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									               ONTARIO
               ENERGY
                BOARD
FILE NO.:   EB-2005-0551


VOLUME:     Technical Conference

DATE:       May 17, 2006

BEFORE:     Kristi Sebalj          Board Counsel

            Ron Man                Board Staff

            Rudra Mukherji         Board Staff
                                                EB-2005-0551


                  THE ONTARIO ENERGY BOARD


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

AND IN THE MATTER OF a proceeding initiated by the
Ontario Energy Board to determine whether it should
order new rates for the provision of natural gas,
transmission, distribution and storage services to
gas-fired generators (and other qualified customers)
and whether the Board should refrain from regulating
the rates for storage of gas;


          Hearing held at 130 Dundas Street West,
                3rd Floor, Toronto, Ontario,
                on Wednesday, May 17, 2006,
                   commencing at 8:30 a.m.


                    --------------------
                    Technical Conference
                    --------------------

B E F O R E:

KRISTI SEBALJ            BOARD COUNSEL

RON MAN                  BOARD STAFF

RUDRA MUKHERJI           BOARD STAFF
                  A P P E A R A N C E S



DONNA CAMPBELL                Board Hearing Team
PASCALE DUGUAY
LAURIE KLEIN
FRED HASSAN

GORDON CAMERON                Union Gas Limited
MIKE PACKER
CONNIE BURNS
BRUCE EGNNING
MICHAEL SLOAN
GLENN LESLIE

PAT MORAN                     APPrO

DAVID BROWN                   Sithe Global Power,
                              TransCanada Energy, Portland
                              Energy Centre

DAVID STEVENS                 Enbridge Gas Distribution
DAVE CHARLESON
MALINI GIRIDHAR
ROBERT HOWE

RANDY AIKEN                   London Property Management
                              Association and Wholesale
                              Gas Purchasers Group

JAMES WIGHTMAN                Vulnerable Energy Consumers
                              Coalition

NOLA RUZYCKI                  Ontario Energy Savings

GREG OLSEN                    Ontario Power Generation

BRIAN TROICUK                 BP Canada

PAT KEYS                      TransCanada PipeLines

PETER THOMPSON                IGUA and AMPCO

GIA DEJULIO                   Ontario Power Authority
                  A P P E A R A N C E S (Cont’d)


JIM GRUENBAUER                    City of Kitchener
ALICK RYDER
DWAYNE QUINN

CHRIS CAMIRAND                    Nexen Marketing

GEORGE KATSURAS                   IESO

DAVID MacINTOSH                   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 8:30 a.m.                             1

Appearances                                                  1

Preliminary Matters                                          2

APPrO – Panel 1; Resumed                                     8
D. Cramer, B. Kelly, J. Rosenkranz, J. Wolnik,
R. Cary, M. Nolan;
     Cross-examination by Mr. Cameron                        8
     Cross-examination by Mr. Stevens                        27

--- Recess taken at 10:11 a.m.                               55
--- On resuming at 10:30 a.m.                                55

Preliminary Matters                                          55

     Continued Cross-examination by Mr. Stevens              55
     Cross-examination by Mr. Wightman                       69
     Cross-examination by Mr. Thompson                       72
     Cross-examination by Ms. Sebalj                         90
     Cross-examination by Mr. Man                            93

IGUA AND AMPCO - Panel   1;                                  96
P. Fournier;
     Cross-examination   by    Mr.   Cameron                 97
     Cross-examination   by    Mr.   Brown                   99
     Cross-examination   by    Mr.   Moran                   107
     Cross-examination   by    Mr.   Stevens                 108

--- Luncheon recess taken at 12:23 p.m.                      115
--- On resuming at 1:36 p.m.                                 115

Appearances                                                  116

Board Hearing Team – Panel 1;                                118
B. McConihe;
     Cross-examination by Mr. Leslie                         120
     Cross-examination by Mr. Smith                          167

--- Recess taken at 3:31 p.m.                                193
--- On resuming at 3:49 p.m.                                 193
      I N D E X   O F    P R O C E E D I N G S (Cont’d)


Preliminary Matters                                       193

     Cross-examination   by   Mr. Stevens                 194
     Cross-examination   by   Mr. Brown                   204
     Cross-examination   by   Mr. Wightman                206
     Cross-examination   by   Mr. Thompson                219
     Cross-examination   by   Mr. Quinn                   233
     Cross-examination   by   Board Hearing Team          234

--- Recess taken at 5:05 p.m.                             242
--- On resuming at 5:17 p.m.                              242

Market Hub Partners – Panel 1;                            243
J. Redford, J. Reed;
     Opening Statement by Mr. Redford                     243
     Cross-examination by Mr. Leslie                      246
     Cross-examination by Mr. Moran                       247
     Cross-examination by Mr. Brown                       254

--- Whereupon the hearing adjourned at 5:48 p.m.          261
                       E X H I B I T S


Description                                           Page No.

EXHIBIT NO. 3:   CURRICULUM VITAE OF BRUCE McCONIHE       119

EXHIBIT NO. 4:   QUESTIONS FROM MARKET HUB PARTNERS       119
                  U N D E R T A K I N G S


Description                                         Page No.

APPrO UNDERTAKING NO. 1: TO PROVIDE ANSWERS TO           8
BOARD HEARING TEAM QUESTIONS 9B AND ONWARD

APPrO UNDERTAKING NO. 2: TO RUN EXAMPLE USING            20
UNION'S T1 RATE, USING PARALLEL PARAMETERS, ASSUMING
THE GENERATOR HAD 25,000 GJS OF FIRM INJECTION AND
WITHDRAWAL CAPACITY AND SUFFICIENT SPACE IN STORAGE
IF THEY HAVE A SUPPLY OVERRUN, AND SUFFICIENT GAS IN
STORAGE IF THEY HAVE A SUPPLY UNDERRUN

APPrO UNDERTAKING NO. 3: TO PROVIDE COMMENTARY           33
ON SERVICES PROVIDED BY TCPL

APPrO UNDERTAKING NO. 4:   TO PROVIDE CURRICULUM         34
VITAE FOR PANEL MEMBERS

APPrO UNDERTAKING NO. 5: TO PROVIDE AN EXAMPLE OF      40
HOW THE LEVEL AND VOLATILITY OF ELECTRICITY COSTS IN
ONTARIO WILL CHANGE, USING THE EXAMPLE OF THE CURRENT
RATE AND SERVICE OFFERINGS AVAILABLE TO GAS GENERATORS
AS COMPARED TO THE IDEAL RATE AND SERVICE OFFERINGS
THAT GAS-FIRED GENERATORS WOULD LIKE TO RECEIVE FROM
ONTARIO UTILITIES

AAPrO UNDERTAKING NO. 6:   TO PRODUCE LINK TO            83
STANDARD CONTRACT

IGUA UNDERTAKING NO. 1: TO    PROVIDE INFORMATION        107
RELATING TO WHETHER MEMBERS   CONTRACT FOR
TRANSPORTATION SERVICE WITH   UNION WITH OBLIGATED DCQ
REQUIREMENT/WHETHER MEMBERS   ASK TO BE RELEASED FROM
DCQ OBLIGATION

IGUA UNDERTAKING NO. 2: TO PROVIDE CONCERNS,             110
IF ANY, REGARDING RATES 125 AND 316

IGUA UNDERTAKING NO. 3: TO PROVIDE EXPLANATION           111
OF STATEMENT AT PAGE 11, PARAGRAPH 26
              U N D E R T A K I N G S (Cont’d)

BHT UNDERTAKING NO. 1: TO PROVIDE WORKING PAPERS         141
FOR TABLE 2 CALCULATIONS

BHT UNDERTAKING NO. 2: TO PROVIDE QUESTIONS IN           144
SURVEY RELATED TO EXHIBIT BMM-1

BHT UNDERTAKING NO. 3:    NOTES OF MR. SCHLESINGER       145

BHT UNDERTAKING NO. 4: TO GET BACK WITH RESPECT          150
TO MICHCON AND WASHINGTON 10 AND WHY NO INCLUSION
IN EXHIBIT D2

              NO BHT UNDERTAKING NO. 5 ENTERED

BHT UNDERTAKING NO. 6: TO PROVIDE THE LAST TIME          158
THAT DOMINION OR CNG EXPANDED ITS STORAGE CAPACITY

BHT UNDERTAKING NO. 7: TO PROVIDE THE STUDIES            175
REFERRED TO IN QUESTIONS 14, 9, 6, 3, AND 2, IN
TECHNICAL CONFERENCE EXHIBIT 4

BHT UNDERTAKING NO. 8: TO PROVIDE                        180
INSTRUCTIONS/GUIDANCE GIVEN TO MR. SCHLESINGER

BHT UNDERTAKING NO. 9: TO INDICATE WHETHER               181
ONTARIO CUSTOMERS ARE PROHIBITED FROM OBTAINING
STORAGE FROM COLUMBIA, DOMINION, NATIONAL FUEL,
OR ANY STORAGE PROVIDER OF THE EASTERN US

BHT UNDERTAKING NO. 10: TO PROVIDE SITE FOR FERC         194
STAFF REPORT ON UNDERGROUND STORAGE DATED
SEPTEMBER 2004

BHT UNDERTAKING NO. 11:    TO PROVIDE CITE AND LINK      205
TO REPORT

BHT UNDERTAKING NO. 12: TO ADVISE WHETHER THE BC         208
REGULATOR DECIDED TO FOREBEAR

MHP UNDERTAKING NO. 1:    TO PROVIDE MHP USA REPORTING   251
REQUIREMENTS

MHP UNDERTAKING NO. 2: TO PROVIDE GRAPHICAL              253
REPRESENTATION OF ST. CLAIR PIPELINES LP AND MHP
CANADA AND INTERRELATINSHIP BETWEEN COMMON ENTITIES
                                                                          1



 1           Wednesday, May 17, 2006
 2           --- Upon commencing at 8:30 a.m.
 3           APPEARANCES:

 4           MS. SEBALJ:    Good morning, everyone.    My name is
 5   Kristi Sebalj.       I'm Board Counsel.    I'm here with Ron Mann
 6   and Rudra Mukherji, who are also part of the Board support
 7   team.
 8            Welcome to day two of the second Technical
 9   Conference in this proceeding.       I don't propose to do any
10   of the introductory remarks that I made yesterday, given
11   that that is all on yesterday's transcript, but I do have a
12   few things that I would like to go over.
13           First, we have an attendance sheet.      If there's anyone
14   here today that wasn't here yesterday, I would ask that you
15   sign on to that attendance sheet.         Or if you didn't sign
16   yesterday, you might want to put your name on the
17   attendance sheet.
18           Also, if there are any participants here who are
19   active participants in the proceeding who haven't
20   registered an appearance, if you could di that now so that
21   I know that you're here and indicate what issues you will
22   be speaking to today or this afternoon.
23           Is there anyone new?
24           MR. RYDER:    Yes, Mr. Gruenbauer here, and myself,
25   Alick Ryder, for the City of Kitchener.
26           MS. SEBALJ:    Thank you very much.    And can I just get
27   an indication from you with respect to today, we have APPrO
28   and IGUA and AMPCO still to go on issue number 1, and then
                                                                     2



 1   we'll be starting issue number 2.   Did you have any
 2   intention of asking questions of any of those parties?
 3        MR. RYDER:    Not on issue number 1.
 4        MS. SEBALJ:   Great.   Thank you very much.   Mr. Ryder.
 5   Is there anyone else?   Yes?
 6        MR. CAMIRAND:    Chris Camirand.   I'm with Nexen
 7   Marketing, and I do not expect to be asking any questions
 8   today.
 9        MR. KATSURAS:    George Katsuras, representing the IESO.
10   I don't have any questions.
11        PRELIMINARY MATTERS:

12        MS. SEBALJ:   Thank you.   Which takes me to my second
13   reminder, which is, please, could everyone speak up today
14   so that the court reporter can transcribe everything.
15   Particularly if you're in the back of the room, please
16   speak loudly and clearly.
17        Secondly, the transcripts for yesterday's proceeding
18   are available, and everyone should have received them
19   electronically, but if you didn't can you let Patrick or me
20   know at the break and we'll make sure that they get sent to
21   you electronically.
22        So, as I just said, today, of course, is a
23   continuation of yesterday, which went a little long.     We
24   are in the middle of allowing participants to ask questions
25   of the generator panel, the APPrO panel.    And the Board
26   hearing team, I think, will be creating some efficiencies
27   for us morning.
28        Then other parties will be permitted to ask questions
                                                                        3



 1   as well, following which we will this afternoon be
 2   beginning on issue number 2.      I expect after lunch,
 3   although we may be able to move slightly more quickly than
 4   that.
 5           Sorry.   I missed IGUA and AMPCO.   IGUA and AMPCO also
 6   on issue number 1 will be following the APPrO panel,
 7   following which we will start storage issue number 2,
 8   and issue 2 will likely occupy us for the remainder of the
 9   Technical Conference.
10           Just for those of you who weren't here yesterday, I
11   will mention that this is a Technical Conference.         It is
12   being transcribed by the court reporter, but it is not a
13   hearing, so we don't have a panel, and therefore there's no
14   one here to hear any disputes.
15           If for some reason there are any objections or
16   disputes, we will record those on the record and get a
17   determination from our panel offsite.
18           Are there any preliminary issues or matters of any
19   sort that need to be dealt with?      All right.   Hearing none,
20   I will turn it over to Mr. Moran, Mr. Brown, and
21   Ms. Campbell.
22           MR. MORAN:   Thank you.   Ms. Campbell and ourselves
23   have had a discussion have had a discussion about trying to
24   speed things up, and the Board staff team has produced a
25   list of questions that cover the remaining topics that they
26   wanted to explore with our panel.      And we've agreed to
27   provide written answers to those questions, and I guess
28   we've also talked about whether there's any follow-up
                                                                        4



 1   questions and whether that can be done in writing, and
 2   given the time constraints we'll certainly do our best to
 3   accommodate all of that.
 4        There's also the undertaking from yesterday that we
 5   were going to take off-line, and Enbridge has advised that
 6   they want to participate in the shaping of that
 7   undertaking, and we're going pick that up again at the next
 8   break.
 9        MS. SEBALJ:    Okay.    For the purposes of recording
10   this, did you want to take the remaining questions as
11   separate undertakings?
12        MR. MORAN:    I think just one undertaking to produce
13   written answers to a set of questions that have been
14   produced to us will be fine.
15        MS. CAMPBELL:       I think that's efficient.   Anything to
16   assist in efficiencies.
17        MS. SEBALJ:    So that's APPrO Undertaking No. 1.     And
18   that is to produce answers to -- should we say questions
19   something through something, because some of them
20   were addressed or are you starting from no. 1 again.
21        MR. MORAN:    No, from 9B to --
22        MS. CAMPBELL:    No, not from number 1.     We'll be here
23   forever if we start with number 1, even if we're being
24   efficient.   We're starting with --
25        MR. MORAN:    9B.
26        MS. CAMPBELL:       We got as far as 9B.   So to answer
27   questions from 9B onward in a list of questions that were
28   provided by the hearing team to the APPrO panel.
                                                                      5



 1        MS. SEBALJ:     And there are a total of 23?
 2        MS. CAMPBELL:     23.   We will be counting.
 3        MS. SEBALJ:     Thank you very much for that.
 4        MR. MORAN:    We're hoping that all those questions will
 5   be covered by other people today.
 6        MS. SEBALJ:     Is there any merit on that note,
 7   actually, of making copies to have questions so that other
 8   parties can see them?    I mean, Mr. Cameron, I think you'll
 9   be up next so you won’t have the benefit, but perhaps other
10   parties may be able to shorten their questions.
11        MR. THOMPSON:     I don't have a problem with this, but
12   this entire process was created to replace interrogatories,
13   and now we're back into interrogatories, but the problem
14   with the interrogatories is now we don't see the questions
15   or we don't hear the questions, and so we'll all be in
16   suspense until they're answered.     I think it would be
17   helpful if the questions would be circulated to everybody
18   here so we could at least see what's being asked and what's
19   being put on hold.
20        MS. CAMPBELL:     I think we were actually about to get
21   into a discussion concerning that.     Ms. Sebalj made a
22   comment.   And I think that's a very good idea.
23         Mr. Cameron's indicated it won't really assist him in
24   his line of questioning, but for everybody else, certainly.
25   And we could get copies of some of the questions.       I know
26   Mr. Moran and Mr. Brown have them.     And we can circulate
27   them, and people can review them, and determine -- those
28   who wish to ask questions can review them and determine
                                                                       6



 1   whether or not we will be covering off in the written
 2   answers some of the questions that you would
 3   otherwise be posing.    So what we'll do is we'll find some
 4   clean copies and circulate them while Union is asking its
 5   questions.
 6         Those who follow could determine whether or not
 7   they're being duplicative.
 8         MR. THOMPSON:    Thank you.   The only other point I
 9   would urge someone to consider is whether we should be
10   going back to the interrogatory process rather than these
11   kinds of Technical Conferences, which we've all seen in a
12   case of this nature can become extremely unwieldy.
13         MS. SEBALJ:    I absolutely take your point, Mr.
14   Thompson, and I will take that back.
15         As you know, this process is driven by the panel, so I
16   need to chat with them about that.     But the disadvantage to
17   doing what we're doing this morning, of course, is that
18   there are no follow-up questions, and interrogatories, the
19   complaint about interrogatories was that you get an answer
20   and then it's not a complete or a satisfactory answer, and
21   then you end up in a paper war.
22         So it's sort of six of one, half a dozen of the other,
23   and we seem to be doing some sort of hybrid here in the
24   interests of time.
25         I don't think it's ideal, but it is what it is.     So if
26   there is anyone in the room that has any strong objection
27   to this, then I'd like to hear it now so that we can air
28   it.   Because there's nothing preventing the Board hearing
                                                                     7



 1   team from asking the questions orally other than the
 2   addition of more days, or half-day or so of time to this
 3   process.
 4           This is, of course, an extremely important issue, but
 5   we do want to make sure we get to storage and that we have
 6   time for storage, because I know that that's also a very
 7   important issue.
 8           Having said that, as you all know, the panel is not
 9   going to be entertaining settlement on storage, and part of
10   the purpose of the Technical Conference is to allow all
11   parties to get the information they need before the
12   Settlement Conference.
13           So I don't want to compromise anyone's ability to get
14   the information that they need prior to the Technical
15   Conference.
16           Any thoughts from anyone?
17           MR. MORAN:    Our panel is here.   They’ll answer any
18   questions anybody wants to ask them today, and we're
19   prepared to provide the undertakings as well.
20           MS. SEBALJ:   All right.   So, on the basis that the
21   undertaking questions will be circulated, I believe we have
22   a gentleman from facilities who will facilitate copying, if
23   that's required.      So if we can do that, that would be
24   great, and make sure that it gets circulated to all
25   parties.    Then we'll move on, and if there's any rethinking
26   of this, I'm happy to hear it once the other parties have
27   gone.
28           So I'm registering this as Undertaking No. 1 for
                                                                        8



 1   APPrO?
 2        MS. CAMPBELL:    Yes.
 3        APPrO UNDERTAKING NO. 1:      TO RPOVIDE ANSWERS TO BOARD
 4        HEARING TEAM QUESTIONS 9B AND ONWARD

 5        MS. SEBALJ:    Mr. Cameron.   Oh, sorry, Mr. Leslie.    Oh,
 6   you're leaving.    Thought I would announce it.   You’re
 7   confusing me.
 8        APPRO – PANEL 1; RESUMED
 9        DUANE CRAMER;
10        BRIAN KELLY;
11        JOHN ROSENKRANZ;
12        JOHN WOLNIK;
13        ROBERT CARY;
14        MICHAEL NOLAN;
15        CROSS-EXAMINATION BY MR. CAMERON:

16        MS. SEBALJ:    Whenever you're ready.
17        MR. CAMERON:     Good morning, gentlemen.
18        Can you tell us when APPrO reached the consensus
19   position that's set out in the evidence?
20        MR. ROSENKRANZ:    I would just say that this has been
21   an ongoing process over the last several months, and we've
22   had numerous consultations among the APPrO group and the
23   other generators, such as TransCanada Energy.     And it's
24   been developed over the period of time.
25        MR. CAMERON:    I take it what you're saying is that you
26   reached the consensus when you filed the evidence.
27        MR. ROSENKRANZ:    It's true that by time we filed the
28   evidence, we had reached a consensus on the issues that are
                                                                     9



 1   addressed in the evidence.      I think that it should have
 2   come out yesterday, with the information that we provided
 3   on the storage allocation formula, that there were some
 4   issues that required some additional work.      And we felt
 5   that we needed to be more specific, and the group
 6   endeavoured to do that.      And we came up with a specific
 7   recommendation on that matter.
 8        MR. CAMERON:    Okay.    And Mr. Moran might want to
 9   answer this question:    Are we going to see supplemental
10   evidence to reflect the presentation?      Or is the
11   presentation the totality of the evidence on that topic?
12        MR. MORAN:   That's the evidence.
13        MR. CAMERON:    Now, having reached the consensus, did
14   you have an opportunity to consult with anyone outside your
15   group before it was filed?
16        MR. ROSENKRANZ:    I'm not sure who you have in mind.
17        MR. CAMERON:    Anyone outside your group.    Any of the
18   stakeholders here who aren't APPrO members.
19        MR. KELLY:   I think it's fair to say that most, if not
20   all, of the generators have had discussions with the LDCs,
21   with TCPL, at some point in time or another.
22        MR. CAMERON:    In the course of coming to the consensus
23   position?
24        MR. KELLY:     I wouldn't say it would necessarily be in
25   the course of coming to the consensus position, but in
26   their own individual discussions with the LDCs, these
27   issues, many of which have been raised before.
28        MR. ROSENKRANZ:    Yeah, I was going to add that.      I
                                                                    10



 1   think that one thing to keep in mind is that this is the
 2   latest stage of an ongoing process, and I think if you go
 3   back and look at submissions that were made earlier,
 4   aspects of this process by APPrO and individual generators,
 5   a lot of the material that's in this evidence has already
 6   been aired and made available to people, and they're not
 7   new recommendations to a large extent.
 8        MR. CAMERON:   I'm not disputing that.    I just wanted
 9   to get the chronology right.    And my actual question was,
10   having reached the consensus position, did you then consult
11   with people outside your membership about that consensus
12   position?
13        MR. KELLY:   No.
14        MR. CAMERON:   Thanks.    Can I ask you this:   You've set
15   out in your evidence the things you don't like about the
16   services that Union offers, and I want to ask you the
17   question the other way around, and that is, what features
18   about Union's services for your constituency do you like?
19   And to make it a little easier to articulate those, you
20   could divide them up into infranchise and exfranchise, and
21   you might also want to divide them up into what's existing
22   and what's now being proposed.
23        MR. ROSENKRANZ:    The difficulty we have is that –- and
24   it's a fair question, certainly, and could probably be
25   subject to a long discussion of things that are good as
26   well as things that are -- could be made better.
27        This panel is up here to answer questions with respect
28   to the evidence that the group has put together.     We did
                                                                    11



 1   not as a group develop a position on what things –- on the
 2   answer to your question, certainly that would be something
 3   that, if people, certain people here as individuals or
 4   representing individual parties, that might be something
 5   that they could comment on, representing their particular
 6   interest.   But our perspective here was to respond to the
 7   subject of this proceeding, which was recommendations for
 8   things that should be added or improved to the existing
 9   suite of services.
10        I think that we made the statement yesterday that we
11   weren't here to look back at things that we haven't liked
12   in the past; we're trying to be forward-looking here.
13        MR. CAMERON:    And my question was intended to be
14   forward-looking, that is, going forward, are there features
15   of the Union services that work for you and that we should
16   keep and that you will then be able to use to operate your
17   facilities effectively?
18        MR. ROSENKRANZ:    And, again, I think that's fair.   I
19   think that through our evidence it should be -- if it's not
20   clear, I'd like to make it clear that there are a number of
21   things that Union and Enbridge have proposed that we think
22   are positive steps toward getting the types of services
23   that the generators have identified as being necessary.
24        I think in a lot of our recommendations we have taken
25   recommendations that have come from Union or Enbridge and
26   suggested that the applicability of some of those services
27   should be expanded to more parts of the system or more
28   types of services or different class of customers, an
                                                                         12



 1   example being the reservation, the firm all-day issue,
 2   which was a recognition of that concern of generators to be
 3   able to schedule firm service after the first timely
 4   nomination window.
 5           Our position on that was that that's a good idea.      We
 6   think it's important.     Our concern was that we'd like to
 7   see it expanded on from the proposal that Union made.
 8           So I think we have taken a lot of the good ideas that
 9   Union and Enbridge have proposed and made recommendations
10   on how those can be improved or expanded upon.
11           MR. CAMERON:   Would a more complete answer require
12   consultation with your membership and, if that's the case,
13   could you undertake to do that and answer the question?
14           MR. MORAN:   Mr. Cameron, I'm just wondering
15   specifically what it is you're looking for.      I think you
16   know, the panel has indicated that the APPrO approach to
17   this hearing has been to identify the fundamental needs
18   that gas-fired generators have and to make proposals about
19   how those needs can be met.      And there are a number of ways
20   that those needs can be met.      I think the panel's also
21   indicated that it hasn't really developed a position on the
22   individual components of existing services, and I'm not
23   sure that we're really in a position to do that.
24           MR. CAMERON:   Okay.   Well, I won't press the point.
25   I'd have thought it would be helpful because going forward
26   we --
27           MR. MORAN:   The only other comment I would make is
28   that, in the pre-filed evidence, part 4 of the pre-filed
                                                                   13



 1   evidence, there is a discussion of the proposals that were
 2   made by Union and by Enbridge, and, you know, comments with
 3   respect to components of that.
 4        So beyond that, and I'm not sure that APPrO is going
 5   any further than that, and I don't think we intend to
 6   canvas a whole bunch of individuals to talk about what each
 7   one of them might find good and bad about an existing
 8   service.   This is not what this hearing is about.   This
 9   hearing is about the interface between electricity and gas,
10   and how those dual needs can be best met on a going-forward
11   basis.
12        MR. CAMERON:   Okay.    Well, as I say, I won't press the
13   point.   The generators will be using existing services and
14   new services, and we would have found it helpful to get
15   guidance from them as to which of our existing services
16   they found useful and wanted us to keep.    But if we need
17   more information on that, we'll pursue it at the hearing.
18        Can I ask you to have reference to the table that you
19   did produce in the presentation, and that appears at page
20   12 of that table.
21        MR. WOLNIK:    Yes, we have that.
22        MR. CAMERON:   Is it fair to say that the numbers in
23   this table and the results that it generates are dependent
24   on assumptions, for example, as to heat rate?
25        MR. WOLNIK:    That's correct.
26        MR. CAMERON:   So the answer would be different if we
27   used a heat rate of 7,000?
28        MR. WOLNIK:    We felt these were reasonable
                                                                        14



 1   representative heat rates to use in this example.     This is,
 2   we believe, a reasonable estimate for the heat rates.
 3        MR. CAMERON:    Fair enough.    And if the hours of
 4   operation were changed, for example, if they were 12 hours,
 5   that would also change the output of the table?
 6        MR. WOLNIK:     Yes.   If you used a different set of
 7   assumptions you would come up with different numbers.        But
 8   again, we felt that this is an entitlement methodology, so
 9   we felt that these were representative of a typical
10   operation that would be -- that we would use to come up
11   with this entitlement.
12        MR. CAMERON:    Is it fair to say that this is a
13   deliverability calculation rather than a space calculation?
14        MR. WOLNIK:     No, I think it's both.   We've developed
15   -- I mean, storage service, as you know, has both
16   a base component and a deliverability component.     We've
17   come up with a methodology to come up with that space
18   component and a methodology to come up with the
19   deliverability component.
20        MR. CAMERON:     But you premised the calculation on a
21   deliverability starting point, right?     If we started with
22   the assumption that you needed 5 percent deliverability,
23   that would then drive the calculation out to a different
24   space requirement.
25        MR. WOLNIK:     I guess it makes the assumption or
26   includes the assumption that utilities have provided that
27   high deliverability storage services are available.        And
28   Enbridge in their evidence came up with some fairly
                                                                    15



 1   specific information in terms of, you know, 1.2, 5, and 10
 2   percent over deliverability that they could make available.
 3        So we've used that information, assuming that they can
 4   provide that and come up with these estimates on that
 5   basis.
 6        I think that Union in their evidence also verbally
 7   indicated they could provide some of that as well.
 8        MR. CAMERON:    I wasn't challenging the deliverability
 9   assumption you used.   I was just asking do you agree that
10   if you had you used a different deliverability starting
11   point -- for example, 5 percent -- it would have driven the
12   calculation.
13        MR. WOLNIK:    If you included a 5 percent
14   Deliverability, I would agree with you that you would come
15   up with a different answer.   Yes.
16        MR. CAMERON:    And do you need the space that this
17   calculation drives, or the deliverability?
18        MR. WOLNIK:    Well, I think you have to step back and
19   really look at this in kind of a bigger picture here, and
20   look at storage as a broader need that the generators have
21   to manage quite a number of different needs that they have,
22   in terms of short-term and long-term balancing.
23        And what this method methodology is intended to do is
24   really come up with a space component and the
25   deliverability component that really helps meet all of
26   those needs.
27        We've really highlighted two kind of regular needs
28   that will drive these two components and come up with this
                                                                    16



 1   entitlement.    But generators are going to use storage for a
 2   whole variety of needs throughout the day, throughout the
 3   season, throughout the year, to meet those needs.
 4        MR. CAMERON:    Well, I'll try the question -- the
 5   simple question was is the deliverability you need or the
 6   space you need.    Let me try it this way.
 7        If you could accomplish the deliverability you've
 8   started with with different space, would that be
 9   satisfactory?
10        MR. WOLNIK:    Well, I guess what I'm trying to suggest
11   here is you really need both.
12        MR. CRAMER:    I think the premise we're operating under
13   is that deliverability is the limiting threshold, and I
14   mean, they do go hand in hand, but if deliverability was
15   infinite, then space would become the defining quantity.
16        MR. CAMERON:    And what if space was the defining
17   parameter instead of deliverability?
18        MR. CRAMER:    I think John may have a view on this, but
19   I mean, my view on this is the combination that we've
20   arrived at in this presentation is kind of our consensus
21   view as to what the typical combination of deliverability
22   and space would be, you know, based on the potential types
23   of facilities that we're looking at.    But I think, you
24   know, one of the key facets of this proposal is that
25   ultimately each generator has the ability to tailor the
26   combination of space and deliverability to its needs.
27   Ultimately, we need a certain amount of space in
28   order to -- against which to apply the deliverability, so
                                                                    17



 1   that if a generator can operate with a 1.2 percent
 2   deliverability, then its entitlement is all it needs.    If,
 3   in fact, we need more deliverability, we need that base
 4   space to work with, and, you know, we have the option of
 5   acquiring additional deliverability at incremental cost.
 6        MR. CAMERON:   If we could move to another topic.
 7        As I understand your position in response to the
 8   question should there be a special suite of services or
 9   set of rates for power generators, your answer is no; is
10   that right?   That is, there should be changes but it
11   shouldn't be a power generator set of services and rates?
12        MR. ROSENKRANZ:   That's correct.
13        MR. CAMERON:   What if, at the end of this proceeding,
14   it's only the power generators that are asking for certain
15   changes?   Does that change the way you would see what the
16   Board should do in response to this proceeding?
17        MR. ROSENKRANZ:   I'd answer that two ways.   First of
18   all, it depends on what your assumptions are of why other
19   market participants were not active in this process.
20        MR. CAMERON:   Sorry, I didn't mean not active.
21   They're active but they're just not asking for what you're
22   asking.
23        MR. ROSENKRANZ:   I think it would depend on whether
24   they would be useful or would not be useful.   Even from the
25   standpoint of the generators, even if these are services
26   that are primarily of ultimate use for the specific needs
27   of large gas-fired power generators in this market area, we
28   believe it's important that these services or service
                                                                    18



 1   enhancements be available to other parties so that there
 2   are active, secondary markets that we can transact in.
 3        Again, if only parties that have certain capacity on
 4   certain parts of the system have access, for example, to
 5   additional nomination windows, it really doesn't help to
 6   use those nomination windows to buy gas on an intra-day
 7   basis.   That needs to be available to marketers and other
 8   shippers to also have the ability in their contracts to
 9   make changes intra-day so that there's an ability to do
10   two-sided transactions.
11        So, just because it's power generators that are
12   driving the need - and I'm not sure that's true because I
13   think a lot of the things that we're promoting here or
14   recommending here are fairly generic changes that we
15   believe will enhance the operation of the overall wholesale
16   market - that does not lead to the conclusion that only
17   generators should be contracting for these services to make
18   them work.
19        MR. CAMERON:    Could you turn to page 20 of your
20   evidence.    And we had some discussion of this yesterday.
21   It's the example of what APPrO would describe as a
22   problematic balancing situation and the consequences of
23   that situation when they try to deal with it for a facility
24   in Enbridge's franchise.
25        What result did you get when you ran this example for
26   a facility in Union's franchise?
27        MR. ROSENKRANZ:    I think that in our evidence we also
28   had another example that was -- illustrates some of these
                                                                        19



 1   same concerns that I think was generic, it wasn't specific
 2   to Enbridge to talk about the -- to try to illustrate the
 3   effects of limited nomination windows and also the elapsed
 4   pro rata at that on the supply so this was framed
 5   particularly for Enbridge.     We think we also provide an
 6   example that was more generic and applicable to Union as
 7   well.
 8           MR. CAMERON:   Are you aware that the Union T1 rate
 9   doesn't have the cash-out that generates the dollars in the
10   Enbridge example?
11           MR. ROSENKRANZ:   We're aware that the different
12   utilities have different penalty provisions and different
13   costs of dealing with imbalances.
14           MR. CAMERON:   Generally that's doubtless true.    I was
15   just asking about the particular cash-out that generates
16   the problem in your Enbridge example.     You’re aware that
17   Union's T1 doesn't have that feature?
18           Or let me ask it this way, just in case --
19           MR. ROSENKRANZ:   Yes, we'll confirm that we're aware
20   that it doesn't have that specific feature.
21           MR. CAMERON:   Let me ask it this way.   Could you by
22   way of undertaking run the example using Union's T1 rate,
23   and you could probably pick roughly parallel parameters, if
24   you wanted, but it occurred to us that it would be
25   reasonable to assume that the generator had 25,000 gJs of
26   firm injection and withdrawal capacity and that they have
27   sufficient space in storage, if they have a supply overrun,
28   and sufficient gas in storage, if they have a supply
                                                                     20



 1   underrun.
 2         MR. ROSENKRANZ:    You said 25,000 of
 3   injection/withdrawal capacity?
 4         MR. CAMERON:    Yes.
 5         MR. ROSENKRANZ:    How much space does that correspond
 6   to?   I was just remarking that it's inconsistent with the
 7   other parameters that are in the examples that Union has in
 8   its own evidence, where you're looking at a comparable
 9   facility having only 6,000.
10         MR. CAMERON:    I think the second of the assumptions I
11   gave you was just to assume that you had sufficient space
12   to take gas in and out, and sufficient gas.
13         MR. KELLY:    We can undertake to do that.
14         MR. CAMERON:    Thank you.
15         MS. SEBALJ:    That's APPrO Undertaking No. 2.
16         I don't know, we're agreed upon the parameters, is the
17   25 gJs part of the question?
18         MR. CAMERON:    Yes.
19         MS. SEBALJ:    That's agreed?   Yes?   Okay.
20         APPrO UNDERTAKING NO. 2:     TO RUN EXAMPLE USING UNION'S
21         T1 RATE, USING PARALLEL PARAMETERS, ASSUMING THE
22         GENERATOR HAD 25,000 GJS OF FIRM INJECTION AND
23         WITHDRAWAL CAPACITY AND SUFFICIENT SPACE IN STORAGE IF
24         THEY HAVE A SUPPLY OVERRUN, AND SUFFICIENT GAS IN
25         STORAGE IF THEY HAVE A SUPPLY UNDERRUN

26         MR. CAMERON:    Gentlemen, if you move ahead to page 25
27   of your evidence, you have the list of your specific
28   proposals, and I think that some of Ms. Campbell's
                                                                     21



 1   questions yesterday elicited answers that help us on this
 2   point, but let me put the question for proposal number 1 as
 3   simply as this.
 4        What do you mean by "transmission level" when you say
 5   "transmission level" services?
 6        MR. ROSENKRANZ:     That is somewhat a generic statement
 7   that may be made operational slightly differently in
 8   different contexts.
 9        There's been some discussion evidence about the fact
10   that there's a classification of facilities on the utility
11   systems between distribution level, the lines that are
12   coming to the -- going down the streets to people's
13   individual houses, versus the higher pressure, higher
14   capacity lines that may run through their service
15   territories.   And the fact that there's -- there are
16   different costs to operate on different parts of the
17   system, so that if you're only operating -- only using the
18   transmission level services, there would be different
19   costs.
20        So that's what we're talking about when we're talking
21   about those particularly high-pressure, higher-capacity
22   pipe that are separate from the more involved, extensive
23   distribution main systems.
24        It could also mean things like the Dawn-to-Parkway
25   system, which I think would be recognized as being a
26   transmission function facility as opposed to a distribution
27   function facility, by and large.
28        MR. CAMERON:     If you go to proposal number 2, the
                                                                        22



 1   first question is just one of clarification.    Proposal
 2   number 2 is about negotiated rates.
 3   And is it both of these that you want, or how do these fit
 4   together?    Is it transmission-level services with
 5   negotiated, et cetera, rates?
 6        MR. ROSENKRANZ:     No, I think that in practice they may
 7   be related.    Because of the nature of the large users with
 8   special needs that we're considering, they are probably
 9   going to be served by the transmission.    But, as we've put
10   the proposal together, it was not meant to be restrictive
11   in that way.
12        MR. CAMERON:     And, as I understand the evidence, the
13   two constraints, and I think the only two constraints, that
14   APPrO's proposing for these negotiated rates is that they
15   recover incremental costs and be non-discriminatory.        Have
16   we read that right?
17        MR. ROSENKRANZ:     Yes, those are explicit things we
18   addressed.
19        MR. MORAN:    I think yesterday it was also indicated
20   and a contribution to the system.
21        MR. CAMERON:     I'd actually heard a step back from
22   that, but I'll take your point as a question to the panel,
23   Mr. Moran.
24        I'd thought that as that line of questioning
25   concluded, it was specifically that the incremental costs
26   be recovered, but is it also that there be a contribution?
27        MR. ROSENKRANZ:     I think the way that it was restated
28   yesterday was that it be at least covering the long-run
                                                                     23



 1   incremental cost, which generally implies some contribution
 2   to the system.   I think the distinction that we were trying
 3   to make was that we are not proposing that a specific level
 4   of contribution be set; we're looking at a general
 5   principle that can be followed.
 6        MR. CAMERON:     Okay.    I understand that.
 7        And has your association directed its mind to what
 8   factors the Board should consider in deciding whether or
 9   not a rate is discriminatory in the specific context of the
10   types of rates you would see being negotiated for large
11   power generators or similarly situated users?
12        MR. ROSENKRANZ:     The answer would be no, that we did
13   not look specifically at how the Board should do that other
14   than the general principle of non-discriminatory treatment.
15   And I think you gave a very good point of similarly
16   situated being one of the things that would be looked at.
17        MR. CAMERON:     And if the only two constraints are
18   recovery of incremental costs and non-discriminatory, does
19   that mean we're out of the realm of postage stamp rates?
20        MR. ROSENKRANZ:     No.    This would be supplemental or
21   complementary to a regime of postage stamp rates.
22        MR. CAMERON:     Is another way of putting that, then,
23   that there's a third constraint, which is that it be a
24   postage stamp rate?
25        MR. ROSENKRANZ:     I think it would be looking at
26   circumstances where, within a postage stamp rate regime, if
27   that's what's accepted, that there are specific situations
28   where a deviation from that may be justified, and I would
                                                                   24



 1   point out that it's not that different from what was done
 2   today, when dealing with large new loads on the utility
 3   systems; that there is a departure from postage stamp rate-
 4   making if the postage stamp rate does not produce revenue
 5   that covers the costs of if new facilities are required.
 6   And that's where you get into the Board's profitability
 7   index calculation, and in that case, you would deviate and
 8   go essentially to an incremental costing by requiring a
 9   contribution in aid.    So we see this as being a general
10   principle that's really not a departure from what's
11   done today.   Our suggestion is that there be different
12   guidelines given to the utilities so that the utilities
13   themselves have more discretion to solve problems on a
14   case-by-case basis.
15        MR. CAMERON:     Okay.   I think I hear what you're
16   saying.   It's that large users have needs that require more
17   of the type of deviation from postage stamp rates that you
18   associate with aids to construct or that are analogous to
19   aids to construct?
20        MR. CRAMER:     I think we made the point pretty clear
21   yesterday with respect to the fact that -- I mean, we're,
22   I think, a unique class of customer in terms of the
23   magnitude of the load and the magnitude of the potential
24   costs associated with delivery.
25        And, I mean, the postage stamp rates are out there,
26   but the reality is we don't get the benefit of postage
27   stamp rates today.    As John pointed out, if the
28   profitability index falls below 1, we're expected to pay
                                                                    25



 1   that cost.    Yet if the profitability index is higher than
 2   1, we don't see the benefit of that.
 3           I think the expectation is that, in view of the fact
 4   that each of these connections is going to kind of be a
 5   custom situation, that the utilities have the latitude to
 6   be able to negotiate terms -- to recognize that postage
 7   stamp rates are still out there as a benchmark.       What we're
 8   saying is that those postage stamp rates should reflect the
 9   particular class of assets that the utility has that are
10   being used to supply us, and then we'd be able to negotiate
11   our particular terms around those particular rates.
12           I mean, I think it's difficult to go much further than
13   that.
14           MR. CAMERON:   Okay.   That was useful.   Thank you.
15   Now, these rates once negotiated have to be approved by the
16   Board.    Does the association have a view on who bears the
17   risk if the Board disapproves of the rate, or fails to
18   approve the rate?
19           MR. KELLY:   What risk are you talking about,
20   Mr. Cameron?
21           MR. CAMERON:   Fair enough.   I think that the risk
22   would be if the negotiation were a firm -- resulted in a
23   firm agreement.      And so the question is, is the association
24   content that any of these negotiated rates be conditional
25   on Board approval before service commences?
26           MR. ROSENKRANZ:   We didn't discuss exactly what the
27   procedure would be in terms of whether it be filed with the
28   Board and if the Board doesn't act within a particular
                                                                       26



 1   point in time it would be deemed approved.       I mean, those
 2   are the types of things that would need to be worked out in
 3   some way so people know the rules.
 4           I think the important aspect that we believe that this
 5   is important for the utility that there be some type of
 6   review process so that once this contract is approved or
 7   deemed approved by the Board and service starts at that
 8   rate, that the utility not be at risk that there be a
 9   determination five years down the road that that rate
10   wasn't high enough, and the utility be put at risk.
11           We think that it's important that this be fair to the
12   customer and the utility.
13           MR. CAMERON:    Thank you, that's helpful.
14           Moving on to the last area, and that's proposal 6, as
15   you go down the page.      Do you have examples, or have you
16   encountered cases where other pipelines offer access to
17   uncontracted receipt and delivery points on a firm basis?
18           MR. ROSENKRANZ:    I'm sorry, there was some background
19   noise.    I didn't hear one of the words.    Could you restate
20   that?    I apologize.
21           MR. CAMERON:    Have you come across or can you give
22   examples of other pipelines, or of any pipelines, that
23   offer access to uncontracted receipt and delivery points on
24   a firm basis?
25           MR. ROSENKRANZ:    By uncontracted, you would mean that
26   it's not your primary contract of receipt?       I'm not sure
27   what you mean by uncontracted.
28           MR. CAMERON:    Not contracted at all.
                                                                       27



 1        MR. ROSENKRANZ:     There are a number of examples that
 2   the group had in mind.      I think that the most common
 3   example that I personally am aware of is pipes in the US,
 4   where you have a primary point, and through, essentially,
 5   FERC rules, Federal Energy Regulatory Commission rules,
 6   shippers have access on a secondary basis to all other
 7   points on the system.
 8        So that's the concept that we're working with here.
 9        MR. CAMERON:   But are you proposing that access to
10   alternate receipt and delivery points be on a firm basis?
11        MR. ROSENKRANZ:     That's certainly not what's in the
12   proposal.    It says specifically “on an interruptible basis,
13   when the capacity is operationally available.”
14        MR. CAMERON:   And just a final question:      Are you
15   suggesting that there should be a title transfer or
16   exchange between Dawn and Parkway?
17        MR. ROSENKRANZ:     No, I believe that it was meant to
18   say “Dawn or Parkway”.
19        MR. CAMERON:   That there be title transfers --
20        MR. ROSENKRANZ:     At Dawn or at Parkway.   I think that
21   this one is just a response to the Enbridge enhanced title
22   transfer where they proposed it at one point.       Our question
23   would be, Why not at the other point?
24        MR. CAMERON:   Okay.    That clarifies that.    Thank you,
25   gentlemen.
26        MS. SEBALJ:    Thank you, Mr. Cameron.
27        Mr. Stevens.
28        CROSS-EXAMINATION BY MR. STEVENS:
                                                                    28



 1        MR. STEVENS:   Good morning, panel.   My name is David
 2   Stevens.   I'm here on behalf of Enbridge Gas Distribution.
 3   With me are Dave Charleson and Malini Giridhar.    We wanted
 4   to start out by asking you a few follow-up questions on
 5   some of the things that you've spoken about already.
 6        The first one yesterday, I believe it was with Ms.
 7   Campbell, you had a conversation about how storage would
 8   get allocated if the demand for that storage outstripped
 9   the supply.   And I wanted to specifically talk about high-
10   deliverability storage, because it's clearly been
11   Enbridge's evidence that there's an expectation that there
12   will be more demand for the high-deliverability storage
13   being developed than for the supply.
14        Now, I was hoping that you could explain to us how
15   allocation should work in those circumstances.    And if you
16   need to come to a group view or an association view by way
17   of undertaking, that's fine.
18        MR. ROSENKRANZ:   I think we gave an answer to that
19   yesterday, and I’d appreciate the opportunity to expand or
20   clarify on that answer we gave yesterday.
21        Our view of the issue of deliverability, specifically
22   the types of deliverability that's needed by the power
23   generators, is that it's something that can be provided by
24   a number of different means.   Increasing the physical
25   deliverability of storage facilities at a location is one
26   aspect of it.   There are also different things that can be
27   done through the re-design of transmission facilities,
28   through looping or addition of compression or changes --
                                                                  29



 1   other changes to the system operations that can also help
 2   make the short-term deliverability of an intra-day that is
 3   of particular concern to power generators, available on the
 4   system.
 5        So, given the various ways of creating deliverability,
 6   our view is that, as long as the generators are willing to
 7   pay a rate based on incremental cost, there should be no
 8   need to -- there should be no limit to the amount of
 9   capacity, of deliverability that is available on the
10   market.
11        MR. STEVENS:   Okay, and I understand your view, but if
12   you would just humour me on my view.   At a particular point
13   in time there may be a constraint in terms of how much
14   high-deliverability storage is available.   These
15   development opportunities may exist in the future, but at a
16   particular point in time there may not be enough to satisfy
17   everybody's wants, especially if it's cost-based.
18        And so my simple question is, how does the allocation
19   work at that point, in your view?
20        MR. ROSENKRANZ:   As you can see, the panel is
21   wrestling with coming up with an answer to your question.
22        MR. STEVENS:   Just to interrupt, I'd be quite prepared
23   to take an undertaking from you if that's easier.
24        MR. ROSENKRANZ:   An undertaking wouldn't help.
25        [Laughter]
26        MR. STEVENS:   Sorry, and just one other preface.   I
27   recognize you're up here as APPrO, but you are also members
28   or you are also representatives of different intervenors in
                                                                      30



 1   this proceeding, so you may find it easier to respond on
 2   that basis.
 3           MR. ROSENKRANZ:   I think the difficulty in responding
 4   is getting our minds around the premise for your question.
 5   And we're trying to understand where the shortage is coming
 6   from.
 7           Certainly at any point in time there should be the
 8   service available for the parties who have contracted for
 9   that service on a firm basis.      Is that something we can
10   assume?
11           MR. STEVENS:   I guess you're assuming that there is a
12   fixed price or a price that's related to cost, and at the
13   same time there's going to be an infinite supply, that all
14   this gas-fired generation's coming onstream, all the gas-
15   fired generators are going to be looking for this kind of
16   supply, and all that's going to be able to be met at cost-
17   based.    And you're having trouble seeing how that's not so?
18           MR. ROSENKRANZ:   No, I think the group has given a lot
19   of thought to this, and there's been a lot of discussion.
20           We come from the -- we believe that there's some
21   utility obligation to provide the services that are needed
22   by their customers.       So that --
23           MR. STEVENS:   Well, I guess that I'll go back to my
24   simple example.    Assume that the utility cannot provide
25   everything that all of you want at that point in time.        How
26   is the allocation going to work?
27           MR. ROSENKRANZ:   And I think we'd have to ask why --
28           MR. STEVENS:   It’s a simple hypothetical question.
                                                                       31



 1        MR. MORAN:    Mr. Stevens, if I may interrupt for a
 2   second.   It may be that there's a misunderstanding here
 3   between what you're asking and what I think you heard from
 4   the witness.   But I think what the witness has said is that
 5   the gas-fired generator needs is with respect to
 6   deliverability.    How that deliverability is provided, there
 7   are a number of ways of doing it.
 8        One way of doing it is using storage facilities.       But
 9   there may be other ways of providing that service, and so
10   that's why I think there's some disconnect between your
11   question.   If there's a shortage of storage, then
12   presumably the distributor will have to look at other ways
13   of providing that deliverability.
14        I think that's what the witness was saying.      And
15   perhaps you can --
16        MR. CRAMER:    Just to add one point.   I mean, if you're
17   saying it's not available, what you're suggesting is that
18   the incremental cost is infinite.    And it's hard for us to
19   envision a situation where the incremental cost truly is
20   infinite, because it's going to be available in some form
21   from some source on some sort of cost basis, and we're
22   agreeing to pay the cost.
23        MR. STEVENS:    All right.   Let's move on.   You've
24   talked a lot about the consensus you've been able to reach
25   in terms of the proposals you're putting forward.
26        Have you similarly come to a consensus on the
27   proposals that TCPL has made?
28        MR. ROSENKRANZ:    I would say, no, we haven't come to
                                                                    32



 1   an APPrO position on the TCPL proposals.    They're to some
 2   extent relatively new in terms of finally being filed in
 3   the final form.
 4        I think we -- I know that we expressed in our evidence
 5   a concern that there be co-ordination among the utilities
 6   and TCPL, so that ultimately the services that were --
 7        MR. STEVENS:    In your evidence you provided a section
 8   where you commented on the services being offered by each
 9   of Union and Enbridge.    Would you be prepared to put
10   together a similar section to comment on the evidence
11   prepared by TCPL?
12        MR. ROSENKRANZ:     I'm not sure what purpose that
13   serves, given that the Board does not have jurisdiction
14   over TCPL.
15        MR. MORAN:     I mean, subject to Mr. Rosenkranz's
16   observation that the OEB doesn't have jurisdiction over
17   those TCPL services, I think we'd be prepared to provide
18   you with comment on their services.
19        MR. STEVENS:    Thank you.
20        MS. SEBALJ:    I believe we're on APPrO Undertaking No.
21   3.
22        APPrO UNDERTAKING NO. 3:     TO PROVIDE COMMENTARY ON
23        SERVICES PROVIDED BY TCPL

24        MR. STEVENS:    You had a discussion this morning
25   with Mr. Karl about Union's proposals, and he was
26   specifically asking you to comment on aspects of those
27   proposals which you like, which you favour, and I was
28   hoping that you could do the same with Enbridge.    And
                                                                       33



 1   again, if you would prefer to do that by way of
 2   undertaking, that's fine.
 3        MR. MORAN:    I would say that our response would be the
 4   same as we provided to Union earlier today.
 5        MR. ROSENKRANZ:     Well, I would point out that in our
 6   evidence we actually did provide some comments on things
 7   that we liked about the Enbridge proposals.       Perhaps we
 8   should have done the same thing for Union.       And apologies
 9   may be in order.    But I think in the case of Enbridge there
10   were some general comments on positive aspects of the
11   proposals.   I think the difference with the earlier
12   comment, going back to Union, was you're asking for
13   comments on the proposals as opposed to the question that
14   Mr. Cameron made of asking for comments on existing
15   services.
16        MR. STEVENS:     Okay.   And that's fair.   I guess to the
17   extent that that's incomplete, if you could fill it out,
18   that would be great.
19        MR. MORAN:    I'm not sure if the witness is indicating
20   that it's incomplete.
21        MR. STEVENS:     That's right.   So I'll take it as
22   complete otherwise.    Thank you.
23        I assume that all of you contributed to the authorship
24   of this evidence; is that fair?
25        MR. KELLY:    That's fair.
26        MR. STEVENS:     Would it be possible, and maybe this is
27   a question for your counsel, to get CVs for everybody?
28        MR. MORAN:    For this panel?
                                                                         34



 1           MR. STEVENS:    Yes.
 2           MR. MORAN:    Certainly.
 3           MR. STEVENS:    Thank you.
 4           MS. SEBALJ:    I'm a little confused as to what happened
 5   just previously.       Are we doing an undertaking to say that
 6   it may or may not be complete or no?
 7           MR. STEVENS:    No.
 8           MS. SEBALJ:    Okay.   So we're on APPrO number 4, which
 9   is to provide CVs for all the panel members.
10           APPrO UNDERTAKING NO. 4:      TO PROVIDE CURRICULUM VITAE
11           FOR PANEL MEMBERS

12           MR. STEVENS:    Could I get you to please turn to
13   section 2.2.3.       I think it's page 5 of your evidence.   I'm
14   sorry, it's page 11 of your evidence, page 5 of section
15   2.2.3.
16           In the second paragraph, there's some discussion of
17   some numbers there.        It talks about “short-term change,
18   standard deviation,” and the short-term change remits a
19   total of 32,000 gJs per day.         And then, “The system would
20   need to be able to accommodate plus or minus 64,000 gJ per
21   day.”    Should that just read 64,000 as opposed to plus or
22   minus?
23           MR. CARY:    No.   In order to have a 95 percent
24   confidence range in your limits, it is 64,000 above or
25   below the mean point, the central point.
26           MR. STEVENS:    Okay, thanks.
27           MR. CARY:    It is 2 sigma.
28           MR. STEVENS:    In section 2.5 of your evidence, you
                                                                         35



 1   provide an example of the problems faced by generators
 2   under Enbridge's current Rate 125.       And I understand that
 3   we're going to have a discussion with your counsel off-line
 4   about an undertaking along those lines.
 5           I just had one sort of more general questions
 6   related to that.       We understand power generators' desire
 7   and need for more nomination windows.       But we're wondering
 8   if you could comment on how it is that you believe Enbridge
 9   could offer more nomination windows than are offered to
10   Enbridge by transporters upstream.
11           MR. ROSENKRANZ:    I think certainly, I guess, in
12   theory, you can offer and be prepared to accept as many
13   nomination windows as you want.       Hundreds, all right.    But
14   I think your comment, as a practical matter, the ones that
15   would be useful would be the ones that could be actually
16   confirmed with an interconnecting transporter.       That's
17   fair.    But to some extent they are two issues.
18           Certainly on the downstream end, that's something that
19   is a practical constraint for Enbridge.       I think that if
20   you look at Enbridge as at the upstream end of a storage
21   provider, I think that you do have a little more discretion
22   in terms of, say, how much -- if you're offering unbundled
23   storage service, it would be important for you to
24   specifically come up with a certain number of nomination
25   windows, and we have suggested the hourly schedule as being
26   a useful guideline.
27           MR. STEVENS:    Can I get you to turn to section 2.3 of
28   your evidence, which is page 18, I believe.
                                                                      36



 1        On that page you describe seven or eight projects that
 2   are on-line or coming on-line.       And I was hoping that maybe
 3   by way of undertaking you could provide us with your
 4   expectation as to the actual or anticipated maximum
 5   contractual daily quantity for each of those projects.
 6        MR. ROSENKRANZ:     Maximum daily -- could you be more
 7   specific in terms of what you mean?
 8        MR. STEVENS:     Maximum contractual daily quantity.
 9        MR. ROSENKRANZ:     Of?
10        MR. MORAN:     I don't believe that APPrO will have
11   access to that information.       I mean, that's information
12   specific to each generation project.
13        MR. STEVENS:     One of the things as described in
14   APPrO's evidence is the contention that the 600,000
15   threshold for Rate 125 is too high.       And to the extent that
16   you have information, I'd like to understand where each of
17   these projects fit opposite the threshold that Enbridge has
18   set for Rate 125.
19        MR. MORAN:     Again, I'm not sure that we would have
20   access to that information.       You might want to explore with
21   the witnesses what APPrO's concerns are with respect to the
22   600,000 threshold.
23        MR. STEVENS:     I'm more interested just in the numbers,
24   actually, but thanks for that.       I know that some of these
25   witnesses are representatives of some of these different
26   projects so I would imagine that you would have at least
27   some of the information.       For example, there are
28   representatives or counsel for GEC, for Sithe, for PEC.
                                                                     37



 1        MR. MORAN:    Again, the APPrO case isn't about
 2   promoting individual needs for individual generators; it's
 3   about developing a set of services that are available to
 4   all generators, present and future.
 5        MR. STEVENS:   And I understand that position.      I'm
 6   just interested in the information.
 7        MR. CRAMER:    I would suggest that the utilities
 8   marketing people are probably about the best source there
 9   out there as to the potential DCQ that would be connecting
10   to the system.    You're talking about all generators as a
11   single point of contact, versus us individually having to
12   share information amongst ourselves that, in the normal
13   course, we would not share amongst ourselves.
14        MR. CARY:    I would also suggest that the -- on slide 4
15   of the material that was presented yesterday, we've
16   identified the nominal capacities of each of the new
17   facilities coming on-line.    We have talked on page 18 of
18   the gas consumption of a typical 500-megawatt facility.        It
19   is a fairly straightforward step, just to apply that as a
20   typical basis to those facilities.    How they have gone from
21   their hourly consumption as a DCQ is a personal issue, and
22   I think that is something that the panel would probably not
23   be in a position to comment on.
24        MR. STEVENS:   Is it fair to say that you don't expect
25   any projects that are less than a hundred megawatts to be
26   coming on-line?
27        MR. CARY:    Well, I think the GTAA project is
28   approximately a hundred megawatts.    The RFP for co-gen
                                                                    38



 1   projects that is out at the moment is quite likely to bring
 2   in some projects that will be under a hundred megawatts, so
 3   I wouldn't want to be as broad-brush as you're suggesting.
 4        MR. STEVENS:   But other than that project, the larger
 5   scale projects are in excess of a hundred megawatts?
 6        MR. CARY:   The proposed new large -- the proposed new
 7   large projects are in excess of a hundred megawatts.     But
 8   we are talking about something that can also apply to
 9   existing projects and the co-gen projects that come on-line
10   that may be less than that.   So there is no absolute line
11   at that point.
12        MR. STEVENS:   Okay.   Thanks.
13        Can I get you, please, to turn to section 3.1 of your
14   evidence?   On the second page of that at your bullet
15   points, you speak about a number of things, among them, the
16   fact that APPrO advocates that access to storage should be
17   cost-based.   And then you continue and talk about how
18   adding flexibility and transparency to gas utility service
19   will promote competition for storage and balancing
20   services.
21        And what I wanted to explore with you is how, in
22   APPrO's view, having cost based storage is going to promote
23   competition in storage?
24        MR. ROSENKRANZ:   We have -- there are a number of, as
25   you see, a number of different proposals, and those
26   proposals -- these comments, these bullets, are looking at
27   the totality of those proposals and the ultimate effects.
28        The issue of cost-based versus market-based storage,
                                                                    39



 1   the position of the APPrO group on that issue is that
 2   services that are provided by the utilities to infranchise
 3   customers should be based on cost.    And it has to do with
 4   the particular market in which we're operating that we
 5   believe makes that appropriate and necessary.
 6        MR. STEVENS:   So is it fair to say that -- and I
 7   appreciate what you're saying, that these bullet points
 8   really draw upon everything that you've been making as a
 9   proposal, and saying, here's the outgrowths of them.     Is it
10   fair to say there's no specific link, then, between cost-
11   based storage and the promotion of competition for storage?
12        MR. ROSENKRANZ:   There's no direct link between
13   utilities providing services to their infranchise customers
14   based on cost and the competition issue.   However, our
15   entire proposal has other aspects of it that should
16   increase access to third party storage providers who would
17   be providing services at market-based rates, and we believe
18   that that would increase the competition in the storage
19   industry.
20        MR. STEVENS:   And the second bullet point on the
21   second page, there's the statement that:
22               "Giving power generators the ability to manage
23               fuel costs and greater certainty about what those
24               costs will be will influence generators' bidding
25               behaviour, reducing the level and volatility of
26               electricity prices."
27        And I was hoping that you could, whether now or by way
28   of undertaking, provide us with an example of how the level
                                                                     40



 1   and volatility of electricity costs in Ontario will change,
 2   using the example of the current rate and service offerings
 3   available to gas generators as compared to the ideal rate
 4   and service offerings that gas-fired generators would like
 5   to receive from Ontario utilities.
 6        MR. KELLY:     We can undertake to do so.   Thank you.
 7        MR. CARY:    I would qualify that, though, that when
 8   trying to -- when trying to assess electricity price
 9   impacts, you are trying to assess how people's behaviour is
10   affected by the rate structures within which they operate.
11        And that is a far-from-exact science.
12        MR. STEVENS:     And that's fair, and please, if there's
13   assumptions in what you're saying, please set them out.
14   What I'm trying to do is assess just the words that are in
15   your evidence, and understand what lies behind them.
16        MR. CARY:    And it will, I suspect, be on an indicative
17   basis rather than on an auditable basis.
18        MR. ROSENKRANZ:     It will be qualitative, not
19   quantitative.
20        MR. CARY:    It will be more qualitative than
21   quantitative, yes.
22        MR. MORAN:     I think there's an undertaking there.
23        MS. SEBALJ:     Is that the end of that undertaking or
24   are we moving on?
25        MR. STEVENS:     Yes.
26        MS. SEBALJ:     Okay.   That's APPrO Undertaking No. 5.
27        APPrO UNDERTAKING NO. 5:     TO PROVIDE AN EXAMPLE OF HOW
28        THE LEVEL AND VOLATILITY OF ELECTRICITY COSTS IN
                                                                     41



 1        ONTARIO WILL CHANGE, USING THE EXAMPLE OF THE CURRENT
 2        RATE AND SERVICE OFFERINGS AVAILABLE TO GAS GENERATORS
 3        AS COMPARED TO THE IDEAL RATE AND SERVICE OFFERINGS
 4        THAT GAS-FIRED GENERATORS WOULD LIKE TO RECEIVE FROM
 5   ONTARIO UTILITIES

 6        MS. GIRIDHAR:    Could you turn to page 29, proposal 3.
 7   Negotiated contracts.     Sorry, proposal 2.
 8        MS. GIRIDHAR:    I think this came up yesterday, and I'm
 9   trying to recall what was said, and I can recall three
10   statements and maybe you can tell me if they're correct.
11   You said that we should be able to have a fixed-term and
12   fixed-price offering for distribution service.
13        MR. CRAMER:     I think we expressed that as an example
14   of the kind of thing that might be the subject in
15   negotiation, yes.
16        MS. GIRIDHAR:    Okay.   Secondly, that the cost of a
17   distribution service offering consists of the carrying
18   costs of capital, incremental capital, for the power
19   generation project, something like that?    That's what you
20   identified as the cost associated with providing service?
21        MR. ROSENKRANZ:    That was not meant to be inclusive,
22   it was meant to be kind of a general foundation for why
23   there would be some fundamental cost certainty in the case
24   of a specific lateral project to serve the plant.
25        MS. GIRIDHAR:    Okay.   And thirdly, you also said that
26   this was not linked with incentive-based regulation or PBR
27   in any way.
28        MR. ROSENKRANZ:    Correct.
                                                                      42



 1        MR. CRAMER:   Correct.
 2        MS. GIRIDHAR:   Okay.    So are you aware that for the
 3   utility under cost-of-service, its carrying cost of capital
 4   and operating and maintenance costs change from year to
 5   year and the company is entitled to recover those costs to
 6   the extent that they're approved by the Board?
 7        MR. MORAN:    I guess maybe there's a legal component to
 8   that question, and what a utility's entitled to get, I'm
 9   not sure.
10        MR. ROSENKRANZ:      I think that we can say I think that
11   that's part of the problem we're trying to address, the
12   fact that there is that particular mechanism that creates
13   uncertainty for the customer, and that there should be --
14   and based on examples in other jurisdictions that it is
15   done, that there is a way to come up with a negotiated rate
16   that is able to be agreed upon ahead of time that it will
17   cover those costs over that term.
18        MS. GIRIDHAR: I think you also mentioned that this
19   could be done by holding all other ratepayers harmless.       Do
20   you recall that?
21        MR. ROSENKRANZ:      That's a general principle of all our
22   proposals, to hold existing customers harmless to the
23   extent possible.   Yes.
24        MS. GIRIDHAR:   I guess I'm just wondering in that
25   instance if the Board would approve an increase in rates
26   for all of its customers to reflect changes in carrying
27   costs of capital as well as operations and maintenance
28   costs, but one group of customers are given a fixed rate,
                                                                   43



 1   then I am presuming that holding other ratepayers harmless
 2   with respect to an increase that the company would have
 3   otherwise received from this group of customers would then
 4   mean that the utility is harmed.    I'm just trying to
 5   understand this.
 6        MR. ROSENKRANZ:   Exactly.    That's a good point, and
 7   I'm glad you bring that up.    We did not mean to say that
 8   you should look at the current year cost-of-service, cost
 9   of capital, O&M cost, and set the rate and that rate would
10   be fixed, and if everyone else increased that this customer
11   should be insulated from that, which, as you point out,
12   puts the additional cost on somebody else.
13        What we're looking at is generally there's some way
14   to do a forward-looking analysis to come up with reasonable
15   assumptions of how those costs over the term -- and it may
16   be five years, or in the extreme, it may be 20 years if
17   it's possible to do that -- if there are identifiable costs
18   and with some degree of -- a reasonable degree of
19   certainty, all the parties, including the utility and the
20   Board, can be confident that the negotiated rate that's set
21   will cover those costs over the life of that contract.
22        Those are the types -- that's what we're looking for.
23   We're looking for rate certainty at a rate.     We're not
24   saying that we're looking at fixing the rate at the current
25   level.
26        MS. GIRIDHAR:   Okay.    That's helpful.   So you would be
27   willing to consider a premium over cost-based rates to get
28   rate certainty?
                                                                    44



 1        MR. ROSENKRANZ:    It may be a premium over the current
 2   cost-based rate, exactly.
 3        MR. CRAMER:    I think we've specifically acknowledged
 4   that those arrangements could involve a contribution to
 5   system costs.   I mean, that's effectively what you're
 6   talking about in that scenario.    You know, under certain
 7   circumstances we'd be paying in excess of incremental
 8   costs, so I mean, at the outset there could well be a
 9   cushion there that would be taken into account in that
10   long-term forecast.
11        MS. GIRIDHAR:    Okay.   Thank you.
12        MR. STEVENS:    At section 3.4 of your evidence, which
13   is proposal number 3, there's discussion of offering
14   storage, high-deliverability storage at cost-based rates.
15   And then in the first paragraph of text you say that:
16             “It is therefore important that all
17              infranchise customers, including gas-fired
18              generators, have access to utility storage
19              services at reasonable rates."
20        Do you mean anything different by "reasonable" as
21   opposed to "cost-based?"
22        MR. ROSENKRANZ:    We believe cost-based is, in the
23   circumstance, a way to arrive at reasonable rates.
24        MR. STEVENS:    In this context can "reasonable" mean
25   anything other than "cost-based?"
26        MR. MORAN:     The proposal is cost-based.   I think
27   that's exactly the context you have to read it.
28        MR. STEVENS:    And I was just asking because it's a
                                                                  45



 1   different phraseology used and I just want to make sure
 2   that it's not a different meaning.
 3        MR. MORAN:   It's one word in relation to a cost-based
 4   proposal.
 5        MR. STEVENS:     In section 3.4, you talk about how
 6   high-deliverability storage should be priced at cost:
 7               "and should reflect the incremental cost of
 8               acquiring of developing high-deliverability
 9               storage, and priority should be given to
10               infranchise customers before this service is
11               offered to the market."
12        Can gas-fired generators provide contractual
13   assurances that they themselves will use all the
14   high-deliverability storage that they acquire solely for
15   service in their plant and not sell the capacity to any
16   other party at any time?
17        MR. ROSENKRANZ:     Certainly we don't believe that
18   that's appropriate.    We understand that, and we would
19   distinguish between the two aspects of our proposal, one
20   for the rolled-in cost-based standard 1.2 percent
21   deliverability storage, which we've dealt with one way, and
22   we do understand the concern that there be an incentive to
23   overcontract for that capacity, which was why we think that
24   there should be some -- it makes sense that there be some
25   recognized empirical formula that's used to determine
26   what's a reasonable allocation of that amount of storage.
27        We feel that, with respect to additional
28   deliverability that's added to that basic storage.     As long
                                                                   46



 1   as we're paying a separate incremental cost-based rate,
 2   there's less incentive to overcontract because you are
 3   essentially reflecting the more directly the cost of that
 4   additional deliverability.
 5        In terms of how that storage is used, we have come
 6   to the proposal which we think allows the generator to have
 7   access to the infranchise storage service that is based on
 8   its actual needs.   However, in order to manage the cost of
 9   that plant and to be able to, say, mitigate the fixed costs
10   of using that service, we believe that the customer should
11   be able to utilize that service as appropriate over time.
12        MR. STEVENS:   Following up on this idea, then, of
13   being able to mitigate those costs and use the storage as
14   appropriate, would gas-fired generators be able to
15   contractually that neither nor their affiliates would
16   remarket the excess or unused high-deliverability storage
17   at a price higher than what they're paying to the utility?
18        MR. ROSENKRANZ:   No, that's not something that we have
19   considered as being something that would be committed to as
20   part of the APPrO proposal.
21        MR. STEVENS:   So if you're not able to commit to that
22   would you be able to contractually agree to share any
23   profits that you realize with the utility?
24        MR. CRAMER:    Is the utility prepared to take my losses
25   on fixed transportation for the contract that’s provided --
26   what we're talking about here is one of a whole basket of
27   assets that we have to manage in a very competitive
28   environment to bring our capacity to the electricity
                                                                     47



 1   sector.   I mean, we're as integrally involved in the gas
 2   market as we are in the electricity market as a gas-fired
 3   generator, and we have to have this basket of assets in
 4   order to be able to participate in that market.
 5        So to start carving up those assets and putting the
 6   type of restrictions on them that you're suggesting is just
 7   fundamentally not workable.
 8        MR. STEVENS:    And that's fine, but I guess what I'm
 9   asking about is a particular asset that parties are asking
10   the utility to sell at less than its value.     And what I'm
11   asking is whether, in the event that gas-fired generators
12   acquire that asset and sell it for more than what they've
13   acquired it for, than the price they acquired it at,
14   whether they'll share the benefits with the utility.
15        MR. CRAMER:    And if they contract with another asset
16   with that same utility, that I end up having to sell at
17   less than it's value -- or less than its cost, does that
18   offset that?
19        Again, I think it's just -- that's a road that we're
20   not prepared to go down.
21        MR. STEVENS:    Okay.   And that's fine.   I mean, I was
22   interested just in the answer to the simple question.
23        MR. CRAMER:    I mean, the simple answer is it's one of
24   a basket of assets that we intend to manage in as efficient
25   a manner as possible, so that we can be as competitive as
26   possible.
27        MR. CARY:    And you may look at this on a year on year
28   Basis.    Some years there may be surplus in it, some years
                                                                     48



 1   there may be loss in it.    It would not be appropriate to
 2   start carving out the surplus years, the years through a
 3   surplus value unless you were taking an interest in the
 4   loss years as well.    And that is part of a risk management,
 5   is to establish the risk level.
 6        MR. CRAMER:    Unlike the utility, we're not guaranteed
 7   the recovery of capital.
 8        MR. STEVENS:     On the second page of proposal number 3
 9   you state that:
10             "There is considerable difficulty in
11             understanding how the current market for
12             high-deliverability storage works because of
13             a lack of transparency or price discoverability.
14             This poses a planning challenge for gas-fired
15             generators."
16        Can you explain for me how that plan challenge is
17   different than other planning challenges faced by gas-fired
18   generators related to future commodity prices or
19   construction costs, electricity demand, et cetera?
20        MR. ROSENKRANZ:    I think the difference is is that, in
21   all of those cases that you've discussed, there are markets
22   and there are markets where there is reporting of prices.
23   Our concern is when -- in a framework where there are
24   transactions done by -- particularly when they're done by
25   public utilities at market-based rates and they're not
26   willing to share information in terms of the quantities and
27   prices under those transactions, that's withholding
28   information from the market that's useful to the efficiency
                                                                     49



 1   of the market.
 2        MR. CHARLESON:     Has APPrO considered doing price
 3   discovery through an RFP process for these services similar
 4   to what they would do for construction costs?    I assume
 5   that's how price transparency exists in construction.
 6        MR. ROSENKRANZ:     APPrO is a trade association.
 7        MR. CHARLESON:     But again, we're talking about
 8   elements of price uncertainty that APPrO members have all
 9   experienced.   And again, APPrO itself is not acquiring
10   these storage's sets.    Its members are going to be looking
11   to use it.   So again, the issue around price transparency,
12   I would suggest that the same issue exists for many other
13   costs that APPrO members will experience and they have
14   different vehicles that they would use for discovery.
15        MR. ROSENKRANZ:     Go ahead.
16        MR. KELLY:   Are you suggesting, Mr. Charleson, that if
17   an APPrO member were to submit a request for storage to
18   Enbridge or Union, Enbridge in this case, that they would
19   receive pricing information to from Enbridge and a
20   contract?
21        MR. CHARLESON:     I'm suggesting that Enbridge has had
22   to do price discovery for the storage market.    It has
23   issued an RFP and received responses from a number of
24   market participants.    So we were able to get price
25   discovery.
26        MR. ROSENKRANZ:     I think that ware looking at this as
27   something that should be not of interest just to power
28   generators but to other market participants.
                                                                    50



 1        I think we've pointed out in our evidence that that
 2   this is not a new issue, this is an issue that's been dealt
 3   with in other markets and in other markets there is
 4   reporting to a regulator of transactions that are done on
 5   a negotiated or market-based -- market basis.     There's
 6   reporting of customers.    There's reporting of prices.
 7   That's done in various ways.    Sometimes there are specific
 8   transactions, there is not identification of the specific
 9   counterparty.   Sometimes there's a specific time when that
10   reporting is done.
11        But that is the way it's done in other places.       We
12   think that should be something that would be of use in this
13   market as well.
14        MS. GIRIDHAR:    Just going back again to your
15   recommendation for a storage allocation methodology, is it
16   fair to say that your allocation methodology assumes that
17   the entire imbalance over a 24-hour period should be
18   covered off through storage?     In other words, if you were
19   looking at a combined cycle plant that has deliveries
20   arranged for 16 hours, then the amount of storage space
21   it's entitled to is based off a formula that assumes that
22   either the entire amount of gas that was arranged for
23   delivery can be injected into storage, or whatever's
24   required over and above what was arranged can be withdrawn
25   from storage.   So a storage takes the entire swing over a
26   24-hour period.    Is that accurate?
27        MR. WOLNIK:     Sorry, could you just repeat that again?
28   I didn't hear the first part of it.
                                                                   51



 1        MS. GIRIDHAR:   My understanding of your storage
 2   allocation methodology is that you're making the assumption
 3   that storage take it is entire swing within a 24-hour
 4   period between what you arranged as supply and what you
 5   consumed.
 6        MR. WOLNIK:   I think what we've done is we've come up
 7   with a methodology to kind of create an entitlement.    So
 8   generally speaking, yes.     That's right.
 9        MS. GIRIDHAR:   Okay.
10        MR. WOLNIK:   But on an operational basis, the tools
11   that we suggested here don't provide for a precise matching
12   of volumes.   For instance, late morning, when a generator
13   is coming up for the day, you know, we've only proposed
14   hourly nominations effective two hours in advance, you
15   don't have the capability of precisely matching those
16   volumes with gas coming out of storage, so from an
17   entitlement perspective, yes, but from an operational
18   perspective, no.
19        MR. ROSENKRANZ:   Also, that entitlement, that's the
20   assumption that's used to set the capacity level based on a
21   10 percent deliverability assumption.
22        MS. GIRIDHAR:   Right.
23        MR. ROSENKRANZ:   In fact, the base entitlement would
24   be at the 1.2 percent deliverability if the generator did
25   not feel that it needed to cover that level or cover all of
26   the intra-day swing under those certain circumstances
27   through storage, that would be where it would be within the
28   choice of the generator to purchase less than the
                                                                      52



 1   additional 8.8 percent of deliverability, if they feel that
 2   that's not necessary, they could do that.      But that was --
 3   you're correct, that is an assumption that was used as a
 4   foundation.
 5          MS. GIRIDHAR:   Okay.   So, turning to page 40, I think
 6   I can now make sense of a sentence you have.       3.7,
 7   APPrO proposal 6.      At the end of the second paragraph
 8   you've got a sentence that says that:
 9               "Storage should not be expected to absorb all
10               potential imbalances and consumers need to
11               have other tools."
12          So what you're referring to there is that you would
13   like to have a storage space which, at 10 percent
14   deliverability, would theoretically allow you to match your
15   entire balance, but subject to how many nomination windows
16   you have, you may not really need that much storage.
17   Something less than that is what would be effective for
18   you?
19          MR. ROSENKRANZ:   That's exactly correct.    I think it's
20   -- if there is -- if there are additional resources
21   available, that would affect the amount of actual
22   deliverability that the generator would feel they needed to
23   contract for.   That's very well is said.
24          MS. GIRIDHAR:   So there's a distinction between what
25   you view as entitlement and what you view as being
26   effective for you.
27          MR. ROSENKRANZ:   I mean, again, the entitlement
28   portion is to come up with something that's a reasonable
                                                                       53



 1   analogue to the existing recognized structure, which is
 2   that infranchise customers who are taking service on the
 3   utility need access to both the transportation portion and
 4   the storage portion that would have been in the comparable
 5   bundled service.
 6           Our concern was that the existing practice, based on
 7   the aggregate excess methodology, did not seem to be
 8   appropriate for generators.      We endeavoured to come up with
 9   a specific alternative as starting point for that.
10           MS. GIRIDHAR:    That's fair.   I was just wondering if
11   you were aware that at least for Enbridge's franchise area,
12   our bundled infranchise customers are not entitled to an
13   amount of storage that would meet their entire imbalance
14   over a 24-hour period.       We have to use other assets as
15   well.
16           MR. ROSENKRANZ:    And again, that was used as an
17   assumption to get if space, but the deliverability that's
18   part of that base entitlement is substantially less than
19   that amount.
20           MR. STEVENS:    I wanted to turn now to section 4.4,
21   which is your comments on the Enbridge proposals.
22           MR. MORAN:   Sorry, Mr. Stevens, if I may just
23   interrupt for a moment.      We have a procedural problem
24   right now because Mr. Cary has to leave at 10:15.        And I
25   guess what I would propose is, because he can't be
26   available, if people have questions that are properly put
27   to him, I think we'll have to deal with that by way of
28   undertaking but he does actually have to leave.
                                                                     54



 1        I don't know if you have any specific questions for
 2   Mr. Cary before he leaves.      We have a few minutes before he
 3   has to depart.
 4        MR. STEVENS:    Thanks, Mr. Moran.    I don't think we do.
 5        MS. SEBALJ:    I guess we should ask the same of people
 6   in the room.
 7        MR. MORAN:    Of everyone else.
 8        MS. SEBALJ:    Mr. Wightman and Mr. Thompson, to the
 9   extent that you know whether your questions would be
10   directed to Mr. Cary, are you able to identify those and
11   potentially ask him now?
12        MR. WIGHTMAN:     I just should tell you that I estimated
13   five minutes before, but with the Enbridge panel's recent
14   questions, I'm probably down to two minutes.      And I guess
15   most of mine's gone.      I can't identify, but I'd be happy
16   for an undertaking, and it wouldn't be lengthy.      There
17   would be no --
18        MS. SEBALJ:    Right.    Mr. Thompson?
19        MR. THOMPSON:     I don't know if it's Mr. Cary or
20   anybody else, so if that is Mr. Cary, I'll take an
21   undertaking even though he's gone, from counsel.      Is that
22   satisfactory?
23        MR. MORAN:    Yes.
24        MR. THOMPSON:     Thank you very much.
25        MS. SEBALJ:    And, Mr. Thompson, can I ask how long you
26   will be just so we can manage a break?
27        MR. STEVENS:    I would estimate about 15 minutes.
28        MS. SEBALJ:    Okay.    Well, let's facilitate this
                                                                     55



 1   switch, and why don't we take a break now until about
 2   10:30.    Then we'll return, finish you quickly, and then see
 3   with the next couple of folks.
 4        So let's break.     Please return by 10:30.
 5        --- Recess taken at 10:11 a.m.
 6        --- On resuming at 10:30 a.m.
 7        PRELIMINARY MATTERS:

 8        MS. SEBALJ:     Can I get everyone to take your seats,
 9   please.    I'm missing a panel and counsel.
10            Just a couple of administrative things before we get
11   back into it.
12        The Board hearing team's questions have been
13   photocopied and they're on the table just behind the
14   counsel table, behind Mr. Brown.     If you would like to see
15   a copy of those.    And those are the questions that are –-
16   are undertakings from this morning.     So APPrO Undertaking
17   No. 1.
18        I also have -- I should have done in this morning, but
19   there's what looks like some sort of pass card that was
20   left here yesterday.     It may be to your workplace, it may
21   be to a hotel room, I'm not sure.     But if anyone is missing
22   it, it's here.
23        And I'm just going to wait for Mr. Moran, and then we
24   can get started.
25            Let's resume.
26        CONTINUED CROSS-EXAMINATION BY MR. STEVENS:

27        MR. STEVENS:     Thank you.   Still at section 4.4 of your
28   evidence, where you comment on Enbridge's proposals.     In
                                                                    56



 1   the first of the second set of bullets, it says that:
 2                "The minimum service quantity ..."
 3        I'm sorry.
 4                “The minimum daily quantity required to be
 5                 eligible for service under Rate 125 is too
 6                 high.   This service does not take into
 7                 account the needs of smaller generators,
 8                 which otherwise have the same service needs."
 9        And I was hoping you could talk to me about this.
10   Other than access to service at a lower cost, what needs of
11   smaller generators would not be met through Enbridge's
12   proposed Rates 300, 315, and 316.
13        MR. ROSENKRANZ:     The APPrO position on these service
14   offerings, as we understand them at this point, is that
15   there are two different sets of offerings for the very,
16   very large and the not so very, very large.       And we're
17   looking at the services under the 125 as being something
18   that has a lot of features that make sense for generators,
19   certainly we had some comments on how they could be
20   improved.
21        I think the concern was the, in terms of the rates, I
22   think, is the fundamental issue of -- but also the services
23   have some different aspects that it seems to presuppose
24   that only a very, very large customer would want to or be
25   able to operate under the 125.     And we believe that that
26   would be something that's attractive to the smaller
27   customers.
28        And we're concerned about the particular sharp
                                                                      57



 1   difference between the rates under the two sets of
 2   proposals that could put someone who's slightly below the
 3   existing threshold, who would be, essentially, comparable
 4   to his slightly larger brother, in a situation where his
 5   cost is much higher, which we believe puts him at a
 6   competitive disadvantage.
 7          Looking at it in terms of, clearly there needs to be
 8   some sort of cut-off, we've looked at it and discussed it
 9   internally, and our recommendation is it should be
10   something more -- about half that about 300,000 m3 per
11   day.
12          MR. STEVENS:   Okay.   I was just trying to understand
13   the use of the word "needs" and making sure whether it
14   referred to anything other than the cost or price
15   differential, when you talk about the "needs of the smaller
16   generators" not being met if they can't access 125.
17          MR. ROSENKRANZ:   And I don't think we've said -- we
18   didn't mean it that way.      We meant that 125 would meet the
19   needs of generators who were large but not quite that
20   large, and would find that attractive.
21          MR. STEVENS:   And from APPrO's perspective, if a lower
22   minimum daily quantity resulted in higher deliverability
23   rates, would that be acceptable?     Or, I'm sorry, higher
24   delivery rates?
25          MR. ROSENKRANZ:   I think, going back to our basic
26   principles and recommendations, we believe that this is a
27   -- our position is that there should be a rate based on
28   transmission level service and transmission level costs.
                                                                  58



 1   And I know there was some discussion about that in the last
 2   Technical Conference about what that means, but that's our
 3   position.
 4        So that even if the threshold is lower, if those are
 5   still -- if that's still service provided through the
 6   transmission system, we don't see why the rates should go
 7   up to layer in distribution level costs for facilities that
 8   are not used to provide that service.
 9        MR. STEVENS:    Okay.   I understand.
10        You also state in section 4.4 that:
11               "Enbridge has not demonstrated that's it
12               cash-out penalties are reasonable."
13        Can you explain to me what's unreasonable about
14   Enbridge's proposed cash-out penalties?
15        MR. KELLY:     When we look at Enbridge's cash-out
16   penalties, we struggle to make the connection between the
17   level of the penalties or degree of the penalty relative to
18   the costs incurred by Enbridge, to manage the imbalance.
19        MR. STEVENS:    And can you kind of expand on what
20   particular penalties it was that you were looking at and
21   what aspects of those penalties it was that caused you
22   trouble?
23        MR. KELLY:   Well, if we look, for instance, at the
24   existing 125 rate, a generator would have to be within 2
25   percent on any given day of what it's scheduled to flow
26   relative to what it actually consumed at the facility.
27   Anything beyond that 2 percent, it would be subject to
28   penalties by Enbridge.    I believe it's -- if you
                                                                   59



 1   overconsume, you would pay 150 percent of the highest price
 2   on a given day in Niagara and if you underconsume, Enbridge
 3   will purchase your excess gas at 50 percent of the lowest
 4   price at Niagara on a given day.
 5        Those penalties, relative to the size of the volumes
 6   that we are talking about, for a gas-fired generator, those
 7   penalties can mount out and become quite excessive after a
 8   while.
 9        MR. WOLNIK:   Maybe there's one other thing to add to
10   that answer in terms of the penalties and the cashout, the
11   way they’re set up, is that that doesn't necessarily
12   represent the cost to Enbridge to provide that service.    We
13   recognize if a generator over or underconsumes there may be
14   a reaction that Enbridge needs to take.   And those
15   cash-out penalties don't seem to match the costs in all
16   cases.   There may be times of the year when it may just be
17   simple to take more gas under your TransCanada customer
18   balancing arrangement, and it doesn't necessarily, in fact,
19   cause Enbridge to go out and buy or sell more gas.    So
20   that's the disconnect.
21        MS. GIRIDHAR:   As a rule, do you view penalties, just
22   looking at the meaning of the term "penalties," is it your
23   view that they should be priced no more than -- or they
24   should be no more punitive than what you would charge if
25   people actually conformed to rules that were in place for
26   them, so the price of non-conformance should be no higher
27   than the price for a conformance?   Is that your view?
28        MR. WOLNIK:   Well, I think we'd hope that there being
                                                                    60



 1   sufficient services availability and flexible that would
 2   allow the generator to balance such that penalties wouldn't
 3   be an issue at all.    That's really where we want to get to.
 4        MS. GIRIDHAR:    And under the proposed Rate 125,
 5   where you really have a 10 percent tolerance in either
 6   direction, do you view that as insufficient?     The penalties
 7   only kick in after there's a 10 percent imbalance.
 8        MR. ROSENKRANZ:     You're hitting on a -- I mean, it's
 9   10 percent of your MCI, which might in practice be less
10   than 10 percent of your daily quantities with the way the
11   proposal has evolved.
12        MS. GIRIDHAR:    Right.   I think we mention that as a
13   rule of thumb you would use 60 percent of contract demand
14   for MCI, which would be approximately 6 percent imbalance
15   on a daily basis.    Do you view that as being restrictive?
16   That would be more than -- for example, if you had hourly
17   nominations, you would only need 4 percent to cover off one
18   hour's imbalance.    Do you view that as being restrictive?
19        MR. KELLY:     This is just the point, though.   The
20   proposed Enbridge 125 rate is admittedly a small step in
21   the right direction of what the generators are looking for.
22   But, in and of itself, it is not sufficient.    It can only
23   be of use to generators when coupled with a number of the
24   other proposals that APPrO has outlined.
25        The right to the Enbridge's 125 and the balancing
26   provisions that you've outlined in and of itself is not
27   enough.   There needs to be flexibility, not only additional
28   flexibility from the Enbridge, but from the upstream pipes
                                                                    61



 1   as well.
 2        MS. GIRIDHAR:    So you would be willing to pay a higher
 3   price for higher tolerance, in other words?   Because
 4   additional flexibility would cost.
 5        MR. ROSENKRANZ:    Perhaps I can try to answer the
 6   question because we started out with penalty provisions,
 7   and to the extent, I believe, we're still on that.
 8        I think the APPrO position is summed up with a basic
 9   principle that we have put on page 51 of 71 of our
10   evidence, with respect to penalty provisions should be only
11   as high as required to create the proper incentives.
12        So, yes, cost is one aspect.    Incentives is certainly
13   a part of the penalty provisions, and I think that was what
14   Mr. Wolnik was referring to was if the penalties are set
15   correctly, they probably shouldn't kick in, because the
16   incentive should be there.
17        But I think we also have to recognize that there may
18   be conditions under which it's unavoidable that a penalty
19   is hit, in which case it should be a penalty that has some
20   reasonable basis.    Not overly punitive.
21        MR. CRAMER:    I think the bottom line with respect to
22   the penalty issue is penalties have to go hand in
23   hand with available options to avoid them.    And that's the
24   overriding issue today, is it's very difficult to avoid
25   those penalties in these circumstances where we're reacting
26   to the real-time electricity demand.
27         So, I mean, our issue is more with respect to the
28   whack of those services being available than it is with
                                                                     62



 1   respect to whether or not the penalty should be punitive
 2   and in excess of costs.
 3           MS. GIRIDHAR:    Would you then also agree that from the
 4   utility's perspective, and I think you do agree, that
 5   penalties should be set to avoid outcomes that could have a
 6   cost that's significantly higher than just -- for example,
 7   if the cost of a system outage was in the range of $50
 8   million, then it is appropriate to have penalties in place
 9   that dissuade behaviour that could lead to a system outage.
10   Do you have difficulty with that principle?
11           MR. CRAMER:    I don't think we have difficulty with the
12   concept of penalties to provide the correct incentives, as
13   we've said before.       I mean, again, the primary issue is
14   what services are available that allow us to be in a
15   position to avoid incurring those penalties.
16           MS. GIRIDHAR:    That's fine.
17           MR. CRAMER:    And that's what we're focussed on.
18           MR. KELLY:     I think Duane has articulated it quite
19   clearly, but just to put the exclamation point on it, don't
20   not provide us with the services and then hammer us with
21   the penalties.       That's what it gets down to.
22            Provide us with the upstream services, and then we
23   might not be as concerned with the penalties.
24           MR. STEVENS:    On the second page of section 4.4, it
25   says:
26                "In its evidence to date, Enbridge has
27                suggested that Rate 125 customers may not be
28                able to take advantage of TransCanada's
                                                                     63



 1                proposed FTSN service if that service
 2                requires point to point delivery."
 3   Is your statement there, or your understanding -- does it
 4   refer to all Rate 125 customers or simply those that are
 5   embedded within the utility?
 6           MR. KELLY:   It is our understanding it would just be
 7   the generators who are embedded in the utility.
 8           MR. STEVENS:   And then the evidence continues and
 9   says:
10                "Enbridge must work to put in place arrangements
11                that will enable its customers, both
12                customers with direct connections to
13                TransCanada and customers embedded in the
14                Enbridge system, to subscribe to the
15                TransCanada FTSN service."
16           Now, how does it propose this will be done when TCPL
17   has control over the services they're willing to offer?
18           MR. KELLY:   If TCPL is willing to provide this service
19   to the customer, and the customer can really only truly --
20   the customer who may be embedded in the Enbridge franchise
21   area can only make use of the service if Enbridge complies
22   with the terms and conditions of service in its
23   agreement with the embedded customer itself, then in that
24   case we would expect that Enbridge -- or we would ask the
25   Board in that case to ensure that Enbridge would do
26   everything within its power to comply with the terms and
27   conditions of the TCPL service, so that that embedded
28   customer can avail itself of that service.
                                                                    64



 1        MR. STEVENS:    And what should the Board do in this
 2   proceeding before the TCPL services have been approved by
 3   its regulator if you're to make that request?
 4        MR. ROSENKRANZ:     This is another one where we're
 5   having a bit of difficulty because the specific question of
 6   what should the Board do is not something that the APPrO
 7   group had developed a position on beforehand.
 8        I think that, within the terms of this proceeding,
 9   certainly the Board is looking at the services that
10   Enbridge is offering and how those are consistent or not
11   consistent with the offerings of TCPL, and certainly would
12   have something to say with the way that Enbridge is
13   approaching this.    It's a little harder to say what should
14   be done with TCPL, but certainly I think our concern is
15   that there not be a difference of opinion or difference of
16   outlook between Enbridge and TransCanada that unreasonably
17   holds up coming up with a common position and procedure to
18   make this work, which only leads the customers, the losers,
19   and I think that's appropriate for the Board to look into
20   that if there are -- what would be the reasons why there
21   couldn't be -- why Enbridge and TransCanada couldn't come
22   up with a solution, if there is an inability to come to
23   common ground.
24        MR. MORAN:     I was just going to say, Mr. Stevens, from
25   a legal perspective, you know, we recognize that the NEB
26   hasn't approved the services, and we know what TCPL is
27   proposing, but always -- it's always possible the NEB might
28   not approve it or approve it in some different form.
                                                                     65



 1        So we recognize the implementation issue here.        And in
 2   terms of how that implementation issue might be dealt with,
 3   I mean, I guess that we can address that in terms of final
 4   argument and all of that.     It's not really an evidentiary
 5   issue as much as a --
 6        MR. STEVENS:    That's fair.    I was following up on
 7   Mr. Kelly's comment that he would be asking the Board to
 8   make Enbridge's -- ensure that Enbridge's services
 9   conformed to TCPL's service.     There's a bit of a chicken
10   and egg problem.
11        MR. MORAN:     Right.   I just wanted to make sure.
12        MR. CRAMER:    I think the issue can actually be stated
13   more generically.    I mean, our ultimate objective is for as
14   many services to be out there as possible in the gas
15   markets for us to be able to do the job that we need to do.
16        And our ultimate concern is that an LDC not become an
17   impediment to the availability of those services to a
18   customer that's embedded in its system.
19        And I think it's in the utility's interest to do
20   whatever it can to facilitate, because otherwise you're
21   just setting the stage for people avoiding being LDC
22   customers.
23        So I think, I mean, FT-SN is one example, but there
24   could well be other examples that come up down the road of
25   a service that becomes available that has a lot of value to
26   us that we want to be able to access if we're embedded in
27   the utility.   And I think ultimately what we would look to
28   the Board for is direction to the utilities to use its best
                                                                    66



 1   efforts to deliver those services to its end-use customers.
 2        MR. STEVENS:    Again, at section 4.4 you talk about
 3   enhanced title transfer.    And you say that:
 4                “APPrO proposes that title transfers be
 5                allowed at other points in addition to Dawn."
 6        I heard you say this morning that Parkway was another
 7   point where you were looking to be able to effect title
 8   transfers.    Is there anywhere else that APPrO has in mind?
 9        MR. ROSENKRANZ:     We didn't have any specific
10   recommendations.    I think this is just a general theme of
11   our evidence that, when services are offered, they should
12   be offered in such a way that is as generic and expansive
13   as reasonably possible, as opposed to coming up with very
14   point-specific or situation-specific services.
15        MR. STEVENS:    And do you have any opinion or view as
16   to how the rates would be determined for other points,
17   other than Dawn?    Enbridge has set out a way that a rate
18   might be determined for Dawn.
19        MR. ROSENKRANZ:     And I think that that was somewhat
20   problematic for certain bundled type service.    I think it
21   was more straightforward as an administrative issue for
22   other types of services.
23        We did not delve into that.     Again, we're stating a
24   more general principle and that's as helpful as I can be on
25   that point.
26        MR. STEVENS:    Steve that's fair.   I just want to ask
27   you a little bit more.    You'll be pleased to hear that this
28   is the last little section -- about your storage allocation
                                                                    67



 1   proposal.
 2        It's fair to say, is it not, that it will result in
 3   the need for Enbridge to acquire additional storage,
 4   whether through your proposal or just to serve the needs of
 5   gas-fired generators?
 6        MR. WOLNIK:    Yeah, I think that's fair.   Yes.
 7        MR. STEVENS:     And I think yesterday, if I heard you
 8   right when you were talking with Ms. Campbell, one of the
 9   options when you were talking about allocation of storage,
10   and you were suggesting that there is enough storage
11   available somewhere or other, one of the options that you
12   put forth was that Enbridge could obtain storage from
13   outside of Ontario?    Do I remember that right?
14        MR. ROSENKRANZ:     That was a suggestion, yes.
15        MR. STEVENS:     Can you just talk to me a little bit
16   about that and provide me with some details of what
17   Enbridge might do, where it might get storage?
18        MR. ROSENKRANZ:     I think that that is a general
19   statement in response to evidence on the storage issue.
20   You're talking about all the storage that's available.       The
21   APPrO observation is that it may, in the current
22   environment, be easier for a large wholesale company such
23   as Enbridge to avail themselves of services outside of
24   Ontario and then bring those in and create -- use those for
25   their own infranchise services, than for the customers
26   themselves to get access to those services and try to bring
27   them into Ontario and use them in a way that's comparable
28   to the infranchise services that are available from Union
                                                                     68



 1   and Enbridge is.
 2        MS. GIRIDHAR:     Just going back to your entitlement
 3   methodology for storage.    The underlying principle, as I
 4   understand it, is that if an end-user has a profile that's
 5   different from traditional storage, that they should be
 6   entitled to an allocation methodology that recognizes their
 7   uniqueness; is that fair?
 8        MR. WOLNIK:   Sorry, just lost that little bit because
 9   of the air conditioner.    Can you repeat that?
10        MS. GIRIDHAR:     I can never remember what I say.   To
11   paraphrase, I think I said that as a general principle, you
12   believe that if an end-user has a profile that's different
13   from traditional storage that they should be entitled to a
14   methodology that recognizes their uniqueness?
15        MR. WOLNIK:   Different than other existing customers,
16   is that what you meant?
17        MS. GIRIDHAR:     That's right.
18        MR. WOLNIK:   Yeah, I think generators have some unique
19   needs here that we've tried to come up with an allocation
20   methodology to reflect those needs.
21        MS. GIRIDHAR:     So in terms of other customers, if we
22   had an industrial customer with Chad, a load profile from
23   the heating profile, which is what storage is predominantly
24   used for, that they should also be entitled to some
25   methodology that will allow them to storage, to what they
26   state their need is.
27        MR. ROSENKRANZ:     That does sound like something that,
28   if another customer group made a demonstration that the
                                                                      69



 1   methodology that's available to them today is not
 2   reasonable, does not meet their needs, that they should be
 3   able to also come forward with a proposal.     I don't think
 4   we would foreclose that, consistent with our approach.
 5        MR. STEVENS:    Great and thanks very much.    I’ll get to
 6   the one undertaking which we'll discuss with Mr. Moran
 7   off-line, those are our questions.
 8        MS. SEBALJ:    Thank you, Mr. Stevens.
 9        Mr. Wightman?
10        CROSS-EXAMINATION BY MR. WIGHTMAN:

11        MR. WIGHTMAN:    Thank you.   I believe this will be very
12   brief.   I've got about three questions.
13        Can you tell me if there is any scenario under which
14   it would be possible under a CES contract that it would be
15   in the interest of a generator to not run when they could
16   run, and instead sell the commodity that they'd be burning
17   had they run?
18        MR. CRAMER:     Yes.
19        MR. WIGHTMAN:    Okay.   Thank you.   From my experience,
20   most customers would prefer to balance less often than the
21   utility requires.
22        For example, at rate proceedings where utilities
23   suggest more than annual balancing, usually there's a
24   fight.
25        Now, I really don't understand why if Union says, You
26   didn't have to balance hourly under a T1, don't worry about
27   it, you say:    We want to balance hourly.    And maybe in very
28   simple language you can tell me why, when you could be in
                                                                      70



 1   balance for the purpose of T1 contract by balancing daily,
 2   you --
 3        MR. CRAMER:    We haven't said that we're willing to
 4   balance hourly.
 5        MR. WIGHTMAN:    Okay.
 6        MR. ROSENKRANZ:    I think, to be clear on our position,
 7   our position is that the utility’s services should continue
 8   to be daily balancing; however, to be able to meet a daily
 9   balancing target, given the variability of our operations,
10   we need to have hourly control or intra-day control up to
11   hourly, for the splice coming in, to meet that target.
12        So it's --
13        MR. WIGHTMAN:    And I'm just wondering if you could
14   speak to any assumptions that the gas-fired generators made
15   when bidding for the CES contract with respect to rates and
16   conditions for the purposes of making their bids?    Can you
17   speak to whether they assumed it was existing rates and
18   conditions or what you thought you might get?
19        MR. MORAN:    I don't think the panel can really speak
20   to that.    The negotiations were done on an individual
21   basis.
22        MR. WIGHTMAN:    Okay.   And just one last question.   If
23   you had a hundred units of storage, at 1.2 percent
24   deliverability, you could take out 1.2 units a day;
25   correct?
26        MR. WOLNIK:    Subject to ratchets and what-not, yes.
27        MR. WIGHTMAN:    Yeah, subject to the 25 or 75 or
28   whatever.
                                                                        71



 1          MR. WOLNIK:     Yeah, subject to the 25 or 75 or
 2   whatever.   I guess it would be the 25 if you were taking it
 3   out.
 4          And if you wanted to take out 2.4 per day, would you
 5   agree that you could either have a hundred units of storage
 6   with higher deliverability, 2.4 percent, or contract for
 7   200 units of storage at 1.2 percent deliverability?
 8          MR. WOLNIK:   Potentially that's an option.     You would
 9   also need to have higher working inventory in the facility
10   itself.
11          MR. WIGHTMAN:    Yes.
12          MR. WOLNIK:   Correct.
13          MR. WIGHTMAN:    Do you have any idea finally -- this is
14   just a follow-up -- which would be cheaper for the utility
15   to provide customers with, a hundred units of 2.4 percent
16   deliverability, or 200 units of 1.2 percent deliverability,
17   and should that matter, in your view?
18          MR. ROSENKRANZ:    I think that our position is
19   that both should be available, because it's going to
20   depend.   I don't think that we can say at any particular
21   point in time which is going to be cheaper, which is why
22   we're saying an allocation of 1.2 percent deliverability,
23   and then the ability to add costs at an incremental cost
24   based rate.
25          MR. WIGHTMAN:    Okay.   Thank you.   And just to
26   follow up, when I said should it matter, I meant for the
27   purposes of the Board determining.      In your view, should it
28   be a consideration what would be more economical for the
                                                                     72



 1   utility to provide?
 2        MR. CRAMER:   Well, first of all, with respect to the
 3   option of increasing the deliverability versus buying more
 4   volume, we've stated that we would pay the incremental cost
 5   of providing that additional deliverability.     So from the
 6   utility's standpoint, they should be indifferent, and what
 7   we're suggesting is that the decision as to which storage
 8   gets developed should be driven by the customer
 9   requirements
10        MR. WIGHTMAN:    Okay.   Thank you.   Those are my
11   questions.
12        MS. SEBALJ:   Thank you, Mr. Wightman.     Mr. Thompson.
13        CROSS-EXAMINATION BY MR. THOMPSON:

14        MR. THOMPSON:    Gentlemen, I represent the Industrial
15   Gas Users Association.   Out of the five topic areas I just
16   want to touch on this morning -- if I might I'll just give
17   them to you quickly -- guiding principles, which you've
18   discussed; risks; your storage proposition; timing
19   questions; and finally a process question or two.
20        It's probably easiest to have your slide presentation
21   available rather than the body of your evidence for these
22   questions.   Some of these topics have been touched on by
23   previous questioners.
24        In your slide presentation at page 2, and I think a
25   little later on at pages 5 and following, you touch on the
26   guiding principles that motivated these proposals that
27   APPrO advances.
28        And I took them to be:     To enhance the efficiency of
                                                                      73



 1   the gas marketplace and enhance the reliability of the
 2   electricity system.
 3        Did I understand those principles correctly?
 4        MR. KELLY:    That's correct.
 5        MR. THOMPSON:    And I'd like to, if I could, get some
 6   explanation, a little more beef on what you mean by
 7   "enhance the efficiency of the gas marketplace."    Could you
 8   help me with that?
 9        MR. ROSENKRANZ:     I think that has to do with -- there
10   are a number of different aspects to that.    I think that
11   we've talked a lot about making certain that the services
12   that are needed are available and accessible.
13        MR. THOMPSON:    Okay.
14        MR. ROSENKRANZ:     There's -- I could go on a little
15   longer but --
16        MR. THOMPSON:    Does that capture it?
17        MR. ROSENKRANZ:     That's, again, one aspect to it.    I
18   think we talked a lot about, particularly, enhancing the
19   operations of the intra-day market, and we see that
20   specific things that are -- a lot of the proposals that
21   we have here.   Working together, we believe, will make that
22   wholesale level market, particularly at the Dawn hub,
23   operate better and give us more access to the services we
24   need to balance our requirements.
25        MR. CRAMER:     Not only to us, but to all purchasers of
26   gas in this market.
27        MR. THOMPSON:    All right.   And if that Nirvana is
28   achieved, then you'll have the reliability for the
                                                                   74



 1   electricity market that you're looking for.      Is that right?
 2         MR. ROSENKRANZ:    I think we will have more tools in
 3   the toolbox, and we will still have the effort to use those
 4   tools as best we can to achieve the best reliability.
 5         MR. THOMPSON:   Okay.   So would it be fair for me to
 6   encapsulate what you're driving at by saying -- I'm trying
 7   to paraphrase what you folks are advocating.     And my
 8   suggestion is, it sounds like this.
 9         The gas market will be efficient when it can give gas
10   generators all the gas they need but only when they want
11   it.
12         Is that the guiding principle?
13         MR. ROSENKRANZ:    I'm not sure -- I don't think that
14   accurately encapsulates --
15         MR. KELLY:   No.
16         MR. ROSENKRANZ:    -- what we're saying.
17         MR. THOMPSON:   So what have I missed?
18         MR. ROSENKRANZ:    I think that you've missed a
19   number of basic principles here.    I think it's the
20   principle of, if we're going to have responsibilities to
21   operate in this marketplace, we need to have the ability to
22   do so.   I think it's important, and I hope that that's come
23   across in our evidence and our presentation here that we
24   are not looking for special entitlements or access to gas
25   whenever we want it type of thing.
26         We understand that we have responsibilities to plan
27   ahead to get the services that we need, and to manage our
28   gas supplies very actively to do the best we can to
                                                                        75



 1   operate our plants.
 2        MR. CRAMER:    I would suggest that if there's a demand
 3   out there that the system is capable of satisfying but is
 4   unable to because of, you know, regulatory or, you know,
 5   tariff constraints on the system, that, you know, by
 6   definition there's an inefficiency that is harming all
 7   users of that system as well as the markets that, you know,
 8   plants like ours are serving.
 9        MR. THOMPSON:    Oh, yeah.    Well, just to follow up on
10   That, Mr. Cramer.     In terms of where APPrO members are
11   going to access all the gas they need for these current and
12   prospective co-generator or generation plants, does APPrO
13   have a position on the long-term supply of gas, and if so,
14   can you tell us what it is, and whether there's something
15   published, and if there is, produce it?
16        MR. ROSENKRANZ:    No, we're not aware of APPrO taking a
17   position on that issue.
18        MR. THOMPSON:    All right.   Now, in terms of guiding
19   principles, I wanted to just check whether your guiding
20   principles embrace the guiding principles that IGUA
21   espouses.   And I thought I heard you say yesterday this
22   they did.   But let me just quickly check to see if they do.
23        IGUA has -- you don't need to turn this up.      I mean,
24   people will have this by their bedside.      It's the IGUA
25   AMPCO reference [Laughter].    And I'll just give you the
26   three guiding principles that IGUA and AMPCO rely on.        And
27   one is that the issues that the Board has listed for
28   determination in these proceedings -- this is in paragraph
                                                                     76



 1   25, at page 11 of the IGUA material if you need a reference
 2   -- that the decisions with respect to these issues, first
 3   of all:
 4                “... do not operate to reduce the access of
 5                existing customers to storage and balancing
 6                services."
 7        Do your guiding principles embrace that principle and
 8   agree with it?
 9        MR. ROSENKRANZ:      Yes, that I believe in terms of
10   access to storage and balancing services, one of our basic
11   principles is that the additional services that -- first of
12   all, that at least the existing level of services for
13   storage and balancing should be -- continue to be
14   available.    And that additional services that are made
15   available to power generators that we have identified as
16   being needed should also be made available to other
17   end-users of natural gas, such as IGUA members.
18        MR. THOMPSON:    The second is that:
19                “The decisions with respect to these issues do
20                not result in any material increases in the cost
21                of delivery services to existing customers."
22        Do your guiding principles embrace and countenance
23   that guiding principle?
24        MR. ROSENKRANZ:      To the fullest extent possible, we
25   have tried to craft proposals that do not have adverse
26   effects on existing customers.
27        MR. THOMPSON:    Right.
28        MR. ROSENKRANZ:      And a large part of that has to do
                                                                     77



 1   with the fact that APPrO members are also existing
 2   customers on these utility systems.
 3        MR. THOMPSON:    Understood.
 4        And the last one is that:
 5             "The decisions with respect to these issues
 6             do not increase the extent to which existing
 7             interruptible customers are curtailed."
 8        Do the APPrO guiding principles embrace and
 9   countenance that guiding principle?
10        MR. ROSENKRANZ:     The APPrO members have wrestled with
11   that particular issue.    We are concerned with having access
12   to the services that are needed.     We are supportive of an
13   environment in which people are able to contract for the
14   services they need and receive the level of service that
15   they've contracted for.    I'm not sure if that's consistent
16   or inconsistent with what IGUA is looking for.
17        MR. THOMPSON:    Well, let me read it again.   We take
18   the position that:
19             "Any decision should not increase the extent
20             to which existing interruptible customers."
21        I'm talking about on Enbridge's and Union's system,
22   the Ontario system:    "... are being curtailed."
23        Do you know if your proposals embrace and countenance
24   that objective or not?
25        MR. ROSENKRANZ:     No, they do not embrace that.   That's
26   not one of our guiding principles.
27        MR. THOMPSON:    So two out of three you're with, and
28   the third one you disagree with?
                                                                    78



 1        MR. ROSENKRANZ:    I wouldn't say we disagree with it; I
 2   would say that it's not one of our principles, and as I as
 3   I said, we've given some thought to that particular issue,
 4   and one of our guiding principles is that we tried to come
 5   up with proposals that minimize the impact on the impact on
 6   customers.   In terms of the effect of our various proposals
 7   on interruptible services, we don't necessarily have the
 8   information to judge that.    We're expecting that, by and
 9   large, the addition of new loads that new power generators
10   would represent and the new services for them would involve
11   the construction of additional facilities to provide those
12   services.
13        That may, well, increase the availability, to the
14   extent -- of the capacity for interruptible service to the
15   extent that facilities are built for power generation loads
16   and the service, that capacity is not being used 100
17   percent of the time.    We don't have the information to know
18   exactly what the impact would be.
19        MR. THOMPSON:     All right.   Thank you.   And just before
20   I move on to the next topic here about risks, I want to
21   understand, make sure I understand APPrO's position on what
22   the Board should do if it finds your proposals have the
23   effect of increasing rates to existing customers or
24   affecting their access.    In other words, they have the
25   effect of not complying with the first two guiding
26   principles that IGUA espouses.
27        Do you understand where I'm going to?
28        MR. MORAN:   Mr. Thompson, are you asking what APPrO's
                                                                    79



 1   reaction would be to a Board decision at the end of this
 2   proceeding?
 3        MR. THOMPSON:   No.   If, for example -- let me do this
 4   by way of example, you wanted your proposals.   I'm looking
 5   at page 8 of your slides, item 8:
 6             "Union should eliminate the obligated DCQ
 7             requirement for all customers."
 8        Do you see that?
 9        MR. ROSENKRANZ:    Yes.
10        MR. THOMPSON:   And just assume that that's going to
11   cost $200 million.   And that's going to be spread across
12   all customers.
13        Does APPrO agree, then, that if that's what the Board
14   finds, that it should reject that proposal?
15        MR. ROSENKRANZ:    I don't think that your -- I'm
16   concerned the question doesn't have sufficient information
17   to give you a straight yes or no, yes or no answer, in
18   terms of what the Board should do.
19        Certainly the intent of that statement of "eliminate
20   the obligated DCQ requirement," we recognize that there are
21   implementation issues, and we have not said how that should
22   be done, necessarily.   We've looked at a particular concern
23   we have relative to the delivery of gas to the utility on
24   days when the power generators aren't operating, in terms
25   of how the transition to out-of-obligated DCQ for all
26   customers would be done, and how those costs, to the extent
27   there are costs, would be dealt with.
28        We're open to looking at that.   And again, it's -- our
                                                                   80



 1   guiding principle is not that power generators are here
 2   looking for a free lunch or to force other people to buy us
 3   lunch.
 4        MR. THOMPSON:   All right.    One other example, if we
 5   just go back to your slide, page 6, item 3.    You're talking
 6   about storage there, and then that gets discussed further
 7   on at slide pages 9 and 10, where you talk about
 8   high-deliverability storage.
 9        And just on that subject, we've heard from Enbridge
10   that capital costs of providing that service might be as
11   much as $35 million I think their latest evidence
12   indicates.
13        Do I understand APPrO to be saying power generators
14   will pick up that cost?
15        MR. ROSENKRANZ:     Our position is that to the extent
16   that there are projects that increase deliverability, that
17   those costs be identified and that those be -- that higher
18   deliverability -- additional deliverability service,
19   whether it come from storage or whatever capital projects
20   that that may be involved with be developed into a
21   cost-based rate, based on the incremental costs, that those
22   additional costs should not be rolled into the existing
23   standard service rates; they should be available.
24        In terms of who contracts for them and who pays for
25   them, it would be paid for by the parties who choose to
26   contract for them.
27        MR. THOMPSON:   Thank you.    Let's move on to the second
28   topic, which is risks.    And again, the IGUA bible has a
                                                                  81



 1   discussion about risks in its evidence.    And again, you
 2   don't need to turn this up, but if you want a reference,
 3   it's at pages 10 and 11, in paragraph 24 it talks about the
 4   size of power generators, and the demands that they can
 5   impose on a system, and that those demands can test the
 6   capability of any system.
 7        But one of the risks that's mentioned there, and
 8   Mr. Wightman touched on this and some other questioners did
 9   as well, is what we call the increased risk of arbitrage
10   opportunities.
11        Now, first of all, does that risk exist with power
12   generators?    There’s so much gas, they need so much gas,
13   and as Mr. Cramer mentioned a few moments ago, you’re big
14   players in both markets, gas and electricity.
15        MR. CRAMER:    I would not characterize arbitrage as
16   being a risk.    I would characterize arbitrage as being a
17   means to mitigate risk, and it's a means that's available
18   to all consumers of gas in Ontario.
19        MR. THOMPSON:    All right.   Well, maybe I didn't phrase
20   it properly.    Arbitrage increases the risk of volatility in
21   the gas markets and electricity markets.    Is that a
22   statement that APPrO embraces?
23        MR. ROSENKRANZ:    Absolutely not.   I think that
24   arbitrage is no more than the reaction to market price
25   signals, and to the extent the market is saying that gas is
26   more -- has higher value as gas than as electricity, by
27   power plants' reacting to that and saying that it's not
28   profitable for me to run, if I had gas purchased I should
                                                                     82



 1   resell that gas on the market, that's actually reducing the
 2   volatility in the gas market by making more gas available
 3   at a time when the gas price may be running up.
 4        MR. KELLY:     It is no different, sir, than any of your
 5   membership who has a widget factory somewhere.    When
 6   the price of gas takes off, he does his own economic
 7   analysis to determine whether or not he produces widgets or
 8   sells his gas.
 9        MR. THOMPSON:    That may be so, but if all these
10   generators are out there, we think that it's increasing
11   volatility risks.    But I'll move on.   I don't want to argue
12   this case yet.
13        In terms of your ability to pass through whatever
14   costs you pay for gas in your electricity price, there's
15   been some discussion about these CES contracts, and I think
16   that was the witness who left who may have discussing those
17   contracts, and they're mentioned in your pre-filed at, I
18   think it's at -- where is it.     On page 19.
19        Is it possible to have a CES contract filed in this
20   case so we can look at the terms?
21        MR. MORAN:     The standard contract is available on the
22   OPA website, and I suppose we can produce a copy if you
23   want to kill a large number of trees.
24        MR. ROSENKRANZ:     We could produce the link.
25        MR. MORAN:     Or we could produce the link, which would
26   be more efficient, perhaps.
27        MR. THOMPSON:    Fine.   If you wouldn't mind doing that.
28   And does that contain these clauses that are being
                                                                       83



 1   discussed about the gas purchase price and --
 2         MR. KELLY:    Yes.
 3         MR. THOMPSON:    -- the bells and whistles that go with
 4   it?
 5         MR. CRAMER:   The generic terms are there.      What
 6   wouldn't be there would be the specific contract vales for
 7   heat rate and O&M rate, that type of thing, that would
 8   govern the imputed dispatch.
 9         MR. MORAN:    So we'll produce the link.
10         MR. THOMPSON:    Thank you.   So that's an undertaking to
11   provide the link.
12         MS. SEBALJ:   Yes.   APPrO Undertaking No. 6.
13         AAPrO UNDERTAKING NO. 6:      TO PRODUCE LINK TO STANDARD
14         CONTRACT

15         MR. THOMPSON:    And just another point on
16   procurement contracts.     In the IGUA evidence, mention is
17   made of the proceeding that the Board has jurisdiction
18   concerning the OPA's procurement practices.        Is the APPrO
19   panel familiar with that pending proceeding?
20         MR. KELLY:    Could you specify, sir, which proceeding
21   you're referring to?
22         MR. MORAN:    Mr. Thompson, I'm not sure that these
23   witnesses know about that.     My understanding is that the
24   OPA procurement policies haven't been filed yet with the
25   Board.   There is an obligation for them to file those with
26   the Board for Board approval, but I'm not sure if these
27   witnesses would have knowledge of that.
28         MR. THOMPSON:    All right.   That's fine.    My real
                                                                      84



 1   question is will there be in more procurement before that
 2   proceeding has been resolved, procurement by the OPA?
 3        MR. CRAMER:   You would have to direct your question to
 4   the Minister of Energy, because right now the OPA's
 5   procurement is directed by the Ministry.      There's
 6   procurements ongoing.    There's indications that there will
 7   be follow-on procurements, but they're completely subject
 8   to directives from the Ministry of Energy.
 9        MR. MORAN:    And the OPA is maintaining a procurement
10   website that is accessible.
11        MR. THOMPSON:     Thanks.   Let me just move on, then, to
12   my third topic, which is the storage piece, and you've
13   answered a lot of questions on this already.     This is
14   the allocation that's presented in your slide starting at
15   pages 11 and following.
16        Is this storage allocation producing a result
17   that's different than what would result under the current
18   method supplied by Enbridge and Union?     I think it is, but
19   does the panel know?
20        MR. ROSENKRANZ:     Yes, we believe it would – we’ve come
21   up with a different result that would be based on the
22   particular parameters of concern to the generator.
23        MR. THOMPSON:     And you were asked a lot of questions
24   about where do you get it if storage isn't available.      And
25   I understood you to say well, there are other options out
26   there, and I guess one of them is peaking supplies.     Is
27   that one of them you had in mind when you gave that answer
28   this morning?
                                                                    85



 1        MR. ROSENKRANZ:     I'm not sure peaking supplies was one
 2   of our answers.    I think that was one of the utilities
 3   providing an answer with respect to the various ways in
 4   which they can make deliverability available.
 5        MR. THOMPSON:     So what were the obligations you had in
 6   mind when you gave that answer, options to actual storage
 7   space?
 8        MR. ROSENKRANZ:     I think we were looking at a fuller
 9   -- full range -- or, excuse me, I started speaking before I
10   listened to your whole answer.
11            In terms of storage space or deliverability?    I
12   think you said --
13        MR. THOMPSON:     Well, both, I guess.
14        MR. ROSENKRANZ:     Okay.
15        MR. THOMPSON:     I might have misunderstood you.    I
16   thought you were identifying options to storage space and
17   deliverability which weren't storage space and
18   deliverability, but I may be wrong.    I'd just like to have
19   you explain to me what it was you were talking about.
20        MR. ROSENKRANZ:     Well, thank you for giving us the
21   opportunity to clarify.
22        I think what we were trying to say with our comments
23   this morning was that, with respect to storage space and
24   deliverability but in particular with respect to
25   deliverability, that short-term deliverability can be
26   provided through means other than just taking gas, putting
27   gas in the ground and taking gas out of the ground at a
28   particular rate.    It's related to the design of all the
                                                                       86



 1   utility facilities that you can control line pack through
 2   compression, through the design of      the physical facilities
 3   to add that short-term flexibility at different locations
 4   than actually the storage field itself.
 5           MR. THOMPSON:   Okay.   Thank you for clarifying that
 6   for me.
 7           Now, the last two topics really are sort of one.     In
 8   the IGUA and AMPCO material -- yes, it's at page 15 and
 9   16, in paragraph 39.      What IGUA and AMPCO suggest is that:
10                “The Board should proceed cautiously when
11                 considering any changes designed to address
12                 the need of gas-fired generators."
13           And it suggests that focus should be brought to bear
14   on the plants that are needing these services in the near
15   term.
16           Does APPrO have any adverse reaction to that approach?
17           MR. ROSENKRANZ:   I believe this is one area where
18   we're on the extreme opposite end of the spectrum.       We're
19   concerned that these services be defined and made available
20   as soon as possible so that this information is available
21   to the generators that are currently under development and
22   the parties that are looking to develop new services and
23   bid into these procurement processes, so that they know how
24   they're going to be able to manage the gas supply and they
25   can put those -- use that to develop their cost estimates
26   in terms of bidding on what it's going to take for them
27   able to operate in this market.
28           MR. THOMPSON:   Thank you for that.   It's nice to know
                                                                  87



 1   the case we have to meet.
 2        And my last question deals with process.   And we are
 3   heading into a settlement conference.   I think it starts on
 4   the 29th of May.   One of the objectives is to try and
 5   settle rates for generators.
 6        And what I'd like you folks to do by way of
 7   undertaking, if you wouldn't mind, is try and give us a
 8   template document before we get into that conference that
 9   will help people focus on the issues.
10        And so what I'd like to do is just share this idea
11   with you and see if you can undertake to produce a
12   spreadsheet along these lines.
13        First of all, would you agree -- for the purposes of
14   that settlement conference we have to assume, make
15   assumptions, about what's available upstream?   We're not
16   dealing in the settlement conference with the
17   appropriateness of TransCanada's proposals, for example.
18   Do you agree with that?   That there has to be some
19   description of the assumptions as to what's going to be
20   available upstream before you can examine what you're
21   asking for, what the others have proposed, and the
22   deficiencies.
23        MR. MORAN:    Mr. Thompson, TransCanada Pipelines has
24   filed evidence in this proceeding.    They are a party to
25   this proceeding.   And, subject to correction, I suspect
26   they will be at the settlement conference.   So I'm not
27   quite sure if I understand what you're asking the panel.
28        MR. THOMPSON:   Well, I was asking APPrO to make an
                                                                     88



 1   assumption in this case.      Did APPrO, representing the
 2   power generators who were seeking rates and were supposed
 3   to try and settle the issue -- I was asking you to state,
 4   if you wouldn't mind, the assumption you're making about
 5   what's going to be available upstream.
 6        That's sort of box 1 of my little spreadsheet.     Can
 7   you undertake to do that?
 8        MR. ROSENKRANZ:    I think that our perspective on
 9   things is that we're not starting with assumptions of
10   what's –- if you're looking at the services that are
11   offered by Enbridge and Union, and saying:      How does that
12   fit in with what's outside Enbridge and Union, what our
13   objective is is to come up with as much flexibility in the
14   services that Enbridge and Union are offering so that,
15   whatever happens outside of Enbridge and Union, that the
16   market operates more efficiently.     And in particular, we
17   believe that the recommendations we're making, the
18   proposals we're making, specifically the ones that will
19   increase the flexibility of the Dawn hub, in terms of
20   things like intra-day markets, will actually increase the
21   services that are available from outside; that that will be
22   a catalyst, because the --
23        MR. THOMPSON:   Okay.   Forget my first box.
24        The second --
25        MR. ROSENKRANZ:    I'm off the soapbox.   Thank you.
26        MR. THOMPSON:     That's fine.   No, it's helpful to
27   understand what you're saying there, and I think it
28   eliminates the need for the first box.
                                                                      89



 1        But the second category is there are sort of columns
 2   as I see it.    We've got the power generators' proposals.
 3   Then you've got EGD's response, and you've got Union's
 4   response.    And then it would be helpful to know, from the
 5   power generators, what's missing, what's inadequate.
 6        And so, if you can produce a sort of a going-in
 7   spreadsheet to help parties focus on the issues that have
 8   to be addressed in the settlement conference, it would be
 9   helpful.    And so that's what I'm asking APPrO to consider.
10        MR. MORAN:    I guess we're prepared to consider it.
11        MS. SEBALJ:    If I can just add.    Given that the Board
12   support team would have gone next in terms of the few
13   questions that we do have, I was going to make a similar
14   request.    Understanding that it's fairly administrative in
15   nature, I know that your evidence is in your evidence.      But
16   for the purpose of facilitating settlement, I think it
17   would be good to have something along those lines.
18        So I don't want to -- I just wanted to interject now
19   rather than having to deal with it in five minutes.
20        MR. MORAN:    I mean, we have to, obviously, consider
21   what we're going to do in the settlement conference, as
22   does everybody, so we'll absolutely consider it.     I think
23   it may actually be a helpful suggestion.
24        MS. SEBALJ:    Thanks.
25        MR. THOMPSON:    Thank you, panel.   Those are my
26   questions.
27        MS. SEBALJ:    Thank you, Mr. Thompson.    I think that
28   you're almost off the hook but not quite.      We do have just
                                                                   90



 1   a couple of questions.
 2        I have a couple, and then I believe Mr. Man also does.
 3        CROSS-EXAMINATION BY MS. SEBALJ:

 4        MS. SEBALJ:    And my first question relates to your
 5   recommendation, your proposal 11, which is the
 6   recommendation for ongoing review.   I just wanted to get a
 7   better idea.   You do indicate 2008 as a parameter, but did
 8   you have -- did the APPrO members have anything particular
 9   in mind as to how -- I don't think we would want NGEIR 2,
10   so I'd like to get an idea of what your thoughts were when
11   you wrote this proposal.
12        MR. KELLY:    I think what we're looking for as an
13   opportunity to revisit here is that we are -- that there
14   are a number of moving parts taking place right now with
15   regards to proposed IESO market rule changes, a lot of
16   uncertainties towards where a lot of these gas services may
17   go, how much gas-fired generation is actually going to be
18   on-line.
19        And down the road, it would be 2008, 2009, whatever
20   the case may B you're actually going to have generators
21   with some real world, more real-world experiences as to how
22   this is going to be played out, and an opportunity to
23   revisit these issues and to determine whether -- what was
24   landed upon in this process is actually working for the
25   benefit of gas-fired generators and other gas users across
26   the province would be a worthy endeavour.
27        In the scope of the proceeding, I haven't really given
28   any thought to that.   But we do feel it's probably worthy
                                                                  91



 1   of revisiting the process, revisiting the results of NGEIR,
 2   we'll call it NGEIR 1 for the time being.
 3        MR. MORAN:    May I just add a legal context to that.
 4        Rather than reviewing generator or rates for
 5   generators and other customers as it may be applicable
 6   separately on these issues, in Enbridge rate proceedings
 7   and Union rate proceedings, the thinking was, a more
 8   co-ordinated review at some point in the future.
 9        MS. SEBALJ:   Thank you.
10        My second question relates to your proposal number 3,
11   which is high-deliverability storage service.     But in
12   particular, on page 32 of 71, and I believe I think, Mr.
13   Stevens, if I'm not mistaken, brought you to this.
14        But your statement in the second-last paragraph on
15   page 32:
16              "There is considerable difficulty in
17              understanding how the current market for
18              higher deliverability storage works because
19              of a lack of transparency or price
20              discoveribility."
21        And I believe you gave Mr. Stevens an answer, but
22   again, I'm going to press you to tell me what exactly it is
23   that you're looking for in terms of transparency.
24        MR. ROSENKRANZ:    The recommendation is specific to
25   increased reporting requirements for utilities, to the
26   extent that they're doing transactions that are not at the
27   tariff rate, that there be reporting as is done with FERC
28   jurisdictional companies in the US where they post on
                                                                       92



 1   their website every negotiated rate transaction and -- or
 2   be -- there are various means of reporting.    Discount
 3   transactions are reported on the website.     There is
 4   reporting with the commission of negotiated rate
 5   transactions.    Those transactions become -- that
 6   information becomes available to the market, so that that
 7   information can be used by other market participants.
 8        One, for price information purposes, to understand
 9   what the pricing is.    It also has an aspect of ensuring
10   that there's enough transparency so that there are less
11   concerns about discriminatory treatment or whatever.       It's
12   got a policing aspect to it as well.    But we see that as
13   being an accepted practice that has value and should be
14   considered here.
15        MS. SEBALJ:   So you're not advising any particular
16   methodology right now?    What I heard there would be Board
17   reporting equivalent to Commission reporting in the US,
18   plus some sort of public Web-based or otherwise public
19   reporting?
20        MR. ROSENKRANZ:     We did not get to the point of coming
21   up with a specific recommendation other than that.       That
22   sums it up very well.
23        MS. SEBALJ:   My third question relates to the same
24   request that Mr. Thompson made, and frankly, going back to
25   his first box.   And I understand that your feeling is that
26   -- I think, and correct me if I am wrong in reiterating --
27   that you're more concerned about getting maximum
28   flexibility in the Enbridge and Union services so that they
                                                                      93



 1   can accommodate whatever happens upstream.
 2            But I'm wondering whether it's possible, rather than
 3   making one assumption, to do some sort of sensitivity
 4   analysis, perhaps in co-operation with TCPL, to try and
 5   determine if their proposal was approved outright by the
 6   NEB, if it was approved in some lesser form, less
 7   nomination windows, whatever it may be, because I think
 8   that our panel will want to have some sort of framework for
 9   discussion for this purpose.
10           Perhaps I can just leave that with you.    I don't
11   know.    I'm just trying to approach in the best way possible
12   some method of bringing the co-ordination concern that a
13   number of participants have expressed to the forefront of
14   the discussion for the settlement process.
15           MR. MORAN:    Well, again, if it's helpful, I think we
16   fully expect that in the settlement conference that will be
17   one of the issues that people are going to discuss, because
18   there are a number of different kinds of co-ordinating
19   issues within Ontario, let alone with what may be required
20   outside of Ontario at the moment or in the future.
21           So if you could just leave it with us, and we've taken
22   it all under consideration.
23           MS. SEBALJ:   Sure.
24           MR. MORAN:    Thanks.
25           MS. SEBALJ:   Those are mine, I believe.   Mr. Man has a
26   question.
27           CROSS-EXAMINATION BY MR. MAN:

28           MR. MAN:   Can I ask you to turn to page 47 of your
                                                                    94



 1   evidence, please.
 2         In point B of your evidence, you talk about
 3   imbalanced trading.    And then you, in the last sentence of
 4   that paragraph B, you mention, "Imbalance trading is a
 5   standard feature on US pipelines."    Can you give me some
 6   examples, please?
 7        MR. ROSENKRANZ:    That was a standard requirement of
 8   all interstate pipelines in the US under, I believe it is
 9   order 637, as part of their requirement to make available
10   to the fullest extent possible imbalance mitigation
11   measures on their pipelines that there would be a mechanism
12   available to allow shippers that had opposite imbalances on
13   the system on a particular day on a retrospective basis.
14   So, say, after the end of the month you go back and say,
15   Mr. Wolnik was a hundred units long on the system.    I was a
16   hundred units short on the system back on that day.    We
17   would agree to essentially cross those transactions and
18   recognize that on net between us we were in perfect
19   balance.   So if we were each under an imbalance tolerance
20   of 50 units on each side, it would recognize that there was
21   no reason to charge him a penalty and me a penalty, because
22   if we come together, and you look at us as a unit, that
23   we'd balance each other out.    That's the concept.
24        MR. MAN:   I understand the concept.   But you mentioned
25   about interstate pipelines.    Do you have any examples of
26   local utilities providing imbalance trading?
27        MR. ROSENKRANZ:    In my experience I can't say that I'm
28   aware of any that have that same mechanism.    I didn't do a
                                                                   95



 1   study of that particular issue.     I would just say that with
 2   respect to, particularly, the Union system, I see a lot of
 3   their operations being much more similar to a large
 4   interstate -- as an interstate pipeline in the US as
 5   opposed to a lot of the local distribution companies.
 6         MR. MAN:   But you're recommending Ontario utilities to
 7   adopt imbalance trading?
 8         MR. ROSENKRANZ:    Recommend that of the various things
 9   that should be considered, that this among a suite of
10   services be something that be looked at.
11         MR. MAN:   So in your opinion what would they have to
12   do to facilitate that?
13         MR. ROSENKRANZ:    It's primarily just a mechanism to
14   make the information available so that parties can identify
15   the parties with imbalance positions that are opposite to
16   them, and they can facilitate just the crossing of those
17   two trades.   It's really just a -- I will go out on a limb
18   here somewhat because I cannot confirm this, but I suspect
19   that there are information systems that have been developed
20   in the US that could be brought to bear on this without a
21   lot of multimillion dollars of IS investment.
22         MR. MAN:   So in your system that you envisage, the
23   utility will post the imbalance on the Web?
24         MR. ROSENKRANZ:    Exactly.   That's a good -- it's
25   really an EBB or Web-based information-sharing application.
26   I think it's consistent with a lot of our proposals which
27   are   directed towards making more information available
28   that's of use to people in the market.
                                                                      96



 1          MR. MAN:    Okay.   Thank you.
 2          MS. SEBALJ:    All right.   I believe that wraps up the
 3   APPrO panel.      Thank you very much, panel members.    Thank
 4   you, Mr. Moran, Mr. Brown, Mr. Stacey.
 5          If we can do a quick switch to the IGUA panel member
 6   and try to get as much of that done before -- I'm going to
 7   propose a 12:30 lunch break.
 8          IGUA AND AMPCO – PANEL 1:
 9          PETER FOURNIER:

10          MR. THOMPSON:    Yes, my name's Peter Thomson.    I
11   represent IGUA and AMPCO in these proceedings.
12          The witness here today to assist with Issues 1, 3,
13   which is settled, and 4 which is the Enbridge rates, is
14   Mr. Peter Fournier, the president of IGUA.
15          With respect to the Enbridge rates, I wanted to say up
16   front that we asked some questions on the last day with
17   respect to that topic.      We have not had an opportunity to
18   review them with the IGUA members, so I've indicated to
19   Enbridge counsel that we will undertake to advise whether
20   we have any specific concerns with these proposes.        But Mr.
21   Fournier’s not in a position to deal with that today, so
22   he's here to answer any questions with respect to Issue I.
23          MS. SEBALJ:    Thank you, Mr. Thompson.   Given that
24   you're sitting here, Mr. Cameron, I'm assuming that you are
25   going to be asking questions as opposed to -- the Board
26   hearing team didn't have any questions for IGUA.        That's
27   why?
28          MS. CAMPBELL:    That's why.
                                                                    97



 1        MS. SEBALJ:    Okay.   Go ahead.
 2        MR. FOURNIER:    Just before we start, I just want to
 3   put on the record what I said to you this morning, is that
 4   the Ontario Energy Board has got to accommodate people with
 5   handicaps.    We've got James Gruenbauer, who apparently
 6   was able to come up early enough on the elevator.    The
 7   elevator was turned off for me.    You’ve now turned it on, I
 8   appreciate that, but you should give consideration, you're
 9   an Ontario Government entity, and you have to recognize
10   people with handicaps and you've got to accommodate them.
11        I did not like walking up two flights of stairs.      I
12   just wanted that on the record.
13        MS. SEBALJ:    And for the record, the Board sincerely
14   apologizes and the elevator is now functioning and will be
15   for the rest of the proceeding.
16        CROSS-EXAMINATION BY MR. CAMERON:

17        MR. CAMERON:    I won't keep you very long at all,
18   Mr. Fournier.
19        With respect to the APPrO proposal to eliminate the
20   Parkway obligation, and I'll ask you to assume, because
21   you weren't here yesterday to hear the Union witnesses on
22   this, but on the assumption that that would require the
23   construction of facilities in the range of $200 million, is
24   IGUA asking for that same change, that is, that Union
25   constructs those facilities to eliminate the Parkway
26   obligation?
27        MR. FOURNIER:    We do have several chemical members
28   down in Sarnia who, if they didn't have to deliver at
                                                                      98



 1   Parkway would take advantage of, for example, TransCanada’s
 2   southwestern zone rate which is less than the eastern zone
 3   rate.    But all of IGUA's members who move gas via
 4   TransCanada, virtually all of them in the Union franchise
 5   area south have to deliver to Parkway.       They accept that.
 6           We recognize that to change that Parkway delivery
 7   point could well affect the STS services of Union,
 8   Enbridge, Gaz Metro, it could affect how TransCanada
 9   operates in the summer, when they do some reverse
10   deliveries from Parkway back through and out to
11   Niagara.    So it's not a -- great idea, let's do it.     I
12   think the $200 million cost is just one more thing that
13   enters it into.
14           I would have to see all the implications for how the
15   three distributors, Gaz Metro, Union, and Enbridge, operate
16   today, and how TransCanada operates.      And if I was assured
17   that there would be absolutely no impact on their ability
18   to serve customers in wintertime especially using storage,
19   then I might say, Go ahead and spend the $200 million.        But
20   I'd have to see first.     So as of today I can say no, we do
21   not agree with that position.
22       MR. CAMERON:     Fair enough.   Now, with respect to the
23   other service changes that APPrO has proposed for Union and
24   Enbridge, is IGUA asking for those changes?
25           MR. FOURNIER:   No, we are not.   As far as I see at the
26   moment, you have two potential generators in the Enbridge
27   area.    And I think the Enbridge proposals, in their
28   evidence, are on the whole satisfactory, to us.      They meet
                                                                    99



 1   the requirements in our eyes to have generators, in
 2   combination with what TransCanada has offered.
 3        Now, there's probably wrinkles, and we can address the
 4   wrinkles, but that's, in general terms, I think Enbridge
 5   has come forward with some very positive proposals.
 6        In terms of Union, I don't see at the moment that
 7   Union is serving potentially a power generator in their
 8   franchise area, a new power generator, until after some
 9   time 2010, and we don't know where that would be or what
10   the requirements would be.
11        So at this stage I just leave Union off the table.
12        MR. CAMERON:    Okay.   Is the answer to the question I
13   asked that IGUA is not asking for the changes that APPrO
14   has proposed?
15        MR. FOURNIER:     Correct.
16        MR. CAMERON:    Thank you.    Those are my questions.
17        MS. SEBALJ:     Thank you, Mr. Cameron.   Mr. Brown.
18        CROSS-EXAMINATION BY MR. BROWN:

19        MR. BROWN:    Good morning.    My name is David Brown.
20   I'm counsel for Sithe Global Companies, Goreway and
21   Southdown, Portlands Energy Centre, and TransCanada Energy.
22        I just have a few questions, a dozen questions, on
23   your evidence.    The first is a clarification of some of the
24   factual assertions that IGUA has made in various locations
25   in its evidence.    I'll just go through them one by one.
26        If you could turn with me, sir, to page 14 of the
27   IGUA/AMPCO evidence.    Paragraph 36, you list three projects
28   with whom you understand the OPA has reached agreements.
                                                                      100



 1   From whom did you derive that information.
 2          MR. FOURNIER:   Calpine Greenfield is approved by the
 3   OEB.   Sithe, I understand, is approved.      Portlands, I
 4   believe, is not yet approved.      And there's a direction from
 5   the Minister to the OPA.
 6          MR. BROWN:   So is Portlands in the work works, so to
 7   speak.
 8          MR. FOURNIER:   That's right.
 9          MR. BROWN:   Page 15, paragraph 37, sir, the statement
10   is made that:
11                "IGUA and AMPCO regard it as unlikely that
12                any of these new facilities will be fully up
13                and running before 2008."
14          Is IGUA aware that the current plans are that the
15   Sithe-Goreway facility will be operating in simple cycle
16   mode in the summer of 2007?
17          MR. FOURNIER:   It will be operating when it's
18   operating.    I don't know if the fact we've said something
19   here changes when they're going to be operating.
20          MR. BROWN:   Have you had a chance, sir, to take a look
21   at the slide presentation --
22          MR. FOURNIER:   No.
23          MR. BROWN:   Okay.    So there is a chart in that APPrO
24   presentation that sort of showed the roll-out of the
25   on-line dates of various plants.       You haven't had an
26   opportunity to look at that?
27          MR. FOURNIER:   No.   No.
28          MR. BROWN:   If I could take you, sir, to page 16,
                                                                  101



 1   paragraph 40.    Your counsel actually touched on in this
 2   morning, but in paragraph 40 the statement is made:
 3                "Further contracting between the OPA and new
 4                gas-fired generation service providers will
 5                not take place until proceedings with respect
 6                to the OPA's procurement proposals have been
 7                considered and approved by the OEB."
 8        Is IGUA/AMPCO aware that at this point of time,
 9   contracting by the OPA is being done subject to ministerial
10   directive?
11        MR. FOURNIER:    Yes.
12        MR. BROWN:    And so you are aware that further
13   procurement can be made by the OPA provided a ministerial
14   directive is in place?
15        MR. FOURNIER:    I thought this whole process was
16   discovery of information.    If you want to go through and
17   cross-examine on little details, isn't this the time for
18   cross-examination in a hearing.
19        MR. THOMPSON:    Mr. Fournier, just answer the
20   questions.
21        MR. FOURNIER:    Anyway the answer is, I am aware of it.
22        MR. BROWN:    Page 19 -- sorry.   Yes.   At page 19,
23   paragraph 4 of that particular portion of the evidence,
24   there's references to the drafting of the system and
25   penalties associated with drafting of the system.      Do IGUA
26   and AMPCO agree that drafting penalties should be the same
27   for all customers whether they're industrial or generator?
28        MR. FOURNIER:    In a given rate class, yes.   Penalties
                                                                   102



 1   may differ between rate class, yes.
 2        MR. BROWN:    And on what   basis, sir, do IGUA and AMPCO
 3   suggest that it's appropriate that penalties differ amongst
 4   rate classes?
 5        MR. FOURNIER:    I believe that's the case right now
 6   between certain different services.
 7        MR. BROWN:    If you could go to page 18 of your
 8   evidence, sir, section number 2.     You'll see the heading
 9   "Gas Supply Conditions."
10        The second-to-last sentence in that paragraph reads:
11             “As a general rule, if the PGs” -- the
12              generators -- “fail to deliver the amount of gas
13              they are using at their plants, then their
14              delivery services from EGD and Union should
15              be curtailed."
16        Do IGUA and AMPCO co-concur that similar rules should
17   apply to industrial loads?
18        MR. FOURNIER:    The PGs will operate, as I understand
19   it, entirely differently than industrials.    Industrials
20   deliver their gas by nominating a day-ahead, so if
21   they nominate a hundred units they deliver a hundred units.
22   It comes in.    If they don't burn it all, the utility takes
23   it off and stores it.   If they burn more than 100 units, it
24   goes as a negative into the balancing account and it all
25   gets sorted out over time.   It's entirely different to how
26   the PGs will operate.   You can't have a PG nominating today
27   for zero volumes tomorrow, then at 10 a.m. tomorrow they
28   get turned on by the IESO and suddenly start drawing gas
                                                                     103



 1   from the system.
 2           TransCanada's got a balancing proposal that
 3   will let you start drawing gas with them immediately as
 4   long as that gas throws through the utility and then it's
 5   fine.
 6           But if the power generator starts drawing gas that
 7   they haven't delivered, after a short period of time, if
 8   the utility's line pack starts to get drawn down to a
 9   dangerous level, then they should be cut off.        So entirely
10   different situation than how the traditional industrial
11   operates.
12           MR. BROWN:   I agree with you.    It is an entirely
13   different situation.     And I think in your answer, sir, you
14   sort of hit the nail on the head.        IGUA and AMPCO do
15   recognize that generators operate in an electricity
16   environment when they may be told to start running at a
17   time when they did not anticipate they would have to run.
18   And that decision is out of their control.
19           Your members recognize that is a reality of the
20   electricity --
21           MR. FOURNIER:   The decision is out of their control,
22   but the gas supplier arrangements the power generator has
23   made and the transportation upstream is out of the power
24   generator's control.
25           MR. BROWN:   But in the example you gave, sir, where
26   you nominate zero at the beginning of the gas day only to
27   learn at 10 or 11 o’clock of the electricity day that
28   you're going to have to run, you recognize that that
                                                                   104



 1   possibility poses a challenge to the way in which gas needs
 2   to be delivered to generators.     And that's the whole point
 3   of this proceeding, is it not, to try and address that
 4   challenge?
 5        MR. FOURNIER:    Yes.
 6        MR. BROWN:    And I take it then from your answer, that
 7   you -- that is, IGUA and AMPCO -- acknowledge that the
 8   operating environment for gas-fired generators and their
 9   operating characteristics do present a different kind of
10   gas customer than historically has used the gas system.
11        MR. FOURNIER:    That was never in
12   Doubt.
13        MR. BROWN:    And since they are a customer with
14   different needs, I take it your members concur with the
15   proposition that utilities are in the business to serve the
16   particular needs of the customers in their franchise areas.
17        MR. FOURNIER:    Yes.
18        MR. BROWN:    Sir, if I could ask you to turn, please,
19   to page 21 of the IGUA/AMPCO evidence, paragraph number 45.
20   It's in the section entitled "Transportation --"
21        MR. FOURNIER:    I have it.
22        MR. BROWN:    You've got it, sir?    Thank you.   The
23   second sentence in paragraph 45 reads:
24                "More particularly, neither EGD nor Union
25                should accept deliveries at Dawn of gas
26                destined for PG facilities in the…"
27   I take it Enbridge CDA and EDA.
28        If that were the case, sir, could you explain how a
                                                                   105



 1   gas generator could store gas at Dawn?
 2        MR. FOURNIER:    Yes, I think that sentence could use
 3   some clarification.
 4        The intent there was to address the case where the PG
 5   proposes to deliver gas to Enbridge at Dawn period.    It's
 6   up to Enbridge to get the gas, then, to the power
 7   generators' facility somewhere in the CDA.
 8        Obviously, storage has -- gas has to be delivered at
 9   Dawn, and then the power generator has to have arrangements
10   in place either with TransCanada or with Union or with
11   Enbridge to move that gas from Dawn to the CDA.
12        So that sentence could be more effectively written.
13        MR. BROWN:   I appreciate the clarification, sir.
14        If I could ask you to move ahead, please, to page 23
15   of your evidence, subparagraph B, further subparagraph i.
16        MR. FOURNIER:    Right.
17        MR. BROWN:   It reads:
18             “In the summer diverting gas at Parkway normally
19             destined for injection into storage for the power
20             generation market may disrupt the normal storage
21             injection cycle with the danger that storage
22             inventories may not be at the desired full level
23             at the start of the winter season."
24        Given that generator customers, similar to IGUA and
25   AMPCO Customers, decide when to fill their storage and to
26   withdraw from their storage subject to contract parameters,
27   wouldn't you agree that it's up to the customer to decide
28   when it is best for their needs to inject and withdraw gas
                                                                  106



 1   from storage?
 2        MR. FOURNIER:   The best of my knowledge, I don't think
 3   any of my members hold storage in their own right.     One
 4   possibly does.
 5        The balance all use storage through the facilities of
 6   Union and Enbridge in its balancing process.    They just
 7   keep delivering their hundred units a day, day in, day out.
 8   They don't use as much in the summer.    They know it goes
 9   into storage.
10        I'm not an expert on the T1 and the -- I think it's
11   Rate 170, whatever it is for Enbridge.    But the tariff
12   provides for the parameters in which the customer can
13   build storage and draw back down.
14        So it's quite different, I think.
15        MR. BROWN:   Fair enough, and I guess you've just
16   highlighted a different operating attribute of the
17   folks who form members of IGUA and AMPCO, right?
18        MR. FOURNIER:   Right.
19        MR. BROWN:   Sir, are you aware whether any of your
20   members are subject to the -- or contract for a
21   transportation service with Union under which they have
22   this obligated DCQ requirement?   If you don’t --
23        MR. FOURNIER:   I'll give an undertaking on it.
24        MR. BROWN:   Okay.   And perhaps, sir, if your inquiries
25   determine that some of your members do, or do take service
26   from Union, which has an obligated DCQ, perhaps you could
27   also advise whether any of them ask on occasion for
28   permission from Union to be released from their DCQ
                                                                   107



 1   obligation and sell some of that gas into the gas
 2   market.    That could be part two of your inquiries.
 3        MR. FOURNIER:    Yes, I'd be happy to undertake that.
 4        MR. BROWN:    Thank you very much, sir.
 5        MS. SEBALJ:    That's IGUA Undertaking No. 1, with 2
 6   parts.
 7        IGUA UNDERTAKING NO. 1:    TO PROVIDE INFORMATION
 8        RELATING TO WHETHER MEMBERS CONTRACT FOR
 9        TRANSPORTATION SERVICE WITH UNION WITH OBLIGATED DCQ
10        REQUIREMENT/WHETHER MEMBERS ASK TO BE RELEASED FROM
11        DCQ OBLIGATION

12        MR. BROWN:    Thank you very much, Mr. Fournier.
13        MS. SEBALJ:    Thank you, Mr. Brown.
14        Mr. Stevens?    No, Mr. Moran, sorry.
15        CROSS-EXAMINATION BY MR. MORAN:

16        MR. MORAN:    Morning, Mr. Fournier.    I will be even
17   briefer than Mr. Brown.
18        As I understand it, there are IGUA members who use
19   natural gas to generate electricity; is that correct?
20        MR. FOURNIER:    Abitibi recently bought the, I think it
21   was a warehouse where they have a power generation plant,
22   at Ircoy Falls, but it is a separate entity from Abitibi
23   consolidated, it is still a separate power generation
24   entity.    Are there any that do cogeneration?
25        Inco has hydro resources and I think Falconbridge has
26   Hydro resources.    I'm not certain.   It's a difficult thing
27   to try and get a response from.    I'd have to survey my
28   members.    And I tell you when I do that, that's a six-week
                                                                       108



 1   process to get people to fully respond.        So if you want me
 2   to do it, I can try a survey, but you'd wait for an answer
 3   for six weeks because that's about how long it takes me to
 4   get the last guy to respond.
 5           MR. MORAN:    All right.   No, I understand what you're
 6   saying.    At the moment, in terms of your membership,
 7   though, you don't have available to you --
 8           MR. FOURNIER:    No, my members, if they're making
 9   widgets, their job is to make widgets.
10           MR. MORAN:    So you don't have statistics with respect
11   members regarding who might be generating electricity using
12   natural gas?
13           MR. FOURNIER:    If it is, it's very small, to my
14   knowledge.
15           MR. MORAN:    All right.   And I think, listening to the
16   answers that you gave to Mr. Brown, you have acknowledged
17   the difference between gas-fired power generators' gas use
18   needs versus more traditional Industrial Gas Users.
19           MR. FOURNIER:    Yes.
20           MR. MORAN:    So I don't have any other questions beyond
21   that.    Thank you, Mr. Fournier.
22           MS. SEBALJ:    Thank you, Mr. Moran.
23           Mr. Stevens.
24           CROSS-EXAMINATION BY MR. STEVENS:

25           MR. STEVENS:    Good afternoon, Mr. Fournier.   We just
26   have a few questions on behalf of Enbridge Gas
27   Distribution.
28           MR. CHARLESON:    I'd like to turn first to page 1 of
                                                                     109



 1   your evidence.    And this is towards the bottom of the page,
 2   where you're talking about the LNG projects in the St.
 3   Lawrence.    And you've indicated that:
 4                "If the LNG projects proposed for the lower
 5                St. Lawrence come onstream in 2010 than the
 6                dynamics of Gaz Metro’s gas supply, and
 7                peak demand arrangements might change."
 8        Based on this statement, does IGUA anticipate that the
 9   Quebec LNG will be a source of peaking supply?
10        MR. FOURNIER:    Well, Gaz Metro uses storage to meet
11   its peak day needs.    So to the extent that you have LNG
12   coming in, sufficient for them plus other contracted supply
13   that's coming in on TransCanada that they don't need
14   storage, it's a possibility, Dave.      I can't tell
15   you what's going to happen when this goes on.
16        MR. CHARLESON:     What your views regarding how the
17   supply dynamics might change be different the if the Quebec
18   LNG was operated as a base-load supply facility?
19        MR. FOURNIER:    I think we said it might change.      That
20   covers a realm of possibilities.      I mean, I'm not going to
21   be more -- I can't be more explicit.      We just recognize the
22   potential.
23        MR. CHARLESON:     Okay.   Thanks, Peter.
24        MR. STEVENS:     This may be better done by way of
25   undertaking, I'm not sure.      But at page 11, paragraph 26,
26   IGUA states that:
27                "Any new rates the Board approves to respond
28                to the needs of dispatchable or peaking
                                                                   110



 1                gas-fired generators should have no adverse
 2                impact on others."
 3        And then between pages 17 and 21, IGUA and AMPCO point
 4   out their concerns related to the potential impacts on
 5   existing customers from proposed rates for gas-fired
 6   generators.
 7        We appreciate your comment that generally you view
 8   Enbridge's proposed service offerings favourably.      What we
 9   hoped you could do is, linking the statements that you've
10   made and the concerns that you've raised generally, if you
11   could point out for us what specific concerns you have with
12   Enbridge's proposed Rate 125 and 316?
13        MR. THOMPSON:     Yes, we will do that as part of the
14   undertaking I gave at the outset, if that's satisfactory?
15        MR. STEVENS:    Super, and the undertaking at the
16   outsset was with respect to the conventional rate 300
17   re-design?
18        MR. THOMPSON:    Yes, we'll add these other rates to it,
19   if that's what your question is.
20        MS. SEBALJ:    Sorry, the undertaking at the outset had
21   to do with the obligated DCQ, and whether --
22        MR. THOMPSON:    No, at the outset I indicated we would
23   provide by way of undertaking response our concerns, if we
24   had any, with Enbridge’s 300 series of rates.     And now
25   we're adding to it specifically 125 and 316.
26        MS. SEBALJ:    So to formalize that, I'm going to call
27   it IGUA Undertaking No. 2.
28        IGUA UNDERTAKING NO. 2:      TO PROVIDE CONCERNS, IF ANY,
                                                                   111



 1        REGARDING RATES 125 AND 316

 2        MR. STEVENS:    Thank you.
 3        At page 11, paragraph 26, the evidence states:
 4             “Contractual provisions between the utilities
 5              and gas-fired generators should be structured
 6              to insulate existing customers from any
 7              adverse impacts."
 8        Can you explain what you mean by this statement, maybe
 9   by use of an example?
10        MR. FOURNIER:   Give an undertaking on that.
11        MR. STEVENS:    Thank you.
12        MS. SEBALJ:    That's IGUA Undertaking No. 3.
13        IGUA UNDERTAKING NO. 3:      TO PROVIDE EXPLANATION OF
14        STATEMENT AT PAGE 11, PARAGRAPH 26

15        MR. FOURNIER:   I believe on some of these complicated
16   Questions, you get a far better answer if you give a
17   written question, give us a chance to think about it, and
18   give you an intelligent answer rather than something I can
19   give off the top of my head.
20        MR. STEVENS:    We certainly appreciate that,
21   Mr. Fournier.   Thank you.
22        If you can flip over now to page 16, paragraph 42.
23   There's a statement that the:
24             "The Board can proceed cautiously in its
25             consideration and approval of any changes to
26             the status quo."
27        Now, I'm not sure if you were here for the end of the
28   APPrO evidence this morning.      I believe it was your counsel
                                                                  112



 1   speaking to them.    But what's your response to their
 2   evidence this morning that APPrO believes that they need
 3   the new rules to be in place to that they can plan and
 4   structure their operations?
 5        MR. FOURNIER:   I don't agree with them.    I've been
 6   doing regulatory affairs for 36 years, and it's been my
 7   experience that what we can see today we can see clearly
 8   and we can try and address clearly.    And no matter what you
 9   do today, what you think is an appropriate and effective
10   response, something happens tomorrow, and you got to
11   address it again, and it will change tomorrow.
12        So we see two projects on the near horizon.     It's the
13   Sithe and the potential of the Portlands.   As I understand
14   it, and I'm not an expert here on electricity, but in the
15   next probably tranche is not probably until 2010 or later,
16   conditions may well have changes, including such things as
17   LNG, including delivery conditions on TransCanada.
18        So I don't think you can -- someone's on their cell
19   phone there.
20        I don't think we can waste -- we should waste time
21   trying to come up with some kind of all-singing,
22   all-dancing solution to everybody's problems and then find
23   out tomorrow it doesn't work anyway.
24        I understand APPrO's concern that, sure, future
25   projects would like to know all the terms and conditions.
26   But no matter what terms and conditions you establish
27   today, something happens tomorrow, and we're back before
28   the regulator to correct that situation at that time.
                                                                       113



 1           So my advice to APPrO is, see what conditions that
 2   come out of this proceeding, which will affect Sithe and
 3   Portlands.    And for the future, hope that those are the
 4   same, but you know jolly well that many things could be
 5   different.    So we say, focus on these two only.
 6           MR. STEVENS:    Thank you.   Would industrial customers
 7   be comfortable many making a commitment to a new
 8   marketplace without knowing what the rules are going to be?
 9           MR. FOURNIER:   I think I just gave you the answer.
10   Industrials are like everybody else.       You know what the
11   conditions are today.      You can hope that they might be the
12   same tomorrow but there's no guarantee.       And this Board
13   isn't going to guarantee any decision it makes today on
14   what the next panel, the next Board decision, has to deal
15   with.    That's always the case.
16           MR. STEVENS:    Thank you.   At paragraph 44(4), the
17   evidence talks about IGUA's concerns, IGUA and AMPCO's
18   concerns about drafting the system and reducing line pack.
19           The specific question we have about that is whether,
20   for IGUA and AMPCO, TCPL's proposed SNB service, which will
21   rely on line pack, causes similar concerns for IGUA?
22           MR. FOURNIER:   No.   I think that's a solution.
23           MR. STEVENS:    And why do you say that?
24           MR. FOURNIER:   I could best give it as a written
25   undertaking because I've given that same answer to many of
26   my members who had a concern.
27           TransCanada's moving something over the Northern
28   Ontario line in the order of - I'm pulling numbers out of
                                                                     114



 1   the air, I'm not sure - it's something like 2, Bcf, two and
 2   a half Bcf, plus they have what they move up on the Union
 3   line.
 4           For them to provide this balancing service for a
 5   couple of hours before the power generator's gas supply
 6   kicks in, we're talking, you know, something less than one
 7   half of 1 percent of their throughput capability.
 8           And I'd need to give you these numbers accurately,
 9   because it was a week or ten days ago when I gave this.
10           TransCanada's not going to operate its system a way
11   that imperils its obligation to deliver its firm contract
12   volumes to all of its customers.      So I'm not concerned of
13   them offering a balancing service that's going to impede or
14   interfere with or affect their ability to operate their
15   system.
16           MR. STEVENS:    I guess just a follow-up question to
17   that.    So you don't have any concerns when that balancing
18   service would allow for, basically, the equivalent of a
19   day's worth of supply for that power plant?
20           MR. FOURNIER:   My understanding is that's not how it
21   works.    It's the first two hours; it's to serve the first
22   two hours, and by then, when the power plant, as I
23   understand it, is told to turn on, they give a two-hour
24   notice to TransCanada to say we'll be delivering gas to you
25   within that two-hour period.       And then their gas flows into
26   the system.
27           And from the 15 minutes when they get the notice to
28   turn on, they can start drawing gas under the balancing
                                                                      115



 1   service, from TransCanada's balancing service until their
 2   flow under the FTSN starts flowing within two hours.
 3        MR. CHARLESON:     Thanks for the clarification on that.
 4        MR. FOURNIER:    That's my understanding.
 5        MR. CHARLESON:     No, thanks for the clarification on
 6   the understanding that your answer was based on.
 7        MR. STEVENS:    Thanks very much, Mr. Fournier.     Those
 8   are our questions.
 9        MS. SEBALJ:     Thank you, Mr. Stevens.   Unless I'm
10   mistaken, that wraps up the questions for IGUA and AMPCO.
11   Not seeing anyone jumping to their feet, thank you very
12   much, Mr. Fournier, Mr. Thompson.
13        MR. THOMPSON:    Thank you.
14        MS. SEBALJ:     And on that note, let's break for lunch,
15   and if we can, return here by 1:30, please, and we'll start
16   with issue number 2, storage regulations.
17        --- Luncheon recess taken at 12:23 p.m.
18        --- On resuming at 1:36 p.m.
19        MS. SEBALJ:     Good afternoon, everyone.   For those of
20   you who are just joining us, my name is Kristi Sebalj.      I
21   am Board Counsel for the Board's support team.
22        I am joined by Ronald Man, to my left, and Roger Ware,
23   and Zora Crnojacki to my right.
24        For everyone's information, Roger Ware, who you may
25   not be familiar with, is an economist with Queen's
26   University.   He's a professor there.    And he's been
27   retained by the Panel, the Board support team and the
28   Panel, to provide assistance with respect to the storage
                                                                  116



 1   regulation evidence.
 2        This afternoon we are tackling this issue number 2
 3   on Procedural Order No. 2, which is storage regulation.      I
 4   should probably read it formally into the record but I
 5   don't have it in front of me.
 6        But I think everyone here knows what I'm talking
 7   about.
 8        The same rules apply as have applied previously, and
 9   there aren't very many of them.     We do not have a panel, as
10   you know, this is a Technical Conference, and therefore any
11   disputes, objections or other matters need to be recorded
12   for the record.
13        And if there is any reslution that needs to come out
14   of that, I will consult with the Panel.
15        The second rule, which I keep harping on, is that
16   everyone needs to speak loudly and clearly, particularly
17   people in the back of the room, so that our court reporter
18   can get everything on the record.    Which leads me to the
19   final point, which is that this proceeding is entirely on
20   the record.   There will be a transcript produced for today
21   and for the rest of this Technical Conference.
22        If there are any new parties in the room, I would ask
23   that you please register your appearance.    I have a list --
24   it was sitting here -- I have a list from yesterday and
25   today, but if there's anyone new since that time.
26   Mr. Smith, for instance.   Is there anyone other than -–
27        APPEARANCES:

28        MR. EGNNING:   Bruce Egnning, Energy and
                                                                     117



 1   Environmental Analysis on behalf of Union Gas.
 2           MR. SLOAN:    And also Michael Sloan, Energy
 3   and Environmental Analysis for Union Gas.
 4           MR. LESLIE:   My name is Glenn Leslie.    I'm here as
 5   counsel to Union Gas.      Mr. Cameron's gone home.
 6           MS. SEBALJ:   Thank you.   Before we start -- sorry,
 7   I'm.
 8           MR. MACINTOSH:    David MacIntosh from Energy Probe, and
 9   I actually didn't register yesterday.
10           MS. SEBALJ:   Thank you, Mr. MacIntosh.
11           MR. HOWE:    Robert Howe of the law firm Davies Howe
12   Partners.    We act on behalf of Enbridge Inc.
13           MS. SEBALJ:   Thank you, Mr. Howe.   Is there anyone
14   else?
15           Thank you.    Before we get started, I think there will
16   be some changes in the order as a result of the new issue.
17   The Board hearing team, of course, is up first with their
18   panel on this issue.
19           So the sort of informal discussions have led to Union
20   taking the lead on questions.      Informally, again, we've
21   discussed that Market Hub Partners will go next.        Their
22   questions were provided in writing to everyone in the room,
23   so we thought that that would be appropriate, and then
24   people can adjust their questions accordingly.         Followed by
25   Enbridge.
26           And I have nothing else formally.    If I was to follow
27   the previous day's order, which I can do, other than those
28   deviations, would anyone have any objection to that?
                                                                       118



 1          Right.   Unless I've forgotten anything or anyone has
 2   any preliminary issues.     Seeing none, I'll turn it over to
 3   you, Ms. Campbell.
 4          MS. CAMPBELL:   Thank you.   Now, before we start, for
 5   those who have been here for the first day in this, you'll
 6   remember that the doors to the washrooms opened with the
 7   sound of the crypt opening in the Bella Lugosi
 8   movie.   You'll notice a today that the they're silent and
 9   that is because our intrepid court reporter brought in the
10   oil and oiled the doors.      So I just officially, on the
11   record, thank you for that as does anybody who's giving
12   evidence because yesterday there were horrible noises made.
13          So on that note we'll go ahead, and today the Board is
14   producing a panel of one, Bruce McConihe.      Mr. McConihe’s
15   report and CV have been circulated to you previously.        It
16   was brought to our attention that we circulated an old CV.
17   We have brought with us a copy of the new one, and will be
18   circulating it via e-mail at the end of the day, or some
19   time tomorrow, whenever we manage to get access to the
20   e-mail to be able to do so.
21          BOARD HEARING TEAM    - PANEL1:
22          BRUCE McCONIHE:

23          MS. CAMPBELL:   In the interests of time, it is the
24   hearing team's decision not to do an introductory
25   statement.      We feel that the report probably speaks for
26   itself much better than anything that I could say right
27   now.
28          So what I'm going to do is simply take the step of --
                                                                     119



 1   and I don't know whether anybody wishes to have the new CV
 2   made an exhibit, but it might be appropriate to do so,
 3   given the fact that a copy has already been filed as
 4   evidence.    And so perhaps the first exhibit in this --
 5   sorry in this proceeding for the hearing team could be the
 6   curriculum vitae of Bruce McConihe, and that's M, small C,
 7   capital C-o-n-i-h-e.        And it's current as to May 16th,
 8   2006.
 9           MS. SEBALJ:   Sorry, I wanted to -- we don't have
10   copies --
11           MS. CAMPBELL:    Unfortunately we don't.
12           MS. SEBALJ:     -- at this time.
13           MS. CAMPBELL:    But we will be providing it
14   electronically.       And if anybody who's asking questions
15   wishes to use the copy that I have, I would be certainly
16   delighted to give it to them now.
17           MS. SEBALJ:   Okay.   I believe we're on Exhibit No. 3.
18   So we'll mark that as Technical Conference Exhibit No. 3.
19           EXHIBIT NO. 3:    CURRICULUM VITAE OF BRUCE MCCONIHE

20           MS. CAMPBELL:    Thank you.
21           MS. SEBALJ:   And I've also had a request from Mr.
22   Smith to mark the questions from Market Hub Partners as an
23   exhibit.    So that will be Exhibit No. 4.
24           EXHIBIT NO. 4:     QUESTIONS FROM MARKET HUB PARTNERS

25           MS. SEBALJ:   And that's the package of questions from
26   Market Hub Partners that was provided electronically to all
27   parties.
28           MS. SEBALJ:   Mr. Leslie, whenever you're ready.
                                                                      120



 1        CROSS-EXAMINATION BY MR. LESLIE:

 2        MR. LESLIE:    Oh, thank you very much.
 3        Good afternoon, Ms. O'Connor.      My name is Glenn
 4   Leslie.    I'm counsel to Union Gas.
 5        MS. McCONIHE:    Good afternoon.
 6        MR. LESLIE:    I just got your updated resume.    I'd seen
 7   the 2001 resume.    Is there anything I should notice?
 8        MS. McCONIHE:    No.   They took it off the website.    I
 9   assumed that they had used my resume that I'd submitted in
10   the RFP for this engagement.    I apologize.
11        MR. LESLIE:    No, that's fine.    I just wondered if
12   there was anything in there that you wanted to mention that
13   we hadn't heard about already.
14        MS. CAMPBELL:    Anything new.
15        MS. McCONIHE:    Anything new, there's quite a bit new.
16        In connection with this proceeding, I also provided
17   testimony in Red Lake on the rehearing.
18        MR. LESLIE:    Yes, I noticed that.    You used the 2001
19   CV there as well, I think.
20        Well, that's fine.     We'll look at it.
21        Can I leave it on this basis, that if anything jumps
22   out at us that we would like to have a look at that we can
23   ask you for it, and assuming it isn't confidential or in
24   some other way restricted.    And perhaps you could give us a
25   copy if we can't get it from some other source.
26        MS. McCONIHE:    Certainly.
27        MR. LESLIE:    I wanted to ask you briefly about your
28   mandate.    When you were retained to prepare the report you
                                                                    121



 1   did, were you given written instruction?
 2        MS. McCONIHE:   They put out an RFP which outlined the
 3   kind of consulting that they wanted in issues to address.
 4        MR. LESLIE:    Yes.
 5        MS. McCONIHE:   And that's a public document, I
 6   believe.
 7        MR. LESLIE:    We can get a copy of that, then, can we?
 8        MS. CAMPBELL:   I believe so.
 9        MS. SEBALJ:    Did you want to undertake to provide that
10   or are you asking me whether it's possible?
11        MS. CAMPBELL:   It's my understanding it's a public
12   document.   I'll make inquiries, and if my inquiries
13   confirm my understanding, I will provide it to you.     And if
14   I encounter some sort of obstacle in doing so, I'll advise
15   you of that also.
16        MR. LESLIE:    All right.   Thank you.
17        Did you get oral instructions once you'd won the job,
18   so to speak?
19        MS. McCONIHE:   No, not at all.    They just told me to
20   go do it.
21        MR. LESLIE:    Okay.   I have reviewed your earlier
22   resume, and I guess the easiest way for me to ask you this
23   question.   Have you ever authored a report of the kind that
24   you've filed here, or something in the way of evidence that
25   was in opposition to market-based rates for storage?
26        MS. McCONIHE:   No, this is first time.
27        MR. LESLIE:    This is the first time.    I wanted to turn
28   just to a minute -- for a minute, I should say, to my
                                                                    122



 1   client's current practices.
 2           Are you aware that Union Gas is currently selling
 3   storage at market-based rates?
 4           MS. McCONIHE:   Yes, I am.
 5           MR. LESLIE:   And how much do you know about that
 6   process?
 7           MS. McCONIHE:   Can you clarify that question?
 8           MR. LESLIE:   Well, do you know how they go about
 9   selling?
10           MS. McCONIHE:   No, I don't.
11           MR. LESLIE:   Do you know whether they're negotiated
12   rates of optioned rates?
13           MS. McCONIHE:   What I know about it is that there's a
14   ceiling C-1 rate that puts a high cap on the negotiated
15   rate.
16           MR. LESLIE:   And do you know whether that ceiling has
17   ever imposed any restriction on the prices that are
18   charged?
19           MS. McCONIHE:   No, I have no information about your
20   negotiated rates.
21           MR. LESLIE:   Do you know whether there's any capacity
22   restriction on the amount that's sold?
23           MS. McCONIHE:   No.
24           MR. LESLIE:   Do you know whether any of Union's
25   customers who are currently paying market-based
26   rates, and I think the amount of storage that's subject to
27   market-based rates is roughly 67 Bcf; is that your
28   understanding?
                                                                     123



 1           MS. McCONIHE:   That's my understanding.     70, 67.
 2           MR. LESLIE:   Do you know whether any of the customers
 3   that are buying that storage are marketers?
 4           MS. McCONIHE:   I believe they must be, but I don't
 5   know that for a fact.
 6           MR. LESLIE:   You don't know who the customers are.
 7           MS. McCONIHE:   No, there's no published information on
 8   that.
 9           MR. LESLIE:   You haven't talked to any of those
10   customers.
11           MS. McCONIHE:   I can't, because I don't know who they
12   are.
13           MR. LESLIE:   That's quite true.
14           Also dealing with my client's position in this, have
15   you read Union Gas’ evidence for these proceedings?
16           MS. McCONIHE:   Yes.   I have.
17           MR. LESLIE:   So you're aware of their current
18   proposal?
19           MS. McCONIHE:   Excuse me?
20           MR. LESLIE:   You're aware of their current proposal,
21   which is somewhat revised from their original position?
22           MS. McCONIHE:   What do you mean by proposal?
23           MR. LESLIE:   Well, originally they'd proposed that
24   storage be deregulated entirely.         And their position now is
25   that infranchise storage should continue to be regulated,
26   exfranchise sales should be deregulated or --
27           MS. McCONIHE:   Yes, I am aware of that.
28           MR. LESLIE:   Or market-based rates.     Does that change
                                                                   124



 1   in their recommendations have any effect on your evidence
 2   or cause you to reconsider anything you've said in your
 3   evidence?
 4        MS. McCONIHE:     No.
 5        MR. LESLIE:    You describe in your report a situation
 6   in California, I think it's roughly at page 54     And my
 7   understanding is that in California they do have somewhat
 8   bifurcated system, where there are regulated rates and
 9   market-based rates; is that correct?
10        MS. McCONIHE:    That's correct.
11        MR. LESLIE:    And is California very different from
12   what's occurring in Ontario, as far as Union's concerned,
13   at least?
14        MS. McCONIHE:    I believe it is different.
15        MR. LESLIE:    In what way.
16        MS. McCONIHE:    In that part of the PG&E and SoCAL
17   gas have cost-of-service rates for storage and     Wild Goose
18   does not -- it has market based.     And Lodi has market-
19   based.
20       MR. LESLIE:     You'll have to forgive me, every once in a
21   While.    I'm going to have to rely on my people on my right
22   and my left.
23        MS. McCONIHE:    That's fine.
24        MR. LESLIE:    To be finding out if I should be asking
25   anything further.
26            Do you have any expectation or any view on whether or
27   not Union's sales, exfranchise, would differ from the
28   current practices and price levels if the recommendation
                                                                   125



 1   that Union has made in these proceedings were adopted; that
 2   is, to deregulate those sales?
 3        MS. McCONIHE:    Could you rephrase that, please?
 4        MR. LESLIE:    Do you have any expectation that Union's
 5   sales, exfranchise, either the method of the sales or the
 6   characteristics of the sales, would change in any material
 7   way if its recommendations were adopted and those sales
 8   were deregulated?
 9        MS. McCONIHE:    No, I don't believe it would change
10   anything.
11        MR. LESLIE:    You have a copy of your report in front
12   of you?
13        MS. McCONIHE:    Yes, I do.
14        MR. LESLIE:    I wanted to look at the table at page 3.
15        MS. McCONIHE:    All right.   Yes.
16        MR. LESLIE:    Now, as I understand it, that table is
17   comparing price levels at four hubs in North America, Henry
18   Hub, AECO, Chicago and Dawn.
19        MS. McCONIHE:    Right.
20        MR. LESLIE:    And if I'm understanding it correctly,
21   it's showing very high correlations amongst Henry Hub,
22   Chicago and Dawn, and reduced correlations for AECO.
23        MS. McCONIHE:    That's correct.
24        MR. LESLIE:    And my understanding is that correlations
25   of that kind suggest that those hubs are all moving in
26   reaction to similar factors.
27        MS. McCONIHE:    That's correct.
28        MR. LESLIE:    And that because of those high
                                                                   126



 1   correlations, one could assume that those hubs are
 2   interconnected?
 3        MS. McCONIHE:    Yes.
 4        MR. LESLIE:    Are you familiar with the phrase "basis
 5   blowout"?
 6        MS. McCONIHE:    Yes.
 7        MR. LESLIE:    What does that mean?
 8        MS. McCONIHE:    Basis is the differential between the
 9   summer peak -- the summer period, spring/summer, and the
10   winter.
11        MR. LESLIE:    Is it also the difference between the
12   absolute level of prices at the hubs?
13        MS. McCONIHE:    Yes.
14        MR. LESLIE:    And is there any evidence of basis
15   blowout in those numbers?
16        MS. McCONIHE:    No.
17        MR. LESLIE:    And if there were evidence of basis
18   blowout of those numbers, what would that indicate?
19        MS. McCONIHE:    That would indicate that there are
20   separate markets.
21        MR. LESLIE:    And if there's not evidence of basis
22   blowout, what would that indicate.
23        MS. McCONIHE:    That would mean that they move in the
24   same direction, highly correlated.
25        MR. LESLIE:    What do you understand by the word "hub"?
26   We all talk about it, but I wonder how you would define it.
27        MS. McCONIHE:    Hub is a market centre that has a lot
28   of interconnections with different pipelines.   There's also
                                                                    127



 1   price revelation of the prices of gas traded at those hubs.
 2        MR. LESLIE:     I'm sorry, I missed the word there?
 3        MS. McCONIHE:     There's price discovery of the prices
 4   charged at the hubs.
 5        MR. LESLIE:     Right.
 6        MS. McCONIHE:     It's a liquid market.
 7        MR. LESLIE:     So a hub is a liquid market.
 8        MS. McCONIHE:     Right.
 9        MR. LESLIE:     And my understanding is, a liquid market
10   is a market where you have a high volume of trading.
11        MS. McCONIHE:     That's correct.
12        MR. LESLIE:     You have lots of price discovery.
13        MS. McCONIHE:     Right.
14        MR. LESLIE:     You have the kind of conditions that
15   competition economists and lawyers look for when they're
16   defining a workably competitive market?
17        MS. McCONIHE:     That's correct if you're dealing with
18   the gas commodity.
19        MR. LESLIE:     I'm sorry, I don't understand you.
20        MS. McCONIHE:     That's correct if you're dealing with
21   the gas commodity.
22        MR. LESLIE:     So you would limit the hub to the sale of
23   the commodity as opposed to the sale of the transportation,
24   and most relevant here, storage?
25        MS. McCONIHE:     Storage, yes.
26        MR. LESLIE:     So is it your view that storage and
27   transportation are not traded at those hubs?
28        MS. McCONIHE:     I believe they are.
                                                                   128



 1        MR. LESLIE:   You believe they are.
 2        MS. McCONIHE:    Yes.
 3        MR. LESLIE:   Well, then, why do you distinguish them
 4   from the commodity?
 5        MS. McCONIHE:    Because there is price discovery on
 6   storage or transportation to the extent that it's
 7   discounted.
 8        MR. LESLIE:   Is that the only difference?
 9        MS. McCONIHE:    Yes.
10        MR. LESLIE:   I wonder if you could turn up pages 19-20
11   of your report, and that's where you deal with the
12   potential alternatives to storage.
13        MS. McCONIHE:    That's correct.
14        MR. LESLIE:   Substitutes for storage, I would think.
15        MS. McCONIHE:    Yes.
16        MR. LESLIE:     And you conclude that there really aren't
17   any substitutes for storage available to customers in
18   Ontario.
19        MS. McCONIHE:    That's correct.
20        MR. LESLIE:   I've read your evidence in the Red Lake
21   proceeding.
22        MS. McCONIHE:    Mm-hm.
23        MR. LESLIE:     And there you talk about something called
24   virtual storage.
25        MS. McCONIHE:    Yes.
26        MR. LESLIE:   What is that?
27        MS. McCONIHE:    That's the ability to exchange at one
28   place for gas in another place.
                                                                     129



 1           MR. LESLIE:   So if I've got gas at Chicago, and I
 2   wanted to trade with somebody at Dawn, I can do that
 3   without having to move the gas.
 4           MS. McCONIHE:   Yes, it's not a physical trade but a
 5   paper trade.
 6           MR. LESLIE:   It could be a physical trade though as
 7   Well?
 8           MS. McCONIHE:   It could be, definitely.
 9           MR. LESLIE:   And that would be an exchange?
10           MS. McCONIHE:   Yes.
11           MR. LESLIE:   And you talk about exchanges in your Red
12   Lake testimony as well.
13           MS. McCONIHE:   That's correct.
14           MR. LESLIE:   And you also mentioned something called
15   displacement.
16           MS. McCONIHE:   Right.
17           MR. LESLIE:   What's that?
18           MS. McCONIHE:   That's essentially -- very similar to
19   exchanges, where you displace the gas in one spot for gas
20   in another.
21           MR. LESLIE:   You don't refer to any of those trading
22   mechanisms, if I can call them that, in your evidence in
23   this case.    Is there a reason for that?
24           MS. McCONIHE:   Because there's no information on the
25   extent of those substitutes in the marketplace.
26           MR. LESLIE:   So you just didn't have good information
27   on that.
28           MS. McCONIHE:   Right.
                                                                    130



 1           MR. LESLIE:   What attempt did you make to get that
 2   information?
 3           MS. McCONIHE:   I looked at websites to see if there
 4   were a list of customers or transactions for Ontario, and
 5   there is no such thing.
 6           MR. LESLIE:   Did you look on websites of people who
 7   are in the business of trading natural gas?
 8           MS. McCONIHE:   Yes.   Yes.
 9           MR. LESLIE:   And you couldn't find any evidence of
10   that?
11           MS. McCONIHE:   Right.   What I'm talking about is
12   transactional evidence.
13           MR. LESLIE:   The detail of the transactions.
14           MS. McCONIHE:   That's exactly right.
15           MR. LESLIE:   As opposed to what people say they can
16   do.
17           MS. McCONIHE:   Exactly.
18           MR. LESLIE:   Which websites did you look at?
19           MS. McCONIHE:   I looked at Nexen, I believe.
20           MR. LESLIE:   I looked at that one yesterday.
21           MS. McCONIHE:   Did you?
22           MR. LESLIE:   Yes.
23           MS. McCONIHE:   It's been a while since I looked at
24   that.
25           I looked at BP Canada.     I don't recall, without
26   looking at my notes, who else I looked at but I looked at
27   quite a few.    I looked at some American traders as well.
28           MR. LESLIE:   When you were doing the Red Lake
                                                                  131



 1   proceedings, you did have access to this information, I
 2   take it?   This kind of information, I should say, about
 3   trading?
 4        MS. McCONIHE:   Actually, I talked to the storage
 5   providers, like Wild Goose and Lodi.
 6        MR. LESLIE:   But you didn't talk to any storage
 7   providers in this case.
 8        MS. McCONIHE:   No
 9        MR. LESLIE:   Nor did you talk to Nexen.
10        MS. McCONIHE:   No, I didn't talk to Nexen.
11        MR. LESLIE:   Or Coral.
12        MS. McCONIHE:   No.
13        MR. LESLIE:   Or BP.
14        MS. McCONIHE:   No.
15        MR. LESLIE:   Or any of the traders.
16        MS. McCONIHE:   No.
17        MR. LESLIE: In your view, I guess this
18   is a technical question but -- is it necessary for there to
19   be excess capacity in a market for that market to be
20   competitive?
21        MS. McCONIHE:   I don't believe so.    One of the
22   definitions of a competitive market is that there are many
23   suppliers even though there might not be much excess.
24        MR. LESLIE:   Right.   So you could have an industry,
25   such as this one, where you had capacity as full
26   utilization, and still have competition?
27        MS. McCONIHE:   Right.
28        MR. LESLIE:   And that could occur through the
                                                                   132



 1   mechanisms that you referred to, that secondary market
 2   mechanisms.
 3        MS. McCONIHE:    That's correct.
 4        MR. LESLIE:   Trading, and exchanges and diversions?
 5        MS. McCONIHE:    And you see that primarily in New
 6   England where you have a lot of storage providers that are
 7   providing storage at cost-of-service rates, and new
 8   entrants come in, and if the new entrant is charging higher
 9   prices then the customer has the ability to go to the
10   cost-of-service storage providers.
11        MR. LESLIE:   Is there any storage in New England?
12        MS. McCONIHE:    Lots of storage in New England, New
13   York, Pennsylvania.
14        MR. LESLIE:   Right, but not in New England.
15        MS. McCONIHE:    No.
16        MR. LESLIE:   I'm sorry, I thought you referred to new
17   England.
18        MS. McCONIHE:    I meant northeast US.
19        MR. LESLIE:   I see.
20        MS. McCONIHE:    Sorry.
21        MR. LESLIE:   Mr. Sloan is asking how new customers in
22   New England get at storage?
23        MS. McCONIHE:    Could you repeat that?   I didn't get
24   the first part.
25        MR. LESLIE:   How do customers in New England who
26   require storage get at it?
27        MS. McCONIHE:    They probably get it at Dawn.
28        MR. LESLIE:   And how does it get from Dawn to New
                                                                  133



 1   England?
 2        MS. McCONIHE:     There are pipelines that can take it to
 3   their demand centres, from Canada.
 4        MR. LESLIE:     Well, let me put the question that I
 5   originally asked you in a slightly different way.       If
 6   buyers can get, say, 10 percent of their requirements,
 7   let's take an example, GMI.    GMI needs 10 percent more
 8   storage than they've got.    Union is sold out at that
 9   particular time.   If GMI can access 10 percent of its
10   storage needs, that extra 10 percent, somewhere, apart from
11   Union, would that be sufficient to discipline a seller such
12   as Union with large market share?
13        MS. McCONIHE:     It depends on whether there's
14   cost-based storage available that would put a cap on
15   Union's charges, i.e., that the customer didn't have to pay
16   a premium to use storage other than Union's.
17        MR. LESLIE:     I think that perhaps we're at --
18        MS. McCONIHE:     At cross-purposes?
19        MR. LESLIE:     We're at cross purposes.   My question is
20   more directed at -- let me stay away from the concrete.
21        If a buyer can get 10 percent of its requirements from
22   someone other than the seller, who has a large market
23   share, would that be sufficient to discipline that seller
24   and prevent the use of market power that might have
25   otherwise existed?
26        MS. McCONIHE:     Are you talking about a customer in
27   Ontario needing this extra 10 percent or are you talking
28   about --
                                                                      134



 1          MR. LESLIE:   I'm talking generally at this point.
 2          MS. McCONIHE:    I can’t answer that, that's more
 3   specifics.   Because I believe that New England certainly
 4   uses Dawn for storage, and there's available transportation
 5   to get to New England, but I don't believe that on the
 6   eastern side, a customer there can go to Ontario from
 7   the US
 8          MR. LESLIE:   All right.   I understand that.   This was
 9   more of a -- I'm now asking you a question of economic
10   principle, I guess, as opposed to dealing with specific
11   storage customers in specific locations.
12          And the proposition that's been put to me, and I'm
13   putting it to you, is that if people in the market can get
14   their marginal requirements, 10 percent is the number I've
15   used, from someone other than a seller who has large market
16   share, then that in itself is sufficient to discipline that
17   seller?
18          MS. McCONIHE:    No.
19          MR. LESLIE:   But you don't have to be able to replace
20   your total requirements in order to impose that discipline.
21          MS. McCONIHE:    No, I don't believe it.
22          MR. LESLIE:   You don't believe it?
23          MS. McCONIHE:    No.
24          MR. LESLIE:   Enbridge recently put out an RFP for
25   storage services.      Do you have any knowledge of that?
26          MS. McCONIHE:    No, I don't.
27          MR. LESLIE:     You don't know what the results were at
28   all.
                                                                    135



 1           MS. McCONIHE:   No
 2           MR. LESLIE: There's a table at page 24 of your
 3   evidence.    Let me go back and perhaps -- on the 10 percent
 4   of the economic theory question, why don't you believe
 5   that?
 6           MS. McCONIHE:   Because if Union is the dominant
 7   player, losing 10 percent of a potential customer is not
 8   going to affect your market rates.     But if you could raise
 9   prices and not lose customers, then that's an indication of
10   market power.
11           MR. LESLIE:   But if you raised your prices 10 percent
12   and lost 10 percent of your business, you would break even,
13   wouldn't you?
14           MS. McCONIHE:   Yes.
15           MR. LESLIE:   So why would you do it?
16           MS. McCONIHE:   Because you have market power.    You're
17   not going to -- you're not going to --
18           MR. LESLIE:   That's not my proposition, but let's not
19   argue.
20           MS. McCONIHE:   Okay.
21           MR. LESLIE:   Sorry.
22           At page 24, you have a table which I wanted to be sure
23   I understood, that we understood.     And my appreciation of
24   what you've done here is to compare prices between
25   different storage pools.
26           MS. McCONIHE:   Right.
27           MR. LESLIE:   And the percentages represent the
28   differentials between the prices.
                                                                   136



 1        MS. McCONIHE:    What I did was to take delivered price
 2   to each of storage pools, calculate the
 3   injection/withdrawal, plus transportation to Dawn, and get
 4   a total price, delivered price.
 5        MR. LESLIE:    Can I just break that down to make sure
 6   we understand?
 7        MS. McCONIHE:    Sure.
 8        MR. LESLIE:    That's take ANR, Michigan, as an example.
 9        MS. McCONIHE:    Right.
10        MR. LESLIE:    You say in 2004, and as I understand it,
11   the differential between ANR, Michigan, and Union, Dawn,
12   was 4.2 percent.
13        MS. McCONIHE:    But the ANR includes transportation
14   from ANR to Dawn.
15        MR. LESLIE:    Yes.   No, I understand that.   But the
16   differential including the transportation.
17        MS. McCONIHE:    That's correct.
18        MR. LESLIE:    Is 4.2 percent.
19        MS. McCONIHE:    That's correct.
20        MR. LESLIE:    So that's telling me that if I brought
21   gas to Dawn from Michigan, including transportation.
22        MS. McCONIHE:    Mm-hm.
23        MR. LESLIE:    I could expect to pay on these numbers
24   4.2 percent more than if I'd bought the gas at Dawn.
25        MS. McCONIHE:    That's correct.
26        MR. LESLIE:     From storage at Dawn.   All right.
27        Now, as I understand it, the Michigan price that you
28   were using, sticking with the ANR example, for gas was the
                                                                    137



 1   difference between the price injected in June and the price
 2   of gas withdrawn in December in both cases in 2004.
 3         MS. McCONIHE:   No.    I took the price in June as the
 4   basis.
 5         MR. LESLIE:   Right.
 6         MS. McCONIHE:   For the ANR gas price.
 7         MR. LESLIE:   I thought that you'd also used the
 8   withdrawal price in December of 2004.
 9         MS. McCONIHE:   But just the storage rate for
10   withdrawal.
11         MR. LESLIE:   That was just the storage rate?
12         MS. McCONIHE:   Right.
13         MR. LESLIE:   So you applied that to the base price
14   that you would calculated from June?
15         MS. McCONIHE:   Right.
16         MR. LESLIE:   Okay.    Well, I'm glad we asked these
17   questions.
18            And so that was an add-on, rather than a subtraction.
19   You didn't subtract one price from another; you added it
20   on?
21         MS. McCONIHE:   Yes.
22         MR. LESLIE:   Call the price of the gas injected X, the
23   cost of withdrawal Y.    You took X, added I, and that gave
24   you one of your numbers?
25         MS. McCONIHE:   Yes.
26         MR. LESLIE:   And then to that you added
27   transportation.
28         MS. McCONIHE:   Yes.
                                                                   138



 1        MR. LESLIE:   And where did you get the information
 2   that you used to calculate the price of the gas that was
 3   injected?
 4        MS. McCONIHE:    I used the Enerdata database.
 5        MR. LESLIE:   And you used the high and low price?
 6        MS. McCONIHE:    Yes.
 7        MR. LESLIE:   And are those high and low prices
 8   time-specific, or how does that work?     I guess we can go to
 9   the database and figure it out.
10        MS. McCONIHE:    Yes, you could.
11        MR. LESLIE:   But I want to understand what you did.
12        MS. McCONIHE:    Yes, I took the high price, let's say,
13   in June and the low price in June.
14        MR. LESLIE:   But would that be for a given day in June
15   or for the whole month?
16        MS. McCONIHE:    It's the average for the whole month,
17   as reported by Enerdata.
18        MR. LESLIE:   How do you get a high and a low if you’re
19   doing averaging --
20        MS. McCONIHE:    Because there are different supply
21   sources for that gas being deliver from Michigan.     Could
22   come from Canada, could come from the Gulf Coast.
23        MR. LESLIE:   So there's an average low price and an
24   average high price?
25        MS. McCONIHE:    Yes.
26        MR. LESLIE:   I see.    And you took those.
27        MS. McCONIHE:    Yes.
28        MR. LESLIE:   As your high or low?
                                                                    139



 1        MS. McCONIHE:    Right.
 2        MR. LESLIE:   And where did you get the number that you
 3   used for the cost of withdrawing the gas from storage?
 4        MS. McCONIHE:    From the rate schedule.
 5        MR. LESLIE:   And does the rate schedule just have one
 6   number on it?
 7        MS. McCONIHE:    Yes.
 8        MR. LESLIE:   And that would be the ANR rate schedule,
 9   would it?
10        MS. McCONIHE:    That's correct.
11        MR. LESLIE:     Did you do this calculation in the same
12   fashion for each of these locations?
13        MS. McCONIHE:    Yes.
14        MR. LESLIE:   Any differences at all?
15        MS. McCONIHE:    What do you mean difference, in
16   methodology?
17        MR. LESLIE:   Differences in methodology.    I mean was
18   there different data available to you?
19        MS. McCONIHE:    No, I used it all from the same source.
20        MR. LESLIE:     I'm sorry.   What I was trying to
21   understand was whether there were any inconsistencies in
22   the data that you had available to you that would cause you
23   to do the calculation differently in some cases.
24        MS. McCONIHE:    No.
25        MR. LESLIE: And then the number that you compared that
26   calculation with was the cost of storage of Union?
27        MS. McCONIHE:    It was the deliver price in June, high
28   and low, the average as reported on Enerdata.
                                                                      140



 1        MR. LESLIE:    Right.
 2        MS. McCONIHE:     And that again has different supply
 3   bases.    So you could get a high and low.
 4        MR. LESLIE:    Okay.     And where did you get your
 5   transportation number?
 6        MS. McCONIHE:     Enerdata provides transportation
 7   numbers for each of their market segments.      We also went in
 8   some cases to the tariff.      We went to your tariff.     And
 9   then Schlesinger also provided me with transportation
10   numbers per his survey.
11        MR. LESLIE:    Can you provide us with the working
12   papers that you had?
13        MS. McCONIHE:     Certainly.
14        MR. LESLIE:    From doing that, including Mr.
15   Schlesinger’s input?
16        MS. McCONIHE:     Certainly.    I believe you have Mr.
17   Schlesinger’s input, and I believe it's Exhibit 1 at the
18   back of the study here.
19        MS. CAMPBELL:     The chart at the back is all the BSA
20   work --
21        MS. McCONIHE:     But I don't believe that that actually
22   has the transportation column in it, so I should provide
23   you that.
24        MR. LESLIE:     It's more the way these things were
25   calculated that -- can you refer to Exhibit 1?
26        MS. McCONIHE:     Yes.
27        MR. LESLIE:    I don't know as I have any --
28        MS. CAMPBELL:     Right after page 35.
                                                                     141



 1           MS. KLEIN:    Number 14.   It's chapter 14.
 2           MR. LESLIE:   Oh, yes, indeed.    Sorry.   I had an
 3   alphabetic reference in front of it.        Yes, I understand
 4   that.    Thank you.
 5           MS. SEBALJ:   So do we have an undertaking.
 6           MR. LESLIE:   I think so, yes.
 7           MS. SEBALJ:   So, Board hearing team Undertaking No. 1
 8   is to provide the working papers for the calculations
 9   conducted in table 2 of Dr. McConihie’s evidence.
10           BHT UNDERTAKING NO. 1:     TO PROVIDE WORKING PAPERS
11           FOR TABLE 2 CALCULATIONS

12           MS. CAMPBELL:   Did you say table 2?
13           MS. SEBALJ:   Is that not accurate, table 2?
14           MS. CAMPBELL:   Yes.   Thank you.
15           MR. LESLIE:   I may have asked you this, but tell me if
16   I have.    Where did you get your transportation costs from?
17           MS. McCONIHE:   I got them from the pipeline tariffs,
18   or I got it from Enerdata, or I got it from Schlesinger,
19   and then that's it.
20           MR. LESLIE:   Will we be able to tell from what you're
21   going to give us in response to that undertaking what the
22   source was?
23           MS. McCONIHE:   I'll have to look at the spreadsheets.
24   I believe there's an indication of each transportation
25   rate, where it came from.
26           MR. LESLIE:   I assume when you were looking at the
27   transportation rates you were looking at the tariff rates?
28           MS. McCONIHE:   Yes.
                                                                  142



 1        MR. LESLIE:   And was there more than one firm rate, or
 2   interruptible rate or whatever?
 3        MS. McCONIHE:   Yes.
 4        MR. LESLIE:   Did you use one or the other of those?
 5        MS. McCONIHE:   Yes.
 6        MR. LESLIE:   Which?
 7        MS. McCONIHE:   Firm.
 8        MR. LESLIE:   Always firm.
 9        MS. McCONIHE:   Yes.
10        MR. LESLIE:   Were there any other possibilities, apart
11   from firm and interruptible?    I think the answer is no.
12        MS. McCONIHE:   No is the correct answer.
13        MR. LESLIE:   Okay.    Now, as I understand it, what you
14   were testing here was whether or not the differentials were
15   more or less than 10 percent?
16        MS. McCONIHE:   That's correct.
17        MR. LESLIE:   And if they're less than 10 percent, in
18   your view, that suggests that those prices are competitive,
19   and if they're more they're not; is that correct?
20        MS. McCONIHE:   I didn't get the last word.
21        MR. LESLIE:   If they were less than 10 percent, you
22   regarded them as being potentially competitive, and if they
23   were more than 10 percent, you regarded them as being not
24   competitive.
25        MS. McCONIHE:   That's correct.
26        MR. LESLIE:   So, where I see 4.2, that suggests that
27   that would be, assuming you can get it, and I know you take
28   issue with that, that would be a competitive price?
                                                                  143



 1        MS. McCONIHE:    Yes.
 2        MR. LESLIE:    Did you do any analysis -- I know you
 3   haven't done in your report, but I wondered if you did it
 4   as part of your work -- pricing at Dawn in comparison to
 5   markets in the northeast United States?
 6        MS. McCONIHE:    No, I did not do that.
 7        MR. LESLIE:    Now, you rely on Mr. Schlesinger, or Ben
 8   Schlesinger Associates -- I assume it was Mr. Schlesinger
 9   that you were dealing with?
10        MS. McCONIHE:    That's correct.
11        MR. LESLIE:    For a good deal of your evidence about
12   the ability to get gas from Ontario to other locations.      I
13   mean, it's your proposition that storage in Ontario is
14   locked in.    You can't use it outside of Ontario because you
15   can't move it?
16        MS. McCONIHE:    That's correct.
17        MR. LESLIE:    And for that proposition you rely, I take
18   it, almost entirely on work that Mr. Schlesinger did?
19        MS. McCONIHE:    That's correct.
20        MR. LESLIE:    Now, did he produce a written report?
21        MS. McCONIHE:    He produced the exhibit that we're just
22   looking at.
23        MR. LESLIE:    And that's all of his work, is it?
24        MS. McCONIHE:    That's correct.
25        MR. LESLIE:    Let me just turn that up, sorry.   Do you
26   know how he compiled the information?
27        MS. McCONIHE:    He did a survey.
28        MR. LESLIE:    Yes, but do you know how he did it?
                                                                   144



 1        MS. McCONIHE:    He had a set script of questions that
 2   he put to each of these providers.
 3        MR. LESLIE:   Can you provide us with the questions
 4   that he asked?
 5        MS. McCONIHE:    Yes.
 6        MR. LESLIE:   That's Board hearing team Undertaking
 7   No. 2, to provide the questions in the survey related
 8   to Exhibit No. BMM-1.
 9        BHT UNDERTAKING NO. 2:     TO PROVIDE QUESTIONS IN
10        SURVEY RELATED TO EXHIBIT BMM-1

11        MR. LESLIE:     And was this all done in writing, do you
12   know, or did he also have interviews?
13        MS. McCONIHE:    Did he also have what?
14        MR. LESLIE:     Interviews.
15        MS. McCONIHE:    It was a telephone survey, so the
16   questions, it was kind of an oral questioning.    That's what
17   I would call interviews.
18        MR. LESLIE:   I see.    So he had a list of questions
19   that he was using for purposes of interviewing people on
20   the telephone?
21        MS. McCONIHE:    Yes.
22        MR. LESLIE:   And he talked to each one of these -- the
23   companies that are listed here?
24        MS. McCONIHE:    He or his staff did.
25        MR. LESLIE:   He or his staff?
26        MS. McCONIHE:    Yes.
27        MR. LESLIE:     Well, you'll be providing with us the
28   list of questions that he was using.
                                                                  145



 1        MS. McCONIHE:   Yes.
 2        MR. LESLIE:   And do you know whether as a result of
 3   those conversations on the telephone, Mr. Schlesinger or
 4   his staff took any notes on the content of those
 5   conversations.
 6        MS. McCONIHE:   I would assume that they did.   Who they
 7   contacted, what they said.
 8        MR. LESLIE:   Right.    Would you ask Mr. Schlesinger if
 9   he would provide us with copies of any notes of that kind
10   that he has?
11        MS. McCONIHE:   Yes.
12        MS. SEBALJ:   It's Board hearing team Undertaking No.
13   3, notes of, I'll say BSA, as opposed to Mr. Schlesinger.
14        MR. LESLIE:   Yeah, that's fine.
15        MS. SEBALJ:   With respect to Exhibit No. BMM-1.
16        BHT UNDERTAKING NO. 3:     NOTES OF MR. SCHLESINGER

17        MR. LESLIE:   I notice in some instances Mr.
18   Schlesigner, and this is Exhibit 1 refers to a rate, I
19   think the first time that occurs is on page 37, it's the
20   second box in from the left.    And he says:
21              "Firm off system transportation is not
22              available, only IT rate is available under
23              rate schedule."
24        Then he refers to the number:    "The maximum rate
25   is..."   That looks like twenty 21 cents a decatherm.
26        And then he says, “... which is negotiable.”
27        Do you know what that means?
28        MS. McCONIHE:   No, I don't.   What I would assume,
                                                                  146



 1   though, is that they could charge something less than that
 2   max rate.
 3        MR. LESLIE:   But you don't know whether that means
 4   they can charge less or more?
 5        MS. McCONIHE:    A max rate is a ceiling.
 6        MR. LESLIE:   All right.   But you're inferring that
 7   from the wording as opposed to having any actual knowledge?
 8        MS. McCONIHE:    That's correct.
 9        MR. LESLIE:   Did you use this data to compile your
10   table 2 at page 24?
11        MS. McCONIHE:    No.
12        MR. LESLIE:   No.
13        MS. McCONIHE:    Excuse me.   Let me correct that.   Only
14   to the extent that he provided pipeline rates to the
15   market.
16        MR. LESLIE:   So the negotiable rates or the rates that
17   might be negotiable did not enter into your calculation?
18        MS. McCONIHE:    That's correct.
19        MR. LESLIE:   Do you know whether Mr. Schlesinger, when
20   he was doing his survey, tested the availability of
21   transportation capacity by having telephone conversations
22   with any of the marketers that we referred to earlier?
23        MS. McCONIHE:    No, he did not.
24        MR. LESLIE:   Did he in any way factor secondary
25   market transactions into his unless or into the report he
26   gave you?
27        MS. McCONIHE:    I believe he looked at it but it wasn't
28   part of this assignment.
                                                                     147



 1         MR. LESLIE:   His mandate was to find out what firm
 2   capacity was available on these various pipelines.
 3         MS. McCONIHE:    That's correct.
 4         MR. LESLIE:   From the pipeline company itself.
 5         MS. McCONIHE:    That's correct.
 6         MR. LESLIE:     Okay.   Could you look at page 27 of your
 7   evidence.    You have done your market share calculation, as
 8   I understand it, based on capacity available to third
 9   parties?
10         MS. McCONIHE:    That's correct.
11         MR. LESLIE:   The number that you use for Union, and
12   this is in, I think it's Exhibit D1, and again in Exhibit
13   D2.   The pages 58 and 60 of your evidence, is -- do you
14   have that?
15         MS. McCONIHE:    Yes.
16         MR. LESLIE:   The number you use is 134,000, roughly
17   134,000 MMCF.
18         MS. McCONIHE:    Right.
19         MR. LESLIE:   And that would be 134 Bcf.
20         MS. McCONIHE:    Right.
21         MR. LESLIE:   And 134 Bcf would be closer to Union's
22   total capacity, would it not?
23         MS. McCONIHE:    That's correct.
24         MR. LESLIE:   Should that number be 67,000 MMCF.
25         MS. McCONIHE:    I didn't consider it at the time.    I
26   think I would have to think about the logic of that.
27         MR. LESLIE:   Will you do that and let us know?
28         MS. McCONIHE:    Yes.
                                                                    148



 1        MR. LESLIE:    Because the available capacity that Union
 2   had -- well, you understand why I'm asking the question?
 3        MS. McCONIHE:    Yes.
 4        MR. LESLIE:    With respect to the other storage
 5   companies that you're comparing, that you're using for the
 6   market share calculation, how did you get the number that
 7   you used for their capacity available to third parties?
 8        MS. McCONIHE:    I used the gas intelligence data.
 9        MR. LESLIE:    I'm sorry?
10        MS. McCONIHE:    I used the gas intelligence, I'm
11   probably misquoting the actual name of the source, but it's
12   the gas intelligence database that provides storage
13   capacities.   I believe it should be sourced in here.
14        MR. LESLIE:    All right, well, if it isn’t, can you
15   you give us the source so that we can find it?
16        MS. McCONIHE:    I can give it to you now.   It's Natural
17   Gas Intelligence.
18        MS. CAMPBELL:    What page is it on?
19        MS. McCONIHE:    61.
20        MR. LESLIE:    Oh, yes.
21        MS. CAMPBELL:    There it is.
22        MR. LESLIE:    I'm told that that database has different
23   editions, I guess it gets revised from time to time.      Do
24   you know which edition you used?
25        MS. McCONIHE:    I have the current edition available.
26   I have just recently bought it.
27        MR. LESLIE:    No, I wonder for the purpose of your
28   study, is that the one you used?     Is that the current one?
                                                                        149



 1           MS. McCONIHE:   Yes.     Yes.
 2           MR. LESLIE:   All right.    Thank you.   I just want to
 3   make sure we're not looking at the wrong one.
 4           MS. McCONIHE:   Right.
 5           MR. LESLIE:   On Exhibit D2, which is at page --
 6           MS. McCONIHE:   60.
 7           MR. LESLIE:   60.   Thank you.    You have included in
 8   your market share analysis Nisource and Dominion, but you
 9   have omitted, or left out MichCon and DTE.         I guess DTE
10   owns Washington 10, doesn't it?         What was the reason for
11   that?
12           MS. McCONIHE:   According to the database, most of
13   DTE's storage is for its own LDC use.         I'd have to review
14   Washington 10, where that is in the database, and see what
15   happened.
16           MR. LESLIE:   Could you do that for me, please?
17           MS. McCONIHE:   Yes.
18           MR. LESLIE:   And similarly with MichCon, is that
19   because the database indicates that MichCon uses all the
20   storage available to it for its own use in.
21           MS. McCONIHE:   Yes.
22           MR. LESLIE:   It's all capped according to the
23   database.
24           MS. McCONIHE:   Yes.
25           MR. LESLIE:   All right, well, if you could check and
26   find out what happened to Washington 10, and just whether
27   or not that's why DTE doesn't appear in here?
28           MS. SEBALJ:   Can I ask whether these requests are by
                                                                     150



 1   way of undertaking or whether we have any agreement or are
 2   we just agreeing to make available.
 3        MR. LESLIE:     I'm assuming they're an undertaking
 4   unless somebody says no.    Do you want a list?    I mean,
 5   they'll be in the transcript.
 6        MS. SEBALJ:     Yes, but they need to be in the
 7   transcript as undertakings, otherwise they won't be filed
 8   as undertakings.
 9        So I need sort of agreement among counsel if it's an
10   undertaking before it becomes an undertaking.      So I'll do
11   that as Undertaking No. 4, which is, I guess, to get back
12   with respect to MichCon and Washington 10, and why no
13   inclusion in Exhibit D2, but there may have been previous
14   requests that have to be listed --
15        MR. LESLIE:     Yeah, I'll be a little more careful.
16   I didn't appreciate.    I thought perhaps the reporter was
17   keeping track of the undertakings.      But to the extent that
18   there are any requests that I've made for information.
19        BHT UNDERTAKING NO. 4:       TO GET BACK WITH RESPECT TO
20        MICHCON AND WASHINGTON 10 AND WHY NO INCLUSION IN
21        EXHIBIT D2

22        MR. LESLIE:     And you have agreed to give it to me, if
23   you can, can I treat those all as undertakings and we can
24   sort out the numbering later?.
25        MS. McCONIHE:     I would believe so unless counsel
26   decides otherwise.
27        MR. LESLIE:     Thank you.
28        MS. CAMPBELL:     I believe there's one other, and
                                                                    151



 1   looking at my list, and I believe it was a calculation.
 2        MR. LESLIE:     Yeah, I know I asked for some stuff
 3   around Mr. Schlesinger's work, and I'm not sure that all
 4   those requests got numbered.
 5        MS. SEBALJ:     Well, I have the survey questions from
 6   BSA, I have the notes from BSA, but there was one other
 7   before this one.
 8        MS. McCONIHE:     It was table 2.   The calculations of
 9   table 2.
10        MS. SEBALJ:     No, the working papers of table 2 are
11   Undertaking No. 1.
12        MS. McCONIHE:     All right.
13        MR. LESLIE:     I'm sure we'll sort it out.
14        MS. SEBALJ:     Yes, we'll get it sorted out.
15        MR. LESLIE:     Just going back for a moment,
16   Ms. McConihe, in relation to the number that you used for
17   Union, 134,000 MMCF, why did you use that number?
18        MS. McCONIHE:     I wanted to provide consistent data
19   from the same data source.
20        MR. LESLIE:     And that was the number you got from that
21   data source?
22        MS. McCONIHE:     Yes.
23        MR. LESLIE:     For Union?
24        MS. McCONIHE:     Yes.
25        MR. LESLIE:     But you were aware when you did that that
26   Union, in its infranchise requirements for storage, were
27   approximately 80,000 MMCF, and that its exfranchise sales
28   were approximately 70,000 MMCF?     Or did you find that out
                                                                   152



 1   later?
 2        MS. McCONIHE:    I was aware of it but I did not
 3   consider it in doing this calculation.
 4        MR. LESLIE:     All right.   Thank you.
 5        Why did you include US storage capacity held by
 6   Canadians, or people in Ontario, I guess, in your market
 7   definition?    I guess your geographic market definition,
 8   really.
 9        MS. McCONIHE:    Well, to the extent the Canadian users
10   use US storage, I think that's an important point.
11        MR. LESLIE:    And why is it an important point?
12        MS. McCONIHE:    It shows that the price of storage is
13   competitive with Ontario for those few customers.    They
14   must have done some calculation to figure out that it was
15   economic to use Michigan or New York storage.
16        MR. LESLIE:    Yes, indeed, but I guess my question was
17   really aimed at why did you include them in your
18   geographic market definition and exclude all the rest of
19   the storage?
20        MS. McCONIHE:    I don't understand your question.
21        MR. LESLIE:    What specifically -- why did you limit
22   the amount of storage outside of Ontario to that held by
23   Canadian customers when you were defining your geographic
24   markets?
25        MS. McCONIHE:    Because that's obviously -- Canadian
26   customers' ownership of storage is relevant to the market
27   calculation.
28        MR. LESLIE:    So, if a marketer such as Nexen held
                                                                   153



 1   storage in Michigan.
 2        MS. McCONIHE:     Right.
 3        MR. LESLIE:   You did not include that in your
 4   assessment of the market?
 5        MS. McCONIHE:     Which assessment?
 6        MR. LESLIE:   Well, the assessment of the market, the
 7   geographic market, that's relevant to your determinations
 8   of market power.
 9        MS. McCONIHE:     No, I did not.
10        MR. LESLIE:   Nor did you include storage held by
11   anyone who you couldn't identify as a Canadian?
12        MS. McCONIHE:     That's correct.   And the reason why is
13   because I don't know whether that storage is being used in
14   Michigan or New York by those entities or whether it goes
15   on to Ontario.
16        MR. LESLIE:   Right, so you didn't know where it went,
17   so you left it out?
18        MS. McCONIHE:     Right.
19        MR. LESLIE:   Then I take it that would apply also to
20   -- I'm told there are US storage users who have capacity in
21   Michigan who ship through Ontario to their own locations.
22   Are you aware of that?
23        MS. McCONIHE:     Could you rephrase that?
24        MR. LESLIE:   There are customers for storage located
25   east of Union who have storage in Michigan, and ship
26   through Union's system, through Dawn, or... in order to get
27   the storage to where they are.    And I wondered whether or
28   not you had included any of that in your market share
                                                                    154



 1   calculations?
 2           MS. McCONIHE:    I'm not aware of that fact.
 3           MR. LESLIE:   You’re not aware of that.   All right.
 4           MR. LESLIE:   As I understand your proposals, you're
 5   recommending that the Board continue to regulate Union's
 6   storage and to require Union to sell the storage at rates
 7   which are cost-of-service rates?
 8           MS. McCONIHE:    That's correct.
 9           MR. LESLIE:     You would give them a slightly -- well, I
10   shouldn't say slightly.        Would you would give them a better
11   return on equity than they're currently getting.       You make
12   a recommendation that the return on equity should be
13   something like 20 percent?
14           MS. McCONIHE:    Not necessarily.
15           MR. LESLIE:   I misread that.    What is the 20 percent,
16   then?
17           MS. McCONIHE:    The 20 percent is what FERC reports
18   that new storage developers require for new storage
19   facilities.
20           MR. LESLIE:   I see.    So it would only be 20 percent if
21   it was new storage?
22           MS. McCONIHE:    That's correct.
23           MR. LESLIE:   Well, leaving that aside, as I understand
24   your recommendation, Union would continue to sell -- or
25   would sell storage -- it wouldn't continue to sell, it
26   would go back to selling storage at cost-of-service rates,
27   whatever the return was.
28           And marketers could buy that storage at those rates
                                                                   155



 1   and then resell it at higher prices, potentially.     And you
 2   regard that as creating some efficiency in the market, do
 3   you?
 4          MS. McCONIHE:   That's correct.
 5          MR. LESLIE:   Why is that?
 6          MS. McCONIHE:   That's because secondary markets
 7   provide market signals that indicate that storage is in
 8   excess or it is in scarcity.
 9          MR. LESLIE:   Right.   But why is it appropriate for
10   Union to sell at one price and marketers to sell at
11   another, and the marketers keep the difference?
12          MS. McCONIHE:   It's because they have contractual
13   rights to that storage and by capacity release their
14   prioritizing the capacity that has been contracted for.       If
15   they have a contract --
16          MR. LESLIE:   So you're saying they should keep the
17   difference because they bought it and they can resell it at
18   a higher price; is that right?
19          MS. McCONIHE:   No, they've contracted for that
20   storage.   And if they're not using it all or they want to
21   realize some price gains, they're welcome to redistribute
22   the capacity held under their names.
23          MR. LESLIE:   Well, believe me, if I could get into the
24   business, I'd contract for that storage too.     I'd be buying
25   it at cost and selling it at market, wouldn’t I?
26          MS. McCONIHE:   Yes, but it's an efficient way to
27   prioritize storage.
28          MR. LESLIE:   And why is it efficient?
                                                                    156



 1        MS. McCONIHE:     Because those people that value storage
 2   more can get access to the storage currently under
 3   contract.
 4        MR. LESLIE:     And why would that not be true in Union
 5   sold at market base rates to markets?
 6        MS. McCONIHE:     Because there's no ability to limit the
 7   price other than your ceiling rate for the market.
 8        MR. LESLIE:     Well, no, I'm sorry, my question was, why
 9   would it be less efficient if Union were to sell to
10   markets, and everyone else for that matter outside the
11   franchise, at market rates and let them resell it if they
12   chose to do so?
13        MS. McCONIHE:     Excuse me.   Rephrase the question?
14        MR. LESLIE:     Why would it be more efficient have Union
15   sell at cost than others sell at market?     Why would that be
16   more efficient -- I'm sorry, I haven't finished.
17            Why would that be more efficient than letting Union
18   sell at market and if the people who bought it at market
19   could get more than that for it, let them do that?
20        MS. McCONIHE:     Because the market-based price might be
21   set too high by Union by virtue of its monopoly.
22        MR. LESLIE:     Oh, we're assuming Union has a monopoly.
23   I see.    Okay.   So you're saying Union's market price might
24   be too high?
25        MS. McCONIHE:     That's correct.
26        MR. LESLIE:     So then they couldn't resell it?
27        MS. McCONIHE:     They may resell it but it's going to be
28   at a much higher price, which would indicate to me that
                                                                    157



 1   maybe no new storage needs to be developed.
 2        MR. LESLIE:     And would it be appropriate for Union to
 3   develop new storage at cost-of-service rates?
 4        MS. McCONIHE:    Yes.
 5        MR. LESLIE:     And why is that the case?
 6        MS. McCONIHE:    That's because you have a set demand
 7   that you're building the storage for.     Your LDC customers.
 8   Your infranchise customers.
 9        MR. LESLIE:     So it would only be new storage for
10   infranchise users?
11        MS. McCONIHE:    Or exfranchise.    Doesn't matter.
12   They're both the same.    They're cost-of-service.
13        MR. LESLIE:     So Union could develop new storage at
14   cost-of-service rates in competition with others who wanted
15   to develop storage.
16        MS. McCONIHE:    That's correct.
17        MR. LESLIE:     And would that not, in your view, inhibit
18   the others?
19        MS. McCONIHE:    Would that what?
20        MR. LESLIE:     Not inhibit the others?
21        MS. McCONIHE:    Why would it inhibit?
22        MR. LESLIE:     Well, because Union would be selling at
23   much lower prices than they could charge.
24        MS. McCONIHE:    If you look at the New England
25   situation, that's exactly what’s happened there.     The large
26   storage provider CNG have a huge percentage of the share of
27   storage capacity.    Therefore FERC allows new storage.
28   independent storage to a charge market-based rates
                                                                 158



 1   because the rate is going to be capped at the cost-of-
 2   service.
 3        MR. LESLIE:   It's been suggested I ask you when was
 4   the last time that Dominion or CNG expanded storage
 5   capacity.
 6        MS. McCONIHE:    I think Dominion recently expanded.   I
 7   remember seeing a trade press, or FERC document that showed
 8   that Dominion was expanding storage.
 9        MR. LESLIE:   Do you know one way or the other?
10        MS. McCONIHE:    I could check.
11        MR. LESLIE:   Could you?
12        MS. McCONIHE:    Yes.
13        MR. LESLIE:   Could we give that a number?
14        MS. SEBALJ:   That will be Undertaking No. 6 -- sorry,
15   Board Hearing Team Undertaking No. 6.
16        BHT UNDERTAKING NO. 6:     TO PROVIDE THE LAST TIME THAT
17        DOMINION OR CNG EXPANDED ITS STORAGE CAPACITY

18        MR. LESLIE:   So I take it from your answers to my
19   earlier questions that, in your view, what's happening
20   right now, that is, Union selling at market rates
21   exfranchise is producing an inefficient situation.
22        MS. McCONIHE:    That's correct.
23        MR. LESLIE:     And marketers could not, given that Union
24   has market power, marketers could not resell the storage
25   that they get from Union if marketers are buying from Union
26   at competitive rates?
27        MS. McCONIHE:    Could you rephrase the question?
28        MR. LESLIE:     Well, I think it follows from your
                                                                  159



 1   answers that, given that Union is currently selling at
 2   market-based rates, and given that in your view they have
 3   market power, as matters currently stand there is very
 4   little room for marketers, for independent marketers, to
 5   resell that gas in a secondary market.
 6        MS. McCONIHE:     That is hard to tell because there's no
 7   price discovery in terms of what market prices you are
 8   charging.
 9        MR. LESLIE:     Right.   But if there were an active
10   secondary market in the resale of storage originally
11   acquired from Union at unregulated rates, at market-based
12   rates, then that would run counter to your concerns?
13        MS. McCONIHE:     My concerns?
14        MR. LESLIE:     Your concern about Union charging too
15   high a price to allow for a secondary market.
16        MS. McCONIHE:     I don't understand this question.
17        MR. LESLIE:     Well, perhaps -- it's a complicated
18   question in a way.
19        On your view of the thing, if Union is currently
20   selling at market rates, there shouldn't be a secondary
21   market for Union's storage at all.
22        MS. McCONIHE:     There can't be a secondary market
23   without price discovery.
24        MR. LESLIE:     Well, if someone buys from Union and
25   resells the storage, say Nexen buys storage from Union and
26   resells it to a customer, packages and resells it, is that
27   not a secondary market?
28        MS. McCONIHE:     Yes, it could be.
                                                                  160



 1        MR. LESLIE:   And if such a market currently exists,
 2   would that indicate that the prices that exist in the
 3   primary market, i.e., between Union and Nexen, in my
 4   example, are competitive prices?
 5        MS. McCONIHE:   One of the characteristics of a
 6   secondary market is that there be price discovery.     And
 7   knowledge of available capacity, which does not now exist.
 8        MR. LESLIE:   I see.   So you have to have transparency
 9   to have a secondary market?
10        MS. McCONIHE:   Yes.
11        MR. LESLIE:   So, if Nexen is buying and selling
12   storage across Union's franchise into Michigan and
13   whatever, and nobody know what they're getting for it, then
14   there's no secondary market, is that what you're saying?
15        MS. McCONIHE:   That's correct.
16        MR. LESLIE:   What is that market, then?
17        MS. McCONIHE:   That's probably price arbitrage.
18        MR. LESLIE:   Price arbitrage.
19        MS. McCONIHE:   Yes.
20        MR. LESLIE:   And how does price -- is the only
21   difference between price arbitrage and a secondary market
22   the transparency element?
23        MS. McCONIHE:   No, not at all.
24        MR. LESLIE:   What other differences are there?
25        MS. McCONIHE:   You have to know how much capacity is
26   available in the markets so that buyers and sellers know
27   the extent of the excess or scarcity of storage.
28        MR. LESLIE:   All right, but does it matter how you
                                                                      161



 1   find out?
 2        MS. McCONIHE:       Yes.
 3        MR. LESLIE:       Why?
 4        MS. McCONIHE:       All market participants should be able
 5   to have the same information.      Currently, you are only
 6   person that has the information, and therefore you have
 7   leverage over everybody.
 8        MR. LESLIE:       Well, I understand your views on that but
 9   if I sell to Nexen, and Nexen resells it to a customer who
10   needs storage, in your view that is not a secondary market
11   transaction.
12        MS. McCONIHE:       Not unless the market is more
13   structured.
14        MR. LESLIE:       Not unless that price is posted on a
15   website somewhere.
16        MS. McCONIHE:       Right.
17        MR. LESLIE:       And the amount of capacity.
18        MS. McCONIHE:       Right.
19        MR. LESLIE:       And there could be a hundred of those
20   transactions a day, involving Nexen, BP, Coral, and other
21   marketers, and that still wouldn't be a secondary market.
22   MS. McCONIHE:    No.
23        MR. LESLIE:       At page 34 of your evidence, you
24   recommend that there be functional separation between
25   Union's storage operations and its transportation
26   operations.    Is that correct?
27        MS. McCONIHE:       That's correct.
28        MR. LESLIE:       Does Union's current proposal cause you
                                                                    162



 1   to rethink that in any way?     That is, to continue to
 2   regulate infranchise storage and deregulate exfranchise
 3   storage?
 4           MS. McCONIHE:   No.
 5           MR. LESLIE:   Is that recommendation a precursor to
 6   deregulation of the exfranchise sales or is it something
 7   that you would recommend even if all the storage continued
 8   to be regulated?
 9           MS. McCONIHE:   I would recommend it even if all
10   storage is regulated.
11           MR. LESLIE:   And why is that?
12           MS. McCONIHE:   The ownership of transportation and
13   storage provides you with an opportunity to manipulate the
14   market.
15           MR. LESLIE:   But if you're regulated, how does that
16   work?
17           MS. McCONIHE:   You could provide favouritism to a
18   storage developer than an affiliate of yours.
19           MR. LESLIE:   Well, there are codes of conduct and the
20   OEB is there to regulate that, so how do you do it?
21           MS. McCONIHE:   Well, that code of conduct is a
22   self-governing code of conduct.      You control the
23   information, and to the extent that you don't solve the
24   problem, it goes to the Board.
25           MR. LESLIE:   So you're assuming that regulation of
26   those elements is ineffective, and that Union could
27   surreptitiously or otherwise, discriminate?
28           MS. McCONIHE:   That's correct.
                                                                   163



 1        MR. LESLIE:     So even if everything remains related,
 2   you would recommend that functional separation.
 3        MS. McCONIHE:     That's correct.
 4        MR. LESLIE:     And I take it your views on
 5   cross-subsidizdation, which you mention, are consist with
 6   what you've just said that the cross substation could occur
 7   notwithstanding regulation.
 8        MS. McCONIHE:     That's correct.
 9        MR. LESLIE:     Through surreptitious means?
10        MS. McCONIHE:     That's correct.
11        MR. LESLIE:     At page 35 of your evidence, you talk
12   about distinguishing between a core market and a non-core
13   market.   And I'm using "market" not in a technical way.      I
14   think you were as well.
15        Within Union's -- for purposes of Union's sales, I
16   guess, of storage.
17        What's the purpose of that distinction?
18        MS. McCONIHE:     That distinction would put into the
19   exfranchise pot, let's say, infranchise customers who have
20   elected to depart from the LDC system, that procure their
21   own gas and so forth.    They should procure their storage on
22   their own, and not be under the umbrella of the
23   infranchise.
24        MR. LESLIE:     Oh, so anyone who gets unbundled storage.
25        MS. McCONIHE:     Right.
26        MR. LESLIE:     Or unbundled transportation would be
27   treated as an exfranchise customer; is that correct?
28        MS. McCONIHE:     That's correct.
                                                                   164



 1        MR. LESLIE:   And what's the purpose of that?
 2        MS. McCONIHE:   The purpose of that is that if you do a
 3   functional separation between a core and non-core, that the
 4   decision-making on the core on the core services would be
 5   managed by a separate entity than those managing the
 6   non-core.
 7        MR. LESLIE:   And what would that end be?
 8        MS. McCONIHE:   They might be different subsidiaries of
 9   Union.
10        MR. LESLIE:   So you would have one group within Union
11   managing the core customers and another group dealing with
12   the non-core customers.
13        MS. McCONIHE:   Yes.
14        MR. LESLIE:   And they wouldn't be allowed to have any
15   intercourse?
16        MS. McCONIHE:   Right.
17        MS. CAMPBELL:   Seems a little harsh.
18        MR. LESLIE:   I couldn't resist.   I wondered how many
19   people would react that way.
20        And would that division coincide with the division
21   between storage and transportation or would that be at
22   another division within the --
23        MS. McCONIHE:   It would coincide.
24        MR. LESLIE:   It would coincide.   So the people that
25   were dealing with transportation would be dealing with
26   which of those two groups?
27        MS. McCONIHE:   Transportation would be a unit unto
28   itself that has no interaction other than market
                                                                    165



 1   interaction with the transportation provider.
 2        MR. LESLIE:   So it would be a separate department over
 3   here, and then you would have another department dealing
 4   with storage, and then you would have two other groups
 5   dealing with the core and the non-core, is that…
 6        MS. McCONIHE:     No, you wouldn't have one person
 7   dealing with storage.        You would have two separate storage
 8   companies.
 9        MR. LESLIE:   Right, one to deal with the core and one
10   to deal with the non-core?
11        MS. McCONIHE:     That's correct.
12        MR. LESLIE:   But that wouldn't be necessary on the
13   transportation side?
14        MS. McCONIHE:     No.
15        MR. LESLIE:   It would just be one transportation
16   company.
17        MS. McCONIHE:     That's correct.
18        MR. LESLIE:   So there would be three companies.
19        MS. McCONIHE:     Right.
20        MR. LESLIE:   And that would be a functional division,
21   you would allow all of that to go on within the same
22   business organization, if I might --
23        MS. McCONIHE:     That's correct, as long as there are
24   codes of conduct to prevent the interaction of information
25   among those divisions.
26        MR. LESLIE:   And we have more confidence in those
27   codes of conduct than we do in the existing ones?
28        MS. McCONIHE:     Yes.
                                                                      166



 1        MR. LESLIE:     All right.
 2        I think I asked you about your resume, but have you
 3   done any work on competitive markets since the resume you
 4   gave us originally, the 2001 resume, that will be listed,
 5   will it be obvious from your new resume what work relates
 6   to analysis of competition?
 7        MS. McCONIHE:    Yes.
 8        MR. LESLIE:     All right.   Thank you.   Because I think
 9   you've already undertaken to provide us with anything --
10        MS. McCONIHE:    That's correct.
11        MR. LESLIE:     That we think might be relevant.
12        MS. McCONIHE:    Well, can I clarify that?    You're going
13   to ask for an undertaking for whatever might be on that
14   resume that you want information on.
15        MR. LESLIE:     Yes.
16        MS. McCONIHE:    I'm not going to provide you all of
17   those studies.
18        MR. LESLIE:     No, but if there's a study there that we
19   think might be relevant, and if we need a copy and we can't
20   get it anywhere else, I think you've agreed we could get it
21   from you.
22        MS. McCONIHE:    That's correct.
23        MR. LESLIE:     Are you aware that Union is expanding its
24   pipeline capacity?
25        MS. McCONIHE:    Yes, I am.
26        MR. LESLIE:     And similarly, I'm told Empire is
27   expanding their pipeline capacity.
28        MS. McCONIHE:    I have knowledge of that.
                                                                    167



 1        MR. LESLIE:   You do?
 2        MS. McCONIHE:    Yes.
 3        MR. LESLIE:   And Millennium.
 4        MS. McCONIHE:    I'm not sure.   I have a FERC document
 5   that lists all the capacity expansions currently going on
 6   in or around the US
 7        MR. LESLIE:   Do you know where the upstream capacity
 8   to fill those capacity additions in the three pipelines
 9   we've just referred to will come from?
10        MS. McCONIHE:    I haven't studied that.
11        MR. LESLIE:   You're aware that Ontario's in the
12   process of trying to convert its generating stations from
13   coal to gas?
14        MS. McCONIHE:    Yes, I am.
15        MR. LESLIE:   Do you know where the upstream pipeline
16   capacity to service those requirements will come from?
17        MS. McCONIHE:    No, I didn't focus on the demands.
18        MR. LESLIE:   I think that's all.    Thank you very much.
19        MS. McCONIHE:    You're welcome.
20        MS. SEBALJ:   Thank you, Mr. Leslie.    Mr. Smith.
21        CROSS-EXAMINATION BY MR. SMITH:

22        MR. SMITH:    Good afternoon.    My name is Laurie Smith,
23   and I'm here on behalf of Market Hub Partners Canada LP.
24        We had tried to provide some questions in advance to
25   help to expedite things a little bit.     Do you have a copy
26   of those questions?
27        MS. McCONIHE:    Yes, I do.
28        MR. SMITH:    If you want to turn them up, I'm going to
                                                                     168



 1   try and go through this pretty quickly.        A lot of the
 2   questions were retrieval, if I could put it that way.
 3           MS. McCONIHE:    Right.
 4           MR. SMITH:    And just to get your agreement to file or
 5   make those documents part of the record.
 6           I would like to see a copy of the updated CV.      In
 7   fact, we had raised that.         I wonder if you have a --
 8           MS. CAMPBELL:    I do have it.
 9           MS. CAMPBELL:    Did I give it to you?    You know, things
10   go by so quickly here.       I thought --
11           MS. SEBALJ:     I just said we're sure that's an updated
12   copy.
13           MR. SMITH:    It is, yes.
14           MS. CAMPBELL:    You can tell because the most recent
15   entry is May 2006.       That's sort of a clue.
16           MR. SMITH:    You bet.
17           Now, Ms. McConihe, we, Market Hub, have a particular
18   issue, which is the development of new storage, and as you
19   are aware, MHP Canada has a common parent with Union Gas.
20   There is a question that we posed numbered 1, which I'll
21   repeat, and I would ask if you could give us your views on
22   this.
23           In light of the proposed MHP Canada storage
24   developments and the existence of the affiliate protocols
25   outlined in its evidence, would you, Ms. McConihe, support
26   the grant to MHP Canada of market-based rate authority in
27   contracting flexibility similar to that afforded non-
28   affiliated independent storage developers?
                                                                      169



 1           MS. CAMPBELL:   And before you go any further, the
 2   question that I have is addressed to the intervenor, not to
 3   Ms. McConihe.    So I can tell you that this intervenor
 4   believes that the question is premature at this time.
 5           MR. SMITH:   I see.   And if the question was posed to
 6   the expert, Ms. McConihe, on the basis of your analysis,
 7   and your understanding of the market structure here, what
 8   would your position be?
 9           MS. CAMPBELL:   And I would just qualify that we
10   haven't heard Market Hub's evidence here.      We haven't had
11   the additional information that we would get through
12   questioning your expert or seeing your rely.      But that's my
13   only qualification.     The rest Ms. McConihe can provide you
14   with her reply with the information she has as of this
15   time.
16           MR. SMITH:   Yes.   And that's appreciated, and
17   obviously caveated by what may unfold as time progresses.
18           MS. McCONIHE:   Subject to new information from him, I
19   would say no.
20           MR. SMITH:   And I think I was trying to get to the
21   part where I said please describe reasons fully.      But
22   Ms. Campbell had interjected.      Could you help me out with
23   why; what are the factors, what are the issues in your
24   mind?
25           MS. McCONIHE:   In my mind, the fact that you're
26   affiliated with Union, who has the majority share of
27   capacity in Ontario, and that there are not price discovery
28   in the market, there are not strict codes of conduct in the
                                                                    170



 1   market to prevent affiliate abuse, I would say no.
 2           MR. SMITH:    Let me try and follow up a little on what
 3   Mr. Leslie had canvassed with you.       You made some
 4   recommendations with respect to, for example, a functional
 5   separation of Union's transmission function from its
 6   storage function.       If that were done, would that change
 7   your position?
 8           MS. McCONIHE:    No.
 9           MR. SMITH:    And why is that?
10           MS. McCONIHE:    I go back to the FERC decisions and
11   their monitoring of the market.       They never granted
12   market-based rates to affiliates developing storage that
13   also have a connection to transportation.
14           MR. SMITH:    Thank you for your position.   Let me move
15   on to question number 2, and rather than reading this into
16   the record we have asked for copies of certain prior
17   testimonies.    Are you prepared to provide those as copies
18   of -- or, sorry, as documents to form part of the record
19   here?
20           MS. McCONIHE:    Yes.
21           MR. SMITH:    And if we might simply register the
22   undertaking as an agreement to provide prior testimonies
23   described in question 2 of that document?
24           MS. McCONIHE:    Yes.
25           MS. SEBALJ:    So that's question 2 of what's now
26   Exhibit 4?
27           MR. SMITH:    Correct.
28           And if you like, perhaps we could build on these pure
                                                                      171



 1   retrieval questions and add, perhaps, to the one
 2   undertaking to avoid having to keep doing this.
 3            We also had asked you, in question 3, about a study
 4   you had prepared for Enbridge.      If you might refer to that
 5   question 3.
 6           MS. CAMPBELL:   And perhaps I can assist you with that,
 7   Mr. Smith.    Ms. McConihe has to get permission from
 8   Enbridge to release that, and I have spoken with Mr. Howe,
 9   who has spoken with someone at Enbridge, and they will be
10   responding to that request and we'll find out if they're
11   going to permit Ms. McConihe to release it.
12           MR. SMITH:   Right.
13           MS. CAMPBELL:   So, subject, of course, to what
14   Enbridge says, we're going to provide it if we're given
15   permission to do so.
16           MR. SMITH:   Fair enough.   My suggestion, if this is
17   convenient, Ms. Sebalj, is to just go through these
18   retrievals and roll it all up into one undertaking, which
19   is an agreement to provide answers to the following
20   questions, or the studies that were identified in the
21   following questions in Exhibit 4.
22           Thank you for that.
23           We have the updated curriculum vitae, and we would
24   also like to reserve the right to come back and ask for
25   copies of certain documents which may appear on the part
26   that's been updated.
27           MS. McCONIHE:   That's correct.   We're prepared to do
28   that.
                                                                   172



 1        MR. SMITH:    Fair enough.   And we would endeavour to do
 2   that by tomorrow, let you know what is of interest to our
 3   folks.
 4        MS. CAMPBELL:   That's very helpful, thank you,
 5   Mr. Smith.
 6        MR. SMITH:    In question 6 -- I'm going to have to come
 7   back to some of these.
 8        In question 6, in footnote 55, you referenced a Demke
 9   Management Limited study.     We were hoping to get a copy of
10   that to put on the record as well?
11        MS. CAMPBELL:   If I could assist with that also.    The
12   Demke Management study was provided to the Board.    We
13   purchased it and paid a significant amount of money, not as
14   much as you're paying, Mr. Smith, but a significant
15   amount of money.   And I understand that Demke Management
16   is quite protective of its copyright so we're making
17   inquiries as to how we will deal with this.
18        It may be that we will be able to provide you with
19   copies of the handful of pages that were used out of the
20   roughly 500-page report.     We may be permitted to produce
21   full copies, I don't know.    I'm making inquires of Demke,
22   and I'll certainly keep you posted.    Subject to what they
23   permit us to do, we will in some way permit access to it.
24   But whether it will be access at our offices of the
25   copywriting copy, or the purchase by your client at a
26   significant sum of another copy, I don't know.    But I'll
27   certainly attempt to facilitate whatever I can so that you
28   can examine it.
                                                                          173



 1           MR. SMITH:    Could I inquire, through you, as to
 2   whether this is a this a document which is in the
 3   possession solely of the hearing team, or is it in the
 4   possession of the Board panel as well?           And I'm happy to
 5   take that off-line if that's helpful.
 6           MS. SEBALJ:    No, I can answer that question.      I have
 7   no copy -- or this team that's sitting at this table does
 8   not have a copy of this.           Unless you have a copy from a
 9   previous life?       No.   So the panel wouldn't have it either.
10           MR. SMITH:    Thank you.      And I appreciate the inquiry.
11           We had asked in question 9 about the copies of the
12   Canadian Gas Reporter at page 23 of your testimony, are you
13   prepared to file those?
14           MS. McCONIHE:      What I got from Enerdata was an
15   electronic version of table 5 that appears in their
16   reports.    And to the extent that I used that electronic
17   file for 2004/2005, it will be in the work papers as raw
18   data.
19           MR. SMITH:    It will be in the work papers?
20           MS. McCONIHE:      Yes.
21           MR. SMITH:    And if we might move, then, to question
22   10 --
23           MS. McCONIHE:      Can we go back one section?    What about
24   question 5?
25           MR. SMITH:    I'm going to come back to those.
26           MS. McCONIHE:      Okay.
27           MR. SMITH:    What I'm trying to do, the ones that were
28   pure information retrieval to make something part of the
                                                                      174



 1   record.   Don't worry.     I won't forget anything.
 2        MS. McCONIHE:    You haven't forgotten anything.
 3        MR. SMITH:    Question 10 then followed up on the data
 4   and the work papers, and I believe you have undertaken to
 5   Mr. Leslie to provide copies of the work papers and data?
 6        MS. McCONIHE:    That's correct.
 7        MR. SMITH:    Okay.    So --
 8        MS. McCONIHE:    The 9 and 10 are really the same.
 9        MR. SMITH:    And that's fair enough.      That would
10   satisfy us.
11         Okay.    I think that's it for what were the -- what I
12   call pure retrievals bits.
13        MS. CAMPBELL:    I think question 14 is a retrieval.
14        MR. SMITH:    And it would be. I missed it.
15        MS. McCONIHE:    Yes.    Yeah.
16        MR. SMITH:    And is there a problem providing the
17   document referred to in footnote 69 on page 28 of your
18   testimony?    I'm looking at my question 14.
19        MS. McCONIHE:    Let's see --
20        MS. CAMPBELL:    That's the Sproule.
21        MS. McCONIHE:    Oh, no problem there.
22        MR. SMITH:    Fair enough.       So, by my reckoning, the
23   undertaking which could be a single undertaking is subject
24   to the reservations expressed on the record that the
25   witness is willing to provide the studies referred to in
26   questions 14, I think, 9, 6, 3, and 2, in Exhibit, I guess
27   it's Technical Conference 4.
28        MS. SEBALJ:    That's correct.      You had added the
                                                                 175



 1   ability to ask for documents on the CV, stemming out of
 2   question 4.   Did you want that as part of this undertaking
 3   or ...
 4        MR. SMITH:    If it's acceptable, what we do is, we'll
 5   try to take a look through this document as quickly as
 6   possible.   If we could put it on the record this afternoon,
 7   we'd do that, and maybe just mark it as a separate
 8   undertaking, if that's okay?
 9        MS. CAMPBELL:   That's fine, Mr. Smith.
10        MR. SMITH:    All right.
11        MS. SEBALJ:   We'll mark that as Undertaking No. 7.
12        BHT UNDERTAKING NO. 7:     TO PROVIDE THE STUDIES
13        REFERRED TO IN QUESTIONS 14, 9, 6, 3, AND 2, IN
14        TECHNICAL CONFERENCE EXHIBIT 4

15        MR. SMITH:    Thank you.
16        Now, question number 5, to which you drew my
17   attention, you had discussed, I think, with Mr. Leslie, and
18   indicated that, as I understood it, there was no retain per
19   se, it was really the documentation that related to a
20   Request for Proposal; is that fair?
21        MS. McCONIHE:    Yes.
22        MR. SMITH:    And was there any correspondence with your
23   client pertaining to the preparation of the study beyond
24   that document?
25        MS. McCONIHE:   Yes, because you have to have
26   interaction with the Board.     Part of the RFP is that they'd
27   they will assist me in any questions I have.     So there was
28   my requesting them questions as to data sources and things
                                                                      176



 1   like that.
 2        So there is correspondence by virtue of e-mails
 3   throughout this project.
 4        MR. SMITH:    All right.
 5        Rather than me trying to ferret out all that might be
 6   gone back and forth, can you just describe generally what
 7   it was, and to be clear, what I'm trying to get a sense of
 8   is, what guidance or what frame or parameters, limitations,
 9   might have been placed upon your analysis, if any.
10        MS. McCONIHE:    Let me reassure you, the parameters are
11   laid out in the RFP, and once that was granted to me, they
12   did not limit my ability to do anything I felt that I
13   professionally needed to do in order to give me
14   instructions -- give me particular instructions to
15   investigate some area of that.
16        MR. SMITH:    Fair enough.   Thank you.
17        If we could just flip over to question number 7.       On
18   page 21 of your testimony, there is a statement:
19                "Financial instruments cannot be used for
20                seasonal, daily or hourly gas system
21                balancing."
22        I'd like to get your basis for that conclusion, with a
23   particular focus upon the Canadian experience.
24        MS. McCONIHE:    Yes.   I view financial instruments
25   primarily as a means to arbitrage risk.        Doesn't
26   necessarily mean that it's a physical delivery of gas,
27   although it could be, but generally not.
28        To be functional as a substitute for hourly gas
                                                                   177



 1   demands, it would be impractical to use financial
 2   instruments, because you're not going to know the extent of
 3   the demand coming upon you immediately.
 4        MR. SMITH:   What about daily?
 5        MS. McCONIHE:   If you could predict your daily
 6   fluctuations sufficient, ahead of time, then it could work,
 7   but chances are that's not a viable substitute.
 8        MR. SMITH:   What is your experience with Canadian
 9   transportation systems and their balancing protocols, daily
10   or otherwise?
11        MS. McCONIHE:   I'm not familiar.
12        MR. SMITH:   There was reference, I believe, in the
13   vicinity of that same quote to the NOVA system.     Are you
14   familiar with how shippers satisfy daily balancing
15   requirements on the NOVA system?
16        MS. McCONIHE:   No, not particularly.
17        MR. SMITH:   Have you ever heard of a YD instrument?
18        MS. McCONIHE:   No.
19        MR. SMITH:   If we might move to question 8, pages 21
20   and 22, the evidence discusses whether there are Canadian
21   storage customers using US storage facilities.
22        What I'd ask is whether you considered whether there
23   were customers in the United States using storage in the
24   United States but transporting the gas from storage through
25   Ontario to its ultimate consumption point in the United
26   States?
27        MS. McCONIHE:   No, did not consider that because I do
28   not have any information on that, nor do I think it's
                                                                  178



 1   relevant to this investigation.
 2        MR. SMITH:   And could you explain why?
 3        MS. McCONIHE:   Why it's not relevant?
 4        MR. SMITH:   Yeah.
 5        MS. McCONIHE:   Because you're talking about storage in
 6   Ontario being competitive.   It has nothing to do with US
 7   storage.    In the terms that you're satisfying storage in
 8   Ontario for US customers.
 9        The question, really, is whether Ontario customers
10   have alternatives to storage in Ontario.
11        MR. SMITH:   If US customers under those circumstances
12   had ready access to firm or interruptible transportation or
13   released capacity that allowed them to use their US storage
14   rights year around, does that not suggest that the
15   transportation system is more open than you suggest in your
16   evidence?
17        MS. McCONIHE:   No, I think in that scenario they
18   probably are open.   But you can't move gas from the US into
19   Ontario currently.
20        MR. SMITH:   And, I'm sorry, I missed a little of what
21   you said at the beginning.   Do you mind repeating?
22        MS. McCONIHE:   You cannot store gas in the US and
23   ship it to Ontario, given the current pipeline
24   configuration.    You can ship it through Ontario -- through
25   Canada, and out to the New England market, but you can't go
26   the other way.
27        MR. SMITH:   Now, just so we're clear, you're saying I
28   can't go from, for example, Michigan into Ontario -- let's
                                                                     179



 1   just stop there.   Is that what you said?
 2        MS. McCONIHE:    Correct.
 3        MR. SMITH:    All right.    And you're saying that you can
 4   go from Ontario into New England?
 5        MS. McCONIHE:    That's correct.
 6        MR. SMITH:    All right.    And then you added something
 7   and I'm not sure I understand the significance of that.
 8   You said something about not going the other way.      I didn't
 9   know --
10        MS. McCONIHE:    Excuse me?
11        MR. SMITH:    I thought you had said something about not
12   being able to go the other way, and I just wanted you to
13   explain that.
14        MS. McCONIHE:    Oh, if you brought the gas up on the
15   east side, from the Gulf Coast, and stored it in the U.S.
16   facilities, you cannot get that gas into Ontario because of
17   the pipeline constraints.
18        MR. SMITH:    Are you familiar with hub to hub
19   transfers?
20        MS. McCONIHE:    No.
21        MR. SMITH:    You are familiar with title transfers?
22        MS. McCONIHE:    No.   Didn't investigate that.   I know
23   that they exist, but it's not part of my study.
24        MR. SMITH:    And so the extent to which title transfers
25   might be used either within a storage facility in Ontario
26   or in a US storage facility and that gas might be
27   transacted amongst them was not something that you
28   considered in your study?
                                                                   180



 1        MS. McCONIHE:   That information is not available
 2   publicly.
 3        MR. SMITH:    All right.   Thank you.
 4        I just wanted to come back -- I'm now looking at
 5   question 11.   This was the discussion surrounding the Ben
 6   Schlesinger work, and I know that most of this has been
 7   gone through with Mr. Leslie.    I just wanted to make sure
 8   we understood the instructions that had been provided to
 9   Mr. Schlesinger.   What I understood you had undertaken
10   to do was to provide a copy of the questions that were
11   provided to him or that he used for the purposes of his
12   survey; is that correct?
13        MS. McCONIHE:   That's correct.
14        MR. SMITH:    Was there anything in the nature of
15   instructions or guidance which you provided to
16   Mr. Schlesinger that would be relevant to us here?
17        MS. McCONIHE:   Yes.
18        MR. SMITH:    And is that something you could also put
19   on the record?
20        MS. McCONIHE:   Yes.
21        MR. SMITH:    Thank you.   So that would be a further
22   undertaking.
23        MS. SEBALJ:   That's Board hearing team Undertaking No.
24   8.
25        BHT UNDERTAKING NO. 8:     TO PROVIDE
26        INSTRUCTIONS/GUIDANCE GIVEN TO MR. SCHLESINGER

27        MR. SMITH:    Moving on to question 12, at page 26, you
28   stated that:
                                                                   181



 1             "Deliveries through Columbia Gas Transmission
 2             or Dominion through National Fuels to TCPL to
 3             Kirkwall (Union) are not possible because
 4             Kirkwall is not a delivery point on the
 5             TransCanada system."
 6         Now, could you please indicate whether it's your
 7   understanding that Ontario customers are prohibited from
 8   obtaining storage from either Columbia Gas Transmission,
 9   Dominion, National Fuel, or any other storage provider in
10   the eastern United States because Kirkwall is not a
11   delivery point on the TransCanada system?
12        MS. McCONIHE:    I'm going to have to take this as an
13   undertaking, this question.
14        MR. SMITH:    That would be fine.   Thank you.
15        MS. SEBALJ:     Sorry, that's Board hearing team
16   Undertaking No. 9.
17        BHT UNDERTAKING NO. 9:     TO INDICATE WHETHER ONTARIO
18        CUSTOMERS ARE PROHIBITED FROM OBTAINING STORAGE FROM
19        COLUMBIA, DOMINION, NATIONAL FUEL, OR ANY STORAGE
20        PROVIDER OF THE EASTERN US

21        MR. SMITH:    Fair enough.   And to be clear, it's the
22   role played by the factor that you had cited, which was
23   that Kirkwall was not a delivery point on the TransCanada
24   system that we're particularly interested in?
25        MS. McCONIHE:    That's correct.
26        MR. SMITH:    Fair enough.
27        Next question, 13, at page 26 you had indicated:
28             “In addition, there are no suitable product
                                                                   182



 1             substitutes to replace the function of
 2             underground storage."
 3        Right?
 4        MS. McCONIHE:    That's correct.
 5        MR. SMITH:   If the relevant geographic market were
 6   broader than Ontario, could you indicate whether you would
 7   consider there to be any additional substitutes to
 8   underground storage, and if so, could you describe them?
 9        MS. McCONIHE:    I would suspect that you're trying to
10   get at the issue of LNG being developed in New
11   England as a possible substitute.    But generally, to be a
12   good substitute, that LNG has to be located in the demand
13   centre market area.   You could truck it, perhaps, but that
14   takes time.
15         There's no available pipeline capacity to inject it
16   into the pipeline.    So I would not consider that there are
17   other alternatives.
18        MR. SMITH:   And just to be clear, you quickly narrowed
19   the answer to LNG, and I didn't.    I think I have your
20   position on LNG, for which I thank you.    Are there any
21   other substitutes?
22        MS. McCONIHE:    There's the consideration of Propane
23   Air and likewise I had problems with that because
24   there are none in the market area.
25        MR. SMITH:   If the relevant geographic market
26   were broader than Ontario, you're saying there's no
27   propane air in the broader market?
28        MS. McCONIHE:    No, in Ontario.   It has to be close to
                                                                       183



 1   the demand source.
 2        MR. SMITH:   All right.    And just so that we're not
 3   cross-threaded here, the question was, if the relevant
 4   geographic market were broader than Ontario, would there be
 5   additional substitutes to underground storage?         So we're
 6   asking you beyond Ontario.
 7        MS. McCONIHE:   Right.
 8        MR. SMITH:   And you're saying there is no Propane Air
 9   in that broader market?
10        MS. McCONIHE:   No, I'm saying that in my mind the
11   Propane Air and the LNG have to be located in Ontario near
12   the demand centre.
13        MR. SMITH:   In order to be considered a substitute?
14        MS. McCONIHE:   Yes.     And in addition, those
15   substitutes are more expensive than underground storage.
16        MR. SMITH:   Are there any other substitutes?       Let's
17   just approach it that way.
18        MS. McCONIHE:   No.
19        MR. SMITH:   All right.    And I really take from this
20   exchange that you would resist the notion that there can be
21   a broader geographic market?
22        MS. McCONIHE:   Yes.
23        MR. SMITH:   And that's the reason why you haven't
24   really considered whether there were additional substitutes
25   in that broader geographic market?
26        MS. McCONIHE:   I think I considered LNG and Propane
27   Air as being too expensive to, even in the broader
28   geographic market, and the timing to have need for that
                                                                  184



 1   substitute, to be an effective substitute.
 2        MR. SMITH:   Let me just ask you a question that's not
 3   on the sheet.
 4        You're familiar with the recent legislation passed by
 5   Congress having to do with storage?
 6        MS. McCONIHE:   Yes.
 7        MR. SMITH:   And you would be aware of the fact that
 8   Congress was perhaps prompting the FERC to revisit its
 9   approach to storage regulation of market power analysis.
10        MS. McCONIHE:   Yes.
11        MR. SMITH:   Did you participate in that process?
12        MS. McCONIHE:   No.
13        MR. SMITH:   Would you agree that one of the problems
14   that Congress had identified was the fact that market area
15   of storage development appeared to have been inhibited?
16        MS. McCONIHE:   Could you rephrase that?
17        MR. SMITH:   I can try and repeat it.
18        MS. McCONIHE:   Okay.
19        MR. SMITH:   Would you agree, or put it in your own
20   Words, that part of what Congress was trying to address was
21   that the development of market area storage had been
22   inhibited by the FERC's pre-existing rules and market power
23   requirements?
24        MS. McCONIHE:   I believe that FERC's report and the
25   OPER indicates that only in certainly areas is
26   storage inhibited, like Arizona, and New England, by its
27   current rules.
28        MR. SMITH:   And that those are market area storage
                                                                   185



 1   situations?
 2        MS. McCONIHE:    Right.
 3        MR. SMITH:    And in the case of Red Lake, it was the
 4   first storage development proposed?
 5        MS. McCONIHE:    Excuse me?
 6        MR. SMITH:    It was first storage development in that
 7   specific area?
 8        MS. McCONIHE:    Yes.
 9        MR. SMITH:    And because they couldn't get market-based
10   rates authority, market-based rate authority, the storage
11   development did not proceed?
12        MS. McCONIHE:    That's correct.
13        MR. SMITH:    If we could just -- thank you.
14        If we could move to question 15, at page 33 of your
15   testimony you had discussed secondary markets for storage
16   services.     And you did have a discussion with Mr. Leslie on
17   this, and I am not sure I need to go back through it.    Just
18   to be clear, it would be your view that the secondary
19   market is workably competitive?
20        MS. McCONIHE:    If the gas market were properly
21   structured, i.e., there would be price discovery,
22   there would be strong affiliate abuse provisions,
23   there would be an electronic bulletin board where all
24   customers can see the state of the market.
25        MR. SMITH:    So, as party matters -- and again, I just
26   want to be clear that I understand your answer to Mr.
27   Leslie and what it is I'm trying to get at.
28        I believe he had said that if Nexen and others had
                                                                    186



 1   secured the cost-of-service storage from Union, for
 2   example, and then remarketed it at that profit - and
 3   believe me, he wouldn't be the only one lining up for that
 4   business – then what Nexen did with it, along with other
 5   players, would be market-based; their actions would define
 6   the competitive value for the storage service that had been
 7   secured on a cost-of-service basis from Union?
 8          MS. McCONIHE:   That's not correct.   In the US the way
 9   it operates is that if the owner of the storage capacity
10   might have gotten its storage contract below the cost-of-
11   service rate, if it decided to release that capacity, it
12   would be at the maximum cost-of-service rate as a ceiling.
13          MR. SMITH:   Okay.   What about the situation where the
14   cost-of-service rate was probably the floor and not the
15   ceiling?
16          MS. McCONIHE:   I don't understand.
17          MR. SMITH:   Well, as I understood it, you had
18   indicated to Mr. Leslie that if Nexen and others were to
19   subscribe at cost-of-service rates for all of the Union
20   storage.
21          MS. McCONIHE:   Right.
22          MR. SMITH:   And then they went out and remarketed it
23   on the open market and again the indications being at a
24   higher price because of what the market price of storage
25   has been observed to be in Ontario -- are you with me so
26   far?
27          MS. McCONIHE:   Yes.
28          MR. SMITH:   And you agree with the assumptions so far?
                                                                  187



 1          MS. McCONIHE:   The assumption that they have the right
 2   to sell at; right?
 3          MR. SMITH:   Right.   And now let me finish the question
 4   then we can go back and forth.     The point is that the
 5   actions of Nexen and the others who had secured this cost-
 6   of-service remarketed it at a higher price, that would then
 7   define a new market-clearing or competitive price, would it
 8   not?
 9          MS. McCONIHE:   No.
10          MR. SMITH:   And again, could you just tell me why.
11          MS. McCONIHE:   Because the secondary market price
12   would be limited to the ceiling of the cost-of-service.      In
13   essence, the secondary market would be an enticement for
14   those not using their capacity to release it.
15          MR. SMITH:   If you could just give me a minute,
16   please.
17          I'm not sure I follow you, but we'll move along.
18   Thank you.     Now, I think I would just move to question 16,
19   if we could?
20          MS. McCONIHE:   Sure.
21          MR. SMITH:   This was the reference to page 35 and the
22   what we understood to be a recommendation that there were
23   higher rates of return for third party and utility storage
24   providers to encourage the develop of new storage.
25          Perhaps you could just clarify what the nature of your
26   observation or recommendation is.     Was it a recommendation,
27   Ms. McConihe, for independent storage development in
28   Ontario?
                                                                    188



 1        MS. McCONIHE:    It was a possibility.    Again, if the
 2   market were structurally re-designed, so you had it into
 3   the separate components, then maybe there could be a
 4   provision, even at cost-of-service, that if you're
 5   providing high deliverability to the power plants, that
 6   that might be a more valuable storage use, and therefore
 7   might merit a higher rate of return within the framework of
 8   cost-of-service.
 9        MR. SMITH:    So who would make the decision what was
10   the more highly valued use?
11        MS. McCONIHE:   Your regulators.
12        MR. SMITH:    Not the market?
13        MS. McCONIHE:   No.
14        MR. SMITH:    And just on this point, do you believe, on
15   the basis of what you've determined through your
16   investigations, that it would be a good thing to develop
17   additional storage capacity in Ontario?
18        MS. McCONIHE:   Let me put it this way.    If the market
19   needs more capacity, then, yes, it would be a good thing.
20   But if not, then there's no reason to build excess
21   capacity.   I think the secondary market would be a means to
22   figure out that there's not enough capacity, and therefore
23   everybody's buying the secondary market capacity at cost,
24   or willing to pay a premium, which would not be allowed but
25   that would indicate to storage providers that they could --
26   they better build.
27        And FERC also looks at that.    Their current annual
28   report for 2005 looks at the secondary market to see the
                                                                  189



 1   need for more gas storage.
 2        MR.SMITH:    So it would be the market that has to
 3   flow the correct or accurate price signals, not the
 4   regulator, is that what I understand?
 5        MS. McCONIHE:   It would be the market.
 6        MR. SMITH:   And -- well, let me co-this.   I think I
 7   understand your position.
 8        You're not making a recommendation, you're saying this
 9   is an option available --
10        MS. McCONIHE:   That's correct, I'm not here to
11   recommend.
12        MR. SMITH: -- to the regulators if they choose it.
13        All right.   You had made reference in that excerpt to
14   a FERC analysis, and an identification of a 20 percent ROE
15   figure.
16        MS. McCONIHE:   It was not a FERC analysis, it was
17   interviews or testimonies of storage developers.   And FERC
18   looked to that as some evidence that might require a higher
19   rate of return for new storage by independent producers.
20        MR. SMITH:   All right.   Could we ask you, Ms.
21   McConihe, to provide us with some of the documentation that
22   would help us to understand what the assumptions were that
23   went into this figure, and I'm not asking for all of the
24   testimonies, but if there is some summary piece or if the
25   FERC summarized some of that evidence in a discussion
26   paper, staff paper, or a decision.
27       We're looking for some context so that we can better
28   understand this feature.    Is that something you can help us
                                                                      190



 1   with?
 2           MS. McCONIHE:   If I think you look at the FERC report
 3   that I'm citing, that would provide you with enough
 4   information.
 5           MR. SMITH:   And is that the sum and extent of it?
 6           MS. McCONIHE:   Yes.
 7           MR. SMITH:   All right.   That's fine.   Thanks.
 8           Was there any indication how utility storage
 9   expansions would be treated in connection with these
10   answered rates of return to encourage storage development?
11           MS. McCONIHE:   It would be at cost-of-service.
12           MR. SMITH:   Yes.   20 percent ROE could be
13   cost-of-service.
14           MS. McCONIHE:   It could.   But generally the risk
15   associated with a utility expansion is less than an
16   independent storage provider that doesn't have a
17   captured market.
18           MR. SMITH:   So truly, this 20 percent figure or the
19   enhanced rate of return would be something available only
20   to an independent storage developer or a new storage
21   developer?
22           MS. McCONIHE:   I'm not here to make policy.    I just
23   threw out some suggestions.
24           MR. SMITH:   And I'm just trying to understand how that
25   suggestion might work.
26           MS. McCONIHE:   Right.    As I said --
27           MR. SMITH:   You're saying it wouldn't apply to
28   Enbridge, that is, Enbridge Consumers Gas, and it wouldn't
                                                                 191



 1   apply to Union.    I would have an obvious question as to
 2   whether or not it would apply to Market Hub Partners.
 3        MS. McCONIHE:    The way I'm looking at this, and as
 4   discussed with Mr. Smith, perhaps there could be a rate
 5   higher than cost-of-service with a return on equity that
 6   would give a higher value to the demands of, let's say, the
 7   power plants that are using storage at a different use than
 8   the traditional storage.
 9        MR. SMITH:    And does the eligibility for this enhanced
10   return depend on the identity of the developer or the
11   development itself?
12        MS. McCONIHE:    No.
13        MR. SMITH:    It does not depend on the identity of the
14   developer?
15        MS. McCONIHE:    Rephrase that?
16        MR. SMITH:    Does the enhanced return depend on -- the
17   availability of it, depend on the identity of the
18   developer?
19        MS. McCONIHE:    Yes.
20        MR. SMITH:    And just explain why, again, it's -- what
21   I'm trying to get at here is if these are utility storage
22   expansions by the LDC.
23        MS. McCONIHE:    Right.
24        MR. SMITH:    I think I understand your position, which
25   is, there is no enhancement to be made available.    Do I
26   have that right?
27        MS. McCONIHE:    Unless they're expanding to serve a
28   storage user that has a higher use of the storage capacity;
                                                                    192



 1   i.e., a power plant.
 2        MR. SMITH:     All right.   And in connection with
 3   somebody doing a brand new storage development, like an MHP
 4   Canada or Tribute, how would they stack up in terms of
 5   eligibility for these enhanced ROEs?
 6        MS. McCONIHE:     Well, Tribute would get market-based
 7   rates regardless.    Market Hub Partners might be constrained
 8   to something that Union is constrained to in terms of
 9   return on rate of return in their rates.
10        MR. SMITH:     So in your view, someone like Market Hub
11   Partners would be limited to the very same ROE as the LDC?
12        MS. McCONIHE:     Yes.
13        MR. SMITH:     And you appreciate that an MHP Canada has
14   no franchise customers.
15        MS. McCONIHE:     Right.
16        MR. SMITH:     Could you explain why accelerated
17   depreciation without a significant increase in the profit
18   margin would lead to increased storage development?
19        MS. McCONIHE:     If you're able to depreciate quicker,
20   the utility might develop its own storage because you're
21   getting a higher rate, higher -- you're able to reflect the
22   accelerated depreciation in your rates, which would be a
23   higher number than at cost-of-service over a 20- or 30-year
24   period.
25        MR. SMITH:     But it wouldn't enhance the profitability?
26        MS. McCONIHE:     No.
27        MR. SMITH:     Have you any evidence to support the view
28   that simple acceleration and depreciation without a
                                                                    193



 1   significant increase of the profit margin would lead to
 2   increased storage development?
 3        MS. McCONIHE:     It was part of FERC's suggestions as to
 4   how to encourage storage development.
 5        MR. SMITH:    Right.
 6        MS. McCONIHE:     In its report.
 7        MR. SMITH:    So that's where you got it from?
 8        MS. McCONIHE:     Yes.
 9        MR. SMITH:    Fair enough.    Thank you.   That's all I
10   had, subject to coming back to my friend on any testimonies
11   or reports that may be in the updated CV.
12        MS. SEBALJ:    Thanks.   Thank you, Mr. Smith.   Let's
13   take an afternoon break, say 15 minutes, if we can return
14   at quarter to 4.    And next up is Mr. Stevens and Enbridge.
15        --- Recess taken at 3:31 p.m.
16        --- On resuming at 3:49 p.m.
17        PRELIMINARY MATTERS:

18        MS. SEBALJ:    All right.    I think we're ready to get
19   started again.    Ms. Campbell.
20        MS. CAMPBELL:     Yes, but just before we start, Mr.
21   Smith had a discussion with the hearing team concerning a
22   question he'd posed about the FERC analysis relating to the
23   20 percent ROE figure.
24        MS. SEBALJ:    Mm-hm.
25        MS. CAMPBELL:     And for those who have his list of
26   questions, it's 16A.    And he asked us for further
27   clarification on the source of that information.      And we
28   agreed to put it on the record at the beginning of the
                                                                   194



 1   start of this.
 2        And what we have undertaken to do for Mr. Smith is to
 3   provide him with the site at which you can obtain the
 4   report, and the report, for clarification, is the FERC
 5   staff report on underground storage dated September 2004.
 6   And we will provide the site for that to Mr. Smith.
 7        MS. SEBALJ:    That's by way of undertaking?
 8        MS. CAMPBELL:   Yes.
 9        MS. SEBALJ:    As opposed to at this moment.   So that
10   will be Board hearing Undertaking No. 10.
11        BHT UNDERTAKING NO. 10:      TO PROVIDE SITE FOR FERC
12        STAFF REPORT ON UNDERGROUND STORAGE DATED SEPTEMBER
13        2004

14        MS. CAMPBELL:   Thank you.
15        MS. SEBALJ:    Go ahead.
16        CROSS-EXAMINATION BY MR. STEVENS:

17        MR. STEVENS:    Thank you.   Good afternoon, Ms.
18   McConihe.   My name is David Stevens.    I'm appearing on
19   behalf of Enbridge Gas Distribution.     With me are Jim Grant
20   and Ian McRobbie.
21        MS. McCONIHE:   Good afternoon.
22        MR. STEVENS:    I think if I understand your evidence,
23   and in particular starting with paragraph 2 of your
24   executive summary, it appears that the primary reason you
25   conclude that the geographic market will in this case
26   should be defined narrowly is because there's a constraint
27   in pipeline capacity or appropriate substitutes to connect
28   non-Ontario storage with Dawn; is that fair?
                                                                     195



 1        MS. McCONIHE:    Yes.
 2        MR. STEVENS:    So, in terms of the pipeline capacity
 3   issue, did you look at or consider anything beyond what was
 4   provided to you in the Schlesinger materials and report?
 5        MS. McCONIHE:    I have looked at FERC's annual report
 6   for 2005, and in it, it talks about pipeline constraints,
 7   especially in New England.
 8        MR. STEVENS:    And is there anything else beyond that?
 9        MS. McCONIHE:    No.    Oh, excuse me.   Before I hired Ben
10   Schlesinger, I talked to Tennessee Gas Pipeline and ANR
11   about whether there was capacity on the pipeline to move
12   gas from the US to Ontario.       And they said probably no.    At
13   that point I decided I'd better get a formal survey done.
14        MR. STEVENS:    I'm sorry, I couldn't hear.    They said?
15        MS. McCONIHE:    Prior to hiring Ben Schlesinger, I
16   talked with Tennessee Gas Pipeline and ANR, and asked them
17   whether there was capacity available in New York,
18   Pennsylvania, to move stored gas there into Ontario.      And
19   they said not only is there no capacity on the pipeline,
20   but there is no storage capacity in those areas available
21   on our system.
22        So that prompted me to hire Ben Schlesinger to do a
23   more formal investigation as to the availability of
24   capacity going into Ontario.
25        MR. STEVENS:    Thank you.    And as for product
26   substitutes, did you look at or try to look at other
27   substitutes beyond those that are described at pages 19 and
28   20 of your report?
                                                                   196



 1        MS. McCONIHE:    No, I did not.
 2        MR. STEVENS:    In terms of the financial instrument
 3   options that are set out at page 20, can you discuss, to
 4   your knowledge, what the availability of those options are
 5   in Ontario?
 6        MS. McCONIHE:    Generally options are traded on the
 7   NYMEX exchange, and I believe there's a lot of options
 8   available in other hubs on other exchanges that anybody can
 9   buy options for at delivery points in any of the hubs.
10        MR. STEVENS:    So is it fair to say that those options
11   would be generally available to players in the Ontario
12   market?
13        MS. McCONIHE:    Definitely.
14        MR. STEVENS:    At page 28 of your report, the heading
15   is "barriers to entry."
16        MS. McCONIHE:    Yes.
17        MR. STEVENS:    In the second paragraph, you speak about
18   the fact that there may be financial barriers to entry.
19   Can you expand on that a little bit more, please?
20        MS. McCONIHE:    Yes.   Generally, the people I've talked
21   to that are independent storage developers or financiers
22   say that to develop storage facilities, it's hard to get
23   firm contracts over a five-year period.     Most pipelines
24   when you expand capacity require a 10-year commitment, and
25   storage just doesn't have that kind of leverage.
26        So therefore the investment's more risky.     Generally
27   when storage is developed, it's ancillary to what's already
28   available.    So you don't know whether there's going to be a
                                                                   197



 1   market developed for your storage or not.
 2        MR. STEVENS:    Do you believe that OEB-regulated rates,
 3   along with regulated returns on equity, should apply to
 4   independent storage developers in Ontario?
 5        MS. McCONIHE:     Only affiliated.
 6        MR. STEVENS:    And why should they not apply to
 7   non-affiliated independent developers?
 8        MS. McCONIHE:     Why should what, could you --
 9        MR. STEVENS:    Why is it that regulated rates should
10   apply to utilities and to their affiliates but should not
11   apply to non-affiliated entities?
12        MS. McCONIHE:     Because new entrants are generally a
13   small proportion of the available capacity in the market,
14   and they have to develop demand for their storage
15   facilities.   They have to entice the customers to
16   come to them.
17        MR. STEVENS:    And so is that conclusion, then,
18   premised on how big the new storage development is?
19        MS. McCONIHE:     Relative to the market, yes.
20        MR. STEVENS:    Okay.   Do you have any threshold in mind
21   at which point you would start to have concerns, whether
22   it's 20 Bcf, 50 Bcf.
23        MS. McCONIHE:     You apply the market share test and the
24   concentration statistic to see whether that creates a high
25   percentage of market share in the market, and whether
26   you're going further concentrate.
27         Generally, new storage will tend to de concentrate in
28   a concentrated market or unconcentrated market, because
                                                                     198



 1   you're adding one more player to the potential sellers of
 2   storage.
 3          MR. STEVENS:    At page 32, if you could turn that up,
 4   please, of your report.
 5          In the first paragraph at the top of that page,
 6   there's a statement that reads:
 7                "The majority of Enbridge's customers are
 8                residential and general-service users."
 9          MS. McCONIHE:   Wait.   I'm not getting where you are.
10          MR. STEVENS:    I'm sorry, at page 32, in the top
11   paragraph, I'm reading --
12          MS. McCONIHE:   The partial paragraph there.     I got you
13   now.   It's in the middle.
14          MR. STEVENS:    I'm reading the last sentence.
15          MS. McCONIHE:   Okay.
16          MR. STEVENS:    Of that paragraph.   It reads:
17                "The majority of Enbridge's customers are
18                residential and general-service users, and
19                therefore are considered to be captive,
20                i.e., the Board needs to protect those
21                customers from potential market prices that
22                are above competitive levels."
23          Can you explain for us what's meant by the phrase
24   "captive"?
25          MS. McCONIHE:   That they are bundled storage customers
26   and they have no options to buy unbundled service or they
27   don't have any desire to buy unbundled service so they rely
28   on all their gas needs from you.
                                                                     199



 1           MR. STEVENS:    And I think I know the answer to this
 2   but I'll ask anyway.       Which of Enbridge's customers are not
 3   caught by that statement?
 4           MS. McCONIHE:   Are not what?
 5           MR. STEVENS:    Are not caught by this statement
 6   about --
 7           MS. McCONIHE:   I would conclude that it's the people
 8   that -- the infranchise customers that are buying their own
 9   gas, that have left -- that have unbundled rates, that they
10   would be not captive.
11           MR. STEVENS:    So, does that refer, then, to customers
12   who have unbundled transportation and storage?
13           MS. McCONIHE:   Yes.
14           MR. STEVENS:    Again at page 32, a little further down,
15   it states:
16                "The sale of transactional services involving
17                storage assets/contracts could be priced at
18                cost."
19           What in your view should be done if the value of the
20   assets on a short-term basis is less than cost?       If the
21   assets are excess, but they can't be sold at cost, they
22   could only be sold at something less than cost?
23           MS. McCONIHE:   I'd like at cost-of-service rates as
24   being the ceiling.      Certainly I would allow discounting if
25   need be.
26           MR. STEVENS:    Thank you.
27           At page 33, the last sentence before part 13 states
28   that:
                                                                       200



 1                "If the price of storage in the secondary
 2                market is high, this might provide a good
 3                market indicator to independent gas developers
 4                as to the value of new storage capacity,
 5                especially if the secondary storage market
 6                prices were made public."
 7           Now, you indicate this might provide a good market
 8   indicator.    Are there other good market indicators, in your
 9   view?
10           MS. McCONIHE:   Well, I would assume that if capacity
11   were scarce and you had more requests for storage than you
12   had capacity, that would be an indicator.
13           MR. STEVENS:    Okay.   And in your view, would an
14   open-season bidding process also provide an indicator of
15   the value of new storage capacity.
16           MS. McCONIHE:   Yes, because it would give you an
17   indication of the demand for storage and whether you can
18   meet it with current capacity.
19           MR. STEVENS:    In your view, at what point in the
20   evolution of the market would it become clear that
21   existing cost-based storage is so underpriced that it's no
22   longer appropriate.
23           MS. McCONIHE:   Maybe if there's a demand by customers
24   that can't get capacity that need it.
25           MR. STEVENS:    And is there any point in the evolution
26   of the gap between the price which is being obtained on the
27   secondary market versus cost-based pricing?        Is there any
28   particular level of gap that would indicate to you that
                                                                    201



 1   cost-based pricing is no longer appropriate?
 2        MS. McCONIHE:   FERC in its annual report for 2005
 3   looked at storage constraints or transportation capacity
 4   availability, and it found, like in New England, that the
 5   secondary market were bidding at the maximum ceiling price.
 6   And they went on to say that there are possibly other
 7   people that would pay more than the ceiling price, and that
 8   that's something to be examined.
 9        MR. STEVENS:    What about an Ontario experience?    If I
10   understand your recommendation, there would be -- there
11   would be no ceiling price in terms of what storage could be
12   sold at the -- there would be no limit to the level at
13   which storage could be sold on the secondary market.
14        MS. McCONIHE:   The way FERC does it is to allow it to
15   build up to the ceiling of the maximum rate.
16        MR. STEVENS:    And how would that work in Ontario in
17   terms of constraining, say, Nexen, or some other party that
18   was trying to sell storage on the secondary market?
19        MS. McCONIHE:   What that does is provide an incentive
20   for those that aren't using their capacity appropriately to
21   resell it, even if it's at the same cost-of-service rate,
22   to customers that value that storage.    It's a
23   redistribution of the allocation of storage.      It's a means
24   to get there.
25        MR. STEVENS:    Okay.   And if I'm understanding right,
26   though, I think you're suggesting that there's a ceiling
27   price beyond which the storage can't be resold?
28        MS. McCONIHE:   That's correct.
                                                                    202



 1        MR. STEVENS:    And what I'm trying to understand is how
 2   would that function in Ontario?      How would the regulator
 3   ensure that storage couldn't be resold by non-regulated
 4   parties?
 5        MS. McCONIHE:    Because secondary market transactions
 6   have to be posted on an electronic bulletin board, and that
 7   would be one of the requirements for development of a
 8   secondary market is price discovery, and viewing
 9   availability of storage capacity and who has what.
10        MR. STEVENS:    And finally, I'd like to turn to the
11   last paragraph of your evidence.
12        MS. McCONIHE:    All right.
13        MR. STEVENS:    And you've already discussed this at
14   some length with the people who've gone before me, so I
15   just have a couple of brief questions.
16        I believe when you were talking to Mr. Smith about
17   this, you stated that really what you were doing here was
18   throwing out some suggestions of alternatives to
19   forbearance, things that might be done to encourage
20   development; is that fair?
21        MS. McCONIHE:    That's fair.
22        MR. STEVENS:    Are there any other suggestions that you
23   would throw out in terms of things that could be done,
24   other than what you've mentioned?
25        MS. McCONIHE:    I'm sure there are.    I just did not
26   cover all the suggestions because that wasn't part of my
27   task, to suggest how to correct the system, necessarily,
28   but to determine the competitiveness of this market.
                                                                     203



 1        MR. STEVENS:    Could you do that by way of undertaking?
 2        MS. CAMPBELL:     I'm just not persuaded that that's
 3   going to take us anywhere, given what the mandate is of
 4   this witness, and given the parameters of the hearing.
 5        MR. STEVENS:    Well, the witness has indicated that
 6   she's thrown out some suggestions, and she saw fit to put
 7   those in her report.    She's also indicated that she has
 8   other suggestions she might be able to make.      And so that
 9   I'm just asking her to fill out the record of what she's
10   already said.
11        MS. CAMPBELL:     Can you do that right now?
12        MS. McCONIHE:     No, I can't do it right now.     I'd have
13   to do some research.
14        MS. CAMPBELL:     Oh, so, Mr. Stevens, were you looking
15   for ideas that she had that didn't commit to paper?       Are
16   you asking her to go out and do more research and come up
17   with more ideas for you?
18        MR. STEVENS:    I'm following up on what she said.     I
19   don't have the transcript in front of me to know the exact
20   words, and I'm sorry I didn't write them down.      But there
21   was a suggestion, I believe, from Ms. McConihe, that she
22   could have thrown out some other suggestions; she just
23   didn't do that.   So I'm asking her to fill out the piece.
24        MS. CAMPBELL:     See, even God doesn't agree with you.
25        [Thunder in the background.     Laughter.]
26        MS. CAMPBELL:     Tell you what I'm going to do,
27   Mr. Stevens.    I'm going to consider what you've asked for.
28   To use a discovery phrase, I'm going to take it under
                                                                        204



 1   advisement.
 2        MR. STEVENS:     Very good.   And if you decide not to
 3   answer it, I assume to the Board panel will look at that?
 4        MS. SEBALJ:    Sure.   It's on the record.    I can advise
 5   the panel that this is an issue for --
 6        MS. CAMPBELL:    If it becomes an issue.
 7        MS. SEBALJ:     -- discussion.
 8        MS. CAMPBELL:    If it becomes an issue.     As I said,
 9   God's not in favour of it.    But we'll wait and see how God
10   feels later.
11        MR. STEVENS:     Thank you very much.   Those are my
12   questions.
13        MS. McCONIHE:    You're welcome.
14        MS. SEBALJ:    Thank you, Mr. Stevens.
15        My order, which may or may not be completely accurate,
16   has Mr. Brown.    I don't know if you have any -- I don't
17   know where you are.    There you are.
18        MR. BROWN:    Very briefly.
19        CROSS-EXAMINATION BY MR. BROWN:

20        MR. BROWN:    Ms. McConihe, my name is David Brown.       I
21   act for some of the gas-fired generators.       I simply have
22   two questions, perhaps by way of undertaking.       Page 28 of
23   your report, in the section 9, barriers to entry.      Towards
24   the end of the first full paragraph, the second-to-last
25   sentence:
26                "A consultant for Union estimated that there
27                is potentially 150 Bcf of additional storage
28                in Ontario."
                                                                     205



 1        At footnote 69 you give a reference to your source.
 2        Could I ask you to undertake to produce a copy of that
 3   letter?
 4        MS. McCONIHE:    Yes.    It's already an undertaking.
 5        MR. BROWN:    Thank you.    And then in the next sentence,
 6   same paragraph, there's a reference to the National
 7   Petroleum Council's 2003 estimate.     Could I ask you to
 8   undertake to give us a proper cite and perhaps link to that
 9   report?
10        MS. McCONIHE:    Yes.
11        MR. BROWN:    Thank you very much.    Those are --
12        MS. SEBALJ:     And that second report is a separate
13   undertaking; correct?
14        MR. BROWN:    Correct.
15        MS. CAMPBELL:    Yes.
16        MS. SEBALJ:   The first one was already an undertaking
17   of Mr. Smith's.
18        MS. CAMPBELL:    The first one has already been given as
19   an undertaking.
20        MS. SEBALJ:   So the second one is Undertaking No. 11.
21        BHT UNDERTAKING NO. 11:      TO PROVIDE CITE AND LINK TO
22        REPORT

23        MR. BROWN:    I apologize, I didn't hear the first on at
24   the back of the room.
25        MS. CAMPBELL:    It's a net gain of one.
26        MR. BROWN:    Thank you very much.
27        MS. SEBALJ:   Thank you, Mr. Brown.     Mr. Moran?
28        MR. MORAN:    No questions.
                                                                   206



 1        MS. SEBALJ:   Mr. Aiken?
 2        MR. AIKEN:    No questions.
 3        MS. SEBALJ:   I'm testing myself because I have the
 4   party names but not the -- Mr. Wightman?
 5        MR. WIGHTMAN:   Just a few questions.
 6        MS. SEBALJ:   Great.
 7        CROSS-EXAMINATION BY MR. WIGHTMAN:

 8        MR. WIGHTMAN:   Good afternoon.     James Wightman on
 9   behalf of VECC.
10        You've spoken quite a bit about transparency and
11   discovery, and by that you've made it clear you mean that
12   people know prices when they are making their choices.       Is
13   that fair?
14        MS. McCONIHE:   Yes.
15        MR. WIGHTMAN:   Yeah, and just following up on that,
16   isn't it true that knowing prices and relative prices,
17   prices of alternatives, ratios, are essential if you're
18   going to make efficient consumption decisions?
19        MS. McCONIHE:   Definitely.
20        MR. WIGHTMAN:   Thank you.     Just with respect to table
21   1 shown on page 3, is the table extracted from the source,
22   that's with the correlations?      Or were there some
23   calculations that you made based on that document?
24        MS. McCONIHE:   There are calculations based on the gas
25   prices.
26        MR. WIGHTMAN:   Okay.   And those are statistical
27   correlations; correct?
28        MS. McCONIHE:   That's correct.
                                                                      207



 1        MR. WIGHTMAN:    And those correlations in no way can be
 2   taken to be interpreted as saying that there are constant
 3   basis differentials, can they?     Those are statistical,
 4   those are --
 5        MS. McCONIHE:    It's statistical.
 6        MR. WIGHTMAN:    Thank you.   On page 3 also, you mention
 7   that storage was developed in Alberta by independent
 8   developers under a regime when they were unregulated.
 9        MS. McCONIHE:    That's correct.
10        MR. WIGHTMAN:    Is it of any relevance here that it
11   wasn't developed under cost-of-service or whether storage
12   in Ontario has been developed under cost-of-service?        Is
13   that important in any way for what you say?
14        MS. McCONIHE:    I don't understand the juxtaposition
15   that you're doing between Ontario and Alberta.
16        MR. WIGHTMAN:    Well, I'm just wondering if it's
17   important to note that whatever they do in Alberta, the
18   storage was developed under a different regime than it was
19   in Ontario.    Does that have any bearing on any of your
20   recommendations?
21        MS. McCONIHE:    No.
22        MR. WIGHTMAN:    Okay.   On page 4, you mention that BC
23   storage is not regulated, and UniCal owns BC storage.
24        Was BC storage, to your knowledge, ever regulated?
25        MS. McCONIHE:    I'd have to check on that.
26        MR. WIGHTMAN:    Okay.   If you wouldn't mind checking on
27   that, and getting back to us whether the regulator decided
28   to forebear or not?
                                                                   208



 1        MS. McCONIHE:   Right.
 2        MR. WIGHTMAN:   Okay.
 3        MS. SEBALJ:   That's Undertaking No. 12.
 4        BHT UNDERTAKING NO. 12:     TO ADVISE WHETHER THE BC
 5        REGULATOR DECIDED TO FOREBEAR

 6        MR. WIGHTMAN:   Okay.    And I'll just ask you if you
 7   would agree in the market survey, of monopolist there would
 8   be a market price observed, you could see a price and it
 9   would reflect marginal value; correct?
10        MS. McCONIHE:   I don't understand your question.
11        MR. WIGHTMAN:   You have a single firm facing the
12   market demand, a standard classical single-price,
13   single-output monopoly like in the textbooks.
14        MS. McCONIHE:   Mm-hm.
15        MR. WIGHTMAN:   They will choose a price, and that
16   price, and they will supply the quantity for that price,
17   and there will be a price at which they sell goods;
18   correct?
19        MS. McCONIHE:   That is right.
20        MR. WIGHTMAN:   And that price will reflect the
21   marginal value to the people buying it; they wouldn't buy
22   it otherwise?
23        MS. McCONIHE:   If you assume that the demand is
24   elastic, that would be true.    If the demand is inelastic,
25   that would not be true.
26        MR. WIGHTMAN:   Well, following up on that point, if
27   it's -- if demand is IESO elastic, constant elasticity and
28   inelastic, there's no solution to the problem, is there?
                                                                      209



 1        MS. McCONIHE:   That's right.
 2        MR. WIGHTMAN:   Okay.    But if it's a linear demand,
 3   just following up on that, a profit maximizer would never
 4   choose to supply at a point where demand was inelastic;
 5   correct?
 6        MS. McCONIHE:   Right.
 7        MR. WIGHTMAN:   Okay.    Okay.   So if we take that linear
 8   demand case, it wouldn't be an efficient outcome although
 9   it would be profit-maximizing; correct?
10        MS. McCONIHE:   That's right.
11        MR. WIGHTMAN:   There would be a dead-weight loss, an
12   efficiency loss.
13        MS. McCONIHE:   Exactly.
14        MR. WIGHTMAN:   Okay.    Thank you.
15        Would you agree that perfectly competitive firms are
16   price-takers, that if you want to talk about the demand
17   curve facing a perfectly competitive firm, it's horizontal.
18        MS. McCONIHE:   Right.
19        MR. WIGHTMAN:   Okay.    And that would be infinitely
20   elastic.
21        MS. McCONIHE:   Exactly.
22        MR. WIGHTMAN:   Everywhere.      And would you agree that
23   to the extent that a single firm faces a demand for its
24   output that's downward sloping at all, there would be some
25   degree of market power?
26        MS. McCONIHE:   Yes.
27        MR. WIGHTMAN:   And would you agree that the
28   proportionate mark up of price over marginal cost, in that
                                                                      210



 1   such a case, would be increased the more inelastic that
 2   demand curve it faced was?
 3        MS. McCONIHE:    That's correct.
 4        MR. WIGHTMAN:    Okay.
 5        So I guess what we're saying is, if you can choose
 6   your price and it's not given to you, that there's some
 7   degree of market power and some degree of some
 8   inefficiency.
 9        MS. McCONIHE:    Yes.
10        MR. WIGHTMAN:    Okay.    You talk about close
11   substitutes.    And probably the data is not available here,
12   but would you agree that one way of determining how close
13   substitutes are would be by looking at cross-price
14   elasticity of demand?
15        MS. McCONIHE:    Yes.
16        MR. WIGHTMAN:    Okay.    Now, and that's been used in a
17   number of jurisdictions, has it not?
18        MS. McCONIHE:    Yes.
19        MR. WIGHTMAN:    Okay.    Here, I'll just put it to you.
20   I assume that the data wouldn't exist for you to make any
21   kind of calculations on that; is that correct?
22        MS. McCONIHE:    That's not -- no.
23        MR. WIGHTMAN:    That's not correct?
24        MS. McCONIHE:    No.     It is correct.   The data do not
25   exist.
26        MR. WIGHTMAN:    Yeah.    But that would be a neat way of
27   finding out how good a substitute is --
28        MS. McCONIHE:    Sure would be.
                                                                   211



 1        MR. WIGHTMAN:   Yeah, okay.   You mention, basically a
 2   concept that's a contestable market concept when you talk
 3   about entering and exit and the lower the sunk costs and
 4   costs of exit and entry are, the more there may be some
 5   discipline through potential trants; correct?
 6        MS. McCONIHE:   That's right.
 7        MR. WIGHTMAN:   And that kind of work is based on some
 8   kind of work by William Baumall and others; is that
 9   correct?
10        MS. McCONIHE:   That's correct.
11        MR. WIGHTMAN:   Well, would you confirm to me that in
12   the perfectly contestable market, the set-up is something
13   like this.   You have an incumbent that's got a price and --
14   that potential entrants know, and they can actually gear
15   up, enter the market, undercut the incumbent before the
16   incumbent can change his price?
17        MS. McCONIHE:   That's correct.
18        MR. WIGHTMAN:   Okay.   And would you agree -- do you
19   have any views as to how robust the contestable market sort
20   of models are with respect to sunk costs?
21        MS. McCONIHE:   It's not an area I've examined.
22        MR. WIGHTMAN:   Okay.   Well, when you talk about sunk
23   costs, you are referring to costs that, once incurred,
24   can't be recovered; is that correct?
25        MS. McCONIHE:   That's correct.
26        MR. WIGHTMAN:   Okay.   In your view -- you may have a
27   view on this -- would prices for storage in Ontario
28   be lower than cost-based prices if there were a working
                                                                 212



 1   competitive market in storage in Ontario.
 2        MS. McCONIHE:   Most likely.
 3        MR. WIGHTMAN:   Most likely.    Okay.
 4        MS. McCONIHE:   It depends on the scarcity, really, of
 5   the storage.
 6        MR. WIGHTMAN:   Okay.
 7        Would you have any estimate, just talking about this
 8   entry barrier and kind of hit-and-run discipline by
 9   potential entrants, how long it would take someone to,
10   noticing a monopoly price in there, to get the approvals,
11   develop some storage, enter the market, and undercut.     Do
12   you have any idea how long that might take in Ontario for
13   somebody to do?
14        MS. McCONIHE:   I've seen something to the effect of
15   three years.
16        MR. WIGHTMAN:   Three years.    So it might not pass the
17   test of disciplining price within one year.
18        MS. McCONIHE: That's right.
19        MR. WIGHTMAN:   Okay.   As you suggest.
20        Do you have any estimate of your own, and I would
21   understand if you didn't, how much storage could be
22   developed in Ontario?
23        MS. McCONIHE:   I've just looked at other people's
24   estimates and they're reflected in the report.
25        MR. WIGHTMAN:   Okay.   Okay.   On page 7, I just want to
26   understand what you mean by this, under the title "entry to
27   market," you have a sentence:
28             "When entry is likely, timely and sufficient
                                                                    213



 1             in scale and scope."
 2        And it goes on.
 3        Could you just explain to me what "sufficient in scale
 4   and scope means?   It's on page 7.
 5        MS. McCONIHE:   That means that the entry is of such
 6   capacity that it would be -- act as a competitive obstacle
 7   to the monopolist.
 8        MR. WIGHTMAN:   Okay.    Now, you also mention, and
 9   you've discussed this so we got rid of a bunch of questions
10   on long-term contracts.     But you mentioned right of first
11   refusal might be a barrier to entry.
12        MS. McCONIHE:   That's correct.
13        MR. WIGHTMAN:   Do you have any knowledge as to whether
14   right of first refusal played any part in the past in the
15   development of Ontario's storage?
16        MS. McCONIHE:   No.
17        MR. WIGHTMAN:   Okay.    And just a couple of things, and
18   I think it might be in somebody else's evidence, but about
19   this Hurfendahl-Hirschman index or HHI.
20        MS. McCONIHE:   That's correct.
21        MR. WIGHTMAN:   If you would one firm only, that index
22   would be 10,000; correct?
23        MS. McCONIHE:   That's right.
24        MR. WIGHTMAN:   If you had a hundred equally sized
25   firms, that would be a hundred.
26        MS. McCONIHE:   Right.
27        MR. WIGHTMAN:   If you had a hundred but they weren't
28   equally sized, it would be more than a hundred.
                                                                     214



 1         MS. McCONIHE:   That's correct.
 2         MR. WIGHTMAN:   And to get that benchmark 1800 figure
 3   you would need 5.555 identically sized firms?
 4         MS. McCONIHE:   That's correct.
 5         MR. WIGHTMAN:   Okay.    And six equally sized would do
 6   it.
 7         MS. McCONIHE:   Mm-hm.
 8         MR. WIGHTMAN:   But six not equally sized might not;
 9   correct?
10         MS. McCONIHE:   That's correct.
11         MR. WIGHTMAN    Okay.   Thank you.
12         MS. CAMPBELL:   That was very well done.   I'm not sure
13   where it takes us, but it was really nice.
14         MR. WIGHTMAN:   Thank you.
15         Go out the door and continue.
16         [Laughter]
17         You talked about the three cases where applications
18   for market-based storage were denied by FERC, and you've
19   included a little summary and exhibit or appendix at the
20   end of your evidence; correct?
21         MS. McCONIHE:   Yes.
22         MR. WIGHTMAN:    Do you know if in FERC's mind it played
23   any part at all whether that storage was developed
24   under cost-based rates or market-based rates?
25         MS. McCONIHE:   Well, the applications were for
26   market-based rates.
27         MR. WIGHTMAN:   Yes, but were they for storage that had
28   already been developed under cost-based rates that they
                                                                       215



 1   wanted to then get market rates from?
 2           MS. McCONIHE:   CNG and Northwestern, both.
 3           MR. WIGHTMAN:   Okay.    Thank you.
 4           MS. McCONIHE:   Had cost-of-service rates.
 5           MR. WIGHTMAN:   Mm-hm.    On page 14 you mention FERC's
 6   recent notice of public proposed rule making.
 7            Are you aware of any comments made by FERC
 8   commissioners about changes to the proposed?       Because if I
 9   understand they want to broaden product definitions and
10   broaden areas and things considered, which I'll ask you if
11   you agree with this, would reduce your market concentration
12   measures, as they always will.
13           Are you aware of any public comments made by FERC
14   commissioners in respect of this?
15           MS. McCONIHE:   That I believe they are going to come
16   out with a final ruling in June.
17           MR. WIGHTMAN:   Mm-hm.
18           MS. McCONIHE:   So I would be surprised other than the
19   announcement of the note that there would be comments on
20   that.
21           MR. WIGHTMAN:   Okay.    I thought I'd read comments by
22   the Chair and dissenting commissioner.
23           MS. McCONIHE:   Well, that was beginning of the no per,
24   I believe.
25           MR. WIGHTMAN:   Yes.
26           MS. McCONIHE:   So it's not reflective of the evidence
27   that has been provided in that?
28           MR. WIGHTMAN:   Oh, no, just --
                                                                  216



 1        MS. McCONIHE:   Right.
 2        MR. WIGHTMAN:   Got you.
 3        MS. McCONIHE:   And I would not take that as a formal
 4   position by any of them at this stage.
 5        MR. WIGHTMAN:   Agreed.    And on that you mentioned that
 6   there were criticisms of their current of their current
 7   measures of market power potential and all that.
 8        Can you tell me where those criticisms came from, who
 9   authored those criticisms?
10        MS. McCONIHE:   Red Lake for sure.   I haven't read
11   the whole dockets, but I know that Red Lake submitted
12   comments that they thought that the definition of
13   substitutes for storage were too narrowly defined.
14        MR. WIGHTMAN:   And then again if you defined them more
15   broadly, and this is, I'll say artifice    has been used even
16   with packaging material for foods, or Saran wrap, it will
17   always reduce whatever your index is when you're measuring
18   that HHI; correct?
19        MS. McCONIHE:   Assuming that you can get a measure of
20   the alternatives.
21        MR. WIGHTMAN:   Yes, but just broadening it means --
22        MS. McCONIHE:   Yes.
23        MR. WIGHTMAN:   Right.
24       Just in your view, is the exercise of market power ever
25   in the public interest?
26        MS. McCONIHE:   No.
27        MR. WIGHTMAN:   Okay.
28        MR. WIGHTMAN:   Just a couple of questions that came
                                                                     217



 1   from stuff that just happened.
 2         Oh.   And this is just, hopefully, a very basic one.
 3   When we talk about competitive markets and you show a
 4   graphical analysis, you have supply and demand curves;
 5   correct?
 6         MS. McCONIHE:   That's correct.
 7         MR. WIGHTMAN:   It is the case that if you have a
 8   monopolist, there is no supply curve, is there?
 9         MS. McCONIHE:   No.
10         MR. WIGHTMAN:   That's right.     They just pick the most
11   profitable point.
12         MS. McCONIHE:   They pick the output level and that's
13   it.
14         MR. WIGHTMAN:   Yeah, on the demand curve.     There's no
15   supply curve for a monopolist.
16         MS. McCONIHE:   That's right.
17         MR. WIGHTMAN:   Yes.    Okay.   When you use the word
18   cross-subsidization, were you referring to differences in
19   rates based on some fully allocated cost methodology that’s
20   been approved, or were you using the Falhaber definition?
21         MS. McCONIHE:   I was using it in the instance of rate
22   subsidization, but certainly cross-subsidization can come
23   in various forms, and it's just not necessarily on the cost
24   allocation.
25         MR. WIGHTMAN:   Okay.    And just to follow up on that,
26   would you agree that if you're charging a buyer or somebody
27   less than the incremental cost, or you're charging somebody
28   more than the stand-alone cost, that there is a cross-
                                                                     218



 1   subsidization?
 2           MS. McCONIHE:   Yes.
 3           MR. WIGHTMAN:   Thank you.    Just to follow up on
 4   something that I think Market Hub Partners was getting at.
 5   And it's something you mentioned -- and it goes to your
 6   transmission or transportation constraints.
 7           If you had a hub or a node somewhere where there is
 8   pretty active market, transparent and prices will report,
 9   and people know what they could obtain things for, and it
10   were hooked up to another hub or node through a
11   transmission or transportation conduit, would you agree
12   that if that transmission or transportation line is not
13   congested that you would not expect to see a difference in
14   price greater than the cost of the transportation between
15   two hubs?
16           MS. McCONIHE:   That's right.
17           MR. WIGHTMAN:   Okay.     And what happens when it's
18   congested is it kind of breaks that link; correct?
19           MS. McCONIHE:   That's right.
20           MR. WIGHTMAN:   Okay.    Just one thing, and just ask
21   if -- and if you have any views on this.
22           You were asked by Union Gas, I believe, whether you
23   were aware of their proposal that in 2007 they would sell
24   infranchise storage for base requirements at cost-based
25   rates but incremental requests infranchise and exfranchise
26   at market-based rates.         I think you said you were aware of
27   that?
28           MS. McCONIHE:   Yes.
                                                                      219



 1        MR. WIGHTMAN:   Were you aware that they also propose,
 2   as of January 1 2007, to fix the amount of storage
 3   allocated for infranchise base requirements.
 4        MS. McCONIHE:   Yes.
 5        MR. WIGHTMAN:   And thereafter, if there are any
 6   incremental, let's say due to customer growth or whatever,
 7   that would be purchased or reallocated, maybe, from some of
 8   their other storage, at market-based rates.       And then the
 9   proposal is to roll in those new costs with the cost-based
10   rates?   You're aware of that part of it?
11        MS. McCONIHE:   Yes.
12        MR. WIGHTMAN:   Do you have any views on that?
13        MS. McCONIHE:   Well, I don't -- I appreciate Union's
14   proposal to freeze the market.      I think that you have to
15   have some provisions for -- it should be based on a five-
16   year forecast, in my opinion, of future demands on the
17   system, and then allocated to the core customers based on
18   not only their future demands over the five-year period but
19   some margin for weather variation.
20        MR. WIGHTMAN:   Thank you very much.      Those are my
21   questions.
22        MS. SEBALJ:    Thank you, Mr. Wightman.    I'm not sure
23   who the representative is, but Ontario Energy Savings, was
24   there anything?
25        MS. RUZYCKI:    We have no questions.
26        MS. SEBALJ:    Mr. Thompson.
27        CROSS-EXAMINATION BY MR. THOMPSON:

28        MR. THOMPSON:   Yes, Ms. McConihe.     McConihe, sorry.
                                                                       220



 1   Have I pronounced that right?
 2        MS. McCONIHE:    McConihe.
 3        MR. THOMPSON:    Okay.    I represent IGUA, the
 4   Industrial Gas Users Association, AMPCO, the Association of
 5   Major Power Consumers in Ontario.     My name is Thompson.    I
 6   am pleased to indicate that Mr. Wightman has asked none of
 7   the questions that I would be asking.
 8        And I want to congratulate you, you're the only
 9   witness to come to Ontario and be able to hold your own
10   against Mr. Wightman for more than 30 minutes.
11        I have a few questions, maybe 20 minutes or so.        The
12   first thing I wanted to indicate, though, is that my
13   clients are one of the co-sponsors of Mr. Stauft's
14   evidence.    Have you read that?
15        MS. McCONIHE:    Yes, I have.
16        MR. THOMPSON:    I see.    Thanks.   I may have some
17   questions about what he has said, and your comments on it,
18   if any.
19        In your testimony you have a couple of sections, one
20   on Canadian competition criteria and assessment, and FERC
21   criteria and assessment.
22         Mr. Stauft discusses the CRTC, Canadian Radio and
23   Telecommunications Commission, rules on forbearance.
24   He also discussed FERC market based, that regime that you
25   described.
26        MS. McCONIHE:    Yes.
27        MR. THOMPSON:    Did you discuss the CRTC forbearance
28   regime in your report?
                                                                    221



 1        MS. McCONIHE:     No.
 2        MR. THOMPSON:     Did you look at it.
 3        MS. McCONIHE:     I've looked at it in years past, like
 4   early 2000, like 2001, I looked at that.     But I can't give
 5   you specifics on it as I sit here.
 6        MR. THOMPSON:     Thanks.   Is Mr. Stauft's description of
 7   the FERC's market-based regime reasonably accurate as far
 8   as you're concerned?
 9        MS. McCONIHE:     Yes.
10        MR. THOMPSON:     Now, you describe the FERC regime in
11   your material, I think it's at page 8 as, and you have
12   quotes 'light handed regulation?'
13        MS. McCONIHE:     Yes.
14        MR. THOMPSON:     Is there a distinction to be made
15   between light-handed regulation and forbearance from
16   regulation?
17        MS. McCONIHE:     I don't believe so.
18        MR. THOMPSON:     Well, is forbearance from regulation,
19   in your view, no regulation whatsoever?
20        MS. McCONIHE:     No.
21        MR. THOMPSON:     What is forbearance from regulation in
22   your view.
23        MS. McCONIHE:     Forbearance is to let the market set
24   the price, with the oversight of a regulatory authority, to
25   monitor the market.
26        MR. THOMPSON:     And so it would be the equivalent to
27   light-handed regulation --
28        MS. McCONIHE:     Yes.
                                                                   222



 1        MR. THOMPSON: -- in the FERC context.     Thank you.
 2        MS. CAMPBELL:   Just, Mr. Thompson, just so you know
 3   what I'm doing, I'm not handing her answers or anything.
 4   I'm just giving her the Stauft report in case you refer to
 5   it later.
 6        MR. THOMPSON:   Okay.   Thanks.
 7        Now, just in terms of this market power issue and the
 8   existing regime, and I don't know that this is a topic that
 9   you mention in your testimony; maybe it is.    But are you
10   aware that in the existing regime, where we have this
11   distinction between infranchise and exfranchise, that
12   exfranchise premiums over cost, in large measure, are
13   flowed back to ratepayers?
14        MS. McCONIHE:   Yes.
15        MR. THOMPSON:   And so I guess I see it as somewhat a
16   bastardized form of cost-based rates for ratepayers that
17   get the benefit of that flow-back.     Does that feature of
18   the regime have any appeal to you?
19        MS. McCONIHE:   No, none whatsoever because it doesn't
20   give proper signals to customers.
21        MR. THOMPSON:   All righty.    Do you agree that the
22   status quo is a better stimulant for storage development
23   than what you might be recommending?
24        MS. McCONIHE:   No.
25        MR. THOMPSON:   Could you just explain why not?
26        MS. McCONIHE:   I believe that it is inappropriate to
27   allow affiliates of transportation and LDCs to develop
28   storage at market-based rates.     They already have market
                                                                   223



 1   power.   You're just concentrating the market more.
 2        MR. THOMPSON:    All right.   I guess what I was getting
 3   at was, was the flow-back of the premium over cost does
 4   provide, if you will, a broader market for non-cost-based
 5   storage in terms of Union and Enbridge.     And compared to
 6   your scenario, where everything is going to revert to a
 7   cost based, I wondered if this was a better regime for
 8   stimulating storage development than what you're
 9   advocating.
10        MS. McCONIHE:    I believe that the current system does
11   not provide any price information so that market
12   participants can decide at what price they're going to pay
13   for storage and whether it's a market price or a monopolist
14   price.
15        MR. THOMPSON:    Thank you.   Now, the Union affiliate
16   situation you were just mentioning that a moment ago.      And
17   I think the lawyer for Market Hub asked you whether you
18   agreed that Market Hub, as a new storage developer, should
19   be permitted to operate under a auspices of market-based
20   rate authority.   Did I understand that correctly?
21        MS. McCONIHE:    Yes.
22        MR. THOMPSON:    Okay.   But you threw in, if I heard you
23   correctly, a couple of qualifiers, and one, if I heard
24   correctly, was “subject to an affiliate's code.”
25        MS. McCONIHE:    Yes.
26        MR. THOMPSON:    And then the second, if I heard it
27   correctly, was a “functional separation of the transmission
28   from the storage --
                                                                      224



 1        MS. McCONIHE:    Yes.
 2        MR. THOMPSON:    -- system”?    All right.   And in terms
 3   of the first, what do you mean by "subject to an affiliates
 4   code" being in place?
 5        MS. McCONIHE:    That I believe there should be a policy
 6   that separates communications, not only of the marketing
 7   from the transmission, but other aspects of the business,
 8   so that there is no ability to abuse affiliate
 9   relationships.
10        In addition, I believe that there should be an
11   electronic bulletin board where all transactions are
12   posted, so everybody can see how much the affiliate is
13   buying from its affiliate, and there's price discovery.
14        MR. THOMPSON:    All right.    Are you familiar with the
15   Affiliates Code in Ontario?
16        MS. McCONIHE:    Yes.
17        MR. THOMPSON:    Okay.   And are you familiar with what I
18   call the prudence rules that utilities must demonstrate or
19   satisfy to have costs included in rates?
20        MS. McCONIHE:    I don't believe I'm familiar with that
21   document.
22        MR. THOMPSON:    Okay.   Well, the -- let's just take the
23   affiliates rules in Ontario.
24        What I'm interested in is Market Hub being authorized
25   to develop new storage and sell it under the auspices of
26   market-based rates.    But then, coming to Union to sell it.
27        And my question is under the Affiliates Code here, as
28   I understand it, Union would need to demonstrate that what
                                                                    225



 1   they're buying from Market Hub is -- my words -- least cost
 2   alternative, competitive.     Is that the kind of thing that
 3   you're talking about?
 4        MS. McCONIHE:   In part, but I believe it goes to
 5   preferential treatment of, let's say, Market Hub in getting
 6   transmission connected to it, and there should be oversight
 7   on the prudence, as you say, of Union as an LDC purchasing
 8   supplies for their customers.
 9        MR. THOMPSON:   Right.   And in that process, is it your
10   vision that Union would need to demonstrate that what
11   Market Hub is offering to sell it -- them to is competitive
12   with what Union could develop it themselves for?
13        MS. McCONIHE:   That's correct.
14        MR. THOMPSON:   And the same thing with Enbridge, then;
15   whether it was Union coming to Enbridge or Market Hub or an
16   Enbridge affiliate coming to Enbridge, they would have to
17   satisfy that test?
18        MS. McCONIHE:   Yes, it's a regulatory oversight
19   process that needs to be in place there.
20        MR. THOMPSON:   All right.   Thank you.
21        Now, there was some discussion about this enhanced ROE
22   for independent developers.    And I think you mention that
23   at page 35 of your testimony.     This is the 20 percent you
24   were mentioning?
25        MS. McCONIHE:   Right.
26        MR. THOMPSON:   And did I understand this was a FERC
27   approach?
28        MS. McCONIHE:   No.
                                                                  226



 1        MR. THOMPSON:   So the source of the -- well, what's
 2   the source of the, if you will, regulatory allowance of 20
 3   percent?
 4        MS. McCONIHE:   It was part of a discussion of
 5   encouragement of storage.     And they had a docket, an
 6   investigation.   And people presented testimony such that
 7   -- developers presented testimony that indicated that they
 8   needed at least 20 percent premium to develop storage.
 9        MR. THOMPSON:   I see.    And is that report -- is it
10   report or reports?
11        MS. McCONIHE:   It's one report.
12        MR. THOMPSON:   And is that subject to an undertaking
13   you've already given?
14        MS. McCONIHE:   Yes.
15        MS. CAMPBELL:   I think that's already been given,
16   Mr. Thompson.
17        MR. THOMPSON:   All right.    Thank you.
18        And do you agree that returns that regulators allow
19   are generally a function of risk?
20        MS. McCONIHE:   Yes.
21        MR. THOMPSON:   And what you've described in the last
22   sentence of your testimony is you relate the 20 percent to
23   a situation because storage customers will only commit to
24   purchase capacity for a one- to five-year period.     Is that
25   linked to the 20 percent?
26        MS. McCONIHE:   Yes.
27        MR. THOMPSON:   And if the contracts were long term,
28   there would presumably be less risk.
                                                                        227



 1           MS. McCONIHE:   Yes.
 2           MR. THOMPSON:   And a lower rate of return.
 3           MS. McCONIHE:   Definitely.
 4           MR. THOMPSON:   Okay.    I'm just about done here.     I
 5   just wanted -- well, there are a couple of things.
 6           In your table, I think it's at page 24 -- I don't
 7   think you need to turn it up -- and you've undertaken to
 8   produce all the working papers to support that,
 9   you're comparing, as I understood it, a situation where
10   you're including in the comparison gas commodity prices at
11   Dawn.    Landed costs at Dawn.     Is that right?
12           MS. McCONIHE:   No.    I'm comparing delivered costs to
13   the various storage areas as reported by Enerdata in June
14   of 2004/2005 to the cost of gas plus storage in Dawn as
15   reported by the Enerdata for June.
16           MR. THOMPSON:   Sorry.    So when you say "delivered
17   costs into the storage area,” could you just explain to me
18   what you mean by that?
19           MS. McCONIHE:   Enerdata provides the commodity price
20   of gas delivered to Ontario, plus transportation, and
21   likewise they have the same thing for the US markets.
22           MR. THOMPSON:   Okay.    Well, my clients and advisors
23   distinguish between a parking place for gas that at the
24   time it's parked is uncontracted to the market.
25           MS. McCONIHE:   Right.
26           MR. THOMPSON:   That's storage.
27           MS. McCONIHE:   Let's say June.
28           MR. THOMPSON:   And then compared to that there's
                                                                      228



 1   what they call the load-balancing service, where they have
 2   acquired their gas or somebody's acquired it on their
 3   behalf, and it's being brought down from the source of
 4   supply and balanced to meet the takes at the point of
 5   consumption.    And so it's in this balancing service context
 6   that my clients examine the storage issue, primarily.
 7           MS. McCONIHE:    Mm-hm.
 8           MR. THOMPSON:    Are you with me so far?
 9           MS. McCONIHE:    Yes.    So far.
10           MR. THOMPSON:    Okay.    And what Mr. Stauft has done in
11   his report in appendix 2, and I don't know if you had a
12   chance to look at that, but what he's analyzed is the
13   latter situation.       If you had to obtain a balancing service
14   for your plant in Ontario, using a field outside of
15   Ontario, what it would cost.
16           MS. McCONIHE:    That's correct.
17           MR. THOMPSON:    Compared to what it costs in Ontario.
18   Do you have any quarrel with what he has done there?
19           MS. McCONIHE:    I'd like to see the backup papers for
20   them, but he considers load factors, where I did not.
21           MR. THOMPSON:    Okay.    But conceptually, there's a
22   difference between what you did in your table and what he's
23   done?
24           MS. McCONIHE:    Exactly.
25           MR. THOMPSON:    Okay, now, finally, just your
26   recommendations.    I just have a few clarification questions
27   here.    And I'd like to put these questions to you and ask
28   you to assume that the Board sticks with the status quo.
                                                                      229



 1   And then I'm trying to find out whether these
 2   recommendations continue to have validity in that scenario.
 3   You with me?
 4        MS. McCONIHE:    Yes.
 5        MR. THOMPSON:    Okay.    So the first one relates to a
 6   transparency.   Is that a stand-alone recommendation, even
 7   if the Board stays with the status quo?
 8        MS. McCONIHE:    Yes.
 9        MR. THOMPSON:    All right.    And when you talk about
10   reporting, could you just explain what type of reporting
11   you envisage?     Who reports, and to whom?
12        MS. McCONIHE:    Well, what I envision is a system that
13   US has adopted, which is a bulletin board posting, let's
14   say by Union, of the available capacity, its fields, who
15   the customers are, what tariff it's serving that customer
16   on, available capacity, how long are the contracts for, and
17   the capacity of that contract.
18        MR. THOMPSON:    All right.    So the reporting obligation
19   applies to Union only?      Union and Enbridge?   Or?
20        MS. McCONIHE:    Anybody providing storage or
21   transportation.
22        MR. THOMPSON:    All right.    And the reporting just on a
23   publicly available site.
24        MS. McCONIHE:    Yes.
25        MR. THOMPSON:    Is not necessarily with the Board,
26   it's --
27        MS. McCONIHE:    No.    Everybody has access.      I could go
28   on it; you could go on it.
                                                                   230



 1        MR. THOMPSON:   Thank you.    Your second recommendation
 2   about functional separation, is that a stand-alone, if you
 3   will, recommendation, whether or not the Board sticks with
 4   the status quo?
 5        MS. McCONIHE:   I don't understand question.       If
 6   there's status quo, then there's no functional separation.
 7        MR. THOMPSON:   I'm sorry, I missed that?
 8        MS. McCONIHE:   If you're assuming status quo --
 9        MR. THOMPSON:   Yes.
10        MS. McCONIHE:   -- there is no functional separation.
11        MR. THOMPSON:   Right.
12        MS. McCONIHE:   So that's inapplicable.    It's not in
13   today's regime.
14        MR. THOMPSON:   No, but should there be functional
15   separation?
16        MS. McCONIHE:   Definitely.
17        MR. THOMPSON:   Under the status quo?    So you would be
18   making that recommendation, even if the Board stays with --
19        MS. McCONIHE:   Yes.
20        MR. THOMPSON:   -- the infranchise/exfranchise
21   recommendation.
22        MS. McCONIHE:   Yes, definitely.
23        MR. THOMPSON:   Okay.    And what do you mean by
24   "functional separation"?
25        MS. McCONIHE:   I mean that the core customers are
26   managed by one unit and the non-core customers -- this is
27   for storage -- are managed by another unit, and
28   transportation is managed by an even separate unit, and
                                                                  231



 1   there would be codes of conduct that would govern their
 2   interactions.
 3        MR. THOMPSON:   Okay.    I got lost a bit there, because
 4   your second recommendation is separation, functional
 5   separation, of transportation and storage.    And your third
 6   is splitting customers into two groups.     You sort of
 7   bunched the two together there, didn't you?
 8        MS. McCONIHE:   There would be three units.    There
 9   would be core storage, there would be non-core storage as a
10   separate unit, and transportation, three units.
11        MR. THOMPSON:   Right.   But if the Board stuck with the
12   status quo, I assume they would be, in effect, rejecting
13   your third recommendation.
14        MS. McCONIHE:   That would be right.    That would be
15   correct.
16        MR. THOMPSON:   Right.   And so, to come back to my
17   question then, does your second recommendation still stand,
18   separating transmission from storage?
19        MS. McCONIHE:   Yes.
20        MR. THOMPSON:   And the rationale for that is what?
21        MS. McCONIHE:   The rationale is that there's the
22   ability to manipulate the market if you have one unit
23   that's transmission and one unit that's doing storage and
24   no separation between the two.
25        MR. THOMPSON:   Thank you.   Your fourth recommendation
26   is with respect to a complaint process.     Does that stand if
27   the Board sticks with the status quo?
28        MS. McCONIHE:   No.
                                                                     232



 1        MR. THOMPSON:     And then --
 2        MS. McCONIHE:     Wait, let me rephrase that.
 3        It could be that with the current status quo that you
 4   could develop a complaint process that would deal with the
 5   market as it existed; i.e., having the Board have oversight
 6   over the complaints rather than the utility.
 7        MR. THOMPSON:     Right.    Never hurts to have a complaint
 8   process.
 9        MS. McCONIHE:     That's right.
10        MR. THOMPSON:     Thank you.    Now, the fifth one with
11   respect to third-party storage providers, have we already
12   covered that in our discussion about independent storage
13   development?
14        MS. McCONIHE:     That's right.
15        MR. THOMPSON:     Thank you very much.    I think those are
16   all my questions.    Yes, they are.    Much less enlightening
17   than Mr. Wightman's conversation.
18        MS. McCONIHE:     Oh, that's for sure.
19        MR. THOMPSON:     But we're just grinders, you know.
20        MS. McCONIHE:     You must be.    Yeah.
21        [Laughter]
22        MS. SEBALJ:     Thank you, Mr. Thompson.
23        MR. THOMPSON:     Thanks.
24        MS. SEBALJ:     I'm going to go through my list here.
25   I'm not sure whether anyone else has questions.      Mr. Olsen?
26        MR. OLSEN:     No.
27        MS. SEBALJ:     Mr. Keys?   He's not even in the room.
28        MR. ROSS:    He's not here but TransCanada doesn't have
                                                                          233



 1   any questions.
 2           MS. SEBALJ:     Thanks.   The IESO.   Mr. Katsuras?    Not
 3   here.    Kitchener?
 4           MR. QUINN:    Yes.   Very brief.
 5           CROSS-EXAMINATION BY MR. QUINN:

 6           MR. QUINN:    Thank you, Ms. McConihe, I'm Dwayne Quinn
 7   from City of Kitchener utilities.          We're an embedded
 8   distributor in the Union franchise area.          And basically we
 9   appreciate your evidence, it hangs together fairly well in
10   our view of economics here locally.
11           In the response to Mr. Wightman’s question which, I
12   have to agree with Mr. Thompson, I didn't completely
13   follow, the -- you were asking a question about incremental
14   franchise demand and the responsibility of the LDC to plan
15   for a what I heard was a five year forecast?
16           MS. McCONIHE:    Yes.
17           MR. QUINN:    With an incremental with an incremental
18   component for weather variation.
19           MS. McCONIHE:    Yeah, a margin, reliability margin.
20           MR. QUINN:    Could you comment further on that?       Why
21   would a utility be required to do something like that?
22           MS. McCONIHE:    The problem I have with Union's
23   proposal is, it's based on historic data.          And you've got
24   to look to the future.       So that you don't go cold turkey on
25   January 1, '07, where demand might be greater than what the
26   allocation was, number 1, and number 2, that there should
27   be a margin in there for weather variations, and that's
28   something that you could figure out from historic
                                                                        234



 1   information.
 2           MR. QUINN:    And why would it be incumbent upon the
 3   utility to plan for that weather variation?
 4           MS. McCONIHE:    I think that's usually normal utility
 5   planning process.
 6           MR. QUINN:    So the expectation would be an increment
 7   of storage to plan for colder-than-normal weather?
 8           MS. McCONIHE:    Yes.
 9           MR. QUINN:    Okay.   Thank you, those are my questions.
10           MS. SEBALJ:    Thank you, Mr. Quinn.    Mr. Hemming?   He's
11   gone.    Mr. Howe?
12           MR. HOWE:    No questions.
13           MS. SEBALJ:    Thank you.    And I noticed, I believe we
14   have representatives of Gaz Met in the room.
15           MR. RATELLE:    We have no questions.
16           MS. SEBALJ:    Thank you.    Have I missed anybody who
17   wishes to ask questions?        That leaves us.   We do have some
18   questions for you, on behalf of the Board support team.
19           CROSS-EXAMINATION BY BOARD HEARING TEAM:

20           MS. SEBALJ:    On page 18 of your evidence, if you want
21   to pull that up -- I have to pull it up -- you state that
22   there are two basic types of storage, seasonal and
23   short-term.
24           Does this imply that there are distinct antitrust
25   product markets for those types of storage?
26           MS. McCONIHE:    There could be, yes.
27           MS. SEBALJ:    Are some of the substitutes that you
28   discuss more viable in the short-term storage market than
                                                                    235



 1   in the seasonal storage market?
 2         MS. McCONIHE:   Yes.
 3         MS. SEBALJ:   And so can you describe that a bit for
 4   me.
 5         MS. McCONIHE:   If an LNG plant were located in the
 6   market area, LNGs could be injected into the distribution
 7   line or could be trucked to serve the hourly demand.
 8         MS. SEBALJ:   And so LNG's more shorts term is what
 9   you're saying?
10         MS. McCONIHE:   Yes.
11         MS. SEBALJ:   As opposed to what are the types of
12   substitutes for seasonal?
13         MS. McCONIHE:   Right.   But LNQ is also available for
14   the seasonal.    But I think the hourly is limited to what
15   can be depended upon for hourly peaks.
16         MS. SEBALJ:   Thank you.   Should separate HHI
17   statistics be calculated for working gas and peak-day
18   deliverability?
19         MS. McCONIHE:   Yes.
20         MS. SEBALJ:   And this distinction corresponds to
21   seasonal and short-term?
22         MS. McCONIHE:   Yes.
23         MS. SEBALJ:   Now, moving to pipeline capacity.   On
24   page 19, you say that line packing is only a temporary
25   short-term substitute for underground storage.
26         MS. McCONIHE:   That's correct.
27         MS. SEBALJ:   Can you explain that a bit more fully,
28   the reason for that definition?
                                                                    236



 1        MS. McCONIHE:     As I described, line packing requires
 2   that you pack the pipeline system at an off-peak time,
 3   i.e., at night, to be available to serve the needs for
 4   spikes the next day.
 5        So you have to have a pretty good fix on what your
 6   spike's going to be, predictability, for that to be useful.
 7        And that's not a long-term possibility, because of the
 8   planning necessary to pack that line.
 9        MS. SEBALJ:   Thank you.     You also say on page 19 that:
10             "Increased pipeline deliveries to manage
11             daily balancing of demand and supply is not
12             likely to be a cost-effective substitute
13             because of seasonal gas price differentials."
14        Can you --
15        MS. McCONIHE:     Where's that?
16        MS. SEBALJ:   Sorry.      It's the second paragraph, under
17   "pipeline capacity," on page 19.       It starts "furthermore."
18        MS. McCONIHE:     Yeah.
19        MS. SEBALJ:   And I just read the rest of the sentence,
20   “Increase pipeline deliveries."
21        Do you have it?
22        MS. McCONIHE:     Mm-hm.
23        MS. SEBALJ:   I'm just wondering if you can explain
24   that conclusion more fully as well.
25        MS. McCONIHE:     There's quite a bit of differential
26   between whether you buy the gas in the off-peak, i.e.,
27   spring season versus during the winter.
28        If you're going to line-pack, you would be buying the
                                                                     237



 1   gas at a higher price during the winter to pack that line.
 2        MS. SEBALJ:     Thank you.
 3        I guess I'll ask first whether you think there's a
 4   secondary market for pipeline capacity that can solve some
 5   of the constraints that are identified in the BSA study.
 6        MS. McCONIHE:    Are you talking about in Ontario?
 7        MS. SEBALJ:     Well, I guess the constraints in the BSA
 8   study talk about pipeline capacity in and out of Ontario.
 9        MS. McCONIHE:    Okay.   I don't believe that the
10   secondary market will solve the problem.     Most secondary
11   market capacity offerings are interruptible or short-term,
12   very short-term, very specific to days, perhaps.     It's not
13   reliable.
14        MS. SEBALJ:     Is it possible to have a secondary market
15   that's vibrant enough to change your conclusions about the
16   geographic market?
17        MS. McCONIHE:     Yes.   If there is price discovery and
18   transparency.
19        MS. SEBALJ:     And if that was the case, if we had the
20   things that you've discussed with some of the other people
21   who have asked you questions, you feel, then, that what you
22   just said to me was that these are largely interruptible
23   and short-term, so would they then become less
24   interruptible and short-term.
25        MS. McCONIHE:    No.
26        MS. SEBALJ:     So it maintains its short-term and
27   interruptible --
28        MS. McCONIHE:    That's right.
                                                                    238



 1        MS. SEBALJ:     I have a question with respect to table 2
 2   on page 24 that I don't think has been addressed by,
 3   largely, Mr. Leslie who asked you a number of questions.
 4        We're wondering, what exchange rates were used for the
 5   calculations.
 6        MS. McCONIHE:     .88.   And that was provided for each
 7   month by Enerdata.    So they provided me with that
 8   information.
 9        MS. SEBALJ:     So it's one exchange rate or is it the
10   same rate for 2004/2005?
11        MS. McCONIHE:     I believe it's -- I know that they
12   differentiated among the months, so I don't know whether
13   happenstance if we could the same but it will be in the
14   work papers I provide.
15        MS. SEBALJ:     Thank you.
16        In terms of your market share and concentration, your
17   HHI calculation, what's the basis for restricting
18   consideration in the market power analysis to exfranchise
19   supply and demand for storage capacity?     So this is this
20   134 number that I think someone asked you about.
21        MS. McCONIHE:     Union, probably.   And I said I would
22   take it as an undertaking.
23        MS. SEBALJ:     So that will clarify --
24        MS. McCONIHE:     Right.
25        MS. SEBALJ:     Just as a follow-up to that, if you --
26   I'm having a little bit of difficulty understanding when
27   you use "core" and "non-core," exfranchise and infranchise,
28   and I think you've referred to third party and non-third
                                                                    239



 1   party.   If you had ideal data for market concentration
 2   would it be core or non-core?
 3          MS. McCONIHE:   Yes.
 4          MS. SEBALJ:   I'm moving now to "barriers to entry."
 5          What's the likely profile of entry by new storage
 6   capacity over the medium term?
 7          MS. McCONIHE:   I don't understand the question.
 8          MS. SEBALJ:   What are the prospects for new entry in
 9   this market, in your opinion?
10          MS. McCONIHE:   Are you talking from a regulatory point
11   of view?
12          MS. SEBALJ:   I guess I'm asking, what would it take to
13   get new entry into this market?
14          MS. McCONIHE:   Scarcity of storage capacity.
15          MS. SEBALJ:   Is it your opinion that we have scarcity
16   now?
17          MS. McCONIHE:   I can't comment because there's no
18   transparency.
19          MS. SEBALJ:   On page 28, you identify access to the
20   requisite transmission at economic rates as a barrier to
21   entry of new storage.    Can you explain that?
22          MS. McCONIHE:   Yes.   Most LDCs have a captive core of
23   demands that are predictable and are using current storage,
24   whereas a new entrant has to develop its own market for
25   storage, and therefore it cannot have the predictability
26   that an LDC would in terms of storage demand.     And it would
27   be easy for a utility storage provider to build storage
28   because it knows what its demand is, and therefore it's
                                                                     240



 1   less risky.
 2        MS. SEBALJ:     Thank you.   I suppose it will be
 3   qualitative, but on page 28 you talk about the bundling of
 4   transmission services and storage as a significant barrier
 5   to entry for new storage?
 6        MS. McCONIHE:     Yes.
 7        MS. SEBALJ:     What's the magnitude of that barrier, in
 8   your opinion?
 9        MS. McCONIHE:     I have no fix on it because there's no
10   statistic on that.
11        MS. SEBALJ:     I wanted to clarify a statement that you
12   made in response to Mr. Wightman's evidence -- or, sorry,
13   Mr. Wightman's questions.
14        You indicated, I think, and I don't want to misquote
15   you, and I haven't checked the transcript, but you said
16   that you would expect competitive market prices to be below
17   cost-of-service.     And I'm not sure if you said that you
18   would expect or that they could.
19        MS. McCONIHE:     I would expect in a situation of excess
20   capacity that the market price would be lower than the
21   cost-of-service.
22        MS. SEBALJ:     In a situation of excess capacity?
23        MS. McCONIHE:     Yes.
24        MS. SEBALJ:     Those are all my questions.   Thank you.
25   Oh, sorry.    They're not all my questions.
26        MR. MAN:    Just one question on page 45.     On top of the
27   page, you mention a split into two groups, core customers
28   and non-core customers, and you use California as an
                                                                    241



 1   example.
 2           And I believe California has been having this
 3   distinction for a long time.     Is that correct?
 4           MS. McCONIHE:   I didn't understand the last part of
 5   that.
 6           MR. MAN:   Your core and non-core suggestion on page
 7   45 --
 8           MS. McCONIHE:   Yes.
 9           MR. MAN:   Has California got this distinction for a
10   long period of time?
11           MS. McCONIHE:   Yes.
12           MR. MAN:   And can you comment on their experience?
13           MS. McCONIHE:   Yes.
14           They've been able to develop a system whereby those
15   that want to leave the system and get their own gas.     They
16   freed up transportation on interstate pipeline and
17   intrastate pipelines, so those customers have full ability
18   to get the transportation they need to get the gas to their
19   demand.
20           In addition, there are independent storage providers
21   that will provide market-based rates for those non-core
22   customers.    And as an alternative, those customers can also
23   buy from the regulated storage providers.      So it's kind of
24   the same situation that I'm proposing here.
25           MR. MAN:   So, in terms of your opinion on the
26   development of this market, the California, I mean, is that
27   a very positive experience?
28           MS. McCONIHE:   Yes.
                                                                    242



 1        MR. MAN:   Thank you.
 2        MS. SEBALJ:   I think we're really done now.    Thank you
 3   so much.
 4        MS. McCONIHE:   You're welcome.
 5        MS. SEBALJ:   Thank you to the Board hearing team.
 6        Now, of course this would have to be awkward, but what
 7   I would suggest, given -- and Mr. Smith, I'm sort of in
 8   your hands on this, but I would like to proceed for another
 9   half-hour or 45 minutes.     Is that acceptable to you?   It
10   will mean it's broken up but I'm not...
11        MR. SMITH:    That's fine.
12        MS. SEBALJ:   Is that okay?    Do you need a five-minute
13   break?
14        THE REPORTER:   Could I have one?
15        MS. SEBALJ:   Sure.   Let's take a five-minute break
16   while I find out what happened to the air conditioning, and
17   let's just try to take ten minutes and come back at 5:15.
18        --- Recess taken at 5:05 p.m.
19        --- On resuming at 5:17 p.m.
20        MS. SEBALJ:   As I understood it, the Board hearing
21   team is not going to be the first to question.    And Mr.
22   Leslie has kindly offered to be first up on this round.
23        Mr. Moran, you've got a couple of questions?
24        MR. MORAN:    Yes.
25        Mr. Aiken?
26        MR. AIKEN:    No, no question for this panel.
27        MS. SEBALJ:   Mr. Wightman?
28        MR. WIGHTMAN:   I may have a couple of questions, and
                                                                     243



 1   maybe not.
 2        MS. SEBALJ:    Okay.   Ontario Energy Savings is no
 3   longer in the room.    Mr. Olsen?    Is no longer in the room.
 4   I don't think TCPL is here.     Mr. Thompson?
 5        MR. THOMPSON:    Half an hour.
 6        MS. SEBALJ:    And Mr. Quinn.
 7        MR. QUINN:    5 minutes.
 8        MS. SEBALJ:    Mr. Hemming?    Mr. Howe?
 9        MR. HOWE:    No, thank you.
10        MS. SEBALJ:    And Gas Met.    That gives
11   me an idea.    I'll turn it over to Mr. Smith.
12        MARKET HUB PARTNERS     - PANEL 1:
13        JIM REDFORD;
14        JOHN REED;

15        MR. SMITH:    I'd like to introduce Jim Redford and
16   John Reed, who are here to speak to the filed evidence on
17   behalf of Market Hub Partners Canada.      With your leave we
18   would appreciate the opportunity to make a brief opening
19   statement.    Mr. Redford has that ready to go.
20        MS. SEBALJ:    Sure.
21        OPENING STATEMENT BY MR. REDFORD:

22        MR. REDFORD:     My name is Jim Redford, I'm the project
23   director for Market Hub Partners LP, as Mr. Smith said.
24   Seated beside me is John Reed.      He's a principal with the
25   consulting firm Concentric Energy Advisors Inc.      We're
26   happy to be here, and looking forward to answering
27   questions about our evidence.
28        Just a bit of background.       Market Hub Partners Canada
                                                                  244



 1   is a Duke Energy Corporation partnership formed for the
 2   purpose of independently owning marketing and developing
 3   natural gas storage assets here in Ontario.
 4        We are a small new entrant to the market.    Subject to
 5   the implementation of appropriate regulatory rules, we are
 6   prepared to assume the risks and continue with our plans to
 7   develop viable storage developments in Ontario.
 8        Just quickly about our evidence.   There are two pieces
 9   to our evidence.   First, Market Hub Partners Canada has
10   submitted company evidence to which I'll speak.    At the
11   same time, Market Hub Partners Canada commissioned
12   Concentric Energy Advisors to prepare a report with respect
13   to the state of the competitive market, as well as to
14   determine whether market power concerns exist, and Mr. Reed
15   will speak to that evidence.
16        As a matter of house cleaning, on Friday we
17   had submitted updates   to our evidence, page 2 of the
18   MHP Canada evidence, and attachments D and E of the
19   Concentric Energy Advisors evidence, and sent that
20   electronically.
21        I'd just like to address one issue.   MHP Canada filed
22   an application with the Board in June 2005 for approval of
23   the St. Clair Pool.   It's a 1.1 Bcf working gas reservoir
24   in Lambton County.
25        We asked for adjournment of that proceeding so that
26   some critical issues can be resolved in this forum.    And
27   they relate to market power, they relate to market-based
28   rate authority, and the role of affiliates.
                                                                   245



 1        MHP Canada's prepared to offer storage services to the
 2   market in 2007 through the St. Clair Pool.    In order to
 3   achieve this, we're going to need to commit to drilling
 4   contractors, to project materials, to an open season
 5   process, and to continuation of the project regulatory
 6   process by the end of August 2006.
 7        We are looking for clarity with respect to some key
 8   decisions, regulatory decisions, in order to make those
 9   commitments.   We've outlined those as the core points in
10   our evidence, in the introduction section.
11        And as a result, we're looking for an expedited
12   decision on those core points.
13        The core points simply are confirmation that MHP
14   Canada cannot exercise market power; confirmation that MHP
15   Canada, similar to independent storage developers, will be
16   granted authority to charge market-based rates, and then
17   finally confirmation that MHP Canada will be granted
18   contracting flexibility so that we can contract for our
19   services without having to get pre-approval from the Board
20   and those will be subject to a base set of approved terms
21   and conditions.
22        We just want to point out that we're not asking for a
23   decision before all the evidence that's been heard, and nor
24   are we asking for a decision on the full forbearance issue.
25        That's it.    And we're ready to respond to questions.
26        MS. SEBALJ:   Thank you.
27        MR. SMITH:    Just a word of clarification.   I think
28   Mr. Redford meant we're not looking for a decision on the
                                                                    246



 1   full forbearance issue on an expedited basis.    We
 2   obviously are looking forward --
 3        MR. REDFORD:    That's correct.
 4        MS. SEBALJ:    Right.
 5        MR. SMITH:    Thank you.
 6        MS. SEBALJ:    Thank you.   Mr. Leslie.
 7        CROSS-EXAMINATION BY MR. LESLIE:

 8        MR. LESLIE:    Thank you.   Mr. Reed, my questions are
 9   for you, and they really relate to one topic, and that is
10   the discussion of secondary markets that we've heard this
11   afternoon.   Have you been present during the evidence that
12   was given during the course to have afternoon by
13   Ms. McConihe?
14        MR. REED:    Yes.
15        MR. LESLIE:    Is the term secondary markets one that
16   you're familiar with?
17        MR. REED:    Yes.
18        MR. LESLIE:    How would you define a secondary market,
19   and to the extent that you need to bring it home to the gas
20   business?
21        MR. REED:    A secondary market is one in which the
22   offering is made by a holder of a product or service as
23   opposed to the original producer of that service.     In the
24   context of the Ontario storage market, it would be when
25   someone contracts for storage service and subsequently
26   resells it to another party.
27        So it's any time the party providing or selling the
28   service is other than the producer.
                                                                     247



 1        MR. LESLIE:    Right.    And would you put any stipulation
 2   on that definition that there has to be complete price
 3   transparency and transaction transparency for the world
 4   such as a stock market, for example, before it can qualify
 5   as a secondary market?
 6        MR. REED:    No, the term "secondary market" applies
 7   regardless of the characteristics of that market.
 8        And, in fact, the secondary market as it's used in the
 9   states for pipeline capacity or storage capacity, does
10   not involve complete transparency of pricing.
11        MR. LESLIE:    Ms. McConihe, in answer to questions
12   referred, and I think ultimately was defining, a secondary
13   market.   And this relates to FERC regulation, I believe, as
14   "the release of tariff capacity which remains capped.”        And
15   by that, as I understood it, it's capacity that's
16   subject to tariffs.      It's released into the market, but
17   there's still a price cap on it; did I understand that to
18   be your evidence as well?
19        MR. REED:    Yes.
20        MR. LESLIE:    And I take it from your earlier answer
21   that you would not agree that that is the only appropriate
22   definition of a secondary market?
23        MR. REED:    No.    I think a secondary market's broader
24   than that.
25        MR. LESLIE:    Thank you.    Those are my questions.
26        MS. SEBALJ:    Thank you, Mr. Leslie.    Mr. Moran?
27        CROSS-EXAMINATION BY MR. MORAN:

28        MR. MORAN:    Panel, my name is Pat Moran.    I represent
                                                                  248



 1   The Association of Power Producers of Ontario.     We are
 2   concerned about the interests of gas generators in the
 3   context of this proceeding.
 4         Let me start off with this question.
 5         First of all, what storage assets does MHP Canada
 6   currently own in Ontario?
 7        MR. REDFORD:    We own no assets that are currently
 8   approved for storage.      We do own assets that we would plan
 9   to convert the reservoirs to storage.
10        MR. MORAN:    Okay.    And what assets are those?
11        MR. REDFORD:    We own the St. Clair Pool, as I
12   discussed on the opening, and 50 percent of the Sarnia
13   Airport Pool.
14        MR. MORAN:    And 50 percent of?
15        MR. REDFORD:    The Sarnia Airport Pool.
16        MR. MORAN:    Airport Pool.    All right.
17        MR. REDFORD:    We also own Seismic Data, we also own
18   leases across Lambton County that would allow us to develop
19   storage through those.
20        MR. MORAN:    All right.    And who did you acquire those
21   assets from?
22        MR. REDFORD:    The Seismic Data?
23        MR. MORAN:    Well, let me start with the St. Clair Pool
24   that you referenced.    Who did you acquire that from?
25        MR. REDFORD:    St. Clair Pool was part of an
26   exploration program, and was drilled by St. Clair Pipelines
27   1996 Limited, and that's where the St. Clair Pool was
28   discovered from.    Sarnia Airport Pool was purchased from
                                                                       249



 1   Kinetic Energy.
 2           MR. MORAN:   All right.    So the St. Clair Pool was
 3   acquired from St. Clair pipelines?
 4           MR. REDFORD:   That's correct.    They're the limited
 5   partner of Market Hub Partners Canada Limited.
 6           MR. MORAN:   Okay.    And you said that the Sarnia
 7   Airport Pool was acquired from Kinetic Energy?
 8           MR. REDFORD:   That's correct.
 9           MR. MORAN:   And who is Kinetic Energy?
10           MR. REDFORD:   Kinetic Energy had purchased those
11   assets from the receiver of CanEnerco.       They were a --
12   Kinetic is an exploration company in Ontario, as far as I
13   know.
14           MR. SMITH:   May I just interject.    If Mr. Redford
15   could draw the microphone a little closer.        It's a little
16   tough to follow.
17           MR. REDFORD:   Yes.    Sorry.
18           MR. MORAN:   And I think you've indicated the capacity
19   of the St. Clair Pool is 1.1 Bcf?
20           MR. REDFORD:   That’s correct.
21           MR. MORAN:   And the capacity of the Sarnia Airport
22   Pool?
23           MR. REDFORD:   5.23 Bcf.
24           MR. MORAN:   Right.    And do you own any other storage
25   assets at this time?
26           MR. REDFORD:   No.
27           MR. MORAN:   Right.    As I understand it, you currently
28   actually don't have any storage service on offer
                                                                    250



 1   because you're still waiting for some approvals?
 2          MR. REDFORD:   That's correct.    Currently we do not
 3   offer storage services to the market.      We will, once St.
 4   Clair Pool is approved and in service.
 5          MR. MORAN:   Could you just turn up page 1 of your
 6   Evidence?
 7          MR. REDFORD:   Yes, I have that.
 8          MR. MORAN:   In the second paragraph, you describe MHP
 9   Canada as a Duke Energy Corporation.      And then you go on to
10   say that:
11               "MHP Canada and its predecessor companies
12               have invested over $15 million in exploration
13               and project development activities in Ontario
14               for the past ten years in pursuit of viable
15               storage development opportunities."
16   Could you please indicate who those predecessor companies
17   are?
18          MR. REDFORD:   That was St. Clair Pipelines 1996
19   Limited.
20          MR. MORAN:   All right.    Are there any other companies?
21          MR. REDFORD:   That's it.
22          MR. MORAN:   All right.    Now, moving to the Seismic
23   Data that you own, where did you get that from?      Who did
24   you purchase that from.
25          MR. REDFORD:   St. Clair Pipelines 1996 Limited.
26          MR. MORAN:   Okay.   Thank you.   Now, I understand that
27   there's also an MHPUSA entity?
28          MR. REDFORD:   There is.    There's a Market Hub Partners
                                                                        251



 1   US company; that's correct.
 2           MR. MORAN:    Engaged in offering storage services as
 3   well?
 4           MR. REDFORD:    That's correct.      Their primary business
 5   is offering storage services.        They're focussed mainly in
 6   the Gulf of Mexico area.
 7           MR. MORAN:    Okay.    Are you in a position to advise on
 8   the kind of reporting requirements that MHP USA has for its
 9   storage contracts and capacity and price and so on, or is
10   that something you would have to undertake to provide?
11           MR. REDFORD:    Yes, I would likely have to undertake to
12   provide that.
13           MR. MORAN:    Okay.
14           MR. REDFORD:     I'm not involved in the MHP US
15   business.
16           MR. MORAN:    All right.    Can we mark that as an
17   undertaking, please.
18           MS. SEBALJ:    Sure.    That's MHP Undertaking No. 1.
19           MHP UNDERTAKING NO. 1:      TO PROVIDE MHP USA REPORTING
20           REQUIREMENTS

21           MR. SMITH:     If we are able to obtain that information
22   between now and tomorrow morning, is it acceptable to put
23   it on the record rather than to file it after the fact?
24           MS. SEBALJ:    Yes.    Definitely.    That's acceptable to
25   you, Mr. Moran?
26           MR. MORAN:     I'm sorry, I'm not sure if I quite heard
27   what you said.
28           MR. SMITH:    We may be able to get that information
                                                                    252



 1   overnight and put it on the record tomorrow morning.
 2        MR. MORAN:    Oh, that's fine, yes.
 3        MR. SMITH:    I didn't know if the protocol was that
 4   they had to be in writing next week or we could do it more
 5   quickly.
 6        MR. MORAN:    No, we can take it as a deferred
 7   undertaking if you can't provide it while you're still on
 8   the record.    That's fine.   Yes.
 9        Now, with respect to St. Clair Pipelines, I understand
10   that it owns and operates the pipelines that connect Union
11   Gas to MichCon and Bluewater.     Is that true?
12        MR. REDFORD:    St. Clair Pipelines LP owns those
13   assets.    They would own an asset that is known as the
14   St. Clair River Crossing that would connect Union to
15   MichCon, and also the Bluewater line, and that connects
16   Union to Bluewater Gas Storage in the US.
17        MR. MORAN:    Now, you said St. Clair Pipelines LP.
18   What's the relationship of that LP to St. Clair Pipelines
19   and the St. Clair Pipelines that you referred to as a
20   partner in MHP Canada?
21        MR. REDFORD:    St. Clair Pipelines 1996 Limited is the
22   limited partner of St. Clair Pipelines LP, and they would
23   own 99.9 percent or 99.99 percent of the shares of St.
24   Clair Pipeline LP.
25        MR. MORAN:    All right.   I'm thinking that this might
26   be a situation where a picture might be worth a thousand
27   words, and so perhaps rather than the next number of
28   questions that I might have on this, if you could simply
                                                                    253



 1   undertake to produce a graphical representation of St.
 2   Clair Pipelines LP and MHP Canada and the
 3   interrelationships between common entities.      Sorry, not the
 4   interrelation, the common entities between those two
 5   entities.
 6        MR. REDFORD:    Yes, I could do that with a -- it's
 7   similar to the diagram that's on page 5 or our evidence?
 8        MR. MORAN:    Yes.
 9        MR. SMITH:    And then this is just with respect to St.
10   Clair 1996 and St. Clair Pipelines Ltd.
11        MR. MORAN:    LP.
12        MR. SMITH:    Right.   LP, sorry.
13        MR. MORAN:    Right.   There may be other partners in
14   there, and if there are, I mean, whatever it is.
15        I guess what I'm really asking you for is just to
16   supplement what we see on page 5 so that we can understand
17   the relationship between those two LPs or those two
18   organizations.
19        MR. SMITH:    Sure.
20        MS. SEBALJ:    That's MHP Undertaking No. 2.
21        MHP UNDERTAKING NO. 2:     TO PROVIDE GRAPHICAL
22        REPRESENTATION OF ST. CLAIR PIPELINES LP AND MHP
23        CANADA AND INTERRELATINSHIP BETWEEN COMMON ENTITIES

24        MR. MORAN:    Thank you very much.     Those are all my
25   questions.
26        MR. SMITH:    Thank you.
27        MS. SEBALJ:    Thank you, Mr. Moran.
28        Mr. Brown, would you like to, and then we'll call it a
                                                                     254



 1   day.   I promise.
 2          CROSS-EXAMINATION BY MR. BROWN:

 3          MR. BROWN:    Mr. Redford, Mr. Reed, good afternoon.     My
 4   name is David Brown.      I'm counselled for two groups of gas-
 5   fired generators here in Ontario, primarily in the Greater
 6   Toronto Area.       Mr. Redford, I've got a few questions for
 7   you, then Mr. Reed, two questions at the end for you.
 8          Starting with you, Mr. Red, page 1 of your -- of the
 9   Market Hub Partners evidence, paragraph number 3, lines 13
10   to 14, you indicate that:
11               "The company plans to provide 1.1 Bcf of
12               working storage capacity to the market in
13               2007 and increase that capacity to 10 Bcf
14               by 2010."
15          Of that service offering, are you able to indicate how
16   much 10 percent deliverability service Market Hub Partners
17   is planning to make available?
18          MR. REDFORD:    I couldn't tell you how much of that
19   10 Bcf would be 10 percent deliverability service.      Based
20   on the data we have, we would assume that the St. Clair
21   Pool would not be able to provide that service.
22          MR. BROWN:    Let me come at it a slightly different
23   way, because people have been using 1.2 percent
24   deliverability as sort of the base.
25          Is it the expectation of your corporation that it will
26   be able to offer any deliverability services in excess of
27   1.2 percent deliverability?
28          MR. REDFORD:    I think that really depends on what we
                                                                      255



 1   find in terms of assets out there, with exploration
 2   programs or farm-in programs.      At this time, we
 3   wouldn't have enough information, really, to comment on
 4   that.
 5           MR. BROWN:   Page 6 of your evidence sets out, I think,
 6   what you've called the core points that you're looking for
 7   some guidance from the Ontario Energy Board on by the end
 8   of this summer.
 9           Just a few questions on that, sir.    If the Ontario
10   Energy Board were to reject any or all of the core points
11   that you've listed there, including the ability to charge
12   market rates, what then would your company's intentions be
13   with respect to developing storage?
14           MR. REDFORD:   Our core points, really, are laid out
15   for a 2007 service.     And I think if we don't have the
16   confidence to commit dollars to continue with our
17   development, then we will have to wait until the Board's
18   decision is in on the full proceeding.
19            Now, the whole idea behind the core points is to
20   allow us to have the confidence to move forward and
21   continue to spend money and make some large commitments to
22   put the St. Clair Pool into service in '07.
23           MR. BROWN:   Now, I understand that you're an affiliate
24   of an American company?
25           MR. REDFORD:   That's correct.   Duke Energy Corporation
26   is the ultimate parent.
27           MR. BROWN:   Well, Market Hub Partners, there's a
28   Market Hub Partners US operation?        Or have I got that --
                                                                    256



 1        MR. REDFORD:     Well, Market Hub Partners US is a US
 2   company that reports, sir, to DEGT.     MHP Canada -- Market
 3   Hub Partners Canada, to put it that way, is a completely
 4   separate company, reporting to DEGT.
 5        MR. BROWN:   Right, but you're an affiliate, you're in
 6   the same family of companies, is that correct?
 7        MR. REDFORD:     That's correct.
 8        MR. BROWN:   Right, and does Market Hub Partners Canada
 9   operate any unregulated storage facilities in the US?
10        MR. REDFORD:     Market Hub Partners Canada?
11        MR. BROWN:   Correct.
12        MR. REDFORD:     No.
13        MR. BROWN:   That's the US affiliate
14        MR. REDFORD:     Market Hub Partners US operates -– they
15   would operated market-based storage in the US.
16        MR. BROWN:   Now, there's been some in evidence this
17   proceeding, and I think there was some references to it
18   earlier this afternoon, ton issue of transparency and the
19   posting of information.
20        Is it your understanding that your US affiliate is
21   subject to certain information posting and transparency
22   requirements as a condition for charging market-based
23   rates?
24        MR. REDFORD:     I am.   I know there's some measure of
25   reporting required.    I'm not clear on that.   And that's why
26   I took a -- I wasn't confident to provide that so that's
27   why I took an undertaking to provide that.
28        MR. BROWN:   Okay.     And if in, your proceeding here
                                                                    257



 1   before the Board for the development of the facilities that
 2   you've got in line, if as a condition of approval for
 3   charging market-based rates the Board were to require
 4   Market Hub Partners Canada to make public certain
 5   information with respect to the contracts that you enter
 6   into, including pricing to improve transparency, et cetera,
 7   what would the response of your corporation be?
 8        MR. REDFORD:     Well, first of all, I'd like to see what
 9   certain information that might be that would be publicly
10   disclosed.
11        MR. BROWN:     Would you be prepared to operate under a
12   regime here in Ontario which imposes similar information
13   disclosure requirements on your operations as those imposed
14   on your US affiliate?
15        MR. REDFORD:     I would have to look at that.   I can
16   tell you that -- I can tell you that that question probably
17   needs some clarity.    I know one of the assets that MHP US
18   has is a FERC asset, and the other one is a Texas railroad
19   commission asset.    And to that extent, I think they
20   probably have different rules.
21        So they may operate under different rules.
22        MR. BROWN:     That's a fair enough observation,
23   but if one was to take the most onerous transparency
24   requirements imposed on your US affiliate and assume the
25   worst, I guess my question would be, would you be prepared
26   to operate your Ontario assets under a similar reporting
27   regime?
28        MR. REDFORD:     I think I'd have to look at those
                                                                    258



 1   requirements in more detail and decide that.
 2        MR. BROWN:    Thank you.
 3        Mr. Reed, two questions for you, sir.     In several
 4   locations in your report, and I must confess I don't have
 5   the precise chapter and verse, I think you noted that -- or
 6   observed a need for hourly services by gas-fired
 7   generators?
 8        MR. REED:    Yes.
 9        MR. BROWN:    Have you done any analysis of the current
10   competitive nature of high-deliverability storage services
11   at Dawn?
12        MR. REED:    The analysis we've done of all storage
13   services is that which is presented in the report.      That
14   includes high deliverability as well as seasonal storage
15   services, as well as the competitive alternatives for those
16   services.   So the answer, really, is just what's in the
17   report.
18        MR. BROWN:    Okay.   And you have sort of bundled them
19   all together?
20        MR. REED:    No, we separately looked at the different
21   functional aspects of high-deliverability storage, seasonal
22   storage, and what we called hedging products, as well as
23   pipeline flexibility products.
24        MR. BROWN:    Well, let me come at it a slightly
25   different way.    I believe on page 39 of your report, you've
26   identified that the product market for purposes of your
27   opinion has been defined as firm and interruptible storage
28   services?
                                                                  259



 1        MR. REED:    Yes.
 2        MR. BROWN:   Okay.   If one was to make a different
 3   assumption as to the appropriate product market, that is to
 4   say that the product in question was limited to firm and
 5   accessible all-day high-deliverability storage, would you
 6   be able to offer any opinion on the competitive nature of
 7   the market for that product?
 8        MR. REED:    Certainly we could.   As we've indicated in
 9   footnote 35, which is on the page you referenced:
10              "In our opinion, services such as balancing,
11              parking and loaning services provide an
12              opportunity for customers to manage their
13              portfolio in a manner similar to the role
14              served by underground storage.    These storage
15              services would not be considered separate
16              products for the purposes of a market power
17              determination."
18        That same answer applies to high-deliverability
19   storage.   We've not classified it as a separate product or
20   a separate market.   I think that's consistent with what
21   others have done here as well.
22        If one were to assume that it was a separate product
23   and market, then, yes, we could undertake that analysis,
24   but that's not something we've done.
25        MR. BROWN:   Okay.   Then I won't ask you to do it if
26   you haven't done it.
27        Perhaps you could explain why you would not view it as
28   a separate product market.
                                                                      260



 1           MR. REED:    I think realistically the same assets can
 2   serve multiple functions.      What you've heard from Mr.
 3   Redford, and what you had heard from other storage
 4   providers is your asset has certain characteristics in
 5   terms of injection and withdrawal rates relative to the
 6   working capacity of the storage field.
 7           You can, essentially, derive and offer multiple
 8   products out of the same field, as long as those products
 9   are scaled appropriately, so that in the aggregate, you
10   meet the field's capabilities.
11           So, given that the same set of assets can provide
12   multiple products from hourly service to daily service to
13   10 percent service or 1 percent service, it does not seem
14   to make sense to define it as a separate market.
15           MR. BROWN:    Thank you very much, sir.   Those are my
16   questions.
17           MS. SEBALJ:   Thank you, Mr. Brown.   I think on that
18   note we should call it an evening if that's acceptable.
19           MR. SMITH:    May I just address one thing on the
20   record.     I am not familiar with the protocol surrounding
21   Technical Conferences with the Ontario Board, and the
22   contact with witnesses while they're still engaged in the
23   process.
24           Can you help me out as to whether it's acceptable to
25   confer with witnesses on matters other than undertakings or
26   -- I just want to make sure that we're not stepping wrong
27   here.
28           MS. SEBALJ:   It's a valid question and it's actually
                                                                   261



 1   been asked sort of on an ad hoc basis by a couple of
 2   different people.    I think the answer is there is no sort
 3   of formal protocol but the basis we've been operating under
 4   is, you don't discuss anything that's previously been put
 5   on the record, but anything going forward is…
 6        MR. SMITH:     Assisting with undertaking responses is
 7   acceptable?
 8        MS. SEBALJ:    Yes.
 9        MR. SMITH:     Thank you.
10        MS. SEBALJ:    Thanks.   So we'll adjourn for this
11   evening.   Back in, 8:30 tomorrow morning, with more from
12   Market Hub Partners.
13        --- Whereupon the hearing adjourned at 5:48 p.m.
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