Agriculture, Food and Rural Affairs Appeal Tribunal

1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, Ontario, N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Courriel: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Association of Ontario Chicken Processors v Ontario Broiler Hatching Egg & Chick Commission and Chicken Farmers of Ontario

Association of Ontario Chicken Processors v Ontario Broiler Hatching Egg & Chick Commission and Chicken Farmers of Ontario 2022ONAFRAAT20

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

December 6, 7, 9, 10, 13, 14, 15, 16, 2021; March 13, 14, 15, 16, and May 31, 2022

DATE OF DECISION:

August 23, 2022

16AOCP19

NEUTRAL CITATION:

2022ONAFRAAT20

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, Ontario N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph, Ontario N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Courriel: AFRAAT@ontario.ca

FILE NO.: 16AOCP19

DATE: 2022/08/23

IN THE MATTER OF THE Ministry of Agriculture, Food and Rural Affairs Act, R.S.O. 1990, CHAPTER M.16, AS AMENDED.

AND IN THE MATTER OF An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by the Association of Ontario Chicken Processors from the decision of the Ontario Broiler Hatching Egg & Chick Commission with regard to a new Cost of Production formula effective pricing period A-151.

BETWEEN:

Association of Ontario Chicken Processors Appellant

– and –

Ontario Broiler Hatching Egg & Chick Commission Respondent

Chicken Farmers of Ontario Third Party

Alexandre Fallon, for the Appellant

Trent Johnson and Eric Davis, for the Respondent Geoffrey P. Spurr for the Third Party

Heard: December 6, 7, 9, 10, 13, 14, 15, 16, 2021; March 13, 14, 15, 16, and May 31, 2022

Before: Glenn C. Walker, Chair; David Fawcett, Member; and David Stevens, Member

Appearances:

Alexandre Fallon, Counsel for the Appellant Trenton Johnson, Counsel for the Respondent Eric Davis, Counsel for the Respondent Geoffrey P. Spurr, Counsel for the Third Party Paula Frederick, witness for the Appellant James Forbes, witness for the Appellant Mike Terpstra, witness for the Appellant Robert Burden, witness for the Respondent John Todd, witness for the Respondent Bill Van Heeswyck, witness for the Respondent Rafael Gomez, witness for the Third Party John Groenewegen, witness for the Third Party Robert Low, witness for the Third Party

DECISION OF THE TRIBUNAL

1This is an appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) by the Association of Chicken Processors (“AOCP”) from the Reconsideration Decision of the Ontario Broiler Hatching Egg & Chick Commission (“OBHECC”) dated June 25, 2019 in respect of AOCP’s application under subsection 17(1) of the Ministry of Agriculture, Food and Rural Affairs Act R.S.O. 1990, M.16 (“MAFRAA”) for reconsideration of OBHECC’s May 25, 2018 decision under subsection 8(1) (a)(iv) of the Farm Products Marketing Act and subsection 7(1)(d) of Regulation 396 made thereunder to implement a new Cost of Production formula (“COPF”) effective for the pricing period A-151.

2Chicken Farmers of Ontario (“CFO”) was added as a Third Party by order of the Tribunal. CFO had also been added as a party to the reconsideration hearing.

3This appeal was heard de novo pursuant to section 16 of MAFRAA.

PRELIMINARY MATTERS

4Prior to the commencement of the hearing, two preliminary issues were raised by OBHECC and CFO relating to two documents which were provided to them and the Tribunal by AOCP on December 1, 2021. These documents were entitled Reply Witness Statement of M. Terpstra (December 1, 2021) (“Terpstra Reply Witness Statement”) and Frederick- Examination in Chief-Review of OBHECC COPFs Appeal (“PowerPoint Presentation” or “PPP”).

5On the evening of December 1, 2021, counsel for OBHECC emailed the Tribunal requesting that these two documents not be reviewed by the panel until a determination has been made by the Tribunal in relation to their admissibility.

6Neither document was disclosed to the panel prior to the hearing. The Terpstra Reply Witness Statement has never been disclosed to or reviewed by the panel. The PPP has never been disclosed in whole to the panel, but portions were reviewed by the panel as part of the argument of the motion as to its admissibility.

ADMISSIBILITY OF TERPSTRA REPLY WITNESS STATEMENT AND REPLY EVIDENCE

7OBHECC and CFO objected to Mr. Terpstra being called as a witness for AOCP in reply on the basis that the nature of his proposed evidence, as disclosed in the witness statement, would not be proper reply evidence but would, in fact, be more properly evidence in chief and was an attempt by AOCP to split its case. They also objected to Mr. Terpstra being called in reply because he was not testifying in chief.

8The Tribunal ruled that AOCP could call Mr. Terpstra as a reply witness provided his evidence was proper reply evidence, that is, it should respond to the evidence raised by the other parties and should not be evidence that ought to have been submitted in the first place as party of the appellant’s case in chief.

9Pursuant to a Procedural Order of the Tribunal, AOCP was required to deliver to the opposing parties a signed witness statement for each witness the party intends to call at the hearing by June 30, 2021. No witness statement was provided for Mr. Terpstra by that date. It was accepted by AOCP that it could not call Mr. Terpstra in chief as it had failed to provide the requisite witness statement in compliance with the order.

10The Tribunal concluded from the argument that the impugned witness statement contained proposed evidence which would not be considered proper reply evidence and will therefore not view the statement.

ADMISSIBILTY OF FREDERICK POWERPOINT PRESENTATION

11The issue relating to the PPP was whether Paula Frederick would be permitted to use the PPP prepared by her during the presentation of her evidence and whether the PPP document would be disclosed in full to the panel and/or made an exhibit to the hearing.

12Ms. Frederick was being proposed by AOCP to give expert opinion evidence on its behalf. She had prepared an Expert Report containing 104 pages including schedules and appendices. She had also prepared a Reply Report, responding to the expert reports of the witnesses for OBHECC and CFO, consisting of 50 pages including appendices.

13The PPP document consisted of 197 pages or screens and was intended to be used by the witness in the presentation of her evidence.

14The PPP document was disclosed to the opposing parties late on the day of December 1, 2021, as part of the appellant’s reply documents

15Both OBHECC and CFO objected to the use of the PPP on the following grounds:

a) The PPP reorganizes and restates the expert’s opinion in a different way with the result that it constitutes a new document entirely.

b) The document appears to be a complete script for the expert’s evidence. Scripting a witness’ evidence is not appropriate.

c) There are inaccuracies and/or errors when the PPP and the expert reports are compared. There are statements made which are not supported by reference to the reports

d) The document is redundant as the original reports will be made exhibits and will form part of the record.

e) The document was not disclosed in a timely manner. It should have been served by June 30, 2021, together with the original expert report (at least, that part of the PPP dealing with the original report) in order to give the opposing parties time to challenge the document prior to the hearing and to allow other experts time to prepare PPP for their evidence.

16AOCP responded by pointing out that there were supporting statements in the reports for many of the statements made in the PPP. There were a couple of errors but that it was aware of these, and they would have been corrected by the witness during her testimony.

17AOCP argued that the PPP was not intended to assist the witness but to be used as a tool by the opposing parties and the panel in understanding the reports. PPP have been permitted by the courts to assist an expert in presenting his/her testimony.

18The Tribunal determined that Ms. Frederick would not be permitted to use the PPP prepared by her during her testimony nor would the said document be entered into evidence as an exhibit.

19The Tribunal views this, firstly, as a procedural fairness issue. AOCP did not give OBHECC or CFO any notice that it intended to have Ms. Frederick use a PPP in presenting her evidence until December 1, 2021, 2 business days before the commencement of the hearing, notwithstanding that this same issue had arisen at the Reconsideration Hearing in 2019, had been argued there and not permitted.

20Had this issued been raised in June of 2021, the admissibility issue could have been dealt with then and, if the PPP was allowed, would have given the other experts time to prepare similar documents so that all would be on an equal footing.

21During argument, counsel for OBHECC and CFO advised the Tribunal that if the Frederick PPP were permitted, they would be asking for an adjournment to allow their expert witnesses an opportunity to prepare PPP and for the disclosure of those PPP to the other parties.

22This appeal has been before the Tribunal for almost 2 and one-half years. A further lengthy delay is not in the best interests of the parties or the administration of justice.

23Firstly, then the use of the Frederick PPP is denied as it would be procedurally unfair to the respondent and third party

24However, should the Tribunal have been wrong in denying its use for the above reason, the Tribunal will consider whether the PPP should be accepted in this case.

25The cases which were submitted by AOCP in support of the use of PPP for expert witnesses such as R. v. Millard and Smich, 2016 ONSC 1517, and cases cited therein, all deal with criminal jury trials and discuss the utility in using PPP to assist in “educating” the jury with respect to technical evidence. In this case, AOCP argues that the PPP can also be used as a tool by the trier of fact.

26There is no doubt that the expert reports prepared by Ms. Frederick are long and extremely technical and complex.

27Aside from the timeliness of the production of the PPP, there are inherent risks in using such a tool in this situation. The main risk is that there will be a temptation for the panel members to use this document as an executive summary of the reports instead of relying solely on the actual reports and viva voce testimony of the expert.

28Any inaccuracies, omissions or errors contained in the PPP would then remain undiscovered by the panel unless specifically pointed out by the parties.

29AOCP has stated that the PPP is for the benefit of the other parties and the Tribunal. There is no benefit to the witness and therefore no prejudice to the appellant if the witness is not permitted to use the PPP.

30The Tribunal finds that the risk in using this PPP outweighs any benefit in these circumstances and that it would not be permitted even if timely disclosure had been made.

31This is not to say that a PPP may never be admitted for the use of an expert witness before the Tribunal in other cases. Each case should be dealt with on an individual basis and be approved for use in advance of the hearing.

CONTEXTUAL AND PROCEDURAL BACKGROUND

32The Association of Ontario Chicken Processors (“AOCP”) is a voluntary industry trade association representing the interests of Ontario chicken processors.

33The Ontario Broiler Hatching Egg & Chick Commission (“OBHECC”) is a commission authorized under the Farm Products Marketing Act, R.S.O. 1990, c.F.9, as amended, (the “FPMA”), and Ontario Regulation 396 entitled “Broiler Hatching Eggs and Chicks – Marketing” (the “Regulation”) made under the FPMA to regulate the production and marketing of breeder chicks, breeder cockerels, breeder hens, breeder pullets, chicks, fowl and hatching eggs.

34OBHECC follows the three pillars of supply management (production control, pricing mechanisms, and import control) (“pillars of the COPF”) by regulating the production levels, setting minimum pricing, and working closely with the national agency (the Canadian Hatching Egg Producers) to ensure the supply of safe, quality chicken products.

35OBHECC is a membership group comprised of Ontario Broiler Chicken Hatching Egg Producers Association members including hatching egg producers, breeder growers and Ontario Hatchery Association members.

36Breeder growers raise day old chicks received from the primary breeder companies until about 20 weeks of age. At about 20 weeks of age, they are moved from the breeder growers’ facility to the hatching egg producers’ facility. The breeders begin laying eggs around 26 weeks of age and remain in the facility to about 58 weeks of age.

37The hatching egg producers produce broiler hatching eggs which they ship to contracted hatcheries.

38OBHECC is authorized by sections 8(1)(a)(iv) of the FPMA and section 7 of the Regulation to regulate the production and marketing of broiler chicks including the statutory authority to set the minimum price of day-old chicks.

39OBHECC has been setting the minimum chick price using a cost of production formula (“COPF”) since 1983. OBHECC inputs certain current data into its COPF prior to the start of each eight-week chicken marketing period and adjusts the price of a day-old chick for that pricing period accordingly. Periodically, OBHECC conducts surveys of breeder growers, hatching egg producers and hatcheries in order to account for industry change and obtain input data for the COPF.

40In 2016 OBHECC started the process to update version 6 of the COPF. The update was undertaken by a Cost of Production Committee employing OBHECC’s in-house expertise, external consultants, including statisticians, accountants, and a regulatory expert. The committee also engaged with stakeholders such as AOCP and Chicken Farmers of Ontario (“CFO”).

41There was considerable interaction between AOCP and OBHECC in relation to the COPF. AOCP made recommendations concerning changes to the COPF some of which were included in the new version.

42The OBHECC Board of Directors approved the revised COPF on May 27, 2018 for the pricing period A151.

43AOCP made a reconsideration request and a reconsideration hearing took place in December 2018 and February and March, 2019 with CFO having been added, at its request, as a Third Party. In its request, AOCP requested OBHECC’s reconsideration of nine components of the revised COPF including four issues under the heading “Capital model”.

44In its reconsideration decision, dated June 25, 2019, the OBHECC Board of Directors declined to amend the COPF in all but two areas being the working capital level for the broiler breeder farmer and the pre-tax versus after tax equity rate of return in the Capital Model.

45By Notice of Appeal, dated November 13, 2019, AOCP appealed to this Tribunal from OBHECC’s reconsideration decision. An Amended Notice of Appeal dated November 17, 2021 was subsequently filed. Again, CFO was added as a Third Party at its request.

THE APPEAL

46In its Amended Notice of Appeal, AOCP asks for an order directing OBHECC to amend the new COPF in the following manner. These are the issues before the Tribunal in this hearing.

1. Use the five-year rolling average of the prime rate, updated at each pricing update, for the purpose of calculating the debt rate of fixed assets, rather than the prime rate in effect on the date of each pricing update;

2. Exclude depreciation from the calculation of working capital levels;

3. Use a benefits rate for farm labour of 22.5%, rather than 20%;

4. Use Statistics Canada’s V103507794 vector for labour rate for full-time skilled labour, rather than vector V103507362;

5. Use a real rate of return, rather than a nominal rate of return, in the context of the COPF’s capital model; and

6. Add a 1% risk premium to the Ontario Energy Board return on equity rate for Breeder Growers in the COPF’s capital model.

47This appeal was heard pursuant to section 16 of the Ministry of Agriculture, Food and Rural Affairs Act, R.S.O. 1990, c. M.16 (“MAFRAA”).

48The appeal is heard by way of a hearing de novo and the onus of proof is on the appellant.

THE EVIDENCE

The Evidence of AOCP

49The appellant called two expert witnesses in support of its case. The first, James Forbes, dealt with the labour issues (Issues number 3 and 4) and the second, Paula Frederick, opined on the capital model issues (Issues number 1, 2, 5 and 6). An outline of their evidence follows.

James Forbes

50Mr. Forbes testified on behalf of the appellant concerning a report dated July 14, 2021 (“PCW Report”) and a reply report dated December 1, 2021 (“PCW Reply Report”) jointly authored with Zainab Walji. Mr. Walji did not give evidence at the hearing.

51Mr. Forbes is currently a Sr. Advisor and partner in PricewaterhouseCoopers LLP and in addition to being a Fellow Chartered Accountant has been certified in Financial Forensics and as a Fraud Examiner and Chartered Business Valuator. His expert evidence has been accepted by tribunals and courts in the areas of business valuations, business losses, matrimonial matters, pension valuations inter alia. He has also testified at labour arbitrations.

52He was qualified by the Tribunal as an expert witness to give opinion evidence with respect to business valuation including the assessment of the fair market value of labour and the determination of historical labour costs.

53Mr. Forbes indicated that he had been originally asked by AOCP to provide comments on two types of labour used in the COPF; part-time (unskilled) and full-time (skilled). The only outstanding issue is the full-time skilled labour.

54In determining the value of full-time skilled labour to include in the COPF, OBHECC has utilized vector data from Statistics Canada; specifically v103507362, described by Statistics Canada as being the average hourly rate for all Ontario male and female employees over 15 years of age, working full-time in all occupations.

55With respect to issue number 4 and the recommended labour rate for full-time skilled labour, the PCW Report states that it is not reasonable that the value of full-time farm labour should be based on an average of all occupations when Statistics Canada provides vectors for employee wages by occupation, as well as occupations in specific fields or industries; and that it would be more reasonable to use labour rates that apply to vectors that include these specific jobs in the farming industry.

56In the PCW Report, Mr. Forbes recommended using a vector based on a National Occupational Code (“NOC”) Major Group 84 – Natural Resources, Agriculture and Related Production, which includes General Farm Workers, NOC Unit Group 8431.

57In his PWC Reply Report, Mr. Forbes stated that based on his review of the Serecon and Gomez Reports, he re-examined the Statistics Canada vector used in the original PWC Report and concluded that OBHECC should use NOC Broad Occupational Category 8, which includes NOC 84 and other NOC Minor Groups which would be more appropriate as this category does not include occupations that are professional and managerial in nature or concentrated in urban regions.

58On the issue of the benefits rate for farm labour, Mr. Forbes recommended an increase of up to a maximum of 22.88 % from the 20 % set out in the revised OBHECC COPF to account for the variable components of the benefits.

59The following is a detailed breakdown of the benefit rates used by OBHECC:

Health Benefits 1.50%

Statutory Holidays 3.85%

Vacation Pay 4.00%

Canada Pension Plan 4.60%

Employment Insurance 2.73%

WSIB Premium for Poultry 3.32%

TOTAL BENEFITS RATE 20.00%

60Based on a Canada Benefits Benchmarking 2019 report for active employees of the Conference Board of Canada, Mr. Forbes concluded that, as a percentage of gross annual pay for basic health benefits, the rate is 4.43% and that health benefits in the range of 0% to 4.43% of gross annual pay are reasonable.

61Based on his research and the nature of the employment, Mr. Forbes recommended statutory holiday pay to be in the range of 0% to 3.6% and vacation pay to be in the range of 0% to 4% of gross wages.

62Mr. Forbes stated in the PCW Report that employer contribution rates from 2016 to 2020 were from 4.95% to 5.25% based on the Government of Canada’s website. The same source disclosed that the Employment Insurance rates for those years were 2.63% to 2.21%

63Based on WSIB’s new rate model (2020), Mr. Forbes proposes that it is difficult to determine an actual premium rate, but estimated that the 2020 rate would be 2.85%, subject to adjustment for the business’ individual claims and insurable earnings based on their proper risk band.

64Mr. Forbes recommends a range for health benefits, statutory holidays and vacation pay based on the lack of research that details the costs of employer related benefits in the specific industry of agriculture which suggests that farm employees may be entitled to basic health benefits, if any; and the special rules that apply to farm workers regarding the statutory and vacation pay as per the Government of Canada’s website which indicates farm workers are not entitled to these benefits.

65The PCW Report found that the difference in benefit rates for CPP, Employment Insurance and WSIB is 0.2%.

Paula Frederick

66Paula Frederick testified on behalf of the appellant concerning an expert report dated July 23, 2021 (“CHS Report”) and a reply report dated December 1, 2021 (“CHS Reply Report”).

67Ms. Frederick is a principal of Cohen Hamilton Steger & Co. Inc. where she specializes in business valuations and the quanitification of losses. She has practiced exclusively in these areas since 1994. She has been qualified as an expert witness in courts and in arbitrations and has been retained as an expert in intellectual property disputes, expropriation, breach of contract, matrimonial and tax matters.

68She was qualified to give expert opinion evidence with respect to business valuations and accounting financial concepts relevant to business valuations. Her testimony is relevant to issues 1, 2, 5 and 6 above.

69Ms. Frederick stated that the capital model of the OBHECC COPF is comprised of two components: firstly, a return on capital invested by the breeder growers, hatching egg producers, and hatcheries over the useful lives of the capital assets; and, secondly, depreciation or the return of capital invested by those businesses over the useful lives of their capital assets.

70Ms. Frederick was asked by AOCP to assess whether a Real Weighted Average Cost of Capital (“Real WACC”) or a Nominal Weighted Average Cost of Capital (“Nominal WACC”) is appropriate for the OBHECC COPF. The WACC relates to the return on capital.

71She concluded that a Real WACC, and not a Nominal WACC as is currently used in the OBHECC COPF, should be used to calculate the return on capital amounts in the OBHECC COPF for the following reasons:

1. When a Nominal WACC is used in the OBHECC COPF, producers will earn a higher rate of return than intended under the majority of scenarios she considered. When a Real WACC is used, the producers will earn rates of return closer to, but still higher than, the intended WACCs under these scenarios.

2. If a Real WACC is used in the OBHECC COPF, producers will be compensated for inflation once, rather than when a Nominal WACC is used and the producers are compensated for inflation twice.

72Ms. Frederick was asked by AOCP to comment in her report on whether return on capital and depreciation (return of capital) amounts should be included when calculating the working capital requirements of the producers under the OBHECC COPF.

73She concluded that the return on capital and depreciation (return of capital) amounts should not be included in determining the costs incurred by producers prior to the sale of their goods (i.e. inventory), as they do not reflect costs incurred by the producers; that the return on capital and depreciation (return of capital) amounts should be included in determining the amounts due to producers after the sale of their goods (i.e. accounts receivable), as these amounts become due on the date of sale; and that the producers’ accounts payable to suppliers should be considered and deducted, as they reduce the producers’ working capital requirements.

74When asked her opinion on whether a 1% risk premium over the Ontario Energy Board (“OEB”) rate is appropriate in determining the equity rate of return under the breeder grower COPF, she opined that it is appropriate, relative to the risk premiums over the OEB rate included in the OBHECC COPFs used for hatching egg producers and hatcheries.

75Concerning the prime interest rate used in respect of capital assets, she concluded that the appropriate method to determine the prime interest rate is the average prime interest rate over a period prior to the date of the OBHECC update and not the prime interest rate in effect on the date of the update, as is currently used in the OBHECC COPF.

The Evidence of OBHECC

76The respondent called three witnesses, including William Van Heeswyck, Executive Director of OBHECC, Robert Burden, who gave expert evidence on the labour issues and John Todd, who gave expert evidence on the capital issues.

William Van Heeswyck

77Mr. Van Heeswyck has been the Executive Director of OBHECC since 2018. He gave evidence concerning the history and objectives of OBHECC, such as the three pillars of supply management, and the process involved in preparing and approving the new COPF.

78His evidence forms the basis for the contextual and procedural background set out earlier in this decision.

Robert Burden

79Mr. Burden testified on behalf of the respondent and gave evidence to support his report (“Serecon Report”) dated October 28, 2021.

80Mr. Burden is a Certified Valuation Analyst as well as a Professional Agrologist, holding a Master of Science in Agricultural Economics and a Master of Business Administration. He has been involved in valuing agricultural enterprises since 2004. He has specific experience in the poultry sector and cost of production analysis in that sector across Canada and he has been qualified as an expert by tribunals and courts.

81Mr. Burden was qualified as an expert witness to give expert opinion evidence in relation to business valuation and labour costs as an element of cost of production formulae.

82In his report, the witness outlined five guiding principles, which he understood were used in the development of OBHECC’s new COPF. The COPF must be:

1. Representative of the production population;

2. Credible;

3. Defensible;

4. Have producer and hatchery consensus; and

5. Transparent.

83In his opinion as a professional valuator, this set of guiding principles suggests that the costs calculated and applied in the COPF are intended to be based on what a reasonable person would incur in the production of broiler breeder chicken and broiler hatching egg and broiler chicks. He also noted that this approach is consistent with other cost of production work he has done in the past and is not specific to OBHECC.

84He opined that becoming more precise in the vector, as advocated by the PWC Report, the data essentially becomes less reliable and less accurate in terms of reflecting the labour that is used.

85The witness concluded that as a result of examining the nature of the activities required, the level of responsibility of the workers in the barn, and his understanding of labour costs in hatching egg production systems, it is his professional opinion that PWC’s estimate of fair market value for wage rates does not accurately reflect the reality faced by hatching egg producers for full-time labour in Ontario; whereas the rates proposed by OBHECC would result in a more reasonable estimate of the costs actually incurred by hatching egg producers in conducting their operations.

86With respect to employment related benefits, Mr. Burden testified that the values used in the OBHECC COPF for employment related benefits are appropriate. While they are on the upper end of the range identified by PWC for health benefits, statutory holidays and vacation pay, they are not unreasonable in his professional opinion given what he has observed in rural Canada.

John Todd

87John Todd was called as an expert witness by the respondent to present his report (“Elenchus Report”) dated October 26, 2021 in relation to the capital issues.

88Mr. Todd has specialized in government regulation for over 40 years, addressing issues related to price regulation, deregulation and regulatory methodology. He has assisted counsel in over 300 proceedings and provided expert evidence in over 150 hearings before both tribunals and courts from coast to coast. Although over the last 30 years he has been engaged primarily in utility rate settings, he testified that, in his view, the principles and methodology are the same in determining cost of production formulae.

89Mr. Todd was qualified to give expert opinion evidence relating to cost of service methodologies and rate-making principles and practices.

90Given the nature of the industry, the COPF design and, in particular, the need to exercise discretionary judgment in establishing COPF that are transparent and practical, as well as just and reasonable, it is his professional opinion that the individual elements of the COPF cannot be assessed in isolation. Rather, it is necessary to focus on the overall reasonableness of the end result.

91Mr. Todd based his opinions on Generally Accepted Ratemaking Principles (“GARP”) and common practices used by economic regulators in Canada and abroad in setting rates for regulated utilities. GARP is also applicable here.

92He states that the CHS Report does not address the reasonableness of the OBHECC COPF methodology overall.

93With respect to the issue of Nominal WACC versus Real WACC, Mr. Todd concluded that replacing the Nominal WACC in the OBHECC COPF with a Real WACC would necessitate the development of a tailored methodology for deriving an appropriate real cost of debt and real rate of return on equity. Any methodology to do so would be likely to compromise multiple COPF Guiding Principles, including being credible, defensible and transparent. There is no generally accepted methodology for deriving real debt and equity rates what would be appropriate for implementation in the OBHECC COPF.

94Mr. Todd also found that it is reasonable to accept the depreciated replacement cost as the best available measure of invested capital to be used on the COPF in determining a chick price that is just and reasonable.

95In regard to the issue of increasing the risk premium, the witness opined that, as an economic regulator, OBHECC has developed a methodology that includes considerations that pragmatically reflect the COP Guiding Principles. He found nothing compelling in the CHS Report which would support a change in the risk premium.

96Mr. Todd concluded, on the prime rate issue, that the judgment exercised by OBHECC including the current Prime interest plus a 1.5% differential risk premium is consistent with both the OBHECC Guiding Principles and GARP.AOCP recommends that a five-year rolling average of the past prime rates be used as a proxy that would represent the typical future borrowing cost of OBHECC producers. He found that, given the complexity and data limitation of undertaking a precise quantification of the cost of borrowing of producers, it is reasonable for OBHECC to have exercised its judgment in the way that it did.

The Evidence of CFO

97CFO called three witnesses, two of which were qualified as experts, to support the position taken by OBHECC.

Professor Rafael Gomez

98Dr. Gomez was called as an expert witness by CFO in relation to the labour issues and gave evidence concerning his report (“Gomez Report”) dated October 27, 2021.

99Dr. Gomez holds a PhD. in Industrial Relations and is currently the Director, Centre for Industrial Relations and Human Resources & Woodworth College, University of Toronto. He has taught and published widely in the area of labour relations.

100Dr. Gomez was qualified as an expert witness to give expert opinion evidence relating to the study and operation of labour markets.

101In his professional opinion, the OBHECC full-time hourly rates are suitable as the all-occupation Ontario average provides a more robust measure of hourly wages than the narrower NOC 84 designation used in the PWC Report, which encounters the problem of too small a sample size to generate meaningful values for wages, especially among sub-groups of workers

102Dr. Gomez did not provide expert evidence with respect to the benefits issue.

Robert Low

103Mr. Low was called as an expert witness by CFO to present his report (“Low Report”), dated October 25, 2021, dealing with the capital issues.

104Mr. Low is a Chartered Professional Accountant and Chartered Business Valuator and has performed business valuations for many purposes. He has also been qualified as an expert witness in courts and tribunals across Canada.

105He was qualified to give expert opinion evidence in relation to business valuation, rates of return and economic damages or losses.

106The witness concluded that the determination of the return on capital requires the application of a nominal WACC to the depreciated replacement cost asset value to properly compensate the OBHECC participants for current year inflation.

107Mr. Low further found that the appropriate method to determine the prime interest rate used in respect of the return on capital is the prime interest rate in effect on the date of the OBHECC update, and not a five-year rolling average prime rate updated at each pricing update.

108Mr. Low also opined that a 1% risk premium addition to the Ontario Energy Board return on equity rate for Breeder Growers in the COPF capital model is appropriate and that, in addition, consideration should be given to including a size premium to the Ontario Energy Board return on equity for all the OBHECC sectors.

John Groenewegen

109Dr. Groenewegen holds a Ph.D. in Agricultural and Applied Economics and as a consultant has provided economic advice to CFO with regard to pricing issues and has been involved in developing the CFO COPF. CFO did not attempt to have him qualified as an expert witness and he gave no opinion with respect to the issues at hand.

110The witness did, however, discuss the development of the COPF for CFO.

ANALYSIS AND DISCUSSION

111This appeal might be sub-titled “The Battle of the Experts”; between the experts who testified on behalf of the appellant, urging changes to the present OBHECC COPF, and the experts who gave evidence on behalf of the respondent, supporting the present OBHECC COPF, and the experts called by the Third Party, who also supported the present OBHECC COPF.

112The members of this Tribunal are not accountants, business valuators or economists. The Tribunal’s role is not to decide which of the opinions is correct. If that were the case, then expert opinions would not be necessary as the Tribunal could give its own opinion.

113The task of the Tribunal is to decide which of the expert reports are the most reliable and acceptable on each issue based on the following points (“Consideration Points”):

1. The credentials and experience of the expert;

2. The reasonableness of both the analysis and result;

3. Compliance with the pillars of the COPF and the guidelines of the COPF Committee; and

4. Whether the affect of the change to the COPF was just and reasonable.

114Each of the expert witnesses has provided a written report and given oral testimony. After considering the testimony of the expert and his/her expert report(s), the Tribunal must decide which expert reports are the most reliable and acceptable on each issue.

115The appellant has the onus of proof on this appeal. The appellant’s expert reports and testimony must be considered the most reliable and acceptable to the Tribunal in order for the appellant to be successful on each issue.

Prime Rate Issue

116On this issue, the Tribunal prefers the evidence of John Todd and his Elenchus report. Based on his extensive credentials and experience and the compliance with the other Consideration Points, the Tribunal finds his report to be the most reliable and acceptable.

117The Tribunal also accepts the report of Robert Low on this issue as being reliable and acceptable.

Exclusion of Depreciation Issue

118On this issue, the Tribunal finds, having considered the Consideration Points, that the expert reports of both John Todd and Robert Low are the most reliable and acceptable and that depreciation should not be excluded when calculating working capital levels.

Benefit Rates for Farm Labour

119The Tribunal finds that the expert report of Robert Burden, when compared to that of James Forbes, is more compelling on this issue after considering the Consideration Points, and the Tribunal finds that it is the most reliable and acceptable.

Full-time Labour Rate

120The Tribunal finds that the report of Dr. Rafael Gomez, is the most reliable and acceptable on this issue. His credentials and experience are extensive and his rationale reasonable and complies with all Consideration Points.

Real Versus Nominal WACC

121The reports of both John Todd and Robert Low supported the continued use of the nominal WACC. The Tribunal finds that they are more reliable and acceptable, after applying the Consideration Points, than the position taken by Paula Frederick.

Risk Premium

122On this issue, the Tribunal accepts the conclusions of both John Todd and Robert Low and finds that their reports are more reliable and acceptable after looking at the Consideration Points.

CONCLUSION

123The appellant has failed to convince the Tribunal that the reports and evidence of its expert witnesses on all six issues are more reliable and acceptable that those of OBHECC and CFO.

124As AOCP has the onus of proof, this appeal must be dismissed.