ARCHIVED -  Transcript - Winnipeg, MB - 2001/01/11

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Winnipeg, Manitoba / Winnipeg (Manitoba)

--- Upon resuming on Thursday, January 11, 2001

at 0915 / L'audience reprend le jeudi

11 janvier 2001 à 0915

1158 THE CHAIRPERSON: Good morning, ladies and gentlemen. We will return to our proceeding now.

1159 After completing the informal phase of this proceeding yesterday, we will now proceed to the second and more formal phase of our hearing.

1160 As noted in the Commission's Organization and Conduct Letter, there will be no examination-in-chief by any party. Rather, a party calling witnesses will generally be entitled only to examine its witness briefly regarding the preparation of evidence, any errors or routine updates to the evidence, and the witness' qualifications.

1161 When providing an update or correcting an error, the witness should identify the specific line or lines of the evidence that are being updated or corrected.

1162 The Commission will first hear the MTS panel, followed by the witnesses of the Consumers Association of Canada, the Manitoba branch, and the Manitoba Society of Seniors, CAC/MSOS' witnesses.

1163 Our experience in past proceedings is that there is usually no need to engage in redirect examination, although we recognize there may be situations where redirect is necessary and appropriate.

1164 Parties are reminded there will be no oral or reply argument upon the completion of the cross-examination. As set out in the Organization and Conduct Letter, all parties will have the opportunity to file written comments by the 26th of January. MTS will then be allowed to file reply by the 2nd of February.

1165 That concludes my initial comments. I will now call on Commission counsel, Gino Grondin, to address some preliminary matters.

1166 Counsel.

1167 MR. GRONDIN: Thank you, Mr. Chairman.

1168 I have some procedural matters that I would like to bring to the attention of the parties. First, the procedure that will be followed in this proceeding for the introduction of exhibits will be that that is set out in the Commission's Organization and Conduct Letter.

1169 I would also like to remind parties that when filing a document with the Commission, 15 copies of that document must be filed in addition to the copies that must be served on all parties.

1170 Finally, I would just like to remind parties that me and the hearing secretary will be available through the day if you need any assistance with regard to the Commission's process.

1171 THE CHAIRPERSON: Thank you, counsel.

1172 Before we turn to the first panel, are there any preliminary matters that anybody wishes to bring to the attention of the Chair? No?

1173 Seeing none, then, Mr. Peters, would you like to introduce your panel.

1174 MR. GRONDIN: Sorry. If you don't mind, Mr. Chairman, if we could swear in the witnesses.

1175 THE CHAIRPERSON: I was going to have them introduced and then swear them in.

1176 MR. GRONDIN: You are the chief.

1177 MR. FORAN: Good morning, Mr. Chairman, Members of the Commission. My name is Jim Foran, F-O-R-A-N, appearing as counsel for MTS Communications Inc., which I will refer to as MTS. Appearing with me is Bob Peters as co-counsel.

1178 Mr. Chairman, I would like to introduce the MTS panel, which consists of: Mr. William C. Fraser, President and Chief Executive Officer of MTS; Ms Cheryl Barker, Executive Vice-President, Finance, of MTS; and, Dr. William E. Taylor of National Economic Research Associates, Inc., located in Cambridge, Massachusetts.

1179 That is the panel being put forward on behalf of MTS, Mr. Chairman, and, with your leave, I would ask that they be sworn at this time.

1180 THE CHAIRPERSON: Thank you, Mr. Foran.

1181 Mr. Secretary, would you swear the witnesses, then, please.

1182 MR. KRUSHEN: Thank you, Mr. Chairman.

SWORN / ASSERMENTÉ: WILLIAM C. FRASER

SWORN / ASSERMENTÉ: CHERYL D. BARKER

SWORN / ASSERMENTÉ: WILLIAM E. TAYLOR

1183 MR. FORAN: Mr. Chairman, I do intend to follow the Procedural Order and be extremely brief. In compliance with that order, before proceeding with my preliminary questions, I would like to indicate that I have additional copies of the resumes or CVs of each of the witnesses, including Dr. Taylor. I wonder if you would find it of assistance if I handed those up to the panel for the ready information.

1184 THE CHAIRPERSON: That may be of some assistance to parties in the room.

1185 Mr. Secretary.

EXAMINATION / INTERROGATOIRE

1186 MR. FORAN: Mr. Fraser, the applications of MTS are dated May 1, 2000 and September 1, 2000. Is that correct, sir?

1187 MR. FRASER: Yes, it is.

1188 MR. FORAN: Mr. Chairman, I am advised that those applications and MTS' answers to interrogatories have already been marked as exhibits to these proceedings.

1189 Mr. Fraser, MTS' applications, supporting material and answers to interrogatories, were prepared under your supervision in conjunction with Ms Barker and Dr. Taylor. Is that correct, sir?

1190 MR. FRASER: That's correct.

1191 MR. FORAN: And, Ms Barker, you confirm that to be the case?

1192 MS BARKER: Yes, I do.

1193 MR. FORAN: Dr. Taylor, you supervised the preparation of certain interrogatories in this proceeding and advised as to the contents of others. Is that correct, sir?

1194 DR. TAYLOR: Yes, it is.

1195 MR. FORAN: The interrogatory responses which you prepared, supervised and reviewed, include those listed in MTS' written submission to the Commission dated January 9th of this year, and that had to do, sir, with your ability to give evidence today. Is that correct, sir? You recall seeing those --

1196 DR. TAYLOR: Yes, that's correct.

1197 MR. FORAN: Mr. Fraser, MTS' applications, supporting material and answers to interrogatories filed in this proceeding are accurate to the best of your knowledge and belief. Is that correct, sir?

1198 MR. FRASER: Yes, they are.

1199 MR. FORAN: To your knowledge, are there any errors to be corrected or any routine updates to be made?

1200 MR. FRASER: There is not.

1201 MR. FORAN: Mr. Fraser, you have been employed with MTS since 1986, first as Vice-President of Finance, and currently as President and Chief Executive Officer. Is that correct, sir?

1202 MR. FRASER: Yes, it is.

1203 MR. FORAN: Your resume or CV was filed with this Commission and served on interested parties on January 4th of this year.

1204 MR. FRASER: Yes, it was.

1205 MR. FORAN: Ms Barker, you have been employed with MTS since 1987, first as Treasurer and currently as Executive Vice-President, Finance. Is that correct?

1206 MS BARKER: Yes, it is.

1207 MR. FORAN: And your CV was filed and served at the same time as Mr. Fraser's.

1208 MS BARKER: Yes, it was.

1209 MR. FORAN: Dr. Taylor, you are a Senior Vice-President of National Economic Research Associates, Inc. in Cambridge, Massachusetts, and currently serve as the Director of the Telecommunication Practise. Is that correct, sir?

1210 DR. TAYLOR: Yes, it is.

1211 MR. FORAN: Mr. Chairman, Dr. Taylor's curriculum vitae was also filed with this Commission and served on interested parties on January 4th of this year.

1212 Sir, I would like to question Dr. Taylor with respect to his education, his experience in prior testimony, for the purpose of enabling him to provide evidence in this proceeding as an expert witness, including his opinions as to the appropriate regulatory framework which should be utilized for determining this application.

1213 To appropriately qualify Dr. Taylor it will be necessary that I review his curriculum vitae in some detail. But before doing so, Mr. Chairman, I would like to determine whether there is any objection from counsel for CAC/MSOS to declaring Dr. Taylor an expert witness.

1214 MR. WILLIAMS: Mr. Chairman, in order to expedite matters, we would be willing to agree to the qualifications as stated by my learned friend, and, if it would assist him, he can dispense with the detailed review of Dr. Taylor's CV.

1215 THE CHAIRPERSON: Thank you, Mr. Williams.

1216 Mr. Foran, I don't think, then, there is a need to go through the detail.

1217 MR. FORAN: As much as I would like to, Mr. Chairman, to show the eminent credentials of Dr. Taylor, in view of the position taken by my learned friend, I would ask that Dr. Taylor be considered an expert witness and be entitled to give opinion evidence in a regulatory framework, sir.

1218 THE CHAIRPERSON: Okay.

1219 MR. FORAN: Mr. Chairman, that concludes my introductory comments and I would like to advise you, sir, and members of the panel, that the MTS panel is available to be questioned by CAC/MSOS and by other parties as appropriate.

1220 THE CHAIRPERSON: Thank you, Mr. Foran.

1221 Good morning, Mr. Fraser, Ms Barker, Dr. Taylor. Welcome to our proceeding.

1222 Perhaps I should give you an opportunity to introduce your support team behind you.

1223 MS BARKER: Mr. Chairman, perhaps if I can do so. The three individuals behind us are our support panel.

1224 Immediately behind me is Laurie Stewart, who is our Director of Financial Planning and Analysis.

1225 On her left is Wayne Demkey, who is the Corporate Comptroller of MTS.

1226 On his left is Reinhard Penner, who is a Director within the Marketing Department of MTS Communications Inc.

1227 THE CHAIRPERSON: Good morning, and welcome to you three as well.

1228 So with that we will turn to the first, and I think the only, party to cross-examine.

1229 I will turn to Mr. Williams.

1230 MR. WILLIAMS: Thank you, Mr. Chairman.

1231 Good morning to you and to the other members of the panel.

1232 I didn't make it here yesterday, so this is my belated appearance at the hearing.

1233 Just by way of introduction, to my left is Mr. John Todd, who is one of the witnesses in this matter on behalf of CAC/MSOS.

1234 Behind me one row and to my right is Mr. Hugh Johnson, who is another witness on behalf of CAC/MSOS.

1235 Way back beyond the tables, in the first row of chairs, are my bosses, otherwise known as my clients.

1236 Immediately behind me is Ms Gerri Hewitt, who is the Executive Director of the Manitoba Society of Seniors. I believe she was here yesterday sharing her wisdom with you. She often shares it with me as well.

1237 Beside her, to her right, is Ms Gloria Desorcy, who is the Executive Director of the Consumers Association of Canada, the Manitoba Branch.

1238 I believe we are ready to proceed.

CROSS-EXAMINATION / CONTRE-INTERROGATOIRE

1239 MR. WILLIAMS: My first series of questions will be directed to Interrogatory MTS/CRTC, 21st July, No. 1.

1240 Probably Ms Barker. She is the one with the calculator so she is probably who I will be referring these to.

--- Pause / Pause

1241 MS BARKER: Yes, Mr. Williams, I have that in front of me.

1242 THE CHAIRPERSON: I'm sorry, Mr. Williams, could you give me that number again?

1243 MR. WILLIAMS: No. 1, July 21st.

1244 THE CHAIRPERSON: But is it CRTC or CAC?

1245 MR. WILLIAMS: Yes, MTS/CRTC, 21st July, No. 1.

1246 THE CHAIRPERSON: Okay.

1247 MR. WILLIAMS: Ms Barker, I have already checked to see that you do have your calculator with you, so I would like you to -- we are going to be addressing the issue of working capital. I would like for you to confirm for me a few numbers and percentages. So I'm going to start with the attachment, page 2 of 18, and I would refer you to line 9.

1248 You can confirm for me that working capital, exclusive of materials and supplies, is $4.4 million. Is that correct?

1249 MS BARKER: Yes, that is correct.

1250 MR. WILLIAMS: Perhaps if you could flip back one page, to page 1 out of 18, you can confirm for me, referring to line 6, that total revenues are $321.2 million. Is that correct?

1251 MS BARKER: Yes, it is.

1252 MR. WILLIAMS: Would you confirm for me -- and you can take this subject to check, if you wish -- that the amount of working capital, being $4.4 million, is 1.4 per cent of the total 1997 revenues displayed in line 6. Is that right?

1253 MS BARKER: Yes, it is.

1254 MR. WILLIAMS: Thank you.

1255 Just moving down to line 10 on that same table, we see that operating expenses are indicated as being $253.2 million. Is that correct?

1256 MS BARKER: Yes, it is.

1257 MR. WILLIAMS: Can you confirm for me that the 1997 working capital, exclusive of materials and supplies, amounts to 1.7 per cent of the operating expenses for the utility segment. Correct?

1258 MS BARKER: Yes, that is correct.

1259 MR. WILLIAMS: I would like you to turn to page 5 of 18. Again I refer you to line 9, being "Working Capital".

1260 We see that the 1998 working capital, again exclusive of materials and supplies, is indicated to be $109.6 million of the utility segment. Is that correct?

1261 MS BARKER: Yes, it is.

1262 MR. WILLIAMS: Referring again to the previous page, page 4, line 6, we see that the total 1998 revenues are shown as $321.2 million. Is that correct?

1263 MS BARKER: I'm sorry, Mr. Williams, which line again? I'm sorry.

1264 MR. WILLIAMS: Line 6, "Total Revenues".

1265 MS BARKER: $338.9 million?

1266 MR. WILLIAMS: Excuse me.

1267 I wonder if you could perform the calculation for me of what the 1998 working capital, exclusive of materials and supplies is, as a percentage of the total 1998 revenues?

1268 MS BARKER: Yes, it is 32.3 per cent.

1269 MR. WILLIAMS: Thank you very much.

1270 And if you could go again to line 10 of that same page, being page 4, we see that operating expenses are $250.8 million. Is that correct?

1271 MS BARKER: Yes, it is.

1272 MR. WILLIAMS: And the 1998 working capital, exclusive of materials and supplies, as a percentage of operating expenses amounts to 43.7 per cent. Can you confirm that?

1273 MS BARKER: Yes, I can.

1274 MR. WILLIAMS: I wonder if you can now turn to page 8, being the 1999 working capital.

1275 I won't make you go through all of these, just a couple of them.

1276 Again, at line 9 we see that the working capital has now grown to $150.8 million for 1999, exclusive of materials and supplies. Is that correct?

1277 MS BARKER: Yes, it is.

1278 MR. WILLIAMS: If you turn back to page 7, we see that the total revenue appearing at line 6 for the utility segment is $350.9 million. Correct?

1279 MS BARKER: Yes, it is.

1280 MR. WILLIAMS: And working capital as a percentage of the total revenues would be 42.9 per cent. Correct?

1281 MS BARKER: Well, rounded it would be 43.0 per cent, but yes, we're close enough.

1282 MR. WILLIAMS: Your math is better than mine.

1283 And going down to line 10, again on page 7, we see that operating expenses appear to be $248.6 million for the utility segment. Correct?

1284 MS BARKER: Yes, it is.

1285 MR. WILLIAMS: So now working capital, exclusive of material and supplies, is 60.7 per cent of operating expenses. Correct?

1286 MS BARKER: Yes, it is.

1287 MR. WILLIAMS: And we are going to skip the year 2000 and move to the year 2001.

1288 I would ask you to turn to page 16 of that same attachment. We see there that working capital is projected to be, exclusive of materials and supplies, $214.5 million. And that appears at line 9 of that attachment. Is that correct?

1289 MS BARKER: Yes, it is.

1290 MR. WILLIAMS: And again, turning to page 15, we see that the total revenues are projected to be $350.9 for the utility segment. Is that correct?

1291 MS BARKER: No, I believe that on page 15 total revenues are $339.0.

1292 MR. WILLIAMS: I wonder if you could perform the percentage of total revenues, 2001 revenues -- of working capital as a percentage of total 2001 revenues for me, please?

1293 MS BARKER: That percentage would be 63.3 per cent.

1294 MR. WILLIAMS: Great.

1295 And if you go down to line 10, we see that operating expenses are $232.6 million. Is that correct?

1296 MS BARKER: Yes, it is.

1297 MR. WILLIAMS: I'm reading a little better now.

1298 And you will confirm for me that working capital as a percentage of operating expenses is 92.2 per cent. Is that correct?

1299 MS BARKER: Yes, it is.

1300 MR. WILLIAMS: So working capital, going from the 1997 figure of $4.4 million, have increased to $214.5 million in your 2001 projections. Is that correct?

1301 MS BARKER: Yes, that is correct.

1302 MR. WILLIAMS: Would you agree that that is an increase of some 4,775 per cent?

1303 You can perform that calculation.

--- Pause / Pause

1304 MS BARKER: Yes, that would be correct. Well, all right.

1305 MR. WILLIAMS: Just on that same theme again, you will agree with me that working capital for the utility segment, exclusive of materials and supplies, has grown from the 1998 figure of $109.6 million to the 2001 projected figure of $214.5 million. Correct?

1306 MS BARKER: Yes, that is correct.

1307 MR. WILLIAMS: And you will agree with me that it is projected to increase by some 95.7 per cent in that period?

1308 MS BARKER: Yes, that is correct.

1309 MR. WILLIAMS: Now, you corrected me before -- thank you for that -- in terms of the revenues for the utility segment, and I wonder if you can confirm that they go on from -- excuse me just for one second -- from a 1997 figure of $321.2 million to a projected figure in 2001 of $339 million. Would that be correct?

1310 MS BARKER: That is correct.

1311 MR. WILLIAMS: And that would be a 5.5 per cent change over that period of time?

1312 MS BARKER: Yes, that is correct as well.

1313 MR. WILLIAMS: I do a lot better on percentages than I do in reading the numbers, don't I.

1314 And you will confirm for me that operating expenses from the years 1997 through 2001 are actually projected to decline from $253.2 million to $232.6 million projected for 2001. Is that correct?

1315 MS BARKER: That is correct.

1316 MR. WILLIAMS: And I bet you have already done the percentage for me and can confirm that that is minus 8.1 per cent?

1317 MS BARKER: Yes, that is correct as well.

1318 MR. WILLIAMS: Now, Ms Barker, is it the evidence of MTS corporation that it needs, for the 2001 year, $214.5 million, or over 90 per cent of operating expenses, of working capital to operate its utility segment business for the 2001 year? Is that the position of MTS?

1319 MS BARKER: I think, Mr. Williams, the use of the word "need" is perhaps an incorrect one.

1320 In terms of the utility segment, the working capital that is shown as building up on the statement mainly represents uninvested capital that is waiting to be deployed. It is being generated by the utility segment as depreciation over the last number of years, has been considerably less than capital expenditures.

1321 We have had some specific instances and reasons that that has occurred.

1322 In 1998 we had a flood here in Manitoba. From the time of early April until July we spent all of our engineering time preparing for that flood and then doing clean-up. In 1999 we had a strike here in Manitoba where we had our clerical workers and our IBW workers out on the streets. As a result, all of the engineering staff are redeployed.

1323 As a result, we have not over the last number of years deployed the same capital expenditures that we had in preceding years.

1324 As a result, we have cash that is building up within the utility segment. It is an asset of the utility segment, and it has been recorded in accordance with GAAP. It also has been recorded in accordance with the Phase III manual which has been approved by the CRTC.

1325 So it rightfully belongs on the statement in terms of source of that cash. On an accounting basis, that is its rightful home.

1326 MR. WILLIAMS: Just a couple of questions of clarification.

1327 You made it clear that I should not be using the word "need". I take it you would agree that MTS does not need working capital of $214.5 million, or over 90 per cent of operating expenses, to bridge the gap between the time it incurs costs in providing services and the time that the utility has actually paid for those services.

1328 You would agree with me on that?

1329 MS BARKER: Well, no, I wouldn't, Mr. Williams. I believe that the working capital as shown here is a composition of a number of items. It is a catch-all for current assets less current liabilities. So the utility segment has created cash balances and thrown off quite a bit of cash, a considerable amount of cash, waiting to be deployed.

1330 It is not a question of need or use. That capital will be deployed ultimately. While it is available for deployment, it sits within the utility segment earning investment income at market rates.

1331 It is a rightful asset of the utility segment.

1332 MR. WILLIAMS: It is sitting there collecting market rates, but you are not using the vast majority of that money to make up for any cash shortfalls or anything of that like. Is that correct?

1333 MS BARKER: Well, no, there is no cash shortfall within the utility segment.

1334 MR. WILLIAMS: I believe you said that depreciation was less than capital.

1335 May have you misspoken yourself and meant that it was more than capital?

1336 MS BARKER: Thank you for correcting me, Mr. Williams. Yes, depreciation has been in excess of capital expenditures.

1337 MR. WILLIAMS: Just to confirm, would I be correct in saying that the working capital in the books of MTS is not needed for its current operations; that it is waiting to be deployed?

1338 MS BARKER: It is waiting to be deployed, yes.

1339 MR. WILLIAMS: Thank you.

1340 Mr. Chairman, I am going to move to another subject. I suspect I am directing these questions to Mr. Fraser, but I am not clear though.

1341 You may want to have with you Decision 98.2 of the CRTC.

--- Pause / Pause

1342 MR. WILLIAMS: Are you still looking for that, Mr. Fraser?

1343 MR. FRASER: We don't seem to have that decision with us. Do you have an extra copy of it?

1344 MR. WILLIAMS: Yes, we do.

--- Pause / Pause

1345 MR. FRASER: I have it now, Mr. Williams.

1346 MR. WILLIAMS: Thank you.

1347 Mr. Fraser, this line of cross -- it appears to us that we may have some different perceptions of Decision 98.2. We are trying to understand the company's position that it has put forward, specifically on the question of how the $243 million in utility segment ATD should be handled.

1348 I am going to try and give you a chance to make it clear what the company's position is on this area.

1349 I would like to start by seeing if we can get a handle on the history of the issue.

1350 My understanding -- and I guess kind of a starting point is probably paragraph 347 of Decision 98.2 -- is that in the Going In Rates Proceeding MTS took the position that its shareholders should be entitled to an $82.5 million shareholder entitlement, and MTS in that proceeding proposed to recover it over eight years.

1351 Would that be correct, sir?

1352 MR. FRASER: That is correct.

1353 MR. WILLIAMS: For the purposes of the Going In Rates Proceeding, in order to begin the collection it sought to increase its going in revenue by some $13.9 million for the purposes of collecting this shareholder entitlement.

1354 Is that correct?

1355 MR. FRASER: At that particular point in time, that was correct, yes.

1356 MR. WILLIAMS: At that time, in essence what you were doing was asking for shareholder entitlement which would essentially explicitly grant to MTS shareholders the benefit of a certain amount of utility segment additional tax deduction.

1357 Would that be fair?

1358 MR. FRASER: Without sort of going through the whole context of that, I think I can explain what we were trying to do.

1359 What we were trying to do, in terms of going through a graceful transition and again to work within the framework as we understood it and the precedents as we understood them, Telus or AGT at the time had gone through a similar circumstance in terms of moving from being a crown corporation to being privately traded and to having a transition.

1360 Obviously if one day you are a crown and you are non-taxable and the next day you are fully taxable and your earnings are cut in half, your EPS is cut in half, your ROE is cut in half, that requires a significant amount of transition to rectify that and to have relative performance, which I indicated yesterday was paramount.

1361 In terms of AGT they had, with the support of Industry Canada, received federal government direction, I believe, to the Commission in terms of a shareholder entitlement.

1362 I think that our understanding at least of that, and we had discussions with Industry Canada at the time, was that because there was relative unanimity politically in Alberta in terms of the privatization and recognizing that this whole issue of non-tax status and tax status was a significant one to overcome, they had gone forward proactively and said: "Okay, this is the game plan and this is how we would like to do it."

1363 They sought agreement from the federal government from Industry Canada, and ultimately I believe the CRTC was directed to deal with it in a certain fashion to facilitate that transition.

1364 As I am sure you are aware, and I am sure you got some insights into yesterday, there was not, and in fact still is not, political unanimity in terms of privatization in Manitoba. I suspect that ten years from now we still will be raging that debate.

1365 We went to Industry Canada and sought similar treatment that Telus had. I will put this in my own words in terms of paraphrasing, but I think basically the message that we got was that if you are coming alone looking for this treatment similar to Telus, without political support and backing, your chances are zero.

1366 It was a very short meeting, a very short discussion, and they sent us back to the CRTC in terms of saying that the CRTC would deal with that transition issue and with that shareholder entitlement; and that based on the precedent of the Telus transaction, they would assume that similar treatment would be offered to MTS.

1367 Mr. Williams, that is the background in terms of the entitlement.

1368 What we were trying to do was to work within the framework at that point in time, as we understood it, and the precedent that had been set with Telus. The difference was that we did not have the sort of political support to go to Ottawa to gain the transition measures that they did.

1369 I don't think there was any question that the federal government and Industry Canada was pro competition and pro privatization and that in a competitive market the crown corporation structure does not effectively work. That is the reason why the provincial government in Manitoba privatized the company.

1370 At one point in time they controlled regulation in the province. They controlled the regulator in the sense that they made the appointments to the Public Utilities Board. They controlled the appointment of Board members at MTS. They controlled the appointment of the CEO at MTS --

1371 MR. WILLIAMS: Mr. Fraser --

1372 MR. FRASER: They controlled the appointment of The Crown Corporation Council which managed MTS.

1373 So within Manitoba we could regulate and manage competitive rate issues, and the provincial government ultimately had ultimate control over that.

1374 With the AGT decision -- and it was clear then that telecommunications was a federal undertaking the province no longer controlled regulation -- they could not manage in a competitive environment, and they would be left to have to deal with the issues that the CRTC has to deal with now in relation to affordability and lifeline service, and so on. They did not have the control mechanisms; they only had the ownership side of it.

1375 So I think it made good logic, in terms of privatizing the corporation, as a result of that.

1376 Mr. Williams, I think it is a very complex issue in terms of putting it in the proper context.

1377 I hope that helps to clarify some of it.

1378 MR. WILLIAMS: It brings back a lot of bad memories. I got a few ulcers between privatization and shareholder entitlement.

1379 What I was trying to get at -- and perhaps I did not phrase my question precisely enough -- is that there was a certain amount of ATDs available to the utility segment, and the shareholder entitlement proposal was a way for MTS to explicitly get their share of some of those ATDs.

1380 Is that not correct.

1381 MR. FRASER: As I indicated, that was the mechanism that was used with AGT and that was the mechanism that we assumed would be used with us. So we pursued that venue ultimately, without success.

1382 MR. WILLIAMS: But it was a mechanism to explicitly grant to the company some share of the ATDs. Is that not right?

1383 That is how you perceived it.

1384 MR. FRASER: I perceived it as a mechanism to move from non-tax status to tax status in a graceful transition, not to have rate shock and to have some sort of transition between not having any tax built into our rates and having tax built in and being able to do that on a graduated basis so that we did not face a situation where there was rate shock and where there was a backlash from our customers, and that then affected our competitive ability in the marketplace.

1385 That is certainly, to a degree, what has happened. We have experienced a backlash from our customers, and that is not likely to go away. That is going to impact our business going forward.

1386 MR. WILLIAMS: Just to be clear, the mechanism that you proposed at that time to ease this transition was essentially to get an explicit share of the ATDs for MTS shareholders which would be built into the rates.

1387 Is that not correct?

1388 MR. FRASER: The mechanism that we pursued at that time was to get similar treatment to what AGT had got and to follow that precedent.

1389 MR. WILLIAMS: You are not disagreeing with the statement I just made, are you, Mr. Fraser?

1390 MR. FRASER: To be honest, Mr. Williams, I am not understanding the statement you are making.

1391 MR. WILLIAMS: Let's try it one more time.

1392 In effect, you would have been collecting in rates amounts equal to the taxes you would have paid in the absence of the ATDs, but that those funds accrue specifically to the benefit of the shareholders through an entitlement.

1393 Is that not correct?

1394 MR. FRASER: I am sorry, Mr. Williams, I am missing the point of your line of questioning.

1395 MR. WILLIAMS: Mr. Fraser, we will move on.

1396 MR. FRASER: I have explained to you what our rationale was in terms of trying to find a transition mechanism that was gradual, that avoided rate shock and avoided a backlash from our various customers, and to use the AGT precedent and accept that and the logic and debate, and so on, that went around it. At that point in time at least, somewhat naively, I guess, we expected that we would follow a similar transition method.

1397 As I explained, the fundamental explanation ultimately that we were given and left with was because when AGT went to Ottawa, they took the Premier of Alberta and various city and municipal representatives, and unanimously they supported that sort of treatment and that sort of transition.

1398 Because we were not in a position to be able to do that and that we went there on our own, the meeting lasted ten minutes.

1399 MR. WILLIAMS: Effectively, AGT got their share of the ATDs, Mr. Fraser. Is that not right?

1400 MR. FRASER: If that is your perspective, I will accept it. I must admit that there is a great deal of testimony, cross-examination, dialogue, decisions behind the AGT decision that I am not up to speed on. I would be reticent to jump in and agree without fully understanding the flow and logic of all that in just accepting that conclusion.

1401 MR. WILLIAMS: You will accept that MTS wanted to get a share of the utility segment ATDs for its shareholders.

1402 Is that fair?

1403 MR. FRASER: Well, I will accept that what we were trying to do was to follow the precedent established, and that at the end of the day that opportunity was denied us.

1404 So we have moved on to try to find other mechanisms to provide a gradual transition in terms of recognizing that ultimately we have no discretion in terms of paying our income tax. We recognize the implications from a marketing perspective, from a customer goodwill perspective, from a market share perspective, in terms of having significant local rate increases. The loss of goodwill that that results with our customer base has and will continue to hurt our business.

1405 This issue has now been on the table for over four years. It has been in front of the media for four years, and it has been politically debated for four years. It is ingrained in our customer base. It is going to be an obstacle for us to overcome for a long, long time. It is going to be to our competitive disadvantage.

1406 MR. WILLIAMS: Mr. Fraser, again I am trying to get from the corporation their position in terms of the meaning of this decision.

1407 You will agree with me that in the course of that proceeding my client, CAC/MSOS, opposed the shareholder entitlement proposal and argued that the benefits of the additional tax deductions should be assigned to customers; that they should protect them from future rate increases.

1408 You will agree with that?

1409 MR. FRASER: Yes, I will.

1410 MR. WILLIAMS: And you will also agree with me that there were only two perspectives that were presented to the Commission in terms of evidence and argument at that hearing on the subject of the MTS shareholder entitlement: that of MTS and that of CAC/MSOS.

1411 MR. FRASER: Well, I am not sure that based on the background I just gave you I can agree that there are only two perspectives.

1412 I think that there are a whole lot of perspectives and a whole lot of history and debate around that that culminated in a meeting one day with two parties taking certain positions, but as I have indicated to you, I mean there's a lot of precedent in terms of the way that AGT was treated in terms of that transition and certainly there's a wealth of public and political debate in terms of how MTS should or would be treated in terms of what political support between the provincial government and the federal government there was or wasn't for dealing with that transition in any particular way.

1413 I mean obviously, you know, I mean it's blatantly obvious that when you go from being a crown corporation to a publicly traded company, you are going to have to incur income tax and if income tax rates are 45 per cent, that immediately just by the creation of that Act that your earnings, your EPS, your ROE, all of the measures available in terms of performance of the corporation are immediately literally cut in half.

1414 There has to be some mechanism in place of doing that. You can't do that in one fell swoop without having dramatic impacts on customers and without having dramatic impacts on the long term business prospects of MTS as a result of that.

1415 MR. WILLIAMS: Thank you, Mr. Fraser. Perhaps I mis-spoke myself using the word "perspective". There were basically two proposals before the Commission. The consumers said the ATD should go to the benefits of consumers to keep rates and MTS said that it should have a fair share of those ATDs through a shareholder entitlement. Is that not right?

1416 MR. FRASER: At that point in time that's correct.

1417 MR. WILLIAMS: And we can both agree that ultimately the Commission denied your request for a shareholder entitlement.

1418 MR. FRASER: That is correct.

1419 MR. WILLIAMS: And again for clarification of the MTS position, does MTS take the position that by rejecting the MTS proposal the Commission accepted the consumer argument that ATDs should benefit entirely -- go entirely to the benefit of customers of the utility?

1420 MR. FORAN: Mr. Chairman and Members of the Commission, I object to that question. I don't believe it's appropriate. Positions were taken before this Commission, This Commission rendered a decision. That decision says what it says. For Mr. Fraser to be called upon to speculate why the Commission took that position is a matter that he can't do. The decision speaks for itself.

1421 THE CHAIRPERSON: Mr. Williams.

1422 MR. WILLIAMS: Mr. Chairman, the essence of this hearing, of course, is to a large degree the interpretation of that decision and whether the full benefit of the ATDs should go to consumers. MTS, its position on this issue is unclear to CAC/MSOS. This is our opportunity to get some clarification on the record so we fully understand the position and the implications of their position which we would like to test.

1423 THE CHAIRPERSON: As I understand it though, you have asked Mr. Fraser to speculate on the interpretation of the decision. What you just said is you were asking for Mr. Fraser or MTS' position on the issue. Which is it?

1424 MR. WILLIAMS: Well, perhaps my previous question was misphrased. We are clearly seeking, and I tried to frame this line of cross in this direction, we are seeking the position of MTS on whether or not the benefit -- the entire benefit of the additional tax deduction should go to the customers of the utility segment. Is that the position of MTS?

1425 THE CHAIRPERSON: But I believe the way you phrased the question the first time that Mr. Foran is responding to --

1426 MR. WILLIAMS: It was probably a totally legitimate objection.

1427 THE CHAIRPERSON: That was my interpretation of the decision. Perhaps you could rephrase your question.

1428 MR. WILLIAMS: Does MTS take the position that the entire benefit of the utility segment ATDs should go to the customers, the utility segment of MTS?

--- Pause / Pause

1429 MS BARKER: Mr. Williams, if I could respond perhaps. I believe that the CRTC decision determined that the ATDs that were available to MTS Communications Inc. in totality should be split between the utility in competitive segments in accordance with plant, the plant base, which was in fact the most -- I believe probably the most generous split that could be made available.

1430 From that split, out of $359 million of available tax losses that would be created, the utility segment was provided with $243.3 million of ATDs. In CRTC July 21 question No. 3 we have shown the depletion of those ATDs over the time period from January 1, 1998, until July 1, 2000.

1431 The CRTC in decision 2000-677 has indicated that they believe that MTS is now incurring -- have confirmed that MTS is incurring income tax as of July 1, 2000, and that the ATDs have been fully utilized to the benefit of the consumer.

1432 MR. WILLIAMS: I thank you for that answer, Ms Barker, but the essential question was designed to get the position of MTS clear on the record. Does MTS take the position that the full benefit of the utility segment ATDs should go and should have gone to the benefit of the customers of the utility segment?

1433 MR. FORAN: Mr. Chairman, again I am going to object to that question. I get concerned when my friend talks about MTS' position because the panel is here to be questioned on their evidence and on their interrogatories. Positions are things that are dealt with in argument. Certainly there will be an opportunity to do that.

1434 I believe that Ms Barker's reply has been totally responsive to Mr. Williams and that now to talk about a general position is inappropriate.

1435 THE CHAIRPERSON: Mr. Williams.

1436 MR. WILLIAMS: Perhaps just following up from Ms Barker's response, which I am prepared to do and move on, Mr. Chairman.

1437 Ms Barker, are you saying essentially that now that the ATDs have been used up that the utility segment customers have received the full benefit of those ATDs?

1438 MS BARKER: Yes, Mr. Williams. They have received the full benefit.

1439 MR. WILLIAMS: And in your view, that benefit is basically -- the benefit that they received is that from the time of the going-in rates until the interim exogenous adjustment, their rates were lower than they would have been if income tax or a shareholder entitlement was included in the rates. That's the benefit that they received. Correct?

1440 MS BARKER: Well, there's probably two perspectives on the benefit that they have received. The utilization of the ATDs is to shelter earnings and income and prevent taxable income from occurring. So from that perspective of saying ATDs will be allocated to the utility segment, they have been fully utilized and, therefore, all the consumers and the customers involved in the utility segment have fully utilized the ATDs.

1441 I think there's two parts to your question because the second part of your question is what would have happened if in fact we had been taxable on January 1, 1998, which of course would turn back the time of the clock and we would have had a completely different calculation under a rate based rate of return calculation to determine our going-in rates.

1442 We have prepared that calculation and have determined that rates would have increased at that point in time by $7.17. Now, $7.17 is considerably more than 84 cents which is what we are granted for the going-in rates when we weren't taxable.

1443 You could say that consumers have benefited from that perspective over the last -- in fact to August 1, 31 months, by almost $200 on the difference in that they didn't pay, so each consumer has had the benefit of the $200 saving. That's how the ATDs have actually cascaded down to the consumer level.

1444 MR. WILLIAMS: Ms Barker, it probably was a compound question. I appreciate your answer. Moving to the second part, in terms of the consumer's benefit, the benefit that it could be said that they derived was from paying rates that were lower than if taxes would have been included in their rates. Is that correct?

1445 Let me rephrase that, Ms Barker. Natural consumers have benefited from the ATDs because their rates are lower than they otherwise would have been if the rates were to reflect income tax. Is that correct?

1446 MS BARKER: Yes. If what had occurred at January 1, 1998, to determine going-in rates, if MTS had not had ATDs we would have been required at that point in time to have -- our calculation would have resulted in $7.17.

1447 Mr. Secretary, if I could ask you to distribute these.

1448 Mr. Williams, this is not an illustration. It was an actual calculation. What it does is on the left hand side under "price cap going-in rates filing" is that it duplicates the information that was provided to the CRTC in the going-in rates filing right out of this source as shown at the bottom, being the May 1, 1997, filing.

1449 This was the filing on which it was determined that MTS would have a rate increase of ultimately 84 cents as a going-in rate calculation.

1450 What we have done on side B is to turn back the clock, which we know that we cannot turn back the clock, and determine what would have happened, which I believe is your question, to rates had we in fact been taxable and there had been no ATDs to shelter income.

1451 We have taken the same rules that were prescribed at that time to deem an equity position of 55 per cent and an ROE of 11 per cent and have grossed up the required revenue to determine that we would in fact require additional revenue to cover our tax.

1452 If you follow down column B to the bottom, it's determined that we would require the same calculation as we have done in our current proposal of $39.1 million of additional revenue that would have been required. Those were the actual residents now in 1997 and the rate increase would have been $7.17.

1453 As we were awarded 84 cents, that is a difference of $6.33 which over the last 31 months that the rates have been sheltered by ATDs is almost a $200 saving per consumer. The reason that I do it in that fashion is that in the going-in rates proceeding, a hundred per cent of that calculated true-up or rate rebalancing amount was allocated to residential rates.

1454 There was no allocation mechanism. It was purely allocated a hundred per cent to residents' rates. That is what we have done here. Similarly, the 84 cents for MTS and in some cases two and three dollars for other companies were allocated a hundred per cent to residential customers. That was the treatment at that time for all not-STENTOR member companies, but all ILECs.

1455 Yes, that is the benefit that we have seen that consumers -- all customers, residential customers have seen.

1456 MR. WILLIAMS: Thank you, Ms Barker. Obviously the debate will be whether or not consumers have received as much benefit as they could have from the ATDs.

1457 Mr. Chairman, I am going to move on to CRTC-2001. That's actually my last bit of questioning. That would have been an interrogatory filed in December. If you give me just a second, I will dig it out.

1458 MR. KRUSHEN: Excuse me, Mr. Chairman. I will just take this opportunity to give exhibit numbers to the MTS documents.

1459 The document with the CVs of the MTS panel will be designated MTS Exhibit No. 1 and the document entitled "MTS Communications Inc. Split Rates Base Utility Segment 1997" will be given the designation MTS Exhibit 2.

1460 Thank you.

1461 THE CHAIRPERSON: Mr. Williams, that was interrogatory 2000, 2001.

1462 MR. WILLIAMS: Yes, its MTS CRTC 7 December 2000. The interrogatory number is 2001.

1463 THE CHAIRPERSON: 2001. Thank you.

1464 MR. WILLIAMS: Now, Mr. Fraser, you probably covered this in your qualifications. I just wish to confirm that you are the CEO of Manitoba Telecom Service Inc. and as well that you are on the Board of Directors of that company.

1465 MR. FRASER: Yes, I am.

1466 MR. WILLIAMS: And you are also the CEO of the MTS Communications Inc. and on its Board.

1467 MR. FRASER: Yes, I am.

1468 MR. WILLIAMS: And Ms Barker, you are the Chief Financial Officer of Manitoba Telecom Services. Correct?

1469 MS BARKER: Yes, I am.

1470 MR. WILLIAMS: And you are also the V-P of Finance for MTS Communications Inc. Correct?

1471 MS BARKER: Yes, I am.

1472 MR. WILLIAMS: And you and Mr. Fraser signed the management's responsibility for consolidated financial statements of Manitoba Telecom Services in the 1999 annual report. Is that right?

1473 MR. FRASER: That's correct.

1474 MR. WILLIAMS: Now, my understanding is that Manitoba Telecom is the parent company of MTS Advance. Is that correct?

1475 MR. FRASER: Of MTS Advance or MTS Communications?

1476 MR. WILLIAMS: MTS Advance.

1477 MR. FRASER: That is correct.

1478 MR. WILLIAMS: And that the MTS Advance, the results for MTS Advance are included in the audited financial statements of MTS Telecom Service for 1999. Is that correct?

1479 MR. FRASER: That is correct.

1480 MR. WILLIAMS: And there would also be included in the audited financial statements of Manitoba Telecom Service for 1998 and 1997. Correct?

1481 MR. FRASER: That is correct.

1482 MR. WILLIAMS: Now, just turning to the interrogatory in question, CRTC-2001, you can confirm that in Part A of this interrogatory you were asked by the Commission to file the actual statements for MTS Advance Inc. from 1997 through 1999. Correct? That's part of the interrogatory request.

1483 MR. FRASER: That's correct.

1484 MR. WILLIAMS: And your response as I turn to page 2 of that interrogatory in the second paragraph is essentially that MTS Communications Inc. does not have copies or access to MTS Advance's actual or forecast financial statements. Is that right?

1485 MR. FRASER: That's correct.

1486 MR. WILLIAMS: And in your further response on page 3, your supplemental response, and I am referring to the fourth paragraph down, you indicate that MTS Advance Inc. does not prepare signeted financial statements in the normal course of business.

1487 You did provide some additional information, but you provided the caveat that no attempt had been made to verify the accuracy or completeness of these financial statements. Is that right?

1488 MS BARKER: Mr. Williams, perhaps if I could answer, since the financial matters of the corporation mainly flow through myself before they go to Mr. Fraser.

1489 What that sentence is meant to express is that MTS Advanced Inc. is a company that has a number of lines of business, and we maintain the operating activities of the directory business separate from those other operations. They have their own recorded revenues; they have their own recorded operating expenses. We keep everything very, very separate.

1490 When the request was made for information for MTS Advanced Inc. to provide forecasts and to do a split of the financial statements, we really had no difficulty in doing that on an operating statement basis, an income statement basis, because we provide that information, in fact now semi-annually, from MTS Advanced and that directory over to the rest of the utility segment business.

1491 The request, however, had asked for information on a split of the balance sheet and a split of the cash flow. We do not prepare those statements on a segmented basis. We do not have a Phase III manual that approves them. We were actually somewhat at a loss in terms of time frame to be able to create that information, so we did the very best we can.

1492 I can tell you that we worked through very many times when people were out Christmas shopping trying to split balance sheets and cash flow statements to prepare the information.

1493 What we didn't want to suggest was that somehow there had been sufficient rigour and studies done that are similar to what is done for Phase III manual purposes, and to somehow suggest that those numbers had -- you know, that the stamp of final -- my goodness, we have nailed every number down, so we put in a statement that said that we have not done that test and that is what that is meant to convey.

1494 MR. WILLIAMS: Thank you for that answer.

1495 I take it that the financial statements, for example, that were consolidated in the Manitoba Telecom and the report from 1999 were not the ones that were provided to the Commission for the purposes of this interrogatory.

1496 MS BARKER: Oh, yes. Absolutely. Absolutely they were. The difference was that we had to draw a line down the balance sheet and the cash flow statement to determine which of those balances related to directory operations and which were non-directory operations. Of course, that's not relevant on consolidating them into the financial statements that appear in the annual report; that is not a necessary task.

1497 MR. WILLIAMS: Okay.

1498 From the information that you have available to you from MTS Advanced, you are able to determine the percentage of the income of Advanced that is deemed to be the income of MTS Communications Inc. Is that correct?

1499 MS BARKER: Yes. And we always have been able to do that.

1500 MR. WILLIAMS: Can you indicate what percentage of the MTS Advantage income in 1998 was deemed to be received by MTS Communications Inc.

1501 MS BARKER: I believe, Mr. Williams, that we have filed all of that information in confidence, because the amounts that are non-directory earnings relate to the Internet business and are e-commerce activities and as such are something that we do not want to have on the public record.

1502 MR. WILLIAMS: Perhaps you misheard me, Ms Barker. I wasn't asking for the amounts. I was asking for the percentage of MTS Advantage income which was deemed to have been received by MTS Communications Inc.

1503 MR. FORAN: Mr. Chairman, I have some problem with that and I do object to the question. Basically, as Ms Barker has said, MTS has put on the record the directory data that is relevant. It has put it in fully on a confidential basis for the Commission. To now be asked what percentage that is of total revenues, I believe is just going at the non-directory revenue through the back door.

1504 THE CHAIRPERSON: Mr. Williams.

1505 MR. WILLIAMS: Mr. Chairman, we are certainly trying to respect that confidence. We are in the position -- we are only asking for the percentage. We are trying to advance or to clarify our position in terms of the adjustments that need to be made to the rate base for the purposes of our calculations for our final argument.

1506 So the information is certainly relevant. We are not seeking the actual numbers but we are trying to get a percentage basis for 1998 and for 1999 which would assist us greatly in the provision of our final argument.

1507 THE CHAIRPERSON: Mr. Foran.

1508 MR. FORAN: Mr. Chairman, in reply, with respect, sir, it is not relevant. As I say, all relevant data relating to the directory information has been put on the record. To now say, well, if you won't tell me what amount it is or what particulars it is give me the percentage, the percentage of non-directory revenue in MTS Advanced Inc., sir, is not relevant.

1509 THE CHAIRPERSON: I presume it is your position that the percentage leads to a derivation of the confidential information.

1510 MR. FORAN: That is correct, Mr. Chairman. You could derive that number by working backwards.

1511 THE CHAIRPERSON: Mr. Williams.

1512 MR. WILLIAMS: Mr. Chairman, perhaps I will pose the question from a different way and we will try and expedite things.

1513 Was any dividend paid out from MTS Advantage to MTS Telecom in 1998, 1997 or 1999?

1514 MS BARKER: Yes, it was.

1515 MR. WILLIAMS: In what years was it paid?

--- Pause / Pause

1516 MS BARKER: Mr. Williams, over that time frame, 1997, 1998 and 1999, $4.9 million in total was paid in dividends from MTS Advanced Inc. to Manitoba Telecom Services Inc.

1517 MR. WILLIAMS: Could you repeat the figure? I didn't hear it.

1518 MS BARKER: It's $4.9 million.

1519 MR. WILLIAMS: Mr. Chairman, subject to a review of my notes, and perhaps we could take a brief adjournment to do that, I have no further questions.

1520 THE CHAIRPERSON: Okay. Actually, this is probably a good time for a break, in any event, so we will take a 15-minute break. It is now 10:30 by my watch. We will reconvene at a quarter to 11:00.

1521 Perhaps you can just advise us over the break, Mr. Williams, just to confirm that, and should that be the case we will turn to our Commission questions.

1522 Thank you.

--- Upon recessing at 1030 / Suspension à 1030

--- Upon resuming at 1045 / Reprise à 1045

1523 THE CHAIRPERSON: We will return to our proceeding now.

1524 Mr. Williams, having reviewed your notes...?

1525 MR. WILLIAMS: No further questions, Mr. Chairman.

1526 THE CHAIRPERSON: Thank you.

1527 We will turn to Commission counsel.

1528 MR. GRONDIN: Thank you, Mr. Chairman.

EXAMINATION / INTERROGATOIRE

1529 MR. GRONDIN: Good morning, Ms Barker, Mr. Fraser and Dr. Taylor. My name is Gino Grondin. I am Commission counsel. I guess I will be your host for the next hour.

1530 My first question will deal with the methodology for calculating income tax expense, so I would like to refer you to Interrogatory MTS/CRTC, 28 November, 00-1005.

1531 In part (a) of this interrogatory, a methodology was proposed to calculate MTS income tax expense.

1532 MR. FORAN: Perhaps, Mr. Chairman, we might just have a moment for the witnesses to get the interrogatory.

1533 THE CHAIRPERSON: Yes. Sure.

1534 MR. FORAN: That was 1005, November 28?

1535 MR. GRONDIN: Yes.

1536 MR. FORAN: Thank you.

--- Pause / Pause

1537 MR. GRONDIN: I am referring to part (a) of this interrogatory.

1538 In the company's response you have indicated your reason why you disagreed with this methodology. I don't want to explore those reasons now. Rather, what I would like to do is to take you through a simplified example so I have provided you with some tables, the handouts that I just gave you.

1539 I would like to take this opportunity, Mr. Chairman, maybe to just enter this exhibit as Exhibit CRTC-1.

1540 Have you had a chance to review the document and could you please tell me if you consider the figures and the calculations to be accurate.

1541 MS BARKER: Yes, I have had time to review the document and believe that the numbers as shown here are as calculated.

1542 MR. GRONDIN: Yes. It wasn't too hard.

1543 DR. TAYLOR: Yes, I would concur. I put them on a spreadsheet and checked the arithmetic.

1544 MR. GRONDIN: Yes. Okay.

1545 For the benefit of the parties who have not had a chance to review these numbers, and for the Commissioners, I would like to take you briefly through the calculations and assumptions that would be used in this exhibit.

1546 If we could start with page 1. As you will see, essentially for page 1 the assumptions are that Firm A and Firm B are identical except that Firm A is taxable and Firm B is not.

1547 Are you okay with these assumptions?

1548 DR. TAYLOR: Yes, that's what we assumed you had meant.

1549 MR. GRONDIN: I would now like to turn to page 2, which deals with the result for year one. Based on these assumptions, the results for year one show that both of these companies earned an ROE of 11 per cent.

1550 Are we still okay so far?

1551 DR. TAYLOR: Yes. That is an after tax ROE of 11 per cent.

1552 MR. GRONDIN: Yes.

1553 If you can turn to page 3.

1554 We are dealing here with the results for year two. Don't worry, the question is coming.

1555 The difference in year two is that both Firm A and Firm B have achieved expense reductions of $10 through efficiencies. The example shows that the ROEs of both firms have increased. Okay?

1556 The ROE of Firm A has increased to 16.5 per cent and the ROE of Firm B has increased to 21 per cent.

1557 So everybody still follows that?

1558 DR. TAYLOR: Well, one question/comment,I suppose.

1559 MR. GRONDIN: Yes?

1560 DR. TAYLOR: You have also kept the revenue of Firm A and Firm B the same in year two, so I infer that inflation minus X must have had no effect on revenue so we can infer that both Firm A and Firm B beat the productivity target. Is that fair? We will assume that is fair.

1561 MR. GRONDIN: I am advised that they have achieved it.

1562 We can now turn to page 4. In this example, in year three, the only change that has occurred is that Firm B is now taxable. So under this assumption both companies are taxable at the same tax rate, however, Firm B's income tax expense is calculated using the methodology proposed by MTS. So, as we can see, pursuant to this method, the ROE of Firm B, which is 21 per cent, is the same as it was the previous year when Firm B was not taxable.

1563 DR. TAYLOR: I guess I would concur at least that this is a correct application in this example of the MTS methodology. You can see that either by the fact the ROE remains the same between Scenario 3 and Scenario 2, or that net income after taxes remains the same.

1564 MR. GRONDIN: Okay.

1565 DR. TAYLOR: The change has been that we have taxes and MTS requests an exogenous change providing enough revenue so that its net income after taxes remains the same. So, yes, I concur.

1566 MR. GRONDIN: Thank you.

1567 I guess you are as anxious as me to get to the question so I will go to it right now.

1568 What I wanted to know, basically, from that is what if Firm B was MTS? I would just like you to explain --

--- Off microphone / Sans microphone

1569 MR. GRONDIN: Okay. Yes. We will go to page 5 first. I am too anxious to go with my questions. Okay. So page 5.

1570 In this scenario, yes, also for year three, we view the same numbers from page 4. However, you will notice that we have used a different methodology which was the one set out in part (a) of Interrogatory MTS, 28 November, 00-1005.

1571 What I wanted to know from that is, I would just like you to explain how Firm B in this scenario would be disadvantaged compared to Firm A with regard to the recovery of its income taxes.

1572 DR. TAYLOR: Sure. To do that I think it might be helpful if I were permitted to pass out a quick calculation of our own.

--- Pause / Pause

1573 DR. TAYLOR: The basic answer is symmetry and leverage.

1574 In the diagram or the spreadsheet that I have handed out, the upper section I think repeats, as best as I can, the handout that Mr. Grondin gave us; and the spreadsheet immediately below it is the same four scenarios except that instead of beating the productivity test, which in Mr. Grondin's example resulted in expenses falling from $80 to $70, I assumed in the bottom example that, bad luck, MTS, or Firm A and Firm B, had the opposite problem, that they didn't beat the productivity test and expenses went from $80 to $90. It could happen.

1575 The important thing to notice is what is going on in the example here is purely leverage, I believe, that is, Firm B, MTS in this example, is not taxed. What that means is, as we go to Scenario 2, for every dollar of extra income that it can earn because it has been more productive, it gets to keep 100 cents of that dollar. Nothing goes to tax.

1576 Firm A gets to keep only 55 cents because 45 cents of that goes to the government. That explains why, in Scenario 2, on the upper section, in Mr. Grondin's example, the after tax ROE of Firm B is 21 per cent while poor Firm A is stuck with 16.5.

1577 Now, if you go directly below that and look at what happens in Scenario 2, if instead of becoming more productive and beating the target these firms screw up and do not meet the target, what happens?

1578 Well, rate of return falls. It ought to fall. This is what price caps is about. It sets a target. If you don't meet the target, too bad.

1579 But what is important is, because Firm B isn't taxed, it is still more leveraged, and that means that it loses 100 pennies on every dollar that it loses, whereas Firm A splits its loss with the taxpayer. It loses only 55 cents for every dollar that it loses.

1580 So the rate of return on equity after tax in Scenario 2, if firms don't meet the target -- you will notice, Firm B, MTS, is 4.5 percentage points below Firm A, which is precisely 4.5 percentage -- reflects the 4.5 percentage points that it beat Firm A in Scenario 2 when it was successful in beating the productivity target.

1581 That takes us through Scenario 2.

1582 Scenario 3 says, MTS says "Give us back enough pre-tax revenue to get us back where we were before we were taxed". That has the effect, that Mr. Grondin's example points out eloquently, that it leaves Firm B at 21 per cent rate of return on equity and Firm A at 16.5.

1583 Well, but if the same principle had been applied and we had had bad luck or bad behaviour or a bad draw, that is if it hadn't met the productivity target, the same calculation that MTS proposes for the exogenous tax adjustment, would leave it 4.5 percentage points in rate of return below Firm A.

1584 So what is going on here is symmetry, that is at the going-in rates Firm A and Firm B were not identical. They were both earning 11 per cent, but because Firm B is not taxed it is leveraged compared to Firm A which is taxed. Firm A gets to share its benefits with the taxpayers if it is successful. On the other hand, it gets to share its losses with the taxpayer if it is not. That is the difference here.

1585 If you were to do, as Mr. Grondin's example suggests in Scenario 4, and return -- and use his calculation for an exogenous change and return MTS' or Firm B's rate of return on equity to 16.5, you would be taking away a positive outcome that MTS or Firm B was -- when Firm B was exposed to either a positive or negative outcome relative to "A", depending on how well it did in its productivity growth.

1586 That would be wrong. That is cherry-picking. That's saying "Firm B did well, all right, we will bring it back to where it was." But no one is saying that if Firm B had screwed up -- namely the second scenario at the bottom of the page -- that we would be giving it more tax than that which MTS is requesting.

1587 So that is, I guess, my story at least as to why the method that is outlined in CRTC-1005 gets the wrong answer. It gets the wrong answer because Firm A and Firm B at the outset of price caps are differently leveraged as far as income tax is concerned and both MTS and any other firm in Canada has to live with the consequences of that. If you are successful, you make more money than a taxed firm. If you are unsuccessful, you make less.

1588 MR. GRONDIN: Thank you very much for your complete answer.

1589 I would just like to come back to your example.

1590 If we went with your proposal, would the ATDs be used up more slowly?

1591 DR. TAYLOR: Well, the examples that we go through here don't really have ATDs in them at all. They assume that Firm B is not taxed, for whatever reason, be it that it might still be a Crown corporation or be it that it has ATDs that it has to use up.

1592 So the example is neutral with respect to ATDs.

1593 In the real world, ATDs are used up more quickly when taxable income is higher.

1594 Now, taxable income is not the same thing as return on equity. Return on equity has a numerator, which is earnings of some sort, but it also has a denominator, which is its equity. So those aren't exactly the same thing.

1595 But I will grant you that the higher the pre-tax earnings of a corporation, the faster it would use up, over time, its ATDs.

1596 MR. GRONDIN: I will now move to a question with regard to working capital.

1597 I would like to refer you now to response to Interrog MTS/CRTC, 28 November, 00-1003.

--- Pause / Pause

1598 MR. GRONDIN: I will refer you more specifically to Part B of this response.

1599 It states that:

"Funds generated by MTS Communications Inc. are invested on its behalf by the parent company and appear in working capital as intercompany receivables. MTS Communications Inc. receives interest on these funds at market rates." (As read)

1600 So could you please tell me what is the market rate of interest that MTS has received and is forecast to receive for each of the years 1997 to 2001?

--- Pause / Pause

1601 MS BARKER: I can confirm that it is approximately 5 per cent. If you would like a specific calculation, I believe that we could provide that to you very shortly.

1602 MR. GRONDIN: Can you just undertake to file it as soon as possible?

1603 MS BARKER: Yes, we certainly can. But I believe it is approximately 5 per cent, give or take the vagaries of the short-term marketplace.

1604 MR. GRONDIN: Can we count on you to file it at the latest Wednesday of next week?

1605 MS BARKER: Oh, absolutely. We will file it tomorrow.

1606 MR. GRONDIN: Thank you.

--- Pause / Pause

1607 MR. GRONDIN: I will review that part of the response.

1608 You state that:

"Funds generated by MTS Communications..." (As read)

1609 No. I just want to make sure that I'm not asking you the same question twice.

--- Pause / Pause

1610 MR. GRONDIN: Yes. When you refer to:

"Funds generated by MTS Communications that are invested on its behalf by the parent company and appears in working capital as intercompany receivables..." (As read)

1611 That is the part I am referring to.

1612 In your view, under the circumstances described in this response, would it be appropriate to eliminate all or part of the intercompany receivables from the determination of the working capital in order to determine an appropriate level of working capital for the years 2000 and 2001?

1613 DR. TAYLOR: Could I ask preliminarily: For what purpose would we be calculating working capital, that is in accordance with gas, in accordance with Commission rules to calculate a rate base, for example? What end view is in mind.

1614 MR. GRONDIN: I guess I'm thinking about the example that we were talking about earlier, like to establish -- depending on the methodology that we would use.

1615 In my example with Firm A and Firm B, if we would use the methodology that was proposed there, then it could be -- I see you are nodding, so I won't continue to bury myself. Just go ahead.

--- Laughter / Rires

1616 DR. TAYLOR: I think I understand. The use that you are interested in would be for calculating, for example, the after tax return on equity in order to implement the methods that you asked us about in 2001 I guess.

1617 I guess my first answer -- and I will say it quickly and then Ms Barker can tell you about working capital.

1618 My first answer is that I, and I believe MTS also, disagree that any calculation of rate of return on equity for a rate base is appropriate for sizing the effects of taxes. There is no crying in baseball and there is no rate of return in price caps.

1619 I believe you know our position. We have put it out in the text here so I won't repeat that at great length.

1620 It is just the basic economics of price cap regulation takes us away from having to look at, to judge, to measure, decide whether things like working capital are appropriate, because we don't care about that any more.

1621 Consumers got a bargain. Their bargain was the price, that is inflation minus "X" from going in rates. That is what they are entitled to.

1622 Beyond that, when you start bringing in rate base calculations, you begin to remove the incentives, both positive and negative, that firms have to improve service, to expand demand, to cut costs.

1623 I'm preaching here to the choir and there, possibly not. Nonetheless, I think our position is perfectly clear.

1624 If you want specific answers about how cash working capital or the aspects of working capital were calculated and why MTS thinks they are appropriate levels for the use that MTS puts them to, I think Ms Barker is best able to answer that.

1625 MS BARKER: Mr. Grondin, as we discussed earlier today with CAC/MSOS with respect to working capital, we believe that that is an asset at the utility segment. As I mentioned previously, it is arising because depreciation has been greater than the amount of capital that we have put into the ground. We do, of course, require some operating -- we require just straight cash in the bank to cover our payables.

1626 But this cash asset that has been building up is part of the utility segment. It has been earning interest income at market rates. That interest income has been utilized by the utility segment as a subsidy for consumer rates.

1627 It has been recorded in accordance with GAAP and it has been recorded in accordance with the Phase III manual that has been approved by the CRTC. To suggest that it is somehow not an asset of the utility segment is, I believe, not appropriate.

1628 In fact, if there is anything, the working capital does not include -- or the asset base of the company does not include recognition of the tax loss carry forwards.

1629 We have ATDs that have a benefit and they have benefitted the utility segment and they are not included anywhere. There are no earnings expected on them. They are only really to shelter income and to provide a delay in rate increases that will otherwise occur.

1630 So I do not believe that the working capital is overstated, nor do I believe that it should be pared back, given the nature and the reasons in which it has developed over the last few years.

1631 MR. GRONDIN: Thank you.

1632 I now have a question with regard to the allocation of income tax expense, so I will refer you to paragraph 63 of Decision 99-2 of the Commission, which Mr. Krushen is distributing presently.

1633 Paragraph 63. In this paragraph:

"The Commission also notes that a significant portion of the Utility segment income tax expense will likely have to be recovered from basic local residential subscribers in the future since most residential local services are priced below cost. The extent of this impact will be dictated by MTS' response to the competitive environment at that time."

1634 So given that there is limited local competition at this time, does MTS consider that it is fair that the majority of its income tax be recovered from residential customers?

1635 MS BARKER: Yes, we do. In fact, we believe that we put together a very fair and reasonable proposal.

1636 As we know, under price cap there is a requirement in the previous proceeding that when there is an exogenous factor, which of course income tax is, that the company must use cost causality as an allocation factor or must propose an alternate methodology if that is not an appropriate one.

1637 So when we looked at the income tax requirement, that we have to pay it and that all of that money flows to the government, and we calculated our revenue requirement to be over $75 million, we initially looked very quickly at what that would cost to each consumer if they bore the entire cost. That works out to be $13.60.

1638 We knew that that was a completely unreasonable number. So what we have done is, we have therefore looked to see what the sources of recovery for the income tax could be and we believe that we have taken a very balanced and fair approach.

1639 We have looked at business rates. The CRTC has allowed us a mechanism to keep business rates higher than they would otherwise be. So from that we have been able, in total in the year 2001 -- because that is the year ahead of us and 2000 is now shut down -- that works out to just over $13 million.

1640 So business rates will either see further increases or their rates are being held higher than they would otherwise be to the tune of $13 million. That is their contribution towards that $75 million.

1641 We also looked then to see what we thought the market could bear. We looked at residential rates and at their current level being at $19, and we determined that at $19 they were not making a substantial enough contribution towards the cost. Our average cost of providing service in Manitoba is $34 and the amount at $19 is just 56 per cent of our costs are being recovered.

1642 We didn't feel that that was fair. It's not fair to the company, nor is it fair to the consumer, nor is it fair to the competitive environment.

1643 What we thought would be fair would be a level playing field. So we looked at whether -- what amount would be a reasonable amount that the consumer could bear and, of course, recognizing that the shortfall would have to be made up by the company.

1644 When we looked to ascertaining what that number is, we felt that $25 was a reasonable amount. If we look at $25 in the landscape across Canada, it puts us in the mid-range.

1645 Rates currently for the services that we provide, because we have extended calling and community calling for up to 75 miles from your place of residence, and you compare our rates across Canada with two others across Canada, those range anywhere from just over $20 to $34.50 for the same approximate level of service, and in some cases you can't even get that kind of service.

1646 So at $25 and, in fact, for some being at $21.45 in remote areas in Manitoba, we felt that was a very reasonable range to land on.

1647 And, as I say, if we move to an average of $25, we end up with a recovery of costs that is 74 per cent, which puts us in the same as all the other telcos are currently recovering.

1648 We felt that is a level playing field in terms of the company and the consumer in terms of what they must bear.

1649 What that leaves us with is a shortfall against what we needed. So MTS is looking to recover that shortfall in the amount of almost $21 million. So that is our contribution towards rates.

1650 It is a market-based perspective. We believe that it is affordable and reasonable.

1651 If we look at SaskTel that has no tax, they are currently paying $22 for their rates. We are looking to go to $25. Twenty-five is a rate that Nova Scotia has had in place since January 1st, 1998, and penetration rates have not deteriorated. In fact, our penetration rate would be about the same as across Canada.

1652 And although we heard very many compelling stories yesterday, and there will be an impact, no doubt, on a $6 rate increase, our concern for our customers has left that at $6, which we feel is reasonable, with the shortfall taken up by MTS.

1653 Now, coming back to the cost causality issue and the allocation methodology, we have looked at all the allocation methods. We took our $6 and determined is that a fair and reasonable apportionment of how the CRTC has instructed companies to allocate recovery of exogenous factors, and we have determined that it is.

1654 If I could just -- this is not new information.

--- Pause / Pause

1655 MS BARKER: It is merely a summary of what we have already filed.

1656 I'm sorry. It is merely a summary of what we have already filed in terms of allocation methodologies.

1657 What we determined is, the first thing when we did our thumb, kind of again, cost causality, is to determine whether it could in fact be allocated on a cost causality basis, and we determined that it couldn't. Our determination was based on the fact that cost causality assumes that you can differentiate between what is causing the income tax expense and what is not.

1658 So if you decide that we should take income tax and allocate it back to profitable lines of business, which are profitable so that they provide subsidies to residential customers, you continue to distort the inefficiencies that are currently in the pricing within the utility segment.

1659 Here you have a whole group of services that are currently providing profit and causing tax, and to assume that you can go back and therefore take that cost and allocate it back up to those very customers, first of all, they are in a competitive marketplace, we do have local competition there, we cannot decrease those prices, so we are therefore almost denied an opportunity to recover the income tax.

1660 And it continues to have that cross-subsidy, in fact, not reduced and ultimately perhaps eliminated, but at least it doesn't bring prices closer to costs, in fact it just continues to distort it.

1661 So we looked at cost causality and, in fact, we looked at paragraph 63 of this decision and said, you know: We believe that the CRTC understands and is telling us in that paragraph that in fact we are going to have to get a significant amount of this price increase from our consumers and, in fact, it helps to achieve one of the objectives of price caps, which is to bring prices closer to costs and reduce barriers to entry.

1662 The other methodology that has been talked about and discussed in other hearings, specifically the L&P hearing, was whether revenue should be a basis.

1663 They are exactly inappropriate for the same reasons that cost causality doesn't work. What you are then doing, and I will quote from Order 99-239 on L&P:

"It is the Commission's view that a revenue-based allocation places a larger burden of cost recovery on those customers who already pay compensatory rates." (As read)

1664 So believe it just continues -- same reasons, it continues to distort that cost causality.

1665 So we filed other methodologies and we provided a table in our September 1st filing that said what are some of the other possibilities.

1666 Now, we have on the chart here it just shows 100 per cent residence. That was if it was a going-in rate proceeding where 100 per cent of the cost was allocated to consumer, and that is the $13.60.

1667 And, of course, the next one is the numbers that we just looked at this morning, the $7.17, which is what we would have had to allocate 100 per cent basis to customers as at January 1st, 1998.

1668 Those bottom two numbers weighted mass -- I'm sorry, the second and third from that little grouping there, retail mass and weighted mass, show what happens if you use a couple of the other methods that have been acknowledged to date.

1669 Retail mass would put about two-thirds of the cost onto the consumer. It's not an unfair recognition of how to do it. It basically says that all customers should bear some cost and it is in relation to how many customers you have.

1670 What we did when we did the calculation turns out to be $9.06, which is higher than what we are asking for. So we discarded that as putting it forward as a responsible approach.

1671 Similarly, weighted NAS we feel in this case would be inappropriate. Weighted NAS, as you know, was utilized in the local and reportability hearings, and it was determined to be appropriate because business was going to benefit more from local and reportability than residential customers were. So there was an extra weighting of the NAS provided so that on the allocation methodology it would bear more of the cost.

1672 However, in this case business is not going to benefit more. In fact, we don't want to continue to distort those price inefficiencies.

1673 We felt the $6, again, was also the reasonable approach and one that would place us at a reasonable end point.

1674 Of course, below cost just says if your sole objective is to look at all customers and determine who is paying below cost and try to raise them as much as you can to above cost, it would have been $12.65.

1675 We come back to a method of allocation that is market based, which I believe is part of the price cap objective: to try to have rates determined based on the market. It is less than we require and is only a portion of what is required.

1676 MR. GRONDIN: Thank you. I will wait for my questions and I will go ahead.

1677 I would like to refer to paragraph 62 of MTS' evidence.

1678 MS BARKER: Mr. Grondin, is that the September 1st evidence that we are speaking of?

1679 MR. GRONDIN: Yes, the one with Table 4.

1680 Mr. Chairman, maybe I will take this opportunity to file the table that was demonstrated by MTS, entitled "Allocation Alternatives", as Exhibit MTS-4.

1681 Back to paragraph 62 of MTS' evidence.

1682 MR. FORAN: Mr. Chairman, I am sorry for interrupting, but may I say we do have copies of this document, which we will hand out, and perhaps mark it as an exhibit at the same time as the document that Dr. Taylor distributed this morning.

1683 That could be done whenever convenient.

1684 MR. GRONDIN: Thank you.

1685 In paragraph 62 of your evidence MTS states that there are other possible methods of allocating the recovery of the exogenous factor to cap utility services, including network access services, the NAS, the weighted NAS, and recovery from services priced below cost.

1686 In Table 4 of your evidence, which illustrates these possible methods of allocating the income tax, MTS stated that such allocations are not appropriate because they would not result in residential rate increases that are greater than what MTS has applied for.

1687 Could you confirm that the rate increases shown in Table 4 assume full recovery of the residential sub-basket exogenous factor.

1688 MS BARKER: Could I just get clarification of your question, please.

1689 Are you asking whether the $75 million is completely recovered through this methodology? Is that what you are asking?

1690 Perhaps I can just explain what we did.

1691 We took $75 million, which is the revenue requirement arising from our proposal of revenue required to recover income tax as an exogenous factor.

1692 Then, for example, in retail NAS, in the first column, we took 100 per cent and allocated it based on NAS. So 67 per cent went to residence, and 67 per cent of $75 million is $50.1 million.

1693 Then we divided $50.1 million by the total number of expected NAS, to come up with the number that is on that chart and in this table, which is $9.06 per residence.

1694 The remainder of those amounts would then be spread, if possible, over the remaining NAS.

1695 MR. GRONDIN: Thank you.

1696 Perhaps you could give me a moment, please.

--- Pause / Pause

1697 MR. KRUSHEN: While legal counsel is doing that, I will take the opportunity to identify the exhibits.

1698 The Allocation Alternatives chart we will designate as MTS Exhibit 4.

1699 The List of Scenarios handed out earlier by Dr. Taylor we will identify as MTS-3.

1700 Then there are the two CRTC documents. The Method for Calculating Income Tax will be CRTC Exhibit 1, and the Excerpt from Telecom Decision 99-2 will be CRTC Exhibit No. 2.

1701 MR. GRONDIN: Thank you, Mr. Krushen, for the diversion.

1702 Could you please now confirm that MTS' proposed rate increases will not provide full recovery of the residential sub-basket exogenous factor?

1703 MS BARKER: In terms of the $75 million, when we request $6 per residential customer there is a shortfall that occurs. That shortfall is absorbed by MTS.

1704 That has been one of our positions in terms of desiring to have a level playing field with other telcos, and we understand and the proposal that we have put forward does not achieve that. In fact, there is $21 million of shortfall which is not recovered.

1705 We do not recover $75 million of revenue. We only will recover what is shown on Table 3 of that same document, which is page 14.

1706 Page 14 in the year 2001 illustrates that there is a requirement for $75 million. That is the very top line. It then identifies that there is $13 million coming from business, $33.2 million from residential. Those together amount to $46.3 million.

1707 The revenue unrecovered with proposed rates is $28.9 million.

1708 I have mentioned earlier, within the last 15 minutes, that we actually have a shortfall of $21 million.

1709 Again, this is not information that is new to the filings. All that it intends to do is to illustrate the $21 million that I am speaking of.

1710 What it does show -- and again I would just direct our attention to 2001.

1711 We believe that under price cap, with no earnings sharing mechanism, and in fact the only self-regulating mechanism being the time frame, there should be no clawback or reduction of the financial results that MTS has when we come to the CRTC requesting to be, as I call it in laymen's terms, kept whole.

1712 So when we file our split rate base forecast for the year 2001, not taxable, the very first line says that our earnings before tax were expected to have been $91.7 million.

1713 That is how much we would have made. That is how much -- we are coming forward and saying: You know, if we were kept whole through an exogenous factor adjustment, we would end up at the end of the day with the same amount of money in our pockets.

1714 What happens is we are now subject to tax, full tax for the full year. We pay $41 million. As a result, our net income drops to $50.4 million.

1715 We then decided -- we did the gross up, the revenue requirement. That is the number that has been filed, $75.2 million.

1716 As I have just discussed, we have gone to two sources in terms of our customers, our bus and our res, looking for 33.2 and 13.1. What happens then is that if you take those revenues and you flow them back through the income statement and you file the income statement, which we have done in one of the interrogatories, at the end of the day, at the end of 2001, we end up with $70.9 million. We are out of pocket.

1717 The reason that the numbers don't agree to what is on the table that has been provided is that this balance unrecovered is balance unrecovered of revenue. It is subject to tax. So we would not have been able to keep it all anyways if it had been given to us.

1718 This is the after-tax shortfall.

1719 In fact, the last thing that MTS wants to hear is rate of return. But just so that we understand in the relationship of what that does to us in terms of our relative performance, we would have achieved, on $91.7 million of income, a 16.7 per cent ROE.

1720 We understand from discussions, or I understand from discussions with other telcos, that other telcos are flourishing in the price cap environment. The incentives are working.

1721 So when we roll back and take the $21 million and pay some of our tax ourselves, we end up with in fact a rate of return that is 12.9 per cent. So we will not be in the same ballpark in relative performance as the other telcos in Canada after that. That is because we are absorbing that $21 million. That is the next line.

1722 The shareholders are picking up $20.8 million.

1723 The two bottom lines are just an illustration also of information that we have filed, where we were requested to indicate what would happen to the company if we were only ever granted the interim $3 on a permanent basis.

1724 As you can see, what happens there is that we would go to a net income of $60.7 million after you flow through all the numbers. In fact, the shareholders will be picking up $31 million, and we would cut our pre-tax profits by a third.

1725 It is quite dramatic an impact on the company, and one that we are prepared to take at the $20.8 million level. That will cause some heartache, as it already stands.

1726 MR. GRONDIN: Thank you. I have another question on that line again.

1727 If MTS were to seek full recovery of the exogenous factor assigned to the residence sub-basket, could you tell me what the residential rate increase would be?

1728 Or you may undertake to file it later.

1729 MS BARKER: Could you please direct me to where you are reading from?

1730 MR. GRONDIN: I was wondering if MTS -- always referring to Table 4 and the example that we were dealing with earlier, but this is a hypothetical question.

1731 If MTS were to seek full recovery of the exogenous factor assigned to the residence sub-basket, what would the residential rate increase be?

1732 MS BARKER: It would be $13.60. That would be 100 per cent recovery by residential customers.

1733 MR. GRONDIN: Okay.

1734 MS BARKER: As I have mentioned, we are asking for $6.

1735 MR. GRONDIN: I would now like to refer to paragraph 42 of your evidence. This is another question with regard to rates.

1736 In your evidence you stated that assuming the requested rate increases are approved, the company does not anticipate seeking further rate increases during the remainder of the initial price cap period for the recovery of utility segment income tax expenses.

1737 Do you plan to propose further increases to the various rate elements in your 2001 price cap filing to the extent that it is allowed under the price cap mechanism?

1738 MS BARKER: Perhaps I can answer half the question, and then the other half in relation to policy Mr. Fraser can answer.

1739 With respect to our statement here, what we are saying is that this has been a long process for MTS to make, the transition to full taxation, and we are telling the Commission that we will not be back in front of you looking for any more money in relation to taking us to the transition from being tax-exempt to being full tax paying if we receive the $6.

1740 We have very carefully worded it here in terms of the remainder of the price cap period, because we don't want anyone to ever say: Well, you know, when you ask for $1.00 for something, there is tax associated with that, somehow you are getting some tax treatment again.

1741 What we are saying is this puts an end to the transition to tax, provided that we receive the $6. We are not looking at any further increases on that basis.

1742 MR. FORAN: Mr. Chairman, I can perhaps elaborate on that beyond the income tax issue, because there are other potential increases in terms of contribution mechanisms and CPI.

1743 Obviously we want to maintain whatever flexibility is available within the regulatory framework to manage our business and not lose head room, if you will, in terms of managing the business in the longer term. It is certainly not our intention to come back for rate increases in 2001 for either of those factors as well.

1744 Again, our rationale is as Ms Barker has stated in going through the various allocation mechanisms. It is a market test.

1745 We heard yesterday -- and we certainly respect the views of our customers -- that it is just not feasible or practical or make good business sense for us to address those issues with rate increases. So we are going to have to manage our business without considering those other options that other telcos are going to have through 2001.

1746 It is a market test, as Ms Barker has indicated. It is not based on causality or allocation techniques. It is what the market will bear. I think we heard in spades yesterday the reaction to certainly a segment of our customers.

1747 MR. GRONDIN: Thank you.

1748 THE CHAIRPERSON: I am always loathe to interrupt counsel.

1749 MR. GRONDIN: It is a pleasure, Mr. Chairman.

1750 THE CHAIRPERSON: Just to be clear, as I understood the question -- and I appreciate the preciseness with which you answered the question related to paragraph 42.

1751 Just now, Mr. Fraser, you referred to the contribution of the new scheme and CPI.

1752 As I understood, the question from counsel was -- and again, I know you were careful about the way you answered in terms of understanding the concerns of consumers in the marketplace, which is not to say that the company may not wish to take increases, or if you turn it around, that the company may wish to take increases that it would otherwise be entitled to under the price cap scheme for 2001 outside of the income tax.

1753 Everything else aside, MTS would be entitled to some increases in 2001 under the current price cap scheme.

1754 MR. FORAN: What I am saying, Mr. Chairman, is that within the price cap scheme we don't want to give up our right to that. But at the end of the day, we will not be, in the short term at least, exercising that right in terms of any available increases for CPI or for contribution mechanisms, because we don't believe that our marketplace will bear that.

1755 THE CHAIRPERSON: When you say for CPI, then, essentially you are saying the price cap scheme. Am I interpreting that correctly?

1756 MS BARKER: Yes, yes.

1757 THE CHAIRPERSON: Thank you.

1758 MR. FORAN: I think the simple bottom line answer is that in 2001 under price cap we will not be asking for any other rate increases for any other known reason at this point in time.

1759 THE CHAIRPERSON: Income tax or otherwise.

1760 MR. FORAN: Exactly.

1761 THE CHAIRPERSON: Okay; thank you.

1762 Counsel...?

1763 MR. GRONDIN: Thank you.

1764 I would now like to refer to response to Interrogatory MTS-CAC/MSOS 12 October 00-10.

1765 So in its response MTS stated that elsewhere residential customers pay an average 75 per cent or more of their basic services. Even with the requested rate increases, MTS residential customers will pay an average less than 75 per cent of the cost of providing basic access services.

1766 Could you please tell us in which operating territories residential customers pay on average 75 per cent or more of the cost of their basic services.

1767 If you don't have this information available, maybe you can file it as an undertaking.

1768 MS BARKER: Certainly. I will see what detail I have here.

1769 COMMISSIONER CRAM: Can you just tell me what the interrogatory number is again.

1770 MR. GRONDIN: 12 October, the response to interrogatory MTS-CAC/MSOS 12 October 00-10.

1771 COMMISSIONER CRAM: Ten. Okay.

1772 MS BARKER: The material that I have we can provide it in an undertaking. It is information, of course, that has been filed confidentially amongst the Bell affiliates. The information that we have covers Bell in detail, MT&T, NewTel. Those would be the four, but we will provide that as an undertaking so you will know our reference point.

1773 MR. GRONDIN: Thank you. Can you file that by next Wednesday?

1774 MS BARKER: Certainly.

1775 MR. GRONDIN: Thank you. I guess as we are talking about undertakings, could you undertake also to file the supporting documentation for MTS' claim that residence customers pay on average less than 75 per cent based -- is it based -- yes. So would you file this information with this?

1776 MS BARKER: I'm sorry, could you repeat your question, your request.

1777 MR. GRONDIN: The supporting -- basically what we want to have is the supporting documentation for your claim.

1778 MS BARKER: Oh, certainly. We will include MTS in the percentage -- in the calculation.

1779 MR. GRONDIN: Thank you. So this basically completes our cross-examination. However, we have one more question. Were you going to be able to provide it to MTS through an undertaking, probably after the lunch break, through the information that we are seeking? It's confidential. We will provide MTS with a copy of the undertaking, but not the other parties.

1780 MTS would be requested to provide a response to this undertaking by next Wednesday. At this time MTS should file an abridged version of this interrogatory as well as its response. MTS, as is the usual practice in front of the Commission, should provide the reasons to support its claim for confidentiality. We will provide you with that as soon as possible.

1781 MS BARKER: And we will file by next Wednesday.

1782 MR. GRONDIN: Okay. So just to confirm for all of the undertakings that we have asked that we would like to be filed by Wednesday, we agree that it doesn't seem to be a problem with MTS.

1783 MS BARKER: No. That will be no difficulty at all.

1784 MR. GRONDIN: Thank you very much.

1785 This completes our examination, Mr. Chairman.

1786 THE CHAIRPERSON: Thank you, counsel. I'm not sure I made note of all the -- Mr. Secretary, do we still have exhibit numbers? I think we need exhibit numbers for at least one of those.

1787 MR. KRUSHEN: Yes. I have just one remaining item and that's the chart currently displayed, the one that is entitled "MTS Communications Proposal". That one will be MTS Exhibit No.5

1788 THE CHAIRPERSON: And did we give a number to Dr. Taylor's?

1789 MR. KRUSHEN: Yes, I did. I believe that was No. 3. Yes, it was.

1790 MR. FORAN: Mr. Chair, I have copies of those documents which perhaps we could give to the Secretary.

1791 THE CHAIRPERSON: Now, I understand that Commissioner Cram has a question for the MTS panel.

1792 Commissioner Cram.

1793 COMMISSIONER CRAM: I'm sorry, Dr. Johnson, I didn't exactly understand your reply to the first Taylor -- sorry, what's my name and where's my lunch -- your answer on Mr. Grondin's question about how firm B is disadvantaged. I understand your argument about the magic of income tax and how it essentially lowers one's risk.

1794 Now that firm B has the same lower risk as firm A, how is firm B disadvantaged in your taxation year as opposed to year one and two, if I understand that issue. How are they now disadvantaged?

1795 DR. TAYLOR: Oh. Going forward, they are not disadvantaged at all in the sense that as far as leverage from taxation is concerned, firms A and B are on exactly the same footing.

1796 The question at issue though is whether there should be a one time adjustment, this exogenous adjustment for taxes, that would either in scenario four in the Commission staff's example equate post-tax rate of return or in using MTS' proposed taxes, not equate them.

1797 Going forward, there's no problem, but the one time change, I would say if you take away the difference in after-tax rate of return in scenario three using MTS' tax mechanism, you have done something wrong because you weren't willing -- the price cap mechanism wouldn't tolerate having them over-collect the taxes had their productivity -- had they not met their productivity goal.

1798 COMMISSIONER CRAM: So if I understand then, in terms of the symmetry and leverage issue, we are really talking about adherence to the scheme, to the plan, aren't we?

1799 DR. TAYLOR: That's correct.

1800 COMMISSIONER CRAM: So it's not the issue of risk or not the issue of disadvantage really, it's adhering to the regulatory bargain.

1801 DR. TAYLOR: That's correct.

1802 COMMISSIONER CRAM: Thank you.

1803 THE CHAIRPERSON: Thank you, Commissioner Cram.

1804 I believe those are all the questions for this panel. I want to thank you, Ms Barker, Mr. Fraser, Mr. Taylor and your back-up team that wasn't overly taxed this morning for your participation and your answers to the questions.

1805 Now, it's about seven minutes to 12. My understanding is the Commission has about 20 minutes or seven minutes. What I was going to suggest was we would take a five minute break just to change tables here and proceed on. We can conclude the proceeding without going through a lunch break and then coming back. Rather than do that, I think we will just take a short break to provide an opportunity for the CAC/MSOS panel to  -- my understanding is that the MTS has no questions for the CAC/MSOS panel.

1806 MR. FORAN: That is correct, Mr. Chairman.

1807 THE CHAIRPERSON: It will just be questions from the Commission.

1808 We will take a five minute break then and resume our proceeding at that time.

--- Upon recessing at 1155 / Suspension à 1155

--- Upon resuming at 1205 / Reprise à 1205

1809 THE CHAIRPERSON: Order, please, ladies and gentlemen. We will return to our proceeding now.

1810 Mr. Williams, would you like to introduce your panel, please.

1811 MR. WILLIAMS: Yes, for the second time this morning actually, Mr. Chairman.

1812 Closest to me on my left is Mr. John Todd. He is the President-owner of Econalysis, the Econalysis firm. He's got his Masters in Business Administration from the University of Toronto. He has testified frequently in proceedings before many regulatory Tribunals, including the CRTC.

1813 To Mr. Todd's left is Mr. Hugh Johnson who is a partner at Stephen Johnson Chartered Accountants. He has his Bachelor of Commerce from the University of Calgary and a Member of the Institute of Chartered Accountants of Alberta. He again has been a frequent flyer in regulatory proceedings, whether they are the National Energy Board or the CRTC or the Alberta Regulatory Tribunal.

1814 I would ask that they be sworn now, Mr. Chairman.

1815 THE CHAIRPERSON: Thank you. I will start with Mr. Johnson.

SWORN / ASSERMENTÉ: HUGH WARREN JOHNSON

SWORN / ASSERMENTÉ: JOHN DOUGLAS TODD

1816 THE CHAIRPERSON: Good afternoon, gentlemen. Mr. Todd, Mr. Johnson, welcome to our proceeding. As we indicate before, we understand that MTS has no questions for you but the Commission does, so I will turn it over to Counsel Grondin.

1817 MR. WILLIAMS: Mr. Chairman, I do have a very brief examination-in-chief, if you will permit me.

1818 THE CHAIRPERSON: I will. I'm getting a little ahead of myself. That's a problem when you continue on through lunch.

EXAMINATION / INTERROGATOIRE

1819 MR. WILLIAMS: Mr. Johnson, you filed evidence on December 12 or CAC/MSOS filed your evidence on December 12. The evidence that you prepared in this proceeding is the evidence of Hugh W. Johnson on behalf of the Consumers Association of Canada and the Manitoba Society of Seniors with respect to MTS Communications Inc. Is that right?

1820 MR. JOHNSON: That's correct.

1821 MR. WILLIAMS: And you are also responsible for interrogatories CAC/MSOS MTS 1 to 24.

1822 MR. JOHNSON: Yes.

1823 MR. WILLIAMS: 26, 29, 40, 44 and 45. Is that right?

1824 MR. JOHNSON: Yes. 44 and 45 myself and Mr. Todd and his associate had all participated in the preparation of that one. As well, I take primarily responsibility for those that you listed, but there was some discussion between Mr. Todd and myself with respect to those questions and I had some discussion with him with respect to the ones that he had primary responsibility for.

1825 MR. WILLIAMS: In terms of the evidence that I have cited as well as the interrogatories, it was prepared by or under your supervision.

1826 MR. JOHNSON: That's correct.

1827 MR. WILLIAMS: And your curriculum vitae is also filed as Appendix 1 to your evidence. Is that right?

1828 MR. JOHNSON: That's correct, Mr. Williams.

1829 MR. WILLIAMS: Mr. Todd -- Mr. Johnson, just moving on. Can you indicate whether the evidence that you have filed contains any errors or requires any routine updates?

1830 MR. JOHNSON: There are a number of typographical errors, Mr. Chairman, but I am not going to waste your time going through them. I think most of them are pretty obvious.

1831 I would point out though on page 12, the footnote, I forgot to put in the paragraph number for the reference with respect to the paragraph on lines 7 to 13. Footnote 12 should have a reference to paragraph 372 from Decision 98-2.

1832 That's the only point I would make as far as a correction.

1833 MR. WILLIAMS: Mr. Todd, you filed evidence entitled "The appropriate recovery of MTS income tax expense" or CAC/MSOS filed the evidence which was prepared by you by that name.

1834 MR. TODD: It was prepared by myself and Ms. Poon, yes.

1835 MR. WILLIAMS: And in addition you are responsible for interrogatories 25, 28 and 30 through 39 as well as jointly responsible for interrogatories 44 and 45. Is that correct?

1836 MR. TODD: That's correct.

1837 MR. WILLIAMS: And you can indicate that the evidence was prepared by you or under your supervision. Is that correct?

1838 MR. TODD: That's correct.

1839 MR. WILLIAMS: Can you indicate whether the evidence filed contained any errors or requires any update?

1840 MR. TODD: None that I have identified.

1841 MR. WILLIAMS: Mr. Chairman, in terms of qualifying the witnesses, I understand that my friend is taking no position on whether they should be qualified.

1842 I am prepared to go through their qualifications, but I am hoping that I can dispense with that and indicate that we are asking that they be qualified, Mr. Johnson on the basis that he be qualified as an export on regulatory, financial and tax matters and that Mr. Todd be qualified on the basis of regulatory, economic and methodological matters.

1843 THE CHAIRPERSON: Okay. That's it, Mr. Williams?

1844 MR. WILLIAMS: Yes, it is, Mr. Chairman.

1845 THE CHAIRPERSON: Thank you for correcting me in the procedure.

1846 MR. WILLIAMS: I hope it's the only time I need to during the course of this proceeding.

1847 THE CHAIRPERSON: No problem.

With that then we will turn to Commission Counsel.

EXAMINATION / INTERROGATOIRE

1848 MR. GRONDIN: Thank you, Mr. Chairman.

1849 Good morning, gentlemen. I have a few questions for you this afternoon. It's 12:10 now.

1850 My first question will be related to the drawdown of ATDs. Mr. Johnson, if I understand correctly in your evidence, you stated that the ATDs should be drawn down from 1997 onward, using a maximum deemed common equity of 60 per cent, an ROE of 11 per cent and the statutory income tax rate.

1851 Is this a correct summary of your assumptions in calculating the drawdown of the ATDs?

1852 MR. JOHNSON: Well, certainly the 60 per cent maximum and the 11 per cent. The actual statutory rate is not directly applicable because those two parameters set the taxable income or affect the taxable income and the ATDs are adjusted against taxable income as losses against taxable income, so the statutory rate per se is not a factor in the determination.

1853 MR. GRONDIN: Okay. Thank you. Could you provide us with reference to any Commission decision that would refer to the drawdown of the ATDs based on these assumptions?

1854 MR. JOHNSON: I think as I indicated in the responses to interrogatories, it's a question of interpretation with respect to decision 98-2 and what the Commission first intended when they said that MTS was not to get a shareholder entitlement.

1855 I looked at it and said if shareholders don't get it, then there's only one party that would get it and that's the customer. That then said okay, it should go to the benefit of the customers.

1856 Then I looked at it from the perspective of saying "What would have been reasonable to expect that customers should pay for in an income tax expense?" If we had a perfect foresight as to what formula should have been under price cap and everything else and if the Commission felt that 11 per cent on 16 in the case of MTS or 11 per cent on 55 in the case of the other telcos was sort of what you as Commissioners expected was the appropriate rate of return that customers should bear adjusted per formula, if that had been perfect and you had anticipated correctly what kinds of changes would have been made, productivity, et cetera, then that's all the telcos would have made. They would have made 11 per cent.

1857 Taking that sort of concept, I said then well "Should the customers of MTS because of the unique situation they are in with the ATDs essentially have to forego the benefit of the ATDs on that portion of the income that MTS made in excess of what the Commission apparently thought was a just and reasonable or a reasonable rate of return net income".

1858 The conclusion I came to was if you were going to have fairness and balance the situation between the other telcos and MTS and other companies and MTS in the regulatory field, the shareholder of MTS should have to bear the income tax expense on that additional earnings the same way as the shareholders at Bell Canada would have to bear the additional income tax on their earnings over and above the 11 per cent because when you set up the formula, you essentially provided for a tax based on the 11 per cent.

1859 I think Ms Barker suggested that some of them were making 16 or 17 per cent. Well, if they were making that kind of income, they would have to -- the shareholder would have to pay the tax on that additional revenue.

1860 In MTS' situation, because of the ATDs, they were sheltered from that tax. The question then became when ATDs were used up, and I understand they were used up this year or were expected to be used up in 2000, should the customers be forced to forego the benefit of the ATDs that was used to shelter that additional income for the shareholder?

1861 That is, I think, very simply what the issue is, as I see it.

1862 And the other adjustments got made and I'm sure Maître Grondin will go through those, but those are all just to say, you know, what is the reasonable amount that should have been used to shelter tax expense that were incorporated into the basic rates of the utility segment of MTS, and the rest of that tax and whatever else they want to do in accordance with however they file should be for the account of the shareholder.

1863 MR. GRONDIN: I would now like to turn to a question relating to working capital, so I would like to refer to page 16, line 17 of your evidence, Mr. Johnson.

1864 MR. JOHNSON: Yes, I have that.

1865 MR. GRONDIN: You state that:

"While working capital is generally considered to be a component of rate base where the shareholder provides the working capital needed, the level and amount included by MTS is disproportionate to the revenue and operating expenses." (As read)

1866 Is it your view that for a regulated company working capital is generally a function of operating expenses?

1867 MR. JOHNSON: Yes, it generally is. If you go back to your experience a few years ago at the National Energy Board, that is the way the National Energy Board calculated the working capital components of the pipeline. That was the same approach that was taken and the incentive deals were worked out between the shippers and the pipelines in those cases.

1868 So the working capital or, I guess to be more specific, the cash working capital component of working capital would generally be directly related to operating expenses.

1869 MR. GRONDIN: To your knowledge, are there any guidelines or benchmarks that suggest an appropriate level of working capital for a company not under rate-of-return regulation?

1870 MR. JOHNSON: I think every company probably, if you are not under a rate-of-return type regulation, there is an even greater incentive to use your supplier's cash as opposed to your own because it doesn't have a cost to it. So everybody tries to minimize the amount of working capital that they require.

1871 The guidelines, they vary. Different companies have different situations. What I did, sort of as an outside boundary in preparing this evidence, was go back to the old federal power commission and FTC-type formula of 45 days, which I recognize is probably more than generous given the fact that most of the telecom companies -- at the time I wrote the evidence, I didn't have a copy of the bill from MTS, but I understand that essentially MTS bills at the beginning of the period for which they provide the service and they get paid before the end of the period that the service is provided, assuming people pay on time.

1872 So in that circumstance there would be very little requirement for working capital to finance their operating expenses.

1873 MR. GRONDIN: Thank you.

1874 Mr. Todd, I see that you are pretty laid back. You feel neglected maybe, so I have prepared a question for you.

1875 MR. TODD: That's very generous of you.

1876 MR. GRONDIN: I would refer to paragraph 41 of your evidence. I guess I will wait a few minutes. Do you have it? Yes?

1877 MR. TODD: Yes, I have paragraph 41.

1878 MR. GRONDIN: Thank you.

1879 You suggested that the use of pre-taxed income or total revenues for each basket would be an appropriate proxy for allocating income tax expense to the capped and uncapped service baskets. So if the Commission was to accept one of these two methods for allocating income tax expense, would you consider it appropriate to also use the same method to allocate the income tax applicable to the capped services to the sub-baskets, that is, the residential services and other services sub-baskets?

1880 MR. TODD: Yes, it would be appropriate to be consistent.

1881 Just to be clear, the comment here is more of an illustration. The point I was making was that there should be an attempt to use a proxy for cost causality, as is normally done in these exercises. It must be applied when it's available. And the exact method that is used is of less concern than the principle of let's use something that approximates rate base as an allocation which would be the ideal allocator but is not readily available.

1882 MR. GRONDIN: Thank you.

1883 Mr. Chairman, I think this will complete our questions.

1884 THE CHAIRPERSON: Thank you very much, counsel.

1885 The Members don't have any questions so I want to thank you, Mr. Johnson, Mr. Todd, for your participation in our proceeding.

1886 MR. JOHNSON: Thank you, Mr. Chairman, for the opportunity.

1887 THE CHAIRPERSON: You may step down.

1888 That would normally conclude our proceeding.

1889 Mr. Williams, I am just wondering whether you wish to request or make an application for costs at this time?

1890 MR. WILLIAMS: Just one second, Mr. Chairman.

--- Pause / Pause

1891 MR. WILLIAMS: Mr. Chairman, if we could, we would just prefer to do it in writing.

1892 THE CHAIRPERSON: That's fine. I just thought if you wanted to do it now I would give you the opportunity to do so, but if you --

1893 MR. WILLIAMS: Thanks very much for that opportunity.

1894 THE CHAIRPERSON:  -- prefer to do it in writing that's fine too.

1895 In that case, that completes this phase of our proceeding.

1896 I want to thank the panels, both CAC/MSOS and the company, for their participation. Again, I would like to underscore our appreciation for all the parties who appeared yesterday in the more informal phase of our proceeding.

1897 I will just remind parties that the written comments, then, concluding this proceeding are to be filed by January 26th, with a reply by the company on February 2nd. Then, armed with all that information, the Commission will sit back and weigh it and make our decision.

1898 Again, I want to thank all the parties who were involved in the proceeding, both our support and the parties themselves.

1899 With that, I will declare this phase of the proceeding concluded. Thank you very much.

--- Whereupon the hearing concluded at 1225 /

L'audience se termine à 1225