Rep: OEB Doc: 12NBB Rev: 0 ONTARIO ENERGY BOARD Volume: 14 14 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 14 APRIL 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel COLIN SCHUCH Board Staff SUZANNE TONG Board Staff DENNIS O'LEARY Enbridge HELEN NEWLAND Enbridge ROBERT WARREN CAC MARK MATTSON Energy Probe BRUCE MacODRUM CME SUE LOTT VECC DAVID POCH GEC JACK GIBBONS Pollution Probe VINCE DeROSE IGUA VINCE DeROSE IGUA 8 TABLE OF CONTENTS 9 PRELIMINARY MATTERS: [20] ENERGY PROBE PANEL ON ISSUES 9.2, 9.5 AND 9.6; CONTINUED: RUBIN [45] CONTINUED CROSS-EXAMINATION BY MR. POCH: [47] CROSS-EXAMINATION BY MR. WARREN: [82] CROSS-EXAMINATION BY MS. NEWLAND: [116] CROSS-EXAMINATION BY MR. O'LEARY: [397] QUESTIONS FROM THE BOARD: [688] MOTION: [721] SUBMISSIONS BY MR. O'LEARY: [722] SUBMISSIONS BY MR. WARREN: [740] SUBMISSIONS BY MR. POCH: [758] SUBMISSIONS BY MS. LOTT: [781] SUBMISSIONS BY MR. GIBBONS: [784] SUBMISSIONS BY MR. MacODRUM: [790] REPLY SUBMISSIONS BY MR. O'LEARY: [812] RULING: [837] PROCEDURAL MATTERS: [842] PRELIMINARY MATTERS: [868] CANADIAN MANUFACTURERS & EXPORTERS PANEL ON ISSUES 9.2 TO 9.5: M. ROWAN: [880] EXAMINATION ON QUALIFICATIONS BY MR. MacODRUM: [881] CROSS-EXAMINATION ON QUALIFICATIONS BY MR. O'LEARY: [945] FURTHER EXAMINATION ON QUALIFICATIONS BY MR. MacODRUM: [951] SUBMISSIONS BY MR. WARREN: [958] SUBMISSIONS BY MR. POCH: [970] SUBMISSIONS BY MR. O'LEARY: [982] SUBMISSIONS BY MR. MacODRUM: [997] RULING: [1012] 10 EXHIBITS 11 12 UNDERTAKINGS 13 14 --- Upon commencing at 9:34 a.m. 15 MR. BETTS: Thank you, everybody. Please be seated. 16 Good morning, everybody. I hope everybody had a good refreshing weekend, and welcome back to day 14 of our hearing of application RP-2002-0133. 17 We adjourned on Friday in the middle of Mr. Poch's cross-examination of Energy Probe's witness, Mr. Rubin. We will continue today with that. 18 Before we do, may I ask if there are any preliminary matters. 19 MR. O'LEARY: Good morning Mr. Chair, Mr. Dominy. 20 PRELIMINARY MATTERS: 21 MR. O'LEARY: There are a couple of preliminary matters, beginning with several answers to undertakings that I have copies of for both the Board and Board Staff. 22 Copies were also placed on the back of the room on Friday, but I think I have some additional ones here as well, if need be. 23 MR. BETTS: Mr. O'Leary, the ones that were placed at the back of the room on Friday are among these, are they? 24 MR. O'LEARY: Yes, three -- we're just putting them on the record now. We did mention on the end of the day on Friday that there were several things we should have brought up, but we decided to defer until this morning. 25 MR. BETTS: Right. 26 MR. O'LEARY: The first is Undertaking J.6.2 which was to provide the figure for the discounted cost of the utility's rate of return. The second is Undertaking J.9.3 which was to provide a copy of the presentation of cost-allocation methodology to the corporate leadership team. And the third undertaking, which is being answered presently, is Undertaking J.12.3 which was to determine if Enbridge Inc. donations are allocated. 27 MR. BETTS: Thank you. 28 MR. O'LEARY: The only other preliminary matter, sir, arises out of Mr. MacOdrum's alert that he gave us late on Friday afternoon that the CME was contemplating filing some written evidence in chief, and I believe, if I recall Mr. MacOdrum's words, he said that it would all be lifted or taken or expanding upon the existing record. 29 At about 4:30 on Friday copies of the 25 pages that the CME has prepared were made available, and I have had an opportunity to review it over the weekend. I understood that several of my friends, though, have just seen it for the first time here this morning. 30 It is the company's position, for a number of reasons which I will expand upon if you consider now to be the appropriate time, that this evidence should be excluded and that we would like to make submissions on that point, and there may be other counsel that would also like to make submissions on that point as well. And my question, Mr. Chair, is whether or not the Board is inclined to entertain such a motion at this time or whether we should defer it to another point during the day. 31 [The Board Confers] 32 MR. MacODRUM: Mr. Chairman. 33 MR. BETTS: Mr. MacOdrum. 34 MR. MacODRUM: The material has been circulated for the convenience of Board and counsel. It is not yet evidence, and it will not be evidence until it's adopted by a witness. I think that's the appropriate time that Mr. O'Leary or any of my colleagues can voice their objections to all or any specific parts of it, if they feel the need to do that. 35 MR. POCH: Mr. Chairman, if I may, just on the question of the timing of this, I will be wishing to speak to it when the Board hears such a motion. 36 I think there is something to be said for hearing it now, because there are -- as we've just heard, I've spoken to a couple of counsel who haven't had a chance to fully prepare cross based on it, if it becomes necessary, so I think that would be -- their interest that we have an early indication from the Board whether we have to deal with this in cross-examination or not, so from that perspective I would suggest it would be appropriate. I don't mind my cross-examination of Mr. Rubin being interrupted to deal with it now, so we know where we stand. 37 MR. BETTS: Can I hear from -- yes, Mr. Mattson. 38 MR. MATTSON: Just a note, Mr. Chairman. Mr. Rubin has some family matters in Boston. He has re-booked his flight at the end of the day, so I was hoping we could finish by the end of the day. So if there is any priority could be given to that, and Mr. Rowan, if there are concerns with respect to cross-examination and the evidence is allowed in, maybe we could push him back a little. I just wanted to make you aware that Mr. Rubin, we're hoping anyways, can finish today, and if this jeopardizes that, it's a concern. 39 MR. BETTS: I think the panel is very sympathetic to that, the witness has returned to us today and we are thankful he did. 40 We will continue with the cross-examination of Mr. Rubin. We will entertain the motion prior to the document being entered into the record and consider the motion at that time. It will also give all of the other parties an opportunity to thoroughly analyze the document in question. 41 MR. O'LEARY: Thank you, Mr. Chairman. 42 MR. BETTS: Are there any other preliminary matters? 43 Mr. Poch, please continue. 44 MR. POCH: Thank you, Mr. Chairman. 45 ENERGY PROBE PANEL ON ISSUES 9.2, 9.5 AND 9.6; CONTINUED: RUBIN 46 N.RUBIN; Previously sworn. 47 CONTINUED CROSS-EXAMINATION BY MR. POCH: 48 MR. POCH: Mr. Rubin, I wanted to ask you about the free rider concern with respect to 2000, 2001. Is it reasonable, in your view, to assume that had we all recognized the likelihood of a much higher free rider rate early on, at the time prior to setting the budget volume targets for those -- the years 2001, 2002, that we would have taken that assumption into account when we settled on targets and budgets for those years and pivot point, just as we've done now in the settlement for 2003, and it would have -- well, let me stop there. 49 MR. RUBIN: First of all, one key distinction between 2003 and the two years that you're discussing is that we weren't halfway through those years when we were setting targets, and we are halfway through 2003, approximately, when we were discussing at ADR and now what we're discussing before the Board how to proceed with an incentive for the current year. Certainly for my client, for Energy Probe, that was a major consideration in the signing of 2003. 50 I think your point is well taken in principle that when we forecast or budget or set targets, it's based on reasonable expectations. Certainly the company, in negotiating its targets, would be loathe to agree to something that it thought was an unreasonable stretch because it would be in its -- contrary to its pecuniary self-interest to do so. So there's obviously some -- I have to say partly yes, for sure. 51 I don't know -- one of the -- one of the big uncertainties that is before this Board, and your witness Chris Neme will be speaking to it in two days and taking a view contrary to my own, one of the questions is what a reasonable rate of custom project free ridership is. And we obviously know somewhat more now than we did when we set the target. There's no denying that. 52 What we don't know is what a reasonable rate will turn out to be, given reasonable program design and reasonable incentives to have good program design. And my position is to hope and, I would say, to believe, but certainly not to be able to prove, that the rate will be low on the order of what we did forecast. I think we forecast a reasonable rate on the assumption that there would be care taken in that regard. 53 MR. POCH: All right, and just to be clear, if we are in the business of forecasting targets past 2003, and I know your position on the SSM, we hope to avoid that, but if we are in the position of doing that, I take it your position would be at that point, on a going-forward basis, you would want a no-yes approach? 54 MR. RUBIN: I think there should be a no-yes approach, and like everything else in the target setting negotiations the position of the intervenors like your client and mine should be to establish numbers that represent a stretch in the public interest for the company, and that would include a lower number for custom free ridership than we think would happen without stretching it. 55 MR. POCH: Okay. Now, if we had have had very particularly good vision back before when we were setting the targets for these historic years and we actually settled on a number that turned out to be confirmed at the end of the day in practice in the actuals, do you agree that the math of the situation would be that the SSM would be similar to what we calculate now on a yes-yes basis? 56 MR. RUBIN: Of course. If we go back and change the number to the number that it turned out to be, that is mathematically equivalent to what would have happened if we had then known and put in the number that it turned out to be. 57 MR. POCH: Great. Let's move on to a final matter. Could you just turn up the GEC cross materials which are Exhibit K.1.3? 58 MR. RUBIN: Yes. 59 MR. POCH: Page 3 thereof. It's very short. I'll read it in to save people the trouble of turning this up. This is an excerpt from transcript 169-3 of Dr. Bauer who was our witness, I believe, ironically, perhaps, for Union Gas at the time, perhaps Centra. He said: 60 "You want the utility's interest and the public's interest to be in line. You want the utility to certainly not see a loss and probably see a gain from doing what is best in terms of the public interest. That's the way you want to regulate." 61 Does that accord with your view of what should guide the Board in the broader sense here? 62 MR. RUBIN: Absolutely. And that is why it's important not only to hold the company blameless under the SSM formula for variables that are not under its influence and control, but also to hold it responsible for variables that are under its influences and control. That is how one accomplishes these lofty goals, in my opinion. 63 MR. POCH: Now, IGUA has made a proposal to cap spending on DSM or, rather, cap incentives to the company for DSM performance by multiplying the equity -- allowed equity return rate times the O&M budget. Does that structure provide an incentive which accords with what you think we all should be doing here? 64 MR. RUBIN: My understanding of IGUA's suggestion is that the SSM or the SSMVA clearance for any year should be capped at a sum arrived at by multiplying that year's return on equity times the DSM budget, not the entire O&M budget. 65 And frankly, I have trouble putting all of those things together. I have trouble seeing the logic of treating a DSM budget as if it is a pipe or a piece of asset that is included in what regulatorally would be called rate base. I don't see the connection, and I don't see the merit. 66 MR. POCH: And with respect to tying an incentive, any incentive structure cap to the DSM O&M budget, does that raise concerns in your mind? 67 MR. RUBIN: Yes, because it would add to the existing incentive of the company to maximize its budget. The company gets its budget paid for, and all other things equal, probably wouldn't mind hiring more staff and having more activity paid for by ratepayers. 68 If in addition it could have a percentage bonus tied to that number, then for every dollar budgeted it could add to -- every dollar it could add to its budget it would get another dime or whatever, potentially, in SSM. So I see that as slightly increasing an existing incentive that is not exactly in the public interest. 69 MR. POCH: Would it be fair to call it an incentive to gold plate, in common parlance? 70 MR. RUBIN: Those aren't my words, but I think we're talking in the same direction. 71 MR. POCH: Thank you, those are all my questions. 72 Thank you, Mr. Chairman. 73 MR. BETTS: Thank you, Mr. Poch. 74 Who else would like to cross-examine this witness? I might have asked this question before. 75 Mr. Warren, I know you indicated an interest when you left on Friday. 76 Any other parties? 77 MS. NEWLAND: Yes, sir, I would have some questions. 78 MR. BETTS: Ms. Newland. 79 Mr. O'Leary too. 80 MR. O'LEARY: I might have some questions. 81 Mr. Warren, please proceed. 82 CROSS-EXAMINATION BY MR. WARREN: 83 MR. WARREN: Mr. Rubin, I just have a couple of questions for you, and they are really at a high level of generality. 84 In listening to you speak with some passion, if I can put it that way, about your theories of how this DSM program should be put together with the yes-yesses and no-nos and yes-nos, may I assume, Mr. Rubin, from what you have expressed in your pre-filed testimony and your oral testimony is your view of the optimum way to deliver DSM? 85 MR. RUBIN: No. If I -- if I can try a friendly amendment to your question, I believe what we're talking about is the optimum way to incent optimal DSM activity. That is, we're talking about SSM design here. Is that -- 86 MR. WARREN: No, I'm talking about the delivery of DSM generally. I -- there was an underlying assumption to my question and that is that the level of detail and if I can put it -- and I don't intend this in a pejorative sense at all -- about the level of enthusiasm of which you spoke about these details suggests to me that you believe that what you expressed in pre-filed evidence and you said on Friday really was a reflection of your view of the best way to deliver DSM programs. Have I got that right? 87 I'm not talking just about design of SSM. I'm talking about DSM in general. Have I got that? Have I missed it? 88 MR. RUBIN: Well, as you're stating it, I would have to say I think you've missed it. The whole idea of the yes-yesses and the no-nos and the no-yesses is to design an incentive scheme that will create an environment which a monopoly utility would find if its own best interest to deliver DSM well or optimally. That is where I focused. 89 And as you know from my pre-filed evidence, my optimal environment does not include annual target setting. It includes a different way of structuring those incentives, a different way of doing the SSM. 90 What I've been discussing throughout the no-nos and the yes-yesses is -- well, I think Mr. Poch correctly pointed out that in some sense it's all or largely retroactive in the sense that the years we're discussing are now finished. And we're talking about what the Board and the parties who agreed in past ADRs either said or meant to say in establishing the rules under which 1999, 2000, 2001, and 2002 were to be conducted and by today have been conducted. 91 So we are -- I mean this is an incentive -- a discussion about the incentives that I believe an intelligent person looking at the record and having been party to those discussions would read into the incentive mechanism that in effect prevailed -- one has to use past tense -- prevailed in these past years. It's an interesting exercise, but that's really what we're discussing here, and that's where we still need this Board to be very clear, not only, in my view, for 2000 and 2001 and those who signed the ADR would disagree with me, but for sure in the year 2002, which nobody has signed on to anything for yet. 92 MR. WARREN: I'm not sure I understand your answer, Mr. Rubin, so let me try it this way. Is it fair for me conclude from what you've just said that you believe that we are all collectively in this room trying to find our -- the best way out of a maze created by some past ADR and some past consultative decisions; is that a fair gloss on what you've just said? 93 MR. RUBIN: I think you're close. I may be forced to say "not quite," but I mean that in a friendly way. 94 I think your statement is approaching one that I would make. Actually, the more I read our past agreements, for example, 1999-0001, the more I remember what we were thinking at the time and the more wisdom I find in those documents, considering how little we knew. 95 And if I may, without stretching your patience too much, get toward the whole truth on this answer. We -- in RP-1999-0001, it is now clear to me, and clearer than it was on Friday, for example, that in naming four variables whose target would be revised after the year was over, four variables, including avoided costs, which would be treated as yes-yes, there are two things that are now clear to me. One is that at the time, the entire context of the SSM calculation was what we now called no-yes. In other words, target meant target, and actual meant actual. 96 That was the framework. And what you see in that section 6.1.1 of RP-1999-001, is the first emergence of the issue of symmetry. It is an attempt to tune out. It was our attempt -- I think it started with the company -- that's probably all privileged information as well as stuff I'm not sure I remember, but somebody said, Look, these four variables are outside of the company's control, and therefore they really shouldn't influence the SSM, and therefore, let's tune them out. And the way to tune them out, we then thought, incorrectly, was to change the forecast, the target, with subsequent information. 97 In other words, that was an attempt to make changes in avoided cost not count. We now know that we blew it, but it was -- you have to remember this was almost a year before Kai Millyard's spreadsheet that allowed people to start playing "what if", and to start understanding the effect of -- of changes in variables on the SSM results and on the TRC results. It was almost a year before that emerged. 98 It was -- it was in the middle of the year 2000. It was something in the order of June 2000, certainly when I first found out that Kai had designed an Excel spreadsheet to do these calculations in a transparent way that could be run on a personal computer. 99 So we -- it was a -- it was an often-repeated myth at the time that if you changed a number like avoided cost in the budget side and in the actual side that the effect on the TRC and therefore on the SSM would be negligible, not worth discussing. We now know that for -- certainly for an enormous variable like avoided cost, that is out to lunch. That is completely wrong. 100 One changes avoided costs -- certainly if it changes in a significant way as it has, if one changes it on both sides of the equation, you can still have an enormous effect on the SSM. That was not the intention when we all signed on to the ADR, but it was the state of intelligence, the state of awareness at the time, because we hadn't been able to see what the effect of changes of numbers was until Kai made that spreadsheet. And he, especially, and the company started playing with it and started making the results available first to the consultative group and then to the year 2000 audit committee, of which I was part. 101 That has been enormously educational and it has led this jurisdiction, because Kai has been here, and we've had this tool, and others haven't. And, in fact, there's mention in the 1999 audit report, as I discovered on the weekend, of what a unique tool this is in trying to understand how this works. 102 So I'm sorry for the length of that answer, but I think it's important to remember the burden of ignorance we were struggling with, and that the people before us -- for example, I noticed that David Poch, Mr. Poch in his cross-examination materials has quoted evidence from Paul Chernick in '97. 103 Well, you know, that evidence was part of the discussion that got us an SSM design that's 35 percent of the difference between two TRC numbers. That is a design that, as far as I know, nobody in this room now supports going forward, you know. So the difference between what I call "optimal" and what we're arguing about or what I'm arguing about here in interpretations of 2000, 2001, and 2002, is certainly two different questions in my mind, and has to be taken in the context of what we knew then and what we should have known then. 104 MR. WARREN: Thank you for that -- for making it both clearer and simpler, Mr. Rubin. Let me go back at it a different way. 105 Should, in your view, the natural gas distribution utility be the one who's doing DSM or should somebody else do did? 106 MR. RUBIN: Well, I address that -- that's a difficult question for me, because it kind of depends which hat I'm wearing on which day. 107 I am the same Norman Rubin who appeared for Energy Probe at 169-003 and argued vigorously, and I thought eloquently and persuasively, but the Board thought otherwise, against utility led DSM. I still remember what those issues were, and part of me, long since buried by sediment, still believes what I then believed. 108 However, I have been wearing a different hat now for nigh onto 10 years, and that hat has been the hat of a participant in the DSM consultative group process, a good-faith participant, trying to help the various stakeholders implement the wishes of the Board and the parties, wishes that were in opposition to my own arguments. So the answer is yes and no. Fundamentally, underneath it, if you scratch me hard enough, I think there are better ways to get efficiency than to get a monopoly utility promoting it to its customers, and practically, I have been so involved in trying to perfect utility led DSM now, that I have almost forgotten how to oppose it. 109 MR. WARREN: Thank you, Mr. Rubin. 110 That's all. 111 MR. BETTS: Mr. Warren, you did indicate on Friday that you suspected there might be questions from other parties, including IGUA, and I think it was VECC. 112 Are there any questions from those groups? 113 MS. LOTT: None from VECC, no. 114 MR. DeROSE: Thank you to Mr. Warren for reserving our rights, but no. 115 MR. BETTS: Then Ms. Newland, please. 116 CROSS-EXAMINATION BY MS. NEWLAND: 117 MS. NEWLAND: Thank you, Mr. Chairman. 118 I couldn't help but observe after listening to your testimony on Friday the number of figures of speech and analogies you used to convey your views on the topic at hand, and I think it's only fair to tell you before we start this morning that after listening to Friday's proceedings and perhaps this morning, I felt like Alice in Wonderland, to put my own figure of speech on the record. Nevertheless, I do have some questions for you. 119 Now, Mr. Rubin, as I understand your evidence, there were at least five factors that I heard, or reasons, or factors that underpinned Energy Probe's recommendation regarding the no-yes approach to adjustments to be made to the free rider rate for custom projects. And perhaps the principal one -- and that's my word, not yours, necessarily -- is that the free rider variable is the nature of a variable over which the company can exert control and influence; correct? 120 MR. RUBIN: Yes. 121 MS. NEWLAND: And in fact, in response as to interrogatory from Pollution Probe, that's number 3, part B, for the record, you stated that in your view: "Free ridership can be controlled virtually in its entirety by the company." 122 Correct? That's your response? 123 MR. RUBIN: Could you read me the whole sentence. Does it say something like, in my opinion, or I believe, or some qualifier of that sort? 124 MS. NEWLAND: I'm not trying to trick you, but I can read it. 125 MR. RUBIN: I believe I've said a number of times orally, and I hope I said in writing, that I do not believe that I, or anybody else in this room or coming to this room is in a position to prove either that statement or the contrary. 126 I don't think we know what the optimal level of free ridership in custom programs is. I think we will discover that if we are wise enough to set up an incentive mechanism that leads to its discovery, but I don't think we know it yet. 127 MS. NEWLAND: Well, let me read what you said. You said -- and again, for the record, this is a response of Energy Probe to interrogatory number 3, part A, and it's found at page 5 of 6. 128 Mr. Chairman, I'm sorry, I don't actually have an exhibit number for this document. 129 And what you said is: "In this instance, the company and several other parties would apply that same dispensation to custom program free ridership despite the fact that, in my view, free ridership to custom programs can be controlled virtually in its entirety by the company." 130 That sounds pretty unequivocal to me, Mr. Rubin. 131 MR. RUBIN: I'm sorry; can you tell me whose interrogatory I was responding to? Was it yours, or was it from Pollution Probe? 132 MS. NEWLAND: It was from Pollution Probe. 133 MR. RUBIN: Yes, I've now read my answer and I have the context, and I'm sorry, I have forgotten your question. So why don't we go back and now that we both know what you're talking about, could you refresh my memory. I'm sorry, I'm not a morning person either. 134 MS. NEWLAND: I was simply trying to set up my questions, Mr. Rubin. It wasn't a trick question. I was trying to make sure I understand your position with respect to free rider and custom programs and that is, that it is something -- it's a variable or an input variable or input assumption that is controlled virtually in its entirety by the company; yes or no? 135 MR. RUBIN: It is a -- it is a factor that is under the company's influence and control, and I believe that the company can, in its dealings with its custom project participants and clients, can virtually eliminate free riders from those programs. And yes, therefore, it is under the company's influence and control, and could be virtually eliminated. 136 I believe, and as I've said many times, I cannot really document this, except as a belief. But I believe that the numbers, if the company were motivated to do so, could be driven down to the range that was forecasted and perhaps lower. 137 MS. NEWLAND: Good. And I want to test your belief, the purpose of my questions. 138 MR. RUBIN: Fine. 139 MS. NEWLAND: Okay. 140 Now, when you used the word "control" you appeared to be using it, when I listened to you Mr. Rubin, in two different ways. The first way, I believe, is that the company could, but does not, take steps to screen for free riders, identify them and screen for them and quantify them. Is that one way that the company asserts control? Is that the sense that you're using the word controlling? 141 MR. RUBIN: I think your statement is correct, that my understanding is that there are measures that the company could take to screen out free riders that have not been taken. 142 MS. NEWLAND: And I want to -- I will be getting back and discussing that with you, but I also wanted to ask you if another way that you use the word control is related to something you said last Friday. And I don't recall who was cross-examining you at the time, but I believe you stated, and I wrote it down: 143 "That the company can or does set up an environment that encourages the recruitment of free riders." 144 Is that another way in which the company exerts control on free riders in custom projects? 145 MR. RUBIN: It is a way. I'm not sure if it's another way or the same way, and by that I mean that industries, for example, that are planning to make investments in gas burning equipment will be a blend of those who were already planning to install efficient equipment and those who are not. 146 And those who are not will be a blend of those who might be persuaded by the company or its representatives to move toward high-efficiency equipment and those who cannot be persuaded. 147 So there in setting up an incentive for Enbridge's own staff and for Enbridge's contract -- the ESCOs with whom Enbridge has contractual relationships. The company can encourage discrimination, if you will, and I mean that in the best sense, discrimination between the free riders and the non-free riders, the legitimate participants who are really going to produce TRC benefits for ratepayers, or the company can be not careful to discriminate, and not careful to set up the incentives that would lead to individual staff and ESCO staff to discriminate. 148 And by not discriminating, one is, in effect -- the company is, in effect, rounding up or recruiting free riders. And it may be intentional, it may be unintentional, and I don't think I have any way of telling what the company's intentions are, and therefore, I'm trying not to make judgments on what the company's intentions are. 149 MS. NEWLAND: I think, Mr. Rubin, we will get back to this topic in a moment, but let me just get back to the aspect of control that has to do with screening. 150 Again, in response to an interrogatory from Pollution Probe, you state that: 151 "The company could administer a simple questionnaire similar to the one used by the auditor to ascertain whether custom participants were or were not free riders." Correct? 152 MR. RUBIN: Yes. 153 MS. NEWLAND: And I want to understand how a company screening exercise based on a questionnaire might work, at least in your view. 154 The first step would be for the company to design a questionnaire that accurately identified free riders; correct? Just at a high level? 155 MR. RUBIN: Yes, sure. 156 MS. NEWLAND: And we know, I believe, that this is not a simple task because there's a number of different categories or kinds of free riders; correct? 157 MR. RUBIN: Well, -- 158 MS. NEWLAND: Let me ask you this -- 159 MR. RUBIN: There are different categories, yes, indeed, there are. 160 MS. NEWLAND: The first would be -- what term would be a pure free rider? Someone who will be a program participant, who has installed the measure in the absence of the company's program, no matter what? 161 MR. RUBIN: Yes, and would have installed it at the same time that they ended up installing it, that's correct. 162 MS. NEWLAND: Right. And as the auditor said in her report, some program participants are partial free riders. 163 MR. RUBIN: Correct. 164 MS. NEWLAND: Just for the record, that's someone who would have installed a portion of the measure without the company's program but not the entire measure. 165 MR. RUBIN: Correct. 166 MS. NEWLAND: The auditor also stated that other participants may be delayed free riders, who would have installed the measure but not quite as soon. 167 MR. RUBIN: Correct. 168 MS. NEWLAND: And a fourth category of free rider is a participant who may have been influenced to implement a measure by another program in addition to the ECG or the Enbridge program. 169 MR. RUBIN: Yes, one could consider that category to be subsumed into the others, that for various reasons, including a government program or somebody else's incentive, somebody would have done it anyway, or somebody would have done it the following year anyway, or somebody would have done half of it any, but yes, one can consider that a separate category if one wants to. 170 MS. NEWLAND: Okay. And finally, although this type of category was not found to occur in the 2000 custom programs by the auditor, there is a fifth category of free rider. And that is someone who would not have installed the measure without the program, but the program, itself, was jointly sponsored by Enbridge and by another third party; correct? 171 MR. RUBIN: That's correct. And, in fact, we on the audit committee, I believe, were unanimous in thinking that in some circumstances it might be appropriate to award 100 percent of the credit to the company, even if the actual influence was shared. 172 MS. NEWLAND: Okay. And the reason it's important to categorize free riders into these different categories is because you then have to decide what fraction of the lifetime measured savings would have occurred in the absence of the programs in each category; correct? 173 MR. RUBIN: That's correct, Ms. Newland, but that is not -- I believe I'm -- I heard you suggest that made my proposed questionnaire complicated. I don't believe it does. 174 MS. NEWLAND: No. No, I'm not there yet. 175 MR. RUBIN: Okay. 176 MS. NEWLAND: Wait for me. 177 MR. RUBIN: I beg your pardon? 178 MS. NEWLAND: For example, few pure free rider who would have installed the measure no matter what, you would eliminate 100 percent of the lifetime measures; correct? 179 MR. RUBIN: Not only would I, but so would Enbridge. Everybody agrees that if we're talking about the true -- 180 MS. NEWLAND: I meant to say "one" would. 181 MR. RUBIN: -- TRC -- I think there's been a great deal of confusion here, and is it surfaced again when Mr. Klippenstein was cross-examining me on Friday. 182 When we're talking about $50 million, roughly, versus $74 million of TRC benefits delivered in the year 2000 by the company's programs, there is no real dispute over what was delivered. 183 The company agreed with me and Malcolm and Chris that approximately $50 million, not $74 million of actual benefits were delivered. The rest are benefits that the company is arguing should be deemed to have been delivered under no-no scenarios in which we are wilfully ignorant of reality. 184 In other words, the company is not arguing, as I understand it, and has never argued at the audit committee, for example, that free riders and custom programs generate benefits that are attributable to the company's activities. They are not because of the company's activities. They are free riders. 185 The question is how that should translate into a bonus formula. And the company believes it should still go into the bonus formula as if it was a benefit delivered by the company's program. That is where the dispute is, not over what benefits were delivered by the program. 186 And I think that's an extremely important point, and it's very easy to lose that point, looking and seeing $74 million under a column that's headed "actual" you might believe that somebody is arguing that it's actual, that it's true. In fact, no one is arguing that. 187 MS. NEWLAND: You know what, Mr. Rubin? We're going to get along way better -- you're going to make your plane if you only answer the questions I ask you, not the ones you'd like me to ask, please. 188 MR. RUBIN: Sure. 189 MS. NEWLAND: Thank you. 190 Okay, getting back to my categories of free riders, if we move to the other four categories of free riders you would also, I believe, in terms of the mechanics -- this is what I'm trying to understand -- of screening. You would have to determine what percentage of the lifetime measured savings would be discounted and which percentage would be included for each category. 191 MR. RUBIN: Ms. Newland, I think we're seeing screening in totally different ways. I do not agree with your statement. 192 None of these steps you're talking -- all of the steps you're talking about, all of these complicated calculations are essential in order to calculate the actual TRC benefits of a series of activities that involve free riders of the various categories you're talking about. They are not involved in what I'm calling screening in the sense that you've used it, that is, to screen free riders. 193 I was talking about having company staff or having ESCOs that deal with the companies or its clients ask clients to sign a document certifying that they did something that they weren't planning to do or wouldn't have done without the company's activities. 194 And whether that was, I would have done it next year but instead I did it this year, or I wouldn't have done any of it, you know, all of those details change the mathematics of the TRC but they don't -- they don't involve different screening. 195 MS. NEWLAND: I am trying to understand how a process whereby the company administers a questionnaire for the purpose of identifying free riders is going to work. And I had understood from your -- from what I read in the auditor's report and also from your prior answers, that it is important to distinguish among categories of free riders. Because depending on the category, the -- the category -- depending on the category of free rider will be able -- it will depend on how much of the savings you eliminate. 196 So, for example, a pure free rider, you eliminate 100 percent of the saving from the measure. Someone who is a delayed free rider, you'd eliminate something less than 100 percent. So you do have to go through this exercise; don't you, Mr. Rubin? 197 MR. RUBIN: The elimination of the savings is done by the evaluator and the auditor. It's not done by the field staff dealing with a client. 198 What the field staff dealing with a client will do is eliminate some of the clients. 199 MS. NEWLAND: I'm sorry Mr. Rubin, I agree with you. I wasn't meaning to suggest that it was the field staff that has to make these evaluations. 200 After the field staff has administered the questionnaire, there is an evaluation exercise that you are suggesting that the company undertake; correct? 201 MR. RUBIN: Are you referring to the monitoring evaluation at the end of the year, or are you referring to something else? 202 MS. NEWLAND: I really hesitate to use the word evaluation because it's been used in so many senses. 203 MR. RUBIN: Yes, exactly. 204 MS. NEWLAND: What I mean is you had said that the company can control the free rider rate. 205 MR. RUBIN: Correct. 206 MS. NEWLAND: And one of the ways that the company can do is by identifying free riders, and I'm assuming they're not identifying free riders just for the sake of identifying free riders, they're going to do something with this information; correct? 207 MR. RUBIN: Yes, they're going to exclude pure free riders and predominantly free riders from participation in the company's programs. 208 MS. NEWLAND: Okay. So you're saying that free riders should be excluded from the delivery of these programs, not that they just should be used to calculate a new free rider rate that's used by the company in calculating it's actual TRC benefits. 209 MR. RUBIN: I agree with your statement. That is correct. That's what I'm suggesting. 210 MS. NEWLAND: Okay. That, I think, is news to us. Thank you for that clarification. 211 So what you're saying is when a salesman goes out to a company and identifies a company participant as a free rider, he must then walk away from that company and say, We cannot include you in the delivery of our DSM program? 212 MR. RUBIN: Of course. Let's think about what this means. That means that the company representative has gone to a client who is already planning to install state-of-the-art energy efficient, gas efficient, electricity efficient and water efficient equipment. And then for the company's representative to say, Great, let me help pay your costs, let me bring you into a program, let me count you as a participant, is an abuse of the process. It's a misspending of money. There is no public interest to be gained. There is no gas to be saved. There is no electricity or water to be saved. 213 That's what free ridership is. That's what it means to include free riders in a program. 214 MS. NEWLAND: What would you do with a participant that identifies itself as a partial free rider? Would you say, Too bad, you're partial, you're gone. 215 MR. RUBIN: I think we have common cause. I can agree with the thrust of your questions in this regard. 216 There's a yes, there's a no, and there's a maybe. The company's staff will identify, in the normal course of the events, and if not by asking a scripted question that hasn't been asked, Are you a free rider is, in effect, a question. What would you have done in the absence of my program? 217 The company's staff or the ESCOs will then determine whether somebody is planning to do inefficient stuff but can be persuaded to do better stuff, in which case, they are not a free rider. They are a legitimate participant with TRC benefits to be delivered. Or they are already planning to do everything, in which case, they can only be a free rider if they're included. Or they're in the maybe. They're planning to do something good in a few years or they're planning to do something partially good, and they might be induced to do something a little bit better if the company embraced them in the program and gave them an incentive to do something a little better, and that could be partial or delayed or one of these other fuzzy categories. 218 In the maybe category, yes, there is some evaluation to be done in the field or back at head office to say, Look, here's what I've got. I've got a client whose planning to do A, B, and C, and I believe we can convince them to do B, C, and D instead. Should I proceed? Should I give them $1,000 or $10,000 or the discount coupon or whatever the benefit of the program is? Should I offer to help pay their consulting costs or should I drop them? That's a legitimate question, and it's another kind of screening. 219 It's a test where cost-effective programs should continue, and programs that are not cost-effective should be dropped like a hot potato. That is what should happen, and that is how the company could drive its free ridership numbers down towards zero, and I believe very close to zero. 220 MS. NEWLAND: I think what -- part of what you've told me is that there is an element of evaluation that, in your opinion, has to be carried out by field staff. 221 MR. RUBIN: No, or referred to head office. 222 MS. NEWLAND: Or referred to head office. And that has to do with the categories of free riders that fall into categories other than what I refer to as the pure free rider? 223 MR. RUBIN: I think that's correct, yes. 224 MS. NEWLAND: There were five categories I set up, and one of them was pure free rider and one of them was non-pure riders. 225 MR. RUBIN: Pure free riders. 226 MS. NEWLAND: Pure free riders. 227 MR. RUBIN: So there's the pure legitimate participant and the pure free rider, and you have three in between -- 228 MS. NEWLAND: Well, actually, the auditor has. I spent the weekend reading the auditor's report. 229 MR. RUBIN: That sounds right to me. 230 MS. NEWLAND: And it appears to me, Mr. Rubin, that given the number of categories other than the pure free rider, the field staff or head office will have to do a fair bit of evaluation. 231 MR. RUBIN: I think there will be some cases that are close to the line. There will people who -- who will -- whose reality is that they were planning to do it in four years and they might do it this coming year with the right program, and that might be close to the line of cost effectiveness. 232 This is not -- this is not a difficulty of program delivery. This is a difficulty of deciding what actually is cost-effective DSM in the public interest and what isn't. There are lines, and on one side of them, delivery is cost effective, and on the other side, it's not cost effective. 233 And we're trying, in all of this incentive mechanism, one of the goals is to maximize the cost-effective DSM and minimize the not-cost-effective DSM. 234 MS. NEWLAND: Mr. Rubin, would you agree that in the final result, trying to determine who is and who is not a free rider depends on quite a bit -- quite a high degree of subjective evaluation or judgment? 235 MR. RUBIN: I guess I would have to agree that there is -- that there's a lot of judgment involved. We're dealing with what would have happened if the world were different. What would have happened -- it's -- On the other hand, there is much less judgment involved, in my view, if the decision is made at the time that the program is to be offered or withheld than if we're trying to analyze it, God forbid, two years after the program was offered or withheld, which is the situation we found ourselves in the year 2000 audit because so much time had passed before the evaluation was done and then the reevaluation was done. 236 MS. NEWLAND: In fact, the auditor in her report stated that the final free ridership determination for each sector -- and she was referring to commercial, industrial, multi-res -- depends on subjective judgment. That was her objection as well. 237 MR. RUBIN: Of course it does, and that's why we had multiple sets of numbers. And originally we had sets of numbers that were extremely, shall we say, stingy or nasty to the company, and we then sent the auditor back in the year 2000 audit to come up with more generous scenarios. She came up with three of them, again, an indication that there's judgment involved. And certainly Malcolm Rowan and I and more or less Chris Neme chose the middle one. 238 MS. NEWLAND: All right. And at the time the parties to the RP-1999-0001 settlement proposal agreed on a target, the target was underpinned by a free rider assumption of 10 percent; correct? 239 MR. RUBIN: Yes, there was a little -- there was a tiny bit of 5 percent involved, but primarily, yes. 240 MS. NEWLAND: And that 10 percent was described in the company's DSM plan, which was part of what agreed to in RP-1999-0001; correct? 241 MR. RUBIN: Yes, as the volumetric target and the TRC target was. 242 MS. NEWLAND: And as I understood your whole no-yes approach, it's premised on the view that if you get the target right, then the company is not at huge risk, correct, subsequently when they go to do the yes adjustment? 243 MR. RUBIN: I'm sorry if this sounds non-responsive, but I bristle when you use the word adjustment when the activity that you're describing -- 244 MS. NEWLAND: Calculation. 245 MR. RUBIN: -- is putting the correct number in the actuals column. And because the company starts with a different number, it's called an adjustment, and I believe that's a very dangerous and misleading conceptualization. 246 MS. NEWLAND: I take it back. 247 MR. RUBIN: Thank you, I hope everybody will take it back and not use it in future. 248 MS. NEWLAND: Nothing turns on it, Mr. Rubin, from my perspective, but I would like an answer to my question. Do you remember my question? 249 MR. RUBIN: I think the SSM formula that we all together adopted does include risk for the company. It expressly includes risk for the company. It goes negative as freely as it goes positively. 250 MS. NEWLAND: If you get the target right, or as right as possible, then the risk is minimized. If you get the target wrong, the risk is maximized, or is increased; correct? 251 MR. RUBIN: Well, it depends on what you're calling right and wrong. Those of us who don't work for the company think getting the target right means setting a target that represents an honest, legitimate stretch for the company and its staff, given the budget. 252 For the company, getting the target right means setting a conservative target that can be met in a walk, so the risk, as you say, is minimized. Those are two different objectives, and that is why that negotiation between those two objectives is such an interesting and, I would say, messy and nasty and unseemly affair. 253 MS. NEWLAND: Mr. Rubin, in 1999, when everybody was trying to reach the settlement proposal, is it fair to say that no one at the table, neither the company nor the participants in the consultative, were informed about the issue of free rider to the extent that they may be informed now, after going through the last two years? 254 MR. RUBIN: Ms. Newland, I've addressed this on Friday, and I'm not sure you're going to like my answer. 255 I know what I was aware of. I do not know what the company is aware of. 256 MS. NEWLAND: I'm not talking about the interpretation of the agreement, Mr. Rubin. 257 MR. RUBIN: Neither am I. 258 MS. NEWLAND: What I'm trying to understand is when you set a target of 10 percent, were you representing Energy Probe, were you confident, based on what you knew then, that 10 percent was a good number? 259 MR. RUBIN: I believe that to the extent I turned my mind to it at all, and there were I don't know how many hundreds of numbers in these documents, but to the extent that I turned my mind to it or should have, that my view was that in custom projects, there was no reason why there should be any free riders, and that 10 percent was a conservative number. Again, in this case -- I mean a high number, because the company would be hand picking participants, and therefore, would be in a position to exclude free riders from participation, and if 10 percent slipped by, it would be a big number. That would have been my view at the time. 260 MS. NEWLAND: Okay. Thank you. 261 Was it your understanding at the time that you entered into that agreement in August of 2000 -- August of 2000 -- 262 MR. RUBIN: No, if you mean RP-1999 it was in August of 1999. 263 MS. NEWLAND: Oh, August '99, okay. 264 At the time you entered into that agreement was it your understanding, at least, that the company would do some kind of screening of the candidates for participation in its custom program such that the free ridership would be close to 10 percent? Was that your understanding of how it was going to work? 265 MR. RUBIN: Yes, I think that's fair, or lower, yes. 266 MS. NEWLAND: Was there a general discussion among the consultative about how this screening would occur? 267 MR. RUBIN: I don't recall any such discussion, and as I say, there were -- there were hundreds of numbers, you know -- the TRC calculation and the SSM calculation need a rather large spreadsheet, and every program has different numbers. And there was certainly not a discussion of -- there was probably not a discussion of 5 percent of the input numbers to the -- to the year's plan and the target. 268 MS. NEWLAND: So there was -- to your recollection, there was no discussion about this screening that would be carried out, that you would expect the company to carry out? 269 MR. RUBIN: I recall no such discussion, that's correct. 270 MS. NEWLAND: And I find that -- I'm not disputing your recollection, but I find it surprising that if there was this onus on the company to carry out a screening, as we've just seen that can involve quite a lot of subjective judgments, that the criteria for a screening and the kind of screening and the questionnaire that might be put to the companies wouldn't have been part of the discussion at the time, Mr. Rubin, if that was, in fact, the expectation of parties at the table that this screening would happen. 271 MR. RUBIN: Ms. Newland, I think there's an assumption that the company will deliver a classy program, and in many regards, I think we see that the company has. And in this one regard, we see a major disappointment that shows up as something on the order of $10 million or $15 million, perhaps $20 million of shortfall in TRC because something that, I believe in hindsight, was extremely important, was not done in a classy way. 272 MS. NEWLAND: Are you aware, Mr. Rubin, and you may not be -- are you aware that the company does not agree that the overall free rider rate for custom projects in 2000 is as high as 49 percent? 273 MR. RUBIN: Yes, I'm aware of that. 274 MS. NEWLAND: Okay. Are you aware that the company is of the view, based on studies that they have done, that the actual free rider rate for custom projects is significantly lower than 49 percent and, in fact, is around 30 percent? 275 MR. RUBIN: I'm aware of the significantly lower part. I'm not surprised by the 30 percent. 276 MS. NEWLAND: And are you aware, sir, that the reason that the company's position is that the overall rate is more like 30 percent rather than 49 percent is because the auditor, in carrying out her evaluation of the free rider issue, put questions to only one representative of each participant in her sample group? She did not interview, for example, Enbridge's channel partners or others in the participating company, and in consequence, did not consider Enbridge's historical relationship with the participants? 277 MR. RUBIN: Yes, I've heard more or less, I think, exactly that argument from company representatives. 278 MS. NEWLAND: Thank you. 279 MR. RUBIN: If I may add a sentence to that, I think this is an -- a very important issue for the analysis of future years, but at some point, I think one has to let the auditor be the auditor. 280 MS. NEWLAND: Well, in fact, let me just take you up on that question -- on that statement Mr. Rubin. 281 In fact, the auditor, in carrying out the evaluation for 2000 was not simply being an auditor, she was assuming, at the request of the audit committee, an evaluation task; correct? 282 MR. RUBIN: Yes, at the request of an audit committee that included company staff. There was no disagreement among us that this was the best course, given that, as I said before, when the rocks were turned up we found toxic sludge, and we did not have a number. We did not have a number of TRC benefits to put into the SSM formula, so we had a choice between either saying, We don't have an answer, there is no answer, or saying, We need to find an answer and at this point, the person who's working on it who might find an answer is the auditor. Shall we task the auditor with finding the answer? And we all agreed that that was the least bad option. 283 MS. NEWLAND: And the rock that you turned up was information that the 10 percent target that everybody had felt comfortable with in 1999 was quite a bit higher than 10 percent? 284 MR. RUBIN: The rock -- the first rock turned up, I believe, was a sample of the five largest custom project participants, the five largest individual blocks of gas savings and dollar TRC savings, and they turned up something on the order of 85 or 89 percent free ridership, a remarkably tiny percentage of legitimate participants who actually saved gas, compared to the company's claim. There was a stunning finding of -- of non-accuracy, of inaccuracy in the evaluation, based on that initial sample. 285 That was what presented itself to us. I can't swear that everybody was shocked, but I know I was. 286 MS. NEWLAND: Thank you. 287 MR. RUBIN: The actual number that I was recalling imperfectly is in the audit report, as I recall. 288 MS. NEWLAND: If I could just have a moment. I'm trying to cut down my questions, Mr. Chair. 289 MR. BETTS: Fine. 290 MS. NEWLAND: I hesitate to ask this question, Mr. Rubin, because I don't want to prolong the debate, but I know the company did take a bit of offence on Friday when you suggested that the company sets up an environment that encourages the recruitment of free riders. And it did sound to us that we were being duplicitous or dishonest in some way, and you've addressed that a little bit this morning. 291 But I'd like to just ask you to confirm that you're not suggesting that the company deliberately or actively seeks the participation of free riders; are you? 292 MR. RUBIN: I have no evidence -- I have not reviewed all the statements that your witness panels made, but certainly, unless there is something there, I have no indication that would lead me to such an accusation. 293 MS. NEWLAND: Okay. 294 MR. RUBIN: Perhaps I can add that if the company, for example, gave an incentive to its staff to round up participants without giving an incentive to its staff to screen out free riders, the actions of the staff would be to actively recruit free riders. 295 Now, that doesn't mean that the president of the company actively told everyone to round up free riders, but that would be what the people in the field would be doing, and similarly with ESCOs. If ESCOs were rewarded, if they got paid by the number of bodies and companies they rounded up to participate and they were not punished or penalized for rounding up those who would have done the thing in the absence of the program, then they would be actively recruiting free riders. 296 MS. NEWLAND: Okay, so this gets back to the control issue and the screening issue. 297 MR. RUBIN: Yes. 298 MS. NEWLAND: Okay. Mr. Rubin, if you were wrong, or if you are wrong in your opinion that the company can and does control or influence the free rider rate in its entirety with respect to custom programs, would you still advocate a no-yes approach? 299 MR. RUBIN: There's an "in its entirety" phrase in your question that applies somewhere, and I'm not sure where it applies. If I were -- let me try this. If I were persuaded that I am wrong and the company exerts no influence and control over free ridership in its custom programs, I would do what you say. That is, I would change my mind, and I would suggest that like the other variables that are treated symmetrically, this variable shouldn't be something that the company is rewarded or penalized for changes. Should I try saying that again, or is that -- 300 MS. NEWLAND: No. No. That's fine, sir. 301 You mentioned, I believe, on Friday, that you supported a no-yes also because this was the be only approach which prevents -- and you used the word a perverse result, a perverse result of the company artificially inflating the savings target; correct? 302 MR. RUBIN: I believe the phrase I was using was perverse incentives. And I was saying that if the result occurred which was more free riders, the incentive structure with either no-no or yes-yes interpretation would reward the company for that result, despite the fact that that result to the company is contrary to ratepayer and public interest, and therefore it would be a violation of that lovely little quote on page 3 of David Poch's cross-examination materials, the quote from Dr. Bauer. 303 MS. NEWLAND: Okay, and Mr. Rubin, to be frank, the company's concern is that it is as likely or more likely that the no-yes approach would, in fact, result in the perverse result, our words, of incenting intervenors to advocate an artificially low free rider rate than incenting the company to seek an artificially high free rider rate. Is that a natural consequence of your approach? 304 MR. RUBIN: Wherever the company has an incentive that's based on a target, there is an incentive for the company to make that target friendly in one direction, and there is an incentive for those who would stretch or extend the company's efforts to shift that number in the opposite direction. 305 That is a fundamental outcome of a target based SSM, which I would dearly love to be rid of. 306 MS. NEWLAND: Yes. And so the no-yes approach that you advocate is as susceptible to gaming as, for example, the no-no approach; correct? 307 MR. RUBIN: I -- I haven't done the math on the leverage of gaming in the various environments of no-no, yes-yes, and no-yes. In all cases, a friendly target in -- before the year begins certainly would work to the company's advantage, and an unfriendly target would tend to not reward the company and might even penalize the company. 308 So to that extent, target setting and including the setting of custom free ridership target, is important, I believe, in all three regimes, and I'm sure it's a little bit higher leverage in some than in others, and it makes my brain hurt to try to figure out which one is which under the circumstances. 309 But I believe in all three interpretations it is to the company's advantage to set a target for custom project free ridership that is to its advantage, whatever direction that is. 310 MS. NEWLAND: I'll take that as yes, sir. 311 MR. RUBIN: Well, I don't think no-yes would encourage it more than the others necessarily. 312 MS. NEWLAND: I wasn't suggesting that. I think the words to my question is it's as susceptible to gaming as, for example, no-no. 313 MR. RUBIN: That may or may not be true, but it is susceptible, for sure. 314 MS. NEWLAND: Thank you. 315 Mr. Rubin, you've already agreed with Mr. Klippenstein on Friday that the RP-1999-0001 settlement, insofar as it relates to how SSM was to be calculated, is ambiguous on its face. And -- 316 MR. RUBIN: As I've said this morning, Ms. Newland, I think I have more clarity on that issue now than I did then. I don't -- having been there and having reviewed the documents surrounding it, before it and after it, I now think I know exactly what we meant. 317 MS. NEWLAND: Yes, sir, and you would agree that ambiguous means capable of more than one interpretation. 318 MR. RUBIN: As a piece of paper in a vacuum, I think it is definitely ambiguous and can be interpreted differently. As a piece of paper in a historic context, I believe it is actually clear. 319 MS. NEWLAND: And, in fact, various parties within the consultative, including the company, have interpreted that agreement in various ways; correct? Certainly Enbridge does not support your interpretation, so we have two interpretations right there; correct? 320 MR. RUBIN: I'm not sure that I've seen an interpretation by Enbridge. 321 The document clearly states that the four variables should be treated on a yes-yes basis. 322 MS. NEWLAND: Mr. Rubin, would you accept -- would you accept that the company does not support your interpretation? 323 MR. RUBIN: I would not be shocked if the company does not -- 324 MS. NEWLAND: Take it from me, Mr. Rubin, the company does not support your interpretation. 325 MR. RUBIN: I will take it from you. I would like to see the company's interpretation. 326 MS. NEWLAND: Thank you. You may well do that. You certainly will. 327 Mr. Rubin, you've also agreed that before last Friday, no one except, perhaps, your lawyer had ever heard your version of how the RP-1999-0001 settlement proposal could be interpreted to support a no-yes approach to custom projects for free riders. That's what you said to Mr. Klippenstein on Friday. 328 MR. RUBIN: Interesting. And that is an answer, frankly, that I would change today. 329 MS. NEWLAND: Too bad. I'm not asking the question. 330 I'm sorry, I didn't mean to be flip, Mr. Rubin, but I thought Mr. Klippenstein had taken you through a very deliberate series of questions, and you had been very clear on that point. Are you resiling from your answer of last Friday? 331 MR. RUBIN: Well, perhaps I am. I've been trying to download the transcript from Friday, and it has not been available, so I haven't seen exactly what words were said, but my clear understanding now, and I spent a number of hours yesterday reviewing the historical context of RP-1999-001, my clear understanding is that we were then still treating target as target and actual as actual. 332 In other words, the entire background context was no-yes, and the notion that this would create a bull in the china shop effects from changes in variables outside the company's control was just dawning on us and surfaced in that agreement in an attempt to tune out the four named variables. 333 And we did, in hindsight, a rather dumb job of tuning them out. 334 MS. NEWLAND: I don't think I've heard anything -- I don't think anything I've heard you say just now would actually suggest to me that you've changed your answer. What you've said to me is that in your mind, you were very clear about what you were agreeing to. But I believe what Mr. Klippenstein asked you to confirm was that other than in your mind, no one had ever heard your interpretation before last Friday. 335 MR. RUBIN: It may well be that what I said to Mr. Klippenstein was new, but perhaps what I'm saying now is new. And what I'm saying now is that at the time, unless otherwise specified, for example, in that ADR agreement, everything was calculated and to be calculated on the basis that the target was set before the year started and the actuals came in after the year was finished. 336 MS. NEWLAND: In your opinion. 337 MR. RUBIN: Yes, in my opinion. 338 MS. NEWLAND: Thank you. 339 You've also admitted that with the benefit of hindsight, and I don't think you're alone here, it appears that the avoided cost of gas should not have been included as one of the variables that was to be revisited using an actual value in -- for the purpose of calculating actual gas savings; correct? 340 MR. RUBIN: Deleting it from the list would have done greater harm, because deleting it from the list of exceptions would have meant that it was treated as no-yes, and that would be really loopy. That would be even more perverse than treating it as yes-yes. 341 As I said in my evidence, the way to tune out changes in avoided cost is to freeze it, to make believe that the changes didn't happen. That kind of make believe is called no-no. That is my recommendation for how avoided cost should be treated. 342 I wish we had all figured that out back in August of 1999, but we had Marion Fraser saying that as long as it's done in the forecast and the actuals, it really doesn't matter in the calculation. 343 She was wrong. We all believed what she said. We didn't have Kai's spreadsheet to test whether it was true or not. We thought we were freezing or tuning out the effective changes in those variables, we weren't. We were partially doing so. But leaving something off the list, especially the avoided cost, which is the bull in the china shop, would have been worse. We partially froze -- not free ridership, we partially froze avoided cost. 344 MS. NEWLAND: Are you advocating that avoided costs be recalculated using end-of-year values? 345 MR. RUBIN: No. As I've said consistently in my testimony, I am advocating that it be frozen using beginning-of-year values, no-no. And it is unique in that -- in my recommending that treatment for it, so far, at least. It's a work in progress. 346 MS. NEWLAND: Mr. Rubin, I'd like to move on to the last area of my questions, and that has to do with just trying to understand the nature of Energy Probe's interest in this proceeding. Energy Probe is a division of the Energy Probe Research Foundation; correct? 347 MR. RUBIN: Yes. 348 MS. NEWLAND: And I visited your website over the weekend, and I was interested to see that the Energy Probe Research Foundation views itself as a maverick, taking positions that are sometimes out of step with other citizen groups in fighting for sound, democratic processes as much as against ill-advised projects. That's what your website says; correct? 349 MR. RUBIN: Sounds right. 350 MS. NEWLAND: And the foundation is financially independent of governments and corporations. 351 MR. RUBIN: Yes. We have, in the sake of full disclosure of full truth, we have accepted donations in the past from Enbridge or from Consumers Gas. I'm not sure what the recent history is, but money has changed hands between your hands and mine. I don't believe we're the only organization in the room that can make that claim. 352 MS. NEWLAND: The bulk of your funds come from individual donations of the general public; correct? 353 MR. RUBIN: Yes. Maybe I should clarify that, that in years, although, a lot of consulting activity and regulatory activity, including this, the statement may not be technically true on its face, but the foundation views expenditures for me to appear before the Ontario Energy Board as a kind of pass-through -- what is this, a Y-factor or Z-factor? I forget what it's called in this room -- but anyway, views that differently from what the foundation calls core funding. 354 MS. NEWLAND: As a research foundation funded by public donations, Energy Probe does not represent a particular constituency; is that correct? 355 MR. RUBIN: That is a fascinating question, and I have actually been wrestling with that answer over the weekend myself, even though you hadn't asked the question. 356 My view is that the domestic consumers of gas do not have the kind of representative in this hearing that the industrial users of gas do. That is, it is clear to me that the Industrial Gas Users Association represents industrial gas users. It is not as clear to me that either the Green Energy Coalition or Energy Probe or Pollution Probe or the Consumers' Association or even VECC represents the customers on whose behalf we speak in the same sense. Nobody delegated, as far as I can see, responsibility to any of us to negotiate for higher rates in return for other future concessions, for example. 357 So my view is that Energy Probe's role here and, in effect, everybody else's role here who seems to be standing up for the domestic customer is really not so much to argue and negotiate in the interest of our supporters and funders and members. And Energy Probe has many supporters who are Enbridge customers, probably on the order of 4,000 or 5,000, but we -- those people did not really delegate me to sign away their rights in return for other rights, and I think that is true for everyone in the room. 358 Rather, we are proposing ideas that we believe are in the public interest and in the interest of those customers, and in a sense, it falls to this Board and Board Staff to be the real protectors of domestic customers. 359 MS. NEWLAND: Mr. Rubin, of the 4,000 persons who have donated money to Energy Probe that you say are also customers of Enbridge -- 360 MR. RUBIN: That's certainly a rough estimate. 361 MS. NEWLAND: How do you know that? Is there something on the donation form that says, I am a gas customer or I am an oil customer? 362 MR. RUBIN: No, I guess I'm assuming that our supporters would follow the general ratio of the general population, and that in urban areas, the vast majority of domestic customers would be buying gas from Enbridge in areas that are served by Enbridge. 363 MS. NEWLAND: Have you ever done any studies to see whether a higher -- what percentage of your people donating to Energy Probe are renters versus homeowners? 364 MR. RUBIN: I don't believe so, but I think that's precisely my point, Ms. Newland. I am not claiming that I am here delegated with the authority to negotiate on behalf of X number of Enbridge company customers. I am not, and I would say that nobody else in room is, either. 365 MS. NEWLAND: Okay. 366 MR. RUBIN: For domestic customers. 367 MS. NEWLAND: Are you and Mr. Adams the two principal employees of the Energy Probe division of the Energy Probe Research Foundation? 368 MR. RUBIN: Yes, we are. Our contractual relationship with Energy Probe is actually as self-employed consultants, but yes, we do most of the work for Energy Probe. 369 MS. NEWLAND: And are the positions that Energy Probe takes in Enbridge cases before this Board informed by anyone other than yourself and Mr. Adams? 370 MR. RUBIN: Yes, depending on the decision, it can be extremely wide-ranging and occasionally goes to the Board of Energy Probe Research Foundation, although rarely, and to other members -- other officers, for example, of Energy Probe. But frequently, on a day-to-day basis -- well, at the Ontario Energy Board, of course, we are also served by counsel and a case manager. 371 MS. NEWLAND: And with respect to your position on DSM, is that the position being informed by anyone other than yourself? 372 MR. RUBIN: There have certainly been long stretches of time during which, you know, between -- extensive consultations between me and others involved in Energy Probe. That is, during the time of 169-003, for example, there was extensive contact among a large number of us. 373 Then, as I was taking part in the externalities working group and the DSM consultative group, to some extent, I knew what my marching orders were and did not go back for confirmation of them very often. 374 MS. NEWLAND: With respect to your position on free ridership on custom projects, has that position been informed by anyone other than yourself, sir? 375 MR. RUBIN: Yes, I believe it's been discussed with others at Energy Probe. I'm not sure I have documentation of when the meetings took place, but I am sensitive to the need to stay in concordance with the views of my colleagues and ultimately of my Board. 376 MS. NEWLAND: Would you agree, sir, that the job that this Board must do is to balance the interests of various constituencies and not balance the opinions of individuals? 377 MS. NEWLAND: Well, as I said a moment ago, I'm not sure that this Board has before it a legitimate adversary dispute between domestic Enbridge customer interests and Enbridge as a monopoly supplier of services. 378 I believe to some extent the residual responsibility to be the guardian of the ratepayers -- of domestic ratepayers, especially -- falls, in effect by default, to the Board and its Staff, and that what we are presenting before this Board and the Board staff to be helpful is, in fact, a range of ideas and principles. 379 And in the case of 2000, 2001, and 2002, it is a range of principles to govern years that are now finished, to be helpful to Board and Board staff in carrying out that responsibility. 380 MS. NEWLAND: Thank you, sir. 381 Those are my questions, Mr. Chairman. I'll turn Mr. Rubin over to my colleague Mr. O'Leary. 382 MR. BETTS: Mr. O'Leary, how long did you anticipate requiring? 383 MR. O'LEARY: I would anticipate I will be about 45 minutes to an hour. I'm just wondering whether now might be an appropriate time for a biobreak. 384 MR. BETTS: I think it would be very appropriate. We will do that. 385 I'm going to make a statement, though. I think I have to, looking at the clock. I would encourage the last two questioners and Energy Probe in redirect to focus your questions, try not to cover any old ground, and I would ask the witness to, as much as possible, confine your answers to shorter answers. Yes and no works as well. 386 We have to try and keep this -- this hearing on a reasonable schedule. I'm going to ask all of you to work with us on that. 387 With that, we will adjourn now until 11:30. 388 --- Recess taken at 11:06 a.m. 389 --- On resuming at 11:36 a.m. 390 MR. BETTS: Thank you, everybody. Please be seated. 391 Thank you, it will be the Board's hope that we can conclude the questioning of this witness prior to our break, so we will try and work on that schedule if possible. 392 Any preliminary matters that have arisen? 393 MR. O'LEARY: Just one, Mr. Chair. We have a further answer to an undertaking, this is Undertaking J.9.14, which involved Mr. Turner checking to see if there are previously list of drafts and provide a list of changes between the drafts and the final report, referring to, I believe, the December 10th, 2002, Ernst & Young report. I've got copies for Board staff and the Board. 394 MR. BETTS: Thank you, Mr. O'Leary. 395 Any other items on a preliminary basis? 396 MR. O'LEARY: Thank you, Mr. Chair and Mr. Dominy. You'll be pleased to note that I have made some effort over the break to try and limit the number of questions, and we'll try and do so as we proceed. 397 CROSS-EXAMINATION BY MR. O'LEARY: 398 MR. O'LEARY: But I do have, Mr. Rubin, several. And if you could have at your side a copy of the discussion paper or the information paper, Exhibit K.14.13, which is the document which sets out your SSM proposal, the evidence in chief that is here for information purposes. 399 MR. RUBIN: Yes. 400 MR. O'LEARY: We don't need it, I suspect, for the first several questions. But we just have some general questions to try and understand it, which may be of use to us in future. 401 The first is, as I understand it under your SSM proposal, what Energy Probe may suggest in future is that there be a fairly radical departure from what is the present situation in that it will be the shareholders' money that will be used to finance the DSM programs. 402 MR. RUBIN: Yes, that's right, to the extent that the status quo has the possibility of a negative SSM, the change may be a distinction without that much difference. And the cash flow difference, probably, should be fixed so there is no difference. 403 MR. O'LEARY: But the difference is that you have the shareholders' money which would be used to initially finance the DSM, and after the fact you would use your SSM calculations to determine then how much of that could be recoverable in rates? 404 MR. RUBIN: Yes, in principle, except, as I said, from a cash flow point of view the intent was not to put the company's books at $10 or $12 million deficit for the year waiting for a settlement. So to the extent that that is fixed, then the company would be spending ratepayers' money subject to justifying the expenditure of that ratepayer money. 405 MR. O'LEARY: But at the high level, what you're saying is that it is Energy Probe's position that it should be the stakeholder's money that would ultimately be put at risk and that's your preference as opposed to the concerns you have about ratepayers' money being put at risk. 406 MR. RUBIN: Yes. I don't actually see my proposal as putting the company at more risk than they have been over the past four years or thereabouts, three years. I -- the extent of the risk, I think, depends crucially on the number that comes before the percent sign. 407 MR. O'LEARY: All right, and we're going to come to that. And I do appreciate that because I believe that will be helpful in our future discussions that we don't want to increase the risk to the shareholder. 408 I believe I understand you correctly that you certainly believe that there are real and measurable societal benefits that flow from the DSM program. 409 MR. RUBIN: Yes, absolutely. I've estimated those in response to Pollution Probe, for example. 410 MR. O'LEARY: And to the extent that there has been any volumetric gas savings, you will agree with me that there is, then, a corresponding benefit to society in general and perhaps ratepayers directly? 411 MR. RUBIN: The benefit -- financial benefit to ratepayers is supposed to be covered in the TRC calculation. The environmental benefit from abating or from not burning the saved gas is not captured in the TRC equation and is in addition to it. There are probably environmental -- there are no doubt environmental costs of getting those savings that also aren't -- 412 MR. O'LEARY: Simply in the interests of keeping the answers to -- 413 MR. RUBIN: Believe me, I'm trying. 414 MR. O'LEARY: We do understand that there may not be all society's benefits that are calculated presently in the TRC, and that perhaps is a discussion for another day. But my point is that even under the existing methodology that where there is a cubic metre of gas saved, there are societal benefits that flow from them; correct? That are measurable -- 415 MR. RUBIN: We've already discussed that. That's what's in the TRC, if we are getting the calculation right. 416 MR. O'LEARY: Does it not logically follow, sir, that where a target is set by the company either unilaterally or with the assistance of intervenors, where the target volume savings are not met, that there still are societal benefits that flow from the volume savings which were achieved, notwithstanding? 417 MR. RUBIN: One would hope so. If the shortfall is large enough, then the savings -- the programs might not be cost-effective, in which case they could work to the detriment. But, except for truly catastrophic shortfall, yes, and there would be benefits to ratepayers from DSM activities, according to the TRC test. 418 MR. O'LEARY: Great, thank you. 419 So perhaps I could turn you to your Exhibit K.13.1. 420 MR. RUBIN: Yes. 421 MR. O'LEARY: And counting in from the first page to the third page, you go and find -- we find your table at the bottom of page 3. 422 MR. RUBIN: Yes. 423 MR. O'LEARY: They're not numbered, but it is the third page? 424 MR. RUBIN: Yes, I beg your pardon. They are not numbered. 425 MR. O'LEARY: In this table, just so we're clear, you're not trying to determine whether or not the programs have been efficiently delivered at all. That's not the purpose of that table; correct? 426 MR. RUBIN: That's correct. I did not calculate new numbers for spending and cost-effectiveness. 427 MR. O'LEARY: This is using historical numbers that you've taken out of the evidence, and you've applied your SSM formula using a 15 percent multiple of the TRC? 428 MR. RUBIN: That's correct, and in the following table, I did it with some other numbers. 429 MR. O'LEARY: All right. Just so we're clear, what you have in the second column which is "O&M DSM spending," those are the actual O&M figures for the years indicated? 430 MR. RUBIN: As translated into a constant -- 431 MR. O'LEARY: No. No. Second column. Not the first -- 432 MR. RUBIN: I beg your pardon. You're quite right. Yes, dollars as spent. 433 I believe as I say in a footnote, these numbers, the numbers you're leading me through now are straight from Chris Neme's evidence. I didn't -- 434 MR. O'LEARY: Subject to check, your belief is that the second column are the actual expenditures in those years. 435 MR. RUBIN: That's correct. 436 MR. O'LEARY: And the fourth column would be the actual financial net TRC benefits? 437 MR. RUBIN: Yes. 438 MR. O'LEARY: Not constant dollars. These are the numbers that we believe actually were generated in terms of societal benefits that flowed as a net result of the DSM programs? 439 MR. RUBIN: Correct. 440 MR. O'LEARY: So if we look at fiscal 1999, for example, we see that on an expenditure of about $6.5 million there are societal benefits of about 50 million. 441 MR. RUBIN: Yes, 48.5 million, thereabouts. I'm not sure that Chris corrected that number to reflect the wisdom that was gained in the 2000 audit. 442 MR. O'LEARY: Fair enough. The issue is not whether it's a million this way or that way. 443 MR. RUBIN: No, it wouldn't be a million, that would be many millions. 444 MR. O'LEARY: It is your table, though, sir, and these are the numbers you've presented and asked the Board to consider and for us to cross-examine you on; correct? 445 MR. RUBIN: Well, yes, but not -- 446 MR. O'LEARY: All right. Thank you, sir. 447 MR. RUBIN: Not for the purpose of establishing what the benefits were in those years, but for establishing what the impact of an alternative SSM design was. I simply took published numbers and said, Here's what would happen if these numbers were true. 448 MR. O'LEARY: Fair enough. And what you've shown is an illustration to all that are here today that in fiscal 1999, under your 15 percent SSM formula, would generate a figure of $888,000 which would represent a profit to the shareholder in that year; correct? 449 MR. RUBIN: Yes, although a smaller one than was delivered. 450 MR. O'LEARY: All right. And then we see in fiscal 2000 for an expenditure of about 9.3 million, you indicate that the financial net TRC benefits that year would be about 51.5 million; correct? 451 MR. RUBIN: Yes. 452 MR. O'LEARY: So those are the benefits to society, and many of which are ratepayers; correct? 453 MR. RUBIN: Yes. 454 MR. O'LEARY: And in that year, using a 15 percent figure, I see we have in brackets a figure of $1.7 million. Do I interpret that correctly to mean that the shareholder, in fact, would be subsidizing the benefits that accrue to society to the extent of $1.7 million? 455 MR. RUBIN: You could put it that way. The shareholders would fail to recover their out-of-pocket costs because of the quite disappointing results in fiscal 2000. 456 MR. O'LEARY: And I'm sorry, 51.5 million in societal benefits is disappointing? 457 MR. RUBIN: Yes. Yes, that's correct, for that size expenditure. Well, as you can see, by the right-hand column it is totally out of line in cost effectiveness with all the other years. It's the only negative year, even at 15 percent. 458 MR. O'LEARY: You'd agree with me that a return to society of $51.5 million on a $9.2 million investment is a pretty good rate of return. 459 MR. RUBIN: If the return were as real as the expenditure is, it would be an amazingly wonderful return. 460 MR. O'LEARY: I thought we already established that they were real and quantifiable benefits to society. Are you now saying that that is not the case? 461 MR. RUBIN: No, I believe the only time the word "real" has been applied to TRC benefits, I bristled at it and objected to it. These are numbers that are calculated in a complicated formula which is a work in progress, is now much better than it was before the fiscal 2000 audit -- and I take some credit for that -- but did includes a large number of assumptions many of which are questionable, and which, I believe, tend to be biased in the direction of overstatement of benefits. 462 MR. O'LEARY: Do you have a number to replace the $51.5 million with, sir? 463 MR. RUBIN: No, I believe the number is too high, and I know that the number is a stream of forecast benefits which may or may not accrue. 464 I'm just saying to call it real is to misuse the term real. This is comparable to making an investment that may pay off over the next 15 years if the factory doesn't burn first or if somebody doesn't compete with you and put you out of business first. 465 MR. O'LEARY: And to some extent, you have also admitted there are a number of societal benefits which aren't included, such as the environmental benefits. 466 MR. RUBIN: That's correct. 467 MR. O'LEARY: So perhaps that figure is understating, in fact, the real value to society. 468 MR. RUBIN: Yes, it might be. 469 MR. O'LEARY: Can I turn you to the next page, the table at the bottom of the next page. And there you've done a comparison of your SSM formula using three different percentage methodologies. 470 If we look at the column of 12 percent, just so everyone is clear here, what you've taken are the TRC benefits and multiplied it by the figure of 12 percent, and where we get the $733,000 loss is simply -- that reflects the difference between what's recovered by the company under your methodology and what they've actually expended on the O&M -- on the DSM from an O&M perspective. 471 MR. RUBIN: That's correct. The 12 percent, the 1999 results would not cover the company's out-of-pocket costs. And I hasten to add that 12 percent seems way too stingy to make this work based on those results. 472 MR. O'LEARY: Fair enough. And you've anticipated my next question, which is that no shareholder in their right mind is going to, with any figure, pursue a DSM program that generates a loss -- 473 MR. RUBIN: Of course. 474 MR. O'LEARY: -- in every year but one; fair enough? 475 MR. RUBIN: Of course. Right, and in hindsight I wish I had chosen three numbers that were higher because it would have been a little more helpful. 476 MR. O'LEARY: Let's look at the other number, the 18 percent. 477 MR. RUBIN: Yes. 478 MR. O'LEARY: We see that in that year what we have is still a loss in fiscal 2000. So despite having returned significant societal benefits that year, the company is still subsidizing the program out of the shareholders' pocket. Is that an appropriate objective? 479 MR. RUBIN: To the extent the $24,000 is worth discussing, but yes, directionally it's correct. And whether it's appropriate or not depends on the agreed incentive framework that we adopt. And I actually believe that 18 percent probably is rich enough, and that if the company wishes to duplicate its performance for the year 2000 it should be punished. 480 MR. O'LEARY: I don't challenge your issue in respect of whether $24,000 is significant figure, but it does mean that in that year there has been no return for the shareholder, in which case, would you not accept my proposition that there therefore is no incentive for them to aggressively pursue the program that year? 481 MR. RUBIN: The incentive is for the company to produce results. There is no incentive to spend what in this case is $10 million and produce disappointing results. And the purpose of this design is to produce an incentive to maximize the public benefit and to get efficiencies in spending, and the efficiencies in spending part would be a new incentive that the company has never been under. 482 MR. O'LEARY: Perhaps, then, didn't write your comment down from Friday correctly. I thought I heard you say earlier on Friday that your methodology is not intended to cause the company to lose money or even break even. Did I write that down incorrectly? 483 MR. RUBIN: Probably not. I haven't seen it written down myself, but it sounds like something I might have said. I think the choice of a number should be chosen so that, just as at present through the target setting, the company goes into the year expecting to be able to perform to a level that would earn a positive incentive, which in this case, would mean a return that covers its own costs with room to spare. 484 MR. O'LEARY: All right. And sir, just from a different perspective, using your 18 percent figure, which Energy Probe or you -- perhaps I should ask you this, sir: Is this methodology developed by Norman Rubin, or are there other individuals who should be credited for this? 485 MR. RUBIN: It was developed by me. It's been discussed with most people at Energy Probe, probably. 486 MR. O'LEARY: In terms of -- the overall objective of the formulas is, I take it, to eliminate some of the debate and discussion between intervenors and hopefully streamline the process. 487 MR. RUBIN: Yes, and to better align the interests of the company with the interests of shareholder -- ratepayers and the rest of society. 488 MR. O'LEARY: And as I think we indicated in a brief comment in preliminary matters on Friday, while the company doesn't take a position one way or the other in respect of your methodology, because it hasn't really had an opportunity to consider it in detail, would you agree with me that there may be some intervenors that would not agree with your proposal? 489 MR. RUBIN: What I've heard back from intervenors so far has been more positive than I expected, and in fact, has been totally positive. And I've heard a number of arguments for this scheme that I had not anticipate myself, one of which is that a number of intervenors expect it to be applicable to electricity DSM. 490 MR. O'LEARY: In terms of just the raw numbers, is it conceivable to you that, for example, that if we use fiscal 2002, and you've got in the second column, we're back at that table again, that the O&M expenditure is 11.34 million. Using your 18 percent figure, that generates an actual recovery by the shareholder of 5.6 million. 491 MR. RUBIN: Yes. 492 MR. O'LEARY: Is it conceivable that there would be an intervenor that's in this room that might feel that that's a number that's too high? 493 MR. RUBIN: Yes. I expect that in advance, the discussion of whether 18 percent or 17 percent or 16 percent or 19 percent is the best number will be as lively a discussion as the discussions over the target setting. 494 It will be a different kind of discussion, because I think we will all understand exactly how the formula works and exactly what flows out of it, but it will certainly -- the higher the number, the more money Enbridge gets, and the more money it gets from ratepayers and the lower the number, the less. 495 MR. O'LEARY: I thought you might say that, and that was actually my next question. Really, haven't you substituted some of the debate which takes place in respect of the target setting and just moved it over onto the other side of the ledger? 496 MR. RUBIN: I think I have substituted a small part of that debate into the ledger, that is the entire discussion about assumptions, what the company likes to call assumptions and that I usually call variables or inputs vanishes. That is an enormous benefit. I mean, how much time have we spent here discussing the first word in the no-yes, yes-yes, no-no? That word no longer applies, so that that entire discussion and that discussion about gaming free ridership and arguing for higher or lower numbers in the forecast, in the target, vanishes. 497 So I have not simply transplanted that entire target setting exercise into a percentage setting exercise, but yes, I agree that the setting of what I called in this document the key variable is certainly kind of a purely interested and political, and it is the key variable. 498 MR. O'LEARY: And it may arise every year, year after year, because one year someone is going to say it generates too much, and another year someone is going to say it generates too little. 499 MR. RUBIN: That is why I produced these back casting numbers, so we could get an idea of how the Goldilocks principle applies to this key variable. And, yes, I believe that the rejigging of that number will be necessary for wonderful reasons, not just for reasons that are beneath us, but for wonderful reasons which is that the company will respond to the incentives, and therefore, some of us will say, Holy Nellie, did they really earn $12 million of SSM? Gosh, that's what flows from the 18 percent, how about making it 17 or 16 for the next year? 500 MR. O'LEARY: To the extent that occurs, then you would, I take it, using your term, consider that gaming? 501 MR. RUBIN: No, I would consider that excelling at precisely the task that the SSM is meant to induce the company to excel at, namely, producing real benefits for -- 502 MR. O'LEARY: I'm talking about a percentage figure that is going to be the subject of a debate year in and year out, as to whether or not you consider that the some sort of gaming that you attributed to the target setting. 503 MR. RUBIN: No, not at all. To the extent that the company can succeed at producing more societal benefits for less money and therefore earning itself a higher net SSM under my formula, it will have done well by doing good. This is an enviable problem for the -- this Board and for the collection of people in this room. We will have set up an incentive that says, If you do really well for society and ratepayers, you will earn a bunch of money, and then we'll lean back and say, Wow, you did that well. 504 MR. O'LEARY: Just continuing on, because the question is not about whether or not an incentive mechanism is appropriate, just a question of whether or not there will a debate over what percentage should be applied to the TRC benefits. 505 Let me just ask you then -- 506 MR. RUBIN: Sorry, did you say a debate on how the TRC benefits -- 507 MR. O'LEARY: I asked you whether or not you felt there was going to be some transfer of the debate from target setting over to a debate or discussion about what is the appropriate percentage, and you said Yes, you thought there was going to be. Let me ask you this, just moving on. 508 MR. RUBIN: Yes, a partial transfer. 509 MR. O'LEARY: Sure -- is that in respect of this streamlined proposal of yours, you've indicated on page 6 under the heading "tweaks," -- 510 MR. RUBIN: Yes. 511 MR. O'LEARY: -- that there may have to be some adjustments. 512 MR. RUBIN: Yes. 513 MR. O'LEARY: You talk about the first being the simplest available tweak, which would be the pre-approval of a limited budget range. 514 am I to understand correctly that your concern is that because a shareholder might view the process as being significantly risky, that you would need to set some sort of -- or the Board would need to set some sort of a minimum budget, or may I use the word "target"? 515 MR. RUBIN: I am perhaps more concerned in a sense with the maximum than I am with the minimum, but they both might be the grounds of concern by stakeholders, and if they are, then the response would be to set a range. 516 MR. O'LEARY: And so that would be the subject of the DSM consultative; they would have discussions about what should be the minimum set by the Board? 517 MR. RUBIN: Or ADR or, God forbid, a hearing. 518 MR. O'LEARY: I think you've indicated the first bullet underneath the heading tweaks, you've used the term "job owning". I presume that to mean that what you're saying is that it would ultimately be the Board's responsibility to set a minimum, to order the company to spend the shareholders' money. Isn't that what you're saying there? 519 MR. RUBIN: No, I believe those bullets address another concern that might be call for a tweak, if you read the previous paragraph or the paragraph that introduces the bullets. 520 That concern is about what some people call cream skimming. And that concern arises because it's in the very nature of my proposed SSM design, that it rewards the company for finding efficient, cost-effective, high-leverage investments, and there are a number of reasons to believe that it's in the public interest for some of the less immediately cost-effective investments to be made. 521 So, for example, general education of the public, general transformation of the marketplace so that some gizmos that are available that are inefficient become unavailable, or, you know, hard to find. Those things may not show up in the TRC benefits, but there are reasons to believe that they should, nonetheless, be rewarded. And there are a number of ways to address that concern, and I believe that's what that list of bullets addresses. 522 MR. O'LEARY: I think that we're more or less saying the same thing. I just started out at a more general level. I think what you're telling us is you would accept that there are programs which are more complex, more difficult to calculate the actual benefits that flow from them than some of the programs that existed in the past and now have been retired. Is that fair to say? 523 MR. RUBIN: Yes, I think that's fair to say. 524 MR. O'LEARY: And to the extent that these programs become an increasing part of the portfolio, it is just that much more difficult, and that much riskier for the prediction and to achieve the anticipated benefits that flow from those programs. 525 MR. RUBIN: We may be starting at a different starting point. My starting point is that given an incentive scheme that changes the company's profit level in response to activities and outcomes, of privately owned -- you know, a shareholder owned, profit making firm will respond to those inputs. And therefore, my concern is not that the company will engage in risky activities and therefore incur a penalty, my concern is that the company might overrespond to this incentive and therefore forego some activities that might have to be incented separately or might have to be encouraged separately in order to ensure that they proceed. Because we all might agree that they're worthwhile, but they might not show up in the TRC calculation and therefore might not earn a return. 526 MR. O'LEARY: Because the incentive mechanism that you're proposing doesn't provide the incentive for a shareholder to venture down that particular program path. 527 MR. RUBIN: Down that program path because like its predecessors and all the alternatives that have been suggested, as far as I know, it is based on TRC benefits delivered and more or less proven to be delivered. 528 MR. O'LEARY: So I take it that this leads us back to one of the reasons why there was a preliminary objection in respect of the -- of your filing, and that is that, first of all, you recognize that under the ADR agreement, which Energy Probe signed on to, you agreed that the parties would put forward to future consultatives any of suggestions or proposals that they have for a change in the SSM for discussion and reflection and perhaps agreement; right? 529 MR. RUBIN: Yes, I got that in the agreement that the consultative is already tasked with a -- designing a new SSM that will promote the principles I hold dear. 530 MR. O'LEARY: And you or may not -- or Energy Probe may or may not put forward your proposal to future consultatives; correct? 531 MR. RUBIN: I think you can count on us. 532 MR. O'LEARY: All right. Fair enough. We look forward to it. But by the very nature of your proposal in that it is a radical departure from what presently exists, you'd agree with me it's not something that the managers of the company's DSM program can simply sign on to, that it's going to require some higher level corporate approvals? 533 MR. RUBIN: I don't really know how the original SSM with its 35 percent penalty for shortfall was approved by the higher echelons of the company. 534 MR. O'LEARY: Maybe I could ask you differently to shorten it up. Would it surprise you that where a proposal is being put forward which could put at risk the shareholders' money to the tune of at least $1.7 million, if we use your 15 percent figure, that it's going to require some higher level corporate approvals before the company can sign onto that? 535 MR. RUBIN: I certainly don't expect the company to agree to it on the basis of 15 percent. I think that's a non-starter, and I've said so. 536 MR. O'LEARY: But that's still a figure that has to be worked out, that's a number that has to be negotiated in the consultative. 537 MR. RUBIN: I believe the 18 percent protects the company from negative outcomes -- 538 MR. O'LEARY: I know that's your position -- 539 MR. RUBIN: -- as well as the SSM design that the company already agreed to. 540 MR. O'LEARY: I know that's your position, but I think you've also told me that there may be those that think that 18 percent is too much. All I'm simply asking you to accept is the fact that we're not looking at your proposal as being realistically a possibility for fiscal 2004. Is that fair to say? It simply hasn't been worked out or massaged enough that you can really consider it as being something appropriate for the next fiscal year. 541 MR. RUBIN: I don't see a problem for fiscal 2004, frankly. Your -- the company has had this proposal since February. I have urged company staff to wrap their heads around it and to prepare responses so that we can discuss it at this hearing. 542 It is extremely -- one of its best features is its transparency and simplicity. This is not something that needs multiple runs of a spreadsheet to try to figure out what the heck it means and how it works in real life. This is too simple for the experts to understand rather than too complicated for normal people to understand. 543 MR. O'LEARY: Except that some of even the easy parts have not been worked out, which includes the percentage. 544 If I could take you again to page 6, under the tweaks you talk about the SSM expansion, that the accounting and auditing functions could be expanded to reflect and credit market transformation activities. As I understand it, what you're saying is that there will be additional benefits recorded as TRC benefits. 545 Doesn't that mean that there's going to be a discussion within the consultative as to how and what should be recorded in that -- as societal benefits? 546 MR. RUBIN: Yes. This is something that probably should be done no matter what SSM design we have. 547 One of the frustrations that certainly my fellow members of the 2000 audit committee and I had was the fact that the TRC calculation not only doesn't reward what we call market transformation, which is one of the Board's top priorities in 169-003, it, in a sense, punishes them. And this is a perverse effect. 548 For example, we had a real life case that led to a dispute, certainly, between the independent members of the audit committee and the company over the fact that because of Enbridge and Union's activities, all hot water heaters now offered for sale in Ontario have their thermostats turned down and this saves, according the calculations, a great deal of money and natural gas. 549 Well, the question was raised, Hasn't this bird flown already? What would happen -- that is the company is claiming credit for saving this energy every year as a virtually zero-cost, huge-benefit activity. And the auditor raised the question -- 550 MR. O'LEARY: Sir. I don't -- that's not my question. 551 MR. RUBIN: This is the crux of market transformation and this is not rewarding -- 552 MR. O'LEARY: We're not debating market transformation here today. It's obviously something that should be raised. 553 My question is: Do you realistically believe that these issues can be raised within the DSM consultative, an agreement reached, and a methodology settled upon and put into work at the company in less than six months? 554 MR. RUBIN: Yes, I certainly do, and the alternative is to go into the year 2004 either with the company's proposed SSM or with Chris Neme's proposed SSM, or with a continuation of the status quo, or with something else, none of which reward market transformation, except that Chris has some ideas that we might have one-off plans that say, If the company can change the percentage of gizmo of this kind that's sold from, you know, 12 percent that are high efficient to 20 percent high efficient, they will earn X million dollars. That is Chris's approach. That might be as good an approach as we have. 555 I've suggested several ways of addressing that systemic problem within the SSM as it exists and as its always existed and as it will continue to exist until we solve it. If we don't solve it for 2004, then we will just be one year older when we do. 556 MR. O'LEARY: Fair enough. That's all I was asking you, sir, was whether or not that is more likely to be the result of the process that you've requested be followed, a process that you've signed onto, which is that your proposal be considered within the DSM consultative. 557 MR. RUBIN: Well, and my answer, sir, is that it is more likely to happen with the expressed support of this Board. If the Board says, Yes, giving an incentive to market transformation is clearly in the public interest, then I think there will be a fire lit under the company and the rest of the members of the DSM consultative group to make it happen by the year 2004. Otherwise, we may be having this discussion again in a year, and it won't happen for 2005. 558 MR. O'LEARY: Just so we're clear, sir, I mean, these are high level discussions, but the agreement was that your paper was accepted on the understanding that it would not form the basis of any decision of this Board in respect of SSM for 2004. I just wanted to see how realistic you are in terms of what you think the DSM consultative and the various parties can achieve in terms of an agreement and can it be done in the next six months. 559 MR. RUBIN: My pre-filed evidence asks this Board to give direction on future SSM along the lines of this fleshed out -- this document simply fleshes out and shows what might happen if the Board took my advice and if the years 1999, 2000, 2001, 2002 happened under this new scheme rather than alternative schemes, and happened with exactly the same results what SSM would degenerate. That is all this adds. It add no principles and no requests for decisions by this Board. Those are in my pre-filed evidence. 560 MR. O'LEARY: Thank you, sir. 561 If I could move on now to issues 9.4 and 9.5. 562 MR. RUBIN: Yes. 563 MR. O'LEARY: Now, I'm correct, I believe, in my understanding that Energy Probe has signed on to issue 9.4, which is developing the protocol for the DSM consultative. 564 MR. RUBIN: That's correct. 565 MR. O'LEARY: Could I turn you to that particular document. It's at Exhibit M.1, tab 1, schedule 1, page 73. 566 MR. RUBIN: Can I borrow a copy? 567 MR. MacODRUM: What page? 568 MR. O'LEARY: It's 73. 569 MR. DOMINY: Could you give me the reference, again, please? 570 MR. O'LEARY: It's page 73, Mr. Dominy -- 571 MR. DOMINY: Of? 572 MR. O'LEARY: The settle proposal -- settlement agreement. 573 MR. RUBIN: Yes, I have that. 574 MR. O'LEARY: Thank you. 575 Now, just going through it previously, I understand that Energy Probe has signed onto this, so you are supportive of this protocol? 576 MR. RUBIN: That's correct. 577 MR. O'LEARY: We see in the preamble that Enbridge Gas Distribution is accountable to the Energy Board to develop and implement cost-effective DSM programs. 578 MR. RUBIN: Yes. 579 MR. O'LEARY: am I safe in assuming that what you understand that to mean is that ultimately the buck stops with the company? 580 MR. RUBIN: And the decisions ultimately stop with the Ontario Energy Board. 581 MR. O'LEARY: Absolutely, but the entity which is regulated is Enbridge Gas Distribution. 582 MR. RUBIN: Absolutely. 583 MR. O'LEARY: Now, we see under the heading, "Purpose of Enbridge Gas Distribution's DSM Consultative," the purpose of the consultative is to provide stakeholder advice to the company. 584 MR. RUBIN: Yes. 585 MR. O'LEARY: And you agree that advice doesn't mean that others are going to make decisions for the company, it means that suggestions are going to be offered -- 586 MR. RUBIN: Yes, I think I agree with you what advice means. 587 MR. O'LEARY: Thank you. And the second objective or purpose is, "to seek to achieve a consensus or a substantial consensus." And by that we understand that there's going to be an effort made by all, because we see later on, there's a duty to Act in good faith. 588 MR. RUBIN: Absolutely. 589 MR. O'LEARY: There's an effort to be made by all to try and agree on matters, or at least for a substantial agreement on matters; right? 590 MR. RUBIN: Yes. 591 MR. O'LEARY: And you agree with me that because, ultimately, it is the company that's answerable to the Board, it is the company that must finally make a decision to keep matters going forwards. 592 MR. RUBIN: Yes. 593 MR. O'LEARY: And that would be true in respect of each of the five bullets that we see there, which includes the development and implementation of the DSM programs? 594 MR. RUBIN: Okay. 595 MR. O'LEARY: DSM budgets and targets? 596 MR. RUBIN: Okay. 597 MR. O'LEARY: DSM evaluation reports, the LRAM and the SSM claims? 598 MR. RUBIN: Yes. 599 MR. O'LEARY: The shareholder incentive mechanism? 600 MR. RUBIN: That's the design of the SSM? Is that what's -- 601 MR. O'LEARY: My point is that if there is no consensus achieved in respect of the shareholder incentive mechanism within the DSM consultative, that ultimately the buck stops with the company. It has to make a decision and put it forward for consideration by the Board; fair to say? 602 MR. RUBIN: Mr. O'Leary, I've never focussed on that particular bullet point and line before. And right now when I read it, it's kind of blowing up off the page. I don't know what it means to the company -- 603 MR. O'LEARY: Sir, did Energy Probe sign on to this? 604 MR. RUBIN: Yes, indeed. 605 MR. O'LEARY: And it didn't read that part of the -- 606 MR. RUBIN: I read it, but right now it's jumping off the page and burning a hole in the back of my retina because I don't exactly know -- it seems to me to refer to an SSM design, and the company is responsible for designing an SSM. It surely isn't. 607 MR. O'LEARY: Are you suggesting, sir, that the intervenors should design the incentive mechanism against the company's wishes and put it forwarded to Board for approval? Who's going to place the matter before the Board? 608 MR. RUBIN: I'm not sure who took the lead last time, but I don't believe it was the company. I may be wrong. 609 But at any rate, we, together, have to advise the Board and the Board has to decide on what an appropriate shareholder incentive mechanism is. 610 MR. O'LEARY: Sir, were your advice -- if the Energy Probe advice is not accepted, are you saying the company must still put forward an Energy Probe proposal? 611 MR. RUBIN: No. Energy Probe will put forward an Energy Probe proposal, and the company may put forward the company proposal. 612 MR. O'LEARY: Very good. 613 MR. RUBIN: But this is not -- I don't think suggesting an incentive scheme is in the same category as putting together the plan for next year's DSM activities. That's clearly something that the company has to not only take a lead on, but has to do. Suggesting what the proper incentive mechanism should be does not seem to fit into that same category for me, and as I say, I'm not -- perhaps we shouldn't spend long on this, but right now, that particular term seems like an outlier to me. 614 MR. O'LEARY: I think it's significant, sir, because it perhaps separates your vision of the obligations and responsibilities of the company relative to the Board and what is, in fact, the case, which is that the company is a regulated entity and it is ultimately answerable to the Board and the result of any incentive mechanism which is approved; correct? 615 MR. RUBIN: It is answerable to the Board, in part, through the mechanism of the incentive scheme. 616 The incentive scheme is part of the carrot and stick that this Board uses to get appropriate behaviour in the public interest from the company. To say that the company has prime responsibility for choosing the carrot and the stick, to me, is perverse, as I sit here right this minute. 617 And as I say, I'm embarrassed that it's jumping offer the page to me right now and didn't in the ADR, but that's where I stand, I'm sorry. 618 MR. O'LEARY: Well, let's just go back to the basics then, sir. Ultimately, it's the company that's responsible for putting together an application for approval of its rates; correct? 619 MR. RUBIN: Yes. 620 MR. O'LEARY: And it is seeking Board approval of just and reasonable rates? 621 MR. RUBIN: Sure. 622 MR. O'LEARY: And it's the company's evidence that will be put forward in support of that; correct? 623 MR. RUBIN: Yes. 624 MR. O'LEARY: And the company may, to the extent that it considers it advisable, seek the advice and input of the intervenors in respect of this application? 625 MR. RUBIN: Yes, it generally does. 626 MR. O'LEARY: But are you trying to tell us that in respect of the development of an incentive mechanism, the company must accept the position of any particular intervenor? 627 MR. RUBIN: No, of course not. I'm saying that the choice -- whereas the choice of a program -- anyway. I just see the role of the company being somewhat more modest in the choice of an incentive scheme. It's as if we were choosing a regulatory arena that should govern gas. That is a decision to be made in a broader context than with the company saying something that's going to be approved by somebody else. 628 MR. O'LEARY: And those are the good faith negotiations that will take place within the DSM consultative. But where there is no agreement, you would agree with me that the only way this process can work is for the company ultimately to draw a line and say, Enough is enough, we're moving forward with this particular proposal. 629 MR. RUBIN: Well, except that the company can't move forward without the approval of its regulator. The company came this year with an SSM proposal that I think -- 630 MR. O'LEARY: There's no debating that, sir. The question is whether or not, within the consultative, you should stay mired in the mud, or does the company not have the ultimate responsibility to move the matter forward, if necessary, to seek Board approval? 631 MR. RUBIN: The company is certainly free to bring its own ideas about SSM design to this Board, as is every other party here, and may the best design win. 632 MR. O'LEARY: May I take a radical leap ahead and use another example, and this is turning, if we can, to issue 9.5, then, which is the protocol for the audit subcommittee. 633 MR. RUBIN: Yes. 634 MR. O'LEARY: And this part Energy Probe has not signed on to? 635 MR. RUBIN: That's correct. We were close, but we did not sign. 636 MR. O'LEARY: We see in the preamble pretty much the same wording that the company is accountable to the Energy Board for obtaining an independent audit of its annual LRAM and SSM claims. 637 MR. RUBIN: Yes, we see similar language. 638 MR. O'LEARY: Is it there for the same reason, then? Ultimately it is the company that's answerable to the Board? 639 MR. RUBIN: The company is answerable to the Board and the consultative group, and following the consultative group the ADR decided a few years ago that there should be an independent audit and that that independent audit of the company's DSM activities and its results, its performance, should be directed by an independent audit committee. 640 What this protocol does, at its root, where the rubber meets road, it reverses that decision, and that is the sticking point that led Energy Probe not to sign on, because we strongly support an independent audit reporting to an independent audit committee, and this protocol does not produce it. 641 MR. O'LEARY: Sorry, I'm looking under paragraph number 1, the first bullet says: 642 "Confirm the terms of reference for the independent audit." 643 That's the role of the audit subcommittee. Isn't that what the protocol is calling for? 644 MR. RUBIN: The tasks of the audit committee are not bad, and I had an alternative version that may be in your hands now, I don't know -- 645 MR. O'LEARY: I don't. But the second bullet says: 646 "The role of the audit subcommittee is to select the independent auditor." 647 Do I read that correctly, that the audit subcommittee is going to select the independent auditor? 648 MR. RUBIN: Except when -- 649 MR. O'LEARY: Is that what you're asking -- 650 MR. RUBIN: -- push comes to shove. That's correct, but it doesn't actually have the power to do so on the basis of either majority vote or anything else. If push comes to shove and the three independent members of the committee feel one way about who should be hired and the company feels another way, the company's vote trumps the other three votes. 651 So it says that the independent committee will be independent and will select the auditor, but it doesn't really mean it. Because if you read down farther, you will see that it is not the independent audit committee that brought us the breakthroughs of the year 2000 audit. It is closer to the job-owning around the company decision that we had that brought us the 1999 audit. 652 MR. O'LEARY: , Sir, if you look at paragraph 5, it reads: 653 "All members of the audit committee ..." 654 And the audit committee includes the company; correct? 655 MR. RUBIN: That's correct. 656 MR. O'LEARY: "... will make a good faith attempt to achieve a consensus." 657 MR. RUBIN: Yes. 658 MR. O'LEARY: Do you have any reason to believe the company will not Act in good faith? Is that what you're suggesting? 659 MR. RUBIN: No. I don't think bad faith is required here to think that the company will Act in its own interest. 660 MR. O'LEARY: Sir, it says, if we continue on: 661 "To achieve a consensus or substantial consensus on all issues through interest based negotiations that take into account the interests of all parties." 662 MR. RUBIN: Yes, and there will be different interests and there will be divisions on, for example -- I don't know how much you enjoy being audited, sir, but I know I don't enjoy it, and I don't think the company enjoys it either. 663 MR. O'LEARY: "That includes good faith in terms of its consideration of the views of the members of the audit subcommittee as to the selection of the auditor, the terms of reference, and their review of the auditor's report." 664 Isn't that what it says? 665 MR. RUBIN: Yes. The company will try to persuade everyone of its views and reach consensus, and may be persuaded by other peoples' views, but when push comes to shove, when the rubber meets the road, the company wins and everybody else loses. That's what I object to, not what leads to it. 666 MR. O'LEARY: What happens if everybody else wants to select an auditor that's going to cost three times as much as the audit in fiscal 2000? 667 MR. RUBIN: Well, then we have a problem, and the other members, as well as Enbridge will have to stand and defend their decision before this Board. 668 MR. O'LEARY: Sorry, so nothing is done then? We simply go before the Board and first we decide whether or not spending a million and a half instead of half a million dollars is appropriate before the audit is undertaken, sir? 669 MR. RUBIN: In my view, the audit committee should have the authority. And if it abuses that authority, we've got a problem and the company can appeal to the OEB or do as it chooses. The company does have to sign the cheques or else money doesn't get spent. That authority is ultimately still with the company. 670 MR. O'LEARY: And if there is an objection as to the cost of the audit it goes into some micromanaging foray and we find we have million-and-a-half dollar audit, and an intervenor objects to that cost and it's disallowed by the Board, will Energy Probe reimburse ratepayers for the lost monies? 671 MR. RUBIN: I don't see a real risk, for about six reasons, of that scenario playing out. 672 I believe that we have seen that with responsibility comes responsible action. I believe that it's more likely that there will be a destructive impasse in the audit if the company retains ultimate power than it is that there would be an impasse in which there is shared power. 673 MR. O'LEARY: But there is a chance? 674 MR. RUBIN: Certainly. There is always a chance for an impasse. 675 MR. O'LEARY: What you're asking the Board to do is to reject protocol for the audit subcommittee because it does not empower intervenors to make decisions for the company. 676 MR. RUBIN: It does not preserve an independent audit committee that actually selects the auditor to whom the auditor reports. It pretends to do that. The top half of the page seems to do that until you get to the part where the rubber meets the road, and it turns out it's really advisory and the company has four votes that trump the three votes of the other -- the independent members. And I would suggest instead that the company have a tie-breaking vote, since four is an awkward number to try to get a decision in a vote, and that if the -- if the committee is divided, the chair, which would be the company, would cast the deciding vote. And that, I hasten to add, would be a fairly miserable situation in which we would be unlikely to get consensus at ADR and in which we would be back here arguing about whether the right auditor was chosen. 677 And I would certainly hope that we could instead go back to the good old days when the consultative group led to the kind of consensus that could create regulatory efficiency in the regulation of DSM activities. That is my ultimate object and I believe that object would be best served by a continuation of the situation we've had for 2000 and 2001 where the audit committee is independent and makes decisions. 678 MR. O'LEARY: And that's fine for Energy Probe to say, because it has nothing at risk. Is that -- as a member of the audit committee, you could make the decision and ultimately, there are no cost consequences, because you're not regulated. Isn't that a fair assessment of the situation? 679 MR. RUBIN: Well, we are not regulated. That part is certainly fair. 680 MR. O'LEARY: Thank you. Those are my questions, Mr. Chairman. 681 MR. BETTS: Thank you, Mr. O'Leary. 682 Mr. Moran. 683 MR. MORAN: Thank you. Mr. Chair. If I was wearing my former Ministry of the Environment hat, I might be tempted to explore the impact of the toxic sludge on the worms that are found under rocks by the auditor, whether those two evils would cancel one another out; but I don't have any questions. 684 MR. RUBIN: Block that metaphor. 685 MR. BETTS: Mr. Mattson, any questions in re-direct? 686 MR. MATTSON: No re-direct, Mr. Chairman. 687 MR. BETTS: Thank you. 688 QUESTIONS FROM THE BOARD: 689 MR. DOMINY: Mr. Rubin, I just have one question. In terms of your proposed incentive scheme, SSM scheme, in the context of that proposal, what would be your position in regard to the existence or non-existence of an LRAM? And I'm not sure how you would have a DSM variance account. There are three sort of mechanisms that are in place. With your proposal, what happens to other mechanisms? 690 MR. RUBIN: The DSMVA vanishes, because the agreed-upon budget that gets automatically reimbursed by customers, by ratepayers, also vanishes and so does the 10 or 20 percent overruns, et cetera. 691 The LRAM, as far as I see, is unchanged in the activity. The company would lose return from diminished sales and the LRAM, the function of the LRAM is to make the company whole for those lost returns. And I don't see that changing under my proposal. 692 MR. DOMINY: So as the measure against LRAM -- how is that determined? I see a net volume target that is set for the DSM activity for the year ahead. 693 MR. RUBIN: My understanding is that the LRAM account is cleared on the basis of actual results and it's cleared after the year is finished. And this would, if anything, I think, bring the LRAM and the SSM calculation closer into agreement, because in both cases actual would mean actual. 694 MR. DOMINY: I believe it is actual, but it's against something that is the difference between what was regarded as the projected likely effect of DSM programs. 695 MR. RUBIN: Yes, but that's because going into the year we need a basis for setting rates, and therefore a cut is taken of the budgeted effect of the DSM activities going in in order to have a handle on that. 696 It's a small term, as you know. We're discussing on the order of $150,000, so if it goes up or down a little bit, I'm not sure it's a show stopper or something that's worth a lot of time to discuss. 697 But unlike the DSM budget, the actual expenditures, where I think the company should be somehow compensated for the loss of cash flow that would flow from an implementation of my scheme, if there is a minor effect of a percentage of the LRAM that would be to the company's cash flow detriment, I'm not sure it's worth fixing. 698 MR. DOMINY: And I hesitate to ask this question, but could you, in a very short response, define what you mean by free rider? I know we had a discussion of different types of free riders. 699 I keep hearing discussions of free riders. I hear discussions of free drivers -- not much recently, but I'd like to know what your definition of free drivers is. 700 MR. RUBIN: Free riders. 701 MR. DOMINY: Free riders, yes, sorry. 702 MR. RUBIN: Free riders is a place holder, a number of categories of actual gas savings that are not properly attributed to the company's DSM activities. In a sense, any gas saving activity performed by a named participant, by a party that is included in the company's reporting, which is improperly attributed to the company's activity is a free rider. 703 It is actually -- I believe it is easier to define free ridership or free rider savings than it is to define free rider. Because free rider suggests there are some customers with one label on their head and some customers with another label on their head, and as Mr. O'Leary -- I'm sorry, Ms. Newland correctly urged me to point out, and I agreed, there are perhaps three or four or five possible labels that an individual client might wear. 704 But what comes out of it is -- frankly, I believe I said in some of my pre-filed testimony that it is often conceptually easier and clearer to think about the inverse of free riders or the complement of free riders, to think about legitimate savings that are attributable to the company. We all kind of know what those are, and they don't include any saving that would have happened with or without the company's intervention, whether those savings would have happened this year, next year, three years from now, whether they represent half of the savings of one industry or 20 percent. 705 All of that is easy if you look at the percentage -- the legitimate savings that are properly attributed. 706 And then when you think about the four or five -- three or four ways that things might be attributed improperly because they really didn't happen because of the program, those are all free ridership or free rider attributed savings. 707 MR. DOMINY: Then if I go to the other side and ask you what do you think about free drivers? I don't think we've had much discussion on this hearing, but I remember sitting through a lot of discussion in a Union hearing on that concept. 708 MR. RUBIN: Yes, and we didn't discuss free drivers very often in the 2000 audit committee either. 709 In principle, there is the possibility of a positive spillover of a DSM program so that people who are not formal participants in a company's program do -- are induced to do the right thing by the program. It's a spillover -- a positive externality, in effect. So the company might promote discounts on high-efficiency furnaces with discount coupons in the stores, and somebody sees those coupons and says, Gee, you know, when it's time to buy the furnace, they decide to buy the high efficiency one, but they don't get around to using the coupon or the offer has expired by the time they do it, but nonetheless, their activity would be properly attributed though the company's activities if we were smart enough to locate them and look at their savings. That's the nature -- that's what free drivership is, and it is very tough to get a handle on. 710 It is an aspect of -- and related to this other larger issue, I believe, called -- or maybe it's not larger -- of market transformation, that this Board has expressed some focus on in the past as being -- I think we all agree that ultimately the goal is to create an environment in Ontario or in Enbridge service areas in which everybody will naturally do the cost-effective efficient thing. 711 And when that happens, in effect, there will be no role remaining for Enbridge's DSM. It will have put itself out of the DSM business. 712 The question is, How do you reward that? How do you focus on it, and how do you avoid the perverse effect or the perverse incentives that we arguably ran into on this temperature turndown because the bird had flown. The savings are going to continue without the company doing anything this year, last year or the year before. Why should we reward them for doing nothing? 713 On the other hand, we should reward them for doing something that transformed the market, and we don't have a mechanism for doing that. That list of bullet points was really to try to brainstorm ways that we might put in that incentive so that worthwhile goal can lead to a reward for the company. 714 MR. DOMINY: Thank you, Mr. Rubin. 715 MR. BETTS: Thank you, and I have no questions for the witness. 716 Mr. Mattson, any need to re-direct, based on the Board's questions? 717 MR. MATTSON: No, Mr. Chairman. 718 MR. BETTS: Thank you, Mr. Rubin. Thank you for spending two days with us, and we welcome you to pack up and begin to get yourself organized for your trip home. 719 The Board would like to take a few minutes to deal with the motion, hopefully, so that everyone will know what is going to be happening this afternoon. So Mr. O'Leary, I believe you were going to propose a motion for the Board's consideration regarding some evidence that might be brought forward by CME. 720 MR. O'LEARY: Yes, sir. I'd be happy to deal with that presently. 721 MOTION: 722 SUBMISSIONS BY MR. O'LEARY: 723 MR. O'LEARY: Sir, in my submissions I will be taking you to the several procedural orders which have been issued by the Board, and also the rules of practice and procedure. 724 MR. BETTS: Mr. O'Leary, I'm going to set some rules, by the way, of my own right now. I'd like to keep submissions on this to a maximum of five minutes, give or take, from any parties. So let's work to that schedule. 725 MR. O'LEARY: I will try and be as brief as possible. 726 What this is about, sir, is Friday at 4:30 we received a document that is 25 pages in length. I don't propose to walk you through it, but it is the company's position that while there are aspects of it which are argument, there is new evidence in it. It deals with a matter that is not on the issues list. It is without explanation. 727 It is filed late, in that there is no reason whatsoever that any new evidence that's contained in this document could not have been filed earlier. It could have been filed at any time before the commencement of this hearing, and there would have been much less concern expressed by, I presume, many intervenors. 728 But it is such that in preparing for this hearing, and it deals with the witnesses on the DSM issue, that there are certain aspects of the evidence which have gone in which now will not have been addressed in chief by the company's witnesses. And that I would have to prevail upon the Board and ask that we recall the panel, including our consultants, to deal with some of the statements made by the CME in this document. 729 And I hesitate, of course, to do that, by virtue of the fact that we've already expended a significant amount of time dealing with DSM issues, and that the process -- and I would refer the panel to your powers under rule 5.02, which allows the panel to disregard evidence or material filed late, and I would remind the panel that if you look at the procedural orders, there were definitive dates for intervenors to file their evidence. That date was then extended following the request by various parties for a little additional time, and yet nothing was filed until the Friday before the CME was going to produce its witness. 730 The rules state at 13.01: "The evidence of a party other than their oral testimony is to be in writing." 731 And this evidence should have been filed in accordance with the various procedural orders. 732 Rule 30.04 requires a party, "where they wish to amend the issues list, to bring a motion." No such motion has been brought and what I'm referring to -- the CME wants to get into a debate over the existence or non-existence of the LRAM. That has not been an issue that's included on the issues list. It's not a matter that's included in the pre-filed evidence of the CME, and it's not a matter that was addressed in the evidence in chief of the company. 733 There are a number of areas, and again, I think it would take me far more than five minutes to walk you through the piece, and I don't think it would be fair to parties that want to also make submissions to do that. But the objection relates to a significant portion of the 25 pages. We're not just talking about the isolated paragraph or two, it's a significant portion of it. 734 So by reason of its lateness, and there's been no explanation given, and I would invite CME to say why they say that this could not have been developed earlier. 735 The only alternative, sir, I could suggest for your consideration is that if you accept the evidence and it's entered into the record, that we -- The company ask for the right to recall its panel to deal with that, because it is a matter that could have been filed earlier. It will be our respectful submission that the CME should be ordered to pay the costs of the company's counsel, the experts that are being recalled and the cost to the intervenors who will be here an extra day or two to deal with this, which should have been filed much earlier. 736 Absent a reasonable explanation, sir, that would be our recommendation as to which option you have, which is to either reject it or to proceed with costs payable by the CME. Those are our submissions, sir. 737 MR. BETTS: Thank you. And you did that very well, in a very timely manner. 738 Can I hear submissions that are in support of that motion? 739 MR. WARREN: Mr. Chairman, sorry, I will be as brief as I can, but I need you to turn up one exhibit in order to make my submissions, and that's Exhibit I, tab 37, schedule 1. 740 SUBMISSIONS BY MR. WARREN: 741 MR. WARREN: This is the CME's response to interrogatories received by the CAC. 742 MR. BETTS: Just hold on one moment there, please. 743 Exhibit I.37, tab 1? 744 MR. WARREN: Tab 37, schedules 1 to 3. I'm going to be referring to schedule 3, sir. 745 MR. BETTS: Thank you, Mr. Warren, go ahead. 746 MR. WARREN: Mr. Chairman, the CAC asks, in its naive way, what relief the CME was asking for with respect to issues 9.1 to 9.6, and I'm just going to take you to the first three answers. 747 With respect to issues 9.1, 9.2, and 9.3, the answer was, "CME's interrogatory is not based on CME's written evidence." 748 Now, what we got on the weekend -- and I didn't get it, Mr. Chairman. It arrived at my office on Saturday morning, I picked it up yesterday afternoon. What we got is pre-filed evidence on every one of those issues 9.1, 9.2 and 9.3 in addition to, 9.4, 9.5, and 9.6. So we have fresh evidence when they told us that it wasn't -- our questions weren't relevant to their evidence in the first place. 749 So we are caught entirely by surprise on the weekend by what amounts to a supplementary answer to an original interrogatory filed some time ago. That's just, to put it plainly, unfair. It's not playing by the rules. 750 Second point. This evidence is replete with new concepts, entirely new concepts raised for the first time by the CME on which we, in the ordinary course, I say "we" collectively, would have had an opportunity to deliver written interrogatories so that we could plan our cross-examination. We can't do that now. We are caught by surprise. We are at the whim of the person answering the questions because we will be asking them to use the old metaphor, "leading with our chin." 751 The third is, Mr. Chairman, that all of this evidence, all of it is so interweaved -- the new concepts, the fresh responses to interrogatories that were supposedly answered months ago, is all of one piece. It is impossible to redact this evidence, to separate it out, to parse it out, to get that which is legitimate argument, and that's all it is at the highest, with what is genuine evidence. 752 Our complaint about this, the gravamen of our complaint, Mr. Chairman, is that these folks just don't ever play by the rules. There are clear and unequivocal rules that this Board has so that everybody plays on the same playing field and everybody is treated fairly. And if you don't play by the rules, and this is not playing by the rules, it's just unfair. 753 In our respectful submission, Mr. Chairman, this evidence should being rejected in its entirety. If we don't, we're going to be here for another two days cross-examining on this as we try and find our -- weed our way through what's new and what's old. 754 Mr. O'Leary, it's within his bailiwick to talk about costs, but clearly we're all penalized by this, Mr. Chairman. 755 Those are my submissions in under five minutes. 756 MR. BETTS: Thank you, Mr. Warren. 757 May I have other submissions? Mr. Poch. 758 SUBMISSIONS BY MR. POCH: 759 MR. POCH: Mr. Chairman, first let me start on behalf of GEC and CIELAP by strongly endorsing the submissions we've just heard, and I would add as follows: 760 It cannot be said that the evidence that is being proffered is prompted by new matters that came up for the first time in oral hearing and about which CME is trying to respond. Many of the matters it raises are new concepts, matters not otherwise raised. 761 Second of all, I would ask you to turn up Exhibit I, tab 34, schedules 2 and 4. These are CME's responses to Green Energy Coalition interrogatories. 762 MR. BETTS: Okay. Thank you, we do have it. 763 MR. POCH: In interrogatory number 2, we specifically asked -- we had difficulty deciphering what, apart from issues 9.5 and 9.6, CME, if anything, was trying to address. So we asked: "Apart from issues 9.5 and 9.6, is CME making recommendations to the Board on any other of the DSM issues on the issues list?" And then we asked if so, to specify and to spell out. In part C, we asked them spell out what they're seeking. 764 And their response was: "CME will be participating in the ADR process at which all issues except 9.6 will be discussed." 765 So they were specifically invited at the time to put their cards on the table if they were going to proffer evidence here, and they declined. 766 And then in interrogatory number 4, we asked some specific questions. They are in items C, D and F. We asked them to address what level of spending is appropriate, how should budgets be set, what levels of volumes should be associated with CME's preferred level of spending, and what constraints, if any, should be put on the DSM budget due to rate index, all matters which it now seem seeks to address in its new evidence. 767 And their response was: "These interrogatories do not relate to the written evidence submitted by CME." 768 So it's not just that CME somehow managed to overlook these topics when they did their evidence and have caught themselves or been prompted by something here and now want a little leeway. They were specifically asked and given a second chance to expand their evidence by way of interrogatory answers and declined to do so. 769 You know, that's what the interrogatory process is about. It's about discovery. We shouldn't have to discover for the first time on the stand. 770 CME, I note, has asked some -- I think 190-odd interrogatories in the DSM area, most of which are multi-party, so probably over 500 interrogatories of the other parties. They obviously recognize the need and then some for interrogatories, which we would be denied in this case. 771 Obviously, issues 9.1 to 9.4 are not surprises. They were on the issues list. 772 And I would note that, for example, in discussing the need for LRAM -- this is an issue which isn't on the issues list at all. The company's proposal was to continue with it. It is not in their new framework, and it was in nobody else's evidence to propose to eliminate it. This would be a whole new topic, for example. 773 Now, I would just ask you, finally, then, if you'd turn up the exhibit that is being proffered, you will look at the table of contents there. And I see that issues 9.1 through 9.4 are the roughly three-quarters of the piece, all of which they were invited to address earlier and declined to. 774 And then, of course, we have interlaced into the balance, matters as I've just referred to not on the issues list and a further problem, which is that Mr. Rowan, who earlier as counsel made a point of saying he's not being offered as an expert witness, now provides numerous tables and charts. 775 I think the easiest one to see this on is on the very last page of the evidence where Mr. Rowan is offering calculations of cents per cubic metre saved. No footnotes, no ability for us to, in advance of today, check on the accuracy of this. I did ask in that particular case, Mr. Millyard, who now has got a world famous reputation as a spreadsheet expert to try to reproduce this, and I can tell you it was -- there was no obvious way for us to get these numbers. 776 So we're into a place where Mr. Rowan is also going beyond merely proffering facts and CME's position and is now stepping into the next level, which I would suggest is offering, in effect, expert evidence, derivation of new numbers not on the record, without even the courtesy of explaining to us in the footnote the calculations. 777 I think it would be very dangerous to let this in. It would be very time consuming and most prejudicial to the other parties. I think it's in the Board's interest not just with respect to the risk of another couple of days in this hearing, but a general statement of principle. I think it's appropriate for the Board to draw the line and draw it clearly. 778 MR. BETTS: Thank you, Mr. Poch. 779 Any other -- 780 MS. LOTT: From VECC. I'll just speak very briefly. 781 SUBMISSIONS BY MS. LOTT: 782 MS. LOTT: We're very much in support of this motion. We only became aware of this evidence late Sunday night. We were around this hearing when it rose at 4:00 p.m., I think it was, on Friday, and we certainly didn't leave the hearing room quickly. And there's a certain sense of certainly not playing fair in terms of our lack of knowledge of this lengthy evidence now, what appears, from what -- I've looked at just very briefly myself to be new evidence. So we are very much in support of that motion. 783 MR. BETTS: Thank you. Any further submissions in support of motion? Mr. Gibbons. 784 SUBMISSIONS BY MR. GIBBONS: 785 MR. GIBBONS: Mr. Chair, we support the submissions of previous counsel opposing the filing of this evidence. 786 MR. BETTS: Thank you. 787 Any other submissions? 788 Mr. MacOdrum, would you care to respond? 789 MR. MacODRUM: Yes, Mr. Chairman. 790 SUBMISSIONS BY MR. MacODRUM: 791 MR. MacODRUM: Mr. Chairman, and I would seek your indulgence since the parties that have gone ahead of me collectively whom I have to respond to have taken more than five minutes. It may take me a little bit more than five minutes. 792 MR. BETTS: We will certainly allow that. 793 MR. MacODRUM: First, Mr. Chairman, it seems to me that it's the other parties that are saying there are one set of rules, it seems to me, that they want to impose on CME, but they all want to play by another set of rules. 794 Most of the other parties have filed extensive direct testimony. Mr. Rubin, who has just left the stand, went through an extensive cross-examination of new opinions and new material from the record -- of the factual material from the record and to answer the counsel for VECC -- I'm sorry, Mr. Poch, the material is all from the record, and we can identify where it is. 795 So it seems to me there have been, since the interrogatories that Mr. Warren and Mr. Poch have addressed, significant new information placed on the record, but that only, it seems to me, according to Mr. Warren and Mr. Poch, CME is prohibited from updating its information and providing its more up-to-date opinions as a result of this very important proceeding as it has progressed to date. 796 In Mr. Rowan's opening statement when he first testified -- I will remind the Board that this was a time to review the underlying assumptions and the rules for DSM, that the Board has never really looked at them and looked at the whole basis of it. 797 And this is a very important regulatory policy review on a public interest issue. And it seems to me it's important that the Board have the widest range of views, opinions, judgments, recollections of the experience of the participants before them when they undertake this review. 798 I've been in hearing rooms like this for a number of years, and it's my -- my experience is that when the timeliness of a filing that is otherwise relevant is raised, that the tribunal does not exclude it and does not say it's inadmissible, but may take into account the issue of timeliness with respect to the weight it affords to adopt. 799 I'm not prepared to say that our document was untimely or was late because, in fact, as a convenience to the counsel, we did get it out to people, to the Board and to the applicant on Friday -- late Friday afternoon. We were back here, I believe, by 4:15, 4:20 with copies of the document. It was e-mailed that evening to all of the participants, and so that we certainly did endeavour -- I could have, as -- and I'm not being critical here, but I could have, as counsel for Energy Probe did, taken Mr. Rowan through a lengthy examination in chief. 800 But I -- we wanted to, for the convenience of my colleagues, to give them the material in advance. 801 I don't know. I mean, there appears to be tactic on the part of some to play the man, not the puck. If the other intervenors and the applicant wants to challenge Mr. Rowan's views, they should meet him head on in cross-examination. 802 But it wasn't for the intervenors the material was prepared. The material was prepared to assist the Board in this most important review of DSM issues. It is information collected from the record, and it is largely opinion evidence. Even some of the tables themselves are set out. That's opinion evidence set out. It's not expert evidence as that term is used in a courtroom, it is evidence of an involved, informed, and knowledgeable participant in the DSM process. 803 So really, the question that I would pose to the Board is, Do you feel that this information is helpful to you in your task to determine what the shape of the future DSM programs should be, what guidance you should give. The question of timeliness, you can obviously attach importance to as you consider the weight of the evidence compared to the other evidence you have on this issue, but it does seem to me that the -- 804 So it just seems to me that that is the critical issue you have to deal with. 805 To respond to a couple of points that some of my colleagues made, Mr. Warren said that this was dramatic new evidence. I think it is -- I think whether it is dramatic or not is sort of an "eye of the beholder" comment. It is certainly no different from other opinion evidence that has been proffered by other witnesses in direct testimony. 806 It's interesting that the interrogatories that were asked of CME were responded to on February the 5th by -- in terms of Green Energy Coalition interrogatories themselves, whereas the settlement proposal is dated March 14th. So that, in fact, the -- which is the subject matter of the hearing now -- in fact, we could not have answered questions in the light of the settlement proposal at the time the interrogatories were put to us. 807 Mr. Poch also commented that LRAM is out of the process. Well, there has been discussion of LRAM in this hearing to date, as recently as Mr. Dominy's own questions of Mr. Rubin. And so it seems to me that I would urge the Board that all of Mr. Rowan's proposed evidence is relevant to the issues. We believe and we submit that it is helpful to the Board in undertaking this important task, and if the Board itself feels that we have been somehow untimely -- and as I say, I don't think -- I think we were timely and helpful as compared to going through this this afternoon for the first time in oral direct evidence -- then I think the Board can take that into account in terms of the weight that it assigns to the evidence. 808 Thank you, Mr. Chairman. 809 MR. BETTS: Thank you. 810 Mr. O'Leary, any reply? 811 MR. O'LEARY: Yes, Mr. Chair. 812 REPLY SUBMISSIONS BY MR. O'LEARY: 813 MR. O'LEARY: Just briefly, the October 30th, 2002, letter from the Board to all parties. In the second paragraph you state: "The Board panel is determined to see this application completed in a timely manner." 814 Everyone is on notice in October of 2002, that they have obligations to meet, and you add: "In order for this process to be effective, it is imperative that all parties provide complete and timely evidence and responses to interrogatories within the schedule approved by the Board." 815 You then ordered: "Intervenors who wish to present evidence shall file that evidence with the Board and deliver it to Enbridge Gas and other intervenors on or before Monday, January 13, 2003." 816 You've heard from my friends what the response of CME was to that. 817 We show up at the ADR. Now, the parties are required to file position papers. I'm not going to go into what went on at the ADR, but suffice it to say, sir, that the position paper filed by the CME is a farce. It contains no positions. It reserves its right in respect of everything -- 818 MR. MacODRUM: Mr. Chairman, is this proper testimony, to go into what the contents of an ADR submission is? 819 MR. O'LEARY: It's our position, Mr. Chair, that what my friend has done is not prepare a position paper. He simply said nothing. It is not a position paper, because they took no position. 820 MR. BETTS: Mr. O'Leary, I think I've heard the objection. I would prefer to stay out of the ADR process if I can. I can get in enough trouble right in this process. 821 MR. MacODRUM: Mr. Chairman, it is just symptomatic of Mr. O'Leary's and other's approach that there is one set of rules for them and there's another set of rules for another. 822 MR. BETTS: Mr. MacOdrum, I've heard your submission. 823 Please, Mr. O'Leary, continue. 824 MR. O'LEARY: Mr. MacOdrum said if he didn't file this material at the last minute on Friday he would have asked Mr. Rowan to give evidence orally today. It is our position that that would have been equally improper, because both the rules require the evidence to be in writing. The procedural fairness of this whole application requires parties be given some advance notice so that they can prepare for cross-examination. The purpose of the rules are so that parties are not ambushed. 825 From a timing perspective, it now means that for the company to deal with the statements made by Mr. Rowan in the paper that he's proposing to file, we must necessarily ask the Board for additional time to bring back our panel. And that puts the whole hearing schedule again into jeopardy, and it is not something that should have occurred. 826 Mr. MacOdrum did not provide an answer that I heard as to why it was brought in on Friday. This hearing has been ongoing for a number of weeks. There were a number of weeks prior to it that any material that he wished to file, he could have sought leave of the Board to file, but that's not the situation. 827 We're now in a situation where it's really a trial by ambush; that the parties are faced about positions, statements, unsubstantiated evidence, what amounts to expert opinion going in at the last minute, which has not been seen by the company's consultants and their experts. And absent you allowing the parties to call their witnesses again, it will go unchallenged, other than through the cross-examination by counsel. 828 That, sir, in our respectful submission, is procedural unfairness and it should not be something that the Board accepts, and therefore we continue to suggest that the evidence be rejected. 829 We also would add that it doesn't invite Mr. MacOdrum to then try and get it in through the back door by asking Mr. Rowan to answer and to give evidence of the very thing that has been ordered to be excluded because it's late and unfair. 830 Those are our submissions, sir. 831 MR. BETTS: Thank you, Mr. O'Leary. 832 I think I'd like to deal with this before lunch, but again, I think we need a few minutes to consider this question. So could I beg your indulgence and ask you to remain in and around the room, certainly stretch your legs. We will try to come back as quickly as we can on it. 833 Thank you. 834 --- Recess taken at 1:08 p.m. 835 --- On resuming at 1:20 p.m. 836 MR. BETTS: Thank you, everybody. I'll get you to return to your seats. Please be seated. 837 RULING: 838 MR. BETTS: The Board has considered the submissions made on this motion. The Board is concerned, certainly, about the fairness, as was mentioned by some parties. The Board is aware of the fact that during the proceeding, Mr. Rowan has been presented as a witness but not qualified on the basis of his expertise. However, the Board acknowledges that Mr. Rowan does represent a constituency. 839 The Board finds that the evidence that's been proposed is not acceptable. The Board is prepared to have Mr. Rowan provide oral evidence, but the Board would ask Mr. Rowan to confine his evidence to the issues related to impact to his constituency and not to areas that he lacks expertise in, which are areas involving the development or analysis of technical matters related to DSM. 840 So the Board will not accept the written evidence that is at question at this point and will resume, after a short break, to hear some evidence based on those qualifiers provided about Mr. Rowan this afternoon. 841 Are there any questions? 842 PROCEDURAL MATTERS: 843 MR. MacODRUM: Yes, Mr. Chairman. 844 First of all, I will have to have some time to consult with my client in terms of: (a) whether we wish to proceed with evidence this afternoon or (b) whether we can proceed -- whether we're able to under what I believe I heard you say. 845 Mr. Rowan was not qualified as an expert when I put him on the stand initially, but he was qualified as a person with knowledge and experience, not only of the current DSM process but in the area of the energy conservation programs and their administration, budgeting and accounting for them. 846 And so that if he is not an expert in a strictly legal sense, he is a very informed layman on the subject. And if -- so I really, sir, I don't know that I will -- I will be in a position after lunch to indicate to you exactly when we would be able to proceed under the strictures that you have identified. And I would invite the Board, perhaps, to consider that we proceed with GEC next, and we can fall in after them. 847 MR. POCH: Mr. Chairman, I can just advise that Mr. Neme is on another matter in Washington, not his home state right now, and will be arriving in Toronto on Tuesday evening and that's why we sought Wednesday, in particular, for his evidence. 848 MR. BETTS: Thank you. 849 I'll just confer with Mr. Dominy for a moment. 850 [The Board Confers] 851 MR. BETTS: Mr. MacOdrum, how much time do you feel you would need to determine how you want to proceed on this? I want you to bear in mind that we aren't asking you to provide new evidence, we're asking you to choose your evidence selectively to fall within the framework established by the Board. 852 MR. MacODRUM: Well, and therein lies my problem. 853 Before I can select -- or the witness can select the new evidence, we have to make sure we understand the constraints that we're under from the Board. And as I understand, there are two. One is that they are to reflect the interest of the members of CME, and therefore that the converse of that is that to the extent that our evidence is an attempt to help the Board with the broader public interest question that it is wrestling with, the Board does not want us -- Mr. Rowan to stray into that subject matter. 854 And the second constraint is that the constraint that you had placed on Mr. Rowan himself and the scope of his testimony are constraints you've not placed on any other witness, not the company's witnesses who are not qualified as expert, but really just speaking of the knowledge and experience that they had in the same processes that Mr. Rowan has had experience in, knowledge and experience in. 855 So I'm -- I just don't know how long it's going to take me to consider the advice I have to give to Mr. Rowan on that first subject so that Mr. Rowan, himself, can select what testimony he thinks is within those constraints that you have identified. So I mean, you've left me with a bit of a problem, and I think one of the things I would like to do is I would like to be able to see, and perhaps the court reporters can help me here, is to get the precise language in your ruling would be helpful as well. 856 MR. BETTS: I'll expand a little bit on it just to make certain that it helps you when you read the wording. We are prepared to accept Mr. Rowan's knowledge and potential assistance in dealing with the procedural and administrative matters related to the issues. We don't believe that there has been a level of expertise established for Mr. Rowan to deal with the design or technical analysis of the DSM mechanisms. 857 That added clarification may assist you. 858 With that, I think, Mr. Rowan -- sorry, Mr. MacOdrum, if you do require the time, I'm going to suggest that we have a break that will take us to three o'clock, and we will reconvene at that time and we will see what your position is at that time, whether you're able to proceed. If not, we will be proceeding, without doubt, tomorrow morning with your witness. 859 Is there any comment on that position of the Board? Does it raise any concerns? 860 MR. O'LEARY: Mr. Chairman, no concerns. For the sake of the record, Mr. MacOdrum may not have been present, but when the company's panel were introduced, there were three experts that were qualified and accepted as experts in respect of the development and mechanisms involved in DSM programs, so I just want to make sure the record reflects the reality. 861 MR. MacODRUM: I was not speaking of the consultants that were tendered, I was just speaking of the company's employees. 862 MR. BETTS: Any other submissions? 863 We will break now and reconvene at three o'clock, and it may -- I'll warn everybody, it may very well be that Mr. MacOdrum is prepared to bring his witness forward at that time, and I'd ask you to be prepared for that. Other than that, we will establish tomorrow morning, at the very latest, for Mr. MacOdrum's witness. We will adjourn now until 3:00 p.m. 864 --- Luncheon recess taken at 1:31 p.m. 865 --- On resuming at 3:07 p.m. 866 MR. BETTS: Thank you, everybody. Please be seated. 867 Welcome back. Are there any preliminary matters for the Board's consideration. 868 PRELIMINARY MATTERS: 869 MR. O'LEARY: Just two matters for the record, sir. I will simply identify them by their numeric classification, J.12.1 and J.9.7. Copies have been left with Board staff and at the back of the room. 870 MR. BETTS: Thank you very much. Are there any other preliminary matters? 871 And Mr. MacOdrum, you were going to consider the Board's position and tell us where you would like to move from here. 872 MR. MacODRUM: Yes, Mr. Chairman. First of all, I would like to thank the court reporters for providing me with an unofficial version of your ruling, and I've had a chance to have a preliminary look at that. And what, Mr. Chairman, I would propose is to call Mr. Rowan, who has been previously sworn in these proceedings. Then it would be my intent to qualify him as an expert in corporate and administrative processes, procedures and governance, in addition to his qualifications as a person with knowledge and experience in DSM and the Enbridge experience and the energy conservation programs generally. 873 Then if f the Board accepts Mr. Rowan's qualifications as an expert in those areas, I would propose that we would then adjourn, and I would have Mr. Rowan available tomorrow morning for examination in chief on the topics that are consistent with your ruling and with his qualifications. 874 This method of proceeding is an attempt to expedite the proceeding, and if the Board did agree -- does agree with proceeding in that manner, I would ask your leave that I would be permitted to speak with Mr. Rowan in order that I can advise him of the proper scope of his testimony during the adjournment of the proceeding, that is after he has taken the stand and qualified this afternoon. 875 MR. BETTS: Thank you, Mr. MacOdrum. 876 Mr. MacOdrum, that sounds quite appropriate. If you'd like to bring your witness forward, we will see whether there are any submissions on those qualifications. Thank you. 877 And Mr. Rowan, welcome back, and as you know, you are previously sworn. 878 MR. ROWAN: Yes, sir, thank you. 879 M.ROWAN; Previously sworn. 880 CANADIAN MANUFACTURERS & EXPORTERS PANEL ON ISSUES 9.2 TO 9.5: M. ROWAN: 881 EXAMINATION ON QUALIFICATIONS BY MR. MacODRUM: 882 MR. MacODRUM: As I mentioned, Mr. Chairman, I'm intending, by this series of questions to qualify Mr. Rowan as an expert in corporate and administrative processes, procedures and governance. 883 Mr. Rowan, you were the Deputy Secretary of Cabinet for Policy for the Government of the Ontario? 884 MR. ROWAN: Yes. 885 MR. MacODRUM: And in that position, you dealt with processes and procedures related to the Executive Council of Ontario? 886 MR. ROWAN: Yes. 887 MR. MacODRUM: And the governance of this Province? 888 MR. ROWAN: Yes. 889 MR. MacODRUM: You were also the Director of Operations in the Office of the Premier? 890 MR. ROWAN: Yes. 891 MR. MacODRUM: And you served as a member of the secretariat of the Committee on Government Productivity which was a two-year complete look at the processes and procedures of the Government of Ontario? 892 MR. ROWAN: Yes. 893 MR. MacODRUM: You have an MA in Public Administration? 894 MR. ROWAN: Yes. 895 MR. MacODRUM: And an MBA? 896 MR. ROWAN: Yes. 897 MR. MacODRUM: And did you take courses as part of your Master's of Business Administration in corporate ethics in governance? 898 MR. ROWAN: Yes. 899 MR. MacODRUM: You were a Deputy Minister with the Government of Ontario for 15 years? 900 MR. ROWAN: Yes. 901 MR. MacODRUM: And is it the responsibility of deputies to advise on the overall processes for government and to manage their ministries consistent with these processes? 902 MR. ROWAN: Yes. 903 MR. MacODRUM: Have you served on the board of directors and audit committees of publicly traded companies? 904 MR. ROWAN: Yes. 905 MR. MacODRUM: Were you a member of the board of directors of Suncor and the governing -- I don't know if it was the board of directors of Syncrude? 906 MR. ROWAN: Yes. 907 MR. MacODRUM: Since leaving the Ontario Government, you have acted as a consultant on public policy, processes and procedures? 908 MR. ROWAN: Yes. 909 MR. MacODRUM: And you also, I understand it, managed a family manufacturing business; is that correct? 910 MR. ROWAN: That is correct. 911 MR. MacODRUM: And you also managed the sale of that business? 912 MR. ROWAN: Yes. 913 MR. MacODRUM: Mr. Chairman, I wonder, in the light of those qualifications that Mr. Rowan be accepted as an expert on the matter that I raised, corporate administrative processes, procedure, and governance. 914 MR. BETTS: Are there any submissions or comments on that qualification? 915 MR. MORAN: Mr. Chair -- 916 MR. BETTS: Mr. Moran. 917 MR. MORAN: I just wanted to make this comment that when somebody is being offered as an expert and has been led through the qualifications by the party who offers them as an expert, the usual procedure is to allow any other party who wishes to ask questions on those qualifications an opportunity to do that and then to entertain submissions after that with respect to the scope of the expertise. 918 MR. BETTS: Thank you for your assistance on that. Then I will change my wording and say are there any questions to the witness regarding his qualifications? 919 MR. WARREN: Just before we begin that process, I wonder if my friend Mr. MacOdrum could -- ordinarily when we're qualifying an expert there is some discrete area of expertise which you can define the limits of, if you're an expert in corporate finance or whatever it happens to be. 920 I'm having a little difficulty in understanding what discrete area that this witness is being qualified in. It seems to me to be, I say with respect, a trifle amorphous and imprecise. And before I can decide whether or not I've got any questions for this witness, I wonder if my friend Mr. MacOdrum could try and define a little more precisely exactly what the area of expertise is. I may be the only one having that difficulty, sir. 921 MR. O'LEARY: We share the same concern. 922 MR. POCH: I think it would be helpful Mr. Chairman, if I could invite my friend Mr. MacOdrum in responding, if we could understand what issues on the issues list that the witness is likely to speak to. I think that would also be of assistance in understanding whether there's any need for ... 923 MR. O'LEARY: If I could just add to that, to specify, to add to what both Mr. Warren and Mr. Poch have said is to understand how the expertise which Mr. Rowan allegedly has relates to the specific issues, precisely, and how that expertise would assist the Board in ruling on the various issues that are before it. 924 MR. BETTS: Mr. MacOdrum, I appreciate that this is all kind of happening without a lot of time for preparation. Are you able to answer some or all of those questions? 925 MR. WARREN: I apologize, Mr. Chairman. I wonder if I could just frame one other question for him. 926 Ordinarily when a person is qualified as an expert, they have to meet certain tests, one of which is independence, because an expert is ordinarily called not for our edification, but for yours. They are of assistance to the trier of fact in reaching a conclusion in one of the issues that you have to determine, and it is ordinarily one of the tests that the Courts apply is that the expert is -- has a measure of independence; the Courts would say that they are not an advocate for a particular position. 927 And Mr. Rowan is clearly and unmistakably an advocate for a particular position, so -- I apologize for sort of making this up as I go along, but it's unclear to me -- not only the question my friend Mr. O'Leary asked about, what matters is he going to give an opinion on, but is it intended that this is his independent -- independent of some position his client advocates. That's another area of difficulty, I would appreciate through you if Mr. MacOdrum could address. 928 MR. BETTS: Mr. MacOdrum, it's a long list. 929 MR. MacODRUM: To deal with that latter matter, first, I can assure you that Mr. Rowan -- 930 MR. BETTS: I pause for one moment. I'll just confer with Mr. Dominy. 931 [The Board confers] 932 MR. BETTS: I thank you and sorry for the interruption, Mr. MacOdrum. 933 MR. MacODRUM: I'm intrigued by Mr. Warren's question. Many experts are proffered by companies to advocate and support the viewpoint of the intervenor or applicant that is before the Board, and so I would -- Mr. Rowan is not an employee of CME. He is certainly, in my view, as independent as Mr. O'Leary was as the facilitator of the DSM consultative in 2002 that selected the present audit committee. And so I don't see how that is at a -- a problem at all with his expertise. 934 I'm also surprised, quite frankly, by the comments that others have made about what the relevance of the scope of Mr. Rowan's expertise, which we've identified to the subject matter of the proceedings. These -- the record of these proceedings is full of concern about the administrative and processes and procedures relating to the consultative process, relating to the audit committee, the audit subcommittee, and relating those processes back to the ADR and how we get before this Board with the topics that are on hand. We have spent a very, very large amount of the record on those matters, and in fact, the partial settlement agreement invites the Board to approve extensive procedural guidelines, changes, and address those kind of matters. 935 And Mr. Rowan's -- the document that we had earlier does address a number of those matters, and I felt that I wanted to give the Board assurances that Mr. Rowan was giving his advice to the Board and trying to be helpful to the Board, not just as a -- as a person who has been a participant in those processes, but who has spent a lifetime immersed in the appropriate processes and procedures for consultative and deliberative decision making. 936 MR. BETTS: Mr. MacOdrum, with respect to the four issues that are under review at this stage in the section 9, I think it's 9.2, 9.3, 9.4, and 9.5, can you be specific with respect to those four to indicate your expectation of the witness's involvement with each or any of those. 937 MR. MacODRUM: Well, we spent some time during the recent adjournment, as I might put it, going through the list, and I think our conclusion was that -- that with the actual wording of -- and as I say, I just have an unofficial transcript at this point in time, but with the actual wording of the transcript in front of me, and with the Board's acceptance of the revised additional qualifications, we would be able to make sure that our testimony fits within those constraints more strictly. 938 But it was -- it was our view that perhaps some of -- each of them, but not all of the 35 subject matters, obviously, but some of them under each issue did deal with process and administrative matters or deal with matters that properly reflected on his experience from being a participant in the DSM process. 939 Clearly, it was going to be a much shorter list than the 35 items that are listed in the table of contents, and clearly, 9.4 and 9.5 most -- to help my friends, who seem to need more help in this area, that Mr. Rowan's additional qualifications most properly reflect those two areas, but we did feel that, on a preliminary look, that there was also -- where he does not get into, to use the Board's words, the development and analysis of technical matters related to DSM but deals more with process and procedures matters or just reporting to you on his views on how the DSM consultative or the audit committee worked, that there are matters in those other issues that may be within the constraints that have been identified by the Board. 940 MR. BETTS: Okay. I've heard Mr. MacOdrum's response to your questions. I invite questions from any interested parties directed to Mr. Rowan. 941 MR. WARREN: I have no questions for Mr. Rowan, Mr. Chairman, but I have a number of submissions to make on the issue of whether he should be so qualified. 942 MR. BETTS: Are there any questions? 943 MR. POCH: I'm in a similar position as Mr. Warren. 944 MR. BETTS: Everybody has asked enough questions? 945 CROSS-EXAMINATION ON QUALIFICATIONS BY MR. O'LEARY: 946 MR. O'LEARY: I have one question of Mr. Rowan and that is, Mr. Rowan, have you ever been qualified to give expert evidence before this Board as from the area of corporate and administrative processes, procedure, and governance? 947 MR. ROWAN: Before this Board, no. 948 MR. O'LEARY: Thank you. 949 That would be the limit of my questions, sir. 950 MR. BETTS: Then, Mr. MacOdrum, do you feel the need to clarify that with your witness? If not, I will invite submissions from the intervenors. 951 FURTHER EXAMINATION ON QUALIFICATIONS BY MR. MacODRUM: 952 MR. MacODRUM: Mr. Rowan, have you assisted other boards and tribunals or courts on these matters? 953 MR. ROWAN: I appeared as a witness before legislative committees and select committees of the legislature and a Royal Commission. 954 MR. BETTS: May I then have submissions on the qualifications of this witness as an expert. 955 Did I say that wrong? 956 MR. WARREN: No. No, no, sir, I just wondered if you wanted Mr. O'Leary to go last or Mr. O'Leary to go first. I'm happy to go, if you like. 957 MR. BETTS: It matters not. 958 SUBMISSIONS BY MR. WARREN: 959 MR. WARREN: Mr. Chairman, on behalf of my client, we oppose the qualification of Mr. Rowan as an expert on this, as I characterized it, as a somewhat amorphous area, and since we are making this up on the fly, let me do the best I can. 960 The ordinary practice, Mr. Chairman, is there would be a pre-filed expert report, to which the expert evidence testimony would be directed, and in this case we don't have anything like that. So we have no idea precisely what it is that this witness is going to talk about. 961 What we have had in the areas that he's covered already is the -- what I would characterize, frankly, as very partisan testimony on behalf the CME, and with respect to some of the procedures that were adopted and including what can only be characterized as a complaint about the fact that he was not elected by procedure to be a member of the audit committee. 962 That is partisan testimony. There is no degree of expertise reflected in that. There is no independence. 963 The only reason that Mr. Rowan would now be characterized as an expert would be to give added weight, added gravitas, if you wish, to these partisan opinions, and there's a real danger for the Board in doing that, and there's a significant disadvantage to the intervenors to suddenly tart up, if I can use that colloquial expression, what is partisan evidence with the patina of expertise is, in my respectful submission, inappropriate and unfair, particularly at this late hour, where frankly Mr. MacOdrum is scrambling to provide some air of legitimacy to Mr. Rowan's testimony. 964 In our respectful submission, Mr. Rowan can give his testimony, his frankly partisan testimony, on what's wrong or right within the proposed procedures that are in evidence, and the Board can add to it whatever weight it wishes in light of his experience, some quarter of a century ago with the provincial government, and that's a weight which is entirely legitimate for the Board as a matter of evidentiary rulings to give to his evidence, but it's not expert evidence. 965 The case law, in our respectful submission, is clear, that an expert has to be independent. Because if an expert is not independent, then there is, as I say, the risk of the Board giving undue weight to what is frankly partisan evidence. 966 In our respectful submission, Mr. Rowan shouldn't be qualified as an expert in this proceeding, particularly in the absence of, as I say, any expert report which we can look to, but also in light of the fact that it's clear that he is not independent. 967 It is also not clear to me, Mr. Chairman, from the description of experience, as I say, 25 years ago with the provincial government, that he has any particular expertise in the areas of private sector governance and corporate activities. In our respectful submission, Mr. Rowan should be allowed to testify as a representative of CME and not as an expert. 968 Those are my submissions, thank you. 969 MR. BETTS: Mr. Poch. 970 SUBMISSIONS BY MR. POCH: 971 MR. POCH: Yes. I had taken the tone of Mr. Rowan's first appearance in this hearing as -- indeed there were a number of questions about whether he was representing the CME, and I recall -- I'm doing this from memory, not from the transcript -- that the answers were, Yes, that is correct. He was here as a witness representing the CME as opposed to an independent witness being proffered for his expertise. I don't think there was any question about that at the time. 972 I took the gist of the Board's ruling earlier today where the Board referred to the appropriateness of Mr. Rowan taking the stand to alert the Board to the impact of some of these matters on the constituency that the CME represents as indicative that the Board, in my view quite properly, had received Mr. Rowan's earlier position and his qualification in that role. 973 And I think it's -- that's perfectly appropriate. I would suggest that issues 9.4 and 9.5 are indeed process related matters. Where the question of whether a particular party feels they have had an opportunity to speak and so on, it's quite appropriate for Mr. Rowan to speak to that. 974 I am concerned that my friend isn't able to narrow the list beyond -- on the other matters. I had in my submissions earlier today on the motion, I think I drew to the Board's attention that his earlier evidence did not cover the other issues on the list, and I had assumed the intent of the Board's ruling today was to recognize that it had -- that earlier evidence, pre-filed evidence, is about the consultative process, broadly speaking, and so I have no objection to him testifying in that regard. 975 I don't frankly think -- on the question of whether Mr. Rowan needs to be an expert. He does not need to be an expert to testify on those things. Is he, in fact, an expert on those? I would agree with Mr. Warren's submissions that the law on this is fairly clear that for a court to receive -- Courts, I think, of late more than ever say they don't want to hear advocacy dressed up as expert evidence. They want experts to be independent. We all, of course, shop for experts and find experts that support our case, but that's quite different from having someone who is an advocate for the entity be the expert. 976 MR. BETTS: Any further submissions? 977 Ms. Lott. 978 MS. LOTT: Just that I would support the comments of the previous intervenors. I'm at a loss to understand how someone who submitted pre-filed evidence as a representative of CME can now be qualified as an expert in an area of corporate and administrative process. So I would support the comments of my fellow intervenors. 979 MR. BETTS: Any other submissions from parties opposing this qualification? 980 Mr. O'Leary. 981 MR. O'LEARY: Mr. Chair, thank you. 982 SUBMISSIONS BY MR. O'LEARY: 983 MR. O'LEARY: The company opposes Mr. Rowan being qualified as an expert for several reasons. First of all, just a few moments ago Mr. MacOdrum asked Mr. Rowan whether or not he had been involved as an expert in previous administrative proceeding -- it was the obvious time for him to say he had been qualified previously as an expert before any particular Board or tribunal, and the word expert did not fall from his lips. I take that to mean that he has never been qualified as an expert before. 984 Secondly, sir, his pre-filed evidence quite clearly reads as a chronology of events. It's about his observations. It's not about what makes a difference between an expert and a layperson. 985 An expert is there to assist the trier -- the panel in this case -- as to their particular technical expertise. It's a value added that they bring to the process. They're not there to provide simply observations, they're there to add something that a layperson cannot, and you do go though a technical process to determine whether the person is so qualified. And that includes, as Mr. Warren has pointed out, the filing of an expert report to indicate in advance what it is that that expert will be opining upon. It requires more than to get up on the day of your testimony and say, I am an expert and I may have some opinions that I would like you to hear. That is not the process that is appropriate in either a court or before this Board under your rules. 986 But the send matter that -- or second area you look to is the person's curriculum vitae, and there should be something in there that would support significantly and clearly the area that you're attempting to be qualified as an expert in. And Mr. Rowan is being tendered as an expert in corporate and administrative processes, procedure, and governance. And you would think that if that is an area of true expertise, that those words would appear in his curriculum vitae. They do not. 987 This is a renaming of what might be years of experience within various ministries, but to suggest that it is an area that Mr. Rowan holds himself out as an expert, is inconsistent with the wording of his curriculum vitae. 988 And sir, we also take the position that the opinion evidence that Mr. Rowan might offer in the areas of corporate governance and administrative governance could be of little assistance to the panel in respect of issues 9.1 through 9.3, as they require a background of some technical expertise and education, which Mr. Rowan has not indicated that he has. 989 Indeed, at volume 2 of the transcripts at paragraph 102, Mr. MacOdrum was frank enough to alert us all to the fact that, and I quote: 990 "Mr. Chair, perhaps before Mr. Klippenstein moves on, I would just note that he used the term referring to Mr. Rowan as an expert witness. I did not qualify Mr. Rowan as an expert witness on the subject matter yesterday." 991 Sir, you may also remember that I believe Mr. Rowan indicated on several occasions that he doesn't have the qualifications of Mr. Millyard or Mr. Neme, and I suspect that might have had some bearing on your decision made earlier today about whether the Board would receive his 25 pages of new evidence. 992 Sir, it is the company's position that while Mr. Rowan is certainly available to offer his observations and to, perhaps, update the Board as to what has taken place from the standpoint of his participation on the DSM consultative and in the past, the audit subcommittee, that he is not in a position, nor should he be qualified as an expert in the areas that he has been proffered. 993 Those are our submissions, sir. 994 MR. BETTS: Thank you. 995 Are there any other submissions? 996 Mr. MacOdrum, any reply? 997 SUBMISSIONS BY MR. MacODRUM: 998 MR. MacODRUM: Mr. Chairman, you know, Mr. Rowan, in his previous testimony and again in the document which we proposed to file earlier today has stuck to the issues, the processes and the procedures. He has not personalized things. He has played the man and not the puck. 999 And I am -- was very much taken aback by Mr. Warren's comments. I think they -- and my memory may not be what it always was, but it was a new low in advocacy before regulatory tribunals in which I've had the honour to appear. 1000 Everyone in this room, with the exception of the Board, the Staff, and the court reporters are partisans. We bring in experts, the company brings in experts, and the intervenors bring in experts; independent experts, they call them, to advocate, to bolster the advocacy of positions. 1001 I have, in my experience, also seen where a company witness was on the stand, who happened to have an engineering background -- this was many years ago -- but -- and they got into an engineering area. He was there testifying on certain documents that were put before -- I believe it was the National Energy Board. And they asked him, since he was an engineer, to comment on them from an expert's point of view, and he was qualified as an expert at that point, and carried on with discussions. He was an employee of the company, but he was also a qualified engineer in the area in which the subject matter that the cross-examination took. 1002 So all of this with the idea that an administrative tribunal, with a public policy mandate which is trying to come to grips with difficult issues, to say that the rules of the evidence which apply to a courtroom for expert witnesses are going to be strictly applied is certainly not the way many other tribunals have approached it. 1003 We're not -- one of my colleagues used the expression we're trying to -- I don't know if he used these words -- but gussy-up Mr. Rowan's testimony. What Mr. Rowan has brought to this Board and has brought to the DSM process and the consultative is a rigorous mind that focuses on the fairness and the logic and the principles of the -- of the processes that are being dealt with. 1004 And it seems to me he does that because he has had a lifetime of expertise in those areas, and he does now provide consulting services today in those areas. 1005 So it seems to me that to deny him the opportunity to share not just his personal opinions from the many long hours he spent as part of the DSM consultative and the audit committee, but also to share with the Board his expertise on these matters, is to deny -- for the Board to deny itself of a perspective it should have when it wrestles with these important procedural matters. 1006 As I say, I just -- to conclude, it upsets me as a practitioner before this Board that other parties have chosen to play personalities with this whole matter. We believe, and the Board has found, that CME is an interested party before these proceedings. We think we have some important observations to make and that we have people qualified to make them, and we do expect to be afforded the rights of a participant to do that. 1007 MR. BETTS: Thank you. I think we will recess for a short while so the Board can consider these -- this question, and when we return, I would assume we will probably not, under any circumstances, get much testimony in today, other than a position by the Board on this matter, which will allow us to proceed from there. 1008 But please bear with us. We will try and be back before four o'clock. 1009 --- Recess taken at 3:42 p.m. 1010 --- On resuming at 3:58 p.m. 1011 MR. BETTS: Thank you, everybody. Please be seated. 1012 RULING: 1013 MR. BETTS: The Board has considered the submissions on this question, and the Board finds that it does not need to rule on Mr. Rowan's qualifications as an expert in this situation. We're satisfied that within the limits of the description of the evidence that we are prepared to receive from Mr. Rowan that his expert qualifications are not required and that we are -- will be pleased to hear his testimony with respect to those items. 1014 We also felt that, with respect to the initial submission of written evidence which was not accepted by the Board, much of the material that was contained within that may be presented as arguments at a later time and do not therefore feel it unduly restrictive to avoid some of that coming into the record. 1015 Finally, we would like to stress the point that there is a great deal of information that was made available to the Board in Mr. Rowan's initial testimony earlier in the proceedings, and we will ask all parties to try to avoid going over any of that material when Mr. Rowan is brought to the stand for his contribution. 1016 And I think, again, finally, the Board does accept the position of most parties and including the comments from Mr. MacOdrum that the focus of Mr. Rowan's testimony will be on issues 9.4 and 9.5. 1017 Are there any questions with respect to that ruling? 1018 It's four o'clock. Mr. MacOdrum, is it your intention to bring your witness back, then, tomorrow morning? 1019 MR. MacODRUM: It's certainly my intention, sir, to look very carefully at the strictures you have placed upon us, and it's certainly at this point in time it would be my intent that Mr. Rowan will be back tomorrow to testify. 1020 MR. BETTS: Just to make certain of one thing too, and it struck me that I should clarify this. The Board is not ruling that Mr. Rowan would not be qualified as a witness in the area that you've spoken about, and I want to make that clear on the record. This is not a disqualification, but simply the acknowledgment that his qualification is not required in the opinion of the Board at this time. 1021 Any other clarification required? 1022 Then we will adjourn now and reconvene tomorrow morning at 9:30. 1023 --- Whereupon the hearing adjourned at 4:01 p.m.