Application by Envestra Limited (No 2) - [2012] ACompT 4

AUSTRALIAN COMPETITION TRIBUNAL
Application by Envestra Limited (No 2) [2012] ACompT 4

Citation: Application by Envestra Limited (No 2) [2012] ACompT 4

Review from: Australian Energy Regulator

Parties: ENVESTRA LIMITED
(ABN 19 078 551 685)

File number: ACT 6 of 2011

Tribunal: MANSFIELD J (PRESIDENT)
MR R DAVEY
PROFESSOR D ROUND

Date of decision: 11 January 2012

Catchwords
APPLICATION UNDER S 245 NATIONAL GAS LAW – review of full access arrangement decision of Australian Energy Regulator – whether building blocks of allowable revenue correctly determined

(1) Debt risk premium – reliability of fair value curve – whether regulator tested fair value curve appropriately – whether all relevant material considered – where fair value curve estimate averaged with single bond – whether averaging process erroneous

(2) Market risk premium – variation from previously used value – whether arithmetic or geometric mean of historical excess returns is accurate – whether any reviewable error made out

Date of hearing: 21, 22, 23, 24 and 25 November 2011

Place: Adelaide (via video link with Melbourne and Brisbane)

Category: Catchwords

Number of paragraphs: 173

Counsel for Envestra Ltd: P Bick QC and D Farrands

Solicitor for Envestra Ltd: Johnson Winter Slattery

Counsel for the Australian Energy Regulator: S Lloyd SC, S Balafoutis and V Priskich

Solicitor for the Australian Energy Regulator: Corrs Chambers Westgarth

IN THE AUSTRALIAN COMPETITION TRIBUNAL

ACT 6 OF 2011

RE:
APPLICATION UNDER SECTION 245 OF THE NATIONAL GAS LAW FOR A REVIEW OF AN ACCESS ARRANGEMENT DECISION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENVESTRA LIMITED PURSUANT TO RULE 64 OF PART 8 OF THE NATIONAL GAS RULES

BY: ENVESTRA LIMITED
(ABN 19 078 551 685)
Applicant

tribunal:

mansfield j (president)
mr r davey
professor d round

DATE OF ORDER:

11 January 2012

WHERE MADE:

ADELAIDE (VIA VIDEO LINK WITH MELBOURNE AND BRISBANE)

THE TRIBUNAL DETERMINES AND ORDERS PURSUANT TO S 259(2) OF THE NATIONAL GAS LAW:
1.That the decision of the Australian Energy Regulator entitled Decision Access Arrangement Envestra Ltd’s Queensland gas distribution network 8 July 2011 – 30 June 2016 and dated 20 July 2011 and reflecting the reasons for decision in the Final Decision Envestra Ltd Access arrangement proposal for the Qld gas network 1 July 2011 – 30 June 2016 be varied by replacing the figure 3.81% for the debt risk premium therein for the purposes of calculating the cost of debt with the figure 4.67%.

2.That, in relation to the market risk premium for the purposes of calculating the cost of equity, as determined in the said decision, the said decision be affirmed.

IN australian competition tribunal

act 6 of 2011

RE:
APPLICATION UNDER SECTION 245 OF THE NATIONAL GAS LAW FOR A REVIEW OF AN ACCESS ARRANGEMENT DECISION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENVESTRA LIMITED PURSUANT TO RULE 64 OF PART 8 OF THE NATIONAL GAS RULES

BY: ENVESTRA LIMITED
(ABN 19 078 551 685)
Applicant

tribunal:

mansfield j (president)
mr r davey
professor d round

DATE:

11 JANUARY…

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: [2012] ACompT 4
Decision Date: 11 January 2012

CaseChat Overview and Summary

Envestra Limited applied to the Australian Competition Tribunal for leave to review a decision of the Australian Energy Regulator (AER) concerning the terms of access to Envestra’s Queensland gas distribution network. The AER had made a decision under the National Gas Law 2008 (Qld) to determine the allowable revenue for Envestra’s Queensland gas distribution network for the period from 1 July 2011 to 30 June 2016. The Tribunal granted leave for the review and heard the matter over five days in November 2011. In its review, Envestra challenged the AER’s decision to apply a value for the debt risk premium of 3.81%, rather than the 4.67% proposed by Envestra. Envestra also challenged the AER’s decision to apply a value for the market risk premium of 6%, rather than the 6.5-8% proposed by Envestra. The Tribunal found that the AER had erred in not sufficiently considering the reliability of the Bloomberg curve, a tool used to estimate bond yields, and in assigning equal weight to the Bloomberg curve and a single bond. The Tribunal also found that the AER had not exercised its discretion incorrectly, reached an unreasonable decision, or made an error of fact, in determining the market risk premium. The Tribunal varied the AER’s decision to reduce the debt risk premium to 4.67% and affirmed the AER’s decision on the market risk premium.

Orders