Direct Dial: (416) 2164865 amark@ogilvyrenaultcom File No. 01009188-0006 Toronto, November 8, 2010 BY EMAIL AND COURIER Ms. Kirsten WalIi Board Secretary Ontario Energy Board 27th Floor 2300 Y onge Street Toronto, ON M4P lE4 Dear Ms. Walli: RE: In the Matter of a Proceeding Initiated by the Ontario Energy Board pursuant to a Notice of Proceeding dated October 29, 2010 - Evidence Submitted by the Electricity Distributors Association on Behalf of Affected Electricity Distributors Ontario Energy Board File No: EB-2010-0295 We are the solicitors for the Electricity Distributors Association (the "EDA''). The EDA will be representing the Affected Electricity Distributors (as defined in the Notice of Proceedings referenced above) and is filing this evidence on behalf of the Affected Electricity Distributors collectively. The EDA is pleased to file this evidence on behalf of its members. If you have any tions regarding the enclosed, please contact us. y, AM:lr Enclosures cc. Jennifer Teskey OGllVY RENAULT UP I S.E.N.C.R.L, s.r.L Suite 3800 T: 416.216.4000 ogilvyrenault,com Royal Bank Plaza. South Tower F ;416.216.3930 Barristers & Solicitors 200 Bay Street. P.O. Box B4 toronto@ogilvyrenaultcom Patent & Trade-mark Agents Toronto, Ontario MSJ 2Z4 CANADA DOCSTOR: 2054097\1 Montreal • Ottawa • Quebec • Toronto • Calgary • London EB-2010-0295 IN THE MATTER OF a proceeding initiated by the Ontario Energy Board to detennine whether the costs and damages incurred by electricity distributors as a result of the April 21, 2010 Minutes of Settlement in the late payment penalty class action, as further described in the Notice of Proceeding, are recoverable from electricity distribution ratepayers, and if so, the form and timing of such recovery. EVIDENCE SUBMITTED BY THE ELECTRICITY DISTRIBUTORS ASSOCIATION ON BEHALF OF AFFECTED ELECTRICITY DISTRIBUTORS Ogilvy Renault LLP Suite 3800 Royal Bank Plaza, South Tower 200 Bay Street, P.O. Box 84 Toronto, Ontario M5J 2Z4 Alan Mark LSUC#: 21772U Jennifer TeskeyLSUC#: 481811 Tel: (416) 216-4000 Fax: (416) 216-3930 Solicitors for the Electricity Distributors Association TO: Board Secretary Ontario Energy Board 27th Floor 2300 Yonge Street Toronto, ON M4P lE4 Attn: Board Secretary, Kirsten Walli Email: [email protected] DOCSTOR: 20542901[ EB-2010-0295 IN THE MATTER OF a proceeding initiated by the Ontario Energy Board to determine whether the costs and damages incurred by electricity distributors as a result of the April 21, 2010 Minutes of Settlement in the late payment penalty class action, as further described in the Notice of Proceeding, are recoverable from electricity distribution ratepayers, and if so, the form and timing of such recovery. EVIDENCE SUBMITTED BY THE ELECTRICITY DISTRIBUTORS ASSOCIATION ON BEHALF OF AFFECTED ELECTRICITY DISTRIBUTORS Tab No. I Evidence Submitted by the Electricity Distributors Association on behalf of Affected Electricity Distributors A Appendix A - Schedule setting out each LDC's portion of the Allocated Amount B Appendix B - Implementation Order dated July 22,2010 C Appendix C - Sample Rate Orders DOCSTOR: 2054323\1 EB-2010-0295 IN THE MATTER OF a proceeding initiated by the Ontario Energy Board to determine whether the costs and damages incurred by electricity distributors as a result of the April 21, 2010 Minutes of Settlement in the late payment penalty class action, as further described in the Notice of Proceeding, are recoverable from electricity distribution ratepayers, and if so, the form and timing of such recovery. EVIDENCE SUBMITTED BY THE ELECTRICITY DISTRIBUTORS ASSOCIATION ON BEHALF OF AFFECTED ELECTRICITY DISTRIBUTORS I. NATURE OF APPLICATION 1. By Notice of Proceeding dated October 29, 2010, the Board has announced that it will hold a generic hearing to address the following issues: 1. As a threshold question, whether Affected Electricity Distributors (as defmed in the Notice of Proceeding) should be allowed to recover from ratepayers the costs and damages incurred in the LPP Class Action; and 2. If the answer to the first issue is yes, what would be an appropriate methodology to: a. apportion costs across customer rate classes; and b. recover such allocated costs in rates. 2. The Board has directed all Affected Electricity Distributors to collectively file evidence on these issues. The Electricity Distributors Association (the "EDA") will be representing the Affected Electricity Distributors and is filing this evidence on behalf of the Affected Electricity Distributors collectively. The EDA is pleased to file this evidence on behalf of its members. II. OVERVIEW 3. With respect to the threshold question, the Affected Electricity Distributors submit that the costs and damages associated with the LPP Class Actions should be recoverable from ratepayers. The LPPs (as defmed below) were imposed pursuant to mandatory orders of the regulators of the Affected Electricity Distributors and the revenues were used to mitigate the rates of all customers. The settlement of the LPP Class Actions was very advantageous to the Affected Electricity Distributors and their customers and avoided the 2 significantly greater costs and damages which would have resulted in the absence of a settlement. 4. The amounts to be recovered should be recovered through the mechanism of a customer charge across all metered rate classes. III. BACKGROUND TO THRESHOLD OUESTION a. History of Late Payment Penalty Charges 5. Prior to industry restructuring at the end of the 1990s, electricity distribution in Ontario was primarily undertaken by municipally owned hydro-electric utility commissions ("MEUs") and Ontario Hydro. The Power Corporation Act had established Ontario Hydro as a public, non-profit entity, and was built on the fundamental premise of public power. The MEUs were municipal commissions established pursuant to the Public Utilities Act for the purpose of purchasing electricity from Ontario Hydro and managing and operating the electric distribution facilities found in all municipalities in Ontario. 6. Ontario Hydro was the regulator of rates charged by MEU s pursuant to Section 113 the Power Corporation Act. Each year, Ontario Hydro issued to each MEU a schedule of rates to be charged to its customers the following year. The schedule would include any amount to be charged in respect of accounts not paid by the due date. The Act made it an offence to charge rates other than those approved by Ontario Hydro. 7. In the 1980s, the Ontario Ministry of Energy undertook a process to harmonize credit and collection policies across the electricity and natural gas sectors. As a result of an extensive consultation process, including public input, a comprehensive credit and collection policy was settled. It included a late payment penalty ("LPP") mechanism. The LPP mechanism was subsequently approved by Ontario Hydro and the Ontario Energy Board ("OEB"), the respective regulators of each of the electricity and natural gas sectors, and was incorporated in the approved rate schedules or orders. 8. By 1989, almost all MEUs charged LPPs according to the approved mechanism. The Ontario Hydro guidelines to MEUs dictating the approved rates and charges to be charged to customers regularly reiterated the LPP mechanism to be used. For example, the "1998 Regulatory Guidelines For Ontario Municipal Electric Utilities", issued in September 1997 by Ontario Hydro, set out service charges and stated the following: • "Late Payment Charge - This charge shall be adopted by all utilities to ensure uniformity in the approach to late payment. • A one-time charge - 5% of outstanding amount" 3 9. LPPs were intended to protect innocent customers from the costs incurred because oflate payments by other customers. They were intended to compensate for fmancial and administrative costs actually incurred. 10. Industry restructuring began in 1998. Between November 8, 1998 and November 7, 2000, MEUs were converted to business corporations (and began to be referred to as local distribution companies or "LDCs") pursuant to section 142 of the Electricity Act, 1998 (the "Electricity Act")!. 11. Since April 1, 1999, electricity distribution rates have been approved by the OEB pursuant to section 78 of the Ontario Energy Board Act, 1998 (the "OEB Act"i. Section 78(2) of the OEB Act prohibits charges for the distribution of electricity except in accordance with an order of the OEB. OEB rate orders for distribution rates continued to dictate the LPP mechanism in its original form. 12. With respect to charging LPPs, the MEUslLDCs relied in good faith upon the validity of the Ministry of Energy guidelines, the rates approved by Ontario Hydro pursuant to those guidelines and the rate orders of the OEB. 13. After the OEB began regulating the LDCs, the LDCs began to obtain approval of alternative mechanisms to collect for late payments in their new rate orders. By the end of the first quarter of 2002, all LDCs had stopped charging LPPs in the original form mandated by the Ministry of Energy in the 1980s. b. Challenge to LPPs 14. In 1981, the Federal Parliament amended the Criminal Code (section 347) to render it a criminal offence to receive an interest payment at an effective rate of interest exceeding the annual amount of 60 percent. The provision was intended to deal with "loan sharking" and was not thought to be generally applicable to commercial transactions. The OEB rejected submissions made to it from time to time alleging that LPPs in their original form violated section 347. 15. In 1994, class actions were commenced against the Consumers' Gas Companr Limited (the "Garland Action") and against Toronto Hydro (the "Pichette Action") alleging violation of the Criminal Code interest provision. Both actions alleged that an LPP is interest as defined in section 347, and that, depending on the amount of the bill and the payment date, the LPP could result in an effective rate of interest in excess of 60 percent. The plaintiff in each case claimed restitution on behalf of a plaintiff class for unjust enrichment arising from the LPPs levied by the defendant utility.