RÉGIE DE L'ÉNERGIE
DEMANDE DE MODIFIER LES TARIFS DE
SOCIÉTÉ EN COMMANDITE GAZ MÉTRO
À COMPTER DU 1er OCTOBRE 2009
DOSSIER : R-3690-2009
RÉGISSEURS :
M. RICHARD CARRIER, président
M. GILLES BOULIANNE
M. JEAN-FRANÇOIS VIAU
AUDIENCE DU 10 SEPTEMBRE 2009
VOLUME 6 - APRÈS-MIDI
CLAUDE MORIN et MARC BEEBE
Sténographes officiels
COMPARUTIONS
Me LOUIS LEGAULT
Me AMÉLIE CARDINAL
procureurs de la Régie;
REQUÉRANTE :
Me VINCENT REGNAULT
Me HUGO SIGOUIN-PLASSE
procureurs de Société en commandite Gaz Métro (GM);
INTERVENANTS :
Me GUY SARAULT
procureur de Association des consommateurs
industriels du gaz (ACIG);
Me ANDRÉ TURMEL
procureur de Fédération canadienne de l'entreprise
indépendante (FCEI);
Me GENEVIÈVE PAQUET
procureure de Groupe de recherche appliquée en
macroécologie (GRAME);
Me STÉPHANIE LUSSIER
procureure de Option consommateurs (OC);
Me ANNIE GARIEPY
procureure de Regroupement national des conseils
régionaux de l'environnement du Québec (RNCREQ);
Me FRANKLIN S. GERTLER
procureur de Regroupement des organismes
environnementaux en énergie (ROEÉ);
Me DOMINIQUE NEUMAN
procureur de Stratégies énergétiques et Association
québécoise de lutte contre la pollution
atmosphérique (SÉ/AQLPA);
Me JOHN HURLEY
procureur de TransCanada Energy Ltd (TCE);
Me HÉLÈNE SICARD
procureure de Union des consommateurs (UC);
Me STEVE CADRIN
procureur de Union des municipalités du Québec
(UMQ).
R-3690-2009
10 septembre 2009
- 4 TABLE DES MATIERES
PAGE
LISTE DES ENGAGEMENTS . . . . . . . . . . . .
LISTE DES PIÈCES . . . . . . . . . . . . . . .
PRÉLIMINAIRES . . . . . . . . . . . . . . . .
5
6
7
PREUVE DE GAZ METRO
PANEL 2
PAUL R. CARPENTER,
PIERRE DESPARS,
AARON M. ENGEN,
A. LAWRENCE KOLBE,
MICHAEL J. VILBERT
INTERROGéS PAR Me LOUIS LEGAULT . . . . . . . .
8
INTERROGÉS PAR M. GILLES BOULIANNE . . . . . .
101
INTERROGÉS PAR LE PRÉSIDENT . . . . . . . . .
104
____________
R-3690-2009
10 septembre 2009
- 5 LISTE DES ENGAGEMENTS
E-11 (GM) :
Fournir le montant de la partie des
gains non distribués avant la
réorganisation qui a converti Gaz
Métro en Société en commandite
(demandé par la Régie) . . . . .
100
PAGE
____________
R-3690-2009
10 septembre 2009
- 6 LISTE DES PIÈCES
PAGE
B-78 :
(GM) Engagement numéro 10
A-29 :
(GM) Extraits de AGL Resources Inc.
.
24
B-79 :
(GM) Réponse à l'engagement numéro 2 .
162
B-80 :
(GM) Réponse à l'engagement numéro 4 .
162
B-81 :
(GM) Réponse à l'engagement numéro 6 .
162
____________
. . . . . .
7
R-3690-2009
10 septembre 2009
- 7 L'AN DEUX MILLE NEUF, ce dixième (10e) jour du mois
de septembre :
PRÉLIMINAIRES
13 h 23
LE PRÉSIDENT :
Reprise de l'audience. Maître Sigouin-Plasse.
Me HUGO SIGOUIN-PLASSE :
Oui. Bonjour. En fait, rapidement, pour le dépôt
d'un engagement requis hier par le GRAME sur les
questions portant sur le tarif DM. Nous voudrions
donc déposer l'engagement numéro 10 sous la cote
B-78.
LE PRÉSIDENT :
Merci.
B-78 :
(GM) Engagement numéro 10.
Alors, Maître Legault.
_________________
R-3690-2009
10 septembre 2009
PRÉLIMINAIRES
- 8 -
L'AN DEUX MILLE NEUF (2009), le dixième (10e) jour
de septembre, ONT COMPARU :
PAUL R. CARPENTER,
PIERRE DESPARS,
AARON M. ENGEN,
A. LAWRENCE KOLBE,
MICHAEL J. VILBERT,
LESQUELS témoignent sous la affirmation solennelle,
INTERROGÉS PAR Me LOUIS LEGAULT :
Merci, Monsieur le Président.
So as mentioned before leaving for lunch break, my
next series of questions or line of questions will
be more or less directed to Mr. Carpenter. There is
a series of documents I will refer to and try to
bring them back or bring them forth every time I
have a question and point you to the right
document, but in essence, we will be dealing with
document
all of Gaz Métro 7, Gaz Métro 7,
document 13.4, document 12, and document 14.16;
different pages, different, but I'll point you in
the right direction every time.
Q. [1] First, in Gaz Métro 7, document 12, page 64,
R-3690-2009
10 septembre 2009
- 9 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
where Gaz Métro was answering a demande de
renseignment from the Régie, you answered at
question
that will be answer at question 58.
Me VINCENT REGNAULT :
Je m'excuse, Maître Legault. Moi, j'ai compris Gaz
Métro-7, Document 12. Ça, c'est le rapport de
monsieur Engen.
Me LOUIS LEGAULT :
Excusez-moi! On m'a donné la mauvaise cote. C'est
correct. C'est la question 58. Attendez-moi deux
secondes! J'y reviendrai plus tard. Merci.
Q. [2] Mr. Carpenter, at figure
MR. CARPENTER:
Where?
Q. [3] I'm getting there.
A. Okay.
Q. [4] At figure 23.2, which we find in Gaz Métro 7,
document 13.4, page 2.
A. I don't think I have those in front of me. If
someone can help?
LOUIS LEGAULT:
C'est Gaz Métro-7, Document 13.4 à la page 2. Et
c'est la figure 23.2.
Q. [5] Now, you show at this figure the authorized ROE
and the equity thickness of your U.S. sample group
R-3690-2009
10 septembre 2009
- 10 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
for the period of 1999 to 2008.
Am I right to think that, basically, figure
23.2 tries to illustrate that according to you, not
only the return of Gaz Métro is inadequate but also
that its leverage is too high compared to US LDCs?
A. Well, too high is a, this is a qualitative
assessment.
What figure 23.2 shows, in part, is that
the combination of the allowed ROE, coupled with
Gaz Métro's deemed equity ratio under the formula
has been significantly less on both dimensions than
experienced by the US LDCs and Dr. Vilbert's
samples.
Q. [6] We observed that the majority of points
representing U.S. decisions are between 10 and 11
percent.
For Gaz Métro, as shown in another exhibit,
Exhibit Gaz Métro 7, document 13.2, in answer to
the Régie's information demand 21.3, at page 5,
that its realized ROE's for that whole period
varied between 9.6 and 11.47 with a 10 year average
of 10.34 does quite comparable to the authorized
ROEs of the American corporation's part of the
benchmark group, is that right?
A. Well, I don't think you can compare them that way
R-3690-2009
10 septembre 2009
- 11 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
because there is an attempted program that has been
built on top of Gaz Métro's allowed return.
Q. [7] Which is not the case for the U.S.
counterparts?
A. No, that's
typically that's not correct. Yes,
typically, that's correct.
Although, I should say, just that while
that's not correct, they do operate under what I've
referred to as a form of incentive regulation,
namely the regulatory lag, which can result in
earned ROEs for US LDCs that would be above their
allowed ROEs.
Q. [8] Mr. Sarault, when he questioned you the other
day, touched this issue. Is it possible to supply
us with data regarding the realized ROEs by
corporations part of the benchmark group?
A. Not without a significant amount of work for very
little pay off, in my opinion.
The reason I say there's a significant amount of
work involved is that for LDCs in the U.S., I'm not
familiar with a standardized set of reports that
would allow you to compute on an apples to apples
basis realized ROEs for the subsidiary companies in
Dr. Vilbert's sample.
You would have to go, you would have to
R-3690-2009
10 septembre 2009
- 12 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
attempt to find their financial reports for each of
the prior years, and, in most cases, you would have
to come up with a methodology to calculate based on
those reports what the earned ROE was.
So it's not a simple exercise.
It's one we've looked into but there's not, for
example, that I'm familiar with, a reporting
service such as for gas pipelines that will report
earned ROEs.
So, we've done this analysis for gas
pipelines in the pipeline cases that I've been
involved in, but I'm not aware of a convenient or
an easy way to do it for LDCs.
Now, I also said there would be little pay
off. And the reason why I say there's little pay
off is for the reasons I discussed earlier, that
achieved ROEs have a lot going on that is, in my
view, independent of the business risk question,
which is a forward looking market based approach.
To put it another way, if we could, if we
could infer business risk from the earned ROEs for
the last few years of utility companies, we
wouldn't go through the exercise of estimating
betas, right?
We estimate beta's because we need a model
R-3690-2009
10 septembre 2009
- 13 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
of risk that is related to the market value of
companies.
So, while earned ROEs might be an
interesting statistic, difficult to measure,
comparability problems, there's no standardized
source, so, in my opinion it's not a path that is
really worth going down.
Q. [9] Great.
And
A. And I should also say
thing, sorry
just let me add one other
that when you compare these allowed
these earned ROEs across companies, you have to
account for differences in financial structure, in
leverage.
So, for example, looking at the Gaz Métro
realized ROEs of, as you said, between 9 and 11
percent over the last few years, you have to adjust
for financial leverage, as well, when you're
comparing to the ROEs and US LDCs.
Q. [10] But it is available information, there would
be a fair amount of work involved in computing it
and analyzing it, but the information could be
available?
A. I'm not sure it is in a form that will allow you to
do apples and apples construction, but I presume
R-3690-2009
10 septembre 2009
- 14 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
you could go into the subsidiary LDCs in Dr.
Vilbert's sample and attempt to find financial
statements that would allow you to compute that.
M. PIERRE DESPARS :
R. En fait, je pense, le point qui est important ici,
on compare des taux de rendement réalisés avec des
taux de rendement autorisés. Et le concept du
dossier de fermeture ou le rapport annuel, comme on
l'appelle maintenant, n'est pas un concept qui est
utilisé ailleurs. O.K. Vraiment, c'est spécifique à
Gaz Métro. Et c'est pour ça qu'on est en mesure
d'avoir un taux de rendement réalisé basé sur les
mêmes bases réglementaires que le taux de rendement
autorisé en début d'année en cause tarifaire. Ça
n'existe pas ailleurs.
Le point qui est important aussi à
mentionner ici, c'est que quand on parle de
« Regulatory lag », O.K., sur un horizon de cinq
ans où un distributeur gazier n'a pas besoin de
retourner devant son organisme de réglementation,
il décide lui-même de retourner devant son
organisme de réglementation, il faut certainement
avoir en tête qu'il ne retournera pas devant son
organisme de réglementation s'il atteint son taux
de rendement ou dépasse significativement son taux
R-3690-2009
10 septembre 2009
- 15 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
de rendement. Il va le garder, il va continuer avec
les mêmes tarifs, O.K., et il va pouvoir y aller.
Donc, quand on voit des situations où il y
a plusieurs années où il n'y a pas de cause
tarifaire dans une certaine juridiction, il est
facile de penser que le taux de rendement réalisé,
qui n'a jamais été calculé sur une base de dossier
tarifaire... de dossier de fermeture ou de rapport
annuel, est supérieur au taux de rendement autorisé
ou au taux de rendement qui serait autrement
autorisé. Donc, par définition, ce « Regulatory
lag » amène une option au distributeur que si son
taux de rendement réalisé est supérieur, sans avoir
à rendre de compte, bien, il est capable de le
réaliser de façon supérieure à ce qui a été
autorisé.
L'autre point qui est important, c'est
qu'il faut distinguer le taux de rendement de base
et le rendement obtenu par rapport à un incitatif à
la performance, parce que si on combine ces deux
éléments-là, ça veut donc dire que dans des années
où il n'y aurait pas de taux de rendement
incitatif, en gardant le même raisonnement, il
faudrait augmenter le taux de rendement de base
qui, lui, doit être établi en fonction du risque
R-3690-2009
10 septembre 2009
- 16 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
spécifique et du risque à long terme du
distributeur. C'est deux concepts complètement
différents.
LOUIS LEGAULT:
Q. [11] Mr. Carpenter, it's not the first time this
has been put to you that, you know, comparing
return on assets to return on equity, it is not the
first time you heard this in such a case as this
one?
A. You mean comparing earned returns between different
companies and different jurisdictions?
Q. [12] Yes.
A. Yes, it's
Q. [13] Versus approved returns?
A. Yes.
Well, this point comes up, comes up frequently.
Q. [14] Now, let me read what you said the other day;
it's Volume 2 of the stenographer's notes from the
3rd of September, and I'm at page 49.
I'll be reading it, I mean, slowly.
You were being questioned by Me Sarault and you
answered this to a comment he made.
"This topic is raised in every cost of
capital case that I've been involved in."
Which is the question:
R-3690-2009
10 septembre 2009
- 17 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
"What is the relevance of the accounting returns
that a company has earned historically to the
business risk going forward of the company.
And you had, and I will suggest to you, and
I suggested in the past, that the accounting
returns, year to year, are a very poor measure of
the business risk."
Are you suggesting that investors in
financials, analysts, don't do their homework,
their due diligence before investing thousands of
millions of dollars or dollars in the stock of a
company?
A. No, not at all. In fact, I would expect an analyst
to be doing his homework.
He's going to be looking
at the future prospects of these companies and not
just blindly looking at the historical accounting
returns in order to determine whether a company is
a good investment or a high risk investment.
And, in my view, a prudent analyst is going
to be looking at exactly these kinds of questions:
What are the supply prospects? What are the demand
prospects? Is there competition? Is there
regulatory risk?
So, it
of those things.
in my view, they'd be doing all
R-3690-2009
10 septembre 2009
- 18 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
MR. ENGEN:
And if I might add, that's precisely what analysts
do. Accounting returns aren't good measures of risk
of a business and, indeed, our analysts spend a
great deal of time
earlier
and we talked about it
understanding the nature of the
business, the contracts, the leverage, the terms of
the, of the management team, all of those things
figure into the risk profile of a company.
LOUIS LEGAULT:
Q. [15] In Gaz Métro's evidence, and I'm referring you
now to Gaz Métro 7, document 12, page 141,
specifically relating to a study emanating from
Inquiry Research.
M. PIERRE DESPARS :
R. De nouveau, vous référez au rapport de monsieur
Engen, Gaz Métro-7, Document 12...
Q. [16] Page 141.
R. ... qui a 136 pages. Je pense qu'on a le même
imbroglio qu'il y a une quinzaine de minutes là.
(13 h 39)
Me LOUIS LEGAULT :
Q. [17] C'est dans les annexes de son rapport. C'est à
la page 141.
R-3690-2009
10 septembre 2009
- 19 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Me VINCENT REGNAULT :
Simplement pour les fins des notes sténographiques
on parle ici de l'Annexe B, donc de Gaz Métro-7,
Document 12.
Me LOUIS LEGAULT :
On va l'exhiber.
Q. [18] Again, there is a study emanating from Inquiry
Research, the title of this research, I won't ask
the question, just for the notes, take a little bit
of advance here, Canadian Energy Infrastructure, in
which we can read. I'm at page 146. And, for the
record, let me read this out:
"The Canadian returns," I'm at page 146, "The
Canadian returns are closer to the U.S. returns on
an achieved basis. Performance based regulation is
a norm in Canada, and the utilities are generally
at least 50 base points above the allowed return.
The utilities McQuarie follows in the U.S.
tend not to consistently earn significant premium
above their allowed returns.
Achieved returns in Canada are, therefore,
closer to allowed and achieved returns in the U.S."
Can you comment on this statement from
Inquiries Research, comparing it to your previous
testimony on this issue?
R-3690-2009
10 septembre 2009
- 20 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
MR. CARPENTER:
A. I'm not sure I can comment without looking, without
knowing, more carefully how McQuarie did the
analysis.
Q. [19] But I take it that you don't agree with this?
A. I mean, I don't know whether I agree or not.
I
I've not seen this before. I don't know how
they've done this.
Me VINCENT REGNAULT :
Maître Legault, loin de moi l'idée de vouloir
m'objecter formellement à votre question. Mais le
document est assez étoffé, ce document-là il
faudrait... qui n'a pas été produit dans une preuve
qui n'est pas celle de monsieur Carpenter, il
faudrait lui laisser le temps d'en prendre
connaissance.
LOUIS LEGAULT:
Q. [20] My question is very simple. Mr. Carpenter said
the other day
he said
and I'm going to paraphrase what
US LDCs tend to earn more than their
allowed ROEs, that was the gist of his testimony.
Now, you have filed a document, Research
Inquiry, that seems to say the contrary.
I'm just confronting the expert witness on
his statement and what the report that you have
R-3690-2009
10 septembre 2009
- 21 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
filed says.
VINCENT REGNAULT:
And the thing is, as you mentioned, the document
seems to say the contrary. But if you
and I
don't want to put the words into the mouth of the
witness, but if you, if you leave it or you, if you
give the time to Dr. Carpenter to have a look at
the document, he will provide you with an answer,
I'm sure.
LOUIS LEGAULT:
Well, we'll jump to the next question and, you
know, at the break if Mr. Carpenter wants to look
at the document more, I have no problem.
VINCENT REGNAULT:
Well, give me a few seconds, if possible.
MR. CARPENTER:
A. We can see what it says. And what it says is, "The
Canadian returns are closer to the U.S. returns on
an achieved basis."
I'm not sure I can agree with that without
seeing how they've calculated the achieved returns.
Then they say, "Performance based
regulation is the norm in Canada, and the utilities
generally earn at least 50 basis points above the
allowed returns."
I don't disagree with that.
R-3690-2009
10 septembre 2009
- 22 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
"Utilities McQuarie follows in the U.S.
tend not to consistently earn a significant premium
above their allowed returns."
This doesn't say
that they don't earn above their allowed
returns. What it says is, they don't consistently
earn a significant premium above their allowed
returns.
So that, that is not in contradiction to
what I said previously.
And then it says, "Achieved returns in
Canada are, therefore, closer to allowed and
achieved returns in the U.S."
That may be the case but that doesn't, I
don't believe
at least in my opinion, that
doesn't explain the significant gap that we have
between allowed returns in the two jurisdictions,
which they comment on in the previous paragraph on
page 145.
LOUIS LEGAULT:
Q. [21] All right.
Fine.
I'd like to go through exercise with you
Me VINCENT REGNAULT :
Si vous permettez juste un instant, Maître Legault.
Le témoin est en train de finaliser quelque chose.
Did you have something to add to that?
R-3690-2009
10 septembre 2009
- 23 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
A. He asked me, if you just focus on that prior
paragraph
VINCENT REGNAULT:
And where are you exactly, Dr. Carpenter, please?
A. In the middle, starting at, "No matter," on page
145, at the bottom, "No matter how we slice the
data, we concur with this opinion," and the opinion
was that U.S. utilities are earned, allowed returns
are considerably higher than allowed returns in
Canada.
McQuarie covers electric and gas utilities
across the U.S. We find regulated ROEs are
generally in the range of 10 to 13 percent of
allowed equity ratios of 45 to 55 percent, contrast
these in Canada, et cetera."
And all I'm suggesting to you is
and
what they're saying on the next page, doesn't
account for the size of the gap.
Yes, the end of the sentence, "as
contrasted, the returns in Canada where allowed
ROEs are now about 8.75 percent and equity ratios
are generally 35 to 45 percent."
LOUIS LEGAULT:
Q. [22] Okay. Let me follow up on that with an
exercise I'd like to go through with you.
R-3690-2009
10 septembre 2009
- 24 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
With the held of the 10K forms that were
supplied after the Régie asked for them, you know,
the 10K forms which are the Security and Exchange
Commission's documents, I've extracted some
excerpts of these documents, they're not new,
they're just excerpts.
Me LOUIS LEGAULT :
Alors pour les fins des notes sténographiques, sous
la cote A-29, Madame la Greffière, en liasse des
extraits de documents déjà produits en réponse à
des DDR de la Régie qui touchent les « 10K forms »
pour chacune des entreprises comparables du
« Benchmark » américain.
A-29 :
(GM) Extraits de AGL Resources
Inc.
LOUIS LEGAULT:
Q. [23] Now, we have made certain verifications with
the documents we received for which I have a few
questions.
I would like to bring to your attention on
the report regarding the first corporation in an
alphabetical order of your benchmark sample, AGL
Resources Inc..
R-3690-2009
10 septembre 2009
- 25 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
At page 8 of the 10K, the authorized ROEs
are presented on the fourth line, and the realized
ROEs in 2008 on line five.
The 2008 realized returns are noted as
estimated because, as mentioned in note 2, they are
based on the regulatory presentation of each
jurisdiction rather than on the U.S. gap.
We should also take notice that the largest
of the distributors, Atlantic Gas Light operates in
a deregulated market since 1997. I think that is
something that is to be considered.
Is what appears from this figure, am I
right in saying that none of the five companies
have achieved their authorized ROEs and that the
spread between their allowed ROEs and realized ROEs
is sometimes substantial. We also seem to notice
that certain mechanisms that Gaz Métro ventures
from are largely and systematically available to
the benchmark group:
Performance incentives, temperature
variations, protection mechanisms, et cetera.
A. I'm with you.
Q. [24] Okay.
Is that so?
Am I right in asserting this?
A. Well, it appears to
R-3690-2009
10 septembre 2009
- 26 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Q. [25] Am I reading the document right, in other
words?
A. It appears to be what the document shows.
You know, I mean, I think the note on estimating
the return on equity is interesting because what it
is saying is, they don't have a set of books where
you can just read off the earned return, and that
they have to estimate it based on a procedure that
is consistent with utility rate making.
So I don't know exactly how they've done
this, or what accounts for what's going on in this
particular period for each company.
But I will acknowledge that one of the
features of regulation where you have regulatory
lag is that achieved returns will vary
year to year.
Some years they'll be less, some years
they'll be more, relative to a system such as
employed in Canada where you have yearly reviews
with or without performance mechanisms.
And so, this doesn't surprise me that for a
particular, a particular year you might see lower
achieved returns.
Do we know what period of time this refers
to?
I guess 2008.
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 27 -
I mean, 2008 was a period that was probably pretty
tough for the
across the board for the utility
industry, so you might expect that in a scheme with
regulatory lag that you might have a lower achieved
return than you would otherwise see.
Q. [26] Considering that there may be considerable
spreads between the allowed and realized returns,
and that the allowed returns in the United States
may
I use that type of word
may have been
fixed some years ago, is limiting comparison to the
allowed return not reducing the scope of
comparisons to the point where it's not complete?
A. Well, I mean, if you look at the comparisons that I
performed, I tried to be as complete as I could be
with respect to all of the factors that might
affect the realized returns, even though I've not
presented realized returns.
For example, in my appendix B I cover the
issue of whether there's, whether normalization,
whether there would be coupling programs, whether
there are unregulated elements in the rate base, or
in the company's portfolios; I look at the degree
of electricity competition. I mean, I try to weigh
these comparisons.
So, I think I've tried to be as complete as
R-3690-2009
10 septembre 2009
- 28 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
one can be with the data that I think is the most
meaningful.
I think you could try to calculate these
kinds of achieved returns and make comparisons, but
what you'll find, the pipeline sample that I have
worked with extensively as an indicator, is that in
some years they will be low, other years they will
be substantially higher than the allowed returns.
And, the issue is on balance over the
long term, what would an equity investor expect?
And in the
on the U.S. scheme, in my
opinion, the way it's designed, you would expect
achieved returns to be above allowed returns over
the long term because of the optionality that I've
talked about, the ability not to have to come into
a rate increase if the rates that you have are
supported for the utility.
That's the experience with the pipeline
sample. I don't have any reason to believe that's
not the case with an LDC sample.
Q. [27] The second corporation of the sample group
suggested by yourself and Mr. Vilbert, the Atlas
Energy Corporation, you'll find that it's Gaz
Métro, document 7, documents 14.16, and it's true,
but it's the second page of the document that we've
R-3690-2009
10 septembre 2009
- 29 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
just filed.
With 95 percent of its assets comprised of
gas distribution, doesn't supply, as detailed data,
as we've had for the previous corporation,
authorized versus realized but supplies at note 16,
financial statements with a breakdown of revenues,
net income, assets on the portion of shareholders'
equity attributed to each division. From this data,
is it possible to calculate the natural gas
distribution giving ROE 4.61 percent, net income of
96.
92.6 million dollars divided on the average
shareholder's equity of 2 billion dollars?
Now, we took the time to put in that
calculation on the document, you may not agree with
it, I'm
A. I think you have to be very careful with these
calculations.
And the reason I say that is because you don't
know, as the McQuarie document indicated, you don't
know how they necessarily line up with the
regulatory books.
So let me give you an example.
If the purchase gas costs
that's in line 4
which is the biggest line item cost for this
utility, if that doesn't necessarily line up with
R-3690-2009
10 septembre 2009
- 30 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
the same time period that the other elements of
cost line up, in other words if there's a lag, and
if gas costs and gas prices are moving
dramatically, you can get big swings in this net
income number that tell you nothing about the
longer term performance over multiple years.
And I've seen that in data like this, where
leads and lags in the way in which they report,
things like purchase gas cost can result in
accounting numbers that look different than allowed
returns even though it's simply a timing issue, if
you
understand what I'm getting at.
Q. [28] Yes, I am. But even on a consolidated basis
ROE does not seem to go over 8.97 percent, isn't
that much lower than Gaz Métro's consolidated or
their own authorized ROE?
A. I just don't think you can make that comparison
with these kinds of data.
Q. [29] I bring your attention to a third corporation,
again, from the benchmark group, Southwest Gas
Corporation.
It's at page five
of the document.
Now, I read from this document that 96
percent of its assets are comprised of the gas
distribution division. It's statements of the
R-3690-2009
10 septembre 2009
- 31 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
company's business activities.
We can see that the return, on average,
common equity in 2008 was only 6 percent.
The last five year average, 7.9 percent with a
maximum of 10.3 in 2006, with a low of 5.9 in
2005.
Again, am I reading this correctly?
A. So this is consolidated for Southwest Gas and so
it's not just the Southwest Gas distribution
company.
Q. [30] I know but, as I stated at the beginning, 96
percent of its assets are comprised of the gas
distribution activities of the assets. Do we know
what their distribution of income and revenue is?
I don't. This is the only document I have,
that's what you supplied us with.
A. Well, in
the document has a set of calculations,
that's certainly the case.
The issue, the question is:
To what extent can you rely on this for a statement
about the, either the results of the distribution
operation or, frankly, you know, a long term
view
of the company?
Q. [31] But, again, these are not proxies that we have
suggested. These are proxies that you are basing
R-3690-2009
10 septembre 2009
- 32 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
your comparison with. I mean, you, Gaz Métro. And
I'm trying to
I think you see where I'm going
here. I'm trying to validate:
Are these good comparables? Are these good
proxies?
And I'm asking you to help me find that
out?
A. What
what you're focusing me on is the
accounting returns.
What Dr. Vilbert uses for these companies to do is
estimate the market risk based on market
returns. And so their market value returns and
their betas will be reflected in his, in his data.
What I'm suggesting to you is the
accounting returns are of little relevance if
if
the accounting returns were relevant, we wouldn't
be estimating beta.
We'd be able to assess the risk of these
companies by looking at their earned returns.
Q. [32] But I'm not talking about accounting returns
here. I'm underlying that he's giving us return on
average common equity.
I'm clearly in the ROE
here.
A. That's an accounting book based return.
That's book value of equity and an accounting
measure of profit.
R-3690-2009
10 septembre 2009
- 33 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
That is not market value.
Q. [33] So this is not the ROE? You're telling me that
this line that says, "Return on average common
equity," is not the ROE?
A. It's a book ROE, book accounting returns.
The sample
we come up with this pure play, a
publicly traded sample as we can, so that Dr.
Vilbert can estimate a market based measure of
risk, namely the beta.
Q. [34] Is it possible for you to tell us what were
the authorized ROEs for the regulated subsidiaries
of this proxy, Southwest Gas Corporation?
A. Not off the top of my head, but it's
it's
probably in the backup to the figures in my
evidence.
Q. [35] And how do you explain the low realized ROEs
over such a long period of time, five years?
A. Again, it could be a combination of regulatory lag,
reporting convention in the accounts.
Just looking at this table, I mean, I
can't, I can't give you the answer to that
question.
Q. [36] It was mentioned previously that the ROE is a
profitability measure that incorporates another
profitability measure, which is the ROA, as well as
R-3690-2009
10 septembre 2009
- 34 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
a financial leverage measure.
If, for a moment, we look at Atlas Energy's
10 K, the same company we talked about a little
earlier on, concentrating on profitability without
considering financial leverage.
So if we concentrate on ROA, we find at
page 116
which is the second page of the
document that we filed
the net income of the
regulated gas division , the LDC
at 92.6 million
dollars.
We also find at page 119 and 120, the
assets of the LDC for 6.9 billion dollars for the
end of 2008, and 5.6 billion for the end of 2007,
which indicates an average asset of approximately
5.8 billion in 2008.
If we take the net income divided by the
average asset, we obtain a 1.58 ROA, compared at
approximately, Mr. Despars earlier said for Gaz
Métro, we were at lower than 4 at approximately
4.3, I think, if I remember well the number.
DR. KOLBE:
A. Yes.
I'll just note again that this is what you're
saying ROA measure, it just makes no sense for a
risk return comparison.
LOUIS LEGAULT:
R-3690-2009
10 septembre 2009
- 35 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Q. [37] Is that your answer also, Mr. Carpenter?
MR. CARPENTER:
A. I defer to Dr. Kolbe on that point but I agree with
him.
I note that interest charges are not
insignificant in the report on page 116, so if you
were to factor that in, it would change the result.
Q. [38] Now if I was to proceed
Mr. Despars?
M. PIERRE DESPARS :
R. Je voulais juste compléter un point. On compare ici
des états financiers produits avec des standards
américains US GAP avec des états financiers
produits avec des Canadian GAP, un. Deuxièmement,
très rapidement, là, en l'espace de cinq minutes.
On peut voir que le « total assett » de cette
entreprise-là est surévaluée probablement d'un
point trois million (1,3 M$), quand on fait ce
genre de calcul, parce qu'on voit que, sans avoir
le bénéfice associé aux investissements dans les
filiales, on a le total des investissements de
quatre cent soixante-trois millions (463 M$). Et
quand on regarde les écritures d'élimination à
l'avant-dernière colonne, on en a pour un point
trois milliard de dollars (1,3 G$). Donc, ça met en
R-3690-2009
10 septembre 2009
- 36 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
doute, là, la qualité de la conclusion qu'on peut
tirer à cet égard.
LOUIS LEGAULT:
Q. [39] Now, proceeding with the same exercise for
Southwest Gas. We find the net income of the LDC at
page 21, so I'll bring you to, I think, it is page
7.
At 21.537 billions, the asset value of the
LDC at the end of 2008 was 3.6 billion and 3.5 at
the end of 2007, for an average asset value in 2008
of 3.6 billion and an ROA of 1.49.
Again, is my reading of this right?
MR. CARPENTER
A. Well, you've done some math but, again, we don't
agree with the ROA formula as being meaningful in
this context.
Q. [40] Thank you.
A. One other thing I should mention here, I talked
about cost of gas and how the accounting
conventions for cost of gas can result in issues
with respect to the lab returns or the earned
returns.
The same thing is true with respect to
storage, if you think about it for a moment. And
the reason I bring it up is that Southwest Gas is a
R-3690-2009
10 septembre 2009
- 37 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
significant storage operator in the U.S. and so any
LDC that is injecting and withdrawing from storage,
that's going to be done on an inventory, an
inventory and accounting basis.
And so you've got these sort of LIFO
FIFO
about OF how you value inventory that gets pulled
out of
So, the accounting treatment, so suppose
gas prices are rising and you had injected at an
earlier point, and that goes in the inventory, it's
an historical cost; and then you withdraw at some
later point and it comes out of some historical
cost, that goes into the accounting statements
under "cost of gas." It may, it may go into
accounting statements under "cost of gas".
It may bear no relationship, necessarily,
to what the current market value is of storage or
of the gas that you might purchase in lieu of
withdrawing from storage, and it can lead to
accounting based results that will differ from the
allowed return.
I just point that out as another example of
where focusing on accounting returns can give you a
misleading impression of what's going on with
respect to market value.
R-3690-2009
10 septembre 2009
- 38 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Q. [41] Okay. We can go on with the same process for
all of the other companies, part of your American
group.
I mean, we've done the exercise using the
same type of calculation of the ROA report. WG, New
Jersey Resources, WGL Holdings and Vectrin
Corporation.
I mean, the ROAs which are respectively of
2.225, 3.28 and 3.51. So, from our calculations,
the six benchmark proxies, the six ones that were
closer, I mean more pure gas LDC, for which it is
possible to calculate the ROA of their gas
distribution division, enough data seeming to be
available, we obtained an average of 2.46 or 2.5
ROA compared, again, to Gaz Métro's 4.3.
How can gas distribution divisions of these
six companies have an ROE that is higher than Gaz
Métro if they have lower ROAs?
A. Well, if you have mis measured ROA consistently,
that would be one indicator.
All of these used
the flawed formula.
MR. ENGEN:
A. On that point I was just having a look at page 11
of the materials circulated, on page 113 of the WGA
Holdings.
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 39 Q. [42] Yes?
A. And that I think the approach here that they take
with reporting these segmented financial
information where he consistently
Dr. Kolbe had
a look at this, the 113 million dollars you speak
of that are refused to calculate your R
A. I note that even here, in this circumstance, WGL
indicates that that 113 million is net income
applicable to common stock.
So when you do your ROA calculation, you're
taking a net income that's applicable to common
stock and applying it to something else, and that's
the mis application that Doctors Vilbert, Kolbe and
Carpenter are speaking of.
We're taking, we're taking income that's
applicable to the common equity and applying it
against, to the entire asset base, which is
completely inappropriate. And I think we've heard
that a number of times here.
LOUIS LEGAULT:
Yes, we have.
Q. [43] Gaz Métro's evidence tries to show that
American gas distributors have higher ROEs than
that of Gaz Métro, and ROEs
ROAs, sorry, that
are significantly lower than that of Gaz Métro,
R-3690-2009
10 septembre 2009
- 40 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
doesn't that clearly indicate that they have higher
financial leverage than Gaz Métro's?
And I'm not looking for an opinion, it's
just that, you know, just talking about a
mathematical equation here.
MR. CARPENTER:
A. I don't
Dr. Kolbe may want to comment on this
but I don't think we can reach that conclusion from
what we've looked at today in any way, shape or
form.
MR. KOLBE:
A. No, I don't see how that follows either.
LOUIS LEGAULT:
Q. [44] Are there, I
mean, I think this was dealt
with earlier on when Mr. Despars said that we are
dealing with American financial reporting versus
Canadian financial reporting and we have to take
into account these differences.
Are there significant differences in the
composition and presentation of final statements
with regards to the balance sheets between Canada
and the United States because, among other things,
the social organization
let's not talk about
Medicare here but regulations, law, healthcare, for
example, which could make comparison difficult
R-3690-2009
10 septembre 2009
- 41 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
between balance sheets on both sides of the border?
MR. CARPENTER:
A. Certainly. And that's another reason why I don't
ascribe to those kinds of accounting measure
comparisons.
Again, the point of selecting these samples
had to do with the exercise that Dr. Vilbert is
doing, estimating based on the capital asset
pricing model, but the risk of the sample is based
on market data.
So, if the accounting systems are different
in the two countries, and the reporting basis is
slightly different between the two countries, that
shouldn't affect his results, but it would effect
the results of a comparison, like you're
suggesting.
Q. [45] I now direct you to the Excel chart that we
had filed in a question information request. It was
most recently information request 4 that the Régie
sent.
I've made new copies of it, it will be
easier than looking for it. We'll file this as
Exhibit A30.
But, yes, I think, honestly, I think it's
already filed as Exhibit A18, so I just want to
R-3690-2009
10 septembre 2009
- 42 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
give you a paper so that you can have it in hand,
but I think it's already there as A18, so we won't
be giving it a new filing number, it's already in
the Régie's file as document A18.
It's just to make our work this afternoon
easier.
There's no changes to the document that has
been previously filed.
Line 6 to 11 show the elements and the
total capital structure of each U.S. company as
well as Gaz Métro's.
VINCENT REGNAULT:
Maître, simply don't forget that Dr. Carpenter does
not speak French, nor does he read French, so if
you want to refer to a particular line, make sure
that he knows what it is exactly.
LOUIS LEGAULT:
Yes.
VINCENT REGNAULT:
Thank you.
LOUIS LEGAULT:
Q. [46] So I'm referring to line 6 to 11, you have
short term debt, long term debt, total debt,
privilege actions, and that's for shareholders'
assets, end of 2008, and the total financial
R-3690-2009
10 septembre 2009
- 43 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
structure at line 11.
Now, line 6 to 11, again, show the elements
and the total capital structure for each U.S.
company as well as Gaz Métro.
Gaz Métro's pull from it's 2008 annual
report shows a total of 2.771 billion, and
represents 85 percent of Gaz Métro's total assets,
and 126 percent of its properties, plant and
equipment, as shown in lines 12 and 13.
When doing the same exercise with the 12
sample benchmark companies, their average capital
structure only represents 61.5 percent of the total
assets, and 104 percent on properties, plants and
equipment.
We also notice that for five of them the
total capital structure only represents 77 percent
to 94 percent of properties, plants and equipment
and is less, and is 46 percent of assets in one
case.
How do you explain this difference?
MR. CARPENTER
A. So these are capital structures that are being done
on a consolidated basis for each of the
companies. And assuming what's in the table is
correct, that's what it is, it isn't just the
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 44 consolidated capital structures.
MR. KOLBE:
I'm sorry, I'm having trouble following you, sir.
You're saying assets exceed liabilities that may
have balance sheets that don't balance?
I don't
understand this, this spread sheet.
LOUIS LEGAULT:
Q. [47] Well, we've sent this spread sheet asking for
your comments and we've received it transformed and
showing information in another way.
My question is that:
The average capital structure only represents 61.5
percent of the total assets and 104 percent of
properties, plants and equipment, and that for five
of them the total capital structure only represents
77 percent to 94 percent of properties.
DR. VILBERT:
A. What you're really saying is that the long term
sources of capital debt
DR. KOLBE:
A. Short term debt is the first line, that's debt CT.
LOUIS LEGAULT:
Yes. But "court terme" in French, short term.
DR. KOLBE
A. Well, yes. I mean, there's a massive mis match in
this sheet between the
between the size of the
R-3690-2009
10 septembre 2009
- 45 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
balance sheet. You have, you know, in the first one
you have 6.7 billion dollars of assets and 4.1
billion dollars of equity and liabilities.
I don't understand it.
I don't know that you can draw any
conclusions on the, on the
on what's going on
without understanding why the balance sheet doesn't
balance.
Q. [48] But the capital structures appearing here are
the same as the ones on the tables that you
filed. I think it was MJV 10 and the series of
them. I mean, we
M. PIERRE DESPARS :
R. Juste une question. Ce document-là, de mémoire, a
été soumis par la Régie après la production des
10K, ce n'est pas Gaz Métro qui l'a déposé. Il nous
a été transmis pour commentaire. Mais ne sachant
pas l'objectif de la question, on ne pouvait pas
répondre.
Me LOUIS LEGAULT :
Q. [49] Tout à fait.
R. Mais c'est différent de ce que vous avez dit. Ce
n'est pas nous qui avons soumis ce tableau-là.
Q. [50] Ce n'est pas ce que j'ai dit, j'ai dit qu'on
avait envoyé le document dans le cadre d'une DDR
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 46 -
demandant les commentaires. Quand j'ai parlé de
document, c'est quand vous avez transmis vos
commentaires, vous avez retransmis un nouveau
tableau présentant les données autrement.
R. Non, le même tableau identique, on n'a rien changé.
LOUIS LEGAULT:
Q. [51] Mr. Kolbe?
DR. KOLBE
A. This may have gone to Gaz Métro but it's the first
time I've seen it.
Now, whether it came from a question or
whether it went back, and maybe I should have seen
it but, in fact, I have not.
The total assets have to match total
liabilities.
And so if the assets are right,
there's some liabilities missing on this sheet.
If
the liabilities are right, there's some assets on
this sheet that shouldn't be there.
I don't know if it
if it doesn't take
out accumulated depreciation, for example, that
would be a possible explanation.
It's possible that there's some short term
liabilities. The way to think about it for cost of
capital terms is the following, and this just
mirrors what you've said, I probably, and Dr.
R-3690-2009
10 septembre 2009
- 47 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Vilbert's evidence, the balance sheet has to
balance. There is, in the U.S., on the long term
side, property, plant, equipment, et cetera, and
usually long term capital. And then there is what
we call net working capital, which is current
assets minus current liabilities.
And, typically, net working capital is
positive, that is current assets exceed current
liabilities.
But current liabilities reduce current
assets materially, so that net working capital is a
lot smaller than the current assets.
And if net working capital is positive,
then what's going on is that the right side of the
balance sheet really consists of long term capital,
consists of what's debt and equity, and it owns the
sum of long term assets and net working capital.
So, when you estimate the cost of capital,
you look on the liability side of the balance
sheet, the liability and equity side of the balance
sheet, you calculate the cost of debt, the cost of
equity and you do a weighted average.
But what appears to be happening here, or
is either its some assets are counted here that
haven't been, without their corresponding
R-3690-2009
10 septembre 2009
- 48 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
liabilities showing up.
So either property, plant and equipment is
only estimated because depreciation hasn't been
taken out and/or current asset are in without
current liability haven't been taken out.
But the balance sheets to look at, the
issues to look at for purposes of estimation for
cost of capital is the long term capital case.
As we say, in the spreadsheets, if current
assets are short of current liabilities, we make an
addition to the liability side for that account at
the short term debt rate.
But the thing to look at here is not the
top set of numbers, it's the ones in the box, the
liability side, because that's the one that people
use just as a matter of practice, in estimating the
cost of capital.
And that's the one where, that I think
you
can say it's the same as we used, that would be
what we used.
So, I don't know why the assets are so much
higher.
MR. VILBERT:
A. But the reason the assets are so much higher is
exactly what Dr. Kolbe just said, you recorded the
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 49 -
total assets and we've verified that you had the
total assets properly recorded.
And then you've, you've got in your sources
of financing short term debt, long term debt and
preferred and common equity, but you've left out
the portion of the current assets that are financed
with current liabilities.
And, as a result of that, you have a
mis match between the amount of total assets you've
recorded and the amount of capital that you've
recorded to your capital structure.
And, as Dr. Kolbe was mentioning a moment
ago, when we're doing a cost of equity, capital
estimation process, we are looking to the long term
sources of capital primarily because, as a general
rule, you want to finance your long term assets
with long term sources of finance, and your short
term assets with short term sources of finance.
And when I do the cost to capital
estimatation process, I ignore the short term
assets and liabilities only
well, I ignore them
completely other than when Dr. Kolbe mentioned a
moment ago that net working capital is negative.
But, in general, net working capital,
current assets minus current liabilities is
R-3690-2009
10 septembre 2009
- 50 positive.
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Those are all, those are all sources of
financing that take care of themselves. We don't
need to worry about those because those are
you
can read that kind of cost easily.
What we're looking for is the cost of
long term sources of capital and the capital
structures associated with that, the financial risk
associated with that.
LOUIS LEGAULT:
Q. [52] Is it possible that in the United States
certain items, such as deferred taxes, contractual
obligations stemming from pension funds and payment
of healthcare coverage for employees and retirees
which, as you know, and was just mentioned last
week and even this morning when we talked about
General Motors were, in fact, a major part of GM
and Chrysler's downfall, as well as other
liabilities more important in the U.S. than in
Canada make comparison difficult between American
and Canadian corporations?
DR. KOLBE
A. Well, make comparisons of books, book returns,
perhaps, difficult. They don't make comparisons to
market returns difficult.
Market returns are measured the same way in
R-3690-2009
10 septembre 2009
- 51 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
both countries:
Dividends plus capital gains divided by starting
price.
You estimate the beta the same way in both
companies (sic).
You implement the risk
positioning model the same way in both companies
(sic)
in both countries, you measure the cost of
debt in the market, do it same way in both
countries.
You measure the imbedded cost of debt
the same way in both countries.
So, for purposes of calculating an ATWACC
there is, these differences are just
irrelevant. This only comes up when you're trying
to draw conclusions based on book returns, which I
think it's fair to say, everyone on the panel is
suggesting you should not do for risk return cost
to capital purposes.
MR. CARPENTER:
A. In fact, there used to be a method referred to in
comparable earnings where cost of capital experts
would do just that, a method which has been
basically discredited at this point.
LOUIS LEGAULT:
Q. [53] Going back to what you said a little earlier
on, Mr. Vilbert, isn't it preferable to measure the
R-3690-2009
10 septembre 2009
- 52 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
financial leverage of a company by taking into
account all of its liabilities, not just the
long term but
and using the equity on total
assets ratio rather than using a ratio based on
incomplete portions of the balance sheet at least
for the U.S. proxies?
MR. VILBERT
A. No, I don't think so, because largely, the current
assets and current liabilities, in many ways, are
offsetting or they are offsetting each, one
another.
You provide
for example, you get credit
from your suppliers and you provide credit to your
customers and those two sources of short term
capital cancel out.
And we're really talking about the return
on equity, and the financial risk for the return on
equity is a function of its long term capital
structure and, in fact, its market value capital
structure, not its book value.
DR. KOLBE:
A. And just one more point:
Think again of the balance sheet that I've
described, because I think it's really important to
think about it.
On the liability side there's debt
R-3690-2009
10 septembre 2009
- 53 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
and equity; on the asset side there's long term
assets and net working capital.
And ordinarily that's the balance sheet you see,
ordinarily current assets exceed current
liabilities, and so what, when you go out in the
market and measure the weighted average cost of
capital, you are measuring, since the risk balance
sheet has to balance, too, there's a market value
balance sheet that must balance, an accounting
balance sheet that must balance, and a risk balance
sheet that must balance.
The risk of the debt and equity, weighted
average together, has to equal the risk of the
long term assets, things like pipes in the ground,
and net working capital, according to their market
valuated average in
on the asset side of the
balance sheet.
So the whole, the whole idea, when you
estimate the cost of capital by looking at the
liability and equity side of the balance sheet, is
that you're measuring the business risk of the
assets consisting of long term assets plus net
working capital.
Now, it is true you could have current
assets and current liabilities and go to your
R-3690-2009
10 septembre 2009
- 54 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
expanded balance sheet. And in that case, you'd
have the current assets, you know what their risk
is, its short term interest rates. And you know
what the interest of, of the current liabilities
is, it's the short term interest rates.
And you'd end up with a different weighted
average, to which you would then have to adjust to
the current assets and current liabilities of the,
of the regulated company.
But that is not what is done in ordinary
business analysis, and it's not what's done in rate
regulation typically.
Typically if working capital is not just
treated as part of the overall cost to capital, it
has its own allowances calculated by regulators,
according with their views to what it should be and
earn something like the short term debt rate.
And you, and you leave the easy stuff, the
short term liabilities and short term assets out of
the, out of the difficult calculation of the return
on equity.
So, all we're doing is the absolutely
standard approach everywhere that I know of in rate
regulation, which is to focus on the liability and
equity side of the balance sheet to estimate the
R-3690-2009
10 septembre 2009
- 55 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
cost capital that should be applied to the assets,
you can, you can expand it.
But it's not standard. And it does you, it
does you no good because it doesn't change anything
because the long term assets are still going to be
balanced by long term capital, and the short term
assets are going to cancel out short term assets
and short term liabilities.
LOUIS LEGAULT:
Q. [54] To say that a US LDC has 50 percent equity
component is one thing, but isn't the true question
50 percent of what?
A. Well, it's certainly a question.
The one we
the one we focus on is 50 percent of
the market value of the assets. That is, we look at
the market value balance sheet.
Q. [55] But in Canada, let's take Gaz Métro as an
example, total capitalization represents 85 percent
of total assets, meaning that 50 percent of 85
percent or, rather, 42.5 percent of total assets.
In America or in the States, according to
your sample, those 12 companies, the 12 LDCs, it
would mean 50 percent of 61 percent of assets. So,
in other words, 30.5 percent of total
assets. Thirty percent is not the same as 42
R-3690-2009
10 septembre 2009
- 56 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
percent.
It
isn't that what
if we want to compare
apples with apples, that's what I'm trying to get
to here?
A. Well, apples with apples, we look at the market
value balance sheet, and the market value is
exactly what it is.
It's when you get into your accounting balance
sheets that you're raising these questions.
Apples to apples, if the U.S. has the
higher fraction of short term assets and short term
liabilities, than Canada, so be it. Maybe, maybe we
count things that Canada doesn't on the balance
sheets.
I'm not an expert on the differing
accounting standards, but the balance sheet that
matters is the one that has long term assets and
net working capital on the left, and long term debt
and equity on the right, that's the standard
balance sheet for estimating the cost to capital.
LOUIS LEGAULT:
Q. [56] Now, in comparing equity to total asset ratio,
as shown in line 14 of our table. Now I know that
you have problems with the numbers, in other words,
comparing the leverage, the financial risk in its
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 57 totality, we notice that Gaz
for Gaz Métro there
is more equity in the holding, 29 percent of the
assets, than for the average of the American
comparables, which stands at around 27 percent.
A. Well, this in no way measures financial risk. I
mean, with respect, you need a market value balance
sheet to measure financial risk.
You haven't even started to measure financial risk
here.
Q. [57] But can it help us, can we affirm by that that
Gaz Métro's equity thickness is comparable to the
American counterparts?
A. Well, the market value balance sheet of Gaz Métro
for one of its sample
one of our sample
companies would be what it is.
The market value balance sheets of the
sample companies are what they are.
It's the market value for all the reasons
I've talked about with my examples of financial
risk and, and a condo you were owning and renting
out.
It's market value balance sheet that
determines financial risk, and only the market
value balance sheet. The book value balance sheet
does not determine financial risk.
R-3690-2009
10 septembre 2009
- 58 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
So for purposes of financial risk, this
sheet is literally meaningless.
Q. [58] If in the United States the portion of other
long term liabilities is significantly higher than
in Canada, which
A. Sorry, could you tell me what line I'm supposed to
look at?
Q. [59] No, it's not a line. I mean, I'm just
stating. If I state that in the United States a
portion of other long term liabilities is
significantly higher than in Canada, which adds to
the financial leverage and does, increases the
financial risk borne by these company, is it
possible that American regulators take that into
account when approving ROEs in order to compensate
for this additional risk, which is higher in the
United States?
A. Well, the accounting lines don't determine
risk. What determines financial risk is the market
value balance sheet.
The way that you record things on the accounting
sheet doesn't determine, the accounting balance
sheet doesn't determine financial risk.
MR. VILBERT:
A. Plus, if you look at the decisions by U.S.
R-3690-2009
10 septembre 2009
- 59 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
regulators, you will see that they, when they
authorize a rate of return, the rate of return,
they specify the capital structure that goes with
it and the capital structures clearly, and they
talk about long term capital structures are much,
much higher.
And the way that the short term assets and
liabilities are dealt with is, as Dr. Kolbe was
saying, is these are relatively low risk things
that are short term costs to cap
short term debt
rates, and they just don't enter into this
financial risk issue that you're talking about in
the sense that they may have more on their balance
sheets than Canada does, but they're offsetting to
one another, the liabilities and current assets are
offsetting, but there's no significant risk which
derives from those things in terms of the
regulatory cap.
LOUIS LEGAULT:
Back to Mr. Engen.
Q. [60] Mr. Engen, at Gaz Métro 7, document 12, which
is your written evidence, you mention at page 64
and I'll let you have time to look at that
MR. ENGEN
A. Sorry, where are we at again?
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 60 -
Q. [61] We're at page 64 of your written evidence, Gaz
Métro 7, document 12.
Now, you were answering a question:
Do Canadian and U.S. investors approach energy
infrastructure investing in the same manner, that,
in large part, they do. I mean, that was your
conclusion.
U.S. and Canadian investors make investment
decisions largely based on the same parameters,
discount and cashflow, price earnings, dividend
yields, et cetera.
If, as suggested by Gaz Métro, the
authorized and realized ROEs in Canada were really
inadequate, meaning much too low considering the
risk, shouldn't we expect seeing Canadian utility
stocks traded at a significant discount compared
with American utilities stock?
A. No.
And people who would suggest that's the case
would indicate to me don't understand financial
markets.
In Canada we have
well, Canadian
investors and American investors look at valuing a
particular energy infrastructure in much the same
way. We're in a unique environment here. I had a
conversation not long ago with our equity research
R-3690-2009
10 septembre 2009
- 61 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
analyst, Karl Kirstin.
One of the things that we noodled about and
we talked about is why is it that Canadian energy
infrastructure companies often trade in a multiple
superior to that of the, of the American
counterparts?
One of the big reasons is, is we don't have
many companies here in the sector, just a handful
of names that we can invest in, and so,
consequently, if you want exposure to the Canadian
sector, there's just a few names to participate in.
That's one of the reasons why, why those
multiples are different
pardon me
yes, are
different between the two jurisdictions.
But certainly in answer to the question:
Do they approach investment much the same way? They
do.
It's interesting, even as I was looking at
this table you've produced for us, the way the
market would look at this table would be taking a
look at your line 10, which I understand to be the
equity component of the balance sheet, line 11,
which I understand to be the total capital and debt
to
pardon me, equity as a portion of total
capital would be the way the market would look at
R-3690-2009
10 septembre 2009
- 62 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
this in both Canada and the U.S.
My number, roughly, for Gaz Métro is 35
percent. Total equity out of the long term
financing for the U.S. names, the low was 40
percent, the high is 51 percent. So I think the
calculations that are showing here on line 14 are
misleading.
One ought to be looking at the proportion of debt,
the total capital.
But, in any event, that's one of the
reasons why
so Canadian and American investors
look at these things in largely the same way.
But Canada has a very unique, a very unique
and small sector, so if you want to be exposed to
the sector, you have to pay up to get to it because
there aren't many names.
Q. [62] So, we shouldn't be expecting utilities stocks
to be traded at significant discount. Should we all
also be not expecting a
A. Sorry, say, say that again?
Q. [63] Well, the question I had asked is:
Should we expect seeing Canadian utility stocks
traded at significant discount compared to
American? You said no, anybody
A. Well, no, I didn't say that. No, I didn't say that.
R-3690-2009
10 septembre 2009
- 63 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
You asked me why they traded right now at a
different multiple, and I explained that.
I didn't
say that they should trade at a discount.
Q. [64] Well, let me repeat the question.
If, as suggested by Gaz Métro, you
authorized and you realized that ROEs in Canada
were really inadequate, really much too low,
considering the risk, shouldn't we expect seeing
Canadian utility stocks traded at significant
discount?
A. And the answer is no.
Q. [65] Okay. So you did say no, that's it.
A lower price earning ratio?
A. No. It's the same question, you just asked it
differently.
No.
Q. [66] Lower, lower cashflow?
A. Well, these aren't measured on multiples of
cashflow but the answer remains
Q. [67] According to price to cashflow issue?
A. No, no, I understood the question. The answer
remains no. It's just the same question asked
differently.
Q. [68] Okay.
My next line of questions will be for Dr.
Vilbert, essentially. I mean, again, there are five
R-3690-2009
10 septembre 2009
- 64 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
of you.
LE PRÉSIDENT :
Maître Legault, pour combien de temps vous pensez?
Me LOUIS LEGAULT :
Écoutez, je dirais une bonne demi-heure, Monsieur
le Président.
LE PRÉSIDENT :
À ce moment-là, je pense que nous allons prendre
une pause maintenant, quitte à continuer par la
suite avec votre interrogatoire. Donc, nous allons
prendre une pause jusqu'à quinze heures (15 h).
SUSPENSION DE L'AUDIENCE
_________________
REPRISE DE L'AUDIENCE
LE PRESIDENT:
Alors, reprise de l'audience Maître Legault.
LOUIS LEGAULT:
Q. [69] Mr. Vilbert, before we left for a break, my
next line of questions would be mostly towards,
addressed to you. We will be talking about the
ATWACC really.
Before we get to that, and I'm sorry to
come back to this line of questions which had been
initiated by Me Sarault when he asked some
questions at the beginning of his turn, when he
R-3690-2009
10 septembre 2009
- 65 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
started asking questions.
I'm reading from Gaz Métro 7, document
11.4, which is in answer to question 19.1 of the
Régie's information request.
Your response to a question was:
"While testimony by Dr. Kolbe and Dr. Vilbert
always reflects the capital structure principles
described in Dr. Kolbe's evidence, clients only
sometimes sponsor requests to use the ATWACC itself
as a primary rate of return standards."
Now, can you just clarify for us what was
the Brattle Group's mandate in this specific case?
MR. VILBERT
A. Are you talking about the Gaz Métro, or are you
talking about in these proceedings that we're
Q. [70] In these Gaz Métro proceedings.
DR. KOLBE:
A. We were charged with, with estimating the ATWACC so
that they could use it to make the recommendation
to the Régie for ATWACC based regulation.
Which, as I understand it, has been done.
Q. [71] Well, that's why I want to clarify.
Mr. Kolbe, in your written evidence when
describing your mandate
and I'm reading, it's
Gaz Métro 7, document 15, the second page, question
R-3690-2009
10 septembre 2009
- 66 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
3:
"What is the purpose of your evidence in this
proceeding?"
Now, your statement is that "Gaz Métro's
limited partnership has asked Brattle, Dr. Vilbert
and myself to estimate the rate of return necessary
to provide it with a fair return on its assets for
2010," and you go on by stating that, "The most
fundamental measure of the required return on
investments is the after tax weighted average cost
of capital ATWACC."
Now, let me go to Mr. Vilbert's definition
of his own mandate.
In Gaz Métro's 7, document 14, second page, Gaz
Métro, question 3 again, it's the same question:
"Gaz Métro has asked Brattle, Dr. Kolbe and me to
estimate the required rate of return for Gaz Métro
as the after tax weighted average cost of capital."
Now, Mr. Kolbe, I sense that your answer to
question 3 is more subtle than Mr. Kolbe
than
Mr. Vilbert's. When you mentioned in your answer to
the
A. The difference is as you said it to me
I'm sorry
me.
Q. [72]
Régie's question that only sometimes
R-3690-2009
10 septembre 2009
- 67 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
sponsor requests to use the ATWACC, that's what I
want to clarify, what was the specific request in
this particular instance?
A. Well, take a look, take a look at the question. It
says, "with a fair return on its assets for 2010,"
it doesn't say for a fair return on its equity.
And at the end of, at the end of the
paragraph it says:
"As points of information, Gaz Métro has already
requested
me to indicate the associated cost of
equity at two different equity ratios."
So, I don't intend this to be any different
from saying I was asked to estimate the ATWACC so
that they, so that they could base their return,
their request to return on assets on the ATWACC.
And the phrasing differences are sort of
random firings of the neurons, there's no
particular subtlety intended.
Q. [73] Thank you.
Mr. Vilbert, in your cross examination by
Me Sarault on the issue of cases where you were
involved in the adoption of the ATWACC as a means
to set a fair rate of return, you said
and I'm
paraphrasing because I didn't go into these
non personal, but if I'm wrong in paraphrasing how
R-3690-2009
10 septembre 2009
- 68 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
you answer, you said, "We don't go forward and ask
regulators to adopt
the ATWACC, we ask for a fair
rate of return." Did I hear you right?
DR. VILBERT:
A. Yes. Essentially, I use the ATWACC method, as I
said, and I estimate a return on equity at a
particular capital structure requested by the
clients that's consistent with the ATWACC, I
estimate from the samples. But I don't recommend to
the regulator that they adopt the ATWACC, I just
give them an ROE consistent with my analysis.
Q. [74] How do you reconcile that answer with Mr.
Kolbe's assertion
and I'm going again to Mr.
Kolbe, and I want you to answer, not Mr. Kolbe
an assertion in his written evidence, and, again,
it's document Gaz Métro 7, document 15, this time
at page 5, and the paragraph read as follows, it's
the second paragraph, paragraph 3:
"Dr. Vilbert and I have been basing costs of
capital evidence on ATWACC and urging its adoption
by Canadian regulators for a decade."
How should a regular read this?
A. Well, in Canada we have been talking about the
ATWACC as the method of regulation.
In contrast, in the U.S., when I testify,
R-3690-2009
10 septembre 2009
- 69 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
it hasn't been the method of regulation that's been
recommended and, as I said a moment ago, it's the
underlying analysis of how you arrive at the ROE
for a particular capital structure.
But unlike this proceeding or the ones for
NGTL, or Transcanada, where we specifically
recommend the adoption of the ATWACC, I don't do
that in the States.
Q. [75] But when I read that you are urging its
adoption by Canadian regulators, am I reading it
right or between the lines when I read in this that
you're, in essence, championing the cause of any
LDC that wants the ATWACC adopted? Is that what you
did in the last 10 years when you were urging its
adoption by Canadian regulators?
DR. KOLBE
A. Well, I will answer this because the word "urging"
is mine.
I had in mind that we recommended the
ATWACC to the Alberta Energy and Utilities Board on
behalf of Trans Oil Utilities in 1998, a decade
ago, that's the first time we did it in Canada.
We did it again in 2001 on behalf of the
Transcanada main line.
We did not do it in the generic cost of
R-3690-2009
10 septembre 2009
- 70 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
capital proceeding in Alberta in 2003 because
NGTL, Nova Gas Transmission Limited, that sponsored
the testimony, was under the impression that the
regulatory board did not want to hear a
recommendation to adopt ATWACC and that was ruled
out.
The board subsequently clarified that that
wasn't their intent, but that was the
interpretation, as I understand it.
So they did not recommend adoption of
ATWACC as a
as the regulatory rate of return
standard in 2003 and so on.
We've talked about the more recent ones,
but to my mind there's a, there's a clear
distinction, and I'm sorry if it's been a source of
confusion, but there's a clear distinction between
recommending, urging, if you will, that the board
adopt what I think is an economically useful and
beneficial way to look at the rate of return as its
direct standard, and applying the same set of
principles to get a recommendation within the more
traditional return on equity, deemed equity ratio
format, and I read the question as asking for the
former.
I wrote the answer to this response, not
R-3690-2009
10 septembre 2009
- 71 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Dr. Vilbert, and I read the question as asking for
the former, not everything we've done with ATWACC.
Had I read the question that way, we would
have, of course, supplied a much longer list of
cases.
And I'm sorry if I misread the question,
but that's the way I read it.
LOUIS LEGAULT:
Q. [76] Okay. Let's get to the questions on the ATWACC
now.
Dr. Vilbert, Gaz Métro's evidence tends to
show that the recent economic situation, as well as
the market conditions, could possibly require
adjusting the CAPM variables or the way they are
applied.
Is my understanding right that with or
without the ATWACC, these adjustments would be
necessary?
MR. VILBERT:
A. Yes. And as Dr. Kolbe will explain if you ask him
also, but the ATWACC is a weighted average cost of
capital, and you have to calculate first to figure
out what you're going to weigh the return
equity. And I used the capital asset pricing model,
the risk position model to estimate the return on
R-3690-2009
10 septembre 2009
- 72 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
equity.
Q. [77] In other words, would I be right in saying
that the ATWACC or ATWACC would not constitute an
answer for the exceptional economic situation we've
been facing over the course of the last year?
A. That's correct. The ATWACC method is just a way of
dealing with differences of financial risk among
the sample companies, as well as in comparison to
the regulated companies.
The ATWACC method has nothing to do with
how you estimate the ROE, return on equity.
Q. [78] Now, this will seem like a very basic and
strange question to you, but, in a competitive
world, am I right in stating that companies are
always trying to reduce their costs, it's a matter
of survival, and this is also true for their cost
of capital?
DR. KOLBE
A. Sure.
If
if they can find a way to reduce costs, they
will do it.
And if someone, if some competitor
discovers a new way to do it in a sufficiently
competitive industry, they, the other companies
will be forced to copy that innovation.
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 73 -
Q. [79] Now, I understand that companies use the
ATWACC as a minimum threshold return they will
require for the present and future investment
projects.
Isn't that the same thing as using the
ATWACC as a means to calculate the prospective
capital cost in a regulated market?
A. Well, there's a fundamental difference in the way
regulation and competition deals with the cost of
cap
the cost of capital.
Competition is determined from the top
down. Revenues are determined by the market. Costs
are whatever they are and what's left over is
return to investors.
And when regulated
when unregulated
companies evaluate projects, they forecast the
cashflows that will result out of that project.
The all equity cashflow as a standard
technique, is to do that, and discount them at the
ATWACC to calculate the net present value of the
project.
Regulation instead builds from the bottom
up, and it takes the cost but it calculates the
return it should allow, and then adds that to get
the revenue that rates will allow.
R-3690-2009
10 septembre 2009
- 74 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
And the reason is because rate regulated
entities have market power, and left to the market
alone would realize profits from that market power
over and above the competitive levels.
So you can't trust the revenues you get out
of the market, the rate regulated market, you get
to start at the other end.
But the cost to capital principles involved
are the same in both cases, it's just a question of
mechanically what's going on.
Q. [80] Today's ATWACC is not the same as it was 10
years ago when some investments were made; why use
the 2009 ATWACC to remunerate investments that were
made 10 or 20 years ago and financed at rates very
different from the ones we find today?
A. Well, there are two answers to that question
Of course, exactly the same is true of the
cost of equity, and it's routine in rate regulation
to use the current cost of equity, not to try to
track some imbedded cost of equity to do the
regulation.
And we do the same, same thing with the
ATWACC.
There's this whole issue of imbedded debt
cost, which I'll just leave out of that.
R-3690-2009
10 septembre 2009
- 75 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
But in a competitive market, in a
sufficiently competitive market, prices will
equilibrate to offer the ATWACC.
Now, as Dr. Booth points out from
time to time in the interrogatory responses and
other things, you never really see equilibriums in
the market.
You don't, you don't see firms at competitive
equilibriums, or if you do, it's pretty rare.
But, nonetheless, in rate regulation, the
system of setting rates does not say, "Well, it's
booming times and competitive firms are earning
more than the cost of capital this year, so we're
going to grant and allow the return above the cost
of capital. And in bad times, competitive firms are
earning less than the cost of capital, so we're
going to grant and allow them returns less than the
cost to capital."
Rate regulation prices to the equilibrium,
sets rates based on the competitive equilibrium
when it, when it tries to estimate the cost of
capital.
And so, in principle, that's exactly what
happens under competition. You have, you have
the cost of capital falls, it induces entry, the
R-3690-2009
10 septembre 2009
- 76 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
entries drives down prices until firms get the new
cost to capital.
If it goes up, all else equal
talking about the ATWACC here
and I'm
and nothing else
is changed, capital is just more expensive in its
industry, there will be excess until the new
equilibrium brings the new higher price of
capital.
Q. [81] Mr. Vilbert, you list evidence, and more in
fact, this is the same passage I was a few minutes
ago where you were answering question 3.
A little lower in that answer, you've
written:
"I've arrived, arranged. Based
" and I think it's
line 17 and under, "Based upon the market
determined overall cost of capital estimates from a
selection of companies with business risk
comparable to that of Gaz Métro's assets," and this
the importance passage, "since companies with
comparable business risks will have approximately
the same overall cost of capital, these results
provide an estimate of Gaz Métro's overall cost of
capital."
Does this mean that the Régie should set
the ATWACC based on Gaz Métro's business risk and
R-3690-2009
10 septembre 2009
- 77 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
leave the makeup of the capital structure to Gaz
Métro's executives and the financial market, as I
think, is being in fact suggested by Mr. Despars in
his opening statements?
MR. VILBERT:
Q. [82] I'm sorry, could you repeat the part about
what you, what the management could do?
Q. [83] Well, in essence, once the Régie would have
adopted the ATWACC, everything dealing with the
makeup of the capital structure would be left to
Gaz Métro's executives and the financial markets;
the Régie would not get involved in the capital
structure anymore or have a look at the capital
structure?
A. The Régie could decide to regulate that way, if it
chose to do so. And if the
if they wanted to
allow the company to select a capital structure,
the rates to rate payers would not vary, it would
be entirely indifferent to the capital structure
selected, but
and the company could select its
own capital structure.
But that's a policy decision that the Régie
can choose for itself if it were to decide to
select the ATWACC method.
On the other hand, the Régie could continue
R-3690-2009
10 septembre 2009
- 78 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
to specify the capital structure for the company,
and that, and neither one of those two
possibilities is inconsistent with the ATWACC
approach.
The ATWACC approach just gives you the
flexibility to allow the company to check, to
select a capital structure that it deems to
be
best for it, and, as you've pointed out a moment
ago, companies try to achieve the lowest overall
cost to capital possible, and by allowing the
company to select its own capital structure, you
allow for the fact that perhaps a different capital
structure could have a lower overall cost to
capital.
DR. KOLBE:
A. I'll just, I'll just also say, there's also an
intermediate possibility. The Régie could say,
"Select within a given range," or "Maintain a
particular
don't fall below an A rating on your
debt."
So the Régie has lots of policy tools that
it could use with an ATWACC based system to
exercise either complete control or just oversight
and put in some safeguards for the range of
flexibility, demanding that would give management
R-3690-2009
10 septembre 2009
- 79 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
flexibility to seek something better without giving
them unfettered discretion if the Régie did not
want to give them unfettered discretion.
Q. [84] As an expert, what would your recommendation
be?
A. Well, if you'd asked me this before the crisis, I
might have said, "Well, you don't really have to do
anything. You can trust people to make good capital
structure decisions."
Since the crisis, we can see that, "Boy,
that's sort of risky, isn't it?"
It wouldn't be crazy to say, "We want you
to maintain at least an A minus bond rating, or
something of that sort, and within
other than
that, go out and see if you can, if you can reduce
costs some."
Q. [85] But all things being equal, there's no
financial crisis, if the business risk remains
unchanged, a modification of the capital structure
as
of a regulated company should not require an
adjustment of its ATWACC, again, all things being
equal?
A. That's correct.
Q. [86] A company could then decide to diminish its
debt by using shares without this requiring
R-3690-2009
10 septembre 2009
- 80 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
modification or an adjustment of it's ATWACC, am I
right?
A. Yes.
Q. [87] Is there a clear difference between the
interests of a regulated entity that is generally
trying to increase the equity proportion in its
capital structure when it applies for a rate review
to its regulator, and the interest of clients that
would rather maximize the less costly source of
financing debt, because in the end they are the
ones paying?
A. Well, under the existing arrangements, there is,
there is such conflict. And the reason there's such
conflict, is because the return on equity under the
formula is not adjusted as capital structure
changes to reflect changes in financial risk.
If you get rid of that, I'll say,
shortcoming in the existing arrangements,
then the
conflict goes away because, because as Gaz Métro
has discussed, they're happy with 11.22 on 46
percent equity, or 12.39 on
38.5 percent equity,
and customers pay the same amount either way.
So this source of conflict is because the
current system does not automatically take into
account the feedback between equity ratio and the
R-3690-2009
10 septembre 2009
- 81 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
cost of equity, and the strength of ATWACC is that
it does.
Q. [88] And I understand from your previous comment
that, you know, following the major economic crisis
we've been through, I mean, it would be a sound and
prudent course of action to let regulators keep an
eye on the capital structures of regulated
corporations?
A. Well, I'd say yes.
I don't think, I don't think that it does any harm
to do that.
Now, you know, it could do harm if, if the
eye were kept too stringently and led to, led to
sort of bad capital structure decisions.
But that would be no different than now.
Q. [89] Mr. Vilbert, in your table number MJV 14
and, again, I have to state that the exhibit that
we've produced or, you know, shown you a little
earlier on, the Excel document, all of the data
appearing in that document comes from these
different tables, MJV 14, MJV 10, et cetera.
In your table number MG
MJV 14, you
indicate the amount of short term debt of the
comparable companies of your U.S. sample. Now,
I'm
yes.
R-3690-2009
10 septembre 2009
- 82 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Let's say with MJV 14, you have the document with
you?
MR. VILBERT
A. I do.
Q. [90] Okay.
You exclude from it, from your calculation of the
total capitalization structure, the short term
debt; we've
you've talked about that a bit
earlier on.
By doing so, you've excluded for a group of
the 12 American comparables 18 percent of their
capital structure, and up to 36 percent in the case
of Nicor.
When using your methodology, the amount of
your capital structure only represents 51 percent
of the total assets of the companies, and the
proportion of common equity used to fix the ATWACC
seemed to be boosted or, to me, is inevidently
boosted.
How do you justify excluding an important
portion of this financial structure that
constitutes for the short term debt?
A. Well, first of all, the short term
the current
assets and the current liabilities, as we discussed
earlier, that the net of that is called net working
R-3690-2009
10 septembre 2009
- 83 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
capital.
I exclude that portion of the capital structure of
the companies, and I do it for all of them, because
the risk of those current assets is quite different
from the risk of the long term assets invested in
distribution pipes that are imbedded in the
ground. I mean, this is a quite different thing.
And the tradition, when you estimate the
cost to capital, is to look at the return on equity
and the cost of debt for your long term sources of
capital.
So, I ignore the short term aspects of it
because it's not representative of the assets.
The long term assets and the short term
assets are generally such low risk that they're
it would be
short term debt would be the best
way to estimate their costs.
I could have put it in but it doesn't
fundamentally change anything in the long run.
Q. [91] I'd just like to supplement that by recalling
the balance sheet I talked about before the break.
Ordinarily, on the asset side, there are,
there are two categories of assets, net working
capital and long term assets; and net working
capital is a positive number, which means on the
R-3690-2009
10 septembre 2009
- 84 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
right hand side there's that inequity.
We're talking of market value balance sheet
here.
And for short term assets and short term
liabilities, book values or market values are
likely to be, essentially, the same because they're
all short term debt based returns.
So that means that the assets that operate
the company are net working capital, right,
because
because you're funding some of your
current assets out of your current liabilities.
It's only the net that you have to fund out
of longer term sources of capital, and you're
funding your long term assets out of long term
sources of capital.
However, when we have a sample company,
where net working capital is negative, so that it
isn't the case that all of the funding of the stuff
on the left side of the balance sheet, on the asset
side, is done by the long term assets, we use
short term debt in the capital structure to reflect
the fact that it is a source of funds for what's on
the left hand side there.
So whether or not short term debt belongs
in there turns on whether or not net working
R-3690-2009
10 septembre 2009
- 85 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
capital is positive.
DR. VILBERT:
A. And you can see what Dr. Kolbe is talking about on
panel E of MJV 14.
You'll look there, we'll see that net working
capital is negative, and then we make an adjustment
to the capital structure. This is, if you look
at
this is for Nicor.
And you come down, it says, "Adjusted short term
debt," which is under the market value of debt, and
you'll see that for most of the companies, there's
a zero, but for this particular company it's 279
million dollars, and the reason is, is because net
working capital, as calculated right above it, is
negative.
And so, in order to recognize the net
working capital as negative, I include an
adjustment to the capital structure. But all the
rest of the time, when net working capital is
positive, it's not part of the analysis.
Q. [92] As regards to betas, is there a reason why in
2009 we shouldn't be using the beta calculated
directly by Bloomberg, in other words, without any
quality adjustment, now that the effect of the
growth and downfall of the techno media telecom
R-3690-2009
10 septembre 2009
- 86 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
bubble is over, with the use of a five year
average, using data from March, 2004, to March,
2009?
A. This question deals with the use of adjusted versus
unadjusted betas. And the reason that I use
adjusted betas as opposed to unadjusted betas for
the Canadian sample as opposed to the U.S. sample
where I
unadjusted betas in tradition of
testifying in Canada, although I use adjusted betas
in the States, is because rate regulated companies
are much more sensitive to interest rate changes
than non regulated companies.
And because of that, because of that extra
sensitivity, the
the use of an adjusted beta
more accurately reflects their relative risk to the
kind of things that affect the cost of capital.
Dr. Kolbe, some years ago, did a study
demonstrating that sensitivity.
Q. [93] Mr. Engen, has, you know, described the rise
in stock market, the volatility of the last few
years in his own written and spoken
evidence. Considering the relative stability of
utility earnings, as well as their rather good
stock performance relative to overall stock market,
particularly in an economical crisis, isn't it to
R-3690-2009
10 septembre 2009
- 87 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
be expected that usually these beta generally
declined in the last few years?
A. I have a chart in my testimony that displays the
estimated betas for the sample companies over the
last several years, and if you look at those
charts, what you see is the betas for the sample
companies ranging from .6, or so, going down to
zero and to negative, starting back up towards more
normal, what I would consider normal relationships,
because I never
I think a zero beta doesn't make
any sense because that suggests it's a risk free
asset, and I don't believe any of these utility
companies are risk free
they start to get back
up to more normal circumstances, and we have a
financial crisis that disrupts everything, once
again.
And so, it's not clear to me yet that the
underlying market conditions, over a five year
period, are representative of what would be normal
conditions.
Q. [94] You're talking about a chart in your
evidence. Let me refer you to Gaz Métro's 7,
document 14.1 annex, which is answer 24.1, and I
think the document is called "work paper 1, number
1 to table number MJV 10."
R-3690-2009
10 septembre 2009
- 88 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
DR. KOLBE
A. You want your answer to 24.1.
MR. VILBERT:
A. Are you saying they did request 24.1?
Q. [95] No, it was in answer to question 24.1.
And the document is, "Work paper number 1 to table
number MJV 10."
A. This 24 here?
LE PRESIDENT:
Page 34, isn't it?
A. I'm not finding the document you want me to look
at.
LOUIS LEGAULT:
It's page 45.
A. Is this in my testimony?
Q. [96] It's in document 14.1. And the title of the
table is, "Table number MJV 10, revised for IR
24.2."
A. Okay. I'm with you now. Sorry, about that, I was
confused.
Q. [97] Okay.
Sorry, I think I could have referred
you to another form that would have been easier to
access.
Of the six Canadian corporations, five from
the sample group and, naturally, Gaz Métro, we can
R-3690-2009
10 septembre 2009
- 89 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
observe it at your answer 24.1, that it's Gaz Métro
which has the lowest adjusted beta at .51; does
that mean that, from a stock market perspective,
Gaz Métro is the least volatile, is the least risky
in terms of systematic risk?
A. The answer to that question would be yes, if I
believe, that I could estimate the betas accurately
every time I estimate them.
And so, if you do this exercise over
different periods of time, you would see the
relative position of the company's betas here
change. And it just, every time you estimate beta,
you will get a different estimate, depending on the
time period you use.
And so, as it stands right now, it is the
lowest beta in the sample, but it's
but there's
estimation errors.
Q. [98] Okay.
In accordance with the CAPM, the required earnings
for a stock is based on a risk free rate, market
risk premium, and the stock's beta.
As Gaz Métro's beta is the lowest of all of
the Canadian comparables that you have proposed,
should we find, when using the CAPM, the lowest
required return and the lowest cost of equity, as
R-3690-2009
10 septembre 2009
- 90 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
is shown in Gaz Métro document 14.1, the same table
that we're talking about?
A. I would say, again, the short answer is no.
And the reason is, when you, the reason we use
samples is because of estimation error.
And you never, or I don't remember a case
where you go out and say, "I'm going to estimate
the cost of capital for Gaz Métro, and I will
estimate its cost to capital alone without any
regard to a sample," because you have this
estimation errors."
And so, you always pick a sample of
companies to get a more
to try to average out
the estimation errors.
There's also other issues about Gaz
Métro. It's a partnership as opposed to a C
corporation, and issues such as that that may
affect it's cost of equity estimation.
Finally, Dr. Kolbe and Dr. Carpenter have
spent some time in their testimony analyzing the
relative risk of Gaz Métro compared to the samples,
and that analysis says that Gaz Métro is not less
risky but relatively more risky than the sample
average.
Q. [99] As regards methodology, in what way does the
R-3690-2009
10 septembre 2009
- 91 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
debt market value differ from the historical cost
value, the book value?
In other words, how would you go about
making the adjustments between the book value and
the debt and your estimated market value?
A. Are you asking me how I estimate the difference in
cost of debt or the market value of debt?
Q. [100] Yes.
Yes?
A. I'm sorry, I asked you either/or. If I get a yes,
I'm not sure what that means.
Q. [101] Market value, sorry?
A. The market value of debt for the sample companies
is the book value of debt, this is long term debt,
adjusted by the fair market carrying value of debt
listed in their 10 Ks
And so, the companies report effectively in
the market value and their long term debt, and I
use that adjustment to correct the book value of
debt.
The reason I do it that way, is because I
don't have all of the underlying debt that's
involved in the book, amount of debt.
LE PRESIDENT:
Mr. Vilbert, ces ajustements
those adjustments
R-3690-2009
10 septembre 2009
- 92 are
PANEL 2 - GM
Interrogatoire
Me Louis Legault
could you enumerate some of those
adjustments, examples?
A. Sure.
In
again, if we return to my tables and work
papers, going through the 14 that we were talking
about, MJV 14 that we were talking about before,
I'll pick out, maybe just go to the very first one,
which is panel A, if you
there's a bold
the
third down, bold, says, "market value of debt," and
if you
there's a space, a white space, a line,
that says, "long term debt," and it has, "book
value of long term debt," and below that it has,
"the adjustment to the book value of long term
debt," and that's from the 10K, and you'll see
that, in this case, the market value is slightly
lower than the book value of long term debt, and
that's the 28 million dollar adjustment, and that
28 million dollar adjustment comes from the 10K.
And so, and that 28 million dollar
adjustment is reported by the company based upon
their belief about the market value of their debt.
LE PRESIDENT:
Thanks.
LOUIS LEGAULT:
Q. [102] Sorry, can you give us the impact on the
R-3690-2009
10 septembre 2009
- 93 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
ATWACC if across a sample of LDCs uses comparables,
the market to book ratios of the LDC stocks goes
from two times book to two and a half times book,
what would happen with the average ATWACC if
of
the sample, should it go up, down or stay flat?
A. Well, using your analysis or analogy from before of
all else equal, if nothing else is going on in the
economy and somehow the market value of the equity
has increased, then, since the overall cost to
capital should not be affected by that, you would
expect to estimate the ROE lower, so that when you
multiply the weighted averages of the new
estimated, the ROE and the new capital structure,
you would get the same ATWACC you would have had at
lower market to book ratio.
Now, that, as I said, it's prefaced by,
"all else equal," nothing else is going on and you
happen to have an increase in the market value.
Q. [103] As regards the price to book of these stocks,
if the average ATWACC across the industry goes up,
what would happen to evaluation; would it most
probably go up, down or stay flat, again, all being
equal?
A. If the estimated ATWACC is higher?
Q. [104] Yes?
R-3690-2009
10 septembre 2009
- 94 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
A. And it now goes up higher from that point?
Q. [105] Yes?
A. I would expect that the market value would
decrease, all else, again, the caveat is all else
equal and, of course, that caveat is pretty, pretty
tough to observe.
Q. [106] Mr. Vilbert, do you agree that regulator
decisions or rulings greatly influence the market
value of regulated LDCs?
A. Certainly it's a factor, but a few year ago in a
proceeding before the NEB there was a table of
allowed rates of return by the regulator and the
affect on the market price of the stock, and you
could not discern any relationship.
What, what really has to happen for the
market price to be affected, is for a decision to
be unexpected.
Which is to say, the market price reflects
already what the expectation is that the regulator
will do, and it's only to the extent that a
decision is unexpected that you would expect to see
a change in the market price of the stock.
Q. [107] But the financial analyst takes into account
the regulator's decisions regarding LDCs in their
reporting?
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 95 -
A. If they discuss the various aspects of regulation,
yes, because there's a big part of any regulated
company is how they're treated by the
regulators. So they do discuss that aspect, yes.
Q. [108] I would like to read a little excerpt of Mr.
Morin's document, which was filed as Exhibit C1,
document 20, specifically at page 452.
Now, that was, this document was filed by Me
Sarault the other day.
Page 452 at the very bottom of the page, Mr. Morin
states, and I'm reading, "One serious drawback of
using market values is the circularity issues, that
is, by awarding a utility its market value based
ATWACC, the regulator is forced to rubber stamp
existing market values that may in turn reflect
unfair and unreasonable rates."
What is your
comment about Mr. Morin's assertion?
A. Well, the circularity that he has in mind with that
sentence deals with saying that you're going
for
example, if the market to book ratio is greater
than 1, and you estimate the ROE in the market, you
get a certain rate of return, let's say 9 percent.
If you apply the ATWACC that you get from
the market to the rate base in such a fashion that
you try to duplicate the same rate of return that
R-3690-2009
10 septembre 2009
- 96 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
you would have estimated for the market, that's
circular.
And I agree with him and, in fact, Dr.
Kolbe, in his presentation, showed you an example
of, of that kind of analysis and that's not what we
do.
So that circularity is not inherent in the
analysis that we do by applying the market
determined ATWACC to the book value rate base, not
to the market value rate base.
DR. KOLBE:
A. You know, we are not trying to set rates so that
you get a rate of return on the rate base equal to
the cost of capital times the market value that,
that would be circular, among other problems, but
that's, that's not what we do.
MR. VILBERT:
A. And I
and I know that's the way he thinks about
it because I've asked him about it.
I promise you I did.
LOUIS LEGAULT:
Mr. President, I'm now boarding my last line of
questioning. I will be short and dealing, essentially,
with Mr. Kolbe and his comment on issuance costs.
R-3690-2009
10 septembre 2009
- 97 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Q. [109] Now, Mr. Kolbe, you've said in your written
evidence, again, Gaz Métro 7, document 15, at page
8, if you want to look up the passage?
DR. KOLBE
A. I'm there.
Q. [110] Now, you wrote, "I requested that Gaz Métro
provide all available data on equity issuance cost,
and in analyzing these costs, I credited the
present value of the tax savings they permit.
The result is that documented issuance costs amount
to 4.5 percent of the net equity obtained in the
equity offerings."
I think you've also stated that verbally
during your testimony.
A. Yes.
Q. [111] These issuing costs, based on real historical
costs, including commissions, direct costs such as
legal, et cetera, as well as the issuance price
discount relative to the market price of the last
transaction, as shown in the figure at page 156,
like with the issuance cost work paper in the
document, you know, the Gaz Métro 7, document 15,
it's your, part of your documentation
A. I'm just trying to find that.
Q. [112] Please?
R-3690-2009
10 septembre 2009
- 98 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
A. It's sort of at the back and I don't keep the page
numbers the way
yes, I'm at that page.
Q. [113] Okay.
We find that the net issue cost, including
discount, line 112, totalizes 1.4 million since
1993, and represents 4.5 percent of the net
proceeds.
Are you suggesting that we apply this 4.5
percent of net issuing costs to all issuances since
Gaz Métro's beginning?
A. Yes, because in the case of Gaz Métro there are no
retained earnings, so that we don't have to make an
adjustment.
All of the equity was issued because the pay out is
total.
Q. [114] If we want to cover issuance costs, should we
exclude from the actual equity and capital the
portion that does not come from past issuances, I
mean, but rather from retained earnings?
A. If they are retained earnings, the answer is
yes. But as I understand it, Gaz Métro has to pay
out it's earnings, has to pay out a hundred percent
of its earnings, so there are no retained earnings.
Q. [115] So why compensate for issuance costs on
capital amount that was never issued?
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Me Louis Legault
- 99 A. Because all the
there is no such capital in this
case is what is my understanding, that's what I
just said. I don't think there are any retained
earnings.
As I understand it, the pay out is supposed
to be total.
That's what I was
that's how
what I was
informed when I started this task.
Q. [116] Okay. So you based it on the fact that there
was no retained earnings?
A. I based it on, yes, on the fact that the pay out is
total.
Q. [117] I am asking Mr. Despars, I don't know if it's
possible, could Gaz Métro supply us with the amount
of the non distributed earnings before the
reorganizations converting Gaz Métro into a limited
partnership, is that available data?
M. PIERRE DESPARS :
R. Je ne pourrais pas vous dire, il faudrait que je
vérifie, parce qu'au moment de la conversion, il y
a eu des distributions. Il faudrait que je vérifie.
Je ne sais pas si je peux produire cette
information-là.
Q. [118] Écoutez, je ne vous demanderai pas
l'impossible, de faire la vérification, si elle est
R-3690-2009
10 septembre 2009
- 100 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
disponible, on va vous demander de prendre
l'engagement de la produire.
R. O.K.
Q. [119] L'engagement, c'est de nous fournir le
montant de la partie des gains non distribués avant
la réorganisation qui a converti Gaz Métro en
Société en commandite.
E-11 (GM) :
Fournir le montant de la partie des
gains non distribués avant la
réorganisation qui a converti Gaz
Métro en Société en commandite
(demandé par la Régie).
LOUIS LEGAULT:
Easier said than done.
Q. [120] Mr. Kolbe, just to go back to the previous
question as regards the issuing cost, wouldn't it
be more fair to deduct the retained earnings from
the actual equity in capital, which represents
approximately 38 percent of the total shareholder
equity in 1990 before the reorganization that
converted Gaz Métro into a limited partnership?
MR. KOLBE:
A. Well, there certainly should be an adjustment for
retained earnings.
R-3690-2009
10 septembre 2009
- 101 -
PANEL 2 - GM
Interrogatoire
Me Louis Legault
Because I didn't believe there to be any, I didn't,
I didn't review the literature or scrawl any
equations on that myself.
Whether or not you should deduct all of
them, I shouldn't
I can't say at this point
because I haven't done my homework on that point.
But I do know that there's an adjustment to
this calculation when there are retained earnings,
and I haven't made that adjustment.
LOUIS LEGAULT:
Well, Mr. President, you will be happy to hear that
I am finished.
LE PRÉSIDENT :
Merci, Maître Legault. Pour la formation de la
Régie, monsieur Boulianne.
INTERROGÉS PAR M. GILLES BOULIANNE :
Mister Vilbert, I am going in french.
Q. [121] Comme vous le savez, en deux mille huit
(2008), la Régie n'a pas retenu le modèle FamaFrench. Une des raisons, c'est que c'était très peu
connu ou très peu appliqué. Dans votre preuve, vous
semblez avoir également des difficultés avec
l'approche ou la formule ou la méthode Fama-French.
Pouvez-vous élaborer davantage sur la faiblesse
d'une telle méthode, de cette méthode-là?
R-3690-2009
10 septembre 2009
- 102 -
PANEL 2 - GM
Interrogatoire
M. Gilles Boulianne
MR. VILBERT
A. The Fama French method is now widely used by
academics to estimate the cost to capital.
But like the ATWACC, it's not widely used by
regulators.
And the Fama French method is the method to
estimate the return on equity as opposed to the
overall cost to capital.
The
sorry, I'm listening to myself in
French.
One of the criticisms of the Fama French
method is that it is, it was developed based upon
empirical data as opposed to a theory.
In other
words, people said the capital as to pricing model
seems to have a weakness, we need to look at some
other methods. And the people who developed it,
Professors Fama and French, searched to see what
data they could find that would explain stock
prices and returns more accurately.
And so, a major criticism of Fama French
was, it was designed sort of from a data mining,
its the criticism that you would say.
And people used to say, for example, you
can predict how the stock market will do next year,
depending on whether the American league won the
R-3690-2009
10 septembre 2009
- 103 -
PANEL 2 - GM
Interrogatoire
M. Gilles Boulianne
world series or the national league won the word
series. And if you do those kinds of searches long
enough, you can find data that explains things or
seem to be explanatory.
So that was a criticism of
Fama French.
However, in fairness to the Fama French
method, it's been around now since 1994, or so,
maybe even a little earlier than that even, and
people have tested it over and over and it seems to
hold with some regularity. And so in that sense
it's becoming more accepted and academics are now
putting explanatory reasons for why you observe a
market premium for small minus large stocks or high
minus low book value ratios.
And so, they're putting some rational behind what
was originally an effort to just look at data.
There's now added to that, by the way, a
fourth factor which is called momentum.
And the momentum is stocks that have been
successful recently versus stocks that haven't been
successful recently, and that's now a fourth factor
in most Fama French models.
So this is, it's an area that's
promising. It's an effort to try to explain market
prices more accurately.
R-3690-2009
10 septembre 2009
- 104 -
PANEL 2 - GM
Interrogatoire
M. Gilles Boulianne
But it hasn't gotten wide acceptance and
there's still a lot of resistance to the way it was
derived, which is to say, this data mining aspect
of it.
LE PRESIDENT:
Thank you Mr. Carpenter.
INTERROGÉS PAR LE PRÉSIDENT :
Richard Carrier pour la formation de la Régie.
J'aurai des questions pour un peu les différents
témoins.
Q. [122] Premièrement, monsieur Carpenter, je vous
amènerais à votre présentation page 20 où vous
présentez un graphique comparant les rendements
autorisés, et vous utilisez le même graphique
également dans votre preuve écrite, et vous en
venez à la conclusion qu'on peut voir que la
formule d'ajustement automatique est brisée.
J'aimerais que vous précisiez. Lorsque vous
mentionnez que la formule d'ajustement automatique
en vigueur à la Régie et dans d'autres juridictions
Canada est brisée, est-ce que vous référez
strictement à la période la plus récente ou à
l'ensemble de la période sur le graphique de la
page 20?
R-3690-2009
10 septembre 2009
- 105 -
PANEL 2 - GM
Interrogatoire
Le président
MR. CARPENTER:
A. Yes, it's a bit hard to make a judgement as to the
particular date in which the decoupling occurred,
and, frankly
and if you look at this charts,
which is an ATWACC based chart, it looks like the
formula is producing below fair returns as early as
it was initially instituted.
I mean, I think a bit of history is
relevant here because the NEBs formula had been in
operation for up to five years prior to when the
Québec first introduced the formula.
And if you plotted this chart back to 1994,
which I did in the TQM case, you'll see that at the
time that the NEB first established the formula,
these comparative returns were much more in line.
And so, there's
it was a process of
evolution, I think, such that, you know, by the
time 1999 and 2000 rolled around there was, there
were certainly questions in my mind at that point
and I testified so as to whether or not the formula
was compensating fully for business risk.
It's one reason why I've brought back this
evidence again, updated now, subsequent to 1999
because I think you need to take a broad view as to
the evolution of business risk as it relates to the
R-3690-2009
10 septembre 2009
- 106 -
PANEL 2 - GM
Interrogatoire
Le président
formula.
So my own view is that, is that a good
demarcation point for when the formula started
producing substantially unfair returns would be at
that point when you started to see the market
fundamentally change, 1999, 2000 in that period.
Q. [123] Ma question suivante sera à la page 7 de la
même présentation où vous présentez, figure 5,
intitulé « Gas market uncertainty » et vous
présentez un graphique montrant la volatilité des
prix ainsi qu'à, également, je crois, peut-être
encore plus, de façon plus frappante à la page 5,
« price and volatility ». Considérant que le prix
de la marchandise pour Gaz Métropolitain, pour Gaz
Métro n'est pas un risque assumé par l'entreprise
elle-même mais c'est transféré aux clients,
considérant également que l'énergie demeure tout de
même un bien essentiel ou un bien incontournable
dans le processus de production des entreprises que
les gens, la demande en énergie ne disparaîtra pas
du jour au lendemain même s'il y a de la
volatilité, dans quelle mesure cet aspect-là joue
de façon importante sur le risque à long terme de
l'entreprise?
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Le président
- 107 MR. CARPENTER:
A. Well of course, the risk associated with Gaz
Métro's assets, and if we think about the demand
for the use of Gaz Métro's assets, it's a derived
demand. It's derived from the
a demand for the
underlying commodity.
So what I'm suggesting is that if
and in this
case the underlying commodity cost is a very large
percentage of the total, of the total bill, whether
you're a residential customer or industrial
customer.
And so what I'm suggesting is that the
increases and the volatility in the underlying
commodity will translate itself into the derived
demand for Gaz Métro's services, that it is
revealed when you look at data such as averages to
customer, changes in industrial demand,
competitive
competitive effects of electricity,
all of that, that competition is happening on the
margin with respect to the total cost of energy
that includes the commodity costs, as well.
So I don't think you can say that just
because gas costs are a pass through in regulation,
that the distribution company is
immune from the
effects of commodity price volatility, it is just
R-3690-2009
10 septembre 2009
- 108 -
PANEL 2 - GM
Interrogatoire
Le président
expressed as a derived demand.
Q. [124] Maintenant, concernant les comparaisons des
risques entre les entreprises de distribution
américaines et les entreprises de distribution de
gaz au Canada, est-ce que vous avez examiné la
nature des régimes réglementaires en vigueur,
notamment quant au processus d'autorisation des
investissements?
Ici à la Régie, nous avons... nous
autorisons les investissements au préalable. Je
crois que ce n'est pas pratique courante aux ÉtatsUnis. Il y a même des débats à ce que, aux ÉtatsUnis, si une telle approche devrait être adoptée ou
pas. Est-ce que ça n'influe pas sur les risques qui
doivent être assumés par l'actionnaire, la nature
du régime réglementaire concernant les
autorisations des investissements?
MR. CARPENTER
A. Yes, but I would qualify it as follows:
My understanding of both régimes is that there is a
prudent investment standard, and whether you
implement it is by virtue of a prior approval
process or whether you implement it with an after
the fact prudency review, incentives are the same,
it seems to me, which is obviously not, not to
R-3690-2009
10 septembre 2009
- 109 -
PANEL 2 - GM
Interrogatoire
Le président
over spend.
There will be a risk associated with
over spending whether it's a prior approval
approach or whether it's based on an after the fact
prudency approach.
So I recognize the difference, I don't put
a lot of stock in that having a fundamental affect
on the risk between the two régimes.
Q. [125] Et en complément de cette question,
concernant les actifs qui deviennent désuets soit
pour des raisons économiques ou pour des raisons
techniques, est-ce que vous avez comparé les
traitements dans les pratiques comptables
réglementaires en vigueur ou croyez-vous que c'est
un élément qui peut avoir un impact?
MR. CARPENTER:
A. I've studied more on the, on the pipeline side of
things, and I'm not sure how different that is
vis a vis distribution companies, but I think the
issue you're getting at is the extent to which
rates include such things as negative salvage or
decommissioning costs up front. I can't tell you,
at the distribution level, whether that matters.
At the pipeline level my view is that that
doesn't matter as, in terms of comparison.
R-3690-2009
10 septembre 2009
- 110 -
PANEL 2 - GM
Interrogatoire
Le président
Q. [126] Maintenant, il a beaucoup été question des
rendements réalisés selon les valeurs aux livres et
qui étaient très peu indicatives des valeurs au
marché. Et une question qui me vient à l'esprit,
c'est lorsque les entreprises présentent leurs
résultats trimestriels, elles vont présenter les
résultats par rapport aux règles comptables
existantes, donc des profits et des pertes. Et les
investisseurs comparent rapidement quel est le
résultat selon les règles comptables en vigueur
avec peut-être les prévisions qui étaient
anticipées, mais aussi peut-être les ajustements
qui étaient déjà pris en compte. Mais, lorsqu'il y
a des écarts, des résultats par rapport à ce qui
était anticipé, le marché réagit vite et des fois
de façon très importante. Et dans certains cas, ça
peut être pour des durées, des impacts très longs
également.
Donc, est-ce qu'on peut dire que les
résultats selon les valeurs aux livres n'ont rien à
voir avec les valeurs au marché? Ça m'intrigue un
peu.
MR. CARPENTER:
A. I didn't suggest they had nothing to do. I said it
was, it was of limited value. And what you've
R-3690-2009
10 septembre 2009
- 111 -
PANEL 2 - GM
Interrogatoire
Le président
described is a circumstance in which there is a
market expectation, and then the book results come
in somewhat differently than the market
expectation.
That's the kind of surprise that you
might get, in effect.
Of course, half of that equation is what's
the market expectation?
And I'm suggesting that
the market expectation is built up, not just by
looking at the historical book results, which is
what has been put to me, but instead the market
expectation is based on these kinds of underlying
supply, demand competitive fundamentals.
And so, yes, when, as compared to what
you'd expect based on that kind of analysis, book
result comes in somewhat different.
It could be a reason for a surprise, and so
I'm not saying that they're irrelevant but on a
forward looking basis, what I'm not
what I do
say is, you don't get much value by saying earnings
have been stable for the last five years to say
that this enterprise is not subject to
forward looking risk.
I think investors do a lot more analysis than just
that.
Q. [127] Merci. Je vais passer maintenant à une série
R-3690-2009
10 septembre 2009
- 112 -
PANEL 2 - GM
Interrogatoire
Le président
de questions à monsieur Egen. Dans votre
présentation, à la page... dans votre preuve
écrite, c'est-à-dire à la page 76. Donc, à la
figure 25, vous présentez les rendements autorisés
pour Gaz Métro, et vous arrivez également à la
conclusion que la formule d'ajustement automatique
est brisée.
Même question que pour monsieur Carpenter,
jugez-vous que c'est principalement dû à la période
très récente de la crise financière majeure qui
vient de se dérouler ou si le problème est plus
large ou quel est votre point de vue?
MR. ENGEN:
A. In my view, the most recent financial crisis, it
gives us a perfect light to be able to examine
whether the formula works or not in that, as I've
said in my evidence, in an environment where every
reasonable person has and did expect the cost of
equity was rising, the formula was producing
results that would force ROEs lower.
But that said, in my view, the formula has
been producing lower and lower results over the
past number of years while evidence around me and
the marketplace, and the discussions with
investors, private equity and pension funds, have
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Le président
- 113 -
all seemed to indicate that even prior to the
increase, the issues generated by the recent market
difficulties, that the cost of equity had been
rising and the formula was producing lower returns.
As I pointed out, Karen Taylor, who was
and as I say, isn't with us any longer
interestingly, she's now advising the OEB
had
been writing a number of years ago that the formula
was broken. By the formula, I mean, all of the
regulated formulas in the country.
Karen, at the time
and I don't think she
would take offence of me saying this
was
probably the most outspoken and most independent
research analyst on the street.
As an investment banker, I wasn't even
entitled to look at her research let alone comment
on it before it went out.
The views that she had were very, very
independent. She had some very strident views about
what was going on in the marketplace, and she had
been concluding, as I had been, along with other
colleagues I worked with, notably Gord Lochenbauer,
who prior to me becoming more involved in these
processes had been testifying on returns on capital
for some time that, indeed, that returns being
R-3690-2009
10 septembre 2009
- 114 -
PANEL 2 - GM
Interrogatoire
Le président
generated by the various formulas across the
country were too low.
So one of the difficulties I have is when
people talk about the recent distress in the
marketplace, "It's going to be over soon, so let's
do nothing," I think really avoids the issue. And
the issue is, is that for some time, regulated
formulas across the country have not been producing
fair returns.
Q. [128] Si l'on fait abstraction de la crise
financière des deux dernières années, qui a eu un
impact majeure évidemment sur... autant les
attentes des investisseurs peut-être que les
rendements sur les marchés financiers, le fait
que... évidemment, la formule d'ajustement
automatique fait évoluer les rendements autorisés
en fonction de l'évolution des obligations à long
terme du gouvernement, le fait que nous ayons été
dans une période où le taux d'inflation a été
tendanciellement à la baisse, est-ce que la formule
ne joue pas son rôle de ce côté-là versus, est-ce
que les attentes des investisseurs tiennent compte
peut-être de cette réalité qui... l'inflation n'est
plus à dix (10 %) ou à cinq pour cent (5 %)
aujourd'hui, mais à deux (2 %), un pour cent (1 %)?
R-3690-2009
10 septembre 2009
- 115 -
PANEL 2 - GM
Interrogatoire
Le président
Est-ce qu'il n'y a pas un « disconnect » entre les
attentes et la réalité des marchés et de
l'inflation telle qu'il se produit?
A. Well, my view, inflation rates haven't played an
important role in the market, in the market's view
of what the return ought to have been under the
formula, and has not been for some time.
As I say, it's generally been returns that
people have been looking for, generally defined,
and the 10 to 12 percent ROEs have been looking to
a number of clients and issuers and investors in
coming to that conclusion, so I don't think that
inflation is playing a role at this time and has
not for some time.
Q. [129] Et ma prochaine question, justement, portait
sur la page 89, 91 ainsi que, je crois, 98. Vous
parlez des attentes au niveau de « private equity »
pour « energy infrastructure », les attentes
également des fonds de pension concernant leurs
investissements dans les actifs « energy
infrastructures », et par la suite vous parlez à la
page 98 des « pipeline project ». Dans quelle
mesure ces investissements-là, ces actifs-là sontils au niveau des risques comparables à un « pure
play utility » comme l'expression anglaise qui est,
R-3690-2009
10 septembre 2009
- 116 -
PANEL 2 - GM
Interrogatoire
Le président
pour un distributeur qui est spécialisé strictement
dans la distribution soit d'électricité et de gaz,
un « pure play », dans quelle mesure ces niveaux de
rendements attendus-là sont pour des risques
comparables à ceux pour lesquels la Régie doit
fixer un taux de rendement?
A. Well, my discussions with pension funds and
investors, the
when they're commenting on the
kinds of returns they're looking for, energy,
infrastructure, assets, as I say, in the
for
pension funds, in the 10 to 12 percent range, the
fundamental risk profile that they're talking about
would be substantially the same as the risk as we
are talking about for, for Gaz Métro.
Now, there will be some differences, and
for assets there is, substantially, risk here, even
though energy infrastructure assets, and there
would be a differences in those sorts of returns.
For example, if we were talking about
windmill projects, and we have a number of those
across the country, where we have merchant
exposure, there's no PPAs underlying those
projects, then the returns are substantially higher
that would be sought for.
And in those cases it
would be 20, 25, 30 percent, given the risk profile
R-3690-2009
10 septembre 2009
- 117 -
PANEL 2 - GM
Interrogatoire
Le président
for those assets.
But where, where energy infrastructure
assets, like wind projects are underpinned by
long term PPAs granted by BC's, BC Hydro,
Quebec Hydro and the OPA in Ontario, we would
characterize the risk profile of those to be very
similar to the kinds of risk profiles at the end of
the day as, as the Gaz Métro.
And, indeed, we've looked at these kinds of
returns for customers in Quebec who have bid on
renewable energy projects and have been successful
in winning PPAs from Quebec or Québec Hydro.
And the kinds of returns they've been
looking there would be in the 10 to 12 percent
range.
Q. [130] Et vous parlez dans votre preuve des
rendements attendus par ces investisseurs. Est-ce
que vous avez des données sur les rendements
réalisés dans une période suffisamment longue pour
pouvoir juger des résultats de ces investissements
dans les actifs « energy infrastructure » et de la
nature de ceux dont vous faites référence dans
votre preuve?
A.
Unfortunately, some of those can be very difficult
to define, particularly with
I'll run through
R-3690-2009
10 septembre 2009
- 118 -
PANEL 2 - GM
Interrogatoire
Le président
the groups.
For private equity, the challenge we have
there is that once private equity acquires an
asset, it's now hidden away and we don't know
because there's no public disclosure around those
assets any longer, how they performed.
And to the extent that they do provide,
first of all, disclosure tends to be on a portfolio
basis, so it's difficult to pull out individual
assets and find out how they've done.
Unfortunately, the same holds true for
pension funds. Once Ontario Teachers or Borealis or
CPP acquire an asset, again, to the extent that
there's any public disclosure, those assets now are
hidden away and we see a portfolio's performance.
So it's very difficult, if doable at all,
and, generally, it's not doable because the pension
funds, private equity, don't provide that kind of
disclosure.
On the pipeline assets, again, it's going
to depend on whether the assets deteriorate or not.
When an asset's acquired, when a pipeline
asset is acquired or built by somebody, unless it's
very large relative to the rest of the size of the
business, there's going to be precious little
R-3690-2009
10 septembre 2009
- 119 -
PANEL 2 - GM
Interrogatoire
Le président
disclosure around how it actually performs.
The only name that comes to mind for me
that you'd be able to deduce how a pipeline is
performing relative to anticipated returns might be
something like Alliance Pipelines, where Fort
Chicago, which is a publicly traded income fund in
Canada, and the lion's share, historically, of its
earnings came from the Alliance Pipeline.
Now, even that's being diluted to the
extent that they're now involved in the Alberta
ethane gathering system.
They're also involved in a number of power
projects but you can get more information on how
they've been performing.
Q. [131] J'aurais une question maintenant. Je vous
amène à la page 135 de votre preuve écrite, en fait
134 et 135, aux lignes 19 et suivantes. Donc vous
mentionnez :
I understand Gaz Métro does not need
material equity capital for his Quebec
distribution systems. Although it will
need a capital in the range of 150 M$
in connection with Green Mountains
Power acquisition. However, the
question of whether Gaz Métro requires
R-3690-2009
10 septembre 2009
- 120 -
PANEL 2 - GM
Interrogatoire
Le président
capital today is not relevant. The
question is whether Gaz Métro could
raise capital on reasonable terms and
conditions through all business cycles
and all financial cycles.
Cette conclusion-là, et vous mentionnez également :
The capital attraction standard does
not stipulate capital debt. Capital
must be needed at the time this
standards is applied.
Est-ce qu'il est réaliste de penser que le régime
réglementaire peut réussir à un peu, pas protéger,
mais compenser l'investissement de l'actionnaire,
peu importe les événements qui se passent sur les
marchés, les cycles économiques qui se produisent
et autres, à quel endroit peut-être il y a une
limite à définir à savoir un « fair return » ça
veut dire quoi, comparable à ce que des entreprises
en compétition pourraient obtenir? Ici j'ai de la
difficulté à voir. Est-ce que Gaz Métro peut avoir
accès à des termes raisonnables au travers tous les
cycles économiques, tous les cycles financiers?
J'aimerais ça que vous élaboriez davantage sur
cette notion.
R-3690-2009
10 septembre 2009
- 121 -
PANEL 2 - GM
Interrogatoire
Le président
MR. ENGEN:
A. My understanding of the fair return standard is
that those who provide capital to Gaz Métro by the
regulator entities would be entitled to earn a
return on investment comparable to returns
generated on investments of similar risk.
And then, in addition, as I say here,
needing to be able to require or access capital
through business cycles and financial cycles.
But there may arise circumstances, I'm
sure, in the marketplace where even the most well
intended regulator may make it
may not be able
to ensure that a company is able to access capital.
That's part of, one of the concerns that I
think that people have about ensuring that a
company is able to, is well capitalized and gets a
fair return because there may be times where, if
the regulator doesn't ensure that capital providers
are fairly compensated, that when the time comes
that the company actually has to go out and raise
capital, the regulator can't force people to
provide that capital.
And we may find ourselves in a situation
that to get ourselves to the returns that are
acquired, we can't get the
we can't even pass
R-3690-2009
10 septembre 2009
- 122 -
PANEL 2 - GM
Interrogatoire
Le président
the kinds of rates along to customers, customers
disappear from the system.
If the rates get too expensive, they switch
away from natural gas to power or to alternative
sources of energy.
So, there's no doubt in my mind, there may
be some circumstances where there's nothing that
can be done.
In December of last year, I don't think
that if somebody, including Gaz Métro, had to raise
a lot of money, that there's nothing that we could
have done or you could have done to make them get
that kind of access.
But asking the question generically:
Do they need the 150 million dollars today?
I
don't think is relevant, it's over the longer
period, we need to make sure that there's always
steady access.
Q. [132] Et dans la période de crise financière que
nous avons connue, ne serait-il pas exact de dire
que les difficultés d'accès aux marchés, autant au
marché obligataire qu'au niveau du marché pour les
émissions d'actions, le marché a été fermé pour à
peu près toutes les entreprises sauf celles qui
étaient prêtes à concéder, soit payer des
R-3690-2009
10 septembre 2009
- 123 -
PANEL 2 - GM
Interrogatoire
Le président
rendements élevés sur les obligations, soit payer,
accepter une dilution sur la valeur de l'action.
Est-ce que la situation n'était pas la même pour
toutes les entreprises qui ont dû faire face à une
crise imprévue et peut-être imprévisible également?
MR. ENGEN
A. Well, there's no question that for a period in late
2008 and early 2009, the ability to access any
capital market would have been very challenging,
and that's for all forms of capital, not just the
equity market.
I provide evidence here about bank debt,
preferred shares, the bond market and the equity
market. There were periods that each one of those
markets, in its turn, was, was very, very
difficult, if accessible at all by anybody. So,
yes, that can happen.
But as time progressed and various of those
markets opened up and leaders in the various
markets were willing to tap those markets, both on
the bond side and preferred share, and bit by bit
those markets had opened up. That's particularly
true in the bond market.
We've talked about, I think here and in our
evidence, that the bond market has seen a great
R-3690-2009
10 septembre 2009
- 124 -
PANEL 2 - GM
Interrogatoire
Le président
deal of issuances over the past number of months.
Spreads remained wider than they had
historically, but the market is back up. It took
awhile to get there and, as I say, key names within
the various sectors in the financial institution
market had to become led by RBC before others could
start to come in the energy infrastructure market.
One of the leaders in that market, to kind
of get things going on that side, would have been
Transcanada, equity issue earlier this year.
16 h 29
LE PRÉSIDENT :
Q. [133] Merci, Monsieur Engen. Docteur Vilbert,
lorsque vous calculez les « equity return », le
rendement sur l'équité dans le cadre de la formule
ATWACC, vous calculez, je crois, à la base à partir
du modèle d'équilibre des actifs financiers CAPM.
Vous calculez une moyenne historique sur une longue
période. Est-ce que la période à laquelle vous
référez, je crois, remonte aux années mille neuf
cent vingt-six (1926) ou autres?
MR. VILBERT
A. Yes. In the States it's 1926. I think it's 1928, or
so, for Canada, a little bit different in the
overlap, but as I have said before, that the market
R-3690-2009
10 septembre 2009
- 125 -
PANEL 2 - GM
Interrogatoire
Le président
risk premium that I estimated, the function of not
just realized historical returns but also economic
articles. In fact, every literature, surveys as
well as the supply side approach.
Q. [134] Et votre choix de retenir une longue période
historique comme celle-là, je crois, il y a souvent
eu des débats devant la Régie que quand on prend,
lorsque nous utilisons des périodes plus courtes,
la moyenne arithmétique est plus faible que sur une
période qui remonte à mil neuf cent vingt-six
(1926) ou vingt-huit (1928), et également lorsqu'on
prend des périodes plus longues encore une fois,
les rendements observés à partir des mêmes moyennes
arithmétiques ou autres sont plus faibles, qu'estce qui vous amène à choisir la période remontant
aux années mil neuf cent vingt (1920) comme choix
de référence?
A. If you look at the pattern of realized market
returns or the market risk premium over time,
you'll see that they vary year to year quite
dramatically.
For example, last year was the worst year
in 109 years of history for the Canadian market and
for the U.S. market, whereas this year is very good
and so
so far.
R-3690-2009
10 septembre 2009
- 126 -
PANEL 2 - GM
Interrogatoire
Le président
And so, you seek a lot of volatility, and
the idea of using a very long period of time is
that you want to, because the variance is so high,
that error is so high, you want as many
observations as you can possibly get to estimate
the market risk premiums, if you're going to rely
on that methodology.
Q. [135] Et quant à utiliser des données encore plus
anciennes, vous êtes au courant du débat sur le
fait que lorsque... je ne me rappelle pas
exactement quelle série de données, mais qui
remontent encore à, je crois, une quarantaine
d'années avant mil neuf cent vingt (1920), est-ce
que, pour vous, ces données sont utilisables ou
pas?
A. Well, first of all, there's a publication that has
109 years of data. This is produced by three
professors in London, Professors Dimson, Marsh and
Staunton, and they assert that they have gone back
to 1900, and that the data that they have gotten is
as reliable as it's possible to construct.
And, of course, the longer back in time you
go, potentially the less reliable the data.
But the point is, I think, that, yes, you
could, you should probably take some of the earlier
R-3690-2009
10 septembre 2009
- 127 -
PANEL 2 - GM
Interrogatoire
Le président
numbers with a grain of salt, but if, but as you
get more and more of them added together, whatever
errors might have existed, sort of average out over
that long period of time, and that's the underlying
idea.
MR. KOLBE:
A. Could I just add one point on this? Would that be
all right?
LE PRÉSIDENT:
Yes, go ahead.
DR. KOLBE:
A. I'm aware of at least one data source of U.S. data
that attempted to go way back, far before 1900, and
the data problems there become of a, of a peculiar
nature because what you get are the sub set of
companies that are the biggest and the most likely
to be publicly traded, the most likely to have
records, et cetera. So you, more or less, by
definition, get a
the safest sub set of the
economy in these old data, and lots of, you know,
before the major markets were as robust and as
reliable.
So that one of the problems would be, over
data, is just that if you aren't sure what, what
you're looking at is really representative of the
R-3690-2009
10 septembre 2009
- 128 -
PANEL 2 - GM
Interrogatoire
Le président
economy as a whole.
So that's, that's one of the services that
Dinson, Marsh and Staunton had done, is really try
to scrub it down for a number of countries and for
as long as they could, to try to address this kind
of problem.
So it's a very valuable data source.
LE PRÉSIDENT:
Thank you.
Q. [136] Docteur Vilbert, vous proposez, ainsi que
docteur Kolbe, vous proposez un ajustement pour...
de cent points de base, je crois, dans votre preuve
écrite concernant l'augmentation des « Bound
spreads » et également un ajustement de deux cents
points de base pour la question, l'augmentation de
la prime de risque. Si la Régie devait compenser
par des ajustements à la hausse de cette nature par
rapport à la moyenne historique, est-ce qu'il n'y
aurait pas une certaine forme de double comptage;
dans la moyenne historique, il y a des périodes à
la fois de très forte... de risque élevé sur le
plan économique, de prime de risque élevé, prime de
risque plus faible, donc une moyenne historique va
un peu établir la moyenne de tout ça, si lorsque se
présentent seulement des périodes plus critiques,
R-3690-2009
10 septembre 2009
- 129 -
PANEL 2 - GM
Interrogatoire
Le président
on ajuste toujours à la hausse, est-ce qu'il n'y
aura pas un certain biais ou strictement en termes
de logique, en termes de principe?
A. The cost to capital is a forward looking concept,
and I think your point is that over 109 years of
data, the average market risk premium was lower
than I'm recommending now.
But, I think you'd have to keep in mind
that the time that I was estimating the cost to
capital, things looked a lot different to investors
at that moment than they did over the 109 year
average period.
And I think it was, earlier it was
referenced, the Great Depression, there's only a
couple, three or four years of history, but during
the time of the Great Depression I suspect your
viewpoint was quite different than it is today,
looking backwards in time.
So, we still, at the time we did the
analysis, we did as you suggested, we used an
adjustment of 100 basis point to the history rate,
and a base level of 200 basis points to the market
risk premium, to try to capture the increased cost
of capital existing at that time. And, of course,
you know, we are basing estimates on the data of
R-3690-2009
10 septembre 2009
- 130 -
PANEL 2 - GM
Interrogatoire
Le président
the time.
I don't believe we are yet fully out of,
fully recovered back to normal, whatever normal
will, ultimately, be.
And I also believe that there will be a
residual effect of having experienced this
relatively severe downturn that will last beyond
the point of time in which the market recovers,
because investors
I mentioned this earlier
investors lost substantial sums of money, and even
though the market has returned, many people's
accounts are nowhere near to what they were before
the fall, in part because they moved out or
of
investments, or they bought at the wrong time or
sold at the wrong time, and so that even though
some of their companies have recovered, they are no
longer investors.
So there's a real loss that's going to
last, that's going to affect people for quite
awhile.
DR. KOLBE:
A. And I'll just add that for
we've been doing this
for quite some time now, I longer than Dr. Vilbert,
and I haven't, we haven't made these kinds of
adjustments before.
R-3690-2009
10 septembre 2009
- 131 -
PANEL 2 - GM
Interrogatoire
Le président
We're in a recession, we don't raise it; if we are
in boom, we don't lower it, we just have sort of
kept the costs in line with what you've said.
But we were asked to estimate the cost to
capital in a crisis that people, by and large,
believed couldn't happen.
Right?
I mean, people
people did not think we
could be at as much risk of an actual depression as
we came.
This is, this is, this is a unique and, I
hope, a unique series of events. But it has had a
major impact, and if we're trying to tell you what
the cost to capital is, which was our charter, we'd
really have to put blinders on and, you know, sort
of ignore the world, to just use the standard of
procedures because the world was not, is not what
it was.
Q. [137] Et un point important de votre preuve, autant
docteur Kolbe que docteur Vilbert, est basé sur le
fait que la crise financière manifestement a créé
une augmentation du coût du capital ou des attentes
des investisseurs. Est-ce que les attentes des
investisseurs, ce n'est pas un phénomène un peu
structurel ou de long terme?
R-3690-2009
10 septembre 2009
- 132 -
PANEL 2 - GM
Interrogatoire
Le président
Évidemment, la version risque peut, de
façon conjoncturelle, fluctuer beaucoup. C'est
certain que dans les deux dernières années, la
version risque a augmenté sensiblement, mais est-ce
qu'on peut conclure que les attentes à long terme
des investisseurs sont affectées sensiblement par
ce qui vient de se passer? Est-ce que c'est de la
nature à être rémunéré par un ajout au taux de
rendement?
Et question complémentaire : si les
attentes des investisseurs quant au rendement long
terme augmentent beaucoup, le fait que les marchés
s'effondrent, est-ce que ce n'est pas un message,
l'indication contraire que le marché ne peut pas
supporter les attentes aussi élevées? J'aimerais
obtenir vos commentaires là-dessus.
MR. VILBERT
A. And as Dr. Kolbe mentioned a moment ago, investors,
I believe, had driven market prices up and sort of
had a belief that the kind of events that occurred
in 2008 and early 2009 no longer were possible to
happen.
They were once in every 400 years or some very long
period of time kind of an event.
And I think, and there was an article that
R-3690-2009
10 septembre 2009
PANEL 2 - GM
Interrogatoire
Le président
- 133 -
Dr. Carpenter gave me just yesterday, that we're
talking about the fact that a lot of mutual funds
analysts are now re evaluating the models that
underly, underly their stock selections and are
exclusively incorporating the fact that, you now,
they call it "fact tales," which is
that the distribution has
just means
is no longer normal,
or it was probably never normal, the tales of the
distribution is unusual events are more likely than
originally thought.
What that means is, that the chance of
having a very disastrous economic situation like we
have now, or a very good situation, is greater than
people had previously supposed.
That translates into a higher market risk premium
going forward.
And to the extent that people now believe
those things to be true, where they did not before,
that translates into a higher market risk premium.
Q. [138] Maintenant, docteur Kolbe, je vous amène à
votre présentation Gaz Métro-7, Document 25, page
2.
DR. KOLBE
A. I don't necessarily have the numbers. Is this my
written evidence that we're looking at or one of
R-3690-2009
10 septembre 2009
- 134 -
PANEL 2 - GM
Interrogatoire
Le président
the information requests?
Q. [139] C'est votre présentation, votre deuxième
présentation intitulée « Summary of Evidence :
Findings ».
A. Yes, I'm there.
Q. [140] Donc, à la page 2, vous mentionnez :
ATWACC is applied to traditionnal
book-value rate base; ATWACC does not
mean rates based on market value of
company assets
Nous comprenons que le taux que vous suggérez sera
appliqué à la base de tarification à la valeur aux
livres telle que ça s'est toujours fait. Par
contre, la structure de capital, elle, ne sera pas
basée sur les « traditionnal, book-value of equity
or debt ». Est-ce que je comprends bien votre
proposition?
A. Well, I don't think that's quite right but it
depends on exactly what you mean by your comment.
I give you, and Gaz Métro gives you, the
returns on equity at the traditional book value
capital structure necessary to achieve the market
rate of return as measured by the ATWACC.
And also, at the actual capital structure with the
46 percent equity given that the preferred doesn't
R-3690-2009
10 septembre 2009
- 135 -
PANEL 2 - GM
Interrogatoire
Le président
really exist.
So there's nothing to stop you if you, if
you choose not to adapt the ATWACC as a direct
standard from, from achieving the same result with
your traditional book value capital structure.
The distinction is when we go to measure
the cost of capital, we go to the market where the
cost to capital is set and we measure, in
particular, we take account of the fact that the
level of financial risk embodied in the cost of
equity is based on the market value capital
structure for exactly the same reason people with a
20 percent mortgage have been a lot less harmed in
this housing crisis than people with an 80 percent
mortgage has been, sometimes some of whom have
found the value of their house less now than the
value of their mortgage, and they may sometimes
walk away because of that.
When you measure, if you
if these houses
were publicly traded stocks and measurement errors
aside, the betas of, the ones with higher mortgages
would be much higher.
Now, there's this section of my appendix E
that talks about sort of why you don't always see
this when you estimate them but the principle is
R-3690-2009
10 septembre 2009
- 136 -
PANEL 2 - GM
Interrogatoire
Le président
explained.
So all we do, when we
whether we do it
directly as the ATWACC or whether we do it by
converting the market rate of return corresponding
to the business risk of the enterprise, which is
the ATWACC, into a cost to equity at a book equity
ratio, is taken into account that the, what the
market is telling us about the overall business
risk.
If the market capital structure were the
book capital structure, all else equal, the
estimated cost to equity would be much higher than
we see, and you'd get the same ATWACC estimation,
problems aside.
So, we aren't in any way antithetical to a
book value rate base or book value capital
structures for rate making purposes, if that's what
you want.
What we do put forth is the view, well
supported in the literature, that I've tried to
explain with everyday examples, that when you
measure the cost of equity in the market, part of
that equity is compensation for financial risk, and
that financial risk depends on the market value
capital structure, not the book value capital
R-3690-2009
10 septembre 2009
- 137 -
PANEL 2 - GM
Interrogatoire
Le président
structure.
So all we try to do, is to take the markets
evidence and translate it into whatever terms you
want, be it overall ATWACC or cost of equity at a
given, at a given equity ratio, or deemed equity
ratio at a given cost of equity, if that's what you
prefer, so that you can make rates there consistent
with the market evidence on risk and return.
16 h 40
Q. [141] Une question un peu dans la même ligne de
questions. Docteur Vilbert, vous calculez les
« market value », « capital structure », des
échantillons des compagnies américaines et des
compagnies canadiennes, et je crois, de mémoire, la
proportion d'équité dans votre échantillon de
comparables, compagnies américaines comparables,
tournent aux alentours de soixante pour cent
(60 %), je crois, et de mémoire également la
proportion d'équité pour les compagnies canadiennes
autour de cinquante pour cent (50 %), calculée à
partir du ATWACC. Est-ce que ces données sont
correctes?
DR. VILBERT:
A. The U.S. companies, I managed to find that them
quickly and it's roughly 60 percent equity. The
R-3690-2009
10 septembre 2009
- 138 Canadian sample
PANEL 2 - GM
Interrogatoire
Le président
just a minute I'll tell you
yes, the five year average is 53 percent for the
Canadian sample.
Q. [142] Et ces ratios d'équité qui sont déduits de
par l'application de votre approche basée sur les
valeurs de marché sont sensiblement plus élevés que
les structures de capital, structures d'équité
habituelles proposées pour des distributeurs
d'électricité ou de gaz, et je me rappelle, je
crois, c'est en mil neuf cent quatre-vingt-seize
(1996) ou quatre-vingt-dix-sept (97), nous avions
eu une preuve sur la structure de capital optimale
pour un distributeur et, je crois, les ratios
d'équité tournaient aux alentours de quarante pour
cent (40 %) d'équité.
Comment concilier des valeurs au marché qui
sont aussi élevées que celles que vous déduisez des
valeurs au marché avec des témoignages d'expert qui
vont venir dire quelles sont les structures de
capital optimales pour minimiser le coût du capital
autant pour l'entreprise que pour les
consommateurs? Comment concilier les deux approches
de façon correcte?
A. First of all, the
there's several issues here.
One is, is 40 percent equity on optimal capital
R-3690-2009
10 septembre 2009
- 139 -
PANEL 2 - GM
Interrogatoire
Le président
structure, and Dr. Kolbe's testimony deals
extensively with the issue of whether there is a
narrow range of optimal capital structures or a
very wide, wide range of capital structures that
are optimal in the sense that the weighted average
cost to capital, the ATWACC is constant within that
range.
And so, 40 percent is certainly a
percentage that I would think would be within the
range of optimal capital structures for a utility,
but that range doesn't hover or is not narrowly
centered around 40 percent, it could be quite a bit
wider.
And to the extent that the overall cost to
capital is constant within this broad range of
capital structures, then the fact that you observe
capital structures that vary from 40 percent to 60
percent just simply means that you have, although
overall cost to capital is the same, it just means
that they have selected or have a different
position in that overall optimal range of capital
structures than other companies.
And, in fact, the samples turned out right
now, even though the Canadian sample has less
equity thickness than does the Gaz LDC sample, the
R-3690-2009
10 septembre 2009
- 140 -
PANEL 2 - GM
Interrogatoire
Le président
overall cost to capital I estimated for those two
samples was very, very similar.
And so, the idea is that there's a wide
range of optimal capital structures and there's no
way to pin it down to a particular
this is the
number that you should be.
LE PRÉSIDENT :
Je vous remercie. Ça complète mes questions. Pas
d'autres questions. Mes collègues? Donc, ça
complète les questions de la Régie pour le présent
panel. Maître Regnault, est-ce que vous avez des
questions en réinterrogatoire ou pour plus tard?
Me VINCENT REGNAULT :
J'ai un sujet dont je veux traiter avec le panel en
réinterrogatoire.
The topic, I want to discuss with the pannel is
the...
LE PRÉSIDENT :
Pardon. Est-ce que vous préfériez que nous prenions
une brève pause quitte à... parce que, par la
suite, on va devoir discuter un peu de
l'ordonnancement du reste de la journée de demain,
ou si vous préférez le faire tout de suite?
Me VINCENT REGNAULT :
On peut y aller.
R-3690-2009
10 septembre 2009
- 141 -
PANEL 2 - GM
Interrogatoire
Le président
LE PRÉSIDENT :
Allons-y!
Me VINCENT REGNAULT :
Moi, ça ne sera pas, ça ne devrait pas être très,
très long. En tout cas, pour ma part.
So the topic, I want to discuss with the pannel is
the topic of the professor Morin, or ... of
professor Morin which was raised... On est rendu à
quelle cote? B-79. Merci.
Me GUY SARAULT :
Pardon. J'aurais...
Me VINCENT REGNAULT :
Me laissez-vous poser mes questions introductives,
Maître Sarault?
Me GUY SARAULT :
Non. J'ai une objection.
Me VINCENT REGNAULT :
Moi, ce que je propose à la formation, c'est de
simplement faire la mise en contexte, poser les
questions que je voulais poser en réinterrogatoire.
Et au moment opportun, lorsqu'il sera question du
document en question, maître Sarault pourra
s'objecter. Et vous aurez à ce moment-là le
contexte complet pour vous permettre de trancher
l'objection qui va être soulevée, j'en suis
R-3690-2009
10 septembre 2009
- 142 -
PANEL 2 - GM
Interrogatoire
Le président
certain.
Me GUY SARAULT :
Bien, écoutez, je pense qu'on n'a même pas besoin
de se rendre jusque-là. Manifestement, le document
que vous avez devant vous est un document qui émane
d'un tiers, docteur Roger Morin, qui n'est pas ici
pour être contre-interrogé sur ce... On a le droit
de confronter des experts quant à leur degré de
connaissance d'ouvrages qui émanent d'autres
auteurs, et caetera, mais de là à venir présenter
en preuve le document d'un tiers, c'est du ouï-dire
pur.
Docteur Roger Morin n'est pas ici pour être
contre-interrogé. Je ne peux pas contre-interroger
une feuille de papier. Je peux contre-interroger
des experts quant à leur compréhension d'ouvrages
de doctrine qui circulent, qui sont au grand
public.
Mais, là, on a un mémo particularisé daté
du dix (10) septembre deux mille neuf (2009) du
docteur Roger Morin adressé au Brattle Group, Régie
de l'énergie et Gaz Métro. Ça commence à être un
ouï-dire, on ne peut plus classique, là. Et je
pense que je m'objecte formellement à ça. C'est
pour ça que je ne veux pas aller plus loin avec ça.
R-3690-2009
10 septembre 2009
- 143 -
PANEL 2 - GM
Interrogatoire
Le président
LE PRÉSIDENT :
Maître Regnault.
Me GUY SARAULT :
Hautement irrégulier.
Me VINCENT REGNAULT :
On a ici plusieurs sujets dont on débat. Un des
sujets très importants relatifs à l'application de
l'ATWACC, c'est l'utilisation d'une structure en
capital pour laquelle on utilise la valeur aux
livres versus la valeur... Excusez-moi! Pour
laquelle on utilise la valeur au marché plutôt que
la valeur aux livres. Et si on se rapporte aux
notes sténographiques du trois (3) septembre
dernier, à partir de la page 200, il y a eu une
série de questions qui ont été posées par mon
collègue, maître Sarault, au docteur Vilbert.
Sincèrement, ça commence comme je le disais à la
page 200, à la question 379. Je ne sais pas si vous
voulez prendre les notes sténographiques. Je sais
que... Je vois monsieur Boulianne qui se retourne.
Je vais lui laisser la chance de le faire.
16 h 50
Me VINCENT REGNAULT :
Et... Donc en bas de la page 200 où maître Sarault
invite donc le docteur Vilbert à se rendre à la
R-3690-2009
10 septembre 2009
- 144 -
PANEL 2 - GM
Interrogatoire
Le président
page 2 de sa preuve où il explique un peu la
démarche qu'il a suivie dans l'application, dans
l'analyse de son... l'application de la
méthodologie ATWACC. Et très rapidement, si on
passe à la page 201, on voit à la question 381, une
question de maître Sarault, quant à l'utilisation
d'une structure de capital à la valeur de marché
pour l'ensemble des compagnies qui font partie des
échantillons de monsieur Vilbert. Et monsieur
Vilbert lui dit : Effectivement, c'est ce que j'ai
utilisé pour me permettre de faire mon échantillon,
calculer l'ATWACC de mon échantillon de compagnie.
Et à 383, à la question 383, à la page 201, il y a
une confusion qui semble à ce moment-là se glisser
dans la discussion ou la série de questions et de
réponses entre monsieur Vilbert et maître Sarault
où maître Sarault dit à monsieur Vilbert :
Q. [383] Is it correct that
traditionally for regulated utilities
such as Gaz Métro, the capital
structure is traditionally estimated
at book value?
Et la confusion, elle vient du fait que monsieur
Vilbert, dans la détermination de son ATWACC
échantillon, utilise des valeurs au marché. Mais
R-3690-2009
10 septembre 2009
- 145 -
PANEL 2 - GM
Interrogatoire
Le président
dans la détermination ou dans l'application du
ATWACC pour Gaz Métro, il n'utilise pas la valeur
au marché, il utilise la valeur aux livres de la
structure en capital, c'est-à-dire où on peut
utiliser cette structure en capital-là.
Et la section ou la séquence de questions
et de réponses se poursuit, et pour nous amener
peut-être plus particulièrement à la page 203 où à
la question 385 où maître Sarault demande à
monsieur Vilbert : Si vous utilisiez la valeur aux
livres, est-ce que ça ne serait pas de la même
façon aussi consistant que si vous utilisiez la
valeur au marché? Et il y a une réponse ici du
docteur Vilbert qui dit, un des principes en
finance, c'est que, pour évaluer le risque
financier, vous devez utiliser la valeur au marché.
S'en suivent encore des échanges,
questions, réponses. Et maître Sarault, à la page
205, sa question 388 dit à monsieur Vilbert :
Q. [388] And you say that financial
literature is in favour using market
value capital structures?
Et le docteur Vilbert dit oui. Et c'est là que
maître Sarault sort le bouquin du docteur Morin. Il
cite essentiellement pour le docteur Morin deux
R-3690-2009
10 septembre 2009
- 146 -
PANEL 2 - GM
Interrogatoire
Le président
extraits, un premier à la page 208 des notes, qui
est un extrait qui provient de la page 451 du livre
du professeur Morin, et le second à la page 211,
212 où il reproduit ou il reprend, il cite un
extrait du livre, de la page 453 du livre du
professeur Morin.
De toute évidence, il y a une confusion
quant à la signification de ce que le professeur
Morin a écrit. Il est évident, à la lumière des
notes sténographiques, que maître Sarault, sa
cliente, ses experts sont d'avis que le texte ou
les citations veulent dire une chose. Monsieur
Vilbert, le docteur Vilbert dit, c'est peut-être
effectivement un peu ambigu, mais je vous dis, moi,
je lui ai parlé et je sais que ce qu'il voulait
dire, c'était que, dans l'évaluation du risque
financier, vous deviez utiliser la valeur au
marché. Et le tout se termine à la page 213 sans
qu'il puisse y avoir, évidemment, d'entente ou de
consensus quant à la signification. Et mon collègue
dit :
[...] the Régie will have this great
piece of reading as a reference
material and we'll see what happens,
is that okay?
R-3690-2009
10 septembre 2009
- 147 -
PANEL 2 - GM
Interrogatoire
Le président
Donc, ce document-là, ce livre-là, cet ouvrage-là,
il est, je pense, d'une grande importance pour la
Régie, comme le soulignait mon confrère. Et dans ce
contexte-là, il nous apparaît essentiel, si vous
voulez avoir l'ensemble, le portrait d'ensemble de
la chose ou des questions qui vous sont soumises,
que le professeur Morin ou que la citation ou les
propos du professeur Morin soient clairs et précis
dans votre esprit.
Je pense que vous vous priveriez d'un
élément important dans la prise de décision que
vous avez à prendre, dans la décision que vous avez
à prendre si vous refusiez d'entendre ce que le
professeur Morin peut avoir à dire à l'égard des
extraits que mon collègue a cités.
Ce que j'aurais souhaité faire, c'est vous
expliquer comment ce document... pas vous
expliquer, évidemment, parce que, moi, je ne
témoignerai certainement pas là-dessus, mais c'est
le docteur Vilbert et monsieur Despars, au besoin,
expliquer à la Régie comment ce document-là est
arrivé, et vous laisser évidemment le soin de
l'accepter de cette façon-là qui, je pense, serait
tout à fait approprié.
Je comprends que maître Sarault s'objecte
R-3690-2009
10 septembre 2009
- 148 -
PANEL 2 - GM
Interrogatoire
Le président
au motif du ouï-dire, et caetera, et caetera. Mais
le docteur Vilbert, lors de son témoignage, lui a
expliqué ce que le professeur Morin lui avait dit.
Il n'y a eu aucune objection. Et si, à la limite,
maître Sarault insiste pour que le professeur Morin
soit présent, bien, on va prendre une pause, puis
je vais prendre mon téléphone, puis on va voir
qu'est-ce qu'on est capable de faire.
Mais je pense que vous ne pouvez pas vous
priver de cette clarification-là que souhaite
apporter le professeur Morin. Vous pouvez prendre
évidemment connaissance rapidement du document et
vous verrez qu'il clarifie, comme l'indiquait le
docteur Vilbert, les propos qu'il tenait dans son
bouquin. Merci.
LE PRÉSIDENT :
Maître Sarault.
Me GUY SARAULT :
Écoutez, je pense que les propos de mon confrère ne
règlent pas du tout la problématique que j'ai
soulevée au soutien de mon objection. Ce que vous
avez devant vous c'est un mémo daté d'aujourd'hui
le dix (10) septembre deux mille neuf (2009)
émanant d'un expert, un tiers qui n'est pas présent
à l'audience, et qui se prononce directement sur
R-3690-2009
10 septembre 2009
- 149 -
PANEL 2 - GM
Interrogatoire
Le président
des enjeux dans le présent dossier.
Allez au troisième paragraphe de la page 1,
on a plus que du ouï-dire, ça devient une expertise
de complaisance par personne interposée :
I support the after-tax weighted
average cost of capital ("ATWACC")
methodology for regulatory purposes,
as long as it is properly applied. The
ATWACC approach is not only well
researched in the academic literature
but is a standard well-known and sound
approach to discounting routinely used
by companies for economic studies
performed for internal business
decision and found in all finance
textbooks. Moreover, the use of the
ATWACC approach as opposed to the
hybrid regulatory WACC approach to
cost of capital is not biased in any
one direction.
C'est un endossement généralisé et complet de la
méthodologie qui est recommandée par le Brattle
Group dans le présent dossier. On amène ça à la
toute dernière minute par un expert qui n'est pas
ici pour être contre-interrogé, sans préavis, sans
R-3690-2009
10 septembre 2009
- 150 -
PANEL 2 - GM
Interrogatoire
Le président
rien. C'est une violation, mais totale, de la règle
du ouï-dire et de la règle audi alteram partem. Ce
ne sont pas les règles du jeu. Ce ne sont pas les
règles d'équité procédurale qui ont toujours été
suivies par la Régie.
J'ai le droit, c'est certain, de contreinterroger des experts sur de la littérature qui
est disponible dans le grand public, qui est
disponible comme ouvrage de référence. Mais là on
n'est plus dans un ouvrage de référence. Là on est
dans un mémo particularisé qui prend partie dans le
présent dossier sur des enjeux. Et je pense que
c'est une violation totale des règles d'équité
procédurale auxquelles le Tribunal tout comme les
participants sont assujettis.
Alors qu'on fasse venir le docteur Morin,
qu'on essaie de le faire venir ou non, je trouve
que c'est hautement irrégulier à ce stade très
tardif du dossier d'arriver avec ça.
LE PRÉSIDENT :
La Régie va prendre l'objection en délibéré et
après la pause, au besoin, rendra sa décision.
Me VINCENT REGNAULT :
Je voudrais me permettre juste un très très court
commentaire quant à la tardiveté de la chose. Je me
R-3690-2009
10 septembre 2009
- 151 -
PANEL 2 - GM
Interrogatoire
Le président
permets de souligner que cette question-là a été
soulevée dans le cadre du contre-interrogatoire de
mon collègue. Si ça n'avait pas été soulevé à ce
moment-là je n'aurais évidemment pas tenté de
clarifier ces propos-là. Alors c'est tout ce que je
voulais ajouter. Je vous remercie.
LE PRÉSIDENT :
Maître Lussier.
Me STÉPHANIE LUSSIER :
Bonjour, Monsieur le Président. Stéphanie Lussier
pour Option consommateurs. Parenthèse, nous
aimerions confirmer avec le banc que la preuve
d'Option consommateurs, qui était prévue hier et
par la suite aujourd'hui au calendrier, ne sera pas
présentée aujourd'hui mais demain ou toute autre
journée bien qui conviendra à tous.
LE PRÉSIDENT :
Donc vous êtes disponible demain au besoin pour la
présenter?
Me STÉPHANIE LUSSIER :
Oui, mais nous confirmons que nous ne la
présenterons pas aujourd'hui.
LE PRÉSIDENT :
Aujourd'hui. Merci.
Me STÉPHANIE LUSSIER :
R-3690-2009
10 septembre 2009
- 152 -
PANEL 2 - GM
Interrogatoire
Le président
Ça vous va?
LE PRÉSIDENT :
Merci.
Me STÉPHANIE LUSSIER :
Merci.
LE PRÉSIDENT :
Maître Sicard.
Me HÉLÈNE SICARD :
Deux petites choses. Dans un premier temps, Union
des consommateurs était associée à l'ACIG pour sa
preuve. On appuie l'objection que fait l'ACIG à la
production du document. Gaz Métro a fait sa preuve,
nous en sommes rendus au contre-interrogatoire. On
n'est plus rendu à faire de la preuve.
S'il était opportun et si ce document
pouvait être présenté dans le cadre d'une contrepreuve parce qu'il se plierait aux règles de la
contre-preuve, ce sera à discuter et à voir, qu'on
le regarde. Mais dans le cas qui nous occupe la
preuve de Gaz Métro ses témoins ont témoigné, elle
est terminée. On est en contre-preuve. En contreinterrogatoire, pardon. Alors, il est mal venu en
contre-interrogatoire d'amener un nouveau document.
Deuxième chose. Notre preuve, pensez-vous
que l'Union des consommateurs, voulez-vous nous
R-3690-2009
10 septembre 2009
- 153 -
PANEL 2 - GM
Interrogatoire
Le président
entendre aujourd'hui ou voulez-vous nous entendre
demain? Je vous demande d'y réfléchir pendant la
pause et de nous laisser savoir ce que vous voulez
faire quand vous revenez.
LE PRÉSIDENT :
Au retour de la pause nous allons faire le point
pour le déroulement de l'audience, oui.
Me HÉLÈNE SICARD :
Merci.
LE PRÉSIDENT :
Maître Turmel.
Me ANDRÉ TURMEL :
Bonjour, Monsieur le Président. André Turmel pour
la FCEI. Dans un premier temps, les consommateurs
commerciaux que je représente appuient sans réserve
ce qui a été avancé par maître Sarault. On constate
de plus en plus, et je le dis avec égard, que les
entreprises régulées prennent de plus en plus de
liberté devant la Régie dans tous les domaines,
l'électricité comme le gaz naturel. Et ce qu'on
vient de voir ici nous aussi on n'a pas vu ça
souvent, voire jamais dans les dernières années, et
ça serait hautement, comme l'a dit mon confrère,
irrégulier en bout de course que l'on tente par une
note qui semble sortie tout droit vraiment de la
R-3690-2009
10 septembre 2009
- 154 -
PANEL 2 - GM
Interrogatoire
Le président
complaisance, une note datée d'aujourd'hui, que ce
dépôt soit fait.
Ceci étant dit par ailleurs, pour la preuve
de la FCEI nous vous disons que nous ne serons pas
en mesure de la faire aujourd'hui bien sûr. Nous
sommes certainement disponibles demain et, le cas
échéant, lundi, si lundi il devait y avoir de la
preuve.
LE PRÉSIDENT :
Merci, Maître Turmel. Alors la Régie prend le tout
en délibéré et revient dans quinze (15) minutes.
SUSPENSION DE L'AUDIENCE
_______________________
17 h 25
LE PRÉSIDENT :
Alors, la Régie va rendre sa décision concernant
l'objection au dépôt du document présenté par le
procureur de l'ACIG. La Régie considère qu'un
participant a le droit de citer un ouvrage de
doctrine et d'interroger les témoins et les experts
à ce sujet et ceux-ci ont également l'opportunité
de présenter leur compréhension dudit ouvrage de
doctrine et de le commenter.
Le document présenté par maître Regnault
provient d'un tiers qui n'est pas partie au dossier
R-3690-2009
10 septembre 2009
- 155 -
PANEL 2 - GM
Interrogatoire
Le président
à l'heure actuelle. Il s'agit, dans les
circonstances, également de l'introduction d'une
expertise à la toute fin du contre-interrogatoire
du panel. Dans les circonstances, il s'agit d'une
pratique non usuelle selon les règles usuelles de
procédures.
Dans les circonstances du présent dossier,
la Régie ne juge pas que l'enjeu justifie
d'apporter une dérogation à la pratique usuelle,
que ce dépôt est relativement tardif et donc, la
Régie ne le permettra pas et va accueillir
l'objection de maître Sarault.
Et sur ce, Maître Regnault, avez-vous
d'autres questions pour... en réinterrogatoire pour
votre panel?
Me VINCENT REGNAULT :
Non, c'était le seul... c'est le seul sujet dont
j'avais...
LE PRÉSIDENT :
C'est le seul sujet.
Me VINCENT REGNAULT :
... je souhaitais traiter avec le docteur Vilbert.
LE PRÉSIDENT :
Merci. Alors, ça complète les questions de la
Régie, donc pour le présent panel. Donc, les
R-3690-2009
10 septembre 2009
- 156 -
PANEL 2 - GM
Interrogatoire
Le président
témoins sont libérés pour le présent témoignage
autre que s'il y a une contre-preuve de présentée
par Gaz Métropolitain... Gaz Métro c'est-à-dire.
Concernant maintenant la suite de
l'audience, la journée est déjà très avancée et il
est prévu l'audition du témoignage du panel de
l'ACIG.
La Régie prévoirait entendre les preuves
des intervenants, si c'était possible, lundi à
partir de treize heures (13 h 00) et donc la Régie
demande aux participants quelles sont les
possibilités à cet égard.
Me HÉLÈNE SICARD :
Hélène Sicard pour l'Union des consommateurs. Je me
vois dans l'obligation de vous demander d'essayer
de nous placer demain. J'avais demandé, à cause de
mes disponibilités professionnelles, même de
plaider par écrit la semaine prochaine pour les
plaidoiries. Alors, refaire mon calendrier
d'audience avec mon associé qui déjà me représente
dans un autre dossier, il m'est impossible pour
lundi. Alors, je vais vous demander de faire notre
présentation, si c'est possible, demain. On
pourrait la faire à neuf heures (9 h 00) demain
matin, au moment qui vous convient.
R-3690-2009
10 septembre 2009
- 157 -
PANEL 2 - GM
Interrogatoire
Le président
LE PRÉSIDENT :
Merci. Maître Turmel.
Me ANDRÉ TURMEL :
Nous sommes disponibles lundi à treize heures
(13 h 00).
LE PRÉSIDENT :
Merci. Maître Paquet pour le GRAME
Me GENEVIÈVE PAQUET :
Oui. Donc, il n'y a pas d'objection pour le GRAME.
On est disponible à partir de treize heures
(13 h 00). Merci.
LE PRÉSIDENT :
Merci. Et je crois, si mes souvenirs sont bons,
Option consommateurs, Monsieur Rozéfort.
M. LOUIS-RENAULT ROZÉFORT :
Bonjour, Messieurs les Régisseurs. Bonjour,
Monsieur le Président. Moi, je peux vous accommoder
lundi, mais il faut que je vérifie avec mon avocat.
Donc là, je vais l'appeler et je vais voir. Je vous
donnerai une réponse demain probablement.
LE PRÉSIDENT :
Très bien. Merci. Maître Gertler.
Me FRANKLIN S. GERTLER :
Monsieur le Président, nous, au ROEÉ, nous sommes
évidemment impliqués pour le contre-interrogatoire
R-3690-2009
10 septembre 2009
- 158 -
PANEL 2 - GM
Interrogatoire
Le président
seulement, mais je dois vous dire qu'on serait
mieux servi, je pense, si c'était demain ces
preuves-là parce qu'on a... tout le monde avait
déjà prévu le reste de leur calendrier, puis on le
change et le rechange. On a d'autres clients qui
veulent nous voir, ce n'est pas facile à gérer
déjà. Alors, je ne sais pas si c'est possible, en
tout cas.
LE PRÉSIDENT :
Évidemment, si...
Me FRANKLIN S. GERTLER :
Mais, on va s'arranger pour être là, c'est certain,
Monsieur le Président.
LE PRÉSIDENT :
Évidemment, si le déroulement de la journée de
demain se déroulait rondement, il y aurait
possibilité de placer les intervenants à la fin de
la journée. Je pense que la Régie va devoir
s'assurer de terminer l'audition des preuves sur le
taux de rendement demain. Et par la suite, s'il y
avait du temps de disponible. La Régie est ouverte
à opérer, en autant que c'est à une heure
raisonnable. Maître Regnault.
Me VINCENT REGNAULT :
C'est simplement au sujet de la journée de demain.
R-3690-2009
10 septembre 2009
- 159 -
PANEL 2 - GM
Interrogatoire
Le président
Je pense qu'elle risque d'être très très très
chargée en partant. Si on commence à dix heures
(10 h 00), moi, j'avais annoncé trois heures, je
vais peut-être déborder un peu. Prenons-le, pour
les fins de la discussion, que j'en prends quatre,
ça nous amène facilement à trois heures (15 h 00)
de l'après-midi avec la pause du lunch, des
questions par la Régie, par vous. Je vais
évidemment demander une pause avant qu'on débute la
contre-preuve. Donc, je ne sais pas là.
LE PRÉSIDENT :
Oui.
Me VINCENT REGNAULT :
Ça nous amène facilement en début de soirée là,
malheureusement, juste avec la question du taux de
rendement.
LE PRÉSIDENT :
Merci. Maître Sicard.
Me HÉLÈNE SICARD :
Est-ce que je dois comprendre qu'on ne pourrait pas
nous entendre demain?
LE PRÉSIDENT :
Disons...
Me HÉLÈNE SICARD :
Ou on pourrait la présenter maintenant aussi. Non,
R-3690-2009
10 septembre 2009
- 160 -
PANEL 2 - GM
Interrogatoire
Le président
en fait, je ne vous rapporterai pas la suggestion
de mon client.
LE PRÉSIDENT :
Un instant, la Régie va se consulter.
Me HÉLÈNE SICARD :
Merci.
LE PRÉSIDENT :
Nous vous revenons. La Régie pourrait être
disponible pour entendre la preuve de UC à neuf
heures trente (9 h 30).
Me HÉLÈNE SICARD :
Ça nous convient parfaitement, neuf heures trente
(9 h 30) demain matin ou neuf heures trente
(9 h 30) ce soir?
LE PRÉSIDENT :
Demain matin.
Me HÉLÈNE SICARD :
C'est parfait, neuf heures trente (9 h 30) demain
matin. Merci.
Me VINCENT REGNAULT :
Tant qu'à y être, on pourrait quasiment continuer
jusqu'à...
LE PRÉSIDENT :
Est-ce que, pour Gaz Métro, je crois, ce n'est pas
le même procureur à ce moment-là qui intervient?
R-3690-2009
10 septembre 2009
- 161 -
PANEL 2 - GM
Interrogatoire
Le président
Me VINCENT REGNAULT :
Non. Effectivement. Mais en fait, parce qu'il va y
avoir un contre-interrogatoire, des contreinterrogatoires selon toute probabilité. Pourquoi
ne pas commencer à neuf heures (9 h) pour s'assurer
justement que, à dix heures (10 h), on puisse
commencer avec le taux de rendement? Simple
suggestion comme ça.
LE PRÉSIDENT :
La Régie va se rendre disponible. Donc neuf heures
(9 h).
Me HÉLÈNE SICARD :
Neuf heures (9 h).
LE PRÉSIDENT :
Neuf heures (9 h) demain. Donc, sur ce, la Régie va
ajourner... Dépôt de documents? Maître SigouinPlasse.
Me HUGO SIGOUIN-PLASSE :
Oui. Excusez-moi! On vous a promis de déposer ça au
fur et à mesure que ça rentrait. Alors, les
engagements numéro 2, 4 et 6, donc que je dépose.
Nous sommes rendus aux pièces.
LA GREFFIÈRE :
B-79 en liasse.
Me HUGO SIGOUIN-PLASSE :
R-3690-2009
10 septembre 2009
- 162 -
PANEL 2 - GM
Interrogatoire
Le président
B-79, Monsieur le Président, Messieurs les
Régisseurs. Je dépose ça et je me tais.
DISCUSSION HORS ENREGISTREMENT
Me HUGO SIGOUIN-PLASSE :
Je crois que ce serait plus simple honnêtement,
parce qu'il y a quand même des réponses, des
engagements qui sont plus substantiels, puis je
pense à l'engagement numéro 2, on devrait les coter
séparément. Je reviens. Madame la Greffière.
B-79 :
(GM) Réponse à l'engagement numéro 2.
B-80 :
(GM) Réponse à l'engagement numéro 4.
B-81 :
(GM) Réponse à l'engagement numéro 6.
LE PRÉSIDENT :
Donc, c'est complété, Maître Sigouin-Plasse?
Me HUGO SIGOUIN-PLASSE :
Merci. C'est complété.
LE PRÉSIDENT :
Donc, nous ajournons jusqu'à dix-neuf heures
(19 h).
______________________
R-3690-2009
10 septembre 2009
- 163 -
PANEL 2 - GM
Interrogatoire
Le président
Nous, soussignés, JEAN LAROSE et CLAUDE
MORIN et MARC BEEBE, sténographes officiels dûment
autorisés à pratiquer avec la méthode sténotypie et
sténomasque certifions sous notre serment d'office
que les pages ci-dessus sont et contiennent la
transcription exacte et fidèle de la preuve en
cette cause, le tout conformément à la Loi;
Et nous avons signé :
____________________
____________________
JEAN LAROSE
Sténographe officiel
CLAUDE MORIN
Sténographe officiel
____________________
Marc Beebe
Official Court Reporter