ONTARIO
ENERGY
BOARD
FILE NO.:
EB-2005-0001
EB-2005-0437
VOLUME:
13
DATE:
August 31, 2005
BEFORE:
Pamela Nowina
Presiding Member
Paul Sommerville
Member
Cynthia Chaplin
Member
EB-2005-0001
EB-2005-0437
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 an Application by Enbridge Gas
Distribution Inc. for an Order or Orders approving or
fixing just and reasonable rates and other charges for the
sale, distribution, transmission and storage of gas
commencing January 1, 2006.
Hearing held at 2300 Yonge Street,
25th Floor, West Hearing Room,
Toronto, Ontario, on Wednesday,
August 31, 2005, commencing at 1:00 p.m.
---------Volume 13
---------B E F O R E:
PAMELA NOWINA
PRESIDING MEMBER
PAUL SOMMERVILLE
MEMBER
CYNTHIA CHAPLIN
MEMBER
A P P E A R A N C E S
MICHAEL MILLAR
Board Counsel
RICHARD BATTISTA
Board Staff
COLIN SCHUCH
Board Staff
FRED CASS
DENNIS O’LEARY
Enbridge Gas Distribution
MURRAY KLIPPENSTEIN
Pollution Probe
ROBERT WARREN
Consumers Council of Canada
ALAN ROSS
TransCanada PipeLines
JOHN DE VELLIS
Vulnerable Energy Consumers
Coalition
JAY SHEPHERD
School Energy Coalition
BRIAN DINGWALL
Canadian Manufacturers &
Exporters, HVAC Coalition
PETER THOMPSON
Industrial Gas Users
Association
EVANGELIA KRIARIS
Direct Energy
ELIZABETH DEMARCO
Advocates For Fair and
Non-Discriminatory Access,
Superior Energy Management,
TransAlta Cogeneration LP,
TransAlta Energy Corp.,
TransCanada Energy Corp.
VALERIE YOUNG
Ontario Association of
Physical Plant
Administrators
NOLA RUZYCKI
Ontario Energy Savings Corp
TOM ADAMS
Energy Probe
I N D E X
O F
P R O C E E D I N G S
Description
Page No.
Preliminary Matters
1
Enbridge Gas Distribution Inc. Panel 9
Haberbusch, Ladanyi; Previously Sworn
Stokes-Bajcar, Urquhart, Kelly, Culbert; Sworn
Examination by Mr. Stevens
Cross-examination by Mr. Warren
Cross-examination by Mr. Thompson
2
2
15
43
E X H I B I T S
Description
Page No.
NO EXHIBITS WERE ENTERED DURING THIS HEARING
U N D E R T A K I N G S
Description
Page No.
UNDERTAKING NO. J13.1: TOTAL ALL-IN COSTS FOR
COMPLIANCE WITH SARBANES-OXLEY IN 2004 AND 2003
30
UNDERTAKING NO. J13.2:
IN FINANCIAL CATEGORY
91
DERIVATION OF FACTORS
1
1
Wednesday, August 31, 2005
2
--- Upon commencing at 1:00 p.m.
3
MS. NOWINA:
Please be seated.
Good afternoon,
4
everyone.
Today is the thirteenth day of the hearing of
5
applications EB-2005-0001 and EB-2005-0437 submitted by
6
Enbridge Gas Distribution.
7
This afternoon we will begin the examination of the
8
panel on HR O&M costs, I believe is where we're going to
9
start.
10
MR. STEVENS:
Good afternoon, Madam Chair.
My name is
11
David Stevens and I'm here as counsel to the company today.
12
Just as a point of clarification -- oh, to begin with,
13
I don't believe the company has any preliminary matters.
14
don't know whether anybody else does.
15
MS. NOWINA:
16
PRELIMINARY MATTERS:
17
MR. STEVENS:
I
It appears not.
Thank you.
Just as a preliminary
18
matter, Madam Chair, what we've done, in the hopes of
19
saving time and duplication, is we're presenting today a
20
combined panel, and this panel is here to speak to the
21
budgets for human resources, which is issue 9.1.3; Finance,
22
which is issue 9.2; non-departmental O&M expenses, which is
23
issue 9.1.6; and non-utility elimination, which is issue
24
9.1.9.
25
As I stated, Madam Chair, the panels are presented in
26
a combined form so that we can hopefully save some time,
27
and also because the witnesses for some of these issues
28
will be able to speak to the budget and/or salary and
2
1
expense aspects of other issues, so we hope that there will
2
be some helpfulness that way, also.
3
So without further ado, the members of the panel
4
before you today are closest to you, Jane Haberbusch,
5
director of human resources; Liz Stokes-Bajcar, who is the
6
manager of human resources service centre and compensation;
7
Tom Ladanyi, manager budgets and planning; Annette
8
Urquhart, manager corporate budgets and planning; Debbie
9
Kelly, manager operational and capital budgets; and on the
10
row to the left of me, Kevin Culbert, manager regulatory
11
accounting.
12
I believe that Ms. Haberbusch and Mr. Ladanyi have
13
already been sworn in this proceeding, but I don't believe
14
that the other witnesses have.
15
MS. NOWINA:
Thank you.
16
ENBRIDGE GAS DISTRIBUTION INC. PANEL 9:
17
Jane Haberbusch; Previously Sworn
18
Liz Stokes-Bajcar; Sworn
19
Tom Ladanyi; Previously Sworn
20
Annette Urquhart; Sworn
21
Debbie Kelly; Sworn
22
Kevin Culbert; Sworn
23
MS. NOWINA:
Just before you begin, Mr. Stevens, we do
24
plan on having a short afternoon and we will adjourn at
25
3:30 this afternoon, so we may or may not take a break,
26
depending on how things seem to be rolling this afternoon.
27
EXAMINATION BY MR. STEVENS:
28
MR. STEVENS:
Thank you, Madam Chair.
While all the
3
1
members of the panel here today may speak on any of the
2
four issues, the persons primarily involved with each the
3
budgets are Ms. Haberbusch and Ms. Stokes-Bajcar for human
4
resources, Mr. Ladanyi and Ms. Urquhart for finance, Ms.
5
Kelly, Mr. Ladanyi and Ms. Stokes-Bajcar for
6
non-departmental, and Mr. Culbert for non-utility
7
elimination.
8
9
Madam Chair and Panel members, we're happy to proceed
in either of two ways.
We can either go department or
10
issue by issue and do a small amount of direct examination,
11
and then open it up for cross-examination, or alternately,
12
we would be happy to present the brief direct examination
13
for all four panels at the outset, and then move from
14
there.
15
MS. NOWINA:
I think that makes sense, in that we may
16
be able to move more quickly if everyone handles it in that
17
way.
18
MR. STEVENS:
Certainly.
Thank you.
So with the
19
Panel's permission, we will start with issue 9.1.3, which
20
is O&M human resources.
21
Haberbusch, could you please confirm that the evidence of
22
the company, which is pre-filed at Exhibit A6, tab 6,
23
schedule 1, was prepared by you under your direction and
24
supervision?
25
MS. HABERBUSCH:
26
MR. STEVENS:
Beginning with you, Ms.
Yes, it was.
And the responses to the interrogatories
27
on that issue by the company, were they similarly prepared
28
under your direction?
4
1
MS. HABERBUSCH:
2
MR. STEVENS:
3
Yes, they were.
And do you adopt them for the purposes
of your evidence today?
4
MS. HABERBUSCH:
5
MR. STEVENS:
6
same question for you.
7
company has filed, both in pre-filed and in
8
interrogatories, as your evidence for this proceeding?
9
10
11
12
13
14
Yes, I do.
Thank you.
Do you adopt the evidence that the
MS. STOKES-BAJCAR:
MR. STEVENS:
And, Ms. Stokes-Bajcar, the
Yes, I do.
Thanks.
So I just have a small number
of questions by way of direct examination.
First, could you just very briefly explain to me the
role of the Enbridge Gas Distribution HR department?
MS. HABERBUSCH:
Certainly.
Human resources is an
15
internal support function that provides consultative,
16
specialist and administrative services at the operational
17
level within Enbridge Gas Distribution to assist in the
18
effective management of the employee-employer relationship.
19
We work with line managers to provide support in the
20
areas of recruitment and selection, development planning,
21
performance management and day-to-day labour and employee
22
relations.
23
Enbridge Gas Distribution's learning strategy and
24
development, and the administration of the associated
25
programs and initiatives.
26
We also provide support in the development of
We also implement and administer the Enbridge-wide,
27
enterprise-wide programs that get developed under the
28
direction of Enbridge Inc., including succession management
5
1
and workforce planning, and we provide administrative
2
services in the areas of payroll, pension and benefit
3
administration, and the reporting and maintenance of
4
employee records and human resource information systems.
5
MR. STEVENS:
Thank you.
Can you just briefly explain
6
for me, please, what the department's budget is for this
7
year -- for the fiscal 2006 year, and what are the primary
8
drivers of the differences from the budget estimate for the
9
fiscal 2005 year?
10
MS. HABERBUSCH:
The budget for fiscal 2006 is $39.7
11
million, and this represents a reduction of approximately
12
$675,000 from our estimate of fiscal 2005.
13
The main variances between the 2006 budget and the
14
2005 estimate are as follows:
15
approximately $230,000 in salaries and expenses, which is
16
driven by a salary increase of 3-1/2 half percent; the
17
addition of one position to the HR head count; the overlap
18
hiring of several positions for some pending retirements;
19
some increases in the cost of expenses, including travel,
20
accommodation, mileage, reprographic services, and some
21
increased technical training and certification costs.
22
Number 1, an increase of
The second variance is an increase of approximately
23
$880,000 in pensions and benefit programs, primarily caused
24
by escalating medical and dental plan costs, plus some
25
increases in head count across EGD; thirdly, an increase of
26
approximately $700,000 for incentive compensation programs
27
caused by the merit increase in salaries to which
28
incentives are pegged; plus some additional head count
6
1
across EGD and some realignment of our salary bands and
2
incentive targets; and, lastly, a reduction of
3
approximately 2-1/2-million dollars in costs charged by
4
Enbridge Inc. to the HR department as a result of the new
5
RCAM methodology, which now includes Enbridge Inc. employee
6
benefit costs as part of the service-based fully-loaded
7
costs.
8
9
MR. STEVENS:
Thank you.
As part of that response,
you mentioned incentive compensation.
Can you explain,
10
briefly, how incentive compensation for utility employees
11
is determined and awarded?
12
MS. HABERBUSCH:
Incentive compensation is performance
13
based and reflects corporate, departmental and individual
14
performance.
15
out as a proportion of an employee's base salary.
16
Entitlement is based upon the company meeting a threshold
17
of successful performance.
Incentive compensation is calculated and paid
18
For EGD, it is the achievement of a minimum of 50
19
percent of overall rating on the company's score card, and
20
upon the employee meeting their personal performance
21
expectations, which means that they have achieved a minimum
22
of 90 percent of their objectives.
23
And of those, departmental or individual score cards would
24
be the largest component.
25
From a budget perspective, incentive compensation is
26
always budgeted at target, although actual results may fall
27
above or below in any given year.
28
MR. STEVENS:
Finally, during the cross-examination of
7
1
the O&M policy panel - and I believe a little bit yesterday
2
- there seemed to be some confusion about the salary
3
increases that Enbridge Gas Distribution employees will
4
receive in the test year and about why the salary and
5
expenses part of the departmental budgets seems to exceed
6
that amount.
7
Could you please explain what the salary increases are
8
for the test year and why the salary and expenses portion
9
of departmental budgets may exceed that amount in some
10
11
cases?
MS. HABERBUSCH:
Certainly.
The company has
12
determined that for the fiscal 2006 year, the budget for
13
each department will increase by 3.5 percent, for non-Union
14
positions.
15
increase by 3 percent, as negotiated.
16
Those covered by our collective agreements will
The salaries and expenses portion of departmental
17
budgets also include, though, a number of other elements.
18
These include things like temporary-labour dollars;
19
overtime; functional or technical training; employment-
20
related expenses, such as memberships and certification or
21
accreditation costs; travel and accommodation; mileage;
22
overhead, such as telecommunications costs, that would
23
include things like long distance, the costs for cell
24
phones, pagers; postage, office supplies; plus any
25
recruitment costs to conduct external services -- or,
26
searches in advertised positions.
27
28
In some cases, these expenses will rise more than 3.5
percent.
Additionally, of course, too, the amount for
8
1
salary expenses will naturally increase, if any given
2
department is hiring any additional staff.
3
MR. STEVENS:
Thank you.
4
Now, moving on to the O&M finance department.
The
5
primary witnesses for this issue are Mr. Ladanyi and Ms.
6
Urquhart.
7
Beginning with you, Mr. Ladanyi, would you please
8
confirm that the evidence of the company, which is pre-
9
filed at Exhibit A6, tab 2, schedule 1, was prepared by
10
you, under your direction and supervision.
11
MR. LADANYI:
Yes, I do.
12
MR. STEVENS:
And the responses to the interrogatories
13
on that issue by the company, were they similarly prepared
14
by you, or under your supervision?
15
MR. LADANYI:
Yes, they were.
16
MR. STEVENS:
Do you adopt them for the purposes of
17
your evidence and testimony today?
18
MR. LADANYI:
I do.
19
MR. STEVENS:
Thank you.
20
And Ms. Urquhart the same question for you:
do you
21
adopt the evidence that the company has filed, both its
22
pre-file and responses to interrogatories, as your evidence
23
in this proceeding?
24
MS. URQUHART:
25
MR. STEVENS:
Yes, I do.
I have just two questions by way of
26
direct examination.
27
role of the Enbridge Gas Distribution finance department.
28
MR. LADANYI:
Firstly, could you briefly explain the
The finance department is responsible
9
1
for the financial reporting and analysis of the company,
2
which includes budgeting and accounting and reporting upon
3
and monitoring the company's operations, from a financial
4
perspective.
5
The finance department, through its governance and
6
internal-control function, is also responsible for ensuring
7
that the appropriate policies and procedures exist, to
8
safeguard and efficiently use the company's assets.
9
The particular subgroups of the finance department,
10
and the functions of these subgroups, are described in --
11
at pages 4 to 7 of our pre-filed evidence, and I’m not
12
going to go through them right now.
13
MR. STEVENS:
Thank you.
Can you please explain what
14
the finance department's budget is for the fiscal 2006
15
years.
16
budget estimate for your department for the fiscal 2005
17
year?
18
And what are the drivers of the variance from the
MS. URQUHART:
Certainly.
The budget for fiscal 2006
19
is $20.2 million, as filed in table 1 on page 9 of our
20
evidence.
21
-- roughly 2,960,000, compared to our 2005 estimate.
22
23
24
This represents an increase of approximately 2.
The main variances for the difference between fiscal
2005 and 2006 are, primarily, driven by four factors.
There is an increase of approximately 505,000, related
25
to salaries and expenses - which are primarily driven by
26
the 3.5 percent - as well as by staffing changes that have
27
occurred in finance, and increased costs for technical
28
training, as well as overhead costs, as discussed by Ms.
10
1
2
Haberbusch.
The second factor, we've seen an increase in
3
consulting costs of approximately $640,000, which primarily
4
relate to our compliance for SOX-related issues, as well as
5
requests for proposals related to the customer-care
6
proposals in this case.
7
The third --
8
MR. SOMMERVILLE:
9
MS. URQUHART:
What was that -- SOX?
Sorry, Sarbanes-Oxley.
10
MR. SOMMERVILLE:
11
MS. URQUHART:
Thank you.
The third factor, the increased risk-
12
management costs, in the order of approximately $670,000
13
which are caused by rising insurance premiums, as well as
14
higher legal fees and claim-settlement costs.
15
The last factor, increased costs charged by
16
affiliates, in the range of $1.3 million, which is
17
primarily due to the adoption of the regulatory corporate-
18
allocation methodology, which has been discussed on other
19
panels.
20
21
MR. STEVENS:
Thanks, very much.
Now, turning to issue 9.1.6, which is the O&M budget
22
for non-departmental expenses.
The primary witnesses for
23
this panel are Ms. Kelly, Ms. Ladanyi and -- Mr. Ladanyi,
24
excuse me, and Ms. Stokes-Bajcar.
25
Beginning with you, Ms. Kelly, can you confirm that
26
the evidence of the company that is pre-filed at Exhibit
27
A6, tab 9, schedule 1, was prepared by you, under your
28
direction and supervision
11
1
MS. KELLY:
2
MR. STEVENS:
Yes.
And the responses to the interrogatory
3
on this issue, were they similarly prepared by you under
4
your direction?
5
MS. KELLY:
6
MR. STEVENS:
7
MS. KELLY:
9
MR. STEVENS:
11
And do you adopt them for the purpose of
this proceeding?
8
10
Yes.
Yes, I do.
Thank you.
And Mr. Ladanyi, do you adopt the evidence the company
has filed on this issue?
12
MR. LADANYI:
Yes, I do.
13
MR. STEVENS:
And, finally, Ms. Stokes-Bajcar, the
14
same question for you.
15
MS. STOKES-BAJCAR:
16
MR. STEVENS:
17
I have three questions on this issue, by way of direct
18
19
20
21
Yes, I do.
Thanks, very much.
examination.
First, could somebody please briefly explain why this
item is included in the budget?
MR. LADANYI:
There are certain costs in the company's
22
O&M budget that are not department-specific, and cannot be
23
included in departmental budgets.
24
executive salaries and benefits, audit fees, corporate
25
memberships, administration and banking charges and certain
26
allocations from Enbridge Inc.
27
28
MR. STEVENS:
issue?
These costs include
Why is this panel speaking to this
12
1
MR. LADANYI:
The evidence on this issue does not
2
exactly fit with any of the O&M departmental-expense
3
panels.
4
connected to this evidence as any other group.
5
and myself are responsible for collecting information for
6
the O&M budget, and for reviewing and monitoring O&M
7
spending, while Ms. Stokes budgets for compensation
8
programs.
9
However, the persons on this panel are as
MR. STEVENS:
Thank you.
Ms. Kelly
And finally, what is the
10
non-departmental budget for the fiscal 2006 year?
11
are the drivers of the variances from the fiscal 2005
12
estimate?
13
MS. KELLY:
And what
The budget for 2006 is $10.1 million.
14
This represents a reduction of approximately 2.7 million
15
from our estimate in 2005.
16
2006 budget and the 2005 estimate are:
17
approximately 268,000 in salaries and expenses, which is
18
driven by salary increases, as well as increased costs for
19
executive development and expenses such as travel and
20
telecommunications; there is a decrease in audit fees of
21
approximately 800,000, which is primarily due to reduced
22
requirements related to compliance with Sarbanes-Oxley; we
23
also have a reduction of approximately 2.2 million in costs
24
charged by Enbridge Inc. to this department as a result of
25
the new RCAM, which calculates and allocates EI costs
26
differently than in the past
The main variances between the
an increase of
27
MR. STEVENS:
Thank you.
28
And finally, this panel will speak to aspects of issue
13
1
9.1.9 which deal with the elimination of non-utility
2
expenses from the company's O&M budget.
3
witness for this issue is Mr. Culbert.
4
The primary
Mr. Culbert, would you please confirm that the
5
evidence of the company, which is pre-filed as part of the
6
D series of exhibits, was prepared by you, under your
7
direction and supervision.
8
MR. CULBERT:
Yes, it was.
9
MR. STEVENS:
And were there any interrogatories on
10
11
12
13
14
this issue?
MR. CULBERT:
There weren't any interrogatories I am
aware of, no.
MR. STEVENS:
Do you adopt the evidence that was filed
by the company, for the purposes of this proceeding?
15
MR. CULBERT:
Yes, I do.
16
MR. STEVENS:
Thank you.
17
18
19
20
I just have two brief
questions for you.
First, where are the non-utility elimination amounts
set out, in the pre-filed evidence?
MR. CULBERT:
The non-utility eliminations can be
21
found in evidence at Exhibit D1, tab 1, schedule 1: page 3,
22
you can see the eliminations that are made to O&M, and page
23
4 provides a description of each of the adjustments or
24
eliminations to corporate O&M.
25
26
27
28
MR. STEVENS:
And what's the purpose of the non-
utility elimination amount set out in the evidence?
MR. CULBERT:
The purpose of the adjustments, as shown
in the D exhibit, as mentioned, is to convert the company's
14
1
corporate financial statements into a standard set of
2
accepted utility-regulated financial statements.
3
achieved through standard, regulatory re-groupings, and
4
other non-utility adjustments and eliminations, as you
5
would see in the exhibit that I just mentioned.
This is
6
MR. STEVENS:
Thank you, very much.
7
Madam Chair, that concludes our direct examination.
8
MS. NOWINA:
9
Can the intervenors give me a sense of who will be
Thank you, Mr. Stevens.
10
cross-examining this panel.
11
would be great, and how long you plan to take.
12
MR. WARREN:
If you know the order, that
I will be -- Madam Chair, I will deal
13
only with one issue and that's the finance issue.
I
14
anticipate I’ll an hour, or a little less, and I think I'm
15
going to be the lead.
16
MS. NOWINA:
17
Others?
18
MR. THOMPSON:
You're going to lead.
Madam Chair, I'm following Mr. Warren,
19
and I currently expect to be about an hour.
20
examining on all categories.
21
MS. NOWINA:
22
MR. DINGWALL:
I’ll be
Thank you.
Madam Chair, I'm estimating half an
23
hour, primarily with respect to HR, finance and non-
24
departmental.
25
respect to non-utility eliminations.
I don't believe I’ll have any questions with
26
MS. NOWINA:
27
MR. ADAMS:
28
Thank you.
Madam Chair, I expect to be about 15
minutes, on just HR and finance.
15
1
MS. NOWINA:
2
Mr. Warren, would you like to proceed.
3
MR. WARREN:
4
CROSS-EXAMINATION BY MR. WARREN:
5
MR. WARREN:
6
7
Thank you, Mr. Adams.
Thank you, Madam Chair.
As I indicated, panel, my interest is
only in the finance-related issues.
I would like to begin, Mr. Ladanyi and Ms. Urquhart by
8
understanding the decision tree, if I can, for this
9
department, and it might help in this context if you would
10
turn up an interrogatory response to a VECC interrogatory.
11
It is Exhibit I, tab 25, schedule 87.
12
MR. LADANYI:
13
MR. WARREN:
14
Yes, I have that, Mr. Warren.
The page I am going to ask you to refer
to, panel, is page 6 of 22 of the attachment.
15
MR. LADANYI:
16
MR. WARREN:
We have that, Mr. Warren.
Mr. Ladanyi, you were introduced as the
17
person in charge of budgets, and Ms. Urquhart was
18
introduced in the examination in-chief as the person in
19
charge of corporate budgets, if I recollect that.
20
I wonder, with reference to Exhibit I, tab 25,
21
schedule 87, page 6 of the attachment, if first you, Mr.
22
Ladanyi, you could locate for me where you are on this
23
chart?
24
MR. LADANYI:
Yes.
Mr. Warren, if you will, you will
25
see the vice president of finance.
Just below him and I
26
guess slightly to the left, as you're looking at the chart,
27
is director of finance and control.
28
Ross, and you will see me down below chief accountant.
That would be Mr. Bill
You
16
1
2
will see manager budgets and planning.
That is myself.
If I can just help you, if you would turn to page 9 of
3
the same exhibit, you can actually see more detail there,
4
and then you can see all of our positions on that schedule.
5
So if I can take you to page 9, you will see --
6
MR. WARREN:
7
MR. LADANYI:
8
MR. WARREN:
9
Sorry, just before you leave page 6 --
MR. LADANYI:
11
MS. URQUHART:
12
MR. WARREN:
No, she is on page 9.
Page 9.
Okay, thanks.
Again, Mr. Ladanyi you
were the manager of budgets and planning; is that correct?
14
MR. LADANYI:
15
MR. WARREN:
16
MR. LADANYI:
17
MR. WARREN:
18
-- can I find you, Ms. Urquhart,
somewhere on that page?
10
13
Okay.
Correct.
That's your box?
That's right.
And Ms. Urquhart is just below you,
manager of corporate budgets and planning; is that correct?
19
MS. URQUHART:
20
MR. WARREN:
That is correct.
In terms of the finance department
21
budget, which we've heard the number 20.2 million for
22
today, can you tell me, Mr. Ladanyi, at a high level first
23
of generality how that budget is created?
24
Is it created first by you, or how is it done?
25
MR. LADANYI:
It's -- essentially Ms. Urquhart sends
26
out the budget letter, which we filed in another exhibit,
27
which I don't have to refer you to it.
28
letter would be sent to all of the departments, including
And that budget
17
1
different finance sub-groups or departments.
Each
2
department manager would then prepare their own budget, and
3
these budgets would be rolled up into an overall finance
4
department budget.
5
And they would be reviewed at different levels,
6
depending upon -- so Mr. Player would review the overall
7
total of all the groups.
8
the departments reporting to him, for example, or Mr. Mees
9
would review his material.
10
MR. WARREN:
Mr. Ross would review for all of
Thanks for that.
Panel, now, at a high
11
level of generality, would I be correct in saying that the
12
budget for the finance department is, by and large -- I'm
13
not sure how to do it without putting too many negatives in
14
it, but, by and large, not related to increases in customer
15
growth?
16
finance department, by and large, without reference to
17
customer growth; is that fair, Mr. Ladanyi?
18
In other words, they're constant costs in the
MR. LADANYI:
I think you have to be careful how you
19
define finance, but I would say in general terms you're
20
correct.
21
directly related to customer growth, such as insurance,
22
where we would have more insurable plans.
23
for example, other items that would deal with plant
24
accounting costs, whereas if we had new customers, we would
25
have to obviously do more work in the plant accounting
26
department to account for more pipe and fittings and valves
27
and regulators and meters that are being installed.
28
There will be some items that would be more
There would be,
So at a very high level, I would say it doesn't
18
1
exactly vary with customer growth, but there are some cost
2
elements which are affected by customer growth.
3
MR. WARREN:
Ms. Urquhart, you've testified that the
4
budget for 2006 is $20.2 million.
5
please, to begin with some comparative numbers.
6
this context, if you could turn up an interrogatory
7
response to a question filed by my client, which, for the
8
record, is Exhibit I, tab 25, schedule 23.
9
apologize.
10
I'm sorry.
I would like, if I can,
And in
Sorry, tab 5, I
Sorry for that, panel.
Exhibit I,
tab 5, schedule 23.
11
MR. LADANYI:
12
MR. WARREN:
Yes, we have that.
Panel members, looking just at -- I'm
13
confident, Mr. Ladanyi, that these things are printed just
14
to torture my aging eyes.
15
If I read this correctly, in the -- going from left to
16
right, in the finance department, the actual expenditures
17
in fiscal 2004 were $13.8 million; is that correct?
18
MS. URQUHART:
19
MR. WARREN:
That's correct.
I'm sorry, Ms. Urquhart, I've directed
20
these questions to Mr. Ladanyi, but if you're the one that
21
should answer them, that's fine.
22
you by directing them to Mr. Ladanyi.
23
MR. LADANYI:
I don't mean to slight
We're just trying to help you.
So
24
you're saying 13.8.
25
evidence at A6, tab 2, schedule 1, page 12, it is seen
26
actually in much larger type so you don't have to struggle
27
with the small type in the interrogatory.
28
MR. WARREN:
You can also see, Mr. Warren, in our
Characteristically generously, too, Mr.
19
1
Ladanyi.
2
doing that.
3
keep your finger on tab -- sorry, that's interrogatory 23,
4
because I'm going to come back to it, but $13.8 million in
5
2004.
6
million; is that correct?
7
8
9
I must say I'm moved nearly to tears by your
But if the panel members -- if you could just
The estimate for 2005, according to this, is 17.2
MR. LADANYI:
Sorry.
Let me look at this.
17.2, yes.
It's shown as 17.2 on that schedule.
MR. WARREN:
And the budget amount we've heard is
10
$20.2 million.
11
Urquhart, we're looking roughly at an increase in the order
12
of about $7 million from 2004 to 2006; is that correct?
13
So if I do the math correctly, Ms.
MR. LADANYI:
We have an interrogatory, Mr. Warren,
14
which is Consumers Coalition of Canada Interrogatory No.
15
30, which just points out all these variances and discusses
16
them, to some degree, and the numbers are easier to see.
17
But if you want to stay with this exhibit, that's fine.
18
I'm just telling you there's a couple of other places which
19
these are easier to see.
20
MR. WARREN:
Again, Mr. Ladanyi, I appreciate your
21
kindness to my aging eyes, but have I got the number right,
22
roughly, Ms. Urquhart?
23
MR. LADANYI:
24
MR. WARREN:
25
26
Yes, I do.
Roughly $7 million increase in that
period of time.
Now, you've spoken, Ms. Urquhart, about four drivers
27
for the increases, and one of the drivers is an increase in
28
the costs charged by EI; is that correct?
20
1
MS. URQUHART:
2
MR. WARREN:
3
And if you could turn to your pre-filed
evidence at Exhibit A6, tab 2, schedule 1, page 12?
4
MS. URQUHART:
5
MR. WARREN:
6
We have that.
In 2004, the cost charged by affiliates
was roughly $1.2 million; is that correct?
7
MS. URQUHART:
8
MR. WARREN:
9
That's correct.
That's correct.
And if I turn back three pages in Exhibit
A6, tab 2, schedule 1 to page 9, I see that the full budget
10
for 2006, the amount charged by affiliates is roughly 2.6
11
or 2.7 million; is that correct?
12
MS. URQUHART:
13
MR. WARREN:
14
That is correct.
So over that two-year period we have an
increase of, roughly, 1.5 million; correct?
15
MS. URQUHART:
16
MR. WARREN:
17
MS. URQUHART:
18
MR. WARREN:
Yes.
In that category; is that correct?
That's correct.
Now, I want to understand first, in
19
general terms, Mr. Ladanyi or Ms. Urquhart, your role in
20
determining the correct amount in the category, and costs
21
charged to affiliates.
22
Is the number, panel - for example, this year, $2.6
23
million - is that a number which is given to you in
24
advance, by EI?
25
what you perceive to be the needs you have for services to
26
be purchased from EI?
27
MR. LADANYI:
28
Or is it derived from the bottom up, by
Well, it's actually not an either-or
question that we can say.
What it is, is, we need these
21
1
services, there’s no question about that, and I can go
2
through each service and explain why we need it.
3
dollar amounts are not determined by us.
4
amounts come from the RCAM methodology, of which, I think,
5
the Board heard all about, over the last few days.
6
Player would be reviewing those RCAM amounts, to determine
7
if they're reasonable.
8
9
The
The dollar
And Mr.
So we are not, individually, involved at all in
determining those amounts.
But we do know what the
10
services are, and I can speak to each one of them, and tell
11
you why we need them.
12
MR. WARREN:
Well, just before we get to that, Mr.
13
Ladanyi, in answer to my question - my crude, Manichaean,
14
either-or way of looking at it - I take it that it comes --
15
the number comes -- the 2.6 for this year comes from the
16
RCAM methodology, which is worked out, if I've understood
17
the testimony over the last few days, by EI -- primarily,
18
by EI, in combination with Deloitte's, in this case; is
19
that right?
20
MR. LADANYI:
My understanding is that Deloitte was
21
hired by the company to come up with a fair allocation
22
methodology, and that's what they did.
23
MR. WARREN:
So the $2.6 million comes to you as a
24
result of that methodology.
And then, is it the case that
25
you and Ms. Urquhart make a determination whether each --
26
whether that amount is a reasonable cost -- or price to pay
27
for the services you are to receive?
28
correctly?
Have I understood it
22
1
MR. LADANYI:
No, you didn’t.
You said it wrong.
I
2
said Mr. Player determines if that is a reasonable cost,
3
and I think he already testified on that several days ago.
4
MR. WARREN:
And in the course of Mr. Player
5
determining whether or not that’s the correct amount, what
6
discussions does he have with each of you about the price
7
to be paid for those services?
8
9
MR. LADANYI:
I'm not aware of having a discussion
like that with any one of us.
He might have discussed it
10
with Mr. Ross or Mr. Mees, but we were not involved,
11
directly.
12
MR. WARREN:
And Ms. Urquhart, does Mr. Player or Mr.
13
Ross or Mr. Mees -- did any of them come to you and say,
14
This is the $2.6 million which the methodology has
15
produced: can you give me your views as to whether or not
16
these are reasonable prices to pay for these services?
17
MS. URQUHART:
18
MR. WARREN:
No, they did not.
But, I take it that you are here, today,
19
to testify to the Board about, among other things, the
20
reasonableness of all of the budget amounts in the finance
21
department; is that fair?
22
MR. STEVENS:
If I may interrupt, just for a moment,
23
Madam Chair.
24
can't remember whether it was the first or second day of
25
the RCAM panel, Ms. Persad indicated those panels were
26
there to speak to the amounts and services being provided,
27
as between EI and EGD and EGD's departments.
28
I believe during -- and I apologize, if I
And I'm sure the panels want to be as helpful as they
23
1
can, in terms of providing the information that they have
2
about those services, but I think the evidence is that they
3
weren't involved in the determination of the amounts.
4
And I fear that we're going to end up spending a lot
5
of time retreading ground that we've already been over for
6
three an a half days, if we spend the O&M panels revisiting
7
the corporate-cost-allocations issues.
8
9
10
11
MR. WARREN:
that.
Madam Chair, I have two responses to
I understand the point that was made by Ms. Persad,
and my concern is really two-fold.
Number one, in response to a question that was asked
12
of Mr. Player by Mr. Thompson, during Mr. Player's
13
testimony - I think - as part of the first panel, Mr.
14
Player said that each of the members of the various O&M
15
departments are intimately familiar - this is my gloss on
16
his answer - intimately familiar with all of the numbers
17
and all of the costs.
18
In addition to which, he said that there is an ongoing
19
review or assessment or analysis of the legitimacy of these
20
costs.
21
I'm not going to take a lot of time on this, but I want to
22
know the extent to which the line-people responsible for
23
these costs actually validate them and say, Yes, these are
24
legitimate costs
25
And in that context, Madam Chair, I would like --
If the answer from the panel is, We don't have any
26
role in that at all, that this comes to Mr. Player and Mr.
27
Mees, they approve it -- then I can move on.
28
are familiar with these costs, and have some role in
But if they
24
1
saying, Yes, these are legitimate costs, then it seems to
2
me it is a legitimate area of enquiry for me.
3
MS. NOWINA:
Mr. Warren, I would ask you to keep it as
4
brief as possible.
5
extensively.
We have covered this ground
6
MR. WARREN:
I appreciate that.
7
And maybe what I can do, Mr. Ladanyi, is, if I can
8
just take one example, the categories of costs, and
9
determine the role, if any, that you and Ms. Urquhart and
10
the other - is it fair for me to characterize you as “line
11
managers” in the finance department?
12
MR. LADANYI:
13
MR. WARREN:
Is that a fair --
Yes.
Okay.
And in this context, could I take
14
you to Exhibit A6, tab 2, schedule 1, page 2 -- that’s your
15
pre-filed evidence at page 2.
16
MS. URQUHART:
17
MR. WARREN:
We have that.
Now, looking at paragraph 5, it says that
18
EI is responsible for -- sorry.
I'm quoting here, from the
19
bottom of paragraph 4 -- I apologize:
20
“Enbridge Inc. is responsible for maintaining the
21
necessary functions and capabilities for the
22
public issuance and maintenance of securities.”
23
Do you see that?
24
MR. LADANYI:
25
MR. WARREN:
26
Yes, I do.
Now, is there an amount that is related
to Enbridge Inc. carrying out that function?
27
MR. LADANYI:
28
MR. WARREN:
In the allocations?
Yes.
25
1
MR. LADANYI:
Actually, a good way to look at it is,
2
in the Interrogatory to Energy Probe, No. 81, if I can take
3
you there -- which is Exhibit I, tab 8, schedule 81.
4
MR. WARREN:
Okay.
5
MR. LADANYI:
And that interrogatory, if you turn it
6
up, you’ll see is a complete listing of all of the
7
allocations from Enbridge Inc. to the finance department.
8
MR. WARREN:
And the amount?
9
MR. LADANYI:
And the specific function that you’re
10
talking about is capital market financing and access, which
11
is the first item on it.
12
a very large company, that has very large capital needs, as
13
you know.
14
year.
15
invested $250 million, roughly, of capital investment, each
16
year, in this business.
17
Now Enbridge Gas Distribution is
It requires substantial investments in each
And, on the average, over quite a few years, we have
We are, of course, increasing that this year to a much
18
larger amount.
19
raised on the capital markets.
20
your door.
21
Gas Distribution would have to do it, itself.
22
But nevertheless, this money has to be
It just doesn't show up at
And if Enbridge Inc. wasn't doing it Enbridge
So that’s a very important function, and it's
23
absolutely necessary for continued operation and growth of
24
the system.
25
MR. WARREN:
And Mr. Ladanyi, did you or Ms. Urquhart
26
have any role in determining that that amount, which is,
27
roughly, $1.5 million -- sorry, $1.15 million, was the
28
appropriate amount to pay for that?
26
1
MR. LADANYI:
No, we did not.
As I explained earlier,
2
Mr. Player determined that amount.
3
each one of these amounts, I would have to say “no” on each
4
one of them.
5
MR. WARREN:
So, if you ask me for
I have just one other question in this
6
context, panel -- I just want to put it to you.
Looking at
7
your pre-filed evidence, Exhibit A6, tab 2, schedule 1,
8
page 3, which is in paragraph 5, just below the one I was
9
referring to a moment ago -- this is in the context of
10
services that were provided by Enbridge Inc. -- are
11
provided, I’m sorry.
12
says:
Beginning at the bottom of page 2, it
13
“The tax-advice service provides tax expertise to
14
project and other initiatives, to ensure
15
consistent corporate-wide practices.”
16
MR. LADANYI:
17
MR. WARREN:
18
I see that, yes.
Now, in looking at the exhibit you were
referring to, the tax advice is how much?
19
MR. LADANYI:
20
MR. WARREN:
$6,000.
And did you have any role in determining
21
that $6,000 was an appropriate amount to pay to ensure
22
consistent corporate wide practices?
23
Player who made that decision?
24
MR. LADANYI:
Or would that be Mr.
Mr. Player determined that was an
25
appropriate amount.
I think that you have to keep in mind,
26
first, this is not a lot of money.
27
can see the description of it at -- you don't have to turn
28
it up - A6, tab 10, schedule 1 in appendix 1, page 117.
It is $6,325, and you
27
1
And it's a deliverables or support of EGD's internal
2
operations done by providing tax research, insights,
3
knowledge and resources, board leverage and the collective
4
expertise of Enbridge Inc.
5
So Enbridge Inc. has greater expertise in tax matters
6
and is charging a very small amount of money, which is
7
$6,325 for the service, which I think is probably a good
8
deal, but I did not certainly evaluate this.
9
it with the manager of taxation and asked him -- I asked
I did discuss
10
him what he thought of it, and he said he uses the service
11
and it is a very valuable service for him and he thinks it
12
is a good deal.
13
14
15
MR. WARREN:
And it is a service to ensure consistent
corporate-wide practices?
MR. LADANYI:
Amongst other things.
And I think you
16
should not just rely on our high level evidence, but you
17
should probably look at the actual schedule that I referred
18
you to for the complete description of that service.
19
there's -- consistency is important, but it is also
20
important, the fact that we are using expertise of people
21
with greater tax knowledge than what we have on staff.
22
MR. WARREN:
And
Ms. Urquhart, in an earlier question to
23
you, I asked you about the increase in the level of the
24
charges from affiliates from 2004 to 2006, and it's gone
25
from roughly 1.2 million to 2.6 million.
26
Ms. Urquhart, can you tell me where, in the finance
27
department, there have been corresponding reductions in
28
costs as a result of the amount that you've paid --
28
1
increased amount you're paying to EI for its services?
2
MR. LADANYI:
There is no specific reduction in costs.
3
This is what these services cost.
4
corresponding reduction in service.
5
way, and the changes in the costs relate to the differences
6
between the CAM and RCAM and between the amounts in
7
previous years, whichever way they were determined.
8
the services are services as described in the exhibits that
9
I mentioned.
10
MR. WARREN:
We do not have a
These services, by the
But
Ms. Urquhart, the second driver that you
11
identify for the increase in costs in the finance
12
department was consulting, and within that you identified
13
two.
14
using the acronym SOX; is that correct?
And one is the Sarbanes-Oxley, which you refer to
15
MS. URQUHART:
16
MR. WARREN:
That's correct.
I would like to begin just by reconciling
17
a couple of interrogatory responses.
18
if I could begin with an interrogatory response to one of
19
my clients' interrogatories, it's CCC number 29, which, for
20
the record, is Exhibit I, tab 5, schedule 29.
21
MS. URQUHART:
22
MR. WARREN:
And in this context,
We have that.
Now, this question asked you to identify
23
the costs related to ensuring compliance with
24
Sarbanes-Oxley.
25
the finance costs related to Sarbanes-Oxley in 2005 were
26
$964,000, and in 2006 the budget is $1.2 million.
27
got that correctly?
28
And, as I've understood it, the answer,
MS. URQUHART:
That's correct.
Have I
29
1
MR. WARREN:
Now, just if you could keep your finger
2
on that interrogatory response, and then turn up a response
3
to interrogatory filed by my friend, Mr. Shepherd, and it's
4
Exhibit I, tab 18, schedule 34?
5
MR. LADANYI:
6
MR. WARREN:
7
8
9
10
Yes, we have that.
And part A of that -- I'm not sure if the
Panel has it.
MS. NOWINA:
Not yet, Mr. Warren.
We're okay, Mr.
Warren.
MR. WARREN:
Part A of that response asks for
11
incremental finance costs related to Sarbanes-Oxley
12
compliance, and we have a number for 2005 of 368,000 and
13
2006 of 298,000.
14
Now, I am sure, Mr. Ladanyi, you will be the very
15
first person in the room to say I'm looking at apples and
16
oranges, but what I would like you to do is to make me an
17
apple pie, if you can.
18
MR. LADANYI:
Actually, it's apples in variances
19
you're looking at, but I will let Ms. Urquhart explain what
20
these two interrogatories say.
21
MS. URQUHART:
Okay.
In the Exhibit I, tab 18,
22
schedule 34, School Energy 34, that response in part A, the
23
first column, 2006, that is the variance comparing 2006
24
versus 2005 for the costs related to Sarbanes-Oxley costs.
25
The second column, 2005, is the incremental costs of 2005
26
compared to 2004.
27
the incremental costs of 596,000.
28
MR. WARREN:
And, as well, the third column, 2004, is
Now, thank you for that.
So if I go back
30
1
to CCC's Interrogatory No. 29, Exhibit I, tab 5 schedule
2
29, those are the all-in costs for compliance with
3
Sarbanes-Oxley; is that right?
4
MS. URQUHART:
5
MR. WARREN:
That's correct.
Do I have somewhere in the record -- and
6
Mr. Ladanyi, who appears to memorize these, I'm sure will
7
tell me quickly.
8
the actual total all-in costs for compliance with
9
Sarbanes-Oxley was in 2004?
10
11
Do I have somewhere in the record what
I suppose I could do the math.
I could subtract from 964 the variance?
MR. LADANYI:
It's actually not in the record.
We can
12
provide it to you, if you like, but we don't have any place
13
that we can point to right now.
14
15
MR. WARREN:
If you could -- if I could get an
undertaking to provide that?
16
MS. NOWINA:
Certainly.
17
MR. BATTISTA:
18
UNDERTAKING NO. J13.1:
19
COMPLIANCE WITH SARBANES-OXLEY IN 2004 AND 2003
20
MR. WARREN:
That will be undertaking J13.1.
TOTAL ALL-IN COSTS FOR
And I suppose if I were a responsible
21
attorney, I would know the date for this, but I'm not, so I
22
don't know the date when Sarbanes-Oxley came into effect.
23
Were there costs for compliance in 2003, Mr. Ladanyi?
24
MR. LADANYI:
If I could just have a moment.
Yes,
25
Sarbanes-Oxley came into effect July 30th, 2002.
26
actually not sure if there is any 2003 costs right now that
27
we have incurred.
28
MR. WARREN:
I am
Could I enlarge that undertaking to
31
1
include the costs of compliance with Sarbanes-Oxley in
2
2003, if any?
3
Now, just before we finish with the numbers, Ms.
4
Kelly, in your evidence, you indicated that there was an
5
$800,000 -- and correct me if I'm wrong about this.
6
was an $800,000 reduction in your particular area as a
7
result of reduction in the Sarbanes-Oxley compliance costs;
8
have I got that correctly?
9
10
11
12
MS. KELLY:
MR. WARREN:
There
That's correct, within audit fees.
So could you explain to me what that
reduction is attributable to?
MS. KELLY:
The initial introduction of Sarbanes-Oxley
13
requirements, there's a lot of start-up costs in terms of
14
documenting processes and procedures and internal controls
15
within the department.
16
internal controls requires quite a bit more audit scrutiny,
17
and that you will see in 2005; whereas, in 2006 a lot of
18
that has already been documented, so the cost is coming
19
down.
20
MR. WARREN:
And having PWC go through those
Well, when I look at the costs, they're
21
going up, a variance of $300,000 from 2005 to 2006, but
22
you're saying there is in fact a reduction somewhere in
23
there, as well?
24
MS. KELLY:
25
MR. WARREN:
26
MR. LADANYI:
In audit fees, yes.
In audit fees.
You can see in table 2, Mr. Warren, on
27
Exhibit A6, tab 9, schedule 1, you will see that audit fees
28
in 2005 estimates are 1,579,000 and they're 779,000 in the
32
1
2006 budget.
2
by the way, is an item that's covered also in the charge,
3
as a direct charge for the EI charges.
4
This is in the non-departmental O&M.
You can also see that same amount in the exhibits that
5
were discussed a few days ago in the corporate cost
6
allocation.
7
schedule 1, appendix 1, page 130.
8
9
That,
You can see that same number in A6, tab 10,
MR. WARREN:
Thanks for that, Mr. Ladanyi.
Now, at a
very high and no doubt crude level of description, Mr.
10
Ladanyi, would I be fair in describing Sarbanes-Oxley as US
11
legislation that arises, I guess, most directly out of the
12
Enron problems, which imposes certain additional reporting
13
and certification requirements on companies whose shares
14
are publicly traded in the United States?
15
description of what it is about?
16
MR. LADANYI:
Is that a fair
That would be at the first level, but in
17
Canada we also have similar legislation and similar
18
requirements.
19
Sarbanes-Oxley requirements, because Enbridge stock is
20
traded in the United States, but we also have to address
21
the Canadian requirements.
22
So we not only have to address the US
And we actually deal with that in paragraph 13 of A6,
23
tab 9, schedule 1, page 4.
We mention that the Canadian
24
securities administrators released multi-lateral instrument
25
52-109, and -- which requires, essentially, the same
26
requirements as Sarbanes-Oxley.
27
use the term “Sarbanes-Oxley”, we're using it loosely.
28
really encompasses both US and Canadian requirements
So there were -- when we
It
33
1
MR. WARREN:
But the thing that the US and Canadian
2
requirements have in common, Mr. Ladanyi, is that this is
3
legislation which is intended to protect the interests of
4
shareholders.
5
Am I correct in that?
MR. LADANYI:
Absolutely.
And that’s -- shareholders
6
-- but I prefer the word “investors”, because investors
7
are, essentially, risking their money by investing it in a
8
business, such as Enbridge Inc., but also Enbridge Gas
9
Distribution.
And I wouldn't be surprised that most people
10
in this room, through a pension fund or a mutual fund, are
11
investors in our stock, one way or another.
12
expect certain returns.
13
to have certain auditing standards and controls in place.
14
And this is, essentially, to protect investors like you.
15
MR. WARREN:
And they
And they also expect the company
Well, I don't have the kind of money that
16
Mr. Dingwall has, so you're protecting him and not me --
17
but that's a mere bagatelle.
18
But I am correct -- and you’ve corrected me in saying
19
that this is legislation and regulatory requirements in
20
Canada protect the interests of investors.
21
We can agree that Sarbanes-Oxley and its Canadian
22
analogue are not intended to protect the interests of
23
ratepayers --
24
MR. LADANYI:
25
MR. WARREN:
26
MR. LADANYI:
Well -Do we agree on that?
Just a minute.
You cannot be in
27
business without complying with securities legislation.
28
mean, the other choice for us is to become, essentially,
I
34
1
owned by the government.
2
we could raise the money.
3
to be investor-owned enterprise, such as Enbridge Gas
4
Distribution, you have to comply with securities
5
legislation.
6
avoided.
7
the benefit of staying in business, and providing service
8
to ratepayers.
9
That would be the only other way
If we ever -- if you're going
It's a cost of doing business that cannot be
It's not for the benefit of investors.
MR. WARREN:
It's for
I take it you agree with me that the
10
answer to my question is, Yes, it's intended to protect the
11
interests of investors and not ratepayers.
12
answer to a question I didn't ask.
13
MR. LADANYI:
You gave me an
It's not a yes-or-no question.
14
I tried to explain to you what this is about:
15
of doing business.
16
MR. WARREN:
It’s --
it's a cost
Can you tell me, Mr. Ladanyi, what
17
consideration, if any, was given to having Enbridge Inc.
18
absorb costs of Sarbanes-Oxley compliance, and compliance
19
with its Canadian analogue?
20
MR. LADANYI:
Do you know?
I am not aware of any of those
21
discussions.
22
Canadian legislation and US legislation are similar.
23
requirements are similar.
24
discussion, maybe back in 2002.
25
the end result is that we still have to comply.
26
But, as I explained, the two issues -- the
MR. WARREN:
The
And there might have been some
I'm not aware of it.
But
Can you tell me, if you know, Mr.
27
Ladanyi, what consideration -- sorry, what investigation
28
was made about the practice in the marketplace of having
35
1
the costs of Sarbanes-Oxley - I use that term broadly to
2
include the Canadian analogue - having those costs
3
recovered in the prices charged for goods and services by a
4
publicly-traded company?
5
MR. LADANYI:
I'm not aware of any legislature
6
discussing this.
If you're asking me or anybody, any of
7
the provincial regulatory bodies discussing that, I think
8
that a basic principle of cost of service is that a company
9
such as ours, a utility, comes before a provincial or
10
federal regulator, and puts forward a forecast of all its
11
costs of doing business, including the cost of raising
12
capital, including the cost of financial reporting and
13
including the cost of meeting all of their obligations to
14
whatever the authorities are, whether it's the technical
15
standards and safety authority, for safe operation of the
16
system, or the Ontario Securities Commission, for reporting
17
financial statements.
18
staying in business.
19
MR. WARREN:
It's just one of the costs of
You would agree with me, though, Mr.
20
Ladanyi, would you not, that a company in the private
21
sector -- a publicly-traded company in the private sector,
22
making and selling widgets, would have to make a decision
23
whether or not the price of its widgets in the competitive
24
market could bear absorbing the costs of compliance with
25
Sarbanes-Oxley and its Canadian analogue.
26
question they would have to ask themselves; is that fair?
27
28
MR. LADANYI:
Correct.
That’s a
And they would be -- however,
they would not be in the situation we are in.
They would
36
1
actually be able to set prices.
2
high demand for the widgets, they could raise the price and
3
maximize profits on the widgets.
4
they would have to cut price.
5
could be in a situation where, at times, they could make
6
huge profits.
7
For example, if there's a
If there is a low demand,
But, in any event -- so they
A regulated public utility doesn't operate this way.
8
A regulated public utility under cost of service - by long
9
tradition in this province, by the way - comes before the
10
regulator and produces an annual forecast of all its
11
operating costs, and, on that basis, the regulator
12
determines what costs are recoverable in rates, and what
13
costs are not recoverable in rates.
14
are set.
15
16
17
And that's how rates
So we are not directly comparable to the widget-making
company.
MR. WARREN:
This is not a cost of EGD.
This is a
18
cost -- because it doesn't sell shares publicly.
19
that sells their shares publicly --
20
MR. LADANYI:
21
MR. WARREN:
22
23
It’s EI
Well, we --- is that not fair?
Have I got that
right, Mr. Ladanyi?
MR. LADANYI:
You actually got that detail right.
24
However, let me explain, again.
Somebody has to invest
25
capital in here.
26
Enbridge Inc.
27
investing money, in pipe in the ground, that's right here
28
in Toronto, that is, in this franchise area.
We are now a wholly-owned subsidiary of
It is Enbridge Inc. shareholders who are
37
1
It doesn't come from taxpayer.
It doesn't come from
2
thin air.
3
shareholder cost is the cost of doing business.
4
you raise capital and that’s how you make investments.
5
that’s how our economy functions
6
Somebody has to invest that money.
MR. WARREN:
And the
That's how
And
Ms. Urquhart, you said the second driver
7
within this consulting -- second element within the second
8
driver for the cost increases was related to -- and my note
9
of it was, the RFP costs for the customer-care project.
10
Have I got that, roughly, correct?
11
MS. URQUHART:
12
MR. WARREN:
13
MS. URQUHART:
14
MR. WARREN:
15
MS. URQUHART:
16
MR. WARREN:
That's correct.
Can you tell me how much that was?
That's, approximately, $300,000.
Sorry, $300,000?
That's correct.
Now, the third driver was risk
17
management.
In this context, Ms. Urquhart, if you could
18
turn up Exhibit I, tab 5, schedule 31 --
19
MS. URQUHART:
20
MR. WARREN:
21
I’ve got that.
-- an interrogatory response.
Have you
got that?
22
MS. URQUHART:
23
MR. WARREN:
Yes, we do.
The risk-management costs include, if I’m
24
reading this correctly, claims, damages and legal fees, in
25
an amount of $1.9 million; is that correct?
26
MR. LADANYI:
27
MR. WARREN:
28
Right.
And I just want to know if I've got these
numbers correctly.
In the perverse logic of the legal
38
1
profession, you pay almost twice as much in legal fees as
2
you pay in settlement costs; is that correct?
3
MR. LADANYI:
We haven't calculated the ratio, but if
4
you're looking at those numbers, you could get that
5
impression.
6
7
8
9
10
11
MR. WARREN:
Now, these are legal fees paid to whom?
Is this outside counsel?
MR. LADANYI:
These are legal fees paid to outside
counsel, yes.
MR. WARREN:
And who is it within the company that is
responsible for assessing the reasonableness of these fees?
12
MR. LADANYI:
13
MR. WARREN:
Mr. Boyce.
And is there anywhere in the -- are these
14
fees subject to some form -- kind of formal assessment
15
process, within EGD?
16
MR. LADANYI:
17
you have in mind.
18
MR. WARREN:
I'm sorry, I don't quite understand what
What I'm driving at -- let me ask the
19
question a little differently, so my point is a little
20
clearer, and that is:
21
would allow this Board, as it sits here, to make an
22
assessment of the reasonableness of the amount of nearly
23
$1.2 million in legal fees?
24
MR. LADANYI:
is there anything in the record that
Or is there just this number?
Well, with us, I guess, there is just
25
this number.
You could probably discuss it with Mr. Boyce,
26
and he will probably tell you it’s based on some standard
27
rates.
28
take it up with Mr. Boyce.
I’m not really sure what they are, so I suggest you
39
1
MR. WARREN:
Now, you did say, Ms. Urquhart, that
2
there were higher claims and higher settlements this year.
3
Is there a particular driver for this?
4
5
Sorry.
First of all I should ask:
forecast fee -- is that a forecast budget?
6
MS. URQUHART:
7
MR. WARREN:
8
2006, this is a
That is correct.
And what is it that’s driving this
increase to higher forecast settlement?
9
MR. LADANYI:
It's based on our experience - our
10
recent experience and our estimate - what's happening with
11
claims in 2005.
12
13
MR. WARREN:
Is there a particular claim that's
driving this, that's unusually large?
14
MR. LADANYI:
Well, I don't want to discuss specific
15
claims, but our estimate of claims, currently, is -- it
16
looks like it’s going to be, roughly, about $750,000.
17
we felt that the budget that we have is a reasonable
18
budget.
19
specific incidents are being handled and I am uncomfortable
20
discussing it here.
21
So
But I think there are other proceedings where
MR. WARREN:
My final area of questioning, panel, it
22
would assist me if you could go back to an interrogatory of
23
my client that I raised, pointed to before.
24
23.
25
It's number
For the record, it is Exhibit I, tab 5, schedule 23.
I'm not sure there is another source in the record,
26
Mr. Ladanyi, which will save either your eyes or mine.
27
may have to just rely on this.
28
Now, what this particular exhibit shows is the O&M
We
40
1
expenses, by department, beginning in fiscal 2000.
2
just see, Mr. Ladanyi and Ms. Urquhart, if I have read the
3
numbers correctly.
4
5
Let's
In the finance category, in 2000 the actual O&M
expense was $12.8 million; correct?
6
MS. URQUHART:
7
MR. WARREN:
That's correct.
In fiscal 2001, the Board approved was
8
15.5, but the actual expenditure was nearly $4 million less
9
at 11.2; is that correct?
10
MS. URQUHART:
11
MR. WARREN:
That is correct.
In 2002, the Board approved was 16.3 and
12
the actual expenditure was, again, about $4 million less at
13
$12 million; correct?
14
MS. URQUHART:
15
MR. WARREN:
Yes.
The actuals are correct.
Fiscal 2003, the Board approved was 17.6
16
and the actual O&M was, again, about $4 million less,
17
$13.4; correct?
18
MS. URQUHART:
19
MR. WARREN:
The actuals are correct.
Then beginning in 2004, the actual O&M is
20
13.8, and it increases to 2005 an estimate of 17.2 to your
21
budget of $20.2 million.
22
correctly?
23
MS. URQUHART:
24
MR. WARREN:
Have I got those numbers
That's correct.
So from an actual expenditure in fiscal
25
2000 of 12.8 to 2006, we have an increase of just about 7-
26
1/2-million dollars; correct?
27
MS. URQUHART:
28
MR. WARREN:
Correct.
Now, Mr. Ladanyi will, I'm confident,
41
1
correct me if I've got the chronology wrong, but the years
2
2000 through 2003 were the years of the partial PBR; is
3
that correct?
4
5
6
MR. LADANYI:
and 2002.
Yes.
It was actually years 2000, 2001
2003 was a cost-of-service year.
MR. WARREN:
But we can agree, can we not, Mr.
7
Ladanyi, that in the period of the partial PBR, Enbridge
8
was able to achieve -- that they achieved very substantial
9
savings, nearly a third -- quarter to a third of the
10
11
Board-approved amounts in each of the PBR years; correct?
MR. LADANYI:
Looking at these numbers, that's what it
12
would seem, but I think you I should caution you, number
13
one, that here we're dealing with -- on organizational
14
structure that was quite different.
15
through several reorganizations since then, so I am not
16
sure how comparable those numbers are.
17
lower, and also the department probably wasn't facing the
18
kind of cost pressures they were facing now with higher
19
insurance costs, with compliance with Sarbanes-Oxley and
20
similar Canadian legislation.
21
Finance have gone
They appear to be
So, yes, you can look at the past numbers, and the
22
conclusion you can draw is perhaps that we are -- we were
23
able to achieve savings in certain years.
24
that.
25
I agree with
What message this will give us about 2006, I don't
26
know.
All I can tell you is that 2006 we are facing some
27
real cost increases that we have to deal with, and we have
28
to -- we have to pay.
42
1
MR. WARREN:
Well, what puzzles me about this record
2
that Ms. Urquhart and I have just gone through, Mr. Ladanyi
3
- and I would ask you to comment on that - is that when the
4
PBR period ends, it would appear that both the ability and
5
the willingness of EGD to reduce its costs in the finance
6
department magically disappears.
7
MR. LADANYI:
Do you agree with that?
I wouldn't agree with that.
I said that
8
there were specific reasons.
And I think that, again,
9
we're kind of going over old numbers without the benefit of
10
evidence at that time.
11
dollars and those costs were canvassed in great detail.
12
There was numerous interrogatories.
13
great length, and I really don't have the benefit of all
14
that material here with me.
15
could tell you, at each one of these particular items, why
16
the costs were different, but I don't have it here now.
17
In the 2003 rate case, those
This was explored at
There would be reasons that I
So at a high level, I cannot give you an overall all-
18
encompassing answer.
19
MR. WARREN:
Ms. Urquhart or Mr. Ladanyi, can you tell
20
me, or, more importantly, tell the Board, what efforts have
21
been made for budget 2006 to reduce the forecast costs and
22
O&M in the finance department?
23
made efforts to reduce costs?
24
[Witness panel confers]
25
MS. URQUHART:
Can you point to where you
In terms of the 2006 budget, there were
26
some reductions that were made in head count, elimination
27
of approximately two positions.
28
2005, we realized these were no longer required, so those
When we looked at the
43
1
2
3
were eliminated from the 2006 budget.
MR. WARREN:
questions for this panel.
4
MS. NOWINA:
5
MR. THOMPSON:
6
Thank you very much.
Those are my
Thank you.
Thank you, Mr. Warren.
Mr. Thompson.
I will just slide over here, if that's
okay.
7
MS. NOWINA:
Yes.
8
CROSS-EXAMINATION BY MR. THOMPSON:
9
MR. THOMPSON:
Panel, I wanted to begin by just
10
putting the numbers, to which this panel is speaking, in
11
the context of the big picture, and I would ask you to get
12
in front of you, if you wouldn't mind, Exhibit K6.4.
13
MR. LADANYI:
14
MR. THOMPSON:
Yes, we have that.
Just by way of preliminary, in the
15
examination-in-chief of each of you and your review of the
16
2006 budget, you reviewed it against the 2005 estimate; am
17
I correct?
18
MR. LADANYI:
19
MR. THOMPSON:
20
21
Right.
You did not review it against the
amounts set out in the ADR agreement.
MR. LADANYI:
Was that deliberate?
Our evidence was presented in the case
22
and, as originally filed, did not compare it to the ADR
23
agreement.
24
that the 2006 budget is on a calendar-year basis and the
25
2005 ADR agreement was on a fiscal-year basis -- the old
26
fiscal year basis.
27
28
And the reason -- my primary reason for that is
So they're not directly comparable, and we wanted to
compare the same 12 months in both cases.
44
1
MR. THOMPSON:
Well, I don't think you need to turn it
2
up, but there was an express agreement in your 2005 case
3
where you were seeking the conversion to the calendar year
4
end, in article 9.1, that future budget reviews would be
5
conducted against the agreed-upon O&M budget.
6
recall that?
7
8
9
Do you
MR. LADANYI: Yes, I recall that, and I -- if you just
give me a minute, Mr. Thompson, while I shift gears here.
MR. THOMPSON:
My question is, Are you trying to skate
10
out of that agreement, by now conducting your review
11
against the 2005 estimate?
12
MR. LADANYI:
Just a minute, Mr. Thompson.
First, the
13
“skate out” is a bit insulting, but let me just -- I was
14
just looking up an exhibit.
15
1, schedule 1, page 19 --
16
MR. THOMPSON:
17
MR. LADANYI:
If you turn to Exhibit A6, tab
Just a second here.
-- which is table 11.
So just turn to
18
that exhibit.
You’ll see that we do have a comparison
19
against the settlement proposal.
20
black and white, right in front of your eyes.
21
MR. THOMPSON:
22
MR. LADANYI:
23
MR. THOMPSON:
24
MR. LADANYI:
Sorry.
It’s right there, in
Page 6.
A6, tab 1, schedule 1, page 19 -Right.
-- table 11.
So you have the column
25
“2005 settlement proposal”, and column 5 is the 2006
26
budget.
27
28
And there you can see both of them, side by side.
So we are not -- I don't know what you mean, “skating
out.”
We presented the information.
We also -- in each
45
1
departmental budget, what we do is, we presented evidence
2
as departments prepared their budget.
3
MR. THOMPSON:
4
MR. LADANYI:
Right.
That's what we dealt with.
But at a
5
high level -- but on the aggregate, we presented the
6
aggregate number, as well.
7
MR. THOMPSON:
All right.
8
circumvent the agreement?
9
agreement?
10
MR. LADANYI:
So you're not trying to
You're prepared to live with the
That's right.
And the agreement, and --
11
actually, let's look up the agreement.
12
agreement say?
13
MR. THOMPSON:
What does the
Well, we have been through it several
14
times with previous panels, so I don't think that’s
15
necessary, Mr. Ladanyi.
16
MR. LADANYI:
But by all means --
Well, it is actually necessary, because
17
there’s a lot of confusion about what the agreement says.
18
What it says -- the agreement -- I have it in front of me,
19
because you raised it several times with other panels.
20
It’s RP 2003-0203, Exhibit N1, tab 1, schedule 1, page 28,
21
and it says:
22
“For the purpose of future budget reviews, the
23
company accepts the intervenors’ request to
24
allocate the O&M budget as shown in table 1,
25
attached at appendix C.”
26
27
28
And that’s exactly what we did.
We allocated it in
the exhibit I just showed you.
MR. THOMPSON:
All right.
So you will understand why,
46
1
as an intervenor representative, I will review your 2006
2
budget against the settlement proposal amount that you have
3
correctly pointed out is on A6, tab 1, schedule 1, page 19.
4
And that is the information that we find displayed in
5
columns 8 through to -- sorry, column 6 through to 14, in
6
Exhibit K6.4; correct?
7
MR. LADANYI:
8
9
Yes.
And different elements, yes, that
are shown there.
MR. THOMPSON:
But the point about the estimate - I’ll
10
come back to it in a minute - but the point about the 2005
11
estimate, compared to the 2005 settlement proposal, is that
12
- and you can see this on -- there's a number of exhibits,
13
but you can see it in Exhibit K6.4, at line 18 - is that
14
the settlement total amount, including DSM, was 301.3
15
million; correct?
16
MR. LADANYI:
17
MR. THOMPSON:
Yes.
And the estimate is 323 million.
So
18
there is $21.7 million of overspending, compared to the ADR
19
settlement amount in the estimate; correct?
20
MR. LADANYI:
I wouldn't call it “overspending.”
21
These are additional costs that the company needs to run
22
its business -- the cost of running this business in 2005.
23
Now you might characterize it as “overspending”, but it’s
24
the money that we need to operate this business.
25
As I explained to you when I was here a few days ago
26
on the policy panel, we cannot, for example, suddenly, if
27
we're running out of money, for going over the total, stop
28
sending bills to customers, stop reading meters.
We can't
47
1
stop doing leak surveys.
2
things, even if we go over budget.
3
MR. THOMPSON:
We've got to keep doing these
Well, I’ll come back to the -- that
4
issue.
But there is that - it's in an amount of $21.7
5
million over the total settlement proposal amount.
6
the label “overspending”.
Forget
I’ll come back to that later.
7
MR. LADANYI:
Very good.
8
MR. THOMPSON:
9
And just to recapitulate, in terms of what was
All right.
Thank you.
10
discussed on a prior panel, the settlement amount,
11
excluding DSM and corporate cost allocations, was 273
12
million, and you see that column 2, line 22.
13
Ladanyi?
14
MR. LADANYI:
15
MR. THOMPSON:
Correct, Mr.
Yes, I see that.
All right.
And, prior panels, we
16
discussed the settlement amount with respect to customer
17
support, which included customer-care and CIS.
18
$110.1 million.
That was
You see that at line 3.
19
MR. LADANYI:
20
MR. THOMPSON:
Yes, I see that.
And, in the prior panel, we identified,
21
excluding corporate cost allocations and DSM, the other
22
package -- or the other envelope, at $162.9 million.
23
you recall that?
24
MR. LADANYI:
25
up, yes.
26
numbers.
27
28
Do
That's a number that you keep bringing
That number can be calculated using these
MR. THOMPSON:
And the amounts that you people are
speaking to fall within that sub-envelope of $162.9
48
1
2
million.
MR. LADANYI:
If you're speaking about finance O&M,
3
and non-departmental O&M and human resources O&M, you're
4
correct.
5
MR. THOMPSON:
Thank you.
6
Now, in terms of the claim -- just to put this, again,
7
in the context of the overall claim, excluding DSM and
8
corporate cost allocations, the overall claim is $307.2
9
million for O&M, excluding DSM and corporate cost
10
allocation.
11
column 7; correct?
12
We can see that at line 27, for example, under
MR. LADANYI:
Yes, I see that.
But I want to qualify
13
something I said earlier, because you're moving kind of
14
fast with these numbers, Mr. Thompson.
15
budgets include corporate cost allocations.
16
speaking to a number that includes corporate cost
17
allocations, not excludes corporate cost allocation.
18
MR. THOMPSON:
That's fine.
Our departmental
So we are
I am just trying to
19
identify the envelope amounts, excluding corporate cost
20
allocation and DSM.
21
So the total was 307.8, you would agree with that?
22
MR. LADANYI:
23
MR. THOMPSON:
That's what it says next to note 1.
Right.
24
component of that is 122.3.
25
185.5.
26
27
28
And the customer-support
So the "other" component is
We discussed that, previously.
MR. LADANYI:
Yes.
Subject to check.
I presume
you're calculations are correct.
MR. THOMPSON:
So just taking that sub-envelope of
49
1
162.9 Board-approved and ADR-based, and the 185.5 claim,
2
that's an amount of 22.6 million.
3
subject to check?
4
MR. LADANYI:
5
MR. THOMPSON:
Would you take that,
I would, yes.
And I get -- that's a percentage
6
increase of 13.87 percent in the envelope -- sub-envelope
7
amount that you're claiming outside of customer support.
8
Would you take that, subject to check?
9
10
11
12
MR. LADANYI:
Yes.
And there are various reasons
discussed at departmental budgets for those increases.
MR. THOMPSON:
All right.
And the inflation that is
reflected in this budget is 2.1 percent, am I correct --
13
MS. URQUHART:
Rate --
14
MR. THOMPSON:
-- rate of inflation that’s being
15
forecast?
16
MS. URQUHART:
That's correct.
17
MR. THOMPSON:
And so this increase, on a percentage
18
basis, and this sub-envelope, is more than 6 times the rate
19
of inflation; correct?
20
MR. LADANYI:
That's the math.
I use the term sometimes -- because I've
21
been in this hearing process for a long time -- which I
22
call “Thompson math”, because you -- you know, at every
23
hearing you take us through these complication
24
calculations, where you calculate the percentages to try to
25
twist the evidence against the company.
26
the math, according to the way you would like to do the
27
math, that’s -- these are the percentages you will come to.
28
MR. THOMPSON:
So, yes, if you do
Well, Mr. Ladanyi, you're aware that,
50
1
before we got into the ADR -- sorry, into the PBR regime,
2
that the Board often took an envelope-type of approach in
3
assessing the reasonableness of the O&M expenses claim.
4
I'm not dreaming this up as “Thompson math.”
5
MR. LADANYI:
They certainly did, but the Board also,
6
at that time, included the customer-care function within
7
the envelope.
8
that are now being provided by Enbridge Inc. were actually
9
being provided by -- internally, by different company
10
11
12
13
14
15
And also, at that time, some of the services
departments.
MR. THOMPSON:
The envelope approach is not a
“Thompson special”, is it?
MR. LADANYI:
Not really.
You are just creating a new
version of the envelope.
MR. THOMPSON:
Well, it's a sub-envelope or two sub-
16
envelopes.
17
into the context of the way this case is being presented,
18
the corporate-cost-allocation pieces and the other pieces
19
reflected in these departments that are testifying today.
20
But anyway, it's just, again, trying to put
We can find that in the columns 8 through to 13 of
21
Exhibit K6.4.
If you would just bear with me, Mr. Ladanyi,
22
taking HR first, that appears at line 8.0; correct?
23
MS. HABERBUSCH:
24
MR. THOMPSON:
Yes.
And then the current Board-approved
25
amount, as we see, in column 8, there is 2.8 of corporate
26
cost allocation and 33 of budget amounts excluding
27
corporate cost allocation; correct?
28
MS. HABERBUSCH:
Correct.
51
1
MR. THOMPSON:
And then if we go over to columns 11
2
and 12, we see the comparable numbers for the 2006 budget
3
corporate cost allocation going up to 4 million and the
4
other category going up to 35.7; fair?
5
MS. HABERBUSCH:
6
MR. THOMPSON:
Yes.
And, similarly, the numbers for finance
7
are existing corporate cost allocation, 5.5, going up to
8
7.6; the O&M amounts, other than corporate cost allocation,
9
going up from 9.6 to 12.6?
10
MR. LADANYI:
11
MR. THOMPSON:
That's right.
All right.
And then the
12
non-departmental, which is at line 14, it's 2.1 million
13
corporate cost allocation, 4.8 for other, going up to 5.4
14
million for other and 2.6 million, I believe, for corporate
15
cost allocation.
16
allocation; right?
17
MR. LADANYI:
18
MR. THOMPSON:
Sorry, no.
It is 4.7 for corporate cost
Right.
And so would you take, subject to
19
check, that if I summed up those three departments that are
20
testifying here together, we have the corporate cost
21
allocation amount going from 10.4 to 16.3 for a $5.9
22
million increase.
23
MR. LADANYI:
Would you take that, subject to check?
Well, first, I want to qualify one thing
24
you're saying here.
You keep referring to column 8 for the
25
corporate cost allocation for 2005.
26
amount, and when we settle -- and, again, I don't want to
27
read from the settlement, but that settlement was reached
28
for the purpose of rate setting in 2005.
That's a settled
52
1
In that settlement, we did not say that that is the
2
amount that we will be paying or the cost that we will be
3
incurring.
4
if you want to use that as a benchmark, that's fine, but I
5
want to caution you that is not what the costs were in 2005
6
or would be in 2005.
7
The actual costs were higher for 2005, and so
MR. THOMPSON:
We're not through the year yet.
We've heard a lot about that already,
8
Mr. Ladanyi.
9
cost allocation for these three departments total 10.4
10
million.
The amounts shown on this table for corporate
Would you take that, subject to check?
11
MR. LADANYI:
12
MR. THOMPSON:
Yes.
If you get what you're asking for, they
13
will be going from $10.4 to $16.3 million.
14
is about $5.9 million, correct, that you're claiming to
15
recover from ratepayers?
16
MR. LADANYI:
The difference
I will take that subject to check, but,
17
again, we're not claiming.
18
costs, costs that we'll need to operate the business.
19
word "claim" troubles me a lot.
20
not like this is some sort of a divorce settlement that
21
we're claiming some rights to property.
22
coming here with a forecast of our operating costs for our
23
future test year, as we're required to do, and this is what
24
the costs are of running this business.
25
MR. THOMPSON:
Okay.
This is the forecast of the
It is not a claim.
The
It is
We're actually
Well, I don't know what other
26
word to use other than claim, so I guess you'll have to be
27
agitated at my questions, because I am going to use that
28
word.
53
1
But the point I wanted to make is that the corporate
2
cost allocation overall increase from the 13.5 to the
3
amount claimed in this case of 21.3 was $7.8 million.
4
see that at the bottom of column 13; correct?
5
6
MR. LADANYI:
MR. THOMPSON:
8
three departments.
9
departments?
11
12
Yes, we see that, and some of those
costs are in human resources and in finance.
7
10
MR. LADANYI:
Right.
But 5.9 of the 7.8 is in these
The bulk of it is in these three
Correct.
That's what the arithmetic
tells us.
MR. THOMPSON:
And none of you can attest to the
13
reasonableness of these amounts.
14
Warren.
15
up number; correct?
16
We
That's what you told Mr.
This is a top-down number, rather than a bottoms-
MS. HABERBUSCH:
Well, I can comment on the human
17
resource cost.
18
settlement for 2005 against the calendar 2005, and you
19
exclude the corporate cost allocation, as you've noted, the
20
difference is about $800,000 for human resources, and that
21
is primarily benefit costs.
22
If you compare the Board-approved
And as Mr. Ladanyi was mentioning earlier on, there
23
are commitments that we are required to make.
24
up, we don't say to our employees, We're no longer covering
25
you for your benefits.
26
As costs go
Those costs have to be paid.
So, yes, we spent above the Board-approved settlement
27
in that regard, but we don't have an alternative.
28
company makes those decisions to say, Are those
And the
54
1
2
expenditures we need to make?
MR. THOMPSON:
And we make those.
Sorry, I should have qualified my
3
question, Ms. Haberbusch, because you were on the cost
4
allocation -- corporate cost allocation panel.
5
MS. HABERBUSCH:
6
MR. THOMPSON:
Yes, I was.
So other than the human resources, the
7
only point I was trying to make is that based on what you
8
told Mr. Warren, the numbers are a top-down exercise.
9
get that from above; correct, Mr. Ladanyi?
10
MR. LADANYI:
The numbers are not top-down.
You
The
11
numbers -- I think as the evidence was over the last few
12
days, the numbers were negotiated between Enbridge Inc. and
13
Enbridge Gas Distribution senior management, and I think
14
Ms. Haberbusch can attest to that.
15
MS. HABERBUSCH:
16
MR. THOMPSON:
17
18
Absolutely.
I thought you told Mr. Warren that you
got this number from somebody else.
MR. LADANYI:
That's right.
I didn't do the
19
negotiations.
20
and we did not -- amongst ourselves, the three of us here
21
from the finance department, we were not involved in that
22
process.
23
24
25
I said we got that number from Mr. Player
That's all I said.
MR. THOMPSON:
And Mr. Player is above you.
Is he
your EMT leader?
MR. LADANYI:
Yes, he is.
He was here a couple of
26
times now so far in this hearing.
He explained that he
27
felt that these are reasonable costs and he agreed to them.
28
That's why he signed those agreements.
55
1
2
3
MR. THOMPSON:
Okay.
We ploughed through this
corporate cost allocation claim.
I would like to talk about some other pieces of this
4
puzzle.
But just on the math, then, looking at these three
5
departments, HR, finance and non-departmental, would you
6
take, subject to check, that the total amount in the ADR
7
settlement and Board-approved is 47.4 million, and the 2006
8
budget is $53.7 million, an increase of $6.3 million?
9
Would you take that, subject to check?
10
MR. LADANYI:
11
MR. THOMPSON:
Yes, we would.
All right.
And $6.3 million on a $47.4
12
million base I make to be a 13.29 percent increase.
13
you take that, subject to check?
14
MR. LADANYI:
15
MR. THOMPSON:
Would
Yes, we would.
All right.
Now, to the -- if I could,
16
to the budget targets and the process insofar as these
17
three departments are concerned.
18
briefly with Mr. Warren and you mentioned the budget
19
letter.
20
No. 4, Exhibit I, tab 11, schedule 4.
21
up, please?
And that is, I think, found at -- attached to IGUA
22
MR. LADANYI:
23
MR. THOMPSON:
24
You discussed the process
Would you turn that
Yes, we have it.
Did I understand correctly that someone
on the panel issued this budget letter?
25
MS. URQUHART:
That's correct.
26
MR. THOMPSON:
Okay.
I did.
And am I correct in reading that
27
the target established by the budget letter is set out on
28
page 2 of 25 in this response?
56
1
The topic is item 3, operating and maintenance O&M
2
expense budget, and then in the first paragraph, second
3
sentence, it reads as follows:
4
"As each department prepares its operating and
5
maintenance expense budget for 2006, ensure you
6
are targeting costs which are consistent with the
7
2005 ADR settlement levels adjusted for inflation
8
and, where applicable, customer growth.
9
calendar year forecast for CPI is 2.1 percent."
10
Do I read that correctly to mean the target was 2.1
11
percent over the ADR settlement levels?
12
instruction was continued to convey?
13
The 2006
MS. URQUHART:
Was that what the
The guidelines were to convey that each
14
department should look at their costs consistent with what
15
was settled, apply the inflation rate of 2.1 percent and,
16
in applicable departments, apply customer growth, and where
17
-- and if there were additional cost pressures, as well, to
18
include those in their budget.
19
20
21
MR. THOMPSON:
All right.
So that is a target that is
relevant to determining what is reasonable; fair?
MS. URQUHART:
It was a target, in terms of guideline
22
for people to develop their budget, but we didn't have a
23
specific target for -- overall, what that number should be.
24
MR. THOMPSON:
And just, in terms of what's a
25
reasonable target, IGUA asked a question about the
26
adjustment factor that would prevail, based on the
27
adjustment factor that the Board used under PBR.
28
recall that question, Mr. Ladanyi?
Do you
I believe it's IGUA No.
57
1
54.
Perhaps you could turn that up.
2
MS. NOWINA:
What was the reference, Mr. Thompson?
3
MR. THOMPSON:
4
MR. LADANYI:
5
MR. THOMPSON:
6
And in this interrogatory response, you've --
I think it’s I, tab 11, schedule 54.
We have it, Mr. Thompson.
That excludes me, unfortunately.
7
excluding the Z-factor, you calculated the adjustment
8
factor, on page 1, at 5.28 percent.
9
response, Mr. Ladanyi?
10
MR. LADANYI:
11
12
13
Did you prepare this
Ms. Urquhart actually prepared it, but
we worked on it together, in general.
MR. THOMPSON:
Okay.
But you show 5.24 percent in the
table for 2006, do you see that?
14
MS. URQUHART:
Yes, we do.
15
MR. THOMPSON:
I think, if you do the math, it should
16
actually be 5.18 percent.
I played with the numbers, and
17
it didn't come up with the --
18
Would you take that, subject to check?
19
4.28 minus 1.10, plus 2.00, I make to be 5.18.
20
MS. URQUHART:
21
22
rounding.
That, perhaps, might be due to
I will take that, subject to check.
MR. THOMPSON:
All right.
Let's move on.
Now, but -
23
- in terms of the customer growth that you've used, you
24
will see that on page 2 of 3, for some reason, you used
25
growth for 15 months, not 12 months.
26
And the customer growth that you forecast in your --
27
in the -- I believe it’s the A6, tab 1, evidence, that you
28
referred to earlier, in paragraph 13 -- A6, tab 1, schedule
58
1
1, page 5, paragraph 13, you tell us customer growth is
2
approximately 3 percent, on an annual basis.
3
that -- may I use that as a rough guide of the annual
4
customer growth?
5
MR. LADANYI:
And you use
You can, but not in this particular
6
case.
We're going through a changing year-end, and so we
7
have to deal with cumulative customers.
8
customers added, even during the stub; we can't presume
9
that there are no customers there.
So there’s
So we have to deal, in
10
this particular instance, with customer growth based on 15
11
months.
12
13
14
MR. THOMPSON:
Well, let me put it to you this way,
Mr. Ladanyi.
If I took the number of customers at December 1, 2006,
15
and the number forecast at year-end, would I get an
16
approximate level of customer growth of about 3 percent?
17
MR. LADANYI:
If you're comparing 2005 estimate, on
18
the calendar-year basis, to 2005 budget, on a calendar-year
19
basis, yes, that’s what you would get.
20
comparing the 2005, on a fiscal-year basis, to the 2006
21
budget, on a calendar-year basis, then you will get the
22
number that we have in this interrogatory.
23
MR. THOMPSON:
But, if you’re
We can argue about what the right
24
number is, but, assuming it's an annual number, then would
25
you agree that the customer-growth factor that you've
26
included on your first table, on page 1 of this response,
27
would not be 4.28:
28
MR. LADANYI:
it would be in the order of 3 percent.
Correct, but the base would be
59
1
different.
We could not use the 2005 Board-approved amount
2
for the base --
3
MR. THOMPSON:
4
MR. LADANYI:
5
base.
Okay.
-- we would have to use a different
That's what I'm trying to explain to you.
6
MR. THOMPSON:
Well, as I say, I’ll argue that.
7
But the math would then be 3 percent growth, 2 percent
8
inflation, less, roughly, 1 percent productivity, for an
9
adjustment factor, approximately, of about 4 percent.
10
MR. LADANYI:
11
MR. THOMPSON:
Based on a calendar-year base.
All right.
And would you agree with me
12
that, in this interrogatory response, you make reference to
13
a number of alleged "Z-factors," but none of them, I'm
14
suggesting to you, relate to the departments here under
15
discussion, namely HR, finance and non-departmental; is
16
that fair?
17
MS. URQUHART:
That is correct.
18
MR. THOMPSON:
Thank you.
19
So moving from targets, then, to the iterative
Okay.
20
process.
The iterative process, as I understand it,
21
involves the bottom bringing things to the top, the top
22
sending things back to the bottom, and back up to the top,
23
the top being the EMT group.
24
is that, roughly, the process?
25
MR. LADANYI:
26
MR. THOMPSON:
That's a simplification, but
Roughly, yes.
Okay.
And there's a lot of discussion
27
about what happened to the capital budget in that
28
particular process.
60
1
I wonder if each of the departments could, in 25 words
2
or less, just tell me how many meetings they had with their
3
EMT leader, what instructions they got, and how many
4
meetings coming back.
5
when you took your initial budgets to your leaders.
6
they say, Go back and make cuts?
7
Did they increase?
8
with HR.
9
I want to find out what happened
Did they remain the same?
Can you help us with that?
MS. HABERBUSCH:
Starting
I guess, since I'm an EMT member, I'm
10
presuming you would like Ms. Stokes to answer this
11
question.
12
Did
MS. STOKES-BAJCAR:
13
and I work together --
14
MR. THOMPSON:
15
MS. STOKES-BAJCAR:
Sure.
Actually, Ms. Haberbusch
Yes.
-- and I go back to the line
16
managers within HR, review their needs for the following
17
year -- or the following two years out, and then compile it
18
and come back to Ms.
19
things are cut, if they don't fit in with the plan.
20
that's about it.
21
MR. THOMPSON:
Haberbusch.
And, in some cases,
All right. Well, in the end, were there
22
any cuts made to the initial budgets presented?
23
they -- did they remain about the same?
24
increase?
25
26
And
Or were
Or did they
Can you help me?
MS. STOKES-BAJCAR:
They were about the same as when
we did the bottom-up plan.
27
MR. THOMPSON:
28
MR. LADANYI:
All right.
And finance, Mr. Ladanyi?
My recollection is that they're about
61
1
the same.
2
MR. THOMPSON:
And non-departmental?
3
MS. KELLY:
4
MR. THOMPSON:
5
Now there are just a couple of exhibits that I want to
Yes, they were about the same.
They were about the same, okay.
6
draw your attention to, and then I'm going to ask you a
7
question about communications that you received from the
8
leadership group.
9
But to put it into context, you have to --
I have to
10
start with a CCC interrogatory, Exhibit I, tab 5, schedule
11
46.
I wonder if you could turn that up, please.
12
Panel, have that information?
13
MR. LADANYI:
14
MR. THOMPSON:
Yes, we have that.
This was a request for strategic plans
15
and, in a corrected response the company provided - I think
16
it was after the motions - there are a number of documents
17
attached; is that fair?
18
19
20
MR. LADANYI:
That's right.
The strategic plans
documents.
MR. THOMPSON:
And the interrogatory response
21
indicates that these are summary presentations of the
22
strategic plans.
23
the North American investment community.
24
They have limited public distribution to
And then following the interrogatory response, there's
25
attachment 1, which appears to be a presentation made by
26
Mr. Letwin?
27
MR. LADANYI:
28
MR. THOMPSON:
That's right.
Okay.
And then following that, there
62
1
appears to be, if I'm not mistaken, still part of
2
attachment -- well, is this one presentation or a couple of
3
presentations?
4
MR. LADANYI:
The way I see it, there are two
5
documents.
6
Letwin, and then we have a summary of the 2003 strategic
7
plan, which is attachment 2.
8
9
First, attachment 1 is a presentation by Mr.
MR. THOMPSON:
All right.
So are the strategic plans
attached to the presentations - that's really what I was a
10
little confused about - or do you know?
11
plan is labelled "Attachment 2".
12
MR. LADANYI:
13
MR. THOMPSON:
The 2003 strategic
That's right, and you have it there.
Yes, but was it part of Mr. Letwin's
14
presentation, or is this another separate document, or do
15
you know?
16
MR. LADANYI:
No.
That's another separate document
17
that probably everybody who was at Mr. Letwin's
18
presentation already had.
19
distributed document.
20
MR. THOMPSON:
Okay.
That was a separately-
In any event, if you go to
21
attachment 2, at the third page, you will see that it was
22
-- this is something signed by Mr. Daniel.
23
have a date of October 1, 2003.
24
MR. LADANYI:
25
MR. THOMPSON:
This appears to
Yes, I see that.
Okay.
And then what follows, still as
26
part of attachment 2, is the strategies that relate to the
27
Enbridge family of companies.
28
it is page -- if you look at the bottom left- or right-hand
And if you go to -- I think
63
1
2
corner, there's numbers at the bottom.
If you go to page 10, you will see this.
This is
3
something written about October 2003, under bullet point
4
“Gas Distribution”:
5
"Enbridge will continue to grow its gas
6
distribution business through expansion of the
7
core utility customer base and energy market
8
share growth.
9
through incentive regulation."
10
Do you see that?
11
MR. LADANYI:
12
MR. THOMPSON:
The intent is to improve returns
Yes, I see those words.
And then we move on through this
13
document.
If you go to page 20, you will see this is the
14
2007 objectives.
15
expecting to receive or hoping to receive by 2007:
Enbridge -- this is what Mr. Daniel is
16
"Enbridge has received approval for a favourable
17
five-year incentive regulation plan beginning in
18
2005."
19
Do you see that?
20
MR. LADANYI:
Yes, I see that.
That's what Mr. Daniel
21
believed, based on the best information that he had on
22
October 1st, 2003 when he signed that document.
23
would have been his expectations at that time.
24
MR. THOMPSON:
Yes.
So that
And I think it is fair to
25
suggest, on the basis of those documents, that at that
26
point in time Enbridge was pursuing incentive -- an
27
incentive regulation plan for implementation soon; fair?
28
MR. LADANYI:
I would say that's fair, that Enbridge
64
1
has come out publicly numerous times.
2
recently there was an article in the newspaper, I believe
3
on the weekend, with Mr. Daniel quoted again, about how
4
successful Enbridge has been in its oil transportation
5
business with its incentive tolling agreement with the
6
shippers on the oil pipeline, and Enbridge has long
7
believed that there is a better way of setting rates or
8
pipeline tolls than through this kind of a lengthy hearing
9
process.
10
I think most
Enbridge believes that a settlement could be reached,
11
and, therefore, incentive regulation would be a more
12
efficient way of setting gas rates than what we're doing
13
here right now.
14
I think that would probably also agree with the way
15
the chairman of the Ontario Energy Board has been heard to
16
speak about regulation of gas utilities and electric
17
utilities.
18
be a more efficient way of setting gas rates than this way.
19
So it's nothing new to expect that there must
MR. THOMPSON:
Now, if -- thank you for that.
If you
20
now go on to the next strategic plan, this is a -- it's
21
attachment 3 to this document.
22
that's at the bottom of the page - you will see this Mr.
23
Daniel again speaking.
24
correct?
25
MR. LADANYI:
26
MR. THOMPSON:
If you go in to page 3 -
This is as of October 15, 2004;
Yes, I see that.
And so we've now moved a year forward
27
and you can -- if you would go to page 15 of this document,
28
you're now describing the 2008 objectives.
You will see in
65
1
the first bullet point:
2
"Enbridge Gas Distribution will have negotiated
3
an alternative regulatory plan that provides
4
clear incentives and risk rewards to improve all
5
aspects of performance while providing
6
transparent benefits to customers."
7
Do you see that?
8
MR. LADANYI:
9
10
Yes.
It seems to me like a very
positive thing to say, something to look forward to.
MR. THOMPSON:
And then if you go on to page 17, in
11
terms of strategies as of October 2004, the third bullet
12
point:
13
"Enbridge Gas Distribution will pursue an
14
alternative incentive regulatory model for
15
implementation by 2007 with a focus on growth and
16
customer service."
17
Do you see that?
18
MR. LADANYI:
19
MR. THOMPSON:
Yes, I see that.
So as of that point in time, it
20
appeared -- at this point in time, you're into your budget
21
process, are you not, at EGD?
22
MR. LADANYI:
23
MR. THOMPSON:
24
MR. LADANYI:
Can I just check the dates for a minute?
Your 2006 budget process.
October 15, 2004, yes, we're in, I would
25
say -- if you look at the date of Ms. Urquhart's budget
26
letter and compare it to Mr. Daniel's signature, I would
27
say that we're roughly in our budget process.
28
MR. THOMPSON:
So the attitude at head office is
66
1
pursue an alternative incentive regulatory model for
2
implementation by 2007.
3
at that time, Mr. Ladanyi?
4
MR. LADANYI:
That was the prevailing attitude
I think it still continues to be.
As I
5
said, as a general principle, we believe that there is a
6
better way of setting gas rates than through this very
7
lengthy and expensive process.
8
example, and I would say probably the metre here is running
9
maybe at $5,000 an hour in this room, maybe even more.
I look at this room, for
10
Maybe it is even $7,000 with this many counsel here.
11
is an expensive process.
12
So it
All Mr. Daniel is speaking about is that there is a
13
more efficient way of setting gas rates for gas
14
distribution business that will benefit both customers and
15
also shareholders, and he's speaking from his personal
16
experience with the oil pipeline transportation business.
17
It's not some kind of a hidden strategy that you are
18
uncovering, Mr. Thompson.
19
this from the beginning.
20
thing.
21
MS. HABERBUSCH:
Mr. Daniel has been open about
He has consistently said the same
I don't think it is any different
22
message than you heard from Mr. Schultz on the policy
23
panel, as well.
24
reiterated, yes, certainly the company has made no bones
25
about the fact that they would like to pursue a form of
26
incentive regulation, not any form.
27
28
I believe that was raised and Mr. Schultz
It would depend on the determination of what that
incentive plan looked like, but I think Mr. Schultz
67
1
reiterated, yes, the company is in favour of looking at a
2
more efficient model.
3
that, as well.
4
all.
I think Mr. Player also mentioned
So I don't think that is inconsistent at
5
MR. THOMPSON:
I'm just trying to get the attitude of
6
the senior executives.
7
Then the last document I want to draw to your
8
attention in this sequence is the Enbridge Inc. annual
9
report, which you will find attached to IGUA No. 10,
10
Exhibit I, tab 11, schedule 10.
11
turning that up, please?
12
MR. LADANYI:
13
MR. THOMPSON:
If you wouldn't mind
Yes, we have that, Mr. Thompson.
If you go to page 6 of this document,
14
you will see it's signed by Mr. Daniel and Mr. Taylor,
15
March 1, 2005, which is before the Board has released its
16
Natural Gas Forum report.
17
18
So it brings the continuum forward from what Mr.
Daniel wrote in October of 2004; correct?
19
MR. LADANYI:
20
MR. THOMPSON:
Yes, it does.
Okay.
Then if you go to page 45 of 103
21
of this document, you will see the current thinking, again,
22
before the NGF reported, under "Strategy", in the third
23
sentence:
24
"To this end, EGD will be advancing alternate
25
rate-making models to the OEB through the Natural
26
Gas Forum which has been initiated for the
27
purpose of exploring options for better
28
regulation of the evolving gas market.
EGD will
68
1
pursue an alternative regulatory model for
2
implementation by 2007."
3
As of that point in time, I suggest to you, the
4
attitude of your management -- your senior management, was
5
that they were striving for - and, I suggest, expecting - a
6
transition to incentive regulation for implementation by
7
January 2007.
8
statements?
9
Is that a fair conclusion to draw from these
MR. LADANYI:
I am, obviously, not that close to
10
senior management, but reading those words, yes, that
11
appears to be completely consistent with their -- with
12
general statements by Mr. Daniel about the -- his
13
preference for incentive regulation.
14
We, of course, now know that, with the outcome of the
15
Natural Gas Forum -- that, perhaps, incentive regulation
16
will not come forward that soon.
17
really know what model will be used.
But we, also, don't
18
And I think you're basing this on some kind of a
19
premise of vision that you might have, about what the
20
incentive-regulation model will look like.
21
know what it will look like.
22
will look into different methods of setting rates at that
23
time.
24
We really don't
And I'm sure that the Board
So you can't say that Mr. Daniel had this master-plan,
25
here, that he is hiding from everybody to somehow increase
26
rates before incentive regulation:
27
sort.
28
more efficient way of doing business.
it’s nothing of the
These are actually very positive statements, about
That's what he has
69
1
been consistent in saying all along, and he is -- he
2
continues to be that way.
3
MR. THOMPSON:
Well, all of that, Mr. Ladanyi, is a
4
preface to my question of all members of the panel -- is:
5
What communications were made to you by your EMT leaders,
6
and other senior management, about this expectation of a
7
transition to incentive regulation, for implementation by
8
January, 2007?
9
What did they say about this?
MR. LADANYI:
We were instructed to prepare a cost-of-
10
service budget.
11
know anything more than that.
12
That's all I can tell you.
MS. HABERBUSCH:
I really don't
Well, I can reiterate that that was
13
the discussion held within the EMT, and the discussion was,
14
Business as usual:
15
of-service application.
16
MR. THOMPSON:
do the usual budget process for a cost-
Sorry.
So you're telling me there were
17
no statements made about the expectation of the transition
18
to incentive regulation, for implementation by January
19
2007?
20
MS. HABERBUSCH:
21
MR. THOMPSON:
22
23
I think -Despite all of these statements in the
-MS. HABERBUSCH:
I think there were statements from
24
those who were closest to the regulatory process, that it
25
was getting less and less likely that that would be an
26
eventual outcome, at that point in time.
27
MR. THOMPSON:
28
MS. HABERBUSCH:
Well -Does that mean the company isn't
70
1
still interested?
2
earlier, it depends -- at -- the way that that incentive
3
regulation is structured.
4
Of course, they are.
But, as I said
But, no, there was no direction given to any employees
5
preparing budgets to do anything differently, with pending
6
incentive regulation down the road.
7
8
9
MR. THOMPSON:
All right.
know” -- what did you say?
MS. HABERBUSCH:
When you said “those in the
“Those in the know” --
I said those that were closest to the
10
regulatory process, and had been involved in discussions on
11
the possibility of incentive regulation, and who were
12
involved in the Natural Gas Forum.
13
14
15
16
17
18
MR. THOMPSON:
the know?
Yes.
So who is this?
Is Mr. Daniel in
He’s writing in March --
MS. HABERBUSCH:
Mr. Daniel would have received that
information through Enbridge Gas Distribution.
MR. THOMPSON:
So somebody was telling him to put in
his annual report that Enbridge was exploring options:
19
“... will pursue an alternative regulatory model
20
for implementation by 2007.”
21
Who on earth could that have been?
22
MS. HABERBUSCH:
That would have been discussions
23
during strategic planning for Enbridge Gas Distribution,
24
which have happened quite a bit sooner than when that gets
25
published.
26
still to explore those options.
27
28
Certainly, as we said before, the intent is
MR. THOMPSON:
So none of this filtered down to the
line-people, this expectation of transition?
71
1
MS. HABERBUSCH:
2
MR. THOMPSON:
3
MS. HABERBUSCH:
The decision -Or was it just discarded?
The budget decisions were not based
4
on moving to incentive regulation.
5
do a cost-of-service application, which was a ground-up
6
budget, as they’ve done in previous years.
7
8
9
MR. THOMPSON:
never mind.
Okay.
They were instructed to
I find that hard to accept, but
Let's move on.
Just before -- Mr. Ladanyi, you've been through this
10
transition to incentive regulation before, correct?
11
were around, I think, when we moved from cost-of-service to
12
targeted-PBR
13
MR. LADANYI:
Yes, I was.
You
And I was, in fact, a
14
witness with Ms. Kelly on some of the service-quality
15
indicator-inputs.
16
MR. THOMPSON:
And you know the importance to the
17
company of getting a high base when you move from cost-of-
18
service to PBR.
19
'99 – 2000; fair?
20
MR. LADANYI:
That's exactly what happened in -- back in
Well, that's your characterization.
I
21
think the company requires a base to be able to operate
22
within the envelope, and the formula that’s set for the --
23
for the duration of the plan.
24
example, which -- a formula which will yield certain O&M
25
costs.
26
company within those dollars that are, essentially, set by
27
the formula.
28
So you've got a plan, for
And, hopefully, you’ll be able to operate your
What happens in incentive regulation is that the rates
72
1
are no longer cost-based.
2
And because they are formula-based rates, the objective is
3
to be able to operate within those formula targets, within
4
those numbers.
5
to run our business.
6
of having a formula-based rate-setting process.
7
They become formula-based rates.
Otherwise, we're going to be short of money
MR. THOMPSON:
That's a perfectly natural outcome
But what you did, Mr. Ladanyi, just for
8
the record, was you applied to the Board for permission to
9
use your 1990 base as the point of departure for targeted-
10
11
12
13
PBR; correct?
MR. LADANYI:
year.
It was -- actually, 1997 was the base
Sorry, 1999 was the base year.
MR. THOMPSON:
You’re correcting yourself; right?
14
you were successful in that.
15
dry on the decision, and you went through the entire
16
corporate restructuring; correct?
17
MR. LADANYI:
And
And then, the ink was barely
Well, I don't want to go through the
18
whole history of the whole process, but the way incentive
19
regulation then worked, and it still works, now, is that
20
the company is faced with challenges during that period
21
when it’s under incentive regulation.
22
has cost-based rates.
23
is looking for ways of operating the business in a
24
different way, more efficiently.
25
Because it no longer
It has formula-based rates.
So it
I know that you were, perhaps, unhappy about the fact
26
that we did some restructuring, and that was explored in
27
hearings since then.
28
incentive regulation -- is to actually provide -- and
But that’s a natural outcome of
73
1
that's the word “incentive”, by the way:
2
for is to provide an incentive to the utility to find more
3
efficient ways of operating, including restructuring.
4
we pointed it out in numerous hearings since then -- that
5
the restructuring is not outside the scope of what might
6
happen during incentive regulation.
7
MR. THOMPSON:
what it stands
And
Would you turn up a document Mr. Warren
8
directed your attention to, which is Exhibit I, tab 5,
9
schedule 23, page 2 of 2.
10
MR. LADANYI:
11
MR. THOMPSON:
Yes, we have that, Mr. Thompson.
And what we see here, in the columns 2,
12
3 and 4 -- well, in 3, fiscal board -- sorry.
13
year Board-approved”:
14
correct?
15
MR. LADANYI:
16
MR. THOMPSON:
17
“2000 fiscal
that was the first year of PBR;
Yes, it was.
And so we have the base for finance of
14.8 million and 12.8 actual; right?
18
MR. LADANYI:
19
MR. THOMPSON:
I see those numbers.
And if we move along, we see the
20
finance spending versus the Board-approved, significantly
21
below the Board-approved; fair?
22
23
24
MR. LADANYI:
Yes.
I think you have to look at that
table in a different way.
If you're look at, for example, also, line 16 on that
25
table, there is a OEB reduction unspecified number.
And
26
that is not specified to which departments it's been
27
allocated, so one has to look at it with that in mind.
28
I won't say those numbers are a deduction from the finance
And
74
1
number, but, again, when you look at any of those numbers
2
on that table, and those columns, you have to keep that in
3
mind.
4
MR. THOMPSON:
All right.
Well I'm looking at line 1,
5
and that -- the cuts in versus Board-approved in 2001,
6
2002, 2003, appear to me to be 3.3 million in 2001, 4.3 in
7
2002, 4.2 in 2003.
8
discretionary spending-power in that line item.
9
agree?
That suggests there’s a lot of
Would you
10
MR. LADANYI:
I would not agree.
11
As I said before, you're taking us into what really
12
now looks like ancient history, and in those years and
13
those cases and, in particular, in the 2003 rate case,
14
there was a lot of evidence filed on this explaining what
15
those variances are and the reasons for those variances,
16
and I cannot agree to the general statement that you made
17
now
18
If you want us to, we can introduce into the record
19
here numerous interrogatories from cases long ago and re-
20
hash all of that old material, and I am not sure what
21
purpose that would serve.
22
MR. THOMPSON:
All right.
Well, you disagree with my
23
suggestion.
24
example, this is the area where you slashed after you got
25
into PBR, and you will see the Board-approved amount
26
starting in 2000 was 45.2 million, and then escalating
27
thereafter.
28
Looking at human resources, though, for
2003 was a cost-of-service year, correct?
[Witness panel confers]
75
1
MS. HABERBUSCH:
2
MR. THOMPSON:
3
MS. HABERBUSCH:
4
MR. THOMPSON:
Yes.
PBR is 2000, 2001 and 2002; correct?
Yes.
Okay.
And here, again, we see
5
significant amounts below the Board-approved in human
6
resources.
7
panel?
8
9
10
11
Those are what the numbers show; correct,
MS. HABERBUSCH:
In 2003, you're saying it is less?
Yes.
MR. THOMPSON:
I'm saying it is less in 2000, 2001,
2002 and 2003.
12
MS. HABERBUSCH:
13
MR. THOMPSON:
Yes.
Again, suggesting there must be a
14
considerable amount of spending discretion in these
15
categories of expenses.
16
MS. HABERBUSCH:
Actually, within the human resources
17
O&M budget, there is very little discretionary cost.
18
majority of that budget is tied to pension and benefit, and
19
benefit costs are not discretionary spending.
20
MR. THOMPSON:
21
numbers indicate to me.
22
All right.
Well, that's not what the
Let me move on.
We have, in this case, a capital expenditure budget
23
which -- this is my characterization.
24
your button, Mr. Ladanyi.
25
what I call a capital expenditure spending spree.
26
The
And my question is:
It's meant to push
I'm sure it will work.
This is
What impact does that have on the
27
2006 budgets of the HR, finance and non-departmental
28
groups?
76
1
2
3
MR. LADANYI:
Are you discussing specifically what
impact the capital budget has on O&M budgets?
MR. THOMPSON:
Yes.
If that capital budget is cut
4
back to, say, $300 million, is that going to -- the Board-
5
approved amount, is that going to have any material impact
6
on your departmental budgets, panel?
7
MS. HABERBUSCH:
8
MR. LADANYI:
9
It doesn't for the HR budget.
And I would say it doesn't for finance,
either.
10
MR. THOMPSON:
11
MS. KELLY:
12
MR. THOMPSON:
Non-departmental?
No, it does not.
Thank you.
Let me move on, if I could,
13
to the reliance on the 2005 spending estimates.
14
issue that was raised with Mr. Mees yesterday, Mr. Ladanyi,
15
and you are probably forewarned.
16
MR. LADANYI:
17
MR. THOMPSON:
18
MR. LADANYI:
20
MR. THOMPSON:
22
23
I checked the transcript.
Okay.
So what you will need for that
is the response to IGUA 6.
19
21
Yes.
This is an
Yes, we have it, Mr. Thompson.
Okay.
piece of paper here.
I'm just trying to find one more
Excuse me one moment, Madam Chair.
I will get to you eventually, Mr. Culbert, for
$90,000.
All right.
24
Now, IGUA 6, Mr. Ladanyi - I think we might have
25
touched on this when you were on one of the earlier panels
26
- was a response that was supplemented as a result of the
27
Board's decision with respect to deficient interrogatory
28
responses.
Can you confirm that, please?
77
1
2
3
MR. LADANYI:
Yes.
This response was updated and we
filed additional material.
MR. THOMPSON:
Okay.
And the -- if you would just
4
take, subject to check, the adequacy of the response to
5
IGUA No. 6 was the subject of discussion before the Board.
6
What I am looking at is the decision on the motion.
7
The decision on the motion is dated June the 30th of 2005.
8
Would you take that, subject to check, sir?
9
10
11
12
13
14
15
MR. LADANYI:
in front of me.
I don't have the decision on the motion
Perhaps my counsel can assist you.
MR. THOMPSON:
Well, I can share with you in two
seconds ...
MR. LADANYI:
So that would be a transcript reference?
Could you give it to me?
MR. THOMPSON:
No.
This is the Board's decision on
16
the motion.
17
30th of 2005, just three pages.
18
to one sentence in it, so maybe you could take it subject
19
to check, and I will hand my copy of this to Mr. Hoey as
20
soon as I read it.
21
It was a separate document issued on June the
I just want to refer you
On this issue, about whether you should be required to
22
produce the corporate budget or not produce it, the Board
23
said this:
24
"However, with respect to the 2005 corporate
25
budget, the Board directs the applicant to file
26
the EGDI component of the Enbridge Inc. 2005
27
corporate budget."
28
I hope I have read that correctly.
78
1
2
3
MR. LADANYI:
Yes, you have, I hope.
I recall those
words.
MR. THOMPSON:
Okay.
And so then what was filed was
4
not the EGDI component of the Enbridge Inc. corporate
5
budget in its entirety, but only parts of it.
6
And what we see here is, at attachment -- tab 11,
7
schedule 6, attachment 2, pages 1 of 3, 2 of 3, 3 of 3, are
8
just segments of this budget.
9
Just let me finish before you get exercised.
Mr. Cass
10
has indicated he wants to speak to the way this was filed,
11
and I've told him I'm looking for the whole thing.
12
a letter to Ms. Persad about that many weeks ago and
13
haven't had a response.
14
15
16
I wrote
So just -- if you could just confirm for the record,
Mr. Ladanyi, that only parts of it have been filed?
MR. LADANYI:
Well, I think what we're dealing here is
17
interpretation of the Board decision, which normally is
18
handled by counsel and not by witnesses.
19
however, tell you something.
20
But I will,
My view is that when you look at your question,
21
Interrogatory No. 6, in part C you're looking at capital
22
and O&M expenses budget, which you have.
23
that.
24
We have filed
In this particular case, the only thing that you are
25
missing are revenues.
We have already settled revenues in
26
this case.
27
possibly need revenues, because we're only discussing
28
capital and O&M.
It is not in question anymore, so you couldn't
That's number 1.
79
1
2
3
Number 2, this is an O&M panel, so we have -- all the
O&M evidence that you have is before you.
Number 3, this was already dealt with at -- I believe
4
on day 6, and Ms. Nowina made some comments about this
5
already, so this is probably the third time this matter has
6
come up.
7
really need Mr. Cass.
8
MR. STEVENS:
9
But if you want to have an argument about it, we
I'm sorry, Madam Chair, if I may, just
for a moment, I think, as Mr. Thompson alluded to, there
10
has been some off-line discussion between him and Mr. Cass
11
about having an on-line discussion surrounding this issue
12
in front of this Panel.
13
My understanding and I'm sure Mr. Thompson can correct
14
me if I'm wrong, was that Mr. Thompson was planning to
15
indicate when he would like to have that issue addressed in
16
front of this panel, and then Mr. Cass would attend in
17
order to do that.
18
I apologize, based upon that, I haven't personally
19
prepared to address this issue, but I'm sure Mr. Cass would
20
be prepared to do it at Mr. Thompson's and, of course, the
21
panel's convenience.
22
MR. THOMPSON:
Yes.
And it will be after this panel
23
appears.
24
was through Mr. Ladanyi, and then indicate I will speak to
25
-- or I think it is Mr. Cass that has to speak to the
26
failure to file the complete budget, and I will put my
27
argument on the record at that time.
28
I wanted to get on the record what the problem
But I wanted to make it clear that, as far as we were
80
1
concerned, the direction had not been complied with, and I
2
have written to the company about that weeks ago and
3
haven't received -- have received no response.
4
So I will follow up with my questions on what has been
5
filed, and the Board is alerted that we have this problem
6
about the remainder of the document.
7
MR. STEVENS:
Is that satisfactory?
If I can repeat, Mr. Cass is prepared to
8
speak to this as soon as he gets some notice from Mr.
9
Thompson as to when that is going to be.
10
11
12
We just didn't
know that was going to be today.
MR. THOMPSON:
Well, it is not today.
I will deal
with that off-line in terms of the timing.
13
MS. NOWINA:
14
MR. THOMPSON:
Please do.
All right.
Now, Mr. Ladanyi, so in
15
this interrogatory response, where part of the budget is
16
attached, there is a reconciliation at page 4 of schedule
17
6; correct?
18
MR. LADANYI:
19
MR. THOMPSON:
Yes, we have that.
All right.
And the numbers that you're
20
reconciling there -- if we turn up the budget, the numbers
21
you're reconciling to there are the numbers shown under
22
operating and maintenance expenses, which is item 7 in the
23
budget, Exhibit I, tab 11, schedule 6, attachment 2, page 2
24
of 6; right?
25
MR. LADANYI:
26
MR. THOMPSON:
That's right.
And so the 2005 business unit budget of
27
$331.1 million refers to the 2005 O&M budget in the
28
document in the EI material?
81
1
MR. LADANYI:
The corporate budget, yes.
That's the
2
corporate budget, the budget for Enbridge Gas
3
Distribution's corporate entity, not Enbridge Gas
4
Distribution regulated utility.
5
MR. THOMPSON:
Now, in terms of the timing of this
6
document and its presentation to the Enbridge Inc., it
7
appears the document appears to have a date of January
8
19th, 2005; right?
9
10
MR. LADANYI:
MR. THOMPSON:
That's right.
So it is after the ADR agreement, and I
11
believe it is actually after the Board's decision in the
12
2005 case; is that right?
13
MR. LADANYI:
14
MR. THOMPSON:
Correct.
Okay.
And yet in the operating and
15
maintenance expense presentation, there don't appear to be
16
any words that go with it, at least not that I can see.
17
There is no reference made to the ADR agreement or the
18
Board's decision based thereon.
19
even tell the EGD board of -- the EGD and EI board of
20
directors what has happened at the board -- OEB level?
21
22
23
MR. LADANYI:
Is that normal you don't
It might have been verbally discussed.
It is not in these documents.
MR. THOMPSON:
I take it there is no writing in the
24
presentation that is attached pertaining to the -- what the
25
Board did with EGD's regulatory budget?
26
27
28
MR. LADANYI:
What the OEB did -- not in these
documents, no, there isn't.
MR. THOMPSON:
All right.
So what goes to the board
82
1
of directors is simply a budget of $331 million compared to
2
a 2004 O&M budget; right?
3
MR. LADANYI:
4
MR. THOMPSON:
Right.
And so when we want to find out whether
5
the board of directors approved a level of spending that
6
exceeds the agreement amount, we have to look to Exhibit I,
7
tab 11, schedule 6, page 4?
8
9
10
11
MR. LADANYI:
That's the reconciliation.
Again, the
agreement amount is the agreement for the numbers to use in
-- excuse me, in setting rates for 2005.
And if you want to go back to the settlement
12
agreement, you can read the words.
13
constriction on spending in any way.
14
would try to stay within those amounts, but if it cannot
15
and if it finds out that the costs are higher, it has to
16
pay for those costs, as I indicated when I was here on the
17
policy panel, and I think I explained that to Mr. Warren
18
earlier today.
19
MR. THOMPSON:
All right.
It is not a
Certainly the company
And what you have at page 4
20
is the amount we were discussing earlier, the 2005 ADR
21
settlement, including DSM, correct, $301.3 million?
22
MR. LADANYI:
23
MR. THOMPSON:
Correct.
Okay.
Yes.
And then we have the -- what I
24
characterize as components of the amount that is leading to
25
spending plans of $324.3 million; correct?
26
MR. LADANYI:
That's right.
The first subtotal,
27
324.3, deals with a regulated portion of these costs, the
28
regulated utility, and then the final total of 331 deals
83
1
with the entire business unit budget, the actual legal
2
corporate entity, Enbridge Gas Distribution Inc.
3
MR. THOMPSON:
All right.
So the Board-approved --
4
the agreement amount approved by the Board is $301.3
5
million, and a few months later you go to the board of
6
directors and you get approval - this is at the outset of
7
the year - to spend $324.3 million?
8
9
10
So you're asking for approval and you get approval to
over-spend in relation to the Board-approved amount?
MR. LADANYI:
The word "over-spend" is what I take
11
issue with.
12
different time frames.
13
amount, which I believe was in June of 2004, we had certain
14
information.
15
approximately six months later there is new information
16
available now, and we are aware of additional costs that we
17
have to deal with.
18
Specifically, number 1, these two are
When we agreed on the settled
This is now many months later, and
Moreover, there is, for example, differences, things
19
that we were not successful in having the Board agree to
20
approve, because, by the way, we also had a settlement that
21
year, and you can see this.
22
these are customer care costs, costs that we will be
23
incurring and sending out customer bills, in metre reading,
24
credit and collection, and so on, for our customers, and
25
these costs are subject to a contract between CustomerWorks
26
and Enbridge Gas Distribution.
27
costs whether they're recoverable in rates or not.
28
these are utility-specific costs and board of directors
For example, the ABSU fees,
And we are incurring those
So
84
1
2
approved those costs.
That's quite reasonable
Moreover, there is also Enbridge Inc. charges.
3
They're in the same category.
4
head office is providing to us.
5
charges, such as insurance and audit fees.
6
services provided by our head office, very necessary
7
services, such as cash and banking.
8
length into each service, if you like.
9
These are services that our
Some of them are direct
Others are
And I could go at
And so these are necessary things that a board of
10
directors would know about and they would agree with.
11
unfortunately, we were not successful in having all of
12
these costs recovered in rates, but these are real costs
13
that we incurred nevertheless.
14
MR. THOMPSON:
Now,
Of the 23 million, the first two lines,
15
10.1 million and 7.2 million, the 10.1 is the payment of
16
corporate cost allocation amounts in excess of -- to
17
Enbridge Inc., in excess of the 13.5 reflected in the
18
settlement agreement and the Board decision approving it;
19
correct?
20
MR. LADANYI:
That is in addition to the settled
21
amount.
22
of reaching a settlement.
23
24
Remember, again, settled amount is for the purpose
MR. THOMPSON:
That settlement never --
Is the answer to my question, yes, Mr.
Ladanyi?
25
MR. LADANYI:
26
MR. THOMPSON:
Yes, it is.
All right.
Yes.
And then we go to the $7.2
27
million.
That's the amount you pay to CustomerWorks in
28
excess of the 110.1 million specified in the settlement
85
1
agreement?
2
MR. LADANYI:
3
MR. THOMPSON:
Correct.
So of the 23.0, 17.3 relates to
4
payments in excess of Board-approved amounts to affiliates;
5
right?
6
MR. LADANYI:
In excess of Board-approved amounts for
7
recovery in rates.
They have to complete the sentence to
8
really understand the context of the Board approval.
9
was not Board-approved amounts that we were not allowed to
10
pay those costs.
11
being really incurred.
12
successful in having those costs recovered in rates.
13
MR. THOMPSON:
14
MR. LADANYI:
15
16
Those costs were real costs.
It
They were
Unfortunately, we were not
You said that several times.
Yes.
Well, I want to stress that,
because you're missing that important detail.
MR. THOMPSON:
All right.
And so included in the $23
17
million of spending in excess of the 301.3 million, much of
18
it relates to payments to affiliates, unauthorized payments
19
to affiliates?
20
21
MR. LADANYI:
I take definite issue with the word
"unauthorized".
22
MR. THOMPSON:
23
MR. LADANYI:
Unauthorized by this Board.
The Board for -- unauthorized for
24
recovery in the rates, not -- these are not -- the Board
25
has never said at all that we are restricted from paying
26
for the services that we need.
27
28
MR. THOMPSON:
K12.2?
Would you turn up, please, Exhibit
86
1
MS. NOWINA:
2
MR. THOMPSON:
3
EBRO 497 decision.
4
5
MS. NOWINA:
8
9
MR. THOMPSON:
MS. NOWINA:
11
MS. NOWINA:
12
MR. THOMPSON:
I'm sorry, Madam Chair, I didn't hear
3:30 is coming and we are finishing at
At 3:30?
3:30.
Yes, I understand that.
I'm trying to
do my best to meet the deadline.
14
MS. NOWINA:
15
MR. THOMPSON:
16
MR. LADANYI:
18
Mr. Thompson, I would just remind you
3:30.
MR. THOMPSON:
17
This is the excerpt from the
you.
10
13
K 12.2.
that 3:30 looms before us.
6
7
K 12.2.
You can continue tomorrow, if you must.
Yes, I understand.
We're trying to find -- sorry, which
paragraph are you referring to?
MR. THOMPSON:
It's the last paragraph, 3.4.1.8.
This
19
was a decision of the Board pertaining to your company
20
paying amounts to, in this particular case, its parent in
21
excess of the Board-approved amounts.
22
MR. LADANYI:
Yes, I see that.
This was a decision
23
from many, many years ago and has to be read in context of
24
what was going on, the evidence that was presented at that
25
time.
26
Again, I caution you, when you take these things out
27
of context, they really lose their meaning.
So you would
28
really have to go back -- and, by the way, these items, and
87
1
I should say that I recall it, because I was on the
2
corporate cost allocation panel in the 2003 case, and these
3
issues all came up and we discussed what these things
4
meant, and that was right before the Board here.
5
And so you're going and taking a particular paragraph
6
and throwing at me like this and making me comment on it
7
without the benefit of all of the evidence that was filed
8
in that case and in previous cases.
9
MR. THOMPSON:
Sorry, sir, this was the last case
10
before it moved into PBR, and there the Board had expressed
11
concern that you were paying more to your parent than the
12
Board had approved.
13
MR. LADANYI:
14
MR. THOMPSON:
Correct.
And we then came out of PBR in 2003.
15
We had an agreed-upon envelope there, so what you paid to
16
your parent wasn't the subject of specific approval.
17
The first time we had specific approval of an amount
18
was in 2005, and you go right ahead and pay more to your
19
parent.
20
principle?
21
Do you believe you're in conflict with that
MR. LADANYI:
Since you are bringing this particular
22
case into effect, I really have to -- you might recall my
23
evidence in-chief in that case where I explained the
24
environment that existed in that period.
25
period from the first set of IPL undertakings which came
26
into effect in 1994 and the revised undertakings which came
27
into effect in November of 1998.
28
This is the
The initial undertakings required prior Board approval
88
1
before engaging in an affiliate transaction of this nature,
2
and subsequent undertakings did not require prior Board
3
approval.
4
discussed in the 2003 rate case.
5
So there was a significant difference that was
MR. THOMPSON:
All right.
So I understand what you're
6
saying is, your position is because of the revised
7
undertakings, you're no longer constrained by paying -- by
8
the Board approval to paying what you do to your parent or
9
affiliates?
10
MR. LADANYI:
Correct.
11
MR. THOMPSON:
12
that for argument.
13
this spending amount, which your board of directors
14
approved over and above the Board-approved amount, is
15
evidence of planned and deliberate spending in excess of
16
Board-approved amounts on which you now rely to support
17
your 2006 budget.
18
MR. LADANYI:
All right, that's fine.
We will leave
But I would suggest to you, sir, that
Do you agree?
You are making it sound like it is
19
something evil.
20
We're talking about sending out customer bills.
21
talking about a whole bunch of things that I think -- just
22
to give you the scope of what we're talking about, we had
23
1.7 million customers.
24
We're talking about service to customers.
We're
What we're dealing with here is we have roughly 75,000
25
customers -- customer bills come in every day, and they're
26
going to ABSU.
27
Those bank accounts have to be balanced.
28
Calgary does.
They have to be put into bank accounts.
That's what
Calgary office treasury balances all those
89
1
accounts.
2
thousands of different suppliers, gas suppliers, to the OEB
3
and so on.
4
also Enbridge Inc. do this work for us, and this costs
5
money.
6
We have to send out a payment -- payments to
There is a lot of work involved, and ABSU and
This is a very large operation and it is expensive to
7
run.
8
some of these costs recovered in rates --
9
Now, the fact that we were unsuccessful in getting
MR. THOMPSON:
10
I asked:
11
or no?
12
Mr. Ladanyi, what question did I ask?
Was it planned and deliberate?
MR. LADANYI:
Is the answer yes
It is not planned and deliberate.
It is
13
the cost of doing business.
14
deliberate, I don't know.
15
deliberate, but that is what it costs to run this business.
16
17
18
MR. THOMPSON:
If you call that planned and
I guess then it is planned and
I have got two quick questions.
I
think I'm going to make the 3:30 deadline.
One of them is for you, Mr. Culbert.
Am I correct - I
19
looked up these exhibits - that the elimination for
20
non-utilities is $90,000?
21
here to speak to, which appears to be in Exhibit D1, tab 1,
22
schedule 1, page 3?
23
and then that is explained on the next page, page 4, at
24
$90,000.
25
MR. CULBERT:
26
MR. THOMPSON:
27
28
expenses.
Is that the amount that you're
It's part of line 2 in the adjustment,
I'm not sure where you see 90,000.
To eliminate non-utility costs and
What is the non-utility elimination amount?
MR. CULBERT:
The adjustments you see on D1, tab 1,
90
1
schedule 1, page 3 in column 2, at line 2, amounts to
2
$200,000 adjustment to the corporate budget O&M.
3
On page 4 of 5 of that exhibit, it explains the
4
adjustments, one of which is a re-grouping of interest paid
5
on security deposits, another which is an elimination of
6
executive compensation and donations and the elimination of
7
work performed by utility employees with relationship to
8
the ABC service program.
9
corporate O&M is $200,000.
10
MR. THOMPSON:
So the total adjustment to
And because it is that small, it
11
doesn't show up in K6.4 as a number, is that -- that's the
12
summary sheet.
Is that the explanation?
13
MR. CULBERT:
14
MR. THOMPSON:
I'm not sure.
Okay.
I'd have to look at K6.4.
It doesn't appear to be a line
15
item for the non-affiliate -- sorry, the non-affiliate
16
adjustment.
17
MR. CULBERT:
I am informed that it would have been
18
removed from each individual department already in those
19
numbers.
20
MR. THOMPSON:
Okay.
So it has been allocated.
Fine.
21
Now, the last question I have, Mr. Ladanyi - and perhaps we
22
can do it just by way of undertaking - there was some
23
discussion about Mr. Schultz's scorecard, Exhibit No. --
24
MR. LADANYI:
25
MR. THOMPSON:
Yes.
That's Exhibit K6.7.
On the back of that scorecard, there
26
are a number of financial -- I think there are four
27
financial statistics for 2005.
28
MR. LADANYI:
Yes, I have that.
91
1
MR. THOMPSON:
Okay.
I was wondering if by way of
2
undertaking -- my recollection is that we were told these
3
were derived from the estimate for 2005, not the 2005
4
Board-approved based on the agreement.
5
My question is:
Is that correct?
And then my second
6
question is:
Could you undertake to show how each of these
7
factors, in the financial category only, were derived?
8
MR. LADANYI:
9
MR. THOMPSON:
Thank you very much.
10
MR. BATTISTA:
That will be undertaking J13.2.
11
UNDERTAKING NO. J13.2:
12
FINANCIAL CATEGORY
13
MR. THOMPSON:
14
15
questions.
We can undertake to do that.
DERIVATION OF FACTORS IN
With that, Madam Chair, those are my
Thank you very much for you patience.
MS. NOWINA:
Thank you, Mr. Thompson.
Mr. Stevens,
16
are we going to begin tomorrow morning with this panel and
17
finish this panel before we move back to the operations
18
panel?
19
20
MR. STEVENS:
We will be pleased to do that, Madam
Chair.
21
MS. NOWINA:
22
MR. STEVENS:
I think that makes sense.
I believe, based on the estimates that
23
I've heard, based obviously on the Panel's and Board
24
Staff's questions, that we're looking somewhere in the
25
neighbourhood of plus or minus 45 minutes or an hour left
26
for this panel and a similar amount, I'm informed, for the
27
regional operations panel.
28
If that is the -- if both of those proceed tomorrow by
92
1
the middle of the day at least, our plan is to then have
2
the legal, regulatory and public affairs panel present
3
their evidence and be available for cross-examination.
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
MS. NOWINA:
Good.
Thank you.
We're now adjourned
until 9 o'clock tomorrow morning.
--- Whereupon the hearing adjourned at 3:30 p.m.