Application by Envestra Ltd (No 2)

Envestra Ltd applied for a review of a decision by the Australian Energy Regulator regarding the full access arrangement. The primary dispute involved the calculation of the debt risk premium, the market risk premium, the network management fee, and the unaccounted for gas volumes. The case was heard by the Competition and Consumer Tribunal.

The legal issues centered on whether the Australian Energy Regulator correctly determined the building blocks of allowable revenue, specifically in relation to the debt risk premium, market risk premium, network management fee, and unaccounted for gas volumes. The Tribunal had to assess whether the Regulator had made any reviewable errors in its calculations and methodology.

The Tribunal found that the Regulator had indeed made reviewable errors in the calculation of the debt risk premium and the market risk premium. In respect of the debt risk premium, the Tribunal concluded that the Regulator should have tested the fair value curve more appropriately and considered all relevant material. The averaging process used by the Regulator was found to be erroneous. Regarding the market risk premium, the Tribunal held that the Regulator had not accurately determined whether the arithmetic or geometric mean of historical excess returns was the correct method. The Tribunal also decided that the Regulator did not make a reviewable error in determining the network management fee as it facilitated lower total operating expenditure. However, the Tribunal did not find any error in the Regulator's rejection of the forecast unaccounted for gas volumes, nor did it believe that the mains replacement plan would reduce the rate of increase in unaccounted for gas.

The Tribunal varied the Access Arrangement Decision by substituting the debt risk premium value determined by the Regulator with a value of 4.67%. The Tribunal declined to remit the matter back to the Regulator due to the complexity of developing an alternative methodology within the time constraints.