect
27   on a rate adder basis.
28         One way of looking at that money coming in is as a

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 1   capital contribution.       Is that how you account for it?
 2        MR. JAMAL:      As far as I know, it's recorded in revenue
 3   as it's collected.
 4        MR. SOMMERVILLE:       Right.
 5        MR. JAMAL:      So it's purely a cost recovery, the way I
 6   understand the way it was presented.
 7        MR. SOMMERVILLE:       Okay.    So it's really treated as any
 8   other stream of revenue --
 9        MR. JAMAL:      Yes.
10        MR. SOMMERVILLE:       -- to offset cost.
11        MR. JAMAL:      Yes.
12        MR. SOMMERVILLE:       Okay.    Thank you.   Those are my
13   questions.     Are there any questions arising?
14        MR. RODGER:      No, sir.
15        MR. SOMMERVILLE:       Thank you.
16        We will adjourn now and resume at 2 p.m.
17   Thank you.
18        --- Luncheon recess taken at 12:25 p.m.
19        --- On resuming at 2:02 p.m.
20        MR. SOMMERVILLE:       Thank you.    Please be seated.
21        Are there any preliminary matters?

23        MR. FAYE:      Yes, Mr. Chair.     We have a definition for
24   the interrogatory concerning the Smart Meter costs, and I
25   think the simplest way to put it is, if the applicant could
26   provide the information shown in Section 4 of Procedural
27   Order No. 3 of EB-2007-0063, that should suffice to give
28   the Board Staff the information they need.

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 1        MR. SOMMERVILLE:     And that reference is to the
 2   combined proceeding with respect to Smart Meters.
 3        MR. FAYE:   That's correct.
 4        MR. SOMMERVILLE:     Thank you.
 5        MR. RODGER:     And just to be clear, Mr. Faye, this is
 6   for the year 2007.
 7        MR. FAYE:   This is for the 2007 expenses, yes, Mr.
 8   Rodger.
 9        MR. SOMMERVILLE:     Any concern about that, Mr. Rodger?
10        MR. RODGER:     No, again, subject to, it will be filed
11   in confidence, but that's fine, Mr. Chairman.        Thank you.
12        MR. SOMMERVILLE:     Thank you.
13        We're now ready for panel number 5.        Can the panel be
14   sworn, please?   Mr. Couillard, you're still under oath.
15   Mr. Labricciosa, you're still under oath.       Ms. Davidson,
16   you're still under oath.    There are two gentlemen that...
17        THESL - PANEL 5:
18        J.S. Couillard; Previously sworn.
19        Susan Davidson; Previously sworn.
20        Dino Priore; Sworn.
21        Ben La Pianta; Sworn.
22        Ivano Labricciosa; Previously sworn.

23        MR. RODGER:     Thank you, Mr. Chairman.
24        As the witnesses are settling in, this is panel number
25   5, dealing with capital and operating aggregated costs
26   categories, O&M distribution expenses, and administrative
27   and general expenditures, except for shared services and
28   compensation, which you'll recall was dealt with in panel

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 1   2.
 2        A five-member panel, and as you've indicated, the
 3   three members have already appeared before you, Ms.
 4   Davidson, Mr. Couillard, and Mr. Labricciosa.        The new
 5   members of the panel, starting to my left, firstly, Mr.
 6   Dino Priore.   That's P-R-I-O-R-E.

 8        MR. RODGER:   Sir, you are vice-president, distribution
 9   services at Toronto Hydro-Electric System Limited?
10        MR. PRIORE:   Yes.
11        MR. RODGER:   And you're responsible for design and
12   construction, as I understand it?
13        MR. PRIORE:   Yes.
14        MR. RODGER:   And your c.v. has been prefiled as
15   Exhibit A-1, Tab 10, Schedule 2-4?
16        MR. PRIORE:   Yes.
17        MR. RODGER:   And turning to you, Mr. La Pianta, you
18   are the vice-president, distribution grid management of
19   Toronto Hydro-Electric System Limited?
20        MR. La PIANTA:   That's correct.
21        MR. RODGER:   And you're also responsible for the
22   control room and emergency response?
23        MR. La PIANTA:   Yes.
24        MR. RODGER:   And your c.v. has been filed as Exhibit
25   A-1, Tab 10, Schedule 2-10?
26        MR. La PIANTA:   Yes, it has.
27        MR. RODGER:   And panel, was the evidence that you're
28   speaking to in this panel, was that prepared under your

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 1   supervision and control?
 2           MR. COUILLARD:    Yes.
 3           MS. DAVIDSON:    Yes.
 4           MR. PRIORE:   Yes.
 5           MR. La PIANTA:    Yes.
 6           MR. LABRICCIOSA:     Yes.
 7           MR. RODGER:   And do you each adopt it as your own
 8   evidence in this proceeding?
 9           MR. COUILLARD:    Yes.
10           MS. DAVIDSON:    Yes.
11           MR. PRIORE:   Yes.
12           MR. La PIANTA:    Yes.
13           MR. LABRICCIOSA:     Yes.
14           MR. RODGER:   Now, starting with you, Mr. Couillard,
15   could you please summarize the main elements of the O&M and
16   administrative and general expenses as they are contained
17   in the application currently before the Board?
18           MR. COUILLARD:    Yes, Mr. Rodger.    The costs that we
19   have in these categories for the year 2008 amount to
20   $196.1-million; for 2009, $206.5-million; and for 2010,
21   $213.8-million.       These costs are exclusive of the Ontario
22   capital taxes, which represent approximately 4- to $5-
23   million a year.
24           These costs are necessary to accomplish our capital
25   plan.    A lot of them are necessary to support, you know,
26   our activities, and some of these costs will help achieving
27   our capital programs.
28           These costs were derived through a rigorous business

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 1   planning process that we've described, especially in panel
 2   1, with Mr. Anthony Haines.
 3        Some of the major components we have in these costs,
 4   the theme, you know, should not be new for the panel.
 5   We're going to talk about workforce renewal, a lot of the
 6   training cost, a lot of the costs coming from the
 7   retirement of some of our employees, bringing new
 8   employees.
 9        We also have some increased governance cost.           And when
10   I say "increased governance cost", brings more people to
11   the organization in relation to -- talked a bit about Bill
12   198, some increased governance in IT, and also some
13   increased costs from a regulatory perspective in order to
14   meet all the requirements of the Ontario Energy Board.
15        We also are going to talk, obviously, about our
16   maintenance programs.       You know, our maintenance program
17   have been increasing in, you know, the costs, and that's
18   the reason why we believe that we need to embark in this
19   significant capital investment in order to be able to
20   mitigate some of these increase in the long-term, and also
21   to maintain the service to our customers.
22        We also, you know, talk about some facilities.              My
23   understanding from the previous panel is there will be some
24   question to facilities, which I will be happy to address.
25        And finally, I think we want to talk about some of the
26   impact on customer service.        I think some of the
27   initiatives, like time-of-use and other, you know, things
28   that are happening through our customer service

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 1   organization have an impact on our O&M costs for the three
 2   test years that we filed with the Board.
 3           MR. RODGER:   Thank you, sir.
 4           Turning to you, Mr. Labricciosa, could you please
 5   briefly describe how the maintenance spending proposed in
 6   this application relates to your capital plan?
 7           MR. LABRICCIOSA:    Essentially, Mr. Rodger, this
 8   maintenance plan that we filed in front of the Board is in
 9   concert or coordinated with our capital program.           The
10   maintenance is necessary for us to maintain existing
11   service levels and to hold reliability service levels for
12   our customers in check.
13           MR. RODGER:   Turning to you, Mr. La Pianta, what has
14   been Toronto Hydro's recent experience with storm response?
15           MR. La PIANTA:   Thank you, Mr. Rodger.      Yes, that's
16   true.    In fact, in the past few years, the frequency,
17   severity, and the impact of the storms that we've been
18   realizing has increased.       As a consequence, the spending
19   associated with restoring the system back to normal
20   resulting from these storms has also increased.
21           Particularly with respect to the restoration that's
22   required, days after the storm has passed, our
23   communications department is very much involved in
24   interfacing with the customer and ensuring that the system
25   is restored and that issues with services in or around
26   properties are effectively dealt with.
27           Climate change is a new ground for us, and we're
28   exploring it pretty much as we go along.          Along with others

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 1   in the industry, we're exploring the impacts of climate
 2   change and how we can mitigate those impacts to our
 3   distribution business.
 4        MR. RODGER:     And finally, Mr. Priore, could you please
 5   identify the main challenges that you face related to the
 6   execution of the capital plan?
 7        MR. PRIORE:     Sure, Mr. Rodger.   As one of the people
 8   responsible for executing the infrastructure plan for
 9   THESL, I'm proud of the fact that we've already doubled our
10   work output, with essentially the same work force in the
11   last couple of years.
12        But what keeps me up at night is knowing that we need
13   to maintain that momentum in the face of what I call the
14   perfect storm, different from the storms that my colleague
15   talked about.
16        This perfect storm is bringing a faster ramp-up of
17   capital work, while at the same time causing a shrinking
18   resource base, with a resulting drain on experience.
19        And this underpins our need to execute our staffing
20   plan and have an orderly transition of experience and
21   knowledge for the safety of our workers and for the
22   reliability of our system.
23        Another challenge, Mr. Rodger, is that of executing
24   our work program in such a congested and dynamic urban
25   environment like Toronto.    It's fair to say that we're not
26   talking about construction in greenfields.       Our city is not
27   expanding outward.    It's growing upward and inward.
28        And this is on existing road allowances that are

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 1   already very tight and extremely congested, with utilities
 2   that are often competing with each other to secure that
 3   precious raceway in the boulevards.
 4        In addition, these existing road allowances are
 5   vibrant with community activities, and, unlike greenfield
 6   construction, our work is an intrusion on those streets
 7   where our customers live, work, and play.
 8        We need to stick-handle around these many issues while
 9   mitigating customer impacts, but despite all these
10   challenges, I'm comforted by the fact that our organization
11   is ready and able to take on such a complex, aggressive,
12   but necessary program for the benefit of our customers.
13        MR. RODGER:   Thank you, panel.     Those are my
14   questions, Mr. Chairman.      The panel is now ready for cross-
15   examination.
16        MR. SOMMERVILLE:    Mr. Rodger.    Mr. Warren?
17        MR. WARREN:   I'm assuming Mr. Faye has questions.
18        MR. SOMMERVILLE:    Oh, I beg your pardon.      Mr. Faye,
19   you're going to conclude the facilities questions?
20        MR. FAYE:   I had a few questions for this Panel.
21        Anything now?
22        MR. BALSILLIE:    Yes.

24        MR. FAYE:   Those questions were around the capital
25   expenditures in the facilities budget.       I'd like to turn
26   you to Exhibit D1, Tab 9, Schedule 2.
27        MR.COUILLARD:    Yes, Mr. Faye.
28        MR. FAYE:   If you have that up, if you could look at

                         ASAP Reporting Services Inc.
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 1   page 2, there's a table on there with some costs for
 2   various locations.    If we look at the bottom line of that
 3   table, the increase over the historical year to the bridge
 4   year is about 8 million, and then there is an increase to
 5   that in the 2008 test year of about 12 million that drops
 6   down a little bit in the 2009 test year, but still an
 7   increase of about 12 million over 2006; and a similar trend
 8   in 2010.
 9        I understand from the evidence that the overall
10   strategy on facilities is to consolidate from five work
11   centres to three; is that right?
12        MR. COUILLARD:    It's actually seven work centres to
13   three.
14        MR. FAYE:    Seven, okay.    And the three work centres
15   that are going to be consolidated into are the ones called
16   Downsview, Carlton and Commissioners; is that right?
17        MR. COUILLARD:    That is correct.
18        MR. FAYE:    Could you describe what each of these
19   locations will be used for when they're complete?
20        MR. COUILLARD:    Yes.   The Carlton location is our head
21   office, which is a building that was built in 1932 -- it is
22   somewhere in the evidence -- and has not gone through a
23   major refurbishment since 1972.      This location will be our
24   head office, and will also include a lot of the functions
25   such as finance, and all the tax, the regulatory function.
26   It would also include a lot of the IT people and, to a
27   certain extent, the executive will be at this location.
28        The Commissioners will act as our work centre for the

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 1   southeast part of the city.        We already have a facility
 2   there.    There is a garage.      There is, you know, all the
 3   warehouse space.      It's a typical work centre for a utility.
 4           The Downsview area will also have the garage and all
 5   the crew facilities for a northwest type of service area,
 6   but would also include our control room and our customer
 7   service call centre, billing area.
 8           MR. FAYE:   Thank you.    The Milner and Monogram sites
 9   on here, as I understand it, those are temporary sites, are
10   they?
11           MR. COUILLARD:   That is correct.
12           MR. FAYE:   And the expenditures in this table for
13   2007, for Monogram 1.5 million, for Milner, 6 million, have
14   those actually been made, those expenditures?
15           MR. COUILLARD:   Yes, sir.
16           MR. FAYE:   Okay.   And the staff that are moving in or
17   have moved in, perhaps you could clarify, where are they
18   presently?     Or where have they come from?
19           MR. COUILLARD:   Staff that moved to the -- the first
20   move we did was the Monogram facilities, and the staff were
21   mainly from the Belfield area, with some complement staff
22   that moved from Commissioners to meet some of the
23   operational demand we had in this area of the city.
24           The staff that moved to the Milner facility were
25   moving from our Underwriters facility, and also there's
26   also been a complement of staff from the Commissioners.
27   The issue was that we did not have enough room in both
28   locations of Belfield and Underwriters in the past to

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 1   harbour some of these people –- so when most of their work
 2   was actually done with the people that were related to
 3   these work centres.        So it's approximately 300 people in
 4   each case.
 5           MR. FAYE:   Now, I understand that the Milner site is
 6   the former head office of Scarborough Hydro; is that
 7   correct?
 8           MR. COUILLARD:     No, it's not.
 9           MR. FAYE:   It is not the building on the northwest
10   corner of Markham Road and Milner?
11           MR. COUILLARD:     No, it's 601 Milner.
12           MR. FAYE:   601.    And where's that?
13           MR. COUILLARD:     It's just east of the former
14   Scarborough location.
15           MR. FAYE:   It would be on the east side of Markham
16   Road?
17           MS. DAVIDSON:    Milner.
18           MR. COUILLARD:     I need a GPS everywhere.     I might need
19   some help here from my colleagues.
20           MR. FAYE:   That might not be material.      I had thought
21   that it was the old building of Scarborough Hydro.
22           MR. COUILLARD:     No, it is not.
23           MR. FAYE:   Okay.
24           --- Witness panel confers.
25           MR. FAYE:   Can you explain the logic behind leasing
26   two sites, as opposed to just leaving your staff where they
27   are until the renovations on the other sites are done?
28           MR. COUILLARD:     Yes.   We have been over the last

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 1   couple of years significantly underinvesting in the
 2   facilities, in the Underwriters facilities.        I'd like to
 3   split out both sides, because they really have two
 4   different stories.    They're really serving two different
 5   areas of the city.
 6        Underwriters was in significant need of capital
 7   investment.    We needed a new garage.     We needed, like,
 8   roofing.   Like, probably around $9-million worth of capital
 9   investment, just to keep the building in good shape for the
10   next five years.
11        The place also at Underwriters did not have any
12   garage, did not have -- all the trucks were parked outside.
13   My first reaction is always:      Well, why do we need to park
14   them inside?   Turn the key and let it run for 15 minutes if
15   it's too cold.    No, apparently there's a significant issue
16   with having the trucks outside and the crews.         There's the
17   issue of wear and tear on the equipment, the trucks can
18   back inside, and there is also an issue of productivity.
19   The truck can be loaded inside because the warehouse is
20   inside, and then we can leave very quickly.
21        The Underwriters facility was also not very well
22   positioned.    It took between -- with no traffic -- 15
23   minutes to 20 minutes to get into any of the major
24   highways, which are either the DVP or the 401 in this area.
25   The Milner facility, on the other hand, is about five
26   minutes from the highway.     For us there's good gain on
27   productivity going there.
28        When we looked at the lease, for example, the new

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 1   lease facility, we basically tried to see what was some of
 2   the gain by moving to a lease facility right now, versus
 3   some of the expenditure that we would have had to incur
 4   into those facilities if we would have stayed at Milner.
 5        We also believe that the Milner facilities actually
 6   allowed us to set up the work to improve the workflow.          So,
 7   you know, people that worked, like designers, are very
 8   close to the people that are preparing some of the work.
 9   So, you know, it helped on the efficiency side.
10        The Belfield facility was a different story.         The
11   Belfield facility was not in major need of repairs.
12   Belfield probably needed approximately a million dollars
13   worth of capital investment.      A major issue we had with
14   Belfield was size.    The size of this facility was way too
15   small.   People were cramped there.      We had a major issue
16   with the number of people in the building, which meant that
17   we would have had to lease some space or transform one of
18   our other stations there, which is Goddard, into new space
19   to accommodate the people in this area.
20        And the cost of, you know, bringing the station --
21   it's a property we own that we're planning to sell, I think
22   it's in the evidence -- but we would have had to spend
23   somewhere between 8- to $10-million to convert that into
24   work space so that we can accommodate the number of crews
25   that we need in order to serve the northwest area.
26        So the location of Belfield was fine.        The problem was
27   the size of the Belfield facility.       We didn't have any
28   opportunity in that site to build more, build bigger, in

                          ASAP Reporting Services Inc.
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 1   Belfield.    Actually, we were leasing space down the road
 2   for a pole yard.     We didn't really have any warehousing
 3   type of facilities.     We had the same issue with the trucks
 4   being outside.     So, for us it was not optimum to be in
 5   Belfield.
 6        We were able to sell Belfield at fair market value,
 7   you know, I think in 2006, and then -- so we made the move,
 8   and the transfer of the employees, into the Monogram
 9   facility.
10        MR. FAYE:     How long had you been at Underwriters?
11        MR. COUILLARD:     Sorry?
12        MR. FAYE:     How long had Toronto Hydro been working out
13   of Underwriters Road?
14        MR. COUILLARD:     Probably before the '80s, like...
15        MR. FAYE:     So a couple of decades, anyway.
16        MR. COUILLARD:     Yes.
17        MR. FAYE:     And all that time it didn't have a garage?
18        MR. COUILLARD:     It had a garage, but the garage that
19   was there could not accommodate the new type of equipment
20   we have, so it's too small for the type of equipment, and
21   it's too small to accommodate the amount of trucks that
22   needs to be repaired now in this area, because of the work
23   that we have to do.
24        MR. FAYE:     And I heard you say "too small to
25   accommodate the number of trucks that needed repair."           Is
26   that a repair facility?
27        MR. COUILLARD:     We have mechanics in this area, yes.
28        MR. FAYE:     Okay.   So you have an indoor garage in

                           ASAP Reporting Services Inc.
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 1   which trucks can be repaired.        Did I also understand you to
 2   say you had an indoor garage where trucks could park
 3   overnight but, because of height requirements for new
 4   vehicles, some of these couldn't fit in there any more?
 5           MR. COUILLARD:   No, sorry, it's -- the garage that is
 6   there was more for, like, fixing, mechanics doing
 7   maintenance and work on the trucks.         There's no indoor
 8   parking facilities there for our trucks.
 9           MR. FAYE:   All right.    And that was that issue of
10   being able to load the truck with materials in a heated
11   indoor space was going to be an improvement for you.
12           MR. COUILLARD:   Well, that, plus I would also add the
13   fact that you don't have to -- if there's snow on the truck
14   -- you don't have to take the snow off.          And then the
15   maintenance of the truck gets way easier.          It's easier to
16   wash the trucks when they're indoors, versus when they're
17   outdoors, where, you know, if you start pouring water over
18   a truck when it's 20 below, it might be problematic the
19   next day.     And also the distance to the major highways.
20           MR. FAYE:   Right.   And I think you have made some very
21   legitimate points, but I'd still ask you, in the context of
22   a temporary assignment here, it's only a matter of a few
23   years before your other sites are in a state to be moved
24   into.
25           Was it not possible to live with Underwriters and
26   trucks outside for a few more years if you had done it for
27   a couple of decades?
28           MR. COUILLARD:   Yes, I think you bring a good point,

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 1   Mr. Faye.    But we've actually looked from a financial
 2   standpoint what would be the incremental cost and what
 3   would be the impact of keeping the people in the same
 4   facilities.
 5        As I mentioned earlier, we would have had to go and
 6   spend significant capital on these facilities.          In
 7   Belfield, for example, as I mentioned, we needed to spend a
 8   million; in Underwriters about 9 million; the refurbishment
 9   of Goddard, around $9-million.
10        So that would have been a total capital expenditure of
11   approximately $20-million that we would have had to do for
12   a period of five years, which we didn't believe was prudent
13   to undertake, considering that we could move almost
14   overnight into a facility, and just lease for that period
15   of time.
16        I think we have to also consider -- what we've also
17   considered is if we get into this type of refurbishment of
18   some of these facilities, like the Goddard facility or the
19   Underwriters facility, it would have created significant
20   amount of destruction to the workflows, because you would
21   have basically tried to retrofit these buildings at the
22   same time that you had people doing some work there.
23        So when we've looked at the capital investment, we
24   thought this is going to be problematic.
25        On the operating side, we've also looked at what is
26   the cost of leasing these two facilities, which,
27   approximately $5-million a year -- the lease are
28   approximately 4-, and then the maintenance probably bring

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 1   it around 5- per year -- versus the cost that, you know, we
 2   do not have to incur with the new -- because some of the
 3   facilities, we don't need the maintenance anymore.
 4        So in the case of Goddard, for example, well, that
 5   would have increased our maintenance costs.        I mean, it's
 6   not only that we would have had to invest capital in the
 7   place.   There was maintenance costs, and the maintenance
 8   for a facility of that size would have been comparable to a
 9   Belfield or to an Underwriters, which is approximately $2-
10   million per year.
11        Belfield, we are avoiding about a million and a half
12   of maintenance every year.      The Underwriters savings will -
13   - you know, by the time we decommission these facilities,
14   you know, by the time we sell these facilities, we would
15   obviously have also some savings in there, in our
16   expenditure.
17        So we've looked at -- the expected savings was
18   approximately $22-million, and the increased costs of the
19   lease and in the maintenance, you know, amount to
20   approximately 26 million.     You know, that, add to the
21   capital, a significant increase in capital investment we
22   would have had to make on the existing facilities, and as
23   well what we believe is increased efficiencies of having
24   staff, you know, closer to the work that has to be done.
25   Specifically in the next five years, where a lot of our
26   work is in these areas, we believed that it was a prudent
27   decision to make.
28        MR. FAYE:    Okay.   So what I hear you saying is that

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 1   things have got to such a state at Underwriters Road that
 2   you either had to move or you had to sink a lot of capital
 3   in there to keep that building alive.       Is that a fair
 4   assessment?
 5        MR. COUILLARD:    That's correct.     That's a fair
 6   assessment.
 7        MR. FAYE:    How could they have got to that state all
 8   at once?
 9        MR. COUILLARD:    I think Underwriters is the only place
10   where we're saying we had an issue around, you know, around
11   the condition of the building.      I think the issue with
12   Underwriters was, for a long time, you know, we thought we
13   were going to leave this area, and so we, you know, we
14   deferred some of the capital expenditures, and waiting how
15   much we would have needed to incur -- because we knew that
16   in the long-term we would have moved out of there.
17        MR. FAYE:    Okay.   The Milner and Monogram sites are on
18   a lease; and how long is the lease?
19        MR. COUILLARD:    It's a five-year lease.
20        MR. FAYE:    And at the end of that do you expect to be
21   finished your other sites, and you'll move your staff into
22   the permanent location?
23        MR. COUILLARD:    That's our current plan.
24        MR. FAYE:    If you could turn up Exhibit R1, Tab 1,
25   Schedule 4.12, Appendix "A".
26        MR. RODGER:    Could we have the reference again,
27   please, Mr. Faye?
28        MR. FAYE:    That would be Exhibit R1, Tab 1, Schedule

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 1   4.12, Appendix "A".
 2        MR. RODGER:     Thank you.
 3        MR. FAYE:     Got it?
 4        MR. COUILLARD:     Yes, Mr. Faye.
 5        MR. FAYE:     Okay.   Some of the numbers that you've
 6   already mentioned in conjunction with maintenance at some
 7   of these facilities appear on this chart.         And this chart,
 8   to me, is a comparison of your new plan, which is to move
 9   into Milner/Monogram, maintain some of the other sites,
10   build Downsview, renovate Commissioners, renovate Carlton,
11   and then at the end of five years everybody consolidates
12   and you get rid of all these other properties along the
13   way, as it becomes possible.       Is that a fair assessment of
14   what this chart is about?
15        MR. COUILLARD:     Yes.
16        MR. FAYE:     Okay.   I'd like to look at a few of the
17   numbers here.    And starting with the bottom band of numbers
18   that's associated with old facilities, we have Belfield,
19   Goddard, Underwriters, Eglinton, Yonge, and then a category
20   called "others".     What's in the "others"?
21        MR. COUILLARD:     Small substations that we're using as
22   -- sometimes we don't have enough room, so we're using as
23   staging yards or, you know, we can park trucks.          Facilities
24   that we could sell when, you know, when we don't need them
25   any more.    They're smaller in nature and value, and that's
26   why they're all grouped together.
27        MR. FAYE:     Okay.   Then I have another question that's
28   prompted by that.

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 1         If this is a comparison between what you want to do
 2   and what you would have had to do if you didn't want to do
 3   that new thing, don't you need to have old Commissioners
 4   and old Carlton in the bottom part of the chart?         If you
 5   weren't going to renovate old Commissioners and old
 6   Carlton, you were still going to use them, though, under
 7   the old scenario.    They aren't anywhere to be seen on the
 8   bottom row there.
 9         MR. COUILLARD:   But what this tends to show is the
10   incremental costs or the opportunity costs of the plant.
11   So old Carlton and old Commissioners, there's no
12   opportunity cost.    We already have those.      It's the base,
13   what I would call the base of our expenditure.
14         So whenever we go or not, we still have to pay for
15   those facilities because we're keeping them.         The portion
16   that's included on the top part, that talks to
17   Commissioners and Carlton, is only the incremental portion
18   relating to modernizing some of these facilities.         But the
19   base of the facilities stays the same under both scenarios.
20         MR. FAYE:   So that the facilities in the bottom
21   section, then, are all facilities that would be disposed
22   of?
23         MR. COUILLARD:   That is correct.
24         MR. FAYE:   And that's why it's a marginal analysis.
25         MR. COUILLARD:   That's correct.
26         MR. FAYE:   All right.    I understand.    Thank you.
27         Can I direct you then to look at the Milner and
28   Monogram sites?    Under "Annual maintenance" there's a

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 1   figure, 1,300,000.    If I look at page 5, if we could both
 2   find the reference here, I believe that number -- if I
 3   could ask you to look at Exhibit C2, Tab 2, Schedule 2.
 4        MR. COUILLARD:      Yes, Mr. Faye.
 5        MR. FAYE:    Fourth paragraph down it says:
 6             "Maintenance costs for Milner and Monogram will
 7             be $600,000 per year."
 8        I wonder if I'm misunderstanding what that's saying or
 9   whether there's a real inconsistency between the chart at
10   $1.3-million and this narrative at $600,000.
11        MR. COUILLARD:      No, it is the same.   If we add the two
12   leases together -- it's just the way it's presented and the
13   difference, so if I may I'll just walk you through.
14        MR. FAYE:    Please.
15        MR. COUILLARD:      How we reconcile the number:    $2.1-
16   million and $2million gives us $4.1-million in leases
17   annually, okay?
18        If we look on the same C2, Tab 2, just move a bit
19   forward to the table 2, which shows 5.2 million of
20   operating cost.
21        MR. FAYE:    Yes.
22        MR. COUILLARD:      This would include the $4.1-million of
23   the lease, plus 600,000 for each facility.       So give or take
24   5.2 or 5.3 million.      And if you go back to R1, Tab 1, 4.12
25   Schedule, the leases are presented before external cost.
26   So the real amount of external costs, we should have taken
27   the $1.3-million and divided by two.      Half of it is related
28   to internal staff, and half of it is related to external

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 1   costs, which is the 600,000 that is mentioned in here.
 2        So if we want to see why -- the 1.3, basically, is
 3   inclusive of 600,000 for the maintenance fees that are
 4   discussed on C2, Tab 2, Schedule 2, and then the total
 5   operating costs, which are associated with the $5.2-million
 6   and same evidence at table 2, if we add that plus the
 7   leases, then we would match our operating costs of 5 -- I
 8   know it's a lot of going around, but it does work.
 9        MR. FAYE:   So you have both internal and external
10   resources for maintenance.
11        MR. COUILLARD:   Well, we have some of our custodian
12   staff that would be working there, or some of our own
13   people doing some of the work for the maintenance.
14        MR. FAYE:   Is that true of most of your sites?          You
15   have some internal, some external resources?
16        MR. COUILLARD:   That is correct.
17        MR. FAYE:   Looking at the total cost on Milner,
18   there's a fairly large capital investment here, and
19   I wonder if you could talk about what that would be needed
20   for, because I think I heard you say this was a ready to
21   move into place, ready to operate.      Why would it need such
22   big capital numbers associated with it?
23        MR. COUILLARD:   A couple of things on these numbers.
24   Actually, let's start with the Milner facilities.        If you
25   look at the Milner facility on C2, Tab 2, Schedule 2, the
26   capital number that is quoted there is $6-million.            And
27   now, if we go into what is actually -- so that is what is
28   filed in the application.    That's the current relief that

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 1   we have for this particular facility, is $6-million of
 2   capital.
 3          When we look at the business case analysis, we've also
 4   looked at what will be the costs of Milner, you know, what
 5   is actual cost, because we've updated that business
 6   analysis.    In between the time we filed the application,
 7   the time we received the interrogatories, we had some new
 8   costs, and we finalized the Milner case a couple months
 9   ago.
10          We've increased some of the costs on the Milner
11   facility from 6 to 14.5.      The model here does not show that
12   we receive $4-million lease inducements.         So we put the
13   14.5 as the total cost.      But really, we have -- and
14   a lease inducement is what the landlord, they give you, you
15   know, a big number, and then they start giving you rebates
16   on it after.    So really, the cost of capital would have
17   been $10.5-million instead of 14.        It would have made the
18   business case look even more positive on our side.              So we
19   didn't go and change that.
20          We've also decided that we had $3-million that was
21   increased, and the reason for that 3 million was, there was
22   some IT items that we decided to incur that we will be able
23   to use in the new facility in the future, like a phone
24   system, some servers.      And also the generators that were at
25   the Milner facility were not adequate for our use, so we
26   spent another million dollars for the generator.          So this
27   $3-million plus this 4 accounts for a difference of 7.              The
28   difference is some small, minor, you know, things that we

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 1   would have to do over the time of the lease that would be
 2   capitalized in nature.
 3        MR. FAYE:   I'm not sure I followed all that but I'll
 4   try to reiterate it for you.
 5        There is capital investment required on Milner.
 6        MR. COUILLARD:   Yes.
 7        MR. FAYE:   It isn't a move into and sit down and start
 8   working facility after all; is that fair to say?
 9        MR. COUILLARD:   That's correct.
10        MR. FAYE:   Okay.   I'm not sure I followed all the
11   numbers, but the net amount.     How much capital do you have
12   to put into Milner to make it workable for the five years
13   you would be there?
14        MR. COUILLARD:   If we take out the lease inducement,
15   that would be about 10.5 million, and if we remove the
16   capital that we would have spent anyway because we needed a
17   new generator -- we would have needed into our current
18   facilities because there was no generator -- the amount
19   would also be reduced by about 3 million, so it would be
20   7.5 million in Milner.
21        MR. FAYE:   You have a 3 million generator there?
22        MR. COUILLARD:   No, it's a $1-million generator.        But
23   there's also some IT, a voice-over IP system.        We also have
24   some servers and some new IT equipment that were put in
25   there that we will be able to reuse when we move into the
26   Downsview facility, for example.      We could not use the one
27   from Underwriters or from Belfield.
28        MR. FAYE:   I'm trying to imagine how you could keep

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 1   the Milner facility going if you moved all that equipment
 2   over to Downsview.    Or do you move the staff -- you know,
 3   this has to happen overnight.      Your staff arrive at
 4   Downsview and the voice-over IP servers have to be there;
 5   right?
 6        MR. COUILLARD:     Yes, that's pretty quick, usually, the
 7   way we move our people.    Not moving all the cables but the
 8   phones, for example, all the computers, all the servers.
 9        MR. FAYE:     So of the 10 million, about 3 million is
10   reuseable because you can reuse the generator as well.
11        MR. COUILLARD:     Correct.
12        MR. FAYE:     You have a five-year lease at $2-million a
13   year in lease payments, and then nominally you have another
14   $2-million a year in capital payments, although you're
15   going to be able to recover some of that.       Some of it will
16   be useful elsewhere.    So you’re up to 4 million a year for
17   a temporary situation.
18        And of the unrecoverable capital -- that would be the
19   7 million -- if we take 3 from the 10 and a half, you have
20   7 and a half left; that's a leasehold improvement that you
21   walk away from when your lease is finished?
22        MR. COUILLARD:     Well, some of it is desk or chair, so,
23   you know, if we can take some of it with us, we will.         It's
24   a bit difficult right now, due of the granularity of some
25   of these assets.
26        MR. FAYE:     It sounds like that might be a minor part
27   of 7 and a half million.    Would your furnishings at Milner
28   be suitable to fit into office layouts and workstation

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 1   layouts at Downsview?
 2        MR. COUILLARD:     That's our plan.
 3        MR. FAYE:    So I'm assuming that you're going to have
 4   consistent decorating throughout your buildings at
 5   Downsview and Carlton and Commissioners.        You wouldn't have
 6   orange partitions in one of part of the office and brown in
 7   another, so you must have had your decorating for Downsview
 8   settled by now, and the Milner stuff; would that be right?
 9        MR. COUILLARD:     The type of furnishings we buy is the
10   type that’s adaptable, so that, for example, if you stick
11   with one brand you would be able to build different
12   partitions, for example, and different sizes of
13   workstations.
14        MR. FAYE:    Okay.   Monogram sounds like somewhat
15   similar reasoning.
16        MR. COUILLARD:     Yes, I think in both cases, if we
17   looked at the Monogram $3-million total and the $7-million
18   we just talked about for Milner, we're looking at around,
19   11, 11 and a half million dollars.       And, you know, keeping
20   the existing facility, we would have had to spend for the
21   same amount of time approximately $20-million in capital to
22   refurbish the Underwriters and then the Goddard facility.
23        MR. FAYE:    What I think I'm struggling with is that I
24   hear numbers of $2-million per year, per property, for
25   leases.   So that's 4 million and some.       By five years
26   there's $20-million.      Then I see 10 minus – 10 and a half
27   minus 3 on capital; that's 7 and a half.        Then another
28   bunch for Monogram.    I'm not sure how much capital is going

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 1   into Monogram.
 2        But we're already at the break-even point here, from
 3   the looks of things.     You could have taken the $20-million
 4   that you're going to spend on lease payments at Monogram
 5   and Milner and put it into Underwriters.
 6        And presumably, you created the facility to make it a
 7   more valuable asset to be sold.      Some of that probably
 8   would have come back to you.      And we haven't even talked
 9   yet about the fact that you're going to put capital into
10   Milner and Monogram.     And I'm not understanding the
11   financial analysis here that says that that's a good move.
12        MR. COUILLARD:     Well, if I look over the last -- you
13   know, the next five years, on the operating side there is
14   an opportunity cost, because there are maintenance costs
15   that we will not have to spend.      And I think that's what,
16   you know, your analysis, or your conclusion, does not
17   reflect.
18        The Goddard facilities would have cost us about 2
19   million a year in maintenance.      Times five years, that's
20   $10-million.     The Belfield facilities would have cost us
21   $1.5-million in maintenance.      These costs are not included
22   in the application.    That's five years, $7.5-million.
23        The Underwriter savings are starting in 2009, and will
24   go into 2010, over the test year, probably around 4 million
25   -- over next five years, sorry, probably around $4-million.
26   So by adding the 3, it's 21 and a half million dollar
27   savings.   That just -- just this basically outweighs the
28   cost of the leases.

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 1        And then if you do the comparison --
 2        --- Reporter appeals.
 3        MR. COUILLARD:    The cost of our new leases.
 4        And then if we move on to our capital, well, we just -
 5   - you know, we've talked about, what we've put in our
 6   capital for Milner and Monogram.       We spent, in Milner and
 7   Monogram, approximately $3-million in Monogram and $7-
 8   million net in Milner.     That's 10 million in capital, and
 9   our assessment is we would have needed to spend $18-million
10   to bring these facilities to par.       For us, the business
11   case analysis was pretty straightforward.
12        And on top of this, we are counting on significant
13   improvement in our ability to organize the workflow and to
14   get to the work centres, because of the close proximity
15   that we have through to the different arteries, like,
16   roads.   So that was the reasoning behind our decision.
17        MR. FAYE:    So your travel costs, for instance, to get
18   out to job sites, to respond to trouble, all those costs
19   would be less because of the Milner and Monogram move than
20   if you had stayed at Underwriters/Belfield.
21        Is Goddard actually a work centre, or is it a
22   transformer station or what?
23        MR. COUILLARD:    It's just a station right now.
24        MR. FAYE:    Just a station.    So you didn't have any
25   people going there, right?
26        MR. COUILLARD:    We would have had people, because we
27   needed the space, because Belfield was not big enough, so
28   we needed to refurbish this area to bring people into this

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 1   area of the city, because Belfield was too small.
 2          MR. FAYE:    There's a building at Goddard?
 3          MR. COUILLARD:    Yes, we do.
 4          MR. FAYE:    All right.    Okay.   If there are economies
 5   and efficiencies associated with travel time, where do you
 6   charge travel time?
 7          MR. COUILLARD:    We didn't actually factor that in
 8   because we believe -- and it's actually valid through our
 9   entire business case.      We decided to do a business case
10   just on, you know, cost of the new facilities versus the
11   lease, versus the -- and in the avoided costs.
12          It's very difficult to start, you know, doing a
13   quantification on how much time will be saved, what's worth
14   of this time.      But intuitively, if we look at the
15   Underwriters facilities, if you're 15 minutes closer to the
16   highway, and if your truck is inside and you don't need to,
17   you know, pull out and go somewhere else in the yard to
18   grab some stuff and then, you know, finally leave the
19   place, the crews would have, let's say, 15 minutes each
20   way.   They have half an hour more per day.        You know, for
21   us that might not be cost saving, but let's hope it's
22   increase in productivity.        So that was, you know, one of
23   the reasonings we had in doing so.
24          MR. FAYE:    Yes, and I think that's where I was sort of
25   driving with that question.        But it was a little more
26   specific.
27          Do you charge your travel time to a travel time
28   account as unproductive costs, or do you charge them to the

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 1   work order that the crew is working on?
 2           MR. COUILLARD:   It's charged to the work order.
 3           MR. FAYE:   Okay.   So it should be spread throughout
 4   the productive part of those accounts, and be reflected in
 5   your unit cost to produce work, right?
 6           MR. COUILLARD:   Yes.
 7           MR. FAYE:   Okay.   So would I be able to look anywhere
 8   in the evidence and find that the unit costs of producing
 9   that work are declining over the test years?
10           MR. COUILLARD:   No, not in the evidence.       And as I
11   mentioned earlier, we did not try to quantify.           However,
12   what is consistent in the evidence is the increase in
13   capital work that we're able to do with the people that we
14   have.
15           I think, yes, we're hiring some apprentices, but I
16   think we've discussed previously that these apprentices
17   will not be as productive as, you know, somebody with ten,
18   15 years of experience.
19           So if we look at the output that is coming out of our
20   program, it is significantly higher in the test year than
21   it was previously.
22           MR. FAYE:   Okay.   Thanks.
23           Let's move on to looking at that exhibit, C2, T2 --
24   sorry, C2, Tab 2, Schedule 2, on page 11.          Have that up?
25           MR. COUILLARD:   Yes, Mr. Faye.
26           MR. FAYE:   Table 9 is expected revenue from disposal
27   of surplus property.        And in the "related-party gain" row,
28   there's a number 1476 and a footnote.         And the footnote

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 1   says:
 2                "The Belfield Road facility was sold to TH
 3                Energy, which gives rise to a related-party gain
 4                attributable to TH Energy."
 5           And I wonder if you could just explain what that
 6   means.
 7           MR. COUILLARD:   It's not TH Energy.      The gain is
 8   actually to Toronto Hydro-Electric System.          There was a
 9   gain on sale.       The book value was 4.4 million, and the
10   total sale price was 6.4 million, so there was a gain of
11   $2-million.
12           From an accounting standpoint, because they are a
13   related party, this was not included in net income, so
14   THESL couldn't recognize the gain as net income -- pure
15   accounting rule, accounting rules -- and it was treated as
16   retained earning transaction.        But THESL got $6.5-million
17   for the transaction, which was supported by a fair market
18   value assessment by J.J. Barnicke.
19           MR. FAYE:   Okay.   And elsewhere in the evidence
20   there's reference to this 50/50 split with the ratepayer,
21   that gains on disposition will be split with the ratepayer
22   50 percent to the company, 50 percent to the ratepayer.
23           I guess where I was going was, when I see the bottom
24   line number there, gain on sale of 590, I wonder, where did
25   the ratepayer's portion go.        Are you saying that it really
26   is there, it's just that this is some sort of accounting
27   treatment that doesn't reflect that?
28           MR. COUILLARD:   No, Mr. Faye.     I think you're right in

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 1   saying that you haven't seen it.         The reason is the 50
 2   percent gain that was treated as a revenue offset was
 3   calculated using the sales of properties for 8, 9, and 10
 4   only.    So any properties sold prior to that was not
 5   included in the 50 percent that we were giving -- that we
 6   were crediting back to the customers.
 7           MR. FAYE:   Now, again, correct me if I am wrong, but I
 8   think I read that the whole basis of the 50 percent was
 9   that was a Board-sanctioned sort of strategy.           Is that not
10   correct?
11           MR. COUILLARD:   No, I mean, our position all along on
12   this is that this is the shareholder.         You know, this would
13   be the shareholder money.       We've decided to allocate 50
14   percent of net gain after tax to the customers for all the
15   property that will be sold after 2000 and -- well, starting
16   in 2008.
17           The largest sale that we are scheduled to have is the
18   sale of our 5800 Yonge facility, which is not scheduled in
19   any of the test years because, you know, as part of the
20   Downsview relocation, not only people from the Monogram
21   facility will move to Downsview, but also the people from
22   5800 Yonge.
23           MR. FAYE:   Okay.   So if I hear you right, 2008 going
24   forward, you're going split your gains, but anything prior
25   to that, you're keeping them for the shareholder?           Is that
26   fair to say that?
27           MR. COUILLARD:   We're keeping it in the company.
28   We're not providing the gain to the customer.

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1        MR. FAYE:     Okay.   I'd just like you to turn up Exhibit
 2   R1, Tab 3, Schedule 46, Appendix "A".
 3        MR. COUILLARD:     Sorry, can you please repeat the
 4   schedule?
 5        MR. FAYE:     Schedule 46, Appendix "A".
 6        MR. COUILLARD:     Yes.
 7        MR. FAYE:     This is a schedule of properties with
 8   various numbers associated with them, net proceeds, net
 9   book value, gain and loss on disposition.         Is that right?
10        MR. COUILLARD:     Yes.
11        MR. FAYE:     Looking at the 2007 column, there are a lot
12   of entries here, with a net book value of zero.          Wilson
13   Avenue, Bathurst Street, Birmingham, Rustic, all have a net
14   book value of zero.     And what I want to ask you is, is
15   there no land associated with these properties?
16        MR. COUILLARD:     No, they're all ends.      They were
17   valued at zero when THESL was -- there was a whole
18   revaluation in 1999, if I remember well, and it was also
19   used for tax purposes.      It was done by DNT, and all these
20   net book values were assessed to zero.
21        MR. FAYE:     Why would you be able to do that?       Land
22   isn't depreciable, is it?
23        MR. COUILLARD:     No, land isn't depreciable.
24        MR. FAYE:     It had some value.
25        MR. COUILLARD:     I haven't performed a valuation.          I
26   know that even from a tax perspective, you know, this will
27   be discussed, probably when we've recorded the gains, but
28   the schedule that we have right now, these assets were

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1   recorded as zero book value at the time.          And, sorry, Mr.
 2   Faye, the concern is from an accounting standpoint, it's
 3   always very easy to take a write-down or to reduce the
 4   value of an asset.       It is almost impossible to actually
 5   write them up and bring some value.
 6           What was done at that time from an accounting
 7   standpoint for us is we are not allowed to bring these
 8   values back into the --
 9           MR. FAYE:   So this occurred after commercialization of
10   the company; it corporatized and book values were restated?
11           MR. COUILLARD:    Yes.
12           MR. FAYE:   To your knowledge, was it written down or
13   was the value on the books transferred to the building part
14   of the capitalization and depreciated?
15           MR. COUILLARD:    Actually, these book values would
16   include both: the value of the building, if there is a
17   building, and the value of the land.
18           MR. FAYE:   Yes, and that's what I'm asking.
19           If you transfer the land value over to the building
20   and then depreciate the building, you can get pretty close
21   to zero.    But you can’t depreciate the plant.          So I’m
22   wondering, did you just write it off, or did you transfer
23   the value that was in the land part of that account over to
24   the building, then depreciate the building over the last
25   nine years?     And that’s how we get to zero?
26           MR. COUILLARD:    I really don’t know.      I can’t answer
27   that.
28           MR. FAYE:   Do you think it's reasonable to have a net

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   book value of zero on land?
 2           MR. COUILLARD:   It is and it isn't.      Depends on the
 3   land.    You know, if the land could have some impediment to
 4   it.   The land could have some environmental issues.             Some
 5   of them were old substations that could have had some
 6   significant amount of cleanup to have done to put them on
 7   the market.     Is it reasonable or not?      In certain cases
 8   yes, in certain others, no.
 9           MR. FAYE:   Have you conducted any studies of these
10   properties to determine whether there are environmental
11   issues with them?
12           MR. COUILLARD:   Yes, and I have noticed that some of
13   them have environmental issues.
14           MR. FAYE:   Which ones on this list, do you know?
15           MR. COUILLARD:   I know Birmingham has some issues.             I
16   think Stirling Road has some issues.         And we had to do some
17   cleanup at Underwriters as well.
18           MR. FAYE:   Okay.
19           If I could turn you back to Exhibit C2, Tab 2,
20   Schedule 2, here I'm looking at page 11; and I see in the
21   top table that there's an entry cell under Underwriters in
22   the 2008 test year.      Then when I drop down to table 9, I
23   see a net book value of 6,453.        Is that the net book value
24   of Underwriters?
25           MR. COUILLARD:   Yes.   Likely.
26           MR. FAYE:   Well, then working our way down to the
27   bottom, shouldn't I be seeing a credit back to the asset
28   inventory of that amount?

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1        MR. COUILLARD:    Well, when we sell the property, the
 2   $6.5-million will be credited to the categories, so our
 3   rate base should be reduced by $6.4-million when we sell
 4   the property.
 5        MR. FAYE:    I'm just looking for a schedule where I
 6   found the actual entry for Underwriters was not 6,453 but
 7   the reduction was 0.8, which looks like the gain on
 8   disposition.    And if I can find it quickly I'll point you
 9   to it.   I think it might be an error.      No, I don't have it
10   quite as handy as I'd hoped.
11        I will finish with that question.        Those are all
12   my questions, Mr. Chair.
13        MR. SOMMERVILLE:     Thank you, Mr. Faye.
14        It occurs to us, Mr. Rodger, that it may be
15   appropriate to treat this section a little bit differently
16   than the rest of the evidence from this panel, which would
17   give rise to right to redirect in your case, and questions
18   from the Panel, at this juncture.       Do you have redirect?
19        MR. RODGER:    No, sir.
20        MR. SOMMERVILLE:     Mr. Vlahos?

22        MR. VLAHOS:    Thank you, Mr. Chairman.
23        Mr. Couillard, a couple of questions, first on the
24   capital gain.    I understand the evidence of your testimony
25   to be that up to this point, any sale, any capital gain
26   arising from the sale, it went to the shareholder a hundred
27   percent?
28        MR. COUILLARD:    Yes, we have not had any major

                          ASAP Reporting Services Inc.
                (613) 564-2727                     (416) 861-8720

 1   material sale.   I think the Belfield facility was the first
 2   large sale that we had in 2006.
 3        MR. VLAHOS:   Right.    And so your proposal is that a
 4   hundred percent of the Belfield capital gain will accrue to
 5   the shareholder?
 6        MR. COUILLARD:   Right now, yes.
 7        MR. VLAHOS:   Right.    Okay, and going forward only, to
 8   the extent there will be any capital gain, there will be a
 9   50/50 sharing.   On a principle level, what is the
10   difference between 2006 and, say, 2008?
11        MR. COUILLARD:   Well, 2006 deals with prior years,
12   where we had not established that policy yet.        So, you
13   know, we move forward in that policy in 2008, so in our
14   test year here we're going to provide the revenue offset to
15   the customer starting with this application.
16        MR. VLAHOS:   So it is driven by THESL's own policy?
17        MR. COUILLARD:   Yes.
18        MR. VLAHOS:   It is not driven by the Board's
19   pronouncements on this issue?
20        MR. COUILLARD:   No, it is not.
21        MR. VLAHOS:   And why wouldn't it be?
22        MR. COUILLARD:   Well, we believe that in the
23   particular circumstance, that it was fair for the
24   shareholder to have some of -- you know, half of what the
25   proceeds were, considering that these were the
26   shareholder's assets, and then we decided to share the
27   other half with the customer, considering the large impact
28   our plan that could have on the future capital expenditure

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1   related to the facilities.
 2        MR. VLAHOS:     Okay.   Let's take it in two pieces.
 3   Let's talk about the Belfield sale, of which I guess the
 4   gains were realized in 2006.      I'm trying to understand:   Is
 5   it the company's view because rates were set already for
 6   2006, therefore any capital gain should not be dealt with?
 7        MR. COUILLARD:     Well, I think we had some revenue
 8   offset at the 2006 in our rates for potential disposal of
 9   facilities, which were not as big as, obviously, the gain
10   that was included in there.
11        We also believed that this is part of our new plan,
12   which was not, in 2006, really in play.       We had not
13   finalized our plan at the time.      And so that's why we
14   believe that the customer still -- even if, you know, there
15   is no direct rebate sent to the customers -- we still
16   believe the customers will get some benefit, because the
17   money, basically, stays within THESL.
18        This money is not going away.      THESL will be able to
19   use the gain generated from this sale in order to invest in
20   its capital plan, and the cash will certainly be playing,
21   you know, a significant role, the cash received, a
22   significant role in THESL's financing policies, and by
23   getting more cash.    Obviously, THESL will need to go
24   outside and require less outside funding sources.
25        MR. VLAHOS:     And how much was the capital gain, sir,
26   for the Belfield facility?
27        MR. COUILLARD:     It's approximately $1.5-million.
28        MR. VLAHOS:     All right.   So let's talk a bit about

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1   this 50 percent sharing going forward.          Now, just seeking
 2   your views as to capital gains that arise because of a sale
 3   of an asset that is not really obsolete, in the sense that
 4   you can walk away from it, but rather, there is a grander
 5   plan where this asset does not fit, or there may be a
 6   better use of the company's dollars going forward.
 7        So from that perspective, does it -- I'm not sure how
 8   you would justify a 50/50, as opposed to 100 percent for
 9   the ratepayers.      Can you explain to me?
10        MR. COUILLARD:      Yes.   Well, we obviously had a lot of
11   discussion, around, you know, what do we do with the
12   proceeds of some of these facilities that we're selling,
13   and the largest one that we will be selling with the
14   biggest gain will be 5800 Yonge, as I mentioned earlier.
15        For us it's a better incentive to share this gain
16   between ratepayer and the shareholder in a way that the
17   shareholder, basically -- it allows us to make sure we
18   maximize, so we don't have to go -- we don't want to do
19   fire sale.     We want to make sure we follow due course and
20   due real process.
21        So the incentive to allow the shareholder to keep a
22   portion of this, to me, plays very high in our ability to
23   maximize the return that we're going to get.
24        The second point we had in this regard was the fact
25   that, as I mentioned earlier, regarding the Belfield, well,
26   we're going to collect a significant amount of cash in
27   here, and this is cash that we will not go out and have to
28   borrow.

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1           So, you know, if we were to give this incentive to the
 2   customer, well, then I will have to go and borrow more cash
 3   in the future in order to finance the capital plan of
 4   THESL.
 5           So we thought that doing a 50/50, plus the cash that
 6   we're using, is likely to be used to -- allowing us to
 7   invest in the infrastructure will benefit the customers.
 8           MR. VLAHOS:   You would agree, sir, that a good policy
 9   from -- a regulatory policy would be not to provide an
10   incentive to consequently sell?        Is that fair?     I'm not
11   suggesting that it's happening here, but you can appreciate
12   any concerns that may be raised by intervenors.           And the
13   questions I'm asking is what anyone may ask, and they may
14   follow-up with those questions.
15           But there should not be an incentive created for the
16   company, for a distributor, to keep changing assets.             Do
17   you know what I'm talking about?         Keep -- what is the word
18   --turning over assets?
19           MR. COUILLARD:   Yes, sorry --
20           MR. VLAHOS:   So that would be a perverse incentive,
21   wouldn't it?
22           MR. COUILLARD:   Yes, I think you have a valid point.
23   You know, for us it's really related to one plan that we
24   have.    It's our facilities plan, you know, and there's not
25   that many things that could be comparable in our particular
26   case, as far as assets that we'd be shifting around.             You
27   know, we put a lot of thought into this, and we believe in
28   this particular case that a 50 percent incentive was, you

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   know, was fair for --
 2           MR. VLAHOS:   Okay.   Now, I don't have the exhibit in
 3   front of me, Mr. Couillard, but I've noted that, apart from
 4   the realized sale, there were three or four additional
 5   transactions over the next three years?
 6           MR. COUILLARD:   Yes, sir.
 7           Mr. Vlahos, the largest one, if I may, is the
 8   Underwriters facilities that will be decommissioned and
 9   sold.    There's the Goddard facilities and a couple of other
10   ones, but these two are the two largest ones that we will
11   be selling.
12           Sorry, the 5800 Yonge that I've talked about, and we
13   also have another station right beside here, at 60
14   Eglinton, that's included in here.
15           MR. VLAHOS:   Right, sir, and my colleagues were kind
16   enough to give me the reference.         It's Exhibit C2, Tab 2,
17   Schedule 2, where table 8 shows a sale expectation in 2007,
18   and one in 2008, one in 2010, and the final one in 2011.
19   Right?
20           MR. COUILLARD:   Yes, sir.
21           MR. VLAHOS:   Okay.   I believe I asked my questions and
22   you provided your response, Mr. Couillard.          It's just that
23   I just want to, one more time, just reiterate the question
24   that may be arising, and for the Board, so the Panel
25   decide; and that is just, at a very simple level, a very
26   high level, you've got a building.         Say that, you know, a
27   central office of a utility, and all of a sudden it doesn't
28   fit their purposes, because they have to expand by, you

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   know, 5 percent more people.        Therefore, they need a new
 2   building, and they move next door.         So they sell the older
 3   one at a substantial profit, but the cost of the new
 4   building is going 100 percent to rate base.
 5           MR. COUILLARD:   I see --
 6           MR. VLAHOS:   That's a scenario that I'm presenting to
 7   you, which I'm sure that will be followed by some
 8   intervenors.
 9           I just wanted your response for the record on this.
10   And is there anything else you wanted to add?
11           MR. COUILLARD:   No, Mr. Vlahos.
12           MR. VLAHOS:   No, all right.     Thank you, sir.
13           MR. SOMMERVILLE:    Any questions arising?
14           MR. WARREN:   I was just wondering, sir, how you
15   propose to deal with this.         Did you want this as a discrete
16   part of the record?      Because I had a couple of questions
17   that arose from the exchange that Mr. Vlahos just had with
18   the --
19           MR. SOMMERVILLE:    What I was soliciting were questions
20   arising from Mr. Vlahos's questions.
21           MR. WARREN:   Would it be appropriate for me to put
22   them?    I've only got three or four, sir.
23           MR. SOMMERVILLE:    Yes.

25           MR. WARREN:   Panel, I want to understand the dynamics
26   of the exchange that you had with Member Vlahos a moment
27   ago.
28           Is it, first of all, the proceeds from the sale, were

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   they part of the dividend that was paid to the shareholder?
 2        MR. COUILLARD:     Which proceed?     From --
 3        MR. WARREN:     Part of the capital gain that came from
 4   the sale.
 5        MR. COUILLARD:     That's the Belfield sale, sorry?
 6        MR. WARREN:     Belfield sale, yes.
 7        MR. COUILLARD:     There's no direct formula in THESL
 8   dividend to do a percentage of net income or anything like
 9   that, so the answer is, no, it was not included.
10        MR. WARREN:     But my question was -- and I'm sorry to
11   be imprecise about it -- but was this retained?          Was the
12   proceed retained by THESL so that it could be offset, for
13   example, against future borrowings, or was it paid to the
14   parent and ultimately to the ultimate parent, to the City?
15        MR. COUILLARD:     It was not.     Actually, from a pure net
16   income, if we refer to the Toronto Hydro Corporation
17   dividend policy, as a policy of 50 percent of net income is
18   paid to the City.
19        However, because this is an inter-company gain that
20   THESL sold to an affiliate, another affiliate at fair
21   market value, this was not considered into net income.          So
22   none of that money has made its way out of THESL.
23        MR. WARREN:     Now, the larger question from a policy
24   point of view:     Is this not driven, this sharing policy, is
25   it not driven by the issue that I took up with Mr. Haines
26   on the first day of this hearing, which is that one of the
27   principal objectives cited, for example, in the first
28   confidential exhibit, is to maximize the return to the

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1   shareholder?    Is that not what this is about?
 2        MR. COUILLARD:    Well, I think if -- I mean, if I come
 3   back to the line of questioning I just got from Mr. Faye, I
 4   don't think we mentioned once that the facility strategy
 5   was related to any type of gain to our shareholder.
 6        I think my testimony could -- and our evidence
 7   included in this application shows that there is a
 8   significant need for us to upgrade our facilities, and
 9   there's a significant need for us to move towards more
10   functional facilities in the future.
11        MR. WARREN:    Those are my questions.     Thank you.
12        MR. SOMMERVILLE:    Mr. Rodger, any questions arising?
13   Oh, I beg your pardon, Mr. DeVellis.
14        MR. DeVELLIS:    Yes, I had a section in my questions on
15   this issue, so I suppose it would be more appropriate to
16   ask them now.
17        MR. SOMMERVILLE:    These are questions that arose this
18   morning in regard to the capital panel, and which were
19   deferred to this panel as sort of being connected to
20   capital but probably best answered here.
21        So I'm thinking that -- does it form part of the
22   broader picture for Panel 5 or is it --
23        MR. DE VELLIS:    Well, the reason I was going to ask
24   them with this panel was because of Mr. McLorg's e-mail
25   saying questions on revenue offsets with respect to
26   specific issues should be addressed to panel 5, and so I
27   had it under my revenue offset section for this panel.
28        MR. SOMMERVILLE:    Well, let’s deal with it, then, in

                         ASAP Reporting Services Inc.
               (613) 564-2727                     (416) 861-8720

 1   the regular course of cross-examination for this panel.
 2          What we're dealing with now are, really, questions
 3   arising from Mr. Vlahos' questions.        Mr. Rodger, do you
 4   have any redirect or questions arising as a result?
 5          MR. RODGER:   I have no questions, sir.
 6          MR. SOMMERVILLE:     Thank you.   At this point we'll now
 7   start to deal with panel 5 in its stipulated subject
 8   matters.   I think we have a bit of musical chairs to
 9   accommodate.    Mr. Warren, I think you're going first in
10   cross-examination of this panel?
11          MR. WARREN:   I think notwithstanding the musical
12   chairs, I'll have to sing, sir.
13          MR. SOMMERVILLE:    That was audible.
14          MR. WARREN:   Ms. Campbell reaching for her airsick
15   bag.

17          MR. WARREN:   Panel, I have just two or three areas
18   I'd like to cover, and they are largely in the area of
19   information and understanding the data that we have in this
20   section.   To begin with, I wonder if I could ask you to
21   turn up three exhibits.      They are Exhibit F2, Tab 1,
22   Schedule 1; that's the first one.        The second is F1, Tab 1,
23   Schedule 1, and the third is Exhibit J1, Tab 2, Schedule 1.
24          MR. COUILLARD:   Sorry, Mr. Warren, would you please
25   repeat the last reference?
26          MR. WARREN:   The last is J1, Tab 2, Schedule 1.
27          MR. COUILLARD:     Thank you.
28          Yes, sir.

                           ASAP Reporting Services Inc.
                 (613) 564-2727                     (416) 861-8720

 1        MR. WARREN:      First of all, dealing with F2, Tab 1,
 2   Schedule 1, that is the distribution expenses,
 3   administrative and general; correct?         That schedule there?
 4        MR. COUILLARD:      Yes.
 5        MR. WARREN:      Do I understand that that's something
 6   different from the distribution O&M budget as a whole; is
 7   that correct?
 8        -- Witness panel confers
 9        MR. COUILLARD:      Yes.
10        MR. WARREN:      Now, if I were to add the two of them
11   together, would I get the total distribution expenses?
12        MR. COUILLARD:      No.
13        MR. WARREN:      That takes me, then, to Exhibit J1, Tab
14   2, where we have what I understand to be the total
15   distribution expenses.       Let's take, just for ease of
16   reference, the 2007 bridge year.         We have A&G, distribution
17   expenses, administrative, and general, for 2007 of 64.4
18   million.    We have distribution O&M budget for 2007 as 178.
19   So we're at roughly 145.
20        What, then, do I have to add to those two categories
21   in order to get the total distribution expenses for the
22   utility?
23        MR. COUILLARD:      If you had the operating and
24   maintenance at 164.3, plus the municipal and property tax
25   at 7.3 --
26        MR. WARREN:      Sorry.    If I'm missing an exhibit, Mr.
27   Couillard, which I may well be, then you have to help me
28   with that.     But I have something on Exhibit F1, Tab 1,

                            ASAP Reporting Services Inc.
                  (613) 564-2727                     (416) 861-8720

 1   Schedule 1, which is called "Summary Distribution, O&M
 2   budget"; for 2007 bridge year is $178.9.        I have something
 3   on F2, Tab 1, Schedule 1, which is called "Distribution
 4   Expenses, Administrative and General"; for 2007, at 64.         I
 5   add those two together, I get roughly 240.
 6        I then see something which is labelled, on J1, Tab 2,
 7   Schedule 1, "Distribution expenses" for a total or 294, of
 8   which municipal and property taxes are only 8.2 million.
 9        All I'm trying to do, panel, is try to understand
10   these various categories and how they fit together, and how
11   I get to a total of the distribution expenses for the
12   utility.
13        MR. COUILLARD:     Mr. Warren, when we add the two
14   exhibits in F1 and F2 --
15        MR. WARREN:    Right.
16        MR. COUILLARD:     -- what is not included in these
17   exhibits is the recoveries.      Our internal cost allocation
18   methodology, basically, allows us to allocate costs into
19   the different business units, and then it gets recovered
20   through another area.
21        So the costs that we have in F1 and F2 do not include
22   the recoveries.    I would have to add the recoveries, which
23   obviously will be a reduction of expenditure.         As an
24   example, on the facility group, you would have a cost for
25   facilities of the OPEX, but we also allocated all those
26   costs to other people in a different area.        So, for
27   example, my friends in distribution services will have an
28   amount of facilities.     Obviously, if we don't do a recovery

                          ASAP Reporting Services Inc.
                (613) 564-2727                     (416) 861-8720

 1   from one department to another, then we would be double-
 2   counting some expenditures.
 3        We also record a recovery in the facilities department
 4   to take this up.    So when we presented our F1 exhibit, for
 5   example, that includes all the allocations of the different
 6   department for their occupancy charge or IT charge, but not
 7   their recovery.    So I would have to add the recoveries to
 8   this equation, and then that will bring it to the number
 9   that you have in J1, Tab 2.
10        If you give me a second, there is evidence in here
11   that will provide you what these recoveries are.
12        MR. WARREN:    Please.
13        MR. COUILLARD:    You might want me to go there.          I
14   might need a second.
15        If we go to R1, Tab 1, Schedule 1.12, we would be able
16   to see there's actually a schedule that reconciles -- the
17   schedule is actually provided by Board Staff, thank you
18   very much -- that reconciles F1, F2, and then there's a
19   difference of the recoveries that are explained in our
20   answers, which is in Appendix "A".
21        MR. WARREN:    The recovery amount -- let's just stay
22   with 2007 -- the recovery amount for 2007 is what?
23        MR. COUILLARD:    The allocation and recovery are 77.7
24   million.
25        MR. WARREN:    77.7?   Those are to be added to the
26   totals on --
27        MR. COUILLARD:    It's a reduction.
28        MR. WARREN:    It's a reduction.     Okay.   So if I take

                          ASAP Reporting Services Inc.
                (613) 564-2727                     (416) 861-8720

 1   those from 200 -- can we just stay with the numbers?
 2        If I add up F2, Tab 1, Schedule 1, which is for the
 3   A&G expenses for 2007, are $64.43-million.         To those I add,
 4   for 2007, 178.9, which is found on F1, Tab 1, Schedule 1.
 5   Am I correct to add those two numbers together to get to
 6   distribution expenses?
 7        MR. COUILLARD:     Mr. Warren, if we turn to R1, Tab 1,
 8   Schedule 1.12, Appendix "A", the full reconciliation that
 9   shows F1 and F2 to the J1 exhibit is there with all the
10   elements.
11        MR. WARREN:     One last question on this. J1, Tab 2.        If
12   I look at 2007 bridge year on that, the operating,
13   maintenance and administration expenses are $164.3-million.
14   Do you see that number?
15        MR. COUILLARD:     Yes, sir.
16        MR. WARREN:     Okay.   I don't see that number anywhere
17   on F2 -- sorry, F2, Tab 1, Schedule 1 and F1, Tab 1,
18   Schedule 1.    None of the numbers there add up to it.
19        MR. COUILLARD:     No, but once again, if you turn to R1,
20   Tab 1, Schedule 1.12, Appendix "A", you will find that
21   164.3 in the reconciliation, starting from F1 and F2.
22        MR. WARREN:     Okay.   That's all right.     I mean, I'll
23   take your word for it, Mr. Couillard.
24        Now, could I turn to the governance responsibility
25   centre?   And in this context I'd ask you to turn up two
26   exhibits.    One is F2, Tab 2, Schedule 1, and the second
27   exhibit is R1, Tab 3, Schedule 18.        It's an interrogatory
28   to my client.

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 1        MR. COUILLARD:     Yes, sir.
 2        MR. WARREN:    Again, I just want to understand the
 3   numbers first.   On F2, Tab 2, Schedule 1, my understanding
 4   of that data presented on page 1 of 2 was that in the
 5   category of "governance responsibility centre", those are
 6   the figures for 2006 through 2010 exclusive -- sorry,
 7   inclusive, in those categories -- in that category; is that
 8   right?
 9        MR. COUILLARD:     That is correct.
10        MR. WARREN:     Now, if I go to the interrogatory which
11   my client posed, R1, Tab 3, Schedule 18, under the heading
12   "governance responsibility", I look -- I see a different
13   set of figures there.    For example, for 2007 bridge year, I
14   see 15.2 million, as opposed to 10.55.       2008, 19.5, as
15   opposed to 12.05.
16        What's the reason for the difference?
17        MR. COUILLARD:     I'm drawing a blank here.     I'm trying
18   to get it, because I remember doing both tables.        So if you
19   give me two minutes, if I can --
20        MR. SOMMERVILLE:     If you want to give an undertaking,
21   Mr. Couillard --
22        MR. COUILLARD:     I think that would probably be better,
23   sir, for people's time.
24        MS. CAMPBELL:    That would be T5.5.
25        MR. SOMMERVILLE:     Thank you.   And that's a
26   reconciliation of the two exhibits.
28        EXHIBITS.

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 1        MR. WARREN:     Mr. Couillard, you've given an
 2   undertaking, which I appreciate, to reconcile the two
 3   exhibits.    But is it fair for me to conclude, Mr.
 4   Couillard, that in the absence of an interrogatory from my
 5   client -- there's no magic in the fact that it came from my
 6   client -- in the absence of an interrogatory from my
 7   client, we wouldn't have had two different sets of numbers,
 8   right?
 9        MR. COUILLARD:     I disagree with you, Mr. Warren.
10   There is an explanation.      There's probably something in the
11   costs that has not been factored, so that's why I took the
12   undertaking.    So I'm not willing to agree with that, your
13   conclusion.
14        MR. WARREN:     Well, I would have thought the answer was
15   a straightforward "yes".      If I hadn't asked the question, I
16   wouldn't have got a different set of numbers.          Isn't the
17   answer to that "yes"?
18        MR. COUILLARD:     Possible, but I'm not sure that both
19   numbers might -- that any of the numbers are wrong.
20        MR. WARREN:     I'm not suggesting that they're wrong,
21   Mr. Couillard, it's just that they're different.          The point
22   of my question, sir, is that in the absence of some sort of
23   form of public inquiry into these numbers, we don't get a
24   detailed explanation for what they mean.         Isn't that fair,
25   Mr. Couillard?     That's what this process is about.
26        MR. COUILLARD:     I think you're drawing a very large
27   conclusion on a potentially simplistic, you know,
28   misunderstanding on the numbers.

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 1        MR. WARREN:    Okay.    Just dealing with the governance
 2   responsibility centre, a couple of categories.         This is
 3   described in the F2, Tab 1, Schedule 1 exhibit, and I'll
 4   quote:
 5              "The governance responsibility centre includes
 6              costs related to the office of the president of
 7              THESL and related stewardship and governance
 8              activities.      The primary responsibilities of the
 9              president include developing and monitoring
10              THESL's strategic direction, executing the board
11              of directors' policies, and providing overall
12              direction to THESL's operations."
13        Now, against that broad general description, can you
14   help me?   In the category, for example, looking at R1, Tab
15   3, Schedule 18, we have office expenses of $5.3-million,
16   roughly speaking, in each of 2007, 2008, 2009, 2010 -- I'm
17   sorry, "other costs", I apologize.       "Other costs."
18        What are those other costs of $5-million a year for
19   each of those in the governance responsibility centre?
20        MR. COUILLARD:    Well, the other costs, as mentioned on
21   R1, Tab 3, Schedule 18 on page 2, are comprised of
22   forecasts for potential severance costs based on prior-year
23   experience, which is approximately $2.2-million per year,
24   and that includes cost for litigation with employees for
25   the entire THESL organization.
26        These costs also include all the governance costs for
27   the THESL board, which is around 400,000; some consulting
28   expenditures for some THESL initiatives.        We also have

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 1   interest income adjustment that we've booked at the end
 2   that we had not included in our interest, and that's the
 3   difference between the time we were preparing the filing in
 4   the rates, and the revenue offset, versus, you know, some
 5   of the issues that happened in the market, where interest
 6   rate were reduced significantly.      Also, our appetite for
 7   investment in different vehicles has changed since some of
 8   the issues that happened in the market.
 9        So it was about a million and a half of interest
10   income that we thought we would have got that we didn't
11   have, and we have included that in that responsibility
12   centre, instead of moving it into revenue offset.
13        MR. WARREN:   Looking at these proposed budgets,
14   certainly in the "other costs" category, they're
15   essentially the identical number for 2007 through 2010.
16        Is that based on a forecast, Mr. Couillard, or did you
17   just say these costs are likely to be the same over the
18   next four years -- or three years, I'm sorry?
19        MR. COUILLARD:   Sorry, in other costs?
20        MR. WARREN:   Yes.
21        MR. COUILLARD:   Yeah, in the case of the severance
22   costs, it's based on our forecast of, you know, based on
23   what we were -- previous experience, five years, and what
24   we thought we might have in the near future.
25        In the case of interest expense, it's based on
26   forecast interest rates that have been adjusted.        And
27   that's really -- this interest is only the delta between
28   what we actually filed, and revenue offset is what we're

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 1   now reforecasting, and the major issue being some changes
 2   in the financial markets, and based on the type of
 3   investment.
 4        As far as other costs, such as governance cost, these
 5   costs used to be in the shared services.          Now they've moved
 6   down into governance.
 7        The costs for -- there's also a fuel adjustment of
 8   about a half a million dollars that's included in this
 9   responsibility centre, and that's in relation to -- it
10   would be the same story in the interest rate.           We did not
11   have time to go and modify all our standard rates for
12   vehicles, but the forecasted price for fuel has increased,
13   and therefore we made the adjustment there.
14        MR. WARREN:      Can I turn to the second-to-last category
15   I want to talk about, which is treasury rates and
16   regulatory affairs?
17        If you would turn up Exhibit F2, Tab 7, Schedule 1,
18   page 3 of 5.
19        MR. COUILLARD:      Yes, Mr. Warren.
20        MR. WARREN:      Three of 5 and 4 of 5, I guess, are the
21   same set of numbers.       But I see under "regulatory affairs"
22   that you're forecasting an increase from 2007 bridge, which
23   is 5.2, to 8.15 in 2008, 7.79 in 2009, and 8.40 in 2010
24   test year.
25        And if your application is granted, then for, what,
26   two of those years you won't have an EDR cost-of-service
27   application; correct?
28        MR. COUILLARD:      That's correct.

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 1        MR. WARREN:     You then say, by way of explanation on
 2   page 4 of 5, that:
 3             "The costs are expected to be lower in 2009, but
 4             will remain near the 2008 level due to the
 5             anticipated costs involved in consultations and
 6             hearings related to a number of OEB initiatives
 7             over that period."
 8        What are those initiatives?
 9        MR. COUILLARD:     Well, there is a lot of review that
10   the OEB is going through.    I think we have had some
11   allocation of rates, like, you know -- I'm not very good
12   with the regulatory terms.     Who gets to pay what, the
13   residential versus the commercial versus the larger guys;
14   there's a lot there.
15        There are all the consultations that are potentially
16   regarding any type of regulatory thing.       I think panel 7 is
17   probably the best panel, Mr. Warren, to address that.
18        MR. WARREN:     I'm caught here with -- you're the guy
19   with numbers.   You're the guys with the policy.       Can I just
20   stay with you with the numbers for a moment?        And if you
21   can't answer the question, Mr. Couillard, then I'll make a
22   note to move to panel 7.
23        Would some of those costs be for --
24        MR. COUILLARD:     Sorry, the costs for the regulatory.
25   I could speak about the number of staff that they require,
26   the number of staff that are included in there.        As far as
27   the initiatives that they're going to be working on, the
28   regulatory people will be better than me.

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 1        MR. WARREN:     Then I'll defer to them.      Thank you.
 2        The last issue I would like to address is in the field
 3   of IT, and there are two exhibits I would like you to turn
 4   up, please.    One is F2, Tab 10, Schedule 1, and the other
 5   is D1, Tab 7, Schedule 1.
 6        MR. LABRICCIOSA:      Sorry, Mr. Warren, is that B1?
 7        MR. WARREN:     D, as in David, Tab 7, Schedule 1, page
 8   10 of 12.
 9        MR. COUILLARD:     Yes, Mr. Warren.
10        MR. WARREN:     Dealing first with F2, Tab 10, Schedule
11   1, page 4 of 7.     The IT&S costs which are listed on table
12   1, those are the O&M costs; is that correct?
13        MR. COUILLARD:     That would be correct.
14        MR. WARREN:     If I wanted to understand the total IT
15   costs in those years, I would add to them the capital costs
16   shown under the heading "Information technology" on the D1,
17   Tab 7, Schedule 1, exhibit?
18        MR. COUILLARD:     Yes.
19        MR. WARREN:     Math is, next to the study of law, my
20   worst subject.     Can you take this addition subject to
21   check?   If I add the numbers for 2006 historical, I get
22   47.8 million, total expenditures on IT.         2007, I get some
23   47.4 million.    2008, I get 56.2 million.       2009, I get 56.7.
24   And for 2010 I get 51.8.
25        The last numbers I'd like you to take subject to check
26   is that in the period 2007 to 2010 inclusive, the total IT
27   spending will be 212.1 million in capital and O&M.              Can you
28   take those numbers subject to check?

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 1        MR. COUILLARD:     Subject to check.
 2        MR. WARREN:   Now, just at the intuitive level at which
 3   I'm comfortable operating, certainly with respect to IT
 4   matters, that seems like a staggering amount over a period
 5   of four years.   Can you explain why it is $212-million
 6   needs to be spend on IT over the next four years?
 7        MR. COUILLARD:     Well, some of the major initiatives
 8   that we have underway on the capital side, we discussed
 9   today, but we have a new system, a new customer service
10   system.   We also have included in this the support and
11   maintenance of those systems.     We are doing significant
12   investment in what we call outage management systems.
13        There are some investments that are being made in our
14   compliance with some of the governance issues that we have,
15   from an, I would say internal control standpoint.        COBIT,
16   which is the term that my IT friends like, which is a
17   governance framework.    I mean, there are a lot of IT
18   initiatives.   We can go through all of them, but they're
19   all in the filing, supported by business cases, from a
20   capital standpoint.   And from an IT standpoint, most of the
21   IT costs are related to, as I mentioned, maintenance of new
22   systems and some new staff in relation to some of the
23   increased governance that we have to undertake.
24        MR. WARREN:   In light of the magnitude of the
25   spending, $212-million over four years, can you tell me
26   what decisions you made about priorities in order to try
27   and reduce the impact on ratepayers of IT expenses?
28        MR. COUILLARD:     We review all our IT expenses and

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 1   initiatives through business cases, and, you know, and
 2   looking at the benefits, and these benefits include the
 3   benefits from the customers' perspective.          And so the IT
 4   initiatives that did not provide enough benefits were not
 5   part of this plan.      The ones that are, we believe will
 6   benefit the customer over time.
 7        MR. WARREN:      Those are my questions.      Thank you, sir.
 8        MR. COUILLARD:      Thank you.
 9        MR. SOMMERVILLE:       We'll take our afternoon break at
10   this point, and reconvene at five minutes to four.               Let's
11   make it 4 o'clock.      In the meantime, sort of consider where
12   we're going to get this afternoon, realistically, without,
13   again, rupturing examinations, which I think generally ends
14   up costing us time.
15        We'll reconvene at 4 o'clock, and in the meantime you
16   can perhaps sort out who we'll get to before we rise this
17   afternoon.     Thank you.
18        --- Recess taken at 3:39 p.m.
19        --- On resuming at 4:04 p.m.
20        MR. SOMMERVILLE:       Thank you.    Please be seated.
21        MR. RODGER:      Mr. Chairman, just before we begin, if I
22   could, Mr. Couillard gave an undertaking, T5.5, and he can
23   provide the Board with the answer to that undertaking now,
24   if we could clear up that matter.
25        MR. COUILLARD:      Thanks, Mr. Rodger.
26        If I can refer members of the Panel to Exhibit R1, Tab
27   3, Schedule 18, what I should have clued is that the
28   schedule that was provided in this interrogatory response

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 1   included shared services allocation and recovery.
 2         So if we remove that for '08, '09, and '10, it matches
 3   the schedule that Mr. Warren was referring to at Exhibit
 4   F2, Tab 2, Schedule 1.       There are two lines.      The one is
 5   called shared services, THCL allocation, and one is called
 6   shared services recovery.
 7         MR. RODGER:     Thank you.
 8         MR. COUILLARD:     You're welcome.
 9         MR. SOMMERVILLE:      I think that, Ms. Campbell, you're
10   up.
11         MS. CAMPBELL:     Yes.
12         MR. SOMMERVILLE:      Thank you.
13         MS. CAMPBELL:     I am.

15         MS. CAMPBELL:     For the first series of questions, if I
16   could ask you to pull up Exhibit F1, Tab 6, and the first
17   place I'd like you to go is F1, Tab 6, Schedule 5, page 1.
18         My first questions deal with table 1, which is on page
19   1, and it's "Operations administration costs."           Table 1
20   shows increases in operations administration costs from
21   22.3 million -- that's the 2006 historical -- to 29.54
22   million in the 2007 bridge, and 32.53 million in the 2008
23   test year.
24         These increases are -- between 2006 historical to 2007
25   bridge -- 32 percent, approximately.
26         MS. CLARK:     Excuse me.    Apparently we're not on air.
27         MS. CAMPBELL:     We're not on air.
28         MR. SOMMERVILLE:      So Ms. Campbell, you said we are on

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 1   air?
 2          MS. CAMPBELL:    We're not on air.    According to Ms.
 3   Habashy, we're not on air.
 4          --- Mics turned off, then on.
 5          MR. SOMMERVILLE:      Thanks, Ms. Clark.
 6          We can proceed.    We don't have to be on air.      There is
 7   a transcript that is producible, so those who are
 8   interested can get access.
 9          And hopefully we are actually on air now.        Please
10   proceed.
11          MS. CAMPBELL:    So as I was saying, the increase --
12          MR. SOMMERVILLE:      Sorry, your mic is not on.
13          MS. CAMPBELL:    My mic is now on.
14          The percentage of increase between 2006 historical and
15   2007 bridge is approximately 32 percent, and from 2007
16   bridge to 2008 test is approximately 10 percent.          When I
17   look at the text, which is immediately below the table, I'm
18   provided with several reasons for the increase.
19          And it states, lines 18 to 23, that the administration
20   costs rose from the historical year to the bridge year due
21   to general increases in inflation and payroll and vehicle
22   changes due to the reorganization.
23          My question to you is:      Can you tell me how much of
24   the increases that we've just noted are due to the
25   reorganization?      Is it possible to be able to break that
26   down for us?
27          MR. PRIORE:    Yes.    Approximately 1.2 million was due
28   to the reorganization.

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 1        MS. CAMPBELL:     And the year that you're discussing is
 2   the 2006 to the bridge year?
 3        MR. PRIORE:   That's right.
 4        MS. CAMPBELL:     All right.    So that's 1.2 million?
 5        MR. PRIORE:   Yes.
 6        MS. CAMPBELL:     Is due to the reorganization?     And the
 7   rest of the amount is due to the factors that are listed in
 8   lines 18 to 23?
 9        MR. PRIORE:   Exactly, the biggest factor being the
10   allocations.
11        MS. CAMPBELL:     Can you explain to me what is meant by
12   "vehicle changes due to the reorganization"?        It's referred
13   to in lines 19 and 20, immediately underneath table 1.
14        MR. PRIORE:   That has to do with the fact that the
15   vehicle charges in 2007 included allocation for our
16   facilities that increased their lease charge to the
17   business units, so it's a difference in the model for
18   charging out the vehicles.
19        Essentially, it's the impact of allocating facilities
20   to all the different business units.       Fleet also suffered
21   an impact, and that is reflected in their lease rates.        So
22   there's changes that have been transmitted to all the
23   business units because of that.
24        MS. CAMPBELL:     And the 10 percent between the bridge
25   and the test year, that doesn't contain any reorganization
26   costs, does it?
27        MR. PRIORE:     No.    That one includes the full impact of
28   the Milner facility.       Because Milner was occupied halfway

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 1   through this year, next year it's going to have a full
 2   impact, so that accounts for about one and a half million
 3   dollars.
 4           And the rest is due to the graduating apprentices
 5   coming into the business units.        There's about 18
 6   tradespeople who are graduating.         So there's an impact on
 7   labour.    Plus, there are eight more designers that are
 8   being added to the FTE count.
 9           MS. CAMPBELL:   Eight?
10           MR. PRIORE:   Eight.
11           MS. CAMPBELL:   Thank you.
12           If I could ask you to stay with tab F -- stay with
13   Exhibit F1, Tab 6.      I need you to go to Schedule 6, page 4,
14   specifically table 1, that says "Costs of work management".
15           Table 1 shows increases in the costs of work
16   management from 2.6 million in the 2006 historical year to
17   5.9 million in the 2007 bridge year, which is, by Mr.
18   Davies' calculation, approximately the 127 percent
19   increase; and an increase between the 2007 bridge year to
20   the 2008 test year, an increase from 5.9 to 10.2 percent.
21   And that's calculated to be approximately 73 percent in
22   2008.
23           Is the increase that I'm looking at between 2006 and
24   2007 primarily the result of the reorganization?
25           MR. PRIORE:   No.   That one is attributable to the
26   trade school.     Under "work management", that's where we
27   embed our trade school.
28           So there is a change in FTE count from 2006 to 2007,

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 1   and the difference is precisely 43 FTEs, and that's why the
 2   cost has gone up.
 3           MS. CAMPBELL:   Does the reorganization have any effect
 4   upon that increase?
 5           MR. PRIORE:   The reorganization resulted in seven
 6   people joining the work-management group from another
 7   group.    So it's a redistribution of FTEs, but not
 8   additional FTEs.
 9           MS. CAMPBELL:   Regarding 2008, if I look at lines 20
10   to 21, there's a sentence that says:
11                "Funding requirements increased from 2007 to 2008
12                due to the hiring of management staff and the use
13                of external consultants."
14           How much of it is due to external consultants?
15           MR. PRIORE:   I believe that's covered in one of the
16   interrogatories.      I'm guessing 120,000, but I'd have to
17   check.
18           MS. CAMPBELL:   So 120,000 of the increase from 2007 to
19   2008?
20           MR. PRIORE:   That's right.
21           MS. CAMPBELL:   Is external consultants?
22           MR. PRIORE:   That's right.
23           MS. CAMPBELL:   The vast majority of that is the hiring
24   of management staff.
25           MR. PRIORE:   It's two managers.
26           MS. CAMPBELL:   Okay.
27           MR. PRIORE:   Two managers and two supervisors.
28           Sorry.   Embedded in the question was the increase from

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 1   2007 to 2008.
 2        MS. CAMPBELL:    Yes.
 3        MR. PRIORE:    There's also the trade school that's part
 4   of that.
 5        MS. CAMPBELL:    Oh, so that remains a factor?
 6        MR. PRIORE:    Yes.
 7        MS. CAMPBELL:    And, as I go forward through 2009 and
 8   2010, is the trade school continuing to be the driver
 9   behind that?
10        MR.S PRIORE:    That's the primary driver, yes.
11        MS. CAMPBELL:    The next question I have for you, still
12   in F1, if I could ask you to turn to Tab 7, please,
13   Schedule 1.
14        MS. DAVIDSON:    Yes.
15        MS. CAMPBELL:    Page 4, please.     Another table.
16        MS. DAVIDSON:    Yes.
17        MS. CAMPBELL:    Now, table 1 on this page shows an
18   increase in total customer service costs of roughly $9-
19   million in the 2008 test year.      So the 2007 bridge year is
20   42.97 million and the 2008 test year is 51.91 million.
21   That's roughly a 20 percent increase.       And if I turn the
22   page to page 5, there's an explanation of the increase from
23   $9-million.
24        If I could take you down to line 17 on the page, it
25   states that:
26              ”$2 million of the increase is for the conversion
27              of flat-rate water heaters."
28        I now have to flip to a different page to set my

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 1   question up.     I seem to have lost the page.       Here it is.
 2           I apologize.    Holding that page, and then turning to
 3   Schedule 6 of Tab 7, page 3.        I just wanted you to have
 4   both pieces of information before you so you could answer
 5   my question.
 6           What I'm looking at lines 5 to 8, it says:
 7                "The cost change from 2007 to 2008 is an increase
 8                of 1.7 million.    $2 million has been budgeted for
 9                the process of converting flat-rate metered water
10                heaters to metered services.       This program will
11                include a communication program with customers
12                and incentives to convert."
13           Can you explain why that program is going to occur
14   when it's going to occur, and how the costs would break
15   down?
16           MS. DAVIDSON:   That program is going to commence at
17   the beginning of 2008.       To give a bit of background, we
18   have 38,000 customers who, through different utilities --
19   the six different utilities -- had electricity flowing to
20   their water heater on a flat-rate basis.          In other words,
21   it's not flowing through the meter.         And the calculation,
22   the methodology of calculating the cost for that energy
23   consumption was based on the size of the water heater and
24   the element size of the water heater.
25           This is not an efficient and effective way to charge
26   people for their energy consumption, in our opinion.             I'm
27   sure there are pluses and minuses, but on the whole, this
28   does not drive conservation if you're not properly metered

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 1   for a major component that's in your household.
 2        So, with the 38,000 customers, we are going to, over
 3   the next period of time, have them convert over to a
 4   metered service, so that they would convert the energy so
 5   that it flows through the metre, which it is not doing
 6   right now.
 7        The program is a communication program mainly, to
 8   those customers, that they need to move this energy
 9   consumption over to their meter, and at the end of that
10   program when they do convert it over, we will cut a certain
11   wire that's at the meter base so that the energy doesn't
12   flow in that direction any longer.
13        MS. CAMPBELL:      Why was the decision made to do this
14   program now?
15        MS. DAVIDSON:      Mainly because it's a conservation
16   program, and the other issue is the hot water heaters at
17   one point in time were owned by Toronto Hydro, prior to
18   market-open, and then they moved to our affiliate company.
19   And though it was with an affiliate company, we could track
20   what inventory was still available or what type of
21   inventory and what changes were happening since then, in
22   the past year, that -- those water heaters have been moved
23   to a private company, and our ability to track the size of
24   the base to charge people appropriately for energy is
25   becoming more and more difficult.
26        MS. CAMPBELL:      And is the greater part of the program
27   the communication --
28        MS. DAVIDSON:      Yes, the communication --

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 1        MS. CAMPBELL:     -- program?
 2        MS. DAVIDSON:     Yes, it is.
 3        MS. CAMPBELL:     All right.    So most of the $2-million
 4   will be spent on communication.
 5        MS. DAVIDSON:     A good portion; more than half of it.
 6        MS. CAMPBELL:     And how long do you think the program
 7   will run?
 8        MS. DAVIDSON:     For three years.
 9        MS. CAMPBELL:     Is the $2-million cost the cost of the
10   program for the three years or is it $2-million per three
11   years?
12        MS. DAVIDSON:     $2 million per year.
13        MS. CAMPBELL:     Per year for three years?
14        MS. DAVIDSON:     Yes.
15        MS. CAMPBELL:     Now I would like to turn to the
16   external contracts.     And this will --
17        MR. VLAHOS:     Ms. Campbell, sorry, if I can just follow
18   that up.    Are you leaving that area?
19        MS. CAMPBELL:     Yes.
20        MR. VLAHOS:     Okay.    I just want to follow up, Ms.
21   Davidson, if I may.     What's this communication that is
22   going to amount to $2-million per year?         Can you give us a
23   bit more on that?
24        MS. DAVIDSON:     I'm sorry, I said just a little over 50
25   percent would be the communications.
26        MR. VLAHOS:     Right.
27        MS. DAVIDSON:     And what it will be is a number of
28   communication pieces, first of all, notifying all the

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 1   customers that in turn, over the next three years, we are
 2   going to be moving into this direction.       We quite realize
 3   that for those people involved, it's going to have an
 4   impact on the customer.    We don't perceive that they're
 5   going to look upon this positively, so we are setting up a
 6   separate group in our call centre area, a separate area
 7   that's going to take the telephone calls and work with
 8   these customers.   We're also going to send out additional
 9   communications when we get closer to the point in time
10   where the conversion must occur, and then we'll be
11   following up after that point -– there are probably about
12   three levels of communication that we'll be sending to the
13   customer before we in turn -- if they don't convert over,
14   we will actually have to go in and cut the power off.
15        So we want to have a very solid communication before
16   we get to that point of turning off their hot water heater.
17        MR. VLAHOS:   Who owns the water heaters now?
18        MS. DAVIDSON:    It's a subsidiary, I believe, subject
19   to check, of Direct Energy.
20        MR. COUILLARD:    I can probably help you, because I
21   worked on the transaction.     It's the Consumer Income Trust.
22        MR. VLAHOS:   They're not an intervenor here, so I
23   suspect that they were aware of this issue and they have
24   chosen not to participate?
25        MS. DAVIDSON:    We have made them aware that we're
26   moving forward with this program.
27        MR. VLAHOS:   And again, what is the negative impact,
28   if nothing is done for those customers but rather, if the

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 1   existing water heaters run their useful life out?
 2        --- Witness panel confers.
 3        Is the detriment worth more than $2-million?        That's
 4   the other size of that question.
 5        MS. DAVIDSON:   It's more the detriment is that we're
 6   not metering the energy appropriately, and for those
 7   customers that are being undercharged, somebody's being
 8   overcharged for the cost of that energy, and --
 9        MR. VLAHOS:   Right.    I guess that's the issue that
10   existed forever, that, you know, whether those customers
11   paid their fair share or not.     So that's nothing new.      It's
12   the conservation ethic that comes into the picture for the
13   first time.
14        MS. DAVIDSON:   That's right.     With the Smart Meters
15   available now, then we'll be able to -- sorry, we're having
16   a problem with the mic.     There.   Are we on now?
17        MS. CAMPBELL:   Yes.
18        MS. DAVIDSON:   With the advent of the Smart Meters
19   being introduced, where people have the ability to monitor
20   their consumption more effectively, much more effectively,
21   on a day-to-day basis, then this will drive conservation or
22   it will drive people to use their hot water at off-peak
23   periods of time when they know that that's when their
24   consumption is.
25        MR. VLAHOS:   Okay.    Again, is there any business
26   analysis anywhere in this evidence that this program will
27   justify -- this $2-million total cost per year would
28   justify, I guess, the costs of not doing so will justify

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 1   the cost of not being conservation-driven?
 2           MS. DAVIDSON:   No, unfortunately there's not.           The
 3   reality is that for the energy that's lost by one consumer,
 4   it ends up being covered by another consumer.           They're a
 5   line loss.     But this does improve our situation around line
 6   loss.
 7           MR. VLAHOS:   Okay.   And this issue, this is the first
 8   time this comes before the Board, right?          It hasn't come
 9   before the Board part or parcel with any other initiative
10   or any other CDM discussion in the past, has it?
11           MS. DAVIDSON:   I believe the only other discussion
12   that -- I don't know -- I believe that was presented to the
13   Board is, we were asked to file a report on line losses,
14   and there was some discussion in that report on line
15   losses, that this was an initiative; we should be looking
16   at this initiative on a go-forward basis.
17           MR. VLAHOS:   That's the line-loss report.        But surely
18   this would be a peripheral issue.         It would not be central
19   to the theme of line losses?
20           MS. DAVIDSON:   No, it was not.     It was not.     It was an
21   adjunct to it.
22           MR. VLAHOS:   It was an adjunct to it.      Okay.
23           MR. RODGER:   Mr. Vlahos, if it's helpful, this issue
24   apparently was also raised during the CDM proceeding this
25   summer, the LRAM recovery.
26           MR. VLAHOS:   The recovery?
27           MR. RODGER:   Yes, where Toronto Hydro advised the
28   Board at that time that it was going to be pursuing this

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 1   initiative.
 2        MR. VLAHOS:     Mr. Rodger, tells you how much older I'm
 3   getting.    I was part of that proceeding, and I can't
 4   recall.    But it was in the record.      I'm not sure whether it
 5   was discussed in viva voce.
 6        MR. SOMMERVILLE:      I'm older, and I did recall.
 7        MR. VLAHOS:     Could you repeat for us what you
 8   remember, Mr. Chair?
 9        In any event, thank you for that.
10        MS. CAMPBELL:     All right.    Now I'm going to ask you to
11   move to the external contracts.       And that's -- I'm going to
12   ask you to turn up Exhibit C2, T3, Schedule 3, page 7,
13   table 1.
14        What I'm looking at on page 7 is table 1, that has a
15   list of total external service costs, and the first line is
16   "civil construction".      And civil construction, the 2006
17   historical, the costs were $28.5-million.         In 2007 they
18   became 35.8 million, the bridge year.        And in the test year
19   they go up to $40,700,000.
20        Can you explain why there is a 45 percent increase
21   between 2006 and 2008?
22        MR. LABRICCIOSA:      The explanation to that line on the
23   table is on the next page, on page 8 of 9.         It basically
24   aligns with the capital infrastructure rebuild plan.
25        MS. CAMPBELL:     Is it all strictly cap --
26        MR. LABRICCIOSA:      Yes.
27        MS. CAMPBELL:     It's all infrastructure?
28        MR. LABRICCIOSA:      Yes.

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 1        MS. CAMPBELL:   And why was the decision to go out with
 2   it, so to speak?
 3        MR. LABRICCIOSA:    We've always carried an external
 4   contract for civil construction.      It's beyond our, what
 5   we'd call our core competency for electrical
 6   infrastructure.
 7        MS. CAMPBELL:   When you negotiate these contracts, are
 8   they fixed-cost contracts with the suppliers?
 9        MR. LABRICCIOSA:    They're unit-price contracts, and
10   they're fixed in the sense that we quote volume, and it
11   goes in a competitive bid process.
12        MS. CAMPBELL:   All right, and when you're negotiating
13   them, do you try to take into account the fact that labour
14   or material -- material costs may cause the cost of the
15   contract to go up?   So do you try to keep those costs down
16   when you negotiate the terms of the contract?
17        MR. LABRICCIOSA:    We do.   But there are escalation
18   clauses in the bid to identify the escalation for
19   materials, for example fuel or aggregate materials.
20        MS. CAMPBELL:   And does the length of the contract
21   vary with the type of service that's being provided?
22        So in civil construction, are these typical -- does
23   each project have its own timeline?      For example, one
24   contractor, it's a three-year contract, another, it's
25   typically seven years?    I'm trying to get a feel for that.
26        MR. LABRICCIOSA:    In general the projects would --
27   again, when we did our capital plan, our ten-year plan,
28   that we have a bunch of projects laid out.

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 1        We actually, in this current contract that we've
 2   engaged in, we actually engaged two constructor firms, and
 3   they would each work on a particular project, work for the
 4   duration of the project, and then move off that project
 5   until engaged again.
 6        MS. CAMPBELL:      So the large increases that I'm seeing
 7   don't relate to increases in material or cost, the increase
 8   in activity?
 9        MR. LABRICCIOSA:       There is a submission that talks
10   about material impacts in general to inventory, which would
11   also apply to this contract.
12        MS. CAMPBELL:      But the costs that I'm looking at, the
13   increases that I'm looking at, do they relate to the volume
14   of contracts or do they relate to labour and material
15   increases?
16        MR. LABRICCIOSA:       It's strictly volume of work.        It's
17   strictly volume of work.
18        MS. CAMPBELL:      So Toronto Hydro has done its bit to
19   keep the costs down by negotiating fixed costs where
20   possible?
21        MR. LABRICCIOSA:       Absolutely.
22        MS. CAMPBELL:      The next line is "vegetation
23   management", one of my personal favourites.          And I notice
24   that there is an increase from 2006 historical of 2.1
25   million, up to 3.6 million in 2008.         This increase is quite
26   significant.     Mr. Davies tells me it's a 71 percent
27   increase.
28        Is the reason for that that you have started using a

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 1   new multi-trim-cycle program?
 2        MR. La PIANTA:    No, not -- not precisely.       The
 3   evolution of our tree-trimming program since 1999 has gone
 4   through various stages.
 5        MS. CAMPBELL:     Mm-hmm.
 6        MR. La PIANTA:    The increase from 2006/2007 is, we've
 7   realized that tree-related outages represent some -- I
 8   think the number was -- it's the second largest contributor
 9   to our failures besides defective equipment.
10        MS. CAMPBELL:     Mm-hmm.
11        MR. La PIANTA:    And so through the years, the
12   evolution of our program has moved towards coming up with a
13   model that correlates improvement in tree-related outages
14   with respect to the dollars invested.
15        From 2006 to 2007, the increase is attributable to two
16   factors.   First, it's our first output from our new model -
17   -
18        MS. CAMPBELL:     Mm-hmm.
19        MR. La PIANTA:     -- with the market data we had
20   available at the time when we ran the model, which was
21   April of this past year.     And an additional $400,000
22   required to start a new initiative, which is essentially
23   what we refer to as storm-hardening.
24        And storm-hardening is where we actually -- through
25   the cycle pruning that we do, we're actually going to
26   increase to clearances with respect to larger limbs that
27   typically would come in contact with electric distribution
28   lines during storms.

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 1        So it's a combination of the two, an increase in
 2   actually more tree-trimming and an increase in or a greater
 3   focus on worst-performing feeders and the storm-hardening
 4   associated with those feeders.
 5        MS. CAMPBELL:     Have cost increases like this happened
 6   previously with vegetation management, or it reflects the
 7   new approach?
 8        MR. LA PIANTA:     If I could ask for the Board's
 9   indulgence, if I can just spend two minutes and provide you
10   a little bit of background that I think will provide you
11   some beneficial context for showing you where we've come
12   through in the tree-trimming.
13        In 1999, when we amalgamated, we had six different
14   contracts at the time.      The investment at that time was in
15   excess of $5-million.
16        We had six different contracts.        They were all time
17   and material-based.     So they were quite expensive.           There
18   were varying cycles, and a lot of ineffective routing.
19   Contractors were moving across the city in not very
20   effective manners.
21        In 2002-2004, we consolidated for the first time to
22   one contract.    Albeit, still time and material, but now we
23   had a common three-year cycle, what was considered at the
24   time to be the industry standard.        We had more efficient
25   routing and we began to identify the data requirements at
26   the time.    We started this in 2002.      We began to identify
27   the data requirements required for, in the future, coming
28   up with this new data model.       So that was 2002-2004.

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 1        In 2005, we issued our first lump sum contract, much
 2   to the chagrin of the market.       We finally had a lump-sum
 3   contract, and that contract was to do a standard three-year
 4   trim throughout the city, again gathering data for our
 5   upcoming tree-trimming model which we were going to
 6   produce.    The type of data was tree-related reliability
 7   stats per feeder, length of the feeders, cost per unit
 8   length to trim that feeder, and the density associated with
 9   the vegetation on that feeder.
10        In 2007, given that our reliability indices for tree-
11   related outages were so high, we had enough data, first of
12   all, to run our first output of the model.         So in 2007 we
13   had our first price-per-feeder contract.         So now our
14   contractors are going out and they're cutting or pruning
15   our feeders on a price-per-feeder basis.         A huge leap from
16   where we were in 1999, which was essentially a time and
17   material-based contract.
18        But in 2007, we didn't implement the model in its
19   totality.    The model tells us to invest or prune the area
20   based on the worst-performing substations, and then, in the
21   future, go to worst-performing feeders.
22        In 2007 we did a hybrid, because, again, our data is
23   only three years old.      We pruned on a hybrid of worst-
24   performing stations, and a little bit of the old cycle
25   pruning as well.     Keep in mind that we'd been struggling
26   with the Asian long-horned beetle moratorium that was
27   imposed by the Department of Forestry and Inspection a
28   number of years ago, so there are various parts of the

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 1   city, North York and Etobicoke predominantly, where we
 2   haven't been able to trim for the past three years.
 3           When we ran our model in April of this year, we ran
 4   our model with the market data available at the time; in
 5   other words, this is how much it's going to cost to do this
 6   feeder.    The model spit out an amount, and I think you'll
 7   see it in one of the interrogatories.         I believe it's in
 8   interrogatory, I think it's -- yes, R1, T1, Schedule 1.28.
 9           The model suggested that the appropriate amount for
10   investing is somewhere in the vicinity of $2.5-million.
11   We're on the verge now of issuing to the market -- not
12   issuing -- awarding the first-generation contract arising
13   from this model over three years.
14           The prices that have come back from the field, in
15   fact, or from the vendors, in fact reflect an increase to
16   what the model told us.       And it's about a 12 percent
17   increase between the 2.5 million the model told us and the
18   $2.8-million we're getting back from the low bidder in the
19   market.
20           The reason being is that we've asked these vendors now
21   to restart trimming in the ravines, trimming in the rear
22   lots, trimming in those areas that were typically very
23   difficult to trim in the past, for a number of reasons.
24           When you take the $2.8-million and you add to it the
25   $400,000 in the storm-related allowance that we want to
26   initiate, that's how we come up with the $3.2-million in
27   2007.
28           In a nutshell, in 2007, at $3.2-million, we're still

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 1   considerably lower than the original investments back in
 2   1999, a combination of ineffective investing in the earlier
 3   years and now being able to direct our investments more
 4   towards those areas that need it the most.
 5          And so we anticipate, as you can see from T1, Schedule
 6   1.28, the investments from the bridge year through the test
 7   years, we anticipate them to remain flat.
 8          In essence, what I'm telling you is that, is $3.2-
 9   million the right number?        The answer is no.    Are we in the
10   ballpark?    Yes.   As we continue to gather more data from
11   the trimming done in the field, we'll be able to rerun the
12   regressions in the model and refine this estimate, but
13   certainly now we're able to direct the investment to those
14   feeders that need it the most.
15          MS. CAMPBELL:    All right.    You've made reference to
16   Exhibit R1, Tab 1, Schedule 1.28.        I was going to ask some
17   questions about it, so why don't we just turn it up right
18   now?
19          MR. La PIANTA:    Sure.
20          MS. CAMPBELL:    And you can assist me in understanding
21   what this shows.
22          I made reference to the new multi-trim cycle program.
23   And I believe you've retained a company called Davies
24   Consulting.
25          MR. LA PIANTA:    Yes, that's correct.
26          MS. CAMPBELL:    And they have assisted you with coming
27   up with the model that's going to make life easier for
28   those that trim trees.

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 1        MR. La PIANTA:    Well, not easier, more effective.
 2        MS. CAMPBELL:    More effective.    If I look at the
 3   bottom of page 2 of Exhibit R1, Tab 1, Schedule 1.28, you
 4   had been talking about having the budget the same amount,
 5   but getting a better return on that investment, so to
 6   speak, and that would be because over time you're getting
 7   more information, which allows you to manage vegetation in
 8   a more focussed fashion, a more effective fashion.
 9        MR. La PIANTA:    That's correct.    The historical three-
10   year cycle was just that, a three-year cycle regardless of
11   which feeders are underperforming.      This program directs
12   the investment for tree trimming to those feeders that need
13   it the most.
14        MS. CAMPBELL:    All right.    And so when I look at
15   performance improvement, what I am seeing is performance
16   improvement of 12.6 percent over what?
17        MR. La PIANTA:    That a direct reduction in customer
18   minutes out for the year.
19        MS. CAMPBELL:    Oh, right.    And so I can see that it
20   goes up to 35 percent, then dips again, then up to 35, and
21   then in 2017 is down a bit.
22        Can you explain just briefly what the slight
23   variations are, why there is not a consistent buildup?
24        MR. La PIANTA:    Certainly.    If you look at, again,
25   that page, page 2 of 3, part (b), the table that you're
26   referring to, that was intended in response to the
27   interrogatory to show the performance of the model.           The
28   model goes through two evolutions, essentially.

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 1        The first, through 2011, it's still based on a
 2   substation basis.    In other words, we're trimming the
 3   worst-performing substations in general.       We haven't
 4   focussed it down to the feeder level.
 5        Beyond 2011 to 2017, it actually goes down to the
 6   feeder level.   So that particular feeder requires this much
 7   money, will get you this much improvement in CMO.
 8        The fluctuations beyond 2012, quite frankly, is the
 9   absence of more rigorous data.
10        MS. CAMPBELL:    All right.
11        MR. La PIANTA:    Beyond 2008, we're starting to
12   consider factors such as the density of the urban canopies
13   in certain feeders and the difficulty in trimming rear lot,
14   for instance, versus trimming on an arterial road like
15   Yonge Street.
16        MS. CAMPBELL:    And are you aware of any other utility
17   that's departing from the traditional three-year cycle and
18   picking up the program that you've created along with
19   Davies Consulting?
20        MR. La PIANTA:    Yes.   In fact, we've done a lot of
21   reference work, and we've had a number of face-to-face
22   meetings with some of the larger utilities in the U.S.
23   Florida Power & Light, of course in Florida, manages
24   upwards of an $80-million tree-trimming program with this
25   particular model.    Different data, of course, but the same
26   sorts of regression analysis.
27        Progress Energy, I believe, is another one, in the
28   Carolinas, also uses it.

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 1        I'm not aware of anybody in Canada who's gone this far
 2   to try and correlate, you know, specific investment on
 3   specific feeders with a performance improvement.
 4        MS. CAMPBELL:     You have highlighted all of the
 5   benefits of the program.      Are there any negatives of the
 6   program that you had to consider before committing to it?
 7        MR. La PIANTA:     That's an excellent question.           We were
 8   very -- we had some reservations about going to the market
 9   with a price-per-feeder contract.        As you can appreciate,
10   there aren't a lot.     There are only three vendors in the
11   Ontario area that will really take on tree-trimming.              If
12   you remember, back when we went from time and material-
13   based to lump-sum-based to now price-per-feeder, we were
14   very concerned that the prices that were going to come back
15   were going to be exorbitant, based on the fact that there
16   was this very close interval control, very focussed control
17   on the contractor now, as opposed to, you know, "Here's $2-
18   million.   Go trim the city for me."       So we were very
19   hesitant as to what the response was going to be from the
20   vendor community.
21        As I mentioned earlier, we're on the verge within the
22   next week or so of awarding the contract.         We do have a low
23   bidder.    It is in the vicinity of what the model told us it
24   was going to be.
25        But it does reflect about 12 to 14 percent increase in
26   what the model told us, and we're attributing that to the
27   fact that there's a little bit of risk in here that the
28   vendor community feels that they're absorbing, and it's

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 1   reflected in the prices that we're getting back.
 2        MS. CAMPBELL:      do you anticipate that that will
 3   disappear as the community becomes more comfortable with
 4   this program?
 5        MR. La PIANTA:      Absolutely.     I think what they're
 6   shying away from is the fact that they don't have the data
 7   either.   We have a lot of data.       We're asking them to
 8   collect the data as they prune.
 9        And so I think, because that data will be available to
10   them, in future contracts they'll be able to, with a better
11   degree of certainty, be able to provide pricing.
12        I can't speak for their margins, but having said that,
13   you know, we think that the prices are not going to deviate
14   very much from where they are now.
15        If I could add just one more thing, Ms. Campbell,
16   before I forget, The contract that we're awarding next week
17   or very soon is actually a three-year contract.           You were
18   asking questions --
19        MS. CAMPBELL:      Yes.
20        MR. La PIANTA:      -- regarding the duration of these
21   contracts.     This will be a three-year contract, but it will
22   be on a price-per-feeder basis.
23        MS. CAMPBELL:      How often does the vegetation
24   management contract come up for renewal?          You said three
25   years.    Is it always a three-year contract?
26        MR. La PIANTA:      No, the one that actually expires at
27   the end of 2007 was actually a one-year contract.           In 2006
28   and 2005 it was a two-year contract.         In 2004 it was a one-

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 1   year contract, and as far as I can recall, they were pretty
 2   much one, with a maximum of another year as an option for
 3   renewal before 2004.
 4        MS. CAMPBELL:      And still in Table B that's on R1, Tab
 5   1, Schedule 1.28, the $2.5-million budget that I see going
 6   down a bit and then coming up and holding, what does that
 7   represent?     Is that your best estimate of the contract that
 8   you've just made reference to?
 9        MR. La PIANTA:      That was the first output.       When we
10   entered the data that we had available into the model,
11   that's what the model told us we needed to invest in 2008
12   on a feeder basis, so on a price-per-feeder basis.               That
13   model is with pricing information that we entered into the
14   model last April.
15        The reason why the prices we're getting now are
16   different from the ones from this 2.5 -- i.e., a $300,000
17   variance, because the budget for actually is 2.8-million,
18   and an additional 400,000 for storm-hardening -- is
19   attributable to two factors.
20        One, we believe that the contractors are assuming some
21   of the risk.     It's a little bit of a hedge for them,
22   because we're asking them now to trim in ravines, rear
23   lots, so on, so forth.       And two, the market data was, after
24   all, about six months stale when the prices -- when we
25   received the prices from the market versus what we entered
26   into the system last April.
27        So that 2.5 million is exclusively for the standard
28   prune, and it does not include storm-hardening.

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 1           MS. CAMPBELL:    I notice when I look at table 1 on C2,
 2   Tab 3, Schedule 3 that the vegetation management costs hit
 3   and hold the 3.5 to 3.6.
 4           Do you consider that number to represent a sort of a
 5   cost that's not going to go up very much, not going to go
 6   down very much, it's going to be quite solid at that
 7   number?
 8           MR. La PIANTA:    Again, Ms. Campbell, it's -- right now
 9   that's our best guess at what -- not our best guess, that's
10   what the model is telling us.
11           I want to preface that by saying that we're seeing a
12   lot of considerable damage resulting from just simply heavy
13   wind days, let alone the storm days, and that portion of
14   our concerns are not factored into this model yet.
15           We sustained two significant storms in 2007 which cost
16   us a tonne of money in tree-trimming, a lot of which,
17   perhaps, with some more aggressive trimming, could have
18   been avoided, particularly the secondary contacts.
19           So that's really the caveat I want to place on that.
20   Again, we're not far off -- we're not far off our flat-line
21   number for tree-trimming investment.         It's somewhere in the
22   vicinity of 3.5 million.       Could be 3.7, 3.8, but it's
23   certainly -- we're not back up to the levels we were in
24   1999.
25           MS. CAMPBELL:    You've told me that one of the key
26   benefits of the program that you're putting into place is
27   that there will be less outages due to vegetation impinging
28   upon lines and causing outages.

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 1        What other customer benefits or productivity
 2   improvements result from this?
 3        MR. La PIANTA:    From the vegetation management
 4   project, or the --
 5        MS. CAMPBELL:    Yes.
 6        MR. La PIANTA:    -- tree-trimming?
 7        MS. CAMPBELL:    Or is that the key one?
 8        MR. La PIANTA:    Well, a reduction, a reduction in
 9   customer minutes out is obviously the primary factor.
10        The secondary factor is, as I'm sure most people
11   follow in the media during some of the storms this past
12   summer, particularly the June storm or the March storm, the
13   storm-hardening program is going to go out and look at
14   issues that address old growth, growth that could, in the
15   event of a heavy wind day, come down.       So certainly the
16   safety issue is something that our customers are happy to
17   see us out there.
18        I was personally on-site in the areas of the city that
19   were hit hard during the June storm that lasted only --
20   less than a minute.    And customers, quite frankly, I think
21   there was this shying away from -- you know, everybody
22   loves our trees -- and there was this shying away from
23   pruning, since over the past five, six, seven years -- and
24   I think customers are now realizing that this old growth
25   has gotten to the stage where it's very, very close to the
26   lines.   There are safety issues.      Children climb trees.
27        And so I think obviously there's a big customer
28   benefit, in terms of the safety for the general public.

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 1           MS. CAMPBELL:   Thank you.
 2           And now, regrettably, we have to leave vegetation
 3   management, but we go to wood-pole inspection programs, so
 4   there is a bright light.
 5           Back to C2, Tab 3, Schedule 3, I have questions about
 6   three line items:       The wood-pole inspection program, the
 7   insulator-washing program, and the vault-washing program.
 8           Starting off with wood-pole inspection program and
 9   looking at the cost, 2006 historical is $73,000 in 2006,
10   and it goes to $210,000 in 2007, and that is an increase of
11   188 percent.     And then it goes up a wee bit more in 2008,
12   and that's 193 percent over 2006 historical.
13           Can you explain to me why the increase?
14           MR. LABRICCIOSA:    Yes.   Again, with the explanation on
15   the following page, with our wood-pole inspection and
16   treatment program, it's actually two parts.          It's an
17   inspection and a treatment.
18           What you're seeing in the 2006 historical is the
19   impact of just the inspection, and what you're seeing going
20   forward in the bridge and test years are the treatment
21   portion of that program.       In other words, treatment is for
22   insect infestation, as well as decay and rot.
23           MS. CAMPBELL:   My question is, though, it's 73,000 in
24   2006.    And we suddenly experience a huge jump, and it stays
25   there, a large increase, and it goes across the board from
26   the bridge year on.
27           Why wasn't this being done earlier?       Why wasn't there
28   a preventative maintenance program in place earlier that

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 1   would have avoided such significant increases in costs?
 2           MR. LABRICCIOSA:    There was.    I think what you're
 3   seeing is the impact.       What we're noticing in the results
 4   going forward is we're expecting a greater portion of
 5   treatment to be applied, as opposed to what we found in
 6   2006, which is pretty much predominantly inspection.
 7           Our data is telling us we're getting into the
 8   treatment era.      It's a cycled program as well.
 9           MS. CAMPBELL:   And what's the cycle?
10           MR. LABRICCIOSA:    It's a ten-year cycle.
11           MS. CAMPBELL:   And is there any plan going forward --
12   can I anticipate that these costs will, in fact, drop, or
13   are they going to stay at that level, that increased level?
14           MR. LABRICCIOSA:    Once we get into the capital
15   replacement program, we expect these costs to decline.
16           MS. CAMPBELL:   All right.    And when would that be?
17           MR. LABRICCIOSA:    Beyond the three-year period.
18           MS. CAMPBELL:   With regard to insulator-washing,
19   another favourite, if you go down that, would be the fifth
20   line, "Insulator-washing program".         I think you can
21   anticipate what my questions are going to be, gentlemen.
22           You'll notice the cost increase goes from 62,000 in
23   2006.    The bridge year we're up to 150,000, which is an
24   increase of 142 percent.       Another slight bump in 2008, and
25   that slight bump takes you up to 148 percent.
26           The same question about the nature of the cost
27   increases, and why it is up and holding at that level.
28           MR. LABRICCIOSA:    Again, a similar experience.         We cut

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 1   back in 2006 on the insulator-washing cycled program, and
 2   what we found was an increase, substantial increase, in
 3   what's called flashover, which is really contaminant
 4   buildup on insulators causing an arc flash to ground,
 5   creating an outage.
 6           What we've subsequently concluded was an increase
 7   in that program would curtail that frequency of event.
 8           MS. CAMPBELL:   I note that it goes up in the bridge
 9   year, and it stays up across 2010.         Do you anticipate that
10   at any point it's going to come down again, and if so,
11   when?
12           MR. LABRICCIOSA:    This particular program, we don't
13   anticipate it coming down.        We have to get into that cycled
14   area and keep washing on a regular basis.
15           MS. CAMPBELL:   What's your cycle on this one?
16           MR. LABRICCIOSA:    This one here is a three-year cycle.
17           MS. CAMPBELL:   And to finish on a high note, vault-
18   washing.    That is the second-last entry from the total at
19   the bottom, and the number in 2006 historical, it's 64,000,
20   and it goes to 80,000 in 2007, and 82 in 2008, although not
21   as significant as the other increases; although still of
22   some significance, 25 to 28 percent.
23           Again, can you explain why the costs increased and the
24   cycle that's involved, and what you've done to try to keep
25   those costs down?
26           MR. LABRICCIOSA:    Just a combination of volume and
27   pricing, strictly a combination of both volume of work and
28   the pricing coming back from the competitive bid process.

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 1           MS. CAMPBELL:   And why volume?     What has happened to
 2   cause the increase in volume?
 3           MR. LABRICCIOSA:    Again, I think it's just the number
 4   of vaults we expect to wash, and it's just dependent on
 5   each year what our plan requires.
 6           MS. CAMPBELL:   Is there a cycle to vault-washing?
 7           MR. SOMMERVILLE:    I certainly hope so.
 8           MS. CAMPBELL:   Ah.   But the suspense as I wait.        It's
 9   hard.
10           MR. LABRICCIOSA:    It's a five-year program, but it
11   depends on the condition of -- some vaults might require a
12   higher frequency of washing.        So I think what we factored
13   in in the program is a revisit on some shorter interval at
14   some sites in the future.
15           MS. CAMPBELL:   And why was that done?      Because the
16   experience was it would be better to have a more frequent
17   incidence of vault-washing?
18           MR. LABRICCIOSA:    What happens in some areas is we
19   have a drain inside the vault which tends to plug up.            If
20   the drain plugs up, water fills into the vault when we have
21   heavy rains, which causes an outage.         So in some cases we
22   find some areas build up contaminants and plug the drains
23   more frequently than others, so we come back to clear those
24   drains and wash those vaults to prevent flooding and
25   outside outages.      So essentially we've just changed the
26   cycle on those areas to a shorter duration, which requires
27   us to get at it more frequently.
28           MS. CAMPBELL:   Regrettably our time is at an end.

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 1   Thank you very much.      Those are my questions.
 2        MR. SOMMERVILLE:      Have you concluded --
 3        MS. CAMPBELL:     I have concluded.     Thank you.
 4        MR. SOMMERVILLE:      Tomorrow morning, we'll begin with
 5   Mr. DeVellis, with this panel.       Is anyone else cross-
 6   examining this panel?      I see shaking heads, so, no.
 7        So we'll conclude with this panel.         Can you give me
 8   some idea, Mr. DeVellis, as to your timing for tomorrow
 9   morning on this panel?
10        MR. DE VELLIS:     It's hard to -- at least an hour.
11   Possibly more.
12        MR. SOMMERVILLE:      Then we will have panels 7 and 8 for
13   tomorrow.    They'll begin after the morning break.        That's
14   fair, I think, Mr. DeVellis?       You'll be concluded by that
15   point?
16        Do you see a prospect that we'll complete those panels
17   tomorrow?
18        MR. RODGER:     I think we should, sir.      And to move
19   things along, what we would propose to the Board, it's the
20   same three members on both panel 7 and 8, and what we'd
21   propose is to run through the examinations-in-chief of both
22   panels at the same time.      If the parties would prefer to
23   deal with cross-examination as if 7 and 8 were separate,
24   that's fine, but at least this gets the examination-in-
25   chief out of the way at one time.
26        MR. SOMMERVILLE:      That would seem to make sense.       Any
27   problems with that from anyone?       Yes, that may help.
28        If we do conclude tomorrow with the oral evidence,

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 1   parties may want to think about an explicit schedule for
 2   argument.    We are looking at written argument format with a
 3   likely incident of questions at some point, at some date to
 4   be decided later, after the written arguments have been
 5   filed, so the parties may want to consider an explicit
 6   schedule for those incidents.
 7        I realize it may be difficult at this point to fix on
 8   a date for the oral portion, but the rest can be concluded,
 9   and it would be a good thing to conclude that tomorrow,
10   before we rise.
11        Are there any matters before we adjourn for the day?
12        We'll adjourn until 9:30 tomorrow morning.          Thank you.
13        --- Whereupon the hearing adjourned at 5:00 p.m.

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