Rep: OEB
Doc: 12NB6
Rev: 0













ONTARIO ENERGY BOARD

Volume: 11

8 APRIL 2003


BEFORE:



R. BETTS

PRESIDING MEMBER

G. DOMINY

MEMBER



1
RP-2002-0133

2
IN 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.

3
RP-2002-0133


4
8 APRIL 2003

5
HEARING HELD AT TORONTO, ONTARIO


6
APPEARANCES

7

PAT MORAN

Board Counsel

COLIN SCHUCH

Board Staff

FRED CASS

Enbridge Gas

DENNIS O'LEARY

Enbridge Gas

TANIA PERSAD

Enbridge Gas

ROBERT HOWE

Customer Works Inc.

JOHN SPROAT

Customer Works LP

CRAWFORD SMITH

Union Gas

ELIZABETH STEWART

Enbridge Inc. et al.

JOHN ROOK

Direct Energy

ROBERT WARREN

CAC

PETER THOMPSON

IGUA

VINCE DeROSE

IGUA

TIBOR HAYNAL

TCPL

MICHAEL JANIGAN

VECC

JAY SHEPHERD

OPSBA

THOMAS BRETT

OASBO



8
TABLE OF CONTENTS

9

APPEARANCES:

[25]





MOTION:

[47]




SUBMISSIONS BY MR. THOMPSON:

[48]





SUBMISSIONS BY MR. WARREN:

[215]





SUBMISSIONS BY MR. JANIGAN:

[327]





SUBMISSIONS BY MR. SHEPHERD:

[356]





SUBMISSIONS BY MR. BRETT:

[389]





SUBMISSIONS BY MR. CASS:

[456]





SUBMISSIONS BY MS. STEWART:

[694]





SUBMISSIONS BY MR. SPROAT:

[734]





SUBMISSIONS BY MR. HOWE:

[769]





SUBMISSIONS BY MR. SMITH:

[823]






PROCEDURAL MATTERS:

[842]





10
EXHIBITS

11

EXHIBIT NO. K.11.1: BOOK OF MOTION MATERIALS

[229]









EXHIBIT NO. K.11.2: AUTHORITIES BRIEF, FILED BY MOVING PARTIES

[231]










EXHIBIT NO. K.11.3: FERC INITIAL DECISION DATED OCTOBER 22ND, 1997 RE WILLIAMS NATURAL GAS COMPANY

[291]









EXHIBIT NO. K.11.4: DECISION OF THE COURT OF APPEALS OF MICHIGAN DATED APRIL 22, 1992 RE MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP

[293]









EXHIBIT NO. K.11.5: DECISION OF THE FEDERAL COURT OF APPEAL ENTITLED, "AGT LTD. V. CANADA (CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

[332]










EXHIBIT NO. K.11.6: BRIEF OF MATERIALS SUBMITTED ON BEHALF OF ENBRIDGE GAS DISTRIBUTION INC.

[482]









EXHIBIT NO. K.11.7: RULE 30.1.01, DEEMED UNDERTAKINGS

[788]









EXHIBIT NO. K.11.8: DECISION OF THE ONTARIO COURT GENERAL DIVISION, UNION OF CANADA LIFE INSURANCE V. LEVESQUE SECURITIES INC. DATED JANUARY 12TH, 1999

[794]









12
UNDERTAKINGS

13

14
--- Upon commencing at 9:39 a.m.
15
MR. BETTS: Thank you, everybody. Please be seated.

16
Good morning, everybody. We are reconvening to sit on day 11 of the hearing of application RP-2002-0133.

17
First of all, can everybody hear me at the back? The volume is okay? Thank you.

18
Today we're sitting to hear submissions directed to a motion made by CAC, the Consumers' Association of Canada, IGUA, the Industrial Gas Users' Association, and VECC, the Vulnerable Energy Consumers Coalition.

19
The stage was set for this motion in the write up of issue 7.1 in the settlement agreement found in Exhibit N.1, tab 1, schedule 1, page 37 of 93, and that paragraph reads as follows:

20
"The intervenors have agreed to establish the 2003 O&M DA," which is the operating and maintenance deferral account, "because neither the company's affiliates nor the related party have provided the information that intervenors say is a pre-requisite to a determination of the value of the alleged efficiency gain transfers."

21
The company believes that it has provided sufficient evidence for the Board to establish just and reasonable rates for the test year.

22
Intervenors will be seeking rulings from the Board compelling production and disclosure of the requisite information from the affiliates and the related parties which realized the alleged efficiency gains during the term of the PBR being EI, ECS, CWLP, EGS, and EOS.

23
Notice of this motion was delivered to all parties on March 27th or in that area. We have representatives of parties that have not been actively participating in this hearing thus far who are seeking leave of the Board to intervene in this process.

24
I would appreciate those parties identifying themselves now, please.

25
APPEARANCES:

26
MR. HOWE: Mr. Chairman, my name is Robert Howe, H-o-w-e. I act on behalf of Customer Works Inc. And we have, by a letter delivered via fax and e-mail yesterday, sought late intervenor status for the reasons set out in our letter.


27
MR. BETTS: Thank you. We have received that letter, and we will hear from the other parties and then rule on all, I believe, three.

28
Who else is new to this proceeding?

29
MR. SPROAT: Mr. Chairman, my name is John Sproat. It's S-p-r-o-a-t, and I'm appearing as counsel on behalf of Customer Works LP. And Customer Works LP was served with the notice of motion in this matter, and I will be making submissions on its behalf and seeking leave to intervene if that be required.

30
MR. BETTS: Thank you. And it was Mr. Stroat, S-t-r --

31
MR. SPROAT: S-p-r-o-a-t.

32
MR. BETTS: Thank you.

33
MR. SPROAT: Thank you.

34
MR. BETTS: Any other appearances?

35
MS. STEWART: Yes, Mr. Chairman. My name is Elizabeth Stewart, S-t-e-w-a-r-t, and I'm representing Enbridge Inc., Enbridge Commercial Services Inc., Enbridge Gas Services Inc., and Enbridge Operational Services Inc., all of which were served with this notice of motion.

36
A letter was sent to the Board on behalf of these entities on Friday last indicating their interest in this motion and their desire to intervene in these proceedings for the purposes of making representations concerning the relief sought in this motion.

37
MR. BETTS: Thank you, Ms. Stewart.

38
Are there any submissions based on the request for these parties to join this proceeding at this point as intervenors?

39
The Board welcomes the three parties to this proceeding.

40
We'll deal with preliminary matters. Are there any preliminary matters for Board consideration?


41
There appear to be none.

42
The Board will deal with this motion by first hearing submissions in chief. We would prefer to hear from one party of the three submitting, but we will not restrict it to that if all three parties wish to make submissions.

43
We will then hear submissions in support of the motion followed by submissions in response. I will invite Board Staff to just clarify the record. The Board Staff will not take any position in the issue, but they might be helpful in providing jurisdictional information for the Board.

44
And finally, we will seek submissions in reply. Again, the Board preference would be to hear from one party of the group making the motion; however, we do respect the fact that all parties may wish to contribute to that reply.

45
That being said, I will turn to the parties making the motion, and which of the three parties would like to begin?

46
Mr. Thompson.

47
MOTION:

48
SUBMISSIONS BY MR. THOMPSON:

49
MR. THOMPSON: Yes. Good morning, Mr. Chairman.

50
As you know, this motion is brought on behalf of the Consumers' Association of Canada represented by Mr. Warren, IGUA represented by my firm, including myself and Mr. DeRose, and VECC represented by Mr. Janigan.

51
The plan is for me to lead in the presentation of the motion, and with your permission, both Mr. Warren and Mr. Janigan would wish to supplement my submissions, not repeat them, primarily because my involvement in the case has not been as in depth as theirs, and there may be some points on both the facts and the law that they would wish to add something to what I have to say. So with your permission, that's how we would propose to proceed. Our plan was to have one of us reply, and one only, and we would identify that person once we've heard the submissions.

52
MR. BETTS: Thank you. That will work fine for the Board.

53
MR. THOMPSON: Thanks.

54
The materials you will need, sir, to follow, and Mr. Dominy to follow the presentation of the motion are first of all a brief of motion materials which was provided this morning. I did circulate to interested parties including those who just appeared on the record here this morning an index of the documents in each of these briefs. So although they haven't had the actual briefs, they have had the documents referred to therein and they have had a chance to, hopefully, consider them before coming here today.

55
The second brief of materials that you'll need are -- is entitled "The Authorities Brief," which again we prepared yesterday, circulated the index but only delivered the materials this morning.

56
The third document you will need is the notice of motion. That was delivered, I believe, around March 27th if I'm not mistaken.

57
And if I might, just by way of preliminary, indicate that there are a couple of incomplete documents in the briefs that I don't think will affect the presentation of the motion, but I would like to draw these to your attention.

58
First of all, at tab 4 of the motion materials, we've attached there the decision that was rendered in June 1999. This was following the Board's decision in 497-01 which is attached at tab 3. CAC, IGUA and VECC made a motion for review in variance, and the motion decision, unfortunately, has only every other page copied. So to the extent that you need and parties need to refer to the entire decision with reasons, I urge you to complete the copy of that document.

59
I don't intend to refer to it at great length, but unfortunately, only every other page is photocopied there.

60
At tab 11 there is an omission and it is a material one. This is attached, the company's responses to the IGUA interrogatories that were referenced in the notice of motion and unfortunately, IGUA interrogatory 98 was omitted from the package. So what I would ask everyone to do, if they wouldn't mind, including Board members, is to get Exhibit I, tab 13, schedule 98 which is a four-page document and just, if you wouldn't mind, insert it in the brief before IGUA 101 because I will be referring to that document.

61
MR. BETTS: Thank you, Mr. Thompson.

62
MR. THOMPSON: And finally, at tab 13 we have attached a copy of Mr. Cass's letter to the Board pertaining to a filing that he was proposing to make, as I understood it, by March the 26th, and this document is incomplete. There was attached to this some financial information from Enbridge Inc., but I think Mr. Cass will probably be filing this document as well so I don't think that's going to pose a problem. I just wanted you to be aware that what's turned up in the brief does not include the financial information that was attached with the letter pertaining to Enbridge Inc.

63
MR. BETTS: Thank you.


64
MR. THOMPSON: So with those three corrections, if you will, and my apologies for the incompleteness of those particular documents, let me proceed with the argument of the motion.

65
The first topic that I would like to address is the nature of the motion and the relief sought therein, and for this purpose you will need to have at hand the notice of motion.

66
You will see from the motion that we are seeking relief against six entities, Enbridge Gas Distribution, Enbridge Inc., Enbridge Commercial Services, Enbridge Gas Services, Enbridge Operational Services, and Customer Works Limited Partnership. We're not seeking any relief against Mr. Howe's client, Customer Works Inc.

67
These six companies -- of these six companies, five of them, from my understanding, are owned 100 percent by Enbridge Inc., and the Customer Works Limited Partnership is owned 70 percent by Enbridge Inc. through ECS. So that EGD, EI, ECS, EGS, and EOS are affiliates of one another as that term is defined in the Affiliate Relationships Code.

68
As the 100 percent owner of these companies, EI directly or indirectly controls them and, in my submission, as a 70 percent owner of CWLP, EI directly or indirectly controls CWLP. So that on the facts, my first point is that if you look behind the corporate veil, you have one company, one person, EI, which directly or indirectly controls whatever these companies and CWLP do or do not do.

69
So while the relief that is being sought is against six entities, the actions of each of them are, in my submission, directly or indirectly controlled by one of them, being EI.

70
The relief being sought is the next topic I wanted to touch on, and firstly draw your attention to paragraph 1 of the motion. There we are seeking an Order against the utility, Enbridge Gas Distribution, to provide full and complete responses to the IGUA interrogatories listed therein. And the authority for that request for relief is found in your rules, that is the Board's rules, and you'll find the Board's rules in the authorities brief at tab 2.

71
The relevant rules, in my submission, are the rule 29, which you'll find at page 17 and 18 under this tab, and in particular rule 29.02(b) -- sorry 29.03. It states: "Where parties are not satisfied with the response provided the party may bring a motion seeking direction from the Board."

72
The other rule that I submit has an application to the relief requested in paragraph 1 is rule 5.01(a) which provides in part:

73
"Where a party to a proceeding has not complied with the requirement of the of these rules, the Board may grant all necessary relief."

74

The grounds for the request for relief in paragraph 1, in short, are that the utility has failed to provide full and complete responses to the questions asked. And I would like to just take a moment to look at the questions asked to put them in context with respect to the issue that is before you in these proceedings. For that you need to turn to the motion materials brief at tab 11.

75
If I might start with question 17; also related to this question is question 98. Question 98 followed the issuance of the Board's decision in the 0032 case that I will be referring to in a moment.

76
But in question 17, what we're asking for is information and documents pertaining to ECG's, the utility's, arrangements with ECS pertaining to the rationalization of utility resources in ECS and ECS revenues, costs, and profits arising from the transfer of utility resources to ECS and the subsequent contractual arrangements between ECS and the utility.

77
We also asked at question 28 with respect to this matter information from Mr. Lough with respect to his scrutiny of the ECS arrangements, if I've got that right, as well as the rationalization of former utility resources in ECS. And this was followed up at question 98 where we asked the company to obtain and produce from EI and/or any of its existing or former affiliates all of the documents and other information requested in interrogatories 17 and others.

78
And in C, we asked the straightforward question, "Please provide an exhibit that will clearly disclose the extent to which efficiency gains were realized by EI directly or indirectly through its ownership of affiliates which provided services to EGD during each year of the term of the targeted PBR regime."

79
The company's responses to these questions, and I'm paraphrasing, initially was, We don't have this information and we're unable to provide it. Mr. Lough's responses were he was constrained by the terms of his retainer from providing any of the information that we requested.

80
And then in this final interrogatory, 98, the company goes a bit further and indicates that it's not going to provide this information. But on page 2 of 4 of 98 you'll see what it's relying on, the fourth-last paragraph, is its benchmark information. It says:

81
"As the company is relying on market pricing benchmarks to support its 2003 customer care costs, it is not prepared to attempt to gain possession of or produce the information and/or other documents requested in the previously listed interrogatories."

82
So in short, it appears the company says that its reliance on benchmarking evidence justifies a refusal to respond to the questions that we asked about EGD's relationship with ECS and the rationalization of former utility resources, revenues, costs and profits in ECS.

83

The next group of questions that were asked and incomplete responses were provided are questions 18, 19, 22, 23, and 24. All of these questions relate to the revenues, expenses, profits, and rationalization of former utility resources in CWLP, and that again was covered by the requests in questions 98A and 98C, and that response applies to the questions we asked about CWLP.

84
Interrogatories 25 and also 98B related to the evidence of Mr. Lough who scrutinized the arrangements that EGD made with ECS and subsequently with CWLP. And there's some comparison of the differences in amounts that EGD agreed to pay ECS versus CWLP in Mr. Lough's evidence, but what we asked from Mr. Lough was to obtain information, provide what information -- what we asked of the company was to provide information pertaining to the CWLP Accenture arrangement and, as well, provide the rationalization of former utility resources that had taken place within Accenture.

85
It's unclear to us whether CWLP sold something to Accenture or whether CWLP continues to receive the money that EGD pays pursuant to the services agreement but then pays less to Accenture. And in that fashion, EI, through CWLP, realizes a spread on the arrangements that were made, and in that fashion has capitalized the efficiency gains that were transferred to, initially, ECS and then on to CWLP.

86
But the bottom line in response to our questions that were asked in 25, and in 98B, and in 26 of Mr. Lough with respect to documents that he listed in his report, and again in question 57A, which was a question that asked for copies of all presentations made to Enbridge Inc. to demonstrate how the divestiture of ESI and the CWLP-Customer Works Inc. transaction planned will affect ECS, none of this information was provided in response to the questions asked.

87
IGUA's questions 31 and the subsequent question, I believe it's 101, dealt with the -- well, 98 as well as 101 which relates back to 57A.

88
The questions in 31 related to the functions that had been outsourced to -- well, the functions that were being performed by Enbridge Operational Services and Enbridge Inc., i.e. system operation and gas services. The preamble of the question described those arrangements as they had been described in the prior case and asked for details on them, and again, we did not get any information from EOS. The question was intended to encompass the gas services aspect of the matter, but there was no information provided on that either.

89
So that the answers that we got to these kinds of questions were, in my respectful submission, incomplete. The documents requested were not produced.

90
If we then turn from that prayer for relief which is confined to EGD and its responses to questions asked, to paragraphs 2, 3 and 4, you'll see that paragraph 2, 3 and 4 of the motion relate to all of the companies, including EGD.

91

And what we're seeking in paragraph 2 of the motion against all of the companies named, including EGD, is to produce all documents in their possession, including memoranda, notes, e-mail transmissions, and any other documents related to the arrangements, financial or otherwise, whereby EI and EGD planned to and eventually had their affiliates ECS, EGS, EOS, and subsequently a related party CWLP provide services to EGD during the years 2000 to 2002, inclusive, being the term of EGD's targeted performance-based regulation plan. And without limiting the generality of the foregoing, an Order requiring the following, and then we've listed the financial documents relating to each of these companies as described.

92
Paragraph 3 of the Order relates to cost calculations for the services provided to EGD during the term of the PBR, and paragraph 4 pertains to changes in employment levels.

93
So the object of this paragraph of the motion is to direct it to all of the companies within the family, but you can see there is overlap. As far as EGD is concerned, there's certain overlap between the relief that we request in 2 and the relief that we request in 1. And there was really no other way that we could see to frame the prayer for relief to capture what we were trying to get at.

94
The relief sought in paragraph 5 is a request that a summons be issued directed to the chief financial officers of the companies other than EGD. And under your rules, it's clear that we -- rule 36, I believe, we don't need an Order to issue a summons. So it's premature, we feel, as a practical matter to proceed with the request for this Order at this time.

95
The need to summons witnesses can only be evaluated after we've seen the information that we seek to have produced, so we're not proposing to address that request for relief at this time and would propose that it simply be adjourned sine die. The request for relief that we're focusing on are the requests contained in paragraphs 1 to 4 inclusive.

96
I'd like now to turn to the grounds for the relief requested and the Board's authority to grant the relief requested. In making these submissions, I'm going to focus on the scope of the relief requested in paragraphs 2, 3 and 4, because it is against all the companies, and it's -- hopefully encompasses all of the information that we're seeking to have produced.

97
In broad terms, the nature of the information requested relates to the benefits received by EI through the rationalization of EGD's utility resources transferred to affiliates and a related party during the term of the TPBR.

98
The information, in our submission, is directly relevant to the determination of the final O&M expenses envelope to be recovered in 2003 rates. The information pertaining to the rationalization of former EGD resources in affiliates and the related party is relevant to the extent to which the utility has, if at all, retained any control and management authority over the performance of utility functions.

99
So it's relevant not only to rate making, but it's relevant to this management and control issue, which the Board identified in its recent reasons for decision.

100
Who is left in the utility to perform critical utility functions, if anybody, and who is actually in control of performing these functions? The assessment of this issue, that goes to the heart of your regulatory oversight over EGD.


101
And Mr. Warren will have more to say about this aspect of the matter. My focus will be on the relevance of the information requested to determine the final amount of the O&M expenses envelope to be recovered in 2003 rates.

102
And as you pointed out, Mr. Chairman, when you read into the record portions of the settlement agreement, the parties were unable to resolve during the TPBR the extent to which the O&M expenses envelope for 2003 should be adjusted to reflect the sustainable benefits or savings that EI had derived through the rationalization of utility resources transferred to affiliates.

103
This issue was raised not only in the evidence of Dr. Bauer -- it was raised in interrogatories, obviously, but addressed in the evidence of Dr. Bauer as well as in the evidence of IGUA.

104
And you'll find both those pieces of evidence in the materials brief, and I just wanted to draw your attention, if I might, to IGUA's evidence on the subject to illustrate, if I might, why the settlement agreement reads the way it reads. And so you'll find the IGUA excerpts at -- evidentiary excerpts at tab 10 of the materials brief.

105
The IGUA evidence begins with a description of the context in which EGD's request for 2003 rate relief were made, and you'll find that at -- in paragraph 2 running from pages 1 through to 4.

106
It was in the context of the facts cited in that contextual background that the issues raised for IGUA in the case were extremely important, and IGUA then went on in its testimony at page 7 and following to address particular areas of concern. And if you could flip over to page 10, we then get to the concerns about the outsourcing arrangements and the reasonableness of the O&M budget.

107
In paragraph 23, we recite that we've retained Dr. Bauer to provide expert evidence. In paragraph 24, we describe this concern about the transfer of efficiency gains, and we do so in reference to the actual expenses that the company recorded for 2002.

108
At page 11, I just wanted to read this. It might -- starting at line 2, we note as follows:

109
"EGD's actual O&M expenses for fiscal 2002 do not reflect efficiency gains transferred to affiliates in 2000, 2001, and 2002, some of which were partly capitalized upon the sale of Accenture Inc. of the services business of the related party."

110
"Related party" refers to CWLP. "Those efficiency gains flowed to EGD's parent Enbridge Inc. and not to EGD. As far as IGUA is concerned, EGD's O&M expenses for fiscal 2003 cannot be rebased until sufficient information has been provided to enable the Board to determine the extent to which efficiency gains were realized by EGD's parent through the outsourcing arrangements that were made with affiliates and their successors.


111
"IGUA notes that the returns on equity by EGD's parent in 2000 and 2001 after the outsourcing arrangements with affiliates were implemented were 18.6 percent in each year, up from 14.3 percent in 1999," and we give the reference to EGD's annual report to support that statement.

112
The approach that we were advocating is set out in paragraph 25 where we were suggesting that we would start with the actuals and then reduce the actuals by the amount of the efficiency gains, transfers to affiliates, and partially capitalized during the term of the PBR.

113
In the final analysis, the agreement was with a $270 million envelope excluding DSM, but with the amount of the efficiency gain reduction, if any, to be determined by the Board in this case and put in a deferral account with the amount to be recovered in a manner that the Board considers to be appropriate.

114
At the time the agreement was resolved, the intervenors - this is reflected in the -- in section 7 - were contemplating that the amount recorded in the deferral account would be cleared in 2004. But at that time, we did not know that the company would be applying to the Board for 2004 rate relief based on an escalation factor to be applied to the 2003 revenue requirement determined by the Board. That application was delivered, I think, last week, but you'll find it at tab 14 of the brief, the materials brief. And in paragraph 3, you'll see that the company is proposing that the 2004 revenue requirement be based on 90 percent of the forecasted change in Ontario's CPI.

115
So that's a new development that may have implications for a determination of when the efficiency gain amount, if there is any, should be cleared to ratepayers. I believe IGUA will probably take the position it should be deducted now rather than held in the deferral account for future disposition.

116
But the point is the determination of this amount is now, I submit, of increased importance because of the way the company has applied for 2004 rate relief.

117
Now, the issue of the reduction in the envelope or the benefits received by EI through the transfer to the two affiliates of these efficiency gains is unresolved and, by agreement, is to be resolved in this case. The determination of the issue, in my submission, falls squarely within the ambit of the Board's rate-making jurisdiction. The information that we seek, in my submission, is relevant to a determination of that issue and is therefore information that is relevant to an issue that falls squarely within your rate-making jurisdiction. So that's another reason why this information is required now, not later.

118
The information, in my submission, must be produced not only because it's relevant, but also because of the representations that were made, in my view, amounting to promises, in effect, that the information with respect to benefits realized by EI during the TPBR would be provided on rebasing. I would now just like to review the portions of the record that, in my submission, support the assertion that these representations were made.

119

The application for the TPBR was part of the EBRO-497 case, and the application was initially filed on January 8 of 1998. You'll find the EBRO-497-01 decision at tab 3 of the motion materials. And if you go to page 1, in paragraph 1.0.1 you'll see that the Board in its reasons cites that the company filed an application with the Board dated January 8, 1998 for relief on a number of matters and notes that the details of the application are contained in the Board's EBRO-497 decision issued August 8, 1998.

120
One of the aspects of the relief being sought was this TPBR proposal but it never got dealt with until the 497-01 proceeding, the hearing of which commenced in late January 1999. The significance of that is this: When the application was filed, the undertakings governing Enbridge, Enbridge's predecessor called for prior Board approval of affiliate transactions having a value in excess of $100,000, and you'll find a version of those undertakings at tab 1 of the motion materials.

121
If you go to page 4, you'll see the affiliate transaction component of the company's undertakings with the government which called for this prior Board approval of affiliate transactions. So when the application was filed, the company could not engage in affiliate transactions to try and export efficiency gains without prior Board approval.

122
However, in 1998, the government proposed its legislative changes for electricity utilities, and one of those changes was that the commercialization of electric utilities would call for the establishment of pure utilities. And in the context of those legislative proposals, Enbridge and Union were able to negotiate revisions to the undertakings with the government.

123
The revised undertakings, which are found at tab 2, were finalized in Enbridge's case in December of 1998, i.e. after the TPBR application had been filed but before it was heard. These undertakings removed the need for prior Board approval of affiliate transactions having a value in excess of $100,000 but imposed on the utilities this pure utility covenant which you'll find in section 2.0.

124
"Consumers shall not, except through an affiliate or affiliates, carry on any business activity other than the transmission, distribution, or storage of gas without the prior approval of the Board."

125
So I submit the expectation was that the company would separate its competitive business activities from its utilities functions, but I don't think anyone anticipated that the company would take this ability to proceed with affiliate transactions without prior Board approval to, in effect, subdivide the utility into a number of services businesses providing -- performing utility functions for the utility.

126
But in any event, that's the undertaking regime that prevailed when the 497-01 decision -- case was heard and decided. And during the course of the proceedings, questions were raised about this ability to export efficiency gains to affiliates under this new regime.

127
Parties were concerned about this, and if you go to IGUA question 58 in -- under tab 11, the company was asked:

128

"Please produce all excerpts from the testimony of EGD witnesses in EBRO-497-01 where they indicated that on rebasing ratepayers would realize the benefits of the savings which the company had achieved during the operation of the PBR regime."

129
And there are a number of transcript references that the company has provided in response to that question. But more importantly, all you need to do is look at the argument that the company filed, which is at the second page of the response, where at page 23 of the document in describing the PBR proposal, the company in its argument said in paragraph number 3:

130
"Additional productivity benefits to ratepayers if, when rebasing occurs at the end of the PBR period, the shareholder has received permanent savings in excess of the $4.7 million."

131
The previous page is not attached, unfortunately. But if you then go back to the Board's decision with reasons in this case at tab 3 of the material and at page 9, the Board in its reasons recited what the company had said in this case. It's paragraph 2.0.7:

132
"It was the company's view that its proposal would produce four distinct benefits."

133
And item 3: "Additional productivity benefits to ratepayers if, when rebasing occurs at the end of the planned period, the shareholder --" that's EI "-- has achieved permanent savings greater than $4.7 million."

134
So this issue of the benefits received through the transfer of efficiency gains or however was to be accounted for on rebasing, based on the company's proposal, in my submission.

135
What then followed was -- following the issuance of the decision, the intervenors were concerned with the base that was being used for the TPBR, because the base was based on the company's 1999 budget, which was for a bundled utility. And intervenors are of the view that it ought to have been trued up.

136
And what happened after the decision was rendered was a disclosure that the company's actual O&M expenses in 1999 were, in my recollection, some $7 million below the budget. And that prompted this application or this motion of June 14 -- it was decided on June 14, 1999, found at tab 4 of the materials brief.

137
And there the Board was not inclined to re-open the setting of the base, based on these developments that had been made in -- developments of the 7 million actual being less than budget.

138
One of the things that had to be accounted for before the TPBR went into effect was the removal of the rental program, and the debate on how much comes out with respect to the rental program occurred in the next case, RP-1999-0001, phase 1, and you'll find the Board's -- excerpts from the Board's decision in that case at tab 5.

139

There again, there was a concern raised by intervenors. How are we going to track the achievement of these benefits by the shareholder during the course of the TPBR? So it's not only where is the base to be set, but how are we going to track.

140
And on that issue of monitoring and reporting at -- starting at page 51 of the decision under tab 5 and particularly at page 53 in paragraph 5.2.5, the Board noted in the middle of the paragraph:

141
"At the time of rebasing, the parties will have an opportunity to request that the appropriate information be provided to allow a line-by-line comparison with the base budget."

142
So there again, the expectation was that at the end of the day we would get all of the information that was required to measure the extent to which the shareholders had benefited during the course of the TPBR.

143
Now, the ink was hardly dry on that decision when we then learned that the company had this massive outsourcing of staff to ECS to support the customer care services required by EGD, and that again prompted a motion, which is -- the results of which are found at tab 6.

144
The Board again was reluctant to disrupt the operation of the TPBR three months into its commencement, and so an Order was made in that case requiring the company to track rate-base implications of this massive outsourcing, but the O&M envelope was not reopened for review.

145
And all of that, then, brought us to the 2001-0032 decision, which is found at -- excerpts from it are found at tab 7 of the material.

146
And I find the summary of the events contained in the decision to be of assistance in understanding why intervenors suggest that the information that they seek is required for a fair hearing of the issue with respect to the transfer of efficiency gains.

147
I'd like to take you to that. Mr. Betts, I know, will be intimately familiar with it, since he wrote it, but it does help, I believe, others to fully grasp what has happened here.

148
And so starting at page 86 of the decision, we have, first of all, the description of Enbridge Commercial Services and its involvement in these restructuring arrangements.

149
Paragraph 5.1.3 describes the transfer of the rental program to Enbridge Commercial Services. 5.1.4 describes the outsourcing on January 1, 2000, of 1,100 FTEs to Enbridge Commercial Services. 5.1.5 describes the motion that that triggered that I've already mentioned, and 5.1.6 describes the Board's disposition of that motion.

150

5.1.7 then goes on to describe the Customer Works relationship, describes EI's ownership in it at 70 percent, with BC Gas owning 30 percent. And then 5.1.8 describes the repatriation issue that was disclosed in evidence in that case.

151
Starting at paragraph 5.1.9 we have the arrangements with Enbridge Operational Services described and the rationale for those arrangements. 5.1.1 we have the arrangements with Enbridge Inc. described, and my understanding now is this has now been assigned to Gas Services. So for Enbridge Inc. we can now substitute Gas Services.

152
5.1.4 describes the arrangement with Customer Works and then, lastly, we have the arrangement that were made with Accenture that were disclosed after the hearing of evidence in this case concluded.

153
I note that the Board's description, which I believe confirms with DN, conforms with the company's description of this arrangement, says that Customer Works entered into an agreement with an affiliate of Accenture to assume responsibility for the Customer Works customer services obligations to ECG. And it's that agreement that I mentioned earlier that I'm not clear on whether there was consideration flowing to Customer Works from Accenture by way of some sort of lump sum, i.e. a sale-type of transaction, or whether the deal is that Accenture or Customer Works Inc. provides the services for the utility for Customer Works LP at a price less than what Customer Works collects from EGD.

154
So one way or another, we're trying to find out what's at the bottom of that transaction in terms of its capitalization of efficiency gains. So that it's in the context of this history that we're trying to get the information that is listed in the notice of motion.

155
Now, as I mentioned previously, the information, in our submission, is relevant, in my submission, based on the way the TPBR was unfolded and the representations that were made. The onus, in my submission, ought to be on EGD to provide all of the evidence relevant to a consideration that the extent to which EI benefited from the arrangements during the term of the PBR. That was the promise made, that was the bargain made, that was the moral underpinning of the whole deal as far as IGUA and the moving parties are concerned.

156
There are indicators that the benefits are substantial. We have, first of all, the concerns with the base being too high at the outset and then we have these indicators of the increase in returns being earned by EI once these arrangements went into place.

157
The fact that the company relies on benchmarking evidence, in my submission, to attempt to justify the amounts that it pays on a go-forward basis does not preclude the consideration of all evidence pertaining to the savings or benefits issue with respect to what EI received during the term of the TPBR.

158
The benchmarking evidence, in our view, and based on Dr. Bauer's evidence, is of little or no weight in the determination of the additional productivity benefits that flow to ratepayers -- sorry that were achieved during the course of the TPBR and that are to flow to ratepayers on rebasing.

159

Turning, then, to the authority to grant the relief that's requested in paragraphs 2, 3 and 4 of the motion, I've already touched on your powers under Rules 29 and 5 with respect to the relief requested in paragraph 1.

160
The information sought, as I've indicated, relates squarely to an exercise of your rate-making jurisdiction, and in that connection I refer to sections 19, 1 and 6. Those sections are in the authorities brief and I'm sure they are well known to you. You do have power under section 21 to give directions incidental to the exercise of the powers conferred by the Act, and you actually mentioned that power in your review and variance, your decision on the motion for review and variance brought by Enbridge. That decision is found at tab 8 of the materials.

161
And at page 9, at a time when you'd not yet commenced the fiscal rates hearing you noted: "Section 21.1 of the OEBA gives the Board clear jurisdiction to, at any time, on its own motion and without a hearing, give directions to require the preparation of evidence incidental to the exercise of the powers conferred upon the Board by this or any other Act. The Board is of the view that it is not necessary to issue such directions at this time, and that it is sufficient for the Board to have clearly stated its expectations as set out in the decision."

162
Your expectations were, amongst other things, that the utility and its affiliates would cooperate with intervenors in providing all of the information required but those expectations have not materialized.

163
So the relief for directions that information be produced, in my submission, does fall within section 21.1 which gives you authority to give directions incidental to the exercise of the powers conferred upon you by the Act.

164
The other legislative provisions that have application are the provisions in Statutory Powers Procedure Act which Mr. Warren will refer to in more detail. These provisions are discussed in one of the cases that I've cited, the Dofasco case. Again, Mr. Warren will take you through this in more detail. It's found at tab 6 of the authorities brief.

165
In interpreting the scope of the Statutory Powers Procedure Act disclosure provision in that particular case, the Court of Appeal indicated that the disclosure power is broad and it also analogized to processes, disclosure processes that apply under the rules of civil procedure. As I say, Mr. Warren will expand upon this more fully in his submissions.

166
The authority that I would like to draw your attention to is your own rules, and you'll find the rules again at tab 2 of the authorities brief. And the rule that I'd like to draw your attention to is rule 2 on page 1 where you say, first of all on 2.01: "These rules shall be liberally construed in the public interest to secure the most just, expeditious and efficient determination on the merits of every proceeding before the Board."

167
And then more importantly, 2.02: "Where procedures are not provided for in these rules, the Board may do whatever is necessary and permitted by law to enable it to effectively and completely adjudicate on the matter before it."

168
In my submission, what is permitted by law with respect to production of documents is captured in the -- in other -- in many places, but in the rules of civil procedure. And I urge you to proceed by way of analogy in considering the scope of your powers by referring to the rules of civil procedure pertaining to the discovery of documents. And you'll find those at tab 3 of the authorities brief.

169
And what you have in the rules of procedure pertaining to the discovery of documents is you have rules applicable to parties, and you have rules applicable to non-parties. The rule pertaining to parties is rule 30.02, and the rule pertaining to non-parties is rule 30.10.

170
And the significance -- and I'd like to start with the rules pertaining to parties, because you'll see in the rule pertaining to parties, rule 32.02(1):

171
"Every document relating to a matter in issue must be disclosed."

172
And then every document relating to a matter in issue, sub (2): "Must be produced unless privilege is claimed."

173
There's no privilege being claimed for any of the information that we seek. There's an issue of confidentiality, but that's not privilege. That's another matter. We'll come to that in a minute.

174
But you'll see that the -- in the rules of court, the provisions with respect to disclosure by parties apply to affiliates, and if you look at 30.02(4):

175
"The Court may order a party to disclose all relevant documents in the possession, control, or power of the party's subsidiary or affiliate corporation or of a corporation controlled directly or indirectly by the party and produce for inspection all such documents that are not privileged."

176
And then if you go back to 30.01 on the previous page in the interpretation section, 30.01(2) says: "In rule 30.02(4), a corporation is a subsidiary of another corporation where it's controlled directly or indirectly by the other corporation."

177
And (b): "A corporation is affiliated with another corporation where one corporation is a subsidiary of the other, both corporations are subsidiaries of the same corporation, or both corporations are controlled directly or indirectly by the same person or persons."

178
And so I come back to the introduction in this case where all of these affiliates of -- as that term is defined in your ARC -- are controlled by EI. And as well, CWLP owns, directly or indirectly, 70 percent of EI.

179
So for the purposes of the rules of civil procedure, all of these companies are, in essence, a party.

180
And the practical impact of this is that where one corporation controls all these parties, the Court is, in effect, saying, We make an Order against one of them. It's, in effect, an Order that binds the parties that control that corporation.

181
So what we are seeking, I submit, in paragraphs 2, 3 and 4, is, in effect, an Order that should be governed by the production by parties' principals. And production by parties' principals, the test is relevance, and clearly, the information that we seek, in my submission, satisfies the relevance test.

182
The production against non-parties -- even if you were to find that the principle to be applied is the principles that apply to production from non-parties, you'll see that the test for that is expressed in rule 30.10(1).

183
First of all, it's relevance. The document is relevant to a material issue in the action, and secondly, there's a fairness criteria. It would be unfair to proceed to trial without having discovery of the documents.

184
And I submit that on fairness grounds, you cannot fairly proceed to determine the extent to which EI has benefited during the term of the PBR by confining your examination to simply benchmarking evidence. You need to have all of this other evidence to fairly determine this efficiency gains transfer issue.

185
So whether it's the parties' test or the non-parties' test, in my submission, we meet either test.

186
The Peters case, which you'll find at tab 4 of the brief, illustrates how the rule 30.02(4) works. In that particular case, what was being sought was some documents from General Motors U.S.

187
The party to the proceeding was General Motors Canada. The documents were not forthcoming from General Motors U.S., and an Order was made against General Motors Canada, which was regarded as sufficient to require General Motors Canada and all of its subsidiaries, affiliates as defined by the rule, to comply with the Order.

188
The Order that we seek is brought against all of them, so we don't, as a practical matter, run into any difficulty in getting the documents.

189
In terms of what Enbridge Gas Distribution has and doesn't have in its possession, you will recall some of the responses that they provided to our questions where we don't have these documents in our possession. I think events have overtaken those responses to a certain degree, because there is Mr. Cass's letter to you of the March 21st, 2003, where he is, in effect, acknowledging that they can produce dribs and drabs of some of this information.

190
So they obviously have something in their possession, and they can obviously get all of it if the parent complies.

191
The Order that we seek, as I say, is all-encompassing, so it really doesn't need to be confined to Enbridge only. But I do want to address this notion that Mr. Cass raises in his letter, and, I think, Mr. Howe raised in his intervention about confidentiality.

192
Whether the documents or portions of them are or are not confidential is an issue that the Board will obviously need to consider, but I submit it's -- the onus is on those claiming confidentiality to satisfy you that they are confidential.

193
Confidentiality does not preclude production. It merely alters the process for your consideration of the documents, and it can lead to an in camera process to enable the information to be scrutinized.

194
And when you're considering this alleged confidentiality issue, you should bear in mind, in my submission, the following:

195
First of all, what we are seeking is historic information, 2000, 2001, 2002. We are seeking information that, in my submission, was promised would be provided to us on rebasing. We are seeking information pertaining to the transfer and rationalization of what were utility resources. Most of these companies didn't have anything until they got all the people from the utility near a subdivision of utility assets which were transferred on to, in the case of CWLP, a group of people from EGD as well as a group of people from BC Gas, and then they all went off to Customer Works Inc.

196
In my submission -- and what took place may well be contrary to section 43.1 of your Act as you noted in the 0032 case. But on the confidentiality aspect of the matter, I submit that it's inappropriate to treat the scrutiny of information pertaining to the transfer and rationalization of what were utility resources as confidential. You should carry out that the determination of the benefits that EI received through these arrangements in public rather than in camera.

197
With respect to the CW Inc. arrangements, consider that if they dealt directly with the utility in terms of what they received for the services provided, that information would be public. If they had acquired the utility resources directly from the utility, the utility people, that information would be on the public record.

198
I submit, certainly, the affiliates of EGD and the related party CWLP cannot mask what has gone on by now claiming the information is public, and CW Inc. should not be able to mask what has happened through its dealing with an intermediary, CWLP, rather than dealing with the utility directly.

199
So I urge you to refrain from accepting the submission that the information that we seek in whole or in part should be classified as confidential. That would not be in the public interest, in my submission.

200

So in summary, I submit that the test that applies is the production by parties test, and we satisfied the relevance requirement. The information falls squarely within an issue -- an ambit of an issue that is before you for determination in this case. I submit that all of the relief requested in paragraphs 1, 2, 3 and 4 ought to be granted, even though there is some overlap.

201
In terms of the timing, I know that there's a -- my suggestion is that your Order provide that you grant the relief that we seek, that the information be made available within 10 days from the issuance of your Order and it would be, I suggest, inefficient and ineffective from a cost perspective to proceed with evidence from the outsourcing panel and from the efficiency gains panel before this motion has been dealt with and any information that is to be produced, provided.

202
And so with respect to the schedule, my suggestion is that the DSM topic can be moved up to follow the corporate cost allocation panels, and that would probably take us to the break that's anticipated, as I understand it, on April 16th. And then if anything's to be produced it hopefully can be produced before we resume on the 29th to deal with the outsourcing. And at that time, I suggest we ought to deal with the benchmarking and efficiency gains topic as well.

203
Unless there are any questions, those are the submissions on behalf of the moving parties that I've been able to muster since I got back from Calgary, and I'd like to turn it over to Mr. Warren and Mr. Janigan to make their supplementary submissions.

204
MR. BETTS: Thank you, Mr. Thompson.

205
[The Board confers]

206
MR. BETTS: Thank you, Mr. Thompson. No, the panel has no questions at this time of you on that presentation. And I turn to Mr. Warren and say, do you feel it appropriate to continue or is this an appropriate time to take a break?

207
MR. WARREN: Mr. Chairman, let me, if I can, be both colloquial and personal. This is an appropriate time for what is known euphemistically as a health break, and in those circumstances, I would underscore the importance of taking the break.

208
MR. BETTS: The Board is very supportive of that position as well. So we will take -- let's allow a 20-minute break which, by that clock, will bring us back at 11:30. So we will adjourn now until 11:30.

209
--- Recess taken at 11:10 a.m.
210
--- Upon resuming at 11:35 a.m.
211
MR. BETTS: Thank you, everybody. Please be seated.

212
Just before we begin are there any preliminary matters to be considered?


213
And something the panel would appreciate is an effort for those of you who wish to make submissions today to get together and try and determine what schedule we might work to in order to accomplish all submissions on this motion today. That is the Board's objective, to finish submissions on this motion today. So when a break occurs, probably at the lunch hour, we'd ask you to try and give us a bit of a schedule on that.

214
Mr. Warren, please proceed.

215
SUBMISSIONS BY MR. WARREN:

216
MR. WARREN: Thank you, Mr. Chairman.

217
As Mr. Thompson indicated I will deal with a number of policy and legal issues that arise out of our motion. I will do my best not to repeat anything that Mr. Thompson has said. Let me begin by formally adopting his submissions.

218
The request for production which is in the motion has three origin points, broadly speaking. The first is the TPBR regime which is now coming to an end and the necessary rebasing which must follow it. The second is the Board's own decision in the 0032 case, both on the issues of outsourcing and on the issue of disclosure. The third driver, if you wish, for the motion is the Board's exercise of its jurisdiction to make rates pursuant to section 36 of its Act and, as Mr. Thompson has pointed out, even absent the other two origin points, the production of the materials would be necessary to the exercise of that jurisdiction in this case as it bears on the amount of the O&M which is being sought by the applicant in the case.

219
Before I turn to those three drivers, if you wish, I want to deal briefly with a question of jurisdiction to order production, and I want to deal, in particular, with the Statutory Powers Procedure Act. Now, I discovered at the break that between Mr. Thompson and me we didn't include it, and I will, at the lunch break, ensure that copies are made available to the Board. But there are two of the SPPA which are relevant.

220
The first section, Mr. Chairman, is section 5.4 which provides as follows: "If the tribunal's rules made under section 25.1 deal with disclosure, the tribunal may at any stage of the proceeding, before all hearings are complete, make orders for: A) the exchange of documents; B) the oral and written examination of a party; C) the exchange of witness statements and reports of expert witnesses; D) the provision of particulars; E) any other form of disclosure."

221
The second section which is relevant to the exercise of your discretion in this case, is section 12 which authorizes the issuance of a summons. But as Mr. Thompson has pointed out, that part of our request for relief we're asking be adjourned sine die pending the resolution of the other issues on the motion.

222

The third section that I would like to bring to your attention in the Statutory Powers Procedure Act is section 2 which reads as follows: "This Act and any rule made by a tribunal under section 25.1 shall be liberally construed to secure the just, most expeditious and cost effective determination of every proceeding on its merits."

223
Now as the Board is aware, it has made rules which provide for disclosure. And one of the principle forms that the disclosure requirements take is the exchange of interrogatories which are a specific mechanism that are provided for, but there are other provisions in the Act to which Mr. Thompson has -- sorry in your rules, to which Mr. Thompson has referred which provide for disclosure as well.

224
Now, the case which Mr. Thompson referred to and which is in his book of authorities and to which I will refer is a decision of the Ontario Court of Appeal in the Dofasco case, and it is found at tab 6 of Mr. Thompson's book of authorities.

225
MR. BETTS: Mr. Warren, I think I should have done this earlier but I think I will ask that we establish an exhibit number for these items. I think it will make reference a little bit easier for yourself and those that follow.

226
So Mr. Moran, could you help me with that?

227
MR. MORAN: Certainly, Mr. Chair.

228
The book of motion materials would be Exhibit K.11.1.

229
EXHIBIT NO. K.11.1: BOOK OF MOTION MATERIALS

230
MR. MORAN: And the authorities brief, also filed by the moving parties, would become Exhibit K.11.2.

231
EXHIBIT NO. K.11.2: AUTHORITIES BRIEF, FILED BY MOVING PARTIES

232
MR. WARREN: I'd ask you to turn then, Mr. Chairman and Mr. Dominy, to Exhibit K.11.2, tab 6. This is a decision of the Ontario Court of Appeal in -- released in November 2001. Mr. Justice Morden is speaking for the Court in this case. Now the issues in the case, what had happened was this was a case that was taking place before the Ontario Human Rights Commission, and the Commission ordered an issue for the production of the materials and the materials that were ordered produced included medical records that were in the possession of the complainant doctor, and it went to the divisional court and then on to the Court of Appeal. And the reason -- the case is important for, in my respectful submission, three reasons.

233

Number one, it's important because it deals with the ambit of the powers which are granted by section 5 of the SPPA; and secondly, it deals with the relationship between the SPPA provisions and the rules of civil procedure to which Mr. Thompson referred. And thirdly, it is important because it deals with the policy, if you wish, which underlies the disclosure and production provisions in the SPPA.

234
Now, as I said, the issue went to the divisional court and then it came to the Court of Appeal. And you will note on page 10 of the reported decision that Mr. Justice Morden sets out the two sections of the Statutory Powers Procedure Act to which I have referred, namely sections 2 and 5.4.

235
Then if you turn to page 11, towards the bottom of the page, just at paragraph number 20, the court sets out succinctly what the issue is:

236
"The basic issues raised by the Commission are that: The divisional court erred in applying the review standard of reasonableness rather than correctness --" it was not an issue before you "-- and that the Board committed jurisdictional error in ordering extensive disclosure and productions of records that: (a), were in the hands of non-parties to the proceeding and, (b), were privileged. The Commission also argued that the Board erred in ordering the disclosure of documents that were not arguably relevant to the proceeding and documents other than those on which the disclosing party intended to rely."

237
Now, if you would, then, turn to page 14 of the decision, what Mr. Justice Morden does is he reviews the history, if you wish, of the particular provisions of the SPPA and what they were intended to accomplish.

238
He observes -- sorry. Taking you back to page 13, he makes the observations that in the absence of the SPPA, paragraph 38:

239
"As far as history is concerned, it was the generally held view that administrative tribunals did not have an inherent power to order pre-hearing disclosure of documents."

240
It then goes on in paragraph 39 to talk about the history of the sections for disclosure, section 5.4, and he continues that discussion in paragraphs 40 and 41.

241
He then in paragraph 42 makes the following observations: "I shall now consider some of the terms of the disclosure scheme. The first observation relates to the meaning of the word 'disclosure' in section 5.4 of the Statutory Powers Procedure Act and in the Board's rules."

242
I should pause to say that in the case that was being considered in the Dofasco case, it is in -- on all fours, to use that hoary cliche, with your circumstance in that there is the SPPA, and then there were Board rules providing for disclosure, which is what the SPPA contemplates.

243

Continuing, then, with paragraph 42: "As the context of section 5.4 of the rules make clear, the word clearly extends to the obligation of a party to furnish to the other party documents in its possession for the other party's inspection. I mention this because in the rules of civil procedure, as amended, 'disclosure' means something less: the disclosure in a party's affidavit of documents of the existence of documents and does not extend to making the documents available to the other side for inspection. This latter step is called 'production.' Disclosure and production in the rules of civil procedure together comprise the total process of documentary discovery."

244
And then he refers to rules 30.01 and 30.05, which Mr. Thompson referred you to below. Then going on to paragraph 44:

245
"My second observation relates to the first. It can be seen at a glance that the disclosure provisions relating to the Board are substantially fewer and much less detailed than those provided in the rules of civil procedure. It appears to me that what is expected with respect to the Board's power is that in many proceedings before the Board, the powers would not have to be exercised, because parties would voluntarily exchange all relevant documents. In other proceedings, the Board might be required to make any one or more of a wide range of particular orders, provided that they are directed towards the ultimate proper production of documents to the party seeking production."

246
Then going down to paragraph 48 on page 15: "Section 5.41 of the Statutory Powers Procedure Act, which confers power on the Board to make orders for the, (a), exchange of documents, should be read as meaning the exchange of documents to carry out the basic purposes of pre-hearing disclosure, and so should not be read as confined to documents on which a party intends to rely."

247
If I can paraphrase, what Mr. Justice Morden is saying there is that what's being offered by the other side isn't the limit of disclosure. We are entitled to seek disclosure of other documents, including documents that they don't intend to rely on.

248
Then going on to address the question, just before paragraph 50, of whether the Board erred in ordering non-parties to disclose documents, he observes:

249
"The Commission submits that the Board has no power to order disclosure from the complainant's doctors because they are not parties to the proceeding. It is not necessary to determine whether the disclosure provisions of the Board's rules and section 5.4 of the Statutory Powers Procedure Act confer power to order disclosure by non-parties, because I think that the Order in question is confined to imposing disclosure obligations on a party complainant and not on her doctors, who were not parties."

250
Having made that observation, though, he goes on, the top of page 16 in paragraph 51, to make the following observation:

251

"It is generally agreed that if documents under the control of non-parties are important to the fair and accurate resolution of issues, it is preferable that they be produced before the hearing to avoid almost inevitable adjournments if they are produced for the first time at the hearing and to enable each side to prepare its case more effectively. In this regard, section 2 of the Statutory Powers Procedure Act, which provides that the Act and rules made under it shall be liberally construed to secure the just, most expeditious, and cost-effective determination of every proceeding on its merits, may be of assistance in interpreting section 5.41(e) in a way which would support pre-hearing disclosure from third parties. This point was not argued, and I express no final opinion on it."

252
Now, that is what can fairly be characterized as obiter. He didn't have to make a decision on that point. However, underlying that observation, in my respectful submission, is a policy statement on behalf -- by Mr. Justice Morden that pre-hearing disclosure of documents from non-parties is encompassed within the spirit of section 5.4 and section 2 of the SPPA, and is conducive to the effective resolution of the issues and is, therefore, in my respectful submission, an important observation.

253
Now, as I observed, the case is important for that policy observation and, obviously, for what the Court ultimately ordered. But it's also important for this linkage, if you wish, to the rules of civil procedure and to the provisions in those rules, which provide for raw disclosure even from non-parties.

254
I finally make the observation and refer you to paragraph 62 on page 17 of the decision:

255
"What is required to be produced by paragraph 2 may, of course, include information and material which is not privileged and is relevant to Dofasco's defence. If this be the case, the Board has sufficient powers under section 5.4 of the SPPA --" that's my short form; I apologize " -- in its own rules to make an Order which would require the information to be produced after the complainants claims respecting privilege and non-relevance have been resolved."

256
In other words, there's a process. The powers are sufficiently broad that you can receive the information and then make a determination of relevance if that is necessary.

257
In our respectful submission, the combination of your own rules with sections 5.4 and section 2 of the SPPA are sufficiently broad to allow you to order the information which you have asked for in this case, and I commend to you the reasoning, even including the policy-level reasoning, of Mr. Justice Morden in that case.

258
Let me then turn to what I have described as the three drivers, if you wish, for our application, the first of which, as I noted, is the production -- that the production of the materials is necessary to give effect to the undertaking that formed the basic, compact, underlying performance based regulation.

259
Now, my friend Mr. Thompson in his submissions referred to you in that context to the 497-01 decision and to two components of that decision, that is, the argument that was made by then ECG and the Board's adoption of that argument. But in order to give that, if you wish, some -- to put some flesh on those bones, some blood in the veins of that, I'd ask you to turn up in Exhibit K.11.1, at tab 11 and that's -- includes all of the IGUA undertakings in that case.

260

I'd refer you, I'm sorry, Mr. Chairman, we didn't paginate these materials, but it's IGUA interrogatory 58, and it's about three quarters of the way through. Attached to 58 there are portions of the transcript in the 497-01 case. So you have to find the transcript and it's page 378 of the transcript which -- to which I'm going to refer.

261
Now, this is a cross-examination and I -- the panel included a number of witnesses from then ECG including that renowned heavy hitter, Mr. Grant. And the exchange that took place, the observation that took place on page 378 in answer to a question is, in our respectful submission, an important one.

262
Beginning at line 6: "I think that what the utility is going to be trying to do in terms of driving out efficiencies, it's quite legitimate for the utility to attempt to outsource some of its activities if, in doing so, there's a benefit to the utility to do that. That's quite legitimate."

263
" And in my view, outsourcing does not need to exclude affiliates; it can include affiliates. The utility within the PBR period should be free to outsource whatever it sees as reasonable and at the prices it sees as reasonable to affiliates and non-affiliates alike with the express purpose of trying to drive out whatever productivity it can in that period."

264
So that statement sets out, in effect, Enbridge's statement that it's legitimate to go, outsource to both affiliates and non-affiliates. But the kicker, then, is in the following observations.

265
"Now when it comes to rebasing at the end of the three-year period, it's incumbent upon the utility to demonstrate to the Board that that outsourcing --" and the "that outsourcing" refers to both, to affiliates and non-affiliates "-- be it with an affiliate or non-affiliate, results in just and reasonable rates and is consistent with the Board's previously decisions on pricing." And so that is something that we would have to be able to address and we would have to discharge that burden of proof at the point of rebasing.

266
So that's Enbridge's own witnesses making what I think my friend Mr. Thompson fairly observed as, in effect, a moral commitment, demonstrating that the efficiencies -- where the efficiency had been found in the period.

267
The ratepayers, in our respectful submission, were to be provided with the benefits, or some portion of the benefits, from PBR, and with sufficient information to allow them to know if they were getting those benefits. If the information and material which we are seeking in this case is not provided, then the ratepayers cannot make that basic determination which they were promised by ECG.

268
So, in our respectful submission, the spirit and intent of the PBR was to ensure the distribution of benefits to consumers, and if that cannot be assured, and, indeed, if it cannot even be tracked, then the whole underpinning of the PBR regime disappears.

269
Now, in our respectful submission, it is in the interest of EGD and its parents to demonstrate that PBR works; that there is a balance of benefits that warrant continuing it into the future, perhaps in an expanded form. But if what EGD, with the -- I describe as connivance of its parent and its affiliates is to make the PBR performance opaque, then the Board cannot conclude that PBR has -- the Board can only conclude that PBR has been a failure and should be ended.

270
If Enbridge and its parent want PBR to continue it is in their interest, in our respectful submission, to make it as transparent as possible.

271
The Board can, in our respectful submission, and should take notice of regulatory developments in other jurisdictions, and included in those is the fact that outsourcing is a principal feature of many PBR regimes. I don't mean to refer you specifically -- you don't need to turn it up, but in Dr. Bauer's evidence he points out that wrestling with the implications of outsourcing is one of the fundamental issues in considering any PBR regime.

272
So, going from that to the broader policy implication, if the Board is going to have PBR as part of the regulatory structure in Ontario then, in our respectful submission, it must resolve now how it is going to deal with the outsourcing issues and in particular what information it will require.

273
To put it simply, Mr. Chairman, if PBR is to go on to be a central feature of the regulatory landscape in this Province, then the Board must, in this case, we submit, deal with the issue of the appropriateness of outsourcing and the information necessary to support it.

274
Let me turn then to the second driver of our application which was to give effect to the Board's decision in the 0032 case. And in that context, I would ask the Board to turn up Exhibit K.11.1, which is my friend's book of authorities at tab 7.

275
Now, I don't intend to go over this decision in any detail because my friend has dealt with it, but I want to underscore only two points. The first is that the Board in that decision raised fundamental concerns about the conduct of EGD about the need for disclosure and about, we submit, with respect, the integrity of the regulatory process.

276
I'd like to refer you to two sections in particular. At page 162 of the reported decision, in section -- sorry 161, Exhibit 5.11.25. The Board observes, and I quote:

277
"However, as the Board has previously noted, due to the extent and nature of the services being outsourced, the Board has a number of concerns with respect to ECG's outsourcing arrangements. The Board expects ECG --" and I'm going to underscore the following words "-- and all of its affiliates to cooperate fully with the Board and intervenors in providing all necessary information to enable the Board to continue proper regulatory oversight of the utility."

278
Now that is, in our respectful submission, a clear and unequivocal direction to Enbridge and its affiliates to cooperate by providing the necessary information.

279
The second set of observations that I'd like to bring to the Board's attention in this context are with respect to the issue of disclosure. And if you would turn up page 196 of the reported decision. First, paragraph 6.2.20:

280
"It is crucial for the integrity of the regulatory process that the Board is able to rely on the utility to be honest, forthcoming and complete in its evidence before the Board. The utility has an affirmative obligation not to make false or misleading representations to the Board. The Board notes that, in determining whether the impression is false or misleading, the Board must take into account the general impression conveyed by the representation, as well as its literal meaning. In other words, the evidence of the utility may be literally accurate, yet leave the Board with a general impression that is false."

281
"The Board has always relied on the good faith of the utilities in making timely, complete and accurate disclosure of all information relevant to the operation of the utility, whether or not the specific information has a direct impact on the Board's rate-making function. If this is no longer the case, the Board will have no alternative but to consider other regulatory tools available to it such as: including conditions regarding disclosure and orders, requiring the preparation of evidence pursuant to subsection 21.1 of the Act, and making rules pursuant to paragraph 41(1)(f) or (g) of the Act."

282
Now, the importance of these, in our respectful submission, is this: Is that the Board in the 0032 case made statements that really go to the heart, in our respectful submission, of the integrity of the regulatory process, both with respect to outsourcing and the disclosure of information. Enbridge has, for reasons which it will explain, no doubt, at some length later today decided it's not going to make that information available to the Board.

283
In our respectful submission, there is an outstanding direction from the Board to provide the information to be cooperative specifically in the context of outsourcing and, in order to resolve the issue and to be consistent with the Board's decision, the relief which we've sought in this application should be granted.

284
Now the third driver for our request for relief is, if you wish a mundane or quotidian one, namely that the information is relevant to the setting of just and reasonable rates under section 36.

285
Now, what you will no doubt hear with great eloquence this afternoon is that what we are embarked on in this application is without precedent; it's a fishing expedition of unparalleled breadth. This, what we're asking for, is something new and fresh in the regulatory environment. And I simply want to point out, Mr. Chairman, that as I've said, it is a central feature of PBR regimes that regulatory agencies have to deal with the outsourcing problem.

286
I want to refer the Board to two decisions in the United States. I've put them on the dais to the right of Mr. Dominy and I've distributed them to some of my friends, and then I have friends representing parties here and I have some additional copies here. They are a decision of the Federal Energy Regulatory Commission and a decision of the Michigan Court of Appeals.

287
The first decision I want to refer to and I don't -- Mr. Chairman since they're not in the book of authorities, could they be given a separate exhibit number.

288

MR. BETTS: Let's please do that.

289
MR. MORAN: Mr. Chair, Exhibit K.11.3, a FERC initial decision dated October 22nd, 1997 re Williams Natural Gas Company.

290
MR. BETTS: Thank you.

291
EXHIBIT NO. K.11.3: FERC INITIAL DECISION DATED OCTOBER 22ND, 1997 RE WILLIAMS NATURAL GAS COMPANY

292
MR. MORAN: And Exhibit K.11.4, decision of the Court of Appeals of Michigan dated April 22, 1992 re Midland Cogeneration Venture Limited Partnership.

293
EXHIBIT NO. K.11.4: DECISION OF THE COURT OF APPEALS OF MICHIGAN DATED APRIL 22, 1992 RE MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP

294
MR. WARREN: Now, dealing first then, briefly, Mr. Chairman, with the FERC decision in the -- I'll refer to it by its short form, the WNG case. The issue in that case is stated by the Commission in the top of page 152:

295
"The major issue in this proceeding involves the allocation of costs between WNG and its affiliated companies, primarily TWC, its parent company. WNG's proposed cost of service (COS) contains Administrative and General ("A&G") expenses from three sources: (1) WNG's own A&G expenses; (2) TWC's A&G expenses that are either directly assignable to WNG or generally allocated through the application of the "Distrigas" formula; and (3) an allocated formula of the A&G expenses of WINGS."

296
Now, I pause here to say, Mr. Chairman, that this is a FERC decision that is dealing with the very issue which is at the heart of this motion, which is seeking disclosure of information relevant to this question of how you allocate costs and how you determine among affiliates in a utility.

297
Now, as the decision made clear, FERC's own rules made it difficult to get information from affiliates in a straightforward way. There had to be an elaborate discovery process based on summonses and so on and so forth. And if you look at page 151 of the decision in the top two paragraphs there, you'll see the amount of time and effort that had to be spent by one of the parties in getting the requisite information, a total of some 1,440 man hours -- it should be person hours -- in getting the requisite information.

298
Now, the effect of the failure to disclose is, in our respectful submission, the -- an important issue. Looking at the fourth full paragraph on page 152:

299

"Because WNG is a regulated company which passes on its costs to its ratepayers, and many of its affiliates are unregulated, the transactions between them, including the allocation of costs, must be scrutinized carefully to insure that ratepayers end up paying only WNG's legitimate costs and not those of its affiliates. Moreover, because the propriety of the costs can only be determined on the basis of books and records maintained by WNG and its affiliates, the onus is on WNG to produce the documentation necessary to support its allocations, if reasonable efforts have been made by --" this is the intervenor "-- the MoPSC to seek the documents regardless of which party has the burden of proof on any particular issue."

300
FERC then turns in the next paragraph to what conclusion should be reached on the basis of the failure of the utility and its affiliates to provide the information. To the extent -- sorry:

301
"In the discovery phase --" I'm reading from the next paragraph "-- of this proceeding, the MoPSC has not only made reasonable efforts to discover all relevant documents, it has made extraordinary efforts, using extensive party process against WNG, and extensive non-party process against TWC. To the extent, therefore, that documentation for the allegations made by WNG has not been produced either in discovery, when sought by the MoPSC, or for hearing, in support of WNG's case, it is reasonable to conclude that such documentation does not exist and that the allocations are not supportable. To conclude otherwise, that mere testimony on challenged issues, uncorroborated by documents actively sought by an adversary and not produced, is sufficient to establish the propriety of a challenged allocation, would give a regulated company, such as WNG, unfettered power to overcharge its ratepayers by improperly assuming its unregulated affiliates' costs. Accordingly, any claim that the requisite documentation is in the hands of TWC, and therefore cannot be produced by WNG... is merely a matter to be resolved by WNG and TWC, which would jointly benefit from the overallocation of costs to WNG, and does not relieve WNG of its responsibility for producing the documentation necessary to determine whether its claim is just and reasonable. Although the Commission's discovery ruling... precluded the MoPSC from compelling WNG to produce documents owned and held by TWC, it did not determine that WNG could make its case without them."

302
The reason I cite that case is for two reasons: Number one, these are issues which are being dealt with on a regular basis in regulatory tribunals.

303
The second proposition is that if ECG won't produce the documents, then in our respectful submission, it cannot make its final claim that what it is seeking is just and reasonable rates and, to analogize, that the allocation of benefits under PBR are reasonable and just. The risk is theirs, and the onus is on them.

304
And the second case to which I wish to refer briefly is the Michigan Court of Appeals case in the Midland Cogeneration Venture Limited Partnership.

305
Now, the issue in that case, Mr. Chairman, was that the Public Service Commission had attached conditions to an Order requiring the production of financial records of a parent and affiliate, and the jurisdiction of the Commission to do so was challenged.

306

The Michigan Court of Appeals, beginning at page 8 of the decision, had to make a determination whether or not the statutory authority which was granted to the Public Service Commission under the governing statutes was sufficiently broad to allow it to get information from affiliates.

307
And beginning on this right-hand column on page 8 of the decision right at the bottom, it cited the relevant provision. The relevant portions of the provision read as follows:

308
"In addition to the reports now required to be made by any public utility under the laws of the state relating to the Michigan railroad commission, it shall be competent for the public utilities commission to require the making of such additional ... and further reports and the supplying of such data as is reasonably necessary for the proper performance of the powers and duties hereby contemplated."

309
Now that, if you go then down to page 9 in the second full paragraph, the beginning of the second sentence:

310
"We find that the statutory language quoted above authorizes the PSC to require a regulated utility to provide information regarding the utility's parent corporation and nonregulated affiliates where such information is reasonably ... necessary for the proper performance of the PSC's duties. There are many instances where information about nonregulated parent and affiliate corporations conceivably ... could be reasonably necessary for the PSC's proper performance of its duties."

311
Now, the relevance of the decision, I guess, is -- I know, in our respectful submission, is two-fold.

312
Number one, again, utilities in the United States, as they are in Canada, are wrestling with the issue of what information should be provided in order for the tribunal to carry out its function, its basic rate-making function.

313
The second reason it's relevant is that the grant of authority, which is cited on page 8, is not only roughly analogous, is essentially the same as the grant of authority which this tribunal has in making rates.

314
Because as the Board ruled, both in the 0032 case and then in its subsequent decision on a motion for review sought by Enbridge, there is sufficient power in the Board's rules -- sorry, in the Board's Act, specifically sections 23, 36, and 21, to allow the Board to order the production of this information.

315
I want to conclude, Mr. Chairman, with two observations: In our respectful submission, the Board should not underestimate the importance of the issues raised in the motion. The issue before you is nothing less than the ability of the Board to carry out its functions in the public interest, to adopt the changing circumstances, and to ensure that its orders and directions are complied with.

316

And with apologies, I will end my observations with what I would describe as an irresistible point of irony. You will know from the evidence in this case that Enbridge and its family have at various times referred to themselves with the mantra, the public relations pitch "One Company, One Vision." And when you look at the room today, you will hear that in the context of the request for disclosure, that mantra has been changed to "One Company, One Vision, and Many Lawyers."

317
Thank you, Mr. Chairman.

318
MR. BETTS: Thank you, Mr. Warren.

319
[The Board confers]

320
MR. DOMINY: Mr. Warren, I had just one question of clarification.

321
You focused on the importance of this issue in the context of PBR or PBR regimes, and I was wondering, is it any different, the importance of issue, in the cost of service regimes? Because in the cost of service regime, you'd base the same question of information with regard to the cost of services provided by an outsourced affiliate.

322
MR. WARREN: I'm sorry if I didn't make that clear. When I was referring to the section 36 rate application, I could have done so under the rubric of cost of service applications. It is important to the cost of service and PBR, it's important generally to the exercise of the Board's jurisdiction. So you are quite right about that, Mr. Chairman.

323
Mr. Dominy, the issue is one of broad importance. The reason I focused on PBR is because the utility is emerging from a PBR regime with trailing a little tin cans with all of these promises that it made to the Board and on which the Board acted. In addition to which, it is important because there are other PBR regimes in the Province, as you are well aware, and because PBR is such central feature of the regulatory landscape, that's why I focussed on it. But these issues are equally important to the cost of service regime and to the exercise of the Board's ordinary rate-making function.

324
MR. DOMINY: Thank you, Mr. Warren.

325
MR. BETTS: Thank you, that's all the Board's questions.

326
Mr. Janigan, did you have anything to add as the third party to this motion?

327
SUBMISSIONS BY MR. JANIGAN:

328

MR. JANIGAN: Thank you, Mr. Chairman, I will not be lengthy in my remarks. I first would like to repeat and adopt the statements of -- and submissions of the previous counsel for both IGUA and CAC, and would like to confine my submissions to an additional case which I would like to bring to the attention of the Board that may be helpful in the making of the decision in this matter of the motion.

329
I believe that I have provided Board Staff with copies of that case for the panel. It's entitled, "AGT Ltd. versus Canada (Canadian Radio-television and Telecommunications Commission). It is a decision of the Federal Court of Appeal, and it's referenced here as, [1994] F.C.J No. 1959. It also can be found at 178 National Reporter, 378.

330
MR. BETTS: For consistency let's establish an exhibit number.

331
MR. MORAN: It will be Exhibit K.11.5 a decision of the Federal Court of Appeal entitled, "AGT Ltd. Versus Canada Radio-television and Telecommunications Commission."

332
EXHIBIT NO. K.11.5: DECISION OF THE FEDERAL COURT OF APPEAL ENTITLED, "AGT LTD. V. CANADA (CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

333
MR. BETTS: Thank you. Please continue, Mr. Janigan.

334
MR. JANIGAN: Briefly by way of background, in 1990, the Government of Alberta privatized the Alberta telephone company, and the telephone plant was acquired by Telus while the telephone directory operations, the directory database et cetera was acquired by AGT Directory. Now, in 1992, AGT or Telus for the first time faced its first rates proceed as a telephone company regulated by the CRTC.

335
Now, if we look at page 2 of this decision in paragraph 5 it says: "In the course of a proceeding convened by the CRTC to fix the appellant's rates for 1992, the CRTC requested the appellant to provide financial information concerning AGT Directory and Licence Co. The appellant questioned the CRTC's jurisdiction to require the production of such information regarding non-regulated companies and to take that information into account in setting the appellant's rates."

336
And the federal Court of Appeal noted in the next paragraph the core of the CRTC's findings -- and first of all noted that the AGT had protested that in fact the facts are different from the ordinary circumstance where a regulated company hides off different elements its operations to try to avoid including those profits in the regulatory requirement. In this case, AGT had never been the subject to regulation and chose this business form coming into regulation.

337
The Commission didn't accept that and indicated in, three quarters of the way down the page: "In examining the question of whether or not corporate activities or undertakings are integral to the operation of [the telephone company] for regulatory purposes, the Commission is less concerned with the corporate forms of organizations that are selected for carrying on those activities than it is with what it considers to be their essential nature."


338
Further on down the page: "The Commission notes that it has a duty to ensure that AGT Limited's rates are just and reasonable, and that in doing so it must balance the interests of the company's shareholders and of its subscribers. On the basis of the record before it, the Commission considers that absent the power to treat certain income of AGT Limited affiliates as income of AGT Limited for revenue requirement purposes, it could not ensure the telephone rates are just and reasonable."

339
Now, the Federal Court of Appeal considered the Commission's decision and noted first on page 4, three quarters of the way down the page under the topic, "The Discussion: It is common ground that the integrality power has not been conferred explicitly on the CRTC."

340
So we are not dealing with a situation where the CRTC was operating in this circumstance under a specific statutory power. This was a power to set just and reasonable rates, similar to the one that's being exercised by the Board in this current proceeding.

341
The Court noted down at the bottom of the page: "Indeed, this Court has on many occasions expressed the view that given the practical necessity of a specific power such power could exist by necessary implication."

342
And you will note on the next page that it was exercising the power under section 340 of the old Railway Act which governed the setting of just and reasonable rates for telephony prior to the passage of the Telecommunications Act.

343
Further, on page 6 of the decision, the Court noted in paragraph 13, halfway through it: "Where directly related assets and activities, historically owned and carried on by the regulated company's predecessor as an essential and integral part of its telephone operation, are artificially segregated in affiliated companies, there is a practical necessity for the CRTC to possess the power to cross corporate boundaries and deem the net income of these affiliated companies, inasmuch as it related to these services and operations which are integral to the telephone business of the regulated company, as revenue of that regulated company for regulatory purposes."

344
Further, in paragraph 14: "In the case at bar, there is an unassailable finding of fact by the CRTC that the services of the affiliates were integral to the telephone business of the appellant. There is ample evidence of the practical necessity of the integrality power if the CRTC is to be in a position to come up with rates which are just and reasonable. In these circumstances, I have no hesitation in concluding that the integrality power is necessarily implied from th nature and purpose of the regulatory authority that has been conferred on the CRTC."

345

Now, it's been noted and discussed in this decision the fact that between the date of the initial decision by the Commission and the date of this decisions on appeal, the Telecommunications Act was amended to include this integrality power under section 33. And it's quoted here on page 6, that: "Where a Canadian carrier provides a basic telecommunications services and, in the opinion of the Commission, (a) an activity of an affiliate of the carrier is integral to the provision of the service by the carrier, and (b) the Commission's other powers under this Act are not sufficient for the purpose of ensuring that the rates charged by the carrier for telecommunications services are just and reasonable, the Commission may, for that purpose, treat some or all of the earnings of the affiliate from the activities as if they were earnings of the carrier."

346
Now it's important to note that this decision did not take place under the provisions of that Act. It took place under the provisions of the Railway Act and implied a power to consider the operations of the telephone company that were being carried on by an affiliate as integral.

347
And you will note that the Federal Court of Appeal rejected the contentions of the company that, in fact, the addition of this amendment proved that no such power had existed heretofore. And on paragraph 17 it notes that: "... the fact that this power is provided explicitly in other statutes cannot modify this conclusion based as it is on the interpretation of these two statutes as a whole."

348
On paragraph 19, the court concluded: "... it is, in my view, that Parliament intended to preserve the very power the CRTC had a few months earlier found to exist by necessary implication."

349
In my submission, Mr. Chairman, this case is on point with the current facts of this decision. What we are dealing with here is the matter of the disclosure of the operations and the outsourcing components and the details concerning the way in which integral components of the operations of Enbridge Gas Distribution are being carried out. In my respectful view, the -- this panel can take a similar view to what the CRTC took in the AGT case that in light of the integrality of these particular components, it is necessary to obtain the necessary disclosure and the remedies set forth in our motion in order to exercise the Board's powers to set just and reasonable rates.

350
Those are my submissions.

351
MR. BETTS: Thank you, Mr. Janigan.

352
The Board has no questions of you. I would like to continue for a little while anyway with submissions from parties in support of the motion. We'll see how far that takes us and then we'll break for a somewhat later lunch.

353
Can I have an indication, first of all, from parties who wish to make a submission in support of this motion. Mr. Brett, Mr. Shepherd.

354
Mr. Brett and Mr. Shepherd, is that all I saw? Any preference on who goes first?

355
MR. SHEPHERD: I'm happy to proceed, Mr. Chairman.

356

SUBMISSIONS BY MR. SHEPHERD:

357
MR. SHEPHERD: Thankfully, the issues of jurisdiction have been very thoroughly canvassed by my friends and that will make my submissions shorter.

358
Mr. Chairman, I have three are issues to address: The first is what are the three ways you can split efficiency gains; the second, the question of jurisdiction, which as I said will be short; and third, the practical result of an order on your part to produce these documents.

359
If you want, you can treat these as three questions. Do you need this information to do your job? Are you entitled to demand it? And what really happens if you do demand it?

360
Let's start out with the question of whether you need this information and I -- this is really about how you split efficiency gains. Let's suppose that EI has a subsidiary, ACME, I'm being deliberately non-judgmental here, that spends $25 million a year to carry out some function -- pizzas for late nights. EGD spends a further 25 million a year to carry out a similar function, for the regulatory staff presumably. EGD says it would be a good business decision to outsource that activity to ACME because ACME can do all of that for $45 million a year. That's a very sensible decision. There is an efficiency savings of $5 million, 10 percent of the cost.

361
So the question is how do you split up that $5 million? Well, on the one hand, you could say without ACME's economies of scale there would be no savings and, therefore, the whole 5 million belongs to ACME and hence to EI, the parent company.

362
At the other extreme you could say without the volume produced by EGD's outsourcing, there would be no savings and, therefore, the whole $5 million of savings should be enjoyed by EGD, and hence the ratepayers.

363
Or you could say the third option is the savings require both volumes to be present, therefore they should be shared, presumably on volume, $2.5 million to the ratepayers and $2.5 million to EI, the shareholder.

364
Mr. Chairman, if the Board decides that the first option is the correct result, that is, none of the efficiency savings are for the benefit of the ratepayer, then no information is required from ACME, the affiliate. However, if either of the other two cases is true, if the ratepayers are entitled to get any of the efficiency savings, then this Board must be able to look at the revenues and expenses of the affiliate, both before and after this took place in order to determine the amount of the savings.

365

In our submission, if this Board decides not to require disclosure of this information, it is deciding as a matter of either law or public policy that the utility can outsource any of its activities and retain 100 percent of any savings that result. Necessarily, and unfortunately, this would mean the utility is no longer obligated to seek the lowest cost way of delivering proper service to its ratepayers. In fact, whenever the utility finds that it can save money it will be motivated, a normal business decision, to outsource the activity to an unregulated affiliate so that it doesn't have to share the savings with the ratepayers.

366
Mr. Chairman, in that regard, I would like to refer you to tab 11 of Exhibit K.11.1. This is IGUA 58, the transcript references, and one that my friend did not quote but which I think is instructive, is at page 381. And this is Mr. Mcgill responding to questions where he says, and this is at line 18 on that page:

367
"Well, I think what provides reassurance to the ratepayers is that the company must demonstrate prudency in all costs that it incurs in order to pass them through rates. And under our proposal that will happen at the time we rebase, which is now."

368
It is our submission that the costs that you have to look at in that context, Mr. Chairman, are the costs actually incurred, not the intercompany payments which are artificial amounts.

369
Mr. Chairman, the second question is, Are you entitled to demand this information? Let's assume that you need it to do your job, are you entitled to demand it? That's the issue of jurisdiction and there has been ample discussion of that and I don't think I need to add to it. However, I will draw your attention to one quote in the case that Mr. Janigan has referred to, the AGT case which is Exhibit K.11.5.

370
He drew your attention to page 6 and you will -- understand that this case is about integrality. It is our submission that you don't need to decide that these activities are integral to the utility's activities in order to decide that you need the information from the affiliates.

371
I think the general principle on which we rely is stated very clearly in paragraph 13 of this decision on page 6, and I'll read the third sentence:

372
"I agree with the submission of counsel for the interested parties, City of Calgary and the Alberta Consumers' Coalition, that the CRTC cannot discharge its fundamental obligation under subsection 340(1) of the Railway Act to set 'just and reasonable' rates unless it has the authority to consider and determine what assets constitute a utility's rate base, the return that the utility's investors are entitled on the rate base and the utility's operating expenses and existing sources of revenue."

373
And it is clear front context of this, Mr. Chairman, that the decision is talking about the broader sense of expenses, the broader sense of revenues, not just what's in the utility, but what reasonably relates to the utility.

374
That leads to the third point and this is something that my friends have not dealt with at all, for understandable reasons, but I think somebody has to raise it. And that is, What really happens if you make the Order requested? This is a practical question and is not an argument of law. It's, rather, when you're deliberating on what the appropriate Order is, you have to be concerned with what's really going to happen. You have to be concerned with whether the integrity of and the efficiency of the process will be potentially undermined by your decision.

375
Why? Because frankly, Mr. Chairman, no one expects that these companies will comply with this Order immediately. That is the unstated major premise in this whole analysis. It's fairly obvious the Board has already told the companies that it expects to see this information in the RP-2001-0032 decision. Was there compliance or disclosure? No. In fact, it's my expectation, in our submission, that these companies will probably appeal any Order for disclosure.

376
Now, why is that relevant? Well, because this Board has to assess, would that process of perhaps two years before the court undermine the efficiency and integrity of this process and the ability of this Board to properly regulate these parties? The temptation, it would seem to me, is to do the practical thing, to make a more limited Order that you would expect is as much as you can get from the companies, but not so much that it will turn into a donnybrook that goes over years in the courts.

377
With respect, in our submission, the practical risk of a full order from this Board is all on the company, it is not in the process and it is not in the public interest, and here is why we say that. Mr. Chairman, if the Board orders full disclosure and the companies rather than comply appeal, what happens?

378
We will be proposing that the Board, in compliance with the ADR settlement, determine a number that is the efficiency gains for 2003. You don't have sufficient information to do this, but on the information you have, we will propose that you determine what you would call a proxy amount. In fact, our suggestion is going to be 10 percent of the outsourced amounts, because it seems to me that something like 50 or 60 or 70 percent of the expenses of the utility are in fact currently being outsourced.

379
So let's say that number is 13 million. That's our guess as to what it would be, which is less than what the intervenors actually think are the outsourcing gains but which -- the intervenors have talked about a number of 20 million, without any information, of course, to back that up -- but is more than the number that the utility accepts, which is zero. So if this company complies with the -- if this Board complies with the ADR and finds a number, let's say the 10 percent that we may be proposing, that number will then go into the 2003 O&M VA and will reduce rates in 2004. However, it will still only be a proxy because you still won't have proper information on which to make the decision.

380
Further, in 2004, again without proper information, you still have to find the right number. Again, your only choice is to pick a proxy, let's say the same amount with appropriate escalators. Plus, in next year's case, the outsourcing to EI is also on the table; it isn't in this year but it is in next year. And we've already had a whole discussion about corporate cost allocation which we're not even finished yet. But there is clearly a debate about whether some of that should be disallowed in subsequent years.

381
The point of this is that there will be a significant amount, if this Board accepts this approach, a significant amount that will be taken out of O&M for the company for 2004. We will, in fact, propose that those amounts be recorded in the event that the company eventually provides you with sufficient information to get the right amounts. But in the meantime, the company will not be able to recover them in rates.

382

Now that all sounds fine, except that that doesn't really get to the key point which is: We all expect, and I think this Board at some point may well order, that there will be a comprehensive PBR proposed in the next 18 months or so.

383
The company cannot afford to have a significant proxy amount for these gains excluded from a PBR base because then it's a five-year cost. It's too much money. So then they don't have a choice, they have to -- well, one of two things can happen. Either they will disclose, they will follow your Order, eventually, and disclose what needs to be disclosed in order for you to make a proper decision. Or if they don't, they will be sending you the message that the number you picked - let's say it's 13 million - is lower than you would get if you actually had the information, so we're happy to keep that, thanks very much.

384
Mr. Chairman, in our submission, if you insist on the proper information to do your job in setting just and reasonable rates, the utility and its affiliates will today and in other forums huff and puff very mightily about that problem, but ultimately, they comply with this Board's Order, and ultimately you will have the information to do your job. So rather than risking the efficiency and integrity of this process an Order demanding full compliance with what this Board needs supports the integrity and efficiency of this process, and therefore we recommend it.

385
Those are our submissions.

386
MR. BETTS: Thank you, Mr. Shepherd.

387
We have no questions.

388
Mr. Brett.

389
SUBMISSIONS BY MR. BRETT:

390
MR.BRETT: Thank you, Mr. Chairman, Mr. Dominy.

391
I'm going to make some initial remarks on the, what I consider to be the proper context for this motion, and I'm speaking in support of the motion.

392
I'm then going to address, briefly, the company's letter of the 27th -- or rather the 19th of March in which they do offer certain materials. And then finally, I'm going to provide what I think is the rationale for the Board's acceding to this request for disclosure. And on the context, first of all, as you know, under a cost of service rate regime, the Board sets annual rates based on a budgeted level of O&M costs.

393

If the utility is able to achieve its objectives for the test year with fewer people or generally lower O&M costs, it will increase its profits during that year. However, in the next year's rate case, assuming that we continue to have annual rates cases, the utility's now lower O&M costs, everything else being equal, will result in a lower revenue requirement.

394
Under a PBR regime, on the other hand, unless there is a provision in the plan that savings in O&M in relation to base-year levels or increases in earnings above base-year earnings are to be shared with ratepayers, the annual O&M savings realized by the company through more efficient operations will accrue to the shareholder in each year of the PBR plan.

395
This is what happened during the three years of the EGD targeted plan, 2000, 2001, 2002. However, at the end of the plan, that is this year, 2003, a rebasing takes place under which all or part of the savings achieved over the years of the plan are passed on to ratepayers at the plan's end in the form of a lower or rebased level of O&M.

396
This exercise is relatively straightforward if there is not a major structural change in the manner in which the utility does its business during the term of the plan or for that matter, as Mr. Dominy observed, during any series of years under cost of service regime.

397
In this case, Enbridge has orchestrated an outsourcing of a large number of functions, hundreds of employees to affiliate companies within the Enbridge group. Enbridge has then contracted with these companies, and I won't go into the details of them, but the contracts are multiyear contracts to provide various services under pricing terms which provide for either fixed payments or fixed payments per transaction done by these companies.

398
In the case of Customer Works alone, I think the order of magnitude of expenditure in 2003 is around $90 million. So under this, cost savings made by these service providers due to more efficient operation accrue to the affiliate and to their ultimate shareholder, EI, with no part of it going to ratepayers. This conclusion would result under cost of service or PBR regime, but the effect is larger under PBR since the ratepayers are prevented from claiming those savings or a part of them during the term of the PBR, unless of course the PBR explicitly provides some mechanism for that and can raise the matter only at the end of the planned period on rebasing.

399
This export of savings, as Dr. Bauer coined it in EBRO-497-01 both in his pre-filed evidence and also in response to questions from Mr. Vlahos, and those questions and answers are at transcript page 1111 in 497-01. Schools' is of the view that the only way to determine what savings have been realized by these affiliates is to look at the financial statements in the context of their business operations. Only in this manner can the Board determine the costs incurred by these companies in providing the services to EGD.

400
Recall that the Board found in the 0032 case that the affiliate -- for affiliate code compliance purposes the costs to do the work are the costs of the services providers plus a utility style mark-up.

401
Once the costs to the companies of providing the services are determined, then the profit margins can be determined - that is to say, from studying the financial statements - and both compliance with the affiliate code and the savings available for repatriation can be determined.

402
Now, we know from cursory information contained in already publicly filed material, and I'm thinking here of the six-month statements of Enbridge Inc. for the years 2002 and 2001 which were filed earlier in this proceeding, we know that EI -- I'm sorry, Enbridge Commercial Services, which was the predecessor company to Customer Works as you recall, earned substantial profits in the -- over 2002 and 2001. Specifically, for the six-month period ending June 30th, 2002, ECS made 5.5 million compared with 4.3 million in the first six months of 2001. This is a six-month period.

403
For the three-month period ending June 30th, 2002, ECS made 4.3 million compared to 2.8 million in the three months -- comparable three months in 2001. Now there is no reason, on the face of it, to think that the remainder of the year would be any less profitable, that is to say, the last six months of 2001 and 2002. We don't know that, but it appears that they are profitable companies making significant profits. And that is just Enbridge Commercial Services, that doesn't go to the other affiliates we've been talking about.

404
The situation with Customer Works, as you know, is a bit more complicated. But Customer Works essentially has stepped into the shoes of ECS with respect to the functions provided by ECS to the utility on January 1st, 2002.

405
And it will -- however, in June of 2002, it entered into a series of transactions with Accenture Inc., and I think the subsidiary is called Customer Works Inc., but it's a wholly-owned subsidiary of Accenture, to operate the customer care business. It transferred all its employees to Accenture.

406
Now, the impact of that transaction on Customer Works' costs and profitability is, of course, unknown, which is part of the reason for requesting the financial statements of Customer Works and the documentation that reflects the nature of that transaction between Customer Works and Accenture.

407
We need to know that -- know the impact of that, because if savings will result to Customer Works, either because its -- possibly because its costs are now lower, because rather than doing the work itself it has contracted with Accenture to do it, perhaps at a lower cost, and therefore, Customer Works profits will increase.

408
Now, the evidence in 0032 is that Customer Works' partnership revenues did not change as a result -- I'm sorry. That the revenues -- yes. The revenues -- Customer Works' revenues did not vary from ECS revenues as a result of the contract -- the formation of Customer Works, and Customer Works has a contract with the distribution utility, with EGD, until 2006.

409
And we -- and it would appear from what we see so far that those revenue levels that Customer Works will obtain will be at least as large as they are today over that period.

410
Now, the Board may note that Customer Works entered into a similar transaction with B.C. Hydro a few months ago, February 28th of this year, which, according to the Chairman of B.C. Hydro, Larry Bell, in a press release published on the 28th of February, would result in savings of 250 million over ten years to B.C. Hydro's customers.

411
The documentation, the agreements surrounding that transaction are a matter of public record. I have them on my desk, and they are available for anyone who cares to get them from the B.C. Hydro web site. And those are agreements that pertain to the transfer of the employees, the service agreement, the partnership agreement between Accenture, British Columbia, and B.C. Hydro and the like.

412
So where does that leave us? I want to make -- before turning to the company's proposal, I want to make one further comment on Customer Works. It is, as Mr. Thompson said earlier, a company clearly controlled by EI directly or indirectly. EI has 70 percent interest in that partnership, limited partnership. That's a matter of public record.

413
And therefore, EI has the dominant position in the partnership. If it doesn't control that partnership with a 70 percent interest, it will be the first time I've ever seen a limited partnership that doesn't work that way. And I think if the company is going to contend in some fashion that -- by "the company," I mean the utility -- somehow Customer Works is not under the control of EI directly or indirectly, then I think they have to provide very specific -- I would suggest to you, respectfully, they should provide very specific information in terms of either partnership agreements, contracts that run parallel with the partnership, management agreements, or whatever. I think otherwise you are entitled to presume that with a 70-percent beneficial interest in the partnership, EI directly or indirectly controls the partnership.

414
And of course the management -- the managing partner of the partnership is a corporation. That is a matter of public record, and that corporation, I would suggest to you, in all likelihood is also controlled by EI. Or there are contractual arrangements in place that allow EI to control it as a matter of fact.

415
And if that situation is different, then I think without very specific evidence to the contrary, you are entitled to presume that if EI has a 70 percent beneficial interest in the partnership, it also controls the general partner, the corporation that's the general partner that has day-to-day responsibility typically for the management of the limited partnership.

416
If I can look briefly at the company's offer on the letter of the 27th, I just want to make three observations: The first is that with respect to Customer Works, and this is -- can be found on paragraph 7 of the letter. I guess the exhibit number I have on it is K.1.4, Mr. Chairman, Mr. Dominy.

417
The relevant passage I wanted to read was -- this is on page 4, the first full sentence of the page:

418
"The statements for 2002 would contain the revenues and expenses attributable to ECS's ownership interest in CWLP, and they have previously said they would provide ECS financial statements for 2000 and 2001."

419

My problem with that, Mr. Chairman, is that it's not clear whether that would give you a clear picture of the financial status of the partnership. I'm not sure exactly what that means, that sentence I read you, but it could very well mean that it would show you the revenues received by ECS as and when they received them from the partnership. They might -- those revenues might not be allocated by the partnership in 2002. They might be held somehow in the partnership.

420
I think in order to really see -- get a correct and accurate picture of the revenue and expenses of the partnership entity you need to have the partnership's financial statements, not the financial statements one level abstracted of one of the partners insofar as its equity ownership of a partnership, if you like. That strikes me as something that is -- I don't think that will give the information that's required.

421
The second point is that -- well, I think the -- the -- I just wanted to point out, in the case of -- I think you may hear from parties that while somehow this is going to -- disclosure of these statements, financial statements would harm individual parties, third parties, because it would disclose prices of individual services, but that's not, of course, the case.

422
If you get good financial statements with revenues, expenses, profits, you're not making any statement in that financial statement about comparative prices. You're not saying what the prices are to affiliates A, B, C, or D, or you're not even really saying whether the price to the utility is the same as the price to an unaffiliated -- an unregulated -- a different affiliate of the service provider.

423
Now, that would be information that would be interesting to know, actually, and would -- and would, in a sense, line up with some of the comments and concerns the Board had in their -- in 0032, but that information doesn't appear in a general set of financial statements.

424
And then finally, I would say Mr. Cass's letter speaks only of revenue and expenditures. It seems to me it would be also -- the financial statement in addition to that gives you statements of cash flow and statements of -- and a balance sheet. And I think a balance sheet would be helpful, because you've got -- you want to see what the assets are of those companies and what their capital structure is and what bearing their capital structure might have on their profitability. It gives you just a solid overall picture of the finances.

425
So I think that there are shortcomings, therefore, in what's being offered.

426
And the other -- the other thing is there's nothing in Mr. Cass's letter about the relationship with Accenture and the documentation of that transaction.

427
And then finally he, I think, perhaps our question -- perhaps our comments earlier at the settlement conference and wherever weren't sufficiently precise, because I think he interpreted the intervenors' request for EI information to be consolidated information of EI, and he attached some financial statements to provide that.

428
But that, of course, has been a matter of public record for years. So I think what the interest there was the unconsolidated statement of EI, but I think that that's probably of lesser importance compared to the other statements that have been asked for. That's my own personal view.


429
Now, finally, then, just to bring this to a close, a rational for support. I won't -- try not to repeat the arguments that have been given before. I have just a couple.

430
I think the first one is, and, perhaps, most important is -- is to do so, to grant the motion, really, is to act consistently with the Board decision in 0032. In that decision the Board articulated a comprehensive set of principles to deal with the policy and cost consequences of outsourcing, particularly in the form of major reallocations of utility functions to other companies within the same corporate group.

431
I think that needs to be stressed. It isn't just outsourcing; it's outsourcing to affiliates in large corporate groups.

432
The Board made it clear that in order to continue to regulate the utility efficiently under such conditions, it would require full cooperation of the utility and its affiliates to provide information that intervenors and it required, and to maintain the integrity of the regulatory process. And here I'm repeating others, but I think that's the key -- one of the key reasons.

433
EGD has virtually so far ignored the provisions of the Board decision. It has unsuccessfully sought rehearing of the case. It has appealed the findings on outsourcing or reallocation to the Court. And in the meantime, it has -- in the meantime has refused to file any information, as has been stated.

434
And it on occasion, even -- I think in answering interrogatory requests, it specifically stated that it doesn't agree with the -- some of the implications and the proposals in the 0032 decision. And in short, it's -- and, therefore, will not answer the question.

435
So it seems to me it's in denial on this issue, and while in the Schools' view it's highly unlikely that an Ontario Court would interfere with the judgment of a professional regulator in an area of its expertise, that's not the point. I mean, the point is that the Board's decision is there and that we believe EGD should comply with it.

436
Finally, EGD has refused to file any information on the affiliates in the pre-filed evidence and the meeting plans or any interrogatories on the issue. It didn't provide this letter until the 17th of March, which was well into -- very close to the hearing, if not at the beginning of the hearing. And effectively, it's made it difficult to kind of get -- to me, to get our hands on -- around this issue.

437
And we find on the issues list that the question of outsourcing policy comes up again, and yet we were in a -- will be in a position if -- without information going into that kind of a debate with basically no further information than you had before the case began, than you had in 0032. And you've already made a decision in 0032 on the basis of the information you had at that time.

438

Those, then, are the -- finally I guess, Mr. Chairman and Mr. Dominy, just a practical point. I mean, this issue, the timing is, I think, appropriate for this to be resolved. We've been talking about this for a year now. It's -- the issue is clear.

439
If we wait another year or two to determine it, we're going to have to start over again, as it were, and it seems to me, as others have said, it would be -- we think, respectfully, it's the time to grapple with this and sort it out and establish a clear precedent for future intercorporate arrangements of this sort.

440
So those are our submissions. Thank you very much, Mr. Chair and Mr. Dominy.

441
MR. BETTS: Thank you, Mr. Brett.

442
[The Board confers]

443
MR. BETTS: Thank you, Mr. Brett. The Board has no questions of you.

444
We'll now take a break for our lunch. Let us reconvene at a quarter past two to hear at that point submissions in response. And we now stand adjourned.

445
--- Luncheon recess taken at 1:07 p.m.
446
--- Upon resuming at 2:23 p.m.
447
MR. BETTS: Thank you, everybody. Please be seated.

448
Welcome back from our lunch break. Before we begin, are there any preliminary matters?

449
Yes, sir?

450
MR. SMITH: Mr. Chairman, as a preliminary matter, I perhaps should have identified myself in the morning. My name is Crawford Smith. I am here on behalf of Union, one of the registered intervenors, and I will be making submissions in response to the motion following Enbridge's submissions.

451
MR. BETTS: Thank you very much, Mr. Smith, and welcome.

452
Any other preliminary matters?

453
There appear to be none.

454
Then, Mr. Cass, your response.


455
MR. CASS: Thank you, Mr. Chair.

456
SUBMISSIONS BY MR. CASS:

457
MR. CASS: Mr. Chairman, I have a number of submissions to make which I will attempt to gather under four main themes. Perhaps at the outset I'll describe for you what those themes are, and then, of course, as I go through my argument, I will elaborate on each in turn.

458
The four points that I am submitting to the Board are as follows: First, the governing statute, the Ontario Energy Board Act is very specific in establishing how the Board goes about exercising powers in relation to affiliates. It will be my submission that this motion is not what is contemplated by the statutory code in respect of affiliates.

459
The second area of my submissions will be that the position that is being put to the Board in respect of TPBR rebasing is not a consistent position as between the utility and the affiliates. Again, I will go on to explain each of these in much more detail. I just am laying out the themes.

460
The third area of submission is that, as we all know, this case is really about the fixing or approving of just and reasonable rates for Enbridge Gas Distribution in the fiscal 2003 test year. It will be my submission that an inquiry into efficiency gains that may or may not have been achieved by a service provider in, I think, an inquiry that Mr. Thompson himself called "historic," is not relevant to the setting of just and reasonable rates for the fiscal 2003 test year.

461
The fourth area of my submissions will be to compare the proposal made by the company in the letter of March 21st of this year, and to submit to the Board that it is a much more reasonable response to the issue, should the Board decide that any further evidence is needed on the issue than what is proposed in the motion.

462
Before I come to those four different themes, I would like to make some comments about the motion itself. First, it seems clear, in my submission, from the notice of motion and from the arguments that you've heard that this motion is primarily about targeted PBR rebasing, and that, in fact, is the very first ground set out for the motion.

463
In the notice of motion, part B, paragraph 1, it refers to an argument that: "On rebasing, ratepayers are entitled to revenue requirement reductions to reflect these alleged efficiency gains." And so on.

464
And going through the further grounds of the notice of motion, this reference to targeted PBR rebasing is a common foundation that one finds through those grounds.

465

I'd just like to digress for a moment and explain why I think that is important in relation to some of the submissions you heard this morning. There were submissions this morning to the effect that the company has not complied with the decision from December. I don't mean to suggest that the decision from December is irrelevant to today's proceedings, but I do submit to the Board that this submission that the company has not complied with the decision is not correct and is not something that should influence the Board's consideration of the motion.

466
The decision, of course, was issued after the company had pre-filed its evidence for this case. Clearly, the company could not have been expected to anticipate in its filing the decision and to tailor a filing to what was ultimately stated in that decision.

467
Second, after the decision came out, there was an interrogatory from Board Staff. I believe it's number 180, and I apologize for not having the exact reference for it, but I think we can all find it knowing that it's Board Staff interrogatory number 180. And with the context of the decision, that interrogatory asked the company to explain how its existing evidence and how its future evidence would address the points in the Board decision.

468
Fourth, we have on the issues list in this case, I believe going from memory, it's the eight series of issues, the questions arising from the Board's December decision. And they are issues to be addressed in this case.

469
And then finally, we have, I believe, according to the schedule, three panels on outsourcing coming up to address those issues and to talk about how the company has complied with the December decision.

470
So in my submission, none of that really matters for the motion today. The compliance with that decision will be addressed when the outsourcing panels take the stand. But for the purposes of the Board's consideration of the motion, I submit it's quite unfair for others to suggest you should proceed on the basis that there's been no compliance.

471
In a nutshell, the motion is largely founded on TPBR rebasing, and the December decision said nothing about what should or should not happen on TPBR rebasing.

472
So again, it has statements that are relevant to the motion, but in terms of the core issue that is before the Board, what should happen on TPBR rebasing that, in my submission, is not something that was decided or in any way commented on in the December decision.

473
The next point I wanted to address in relation to the nature of the motion is simply to bring out, if I can, to the Board, how tremendously far reaching, in my submission, are the requests that are made as part of motion.

474
It was suggested by one of the counsel supporting the motion that there might be arguments about how unprecedented and so on this is. I'm not making that sort of submission to you. I'm asking the Board simply to look at the motion and think about how far this relief would extend, if granted.

475
The first and perhaps obvious point is that this motion demands information from five different entities that are not regulated by the Board. I believe also that of these five entities, only one, Enbridge Inc., is a public company. So not only is there a demand for five companies that are not regulated to produce information, but of those five, four are entities that do not, as part of being a public company, make public disclosure of their own separate information.

476
I should apologize, I've been using the word "companies," and they are not all companies. One is, in fact, a limited partnership; perhaps I should refer to them as entities.

477
Now, a number of these entities from which the intervenors seek information provide services to other customers in addition to Enbridge Gas Distribution. This was addressed in the March 21st letter that is part of the materials in front of the Board on this motion.

478
Perhaps this would be a convenient time for me to point out that I assembled a small brief of material that I will refer to during the course of my argument. I believe it's all things that people have anyway from other sources, but it's perhaps just little more convenient to have them all in one place.

479
I don't know, Mr. Chairman, whether you would want to give that an exhibit number.

480
MR. BETTS: Yes, please, let's do that.

481
MR. MORAN: Mr. Chair, that would be Exhibit K.11.6, Brief of Materials Submitted on Behalf of Enbridge Gas Distribution Inc..

482
EXHIBIT NO. K.11.6: BRIEF OF MATERIALS SUBMITTED ON BEHALF OF ENBRIDGE GAS DISTRIBUTION INC.

483
MR. BETTS: Thank you.

484
MR. CASS: Thank you, Mr. Chairman. So at tab 3 of that brief is the letter that I just referred to. The letter contains a series of numbered paragraphs. If you look, for example, at numbered paragraph 1 on page 2 of the letter, there's an indication there that Enbridge Operational Services provides services to a number of other companies and it gives some examples.

485
At paragraph 5 on page 3 of the letter, there's an indication that Enbridge Commercial Services provided services not just to Enbridge Gas Distribution but also to Enbridge Services Inc. which, as described in paragraph 6, has been sold to an affiliate of Centrica, an arm's length third party from any Enbridge entity.

486

And then also in paragraph 6, "Customer Works Limited Partnership provides services to a number of companies including Enbridge Services and BC Gas."

487
Now, if one were to look at the notice of motion provided by the moving parties, and for example, to paragraph 2, setting out the request for relief, one immediately sees that there are a number of requests for information that are not just -- that are not specific just to services provided to Enbridge Gas Distribution. So paragraphs 2(a), (c), (e), (g), (h), (i), (j), and (k) as well because it sweeps in the preceding paragraphs, all encompass information that is not just specific to services for Enbridge Gas Distribution.

488
Looking a little more specifically at some of these paragraphs, paragraphs 2(h) and (j) request information with respect to arrangements with Accenture which, again, is an -- Accenture is another arm's length third party from any Enbridge entity. So it's not requesting information from Accenture, but it's requesting information about arrangements with Accenture.

489
Going on in the notice of motion, paragraph 4 requests or demands -- requests an Order, I suppose I should I say, for production of all documents from the six different entities with respect to changes in employment levels including strategic planning for changes in employment levels for three different years.

490
Well, we had a bit of discussion earlier in this, and you may recall, Mr. Chairman, about strategic planning documents. In my submission, this Board has recognized the difficulty of even the regulated utility doing strategic planning in the context where its documents can be -- strategic planning documents can be subject to public disclosure in a hearing. This motion is requesting production of strategic planning documents not just for the regulated utility but for five other entities.

491
I ask the Board in contemplating this paragraph 4 of the notice of motion just to think about how broad this requirement is to produce all documents with respect to changes in employment levels. I must confess that I'm not totally sure what that means, but it certainly has a very broad implication as to anything that might have been put in document form about changes in employment over three different years.

492
I was going to make some comments as well on paragraph 5 and the request for summonses to be issued to chief financial officers of five different entities, but I understand that that's been tabled, so to speak, so I will leave that for now.

493
In my submission, as I said, this is a very far-reaching request. I would also point out to the Board that the framing of the request, I don't think, has been very particular as to whether the documents requested even exist. I'll take just one example of that for you.

494

In relation to Enbridge Gas Services, at paragraph 2(c) of the notice of motion, you'll see a request for audited financial statements for the years 2000, 2001, and 2002. I don't think you need to turn it up, but if you refer to the March 21st letter which again is at tab 3 of Exhibit K.11.6, and I think it's specifically numbered paragraph 3. That letter points out that gas services were outsourced to Enbridge Inc. on July 1st, 2001 and that subsequently, Enbridge Gas Services was incorporated. So the request, for example, for audited financial statements from Enbridge Gas Services for the year 2000 is requesting something that, in my submission, can't possibly exist.

495
I don't intend to dwell on this point any more than to bring out that one example and to question the value of including in a Board Order, if it were to be granted, reference to documents where care has not been taken to ensure that there's even a possibility of the existence of such documents.

496
The third observation I want to make about the motion is one that can be made very quickly. Notwithstanding what I have described as being a very far-reaching request for documentary production, there is no consideration at all, that I can see, in the notice of motion to confidentiality. And that is also notwithstanding what I described to the Board in relation to a number of these entities providing services to other parties.

497
Just one very specific point about the motion that I wanted to make to the Board to be sure that there is no misunderstanding, because the motion seems to take support from the settlement proposal in this case and, in my submission -- or perhaps I should say that I'm a little concerned about what the notice of motion is saying to the Board in relation to the settlement proposal. So this is on page 3 of the notice of motion, paragraph 8 of the grounds for the motion.

498
Paragraph 8 is saying: "The Board accepted the settlement proposal wherein it was agreed that the Board would determine in this case the extent to which the efficiency gains were achieved."

499
I'm very concerned about that statement, Mr. Chairman, because it seems to imply that in the settlement agreement all parties agreed that the Board would make this determination, and then in addition that the Board itself accepted that.

500
So at tab 2 of Exhibit K.11.6, I included, I think, I tried to, the entirety of the settlement of O&M issues, the 7 series of issues as described in the settlement proposal. I won't read extensively from here. I think the Board, of course, is well aware of it and -- on the day for review of the settlement proposal, we went through this in some detail. But if we could look at issue 7.1 and if I could take the Board to the second paragraph, just looking quickly it appears to be the second sentence of the second paragraph beginning with the words, "the company". It says:

501
"The company does not agree that the alleged efficiency gain transfers during the term of the TPBR plan are an appropriate matter to be considered by the Board in the determination of its O&M expenses."

502
So I submit, Mr. Chair, that not only was it not agreed that the Board would determine this, it was not agreed that it was even an appropriate matter to be considered. The intervenors gave a clear signal that they objected to bringing the issue, and that is part of the settlement agreement, settlement proposal. The company agreed that to the extent the Board accepted that and found a financial number, that it should be recorded in the O&M deferral account. That's the scope of the agreement. The company did not agree that this is an appropriate matter to be considered.

503
Mr. Chairman, before moving on to my four main themes, I did want to carry on and address some of the ideas that seemed to come out of the arguments that we heard this morning. The first implication, if not more than that, was that the outsourcing that has been done by Enbridge Gas Distribution is some kind of a sinister ploy to move utility functions out to other entities. I can't remember some of the words that were used, but there was a word something to the effect of conniving and those sorts of things.

504
In this regard, the AGT case that Mr. Janigan provided to the Board, in the context of that case, was talking about what was referred to there as artificially segregated functions; that's in paragraph 13 of that AGT decision. In my submission to the Board, these sinister implications and any suggestion that there was an artificial segregation of functions by Enbridge Gas Distribution is quite unfair.

505
Mr. Thompson, himself, in his submissions talked a little bit about some of the history, and the Board is well aware that at a point just before the approval of the targeted performance based regulation plan, the company unbundled a number of ancillary businesses. This is referred to, actually, and discussed in the company overview evidence at Exhibit A.1, tab 3, schedule 1.

506
I think Mr. Thompson, himself, if I recall his submissions, stated that it was indications from the Board and from the government and other sources that caused the company to understand it was necessary to move in this direction of unbundling ancillary businesses. But what that meant, of course, Mr. Chairman, is that when those other businesses were unbundled, all of a sudden there was a whole customer care function that had previously been serving these ancillary businesses and gas distribution utility, but now was facing a separation of those businesses. Something needed to be done.

507
One approach which probably would not have made any sense at all would have been then to have had two customer-care functions, one for Enbridge Gas Distribution and one for the unbundled businesses.

508
The approach that was adopted was to outsource the customer care to a provider that could then, in turn, service both of these customers. In my submission, the Board should not infer from that that there was anything sinister. I think the evidence now reveals that because there are some of those services with the sale of Enbridge Services to an arm's length third party that are only performing functions to the utility, they're now moving back in. It's not a sinister thing, it's a response to the unbundle that occurred prior to the target PBR case.

509
Similarly, Enbridge Operational Services, as indicated in the March 21st letter, provides services to other entities and -- sorry. I just want to check to be sure I have my facts straight before I talk too quickly. And its intent is to provide services on a third-party basis to other non-affiliated companies, as referred to in the letter.

510
Enbridge Gas Distribution then enjoys the benefit of taking gas control services from an entity with a much larger resource base, more bench strength, just a bigger and stronger entity because it's doing more than just providing services to Enbridge Gas Distribution.


511
But again, it doesn't make sense that this would happen within the regulated utility, Enbridge Gas Distribution, and one would question whether it even could under the current undertakings.

512
So again, these are not sinister moves, as has been suggested in some of the arguments. There is logic behind the outsourcing.

513
I wanted, then, to move on, Mr. Chair, and address briefly some of the references to other -- to authorities and cases that were made by counsel this morning. Mr. Warren referred to the Williams case as an example of a situation where information was required or it was deemed to be appropriate to gather information from another party in a regulatory setting.

514
Now, Mr. Chairman, I haven't had time to study this case in detail, but it appears very clear to me that this Williams case is talking about a cost allocation issue in the sense of the issue that this Board has been hearing for a number of days in this proceeding.

515
As this Board is well aware, because we heard from the first panel for two and a half days last week, one of those being a very long day, there is an issue in this proceeding about cost allocations from Enbridge Inc. That is the analogous sort of issue that I understand is being addressed in the Williams case. It's cost allocations into a regulated company.

516
Now, the suggestion that the utility in this case is in any way not meeting evidentiary requirements in relation to corporate cost allocations, I think, would be quite misplaced if that is the intended suggestion, as the Board would be aware that the company provided considerable written evidence on the Enbridge Inc. cost allocations.

517
The panel that was on for two and a half days last week was only the first of two panels on the issue. Numerous undertakings were given last week on this issue, and next week, or this week, I guess it is now, there is a second panel scheduled to come with three witnesses from Enbridge Inc..

518
So in my submission, it's quite inappropriate to draw an analogy to a case where there was an unwillingness to provide information on an issue about cost allocations.

519
I've also talked already a little, briefly, about the AGT case provided by Mr. Janigan. The other point I would like to make about this case is that it dealt with the issue of whether a power should be implied from a statute for the purposes of the tribunal fulfilling its mandate. In my submission, this Board doesn't even need to go there in terms of issues about implying powers from the statute. The statute is very clear about what the powers are in relation to affiliates, and that's the first theme of my argument that I will be coming to.

520

Just before I do that, I would like to observe that the Board heard reference this morning to many different sources of authority, the rules of civil procedure from the courts, cases decided under the rules of civil procedure, and so on.

521
In my submission, little attention has been paid yet to the Ontario Energy Board Act, which I think is the important authority for the Board to look to. And so if I may, I would like to take the Board to that now.

522
My submission, in a nutshell, is that far from there being any powers in relation to affiliates in the OEB Act, on the contrary, the Legislature, in passing this statute, has obviously considered very carefully what powers the Board should have in that regard and has set them out in the statute.

523
So at tab 1 of Exhibit K.11.6, I provided a number of excerpts from the OEB Act. And what I tried to do, if it was successful -- I can't promise that it hit every occurrence of the word -- but I tried in these excerpts to have the word "affiliate" or the word "affiliates" in the plural highlighted so that the Board could see just the extent to which this legislation addresses authority over affiliates.

524
If I could ask the Board to start at tab 1 by turning up page 21 of that tab. Page 21 is there just to illustrate to the Board that what I'm going to talk about first are some sections that apply to electricity. These have no direct application, of course, to Enbridge Gas Distribution. The point is just to bring out how carefully this statute addresses affiliates in a general sense, and then I'm going to come and talk about how it addresses affiliates in relation to gas.

525
So at page 22 you'll see section 70, which talks about licence conditions in relation to the regulation of electricity. And then over at page 23, you'll see that the words "affiliates" and "affiliate" are highlighted, because the Board's powers include the ability to -- in licences, to govern the conduct of transmitters or distributors as they relate to affiliates.

526
And I won't go through this in detail, but I'll maybe just skip through some of these electricity provisions to show how frequently this statute addresses affiliates.

527
Over on page 25, subsection 9 of section 70, you'll see it again: "The licence of a distributor shall specify whether the distributor will comply with section 29 through an affiliate."

528
On the next page, 26, considerable amount of references to "affiliates," including section 71, which is a restriction on business activities and actually indicating activities that shall not be carried on except through an affiliate or affiliates.

529
Section 73, which is a provision applicable to municipally owned distributors, and that addresses what the businesses the affiliates may carry on.

530
And it goes on and on, Mr. Chairman. I don't want to take up too much time on it, but page 27, a limitation on distributor's affiliate not being able to own or lease any works.


531
Without skipping through the rest of them, I'll just give you a few more references. Section 78, subsection (4), talking about the Board making an Order, even where the distributor meets its obligations through an affiliate.

532
Section 80, talking about a restriction on an affiliate of a transmitter or a distributor acquiring an interest in a generation facility. And section 81 talking about the reverse.

533
So there's extensive reference in the statute to what the Board can do in relation to affiliates.

534
So what does it say on the gas side, if I may ask rhetorically. And for that purpose, I included in these excerpts the entirety of part 3 on gas regulation, and that starts at page 10 of tab 1.

535
If you look through part 3 on gas regulation, assuming the search was done accurately, the only hits on affiliates are in sections 43 and section 44. Section 43, the Board will recall, is the section that deals with change of share control, and in assessing the acquisition of share control as to whether it exceeds 20 percent, one has to look at the shares held in affiliates for the purpose of the 20 percent threshold. I don't think that's really relevant for today's purposes.

536
But where the Board's powers in respect of affiliates on the gas side of things becomes relevant is in section 44. Section 44 says that: "The Board may make rules ..."

537
And in paragraph (a) of subsection 1: "... governing the conduct of a gas transmitter, gas distributor --" et cetera "-- as such conduct relates to its affiliates."

538
And paragraph (g) talks about: "Requiring and providing for an affiliate of a distributor and others to make return statements or reports and so on."

539
So the Board has these powers, and it can exercise them by making rules. Indeed, the Board has exercised its power under section 44 in respect of affiliates, and it has -- in that regard, it has issued the Affiliate Relationships Code.

540
The company has addressed in its evidence in this proceeding, and it will address on the outsourcing witness panels, how it has complied with the Affiliate Relationships Code, but the Code does not say anything about conducting an inquiry into the affairs of affiliates upon the rebasing of a PBR plan.

541
Whether the Board could pass such a rule under section 44, it may well have the power to do so. And certainly under (a), as I pointed out, it has the ability to pass rules governing conduct with affiliates. And under (g), it has the power to pass rules providing for affiliates to make returns. But what the Board has done is it has passed the Affiliate Relationships Code.


542
And I observe in passing that if the Board wanted to do more in terms of its rule-making power in respect of affiliates, section 45 at page 17 sets out how the rules are to be made.

543
And without going through that, I'm sure the Board is well aware that there's a provision for notice, there's a provision for an opportunity to be heard, that is to make written representations, and on receipt of the written representations, if the Board decides to make changes, then there's another process for representation.

544
So there is a means for the Board to make rules in respect of affiliates, but there is a procedure to be followed. And that procedure has only been followed insofar as the Board has issued the Affiliate Relationships Code.

545
Now, the Board has a second area of powers applicable to gas distributors in respect of affiliates. These powers arise under part 7 of the statute, which deal with the powers and duties of the and energy returns officer. That starts at page 39 of tab 1.

546
Now, as I read the powers of the energy returns officer, they really fall into two categories. And at least for the purposes of my submissions, it's, perhaps, easiest to deal with them in two categories. And I'll start first with section 108.

547
Section 108 deals with investigations, and at page 40, you'll see in 108, subsection 1(c) a reference to "affiliate." And then over to page 41, in respect of the premises or places where the power can be exercised, it's even more specific about the ERO exercising powers at the premises or places of affiliates.

548
But the important point about section 108 arises from section 111. Section 111 says: "All information and material furnished to or received by the ERO under section 108 is confidential."

549
So there is a process for the ERO, but it's a confidential one under section 108.

550
There's also a process under section 106 for the ERO. Without going through section 106 in detail, it applies to gas. Section 107 applies to electricity. Section 106 indicates that: "The energy returns officer may require from any affiliate, among others, within such reasonable time as is required by the Board ..." Dropping down to (b): "... any information relating to transactions with gas distributors or storage companies."

551
But in my submission, it's important to consider what happens with information under section 106. And for that purpose, I'd ask the Board to flip over to page 43 in section 109 of the statute.

552

What happens if the energy returns officer has information that appears to be relevant to a Board proceeding? Well, under section 109: "The ERO shall notify the Board of all matters he thinks relevant to Board proceedings."

553
Under section 110: "The ERO may be called as a witness by the Board in any Board proceeding."

554
And under subsection (3) of section 110: "If any document or record in the hands of the energy returns officer is to be introduced in evidence, it is an opportunity for the owner of the document to come and make representations."

555
So there's a complete code, if I can put it that way, as to how powers can be exercised in relation to affiliates and what sorts of protection applies when that happens. If the ERO proceeds under section 108 there is a confidentiality provision; if the ERO proceeds under 106 there is a series of provisions in sections 109 and 110 as to what would happen to information that's relevant to a proceeding.

556
Although the Board rule making power that I referred to under section 44 and the ERO's powers are very different, they do share a common feature which the Legislature presumably considered to be appropriate. Both of them are things initiated by the Board. The Board can initiate the rule making power or the Board will initiate something with the energy returns officer under part 7. But as the statute reads, they are not processes initiated by the applicant or other parties. I suppose a request to be made to the Board; the statute gives the power to the Board to act under those provisions.

557
Now, the Board itself has previously recognized that, in the hearing context, it does not assert a jurisdiction over the unregulated parent at least of Enbridge Gas Distribution. For this purpose I included in Exhibit K.11.6 an extract from the EBRO-497 decision. This, in fact, was part of the cross-examination brief for the Enbridge Inc. cost-allocations panel that was used by Mr. Janigan.

558
If you turn to tab 4 of Exhibit K.11.6, and specifically page 46, paragraph 3.4.6 -- this is in the context of charges, corporate charges from the parent company to the utility, just a little more than halfway down in paragraph 3.4.6, the Board says: "The Board has no authority over IPLE."

559
Well, as the Board will recall, IPLE is one in the same as what is now EI, Enbridge Inc., the -- one of the companies that the intervenors are asking the Board to assert authority over.

560
Now, I don't say that the Board has no authority over affiliates. If my memory is correct, the decision being issued in August of 1998 was before the current version of the OEB Act came into force. So I fully accept that one turns to the OEB Act as it now stands to see what power the Board exercises in relation to affiliates and how. And that's precisely what, in my submission, I've just taken the Board through.

561
Prior to the statute, the Board in the hearing context says it asserted no power over IPLE. We now have the statute that gives the Board specific powers, either through rule making or through the ERO.

562

So there are -- just in summary on this branch of the argument, there are really three points that I think flow out of this. First the motion before you and the step that the intervenors would ask you to take are not within the processes clearly and specifically set out in the statutory code.

563
Second, the Board has exercised powers given to it in relation to affiliates under the statutory code. It has passed the Affiliate Relationships Code. The Affiliate Relationships Code says nothing about searching out alleged efficiency gains in affiliates on PBR rebasing.

564
In my submission, to act now as if the code is said that would be to change the rules of the game after it's too late. The Affiliate Relationships Code has been in place, it's -- the company has endeavored to comply with it. There was certainly an issue in the decision released in December about the company's interpretation of the code and whether it's corrected and the company will have to face up to that; what the Board said was the correct interpretation of the code. But in my submission, it is not appropriate or fair to change the rules of the game now and to have some new rule in relation to alleged efficiency gains in affiliates.

565
If there was to be such a new rule, section 45 sets out the process to do that in the protections that would be provided to parties by way of an opportunity to make representations and so on before the rule is passed.

566
The third point coming out of this branch of my argument is that when the Board does exercise what might be equivalent to discovery powers in respect of affiliates, it would do that through the ERO. But part 7 is very careful in protecting interests when the ERO exercises his powers under part 7. And I went through that. I won't repeat it.

567
The intervenors' motion, as I think is conceded, gives no consideration to confidentiality or the commercial interests of the parties that would be providing information if the motion is successful.

568
I'm going to move on now to my second area of submissions. As I indicated, the theme of this second area of submissions is that the intervenors' position as it relates to rebasing and affiliates is not consistent with the position taken in respect of the company itself on rebasing.

569
I don't think that anyone was under any illusion that rebasing would be important this year. As I've already alluded to, and I think Mr. Thompson did, the targeted PBR plan followed very closely on the unbundling of the ancillary of the utilities program. So with that unbundling and then three years of targeted PBR for O&M expenses, fiscal 2003, did become an important year to determine just how much it does cost, from an O&M point of view, to run the core utility.

570
The company, I submit, was very much aware of the need for the Board to examine this year just how much it costs to run the core utility. For this purpose, the company presented very detailed O&M evidence on a department-by-department basis that would allow the Board and intervenors to examine what it now costs to run the core utility from an O&M point of view.


571
The company's objective was to give the Board the detailed evidence that the Board thought everyone, frankly, would be looking for on rebasing of O&M. And I will come to some of the references for that in a moment as to what previously seemed to be the expectations for rebasing.

572
However, to put it frankly, IGUA, for example, was really not interested in building up what it now costs to run the core utility. What IGUA wanted to do was apply some adjustments to a previous O&M total in order to determine an overall O&M expense envelope for fiscal 2003. It's almost like -- it's not PBR, but it's like just a different formulaic way of coming up with an O&M envelope number so to speak. For that purpose I've included the IGUA evidence at tab 5 of Exhibit K.11.6.

573
If I could ask you to turn to page 11 at tab 5, and specifically paragraph 25. Paragraph 25 starts out with IGUA's claim that the O&M expenses for -- budget for 2003 were grossly excessive. And then it goes on to say:

574
"The starting point for considering the reasonableness of EGD's O&M expenses claim for 2003 ought to be actual 2002 O&M reduced by these alleged efficiency gains transferred to affiliates and partially capitalized. The resulting amount would then be escalated by a factor that takes into account inflation and prospective productivity."

575
In my submission, it's not very much different from a PBR sort of formula. I don't know what visions other parties had of rebasing, but in my submission that's not a true rebasing at all. That's not any effort to determine what it really costs now to run the utility on an O&M basis.

576
Now, I should step aside here and point out that all parties recognize to go through a hearing and try to build up the O&M budget on a department-by-department basis would be very time consuming and very -- take up a lot of this Board's valuable time. So I don't mean to suggest that the issue had to go to a hearing on a department-by-department basis.

577
There's nothing in my mind to suggest that a true rebasing of O&M could not have been addressed through the settlement process, just like an envelope was addressed through the settlement process. But going into the settlement conference, IGUA had signaled very clearly how it was insisting that the O&M budget be approached, and that was not what, in my view, would be a rebasing. It was just a continuation of applying adjustments to numbers coming out -- an overall number, an envelope number coming out of the targeted PBR period.

578
Now, I did say that I would come back to some of the references to earlier decisions as to what the expectations were for rebasing of targeted PBR. And now for this purpose, I think I'll need to turn to Mr. Thompson's motion materials, Exhibit K.11.1.

579

At tab 3 of Exhibit K.11.1, Mr. Thompson included the Board decision in respect of the targeted PBR proposal and he took you to paragraph 2.0.7 as some support for his arguments. I simply point out to the Board that issue 2.0.7 is simply repeating the company view of its proposal. It's a repetition of that by the Board. It's not a finding or determination or conclusion of the Board. In fact, I don't know that the Board really made findings or conclusions or determinations about rebasing, but it certainly made no determination that on rebasing there would be this search into affiliates for some sort of efficiency gains. So in my submission, that decision does not take the intervenors where they want to go at all. It is not a support for what they want to do in this motion.

580
Now, again, paragraph 2.0.7 did pick up something from the company's argument and, unfortunately, we only have here a couple of pages from the argument in this brief. If I could just get myself to the right tab.

581
Yes, I think it's at tab 11, which is a series of interrogatory responses in this case. And I'm sorry the pages are not consecutively numbered, but it looks to be perhaps a little more than halfway through tab 11. There is -- just after the front page for the response to IGUA interrogatory 58 there are just two pages excerpted from the 497-01 argument.

582
Mr. Thompson, I think, took you to the second of these two pages which is page 23. I just wanted to point out the first of these two pages to you which is page 2 from the argument. There's a paragraph there that begins with the words, "The targeted PBR plan achieves a fair and reasonable balancing." It goes on to talk about an appropriate incentive for management and it says: "It delivers a guaranteed productivity benefit to ratepayers."

583
That, the Board will recall, is that if there was productivity built into the formula that was applied on an annual basis through targeted PBR and in its decision, this Board actually added a stretch factor to that productivity that was delivered each year through the targeted PBR.

584
But then in relation to rebasing it goes on to say: "And to the extent management is successful in achieving permanent O&M reductions that delivers further benefits to ratepayers when rebasing occurs ..." So that's the context that we're speaking of when we're talking about rebasing. We're talking about the O&M budget of the company and the extent to which management has been successful in achieving permanent O&M reductions.

585
Now, one of the other counsel, I'm sorry, I'm not sure which counsel it was, referred to an excerpt from the transcript from the 497-01 case and that's a little -- just -- not quite perhaps 10 pages forward from the argument excerpt we were looking at, it's page 378 from the 497-01 transcript.

586
This was read out to the Board by one of the other counsel, and so I won't read it all again, but it certainly gets across very clearly the message that the potential for outsourcing during the targeted PBR plan was well understood when that plan was under consideration.

587
But specifically what this witness is talking about here is outsourcing by the two affiliates or two non-affiliates. So it's not like the potential for that was something that slipped past everyone. It was right there in the case.


588
Now, the last -- second-last paragraph of the full answer on page 378 was referred to by one of the counsel as support for what should happen on rebasing of targeted PBR, and I submit that it does not support where the motion is going at all.

589
The paragraph says: "It's incumbent upon the utility on rebasing to demonstrate to the Board that outsourcing, be it with an affiliate or a non-affiliate, results in just and reasonable rates and is consistent with the Board's previous decisions on pricing."

590
Well, on pricing we now have the Affiliate Relationships Code. But the focus here is whether -- what the -- was the company's outsourcing is just -- resulting in just and reasonable rates. It's not on what is happening in an affiliate. And that's particularly clear by the reference to "affiliate" or "non-affiliate." Surely, nobody is suggesting that -- in respect of outsourcing to non-affiliates, there should be some exercise of going out to search for alleged efficiency gains on their part.

591
So the reference to "affiliate" or "non-affiliate" makes it clear that the sort of thing that's contemplated by this motion is not what was being talked about there.

592
Now, the motion, both in the written notice of motion and in the submissions, also takes support from the RP-1999-01 decision. And perhaps if you still have Mr. Thompson's brief, that's the easiest place to turn up that decision. It's in my brief as well, but it appears in both places.

593
Now, as I recall -- sorry. I'm just having difficulty -- it's tab 5 in Exhibit K.11.1. So at tab 5, I recall Mr. Thompson taking you to paragraph 5.2.5 where the Board talks about what will occur at rebasing.

594
And in the middle of that paragraph, I believe Mr. Thompson read out the words: "At the time of rebasing, the parties will have an opportunity to request that appropriate information be provided to allow a line-by-line comparison with the base budget."

595
But it's important, in my submission, to put that into context of what was being talked about in this decision. And in order to do that, if I could ask the Board just to turn back to paragraph 5.2.3. In the third sentence of 5.2.3, it says:

596
"The Board is concerned that acceptance of the intervenors' suggestions will compromise the PBR process before it has been given a chance to begin. It will inevitably result in a line-by-line scrutiny of the O&M budget as if under cost of service regulation."

597
That, in my submission, is what the Board was talking about in this decision when it referred to a line-by-line scrutiny. It referred to such scrutiny of the O&M budget as if under cost of service. Again, it was not talking about a search off into affairs of affiliates and other parties to find out about their efficiency gains.


598
And again, this is important, because as I said earlier, the signals as to what the expectations were going to be on rebasing were that there was going to need to be a line-by-line scrutiny of the O&M budget, and that's what the company tried to deliver. The company delivered a department-by-department budget for the purposes of rebasing.

599
But I've already shown you the IGUA evidence and what IGUA was seeking to do, which was not to proceed with what I would call a true rebasing of the O&M budget, but to work off of a 2002 number with some adjustments. So having had little interest in what I perceived to be a real rebasing of the O&M budget, IGUA now says, Well, it's necessary to get information from unregulated entities for the purposes of rebasing.

600
And I submit to the Board that the intervenors shouldn't be able to have it both ways. And in order to do this, I just -- and to talk about where this would take the Board, perhaps we could start with the assumption that it is appropriate to do what the intervenors want to do and to look at financial information from affiliates on rebasing.

601
So that's not accepted. It's what is in dispute here today, but let's just assume that was appropriate.

602
So what would happen on a true rebasing would be this: The Board would, in my submission, having had the unbundling and then the targeted PBR plan after the unbundling, would figure out what it now really costs to run the core utility in fiscal 2003. That would be the first part.

603
And the second part, based on the assumption I described, is the Board would figure out what alleged efficiency gains from affiliates ought to be netted out of that real cost of running the utility. Well, what IGUA seems to want is the second part of rebasing, the disputed part, without the first part.

604
And if I may just address some submissions to why this is important. In my submission, it's completely unfair and inappropriate. In this scenario, the Board is only doing half a rebasing, and it's only doing the disputed part.

605
If the Board does this half a rebasing, looking out at these efficiency gains in affiliates, I submit that with whatever number comes back, if any, and is netted out of the fiscal 2003 O&M envelope, the Board will have no way of knowing whether the utility can be safely, securely and reliably operated with the resulting net O&M budget.

606
And the reason is, we never did the first part of rebasing. There was not an analysis of what it now costs to run the core utility.

607

So again, I'm proceeding on an assumption here, but my point is, if some number were to come back from this process that the intervenors want to embark on, I submit to the Board that in terms of -- once that number is netted out of the O&M budget in relation to what it really now costs to run the core utility, that would be a completely arbitrary number, and in my submission, that's the very antithesis of just and reasonable rates.

608
Now again, as I said, the company certainly did agree in the settlement proposal to an envelope O&M number. In the circumstances, and I think this is described in the settlement proposal, all parties accepted the need to come to some sort of agreement on O&M for very good reasons. However, that does not mean that the company accepted that that was a proper rebasing. And as I've submitted, in the face of what was said in the IGUA evidence, the company did not see how a proper rebasing was going to be possible at the settlement conference or at the hearing.

609
That being the case, if there's not going to be a proper rebasing on the first half, then rebasing shouldn't become an excuse on the disputed half for looking at alleged efficiency gains of affiliates.

610
It's my submission that intervenors should not now be able to rely on rebasing as a reason for detailed scrutiny of unregulated entities. And I suggest to the Board that scrutiny would have to be detailed of these affiliates, notwithstanding what intervenors might wish to suggest to you.

611
For example, one of the items that intervenors have requested are audited financial statements for Enbridge Operational Services, Enbridge Gas Services and Customer Works Limited Partnership. The Board would be well aware that financial statements do not contain any line items for efficiency gains, and certainly financial statements for companies that provide services to a number of different customers.

612
So somehow, these financial statements again, on the assumption that the intervenors' position is correct, would have to be translated into a number that would be meaningful in relation to these alleged efficiency gains.

613
I must say, in my mind, there's even a real definitional issue as to what these efficiency gains are. Is it just simply any efficiency that was achieved by the unregulated entity during the time it provided the services to the utility, without regard to what sort of entrepreneurial effort in the unregulated context that the affiliate was allowed -- able to bring in order to achieve those efficiencies? Or is it to somehow compare the efficiencies that were able to be achieved in an unregulated entity to what might have been achieved in the utility? I don't know. But whatever it is, it's my submission this is not something that can just be divined from an income or expense statement or from a balance sheet. This question of efficiency gains is a complicated one that would require scrutiny of this financial information from the affiliates.

614
I ask the Board to just stop for a minute and think about what all of this, what I just described, means for utility regulation in Ontario. On the one hand we have the regulated utility coming out of unbundling and the targeted PBR plan. And the position of IGUA is that well, we just do rebasing by applying some adjustments to 2002 numbers, notwithstanding what was said in the previous cases about line-by-line scrutiny that that's not going to happen. But then in respect of the unregulated entities, where -- if this motion is successful, starting down the road of that line-by-line scrutiny that's not being applied to the regulated utility. In my submission, this is turning regulation in Ontario inside out.


615
The third area of my submissions relates to what this case is really about, and that's a determination of just and reasonable rates for the fiscal 2003 test year. I suggest to the Board, as I did earlier, that when Enbridge Gas Distribution purchases goods or services from an arm's-length service provider it is perfectly appropriate for the Board, when determining just and reasonable rates, to look at what Enbridge Gas Distribution pays and to determine whether that's just and reasonable. I submit, though, that surely no one would suggest that in addition to that, one should embark on an inquiry about efficiency gains of an arm's-length service provider.

616
So what's the difference in the case of an affiliate, I ask rhetorically? Well, the difference in the case of an affiliate is what the Board has addressed with the Affiliate Relationships Code. The Board has set the code of rules to govern the supply of goods and services between the utility and affiliates, and I won't repeat all of this because it was part of a previous submission. But, in my submission, it's not appropriate to change the rules to something different in respect of PBR rebasing.

617
But I do submit that where the Affiliate Relationships Code is complied with, and that will be something to be addressed in this hearing, a transaction with an affiliate is essentially the equivalent to a transaction with an arm's-length third party under the rules as they exist now. And I submit to the Board that the rules have to be those as they exist now. They can't be some unknown or unspoken rules that might be added in addition to the Affiliate Relationships Code because there would be no ability to comply with something that is in addition to the code but has never been stated or made known.

618
Now, also on this point about just and reasonable rates I have some other submissions, and these points are all taken from the evidence. Just so that you do know that they are from the evidence and I'm not giving the evidence myself, I have the evidentiary references each time.

619
But the points are as follows: Enbridge Gas Distribution now serves about 1.6 million distribution customers, that's Exhibit A.1, tab 3, schedule 1, paragraph 13. During the course of the targeted PBR period, the company's customer base was expanding at approximately 3.4 percent per year, or more than 50,000 customers a year. That's Exhibit A.1, tab 3, schedule 1, paragraph 2.

620
So from 1999 to this year, 2003, we're looking at an increase in distribution customers of 200,000 or more. In addition to that, there have been expenses over that period that for reasons beyond the control of the company have increased. An example of that is insurance, and I think the Board would be well aware of the events in the world that have affected the cost of things like insurance. And this is addressed at Exhibit A.6, tab 1, schedule 1, paragraph 20.

621
So the company's department-by-department budget for O&M to run the utility in fiscal 2003 was around $305 million, that's Exhibit A, tab 1, schedule 1, paragraph 27. This is with the customer growth that's occurred, with the expenses beyond the control of the company and so on.

622

Now, on the day that the settlement proposal was addressed, some explanation was given that compare the 305 million proposed budget to the number for O&M that's in the settlement proposal. There has to be an adjustment for an apples-to-apples comparison. The reason for that is that prior to the settlement proposal the service fees were shown as a deduction from O&M. The -- one of the points of the settlement proposal was to turn those into an other revenue item, so they are no longer a deduction netted out of O&M. So that's an amount of some 9 million. So to make an apples-to-apples comparison, it would be 305 million, plus 9 million, which is 314 million compared to what is in the proposal.

623
Now, this original number, the company's original budget for O&M included efficiencies achieved during targeted PBR. This is addressed in an interrogatory response to a question from CAC, IR number 116, which is Exhibit I, tab 2, schedule 116.

624
These efficiency gains during the targeted PBR that were in the company's original numbers were valued at 15.5 million. That's in the same interrogatory response.

625
So the original O&M number contained these efficiencies of 15.5 million that were being delivered, that number was reduced on a comparable basis from what was effectively 314 million to 270 million, plus DSM in the settlement proposal.

626
In my submission, this is a significant amount of additional efficiency that's being delivered to ratepayers in the settlement proposal. You can label these efficiencies as coming from wherever you want, but there was already 15.5 million, and the company made a big cut in its O&M number to come to the 270 million plus DSM in the settlement proposal. The efficiencies are being delivered in that number.

627
Just on this point of the delivery of the efficiencies, a couple of more additional evidentiary references: At the O&M budget of 305 million in the company's filing, the evidence was that O&M costs per customer had declined 20.6 percent since 1993. That's Exhibit A, tab 1, schedule 1, paragraph 27. That's since 1993.

628
Now, since 1999, before the targeted PBR plan started, the company's evidence showed that with the $305 million number, O&M cost per customer was lower in 2003 than before the start of the TPBR, 1999. That's Exhibit A.6, tab 1, schedule 1, paragraph 48. So that's with the starting number.

629
I suggest to the Board that with the efficiencies that have been delivered in the settlement proposal with 270 million plus DSM, that decrease from what the cost per customer was before targeted PBR only becomes more pronounced, and that's where the efficiencies are.

630
They have been delivered, and again, if parties want to label where they're coming from, they can do so, but the efficiencies are there.

631
Then the final area of my submissions are in relation to the proposal that was made in the March 21st letter, and my submission to the Board is that in comparison to the far-reaching nature of what I described in the notice of motion that the company's proposal is a reasonable one in the circumstances.


632
Before coming to the main part of my submission on that, I want to address some comments made in the arguments this morning. The comments made reference to the December decision, made reference to whether Enbridge Gas Distribution is being cooperative, even some reference to misleading evidence.

633
I submit to the Board that those comments have no application to what you're dealing with today. I don't know how there could possibly be an issue here about any witness misleading the Board, since we're talking about a motion to potentially compel some witnesses and provide documents, so I won't even respond to that part of it. But the part about being cooperative, I will respond in a little more detail.

634
In my submission, there is clearly a legitimate position that the company provides here in relation to what should happen on rebasing of targeted PBR. As much as intervenors may not agree with the company, I submit it's clearly a legitimate position.

635
Even Mr. Warren himself, when he made his submissions --

636
MR. WARREN: That's their bottom-line standard, I suppose.

637
MR. CASS: I hate to pick on you.

638
But I tried to make notes of some of his words when he was referring to other cases, and one I made a note of was "wrestling," that others are wrestling with this issue. And "grappling" might have been one. I'm not sure about that, but those were the words, that people are wrestling with this issue.

639
So at the very best, I submit, from the intervenors' point of view, this is not an issue where it's clear that the company or the unregulated parties should be doing exactly what the intervenors would like them to do. And I'd just suggest it's become a little unfair for the company to be always hearing this uncooperative refrain.

640
I can see the row of binders lined up beside Mr. Betts. I have a very good sense of the effort the company's put into providing all of that information, and in my submission, this uncooperative allegation or suggestion has reached the point of being a little unfair.

641
And this is what brings me to the company's proposal, because as the Board knows, the company doesn't accept the position that the intervenors take on this rebasing point, but it's very sensitive to being constantly -- or not constantly, but to being accused of being uncooperative.

642
So in an effort to forestall that sort of criticism, the company made a proposal. It's not that it accepted the intervenors' position, but it made a proposal to try to do something so that this uncooperative notion doesn't continue to surface. And that's the proposal that is at, I believe, tab 3 of K.11.6.


643
What I wanted to do was just quickly take the Board through this. I'll just hit some of the highlights.

644
But as the Board is well aware, there are really three outsourcing arrangements that we are talking about, Enbridge Operational Services, Enbridge Gas Services, and Enbridge Commercial Services.

645
On page 2 in paragraphs -- numbered paragraphs 1 and 2 of page 2 of that letter, the indication is that Enbridge Operational Services began providing services on October 1, 2000. So effectively, there have been two full years of services. And the proposal was that Enbridge Operational Services file in confidence statements of income and expenses for those two years that it has been providing services, two full years.

646
As I've already discussed, there certainly is an issue as to whether any financial statement is ever going to contain a line item for efficiency gains such as those alleged by intervenors. So it's certainly accepted that one can't just go to a financial statement and pick off of it an efficiency gain.

647
But if the Board were to think about what those statements provided in confidence would provide, intervenors would be able to see the income and expenses, basically the cost structure of EOS. They would know the extent to which EOS's income is exceeding its expenses and thereby producing a profit. They'd be able to compare that to the fee what Enbridge Gas Distribution pays to Enbridge Services. And they'd be able to compare it to the evidence about the avoided costs of Enbridge Gas Distribution.

648
So really, in my submission, that's a very reasonable level of information to get to where intervenors say they want to go. Similarly for Enbridge Gas Services, I won't go through the same points again, but it began providing services on October 1, 2002. Its first full year would be 2003 and in confidence, the proposal was to provide budgeted revenue and expenses for 2003.

649
The intervenors would have the same sort of information, cost structure, bottom-line profit, comparison to the Enbridge Gas Distribution fee, comparison to Enbridge Gas Distribution's avoided cost.

650
As the letter points out, Enbridge Commercial Services began providing customer care services on January 1st, 2000. The limited partnership Customer Works Limited Partnership was formed on January 1st, 2002, and the letter again points out, as I've done earlier, that Customer Works Limited Partnership has other customers which include BC Gas and Enbridge Services now owned by an arm's-length third party.

651
So the proposal was or is in the letter to provide statements of revenue and expenses for Enbridge Commercial Services for the three year, 2000, 2001 and 2002. And as indicated in paragraph 7 of the letter, and alluded to by Mr. Brett, the statements for 2002 would contain the revenues and expenses attributable to ECS's ownership interest in CWLP.

652

And again, paragraph 8 of the letter refers to CWLP and says: "The financial impact of CWLP business activity as it relates to Enbridge Gas Distribution as opposed to these other customers is reflected in the statement of revenue and expenses of ECS, 2002."

653
So again, in my submission, a very reasonable proposal in light of where intervenors say they would like to go.

654
Now, there has been some discussion about Accenture and the need for information about what the transaction was with Accenture. Mr. Thompson referred to whether there was a sale price or whether there were some differences between amounts paid to Accenture and costs incurred.

655
This has been referred to by intervenors as a capitalization of, apparently, these alleged efficiency gains. But in my submission, the capitalization, if any, would essentially be the capitalization of the financial results for ECS that are -- were included as part of the confidential proposal.

656
To put it another way, the number the intervenors are looking for apparently is some sort of annual number that they propose to be a deduction from Enbridge Gas Distribution's O&M budget for 2003. But that's, in fact, indicated in the settlement proposal in the opening words of issue 7.1 which talks about an issue pertaining to 2003 O&M expenses being reduced.

657
So even if there was some capitalized number available, like intervenors have been talking about, it would have to be worked back to the annual number that they want to apply to the 2003 O&M budget anyway. So in my submission, the appropriate way to do it, if at all, would be to look at the annual number in the ECS statements rather than having some capitalized number, assuming it existed, and work it back to where the statements would put one anyway.

658
Now Mr. Brett, in his submissions, mentioned the need for balance sheets. Well, in relation to Enbridge Commercial Services, that, in fact, was part of the proposal in the March 21st letter. The proposal was to include the year-end balance sheet of Enbridge Commercial Services for all of the years 2000, 2001, and 2002, again, on a confidential basis.

659
Others may address this after me, so I just wanted to quickly say in relation to Mr. Thompson's submission on timing, he suggested that there be a time period of ten days for compliance with a Board Order requiring production of all the things requested by the intervenors. I simply point out I don't know how anyone could know, if that full production were to be ordered, that it could be done in ten days. I don't know myself. I don't know whether others will comment on that.

660
So just by way of summary then, the company's submissions are, first, that the relief requested by the intervenors is not within the exercise of the specific powers that the Board does have under the statutory code in relation to affiliates.

661

Second, given that there has not been a rebasing exercise that has established what it truly costs to run the utility on an O&M basis in fiscal 2003 and, in fact, given IGUA's position in its evidence as to how the O&M budget for fiscal 2003 should be established, it's my submission that rebasing should not now be thrown up as a reason to start a detailed scrutiny of alleged efficiency gains in affiliates.

662
Third, the efficiencies have been delivered in the O&M number that is part of the settlement proposal, $270 million plus DSM and the information sought by intervenors is not relevant to fixing or approving of just and reasonable rates.

663
And, finally, even if the intervenors are correct in their position, the company made, in my submission, a very reasonable proposal for disclosure in confidence to address what the intervenors thought or think is necessary for this Board to do, and that proposal is far more reasonable than the far-reaching request made in the notice of motion.

664
Those are my submissions, Mr. Chair. I'm sorry I went -- a little over my time estimate, I apologize.

665
MR. BETTS: Thank you, Mr. Cass.

666
[The Board confers]

667
MR. BETTS: Thank you, Mr. Cass. We do have a couple of questions for you.

668
You did indicate that at one point that you felt that in order for the intervenors to achieve what you expect they're trying to achieve that a very detailed analysis would be required. And that seems to contradict what you said about the March 21st letter being sufficient from the company's point of view. Can you clarify that contradiction for me?

669
MR. CASS: Yes, and I understand your concern in that regard, Mr. Chair.

670
I think what I'm trying to say is that in all the circumstances, that the proposal made by the company in the March 21st letter is a reasonable one, and assuming that the Board felt it necessary to take this issue where intervenors allege that it should be taken, it gives the tools to do that. That's my submission, that the March 21st proposal would give the tools.

671
In terms of the full scrutiny that intervenors might want to do, I accept it doesn't go there. If there's to be some attempt to take all these financial statements and under the intervenors' motion all that information and try to translate that into some kind of line item called efficiency gains, I don't even begin to know how we do that. And I'd have to accept that the March 21st proposal doesn't go all the way down that detailed scrutiny road that would be necessary to get there.

672
What I'm saying is that I think the March 21st proposal is a reasonable one to provide reasonable tools for an assessment of what intervenors suggest should or needs to be assessed.

673
MR. BETTS: The second and last question I had related to one point that you made, that it is appropriate for the Board to determine whether EGDI is paying a reasonable price for the services that they are gaining, acquiring.

674
Do you feel that there has been sufficient evidence provided to help the Board understand what the costs of those services are?

675
MR. CASS: Yes, I do, Mr. Chair, and particular in relation to customer care. I didn't go into this in detail but, of course, the real numbers, so to speak, here, are in relation to customer care. But by comparison, the numbers for EOS and EGS are relatively very much smaller, and there has been very detailed evidence on the issue of how just and reasonable are the costs being paid by the company for customer care. I could say anecdotally, I endeavoured to gather it all together in one large binder, the evidence just on the customer care costs, and I wasn't able to do it. There is just so much of it. In particular, there's the report of Douglas Louth which addresses the reasonableness of these costs. So, definitely, Mr. Chair, I think the evidence is there.

676
MR. BETTS: Thank you. That does conclude the Board's questions for you.

677
We're obviously not going to finish at 4:00 since it's five past that hour now. It certainly makes sense to the Board to try and get the responses, if we can, to the motion which I believe could take us -- well it will certainly take us into the supper hour. Does that create a problem for anybody? That would leave the reply for tomorrow morning, basically.

678
Does that seem like a reasonable plan?

679
I think with that, and I see no strenuous objections, we'll take a short break and we'll return to hear the remaining responses and we will conclude the day's session after that.

680
So let us break for let's say 15 minutes and we'll return and try and conclude. We stand adjourned.

681
--- Recess taken at 4:09 p.m.
682
--- Upon resuming at 4:30p.m.
683
MR. BETTS: Thank you everybody. Please be seated.

684
Welcome back, everybody. Can I have an indication, I believe that there are three or four parties that would like to speak in response to this motion; is that correct? Can I see a show of hands. That helps. And is there any order that's been pre-determined?

685

MR. HOWE: Yes, there is, Mr. Chairman an order that has been determined. Ms. Stewart will begin for EI.

686
MR. BETTS: Okay. And Ms. Stewart will be followed by?

687
MS. STEWART: Followed by Mr. Sproat, followed by Mr. Howe and Mr. Smith.

688
MR. BETTS: Thank you. Then -- Mr. Cass.

689
MR. CASS: Just before that begins, Mr. Chairman and very quickly, if I could come back to the last question that you asked me after my submissions. On reflection, I think I should have been more careful in my answer. It's been said to me I wouldn't make a very good witness.

690
You asked me about the evidence on the record about reasonableness of cost. I said in relation to Enbridge Commercial Services I believe that the evidence is on the record. In relation to EOS and EGS, I believe that the Board would have the information it needs with the proposal that's been made in the March 21st letter. So I should have had that clarification.

691
I think there's -- the evidence is there on Enbridge Commercial Services without the proposal, and it's there on the other two with the proposal.

692
MR. BETTS: Thank you for that clarification.

693
Are there any other preliminary matters? Then, Ms. Stewart, please proceed.

694
SUBMISSIONS BY MS. STEWART:

695
MS. STEWART: Thank you, Ms. Chairman. As I indicated, I'm representing the interests on this motion of the four entities that are considered to be affiliates pursuant to the Act, affiliates of the company, applicant, in the proceedings before you.

696
My submissions are going to be directed principally to the appropriate process at issue and the general principles involved in considering whether the Board can or should grant the Orders sought by the moving parties.

697
The affiliates, being Enbridge Inc., Enbridge Commercial Services Inc., Enbridge Gas Services Inc. and Enbridge Operational Services Inc., are obviously not parties to this rate hearing. Further, they're not regulated by this Board. The only Board powers that relate to them are those that were reviewed by Mr. Cass as set out in sections 43 and 44 of the Act, and with respect to the powers referred to in the Affiliate Relationships Code passed pursuant to section 44.

698
On behalf of the entities I represent, we would adopt all of Mr. Cass's submissions with respect to the problems raised concerning the scope and relevance of the materials sought by the moving parties, and certainly with respect to the third -- the non-parties to these proceedings. We would emphasize that the scope of the information sought is of such breadth that it would place an unreasonable onus upon those non-parties to comply and the nature of it, and I'll deal with this in a few moments, is obviously of the -- referring to the kind of information that inevitably would require the provision of confidential, sensitive business information.

699
And as Mr. Cass has pointed out, there is nothing in the moving party's notice of motion that addresses or seeks to deal with that aspect of the information sought. And in terms of fairness to the parties and to the non-parties, those issues and concerns, in my submission, should be given considerable regard.

700
It has become clearer as the proceedings commenced that, in fact, the moving parties are asking for a discovery. They're asking for production from, among others, non-parties.

701
First of all, as a first principle, I would suggest that great care should be exercised by the Board before making any orders that may affect any non-party, even those that might affect entities which can be fairly described as affiliates of the utility applicant in this hearing.

702
And rather than to look to the Court of Appeal for the State of Michigan for guidance, I'd suggest that it would be better and more helpful to refer initially to the Board's own rules of practice and procedure that govern the discovery process for a proceeding of this nature. Those excerpts from those rules of practice and procedure are contained in the brief of authorities filed by counsel for the moving parties, I believe it's K.11.2, at tab 2.

703
And the pertinent sections of the rules of practice would be, in my submission, sections 28 and 29 dealing with interrogatories which set out the process for pre-hearing -- the obtaining of pre-hearing information.

704
In section 28, I believe that the section that's in -- excerpted in the materials in the authorities brief actually does not include section 28.02(a), but I can tell you that what that provision allows for in terms of interrogatories.

705
"28:02(a): Interrogatories shall, (a), be directed to the party from whom the response is sought."

706
And if you refer to section 28.01, again, that provision reads: "In any proceeding, the Board may establish an interrogatory procedure to (a), clarify evidence filed by a party, simplify the issues, permit a full and satisfactory understanding of the matters to be considered, or expedite the proceeding."

707
As sections 28 and 29 continue, in my submission it is manifestly evident that the interrogatory or discovery process that's been adopted by this Board is restricted to parties to the hearing. There's no mention whatsoever of any right to obtain information or answers from non-parties.

708
And just as a side comment, reference was made during the submissions by counsel for the moving parties to the United States case involving WNG, in which case the federal commission, being the statutory body in that case, according to that decision, did have well-established processes in place for disclosure and discovery of information from non-parties. That's not the case here.

709
Counsel also made reference to the Dofasco case. That was the case involving the Ontario Human Rights Commission and the requirement that the complainant in that case produce certain medical records which were considered to be relevant to the proper adjudication of the issues by the board of inquiry in that case. That was a pre-hearing issue. It was a discovery issue, as is the case here.

710
In my submission, the decision of the Court of Appeal in that case is of very limited assistance to the moving parties, and perhaps further, it would be fair to say it's really of no assistance.

711
In reference to section 5(4) of the Statutory Powers Procedure Act, which is referred to in that decision, and perhaps, I could ask you to turn to that now. It's at tab 6 of the authorities brief. And the section of the Statutory Powers Procedure Act is set out at page 10 of the decision.

712
That section is the section that was considered by the court of appeal in determining whether it was appropriate for the Commission -- for the board in that case to require this complainant to produce these medical files.

713
If you will turn to page 15 and, in particular, paragraph 50, the Court observes that: "The Commission had submitted that the board had no power to order disclosure from the complainant's doctors, because they're not parties to the proceeding."

714
And the Court goes on to say that: "It's not necessary to determine whether the disclosure provisions in the board's rules and section 5.4 of the Statutory Powers Procedure Act confer power to order disclosure by non-parties, because I think that the Order in question is confined to imposing disclosure obligations on a party, the complainant, and not on her doctors who are not parties."

715
And the Court also observes that: "The complainant has a general right of access to her medical records in the form of obtaining copies of them from her doctors."

716
So essentially, the Court of Appeal in that case did not answer that question. They did not approve any requirement in the context of that proceeding for production from a non-party. In fact, in reality, the production was from a party, from the complainant herself.

717
And if you consider that decision in light of the Board's own rules of practice, I would submit that the nature and content of the rules make it clear that all pre-hearing discovery is restricted to the obtaining of relevant information from parties to the hearing and not from non-parties and that it is those rules that should govern this particular issue before you.

718
And in my submission, the rules of civil procedure that apply to civil actions and the discovery in civil actions really do not apply and are of very little help to you in determining what is the fair and proper approach to take to this case. You have established your own rules and, in my submission, they are clear, and they should be followed.

719
In addition, the disclosure proceedings, the disclosure requirements in the rules, in my submission, appear to require the applicant to only produce for pre-hearing purposes what is in its possession. And the detailed discussion as to what can be done by the utility applicant in describing any conditions or problems or inability to provide the answers to the interrogatories is, again, set out in the rules. That does not create, then, an avenue to permit the Board to require any additional disclosure before the hearing, before the determination of those issues by non-parties.

720
And as a result, again, keeping in mind without the necessity to go down the road any farther, these problems which are problems of jurisdiction and authority do become complicated when the Board is asked to require production of documents from entities which are unregulated, which operate in a commercial environment, which are not parties to the proceedings and some of whom carry on business outside this province.

721
If the Order -- if any Order is made, in my submission, it would be made as against the applicant company as the party. And in my further submission, that applicant party has to judge what it considers to be necessary and advisable to produce to discharge the onus upon it to convince the Board that the rates urged upon the Board are fair and reasonable in the circumstances.

722
As Mr. Cass indicated in his discussion of issues of relevance and the preview of the arguments that are likely to be made as the hearing progresses, the issue of relevance of any of these matters will be in issue and the subject of the argument at the hearing and, to the extent that it is at the end of the day considered to be the determination that somehow something that the applicant has not brought before the Board is of a nature that would permit the arrival at a conclusion that somehow that onus has not been discharged is, in my submission, for the applicant to determine and the applicant to deal with, and not for the making of orders for production prior to any hearing against entities which are not parties to the proceedings.

723
The information requested on its face is, in my submission, obviously confidential in nature. It's -- the breadth of the request would embrace sensitive financial information that would inevitably include information concerning other customers and other aspects of the private affairs of those non-party unregulated entities and would inevitably result in a potential competitive disadvantage and that is another important consideration, in my submission, for you to provide appropriate attention to in arriving at the disposition of this motion.

724
If you determine that any order for production is to be made, and I would urge you that no order, no such order and certainly no such order as against the non-party respondents is appropriate, any such order should be as against the applicant only and should contain appropriate provisos to adequately safeguard the confidentiality of any information that is obtained by the applicant from the non-party respondents as set out in Mr. Cass's letter of proposal.

725
In his letter, he does refer to the Board's guidelines with respect to confidentiality of filings which I submit certainly represents a concern on the part of the Board and a sensitivity to maintain the integrity of confidential information in proceedings before it. And in my submission, it would be essential to the making of any order that those kinds of safeguards would and should be attached as conditions to the provision of any such information.

726
The time line with respect to production and, in fact, the nature of the -- and degree of the conditions of confidentiality would depend -- may vary depending on what and how much would be required to be produced.

727
Finally, in my submission, the Board should maintain control over its own processes with an eye to expedience and efficiency and with an appropriate view to those considerations and those goals and the concern and evident restrictions placed upon the Board that would not permit it to make the orders requested as against non-party entities.

728
I would ask that you dismiss this motion as far as the non-party entities are concerned.

729
MR. BETTS: Thank you, Ms. Stewart.

730
[The Board confers]

731
MR. BETTS: Thank you, Ms. Stewart. We have no questions.

732
I believe Mr. Sproat is next.

733
MR. SPROAT: Yes, thank you, Mr. Chairman.

734
SUBMISSIONS BY MR. SPROAT:

735
MR. SPROAT: Mr. Chairman, Mr. Dominy, I'm in substantial agreement with the points made by Mr. Cass and Ms. Stewart so I won't repeat those and I'll try to get right to the point, given the time.

736
First of all, the facts that you need to know and to bear in mind that underpin the submissions on behalf of Customer Works Limited Partnership are simple and they've been referred to, to some extent, before. CWLP is not a party to the proceeding; it's not an entity regulated by the Board. It's a limited partnership in which BC Gas holds a 30 percent ownership interest. CWLP has customers that are completely unrelated to Enbridge, it has a supplier completely unrelated to Enbridge, Customer Works Inc., sometimes referred to using the name Accenture.


737
The documents sought, clearly, would require the parties to produce confidential information that would relate to and be sensitive to and prejudicial, perhaps, to their own business and also information that would be sensitive and perhaps prejudicial to the business of customers, suppliers, and the shareholder, BC Gas.

738
Now, Mr. Chairman, I listened very attentively this morning to the moving parties to try to understand the legal basis upon which they wanted you to reach out to non-parties and require this, if I could call it voluminous or extensive or sensitive disclosure of documents. And with the greatest of respect, what I heard this morning was it's incidental to other powers the Board has or it's an implied power or there are U.S. cases involving quite different regulatory regimes and quite different statutory provisions which provide the authority. And my submission is that's -- that's not nearly good enough. The starting point has to be: What does the Act that governs this Board say, and what do the rules of this Board say? Because the rules are, as you know, quite extensive.

739
If you look at the notice of motion, the notice of motion references sections 19, 36, and 43 of the Act. That's what it references. And again, those are all general provisions dealing with the rate-setting authority of the Board, and so on. But there's nothing in those sections, in my submission, that in any way authorizes the Board to deal with non-parties.

740
Then the notice of motion also references the court rules of practice. And the Board members may be familiar with this, but prior to 1998, the Energy Board Act had a specific provision, section 14, that said, in effect, the Board shall have the same powers as a Superior Court judge in relation to certain matters, and those matters included the attendance and examination of witnesses, production and inspection of documents.

741
In other words, prior to 1998 there was an express linkage between the powers of this Board and the powers that the Superior Court would have. That provision is no longer in the Act, undoubtedly because the Act contains very elaborate provisions for the procedures to be followed by the Board, and also provides a rule-making authority to the Board so that the Board can make up -- after following the proper processes, the Board can come up with its own set of procedures and its own rules of practice, which it's done.

742
So in my submission, we're not really assisted by going back to what the courts do. That might have been appropriate prior to 1998, but in my submission, it's not appropriate now.

743
Ms. Stewart took you to the Board rules which, as I say, are quite detailed dealing with pre-hearing disclosure and the interrogatory process. And that process all relates to parties, and in my submission, the rules don't contemplate reaching out to non-parties.

744
One further reference on that point though that I would give you is simply rule 8 dealing with motions. We're here today on a motion, and when you look at rule 8, which is set out in the brief of authorities that Mr. Thompson filed -- I'm sure you're familiar with it, and I don't know that I need to have you turn it up -- but I simply note, 8.01 says:

745
"Any party requiring a decision or Order of the Board can do so by a notice of motion."

746
In other words, it's a party that invokes the notice of motion procedure. And under 8.04, it says: "Unless the Board directs otherwise, a party who wishes to respond to the notice of motion can file evidence, a written response ..." And so on.

747
My only point is that this is another section of the rules which, in my submission, indicates very clearly it's parties that are being governed by this procedure, and there's no intention to reach out to non-parties.

748
I would like to make brief reference to the Dofasco case because it's a decision of the Court of Appeal, and it's -- was referred to by the moving parties. And if I could ask you to refer to that, it's in K.11.2, the brief of authorities at tab 6.

749
And the particular paragraph I want to take you to is page 15, paragraph 50. It is the paragraph Ms. Stewart had taken you to, but there's one further point I want to make in this paragraph.

750
If you look at the second sentence, it says: "It's not necessary to determine whether the disclosure provisions in the Board's rules and section 5.4 of the Statutory Powers Procedure Act confer power to order disclosure."

751
Now, just stopping there. In my submission, there's two questions for the Board, and unless you can answer "yes" to both of them, this motion has to be dismissed.

752
First of all, based upon that sentence, you have to say, Do the Board's rules confer power to order disclosure by third parties or non-parties? That's the first question. And my submission on that clearly is, no, that the Board's rules themselves don't confer power.

753
The second question is: Does section 5.4 of the SPPA confer power? And that's the issue that the Court of Appeal specifically left open in this case. They didn't decide that issue.

754
And with respect to that issue, if I could take you back to page 10 of the decision. At page 10, the text of 5.4 is set out just below the middle of the page, and you'll see it talks about that the tribunal can make orders for.

755
And in my submission, when you go down that list, again, it's clear that it's contemplating exchanges that would occur between parties. It's exchange of documents, examination of a party, exchange of witness statements or expert witnesses. That's something that takes place between parties. And provision of particulars, of course, takes place only between parties.

756

So when we've got this subparagraph (e), any other form of disclosure, in my submission, what's clearly contemplated is disclosure of the types listed above or analogous to the types listed above. In other words, disclosure among parties.

757
So in my submission, the Dofasco case is actually helpful to the responding parties. You've got to be able to answer yes to the question: Do the Board rules confer power to order disclosure from non-parties? And you've got to answer yes to whether 5.4 of the SPPA does. And in my submission, the answer to both those questions, in fact, is no.

758
With respect to the issues as to the evidence that's been put before the Board, the ability of the Board to make a decision without reference to this additional information, I would simply adopt the submissions made by Mr. Cass on that point.

759
With respect to the information that is being requested, there's been some discussion of it. I would simply say when you look at the scope of it, it's clearly sensitive financial information that either reveals information or allows inferences to be drawn about pricing, cost, financing. And that would be, in my submission, manifestly unfair to non-parties to have that type of information produced on the public record or, in fact, produced at all.

760
I also note the fact that -- it is, perhaps, of secondary significance, but nevertheless significant. My first position is there's simply no jurisdiction to impose these burdens on non-parties, but I certainly would ask the Board to consider, I guess, the onerous or the burdensome nature of what would be required of non-parties in becoming involved in the document production and the testimony that's contemplated by the notice of motion.

761
My final point is simply the notice of motion, as has been noted, pays no attention to any confidentiality concerns associated with this request for documentation. My submission would be that if contrary to these submissions, the Board is of the view that any production of documents should be ordered, that the Board should take a cautious approach in that regard.

762
And I would refer to the Board's guidelines for the treatment of filings made in confidence, and this is in K.11.2 at tab 2. And at page 13, there is specific provisions, as I'm sure you're aware, dealing with the situation where confidentiality concerns are raised in the conduct of an oral hearing and that's 3.8.2 at page 13.

763
And the panel is given the authority to take whatever action it considers appropriate to preserve confidentiality, it says: "Including but not restricted to deciding that the panel will analyze the record and decide what will be maintained in confidence, including or not including any parties in the confidentiality decision-making process, in conducting written or oral proceedings or conducting in camera proceedings to determine confidentiality."

764

In my submission, if there was any Order, it should be made and provide that any documents be filed in confidence and that the Board conduct an in camera hearing to consider such evidence. I'd suggest that at that time, when we know what the documentation is and exactly what it says, at that point it would be appropriate for the Board to determine who would be permitted to attend that hearing and on what terms. And as I'm sure you you're aware, the guidelines themselves contemplate the possibility of the declaration of undertaking being signed to participate in the process.

765
Those are my submissions.

766
MR. BETTS: Thank you, Mr. Sproat.

767
The Board has no questions.

768
Mr. Howe.

769
SUBMISSIONS BY MR. HOWE:

770
MR. HOWE: Thank you, Mr. Chairman, Mr. Dominy. I act on behalf of Customer Works Inc., which I will be referring to as CWI, and my submissions will be in three areas. First, business concerns of my client; secondly, jurisdictional concerns; and third, I'm going to seek to deal with the submissions of Mr. Thompson with respect to the proceedings in court and the application of the Ontario rules of practice to the proceeding before you.

771
Beginning firstly with the business concern, I think it's important from the perspective of my client to explain its unaffiliated nature to the other respondents in this motion.

772
CWI has been part of the Accenture organization and Accenture is a global management consulting and business processing, outsourcing organization. My client, CWI, provides full service customer management solutions to more than 3.5 million customers for a number of Canadian utilities municipalities and retail energy companies, including EGD. And that full service goes from the meter to the cash operation and includes customer contact, billing, meter-reading services, credit and collections and payment processing.

773
On August 1st, 2002, pursuant to a subcontract between the Customer Works Limited Partnership and a numbered company, my client obtained the provision of the services previously provided by CWLP. The numbered company's name was subsequently changed to CWI.

774
Neither CWI nor any other Accenture entity are affiliated with or related to any named party in these proceedings. They are truly independent third parties and that puts CWI and Accenture in a very different category.

775

Accenture operates in a highly-competitive environment with regard to customer care outsourcing in the North American marketplace. All aspects of Accenture's business, including the deal and pricing structures, contain highly confidential and competitive information, and Accenture will suffer serious irreparable commercial harm if the information that is sought from my client is made public. Those submissions are part of our intervention and are now part of the record in this case.

776
Now, insofar as the motion is concerned, the first time I read it what I was left with was the impression that this is tantamount to a house-to-house search for documents which may evidence efficiency gains. And the question I asked myself initially was, Where will it end? My client is truly a fourth party. Does the inquisition go on to a fifth party or a sixth party?

777
Mr. Shepherd, in his submissions, used a very quaint analogy. He talked about pizza delivery and how that could be a pizza delivery service. Using his analogy, if my client had a pizza delivery service and recognized the benefits of natural-gas vehicles for the delivery of pizzas, does that draw into this inquisition the benefits derived from a cheaper source of fuel? It becomes somewhat ridiculous in its ability to play itself out.

778
Now, I'd like to stop there for just a moment and deal with jurisdictional concerns. Section 36(2) of the Energy Board Act provides to the Board jurisdiction to approve or fix just and reasonable rates. Section 36(5) says, "If the Board isn't satisfied with the application, the Board has the authority to fix other rates that are just and reasonable."

779
And section 36(7) says: "The onus is always on the utility." In other words, the utility always bears the risk of non-persuasion before this Board.

780
Now, a while ago, at the conclusion of my friend Mr. Cass's submissions , the Board asked what I thought was a very prescient question, and that was, in effect, Mr. Cass, has your client in its view provided the Board with sufficient information to render a decision, among other things, cost of service, customer cost of service? Mr. Cass said, Yes, with the proposal -- in other words, there is sufficient evidence on the record now and we will put additional information on the record through the proposal and that, in our view, is sufficient.

781
Now stopping there for just a moment, that, I think, is a full-stop answer to the question. If the Board at the end of the day decides that Mr. Cass's client hasn't adduced sufficient evidence, the Board has a lot of remedies available to it. It can impute efficiencies. It can disallow costs. It has the ability, if it's not satisfied with what Mr. Cass's client has to say, to fix other rates that in its view are just and reasonable. What it doesn't have is the authority to order production of confidential information from third parties.

782
I'm going to move on now to the comparison that Mr. Thompson attempted to draw between the power of this Board and a power of the Court under the Ontario rules of practice.

783

Lawyers talk about the fact that tribunals are creatures of statute. In other words, the power that you gentlemen have is derived from the Ontario Energy Board Act. That's very different from the overriding power that a Court has. Very different.

784
You must look to the governing statute to make decisions. The Court doesn't have to do that. The Court can look to among other things, however, its rules of practice to determine what is fair in the resolution of disputes between parties. And I want to underscore that last point. The resolution of disputes between parties. My client is not a party to a dispute.

785
But even assuming Mr. Thompson is correct, even assuming that this Board can somehow use what I would say is a bootstrap argument to give itself jurisdiction, what I want to do is compare what he is asking you to do to what is available in front of a Court. And the first thing I would ask you to do is refer to what lawyers call the deemed undertaking rule, a copy of which I have provided to my friends and Mr. Moran.

786
MR. BETTS: Mr. Moran, an exhibit number?

787
MR. MORAN: Yes, Mr. Chair. That would be Exhibit K.11.7, rule 30.1.01, deemed undertakings.

788
EXHIBIT NO. K.11.7: RULE 30.1.01, DEEMED UNDERTAKINGS

789
MR. HOWE: Now, Mr. Chairman, Mr. Dominy, the lawyers in the room will be familiar with the deemed undertaking rule. What it says in a nutshell is that if you obtain documentary discovery of information, that information can't be used for a collateral purpose.

790
And what it's intended to do, it's intended to keep private disputes private. So in other words, if I were to obtain a document in a discovery proceeding, I can't take that document and put it in a public forum. I can't leak it to "The Globe and Mail." I would get myself in trouble in front of the Law Society, because I would have breached the deemed undertaking rule.

791
And the policy behind that rule is: Private disputes should not be made the subject of public attention, and you can't use the information from a discovery for a collateral purpose.

792
Now, the Courts have been very, very mindful of confidentiality policy, and I would ask you to turn with me, please, to the case of Union of Canada Life v. Levesque Securities, copies of which I've provided to my friends, and a copy of which I've given Mr. Moran.

793
MR. MORAN: Mr. Chair, that will be Exhibit K.11.8, a decision of the Ontario Court General Division, Union of Canada Life Insurance v. Levesque Securities Inc. dated January 12th, 1999.

794

EXHIBIT NO. K.11.8: DECISION OF THE ONTARIO COURT GENERAL DIVISION, UNION OF CANADA LIFE INSURANCE V. LEVESQUE SECURITIES INC. DATED JANUARY 12TH, 1999

795
MR. HOWE: Now, unlike the -- some of the authorities tendered by the moving parties, this isn't a Michigan case. This is an Ontario Superior Court case recently decided, and the Court in that case had to deal with the discovery of documents.

796
In this case, the plaintiff was suing a bank and sought production of banking records and confidential information between the bank and a non-party, very similar to the situation with which you gentlemen are now faced.

797
If you look to the bottom of the page where it says, "The appeal should be allowed.." it begins, "The Master..."

798
Now, again, for the non-lawyers in the room, a Master is a lesser judicial official who makes determinations as to the producibility of documents prior to matters going on to trial, and a judge sits, in effect, in appeal from a Master.

799
So the Court said: "The Master in finding the documents in question were relevant in the litigation was not exercising a discretion but making a legal determination of relevancy. Similarly, the decision about banker-customer confidentiality and privilege was a question of law and not a matter of exercise of discretion. Accordingly, the issue on the appeal was whether the Master erred."

800
"The Master applied the test of whether there was a semblance of relevancy and ordered that the documents be produced."

801
Now, stopping there for just a moment, I would characterize the test that the intervenor -- that the intervenors are using in this motion as a request for production of documents on the basis of semblance of relevancy.

802
Mr. Justice Chadwick said the Master was wrong in this case. He says: "However, in view of the fact that the defendants did not have any interest in the bonds and would have no motive for colluding and taking into consideration that the documents related to a non-party, the plaintiff had not established a semblance of relevance. The Master, therefore, erred in ordering production. Likewise, the Master erred in failing to find that the banking information was subject to a common law privilege on the basis of the test set forth in Slavutych v. Baker."

803
Now, stopping there for just a moment, the reason that the Slavutych test is relevant is because Mr. Thompson takes the position that the information being sought is not privileged, but I submit to you it is privileged.

804

And if you would turn with me to the test in that case, which is set out on page 4 of 5, on the bottom of that page, page 4 of 5, the Court -- this is, by the way, the Supreme Court of Canada. The Supreme Court of Canada sets out the fundamental conditions to establish the privilege against disclosure of communications:

805
"(1) the communication must originate in a confidence that will not be disclosed;"

806
Stopping there for just a moment, I would suggest that the information being sought from my client were never to be disclosed.

807
"(2) this element of confidentiality must be essential to the full and satisfactory maintenance of the relationship between the parties;" My client says it is. It's relevant to the relationship that it has with its customers and its relationship with LP.

808
"(3) the relationship must be one which in the opinion of the community ought to be sedulously fostered;"

809
Stopping there for just a moment, what it says in a nutshell to me is if there is a business interest, if the community is concerned about the confidentiality of business affairs, then it -- that relationship should be fostered.

810
And "(4) the injury that would inure to the relationship by disclosure of the communication must be greater than the benefit thereby gain for the correct disposal of the litigation."

811
And I've already, through the intervention and through my comments, talked about the prejudice that will be occasioned to my client in the event that this information were to be disclosed.

812
Now, let's say for the purposes of the argument that I'm wrong about all of those points. Let's say Mr. Thompson can rely upon Rule 30.10 for the production of documents from non-parties. I say first of all, the documents are privileged. I say secondly, the documents from my client are of uncertain relevance.

813
If this Board were to be a court and if the court were to decide that the documents were privileged or if the -- if this Board, acting as a court, decided that the material is of uncertain relevance, then the Board could inspect the documents to determine the issue. In other words, even if Mr. Thompson is entirely right and even if you gentlemen had judicial gowns on as opposed to suits, at the end of the day I would still be able to make the submission that the documents should be produced to the court in confidence for the court's view, not for the public record.

814
In a nutshell, then, I would submit that the onus is on the moving parties to demonstrate that the disclosure and the production of the documents from a non-party is necessary and relevant to the determination of the issue now before the Board. You must look, I submit, at what EGD has offered in the first place. You must look at its application and its proposal and you must determine that it's not satisfactory and if it's not satisfactory, you have the right to make a determination opposite the applicant, EGD.

815
Now, if I could again go back to Mr. Shepherd's questions. He posed fairly folksy questions and I'd like to simply tweak them a little bit. The first question I think the Board has to ask itself is: Does the Board at this time, at this juncture in this proceeding, require the information from a non-party to come to its decision? And I think the answer to that question is clearly no.

816
The second question Mr. Shepherd asked and I will tweak it a little bit: Is the Board at this time, in this proceeding, entitled to demand confidential information from a non-party? And I submit the answer to that question is clearly no.

817
And the third question that I've tweaked is: What will the non-party do if the Board orders the information disclosed in a public forum at this time? And Mr. Shepherd speculated that parties would run off to court, and this proceeding would be ground down. And I think that is a very valid projection on the part of Mr. Shepherd.

818
For all of those reasons, subject to any questions that you gentlemen have, I submit that the motion be dismissed as it affects my client, CWI.

819
MR. BETTS: Thank you, Mr. Howe.

820
[The Board confers]

821
MR. BETTS: Thank you, Mr. Howe; no questions.

822
Mr. Smith.

823
SUBMISSIONS BY MR. SMITH:

824
MR. SMITH: As I'm last, I will be very, very brief. I'm appearing on behalf of Union Gas, an intervenor, and I have two brief submissions on principles that Union states the Board should consider when considering the issue of production.

825
The first issue relates to the scope of the Affiliate Relationships Code in a particular section 2.3.3 and the scope of disclosure created by that section. And the second issue relates to the breadth of the request for production and whether or not it's in the public interest to order production on that scale and that submission is quite apart from the question of whether those documents are relevant or protected by some legally-recognized privilege.

826

Turning to the first issue, the scope of the Affiliate Relationships Code. The scope of documentary production in any proceeding is determined by the relevance of the documents to the issues raised in the hearing. And relevance in the context of affiliate pricing is fixed, in my submission, by the language of the code. And documents which are beyond the language of the code are not relevant, should not be produced and, in fact, I'll make two brief submissions on this point, in fact there are two jurisdictional problems to ordering the documents to be produced.

827
Paragraph 2.3.3 of the code provides that: "Where a fair market value is not available for any product, resource or service utilities shall charge no less than a cost-based price and shall pay no more than a cost-based price. A cost-based price shall reflect the costs of producing the service or product including a return on invested capital. The return component should be the higher of the utility's rate of return or the bank prime rate."

828
And in my submission, that provision puts two things in issue, one the affiliate's cost-based price including the cost of producing the service or product and the utility's rate of return and only documents which relate to those two issues can be said to be relevant. And documents which don't relate, obviously, cannot be produced and should not be produced. And in terms as I indicated before, in terms of the jurisdictional impediments, I won't go over them in length because they've been covered, but first, the Board has no authority to determine what an affiliate may charge for a product or a service to a utility in Ontario. The Board's jurisdiction is to determine whether the recovery of the utility's cost of that product is just and reasonable.

829
To the extent that the language of the code seeks to go beyond that, it is ultra vires and cannot be means to order production of the document. So in my submission, the ARC doesn't go beyond that but to the extent the moving parties would put an interpretation on if it does would be ultra vires. And secondly, even if you were to assume that you could amend the code or enact new rules or a new code, that wouldn't be ultra vires, as Mr. Cass pointed out, and I adopt his submissions. There is a formal process for doing that, and that is section 45 which would require the Board to consult with the parties and consider the benefits and costs of such a rule.

830
If you look at notice of motion of the moving parties, in my submission, the moving parties have really admitted in the way they've drafted their notice of motion that many of the documents could do not address the issue of -- the issue addressed by the Affiliate Relationships Code and in fact if you look at paragraphs 2 through 4, it's really only paragraph 3 that gets to the issue of cost.

831
Paragraph 3 asks for an order requiring that: "EGD, EI, ECS, CWLP, EGS and EOS provide all documents including e-mail transmissions relating to the cost calculations for the services provided to EGD during the years 2000, 2001 and 2002."

832
Now, these are the only documents, in Union's submission, which could be relevant and which are covered by the Affiliate Relationships Code. To have any meaning, the other paragraphs in the notice of motion have to relate to other types of documents, and I heard one of the moving parties say at the outset that there might be some overlap. Well, I'm not sure if that's the case, but logically there shouldn't be, and the other documents must relate to something else. And if they do, those documents cannot be relevant.

833

The second issue that I'd like to raise in my submission is a public policy concern and it relates, in part, to the confidentiality concerns expressed by the other responding parties, but I'd like to focus more on the regulated entities here.

834
When considering the issue of production, as I said before, you have to consider the issue of relevance and you have to consider the issue of privilege. In my submission, a third issue is, notwithstanding relevance or privilege, you have to consider whether it's in the long-term interests of the parties and the public interest to require production, and it's the third issue I'm just going to focus on.

835
The regulation of a monopoly in the public interest is different, in my submission, than ordinary commercial litigation. In commercial litigation, only the parties are before the court and it's only the interest of those parties in that particular dispute that are at issue. In rate regulation, the Board is concerned not only with the resolution of particular issues in a particular case but with the long-term health of the regulatory system. And in my submission, it's in everybody's interest - the ratepayer, the Board, the company, and the shareholders - that the company be in a position to run its business effectively and efficiently to maximize the benefits for everybody.

836
This relates to document reproduction, in my submission, in the following way: In my submission, it is not practical to conduct a business knowing that every piece of paper, like the moving parties are asking for, every report, every board of directors presentation, every piece of analysis of a business risk might be produced in the public forum and the Board might take an account. The effect of requiring that sort of production, in my submission, will be negative on the long-term health of the regulatory system.

837
The production of material could lead to documents, internal business documents, being tailored to potentially wider or public audience or not being done at all or at least not being done in writing. And this is not, in my submission, in anybody's interest. Frank assessment of all business alternatives is in everybody's interest. People do not want to have to look over their shoulders or with a view to the public audience to the long-term when preparing their documents and this is particularly the case where after-the-fact analysis, if we're -- if an environment is created where either documents are tailored to a public audience there isn't frank assessment or worse written documents are created at all, the regulatory procedure, in my submission, will be hampered. What we will be left with after the fact oral testimony supplanting contemporaneous documentation.

838
So, in my submission, those are the two principles that the Board should consider when considering this motion; first, the scope of section 2.3.3, and second, whether or not, quite apart from relevance and privilege, it's in the interests of the regulatory system to have these documents produced.

839
MR. BETTS: Thank you, Mr. Smith.

840
[The Board confers]

841
MR. BETTS: Thank you. And the Board has no questions of you.

842
PROCEDURAL MATTERS:

843
MR. BETTS: That concludes the submission in response -- submissions in response, I believe, and that will leave reply for tomorrow. And I understand that the three parties moving -- three moving parties who have -- have selected a single spokesperson for tomorrow; is that correct? Or have you perhaps not decided yet?

844
MR. THOMPSON: That's our intention, Mr. Chairman, subject to check.

845
MR. BETTS: And can you offer the Board any estimate of how long the reply might be?

846
MR. THOMPSON: Well, I can give you my off-the-cuff estimate. I would think no more than 30 minutes.

847
Would that be right, Bob?

848
MR. WARREN: Yes, that seems reasonable.

849
MR. BETTS: Very good, then.

850
So we had scheduled for tomorrow to deal with the issues of corporate cost allocation as well, and can I ask the applicant if that panel is ready to be available tomorrow?

851
MR. CASS: My understanding, Mr. Chairman, is that the three people from Calgary are flying in to be available tomorrow, as well as the other three witnesses, yes.

852
MR. BETTS: So I believe our plan for tomorrow, then, we will reconvene at 9:30 a.m. in this room. We will hear reply from the moving parties. Following that, we will bring forward the next panel from EGDI and return to the hearing.

853
I guess I won't say anything more than that at this point.

854
MR. WARREN: Mr. Chairman, just before we break, there is an issue that Mr. Thompson raised, and he and I thought we should just raise it again. And that is the question of the effect of your decision on the scheduling of subsequent panels.

855

And the information which is being sought on the motion is relevant to both the O&M policy panel, if I can describe it that way, and also with respect to the outsourcing panel.

856
Now, the most recent version of the schedule, and I haven't been able to check my e-mail the last 20 minutes, but the most recent version of the schedule, which I got late last night, contemplated the O&M policy panel beginning as early as Thursday of this week -- sorry, I've lost track of time -- Thursday of this week.

857
And it would be -- I can't -- we can't presume how long it would take the Board to make the decision, but on -- one scenario would be that the Board would reserve its decision on the motion to consider the submissions made by all of the parties. And if that were the case, we would like some direction from the Board as to what you would like to do with that next panel.

858
It is our view, as Mr. Thompson expressed it this morning, that it is far more efficient for the process that the panel appear only once with all of the relevant information, so they don't have to be recalled at some later point. But I'm not asking for the Board to give direction on that issue now, other than to say that it is an issue which is certainly a live one for the three moving parties in terms of looking at the schedule.

859
MR. BETTS: Thank you. That was the one that I wasn't going to say anything about, to be honest with you.

860
MR. WARREN: My timing is apt, as ever.

861
MR. BETTS: No, it is very appropriate. I'm sure the question exists with everybody.

862
Just allow me a moment with my fellow panel member.

863
[The Board confers]

864
MR. BETTS: The Board certainly takes the point that's being presented by the moving parties in this case, and I think we will put it back to all of you to consider the schedule and see if there is an opportunity to make adjustments to the schedule that would allow the Board the time it needs to consider this motion as it should be considered, and it's -- very thoroughly.

865
The Board will and has already taken some scheduling steps to try and deal with the motion as promptly as possible, but obviously there are strong arguments, and it's a very significant question, and there's a lot to consider in it.

866
So I can only say that we will be giving it our immediate attention, but I would suggest that it's unlikely that there would be a decision ready for Thursday.

867
So with that, I would ask all of the participants, and some that are not present today, which is the group that's interested in DSM, to consider how we might be able to manage the schedule so as not to lose an inordinate amount of time. So we'll give you back the ball, so to speak.

868
MR. WARREN: Certainly.

869
MR. THOMPSON: Mr. Chairman, just one point dealing with the -- my presence here tomorrow. There is an IGUA seminar going on in Belleville, at which my attendance is expected. I'm just trying to get some instructions now as to whether I should get down there or stay here for the reply argument tomorrow.

870
If I'm not here, it's because I've been ordered to go elsewhere, and Mr. Warren will handle the reply. But before I do go, I'll certainly give you my thoughts on reply argument.

871
So I didn't want my absence, if it materializes, to be misinterpreted.

872
MR. BETTS: Thank you. We accept that.

873
Any other further comments before we adjourn for this evening?

874
MR. CASS: Mr. Chairman, I don't know whether the Board might prefer just to deal with this tomorrow rather than at the end of a long day. I understand that Mr. O'Leary has with him an answer to an outstanding undertaking that could be passed around, or if you would prefer, we can simply do it tomorrow.

875
MR. BETTS: It may be of interest to participants, so I think it would be worthwhile if there's information available to -- let's get it into everybody's hands. So let's take a minute to do that.

876
We're all probably late for dinner at this point anyway, so ...

877
MR. O'LEARY: I promise to be very brief, Mr. Chair. There's actually responses to several undertakings.

878
The first arises with the EnTRAC panel. I believe it was a question from the panel asking for various runs on the different methodologies that have been proposed by intervenors, and that is Undertaking J.8.1. And a number of the -- the correct number of copies has been provided to Mr. Moran already, and there are copies at the end of the -- at the back of the room.

879

The second undertaking response is J.3.1, which was given by the DSM panel and relates to determining the time spent rewriting the minutes of consultative meetings. And you will note from the last paragraph in that undertaking response that the DSM panel has determined that in the course of answering that undertaking, they determined that there were several inaccuracies in interrogatory responses given earlier, specifically at Exhibit 1, tab 2, schedule 63, and Exhibit 1, tab 2, schedule 109.

880
So to correct those, there have been also filed at the back of room and with Mr. Moran revisions to those two IR responses.

881
Briefly, they simply change some of the numbers that are allocated to the different DSM participants and the cost that each have filed in one or several of the years.

882
MR. BETTS: Thank you.

883
MR. O'LEARY: And those are the only preliminary matters that I have, sir.

884
MR. BETTS: Thank you.

885
Are there any other matters to be dealt with before we adjourn?

886
Then we adjourn now, and we'll reconvene at 9:30 tomorrow morning. Thank you.

887
--- Whereupon the hearing adjourned at 5:50 p.m.