Rep: OEB Doc: 12KP8 Rev: 0 ONTARIO ENERGY BOARD Volume: 1 6 FEBRUARY 2003 BEFORE: R. BETTS PRESIDING MEMBER P. SOMMERVILLE MEMBER B. SMITH MEMBER 1 RP-2002-0142 EB-2002-0420 TRANSCRIPT VOLUME #1 2 IN THE MATTER OF sections 70 and 74 of the Ontario Energy Board Act, 1998, S.O. 1998, c.15, Schedule B; AND IN THE MATTER OF Transitional Generation Licence EG-0333, issued to Ontario Power Generation Inc. AND IN THE MATTER OF an application by Ontario Power Generation Inc. to amend its licence obligations to provide a rebate to consumers under specified circumstances. 3 RP-2002-0142 EB-2002-0420 TRANSCRIPT VOLUME #1 4 6 FEBRUARY 2003 5 HEARING HELD AT TORONTO, ONTARIO 6 APPEARANCES 7 PAT MORAN Board Counsel LAURIE KLEIN Board Staff DAVID BROWN Board Staff MICHAEL PENNY OPGI MICHAEL JANIGAN VECC JUDY KWIK VECC DAVID POCH GEC CIELAP OSEA MARK MATTSON Energy Probe ANDREW LOKAN Power Workers Union BRUCE MACODRUM CME 8 TABLE OF CONTENTS 9 APPEARANCES: [22] PRELIMINARY MATTERS: [47] COMPETITION BUREAU - PANEL 1 [72] OPENING STATEMENT BY MS. PALUMBO: [76] EXAMINATION BY MS. PALUMBO: [85] CROSS-EXAMINATION BY MR. JANIGAN: [152] CROSS-EXAMINATION BY MR. POCH: [219] CROSS-EXAMINATION BY MR. MATTSON: [281] CROSS-EXAMINATION BY MR. MacODRUM: [336] CROSS-EXAMINATION BY MR. MORAN: [366] QUESTIONS FROM THE BOARD: [416] PRELIMINARY MATTERS: [460] OPENING STATEMENT BY MR. PENNY: [497] ONTARIO POWER GENERATION INC. - PANEL 1 [543] EXAMINATION BY MR. PENNY: [557] CROSS-EXAMINATION BY MR. POCH: [615] CROSS-EXAMINATION BY MR. MATTSON: [862] CROSS-EXAMINATION BY MR. MORAN: [964] QUESTIONS FROM THE BOARD: [1052] 10 EXHIBITS 11 EXHIBIT NO. G-1.1 LETTER OF DEC.16, 2002, FROM MR. SINGER TO DAVID POCH [631] 12 UNDERTAKINGS 13 UNDERTAKING NO. F-1.1: AN UNDERTAKING TO ADVISE OF THE DATE OF EXPIRY FOR ANY AGREEMENTS THAT HAVE EXPIRED [668] 14 --- Upon commencing at 9:32 a.m. 15 MR. BETTS: Thank you, ladies and gentlemen. Please be seated. 16 Good morning. First of all, can everybody hear my voice at this level? Maybe you at the back, if you can -- oh, I see a nod so we're communicating. That's great. Thank you. 17 The Board is sitting today in the matter of application RP-2002-0142, submitted by Ontario Power Generation Inc. concerning Transitional Generation Licence EGO-333 and an amendment to its licence obligations to provide a rebate to consumers under specified circumstances. The application is made pursuant to part 4, paragraph 4, of the Transitional Generation Licence and relates to a transaction with Bruce Power LP. The licence includes conditions that address market power mitigation, subjecting Ontario Power Generation Inc. to a price cap and a requirement to pay a rebate to consumers under specified circumstances. 18 My name is Robert Betts. I will be the presiding member in this hearing. Joining me on the panel is former Board members, Mr. Brock Smith to my left and Mr. Paul Sommerville to my right. 19 This will be the first opportunity that the Ontario Energy Board has had to deal with the questions relating to transfer of effective control or, expressed another way, decontrol of part of the generation capacity of Ontario Power Generation Inc.. The criteria for determining decontrol are more frequently applied by the Competition Bureau, in their case, in matters involving applications to decrease market control as opposed to this application requesting recognition of decreased market control. 20 To assist the Board and the hearing participants in understanding the underlying issues, the Board, as indicated in our letter of January 29th, 2003, invited representatives of the Competition Bureau to provide evidence on their approach to analyzing market power and interdependent behaviour. The Board intends to commence the evidentiary portion of the hearing with their testimony before beginning examination-in-chief. 21 Now for appearances. Who will be appearing for the applicant, please. 22 APPEARANCES: 23 MR. PENNY: Mr. Chairman, thank you. My name is Michael Penny and I appear as counsel for the applicant, Ontario Power Generation Inc.. 24 MR. BETTS: Thank you, Mr. Penny. 25 MR. PENNY: With me are Mr. Barrett on my left and Mr. John Rattray on my right, also from Ontario Power. 26 MR. BETTS: Mr. Barrett on your right? 27 MR. PENNY: Mr. Barrett on my left and Mr. Rattray on my right. 28 MR. BETTS: Thank you. And appearing for the Competition Bureau. 29 MS. PALUMBO: Good morning, Mr. Chairman. Josephine Palumbo from the Department of Justice appearing on behalf of Commissioner of Competition and the Competition Bureau. 30 MR. BETTS: Now appearances for intervenors, please. 31 MR. JANIGAN: Michael Janigan on behalf of the Vulnerable Energy Consumers Coalition. With me is Judy Kwik. 32 MR. BETTS: Thank you. 33 MR. POCH: David Poch on behalf of the Green Energy Coalition, Canadian Institute of Environmental Law, Ontario Sustainable Energy Association, and for the record that can be GEC et al or GEC/CIELAP/OSEA. 34 MR. BETTS: Thank you, Mr. Poch. 35 MR. MATTSON: Good morning, Mr. Chairman. Mark Mattson, counsel for Energy Probe, and with me this morning is Tom Adams. 36 MS. DeMARCO: Good morning. Elisabeth DeMarco on behalf of the Independent Power Producers' Society of Ontario. 37 MR. BETTS: Thank you. 38 MR. LOKAN: Andrew Lokan on behalf of the Power Workers Union. 39 MR. BETTS: Was it Mr. Logan? 40 MR. LOKAN: Lokan, L-o-k-a-n. 41 MR. BETTS: Thank you. 42 MR. MacODRUM: Mr. Chairman, my name is Bruce MacOdrum, and I'm appearing for Canadian Manufacturers and Exporters. 43 MR. BETTS: Thank you, Mr. MacOdrum. 44 Are there any other intervenors represented here? And then appearing for Board staff, please. 45 MR. MORAN: Pat Moran, Mr. Chair. 46 MR. BETTS: Thank you, Mr. Moran. 47 PRELIMINARY MATTERS: 48 MR. BETTS: As we begin to consider preliminary matters, first of all, from the panel's point of view, the panel organised the hearing day schedule to include a shortened afternoon session with no afternoon break. The purpose was to allow the panel members the opportunity to reflect on the evidence and the progress of the proceeding particularly due to the new ground upon which this application comes to the Board. That having been said, the panel wants parties to know that if there are good reasons to extend or otherwise alter the proposed timing, the panel would definitely consider the merits of such a suggestion. 49 On a related matter, the Board has recognised that the proposed starting time of 1:00 p.m. on Monday, February 10th, is not achievable, unfortunately, and the Board cannot sit until 2:00 p.m. that day. The panel therefore invites parties to informally discuss this situation and come forward with any change they might recommend to address this situation which could include, among other things, a later adjournment time on that day. 50 Now, continuing with preliminary matters. Mr. Moran, first please advise the Board if this is a properly constituted hearing and that all directives of the Board were properly complied with. 51 MR. MORAN: Yes, Mr. Chair. That's my understanding. 52 MR. BETTS: Thank you. And do you have any other preliminary matters? 53 MR. MORAN: Just one observation. The proposal from the Competition Bureau folks is to have them give their evidence first to accommodate one of the witnesses who has to leave, if possible, I think around 2:00 this afternoon. But I don't have anything else. 54 MR. BETTS: Thank you. And that's all from your point of view? Let's see here. 55 Mr. Penny, any preliminary matters? 56 MR. PENNY: No, Mr. Chairman. I understand we'll come back to the question of the documents later. But in the interests of dealing with the Competition Bureau piece, we're content to proceed with that first. 57 MR. BETTS: Thank you. 58 Ms. Palumbo, anything you would like to bring to the attention of the panel? 59 MS. PALUMBO: No, not at this time, Mr. Chairman. 60 MR. BETTS: Thank you. Any preliminary matters from intervenors at this point? 61 MS. DeMARCO: Mr. Chairman, Elisabeth DeMarco on behalf of IPPSO. We're seeking permission of the Board to seek -- to be able to follow the matter through transcript and not attend in person through the hearing, and file written argument at the end of the hearing. I understand that Mr. Penny has no objection to that request as well. 62 MR. BETTS: Very well. Just for your information, the panel has not decided yet whether arguments will be written or oral. I just state that as a caveat. But certainly we understand if you do want to follow by transcripts, that's fully understandable. 63 MS. DeMARCO: And if I could add that if it would be possible for IPPSO to file written argument in the same timing that oral argument might be provided, or might be allotted, we'd be interested in doing so. 64 MR. BETTS: That would be very well received. That's fine. The panel certainly recognise the written arguments equally to oral. Thank you. 65 Any other preliminary matters from intervenors? 66 Thank you. Then Ms. Palumbo, perhaps I see that the witness panel is already seated so perhaps we can ask Mr. Sommerville to swear them in and then you can introduce them for us. 67 MS. PALUMBO: One small correction for the record. It's Palumbo with a "P". 68 MR. BETTS: Thank you. 69 MS. PALUMBO: Thank you, Mr. Chair. 70 MS. DeMARCO: Mr. Chairman, I wonder if I can seek leave from the Board to excuse myself at this point in time. 71 MR. BETTS: Yes, Ms. DeMarco. 72 COMPETITION BUREAU - PANEL 1 73 R.ANNAN; Sworn. 74 M.RONAYNE; Sworn. 75 MR. BETTS: Thank you. Ms. Palumbo. 76 OPENING STATEMENT BY MS. PALUMBO: 77 MS. PALUMBO: Thank you, Mr Chairman. On behalf of the Competition Bureau and my colleagues I would like to thank the Ontario Energy Board for this opportunity to address you and provide competition law and policy perspective in relation to the matter under review by the Board in this hearing. Our participation however at this hearing is one of amicus curiae; in other words, we are here to offer assistance as Mr. Chairman has outlined in his opening remarks this morning. Our evidence will be restricted to essentially three topics, which we understand will be of assistance to the panel. 78 The first, we will offer evidence as to the reasoning behind the granting of an advanced ruling certificate with respect to the Bruce transaction and its possible relevance to the issues before the Board in this hearing. 79 Secondly, we will lead evidence outlining the factors that the Bureau considers when examining the issue of interdependent exercise of market power in merger and other cases under the Competition Act. 80 Thirdly, we will outline the Bureau's approach to competitive problems that may arise from the sharing of information among competitors. 81 The Competition Bureau has filed written submissions with the Board in respect of each of these issues, and I believe the Board and my participants to this hearing have copies of those submissions which, if I'm correct, are marked as Exhibit D-8. 82 MR. BETTS: That is correct, thank you. 83 MS. PALUMBO: Our evidence in chief will consist of presentations by two senior competition law officers and each will in turn will provide us with some background information about themselves and then will provide evidence on the issues as I have outlined. 84 I would like to begin with Mr. Richard Annan. 85 EXAMINATION BY MS. PALUMBO: 86 MS. PALUMBO: Mr. Annan, can you please tell the Board what your current position is with the Bureau? 87 MR. ANNAN: I'm currently acting as an assistant deputy commissioner of competition in the mergers branch Competition Bureau, and as such I'm the manager essentially responsible for one of the enforcement divisions in the mergers branch. 88 MR. PENNY: Mr. Chairman, it's difficult for us to hear. Perhaps the witness could try and speak directly into the mic. 89 MR. BETTS: Thank you. I appreciate that. I'll turn up the volume a little bit at the same time, Mr. Penny. 90 MR. ANNAN: Just to repeat that. My current position is I'm acting as an assistant deputy commissioner of competition in the mergers branch, Competition Bureau, and as such I'm essentially a manager of one of the enforcement divisions in that branch. I'm also responsible for the merger notification unit. 91 MS. PALUMBO: How long have you been with the Bureau, sir? 92 MR. ANNAN: Since 1982. 93 MS. PALUMBO: Can you tell us a bit about your responsibilities at the Bureau. 94 MR. ANNAN: Well, I mentioned what I'm currently doing, acting as a manager, but previous to that I've been basically a team leader since 1989, and as a result of that I've been responsible for leading many of the major merger examinations the Bureau has undertaken through the '90s. For example, I was responsible for the merger analysis of the bank mergers between the Royal Bank, the Bank of Montreal and Toronto Dominion and CIBC. In 1999, I was also responsible for the Air Canada, Canadian Airlines case. I've had quite a bit of experience looking at mergers in general. 95 MS. PALUMBO: Could you please give us some information about your educational background. 96 MR. ANNAN: Sure. In 1980, I received a law degree from Queens University. In 1982, I was awarded a Masters of Business Administration from the University of Western Ontario. I've also been called to the Bar in 1985, the Ontario Bar, and more recently I'm also a chartered financial analyst. 97 MS. PALUMBO: Thank you, Mr. Annan. Could you please tell us if you prepared the written submissions that are currently before the Board. 98 MR. ANNAN: I'm a co-author of the submission with Mark Ronayne. 99 MS. PALUMBO: And what points would you be addressing this morning? 100 MR. ANNAN: In reference to our submission, as you mentioned, it's essentially divided into three parts and I'd like to address the first two parts of that submission. 101 MS. PALUMBO: Have you reviewed the entire record that is before the Board in this application? 102 MR. ANNAN: No, I have not. 103 MS. PALUMBO: Have you taken a position on the basis of your analysis of the record with respect to this transaction? 104 MR. ANNAN: No, I have not. 105 MS. PALUMBO: Can you tell us, then, what was the rationale for the Bureau issuing the advance ruling certificate with respect to the Bruce transaction? 106 MR. ANNAN: Well, the legal test under the merger provisions of the Competition Act is whether or not a proposed merger will -- the legal test on the merger provisions of the Competition Act is whether or not the proposed merger will likely substantially lessen or prevent competition. In other words, it compares the pre-merger market with the post-merger market and the market conditions that result from that merger. The Bruce transaction essentially represented a new entry in the Ontario electricity generation market and therefore could not be said to lessen competition, no matter now imperfect that new competition would be. 107 In terms of preventing competition, unless there was some evidence to indicate that the lessee, in this case, absent the merger would have likely entered the Ontario electricity generation market, there could be no such prevention, so that wasn't the evidence in this case. For those reasons the advance ruling certificate was issued. 108 MS. PALUMBO: Thank you. What, in your view, is the significance of granting an advance ruling certificate with respect to the issues that are before the Board in these proceedings? 109 MR. ANNAN: Well, as I understand it, the objective of the market power mitigation framework is to create a competitive electricity generation market in Ontario by requiring Ontario Power Generation to mitigate its pre-existing market power by divesting control of Generation assets by sale, lease or other means. This objective is quite different than the test set out in the Competition Act or the merger provisions in the Competition Act which again deal with the changes that result from a merger and whether that is going to lessen competition or prevent it. This objective is essentially to create a more competitive market out of a pre-existing state and therefore, in my view, I don't think the Board should take any comfort from the granting of the advance ruling certificate for the issues that it has to determine. 110 MS. PALUMBO: Can you describe for us how the Bureau views interdependent behaviour. 111 MR. ANNAN: Sure. Well, the term interdependent behaviour, also known as coordinated behaviour, refers to conduct by a group of firms that is profitable for each of them because of the accommodating or cooperative conduct of the others. The key elements here is essentially what are the market structure characteristics or practices of the firms that make it likely that they can reach some sort of arrangement, understanding that they can detect deviations from those cooperative understandings or arrangements and in fact they can punish those people -- punish those firms, I should say, that so deviate. 112 There's a list of characteristics that we've mentioned in our submission. I won't run through all of them. But as I mentioned there is, if you like, a check list of the various factors to consider both from a market structure point of view and from a practices point of view that might make interdependent behaviour more likely than not. For example, in terms of market structure characteristics, we would consider things such as the number of sellers in the market; a smaller number of sellers makes it easier to come to an agreement, to enforce it and to monitor performance. Whether or not demand is inelastic or elastic; if it's inelastic, there's a greater incentive to raise price. Whether demand is both stable and predictable and costs are stable and predictable; Again, this makes the reaching of an understanding and the ability to continue that understanding more likely. The concentration on the buyer side, whether or not there's a large number of buyers or a small number of buyers; If there's a large number of buyers, there's less chance that buyers will have countervailing market power to discipline any sort of exercise in market power by the firms. 113 In terms of practices, you would look, for example, at what are the contractual practices. Do firms have meter release clauses, most favoured nation clauses, other structural clauses that increase the transparency of pricing and also provide incentives not to deviate from understandings. 114 So again I will refer the Board to pages 3 and 4 in particular of our submission for the long list of factors there, so I won't go in much detail further on those. 115 I should just mention I guess finally, in terms of mergers at least, we look at the exercise of the market power in two ways. One is the unilateral exercise of market power and the other way is the interdependent exercise of market power. It's a difficult area to describe. Economists have different versions of what these things mean. But I think in essence the difference between those two is that if you have a dominant position in a market, for example, with high barriers to entry, you're in a position to exercise market power, raise prices above competitive levels regardless of whether others cooperate or others follow your pricing or not. Interdependence depends, essentially, on the cooperative or accommodating response of others to sustain those price increases. 116 MS. PALUMBO: Thank you, Mr. Annan. 117 Mr. Chairman, I'd like to proceed to a request or lead evidence from the second witness of the Bureau and then at the conclusion of which I'll open up to questions that the panel may have or participants of the hearing may have, if that's acceptable. 118 MR. BETTS: Thank you. 119 MS. PALUMBO: Good morning, Mr. Ronayne. Could you please tell us what your current position is with the Competition Bureau. 120 MR. RONAYNE: I'm a senior competition law officer in the civil matters branch of the Bureau. 121 MS. PALUMBO: How long have you held that position? 122 MR. RONAYNE: I've been in that position for five years. 123 MS. PALUMBO: And how long have you been with the Bureau? 124 MR. RONAYNE: I've been with the Bureau 19 years now. 125 MS. PALUMBO: Can you tell us a little bit about your responsibilities at the Competition Bureau. 126 MR. RONAYNE: Currently I have two principal areas of responsibility; one is in managing investigations under the civil matters provisions of the Competition Act. Those are the ones dealing primarily with abuse of a dominant market position, although there are other provisions as well. The other key area of responsibility is managing interventions by the Competition Bureau in the Canadian energy sector, in particular the natural gas and electricity sectors. In that function I've been involved in some 20-plus regulatory and policy interventions over the past several years. 127 MS. PALUMBO: Could you provide us with a brief summary of your educational background. 128 MR. RONAYNE: I have a BA and an MA in economics from Carleton University. 129 MS. PALUMBO: What part of the testimony will you addressing in your testimony this morning? 130 MR. RONAYNE: I'll be addressing part 3. 131 MS. PALUMBO: Have you reviewed the record of material filed with the Board in this application. 132 MR. RONAYNE: I have gone through the material filed; I have not examined all of the material filed. The purpose in conducting the review is to provide context for the Board, it's not to provide a position on the application itself. 133 MS. PALUMBO: Thank you. Can you please outline for us the Bureau's approach for examining arrangements that facilitate interdependent behaviour. 134 MR. RONAYNE: Our understanding is that practices that facilitate interdependent behaviour are a key issue for resolving whether this is indeed a decontrol measure, the Bruce arrangement with OPG. In our part 3 we outline our approach to examining such practices under the Competition Act. The key issue for us is determining whether the practices are ultimately going to lessen competition in the marketplace. The level of competition lessening and the nature of the issues or elements around that depend upon which section of the Act we're looking at. But key to each of them, the conspiracy provisions, the abuse of dominance and others, is that there be a lessening of competition, substantial, undue or otherwise. We understand that the Board may have interests that go beyond that which may have to do, for example, with the equal access to information and opportunity to compete in the marketplace. While those are -- can be of concern to us, it's in the context of whether competition is being lessened in the marketplace substantially or unduly or -- as the case may be. 135 In the -- preparing the submission, as I indicated, we reviewed the evidence for context not to arrive at a position. But the evidence does identify two types of practices as being -- as being facilitating, potentially facilitating with respect to the proposal. That is the supplemental payment that Bruce would be paying -- Bruce power would be paying to OPG, and also information sharing under the background arrangements. 136 What we've done is, looking at these and other types of facilitating arrangements, is tried to lay out a step by step process that we would typically follow in examining these types of arrangements which come from a class of arrangements which may also include things like most favoured nation clauses in customer contracts; they could also include rights of first refusal or efforts by companies to notify each other or pre-notify each other of price increases or changes. 137 I'm not -- I don't want to go through that step by step process in any detail, but it basically involves six steps that we have discussed, the first being relevant market definition; the second being market power analysis; the third being anti-competitive effects or assessing the anti-competitive effects of the practices; the fourth being examination of potential benefits if this is indeed an issue; the fifth would be, depending on the circumstances, whether -- looking at whether alternative arrangements may be available to achieve the benefit of an arrangement that are less of a concern with respect to competition; and the final issue is remedy assessment, determining what is necessary to deal with an anti-competitive effect or a substantial lessening or lessening of competition if there is a significant issue. 138 MS. PALUMBO: Mr. Chairman, those points are elaborated in the submissions at pages 6 to 10 of the Competition Bureau written submissions. 139 MR. RONAYNE: I would like to just touch briefly on -- maybe expand a little bit on a couple of points, however. 140 One is the submission does not talk about process in going through these steps, and this is a fact-based analysis so we -- we do what we have to when we have powers under the Act to obtain the facts that we require to actually establish whether a matter does raise a significant competition issue or not. Where we don't have the industry expertise, we will retain industry expertise. We will also retain economic expertise and financial expertise if, for example, we're looking at a set of books to find out what the impact is on a competitor in the marketplace. 141 The second issue that I wanted to touch on briefly is to mention that the approach we talk about under section 7 are a strong preference for structural remedies is also a preference that we have also had in our regulatory interventions pertaining to the electricity industry, and also the natural gas industry over -- at least in any of the ones that I have been involved in. I note in that regard that there is an interrogatory dealing with one of our previous submissions, or some commentary, and if I may bring your attention to that it is an interrogatory from the Independent Power Producers' Society of Ontario. It's their interrogatory I1.11. And in this interrogatory there's a discussion of a document entitled "the staff analysis of the report of the advisory committee on competition in Ontario's electricity system". 142 By way of context, for that report I would note that that report was pertaining to some recommendations in the MacDonald committee report which I believe was released in 1997 which first looked at how to -- the prospects of establishing competition in the Ontario electricity marketplace. In that circumstance our preference was for a structural remedy to market power, if feasible, and the comments that are referenced here are in relation to the proposal that was put on the table by the MacDonald committee which involved having a single company holding the assets and then breaking them up into competing entities, and what would be required in that context to try to, I guess, to attempt to replicate the impact that you would have of just having fully separate and competing entities. 143 That concludes my remarks. Thank you. 144 MS. PALUMBO: Thank you, Mr. Ronayne. Mr. Chairman and members of the Board, that concludes the evidence in chief of the witnesses of the Bureau and the witnesses are available to answer any questions that you or my colleagues, participants at this hearing, may have. 145 MR. BETTS: Thank you, Ms. Palumbo. We will invite then cross-examination for at least some while until we find an appropriate time to break, and perhaps we will invite Mr. Penny or the applicant to open that cross-examination. 146 MR. PENNY: Mr. Chairman, I think that given that we're the applicant and how this is playing out, that the most appropriate way to proceed would be for intervenors to cross-examine with the applicant going at the end, and that's what I would ask for you by way of ruling on that. 147 MR. BETTS: The panel has no difficulty with that proposal. 148 MR. PENNY: Thank you, Mr. Chair. 149 MR. BETTS: So we will then ask for cross-examination from intervenors first, please. 150 MR. JANIGAN: Thank you, Mr. Chair. 151 MR. BETTS: Mr. Janigan. 152 CROSS-EXAMINATION BY MR. JANIGAN: 153 MR. JANIGAN: My name is Michael Janigan and I represent the Vulnerable Energy Consumers Coalition. I just have a very few elements of your submissions to touch upon in my questions, and I think you've been fairly concise with respect to what potential effect or reading we should make with respect to the advance ruling certificate as to the issues that are in play in this proceeding. I believe on page 2 you've indicated that -- and I believe in your testimony today -- that effectively because this particular transaction does not lessen competition, it would have been viewed favourably for an advance ruling certificate, notwithstanding what other impacts it might have. 154 MR. BETTS: Mr. Janigan, I think you've got to get a little closer to that mic there. Thank you. 155 MR. JANIGAN: I'll put this down too. 156 I think you indicated that the transaction would have been viewed favourably because it, in effect, allows for new competitive entry regardless of what other circumstances that entry might entail. 157 MR. ANNAN: Well, as I mentioned, the legal test under the Competition Act is whether a merger will likely substantially lessen or prevent competition. Since this is new entry, it couldn't be said to lessen competition. 158 MR. JANIGAN: I believe in another part of your submissions you have outlined the Bureau's approach to examining whether or not interdependent behaviour may exist. 159 MR. ANNAN: Yes, that's right. 160 MR. JANIGAN: And you've listed in your submission a table which gives characteristics of interdependent behaviour that may or may not be present with respect to the transactions that you may be analyzing. 161 MR. ANNAN: The table actually doesn't list characteristics of interdependent behaviour per se. What it lists are structural factors and industry practices that could facilitate or make interdependent behavior more likely to occur. 162 MR. JANIGAN: And then if these particular characteristics are present, then obviously the Bureau is sensitive to the prospect that there may be interdependent behaviour following from those structural characteristics. 163 MR. ANNAN: That's right. As a baseline, whether we're looking at the exercise in market power unilaterally or interdependently or through dominant firm means, as a prerequisite we first need high concentration and high barriers to entry. What I was indicating to the question was that whether you look at the exercise of market power either on a unilateral basis or interdependent basis, as a prerequisite, the first thing you need to find is a high concentration and barriers to entry. That's baseline throughout that type of analysis. But once you have that, then in terms of interdependence, yes, you would look through these kind of factors and look at the circumstances of that industry to find out whether or not interdependent behaviour is more likely to occur as a result of the merger or not. 164 MR. JANIGAN: And there's no particular weighting that has been given to any of these characteristics. Are there some that are more important than others? What can you tell us on that? 165 MR. ANNAN: If you want me to sort of rank order all of these factors, I couldn't do it. They are basically -- you have to look at each case as it comes, and in some cases you have a multitude of factors, in which case that would obviously raise a higher concern than just having one or two. But I think it's really hard to isolate whether one is more important than the other. 166 As I mentioned, though, you definitely do need high concentration and you need high barriers to entry. The merger enforcement guidelines that the Bureau has published indicate, for example, that if the top four firms account for under 65 per cent of the market or the merged firm itself has less than 10 per cent of the defined market, that would be generally viewed as what we call safe harbour and unlikely to raise an issue of interdependence. Those are, as far as a prerequisite, concerns you have to deal with. 167 Beyond that, you would look at these factors, and in some cases we have industries that exhibit many of these factors, and in some cases it may be just one or two, and it's hard to say in isolation whether a particular example could be interdependent or not without looking at all the facts. 168 MR. JANIGAN: The more characteristics that the -- characteristics of structural concern that the particular situation meets, the more scrutiny that it may deserve from the Bureau, for example. 169 MR. ANNAN: Again, to the extent that you have a greater number of these characteristics both structurally and in terms of practices, that would be cause to look at further examination as to whether or not in fact interdependent behaviour is going to be more likely or not. 170 If you can use an example, because I was thinking about this when we were preparing our testimony. We did have a merger, for example, between Abitibi Consolidated and Donahue and the Bureau's position in that case, and I've got the statement of grounds of material fact here, there was actually quite a number of factors in the newsprint industry that were listed; for example, high levels of seller concentration, relatively inelastic demand, periodic or cyclical periods of limited excess capacity, high barriers to entry, a relatively homogenous product, relatively stable demand, transparency of pricing capacity, and capacity equalization, in addition to advance price signaling. So in that case there was quite a number of factors that would have been -- would have been raised itself in that industry. 171 MR. JANIGAN: Now, I take it once these factors are assessed you then proceed to the analysis of the arrangements themselves to see whether or not, in the context of the structural concerns that you've detailed, whether or not there's a lessening in competition. 172 MR. ANNAN: Well, the legal test is lessening of competition substantially under the merger provisions. If it's a criminal case it's going to be unduly, as I think Mr. Ronayne said. That is the legal test you have to establish. It can't be just a lessening, it has to be a substantial lessening. But in terms of the analysis, again, as Mr. Ronayne mentioned, there's a fairly systematic approach to it in terms of defining the market first and looking at market share and concentration, and in the merger context there's a number of additional factors that we have to consider, for example, foreign competition, whether removing an effective and vigorous competitor, effective competition remaining and so. Essentially what I'm trying to indicate is there's a fairly systematic approach to it in terms of defining the market first and looking at market share and concentration. In the merger context, there is a number of additional factors that we have to consider. For example, foreign competition, whether removing effective and vigorous competitor would affect the competition and so on. I'm going too fast. 173 Essentially what I'm trying to indicate is that there is a systematic approach to the examination of whether or not a merger would substantially lessen or prevent competition. It's not just these factors. You have to define the markets first and then look at market share concentration and a host of other factors as well. 174 MR. RONAYNE: If I could just add a bit more on that. What part 3 talks about is actual behaviour by the market participants as opposed to the context in which the behaviour is taking place. So if you were looking at an electricity market, for example, you're looking at a context of having an established wholesale market which is run by the IMO which has certain characteristics about it that would be contextual as distinct from the issues which would be actual behaviour by the companies that you're looking at which may involve -- some of them are listed here as facilitating factors, for example, most favoured nation clauses, deliver pricing, meeting the competition clauses, so those would be the actual behavioural characteristics you would be looking at investigating whether there's a potential abuse or a conspiracy. 175 MR. JANIGAN: Now, I note on page 6 of your testimony, in footnote 2, that you indicate that the Bureau was also aware that in regulatory settings, other considerations may be relevant in examining facilitating arrangements such as the creation of a level playing field for competition or equal opportunity to compete. 176 I take it that other tribunals -- and the CRTC probably comes to mind -- have created additional sorts of structural arrangements particularly for the incumbent in order to ensure that a level playing field exists and that competition develops. 177 MR. RONAYNE: A consistent theme in the interventions I've been involved in is that there is a dividing line between what regulation can do and what competition law can or cannot do. And a valid concern frequently in moving forward with a restructuring process is to allow everybody the opportunity to compete so that the most efficient suppliers get -- are the ones that get the biggest market share. 178 Our law doesn't deal with that issue specifically. It only comes to -- it only comes to us in the event that competition is being substantially lessened in the marketplace under the abusive dominance provisions. We don't micromanage down to the level of creating the level playing field, and it's standard in regulatory settings for the regulator to take care of that issue and we're supportive of that. 179 MR. JANIGAN: And it's conceivable in a regulatory proceeding that a tribunal may find objectionable interdependent behaviour based upon their view of how competition should exist that may be different than the Competition Bureau's view based on the competition law. 180 MR. RONAYNE: I wouldn't speculate on what a regulatory body would or would not consider in that context. We recognise that there are issues that the Board may be concerned about that aren't of direct relevance to us in conducting our analysis. 181 MR. JANIGAN: But it could occur that interdependent behaviour could be punished by -- or sanctioned by a tribunal that might be not sanctioned, for example, by -- under competition law. 182 MR. RONAYNE: Yes. That's possible. And that's also one of the issues underlying our support in electricity markets for having a market surveillance authority. And there, you're monitoring the marketplace and looking for behaviour that involves recognised interdependence but may not meet the level of proof which is a criminal burden, for example in our conspiracy provisions, for us to undertake a case. 183 MR. JANIGAN: Now, in your section on remedy determination, I believe you indicated that "where the source of a significant competition concern is behavioural in nature, so too are likely to be the remedies. In such cases the Bureau strongly prefers to have the relevant behaviour abandoned subject to a consent agreement registered with the tribunal." 184 MS. PALUMBO: You're reading now at page 9 of the submissions? 185 MR. JANIGAN: That's correct. 186 MS. PALUMBO: Last paragraph, page 9, the last paragraph. 187 MR. JANIGAN: "registering a consent agreement with or obtaining an order from the tribunal ensures an effective mechanism for preventing the relevant behaviour." 188 Now, in the case of the transaction that is the subject of this proceeding, would the filing of a ring fence mechanism agreement with the Board, together with a Board order directing adherence to the filed ring fence mechanism as a condition of licence, as well as the possibility of a fine for non-compliance, fit the Bureau's description of its preferred behavioural remedy? 189 MR. PENNY: Well, Mr. Chairman, if I could interject for a moment. The prefiled evidence in this matter may be clear -- made it clear that the Competition Bureau had not analyzed all of the material in the filing and was taking no position on this case, and the witnesses have confirmed that here today, that they have not examined all the material and take no position on this. The question that Mr. Janigan has put to them is squarely calling for an opinion from these witnesses on whether particular aspects of this case would qualify or not qualify under their rules, and they've said they didn't come here to do that. In my submission, the question is not proper and falls outside of the scope of what these witnesses can address. 190 MR. BETTS: Mr. Janigan. 191 MR. JANIGAN: Mr. Chair, the question is corrected to the appropriateness of a remedy in the event that interdependent behaviour may be -- or there may be circumstances where interdependent behaviour may be feared or arising. In the circumstances it's not so much a question whether or not the panel is to adjudicate on what the appropriate mechanism is, it's whether or not such a mechanism -- such a remedy, as I have described, would fit within the context of what they describe as an appropriate remedy in their evidence. 192 [The Board confers] 193 MR. BETTS: Okay. The panel doesn't want to unduly limit the information that we have before us because it's important to understand fully, but on the other hand we do recognise that the witness panel has not studied the detail of this particular application. I'm really going to ask the witnesses to answer that question to the best of your ability, but certainly if you're uncomfortable because of the lack of knowledge of this application, we will happily receive that response from you, that you're not comfortable in responding to that question relative to this application. 194 And again we -- as Mr. Penny pointed out, your purpose here is not to give evidence regarding this application but to give us very general and generic background information. And perhaps if you can answer, it should be kept in that realm. 195 MS. PALUMBO: If I could just add one more comment, Mr. Chairman. Obviously, we wouldn't want to encourage the witnesses to testify on the basis of speculation if they haven't reviewed the entire record and cannot give full and complete answers to this question. 196 MR. BETTS: Very definitely. And can I ask intervenors and those that are cross-examining, to try to avoid asking the panel to address hypothetical scenarios. We could be spending all day with those kinds of things. The purpose, again, is to help the panel understand the background details for analyzing these kinds of issues. 197 So I'll direct the question to the panel, and answer it to the degree that you're comfortable. And do you need it repeated after all of that? 198 MR. JANIGAN: It might be -- in light of the comments of the panel, it might be better to put the question in another way. 199 In circumstances involving transactions similar to the one that's in play in this particular proceeding, what would be the preference of the Bureau with respect to potential remedies that might be used to address potential or real interdependent behaviour? 200 MS. PALUMBO: If I could just interject at this point. Mr. Chairman, similar to the transaction that is in play in this proceeding, similar to this transaction. To the extent that these witnesses know exactly what this transaction is about. And that's where I believe the witnesses will have difficulty responding to the question. I leave it to the witnesses to take a position on that. 201 MR. RONAYNE: That's the case. As we haven't -- in conducting an investigation of these types of issues, we go through a long process examining all of the evidence. We haven't done it in this case so it would be inappropriate for us to talk about some matter as being similar to this case. We haven't done that type of analysis. 202 MS. PALUMBO: Mr. Annan, do you have anything to add? 203 MR. ANNAN: I would just add, I guess, in the context of a merger case, for example. As this submission indicates, our strong preference is for structural remedies, essentially to either -- if the merger is to be allowed to proceed and certain parts of it are problematic to seek the divestiture of those problematic parts and hold them separate for a period of time until the matter is finally resolved. And that's a very common thing in merger review. When we have a whole separate arrangement, we wouldn't like to see confidential information shared, and typically, for example, there would be an order of the competition tribunal, what we called an interim hold separate order that would deal with these kinds of issues. Typically the confidential information would be limited obviously to the period of time that it takes to resolve the matter finally, which is usually a fairly short period of time; and secondly it is because -- because it is an order of the tribunal, there's consequences for breach of that order. 204 MR. JANIGAN: Would a simple agreement between the two parties meet the definition of a structural remedy for the purpose of the Bureau? 205 MR. ANNAN: That's not typically the way we view it. I mean that -- when we take -- when we're talking about structural, we essentially mean selling the business. But that's -- that's a fairly normal remedy in a merger enforcement. But we have had cases where we've had behavioural remedies as well, particularly in combination with a structural remedy. It may be, for example, some sort of supply arrangement for a period of time, some transitional arrangement to help sell the assets, that kind of thing. 206 MR. JANIGAN: And in the case of your behavioural remedies, I take it the Bureau's preference is for those remedies that have some enforcement mechanism associated with them. 207 MR. ANNAN: That's correct. 208 MR. RONAYNE: If there is a -- if there is a significant issue or an issue that we identify as raising an issue under our Act, something that raises an issue under our Act, our preference is to resolve it through a consent agreement. That's -- these now are registered with the competition tribunal, so they're negotiated between us and the party. So there is a preference for doing that. But we certainly haven't looked, and wouldn't want to make a call on this particular circumstance, whether there is -- regarding any aspect of significance. 209 MR. JANIGAN: Those consent agreements or those consent orders are enforceable as an order of the competition tribunal I take it? 210 MR. RONAYNE: A consent agreement is registered with the competition tribunal and it has the same effect as an order of the tribunal, so it's enforceable through the same mechanisms. 211 MR. JANIGAN: And typically enforcement would arise upon complaint to the Commissioner. Is that how enforcement arises? Or do you independently monitor them? 212 MR. RONAYNE: Well, issues normally start from a complaint by a market participant or a consumer and then proceed through the investigative process, the steps which we've outlined and I talked a bit about, the process itself. The prosecution, or taking cases forward, we do not adjudicate them. If there is a contested matter, it's either -- it's adjudicated either by the Competition Tribunal or the courts. The exception is a consent agreement where the parties -- the party decides to be proactive or we arrive at an agreement and negotiate the consent agreement and register it with the Tribunal. 213 MR. JANIGAN: Thank you, panel. 214 Thank you, Mr. Chair. Those are all my questions. 215 MR. BETTS: Thank you, Mr. Janigan. 216 Anyone else? 217 MR. POCH: Yes, Mr. Chairman, I have a few. 218 MR. BETTS: Mr. Poch. 219 CROSS-EXAMINATION BY MR. POCH: 220 MR. POCH: You made a distinction between unilateral and cooperative exercise of market power. Can either by a problem under the Competition Act? 221 MR. ANNAN: Yes. Essentially what we're trying to determine is whether or not firms, for example, in a merger context, would be in a position to exercise market power, and the two ways that we typically look at is what we call a unilateral exercise or the interdependent exercise of market power. Those are outlined in the merger enforcement guidelines that the Bureau has published. 222 MR. POCH: So a situation where one firm has the potential to use market power and arrangements between it and another firm could enhance that potential and be mutely beneficial to the two firms, it would be of concern to you. 223 MR. ANNAN: Well, whether or not something is a concern, again I just refer back to the framework. It depends on what you're talking about. Again to use the merger example, because that's the one I'm most familiar with, we would go through the guideline, the merger enforcement guidelines, outline part of the structural framework or the analysis framework. So you would have to find markets, look at market shares, effective competition remaining, foreign competition and so on, and you would -- for example, if it was a dominant firm scenario with high barriers to entry you would probably in a unilateral situation, in a situation where the market shares aren't quite so dominant but you still have high barriers to entry and you've got high concentration generally and you've got quite a number of these factors, for example, at play, you would have to consider that as to whether that would be a cause of concern for interdependent exercise. 224 MR. POCH: I'm going ask you to slow up. 225 MR. RONAYNE: Sorry. If I can maybe just add a little bit. You mentioned behaviour that's mutually beneficial to either parties. That doesn't necessarily mean that it's anti-competitive, and the issue is going through those steps or those processes to determine whether there's an anti-competitive impact. 226 MR. POCH: That leads to my next which is: Under the Competition Act, I take it you actually want to -- you need to show that there is interdependent behaviour and that it is anti-competitive and that you have this test of whether it is substantially so; is that right? It's a multipart exercise, I think you've made that clear; is that fair? 227 MR. RONAYNE: Actually, I don't think we want to show anything because the market is effectively competitive and we don't have to have any involvement at all. 228 MR. POCH: You prefer to find that there's -- to successfully prosecute, if you will, or intervene then, it's a multipart test under the Competition Act. 229 MR. RONAYNE: And the test -- there's a standard process to go through for looking at market power issues which Richard has talked about and has articulated quite well in the merger enforcement guidelines. So there's that standard approach. But going beyond that there are a number of elements that vary according to the specific provisions of the Act. 230 MR. POCH: So to be clear, under the Competition Act, you could have a situation where arrangements between a party could be seen to facilitate interdependent behaviour but that would not be sufficient for the Bureau to intervene in the absence of other factors or tests being met. 231 MR. RONAYNE: Yes. You could have some -- arrangements that are facilitating interdependent behaviour between two companies that are new entrants and they have a small amount of market share, and it actually could really have very pro-competitive effects. It's really a case-by-case determination on the basis of the surrounding facts. 232 MR. POCH: And generally under the Competition Act, do you -- for a prosecution to occur, would you be required, if you were sitting in the prosecutor's chair, to show that interdependent behaviour is actually occurring, or is it sufficient to show that the arrangements are such that such behaviour would be facilitated? 233 MR. RONAYNE: By "interdependent behaviour is occurring", do you have something specifically in mind in that regard? 234 MR. POCH: I'm wonder under your Act, not under the test before this Board but under your Act, do you generally have to show that there is activity, exchange of information or market actions by the -- let's take the example where two firms are being looked at, that amounts to interdependent behaviour, or is it sufficient that you show that arrangements are in place that could facilitate such interaction? 235 MR. RONAYNE: If there were arrangements in place that could prevent competition, so the test is -- so, for example, under the abuse of dominance provisions, you could have something taking place that could prevent competition which would involve looking somewhat forward, and I guess that's the essence -- and Richard can talk more about this -- that's the essence of a merger review because you don't know what's going to happen beforehand. So it's looking forward somewhat in the future. 236 MR. POCH: So you don't actually have to find -- let me make sure I understand, and Mr. Annan if you have something to add please jump in. You don't actually have to find that these firms have been colluding, it's sufficient that you find circumstances that raise some fear that that might occur. 237 MR. RONAYNE: Collusion has a very distinct meaning under competition law. 238 MR. POCH: I was focusing in on the interdependent behaviour. To find interdependent behaviour under the Competition Act, whether -- where that term arises. 239 MR. RONAYNE: There's a doctrine under competition law which deals with conscious parallelism where companies behave in unison, and you see it in a lot of markets where, for example, gas stations are located across the street from each other. And they can -- they can act in a consciously parallel behaviour, recognising that they're interdependent and not raise an issue under the Competition Act. We would look for plus factors in those circumstances. 240 MS. PALUMBO: Mr. Annan, you have something to add? 241 MR. ANNAN: I guess if you're taking a case forward to the competition tribunal or the courts, if you have actual evidence of this kind of activity already occurring, obviously it strengthens your case. If you look at the list of factors, one of the factors you mentioned, for example, if you already have a history, if you like, of these kinds of activities happening, whether it's explicit cartel or otherwise, obviously that gives you some comfort that in fact the preconditions for the behaviour occurring already exist. 242 The legal test, though, both in the abuse and merger provisions is not only -- is whether the activity will lessen competition substantially or will it likely lessen competition substantially. So it talks about likelihood as well. If you don't have the behaviour but in fact the structural change, for example, in the context of a merger would, if you like, push you over the line and get you to an interdependent behaviour, then that may well be enough. But obviously if you have evidence that it's already occurring, you have a better case. 243 MR. POCH: So even under the strict rules of the Competition Act, where you may be looking at a criminal test or quasi-criminal test, you don't always need to actually have the memo of them agreeing to set the price at this on Tuesday. It's sufficient -- it may be sufficient, depending on the other facts of the case, that arrangements are such that you fear that could happen, that that would be facilitated; is that fair? 244 MR. ANNAN: Yes. 245 MR. RONAYNE: That's fair. 246 MR. POCH: All right. 247 MR. RONAYNE: And there are provisions in the Act, for example, under the conspiracy provisions talk about an arrangement being inferred as opposed to just having the document that says that this is what we are doing. So not necessarily an easy issue to establish on circumstantial evidence, but the possibility is provided for. 248 MR. POCH: Okay. 249 MR. RONAYNE: But again you have to go back and look at the totality of the evidence. It's not that we think this is going to happen so we want to take the matter forward to the tribunal. You have to take a look at the market circumstance and create a credible future or impact of these arrangements, so it's a difficult process. 250 MR. POCH: Sure. And fortunately or unfortunately this Board has -- we'll leave that to argument -- perhaps has a different test. 251 Now, you listed these factors, starting on page 3 of your evidence, that -- you called facilitating factors, and I think if I heard you correctly, before you got to that point of analysis there would be a need for a prerequisite. Mr. Annan, do I understand correctly that in general the prerequisite would be the situation of high concentration, as you've discussed it, and some barriers or lack of ease to new entrants coming into the market and competing with these firms; is that fair? 252 MR. RONAYNE: I believe Mr. Annan addressed that. 253 MS. PALUMBO: I believe the question was addressed to Mr. Annan. 254 MR. ANNAN: That's correct. You would need a high concentration and evidence of barriers to entry. 255 MR. POCH: All right. Now, Mr. Ronayne, you've been on the Ontario scene before, and you intervene elsewhere. Can we take it that it's not controversial and it doesn't require you to examine the evidence in this case in detail to observe that, quite clearly, there's a situation of high concentration, that very need for the power market mitigation agreement is the evidence of that. You would agree that this is a high concentration situation we're dealing with here? 256 MR. RONAYNE: There's evidence, I believe, to that effect on the record. 257 MR. POCH: All right. 258 MR. RONAYNE: But I can't address that because we haven't done the analysis. 259 MR. POCH: Fair enough. I'll leave that and move on, then. 260 At page 6 of your evidence you refer to -- you indicate you haven't -- as you've indicated today, you haven't looked at these references in detail, but there were two items that, if I may paraphrase you, kind of jumped off the page and perked your interest; that is, the two arrangements, one is the supplemental payment arrangements and the other is the exchange of competitively sensitive information on the service-related agreements. 261 And I'd like to ask you, if I could pose a couple of other facts to you and ask you if these would be similarly arrangements that would warrant examination. I appreciate you haven't examined them. 262 MR. RONAYNE: Sorry, may I just correct something -- 263 MR. POCH: Sure. 264 MR. RONAYNE: -- in terms of what you were saying. I wouldn't say these things lept out of the page for us. These were issues that had been identified by OPG in its evidence as being issues raising some interdependence potentially or raising some interdependence concerns that they are trying to deal with. 265 MR. POCH: Just at the level that you've examined this material, I take it you don't disagree that those are the kinds of fact situations that -- when you're looking at interdependence would be matters that the Bureau would ordinarily want to get into greater detail on. Is that fair? 266 MR. RONAYNE: Again, it would depend upon the circumstances in which these things are taking place. We haven't examined those circumstances so we're relying, in a sense, on the identification of these as issues for this hearing. Certainly they're arrangements out of a broad type of class of arrangements that, in certain circumstances, may raise an issue under the Competition Act. 267 MR. POCH: Yes. That's all I'm asking. I'm not asking for your judgement whether the balance of circumstances exist that would provide a conclusive answer to whether this is -- facilitating interdependent behaviour. But you're certainly not disagreeing that these are factual circumstances that would be highly relevant to look at in an examination of interdependent behaviour. Is that fair? 268 MR. RONAYNE: These factual circumstances? I wouldn't make that call. I mean we haven't looked at the facts underlying this assessment. 269 MR. POCH: Fine. Thank you. I just wanted to get one clarification on this distinction between structural remedies and behavioural remedies. A voluntary ring fence, which category would that fall into? 270 MR. RONAYNE: A voluntary ring fence? Well, that's by nature a behavioural remedy. 271 MR. POCH: And does that turn on it being a ring fence or being voluntary or -- 272 MR. RONAYNE: No, it turns on behaviour that's engaged in by the parties, or that there's a promise that they are not going to engage in certain type of behaviour. So, for example, a consent agreement in a case that I was involved in with -- that involved the water heater business of Enbridge Services Inc. where they were prevented from imposing certain exit charges, that would also be a behavioural remedy and it's the essence of the action that we're looking at that determines the nature of that remedy. 273 MR. POCH: So the ring fence by nature is a behavioural remedy as opposed to a structural remedy. A structural remedy in this example would be saying this shared agreement should be by a certain date farmed out to a third party, for example. 274 MR. RONAYNE: Yes. A ring fence where -- dealing with what you're going to do with the information, or how you're going to behave in relation to it would be by nature a behavioural remedy. 275 MR. POCH: Okay, thank you. 276 Thank you, I think those are all my questions. Thank you, Mr. Chairman. 277 MR. BETTS: Thank you, Mr. Poch. 278 Anyone else? 279 MR. MATTSON: Yes, Mr. Chairman. 280 MR. BETTS: Mr. Mattson. 281 CROSS-EXAMINATION BY MR. MATTSON: 282 MR. MATTSON: Good morning, panel. I would like to begin by just stepping back a little and dealing with some jurisdictional issues. 283 Gentlemen, we're here at the Ontario Energy Board with an application by OPG, but there has been some jurisdiction of your department over -- and you refer to it in your submissions at the beginning, there has been some -- you've had some jurisdiction with respect to the decision-making that's gone into the OPG Bruce decontrol issue, if you could just detail that for us. 284 MR. ANNAN: Sure. Well, the -- obviously the parties applied for an advance ruling certificate for their transaction, and so in respect it meant the definition of a merger under our Act, which is quite broadly framed, and the parties saw it and received an advance ruling certificate. 285 MR. MATTSON: And then you indicate in your evidence that this -- typically conservative in issuing these advance ruling certificates because it creates a significant statutory impediment to future merger enforcement. Is that correct? 286 MR. ANNAN: That's right. 287 MR. MATTSON: Could you explain that to the Board, what that means, what you're getting at. 288 MR. ANNAN: Sure. It's at -- Section 102 of the Competition Act deals with circumstances under which -- or the significance of issuing an advance ruling certificate. Essentially, the upshot of it is is that in respect of the transaction in which a certificate is issued, the commissioner would be barred from applying to the Competition Tribunal based on the same information or substantially the same information as that which was provided in terms of the ARC application. So unless there's a material deviation from the circumstances or facts as they then existed, essentially we couldn't apply to the Competition Tribunal for an application in respect to that merger. 289 There is a statutory period in the Competition Act of three years from substantial completion of the merger where we have the ability to launch an application, to seek a remedy with respect to it. So if there's an advance ruling certificate issued and the facts haven't changed substantially, we could not file such an application. 290 MR. MATTSON: So generally would you agree with me that the Competition Bureau's jurisdiction over this matter at this point is almost complete. 291 MR. ANNAN: Well, it's complete with respect to the merger. It wouldn't be complete with respect to any other provision of the Act which of course always apply generally through the economy. 292 MR. MATTSON: Let me separate the two, then. You've indicated it's complete with respect to the merger, so now -- and the test there was whether it would lessen competition and obviously -- 293 MR. ANNAN: Substantially lessen competition or prevent it. 294 MR. MATTSON: And it didn't, so we set that aside. What is your continuing oversight in this matter in the electricity issue -- concerning the electricity issues in Ontario? What continuing oversight do you have? 295 MR. RONAYNE: I don't know whether I want to refer to it as oversight. 296 MR. MATTSON: Jurisdiction. 297 MR. RONAYNE: Perhaps jurisdiction would be more appropriate. The other provisions of the Act would apply in regard to the activity of the companies in the marketplace. So if there is additional behaviour, for example, in the way that they proceed forward in marketing power to others then it may raise an issue, depending on the circumstances. But that's basically where it is. We're not maintaining an oversight. It's sort of the complaint-driven process. If something comes up then we'll deal with it. 298 MR. MATTSON: If a market participant had a specific complaint about the relationship between Bruce and OPG, would there be any jurisdiction for the Competition Bureau to accept that complaint and look into it, or would that be something at this point that you would see outside your jurisdiction? 299 MR. RONAYNE: Can you be more specific? Do you have something specifically in mind here? 300 MR. MATTSON: No, just if a market -- if there was a market participant in Ontario who was concerned about this relationship in particular, the one that's the subject of this application, would there be any jurisdiction of the Competition Bureau going forward to investigate, to arbitrate, to order disclosure, any -- 301 MS. PALUMBO: Mr. Chairman, this question invites a great deal of speculation on the part of the witnesses. Again, they have no factual basis upon which to respond to this question. It's open-ended and I think it's inappropriate. 302 MR. MATTSON: I would disagree, Mr. Chairman, on that. It's quite a simple question. It's whether or not the Competition Bureau has any jurisdiction to hear complaints from the market participants in Ontario, going forward. I don't think it's necessary for me to provide the actual complaint to answer that question. Are they prepared to accept complaints and consider them going forward, or are they considering themselves outside, no longer having jurisdiction over these matters. That's -- I don't think I need to give the actual complaint to have the answer to that question. 303 MR. RONAYNE: Without getting -- sorry, without getting into specifics, it's possible to envision that a complaint could be made in regard to actions by the parties. But what that would be, I mean there's a whole broad range of provisions under the Act that could potentially apply depending on what they do, going forward. 304 MR. MATTSON: And Mr. Ronayne, who would that complaint be made to? Would it be made to the regulatory side of your department; that would be your investigative side? 305 MR. RONAYNE: Complaints usually come in through our 1-800 number, so I don't think there's a regulatory or investigative side. Issues come to us and then they're sort of triaged to where the appropriate place is for them to go within the Bureau. 306 MR. MATTSON: And with respect to anything in the Ontario electricity sector, certainly it would probably come to you? 307 MR. RONAYNE: No, actually -- no, that wouldn't necessarily be the case. I mean, for example, if it was something dealing with a merger, as the original application was, it wouldn't come to me, that would go to our merger division. 308 MR. MATTSON: If I could then just compare the decision that this Board is being asked to made to the type of decisions your department normally is asked to consider, do you agree that -- let me just ask you straight up: Are you ever asked, as the Competition Bureau, to actually make a determination as to whether or not interdependent or independent behaviour exists? Are you ever asked to actually fix upon that, or are you just looking as to whether or not -- or are you just really looking at whether it's facilitating competition or not facilitating competition? Are you ever asked to fix and say whether it exists or not? 309 MR. ANNAN: Well, I guess what we do do, obviously, in the context of an abuse case or a merger case, we direct ourselves to the legal test. I know we're sounding like a broken record, but the legal test is substantially lessening of prevention of competition. So if the means to achieve that is an exercise of market power through interdependent means, then that's the context in which we act. 310 MR. RONAYNE: The issue for us under the Act would be is there something -- are the elements satisfied for an issue under our Act. And if it fits within the ambit of interdependence and it fits within the elements of the act, then we would look at it. And any -- we actually get back within 48 hours on complaints. But if it fits within the elements of the Act then it would be looked at. 311 MR. MATTSON: Just -- I take it from page 2 of your evidence, I was trying to get at something I think you were referring to in the bottom of your third paragraph. You say, and again you were referring to your ARC decision, your advance ruling. You say: "Since this objective is significantly different than the merger test under the Competition Act," you're referring to what the Board decision, what they have to make, "we believe that the Board should not take any comfort from the issuing of the ARC with respect to the issues it must determine." So I was trying to really get at: There's a distinct difference between the decision this Board is being asked to make, to determine whether this behaviour exists or not, versus the type of decisions your Bureau makes regularly; is that fair? 312 MR. ANNAN: Well, I think the paragraph stands for itself. Essentially what we're saying is we look at circumstance, for example whether it's an abuse, anti-competitive act or a merger and we say is this act substantially lessening or preventing competition from where we are today. We understand the objective of these proceedings and the mitigation -- the market power mitigation framework is to create a whole new competitive market. And so in fact they are altering the preexisting state to make it more competitive which is quite a different test. 313 MR. MATTSON: So then would you agree with me that your department is never asked to make a ruling on whether or not, Mr. Annan, your department is never asked to make a ruling on whether or not interdependent or dependent behaviour exists. 314 MR. ANNAN: Again, we direct ourselves to that legal test that we have to do, and we look at interdependence in that context. So we do look at it, but it's with respect to a legal test that we have to satisfy. 315 MR. MATTSON: Right. And the legal test is never -- the legal test you're asked to make is never whether or not interdependent or dependent behaviour exists. Am I being unclear? 316 MR. RONAYNE: Are you saying in and of itself that that is -- 317 MR. MATTSON: Correct. 318 MR. RONAYNE: That's fair. 319 MR. MATTSON: Okay. And would you agree with me that, going forward at least with respect to the Competition Bureau, where you find that there may be some form of interdependent behaviour, your jurisdiction continues forward over that merger or demerger application before you, where you can continue with your oversight of that matter. It's not -- you don't make the decision and then walk away; is that fair? That you have some oversight, going forward. 320 MR. ANNAN: Well, as I mentioned at least in the merger context, it's quite clear there's a statutory limitation of three years from completion of the merger. 321 MR. MATTSON: How many years? 322 MR. ANNAN: Three. 323 MR. MATTSON: Three years, thank you. 324 MR. ANNAN: That limitation does not provide to the other provisions of the Competition Act. 325 MR. MATTSON: During that three-year period, what generally would take place? 326 MR. ANNAN: Well, hopefully we would have decided whether the merger was anti-competitive or not a long time before three years had passed. 327 MR. MATTSON: Yes. 328 MR. ANNAN: But if we, for example, made a decision that the merger was not anti-competitive but it turned out that market circumstances changed or new knowledge came to our attention that in fact there was an anti-competitive consequences of that, the option is open to us, up to three years, to make an application. 329 MR. MATTSON: Thank you. 330 MR. ANNAN: Assuming that no advanced ruling certificate is an issue, as I mentioned. 331 MR. MATTSON: Right. 332 Thank you, panel. Thank you, Mr. Chairman. Those are all my questions. 333 MR. BETTS: Thank you. Any further cross? 334 MR. MacODRUM: Mr. Chairman, I just have one area. 335 MR. BETTS: Mr. MacOdrum. 336 CROSS-EXAMINATION BY MR. MacODRUM: 337 MR. MacODRUM: Mr. Ronayne, is that correct? 338 MR. RONAYNE: Ronayne. 339 MR. MacODRUM: You said in the third part of your paper, sir, did not address process, but today you said that the process was a fact-based analysis. 340 MR. RONAYNE: Yes. 341 MR. MacODRUM: And has -- is the Bureau aware of the operation of the wholesale electricity market in Ontario since its market opening on May 1st? 342 MR. RONAYNE: We don't monitor the market. 343 MR. MacODRUM: You do not monitor the market. 344 MR. RONAYNE: It's not a specific responsibility for us, and that's something that's laid out in the arrangement -- the joint statement between the Board, the IMO and ourselves. 345 MR. MacODRUM: But have any instances of market behaviour been brought to your attention during the period since market opening? 346 MR. RONAYNE: Entirely through the Competition Bureau? I mean -- 347 MR. ANNAN: Well, absent mergers. I take it you're talking about something other than a merger. 348 MR. MacODRUM: That's right. 349 MR. ANNAN: I'm not aware of any such complaints. 350 MR. RONAYNE: I don't think we can either confirm nor deny whether there have been any complaints. I mean we are protected by confidentiality restrictions. 351 MR. MacODRUM: So you're not in a position to assist the Board by providing any conclusions or observations with respect to the operation of the wholesale electricity market since its opening, from the competition standpoint. 352 MR. RONAYNE: No, we would not be in the position; we would not be the people to do that. 353 MR. MacODRUM: Thank you, Mr. Chairman. 354 MR. BETTS: Thank you. I think that concludes the cross-examination of the intervenors. 355 It's 11:00. I'm sure Board counsel might have some questions, and certainly Mr. Penny does, and I'll ask those two parties whether they feel it appropriate to continue or whether a short break would be appropriate. And we do have -- we do have to respect the fact that one of the witnesses does have to leave shortly after lunch; is that a fair statement? Is that the -- 356 MS. PALUMBO: Yes, that's correct, Mr. Chairman. 357 MR. BETTS: So keeping that in mind, how would you like to proceed? 358 MR. PENNY: Well, Mr. Chairman, I don't anticipate being long at all, if at all. I would prefer to have a brief break before my -- before I determine whether I need to ask any questions so I can confer with those who instruct me. It would be of great assistance to me to know -- to have Mr. Moran's questions on the table, though, because then I'll be able to take my break, make that determination, and then advise you after the break whether I indeed even have any questions. So if Mr. Moran is prepared to go ahead, I'd prefer that we did that, then take the break, and then we'll be done. 359 MR. BETTS: Mr. Moran? 360 MR. MORAN: That's fine with you, Mr. Chair. Normally I go last, but I don't have a problem. 361 MR. BETTS: Ms. Palumbo, is that appropriate for your witnesses, to continue for a few more minutes without a break? 362 MS. PALUMBO: I think that's acceptable. Thank you, Mr. Chairman. 363 MR. BETTS: Okay. Thanks. Then we will hear from Board counsel and then we'll take a short break at that point. 364 Mr. Moran. 365 MR. MORAN: I'm just hoping the court reporter is able to keep up with Mr. Annan with his rapid-fire delivery. I only have a couple of questions, Mr. Chair. 366 CROSS-EXAMINATION BY MR. MORAN: 367 MR. MORAN: As you've already discussed in your direct evidence and in response to cross-examination, you've set out in your submission in Exhibit D-8 a table that contains a number of market characteristics which, as I understand it, if those are present you would describe those as facilitating factors, they have the potential to facilitate interdependent behaviour; correct? 368 MR. ANNAN: That's right. 369 MR. MORAN: All right. And these are features of the market themselves, right, that we're talking about generally as well as some behavioural features. 370 MR. ANNAN: There's both the market characteristics and practices, if you like, that I'm referring to in this table. 371 MR. MORAN: So we have features of the market on that list that in and of themselves can facilitate interdependent behaviour. 372 MR. ANNAN: That's correct. 373 MR. MORAN: And when we say facilitate, as I understand it it's not -- it doesn't cause the interdependent behaviour, it just makes it easier for interdependent behaviour to occur. 374 MR. ANNAN: Essentially there's three elements you need to have. You need to have conditions that make it easier to reach an understanding or cooperative arrangement, to monitor that arrangement, and to basically provide punishments, if you like, for cheating on that arrangement. 375 MR. MORAN: All right. And the existence of those features, if the world was virtuous, we wouldn't have to worry about it. The problem is that the world isn't necessarily virtuous. People might ultimately engage in interdependent behaviour, and if it's easier to do that, that's what we're concerned with, dealing with the facilitation of that behaviour. 376 MR. ANNAN: You're asking me -- 377 MR. MORAN: You would agree with that proposition? 378 MR. ANNAN: Well, I agree that these factors help facilitate if they exist. 379 MR. MORAN: All right. And I guess the more of these features that are present, is it fair to say then that the market is more interdependent, if you have more of these features that are capable of facilitating this type of behaviour? 380 MR. ANNAN: It may not be independent, as you just mentioned. Whether or not people actually do it or not is indifferent from whether the fact that the conditions exist to make it happen. But the degree to which you have more than one and several of these factors combined together, then it's certainly easier to reach an agreement, easier to monitor, and easier to punish it, so it does make it more likely to happen all things being equal. 381 MR. MORAN: All right. Now, you identified sort of baseline features two factors; the existence of high concentration and the existence of barriers to entry. And I think you've already discussed the issue of high concentration sufficiently, at least for the purposes of my questions. I wonder if you could just describe what barriers to entry are in the context of this problem. 382 MR. ANNAN: Well, barriers to entry generally are any features or conditions that make entry unlikely because it might make it more risky, for example, the probability of success could be quite low. For example, if there's a high degree of some cost involved, if you're going to build, let's say, a steel plant, it will cost you several hundred million dollars to put a new steel plant together. You'll have to think about that decision carefully because you realise that if it doesn't work out and in fact if you're very unsuccessful in the market, the next alternative use is the value of that is going to be quite low. So basically the money is not going to be recoverable, so you're going to lose a high percentage of your original investment. So that increases the risk of investment for example. There's a whole host of other factors that relate to entry conditions; for example, you might look at the cost of establishing branding in a consumer products market. Again, that tends to be costs that are unrecoverable if things don't work out. There might be regulatory requirements, foreign ownership restrictions, tariffs, quotas. Government-imposed restrictions can be quite permanent and difficult to overcome for some industries. There's a range of things. 383 But essentially the idea is are there factors that make entry more difficult or less likely, because it makes it more risky and costs can be unrecoverable from your original investment. 384 MR. MORAN: When you're looking at the issue of interdependence, I gather from your perspective you're looking at it in the context of a merger, at the end of the merger, are we worse off than before the merger happens in the context of competition. And here of course we're sort of looking at the reverse. We already have a concentrated market and we're trying to create a competitive market. Is there any reason to look at the issue of interdependence differently because we're going in the other direction, or are essentially the same principles applied and the same kind of analysis? 385 MR. ANNAN: I don't think the analysis would be substantially different. Again obviously your objective is different. 386 MR. MORAN: Okay. And as I understand your point on the advance ruling certificate, from your perspective, you're trying to protect existing competition, and when you say that's different from perhaps what the Board is doing, I guess what you're saying is the Board is trying to create competition and that's why you're saying it's a bit different, those are the two different perspectives. Is that a fair characterisation? 387 MR. ANNAN: Yes, the objectives are different. 388 MR. MORAN: There are a couple of excerpts that I want to show you in the prefiled evidence. I wonder if I could get Mr. Brown to give you the binder. 389 If you could turn to tab 6. This is the prefiled evidence of Lawson Hunter. I'd like you to look at page 6, please. On paragraph 11 you refer to the Bureau's merger enforcement guidelines, or MEGs. 390 MR. PENNY: I think Mr. Moran must have misspoke himself. He said that -- this of course is not this gentleman's evidence; it's Mr. Hunter's evidence. 391 MR. MORAN: I think that's what I said. 392 MR. BETTS: You did refer to you -- you used the pronoun you in reference to this evidence. Just perhaps restate it and we'll clarify it. 393 MR. MORAN: This is the prefiled evidence of Lawson Hunter. Oh, I'm sorry. I realise now. This isn't your evidence. In paragraph 11 you will see -- 394 MR. BETTS: Much better. 395 MR. MORAN: -- just left out a couple of key words there. I apologise. You will see reference to the Bureau's merger enforcement guidelines or MEGs, and the merger enforcement guidelines as applied to a bank merger, or BMEGs I guess as they are referred to. And then in paragraph 12 there's a statement by Mr. Hunter: "Although the MEGs and BMEGs are merely guidelines, and in this regard, do not have the status of rule of law, they are nevertheless adhered to very closely by both the Competition Bureau and transacting parties in the context of merger review. The treatment of interdependence in Canada described in the MEGs and BMEGs is also generally consistent with that of the United States and European Union." 396 Would you agree with that characterisation? 397 MR. ANNAN: I would. 398 MR. MORAN: All right. Now in paragraph 12, on the bottom of page 6 and over to page 7 there are some actual excerpts that Mr. Hunter has extracted from the guidelines and they refer, in various ways, to interdependent behaviour. In the context of what we see here, and take a moment to review it if you need to before you answer, what kind of a definition would you propose for interdependent behaviour? 399 MR. ANNAN: Well, Mr. Hunter has referred to quite liberally to both the merger enforcement guidelines and more particularly he merger enforcement guidelines as applied to a bank merger which are more fulsome in their description of interdependence and coordinated effects. Personally I prefer I guess the definition that's in the merger enforcement guidelines as applied to a bank merger. So just to read, that will be "the term interdependent behaviour, also known as coordinated behaviour, refers to a conduct by a group of firms that is profitable for each of them only because of the accommodating cooperative conduct of the others. Such behaviour is more likely in markets in which firms can recognize and reach a cooperative understanding, monitor one another's behaviour, and respond to any deviations from the cooperating behaviour by others. The type of behaviour may include tacit or explicit agreement in price, service levels or any other dimension of the competition." That would be the definition I'd prefer. 400 MR. MORAN: Okay. And in the context of what actually constitutes such behaviour, what would you describe as things that constitute such behaviour, in a general way? 401 MR. ANNAN: Well, constituting behaviour, essentially it's the exercise of market power through interdependent means. So if prices are above competitive levels, or quality service are well below competitive levels as a result of the coordinating and accommodating conduct of a group of firms in the market, that would be the behaviour I'm talking about. 402 MR. MORAN: All right. When you make a reference to conduct, I wonder if you could just elaborate a little bit on the actual conduct itself that constitutes interdependent behaviour, the kinds of things that would constitute that kind of conduct. 403 MR. ANNAN: All right. Well, there is a kind of a range, if you like, of looking at this. One extreme, if you like, there would be the cartel behaviour, which is an explicit agreement among competitors to say fix prices, reduce output, share markets or customers. Interdependence, though, can be a lot more subtle than that. There may implicit understanding or arrangement, so in other words, the firms don't have a concrete agreement, they don't meet in a smoky room, but because of the conditions of the market they realise it's better for them not to compete head to head and independently, but when they're making pricing and output and marketing decisions, they're very consciously aware of what others are doing. They find ways of trying to communicate, if you like, implicitly through -- for example, one mechanism would be providing advance notice of price changes and then seeing whether those price changes are adopted by others; if not they would remove them. So there are various means that firms -- or practices that firms can use to help facilitate or achieve an accommodation. 404 MR. MORAN: Mr. Chair, those are all my questions. Thank you very much, witnesses. 405 MR. BETTS: Thank you very much. Then as we considered earlier, we will take a break, and let us break until 11:30, that's roughly 20 minutes, and we will reconvene at that time. Thank you. 406 MR. ANNAN: Thank you, Mr. Chairman. 407 --- Recess taken at 11:09 a.m. 408 --- On resuming at 11:33 a.m. 409 MR. BETTS: Please be seated. 410 MR. LOKAN: Andrew Lokan for the Power Workers Union. 411 MR. BETTS: That's fine with us. 412 Mr. Penny, perhaps you would like an opportunity to cross examine. 413 MR. PENNY: Thank you, Mr. Chairman. Over the break, I was able to confer and we've confirmed hat it's not necessary for us to ask this panel any questions. So the witnesses will be pleased to know that as far as we're concerned they're off the hook. 414 MR. BETTS: That's very good. I think we do have perhaps a couple of questions here at the panel. Mr. Smith. 415 MR. SMITH: Thank you. 416 QUESTIONS FROM THE BOARD: 417 MR. SMITH: Just a couple of questions. The ARC, the advance ruling certificate, that was issued, how do you get one of these certificates? Somebody applies for it? 418 MR. ANNAN: That's correct. 419 MR. SMITH: And in this case OPG would have been the applicant. 420 MR. ANNAN: Right. 421 MR. SMITH: In your experience, can you think of an analogous situation where somebody applied for a certificate in -- whatever you call this, a non-merger or a devolution -- this wasn't a merger obviously, it was a reverse -- and yet you deal with mergers primarily and yet they applied for this certificate. I guess I'll ask them maybe later why they would apply. But in your experience, are analogous certificates issued where there's no merger, in fact it's going the other way. 422 MR. ANNAN: Actually, now that you've -- maybe I answered a little too quickly the question just before. I'm not sure whether it was actually the Bruce Power LP that applied at the OPG because they were the -- 423 MR. SMITH: Bruce applied. 424 MR. ANNAN: Again, I'd have to check the file, but it would be typical for the person doing the acquiring, if you like, that would apply for the application. 425 MR. SMITH: Just for my information, why wouldn't you say this isn't a merger, we don't -- why do you need a certificate? 426 MR. ANNAN: Well, bear with me for a second. 427 MR. BETTS: While that's going on, can OPG clarify from their knowledge who actually made that application? 428 MR. PENNY: Yes, Mr. Chairman, it's our understanding that it was Bruce Power, as Mr. Annan indicated. 429 MR. BETTS: Thank you. 430 MR. ANNAN: The definition of a merger under the Competition Act is in section 91, and it reads in part: "A merger means the acquisition or establishment direct or indirect by one or more persons, whether by purchase, release of shares or assets by amalgamation or combination or otherwise of control over a significant interest in the whole or part of the business of the competitor, supplier, customer or other person." 431 So a long-term lease could fit within that definition. 432 MR. SMITH: And you can't help me by giving me another example in the history of the Tribunal where something similar to this might have occurred in another industry. 433 MR. ANNAN: Well, this is quite a unique circumstance in the sense that you're going from a regulated market to a deregulated and hopefully to a competitive market. And there are -- obviously you're dealing with particular issues of how you get there and the things that OPG has to do to do that. 434 MR. SMITH: No, I understand. 435 MR. ANNAN: But have we had a particular circumstance exactly like that before? Not to my knowledge. 436 MR. SMITH: One more question and that concerns interdependent behaviour. I think it was Mr. Poch -- I'll ask the question. I won't attempt to put words in his mouth, but what he said stimulated this question in my mind. And that is when there's a finding or an attempt to find interdependent behaviour because of the competitive -- possible negative influence on competition, the issue is the role played by actual evidence as opposed to the apprehension of a structure in which interdependent behaviour might exist. And I think you said that if -- I think if you were arguing the case at the Tribunal or whatever, that while evidence is obviously helpful -- again I won't put words in your mouth -- but while evidence is helpful, you could argue for a finding of interdependent behaviour even where there wasn't -- where you had no evidence to present because you had a perception that it could be happening. Am I putting that right? 437 MR. ANNAN: Well, maybe I can put a bit of a nuance on that. As I was trying to indicate, in a merger we're looking at whether a merger would or would likely, and the key word is "likely," prevent or lessen competition substantially. So there is obviously a forward-looking exercise that goes on. But to the extent that you actually have the behaviour occurring, that's stronger evidence that you'll be concerned about it in the future. However, at least in the case of a merger, it's important to note that whether it exists now or not, the question really is, going forward, as a result of the merger, so it's causality here, as a result of the merger is it going to be more likely to occur. For example, if you had a market that already had a number of these factors and the thing that was occurring as a result of the merger that you were reducing the number of players significantly, increasing concentration, or removing a firm that was quite vigorous and not following the cooperative understanding. A maverick firm, that would certainly be of significance. 438 MR. RONAYNE: If I may just add to that. I think I mentioned that we wouldn't necessarily -- if you're looking at a conspiracy or an arrangement between parties in a marketplace, we wouldn't necessarily have to have that document or that transcript or telephone conversation that says, we are agreeing to fix prices; you can look at the surrounding circumstances and what you observe happening in the marketplace, the balance of the facts which would lead you towards a conclusion that this is taking place. 439 MR. SMITH: Would you require pretty clear evidence from the marketplace? I would think sometimes this is a pretty murky area to look at price movements and try to figure out just why they have occurred. 440 MR. RONAYNE: Yes. We would need specific evidence of plus factors, so just merely observing, for example, prices moving together would not in and of itself be necessary to conclude, for example, that there's a conspiracy. We would need evidence around other sort of plus factors, you know, advance notice of pricing, impact on the prices in the marketplace. You know, prices go up fast but they go down slow, so looking at the balance of the evidence that's available and what conclusions you can draw from that. 441 MR. SMITH: Thank you very much. 442 MR. BETTS: Any questions? 443 MR. SOMMERVILLE: No, thank you. 444 MR. BETTS: There are no other questions from the panel at this time. 445 It perhaps is a little bit early for people's normal lunch break. I wonder, Mr. Penny, does it make sense to call the first panel? 446 MR. PENNY: Mr. Chairman, there's one or two procedural issues that we could deal with, and I do have a brief opening or overview of how we're going to present the evidence and I can certainly do all those things in the time available. And if there's time remaining, we could perhaps even just swear in the witnesses. But why don't we deal with those preliminaries at the very least, and we can use that time effectively. 447 MR. BETTS: Very well. I think that would be a good use of time. So please proceed, then. 448 MR. PENNY: Okay. Perhaps if the witnesses are discharged. 449 MR. BETTS: Yes. We won't make you sit -- 450 MR. PENNY: We gave up our usual front-row seat to Ms. Palumbo. 451 MS. PALUMBO: I will now assign it back to the players here. 452 MR. BETTS: Thank you. 453 MR. PENNY: We won't use your time to make that change. We'll move up during the lunch break. 454 MR. BETTS: First of all, we will allow the witnesses to get on their way, and Ms. Palumbo as well. On behalf of the Board, let me extend our thanks for your participation here today. You've helped us set the record straight in a lot of these particular definitions and issues that we're dealing with. And seeing them from your perspective, although it's a different vantage point that we're looking at, we are looking at the same territory, generally speaking, so it has helped us to hear your experience and your knowledge on the case. Once again, thank you for travelling here and participating in this hearing for us. 455 MR. ANNAN: Thank you, Mr. Chairman. 456 MR. RONAYNE: Thank you, Mr. Chairman. 457 MS. PALUMBO: Thank you, Mr. Chairman, for the opportunity, and thank you panel members. 458 MR. BETTS: Thank you. 459 [The witness panel was excused] 460 PRELIMINARY MATTERS: 461 MR. PENNY: Mr. Chairman, the first preliminary issue raised with respect to scheduling, the Monday issues, and that we couldn't start until 2, I believe you said. I haven't talked to everyone in the room, but I've talked to a few and certainly it's OPG's view that in order to maximise hearing time we ought to sit late, and we're prepared to do that on Tuesday, to perhaps even 6:00 with perhaps a coffee break in the middle. That would be our recommendation, and I know the few people I have mentioned that to in the room were in general agreement, I think, with that approach. 462 MR. BETTS: Was there anybody not part of that discussion that will find it difficult to stay late that day? 463 MR. MORAN: Mr. Chairman, did Mr. Penny mean Monday? I think he said Tuesday. 464 MR. PENNY: I meant Monday. I thought I said Monday. If I said Tuesday, I misspoke. 465 MR. BETTS: I was focused on Monday as well, Mr. Penny. I don't see any objections to that, so with him reset the starting time for the Monday to 2 p.m., and we will see how late it takes us, but certainly the 6:00 time has popped up and that will be a target for us. 466 MR. PENNY: Thank you, Mr. Chairman. 467 MR. BETTS: Mr. Penny. 468 MR. PENNY: The second preliminary issue had to do, I think you mentioned it earlier, with the issue of documents and the Board's procedural order did make provision for further submissions on the issue of redacted documents. I just wanted to address that briefly. I think I indicated to Mr. Moran that I think the matter can proceed satisfactorily on the current basis, but I just wanted to say a few words about that. 469 I think the Board has adopted a very pragmatic approach to this which I think has and will eliminate any need for skirmishing or argument about this. Having reviewed the documents and the Board's order in the context, I think where we've come to is that OPG is prepared to proceed on the basis that the documents are available to the parties, though not in the public record, subject to two or three practical considerations. So we have no further submissions on their use in the hearing. But the conditions that -- and the conditions are really pragmatic in nature, Mr. Chairman. 470 One is -- I think there's two or three. We thought that it would be appropriate that parties not refer on the record -- in other words, in the presence of the reporter -- to any redacted information contained in any of these documents other than generically. So, for example, if there's a particular number that has been redacted due to its commercial sensitivity, if parties could direct the witnesses to the number on page X of line 13 as opposed to mentioning the number, that would satisfy our concern. And if, for some reason, parties felt they had to mention the number, that they tell us in advance so that we could at least make submissions of whether the Board's hearing should go in camera to deal with that issue. We would ask the parties to observe that convention and at least give us prior warning if they feel that we deal with the particular fact rather than just referring to it generically. 471 The second I think is already, in a sense, dealt with by the Board's procedural order, and that would be that none of the redacted versions -- excuse me, none of the non-redacted versions of the documents will be used for any purpose other than his hearing and will not be copied or forwarded to others. 472 And the third, of course, that the documents will be returned when the hearing is over. 473 And then I suppose given that there are many intervenors who didn't come today, and even of those that did come today, a number who have indicated that they do not intend to participate actively, that perhaps they could return the documents to the Board as directed in your prior procedural order immediately, unless they have the need for them for the balance -- prior to argument. 474 [The Board confers] 475 MR. BETTS: Thank you, Mr. Penny. 476 I'll ask for submissions from parties with respect to those comments or conditions. 477 MR. POCH: Mr. Chairman, I'm just wondering if I could get a clarification for my friend. Is the existence the name of any of these agreements or -- first of all, that in any way confidential, before I pose a question in that regard. 478 MR. MORAN: Mr. Chair, it would seem to me at least that the fact that the documents were filed in a redacted form means that their existence is not confidential. Their existence is a matter of public record. It's only the question of the redacted portions that I take it Mr. Penny wishes to address. 479 MR. POCH: I'm thinking of at least one or two circumstances where the name of the agreement had not been previously known to us, just that there were agreements that had been redacted, and that was what was behind that question. Certainly in some circumstances we knew of the existence of the agreement. 480 MR. BETTS: While Mr. Penny is thinking about that, is there any other comment from an intervenor on that particular question? We'll wait for Mr. Penny's reply. 481 MR. PENNY: Well, I think Mr. Poch is right, that there are some that -- where the existence of the document is -- the fact that that particular agreement was entered into is regarded as commercially sensitive and potentially detrimental to future negotiations with other possible buyers of assets, and in those circumstances I think the type of practical arrangement I outlined earlier is still possible because they are -- they all have tab numbers. And to the extent -- if Mr. Poch is asking about the reference to these documents, reference can be made to the tab number and -- thereby avoiding any need to mention what the name of the agreement is. So again we're looking for a practical way to deal with this, and it seems to me that as long as there's a way for everyone to know what is being referenced, including the witnesses, the Board and the parties, then that should suffice. And given that these all have tab numbers, I would think that a reference to the agreements by their tab number would fit the bill. 482 MR. POCH: Mr. Chairman, I'm certainly content to proceed on that basis. I imagine there may be occasions when we'll want to devil into something and it's really impossible to have an intelligent discussion without revealing confidential information. I would like to suggest that at that time it might be appropriate to sever that portion of the transcript, that a transcript be kept and be available to parties for purposes of argument, and that that portion of the transcript and the portions of argument will be treated like these exhibits, subject to the confidentiality agreement and not available on the Board's reference room for other parties that haven't, for example, signed such agreements. 483 But I'm content to leave that and see how it goes, subject to the Board's inclination. 484 MR. BETTS: Are there any other comments on this particular question? 485 I think it would be safe to say, then, that if no one objects to that we can proceed on that basis. I think I would also say on behalf of the panel that if an issue arises on any particular item -- in other words, I'm not asking for parties' advance agreement that they will not question at some point in the proceeding that -- those conditions. And if any party at some point gets uncomfortable with the conditions that they are now agreeing to, the panel would be prepared to hear your submissions on that specific item. Am I clear? 486 MR. PENNY: Yes, Mr. Chairman. I think that's an eminently sensible way of dealing with it. That's really what I meant to say when I said if something does come up during the course of the hearing that people feel is necessary to make reference to, that they alert us to that and we can make further submissions on how we can deal with that, as Mr. Poch has said. 487 MR. BETTS: Mr. Moran. 488 MR. MORAN: Yes, Mr. Chair, given this arrangement, then, I wanted to flag an issue with you. On the exhibit list you have, I'll have to touch base with Mr. Penny to make sure we're not giving away the names of the specific agreements we've listed here, so I'll do that on the break. We've given Exhibit X to the binder and we have a list that reflects the tabs in that binder. Let me just double check -- if we have to make a necessary adjustment. 489 MR. BETTS: Just for our information, the exhibit list, I do have a copy. Is that a matter of the record now, in the record? 490 MR. MORAN: The exhibit list is a matter of public record, so we just have to make sure that we're consistent with the approach that you've adopted here, sir. 491 MR. BETTS: I'll leave that to you lawyers to sort out and you can tell us the outcome, or bring any questions to us. 492 MR. PENNY: Yes. We'll address that -- 493 MR. BETTS: Thank you. 494 MR. PENNY: -- off-line, as they say. 495 MR. BETTS: I believe we've dealt with how we're going to try and deal with the documents as we're going to proceed. It does appear, Mr. Penny, that you'll have an opportunity to swear in and introduce the panel. 496 MR. PENNY: Yes, Mr. Chairman. I've indicated we have a brief opening, sort of a road map of what we plan to do and address the issue. Perhaps I can open, Mr. Chairman, with an outline or an overview of the issues in and the evidence that we will lead on those issues. 497 OPENING STATEMENT BY MR. PENNY: 498 MR. PENNY: As the panel knows, this is an application by OPG for an order determining that the long-term lease of the Bruce nuclear generating station represents the transfer of effective control over the Bruce B output. OPG also seeks certain collateral orders relating to this transfer, including the confirmation of the appropriate adjustment to the contract-required quantity, or CRQ, which forms the basis upon which the rebate for price is achieved over $38 per megawatt hours paid. 499 The Board has already determined that the scope of its jurisdiction in this case is limited to the minister's directive and OPG's licence, and in Procedural Order Number 2, the Board said, and I quote: "Section 28th OEB Act 1998 requires the Board to implement the minister's directive. The minister's directive establishes certain licence conditions that are to be inserted in OPG's licence and restricts the Board's ability to amend those conditions. Included in those conditions is the mechanism by which OPG can seek a determination from the Board that a specific transaction represents the transfer of effective control over the output of a generation unit and confirmation from the Board of the resulting adjustment to the amount of output that is subject to the price cap and rebate formula." 500 And based on this finding the Board found that this hearing would be restricted to three issues. 501 First, whether the Bruce Power transaction results in the transfer of effective control. In respect of that, part 4 of the license deals with the transfer of effective control. The term "effective control" is defined in the license to mean control over the timing, quantity, and bidding of output into the Ontario market. So the first issue therefore is whether OPG has, through the Bruce transaction, transferred effective control over the timing, quantity, and bidding of the output of the Bruce station into the market. 502 Now, the second issue is whether Bruce Power has or will obtain as a result of the transfer effective control over 25 per cent or more of the total tier 2, or total tier 1 and tier 2 combined capacity. This second issue arises from section 4B of the license which says that the transfer of effective control shall not have occurred if Bruce Power, as a result of the transfer, gets effective control over 25 per cent of the tier 2, or combined tier 1 and tier 2 capacity. 503 And then the third issue arises from the provision of OPG's license which states that "a transfer of effective control shall be deemed not to have occurred if the Board determines that there exists any ongoing arrangements which facilitate interdependent behaviour between OPG and the transferee." 504 So the issue is what is the appropriate definition of interdependent behaviour as contained in OPG's license, and are there any ongoing arrangements that facilitate interdependent behaviour between OPG and Bruce Power. 505 The Board's procedural order went on to stipulate that ongoing arrangements would include risk-sharing mechanisms, ancillary service agreements, access to information, including planned outages, joint committee representation, participation in decision-making, including the voluntary measures, and the auditability of ring fencing. 506 And so the third and last issue involves therefore an inquiry into whether there exists as a result of the transaction any ongoing arrangements which facilitate interdependent behaviour between OPG and Bruce Power. 507 Let me then highlight the anticipated evidence on each of these three issues. 508 Dealing first with issue 1, the transfer of effective control, the evidence will demonstrate, in my submission, that effective control has been transferred from OPG to Bruce Power. The transaction involves a lease of the Bruce nuclear generating station until 2018 with an option to renew for up to an additional 25 years. During the term of the lease, Bruce Power holds exclusive possession and control of the Bruce nuclear generating station and has sole responsibility for the operation of the generation units. Bruce Power received a generation and wholesale license from the OEB which covers the Bruce nuclear generating station on February 28, 2001. OPG's authority from the Canadian Nuclear Safety Commission to operate the Bruce nuclear generating station expired at midnight on May 11, 2001 and then exclusive legal authority to operate the Bruce station was conferred upon Bruce Power by the Canadian Nuclear Safety Commission effective May 12, 2001. 509 So the evidence therefore will show that control over the timing, quantity, and bidding into the Ontario market of the Bruce station output has been transferred to Bruce Power. 510 The second issue, transfer of -- involving transfer of market power involves a inquiry into whether Bruce Power has -- or obtains as a result of the transfer effective control over 25 per cent or more of the total tier 1 or tier 2 capacity in Ontario. The evidence will be clear that Bruce Power does not, following the transfer of control over the Bruce nuclear generating station, have control over anywhere near 25 per cent of the Ontario market. Total in-service tier 1 and tier 2 capacity in Ontario as of May 11, 2001, that's the transaction date, was approximately 34,000 megawatts. Each unit in the four Bruce B station -- at the Bruce B station is rated at a net output of 790 megawatts for a total net station output of 3,160 megawatts. So as a result of this transaction the output of Bruce B which is now under the effective control of Bruce Power represents only about 10 per cent of the total tier 1 and tier 2 in-service capacity at the time the transfer was completed. The evidence therefore will be that Bruce Power's market share is well below the 25 per cent threshold stipulated in the license for any deeming to occur. 511 And then the third issue relating to interdependent behaviour involves the existence of any ongoing arrangements which facilitate interdependent behaviour between OPG and Bruce Power limited partnership. 512 Now, the evidence is clear, Mr. Chairman, that due to the inherent complexity of nuclear facilities, safety concerns, limited sources of expertise in servicing Candu reactors, and the fact that OPG has well established highly specialised in-house technical support capability for its nuclear facilities, there are ongoing arrangements between OPG and Bruce Power. So the issue for the Board is the determination of whether those ongoing arrangements facilitate interdependent behaviour. 513 The evidence will show that these arrangements were necessary for the successful completion of the transaction and would have been required whether the transaction had been a sale or a lease. Further, the evidence will show that such arrangements are not unique and have been employed in other nuclear generation transactions. 514 OPG's evidence will be that it is not sufficient that any ongoing arrangements raise some potential or possibility of interdependent behaviour, such possibilities or potentials are, in effect, always present whenever two parties enter into ongoing commercial contracts with one another. The issue is not, our evidence will suggest, whether there is the potential for or the possibility of interdependent behaviour but whether the particular ongoing arrangements involved in this transaction facilitate interdependent behaviour. OPG's evidence will show that they do not. 515 Mr. Hunter is a specialist in competition law and the former director of investigation and research, now the office of the commissioner of competition, that is, the role that Mr. von Finckenstein occupies today. Mr. Hunter was also the former assistant deputy minister for the Competition Bureau and will give evidence that, in this context, the appropriate definition of interdependent behaviour is "joint or coordinated action by two or more parties that is anti-competitive in nature and has a materially negative effect on the market." 516 Mr. Hunter's evidence will be that the ongoing relationships between OPG and Bruce Power do not facilitate interdependent behaviour and are properly characterised as cooperative behaviour engaged in for legitimate commercial safety and security-related concerns. 517 Now, in a limited number of cases, even though the provision of a particular service has a legitimate commercial safety or security purpose, the nature and commercial sensitivity of the Bruce Power information that will, of necessity, be exchanged is such that it has the potential, the potential to raise concerns if it were available for OPG's commercial use. OPG has, in the ordinary course of its business, developed policies and procedures to ensure, for example, Competition Act compliance and to prevent the inappropriate use of information obtained from Bruce Power in the course of the ongoing provision of services. 518 These policies and procedures include, for example, a guide for exchange of information between OPG and Bruce Power staffs, a competition legislation compliance programme, and OPG's business code of conduct. The evidence will be that these policies and procedures alone were sufficient to ensure that no ongoing arrangements would facilitate interdependent behaviour. But out of an abundance of caution, OPG has gone further and added another layer of protection in the form of a ring fence arrangement. The ring fence consists of a system of internal rules and controls which limit access to Bruce Power information within OPG to authorised individuals on a centrally administered basis. Under OPG's ring fence, the evidence will be OPG employees who have, for example, access to Bruce Power outage information are prohibited from conveying or discussing, under penalty of discipline up to and including termination, such information with anyone outside the ring fence. 519 Now, the evidence will be that these techniques are and have been successfully applied in merger situations where, again, for perfectly legitimate business reasons, parties who are otherwise competitors have a need to share certain types of information which could, if disseminated and used inappropriately, result in anti-competitive actions. 520 OPG's evidence and the expert evidence of Mr. Hunter will show that OPG's policies and procedures, including its ring fence arrangements, provide more than adequate protection against any of these ongoing arrangements facilitating interdependent behaviour. 521 Now, I want to say a word also about the rebate and the CRQ. Section 2, page 10 of the licence requires OPG to pay a rebate to the IMO in respect of each settlement period in the amount by which the average price exceeds $38 per megawatt hour times the contract-required quantity, or CRQ. Part 3, paragraph 4, on page 13 of the licence provides for reductions to the CRQ upon decontrol. Paragraph 4A provides that if OPG completes the transfer of effective control over the output of a generation unit as determined by the Board, then each hourly quantity of energy of that transferred capacity used to calculate the rebate subsequent to the completion of the transfer shall be reduced by 110 per cent. Accordingly, if the Board determines that there has been a transfer of effective control, the result which must follow, because the directive and the licence say these adjustments shall be made, is that the CRQ is reduced by 110 per cent of the amount of the Bruce capacity. 522 In the result, if the Board agrees with OPG's evidence and finds that OPG has transferred effective control of the Bruce station and the 3,160-some-odd megawatts of generation capacity, OPG will asked Board, as required by the minister's directive and the licence, to confirm the appropriate adjustment to the CRQ in accordance with part 3, paragraph 4A of the licence. 523 So in terms of the witnesses, Mr. Chairman, and the order of panels, we propose to proceed with the evidence in three panels. Panel 1, consisting of Mr. Bruce Boland, Mr. Pierre Charlebois, and Mr. Joel Singer, will address issues relating to the background of the market power mitigation framework and the technical nature of the operation of nuclear power plants as they relate to the Bruce Power transaction and as they related to the licence conditions. 524 The second panel will also involve Mr. Singer again together with Mr. Colin Anderson, Mr. David Drinkwater and Ms. Rumina Velshi. This panel will address all aspects of the Bruce Power transaction itself and how it fits within the licence conditions, including the service agreements and the ring fence. 525 Finally, we will hear from Mr. Lawson Hunter, the former director of the Competition Bureau who I referred to earlier. Mr. Hunter will address the interdependent behaviour issue, including the appropriate test and how the ongoing arrangements that were necessitated by commercial safety and security concerns fit within that test. 526 That then concludes my opening, Mr. Chairman. I should also just add that my partner, Ms. Patricia Jackson and I have both participated in the preparation for this case and have divvied it up to a certain extent, so you will be from time to time, and perhaps more than me, be seeing Ms. Jackson sitting in this chair. 527 That concludes my opening and we can either empanel the first group of witnesses or take the break, whatever is your pleasure, sir. 528 MR. BETTS: This would be an appropriate time to break. Let's do that -- 529 MR. MacODRUM: Mr. Chairman. 530 MR. BETTS: Yes. 531 MR. MacODRUM: -- may I say that I will not be available on a continuous basis for this proceeding. I will be here as my circumstances permit, but I just wanted to advise the Board of that. 532 MR. BETTS: Thank you. That's very good. 533 MR. JANIGAN: Mr. Chair, I would advise the Board, we have no questions for the first panel, so we intend to return tomorrow for the second panel. 534 MR. BETTS: Thank you, Mr. Janigan. 535 Any other comments from participants? 536 Then we will adjourn now until 1:30 and we will at that point empanel the next panel. Thank you very much. 537 --- Luncheon recess taken at 12:07 p.m. 538 --- On resuming at 1:32 p.m. 539 MR. BETTS: Thank you, everybody. Please be seated. 540 I hope everybody has been appropriately refreshed. I believe we're at the stage, Mr. Penny, where you will be empaneling the next group of witnesses. 541 MR. PENNY: That's correct, Mr. Chairman. I have Mr. Boland, Mr. Singer, and Mr. Charlebois ready to testify if they could be sworn. 542 MR. BETTS: Thank you. Mr. Sommerville will swear them in. 543 ONTARIO POWER GENERATION INC. - PANEL 1 544 MR. SOMMERVILLE: Could you state your name for the record, please. 545 MR. CHARLEBOIS: Pierre Charlebois. 546 P.CHARLEBOIS; Affirmed. 547 MR. SOMMERVILLE: Could you state your name for the record, please. 548 MR. SINGER: Joel Singer. 549 J.SINGER; Affirmed. 550 MR. SOMMERVILLE: And your name for the record, please. 551 MR. BOLAND: Bruce Boland. 552 MR. SOMMERVILLE: How do you spell that? 553 MR. BOLAND: B-o-l-a-n-d. 554 B.BOLAND; Sworn. 555 MR. BETTS: Thank you, Mr. Sommerville. 556 Mr. Penny, you may proceed. 557 EXAMINATION BY MR. PENNY: 558 MR. PENNY: Mr. Boland, why don't I start with you. You are currently the senior vice-president of customer solutions at Ontario Power Generation. 559 MR. BOLAND: That's correct. 560 MR. PENNY: And you began with Ontario Hydro in 1982 and have held a variety of positions including, a few years ago, vice-president of regulatory affairs. 561 MR. BOLAND: That's correct. 562 MR. PENNY: And you are a member of the Ontario Market Design Committee. 563 MR. BOLAND: Yes, I was. 564 MR. PENNY: And since February 1999 you have been a member of the Board of directors of the Independent Electricity Market Operator. 565 MR. BOLAND: Yes. 566 MR. PENNY: And I understand you hold an MBA from the University of Toronto. 567 MR. BOLAND: That's correct. 568 MR. PENNY: And you have a Bachelors of Business Administration from Wilfred Laurier University. 569 MR. BOLAND: Yes. 570 MR. PENNY: I'm going to do this in alphabetical order. Mr. Charlebois I'll deal with you next. You are currently the nuclear chief operating officer and chief nuclear engineer at OPG? 571 MR. CHARLEBOIS: That's correct. 572 MR. PENNY: You joined Ontario Hydro I understand in 1975. 573 MR. CHARLEBOIS: That's correct. 574 MR. PENNY: You held a number of management positions at the Pickering nuclear generating station from 1989 to 1996, including technical manager, production manager and plant director. 575 MR. CHARLEBOIS: That's correct. 576 MR. PENNY: I understand you've also worked as a private consultant in the nuclear industry providing management and technical advice to, among others, the Electricite de France. 577 MR. CHARLEBOIS: That's correct. 578 MR. PENNY: Now, in 1999 you were appointed as the senior vice president of technical services and chief nuclear engineer for the company? 579 MR. CHARLEBOIS: Yes, I was. 580 MR. PENNY: In that role your responsibilities included managing the engineering nuclear analysis inspection and -- and the inspection and radiation protection divisions. 581 MR. CHARLEBOIS: That's correct. 582 MR. PENNY: Now in your current role you are responsible for the operation of both Darlington and Pickering B as well as the nuclear support services. 583 MR. CHARLEBOIS: That's correct. 584 MR. PENNY: And I understand that you hold a Bachelor of Science in applied science from the University of Ottawa. 585 MR. CHARLEBOIS: I do. 586 MR. PENNY: And you're a member of the Professional Engineers of Ontario. 587 MR. CHARLEBOIS: That's correct. 588 MR. PENNY: Thank you, Mr. Charlebois. 589 Mr. Singer, you are currently a member, one of the founding members of the consulting firm of Awad and Singer. 590 MR. SINGER: Yes. 591 MR. PENNY: And until just recently, for two and a half years you served as OPG's vice-president of regulatory affairs. 592 MR. SINGER: That's correct. 593 MR. PENNY: Prior to that you were with your consulting firm and as a partner with Awad and Singer you worked extensively both with Ontario Hydro and OPG on a variety of rate and regulatory issues. 594 MR. SINGER: Yes. 595 MR. PENNY: And among your assignments was advising OPG in connection with its involvement with the Market Design Committee and the IMO. 596 MR. SINGER: That's correct. 597 MR. PENNY: I understand you hold a BA in political economy. 598 MR. SINGER: Yes. 599 MR. PENNY: And a Masters in Economics. 600 MR. SINGER: Yes. 601 MR. PENNY: As well as a law degree. 602 MR. SINGER: Yes. 603 MR. PENNY: All from the University of California, Berkeley. 604 MR. SINGER: That's correct. 605 MR. PENNY: Gentlemen, could I ask you each to confirm that the evidence and interrogatory responses that deal with your areas of experience with this matter were prepared by you or under your supervision. 606 MR. BOLAND: That's correct. 607 MR. CHARLEBOIS: That's correct. 608 MR. SINGER: Yes. 609 MR. PENNY: Thank you, gentlemen. Thank you, Mr. Chairman. Those are my questions in the examination-in-chief. 610 MR. BETTS: I'm sorry. That did sum up -- 611 MR. PENNY: That's it. 612 MR. BETTS: Thank you. We will move then to cross-examination from the intervenors. And who would like to be first? 613 MR. POCH: I believe Mr. Janigan indicated he had no questions of this panel, so I have a hunch I'm next up on the batting order. 614 MR. BETTS: You are, Mr. Poch. 615 CROSS-EXAMINATION BY MR. POCH: 616 MR. POCH: First of all, gentlemen, can you clarify: Part of your request to this Board is change of the CRQ, and it's in effect a retroactive request; am I correct? 617 MR. SINGER: According to the provisions of our licence, the change in CRQ -- if the Board finds that the transaction does constitute decontrol -- is effective at the date the transaction was completed. Because the transaction was completed prior to market opening, we're asking that, in effect, the transaction be treated as if it closed on the first day of market opening. 618 MR. POCH: Okay. So the date would be, what is that, May 1st? 619 MR. SINGER: May 1st, 2002. 620 MR. POCH: All right. Now if this Board were to find that in the arrangements, as they are day, were inadequate to satisfy the test the Board will apply, and suggests alternatives that would satisfy the test, would you agree that the appropriate date for the adjustment of the CRQ to fulfill the intent of the market power mitigation framework would be the date that such the arrangements -- whatever the problem identified is, has been cured to the satisfaction of the Board? 621 MR. SINGER: No. If the Board were to find that transfer of effective control existed as per the date of the transaction but some of the subsequent conditions that OPG has introduced to deal with perceptions of -- 622 MR. POCH: Let me -- 623 MR. PENNY: Mr. Chairman, perhaps Mr. Singer could be given the courtesy of finishing his answer before counsel cuts him off. 624 MR. POCH: I've heard enough of the answer to appreciate that I have not stated the question -- Mr. Singer and I have not communicated. 625 The question I'm asking is with -- if the Board finds that effective control did not pass because of the arrangements were such that, for whatever reason, they didn't satisfy that test, but that either sends you away with conditions that, once met, would cure that problem from OPG's perspective, or some other arrangement in its decision as was contemplated by Ms. Jackson on issues day, what would be the date that the CRQ change is effective from? 626 MR. SINGER: I would assume that in that hypothetical situation the Board, in its order, would make a determination as to whether transfer of effective control did or did not occur. If it ruled that it did not occur and ruled that there were conditions that needed to be fulfilled, it would specify whether the application of those conditions would be prospective or retroactive. 627 MR. POCH: All right. There are a number of agreements which initially were expunged and subsequently some of them at least, have been referenced in your most recent filing, pursuant to Procedural Order Number 5. You were kind enough to provide correspondence which I believe -- I'm not sure if it has an exhibit number, Mr. Chairman -- correspondence in response to a request I made wherein you gave rationale for the redactions. And I believe everybody received a copy of this. It's a letter dated December 16th, 2002. 628 Perhaps, Mr. Chairman, we should get an exhibit reference number. 629 MR. BETTS: If we could just clear that up. Is that an exhibit at this point? 630 MR. MORAN: No, it isn't, Mr. Chair. The exhibit number would be G-1.1. 631 EXHIBIT NO. G-1.1 LETTER OF DEC.16, 2002, FROM MR. SINGER TO DAVID POCH 632 MR. BETTS: And can we be more definitive as to what that exhibit is again? 633 MR. POCH: This is a letter dated December 16, 2002, addressed to David Poch from Mr. Singer attached to which is a listing of redactions in the prefiled evidence with a categorisation, perhaps the most neutral term I can come up with, of the reason for the redaction. 634 MR. BETTS: Would it be worthwhile for the panel to have a copy of that? 635 MR. POCH: I assumed the panel did. It certainly should be something the panel should have. 636 MR. BETTS: And then the next question is could someone help this panel member find it? 637 MR. POCH: I have a hunch -- I assumed since it was sent to all intervenors that the panel did have it. Apparently, it was not. 638 MR. PENNY: I'm sorry. That's not correct, Mr. Chairman. A copy of the letter was sent to the Board but it's not part of the filing, it's just correspondence that went to Mr. Pudge in the ordinary course. 639 MR. POCH: Mr. Chairman, I think for the purposes of my questions you won't need it in front of you anyway. The reference will be self-explanatory. 640 MR. BETTS: Sounds like a good solution. 641 MR. POCH: If I get to the part where that's not the case, please stop me. 642 MR. BETTS: Okay. 643 MR. POCH: In any event, in that document there were a number of agreements referred -- tabs for agreements where you simply explained that these were redacted in their entirety because those agreements had expired; correct? 644 MR. SINGER: Yes, that's correct. 645 MR. POCH: Now, I'm just wondering what the expiry date of those agreements was. 646 MR. SINGER: It varied among the agreements. 647 MR. POCH: Were they all prior to May 1st? 648 MR. SINGER: They were all prior to the date of the letter. I can't say they were all prior to May 1st. 649 MR. POCH: Okay. It's possible then that some of these agreements that have been redacted, and we still don't have, were in force as between the parties during the period for which you seek ACQ relief. 650 MR. SINGER: It's possible, yes. 651 MR. POCH: All right. Could we get an undertaking, Mr. Chairman, because obviously Mr. Singer needs to check that because it's not at the top of his mind. I wonder if we could get an undertaking where OPG could clarify the dates of expiry of the various agreements that have expired so that we can understand if any of them are of any concern. 652 MR. SINGER: Are there particular ones that you're concerned about, or you just want a general -- 653 MR. POCH: Well, I took it -- I haven't done the count, but I took it we're talking about three or four possible agreements that have expired. Is that the range, Mr. Singer, just the ballpark? 654 MR. SINGER: Let me look quickly through it. I think the number is actually somewhat higher. 655 MR. POCH: All right. I'm just looking at the materials provided in response to procedural order number 5. Behind the first tab there's the index document. Do you see the documents index? I'm just referencing the tab column there. There's item number 10, I believe, is one that's been identified as having expired; is that correct? 656 MR. SINGER: Yes, item number 10 is expired. 657 MR. POCH: And I believe item number 12 may be in the same category. 658 MR. SINGER: Yes. 659 MR. POCH: Presumably item number 5. 660 MR. SINGER: No. 661 MR. POCH: That's still in force? 662 MR. SINGER: That's an agreement that will be -- will be terminated upon the close of the new agreement that's referenced in the heads of agreement. 663 MR. POCH: I'm getting in beyond my depth of contract understanding here. All right. So that's still at play. In any event, I imagine there are several others here so I'm not able -- in fact, having not seen some of them, I'm certainly not able to tell you if they're of concern to me. I thought we would narrow the discussion first of all by determining which ones hadn't expired. 664 MR. SINGER: What we will do is go through this list and tell you the expiry dates of all the ones that have expired. 665 MR. POCH: Mr. Chairman, I anticipate if there's any questions arising out of that that the second panel will be in a position to help. Assuming that's not a lengthy procedure, I imagine we'll know where we stand tomorrow on that. 666 MR. BETTS: Thank you. So an undertaking number. 667 MR. MORAN: Yes, Mr. Chair. Undertaking F-1.1, an undertaking to advise of the date of expiry for any agreements that have expired. 668 UNDERTAKING NO. F-1.1: AN UNDERTAKING TO ADVISE OF THE DATE OF EXPIRY FOR ANY AGREEMENTS THAT HAVE EXPIRED 669 MR. BETTS: Thank you. 670 MR. POCH: Now, Mr. Boland, you were involved in the Market Design Committee at the time that the market power mitigation framework was negotiated. 671 MR. BOLAND: Yes. 672 MR. POCH: What I want to discuss with you is just the -- in very simple language, without getting into the -- ultimately the exact words and tests that were agreed upon, but the simple policy objectives of the market power mitigation framework and these conditions. 673 First of all, can we agree the intent of the framework was to steadily reduce OPG's market power and ability to potentially play the market in a way that others, particularly new entrants, would be affected? 674 MR. BOLAND: I'm not sure of your characterisation of steadily. But the objective, in part, was to reduce Ontario Power Generation's market share or market control of generation in Ontario. 675 MR. POCH: And that negotiation took place -- the parties to that negotiation were not unaware of the existence of the safeguards under the Competition Act. 676 MR. BOLAND: That's true. 677 MR. POCH: So is it fair to say that the deal that was made was intended to accomplish more than that Act could be expected to do, or a different objective than that Act was addressing. 678 MR. BOLAND: I'm by no means an expert on that Act, but I think it's fair to say there was a very specific set of circumstances that the Market Design Committee was addressing. 679 MR. POCH: You'd agree that it understood that it was addressing objectives that they could not rely on the Competition Act to deal with, hence the need for this separate framework. 680 MR. BOLAND: No, I don't know that I would agree with that. Again, my depth of understanding of the Competition Act may be preventing me from agreeing with you totally. I would rather describe the objective of the market power mitigation agreement directly rather than referencing it relative to what the Competition Act says. 681 MR. POCH: Well, I'm just trying to establish that the framers of this agreement, having already agreed, understood there was a Competition Act; nevertheless felt it was important to specify objectives and tests; correct? 682 MR. BOLAND: That's fair, yes. 683 MR. POCH: All right. Let the Board draw its own conclusion from that. 684 Just backing up to the general, then. Is it fair to say that the test was intended to preclude OPG -- or an entity acquiring OPG's assets from structuring the arrangement in a way that would give them an unfair advantage in the marketplace. 685 MR. PENNY: Sorry, Mr. Chairman, could I ask for a clarification of what the test is. I'm not sure Mr. Poch has made that clear. We were talking a moment ago about the market power mitigation framework. 686 MR. POCH: I'm referring to the portion of the framework that's been carried forward into the licence about which we are here discussing today, so the tests of effective control having passed, including the independent behaviour aspect -- interdependent behaviour aspect. 687 Mr. Boland, I'm asking you, you having been there at the time, is it fair to say that the intent of that effort to structure that test was, in plain language, to foreclose a situation where OPG and its co-party would have some unfair advantage in the marketplace? 688 MR. BOLAND: I think in part the test was there -- well, very specifically using the language of the Market Design Committee, the recommendations were there to lead to a structural solution to the issue of market power in Ontario in the electricity market. 689 MR. POCH: That's not inconsistent with the objective that I stated to you. 690 MR. BOLAND: I think it's consistent. 691 MR. POCH: Right. Since then, there have been some events, such as the passage of Bill 210. But can we agree that the concerns that led to the market power mitigation framework and these licensing terms, that is a concern for creating vibrancy in the wholesale market and protecting new entrants in the public -- protecting competition, enhancing competition. Those aren't diminished by the passage of Bill 210? 692 MR. BOLAND: I'd say that's fair. I could put some qualifications on it in terms of they are diminished in the short term for those customers seeing a fixed price and so on. 693 MR. POCH: Fair enough; the impact may be smoothed or delayed, possibly diverted to taxpayers rather than to consumers depending how circumstances evolve. But the concern about competition in the wholesale market is still a relevant concern. 694 MR. BOLAND: Yes, and the wholesale market is still operating in Ontario. 695 MR. POCH: And would you agree, if anything, the ease of entry for potentially competitive generation has at least temporarily been decreased because of Bill 210? There's more uncertainty about less availability of bilateral contracts, for example. Is that fair? 696 [The witness panel confers] 697 MR. BOLAND: I think that's largely true in the short term because there's still discussions going on with the government, consultations about the evolution of certain market players, particularly the large players. On the other hand, the government has announced incentives in particular for renewable type energies and so on which should actually enhance some new generation. 698 MR. POCH: And if we just hearken back to the discussion this morning about the preliminary circumstances that have to apply for the Competition Bureau folks to even take note, the two that were identified as kind of precursory conditions were that there was a concentration of ownership in the particular -- the control in the marketplace. First of all, I take it there's no dispute there. That's the nature of the problem we're all wrestling with here. Market power mitigation framework is to help do away with that concentration. 699 MR. BOLAND: To help address the issue of OPG's market share. 700 MR. POCH: And the second one that they look at is that new entry into the market faces some barriers. I take it that, while I think you've just stated it's not a uniform situation, certainly it would become a generator in the wholesale market in Ontario is not something you can do overnight. 701 MR. BOLAND: That's literally true, yes. You can't build new generation overnight. 702 MR. POCH: You would agree there are some significant barriers to entry that anybody who is going to become a generator has to face up to, the have to be -- let me take you through. They have to be licensed. 703 MR. BOLAND: Yes. 704 MR. POCH: And they have to make a significant -- typically they have to make a significant capital investment. 705 MR. BOLAND: Yes. 706 MR. POCH: So it's fair to say that there are some barriers to entry that require fair resources being thrown at it before anyone is going to come in. 707 MR. BOLAND: Based on my understanding of what the gentlemen testifying this morning, how they characterised barriers to entry, yes. 708 MR. POCH: Okay. Now, I wanted to go through a few of the characteristics of that generation marketplace and I think in particular it would be helpful if we can turn up the evidence from this morning of the Competition Bureau. 709 MR. MORAN: It is Exhibit D-8. 710 MR. POCH: Exhibit D-8. Thank you. The witnesses for the Competition Bureau -- I'll wait until you have it. At page 3 of 10. 711 MR. BOLAND: We have it now. 712 MR. POCH: They were there in a table format listing what they called facilitating factors that were some of the indicators they looked at, they indicated they looked at to see if there's a greater or lesser concern about the potential interdependency. I just wanted to touch on a few of these and see if we can agree that some of them are or are not at play in the generation market in Ontario. 713 A small number of sellers. Mr. Boland, can you help us? 714 MR. BOLAND: I would just clarify that the wholesale market has kind of two components, the generation side and, as well, wholesale trading counterparts that don't necessarily own generations. The market has those two characterisations. 715 MR. POCH: All right. I was thinking generators. 716 MR. BOLAND: Strictly generators. Actually, I don't know the exact number of generators off the top of my head in the province but there's probably quite a few. It's just a number of them are relatively small. 717 MR. POCH: All right. 718 MR. BOLAND: Certainly a small number of large players in the market at this time. 719 MR. POCH: That's fair. Skipping down. Entry takes a long time. We spoke of this a minute ago. Do you have any sense how long it takes someone from, you know, the gun going off til they can start putting power into the transmission system? 720 MR. BOLAND: Depending on the technology, anywhere from one year to 10 years plus. 721 MR. POCH: All right. Large fixed costs and small variable costs. Obviously variable costs may not be too small for some, but we can agree that large costs can be fairly big. 722 MR. BOLAND: Again, its technology dependent. 723 MR. POCH: How much does a 300-megawatt gas turbine cost. Can you give us a sense? We're talking -- 724 MR. BOLAND: Perhaps under a thousand dollars per kilowatt price range. 725 MR. POCH: So that's a million dollars a megawatt, so hundreds of millions of dollars for a generator of this scale of the units at Bruce; is that fair? 726 MR. BOLAND: Subject to kind of doing the math in my ahead, I'd agree that the size is large. 727 MR. POCH: Now, limited excess capacity. The current capacity situation in Ontario I think is, we can agree, there's some concern that at least on the part of the government, they'd like to see more capacity for the market to function as best it could. 728 MR. BOLAND: I've seen different government officials make different statements about the state of capacity in Ontario, to be fair. But clearly it's acknowledged as we went through the peak period last summer of extreme heat that Ontario was reliant in those peak stressed periods on imports. 729 MR. POCH: All right. And I take it we've pretty well done away with vertical integration in the Ontario market. That's part of the restructuring of the marketplace, no vertical integration. 730 MR. BOLAND: I don't know that we've totally eliminated vertical integration. 731 MR. POCH: Fair enough. But in the main -- 732 MR. BOLAND: Significantly? 733 MR. POCH: Yes, fair enough. 734 MR. BOLAND: I'm thinking about my answer to the previous question. I just want to clarify a little bit. The imports are a part of the market, and we shouldn't somehow think they are somehow extraneous. They are a key component of the market and it is appropriate to consider them when thinking about the supply capability into Ontario. 735 MR. POCH: Sure. And there are -- presumably there's still some constraints on the import capability due to the physical integration of the system. 736 MR. BOLAND: That will always be the case. 737 MR. POCH: Now, there are a large number of buyers, I think we can agree. 738 MR. BOLAND: Yes. 739 MR. POCH: At least potentially. 740 MR. BOLAND: Yes. 741 MR. POCH: Do you view demand for electricity as elastic or inelastic? 742 MR. BOLAND: I would view it as inelastic. 743 MR. POCH: And there's certainly limited product differentiation, perhaps apart from some people considering some electrons green; is that fair? 744 MR. BOLAND: It's fair to a degree. But clearly -- it depends whether you're thinking strictly in terms of the spot market or whether you're thinking of the forward market. When you get into the forward market there's significant difference around contracting language and things of that nature. 745 MR. POCH: Sure. Okay. Thank you. I think that's sufficient in terms of my review of that list and we can move on. 746 Now, gentlemen, if I have questions about the strategic or non-strategic nature of information being shared under the various agreements, I take it that's for the next panel? 747 MR. SINGER: Yes. 748 MR. POCH: All right. And if I have questions about the constraints or lack of constraints on your partner, Bruce Power, that's best left for the next panel too, I think? Is that fair? 749 MR. SINGER: I think questions that have to do with the transaction, I think those would fall into that category. 750 MR. POCH: Now, Mr. Charlebois, I gather you're the man to speak to about maneuverability or non-manoeuverability of the nuclear plants. 751 MR. CHARLEBOIS: That's correct. 752 MR. POCH: By which you mean you tend to run them flat out or not at all. 753 MR. CHARLEBOIS: We tend to want to run them as baseload at maximum output, yes. Sure. 754 MR. POCH: If you turn up -- I'm not sure who this question is for, but if you turn up interrogatory I-9.5, this is an interrogatory from Energy Probe to you. 755 I just wanted to ask: This was received with respect to the scheduling of outages, and the fourth paragraph of the response it, it says, "OPG's outages are scheduled through the Energy Markets division. The outage schedules for OPG's portfolios are synchronised by Energy Markets based on the generation available and the expected load." 756 My question is: Is it the Energy Markets people who are the -- is the group within Hydro that would be bidding into or directing the bidders into the marketplace? 757 MR. BOLAND: Yes, it is. 758 MR. POCH: All right. So we have a situation where outage information has to be, perhaps, shared with those folks; is that -- and those are the very folks that the ring fence is supposed to keep out? 759 MR. BOLAND: You're talking about sharing OPG outage information with those folks? 760 MR. POCH: Yes. 761 MR. BOLAND: Yes. 762 MR. POCH: And those are the very folks that the ring fence is attempting to shield from information about your partners' scheduling; fair? That is, information about Bruce Power's costs and schedules and so on. 763 MR. BOLAND: Yes. Information obtained related to Bruce Power's outage schedules that may exist in certain pieces of the organisation OPG are prevented from working their way into Energy Markets. 764 MR. POCH: Now -- 765 MR. SINGER: Just before you go on, just to the Board is clear. The ring fence doesn't really work to exclude people like Energy Markets, it just includes the people who need the information. The rest of the world could be considered to be excluded. 766 MR. POCH: Fair. And we do feel that, Mr. Singer, I assure you. My point was simply that your outages information is routinely shared with your marketing group, your market interaction group, but the ring fence is intend to keep information to a smaller group that excludes these folks, that is, information about Bruce's outages and scheduling and costs and so on. 767 MR. SINGER: In order to offer the generation into the market, you need to know whether that generation is available. So logically, the outages need to be coordinated with the offers into the market. But the energy market is among -- the rest of the world, as you put it, that is not contained within the ring fence. 768 MR. POCH: That process is about your own outages -- not Bruce's outages, but your own outages -- that is, I take it, an iterative process because these folks at Energy Markets are juggling more than any one station, they're juggling more than just your nuclear division, they're juggling all of OPG's resources, and they're also looking at expected market conditions and trying to optimise the situation for the corporation; is that fair? 769 MR. BOLAND: would describe it as an ongoing process. You said iterative, but you're continually trying to optimise that schedule. 770 MR. POCH: Part of the arrangements that you have with your partner Bruce here, Bruce Power, are to share some resource groups or physical resources, for example, the one that this interrogatory is about, the SLAR tools and capability, and that requires you to coordinate your outages with them; is that fair, Mr. Charlebois? Because there's only one set of SLAR tools or SLAR experts. 771 MR. CHARLEBOIS: That's correct. For Inspection Services Division who are within the ring fence, they need to coordinate their activities to service Bruce Power under the service agreements, as well as service our needs. 772 MR. POCH: All right. So we have a group that's coordinating outages with Bruce Power, pursuant to these arrangements, and then is coordinating outage scheduling with the Energy Markets folks. I've got that geometry right? 773 MR. CHARLEBOIS: That's not correct. 774 MR. POCH: Tell me where I've gone wrong. 775 MR. CHARLEBOIS: The Inspection Services Division would not coordinate the outage activities between Bruce Power or ourselves. The Inspections Services Division is a service organisation. So from OPG's stations, they get a -- based on the discussions that have taken place at energy market, they get a window whereby the inspections would be carried out at OPG facilities without necessarily knowing the exact overall duration of the outage. Similarly for Bruce; they would get the information that would tell them the window within the outage where the inspection would be required. So it's in the context of making sure that the inspection windows are aligned in such a way that the plants -- both plants can be serviced that the discussion takes place. It is purely done all within the Inspection Services Division. 776 MR. POCH: Let me ask you. A SLAR outage, and a SLARing, if I may coin that phrase without slurring anybody, is a lengthy outage; correct? 777 MR. CHARLEBOIS: The SLAR operation constitutes a good portion of the overall outage but certainly is not the majority of the outage. 778 MR. POCH: Okay. So this inspection group would have to negotiate with yourself and with your -- with Bruce to find opportunities that were convenient for both it -- since it can only be at one place at once -- and yourself respectively so that it doesn't have overlapping demands on its time; is that fair? 779 MR. CHARLEBOIS: They -- the Inspection Services Division would have to plan their inspection activities. To be clear, these are generally planned approximately 12 to 18 months ahead so that we have sufficient time to actually bring in additional resources as required to deal with the peaking and maybe possible overlap that we have in certain situations. 780 MR. POCH: These are the same folks that may also come in on unexpected outage situations, unplanned outage situations, if an inspection is required or a particular activity is required where their specialty is needed. 781 MR. CHARLEBOIS: These people could be involved in addressing or supporting a forced outage, or, in addition, we could in fact rely on resource implementation from external sources. 782 MR. POCH: Okay. And these various kinds of outages, then, I think we've already agreed, have to be scheduled or negotiated with the Energy Markets Group to coordinate with the rest of the corporation. Some of them you may not have a choice about, but to the extent you have flexibility. 783 MR. SINGER: I think we should have a more fulsome -- 784 MR. BETTS: Can't explain it, but it seems to be under control, so please continue. 785 MR. SINGER: I think we should have a more full discussion of the outage process so you can better understand it. 786 What happens in the Ontario market is that people apply to the IMO for permission to take units out on a planned basis. They can -- 787 MR. POCH: Let me just stop you here. I will let you go on, I just want to ask, as you go through this, I'd like to understand what of that information is shared with all generators in the marketplace and what is with the IMO. So perhaps go you can comment on that as you go. 788 MR. SINGER: Sure. When a generator decides, and it can be quite a long time, years in advance, when they want an outage, they apply to the IMO for an outage, permission to take their unit out. As they get closer to the actual time of the outage, they get a better sense -- they get a better sense from the IMO whether that outage can be accommodated in the market. It's not until two days before the outage that they actually get a confirmed right to take the unit out. 789 As the IMO compiles the outage plans of various generators it publishes an aggregate, to your earlier point, Mr. Poch, information about what generation will be available but not for specific units. It will give aggregate outage information and will update that information. Basically as we get closer, as frequently as hourly, for major changes. So if there's a 200-megawatt change in outages expected, either forced or planned, the IMO will update the information provided to the market. 790 So when you say OPG Energy Markets kind of coordinates this, what OPG Energy Markets does is optimise the portfolio of generation that OPG has available to bid into the market, to offer into the market, subject to all those outages and outage plans being ultimately confirmed and accepted by the IMO. 791 You can't, other than for safety or environmental reasons, just take a unit out because you want to. If the IMO has denied you permission for a planned outage, unless you need to force the unit out for safety/environmental reasons, employee protection, you're compelled to continue running that unit. 792 MR. POCH: And just in terms of when the rest of the market gets this information, so the IMO, presumably sometime within 48 hours of the particular window, you're shaking your head so I'll invite you to -- 793 MR. SINGER: No, it's well in advance of that. The IMO puts out monthly, weekly, and then for the two-week period, hourly forecasts of outage informations, and that's published on the IMO web site. 794 MR. POCH: So some of these outages are schedule long in advance and are known to all players in the market well in advance, all players that care to know. 795 MR. SINGER: In aggregate the IMO gives indications of the planned unit outages long in advance. But the outages, as I said earlier, are not confirmed until two days in advance. 796 MR. POCH: Sure. And other players in the market wouldn't know for example whether this is an outage -- at least far in advance, wouldn't necessarily know if this is outage of a baseload unit or a fossil unit, for example; is that fair? They know an aggregate only. 797 MR. SINGER: They only know aggregate megawatts. 798 MR. POCH: Right. Now, Mr. Charlebois, then, I take it that you've -- this group you've identified, is that the NOSS Group as it's called in these materials? 799 MR. CHARLEBOIS: That's correct, yes. 800 MR. POCH: And they do a lot of this diagnostic work. 801 MR. CHARLEBOIS: The inspections services division does the non-destructive examination, that's correct. 802 MR. POCH: Okay. And are there other types of outages which have to be, in some fashion, coordinated between you and Bruce Power because of you're sharing resources, tools, people, what have you? 803 MR. CHARLEBOIS: There are other activities that we are involved in but do not require the same kind of level of planning of activities, no. 804 I may also want to add, I may have left the impression with the Board that the SLAR Operation, for example, can be only undertaken at one plant at any one time, and that is not the case. When planned ahead of time, we are in fact able to execute the SLAR at more than one station at any one time, as long as we've had the time to plan for the resources and deal with the peaking situation. 805 MR. POCH: And that's simply a matter of getting people trained and available? 806 MR. CHARLEBOIS: That's correct. 807 MR. POCH: All right. Then in answer to my prior question, can you give me an indication of what these other shared interactions are that involve outages. 808 MR. CHARLEBOIS: We -- up to late in 2002, approximately September of 2002, we in fact were also supplying nuclear safety services, analysis services, to Bruce Power. Since that time, that particular division has been divested to a third party. But prior to the divestment we were in fact support the analysis required for fitness for service for some components during outages. 809 MR. POCH: When was that division moved offshore, if you will? 810 MR. CHARLEBOIS: It was in September of 2002. 811 MR. POCH: So that's the nuclear safety services, you've characterised them as? 812 MR. CHARLEBOIS: It's the nuclear safety analysis divisions. 813 MR. POCH: Okay. And what other interactions are there that involve outages, or have to be cognizant of outages? 814 MR. CHARLEBOIS: Generally speaking, there is no others that require this -- this level of -- essentially planning around the outages. 815 MR. POCH: Apart from planning, are there some that have to be conducted having regard to outages? Are there services -- I can imagine, for example, that the low-level waste management folks, they could care less if there's an outage scheduled or unscheduled; fair? 816 MR. CHARLEBOIS: That's fair, yes. That's correct. There's no relationship between waste handling and the outages. 817 MR. POCH: Sure. Are there other arrangements where the nature of the beast is that you do need to -- they do need to be cognizant of outages either because their services are going to be called on them or their services are not going to be valuable, that they won't be able to be used at that time, or what have you. 818 MR. CHARLEBOIS: Without having the ability to walk through the various service agreements, there may be additional small services. For example, we provide monitoring of vibrations on turbine generators during run-ups, and this is a service that we've continued to provide, so therefore there would be some, obviously, discussion on that particular area as well. 819 MR. POCH: Okay. Would the next panel be better to discuss the minutia of that, these various agreements? 820 MR. SINGER: I think the next panel will be more cognizant of the specific details of the transactions, so I think you may get a little bit more detail. But I think you've gotten a good sense of the kind of outage information that might come to OPG from Bruce Power and be contained within the ring fence. 821 MR. POCH: All right. 822 Mr. Charlebois, that last one you gave an example of, this monitoring turbine vibration during start-up, I guess any outage, however caused, could precipitate a need for that service at the time of start-up again. 823 MR. CHARLEBOIS: No, that's not correct. This service would only be required generally after a major outage where there would have been disassembly of the turbine. 824 MR. POCH: All right, fair enough. Is that the kind of thing -- that's, I assume, the kind of service that other nuclear entities and indeed perhaps even non-nuclear entities would need? When you take apart a turbine and you put it back together again, you want to make sure it doesn't vibrate loose. 825 MR. CHARLEBOIS: You're correct. In fact, this service comes from our non-nuclear part of our organisation. 826 MR. POCH: All right. Now, I started off just saying I was going to ask you about manoeuverability, Mr. Charlebois, and I never did. It's been mentioned in the evidence a couple of places that nuclear plants are not particularly manoeuverable. I took that to mean that, as we said before, you like to run them as baseload, not following load on an hourly basis; is that correct? 827 MR. CHARLEBOIS: That's correct. 828 MR. POCH: And is my understanding correct that they can, within a limited degree, 10 or 20 per cent perhaps, be used, be manoeuvered, but that it's suboptimal to do so because of the economics, is that it, or the physics? 829 MR. CHARLEBOIS: The units can be maneouvered, not as much as 10 or 20 per cent. And maybe my colleague here will identify there was an interrogatory on that particular area. They can be manoeuvred by approximately 5 to 7 per cent. In order to be able to manoeuvre the units, the fueling conditions of the units has to be at the optimum state in order to have the required excess reactivity. As the manoeuvreing is taking place, there is obviously a number of checks and verifications that have to be carried out by the operators. 830 Once the reduction has been achieved, the return back to high power would -- could not necessarily just be initiated with, let's say, a few minutes' notice. It has to be a planned evolution, and it is an evolution that's carried out with due regard for the performance of the reactor and the distribution of power in the reactor in the fuel channels and in the individual fuel bundles, and would also require a re-analysis by our physicists of the reactor conditions prior to the ultimate return to full output. 831 MR. POCH: So you're going to take a few hours to do something like that; it's not something you're going to do on a minute-by-minute basis, certainly? 832 MR. CHARLEBOIS: That's right. 833 MR. POCH: Now, Mr. Boland, I take it though that the availability or non-availability of nuclear-generating units can nevertheless affect what the market clearing price is in the market. 834 MR. BOLAND: Yes, I agree. 835 MR. POCH: Just because they bump in or bump out what's being bit. 836 MR. BOLAND: The market clearing price in the wholesale market is established where supply and demand intersect. So if you remove something from the bottom of the stack of supply, that intersection point can change which means the market clearing price can change. 837 MR. POCH: Are there by manoeuverability, however small and unlikely that is, or by outage, that we can have a situation where the price in the market is affected by the nuclear plants. 838 MR. BOLAND: Yes. 839 MR. POCH: And I take it that both OPG and Bruce Power either have or are building other generator stations that are manoeuverable, the non-nuclear ones, that can try to take advantage of -- I'm not saying there's anything wrong with that. They are in a better position to take advantage of pricing situations in the market to avoid the -- 840 MR. BOLAND: Ontario Power Generation has non-nuclear units, some of which are much more manoeuverable and flexible to respond to market conditions. I can't comment -- I don't know if it's the same thing for Bruce Power at all. 841 MR. POCH: That's all right, I think it's clear in the evidence. I think -- they're partnering with the Brighton Beach proposal? Maybe it's the Toronto waterfront proposal. 842 MR. BOLAND: Bruce Power? No. 843 MR. POCH: Is not one of the partners in Bruce Power Trans -- 844 MR. BOLAND: One of the owners -- part owners of Bruce Power? 845 MR. POCH: Yes. TransCanada is. 846 MR. BOLAND: Yes. 847 MR. POCH: So OPG and at least one of the partners in Bruce Power are in that situation. And indeed, that's the reason for the ring fence, is it not? That you could, with information gleaned through these arrangements you have with Bruce Power, benefit your Energy Markets Group in terms of bidding in these more manoeuverable assets that the corporation owns. That's the real concern here. 848 MR. BOLAND: I'm in Energy Markets, and certainly my understanding of the ring fence is that, yes, it's to keep that information related to Bruce Power outages and so on and other information coming out of the service agreements away from us, and that's exactly what's happening. 849 MR. POCH: And the reason we want to keep it away from you is because you, of course, are controlling the bidding of these more manoeuverable facilities elsewhere in the organisation. That's how you could use this or abuse this information. That's the concern. 850 MR. BOLAND: Yes, I agree with that. I don't know that it's exclusive to that. I think even if we didn't have manoeuverable units, we do have other generating units that we time the outages of. 851 MR. POCH: Thank you, a very generous answer of you. 852 Just in nature of the electricity market, obviously there's no significant amount of storage that goes on. There's some pump storage in behind the dam, but, in general, it's not a commodity like most commodities where it can be stored for -- 853 MR. BOLAND: No significant storage of electricity. The fuel such as water reserves as you referred to in pump storage, the fuel can be stored, not the commodity itself. 854 MR. POCH: And the price can be fairly volatile in a short time frame; is that fair? You can have price changes even 10-fold in a matter of hours on some occasions? 855 MR. BOLAND: Yes. 856 MR. POCH: Just one second. All right. I assume if I have questions about the need for particular agreements between the companies and workable alternatives to those, that can be handled by the next panel? 857 MR. SINGER: That would be better handled by the next panel. 858 MR. POCH: That's great. Thank you, Mr. Chairman, those are my questions. 859 MR. BETTS: Thank you, Mr. Poch. 860 Mr. Mattson. 861 MR. MATTSON: Thank you, Mr. Chairman. 862 CROSS-EXAMINATION BY MR. MATTSON: 863 MR. MATTSON: Good afternoon, panel, and welcome back to the Ontario Energy Board. 864 If you could turn up Exhibit I-15.13. It's a Board staff interrogatory and the attachment. 865 MR. BETTS: What was that reference again? 866 MR. MATTSON: Exhibit I-15.13. 867 MR. BETTS: Thank you. 868 MR. MATTSON: If you flip it over, you'll see it's an attachment, the first attachment to the interrogatory. 869 Do you have that? 870 MR. SINGER: Yes, we all do. 871 MR. MATTSON: Okay. Were any of you gentlemen at this meeting or at this presentation? 872 MR. CHARLEBOIS: No, I was not. 873 MR. SINGER: Nor was I. 874 MR. BOLAND: No. 875 MR. MATTSON: Is there another panel member coming up who would be better able to speak to this? If I asked you what this meeting was about, would you be able to discuss it with us? 876 MR. SINGER: I think this question would be better directed to the next panel as we have someone who was instrumental in the preparation of this material. 877 MR. MATTSON: Who is that? 878 MR. SINGER: That would be Mr. Anderson. 879 MR. MATTSON: Mr. Anderson, okay. 880 Before we move on, I'll ask just the background to this document. Can you just turn page 6 of the attachment. You'll note it's entitled "Information Exchange Continued". 881 MR. SINGER: We see that, yes. 882 MR. MATTSON: Mr. Singer, the bowled part at the top, can you just read that onto the record for me. The first line of it here isn't clear in our interrogatory. It starts "There are..." Is it not clear on yours either? 883 MR. SINGER: It's not, although I think we may be able to get a clearer version. 884 MR. PENNY: Mr. Chairman, I think it arises from the colouring of the original. We'll endeavour to fool with the photocopier to try and lighten it up so that you can read this print. We'll let Mr. Mattson know. 885 MR. MATTSON: That's fine. Just generally, though, I think -- I don't have the -- it is throughout the document, but what we have here is six bullet points of information that I believe are information that will be part of the exchange between Bruce and OPG; is that fair? 886 MR. SINGER: No, I don't think so. I think it's the -- 887 MR. BOLAND: I have a copy of -- it's not exactly what you're looking at, unfortunately, but it's also part of the same attachments but it's a different set. You're looking at one specific training set material. I have the material from the on-line training session. It's also in the package. My copy is clear. It's a very similar page, but it's not exactly. It's on page 10 of -- again, it's in the same interrogatory, and that page 10, which I can read, says: "There are many types of information obtained through the Bruce lease transaction that should not be widely available within OPG." And then it goes on to list those. It's a very similar page to the one you're referring to. 888 MR. MATTSON: Okay. And so the six bullet points on page 6 that I'm looking at, that's the type of information, Mr. Boland, that shouldn't be shared widely; is that correct? 889 MR. BOLAND: Yes. 890 MR. MATTSON: And is there any reason why any of this information shouldn't be made available widely; for example, why you couldn't just file this information with the Ontario Energy Board, for example, for anyone in the market to see? 891 MR. BOLAND: The information obtained related to Bruce Power's operations, OPG making it generally available? 892 MR. MATTSON: Yes, all this information available, all six bullet points. Why this information couldn't be disclosed to all the market participants as opposed to just to the OPG ring fence group. 893 MR. SINGER: Well, let me give you a general answer, Mr. Mattson, and then when Mr. Drinkwater comes up we can talk specifically about the transaction limitations itself. 894 But generally Bruce Power is a commercial entity that has spent time and money developing this information, and I -- just being a small business person, for example, the operating experience information from my company, I wouldn't make it publicly available. That's part of the intellectual capital of my company. I wouldn't give that away. It strikes me, frankly, as illogical to think that any company would. But speaking only from the perspective of a small business person, I can tell you from my perspective that that would never happen voluntarily. 895 MR. MATTSON: So you're indicating that Bruce Power would not want to information shared. 896 MR. SINGER: Well, I'm giving you a general answer, just from the perspective of what I think would be a view shared by any business person; that if I develop something that I used in my business, it had value to me, then I wouldn't give it away because that would be contrary to the interests of my business. That's why I said it was a general answer. And if you wanted to talk more specifically about the transaction, you'll have that opportunity with the second panel. 897 Mr. Mattson, just so we can close this off, we've got a copy that is legible of that page you referred to, which is page 6 of the first attachment to interrogatory 15.13. And the words that you asked for specifically: "There are many types of information obtained through the Bruce lease transaction that should not be widely available within OPG. OPGEM staff are of highest concern due to their involvement in OPG's market activities." 898 MR. MATTSON: This -- thank you. This presentation, it was just made to OPG employees, I take it; is that correct? 899 MR. SINGER: All the presentation material in here is directed at OPG employees or contractors and others who work with OPG employees. 900 MR. MATTSON: And it's dated November 18th, 2002; correct? That's when the date of the presentation -- 901 MR. SINGER: Yes, that's correct. 902 MR. MATTSON: So this is a fairly recent presentation to staff concerning the ring fence initiative. 903 MR. CHARLEBOIS: That's correct. It is a fairly recent presentation. But the importance of protecting information that is obtained through the service agreements for Bruce Power has been, in fact, something that we've discussed with our staff that are involved with the services since the close of the transaction. And this was done in the context of the discussions around the code of business conduct, and then followed by some training on the importance of controlling commercial-sensitive information as well as, finally, by the discussions with the ring fence. 904 MR. BOLAND: If I can just add to that. Also in the attachments to the interrogatory that we're referring to, there are samples of other training that was done. For example, one of the training sessions given to Energy Markets staff is here, dated April 24th, 2002. There were a variety of presentations given in and around that time to Energy Markets staff. So the training and the awareness of the ring fence and the other initiatives such as the code of conduct, and so on, and the guide for the exchange of information, I think it's fair to characterise them as ongoing communications were really starting in 2001. 905 MR. MATTSON: Just -- two follow-ups to that. 906 First, Mr. Charlebois, the close of the transaction was when? I'm sorry. 907 MR. CHARLEBOIS: May 11th, 2001. 908 MR. MATTSON: Okay. So are you still -- this most recent document, "training with respect to the ring fence initiative, November 18, 2002", Mr. Boland, are you still in the process of establishing this programme and educating staff members? 909 MR. BOLAND: It's -- I would say, as a member of senior management of Energy Markets, it's been ongoingly -- reinforced on an ongoing basis really since late 2001, is my recollection of kind of the first senior official of OPG sending information about the sensitivity of information associated with the Bruce lease transaction. That came from David Drinkwater. I know that I and the other senior vice-president in Energy Markets issued a communique to our staff on April 30th, the day before the market opened, reminding them of the requirements associated with the Bruce transaction. There's been ongoing training since then. 910 MR. SINGER: Mr. Mattson, as you can appreciate, as new employees come into OPG and people's memories start to fade, there is an ongoing need to reinforce the messages. 911 MR. MATTSON: Okay. If you turn to page 4 of the handout, entitled "The Context for Information Exchange: What are the major drivers of change regarding OPG's use of information." 912 The first one is "OPG and Bruce competitors in open electricity market; second, is "the Bruce lease transaction contained several agreements which necessitate exchange of information between the entities"; and then the third is "if used improperly, some of this information could affect OPG's chances of success in its decontrol application that has been filed with the Ontario Energy Board." 913 Could you explain to me the relevance of that bullet point? Is the ring fence, in other words, can I read that to think that the ring fence is specifically there for the purposes of this application? Is that fair? 914 MR. SINGER: I'd say no, is that a fair interpretation, and let me give you what I think the proper interpretation is. 915 As you start to go through this volume of material, and I'm sure as you discuss the ring fence with the next panel, you'll get to come to an understanding that the ring fence is a substantial effort; it's a substantial effort in terms of the cost, in terms of the time, in terms of the time to communicate about it and train everyone on it. And in the course of that training there were questions. People said, you know, we have the code of business conduct; we have -- which has specific requirements about the use of confidential information; we have the guide for information exchange, which again is very specific as to the Bruce transaction. Why do we need this ring fence on top of that, and why are we spending all this money? And one of the answers was that we needed to be able to satisfy people like yourself that we took this seriously and that we did everything that we could reasonably think of to enforce a ring fence requirement to make sure that this information wouldn't be used improperly. And is successful determination of the Bruce decontrol an important component of that? Yes, it is. 916 MR. MATTSON: Following on that. If you are successful with your application before the Board, what happens then to the ring fence and what oversight will the public have with regard to its continued integrity, as you go forward? 917 MR. SINGER: This is a commitment by the senior management of the company, and, as I said in my previous answer, it's a commitment that's been backed up by lots of money being spent and lots of time being invested. It's a public commitment and it's one that we take seriously. I don't think that more is needed above that. I mean I've seen how much time has been spent on it, and I'm sure Mr. Boland and Mr. Charlebois, in their capacities, can talk about the impacts on their organisations. But this is not something that anyone in the company takes lightly. And so that is the commitment. 918 MR. MATTSON: I don't doubt that, Mr. Singer. However, there is nothing further with respect to oversight of this ring fence, in your proposal, post a successful decontrol application before the Ontario Energy Board. You're not proposing that the Ontario Energy Board have any future oversight over this ring fence or anything; correct? 919 MR. SINGER: We're not proposing that the Board have future oversight. We are proposing that this ring fence be audited, and I think that's covered fairly clearly in the materials we've submitted; that this would be subject to ongoing audit by OPG. 920 MR. MATTSON: And what if -- what would the -- what would the company, you can speak to this, what would your response be if the Ontario Energy Board accepted the arguments of other parties that OPG shouldn't be the auditor of its own process or its own ring fence but that the Ontario Energy Board should? Would that cause a great deal of difficulty to your company? 921 MR. SINGER: It's -- I don't think it's profitable for me to comment about what the Board might do in its authority in a hypothetical situation. But the Board, as we made clear I think on Issues Day, if the Board has concerns and chooses to issue conditions, then we'll look at those conditions at the time that their issued. 922 MR. MATTSON: You've heard my friends from the Competition Bureau this morning, Mr. Singer, indicate that when they -- I'll get the term, but that when they agree to a merger application, is that there's a statutory time limit of three years in there; they indicated in the case of changing circumstances, et cetera, they control some jurisdiction over the decision, although they give approval. Are you familiar at all with this application? Is there any sort of period of time where the parties or the Ontario Energy Board, have an opportunity to see how this works? 923 MR. SINGER: OPG operates in the Ontario energy market pursuant to a licence issued by the Board. Without that license we're not entitled to sell energy into the IMO-administered market or to transmit energy over the IMO-controlled grid. So the Board has ongoing jurisdiction over OPG by virtue of that licence. 924 MR. MATTSON: That would be an awfully draconian move to withdraw your licence for breach of a ring fence. Would you agree with that? 925 MR. SINGER: I would certainly agree with the draconian. I was not in any way suggesting that the Board would even consider that kind of move, but I was suggesting that the Board has ongoing oversight. And there are many steps that the Board can take short of denying us the licence to operate in the market. 926 MR. MATTSON: If you would turn to page 13 of the handout, you'll notice under the second -- second sort of block there, it talks about -- it's under "controls, non-compliance, and enforcement, and then it's non-compliance, and one of the unauthorised use of the Bruce Power ring fence information will be a violation of your code; and secondly, liability with regard to OPG's chances of successful decontrol hearing outcome." 927 I take it that second bullet point only refers to non-compliance up and until you receive approval. 928 MR. SINGER: I'm trying to find a way to impress on you how wrong that view is. 929 MR. MATTSON: Well, you do that. Make sure you do it with reference to the words on the page. 930 MR. SINGER: Yes. Basically, as I explained to you, and you'll find a number of references to this hearing in these materials, and that's because, as I indicated in one of my earlier answers, the concerns coming out of these hearings raised by intervenors are something that motivated us to go to a ring fence on top of all the other protections that were in existence prior to the formal adoption of the ring fence. But to read this and say once we get the successful determination, if the Board does approve our application, that, you know, the ring fence goes away and all bets are off, is just so wrong it's hard for me to come up with the words to indicate that. It's so contrary to the way we think about it and the effort we have put into designing this ring fence and auditing the systems. As I say, I'm not nearly as eloquent on the detail as subsequent witnesses will be, but I certainly, in my former capacity when I was the VP of regulatory affairs at OPG, spent a lot of time looking at this ring fence and dealing with it and spent lots and lots of resources on it. And never once in that entire time did I think, oh, we're just doing this, and once the Board decides, all bets are off. That thought never occurred to me. 931 MR. MATTSON: Well, how will the public know in the future, if you are successful, how will we know how well the ring fence is operating if there's no reporting requirement? How will we ever know how well you're doing if your commitment here today is fulfilled? 932 MR. SINGER: I think, again, this comes back to a fundamental corporate commitment. How do you -- how do you know that corporations follow their codes of business conduct? You look at the people who run them and you look at the kind of culture of compliance and integrity that they try to instil in the businesses and you make some judgements about that. And you will have the opportunity on this panel to talk to some of OPG's senior executives and on the next panel to talk to some OPG senior executives and you'll make a judgment about that. 933 I think if you look at the ring fence material that we've presented to you in a fair way, you'll be -- you'll be struck by the seriousness of the commitment that OPG has made here. But at some level I don't know that you can eliminate people's skepticism no matter how good a job you do on something like this. 934 MR. BOLAND: I would like just to add, and I think it's worth me coming into this just as a member of senior management. There are very high ethical standards throughout OPG reflected in a number of corporate initiatives. And the ring fence is a really detailed explanation of how employees are to behave under one particular set of circumstances, but the general principles are set out and adhered to in a much broader document, the employee code of conduct. And that code of conduct has -- I'm just looking at it now, it's got a page and a half devoted to sensitive information and how employees have to respect that, and only use information for the purposes that it was intended as necessary to carry out their duties. And that code of conduct is an ongoing document that has a life of its own and reflects the ethics of the organisation on an ongoing basis. 935 MR. SINGER: Just one other idea, Mr. Mattson. It doesn't directly respond to your question in the sense of how will people whether or not we've held to the ring fence. But there is a market surveillance panel out there that looks at our activities in great detail. And so while that wouldn't tell you necessarily something about a breach of the ring fence, if the information that came out of such a breach was used to manipulate the market, it certainly is an ongoing surveillance of that type of activity. 936 MR. MATTSON: Well, what is the concern, panel, with respect to OPG, a public utility, coming before the public utility Board, reporting and making available the information with respect to the integrity of your ring fence? What is the concern in regard to this issue, particularly since you are seeking the Board's approval of a rather special relationship between two competitors and you're taking extraordinary precautions by setting up this ring fence, so you are asking for something out of the ordinary. And what would be the concern with respect to a reporting mechanism to the public utility Board who has oversight over these public utilities? 937 MR. SINGER: Let me take some of the points you've made in order. 938 First, OPG is not a public utility. The authority that the Board has is pursuant to our licence as a generator, wholesaler and retailer. We're not like a distribution company that's subject to a rate regulation by the Board, and that would be what one would normally think of as a public utility. The whole purpose of the restructuring, at least as it was initially explained, was to get OPG to act like a commercial company. 939 But that aside, we obviously don't have a concern about sharing in great detail the information about the ring fence with the Board. As you can see, we've provided hundreds of pages that deal with the ring fence and the training around the ring fence and the background to the ring fence. So we certainly have no concern about sharing that detail. 940 In terms of asking for something extraordinary from the Board, we're asking the Board to recognise a transaction that has been completed as decontrolled, pursuant to the terms of the generation licence that the Board issued. That's actually exactly what was contemplated when those terms were inserted in OPG's generation licence. So I don't see it as anything extraordinary. 941 So I think when you combine the information we have provided and the ongoing oversight on the market where all of this stuff is relevant and meaningful by the market surveillance panel, it's our view that there's enough scrutiny. And we recognise that others can take other -- a different view on that, but that's not the view that we took in coming up with this proposal. And it wasn't that we came to our position lightly. We thought about it and we thought that this was sufficient. 942 MR. MATTSON: How many OPG employees -- I think we have an answer in an interrogatory, but how many OPG employees will be within the ring fence? It's about 1,300; is that fair? 943 MR. SINGER: As a round number, that's correct. I don't have the figure off the top of my head. But again as to the specifics of the ring fence, the subsequent panel will be a better source of information. 944 MR. MATTSON: All right. And those 1,300 employees, you're saying that if they break the code of the ring fence, it will be up to OPG to discipline them; is that fair? That's the proposal? 945 MR. SINGER: If there's an intentional violation of the ring fence, we would consider it, and we've talked about it obviously, it's a violation of the code of business conduct and would be subject to the sanctions in that code. And the code is provided in one of the interrogatory responses. 946 MR. MATTSON: And if -- 947 MR. SINGER: That's interrogatory 1.24 for the code of business conduct. 948 MR. MATTSON: Mr. Singer and Mr. Boland, how much money -- we're just going to move off the ring fence for a moment here. I just want to check my notes. But how much money is at stake for the company in this application? Do you have a ballpark number? 949 MR. SINGER: In terms of the rebate mechanism, it's really impossible to term because it depends on what the annual average price turns out to be on April 30th. But if you wanted a ballpark figure of a hundred million plus, between 100 and 200 million, as we sit here today, that would be the range I think we'd be contemplating. It may be a little bit higher than that or a little bit lower than that, but that would be the impact on the rebate. But you couldn't determine that until the end of the first year. 950 MR. MATTSON: So as of today, just if we sat on today -- as we sit before the Board today, would it be fair to say somewhere in the range of $200 million? 951 MR. SINGER: You don't know what's going to happen with future prices. You don't know if it's going to be a wet spring. This goes through April 30th. 952 MR. MATTSON: That could change it. 953 MR. SINGER: That could change. But sitting here today, that's about right. 954 MR. MATTSON: And it seems, and maybe this is an incorrect assumption, but it seems like it took a long time for the company to file this application. Is that due to anything in particular? Was it because you were still working on certain issues that needed to be completed? 955 MR. SINGER: It's a substantial application; it took a long time because it is a substantial application. Clearly there were issues that we think will at least be seen to bear on the outcome of this proceeding that were in flux, and so the resolution of those issues we thought would give a cleaner presentation of the matter to the Board. 956 MR. MATTSON: So things have been changing right up until recently, would you agree, Mr. Singer? I mean we have the presentation still in November and fresh filings are still coming in as recently as January 2003. 957 MR. SINGER: I think it's safe to say there's been lots of change in the electricity market in Ontario over the past year, yes. 958 MR. MATTSON: But in particular with respect to this application, which was originating -- or really had its beginnings May 1st, 2001 -- May 11th, 2001. 959 MR. SINGER: That was when the transaction closed, but the market didn't open until May 1st, 2002. So there really was no need to consider this application until the market opened. And we didn't know when the market was going to open until that -- the very end of 2001, so you can say that was the time frame in which we started thinking about bringing this matter before the Board. 960 MR. MATTSON: Just one moment, Mr. Chairman. With your indulgence, I'll just make sure I haven't missed anything. Thank you, Mr. Chairman. Thank you, members of the panel. 961 MR. BETTS: Thank you, Mr. Mattson. 962 Board counsel. 963 MR. MORAN: Thank you, Mr. Chair. 964 CROSS-EXAMINATION BY MR. MORAN: 965 MR. MORAN: Let me start with you, Mr. Boland. One of the things that we have to -- that plays into the analysis that this application requires is the structure of the marketplace itself and then what happens within the marketplace as a result of the lease transactions and agreements. We have the IMO spot market and I guess we know a little bit about that because it's something you can check out on the web site from time to time, and then there's the bilateral market which, obviously, not much is known about because that's in the private sphere. 966 Are you able to provide some information about the number of players there are in that market that deal with OPG? 967 MR. BOLAND: The bilateral market is referring to the sale of forward contracts for electricity in which customers can firm up their price for a period of time, typically one year to five years, the types of contracts that have taken place. The actual operation of that forward marketplace has a number of participants. There's quite a few but they don't always necessarily operate in the same competitive space. For example, Ontario Power Generation does not retail electricity or electricity contracts to residential customers, for example. We deal with other wholesale customers, that is, customers who in turn sell to smaller customers, and we deal directly with large industrial and commercial customers. 968 In the space that I'm in competitively, the number of customers is probably in the order of five to ten. And certainly if we're responding to an RFP from a customer or making a cold call to a customer, we would typically find anywhere from two to five competitors on any particular call, I would say. 969 MR. MORAN: Okay. And you made a reference to contract lengths being typically one to five years. Could you maybe just break that down a little bit more. Are they mostly one year, mostly five years? Roughly a proportion. 970 MR. BOLAND: Without being precise, my characterisation is that, in the kind of space that we were dealing with, one- to three-year contract were the most common, with some longer term contracts. 971 MR. MORAN: Do you have shorter than one? 972 MR. BOLAND: Not that I can think of right now. I don't think we do. Now, when I say we don't, I'm referring now to the sale to large industrial and commercial customers. Certainly the trading desk, which does not report to me but is still part of the Energy Markets, the trading desk would be dealing with other wholesale counter parties and they could be dealing on a much shorter basis in terms of transactions that could be as short as, you know, one week or potentially even less. 973 MR. MORAN: Are you able to say how much of your output is tied up in the bilateral market? 974 MR. BOLAND: We would consider that commercially confidential. 975 MR. MORAN: Fair enough. I'm not sure who knows the answer to this question, but there was a reference to the formal adoption of the ring fence. As I understand it, in the retail licence there's a requirement for a ring fence. Are we talking about two ring fences here, really, the one in the retail licence and then the one that's under discussion for the purposes of this application? 976 MR. BOLAND: I'm responsible for the ring fence obligation that we have in our retail licence. That's a separate ring fence from this one, entirely separate. 977 MR. MORAN: Right. Mr. Singer, when you were talking about the formal adoption of this ring fence, could you tell me what date that was? 978 MR. SINGER: This ring fence as presented in this application was formally approved by the OPG executive committee at the end of May 2002. 979 MR. MORAN: May 2002. 980 MR. SINGER: Yes. 981 MR. MORAN: And having formally approved it, I guess, what was the implementation schedule? 982 MR. SINGER: We had rolled out at the same time we presented the ring fence to the executive committee a communication and implementation plan, so basically, that was to take the plan and do it with all dispatch, and that's what we've done. 983 MR. MORAN: Okay. 984 MR. BOLAND: Just to add to that briefly. The guide of exchange that we've referred to earlier and I know is an attachment to one of the interrogatories, and I would say that the ring fence came out of -- it was a formalisation of this and a development of controls around this. This was issued on November 15th, 2001 to directors and managers of OPG. 985 MR. MORAN: And operationally when would you say the ring fence was in place? 986 MR. BOLAND: Within Energy Markets, in term of Energy Markets staff having an understanding that they are not allowed access to this information, I think it was the day the market opened. 987 MR. MORAN: Mr. Charlebois, on your side of the fence, operationally, when were things in place so that people knew that they had information that they shouldn't give to people? 988 MR. CHARLEBOIS: As I indicated earlier, once the transaction closed with Bruce Power, we had discussions, in fact communications with our staff involving providing services as to the importance of protecting commercially-sensitive information, and that's consistent with our code of business conduct. So for us the process started, in fact, with the transaction close at Bruce Power. And this has been essentially something that's been reinforced since that time through further communications as well as the -- and the introduction of the ring fence and the training associated with that. 989 MR. MORAN: I assume you've personally taken the training. 990 MR. CHARLEBOIS: That's correct. 991 MR. MORAN: And the same for you, Mr. Boland? 992 MR. BOLAND: I have, yes. 993 MR. MORAN: Let me just then try to understand how it works. I think it's probably best to ask you this, Mr. Boland. Let's say you're sitting in your office and you come into possession of some information that's clearly about a forced outage or a plant outage that you shouldn't have. What would you do? 994 MR. BOLAND: You're referring to a forced outage related to a Bruce plant presumably. 995 MR. MORAN: Yes, at Bruce, I'm sorry. 996 MR. BOLAND: I should say that that's never happened. I'm not aware of any violations of the ring fence in Energy Markets staff. If I became aware of that information as a result of this transaction and the agreements associated with it, I would certainly not examine the information, I wouldn't share it with anyone within Energy Markets. I would call the ring fence administrator and frankly I'd call Mr. Anderson as well too since he designed the ring fence and inform him that I had inadvertently come across some information that I shouldn't have, and discuss with him how that happened and look to rectify the situation. 997 MR. MORAN: And do you know what the next steps would be after that, after you've reported it? 998 MR. BOLAND: Well, I would hand over the information and that would be the end of it from my access to the information. At that point I would expect the ring fence administrator and Mr. Anderson to work with me further about how that information came to me, and check to see if the controls were adequate or if they needed to be improved. 999 MR. MORAN: All right. Let me turn back to you, Mr. Charlebois. If you became aware that somebody who had information that was supposed to be ring fenced had somehow passed it on, what steps would be taken on your side? 1000 MR. CHARLEBOIS: Similarly, I've not become aware and I'm not aware of any situations where information from within the ring fence was inappropriately passed on. But this information would have to be referred to the ring fence administrator, and in fact could be investigated by a chief ethics officer as well because that is a breach of code of business conduct. 1001 MR. MORAN: Okay. In terms of the code of conduct, what kind of discipline would a person face in those circumstances? Is it immediate dismissal, is it progressive discipline? How does it work? 1002 MR. CHARLEBOIS: The discipline could be progressive discipline up to and including dismissal, and it depends on the circumstances and so on. 1003 MR. MORAN: So there's no automatic rule that it's always going to be progressive. It would depend on the circumstances of the particular breach. 1004 MR. CHARLEBOIS: That's correct. 1005 MR. MORAN: Okay. Now, there are, of course, a significant number of agreements between Bruce and OPG that set up an ongoing technical and operational relationship that involves your area. How many of your employees are involved in, I guess, what would be ring fenced information for want of a better way of describing it. 1006 MR. CHARLEBOIS: I think Mr. Anderson tomorrow will be able to provide you with more exact information. But, for example, in the Inspections Services Division we have approximately 320 regular employees and then maybe 30 or 40 contractors. 1007 MR. MORAN: And is there any internal process that deals with access to the information on the principle of a need-to-know basis? Is there any way that that is implemented? 1008 MR. CHARLEBOIS: In fact, that is one of the principles of the ring fence; that employees that are within the ring fence are only required -- are supposed to acquire information on a need-to-know basis for the work that they are carrying out. The protection of the information is protected if it's information that's contained within our information technology systems, our computers and so on, and it is obviously password protected. Information that is on hard copies, papers and so on, is protected in specially locked areas and locked files so that that information does not get outside of the ring fence controlled area. 1009 MR. MORAN: All right. And for the people that are inside the ring fence, dealing with the information that's ring-fenced, would all of them automatically have access to all of the information or is there some internal controls as well? 1010 MR. CHARLEBOIS: Employees within the ring fence are only, in fact, provided access to information that concerns their particular area -- duties or areas of responsibilities. So, for instance, if people are involved in delivering fuel channel inspection, they would only have access to that type of information for that group. The group that would be involved in, let's say, supporting an engineering analysis would only see that part of the information; they would not see the rest of the information inside the ring fence. 1011 MR. MORAN: Okay. And is that achieved through what you referred to earlier, the passwords and pass keys and so on? 1012 MR. CHARLEBOIS: It's achieved -- in part. If it's information that's contained in the computer, it's achieved in that way. But also from a physical geography perspective, the people are located in different offices in different areas and the nature of their transactions with Bruce Power employees means that they only get information that is necessary for them to do their work. 1013 MR. MORAN: All right. From your operational perspective, would it make any difference if the ring plan was mandatory instead of voluntary, for example, as a condition of licence? 1014 MR. CHARLEBOIS: We've implemented the ring fence in accordance with the processes and the guidelines established by the corporation. And from our perspective we will abide by the requirements moving forward. 1015 MR. MORAN: Whether it's voluntary or mandatory. 1016 MR. CHARLEBOIS: That's correct. 1017 MR. MORAN: Now, Mr. Singer, I heard you express a very strong commitment, I guess, on behalf of senior management. No offence to you, but you're not part of senior management at the moment. Mr. Boland and Mr. Charlebois, you are. I take it you would share the level of commitment that we heard Mr. Singer express a few minutes ago? 1018 MR. SINGER: Just before -- I gave you that from the perspective I had when I -- when we were designing the ring fence, when I was in fact part of that. 1019 MR. PENNY: Also, Mr. Chairman, although Mr. Awad has moved on to his consulting, he's here as a witness on behalf of the company and unless we tell you otherwise, anything he says is binding on the company. 1020 MR. MORAN: That's fair. 1021 MR. BOLAND: I do share his passion. And I know at the time I tried to supplement his remarks by reference back to the code of conduct as well. 1022 MR. CHARLEBOIS: That's correct. I do as well. 1023 MR. MORAN: Okay. Now, in terms of that commitment, would you agree that another way of expressing that commitment would be to amenable to making it a mandatory programme? I mean it's another expression of commitment. Would you have a problem with that from your senior management positions? 1024 MR. BOLAND: I think clearly we're amenable to any suggestions that the Board makes. We want to make this work. I think you heard Mr. Singer express with passion that we didn't feel, as members of OPG management, that going that step was necessary given all of the steps that we have taken to put this ring fence in place, and the other mechanisms such as the code of conduct and so on. 1025 MR. MORAN: But given your commitment, you wouldn't be opposed in principle if that's ultimately what the Board decided was appropriate. 1026 MR. BOLAND: I have no objection in principle to that kind of suggestion. 1027 MR. CHARLEBOIS: You know, I have to say, as I said earlier, our commitment is to implement and continue, in fact, this process moving forward. And we will in fact live by the principles and the processes that have been put in place for the control of information. We know it actually works very well. So we're very committed to it and we stand by that. 1028 MR. MORAN: All right. And of course if there was a third party audit requirement, that would be our opportunity to demonstrate how well it works through that third party; right? 1029 MR. CHARLEBOIS: Yes. The third party certainly could have a review of that. But from my perspective and the corporate -- the corporation itself has its own audit committee, and from my perspective they are a third party and they come and look at us very hard in terms of making sure that we have compliance with all these things. 1030 MR. MORAN: Did you want to add anything, Mr. Boland, on that point? 1031 MR. BOLAND: Well, just that the other ring fence, the customer information ring fence that you referred to earlier in your questioning, we have been through internal audits on that. That's a process that works very effectively. From the point of view of management being audited, it's an extremely independent audit, I can assure you. 1032 MR. MORAN: I just have one last question on a slightly different topic, Mr. Charlebois, and it has to do with forced outages. As I understand it, the planned outages, people generally understand how long the outage is for because of the planning component that went into that, but that may not necessarily be the case on forced outages. What is the approach to a forced outage given theoretically the possibility of making a forced outage last maybe longer than it might have to? What's your approach to forced outage in making sure that it's handled as quickly as possible? 1033 MR. CHARLEBOIS: I will speak to the OPG strategy with respect to forced outages. 1034 We have for each of our units already in place a forced outage plan, so we already know, depending what reason and what conditions bring the plant down, we already have a very good idea what work we would undertake should we have a forced outage, so it is in fact something that is currently available in our planning. If a unit does come off unexpectedly, then clearly we have to correct the reason why the unit came off, and the reasons for that could range from a number of sources. It could either be as a result of equipment failures or as a result of misoperation. But then given the shutdown, then we would undertake the work that we had planned in our forced outage plan and then return the unit to service. 1035 So generally speaking we have a good idea before we go into it how long we're going to be. 1036 MR. MORAN: Thank you very much. Mr. Chair, those are all my questions. 1037 MR. BETTS: Thank you. 1038 Mr. Penny, do you have any re-examination of this witness panel? 1039 MR. PENNY: Well, Mr. Chairman, two things. First it's -- at least in my experience, customary that I get my re-examination after there has been any Board questions, so I defer to you, if the Board members have questions, and then on that -- 1040 MR. BETTS: I think we'd like to hear your re-examination first and then we'll ask questions for clarification only. So we'd ask you to proceed. 1041 MR. PENNY: All right, thank you. That was my second point. I wonder if I might just have a five-minute break to confer with Mr. Barrett and Mr. Rattray. 1042 MR. BETTS: I think that would be appropriate. It might give the witness panel an opportunity to stretch or whatever else they need to do as well. Let us try to confine it to five minutes, and we'll aim to be back here, by my eyes, I think about at 25 past, if we can do that. 1043 MR. PENNY: Yes, thank you. 1044 MR. BETTS: Okay. Thank you. 1045 --- Recess taken at 3:20 p.m. 1046 --- On resuming at 3:30 p.m. 1047 MR. BETTS: Thank you. Please be seated. 1048 Mr. Penny, are you prepared to proceed? 1049 MR. PENNY: Yes, I am, Mr. Chairman. Over that break we've conferred and I have no questions in re-examination, so thank you. Thank you for the opportunity to have that consultation. 1050 MR. BETTS: And I'll invite questions from Board members. 1051 Mr. Smith. 1052 QUESTIONS FROM THE BOARD: 1053 MR. SMITH: Just one question for Mr. Charlebois. You mentioned on planned outages that the last step is, I think you said, for the IMO to give approval, which they only give two days before the actual outage; is that correct? 1054 MR. CHARLEBOIS: The final release of the unit for the outage occurs only a few days before the outage, that is correct, the final approval for release of the unit for outage. 1055 MR. SMITH: Right. My question was, in your experience so far, has this approval not been given? 1056 MR. BOLAND: I might be better to address that since I'm in energy markets and we're dealing directly with the IMO around outages and so on. It is my understanding that there have been outage applications that have been made that the IMO has not accepted basically because they look at the demand and supply situation and have to ensure certain reliability over the period of the outage. And should an outage put the reliability of the system below some of their standards, they can say no, it's within their prerogative to say no to that outage at the timing of that outage. 1057 MR. SMITH: When they reject the application, is it rejected outright and the generator must re-apply, or does the IMO just amend the application to say, well, not now but next week, kind of thing. 1058 MR. SINGER: What they try to do is work with you to find a window that will work for them and work for you as well. But the ultimate authority to decide whether an outage goes forward is with the IMO. And even after the two-day period where they've approved it, they can still withdraw that approval. So even if you've gotten the final go ahead, they've signed off on the outage finally, if something were to change dramatically, they could withdraw that approval. There are provisions in the market rules for compensation under certain circumstances of pre-identified cost of the out if they do that. But even after, like I say, the final sign-off has occurred, the IMO can change its mind if conditions in the system warrant it. 1059 MR. SMITH: But then once it's out, it's out, and it's out of the IMO's hands after that; right? 1060 MR. CHARLEBOIS: That's correct. The hesitation -- for nuclear units, I don't recall in the last 9 months and I don't recall actually a change, although there's been discussion, but generally speaking nuclear units start their planned outages on schedule. But we have had a number of changes on the non-nuclear side of our generation. 1061 MR. SINGER: And to your last point, even after a unit's out they can recall the outage and say, get it back more quickly than you had originally planned. 1062 MR. SMITH: Thank you, gentlemen. 1063 MR. BETTS: Mr. Sommerville. 1064 MR. SOMMERVILLE: Mr. Charlebois, is the operational representative on the panel and I think you are the only operational representative for the company that is going to appear. It's my understanding that OPG is engaged in training Bruce Power personnel in a variety of technical areas; is that accurate? 1065 MR. CHARLEBOIS: We have an agreement with Bruce Power for some training services. Our panel tomorrow will be in a better position to deal specifically with what that training consists of. But my understanding is that we do not, in fact, provide any training for operators, for example; this would be done by Bruce Power because they do have a training center. We would not do the training for their skilled craftspeople. But we do have a cooperation with Bruce Power in terms of helping each other out with development of training and in addressing common regulatory issues in the training area. 1066 MR. SOMMERVILLE: Thank you very much. 1067 MR. BETTS: And I just have one as well. I'm just pursuing the questioning on the mandatory -- the potential mandatory auditing of the ring fence, and I need some clarification because I heard all of you at various times indicate some reluctance to see that become a Board> directive or mandatory item or included in the licence. It certainly seems clearly that senior management consider it to be mandatory on an internal basis, and I see everybody nodding in agreement with that. Could somebody tell me what would cause reluctance to have in included as a term in a licence? 1068 MR. SINGER: I think it's just -- you have to draw the line somewhere, and this is where, after some debate, we drew the line. Now, that's not to say that were you to draw the line somewhere else that would, as Mr. Charlebois indicated, change the way the ring fence was operated on a day-to-day basis in any way. 1069 MR. BOLAND: I'd just add that under the ring fence which ultimately escalate into the code of conduct, and there are commonalities, there are provisions for disciplinary action under violations of the code of conduct and therefore the ring fence. And any company likes to keep those types of activities kind of within the company and not become public information. There's always a reluctance to see your dirty laundry aired in the press and in a public forum. 1070 MR. BETTS: And are you referring specifically, then, to the remedy to the -- well, I shouldn't say the remedy, the punishment, let's say, if I'm using the correct word, to any parties that were involved with that transgression. Is that the issue that causes you to want to keep it out of the public realm? 1071 MR. BOLAND: I share Mr. Singer's overall concern, and that is that senior management has made the commitment. We feel it's a very visible commitment and it's one we are going to live up to. And we feel that that's a satisfactory kind of measure. I was just adding to his comment in one specific area. 1072 MR. BETTS: Okay. Thank you very much. 1073 That concludes the questions from Board panel. Certainly I would like to thank the witnesses, and I believe we'll see two of you tomorrow. 1074 MR. SINGER: Just me again. 1075 MR. BETTS: To those that we won't see tomorrow, thank you very much. You have been very helpful to this proceeding. And continue the strong commitment in the -- and the obvious emotion that you've put into this business. It's important to have people that have that commitment, so thank you very much. 1076 With that I believe we have basically concluded our objectives for today, and that would see us, after dealing with any preliminary matters tomorrow morning, introducing the second panel from OPG and commencing from that point forward. 1077 Is there anybody that needed to make any closing remarks -- not remarks at this point but anything for the benefit of the panel? 1078 MR. PENNY: No, Mr. Chairman. You'll see Ms. Jackson here tomorrow rather than me, but other than that we'll be ready to go at 9:30 tomorrow morning. 1079 MR. BETTS: Thank you, Mr. Penny. 1080 With that, then, we will adjourn today's session and we will reconvene tomorrow at 9:30 a.m. 1081 --- Whereupon the hearing adjourned at 3:39 p.m.