ONTARIO
ENERGY
BOARD
FILE NO.:
EB-2013-0321
VOLUME:
3
DATE:
June 16, 2014
BEFORE:
Marika Hare
Presiding Member
Christine Long
Member
Allison Duff
Member
EB-2013-0321
THE ONTARIO ENERGY BOARD
IN THE MATTER OF the Ontario Energy Board Act,
1998, S.O. 1998, c. 15, Sched. B;
AND IN THE MATTER OF an application by Ontario
Power Generation Inc. pursuant to section 78.1
of the Ontario Energy Board Act, 1998 for an
order or orders determining payment amounts for
the
output
of
certain
of
its
generating
facilities.
Hearing held at 2300 Yonge Street,
25th Floor, Toronto, Ontario,
on Monday, June 16th, 2014,
commencing at 9:35 a.m.
-------------------VOLUME 3
--------------------
BEFORE:
MARIKA HARE
Presiding Member
CHRISTINE LONG
Member
ALLISON DUFF
Member
A P P E A R A N C E S
MICHAEL MILLAR
Board Counsel
VIOLET BINETTE
TED ANTONOPOULOS
RON TOLMIE
Board Staff
CRAWFORD SMITH
CHARLES KEIZER
COLIN ANDERSON
CARLTON MATHIAS
ANDREW BARRETT
Ontario Power Generation (OPG)
DAVID CROCKER
SHELLEY GRICE
HAMZA MORTAGE
Association of Major Power
Consumers of Ontario (AMPCO)
VINCE DeROSE
Canadian Manufacturers & Exporters
(CME)
JULIE GIRVAN
Consumers' Council of Canada (CCC)
DAVID MacINTOSH
LARRY SCHWARTZ
Energy Probe Research Foundation
KENT ELSON
Environmental Defence
TAM WAGNER
JESSICA SAVAGE
PATRICK DUFFY
Independent Energy System Operator
(IESO)
DAVID POCH
Green Energy Coalition (GEC)
PIPPA FEINSTEIN
Lake Ontario Water Keeper
FRED CASS
Ontario Power Authority (OPA)
RICHARD STEPHENSON
BAYU KIDANE
Power Workers' Union (PWU)
TRAVIS ALLAN
LAURA ZIZZO
Retail Council of Canada
JAY SHEPHERD
MARK RUBENSTEIN
School Energy Coalition (SEC)
MICHAEL JANIGAN
JAMES WIGHTMAN
Vulnerable Energy Consumers
Coalition
I N D E X
O F
P R O C E E D I N G S
Description
Page No.
--- On commencing at 9:35 a.m.
1
Preliminary Matters
1
ONTARIO POWER GENERATION - PANEL 1, RESUMED
3
N. Butcher, A. Barrett, J. Mauti, Previously Affirmed
Cross-Examination by Mr. Stephenson
Cross-Examination by Mr. Shepherd
--- Recess taken at 10:55 a.m.
--- On resuming at 11:21 a.m.
3
25
49
49
Cross-Examination by Mr. Thompson
90
--- Luncheon recess taken at 1:04 p.m.
--- On resuming at 2:27 p.m.
111
111
DECISION
111
Continued Cross-Examination by Mr. Thompson
Questions by the Board
113
142
--- Recess taken at 3:41 p.m.
--- On resuming at 4:05 p.m.
151
151
ONTARIO POWER GENERATION - PANEL 2
Bill Wilbur, Mario Mazza, Robby Sohi, Affirmed
151
Examination-In-Chief by Mr. Smith
Cross-Examination by Mr. Millar
--- Whereupon the hearing adjourned at 4:31 p.m.
152
154
168
E X H I B I T S
Description
Page No.
EXHIBIT NO. K3.1: KPMG MINISTRY OF ENERGY
ASSESSMENT OF BENCHMARKING REPORTS FROM OPG
DATED DECEMBER 7TH, 2012.
2
EXHIBIT NO. K3.2: KPMG MINISTRY OF ENERGY
ASSESSMENT OF ORGANIZATIONAL AND STRUCTURAL
OPPORTUNITIES AT OPG DATED DECEMBER 7TH, 2012.
2
EXHIBIT NO. K3.3: REPORT BY KPMG ENTITLED "OPG
RATEPAYER IMPACT ANALYSIS" DATED FEBRUARY 9TH,
2013.
3
EXHIBIT NO. K3.4:
EB-2010-0008
UNDERTAKING J9.4 FILED IN
EXHIBIT NO. K3.5:
SEC COMPENDIUM FOR PANEL 1.
24
EXHIBIT NO. K3.6:
CME AND CCC COMPENDIUM.
89
EXHIBIT NO. K3.7:
BOARD STAFF COMPENDIUM.
155
23
U N D E R T A K I N G S
Description
Page No.
UNDERTAKING NO. J3.1: TO UPDATE TABLE IN
UNDERTAKING NO. JT2.10 TO REFLECT ESCALATION IN
COSTS ASSOCIATED OVER TIME WITH DEPARTURES
OCCURRING IN EACH YEAR.
12
UNDERTAKING NO. J3.2: TO UPDATE EXHIBIT K3.4
AND TO DISCUSS UNDERLYING ASSUMPTIONS.
23
UNDERTAKING NO. J3.3: WITH REFERENCE TO
EXHIBIT L, TAB 1, SCHEDULE 2, AMPCO 1, TO
UPDATE DRIVERS OF DEFICIENCY IN SECOND IMPACT
STATEMENT.
37
UNDERTAKING NO. J3.4: TO CALCULATE THE NET
IMPACT OF THE NIAGARA TUNNEL ON THE DEFICIENCY
FOR THE TEST PERIOD.
38
UNDERTAKING NO. J3.5: TO UPDATE SEC
SPREADSHEET FOR EACH COMPONENT EXCLUDING
PENSION AND OPEB COSTS.
56
UNDERTAKING NO. J3.6: TO PROVIDE PERCENTAGE OF
BURDEN RELATED TO PENSION AND OTHER POSTEMPLOYMENT BENEFITS FROM 2010 TO 2015 FOR EACH
COMPONENT.
58
UNDERTAKING NO. J3.7: TO PROVIDE THE
COMPARISONS OVER THE YEARS FOR TOTAL AND OVER
$200,000 AMOUNTS.
63
UNDERTAKING NO. J3.8: TO PROVIDE A RECORD OF
HOW MANY LARGE PROJECTS THAT CAME IN AT OR
UNDER THE ORIGINAL BUDGET.
77
UNDERTAKING NO. J3.9: TO PROVIDE THE
PROPORTION OF OPG'S REVENUE REQUIREMENT THAT IS
PROTECTED BY DEFERRAL ACCOUNTS.
139
U N D E R T A K I N G S
Description
Page No.
UNDERTAKING NO. J3.10: TO CALCULATE THE IMPACT
OF THE REQUEST SEEKING RECOVERY OF THE
DEFICIENCY BACK TO JANUARY 1 OVER THE BALANCE
OF THE TEST PERIOD, SO A RIDER TO RECOVER THAT
RETROSPECTIVE AMOUNT, ASSUMING A SEPTEMBER 1
IMPLEMENTATION DATE, WHAT IMPACT THAT WOULD
HAVE IN DOLLARS FOR THE EIGHT MONTHS THAT ARE
GOING TO BE PART OF RETROACTIVE RELIEF, AND
THEN ALSO WHAT ADDING IT FOR RECOVERY OVER 16
MONTHS DOES TO THE PERCENTAGE INCREASE. ALSO,
TO PROVIDE A CALCULATION OF THE IMPACT OF THE
TWO MONTHS' RETROACTIVITY, SIMILAR TO THE ONE
JUST DESCRIBED FOR THE OTHER ASSETS.
140
UNDERTAKING NO. J3.11: TO DETERMINE IF AN
INTERNAL COMMUNICATIONS STRATEGY HAS BEEN
DEVELOPED TO EXPLAIN THE INCREASES TO ONTARIO
CONSUMERS.
142
UNDERTAKING NO. J3.12: TO PROVIDE BREAKDOWN
FOR 2010-2015 OF ACTUAL NUMBERS AND ACTUAL
REDUCTION OF NON-UNIONIZED EMPLOYEES
148
UNDERTAKING NO. J3.13: TO PROVIDE A Q2
FORECAST OR UPDATE TRACKING AGAINST FORECAST.
167
1
1
Monday, June 16, 2014
2
--- On commencing at 9:35 a.m.
3
MS. HARE:
4
So we are continuing with panel 1 this morning.
Good morning.
5
there any preliminary matters?
6
PRELIMINARY MATTERS:
7
MR. SMITH:
Please be seated.
Are
Two small preliminary matters, Madam
8
Chair, first by way of update.
9
we filed a number of undertakings on Friday, and I believe
10
there is one to come, but that will be in today, and that
11
will bring us up to speed.
12
Parties will have noticed
We did notice an error in the headings of one of the
13
undertakings that we had given, JT2.33, and perhaps an
14
error in one of the figures in that rather large table.
15
any event, we are on it, and we will be filing an updated
16
JT2.33, I expect, at some point today.
17
MS. HARE:
Okay.
Thank you.
18
MR. SMITH:
19
MS. HARE:
20
I see Mr. Thompson has replaced Mr. DeRose.
In
Is that all?
That's all.
Okay.
Anything, Mr. Millar?
You would
21
have noted from the transcript I was very worried that you
22
weren't going to be here.
23
24
25
26
MR. THOMPSON:
Yes, I appreciated that, just before
Father's Day.
MS. HARE:
Okay.
I think the first cross-examiner is
Mr. Stephenson on behalf of the PWU.
27
MR. STEPHENSON:
Good morning.
Thank you.
28
This is sort of a preliminary matter, but clearly
ASAP Reporting Services Inc.
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2
1
there are going to be a number of parties referring to the
2
KPMG report.
3
MS. HARE:
Yes.
4
MR. STEPHENSON:
I am just wondering if it makes sense
5
just to give it an exhibit number now before we get into
6
it.
7
MS. HARE:
8
MR. MILLAR:
9
MR. SHEPHERD:
10
question?
11
report.
Yes.
Exhibit K3.1.
Madam Chair, sorry, can I just ask a
There's actually three documents in the KPMG
Are they all given the same exhibit number?
12
MS. HARE:
13
MR. STEPHENSON:
14
MS. HARE:
15
16
Well...
For my purpose, I don't care.
Well, Mr. Millar, what we think to do -- I
think they should have separate exhibit numbers.
MR. MILLAR:
Yes, okay.
So there is the KPMG Ministry
17
of Energy assessment of benchmarking reports from OPG dated
18
December 7th, 2012.
19
MS. HARE:
20
MR. MILLAR:
21
EXHIBIT NO. K3.1:
22
OF BENCHMARKING REPORTS FROM OPG DATED DECEMBER 7TH,
23
2012.
24
MR. MILLAR:
Right.
That will be K3.1.
KPMG MINISTRY OF ENERGY ASSESSMENT
And then there is the KPMG Ministry of
25
Energy assessment of organizational and structural
26
opportunities at OPG dated December 6th.
K3.2.
27
EXHIBIT NO. K3.2:
KPMG MINISTRY OF ENERGY ASSESSMENT
28
OF ORGANIZATIONAL AND STRUCTURAL OPPORTUNITIES AT OPG
ASAP Reporting Services Inc.
(613) 564-2727
(416) 861-8720
3
1
DATED DECEMBER 7TH, 2012.
2
MR. MILLAR:
And finally, there is a third report by
3
KPMG entitled "OPG ratepayer impact analysis" dated
4
February 9th, 2013.
That will be K3.3.
5
EXHIBIT NO. K3.3:
6
RATEPAYER IMPACT ANALYSIS" DATED FEBRUARY 9TH, 2013.
7
MR. STEPHENSON:
8
MS. HARE:
9
10
11
REPORT BY KPMG ENTITLED "OPG
Thank you.
There are some redactions to the report.
Does that affect your cross-examination at all, Mr.
Stephenson?
MR. STEPHENSON:
It doesn't, unless the panel wants to
12
make reference, but I don't even have the other one here,
13
and I wasn't planning on making reference to it.
14
ONTARIO POWER GENERATION - PANEL 1, RESUMED
15
Nicolle Butcher, Previously Affirmed.
16
Andrew Barrett, Previously Affirmed.
17
John Mauti, Previously Affirmed.
18
CROSS-EXAMINATION BY MR. STEPHENSON:
19
MR. STEPHENSON:
20
Richard Stephenson.
21
Union.
22
MR. BARRETT:
23
MR. STEPHENSON:
Good morning, panel.
My name is
I am counsel for the Power Workers'
Good morning.
I want to start talking about
24
business transformation, and in particular I want to start
25
talking about what business transformation is not and what
26
it is.
27
confirmation from you.
28
And in particular, I just wanted to get some
Am I right that business transformation is not about
ASAP Reporting Services Inc.
(613) 564-2727
(416) 861-8720
4
1
2
running the same business organization with fewer people?
MS. BUTCHER:
That is correct.
Business
3
transformation is focused on changing the way we do work,
4
what we do, to allow us to operate with fewer people.
5
MR. STEPHENSON:
And absent that changed organization,
6
shall I say, you would not be able to continue, shall we
7
say, in your old ways, your pre-2011 ways, shall we say,
8
with the reduced complement?
9
10
MS. BUTCHER:
Yes, I think that's fair.
MR. STEPHENSON:
And similarly, unless you change the
11
way your organization operates, is it fair to say that the
12
staff reductions will not be sustainable?
13
extent that you have reduced complement now, unless you
14
embed a permanent change of philosophy and operation, you
15
are simply not going to be able to sustain that reduced
16
complement.
17
MS. BUTCHER:
That is, to the
Yes, I think that's fair.
One of the
18
focuses of BT is to ensure that we are eliminating adequate
19
work from the program to ensure that they are sustainable.
20
MR. STEPHENSON:
The means by which you have done the
21
reduced complement reduction is essentially attrition; fair
22
enough?
23
MS. BUTCHER:
Yes.
24
MR. STEPHENSON:
You have always had attrition, but I
25
take it the difference between what has occurred in the
26
past and what has occurred through the period of business
27
transformation is that there was -- two things have
28
occurred.
First, there was a somewhat accelerated pace of
ASAP Reporting Services Inc.
(613) 564-2727
(416) 861-8720
5
1
attrition caused by some demographic issues; is that fair?
2
MS. BUTCHER:
Yes, I think that's fair.
3
MR. STEPHENSON:
And then, secondly, you simply did
4
not backfill for -- at least in whole for the people that
5
left through attrition.
6
MS. BUTCHER:
Yes, I think the BT -- the business
7
transformation program is largely not necessarily about
8
attrition, but our response to attrition, and ensuring that
9
we control our response and look at other means of
10
11
eliminating the work such that we don't have to backfill.
MR. STEPHENSON:
Okay.
Now, I want to talk about some
12
of the constraints that you face in terms of the operation
13
-- the mechanics of BT, if I can put it that way.
14
of the challenges that you face is what I would
15
characterize as the mismatch problem, that with attrition
16
you can't control with any degree of precision who chooses
17
to leave the company, fair?
18
MS. BUTCHER:
19
MR. STEPHENSON:
And one
Yes.
And so the problem is, of course, is
20
that sometimes you have people that leave that are in areas
21
where you actually need the bodies, and you have some
22
people in some areas where you have excess bodies and they
23
don't leave, fair?
24
MS. BUTCHER:
Yes, that's fair.
25
MR. STEPHENSON:
Okay.
And I take it that that causes
26
at least some transitional issues for you in terms of
27
shortages in some areas?
28
MS. BUTCHER:
It causes a challenge that we need to
ASAP Reporting Services Inc.
(613) 564-2727
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6
1
address through different processes.
2
union we are talking about, we have more flexibility.
3
it allows us to place staff on meaningful work projects to
4
help us, actually, with the BT program.
5
have some staff where their work has been eliminated that
6
we've taken them and put them on other BT projects so that
7
they can work through actually advancing some of those.
8
MR. STEPHENSON:
Depending on which
And
So we actually
I take it that to some degree at
9
least on a transitional basis one of the solutions you have
10
had to implement in order to cover off areas where you have
11
lost some skills is you have actually had to contract out
12
or bring in some contract assistance as a transitional
13
measure.
14
MS. BUTCHER:
Yes, we have seen an increase in our
15
contractors and temp staff.
16
we are trying to eliminate the work, it's a good short-term
17
solution, rather than bringing in permanent headcount to do
18
work that we anticipate we will be eliminating over the
19
coming years.
20
MR. STEPHENSON:
In particular in areas where
Am I correct that from OPG's
21
perspective if that contracting in of assistance occurred
22
over a longer-term period, that would be a failure?
23
there is no -- it's not -- it would not be a success to
24
reduce complement, headcount, and then simply replace it on
25
a semi-permanent basis with contracted-in staff.
26
MS. BUTCHER:
That
No, that would not be deemed a business
27
transformation success.
We are focused on eliminating the
28
work, not just doing the work through a different mix of
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2
skill set -- or mix of jurisdictions.
MR. STEPHENSON:
In terms of the speed of the
3
reduction -- I take it there's at least two constraints you
4
face, and there may be more; and if there are, tell me --
5
one of the constraints you face is you don't control the
6
pace of departures?
7
MS. BUTCHER:
8
MR. STEPHENSON:
9
MS. BUTCHER:
10
That's right.
That is one constraint; correct?
Yes.
MR. STEPHENSON:
And a second constraint you face is
11
what I might describe as the management issue, which is
12
there are limits on the speed with which you can change
13
your processes, your structure, your organization on the
14
ground, in order to cope with a reduced complement?
15
MS. BUTCHER:
Yes.
When I look at those two
16
constraints I would say that the attrition is happening
17
faster than we had expected.
18
becomes more difficult, because we need to have the
19
capacity to actually be able to do the projects that re-
20
engineer the processes to eliminate the work.
21
bit of a double-edged sword.
22
MR. STEPHENSON:
So the second one almost
So it's a
If I was -- let me assume for a
23
moment that there would be those in the room that are
24
critical of OPG in terms of the pace of the complement
25
reduction and say it's just not fast enough.
26
to do more, faster.
27
that to you.
28
You have got
And let's assume somebody suggests
What's the answer, from your perspective, to that
ASAP Reporting Services Inc.
(613) 564-2727
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1
criticism or question?
2
MS. BUTCHER:
I think fundamentally we have a work
3
program that needs to get done, and that work program
4
includes business transformation projects to eliminate the
5
work.
6
program.
And we need to get -- we have to get through that
7
So if attrition gets ahead or if we chose to do it
8
through a means to accelerate attrition, I think we'd still
9
have to get the work done, so we would have to bring in
10
some contractors or temps or some other means of actually
11
continuing the work that we need to continue, and doing the
12
business transformation projects to eliminate the work.
13
MR. STEPHENSON:
Can you just assist us in terms of
14
where OPG stands in the process?
15
in mind a precise end point or it's an evolutionary thing,
16
but, you know, you projected some numbers out through 2015,
17
which is -- and you've done that obviously for a reason.
18
That's the test period.
19
I don't know if they have
But is that sort of a milepost for you, in the sense
20
of you expect the business transformation process to be
21
finished at the end of 2015?
22
halfway done?
23
you 5 percent done at the end of 2015?
24
Or where are you?
Are you
Are you 99 percent of the way done?
MS. BUTCHER:
Or are
I would guess we are about 75 percent
25
done.
26
further reductions in work that need to happen in '16 and
27
probably even in '17.
28
There certainly is an expectation that there is
MR. STEPHENSON:
Again, if somebody said to you:
ASAP Reporting Services Inc.
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We
9
1
think you need to do that work that you are now, in your
2
long-term plan, looking to be done in '16 and' 17 and you
3
need to get that done in '15, what's your answer?
4
MS. BUTCHER:
I guess from a capacity perspective, we
5
don't have the capacity to accelerate the work elimination
6
program.
7
8
9
So we would have to carry on doing that.
Or I guess the company could make a choice on
prioritizing other things that it has on its plate.
MR. STEPHENSON:
10
Undertaking JT2.10?
11
week, just in time.
12
MS. BUTCHER:
13
MR. STEPHENSON:
Okay.
Can I get you to turn up
We got an updated version of this last
Yes, I have it.
Okay.
Am I right that what -- and I
14
am focusing on the chart in the document.
15
what this chart is showing us is, in effect, the costs that
16
OPG would have incurred but for the changes that have made
17
from a headcount perspective on BT, and therefore they are
18
the savings?
19
MS. BUTCHER:
20
MR. STEPHENSON:
Am I right that
Yes, that's correct.
I just want to understand this.
So
21
if we look at, just as an illustrative example, the 2011
22
savings, so we see there was a headcount reduction of 348
23
in 2011, and starting there for a moment, is that number,
24
is that a net number?
25
door and then you had a certain number coming back in?
26
MS. BUTCHER:
27
MR. STEPHENSON:
28
Or is that a -- you had 348 out the
No, this would be a net number.
So that saves you 27 million, and
then I see you take that same group of people and you say:
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That saved us, in 2012, 54 million.
2
sort of you figure it's a half-year versus a full year?
3
4
5
MS. BUTCHER:
Yes.
I take it that's just
We just made to simplifying
assumption.
MR. STEPHENSON:
Okay.
And I just want to know what's
6
in that number.
Let's just take the 54 million for 2012,
7
because it's a full-year number.
8
Obviously that includes direct compensation costs and
9
maybe some attributed overtime costs, but does it include,
10
for example, current service costs on pension for those
11
people?
12
MR. MAUTI:
13
MR. STEPHENSON:
14
15
Yes, it does.
And does it also include the OPRB
(sic) cost in relation to that number?
MR. MAUTI:
Correct.
It includes -- we consider to be
16
the burden rate associated with those headcount for that
17
year.
18
MR. STEPHENSON:
Okay.
Here is the question I have.
19
And so I see that, again, for that same 2011 cohort -- if I
20
can call it that -- you then have run the 54 million number
21
out through the end of the test period.
22
The thing I don't quite understand is:
Why is that a
23
constant number?
24
associated with those people if they had stayed in the
25
company?
26
MR. MAUTI:
Wouldn't there be some escalation
Yes.
What we did is for the burden rate
27
associated with these reductions, to avoid any changes or
28
movement in that, we, for the sake of simplicity, assume a
ASAP Reporting Services Inc.
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2
3
4
standard burden rate associated with the staff.
So the savings calculation for the labour uses the
same rate through the balance of this analysis.
MR. STEPHENSON:
And is that some kind of forecast
5
average burden rate, then, out through the -- for, in that
6
case, the five-year period?
7
taken into account escalation at all?
8
9
MR. MAUTI:
Or is it you simply haven't
It would have used what the average burden
rate was at the beginning of the period, and we held that
10
constant for the balance.
11
MR. STEPHENSON:
So then coming back to where I
12
started, if this is to illustrate to us what you would have
13
spent but for the departure of these people, these numbers
14
are actually too low, because there is escalation?
15
MR. MAUTI:
There would be escalation; there would be
16
changes in the burden rate that would have happened through
17
current service costs of pension and OPEB, which generally
18
would be increasing as well.
19
probably a conservative estimate of the savings, yes.
20
MR. STEPHENSON:
So if anything, this is
I take it -- let me ask you the
21
question.
22
that a manageable task or is that something that's too much
23
to ask by way of undertaking?
24
If we asked you to do the escalation, what -- is
MR. MAUTI:
It's not impossible, but we would have to
25
go back to each individual year and try to assess any
26
changes in both the burden rate as well as the average
27
labour cost we would have assumed for every one of these
28
years.
So it would be a significant effort, but not
ASAP Reporting Services Inc.
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2
impossible.
MR. STEPHENSON:
Can I leave this way?
Can I get an
3
undertaking that you're going to take a look at it?
4
you come back and tell us that it's a bigger task than you
5
think, then you will just let us know that way; is that a
6
fair thing to do?
7
MR. SMITH:
8
MR. MILLAR:
9
10
And if
Yes, we can do that.
J3.1.
And, Mr. Stephenson, could you
repeat what it is you want them to do?
MR. STEPHENSON:
Update the table contained on
11
Undertaking JT2.10 to reflect the escalation in the costs
12
associated over time with the departures occurring in each
13
of the years.
14
MR. MILLAR:
Thank you.
15
UNDERTAKING NO. J3.1:
16
NO. JT2.10 TO REFLECT ESCALATION IN COSTS ASSOCIATED
17
OVER TIME WITH DEPARTURES OCCURRING IN EACH YEAR.
18
MR. STEPHENSON:
Okay.
TO UPDATE TABLE IN UNDERTAKING
I just want to spend one
19
moment, if I can, on the Auditor General's report, which is
20
at -- it's been marked already as KT2.4.
21
that up.
22
figure 5.
23
24
If you can pull
And in particular I am looking at page 160 and
There is a chart there.
And am I right, these numbers that appear on this
chart, the Auditor General's chart, these came from OPG?
25
MR. BARRETT:
That's my understanding.
26
MR. STEPHENSON:
And am I right that this is -- this
27
chart illustrates in graphic form what I referred to
28
earlier as the mismatch problem, that you've got some areas
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1
that are overstaffed, some areas understaffed, and you have
2
got people leaving the company, and it may impact them
3
differentially.
4
MR. BARRETT:
Its does reflect a mismatch issue.
5
MR. STEPHENSON:
And am I right, just to be clear
6
about this, the figures -- or, sorry, the job categories on
7
the right-hand side of the column are those where you are
8
understaffed relative to a benchmark; correct?
9
MR. BARRETT:
Yes, that's my understanding of the
10
chart, but to be fully candid, this is a chart, if you want
11
to explore it in greater detail, that it's better addressed
12
with the nuclear operations panel.
13
responsibility for the Goodnight study, which is the
14
underlying data.
15
MR. STEPHENSON:
Okay.
They have
Well, let me ask you one more
16
question, and that may be the end of it.
17
have is this:
18
these are understaffed and overstaffed relative to a
19
benchmark, the question is, does OPG consider itself --
20
leaving aside the benchmark for OPG's own operational
21
imperatives and its perceived needs, does it consider
22
itself in fact to be understaffed and overstaffed as
23
reflected on this chart?
24
The question I
These -- operating on the assumption that
MR. BARRETT:
I think we have accepted at a general
25
level the conclusions that flow from the Goodnight study,
26
if that's what you are getting at.
27
28
MR. STEPHENSON:
Okay.
And then the last item I just
wanted to -- one of the issues is whether or not OPG is
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1
understaffed in safety-related functions.
2
I see at least four functions there that are at least --
3
maybe they are all safety-related, but certainly nuclear
4
safety review, that job is a safety-related function; is
5
that fair?
6
MR. BARRETT:
And as I see it,
I think you are starting to get beyond
7
my level of understanding, and probably better addressed
8
with Ms. Swami when she appears.
9
10
MR. STEPHENSON:
Okay.
Fair enough.
I want to go to the KPMG report next.
And a
11
couple of general questions firstly.
12
about this, this is not an OPG-commissioned study; correct?
13
14
15
MR. BARRETT:
Just to be very clear
My understanding, it was commissioned by
the Ministry of Energy.
MR. STEPHENSON:
And while OPG was the subject matter,
16
if I can put that it way, of this report, this was not a
17
report that was controlled in any way by OPG; is that fair?
18
MR. BARRETT:
Yes, that's my understanding.
19
MR. STEPHENSON:
It is completely independent of OPG,
20
except to the extent that OPG was providing information; is
21
that fair?
22
MR. BARRETT:
Yes, that's my understanding.
23
MR. STEPHENSON:
And in terms of this -- I am looking
24
now at K3.2, and it's indicated as being a draft document.
25
You see that, on the cover?
26
MR. BARRETT:
27
MR. STEPHENSON:
28
I do.
Am I right that there is no
subsequent document, to the knowledge of OPG?
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2
3
MR. BARRETT:
I am certainly not aware if there was a
final document.
MR. STEPHENSON:
Okay.
And was this a document that
4
OPG got to see in an even prior draft for comment before it
5
got to the state that we see it here?
6
MS. BUTCHER:
I don't know whether we did or not.
7
MR. STEPHENSON:
Okay.
And was OPG asked by the
8
Ministry or anybody else to respond to this document in
9
written form?
10
MS. BUTCHER:
To the best of my knowledge, no.
11
MR. STEPHENSON:
And was OPG instructed by the
12
Ministry or anybody else to do something as a consequence
13
of this document in response to it in some fashion?
14
MS. BUTCHER:
To the best of my knowledge, no.
15
MR. STEPHENSON:
Okay.
If I can then just take you --
16
and again, I am in K3.2 -- oh, let me ask you this
17
question:
18
initiative, having obtained a copy, received a copy of this
19
report in some fashion?
20
organization read it; is that fair?
What did OPG, if anything, do of its own
21
MR. BARRETT:
22
MR. STEPHENSON:
23
24
Did -- presumably somebody in the
Yes, I think that's fair.
Okay.
And was there any action plan
or something done as a result of that reading?
MR. BARRETT:
I think at a high level the company's
25
reaction was that it was a strong endorsement of the
26
program that we had underway, that it had identified some
27
additional opportunities which were small and kind of at
28
the margins and were really focused on offshoring or
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outsourcing opportunities, which have a number of
2
challenges associated with them.
3
MR. STEPHENSON:
And if I can just take you for a
4
moment to page 7, and we are here in the executive summary,
5
and in particular I am looking at the last paragraph on
6
that page, and is it fair to say that that -- on your
7
reading at least, and I appreciate this isn't your report,
8
that encapsulates what Mr. Barrett refers to as the
9
endorsement?
10
MS. BUTCHER:
Yes, I think that's fair.
11
MR. STEPHENSON:
And from OPG's perspective, from a
12
dollars and cents -- Mr. Barrett, you referred to some
13
opportunities on the margin, and let's assume for the
14
purposes of this question that in OPG's view that those
15
opportunities were achievable, and we will get to that in a
16
minute, but let's assume they are achievable.
17
order of magnitude, relative to the things you are already
18
doing in BT, I mean, what are we talking about, the order
19
of magnitude of this, the incremental opportunities?
20
an additional 20 percent, 10 percent, 5 percent?
21
order of magnitude are we talking about?
22
23
24
25
26
27
28
MR. BARRETT:
By way of
Is it
What
So we can probably refer you to page 14
of the document.
MR. STEPHENSON:
Yes, I was going to get there.
Fair
enough.
MR. BARRETT:
So if you look there, you will see an
estimated annual stretch case savings number.
MR. STEPHENSON:
35 million, give or take.
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MR. BARRETT:
35 million, and I think a lot of that is
2
based on offshoring work, which is something that I know
3
the government has taken a policy position in opposition to
4
offshoring.
5
per year.
6
And there is a base case of about $15 million
MR. STEPHENSON:
And you put those numbers side by
7
side with the numbers that appear in the document we were
8
just looking at, JT2.10, as an order-of-magnitude
9
comparison; is that fair?
10
MR. BARRETT:
Yeah, if you look at that exhibit, just
11
on the head-count savings alone we are pretty close to
12
$200 million per year in savings, so these would represent
13
on the low case less than 10 percent, on the high case if
14
you --
15
MR. STEPHENSON:
16
MR. BARRETT:
17
MR. STEPHENSON:
Of 15?
Yes.
Okay.
Now, in terms of -- I just
18
want to talk for a moment about achievability.
19
OPG has taken a look at that and considered these
20
opportunities.
21
should be pursued or not and how vigorously.
22
Presumably
Is that -- and contemplated whether they
MR. BARRETT:
Is that true?
Certainly we have, as I understand it,
23
taken a position that we will not be offshoring work for
24
OPG employees, given the government's policy position
25
around that and the numerous challenges that we would face
26
related to our collective agreements.
27
28
So again, if you want to get into the specifics of
that, that's probably best addressed with our comp
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2
witnesses.
MR. STEPHENSON:
Right.
But the big number –- I mean,
3
the biggest number, if we are just looking at page 14 and
4
the chart on page 14, is the supply chain number; you see
5
that?
6
biggest item that's been identified.
7
8
9
10
Is that right?
I mean, that's the -- by far the
And that doesn't involve, at least, offshoring of
personnel; correct?
MS. BUTCHER:
Correct.
And my question is:
What is the
11
status of that recommendation within OPG?
Is it under
12
consideration?
13
implemented?
14
MR. STEPHENSON:
Has it been rejected?
Has it been
Where are you at?
MS. BUTCHER:
I believe that the supply chain
15
organization is looking at this and is advancing strategic
16
sourcing.
17
exactly where it's at, we would have to defer to another
18
panel.
I think if you are looking for details of
19
MR. STEPHENSON:
But it hasn't been rejected?
20
MS. BUTCHER:
21
MR. STEPHENSON:
22
In terms of the implementation of even -- forgetting
No.
Okay.
Fair enough.
23
about the offshoring issue, there are a couple of other
24
initiatives that involve, I think, people in the membership
25
of my organization.
26
recommendation, that would involve, I think, some PWU
27
staff; is that fair?
28
else about that?
The facilities maintenance
Or do you want me to talk to somebody
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2
3
MS. BUTCHER:
I think it is fair it would involve PWU
staff.
MR. STEPHENSON:
Am I right that, absent the agreement
4
of the union, there is not much you can do about that
5
during the duration of the current collective agreement?
6
7
MS. BUTCHER:
Yeah, I think that's probably a question
that would have to be asked of --
8
MR. STEPHENSON:
Okay.
That's fine.
9
I just want to talk to you about some of the realities
10
that OPG faces as a practical matter at a high level in
11
terms of its constraints that govern the revenue
12
requirement on this application.
13
14
15
One of those constraints is your labour costs;
correct?
MR. BARRETT:
Yes.
We have collective agreements that
16
require us to pay certain rates of pay and provide certain
17
levels of benefits.
18
MR. STEPHENSON:
And am I right that OPG really only
19
has two tools, from a management perspective, while the
20
collective agreement is in place, prior to its expiry?
21
first tool it has is dealing with the attrition question,
22
the extent to which they backfill for people that leave the
23
company?
24
the company, subject to its operational constraints?
25
26
27
28
The
That is a question that is within the control of
MR. BARRETT:
Subject to the operational and safety
and reliability constraints that we have, yes.
MR. STEPHENSON:
And then the second tool, management
tool that the company has, is on the overtime question,
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1
that management has some degree of discretion or
2
flexibility with respect to how much overtime it assigns?
3
MR. BARRETT:
I think that's fair, yes.
4
MR. STEPHENSON:
But am I also right that on the
5
question of overtime -- and I don't want to get granular
6
here, this is very high-level -- there are trade-offs for
7
the company associated with the question of allocation of
8
overtime, and that to the extent over time isn't allocated,
9
it could have a couple of -- at least two other potential
10
11
12
impacts?
One is spending money on contractors for work not done
on overtime?
That's one thing; correct?
13
MR. BARRETT:
14
MR. STEPHENSON:
15
Yes, that's correct.
cheaper?
16
MR. BARRETT:
17
MR. STEPHENSON:
18
19
And that's not necessarily any
Not necessarily.
It can impact its operations in some
fashion, which may affect the revenue of the company?
MR. BARRETT:
Yeah, and I think that's probably most
20
acute in the context of a unit outage when you are trying
21
to get the unit back online as quickly as you can.
22
MR. STEPHENSON:
I suppose the third thing it could do
23
in order to constrain the amount of overtime is to increase
24
regular complement, so that you have people working on
25
regular hours as opposed to overtime hours?
26
something else you could, at least in theory, do?
27
28
MR. BARRETT:
That's
Yeah, although I would question whether
that would be economic.
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2
MR. STEPHENSON:
And I take it that's entirely
contrary to your current strategy?
3
MR. BARRETT:
That's correct.
4
MR. STEPHENSON:
One of the realities -- again, I want
5
to deal with this at a high level -- that the company faces
6
relative to its relationship with the PWU is when it comes
7
time to bargain a new deal, the company has to face the
8
consequences or the alternatives that are available to the
9
company in the event that it is difficult or impossible to
10
obtain a new deal on terms favourable to the company;
11
that's the reality, right?
12
MR. BARRETT:
At a general level, yes, that's right.
13
MR. STEPHENSON:
And at least one of the alternatives
14
which is available in the circumstances is a work stoppage;
15
correct?
At least in theory?
16
MR. BARRETT:
In theory, that's correct, yes.
17
MR. STEPHENSON:
A regular employer, a typical
18
employer has the opportunity to lock out its employees at
19
the end of a collective agreement.
20
available to it; correct?
21
MR. BARRETT:
22
MR. STEPHENSON:
That's an option
That's my understanding, yes.
OPG must have, in its head,
23
considered the potential consequences of a work stoppage by
24
the PWU in the context of a collective agreement
25
renegotiation?
It has thought about that issue; correct?
26
MR. BARRETT:
27
MR. STEPHENSON:
28
It has, yes.
Okay.
And I take it has thought
about the probability that it would be able to continue to
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operate its nuclear operations in the face of a work
2
stoppage?
3
It has thought about that issue?
MR. BARRETT:
It has, and I think the conclusion it's
4
reached, as far as I understand it, is that it would not be
5
able to operate its nuclear plants in the circumstance of a
6
PWU strike.
7
shutdown state.
8
9
10
11
It would have to move to put those in a safe
MR. STEPHENSON:
couple of obvious implications.
One implication is on the operation of the electricity
system; fair?
12
MR. BARRETT:
13
MR. STEPHENSON:
14
15
16
17
That has, I take it, at least a
I think that follows, yes.
And another implication is an impact
on OPG's revenue; correct?
MR. BARRETT:
Yes.
We get paid on the basis of
output, so dollars per megawatt-hour.
MR. STEPHENSON:
I provided to your counsel a copy of
18
a document, which was Undertaking J9.4 from the 2010
19
hearing.
20
have that?
21
22
23
And I think the panel has copies of it.
MR. BARRETT:
Do you
I am just going to see if we can turn
that up.
MR. STEPHENSON:
To be fair, you don't actually need
24
to look at it.
25
estimate of the financial cost to OPG of a PWU work
26
stoppage, and it provides you with certain assumptions and
27
so forth.
28
What the document does is provide an
And what I am going to ask you to do by way of
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undertaking is to update this document.
2
numbers are not the same today as they were then.
3
going to ask you to do one other thing, which is, to the
4
extent that the assumptions contained in this document are
5
not, you think, the best assumptions and you think there
6
are better assumptions, leaving aside assumption number
7
one, I think, which is that assumption I would ask you to
8
make, but leaving aside any other assumptions, I'd ask you
9
simply to update the document.
10
Presumably, the
And I am
Will you give me that
undertaking?
11
MR. SMITH:
12
MR. MILLAR:
Yes, we will do that.
Madam Chair, we will call Undertaking
13
J9.4 from the 0008 proceeding K3.4, and the undertaking,
14
which is to update Exhibit K3.4 and to discuss the
15
assumptions to the extent necessary, will be J3.2.
16
EXHIBIT NO. K3.4:
17
0008
18
UNDERTAKING NO. J3.2:
19
DISCUSS UNDERLYING ASSUMPTIONS.
20
MR. STEPHENSON:
21
22
23
TO UPDATE EXHIBIT K3.4 AND TO
Thank you, panel.
Those are my
questions.
MS. HARE:
Thank you.
Mr. Shepherd, I understand you
are next?
24
MR. STEPHENSON:
25
MS. HARE:
26
UNDERTAKING J9.4 FILED IN EB-2010-
Thank you, Madam Chair.
Mr. Shepherd, I see that you are down for
90 minutes.
27
MR. SHEPHERD:
28
MS. HARE:
I am.
Maybe you could find a suitable place
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halfway through for a break.
2
MR. SHEPHERD:
I will do, Madam Chair.
3
MR. SHEPHERD:
Witnesses, my name is Jay Shepherd.
4
am counsel with Mr. Rubenstein for the School Energy
5
Coalition.
6
but we will get to know each other today.
7
8
One of you I don't know,
Madam Chair, SEC has prepared a compendium which we
have filed, and I think copies have been provided to you.
9
MS. HARE:
10
11
I know many of you.
I
I don't think we have it.
MR. MILLAR:
Exhibit K3.5.
We have it here, Madam Chair.
It will be
It's the School's compendium for panel 1.
12
EXHIBIT NO. K3.5:
13
MR. SHEPHERD:
SEC COMPENDIUM FOR PANEL 1.
And Madam Chair, this document is all
14
previously -- all material from this proceeding except for
15
pages 2, 5, 6, 7, and 8, all of which were provided to my
16
friends from OPG well in advance of the hearing.
17
MS. HARE:
Thank you.
18
MR. SHEPHERD:
I will also be referring to SEC IR
19
number 5, which is Exhibit L, tab 1.2, schedule 17, SEC
20
005.
21
business transformation plan.
That's the PowerPoint presentation outlining the
22
MS. HARE:
And that is not in the compendium?
23
MR. SHEPHERD:
24
MS. HARE:
25
MR. SHEPHERD:
It's a big document, so --
So should we pull that out?
At some point between now and the break
26
you should probably pull it out.
27
right away.
28
MS. HARE:
Okay.
I won't be getting to it
Thank you.
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MR. SHEPHERD:
And then I will ask a couple of
2
questions about the KPMG report, Exhibits K3.1 through
3
K3.3, but I don't think you're going to need to bring it
4
out, because I think they are sort of high-level questions,
5
and I will not be referring to the confidential version of
6
that.
7
If I have time, I will get to the Auditor General's
8
report, which is KT2.4, but my best guess is I won't have
9
time for that, so no need to bring that out right away.
10
CROSS-EXAMINATION BY MR. SHEPHERD:
11
I want to start by asking a question about the KPMG
12
report, because I heard you, Mr. Barrett, refer to your
13
conclusion that the KPMG report is essentially an
14
endorsement of your business transformation program.
15
that right?
16
MR. BARRETT:
17
MR. SHEPHERD:
Is
Yes, that's right.
And that's because they have identified
18
a bunch of things you should be doing, but one after
19
another they say, but they are already doing this in their
20
business transformation plan; right?
21
22
23
MR. BARRETT:
I think that's largely reflected in the
report, yes.
MR. SHEPHERD:
Okay.
Is it your intention now that
24
this report is filed to provide a witness from KPMG who
25
will speak to it?
26
MR. SMITH:
27
MR. SHEPHERD:
28
No, that is not our intention.
Then I am raising -- I am sort of
flagging this, Madam Chair, because if my friends are going
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1
to rely on the opinion of KPMG, which they appear to be
2
doing with respect to their business transformation plan,
3
then I think we are entitled to cross the expert that
4
prepared the report, or they can't rely on it, and I heard
5
Mr. Stephenson.
6
as well as saying business transformation is wonderful and
7
this is an independent report.
8
9
It sounds like he is going to rely on it
So I am not asking at this time that the Board order a
witness to be presented.
We just got it on Friday, and so
10
we are still really reviewing it to see how important this
11
document is going to be, but I want to flag it as an issue
12
that we may raise at some point down the line, or my
13
friends may say, Lookit, we don't want to rely on it, so we
14
are fine.
15
MR. SMITH:
Well, I think the appropriate response at
16
this time is to say I don't agree with Mr. Shepherd's
17
proposition to the extent it is advanced at a later date.
18
It was a document that was requested -- it was ordered
19
produced by the Board.
20
Mr. Barrett is reading the document.
21
perfectly entitled to draw whatever conclusions it wants
22
from the document.
23
KPMG.
24
happen to have, and that is the very basis upon which the
25
Board ordered production of it.
26
The document says what it says.
The Board is
We don't intend to call a witness from
It's not our report.
It is a document that we
Having said that, I don't think it's worth the time to
27
have the debate at this point, because I don't know what
28
Mr. Shepherd is going to say later, but we are certainly
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not calling anybody, nor do I think we need to.
2
MR. SHEPHERD:
Thank you, Madam Chair.
I was just
3
flagging it.
4
now.
5
before seeing whether a witness would be necessary, in
6
which case it would be the Board asking for the witness,
7
not OPG.
8
9
10
11
I don't want to have a fight about it right
I want to have some more time to look at the report
MS. HARE:
So we would probably have to subpoena the
witness at that point, so you will let us know if, in fact,
that's necessary.
MR. SHEPHERD:
It is true, although I suspect that
12
KPMG is not going to force you to subpoena them.
13
guess is that they will be happy to show up, but --
14
15
16
17
MS. HARE:
Well, that's interesting.
anybody is ever happy to show up.
MR. BARRETT:
My best
I don't think
We are, we are, but...
For the record, we are as well.
[Laughter]
18
MS. HARE:
Let's see how it goes.
19
MR. SHEPHERD:
All right.
This is -- this panel deals
20
with business transformation, but it also is the overview
21
panel, so I want to start with some overview questions.
22
And you will agree, won't you, that in this application OPG
23
is making the largest single request to the Ontario Energy
24
Board in history for money from ratepayers; isn't that
25
right?
26
asked for $9 billion before; is that right?
27
28
You are asking for $9 billion.
MR. BARRETT:
I think that's right.
Nobody has ever
I haven't
reviewed the historical records with that question in mind,
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2
but I think it's probably a fair assumption.
MR. SHEPHERD:
And would you accept, subject to check,
3
that the next largest is in fact one of your sister
4
companies, Hydro One, which just recently asked for
5
$7.8 billion, but that's over five years, and yours is over
6
two years.
7
about right?
8
9
Would you accept that subject to check?
MR. BARRETT:
Sound
Certainly Hydro One is a much smaller
operation than OPG.
I will -- I haven't looked at that,
10
the specifics of their numbers, but it's probably in the
11
ballpark.
12
MR. SHEPHERD:
And will you agree that in this
13
application you're asking each and every man, woman, and
14
child in Ontario to pay you about $340 a year up from 255
15
last year?
16
dividing it by the number of people in the province.
That's just taking your revenue requirement and
17
MR. BARRETT:
18
MR. SHEPHERD:
19
20
I haven't done that calculation, sorry.
Would you accept that math, subject to
check?
MR. SMITH:
Well, I am not sure that that's an
21
appropriate question.
If Mr. Shepherd wants to adduce the
22
evidence, he should have adduced the evidence.
23
done that calculation.
24
MR. SHEPHERD:
25
Will you also accept subject to check that your ask,
We have not
It will be an argument.
26
your $9 billion, is about a third as much as the total
27
Ontario personal-income-tax bill last year?
28
agree?
Would you
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MR. BARRETT:
I have no basis --
2
MR. SHEPHERD:
3
The reason I'm asking these questions is not for
You have no way of knowing that.
Okay.
4
drama.
I am asking this because I want to know whether at
5
any point during your review of the cost that you are
6
asking for in this application, this historical
7
application, at any point did OPG's executive management or
8
its board of directors or even the shareholder look at
9
whether the relative value of what you were asking for was
10
reasonable relative to the total tax bill in the province
11
for all the services of government?
12
that question?
13
14
15
MR. BARRETT:
Did anybody ever ask
To the best of my knowledge that
particular analysis was not considered.
MR. SHEPHERD:
All right.
Now I would like to turn to
16
the size of the deficiency that you are asking for, and to
17
do this, we tried to prepare a helpful table on page 2 of
18
our compendium.
19
And you'll agree that you're asking ratepayers to pay
20
in this test period $2.16 billion more than revenue at
21
current rates; right?
22
MR. BARRETT:
23
24
Sorry, sir, it took me a minute to turn
it up.
MR. SHEPHERD:
All right.
You will agree, I trust,
25
that you are asking ratepayers in this application to pay
26
an additional $2.16 billion more in the test period than
27
they would pay at current rates; right?
28
MR. BARRETT:
I think the only point of debate we
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might have is with respect to the newly regulated
2
hydroelectric, what the appropriate jumping-off point is
3
for measuring the increase.
4
MR. SHEPHERD:
5
MR. BARRETT:
All right.
Well --
We have used $30 per megawatt hour in
6
our application as representative of recent experience.
7
But that -- the market prices for those facilities can vary
8
quite significantly, and I would note that in Q1 of this
9
year I think they were in the order of 70 or $80 per
10
11
12
13
14
15
megawatt-hour.
So they are subject to variability.
MR. SHEPHERD:
And it was 28 last year?
The average
for the year last year was 28, right?
MR. BARRETT:
I don't have that figure with me, but I
will take it subject to check.
MR. SHEPHERD:
Well, take a look at page 4 of our
16
materials.
17
if you see unregulated hydroelectric, that is 2.8 cents a
18
kilowatt-hour, which is $28 dollar a megawatt, right?
19
And this is from your 2013 annual report.
MR. BARRETT:
And
I think the only issue -- and again,
20
it's at the margins -- is that the 48 facilities would be a
21
subset, I think, of that category.
22
other unregulated hydroelectric facilities, which are
23
subject to contract, that would be in that mix.
24
MR. SHEPHERD:
There would be some
Sure, but it's also true, isn't it,
25
that the ones that are being newly regulated are, what,
26
about 95 percent of the production of your previously
27
unregulated?
28
It's a big percentage, right?
MR. BARRETT:
I don't know that number.
I know that
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that's something you could probably best address with the
2
hydroelectric panel, which would follow us.
3
MR. SHEPHERD:
Would you agree that the ones that are
4
being newly regulated are the vast majority of your past
5
production?
6
MR. BARRETT:
I think they are a substantial majority,
7
subject to the Lower Mattagami project coming on service,
8
but again, I -- $28 or $30 or $32, I think it'd in that
9
ballpark, so I am happy to have the discussion based on
10
your numbers.
11
MR. SHEPHERD:
All right, so I just want to walk
12
through these components of the deficiency for a second.
13
And we are going to talk about the drivers in a second, but
14
on nuclear, the deficiency is about $1.5 billion, right?
15
That's your most recent from the second impact statement,
16
right?
17
MR. BARRETT:
I will take that subject to check, yes.
18
MR. SHEPHERD:
So that's a 31.2 percent increase in
19
what you are asking the ratepayers to pay, right?
20
kilowatt-hour?
21
MR. BARRETT:
Per
As I understand this calculation, it's
22
done -- is this done just on the basis of base rates, or is
23
it rates and riders?
24
MR. SHEPHERD:
25
MR. BARRETT:
26
MR. SHEPHERD:
27
MR. BARRETT:
28
Just rates.
Just base rates?
Okay.
Yes.
So that's right?
Certainly it's in the 30 percent range,
yes.
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MR. SHEPHERD:
And for previously regulated
2
hydroelectric, you are asking for $287 million more, which
3
is a 19 and a half percent increase, right?
4
5
6
7
8
9
MR. BARRETT:
I will take those numbers subject to
check.
MR. SHEPHERD:
And in both of those cases, those are
because your costs have gone up, right?
MR. BARRETT:
I think in the nuclear side of the
ledger, there has also been a -- if you look at the drivers
10
of deficiency schedule, you will see that the nuclear
11
production for the test period is lower than the production
12
forecast implicit in the 2011/2012 rates.
13
some cost changes, such as pension and OPEB, but there is
14
also some production changes as well.
So there are
15
MR. SHEPHERD:
But these numbers are calculated on a
16
unit basis, right?
17
assumes your future production, your forecast production,
18
right?
Because revenue at current rates
That's your number?
19
So these all use the same production numbers?
20
MR. BARRETT:
I guess I am reflecting upon the
21
deficiency schedule that we have in our own evidence,
22
rather than the calculation you have done here.
23
MR. SHEPHERD:
Anyway, it doesn't matter.
The point I
24
was going to make is this, that on the newly regulated
25
hydroelectric, you have a 70 percent increase, let's say,
26
in what you are asking to recover for that, an additional
27
$352 million, but that's not because your costs have gone
28
up 70 percent, right?
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That's because you were being compensated on market
2
price, and market price doesn't necessarily reflect your
3
costs, right?
4
MR. BARRETT:
That is absolutely correct.
I think
5
just on a straight-up comparison, the cost of service rate
6
that we proposed for those assets is approximately $47.
7
And we were receiving prices in the marketplace of 28 or
8
$30, depending upon how you measure it, and those were
9
significantly below the cost of owning and operating those
10
assets, and creating issues in terms of their
11
sustainability.
12
I think as recently as 2012, if you look at our
13
financial results for that year, you will see there was an
14
actual loss on those operations.
15
MR. SHEPHERD:
And the reason why you are losing money
16
on the newly regulated hydroelectric is not because you're
17
spending too much on it -- I mean, we may discuss that
18
later, but that's not the primary reason; the primary
19
reason is that the market is not sufficiently liquid to
20
reflect real marginal costs of generation of this type,
21
right?
22
MR. BARRETT:
I think there's a number of challenges
23
in the Ontario market price-setting mechanism.
It is a
24
measure of marginal cost of some type, but I think the
25
fundamental reality is that the marginal price in the
26
market is below the cost of owning and operating these
27
facilities.
28
market mechanism at kind of a global level, nearly all of
And I think one of the -- if you look at the
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the other generation in the marketplace receives a contract
2
which recognizes that the market price does not work in
3
terms of recovering costs of operations and returning a
4
fair return on invested capital.
5
So these were the outliers in that market context.
6
They were the last, I think, facilities receiving the
7
market price and nothing but the market price.
8
9
MR. SHEPHERD:
Okay.
And in fact, your other
regulated facilities, your prescribed facilities, they are
10
also essentially in a type of contract situation where they
11
get a cost-based rate or a rate that's supposed to recover
12
all the costs, as opposed to a market-based rate, right?
13
14
15
MR. BARRETT:
Sorry, I was -- are you talking about
our previously regulated hydro -MR. SHEPHERD:
Previously regulated hydroelectric,
16
your nuclear.
17
the old NUGs or whatever.
18
price -- in this case, regulated price -- from the OEB?
19
It's the same thing, right?
20
It's the same thing as the FIT program or
MR. BARRETT:
They are getting a contract
I would say that there are significant
21
differences between a contract price pursuant to an OPA
22
agreement and OEB regulation.
23
I think if you look at Exhibit A1, tab 3, schedule 1,
24
page 5 of 8 -- and this is the famous comparison charts
25
that we have referenced a number of times -- I mean, one of
26
the stark differences is that those contract prices are
27
much higher than the regulated rates that we receive for
28
our operations.
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2
3
MR. SHEPHERD:
But they are intended to recover costs,
right?
MR. BARRETT:
At a high level they are intended to
4
recover costs and provide a return on capital, but they are
5
a consequence of either a posted rate or contract
6
negotiations that reflect individual circumstances between
7
the parties.
8
9
MR. SHEPHERD:
Wonderful.
Now, your deficiency,
almost $2.2 billion, that's also the biggest rate increase
10
in Ontario history, isn't that right?
Nobody has ever
11
asked their rates to be increased by $2.2 billion in
12
history before, right?
13
MR. BARRETT:
14
MR. SHEPHERD:
As far as I know.
Okay.
The $2.2 billion, I heard your
15
counsel say in his opening statement that that's driven by
16
three main things, pension and OPEB costs -- let me stop
17
there.
18
19
Madam Chair, I know you asked that we not use
acronyms.
20
MS. HARE:
Yes.
21
MR. SHEPHERD:
22
it, like, a lot.
23
instead?
24
25
MS. HARE:
May I please have permission to use OPEB
I would rather you didn't.
It doesn't take
that much longer to say all the words.
26
MR. SHEPHERD:
27
MS. HARE:
28
OPEB is one that -- I am going to use
All right.
Pension and other post --
I will give you two more minutes in your
cross for that.
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[Laughter]
2
MR. SHEPHERD:
Pension and other post-employment
3
benefit costs, nuclear liabilities and Niagara tunnel,
4
those are the three areas that your counsel referred to as
5
the primary reasons for your $2.2 billion deficiency,
6
right?
7
MR. BARRETT:
Yeah.
That's explained further in
8
Exhibit A1, tab 3, schedule 2, which is the drivers of
9
deficiency evidence.
10
MR. SHEPHERD:
It's interesting you mention that.
11
was going to get to this later, but I'll get to it now.
12
Because you've updated that, right?
13
have to find it here.
14
At –-
15
16
MR. BARRETT:
I
And if you -- I just
It's in our materials somewhere.
It is -- we have it, so if you look at
Exhibit L, tab 1, schedule 2, AMPCO 1.
17
MR. SHEPHERD:
18
MR. BARRETT:
19
MR. SHEPHERD:
20
And that was updated as of the first impact statement,
21
Is that page 24 of our materials?
I don't know.
Yes, it is.
I am telling you.
right?
22
MR. BARRETT:
Yes, that's correct.
23
MR. SHEPHERD:
I looked at the second impact
24
statement.
I didn't see an update of the drivers of
25
deficiency in that statement.
26
MR. BARRETT:
27
MR. SHEPHERD:
28
MR. BARRETT:
Is there one?
No, sir.
Can you undertake to provide one?
We can.
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MR. MILLAR:
J3.3.
2
MR. SMITH:
3
UNDERTAKING NO. J3.3:
4
TAB 1, SCHEDULE 2, AMPCO 1, TO UPDATE DRIVERS OF
5
DEFICIENCY IN SECOND IMPACT STATEMENT.
6
MR. SHEPHERD:
Yes, that's fine.
WITH REFERENCE TO EXHIBIT L,
So I wonder if we can talk a little bit
7
about the relative impact of the three main drivers.
8
know there is a bunch of smaller ones, and we may -- if I
9
have time, we will get to them, but I doubt it.
10
I
But let's just talk -- let's start with the Niagara
11
tunnel.
12
net impact of the Niagara tunnel on the deficiency for the
13
test period, and I don't think I found it.
14
I looked around to see if I could find an overall
Do you know whether there is, you know, something that
15
has the cost of capital and the depreciation, less the
16
additional incremental revenue and incremental OM&A, if
17
there is any, those sorts of things?
18
like that anywhere in the evidence?
19
MR. BARRETT:
Do you have a summary
I don't know if we have been asked that
20
specific question, but if it would be helpful, a good rule
21
of thumb or reasonable rule of thumb is to apply about
22
10 percent, as a rule of thumb that I use.
23
So if you assume that you're bringing into rate base
24
approximately $1.5 billion of capital, the kind of annual
25
carry on that, reflective of depreciation and return on
26
capital, rule of thumb is about 10 percent or, say,
27
$150 million.
28
MR. SHEPHERD:
So that would be for 2015, but 2014
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2
3
then is a half year?
MR. BARRETT:
No, remember, the tunnel came into
service in 2013, so it would --
4
MR. SHEPHERD:
5
MR. BARRETT:
6
MR. SHEPHERD:
Yeah, okay.
So --
-- be fully included in 2014 rate base.
So it would be 300 million, roughly,
7
impact, which seems a little bit high, because your cost of
8
capital is a little lower than that, but let's say
9
300 million, but --
10
MR. BARRETT:
11
MR. SHEPHERD:
12
13
14
15
It's only a rule of thumb.
But then you have as well incremental
revenue associated with it, right?
MR. BARRETT:
There would be incremental production
which would go into the rate calculation, yes.
MR. SHEPHERD:
Okay.
So I am wondering if you can
16
just undertake -- I am guessing that it's somewhere around
17
200- to $250 million impact on your deficiency, but I
18
wonder if you can just do that calculation in an
19
undertaking and show us.
20
MR. SMITH:
Yes, we can do that.
21
MR. MILLAR:
22
UNDERTAKING NO. J3.4:
23
THE NIAGARA TUNNEL ON THE DEFICIENCY FOR THE TEST
24
PERIOD.
25
MR. SHEPHERD:
J3.4.
TO CALCULATE THE NET IMPACT OF
The next one is pension and other post-
26
employment benefits.
And we are going to talk about that
27
in more detail later, but do I understand correctly that
28
that's roughly $750 million of your deficiency?
Am I in
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2
3
4
5
6
7
8
9
the ballpark there, with your second impact statement?
MR. BARRETT:
Do you have a reference, sir, that I can
look at?
MR. SHEPHERD:
No, I was just looking at the numbers
and trying to get a ballpark.
MR. BARRETT:
Just one second.
Between Mr. Mauti and
myself, I think that's certainly in the ballpark.
MR. SHEPHERD:
Okay.
And the primary reason for that
is that in the past when we have talked about pension and
10
other post-employment benefits, we have -- the big problem
11
has been it's so sensitive to interest rates and future
12
returns assumptions; right?
13
MR. BARRETT:
Yes, we have seen -- we have been in a
14
period of declining long-term interest rates, and that has
15
significantly affected the pension costs.
16
MR. SHEPHERD:
But this time the big part of the
17
increase is not so much that as your reassessment of how
18
long your retirees are going to live.
19
component this time?
20
MR. MAUTI:
Isn't that a key
I think discount rates compared to the
21
pension and other post-employment benefits that are end
22
rates, the discount rate still is a significant factor,
23
but, yes, the assessment of mortality, which is the length
24
of time you would expect your current and pensioners to
25
live can also have an impact on those calculations.
26
MR. SHEPHERD:
And you don't normally redo that
27
calculation every year, but you did do it last year; right?
28
You had your actuaries do it?
The assumption of mortality.
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MR. MAUTI:
There was an accounting valuation of the
2
pension and other post-employment benefits accounts.
That
3
was done as part of that accounting valuation, which is
4
typically not always done on an annual basis, but is part
5
of that.
6
Power Generation, but just the issue of mortality in
7
general in the Canadian and worldwide estimation of pension
8
obligations, has been an issue that's been under review;
9
and, yes, as part of that accounting valuation, that's when
The assessment of mortality, not just for Ontario
10
our actuaries did that assessment of mortality and life
11
expectancy.
12
MR. SHEPHERD:
And if I understand correctly, in your
13
revenue requirement now, is approximately $1.35 billion for
14
-- no, yeah, $1.35 billion for pension and other post-
15
employment benefits, right, and if you take a look at --
16
where I am getting this is page 23 of our materials, is
17
page 4 of your second impact statement.
18
So I am just adding 1294 on line 1 of chart 2 to 71.8,
19
which is line 10, the -- oh, no, that's wrong.
20
well, maybe I can ask you:
21
revenue requirement?
22
tax adjustment; right?
23
MR. MAUTI:
Hmm.
So,
What's the total impact on your
It's 1294, plus or minus an income-
The detailed calculations of the pension
24
and other post-employment benefit costs are -- I am
25
assuming would be discussed in detail at a later panel, but
26
what you are looking at of the first line of chart 2 on
27
your compendium, page 23, is an update as a result of the
28
second impact statement pre-tax of the pension and other
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post-employment benefit costs.
2
MR. SHEPHERD:
3
MR. MAUTI:
4
Correct, and chart 2 would be the
calculation of that tax impact.
5
6
MR. SHEPHERD:
MR. MAUTI:
8
MR. SHEPHERD:
10
So it's minus 71 million?
1294 minus
71?
7
9
And then there is a tax impact as well.
I believe that would be correct, yes.
Okay.
So your total compensation to
all employees for 2014 and 2015 is somewhere around
3.4 billion; right?
11
MR. BARRETT:
Do you have a reference?
12
MR. SHEPHERD:
Well, it's actually from JT2.33, which
13
I don't have in front of you, but I do have on page 7 our
14
table that comes from it.
15
1704.8 in 2015.
And I have 1694.4 in 2014 and
Sound about right?
16
MR. BARRETT:
Sorry, what page are you on, sir?
17
MR. SHEPHERD:
Page 7 of our materials, or you can
18
look at JT2.33 if you prefer.
19
compensation, 1694.4 in 2014, 1704.8 in 2015.
20
that?
21
is about 3.4 billion; is that fair?
22
23
And you have a line, total
You see
So your total compensation bill for the test period
MR. MAUTI:
Yes, I believe that includes both regular
and non-regular staff, but, yes.
24
MR. SHEPHERD:
25
MR. MAUTI:
Yup.
You're looking at line 41 from JT2.33.
26
Those would be the two numbers on line 41 for the test
27
period.
28
MR. SHEPHERD:
So that includes all your pension
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costs; right?
MR. MAUTI:
I know that it includes the current
3
service component of pension costs, I believe, and the
4
people that were responsible for JT2.23, JT2.33, is the
5
compensation panel, so they would know specifically what's
6
included within these numbers, but I believe some of the,
7
what we call the centrally held pension costs, are not
8
included in this number.
9
10
11
MR. SHEPHERD:
Ah, so that JT2.33 then understates
your total compensation costs?
MR. MAUTI:
Is that right?
Again, I believe on the basis of how
12
JT2.33 was requested and put together, it includes the
13
component of burden, but it's probably a question best
14
asked to the compensation panel to get absolute clarity of
15
what is included within that, as to whether the centrally
16
held pension costs are.
17
MR. SHEPHERD:
All right.
Still on pension and OPEBs,
18
this $750 million of so impact on your deficiency, the
19
amount you actually have to spend on those items in the
20
test period is actually less than the amount that you
21
record for accounting purposes, right?
22
amount is higher?
23
24
25
MR. MAUTI:
The accounting
The accounting costs are the costs that
are part of our cost of service application.
MR. SHEPHERD:
I understand.
But the amount you
26
actually pay into the plans or fund the plans is about
27
$200 million less, right?
28
MR. MAUTI:
Or so?
Are you doing a calculation that you can
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help me with or point me to, to confirm that?
MR. SHEPHERD:
I am just asking at a high level.
This
3
is the overview panel; I'm trying to get a sense of the
4
impacts on the deficiency.
5
deficiency a couple hundred million dollars of money for
6
pension and other post-employment benefits, which you don't
7
actually have to spend in the test period, right?
8
accruing it for later; true?
9
MR. MAUTI:
A part of the impacts on the
You are
It's a difference between the accounting
10
GAAP costs versus the costs of contributions to the pension
11
plan.
12
MR. SHEPHERD:
All right.
And the third main driver
13
of the $2.2 billion deficiency is nuclear liabilities,
14
right?
15
MR. BARRETT:
Yes, that's right.
16
MR. SHEPHERD:
And that one is driven primarily by
17
interest rates and assumed returns; isn't that right?
18
increase?
19
MR. BARRETT:
That
No, it's principally driven -- and Mr.
20
Mauti can speak to the specifics about the difference
21
between the ONFA plan, which is in the 2011/2012 rates,
22
which are the jumping off point for the calculation of the
23
deficiency, and the costs that flow from the new ONFA plan.
24
MR. SHEPHERD:
And the change in the ONFA plan is
25
primarily a change in interest rate and return assumptions;
26
isn't that right?
27
MR. MAUTI:
No, I don't believe that to be correct.
28
MR. SHEPHERD:
So what is the main thing that's
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2
causing that to increase?
MR. MAUTI:
Again, just at a high level.
At a high level, it would be -- review of
3
the five decommissioning and waste management programs that
4
were done as part of ONFA included a re-estimation of the
5
baseline costs or the costs to manage each of those
6
programs.
7
cost estimates, which then would be factored in as part of
8
the Board-approved methodology of calculating impact.
9
So there would be changes as result of those
MR. SHEPHERD:
So this is --
10
MR. BARRETT:
11
for using the acronym.
12
13
14
MS. HARE:
Sorry, can I just interject?
I am sorry
I was going to ask you to please say what
it is.
MR. BARRETT:
I beg your indulgence.
It was the
15
Ontario Nuclear Funds Agreement between OPG and the
16
government of Ontario.
17
MS. HARE:
Thank you.
18
MR. MAUTI:
19
MS. HARE:
20
MR. SHEPHERD:
Apologize.
Old habits.
Thank you.
So the increase in that agreement,
21
arising out of that agreement, is actually an increase in
22
assumed future costs, right?
23
MR. MAUTI:
It's the present value impact of the
24
assumed future costs.
There are economic indices that are
25
used to calculate what those increases would be that would
26
include escalation factors and discount factors, but the
27
main reason for the change is an underlying change in the
28
costs, yes.
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MR. SHEPHERD:
So -- and the reason for that is
2
because when the last agreement was -- the reference plan
3
was entered into, you had less information and so you had a
4
lower estimate.
5
costs, and now, as you have better information, your
6
forecast has improved, right?
7
MR. MAUTI:
Basically, you had under-forecast your
Part of the basis of the Ontario Nuclear
8
Funds Agreement process is recognizing these are very long-
9
term liabilities that would span decades, if not a century,
10
into the future, that it requires a re-estimation based on
11
updated evidence, information and estimates and technology
12
that would be available.
13
five-year cycle, yes.
14
15
MR. SHEPHERD:
Okay.
And that's done on, typically, a
Those estimates of costs, they
are done by Ontario Power Generation?
16
MR. MAUTI:
They are managed by Ontario Power
17
Generation, and they are done either directly by staff at
18
OPG, Ontario Power Generation, or contracted out to other
19
experts in a variety of different fields that would assist
20
us.
21
22
23
MR. SHEPHERD:
And then they are reviewed by the
Ministry of Energy, right?
MR. MAUTI:
They are reviewed by the Ontario Ministry
24
of Finance, I believe.
25
MR. SHEPHERD:
26
Ministry of Finance?
Do they hire an
external expert?
27
MR. MAUTI:
I believe that they do, yes.
28
MR. SHEPHERD:
We don't know any -- we don't have that
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report anywhere here, the report of an expert reviewing
2
your estimates.
3
MR. MAUTI:
The people that the Ministry of Finance
4
retained to review our estimates, we believe, factor into
5
the questions that the Ontario Ministry of Finance asks of
6
the reference plan update.
7
questions that would test the cost estimates that we have
8
put forward, and we believe that those questions arise from
9
the questions and the review done by those third parties
10
11
12
13
They submit several dozens of
retained by the Ministry of Finance.
MR. SHEPHERD:
So you don't actually get those, those
external expert reports?
MR. MAUTI:
They are experts that aren't retained by
14
OPG; they are retained specifically by the Ministry of
15
Finance.
16
not to us.
17
18
And they would report any information to them and
MR. SHEPHERD:
And you don't get copies of those
reports?
19
MR. MAUTI:
No, we do not.
20
MR. SHEPHERD:
21
Do we have somewhere in the evidence a recap of the
Okay.
Thank you.
22
net impact of this change in the nuclear liabilities on the
23
deficiency?
24
We have got the 200 or $250 million from Niagara
25
tunnel.
We have got 750 million, let's say, from pension
26
and other post-employment benefits.
27
billion of deficiency, some of which is because of the
28
market problem with the newly regulated, but is all the
That leaves $1.2
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rest of it for nuclear liabilities?
2
calculation somewhere?
3
MR. MAUTI:
Do we have that
I couldn't find it.
I believe that calculation of the impact
4
on the revenue requirement of the new ONFA -– sorry, the
5
new Ontario Nuclear Funds Agreement update, is in the
6
evidence.
7
find the exact file reference for you.
8
9
And if you can indulge us after the break, I can
MR. SHEPHERD:
I appreciate it.
And you have an
updated version of the calculation somewhere, right?
10
Because you have made some changes to your assumptions,
11
right?
12
13
14
MR. MAUTI:
Updated from -- from the original filed
evidence, I believe not.
MR. SHEPHERD:
No?
Okay.
Well, then, I wonder if you
15
can just check at the break, and I will follow up this
16
question after the break.
17
And I just want to ask a couple of questions about --
18
one thing that wasn't mentioned as one of the main drivers
19
of the deficiency was your compensation levels.
20
know this has been a subject in past hearings, right?
21
And you
And so I wonder if you could turn to page 5 of our
22
compendium, and this is a spreadsheet that was sent to you
23
-- pages 5 through 8 was a spreadsheet that was sent to you
24
on Saturday, late Saturday, and -- is that right?
25
MR. SMITH:
26
at one o'clock.
27
28
I think technically it was Sunday morning
MR. SHEPHERD:
My apologies.
Yeah, okay.
One a.m. Sunday, sorry.
And the data from this is from JT2.33?
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MR. BARRETT:
2
MR. SHEPHERD:
3
4
That is how you represented it, yes.
You haven't had a chance to verify
that?
MR. BARRETT:
I personally haven't.
We had some
5
people looking at it, and I -- my takeaway from the
6
discussion this morning was that it was -- we were largely
7
okay with it.
8
MR. SHEPHERD:
Okay.
Wonderful.
9
And what I -- you know what, Madam Chair?
This is
10
going to take about 15 minutes, so I wonder if this is a
11
good time to break.
12
MS. HARE:
13
And I do want to make a comment just for going
It is a good time to break.
14
forward.
15
met the 24-hour rule, but I -- and I appreciate you were
16
doing this late, but that's not fair, particularly since
17
it's a Sunday and it's Father's Day.
18
24 hours in advance when it's a Sunday, I don't think
19
that's in the spirit of giving advance warning so that
20
witnesses have the chance to review something.
21
forward --
22
23
So if you sent this one a.m. Sunday morning, you
MR. SHEPHERD:
So to send something
I apologize, Madam Chair.
Just going
This was
entirely based on their data, so --
24
MS. HARE:
I understand that.
25
MR. SHEPHERD:
-- it wasn't anything new that they
26
hadn't seen before, except how it was calculated.
And I
27
did get a response at about eight a.m. from OPG, but I do
28
apologize.
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2
MS. HARE:
I am just saying I don't think that that's
really fair to the witnesses.
3
Let's take a break until 11:15.
4
--- Recess taken at 10:55 a.m.
5
--- On resuming at 11:21 a.m.
6
MS. HARE:
7
MR. SHEPHERD:
8
MR. SMITH:
9
10
Mr. Shepherd, are you ready to go forward?
I am, Madam Chair.
I gather Mr. Mauti may just have a brief
comment before the next question, if that's okay.
It's a
preliminary matter, I advised Mr. Shepherd.
11
MS. HARE:
12
MR. MAUTI:
Okay.
I just wanted to just go back to a second
13
on, I guess, the compendium, page 23 of our Exhibit N211,
14
page 4 of 12.
15
pension and other post-employment benefits that was in our
16
application.
17
We were talking about the total cost of the
Just to clarify the calculation as it should be done,
18
we discussed line 1 were to have the $1294 million as the
19
forecast period for '14 and '15 base pension and other
20
post-employment benefit costs.
21
the 72 million reduction on the bottom of that schedule,
22
it's -- the schedule is really just a delta sort of change
23
between impact statements.
The tax calculation was not
24
The full calculation should be that 1294 minus the two
25
cash contributions, which are deductible for cash purposes,
26
which you see on line 4, the pension plan contributions of
27
765, and line 5, the updated payments for other post-
28
employment benefits.
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So if you take those two numbers, subtract them from
2
1294, would be the differential of approximately
3
340 million.
4
would show an increase in the tax component on the revenue
5
requirement of approximately 115 million.
6
should be 1294 plus 115.
7
The tax impact of that at 33 percent actually
MR. SHEPHERD:
So it really
So the total amount in your revenue
8
requirement for pension and other post-employment benefits
9
is about $1.41 billion?
10
MR. MAUTI:
That's approximately correct, yes.
11
MR. SHEPHERD:
Now, you were going to check at the
12
break about whether we have an analysis somewhere in the
13
evidence of the impact of the changes to nuclear
14
liabilities?
15
MR. MAUTI:
That's correct.
The reference that we
16
have is in Exhibit C2, tab 1, schedule 1, Table 5.
17
not sure if you want to pull that up, or...
18
19
20
MR. SHEPHERD:
Yeah, let me just...
I am
Can you give me
the reference again, please?
MR. MAUTI:
C2, tab 1, schedule 1, Table 5.
If you
21
have that, this is a table that we do that compares the
22
revenue requirement both with the current approved Ontario
23
nuclear funds agreement reference plan and compares it to
24
what it would have been without the new approved Ontario
25
nuclear funds agreement reference plan.
26
27
28
MR. SHEPHERD:
And you are telling us this is still
up-to-date.
MR. MAUTI:
Yes.
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MR. SHEPHERD:
2
the impact statements?
3
4
MR. MAUTI:
This has not been adjusted by either of
That is correct.
So the impact of the new
reference plan would be an increase of $442 million --
5
MR. SHEPHERD:
6
MR. MAUTI:
7
MR. SHEPHERD:
Okay.
So what we've got is --
-- over the test period.
Sorry.
We have 442 million for that.
8
got 250, let's say, for Niagara tunnel.
9
pension and other post-employment benefits.
We have
We've got 750 for
So that adds
10
up to $1.4 billion, and then we have the 350, I guess, from
11
the newly regulated, which is about the difference between
12
market rates and cost, right?
13
still appear to be short $400 million.
14
15
16
Which is a billion-750.
We
Is there another major thing, or is that a bunch of
small things?
MR. MAUTI:
If you look at the drivers of the nuclear
17
deficiency that we were referencing on AMPCO 1, I notice
18
that the increase in outage OM&A there is a vacuum building
19
outage in nuclear in 2015 that is driving a large change of
20
that $177 million increase in outage OM&A.
21
MR. SHEPHERD:
That 177.5 million on page 26 of our
22
materials, that's not all the vacuum building outage;
23
right?
24
MR. MAUTI:
I believe it is not 100 percent of that
25
number.
26
probably the nuclear panel is in the best position to talk
27
about outage cost changes.
28
It's likely a large component of it, but again,
MR. SHEPHERD:
Okay.
All right.
We are getting
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there.
So I wonder if you could go to page 5 of our
3
materials.
4
tell us what the number was on JT2.33 that was incorrect?
5
I don't care about the headings.
We fixed the headings
6
already.
Which number is wrong?
7
Can you -- before we start on this, can you
What about the number?
MR. MAUTI:
I believe if you look at line 34, in terms
8
of employee cost, nuclear operations and projects, my
9
understanding, under the actual for 2013 the number says
10
11
1242.7.
The number should have been 1202.3.
The next cell down on line 35 under the same 2013
12
actual for DRP and new nuclear says 41.7.
13
And then I believe the subtotal on line 41 is impacted by
14
those two, and the new subtotal should be 1724.
15
MR. SHEPHERD:
16
MR. MAUTI:
17
MR. SHEPHERD:
18
MR. MAUTI:
Should be 40.3.
These are -- this is for 2013; right?
Everything in 2013, yes.
2013 actual.
Yeah.
And the other one that was brought
19
to our attention on line 45, EPSCA, again for the year 2013
20
the correct number should be 26.0.
21
MR. SHEPHERD:
22
MR. MAUTI:
23
MR. SHEPHERD:
24
MR. MAUTI:
25
MR. SHEPHERD:
26
As opposed to?
67.9.
67.9.
Should be 26.0?
Yes.
All right.
And you are going to refile
this.
27
MR. SMITH:
28
MR. BARRETT:
Yes.
Yes, we will be filing a correction.
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MR. SHEPHERD:
So I am going to ignore those changes,
2
because none of them are material enough to affect the
3
higher-level stuff I am going to talk about on this table,
4
but I will correct this table as well when we get to the
5
compensation panel.
6
I just want to ask you a couple of things about this.
7
The -- let's start with page 5 of our materials.
8
see that lines 1 to 4 of our spreadsheet are the FTEs for
9
nuclear; right?
10
MR. BARRETT:
11
MR. SHEPHERD:
12
You will
Yes, we see that.
And that's showing a decrease of 1,086
FTEs, 11.66 percent, from 2010 to 2015; do you agree?
13
MR. BARRETT:
Yes, I see those numbers.
14
MR. SHEPHERD:
But then when we go down to total
15
compensation for nuclear, which is lines 5 through 8, we
16
see that the total compensation actually goes up from 2010
17
to 2015 by 5.6 percent.
18
MR. BARRETT:
I see that number, yes.
19
MR. SHEPHERD:
That's right, right?
Now, that total
20
compensation includes some of your pension, but not all of
21
your pension, right, and some of your other post-employment
22
benefits, but not all of it.
23
MR. BARRETT:
Yes, that's correct.
24
MR. SHEPHERD:
Do we have somewhere how much of that
25
is pension and other post-employment benefits and how much
26
is not?
27
28
MR. BARRETT:
I don't believe that's in the record,
but we are working on kind of what we call a normalized
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version of this table, which would strip out the changes in
2
pension and OPEB, so if you just want to look at the comp
3
change over this period, we will be able to strip that out.
4
MR. SHEPHERD:
I am actually going to ask you for a
5
specific undertaking about that in a second, but we are
6
thinking along the same lines here.
7
So if you look at line 9 here -- this I nuclear
8
compensation per FTE -- in 2010, the average compensation
9
of a nuclear employee, of these -- what is it, 9,300
10
nuclear employees, was $152,365, right?
11
MR. BARRETT:
12
MR. SHEPHERD:
13
MR. BARRETT:
14
MR. SHEPHERD:
15
16
Sorry, which line was that?
Line 9 on our page 5.
Oh, okay.
Yes, I see it.
And that's now increased by 20 percent
to 2015 to 182,123, right?
MR. BARRETT:
Yes.
And as we've explained, the
17
increase is mostly due to changes in pension and OPEB
18
costs.
19
MR. SHEPHERD:
And we are going to follow that up.
20
I actually tried to do these calculations for the
21
various components, tried to get the information that would
22
help understand what's the increase in your average
23
compensation without the change in pension and other post-
24
employment benefits, but that information isn't actually
25
available in the application anywhere, is it?
26
Let me rephrase that.
27
MR. BARRETT:
28
MR. SHEPHERD:
Yes.
It's not possible to the take this
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table with the information that's in the application and
2
strip out, entirely, pension and other post-employment
3
benefits, because we don't know what those numbers are,
4
broken down.
5
MR. BARRETT:
I am not sure that's correct, sir.
6
Yeah, there is -- you really would have to look at the
7
numbers that are in the compensation and benefits exhibits,
8
F4, tab 3, schedule 1.
9
You are starting to get into an area where you are
10
probably better to discuss the specifics of the math with
11
the comp and –- and people who specifically developed this
12
schedule.
13
MR. SHEPHERD:
Certainly that's what we want to do.
14
And the reason I am raising it now is I have some general
15
questions I want to ask about it.
16
MR. BARRETT:
Sure.
17
MR. SHEPHERD:
But the specific thing I want to do is
18
-- because we want to divide up the impact on compensation
19
without pension and other post-employment benefits, and
20
with.
21
we cross-examine your comp panel.
22
23
So -- and we want to have that available to us when
MR. BARRETT:
And we are working on that schedule as
we speak.
24
MR. SHEPHERD:
Here is what I am going to ask you to
25
do.
Can you undertake to take this spreadsheet which we
26
provided to you and put the numbers in without any pension
27
and other post-employment benefits?
28
entirely?
Just strip it out
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MR. SMITH:
We can do that.
I do note that at Exhibit
2
F4, tab 3, schedule 1, page 2 of 43, there is a separate
3
line in that table that takes out pension and OPEB costs
4
since 2010.
5
All of which is to say that we can do the undertaking.
6
MR. SHEPHERD:
7
8
9
10
component, right?
MR. MAUTI:
Yeah, I -- that is not for each
That's only total?
That is a total amount for all
compensation.
MR. SHEPHERD:
I'm asking you to do it for each
11
component.
12
personnel; how much did their compensation increase,
13
separate from the pension and other post-employment benefit
14
increase?
15
16
So we can see, for example, your nuclear
MR. BARRETT:
I think we understand what you are
seeking, and that work is underway, sir.
17
MR. MILLAR:
Pardon me, Mr. Shepherd.
18
MS. HARE:
19
MR. MILLAR:
20
UNDERTAKING NO. J3.5:
21
EACH COMPONENT EXCLUDING PENSION AND OPEB COSTS.
22
MS. HARE:
We will give that an undertaking number.
Yes.
J3.5.
TO UPDATE SEC SPREADSHEET FOR
And I think it is good that you are working
23
on it, but we want to make sure that that is filed in
24
advance of the panel, so that people have an opportunity to
25
review it before the cross-examination.
26
MR. BARRETT:
We will absolutely ensure that.
27
MS. HARE:
28
MR. SHEPHERD:
Thank you.
Now, if you go to page 7 of our
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materials, this is the same description, but it just
2
happens to be that -- we are now down at the bottom --
3
these are the totals for the entire organization.
4
And these totals show that you're forecasting that
5
your total compensation per person -- per FTE, which is per
6
person -- in 2015 is $181,445.
7
MR. BARRETT:
8
MR. SHEPHERD:
9
10
Is that a fair reflection of the
compensation cost to you of each employee on average in
2015?
11
12
I see that number, yes.
MR. BARRETT:
As I understand how this calculation is
done, I think it's in the ballpark, sir.
13
MR. SHEPHERD:
And is it fair to say that about, give
14
or take, 40 percent of that is pension and other post-
15
employment benefits and the rest is all other compensation?
16
MR. MAUTI:
I believe the number may be closer to
17
50 percent, but...
18
MR. SHEPHERD:
19
MR. MAUTI:
20
21
50 percent?
Somewhere in that range between 40 to 50,
yes.
MR. SHEPHERD:
So each employee on average is costing
22
you 90,000 a year in pension and other post-employment
23
benefits?
24
25
26
90,000?
MR. MAUTI:
50 percent.
Over the years, in the range of 40 to
Maybe in the mid-40s, but...
MR. SHEPHERD:
Is that something that we can find out?
27
A, what it is now, what you are forecasting for 2014 and
28
2015, and what the percentage has been of total pension and
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other post-employment benefit costs for each previous year
2
from 2010 to 2013?
3
MR. MAUTI:
Is that something we can find out?
You want the component, the percentage of
4
the burden related to pension and other post-employment
5
benefits from 2010 to 2015?
6
MR. SHEPHERD:
That's right.
7
MR. MAUTI:
Yes, that's...
8
MR. SMITH:
We can do that.
9
MR. MILLAR:
J3.6.
10
UNDERTAKING NO. J3.6:
TO PROVIDE PERCENTAGE OF BURDEN
11
RELATED TO PENSION AND OTHER POST-EMPLOYMENT BENEFITS
12
FROM 2010 TO 2015 FOR EACH COMPONENT.
13
MR. SHEPHERD:
Obviously we will see that in time for
14
the compensation panel, but in the meantime, has that be
15
been increasing?
16
MR. MAUTI:
It has, right?
General average since 2010, given the
17
lower discount rates experienced and the impact that would
18
have on those costs, yes, they have generally been
19
increasing.
20
21
22
MR. SHEPHERD:
And the mortality tables too, right?
The change in the mortality?
MR. MAUTI:
The change in the mortality would be as a
23
result of our first and second impact statements, so yes,
24
the final number for revenue requirement would include
25
those.
26
MR. SHEPHERD:
Okay.
And just offhand, do you know
27
what sort of range it was in 2010?
28
right?
It wasn't 40 percent,
It was, like, 30 percent or 35 percent, and now
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2
3
it's closer to 50?
MR. MAUTI:
I can't remember back in 2010, off the top
of my head.
4
MR. SHEPHERD:
We will wait for the undertaking.
5
You will recall at the technical conference we asked
6
you about the sunshine list; you are familiar with the
7
sunshine list?
8
MR. MAUTI:
We are.
9
MR. SHEPHERD:
And in JT 2.18, you provided by way of
10
undertaking confirmation that in 2013 approximately 8,000
11
OPG employees were paid compensation in excess of $100,000;
12
is that right?
13
14
15
16
MR. BARRETT:
Let me just turn that up, sir.
the reference number again?
MR. SHEPHERD:
materials.
It's actually on page 12 of our
It's JT2.18.
17
MR. BARRETT:
18
MR. SHEPHERD:
19
Yes.
I have that.
So you will agree that approximately
8,000, just under 8,000, were on the sunshine list in 2013?
20
MR. BARRETT:
21
undertaking is 7,958.
22
What was
Yes.
MR. SHEPHERD:
The number we have in the
And can you tell me or can you
23
undertake to confirm whether the calculations of what
24
people are paid when you do the sunshine list includes the
25
full cost of pension and other post-employment benefits, or
26
whether it is only the current service cost?
27
28
I thought it was the current services cost, and
obviously it makes a big difference, right?
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MR. MAUTI:
Again, perhaps the compensation panel can
2
better explain it, but from my understanding is what makes
3
it on to the sunshine list is based on someone's T4'd
4
earnings in the previous year.
5
include an accrued cost for pension or other post-
6
employment benefits.
7
8
MR. SHEPHERD:
Ah.
Those T4 earnings don’t
So it's even lower?
It's not even
all the current service costs that are in, right?
9
MR. MAUTI:
There would be components of burden, but
10
specifically for the accrual for pension and other post-
11
employment benefits, no, they are not included in the T4'd
12
costs.
13
MR. SHEPHERD:
So then we look at these 8,000
14
employees or 7,958 employees that are making over 100,000;
15
we shouldn't sort of mentally adjust it by saying, well,
16
yeah, but half of that is pensions, because it's not,
17
right?
18
on?
19
20
21
This is actually what they got paid and paid tax
MR. BARRETT:
This is their T4 number, as we
understand it.
MR. SHEPHERD:
Okay.
Now, we asked you to -- we put
22
to you a list of people that made more than $200,000.
23
calculation, right?
24
Same
All still from the sunshine list.
And in JT2.19, which is at page 13 of our materials,
25
you provided us with a sort of sorted list of the people in
26
2013 that made more than $200,000 at OPG; you see that?
27
28
MR. BARRETT:
I do, and I think one of the issues
around that undertaking was to identify people still with
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2
the company or people that had left the company.
MR. SHEPHERD:
That's right, and in fact, of the --
3
you will agree there is 520 names on this list.
4
at Ontario Power Generation in 2013 made more than
5
$200,000,right?
6
actually counted it.
7
8
9
10
520 people
Will you accept that subject to check?
MR. BARRETT:
I will accept that subject to check.
I
I
haven't done that counting.
MR. SHEPHERD:
All right.
And of that 39 are on the
list but are no longer with OPG.
11
MR. BARRETT:
As of April 24th, 2014.
12
MR. SHEPHERD:
All right.
In 2014 would you forecast
13
that the number of employees on the sunshine list would go
14
up or down?
15
16
MR. BARRETT:
forecast.
As far as I know, we don't do that
So I have no basis for --
17
MR. SHEPHERD:
18
MR. BARRETT:
19
MR. SHEPHERD:
20
You can't speculate.
I can't speculate on that, sir.
That's fair enough.
Do you know how
many people were on the list from 2010, '11 and '12?
21
MR. BARRETT:
No, sir.
22
MR. SHEPHERD:
You have those lists, right?
You have
23
big spreadsheets that have those lists.
24
and advise us how many were on the list in each of those
25
years?
26
27
28
MR. BARRETT:
Can you just count
Sorry, this is on the list above
200,000?
MR. SHEPHERD:
Actually, I was going to ask for both,
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but compared to the 7,958, I would like to know was it
2
lower or higher in the last three years, the previous three
3
years, and compared to the 520, was the over 200 lower or
4
higher?
5
compensation.
6
We are trying to assess the direction of
Can you do that?
MR. SMITH:
Well, Madam Chair, this was a question
7
that was asked at the technical conference.
8
did the work as it was requested.
9
public.
We obviously
The sunshine list is
I understand the request, but at a certain point
10
these things are going to take the witnesses' time during
11
the hearing.
12
given that the information is not -- it's publicly
13
available to anybody.
14
I don't think it's an appropriate request,
MS. HARE:
Mr. Shepherd could have got it --
That's fine.
Mr. Shepherd could do it.
15
Then he will put it to the witnesses to confirm, and they
16
will say they need to take time to review it, so why not
17
have them do it in the first place?
18
MR. SHEPHERD:
It won't take long.
Madam Chair, it's actually easier than
19
that.
They prepared originally as an Excel spreadsheet.
20
All they would do is count the lines.
21
if you take it from the Ministry's website it's difficult
22
to download it in Excel format without getting it all
23
messed up, and so you can't count.
24
MS. HARE:
25
OPG to respond to.
26
MR. SMITH:
27
MR. MILLAR:
28
The problem is that
I think it's an appropriate question for
Okay.
J3.7, and that's for both total and over
$200,000, Mr. Shepherd?
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MR. SHEPHERD:
That's right.
2
UNDERTAKING NO. J3.7:
3
THE YEARS FOR TOTAL AND OVER $200,000 AMOUNTS.
4
MR. SHEPHERD:
TO PROVIDE THE COMPARISONS OVER
Now, the reason I took you to the
5
sunshine list is because we see in the tables on page 7 of
6
our materials this -- these high average compensation
7
numbers, and I was trying to get a sense of whether that's
8
skewed badly by the pension and other post-employment
9
benefits.
Clearly it's not, right?
You still have very
10
high compensation levels on average for your employees; is
11
that true?
12
MR. BARRETT:
We have the compensation levels that are
13
reflective from our collective agreements for our
14
represented staff, and we have various compensation levels
15
for our management staff which we think are appropriate.
16
MR. SHEPHERD:
Well -- so let me turn to then page 8
17
of our materials, because I do have some questions about
18
that.
19
JT2.33, in which we have now calculated the compensation
20
per FTE, full-time equivalent, for each of the categories,
21
and I just want to ask you a couple of questions about
22
that.
And this is -- again, this information is from
23
If you see on line 38 on page 8 of our materials, this
24
is compensation per full-time equivalent for the management
25
category.
26
27
28
Can you confirm that the management category is not
just management, it's all non-union staff?
MR. BARRETT:
That is how we organize our information,
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2
sir.
MR. SHEPHERD:
Okay.
So this includes, like,
3
administrative support and things like that, lower-paid
4
people, as well as Mr. Mitchell and yourself and others;
5
right?
6
MR. BARRETT:
It includes all non-represented staff.
7
MR. SHEPHERD:
And what we see is that over the period
8
from 2010 to 2015 you are only reducing the numbers of
9
those people by 2.3 percent, but their average compensation
10
is only going up by 7.2 percent.
11
some sort of freeze in effect?
12
MR. BARRETT:
Is that because there was
Yeah, management has been subject to a
13
pay freeze for an extended period.
14
in year 3 or year 4 of that period.
15
government policy statement.
16
are probably best addressed with the comp panel.
17
MR. SHEPHERD:
I am not sure if we are
This was subject to
But again, those specifics
But what I am trying to get at the high
18
level is that then you have -- you still have a 7 percent
19
increase, and that would be because of pension and other
20
post-employment benefits and things like that increasing
21
which you can't control; right?
22
23
24
MR. BARRETT:
Certainly that would be a driver pushing
the costs up.
MR. SHEPHERD:
Okay.
Now, I am going to skip the
25
Society, not because I don't like them, but just because I
26
only have so much time.
27
Workers' Union, and that's lines 42 to 44.
28
see that on average the compensation for a member of that
And I want to go to the Power
And you will
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union in 2010 was 136,523; you see that?
2
MR. BARRETT:
3
MR. SHEPHERD:
4
I do see that number.
going to be up to 172,217 as of 2015.
5
MR. BARRETT:
6
MR. SHEPHERD:
7
You are now forecasting that it is
Yes, I see that number.
You see that?
So those numbers are
correct, as far as you know?
8
MR. BARRETT:
As far as I know, sir, yes.
9
MR. SHEPHERD:
So that 26 percent increase, that's not
10
primarily pension and other post-employment benefits, is
11
it?
12
MR. MAUTI:
Yes, a significant portion of that
13
increase would be pension and other post-employment
14
benefits.
15
MR. SHEPHERD:
Well, it can't be that much, because
16
management, which is under a freeze, had only 7 percent,
17
right, increase over five years, so clearly you are not
18
enriching the Power Workers' Union's pensions at the
19
expense of management, are you?
20
21
MR. MAUTI:
Well, the 7.28 percent you reference is a
net --
22
MR. SHEPHERD:
23
MR. MAUTI:
Yes.
Again, that's stripping out the component
24
of that that would be pension and OPEB, which we are in the
25
process of doing.
26
It's --
MR. SHEPHERD:
I understand.
What I am wondering is,
27
is there some significant component of line 44, the
28
compensation per full-time equivalent for the Power
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Workers' Union members?
2
component of that that is increased over time or things of
3
that nature?
4
MR. MAUTI:
Is there some significant
It would reflect the negotiated
5
collective-agreement changes that are embedded as part of
6
the compensation for PWU.
7
MR. SHEPHERD:
Understood.
And so that was about
8
2.7 percent a year or something like that?
9
a -- I seem to recall that.
10
MR. MAUTI:
2.75?
Is that
The schedule goes back to 2010, so there
11
would be various increases from 2010 onwards that are
12
compounded to get to a portion of that number that you are
13
looking at.
14
MR. SHEPHERD:
So that 26 percent, though, would be --
15
let's call it 15 percent through scheduled agreement --
16
scheduled increases, in that range?
17
MR. MAUTI:
Over a five-year period, 3 percent a year,
18
you get into your 15 percent, that's probably somewhere in
19
the range.
20
MR. SHEPHERD:
Okay.
And what I am driving at here
21
is, is there any significant component of that that is
22
increased over time; do you know?
23
MR. MAUTI:
Sorry, I don't follow your question,
24
"increased over time".
25
MR. SHEPHERD:
Yeah, so you are going from 136,000 to
26
172,000 per employee?
One of the reasons you can do that
27
is because they got more overtime in.
28
pay them more overtime in 2015.
You are expecting to
Is that one of the
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2
reasons?
MR. BARRETT:
As far as I know, that's not a driver of
3
this increase.
4
the percentage increases reflected in the collective
5
agreements and in the cost related to increasing pension
6
and other post-employment benefit costs over this period.
7
I think the two biggest drivers will be
MR. SHEPHERD:
All right.
I want to turn to another
8
area, and Madam Chair, I have about -- I think I have about
9
15 minutes left, plus my extra two minutes for acronyms.
10
MS. HARE:
11
MR. SHEPHERD:
12
13
14
15
16
17
18
Yes, that's fine.
I will have to drop some stuff in any
cross, but I will finish on time.
MS. HARE:
Actually, by my calculation you have got
until quarter after 12:00.
MR. SHEPHERD:
to drop as much.
Oh, really?
Oh, amazing.
I won't have
Your math is better than mine.
Ontario Power Generation has a history of problems
with cost control; is that fair?
19
MR. BARRETT:
I don't accept that, sir.
20
MR. SHEPHERD:
So for example, your predecessor,
21
Ontario Hydro, basically went bankrupt because of cost
22
overruns on capital projects, right?
23
MR. BARRETT:
I don't think that's accurate, sir.
24
MR. SHEPHERD:
Well, they couldn't pay their debts,
25
and so they debts had to be offloaded.
26
bankruptcy, right?
27
28
MR. BARRETT:
That sounds like
Again, I don't think that is accurate.
There was a financial restructuring as a consequence of a
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government policy decision to move from a regulated power
2
cost model to a market model.
3
transition, the government undertook an analysis of what
4
costs or what asset level would be sustainable in that new
5
market environment.
And as part of that
6
But absent that policy decision, Ontario Hydro was
7
financially sound, and I think in the last few years of its
8
operation was making significant payments against its
9
outstanding debt levels.
10
MR. SHEPHERD:
All right.
In your first payment
11
amounts case, the Board expressed concern about your high
12
compensation levels, right?
13
MR. BARRETT:
If you have a specific reference, but I
14
think -- if you want to get into it we could probably look
15
at a specific reference, but I think that's generally a
16
fair characterization.
17
MR. SHEPHERD:
And in fact, in the last payment
18
amounts application in EB-2010-0008, the Board disallowed
19
$145 million of compensation costs, right?
20
MR. BARRETT:
21
MR. SHEPHERD:
22
That is correct, sir.
And that is currently before the
Supreme Court of Canada, the issue of that?
23
MR. BARRETT:
Yes, that is right, sir.
24
MR. SHEPHERD:
Okay.
And I just want to ask a little
25
bit about that.
We asked you a little bit about that in
26
the technical conference, which I won't go to again, but if
27
you take a look at JT2.10 -- which is at page 27 of our
28
material -- now, I understand that you updated this last
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week and I don't have the updated one in here, but I don't
2
think the numbers for the years that I am dealing with are
3
much different.
4
want, but I think that it's true, isn't it, that for the
5
period covered by your last payment amounts application --
6
which has ended up being 2011, '12 and '13, right?
7
it was originally '11 and '12 and then you didn't come back
8
in for 2013, so you had three years --
9
10
So if you -- you can correct me if you
MR. BARRETT:
Because
Yes, those rates continued into 2013.
MR. SHEPHERD:
So in those three years, you saved
11
$216 million, under your business transformation, on
12
compensation costs, right?
13
years -- and I am actually using your corrected numbers,
14
which I think is 216 million.
15
MR. BARRETT:
16
MR. SHEPHERD:
You add up the three in those
That looks about right, sir.
And the disallowance was actually
17
$72.5 million a year for two years, so you actually saved
18
almost exactly what they disallowed, right?
19
20
21
MR. BARRETT:
Yes, sir.
Those numbers are in the same
ballpark, yes.
MR. SHEPHERD:
You have had numerous benchmarking
22
studies over the past several years, and many of them have
23
found components of your cost levels to be higher than they
24
should be?
25
MR. BARRETT:
They have found --
26
MR. SHEPHERD:
27
MR. BARRETT:
28
MR. SHEPHERD:
Not all of them.
Pardon me?
Not all of them, but many of them?
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MR. BARRETT:
The benchmarking analysis in the current
2
filing shows, relative to various peer groups, that our
3
compensation levels for our represented staff are higher
4
than certain measures of those peer group compensation
5
levels.
6
MR. SHEPHERD:
Just -- we are going to ask more about
7
benchmarking in the other panels, of course, but can you
8
tell me, have you changed -- in the last two or three
9
years, have you changed your policies with respect to how
10
you benchmark costs or whether you benchmark costs?
11
MR. BARRETT:
I wouldn't necessarily say we have a
12
policy.
13
done that you would be familiar with.
14
Scott Madden methodology that we employ in our nuclear
15
organization, and that methodology has been consistently
16
applied since we started that approach, with a few minor
17
adjustments.
18
There is individual benchmarking analyses that are
MR. SHEPHERD:
Like, there is the
What I am really trying to get at here
19
is I see the KPMG report has a list of benchmarking studies
20
going back to 2002/'3, like that, and you have in one of
21
your interrogatory -- or your undertaking responses, JT2.14
22
-- which I think is in the material somewhere, although I
23
can't find it offhand -- you have a list of benchmarking
24
studies since 2010?
25
26
27
28
MR. BARRETT:
A list of major benchmarking studies,
yes.
MR. SHEPHERD:
And it appears to me -- and tell me
whether this is a fair conclusion –- that -- this is --
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JT2.14 is at page 9 of our materials.
2
years, anyway, most of your major benchmarking has been in
3
response to the Ontario Energy Board telling you to
4
benchmark; is that fair?
5
Board asked you to, or told you to?
6
MR. BARRETT:
7
MR. SHEPHERD:
8
MR. BARRETT:
9
10
That in recent
The big ones are because the
If you look at the list in JT2.14 -Sure.
-- the nuclear staffing benchmarking
analysis was certainly in response to a Board directive.
The specific approach under the other nuclear
11
benchmarking process was certainly informed by the OEB, as
12
was the uranium procurement program.
13
from the Board.
14
MR. SHEPHERD:
15
over Scott Madden.
16
asked you to do it, right?
17
18
19
20
21
MR. BARRETT:
That was a direction
Before you get too far, you skipped
Scott Madden was also because the Board
Yeah, that's the nuclear benchmarking
reports in the first line.
MR. SHEPHERD:
Well, and then the second one,
Goodnight, was also the Board asking you to do it, right?
MR. BARRETT:
Yes, that's correct, sir.
And then the
22
third one, which was the uranium procurement, that was
23
again pursuant to a Board direction.
24
I think the next four or five are things the company
25
did as a matter of course in terms of reviewing its
26
operations and looking for insight to improve.
27
I think that's also true for lines 9, 10 and 11.
28
Line 12 was something that was directed by the OEB and
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2
3
4
has been filed.
And line 13 was something that the company undertook
on its own.
So I think it's a mix.
Certainly I would accept the
5
proposition that as a consequence of regulation and the
6
Board's directions, we are doing more benchmarking than we
7
have done historically.
8
MR. SHEPHERD:
9
10
The reason I ask that is because prior
to your being regulated, you did benchmark a number of
things, right?
11
MR. BARRETT:
Yes, that's correct.
12
MR. SHEPHERD:
And then we saw those in the KPMG
13
report, where they assess some of those older studies,
14
right?
15
So I am asking did you change your approach and become
16
more sort of:
17
opposed to:
18
We benchmark if the Board tells us to, as
We benchmark for management purposes?
MR. BARRETT:
No, I don't think that's -- that would
19
be my sense of the situation.
20
example, let's look at the Scott Madden.
21
company has, as we said in the last case, you know, seen
22
the value of doing that analysis, and has taken that to
23
heart.
24
I think that -– so, for
I think that the
So we use that as part of our regular business
25
planning and operational planning, and we see significant
26
value from that.
27
adopting a standard methodology and applying that
28
methodology on a consistent basis.
And we see significant value from
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So we do a Scott Madden-type analysis each and every
2
year, and we use that as part of our top-down business
3
planning.
4
MR. SHEPHERD:
This list of major benchmarking studies
5
that you have in JT2.14, these are all on the record in
6
this proceeding; is that right?
7
MR. BARRETT:
Most of them are.
Some of them are not.
8
So for example, item 4 is not in the record, as far as I
9
understand it, nor is 5, "Recharging our work force," or
10
number 6, "Review of the dam safety program."
11
But I think the majority of these are in the record.
12
MR. SHEPHERD:
13
14
15
Okay.
I am still on cost control
issues; I just sort of segued there.
You did have a cost overrun on Niagara tunnel?
heard about that the last couple of days, right?
16
MR. BARRETT:
17
MR. SHEPHERD:
We did, sir.
And indeed, pretty well all of your
18
past capital projects have had some significant cost
19
overrun?
They -- all the big capital projects?
20
MR. BARRETT:
21
MR. SHEPHERD:
22
23
We
I don't think that's accurate.
Can you name a capital project that was
more than a billion that didn't have a major cost overrun?
MR. BARRETT:
My understanding is the second Pickering
24
unit that was returned to service was returned very close
25
to the final approved budget for that project.
26
27
28
MR. SHEPHERD:
Yeah, but the final approved budget was
after several iterations and it went up a lot, right?
MR. BARRETT:
There was some significant learnings
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from the first return to service, and those were reflected
2
in the budget estimate that went forward for final
3
approval.
4
I think there was also the safe storage project within
5
the nuclear operations, which is in the order of about
6
$300 million, which was brought in more or less on budget
7
or slightly below.
8
MR. SHEPHERD:
Correct me if I am wrong, but it is
9
true, isn't it, that the Darlington refurbishment project,
10
your upcoming big capital project, now has a significantly
11
higher budget than it did the last time you were in for
12
rate approval; right?
13
MR. BARRETT:
14
15
I don't think that's correct, sir.
Can
you help me understand how you got that?
MR. SHEPHERD:
Well, I thought your range the last
16
time you were in was something like 6- to 10 billion, and
17
you are currently saying 12.9; is that right?
18
doing this off the top of my head, but I...
19
MR. BARRETT:
I am just
I believe those were an apples-to-
20
oranges comparison.
I think the 6 to 10 was overnight
21
costs and the 12.9 is inclusive of escalation and interest.
22
So -- and again, these are numbers probably best addressed
23
with the Darlington refurb witnesses who are much more
24
familiar with it than I am --
25
MR. SHEPHERD:
It'll certainly come up, I'm sure.
26
I would like to know, though, is it true that you
27
already have cost overruns on the Darlington refurbishment
28
project?
Is that factually correct?
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MR. BARRETT:
I think there are projects that are
2
beyond the original approved budget in some of the projects
3
that are attendant to that Darlington refurb project.
4
5
6
MR. SHEPHERD:
So you are currently spending more than
you expected to be.
MR. BARRETT:
On certain projects.
I don't know
7
whether that's true in aggregate for the list of projects
8
which are currently underway.
9
something that you could probably get better evidence from
10
11
Again, that's probably
Mr. Rose and Mr. Reiner, who will be up later.
MR. SHEPHERD:
Well, we are presumably going to get
12
that sort of information in the update on Darlington
13
anyway; right?
14
MR. SMITH:
Well, I am not in a position to advise
15
beyond what I said at the outset of the hearing, which is
16
that that work is underway, so what's specifically included
17
in it I don't know, but I do expect that Darlington refurb
18
panel will be in a position to discuss Darlington refurb-
19
related costs.
20
MR. SHEPHERD:
Madam Chair, I am flagging a concern so
21
that when they prepare this updated information, if there
22
are cost overruns, they know now, we would like to see the
23
details and we are going to ask about them.
24
MS. HARE:
Yes, I think that's fine.
But I also don't
25
think you got an answer to your question, which was, do you
26
have any major projects that were not in a cost overrun
27
position from the original budget, never mind that then the
28
budget was changed, updated, and, you know, increased.
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2
3
4
From the original budget, do you have a record of how
many were not then over budget?
MR. BARRETT:
I don't, sitting here.
That is
something that could be reviewed and provided.
5
MS. HARE:
Is that of interest to you, Mr. Shepherd?
6
MR. SHEPHERD:
That would be a great undertaking, a
7
list of projects that came in at or under the original
8
budget.
9
MR. SMITH:
The question was in relation to capital
10
projects over a billion dollars.
11
undertaking is?
12
13
14
MR. SHEPHERD:
Is that what the
It is whatever is helpful to the Board.
I was just trying to make it easy.
MR. BARRETT:
We will consider the general theme of
15
the request and see what information that we can provide
16
that would be helpful.
17
MR. SHEPHERD:
18
MS. HARE:
Excellent.
Well, just a second.
If the original
19
budget was under a billion it wouldn't be on the table, so
20
I don't think you want to agree to a billion.
21
22
23
MR. SHEPHERD:
No, I was thinking of a billion final
cost.
MR. BARRETT:
What I would suggest, Madam Chair, is
24
that we look at large projects, which might be in the order
25
of a couple hundred million dollars, and that might provide
26
a big enough population to be meaningful.
27
MS. HARE:
Okay.
28
MR. SHEPHERD:
That is fine, thank you.
That would be useful.
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MR. MILLAR:
J3.8.
2
UNDERTAKING NO. J3.8:
3
LARGE PROJECTS THAT CAME IN AT OR UNDER THE ORIGINAL
4
BUDGET.
5
MR. SHEPHERD:
TO PROVIDE A RECORD OF HOW MANY
Now, I asked these questions about cost
6
control because in the last payment-amounts case my
7
recollection is that you -- in fact, I think it was you,
8
Mr. Barrett -- discussed at some length your solution to
9
that, which was top-down budgeting, right?
You were going
10
to go from -- instead of budgeting from a bottom-up point
11
of view -- people ask for money and you decide yes or no --
12
you were going to set an envelope and force people to
13
budget within it; is that right?
14
MR. BARRETT:
We certainly have adopted a top-down
15
budgeting in parts of the organization.
16
can speak to the budgeting process in greater specificity.
17
MR. MAUTI:
Sure.
Perhaps Mr. Mauti
In general, in terms of cost
18
control, since business transformation is the largest
19
component of our change in our organization, we are
20
specifically removing dollars from people's budgets and
21
envelopes, tracking to the lower headcounts through our
22
redesigned organization that we are moving towards, and as
23
attrition happens and as the work force shrinks and
24
reduces, we are taking dollars away from people's budgets
25
and envelopes and ensuring that as they restructure and
26
look at their work that they have less and less dollars to
27
do so.
28
MR. SHEPHERD:
See, that doesn't sound like top-down
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to me.
2
if your costs are going to go down, we are not going to
3
give you any more money, but that's cost-driven.
4
not reasonableness-driven.
5
That sounds actually like bottom-up.
It's, well,
That's
My understanding of top-down budgeting was that
6
management sets reasonable cost levels and then says to the
7
departments, Give us a budget within this envelope, right?
8
MR. MAUTI:
Correct.
9
describe that somewhat.
10
MR. SHEPHERD:
Okay.
And I thought I was trying to
So how is it that changes in the
11
costs that a department actually has changes the reasonable
12
level of their cost?
13
understand this.
14
MR. MAUTI:
Help me understand that.
I don't
That sounds like bottom-up to me.
Well, again, from a corporate wide
15
perspective we look at what expected trends are, in terms
16
of reducing headcount.
17
and what we feel to be a sustainable long-term sort of view
18
of what the costs should be within each one of those
19
organizations, and as the initiatives are ongoing to try to
20
get to that change, we, for example, do not allow for just
21
a simple replacement of people as they leave.
22
challenging the business units to derive and to come up
23
with initiatives and shed costs in a way that would
24
actually match the attrition levels, and we selected
25
attrition, as we thought that would be the most appropriate
26
way to manage this given our demographics and the expected
27
reduction of staff over a period of time.
28
was the most cost-effective and appropriate way to reduce
We look at the organization design
We are
We thought that
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expenditures within each one of the business units and
2
challenge them to get down to those lower levels of cost
3
and to still achieve the key work they had to.
4
MR. SHEPHERD:
So your fundamental budgeting
5
methodology continues to be top-down, as it did in the last
6
payment case; right?
7
MR. MAUTI:
The last payment-amounts application would
8
have been based on the 2009 to '14 business planning
9
process and cycle.
I think we have progressed since that
10
point, and I think we have more of that top-down emphasis,
11
looking at the finances, the organization, sustainability,
12
cash-flow measures, and ensuring that we can manage to that
13
point.
14
MR. SHEPHERD:
But if you are still using top-down,
15
then I assume that means that someone in your organization,
16
whether it's executive management or your board of
17
directors or somebody, sat down and said, Okay.
18
reasonable budget envelope for the 2014/'15 period is a
19
30 percent increase, 2.2 billion more dollars.
20
sat down and decided that was the reasonable envelope to
21
use; is that right?
22
MR. MAUTI:
A
Somebody
Well, again, if you are referencing the
23
drivers of deficiency, I think we have gone through what
24
some of those changes would be and some of those factors,
25
including impact on pension and other post-employment
26
benefits, or change in discount rates from putting into
27
service a key asset in the Niagara tunnel that will provide
28
electricity for the next 90 years and the impact of
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revision of the nuclear liabilities.
2
MR. SHEPHERD:
That didn't answer my question.
I am
3
sorry, Mr. Mauti, the -- I asked a simple question.
4
somebody sit down, somebody senior in the organization, or
5
the board of directors sit down and say, Before you do your
6
budget, a reasonable level would be a 30 percent increase,
7
another $2.2 billion?
8
That is how top-down works; right?
9
MR. BARRETT:
Did
Did somebody make that judgment?
Well, I would say in response, that is
10
not how it operates within OPG, based on my understanding.
11
I mean, the focus is from the top-down business unit --
12
top-down business planning process is to focus on the costs
13
that we need to do the work to safely and reliably operate
14
our facilities.
15
of the regulatory constructs, things like deemed capital
16
structure, rates of return allowed by the Board, et cetera.
17
Those things ultimately produce a rate increase, but the
18
focus of the --
19
20
21
Then you would layer on top of that some
MR. SHEPHERD:
That sounds an awful lot like bottom-
up.
MR. BARRETT:
No, I would say that there's -- I am
22
really speaking to the sequence of things.
23
on creating a business planning envelope that reflects the
24
work that needs to be done in order to safely and reliably
25
operate the plants.
26
that and ultimately calculating the rate increase that
27
flows therefrom.
28
MR. SHEPHERD:
So the focus is
There's a couple steps between doing
So if you're -- I was going to use
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BlackBerry as an example, but probably they are a bad one.
2
If you are Apple, you can look at the marketplace and say:
3
We can charge $800 for an iPhone, let's say -- I don't have
4
an iPhone; I don't know how much they cost -- and we think
5
we can sell at $800 dollars, we can sell X number of them,
6
so we have a budget of $3.7 billion.
7
have to spend.
8
like that?
9
That's how much we
You don't do that, right?
MR. BARRETT:
You do nothing
I think the parallel I would draw
10
between ourselves and Apple is that -- there is not a
11
parallels, but one of the parallels I would draw is that
12
everybody who is in business is trying to lower their costs
13
in every way that they can, and we are engaged in that
14
every day and through our business planning process.
15
So I suspect with Apple they have to take a view about
16
what kind of revenues they can earn, but even if they think
17
they can make lots of money, they are still probably very
18
focused on lowering their costs.
19
than them in the that respect.
20
MR. SHEPHERD:
And we are no different
I only have a couple of minutes left,
21
but I do want to talk about your business transformation
22
initiative.
23
board of directors on December 14th, 2011, which is
24
included in the evidence as attachment 1 to SEC
25
Interrogatory No. 5, which is L1.2-17.SEC 5; is that
26
correct?
And that's described in a presentation to your
27
MS. BUTCHER:
Yes, that's correct.
28
MR. SHEPHERD:
And by the way, let me just ask you,
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that presentation, is that the actual plan or is that a
2
presentation of the plan?
3
4
5
6
MS. BUTCHER:
This was the presentation to a committee
of the board at the time -MR. SHEPHERD:
well?
7
MS. BUTCHER:
8
MR. SHEPHERD:
9
initiative, right?
A plan as far as implementation?
10
MS. BUTCHER:
11
MR. SHEPHERD:
12
13
14
So is there an actual plan somewhere as
Yeah -- no, you are presenting your
Yes.
Is there a document behind that
presentation which is your actual plan for the initiative?
MS. BUTCHER:
There are many different components, so
no, there is not one consolidated plan.
15
MR. SHEPHERD:
Not one document?
Okay.
16
And the concept of business transformation is to move
17
to what you called, Mr. Barrett, at the technical
18
conference -- and we have included this quote in our
19
materials -- a "centre-led organization," right?
20
MR. BARRETT:
Yes, that's correct.
21
MR. SHEPHERD:
And basically, if I understand this
22
correctly -- I will be sure to cut to the chase here -- you
23
had many functions that were duplicated around the
24
organization, so the plan was to centralize those
25
functions, which would save money, and operate with less
26
people?
27
28
MR. BARRETT:
That was one of the key features of
business transformation.
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MR. SHEPHERD:
So each business unit would have its
2
own public affairs department, and you would have a central
3
one?
4
5
MR. BARRETT:
Not -- not every business unit would
have a public affairs department.
6
MR. SHEPHERD:
7
MR. BARRETT:
8
MR. SHEPHERD:
9
We had multiple, yes.
So you said:
whole bunch of those.
10
need less people?
11
MR. BARRETT:
12
centralizing.
13
message.
14
But you had multiple?
Well, we don't need a
We need one, and that will mean we
That is one of the benefits of
It also allowed for more consistency of
MR. SHEPHERD:
Well, that's right.
I was going to get
15
to that.
16
with less people, right?
17
able to do it better because you are more consistent and
18
because you can get people with higher levels of expertise
19
doing it, right?
20
It's not just a question of being able to do it
MR. BARRETT:
It's also a question of being
I am just noodling on the issue of
21
"better."
I mean, companies go through debates about
22
centralization versus decentralization, whether or not it's
23
better to have people in central corporate departments
24
providing services, or have people providing services at
25
the work face.
26
evolution of a company where a decentralized model may make
27
more sense than a centralized model, but generally speaking
28
we are in a -- we're of a view that moving to this centre-
And there are different times in an
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led organization, even though we might still have public
2
affairs people embedded in nuclear or embedded in
3
hydroelectric and providing services at the plant site, is
4
a way of saving money, promoting kind of a greater
5
consistency of message, and developing expertise.
6
MR. SHEPHERD:
And you can also rely more on new
7
technologies when you are doing that, because you can, if
8
you have -- for example, one of the areas was training,
9
right?
You centralized training?
10
MR. BARRETT:
Yes, we did.
11
MR. SHEPHERD:
And one of things you can do, then, is
12
you can say:
13
operation, we could have one person who is getting the new
14
technologies and deploying them out to all the various
15
training needs we have, right?
16
Well, now that we have a central training
MR,. BARRETT:
That may be something we are looking
17
at.
18
centralizing training.
19
MR. SHEPHERD:
20
21
Certainly there are scale efficiencies from
So what was the genesis of this plan?
Why did you start this in the first place?
MS. BUTCHER:
I think in 2010, the board and executive
22
recognized we were going to see some substantial reductions
23
in our production over the coming years, and we needed to
24
the ensure that our costs were in line with that.
25
MR. SHEPHERD:
So this was responsive to the Board's
26
criticisms of your costs, right?
27
recommendation that you put more emphasis on cost control?
28
MS. BUTCHER:
And the Board's
I imagine that was a component of the
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consideration.
2
significant production reductions that we expected to see.
3
MS. HARE:
I think the other key component was the
Ms. Butcher, just to clarify, you said "the
4
board and executive."
5
the OPG board?
6
MS. BUTCHER:
7
MR. SHEPHERD:
Yes, sorry.
Oh, you don't you didn't mean the
8
Ontario Energy Board?
9
MS. BUTCHER:
10
11
12
13
18
So somebody at the board said:
This is
No, I think the OPG executive had early
discussions with the board about the need to do this.
MR. SHEPHERD:
So it was internally generated?
It
wasn't external criticism of your costs?
16
17
The OPG board of directors.
We have to fix this?
MS. BUTCHER:
14
15
No, sorry.
MR. SHEPHERD:
a problem.
When you said "the board," you meant
MS. BUTCHER:
That is my understanding.
No, it was
not.
MR. SHEPHERD:
Interesting.
And the most obvious
19
question about this plan -- and we are going to talk about
20
some of the details in other panels, I am just trying to
21
get a high-level thing here -- is why weren't you doing
22
this stuff before?
23
don't have six training departments in one organization, or
24
six finance departments or whatever you had.
25
26
27
28
It seems sort of self-evident that you
I don't know.
Why did it take some sort of special initiative to
change it?
MS. BUTCHER:
As Mr. Barrett discussed, I think
there's benefits to being decentralized and benefits to
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moving towards a more centre-led organization.
2
key consideration was the fact that the production was
3
reducing, and what -- we needed to ensure we had the
4
flexibility to align staff with where we actually needed
5
the work to be done.
6
I believe a
So as we brought some of the coal units out of
7
production, it made more sense to have a centre-led supply
8
chain, for instance, where, if you had more significant
9
nuclear supply chain projects, you could align the staff
10
there, versus continuing to have a separate function in
11
hydrothermal and maybe not need a staff there.
12
MR. SHEPHERD:
But the question I am asking is -- this
13
seems pretty obvious, and so I am asking the question:
14
Wasn't it obvious ten years ago?
15
MR. BARRETT:
Five years ago?
Yeah, again, I think that it's not
16
necessarily obvious, because there is always a tension
17
between centralization and decentralization.
18
that as you centralize people, you move them away from
19
people on the plant floor and on the working face, and you
20
lose some of the benefit that comes from that, from local
21
control and direction and providing local services.
22
My sense is
As Ms. Butcher indicated, as cost became an
23
increasingly important part of the tension between
24
decentralization and centralization, we had to the
25
sacrifice some of that, benefits from decentralization, and
26
move to a centralized model.
27
28
MR. SHEPHERD:
Was there some sense in which the --
where you were in 2010 had sort of evolved without
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sufficient control, so you had -- people had built up a
2
training organization at Darlington, let's say, and another
3
one somewhere else, and it had sort of evolved without any
4
overall review?
5
Whoa, wait a second, we have to stop that?
And when you looked at it, you said:
6
MS. BUTCHER:
7
MR. SHEPHERD:
8
MS. BUTCHER:
9
I don't think that was fair.
No?
No, I don't think that was a
consideration in moving to centre-led.
10
11
is that fair?
MR. SHEPHERD:
So the fact that you had all this
duplication, that was intentional?
12
MS. BUTCHER:
I think that was the structure that we
13
thought best worked, given the situation at the time.
14
I think in 2010 we looked and we reassessed that.
15
MR. SHEPHERD:
16
Chair.
17
me.
18
And
I know I have gone over my time, Madam
I have one more question, if the Board will indulge
And I see that the actual presentation is up on the
19
screen.
20
to page 8 of that -- sorry, page 139, 8.
21
One back.
22
I wonder if you can -- whoever is doing it can go
That's page 9.
So tell me whether I am understanding this right.
23
Your business plan already had in it, you see in the top
24
bullet, headcount reductions of 1,000 people.
25
MS. BUTCHER:
26
MR. SHEPHERD:
Right?
Yes, that's correct.
You said -- and that was the 2012 to
27
'14.
You say then in the second-last bullet you can get an
28
additional reduction of 1,500 in late 2014, early 2015 in
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this program; right?
2
MS. BUTCHER:
3
this was written, yes.
4
MR. SHEPHERD:
5
That was our expectation at the time
headcount of 2,500.
6
MS. BUTCHER:
7
MR. SHEPHERD:
8
9
10
11
So that's a total reduction in
Yes.
As of the end of 2015 you are expecting
it to be around 1,000; is that right?
MS. BUTCHER:
No, at the end of 2015 we expect it to
be at 2,000.
MR. SHEPHERD:
Okay.
Because I am looking at page 7
12
of our materials -- now, this is FTEs, but the FTE and
13
head-count numbers are pretty close, and I am seeing that
14
your total FTEs reduction from 2010 even, not even from
15
2012, is only 1,085.
16
MS. BUTCHER:
I think there is a couple things that
17
aren't comparable here.
18
comparison.
19
only reflect in here as half.
20
One is the FTE to head-count
So the reductions that we expect in 2015 would
MR. SHEPHERD:
Well, yeah, except that your PowerPoint
21
says early 2015, which means that it would be pretty close
22
to FTEs, right?
23
MS. BUTCHER:
24
MR. SHEPHERD:
25
MS. BUTCHER:
26
27
28
Which was our expectation in 2012.
That's no longer your expectation.
No, we do not expect that by early 2015
we will have head-count reductions of the 2,500.
MR. SHEPHERD:
So you also expected to save
$250 million a year through this program, and you no longer
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2
3
4
5
expect that in 2015, right, or you do?
MS. BUTCHER:
The -- I would guess that the
250 million is based on the full savings of the 2,500.
MR. SHEPHERD:
Okay.
I have no further questions.
Thank you for your time --
6
MS. HARE:
Thank you, Mr. Shepherd.
7
Okay.
8
MR. THOMPSON:
9
MS. HARE:
Mr. Thompson, you are up next.
You are last.
I guess I'm up.
And Mr. Thompson, we would like to break
10
around one o'clock or some suitable time that works, in
11
terms of your cross-examination, and then you'll resume
12
after lunch.
13
MR. THOMPSON:
Thank you.
I did circulate a
14
compendium -- at least I intended to circulate a
15
compendium.
16
it downloaded.
17
18
We did have some difficulty with OPG getting
But I have a few copies here to be marked.
MR. MILLAR:
Madam Chair, this will be Exhibit K3.6,
and we will bring copies up for you.
19
EXHIBIT NO. K3.6:
20
MS. HARE:
21
22
CME AND CCC COMPENDIUM.
Also, Mr. Thompson, do I understand you are
going to be asking questions on behalf of both CME and CCC?
MR. THOMPSON:
That is my understanding.
Ms. Girvan
23
is here, and she can jump in in case I don't perform as
24
anticipated --
25
MS. GIRVAN:
26
MR. THOMPSON:
27
28
Yes, that is correct.
-- which is a very high probability.
So that was K3.6, was it, Mr. Millar?
MR. MILLAR:
Yes, thank you.
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CROSS-EXAMINATION BY MR. THOMPSON:
2
MR. THOMPSON:
So panel, I would like to start, if I
3
might, just with your responsibilities, and I understand
4
that you are here to provide an overview to speak to -- as
5
well as to speak to regulatory issues and to business
6
transformation.
7
that capture the scope of your responsibilities?
That's the heading of the panel?
8
MR. BARRETT:
9
MR. THOMPSON:
Does
It does, sir.
Thank you.
And perhaps I could start
10
with OPG, the entity and its interrelationship with the
11
Province of Ontario.
12
tab 1, it's the memorandum of agreement between OPG and the
13
Crown.
14
correct?
And that dates back to several years ago.
MR. BARRETT:
16
MR. THOMPSON:
18
Yes, that's correct, sir.
Now, this indicates that OPG is wholly
owned by the Government of Ontario; is that correct?
MR. BARRETT:
Yes, it's an OPC -- sorry, Ontario
19
Business Corporation Act corporation, and its sole
20
shareholder is the Government of Ontario.
21
Am I
17th of August, 2005?
15
17
And we do have in the compendium at
MR. THOMPSON:
And the document indicates that the
22
Government of Ontario is represented in its relationships
23
with OPG by both the Minister of Energy and the Minister of
24
Finance in some areas.
25
MR. BARRETT:
26
MR. THOMPSON:
27
28
Is that fair?
Yes, I think that's fair.
And can we agree that the Government of
Ontario is itself a legal entity separate from OPG?
MR. SMITH:
Yes, that's correct.
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MR. THOMPSON:
Thank you.
Now, I see in the second
2
paragraph of this memorandum which is at tab 1 that OPG is
3
to operate as a commercial enterprise with an independent
4
board of directors.
5
understand that to mean?
6
MR. BARRETT:
Can you tell me, Mr. Barrett, what you
Well, as I said earlier, we are an
7
Ontario Business Corporation Act company, and the
8
commercial enterprise aspect of it is that we are directed
9
towards achieving commercial returns from the investment in
10
the company to act as a commercial enterprise would.
11
an independent board of directors is, as I understand,
12
independent from members of the government.
13
MR. THOMPSON:
So you understand that to mean
14
independent from the Government of Ontario?
15
correct?
16
MR. BARRETT:
And
Yes.
Is that
So our board is appointed by the
17
Government of Ontario, but the membership on that board is
18
independent of the government.
19
MR. THOMPSON:
Thank you.
Now, in terms of the
20
functioning of OPG, we see, I think, in section B on the
21
second page of the document the governance framework, and
22
then on C it's generation performance and investment plans.
23
And when I read that and read your prefiled evidence I got
24
the impression that OPG's planning, business planning, does
25
not become operative until the Government of Ontario has
26
concurred in it.
27
MR. BARRETT:
28
"operative", sir?
Have I got that straight?
Can you just explain what you mean by
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MR. THOMPSON:
Well, without the concurrence of the
2
Government of Ontario, your business plans would not be
3
implemented.
4
That's what I mean.
MR. MAUTI:
I am not sure I would typify it that way.
5
The board of directors approves the business plan for
6
Ontario Power Generation.
7
the province, they follow a process that results in
8
concurrence of that, but that does not prohibit OPG from
9
acting, implementing the business plan on an ongoing basis.
10
11
12
MR. THOMPSON:
or not?
As part of the requirements by
So is concurrence a condition precedent
What happens if you don't get it?
MR. BARRETT:
We continue to operate the company
13
pursuant to the business plans that are approved by the OPG
14
board of directors, Ontario Power Generation board of
15
directors.
16
MR. THOMPSON:
So have you ever had a situation where
17
the plan was not concurred in by the Province of Ontario
18
but you went ahead with it in any event?
19
MR. MAUTI:
I believe every business plan that has
20
been submitted has ultimately been approved or concurred
21
with by the Province of Ontario in some form.
22
MR. THOMPSON:
Right.
But can it be an iterative
23
process where the Province says, for example, 30 percent is
24
too high; go back and cut it?
25
case where you were asking for an increase which the
26
Government of Ontario thought was too high?
27
28
MR. BARRETT:
Didn't that happen the last
I don't think that's quite my
recollection of it, sir.
We did receive a letter from the
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Minister encouraging us to undertake efforts to reduce the
2
rates that we were proposing to charge to customers.
3
my recollection of the sequencing of things is that
4
management -- OPG management had already made a decision to
5
defer the application for a period of time to see if there
6
were things that could be done to reduce the rate increase
7
before that Minister's letter was issued and received.
But
8
But more generally, I would say that in order to
9
direct the company in the way that you are contemplating,
10
the government would have to issue a shareholder directive
11
under the Ontario Business Corporation Act.
12
MR. THOMPSON:
13
the last go-round.
14
All right.
Well, let's just talk about
What is your recollection of the initial -- the level
15
of the revenue requirement increase that was initially
16
being sought and to which the government had a pause
17
reaction?
18
then you refiled and came back with something in the order
19
of 6 percent.
20
I thought it was in the order of 9 percent and
MR. BARRETT:
That's generally true, sir.
We had
21
talked in the stakeholders about a 9.6 percent weighted
22
average increase inclusive of rates and riders, and we
23
subsequently filed on the basis of a 6.2 percent increase,
24
again inclusive of rates and riders.
25
MR. THOMPSON:
And the outcome of that case was -- in
26
terms of increase, was it zero percent?
27
of magnitude?
28
MR. BARRETT:
Or in that order
It was actually a negative increase for
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2
the company, in the order of 0.8 percent.
MR. THOMPSON:
So in this case, when the -- well,
3
let's just get the chronology in terms of the business plan
4
that the government was asked to concur in.
5
evidence on the record where -- I think it's your 2013 to
6
'15 business plan was, if I am not mistaken, completed
7
sometime in 2012; have I got that straight?
8
9
10
11
MR. MAUTI:
The business plan, the '13 to '15 business
plan was approved by OPG's board of directors in May of
2013.
MR. THOMPSON:
I thought in the initial filing, there
12
was a business plan of an earlier date.
13
missing something here.
14
There is
And maybe I am
I thought it was in the business planning and
15
budgeting section, A2, tab 2, schedule 1, and there is a
16
document in the initial -- oh, I see.
17
it's May 16, 2013 that was presented.
18
MR. BARRETT:
You are right.
So
If it's helpful, we subsequently filed
19
the 2014-'16 business plan, which I believe was approved in
20
November of 2013, and it was also provide as part of the
21
record.
22
MR. THOMPSON:
Okay.
So that's where I'm confused.
23
You presented the 2013 to '15 in May 16, 2013.
24
approved by -- the government concurred in that
25
presentation; have I got that straight?
26
27
28
MR. MAUTI:
Yes.
That was
The government did concur with the
'13 to '15 business plan.
MR. THOMPSON:
And then there is also in the record a
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reference to the 2014 to '16 business plan, Mr. Barrett
2
says.
3
not mistaken.
I think that's in an interrogatory response, if I am
4
And what impact has that had on this application?
5
MR. BARRETT:
We actually filed an impact statement;
6
that was the first impact statement that looked at the
7
material changes to the revenue requirement flowing from
8
the '14 to '16 business plan.
9
10
11
12
MR. THOMPSON:
Okay.
And so is this application now
based on the' 14 to' 16 business plan?
MR. BARRETT:
It's not that straightforward.
The
application --
13
MR. THOMPSON:
14
MR. BARRETT:
15
the 2013 to '15 plan.
16
obligation to update our materials to reflect material
17
changes in circumstances.
18
that through impact statements.
19
Nothing is straightforward.
The application is principally based on
However, as you aware, we have
As a matter of practice, we do
So we filed the first impact statement in December of
20
'13, reflecting material changes from the 2014 to '16
21
business plan.
22
May of 2014, reflecting some material changes from the
23
first impact statement.
24
was an up-to-date record in advance of the start of the
25
settlement conference.
26
27
28
And we filed a second impact statement in
And we wanted to do that so there
So that is what really drove the timing of that second
impact statement.
MR. THOMPSON:
Okay.
So just to nail this down, it
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started with the 2013 to '15, in May of 2013, right?
2
MR. BARRETT:
3
MR. THOMPSON:
4
Yes, that's right.
Board, I think it was in September?
5
MR. BARRETT:
6
MR. THOMPSON:
7
something.
8
government?
9
Your application was filed with this
September 27th, 2013.
So you must have been waiting on
Were you waiting on concurrence from the
MR. BARRETT:
No, the timing of that filing was
10
principally driven by the regulation of the newly regulated
11
facilities.
12
understand in the spring of 2013 that the government was
13
contemplating making that policy change, and on that basis
14
we began to gather information to put together a filing
15
that would include the additional 48 hydroelectric
16
stations.
17
As I testified to on Friday, we began to
And we worked on that through the spring and into the
18
summer, to be ready to file that application as soon as the
19
government gave a public signal that they were, in fact,
20
going to make that policy change.
21
was the posting of a draft regulation or commentary about a
22
draft regulation on the regulation -- government regulation
23
website, which happened on September 13th, 2013.
24
MR. THOMPSON:
Okay.
And that public signal
So was -- what prompted that
25
policy change, or the consideration of that policy change
26
in the spring of 2013?
27
MR. BARRETT:
28
It might be worthwhile to look at the
posting itself, because there is some commentary from the
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2
3
government in that posting.
MR. THOMPSON:
think.
4
MR. BARRETT:
5
MR. THOMPSON:
6
7
8
9
10
It's probably in our compendium, I
Let's just have a look.
I think what you are looking for, you
will find at tab 10.
MR. BARRETT:
I don't actually have tabs in my
version, but... yes, we have that.
MR. THOMPSON:
MR. BARRETT:
Is that what you are referring to?
Yes.
So if you look at -- I guess there
11
is one, two, three -- the fourth paragraph down in the
12
"Summary of proposal" section.
13
MR. THOMPSON:
14
MR. BARRETT:
Right.
You will see that they say:
15
"Prescribing OPG's unregulated non-contract
16
hydroelectric assets would improve OPG's ability
17
to properly plan for and maintain these important
18
hydroelectric assets.
19
critical to the operation of Ontario's
20
electricity market as they represent
21
approximately 3,000 megawatts of reliable, clean
22
generation that are able to respond to changing
23
load demands in the province."
24
These facilities are
And I think in the previous paragraph there is a
25
recognition that these facilities represent the last
26
significant generation assets in the province that rely
27
entirely on the Ontario hourly -- Ontario electricity
28
market price.
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And my takeaway from these two paragraphs is that
2
there was a recognition on the part of the government that
3
the market price in Ontario was too low and was not at a
4
level that would allow OPG to properly plan and maintain
5
these assets in the long run.
6
that deficiency.
7
MR. THOMPSON:
Okay.
And they wanted to address
So just, again, to get the
8
context clear, these assets had been operated within the
9
ambit of -- or outside the ambit of regulation since 2005
10
or since -- I guess since Ontario Hydro was broken up; is
11
that right?
12
MR. BARRETT:
Yeah, since the -- again, the history is
13
a little bit more complicated, but since the market was
14
opened they were receiving market prices, and prior to that
15
they were subject to other pricing regimes.
16
17
18
MR. THOMPSON:
Okay.
And was HOEP always lower than
cost, or was that a new development?
MR. BARRETT:
It's certainly in the last few years
19
there has been very low market prices.
20
during that entire period whether the market price was
21
below the cost of owning and operating these facilities.
22
I don't know if
I mean, most recently in Q1 of 2014 market prices were
23
quite high as a consequence of a very cold winter and very
24
high gas prices, very high demand, and during that first
25
quarter these assets received a market price which was well
26
above the $47 that are in the rate application.
27
28
MR. THOMPSON:
All right.
Well, Mr. Shepherd's
pointed out that in the average in 2013 it was $28, and you
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used $30, I think, in your estimates, and you are asking
2
for payment amount north of $47, I believe, for these
3
assets.
4
MR. BARRETT:
Yeah, again, to me that highlights the
5
deficiency that arises from just relying on HOEP, because
6
the $47 is basically a cost of service, so it's recovering
7
the cost of operation plus earning a return at the Board's
8
approved levels on the assets.
9
MR. THOMPSON:
So did OPG go to the shareholder, the
10
government, and say, we are not making our costs here.
11
have to do something?
12
initiative?
13
MR. MAUTI:
You
Or was it the government's
It was part of the review of the business
14
plan that we have and the briefings that we do and updating
15
on business plan progress.
16
Corporations Act company, was charged with earning
17
appropriate amounts of return for the shareholder.
18
were able to see that the operations of our unregulated
19
business was substantially below what the expectation would
20
be and in some quarters actually generating a loss, so
21
there was concern about the impact of that part of the
22
operation on OPG as a whole, and we did reiterate that the
23
ability to maintain and to operate these assets in the
24
future was dependent currently on the prices of the Ontario
25
hourly electricity price and the volatility that that would
26
cause, and that might impact our ability going forward.
OPG is an Ontario Business
They
27
So we did lay that out for the province, and they saw
28
the impact on our financials, and I think the response and
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how they have acted accordingly in terms of putting them
2
under regulation would be, I would assume, their response
3
to that risk we laid out for them.
4
MR. THOMPSON:
So playing that back, what I hear you
5
saying is you asked to be -- have these assets put into
6
regulation, and the government concurred; is that fair?
7
MR. MAUTI:
We identified the current impact those
8
assets would have based on the current prices and the risks
9
involved with that, and I think as a response to that as
10
our shareholder and their ability to set policy they took
11
the actions they took.
12
MR. THOMPSON:
But the impact on consumers or
13
ratepayers is an increase in the cost of that production by
14
more than 50 percent, compared to the $30 that you used in
15
your prefiled evidence.
16
MR. BARRETT:
Yeah, but I think you can appreciate,
17
sir, that it would not be possible to continue to operate
18
these facilities and recover less than their full costs.
19
It wasn't possible for OPG to continue to subsidize their
20
operations indefinitely.
21
MR. THOMPSON:
Well, when we are talking about OPG and
22
its shareholder, are we not really talking about allocating
23
costs between ratepayers and taxpayers?
24
MR. SMITH:
Maybe it's just me.
I am not sure I
25
understand the question, Mr. Thompson.
26
just rephrase it.
27
28
MR. THOMPSON:
Perhaps you could
Well, if the government has to pick up
costs of carrying these assets, that's a taxpayer burden,
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in my parlance, whereas if the ratepayers have to pick them
2
up then that's a ratepayer burden.
3
And so my question is, when we are dealing with OPG
4
and its shareholder and the question of who picks up these
5
costs, is it not essentially an allocation issue as between
6
ratepayers and taxpayers?
7
MR. BARRETT:
I wouldn't say it quite that way, sir. I
8
think within the four corners of OEB regulation there is an
9
acceptance of the stand-alone principle, and under that
10
regulation is done without regard to ownership of a
11
company.
12
view that's been applied to OPG since it was regulated by
13
the OEB.
14
I think that's well-accepted, and the principal
Again, there was -- we were in a situation where we
15
were operating assets.
We were not recovering the costs of
16
those operations, we were not able to return the capital
17
that was invested in those facilities, and something had to
18
change.
19
That could have been a contract with the OPA, that
20
could have been regulation by the OEB, that could have been
21
us deciding not to operate certain of those facilities
22
anymore because we were losing money.
23
24
25
Ultimately the government made a policy choice about
how they wanted to respond to the circumstances.
MR. THOMPSON:
Okay.
Well, in this document that you
26
referenced us to, the proposed amendments, it talks about
27
HOEP being a wholesale market price, and you have used that
28
phrase "it's market price"; is that fair?
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2
MR. BARRETT:
It is, with a little asterisk on the
word "market" --
3
MR. THOMPSON:
4
MR. BARRETT:
What do you mean by that?
Because other than these assets everyone
5
else in Ontario gets a contract.
6
to have plants, the Mississagi plants, which we
7
subsequently sold or decontrolled to Brookfield.
8
Brookfield operates those plants pursuant to an OPA
9
contract, and as far as I know the published price that
10
they receive is $69 per megawatt-hour, so --
11
12
So for example, we used
MR. THOMPSON:
But that's your shareholder off on a
frolic, right, doing its own thing through the OPA.
13
MR. BARRETT:
I have no response to that, sir.
But I
14
think the salient point is that market is -- the situation
15
in Ontario is that we have a very unusual market, and a
16
circumstance where only these set of assets are receiving
17
the market price, the market price is well below the cost
18
of operating those facilities, is untenable in the long
19
run.
20
21
22
MR. THOMPSON:
Was HOEP intended to be a surrogate for
a competitive marketplace?
MR. BARRETT:
I think the original philosophy of
23
moving to a market in Ontario was to have all of the
24
generation in the province paid under the Ontario market
25
clearing price.
26
whether or not you would overlay that with a capacity
27
market as you see in other electricity markets, but to date
28
we haven't adopted a capacity market.
There was consideration earlier about
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MR. THOMPSON:
So does this regulation that the
2
government has passed, that you asked them to pass, in
3
effect deprive ratepayers of a competitive market price and
4
require them to pay a higher regulated price?
5
the effect of what is happening here?
6
MR. BARRETT:
Is that not
Yes, I think that is the bottom-line
7
effect in the most recent period.
If you look at $30 as
8
being what these facilities were earning on average in the
9
market at the proposed regulated rate of $47 -- but again,
10
I come back to another bottom line, that it would not be
11
possible for us to continue to subsidize the operation of
12
these facilities and not recover our cost and return the
13
capital that we have invested in these facilities.
14
15
MR. THOMPSON:
who is going to pay.
16
17
I understand that, and the question is
So what does this make of the competitive market for
electricity, this new regulation?
18
MR. BARRETT:
Is it basically dead?
It certainly has a number of very
19
significant challenges and has had for many years, so it
20
may not be dead, but I would suggest it's --
21
22
MR. THOMPSON:
all.
23
MR. BARRETT:
24
characterization.
25
It's on life support, if it's alive at
That's probably not an unfair
MR. THOMPSON:
Now, coming back then to this question
26
of independence that we were discussing, back to the
27
memorandum, I just want to, again, get a better feel for
28
OPG's interaction with its shareholder.
And I see down in
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C1 that you are to establish three- to five-year
2
performance targets and key measures are to be agreed upon
3
with the shareholder and the Minister of Finance.
4
Can you give me an example of what those key measures
5
are in this business plan that's before the Board that
6
would require the agreement of the Minister of Finance?
7
8
9
10
MR. MAUTI:
reference.
I am sorry, I was just turning back to the
Can you repeat your question?
MR. THOMPSON:
Yes, the -- so you have the reference
there, the section C of the memorandum?
11
MR. MAUTI:
Yes, I have that.
12
MR. THOMPSON:
Paragraph 1?
And it says:
13
"Key measures are to be agreed upon with the
14
shareholder and the Minister of Finance."
15
My question was:
Could you give me some examples of
16
the key measures in the business plan that you have
17
presented to the government and with which it concurs and
18
you are asking this Board to approve, that had to -- that
19
required the agreement of the Minister of Finance?
20
MR. MAUTI:
The key measure that is used is the net
21
income of Ontario Power Generation and its impact on the
22
government's consolidated financial results.
23
be the primary measure.
So that would
24
The province also looks to the amount of payments we
25
make to them through a variety of means, including income
26
taxes, gross revenue charges on its hydroelectric
27
operations, and basically the cash flows that are going to
28
the province.
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Those are the two key measures.
2
MR. THOMPSON:
3
The paragraph goes on and says -- it
talks about:
4
"... performance targets that will be benchmarked
5
against the performance of the top quartile of
6
electricity-generating companies in North
7
America."
8
Do those remain as key measures?
9
MR. MAUTI:
Through the submission of business plans
10
from our key business units, including nuclear and
11
hydroelectric, that are also part of the materials in
12
evidence, they also are reviewed by and are subject to
13
review in terms of the performance objectives of those key
14
generators.
15
And...
MR. THOMPSON:
Okay.
16
quartile in most measures?
17
low on the totem pole.
18
MR. MAUTI:
And does OPG come within the top
I have understood it was pretty
Again, probably a better question to talk
19
to the hydroelectric and nuclear panels specifically, and
20
their business plans, but the measures themselves are not
21
just cost-related; they span the whole gamut of operations,
22
including safety measures, reliability measures and
23
whatnot.
24
MR. THOMPSON:
Thank you.
Now, down in section E,
25
this is "Communication and reporting," and it looks like
26
OPG has to make sure the Minister of Finance receives
27
timely reports, that its shareholder receives timely
28
reports.
The OPG board meets with the Minister of Energy
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four times a year.
2
3
That is my paraphrase of the first three paragraphs;
is that the way it works?
4
MR. BARRETT:
5
MR. THOMPSON:
6
Not entirely.
Could you describe how it works in
practice?
7
MR. BARRETT:
Well, just with reference to the
8
quarterly meetings, as a matter of practice those meetings
9
do not happen.
They happen occasionally, but not as --
10
four times a year.
11
MR. THOMPSON:
12
Okay, well, the next paragraph, 4,
talks about:
13
"OPG's chair, president and CEO and the Minister
14
of Energy will meet on a regular basis,
15
approximately nine times per year."
16
Does that happen?
17
MR. BARRETT:
18
19
To the best of my knowledge, no, it does
not.
MR. THOMPSON:
So what does happen?
20
calls for communication and reporting.
21
what takes place, please.
22
MR. BARRETT:
This agreement
Just describe to me
I think the practice that has evolved
23
over time is that the kind of principal communication and
24
approval mechanism is through the concurrence with the
25
business plan.
26
There is also periodic communication based on
27
significant developments within the company that our
28
shareholders indicated that it would be interested in.
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I think this kind of -- that communication happens in
2
various levels within the company and through various
3
departments and individuals.
4
5
MR. THOMPSON:
to paragraph 5.
Okay.
Well, let's just go over, then,
It says:
6
"The chair, president and CEO and the Minister of
7
Finance will meet on as as-needed basis."
8
9
Does that meeting take place?
effect taken place in the past 24 months?
10
11
12
13
14
Have meetings to that
MR. MAUTI:
To the best of my knowledge, they have
not.
MR. THOMPSON:
6 says:
"OPG's senior management..."
Of which you folks are a part, I understand.
15
"...and senior officials of the Ministry of
16
Finance will meet on a regular and as-needed
17
basis."
18
Does that happen?
19
MR. MAUTI:
Yes, those meetings do happen.
Myself, as
20
part of the business planning process, likely have several
21
meetings, three to six, during the year with various staff
22
from the Ministry of Energy, in terms of providing
23
briefings and status on the progress on the business plans.
24
And there is regular communication between senior Ministry
25
staff and people in my group in terms of follow-up
26
questions and following up on as-needed issues.
27
28
MR. THOMPSON:
How about you, Mr. Barrett?
Are you a
participant in those meetings as well?
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MR. BARRETT:
Not typically, sir.
2
MR. THOMPSON:
Could you give me an estimate of the
3
number of meetings of the type you've described that took
4
place in the last 12 months?
5
Once every couple of weeks?
6
frequency?
7
MR. MAUTI:
Would it be one a month?
What's the approximate
I would say probably between once a month
8
-- perhaps more than one time a month, depending on the
9
time of year and whatever issues might be of interest.
10
MR. THOMPSON:
And is the Ministry -- is this the
11
purpose of these meetings, to just communicate to the
12
Ministry what you are doing?
13
concurrence?
14
exercise or simply information transmission?
15
Or is it to get their
In other words, is it a co-operative type of
MR. MAUTI:
I would say it's co-operative.
The
16
process for obtaining concurrence for our business plan
17
would go through a new process that the province has
18
instilled, where it has to go to a meeting of the Treasury
19
Board of Cabinet, where the Minister of Energy would table
20
the business plans of the agencies under his control, and
21
so there would be a fuller, more formal process to obtain
22
concurrence.
23
12 to 14 months, I believe.
24
That process has been in place for the last
MR. THOMPSON:
So coming, then, to some of the
25
specifics of this application, the Niagara tunnel, was
26
specific Ministry approval for that project sought and
27
obtained?
28
MR. MAUTI:
For the in-service of the tunnel or the --
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MR. THOMPSON:
Well, the project.
We know the board
2
of directors approved something for 900-and-some-
3
odd million a few years ago, and then there have been
4
further approvals.
5
the Ministry in that particular project.
6
7
8
9
MR. BARRETT:
But I am just curious as to the role of
Probably that's a question better asked
of Mr. Mazza when he -- when he comes up next.
Certainly the government was very involved in the
final decision to proceed with the tunnel project.
I just
10
don't recall whether or not there was a specific directive
11
issued, or what form that might have taken.
12
I certainly do recall the Premier being at a ribbon-
13
cutting ceremony for the project, so there was, at least at
14
that level, a very strong endorsement for it to proceed.
15
MR. MAUTI:
In terms of the business plans themselves,
16
they would have had expenditure forecasts for spending in
17
the Niagara tunnel project and communication about its in-
18
service.
19
was knowledge and acceptance of that as part of our
20
business plan.
21
So as those ones have been concurred with, there
MR. THOMPSON:
Okay.
On the nuclear side, there has
22
been discussion of your business transformation plan,
23
compensation type of issues, headcounts.
24
in on that?
25
26
27
28
Was the Ministry
I know they commissioned the KPMG study, but that was
in 2012.
Were they in on it from the outset?
MR. MAUTI:
I know there were briefings provided to
the Ministry of Energy and Finance on our business
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transformation program, so they were well aware of the
2
program and the objectives and the time frame and the
3
magnitude of changes.
4
embedded in our business plans, they concurred with those
5
plans and the progress we were making on business
6
transformation.
7
MR. THOMPSON:
So they were aware of, and again, as
Would it be fair to characterize the
8
government and its relationship to OPG as being tantamount
9
to a parent entity; i.e., like Enbridge Inc. to EGD or
10
Spectra to Union?
11
be a lot of similarities here.
12
Does that analogy apply?
MR. BARRETT:
I don't think so, sir.
There seem to
I think that it
13
has the role of an interested shareholder, so for example,
14
I think one of the distinctions that I would draw is that
15
parent companies often provide services to subsidiary
16
companies, like treasury function or HR or IT services, and
17
that's not the circumstance here.
18
But I think they are an interested shareholder, and
19
that's not surprising, given that OPG supplies 60 percent
20
of the electricity in the province and represents an
21
investment of tens of billions of dollars.
22
MR. THOMPSON:
23
interested shareholder.
24
OBCA shareholder doesn't have under this memorandum of
25
agreement, like concurring in business plans.
26
MR. SMITH:
Well, I suggest they are more than an
They have a lot of rights that an
Well, if the proposition is that in the
27
instance of a wholly owned company it's not open to a
28
wholly owned -- to the parent of a wholly owned company to
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enter into a memorandum of agreement, that's a legal
2
question, but we don't agree with the conclusion.
3
course, they can under the OBCA.
4
5
MS. HARE:
Mr. Thompson, is this an appropriate time
to break?
6
MR. THOMPSON:
7
MS. HARE:
Yes.
Very appropriate, thanks.
Thank you.
So we will take a little bit
8
longer today.
9
to, so we will come back at 2:15.
10
Of
MR. SMITH:
The Panel has some other business to attend
Madam Chair, if I just might ask briefly,
11
you had indicated at the conclusion of the day, I believe
12
it was on Friday, that the Board was leaning towards a
13
Wednesday attendance, and I just wanted to know whether you
14
had further thoughts in that respect.
15
MS. HARE:
Yes.
We are available to sit Wednesday
16
until one o'clock, subject to any objections from the
17
people having conflicts, in particular your witnesses.
18
MR. SMITH:
Okay.
Thank you.
19
MS. HARE:
20
--- Luncheon recess taken at 1:04 p.m.
21
--- On resuming at 2:27 p.m.
22
DECISION:
23
MS. HARE:
Thank you.
Before we resume, Mr. Thompson, with your
24
cross-examination, the Board would like to take care of a
25
few outstanding confidentiality matters.
26
The Board has reviewed the submissions of OPG and
27
other parties with respect to the confidential treatment of
28
a number of undertaking responses and evidence filed more
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recently by OPG.
2
the Board's judgment, the Board has determined that the
3
following should receive confidential treatment and
4
available in unredacted form only to those parties who
5
filed the declaration and undertaking.
6
Based on the review of submissions and
And these include: Undertakings JT2.2, JT2.3, JT2.8,
7
JT2.9, JT2.34, attachment 1.
8
bit more about that one in particular.
9
I just want to say a little
We understand that the Society of Energy Professionals
10
has not signed the declaration and undertaking, but should
11
they do so, this document would not be available to it
12
without further submissions to the Board.
13
Continuing along which other exhibits, then, would
14
receive confidential treatment, they include Exhibit D2-2-
15
1, attachments 6.5, 6.6 -- I think it's a dash -- 6-7, 7-7,
16
7-5; is that right, Violet?
17
18
Point?
Okay.
Let me go back.
Attachments 6.5, 6.6, 6.7, 7.4 and 7.5.
Exhibit N2-1-
1, tables 2 and 3.
19
In terms of what we don't find to be confidential,
20
would be the response to School's Interrogatory No. 84,
21
which is the CD of hydroelectric benchmarking data.
22
than OPG, individual participants' data are not
23
identifiable.
24
to be on the public record.
25
Other
The Board sees no reason for this study not
OPG takes the position that it participated in the
26
survey subject to confidentiality provisions.
However,
27
these provisions do not bind the Board.
28
it clear on previous occasions that it values benchmarking
The Board has made
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studies and is confident that such studies will continue
2
despite being placed on the public record.
3
With respect to the KPMG report filed on June 12th,
4
which today was given Exhibit No. K3.2, the Board will hear
5
oral submissions, if there are any, at end of day tomorrow,
6
as to whether or not the items proposed to be redacted and
7
kept confidential should be.
8
Secondly, the Board requests OPG to the file with the
9
Board a red-lined version of the material requested, to be
10
11
12
treated as confidential.
Are there any questions arising from the Board's
decision?
13
MR. SMITH:
14
MS. HARE:
15
Mr. Thompson, then if you are ready to proceed?
16
CONTINUED CROSS-EXAMINATION BY MR. THOMPSON:
17
MR. THOMPSON:
18
Panel, just with respect to the tunnel -- and this may
19
be a question that is more properly put to another panel; I
20
am not sure, but I wanted to get some idea of the impact of
21
the regulatory issue of the extent to which some of those
22
expenses might be disallowed.
23
No, Madam Chair.
Thank you.
Yes.
Thank you, Madam Chair.
And there is an exhibit in the record, L4.4, schedule
24
1, Staff 21, which puts the difference between the
25
initially approved budgeted amount of the 985 million by
26
the board of directors and the final costs in the order of
27
$491.4 million.
28
that amount, roughly, sort of big picture?
Are you folks familiar with that exhibit,
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2
3
MR. BARRETT:
That sounds about right, sir.
If you'd
like, we can turn the exhibit up.
MR. THOMPSON:
I think it's on the screen there now.
4
A little further down, I think, is the number.
5
in the answer to subparagraph (a) in that response.
6
MR. BARRETT:
7
MR. THOMPSON:
Yeah, it's
Yes, I see that number.
Okay.
And just asking myself what's
8
the impact of a disallowance of some or all of that amount,
9
am I right that part of that project, if not all of it, has
10
been financed by the Ontario Electricity Financial
11
Corporation?
12
13
14
15
MR. BARRETT:
They have provided financing for the
project, yes.
MR. THOMPSON:
And would it exceed 500 million?
Do
you know the answer to that, by any chance?
16
MR. BARRETT:
I am pretty sure that it does.
17
MR. THOMPSON:
Okay.
So to the extent there was a
18
disallowance of some or all of that amount, would that 500,
19
in effect, just go into the stranded debt category?
20
MR. BARRETT:
No, that's not my understanding.
If
21
there was a disallowance of capital that had been spent by
22
OPG, then it would be reflected in OPG's financial results;
23
it would have to write that amount off, and there would be
24
a net income impact for OPG.
25
MR. THOMPSON:
26
stranded debt category?
27
28
MR. BARRETT:
Okay.
So it wouldn't pop up in the
Not directly.
I think there potentially
is an indirect impact, in the sense that stranded debt gets
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satisfied through payments from OPG and others.
2
extent that those payments might be reduced as a
3
consequence of that, there might be an impact there.
4
MR. THOMPSON:
Okay.
Thank you.
So to the
Just coming back to
5
the discussion you had with Mr. Shepherd, you were using, I
6
think, a 10 percent factor to roughly estimate the value of
7
the consequences of that project?
8
9
MR. BARRETT:
The 10 percent is my rough rule of thumb
in terms of calculating a revenue requirement impact from
10
an in-service capital amount.
11
rate base over the course of a year, roughly a $10 million
12
impact on revenue requirement.
13
MR. THOMPSON:
14
Okay.
Okay.
So again, $100 million in
Thank you very much.
Moving, then, to the newly regulated
15
hydroelectric, and we had some discussion about this before
16
the break and I wanted to probe a little further in terms
17
of the consequences of this measure in terms of revenue
18
requirement.
19
And you had this discussion with Mr. Shepherd, I
20
believe.
21
measure, show an increment to revenue requirement in the
22
order of $350 million.
23
MR. BARRETT:
24
25
And his numbers, using the $28 per megawatt-hour
Exhibit K3.5.
Yes.
Do you recall that?
That can be found on page 2 of
That's the SEC compendium.
MR. THOMPSON:
And that is, as I understand it, is a
26
consequence of moving the assets on OPG's balance sheet
27
into rate base, assets pertaining to the unregulated hydro;
28
is that right?
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MR. BARRETT:
Yes.
It's the revenue requirement
2
impact of prescribing the additional 48 hydroelectric
3
stations.
4
MR. THOMPSON:
Now, am I correct that -- you did
5
circulate last week, I believe, an updated version of A2,
6
T-1, S-1, which shows a new attachment 6, which is the
7
financials for the newly regulated hydroelectric
8
facilities; do I understand that correctly?
9
10
11
MR. BARRETT:
Sorry, are you looking at Exhibit A2,
tab 1, schedule 1, attachment 6?
MR. THOMPSON:
Well, schedule 1, page 6, I guess, is
12
what I have here.
13
-- attached to it is schedule 1, attachment 6, page 1 of 7.
14
There is a blue sheet, and then there is
MR. BARRETT:
Yeah, this is a document entitled
15
"schedule of select assets and liabilities of OPG's newly
16
regulated hydroelectric facilities as at December 31,
17
2013"?
18
MR. THOMPSON:
19
MR. BARRETT:
20
MR. THOMPSON:
Right.
Yes, I have that.
And in the documents that we were
21
discussing this morning, where you were -- there was a
22
discussion of presenting the 2014 to '16 business plan,
23
which I think was presented to Hydro One's board in May of
24
2013?
25
26
MR. MAUTI:
No, the 2014 to '16 business plan, you
said?
27
MR. THOMPSON:
28
MR. MAUTI:
Yes.
That was November of 2013.
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2
MR. BARRETT:
It was the 2013 to 2015 business plan in May?
3
4
It was the earlier business plan in May?
MR. THOMPSON:
Yes.
And I am looking at Exhibit L1.2-
2, AMPCO 4, attachment 1.
5
MR. MAUTI:
Yes, that is the cover page that
6
accompanied the business plan that went to the board of
7
directors.
8
MR. THOMPSON:
Okay.
And in the third paragraph of
9
this document, it talks about, an extraordinary one-time
10
gain of 300 million is to be expected as a result of this
11
transaction in 2014.
12
MR. MAUTI:
13
MR. THOMPSON:
14
all about, please?
15
MR. MAUTI:
That's correct.
And could you just explain what that is
This is the income-tax impact of moving
16
the 48 facilities under regulation.
17
between the book value and the tax value of the assets and
18
the expected -- the timing differences to be recovered
19
through a regulatory process into the future.
20
always been sort of understood as a future tax impact and
21
what you are able to do when you move the assets under
22
regulation, since you have a defined stream and recovery
23
process of those.
24
time change and extraordinary gain in 2014.
25
26
Those had
We were able to book them through a one-
MR. THOMPSON:
Okay.
Now, is that the number that
appears on Exhibit L, tab 9.7, schedule 17, SEC 138?
27
28
It is the difference
MR. BARRETT:
Can we just have that reference again,
sir?
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MR. THOMPSON:
Yes.
Exhibit L, tab 9.7, schedule 17,
2
SEC 138.
3
PP&E, the undepreciated capital cost, and then the future
4
income-tax liability amount is calculated at 25 percent,
5
and the number is not quite 300 million, but it's close.
6
280.7 million.
7
What is shown there is the net book value of
MR. MAUTI:
Yes, that was the estimate at the time.
8
It's a forecast of what those differences would be on the
9
date of regulation, which is targeted for July 1st, 2014.
10
MR. THOMPSON:
Okay.
And so there is what I call a
11
cumulated deferred tax component of this balance sheet that
12
you are moving into regulation in the order of 300 million?
13
MR. MAUTI:
That's correct.
14
MR. THOMPSON:
And then there are the other hard
15
assets, which you are moving in at their net book value;
16
right?
17
Have I got that straight?
MR. MAUTI:
Yes, the book value for those assets as
18
demonstrated in the audited statements that you started
19
this questioning on, yes.
20
21
MR. THOMPSON:
And are -- is OPG assuming that all of
those assets will attract a full rate-base return?
22
MR. BARRETT:
Yes.
23
MR. THOMPSON:
Are we correct that no incremental
24
capital has been issued by OPG with respect to these
25
assets?
26
MR. BARRETT:
No, that's not correct.
27
MR. THOMPSON:
28
happened then, please?
What is correct?
Describe what's
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MR. BARRETT:
Well, the establishment of OPG at the
2
conclusion of the financial restructuring of Ontario Hydro,
3
OPG received a package of assets from the government in
4
exchange for debt and equity that was equivalent to the
5
value of those assets as determined through that financial
6
restructuring process.
7
are real assets that we purchased with debt and equity.
8
MR. THOMPSON:
So from OPG's perspective, those
Was equity raised in the capital
9
markets for this, or was it just the -- I had assumed it
10
was on the stranded debt side of the ledger, but you are
11
telling me something different, I think.
12
MR. BARRETT:
Well, the equity was provided by the
13
Government of Ontario, who is the sole shareholder of the
14
company.
15
MR. THOMPSON:
Yes, but is it not -- are not all of
16
these assets within the stranded debt category now, on
17
which ratepayers are currently paying 7 cents, I think, per
18
kilowatt-hour?
19
MR. BARRETT:
You are talking about the debt
20
retirement charge?
21
MR. THOMPSON:
22
MR. BARRETT:
Yes.
My understanding of the debt retirement
23
charge is that it is to de-fees (ph) the residual stranded
24
debt from the financial restructuring of Ontario Hydro, but
25
I would say these assets are wholly separate from the DRC
26
and the residual stranded debt.
27
28
MR. THOMPSON:
Where is the return on capital coming
from -- well, there isn't any return on capital, because
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you are not making your costs on the unregulated side; is
2
that right?
3
MR. BARRETT:
Yes, as we've indicated earlier as
4
recently as 2012 we had a net loss on the operation of
5
these facilities.
6
MR. THOMPSON:
Well, have you ever made a full equity
7
allowed return on these assets since they were folded into
8
OPG?
9
MR. MAUTI:
I believe during the early days after the
10
market opened in the early 2000s the market price was
11
somewhat volatile, and it actually was at a rate that was
12
probably approaching upwards of $60 a megawatt hour as late
13
as 2008, so during those early periods there would likely
14
be an argument that we were making at least the regulated
15
return on those assets until that period of time, if not
16
more, but the market price has changed dramatically since
17
around 2009, and as we have indicated, it tends to be
18
hovering around the high 20s, low $30 megawatt-hour range
19
currently.
20
MR. THOMPSON:
Let me tell you where I am going with
21
this, and you can tell me -- we can cut to the quick here.
22
In our brief we had included excerpts from the Board's
23
initial decision pertaining to nuclear waste management,
24
the decommissioning.
25
and the issue in that case was whether you could get a full
26
rate-base return on the ARC component of nuclear
27
liabilities, as I recall the issue, in any event.
28
debate turned on whether it should be a full rate or
That was at tab 5 of Exhibit A3.6,
And the
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something different.
2
If you go to page 89 of this decision, the Board said:
3
"It would be inappropriate, in the Board's view,
4
to award OPG a rate-base type of return
5
unamortized ARC when OPG has not had to raise the
6
full amount of ARC as new debt or equity."
7
I thought that analogy applied to this item, the
8
previous state -- the newly regulated hydro assets.
9
it?
10
MR. BARRETT:
I don't think it does, sir.
Does
I think a
11
more useful and on-point precedent from the 0905 hearing
12
process is the treatment of the previously regulated
13
hydroelectric assets.
14
through the same financial restructuring processes as the
15
newly regulated assets, and the Board determined there that
16
they should receive the full standalone return on capital
17
based on the book value that they were required to accept
18
under Regulation 53/05.
19
So those are assets that went
So I think the parallel with those assets is very much
20
on point, and the parallel with the nuclear ARC is not on
21
point.
22
MR. THOMPSON:
Okay.
Now, was there a deferred tax
23
component in the first go-round?
24
traditionally treated deferred taxes as zero-cost capital,
25
and you are asking them to treat it as full rate base
26
capital.
27
MR. BARRETT:
28
MR. MAUTI:
Because the Board has
Just to be clear -I believe there was a deferred tax
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component associated with the first establishment of the
2
previously regulated hydro assets, yes.
3
MR. THOMPSON:
Well, we can check that.
Okay.
So
4
from your perspective, you don't see a cost of capital
5
issue related to this folding in of the newly regulated
6
hydro?
7
MR. BARRETT:
No, given the requirements of Regulation
8
53/05, that the Board accept the asset and liability values
9
for purposes of regulation, given the Board's own precedent
10
with respect to the treatment of the previously regulated
11
hydroelectric assets, which are directly and almost exactly
12
analogous, and also given the Board's legal requirement to
13
observe the fair return standard on capital.
14
15
16
MR. THOMPSON:
Okay.
Well, I will save more ammo for
that in argument.
The other issue, though, is -- that we think is there
17
and raising it because you are the regulatory issues panel,
18
is capital structure.
19
What you are rolling in is hydroelectric stuff, which
20
is much less risky than nuclear, but you are proposing to
21
keep the 47:53, I believe it is, capital structure ratio
22
for the whole; have I got that straight?
23
MR. BARRETT:
Yes, that's correct.
We engaged Ms.
24
McShane to look at that question directly, and her
25
recommendation was that the capital structure remain in its
26
current level, with a view that this set of assets was
27
somewhat less risky than nuclear and more risky than the
28
currently regulated hydroelectric, but on balance, the
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capital structure for the aggregate should remain at the
2
current Board-approved amounts.
3
And there is a report from Ms. McShane, which has been
4
filed, which I can take you to, that explains her thought
5
process and reasoning in coming to that conclusion.
6
the company has adopted her advice.
7
8
9
MR. THOMPSON:
then.
Okay.
And
I will take that up with her,
Thank you.
Do you happen to know what the interest rate is on
10
stranded debt?
In other words, what does the 7 cents per
11
kilowatt-hour represent in interest rate?
12
MR. MAUTI:
No, sir.
13
MR. THOMPSON:
I do not know.
In our material we did include some
14
financials.
I think it was the annual report of the
15
Ontario Electricity Financial Corporation.
16
And at page 18 of that document, the effective rate of
17
interest on its debt portfolio was apparently 5.86 percent.
It's at tab 19.
18
Would you take that, subject to check?
19
MR. BARRETT:
20
I see that on page 18, as the first line
of that page.
21
MR. THOMPSON:
22
And now in terms of the, again, just facts pertaining
23
to the introduction of the government's plan to -- and the
24
introduction of the amendment to Regulation 53/05 to bring
25
new hydro under the umbrella of regulation, we discussed
26
this morning that -- I think that started in September and
27
concluded in November/December 2013; is that...
28
MR. BARRETT:
All right.
Thank you.
There was posting in September,
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September 13th, of the government's intent.
2
process that they use is to post proposed regulations and
3
solicit comments from the public, and then make a final
4
determination after a comment period.
5
6
7
Part of the
And I think the regulation amendment received Royal
assent in November or December of 2013.
MR. THOMPSON:
We've included in our material some
8
information pertaining to an announcement by the
9
government, I think around the same time or perhaps a
10
little bit later, of the plan to eliminate the stranded
11
debt for residential customers at the end of 2015.
12
You will see a document describing that at tab 18 of
13
the brief, and I think we may have other documents to a
14
similar effect.
15
My question is:
Were you folks made aware of that
16
plan?
17
of new hydroelectric into regulation and this debt
18
requirement charge elimination for residential users part
19
of a package of policy changes by the government?
20
And are -- my real question is:
MR. BARRETT:
Are the rolling in
Not to my knowledge, sir.
I will
21
observe, though, that the financial consequences from
22
regulating these hydroelectric assets, including the tax
23
pick-up that Mr. Mauti referenced, would be ultimately
24
consolidated in the books of the province, since they're
25
the sole shareholder of the corporation, but whether or not
26
they were part of a package, I have no idea.
27
28
MR. THOMPSON:
So you weren't consulted on that?
wasn't brought to your attention as part of this
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communication that you had with respect to the province --
2
with the province, pertaining to moving unregulated hydro
3
into regulation?
4
MR. BARRETT:
5
MR. THOMPSON:
6
As far as I know, it was not, sir.
Does anybody else on the panel have any
information on that?
7
MS. BUTCHER:
I do not.
8
MR. MAUTI:
9
MR. THOMPSON:
I do not either, no.
Turning to nuclear, just briefly, if I
10
might -- and we have had considerable discussion with Mr.
11
Shepherd about this, so I don't want to go over that again,
12
but I wanted to just get a few facts about the discussion
13
he was having with you about the compensation disallowance
14
back in the 2010-0008 proceeding.
15
That decision is in the brief at -- it's tabs 6 and 7;
16
6 is the index of the Board's decision and then 7 is the
17
section of the Board's reasoning where the disallowance was
18
made based on references to the benchmark that's described
19
there.
20
You are familiar with that decision, I am sure?
21
MR. BARRETT:
22
MR. THOMPSON:
I am, sir.
And that decision was dated March 10,
23
2011.
And I understood you to -- that the witness panel
24
told Mr. Shepherd this morning that prior to that decision
25
having issued, OPG's directors anticipated the need to
26
transform the organization and scale it down, words to that
27
effect.
28
correctly?
That was sometime in 2010.
Do I understand that
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2
3
MS. BUTCHER:
Yes, my understanding was there was
discussions with the executive prior to -- in 2010.
MR. THOMPSON:
So is it fair to say that the Board's
4
decision, which pointed to problems with your compensation
5
levels, staffing and whatnot, in the spring of 2011 didn't
6
come as any surprise?
7
they were overloaded and had started initiatives to
8
downsize, is the way I understand your testimony.
9
MS. BUTCHER:
The company had already anticipated
I think the company had understood that
10
because the production forecasts were declining over time
11
that we needed to do something to ensure that our costs
12
remained in alignment with our production forecasts.
13
MR. BARRETT:
And just to put a more blunt point to
14
that, as you will understand, the government had made a
15
policy decision to close down the coal plants, so OPG had
16
about -- at one time about 7,000 megawatts of operating
17
coal facilities.
18
So a large part of the thinking around BT or early on
19
was a recognition that we are going to be closing a number
20
of very large facilities and we are going to have to adjust
21
our cost profile to recognize that significantly lower
22
production.
So we had to trim our sails to the new winds.
23
And obviously the Board's decision in the 2011 and
24
2012 case created some additional urgency to do what we
25
could to address our costs.
26
MR. THOMPSON:
Okay.
So are you telling me that the
27
initial anticipation by the OPG board of directors to
28
transform the organization related to the coal plant
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2
3
4
closures primarily?
MS. BUTCHER:
Is that what you are telling me?
I think that was a significant indicator
that things needed to change in OPG.
MR. THOMPSON:
All right.
But was there some
5
anticipation that things might be a little bit bloated on
6
the nuclear side too?
7
MR. BARRETT:
We certainly had seen benchmarking
8
information, and that was a -- we were aware that that was
9
a big part of the discussion in the '11 and '12 case.
10
Certain of our facilities don't benchmark very well for a
11
number of good reasons, but -- so that was a point that we
12
were sensitized to as well.
13
MR. THOMPSON:
And then with Mr. Shepherd, he took you
14
to the presentation of the business transformation
15
initiative, I think it was dated December 14, 2011, so it
16
was a few months after the Board decision.
17
that?
You recall
It's in the interrogatory responses.
18
MS. BUTCHER:
Yes, I have it here.
19
MR. THOMPSON:
Okay.
And yet I guess what puzzles me
20
is, between the issuance of the Board decision and the
21
presentation of that plan, OPG appealed the Board's
22
decision.
23
issued a decision that said you are a little overweight,
24
and you carry on with your downsizing, but you appeal the
25
decision.
26
27
28
So you were, in effect, downsizing.
The Board
Was that an OPG initiative, a Ministry initiative?
Did it require Ministry approval?
MR. BARRETT:
It was an OPG decision to proceed with
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the appeal.
2
of principle, as far as the company was concerned.
3
was the treatment of committed costs, where we had a view
4
around how those costs should be treated in a regulatory
5
context.
6
7
8
9
And that appeal was really focused on an issue
MR. THOMPSON:
That
Was the Ministry asked to concur and
did it decline, or what happened?
MR. BARRETT:
concurrence.
Certainly there was no formal
My recollection of the time was that they
10
were certainly advised, which is what the company does with
11
important developments in its operations, and also, we
12
would have appreciated that this might have a public
13
dimension, a government-owned utility appealing a decision
14
of a government regulator.
15
to that point as well.
16
MR. THOMPSON:
17
Now, so we had the initial presentation of the
18
transformation plan, December 14, 2011, and then in our
19
brief at tab 8 we have the initial court decision,
20
Divisional Court, dismissing OPG's appeal with one dissent.
21
That is shortly after February 14, 2012; right?
22
see that date on the last -- well, it's the second-last
23
page.
24
appropriate, February 14th, 2012.
So we certainly were sensitive
All right.
Thank you.
You will
It actually says it was released Valentine's Day,
25
MR. BARRETT:
Yes, I see that on the top line.
26
MR. THOMPSON:
And by now you are into your business
27
transformation plan.
28
implementation, fair?
It's not merely presentation, it's
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MS. BUTCHER:
That's correct.
2
MR. THOMPSON:
3
MR. BARRETT:
But you still appealed?
Yes, again, as I indicated, there was in
4
our view a very important regulatory principle around the
5
treatment of committed costs, and I think we were heartened
6
by the split decision at the Divisional Court level and
7
decided to proceed further.
8
MR. THOMPSON:
And so we move forward.
Business
9
transformation is in full swing now, and the Court of
10
Appeal -- that decision you will find at tab 9 of our
11
decision -- allowed your appeal on June the 4th of 2013;
12
right?
13
MR. BARRETT:
14
MR. THOMPSON:
15
Yes, that's the date.
Supreme Court of Canada; is that right?
16
MR. BARRETT:
17
MR. THOMPSON:
18
been scheduled?
19
MR. SMITH:
20
21
And now the matter is up before the
Yes, sir, that's correct.
Do you know if the hearing date has
The hearing date has been tentatively
scheduled for December 3rd.
MR. THOMPSON:
In terms of this application, I wanted
22
to find out what implications the 145 million has for this
23
case.
24
evidence -- that's Exhibit A1, tab 3, schedule 2, at page
25
4, there is words that describe one of the drivers of the
26
deficiency, and this -- I am looking at the original text.
27
I know you have updated this once, and it is going to
28
updated again, but it's -- I think for my purposes this
And if you look at the drivers of efficiency
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item is going to remain in all presentations.
But at this point as at the initial filing, at line 2,
3
the $180 million reference is a deficiency driver.
This
4
increase captures the EB-2010-0008 disallowance of nuclear
5
compensation costs of $145 million.
6
And if you look at the chart 2 that -- which is at
7
page 6 of this same exhibit, and it's been updated, you
8
will see down in the box "other", and it says "includes the
9
145 million disallowance".
10
Can you tell me what that means?
11
MR. BARRETT:
Yes, these deficiency calculations are
12
really describing the difference between two points of
13
measure.
14
approved revenue requirements in EB-2010-0008 and what is
15
in our revenue requirement in this application, and trying
16
to explain at a high level the big differences between
17
those two sets of revenue requirements.
18
The first point of measure would be the OEB-
So the 145 was removed from the revenue requirement
19
approved by the Board in 2010-0008, but as -- you can
20
appreciate the discussion around that.
21
time, the company was still committed to the collective
22
agreements that had already been signed.
23
to the rates of pay and other benefit costs that were part
24
of those collective agreements.
25
At the point in
It was committed
So while it took steps to reduce its costs, it
26
wouldn't be in a position to satisfy that $145 million
27
deficit directly.
28
So it's one of the things that's in the mix between
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point A and point B.
2
not, sir.
3
MR. THOMPSON:
I don't know if that's helpful or
I mean, let me play it back to you.
4
What I think you are saying is the Board determined a
5
revenue requirement in that case we have been talking
6
about, right?
7
MR. BARRETT:
8
MR. THOMPSON:
9
MR. BARRETT:
10
EB-2010-0008, the '11/'12 rates.
Yes.
And it disallowed $145 million?
Yes.
MR. THOMPSON:
And you're -- what I hear you saying is
11
you have added 145 on to that, and then are measuring the
12
spread between what you are claiming now and the higher
13
number?
14
Or have I got it wrong?
MR. BARRETT:
No, that's not quit it, sir.
The first
15
line in the deficiencies table will be the revenue
16
requirement that was approved in the Board's decision.
17
So you can appreciate we get a decision on one day;
18
the next day we are not able to reduce $145 million in
19
compensation costs.
20
these costs and rates of pay and benefits which are
21
committed for the duration of those collective agreements,
22
so we can't just not pay those amounts.
23
to our employees, pursuant to those collective agreements.
24
MR. THOMPSON:
25
MR. BARRETT:
26
MR. THOMPSON:
27
MR. BARRETT:
28
We have collective agreements, we have
They are committed
All right -So –I'm sorry.
Carry on.
So that's really the starting point,
that you measure the revenue requirement again.
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So one of the things that is in that mix between the
2
starting point and where we are is a recognition that, at
3
least at the outset, that 145 was still there and we have
4
been working through BT and other cost saving initiatives
5
to realize savings as part of this application.
6
7
8
9
10
MR. THOMPSON:
Which, as Mr. Shepherd has pointed out,
are more than 145 million, right?
MR. BARRETT:
Over the course of the intervening
period, yes, it's been more than 145 million.
MR. THOMPSON:
Okay.
So what happens if the Supreme
11
Court grants the Board's appeal?
12
revenue requirement?
13
MR. SMITH:
Do we knock 145 off your
Well, Mr. Thompson, as you have
14
recognized, the decision of the Court of Appeal provides
15
for the matter to be re-determined by the Board, presumably
16
in a separate proceeding, based on the decision of the
17
Court of Appeal.
18
As to what the Supreme Court of Canada does, I don't
19
know.
20
decision; they may not.
21
with respect to how the Board treats it.
22
I mean, they may uphold the Court of Appeal's
They may give a different decision
As matters now stand, it would return to the Board for
23
a decision of what to do.
24
didn't say add 145 million.
25
was go back and look at these costs, having regard to the
26
test of prudence, as we have laid it out in our decision.
27
28
MR. THOMPSON:
Because the Court of Appeal
What the Court of Appeal said
I understand that.
I am trying to
ascertain what happens, if anything, to the revenue
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requirement you are asking the Board to approve in this
2
case, in the event that the Board's initial decision is
3
upheld.
4
We have to deal with two scenarios here, that scenario
5
-- and your application seems to be premised on the fact
6
that the appeal in the Supreme Court is going to be
7
dismissed.
8
9
10
I want to look at the other side: it's granted, and
the Board's decision is approved.
MR. SMITH:
I am sorry, Mr. Thompson, I don't mean to
11
be obtuse.
12
requirement for 2014/2015, as reflected in the middle
13
column, third row from the bottom, vary dependent upon the
14
Supreme Court of Canada's decision?
15
question you are asking?
16
Is your question:
Does the proposed revenue
Is that the specific
He is asking you whether your revenue requirement for
17
this upcoming test period depends upon the result in the
18
Supreme Court of Canada.
19
MR. BARRETT:
And I would say no, that we have put
20
forward a revenue requirement based on our business plan
21
and work program for the '14 and '15 year.
22
If there was subsequent court decision that caused the
23
Board to take a view that the rates that were approved
24
pursuant to this application were no longer just and
25
reasonable, then I think the Board would have the ability
26
to address that in a way they thought was appropriate.
27
MR. THOMPSON:
28
deficiency or not?
So is 145 a driver of your 2014/'15
What you telling me is it's not a
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2
driver.
MR. BARRETT:
Well, it's a driver in the sense that it
3
goes into the establishment of the starting point for
4
measuring the deficiency.
5
measuring what we are proposing.
6
influences the calculation in this table.
7
8
9
So that's the starting point for
So to that extent, it
So let me try to -- obviously I am not connecting with
you, so let me try again.
So pursuant to the Board's decision, we took steps to
10
control our costs.
11
$145 million in mind.
12
could, all that we could, to reduce our costs, both
13
pursuant to the Board's decision, pursuant to other
14
business challenges that we faced around coal closure, and
15
pursuant to the financial realities of the company, wherein
16
we have continued to earn returns in the 3, 4 and 5 percent
17
range.
18
that is a strong focus on cost control.
19
20
21
We didn't have a particular target of
We were focused on doing what we
And we need to do better financially, and part of
MR. THOMPSON:
I get that, for sure.
Let just ask
this one last question in this area.
Let's assume that the Court of Appeal decision is
22
upheld.
23
seek from ratepayers another $145 million with respect to
24
the 2011 and '12 test period?
25
Does OPG plan, then, to come back to the Board to
MR. BARRETT:
I don't think we have made a final
26
decision on that matter, sir.
I think we would need to see
27
the court decision and we would need to see how the Board
28
responded to that decision.
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MR. THOMPSON:
How much has been spent on this
2
exercise of a matter of principle?
3
picture?
4
MR. BARRETT:
Do you know, big
I don't know the legal costs.
It would
5
-- I don't imagine it would be more than -- I am really
6
taking a flyer here.
7
MR. THOMPSON:
8
MR. BARRETT:
9
MR. THOMPSON:
10
11
Honestly, I don't know.
Crawford's going rate?
I don't know the legal tab so far, sir.
All right.
Pension and other benefits,
you've discussed that at length with Mr. Shepherd.
My question is:
How can you get these costs down?
12
What are you doing to get them down?
13
pension policies of some sort?
14
I mean, they are out of sight.
15
MR. BARRETT:
Can you change your
This is probably an issue best addressed
16
with the compensation panel, but I can think they'll tell
17
you that we have already announced plans for changes to
18
management and that we have been pursuing this issue
19
through the collective bargain process, or if there is a
20
government-orchestrated process to this issue for the
21
sector.
22
23
24
MR. THOMPSON:
Is there a government-orchestrated
approach to it?
MR. BARRETT:
I believe there was an announcement in
25
either a budget or two budgets ago, but again, that is
26
probably something that the compensation people can better
27
speak to.
28
MR. THOMPSON:
Two other areas, briefly.
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Deferral and variance accounts, it's mentioned in one
2
of the overview pieces of evidence.
3
words or less how much is not being cleared from deferral
4
accounts, and why?
5
6
7
I am more interested in the big picture number and the
concept.
MR. BARRETT:
Probably a good place to look is the
8
second impact statement.
9
N2, tab 1, schedule 1.
10
MR. THOMPSON:
12
MR. BARRETT:
14
If you have that, that's Exhibit
And if you look at the last two
pages of that exhibit, Table 9 and Table 10.
11
13
Can you tell us in 25
Yes.
You can see the balances in all of the
accounts.
MR. THOMPSON:
Okay.
So am I reading this correctly
15
that you are leaving unrecovered $1.2 billion?
16
looking at the Table 10, last column.
I am
17
MR. BARRETT:
That's at -- that's a projection to the
18
end of 2015, sir.
19
look at the actual balance as at December 31, 2013 and --
Probably a better way to look at it is
20
MR. THOMPSON:
21
MR. BARRETT:
That's more.
Yes, but you will note that the Board
22
has already approved amortization during 2014 of
23
$213 million, and we have an existing rider that's been
24
approved to cover that amount for -- during '14, and that
25
gets you to a total of 1.265, and we are proposing to
26
recover probably on the nuclear side of the ledger about
27
$120 million through this application, and some different
28
amount on the -- sorry, I think I might have that reversed,
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that it might be 60- to 80 million on the nuclear and
2
$120 million on the hydroelectric side.
3
MR. THOMPSON:
In terms of the impact on the consumer,
4
shouldn't we be looking at that deferral account number as
5
something that's there?
6
MR. BARRETT:
I mean, it's another big number.
We have indicated in our application
7
that we will be filing an application probably in the
8
fourth quarter of this year to look at the disposition of
9
year-end 2014 balances.
10
11
So there is a potential customer
impact that comes from that subsequent proceeding.
MR. BARRETT:
What does that do to the 30 percent if
12
you layer that on top of it?
13
50 percent?
14
MR. BARRETT:
Does it move it up to
Just to be clear, the 30 percent number
15
which has been bandied around, as I understand it, is
16
nuclear base rates to nuclear base rates.
17
at rates and riders together on a weighted average basis
18
for the currently prescribed nuclear and hydroelectric
19
facilities, the increase is around 21 percent.
20
fold in the newly regulated hydroelectric it's about
21
23 percent.
22
So if you look
And if you
But in terms of the next application, quite honestly,
23
we have not looked at what disposition period we would be
24
proposing, so I am not in a position to advise on the rate
25
impact that may be part of that application.
26
MR. THOMPSON:
27
math.
28
mentioned.
Okay.
Well, I guess we can do the
It takes it up about this 23 percent that you
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MR. BARRETT:
Yes, if we were to get everything that
2
we asked for in this application and then there was a
3
subsequent amount related to the remaining deferral and
4
variance accounts, yes, the aggregate would be greater than
5
23 percent.
6
7
MR. THOMPSON:
Are you asking in this application that
the uncleared amount be approved?
8
MR. BARRETT:
No, we are not.
9
MR. THOMPSON:
And do you happen to know -- I will ask
10
the deferral account -- variance account panel when they
11
come if you don't know -- but how much of -- what
12
proportion of OPG's revenue requirement is protected by
13
deferral accounts?
14
listed those that had deferral account protections and
15
those that did not, the embedded amounts, would it be
16
50 percent of the revenue requirement, 20, 30, 10, 5?
17
you know?
18
19
20
21
22
MR. BARRETT:
If you went through the line items and
Do
I haven't done that calculation, so I
don't know, sir.
MR. THOMPSON:
panel.
Okay.
Well, I will ask the other
Maybe they can come prepared to answer it.
MS. HARE:
Perhaps, Mr. Thompson, you ask it as an
23
undertaking now so you have the answer before the other
24
panel.
25
26
MR. THOMPSON:
That's a good idea.
Could I have an
undertaking to prepare that?
27
MR. BARRETT:
28
MS. HARE:
Yes.
If you prefer.
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MR. MILLAR:
J3.9.
2
UNDERTAKING NO. J3.9:
3
OPG'S REVENUE REQUIREMENT THAT IS PROTECTED BY
4
DEFERRAL ACCOUNTS.
5
MR. THOMPSON:
TO PROVIDE THE PROPORTION OF
All right.
The last topic is effective
6
date.
7
effective date for this increase for the existing
8
hydroelectric and the nuclear of January 1, 2014?
9
10
And my understanding is that you're seeking an
MR. BARRETT:
Yes, that's correct, sir.
MR. THOMPSON:
And so let's assume you don't get a
11
decision until the beginning of September.
12
impact of that on ratepayers?
13
months of retroactive recovery on this huge deficiency.
14
Right?
15
MR. BARRETT:
What's the
You would then want eight
We would be seeking recovery of the
16
deficiency back to January 1 over the balance of the test
17
period.
18
So a rider to recover that retrospective amount.
MR. THOMPSON:
So what's the justification for that
19
request, given the Enbridge situation recently, where such
20
large retroactive amounts caused quite a furore?
21
would be quite a substantial number, nine months of your
22
annual deficiency.
23
MR. BARRETT:
This
It will be a material customer impact, I
24
would concede that, as is the application itself on the
25
stand-alone basis.
26
'14 and '15 period --
27
MR. THOMPSON:
28
MR. BARRETT:
But these really are our costs for the
Right.
Well --
-- and we need to recover our costs in
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order to operate our business in a safe and reliable way.
2
MR. THOMPSON:
3
impact of that request?
4
implementation date?
5
have in dollars for the eight months that are going to be
6
part of retroactive relief?
7
for recovery over 16 months does to the percentage
8
increase.
9
Could you undertake to calculate the
MR. BARRETT:
Assume a September 1
What that -- what impact that would
And then also what adding it
Yes, we can do that.
10
MR. MILLAR:
J3.10.
11
UNDERTAKING NO. J3.10:
12
REQUEST SEEKING RECOVERY OF THE DEFICIENCY BACK TO
13
JANUARY 1 OVER THE BALANCE OF THE TEST PERIOD, SO A
14
RIDER TO RECOVER THAT RETROSPECTIVE AMOUNT, ASSUMING A
15
SEPTEMBER 1 IMPLEMENTATION DATE, WHAT IMPACT THAT
16
WOULD HAVE IN DOLLARS FOR THE EIGHT MONTHS THAT ARE
17
GOING TO BE PART OF RETROACTIVE RELIEF, AND THEN ALSO
18
WHAT ADDING IT FOR RECOVERY OVER 16 MONTHS DOES TO
19
THE PERCENTAGE INCREASE.
20
CALCULATION OF THE IMPACT OF THE TWO MONTHS'
21
RETROACTIVITY, SIMILAR TO THE ONE JUST DESCRIBED FOR
22
THE OTHER ASSETS.
23
MR. THOMPSON:
TO CALCULATE THE IMPACT OF THE
ALSO, TO PROVIDE A
And with respect to the newly regulated
24
hydro, the proposal is, as I understand it, July 1, 2014;
25
is that right?
26
27
28
MR. BARRETT:
That's what the regulation requires,
yes.
MR. THOMPSON:
The regulation requires that rates be
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set with an effective date of July 1, 2014?
2
you are saying?
3
MR. SMITH:
Is that what
Yes, that's the date under which the
4
regulation requires the prescription of the prescribed
5
assets.
6
MR. THOMPSON:
Okay.
So you will be recovering -- if
7
we assume a September 1 start update, you will be
8
recovering what you're asking for over 16 months rather
9
than 18 months; right?
10
MR. BARRETT:
11
MR. THOMPSON:
Yes, that follows.
Okay.
And so could I have a
12
calculation of the impact of that two months'
13
retroactivity, similar to the one we've just described for
14
the other assets?
15
16
MR. SMITH:
Yes, we will roll that into the same
undertaking if that's acceptable.
17
MR. BARRETT:
Yes, we can do that.
18
MR. THOMPSON:
Thank you.
Now, do you have any
19
communication strategy to notify the customers of this
20
aspect of your request for relief?
21
communicate with customers, but perhaps you should give it
22
some thought.
23
24
I know you don't
Do you have a strategy?
MR. BARRETT:
Our public-affairs people might.
I am
not aware if they do or not.
25
MR. THOMPSON:
26
yet; is that fair?
27
MR. BARRETT:
28
MS. GIRVAN:
So it hasn't been given any thought
Not by myself.
Can I just follow up, sorry.
Can you go
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back and ask if there has been any strategy developed,
2
explaining the increases to Ontario consumers?
3
4
MR. BARRETT:
I can certainly make those inquiries,
yes.
5
MS. GIRVAN:
Okay, thanks.
6
MR. MILLAR:
J3.11.
7
UNDERTAKING NO. J3.11:
8
COMMUNICATIONS STRATEGY HAS BEEN DEVELOPED TO EXPLAIN
9
THE INCREASES TO ONTARIO CONSUMERS.
TO DETERMINE IF AN INTERNAL
10
MR. THOMPSON:
11
MS. HARE:
12
I think the Panel has some questions.
13
Those are my questions, Madam Chair.
Thank you.
Maybe, Ms.
Duff, if you would like to go first?
14
QUESTIONS BY THE BOARD:
15
MS. DUFF:
I just want to follow up on a few questions
16
Mr. Thompson had, and also Board Staff, regarding the
17
decision to delay the filing.
18
So you filed on September 27th.
And based on the
19
Board's performance standards, there is usually 235 days
20
for a distribution rates hearing.
21
this helps the panel at all -- it was Board Staff's
22
compendium, K2.4, and it was on page 3 of that document,
23
page 2 of 2, "Performance standards for processing
24
applications," and for an oral hearing for distribution
25
rates, it estimates 235 days.
26
around the end of March 2013.
27
28
And I am referring, if
So that would have been
So was the regulatory affairs department of OPG
prepared to file its rates application for the nuclear and
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previously regulated -- the hydro assets at the end of
2
March?
3
it.
4
And then you made the decision, I take it, to delay
So I just want to know what happened at what juncture.
5
At the end of your March, had your work back schedule --
6
were you ready to go?
7
MR. BARRETT:
8
9
10
11
We were not prepared to file an
application in March of 2013.
MS. DUFF:
What would have been the earliest date that
you would have been ready?
Or I could put it another way.
When did you decide to
12
delay the filing when you were ready?
13
are going to wait until we have direction with respect to
14
the newly regulated assets?
15
16
17
And said:
No, we
Because from what I understood, you wanted to combine
the application with all three parts.
MR. BARRETT:
We had a view that it wouldn't be
18
workable to file pieces of an application, given the need
19
to deal with the allocation of central costs.
20
So again, my recollection of developments was that in
21
the spring of 2013, there was a view within OPG that this
22
was something the government was seriously considering.
23
And on that basis, we finalized our 2013 and '15 business
24
plan, incorporating that assumption that these assets would
25
be regulated.
26
I would note I think the business plan actually
27
assumed at that point that they would be regulated January
28
1, 2014.
So we didn't have perfect information, by any
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2
measure.
And then once we had made that decision, we worked
3
diligently over the spring and summer to pull together all
4
of the necessary information and studies in order to be
5
ready to go.
6
I think that application probably -- probably in the
7
best of circumstances might have been able to be filed in
8
August of that year, but again, we were waiting for -- to
9
move from a circumstance where the government was
10
indicating they were intending to do this to some kind of
11
public demonstration that they were, in fact, going to
12
regulate these assets.
13
So it was really the posting of the intent to make a
14
regulation regulating these 54 stations which was important
15
to us in terms of the timing of our actual filing.
16
MS. DUFF:
So did you ever consider filing the nuclear
17
portion and the previously regulated, and then later,
18
subsequent to that, perhaps in an impact statement or
19
something, then file the newly regulated?
20
MR. BARRETT:
I think we just had a view that that
21
would not be practical, given the interactions of all of
22
the moving pieces.
23
mess of an application, and it wasn't a practical option
24
that was open to us.
25
MS. DUFF:
We thought that that would just be a
Mr. Mauti, when you were talking on a
26
monthly basis to the Ministry of Energy, were you advising
27
them of the status of this application, and the dollars
28
involved and the decision to actually delay the filing of
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this application until there was resolution about the newly
2
regulated assets?
3
MR. MAUTI:
They knew that by enacting regulation for
4
these new assets, that that would delay the application,
5
that we would like to go in with one fulsome application
6
for all prescribed assets at once.
7
So they understood that they path towards issuing a
8
sort of public pronouncement of the regulation of these
9
assets would have a role to play in terms of the timing of
10
11
12
13
our application, yes.
MS. DUFF:
Was it because of materiality or just the
complexity?
Because I am looking at your decision to delay the
14
application of the deferral and variance accounts, other
15
than the four.
16
separate application in 2014 for those.
17
when you decide to parse, and when do you decide to include
18
aspects of your application when they affect the same time
19
period?
20
21
22
23
24
You decided you were going to file a
MR. BARRETT:
How do you decide
There is always a number of
considerations that weigh on that kind of a decision.
I mean, the deferral and variance accounts are very
much a standalone, separate series of issues in our mind.
One of the other key considerations that we had had a
25
standalone deferral and variance account application and
26
decision from the board in '13, which established a
27
disposition rider for '13 and '14, so it seemed like that
28
had been addressed for '13 and '14.
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So the application was very large.
It was very
2
complicated.
It's almost to the point of where it's
3
unmanageable, given the size of it.
4
pragmatic benefits of parsing the deferral and variance
5
account issue is that it leads to a slightly smaller
6
application, and therefore makes it somewhat more
7
manageable for us.
8
MS. DUFF:
And one of the
When I look at the actual deficiency due to
9
the three parts -- let's, just for simplicity, talk about
10
nuclear, the previously regulated hydro and then the newly
11
regulated hydro -- the deficiency associated with nuclear -
12
- and I am now referring to, just for ease of reference,
13
SEC's compendium, K3.5.
14
nuclear; it's $1.5 billion.
15
regulated hydroelectric, it's 352 million.
16
Look at the deficiency for
And the impact of the newly
So knowing that you have this deficiency under current
17
rates for the nuclear business, you still decided to hold
18
off and wait until you could include the newly regulated
19
assets.
20
decided to delay it?
21
So it wasn't done for financial reasons that you
MR. BARRETT:
No.
Or...
I mean, the earlier we can file and
22
get new rates in place, the better the company is off
23
financially.
24
situation in 2013 was -- I wouldn't say dire, but it was
25
not very good.
26
application in as quickly as we could.
27
28
And certainly the company's financial
So we had every incentive to get the
Again, to me, it's not so much the size of the -- the
relative size of the deficiencies.
It's just the
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interaction of the issues between the newly regulated and
2
the balance of the facilities.
3
4
MS. DUFF:
Okay.
That's it.
Thank you.
Those are my
questions.
5
MS. HARE:
Thank you.
Ms. Long?
6
MS. LONG:
I have a few questions.
While you have
7
K3.5 in front of you, I would like you to take a look at
8
page 8, and the line that I am interested in, I guess, is
9
line 36, "Management, full-time employees."
10
I think Mr. Shepherd took you there, and your answer
11
to him was that all non-represented staff is classified as
12
being management.
13
If I look across there, it looks to me like the total
14
change since 2010, it's been 25 people, a reduction of 25
15
people; is that correct?
16
MR. BARRETT:
17
MS. LONG:
Yes.
That's what it shows.
And do you have any idea -- I guess I am
18
having trouble understanding how many of those, let's say,
19
thousand people are management and how many are just not
20
unionized, how many would OPG classify as being management.
21
Do you have that anywhere in the evidence, a breakdown
22
23
24
25
of that?
MR. BARRETT:
I don't believe so, but certainly that
breakdown could be provided fairly readily.
MS. LONG:
Okay.
So I would like to see that
26
breakdown for 2010 through until 2015, the actual numbers
27
and then the actual reduction for management, that you
28
consider to be management.
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MR. BARRETT:
Sure, we can earn certainly do that.
2
MR. MILLAR:
3
UNDERTAKING NO. J3.12:
4
2015 OF ACTUAL NUMBERS AND ACTUAL REDUCTION OF NON-
5
UNIONIZED EMPLOYEES
6
MS. LONG:
J3.12.
TO PROVIDE BREAKDOWN FOR 2010-
And, Mr. Barrett, when we talk about
7
management, would it be -- if I say vice president and
8
above, would that be the majority of management?
9
what do you consider to be management, position-wise?
10
Like,
You have put in front of us a spreadsheet here at A1,
11
tab 5, schedule 1, part of your application.
12
you turn it up.
13
MR. BARRETT:
14
MS. LONG:
I will let
This is the org chart?
It's the org chart.
And if I understand
15
it, is this -- this is, I think, the OPG enterprise
16
leadership team, so this obviously -- is everyone on here
17
management?
18
19
20
21
22
MR. BARRETT:
Yes, everybody on this list would be
management.
MS. LONG:
So would there be layers below this that
are considered to be management too?
MR. BARRETT:
I certainly would consider director-
23
level positions to be managers and manager-level positions
24
to be management.
25
department has a definition that they are more comfortable
26
with, but certainly I would -- if I was doing it on my own,
27
I would incorporate director-level positions and manager-
28
level positions in the management team, but...
I don't know if our human-resources
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MS. LONG:
Perhaps when you do that breakdown for 2010
2
to 2015 and you have the number, you can just list what the
3
actual job -- and I don't mean specific job titles, I
4
mean --
5
MR. BARRETT:
6
MS. LONG:
7
MR. BARRETT:
8
9
-- director, vice-president --- whether we have gone down to the
director level or gone down to the -MS. LONG:
That would be great.
10
MR. BARRETT:
11
MS. LONG:
12
Yeah, I can indicate --
-- manager level.
That would give us a sense of where the
reductions are.
I would find that helpful.
13
MR. BARRETT:
Absolutely.
14
MS. LONG:
Thank you.
15
MS. HARE:
Just a few follow-up questions, and maybe
16
you can look K3.6, CME's compendium, under tab 11.
17
was a discussion with Mr. Thompson about effective date and
18
implementation date, and I thought I heard you say, but I
19
may have misunderstood, I thought I heard you say for the
20
newly prescribed assets that by regulation -- this is why I
21
am asking you to look at tab 11 -- that you are saying it
22
says it must be July 1st, 2014.
23
There
The way I read this -- but I could be wrong -- it is
24
effective on or after July 1st.
25
obligated to make the effective date July 1st, 2014 for the
26
newly prescribed assets, is it?
27
regulation?
28
MR. SMITH:
So the Board is not
In your reading of this
I believe it is the Board's order after
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July 1st, which could be a later date after July 1st, but
2
if our view of that changes, I will let you know.
3
4
5
MS. HARE:
Thank you.
Or you could save it for
argument.
I have another follow-up to Ms. Butcher.
Mr. Shepherd
6
was asking you about a response to the KPMG report, and you
7
said to the best of your knowledge you didn't think a
8
response was provided.
9
Could it be that one was provided by senior executives
10
that there was a discussion as to what OPG was doing about
11
the KPMG report and you just were not privy to those
12
discussions?
13
14
MS. BUTCHER:
Was this in context of a response to the
Ministry of Energy of --
15
MS. HARE:
Yes.
16
MS. BUTCHER:
17
going to deal with it?
18
MS. HARE:
19
MS. BUTCHER:
20
-- of how Ontario Power Generation was
Yes.
It is possible.
I would have expected
that if we had done that I would have been aware of it.
21
MS. HARE:
Okay.
Thank you.
22
Lastly, Mr. Barrett, about your rule of thumb,
23
10 percent, I want to make sure I understood what you said.
24
You gave us an example if there is $100 million in rate
25
base on capital spend that it would be about a 10 percent,
26
but that 10 percent, if we use that as the ROE, because I
27
think what is you are doing.
28
MR. BARRETT:
No?
No, it's really the entire revenue
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requirement impact rule of thumb, so it would be a return
2
on equity, they would be a return on debt, there would be
3
depreciation, and there would be a tax effect.
4
5
MS. HARE:
Okay.
MR. BARRETT:
7
MS. HARE:
9
10
Then we are on the
same page.
6
8
That's good.
Okay.
Okay.
Thank you, those are my questions.
Redirect?
MR. SMITH:
MS. HARE:
No questions in re-examination.
Okay.
Good.
So we will take a short break
11
until four o'clock, at which point you will assemble your
12
next panel.
Thank you very much, witnesses.
13
MR. SMITH:
Thank you.
14
--- Recess taken at 3:41 p.m.
15
--- On resuming at 4:05 p.m.
16
MS. HARE:
17
I have been asked to confirm that we will be sitting
Are there any preliminary matters?
18
on Wednesday morning.
19
Society and Staff are prepared to cross-examine.
20
will be a half-day.
No?
We will have panel 4, and the
So it
Thank you.
21
Mr. Smith, could you introduce your panel, please?
22
MR. SMITH:
I would be happy to.
This is OPG's second
23
panel, the regulated hydroelectric panel.
24
us furthest from me Mr. Bill Wilbur.
25
report is Mario Mazza, and then to his right Robby Sohi.
26
And if I could have these gentlemen affirmed, that would be
27
appreciated.
28
And we have with
Next to him on the
ONTARIO POWER GENERATION - PANEL 2
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Bill Wilbur, Affirmed
2
Mario Mazza, Affirmed
3
Robby Sohi, Affirmed.
4
EXAMINATION-IN-CHIEF BY MR. SMITH:
5
MR. SMITH:
Very briefly, Members of the Board, with
6
your indulgence, Mr. Wilbur, my understanding is that you
7
are the director, generation and revenue planning,
8
commercial operations and environment business unit for
9
OPG?
10
MR. WILBUR:
11
MR. SMITH:
12
from about 2008?
13
MR. WILBUR:
14
MR. SMITH:
I am.
And that you have been employed by OPG
That's correct.
And prior to that, from about 2001 to
15
2008, you were employed by the Independent Electricity
16
System Operator?
17
MR. WILBUR:
18
MR. SMITH:
19
[Laughter]
20
MR. SMITH:
Yes.
I nearly said IESO.
I understand, sir, that you have an
21
engineering degree in electrical engineering from the
22
University of Western Ontario?
23
MR. WILBUR:
24
MR. SMITH:
Yes.
And are your responsibilities as director,
25
generation and revenue planning, accurately set out in your
26
curriculum vitae?
27
MR. WILBUR:
They are.
28
MR. MILLAR:
I also understand, finally, that you are
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generator representative on the Independent Electricity
2
System Operator's technical panel, and have been since
3
2013?
4
MR. WILBUR:
5
MR. SMITH:
That's correct.
Mr. Mazza, turning to you, I understand
6
you are the vice president, strategy and business support,
7
hydrothermal operations for OPG?
8
MR. MAZZA:
Yes, I am.
9
MR. SMITH:
And you have held positions of increasing
10
responsibility with OPG since approximately 1979?
11
MR. MAZZA:
Yes.
12
MR. SMITH:
And you have a civil engineering degree
13
from the University of Toronto?
14
MR. MAZZA:
That's correct.
15
MR. SMITH:
And are your responsibilities as vice
16
president similarly accurately set out on your curriculum
17
vitae?
18
MR. MAZZA:
Yes, they are.
19
MR. SMITH:
Finally, Mr. Sohi, I understand that you
20
are director of plant engineering services, hydrothermal
21
operations business unit?
22
MR. SOHI:
23
MR. SMITH:
Yes, I am.
And you have a bachelor of engineering
24
degree, also in electrical engineering, from McMaster
25
University?
26
MR. SOHI:
27
MR. SMITH:
28
Yes, I do.
And you have been employed by OPG or its
predecessors dating back to approximately 1991?
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MR. SOHI:
2
MR. SMITH:
3
That's correct.
And your responsibilities as director are
accurately set out on your CV?
4
MR. SOHI:
Yes, they are.
5
MR. SMITH:
6
Members of the panel, perhaps through you, Mr. Mazza,
7
can I ask whether you adopt the prefiled evidence, answers
8
to interrogatories and undertakings for the purposes of
9
testifying here today?
Or curriculum vitae?
10
MR. MAZZA:
Yes, I do adopt them.
11
MR. SMITH:
Thank you very much, sir.
12
further examination-in-chief.
13
MS. HARE:
14
Mr. Millar?
15
CROSS-EXAMINATION BY MR. MILLAR:
16
MR. MILLAR:
Thank you.
17
afternoon, panel.
18
for Board Staff.
19
I have no
Yes.
Thank you, Madam Chair, and good
My name is Michael Millar.
I am counsel
Before we get started, Staff has prepared a compendium
20
for the cross-examination of panel 2.
21
have been circulated.
22
from the record, with the partial exception of tables that
23
we prepared at page 2, and for that, all of the information
24
is taken from the record.
25
tables and we have added our own calculation of a compound
26
annual growth rate, but otherwise, it's all information
27
taken from the tables.
28
I believe copies
Everything within the compendium is
We've just compiled it into
Members of the panel, do you have that compendium?
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MR. MAZZA:
2
MR. MILLAR:
3
Yes, we do.
I would propose to mark that, then, as
K3.7.
4
EXHIBIT NO. K3.7:
5
MR. MILLAR:
BOARD STAFF COMPENDIUM.
Maybe, gentlemen, I could begin by asking
6
you to turn to page 2 of the compendium, and this, in fact,
7
was the document I was just discussing.
8
this yesterday, and I don't know if you had a chance to
9
look at it, but it is information we took from the record,
We did circulate
10
and it -- in fact, the sources of that information are
11
footnoted at the bottom of the table.
12
Have you had a chance to look at this?
13
does it look accurate?
14
check?
15
16
MR. MAZZA:
Yes.
And if so,
Or can you take that, subject to
I did have a chance to look at it,
and it looks accurate.
17
MR. MILLAR:
Thank you.
18
So what this table summarizes is -- there is two
19
tables; one is for the previously regulated, the other is
20
for the newly regulated.
21
approved and actual spending figures for OM&A from 2010
22
through to 2015 plan.
23
And it simply regards the plan,
I would like to start by taking you through to
24
table 1, which is the previously regulated OM&A.
And if
25
you could look at line 8 of that table, which -- which is
26
described as "Total OM&A," can you confirm for me that we
27
have actuals up to 2013 for every year between 2010 and
28
2013?
Actual total OM&A has been below the plan or
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approved amount for each year?
2
MR. MAZZA:
3
MR. MILLAR:
4
MR. MAZZA:
5
MR. MILLAR:
6
MR. MAZZA:
7
MR. MILLAR:
8
MR. MAZZA:
9
MR. MILLAR:
I can agree to that, except 2012.
We are looking at total OM&A?
Oh, total OM&A for each of the years?
Yes, for -Yes.
I can agree to that, yes.
That's line 8?
Yes.
And then the same information for the
10
subtotal of operations, line 3 -- which may be where you
11
were looking -- that same statement holds true for every
12
year except 2012; is that correct?
13
MR. MAZZA:
14
MR. MILLAR:
That's correct.
And 2012, you are pretty much right
15
there.
It was approved at 72.1 and the actual was slightly
16
higher at 73.8; is that correct?
17
MR. MAZZA:
18
MR. MILLAR:
That's correct.
And we asked a number of questions about
19
the reason for this variance between planned or approved
20
and actual.
21
specifically through each response, but I think, if I could
22
summarize it, the answers related largely to staffing,
23
unfilled vacancy, lower overtime, and then there was an
24
answer related to the bridge divestiture program.
25
26
27
28
And I don't think I need to take you
At a high level, are those the reasons why your actual
spend was less than your planned or approved?
MR. MAZZA:
Yes.
At a high level, that is the reason.
However, in 2011 there was a provision reversal of
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19 million that I believe you have here in the compendium,
2
whereby we reversed the previous provision for
3
contaminated, potentially contaminated Lake Gibson that's
4
part of our DeCew number 1 and 2 facilities.
5
6
7
So that was -- the actual OM&A costs in that year were
$19 million more.
MR. MILLAR:
That's right, but even with that
8
extraordinary credit, the actuals would have been below
9
approved; is that correct?
10
MR. MAZZA:
11
MR. MILLAR:
12
13
Yes.
If my math is correct, yes.
It would have been closer obviously, but
you were still below approved.
Just to tie down the bridge divestiture program, can
14
you tell me a little about that?
15
are seeking to transfer responsibility; you are going to
16
give the municipality some monies and transfer liability
17
for certain bridges that currently you are responsible for.
18
They will be transferred to the responsibility of a
19
municipality; is that right?
20
MR. SOHI:
I guess that's where you
I can speak to that.
So these -- the
21
bridges that we have, there are four bridges, a total of
22
four bridges.
23
hydro development project when DeCew complex was developed.
24
So we have the ownership.
25
maintain these bridges.
26
infinitum.
27
28
These bridges were built as part of the
We have the obligations to
And these agreements are
As they are coming up for a replacement, we are trying
to divest these bridges and turn them over to the
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Municipality of Niagara.
2
that's in our application.
3
MR. MILLAR:
And that's the program, really,
And I guess how that works is you will
4
give them some money and they will take over
5
responsibility; is that the short way it works?
6
MR. SOHI:
Yes.
So the way it works is the bridges
7
are for replacement, and we are essentially on the hook for
8
replacing it.
9
would give them the funding, and then they would replace
10
11
We would replace it, give to them or we
the bridge.
MR. MILLAR:
Thank you for that.
So otherwise, other
12
than the bridge divestiture program, I understood at least
13
at a high level that the underspend was a result of lower
14
staffing numbers or unfilled vacancies and overtime, and I
15
think you have confirmed that for me, Mr. Mazza?
16
17
18
MR. MAZZA:
Yes, in general, as we stated in the
evidence, that is a true statement.
MR. MILLAR:
So what were the repercussions of this?
19
Having less -- I guess you had less staff than you thought
20
you would have and less overtime than you thought you'd
21
have.
22
2010 and 2013, if any?
23
What impact did that have on your operations between
MR. MAZZA:
So the way we have approached this in
24
recognition, there has been some discussion of our BT
25
initiative.
26
our thermal assets, so the strategy that we set out in 2010
27
is to try and run the business with that recognition that
28
staff would be -- trained staff would be available from our
There is also some discussion about closure of
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thermal asset, so we did make decisions whereby we did hire
2
either temps where possible or in some cases where it
3
required additional, I guess, experience, if you will, like
4
if you take operators, if there is a shortage of operators,
5
we did try and manage that through hiring some past
6
employees from Hydro One or other utilities that could do
7
the job in the short-term.
8
9
Now that our thermal assets are closed a lot of the
staff that are available that are trained to run -- a lot
10
of the vacancies are in the operations area, operators, and
11
we are now backfilling the positions with trained thermal
12
staff.
13
but in fact they will be already partly trained to our
14
procedures and general safety requirements.
15
aspect of it, is the retirees, and I guess in the
16
engineering area, Rob, you might want to mention the issues
17
there around some vacancies there as well in that area.
18
They still require some training on hydro assets,
MR. SOHI:
So that is one
So on the engineering side, we are also
19
hiring, you know, temps or contracting more work out.
20
have some vacancies that we are carrying.
21
going to get some staff from the -- trained staff from the
22
coal closure plants.
23
MR. MILLAR:
spoke of thermal assets.
25
plants?
MR. MAZZA:
27
MR. MILLAR:
28
We know we are
And just to tie that down, Mr. Mazza, you
24
26
We
I assume that means the coal
Yeah, the coal plants that are shut down.
And sorry, I wasn't quite following.
What you have been able to do is to take some of the
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operators that used to work in the coal plants, and they
2
have been made available after some training to work on the
3
hydro assets?
4
MR. MAZZA:
Yeah, they would move into vacant
5
positions as they would become trained, and a lot of these
6
folks were available at the end of 2013.
7
MR. MILLAR:
8
MR. MAZZA:
9
10
I see.
When we completely closed down those
assets.
MR. MILLAR:
Why were you not able to forecast that,
11
for example, in 2011, that maybe -- yes, 2011, for example
12
-- you could take any year you'd like.
13
able to forecast those unfilled vacancies at that time?
14
You knew the thermal plants weren't going to be shut down
15
until --
16
MR. MAZZA:
Why were you not
In some ways there was some unexpected
17
attrition.
18
stage where a lot of them are fairly senior people, but it
19
is really difficult to predict when people will retire.
20
that there was some unexpected retirements.
21
The operator work force is, I guess, at the
So
Now, we did look at a strategy around that time of
22
getting apprentices to come into the company and start
23
trying to fill these positions, but we felt that that would
24
be a more expensive strategy to bring new people in and
25
train them and then have still possibly an excess of people
26
to do work that they would be more readily trained on.
27
28
MR. MILLAR:
I asked you at the outset if there were
any repercussions for having so many positions unfilled,
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2
3
4
and I am not sure I got an answer.
Were there any -- what difficulties, if any, did you
encounter as a result of that?
MR. MAZZA:
I would say at the high level we have
5
managed at the high level, but there have been some issues
6
on, I guess, some of the project delivery.
7
underspending on project delivery in part to the bridge
8
program, but also, there are some small projects that we
9
reprioritized in recognition of the unavailability of some
We did do some
10
of the staff and some engineering staff.
11
taking major risks, you know, in the business.
12
MR. MILLAR:
13
MR. MAZZA:
That is without
So is there a backlog of work to be done?
I would say it's not a backlog.
We have
14
reprioritized the work and in some cases re-evaluated the
15
need, and we go through this process every year, re-
16
evaluating the need, and in some cases we have made fixes
17
instead of doing other work in the short-term.
18
MR. MILLAR:
If I could ask you to turn to page 4 of
19
the compendium, and this is taken directly from your
20
application.
21
says:
If you look at about line 13 of that page, it
22
"Actual and planned regulated hydroelectric OM&A
23
based on project expenditures increased by an
24
average of 2.6 percent a year over the 2010 to
25
2015 period."
26
Do you see that?
27
MR. MAZZA:
28
MR. MILLAR:
Yes.
If I could ask you to flip back to the
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tables we were just looking at, staff ran its own numbers
2
on this, which you can see at the bottom of each table.
3
ran the compound annual growth rate from 2010 actual to
4
2015 plan, and for operations for the previously regulated
5
we didn't get 2.6 percent, we got 5.9 percent.
6
help me with that?
7
MR. MAZZA:
Can you
First --
I would have to check that number, but
8
it's a combination of the previously and newly regulated
9
assets.
10
11
We
I think if we were to do a computation, that would
likely be the number, but I'd have to do a check on it.
MR. MILLAR:
Let me finish this set of questions, and
12
then I may ask for an undertaking to reconcile some of
13
these numbers.
14
We ran the numbers for base and project, and we got
15
5.9 percent compound annual growth rate between 2010 and
16
2015 plan.
17
that same time period.
And then on total OM&A we got 5.2 percent over
18
And if you look down to Table 2 -- and maybe this is
19
where the confusion comes from -- for operations alone we
20
have a .8 percent, but then if you look at total OM&A for
21
the newly regulated we got 4.1 percent.
22
So perhaps what has happened is that you averaged
23
simply the operations cost for the previously and the newly
24
regulated, and you came out with, I guess it was about
25
2.6 percent?
26
MR. MAZZA:
Yes, subject to check, I would think that
27
that is more in line.
28
rate increase for the total fleet, as opposed to separate
We looked at the rate -- the annual
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between newly and previously regulated.
MR. MILLAR:
Would this have been a period where
3
through business transformation or some other program you
4
were transferring costs from base or project to corporate?
5
You were moving bodies around from one operating unit --
6
not operating unit, but from one box to another.
7
MR. MAZZA:
Yeah, if we go to the evidence, it is part
8
of business transformation, and I will direct you to the
9
evidence.
We have there a table that talks about some of
10
the transfers that happened in 2012, and if you give me a
11
moment...
12
I can refer you to F1.2.1, page 11.
And there is a
13
table there that speaks to some of the transfers that we
14
made in 2012 to the corporate groups as part of business
15
transformation.
16
MR. MILLAR:
So those people would no longer show up
17
in base or project, so they wouldn't be in the subtotal of
18
operations, but they would be there for total OM&A; is that
19
correct?
20
MR. MAZZA:
They would be there for total -- they
21
would have been -- their budgets would have been
22
transferred in 2012.
23
MR. MILLAR:
24
25
Right.
So is total OM&A the better
measure of the growth rate for OM&A?
MR. MAZZA:
Well, I would say it depends on what you
26
look at.
When you look at the mix there, when you look at
27
our project OM&A, as you see, it fluctuates, and when you
28
look at the previously regulated, one of the big drivers
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for the increase as well is that project OM&A went from 5.4
2
to 17.9, and that is really a reflection of all the civil
3
projects that we have been doing to address some of our
4
aging structures, powerhouse structure, some of the
5
ancillary infrastructure in the Niagara and Saunders area,
6
and buildings.
7
our project appendix here, if I can refer you to that.
8
9
10
11
12
13
We have some projects that we refer to in
So that was a big driver for -- one of the drivers for
the previously regulated, when you look at, as well, the
5.9 percent increase that you alluded to.
MR. MILLAR:
Sure.
So maybe the total OM&A is the
better one to look at throughout?
MR. MAZZA:
I guess total OM&A in aggregate, I guess
14
would be, but we obviously assess projects on an individual
15
basis.
16
could be some drivers there related to projects, because of
17
their lumpy nature.
18
So when you look at it over a time period, there
MR. MILLAR:
And subject to check, do you accept our
19
calculation of the compound annual growth rate for table 1
20
and table 2 for the total OM&A?
21
to remind you -- are 5.2 percent and 4.1 percent
22
respectively.
23
And those numbers -- just
Take that, subject to check?
MR. MAZZA:
Yes, we -- I think we confirmed the
24
operations numbers and the total numbers that you used for,
25
I guess, Exhibit N2.
26
MR. MILLAR:
Yes.
I don't think you had actually
27
calculated the compound annual growth rate, though, so I am
28
just asking if you have any cause to disagree with --
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MR. MAZZA:
2
MR. MILLAR:
3
No, I don't.
I mean, you can take it subject to check.
I think it's just math, but...
4
MR. MAZZA:
5
MR. MILLAR:
Yeah.
Okay.
Thank you.
If we can look more
6
carefully under newly regulated 2013, your plan for spend
7
that year was -- if you look at line 18 for total OM&A,
8
your planned spend was 232 million, and you came in more
9
than -- I'm sorry -- yes, I'm sorry.
If you look at budget
10
versus actual for 2013, it was 218 million, pardon me.
11
That was the budget, and you came in more than $20 million
12
less than that at 2013.
13
Now, if you look at your plan for 2014, you are all
14
the way up at 232 million.
15
correctly?
16
MR. MAZZA:
17
MR. MILLAR:
Have I read those numbers
Yes, you have.
So given your difficulty in spending to
18
your budget in 2013, are you going be able to spend
19
35 million more dollars between 2013 and 2014?
20
realistic jump?
21
MR. MAZZA:
Is that a
Well, when we crafted the business plan
22
and reviewed it last year, we thought there was still some
23
reality to those numbers.
24
labour rate increases that I believe you discussed earlier.
25
There have been some increases, labour rate increases that
26
we experienced in 2013 and they have been carried over, of
27
course, in 2014.
28
MR. MILLAR:
We had to reflect as well the
Sorry, I thought the PWU had a net zero
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increase at OPG.
MR. MAZZA:
Did I misunderstand that?
That's -- the net zero is net zero not
3
only -- it reflects other -- my understanding, it reflects
4
other parameters, other than the labour rates themselves
5
and labour rate escalation.
6
7
8
9
MR. MILLAR:
I see, because some of those costs aren't
included?
MR. MAZZA:
Yes, if you look -- actually, we did an
analysis for LPMA on that, issue 9, and that showed some of
10
the labour rate drivers for the hydro business,
11
specifically for the hydro business and for previously and
12
newly regulated.
13
So there was -- we did experience a jump due to
14
pension and OPEB and labour escalation.
15
actually a 53rd week, which we have to reflect into the
16
numbers. It was a 53-week year.
17
So those were some of the drivers.
18
MR. MILLAR:
Okay.
And that year was
But I guess my question, to keep
19
it more simple, is:
20
you actually going to spend $35 million more in 2014 than
21
you did in 2013?
22
MR. MAZZA:
How are you tracking for this?
Are
Well, we did do a forecast this year and
23
we are tracking a little under.
24
the process of re-forecasting, looking at our vacancies and
25
the demographics.
26
We are now going through
And also -- I don't know if this will come up in a
27
later panel, but we are going through a joint redeployment
28
planning process, and the feeling is -- with our unionized
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society or professional staff, and if things go per plan,
2
we think we will have a majority of our vacancies as
3
planned filled, as part of this process.
4
MR. MILLAR:
You mentioned you were seeking to update
5
the forecast.
6
updating the forecast, I guess.
7
completed?
8
9
When will that be -- or you are working to
MR. MAZZA:
Well, we do quarterly updates, and we do
an update as part of our business planning process that we
10
have started.
11
forecast of all our assets.
So we will be doing what we call a Q2
12
MR. MILLAR:
13
MR. MAZZA:
14
MR. MILLAR:
15
16
When will that be
So the Q1 forecast is completed?
Yes.
We have done a Q1 forecast.
You said you were a little under for
that?
MR. MAZZA:
Yes, we were under, again on the labour
17
component, because of some of the factors that I have
18
mentioned.
19
the vacancies.
20
We are still in the process of filling some of
There are issues where we have square pegs in round
21
holes, so we have to -- we are looking at that to see how
22
that will fit into the equation.
23
MR. MILLAR:
Would you undertake to file that update?
24
Or if not the update itself, then how you are tracking
25
against your forecast?
26
MR. MAZZA:
Yeah, we can produce a Q2 forecast.
27
MR. MILLAR:
28
UNDERTAKING NO. J3.13:
J3.13.
TO PROVIDE A Q2 FORECAST OR
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UPDATE TRACKING AGAINST FORECAST.
2
MR. SMITH:
3
MR. MILLAR:
Yes, we will do that.
Thank you.
Madam Chair, I don't know
4
how long you want to sit.
5
can go for as long as you want or we can stop now.
6
to you.
7
MS. HARE:
8
MR. MILLAR:
9
10
11
12
panel today.
I am moving into a new area.
I
It's up
How long do you think you'll be in total?
I don't think I will finish with this
I could finish my next area in perhaps 15
minutes, would be my hope.
MS. HARE:
tomorrow.
Well, then I think we will just break until
Thank you.
13
So we will meet tomorrow at 9:30.
14
--- Whereupon the hearing adjourned at 4:31 p.m.
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