December 3, 1996

PUBLIC ACCOUNTS COMMITTEE

The Committee met at 9:00 a.m.

CHAIR (E. Byrne): Order, please!

I would ask Jack Byrne to - I believe yesterday he

(inaudible). (Inaudible) to you, Jack.

MR. J. BYRNE: We will review during this Public

Accounts Committee (inaudible) a lot of issues with regard to the Public

Utilities Act. (Inaudible). Do you have the Act there in front of you?

MR. VARDY: The Public Utilities Act.

MR. J. BYRNE: Pardon?

MR. VARDY: The Public Utilities Act, yes.

MR. J. BYRNE: Okay. On page 7,

section 11

(inaudible) -

MR. VARDY: I suspect we have different versions

of the Act because my page 7 has the last one as

section 9, so the pages may be

numbered a little differently.

MR. J. BYRNE: (Inaudible).

MR. VARDY: Looks like the same one.

MR. J. BYRNE: I will just refer to -

MR. VARDY: Refer to the section. I think that

will probably do it, yes.

MR. J. BYRNE:

Section (inaudible) of the act.

It says: (inaudible) made by legal counsel and what have you. We touched on this

a bit yesterday. I was just wondering if the staff that you mentioned are

included in this; and if you are hiring legal counsel or what have you, do you

keep them on, on either a part-time, contractual or permanent basis? By what

process do you (inaudible) these people?

MR. VARDY: This is the

section under which we

would employ staff and legal counsel. In the case of legal counsel, we have a

legal counsel on staff who is employed on a permanent basis. Initially he was

hired on a part-time basis, and there was a competition process. Subsequently,

the board decided to make his appointment full-time. So he is full-time legal

counsel of the board.

MR. J. BYRNE: Is that Mr. Hanrahan?

MR. VARDY: That is Mr. Hanrahan, yes.

MR. J. BYRNE: He has a full-time job?

MR. VARDY: He is full-time with the board, yes.

MR. J. BYRNE: So, he is not involved with a law

firm (inaudible).

MR. VARDY: No. Previously he had been. When he

was on a part-time basis he had his own legal practice on the outside, but

currently he is full-time with the Board.

MR. J. BYRNE: What about engineers and people

like that?

MR. VARDY: We don't have any engineers with the

board, other than as a part-time commissioner. Two of our part-time

commissioners are engineers. One is an electrical engineer, Wally Reid, and the

other is a civil engineer, Gordon MacDonald.

MR. J. BYRNE: (Inaudible).

MR. VARDY: Those would be the consultants. Now,

there is another

section under which people can be appointed.

MR. J. BYRNE:

Section 15, subsection 3, the

amount of revenue (inaudible) to exceed the amount initiated by the board

(inaudible). I would just like to know sir, basically, how much money are we

talking about? What are your views on that, and would it be possible for some of

this money basically (inaudible) Newfoundland Power, a presentation made

(inaudible), of course.

MR. VARDY: Yes. We had, I guess, an extensive

discussion on this yesterday, on this question of the

interpretation of

section

3, 15(3).

MR. J. BYRNE: (Inaudible).

MR. VARDY: I won't go into what I did

yesterday. Perhaps if you asked a more specific question, then I could respond

to it.

MR. J. BYRNE: (Inaudible).

Section 53: (Inaudible) are having problems with

poles, wires, (inaudible) and what have you. I have often wondered about this,

because we have competitions sometimes between Newfoundland Power and

Newfoundland Telephone, where they are using each other's poles; and probably

with Cable Vision now. You people set the rates that these poles - charged once

a year type of thing.

I often wonder, also with respect to the general

competitions between the phone companies, using one another's equipment.

(Inaudible). What are your views on that? How is that handled?

MR. VARDY: Well at the moment, we do not

regulate Newfoundland Telephone at all. We regulate Newfoundland Power, and we

do regulate the access to their poles by the cable companies. In fact, there is

an inquiry going on right now, and there is a hearing scheduled in December to

deal with that whole issue. Mrs. Galway has been very heavily involved in this

issue, so I am going to call upon her to speak to give you the response.

MS GALWAY: Essentially, there is a difference

between the pole rental of Newfoundland Telephone under the CRTC regulations and

the pole rental agreements under our regulations because they are now done by

two different bodies. The CRTC is more uniform across the country, they use a

different formula.

With the pole agreement between Newfoundland Power

and Newfoundland Telephone, because they share many of the same poles as well,

they have what is called a `Joint Use Agreement'. That agreement was about three

years, I guess, in the making, between the two companies, before they actually

came to terms with it. We would play an arbitration role if necessary on that,

and we have in the past.

The last agreement was settled by the companies

without having to come before the board, and it has a mechanism that helps

equate the two companies; so no one is a winner. No matter who owns more poles,

the rentals will be structured in such a fashion that no one company is better

off than the other. It is rather complicated and it takes a talented accountant

and auditor to go through it to follow the flow of the numbers; but it has

worked well and they have not needed to come before the board on that issue.

With the cable companies, they had their own

regulation that dictated the type of formula that was to be followed in any pole

rental agreement; and that was a special regulation. I may have it here.

MR. J. BYRNE: (Inaudible).

MS GALWAY: Well, with the regulatory review,

the regulation to which I was going to refer is now taken off the books, it is

gone. So what will probably happen is that after this audit process of the pole

audits is complete and the companies are all satisfied, after possibly a hearing

before the board - and that will be determined I think on December 16 - what

will happen is that there will probably be another hearing to establish a new

formula, and that formula will take into consideration the views that you would

probably have on keeping the competition fair with the use of the poles and so

on. It is a much more competitive environment in 1996-1997 than it probably was

back in the late 80s.

MR. J. BYRNE: (Inaudible). What did the board

have to do with going back to the (inaudible) by Newfoundland Power?

MR. VARDY: This was a central issue, of course,

in the hearing that was just concluded. What the board does is they hear

evidence from witnesses with regard to rate of return on capital. We did, in

fact, have two witnesses there, one from the consumer advocate and the other

from Newfoundland Power.

What the board does is look at the cost of capital

to the company and what kind of rate of return is required in order to provide a

sufficient return to the investors, so that the investors will continue to

invest in the company. In order to do that, what we do essentially is look at

the rates of return that are earned in investments of comparable risk in the

private sector. So you look at rates of return of companies that are listed on

the Toronto Stock Exchange. There is an analysis is done to sort out those that

are high risk companies because utilities are low risk, so they sort out and

classify those that are essentially low risk and are comparable in risk to the

utilities. Then, of course, there is a risk premium that is actually calculated

in terms of the premium over and above the long-term rate of return on

measuring the risk, what the board does is to take this long-term bond rate and

add to that a risk factor; and the risk factor is really determined from the

study of low-risk securities, low-risk shares and the rate of return on those

low-risk shares.

So that is essentially a kind of analysis, and, of

course, depending on how you do the analysis, you can end up with different

results. This is what we experienced during the past summer where we had - I

don't recall now what the exact variances were - but quite significant variances

depending upon the companies that were included, the shares that were included

and the period of time over which the measurement was conducted. So at the end

of the day, the board made a judgement determination which was between the two;

so you had one set of rate of return which was put forward by the consumer

advocate and another which was put forward to the board by the company. In that

particular case, the board made the determination which was in the middle and

the number that we came up with at that time was 11 per cent.

MR. J. BYRNE: There are, of course, many other

factors, including (inaudible) rate of return (inaudible). Many people out there

say to me: You know, when you talk about Newfoundland Power and the rate of

return (inaudible). I often say: Well, it kind of depends on how that

(inaudible) in the first place.

My concern is that if they using the proper factors

to determine what their investment is in the first place, (inaudible).

MR. VARDY: That's right and that was, as I say,

one of the major issues that was discussed for quite a long time over the

summer.

MR. J. BYRNE: Okay,

section 90, (inaudible).

This is going to be passed on to the consumer.

MR. VARDY: That's right.

MR. J. BYRNE: So the amount of money that was

spent last summer was already passed on to the consumer?

MR. VARDY: That's right.

MR. J. BYRNE: Both sides?

MR. VARDY: That's right.

Section 13, that you

referred to earlier, deals with the recurrent, ongoing operating expenses of the

board and those are financed also through an assessment on the utility. Now

section 90 relates to those hearings or proceedings that come up from time to

time. As you say, in the case of the Newfoundland Power rate case, those costs

are covered under

section 90. The board basically ordered that those costs, all

of the costs, be borne by the applicant, in this case Newfoundland Power.

MR. J. BYRNE: Under subsection 2 of the same

section, it says that where an order for payment under subsection (inaudible)

two or more public utilities, the expenses shall be apportioned among them in

proportion to their earnings. I was noticing here, after this one, (inaudible).

It says that the Public Utilities Board (inaudible). You probably addressed that

yesterday, did you?

AN HON. MEMBER: No.

MR. J. BYRNE: You didn't? Well, these are the

questions to ask, those that have not been asked.

Well, basically the Auditor General (inaudible)

that the allocation of budgeted costs was important to ensure that the utilities

being used were not subsidized (inaudible). In the chart on page 4 it shows

(inaudible) costs. (Inaudible).

MR. VARDY: I am still trying to find it.

MR. J. BYRNE: Basically, the question I started

out with (inaudible) page 4.

MR. VARDY: I have the report itself.

MR. J. BYRNE: (Inaudible).

MR. VARDY: I found the page now. I am just

trying to find what you just read from. So, you are asking why we use this

particular distribution here, the allocation of budgeted costs?

AN HON. MEMBER: (Inaudible) more benefits are

not allocated for insurance for these people. (Inaudible).

MR. VARDY: Sure.

WITNESS: And also the salary and benefits of

the (inaudible) insurance/motor carrier was allocated, 33 per cent to the motor

carrier division and 67 per cent (inaudible) salary and benefits of the

secretary, allocated completely to the motor carrier division.

MR. VARDY: Yes. I am going to ask Mrs. Galway

to respond to that.

MS. GALWAY: If I trip up, I am going to ask

Doreen Dray.

AN HON. MEMBER: I suspect (inaudible).

MS. GALWAY: Yes.

What the board does with respect to Budget figures

- and I believe this is the table that would be used for budgeting for one

particular year - what happened in the past was that 80 per cent of the salaries

went to public utilities and 20 per cent went to insurance. So we will start at

that line and I will explain the benefits after that.

AN HON. MEMBER: How does that division work?

MS. GALWAY: The reason there is nothing for the

commissioners and employees, except the manager and his secretary, in motor

carriers, is because we had a specific directive back through Treasury Board

that told us that because the board existed anyway it was not considered

appropriate to allocate the commissioners' and employees' salaries to motor

carrier and be funded through consolidated revenue. That is what we were told.

AN HON. MEMBER: So, that was a written

directive from the department through Treasury Board?

MS. GALWAY: Yes. So, that is why that looks so

peculiar, because obviously we spent time on motor carrier matters, but we were

told that we could not collect that because we existed anyway. That would

explain one of the zeroes under the benefits column.

What we did, at that point, was examine our own

calendars, and each of us submitted detailed information to Doreen Dray, who is

our accountant, on what we spent our time, and that is where the initial 80 per

cent and 20 per cent figures came from.

CHAIR: So, this is not a reflection of your own

time management in terms of (inaudible).

MS GALWAY: That is what was used, essentially,

for budgeting purposes.

With respect to the benefits, it was considered, I

guess, not necessary to allocate additional monies to the insurance area because

that is a smaller division of our office. The amount of benefits is rather small

in comparison, and we felt that depending on how the year went, if it was a busy

year with a lot of hearings, we probably would not be spending that much time

with insurance. They were softer numbers with respect to being budget figures.

With respect to actuals, when we finished off the year we try to be more precise

in terms of the time.

One of the recommendations that came out of the

Auditor General's Report was that we formalize our time-reporting system, and

while it may not have been specifically to every single week, I think it was

with respect to hearings. What the board decided to do was introduce to every

staff member, every commissioner, a time-reporting system on a weekly basis; so

that we track all time now on a weekly basis, so we know precisely how much is

allocated to PU motor carrier insurance.

CHAIR: So in terms of year-end reporting, with

you time management system, (inaudible), do you find that it has helped

tremendously in determining your accuracy, or has it introduced a new level of

bureaucracy to be maintained or managed? How do you find it? (Inaudible) the

different percentages would change.

MS GALWAY: The percentages would have to change

every year under an actual reporting system. What you will find with such a

small office, and the fact that we have spent so much time on public utilities

this year, and on Newfoundland Power, it is not typical of ordinary years. So

suddenly you are going to have very high numbers in PU this year - I should say

public utilities; I feel like I am at home. In the public utilities area, as a

result of that, it could look as if we should have a much higher assessment, say

in 1996-'97, for PU than you might next year, if it were not as lengthy a year

in terms of hearings.

CHAIR: You said it was a small office

(inaudible) spend all your time tracking your time. Do you think that the

concerns highlighted in the Auditor General's Report with respect to this issue

were warranted?

MS GALWAY: I think in any review you try your

best to identify what might be helpful. The suggestion was with respect to

tracking your costs accurately with the hearing, which we were doing. It just

really was not in a formal package, and they wanted something more formalized.

But we felt uncomfortable with the commentary with respect to the budget figures

here, and it flows through each

section of the report. So to get a better feel

for that you would almost need these numbers for a twelve-month period to see

who is right, and how we should manage the figures, and what is the fairest

allocation. From that perspective I am very happy with the figures that we can

work with.

MR. J. BYRNE: Just to continue, under

section

92, page 42, dealing with the division of surplus property, subsection (1):

Nothing in this act (inaudible) by division and distribution of its surplus

properties.

I just want to get a few comments on the

(inaudible) of any surpluses in the past. (Inaudible) and basically some comment

on - you are talking about division and distribution of surplus properties of

employees. What kind of dollar value are we talking about (inaudible) in the

past, so we will have some idea what you are talking about?

MR. VARDY: During the period that I have been

with the board they have not really had occasion to deal with this, although I

know Ms Galway and I have talked about this. She may have some comments on it. I

would like to ask her if she would comment.

MS GALWAY:

Section 92 is put in place in the

event that there should be a deferred profit-sharing plan or some sort of

employee share plan that the companies may have that fall under the Public

Utilities Act.

With respect to Newfoundland Power, they have an

employee share purchase plan as they have a consumer purchase plan; they run the

same way. They also have, I guess, as part of their executive benefits, certain

share arrangements as well. For the most part there isn't anything that fits

under that

section that has been problematic for the board, other than to note

that they do have the standard employee compensation packages that everyone has.

CHAIR: Would this be a factor in setting the

rates?

MS. GALWAY: It has not been a problem for the

board. They do not get any special increment for divisions of surplus profit in

terms of determining the cost of electricity. It is based on operating costs,

the cost of fuel and so on, and then you add to that the approved rate of return

on equity; and it would cover anything under there only because it is 11 per

cent. It does not get increased to 11.25 per cent to cover that sort of

arrangement.

MR. VARDY: Just to add further, Ed, to what Ms.

Galway said. They do have this incentive program, and the incentive program that

has been put in place over the last couple of years has been linked to their

rate of return. So there was nothing really in that arrangement that the board

could take exception with, in terms of this arrangement. There is an incentive

program, and it is linked to a number of performance indicators, including

reaching the bottom of the minimum rate of return that the board has

established.

AN HON. MEMBER: So you have increasing rates

for consumer?

MR. VARDY: No.

AN HON. MEMBER:

Section 103, (inaudible), I

believe you had some questions on this with regard to (inaudible).

MR. VARDY: This act, of course, was revised in

1989. I am not sure whether these numbers were changed at that time, but that is

something we are going to be looking at because we are doing a review, as I

mentioned yesterday, of the act to see whether these numbers are still

appropriate. We are not in a position, I guess, to indicate whether they are out

of line at this stage but that is something we are going to review.

MR. J. BYRNE: (Inaudible).

MR. VARDY: Well, not really.

MR. J. BYRNE: (Inaudible).

MR. VARDY: Yes, that is right.

MR. J. BYRNE:

Section 114, pension schemes. Do

you have any (inaudible) "pension scheme to officers and employees of the Board

providing for... (

b) the grant of another benefit whether in cash or in service,

to those officers and employees or to their beneficiaries or dependents." I

would like that explained to me.

MR. VARDY: This section, of course, deals

basically with a pension plan for the board. To my knowledge, this pension plan,

in terms of employees, has really not been - there has been no special plan for

employees put into effect, so we haven't had a lot of experience with that. On

the other hand, there is a pension scheme for commissioners set out in 115 where

there are actual active commissioners. So we haven't really had a lot of

experience in dealing with this particular clause. I will ask Ms Galway if she

has any comment on it.

MS GALWAY: The commissioner's pension plan was

in place, I guess, just before I joined the Board in 1990, and at that time

Commissioner Good, who was vice-chair at that stage, was participating in that

plan. When I joined the Board it was the conscious decision of that government

that that plan would not be offered to any new commissioners. So at this stage

it is what we call a dead-ended plan, and the people who contributed and had

benefits to that are still receiving their pensions, but there isn't anyone who

can be eligible for it. For a commissioner like me who joined in 1990, or anyone

who would be full-time who comes after me, we would have to go on the public

service pension plan.

MR. J. BYRNE: So, this section, 115,

(inaudible)?

MS GALWAY: For all practical purposes, yes.

MR. VARDY: Except there are two commissioners

who are still on the plan. Not two commissioners, there is one former

commissioner, and a wife of a former commissioner. They are the only two people

left on that plan. Nobody has been admitted into the plan, I guess, since -

well, I can't really say when, but certainly in recent years.

MR. J. BYRNE: (Inaudible)

section 114(b): "the

grant of another benefit whether in cash or in service, to those officers and

employees or to their beneficiaries or dependents." I still don't know what that

covers.

MS GALWAY: Sections 114 and 115 really are not

active in practice. I'm not entirely sure what it might have covered in the

past, but it would have been a long time in the past, in terms of employees in

particular.

MR. VARDY: We wouldn't have had any reason to

interpret this because it is defunct.

CHAIR: (Inaudible).

MS THISTLE: Thank you, yes, good morning. I

would like to ask the Auditor General a question with regard to government

policy on the hiring of pensioners to sit on this board. What is the policy?

MS MARSHALL: I don't have that information here

before me now but there is a policy (inaudible).

MR. VARDY: You are referring to the concerns

raised in the (inaudible) with respect to hiring of some pensioners?

MS THISTLE: That is right. Apparently there

were some exceptions to government policy, as you noted, and I was wondering if

you would elaborate on those? I think it was in respect to the (inaudible)

program.

MS GALWAY: This is not on the Public Utilities

Board, is it? I will just make sure I am correct in my understanding. I think

you are referring to an incident that we reported (inaudible) relating to a past

executive director who was re-employed on a part-time basis?

MS THISTLE: That's correct.

MS GALWAY: Okay. In this particular case,

government policy is to give preference to persons who are not in receipt of

government pension. In this particular case, we had noted that a past executive

director, who was in receipt of a pension, was re-employed on a part-time basis,

from, I think it was June, 1989 until October, 1994. We checked to see if the

approval of Cabinet was obtained for that arrangement and we found that it

wasn't during that period but that in November, 1994, I think, a request went to

get this arrangement approved, but that person did not avail of the arrangement

after that. So it was discontinued as of November, 1994.

MS THISTLE: In other words, it was an issue of

double-dipping as such. So are you satisfied now, as the watch dog of this

board, that this situation has not since reoccurred and there are measures in

place so that it won't reoccur in the future?

MS GALWAY: Yes, I think we are. In this

particular case, I think it was an issue of the board, in their response to us,

not having received that particular directive from government, and was not aware

during the period that there was a government policy on this issue.

WITNESS: (Inaudible).

MS GALWAY: That is essentially what had

happened. To give you some background as to why the past executive director was

rehired on a part-time basis, he was the person during that period of time who

had the expertise in insurance, and there wasn't any other staff person in our

organization with that expertise. It had been discussed with our minister to let

the minister know this arrangement was in place from the beginning; and that

predates me. Every month -

MR. J. BYRNE: (Inaudible).

MS GALWAY: No, it would be the Department of

Justice. I'm not entirely sure when in 1989 that would have been discussed. In

any event, this individual had the expertise in insurance, and we were fortunate

that Bob Byrne agreed to take the insurance training. At the time the transition

did occur, Bob was heavily engaged in the insurance program and was taking over

those duties. That is part of the reason why it stopped there, because we were

very reliant - we needed that expertise in-house.

MS THISTLE: So what you are saying is that if

somebody has the expertise and training, and have worked with government over

the years and they (inaudible) a consulting practice on retirement, that there

is no possibility of contracting that person's service for your board?

MS GALWAY: As was pointed out by Ms Peach, we

did not receive that specific directive, and we were operating under the

section

of the Act that gave us the authority to hire the staff that we required, and we

didn't realize at the time that we were doing anything untoward, particularly

having mentioned it already to the Minister of Justice. But in terms of going

forward from October, 1994 on, any time anyone has any sort of pension at all

that is a matter that would have to go before Cabinet, and we would submit that

as a Cabinet paper through the Minister of Justice.

MS THISTLE: (Inaudible) is critical for hiring

pensioners.

MS GALWAY: That is right.

MS THISTLE: Okay, thank you.

CHAIR: Any more questions, Anna?

MS THISTLE: No.

CHAIR: Mr. Whelan.

MR. WHELAN: Mr. Vardy, I wonder if you could

sort of go through the process of the way electrical companies, whether the

established companies or new companies, are involved with hydro projects.

(Inaudible). What process do they go through and what role do you play in

(inaudible).

MR. VARDY: If they are less than fifteen

megawatts they are referred to as non-utility generators and we do not really

regulate them that small.

MR. WHELAN: Under fifteen megawatts?

MR. VARDY: Under fifteen megawatts, that's

right.

In terms of presenting their plans, capital

budgets, the utilities generally come to the board with their forecasting, with

their load forecast and with their energy forecast. So, in the context of that

when a utility - and I am thinking particularly of Newfoundland Hydro - comes to

the board with their capital program and when they present the board with plans

with regard to the future, then they disclose the extent to which they would be

dependent and the extent to which they intend to procure power from non-utility

generators. So it is in that context that the board would have an opportunity to

review those. In terms of any kind of a regulatory process for those small

utility generators, we are not directly involved under the act.

MR. WHELAN: So fifteen megawatts is the

(inaudible).

MR. VARDY: That's right.

MR. WHELAN: Fifteen megawatts (inaudible).

MR. VARDY: Yes. If it is above that, then they

can apply to the board to become a public utility and the board then will deal

with any application from them to provide service.

Now, there is an anomaly in the act that we pointed

out and it relates to the definition of public utility, because the anomaly that

is there right now is that a company that is not currently a public utility

cannot become one. That is an anomaly in the act which we have pointed out and

which will have to be corrected. In that case, assuming that is corrected, then

any company which proposes to supply power would come before the board to seek

approval for rates, as would any existing utility. So that is essentially where

it stands right now.

MR. WHELAN: Are they compelled to go through

Newfoundland Hydro? Do they have to supply power to the grid or would they

realistically be able to expect (inaudible) to set up their own grid?

MR. VARDY: They would have to gain access. For

practical purposes, they would have to gain access to the existing grid and that

would require some kind of arrangement with Newfoundland Hydro; that is correct.

MR. WHELAN: To what degree does Newfoundland

Light and Power have the monopoly in the Province with regard to power? Is it

because it is so hard for anybody else to get into it or (inaudible) in the

Province with regard to the power lines (inaudible) that they have.

MR. VARDY: The concept of monopoly, public

utility monopoly, is a change in concept. In parts of North America there are

quite significant changes taking place with regard to the structure of the

industry, because traditionally the generation, transmission and distribution

has been viewed as being subject to natural monopoly. What is happening in other

places in North America is that the generation side of things is becoming

competitive and is being broken down separately; well, the generation in

particular. But there still remains a transmission line which is subject to

regulation because anybody supplying power would need access to the transmission

lines and would need access to distribution lines.

To get back to your question, in Newfoundland today

there is a monopoly. Newfoundland and Labrador Power does have a monopoly in

their franchise territory. In order to change that I think it would be fair to

say that legislative changes would be required. So, the answer is yes.

MR. WHELAN: These non-utility companies coming

up, obviously they, with the understanding of Newfoundland Hydro, would receive

their power. (Inaudible).

MR. VARDY: That is correct, they do.

Non-utility generators enter into a contract with Newfoundland Hydro. That is

basically how they proceed as opposed to dealing directly with the customers. It

is difficult for them to do right now, because, as I mentioned, there is a

problem with the definition of a public utility and there is a monopolistic

situation in place.

MR. WHELAN: (Inaudible). Anybody who would have

entered into a contract with Newfoundland and Labrador Hydro to sell power, 15

megawatts (inaudible), Newfoundland Hydro then would have to bring that before

the Public Utilities Board. Is that how it works?

MR. VARDY: If it is more than 15 megawatts.

MR. WHELAN: If it is more than 15, it may have

to come before the Public Utilities Board and argue their case?

MR. VARDY: Yes, that's correct.

MR. WHELAN: (Inaudible) and demonstrate the

need for such a development. Does the board then have the power to make a

decision and say that, in their estimation, the power is not needed? How does

that go?

MS GALWAY: I will just point out, there is a

slight definition and terminology that may be helpful. A non-utility generator

would be someone not considered to be a public utility. Presently, under the

Public Utilities Act definition,

section 3 defines a public utility, basically,

that has total installed generating capacity of the public utility at each

location within the Province at which the public utility has equipment, is less

than, and has been revised to 1500 kilowatts; so that makes them exempt,

essentially. That does not apply to them although they would initially fall

under the overall definition of a public utility. A non-utility generator would

not be a public utility. So that is a bit of a difficulty in terminology and we

usually get hung up on this when we are talking with the Department of Energy.

In any event, should a project be considered

appropriate, and Hydro was interested in entering into a contract with such a

venture, and if they qualified as a public utility to start with, to have that

capital program approved initially, and so on, you would still examine it under

the

section referring to planning, allocating, and reallocation of power and

facilities under the Electrical Power Control Act. That essentially allows you

to evaluate whether or not it is the most efficient cost-effective approach for

your power needs. That is the way the government has tried to begin its planning

towards these changes in the marketplace.

AN HON. MEMBER: I am not sure, and this is my

personal opinion, (inaudible) with new programs. There are several that under

construction today. In terms of the megawatts, they have entered into a

long-term contract with Newfoundland Hydro. What more would the board

(inaudible)? The board has to, I guess, put its own

interpretation on what is

before it. (Inaudible)?

MS. GALWAY:

Part 2 of the Electrical Power

Control Act, 1994, addresses those sort of issues. I think, in the scenario that

you described, it is as if the horse is already out of the barn. Where it should

come into play is before these plans for the next source of electricity are

firmly in place. There is a requirement, and they have responsibility under that

section, to appear before the board and look at these plans.

MR. FRENCH: I have a couple of questions I

would like to ask.

You say that the rate of return for Newfoundland

Power is at 11 per cent. Is that correct now?

MR. VARDY: That is what it was set at over the

past summer.

MR. FRENCH: That is probably about the only

thing in Newfoundland we can probably get at 11 per cent (inaudible) from banks

and this sort of thing. If we were investing in money in banks, I think that if

we got seven, or maybe a little over seven, we would be lucky. Is there any

thought to rolling back? When I see profits - in my district anyway - of $20

million or $30 million a year to Newfoundland Light and Power, it blows my

constituents' minds, and to be quite honest with you it blows my mind. I think,

with the low interest rates today, maybe we should be giving consideration to

lowering the rate of return to Newfoundland Power. I am just wondering if there

is anything on that on the agenda right now that would be leaning that way.

MR. VARDY: The rate that was set by the board

was based upon the evidence presented to the board up to the time of the

conclusion of the hearing. Now, if there are changes in interest rates and rates

of return on capital emerging in the marketplace that would warrant a change in

that, then the board would have to consider whether a further hearing should be

called, and that would not be based on just a couple of months; that would be

based on some kind of a trend that would have to be maintained over a period of

time.

MR. FRENCH: And that would come out in your

monthly evaluation totals?

MR. VARDY: Yes, that is right. Obviously,

things change. This month it may appear to be inappropriate; in six months' time

the rate of return that was awarded may, in fact, appear to be appropriate or

whatever. There is a continuing monitoring process. The market changes a lot. It

is fairly volatile. What we have to look at are the trends. As I said, the rate

that the board set at that time was based on the evidence that was before it at

that time and certainly not on any evidence that came before the board after the

end of the hearing. The board can only consider the evidence that is presented

up to the end of the hearing. Now there may be, in some cases, things that take

place between the end of the hearing and the writing of the order to which the

board cannot pay any attention.

MR. FRENCH: So when would this be reviewed

again?

MR. VARDY: This situation would be reviewed

continuously every month.

MR. FRENCH: Okay.

There is presently legislation before the House of

Assembly which will add more work to the Public Utilities Board if it is passed.

I'm just wondering, are you aware of this legislation, and if you are, how do

you propose to handle this with the limited staff that you have? Are you aware

of the new legislation?

MR. VARDY: Is this the expropriation

legislation?

MR. FRENCH: Yes.

MR. VARDY: Yes. This is something the Board has

discussed with the Minister of Justice and the Department of Works, Services and

Transportation. This is a new activity which the board would undertake. It is

something that would probably require, for most of these arbitrations, one or

two commissioners. We would not be looking at a full panel of the board in order

to reach those kinds of determinations. We would expect that most of the staff

work would have been done by other people before it comes to the board.

Certainly this is an additional responsibility. We

don't consider that to be an onerous responsibility, not as onerous as some

other aspects of our present responsibilities. We have looked at that, we are

aware of it, we have discussed it, and we feel the Board can handle it. At the

present we have only four part-time commissioners. We will probably want to have

the full complement of six part-time commissioners in order to be able to carry

out those responsibilities. We don't consider those to be onerous.

I think Ms Galway may add to that.

MS GALWAY: I will add just a little bit to

that. In the past, when we had responsibilities under the Motor Carrier Act,

there were ongoing small hearings all the time which provided a good training

ground, basically, for the commissioners. Now under the present regime there are

fewer hearings, and yet it is one of the most important functions that we

provide. So if we take on this role with the expropriations, it gives each

commissioner a chance to get a little bit more training in smaller hearing

settings. So it is useful to the board in that sense as well.

CHAIR: Okay, we will have one more question now

before we take a short break.

MR. FRENCH: Just a quick thing here, and then I

will ask the question. I hope the board monitors Newfoundland Light and Power

very, very closely over the next little while because my rates for past six

months have been pretty well downward, but I don't see interest rates moving

upward.

Yesterday, Mr. Vardy, you mentioned the work in

groups. I wasn't really sure what you were referring to. I didn't know exactly

what it was and I just made a note of it. If you could probably explain a bit

more as to what you meant by working in groups.

MR. VARDY: This was in the context of our

strategic planning process. We have, within the commission, set up these working

groups, and they are basically commissioners and staff as well as one person

from the Department of Justice, a person from the Department of Mines and Energy

and a person from the Department of Government Services and Lands who are

involved with us on these working groups. There is one on electric utility

regulation, there is one on automobile insurance regulation, there is one on

information technology, there is one on human resources and administration

within the board, and I may be forgetting one. Those working groups are

essentially to help the board in designing its strategic plan.

So, as I mentioned yesterday, what they are doing

is looking at what options are available to the board to improve the

effectiveness of our programs. They are looking, as well, at what the goals of

the board should be in terms of operational goals over the next twelve months

and what should be the direction, longer term goals, that should be set by the

board.

In the Auditor General's report, she had mentioned

that there is a need for a strategic plan. So these working groups are - this is

a mechanism with reviews to bring people together to work on these various

aspects of the strategic plan.

MR. FRENCH: So, if there are any expenses, they

are paid by the board?

MR. VARDY: Yes, that's right. We also have a

strategic planning coordinator consultant who we have hired through a

competitive process and this is a person who works with us as a facilitator and

does a little bit of writing for us. I mentioned four of these working groups.

The other one that slipped my mind was the one on communications and public

interface which is a very important one.

MR. FRENCH: Okay.

CHAIR: (Inaudible).

MR. FRENCH: I'm assuming that - let me go back

to insurance - that you people set a benchmark for the insurance as well?

MR. VARDY: Yes, we do.

MR. FRENCH: The same as you do with the PUB?

MR. VARDY: The approach is different with

regard to insurance in terms of - the benchmark approach is established in order

to establish ranges. When the applications come in, the files come in from the

insurance companies, if they come within the benchmarks then they are accepted.

If they come outside the benchmarks then they are not accepted. The benchmarks

are adjusted annually based upon the actuarial cost of each line of insurance;

namely, third party or collision or comprehensive, whatever the line of coverage

may be. So there is a benchmark and a benchmark range for each line of coverage.

It is different from public utility regulation

because there we deal with each company and we look at the actual audited

statements, the revenues and the cost of each regulated entity. In the case of

insurance, we look at the companies. When we establish the actuarial benchmarks

it is based on industry data as opposed to individual company data, and the

reason for that is because there are fifty-five companies.

MR. FRENCH: So each particular type of

insurance probably has it own benchmark?

MR. VARDY: That's right. Third party liability,

for example, there is a benchmark range for that, and there is a range as well

for collision and comprehensive. Mr. Byrne is the expert, so he might just want

to add to that.

MR. R. BYRNE: That pretty well covers it. The

only additional point is that each of these benchmarks is derived on the basis

of the current territorial designation; so there is a third party liability

benchmark for Territories 1, 2 and 3, which is based on the experience exhibited

as a result of the statistical information supplied to the board by the IBC for

each of those territories. It is a situation where each coverage for each

territory is costed out on a stand-alone basis.

The equitable average rate, being the benchmark, is

deemed to be the appropriate way to cover all the expenses of acquiring and

writing the business, as well as paying the claims associated with the coverage

in question.

MR. FRENCH: Who draws the different zones?

(Inaudible).

MR. R. BYRNE: That is under the

superintendent's automobile insurance statistical plan.

CHAIR: That is something set (inaudible) by the

superintendent authorities that the PUB (inaudible). It is not something that

they are involved (inaudible).

Mr. Lush.

MR. LUSH: Mr. Vardy, the Auditor General

(inaudible). I thought I would mention about a half-dozen points, but I can't

find even one right now. As I was reading the report, it seems to me that I came

across a statement (inaudible) that the board lacked a strategic plan, an

operational plan, and developed goals and objectives. I am just wondering; the

Public Utilities Board has been around for a long time. It is a serious

complaint to me, to think that an organization has no strategic plan; there are

no goals or objectives. Without goals or objectives you do not know where you

are going, and it is difficult to get there.

I am just wondering: When you came to this job did

you feel it? Because obviously, as you have said, the board has been around for

a long time, and this notion about goals and objectives came (inaudible)

particularly around the sixties and seventies. That is when we (inaudible) goals

and objectives.

I am just wondering, when you came to this job,

whether you felt that was a difficulty, that there was no strategic plan, no

goals or objectives? Did you feel that was an impediment (inaudible) perform

this function?

MR. VARDY: Well, of course, we did establish a

process for strategic planning. That was one of the things that we did, I guess,

last year when we set up this process which we have been talking about in terms

of the working groups and so forth. But, you know, one of the comments I would

make is that the board is a somewhat different animal, a different creature,

than most agencies. One can look at the need for... I do not disagree that there

is a need for a strategic plan, and we have embarked upon a strategic planning

process, but the board's mandate is quite clear in the legislation, and the

board knows what it is about. The board is, to a large extent, driven by the

legislation and the regulations with which we are dealing. The board has in

place ongoing processes in terms of audits and reviews, compliance audits of the

utility, and that kind of thing. I think that the board's jurisdiction is fairly

clear in that respect. What we have set out to do is really to look at quality

of service, to try to see how we could improve quality of service.

I would not want to leave the impression that the

board was drifting in any sense. The board has a clear sense of goals. They just

did not happen to be written down in a document called a strategic plan. There

had been reviews previously. There had been reviews undertaken by the Board.

There was a review done some years ago which was sort of intended to review

where the Board was and where it was going. This was done involving the chair of

the Board at that time along with some people from government.

While there was no document that was actually

entitled the strategic plan, there were other documents in the works. They were

in documents, for example, dealing with insurance that indicated the process the

Board was following, and there was a discussion paper on insurance regulation.

There were a lot of bits and pieces in the organization that were never pulled

together under a nice glossy cover and called a strategic plan. A lot of what

comes under the rubric of strategic plans are nothing but collections of

documents that get put together. What we are doing now is something a bit more

basic and a bit more fundamental.

I think it is fair to say that the Public Utilities

Board, in terms of a short answer to your question, was not without direction

and was not handicapped by the fact that it didn't have a nice glossy document

called a strategic plan.

MR. LUSH: I asked the question deliberately

because I (inaudible) your answer, and I realize that there are some

organizations that lend themselves more to establishing goals and objectives

than others. You have answered the question adequately in terms of the fact that

a lot of your duties are legislated. I suppose if you do everything that is

legislated, in a sense really the Board is a convenience.

You have stated here, in fact, that you are in the

process of initiating a strategic plan, stating your mission statement, and

probably outlining your goals and objectives. I'm just wondering if you could,

very briefly, give us an example of what might be a goal of the Board. Because,

again, the Auditor General mentioned in the annual report that she would like to

see results linked to goals and objectives. I just wonder what your perception

of that might be.

MR. VARDY: Yes. In terms of goals, what might

be goals that we would - I don't want to anticipate what might be in our final

document, but the kind of things that we would want to put in would be in terms

of operational goals for the coming year. We have in place a process with regard

to a review of contributions in aid of construction. That is an issue before the

Board. That is an issue we would like to deal with over the coming year. In

fact, we have a study being undertaken now by Doane Raymond.

One of the issues we would propose to deal with

over the coming year is, in fact, the whole business of contributions in aid of

construction, which relates to the extent to which people in remote areas should

have to contribute to an extension of the electrical line to service their

particular home or dwelling; or, for that matter, industrial customers, mines

for example that are setting up. We have a number of those right now under

consideration where the companies are developing mines and the utility has to

develop a transmission line to the mine. The question is: What kind of

contribution, in aid of construction policy, should be in place to ensure that

the rate payer is not burdened with the cost of an extended line to accommodate

a mine? These are the kinds of things we would want to look at in terms of

contribution in aid of construction. I use that as an example, on the public

utilities side, of things we should look at and we intend to look at.

Also, there is the question of intervenor funding

that I mentioned yesterday in my opening statement. We are working with the

Department of Justice to come forward with some ideas for the government to deal

with on intervenor funding, as to whether some kind of a more user-friendly

intervenor funding process should be put in place.

With regard to the new planning responsibilities

under the Electrical Power Control Act, the Board has expanded planning

responsibilities. One of the things we are looking at there is setting up a

process over the next year which would involve a review of all of the plans of

the utilities - Newfoundland Power and Newfoundland Hydro, in particular - just

to see whether they are conducting proper system planning. One of the

responsibilities of the Board is, in fact, system planning. Our responsibility

is to ensure that system planning takes place. These are the kinds of goals that

are on what I will call the public utilities side of things.

On the insurance side of things, there are a number

of goals as well that the Board sees as being important; one of which is to

review the current benchmark system that we have and to see whether the

benchmark system is the best way to regulate insurance companies, or whether we

should be moving toward a more company-specific approach, which might be one

where each company or each of the larger companies might be called before the

board to defend an application for increased rates which would then be moving

the insurance regulation more toward the motive that we have been using with

regard to electric utility regulation as opposed to the benchmark approach. So

this review of options is something on our agenda for goals over the next year.

Another thing that we have on our list is that we

have an audit approach to the automobile insurance rates. We are into a review

now of the auditing process and we want to review that over the next year as

well, just to make sure that the sample size is appropriately large and that the

audit is effective in disclosing compliance between the rates that are actually

charged and those that are filed and approved by the board. So those are some

examples of operational goals that we would hope to deal with over the next

year.

MR. LUSH: There seems to be a perception abroad

in the public, sometimes at least, that the board simply rubber stamps the

requests of the (inaudible).

I just want to use an example. I worked as a real

estate agent at one time in my illustrious career and I often had the feeling

that I was in a conflict of interest. If Mr. Burns listed his house with me I

felt obligated to give him a good price but I was also negotiating with the

buyer. How did I reconcile these two positions of trying to get him a good price

and getting a good price for the buyer, because I am working for both? I assume

the Public Utilities Board is in a similar position. I am just wondering whether

or not a specific goal or objective should not be stated in that regard, because

they are looking after the consumer and they are also looking after the company.

What is your position on that? It seems to me the

public is not aware of that, what the goal of the board is in working for these

two groups, the consumer and the supplier of the service.

MR. VARDY: I think that is an excellent

question, and is one that has concerned us. In our deliberations that has been a

central issue. What we have done is established a mission statement of the board

which is defined in terms of the balancing of the interest of the consumers and

the general public, including the regulated entities. Because we have a

responsibility to the public utility itself and we have a responsibility to the

consumers who are served by the public utility, and there is a balancing

process.

The question is: How can the board best reconcile

that process? In terms of the perception, one of the problems with the process

is that quite often what the public sees is the applicant, whether it is a

utility or an automobile insurance company, in a very strong position coming

before the board with strong expertise, where the board is presented with

evidence from one side by the applicant and then there isn't the countervailing

strength of expertise on the other side.

Of course, when the government appointed the

consumer advocate this past summer in Newfoundland Power, that was intended to

provide this balance before the board, between the applicant and the ratepayers

represented by the consumer advocate. There are situations where the board has

to protect the public interest and there quite often may not be other

interveners before the board.

I will give you an example. Over the last few weeks

we had a hearing in the capital account of Newfoundland and Labrador Hydro, and

that is a major part of our regulatory role. You do not hear much about it, but

we did advertise the hearing. The hearing was advertised for the general public

well in advance of the hearing and interveners were invited to come forward, but

the only intervener that came forward was Newfoundland Power. Newfoundland Power

came forward as an intervener in the capital program of Newfoundland and

Labrador Hydro; and that's fine. They came in and made an intervention and so

forth. But apart from Newfoundland Power there was nobody else there.

The board has the responsibility to ensure that

there is a balance struck and that all the evidence presented by Newfoundland

Hydro is tested by experts. Now, if there were no intervener in that hearing, if

Newfoundland Power did not intervene, then the responsibility of the board would

still be the same, to ensure that there is basically a challenging and a testing

of the evidence presented before the board.

This is something that is probably not well known,

that in those instances in the past where there has been no consumer advocate

parallel to such an office, the board has taken it upon itself to bring in

experts and to challenge the applicant. This has happened, I think it is fair to

say, in every hearing. If the major issue was rates, for example, a change in

the structure of rates, the board would bring in its own rate expert to

challenge the proposal coming from the applicant.

So, the board, as I said, does do this. The board

ensures that there is a balanced view. If it appears as if there are no

intervenors who are going to be presenting countervailing evidence, then the

board ensures that there is an expert coming forward who can challenge and test

the evidence of the applicant.

That brings you then to the question of perception,

and the perception is that, notwithstanding all of that, the applicant has a

strong position before the board. That is one of the things we are trying to

come to grips with. I do not have an answer to that, I don't have a pat answer,

but we do know that is a problem in terms of the perception of the role of the

board. One of the things that would be helpful is, if there were some mechanism

which would enable other interested parties to come before the board and to

challenge the applicant, whether it is automobile insurance or whether it is

public utilities or whatever. That is where I think the whole question of

intervenor funding comes in, because there are very few people who, even though

they might have a strong interest in the matter, are prepared to invest their

own time, to come in and to mount their own intervention. That does not mean

there aren't people from the public who will come in and make presentations; we

have experienced that. But in terms of providing a sort of a detailed

professional critique, there are very few people who are prepared to do that or

have the expertise to do it. That is why the board looks upon some kind of an

approach to this question of intervenor funding as being quite important to the

process, to make sure that the process not only is fair but is seen to be fair.

MR. LUSH: Perhaps, to be more specific: The

Auditor General (inaudible), with respect to Hydro, that the board hire a

consultant to review costs and that kind of thing, and makes reference to the

fact that, in terms of doing its reviews on Hydro, that it has to be done on an

annual basis. The fact that there could be several years between hearings, the

suggestion was made that this makes it difficult in terms of establishing the

continuity of costs. What are your reactions to the fact that the annual reviews

are not being conducted on a timely basis?

MR. VARDY: Well, up until December of 1995, the

board did not have full regulatory power over Newfoundland Hydro. So in terms of

doing an annual review, this was a matter of voluntary compliance by the company

with this process. In terms of the annual review, this is a practice that the

board has adopted. There is no statutory requirement for it. The board has done

this as a matter of convenience, to a large extent, so that when a hearing comes

up we do have the material before us and it is readily available. Of course, we

have done it in the case of Newfoundland Power as part of our normal, ongoing

supervision responsibility under

section 16. We had no such mandate with regard

to Newfoundland Hydro, so I think you have to make that distinction between

Newfoundland Hydro and Newfoundland Power. They are different animals in terms

of the control that the board had.

Under the old Electrical Power Control Act, the

board could only recommend to the Lieutenant-Governor in Council, and the

Cabinet, the Lieutenant-Governor in Council, would make a reference to the

board. When there was a rate application forthcoming, the board would conduct a

hearing and report to Cabinet, but we did not have the full regulatory power

with regard to Newfoundland Power. Now, of course, in the context of 1996, we

do. Under the new Electrical Power Control Act and the consequential amending

act, the board now is in a position where both of those companies are in the

same position and we regulate them in the same fashion.

MR. LUSH: There is one other item that the

Auditor General mentioned, and that with regard to (inaudible). The board does

not have the statutory right, or an obligation, to (inaudible) annual review of

Hydro. I have sort of been going all over the place here, but there was another

issue similar to the point you made comment on, that the Auditor General

mentioned that there was no annual report submitted to the House of Assembly. I

do not know whether the Auditor General was making a suggestion that there ought

to be a report to the House of Assembly, but (inaudible).

MS. MARSHALL: I recommended for almost all the

agencies of the Crown (inaudible) funded by government that a report be tabled

in the House of Assembly. (Inaudible).

MS GALWAY: Yes, we did prepare an annual

report. As part of the strategic plan in process we, in fact, are trying to

improve some of the content within that report. In addition to the matters that

the Auditor General just mentioned, we are also trying to make it an easier

document to read. It has been our history to prepare it and we have always

presented it to the minister. The insurance division prepares an annual report

and that is tabled in the House.

MR. LUSH: Would that report be sufficient? It

is presented to the minister. Ought that to be tabled to the House as well?

MS GALWAY: That is correct, yes. If the

minister is receiving the information, I think that members of the House of

Assembly should also be receiving the information.

MR. LUSH: So, we are not talking about a new

report, we are talking about the report that is submitted to the minister, that

ought to be tabled in the House?

MS GALWAY: Yes. (Inaudible).

WITNESS: (Inaudible) all organizations are

funded by government, to what extent (inaudible)?

CHAIR: Mr. Whelan.

MR. WHELAN: I just have a couple of things

actually. The Auditor General in her report noted that in

section 59, the act

requires the board to report to the Minister of Justice to (inaudible) public

utilities. It has been my understanding that most of the assessments that were

done (inaudible). I guess my question is: Did the board ever receive that

assessment, and if not, why not? (inaudible) have not receive them?

MR. VARDY: This was a company that went into

bankruptcy.

MR. WHELAN: Bankruptcy, okay.

MS THISTLE: I want to ask (inaudible) about the

Statements of Revenue, Expenditures and Surplus on page 38. Just a couple of

questions. I'm wondering why the revenue dropped down in 1994, around $200,000.

Is there any clear explanation for that?

MR. VARDY: Which year is this?

MS THISTLE: This is 1994 as compared to 1993,

on page 38.

MR. VARDY: We are operating with different

documents here.

MS THISTLE: It is the Doane Raymond report.

MS GALWAY: Would you like me to start?

MR. VARDY: Sure.

MS GALWAY: In 1993, we had a different, I

guess, jurisdiction. We were still more heavily involved in the regulation of

motor carrier. In 1994, that was phasing out, and some of the costs associated

with that you can see are reflected in the dip in the overall costs under

Expenditures. That dipped slightly as well. So the allocation of expenses

between the various entities changed. Is that the year we tried to -

MS DRAY: We gave the money back to (inaudible).

MS GALWAY: Right. That was the year after we -

you can see that the Expenditures over Revenue column, if you look under 1993

and go to the second last figure, there was $390,335 in surplus, basically from

the year before, if (inaudible). I guess in a business environment you would

almost say that it was closer to your net income. But the $390,335 resulted that

year from not having a full complement of commissioners. We had budgeted for the

consumer advocate's cost of $84,000 - $85,000. We had a normal travel budget for

that year that we didn't use because it was a year that government essentially

cut back. So we cut back a lot of our costs, and yet, due to the nature of our

assessments, we had assessed people up front when we thought these costs would

be incurred; so we reduced their assessment in 1994. That is part of the Auditor

General's commentary.

MS THISTLE: So having a surplus in 1993, would

that be a reason for the reduction in the government grant in 1994?

MS GALWAY: The government grant reduced, I

guess, partially for any surplus that might have occurred at the end of that

year. They would reduce that automatically in the next year's grant. In addition

to that, and perhaps more relevant, that area of our operation was deregulated

and some of the responsibilities that remained were transferred over to the

Department of Works, Services and Transportation. We had very little activity

going on, so that also was a contributor to the reduced grant from government.

It also was the year that they told us that we could no longer recover the cost

of the commissioners.

MS THISTLE: So, would you find in your annual

budget now, on a year to year basis, that you don't have any government grants

as such there? Do you always allow for a particular consumer advocate if the

need arises during the upcoming year?

MS GALWAY: In 1993, the consumer advocate's

position was a full time position. It was filled by Jeff Brace at that period of

time. The current provision is still under the public utility regulation - I

think it is 117 - and that is the prerogative of the Lieutenant-Governor in

Council to appoint a consumer advocate under that section. At this point, we are

under the impression that would happen with respect to a specific hearing and

then it would not be part of your regular budget. It would be included as part

of your regular costs for a hearing and billed directly under

Section 90.

MS THISTLE: Which government pays initially and

then it is billed back to, say, Newfoundland Power or whoever has the hearing.

Is that correct?

MS GALWAY: Well under

section 173, all costs

relating to the consumer advocate shall be borne by the board. Because of cash

flow dilemmas this year, the Department of Justice advanced us funds to help

cover the cost of the consumer advocate up front, and we have undertaken to pay

that back upon collecting it from Newfoundland Power; but it would normally be

our cost.

MS THISTLE: Under the section, miscellaneous

revenue, what would be the makeup of that? Where did that come from?

MS DRAY: Over the past few years we have not

been using our boardroom totally for hearings like we had in the beginning, when

we had motor carrier regulation. We have had some available space and we have

been tied into a lease. Besides that, when it came time for Newfoundland Power

hearings or anything like that, this space was very important to us. So we have

been renting out our hearing room whenever the occasion arises, mostly to the

Department of Justice.

MS THISTLE: So is there any set limit that you

can sort of include in that figure? Do you have any guidelines as to how high

your miscellaneous revenue should be before it is counted in some other section?

MS DRAY: We record it ourselves as rent

recovery, but when the auditors did the financial statements they didn't think

it was a significant amount, so they just put it under miscellaneous.

MS THISTLE: That's my question, thank you.

MR. LUSH: (Inaudible) question on the tabling

of reports and (inaudible) the Auditor General's (inaudible). I think we ought

to make the point that the board has been (inaudible) its responsibility in

preparing its report and presenting it to the Minister of Justice which is the

Statutory requirement.

I'm just wondering: Is the Public Utilities Board

the only exception to this? I know that there are documents or reports tabled.

Are you aware of any other government-sponsored agencies that don't?

MS MARSHALL: Most don't.

MR. LUSH: Most don't?

MS MARSHALL: Most don't. I believe last year

there may have been fifteen or twenty out of about 150 that tabled reports. The

majority do not require that (inaudible).

CHAIR: I just have one final question. You

spoke earlier in terms of an appropriate mechanism, whereby the balancing act

that you go through each and every year (inaudible) is receiving a fair and just

increase in terms of its maintenance and the ongoing competitiveness of the

company. Do you see the lack of a consumer advocate, or do you see possibly that

a consumer advocate's office should be re-instituted? Do you see that as an

appropriate mechanism?

Some have argued that the cost of a consumer

advocate, specifically during this period of time, would have more than

compensated for maintaining the office of consumer advocate over a period of

three or four years. Do you see that as part of a mechanism that would assist

the board in the balancing act it goes through?

MR. VARDY: My experience with this, as chair of

the board, this two-year stint as chair and chief executive office - in terms of

whether that is a representative period or not, I don't know. The argument that

was made initially was that there are periods when the consumer advocate really

wouldn't have a lot to do, and therefore why would you have somebody on payroll

if there are no active issues? That is why I think the government decided to

move toward an ad hoc arrangement and to put one in place when the need arises.

Without a very thorough analysis of the cost and all aspects of it, I don't know

whether I would want to come down on one side or the other. It is a government

prerogative as to how it wishes to proceed on that, and I don't think I wish to

express any kind of preference of one over the other.

CHAIR: Okay. You have also mentioned that

intervening funding, which is more to the point in terms of the mechanism you

were talking about, would give, I guess, greater power and control to the board

in protecting the public interest? Have recommendations are made to any

department of government with respect to intervening funding and how recent were

those recommendations (inaudible)?

MR. VARDY: We have been directed by government

to work with the Department of Justice to come forward with the options, what

are the options to put an intervenor funding arrangement in place. That is

something we are actively discussing right now with the Department of Justice,

how can this be put in place and how does that match with government's wishes

with regard to the consumer advocate; so that is essentially where it is. We

have done a fair bit of work on it in terms of whether it would be advantageous

to have such an intervenor funding model in place, and we will have the

information available to government so that they can make a decision as to what

is the best approach. From where we stand, the important thing is that there be

people in the hearing room who represent all sides of the issue.

CHAIR: Are there any further questions?

(Inaudible).

Mr. Vardy.

MR. VARDY: I think this has been a very

thorough analysis and it is very difficult to come up with an area that has been

overlooked. So I just wish to thank you for the opportunity to come before you

to explain what we do. As I mentioned to you, we like to take every opportunity

that is offered because we do know that the board is not well-understood. One of

the things that I have tried to do is - it is very difficult for the board to be

pro-active in terms of any kind of a public relations approach in the middle of

a hearing.

Prior to the onset - if I may use that term - of

the Newfoundland Power hearing, I was attempting to try to do presentations to

Rotary Clubs to try to explain the role of the board, but the reality is - and I

am sure my predecessors encountered this as well- that without the context of a

hearing and a rate application, people are as interested in the Public Utilities

Board as they are in watching paint dry.

CHAIR: Thank you very much.

WITNESSES: Thank you.

The committee stands adjourned.