· web viewpietrewicz: it was considered a -- "priority" perhaps isn't the exact...

ONTARIOENERGYBOARD

FILE NO.: EB-2007-0707

VOLUME:

DATE:

BEFORE:

3

September 10, 2008

Pamela Nowina

Ken Quesnelle

David Balsillie

Presiding Member

Member

Member

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EB-2007-0707

THE ONTARIO ENERGY BOARD

IN THE MATTER OF Sections 25.30 and 25.31 of the Electricity Act, 1998;

AND IN THE MATTER OF an Application by the Ontario Power Authority for review and approval of the Integrated Power System Plan and proposed procurement processes.

Hearing held at 2300 Yonge Street,25th Floor, Toronto, Ontario,

on Wednesday, September 10, 2008,commencing at 9:02 a.m.

------------------VOLUME 3

------------------

B E F O R E:

PAMELA NOWINA PRESIDING MEMBER

KEN QUESNELLE MEMBER

DAVID BALSILLIE MEMBER

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A P P E A R A N C E S

JENNIFER LEA Board CounselDAVID CROCKER

DAVID RICHMOND Board StaffVIOLET BINETTENEIL McKAY

GEORGE VEGH Ontario Power Authority (OPA)MICHAEL LYLEGLEN ZACHERJAMES HARBELLKRISTYN ANNIS

STEVEN SHRYBMAN Council of Canadians

JAY SHEPHERD School Energy Coalition (SEC)JOHN DeVELLIS

DAVID POCH Green Energy Coalition, PembinaKAI MILLYARD Foundation and Ontario Sustainable

Energy Association (OSEA)

ANDREW LOKAN Power Workers' Union (PWU)JUDY KWIKRICHARD STEPHENSON

BASIL ALEXANDER Pollution ProbeMURRAY KLIPPENSTEINCORY WANLESSKENT ELSON

TOM BRETT Association of Power Producers ofCARLTON MATHIAS Ontario (APPrO)

PETER THOMPSON Canadian Manufacturers & ExportersVINCE DeROSE (CME)NADIA EFFENDI

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MARK RODGER Alliance of Energy Consumers (Association of Major Power Consumers of Ontario, AMPCO; Canadian Chemical Producers' Association; Cement Association of Canada (Ontario); Industrial Gas Users Association, IGUA; Ontario Federation of Agriculture, OFA; Ontario Forest Industry Association; Ontario Mining Association; Stone, Sand and Gravel Association of Ontario

IAN MONDROW City of TorontoELISABETH DeMARCO

MICHAEL BUONAGURO Vulnerable Energy Consumers' Coalition (VECC)

JOHN CYR City of Thunder Bay, NorthwesternNICK MELCHIORRE Ontario Municipal Association

(NOMA), Town of Atikokan

ROBERT WARREN Consumers Council of Canada

KELLY FRIEDMAN Electricity DistributorsRAUL AGARWAL Association

JOHN RATTRAY Independent Electricity SystemPAULA LUKAN Operator (IESO)

TIM MURPHY Canadian Solar IndustriesAMANDA KLEIN Association

CHARLES KEIZER Brookfield Energy Marketing Inc., Great Lakes Power Ltd. (GLPL)

DOUG CUNNINGHAM Nishnawbe Aski Nation

ALEX MONEM Saugeen Ojibway Nations (SON)ARTHUR PAPE

PETER FAYE Lake Ontario WaterkeeperJOANNA BULL

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JENNIFER AGNOLIN NorthwatchVIVIENNE BALL

JEFF ROSEKAT First Nations Energy AllianceCHERIE BRANTGENEVIEVE LE COMTE

JIM HAYES Society of Energy ProfessionalsJO-ANNE PICKEL

SARAH DOVER Provincial Council of Women of Ontario (PCWO)

MICHAEL ENGELBERG Hydro One Networks Inc. (HONI)BLAIR McDONALD

DAVID GOURLAY Newfoundland and Labrador Hydro

DAVID STEVENS Enbridge Gas DistributionDENNIS O'LEARY

PAUL MANNING National Chiefs Office, Assembly of First Nations

FRED CASS Ontario Power Generation (OPG)

ANDREW TAYLOR Ontario Waterpower Association, Canadian Wind Energy Association

DAVID MacINTOSH Energy Probe

ALSO PRESENT:

Dr. JAN CARR Ontario Power AuthorityMIRIAM HEINZ

TOM ADAMS Alliance of Energy Consumers

CHRIS BUCKLER Electricity Distributors' Association

GRACIA JANES Provincial Council of Women of Ontario

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I N D E X O F P R O C E E D I N G S

Description Page No.

--- On commencing at 9:02 a.m. 1

Preliminary Matters 1

ONTARIO POWER AUTHORITY - PANEL 2, RESUMED 3A. Shalaby, A. Pietrewicz, Previously Sworn

Continued cross-examination by Mr. Poch 3

--- Recess taken at 10:29 a.m. 56--- On resuming at 10:45 a.m. 56

--- Luncheon recess taken at 12:15 p.m. 109--- Upon resuming at 1:44 p.m. 109

Cross-examination by Mr. Thompson 115

--- Break taken at 3:00 p.m. 150--- Upon resuming at 3:19 p.m. 150

Cross-examination by Mr. Cyr 150Cross-examination by Ms. Friedman 172

Procedural matters 180

--- Whereupon hearing adjourned as 4:15 p.m. 180

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E X H I B I T S

Description _______Page No.

ERROR! NO TABLE OF FIGURES ENTRIES FOUND.NO EXHIBITS WERE FILED DURING THIS PROCEEDING

12341234

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

Description Page No.

UNDERTAKING NO. J3.1: TO UPDATE TABLES 11, 12 AND 13 WHICH APPEAR IN THE EVIDENCE AT D-6-1 AT PAGE 16. 14

UNDERTAKING NO. J3.2: PROVIDE EXPECTED COSTS OF IMPORTS TO REPLACE COAL AT AN EARLIER DATE. 88

UNDERTAKING NO. J3.3: TO PROVIDE, IF AVAILABLE, PLAN COSTS WITH AND WITHOUT TERMINAL VALUES FOR CASES 2A AND B, 3A AND B AND 4A AND B 115

UNDERTAKING NO. J3.4: TO CLARIFY THE DEFINITION OF “CONSERVATION” 179

NO

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Wednesday, September 10, 2008

--- On commencing at 9:02 a.m.

MS. NOWINA: Please be seated. Good morning, everyone.

Today is day 3 of the oral portion of the review of the

Integrated Power System Plan. The Ontario Power Authority

is seeking the Board's approval of the Integrated Power

System Plan and certain procurement processes.

The Board has assigned file number EB-2007-0707 to this

application.

Yesterday we were told by a number of parties that

there were problems with the Internet connection. Our IT

staff has been monitoring the connection and can see no

issues at our end; however, we're getting a third party to

come in and evaluate the situation independently, and we'd

appreciate your reporting either by calling in to our IT

department or you can do it here, if you continue to hear of

problems.

Today we continue with the cross-examination of panel 2

on plan overview and development. Are there any preliminary

matters?

PRELIMINARY MATTERS:

MS. NOWINA: Mr. Vegh.

MR. VEGH: Thank you, Madam Chair, just one for the

applicant. I would like to take the opportunity of the

broadcast facilities available and for the transcripts to

address the protocol for providing materials to witnesses in

preparation of cross-examination.

Many parties, when they provide the materials, would

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

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like the witnesses to have those materials in advance so

that they can have them available and prepare for cross, but

some parties prefer more of the element of surprise and do

not want the OPA to share those materials with the witnesses

or counsel prior to their cross-examination.

So it would be very helpful -- and the OPA can

accommodate either request, but it will be necessary for the

parties to identify whether or not the material should be

provided to the witnesses in advance of cross-examination.

If they don't advise the OPA that we should provide the

materials to the witnesses in advance, then we won't,

because we don't want to breach any assumption of secrecy.

So we would ask parties, when they do provide the

materials to Ms. Heinz - and we have addressed how to do

that - to advise whether or not the witnesses should be

provided in advance.

And one other element. When you provide the materials

to Ms. Heinz, could you also provide a copy to Mike Yealland

at the Ontario Power Authority? And his e-mail address is

[email protected]. Thank you. That is

all, Madam Chair.

MS. NOWINA: Just to be clear, Mr. Vegh, we are talking

about -- when we say that documents will be not provided to

your witness panel in advance, we are talking about

documents that are already on the record. Documents that

are not on the record and that your panel hasn't seen, they

should be getting in advance.

MR. VEGH: Thank you for that clarification, Madam


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Chair.

MS. NOWINA: Mr. Poch, first thing is you were going to

give me a refreshed estimate of your time.

MR. POCH: Thank you, Madam Chair. I am -- just going

by the pages, I am at page 25 of 40, so after four hours of

cross, we're a little ahead of schedule and hopefully I will

try to make an effort to cut out some of the pieces ahead.

And with any luck, we could finish by lunch, ahead of

schedule. I will certainly make my best effort in that

regard.

MS. NOWINA: Thank you, Mr. Poch. You can go ahead.

ONTARIO POWER AUTHORITY - PANEL 2, RESUMED

^Amir Shalaby, Previously Sworn

Andrew Pietrewicz, Previously Sworn

CONTINUED CROSS-EXAMINATION BY MR. POCH:

MR. POCH: Panel, when we left off yesterday, we were

just turning to a number of questions under the general

heading, interpretation of the directives and the

regulation.

The first questions I have are with respect to how you

dealt with the directive, the regulation to place -- to

pursue applications that allow high efficiency and high

value use of the fuel, the fuel being gas.

Can you turn in Exhibit K1.1, the slides from your

first-day presentation, to slide 70?

Now, here we're talking about -- you were talking about

base load and you were laying out, in slide 70, am I

correct, that the -- step-by-step way that you determined


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how to meet base load needs; is that correct?

MR. PIETREWICZ: Yes.

MR. POCH: I noted, in the second hyphenated bullet

there that you attempted to determine the contribution from

conservation and renewable resources -- first of all,

obviously, you looked at how much the demand and existing

resources could do, and then you attempted to determine the

contribution from planned conservation, renewable and

combined heat and power.

So combined heat and power I take it is considered a

high value, high efficiency option that gets priority for

meeting base load?

MR. PIETREWICZ: Combined heat and power, to answer

your question first, is considered a high efficiency use of

the fuel.

The high value, itself, would be perhaps more context-

dependent, for example, if it was located in an area where

it would have sort of material benefits over it being

located in another area.

But, generally, yes, the combined heat and power is

considered to be a high efficiency use of the fuel, and it

was included in Exhibits D-6-1, which deals with nuclear for

base load resources, as well as Exhibit D-3-1, which is

entitled, "Determining Resource Requirements", and it was

considered in those exhibits as a ^base load resource.

MR. POCH: And a priority, along with conservation and

renewable ahead of it, before you get to nuclear and

conventional gas; is that correct?


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MR. PIETREWICZ: It was considered a -- "priority"

perhaps isn't the exact word. It was considered insofar as

we already have existing combined heat and power projects in

the province. As well, we have a number of committed

combined heat and power projects in the province pursuant to

the CHP 1 RFP which the OPA has conducted and for which it

has awarded approximately 414 megawatts of contracts.

In addition, we anticipated the balance of that 1,000

megawatt directive for CHP power to be fulfilled, and that

balance is indeed reflected in these amounts found in

Exhibit D-3-1 and D-6-1.

MR. POCH: So when this bullet point speaks of the

contribution from planned resources, it's obviously not

dealing with the committed. We assume the committed are

taken as committed.

The planned is just the balance of the CHP, combined

heat and power. When I talk about CHP here, I'm talking

about the greater than 10 megawatts that is not dealt with

under the CDM or conservation rubric.

First of all, let's make sure we're talking the same

language. CHP, in the language that you are using in your

documents, I take it in general refers to the over 10

megawatt combined heat and power?

MR. PIETREWICZ: Yes, I understand that is our

treatment of it on the supply side.

MR. POCH: Sure. And then -- so this bullet point

here, talking about what you include in your plan as a

priority before you then turn to determine the need for


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nuclear and conventional gas, is only the combined heat and

power that remains to be acquired under the directive that

you were specifically given to go out and get some, the

1,000 megawatt directive?

MR. PIETREWICZ: For the planned component, yes.

MR. POCH: All right. Can you tell me why --

MR. VEGH: Sorry, Madam Chair, it might also be helpful

to remind Mr. Poch that there will be a panel dealing with

this issue, with the issue of nuclear for base load, as well

as the issue on resource requirements.

I raise that just because Mr. Poch is using fairly

categorical language in his description of this, and I think

Mr. Pietrewicz is trying to be helpful and he will be on the

subsequent panel, but there will be other members of that

panel who will be addressing these issues in some detail, as

well.

MR. POCH: Madam Chair, I am not going to be getting

into any great detail on this. I am really after the -- it

is a question of how the OPA, the planning group at the OPA,

interpreted the directive, is the point here.

My question, gentlemen, is, if I am understanding you

correctly: Why didn't you take the directive to pursue

applications that allow high efficiency and high value use

of the fuel as an -- as necessitating placing priority on

combined heat and power, beyond the specific directive that

you obviously have to respond to?

MR. SHALABY: All of these directives and policy

priorities are subject to feasibility and subject to ^cost


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effectiveness, and the combined heat and power is a process

that we are discovering the potential, the effectiveness and

the feasibility of as we go along. And it has proven to be

more complex and more expensive and less abundant than

theoretical papers indicate.

That's been our experience. We bring to it the

experience of procurement in the first round, and the

experience of the connected CHP that is on the...

MR. POCH: That's no different than what you have done

for renewables and conservation, is it? You have only

included, in -– at this level before you then turn to other

conventional resources the amount of renewables and

conservation you feel are cost effective and achievable?

MR. SHALABY: Yes.

MR. POCH: There is no distinction here; you're not

making any distinction?

MR. SHALABY: It's the amount of CHP we think is

reasonable to include at this stage, that we think it is

feasible and cost effective at this stage.

MR. POCH: Okay. Just to answer my question, that's

the same basically the same test you have applied to

conservation and renewable at that stage?

MR. SHALABY: It is.

MR. POCH: All right. So then implied in your answer,

am I right, is that you feel that the 1,000 that you have

been told to go out and get is, in fact, equal or greater to

what is feasible and cost effective?

MR. SHALABY: Can you say again?


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MR. POCH: The 1,000 megawatts that the specific

directive has instructed you to achieve is, it's your

judgment, then, that there is no more than should be planned

because in your judgment you do not believe there is more

that is feasible or cost effective?

MR. SHALABY: At this stage, for large projects --

there is another avenue for smaller projects.

MR. POCH: Yes.

MR. SHALABY: The standard clean energy standard

program will capture many of the district heating and

district cooling projects such as the one in Markham that is

operating successfully in Markham District Energy. Those

projects are typically in the 5 to 10 megawatt range and

many of those will be captured in the standard offer.

MR. POCH: They're part of conservation?

MR. SHALABY: They're part of standard offer.

MR. POCH: We're talking about combined heat and power

here. Could you answer my question?

MR. SHALABY: Large co-generation, this is our estimate

of the potential at this time.

MR. PIETREWICZ: I would like to add that perhaps the

break is not as stark as perhaps you are making it seem.

I would point you to Exhibit D-6-1 which again deals

with nuclear for base load. And particularly on page 14 of

that exhibit, we describe our treatment of CHP resources in

this exhibit. And we go over the steps of including this

1,000 megawatts of CHP potential, but add on line 19 of page

14 that -– and I'm quoting:


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"This does not preclude the acquisition of

additional CHP resources that are feasible and

economic."

So I think Mr. Shalaby's point is correct, that at this

stage, this 1,000 megawatts is seen to be feasible and

economic.

MR. POCH: But you don't see more than a thousand as

feasible or economic. That is the simple point.

MR. SHALABY: Not at this point. As more procurements

are undertaken and as evaluation of these procurements

proceeds, we will update these estimates.

At this time, as I indicated, we -- as an indication of

the difficulty of getting CHP, the first call for CHP was

not fully subscribed.

We called for 1,000. We only got 414. It's an

indication this is not an infinite line-up of resources that

are waiting to be contracted. That tempered our assessment

of the potential of economic and feasible projects.

MR. POCH: Okay. In Exhibit I-22-29, at D, we asked

you and I will read it:

"Please identify in the evidence where any

discussion of large-scale ^co-generation potential

is considered as a potential resource. If none is

in the evidence, please explain why. Please

identify and provide any studies or analyses in

OPA's possession regarding co-generation greater

than 10 megawatts."

If we scroll down to the answer to D, the answer you


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gave was:

"For the purpose of planning large-scale co-

generation greater than 10 megawatts, the OPA has

assumed 1,000 megawatts over the planned term

which is in accordance with the CHP directive

issued by the Minister of Energy."

That was the extent of your answer.

Now, was that the extent of your analysis at the time?

MR. SHALABY: I indicated to you that we were informed

by the first phase of the procurement. We're in the

business of procuring CHP, we have 414 megawatts that we

have evaluated and awarded.

We have expressions of interest, when we go with CHP

projects, there are conferences held with proponents to get

expressions of interest. We understand where the

opportunities are. We understand the difficulty in

capturing these opportunities.

All of that tempered our assessment and informed our

assessment. Our assessment is subject to updating.

MR. POCH: All right. Well, then, could you turn up I-

31-20. There is a similar question there that was posed by

Pollution Probe asking you for also a breakout by category

and size and so on.

The response there was that you had not conducted an

analysis of the economic potential of natural gas ^fired CHP

in Ontario. Is that answer correct?

MR. SHALABY: The answer is correct, in that typically

these analyses start with what is the steam use in the


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province, and what is the theoretical potential and

hypothetical potential for using that steam load for

electricity consumption.

There were studies like that that we have access to,

that were updated in 2002 and updated before that. I mean,

these studies are done regularly by various parties.

And we find them of limited utility, because the actual

on-the-ground conditions are informed by business decisions,

and we can give you examples. I mean, you can get different

companies that get acquired by other owners and the other

owners decide their business is steel or paper or something

else and they don't want to be in the power-manufacturing,

power-generation business. We know that for a fact.

So the studies have limitations that we didn't find

updating these studies to be useful at this time.

MR. POCH: Right. In fact, you're talking about

economic and technical potential studies, correct, first of

all.

MR. SHALABY: Right.

MR. POCH: Those studies have found numbers, large

numbers --

MR. SHALABY: We find large numbers, same way you would

-- you do assessment of potential for biomass or potential

for solar and wind. The potential is huge.

MR. POCH: But they find large numbers for cost-

effective potential in an order of, I believe, one study for

the government was 16,000 megawatts. Does that ring a bell

for you?


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MR. SHALABY: There are very large numbers and they

don't pan out in reality.

MR. POCH: All right.

MR. SHALABY: They don't consider the realities of the

business decisions necessary to get these things --

MR. POCH: I don't want to get into the numbers with

you on this panel. But just ask you two things.

First of all, I take it that -- you have indicated you

have had trouble getting contractual commitments from the

sector to build more combined heat and power, and that's

through the RFP process; correct?

MR. SHALABY: That is?

MR. POCH: Through the RFP process --

MR. SHALABY: Through the process we conducted, yes.

MR. POCH: Are you aware of the criticism that an RFP

process is a large part of the problem here, in a -- when

you are pursuing a resource that has, as you have indicated,

a number of parties involved and it's a complex contractual

situation, there is a lot of study that has to be done up

front and that the RFP process, then, adds uncertainty and

delay. As compared to --

MR. SHALABY: I am aware ever the criticisms. I am not

agreeing with your characterization of it, but I am aware of

the criticisms.

MR. POCH: A few moments ago you mentioned, Mr.

Pietrewicz mentioned there is the other I believe -- the

other process, the see-saw process. That's a standard offer

process.


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MR. SHALABY: Right.

MR. POCH: That's being used for smaller resources?

MR. SHALABY: Yes.

MR. POCH: You seem to have more confidence you are

going to get resources through that process; correct?

MR. SHALABY: I have confidence that it will bring

about additional resources.


MR. SHALABY: Probably not huge as well, but they will

bring in opportunities that are smaller size, particularly

district heating and district cooling.

MR. POCH: You are aware in other countries, combined

heat and power has placed a major role in some other

countries?

MR. SHALABY: We have read your evidence and we read

the papers and reports as well as you do, yes.


MR. SHALABY: And for the benefit of others, I mean,

much of that is, some of that is coal-fired, by the way.

MR. POCH: All right. Let's turn to the -- move from

gas to the more general topic of base-load nuclear for base

load, as you have described it.

First of all, if you could turn to D-1-16 -- so Exhibit

D, tab 6, schedule 1, at page 16, excuse me. There are

three tables, 11, 12 and 13, that lay out your base load

numbers through the plan.

I take it these have not been updated to reflect the

changes in your update?


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MR. PIETREWICZ: No, they have not been updated as of

yet.

MR. POCH: It is possible to get such an update?

MR. PIETREWICZ: Yes, it is.

MR. POCH: All right. Could we get an undertaking to

that effect?

MR. RICHMOND: That would be undertaking J3.1, so it is

an undertaking to update --

MR. POCH: Tables 11, 12 and 13 which appear in the

evidence at D-6-1 at page 16.

UNDERTAKING NO. J3.1: TO UPDATE TABLES 11, 12 AND 13

WHICH APPEAR IN THE EVIDENCE AT D-6-1 AT PAGE 16.

MR. POCH: We have already covered the contribution to

combined heat and power to base load before you get to

nuclear. I wanted to ask you briefly about planned imports,

presumably from renewables.

My understanding is you don't include anything for that

in base load?

MR. SHALABY: Is that imports from outside of the

province?

MR. POCH: That's right.

MR. SHALABY: No, we do not have them in the reference

plan.

MR. POCH: Is my understanding correct that that's

because you haven't figured out what they would cost, so

you're not in a position to include them?

MR. SHALABY: Because it is inappropriate to include in

the plan something that somebody else owns. I mean, until


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you have a contract with someone or have a deal with

someone, this is quite presumptuous to put in the plan at

this stage.

We are pursuing these options and these are not intend

to build, these are not intend to develop. These are intend

to reach agreement with others, and I think until these

agreements are reached, it's not appropriate to include them

in the plan, in our view.

MR. POCH: Could you turn back to K1.1 at slide 73?

At the bottom of that slide, you say you're not seeking

to procure any nuclear capacity in the near term, and you

indicate you expect to have better information in the

future.

That resonates in my memory with the position you took

earlier, before the update, before the government -- before

taking account of this government statement; correct? At

that time you were not -- you were -- you weren't seeking

any approval to procure nuclear before the government made

its statement; correct? Nothing has changed in that regard?

MR. SHALABY: No change, yes.

MR. POCH: No change.

So it was your best advice to the province, to the

sector, to this Board, that it wasn't necessary. It was

premature to make such a commitment?

MR. SHALABY: Procuring electricity is different than

exploring the option and developing the option. Procuring

the electricity from an option comes many years after the

option has been developed and ready for procurement


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agreements.

MR. POCH: Well, you're --

MR. SHALABY: It is not inconsistent with what the

government has done.

MR. POCH: Your judgment was you were not suggesting

you move ahead with those preliminary steps. The government

was moving with some preliminary steps to shorten up the

potential path. They were instituting environmental

assessment work, as we all know.

But you weren't suggesting that any further step in the

nature of procurement occur. I mean, your judgment was it

wasn't necessary?

MR. SHALABY: No, on the contrary. Our judgment was

that developing the option is in the interests of Ontario,

but the authority to procure the electricity from that

project was not foreseen to occur before 2010.

So our authority is to procure electricity, but develop

the option is in Ontario's interest. We said that as far as

back as 2005.

MR. POCH: So throughout this case, then, when you talk

about procurement, you are just talking about -- of

electricity. You're not talking about facilitating capital

construction?

MR. SHALABY: We're procuring electricity.

MR. POCH: Well, your contract with Bruce A --

MR. SHALABY: For electricity.

MR. POCH: I see. You make that contract well in

advance to enable construction?


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MR. SHALABY: At a specific point to enable

construction, yes. Not at the beginning of the project;

somewhere along the way.

MR. POCH: Right. You weren't suggesting such a

contract. You weren't seeking -- in your plan, you weren't

suggesting that such a contract be entered into?

MR. SHALABY: For electricity procurement, correct.

MR. POCH: Right.

MR. SHALABY: Not before 2010.

MR. POCH: All right. And the fact of that gave you

some flexibility. You could size up the situation by 2010,

as indeed you say here you are going to now.

MR. SHALABY: Yes.

MR. POCH: You would make a judgment. Obviously

there's some benefit to -- forestalling that judgment gives

you better information?

MR. SHALABY: You have better information before you

make that contract, yes.

MR. POCH: Right. And the only thing that really has

changed, other than the government's action since then, is

that the load forecast has come down; correct?

MR. SHALABY: Many things have changed.

MR. POCH: Well, just quickly, we agree the load

forecast has come down?

MR. SHALABY: Yes.

MR. POCH: And the --

MR. SHALABY: Load has come down since 2005.

MR. POCH: Load has come down, yes. You haven't


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revised the load forecast?

MR. SHALABY: It will be updated when it gets updated,

yes.

MR. POCH: Sorry, yes. Okay. So the load has come

down.

And the recent history of nuclear costs has been

experienced in a couple of jurisdictions while they're

trying to build these new reactors has been one of

considerable escalation; correct?

MR. SHALABY: We acknowledge that, yes.

MR. POCH: Yes, okay.

MR. SHALABY: We detail the -- our understanding of the

international experience in the interrogatory that you

brought up yesterday, interrogatory 87.

MR. POCH: All right. Let's move on, then, to the

mandate you have to "develop innovative strategies to

accelerate the implementation of conservation, energy

efficiency and demand management measures." That's from the

Regulation 424/04, section 2(1)(2).

Would you agree that that regulation imposes on OPA a

responsibility not to treat options ^even-handedly?

MR. SHALABY: Not to treat options? Can you say the

last word again?

MR. POCH: Even-handedly.

MR. SHALABY: You better explain a little more why is

that.

MR. POCH: The purpose of the section is to -- that you

are to do -- to take steps with regard to those measures.


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Presumably it's making a distinction between that and what

you would ordinarily do in terms of seeking resources?

MR. VEGH: It might be helpful if you refer to the

actual regulation, Mr. Poch.

MR. POCH: Yes. Do you need the cite again?

MR. SHALABY: What section of the regulation?

MR. POCH: It's 424/04, section 2(1)(2) in my notes.

MR. SHALABY: I mean, if you go to section 4 of the

same regulation, it talks about:

"Identify and develop innovative strategies to

encourage and facilitate competitive market-based

responses and options for meeting overall system

needs."

So the encouragement of innovation is not limited to

demand management, encouragement of innovation. It is

broader than that.

MR. VEGH: (Inaudible)

MS. NOWINA: Mr. Vegh, your mike is not on. The

reference?

MR. SHALABY: Is that what you are looking at?

MR. POCH: I am looking at the IPSP regulation, first

of all.

MR. SHALABY: 424?

MR. POCH: 424/04.

MR. SHALABY: Yes.

MR. POCH: Section 2, sub 1, and it is the fourth --

I'm sorry, the second paragraph there, enumerated paragraph:

"Identify and develop innovative strategies to


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accelerate the implementation of conservation,

energy efficiency and demand management measures."

MR. SHALABY: I read that.

MR. POCH: All right. It also -- you are correct, it

also asks you to develop innovative strategies to encourage

competitive marked-based responses.

MR. SHALABY: Right. The two together now, do they

lead to the conclusion you were leading to, or no?

MR. POCH: Yes. Well, I don't have to answer the

questions, fortunately.

MS. NOWINA: He is not under oath, Mr. Shalaby.

MR. SHALABY: I am looking for a break. Somebody help

me.

[Laughter]

MR. POCH: I was really just asking that, how you are

interpreting number 2, is it to -- what is that in your mind

has that called upon you to do? Has it called upon you to

go further or to place greater priority? Or to offer, be

prepared to pay a premium or use different procurement

mechanisms? What is it that that says to you?

MR. SHALABY: It tells us to explore a number of

strategies, a number of approaches which is certainly what

we're doing, and the panel on conservation that follows

will explore that in fuller detail. But it is evident, in

our annual conservation reports, the multiple -- the

multiple approaches in building capability, in programming,

in accelerating standardized option. It is going in

multiple fronts and that is how we interpret the innovation


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that is required of us.

MR. POCH: All right. Would you agree that, in the

context of your very large role in the sector, one way, one

aspect of that, fulfilling that mandate might be to give

emerging options, new options, new technologies -- pay

particular care to give them a foothold in the marketplace

and in the province and, particularly so where they serve

your stated goals of sustainability.

MR. SHALABY: I accept that, yes. We do that in two

ways. One is through technology and conservation funds. We

have two funds that we contribute with other funds, such as

the Centres of Excellence in Ontario to do exactly that.

And secondly, by the programs themselves. The programs are

intended to nurture emerging technologies and options until

they become adopted by the marketplace and easy to become a

standard.

MR. POCH: But --

MR. SHALABY: The conservation panel is going to

describe that a lot more fully.

MR. POCH: -- when I look at options like enhanced --

advanced storage technologies and smart grid technologies,

the two that my clients are fond of because they tend to --

they hope to facilitate greater reliance on smaller, cleaner

resources, you don't have those in your plan. You have

indicated you have a little fund to help encourage some

research and so on.

But you don't include those sort of things – sorry, I

couldn't hear you.


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MR. SHALABY: I didn't call it "little fund."

MR. POCH: I didn't mean that pejoratively. I think it

is little compared to the scale of the money you are

spending on your resource acquisition.

MR. SHALABY: It's an essential fund. It is several

million dollars over the last two or three years.

MR. POCH: And you don't have, in your plan any -- the

plan is not constructed with the acquisition of these

resources in mind. With reliance on these technologies in

mind.

MR. SHALABY: We have in our plans reliance on smart

metering and smart metering system, meters, rates,

application of the rates. We have anticipated and relied on

smart meters. Smart grids are something that will build on

smart meters and is evolving as we speak. It means a lot of

things to a lot of people at this stage.

MR. POCH: It sure does. But I take it the answer is,

then, that you don't include these, these technologies which

exist but just aren't out there and mature. You don't

include them, you don't anticipate them in your plan.

MR. SHALABY: Yes, we do. We do. We anticipate, we

anticipate smart meters in the province. That's one

example.

MR. POCH: Smart meters exist and they are being rolled

out as we speak. It is pretty much mature technology;

agreed?

MR. SHALABY: Right.

MR. POCH: The government has mandated that. I am not


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talking about that. I am talking about these advanced

storage technologies and smart grid control technologies

that aren't existing in Ontario right now.

I take it you are not anticipating those in your

planning?

MR. SHALABY: That comes to the point of what do we do

with emerging technology generally.

MR. POCH: Hmm-hmm.

MR. SHALABY: We are aware of evolution of technology

and development of technology.

The question now is, what does "include" mean, when you

say you didn't include them. What does that mean?

We anticipate improvement in technology. We anticipate

improvement in end use, in generation, in transmission, and

distribution, in ways that will make asset management more

efficient, in safety, developed further.

I mean, I don't know what "including technologies"

means, in terms of meeting resources.

MR. POCH: Have you -- is your plan any way different

because of the anticipation of those resources than it would

be if you turned a blind eye to them?

MR. SHALABY: We cannot explicitly show every

technology that you can mention and show how it affects the

plan. But generally, the plan is anticipating evolution and

technology in all aspects of generation and use and

transmission, yes.

MS. NOWINA: Mr. Shalaby, would these questions be

better answered by a subsequent panel that has more details?


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MR. SHALABY: Not in the general sense. I mean, the

general approach, anticipating technology and anticipating

innovation is throughout the plan.

I mean the plan will not be what it is if we did not

have confidence that there will be improvement in

technology, improvement in information management,

improvement in work processes, construction management,

resource utilization.

This plan is counting on a huge amount of improvement

and a huge amount of innovation going further in every

aspect of resource use and generation.

MR. POCH: But just to be clear --

MR. SHALABY: Specifically, specifically, is this

desktop UPS that you mentioned yesterday, is that included

or not? I cannot get to that level of detail.

MR. POCH: I am not asking you for the levels of that

detail. I am talking significant items that could affect

the way the grid operates, the way resources can be

integrated, large resources can be integrated into the grid,

that sort of thing.

I take it while you are aware of these things, you

haven't been able to point me to anywhere in the plan

technology where you have altered your numbers, altered your

costs, because of these.

MR. SHALABY: I am indicating -- no, I can. Let's take

a few examples at a time.

The enterprise of incorporating 5,000 megawatts or

thereabouts of wind into the grid will inform and will use a


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huge amount of information technology, real-time forecasting

and metering, the response time by gas plants and other

plants that we don't know how to do at this time exactly and

precisely.

We are counting on responses and evolution.

The static capacitors and what is called SVCC,

voltage compensation, these are advanced devices. The

distributors are using very advanced devices right now for

optimizing their profiles of loads and distribution.

These things are unsung and unpublished, but these are

high technology options and are finding their ways through

the systems. So our plan includes evolution of technology.

Maybe we cannot name every specific one, but they certainly

do that.

MR. POCH: Well, the ones you just named are examples

of ones that exist and are in use in grids, if not in

Ontario already; correct?

MR. SHALABY: They do exist, but the wider use of

technology is -- requires the wider adoption of technology

and incorporation grid-wide takes time, yes.

MR. POCH: Just trying to focus on the ones that are

emerging, these kind of advanced storage technologies and

smart grid, I have given those two examples. Let's take

those just to get through this quickly, if we could, as our

example.

Your plan doesn't have any different numbers in it or

different resource mix in it because you're anticipating

those things? You haven't taken it to that level in your


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planning?

MR. SHALABY: Without being specific, what is it that

you are mentioning that we're not including, I cannot answer

your question. We are generically counting on large

improvement in technology, continuous evolution.

The system in 2020 is going to be very different than

the system today, and it will be using very different

technology.

MR. PIETREWICZ: To echo Mr. Shalaby's line of thought,

while we don't point to specific, necessarily specific types

of technologies, Exhibit G-1-1, for example, is all about

adapting the plan to future opportunities and these

opportunities and options are identified. Examples of these

are identified in G-1-1, for example on page 1.

And we cite examples of options and opportunities to

include the emergence of developing technologies and we

offer a few examples. And we offer a number of other

examples of what we mean by "options and opportunities."

And in is in the context of Exhibit G-1-1 which says,

We will develop a plan that is flexible enough to adapt to

changes in circumstances, and changes in circumstances

include the emergence of these types of technologies.

MR. POCH: That's helpful. That's how you've

incorporated it, in your view, in your plan at this time?

MR. PIETREWICZ: I think at the broadest level, we

incorporated the anticipation of the fact that the future

will be likely very different than what we see it as being

today. And, therefore, the plan needs to be flexible enough


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to accommodate that kind of change.

MR. POCH: So just to close this, then, you are not

relying on these emerging technologies. You are trying to

design a flexible enough plan to take advantage of them, if

and when they arise?

MR. SHALABY: We are relying on continuous improvement

of technology, and technology is not necessarily just

something very new that you haven't heard of before. It is

the evolution of what we know, what is static compensation,

what is series compensation, whether it is reliable pumps in

generating plants, whether it is catalytic converters at

generating plants.

The generating fleet that we are anticipating will have

a huge amount of new technology, every bit of it. So

technology is pervasive through the distribution,

transmission and generation and end use.

When we say, for example, that cooling -- cooling will

be more efficient in apartment buildings or in office

towers, that requires a huge amount of technology.

MR. POCH: I was thinking --

MR. SHALABY: Chillers, control of chillers, storage of

information. Now, we do not get into exactly how chillers

are going to become more efficient, but we know that

material science, technology of real-time information and

management will play a role in doing that.

MR. POCH: Mr. Shalaby, I apologize if I wasn't clear.

I was distinguishing from conservation and what may or may

not be in load forecast, which we don't really know,


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obviously, because it's at a coarse level, but generation

where you are actually picking between resources, and if you

changed your costs of technologies because you are

anticipating particular improvements, such as the ones we

have spoken of, you haven't gone that far?

It's a simple question. I don't know why it is causing

such a problem.

MR. SHALABY: It is not a simple question in my mind.

I don't understand it enough to give you a definitive answer

beyond --

MR. POCH: I'm going to leave it, then.

MR. SHALABY: -- we anticipated technology. We're not

speculating -- for example, we are not speculating whether

fuel cells are going to be lower cost than combustion

turbines or not, as an example. We don't know the answer to

that.

We don't know whether battery storage plus wind will be

lower cost than a combustion turbine minus something else.

MR. POCH: You don't know it and you haven't sought to

make a best estimate?

MR. SHALABY: We explored the costs of technologies and

we understand the uncertainties, and we leave -- we leave

the choice of generating technology to proponents.

So the whole idea of standard offers is to leave the

innovation and choice of technology to proponents in the

standard offer part. Even in the large RFPs that we run, we

don't dictate what the technology is. People come in with

--


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MR. POCH: I think I have --

MR. SHALABY: -- different technology and different --

MR. POCH: I have taken this as far as I can.

MS. NOWINA: Why don't you take it to a subsequent

panel, Mr. Poch?

MR. POCH: I can try to do that.

MR. SHALABY: Yes.

MR. POCH: Another aspect of innovative approaches

might be -- I take it you have been looking at options for

the treatment of environmental attributes. I guess it's a

bit of a more -- less tangible item.

You have been investigating selling or otherwise

trading these -- the green attribute of renewable

generation, for example?

MR. SHALABY: We have been exploring options to do with

the attributes, yes.

MR. POCH: Could you tell me how you view that as

consistent with the directive, which -- I guess I have a

built-in premise. Your assumption that the purpose of the

directive is saying, Get so much renewables and get so much

conservation is because -- one purpose of that is to achieve

the net environmental improvement.

So I am wondering how selling that attribute to someone

else who might then use it to enable them to emit more

carbon, or whatever, is compatible with your view of your

marching orders?

MR. SHALABY: We haven't sold any attributes. Your

question was: Did we consider it? We did, but we haven't


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sold any.


So are you telling me you have concluded that it would

not be compatible?

MR. SHALABY: We concluded that we're not selling our

attributes at this time.

MR. POCH: Okay.

MR. SHALABY: It's a debate that is wide and

complicated, whether the attribute selling facilitates

technology development and generation development, or not.

And I don't want to get into -- I don't know what --

MR. POCH: You're not seeking any approval from this

Board to purchase or sell such attributes?

MR. SHALABY: No, we're not.

MR. POCH: All right. And I guess I will leave it to

Mr. Vegh. I am not sure --

MR. VEGH: The reason I am reaching is I don't see the

relevance of the sale or not sale of environmental

attributes to the IPSP. And perhaps Mr. Poch can draw that

link a little more clearer; otherwise, I don't see how if is

relevant for this or any subsequent panel.

MR. POCH: It is our position, Madam Chair, that if OPA

was selling those attributes in a way that enabled someone

else to emit, for example, that they would not be in

compliance with the directive. So that's why we think it is

quite a relevant issue.

Now, it may be, if the witness is telling us they are

not going to sell these and, in fact, undertaking they are


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not doing so at least before they're back in front of the

Board again, we don't have to debate it.

MR. HARBELL: Madam Chair, if I may help on the matter,

it is dealt with as a legal response on certain IRs from

Bullfrog. We reported back, through the IR response, that

the Ministry of Energy had requested the OPA to put the

matter of environmental attributes on hold pending further

investigation by the ministry.

We responded that the OPA has abided by the request of

the ministry and is not proceeding to deal with

environmental attributes further until they understand what

direction the ministry wishes to take on the matter.

MS. NOWINA: I suspect Mr. Shalaby knew that and he

could answer the question for us.

MR. HARBELL: Madam Chair, the reason I intervened is

it was dealt with through the procurement panel, and Mr.

Shalaby has not been spending a huge amount of time on that

issue.

MR. POCH: I will take my cue from that, Madam Chair,

and we will put this to the procurement panel, but perhaps I

can just, through counsel, give them notice we will want to

know if this is a commitment on behalf of OPA, or not. That

will I think determine whether the Board has to wrestle with

it.

MR. SHALABY: For clarity, I am not making a

commitment. I am indicating that we are not selling

attributes at this time and we are not investigating the

sale at any imminent time.


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MR. POCH: That's how I heard you, Mr. Shalaby, which

is why I'm posing that question in advance to the other

panel so we can maybe get an answer to that particular

question.

MS. NOWINA: I think that is appropriate, Mr. Poch.

MR. POCH: Now I would like to move on to discuss a

number of topics, hopefully quite quickly, where I would

like to contrast or compare how you have dealt with --

principally with your nuclear option compared to what I have

styled green options, but I am thinking predominantly of

renewables, conservation and combined heat and power.

The first topic I wanted to touch on was your view,

your optimism or not, about future costs and cost overrun

likelihood.

First of all, could you turn up Exhibit I-22-66?

You have, you indicate, two things in the answer to

that question. In the first part, you note that you have

held the cost constant for -- with the exception of solar in

the customer cost model, but in terms of your resource

planning, you have held the cost constant for renewable and

conventional technologies in your planning period.

But then you go on in the second -- in answer to our

question in the second paragraph to indicate, in principle,

you believe there will be reductions in real terms in these

technologies as they continue to mature.

I took that as referring largely to the renewables,

which have -- obviously are a newer technology and have --

is that a fair interpretation, that that applies to that?


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MR. SHALABY: The cost referred to there is cost of

electricity purchased from these projects. So the cost to

customer model says the electricity from wind, for example,

would be 11 cents real throughout the planning period.

MR. POCH: Okay. I was reading -- based on the

question, I had read it that we were asking about the costs

of technologies.

Maybe I will just ask you that, then. Is it your best

understanding -- would it be your judgment that we're likely

to see cost reductions; not in any given period, but over

the long haul we're going to see cost reductions in

renewable technologies?

MR. SHALABY: I think technology is improving the

performance and the cost performance of these technologies.

In the recent two or three years there has been a

discontinuing -- costs have risen on wind turbines, in

particular.

MR. POCH: There is a bit of a supply/demand crunch

right now, is there not?

MR. SHALABY: There is a bit of that.

MR. POCH: We're aware of that.

MR. SHALABY: So it has been an increase over the last

two or three years. We expect that to moderate and

stabilize and perhaps continue to decline further out.

MR. POCH: Despite that expectation of -- I don't know

if you used the word "likely", you said possible decline.

Let me narrow that down first of all. There has been quite

a history, has there not, of decline in cost of, for


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example, wind turbines?

MR. SHALABY: Some things have been declining, some

other things have not.

MR. POCH: All right. You haven't attempted to

forecast that in your plan? And incorporate those -- the

most likely cost curve in your plan? As you have indicated

here, you have held it constant.

MR. SHALABY: Yes.

MR. POCH: Okay. Particularly if we look at nuclear.

I would ask you to turn in our Exhibit K2.1, to a little

two-pager. This is at the fourth sheet in K2.1. It's a

document published by Ontario green -- from the

ontariosgreenfuture.ca, which is the Clean Air Alliance

Organization.

First of all, let me say obviously this is an advocacy

piece. I am not implicitly asking you to adopt any of the

conclusions it draws, or what have you. I really just

wanted to use it because it was a convenient place on the

second page of that where they have compiled a little bit of

history of cost overrun expense with respect to nuclear.

Do you see that at the top of the second page?

MR. SHALABY: I do. I was looking for a break to --

your last question, you said you held it constant. We held

the price of electricity bought from wind and bought from

solar constant.

We did not hold the technology cost constant. Just to

clarify, reinforce, reiterate my answer.

MR. POCH: You do your resource selection through


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comparing LUECs where these technologies bump into each

other in your plan.

MR. SHALABY: We take a snapshot of resources and we

have a single cost for technologies over the planning

period.

MR. POCH: Right. You do your resource choosing

through LUECs, not through price.

MR. SHALABY: Correct.

MR. POCH: Right. So as you say, you are telling me

you held the price constant.

MR. SHALABY: Yes.

MR. POCH: Did you not hold the LUEC constant?

MR. SHALABY: By definition, the LUECs are uniform

throughout the planning period.

MR. POCH: Right. And the LUEC is based on an

assumption of what it's going to cost you, what it's going

to cost to build and operate these facilities?

MR. SHALABY: Yes.

MR. POCH: And I take it you have held, in real terms

you have held the cost of construction, for example,

constant no matter what year in the plan you build these

things?

MR. SHALABY: Yes.

MR. POCH: All right. So I don't know what distinction

you are drawing for me then, other than to -– well, you tell

me.

MR. SHALABY: It is a distinction that while we expect

some changes in technology and technology costs, for


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purposes of selection at this time, we levelize the cost.

The best we can do at this time is not to anticipate -- it

gets more complicated to say in 2015, the cost of wind is

lower than 2010.

MR. POCH: Okay. Fine. We are agreeing, then. You

held it constant.

MR. SHALABY: Right.

MR. POCH: All right. Turning back to this question of

nuclear cost overruns. I am just putting these in front of

you and let me just touch on them one at a time.

So I can augment it with a little more information,

for example, the first item there, the Darlington, my

information is that that 4 billion estimate was from 1983

and then the actuals were 14.3 billion. Does that accord

with your understanding?

MR. SHALABY: This is a complex, complex subject and

there is articles written on this and testimony given on

this.

I think we don't do it justice by looking at two

numbers and agreeing to them at this stage.

MR. POCH: Well, I appreciate that and with that caveat

can you at least confirm the two numbers?

MR. SHALABY: Those numbers are being bandied about. I

have no reason to confirm one or the other. I mean these

numbers have been part of the material that has been

circulated but I think we do it injustice if we try and --

if we try here to capture what the original estimates of

some nuclear project is and what the completed number is.


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MR. POCH: So for your planning of nuclear costs in

that option in your plan, you didn't do that obviously,

then.

MR. SHALABY: We didn't do which?

MR. POCH: Didn't go back to find out what the original

cost was and what the final cost was.

MR. SHALABY: No, we didn't. We're looking at

estimates that are being given at this time and basing our

planning on estimates that are current.

MR. POCH: Okay.

MR. SHALABY: And the reason I say we don't do it

justice by doing this is that scope changes, difference in

the estimates given at what time, these are complicated

matters --

MR. POCH: Sure.

MR. SHALABY: -- and not as easily captured by there's

one number and it became another number.

MR. POCH: We can agree, certainly, that part of the

difference between the first column and second column

probably in every case has to do with the fact that the

scope of projects changes. Regulations change. There have

been delays internally or imposed from externally. I don't

want to argue those points with you. I think we probably

both agree on that.

I just wanted to find what the fact, the circumstances

had brought to bear in these cases, but obviously you

haven't looked at that, you are not in a position to answer

the question. That's fine.


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But let us go down the list -- not one by one then --

just to look at the most recent experience which you have

been involved in.

You have a contract with Bruce Power, I take it, for

the refurbishment of the units 1 and 2; correct? OPA does?

MR. SHALABY: We administer the contract, yes.

MR. POCH: You administer the contract. There was a

contract prior for the Bruce units 3 and 4, it is listed

there, it shows the doubling of the cost from the initial.

Were you administering that? Or are you administering

payments under that?

MR. SHALABY: It's an area maybe the procurement panel

is best able to answer.

MR. POCH: All right. You are not in a position to

confirm these numbers either?

MR. SHALABY: No.

MR. POCH: Okay. By the way, you probably can confirm

this. Bruce units 1 and -- A1 and 2, are they back in

service yet?

MR. SHALABY: Not yet.

MR. POCH: Is there an expected date for that at this

point? I am sure we have it in the evidence, I just

wondered if you could --

MR. SHALABY: They're schedule is 2009, 2010, to the

best of my recollection.


MR. PIETREWICZ: That's correct.

MR. POCH: Thank you, Mr. Pietrewicz.


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MR. POCH: Maybe I can just get your general impression

then.

If you had done an analysis, indeed if you had done an

analysis of all of the nuclear plants ever built, could you

hazard an estimate of what the probability of there being on

average 100 percent cost overrun, for example, on the

history of these things has been?

MR. SHALABY: No.

MR. POCH: All right. Do you think it is prudent,

economically prudent to develop a plan and assume there will

be no tendency to have cost overruns with respect to nuclear

plants?

MR. SHALABY: We do take cost overruns into

consideration. It is not prudent to expect no cost

overruns.

MR. POCH: All right. Would you agree that it is

prudent to assume a greater -- a far greater likelihood of

cost overruns than achievement of the forecast?

MR. SHALABY: That's the assumption we make. We put a

higher probability that the cost of nuclear would be higher

than estimate than it is lower than estimate.

MR. POCH: Future panels will give you more details on

that. Distribution of -- the distribution of costs, we say

it is much more likely to be above budget than below it. I

think they will be able to give a probability --

MR. POCH: That's the number. You made some judgments

about that. We will talk about the particular judgments


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with the nuclear panel. I agree that will be faster.

MR. SHALABY: Right.

MR. POCH: Now, I think you said earlier that the

source of your estimates for, at least for the nuclear, were

largely from -- correct me if I'm wrong -- from OPG and

Bruce ^Power estimates?

MR. SHALABY: It's formalized by the Canadian Energy

Research Institute in Calgary, but the source is typically

the vendors and the clients, yes.

MR. POCH: All right. And with respect to -- there

are, of course -- for example, in the financial industry,

there is a lot of -- in the investment industry, there are a

lot of people who make their living watching these sectors

around the world and publishing forecasts.

Have you had resort to that? I am thinking, in

particular, we have seen some statements that are in our

evidence from large, reputable financial institutions --

MR. SHALABY: I am having difficulty hearing.

MR. POCH: I am seeing some statements from large,

reputable financial institutes talking about expected

declines in the cost of solar. Have you had regard to that,

or are you simply -- well, you have indicated you are

holding the costs constant. But are you aware of those

statements?

MR. SHALABY: I am aware of those statements and I am

aware that most of these statements are in regard to

companies that are developing solar, companies that are

developing silicon technology or manufacturing techniques,


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and in the interests of financial analysts is the value of

these companies and the future appreciation.

MR. POCH: You have not felt it appropriate to rely in

any way on those kinds of projections?

MR. SHALABY: On financial analysts' estimates of

companies manufacturing silicone?

MR. POCH: Or on the cost -- on the cost -- their cost

of manufacturing, the cost to produce these things.

MR. SHALABY: They're highly speculative at this stage.

We didn't take the specifics.

MR. POCH: Okay. I would like to just look at how you

have dealt with your optimism about achievability on time

for different technologies. This gets a little more

complex, so bear with me.

You, for example, have uncertainty about nuclear timing

reflected in your insurance calculation, your reserve for

insurance calculation; correct?

MR. SHALABY: What specifically are you asking?

MR. POCH: You have an uncertainty factor for when

nuclear plants will come on in your -- or come off in your

insurance reserve calculation?

MR. SHALABY: Particularly Bruce 1 and 2 and Bruce 3

and 4; correct.

MR. POCH: Right, right.

MR. SHALABY: Those are the ones that are relevant in

that time period.

MR. POCH: In the 2010 to 2014 period --



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MR. POCH: -- your insurance is focussed on.

In the post-2014 period, you don't have any achievement

uncertainty modelled, do you, for additions, replacements

and refurbishments of nuclear?

MR. SHALABY: We do not have which?

MR. POCH: Any achievement uncertainty modelled for

nuclear post '24 additions, replacements or refurbishments?

MR. SHALABY: Do you know what that is?

MR. PIETREWICZ: As far as I am aware, those risks were

not explicitly modelled, and those are generally discussed

for the period 2015 to 2027 in Exhibit D-2-1, attachment 3,

which outlines the specific risks that were considered.

However, I think it is sort of above or beyond me to

get into the specific details of that.

MR. POCH: That's fine.

MR. PIETREWICZ: I propose taking it up further with

the reserve panel.

MR. POCH: I wasn't proposing to delve into what the

scenarios were, just how you modelled it in your planning,

and I think you have answered that question.

Now, let's turn to wind in the same vein. Wind, you

also count an achievability uncertainty in your insurance

calculation for that period for the insurance reserve?

MR. SHALABY: Yes.

MR. POCH: But then you also make an assumption, do you

not, that only 50 percent of the capacity achievable at each

large wind site will, in fact, get developed?

MR. SHALABY: Will get developed at the specific time.


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MR. POCH: Right.

MR. SHALABY: We say 100 percent of it will be

developed within a year or two of that, so that is an

incomplete characterization.

MR. POCH: My apologies. You helped me there. That

was my... Excuse me one sec.

All right. So that 50 percent is different than the 50

percent that is -- well, it's in D-5-1 -- we will deal with

the renewables panel where you only have in your resource

plan 50 percent of what the potential is your study tells

you exists at each site. These are two different 50

percents, if you will?

MR. SHALABY: No. The evidence that Mr. Chow indicated

was we are pointing to twice as much wind as we need to

assure that the wind resources are captured fully in the

plan.

MR. POCH: Yes, okay.

MR. SHALABY: If I understand --

MR. POCH: Yes. You have taken -- you have a whole --

you have found all of this wind potential.

MR. SHALABY: Yes.

MR. POCH: In your view, you have found twice as much

as you need to fulfil your commitments under the directive?

MR. SHALABY: We will enable by transmission twice as

much.

MR. POCH: Right.

MR. SHALABY: You went through that evidence at the

beginning.


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MR. POCH: Then when you do your LUEC analysis, you

have taken the half that you think will actually be needed

to meet your --

MR. SHALABY: Mr. Chow went through that discussion in

his day 1 presentation, and he will go through it again in

further details later on.

MR. POCH: Okay.

MR. PIETREWICZ: Just to clarify, I don't think your

description was correct. I think Mr. Chow will --

MR. POCH: All right. We will get that clarified with

him. That's fine, thank you.

Let's move on, then, to how you have treated reserve

margin as opposed to insurance reserve. We're talking about

the reserve margin, let's call it. It's the planning

reserve, correct, just in terms of our terminology?

MR. SHALABY: Yes.

MR. POCH: My witnesses in their evidence say that --

indicate that you have -- you have -- first of all, the term

of art for that, for calculating planning reserve, is the

effective load-carrying capacity. That's where that phrase

is used, "effective capacity"? That's the phrase you have

used?

MR. SHALABY: We used "effective capacity", yes, yes.

MR. POCH: All right. You obviously have lowered that

for hydro and wind, which are intermittent and won't all be

available at the time of the system peak; correct?


MR. POCH: And then you indicate, I am told, that for


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all other resources, you treat them equally. You don't

distinguish between them on that basis?

MR. SHALABY: The specific outage rates for the

technology are applied.

MR. PIETREWICZ: I just want to make sure that we're

not conflating two separate issues, Mr. Poch.

MS. NOWINA: Mr. Pietrewicz, can I ask you to speak

into that mike that is nicely beside you?

MR. PIETREWICZ: Is this better?

MS. NOWINA: I am sure it will be.

MR. PIETREWICZ: I just wanted to make sure that we are

not conflating what are two separate issues.

I believe your question was initially relating to the

NPCC reserve requirement, which is described in

Exhibit D-2-1, but your subsequent sort of question dealt

with what we call the effective capacity of resources, and

that effective capacity is used for capacity planning

purposes, rather than determining the reserve requirement.

And that effective capacity relates mostly to the load

meeting capability of resources. And where -- normally,

where resources, their availability, is subject to sort of

the force of nature, such as with wind power or with water

power, whereby their fuel availability is subject to nature,

those typically have a lower effective capacity in our

treatment of it, for capacity planning purposes, than other

types of resources, such as, say, coal or gas where, if you

need more power, you sort of, so to speak, shovel in more

coal or turn on the gas tap; whereas in distinction for


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determining the NPCC reserve requirement, that effective

capacity approach was not used.

In fact, the details of that NPCC reserve requirement

analysis are found in Exhibit D-2-1, attachment 1.

MR. POCH: Well, let me see if I can simplify this.

Just looking -- not looking at your resource plan and the

effective number you have used for that, but looking at your

calculation of the reserve margin you need, and that's where

that ELCC, effective load carrying capability, comes in;

correct? Not effective capacity, effective load carrying

capacity.

MR. PIETREWICZ: I think the ELCC is a very specific

term that, I think, could be better addressed by the

forecast and reserve panel. I am not sure whether

specifically that approach was used for determining the

reserve requirement.

MR. POCH: Okay. Let me then just put it on the record

and we will come back to it with them.

My understanding is that the way we dealt with this is

that you have treated, for example, coal, nuclear and gas

the same in that regard for purposes of calculating reserve

margin, and -- I am happy to discuss this with the other

panel, I am just laying it out so your counsel can direct

that panel to this in the transcript and they can be

prepared to answer. But that in fact -- first of all, we

will just leave that there.

MR. PIETREWICZ: I think we will find that that is an

incorrect characterization. The NPCC reserve requirement is


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there to address three things, really: thermal forced

outages, load forecast uncertainty due to weather and, in

this case, wind variability.

And the reason why I disagree with Mr. Poch is that

coal and gas were not treated the same, because they have

necessarily different forced outage rates. So they were not

treated the same.

MR. POCH: I'm sorry. I've misspoken myself and thank

you for the correction.

In fact, it is quite the opposite. That you have used

-- that the reserve calculation requires a different numbers

for, for example, for gas than coal and nuclear, as you have

indicated.

So all of this was to get to the question, was: You

have these differential impacts on the reserve requirements

and we won't -- we will talk about that with the reserve

panel about what they are and how they're derived, but there

are different ones and I think we agree on that.


MR. POCH: Then the question was: So in your LUEC

comparisons for planning purposes, resource planning

purposes, do you then raise or lower the LUEC for a given

option because it carries with it more or less reserve

requirement?

MR. PIETREWICZ: To my understanding, we have not

accounted for that in our LUECs -- I am not sure that it is

necessarily the approach that we have taken throughout the

IPSP.


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MR. POCH: That was my understanding, too.

MR. SHALABY: It's not the purpose of the levelized

cost to say: What reserve does that option require? That

is not the purpose of that.

The purpose of the levelized cost is like a mortgage

payment: If you paid for every unit of output from in this

unit, how much do you pay until the ends of its life to pay

it up? That's all it is.

MR. POCH: I understand. But you've used the LUEC

number to select between options. For example, you used the

LUEC number in both a deterministic and probabilistic

analysis to decide where the crossover point is, when it

makes sense to use nuclear and when it makes sense to use

combined cycle gas.

MR. SHALABY: Right.

MR. POCH: So in that analysis, you haven't included

the added cost. These are real costs to provide reserve,

the differential in those costs associated with those two

options. I think you just confirmed that for me; correct?

MR. SHALABY: The added cost of reserves are the cost

of supply and reserve for the entire plan. We did not

allocate the costs of supplying reserve to -- this reserve

is because of these resources, this reserve -- the entire

system requires reserves, socialized over the entire system

over time, and not allocated to specific members of the

fleet, if that's what you're asking.

MR. POCH: Right. But you already agreed that

different technologies have a different impact, carry with


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them a different --

MR. SHALABY: That is correct.

MR. POCH: All right. I think you answered the

question. Similarly, these technologies have a different

contribution to the overall insurance reserve calculation

that we talked about a few minutes ago.

MR. SHALABY: Yes.

MR. POCH: And there's a cost in carrying that

insurance reserve.

MR. SHALABY: There is a cost.

MR. POCH: Right. And you haven't allocated that cost

when you do your LUEC comparison as between technologies, in

parallel -- you have treated it the same as you have the

reserve.

MR. SHALABY: We have not.


MR. SHALABY: And for the benefit of those who want to

know where that cost is captured, we captured that in the

cost to customers in a category called wholesale market

services. All of the ancillary services, the 30-minute

reserve, the ten-minute reserve, the voltage support, the

black start, all of these services are in wholesale market

services and captures a set of services that are needed to

keep the system going. So they're not allocated to the

specific members of the fleet.

MR. POCH: Okay. That is about customer cost. What I

was asking about allocation in the planning portion of your

case and you have answered that question already.


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Let's move on then. You indicated earlier today that

you don't include imports. In fact, I take it you don't

include imports either for energy or capacity support

resources in your plan. First of all, let's ask that.

MR. PIETREWICZ: In the context of capacity planning,

we do not, as we have pointed out, account for imports

unless they're backed by a firm commitment.

However, in the simulation of the different cases that

we have developed, and again, those cases in Exhibit D-9-1

and G-1-1, for the purposes of simulating those cases to

illustrate the sort of how those cases would operate, we do

model what are known as economic imports and exports.

Economic imports and exports are those types of exports

that occur in the normal course of market operations and

those are distinct from the firm types of imports that I

described earlier.

MR. POCH: Thank you for that. But I think you have

just confirmed what you said earlier, that you don't -- for

capacity planning purposes, you don't model this because you

don't have a contract you can count on.


MR. POCH: All right. But on the domestic front,

nuclear plants is an obvious example, you do model them even

though there is no contract.

MR. SHALABY: We do model them because they are

resources we can develop in Ontario. The treatment of

exports and imports is something that is different than

resources that can be developed within Ontario.


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You would appreciate that to develop the options of

imports, in particular, it's not a matter of including them

in a plan. It's a discussion with other provinces, maybe

more than one, and it takes time to develop the option and

to develop the agreements to develop that option.

And including them in the plan doesn't do us any good

unless there is an agreement for it.

MR. POCH: Okay.

Let's move on to operability. You commissioned a study

of -- wind integration study that looks at, includes grid-

operability issues; correct?

MR. SHALABY: Yes.

MR. POCH: That's the GE study. We asked in, perhaps

you should turn this up, I-22-82, if that study was based on

-- on what capacity mix that study was based on, what future

capacity mix in the system was being analysed to see the --

how this operates and is operable.

The answer says: It was not performed against any

capacity mix, the analysis was performed using only

temporally synchronized load and wind data.

I just need a clarification. I don't understand what

that means.

MR. PIETREWICZ: Sure. The analysis that Mr. Poch is

referring to is available at -- Exhibit D-5-1,

attachment 2, as specified in the interrogatory response,

and examines the potential and operability impacts of

various penetrations of wind generation in Ontario and a

number of -- a range of penetrations were explored.


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What is meant in this response is that the analysis was

conducted comparing the operation of wind against the load

-- the forecast load in Ontario as opposed to against a

particular capacity mix.

At the time, the capacity mix was not complete. It

might have been less than useful to try and compare

different wind penetrations against the capacity mix that

was not indeed complete. But what I think the -- this

answer is trying to say - and I'm not saying so clearly - is

that all we were doing was comparing the load in Ontario as

forecast. So, say, the variability in the load itself, how

it changes from hour to hour or from sort of, I think it was

ten minute to ten minute, and then comparing that against,

How would that load look like if we introduced varying

penetrations of wind that would either sort of increase that

load, effectively, or decrease that load. And what was

compared was the sort of the volatility or the change of the

load, sort of before the wind and after the wind.

The changes from before to after were meant to be

indicative of the impacts of that additional level of wind

on things such as load-following requirements.

MR. POCH: So the study then, by definition, doesn't

analyze whether the resource plan that you have come up with

enables more or less wind or any other alternative resource

plan?

It's just saying, whatever plan you come up with, you

just need to accommodate these ramping requirements or

whatever that the wind component could bring with it?


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MR. PIETREWICZ: That's correct.

MR. POCH: Okay.

Could we just turn to that, D 5-1, attachment 2? At

page 1.5 of that exhibit, as they're numbered, 1.5, section

1.2.4 --

MR. PIETREWICZ: I would like to caution at this point,

if you are intending to get into detail, this is a very

detailed report and I think it would be best to deal with on

the renewables panel.

MR. POCH: Trust me, I'm not.

Page 1.5, item 1.2.4, there we are. This is where

there's a heading "Low Load Period Considerations and

Mitigation Measures."

I will just read the paragraph there:

"The majority of this study focusses on the impact

of increasing variability on the overall system

performance. Although the variability is

extremely important in assessing the incremental

operational requirements, an equally important

issue is low load period considerations."

Would you agree with that, that's -- whether it is

equal or not, it is also a very important consideration?

MR. PIETREWICZ: I agree that both are important

issues.

MR. POCH: Sure. Just in plain language, the concern

there is that with periods of low load, if you've got non-

manoeuvrable generation like wind and nuclear, at times you

may have more generation than load and you need to do


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something about that?

MR. PIETREWICZ: Yes. That's the gist.

MR. POCH: And the phrase that is sometimes referred to

to describe how much of a problem it is is called surplus

base-load generation, SBG, just for future reference?

MR. PIETREWICZ: Yes, SBG, and I believe SBG is defined

in the IESO's operability report. For a specific

definition, I suspect we can turn there, but, in general,

yes, that's the relationship.

MR. POCH: All right. And if we just move ahead to

page 1.9 of that study and 1.10, it lists some general

options to consider in dealing with that potential problem.

We won't go into any detail here, obviously, with this

panel, but just to make sure we understand what they are, it

says you could shed wind. In other words, you could turn it

off; correct? It says you can -- you don't even need to

answer each one.

It says you can export the surplus power, and I think

it says there -- it raises the concern that neighbouring

jurisdictions might have similar problems, though. They may

-- it may be a low load period for them and they may also

have surplus generation; agreed? That's a concern?

MR. PIETREWICZ: I agree that is what it says, and,

yes, I suppose it would be a consideration.

MR. POCH: All right. Just looking at the planning

considerations here, not what -- another approach you could

take is to add loads, and they give the example of pump

storage as one kind of -- particular kind of load that is


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particularly helpful. That's a planning option to deal with

this problem?

MR. PIETREWICZ: That is a planning option identified

in this report --

MR. POCH: Right.

MR. PIETREWICZ: -- and identified in Exhibit G-1-1 and

others.

MR. POCH: All right. Then, finally, it says, "develop

a more accommodating supply mix".

And can we agree that because nuclear shares this

problem of non-manoeuvrability and sort of -- it must run at

times of low load, it is not -- not what they're talking

about? That would not be an example of a more accommodating

supply mix?

MR. SHALABY: No, it's not what they are talking about.

MR. POCH: Okay. Because obviously it doesn't

accommodate -- it exacerbates the problem?

MR. SHALABY: Right.

MR. POCH: Yes. I would like to turn to another study

that touched on this question.

MS. NOWINA: Mr. Poch, it is our break time. Would

this be an appropriate time to take a break?

MR. POCH: All right. Thank you, Madam Chair.

--- Recess taken at 10:29 a.m.

--- On resuming at 10:45 a.m.

MS. NOWINA: Please be seated.

Fifteen-minute break, Mr. Shalaby. You are supposed to

be here before I am.


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MR. POCH: Thank you, Madam Chair. I just wanted to

before moving on I just wanted to cycle back, Mr. Shalaby.

Do you recall we were discussing the risks of capital

cost overruns, and that's when I was putting the numbers in

front of you from Ontario's history, which you weren't able

to confirm. But I asked if you captured uncertainty in

capital costs in your nuclear cost estimates, and my

recollection is you said, yes, you had.

MR. SHALABY: Yes, we have.

MR. POCH: We were going to deal with that in another

panel but we had a chance to look at the exhibits and I am

wondering if you could, first of all, turn up Exhibit I-22,

schedule 219. I-22, schedule 219 at page 2.

First of all, can you confirm for me that what this is

showing us in table 1 is the probability distribution you

used when you modelled the likelihood of cost overruns for

various options.

MR. SHALABY: I am reading to know whether this is

distribution of output or of costs. Just give me a second.

It is a distribution, but I am not sure distribution of

what.

MR. POCH: Just to help you with that, if you will

look, there are the headings –- unfortunately, the heading

don't sort of pop out at you, but the table actually

includes -- the first portion is the fuel distribution.

That's the first sort of four lines of the table. Then

there's capital costs, is the middle section of the table.

Then plant performance, which is at the bottom of the table.


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So I am looking at the --

MR. SHALABY: I see that. There is distribution of a

lot of things.

MR. POCH: Yes, it is. I'm just talking about the

three lines in the middle under the subhead capital cost.

You can see that you provided there is a triangular

probability distribution and you have assumed some minimum

and maximum points for that spread of probabilities.


MR. POCH: Okay. So the nuclear one that you have

assumed, you have assumed that there's going to be a spread

of costs that you have modelled that ranges from, coming in

at 85 percent of your -- I guess it is $29.07 is the dollars

per kilowatt-hour is whatever your capital cost –- kilowatt

-- whatever your capital cost estimate is, from

85 percent up to 135 percent. Correct?

MR. SHALABY: Yes.

MR. POCH: All right. And can we, then, confirm that

this was done for purposes of planned cost and cost to

customer analysis.

MR. SHALABY: No.

MR. POCH: No. Okay why was this done? What was this

used for?

MR. SHALABY: This is for the break-even analysis

between nuclear and gas, for example. And it may be for

other purposes, as well.

MR. POCH: Okay. I took it just from the question that

we were asking for the distribution for the planned cost.


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That's fine.

MR. SHALABY: Distribution of cumulative costs of the

capital investments. If you do Monte Carlo on that, that is

one of the cost parameters we provide, but not the cost to

customers. Cost to customers is an explicit description.

MR. POCH: All right. So when you do your LUECs for

comparing options, do your LUECs include the 29.07, is that

LUEC, if we look at that chart, at the 1.0 point of your

triangle?

MR. SHALABY: We make -- the LUEC assessment is

deterministic and we show LUECs at higher cost of capital,

at lower cost of capital, as higher construction costs. We

show a number of scenarios with the LUECs.

MR. POCH: Give me a minute.

Okay, that is good for now. I think we risk getting

into far too much detail for the moment.

Let's then go to where I was going to take you. We

were dealing with, looking at how you dealt with operability

between different options and I was going to now take you to

the fact that you had IESO do an operability review for the

overall plan, correct, as opposed to that GE study which was

just looking at certain considerations for wind?

MR. SHALABY: That's correct.

MR. POCH: And that, it wasn't in the prefiled that we

found, so we have included it in our cross-examination,

Exhibit K2.1. It's the bulk of that exhibit, I think about

the fifth sheet in. Do you have that?

MR. SHALABY: I have it.


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MR. POCH: Go to the conclusions of that study. Let me

just see if I can – yes, conclusions, which appears on page

20 of that study.

If we -- I can paraphrase. They say they can manage

the grid with your plan, but they find that it suggests the

need for further action. Is that fair? And that's what

those recommendations for future action address.

MR. SHALABY: Yes, generally true, yes.

MR. POCH: Okay. If you look at the second last one

which appears on page 21 of that report, this is when we get

back to that surplus base-load generation discussion we were

having. It says:

"The future holds an increased likelihood of

surplus base-load generation. The current

practice of shutting down nuclear units to manage

extreme surpluses carries significant risk. As a

result, the IESO should perform a review of

prioritization..." and so on.

It is suggesting it is going to look at how they can

better manage that problem. Agree with that?

MR. SHALABY: Yes.

MR. POCH: All right. If we go back to page 16 of that

report, to get a sense of where -- how that concern arose,

there is a table there. Let me just make sure we agree with

this table says, what it is about.

They actually ran a simulation of your plan, correct,

to see what would happen on an operating time frame?

MR. PIETREWICZ: To be specific, the IESO itself did


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not run a simulation on the plan.

The OPA provided the results of its simulation to the

IESO, who then assessed the results of those simulations.

MR. POCH: Fair enough.

As we look at that table, it is showing the number of

nuclear units shutdowns, the run that you gave them suggests

what might be needed to deal with surplus base-load

generation and then there is a second column saying the

extent to which that actually resolves the problem.

As you can see there, in the 2012 to 2014 period, the

numbers could get pretty significant; 77 times in 2012 in

that model run. But perhaps more -- longer frame, in the

2022 to '26 period, you see it starting to get significant

again and starting to rise through that period.

Is it your understanding that that's what prompted

their concern about this that led to that recommendation for

further study?

MR. SHALABY: That is what triggered their attention to

the issue, yes.

MR. POCH: Right. Now, as they've noted, it is a

significant risk to try to should down nuclear plants

repeatedly, and you have agreed with that. So I take it

that that's undesirable and, in practice, you would want to

turn to other options to deal with the problem?

MR. SHALABY: That's what they're studying and

attending to. They also will give you testimony. In the

planned performance, there will be an IESO witness that can

describe to you more fully how they interpreted these


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results.

MR. POCH: Sure.

MR. SHALABY: And I alluded, in my day 1 testimony,

that models have limitations.

In this particular case, the IESO examines the

operation six months in advance, three months in advance, a

week in advance, a day in advance. They do a lot of things

that result in them not being surprised in the hour that

they have surplus generation.

MR. POCH: I am not --

MR. SHALABY: The models that we conduct do not

anticipate six months in advance of action and three months

in advance of action, scheduling of maintenance and removing

of units ahead of time. There is a lot of intelligence and

a lot of judgment that takes place in real time by the

operators that makes the mechanics that we simulate here a

crude approximation of what will happen.

They avoid many of these problems in the operating time

horizon, and the IESO witness will expand on that.

MR. POCH: Sure. I wasn't suggesting that they would

just let these nuclear units shut down 77 times in a year.

Where I am going, if you turn to page 17 of the report,

under the heading "Other SBG Management Requirements", in

the second paragraph it says:

"The IPSP indicates a forecasted growth of

embedded distributed generation."

And skipping down:

"When located close to distribution load centres,


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these resources can provide benefits to the

electricity system by reducing losses, and can

often contribute to reduced load on transmission

facilities. These generators are not currently

monitored by IESO nor under its dispatch control.

This could result in less than optimal management

of surplus base-load generation conditions. With

the appropriate procedural and technological

changes, embedded generation has the potential to

enhance operability during periods of surplus

base-load generation as well as during normal

conditions."

Do you agree with that?

MR. SHALABY: Yes.

MR. POCH: Okay.

MR. SHALABY: Here is an example of application of what

could be termed a smart grid technology improvement going

forward.

MR. POCH: They go on and talk about real-time

monitoring, availability for dispatch under specific

conditions, appropriate communication protocols and exposure

to effective markets.

MR. SHALABY: A live example of how technology will be

applied, yes.

MR. POCH: Right. Now, have you studied how less

nuclear on the system and more combined heat and power would

affect this concern about surplus base-load generation?

MR. SHALABY: Not in detail, other than directionally.


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If you assume one is more manageable or more manoeuvrable

than the other, then you will get the result you assume.

MR. POCH: And have you studied whether it is worth

offering potential combined heat and power generators more

in their -- in the contract terms, an inducement, so that

they can come on-line and offer these kinds of helpful

services to the system?

MR. SHALABY: I am not familiar with that detail in

their contract.

MR. POCH: So I could take that up with which panel?

MR. SHALABY: With the procurement panel.

MR. POCH: Well, in terms of whether or not it's been

studied, the benefits, the worth of these benefits to the

system, that sort of thing, is that for the procurement

panel or for --

MR. SHALABY: No. There would be benefit. I can

answer whether there would be benefits or not, but whether

we include it in the contract or considered including it in

the contract, I don't know.

MR. POCH: Have you costed that benefit?

MR. SHALABY: No.

MR. POCH: No. All right. Well, obviously if you

haven't costed it, then it's not -- that's the end of that.

Okay.

So obviously you haven't costed that benefit in terms

of your trade-off analysis, in terms of your picking your

resources for your plan. If you haven't costed it, you

couldn't have included it?


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MR. SHALABY: The benefit of following load?

MR. POCH: Of these particular contributions to surplus

base-load generation, that the costs will be incurred to

wrestle with that.

MR. SHALABY: We costed the benefits of reducing

generation requirements and transmission losses. That's

part of the avoided cost --

MR. POCH: I wasn't talking about that. I was talking

about the --

MR. SHALABY: Well, you're talking about the entire

sentence here.

MR. POCH: Okay. I am talking about the benefits of

reducing surplus base-load generation.

MR. SHALABY: No. That specifically, we have not.

MR. POCH: Okay, thank you. Let's turn to another

area, which is the relative impacts of generation on outage

recovery for the system. I am thinking the major outages.

In I-22-89 there's discussion of this; I-22-89B, in

fact.

And we asked you what the -- let me just back up.

There is a concern, is there not, that nuclear plants, when

you shut them down, they're shut down for any period of

time, then they are -- because of physics, they poison out

and it takes a long time to bring them back on-line;

correct?

MR. SHALABY: Yes.

MR. POCH: There's problems of -- you have to

synchronize with the grid, and so on, with the phase of the


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grid, and there is a number of technical challenges that

take time to deal with?

MR. SHALABY: This is true of all generating sources,

yes.

MR. POCH: Yes.

MR. SHALABY: Yes.

MR. POCH: We asked if you if you studied the cost to

the provincial economy of the delayed restart, that issue

that arises from having a lot of nuclear on your system.

I think you indicate there that you have not done that;

correct?

MR. SHALABY: Yes.

MR. POCH: All right. So we wanted to get a sense of

whether this is a big term, or not. We went -- a quick

little search and found a paper that we have included in our

materials at K2.1, and it is the -- it's the last item in

that package. It's about five pages long.

Do you have that?

MR. SHALABY: I do.

MR. POCH: Now, this was -- this is really a metastudy.

It is not a study -- it just reports on the findings of

other studies, and it is a report by ELCON. ELCON, I take

it, is the AMPCO of America?

MR. SHALABY: It has a similar mission, yes.

MR. POCH: Yes. And there they -- I am just looking in

the middle of the second full paragraph. They talk about a

study that ICF did, which they had taken more detailed

studies from earlier blackouts, and then -- in New York, and


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then scaled them up to try to find out what the cost was of

the -- this is all looking at the cost of the blackout that

occurred in Ontario and elsewhere in 2003.

They estimated $7- to $10 billion in economic costs.

At the top of the first paragraph, it's noted that

there was close to 62,000 megawatts of electric load that

was served that was interrupted in the various

jurisdictions, Ontario, New York State and so on.

Based on that, it seems, given Ontario's grid is -- at

summer peak is up in the 25- to 30,000 megawatt range --

first of all, can you confirm that?

MR. SHALABY: Yes.

MR. POCH: All right. So if their estimate is in the

ballpark, we might be talking of, oh, more than $3 billion

in economic costs, damages in Ontario?

MR. SHALABY: I am not going to comment on that. I

mean, it is a large cost.

MR. POCH: It's a large cost.

MR. SHALABY: If you want to make the point that

blackouts cause economic concerns and damages, I accept that

point. But the exact number I am not going to testify to.

MR. POCH: All right. So there is nothing in your

study, I take it, that looks at those kinds of huge costs,

the probability of those costs recurring, and then allocates

that between options that exacerbate that problem like

nuclear, as we have spoken of, and those that don't.

MR. SHALABY: There are the reliability standards that

are designed precisely to reduce and minimize the


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probability of that occurring.

MR. POCH: Obviously. But in answer to my question,

you haven't tried to allocate that risk, the contribution to

the -- prolonged outage risk from these various options?

MR. SHALABY: No, we have not.

MR. POCH: Okay.

MR. SHALABY: To do that you would require to

understand how the options work post-blackout, and there is

a whole investigation post-2003 blackout into what went on

and what went right, and what went wrong, and how to make

the next time more prepared and so on.

MR. POCH: Sure.

MR. SHALABY: So it is too superficial to decide here

what worked and what didn't work in a casual conversation.

MR. POCH: I am not disagreeing. I am just asking if

you tried to study and analyze it and we know that there is

one particular problem with the very long restart time for

nuclear and you haven't taken that into account.

MR. SHALABY: Well, I am thinking that is too

superficial a consideration. The reports in the 2003

blackout went in detail, what can be improved next time out,

including the operation of the nuclear plants.

MR. POCH: All right. Let's move on then. Another

comparison of how you treated different options I wanted to

look at is under the topic of transmission capital costs.

Can we turn to I-22-88. It notes there that

transmission costs have been added to wind and hydraulic

resources when you're comparing the relative economics, that


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is in your LUEC comparisons. But they were not included in

nuclear and combined cycle for that comparison and --

because – well, it doesn't say why, but they weren't. You

can confirm that, first of all?

MR. SHALABY: In comparing wind to hydroelectric, we

adopted the concept of an O&M levelized cost.

MR. POCH: Right. So you rolled in some the

transmission costs that will be required to incorporate

these resources?

MR. SHALABY: Right.

MR. POCH: You didn't do that for combined cycle or

nuclear.

MR. SHALABY: Well, we did not compare them in specific

site situation.

MR. POCH: Right. So you -- so you didn't include it?

MR. SHALABY: We did not include it for a reason. And

the reason is combined cycle is located where it avoids

transmission costs, not requires transmission costs. And

the sites for nuclear plants that are in the plan are in

locations that require very little transmission additions.

MR. POCH: Right. Could you --

MR. SHALABY: So transmission is not a significant

factor in incorporating these.

MR. POCH: If you turn to K1.1, which is your slides

again, at slide 96 you do note in that slide that there is

transmission required to incorporate a new unit -- new units

at Darlington, although not needed until 2020; correct?

MR. SHALABY: Yes. I said there is no significant


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transmission.

MR. POCH: That is in the eye of the beholder, I'm

sure.

MR. SHALABY: Not really. It is articulated exactly.

It's Bowmanville to Cherrywood transmission. We have the

costs of it. The costs of it is much less than transmission

to incorporate renewables.

MR. POCH: Fair enough. How many millions of dollars

is it?

MR. SHALABY: I can check it out, but it's much smaller

than the incorporation of renewables.

MR. POCH: Sure. We're not bringing lines all the way

from the north, but we are talking in the -- as you said, we

don't need any for combined cycle or presumably for combined

heat and power that are right at the load but you do need

some for nuclear, and you didn't include it in the

comparison of those two options to one another.

MR. SHALABY: We did not, because it's small. Per

megawatt, it is very small.

MR. POCH: At a broader level in comparing options, for

options like the first generation that is located with load,

combined heater and power is predominantly what we're

talking about there. And for CDM, have you evaluated the

benefits, cost benefits in avoided -- in the fact that they

reduce pressure in general on the transmission system and

presumably, therefore, over time, they reduce -- I am not

thinking of a project, specific project incorporation of

transmission here. I am talking about the general costs of


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transmission, maintaining, increasing that system as load

grows.

Have you looked at what those, what savings might flow

from having more local resources?

MR. SHALABY: That general characterization is only

general, and specifically when we looked at many of these

projects, they require improvements to the short circuit

capacity to incorporate these projects. So they don't

generally reduce transmission costs. They could reduce

interface flow on certain transmission. So they reduce some

costs and some upgrades, but not others.

They are location dependent --

MR. POCH: Have you --

MR. SHALABY: -- and technology dependent.

MR. VEGH: Sorry, Mr. Poch.

MR. POCH: Sorry. Have you modelled a system with a

high proportion of --

MR. VEGH: Mr. Shalaby, did you finish your answer to

the last question?

MR. SHALABY: I did now, yes, yes.

MR. POCH: Have you modelled the system with a

significantly higher proportion of conservation and combined

heat and power compared to a system with lot of central

generation and seen what -- have you looked around the globe

for comparative jurisdictions to see what their transmission

costs on -- overall, how they're affected over time by that?

Have you looked at, for example, does transmission, does the

cost of transmission in Ontario tend to go up as load goes


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up?

MR. SHALABY: So I will unbundle the question. You

added conservation now to the equation.

MR. POCH: I was including conservation all along,

sorry if I wasn't clear.

MR. SHALABY: I apologize, the incorporation of

combined heat and power requires transmission upgrades. The

incorporation of conservation typically does not, although

in some areas where conservation, for example, in the

northwest can, in fact, increase transmission requirements

as the capability to transfer energy from the northwest is

limited. So there are some considerations on conservation

as well.

To your point of: Have we looked globe wide? No, we

have not. And comparing transmission costs system to system

is complicated, a complicated matter, as this Board is well

aware.

MR. POCH: Look at Ontario. Has the cost of the

transmission system increased with load? Is there some

correlation here in Ontario?

MR. SHALABY: Yes.

MR. POCH: You can confirm it does generally tend to go

up as there is more load quite apart from some specific

projects for incorporating specific generators?

MR. SHALABY: Yes.

MR. POCH: So yes it does.

Have you included factor of that in your LUEC analysis

to compare -- I am not talking about the specific line to


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link up the wind farms in the north, I am talking about the

general, over time pressure on the transmission system, that

cost you just confirmed. Have you included that in your

LUEC and allocated it between different options?

MR. SHALABY: I will answer, but I want to remind

everyone, LUEC analysis is not the be all and end all. It

is not the only analysis. It is not a single number that

generates the plan.

It has a specific purpose, and a specified purpose, and

you cannot load it up with all of the considerations that

you are talking about.

It's inappropriate to try and load it up to the hilt.

That's why integrated planning takes place. Different

models to explore different ideas.

So in the LUEC analysis, we did not. But in developing

an integrated plan, we looked at transmission cost and the

plan we present to this Board includes the cost of

transmission and includes the considerations of

transmission.

MR. POCH: Does it include -- is there anywhere you can

point me to where you've changed your plan or considered

changing your plan in some formalized way to credit options

that generally reduce pressure on the transmission system?

MR. SHALABY: Yes, I can.

MR. POCH: Okay, please do.

MR. SHALABY: In all of the natural gas projects that

we're requiring approval of at this particular proceeding,

the rationale for them is to reduce transmission


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investments.

MR. POCH: Sure.

MR. SHALABY: All of the conservation total resource

cost includes credit for reducing transmission and

distribution costs.

MR. POCH: Okay. So that would be in your avoided

costs?

MR. SHALABY: It's in the avoided costs, yes.

MR. POCH: It's in your LUEC, to the extent you have

one, for CDM? For conservation. Let's be clear. For

efficiency.

MR. SHALABY: When we evaluate conservation, we give it

credit for reducing transmission and reducing distribution,

and reducing transmission losses.

MR. POCH: Okay. So then correct me if I'm wrong.

Then that would be in your avoided costs which are used for

screening projects, for example?

MR. SHALABY: Right, correct.

MR. POCH: Okay, thank you.

Let's move on to losses. When you -- I understand when

you did your LUECs for wind and hydraulic, for wind and

hydraulic you included consideration of the losses? We're

talking the large wind, I assume here, and the --

MR. SHALABY: Included consideration of the losses in?

MR. POCH: In your LUEC. You adjusted your LUEC to

account for the losses that occurred in --

MR. SHALABY: When we are comparing winds and

hydroelectric, yes, we did.


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MR. POCH: Yes. Did you do that for nuclear and gas?

MR. SHALABY: We were not comparing them on loss -- no,

we did not, again, for the reasons that we discussed. They

are located near load centres and the losses would be

equivalent in either case.

MR. POCH: Is the nuclear that was being considered for

up at the Bruce site, near a load centre?

MR. SHALABY: The sites that we identified, the Bruce

is built already and the transmission is built already.

There's no additional transmission required to bring the

Bruce in.

MR. POCH: And whether or not there's additional

transmission, there can be additional losses if there's

generation located that puts more current through those

wires?

MR. SHALABY: Yes.

MR. POCH: In fact, losses go up with the square of the

current, generally speaking, leaving phase shifts aside?

MR. SHALABY: Yes.

MR. POCH: All right. So whether or not the

transmission is built or not, if it's not near -- right by

the load, it affects your peak losses. This -- the large

centralized generation that has to go through all of these

wires affects your peak losses?

MR. SHALABY: It does.

MR. POCH: Right. It affects it around the clock. It

is just much more significant at peak times?

MR. SHALABY: Yes.


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MR. POCH: All right. And --

MR. SHALABY: Again, this is all general statements.

In fact, some of the generation reduces losses depending

where it is, how it operates, peaking or not peaking. All

of these are generalizations that withstand a lot of

scrutiny and a lot of detailed modelling.

MR. POCH: Sure. It's a complicated system, but when

you are doing system planning, you obviously have to

simplify to some extent?

MR. SHALABY: Yes.

MR. POCH: My general statement is a reasonable

assumption, in general; correct?

MR. SHALABY: Yes.

MR. POCH: All right. And with respect to combined

heat and power, to the extent that it is located with load,

I think you have already acknowledged to us earlier that it

would tend to reduce -- obviously reduce flows on the

transmission system, to the extent it is well matched with

load, and, therefore, would reduce losses and peak losses?

MR. SHALABY: It depends where it located.

MR. POCH: In general?

MR. SHALABY: I don't know in general. Some of these

facilities are located in the north. They would aggravate

the losses. Some are located in eastern Ontario. They

would aggravate the losses.

So If they're located at the York University, downtown

GTA or University of Toronto, then they would reduce the

losses, yes.


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MR. POCH: Have you looked at that? Have you looked at

where the potential is in Ontario? Have you studied what

the impact is going to be on system losses and peak losses?

MR. SHALABY: Not in that level of detail, no.

MR. POCH: Okay. So obviously you haven't credited

these options with any amount in costs for that, because you

haven't done that analysis?

MR. SHALABY: We have not. And to put the dimension in

perspective, the entire losses, transmission losses on the

system, are around 3 percent. I know the incremental losses

can be higher, but the losses is 3 percent of the energy,

and the energy is half the costs of the electricity.

We are talking about 1 or 2 percent differential

between one option or another.

MR. POCH: Let's unpack that a bit. First of all, you

said the energy is just part of the cost.

Losses, especially peak losses which happen at peak and

which are the bigger losses add to your need for capacity on

the system; right?

MR. SHALABY: They do.

MR. POCH: So it is precisely when the losses are

highest that they affect your peak load and, therefore, your

need for capacity and which is your primary -- one of your

primary system planning --

MR. SHALABY: Right.

MR. POCH: Now, in fact, Mr. Casten in his evidence -

we will get do it in due course - hazards numbers like 20

percent for peak losses; not average losses, peak losses;


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correct?

MR. SHALABY: We will get to it in due course.

MR. POCH: Right. Turn up I-113-46, would you?

MR. SHALABY: While we are turning that up, I want to

place on the record the precise number for transmission to

incorporate nuclear in Darlington. It's on Exhibit E, tab

4, schedule 1, page 11. The estimate there is

$120 million.

MR. POCH: The set we're looking for is Exhibit I,

tab 113, schedule 46, not tab 13. Tab 113.

Okay. Thank you very much, Ms. Heinz.

This is an interrogatory response from my witness to an

interrogatory your organization posed.

You were quoting back at him his reference that he gave

for that 20 percent peak loss number. You point to an IESO

number of 2 to 3 percent. I assume we're talking there

transmission system losses.

He responds, noting that you'd only captured part of

IESO's paragraph, and the paragraph goes on to say:

"Incremental losses depend on the location

resource configuration of the system and could be

as high as 30 to 40 percent."

So can we agree that the 2 or 3 percent number or 3 or

4 percent number you're talking about is the average losses,

not the peak losses or incremental losses?

MR. SHALABY: I'm agreeing that the average and the

marginal rates are different, and the marginal are much

higher.


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MR. POCH: The number you quoted to me is the average?

MR. SHALABY: Yes.

MR. POCH: All right. And the marginal are, as you

say, much higher?

MR. SHALABY: Can be.

MR. POCH: Yes. And do you have any analysis that

contradicts the 20 percent number?

MR. SHALABY: We agreed, as well, that at a plan level,

without knowing specific locations, it may be not very

productive or indicative to know whether losses go up or

down by 20 percent for marginal rates.

MR. POCH: You haven't studied it, I take it, at a plan

level?

MR. SHALABY: We did produce numbers on marginal losses

for York Region, for example. We study that regularly. We

understand that phenomenon.

MR. POCH: What range of those numbers are those?

MR. SHALABY: They are 15 to 20 percent on peak.

Highly loaded, in a facility that is at limits in a very hot

summer day, the losses could incrementally be very high.

MR. POCH: In fact, Mr. Shalaby, we know, I mean, most

of the load in Ontario is in centres like Toronto where the

system tends to be heavily loaded, correct, at summer peak?

MR. SHALABY: Not as heavily loaded as certain

circumstances. York Region is loaded above -- above its

continuous rating, as an example.

MR. POCH: Right. But we know, in general, in Ontario,

most of the load is in centres which have -- which are


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pretty heavily loaded at times of -- at the summer peak?

MR. SHALABY: That's a fair assessment, yes.

MR. POCH: Thank you.

Now, just in terms of how you have dealt with the

capital cost overrun risk. We spoke about this a bit

earlier. Right after the break we touched on it.

First of all, just in terms of -- we will get to this

with the procurement panel but just a little context. In

your contracts with renewable and gas generations, do they

carry -- do you pick up any of the risk of capital cost

overruns or is that generally borne by the people you

contract with?

MR. SHALABY: Do we...?

MR. POCH: Do you pick up any of the risk, do you

socialize any of the risk for capital cost overruns with

your contracts with renewable and gas generators or -– the

generators themselves?

MR. SHALABY: I prefer that questions about specific

contracts be addressed to the procurement panel.

MR. POCH: You don't know the general mode there?

MR. PIETREWICZ: They --

MR. VEGH: They can be addressed to the procurement

panel then objected to at that time, Madam Chair, because it

is not within the scope of this proceeding to go through

specific contracts with customers.

MR. POCH: All right. That's why I was asking as

general but not the specific customers, but okay, we will

deal with it then.


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Regardless of who bears the risk, you assume 4 percent

cost of capital for all options?

MR. SHALABY: We assume a 4 percent discount, social

discount rate. We assume 8 percent as a sensitivity case.

A 2 percent -- we assume all kinds of things for all kinds

of reasons. In different purposes.

MR. POCH: I am asking for the cost of capital. Not

how you discount it back to present value but when you have

a cost of capital, it's part of the financing cost of those

options, you assume the same rate that you use as your

discount rate, 4 percent?

MR. SHALABY: I am unaware we made a direct link

between the cost of capital and discount rate. We

understand the difficulty in making the transition from one

to the other.

MR. POCH: You don't make a direct link so that is why

I am asking: What did you use for the cost of capital for

the costing of your options?

MR. SHALABY: We didn't need to make any specific

assumption about the cost of capital.

MR. POCH: So --

MR. SHALABY: To my knowledge, we estimated the costs

to customers, assuming the commercial rates that generating

sources are supplying electricity to the grid at.

MR. POCH: Right. When you did your LUEC analysis,

like any of these discounted cash flow analysis, you got

your costs going out into the future then you bring them

back to present value. I think what you said to me is


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implicitly, you used the same carrying cost going forward at

4 percent as you used to discount back your social discount

rate of 4 percent.

MR. SHALABY: I didn't say that. I said we used a

discount rate of 4 percent as a social discount rate.

And the panel on resource costs can get into that in

more detail.

MR. POCH: All right. We will leave that for them.

MR. SHALABY: It's a complicated topic, and we try and

not to get into the average costs of capital, weighted cost

of capital, in any specific way.

MR. POCH: All right. Let me just ask this, then. You

are trying to plan from a social cost perspective, whoever

bears these costs and risks; correct? Generally? Your

overall planning approach here has been to say, We're not

sure who is going to own these things. We're not sure, but

we're going to try to capture all of the costs that society

faces for these different options and you decided what

options make sense.

MR. SHALABY: That's a choice of options, that's what

we do, yes.

MR. POCH: Right. To the extent that there's a higher

risk of capital cost overrun for a particular option, isn't

it true it's going to cost more to finance that option?

Assuming someone is out in the marketplace trying to raise

capital to pay for a plant -- Mr. Zacher, I would ask you

not to nod to your witnesses –-

MR. SHALABY: Yes.


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MR. POCH: -- it is going to cost you more --

MR. SHALABY: You are going from social discounts rate

calculation to something else. Financing projects is not

something we get into.

MR. POCH: I know. I am just asking, leave aside your

social discount rate. In the real world, it costs more to

raise -- to get money to build a project where there is a

higher risk of capital cost overrun.

MR. SHALABY: And the way we captured that, the

relevance of that is captured in the cost to customers. The

range of costs around nuclear is up to $110 a megawatt-hour

to reflect the potential costs of cost overruns, the higher

financial costs, the implied costs -- all of the things that

are behind developing the project that -- details that we're

not in a very good position to understand the details of.

MR. POCH: You said that is in your cost to customer

analysis; right?

MR. SHALABY: Right.

MR. POCH: I am talking about your resource -- we are

going to get to your resource planning analysis, where you

choose between options.

I am just suggesting to you that some options are

likely to face a higher cost of financing, the nature of

that option.

MR. SHALABY: That's a truism, yes.

MR. POCH: Yes. I take it you have --

MR. SHALABY: The relevance of that to choosing between

the options comes into the cost to consumers not in the


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discounted rate that we use at this stage. We chose to use

a uniform discount rate.

MR. POCH: So in your LUEC when you are deciding when

it makes sense to go with nuclear, when it makes sense to go

with gas, you didn't -- it's not in that part of your

analysis?

MR. SHALABY: It is not -- they're discounted using the

same social discount rate --

MR. POCH: Yes.

MR. SHALABY: -- and we provided the argument for making

that decision --

MR. POCH: Okay.

MR. SHALABY: -- in interrogatories and in evidence-in-

chief, and the panel members that are following can have a

lot more discussion on that item.


I just want to turn to the coal for insurance elements

of your case, briefly, hopefully.

We had a concern that we expressed to you that -- it

was expressed in our evidence, that to the extent these coal

plants are kept on the system, we may see them run for the

-- basically to fuel the export market and we would end up

with the emissions.

I take it the government has stepped in and promulgated

a regulation, I don't know if it has passed yet, but that

will cause OPG to emit less in the period before the phase-

out? I know we are not getting into how -- in this hearing

we're not getting into a discussion of what OPG should or


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shouldn't do.

But I will bring this back to the plan in a minute.

First of all, I just want to set the stage. That's your

understanding too?

MR. SHALABY: There is a regulation to specify limits

on CO2 emissions.

MR. POCH: Just in terms of the planning, when you did

your plan cost estimates, one of the things you did was you

made some assumptions about, as you noted, exports and

imports. Some of this coal capacity was fuelling exports

and that was a cost credit to your plan analysis, I take it?

MR. SHALABY: No.

MR. POCH: No?

MR. SHALABY: No.


MR. SHALABY: The Exhibit G-2-1 shows the costs to

supply Ontario customers, the energy needed to supply 160

terawatt-hours in the year 2027 to Ontario. It does not

include anything to do with exports.

MR. POCH: So this regulation and the constraint it

imposes in the next few years, then, doesn't affect the cost

of your plan?

MR. SHALABY: No.

MR. POCH: Okay. Okay. Just a heads-up maybe to your

planning cost panel, because we have a little confusion,

then, because we spent a day with you talking about the PSM

model and, as you will recall, there was a whole discussion

about how you costed imports and exports and simulated them.


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And I guess we'll just want to understand what the point of

that costing was.

MR. PIETREWICZ: I suspect --

MR. POCH: It's on, yes.

MR. PIETREWICZ: Can you hear? I suspect for the

purpose of that costing of imports and exports that we

discussed at that meeting about modelling was for the

purposes of sort of simulating the dispatch of the

interconnected system rather than for, as Mr. Shalaby

pointed out, for crediting the plan with the revenues earned

in the course of exports.

MR. POCH: Okay. Well we will come back and deal with

that, with that panel, then, thank you.

Now, your mission is to come up with a plan that

replaces the coal at the earliest practical time; right? I

think I have the wording right.

MR. SHALABY: Yes.

MR. POCH: I am wondering how you have interpreted that

for developing your plan. Do you view that as practical,

regardless of cost?

MR. SHALABY: No.

MR. POCH: Can you tell me how you have interpreted it?

MR. SHALABY: The resources that we present as

replacement for coal are shown in the exhibits. Those are

the resources that we considered to be practical.

MR. POCH: All right. So do I take it, then, that you

-- in deciding what was practical, you did so within the

confine of cost effectiveness in some fashion?


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MR. SHALABY: Yes.

MR. POCH: All right. So what was the -- what was the

comparator, if you will? Obviously you picked the most

cost-effective option, you know, looking at the possibility

of option A, option B, to phase out coal sooner. But

determining how far to go, how fast to go, in that stack of

options, you stopped at a point.

How did you determine that limit, that -- the cost at

which you weren't prepared to go beyond to try to get these

things out of the system sooner?

MR. SHALABY: We didn't approach it in that way. We

approached it in -- there are options. An example would be

importing electricity from jurisdictions at a high rate in

2008/2009. You could do that. We could do that at

expensive prices, and we did not consider that to be a

practical approach --

MR. POCH: Because of --

MR. SHALABY: -- as an example.

MR. POCH: Because of the cost? Sorry, I have

interrupted you. Finish your sentence.

MR. SHALABY: Because of the cost, yes.

MR. POCH: Because of the cost, okay. Do you have

information on what that cost is -- would have been?

MR. SHALABY: We have indicative information on that,

yes.

MR. POCH: Can you share that with us?

MR. SHALABY: We can share indicative information with

you, yes.


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MR. POCH: All right. Can we get an undertaking that

-- and I guess it could be described - Mr. Shalaby, you can

help me here - OPA indication of the expected costs of

imports to accelerate the replacement of coal, and --

MR. SHALABY: I will add a proviso that if some of

these costs are subject to confidentiality, we will have to

share them with the Board according to confidentiality

provisions.

MR. POCH: Of course.

MS. LEA: So do I understand this, then, to be

undertaking J3.2, expected cost of imports to replace --

what was it specifically?

MR. POCH: Coal at an earlier date.

MS. LEA: Coal at an earlier date. Thank you.

UNDERTAKING NO. J3.2: PROVIDE EXPECTED COSTS OF

IMPORTS TO REPLACE COAL AT AN EARLIER DATE.

MS. LEA: We heard your caveat, also, Mr. Shalaby.

MR. SHALABY: Thank you.

MR. POCH: All right. I wanted to touch upon another

option for coal replacement, and that was -- first of all,

you are keeping the coal on line as -- I think you have

described it as insurance, for the most part, correct,

insurance against a number of uncertainties, mostly when the

resources are going to be available to the system; correct?

MR. SHALABY: Yes.

MR. POCH: The timing?

MR. PIETREWICZ: To be a little more specific, the coal

is seen to be required for adequacy purposes until -- as we


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mentioned on September 8th, until approximately 2011 or '12,

some fraction of that coal is supporting adequacy; whereas

beyond that, the coal would be relied upon -- some fraction

of the coal would be relied upon for what we call insurance

purposes.

MR. POCH: Right, okay. I am focussing on that latter

phase.

Oh, let me just clarify, though, before we go to that

latter phase. In the adequacy side, some of that is

specifically the adequacy in the northwest region, I take

it? That's a particular problem you have?

MR. PIETREWICZ: Some of it is, but not all of it.

MR. POCH: Right. All right.

When we get to the point where that is less of a

concern, the insurance is largely to deal with the problem

of uncertainty about new facilities, when new facilities,

new resources will be available to the system; correct?

That's the...

MR. PIETREWICZ: Yes, that's part of it. Certainly it

addresses uncertainties in uncertain times, and that's

described, just for reference, in Exhibit D-2-1. I believe

it is attachment...

MR. POCH: Two, I think.

MR. PIETREWICZ: Two or one of those, yes.

MR. POCH: Yes, I think it is 2.

MR. PIETREWICZ: It not only is meant to address

uncertainties around timing, but uncertainties around things

such as amounts --


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MR. POCH: Yes.

MR. PIETREWICZ: -- over time.

MR. POCH: Sure. And planning reserve, that's about

-- well, planning reserve is also something that has to do

with facilities being available to the system -- you know

what? I am going to withdraw that.

Both the insurance -- well, the insurance reserve, you

have some lead time. I think we had a discussion of this

yesterday. As you get closer, there's less a concern,

generally?

MR. PIETREWICZ: If I could begin, we have pointed out

in the evidence, in Exhibit D-2-1, attachment 2, I believe

it was -- I can't find the specific reference, but the

principle is that there are uncertainties at any time you

take a snapshot, but life evolves. And, over time, things

that were once uncertain take on a greater certainty one way

or the other.

MR. POCH: All right. Let me drop to the bottom line

here, which is looking at this question of whether you could

shut them off sooner, perhaps in that '11 -- 2011/12

timeline, not dismantle them, though. Keep them there in a

cold standby mode; mothball these facilities.

Would that give you enough lead time to accommodate

this insurance concern?

MR. SHALABY: Is the specific question about the mode

of operation of the coal plants?

MR. POCH: Well, I am asking, from a planning

perspective, to meet this uncertainty it is that you are


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trying to meet with insurance reserve, would plants in a

mothballed state -- could they meet that need, to be brought

back with a few months' notice?

MR. SHALABY: They can meet parts of that need, yes.

MR. POCH: Okay.

MR. SHALABY: Depending on how quickly they can be back

in service and whether they get cannibalized or not. There

is a huge amount of -- this is where we think the deployment

of the coal fleet is best left to the operator of the coal

fleet. There are many, many considerations of how to deploy

the coal units in the next few years.

MR. POCH: I take it you didn't study that to see if

that is the way to go?

MR. SHALABY: We understand the considerations that

come into deploying the coal fleet.

MR. POCH: But you have to make an assumption to run

your system, to run your plan, and you have made the

assumption they're going to run?

MR. SHALABY: We had to make assumptions about?

MR. POCH: For your planning, you simulated your

system?

MR. SHALABY: Yes, yes.

MR. POCH: You made the assumption that they're not

going to be mothballed?

MR. SHALABY: Right. What this falls into the category

of, in the operating time horizon, there are many more

nuances and many more decisions that can be made that cannot

be fully simulated or anticipated in a planning model.


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MR. POCH: Okay. I think you have earlier indicated

that firm imports are a potential option to replace coal.

You are going to give us some information on that. You

haven't planned on that option. Is it simply because of the

cost?

MR. SHALABY: Two reasons for that. One is cost. The

other thing is the imports are coming in, anyway. There are

imports that are coming in that are reducing the coal burn

in Ontario, anyway.

MR. POCH: But there is more possible, obviously.

That's what you've indicated.

MR. SHALABY: There is more possible, yes, and the

difference between what is coming in, anyway, and what the

additional certainty that you get by contracting we felt is

not a practical option.

MR. POCH: All right. Is that simply because of the

cost? You have indicated the high cost --

MR. SHALABY: Practicality of transporting it, and

including cost, yes. There is a very large measure of

imports getting into Ontario from Manitoba and from Quebec.

The other imports are of less certain value, in terms of

reducing coal, if they do themselves include coal context.

MR. POCH: Obviously, that would be frying pan to fire,

wouldn't it? Right?

I am just wondering. Because you've constrained this

possibility, in part because of a concern about costs, did

you get any information about what the costs, the societal

costs of running the coal plants are? We have heard a lot


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in recent years about the health costs that have been

modelled and are not insignificant.

MR. SHALABY: That did not enter into our trade-offs,

no.

MR. POCH: All right. Fine. I would like to turn to

costing.

MR. SHALABY: If I may take a minute to add reference

related to the inclusion of supply cost uncertainty, whether

we took into account the uncertainty in supply cost.

I made references throughout the answers to the avoided

costs, that the avoided costs included transmission,

included distribution. They also include a 10 percent

uncertainty premium. We add 10 percent, recognizing that

supply costs can become higher than the planning estimates.

So we give 10 percent credit to conservation that is

evaluated on the avoided costs, to accommodate increase in

supply costs that is possible because of either gas price

increases or construction cost increases. So I wanted to

complete the record in that regard, and that is shown on

Exhibit D, tab 4, schedule 1, attachment 3, page 3.

MR. POCH: Thank you.

MR. SHALABY: It took a while to find it but here we

are.

MR. POCH: I appreciate that.

Turning to costing. Obviously, nuclear cost is a

critical assumption in your plan, in the assembly of your

plan? Do you agree with that?

MR. SHALABY: It's a critical factor, but it's factor


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that is tough to get in the ballpark at this time, given the

flux and the changes in conditions around us, yes.

MR. POCH: We wanted to look at the sensitivity around

that, and in I-43-3, you don't have to turn this up. It's

the report of the one of model runs that a number of

intervenors sought from you.

In that one, we posed some higher nuclear costs, and

your response, in short, is, Well, it falls off the table at

those levels, the higher levels we posed.

MR. SHALABY: Give us a minute to turn it up.

MR. POCH: Sure, all right.

MR. SHALABY: Yes, we have the interrogatory.

MR. POCH: Right. We gave you a number of assumptions

which raised the, in your analysis, I think, raised -- came

out to a higher LUEC, and I forget the number, but in the 14

or 15 cent range. Is that approximately right?

MR. SHALABY: The results are given in the

interrogatory response, yes.

MR. POCH: That's fine. Perhaps an easier way to look

at this is if you could turn up I-31-89.

Now, this was a Pollution Probe interrogatory where

they asked you for some sensitivities on the costs of

nuclear, LUEC for nuclear, and this was for CANDU 6, is the

assumption there, with different scenarios.

If you scroll down, I believe there is a table that

gives your response for a variety of combinations; correct?

MR. SHALABY: Yes.

MR. POCH: I just want to make sure I am interpreting


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this answer correctly. If I look at the -- in the lower box

on the left, say at the capital cost multiplier. That is a

multiplier of your assumption of $29.07 per kilowatt?

MR. SHALABY: Yes.

MR. POCH: So if we wanted to see -- if we wanted to

say, if nuclear -- if the best estimate of nuclear capital

cost these days is in the five or six thousand dollar range,

we would use, for example the 200 percent number there?

Correct?

MR. SHALABY: That would be $6,000.

MR. POCH: Right. $5,800 in that case.

Then if we go sideways from there into the LUEC box,

these columns represent capacity factor and there's -- the

200 percent line, there's two numbers, the top in that row,

the top one being at 8 percent --

MR. SHALABY: Not capacity factor, but real discount

factor.

MR. POCH: I'm sorry, the 8 and 12 are the real

discount factor.

MR. SHALABY: Right.

MR. POCH: Yes. Then the columns in the next box

further over on the page to the right? Those are -- that

row, then, that's aligned with the ones we were just looking

at, that then gives us the LUEC for twice your assumed

capital cost at either an 8 or 12 percent real. Then

different columns represent what? Do they represent

different capacity factors for the performance of the plan?

MR. SHALABY: If we can scroll up a little bit, I might


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confirm that. Yes, that's correct.

MR. POCH: There you are, that's the average capacity

factor, ACF.


MR. POCH: If we look at the second last one or let's

look at the fourth last one, 80 percent, for example, and

scroll down. At 12 percent and at $5,800, we'd have a LUEC

of, as I refer to them, 17.9 cents per kilowatt-hour?

That's with a 30-year life of the plant.

MR. SHALABY: I can see 17.9 or $179 per megawatt-hour.

MR. POCH: Okay. I just wanted to make sure we were

understanding that correctly.

So that gives us a range of possibilities. Can you

tell me, we know that the one -- the combination of things

we told -- we asked you to run in I-43-3 fell off, went past

the point of no return.

Could you tell me what is that point? What's the LUEC

that you, in general, makes nuclear at the margin in your

plan non-cost effective?

MR. SHALABY: Well, again, you're attributing to the

LUEC enormous significance beyond what it is intended to do.

MR. POCH: I understand it is difficult, when we move

away from the margin, it is increasingly difficult to use

it; correct?

MR. SHALABY: The decisions on whether to proceed with

nuclear or not proceed with nuclear are not going to be

limited to calculating a LUEC.

MR. POCH: Sure. You can't replace a nuclear plant


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with a single-cycle gas turbine. It wouldn't make any

sense.


MR. POCH: Right.

MR. SHALABY: So I am answering in the way of the LUEC

is not the way to determine whether nuclear proceeds or not

proceeds. There are many more considerations to it than

that. We are referring to the LUEC in our assessment as a

screening tool, as a way to get started in equating or

looking at options with different characteristics.

The complexity of making decisions is far greater than

a single measure like that can capture.

MR. POCH: Well, let me just take you to the chart

where you look at the comparison, where you compare nuclear

and combined cycle.

MR. SHALABY: Yes.

MR. POCH: I think that -- I am just trying to find the

cite here. It is D-3-1. Exhibit D, tab 3, schedule 1,

attachment 1, and if we could go to page 11.

I just wanted to -- for example here, if you look at

this table, if we were to go to -- out along the hours of

operation at the bottom there, to... to the point where

we're -- 85 percent of the year is covered, somewhere closer

to 8,000 than 6,000 there, and went up to the blue line,

that would tell us that if you ran combined cycle that much

of the year - in other words, you ran it base-load mode as

your primary base-load facility - it would have a LUEC of

about $70 a megawatt-hour?


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MR. POCH: Am I reading that right?

MR. SHALABY: Yes.

MR. POCH: Okay.

MR. SHALABY: Yes, you are reading that right.

MR. POCH: Okay. So obviously if you ran gas at that

level, you might have run into other constraints, like

environmental constraints; correct?


MR. POCH: Okay.

MR. SHALABY: As illustrated in the response to the

interrogatory that you brought up a little while ago,

interrogatory 43.

MR. POCH: Yes.

MR. SHALABY: Schedule 3.

MR. POCH: Yes. I am going to come to that.

I am just trying to understand. You have other --

presumably have other options which don't run into that. Do

you have other options which don't run into that constraint?

MR. SHALABY: Not that we consider feasible at this

time.

MR. POCH: Well, you have ruled out wind beyond a

certain point, because you say it gets too expensive,

correct, in your planning?

MR. SHALABY: Yes.

MR. POCH: But if it turns out that some of those

numbers we saw on the previous chart are right, then

presumably -- and you can't turn to the cheaper combined


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cycle, which is cheaper than wind, you might want to turn to

wind for some of that base load, and so that --

MR. SHALABY: Well, you run into other limits,

operability. You run into incorporation, transmission. You

run into other considerations, as well.

MR. POCH: At some point those become limits.

MR. SHALABY: Yes.

MR. POCH: Absolutely. But before you reach that

point, those options, even though they're more expensive

than combined cycle, might be reasonable, because they don't

have the environmental impact, but they're cheaper than

nuclear, and that would make sense to go with those options,

then; correct?

MR. SHALABY: There will be a set of assumptions, that

is true, yes.

MR. POCH: All right. I am just trying to understand.

At the margin, what's the -- what's the price of the

marginal nuclear plant or the LUEC of the marginal nuclear

plant where you trip -- where you then say, Hmm, okay, at

the margin, we can't go forever with wind. Everyone

acknowledges that, but at the margin, we should be looking

at some other option, like wind, whether something else --

you know, that the next wind plant is cheaper than that.

In other words, what's the LUEC of your next wind

plant? Let's ask you that.

MR. SHALABY: We have shown the LUECs for the next wind

plant in the comparison to hydroelectric.

MR. POCH: We can just take, then, from that comparison


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the number which you include some firming, so some capacity

cost for firming; right?

MR. SHALABY: Yes.

MR. POCH: We can take that number and that would tell

us where that crossover point is; correct?

MR. SHALABY: No. You are again attributing to the

LUEC superhero powers that are not what we intended it for.

It's a screening tool. It is a first brush. It leads you

to further exploration and further study and further

assessment. It is not the first and last answer to any

question.

MR. POCH: Okay. Well, obviously, then, looking back

at this chart we were just looking at, the nuclear combined

cycle comparison, if you're telling me LUEC is not

sufficient, where did -- in your -- in fact, isn't that how

you defined -- isn't this chart exactly how you defined

where you wanted to go and how far you wanted to go with

nuclear before you then turned to combined cycle?

I mean, I know you did a probabilistic assessment, as

well as deterministic assessment, for some of the

uncertainties, but leaving that aside, this approach

comparing LUECs, that is how you got your --

MR. SHALABY: That's how we determined the base-load

requirements, yes.

MR. POCH: And that's how you decided how much nuclear

makes sense to include in the plan?

MR. SHALABY: I'm not sure whether equating deciding

-- determining the base-load requirements is equal to the


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decision of how much nuclear makes sense. It is one way of

saying, in Ontario, of the technologies available, base load

is defined in ways that differentiate what the technology is

being supplied.

MR. POCH: Okay.

MR. SHALABY: For determining base-load requirements,

we used this method with Monte Carlo assessment, you're

quite right.

MR. POCH: Okay.

MR. SHALABY: And we got an answer that was sufficient

to proceed for the purpose of this plan. If all of the

assumptions change as dramatically as the hypotheses that

you are giving, nuclear doubles in cost, real discount rate

doubles, life of the plant shortens.

If all of these assumptions come together, we're into a

very new plan. We're not on the margin anymore. We are

into reconsidering everything from the start.

MR. POCH: What I was asking really was: If the -- if

there is -- some combination of those factors is now your

best wisdom or somebody's best wisdom, or this Board's best

wisdom, I am wondering at what point -- at what LUEC -- do

you have -- can you give us a ballpark at what LUEC value

for nuclear would you start to seriously question at least

the marginal choice of nuclear, would it make sense to start

scaling back nuclear in your plan, given your alternatives?

MR. SHALABY: It all depends what the other options are

looking like.

MR. POCH: Given the other options as you know them.


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MR. SHALABY: Then we're into exploring a whole new

world. In all likelihood -- in all likelihood, what we --

our experience is that things are correlated. If nuclear is

expensive to build, wind is expensive to build and natural

gas plants are expensive to build. These things are

correlated.

So I think it bears -- it bears careful assessment at

the time, rather than charting numbers and break-even points

in a world that is very different from the one we're

postulating right now. I cannot give you a number that,

beyond a certain number, you start considering something

else. It depends what else is possible.

MR. POCH: If the Board at the end of this case

concludes your LUEC, or some of the factors that go into

your LUEC for nuclear, are simply not a reasonable, prudent

basis to plan on and came up with a different number, then

you couldn't tell them -- you can't tell them today what

that does to your plan, is what you're telling me, how the

plan should change to respond to that finding? You would

have to go away and conduct another planning analysis?

MR. SHALABY: And we're intending to go away and

conduct another plan precisely incorporating all of the new

assumptions. As we discover the right, more -- closer

numbers to reality, we will conduct further analysis and

come back.

MR. POCH: Just one other question. If some of those

numbers or assumptions that were in the response to

Pollution Probe change and increase the LUEC, looking at the


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-- at figure 2 that we're looking at in -- sorry, I lost the

exhibit number. D-3-1.

MR. PIETREWICZ: Attachment 1?

MR. POCH: Attachment 1. That has the effect of moving

the pink line in what direction? Up, I take it?

MR. SHALABY: Up, yes.

MR. POCH: Which should simply shift that curve up on

the page?

MR. SHALABY: Yes.

MR. POCH: All right. So that would change the

crossover point?

MR. SHALABY: Depending what is happening with the blue

line. It may; it may not.

MR. POCH: All else being equal, it would change the

crossover point?

MR. SHALABY: Yes.

MR. POCH: With your methodology, that would change

your definition of base load?

MR. SHALABY: It would, yes.

MR. POCH: All right. So your definition of base load

for interpreting the directive, then, is derived from your

assumption about cost and performance of nuclear? That's

what you have just said to me.

MR. SHALABY: It would imply meeting base load with

natural gas. If we accept a higher break-even point, it

would mean using natural gas to meet base load.

MR. PIETREWICZ: To follow on that --

MR. POCH: Mr. Shalaby, I want to get an answer to my


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question. I asked you, this crossover point, I thought it

was pretty clear you said to me earlier, is how you defined

base load. Correct?

MR. SHALABY: We defined base load a number of ways in

the analysis.

Base load is a load that is available most of the time

in the province. And the question now is how best to meet

that base load.

One way of defining base load is to look at the

options. Another way is look at the load that is available

most of the time in the province. Roughly 70 percent of the

time. I mean, that's -- this is characteristic of the

system rather than the options --

MR. POCH: But the roughly 70 per --

MS. NOWINA: Mr. Poch, I am not certain he was

finished. I also, I understand that Mr. Pietrewicz wanted

to add something. I would like to hear from both of them

before you jump in.

MR. POCH: I apologize.

MR. PIETREWICZ: Thank you. In addition, this

represents an analysis of what is to supply the marginal

base-load requirements, after, as we describe in

Exhibit D-6-1, after the contributions of existing,

committed and planned renewables, conservation, CHP were

taken into account.

So this is really talking about that marginal increment

of base-load nuclear -- or nuclear to supply base-load

requirements and that's what the directive specifies us to


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do, to meet base-load requirements with nuclear.

So this analysis, in part, is asking sort of --

MR. POCH: I understand that.

MR. PIETREWICZ: -- how much nuclear. Now, as Mr.

Shalaby pointed out, quite correctly, the base-load demand

itself is that portion of the load that exists a lot of the

time, at a minimum 100 percent of the time, or at a maximum,

pardon me. And we could talk about how much more or how

much less.

MR. POCH: That's --

MR. PIETREWICZ: This is talking about which base-load

types of resources should be used to meet that increment of

base-load demand that is not supplied by the other existing

committed and planned resources that I mentioned.

MR. SHALABY: To give an illustration that can take us

away from this into perhaps an example -- in Quebec, for

example, they meet all of the load with hydroelectric

resources substantially. They have some other resources,

but it is mostly hydroelectric. The definition of base-load

or intermediate or peaking is less dependent on what

resource is used to meet the demand and more relevantly it

is how much load is there all the time.

So the definition of base load, sometimes you can think

of it how much load is available all the time, or is,

presents itself to be met most of the time.

We went at it different ways. Once, how much load is

available all the time, and all the load duration curves

that we present help us in determining that. Another way of


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getting at it is if you look at the resources, the economics

of the resources, that's another way of looking at it.

You need to look further in the environmental

acceptability and transmission and other availability if

these screens are not sufficient to answer your questions.

MR. POCH: I certainly --

MR. SHALABY: Those two screens were consistent with

each other and sufficient to answer the question for now.

If the fundamentals of economics between one technology and

another change, you look further into feasibility.

MR. POCH: Two questions.

MS. NOWINA: All right. Mr. Poch's turn. Go ahead,

Mr. Poch.

MR. POCH: Thank you. Two questions. First of all,

the chart we're looking at, figure 2, that told you how much

of base-load you want to meet with nuclear. That crossover

point --

MR. PIETREWICZ: No.

MR. POCH: -- as opposed to with combined cycle?

MR. PIETREWICZ: No. As you yourself have observed,

that this itself, figure 2, is what we call a deterministic

analysis.

MR. POCH: Apologies.

MR. PIETREWICZ: In this deterministic analysis, we did

not consider risks of -- and they're identified in the

evidence. I believe they are capital costs, risks, perhaps

fuel risks, and maybe there is another one or two.

Then later on in this document, Exhibit D-3-1, we tried


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to account for those risks and came to different conclusions

which led to a lower amount of planned nuclear than would

have been suggested in figure 2, which is on the screen.

MR. POCH: Yes. We covered that earlier and I

apologize. This is sort of a simplified take on it and in

fact when you layer on some of the other uncertainties and

you -- the mode or mean or whatever of that, the line shifts

a little.

MR. SHALABY: Shifts, yes.

MR. POCH: Let's take that as a given.

MR. SHALABY: It is a simplified way of saying if you

consider the factors that are considered in the analysis,

that is the result you get. The factors here are cost, on

the margin. If you operating something more than 4,000

hours, you would choose nuclear under the assumptions that

we have here.

MR. POCH: Right. That analysis, this is in the

probabilistic version, is what you, in fact, used for

planning purposes to decide how much nuclear made sense as

opposed to combined cycle. Obviously this is all built on

the base of what you first found for conservation,

renewables and CHP?


MS. NOWINA: Mr. Poch, lunch time.

MR. POCH: Could I ask one more question, Madam Chair,

on this chart? If I don't get an answer right away, I will

withdraw it and come back.

MS. NOWINA: All right.


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MR. POCH: That is just, you said base load, in fact,

the definition you come up with is something like -- the

load that persists 73 percent of the time; was that the

number?

MR. SHALABY: This analysis when done probabilistically

yields that result considering certain factors.

MR. POCH: That's how you define base load, through

this analysis and its probabilistic sister.

MR. SHALABY: For this -- considering those factors,

yes.

MR. POCH: So when you change the LUEC of nuclear and

the crossover point changes, with that analysis, your

assumption for how -- what base load is would then change?

MR. SHALABY: We may consider other things as we move

on.

MR. POCH: Thank you, Madam Chair.

MS. NOWINA: All right. Let's take or lunch break and

we will return at 1:45.

--- Luncheon recess taken at 12:15 p.m.

--- Upon resuming at 1:44 p.m.

MS. NOWINA: Please be seated. Mr. Poch.

MR. POCH: Thank you, Madam Chair.

Panel, we talked I think yesterday about the fact that

you really only have one plan, but you did some cases, and

we discussed case 1A, 1 B, 2A, 2B, and so on.

They were for more CDM. What you're saying is, in a

sense, a proxy for lower load, too, and so on.

Did you run a case, any case, where you presume less


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nuclear, for whatever reason, constraint?

MR. SHALABY: We ran the cases with Pickering and

without Pickering B. But if your question is about

different nuclear than those two, we didn't, no.

MR. PIETREWICZ: Actually, just as a slight correction.

MR. POCH: Microphone.

MR. PIETREWICZ: Can you hear me now?

MR. POCH: Yes.

MR. PIETREWICZ: Thank you.

Just a slight detail. Among the eight cases that we

considered in this IPSP, one of those cases was called case

3A and 3B -- or two of those cases were called 3A and 3B,

and those illustrated a future of higher success in

capturing conservation potential.

And as with the other cases, we offered sort of

illustrative adaptations to those scenarios, to those

circumstances. And in that particular set of adaptations,

it did result in a lower amount of nuclear than in the other

cases.

MR. POCH: Okay, good.

Now, recall earlier we talked a little about I-43-3,

which was where you document the run we asked you to do with

higher nuclear costs.

And anticipating the result -- the result, in short,

was that, as we indicated earlier, nuclear is not cost

effective, but the model tells you there would be all of

this gas, and you observe you don't think that would be

realistic, something we obviously agree on.


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Anticipating that result, in I-22-178, we had asked you

if, as a result of this run, indication is there would be

something like -- I am doing this from memory, but the gist

of it was it would require gas that would be unacceptable

for whatever -- for environmental reasons. Please discuss

what you could do to mitigate that concern and what

alternatives you would turn to.

Your response, you may recall, was - this was the

subject of a motion - that you weren't going to do that or

you hadn't done that. We brought a motion asking for that

answer and the Board, in dealing with this, suggested that

this would be an appropriate matter that could be pursued in

cross-examination.

So with that little history, let me pose that question.

Are you in a position to say what would you do, or do I take

it, from the discussion earlier today, that you simply

aren't in a position to offer any advice on where you would

go in that scenario?

MR. SHALABY: What would we do specifically if

conditions in model runs 4 or 5 materialize?

MR. POCH: Well, whether or not the particular mix of

cost as we pose them materialized. If you get to the answer

that we got in I-43-3 that the nuclear costs are now

foreseen to be at a level which makes them not cost

effective, what would you like to turn to? Because you

can't turn to gas for all of it, obviously.

MR. SHALABY: Right. So the context for this would --

and tying back to the discussion that we had just before


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lunch, the determination of base load was described in the

evidence that we put through, Exhibit D, tab 3, schedule 1,

attachment 1.

Maybe I would ask that we bring this up for a second,

only to indicate that this was the economic definition. On

cost basis, the break-even points of these levelized unit

energy costs is the economic definition of what to meet the

base load with.

We described at length on day 1 and 2 that the planning

criteria are all considered together. It is economics,

meaning cost and cost effectiveness; it is feasibility; and

it is environmental performance, and social acceptance is

part of environmental performance.

In conditions where natural gas becomes a lower cost

option, other criteria will have to come in and be

considered.

Is it possible to burn gas in the amounts anticipated?

Is the natural gas infrastructure capable of burning 80

terawatt-hours of gas? Today it is about 15 or 18. Can it

quadruple the amount of natural gas generation of

electricity over time? Those will become the other

considerations that come in.

Are the greenhouse gasses and emissions associated with

that gas acceptable? Are they within government policy, or

not? We anticipate that they're not.

Is the financial risk to do with emissions and emission

cost high risk or not?

So once we break down on cost, if we get clogged on


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costs, other criteria will have to be considered, as well.

MR. POCH: Okay. That's what we did. We posed a model

run for you to do which had higher nuclear costs, and the

answer came back, at that level, nuclear didn't make sense.

That's what I-43-3, said.

On the other hand, the gas, which is where our model

kicks out, doesn't make sense, realistically, because you

can't burn that much gas environmentally, if not for other

supply reasons.

So we had asked you in 1-22-178, what would you do

then? And that's what I am asking you today.

MR. SHALABY: And I answered before the break that this

would be -- this would be a subject to -- there would be a

new plan or a different plan. I don't know that we can do

this on the fly and on the stand.

If there's a fundamental shift in economics,

fundamental shifts in the relative economics of options, we

will have to stand back and take all of the updates into

account, look at the availability of resources outside the

province, look at the availability of resources inside the

province and come back with a plan that reflects these

updated assumptions.

MR. POCH: Finally, yesterday, I asked you about

whether you costed the other cases that we have just been

speaking about, some of these other cases, and you said --

and the transcript reference is at page 185, line 16. You

don't need to turn it up. You said, "We didn't describe

those results."


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That language made me pause and makes me ask today:

Did you, in fact -- well, first of all, I take it we know

you did provide us with cash flow analysis of those

different cases.

So did you also tally up what the plan cost is for

those other cases?

MR. SHALABY: The cases 2, 3, and 4?

MR. POCH: Yes. You said you didn't describe them in

your evidence, but I am wondering if you have them, in fact.

MR. SHALABY: Do we have any costs?

MR. POCH: We don't need it this minute. We can get

this as an undertaking, if you like.

MR. PIETREWICZ: I am actually not sure. I suspect we

filed something about costs of these other cases, perhaps in

the interrogatory responses.

MR. POCH: Can we --

MR. PIETREWICZ: It's a bit fuzzy to me at the moment.

MR. POCH: That's fine. Let's, if I may, get an

undertaking that -- OPA to provide the plan costs with and

without terminal value for the cases 2A and B, 3A and B and

4A and B.

MR. SHALABY: Only if we have them. We're not going to

calculate them if we don't have them.

MR. POCH: I take it that would be -- even though you

have done the cash flow, and so on, it would be difficult?

MR. SHALABY: It is quite an elaborate process that

requires --

MR. POCH: Provide the -- that's fine. I will accept


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that limitation.

MS. LEA: I have recorded as the undertaking J3.3:

Provide, if available, plan costs with and without terminal

values for cases -- and you will need to list the cases for

me again, please.

MR. POCH: 2A and B, 3A and B, and 4A and B, as

available.

MS. LEA: 4A and B?

MR. POCH: Yes, as available. Just so I make sure we

understand each other, in general, when we talk about plan

costs, we're talking about the present value number; is that

understood?

MR. SHALABY: Present values?

MR. POCH: Yes.

MS. LEA: J3.3.

UNDERTAKING NO. J3.3: TO PROVIDE, IF AVAILABLE, PLAN

COSTS WITH AND WITHOUT TERMINAL VALUES FOR CASES 2A AND

B, 3A AND B AND 4A AND B

MR. POCH: We don't need the annual. We just need the

present value, is what I'm saying.

MR. SHALABY: Yes.

MR. POCH: Thank you, Madam Chair. That is my cross.

Thank you for your indulgence, although I am pleased to

report I did come in under forecast.

MS. NOWINA: You did come in under your forecast.

Thank you very much, Mr. Poch. You set the tone for

everyone else.

I understand that next up is Canadian Manufacturers &


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Exporters. Mr. Thompson. That's you?

MR. THOMPSON: Yes, thank you, Madam Chair. Let me

just begin by thanking Mr. Faye for switching places with me

in the line-up. I can't be here tomorrow, and he kindly

agreed to allow me to take his position in the cue and so

that's why I am here now, rather than later.

CROSS-EXAMINATION BY MR. THOMPSON:

MR. THOMPSON: Panel, my name is Peter Thompson and I

represent the Canadian Manufacturers & Exporters.

Just to tell you a bit about the client, maybe you know

about it already, it has 1,400 Ontario manufacturing

representatives and the vast majority of those are small to

medium-sized manufacturers, 500 employees or less.

As to the current plight of Ontario manufacturers, you

do have some evidence on this and I just wanted to take you

to that by way of introduction. It's in Exhibit B, tab 1,

schedule 1, page 8. It starts at line 4.

It's up on the screen there now. There are two

sentences I wanted to draw your attention to. The first is

at line 4, which reads:

^“With respect to the reduction of demand due to

economic factors, 2006 and 2007 saw a significant

downturn in the health of Ontario's manufacturing

sector.^”

Then if you drop down to the last sentence in the

paragraph, it reads:

“The extent and permanency of this downturn and

the future prospects for these industries are


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still uncertain.”

The last sentence reads:

“If the downturn is a long-term one, it would have

a downward pressure on the reference forecast.”

So I take it from these excerpts in the testimony, that

the OPA is aware of the plight of Ontario manufacturers

currently?

MR. SHALABY: Everyone is.

MR. THOMPSON: All right.

Picking up on the last sentence in this paragraph,

would you agree with me that if the downturn is a long-term

one, it would have not only a downward pressure on the

reference forecast, but also an adverse effect on Ontario's

economy?

MR. SHALABY: Yes.

MR. THOMPSON: All right. So with that context, I can

indicate to you my clients' concern is that the integrated

power system plan have, as one of its priorities, the

preservation and enhancement of Ontario as an attractive

place for them to continue to do business. So it is in that

context that I am putting these questions to you on behalf

of CME.

In that context, again just so you will understand

where we're coming from, I think it is fair to say, the

priority focus of CME is the range of impacts of plan

outcomes and that's another panel, as I understand it. It

involves you same two gentlemen, I believe, but it is

another panel.


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But to understand these plan outcomes, and their

sensitivity to assumptions, my client needs to understand

the concepts upon which the IPSP development has been based

and so my questions of you will be primarily conceptual in

nature and they're primarily seeking clarification of the

concepts on which the plan has been based and some of the

context that you referred to in your opening presentation on

the first day.

So I hope that helps you understand where we are coming

from, and so let me say there are two major topics in this

examination. The first is concepts, underpinning the

development of the IPSP, and within that there will be some

discussion of context.

Then the second major topic is specific approvals being

requested and the Board's role in this process, and I

appreciate you have already answered some questions in that

area.

So let me, with that introduction, start with the

concepts underpinning the development of the IPSP and these,

as I understand it, are set out primarily in Exhibit B, tab

3 of schedule 1.

The first concept I gleaned from reading your material

and listening to your evidence here the past few days is

that the OPA will comply with government directives. That's

your job. Is that right?


MR. THOMPSON: Okay. So that the areas where you are

planning is -- I have taken it from your evidence, are the


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areas where you are planning, are they the areas where the

government has not already planned?

MR. SHALABY: It's the areas that -- the government has

made goals known and has made determinations on the mix of

resources. They made certain policy goals made known in the

directive and we implement these goals by the -- by this

plan, and there are some discretionary decisions that we

listed and that's what we implement.

MR. THOMPSON: Okay. Well, in your -- the Exhibit A

testimony, and you don't need to turn this up, but in the

chart that is on the page 33 of 34, of Exhibit B1, tab 1,

schedule 1, you show there the extent to which the “planned”

-- that's in quotes -- segment of the bar chart has changed

from the prefiled evidence in August 2007 to the updated

evidence of August 2008 and you have been questioned on this

before.

I took it from your evidence, and please correct me if

I am wrong, but that your planning function is with respect

to the box that's labelled "planned."

In other words, the committed and existing is now

outside the purview of this Board and outside the purview of

your IPSP planning. Did I understand that correctly?

MR. SHALABY: That's generally correct, yes.

MR. THOMPSON: So the -- in terms of then the scope of

the IPSP and looking again at this bar chart, where it was a

box that ranged from 20,000, roughly, megawatts to 48,000

megawatts initially, it's now down to a box that ranges from

32,000 megawatts to 48,000 megawatts. So it is reduced from


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about 28,000 megawatts to 16,000 megawatts.

So we see that on table 6 on the next page.

MR. SHALABY: That arithmetic is roughly right, yes.

MR. THOMPSON: Okay. So is it fair to say that the

scope of the IPSP has been reduced to that extent by

government action that has taken place while the process has

been evolving?

MR. SHALABY: That's one interpretation of the

commitments that have been made along the way, yes.

MR. THOMPSON: Is that a fair interpretation?

MR. SHALABY: Only -- the only reason I hesitate is,

we're looking at supplying the entire demand in Ontario for

over 20 years to come with existing resources, committed

resources and planned resources.

And whether resources are planned or committed, we look

at the transmission implications, we look at the flexibility

required, we look at the performance of all of these

resources. So we continue to look at the total picture for

20 years.

MR. THOMPSON: I understand that, that --

MR. SHALABY: But the planning decisions.

MR. THOMPSON: As part of the context, the planning

decisions that you are talking about and the criteria you

are going to apply are to the box "planned"?

MR. SHALABY: I have been there, yes.

MR. THOMPSON: Okay.

MR. SHALABY: Yes.

MR. THOMPSON: Thanks. So that's, I suggest, concept


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1. You only act in areas where the government has not

already acted, and it is in that particular -- with respect

to that particular concept I have some questions about

context to help us understand what's in the scope of the

IPSP and what is out, and what's happening to both pieces,

big picture.

So I wanted to put some questions to you about this

context, and let me tell you where I am going with this line

of questions. It's this: I have a series of questions that

are designed to help us obtain clarity of the extent to

which the OPA is involved in the issuance of government

directives, and then the effect that these government

directives have on the scope of the IPSP. We've covered a

bit of that already.

So with that background, let me just --

MR. VEGH: Madam Chair, if I may?

It is helpful that Mr. Thompson laid that out. Just as

a foreshadow, though, the issue of the OPA's participation

or influence over government directives I don't think is an

issue in this case. We will go question by question, but I

do want to set that caution out before Mr. Thompson begins

with the questions.

MR. THOMPSON: All right. Well, let's see how far we

get and we can -- I can debate this with Mr. Vegh, if

necessary.

Perhaps the best way to do this, panel, and the

quickest way to do it, is to have you turn up the

application, which is Exhibit A, tab 1, schedule 1.


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I have a few questions about the Ontario Power

Authority, just to make sure we understand what it is.

In the application, in paragraph 1, the Ontario Power

Authority is described as a non-share capital corporation

established under the Electricity Act.

So can I take it that this is a creature of the Ontario

government?

MR. SHALABY: It's established by a government act, and

-- yes.

MR. THOMPSON: Right. Does the fact that it is a non-

share-capital corporation mean it doesn't have any

shareholders to answer to?

MR. SHALABY: We answer to the board of directors of

the Ontario Power Authority.

MR. THOMPSON: All right. And the board of directors

is appointed by -- is it the government?

MR. SHALABY: Is appointed by the Ministry of Energy.

MR. THOMPSON: By the Minister of Energy, okay.

Now, in terms of the OPA's functions, am I correct that

there are essentially two? One is a planning function and

the second is a procurement function?

MR. SHALABY: There's a third and fourth function, as

well. One is -- the third one is conservation.

MR. THOMPSON: Okay. That is outside the ambit of

procurement, is it?

MR. SHALABY: There are conservation activities outside

of procurement.

MR. THOMPSON: Okay.


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MR. SHALABY: The Conservation Bureau specifically has

duties outside of the procurement of conservation.

MR. THOMPSON: And the fourth?

MR. SHALABY: The fourth one is sector -- sector

development. It is the innovative strategies to see that

the market operates in ways that are in the best interests

of consumers.

MR. THOMPSON: Okay. Thank you.

Now, in paragraph 2 of the application, it says the

OPA's statutory objects require it to, amongst other things,

ensure adequate, reliable and secure electricity supply and

resources in Ontario.

Now, would you agree that that is a standard which the

Board could apply in evaluating the IPSP? In other words,

does it ensure adequate, reliable and secure electricity

supply and resources in Ontario?

MR. SHALABY: That is, indeed, one of the criteria that

we put forth. All three of them, we call them reliability,

and that's the criterion in developing and evaluating the

plan.

MR. THOMPSON: So that standard, you would say, would

fall within the ambit of the criteria that you have relied

upon?

MR. SHALABY: Yes.

MR. THOMPSON: Now, in terms of the planning function,

there are a number of statutory provisions and directives

and regulation that are all set out in the evidence, and I

won't go through those.


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But in terms of the procurement function, am I correct

that the OPA doesn't provide any electricity services

directly to electricity consumers?

MR. SHALABY: Directly to consumers? We don't, no.

MR. THOMPSON: All right. So when you procure

resources, on whose behalf are you procuring them?

MR. SHALABY: On behalf of customers in Ontario.

MR. THOMPSON: All right. Do you regard that as a

principal agency relationship? In other words, are the

customers your principal or is the government your

principal?

MR. SHALABY: The resources procured eventually go to

the benefit of consumers in Ontario. Does that help in

defining it?

MR. THOMPSON: Well, the directives to procure come

from the government.

MR. SHALABY: The directives come from government, yes.

MR. THOMPSON: Okay. When you get a directive from the

government and you go out and procure something, those

procurements carry a cost; correct?

MR. SHALABY: Yes.

MR. THOMPSON: And who pays that cost?

MR. SHALABY: Consumers in Ontario.

MR. THOMPSON: But how?

MR. SHALABY: Through their electricity bills.

MR. THOMPSON: Who do you charge?

MR. SHALABY: These charges are collected via the

Independent Electricity System Operator, who collects


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charges for all of the electricity and distributes them to

all of the providers of these services.

MR. THOMPSON: So just in terms of the mechanics of

this, if you go out and spend a million dollars in

procurements, what happens then? Where does the invoice go?

Is there an invoice from the OPA to somebody?

MR. SHALABY: When electricity starts flowing, the

electricity flows to the Ontario grid and is settled by the

Independent Electricity System Operator.

MR. THOMPSON: All right. So you send the details of

all of your procurements to the independent operator, and

the independent operator bundles them up and includes them

in the charges that go out to the system?

MR. SHALABY: Yes.


MR. SHALABY: Essentially. I mean, there are a million

and one more details than that, but essentially, yes.

MR. THOMPSON: Is that automatic? If you spend

10 million, you get 10 million from the IESO?

MR. SHALABY: Yes. There is a month delay or two

months' delay. There is some time delay, but, essentially,

over a short period of time, the expenses that are due on

our contracts come from the wholesale market.

MR. THOMPSON: All right. Am I right there is no

regulatory screening of whether that 10 million was well

spent or not well spent? You spend it and it is automatic.

You get it collected from customers?

MR. SHALABY: Right.


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MR. THOMPSON: So that to the extent, then, that the

directives trigger procurements that are outside of any

regulatory screening, we don't have any transparent planning

or screening process that's governing the customer's

obligation to pay those amounts; is that fair?

MR. SHALABY: The board of directors acts in its

capacity -- in its fiduciary capacity to screen and ensure

that these contracts are in the best interests of consumers.

MR. THOMPSON: Okay. Let's move, then, to this

directives process.

The evidence makes it clear, for example, in the supply

mix directive, that the OPA was involved in the development

of that supply mix directive that eventually came out of the

government, the ^Ministry?

MR. SHALABY: We provided advice that was considered by

the minister at the time in issuing his directive.

MR. THOMPSON: So, in that particular case, you worked

with the Ministry to develop the directive?

MR. SHALABY: We just provided advice and the minister

issued the directive.

MR. THOMPSON: Dealing with these procurement

directives, what's the relationship between the OPA and the

Ministry, in the development of the directives and the

issuance of the directives?

MR. SHALABY: I don't know the details of each

directive and if specific ones are of interest perhaps the

procurement panel can shed more light on that.

MR. THOMPSON: Okay. Well, I will take it there. But


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conceptually, does the OPA work with the Ministry prior to

the issuance of procurement directives?

MR. SHALABY: Yes.

MR. THOMPSON: And again, in that context, can you tell

us whether the government is acting in accordance with its

own internal long-term plan? Or is it acting in accordance

with your IPSP when these directives issue?

MR. SHALABY: Most of the directives have been

consistent with the IPSP.

MR. THOMPSON: So has the government already approved

the IPSP?

MR. SHALABY: They're issuing directives that are

consistent with it.

MR. THOMPSON: So from that, do you conclude that the

government has approved the IPSP?

MR. SHALABY: I am reluctant to accept that, because

approving the IPSP, we went through a day and a half of what

it means to approve it, and what is it that we're approving.

So I don't want to accept that -- methodologies and so

on, there is a broader, there's a broader set of approvals

that are being requested here.

MR. THOMPSON: Well, let me put it this way. Was the

IPSP developed in consultation with the Ministry?

MR. SHALABY: The Ministry is aware of the development

of the IPSP, yes.

MR. THOMPSON: That wasn't exactly my question. Does

it go beyond awareness? Does it involve interaction and

consultation?


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MR. VEGH: Madam Chair, if I could ask for some

direction through you to Mr. Thompson to establish the

relevance of this line of questioning with respect to the

Ministry's involvement of the IPSP.

I haven't seen that foundation established yet.

MS. NOWINA: Mr. Thompson.

MR. THOMPSON: Yes. Well, the evidence talks about, as

does the application, that this IPSP process is the result

of an independent and neutral exercise, and I am trying to

test that to see whether, in fact, what we have here is

independent and neutral. And what these words mean in the

context of the application and the evidence.

So that's where I am headed.

MR. VEGH: I believe the issue before the Board is the

substance of the IPSP, whether it's economically prudent and

^cost effective, and ensures it is compliant with

governmental directions as they have been provided.

There's a description of the Ontario Power Authority as

a, carrying out independent electricity system planning, but

it comes down to a question, I think, of what is the

relevance of this review, what are the relevant -- given the

mandate of this review, and the mandate of the application

before the Board, I don't see the relevance of getting into

the issue of the relationship between the Ontario Power

Authority and the Minister of Energy.

I still don't see how the relevance of that has been

established with respect to the issues under consideration

in this review. I don't have to go through the entire


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^Issues List, but this Board spent a lot of time and a lot

of effort in putting together an issues list and has

indicated that the scope of this proceeding will be driven

by that list.

I haven't seen anything in that list that invokes the

type of issues that Mr. Thompson is referring to.

MS. NOWINA: Mr. Thompson, there isn't an issue to

review the role of the OPA as an independent planner.

MR. THOMPSON: I agree with that. But there are, I

guess, allegations of fact that goes to context in both the

application and the prefiled evidence, which -- the prefiled

evidence followed, as I understand it, the framing of the

issues list.

MR. SHALABY: If I may answer your concern, but not

through the question you asked. And that is independent

primarily is independent of commercial interests. We're

independent of generators, independent of transmitters,

independent of conservation providers. In that sense, we're

independent and that's the independence -- we are not -- we

follow government policy, but we are independent of

commercial interests.

MR. THOMPSON: All right. Well, that is really what I

was getting at. When you were using the word "independence"

in the application and then somewhere in the -- I think this

is Exhibit A you talk about the OPA being neutral, you

weren't purporting to suggest you act independently of the

government.

MR. SHALABY: We follow government policy --


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MR. THOMPSON: You do what you are told.

MR. SHALABY: -- yes, and I answered in the affirmative.

MR. THOMPSON: Okay. So the message you were trying to

convey was commercial separation from the government. Is

that -- do I understand that correctly?

MR. SHALABY: Commercial separation from providers of

electricity services.

MR. THOMPSON: Okay. Thanks.

Let's move on, then, to concept 1 about complying with

government directives and planning where the government

hasn't already acted to the development of the conceptual

framework for the IPSP.

There has been a lot of discussion of this in prior

questioning, and this is essentially outlined, I think in -

what I am talking about, anyway - in Exhibit B, tab 3,

schedule 1.

I am just going to paraphrase this. I don't have a lot

of questions about this, but my understanding is in

developing the conceptual framework for the parameters of

the IPSP, you proceeded initially from a recognition that

you needed to satisfy requirements in an integrated way.

That was one sort of threshold factor?


MR. THOMPSON: Then the other what I call threshold

factor was you decided you needed to proceed in a way which

considered environmental sustainability?


MR. THOMPSON: And those two concepts then led you to


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the development of six context-specific planning criteria,

which you have listed in your evidence.


MR. THOMPSON: And these are feasibility, reliability,

flexibility, cost, environmental performance, and societal

acceptance.

MR. SHALABY: That's what they are.

MR. THOMPSON: And then you proceeded to, as I

understand it, apply those concepts to the decision tree --

I call it a decision tree matrix that you derive from the

supply mix directive.

MR. SHALABY: Without splitting words, that's

directionally right, yes.

MR. THOMPSON: Okay. Well, is there something that

troubles you about --

MR. SHALABY: You said we applied the concepts, I would

have said applied the criteria. I am not going to get

pedantic about this.

MR. THOMPSON: Okay. Make sure I am not putting words

into your mouth, Mr. Shalaby because they will probably come

back to haunt you.

Okay. So the -- just to make sure I have the decision

tree matrix right, I want to make sure we understand this.

As I understand it -- and I will try to express this in a

summary way -- but as I understand it, the way you proceed

is this: First of all, you develop a base line of

anticipated demand which takes into account naturally

occurring conservation.


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MR. THOMPSON: Then, within the areas that are

currently unplanned, you proceed first to identify and

maximize feasible conservation.


MR. THOMPSON: Then the second step is to identify and

maximize feasible electricity sourced from renewables; is

that right?

MR. SHALABY: Yes. This is a list of direction -- the

directive priorities, as we call them.

MR. THOMPSON: This is the decision tree you extracted

from that -- what I call a decision tree, you extracted from

it?

MR. SHALABY: You call it decision tree. We call it

directive priorities that have implementation priorities to

follow them. So if you want to describe them as a decision

tree, decision tree has a very specific meaning in decision

theory that I don't want to accept.

MR. THOMPSON: Okay, let's call it directive priorities

tree.

MR. PIETREWICZ: In case it helps, what Mr. Shalaby was

referencing could be found in Exhibit B-1-1, page 2, and

that's where we itemize these items that we call the

directive priority.

MR. SHALABY: It is the list that you are going

through.

MR. THOMPSON: Yes. I am attempting to paraphrase

that, so bear with me.


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Then the third step in the exercise, as I understand

it, is reduce the degree -- reduce the proportional degree

of reliance on non-renewables in the context of, first, the

mandatory coal replacement factor, and, then, secondly, the

use of nuclear and natural gas-fired resources to fill the

gap?

MR. SHALABY: That's --

MR. THOMPSON: Have I got that straight?

MR. SHALABY: Yes.

MR. THOMPSON: Okay. Then in terms of the decisions

you make, planning decisions that you make within that

directives priority tree, you then apply the six planning

criteria and make your judgments as to the mix of measures

that meets your priorities?

MR. SHALABY: We use the criteria along the way in

developing the plan, and we use the criteria to evaluate the

performance of the plan at the end of the story.

MR. THOMPSON: Now, within your six planning criteria,

you do not specifically refer to economic prudence or cost

effectiveness, which are the criteria, as I understand it,

the Board is to apply in evaluating the plan?

MR. SHALABY: We do. We equate reliability, plus

flexibility, plus cost -- I'm sorry, reliability,

feasibility -- the first planning criteria, feasibility,

reliability and flexibility to economic prudence --

MR. THOMPSON: Right.

MR. SHALABY: -- and cost to cost effectiveness. So we

mapped the -- those two criteria that the Board is going to


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use with four of the six planning criteria that we have, and

that's to be found in Exhibit A-2-2, I think.

MR. THOMPSON: All right. So this brings me to some

further discussion about -- to get clarification on how you

are defining economic prudence and cost effectiveness.

There's some discussion of this in the evidence at

Exhibit A. I realize this -- this is Mr. Vegh's work or

somebody else's work. But at Exhibit A, tab 2, schedule 2,

a distinction is made between economic efficiency and

economic prudence. Perhaps you should just turn that up.

MR. SHALABY: Where is the page?

MR. SHALABY: I think that distinction is in the

Board's mandate for economic efficiency and the requirement

for cost effectiveness --


MR. SHALABY: -- in this particular proceeding.

MR. THOMPSON: I just want to discuss this a little bit

with you, if you can help me. The discussion in the

evidence starts at Exhibit A, tab 2, schedule 2, page 12,

where reference is made to the language in the OEB Act with

respect to the Board's obligations with respect to

electricity.

Then down below, there is further discussion about

economic prudence and economic efficiency.

My question is this -- let me just back up for one

second. The traditional concept of testing the

appropriateness of plan outcomes that has been applied in my

years before the Board, has been framed in the words


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"economic feasibility". Are you familiar with that phrase?

Are the plans economically feasible?

MR. SHALABY: I could use more elaboration. I am not

familiar directly with "economic feasibility".


MR. SHALABY: I know what feasibility means. I know

economic feasibility to be something that's applied to

projects to see whether they are a prudent investment on

behalf of project proponents, as an example.

MR. THOMPSON: Well, what I would suggest is that plan

outcomes, in particular, the impact on prices, has a very

significant role to play in a test of economic feasibility.

My question is, of OPA, when you're not talking about

economic prudence and cost effectiveness, have those two

considerations now been separated and have plan outcomes

been sort of relegated to a lower priority than they would

have enjoyed under an economic feasibility test?

Can you help me with that or is that something I should

pose elsewhere?

MR. SHALABY: I will go through two or three parts to

do with cost and cost effectiveness and economic prudence.

It will be a repeat of what's in the evidence, but if

the question has to do with prices, we estimate the cost,

the average cost, of a unit of electricity over the years to

consumers.

We put the caveat that prices are likely to track costs

in some way, not exactly - there are many other

considerations that intervene between cost and price - and


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that we are not in a position to predict prices every year,

but to predict the cost of producing the electricity,

transmitting it and delivering it.

I don't know if that helps or not, but the results on

the cost to consumers is the closest thing that we have to

determine the -- what the price is consumers are going to

pay for electricity.

MR. THOMPSON: All right. Well, I am equating -- well,

I am assuming price will track cost in this hybrid regime

that prevails in the province over the longer term.

So I know you have something in the material about

prices, and that's, again, in the plan outcome, plan outcome

section. You estimate -- well, it was in one of your slides

on the opening day for what the estimates are.

My question is: What impact does that have, if any, on

the planning decisions? Does -- is it just an output that

--

MR. SHALABY: It is just an output at this stage, yes.

MR. THOMPSON: Okay. So that the price consequences

are your estimates of the price consequences?

MR. SHALABY: I don't want to appear argumentative, but

we say costs -- you equated cost to price, and that may be

accurate, it may be not. But just taking your caution of

not accepting -- whatever you described. It is a cost,

average cost, that we are projecting.

MR. THOMPSON: Okay. Let's stick with cost.

MR. SHALABY: Yes.

MR. THOMPSON: And so that the -- your estimate of the


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average cost of plan outcomes, is it fair to suggest, is a

secondary consideration, or perhaps it is no consideration

at all, in the planning choices that you are making.

MR. SHALABY: It's a result. But knowing that we have

taken the low cost choice at the five junctures that we

talked about, we minimize costs along the way. This is the

least the costs will be.

So the plan has, whenever faced with a choice that is

dependent on cost, took the lower cost avenue. So the

resulting cost is the least possible under the directive

that we are -- that we're operating with.

MR. THOMPSON: When you are looking at economic

prudence - this is what I was trying to get at and have

clarified - the criteria you are considering are

feasibility, reliability and flexibility.

MR. SHALABY: Yes.

MR. THOMPSON: Right. And so the conclusion that you

make on economic prudence has nothing to do with cost.

MR. SHALABY: Prudence we separated from cost, because

it is economic prudence and cost effectiveness.


MR. SHALABY: So there is a separate consideration for

cost, and for that reason, we put the prudence part to be

criteria other than cost.

MR. THOMPSON: And cost effectiveness is, that's

looking at option A versus B and which one costs more. As I

understood it, you say: We apply least cost test, or if we

don't, we have to justify why we didn't.


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MR. THOMPSON: All right. But in terms of the plan

outcomes, in terms of price, whether they're cost related or

not cost related, that doesn't influence the planning.

That's simply a report.

MR. SHALABY: It's a report, if you want to take it a

step beyond, it influences the amount of conservation you

get, the amount of load you get. There is a feedback loop

between the prices of the commodity and the amount of

conservation and consumption. But I don't think that is

what you were looking for.

MR. THOMPSON: All right. Well, no. Am I correct,

though, that the plan outcomes in terms of estimated prices

have no influence on planning? Is that a fair statement?

MR. SHALABY: They're a description of how the plan

impacts the cost of the product. We did not go back based

on these costs and prices and change the plan because we saw

the cost or price that is high, or low, or anything of that

sort.

MR. THOMPSON: So it's not an iterative process.

MR. SHALABY: There is no feedback loop on that.

MR. THOMPSON: Right. And there is no -- as far as I

can determine, you don't, in the planning process, analyze a

range of costs or outcomes that would be adverse to the

Ontario economy?

MR. SHALABY: We look at a range --

MR. THOMPSON: We have prices that are twice what we're

estimating or costs, this would be a disaster. You don't go


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through that exercise?

MR. SHALABY: We go through the exercise of putting a

band around the costs that we can predict.


MR. SHALABY: But we do not go through the exercise of

analyzing the impact of these electricity prices on specific

consumers. We do not do that. We don't have the ability to

do that.

MR. THOMPSON: Okay. Now, given the scenarios that

some others have put in evidence here about costs and the

impact of costs, is that not a fairly risky planning

strategy, not to circle back?

MR. SHALABY: I could benefit from a bit of elaboration

as to the nature of those risks.

MR. THOMPSON: Well, you select a course of action that

is based on an assumption that it's going to produce

outcomes shown in one of the slides, something below $100 as

I recall it and goes slightly above $100. Do you know the

slide I am referring to? Average unit costs over

the --

MR. SHALABY: Slide 109, if I can be of help.

MR. THOMPSON: Yes. Slide 109. And what I am saying

is, if it turns out that's way off and those numbers are not

100, but they're 150 or 140, just as an illustration, would

that not have a very adverse effect on Ontario's economy?

MR. SHALABY: Higher cost of electricity have effects,

some good and some not too good. Some of the good effects

is additional conservation. Some of the adverse effects is


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the reduced competitiveness of industries in Ontario.

MR. THOMPSON: But we just have to wait and see under

your planning strategy; is that the way it works?

MR. SHALABY: It's wait and see what the ultimate

prices will be. The decisions we're making are ones that

tell us these are the best choices, in terms of costs that

we can make within the government policy directives.

This is the best we could do in terms of costs.

MR. THOMPSON: Okay, that's good.

MR. SHALABY: And there's not much more one can do at

this stage other than ensure when you have a fork in the

road, you take the lower cost side of that.

MR. THOMPSON: Okay.

MR. SHALABY: In the end, we end up with an increase in

cost of units on the system, partly because we're replacing

much of the infrastructure and partly because we are

increasing the requirements on environmental performance of

the system, and that results in higher costs.

MR. THOMPSON: All right. Thanks. Let's turn to my

-- I am going to come back to this at the end. Turn to my

second topic which is the specific approvals being requested

and the Board's role in the approval process.

You had some discussion about this with Ms. Lea. I

wanted to take you back, first, to the application, if I

might. That's Exhibit A, tab 1, schedule 1, page 2 of 5,

paragraph 8.

In the application, I just want to clarify what

approvals you are seeking, if I might.


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Now, in the application the request is approval of the

IPSP as set out and in the form attached as Exhibit B-1-1.

So that's the 34-page document that has been updated. Is

that right? So are you asking the Board, in effect, to

approve everything that's in that document?

MR. SHALABY: To approve the plan as described in

Exhibit B-1-1.

MR. THOMPSON: You went on, as I understood you, in --

I think it might have been in your -- the opening day, and

it may well have been in discussion with Ms. Lea, to say

that you were asking the Board to approve the methodologies

used in the development of the plan.

Is that something that falls within the Exhibit B-1,

tab 1, schedule 1? Or are you there asking the Board to

approve this process that you followed with proceeding from

major considerations of integration and sustainability, and

then moving there to the six specific, context-specific

planning criteria?

Are you asking the Board to approve all of that?

MR. SHALABY: I don't want to add to the complexity of

what we're asking. I mean, we're asking for what you read

in here in section 8, and 34 pages of description of the

plan. And the nature of the discussion ahead was, the value

of the review at this proceeding is commentary and overview

of the methodologies, approval of the process in which we

arrived at the conclusions and recommendations.

MR. THOMPSON: All right. Okay.

I think your wish is, if some of the aspects of what


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you've done are unacceptable to the Board, your request is,

Give us your comments and we will respond to them. Did I

understand that correctly?



Now, in terms of the Board's role in this process, the

-- this goes back again to Exhibit A, tab 2, schedule 2.

You may or may not be able to help me with this.

MS. NOWINA: Mr. Thompson, just to make clear, we

established yesterday, I believe, that A-2-2 is not evidence

that has been adopted by this panel. It is more in the

nature of argument; is that correct?

MR. THOMPSON: Yes, I understood that. I don't really

have a problem if Mr. Vegh answers the question. I just

want to try to get clarity on the position of the OPA. It's

in evidence in Exhibit A. It was a question that Ms. Lea

asked about how the Board acts, but perhaps if I could ask

the question, and then we could see if it's still offensive

and I will --

MS. NOWINA: You can try it out, Mr. Thompson.

MR. THOMPSON: -- cease and desist.

Well, there was some discussion with Ms. Lea, let me

start it this way, with the statutory obligation on the

Board, which is an appendix to the Board's report.

So this is Exhibit A, tab 3, schedule 1, page 1 of --

sorry, page -- well, it is appendix A, and it's section

25.30, subsection 4, which says:

"The Board shall review each integrated power


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system plan submitted by the OPA to ensure..."

And the part I am interested in, the last part of the

phrase:

"...to ensure it is economically prudent and cost-

effective."

And I thought during your discussion with Ms. Lea, and

I may have not understood this correctly, that you were

saying or someone from the OPA was saying all the Board has

to do is determine whether we considered economic prudence

and cost-effectiveness.

Is that what was said?

MR. SHALABY: I don't recall that. We have to meet the

test of economic prudence and cost-effectiveness.

MR. THOMPSON: Okay.

MR. SHALABY: The consideration -- there are many other

considerations in Regulation 424/04, that those

considerations -- considering safety, considering

environmental protection, considering sustainability, those

were three things that were preceded by the word "consider",

but the plan has to be economically prudent and has to be

cost-effective.

MR. THOMPSON: All right, fine. I will move on. I

misunderstood what was being said. We can argue what that

requires later.

Then, lastly, with respect to the procurement approval

you are seeking, back to the application, and that's

paragraph 8, you are seeking approval of the OPA's proposed

procurement process as set out and in the form attached as


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Exhibit B-2-1.

Is that still what is being requested?

MR. SHALABY: Yes.

MR. THOMPSON: Okay. In terms of the discussion that

preceded this examination, I thought I heard you say -- and

maybe I misunderstood it, but there were some specific

procurements that were referenced in the prefiled evidence,

and I think they're also referenced in slide 113.

This is the 550 -- well, there are three of them there

that are described, and you have been discussing them with

others.

I thought I heard you say you were looking for specific

approval from this Board with respect to those procurements.

Did I misunderstand that?

MR. SHALABY: No, you did not.

MR. THOMPSON: So my question is: What the Board, as I

read it, is to approve is a process, and you seem to be

saying, We want them to approve the process and these three

specific procurements.

My question is: Why do you need specific approval for

the procurements if you've got the process approved?

MR. VEGH: If I may, Madam Chair, because I think this

is asking a legal question and I don't want Mr. Thompson to

think I think the question is offensive. I am just not sure

that the way to best address is to cross-examine witnesses;

but if it is helpful, I think the steps involved in this in

tying the approval of the plan to specific procurements - I

hope you find this helpful, Mr. Thompson - is in 25.3i1 of


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the act.

The description of the procurement process, it's a

process for managing electricity supply, et cetera, in

accordance with an approved integrated power system plan.

So the process is something that's used to manage

supply in accordance with an approved plan. So you have to

look back to the approved plan to see what supply is

provided for there.

And I think the Board in its guidelines has made it

clear that, with respect to procurement within the term of a

plan - that is, procurements in this case by the end of 2010

- the Board wanted those specific resources to be identified

so that the Board knows what resources will be procured in

accordance with this plan that's approved by the end of

2010.

So really it's a combination of 25.31 and the Board's

guidelines and report on the plan and procurement process

that leads to the identification of specific resources to be

procured. There's nothing in the legislation that says

there is a list of resources for which procurement approval

is required.

I think, and it's in my interpretation of what the

Board has said on previous occasions, that it is the

combination of those two factors that requires effectively a

list of procurements that will be acted upon, if the plan is

approved and if the procurement process is approved.

MS. NOWINA: Maybe to further -- and to differentiate

that from procurement contracts, specific procurement


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contracts which the Board would not approve.

MR. THOMPSON: Thank you. Well, I am glad I got that

clarified.

Now, is there, then, any further regulatory screening

that will take place with respect to these procurements that

are specifically referenced in slide 113, and then any

others that come forward once the Board approves a process,

or is it essentially an administrative act, the costs go to

the IESO, and we find them in our electricity bills?

MR. SHALABY: That's the next steps, yes.

MR. PIETREWICZ: However, I would point out that if

these procurements were -- the procurement process were

approved and if a procurement process was undertaken,

consideration of cost would naturally occur within the

procurement process itself.

MR. THOMPSON: Okay. My last question, then, deals

with this business of things don't turn out as planned. And

perhaps to put this question in context, you should turn up

CME -- response to CME number 34. This Exhibit I, tab 9,

schedule 34.

That's not it. Sorry, I've got the -- I've got the

wrong question, Madam Chair. Excuse me one second.

Sorry, it is 32. Excuse me, I, tab 9, schedule 32.

It is trying to understand what features there are in

this plan, if any, that will enable a response to a scenario

that emerges where the costs are way beyond what was

anticipated.

This response seems to be suggesting, to me, that the


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feature in the plan that accommodates that is the rolling

three-year review. Do I understand that correctly?


MR. THOMPSON: Is there anything else in the plan that

has that ability, has the ability to respond to emergence of

cost scenarios that are materially different than what was

anticipated?

MR. SHALABY: Well, the implementation of the plan

between now and the next review will take into account the

emerging conditions.

So for example, if demand is much lower than

anticipated, then some of the procurements that are

authorized may not be implemented, as an example.

MR. THOMPSON: I am more interested in the costs being

considerably higher than what you have anticipated, and the

results of that and how the plan can adjust to that, if at

all.

MR. SHALABY: I am getting to -- the planning process

is every three years. In between, there are decisions being

made by the Ontario Power Authority and others. Those can

be adjusted as well. Timing of new resources, agreements

with neighbouring jurisdictions, renewal of contracts with

currently contracted authorities, or entities. There are

many things that happen in between the plans, particularly

the notion of implementing some of the decisions that are

authorized at this time.

MR. THOMPSON: Does that mean that the 20-year plan is,

in its application, is actually disaggregated into year by


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year operating segments? Or is that the plan, that it will

be disaggregated and provide a year-by-year road map?

MR. SHALABY: The road map is adjusted given the

information that we observe next year and the year after.

MR. THOMPSON: So it's adjusted annually? We know it

is to be reviewed every three years here, but do you adjust

it annually or more frequently than annually?

MR. SHALABY: It has enough flexibility to adjust

between now and the next review and it will be adjusted

formally every three years.

As we took some length to explain, the plan has got

within it capability to adapt to certain range of

conditions.

MR. THOMPSON: Yes.

MR. SHALABY: Certain range of conditions.

MR. THOMPSON: My question is: Is that reactive or is

it proactive? You take your plan, you translate it into

year 1 operating plan, year 2, year 3 -- so like you have a

20 and then a five, and you measure progress against each of

the segments and then adjust as it progresses? Is that part

of the conceptual framework here? Or is it simply reactive?

You will adjust only when necessary?

MR. SHALABY: I am trying to think of the time slots

that you mentioned. I'm stuck for understanding the essence

of your question. I apologize.

MR. THOMPSON: Well, this is a 20-year plan.

MR. SHALABY: It's a plan set in 20-year context. It’s

requesting certain approvals at this time to enable us to do


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a number of things, depending on how conditions evolve over

the next three years.


MR. SHALABY: So I apologize that it's complicated to

-- describing the plan with one label is –- short-changes

the plan.

MR. THOMPSON: Sorry to interrupt. I am thinking in

terms of a business plan where you might have a long-term

business plan and then you have year-by-year plans to

measure progress. It's really a follow-up on the question

Ms. Lea asked you, about this disaggregation of the plan

into smaller subsets.

I didn't think you had answered that question. Is it

planned -- is it going to be disaggregated, or not?

MR. SHALABY: Disaggregated?

MR. THOMPSON: Year-by-year progress.

MR. SHALABY: We will monitor the plan year by year,

for sure, yes, and adjust -- and adjust the actions year by

year and even less frequently than that, or more frequently

than that, depending on the conditions that we face. Yes.

MR. THOMPSON: Okay, thank you very much. Those are my

questions.

MR. SHALABY: Yes.

MS. NOWINA: Thank you, Mr. Thompson. We will take our

afternoon break before the next cross-examination, but just

to confirm, that's the EDA that is going to cross-examine

next, is that right, Ms. Friedman?

MS. FRIEDMAN: I am prepared to go ahead. We just need


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to confer to see if someone who can't be here tomorrow needs

to jump the queue.

MS. NOWINA: All right. You can work that out during

the break and let me know.

MS. FRIEDMAN: All right. Thank you.

MS. NOWINA: We will break until 3:15.

--- Break taken at 3:00 p.m.

--- Upon resuming at 3:19 p.m.

MS. NOWINA: Please be seated.

Mr. Cyr, maybe you could sit down and use your

microphone.

MR. CYR: Thank you, if I can get it on. Oh, Madam

Chair, Kelly Friedman, representing the Electrical

Distributors Association, was kind enough to let me jump

queue in order to get -- or try to get a flight back to

Thunder Bay this evening, for which I am grateful.

May I proceed?

MS. NOWINA: Certainly, Mr. Cyr.

CROSS-EXAMINATION BY MR. CYR:

MR. CYR: As has been explained before, our client is

the City of Thunder Bay, and by that client's agreement with

the Township of Atikokan and Northwestern Ontario Municipal

Association, the three intervenors are being represented in

my submissions and questions at this point.

Mr. Shalaby, I would like to pick up on an answer you

gave to one of Mr. Poch's earlier questions yesterday, and

the words of your answer don't stick with me, but the

concept, I believe, was that in the planning sense a


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megawatt is not necessarily a megawatt.

Putting aside the obvious physics of it, any two

megawatts I guess are the same, that from a planning

perspective, the context in which a megawatt is being

discussed, is not necessarily the same from context to

context. Have I got that right?

MR. SHALABY: Yes, you have.

MR. CYR: And you gave as an example sustainability. I

would appreciate having an example or two of sustainability

in one context where it is there with the megawatt in the

planning -- as a planning feature and absent in another

context.

MR. SHALABY: An example of that would be a demand

reduction contract for a two-year period or one-year period

or three-year period.

So we can count on demand reduction for a year or two

or three, but not in year 4, 5 or 6, as contrasted with

hydroelectric project that is constructed and operates for

many, many more years and that you can count on it in the

plan for many more years than two or three.

MR. CYR: By the nature of the context?

MR. SHALABY: The nature of the asset itself that is

being procured.

MR. CYR: Yes. What interests me, then, is whether

there are other markers or planning features in the same

sort of category of analysis. One that comes to my mind

would be, on material I have read, dispatchability. It

would seem, in some planning contexts, the resource is


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dispatchable and in other contexts it is not.

Is that a fair step to take from what you have said?

MR. SHALABY: It differentiates one resource from

another, yes.

MR. CYR: So an example of a dispatchable megawatt

would be large generation nuclear, gas or coal?


MR. CYR: And non-dispatchable would be wind and solar?

MR. SHALABY: Yes. The first three have limitations in

how dispatchable, how much time you need to give, how

quickly they can come up. Even within that category, there

are some other variations to go with that.

MR. CYR: Other variables, yes.

MR. SHALABY: But decidedly, with wind and solar, the

generation occurs as a function of the natural resource, not

as a function of decisions made the day before or the month

before.

MR. CYR: And is it fair, then, to say that

dispatchable, in essence, means the operator can, within

those parameters you have just described, cause it to take

effect, to put it in place?

MR. SHALABY: Yes.

MR. CYR: I am looking around, then, for other markers,

and obviously renewable and non-renewable would

differentiate, for planning purposes, types of megawatts; is

that correct?

MR. SHALABY: Well, these are attributes of the

megawatts, yes.


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MR. CYR: And cost effective less so, same idea?

MR. SHALABY: Yes.

MR. CYR: One that makes me even more curious is

synchronicity. It seems to me that some -- from materials I

have read, that some, from a planning point of view,

megawatts are necessarily synchronous just by the nature of

their production, synchronous with the transmission system

they're going into, and others are not.

Again, would these be other markers or planning

features of a megawatt?

MR. SHALABY: If I understand your use of that term,

some resources generate electricity in a direct current

form, some in an alternating current form. Is that the

nature of the differentiation?

MR. CYR: I think what I was trying to distinguish in

my mind was the difference between, say, a gas-fired

generator into the system versus a wind generator, which I

understand, despite the wind blowing, not simply the absence

or presence of wind, but the velocity of the wind might vary

the -- or bring the production of the wind generator outside

the synchronicity of the system that it is going into.

Is that an issue or have I just misunderstood?

MR. SHALABY: Not a big one. The wind generation is

typically geared down and done by converters. I mean, that

is absorbed into the technology itself before it becomes

part of the electricity on the grid.

If the wind is too high, some of the generators will

feather, will disconnect, to protect the equipment. That's


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another part of the question.

So each generator has its own protections and its own

features, but the technology is such that the product is

useable on the grid in a quality that is acceptable within

power quality standards.

MR. CYR: And the determinative there is synchronicity?

MR. SHALABY: I am reluctant to accept that, because I

don't know what you mean by -- synchronism is things turning

at the same speed, same phase angle, but I don't know what

you mean by that.

MR. CYR: I understood what you just said a minute or

two ago, with the wind generator, that some of its product

is useable and synchronous, I would say, with the

transmission system it's going into, whereas in excess it

will feather, as you have said.

So even though it is capable of producing other

megawatts, those are not useable in the transmission grid.

MR. SHALABY: And that is applicable to other forms of

generation. Water, for example, if there's excess water to

the capacity of the water generator, it is spilled, as an

example. We talked about unused base-load generation, power

generated and not useable at the time.

MR. CYR: But with respect to the last, then, hydro

spillover, I wouldn't have thought was an issue of

synchronicity, but simply of generation exceeding load?

MR. SHALABY: No. It is water exceeding the capability

of the generator to take.

MR. CYR: Of the generator itself, I see. But, also,


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are there not also situations where -- well, perhaps it is

just conceptual -- where the capacity of the generator to

produce, the hydraulic generator, will not be achieved

simply because there isn't enough load to match it?

MR. SHALABY: That is also the case, yes. There are

times when there isn't enough load to absorb all of the

generation by the base-load resources on the system, some of

which are hydroelectric.

MR. CYR: So are there other of these, I call them

planning features or markers, that have been material in

developing the IPSP?

MR. SHALABY: That differentiate megawatts from each

other? There are others. One example would be coincidence

with the peak time. So a megawatt that -- if a generator or

a demand reduction has a megawatt capacity in times other

than the peak times, it is not as contributing to deferring

capacity as something else that has a megawatt capacity

coincident with the peak time.

So coincidence with peak time is an important feature

of how the demand reduction or the production of energy is

generated.

So somebody can have a one megawatt conservation

option, but it occurs in the fall or the spring, at night.

That has energy value but doesn't have capacity deferment

value, as an example.

MR. CYR: I see, okay. So coincidence with the need or

the usability?

MR. SHALABY: Right.


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MR. CYR: So if I look at some of these markers and

pool them, am I right in thinking that for a megawatt

produced by gas turbine, that it's sustainable?

MR. SHALABY: If -- we use sustainable in a very

specific meaning in this proceeding so I don't want to

confuse the meanings.

MR. CYR: Okay.

MR. SHALABY: If it is built in some year, then it can

be relied on for say 20 years to come. Yes. That is

doable.

MR. CYR: Sustainable for its planned lifetime?

MR. SHALABY: Yes.

MR. CYR: Dispatchable?

MR. SHALABY: It is dispatchable.

MR. CYR: And cost effective, probably not as much as

other forms of generation.

MR. SHALABY: It is cost effective in specific ranges

of operation as we determined for peaking answer

intermediate in particular, yes.

MR. CYR: Filling gaps sort of thing?

MR. SHALABY: Peaking and intermediate. These are not

gaps, these are important times where generation is

required.

MR. CYR: And it is non-renewable?

MR. SHALABY: It is not renewable; correct.

MR. CYR: And it's synchronous in the way we talked

about?

MR. SHALABY: If you consider it synchronous in the way


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you meant it, then I will leave it to you to define that.

It is certainly synchronized to the grid and dispatchable to

the grid, yes.

MR. CYR: Yes, okay. And of course it is permitted.

Contrast that with coal, and other than permitted, coal is

equivalent, in terms of those markers or planning features?

MR. SHALABY: More or less. I mean, it has variations,

but, yes.

MR. CYR: Okay.

MR. SHALABY: It has different emission rates. It has

different things that are emitted. It has solid waste that

gas doesn't have, emits mercury that gas doesn't and so on.

So it has different environmental impacts, uses more water,

typically, than natural gas does. And has a larger

footprint, in terms of land use.

So -- but in terms of the electrical features, many of

the electrical features you mentioned are similar.

MR. CYR: What are the markers of the megawatts in

transmission or supplied by transmission?

MR. SHALABY: Transmission does not supply megawatts.

Transmission assures delivery of megawatts from generating

sources to consumers.

MR. CYR: And once in the transmission system, has the

megawatt lost all of its characteristics that we have been

talking about? Is it just a generic megawatt?

MR. SHALABY: Repeat the question for me. I'm sorry.

MR. CYR: I'm trying to get my mind around -- we have

talked about the differences in basically where the megawatt


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came from, in terms of its differentiation from other

megawatts in a planning sense.

Am I correct in thinking that once it gets into the

actual transmission system, it ceases to have that

differentiation?

MR. SHALABY: It becomes more fungible, yes, yes.

MR. CYR: Okay. I wonder if we could call up,

Ms. Heinz, the E-2-1, page 4, lines 7 to 12. It's the

reference to the 230 kilovolt transmission.

MR. PIETREWICZ: Mr. Cyr, could you repeat the evidence

--

MR. CYR: It is E-2-1, page 4.

MR. SHALABY: We're having a bit of background noise.

If you could speak into the microphone, it would help us.

MR. CYR: Are you able to hear me?

MR. SHALABY: Synchronously, yes, on and off, yes.

[Laughter]

MS. NOWINA: That was "E" as in elephant; correct?

MR. CYR: Yes, it is, Madam Chair.

MR. SHALABY: We have E-2-1, schedule 1, page 4.

MR. CYR: Page 4, lines 7 to 12.

And I won't be able to read the whole thing, but the

thing that is questioning in my mind, or a question that is

in my mind, is that the language here is very contingent on

many future or future analysis, I suppose, "enabling coal

phase-out."

This, for context, is the construction of a 230

kilovolt link between the existing interconnection between


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our 115 kilovolt grid and the 230 kilovolt tie line that

runs from, through the bottom part of northwestern Ontario

from the Manitoba border to Wawa and on further south.

But the point of this particular electricity project,

as I understand it, then, is an extension from where it

touches down at the Lakehead transformer station, and

routing it over to the Birch transmission station, perhaps

five kilometres or something like that.

But the language used to describe that is “in the long-

term,” line 8; "it may be necessary,” line 9; "only" or

"proceed only if necessary," line 13.

It sounds like it is way off in the future, but looking

at Mr. Chow's diagram, which I had hoped we would see, it is

slide 72 -- sorry, slide 92 in the OPA review in the first

day.

It appears that that transmission electricity project

has accelerated, in terms of its priority. Or is it simply

that it is appearing on a chart that makes it look like it's

planned and not simply a remote contingency?

MR. SHALABY: It just merely appears on the chart. All

of the things that are appearing on the chart have different

degrees of certainty about them.

Development of options does not mean they're going to

be needed. They will be needed if certain conditions

materialize. But there is sufficient reason and sufficient

number of conditions that could occur that makes us

recommend development work take place at this time. There

is enough likelihood that we want development work to take


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place at this time.

MR. CYR: I'm sorry the last part again?

MR. SHALABY: There is sufficient probability that the

project will be needed to justify development work early on.

MR. CYR: That's the current thinking?

MR. SHALABY: That's the current thinking.

MR. CYR: So that's an example, then, of this as a

moveable piece or a developing piece, this IPSP? If I

understood you correctly, this has moved forward from a

remote contingency to a more actively considered electricity

project?

MR. SHALABY: It hasn't changed status, that always was

the status and that continues to be the status.

An option --

MR. CYR: Sorry, it has what resource status?

MR. SHALABY: It continues to be a status -- an option

to be developed and to be put in place at a later time, if

needed. That has not changed from the time of filing.

There is no change in tone or certainty about the project at

this time.

MR. CYR: I would like to turn now to the question of

base load in the northwestern region.

What would constitute base load in the northwest

region? What would -- what would constitute the base-load

requirement, first of all? Is there a fixed number on it?

MR. PIETREWICZ: Mr. Cyr, can you hear me? Is this on?

MR. CYR: Barely.

MR. PIETREWICZ: Okay. I don't think we've determined


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the fixed number the way you have described it, but, in

general, the northwest system exhibits a pretty high load

factor, predominantly, I think, driven by the larger

concentration of industrial load.

So, for example, historically, until about 2005 or so,

the peak demand in the northwest has been in the order of,

say, 1,100 megawatts, to pick a rounder number.

Our understanding is that that load, during the course

of a day, for example, doesn't typically dip far below, say

-- and I am just from memory here, doesn't dip below, say,

800 megawatts or so.

So that portion of that load in the northwest tends to

exist for much of the time throughout the year.

MR. CYR: So that would be the base-load ballpark?

MR. PIETREWICZ: In the sense of a ballpark. And I

would like to add, more recently, however, since about 2005,

and this is probably best described in the load forecast

evidence, but from my knowledge of it, the load has declined

by roughly 200 megawatts, by roughly 2 terawatt-hours. So

the load was once about 1,100 megawatts, roughly 7 terawatt-

hours a year. Since then, it has declined by about as much

as I described.

So I am not exactly sure as to what the specific base

load is today, but I imagine it is in the several hundred

megawatts zone.

MR. CYR: Then what is base-load generation for the

northwest region?

MR. PIETREWICZ: Well, to give an illustration, let me


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provide an illustration of how we understand the northwest

load to be met over history.

So, historically speaking, of that 7 ^terawatt hours a

year or so of demand in the northwest, approximately -- on a

median year, approximately 4 to 4-1/2 of that 7 terawatt

hours has been met by water power.

Approximately one terawatt hour has been met by the

natural gas-fired facilities in the northwest. So we're up

to about 5 to 5-1/2 terawatt hours of that historical seven

or so, and the balance has typically been met by a

combination of coal-fired generation within the northwest,

as well as flows from the rest of Ontario into the northwest

and/or flows from outside of Ontario into the northwest.

MR. CYR: I would ask Ms. Heinz, then, if you could

bring up Exhibit 1, tab 27, schedule 7, page 3.

MS. NOWINA: What was the exhibit reference, sir?

MR. CYR: Exhibit 1 -- "I". Sorry.

And in that exhibit, take the disastrous year of 2006,

232 times the hydroelectric generation went below

30 percent of its effective capacity -- sorry, installed

capacity. So an effective capacity of less than 30 percent

232 times.

What, then, becomes base-load generation in that

context, Mr. Pietrewicz?

MR. PIETREWICZ: Typically what has happened -- and

there are some pretty good examples of this, if we look at

the years -- which we don't have here, but just from our

experience. For example, the year 2003 was also a pretty


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low water year in the northwest system, and I understand

about 1998 or so was also a considerably lower than median

water year.

And what we have seen pick up the slack in those years

partly or largely, if you will, has been the coal-fired

resources in the northwest, and I imagine complemented by

the other types of resources I mentioned, such as imports or

flows from the rest of Ontario.

MR. CYR: There is no suggestion in the planning

module, then, that nuclear, which of course forms base load

for the rest of the province, is conceived of as part of

northwest Ontario's base-load generation, is there?

MR. SHALABY: The northwest is operated in connection

to the northeast. I mean, there's a 300 megawatt tie

between the east system and the so-called west system.

Typically, the system is operated -- the resources in

the northwest operate as peaking resources in the daytime,

or peak times, and they preserve their water for the next

morning and taken energy from the east system overnight.

So the energy flows west from the northwest system,

south to the GTA area in the daytime, and flows back up

again at nighttime.

So the nuclear power is supplying the northwest at

nighttime. Hydroelectric in the north is supplying all of

Ontario in the daytime, more or less. Sometimes the --

during the peak hours, that's what occurs.

So nuclear energy in the south supplies requirements in

all of Ontario at times, at times even travelling all the


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way out to north.

It is very difficult to tag what molecules are

travelling where, but generally -- conceptually, that's

what's happened.

MR. CYR: Okay.

MR. SHALABY: That's reflected in the table that you

referred us to. In low water years, the number of hours

where the generation is preserved for peaking purposes, for

high value, increases, operates only for peak hours and only

when necessary.

So the operating regime for the hydroelectric is

altered if you have a lot of water, if you don't have a lot

of water, to maximize the value of that water. Peaking

resources are very valuable when they're dispatchable like

this, and it is used to its maximum effect.

MR. CYR: Sorry, I missed a couple of words. Peaking

is --

MR. SHALABY: Is very valuable and is used to maximum

value to the system, and particularly in low water years.

MR. CYR: And the peaking in your example is what?

MR. SHALABY: Is resource that can be used in peak

hours.

MR. CYR: But specifically in this east/west tie

business.

MR. SHALABY: That will be the hydroelectric.

MR. CYR: That would be operating as peaking, then?

MR. SHALABY: Yes.

MR. CYR: So it is kind of a fluid concept as to base-


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load generation, no pun intended. Hydroelectric at some

times is our base load, and at other times is -- it's

nuclear, you're saying, or southern-generated?

MR. SHALABY: It is -- it's a -- it's the flexibility

of using the resources.

Hydroelectric -- some hydroelectric operates as base

load, the run of the river. Niagara is like that, the

St. Lawrence is like that, and some resources in northwest

are like that. Some operate as peaking when they have

reservoirs and ability to hold the water back and release it

only when required.

So some are controllable. Some are less controllable.

The less controllable ones operate typically as base-load.

The controllable ones are used primarily as peaking and

intermediate. So even within the family of hydroelectric,

the use of the plans differs considerably depending on the

design and water storage capability.

MR. CYR: Thank you. Looking at issue 34, does the

IPSP meet its obligations to provide adequate electricity

system reliability in all regions?

Can I ask you to give me the interpretation from the

planning points of view for the IPSP, what "adequate" means

for northwestern Ontario?

MR. SHALABY: It means enough electricity under various

conditions in all hours of the year.

MR. CYR: Enough under various conditions for what, I'm

sorry?

MR. SHALABY: For all hours of the year. All year


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round.

MR. CYR: Oh, yes. And "reliability"?

MR. SHALABY: Means that it is available, despite

contingencies that are frequently occurring such as

transmission line outages, or generator outages and so on.

"Reliability" actually encompasses adequacy. What I

described for you here is security.

MR. CYR: Sorry, the last part again.

MR. SHALABY: Security aspect of reliability.

MR. CYR: Yes.

MR. SHALABY: Reliability is both adequacy and

security.

MR. CYR: And security is operating without faults,

transient or permanent faults? Operating despite those?

MR. SHALABY: Despite those, yes, yes.

MR. CYR: Yes. So would it be your understanding, from

a planning perspective, that whatever does happen to the

coal generators in northwestern Ontario, coal-fired

generators, that it is a necessary component to the IPSP, as

drafted, that its implementation cannot mean any less

quality of power?

MR. SHALABY: You moved to a different concept, quality

of power, and it is relevant in the northwest, as well.

You were talking about adequacy and security.

MR. CYR: Yes. Let's start with that, then. Any less

adequacy or security?

MR. SHALABY: No. We should maintain adequacy and

security to within standards.


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MR. CYR: Now, let's take the other part of that, then,

and go on to power quality which, as Mr. Pietrewicz has

pointed out, is important -- not that he has pointed that

out, but a great deal of our load is industrial. And that

load has been designed to accept and function in a certain

level of power quality that has traditionally existed in

northwestern Ontario.

Will there be any loss in what traditionally has been

the power quality that has been enjoyed or at least been

possible in northwestern Ontario?

MR. SHALABY: For the benefit of others, we had been

working with your clients -- I am just sharing that we have

been out in the last two or three weeks on a visit to the

paper mills in the Northwest Territories -- in the northwest

part of Ontario. And the power quality issue is a complex

issue. It is an interaction between the equipment on a

customer's premise and the equipment on the system. And it

has lots to do with the transmission grid and the

transmission design. We were accompanied by a Hydro One

planner in that visit.

So I am just sharing with others that we are addressing

this issue, and it is an issue that doesn't have as much to

do with adequacy or security, but it has to do with the

arrangement of transmission and it has to do with the nature

of the equipment, the type of motors, the type of starters

on the motors and the type of transmission equipment in the

area.

MS. NOWINA: Mr. Shalaby.


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MR. SHALABY: Then the issues on quality are being

addressed.

MS. NOWINA: Mr. Shalaby, can you define "power

quality" for me.

MR. SHALABY: Power quality is a complex -- it talks

about harmonics in the -- the 60-cycle wave. The smoother

it is, the higher the quality of that power is.

If it's choppy or what is called, has high content of

harmonics, which means higher frequency content other than

60 hertz. It is a concept of the -- let me describe what

impact it has on equipment.

Some equipment can isolate, can interrupt -- your

computer can interrupt if the power quality is poor. The

voltage is low. The harmonics are high. The spikes in the

power are unacceptable. So it can damage equipment or cause

it to shut down. That's what causes the damages or the

irritation or the economic loss to consumers, is that the

band of voltage or frequency or cleanliness of the wave is

outside of certain parameters that the equipment can accept.

MS. NOWINA: Thank you.

MR. SHALABY: For that reason, it is an interaction

between the equipment and the supply. Some equipment is

more robust to the variation in quality. Some equipment is

very sensitive to variations in quality.

MS. NOWINA: That's helpful.

MR. SHALABY: Thank you.

MR. CYR: Thank you. Is that -- just to expand on

that, Madam Chair.


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You have to appreciate that if there is a failure in

the power quality, as Mr. Shalaby has just described it,

it's not simply for a paper mill the question of starting a

restart button. It means that the electronic devices that

have been designed and put in place for a paper-making

machine, to save the machine from a fluctuation in voltage

that would damage it, will shut the machine down, and having

shut it down, restarting is a 10- to 12-hour process. So

power quality that that paper mill has been designed to work

with, must be maintained.

So that's the importance of the – “scheme” is the wrong

word, but the set of concerns that you have described, Mr.

Shalaby.

If this were December of 2014, what would be in place

to ensure that there would be no loss in power quality?

MR. SHALABY: That's what we're working towards with

your customers and with Hydro One.

MR. CYR: So you're --

MR. SHALABY: It is solutions to do with voltage,

solutions to do with transmission, transformation,

capacitors. There are solutions and they're being pursued

and evaluated, including solutions on the customer side,

changes to the equipment, protections on the equipment,

upgrades to the equipment. That interaction with the system

will work to ensure continuity of service.

MR. CYR: Having said that, what assurances are there

in place in now December of 2014, if it appears that that

power quality will not be there yet?


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MR. SHALABY: What assurances...?

MR. CYR: Let's say that you have tried whatever is out

there to be tried and through no one's fault, it's simply

not yet ready.

MR. SHALABY: I do not think that the changes in the

west system that are contemplated by the plan, primarily the

shut-down of Atikokan in Thunder Bay and the replacement of

those by other resources, has a very large impact on the

power quality in Thunder Bay despite all of the assertions

that it does.

They do not relate directly to the loss of power

quality. The power quality problems have been there for a

long period of time and they continue to plague some of the

customers, and they have to be fixed one way or the other,

with or without the changes in the generation mix.

They are more a function of the configuration of

transmission and a function of the equipment installed at

some of the customers.

And it is subject, to the best of my knowledge, to a

Transmission System Code that this Board administers and

oversees. The quality of supply to customers is specified

in the code, and the transmitter has to endeavour to supply

power within acceptable quality bands. So there are other

mechanisms for overseeing the power quality issue.

MR. CYR: I am coming up on the edge of my time, I

think. I have one more question, Madam Chair. Well, a set

of questions, short, I think.

The 115 kilovolt electrical grid in northwestern


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Ontario is the grid that has all of our generation and all

of our load; is that not correct?

MR. SHALABY: Primarily so, yes.

MR. CYR: And under the plan, there is to be a feed

from the 230 kilovolt system in through the Lakehead

transmission system into Birch and into the 115 system; is

that correct? Three hundred --

MR. SHALABY: I would prefer that Mr. Chow address that

part of the story, but -- if it is to do with the

transmission option, I would prefer you keep that question

for Mr. Chow.

MR. CYR: All right. Would be that be the same place

to go for the issue of suppression of transmission in

electrical storms?

MR. SHALABY: Sorry?

MR. CYR: The operating protocol of, in an electrical

storm, suppressing the --

MR. SHALABY: They lower the limit. They lower the

operating limits during electrical storms, yes. I don't

understand the effects of that. Mr. Chow will describe the

reasons they do that and the frequency of doing that.

MR. CYR: Thank you. Those are my questions, Madam

Chair.

MS. NOWINA: Thank you, Mr. Cyr.

Ms. Friedman, are you prepared to go now?

MS. FRIEDMAN: Yes, I am.

My light is not going on, but can you hear me? Not

really? I think I should move ahead.


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MS. NOWINA: Yes, why don't you do that?

MS. FRIEDMAN: Okay, I now have a green light.

CROSS-EXAMINATION BY MS. FRIEDMAN:

MS. FRIEDMAN: My name is Kelly Friedman and I act for

the Electricity Distributors Association. My first question

really begins with an observation, and I am going to ask for

your comments on it.

The EDA has noted that there is no intervenor in this

proceeding who can be identified as a nuclear organization

or a nuclear proponent, per se. There are, however, those

who are critical of the nuclear costing underlying your

plan, which I am sure you are aware of.

So my question to you is: In developing the plan, did

you consult with experts in the area of nuclear and nuclear

costing?

MR. SHALABY: Yes, we have.

MS. FRIEDMAN: Can you please just describe for us who

you consulted with?

MR. SHALABY: We consulted with the Canadian Energy

Research Institute in Calgary, which is a research institute

that is expert in cost estimates and assembly of cost

estimates.

We consulted with the -- I am trying to think -- two or

three of the nuclear vendors that are proposing to be

vendors in Ontario.

We consulted with the two operating companies that

operate nuclear plants in Ontario. We are aware of the

Canadian Nuclear Safety Commission procedures and we had


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discussions with them, as well.

We visited the Nuclear Waste Management Organization

and are familiar with their reports and their progress in

the nuclear waste management project that they are managing

and administering.

MS. FRIEDMAN: So do you feel that the OPA has the

information it needs to defend against the critics of the

costing underlying the plan?

MR. SHALABY: We have information that we admit is

dated and admit can only be updated by actual experience,

and that experience is being developed in Ontario by the

request for proposals that the government is admitting.

So we have as good set of estimates as can be, and

that's a set of estimates that is now dated and subject to

confirmation in Ontario in 2008, and that's being done right

as we speak.

MS. FRIEDMAN: Thank you. I am going to ask you some

questions now about what has been generally referred to in

the opening presentation as procurement of conservation.

If I need to address the conservation or procurement

panels, you can tell me, but it's going to be quite high-

level stuff.

Mr. Chee-Aloy discussed procurement generally in the

opening presentation, and he talked about the steps of

procurement design and approval.

Will you agree with me that when he discusses --

discussed procurement design and approval, he refers to the

procurement of conservation and its resources in addition to


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procurement of supply of electricity?

MR. SHALABY: He did.

MS. FRIEDMAN: Okay. I am going to just read to you

one of the things Mr. Chee-Aloy said out of the transcript.

For clarification -- clarity purposes, it was on September

8th, page 128, lines 20 to 21.

Mr. Chee-Aloy said:

"Again, I might add, with respect to conservation

and supply resources that the OPA has procured,

the OPA thus far has used all three procurement

types successfully to result in procurement

contracts and their execution."

Just in terms of what Mr. Chee-Aloy was talking about,

when he talks about the three types of procurement, will you

agree with me he's talking about competitive, standard offer

and non-competitive?


MS. FRIEDMAN: Okay. And when he says that they have

all been used successfully, with respect to the procurement

of conservation, in particular, is he simply meaning that

contracts have been concluded? When he says that the

methods have been used successfully, each of those methods

have been used successfully, is that simply meaning that

contracts for procuring conservation have been concluded,

have made contracts?

MR. SHALABY: Yes. I was thinking about your question

rather than -- but thank you for giving me extra time to

think about it. Yes, partly that, but partly that there is


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good reception in the marketplace to the method of

procurement.

MS. FRIEDMAN: You said good reception. You're not

saying, however, that specific conservation goals have been

achieved through those methods?

MR. SHALABY: Those -- no, we're not. The success of

procurement is the first stage, and the evaluation and

monitoring results of conservation will confirm the success

of the conservation attainment at a latter stage.

MS. FRIEDMAN: So at the same time, if I understand

you, you're not saying that by each of those methods you

have any information that capacity-building or market

transformation has occurred, but simply that contracts have

been concluded and the market has received those well?

MR. SHALABY: Yes.

MS. FRIEDMAN: Okay, thank you.

If you can -- if I could have Ms. Heinz turn up the

presentation slide 116; K1.1, slide 116.

So we see on that slide that the OPA says the preferred

type is competitive procurement. Can you confirm for me

that the OPA is saying that this preference for competitive

procurement relates to conservation, as well?

MR. SHALABY: I am thinking of the prevalence of

competitive procurements in conservation. Conservation is

typically on standard offer or program basis.

The amount of conservation procured competitively has

more to do with demand reduction and more to do with

generation, customer-based generation, but the efficiency


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component is primarily by programs, which is conceptually a

standard offer of some sort.

MS. FRIEDMAN: Okay. That's what I'm trying to

understand, sir, in terms of the plan going forward, if the

plan going forward continues to contemplate that as a

default method or the preferred method that conservation

will be procured competitively.

MR. SHALABY: I would prefer that the conservation

panel can discuss that with you. And it's not going to be

long that they will be here.

MS. FRIEDMAN: Okay. Well, perhaps then I could just

follow up with you on what you said about demand management

and cogeneration. In the plan in a large sense, is the OPA

using demand management and conservation as meaning the same

thing?

MR. SHALABY: Demand management is one of four

subcomponents of conservation.

MS. FRIEDMAN: Can you give me the other subcomponents?

MR. SHALABY: Yes. We can go to slide -- the others

are: Efficiency, fuel-switching, customer-based generation,

and conservation behaviours is the fifth one, I think.

MS. FRIEDMAN: Okay, thank you. I will address the

last question to the conservation panel, but when we look at

the slide, 116 on competitive procurement, it refers us to

regulation 426/04 which has been referred to in the plan as

the procurement regulation and I would like to just go to

that for a moment.

Exhibit A, tab 3, schedule 1, if we look first at page


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45, page 45 sets out the sections of the Electricity Act

which are then referred to in the procurement regulation.

We can just look at that for a moment. Page 45. If we

can move down to 25 -- the section of Electricity Act is

25.32. I will just read it into the record. It says:

“When the OPA considers it advisable, it shall

enter into contracts in accordance with

procurement processes approved under section 25.31

for the procurement of...”

and it gives two subheadings:

“(a) electricity supply or capacity...”

And that goes on further to describe that. And (b) is:

"Measures that will manage electricity demand or

result in the improved management of electricity

demand on an on-going or emergency basis.”

My question is whether the OPA, in designing the plan,

considered 25.32(b) -- and your counsel, I am happy to hear

from your counsel on this -- measures that will manage

electricity demand or improve management of electricity

demand to be equivalent to conservation or CDM.

MR. SHALABY: It is a component of conservation. Are

you asking a different question than that?

MS. FRIEDMAN: No, that's fine. Just so you know where

I am coming from, the way I read that, that's demand

management or demand response.

MR. SHALABY: Yes.

MS. FRIEDMAN: So the EDA doesn't read that as being

CDM more broadly, which encompasses the other issues you


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have raised, efficiency, et cetera. So I just wanted to see

if we're on the same page and perhaps Mr. Vegh can speak to

that.

MR. VEGH: Perhaps we can consider that, and a response

to that. That is really a legal interpretation, and --

MR. SHALABY: Whether demand management is conservation

or is it demand response; is that your question?

MS. FRIEDMAN: I think Mr. Vegh understood the

question. When the EDA looks at this provision, 25.32(b),

we see that what the Electricity Act is saying is speaking

to there is demand management or demand response, but not

speaking to, more broadly, CDM. For example, energy

efficiency, fuel-switching, customer based generation.

Mr. Vegh, I am happy if he reserves that but going

forward, we would like to know if we're on the same page as

the OPA or if the OPA says that, no, this means all

conservation programs.

MR. VEGH: So we will consider that and advise.

MS. LEA: Can I ask that we mark that as an

undertaking, just so we don't forget about it.

MS. NOWINA: Yes, let's do that.

MS. FRIEDMAN: Thank you.

MS. LEA: Undertaking J3.4, to clarify the definition

of, which word would you like to use, conservation?

MS. FRIEDMAN: Conservation.

MS. LEA: Conservation, thank you.

UNDERTAKING NO. J3.4: TO CLARIFY THE DEFINITION OF

“CONSERVATION”


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MS. LEA: J3.4.

MS. FRIEDMAN: Based on what you told me, Mr. Shalaby,

of your understanding of demand management being a component

of conservation, I take it that, in your planning, you saw a

distinction between CDM and demand response. You considered

those two concepts separately.

MR. SHALABY: We typically use demand response. If I

jump to the conclusion that demand management is the same as

demand response, I erred in that regard.

The definitions that we have -- and maybe I should have

taken time to go to our slide on conservation.

MR. PIETREWICZ: While you are looking, Mr. Shalaby,

perhaps it would be helpful to point out that

Exhibit B-1-1, page 7 illustrates those four categories of

conservation.

MR. SHALABY: That and slide 50, the same slide as

slide 50.

MS. FRIEDMAN: Right. I think what you are both doing,

sir, is just confirming for me that the OPA, in its

planning, in its thinking on these issues, saw demand

management as simply one component of conservation?

MR. SHALABY: In this definition, it is, yes.

MS. FRIEDMAN: Okay. Thank you. I think I am going to

reserve all of the rest of my questions to the conservation

and procurement panels, then.

Thank you. Those are my questions.

PROCEDURAL MATTERS:

MS. NOWINA: Thank you very much, Ms. Friedman.


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So question, do we go on to the next one or do we give

everyone an early day? Mr. Rodger, you are up next.

MR. RODGER: Yes, Madam Chair. I had an hour scheduled

for my cross, but Mr. Thompson has gone over a considerable

amount of the same ground. I would be grateful if I could

have the evening to cull my notes, but I suspect I will be

20 minutes or less first thing in the morning.

MS. NOWINA: All right.

Well, that means we get a bit of a break today. And we

will -- we have completed the day, then, and we will resume

tomorrow morning at 9 o'clock.

--- Whereupon hearing adjourned as 4:15 p.m.


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