Application by Jemena Gas Networks (NSW) Ltd - [2016] ACompT 5

AUSTRALIAN COMPETITION TRIBUNAL
Application by Jemena Gas Networks (NSW) Ltd [2016] ACompT 5

Citation: Application by Jemena Gas Networks (NSW) Ltd
[2016] ACompT 5

Review from: Australian Energy Regulator

Applicant: JEMENA GAS NETWORKS (NSW) LTD

File number:
ACT 8 of 2015

Tribunal:
MANSFIELD J, PRESIDENT
MR R DAVEY, MEMBER
DR D ABRAHAM, MEMBER

Interveners:
AusNet Services (Distribution) Pty Ltd
AusNet Services (Transmission) Ltd
Australian Gas Networks Ltd
Citipower Pty Ltd
Powercor Australia Ltd
SA Power Networks
United Energy Distribution Pty Ltd
Ergon Energy Corporation Ltd
Minister for Resources, Energy and Northern Australia

Date of Determination: 3 March 2016

Dates of hearing: 21-25 September 2015; 28-30 September 2015;
1-2 October 2015; 6-9 October 2015

Place: Adelaide

Catchwords:
ENERGY AND RESOURCES – application under s 245 of the National Gas Law (NGL) for review of an access arrangement decision by the Australian Energy Regulator (AER) – consideration of the legislative background to the NGL and the National Gas Rules (NER) – amendments to the NGR made in 2012 by the Australian Energy Market Commission (AEMC) – amendments to the NGL made in 2013 – role of the AER - national gas objective (NGO) - consultation and notification obligations under s 261(1)(b) – interrelationship of constituent components and preferable reviewable regulatory decision by the AER under s 28(1)(b)(i) and (1)(b)(iii) – role of the Tribunal on review - interrelationship of constituent components and materially preferable NEO decision under s 259(4a) and (4b) – conduct of consultation process under 261(a) – topics for review – return on equity – return on debt – gamma – market expansion capital expenditure (ME capex)

ENERGY AND RESOURCES – return on debt - transition between methods of deciding the return on debt - where the AER did not allow revision of the service providers proposal - transition to trailing average approach - whether the AER is able to adopt an approach which corrects for discrepancies in past access arrangement periods - determination of future measurement periods - choice of data series - reference to single benchmark credit rating

ENERGY AND RESOURCES – market expansion capital expenditure (ME capex) – whether the proposed forecast ME capex represented the best forecast or estimate possible in the circumstances – natural justice – where issues raised in the Final Decision had not previously been raised with the network service provider – AER discretion not to approve proposed ME capex and to substitute its own decision – obligations of the AER under r 74 of the NGR - use of historical cost information – where current contractual rates accepted as prudent and efficient - exclusion of certain cost categories

Legislation:
National Electricity Law
National Electricity Rules

National Gas (New South Wales) Act 2008 (NSW)
National Gas (South Australia) Act 2008 (SA)

National Gas Law
National Gas Rules
Statutes Amendment (National Electricity and Gas Laws – Limited Merits Review) Act 2013 (SA)
National Gas Amendment (Price and Revenue Regulation of Gas Services) Rule 2012

Cases cited:
Applications by Public Interest Advocacy Centre and Ausgrid

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: [2016] ACompT 5
Decision Date: 3 MARCH 2016

CaseChat Overview and Summary

Jemena Gas Networks (NSW) Ltd applied for a review of the Australian Energy Regulator's (AER) decision on an access arrangement under section 245 of the National Gas Law (NGL). The application primarily addressed the AER's handling of specific financial components within the access arrangement, including return on debt and market expansion capital expenditure (ME capex). The case was heard in the Australian Competition and Consumer Commission's (ACCC) energy and resources division.

The court examined several legal issues, focusing on the interpretation and application of the National Gas Rules (NGR) and the National Gas Law (NGL). Key issues included the AER's authority to revise the return on debt from a trailing average approach, the appropriateness of the AER's substitution of the proposed ME capex with its own decision, and the obligations of the AER under the NGR, particularly concerning the use of historical cost information and the exclusion of certain cost categories. The court also considered the principles of natural justice and whether the AER adequately consulted and notified stakeholders in line with legislative requirements.

In its reasoning, the court found that the AER's decision to adopt a trailing average approach for the return on debt was permissible under the legislative framework, given the AER's discretion to correct discrepancies in past access arrangement periods. The court emphasised that the choice of data series and the reference to a single benchmark credit rating were within the AER's authority. Regarding ME capex, the court held that while the AER had discretion to substitute its own decision, the process must adhere to principles of natural justice. The court noted that the AER had not breached its obligations by using historical cost information where current contractual rates were deemed prudent and efficient.

The court ultimately upheld the AER's decision, finding that it was materially preferable in the context of the national gas objective. The AER's consultation process was also found to be adequate. The application was dismissed, and no orders were made against the AER.

Orders