Application by East Australian Pipeline Limited - [2005] ACompT 1

AUSTRALIAN COMPETITION TRIBUNAL
Application by East Australian Pipeline Limited [2005] ACompT 1
TRADE PRACTICES – access to gas pipelines – review of decision of Australian Competition and Consumer Commission – Gas Code calculation – Initial Capital Base – Depreciated Optimised Replacement cost method – whether assessment to be made from point of view of hypothetical new entrant or incumbent
PRACTICE AND PROCEDURE – Australian Competition Tribunal – nature of review of decision of Australian Competition and Consumer Commission – ability to raise new issues or change position at or after hearing
COSTS – Australian Competition Tribunal – review of decision of Australian Competition and Consumer Commission – principles
Gas Pipelines Access (South Australia) Act 1997, ss 38, 39
National Third Party Access Code for Natural Gas Pipeline Systems
Application by East Australian Pipeline Limited [2004] ACompT 8, related
Application by Epic Energy South Australia Pty Ltd [2002] ACompT 4, cited
Application by Duke Eastern Gas Pipeline Pty Ltd (2001) ATPR 41-827, applied
APPLICATION UNDER S 39(1) OF THE GAS PIPELINE ACCESS LAW FOR REVIEW OF THE DECISION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION ON 8 DECEMBER 2003 TO APPROVE ITS OWN ACCESS ARRANGEMENT PURSUANT TO THE PROVISIONS OF THE NATIONAL THIRD PARTY ACCESS CODE FOR NATURAL GAS PIPELINE SYSTEMS AND THE GAS PIPELINE ACCESS LAW
NO 8 OF 2003
GYLES J (Deputy President), MR RC DAVEY and MISS MM STARRS
18 MARCH 2005
SYDNEY

IN THE AUSTRALIAN COMPETITION TRIBUNAL

NO 8 OF 2003

RE:

APPLICATION UNDER S 39(1) OF THE GAS PIPELINE ACCESS LAW FOR REVIEW OF THE DECISION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION ON 8 DECEMBER 2003 TO APPROVE ITS OWN ACCESS ARRANGEMENT PURSUANT TO THE PROVISIONS OF THE NATIONAL THIRD PARTY ACCESS CODE FOR NATURAL GAS PIPELINE SYSTEMS AND THE GAS PIPELINE ACCESS LAW

BY:

EAST AUSTRALIAN PIPELINE LIMITED

APPLICANT

THE TRIBUNAL:

GYLES J (Deputy President)

MR RC DAVEY

MISS MM STARRS

DATE:

18 MARCH 2005

PLACE:

SYDNEY

THE TRIBUNAL ORDERS THAT:
The proceeding stand over to enable a minute of orders to be brought in.

IN THE AUSTRALIAN COMPETITION TRIBUNAL

NO 8 OF 2003

RE:

APPLICATION UNDER S 39(1) OF THE GAS PIPELINE ACCESS LAW FOR REVIEW OF THE DECISION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION ON 8 DECEMBER 2003 TO APPROVE ITS OWN ACCESS ARRANGEMENT PURSUANT TO THE PROVISIONS OF THE NATIONAL THIRD PARTY ACCESS CODE FOR NATURAL GAS PIPELINE SYSTEMS AND THE GAS PIPELINE ACCESS LAW

BY:

EAST AUSTRALIAN PIPELINE LIMITED

APPLICANT

THE TRIBUNAL:

GYLES J (Deputy President)

MR RC DAVEY
MISS MM STARRS

DATE:

18 MARCH 2005

PLACE:

SYDNEY

REASONS FOR DECISION

On 8 July last the Tribunal delivered reasons for decision (Reasons) (Application by East Australian Pipeline Limited [2004] ACompT 8) and adjourned the matter to enable the parties to consider the Reasons and propose orders to give effect to them. These reasons should be read with and as an extension of the Reasons. It transpired that there were a number of points…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] ACompT 1
Decision Date: 18 MARCH 2005

CaseChat Overview and Summary

East Australian Pipeline Limited applied to the Australian Competition Tribunal for a review of a decision by the Australian Competition and Consumer Commission (ACCC) approving its own access arrangement for the Moomba to Sydney Pipeline under the Gas Pipelines Access (South Australia) Act 1997 and the Gas Pipelines Access (National Third Party Access Code for Natural Gas Pipeline Systems) Determination 2002. The dispute involved the calculation of the Initial Capital Base (ICB) of the covered portion of the pipeline, specifically the Depreciated Optimised Replacement Cost (DORC), the discount rate, and the allocation of costs between the covered and uncovered portions of the pipeline. The Tribunal was required to decide whether the DORC should be calculated from the viewpoint of a hypothetical new entrant (HNE) or an incumbent, whether the discount should be at the rate of the Weighted Average Cost of Capital (WACC) or at a risk-free rate, and whether the discount should be calculated before or after tax.

The Tribunal found that the DORC should be calculated based on the viewpoint of an HNE, with tax treated on that basis. The Tribunal rejected the ACCC's argument that the calculation of DORC should be based on the position of an incumbent pipeline owner, as it would be contrary to the purpose of a review to allow the regulator to change its position on a matter of substance post the decision under review. The Tribunal also decided that WACC should be used as the discount rate rather than a risk-free rate, as the ACCC had not established that WACC was an inappropriate measure. The Tribunal ruled that post-tax WACC should be used to discount the cost differences. The Tribunal declined to order the ACCC to pay East Australian Pipeline Limited's costs of the hearing, as the proceeding was part of an administrative inquiry affecting wider interests than those arising between the immediate parties to the proceeding.

The Tribunal ordered that the ICB should be based on DORC with tax on an HNE basis and the discount rate should be post-tax WACC. The Tribunal also accepted the ACCC's submission on apportionment between the uncovered and covered portions of the pipeline. East Australian Pipeline Limited was required to bring in a minute of orders to give effect to these reasons, which should not be restricted to the disputed issues but should enable a complete resolution of the process.

Orders