Views of Calgary. Calgary submitted that the Board must have regard to the source of the evidence before it. Calgary submitted the ATCO Utilities provided no expert witnesses qualified to speak to the drafting, negotiation and interpretation of IT contracts, nor the manner in which such contracts were dealt with in the industry. Calgary conceded that the ATCO witnesses were qualified to speak to company matters, such as the intention of the various ATCO Utilities, or to the numbers regarding expenditures or budgets. However, Calgary argued they were not experts on the general IT industry, outsourcing issues or industry standards. Calgary submitted that the only witness for the ATCO Utilities with any IT experience was Xx. Xxxxxx. Xxxxxxx suggested Xx. Xxxxxx’x experience was limited entirely to his various positions with ATCO.22 Calgary also submitted Xx. Xxxxxx had never been involved with an outsourcing company, nor had he been involved in any outsourcing arrangements outside of the ATCO companies.23 Calgary argued there was no evidence that Xx. Xxxxxx’x personal experience regarding IT outsourcing, and the contracts related thereto, went beyond his experience with ATCO I-Tek. Calgary submitted that Xx. Xxxxxxxx, by contrast to the ATCO witnesses, was clearly an independent expert, and that she was very experienced in the areas of drafting, negotiation and interpretation of information technology contracts and the manner in which such contracts were dealt with in the industry. Calgary noted that Xx. Xxxxxxxx had 23 years of experience in IT 20 ATCO Utilities Argument, page 6 21 ATCO Utilities Argument, pages 7 and 8 22 Exhibit 113-2 – CV of X. Xxxxxx, and Transcript, page 32 23 Transcript, page 32 contracts, with past retainers on a significant number of the major outsourcing transactions in Canada. Calgary argued that the ATCO Utilities’ witnesses were not independent and did not possess the extensive expertise of Xx. Xxxxxxxx. Xxxxxxx submitted that the expertise of the witness was an issue that went to the weight to be given to the evidence provided by that witness. In assessing the appropriateness of the terms and conditions of the Renewal MSA, and their use within the industry, Calgary submitted that the Board should give more weight to the evidence of Xx. Xxxxxxxx and should give little or no weight to that of the ATCO Utilities witnesses.
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Views of Calgary. Calgary submitted that the Board must have regard that, contrary to the source submission of the evidence before itATCO Utilities throughout their Argument, the Renewal MSA was not a renewal, but clearly, on its face, was a completely new agreement. Calgary did not agree with the characterization of those changes as being “in the nature of clarifications and a streamlining”29 of the relationship. Calgary submitted for example, in addition to the treatment of IP, there was a possible change with respect to the 55,000-hour commitment for development, maintenance and enhancements (DME), and regarding the implications of underutilization of the DME hours by the ATCO Utilities Group.30 Calgary argued that the clear wording of Clause 12.1 of the Original MSA, provided no expert witnesses qualified to speak to for the drafting, negotiation and interpretation renewal of IT contracts, nor the manner in which such contracts were dealt with in agreement for three-year terms after the industryexpiry of the initial five-year term. Calgary conceded that the ATCO witnesses were qualified also referred to speak to company matters, such as the intention Clause 12.2 of the various ATCO Utilities, or to the numbers regarding expenditures or budgets. However, Calgary argued they were not experts Original MSA which provided that on the general IT industry, outsourcing issues or industry standardsthird anniversary of the initial term the client would have the right to extend the contract for another three (3) year term. Calgary submitted concluded from a reading of these two clauses, that after the only witness for initial five years the ATCO Utilities with any IT experience was Xx. Xxxxxx. Xxxxxxx suggested Xx. Xxxxxx’x experience was limited entirely to his various positions with ATCO.22 Calgary also submitted Xx. Xxxxxx had never been involved with an outsourcing company, nor had he been involved in any outsourcing arrangements outside of the ATCO companies.23 Calgary argued there was no evidence that Xx. Xxxxxx’x personal experience regarding IT outsourcing, agreement can be “renewed” and the contracts related thereto, went beyond his experience with ATCO I-Tek. Calgary submitted that Xx. Xxxxxxxx, by contrast to the ATCO witnesses, was clearly an independent expertafter three years it can be “extended”, and that she was very experienced in the areas of drafting, negotiation difference between the two terms and interpretation of information technology contracts and the manner in which such contracts were dealt with in the industry. Calgary noted that Xx. Xxxxxxxx had 23 years of experience in IT 20 ATCO Utilities Argument, page 6 21 ATCO Utilities Argument, pages 7 and 8 22 Exhibit 113-2 – CV of X. Xxxxxx, and Transcript, page 32 23 Transcript, page 32 contracts, with past retainers on a significant number of the major outsourcing transactions in Canadatime triggers must have been deliberate. Calgary argued that as a result, since the ATCO Utilities’ witnesses were initial five-year term had not independent and expired, the Renewal MSA could not be a renewal under the terms of the Original MSA. Further, the Renewal MSA did not possess appear to be a renewal, as, inter alia, it did not refer to the extensive expertise of Xx. Xxxxxxxx. Xxxxxxx submitted that the expertise existence of the witness was an issue Original MSA and it contained numerous and significant terms which were different than the Original MSA. Consequently, Calgary argued that went to even if the weight to be given to the evidence provided by that witness. In assessing the appropriateness of Board in Decision 2002-069 approved the terms and conditions of the Original MSA for an indefinite time period, the Renewal MSAMSA was a new agreement, in respect of which ATCO must demonstrate it was in the public interest and their use within met the industryBoard’s criteria, as set out in Decision 2002-069, or else risk disallowance. Calgary submitted agreed with the ATCO Utilities argument that there was no “industry standard or magic wording” for the Board should give more weight to the terms of an IT outsourcing arrangement.31 Calgary argued, however, that there were industry standards in addressing principles. The evidence of Xx. Xxxxxxxx provided several examples, from existing contracts, as to how certain clauses were typically worded. Obviously no specific combination of words must necessarily be used to achieve the result, however, the result must be achieved. The sample wording was provided by Calgary as an example of wording that should be in the Renewal MSA and should give little or no weight which would be contained in contracts to that be 28 CAL-ATCOMSA-19 29 ATCO Utilities Argument, page 3 30 Further Written Evidence of the City of Calgary, February 24, 2003, page 58 31 ATCO Utilities witnessesArgument, page 7 benchmarked. Calgary submitted that the same principles, whatever the wording, should be addressed in the Renewal MSA before it was subjected to benchmarking.
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Views of Calgary. Calgary suggested the ATCO Utilities would prefer to set aside an examination of the Renewal MSA, or have only a cursory examination, and move directly to a benchmarking exercise. 108 Transcript, page 488 109 The Board notes that ATCO must have meant Table 13 at page 51 of Decision 2002-069 110 Decision 2002-069, page 50-51 111 Decision 2002-069, page 67 112 Transcript page 274 and page 539 Unfortunately, such an approach served only the ATCO Group. One of the key underpinnings of an assessment of fair market value was the terms and conditions of the Renewal MSA. Calgary submitted that rather than using the benchmarking exercise to see if the ATCO Utilities were paying FMV for the maintenance and development services, given the windfall in ownership of IP, the ATCO Utilities should be paying significantly less than FMV for those services. Calgary suggested there would be no method through which to determine how much less the ATCO Utilities should be paying. Calgary argued the ATCO Utilities have put forward an Agreement that would be virtually impossible to accurately benchmark in the industry, as no agreement would have the same fundamental terms. As a result it would also be virtually impossible to accurately adjust the benchmark to determine how much less the ATCO Utilities should be paying as a result of the IP ownership issue. Calgary further submitted that the ATCO Utilities could not claim that IP ownership was not important to them. The example of the manner in which they handled the ATCO-CIS system, contradicted such a position. The ATCO-CIS system improvements were owned by ATCO I-Tek Business Services (Business Services), but only if they were self-financed by Business Services. Improvements paid for by the ATCO Utilities were owned by the ATCO Utilities. Calgary submitted that Business Services also paid a royalty to the ATCO Utilities to compensate for the ability to leverage the ATCO-CIS system to other customers. Under the Renewal MSA, Calgary submitted ATCO I-Tek did not pay any royalties for ownership or the ability to leverage. In addition, under the Renewal MSA, ATCO I-Tek owned improvements that the ATCO Utilities paid for as well. Unlike the ATCO-CIS example, under the Renewal MSA, the ATCO Utilities were not given a perpetual license to use the enhancements and improvements to these other programs or any new custom programs – even if the ATCO Utilities paid to have them developed.113 Calgary submitted that the Board must have regard purpose of much of its evidence was to put the source terms of the evidence before it. Calgary submitted Renewal MSA on the ATCO Utilities provided no expert witnesses qualified to speak to the drafting, negotiation and interpretation of IT contracts, nor the manner in which such contracts were dealt with same basis as those that are common in the industry. Calgary conceded submitted that Xx Xxxxxxxx suggested a more practical approach than XXXX’s when she stated: There’s no reason to not say what happens on termination. And there may be well be a reason to put all the ATCO witnesses were qualified to speak to company matters, such as the intention ownership of the various ATCO UtilitiesIP into the outsourcer, or to the numbers regarding expenditures or budgets. However, Calgary argued they were not experts on the general IT industry, outsourcing issues or industry standards. Calgary submitted but I don't know why you would do that the only witness for the ATCO Utilities with any IT experience was Xx. Xxxxxx. Xxxxxxx suggested Xx. Xxxxxx’x experience was limited entirely to his various positions with ATCO.22 Calgary also submitted Xx. Xxxxxx had never been involved with an outsourcing company, nor had he been involved in any outsourcing arrangements outside of the ATCO companies.23 Calgary argued there was no evidence that Xx. Xxxxxx’x personal experience regarding IT outsourcing, and the contracts related thereto, went beyond his experience with ATCO I-Tek. Calgary submitted that Xx. Xxxxxxxx, by contrast to the ATCO witnesses, was clearly an independent expertfree, and that she was very experienced shouldn't matter whether they're affiliates or not.114 Calgary suggested that in the areas of drafting, negotiation and interpretation of information technology contracts and the manner in which such contracts were dealt with in the industry. Calgary noted that Xx. Xxxxxxxx had 23 years of experience in IT 20 ATCO Utilities Argument, page 6 21 ATCO Utilities Argument, pages 7 and 8 22 Exhibit 113-2 – CV of X. Xxxxxx, and Transcript, page 32 23 Transcript, page 32 contracts, with past retainers on a significant number of the major outsourcing transactions in Canada. Calgary argued that the ATCO Utilities’ witnesses were not independent and did not possess the extensive expertise of Xx. Xxxxxxxx. Xxxxxxx submitted that the expertise of the witness was an issue that went to the weight to be given to the evidence provided by that witness. In assessing reviewing the appropriateness of the terms and conditions of the Renewal MSA, it was important for the Board to keep in mind that one of the purposes of this review was to attempt to ensure that the Benchmarking Module to follow would provide the best possible results, within the limitations of benchmarking. In attempting to achieve that purpose it was important to have terms and their use conditions that were appropriate within the industry to allow the benchmarking exercise to proceed. Calgary acknowledged and agreed with the ATCO Utilities that there was no “industry standard or magic wording” for the terms115 for every agreement and every situation. Calgary argued however, there was an industry standard in terms of provisions that addressed the principles. The 113 Transcript, page 314 to page 317 114 Transcript, page 507 and page 508 115 ATCO Utilities Argument, page 7 evidence of Xx. Xxxxxxxx provided several examples, from existing contracts, as to how the clauses are typically worded. The sample wording was not provided by Calgary with the intention that it be "cut and pasted" into the Renewal MSA. It was provided, however, as an example of wording that should be in the Renewal MSA and which would be contained in contracts that will be benchmarked. Calgary submitted that the same principles, whatever the wording, should be addressed in the Renewal MSA before it was subject to benchmarking. Calgary disagreed with the ATCO Utilities’ position that the benchmarking exercise would defuse any concerns regarding estimation of market value. Calgary submitted that such a belief was misguided and simplistic. Calgary suggested the record was clear that there were a number of issues and serious shortcomings in a benchmarking exercise. A benchmarking exercise, even at its best, was subject to the quality of the input, which in this proceeding was the terms and conditions of the MSA, and in the next proceeding, the Benchmarking Module, would be the terms of reference. Calgary submitted that it was necessary for the Board to identify and specify the terms and conditions (including service levels) that would be the subject of the Benchmarking Module. Calgary further submitted that the terms and conditions to be benchmarked must be terms and conditions that were standard in the industry. If the Board did not specify the terms and conditions, and if those terms and conditions were not standard in the industry, Calgary submitted that the Board should give more weight it would be impossible to the evidence obtain a FMV that was in any way representative of Xx. Xxxxxxxx and should give little or no weight to that of what the ATCO Utilities witnesseswould pay if they had tendered the IT contract. Calgary did not suggest that the Board rewrite the contract between the parties. Rather, Calgary suggested that the Board ought to determine the terms and conditions that were to the benchmarked so that a benchmarker could determine a FMV to be applied the ATCO I-Tek charges. Calgary argued such a process was similar to that pertaining to the Head Office rent where the Board did not alter the lease agreement between the parties, but rather determined the fair market value of the rent to be payable and allowed that amount into the rates. Calgary noted that the ATCO Utilities chose not to procure the IT services through an independent third party who would deal at arms length. Rather, they chose to create an affiliate over which the ATCO Group would continue to have control and, as admitted by ATCO representatives, be consistent with its own business interests. Such an approach was not surprising. However, as the ATCO Utilities provided monopoly service to captive customers, the ATCO Group’s business interests needed to be balanced with the interests of all stakeholders, not the least of which were those of the utility customers. Calgary stated that at no time prior to entering into the Renewal MSA, or the Original MSA, did ATCO approach interveners to attempt to collaborate on the terms or the pricing. At no time has ATCO presented evidence that the Renewal MSA was in the interests of customers. Calgary suggested the result was that the Board, and parties, were left to address, after the fact, a written agreement imposed by ATCO into which they had no input. Calgary submitted that the specifics of the terms and conditions to be benchmarked should not also become something that would be addressed after the fact. Calgary suggested that in order to clearly understand the Calgary position on what needed to be accomplished in this proceeding, and to assist in the success of the next proceeding, it was necessary to understand some of the limitations of a benchmarking process. Calgary submitted it was clear from the record in this proceeding that the process and results of benchmarking were subject to interpretation, estimations, adjustments and attempts to normalize the underlying data. Calgary argued that it was clear from the record that many benchmarking exercises were executed incorrectly resulting in misleading results116, that benchmarkers used different methodologies117 which may lead to different results, and that there were concerns with respect to the qualifications and abilities of benchmarkers to conduct a fair and objective benchmarking study.118 Calgary’s concern was to minimize the amount of judgment calls, adjustments, and normalization that was required in order to obtain the best result possible. Calgary suggested that the ATCO Utilities implied that the benchmarking would be a simple, straightforward exercise, and pointed to the fact that it had benchmarked these services three times. Calgary submitted those benchmarking activities have not been presented to interveners, or tested before this Board except within the ATCO Affiliate proceeding that lead to Decision 2002-069. Clearly, the Board, in that decision, considered that the ATCO benchmarking results had not demonstrated that ATCO IT services had been priced at FMV. That attempt at a market assessment was seriously flawed. The Board concluded that I-Tek charges to the ATCO Utilities were in excess of FMV and mandated an overall 7.5% decrease in those amounts.119 That decrease alone was approximately a $4 million impact on the ATCO Utilities and the ratepayers. Calgary argued the benchmarking process was neither simple nor straightforward, and required careful consideration of the terms to be benchmarked prior to embarking on the exercise. Calgary acknowledged that benchmarkers had extensive knowledge in benchmarking. However, understanding of a body of knowledge and having experience and expertise were not the only essentials. Calgary argued that it must be clear to all parties involved that the benchmarker was objective and independent. Calgary argued that, in the case of an affiliate service agreement with a utility that the public interest is at stake. In Calgary’s view public interest requires that a party who was going to have significant input into the final determination of a FMV estimate, must be free of influence from the parties. Calgary noted that during the hearing, Xx. Xxxxxxxxx had highlighted the obvious differences between consultants who engage in benchmarking and specialists who are required to be objective and independent. He noted for the Board that benchmarkers did not answer to a code of ethics the way many professional bodies like accountants, lawyers and engineers did.120 Xx. Xxxxxxxxx expressed some of the Calgary concerns regarding independence and objectivity in noting that XXXX has previously engaged at least one of the consultants being considered by the Collaborative Process Committee constituted in the Benchmarking Module (the Committee)121. Further Xx. Xxxxxxxxx noted that the Committee specifically required of its 116 Transcript, page 542, see also Exhibit 504, the fifth page, under the heading "Price Benchmarking – The Wrong Way", the first sentence 117 Transcript, page 541 and page 366 118 Exhibit 504, second page, six lines from the top 119 Decision 2002-069, pages 50 to 51 120 Transcript, page 367 and page 443 121 Transcript, page 363 to page 365 members agreement that communications with the benchmarkers to be strictly limited to being carried out through the Committee. Calgary suggested it was disconcerting that ATCO apparently disregarded this requirement and undertook discussions outside the Committee directly with at least, two of the benchmarkers.122 These actions served to highlight the concern regarding the objectivity and independence of benchmarkers and reinforced the requirement that the appropriate terms and conditions be benchmarked. Calgary submitted that a process like benchmarking, initiated in an attempt to compare market value to the value of transactions between a regulated utility and unregulated affiliates required transparency. The evidence on the record of this proceeding123 demonstrated that transparency in the benchmarking process could be severely lacking. Calgary submitted that the “prudence review” comfort espoused by ATCO witness Mr. Xxxxxxx000 did not provide much if any comfort to ratepayers. Calgary argued a prudence review, was by its very nature, an after-the-fact review. Calgary suggested the Board must put itself in the shoes of the Utility and look only at what information the Utility had, or could reasonably have had, at the time the decisions were made. While the onus in such a review was on the Utility to demonstrate the prudence of its actions, the practical fact was that such reviews often required positive evidence on the part of interveners as to the actions, or possible courses of action that were available to the Utility125. Given the asymmetry of information such positive evidence was difficult, if not impossible, to obtain.
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Views of Calgary. Calgary submitted that whether or not the Board must have regard ATCO Utilities altered the approach to termination from the Original MSA to the source Renewal MSA was not the issue. Calgary suggested that if the ATCO Utilities had not changed the ownership of the evidence before itIP from the ATCO Utilities to ATCO I- 38 Exhibit 102 Article 15.5 Termination 39 MSA Article 15.6 40 Transcript, page 191 to page 193 Tek, or had provided for the same type of ownership provisions and license to use as existed in the ATCO-CIS Agreement, then there would be no need to change the termination provisions. Calgary argued it was the change in the IP ownership which created the problem with the termination provisions in the Renewal MSA. Calgary submitted that, notwithstanding the ATCO Utilities’ protestations that the agreement provided for continued use of IP rights, the Renewal MSA was clear on this point - there was no provision which allowed the ATCO Utilities provided no expert witnesses qualified to speak continue to use the draftingATCO IP after termination. In fact, negotiation and interpretation of IT contractsthe agreement specifically provided, nor the manner in which such contracts were dealt with in the industry. Calgary conceded Section 15.6(d), that the ATCO witnesses were qualified Utilities must return to speak ATCO I-Tek “all property belonging to company mattersATCO I-Tek, such as the intention including ATCO I-Tek Know-How, ATCO I-Tek Systems, Confidential Information and Documentation belonging to ATCO I-Tek”. Calgary added that under Section 13.5 of the various Renewal MSA, the “ATCO UtilitiesI-Tek Know-How” was defined extremely broadly to encompass virtually everything used or created during the term of the Renewal MSA except third party software, or to the numbers regarding expenditures or budgets. However, Calgary argued they were not experts on the general IT industry, outsourcing issues or industry standards. Calgary submitted that the only witness for the ATCO Utilities with any IT experience was Xx. Xxxxxx. Xxxxxxx suggested Xx. Xxxxxx’x experience was limited entirely to his various positions with ATCO.22 Calgary also submitted Xx. Xxxxxx had never been involved with an outsourcing company, nor had he been involved in any outsourcing arrangements outside original version of the ATCO companies.23 Calgary argued there was no evidence that Xx. Xxxxxx’x personal experience regarding IT outsourcing, software and the contracts related thereto, went beyond his experience with know-how provided to ATCO I-Tek. Calgary added that Section 15.6(d) just as clearly required the ATCO Utilities to return all IP on termination. These clauses were simply incompatible with the terms of a license to continue to use the IP. Calgary submitted that Xx. Xxxxxxxx, by contrast the obligation of ATCO I-Tek to deliver transition services to the ATCO witnesses, was clearly an independent expert, and that she was very experienced Utilities in the areas event of drafting, negotiation and interpretation of information technology contracts and termination did not resolve the manner in which such contracts were dealt with in the industry. Calgary noted that Xx. Xxxxxxxx had 23 years of experience in IT 20 ATCO Utilities Argument, page 6 21 ATCO Utilities Argument, pages 7 and 8 22 Exhibit 113-2 – CV of X. Xxxxxx, and Transcript, page 32 23 Transcript, page 32 contracts, with past retainers on a significant number of the major outsourcing transactions in Canadaissue. Calgary argued that an undefined obligation to “ensure a smooth transition”41 was nebulous and could not be used to override the clear and plain language of the above noted clauses. Calgary disagreed that such a nebulous allegation was more encompassing than a transition plan. Further, Calgary submitted there was no evidence to support the ATCO UtilitiesUtilities allegation that “you can only define transition services in a ‘generic’ witnesses were not independent fashion which can be subject to interpretation at the time of transition”.42 Rather, Calgary suggested the evidence on the record was clear. The IT industry puts in place at the outset provision for transition plans to deal with the potential breakdown of a relationship and the main points for inclusion in those transition plans, in terms of what items should be returned to the customer and used after termination.43 Calgary added that the obligation to supply transition services did not possess address the extensive expertise of Xx. Xxxxxxxx. Xxxxxxx submitted that the expertise of the witness was an issue that went to the weight to be given to the evidence provided by that witness. In assessing the appropriateness of the terms and conditions of fundamental problem with the Renewal MSA, and their use within the industry, Calgary submitted which was that the Board should give more weight to the evidence of Xx. Xxxxxxxx and should give little or no weight to that of the ATCO Utilities witnessesshould not be in a position where it was necessary for them to obtain replacement services or software at all. Calgary concluded that if the ATCO Utilities firmly believed that, notwithstanding the clear and plain language of the agreement, they were meant to be allowed to continue to use the “ATCO I- Tek Know-How, ATCO I-Tek Systems, Confidential Information and Documentation” after termination, there should be no objection to clarifying this in an amendment to the Renewal MSA. Calgary suggested that the fact that they were not prepared to do so would suggest that ATCO had a contrary belief.
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Views of Calgary. Calgary submitted argued that the Board must have regard to the source scope of the evidence before it. Calgary submitted MSA Xxxxxx did not preclude the ATCO Utilities provided no expert witnesses qualified opportunity to speak to re- examine the drafting, negotiation and interpretation of IT contracts, nor the manner in which such contracts were dealt with in the industry. Calgary conceded that the ATCO witnesses were qualified to speak to company matters, such as the intention of the various ATCO Utilities, or to the numbers regarding expenditures or budgets. However, Calgary argued they were not experts on the general IT industry, outsourcing issues or industry standardsRenewal MSA. Calgary submitted that the only witness for Board’s findings in Decision 2002-069 with respect to the Original MSA did not eliminate the responsibility of the ATCO Utilities with any IT experience was Xx. Xxxxxx. Xxxxxxx suggested Xx. Xxxxxx’x experience was limited entirely to his various positions with ATCO.22 Calgary also submitted Xx. Xxxxxx had never been involved with demonstrate that the Renewal MSA met the Board’s criteria in Decision 2002-069 for the acquisition of goods and services from an outsourcing companyunregulated affiliate by a utility, nor had he been involved in any outsourcing arrangements outside namely: • Does the decision to acquire goods or services from the affiliate affect the utility’s ability to operate safely and reliably? • Is the affiliate the least cost alternative that meets the requirements of the ATCO companies.23 utility? • Was the purchase of goods or services by the utility at the lesser of FMV [fair market value], or the cost it would take for the utility to provide similar goods or services itself? The Board is of the view that it is the responsibility of the Applicants to demonstrate that the Board’s criteria have been met, and that the Applicants risk disallowance if the Board is of the view that such demonstration has not been made convincingly.11 Calgary argued there was no evidence that Xx. Xxxxxx’x personal experience regarding IT outsourcingneither the Original MSA nor the Renewal MSA had been specifically approved, and that the contracts related thereto, went beyond his experience with ATCO I-Tek. Renewal MSA should be subject to further review.12 Calgary submitted that Xx. Xxxxxxxx, by contrast to the ATCO witnesses, was clearly primary concern regarding the Renewal MSA arose from the nature of that agreement as an independent expert, and that she was very experienced in the areas of drafting, negotiation and interpretation of information technology contracts and the manner in which such contracts were dealt with in the industryaffiliate transaction. Calgary noted that Xx. Xxxxxxxx had 23 years of experience in IT 20 ATCO Utilities Argument, page 6 21 ATCO Utilities Argument, pages 7 and 8 22 Exhibit 113-2 – CV of X. Xxxxxx, and Transcript, page 32 23 Transcript, page 32 contracts, disagreed with past retainers on a significant number ATCO’s views regarding the ‘renewal’ nature of the major outsourcing transactions in CanadaRenewal MSA and argued that a more comprehensive review was justified. Calgary argued that the Renewal MSA should be subject to the same scrutiny as the Original MSA. Calgary’s primary concern was twofold, first, that there could be excessive charges to the ATCO Utilities’ witnesses were Utilities from I-Tek, and second, that there would be a transfer of value from the ATCO Utilities to I-Tek without appropriate compensation. Calgary suggested that the Board’s concern was articulated in Decision 2002-069, regarding the ATCO Group Affiliate proceeding: The Board notes that the ATCO regulated utilities and I-Tek are not independent at arms length. Therefore it would not be surprising that I-Tek’s owners would try to avoid I-Tek assuming substantial investment risk for any purchases it makes on behalf of the ATCO utilities. Further, it would not be surprising, if adverse outcomes occurred, that the owners would attempt, in some manner, to recover adverse outcomes through some form of revised pricing. It should be clear that the Board does not condone non-market based 10 Decision 2003-040, page 117 11 Decision 2002-069, page 47 12 Decision 2002-069, page 48 activity by the I-Tek owners that would unduly affect the risk assumption of I-Tek and did not possess effect a transfer of risk back to the extensive expertise of Xx. Xxxxxxxx. Xxxxxxx regulated utilities.13 Calgary submitted that had there been a transaction with an independent third party, the expertise market value would be known by the existence of the witness was an issue that went to the weight to be given to the evidence provided by that witnessparties dealing at arms length. In assessing the appropriateness of current case, however, the Board is facing an affiliate transaction. In Calgary’s view, the transaction was not market based and would not be undertaken in the market with the terms and conditions of presented by ATCO in the Renewal MSA, and their use within the industry. Further, Calgary submitted suggested that it took guidance from the Board should give more weight to the evidence of Xx. Xxxxxxxx and should give little or no weight to that Board’s statement that: Transparency of the ATCO Utilities witnesses.process by which price and terms and conditions are settled becomes key in assessing whether the inter-affiliate transaction is appropriate.14
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Views of Calgary. Calgary submitted that the Board must have regard to the source of the evidence before it. Calgary submitted whether the ATCO Utilities provided no expert witnesses qualified altered the approach to speak gainsharing from the Original MSA to the drafting, negotiation and interpretation of IT contracts, nor Renewal MSA was not the manner in which such contracts were dealt with in the industryissue. Calgary conceded suggested that the ATCO witnesses were qualified to speak to company mattersBoard, such as the intention of the various ATCO Utilitiesin Decision 2002-069, or to the numbers regarding expenditures or budgets. However, Calgary argued they were not experts on the general IT industry, outsourcing issues or industry standards. Calgary submitted that the only witness for the ATCO Utilities with any IT experience was Xx. Xxxxxx. Xxxxxxx suggested Xx. Xxxxxx’x experience was limited entirely to his various positions with ATCO.22 Calgary also submitted Xx. Xxxxxx had never been involved with an outsourcing company, nor had he been involved in any outsourcing arrangements outside of the ATCO companies.23 Calgary argued there was no evidence that Xx. Xxxxxx’x personal experience regarding IT outsourcing, and the contracts related thereto, went beyond his experience with ATCO I-Tek. Calgary submitted that Xx. Xxxxxxxx, by contrast to the ATCO witnesses, was clearly an independent expert, and that she was very experienced in the areas of drafting, negotiation and interpretation of information technology contracts and the manner in which such contracts were dealt with in the industry. Calgary noted that Xx. Xxxxxxxx had 23 years of experience in IT 20 ATCO Utilities Argument, page 6 21 ATCO Utilities Argument, pages 7 and 8 22 Exhibit 113-2 – CV of X. Xxxxxx, and Transcript, page 32 23 Transcript, page 32 contracts, with past retainers on a significant number of the major outsourcing transactions in Canada. Calgary argued that the ATCO Utilities’ witnesses were not independent and did not possess the extensive expertise of Xx. Xxxxxxxx. Xxxxxxx submitted that the expertise of the witness was an issue that went to the weight to be given to the evidence provided by that witness. In assessing the appropriateness of approve the terms and conditions of the Original MSA and did not approve the ATCO approach to gainsharing. Calgary argued that the onus was on the ATCO Utilities to demonstrate that the approach in the Renewal MSA was appropriate and would not hinder the potential success of the benchmarking process. Calgary noted the ATCO Utilities’ statement that “The Calgary testimony highlights that gainsharing can increase the price of the outsourcing agreement”.65 Calgary disagreed that the 62 Exhibit 102, Article 7.3 63 FIRM/NCC Argument, page 9 64 FIRM/NCC Argument, page 9 65 ATCO Utilities Argument, page 5 Calgary evidence contained any such proposition. Calgary argued that what Xx. Xxxxxxxx actually said was that gainsharing existed in current outsourcing arrangements and: … every outsourcer coming into an outsourcing arrangement, now, knows you're going to ask for gain sharing of one form or another, so they will price accordingly. So you're all going to get whatever impact it has on pricing and how they set, it they're all going to do it the same way.66 … what happens when they go into a benchmarking process, is they benchmark against other agreements that have gainsharing. So it may affect the price, but it affects the price in all the deals.67 Calgary suggested the lack of a gainsharing provision would, no doubt, hinder the ability of the benchmarker to obtain an accurate picture of the pricing structure of the Renewal MSA, and their since, as Xx. Xxxxxxxx stated, all the recent deals had such a provision. In addition, contrary to the ATCO Utilities’ assertion that the MSA addressed the issue though the use within of the industryannual price benchmarking68, Xx. Xxxxxxxx made it clear that all the current deals she was aware of not only had gainsharing provisions, they also had price benchmarking.69 Calgary suggested that without gainsharing, the ATCO Utilities added another element to the Renewal MSA that was not common in the outsourcing field, thus increasing the chances that the benchmarker would not be able to find a similar transaction against which to compare the Renewal MSA. Calgary suggested that the ATCO Utilities ignored one of the main reasons for gainsharing. Calgary submitted that several of the Board should give more weight to the evidence of examples provided by Xx. Xxxxxxxx and should give little or no weight made it clear that the outsourcer was rewarded for finding cost savings within the customer’s business, not just the outsourcer’s. As Xx Xxxxxxxx states: The impetus for the outsourcer is to look beyond their own profit motive to how they can help the customer realize internal savings. And it's not as if the customer doesn’t get those savings. They get them, they just have to share them.70 Calgary argued that of if ATCO I-Tek were encouraged to find additional internal cost savings within the ATCO Utilities witnessesthemselves, this would benefit the ratepayers in the long run, assuming the savings were passed on to them.
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