I am directing my questions and comments to you but if intended for another person please forward.

First, I note that you indicate revenues from the Customer Charge of $294 million (Residential) and $95 million (business) for a total of $389 million, but I do not see any reference to these revenues in Exh.D., not even Tab 4 Sched.2., which seems peculiar given their relevance in the rate determination process of what is reasonable.

However, I do note that Tab 1 Sched. 3 shows costs for what appear to be related services under the Customer Charge of $322 million which, if this is what these figures are, means that EGDI are allowed to make a NET profit margin of 20% ($67 million over the $322 million costs.)

In addition, there appear to be elements to both cost and revenue that may result in this margin being actually greater or devolving inequitably upon either the business or residential customer.

In the cost column, for example, there are several significant items that appear to be broadly allocated or misplaced in terms of being appropriately defined as Customer Charge costs. One such specific item is part of the $3.6 million for Hydro One relocation (as specified in the notes). There are various others that one may justly question as misplaced, such as the projects listed under two of EXPENSE categories defined as 'Customer Related Capital' ($20 million project costs) and 'System Improvement Upgrades"($5 million). Does the applicant appropriately allocate certain business customer' costs to businesses to be captured only in the business Customer Charge, rather than be blended in the total costs apportioned to both residential and business customers?

On the revenue side, I note the following throughout Exh. D., but principally Tab 2, which seem not to be allocated as Customer Charge revenues but which seem clearly related to the Customer Charge. Examples include: the Late Payment Penalties ($11 million); Transactional Services ($12 million); Service Charges & DPAC' ($12 million); and even 'NGV Rentals' (0.4 million). If improperly classified these would understate the revenue side of the equation.

Taking the above as adjustments to costs and revenues, one could end up with a NET margin of not $67 million but $90 or $100 million and a net profit ratio ratio more like 30%. Whether 20% or 30%, such profits are excessive and make the level of Customer Charge the OEB has granted totally unreasonable and unjustified.

I also note from Exh.D. (Tab 3) that the 'Total Net Utility Operating & Maintenance Expense' amount to only $341 million, which seems out of line with the costs they seem to be allocating to Customer Charge, as its relative size makes the costs allocated to the Customer Charge appear 'overstated.'

I am aware that the Rate Review process typically results in hundreds and hundreds of pages being presented over a lengthy period, a fact which in itself makes analyses difficult. In addition the data is presented so that it is, as this current exercise fully illustrates, all over the place and not reasonbly formatted for comparison let alone analyses. I am also aware that the OEB grants rates to the Energy Companies related more to cost of capital and return on capital but, with the Customer Charge, it strikes me that a reasonable independant approach would involve granting a reasonable margin over direct costs which are clearly and easily differentiated, yet the simple analysis I reference above seems to indicate a very generous profit to EGDI. I must add here that your office defined the direct costs as: the installation and maintenance of the gas distribution system, street services and meters, and adminstration services for billing, such as meter reading, mailing and the handling and collection of accounts receivable, but the Exh. D. illustrates a much broader inclusion of costs.

Finally, on the matter of the assessed cost of capital and return on capital as pivotal elements of what is justified and reasonable, I have to ask, does anyone at the OEB sufficiently understand the inputs and is capable of assessing the accuracy and/or reasonableness of the presentations made by the applicants (as in Exh.D., and presumbly elsewhere in the Rate Review process.) I understood your principal analyst position was discontinued in the late 90's, but is there someone or group of people charged with assessing all the financial data presented and doing so on an ongoing basis, including also all the intercompany ( that is, the regulated applicant and their non-regulated counterparties) transactions that are involved? If not, how do you truly know what is justified and reasonable.

I, for one, am not convinced that the consumer is not being charged too much with respect to the monthly Customer Charge and that leads me to an earlier question I posed which went unanswered: namely, what have been the increases over the last decade in $$ and percent terms, and what were the prevailing CPI changes in each of those periods.

I trust someone will provide not only the latter but also provide concrete proof to both my MPP and the Minister of Energy (who I would have to be believe is totally unaware of how reasonable and justified the OEB rate grants are.) Please also advise us of the total annual costs for the past few years of running the OEB and confirm whether or not the rate applicants levy any or all the costs for the rate applications upon consumers, and where such charge is included.

Thank you.
M. Haynes




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