Rep: OEB
Doc: 12NB4
Rev: 0

















ONTARIO ENERGY BOARD
Volume: 10
4 APRIL 2003
BEFORE:

R. BETTS
PRESIDING MEMBER
G. DOMINY
MEMBER





1RP-2002-0133

2IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c.15 (Schedule B); AND IN THE MATTER OF an Application by Enbridge Gas Distribution Inc. for an Order or Orders approving or fixing just and reasonable rates and other charges for the sale, distribution, transmission and storage of gas commencing October 1, 2002.


3RP-2002-0133


44 APRIL 2003

5HEARING HELD AT TORONTO, ONTARIO



6APPEARANCES


7PAT MORAN
Board Counsel
COLIN SCHUCH
Board Staff
TURGUT HASSAN
Board Staff
FRANK CASS
Enbridge Gas
TANIA PERSAD
Enbridge Gas
JAY SHEPHERD
OPSBA
THOMAS BRETT
OASBO





8TABLE OF CONTENTS


9PRELIMINARY MATTERS:
[20]

ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45 CONTINUED: BROOKS, COWAN, MEES, TURNER, LADANYI
[45]

CROSS-EXAMINATION BY MR. SHEPHERD:
[51]

CROSS-EXAMINATION BY MR. BRETT:
[1149]

CROSS-EXAMINATION BY MR. MORAN:
[1762]

RE-EXAMINATION BY MR. CASS:
[2217]

QUESTIONS FROM THE BOARD:
[2242]





10EXHIBITS


11EXHIBIT NO. K.10.1: DOCUMENT ENTITLED "NEWS RELEASE: ENBRIDGE CONTINUES TO DELIVER IN THE FIRST HALF OF 2002"
[1301]

EXHIBIT NO. K.10.2: E-MAIL FROM COLIN GRUENDING AT ENBRIDGE.COM WITH ATTACHMENTS, ENBRIDGE's 2002 YEAR-END FINANCIAL RESULTS AND DISCLOSURE
[1303]

EXHIBIT NO. K.10.3: SINGLE PAGE NEWS RELEASE FROM ENBRIDGE ENTITLED "ENBRIDGE COMPLETES TRANSFER OF U.S. NATURAL GAS SYSTEMS TO ENBRIDGE ENERGY PARTNERS"
[1305]

EXHIBIT NO. K.10.4: EXCERPT FROM THE AFFILIATE RELATIONSHIPS CODE
[1744]

EXHIBIT NO. K.10.5.A: WESTCOAST ENERGY INC. CORPORATE CENTRE VALUE ANALYSIS: FINAL REPORT
[1750]

EXHIBIT NO. K.10.5.B: WESTCOAST ENERGY INC. CORPORATE CENTRE REVIEW OF cost-allocation methodology, NOVEMBER 1995
[1752]

EXHIBIT NO. K.10.5.C: REVIEW OF FEES CHARGED BY WESTCOAST ENERGY INC.'S CORPORATE CENTRE, DECEMBER 20, 1995
[1755]

EXHIBIT NO. K.10.5.D: WESTCOAST ENERGY INC. CORPORATE CENTRE VALUE ANALYSIS, 1997 BUDGET: FINAL REPORT, PREPARED FOR UNION GAS LIMITED AND CENTRA GAS ONTARIO INC., JUNE 10, 1996
[1758]




12UNDERTAKINGS


13UNDERTAKING NO. J.10.1: TO PRODUCE CALCULATIONS WITH RESPECT TO CAPITAL EMPLOYED, ENTERPRISE FTES, AND CORPORATE FTES, ALONG WITH EXPLANATION
[874]

UNDERTAKING NO. J.10.2: TO PROVIDE A LIST OF SIGNIFICANT ACQUISITIONS AND DIVESTITURES OF INVESTMENTS THAT ENBRIDGE HAS PARTICIPATED IN IN THE LAST THREE YEARS
[1394]

UNDERTAKING NO. J.10.3: TO PROVIDE INFORMATION ADVISING OF THE NUMBER OF PEOPLE IN THE CORPORATE OFFICE OVER THE PERIOD ANNUALLY SINCE JUNE OF 1994 AS OF JANUARY THE 1ST OF EACH YEAR SINCE THEN, OR FOR AS MANY YEARS AS THERE ARE RECORDS
[1415]

UNDERTAKING NO. J.10.4: TO PROVIDE ORGANIZATIONAL CHARTS OF THE CURRENT CORPORATE OFFICE ALONG WITH ANY EARLIER YEARS CHARTS FOR CORPORATE OFFICE AS AVAILABLE
[1426]

UNDERTAKING NO. J.10.5: AN UNDERTAKING TO PROVIDE A LIST OF ALL OFFICERS OF ANY ENBRIDGE COMPANY WHO ARE DIRECTORS OF AN ENBRIDGE COMPANY
[1902]

UNDERTAKING NO. J.10.6: UNDERTAKING TO CONFIRM: DID THE ENBRIDGE GAS DISTRIBUTION BOARD OF DIRECTORS REVIEW THE COST-ALLOCATION METHODOLOGY
[2056]

UNDERTAKING NO.J.10.7: JUST AS YOU HAVE ALLOCATED FROM THE CORPORATE CENTRE AT EI A NUMBER OF THINGS THAT INVOLVE DIRECTORS AND OFFICERS AND THEIR TIME AND EXPENSES ASSOCIATED WITH THEIR TIME TO SERVE ALL THE OTHER COMPANIES, HOW HAVE YOU DONE THE SAME THING FOR THE CORPORATE OFFICERS OR DIRECTORS AT EGDI IN THE CONTEXT OF THEIR CONTRIBUTION TO THE REST OF THE COMPANIES?
[2203]

UNDERTAKING NO. J.10.8: TO PROVIDE AN UNDERTAKING WHICH INDICATES HOW THE CORPORATE CHARGES ASSIGNED TO ENBRIDGE PIPELINES HAS CHANGED OVER THE SAME PERIOD OF TIME AS FOR ENBRIDGE GAS DISTRIBUTION
[2269]




14--- Upon commencing at 9:47 a.m.

15	MR. BETTS: Thank you everybody. Please be seated.


16	Good morning, everybody, and I'm glad to see everybody that I think intended to be here today and, certainly, we will acknowledge for the record that the snow conditions were bad. The driving conditions were bad, so -- and that certainly explains a slight delay in starting time.


17	When we concluded the day yesterday, we were part way through cross-examination of this panel, and the indication was that Mr. Shepherd, Mr. Brett, and Mr. Moran would have questions for this panel today, and I believe that's still the case.


18	Before we begin, are there any preliminary matters?


19	Mr. Cass.


20PRELIMINARY MATTERS:


21	MR. CASS: Mr. Chair, there are three undertaking responses from the DSM witnesses that are prepared and ready to be filed. These are responses to Undertakings J.6.5, J.6.6, and J.6.8.


22	MR. BETTS: Thank you. We will circulate those now, then.


23	Thank you.


24	MR. CASS: Also, Mr. Chair, I understand that the panel that is now on the stand is in a position to answer verbally three of the undertakings given by this panel, so it would probably be appropriate for me to do that quickly and get those answers on the record at this time.


25	MR. BETTS: That would be appropriate.


26	MR. CASS: Panel, Undertaking J.8.5 was an undertaking to confirm whether or not there is a unanimous shareholder's agreement for Enbridge Gas Distribution, and I understand that someone can answer that.


27	MR. LADANYI: Yes, I can, Mr. Cass. There is no unanimous shareholder's agreement.


28	MR. CASS: Thank you.


29	Undertaking J.9.12 was an undertaking to determine whether the intercorporate services agreement of October 2002 was reviewed by the Enbridge Gas Distribution board. Can someone answer that?


30	MR. LADANYI: Yes, I can again, Mr. Cass. It was not reviewed by the board.


31	MR. CASS: Then finally Undertaking J.9.3 was a series of questions starting with the question as to whether the prior agreement between Enbridge Gas Distribution and Enbridge Inc. contained a right to audit by Enbridge Gas Distribution. Then there were further questions that followed if, in fact, that right to audit was contained in the prior agreement.


32	Can someone address that, please.


33	MR. LADANYI: Yes, I can. I'm not sure if I heard you correctly, that was J.9.13. I'm not sure whether you mentioned the right number.


34	In any event, there was no right to audit in that agreement; and therefore, the subquestions are not relevant, because obviously it was not exercised, because there was no right to audit.


35	MR. CASS: Thank you.


36	MR. BETTS: Thank you, Mr. Cass.


37	MR. CASS: Thank you, sir.


38	MR. BETTS: Any further preliminary matters?


39	Mr. Cass?


40	MR. CASS: Not on my part, Mr. Chairman.


41	MR. BETTS: From any other parties?


42	There appear to be none.


43	Mr. Shepherd, please proceed with your questions.


44	MR. SHEPHERD: Thank you, Mr. Chairman.


45ENBRIDGE GAS DISTRIBUTION PANEL ON ISSUE 7.45 CONTINUED: BROOKS, COWAN, MEES, TURNER, LADANYI


46	K.BROOKS; Previously sworn.


47	W.COWAN; Previously sworn.


48	M.MEES; Previously Sworn.


49	R.TURNER; Previously Sworn.


50	T.LADANYI; Previously Sworn.


51CROSS-EXAMINATION BY MR. SHEPHERD:


52MR. SHEPHERD: Mr. Ladanyi, let's start with you, since you're all warmed up.


53Can I take you back to your direct evidence on the impact of the settlement agreement. If I understand correctly, you said that the amounts charged by EI to EGD are not in issue, because they are included in the O&M settlement; do I have that right?


54MR. LADANYI: That is correct.


55MR. SHEPHERD: Does that mean that the ADR effectively agrees to the 21.8 million of charges that EI is charging to EGD this year?


56MR. LADANYI: No, it does not. What it means is that the charges, as far as recovery in the rates are concerned, have been reduced by the reduction in the O&M from $305 million that we requested originally to 270. I'm excluding the DSM number.


57So within that reduction, there is also a reduction relevant to Enbridge Inc. We don't know what it is because we have not specifically identified it, but that does not mean the Board is specifically either agreeing to this or not. It is within the settlement, within the amount settled.


58And that's why there is no further adjustment required.


59MR. SHEPHERD: So do I understand correctly that there is no Board-approved amount of these charges this year?


60MR. LADANYI: There is a settled amount. There is no specific amount, and the amount is within the envelope. We do not know what it is, because there's no specific identification of what the number is, but it's within the global $270 million envelope.


61MR. SHEPHERD: What I'm driving at, Mr. Ladanyi, is in a subsequent year, we're not going to hear you say that the number for this year was 21.8 million.


62MR. LADANYI: No, I wouldn't say that, I would say the requested number was 21.8 million. The actual number will, of course, be whatever it is and we will report it at that time.


63MR. SHEPHERD: I also -- do I understand correctly that it's open to this Board in its decision to decide what it thinks the right amount is for this year? It won't affect the O&M envelope, but it can tell you what it thinks the right amount is, the settlement agreement.


64MR. LADANYI: Well, let me put it this way. What the right amount is, I guess, would have to be looked at in two ways. One way is what is the right amount for recovery in rates, but we already know what the right amount is for the recovery in rates; it's within the envelope. So they will have no rate-making impacts. What the right amount that Enbridge Gas Distribution should be paying to its parent, the Board can comment on it. I don't know whether it's going to have any effect on rate-making as such.


65MR. SHEPHERD: Now you indicated that the $270 million O&M envelope in ADR implies some reduction of the corporate allocations?


66MR. LADANYI: That's right it implies, if any -- I'm not saying that there are going to be any reductions, what I'm saying is it is within the envelope entirely. So there is no further adjustment required. We are essentially, as Enbridge Gas Distribution, we are required to manage all the costs within the envelope. That's the understanding of the settlement agreement, and this will be one of the costs that we will manage. How we will manage it will be entirely up to the management of the company.


67MR. SHEPHERD: So you could pay any amount you want to EI?


68MR. LADANYI: As far as we understand, yes.


69MR. SHEPHERD: And in your understanding, is that consistent with the Affiliate Relationships Code?

70MR. LADANYI: It is, yes.


71MR. SHEPHERD: But your evidence before this Board right now is that there is an agreement between EGD and EI, a signed agreement, to pay $21.8 million; isn't that right?


72MR. LADANYI: That's right.


73MR. SHEPHERD: Has that been renegotiated?


74MR. LADANYI: No, it has not.


75MR. SHEPHERD: Has any action been taken to renegotiate it?


76MR. LADANYI: No.


77MR. SHEPHERD: So as of right now, your evidence before this Board is that EGD is going to pay $21.8 million to EI.


78MR. LADANYI: I think the number is a little bit less than 21.8 million.


79MR. COWAN: Marginally less, it's 21.1.


80MR. LADANYI: It was adjusted in evidence. But in any event we can speak for, roughly, $21 million; yes?


81MR. SHEPHERD: I'm a little confused here. You have to cut $35 million out of your O&M this year; right?


82MR. MEES: Yes, yes, we do.


83MR. SHEPHERD: And it's April now. I assume that you've started to make those cuts.


84MR. LADANYI: Let me explain again. It's the settlement and -- has to do with how much money is going to be recovered in rates. What the company spends, it's really up to the management. We can spend more or less and it's always been that way. So what's been settled is for the purpose of designing and setting rates. That's the only thing that we did here. We are not -- you're not limiting on how much the company can spend; it can always spend less or more and there will be a variance.

85MR. SHEPHERD: If you make cuts, those cuts can't be things like reducing your use of the corporate jet, can they?


86MR. LADANYI: I don't know what they're going to be. It would be speculating; it could be anything.


87MR. SHEPHERD: Well, you have a methodology that allocates costs. It's irrelevant how much you use the corporate jet, isn't it? The methodology sets the number.


88MR. COWAN: I believe the methodology allows for other major changes that may occur in the structure of the enterprise, so there are exceptions and conditions that can be adjusted.


89MR. SHEPHERD: Ms. Brooks, you designed this methodology. It uses cost drivers exclusively; correct?


90MS. BROOKS: That's correct.


91MR. SHEPHERD: In order to change the number of 21.2 million you'd have to change the cost drivers, right?


92MS. BROOKS: Or change the level of cost. I wouldn't expect we would change the cost drivers.


93MR. SHEPHERD: How would you change the level of costs? The costs are what they are, right, at the head office?


94MS. BROOKS: Well, as Mr. Cowan suggested, if there is a substantive change in the business activities of the organization, we could look to recognizing some kind of a true-up between actual and budget expenses.


95MR. SHEPHERD: But except that you don't do that; right? Your system doesn't do that, it's a methodology that allocates based on a formula, not based on actual use.


96MS. BROOKS: No, but the methodology does allow for a true-up --


97MR. SHEPHERD: Okay.


98MS. BROOKS: -- to actuals with no change in the cost drivers. The cost drivers are developed to allocate the costs on the basis of the activities in the particular department so I wouldn't expect those would change dramatically as a result of change in business activities.


99MR. SHEPHERD: Mr. Turner, in your report, you said that this methodology does not include a true-up from actual to budget; isn't that right?


100MR. TURNER: Subject to the terms of the contract, which provide for adjustments in the event of material business change; that's correct.


101MR. SHEPHERD: So is the $35 million reduction in the approved amount at EGD a material business change, Ms. Brooks?


102MS. BROOKS: We haven't analyzed that. I wouldn't think so.


103MR. SHEPHERD: So then back to my original question: Isn't the truth that one of the areas that EGD cannot cut is the amount it pays to EI?


104MS. BROOKS: I don't believe that that's necessarily true. The -- well, the ADR settlement is fairly recent, most of the senior EGD staff have been involved in the hearing. We haven't addressed how the settlement deals with the corporate cost allocation. So to the extent that the corporate office would choose to elect in cost-cutting activities to assist EGD in the achievement of the cost production it is trying to achieve, that could constitute a major change in business activities and would result in an adjustment of the allocated amounts.


105So I think it's incorrect to say that the amount will never change. There is an opportunity for the amount to change. The methodology does not preclude an adjustment to the allocated amount.


106MR. SHEPHERD: You're presenting the cost-allocation methodology in a certain way, right, as you presented it here with certain rules?


107MS. BROOKS: Yes.


108MR. SHEPHERD: Okay. I just asked you whether a $35 million reduction in the Board-approved O&M constitutes a material change and your immediate reaction was no. That's the only circumstance in which you true-up to budget -- to actual; isn't that right?


109MS. BROOKS: But I followed on to say that we have not analyzed it. The corporate office may decide to participate in cost reduction activities of the utility, in which case I think we would consider that a major change. We don't know whether it is yet because the work hasn't been done to determine whether or not it is.


110MR. SHEPHERD: Okay. So let me back up a stage.


111This Board is trying to understand your methodology, and in order to do that it has to understand what the important terms mean. What does the material in material change mean? Or is that simply in the judgment of EI?


112MS. BROOKS: It would be in the judgment of EI and the business units. That decision is not made solely by EI. So that answers the latter part of your question. I think the first part of your question was: What constitutes a material change? We left that wording specifically vague, perhaps, is the best word, to allow us some latitude in determining when a true-up would be appropriate. In the context of the methodology when we were developing it, what we thought of to be a material change in business activities would be a material acquisition of another line of business or enterprise or a material divestiture of a current line of business. But as I said, the -- it's not specifically described because you do want to leave yourself some definitional room in determining what a material change is.


113MR. SHEPHERD: For example, it doesn't mean very cold weather or very warm weather, does it?


114MS. BROOKS: No, that's a normal operating activity.


115MR. SHEPHERD: Even if it's big weather change, that's not a material change in this methodology?


116MS. BROOKS: That's correct.


117MR. SHEPHERD: Mr. Turner, I wonder if I could turn to you for a few minutes -- well, maybe longer than a few minutes.


118Actually, just before we leave that, Mr. Turner, is that what you understood the term "material change" to mean?


119MR. TURNER: I would have -- first of all, I've read the agreement only a couple of times, and I do not know what a material change would mean as a matter of contract law.


120In an accounting sense, a material change would be something that would be looking at the total dollars involved, and you could debate whether it's total dollars or looking at a line-by-line item.


121I would have thought it would be something that would significantly affect the amount that is charged through that would either call into question the underlying amounts and have a material impact or a very significant impact on the amounts, or would have a material impact or a substantial impact on the choice of drivers.

122MR. SHEPHERD: So you would have used the accounting test of materiality as opposed to the legal test as it were?


123MR. TURNER: I'm -- I'm speaking as an accountant and say it's a matter of contract law. I don't know how it would be interpreted under contract law.


124MR. SHEPHERD: Thanks a lot. Sorry, that was a little aside.


125MR. TURNER: Well, that wasn't it.


126MR. SHEPHERD: Now, you've been presented and accepted by -- I might add -- as an expert in transfer pricing. I understand you're the chair of the transfer pricing practice for Ernst & Young worldwide.


127MR. TURNER: That is correct.


128MR. SHEPHERD: So for all of Ernst & Young around the world, you're the chair of that practice for transfer pricing?


129MR. TURNER: That is correct.


130MR. SHEPHERD: Are you the same Bob Turner that was involved in scientific research tax credit transactions in '83 to '85.


131MR. TURNER: I certainly am. There may be others, but I'm one of them.


132MR. SHEPHERD: I sympathize with you; so was I.


133In respect of the SRTC deals on which you worked, were any of the participants in those deals -- you worked on quite a number of them; right?


134MR. TURNER: Yes.


135MR. SHEPHERD: Were any of the participants in any of those deals charged with any offences under the Income Tax Act of Canada or the Criminal Code?


136MR. TURNER: I am aware of one individual for whom you refused to act who was so charged.

137MR. CASS: Mr. Chair, maybe the relevance of this is going to become clear fairly quickly, but it certainly is not clear to me at this point. And I wonder if Mr. Shepherd might tie this into something relevant to the case.


138MR. SHEPHERD: Mr. Chairman, could I ask my next two questions, and it will be obvious.


139MR. BETTS: I will entertain Mr. Cass's questions again after each of those if there doesn't seem to be direction in them. So please ask another question.


140MR. SHEPHERD: Thank you.


141Mr. Turner, just to make sure that I don't leave the wrong impression, as I apparently have started to, I'm right, am I not, that you were never charged or disciplined professionally in any way for your involvement in the SRTC transaction? Nothing in your SRTC involvements ever impugned your personal or professional integrity in any way; right?


142MR. TURNER: Absolutely not.


143MR. SHEPHERD: Okay. I just wanted to make sure that I'm right on that, because what I'm really after here, Mr. Turner, is it's fair to assume, isn't it, that after that experience -- if you're like me, anyway -- after that experience, you became even more careful and more skeptical about the information that clients provided to you without checking it, substantiating it; isn't that right?


144MR. TURNER: I think I've always been known to be skeptical of information throughout my career. As accountants, chartered accountants, we are trained to be skeptical.


145MR. SHEPHERD: And in the course of this engagement, did you approach the information you were provided by the company with that same level of skepticism and wishing to test it to make sure the information provided was correct?


146MR. TURNER: Within the scope of our engagement, that is correct.


147MR. SHEPHERD: Thank you.


148Now just before I get to your report itself, by training, you're actually a tax specialist, right?


149MR. TURNER: Right.


150MR. SHEPHERD: And the bulk of your transfer-pricing work - and I've read some of your stuff, it's quite extensive - the bulk of your work is in the tax context?


151MR. TURNER: Yes, it is.


152MR. SHEPHERD: Transfer pricing in the tax context is a very technical area.


153MR. TURNER: As I described both yesterday and the day before, it's -- because it's more of an art than a science I'd say it's less technical, it's very judgmental.


154MR. SHEPHERD: There are quite a lot of rules, though.


155MR. TURNER: There are a fair amount of principles and in some jurisdictions there are extensive rules, yes.


156MR. SHEPHERD: Yes, including Canada.


157MR. TURNER: Canada is more principled than detailed rules.


158MR. SHEPHERD: And in fact the rules and the principles in the tax area, they're quite different than those applicable in the regulatory context, aren't they?


159MR. TURNER: I'm not sure that I would extend it to say quite different. However, as I often say in speeches or in talking to clients or even internally, I equate it much to transfer-pricing rules are very common around the world but it's much like DNA. I understand that DNA between a human and a chimp is about 95 percent the same, so those 5 percent differences can be quite significant. And I would say in the transfer-pricing area between tax and regulatory, there's at least 5 percent difference. That can be significant, yes.


160MR. SHEPHERD: The -- when you're doing transfer-pricing analysis in a tax context, it's true, isn't it, that the essence of what you're doing is you are allocating profits between jurisdictions or between entities within a jurisdiction so that the right jurisdiction gets to tax them or the right -- or the right entity is taxed for those profits; isn't that right?


161MR. TURNER: As a very high level summary of it, that's a fair summary, yes.


162MR. SHEPHERD: And in a -- in the process of allocating costs between regulated and unregulated entities, as here, it's not about allocating profits, is it? It's about allocating costs.

163MR. TURNER: Well, as I said at a very high-level, that was a very fair summary. If we look at transfer pricing in the corporate world -- sorry, in the tax world, because one is allocating profits it's a matter of allocating revenues and costs or a combination thereof or a charge for assets. So it's broader than -- the net result is one of allocation of profit.


164If one is looking at it in this sense where we're looking at allocation of costs, costs do have an impact on profit as well. So if you drill down to the level of dealing with costs we could do a lot of cost allocation world in the transfer pricing world, yes.


165MR. SHEPHERD: Let's go to your report. You have said, I think, that you are the principal author of this report.


166MR. TURNER: I am the partner responsible for the engagement. It's an Ernst & Young report.


167MR. SHEPHERD: Did you write it?


168MR. TURNER: My senior manager wrote it.


169MR. SHEPHERD: And who is that?


170MR. TURNER: Paula Kelly.


171MR. SHEPHERD: You revised it or enter edited it in some way?


172MR. TURNER: I certainly did.


173MR. SHEPHERD: I have a number of questions for you, Mr. Turner, and I wonder, as Mr. Janigan and Mr. Warren did, if I could ask the rest of the members of the panel to let Mr. Turner answer first, just because some of these are about what Mr. Turner knows and I'd like to see what he knows before I hear what other people know.


174So let's start with page 1 of your report. I'm not going to go through every page, I assure you. On the first page you tell us, I'm just trying to find it here, you tell us why Enbridge Inc. has centralized certain functions and services. Now, that's not your conclusion, is it; isn't that what Enbridge told you?


175MR. TURNER: That is a statement of fact, yes, and it sets the context for our review and our report.


176MR. SHEPHERD: It's a statement of fact given to you by Enbridge.


177MR. TURNER: Yes, and it's consistent with our observations as well.


178MR. SHEPHERD: You did some sort of verification of that?


179MR. TURNER: Well, we did determine that the -- sorry, let me just go back.


180We were presented with a preliminary schedule of costs by our client. The final summary of costs is attached as appendix A to our report on page 38.


181We then discussed with our client the scope of our engagement, and we agreed that due in part to the timing, as was, I think, evidenced yesterday, the engagement started in November and was concluded the second week of December. In fact, I believe the report was actually issued on the 12th of December.


182So within a six-week period, that was a fair amount of potential work to be done. And all things considered, we agreed with the client to limit our review to departments with allocations over $500,000.


183So --


184MR. SHEPHERD: Let me just stop you for a second, Mr. Turner. I am trying to figure out how your answer is responsive to my question, and maybe you could either tell me or get to it, please.


185MR. TURNER: Maybe you could repeat the question.


186MR. SHEPHERD: You said Enbridge Inc. has centrally located these --


187MR. TURNER: Yes.


188MR. SHEPHERD: -- and services to ensure greater economies and efficiencies, et cetera, et cetera.


189That statement of fact is not one that is a statement that you are making. It's a statement that Enbridge made to you; is that correct?


190MR. TURNER: Yes, and what I am -- the point is that for the departments we looked at, we found nothing that was inconsistent with that statement.


191MR. SHEPHERD: So you determined that there were greater economies and efficiencies?


192MR. TURNER: We -- there are two elements to this. They did centralize, and we determined that. Their purpose was to achieve greater efficiencies and savings, and that is a statement of their assertion. We saw nothing inconsistent with that.


193MR. SHEPHERD: You sought no other purpose apparent?


194MR. TURNER: No.


195MR. SHEPHERD: Okay. This is not a conclusion on your part that they actually achieved greater economies or efficiencies, is it?


196MR. TURNER: No, it is not.


197MR. SHEPHERD: And as I understand it, you weren't asked at any time to advise Enbridge on the pros and cons of centralizing these services, were you?


198MR. TURNER: No, we were not.


199MR. SHEPHERD: And you weren't asked about the design of the system, how you would design it if you were starting from scratch, were you?


200MR. TURNER: No, we were not.


201MR. SHEPHERD: And so in the next paragraph, again you talk about the objectives of the cost-allocation exercise, and those objectives again are things that Enbridge has told you, and you've simply seen nothing that is inconsistent with that.


202MR. TURNER: That is correct.


203MR. SHEPHERD: And so you've done no testing of that to see what -- no rigorous testing of that to see whether those were, in fact, the objectives and whether those objectives were met?


204MR. TURNER: I believe that the materials produced in evidence, which summarize the Enbridge methodology and approach, state these as part of their objectives.


205So beyond that, no, we did not.


206MR. SHEPHERD: Did you at any time form a conclusion as to whether, if you had been asked to advise either whether they should do this or how they should do this, you would have recommended this -- that these services should be centralized or that this system should be used to allocate the costs?


207MR. TURNER: We were looking at the facts as they were on the table. They had made that decision. It was not within the scope of our responsibilities or discussion to question that decision.


208MR. SHEPHERD: During the course of this, you never thought to yourself, well, if I were doing this, how would I do it?


209MR. TURNER: I'm going to answer this in two parts. And I'll tell you, firstly, when we were looking at the facts that were on the table and the evaluation of the particular cost drivers, of course we would have asked, If I were to do this, what other alternatives would be on the table that would either indicate that the methodologies or the cost drivers chosen are valid or invalid. That was part of the -- our engagement.


210However, it was not part of our engagement now or previously or at any time to go back and say, if I were playing the role of a management advisor, would I advise them to do this or do that?


211MR. SHEPHERD: So you did look at other alternatives?


212MR. TURNER: Yes, we would have.


213MR. SHEPHERD: So what were the other alternatives you were looking at?


214MR. TURNER: Well, again, I believe it was referred to or alluded to in the course of evidence that what you are trying to do is determine the -- a cost driver that, consistent with the facts as to what is being done and the benefit being enjoyed or -- this is the factual benefits being enjoyed, what is the best way of ensuring, or what are the available ways of ensuring that the appropriate cost is being charged out and no more than the appropriate cost is being charged in, given, as I mentioned yesterday, that the selection of drivers does have an impact on what is charged.


215Also taking into account this granularity factor that I discussed yesterday where ideally you would look for the most direct driver, and at the same time, one has to understand that in order to achieve administrative convenience, it's not always possible to re-invest the wheel or create a system to track things down to a high level of granularity.


216So in that process, one looks at experience in this area in looking at drivers. You look at the underlying facts. You interpret them. You look at possible drivers.

217So an example would be I got an invoice for this from a third party. It relates directly to a benefit, let's say, for EGD. The company in those cases does charge those through directly.


218We're now looking at charges that are not so indirect so one could look and say, I want to account for time, or I want to look, and we go back to the HR department. I think that was discussed briefly yesterday as well. Normally you would take HR department costs and allocate them on the basis of full-time equivalents. Why? Because they deal with people.


219So in looking at each of the departments you look at a number of potential cost drivers to, you know, again, form a view as to whether the cost driver chosen is appropriate.


220MR. SHEPHERD: So you looked at other cost drivers besides the ones that are used?


221MR. TURNER: We did not do any -- I -- in a way, I feel like we're trying to count angels on the head of a pin, but basically our engagement was not to do an evaluation of what other methods were possible in the sensitivity or, if we chose this one, what answer would you get? If you chose that one, what would you get?


222We were not engaged to do any benchmarking. We were asked to evaluate the facts as they were on the table. We found that the drivers were consistent with the facts, and the facts supported the cost drivers.


223MR. SHEPHERD: Well, okay. I'm confused here.


224I'm quite sure I asked you the question: Did you look at other alternatives, and you said, Yes. And in fact, you said, For example, I looked at other cost drivers.


225So then I said, Did you look at other cost drivers? And I think you just said, No. I'm really confused.


226MR. TURNER: I'm sorry for the confusion. It's -- the differences are very subtle, and I'm trying to -- I'm trying to be clear. Let me restate, if I may.


227You asked about professional skepticism being taken into account. When we approach the -- let's take directors, if I may. Or better yet, no, let's take the aviation, if I may.


228I believe it's been discussed in evidence that under the previous cost-allocation methodology, flight operations were allocated on the basis of flights. When we -- when the aviation department met our criteria for review, we did ask the company, Why are you not continuing to use flights? Why did we ask that question? Well, we would have asked that question for two reasons:


229One, in the past they had used flights as a basis, and secondly, one instinctively would have thought -- or one's gut feel would have been, Well, wouldn't flights be the appropriate way?


230So when you ask if we asked about other methods, it was so that we could better understand the reasons and the rationale behind the methods that were applied. We were not there to second-guess or to recommend to them that they use another driver. We were there to review and give our opinion based on all of the facts as to the suitability of the drivers they selected.


231MR. SHEPHERD: Now I understand.


232MR. TURNER: So that was one of the questions that we did ask.


233They explained to us the concerns with the previous driver. They also outlined to us their factual -- the facts that they believed were relevant. Taking all of those facts into account, through the course of our review, we concurred that the driver selected was reasonable, taking into account all of the facts.


234In fact, asking about the application of the flight time and some of the difficulties with the flight time selection of a driver, supported, in our view -- supported the company's selection of the cost driver they selected.


235So we were not there to -- we were there getting facts, and in the course of getting facts, we asked them about other cost drivers that might have been available, what they selected, and why, so we could better understand their approach and methodology.


236MR. SHEPHERD: So you say you weren't there to second-guess the system. I take it what that means is that no part of your evaluation was to determine whether this was the best system for them to use. You reached that conclusion.


237MR. TURNER: Yes, I think that is -- that's fair; slightly overstated. I think we have to come to the conclusion that all of the facts being on the table it was a reasonable conclusion.


238MR. SHEPHERD: Now reasonableness, I think I heard you say yesterday that in your view, reasonableness equates to fairness.


239MR. TURNER: Yes.


240MR. SHEPHERD: So I take it then that if this -- that if you haven't determined that this is the best system of allocation, you also haven't determined that this is the most fair system.


241MR. TURNER: There are other alternatives. We were not -- because we did not do and were not asked to do a sensitivity analysis and look at the outcomes, it's hard to say whether it's the most fair. It is a fair allocation system. It's not to say that it's the least fair, either.


242MR. SHEPHERD: Now, you've advised as a fact on page 1 of your report that the total budget is 96.5 million. And I understand that that's the total of all expenses of Enbridge Inc.; is that right?


243MR. TURNER: Based on the materials we saw, yes.


244MR. SHEPHERD: As part of your engagement did you get copies of the unconsolidated financial statements of EI for any fiscal period?


245MR. TURNER: I'd have to go back and check the file. I don't recall.


246MR. SHEPHERD: As part of your engagement did you get access to any of the original books of entry or detailed accounting records of EI or EGD?


247MR. TURNER: We were dealing with budgets so we looked at the budget information we felt was relevant. So we did not -- we saw budgeted information. We did not go to general ledger accounts because budgets are not recorded in the general ledger accounts until the activities or expenditures take place.


248MR. SHEPHERD: Aside from the budget, what source documents containing financial information did you review as part of your engagement?


249MR. TURNER: As part of the undertaking yesterday, we undertook to provide a listing of all documents that we reviewed and we have not compiled that exercise. Is will be part of the undertaking.


250MR. SHEPHERD: Do you remember any financial source documents?


251MR. TURNER: I asked my staff if they reviewed the costs and budgets and they told me yes they have, so I will have to get you the specific details of what we reviewed. I did not.


252MR. SHEPHERD: Normally when you do an engagement like this and you're looking at how a budget is going to be allocated, isn't one of the things you look at historical costs?


253MR. TURNER: No, it is not.


254MR. SHEPHERD: Why wouldn't you look at that?


255MR. TURNER: We were not asked do verify the accuracy, and I think one of the qualifications is here we relied upon the information that we were provided and that information was the budgets that they have produced into evidence.


256MR. SHEPHERD: So then you didn't in any way verify that any of the amounts being allocated were reasonable as amounts, right? You're looking at the methodology and whether the methodology produces a relatively reasonable number, not whether the number itself is reasonable. Because you didn't actually look behind the numbers you were given, did you?


257MR. TURNER: That is correct.


258MR. SHEPHERD: Okay. Now I think you said you got a copy of the October 1st agreement between Enbridge Inc. and Enbridge Gas Distribution as part of your review.


259MR. TURNER: Yes, we did.


260MR. SHEPHERD: Do you know when you received that?


261MR. TURNER: We would have received it in early November, but that is an assumption. We will confirm that when we do that response to that undertaking.


262MR. SHEPHERD: It didn't have the confirmation notice attached to it, did it?


263MR. TURNER: The confirmation notices are dated approximately a week following the delivery of our report.


264MR. SHEPHERD: Did you get a copy of the previous agreement dated January 1st, 2000, as part of your engagement?


265MR. TURNER: I do not specifically recall.


266MR. SHEPHERD: But part of that undertaking will be, we'll know that.


267MR. TURNER: Yes, sir.


268MR. SHEPHERD: Mr. Warren took you through a couple of the qualifications, I just want to ask a couple of questions about them that he didn't cover. As lawyers, many of us are familiar with qualifications and opinions. This one at the top of page 2 says: "Your review," and I'm quoting here, "was limited to the procedures performed on the selected departments and general expense categories." Then it refers us to section 5, pages 19 to 21.


269Do I understand that these pages, pages 19 to 21, represent a complete list of everything you did as part of this engagement? Is that what that qualification means?


270MR. TURNER: That's what it's intended to mean, yes. Those are the procedures we followed, yes.


271MR. SHEPHERD: Okay. Now, you are an expert in this field. Do you think it's fair to say that in looking at a report like this, this Board, for example, or anybody else looking at it, should consider what procedures you took and the thoroughness of them, their opinion of the thoroughness, in determining the weight to be given to your report?


272MR. TURNER: With respect to the report itself, yes. With respect to the overall assessment, there are a number of other facts that are on the table that I would expect the Board would take into its evaluation and this report is just a part of the mosaic.


273MR. SHEPHERD: Go to page 3, please. You see in the last full paragraph there, the last sentence which is another qualification is: "The conclusions of this report rely upon the accuracy and completeness of the information that was furnished by Enbridge Gas Distribution and Enbridge Inc. during the course of the engagement."


274And that's because, if I understand you correctly, the only data you had in your review was data provided by the companies; is that right?


275MR. TURNER: That is correct.


276MR. SHEPHERD: So for example, you didn't look at any comparables, similar allocations in other companies?


277MR. TURNER: No, we did not.


278MR. SHEPHERD: Did you at any time review market prices for any of the services being provided?


279MR. TURNER: No, we did not.


280MR. SHEPHERD: Now, I see allocations for legal services and audit services and things like that, these all have market prices, don't they?


281MR. TURNER: Yes, they do.


282MR. SHEPHERD: And a company can hire a third party to manage HR policies or administer pensions and do treasury functions; these are all available in the marketplace?


283MR. TURNER: Yes, they are.


284MR. SHEPHERD: But you didn't look at the market price for any of this.


285MR. TURNER: No, we did not. This was a cost-allocation study.


286MR. SHEPHERD: Moving on to page 4 of your report, Mr. Turner, you note that Enbridge -- where is this -- here we are, the second last paragraph. You say: "The company's activities are comprised of regulated and non-regulated businesses."


287Are you aware of what the scale of those categories is?


288MR. TURNER: I'm sorry, I didn't hear.


289MR. SHEPHERD: Which companies are regulated, which are unregulated, how much they are? When you look at your chart, do you know the regulatory framework of each of the components of the --


290MR. TURNER: Our focus was EGD, I know that that's regulated, and if I looked at the list of companies I could make educated guesses as to the balance of them.


291MR. SHEPHERD: So if we look at your schedule A, you have a -- do you have a good idea of for each of those columns what their regulatory environment is?


292MR. TURNER: In very general terms. Again, we were focussing on EGD.


293MR. SHEPHERD: When you are doing an allocation, do you just look at what was allocated to one particular target or do you look at the overall allocation and see whether it's fair overall?


294MR. TURNER: It depends upon the terms of the engagement. For this engagement we were engaged only to look at the charges that were allocated to EGD. Our engagement was with EGD.


295MR. SHEPHERD: I guess I'm not asking what EGD asked you to do, Mr. Turner. You're an expert in this field; I'm asking what's the right way to do it.


296MR. TURNER: That is the right way, if you are a user.


297MR. SHEPHERD: Is it not a better way if you are looking at the methodology to see whether the methodology consistently works for all of the participants?


298MR. TURNER: Again, it depends upon the purpose of the review. If, for example, I am engaged -- and I'll go back to the tax world because it doesn't disclose stuff for our clients in the regulated industry -- if I am engaged by a Canadian parent company to look at its allocation methodology, then it would be reasonable to be take a look at that on a global sense. If I am engaged by a subsidiary of a non-Canadian corporation to review the charges, then my focus will be on the charges to that subsidiary. And that actually brings in more granularity to the review.


299So which is better? It depends upon what you're trying to achieve. Here we're trying to look at the methods for charging costs into a particular company, primarily from the view of that company.


300MR. SHEPHERD: If a cost allocation system or methodology systemically, understand what that means, systemically, allocates -- shifts costs from unregulated or not cost of service entities to cost of service regulated entities, that will tend to increase the overall profits of the enterprise, won't it?


301MR. TURNER: It may or may not.


302MR. SHEPHERD: Well, okay. In what circumstances would it not?


303MR. TURNER: If they are disallowed costs.


304MR. SHEPHERD: Okay. Assuming that they are allowed by the regulator in the cost of service environment, the effect will be to increase the profits of the overall enterprise; isn't that correct?


305MR. TURNER: The way I understand it, it depends whether they are allowed costs that are allowed a profit element, in which case, yes.


306MR. SHEPHERD: And as part of your review of the methodology, did you look at whether there was any systematic bias in the methodology in favour of allocating more costs to cost of service regulated entities?

307MR. TURNER: I'm not aware of any bias.


308MR. SHEPHERD: Did you look at it?


309MR. TURNER: We would have -- again, in trying to assess the reasonability of the cost drivers over all, and in reaching our conclusion that I'm sure you will come to on page 36, but in reaching that conclusion, we were, of course, looking to see what all the relevant facts were to ensure that it was reasonable to conclude that there was no such bias in the allocation.


310MR. SHEPHERD: Thank you.


311I'm going to leap over to page 8 you'll be pleased to know, and here you're talking about how in (ii) -- no, sorry. In (iii) you talk about managing the overall direction of areas, the strategy and policy area; do you see that?


312MR. TURNER: Yes, sir.


313MR. SHEPHERD: And so you give as an example accounting policy. You are in accounting; right? Like an accountant; right?


314MR. TURNER: Yes, I am, last I looked.


315MR. SHEPHERD: So, for example, if the CICA introduces a new set of rules for, pick one, amortization of intellectual property -- that seems to be a hot topic these days -- someone has to analyze how it will affect the Enbridge business units; right?


316MR. TURNER: Yes.


317MR. SHEPHERD: And make a determination as to how they will react to that new policy, what -- it will happen -- how the companies will deal with it in a practical sense; right?


318MR. TURNER: Yes, sir.


319MR. SHEPHERD: Now, yesterday Mr. Mees used accounting policy as an example in his discussion with Mr. Warren asking rhetorically, How do you want quantify not having proper accounting policies? Do you remember that?


320MR. TURNER: I remember that, yes.


321MR. SHEPHERD: And in fact, if EGD could not rely on EI for accounting policies, they'd have to do it themselves, wouldn't they? You can't not have accounting policies.


322MR. TURNER: I would say that's the case, yes.


323MR. SHEPHERD: So the real issue, isn't it, as you're looking at it in terms of the appropriateness of the methodology, the real issue surely is whether it's cheaper to have someone at head office do this or someone in the business unit. Isn't that the real comparison?


324MR. TURNER: I -- the reason I have difficulty in responding to that question is that that's not the fact that's on the table and was being evaluated, and that was not the purpose of our engagement.


325Management makes that decision. That decision's been made.


326MR. SHEPHERD: So if it's more expensive to do it at head office, that's okay? That wasn't part of your review?


327MR. TURNER: No, it was not.


328MR. SHEPHERD: All right. Let's --


329MR. TURNER: It's --


330MR. SHEPHERD: I thought that would be tougher.


331MR. TURNER: Well, no, if I may go back and refer to a specific question yesterday, there was a question as to what the benefits were, and the company's identified what the benefits were. That wasn't our role. It's that simple.


332MR. SHEPHERD: In theory -- the point here is that the analysis should only be done once; right, that you shouldn't have different people doing it. That's duplication; correct?


333MR. TURNER: Again, I think if you -- if you go back, and you're looking at the analysis for any of these things, you can't just make a blanket statement that something should be done once. It depends upon the scope of the review and the relevance to the particular entity.


334So it may be a difficult area. For example, it's not uncommon for us in the course of our work to go out and get second and sometimes third opinions on matters because of the complexity or the sensitivity or the materiality or significance of a particular event.


335So I don't think it's correct to say that you only make that decision once.


336MR. SHEPHERD: But the company's purpose in centralizing that sort of activity, accounting policy, which is an example you gave --


337MR. TURNER: Yes.


338MR. SHEPHERD: -- is to avoid duplication by having one group do it at head office and have it apply to all the business units?


339MR. TURNER: That's correct, yes.


340MR. SHEPHERD: And it's supposed to save money?


341MR. TURNER: It's supposed to be a more efficient process, yes.


342MR. SHEPHERD: Okay. So let's just look at that -- at the example, the CICA rule change.


343Now, Enbridge Gas Distribution doesn't care about the financial statement presentation in a public company, does it?


344MR. TURNER: I believe it does.


345MR. SHEPHERD: Why would it? It's not a public company.


346MR. TURNER: I understand it has publicly traded debt.


347MR. SHEPHERD: Okay. So it does.


348MR. TURNER: So it does care. And if you go back and look at some of the drivers, the drivers relate to the asset base or the capital base, the capital employed and because EGD is a borrower, it cares very much about its capital base.


349MR. SHEPHERD: Okay.


350MR. TURNER: So that led us to conclude that in the cases where it was used that the capital employed was the appropriate driver.


351MR. SHEPHERD: But there are also, for these changes, there are also implications for the utilities accounting, right? The utility accounting is not the same as EI accounting.


352MR. TURNER: So I understand, yes, that's one of the points that came up yesterday when there was a discussion about rate base and capital employed.


353MR. SHEPHERD: Yes. I remember.


354Now, the utility accounting analysis, that has to be done by somebody who is familiar with the utility accounting and who understands, in the case of EGD, the particular regulatory environment in Ontario; isn't that right?


355MR. TURNER: That is correct.


356MR. SHEPHERD: So presumably that analysis would be done by somebody in Toronto, somebody at EGD.


357MR. TURNER: It may or may not. There may be people outside of Toronto familiar with the requirements in Ontario. I'm not saying that's the case in EI or EGD, just in general terms.


358MR. SHEPHERD: You didn't look at that.


359MR. TURNER: No, we did not.


360MR. SHEPHERD: As I understand it, one of the things you did is you talked to the accounting staff at EGD; correct?


361MR. TURNER: Yes, we did.


362MR. SHEPHERD: And you asked them whether it would be more efficient to have local people within the utility do particular aspects of the work that was being done by people in Calgary.


363MR. TURNER: We did not ask if it was more efficient, we asked them if they were benefitting from services provided by the staff in Calgary, were they supplemental or duplicative, we asked those questions. Again, our engagement was not to benchmark or determine efficiency.


364MR. SHEPHERD: The -- when you had these interviews with the various people at Enbridge Gas Distribution, there was somebody from EI with you at all times, right? Is that what you said yesterday?


365MR. TURNER: There were people from the company with us. I'm not sure whether there were people with us at all times that were from EI. I'd have to check with our staff that did the interviews.


366MR. SHEPHERD: If I understand the procedure you had is you took your working notes, but in terms of documenting those interviews you left that to the company representative there to fill in a template that you had prepared for them.


367MR. TURNER: The -- there's two sides of this, and one side is what Enbridge Inc. is doing and that was the responsibility of the Enbridge Inc. people to ensure that those were completed. If I've left the impression that EI people were at the interviews here in Toronto, I may have been mistaken. I'll have to check with our staff.


368MR. SHEPHERD: Well --


369MR. TURNER: Again, I just want to clarify the process. We went back and we looked at the various departments and we've already discussed the $500,000. Now, in order to do a determination of the related facts, we have to talk to people, that's called a functional analysis; how big is your department, how many people are in it, how big is the budget, what do you do, what is the scope of your services.


370We then take that information and go to the EGD pipeline and say okay tell us about your department, what support do you get from Calgary, what do you need from Calgary. And in order to do the first step in those interviews, we've -- we asked EI to provide us with certain information whom do we contact, give us some basic information about the nature and scope of the operation and then we will go and frame our questions.


371MR. SHEPHERD: I thought I heard you say yesterday that E&Y staff did not document the interviews in any formal way because the EI participants at those interviews were expected to document them.


372MR. TURNER: I was referring to the EI portion of the interviews that they were doing that and we relied object our notes from our discussions with EGD people. But there's no -- if you look at our report, our report does not include a functional analysis. We did not do that. Like we did not write a functional analysis report. We carried out our functional analysis interviews.


373MR. SHEPHERD: If I understand correctly, the company gave you a functional analysis and you reviewed through the interviews whether you thought it was reasonable.


374MR. TURNER: The company gave us elements of a functional analysis, our interviews comprised a functional analysis. We did not write a function analysis report.


375MR. SHEPHERD: You did a functional analysis?


376MR. TURNER: We did a functional analysis, yes. I apologize for the confusion on this part. Functional analysis is both used as a description of the process as well as a description of the end report or a written report.


377In the reports -- so a functional analysis report is a written description of activities and the relevant facts. We did not create a functional analysis report. A functional analysis is who, what, where, when why and how, the questioning process, the interview process. In getting the information for the who, what, where, why, when, et cetera, you can either get it entirely orally through interviews or you can, as we did in this case, ask for certain basic information to help focus our questions to the most relevant factors.


378So we -- and you will see from the listing of documents that we got from the company, we did get some preliminary information and descriptions. We had asked them for certain specific facts relating to each of the different departments we selected. We got varying amounts of written information from them with respect to each of the areas we were going to look at, and we used that for carrying out our functional analysis procedures.


379MR. SHEPHERD: Now I'm completely confused. I want you to turn to page 19 of your report, please. And in section (i), you say: "We reviewed the functional analysis prepared by Enbridge to determine the scope and nature of the services being provided." Now let me just stop there.


380So a functional analysis was prepared by Enbridge; is that correct?


381MR. TURNER: Elements of a functional analysis report were prepared by Enbridge.


382MR. SHEPHERD: Your report says they prepared a functional analysis. Did they or didn't they?


383MR. TURNER: They prepared the following which we have called a functional analysis in this report. They prepared information relating to what the department was, the contact name and phone, the location address, the budgeted amounts, number of personnel in the department, a summary of the services that were being provided, a summary of what they believed the benefits to be, and that's what we used for framing our interview analysis.


384So we relied on that information in order to conduct our interviews most efficiently and effectively.


385MR. SHEPHERD: I wonder if I could get an undertaking to provide us with a copy of that functional analysis provided to you by Enbridge.


386MR. TURNER: I believe it's in the undertaking.


387MR. SHEPHERD: It's already --


388MR. COWAN: That we gave yesterday, wherein I believe there was a question of information supplied to Ernst & Young in the course of their review, and this is, in fact, one of those elements. It would be included in that.


389MR. SHEPHERD: So still in the --


390MR. MORAN: Mr. Chair, I'm not sure which undertaking that would be and --


391MR. COWAN: It's 9. --


392MR. MORAN: There's J.9.7, which is to produce a list of documents reviewed for E&Y report.


393MR. COWAN: And then it goes on to say to produce copies of documents not in evidence, subject to confidentiality issues. And we had anticipated that these analyses would be one of those elements.


394MR. SHEPHERD: You have no confidentiality issues about the functional analysis?


395MR. COWAN: We do not have confidentiality issues with that.


396MR. BETTS: That was all incorporated with 9.7?


397MR. SHEPHERD: Yes, sir


398MR. MORAN: Mr. Chair, just for the record.


399MR. SHEPHERD: Still on that same paragraph on page 19, Mr. Turner, where you say: "The functional analysis included an assessment from Enbridge Inc.'s perspective as a service provider of the benefits provided to Enbridge Gas Distribution." That's not your functional analysis that included that it's theirs, right?


400MR. TURNER: That's correct.


401MR. SHEPHERD: So in the papers that they gave us we'll see that assessment.


402MR. TURNER: Yes, you will.


403MR. SHEPHERD: And similarly, you were --


404MR. TURNER: Let me qualify that. I'm not sure whether we got that for every one of the departments. You'll see what you see. You'll see what we got. We certainly asked for that.


405MR. SHEPHERD: And the next sentence which talks about the value proposition, again, that's -- that was in their documentation, that's not something that you did.


406MR. TURNER: That's correct.


407MR. SHEPHERD: Okay.


408MR. TURNER: Again, this is -- I just want to go back to the context. You're looking to get all the relevant facts and circumstances on the table. And as came out in examination yesterday, you know, well, we really get answers and well, will people open up. And we say well, one of the processes we follow is to go and say, you give us your view, you give us your view, and let's try to understand how they are consistent or inconsistent with one another. So we needed a starting point. And rather than go through very long and detailed interviews eliciting these things, we asked Enbridge Inc. to summarize these things for us and then let us go and kick the tires.


409MR. SHEPHERD: When you did the interviews you had a template; right? Have you given an undertaking at some point to produce that template?


410MR. TURNER: That is the undertaking we just referred to.


411MR. SHEPHERD: So the template will also be included in 9.7?


412MR. TURNER: Yes, what you will get is -- we asked them to fill out the template, so it will be obvious what the template is. If you want an unfilled-out template we will provide that as well.

413MR. SHEPHERD: I guess I understood that you didn't know whether they had ever filled out the templates.


414MR. TURNER: I'm -- the extent to which the templates were completed for each department varied, and so if we didn't have a fully-complete template for a particular operation that we looked at, we completed it ourselves or we got the information ourselves that we thought was relevant.


415MR. SHEPHERD: So you'll provide all templates that you have as part of the undertaking?


416MR. TURNER: Yes, that's information we got from them.


417MR. SHEPHERD: Whether the company prepared them or you prepared them.


418MR. TURNER: The company -- well, yes, I believe -- whatever.


419MR. SHEPHERD: Yes, I -- I take it -- I take it whatever means yes.


420MR. TURNER: You will get what we got.


421MR. SHEPHERD: I'm not asking that. I'm asking will we get what you prepared as well which is not what you got?


422MR. TURNER: You will get the templates in their completed form that we currently have. I believe the information evolved over time and -- but you will get what we relied on in the course of our report.


423MR. SHEPHERD: Thank you.


424Mr. Chairman, I'm just about to move into a new area and it will probably take 20 minutes or so. Would you like to break now or would you like me to go through that and then -- or break at some point in between? I'm in your hands.


425MR. BETTS: I think since it's likely to be a shortened day, perhaps we will break now and allow everybody a little bit of time to catch their breath and we'll return after that and continue with your line of questioning then.


426MR. SHEPHERD: Okay.


427MR. BETTS: So I see by the clock it's roughly five minutes to the hour. Perhaps if we aim to be back here at 11:15 as a target. We will stand adjourned.


428--- Recess taken at 10:55 a.m.

429--- Upon resuming at 11:23 a.m.

430MR. BETTS: Thank you, everybody. Please be seated.


431And Mr. Shepherd, please continue with your questions.


432Are there any preliminary matters, first of all? Sorry.


433Sorry, Mr. Shepherd, please continue.


434MR. SHEPHERD: Thank you, Mr. Chairman.


435Mr. Turner, we were on page 8 of your report, and I see at the bottom of the page you will note that there are approximately 160 employees in the corporate office. I understood from Ms. Brooks yesterday that there's actually 155 now. Is that right, Ms. Brooks?


436MS. BROOKS: Yes, it is.


437MR. SHEPHERD: Thanks.


438MR. TURNER: I would regard that as approximately 160.


439MR. SHEPHERD: Thanks. I'm not impugning your numbers, Mr. Turner. I just wanted to make sure my math is right for the rest of these questions.


440MR. TURNER: It is a different number.


441MR. SHEPHERD: So you have 155 people generating 96.5 million of expenses. That's more than $620,000 a person. That just -- intuitively, that seems like a high number to me. Is that a fair statement, Mr. Turner, that it's a high number?


442MR. TURNER: 32 million of it is insurance premiums, so I think when you look at the details, it is not necessarily, intuitively, a high number.

443MR. SHEPHERD: Well, let's turn to your schedule A. And conveniently, you've actually segregated what appear to be to me the sort of people oriented costs in a subheading, subtotal, "Total Corporate Cost and COE" which is $39 million. The other things that are direct paid to third parties are generally in the bottom section; is that right?


444MR. TURNER: I'm not sure that that would be correct. If you look at a number of the expense categories, I believe that they would logically include amounts paid to third parties, for example, the CIO's department.


445MR. SHEPHERD: Okay. Well I -- maybe Mr. Ladanyi or Mr. Cowan, maybe you could help me with this.


446If I understand your current budget correctly, that is what is approved this year, 270 plus the O&M budget, 270 plus the DSM. If you deduct the corporate allocations from that, you have about $260 million to spend within EGD; is that right?


447MR. COWAN: I wouldn't want to make that inference at all that that's what we're going to do. Simple math would come out the way you've described it.


448MR. SHEPHERD: But as you said earlier, you might spend more or less. It's just that you won't be able to recover it from ratepayers?


449MR. LADANYI: Correct. What happens in a rate decision, the Board determines what costs are to be recovered in rates, i.e., what numbers will we use for rate-setting purposes. And the utility will spend whatever, you know, it needs to spend.


450And if it's more, if it's less, there's going to be a variance that will have to be explained in a future year.


451MR. SHEPHERD: That's fine. I wasn't going there, Mr. Ladanyi, but thank you for that clarification.


452And I think I heard Ms. Brooks say yesterday that there were 1,900 employees, which I take it to mean that there's about -- that EGD will spend about $135,000 an employee on average.


453MR. COWAN: Could you help us see where that information is coming from.


454MR. SHEPHERD: 260 million divided by 1,900.


455MR. COWAN: 260 million --

456MR. SHEPHERD: That's your net, because you're not -- you're not spending money on -- internally on the corporate cost allocations, are you?


457MR. COWAN: These are entirely your -- it's a hypothetical construct here. We'll have to take it at face value. If that's the math, that's the math.


458MR. LADANYI: I'm just trying to understand what you're trying to do. Are you assuming that the entire O&M budget is salaries; is that what you are assuming?


459MR. SHEPHERD: Not at all, no. It is common, isn't it -- who are the accountants on the panel?


460Ms. Brooks, you are an accountant?


461MS. BROOKS: I am.


462MR. SHEPHERD: And, Mr. Cowan, you're an accountant?


463MR. LADANYI: And I'm an accountant.


464MR. MEES: And I am an accountant.


465MR. TURNER: And I'm an accountant.


466MR. COWAN: But some of us are other things as well.


467MR. SHEPHERD: Well, let's not get into that.


468The metric of costs per employee is one that's sometimes used in large stable businesses; is that right?


469MS. BROOKS: Yes, with various definitions of "cost."


470MR. SHEPHERD: And so it's not unreasonable to look at costs per employee in EGD and costs per employee in EI, and if there's a huge difference, wonder about it, is it?


471MS. BROOKS: The nature of the operations of the two offices are very different, so I'm not sure it is a valid comparison. One is a cost centre, one is an actual operating business unit. I'm not convinced they would be comparable.


472MR. SHEPHERD: Okay.


473Mr. Turner, I'm moving to page 12 of your report, and there you say, and I quote: "Through the use of corporate services, Enbridge Gas Distribution is able to generate cost savings and synergies, which produce cost savings for customers."


474Now, I take it from our earlier discussions, that's not one of the conclusions of your report, is it? That's a fact that was given to you.


475MR. TURNER: That is correct. That is correct. This is all encompassed in section 2 of our report, which is a description of the business, which is really information coming from the company and trying to set the context of the overall review.


476Yes, that is the company's assertion.


477MR. SHEPHERD: So there are, actually, quite a number of statements of fact in your report that are statements that were given to you that you haven't independently verified by empirical evidence; isn't that right?


478MR. TURNER: That is correct.


479MR. SHEPHERD: So I wonder if you can undertake to file a copy of your report in which every statement of fact that is not something that you have verified is redacted out of the report.


480Unless you've cited it, and said here's my source, I would like you to file a copy of the report with all the statements of fact that are just bold statement of fact without a cite and you have not personally verified are removed.


481MR. TURNER: Well, it may be physically possible to do so, but I don't understand the relevance. Maybe you could help me.


482MR. SHEPHERD: Well, I guess I'm trying to -- I don't want to have to go through every line of your report, Mr. Turner, and ask: Is this something you verified, or is this something you verified? I'd like to just know completely what are the things that are things that you are telling us, and what are the things that you're simply accepting what the company told you.


483And I mean, I assume there are some things in this report that you're actually saying, this is what I or what we, Ernst & Young, are saying.


484MR. TURNER: I would say if you took -- and it's always dangerous to take things out of context, but if you take section 6 of the report, that summarizes -- no.


485Actually, sections 3, sections 2, consist largely of information upon which we relied. If you take the responses to the undertaking that we referred to earlier with respect to the documents, you would see the documents we obtained from the Enbridge companies.


486And if you then redacted everything out of it, and you look at section 6 of the report, that's our work. We relied upon the information that was provided to us to reach our conclusions, together with an understanding of the governing principles and concepts, together with our experience in the area.


487We formed -- our engagement was to form an opinion based on the facts that were given to us. And to try to divorce the opinion from the facts that were given to us, I don't think is appropriate.


488MR. SHEPHERD: So do I understand you correctly to say if I look at section 6, everything in there is what you're saying -- if you said -- made a statement of fact, it's something you've verified?


489MR. TURNER: This is our analysis of the facts as they are on the table.


490MR. SHEPHERD: Are there any unverified statements of fact?


491MR. TURNER: Well -- I'm not asking you to go through it now. I asked you for an undertaking and I'm frankly happy to have that when you get a chance. I don't really need you to go through it now unless you insist.


492MR. CASS: Mr. Chair, I'm in the Board's hands on this one. I'm hard pressed to understand how this information that Mr. Shepherd is pursuing is going to be meaningful to the Board even assuming that the type of separation he's talking about can be done, but I don't know. Perhaps the Board has some notion that this is a useful request, in which case, then, as I say, I'd be in the Board's hands.


493MR. SHEPHERD: Mr. Chairman, what we found is that Mr. Turner on a number of occasions has said that unattributed statements of fact in his report are not his statements of fact, they're the company's. And in order to understand what his report actually means, what work is he (sic) and why, we have to know what is his work and what is the company's statements.


494I can't tell from his evidence what that is, and the simplest way, it seems to me, is to have him take out everything that isn't his. It may -- there may be not a lot left, but -- that's what I'm expecting.


495MR. TURNER: No, I -- if it may help the Board, I've taken -- I've scanned section 6 of the report and I think it's clear from that what our analysis is of the relevant facts. And I think if you take that together with the information that's coming from the undertaking, I don't remember the specific number of it, with respect to the documents, it would be clear as to what we -- we've done and the conclusions we've reached.


496MR. BETTS: Mr. Shepherd, does that provide you with the comfort you need or not?


497MR. SHEPHERD: Well, unfortunately, Mr. Chairman, what it means is that I have to now take him through section 6 and ask him, Well, is this statement of fact yours or is it the company's, et cetera, and it's 12 pages. I'm just trying to avoid that.


498MR. BETTS: We'll -- just give the panel a moment to consider this.


499[The Board confers]


500MR. BETTS: Thank you. It's certainly an interesting question. The panel is not prepared to ask that the document be redacted, but we are prepared to take as much time as is required, Mr. Shepherd, for you to determine which facts are independently derived and which ones were derived from the applicant. I appreciate that may extend time, but our concern is that the redacted version will become complicated to understand and read.


501So please proceed and we certainly don't reject your line of questioning.


502MR. SHEPHERD: Thank you, Mr. Chairman.


503MR. TURNER: Perhaps it might help, Mr. Shepherd. I have, in the -- while the panel was considering the matter, I've read pages 27 through 28. The first paragraph may be one that we've relied on in setting the context of our analysis and that summarizes the information we would have not independently verified, if you like.


504MR. SHEPHERD: Thank you.


505MR. TURNER: Sorry, I'm on page 22 of section 6 of our report.


506Taken together with the information you will get from the undertaking, essentially, the pages 22 and I've completed right through to the end of page 27 indicate what we did for purposes of our analysis and the conclusions we reached. Those conclusions were based upon the information that we were either provided by Enbridge Inc. or EGD as well as the interviews that we conducted with EI and EGD.

507As a point of clarification for the discussion earlier this morning, EI personnel only were present for the interviews with EI. EGD personnel only were present for our interviews with EGD personnel.


508I haven't reviewed pages 28 to 35 of my report. If you'd like I can just scan this in the next three or four minutes and then give you a similar summary if that would help you.


509MR. SHEPHERD: Can I make a suggestion that I'll leave this for now and if we have time we can come back to it at the end.


510MR. TURNER: Sure.


511MR. SHEPHERD: I am conscious of the fact that I'd like to concentrate on higher priorities than this because we have a limited amount of time.


512MR. TURNER: Fine.


513MR. SHEPHERD: I wonder if you could turn back to page 13, Mr. Turner, and there you list seven guiding principles of this methodology. Now those are Enbridge's principles; correct?


514MR. TURNER: Yes, they are.


515MR. SHEPHERD: Do I understand correctly that the first three principles, "cost effective, timely and understandable," those are all trading off accuracy for either cost, time or simplicity?


516MR. TURNER: There is a trade-off to the extend to which that trade-off actually occurs; but yes, there is a trade-off normally implicit in that, yes.


517MR. SHEPHERD: And on the next page, the third one down is also a trade-off of accuracy against simplicity; isn't that right?


518MR. TURNER: Not all the time, but it can be, yes.


519MR. SHEPHERD: But if we look at the first one on page 14, to be fair, doesn't an allocation method have to be accurate?


520MR. TURNER: I think an allocation method, to be fair, has to be reasonable taking into account all of these factors.

521MR. SHEPHERD: So fairness isn't about getting the right allocations, it's about balancing accuracy, time, cost, and all those other things; is that right?


522MR. TURNER: And the quality of information, yes, and the -- you would normally take into account the perspectives of both parties, that's why we went and talked to both parties in our interviews.


523MR. SHEPHERD: I looked throughout your report for somewhere where you talk about how the methodology selected actually does that balancing act between accuracy and those various other factors. Do you have a spot where the judgment calls relating to that balancing act are discussed?


524MR. TURNER: I'd have to go back and go through the analysis in 6, but it's certainly clear in our conclusions, the final paragraph on page 36 that we reached that conclusion.


525MR. SHEPHERD: Yes, no, I'm not talking about the conclusion. I accept --


526MR. TURNER: If you look at pages 31 through 35, that's where we were trying to make that assessment in -- that evaluation.


527MR. SHEPHERD: I see. Still on page 14, Mr. Turner, you say: "It is Enbridge Inc.'s policy to direct charge costs wherever possible." A direct charge is where, as you said earlier, you get the bill, you say this one relates to EGD and you pass it on.


528MR. TURNER: That's correct.


529MR. SHEPHERD: Or you have an activity which is clearly solely about EGD and you say that one, because it's solely about EGD, it should be paid for by them.


530MR. TURNER: That is correct. Actually, that's -- that may not necessarily be a direct expense, it's a direct allocation because there's only one beneficiary. So yes, I would agree with the comment.


531MR. SHEPHERD: Conceptually, that's correct.


532MR. TURNER: Yes.


533MR. SHEPHERD: And I think I heard you say yesterday that time and cost allocation aside, certainly direct charge is usually the most direct way of allocating.


534MR. TURNER: It's the most preferred; it's not necessarily the most accurate where you have indirect or shared costs.


535MR. SHEPHERD: And its advantage is that generally that not only can the payor see what they're paying for but they can also assess the benefits of what they're paying for; is that right?


536MR. TURNER: It's absolutely transparent, yes.


537MR. SHEPHERD: Now you've said that the policy is to direct charge whenever possible. I'm wondering what categories are actually direct charged; do you know?


538MR. TURNER: You'd have to refer that to Ms. Brooks. I believe that the direct expenses are allocated rather than shared and I would look at -- no, I don't -- you'd have to ask Ms. Brooks.


539MR. SHEPHERD: I wonder, Ms. Brooks, then, if you can tell me what categories of these expenses are direct charged.


540MS. BROOKS: None of them are, or they would not require to be allocated.


541MR. SHEPHERD: Okay. I'm going to --


542MR. TURNER: I understood that these were all shared expenses and since they were all shared expenses they were allocated, and that any direct expenses had already been taken out, but it was -- you were referred to Ms. Brooks to confirm.


543MS. BROOKS: And that is correct. These are -- the costs that are direct charged do not appear in this schedule because they are direct charged.


544MR. SHEPHERD: Now, I'm quite sure I heard somebody give evidence that 96.5 million is the total budget. So where's the direct charges?


545MS. BROOKS: They're in EGD's books not in the corporate books.


546MR. SHEPHERD: I see. I see.


547MR. DOMINY: Could I just ask a question, and I'm just looking at IGUA interrogatory 13, schedule 100, to which is attached the corporate costs that have been signed off by the company. And in there, they show an insurance premium direct charge. That's the attachment to the interrogatory 100. An audit fee is a direct charge?


548MS. BROOKS: Audit fees are a direct charge, but are based on an allocation.


549MR. DOMINY: You have to help me.


550MS. BROOKS: Well what -- with the audit fees, for example, the audit fees are negotiated at the Enbridge Inc. level for the Enbridge group of companies. So PricewaterhouseCoopers, our auditors, do not give us a fee specifically for each one of the business units. We then allocate that global fee and PwC, PwC being PricewaterhouseCoopers, does bill each of the business units separately, but it is based on the allocated amount.


551MR. DOMINY: And the same applies to the insurance premiums?


552MS. BROOKS: I just have to think about this one because we had the debate and I'm not sure what the conclusion was. But if that were to be the case, it would be founded on the same principle, yes.


553MR. DOMINY: Thank you. I'll leave Mr. Shepherd to it.


554MR. SHEPHERD: Maybe I can follow that up, Mr. Dominy. So if it's an allocation -- sorry.


555(Witness panel confers)


556MS. BROOKS: So Mr. Turner has just educated me on my own process. So I probably should clarify what I just said, because in the example of PwC, it is direct-charged. You, Mr. Shepherd, asked me if there were direct charges in that schedule attached to Mr. Turner's report and yes, there are, an audit fees would be one example; insurance, I can't recall how the billing process works.


557I would also like to clarify, though, that if it is a direct charge it is based on the allocations. So it is still an allocated amount. So the difference, if I could just carry on for one minute, the difference really is who does the billing?


558The amount is the same. So a direct charge, the billing would come from the service provider or the third party directly to the business unit based on the allocation. If it's an allocation without a direct charge, the charge would come to the corporate office, and then we would allocate it to the business units. So it's really just a sense of who does the billing, and I apologize for the confusion.


559MR. SHEPHERD: Well, sitting across from five accountants, I am cowed by the accounting knowledge, but I am completely confused now.

560I understood that a direct charge meant this bill relates to Enbridge Gas Distribution, and that doesn't sound like an allocation to me. In fact, my understanding is that an allocation requires a cost driver.


561And looks to me like what Mr. Schultz signed off on was a cost driver of direct charge for those two items. So doesn't that mean that Enbridge Gas Distribution only pays the bills that go to them or that belong to them?


562Where's the allocation? I don't understand.


563MS. BROOKS: Well, the allocation comes from the negotiation of a total cost from a third party for the Enbridge Inc. group of companies. That cost is typically less than what we would otherwise pay, so we allocate that cost to the business units based on a cost driver.


564MR. SHEPHERD: And what's the cost driver for those two things?


565MS. BROOKS: For audit fees, it is capital employed, and for insurance premiums, it is a composite rate of assets insured and claims history.


566MR. SHEPHERD: But, Ms. Brooks, you signed an agreement with -- no, you didn't sign it; other people did -- with Mr. Schultz in which you said the cost driver would be a direct charge.


567MR. CASS: Where does it say that, Mr. Shepherd? I'm sorry?


568MS. BROOKS: It doesn't say that.


569MR. SHEPHERD: Well, sorry. I'm looking here at what Mr. Dominy referred us to, and I'm looking down the list. I see "capital employed" in a number of places.


570But you know what? Under "audit fees," I don't see "capital employed."


571MS. BROOKS: The methodology which is attached to the service agreement describes capital employed as the cost driver for audit fees. So that would be Board 71, appendix C to the methodology -- oh, wait. No, it won't be appendix C. It will be the general expense --


572It is appendix B -- my apologies -- the first line, because audit fees are a general expense.


573MR. SHEPHERD: Is that page 16 of 23 of the cost-allocation methodology?


574MR. COWAN: That's correct.


575MR. SHEPHERD: That says, "Enbridge Inc.: Capital employed." What does that mean? Under audit fees, it says, "Enbridge Inc.: Capital employed." What does that mean?


576MS. BROOKS: That means that the audit fees are allocated on the basis of capital employed?


577MR. SHEPHERD: Doesn't that mean Enbridge Inc.? Everywhere else where you talk about capital employed, you say capital employed. What is the difference here?


578MS. BROOKS: Well, there may be certain circumstances where the business units need PwC to do specific work for them. For example, and I think I'm correct in giving this example, the audited financial statements for Enbridge Gas Distribution -- the financial statements for the Enbridge Gas Distribution pension plan need to be audited.


579Because that is a specific charge related to EGD, in that case, PwC would send that bill directly to EGD. The audit fees for the Enbridge group of companies, as I said a few minutes ago, are negotiated at the Enbridge Inc. level and, therefore, need to be allocated.


580MR. SHEPHERD: So this is why -- oh. Now I understand. Okay.


581So if we look at appendix A to Mr. Turner's report, we see that the audit fees for Enbridge Gas Distribution are 447,000. That's what is allocated to them, and 19,000 allocated to corporate. And the reason for that is because you are using capital employed; right?


582MS. BROOKS: Correct.


583MR. SHEPHERD: So what "direct charge" means is not -- that's not your basis of allocation, if I understand correctly. Your basis of allocation is capital employed. What you're doing is you're actually sending the bill to EGD.


584MS. BROOKS: For audit fees, yes, that is true.


585MR. SHEPHERD: Okay.


586MS. BROOKS: But for all other invoices that relate directly to EGD, they are sent directly to EGD, and EGD pays them.


587MR. SHEPHERD: So then back to you, Mr. Turner. We talked about why direct charge was such a wonderful way of doing things, but if you -- if what you mean by "direct charge" is "capital employed," then you don't have that advantage, do you?


588MR. TURNER: That's correct. Sorry, that is correct. It's really simple.


589MR. SHEPHERD: Sorry?


590MR. TURNER: It's a simple principle. However, when you come down to the practice as to what's being done, you find there's a combination of things that are done in practice.


591MR. SHEPHERD: Human beings can make anything complicated if they work at it.


592MR. TURNER: Yes.


593MR. SHEPHERD: Can I take you to page 15 of your report. You're talking there about the costs that are being allocated and I admit that I have some confusion there as well. This is a theme, Mr. Chairman, I have confusion on a number of things.


594Here you talk about the difference between department costs and general expenses.


595MR. TURNER: Yes.


596MR. SHEPHERD: And so I heard your discussion about this yesterday and I have -- I admit I'm still confused. Let's just -- to simplify this, maybe we could take an example and you can help me understand it in the context of an example.


597Let's take an economist in the corporate controller's department making, let's say $150,000 a year, very good economist. And that economist spends 20 percent of their time on Enbridge Gas Distribution work, just hypothetically.


598MR. TURNER: Sure.


599MR. SHEPHERD: Now that person's salary is charged to the utility based on capital employed, right, the controller's office?


600MR. TURNER: The costs of the controller's office are charged to the utility based on capital employed.

601MR. SHEPHERD: So there's no assurance that the amount of his salary charged to the utility is going to be 20 percent of that 150, $30,000, because the general theory is that you're allocating the whole group of costs. And that economist might only be 20 percent but the person at the next desk might be 100 percent.


602MR. TURNER: That is correct.


603MR. SHEPHERD: It just balances out, that's the theory.


604So let's assume that the correct amount is allocated, directly or indirectly. If that economist goes on a training session or to a seminar, that's charged on the same basis, right?


605MR. TURNER: I believe that -- I'm not sure where the grouping of costs goes, whether it goes into the learning category or whether it's captured within the controller's department. If it was captured within the controller's department it would be allocated on the same basis as all the other controller's departments' expenses.


606MR. SHEPHERD: You say the costs include all the controller's costs, salaries, training and travel.


607MR. TURNER: I told you I wasn't sure where it was. When you read through the report it clarifies the point for me.


608MR. SHEPHERD: I'm not trying to catch you up.


609MR. TURNER: No, I just --


610MR. SHEPHERD: But -- so that makes sense, that's part of burdening that cost is to get those things in.


611MR. TURNER: Yes, that would be the case.


612MR. SHEPHERD: So if that economist has to fly from Calgary to Toronto to give evidence in this rate hearing?


613MR. TURNER: Right, same hypothetical.


614MR. SHEPHERD: That's allocated on the same basis even though the whole flight would, in fairness, be an EGD cost, only a position of it would be allocated because it's part of the package.


615MR. TURNER: Yes, that would be the case. Now, it may also be that the personnel who flew here would do other things when they're not before the Board.


616MR. SHEPHERD: But that is not tracked because the methodology can't catch it all.


617MR. TURNER: That is not tracked because the methodology catches it.


618MR. SHEPHERD: Did I understand the evidence in this hearing correctly? Enbridge Inc. employee benefits are somewhere around 22 percent of salary costs of EI employees. Ms. Brooks, is that about the right percentage?


619MS. BROOKS: Subject to check, it sounds --


620MR. SHEPHERD: It's in the range, probably.


621MS. BROOKS: Probably in the range.


622MR. SHEPHERD: So we have benefits here, if you look at your appendix A, Mr. Turner, of 7.8 million. So if they are 22 percent of salary costs, that means the salaries are 35.5 million, subject to checking my math; is that right?


623MR. TURNER: Can you refer me to the --


624MR. SHEPHERD: If you take a look at the last item.


625MR. TURNER: I see. I was looking at the wrong column.


626MR. SHEPHERD: 7.8 million. So if 22 percent is the right number, then salary costs at EI are 35.5 million.


627MR. TURNER: I'll trust your math, yes. It's three something, yes.


628MR. SHEPHERD: And by the way, Ms. Brooks, that means that the average salary cost at EI is $229,000; does that sound right to you?


629MS. BROOKS: That sounds absolutely wrong.


630MR. SHEPHERD: Okay. Do you know what the average salary cost is?


631MS. BROOKS: I do not, but I know that it's far too high.


632MR. SHEPHERD: Let's go back to our fictional economist who, at least on my numbers, appears to be badly underpaid.


633Mr. Turner, why are the benefits not allocated the same way as the salary? You know what percentage of his salary on average is going to benefits, and it is just remuneration like anything else, isn't it? Why wouldn't you allocate it the same way?


634MR. TURNER: These are the benefits for people that are in the various departments, I believe. And as was explained either yesterday or possibly -- yeah, I think it was yesterday morning, the -- I would agree with you. If you are looking at these benefits, why don't we first allocate them to the departments that have the personnel and then make the allocation from that department as a part of a bundled cost, i.e., load the cost in the department.


635And as I tried to explain yesterday, rather than doing that, the -- there is a direct charge for these benefits to the end users on a model which takes into account the employees in the various departments, plus how those costs are being allocated in any event.


636And the net effect of that model would approximate, if not be exactly the same, but it would certainly approximate if we went the indirect route rather than the direct route.


637The company has chosen the one-time direct allocation method, not to be confused with direct charges. But to -- rather than go through a two-step allocation process first to the respective departments and then to the end user, to go directly to the end user using a corporate full-time equivalent -- a corporate full-time equivalent cost driver, which, in effect, achieves much the same result.


638MR. SHEPHERD: The more normal method is to fully burden the cost --


639MR. TURNER: I would say a more common method as opposed to a more normal.


640MR. SHEPHERD: Okay. Fair enough. Is to fully burden the cost and then allocate?


641MR. TURNER: Fully burden the cost and then allocate, but even when you're doing that, you find that the relationships among many of the departments. And it's not only in this case, but it's in general, the -- there is an interaction between the various departments.


642And to the extent that they interact, you could go through a series of iterations. And at some point -- I mean, you don't take the information technology department so you can allocate it to everywhere. Oh, by the way, the information technologies group gets information and support from the controllers group, because they want to know what they are accounting for, or they get support from the HR group. You could end you doing endless circular computations.


643One way of avoiding that is to say, okay, what would approximate this if I wanted to do it on a direct basis? It would be reasonable to say, well, for this cost I would first allocate it on the basis of head count and then let the units drive it out.


644The full-time corporate equivalent driver is an approximation of that procedure.


645MR. SHEPHERD: There are, in fact, well-accepted methodologies for fully burdening costs that avoid that circularity, aren't there? That deal with it, anyway?


646MR. TURNER: Well, it's -- I wouldn't say they are necessarily widely accepted. There are ways you -- you get to it, and you finally say, enough is enough, yes.


647MR. SHEPHERD: Okay. And one of the advantages of fully burdening your costs first is that when you look at -- tell me whether this is correct -- when you look at the allocation on a functional basis, you know actually what you are paying for that function; right, because everything's in there.


648MR. TURNER: That would be true.


649MR. SHEPHERD: So for example, if I look at the CIO allocation to Enbridge Gas Distribution, I see $1,164,000 that you are charged.


650MR. TURNER: Yes.


651MR. SHEPHERD: But that's actually not what the CIO's office is costing Enbridge Gas Distribution, is it?


652MR. TURNER: On a fully burdened basis, that is correct.


653MR. SHEPHERD: There are all these other things.


654MR. TURNER: There are those other things, yes.


655MR. SHEPHERD: You didn't actually look in your study at what the real cost of CIO was fully burdened to EGD, did you?


656MR. TURNER: No. No, we did not. What we did do is we satisfied ourselves that the direct one time, one direction charging mechanism was a reasonable approximation of what you would expect to get, because when you look at the formula that was applied, you would get much the same result, because the same factors are taken into account.


657MR. SHEPHERD: Now, if you fully burdened -- I'm just looking down at the general expenses -- if you fully burdened, you would have things like employee benefits and depreciation and membership and industry associations and rent and business taxes. Those things would all be in the functional costs; correct? But the other things like audit fees and insurance premiums and those sorts of things would not be burdened, if you burdened.


658MR. TURNER: Some would; some wouldn't. That's correct.


659MR. SHEPHERD: But the ones I first listed, those things like -- the last five things on your list -- am I counting right? Yes, the last five things, those would all be part of fully burdened.


660MR. TURNER: Yes, initially I thought you had left business taxes out. That's why I said generally speaking.


661MR. SHEPHERD: Sorry. With a tax background, I never leave taxes out.


662MS. BROOKS: Could I just say one thing here.


663MR. SHEPHERD: Sure.


664MS. BROOKS: I would not include the memberships and industry associations in that grouping. I agree with the other things you have included.


665MR. TURNER: Certainly, if they were personal memberships, yes. If they were --


666MS. BROOKS: And they did not -- the professional dues and whatnot that the engineers and accountants and lawyers in the office have to pay are included in the departmental costs.


667MR. SHEPHERD: If the CEO is a member of Summit Golf Club and it costs you a gazillion dollars a year -- I guess it's not Summit. The Cattleman's Club, let's say, and it costs you a gazillion dollars a year, that's included in memberships and industry association.


668MS. BROOKS: No, it is not. It is included in his department because it is specifically attributed to an individual.


669MR. SHEPHERD: Now I understand. All right, thanks.


670Just before I leave this subject, Mr. Turner, I understand that these allocations only deal with income statement items, right? There's no capital allocated.


671MR. TURNER: These allocations deal with income statement amounts which would include the amortization of capital expenditures made in previous years, yes.


672MR. SHEPHERD: So, for example, if our fictional economist works in a building owned by Enbridge Inc., his rent, as it were, is captured by the depreciation expense.


673MR. TURNER: That is correct.


674MR. SHEPHERD: Okay. Thank you.


675And similarly, if he has a computer on his desk, that's captured by the depreciation of the computer.


676MR. TURNER: Yes, that would be the case.


677MR. SHEPHERD: Wonderful. Perhaps you could turn to page 16, Mr. Turner. And there you say and I'm quoting -- I'm just trying to find where I found this. Here we are. The second-last paragraph,


678"Department expenses are allocated on a time estimate basis when managers are able to identify time spent by employees on specific lines of business."


679Now that confused me because I turned to page 28 and I see that only one of the areas you studied is one in which costs are allocated on a time estimate. In general, the department expenses use generic drivers, don't they, usually?


680MR. TURNER: Sorry, I missed that last sentence.


681MR. SHEPHERD: In general, isn't it true that the department expenses use the generic cost drivers as opposed to time estimates?

682MR. TURNER: They use the cost drivers that have been identified, yes. Most of them do not use time estimates over the ones that we reviewed. I'd have to go back and look at what happened with all the other departments. Certainly the ones we looked at the time was used once.


683MR. SHEPHERD: So this quote that I quoted you, that's not intended to imply that that's the general rule, it implies that where they can, they use that.


684MR. TURNER: That is correct.


685MR. SHEPHERD: Okay. Thank you. Just before we go to the cost drivers themselves, I just -- just one thing that I -- and I'm not sure I was clear on in your answers to Mr. Warren yesterday, on page 17, you say one of the questions to be asked, as stipulated by this Board is "Are the corporate centre charges prudently incurred," et cetera, et cetera.


686And I want to make sure I understand. You did not do any sort of prudence review of these corporate charges, did you, Mr. Turner?


687MR. TURNER: We did not do a prudence review.


688MR. SHEPHERD: Now, I'm going to ask you to turn to the cost drivers. And I see the cost drivers that you looked at on pages 28 and 30, those are the ones you looked at, right?


689MR. TURNER: Yes, sir.


690MR. SHEPHERD: Now, on those two lists, which -- I think you said somewhere they comprise 77 percent of the allocated costs of EI?


691MR. TURNER: I believe that's the right number. It's in excess of three quarters.


692MR. SHEPHERD: But I see only five different cost drivers, so let's go through them. There's only five different ones, right?


693MR. TURNER: That's correct.


694MR. SHEPHERD: Okay. So let's start with composite rate. We had a discussion about the insurance premiums earlier.


695MR. TURNER: Yes.


696MR. SHEPHERD: And --


697MR. TURNER: So you're referring to the description in the chart on page 30?


698MR. SHEPHERD: That's right. And I understand that there's some confusion as to whether -- maybe we're not confused anymore -- about whether they are direct charged or not. But I take it what happens, and maybe Ms. Brooks can help me with this too, is that you figure out the overall insurance costs and then calculate an average rate based on some -- or some factor and use that average rate to allocate the insurance costs across the business units; is that right?


699MS. BROOKS: No, that is not right.


700MR. SHEPHERD: Okay.


701MS. BROOKS: What we do is negotiate the total cost of the insurance program for the coming year. We look -- and as I said earlier, for the property program, for example, which insures the value of the fixed assets that the company owns, that's valued on the basis -- or allocated on the basis of net asset insured for the liability portion of the program. And this is why we referred to it as a composite rate. The liability part of the program is allocated using the same basis as the underwriters use in assessing the cost of the program.


702So we look at the pieces of the program, because the types of insurance are different and the coverages you are getting is different, and allocate those to the business units based on the appropriate factor.


703MR. SHEPHERD: So let's take your D&O insurance, for example, your directors and officers insurance. If the insurer says -- does the insurer actually tell you how much they're going to charge you for the EI board as opposed to the EGD board?


704MS. BROOKS: No, all the insurance programs are negotiated on a portfolio basis.


705MR. SHEPHERD: But the insurer says, well, the basis on which we're doing this is number of directors, let's say. And then you take that, whatever that category is, and you say, okay, if it's number of directors, EGD has four and --


706MS. BROOKS: No, not for D&O. D&O we allocate on the basis of capital employed because it's representative of the risk of -- assumed by each of the boards of directors.


707MR. SHEPHERD: That's interesting. EGD carries on a stable business with relatively predictable activities. Although, I guess after discussing manufactured gas plants the other day, maybe we're -- they're not so predictable. Whereas EI is engaged in multimillion or multibillion dollar acquisitions and divestitures, which have very high risks. That the board will have some liability; is that fair?


708MS. BROOKS: Remembering that those acquisitions and divestitures by EI are done by or on behalf of the business units.


709So the reason for allocating D&O premiums on the basis of capital employed is founded on the same premise that we allocate director's fees on the basis of capital employed. The view is that the directors and officers are -- or the directors and officers are operating in the best interests of the enterprise as a whole and the individual business units and the costs are allocated based on the capital employed in each of those businesses.


710MR. SHEPHERD: Okay.


711So back to you, Mr. Turner. So let's leave aside the composite rate, because that's not actually one conceptual rate, is it? It's a whole lot of things.


712MR. TURNER: My understanding is you look at the class of coverage, what drives the rate for that class of coverage, and then you make the allocation out to the units based on their contributions to that metric.


713MR. SHEPHERD: And do we have a breakdown of that somewhere, how you got to the numbers?


714MS. BROOKS: Yes. I don't have it with me, but yes. You have to do the arithmetic to get to the answer.


715MR. SHEPHERD: Why don't I come back to that in a minute. I'm going to ask an undertaking later that will cover that, I think.


716So now we have four drivers left. One of those is time estimate, Mr. Turner. And if I understand your report, time estimate is an estimate by the department head of the time to be spent by his or her people in the coming year on the work for each business unit.


717MR. TURNER: Correct.


718MR. SHEPHERD: And so you reviewed those estimates?


719MR. TURNER: We discussed the basis for them, yes.


720MR. SHEPHERD: Do you know whether they were prepared using detailed data from previous years?


721MR. TURNER: I do not know specifically, no.


722MR. SHEPHERD: Ms. Brooks, do you know?


723MS. BROOKS: Some would have been, some would not have been. It depends upon whether the department maintained those kinds of records.


724However, what we did when we asked the department managers to prepare their time estimate was to consider past years' activities, of course, but to remember that we were looking forward, not back. And so in terms of determining how much time would be spent on each business unit's activities, to think about what was happening in that business unit in the coming year.


725MR. SHEPHERD: So for example, if you take a look at treasury, let's say -- I don't know whether this is one of the ones that's a time estimate. Maybe I should take --


726MS. BROOKS: It is.


727MR. SHEPHERD: Is it? Okay.


728So if treasury looks at the upcoming year, and they say, we're going to have to raise a lot of debt for EGD, and so we're going to spend a lot of our time on that, then they would estimate more for EGD for that year, because of the things that were upcoming?


729MS. BROOKS: That's correct.


730MR. SHEPHERD: Okay.


731MS. BROOKS: And I should add that those kinds of things are typically fairly easy to do, because with that particular example, you know your debt maturity profile so it's pretty evident to determine how much financing you are going to have to do in the coming year.


732MR. SHEPHERD: You would have to do that in any case for your budgeting process in those departments, wouldn't you? If you're budgeting for the upcoming year, what you are going to spend your time on is the key element, isn't it?

733MS. BROOKS: It should be in determining your staffing levels, yes.


734MR. SHEPHERD: So, Mr. Turner, when you talked to the various units about how they did time estimates, was any back-up documentation provided to you to support those estimates?


735MR. TURNER: I'd have to check with the staff that did the interviews. I don't believe so, no.


736MR. SHEPHERD: That would be included in the undertaking of all the materials?


737MR. TURNER: Whatever documents we got, yes.


738MR. SHEPHERD: When you looked at the methodology, did you assess the estimation methodology or was it your view that -- I mean, this sounds very subjective.


739MR. TURNER: Well, again, I just want to re-emphasize on a couple of points, one raised by Ms. Brooks, that this is forward-looking based on people that know what their department does and based on their familiarity and knowledge. And we've relied on it and, as noted elsewhere in our report, we did not audit the information or independently verify it.


740So if somebody -- we assume an element of good faith. If somebody tells us in good faith and they do, in fact, know what goes on in the department, and the ones that we typically spoke to were the - if not uniformly spoke to - were the department heads, or somebody high enough up in the department that we would reasonably expect to have that basis of knowledge that we relied upon.


741MR. SHEPHERD: Thank you. So that leaves us with only three drivers for the bulk of the allocation: Capital employed, corporate FTE and enterprise FTEs; is that right?


742MR. TURNER: Yes.


743MR. SHEPHERD: So let's start with capital employed. I looked around for a definition of that and I couldn't find it. Do you have a definition of that somewhere?


744MR. TURNER: I believe it was referred to yesterday in evidence. Mr. Cowan?


745MR. COWAN: Yes, indeed; I believe we described where that was provided. It's in our pre-filed exhibit which would take you to Exhibit A.6, tab 19, schedule 1 and on page -- it's Article 14 in that particular part of our material which is on page 6 of 13, wherein each of the underlying elements making up the driver which is enumerated. Capital employed is explained; corporate FTEs and enterprise FTEs as well.

746MR. SHEPHERD: So it's sort of like a modified shareholders' equity calculation, isn't it, in which you take the current liabilities and treat them as a type of equity? I'm close, right?


747MR. COWAN: What you're doing is you're taking the assets less the liabilities, except everything within one year. So what you're including is equity and liabilities within one year.


748MS. BROOKS: I don't think so, no.


749We may struggle here with a lawyer talking to an accountant but perhaps you could rephrase -- could you ask the question again.


750MR. SHEPHERD: I'm looking at page 6 of 13 of Exhibit A.6, tab 19, schedule 1. It says "total assets" -- I know what that is, I can look at a balance sheet, I can see where it says total assets -- "less current liabilities" -- oh, current liabilities, uh-huh.


751MR. TURNER: I would have interpreted it as the sum of your shareholders' equity and your long-term debt other than the debt due within one year, but I'm not sure whether the one-year debt is excluded or not. So it's the entire capital base. Is that correct?


752MS. BROOKS: Yes, that is correct. Another way to look at it is just total capitalization.


753MR. SHEPHERD: Debt and equity other than short-term.


754MS. BROOKS: Debt and equity.


755MR. SHEPHERD: Now I understand.


756And -- so now let's look at -- back to appendix A, Mr. Turner, and why don't we start with Mr. Janigan's favorite example, because I can't resist it either. If you look at schedule A, it says that aviation costs are a million eight, roughly, and of that, just about 600,000 is allocated to Enbridge Gas Distribution, about 33 percent. So I take it that means that since that's allocated on capital employed, the result of the other capital employed calculation is EGD has 33 percent of the capital employed; correct?


757MR. TURNER: If that's the math, it's something like that, yes.


758MR. SHEPHERD: So everywhere where you use capital employed it will be 33 percent of the cost.


759MR. TURNER: Yes, whatever the number is, right.


760MR. SHEPHERD: Perfect. Now I also see that if you look over to the corporate office there, only 12,000, a little over half of one percent is charged to the corporate office.


761MR. TURNER: It's on the aviation line?


762MR. SHEPHERD: On the aviation line. Does it seem likely to you that the actual benefits from being able to fly around in a corporate jet are 50 times more for EGD than they are for the corporate office?


763MR. TURNER: I think that you have to go back and take a look at what the aviation department does to answer that question. And again, this will be part of the documents that are released in the undertaking.


764It does move people around, and then the question is; why are you moving the people around? Well, you move them around for various reasons. In part, to deal with the investor groups that have provided capital, either in the form of debt or equity to the group.


765It also is involved in aerial surveillance of the physical plant, the pipelines, and moving people along the pipeline networks, and encompasses helicopters and aircraft, so it's not entirely "corporate jet."


766And if you look at the activities that the people that are using the aviation department's assets or -- whether they be contracted or owned -- and you look at what they're doing. And you take the focus of the overall group, primarily looking at regulated industries and its significant capital-intensive nature, it would not surprise me that that would be the result.


767MR. SHEPHERD: Ms. Brooks, do you know what the average cost of a single flight in your corporate jet is? This is a number you calculate on a regular basis, right, to track the cost?


768MS. BROOKS: I do not, no. So I do not know that.


769MR. SHEPHERD: Would it be fair to say that something in the order of $6,000? Is in the right range, average cost per flight?


770MS. BROOKS: Depending on how far you fly, yes, it could be. We can accept that math if you like.


771MR. SHEPHERD: All right. Well, the reason I'm asking is, Mr. Turner, what this allocation results is a judgment, in effect -- the result of the methodology is that the corporate office pays for two flights in the corporate jet. Mr. Daniel -- Mr. Daniel, is that the CEO?


772MS. BROOKS: He is.


773MR. SHEPHERD: He gets to go in the corporate jet twice in the year, and it's all paid for?


774MR. COWAN: That's a totally incorrect conclusion, if you don't mind. I believe that the basis is capital employed, and the question then is: How much capital is employed in the corporate office?


775MR. SHEPHERD: That's not the question I'm asking, Mr. Cowan.


776MR. COWAN: I understand, but I'm suggesting it maybe is the question we should address. Because if we aren't happy with the allocation, we need to say, well, why is there such a small amount attributed to the corporate office, and is it appropriate to relate it on a per-flight basis, when the allocator is, in fact, capital employed.


777And I can't see that it is appropriate. If you want to change to a different allocator, then we would get a different number.


778MR. SHEPHERD: Mr. Turner, when you did your review, did you look at results like that 12,000 and do a sanity check and say to yourself, is this cost allocation giving us numbers that make sense to us?


779MR. TURNER: We looked at two things: Firstly --


780MR. SHEPHERD: Sorry. Let me just stop you for a second. Can you give me a yes or no?


781MR. TURNER: No.


782MR. SHEPHERD: Okay. Now go on, please.


783MR. TURNER: We looked at -- again, we were engaged to look at the suitability of the driver taking the various principles into account and the explanations and facts as outlined to us.


784Based on the fact that the industry is very capital-intensive, based on the fact that the aviation department supports a number of capital-intensive activities, whether they be supervision and monitoring of the physical plant or relations with investors that provide the capital to the entity, we concluded that if you were to look at the costs overall, the capital employed was an appropriate cost driver. The results of it end up with this allocation.


785Again, you have to stand back and look at it and say, the assertion as to what is relevant in the choice of the cost driver is that the relevant factors in that selection are the activities that take place and the potential benefits that they provide to the organization.


786If one accepts that a single flight to New York to raise capital out of, hypothetically speaking, 1,000 flights that are related to something else may not adequately measure the benefit that is derived from that flight activity and may result in an inappropriate allocation. We were satisfied that on the basis of the facts as to what the department does, the nature of the business activities of the enterprise, that this was a reasonable allocation and a reasonable driver.


787MR. SHEPHERD: Isn't there a point in this sort of analysis, Mr. Turner, in which you -- in which you say if it looks like a duck and it quacks like a duck, it's still a duck? That is, you do a sort of a common-sense analysis of what the results are?


788MR. TURNER: I think I would put it a different way.


789There are some allocations that you might come back and say, well, would we have gotten a different answer had we used -- and this question was raised yesterday: Would we have gotten a different answer or the same answer had we used a different cost driver?


790I believe from the evidence that was provided relating to the 1999 cost allocations, one can see that there's a significant difference in the result from an allocation of the aviation department, for example, on a by-flight basis than there is from an assets or a capital employed basis.


791We were satisfied with the company's assertions that they did not believe that a flight-based allocation was appropriate. We believed, based on our discussions with them, that it was reasonable to make the allocation on the basis of capital employed and consistent with the benefits being derived.


792Whether those facts have been properly weighted and taken into account, or somebody would like to say they would see it differently, that's not for us to judge.


793We were asked to -- based on our evaluation of the facts as presented to us and the explanations that we elicited, were we satisfied in the end? I agree with you that our first and gut -- and I think this was brought up yesterday as well -- our gut reaction was, why aren't you doing this on the basis of flights? Can you please explain.


794When it was explained to us, we were satisfied with the allocation, and the results fall from that.


795MR. SHEPHERD: Mr. Chairman, I have about five minutes in this line of questioning. Would it be appropriate to break after that?


796MR. BETTS: I think that would be a good plan.


797MR. SHEPHERD: Mr. Turner, another category that's allocated based on the capital employed is the controller's office; correct? Do you see that there?


798MR. TURNER: Yes.


799MR. SHEPHERD: And that's 671,000 to EGD and 14,000 to the corporate office.


800MR. TURNER: Yes.


801MR. SHEPHERD: That's the same percentage. It's 33 percent to EGD and half of one percent to -- roughly to the corporate office.


802MR. TURNER: If you just eyeballed the math, I agree with it, yes. Approximately 33 percent, yes.


803MR. SHEPHERD: It seems strange to me that the work to be done by the controller's office for head office is so much less than for any of the business units. Again, is that a reasonable number to -- does it look now like a reasonable number to you?


804MR. TURNER: I believe it's absolutely reasonable.


805MR. SHEPHERD: Because the controller's office would spend very little time on head office stuff?


806MR. TURNER: I would say that the controller's office in -- just in general industry, in allocation on the basis of assets or capital employed, is pretty standard allocation basis.


807MR. SHEPHERD: Isn't it, in fact, true that anything that uses capital employed in this allocation system will have those same percentages, 33 percent to EGD and half of one percent to corporate office?


808MR. TURNER: Yes, it would.


809MR. SHEPHERD: And the reason for that is that EI is not capital intensive, so it will always have a low allocation if you use capital employed as the driver; isn't that right?


810MR. TURNER: That is result, yes. However, the benefits of these activities, we believe, are flowing to the appropriate parties. And those are the ones that are using, in this case, the capital.

811MR. SHEPHERD: So that's why, for example, EGD has to pay $732,000 this year for the EI board of directors, but EI only has to pay 15,000 for its own board of directors. Does that seem reasonable to you?


812MR. TURNER: I think that I would look at it with much the same kind of analysis we discussed with respect to the flight operations or the aviation department.


813The board of directors, if you look at their overall custodial relationship and what they do, from our understanding based on our discussions, is that the whole era of corporate governance is of significance. The ability to oversee and ensure the integrity and reputation of the overall enterprise is important to the ability to raise capital, and on that basis, given the fiduciary responsibilities to the enterprises of the board of directors, we felt, based on these circumstances and based on the facts as just outlined, that it was appropriate to include them in the cost base and to make the allocations on the basis presented.


814MR. SHEPHERD: Are you saying that the board of directors of EI has a fiduciary responsibility to EGD?


815MR. TURNER: I believe that the -- I think it's a matter of law as to where the fiduciary responsibilities of the board of directors lies. I was looking at it more as layman, saying that for people that are providing capital to the organization, they trust the board of directors to ensure that there's a certain degree of governance and -- of structures in place in the organization and therefore, it does provide a benefit to EGD. I'm sorry if I implied that legally they had a fiduciary responsibility to EGD.


816MR. SHEPHERD: Mr. Chairman, that's -- I'm finished that line of questioning if this would be an appropriate time to break.


817MR. BETTS: Thank you, Mr. Shepherd. Can you indicate for the Board how long you think you might need to complete your questioning?


818MR. SHEPHERD: I'm hoping that the rest of my questions will take between 30 and 45 minutes, Mr. Chair.


819MR. BETTS: Okay.


820Mr. Brett, have you any estimate?


821MR. BRETT: Mr. Chairman, I will be doing some amending of my material, of course, to reflect some of Mr. Shepherd's questions but I would say about an hour.


822MR. BETTS: Okay. And Mr. Moran? You're right, you will end up being the bad guy.

823MR. MORAN: I'd like to take this opportunity to indicate my appreciation to all my fellow counsel for organizing it so that I get to start in the middle of Friday afternoon. But I expect I will be about 45 to an hour.


824MR. BETTS: Okay. That works out to roughly two hours and 45 minutes and allowing for a break in there, it's probably 3 hours that we have to sit. That's not including questions from the panel and re-examination from the applicant.


825It certainly seems best if we can deal with this panel in its entirety today, so that they can get on to where they have to go. But it does indicate to me that we may be sitting late.


826I don't see any way around that. Mr. Cass, any comments?


827MR. CASS: Yes, I was just going to comment and I'm glad that's the direction you are heading in, Mr. Chair. My understanding is that Mr. Turner, once we get beyond this week, has a very difficult schedule in terms of availability in the sense that he's not available. So it would be very important, if we could, to finish this panel today, and I think whatever it takes to do that because I don't know when we can have Mr. Turner back.


828MR. BETTS: Well, we'll proceed on that basis and see how well we do. One thing that I might, I guess, provide by way of a heads-up, it's because of the nature of the two-panel structure in providing the evidence on this particular application, it's not out of the question that questions will arise with the second panel that may require involvement from this panel to clarify.


829It would have been ideal to have all of the witnesses speaking to this item available at once; that might have created a very large witness panel. But I think with that in mind, it may be necessary to seek clarification of questions from this panel at some point when the second panel arrives. So I'll just give you that heads-up and make you aware of that.


830Apart from that, I guess it's important that we break as quick as we can because we have a lot of work to do this afternoon. Would an hour be sufficient for everybody? I'm seeing nods and I appreciate your flexibility on doing that so let us try to return, we'll make it an hour and five minutes and we will return at quarter to 2:00.


831--- Luncheon recess taken at 12:40 p.m.

832--- Upon resuming at 1:52 p.m.

833MR. BETTS: Thank you everybody. Please be seated.


834Did any preliminary matters arise through the lunch break?

835MR. CASS: We have more undertaking responses, Mr. Chair, if you would wish that they be passed out now.


836MR. BETTS: Yes, let's do that.


837MR. CASS: Maybe I'll just state what they are. There are four in total, the responses to Undertaking J.3.5, Undertaking J.6.7, Undertaking J.8.3 and Undertaking J.8.4.


838MR. BETTS: Okay. Thank you. We have those. Anything further?


839MR. CASS: No, sir, thank you.


840MR. BETTS: Then Mr. Shepherd, please continue with your questions.


841MR. SHEPHERD: Thank you, Mr. Chairman.


842Mr. Turner, before lunch, we were talking about the three main cost drivers that are being used in this methodology: Capital employed, enterprise FTEs, and corporate FTEs. We talked about capital employed, I'd like to turn to the other two.


843MR. TURNER: Yes, sir.


844MR. SHEPHERD: And let's start with enterprise FTEs. If I understand how the company does this, they do a calculation of the total amounts allocated using the other drivers, and assume that doesn't include direct charges; right?


845MR. TURNER: Ms. Brooks?


846MS. BROOKS: That's correct.


847MR. SHEPHERD: So the other drivers are capital employed and time estimate.


848MR. TURNER: I think it's whatever drivers were used to drive all of the other costs.


849MR. SHEPHERD: Except for the FTE-based ones, like, for example --


850MR. TURNER: That's correct.


851MR. SHEPHERD: -- you don't include the things that are allocated using corporate FTEs to calculate enterprise FTEs, do you?


852MR. TURNER: Is that correct, Ms. Brooks?


853MS. BROOKS: Yes, you do use them.


854MR. SHEPHERD: Isn't that circular?


855MS. BROOKS: No.


856MR. TURNER: The way I understand this, and I would really like to defer this to Ms. Brooks because they say she's really familiar with the mechanics of the computation, the computation looks at what factors were -- the common element is the FTE element which is determined throughout the enterprise, and then the weighting is given to it by the allocations that take place in the other departments.


857So can you explain, far better than I could. Explain how you avoid the circularity.


858MS. BROOKS: Well, there is an element of circularity in the calculation, but not until you get to the very end. So for the corporate departments -- if you had a corporate department, for example, that had ten people and we were using capital employed, three of those ten people in this circumstance would be the -- would be considered to be EGD people. So for each of the corporate departments you just basically multiply their head count by the allocation factor and that gives you the indirect head count, if you like, for that particular corporate account, excluding corporate FTE departments.


859You would then add to that the FTEs from each of the businesses units. So to the extent we have business units staff who provide -- and those would be weighted as well, because they allocate their time as well between the business unit activities. That then brings you to a total -- and then when you -- sorry, I missed a step in the calculation.


860You do the corporate folks except for corporate FTEs. Whatever that answer is, is how you allocate the departments that are based on corporate FTEs. So you don't actually include those people in the first calculation. Then you add those two together, along with the business unit FTEs, which gives you a quasi-enterprise FTE and that's what is used to allocate cost based on enterprise FTEs.


861It's just really arithmetic. So if it's allocated 30, 30, 30, one, the head count is three-three-three-one, and you just add them up for each one of the departments, each one of the business units until you get to the total.

862MR. TURNER: And what it's intended to do is avoid a two-step allocation. It actually makes the two-step by allocating the cost driver as a first step and then driving the end result from an allocation.


863MR. SHEPHERD: And the purpose of this is simplicity; right? Sorry that was an unfair comment, it wasn't intended to be a question. Sometimes I'm too snide.


864I mean I have to admit that I listened and I still have no idea what you said.


865MS. BROOKS: In response to your comment, if I could, I would say that we do that calculation once a year, so it is intended -- it is -- it's just -- it's a fairly arithmetical calculation. It's done on an Excel spreadsheet, and so it really is quite simple.


866MR. SHEPHERD: But I'm actually going to ask you for all three of the main drivers, capital employed, enterprise FTEs, and corporate FTEs. I'm going to ask you to give us an undertaking to provide those calculations, how you got to the percentages.


867There are actually spreadsheets for all of them; right?


868MS. BROOKS: Oh, yes, there are.


869MR. SHEPHERD: So I wonder if you could undertake to provide those.


870MS. BROOKS: Absolutely.


871MR. BETTS: Mr. Moran?


872MR. MORAN: That will be Undertaking J.10.1, undertaking to produce calculations with respect to -- I wonder if Mr. Shepherd could name the three cost drivers.


873MR. SHEPHERD: Capital employed, enterprise FTEs, and corporate FTEs.


874UNDERTAKING NO. J.10.1: TO PRODUCE CALCULATIONS WITH RESPECT TO CAPITAL EMPLOYED, ENTERPRISE FTES, AND CORPORATE FTES, ALONG WITH EXPLANATION


875MR. SHEPHERD: And, Ms. Brooks, when you do that, the purpose of me asking for it is so I can understand how you did it, and therefore, I'd appreciate it if you could make sure that if you give us hard copies, you at least tell us what the formulae are in each of the cells or give us live copies, if that's the easier way of doing it.


876Because if we don't see the formula, we won't understand --


877MS. BROOKS: Perhaps I will just provide -- the explanations are quite simple, so perhaps I will just attach a written page explaining what each section does.


878MR. SHEPHERD: That would be wonderful. Thank you.


879MR. BETTS: Thank you.


880MR. SHEPHERD: Do I understand correctly, Mr. Turner, that for enterprise FTEs, the two main things that drive the number or drive the percentages are the -- are capital employed, because that's in so many other areas, and the number of employees in the business unit relative to the total number of employees of the organization? Those are the two main factors that drive the number; right?


881MR. TURNER: It would be people and capital, yes.


882MR. SHEPHERD: Okay. And if I have the math right, EGD has about 43.2 percent of the employees, and EI has about 3.5 percent of the employees; is that right, Ms. Brooks?


883MS. BROOKS: I'm just trying to flip to the right page. Excuse me while I get there.


884Could you repeat the question, please.


885MR. SHEPHERD: EGD has 43.2 percent of the employees. I got there by dividing 1,900 by 4,400. And EI has about 3.5 percent of the employees, and I got there by dividing 155 by 4,400.


886MS. BROOKS: Assuming the math is correct, yes.


887MR. SHEPHERD: Assuming the math. Thank you.


888So in the same way as we saw that -- Mr. Turner, that capital employed allocates a great deal more to EGD than it does to the corporate office, it's true, isn't it, that people numbers also allocates a great deal more to EGD than to the corporate office; isn't that right?


889MR. TURNER: Mathematically, that's correct.


890MR. SHEPHERD: So I'm just going to take a look at one example of that, the CIO's office. And again, if you could turn up your appendix A.


891MR. TURNER: Yes, sir.


892MR. SHEPHERD: The CIO's office, $1.2 million of the cost is paid by EGD. That's about 42.4 percent, if you'll accept my math. That's how much they pay to have somebody tell them they should buy Microsoft Word instead of Corel WordPerfect; right? I'm oversimplifying.


893MR. TURNER: Plus a whole bunch of other things, yes.


894MR. SHEPHERD: But that's the essential --


895MR. TURNER: I wouldn't say it's the essential -- I enumerated a number of things that the CIO's department does. It's more complicated than just pick Word versus WordPerfect.


896MR. SHEPHERD: Now that's -- if I understood you this morning, that's not actually all of the costs, because that doesn't include the benefits and the rent and all those things that would be allocable to the CIO's office, would it?


897MR. TURNER: It does not include all of the costs that would be allocatable on a fully burdened basis; that's correct.


898MR. SHEPHERD: But in any case, if we just take the 2.7 million of CIO costs, 42.4 percent of it is being paid by EGD.


899MR. TURNER: I'll trust the math, yes.


900MR. SHEPHERD: But EI, which is a relatively large organization, only needs to spend about $130,000 for all of its information technology needs; do I have that right?


901MR. TURNER: EI is paying 130,000; that's correct.


902MR. SHEPHERD: And am I right that the EGD figure of 1.2 million, that's in addition to the millions it spends internally; right?


903MR. TURNER: Whatever it would spend internally; that is correct.

904MR. SHEPHERD: And I take it that what was spent internally, other panel members, at EGD is some millions of dollars on IT.


905MR. MEES: That is correct.


906MR. SHEPHERD: Okay. But the EI number of $130,000, that's everything it spends on IT; isn't it?


907MS. BROOKS: It is. If I could just, for clarification, that is everything that is allocated to EI. In fact, EI spends the 2.7. The 130 is being allocated to EI.


908MR. SHEPHERD: Well, but out of that 2.7 million, 1.2 million of it is the ratepayers' money, so it's not really EI paying it, is it?


909MR. COWAN: The bill is paid at the corporate level, so literally, it is paid by Enbridge Inc.


910MR. SHEPHERD: I understand the distinction, Mr. Cowan.


911MR. LADANYI: Mr. Kent will be here on another panel, he is going to explain -- he is the CIO and he is going to explain all of the duties of the CIO office. So if you have particular questions, Mr. Shepherd, with respect to what exactly CIO office does and what benefits it provides, it should really be put to Mr. Kent.


912MR. SHEPHERD: Is Mr. Kent going to be able to tell us, then -- I understood this panel was dealing with the numbers and they were dealing with the concepts and benefits, as it were. Will he be able to tell us why $130,000 is a fair number for the corporate office to bear of this total?


913MR. LADANYI: I think he will be able to explain what work is being done for the corporate office and what work is being done for the individual units such as Enbridge Gas Distribution.


914MR. SHEPHERD: That's wonderful.


915Mr. Turner, when I look at all these allocations, whether it's enterprises FTEs or corporate FTEs or capital employed, which is most of them, it looks to me like there is a systematic bias against allocating to the corporate office. The choices of drivers are choices that are all drivers that -- where the corporate office has a relatively small number. And I'm not asking you to express an opinion on that, I understand. But I'm asking you, did you look at that as part of your analysis?


916MR. TURNER: I would say we looked at it not from that overall perspective. We looked at it on a more -- in my experience, a more difficult level in terms of a hurdle to overcome and that is the hurdle of looking at it from the end-user's perspective. So that, when you look at it from the context of an overall allocation which is an EI perspective, no, we did not look at from EI's perspective, we looked at it from the perspective of what costs were being borne by EGD.


917If you follow the -- from cradle to grave, looking at the various facts and factors that were taken into account and looking at the CIO's department as an example, many enterprises, including our own, allocate these kinds of costs out on the basis of by employee. And the use of an FTE approach here, and I think it's the enterprise FTE in EI's view, Enbridge Inc.'s view was simpler than doing a first step fully burdened and then allocate out. We concluded it got much the same result.


918We have a business that has human capital and other forms of capital that are funded by - I'm talking about at EGD level - funded by shareholders as well as other market parties. And if you look at the activities that are taking place, it would be logical in an industry characterized by those two components that they are going to be the major driver of cost, so you would get the result that you've observed. And that does not necessarily suggest that it's a bias or lead to the conclusion that it's a bias; it's the result of the factors that are relevant to the allocation of costs.


919MR. SHEPHERD: Sorry, Mr. Turner, I didn't intend the word bias in a pejorative way, I intended it in the mathematical way.


920MR. TURNER: In a mathematical sense it drives the cost to where the drivers of the costs are relocated, correct; in this case, through capital and employees which is where the operating units are.


921MR. COWAN: I think in the face of the phrase systematic bias, the company has an obligation to comment as well as Mr. Turner.


922MR. SHEPHERD: Feel free.


923MR. COWAN: And to that extent I would point out to you that Enbridge Gas Distribution in aggregate is the third largest attribution of an amount from the corporate total of 96.5 million where, in aggregate, the Enbridge allocation comes as is shown on this very page, page 38, to 22.5 percent. The energy transportation south line of business accounts for or absorbs 37 million of the allocated amount through the shared services arrangement. And the energy transportation north line of business attracts 26.4 percent.


924So Enbridge Gas at 22.5 is third in terms of the overall size. And given that the corporate office is not conducting a significant line of business for it to end up at about 8.7 percent, in the scheme of things, doesn't seem out of balance.


925If you take an individual line item, you can observe that it's a very small percentage. But I think you have to keep in mind how this is put together and how it works in aggregate.

926MR. SHEPHERD: Well let's do that, Mr. Cowan, let's look at the corporate column and I want to see how you get to this 8.4 million total. So the first big number I see there is 897,000 for corporate law. Now, that's actually allocated based on a time estimate; right?


927MR. COWAN: Could be. I would need two tables at once here to be faithful to your question.


928MR. SHEPHERD: You could actually probably short circuit that because it's 45 percent of the total and none of your cost drivers produce 45 percent of the total to corporate office, so it must be time estimate; right?


929MR. COWAN: I agree that it is time estimate.


930MR. SHEPHERD: Thank you. And then I see a little further down I see -- what's that column, pathfinders and planning. Now, how is that allocated?


931MR. COWAN: Time estimate.


932MR. SHEPHERD: Oh, okay. And then I'm looking at special project development and northern pipeline development, those are all allocated to corporate. And how are they allocated?


933MS. BROOKS: They are on the basis of time as well, I believe.


934MR. SHEPHERD: So it looks to me, I'm just -- I just took some examples there, but it looks to me like the reason why it's 8.7 percent is because things that -- where you allocate based on time estimates, here's a lot of allocation to the corporate office; is that a fair conclusion?


935MS. BROOKS: That is not a fair conclusion. The reason those costs remain in corporate office is because those particular departments, with the exception of northern pipeline development, and even that one, actually, are devoted to business development activities of the company, and those costs are not allocated.


936So law, treasury, and the others -- northern pipeline development, for example, is a small group of people devoted to bringing Alaskan gas down to Canada and the northeast United States. So that none of -- none of those costs are allocated.


937So what you are seeing are normal business development growing the business activities, costs related to that staying in the corporate segment.


938MR. SHEPHERD: Mr. Turner, I think your report says that -- no, let me rephrase this.


939Enbridge Inc. is about a $15 billion organization. Am I in the right range?


940MS. BROOKS: That's a little high.


941MR. SHEPHERD: Fourteen, then?


942MS. BROOKS: Bear with me. I won't trust my memory for these numbers, necessarily.


943MR. SHEPHERD: I have a total assets number in 2001 of 13 billion from Mr. Turner's report.


944MS. BROOKS: It's 13 at the end of 2002, just under 13 billion.


945MR. SHEPHERD: Okay. So let's say 13.


946And so I'm just looking at this $8.4 million being borne by the corporate office. It's fair to say, isn't it, Mr. Turner, that that 8.4 represents, in essence, the cost of managing that $13 billion enterprise as from an industrial point of view; isn't that right?


947MS. BROOKS: If I could respond to that, no, it does not. It represents costs related to the activities of the corporate office, which -- the largest one is business development activity.


948It doesn't relate to managing the $13 billion of assets. Those costs are allocated back to the business units in the manner you see here, because EI maintains the capital for those business units.


949MR. SHEPHERD: EI is invested in a number of business activities.


950MS. BROOKS: Yes.


951MR. SHEPHERD: And it has to manage those investments.


952MS. BROOKS: Or in some cases run them, yes. Actually, I'm --


953MR. SHEPHERD: I'm trying to distinguish between the two.


954MS. BROOKS: I'm objecting a little be to the word "manage," because there's an active participation in the business which goes to the shared services environment. It's the managing, the investment thing that I'm objecting to here.


955Because all of EI's capital is devoted to supporting the activities of the business units, including EGD. As I mentioned the other day, EGD has a required capitalization that it has to maintain, a 63/35 capitalization, so that capitalization is maintained by EI in its publicly issued debt and its common and preferred equity flow, as we do the same for the regulated liquids pipelines and the other businesses that are in the organization.


956MR. SHEPHERD: I assume, therefore, that -- so you've gone from a hold co. model to a One Company, One Vision model over the last couple of years. I assume, therefore, that the expenses of EI have increased dramatically in that time from -- in fact, I assume that the expenses of EI were not more than 8 million three years ago; is that right?


957MS. BROOKS: No.


958MR. SHEPHERD: Well, in the hold co. model, the hold co. only manages its investments; isn't that right?


959MR. COWAN: You've chosen three years for your comment.


960MR. SHEPHERD: Let's use five years, then.


961MR. COWAN: At some point it was, presumably, less than -- even less than $8 million, but --


962MS. BROOKS: Well, it was. I mean, the corporate office initially had four people in it, so the costs were probably a million dollars.


963MR. SHEPHERD: And do we know when that was? Was I alive?


964MS. BROOKS: Yes, and even I was.


965MR. SHEPHERD: Very good.


966MS. BROOKS: It was in the mid-'90s. I'm not sure of the precise date.


967MR. SHEPHERD: Okay. Back to you, Mr. Turner, for just a couple more questions.

968If I understand correctly, the point of this methodology was to make it simpler and easier to produce the right numbers; correct?


969MR. TURNER: That's correct.


970MR. SHEPHERD: In mathematics that's called making the system or the method more elegant?


971MR. TURNER: I've heard the term. It's been a long time since I did my math degree.


972MR. SHEPHERD: But what happens is if the right number -- let's say you know the right number is $500, you try to find an indirect method of getting as close as possible to the without -- on a reliable basis -- without going to the same amount of trouble, spending less time and effort on it; isn't that right?


973MR. TURNER: That's a fair approximation, yes.


974MR. SHEPHERD: Now, when you are designing a simpler way to get a result -- and as a tax specialist you work with numbers all the time. I'm sure you have done this many times, tell me whether you do it the same way as I do. First I do an analysis at the conceptual level, then I create a model that I think will produce the right result, that's my hypothesis, then I test it to see if it works. Is that how you do it?


975MR. TURNER: If that's what I'm asked to do.


976MR. SHEPHERD: No, no, no; we are now not talking about this study.


977MR. TURNER: If I'm asked to design something, I design it, yes. And I would sit there and say what am I designing; what raw data do I have; how can I move the raw data so to give me -- I'm not talking in terms of quantity, I'm talking in terms of objective, what is my objective; what do I want to do with this information.


978MR. SHEPHERD: Then you test it to make sure it works, don't you?


979MR. TURNER: I may, I may not. Yes.


980MR. SHEPHERD: You design mathematical models and you don't test them to see if they --


981MR. TURNER: I see if they do the things that they were supposed to do, yes, that is correct.


982MR. SHEPHERD: But you didn't do any empirical testing of this methodology, did you?


983MR. TURNER: That is correct, because it was not what we were asked to do.


984MR. SHEPHERD: That's fine; I'm not criticizing. So Ms. Brooks, did you do empirical testing of this methodology?


985MS. BROOKS: Could I ask you to define "empirical testing."


986MR. SHEPHERD: You have a formula that produces numbers. You have other ways of getting at those numbers that you know have higher levels of reliability, for example, time sheets. Did you do any, for example, random sampling of time sheets to see whether you were close?


987MS. BROOKS: No, I did not.


988MR. SHEPHERD: Did you track the aviation number to flight logs to see whether it was close?


989MS. BROOKS: No, I did not.


990I will say though that the forecast of time estimates, as I mentioned earlier, were based on the manager's -- as I said, some departments did maintain time docketing.


991MR. SHEPHERD: I'm passing over many questions, Mr. Chair.


992One final question, Mr. Turner. I wonder if you could take a look at Exhibit A.6, tab 19, schedule 1, page 11.


993MR. TURNER: Yes, sir.


994MR. SHEPHERD: Had you seen this when you did your study?


995MR. TURNER: I don't know -- I did not see this, that I recall. I don't know whether my staff would have seen it.


996MR. SHEPHERD: Is one of the things you looked at when you looked at these allocations was how they tracked historically, to past allocations?


997MR. TURNER: In my review, I did not. Again, I don't know whether the staff did. We were focussing on the go forward position of the cost allocation model that was on the table. I don't see why we would have.


998MR. COWAN: I don't recall asking Mr. Turner in the examination that he did do for us to do a multiyear look and compare the previous method with the current method. So I don't believe that was part of the scope of what we were asking him to do.


999MR. SHEPHERD: Mr. Turner, in looking at whether an allocation method is appropriate, if you saw a chart that said that allocations went up 138 percent from '99 to 2000, and 51 percent from 2000 to 2001 and 23 percent from 2001 to 2002, and 45 percent from 2002 to 2003 in a stable regulated business would that -- I'm not asking you what you did, I'm asking for your expertise right now --


1000MR. TURNER: Sure.


1001MR. SHEPHERD: Would that cause you to wonder whether the allocation method is consistent and sound?


1002MR. TURNER: That would be reaching a conclusion so -- in advance of determining the facts. So my reaction would be: Can you please tell me what has changed and why? And there would be a number of factors that could affect that. And through the process of our review, our questions are designed to get the relevant factors at the time the allocation is being made. It does not put it in the historical context, but even if we were looking at the historical context, we would have said okay, what has changed.


1003MR. SHEPHERD: Can I just stop you. Do I understand that to be, then, if you see that sort of information, it at least prompts you to ask the question: Why has it changed?


1004MR. TURNER: Yes, and I think by reviewing -- just by looking at the table itself you can see that some of it has changed because of an escalation in the underlying expenses. Some of it has changed because of the addition of new services, and there may be other factors that account for the change.


1005So if you were looking at it in the totality, it would be reasonable to follow that line of inquiry, what changed and why.


1006MR. SHEPHERD: Thank you.


1007I want to turn to the people from EGD, that's Mr. Mees, Mr. Cowan, and Mr. Ladanyi. And I wonder if you could look at the previous page, A.6, tab 19, schedule 1, page 10 of 15. And I just want to ask you about a couple of these.


1008Let's start with CEO. Enbridge Gas Distribution has a CEO as well; correct?


1009MR. COWAN: It has a president.


1010MR. MEES: It does not have a CEO.


1011MR. SHEPHERD: It doesn't have a chief executive officer?


1012MR. MEES: No.


1013MR. SHEPHERD: Okay. What's the cost, the total cost to EGD of its president's office, president's support staff, et cetera. It is similar to this CEO cost that we saw being allocated? Do you know roughly what that cost is?


1014MR. MEES: I believe in evidence we have the total of the -- our executive management team, so it would be about ten individuals and their support, and I could check. I believe that's about $4 million.


1015MR. SHEPHERD: Okay. Let's say --


1016MR. MEES: It's found in A.6, tab 18, schedule 1. I wonder if you have it?


1017Yes, in the 2003 budget, it's $3.9 million.


1018MR. SHEPHERD: So I assume that of that, the president's component of that is probably $500,000 or $600,000 himself and his secretaries and assistants and people like that? 7 or 800,000? I don't know.


1019MR. MEES: I would have no idea. I'm not privy to that information.


1020MR. SHEPHERD: On this allocation, 373,000 is paid by EGD for EI's CEO, plus it's paying for its own president some hundreds of thousands of dollars; correct?


1021MR. LADANYI: Yes.


1022MR. SHEPHERD: And, in fact, that 373 isn't even the total, right? Because there's actually benefits and rents and things like that on top of that.


1023MR. COWAN: As per our previous discussions, yes.


1024MR. MEES: Just to clarify, the $3.9 million didn't include any benefits or anything else. It was a salary and expenses component. They are similar apples to apples, if you wanted to --


1025MR. SHEPHERD: No, that's great. So the actual cost of the president and the CEO together at EGD is actually significantly higher; right? Because you have to add benefits and rents on both sides.


1026MR. MEES: Yes.


1027MR. SHEPHERD: Now, if I look at the allocation at appendix A of Mr. Turner's report, I see that the corporate allocation for the CEO's office is $7,726. And I guess I'm wondering why it's appropriate that the corporate office would bear less costs than we've probably spent today in this hearing on the CEO, and EGD would spend, what, a million, a million and a half between its president and the CEO.


1028MR. LADANYI: In our evidence at Exhibit A.6, tab 18, schedule 1, which is non-departmental O&M expenses, we discuss the role of the Enbridge Inc. CEO and CFO in raising capital for different divisions of Enbridge, including Enbridge Gas Distribution.


1029And since the CEO costs are allocated on the basis of capital employed, the duties of the Enbridge Inc. CEO and CFO are allocated on that basis. And that's explained there in evidence at Exhibit A.6, tab 18, schedule 1.


1030MR. SHEPHERD: Well, but Mr. Daniel -- for example, let's just say that this was the year you were buying energy transportation south. Mr. Daniel would negotiate that; right?


1031MR. LADANYI: But Mr. Daniel would also have duties in negotiating, for example, refinancing of debt for Enbridge Gas Distribution --


1032MR. SHEPHERD: That's not what I'm asking.


1033MR. LADANYI: I know, but I'm trying to tell you that yes, he will have many financing duties, and he will be speaking to investors. He will be speaking to investment analysts year round. And as part of his duties, he will be raising capital for all of the Enbridge companies, including Enbridge Gas Distribution.


1034And since Enbridge Gas Distribution is a very sizeable company, roughly 30 percent of the total is allocated approximately 30 percent of Mr. Daniel's time.


1035MR. COWAN: But if Mr. Daniel were actually negotiating to acquire transportation south, it would not be in the allocation base to begin with, and indeed, there would be, because it had not yet been purchased. So on that basis, therefore, the amount attributable to the corporate office would be larger in any event.


1036MR. SHEPHERD: Is Mr. Daniel this year looking at other acquisitions?


1037MR. COWAN: He may well be. I'm not privy to what his personal activities are.


1038MR. SHEPHERD: It's part of his job.


1039MR. COWAN: I would expect that he would be looking at all kinds of different combinations for the Enbridge company.


1040MR. LADANYI: I should also like to add, Mr. Shepherd, there will be another panel -- the next panel on the subject, which will be dealing specifically with the benefits of different services, including the benefits of the CEO's office and the CFO's office. So there will be lots of opportunity for you to explore that.


1041MS. BROOKS: I would also add that Mr. Daniel doesn't negotiate or do any of the work with respect to potential acquisitions or divestitures. That is done by others. He approves them or not, as the case may be.


1042MR. SHEPHERD: Okay.


1043Can you turn to CME number 163, which is actually at tab 12 of Mr. Janigan's very useful cross-examination materials. Do you have that?


1044MR. COWAN: Yes, we do.


1045MR. SHEPHERD: The president of EGD is Mr. Schultz; right?


1046MR. COWAN: That is correct.


1047MR. SHEPHERD: So just looking at this list, does Mr. Schultz provide leadership at EGD?


1048MR. COWAN: He does provide leadership.


1049MR. SHEPHERD: Does he manage the corporation?


1050MR. COWAN: He, along with his management team and in conjunction with the corporate leadership team, does provide management of the corporation.


1051MR. SHEPHERD: Does Mr. Schultz liaise and report to his board and his chair and its committees?


1052MR. COWAN: If I may, I believe your question was with regard to the third bullet as to whether or not he works with the board of directors. In fact, he works, I believe, with two boards of directors, Enbridge Gas Distribution and with Enbridge Inc.'s board of directors.


1053MR. SHEPHERD: And in fact, with respect to the EGD board, Mr. Daniel is just a member of it; isn't he?


1054MR. COWAN: Perhaps Ms. Brooks is more able to answer that than I.


1055MS. BROOKS: He is a member of the EGD board.


1056MR. SHEPHERD: Skipping down a bit, does Mr. Schultz recommend the strategic plan for EGD to the board?


1057MS. BROOKS: If I could comment on that, the strategic plan for EGD is reviewed by the EI board as part of the consolidated strategic plan. There is no review by the EGD board.


1058MR. SHEPHERD: The EGD board of directors doesn't approve its own strategic plan?


1059MS. BROOKS: No. That is the one of the governance responsibilities. Again, in an effort to try to streamline the activities of the corporation as a whole, that's been transferred to the Enbridge Inc. board. And all of the directors on -- I believe all, I shouldn't -- I believe all of the directors on the EGD board are Enbridge Inc. directors, subject to verification.


1060MR. SHEPHERD: Okay. And is it Mr. Schultz's responsibility to implement the EGD strategic plan?


1061MR. COWAN: Very much so.


1062MR. SHEPHERD: I'm not going to go through the rest of these.


1063MR. LADANYI: I want to draw your attention, however, back to the evidence that was I was mentioning to you, which was Exhibit A.6, tab 18, schedule 1, specifically page 5. And perhaps I can just read it to you then since you didn't want to go there before. It says right there in paragraph 13:


1064"The CEO and CFO of Enbridge Inc. are involved directly with all issues related to Enbridge Inc.'s equity securities, including day-to-day discussions with investors, analysts, credit-rating agencies, lenders and other interested parties. Parties with a stake in the financial performance of Enbridge Inc. including key subsidiaries, such as Enbridge Gas Distribution, require access to Enbridge Inc.'s most senior officers on a regular and ongoing basis.


1065"It is incumbent upon the CEO and other officers to make themselves available to respond to their questions and concerns. In order for Enbridge Gas Distribution to have access to equity capital from Enbridge Inc. on the terms that the undertakings require it must bear its share of the cost that Enbridge Inc. must incur in order to ensure such capital access."


1066MR. SHEPHERD: Mr. Schultz does all those things too; right?


1067MR. LADANYI: Well, Mr. Schultz has some part of this role, but most of this role is with Mr. Daniel and also with the CFO. And again, I might add that Mr. Scott Wilson will be on a future panel to answer further questions relating to this.


1068MR. CASS: I was just about to say, Mr. Chair, we have said repeatedly that the next panel will be addressing these types of questions about who does what.


1069MR. SHEPHERD: Actually, where I was going with that, Mr. Chairman, I just have one more thing on that and that is this. I wonder, panel, if you can, looking at page 10, Exhibit A.6, tab 19, schedule 1, undertake to provide -- to file for each of those line items the EGD internal spending for each of those functions in the test year as currently planned?


1070MR. LADANYI: I believe that's already in evidence, that's in our O&M evidence, it's throughout the O&M evidence and under each particular section.


1071MR. COWAN: We were asked yesterday, I think, to provide a cross reference for that evidence.


1072MR. SHEPHERD: Okay.


1073Then Mr. Chairman, I just have a few final questions. I'm almost finished. These questions are for Ms. Brooks.


1074Yesterday you spoke with Mr. Janigan about your meetings with the One Company, One Vision strategy; do you recall?


1075MS. BROOKS: About my meetings?


1076MR. SHEPHERD: You were involved in the development of that strategy, were you?


1077MS. BROOKS: I was not.


1078MR. SHEPHERD: Oh, you weren't?


1079MS. BROOKS: No, I was not. I was not an Enbridge employee at that time.


1080MR. SHEPHERD: Okay. Let's move to the next one then. You talked about a meeting last year of all the finance people that resulted in the development of the new cost-allocation methodology; do you recall that one?


1081MS. BROOKS: There were a number of such meetings, yes.


1082MR. SHEPHERD: I understand that you had a meeting in September and that was when you developed this.


1083MS. BROOKS: The meeting in September 2002 --


1084MR. SHEPHERD: Yes.


1085MS. BROOKS: -- was when I presented the methodology to the corporate leadership team to hopefully gain their approval. They did approve it. I went with the intent of gaining the executive management team's approval of the new methodology. The meetings with the senior finance group were in the 12 to 14 months preceding that.


1086MR. SHEPHERD: Okay. Yesterday, you told this panel, if I understand correctly, and correct me if I am wrong, that EI billed EGD the TPBR amounts for each of the years 1999 to 2001. Did I understand your evidence correctly?


1087MS. BROOKS: We billed amounts consistent with what was included in the TPBR base.


1088MR. SHEPHERD: Okay. So I'm going to ask you to go back to page 11 of this pre-filed evidence.


1089MS. BROOKS: Yes.

1090MR. SHEPHERD: A.6, tab 19, schedule 1, page 11, and you see a line there that says "bill charges."


1091MS. BROOKS: Yes.


1092MR. SHEPHERD: Do I take it that your evidence is that that is the TPBR amount?


1093MS. BROOKS: It is the amount consistent with the costs that were included in TPBR. So for example --


1094MR. SHEPHERD: Could you describe that distinction?


1095MS. BROOKS: For example, it would be the million nine plus the centres of excellence amounts, which were Toronto office staff who became EI employees in 2000 but provided service to EGD.


1096MR. SHEPHERD: All right. So when you say consistent with TPBR, you don't mean escalated by the TPBR factors.


1097MS. BROOKS: No. No. What I meant was the nature of the expenses. So they were either expenses that were included as part of the management fee or expenses that had been included in the utility's cost that were transferred to Enbridge Inc.


1098MR. LADANYI: A good example if you want to look at, Mr. Shepherd, is response to Board Staff interrogatory 151. And it's, I think, maybe a little clearer when you see it there. At least I hope it is.


1099MR. SHEPHERD: Okay.


1100Finally, Ms. Brooks, I'm going to ask you to turn to the January 1st, 2000, intercorporate services agreement. I actually don't know what exhibit that is. I know it was filed.


1101MR. BRETT: K.8.2.


1102MR. SHEPHERD: K.8.2? Thank you, Mr. Brett.


1103MR. BRETT: Is that 2002 or the earlier one?


1104MR. SHEPHERD: No, this is 2000.


1105MR. COWAN: Which one are we looking for?


1106MS. BROOKS: Which one?


1107MR. BRETT: It's K.8.2.


1108MR. SHEPHERD: It's 2000, the old agreement.


1109MS. BROOKS: I have that.


1110MR. SHEPHERD: Now yesterday, Ms. Brooks, you said that there was no written documentation of the decision to add an additional 15 categories of departments between 2001 and 2002. Did I understand your evidence correctly?


1111You were asked yesterday between 2001 and 2002, you added a whole lot of other things to the charges, and you were asked what documentation was there. You said there was none.


1112MS. BROOKS: No. The only documentation, really, would be the budget document that would include that charge in EGD's costs. It's really something that just evolves as part of the budget process for the coming year.


1113MR. SHEPHERD: But you do have --


1114MS. BROOKS: But there would be no specific documentation related to those 15 departments, no.


1115MR. SHEPHERD: You do have service level agreements for those, don't you?


1116MS. BROOKS: For those particular departments? No.


1117MR. SHEPHERD: Isn't that required under the Affiliate Relationships Code?


1118MS. BROOKS: I can attempt to answer that with -- subject to correction by Mr. Ladanyi.


1119MR. SHEPHERD: He's welcome to answer it.


1120MS. BROOKS: As I said that yesterday, the reason that decision was made was not for the purpose of recovering those costs in rates in 2002 but to properly measure the performance from a bottom-line sense of the utility.


1121So I -- it would be my assumption, subject to correction, that a service level agreement isn't required, because those costs -- it was never intended that they be recovered in rates.


1122MR. SHEPHERD: They were billed by EI to EGD in 2002 and paid; correct?


1123MS. BROOKS: Yes.


1124MR. SHEPHERD: But -- and if I understand correctly, and please correct me if I am wrong Mr. Ladanyi, the Affiliate Relationships Code requires that you have SLAs when you do that; isn't that right?


1125MR. LADANYI: I understand that we had a service level agreement. I think that was the exhibit that we filed with Mr. Janigan. He wanted us to file the previous service level agreement, and we now have the current intercorporate services agreement, which is attached to Board Staff 71.


1126I'm not sure what document you are discussing.


1127MR. SHEPHERD: So I'm looking at the January 1st, 2000, agreement, and it has attached service level agreements for each of the departments to which it applies.


1128MR. LADANYI: That's right.


1129MR. SHEPHERD: It doesn't include any of those 15 departments added in 2002?


1130MR. MEES: No, Mr. Shepherd, it also includes the management fee agreement as part of that, and it talks about head office expenses as part of that. I believe that they -- that would cover those departments.


1131MR. SHEPHERD: The management fee covers those additional things?


1132MR. MEES: The management fee agreement, yes.


1133MR. SHEPHERD: But I thought I heard your evidence yesterday that the management fee covered the top five things on the list or something, and everything else was things that used to be in EGD; wasn't that the evidence yesterday?


1134MS. BROOKS: I'm sorry could you repeat that? Covered the top five items?


1135MR. SHEPHERD: Yes. We looked down the list and the top five or six items were in the management fee, and everything else --


1136MS. BROOKS: Oh, no, there were -- all of items were in the management fee we just didn't bill all of it, which is what you see on page 11 of the pre-filed evidence where it shows the total allocation. That's the management fees less the amount billed.


1137MR. SHEPHERD: Do I understand correctly that in your view, under a PBR structure, or at least under the past TPBR, you could exercise your judgment, or EGD could exercise their judgment, to pay additional amounts to EI of any amount they wanted? And as long as they cut back in other areas, that would be okay because they're under the cap; is that right?


1138MR. LADANYI: Under TPBR, essentially TPBR operated since the Affiliate Relationships Code came into effect. And as long as we met the conditions required in the Affiliate Relationships Code for the sharing of services and resources, which is section 2.2, which we believe that we did, there was no particular restriction on payment. There is no -- you see, after the old undertakings were superseded or replaced by the new undertakings in December of 1998, the Board no longer approved a specific payment from Enbridge Gas Distribution to the parent utility.


1139My understanding, really, is that the Board did not want to be involved in numerous Affiliate Relationships Code applications, affiliate transaction applications that had occurred, roughly between 1994 and 1998, and therefore designed a new method of dealing with affiliate transactions. One was that the Board wouldn't be approving each individual one, and secondly, that there were going to be rules about those which was the Affiliate Relationships Code. And lastly, to take the whole process outside the hearing room, the Board actually put a complaints process at the back of the Affiliate Relationships Code, which is section 2.9, and so affiliate transaction concerns would be handled outside the hearing room by the parties directly.


1140And that was the intent, I think, when this whole -- current regime was put into effect. Mind you, it doesn't seem to be working that way, but I believe that was the intent so the Board's time wouldn't be taken up with dealing with affiliate transactions issues.


1141MR. SHEPHERD: So you still have to comply with the Affiliate Relationships Code during a PBR regime.


1142MR. LADANYI: Absolutely, and we believe we did.


1143MR. SHEPHERD: So you still have to have SLAs for all the things that you are charging from EI to EGD.


1144MR. LADANYI: I think, as I pointed out to Mr. Janigan, the -- I think the word SLA is, in fact, nowhere in there. It's not there. If you look at section 2.21 it discusses a services agreement, not an SLA. And we did have a services agreement. And we still do.


1145MR. SHEPHERD: Mr. Chairman, thank you for your patience, those are my questions.


1146MR. BETTS: Thank you, Mr. Shepherd.


1147Mr. Brett.


1148MR. BRETT: Thank you, Mr. Chairman. Mr. Dominy. Good afternoon, panel.


1149CROSS-EXAMINATION BY MR. BRETT:


1150MR. BRETT: I'm going to start with a few high-level questions, Ms. Brooks, on the -- just on the texture, I guess, of the Enbridge group of companies. And probably the best source for this is to take out Mr. Turner's evidence, although I'm not going to use it for the purpose it was written. Turn to page 5. It has a convenient list of companies, that's Exhibit I, tab 13, schedule 55.


1151These are very simple questions to begin with. They're just going to help focus the discussion a bit.


1152MS. BROOKS: Okay.


1153MR. BRETT: Do you have page 5 there?


1154MS. BROOKS: I do.


1155MR. BRETT: Enbridge Pipelines Inc., that is your main pipeline that goes from Edmonton down to the U.S. border?


1156MS. BROOKS: Yes, it is.


1157MS. BROOKS: It is a regulated company, regulated by the National Energy Board?


1158MS. BROOKS: It is.

1159MR. BRETT: Enbridge Pipeline Athabaska, I take it, is a separate line that runs from Edmonton north to the Fort McMurray area and various other sites that produce oil or bitumen there; is that right?


1160MS. BROOKS: Primarily transports bitumen from the oil sands.


1161MR. BRETT: Right. It is regulated by whom?


1162MS. BROOKS: The AEUB, because it's energy and utilities.


1163MR. BRETT: Because it's an entirely intra-Alberta entity. Enbridge Pipelines Northwest is what?


1164MS. BROOKS: That's actually Norman Wells.


1165MR. BRETT: Okay, that's in the Northwest Territories and that runs down to Zama from Norman Wells.


1166MS. BROOKS: Yes.


1167MR. BRETT: And it would be federally regulated, I take it, because it crosses a provincial boundary?


1168MS. BROOKS: I don't believe it is, but I would have to check. It is regulated, I think it's the AEUB.


1169MR. BRETT: It's a regulated pipeline. That's sufficient for my purposes.


1170Enbridge Pipelines Saskatchewan is a pipeline that you -- a separate pipeline within Saskatchewan?


1171MS. BROOKS: It's a gathering pipeline in Saskatchewan, yes.


1172MR. BRETT: An oil-gathering system?


1173MS. BROOKS: Yes.


1174MR. BRETT: Enbridge Operational Services we know about. Gas Pipeline Development, "H" projects. That is a company?


1175MS. BROOKS: No, that's just a line of business.


1176MR. BRETT: And where is that located?


1177MS. BROOKS: That's actually in the Calgary office.


1178MR. BRETT: In the corporate office?


1179MS. BROOKS: It's an element of Enbridge Inc., yes.


1180MR. BRETT: And what does it do, in broad terms?


1181MS. BROOKS: Looks at opportunities to invest in gas pipeline infrastructure in North America, primarily.


1182MR. BRETT: So it's part of your -- the 155 man years, the person years. It's part of the corporate office.


1183MS. BROOKS: Yes, it is.


1184MR. BRETT: And it's got a business development orientation to it?


1185MS. BROOKS: It does.


1186MR. BRETT: But just in gas. So when you and your chairman make comments about the fact that they are interested in investing a lot more money in the U.S. in the next few years, and one of the areas they're looking at are gas pipelines, this would be the group that are, sort of, screening all of the opportunities for gas pipeline, gas storage, gas distribution investment in the United States.


1187MS. BROOKS: It may be. There is a similar group in Houston as well.


1188MR. BRETT: And the group in Houston is part of EI as well?


1189MS. BROOKS: No, it is not.


1190MR. BRETT: Where is it located?


1191MS. BROOKS: It is in the transportation group south.


1192MR. BRETT: So it's part of the American business, operating business.


1193Now the Vector Pipeline Limited Partnership, we understand that. What is your interest in that now, roughly?


1194MS. BROOKS: 45 percent.


1195MR. BRETT: And Alliance isn't on this list, but don't you now have a controlling interest in Alliance?


1196MS. BROOKS: No, we do not have a controlling interest.


1197MR. BRETT: What is the size -- what is your interest?


1198MS. BROOKS: Our current interest is 38 percent.


1199MR. BRETT: All right. I must -- I had thought that you had recently purchased an interest in either Vector or Alliance which pushed your share interest up considerably.


1200MS. BROOKS: Have you read that in a press release in the last few days?


1201MR. BRETT: Yes.


1202MS. BROOKS: All right. Then our soon-to-be interest in Alliance is 50 percent. It's currently 30 percent -- 38 percent.


1203MR. BRETT: So it will be 50 percent once the deal is closed?


1204MS. BROOKS: That's correct.


1205MR. BRETT: Because I read all your press releases, just as a matter of --


1206MS. BROOKS: I have not done that over the last few days, so I didn't want to have --


1207MR. BRETT: You didn't want to have any surprises, mean surprises come up?


1208MS. BROOKS: I didn't want to surprise people.


1209MR. BRETT: Now, just over the page, in energy transportation south. The largest, I take it, holding is Enbridge Energy Partners LP? That's the first one on the list.


1210MS. BROOKS: Of that group, yes.


1211MR. BRETT: Of that group.


1212MS. BROOKS: Yes.


1213MR. BRETT: And it's a publicly traded limited partnership in the United States?


1214MS. BROOKS: It is.


1215MR. BRETT: And you have a 14 percent interest in it, in units?


1216MS. BROOKS: It's approximately 17 now.


1217MR. BRETT: And you also, I would assume -- do you have a management contract with it? Does Enbridge Inc. manage the company?


1218MS. BROOKS: It does, because LPs of this form typically have no employees.


1219MR. BRETT: Right, and you would be the general partner as well?


1220MS. BROOKS: We are.


1221MR. BRETT: And you would do that work for a fee?


1222MS. BROOKS: We do.


1223MR. BRETT: And when Mr. Daniels says in his comments from time to time that a good portion of your income is fee-based, that's one of the things he's referring to?

1224MS. BROOKS: No, it is not.


1225MR. BRETT: What does he mean by saying fee-based?


1226MS. BROOKS: He is talking about -- when he's referring to the partnership?


1227MR. BRETT: No, just generally.


1228MS. BROOKS: He's talking about the fact that our revenues are typically based on contracted amounts, volumes times price, fixed price, and that we're not a company that's exposed to a lot of commodity risk.


1229MR. BRETT: All right. You're not a producer, in other words.


1230MS. BROOKS: That's correct.


1231MR. BRETT: And then the next -- just briefly, that -- the Enbridge Energy Partners LP is regulated by FERC? Or, more precisely, the pipelines that it owns are related by FERC?


1232MS. BROOKS: That's correct.


1233MR. BRETT: And then the other is Frontier Pipeline Company. That's a separate --


1234MS. BROOKS: It's a small feeder pipe, oil feeder pipe in the midwest. I can't remember which state.


1235MR. BRETT: The Mustang Pipeline Partners?


1236MS. BROOKS: Same thing.


1237MR. BRETT: Oil?


1238MS. BROOKS: Oil. All three of these are oil feeder pipes in the U.S.


1239MR. BRETT: They would be regulated by their local public utilities boards?


1240MS. BROOKS: Yes.

1241MR. BRETT: And then the Energy Distribution Group, I think we know those entities. You don't have Noverco listed there, but you have an interest in Noverco.


1242MS. BROOKS: We do have an interest in Noverco.


1243MR. BRETT: What is that interest?


1244MS. BROOKS: It's an equity interest.


1245MR. BRETT: Of what amount?


1246MS. BROOKS: In a percentage term?


1247MR. BRETT: Yes.


1248MS. BROOKS: Subject to check, I think it's 40 percent.


1249MR. BRETT: Okay, that's fine.


1250MS. BROOKS: No, that's wrong. I don't remember precisely.


1251MR. BRETT: You have two items at the bottom there, NetThruPut Inc. Is that energy storage business in Alberta or --


1252MS. BROOKS: No, it is not. It is a web-based oil or liquids trading facility, I guess. Facility not in the sense of fixed assets but --


1253MR. BRETT: Right. Enbridge Gas Services we know. Ontario Business Development Distribution and Service; that's not a company, I take it.


1254MS. BROOKS: No, that is a line of business.


1255MR. BRETT: And part of which unit, business unit? Was that part of the corporate business unit?


1256MS. BROOKS: It's part of the energy distribution segment.


1257MR. BRETT: But its people are part of the 155, I presume.


1258MS. BROOKS: Thank you. Mr. Mees has reminded me that the people in that business unit are in Enbridge Inc., are Enbridge Inc. employees.


1259MR. BRETT: And how many are there, do you know offhand, roughly?


1260MS. BROOKS: Just bear with me, I might have that with me.


1261MR. BRETT: It's probably in the evidence. I take it they're based in Toronto.


1262MR. MEES: Yes, they are.


1263MS. BROOKS: It's 7 people in total.


1264MR. BRETT: Thank you. And they are looking at, I gather, opportunities in either the regulated electricity sector in Ontario or other aspects of the energy sector in Ontario?


1265MS. BROOKS: That's correct.


1266MR. BRETT: Other than EGD itself.


1267MS. BROOKS: No, including EGD. They are looking for ways to expand the EGD business as well.


1268MR. BRETT: And then the international group, you have an investment and a propane -- or rather liquids distribution company in Spain, I gather; that's CLH.


1269MS. BROOKS: That's correct.


1270MR. BRETT: And your interest is 25 percent in that?


1271MS. BROOKS: It is.


1272MR. BRETT: You have an interest in a pipeline in Columbia and your interest in that is what?


1273MS. BROOKS: 24.7, I believe.


1274MR. BRETT: And Enbridge International Services is a consulting firm primarily?


1275MS. BROOKS: It is.


1276MR. BRETT: Enbridge Technology Inc. does what?


1277MS. BROOKS: It markets proprietary pipeline operating technology.


1278MR. BRETT: So that would be systems types of technology. It could be technology developed by EOS, for example?


1279MS. BROOKS: It could be.


1280MR. BRETT: Or used by EOS? Okay. Thank you, that's helpful.


1281Just one further question on Enbridge Energy Partners. That's the large United States limited partnership into which you've sold a number of your acquisitions. What would the total assets of that company be, roughly?


1282MS. BROOKS: In -- again, in U.S. dollars and subject to check, about 2.5 billion.


1283MR. BRETT: Is that two 2.5 billion in the -- when you allocate your corporate centre charges do you count those assets as 2.5 billion, or do you count them as 14 percent of 2.5 billion, or 17 percent of 2.5 billion?


1284MS. BROOKS: We count them as 2.5 billion.


1285MR. BRETT: Could you turn up -- I've provided you with certain materials, or your counsel with certain materials this morning. They were -- and I gave them to Mr. Moran.


1286Mr. Chairman and Mr. Dominy, these are the six-month -- there's three pieces. There's, first of all, the six-month statement of Enbridge, the statement for the period ending July 2002, and particularly an attachment to it, which is a presentation by Mr. Daniel and Mr. Truswell on that occasion.


1287The second one, I believe, is already in the evidence, but I can't remember the exhibit number. It's the 12-month statement for Enbridge for 2002, for Enbridge Inc, again with a presentation attached to the back of it by the CEO or CFO -- or ex-CFO.


1288And then the third one is just a press release.


1289MR. BETTS: Excuse me. We don't have a copy.


1290MR. BRETT: I think Mr. Moran has got copies for you.


1291MR. MORAN: When I was talking to Mr. Brett I obviously misunderstood him. I thought he had provided you with copies up there.


1292MR. BRETT: Oh, I'm sorry. I left them on Mr. Moran's desk at noon.


1293MR. MORAN: I have three copies here. I thought they were for us.


1294MR. BRETT: So just while they're coming up to you, the third one is just a press release dated October 17th of last year, which is simply -- the subject of which is simply the sale of some American assets, gas system assets, to Enbridge Energy Partners LP for $820 million.


1295I'm wondering, could I have an exhibit number for these, just for convenience, perhaps for all three of them.


1296MR. MORAN: Mr. Chair, starting with the first one that Mr. Brett mentioned, that would be K.10.1.


1297MR. BETTS: Sorry, because we didn't have it, I didn't follow that well. Give me some reference.


1298MR. MORAN: I'm going to read out the -- it's entitled "News Release: Enbridge continues to deliver in the first half of 2002," and it has attachments.


1299MR. BETTS: That was 9.1?


1300MR. MORAN: 10.1.


1301EXHIBIT NO. K.10.1: DOCUMENT ENTITLED "NEWS RELEASE: ENBRIDGE CONTINUES TO DELIVER IN THE FIRST HALF OF 2002"


1302MR. MORAN: The next exhibit would be K.10.2, and on the cover page there's an e-mail from Colin Gruending at Enbridge.com, and there is a reference to the attachments, Enbridge's 2002 year-end financial results and disclosure.


1303EXHIBIT NO. K.10.2: E-MAIL FROM COLIN GRUENDING AT ENBRIDGE.COM WITH ATTACHMENTS, ENBRIDGE's 2002 YEAR-END FINANCIAL RESULTS AND DISCLOSURE


1304MR. MORAN: The third one is K.10.3, a single page news release from Enbridge entitled "Enbridge completes transfer of U.S. natural gas systems to Enbridge Energy Partners."


1305EXHIBIT NO. K.10.3: SINGLE PAGE NEWS RELEASE FROM ENBRIDGE ENTITLED "ENBRIDGE COMPLETES TRANSFER OF U.S. NATURAL GAS SYSTEMS TO ENBRIDGE ENERGY PARTNERS"


1306MR. BETTS: Thank you.


1307MR. BRETT: Thank you, Mr. Chairman. I would ask you to just ignore all of the scratch marks on these things. I -- these were copies of an original annotated copy of mine.


1308But I would like to pay particular attention to the two presentations at the -- there were two presentations at the back, respectively, of the six-month results and the 12-month results. And they're on -- they start off -- they are entitled "Overview and Strategic Update" by Pat Daniel, and "Financial Results and Outlook" by Derek Truswell.


1309Do you see those? I'm looking at the six-month one first.


1310I'm going to look at really -- I'm going to ask you to turn up pages in them, sort of together, but I want to start with the six-month one. Okay?


1311MS. BROOKS: Mm-hm. I have that.


1312MR. BRETT: All right. Now, if you look on about page -- I don't think these are numbered; yes, they are numbered -- in the bottom right corner of the black part of the page, page 4, fourth slide, okay?


1313And before I would -- before I ask you the question, I'd also like you to have in hand the same -- I'd like you to have in hand the 12-month statement, the 12-month -- the second part of that document I filed, second piece of it. And at the back of that, there's also a presentation, so would you turn that up also to page 4. So you'll have two page 4s in front of you. Okay?


1314The question I -- I want to focus your attention on the first line of each of those two slides. Now, this is -- let me just pause here and make sure that everybody's got this document in front of them, because it's a little -- okay.


1315The first line of that slide, page 4, is entitled, "Asset Management Focus." Do you see that?


1316MS. BROOKS: Yes.


1317MR. BRETT: If you look over at the other slide, the first line is entitled, "Upgraded the Asset Portfolio."


1318Now, I -- I'm assuming that would be -- these are essentially statements where the most senior management is highlighting their approach to the business; is that fair?


1319MS. BROOKS: Yes.


1320MR. BRETT: And would you agree with me that -- I'm going to give you a statement of what I think asset management is, means, in this context and I'd like you to comment. You are a vice-president of Enbridge, are you?


1321MS. BROOKS: I am, yes.


1322MR. BRETT: And controller?


1323MS. BROOKS: Yes.


1324MR. BRETT: This will be rough, because -- and I suppose this is the wrong way to do this, but an asset-management focus, from where I sit, is where you have the company that's doing the managing invests in companies, it buys them, it can buy either 100 percent or less. You then try and fill out their product line, perhaps by making further acquisitions. You provide them financing, and in some cases you sell them. In some cases you sell them quite quickly, as in the cases of ESI; in some cases you may hold them for a longer period of time. But everything is basically for sale at a price.


1325Is that a reasonable -- that's rough, but is that a fair interpretation of what an asset management focus means? Or if not could you -- well, first of all, -- well if not, could you qualify it?


1326MS. BROOKS: I don't believe it is, in the Enbridge context. In the Enbridge context, what we are trying to say is that as an energy company, our focus is hard assets, not energy marketing, not energy trading. So yes, we do buy assets, periodically we do sell them, that's normal course of business. But our business is to operate energy infrastructure, pipe in the ground.


1327MR. BRETT: So you're like a real estate company, you're like a company that owns a lot of real estate properties.


1328MS. BROOKS: Actually, I think we're more like a railway.


1329MR. BRETT: A railway?


1330MS. BROOKS: Yes, we ships lots of stuff.


1331MR. BRETT: All right. You have a -- you say you have a low risk profile. I take it that derives from the fact that you own for the most part regulated assets?


1332MS. BROOKS: Actually that is not what that refers to. For the most part, Enbridge is not subject to a substantial amount of commodity risk except for some in Texas, and most of our financial risk is hedged.


1333MR. BRETT: So -- pardon me, I think you misheard me. I said regulated assets.


1334MS. BROOKS: No, I know that. I'm saying that the low risk doesn't refer to the fact that they are regulated assets. The low risk refers to market risk. Our value proposition for shareholders is that it's low risk, high return, relative to the risk because we manage the market risk, which is price risk, around commodity and financial risk.


1335MR. BRETT: But you mentioned earlier that you don't sell the commodity -- you don't own the commodity producing companies.


1336MS. BROOKS: We have some commodity risk in the south, in the gas processing business.


1337MR. BRETT: And you are not in the retail business, you sold your retail company. ESI was a retailer, which you sold.


1338MS. BROOKS: That's correct.


1339If I could interrupt for one minute, just to put this presentation in context. These slides support the speech that Mr. Daniel and Mr. Truswell gave when we had our third quarter teleconference with the analyst community. So we release our results on the wire, which have been attached to this. So these would be the slides that are shown as they give that speech. So the focus for these slides are for the analyst community and the media, who listen to the call.


1340MR. BRETT: That's helpful, thank you.


1341If you turn to page 6 of the six-month report. This would appear to be a statement of these objectives that -- do you have that?


1342MS. BROOKS: Yes.


1343MR. BRETT: -- of the coming period and there are three listed: Developing oil sands potential, I think that's self explanatory from what we've talked about; repositioning eastern portfolio, that I take it refers to getting out of the ESI business?


1344MS. BROOKS: Yes.


1345MR. BRETT: And the third, readying for U.S. acquisitions. That is what?


1346MS. BROOKS: Well, expanding Enbridge's position in the U.S.


1347MR. BRETT: Which is what we talked about a short while ago.


1348MS. BROOKS: Yes.


1349MR. CASS: Mr. Chair, I have allowed this to go on for quite a long time without any idea in my mind how this relates to the issue that this particular panel is addressing at this time.


1350Might I ask, through you, Mr. Chair, if Mr. Brett will be in some way linking this information to the issue of the methodology for Enbridge Inc. corporate cost allocations?


1351MR. BRETT: Yes, Mr. Chair, I will. I mean, my intention here is to try and provide a small amount of business context so that we can really determine what are the functions that are being performed by this central company? What are they really doing with their time? How does the president and CFO really spend his time? I will be making the argument - now that Mr. Cass has, I suppose, forced me to say why I'm doing this, and allowed the witnesses an opportunity to listen and hear that - but my arguments will be in part that the focus of the senior management of the company are to make acquisitions and divestitures and have really very little to do with the running of the companies, that's a secondary part of what they do, and that this activity isn't captured properly in this analysis.


1352MR. BETTS: Please continue.


1353MR. BRETT: I will be brief and I will be -- I'm going to pass on to some other matters, but I wanted to simply touch on this as a context.


1354Would you turn to paragraph 11 or slide 11, please, the six-month report. Do you have that?


1355MS. BROOKS: I do.


1356MR. BRETT: All right. This slide has three bullets on it. It talks about the sale to Centrica that was closed on May 7th. Now this is -- the second bullet talks about an attractive price, $1 billion proceed. My understanding is that you had an after-tax profit of 250 million on that, thereabouts; correct?


1357MS. BROOKS: Yes.


1358MR. BRETT: Now, my real interest is the third bullet. It says pure play asset manager. Now, in light of what you just told me, what you're saying here is what? That you've gotten rid of this company which doesn't fit your portfolio and you're now -- and this is really why you've sold it?


1359MS. BROOKS: That's correct.


1360MR. BRETT: And then at the back, I suppose in fairness, at the back, you -- in page 13 or slide 13 I should point out that you -- or ask you to point out to everyone that you do say here that you are committed to gas distribution, it generates 100 million plus of earnings, it's a low risk business, and there is some upside. And I take it the upside you are speak of is growth, customer growth and an excellent franchise area and the opportunity to earn higher returns under well structured performance based rate making regimes.


1361MS. BROOKS: That's correct. I'm not sure that it's complete, but those are certainly some of the reasons.


1362MR. BRETT: All right. The -- and finally the last -- just to move to the end of this area, the last piece that the -- the third part of this filing of this exhibit was this press release that was dated October 17th, 2002, and it simply states that you sold your Midcoast Northeast Texas and South Texas natural gas systems to Enbridge Energy Partners for 820 million.


1363Now those systems are -- those are all gas gathering systems and/or gas distribution systems in the United States?


1364MS. BROOKS: It is a combination of interstate -- intrastate state and gas treating and processing assets.


1365MR. BRETT: So they would be all regulated assets.


1366MS. BROOKS: The gas processing is not regulated.


1367MR. BRETT: All right. Do you have long-term contracts with customers to process the gas?


1368MS. BROOKS: I don't know.


1369MR. BRETT: Okay. The --


1370MR. BETTS: Mr. Brett, could I ask you to try and find an appropriate time for a bit of a break. I think we do have substantial questions yet to come so we've been at it about an hour and a half. So it might be -- when you find an appropriate time to stop, just --


1371MR. BRETT: Well Mr. Chairman, actually this -- maybe just another two or three minutes here and then I could --


1372MR. BETTS: Yes.


1373MR. BRETT: I'd like you to turn up page 2 of the financial statement, the 12-month financial statement. So this is getting off the presentation at the back, going back to the front, turning up page 2 of the actual release, the press release itself. Do you have that?


1374MS. BROOKS: I have that.


1375MR. BRETT: The first paragraph says: "Mr. Daniel noted further these are key operating accomplishments in 2002 including our second international investment, a 25-percent interest in CLH ..." And so on and so on. "In May we sold our Energy Services business for cash proceeds of a billion dollars. We closed it's sale of the United States assets of Midcoast to the partnership for consideration of 820 million. Lastly, the company increased its ownership interest in Alliance by almost 16 percent in the 4th quarter."


1376You were an active buyer and seller of assets in 2002; is that fair?


1377MS. BROOKS: We bought and sold assets in 2002, yes.

1378MR. BRETT: Have you done any transactions in 2003?


1379MS. BROOKS: No, -- I'm sorry. Absent the additional equity interest in Alliance, I don't believe there are any others.


1380MR. BRETT: Could you tell us what other transactions that you made in 2002, or are those the only ones? Either purchases or sales of companies, or interests in companies.


1381MS. BROOKS: Understanding that I'm relying on memory here, I believe the only other sale was the sale of Cornwall Electric.


1382MR. BRETT: Right.


1383MS. BROOKS: There are none other than I recall.


1384MR. BRETT: And you also, I believe, made an investment in the windmill business -- in the wind business in 2002.


1385MS. BROOKS: I believe that was 2001.


1386MR. BRETT: All right. I think you have an interrogatory reply outstanding, as I recall, where you are going to be listing the acquisitions that you've made in the last year or two, acquisitions and divestitures; is that not right?


1387MR. CASS: I'm not aware of that, Mr. Chair.


1388MR. BRETT: All right. I wonder if I could just have an undertaking to provide us with a list of the company's or -- significant investments in companies that you've participated in the last three years and also what you've sold. I take it those are all matters of public -- well, they're obviously matters of public record.


1389MS. BROOKS: I would agree to that undertaking to the extent that those are assets or acquisitions or divestitures that have been previously publicly disclosed. Anything that has not been is not material.


1390MR. BRETT: No, I quite agree. If it's not disclosed, I'm not asking you to disclose it for the first time here.


1391MS. BROOKS: I don't believe there are any that have not been disclosed, but I would like to qualify that.


1392MR. MORAN: That would be Undertaking J.10.2, Mr. Chair.


1393MR. BETTS: Thank you, Mr. Moran.


1394UNDERTAKING NO. J.10.2: TO PROVIDE A LIST OF SIGNIFICANT ACQUISITIONS AND DIVESTITURES OF INVESTMENTS THAT ENBRIDGE HAS PARTICIPATED IN IN THE LAST THREE YEARS


1395MR. BRETT: Mr. Chairman, perhaps -- I'm going to move off this topic now of context. Perhaps this would be an appropriate time to stop for --


1396MR. BETTS: Okay. Let's take a 20-minute break and again, feel free to bring something back with you if you don't have time to do otherwise.


1397If I can read the clock appropriately, that's going to make it about 3:40, so we'll aim to reconvene at 3:40, and we'll continue until we're done.


1398--- Recess taken at 3:18 p.m.

1399--- Upon resuming at 3:43 p.m.

1400MR. BETTS: Thank you, everybody. Please be seated.


1401Are there any preliminary matters before we begin?


1402There are none.


1403Mr. Brett, when you're ready, please proceed.


1404MR. BRETT: Thank you very much, Mr. Chairman, Mr. Dominy.


1405You mentioned, Ms. Brooks, that you had, I believe, 155 staff in the corporate office as of January, as of now?


1406MS. BROOKS: We have 155 budgeted positions.


1407MR. BRETT: Okay. How many actual people do you have in place there?


1408MS. BROOKS: This would be a guesstimate, but I would say probably 125.


1409MR. BRETT: Okay. And do you expect, you know, a year from now to have more budgeted positions? The same? Less?


1410MS. BROOKS: It's difficult to say without knowing specifically what's going to happen with the business. I would say, as somewhat of a generalization, the same.


1411MR. BRETT: As far as I can make out, you started the corporate office shortly after you acquired Consumers Gas, as it then was, in June of 1994. Would you be able to give me an undertaking that simply tracks the number of people in the corporate office over the period annually since 1994, say, on January the 1st of each year since then? Or for as many years as you have records?


1412MS. BROOKS: Subject to the information being available.


1413MR. BRETT: Okay.


1414MR. MORAN: That would be Undertaking J.10.3, Mr. Chair.


1415UNDERTAKING NO. J.10.3: TO PROVIDE INFORMATION ADVISING OF THE NUMBER OF PEOPLE IN THE CORPORATE OFFICE OVER THE PERIOD ANNUALLY SINCE JUNE OF 1994 AS OF JANUARY THE 1ST OF EACH YEAR SINCE THEN, OR FOR AS MANY YEARS AS THERE ARE RECORDS


1416MR. BRETT: And do you have a current organization chart of the corporate office that lays out the basic structure and shows how the departments are organized and -- or how the major functional groupings are organized?


1417I take it you don't literally have 41 departments. A department is a term of art in this instance?


1418Those are two questions, but I guess the first question is: Do you have an organization chart? I don't think there is an organization chart in evidence. I hope I'm not mistaken about that.


1419MS. BROOKS: For the corporate office?


1420MR. BRETT: Yes.


1421MS. BROOKS: No, there is not, and yes, we do have them.


1422MR. BRETT: Could you provide one, please. Could I have an undertaking for that, for a current one?


1423MR. MORAN: That will be Undertaking J.10.4.


1424MR. BRETT: And I would say -- and perhaps you could add to that, to the extent that you have them, and you may not have them going back many years, but to the extent that you have them for earlier years, you know, preceding back from this year, could you include those as well, please?


1425MS. BROOKS: Yes.


1426UNDERTAKING NO. J.10.4: TO PROVIDE ORGANIZATIONAL CHARTS OF THE CURRENT CORPORATE OFFICE ALONG WITH ANY EARLIER YEARS CHARTS FOR CORPORATE OFFICE AS AVAILABLE


1427MR. BRETT: Could I ask you, with respect to the centres of excellence, I want to take an example here quickly just so that I understand the way these are set up, and I was going to take taxation, which is one that's been terminated. That probably makes it better for my purposes.


1428So it's taxation is on -- this is from your main evidence, tab 19, schedule 1. And it says here -- I'm looking at this schedule under centres of excellence, Taxation (Toronto), and I see -- do you have that line?


1429MR. MEES: Which page?


1430MR. BRETT: I'm sorry, page 11. I want to -- this is the one that shows it over the four-year period.


1431MR. COWAN: Yes, we have that.


1432MR. BRETT: Now, you have it zero -- the allocation is zero in 2003. That's because it no longer is in existence; right? Sorry, it's no longer in existence as far as Toronto is concerned, EGD is concerned?


1433MR. COWAN: You said zero in 2003.


1434MR. BRETT: Well, I'm reading from the last column, maybe I've got the wrong --

1435MR. COWAN: We need to make sure we have the right row.


1436MR. BRETT: I've got the fourth row down, "Taxation (Toronto) 2003: Zero."


1437MR. COWAN: Yes, for centres of excellence.


1438MS. BROOKS: I have that.


1439MR. BRETT: Is that right?


1440MS. BROOKS: Yes.


1441MR. BRETT: And you created this centre of excellence in 2000 by the looks of things. And do I understand this correctly, that what you did there is you show -- you took certain employees, certain employees who were doing tax-related work on -- the staff of EGD went from being on the EGD payroll to the EI payroll; is that correct? Although they stayed in Toronto.


1442MS. BROOKS: Yes.


1443MR. BRETT: And then at the same time, certain employees that were already on -- already were doing tax work in Calgary also, and perhaps elsewhere but certainly Calgary, also became part of this centre of excellence?


1444MS. BROOKS: Yes.


1445MR. BRETT: And then is there any -- now when you create a centre of excellence of this sort, is there any -- well first of all, how many employees were involved in the centre of excellence when it was created? How many did you have in 2002 -- or 2000 -- well, it looks likes a fairly level expenditure so it looks like a group that stayed in place for the three years of about the same size. Can you tell us how many you had?


1446MS. BROOKS: In Toronto?


1447MR. BRETT: In Toronto.


1448MR. MEES: I believe the number is five, Mr. Brett.


1449MR. BRETT: And in Calgary?


1450MS. BROOKS: I believe it is three.


1451MR. BRETT: And is there any -- when you create a centre of excellence, is there any documentation, any sort of agreement or any accounting entry that evidenced the fact that this group was being created, employees were being transferred into it?


1452MR. MEES: Included in Board Staff 71 as part of the Enbridge Inc. agreement, there is a section on taxation.


1453MR. BRETT: In the -- a section on taxation in the -- you mean an agreement on taxation or just a section that describes --


1454MR. MEES: Just a second.


1455MR. BRETT: You're not talking about a services agreement, I take it.


1456MR. MEES: Excuse me, I was incorrect. It was part of the original service level agreement that was filed.


1457MR. COWAN: I believe it was put in in a transcript undertaking, somewhere in the 8 series. It was 8.2, I believe, in the previous agreement.


1458MR. BRETT: It has been filed?


1459MR. COWAN: Well, I'm not --


1460MR. BRETT: I'm sorry, I didn't quite hear you. The previous agreement has been filed. That's Exhibit K.8.2. That's the general --


1461MR. MEES: Yes, and included within that is the services schedule.


1462MR. BRETT: Yes, there's several of them.


1463MR. MEES: Included in that is taxation services.


1464MR. MORAN: I think it's actually Exhibit K.8.1.


1465MR. BRETT: Yes, that's true but --


1466MR. MEES: Is that what you're looking for?


1467MR. BRETT: I don't want to take too long here, but let me just pursue that a moment. There is indeed a services agreement attached as one of several schedules to this agreement. Give me 30 seconds or so and I'll have it here.


1468Taxation services, yes, I have it; it's about the middle of the group. This is an agreement, just for reference purposes, it's service schedule tax number one to the intercorporate services agreement between Enbridge and Consumers Gas Company dated January 1st, 2000, for a period of four years commencing January 1st, 2000. And it talks about a variety of services and it has a pricing -- a price of 403,000 in 2000; 362,082 in 2001; and 170,000 in 2002, right? That's the one? Now those numbers don't actually, the comparable numbers for taxation in Toronto under the centre of excellence for those three years are 356, 484, that's -- and 397. Now are these numbers meant to be comparable? Are we looking at the same numbers here?


1469MR. COWAN: Mr. Brett, can you tell us where you have found the first set of numbers you referred to?


1470MR. BRETT: Section 6.0 of that service agreement, the last section that talks about pricing and conditions.


1471MR. COWAN: Yes, thank you. Page 3.


1472MR. MEES: Yes, Mr. Brett, they are comparable. If you go further along in that pricing and conditions you will see that these are based on an annual calendar year forecast, and what we have in here is what we term fiscal. So it begins in October where the calendar would begin in January.


1473MR. BRETT: So essentially what's happening here, in structural terms, as you're moving the Toronto employees over here, you're putting them on the Enbridge Inc. payroll, then the -- and EGD is entered into an agreement, a services agreement with Enbridge Inc. to provide taxation services for four years. Although it may not have that opportunity from the looks of things.


1474But at least -- and then -- now I think your evidence was earlier that you terminated this earlier -- and I'm paraphrasing here -- because with the sale of ESI to Centrica there were no other units in Toronto other than EGD that was going to take tax advice from this centre of excellence, so there was no point in keeping it separate; is that roughly right?

1475MS. BROOKS: Just to clarify, the centre of excellence concept has not been terminated, but the need to have those employees at -- the Toronto employees as EI employees did change because of the sale of ESI because they are now devoting the majority of time to EGD matters.


1476MR. BRETT: So the taxation centre of excellence, does it still exist?


1477MS. BROOKS: Yes, it does.


1478MR. BRETT: Now, the group of Toronto employees that used to be with EI that have now gone back to EGD, are they -- they're doing work for EGD of course, but they're also doing work for other entities, some work for other entities. These would be whom, roughly?


1479MR. MEES: A very small amount of work would be done for other entities.


1480MR. BRETT: And as far as the Calgary end of this, what's transpiring there? You show in 2003 at page 10 of Exhibit A.6, tab 19, schedule 1, $18,000 -- I'm sorry, yes, $18,000 allocated to EGD from taxation in Calgary. That's the remainder of the centre of excellence in Calgary? Is that -- I'm now at page 10 of 125 of that evidence.


1481MS. BROOKS: That is the portion of the Calgary taxation group's department costs that are charged to EGD.


1482MR. BRETT: That's the EI employees?


1483MS. BROOKS: Yes.


1484MR. BRETT: Okay. So there's no -- there is no -- all right, you've told me the documentation -- the documentation is the service agreement.


1485Now, that service agreement is -- it no longer exists, at the moment, as of now, I take it. It was terminated by the October 2nd, what I'll call generic service agreement?


1486MS. BROOKS: That's correct.


1487MR. BRETT: So at the moment there is no documentation that specifically deals with that centre of excellence.


1488MS. BROOKS: There is the appendix attached to the cost-allocation methodology which is appended to the service level agreement which was filed at Board 71. So there is a description of the services provided.


1489MR. BRETT: Is there an amount of dollars as well?


1490MS. BROOKS: No, in that the dollars are -- the dollars to be allocated are described by the methodology.


1491MR. BRETT: Can I ask you to turn up the -- again, Exhibit K.8.2, that's the services agreement we were -- dated January of 2000, the old services agreement. I think you've still got that in front of you.


1492MS. BROOKS: I have that.


1493MR. BRETT: At page 1, or section 1 rather, it talks about services being provided.


1494MR. MORAN: Mr. Chair, just for the record, I think it's Exhibit K.8.1.


1495MR. BRETT: I'm sorry, I have Exhibit K.8.2, I apologize. Exhibit K.8.1, section 1, talks about services to be provided to the services recipient being identified in one or more service schedules, and those are the -- which, when they are executed, will form part of the agreement, and those are the service schedules that are attached to the back of this; right?


1496MS. BROOKS: Yes.


1497MR. BRETT: And 2 talks about: "The services can also relate," you can have additional services relating to specific projects for which the services recipient requires assistance. And there are no -- there don't appear to be any service agreements at the back that relate to specific projects; are there any now?


1498MS. BROOKS: Not to my knowledge, no.


1499MR. BRETT: Now pricing. If I turn over the page to page 2, the pricing clause. "Fees are to be negotiated between the two parties and set out in the applicable service schedule." And that was done; right?


1500MS. BROOKS: In the past?


1501MR. BRETT: Yes.

1502MS. BROOKS: Yes.


1503MR. BRETT: The price adjustment clause you were able to -- the service provider's entitled to increase his fees or adjust his fees on January 1 if he can agree with the service recipient. And if they can't agree, then there's an arbitration provision; correct?


1504MS. BROOKS: Yes.


1505MR. BRETT: Then we go over to the invoicing procedures on page 3, and there are monthly invoices to be provided.


1506MS. BROOKS: There were, yes.


1507MR. BRETT: There were, and there was a sort of a mechanism or a protocol for challenging those invoices, paying the part that you, the recipient, agreed with and then having the dispute resolved as to what the party didn't agree with.


1508MS. BROOKS: Yes.


1509MR. BRETT: And then over on page 5, "Management Reports", there were management and operating reports required from the service provider to the recipient for each of these services, summarizing the overall performance and no less than every six months; correct?


1510MS. BROOKS: Yes.


1511MR. BRETT: And then there was a forecast of services provided by the recipient. The recipient had to notify, had to lay out for the provider what the likely need was; correct?


1512MS. BROOKS: Yes.


1513MR. BRETT: And then over on page 6 there is a mechanism called a "transition period". And the transition period, if I may paraphrase, was basically a test period during which the service recipient, EGD, could assess the service levels provided and determine whether or not the service provider was capable of satisfying the requirements; correct?


1514MS. BROOKS: Yes.


1515MR. BRETT: And then down on number 13, paragraph 13 is the termination and the termination provision -- well, first of all, there was an expiry provision, the term of the agreement essentially is the term of -- the term of the general agreement is the term of the underlying service agreements; right? They differ from one to the other, as you know, but most are three years. Some are two, one -- I think one or two are one year.


1516MS. BROOKS: Yes.


1517MR. BRETT: And the service recipient in section C, if he doesn't want to proceed, he needs to give the -- he has to indicate -- the service recipient has to say, effectively, No, I don't want to continue this agreement at the end of the term.


1518If he doesn't say that, then the agreement continues, but he has the right to say, I don't want to continue; right?


1519MS. BROOKS: Yes.


1520MR. BRETT: And then if the service recipient -- if the service provider is sold to someone else, if it's no longer Enbridge Inc., EGD has the right, they don't have to, but they have the right, to stay on and to -- they have the right to terminate the agreement.


1521They don't have to do it, but they have the right to do it. That's in (d) there, over the page; do you see that?


1522MS. BROOKS: Yes.


1523MR. BRETT: And then if they do -- if a party expresses a desire to discontinue a service, down in 14(c), the agreement says, basically, the parties will work together and do it in good faith to try and set out an appropriate wind-down period and a reasonable, sort of, decommissioning cost, for want of a better word; right?


1524MS. BROOKS: Yes.


1525MR. BRETT: And then there's -- section 15 provides for an annual performance review and -- correct?


1526MS. BROOKS: Yes.


1527MR. BRETT: Section 15 is dispute resolution, we've spoken of that, and then the rest is pretty much standard clauses that you find in most commercial agreements.

1528Now, can I ask you to go over to the first schedule, and this is the government relations -- the agreement, the service agreement for government relations.


1529MS. BROOKS: I have that.


1530MR. BRETT: And in that schedule, the -- first of all, it's for a three-year term; correct?


1531MS. BROOKS: Yes.


1532MR. BRETT: And then the services are spelled out quite -- in quite a bit of detail over those next two pages; would you agree? The definition of services, public and government affairs?


1533MS. BROOKS: The services are described, yes.


1534MR. BRETT: In considerable detail.


1535And then on the last page, pricing conditions are set out, and the pricing is $125 an hour. This is on page 5 -- sorry, section 5, page 3, $125 an hour plus applicable taxes, invoices to be submitted once each calendar month; right?


1536MS. BROOKS: Yes.


1537MR. BRETT: And I take it this is a service -- this is an example of the sort of service that you could have procured had -- EGD, had it wished, could have procured on the open market?


1538MR. LADANYI: Are you talking about the government relations?


1539MR. BRETT: No, I'm not saying you -- no, no. I am asking a straightforward question, that this is the sort of service that's available for hire on the open market, government relations, public and government affairs?


1540MS. BROOKS: If you're asking if you can contract for that service --


1541MR. BRETT: I am.


1542MS. BROOKS: You can.


1543MR. BRETT: Right. It's not like the CEO of Enbridge. You're stuck with the CEO of Enbridge.


1544MS. BROOKS: There are such services available, yes.


1545MR. BRETT: The second -- the second -- go to the second service agreement, please, and that pertains to audit. Do you see that, audit services?


1546MS. BROOKS: Yes, I have that.


1547MR. BRETT: And that's a three-page agreement. And this appears to me to be a sort of internal audit service; is that right?


1548MS. BROOKS: That is correct.


1549MR. BRETT: Again, described in some detail, definition of services, roles and responsibilities. Over the next two pages.


1550An interesting section number 4, performance measures. There will be an assessment, do you see? In section 4 the first paragraph, an assessment of the value added of audit findings, adequacy of addressing significant risk areas, responsiveness to service recipients' concerns, and level of disruption to operations caused by the audit.


1551So does this look like the criteria they would use in the performance assessment?


1552MS. BROOKS: Yes.


1553MR. BRETT: And then the pricing, which was found over the page, pricing and conditions on the last page, it looks like almost a flat rate, $988,000 -- well, about a million dollars a year for each of the three years, 2000, 2001 and 2002; correct?


1554MS. BROOKS: Correct.


1555MR. BRETT: The next one I'd ask you to look at is risk management services. That's the next agreement.


1556And this agreement's for a term of two years, and it -- this is -- am I right in essentially saying this is in part, at least, the sort of function that an insurance broker, an insurance consulting firm provides?


1557MS. BROOKS: No, not entirely. This is the department that does place the Enbridge group of companies' insurance program. It also has -- I say reasonably significant -- there's a claims management function in EGD to manage and process the claims.


1558MR. BRETT: So it's a unit that both selects and places insurance, acquires insurance and at the same time settles claims or manages claims.


1559MS. BROOKS: Yes.


1560MR. BRETT: But it's not to be confused with the actual premiums themselves? This is a professional advisory -- insurance advisory placement and claim settling service; correct?


1561MS. BROOKS: That's correct.


1562MR. BRETT: This could be, presumably, acquired or contracted for on the open market by EGD had they chose to do so?


1563MS. BROOKS: I could say the claims management piece could be, yes. You could buy the insurance placement services as well; although, I think that would put the company at undue risk.


1564MR. BRETT: All right. And the fees for this are stated to be -- well, again, there are performance measures stated on page 2 of the contract with time frames and requirements, requirements to respond to claims within a certain period of time and so on; right?


1565MS. BROOKS: Yes.


1566MR. BRETT: And then there are pricing conditions, and the prices again seem to be about -- it's a two-year arrangement, the prices are about $750,000 in the first year and 800 in the second year; correct?


1567MS. BROOKS: Correct.


1568MR. BRETT: The next one is taxation, and we've spoken about taxation so we can pass through that one.


1569The next one's a rather interesting one given Enbridge's business. It's gas storage advisory and consulting service, and this is for a period of two years. It -- again, there is a definition of services, advising on gas-storage operating matters, gas-storage development, optimization of existing gas-storage assets, addition and integration of new pools, roles and responsibilities. There are performance measures there and I guess the pricing thankfully, is small, $3,500 per month up to a maximum of 40 hours work; correct?


1570MS. BROOKS: Yes.


1571MR. BRETT: Now, then, over the next page we come to the management fee agreement, and this one -- this was a little more complicated but this, basically, -- the one that we have in here is dated October 1st of 1994. This would have been the first one, I take it, that was signed between -- this was signed, obviously, very shortly after IPL acquired Consumers Gas, within a few months; correct? It's dated the 1st of October, 1994.


1572MS. BROOKS: I don't know the answer to that.


1573MR. BRETT: Well, the only -- I'm using Mr. Ladanyi's --


1574MR. LADANYI: Yes, if I can help, I believe that IPL announced its intention of acquiring an interest in Consumers Gas in late 1993, and the Board approved the purchase, I believe it was in the summer of 1994.


1575MR. BRETT: Right.


1576MR. LADANYI: So this is several months after.


1577MR. BRETT: This is several months after this, and this agreement has got a term on it of one year or -- of -- of one year -- of two years, I'm sorry. Then it continues on after that.


1578I'm sorry, it's actually for a longer period of time than two years, it has a price fixed for two years. In year three, which is the year commencing October 1, that's Consumers year, gas year, it's escalated by, effectively, an overall employee head office -- well it's escalated according to a formula here that we won't have to get into.


1579Now, this agreement I take it has -- has continued each year up until this current year; is that correct, either this agreement or something that has been put in its place?


1580MR. MEES: Yes, we believe so.


1581MR. BRETT: Actually, I think that I may have misread this. I think it's a two-year agreement, pricing is fixed for two years. But it seems to carry on without any termination day; is that your understanding?


1582MR. LADANYI: That what it appears to say on page 2.


1583MR. BRETT: So it's never been terminated? As far as you know, it hasn't been terminated up until the new agreement that was signed on October of 2002?


1584MR. MEES: Yes, that's what we were going to --


1585MR. LADANYI: As far as we know. We are not necessarily experts in the agreement. Mr. Boyce will be on the another panel. You can actually explore the details of this, but we're trying our best, Mr. Brett.


1586MR. BRETT: I understand. But what I'm getting to here are the numbers, I'm trying to fill a couple of blank spots in at least my understanding of how these numbers work.


1587I take it from comments you've made, many of you have made over the last day or two, that this agreement -- this is a sort of a residual agreement or framework agreement. And I can remember seeing breakdowns of the components of this in several rate cases over the last several years. This is the basket clause, if you like, that contains such things as aviation, et cetera, et cetera, et cetera, that aren't specifically referred to elsewhere, that don't have specific service level agreements around them; is that your understanding? In other words, you won't find -- let me put it another way. You don't find attached to this document any service agreement that deals with aviation as such.


1588MR. LADANYI: Correct. This would be all the items that will be essentially in the management fee that you would have dealt with in EBRO-497.


1589MR. BRETT: And is there in the evidence anywhere a listing year by year of the fees that have been paid pursuant to this management agreement or the -- well, pursuant to this agreement, this basket agreement?


1590MS. BROOKS: Yes, there is. It was filed as part of direct evidence at Exhibit A.6, tab 19, schedule 1, page 13 of 15.


1591MR. BRETT: Exhibit A.6?


1592MR. COWAN: Tab 19, schedule 1, page 13.


1593MR. BRETT: Okay. Thank you.


1594MR. LADANYI: Also, Mr. Brett, they are also shown in response to Board Staff interrogatory 151.

1595MR. BRETT: That's the table on the first page of it there? It's all right. I take your point, I'm sorry about that. I should have had that.


1596All right. So we have the actual amounts for each year. And do we have the breakdown of what the components of that money, where it went?


1597MR. MEES: That was billed?


1598MR. BRETT: Are there two different things, billing and allocated here, are we into this again?


1599MR. MEES: Yes. Do you want me to --


1600MR. BRETT: My first question was: What was billed pursuant to this agreement, the management-fee agreement?


1601MS. BROOKS: That was the reference we just gave you.


1602MR. BRETT: Is that the overall number, year by year, from 1994 to the present?


1603MS. BROOKS: It breaks it down year by year.


1604MR. MEES: Not from 1994. When we showed Exhibit A.6, tab 19 schedule 1,page 13 provides it from 1999 to 2002.


1605MR. BRETT: All right. Okay. Then the next agreement I want to go to is the treasury agreement which is the next one on the list. And this is a well-understood agreement that's been approved by the Board some time ago. This agreement would have remained in effect until, I guess, the end of 1999 and then it's been renewed; is that what it amounts to? Is that your understanding?


1606MR. LADANYI: Yes, and also as you might recall from earlier testimony in this proceeding I mentioned that this was subject of a separate application EBO-179-04 which was filed August 9th, 1995, for approval of treasury services. It was approved by the Board November 17th, 1995.


1607MR. BRETT: Right, but what I'm suggesting to you is that the amount in question has -- all right, I see what you're saying. There's been an agreement of this sort in place up until all these agreements were terminated by the October 2002 agreement.


1608MR. LADANYI: Yes.


1609MR. BRETT: Now, then, just to complete the picture, there is a -- there are three agreements, three service agreements at the back that deal with labour relations related matters or compensation related matters. One is for total compensation services.


1610First of all, there's a memorandum that is written by a Ms. Haberbusch to a Mr. Bailey, and it says that: "We will extend the terms and conditions outlined in the service level agreement between Enbridge ..." -- this is the labour-relations agreement dated October 1st, 1999, "-- to cover the period in January 1st, 2002, to September 30th of 2002." Then they refer to the review of services costing and business unit requirements.


1611All right. So with respect to the total compensation agreement, this was signed on the 1st of January, 2000; right? Do you have that, Ms. Brooks?


1612MR. LADANYI: Yes, we have that.


1613I want to point out that Ms. Haberbusch will be on a panel, which is now scheduled to appear on April 9th.


1614MR. BRETT: No, I understand. I'm just seeking to relate these agreements to the amounts of money and to the -- I'm interested in the structure of these agreements.


1615The pricing and conditions of this one: "The fee for services described in this schedule shall be determined on a flat-rate basis using the total approved compensation budget for the respective year allocated to each operating unit on a basis of head count."


1616Ms. Brooks, this is -- gets into an allocation of a sort on the basis of head count.


1617MS. BROOKS: Yes, it does.


1618MR. BRETT: All right. If I could -- the last two are labour relations, and in that one -- the labour relations one is -- is a period -- a 15-month term commencing October 1st of 1999. It's a very detailed listing of services to be provided and then at the end the pricing conditions -- page 4, rather, section 6, performance reviews, first of all, performance measures, and then pricing conditions. And it's an hourly rate; correct? 140 an hour?


1619MS. BROOKS: Correct.


1620MR. BRETT: And the last one is employee communication services, and that's a three-year contract signed January the 1st of 2000. And it, again, has a very detailed list of roles and responsibilities and pricing conditions on a flat-rate basis, some sort of an allocated basis -- on the basis -- allocated on the basis of head count; correct?


1621MS. BROOKS: Correct.


1622MR. BRETT: All right. Now, with that fresh in your mind, as it were, could I take you to the new agreement, the agreement that you signed the 1st of October, 2002. And this agreement is the one that currently -- this is tab 1, schedule 71, attachment 1.


1623Now, this agreement says that it will be -- first of all, on the first page, it says it's signed effective on October 1st of 2002.


1624The second part of it, allocation methodology, references the allocation -- your allocation document, Ms. Brooks, which is attached to it, I gather. And it says that in the event of any conflict that your document prevails; right?


1625MS. BROOKS: That's correct.


1626MR. BRETT: Over the agreement.


1627And the section 5, service and allocation bases, Mr. Warren discussed that with you yesterday, so we can go through that one.


1628Allocation procedures. I'm over on page 3, section 9. I just want to read this: "The service provider --" that's EI "-- in consultation with the service recipient shall set the cost allocations for the services prior to October 1st."


1629So I take it that that basically means that EI sets the allocation.


1630MS. BROOKS: No, that is incorrect.


1631MR. BRETT: Well, then, how is it done?


1632MS. BROOKS: I think the cost methodology describes the process that we go through. EI prepares its corporate budget, which is primarily a cost budget. The corporate office does calculate the cost drivers, but those cost drivers have been agreed upon as part of the review and approval of the methodology.


1633We would, obviously, each year review those cost drivers and still -- and see that they were still appropriate given the activities of the departments and develop new cost drivers if they were required for new departments.


1634Once that is done, and the cost allocations can be computed to each of the business units, there is then a negotiation, at least a discussion, between the -- and I think we've described this previously, but a strong, and it can be heated, discussion between the business unit service recipient and the corporate service provider to agree on the services that will be provided and to agree on the cost.


1635MR. BRETT: But in the last analysis, the service provider has the final word; correct? Would you not agree with that?


1636MS. BROOKS: No, I do not agree with that.


1637MR. BRETT: What what happens if they disagree? What happens if in this heated discussion EI says, Well, I think it's reasonable. And EGD says, Well, I think it's too high.


1638We're talking here about the cost allocations for the services, so we're talking about -- let me just be clear, Ms. Brooks. We're talking here about what the -- not what the allocation factors will be, but what the sum of money will be that EGD will pay for that particular service in that upcoming year, or are we talking about both of those things in your view?


1639MS. BROOKS: The cost driver and the services?


1640MR. BRETT: Mm-hm.


1641MS. BROOKS: No, I think we're just talking about the services.


1642MR. BRETT: That's what I thought.


1643We're trying to set the price, essentially set how much the bill is going to be.


1644MS. BROOKS: No.


1645MR. BRETT: All right. Well --


1646MS. BROOKS: So, perhaps, if I could have a minute to try to elaborate.


1647So if there is a disagreement, the discussion then goes to which services does the business unit not choose to receive from the service provider. Remember, as part of the budget process, the corporate office costs are primarily people costs or department costs, excluding the general expenses. So if the business unit were to say, We don't want you to provide that service, then the corporate office would make an appropriate adjustment to its staffing and an appropriate reduction of its departmental expenses.


1648MR. COWAN: Perhaps to help, you could see the reference in the procedure which is the next attachment to this agreement. Section 6.3, budget based allocations, describes the budgetary process, and then section 13 describes the dispute resolution process. So pages 9 of 23 and 13 of 23, respectively.


1649MR. BRETT: All right. Well, let's -- we'll deal with that in a moment, but let me just stick with the document, the agreement at first, if I may, and I'll come back to that.


1650The -- what the agreement says is: "The service provider in consultation with the service recipient --" so they must consult "-- shall set the cost allocations for the services prior to October 1."


1651And then it says -- goes on to say: "The party's execution of the interline of business services confirmation notice --" that's the one pager "-- shall evidence the party's agreement to the cost allocations for that year."


1652Let's carry on then here. I take it under this regime -- I'm looking now at payment procedures, Ms. Brooks. That's the section -- page 3 at the bottom, section 11.


1653MS. BROOKS: I have that.


1654MR. BRETT: There are no invoices, I take it, under this new arrangement? There's some sort of an automatic ledger account adjustment, but there's not a bill sent. You don't send a bill -- EI doesn't send a bill to EGD to detail the service provided.


1655MS. BROOKS: That's correct.


1656MR. BRETT: And then under the termination, it simply says the parties can terminate by mutual consent.


1657So I read that to say that the parties are sort of locked in an embrace here, they can't get out unless they both agree to get out; correct?


1658MS. BROOKS: I would have to ask a lawyer that question.


1659MR. BRETT: Well, all right. Let's leave it at that.


1660As a layperson looking at that sentence, would you think -- as a layman, would you think that when they say mutual consent, would you think that both parties have to agree.


1661MS. BROOKS: That is what it would mean to me, yes.


1662MR. BRETT: And then over the page, well, that seems to be all there is. The last page that I have here, my copy of this is page 6. Do you have any further pages or is that it?


1663MS. BROOKS: Yes, there are.


1664MR. COWAN: It goes up to page 9 where the signatures are.


1665MR. BRETT: Okay. I don't have a complete copy of this agreement. There didn't appear to be one attached to my document. Maybe I'll borrow one from Mr. Moran, can you give me a -- I'm looking for pages 6, 7, 8 and 9 of the second agreement. My copy is short two pages.


1666Now, on the dispute resolution process, I'm sorry, I did have the rest of this, I must have misplaced it. Page 7 at the bottom, Ms. Brooks, section 18, there's a dispute resolution process referred to at the bottom. It basically says it -- the parties, if they can't agree, can turn to --


1667The way they put it here may be: "Upon mutual agreement of the parties --" I'm reading the last sentence, "-- any dispute or issue of interpretation arising hereunder may be jointly referred for non-binding guidance," my emphasis, "to an external facilitator with recognized expertise in the subject matter of the dispute."


1668So that is not -- that is to be contrasted with the third party arbitration in the first agreement. You see this, the clause I'm reading?


1669MS. BROOKS: I do see it.


1670MR. BRETT: In other words you can't -- let me put it in layman's terms. This dispute resolution process, unlike the previous one, does not allow EGD to have recourse to an outside third party, an arbitrator, who can settle a dispute between the two. It's a -- this is more in the nature of a mediation process. You can pick a wise man or woman and try to have them help you settle it; right?


1671MS. BROOKS: If that's the interpretation of the legalese, I'll accept that.

1672MR. BRETT: Okay. Thank you very much.


1673Now, if I may go to the -- I'll just touch briefly on this, Mr. Chairman, Mr. Dominy. I probably spent enough time on this. But if you go to the -- I'm now looking at the appendix, that's your document, Ms. Brooks, the cost-allocation methodology.


1674MS. BROOKS: Yes.


1675MR. BRETT: Which is attached to the agreement, I gather, and which according to your company's view is equivalent to the -- replaces, I suppose, the settlement agreements that I just took you through from the previous contract. If you look at page 13 of your document, page 13 section 13, Dispute-resolution Process:


1676"From time to time a situation may arise when the service provider and the service recipient cannot agree on the amount of the cost allocation. The resolution process is to escalate the discussions upward through the organization to director and vice-president," and I assume they mean the respective directors and respective -- it's not too clear who the director and vice-president are here, whether they mean director and vice-president of each of EGD and EI or which vice-president.


1677But in any event, the last sentence: "The corporate controller's group facilitates the resolution if required."


1678Now, I guess to just summarize where I'm coming from here, the long and short of that is that in the last analysis, Enbridge gets to call the shot.


1679MS. BROOKS: You're saying that by virtue of the fact that -- of what, in those sentences?


1680MR. BRETT: Yes, if you combine all those various things that we talked about, you can -- you can try and if you push it up the chain, is what this says. But ultimately, it has to be resolved by someone. There's no resource to third party arbitration, so it's going to be resolved in the last analysis by the senior executive who, and let's assume that it -- this may be an extreme example, but I think it sets the power relationship here. In the last analysis, the president of Enbridge is the man to whom -- I'm sorry he's the man to whom Mr. Schultz reports; right?


1681MS. BROOKS: Yes. I would suggest that if this ever got to Mr. Daniel's level, it would be most unusual. These issues, as I have experienced them in the past, can virtually always be resolved between the service provider and the service recipient, the peers in the respective corporate office and business unit. But I think what you're suggesting is correct; it would be a very rare and unusual circumstance. I have never seen it in my experience.


1682MR. BRETT: And how long have you been with Enbridge Inc.?

1683MS. BROOKS: I have been with Enbridge for three years.


1684MR. BRETT: Always in the same position that you're in?


1685MS. BROOKS: And I have previous experience on this matter in previous employment. I've been dealing with cost allocations for longer than I care to remember, actually.


1686MR. BRETT: Can I ask you to -- would you agree with me as a general proposition, though, that -- would you agree with me as a general proposition that -- I took you through those agreements laboriously, I admit that, but I did that for a purpose. I really wanted to show that under the -- there's been a massive change here between the pre-October 2nd -- I'm putting this as rhetorically to you as a question. Is it not the case that if you look at those two agreements, those two regimes, that under the old regime, the one that ended October 2002, the distribution company, the utility, had a lot more leverage in its negotiations with EI over the use of these services? It had a lot more clout; would you not agree with that?


1687MR. MEES: I would not agree with that.


1688MR. BRETT: I'm asking Ms. Brooks, actually.


1689MS. BROOKS: This, I suspect, will be a multi-part answer, so please bear with me.


1690I think much of the process that we developed around the cost allocations replaces much of what was written in the agreements. We had -- I had discussions with internal legal counsel at EGD as to whether a service-level agreement and the methodology combined provided EGD with enough and I'll use this word in quotes "protection", if you like, from the vagaries of the corporate office. The opinion I got was that it was fine.


1691I think in terms of descriptions of services, although not documented in a service-level schedule now, those services are discussed thoroughly as part of the budget process. And in fact, I would suggest there is a much better understanding about the services that EGD receives and the costs now than there ever has been. And I think that's evidenced by the sign-off on the costs.


1692And lastly I would say that although we don't have specific performance measures documented, and I say this with a little bit of jest or whatever, but if the corporate office isn't doing what they said they would do, we hear about it and not on a quarterly or annual basis.


1693So I think it's better than it was. It perhaps doesn't have all the paper attached to it, but again, one of the objectives of the exercise was not to have the volumes of paper going back and forth through the organization. So we have -- we don't invoice now, we have a new general ledger system that allows us to process entries between business units without paper.

1694And in today's environment that seems like the right thing to do.


1695So I believe, and you can ask Mr. Mees, but I believe the process that we have now is far better for both the corporate office and the business unit. Despite the fact that it doesn't have the same detailed documentation, it is still documented.


1696There is still a service agreement. There's a formal methodology, and there's a formal budget process reporting the allocations.


1697MR. BRETT: Mr. Mees, did you have anything in addition to that?


1698MR. MEES: Yes, I do, just, sort of, to echo what Ms. Brooks was saying.


1699What I was going to respond to you, Mr. Brett, was because it's done on an annual basis, and we have to sign off on this discussion, and there's transparency in the services, and -- to me, before there wasn't an ongoing annual discussion on the services, and now there is. And to me that is much better, and we can contribute to that.


1700MR. BRETT: Mr. Mees, thank you.


1701Could I ask you to turn up volume 8 of the transcript at paragraph 495, Ms. Brooks. That's, I think, the day before -- that's yesterday, I believe, the day before yesterday's. Paragraph 495, the last paragraph on the page.


1702That would be -- this transcript doesn't -- isn't paged, but it's paragraphed.


1703MR. COWAN: We have the paragraph.


1704MR. BRETT: You've got it? Okay. Ms. Brooks, could you tell me, in light of what you just said a moment ago, I guess, I take it that there have been very few occasions when the dispute resolution provisions of the -- I'm sorry, let me just, for everybody's benefit, read this paragraph.


1705It reads as follows: "The prior methodology --" and that means the old methodology of contracting for services on a service specific basis; that's my parenthetical expression "-- was administratively burdensome in the sense that it required a significant amount of intercompany billings, reconciliations, dispute resolutions, and took up what seemed to be an inordinate amount of time to administer."


1706Now, Ms. Brooks, I take it that there have -- could you tell me how many times the parties had to have recourse to the dispute resolution provisions of the old service agreement?

1707MS. BROOKS: Perhaps first I should clarify what this paragraph -- it didn't refer to the dispute resolution clause in the service agreement. It referred to affiliated companies disagreeing with the amounts being invoiced to one another.


1708MR. BRETT: Disagreeing because of the fact that they didn't think the service was provided?


1709MS. BROOKS: It could be for any number of reasons.


1710MR. BRETT: But I thought you told us a moment ago that there were very, very few disputes under the old regime, that it was -- it worked -- that when we were talking about -- when I was asking you about the importance of the absence of an arbitration clause and the change from an arbitration clause to a facilitation measure, you said effectively -- I thought you were telling me, That doesn't really matter, Mr. Brett, because we didn't have many disputes anyway.


1711MS. BROOKS: I said I wouldn't expect many disputes, I think.


1712MR. COWAN: I believe the context was in the context of the agreement, and that this phrase here, as Ms. Brooks is pointing out, relates to the day-to-day business as it goes forward.


1713MR. BRETT: Unfortunately the agreement, when it talks about disputes, means any kind of dispute. One of the sorts of disputes that you can have are over invoices.


1714But I take it that there's a month, then, of the old scheme? There was a monthly invoice that was sent; right, for each breach of those various -- under each of those service agreements?


1715MS. BROOKS: Yes.


1716MR. BRETT: So we had something like -- I don't know -- rough number, ten service agreements, so there were ten monthly invoices sent to Enbridge?


1717MS. BROOKS: There were regular invoices.


1718MR. BRETT: So they had to pay every month or -- not more frequently than every month; right?


1719MS. BROOKS: I would be comfortable with the word "regular," whether it was --


1720MR. BRETT: Let's be clear on that. My understanding of the agreements was that they called for invoices no more frequently than once a month, sometimes less.


1721MS. BROOKS: We would have invoiced on the basis of whatever the agreement said.


1722MR. BRETT: And you say in here what seemed to be -- and I'm looking at the word "seemed" -- to be an inordinate amount of time to administer. Is this you -- you're giving a kind of a general impression that it --


1723MS. BROOKS: No. I'm giving the view of the controller's group of staff, both in corporate and the business unit who were responsible for administering the system under the seven or eight or ten methodologies that were in place prior to 2003.


1724MR. BRETT: Now, if you look over the page, the next page, at 498, paragraph 498 -- I'll just read part of that, or I'll read the first sentence. I want to ask you a question about it:


1725"The other thing that the methodology has done is to allow us to have more transparency --" my emphasis "-- in the allocations to the business units."


1726Now, under the old regime, you had specific agreements for each of the services. How is it that you feel -- or what do you mean by "transparency," first of all, and why do you think there's more -- there will be more transparency now than there was under the old agreement?


1727MS. BROOKS: I believe that to be the case, because we have a documented methodology that describes the cost drivers. It describes at a high level the services to be provided.


1728And the process itself forces -- and this is the important part -- forces the discussion between the business unit and the corporate office so that they -- they, sorry, the business unit and the corporate office fully understand the services to be provided and the costs related thereto.


1729MR. BRETT: Thank you, Ms. Brooks.


1730Thank you, Mr. Chairman and Mr. Dominy. Those are my questions.


1731MR. BETTS: Thank you, Mr. Brett.


1732Mr. Moran?


1733MR. MORAN: Mr. Chair, I was just wondering if the court reporter wanted a moment to do a quick stretch before I started.


1734MR. BETTS: We'll break for -- well, let's be back at five minutes to the hour.


1735--- Recess taken at 4:47 p.m

1736--- Upon resuming at 4:55 p.m.

1737MR. BETTS: Everybody please be seated.


1738We will resume. First of all, it's unfortunate -- it's nobody's fault -- that we're sitting very late tonight. I would just like to know if that's causing any complication for anybody at this point?


1739Okay. Then we'll all just endure and try to complete this process.


1740MR. MORAN: Mr. Chair, just while we're waiting for the witnesses, perhaps, we could use the time just to mark some documents as exhibits. I've put something right in front of you.


1741The first item is an excerpt from the Affiliate Relationships Code.


1742MR. BETTS: Yes.


1743MR. MORAN: If we can mark that as Exhibit K.10.4.


1744EXHIBIT NO. K.10.4: EXCERPT FROM THE AFFILIATE RELATIONSHIPS CODE


1745MR. BETTS: Thank you.


1746MR. MORAN: And then the next group of documents are excerpts from four reports that were part of the pre-filed evidence in the EBRO-493/494 proceeding, and I was thinking the best way we can give them a single number than mark each document A, B, C and D.


1747So the first one, Exhibit K.10.5.A is dated September 1995, entitled "Westcoast Energy Inc. Corporate Centre Value Analysis: Final Report."


1748MR. BETTS: That's September 1995?


1749MR. MORAN: Yes, and it's an Ernst & Young document.

1750EXHIBIT NO. K.10.5.A: WESTCOAST ENERGY INC. CORPORATE CENTRE VALUE ANALYSIS: FINAL REPORT


1751MR. MORAN: The next one would be a document entitled "Westcoast Energy Inc. Corporate Centre Review of cost-allocation methodology, November 1995" done by Arthur Andersen.


1752EXHIBIT NO. K.10.5.B: WESTCOAST ENERGY INC. CORPORATE CENTRE REVIEW OF cost-allocation methodology, NOVEMBER 1995


1753MR. BETTS: Thank you.


1754MR. MORAN: The next one is a KPMG document, project report. "Review of Fees Charged by Westcoast Energy Inc.'s Corporate Centre," dated December 20th, 1995.


1755EXHIBIT NO. K.10.5.C: REVIEW OF FEES CHARGED BY WESTCOAST ENERGY INC.'S CORPORATE CENTRE, DECEMBER 20, 1995


1756MR. BETTS: Thank you.


1757MR. MORAN: And finally, another Ernst & Young document dated June 10th, 1996, entitled "Westcoast Energy Inc. Corporate Centre Value Analysis, 1997 Budget: Final Report, Prepared for Union Gas Limited and Centra Gas Ontario Inc."


1758EXHIBIT NO. K.10.5.D: WESTCOAST ENERGY INC. CORPORATE CENTRE VALUE ANALYSIS, 1997 BUDGET: FINAL REPORT, PREPARED FOR UNION GAS LIMITED AND CENTRA GAS ONTARIO INC., JUNE 10, 1996


1759MR. BETTS: Thank you. I have that too.


1760Proceed when you're ready, Mr. Moran.


1761MR. MORAN: Thank you, Mr. Chair.


1762CROSS-EXAMINATION BY MR. MORAN:


1763MR. MORAN: Beginning with Exhibit K.10.4, the extract from the Affiliate Relationships Code. Mr. Ladanyi, I think you've been at some pains to tell everybody on couple of occasions that it talks about service agreement and not service level agreements. But when we look at section 2.2.1, there are a number of things that a services agreement is supposed to include. The first one is set out at A, the type, quantity and quality of service. It's fair to say that based on that requirement, calling it a service level agreement is a pefectly appropriate name, as well as a services agreement.


1764MR. LADANYI: It's semantics, but if somebody says you do not have a service level agreement, my response was, well, a service level agreement as such is not required. It's really a services agreements that's required.


1765MR. MORAN: Fair enough. When we see an agreement for the type, quantity and quality of service that's another the type of level that will be provided under the services agreement.


1766MR. LADANYI: You could define it as level.


1767MR. MORAN: And in that context, then, if we could turn to the VECC book of documents Exhibit K.8.3, tab 11. Tab 11 contains the IR set out at Exhibit I, tab 13, schedule 100. And attached to the IR response is the interline of business services confirmation notice that was signed off on by a number of different people; do you have that?


1768MR. LADANYI: Yes, we do.


1769MR. MORAN: All right. And as we see at the top of the document, there's the statement, "We have discussed the nature and level of the services to be provided by Enbridge Inc. to Enbridge Gas Distribution," and it goes on.


1770I -- am I safe in assuming that that's the extent to which the services agreement has addressed the requirement in 2.2.1 A to set out the type, quantity and quality of service? Let me just step back a moment from that.


1771The type of services are set out in the methodology, right?


1772MR. LADANYI: Yes, they are.


1773MR. MORAN: So that is met because it's an attachment to the services agreement.


1774The quantity and quality of service, however, are not -- except where we see this paragraph, is that fair?


1775MR. LADANYI: I think the quantity is certainly addressed in the allocation methodology. I think that would be -- I believe it's addressed throughout the document.

1776MR. MORAN: Right. The allocation methodology assigns the costs, but the underlying services that will actually provide it aren't set out anywhere, are they?


1777MR. LADANYI: The underlying services? They are mentioned specifically.


1778MR. MORAN: Right, but the amount of the underlying service. It's done strictly on a cost allocation, it's not done on how much of each type of service you'll actually get, for example, how much flying time you will get, et cetera; right?


1779MS. BROOKS: I think agreement on the cost driver represents the quantity.


1780MR. MORAN: All right. And when it comes to the level of service, that was the discussion that's reflected in this interline of business services confirmation notice; right? It was discussed but it wasn't set out anywhere.


1781MR. LADANYI: I think the document, which is the confirmation notice, confirms that the individuals who have signed this have reviewed the level of services and they are satisfied with it.


1782MR. MORAN: Okay. But if we were to look for a services agreement that sets out the quality of service that will be delivered, we don't find that anywhere, it simply was discussed and then people signed the confirmation notice.


1783MR. LADANYI: I think the master agreement and then the cost-allocation methodology addresses these things but in a different way.


1784MR. MORAN: Are you able to tell me where in those agreements the quality of service is discussed? In the interests of time, I'm happy to take an undertaking from you to do that rather than to have you search for it.


1785MS. BROOKS: Could I ask a question of clarification?


1786MR. MORAN: With respect to the requirement to include in a services agreement, the quality of service that will be provided, where will I find that in the services agreement?


1787MS. BROOKS: If you are looking for specific performance measures, as those described in the previous service level schedules, no; you won't find measures like those in the new agreement.


1788MR. MORAN: Right. So when I look at the confirmation notice and there's a statement to the effect that the level of service was discussed, is that where the quality of service would have been addressed?


1789MS. BROOKS: Yes.


1790MR. MORAN: Thank you. Moving down the list of things that have to be in the services agreement, pricing mechanism, I assume is driven by the methodology so you would say it's covered; right?


1791MS. BROOKS: At cost.


1792MR. MORAN: And the cost allocation method of cost is covered by the methodology, which is part of the agreement. There's confidentiality provisions. The next one, item E, the apportionment of risks including risks related to under- or over-provision of service. As I understand the methodology, it's just going to be a assigned whether you actually get that much service or if you get more than that amount of service. That's not addressed anywhere, that's just how it's being allocated; right?


1793MS. BROOKS: Except when, as we discussed earlier today, when a true-up is required.


1794MR. MORAN: All right. And where is that addressed, in the services agreement?


1795MS. BROOKS: No, it's addressed in the methodology -- sorry, which is part of the services agreement.


1796MR. MORAN: Those are all the questions I had on that document. You can safely put it aside.


1797Mr. Turner, you indicated that most of your work in the transfer pricing arena has to do with advance-pricing agreements.


1798MR. TURNER: That's an element of my work. Most of my work is pure transfer pricing.


1799MR. MORAN: And part of that work is to deal with what's called advanced pricing agreements.


1800MR. TURNER: That is correct.


1801MR. MORAN: Which, as I understand it, is going to the taxing authority and saying, Here's what we're proposing; are we going to have tax problems later on.


1802MR. TURNER: That's correct.


1803MR. MORAN: You've indicated it's an art rather than a science, and you don't want the art critics that work for CCRA to say they don't --


1804MR. TURNER: Or the IRS or the Inland Revenue and other -- other jurisdictions with which I deal, yes.


1805MR. MORAN: Right. Okay, so -- and the reason that you're doing all of this, of course, is that because you are allocating costs amongst a number of different related companies, there are, obviously, tax planning issues, because each of those companies have to file their own income tax return.


1806And so you want to make sure that the various expenses that they're going to record and so on are all acceptable to the taxing authority; right?


1807MR. TURNER: In a general way, that's correct, yes.


1808MR. MORAN: And the advanced ruling, of course, creates some certainty.


1809Now, in that process, if you had a group of companies like the EI group of companies, you'd have to examine all of the cost allocations for all of the companies; right?


1810MR. TURNER: That is correct.


1811MR. MORAN: And you'd have to really go down --


1812MR. TURNER: Actually, I'm going to qualify that. It depends -- again, as I explained this morning, it depends on who you are advising.


1813If, for example, we were doing advanced pricing, and I will give you an example of a services one that we did. We had a Canadian headquartered company that was going to the Internal Revenue Service in the United States and going -- legally, its subsidiary in the U.S. was going to the Internal Revenue Service in the United States, and the parent company in Canada was going to the Canada Customs and Revenue Agency.


1814I represented the Canadian headquartered company, and we looked at the overall allocation. My colleagues in the United States advised the subsidiary corporation, and in dealing with the IRS their focus was purely at the subsidiary level.


1815MR. MORAN: I guess the point is, though, that all of the cost allocations one way or another have to be examined. And in the example that you gave, somebody was looking at it from the subsidiary end, someone was looking at it from the parent end, and the picture added up to whatever it adds up to.


1816MR. TURNER: That's correct.


1817MR. MORAN: And clearly, you would go into much more detail and exercise some audit function and all of that to test the cost drivers to make sure that you are able to give an opinion that this is an appropriate tax approach.


1818MR. TURNER: I wouldn't call it an audit, but we would do a lot more work, yes.


1819MR. MORAN: The kind of work, obviously, that you wouldn't do for the kind of report that you produced for this proceeding.


1820MR. TURNER: That's correct.


1821MR. MORAN: Okay. For example, you didn't look at the allocations that were being made to any of the other Enbridge group of companies?


1822MR. TURNER: That is correct.


1823MR. MORAN: And in the context of what you did do, you didn't look at anything that was under 500,000 as a --


1824MR. TURNER: That is correct.


1825MR. MORAN: Now, one of the reasons that people do these cost allocations is for tax planning purposes; right?


1826MR. TURNER: Or compliance purposes, yes.


1827MR. MORAN: Right. And at the end of the day, if I might turn to you, Ms. Brooks, when you propose something like this, you want to make sure that having decided to go down this road that you're not going to have tax problems down the road as a result of this new methodology; right?


1828MS. BROOKS: Correct.


1829MR. MORAN: Okay. Now, Mr. Turner, you didn't deal with that aspect of it for the company, did you?

1830MR. TURNER: I did not. That is correct.


1831MR. MORAN: How did you guys deal with it over at EI, Ms. Brooks?


1832MS. BROOKS: We had our internal tax experts, for lack of a better word, review the methodology to determine if there were any tax implications of what we were proposing.


1833MR. MORAN: And what was the end result of that review?


1834MS. BROOKS: It resulted in no change to the methodology.


1835MR. MORAN: Okay. And in the context of doing that review, was there an improvement in the tax picture for the group of companies?


1836MS. BROOKS: No, it was tax neutral.


1837MR. MORAN: And is there anything on the record at the moment that helps us to understand that it was tax neutral?


1838MS. BROOKS: No.


1839MR. MORAN: Mr. Turner, as I think you've indicated in a number of places, you didn't test the data that was being provided to you by the company other than the kind of interview questions that you described; right?


1840MR. TURNER: And, you know, looking at the accounts that made up the balance in terms of their description and seeing that there appeared to be consistency between them, things were going to the right place.


1841MR. MORAN: Right. I wonder if you could just turn up Exhibit I, tab 1, schedule 72. It's Board Staff interrogatory 72.


1842Schedule 72 conveniently follows the humungous 71, so it may be at the beginning of another binder, if that's of any assistance.


1843MR. MEES: We have that, yes.


1844MR. MORAN: Now, in this interrogatory there's -- we -- what we can see is the names of the directors of Enbridge Gas Distribution on the first page, and then on the following pages, we have the boards of directors for all of the affiliates; right?


1845MR. COWAN: That is correct.


1846MR. MORAN: Okay. So just starting with the board of directors for Enbridge Gas Distribution, as I understand it, Lorne Braithwaite is also a director of Enbridge Inc.


1847MS. BROOKS: That is correct.


1848MR. MORAN: Patrick Daniel, of course, is a director of Enbridge Inc. as well?


1849MS. BROOKS: That is correct.


1850MR. MORAN: William Fatt is also a director of Enbridge Inc.?


1851MS. BROOKS: Yes, he is.


1852MR. MORAN: Stephen Letwin is not.


1853MS. BROOKS: That is correct.


1854MR. MORAN: Robert Martin is.


1855MS. BROOKS: An EI board member, yes.


1856MR. MORAN: And Derek Truswell is not a board member?


1857MS. BROOKS: That is correct.


1858MR. MORAN: Is he still an Enbridge Gas Distribution director? I understand he retired --


1859MS. BROOKS: Truswell retired on -- effective April 1st.


1860MR. MORAN: Is he still on the board of directors, or has he retired from that also?


1861MS. BROOKS: I'm sorry. I don't know.


1862MR. MORAN: Fair enough. All right.


1863Then if we look at the list of affiliates and their boards of directors, starting with, I guess, just as an example, Stephen Letwin, who's on the Enbridge Gas Distribution board of directors, also shows up as a director for Enbridge Commercial Services; right?


1864MS. BROOKS: Yes.


1865MR. MORAN: Enbridge Energy Distribution Inc.


1866MS. BROOKS: Yes.


1867MR. MORAN: Enbridge Gas New Brunswick Inc., Enbridge Gas.


1868MS. BROOKS: Yes -- well, with the exception of the numbered Ontario company.


1869MR. MORAN: Enbridge Atlantic Energy Services Inc.; right?


1870MS. BROOKS: Yes.


1871MR. MORAN: Enbridge Gas Storage Inc.


1872MS. BROOKS: Yes.


1873MR. MORAN: And then I guess as another example, Mr. Schultz, who is an officer of Enbridge Gas Distribution, shows up as a director of a number of companies, as well, doesn't he? Enbridge Gas New Brunswick Inc.; right?


1874MS. BROOKS: Yes.


1875MR. MORAN: The numbered company 1263439 Ontario Limited.


1876MS. BROOKS: Yes.


1877MR. MORAN: Gazifere Inc.


1878MS. BROOKS: Yes.


1879MR. MORAN: Niagara Gas Transmission Inc.


1880MS. BROOKS: Yes.


1881MR. MORAN: Consumers Gas Canada Limited.


1882MS. BROOKS: Yes.


1883MR. MORAN: The numbered company 912176 Ontario Limited.


1884MS. BROOKS: Yes.


1885MR. MORAN: The Ottawa Gas Company.


1886MS. BROOKS: Yes.


1887MR. MORAN: St. Lawrence Gas Company Inc.


1888MS. BROOKS: Yes.


1889MR. MORAN: Consumers Realty Limited.


1890MS. BROOKS: Yes.


1891MR. MORAN: I just pull this out as a way of establishing the point that you've made a few different ways, that you've got an integrated approach to the management of all these companies; right? There are officers in various companies who are directors in other companies; there's directors who are directors of several companies, et cetera; right?


1892MS. BROOKS: To the extent that one company owns an interest or all of another company, yes, that is true. And it's standard business practice to have directorships on companies that you own.


1893MR. MORAN: And I think my point was a bit slightly different from that. There are officers from some companies who are directors in other companies; right? You have Mr. Schultz as an example. He is an officer in EGDI but he's on the board of directors of other companies; right?


1894MS. BROOKS: Yes.


1895MR. MORAN: And Ms. Holder is another example of that as well. She's an officer of EGDI, but she's on the board of directors of several other Enbridge companies.


1896One thing we're missing in this information is, I guess, we know who all the directors are in this interrogatory and we know which directors are also directors of other companies. I'm wondering if you could also -- if you could undertake to provide us with a list of directors who also are officers and which companies they are officers of.


1897MR. COWAN: Our only hesitation is that it's Mr. Boyce's evidence, so we're not sure it would be appropriate for us to undertake on his behalf. So I would look to Mr. Cass for guidance on this.


1898MR. MORAN: I'm certainly not asking you to undertake anything on behalf of Mr. Boyce, but if the information is available at the company I assume you can provide the information; can you not?


1899MR. COWAN: I would presume, if it is available.


1900MR. MORAN: We may have further discussions with the next panel on this information.


1901All right. So, Mr. Chair, that would be Undertaking J.10.5.


1902UNDERTAKING NO. J.10.5: AN UNDERTAKING TO PROVIDE A LIST OF ALL OFFICERS OF ANY ENBRIDGE COMPANY WHO ARE DIRECTORS OF AN ENBRIDGE COMPANY


1903MR. CASS: When you talk about an Enbridge company, Mr. Moran, are you talking about all --


1904MR. MORAN: The Enbridge families of companies, yes.


1905MR. CASS: Energy Transportation South, Energy Transportation North? I'm not sure where you're going with this. The companies you were just referring to tended to be, as I recall the list you were going through, gas distribution related companies in eastern Canada. You've now expanded it to a North American, if not wider, sort of question.


1906MR. MORAN: That's a fair question.


1907The affiliates that are addressed in the interrogatory that we've been looking at, for all of those companies. Exhibit I, tab 1, schedule 72.


1908MR. BETTS: Thank you.


1909MR. MORAN: I should have made it clear that it's the affiliates I was interested in.


1910Mr. Turner, given that very integrated team approach where you've got officers and directors and -- common to all of the affiliates, how likely do you think it is that anybody's going to tell you, We don't like the cost allocation that's been given to us, since everybody seems to be involved in it?


1911MR. TURNER: I've seen far more controlled situations where the recipients have said, We don't benefit from this.


1912MR. MORAN: And nobody's said that in this case?


1913MR. TURNER: We are going back and reviewing the notes pursuant to an undertaking given yesterday. I'm not aware of any significant disagreements.


1914MR. MORAN: All right. I'll move on to the next point. I want to use the aviation example for the next set of questions. Again, you've been quite clear that you didn't test the cost driver and you didn't look at the actual aviation use.


1915MR. TURNER: That's correct.


1916MR. MORAN: You were advised, but I take it that you would agree that to the extent that you are going to use a cost driver, it should be a reasonable match for the cost that you're allocating at and the services that's being provided and the benefit that's being received.


1917MR. TURNER: Taking into account the relevant facts, yes.


1918MR. MORAN: So for example on the aviation example, maybe I'll ask Mr. Ladanyi this first. Does Enbridge Gas Distribution require any aerial surveillance of its gas distribution system?


1919MR. LADANYI: Not to my knowledge.


1920MR. MORAN: Pretty unlikely that it would, given the nature of the system.


1921So Mr. Turner, I mean to the extent that that's one of the components of the cost driver as you described it, that would be a basis for revisiting that cost driver, perhaps, if Enbridge didn't require that service?


1922MR. TURNER: I would agree.


1923MR. MORAN: I don't know who is the right person to answer this question but I gather there is a fair amount of executive travel between Toronto and Calgary; right? A safe assumption, isn't it?


1924MS. BROOKS: That would be a safe assumption.


1925MR. MORAN: And the EGDI executives, I assume their main destination for most of the trips would be Calgary; is that right?


1926MS. BROOKS: I can't speak to that.


1927MR. MORAN: That might be the next panel that would be able to speak better to that?


1928MR. MEES: Yes, I would think so.


1929MR. MORAN: There are obviously lots of commercial airline services to -- between Toronto and Calgary, are there not?


1930MS. BROOKS: Yes, there are.


1931MR. MORAN: So again, Mr. Turner, to the extent that commercial service is available and not necessarily in proportion to the cost driver, that would be a basis for revisiting that cost driver.


1932MR. TURNER: It may well be, yes.


1933MR. MORAN: All right. This might just be a matter of clarification. If you could turn up Exhibit I, tab 1, schedule 149 at page 2 which is the table that which is much discussed through the course of the last few days.


1934MR. MEES: We have that.


1935MR. MORAN: I got the impression, actually, and I can't remember who was saying this, but that there was no -- there was no residual allocation to EI. But on this table, I see a column entitled "Corporate". I'm just wondering if you could just line those two things up for me.


1936MS. BROOKS: I will attempt to explain.


1937This question has been asked in a number of forms, whether we subtract costs first before we allocate -- which would leave a residual. We don't do that. One of the founding principles of the methodology was that all costs, all corporate costs, are allocated. The reason we have costs left in the corporate centre is because we have some business activities that are corporate, the largest of which is probably project development. There are also a number of small assets in corporate. There's a little gas distribution company up in the Northwest Territories that is included in corporate.


1938So to the extent there are business activities in corporate, you do get amounts of corporate costs, but they are allocated to corporate not left in corporate.


1939MR. MORAN: All right. So the net effect is the same. I mean you could have a residual or you could do a direct allocation but the next effect is the same. There are still some costs left in the corporate office that have been allocated to the corporate.


1940MS. BROOKS: It's the word residual that --


1941MR. MORAN: Fair enough. I think I understand.


1942All right. Now while we're on this page, and this is coming back to the fact that items under 500,000 weren't examined in the Ernst & Young report, as I count the items, I guess there's 14 items that were above 500K, which therefore would have been looked at in the report. I don't know if you want to just accept that, subject to check.


1943MR. TURNER: I'll accept it. There is one exception. One of the items over 500K was the Enbridge pipeline allocations.


1944MR. MORAN: Right, so leaving aside that one.


1945MR. TURNER: And that was a whole bunch of other smaller amounts.


1946MR. COWAN: But that should be the only exception to your math.


1947MR. MORAN: That 14 didn't include the Enbridge pipelines allocations.


1948So that leaves, I guess, about 25 items therefore, leaving, again, aside the Enbridge pipelines allocation --


1949MR. TURNER: Yes.


1950MR. MORAN: -- about 25 items that are under 500K; right?


1951MR. COWAN: Yes. That's 77 percent of the cost was addressed through the review.


1952MR. MORAN: Right. So approximately 75 percent of the 77 percent is covered by the ones that were looked at; just about 25 percent that weren't looked at.


1953MR. COWAN: Correct.


1954MR. MORAN: Just a quick question on the Enbridge pipeline allocation itself, it's just under a million. I wonder if you could indicate why that one wasn't looked at it.


1955MR. TURNER: It consisted of a number of smaller amounts each of which I believe was under 500,000.


1956MR. MORAN: I see. So rather than look at the aggregate allocation on the basis that it's over 500,000 you decided you didn't need to look at it because a number of smaller amounts went into it making up that figure. All right.


1957MR. TURNER: That's correct. You could view it as a subtotal of amounts.


1958MR. MORAN: Mr. Turner, you indicated that -- or you referred to some work that you had done for other regulated entities in the context of transfer pricing and affiliates, and I sensed a certain reluctance on your part to name those entities.


1959MR. TURNER: Other than those on the public record.


1960MR. MORAN: Right. And that's where I was getting to; were you involved in regulated entities in the context of applications that were dealt with in proceedings?

1961MR. TURNER: Yes.


1962MR. MORAN: And are you able to name who those were?


1963MR. TURNER: That was Centra and Union.


1964MR. MORAN: That was the EBRO-493/494?


1965MR. TURNER: I believe that's the reference, yes.


1966MR. MORAN: All right. So you were working with Mr. Barefoot at that point?


1967MR. TURNER: No, that was another study. Maybe it wasn't that one. I was involved in the one if you look at the --


1968MR. MORAN: The last one?


1969MR. TURNER: Exhibit 10.5..D and the predecessor to that, the -- this Exhibit 10.5.A is the -- is Westcoast and Mr. Barefoot, in our Vancouver office of the management consulting firm did that engagement.


1970MR. MORAN: Thank you. Looking at the CIO line of business. As I understand that one, the CIO was identified as something that was needed on the basis of having to manage information flows amongst a large number of companies, the EI family of companies; is that correct?


1971MR. COWAN: That's an aspect. This would be something very much within the next panel's purview.


1972MR. MEES: Mr. Kent will be on that panel, and he is the CIO.


1973MR. MORAN: Fair enough.


1974So Mr. Turner, to the extent that the need for a CIO was driven by Enbridge Inc.'s need to manage information flow because it owns a lot of companies and wants to manage them as opposed to Enbridge Gas Distribution's need for that kind of information assistance, that might be a basis upon which you might want to revisit the cost driver?


1975MR. TURNER: My experience is that the regulated entities have far more information needs than most unregulated entities. But it's a fair question.


1976MR. MORAN: All right. Let's turn now to the Westcoast Energy documents that were filed in EBRO-493/494.


1977Mr. Turner, if we turn up the first one, Exhibit K.10.5.A, there's a --


1978MR. TURNER: I have it.


1979MR. MORAN: This is a document that's entitled "Westcoast Energy and Corporate Centre Value Analysis: Final Report." Although, I gather it didn't ultimately turn out to be the final report based on events that followed; right?


1980MR. TURNER: It was a separate study. It was probably the final report for that study, yes.


1981MR. MORAN: The table of contents are there, and we see that the purpose of the study is set out on page 1, which is the next page.


1982MR. TURNER: Yes.


1983MR. MORAN: In reviewing the specific objectives of the study as they're set out there, how do they line up with what you did in this case?


1984MR. TURNER: I'll just go through each of them by number.


1985We did not do one in this current study. We did part of two, identified the services provided.


1986MR. MORAN: That was the data gathering component of your report.


1987MR. TURNER: Yes. Although we asked for the value arguments, we did not document them in the sense we would normally call documenting the value arguments.


1988MR. MORAN: When you say you asked for them, did you receive them?


1989MR. TURNER: For most of the departments we got specific figures.


1990MR. MORAN: And you have an undertaking on that, in any event?

1991MR. TURNER: Yes, we have an undertaking on that, yes.


1992Number 3 we did not do. That was a benchmarking exercise. And number 4, we did not do this. I think this was taking place at a time when corporate centres of excellence were emerging, and so that was not needed at this point in time. So it was a very small subset of what was done for the 10.5.A.


1993MR. MORAN: All right. And underneath the specific objectives, there's a paragraph. If you could review that it indicate if --


1994MR. TURNER: We did not do this. When I look at this report as a whole, or this summary -- this summary page, sorry, or the purpose of the study as a whole, this was in part a management consulting exercise to assist in benchmarking and establishing standards, assist in improving the implementation and then to provide some additional information.


1995MR. MORAN: Okay. So Exhibit K.10.5.A was a more extensive piece of work than what you provided for this proceeding?


1996MR. TURNER: Oh, yes. Yes.


1997MR. MORAN: All right. Turning to the next exhibit, Exhibit K.10.5.B.


1998MR. TURNER: I have it.


1999MR. MORAN: Were you aware of this document before today?


2000MR. TURNER: I was aware of this, yes.


2001MR. MORAN: And this was a document that was prepared by Arthur Andersen entitled "Westcoast Energy: A Corporate Centre Review of Cost-Allocation Methodology."


2002Turning to the executive summary, looking at what we see there, how would you compare what was done there to what you did in this proceeding?


2003MR. TURNER: Okay. I'll have to go through these paragraph by paragraph. I'm not sure whether they're statements of --


2004MR. MORAN: Fair enough.

2005MR. TURNER: Initially, it appears that Arthur Andersen assisted the company in developing the cost driver base methodology and then was asked to review compliance with that methodology, is the way I would interpret that first paragraph. We did not do that. We did not assist the company in developing its methodology for purposes of this hearing.


2006We did look to make sure that they had applied the methodology consistent with the description that was referred to in the earlier examination, and we also, based on our review, were able to conclude on the overall reasonableness of the overall cost allocation. So it was not specific to any one particular element of the cost allocation in isolation.


2007So some similarity, but significant differences from the first paragraph scope. Andersen was asked to review and to, if necessary, refine their approach. And we were not asked to refine the approach. We were asked to review it, again, for overall reasonability.


2008The review took the form of understanding their approach. We would have done that. Validating the activities and related cost drivers through interviews with all department heads and recalculating the allocations. We did try to understand the approach by reviewing the methodology and through discussions with Ms. Brooks.


2009Validating the activities for the selected departments, we did have discussions with the responsible personnel. Whether we did at the same extent or -- that Andersen would have for their purposes, because they were also second-guessing the design, so they may have picked it further than we did.


2010MR. MORAN: One of the reasons they were doing that, of course, was in preparation for filing evidence that hadn't yet been filed.


2011MR. TURNER: Yes.


2012MR. MORAN: And in your situation, you were dealing with already filed evidence.


2013MR. TURNER: That is correct. That is correct.


2014Validating the activities to some extent, yes. Validating the related cost drivers, we were assessing them for reasonability. There is probably a subtle but nonetheless distinction between those two. And recalculating the allocations. We did not recalculate the allocations.


2015They used the budget, and we used the budget. It wasn't to test the allocations. It was to report on the reasonability of the cost drivers.


2016We did not conduct extensive interviews, whatever that means. Our work was done literally over approximately a three-week period; although, it spanned into a total of, roughly, five weeks from the time that the engagement was signed and the report was delivered. It might have been six weeks.


2017We did not make any suggestions for changes in the form of a more detailed methodology. We may have -- in fact, we did, through the process of our review, again looking at the overall reasonability, discuss the reason why particular cost drivers were selected in preference to others, but we made no recommendations as to the form of a methodology, detailed or less detailed.


2018So that was the difference in scope there. Again, I think the Andersen scope was far more extensive.


2019MR. MORAN: All right. Now, if you could just turn over to the next page in the excerpt, which is page 7 from the report, it sets out "Summary of Results."


2020At the top it says: "The following table summarizes the results of applying the cost driver methodology to the corporate centre."


2021So I guess one of the common threads we have is the cost driver methodology; right?


2022MR. TURNER: Yes. Yes, sir.


2023MR. MORAN: And a corporate centre, of course; right?


2024MR. TURNER: Yes.


2025MR. MORAN: And if we look at the list of services under the column "Description," there's a fair degree of overlap with the kinds of services that are listed in the Enbridge case; right?


2026MR. TURNER: Yes, there is .


2027MR. MORAN: And specifically in Exhibit I, tab 1, schedule 149 it's the same kind of stuff, right?


2028MR. TURNER: Same kind of stuff, yes.


2029MR. MORAN: And if you turn over to page 8, where we see a description of the -- or definition of the cost drivers again, there's some similarities.


2030MR. TURNER: Some similarities, right.

2031MR. MORAN: Looking at the first one, the rate base/fixed assets, as I understand it, that was chosen because there was regulated and non-regulated entities. So they used rate base for the regulated and fixed assets for the unregulated.


2032MR. TURNER: Yes.


2033MR. MORAN: But that's consistent in terms of the theory behind it in relation to the capital employed cost driver; right?


2034MR. TURNER: Right. It's consistent, yes.


2035MR. MORAN: And if you look at the text, it certainly discusses the size of the investment just like the capital employed definition.


2036MR. TURNER: Yes.


2037MR. MORAN: So similar kinds of costs drivers.


2038MR. TURNER: Yes.


2039MR. MORAN: All right. The next document then, Exhibit K.10.5.C, the third consultant is up to bat. "KPMG Project Report: Review of Fees Charged by Westcoast Energy Inc.'s Corporate Centre."


2040How does what they did compare to what you've done here?


2041MR. TURNER: This was a report, I believe, that was going to the independent board of directors, I believe. So let me --


2042MR. MORAN: Independent directors of --


2043MR. TURNER: Of somebody. I think that's what they were doing. Independent directors of your companies.


2044MR. MORAN: If you look at the address, it's addressed to Mr. Burman, senior vice-president finance and regular affairs, Union Gas, Centra Gas.


2045MR. TURNER: They were asked to express their opinion as to whether the -- there was a provision of value to the subsidiaries greater than or equal to the fees charged. We were not asked to do a value assessment.


2046That was the responsibility that the company retained. Because they were reporting to the independent directors they did have discussions with the independent directors. We did not do that. They reviewed the Andersen report as well as the Ernst & Young reports. Based on the comments received, it says, "received by" -- I'm not sure whether it's by or from the independent directors -- "they reached conclusions on the appropriateness of various fees and they made -- they recommended reductions in the amount of the total fees by approximately four percent." We were not asked to review the alternative cost drivers nor to assess or evaluate the sensitivity analysis that would come from the use of different drivers.


2047They then did some evaluation of the additional savings through efficiencies that could be quantified. They referred to 4.3 million by the Ontario subsidiaries. And then they conclude that the incremental increase in charges through use of the corporate centre relative to all these savings demonstrated the benefit. We were not asked to review, comment upon, or develop an evaluation of the relative savings or benefits in comparisons to the costs.


2048So this again was a far more extensive endeavour.


2049MR. MORAN: All right. Now, this morning, I think in response to Undertaking J.9.12, it was confirmed that the Enbridge Gas Distribution board did not review the intercorporate services agreement. Of course, the methodology is attached to that agreement; did the Enbridge Gas Distribution board review the methodology?


2050MS. BROOKS: Not to my knowledge.


2051MR. MEES: Not to my knowledge either.


2052MR. MORAN: All right. Is it possible for you to confirm whether in fact --


2053MS. BROOKS: Yes.


2054MR. MEES: We can undertake to do that, certainly.


2055MR. MORAN: That would be Undertaking J.10.6, Mr. Chair.


2056UNDERTAKING NO. J.10.6: UNDERTAKING TO CONFIRM: DID THE ENBRIDGE GAS DISTRIBUTION BOARD OF DIRECTORS REVIEW THE COST-ALLOCATION METHODOLOGY


2057MR. BETTS: Thank you.


2058MR. MORAN: And I guess to the extent that they didn't review it, then the independent directors on that board obviously wouldn't have done anything along the lines of what KPMG was asked to do; right?


2059MS. BROOKS: No, that I believe would typically be a request by a board specifically for that. Intercompany transactions are a normal course transaction, so it would be the board specifically requesting that.


2060MR. MORAN: I'm pleased to confirm, Mr. Chair, that I am on track for my time estimate.


2061MR. BETTS: That's good. Thank you.


2062MR. MORAN: One last thing on the KPMG, Mr. Turner. Based on what's reported here, some adjustments were made to the allocations; right?


2063MR. TURNER: Yes, there were.


2064MR. MORAN: Now that brings us, I guess, finally, to the fourth document, Exhibit K.10.5.B, the "Westcoast Energy and Corporate Centre Value Analysis, 1997 Budget: Final Report Number 2", prepared for Union Gas and Centra gas, also by Ernst & Young; right?


2065MR. TURNER: Yes.


2066MR. MORAN: And the objectives of the study are set out on the first page -- on page 1 of the document.


2067MR. TURNER: Yes, they are.


2068MR. MORAN: And how does that compare to what you did in this proceeding?


2069MR. TURNER: It looks like what they were doing was updating the information that they had relied upon, so I would expect it was a more cursory review to once again look at the value of the services, provide continuity, I guess, in looking at changes in the services that impacted on the value or impacted to the Ontario subsidiaries and review the operations so to see if they've changed.


2070So it's a high-level overview of the facts underlying the report and conclusions of the report from 1995.

2071To look at the steps that they did: Managers were asked to identify specific direct or indirect benefits highlighting any underlying assumptions. Yes, we would have done that in this review, meeting with the corporate-centre managers to discuss service levels and changes in services; we were discussing the service levels, not the changes taking place from previous levels. When I say "we", this is for purposes of this.


2072They met with selected Union Gas and Centra gas managers, getting their perspective on the value and services provided. We did a similar function or activity.


2073"Secondary objective, understand how various managers and functional units had changed"; we did not do that.


2074"Assessing the material provided both by the corporate centre and Ontario subsidiaries to develop an estimate of the value of the services"; we looked at the material that we obtained from both, but we were not looking at an estimate of value.


2075We compiled our findings in our report. We did not review a previous report, because we had no previous report. So in some respects, what was done in this 1996 or -- 1996 study was an updating for material changes as well as some procedures to do that. We have some procedures in common; although, the purposes of our reviews were different.


2076MR. MORAN: If we look at page 2, it sets out the scope of the review. If you go down to the second-last paragraph, it indicates: "The intent of this work program was to better quantify the benefits and value of the services provided by corporate centre."


2077MR. TURNER: Yes.


2078MR. MORAN: In this proceeding, did you do that?


2079MR. TURNER: No, we did not.


2080MR. MORAN: Again, if you'd just look at the scope, the issue as to benefit was retained by the company, and we were not engaged do that.


2081MR. MORAN: And all of this, of course, was filed as part of the applicant's case in EBRO-493/494, and --


2082MR. TURNER: Yes.


2083MR. MORAN: -- we can all read what the Board did with it all in its decision.


2084MR. TURNER: Yes, you can.


2085MR. MORAN: But just to wrap this point up, the overall concept that was being examined isn't a whole lot different from the concept that's under scrutiny here; right?


2086MR. TURNER: No, it's not.


2087MR. MORAN: You've got the corporate centre. You've got the cost centres -- sorry, cost --


2088MR. TURNER: Yeah, the thing that makes each of these cases unique is that -- the relevant facts and circumstances that, I think, are in evidence.


2089MR. MORAN: Right.


2090MR. TURNER: For your -- for the evaluation by the Board.


2091MR. MORAN: Okay. Now, one of the things that the Board identified in its decision was that it wasn't prepared to allow an allocation of costs that were associated with the management of Westcoast's investment. Westcoast wasn't going to be allowed to allocate that.


2092Is it fair to say that every parent is going to have some interest in managing its investment on -- it might do many other things, but it's also going to invest -- it's going to manage its investment? Is that a fair comment?


2093MR. TURNER: You're asking me?


2094MR. MORAN: Yes, Mr. Turner.


2095MR. TURNER: Yes.


2096MR. MORAN: And and to the extent that we have a methodology to look at, where do we see that cost identified in the current methodology?


2097MR. COWAN: That being the cost of managing the investment?


2098MR. MORAN: Right. The stuff that would be of direct interest to EI, given that it has to answer to shareholders out in the wider world.


2099MR. TURNER: The first element of it, I think, is addressed in the -- in the specific corporate allocations through applying the methodology.


2100The second aspect of it is that the -- one of the underlying principles of the business operation as well as the methodology is that Enbridge as a group is in a highly-regulated environment, a capital-intensive environment, and that as a result, it's efforts of its management team are focused on managing and overseeing those business operations, and therefore, it's appropriate to make an allocation down to the various operating entities that have those assets and employees.


2101MR. COWAN: We have not asserted a group together that constitute what the term that was used in the EBRO decision 493/494, managing the investment, we've not asserted a group of costs that would fit that category consistent with what Mr. Turner's just said, that we believe that there is a benefit attached to all of the costs incurred at the corporate level to Enbridge Gas Distribution.


2102MR. MORAN: Okay. Let me turn now, then, to interrogatory Exhibit I, tab 1, schedule 151. It's a Board interrogatory.


2103MR. COWAN: Yes, we have that.


2104MR. MORAN: I'd like to direct this to Mr. Ladanyi just to see if I can perhaps clarify or understand some earlier discussion at of this table.


2105In the response, it indicates that the table shows that the relevant corporate cost allocation departments and costs that were included in the 1999 O&M base and the resulting formula-driven amounts attributable to those functions in the 2000, 2001, and 2002 formula O&M.


2106When we look at the list of services that's set out in that table, starting with the management fee and the treasury fee, those ones are actually fixed by the Board; right?


2107MR. LADANYI: Yes, they were set by the Board.


2108MR. MORAN: And for the remainder, there was an allowance within the O&M envelope for carrying out those functions; right?


2109MR. LADANYI: But those would be costs of different departments within Enbridge Consumers Gas at that time. They were performing those functions.

2110MR. MORAN: And some of them were in-house, or all of them were in-house, but over the course of the three years, they started to be done by people other than EGDI; right?


2111MR. LADANYI: Yes, I believe is -- when we start in 1999, except for management fee and the treasury fee, the rest of them are in-house, so to speak.


2112As we move across the table, some of them become, then, centres of excellence and so on.


2113MR. MORAN: Right. And centres of excellence is that MBA term for outsourcing things to someone else; right?


2114MR. LADANYI: Well, "outsource" isn't really the right word. It's really a sharing of a service --


2115MR. MORAN: Having someone else do it for you.


2116MR. LADANYI: So one would share a taxation service with other affiliates of the company.


2117MR. MORAN: Right. Somebody else is doing it for you; right?


2118MS. BROOKS: Not in this case, no, because the employees were in Toronto. So I don't think it's correct to say someone else was doing it for you.


2119MR. MORAN: It's not important, anyways.


2120The point I'm trying to get at is that when we look at the total under the 1999 base of 11.3 million, that represents the O&M budget for those activities; right, including the ones that were actually set by the Board?


2121MR. LADANYI: Yes, it does.


2122MR. MORAN: Right. And then as some of those started getting done by someone else and allocated back to EGDI, what we see set out in this table is the allocations in the context of that envelope; right?


2123MR. LADANYI: Yes.


2124MR. MORAN: Yes. And so going through 2000, 2001, 2002, there's an adjustment to that envelope based on the PBR formula, and the allocations are your best estimate of what it was, or were these actual billings?


2125MR. MEES: Perhaps I can clarify. That is just the PBR base escalated.


2126MR. MORAN: Yes.


2127MR. MEES: Each year so --


2128MR. MORAN: I understand. I understand.


2129But in terms of the specific line items for audit, tax, risk management, et cetera, that's your assignment of cost allocation to those specific items out of that envelope; right?


2130MR. LADANYI: I think it shows -- I think that what the table shows is recovery in the rates for those functions.


2131MR. MORAN: Right. But we're talking about corporate cost allocations in the context of those items; right?


2132MR. COWAN: In the sense that the column at the right, the 2002 is the items that were in the array in 2002. And then we worked back and identified those same items back in 1999, extracted the amount in '99, added it into this column such that it comes to 11.3, and then applied the formula to those amounts to bring it forward.


2133MR. MORAN: So each item is escalated on its own and --


2134MR. COWAN: Yes.


2135MR. MEES: Yes, it is.


2136MR. MORAN: Thank you.


2137All right. I think, Mr. Turner, you alluded to this earlier, the legal obligation of a board of directors to a company. They have to act in a fiduciary manner; right, in relation to the company itself?


2138MR. TURNER: I mentioned that; right.


2139And I guess in this context, we're talking about many boards of directors in the context of many affiliates. There's the EI board of directors, and there's the Enbridge Gas Distribution board of directors, and obviously, the board of directors for all the other companies.


2140In the context of acting in the best interests of Enbridge Gas Distribution, would you agree that the board of directors, when it comes to rates, have an obligation to -- well, let me just come at this a slightly different way.


2141Section 36 in the Act says that rates have to be just and reasonable; right? And you have to apply for them, and -- because you need a Board Order; right? Right?


2142MR. COWAN: I understand --


2143MR. LADANYI: Yes, that's right.


2144MR. MORAN: And in the context of applying it, the applicant bears the burden of proof to demonstrate that the rates applied for are just and reasonable; right?


2145MR. LADANYI: Yes.


2146MR. MORAN: And the philosophy behind just and reasonable rates is one that says that there's going to be a balancing of interests and, in broad terms, the interests of a company and maximizing its return on its capital invested against the interests of the ratepayers in keeping rates down; right?


2147MR. LADANYI: Yeah, and that's exactly what happens in this room here. This is -- it happens at this Board and not at the board of directors of the company. It happens at the Ontario Energy Board.


2148MR. MORAN: That's right. But the onus, the burden of proof rests with the company; right?


2149MR. LADANYI: To prove that its rates are just and reasonable, absolutely.


2150MR. MORAN: In other words, to prove that those rates strike that balance; right?


2151MR. LADANYI: I think I -- what I'm trying to -- I'm having this difficulty with -- with -- we have to only prove the rates are just and reasonable. The Board strikes the balance. This is -- where the Board here makes a decision on how to balance interests between competing parties in this room. It doesn't happen at the board of Enbridge Gas Distribution.


2152MR. MORAN: I understand the point. The -- but what it comes down to is that given that the company bears the burden of proof that -- to demonstrate that they actually are just and reasonable, in other words, to demonstrate that an appropriate balance has been struck, the company, at least, takes the first shot at it in its application; right?


2153MR. CASS: Mr. Moran, I think you are getting heavily into a legal issue here, and, frankly, as a lawyer, I don't agree with you.


2154What you seem to be suggesting is that in this process, which is essentially an adversarial process much like would occur in a court, that the applicant is going to come forward and put in front of the Board both sides of the case. We wouldn't need intervenors in that event, but that's the sort of process that you are suggesting that the applicant fulfills in front of the Board.


2155I don't agree, but I don't see why this legal question should be put to the witnesses at all. It can be argued at the end of the case if it's an issue at all.


2156MR. MORAN: Fair enough.


2157Mr. Chair, I'm prepared to rephrase the question and then -- and move on.


2158Mr. Ladanyi, I take it you'll agree, at least, that when we read section 36 of the Act, 36(6) says that:


2159"In an application with respect to rates for the sale, transmission, and distribution or storage of gas, the burden of proof is on the applicant."


2160Right?


2161MR. LADANYI: Absolutely. And I think maybe since you've raised this question, what's been going on over the last few days is somewhat interesting, because we have settled the O&M number for the company. I think that has to be understood.


2162And then it's -- I think the question has to be asked: What exactly are we asking the Board to approve here, because we have only provided the cost-allocation evidence in support of our O&M evidence, and the O&M number has been settled.


2163And I'm not really sure that the Board even has to approve the cost-allocation methodology, because if you look at 493/494 in those dates when that decision was issued, that decision was issued when the old undertakings were in effect for Centra and Union, and they required specific approval of affiliate transactions.

2164Such approvals are no longer required right now under the current regime, so I'm not really sure that the Board even has to make a ruling on the appropriate methodology in this time frame.


2165So it's not completely -- although our methodology is similar to what happened in 493/494, I'm not sure that the Board even has to make a decision on it.


2166MR. MORAN: Thank you, Mr. Ladanyi.


2167I have one last area to cover with you, and that takes us back to Exhibit I, tab 1, schedule 72. That's the interrogatory that had the boards of directors on it.


2168MR. COWAN: We know where to find it this time.


2169MR. LADANYI: Yes, we have it.


2170MR. MORAN: All right. Earlier I think we were able to establish that there's a fair degree of interrelationship -- I don't know what that noise means.


2171MR. BETTS: I was going to say we are going to get locked in.


2172MR. MORAN: My time is up.


2173There's a fair degree of interrelationship at the board of director level; right? There are directors who are common to many of the companies, as we see set out there; right? We've already established that?


2174MS. BROOKS: Yes.


2175MR. MORAN: And obviously, there's -- that high degree of interrelationship includes officers as well. There are common officers amongst companies?


2176MS. BROOKS: Yes.


2177MR. MORAN: And some officers are directors in some companies; right?


2178MS. BROOKS: Yes.


2179MR. MORAN: And some directors are officers in other companies?


2180MS. BROOKS: Yes. Unavoidable with as many companies as we have.


2181MR. MORAN: Right. All right.


2182So in that kind of context, in the context of one company, one vision, everybody's contributing to this; right? I mean, that's the philosophy. All of these people in -- as they are represented on the boards of directors or as officers in the companies, they were all contributing to this philosophy of one company, one vision; right?


2183MS. BROOKS: They are contributing to the overall corporate strategy, yes.


2184MR. MORAN: Right. And hopefully or presumably, from your perspective, to the success of the overall group of companies; right?


2185MS. BROOKS: Yes.


2186MR. MORAN: All right.


2187Now, in the context of the directors and the officers of Enbridge Gas Distribution, who, I assume, are contributing just like everyone else to the overall success of the corporation, how are their costs allocated to the other groups? Given that you've gone through a process of allocating EI's costs to the rest of the companies, how are EGD's costs allocated to the other companies?


2188MS. BROOKS: The costs of EGD's board of directors?


2189MR. MORAN: The benefits that they create by contributing to the success of all the companies and the costs associated with all that work, how is that allocated to the other companies?


2190MS. BROOKS: To the companies that are subsidiaries?


2191MR. MORAN: To EI and to the sister companies, to the parent and to the sister companies.


2192MR. COWAN: We're having a little -- there is an amount eliminated for non-utility services that are provided through other entities in the group from the Enbridge Gas Distribution base of cost; however, we're not right here and now sure as to which -- whether or not some of the costs that you are looking at associated with the executive management team are included in that elimination.

2193We believe we can actually find out, so if it would help you, we can undertake to do that.


2194MR. MORAN: All right. Well, then, for the purposes of the record, can you just indicate what undertaking you're offering me?


2195MR. COWAN: Offering to determine from the non-utility elimination already filed in evidence whether a component relates to -- and I'm -- actually would appreciate your help with what it relates to, but my phrase would be executive management contribution to Enbridge Gas Distribution affiliates. Maybe it's going on too long here.


2196MR. MORAN: All right. Maybe I can help you.


2197My question was: Just as you have allocated from the corporate centre at EI a number of things that involve directors and officers and their time and expenses associated with their time to serve all the other companies, how have you done the same thing for the corporate officers or directors at EGDI in the context of their contribution to the rest of the companies?


2198MR. COWAN: We have done that through a specific review budget by budget in the O&M category and identified those services provided to other family members in the Enbridge Group and eliminated those from our rate submission, and we filed that in evidence under the non-utility elimination evidence and it is -- it's a specific identification, department by department, not the application of this same methodology.


2199Then as to whether the particular costs you were asking about are included in that, that's where I was prepared to make an undertaking.


2200MR. MORAN: All right. So I will take that undertaking on that basis.


2201So you didn't use the same methodology for --


2202MR. BETTS: Mr. Moran, just -- I believe that's J.10.7.


2203UNDERTAKING NO.J.10.7: JUST AS YOU HAVE ALLOCATED FROM THE CORPORATE CENTRE AT EI A NUMBER OF THINGS THAT INVOLVE DIRECTORS AND OFFICERS AND THEIR TIME AND EXPENSES ASSOCIATED WITH THEIR TIME TO SERVE ALL THE OTHER COMPANIES, HOW HAVE YOU DONE THE SAME THING FOR THE CORPORATE OFFICERS OR DIRECTORS AT EGDI IN THE CONTEXT OF THEIR CONTRIBUTION TO THE REST OF THE COMPANIES?


2204MR. MORAN: So you used a different methodology, in other words, for allocating those costs from the ones --


2205MR. COWAN: I should point out that the amounts in aggregate used are very, very much smaller so there is a question of whether the scale of a tool of this type is appropriate for that size of business, and I -- my judgment is that it isn't. This is a more sophisticated tool than is necessary for the size of amounts involved in the non-utility elimination.


2206MR. MORAN: Will there be people on the next panel that can speak more to the details of this?


2207MR. LADANYI: I believe the O&M panel probably should be able to address that.


2208MR. COWAN: For each of its various respective areas.


2209MR. LADANYI: Correct.


2210MR. MORAN: Thank you.


2211Mr. Chair, those are all my questions.


2212MR. BETTS: Thank you, Mr. Moran.


2213Mr. Cass, any questions in redirect?


2214MR. CASS: I've been through my notes, Mr. Chair, and I have just a few areas, three areas, if I may.


2215MR. BETTS: Is everybody standing up still okay or sitting down okay, including our court reporter? Please proceed.


2216MR. CASS: I have to apologize to the witness panel and to everybody because I think the first question will be a challenging one at the end of a very long day, but let's give it a try.


2217RE-EXAMINATION BY MR. CASS:


2218MR. CASS: During Mr. Janigan's cross-examination, I think it was at the outset of the cross-examinations, there were a number of questions about Exhibit A.6, tab 19, schedule 1, page 13, so I wonder if the panel could turn that up.

2219MR. MEES: We have that.


2220MR. CASS: I don't know who would answer this, but Mr. Janigan was asking specific questions about changes from year to year as shown on this chart, but I think what was lacking was just a general description of how this chart works. Going year to year, why would new amounts be added, say, from '99 to 2000, new areas, and where do the amounts come from? Can someone attempt a description of what that chart is doing?


2221MR. MEES: I can attempt to do that. From -- I guess I'll start with 1999, what was -- the billing amounts in general are based on what was in the budget, except for in 1999, 2000. In 1999, there was the 497 decision that limited the amount of billings to $1 million with respect to the management fee. So you'll see that in 1999, it contains the two components of the treasury fee, and the top five components are those that made up the management fee at that time.


2222For 2000 and 2001, the billings were based on budget and the budget for the management fee components remained at $1 million, and the additional amounts that you see there are as a result of transfers to the centres of excellence as we've discussed a lot over this -- that went from Gas Distribution to Enbridge Inc. So those are -- those listed there are between audit services all the way down to labour relations.


2223The same thing happens in 2001 where you had some additional -- the same components, then you have some additional centres of excellence; in this case, risk management. So that for 2001, those amounts were then included both in the budget and in the billed amount.


2224For 2002, we -- what we -- a decision was made during the budget process to charge an amount, to include an amount in the budget and in billing greater than the million dollars, as we are allowed to do under the new undertaking. So under 2002, it would include the amounts for the centres of excellence but also for corporate departments providing services to Enbridge Gas Distribution.


2225I think that answers the question.


2226MR. CASS: Thank you, Mr. Mees.


2227Now, again, I realize this is challenging at the end of a long day, but there was similarly, throughout a number of the cross-examinations, a lot of questions about the chart that appears in Board Staff interrogatory number 151, and I'm wondering, if by reference to the chart you just looked at as well as Exhibit I, tab 1, schedule 151, if you could just explain the difference in the -- what's being depicted in these two charts.


2228MR. MEES: In A.6, tab 19, schedule 13, that was the billed amounts. What we're trying to depict in Board Staff 151 is to approximate what would have been recovered in rates. And what we are trying to depict with this is -- so we -- to reflect the centres of excellence that shifted over and what really the most appropriate comparison would be in 2002, because all of those centres of excellence had transferred over at that point by 2002. So in 2002, the 13.1 reflects our approximation as to what was included in rates based on the targeted performance-based regulation compared to what services were then being provided by Enbridge Inc.


2229MR. CASS: And then, Mr. Turner, just a couple of questions for you. When you were being cross-examined by Mr. Warren, he had some questions about your methodology of interviewing people at Enbridge Inc. and interviewing people at Enbridge Gas Distribution. Is this a methodology that you have followed before?


2230MR. TURNER: Yes.


2231MR. CASS: Can you elaborate on the -- on when and why you would use that sort of methodology, please?


2232MR. TURNER: The -- it's important, no matter what aspect of transfer pricing you're looking at, it's certainly crucial when you're looking at services. You want to understand what is being done by whom and what is being received by whom and so the -- we're also looking for any overlap or duplication that might exist, and so that's a matter or a manner in which we make those determinations. It's getting the facts on the table from the people who are most intimately involved on a day-to-day basis with either performance or receipt of the service.


2233MR. CASS: And then I had just one question for Ms. Brooks for which purpose I'd ask that you turn up Mr. Turner's report, please, at page 8.


2234MS. BROOKS: I have that.


2235MR. CASS: And I'm looking at the second sentence of the top paragraph. During Mr. Warren's cross-examination he had a series of questions specifically for Mr. Turner on the second sentence, but no one else had an opportunity to comment. So Mr. Warren's questions of Mr. Turner had to do with how Enbridge Gas Distribution or its ratepayers would benefit from the strategic objective of operational excellence and ensuring consistency, and Mr. Turner answered some questions about that. I wonder if you could comment on that, Ms. Brooks?


2236MS. BROOKS: Well, firstly, at Enbridge, the concept of operational excellence means being the low-cost service provider, and not the low-cost service provider in the context of the corporate office, but the low-cost service provider in the business it operates.


2237So that, I think, is a benefit to all of our customers regardless of who they might be. It is late, I'm sorry, Mr. Cass.


2238MR. CASS: I think that's the answer, unless you had anything additional to say in respect to the second part of it.


2239MS. BROOKS: The other aspect with respect to consistency is there are really a number of concepts there. One goes to corporate governance which ensures the ongoing viability of the enterprise as a whole. I think I said a couple of days ago it -- that has become in the forefront of everyone's minds these days, and it's beholden upon every corporation to ensure it has good corporate governance so that it can continue to operate its business.


2240We've seen a number of businesses where that hasn't happened. Consistency, I think, is also important in terms of just normal operating procedures in terms of policies and practices, spending authority, documents, and things like that. They set a tone at the top and ensure that the organization has appropriate controls and policies to manage its organization be they HR policies or accounting policies or how you build your network of computers. And typically, with consistency, comes low cost so it ties in with operational excellence.


2241MR. CASS: Thank you. Those are my questions in re-examination, Mr. Chair. Thank you.


2242QUESTIONS FROM THE BOARD:


2243MR. DOMINY: I have a simple question, it may not be as simple as it seems, but basically as I understand it, this is the first regulatory agency to which you've brought this cost-allocation methodology for review; is that correct?


2244MS. BROOKS: That's correct.


2245MR. DOMINY: But currently at this time at the NEB, you have an incentive scheme that goes on until about 2004; is that correct?


2246MS. BROOKS: That's correct.


2247MR. DOMINY: Now, that's a sort of performance-based type of agreement where there's a -- the rates are escalated according to sort of formula; is that correct?


2248MS. BROOKS: That's correct.


2249MR. DOMINY: So now we have this cost-allocation methodology, and I note that there's a change in the allocation of costs to transportation north of a reduction of some $2 million. How will it play out with regard to the rates of your Enbridge Pipelines Company?

2250MS. BROOKS: In that there's a reduction?


2251MR. DOMINY: Well, there's a reduction in the allocation that this creates for Enbridge Pipelines which would then, I assume, it flows through to the financial accounts, result in an increase in net profit or whatever you want to call for that company.


2252MS. BROOKS: Or a lower cost of service and a lower toll to the customer or the shipper, in that case.


2253MR. DOMINY: Because there's a shared savings arrangement, is there?


2254MS. BROOKS: Yes, for 2003, that is correct.


2255MR. DOMINY: Now, you also said that, in fact, that cost -- that an incentive scheme was something that had been -- I think the word is "negotiated with CAPP" which I assume is the Canadian Association of Petroleum Producers and was accepted by the NEB.


2256MS. BROOKS: Yes, it is, and it was filed for approval by the NEB.


2257MR. DOMINY: And I just wondered, I was looking at the interrogatory which was -- the one which -- I think it's interrogatory 100 of VECC.


2258MS. BROOKS: Yes, that shows the multiyear.


2259MR. DOMINY: Yes, and it shows how the changes in the cross allocation to the different regulated groupings have occurred because you have it for each year from 1999 up to 2003, I think.


2260MS. BROOKS: Yes, I have that.


2261MR. DOMINY: And I was looking at transportation north. Now I assume about 60 percent of that is Enbridge Pipelines. I was looking at your annual report and you show revenue split, and you show about 60 percent of that comes from Enbridge Pipelines and -- and other pipelines.


2262MS. BROOKS: I will accept that.


2263MR. DOMINY: So if I took 60 percent of 22,000, it comes to something around about 13 million -- 22 million -- of 13 million. This is all orders of magnitude numbers, okay, so I may be completely wrong because I'm trying to do this from a sort of high-level look. And then I turn back to 1999 allocation, and liquids pipelines there was 16 million, and I believe at that time, Enbridge Pipelines was a much larger component of liquid pipelines. So in effect from the perspective of liquid pipelines, the corporate charges have gone down. I just wondered how that can be reconciled against a considerable increase in the corporate charges of Enbridge Gas Distribution.


2264MS. BROOKS: I think that your conclusion -- in 1999, liquids pipelines allocation was $16 million and that included both transportation north and -- so Enbridge Pipelines Inc. as well as the U.S. portion of the pipeline which is now included in transportation south in 2003. So -- and I'm -- I don't believe I have the split with me as to how much is -- of the south allocation of $35 million relates to the U.S. portion of the pipeline, but the 16 -- the allocation is up substantially to them as well is what I'm trying to say.


2265MR. DOMINY: All I was trying to do with my simple arithmetic was to try and see what had happened to another regulated company in your family in Canada with regard to these corporate charges. So I wonder whether it would be possible for you to provide an undertaking which indicates how the corporate charges assigned to Enbridge Pipelines has changed over the same period of time as for Enbridge Gas Distribution.


2266MS. BROOKS: I can make that undertaking.


2267MR. DOMINY: Thank you.


2268MR. MORAN: That would be Undertaking J.10.8.


2269UNDERTAKING NO. J.10.8: TO PROVIDE AN UNDERTAKING WHICH INDICATES HOW THE CORPORATE CHARGES ASSIGNED TO ENBRIDGE PIPELINES HAS CHANGED OVER THE SAME PERIOD OF TIME AS FOR ENBRIDGE GAS DISTRIBUTION


2270MR. BETTS: Thank you.


2271MR. DOMINY: The only other question is a very simple one for Mr. Turner, and it's just to clarify some stuff in his report so I fully understand some of the details. It is very simple, it's a footnote on page 5, footnote 6, and I just wondered, it says:


2272"The various lines of business within each business unit focuses only on those lines of business allocated a corporate office charge by Enbridge based on the 2003 budget."


2273And that footnote relates to the businesses that are shown under 1. The one that's missing is Alliance.


2274MR. TURNER: Yes.


2275MR. DOMINY: Is Alliance not allocated any corporate charges?


2276MR. TURNER: Ms. Brooks, if you can respond to that.


2277MS. BROOKS: No, it is not, and the reason for that is because it is an equity investment with no management -- really no management time at Enbridge devoted to it. So it's a passive equity investment. It is a stand-alone entity which we are about to own 50 percent of. We may have to reconsider that decision now that the ownership has changed, but at a 38 percent ownership, it's -- they have -- they are totally stand-alone and don't participate in our shared services environment.


2278MR. DOMINY: But there would be some costs at the corporate centre with regard to that investment.


2279MS. BROOKS: Very little.


2280MR. DOMINY: There have been no decisions made about increasing your investment?


2281MS. BROOKS: Those costs would be in corporate but as part of the business development activities.


2282MR. DOMINY: Okay. And the last one, as I understand when I read your report, Mr. Turner, that basically at the time of writing your report, you had the evidence of Enbridge that had been filed. I know one of the tables may have been updated, but the evidence was there, but all the information about --


2283MR. TURNER: Yes.


2284MR. DOMINY: -- allocation, et cetera.


2285MR. TURNER: The decisions have been made.


2286MR. BETTS: I have no questions.


2287Mr. Cass, is there a need for redirect on those?


2288MR. CASS: No, sir. Thank you.


2289MR. BETTS: Okay. Then that effectively concludes this long day. I thank the panel for sticking through. I have no idea why two of the intervenors stuck through as they did right to the end, but I admire them for it. And to Staff, by the way, and our court reporter, everybody, you've done very well to be here through to the end.


2290Anything that we should establish on the record before we leave tonight?


2291MR. CASS: Mr. Chair, I just wanted to thank as well the Board panel and the court reporter for staying so late, thank you very much, on a Friday and I know it's not what everyone had in mind.


2292MR. BETTS: You're welcome, and perhaps you can remind everybody of that when people accuse the Board of being, perhaps, inefficient in their activities.


2293I think this was an effective consideration with respect to cost of these operations, so -- Mr. Moran, something else?


2294MR. MORAN: Mr. Schuch indicates I should put on the record that we stand adjourned for Monday and we come back on Tuesday to deal with the motion.


2295MR. BETTS: Thank you.


2296MR. DOMINY: Could I ask a question on that, Mr. Moran? When do we start on the Tuesday or is that something that people will be notified of on Monday as a result of the proceeding which is going on then?


2297MR. MORAN: I think the understanding is to assume that we are starting at the regular time on Tuesday unless we are notified on Monday because of the QRAM application spilling over.


2298MR. BETTS: Anything -- I was actually going to get to that in closing, but I'm glad you have. If there is nothing else then, we will adjourn now to a targeted 9:30 time to reconvene on Tuesday morning. Good night, everybody.


2299--- Whereupon the hearing adjourned at 6:26 p.m.