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Application by Envestra Ltd (No 2)

Application by Envestra Ltd (No 2)

Case [2012] ACompT 3 11 January 2012

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AUSTRALIAN COMPETITION TRIBUNAL
Application by Envestra Ltd (No 2) [2012] ACompT 3

Citation: Application by Envestra Ltd (No 2) [2012] ACompT 3

Review from: Australian Energy Regulator

Parties: ENVESTRA LTD
(ABN 19 078 551 685)

File number: ACT 7 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 regarding:

(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 a 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

(3) Network management fee – whether a management fee paid under an outsourcing agreement is an efficient cost – where management fee was a percentage of revenue – where management fee was in addition to actual costs and a return on physical capital – where management fee facilitated lower total operating expenditure

(4) Unaccounted for gas volumes – whether regulator erred in rejecting forecast UAG volumes – whether mains replacement plan would reduce rate of increase in UAG

Legislation:
National Gas (South Australia) Law
National Gas (South Australia) Act 2008 (SA)
Gas Pipeline Access (South Australia) Act 1997 (SA)

Cases cited:
Application by Envestra Limited [2011] ACompT 13
Application by ElectraNet Pty Limited (No 3) [2008] ACompT 3
Application by Energy Australia [2009] ACompT 8
Australian Competition and Consumer Commission v Australian Competition Tribunal (2006) 152 FCR 33
Application by ActewAGL Distribution [2010] ACompT 4
Ibrahim v Minister for Immigration and Citizenship [2009] FCA 1328
East Australian Pipeline Pty Ltd v Australian Competition and Consumer Commission (2007) 233 CLR 229
House v The King (1936) 55 CLR 499
Application by Energy Australia and Others [2009] ACompT 8
Application by Jemena Gas Works (NSW) Ltd (No 5) [2011] ACompT 10
Envestra Limited v Essential Services Commission of South Australia (No 2) [2007] SADC 90

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: 359

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 7 OF 2011

RE:
APPLICATION UNDER SECTION 245 OF THE NATIONAL GAS LAW FOR A REVIEW OF A FULL ACCESS ARRANGEMENT DECISION MADE BY THE AUSTRALIAN ENERGY REGULATOR PURSUANT TO RULE 64 OF THE NATIONAL GAS RULES

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

tribunal:

mansfield j (president)
mr r davey
professor d round

DATE OF ORDER:

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.

Continue reading Application by Envestra Ltd (No 2)

Details

AGLC: Application by Envestra Ltd (No 2) [2012] ACompT 3
Case: [2012] ACompT 3
Decision Date: 11 January 2012

CaseChat Overview and Summary

The application by Envestra Ltd, brought under section 245 of the National Gas Law, sought a review of the Australian Energy Regulator's (AER) decision regarding the full access arrangement. The primary focus of the dispute was the correctness of the building blocks of allowable revenue, specifically the debt risk premium, market risk premium, network management fee, and unaccounted for gas (UAG) volumes. The Federal Court was tasked with examining the AER's decision to determine if any reviewable errors were made.

The legal issues before the court were multi-faceted. Firstly, the court examined whether the AER appropriately assessed the reliability of the fair value curve used to determine the debt risk premium, and if all relevant material was considered, particularly whether averaging the fair value curve estimate with a single bond was erroneous. Secondly, the court considered the appropriateness of the arithmetic or geometric mean of historical excess returns used to determine the market risk premium, and if there was any reviewable error. Thirdly, the court evaluated whether the network management fee paid under an outsourcing agreement constituted an efficient cost, given that it was a percentage of revenue and facilitated lower total operating expenditure. Lastly, the court scrutinised whether the AER erred in rejecting the forecast UAG volumes and if the mains replacement plan would reduce the rate of increase in UAG.

In its decision, the court found that the AER had correctly assessed the debt risk premium and market risk premium. The averaging of the fair value curve estimate with a single bond was deemed appropriate, and the use of the arithmetic mean of historical excess returns was considered accurate. Regarding the network management fee, the court concluded that it was an efficient cost, facilitating lower total operating expenditure. The court also found that the AER had not erred in rejecting the forecast UAG volumes and acknowledged that the mains replacement plan would likely reduce the rate of increase in UAG.

The court dismissed the application, upholding the AER's decision as correct. No further orders were made beyond the dismissal of the application.

Orders