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Application by SA Power Networks

Application by SA Power Networks

Case [2016] ACompT 11 28 October 2016

Regulatory Review

Cost of Debt

Regulatory Obligations

Capital Expenditure

Inflation

Regulatory Decision-making

Energy and Resources

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AUSTRALIAN COMPETITION TRIBUNAL
Application by SA Power Networks [2016] ACompT 11

Review from: Australian Energy Regulator

File number: ACT 11 of 2015

Tribunal: MIDDLETON J (PRESIDENT)
PROFESSOR KT DAVIS (MEMBER)
MR R STEINWALL (MEMBER)

Intervener: South Australian Minister for Mineral Resources and Energy

Date of Determination: 28 October 2016

Catchwords:
ENERGY AND RESOURCES – applications under s 71B of the National Electricity Law (NEL) for review of a distribution determination by the AER – consideration of the legislative background to the NEL and the National Electricity Rules (NER) – amendments to the NER made in 2012 by the Australian Energy Market Commission (AEMC) – amendments to the NEL made in 2013 – role of the AER – national electricity objective (NEO) – consultation and notification obligations under s 16(1)(b) – conduct of consultation process under s 71R(1) – relevance of Applications by Public Interest Advocacy Centre Ltd and Ausgrid (Ausgrid) – topics for review – gamma – return on debt – forecast bushfire safety capital expenditure (capex) – forecast labour cost escalation – forecast inflation

ENERGY AND RESOURCES – gamma – building block determination – significance of the substitution of “the value of imputation credits” for “the assumed utilisation of imputation credits” in the definition of gamma – valuation of imputation credits – theoretical models – empirical evidence – relevance of the Ausgrid decision – proper use of the distribution rate, equity ownership data and tax statistics

ENERGY AND RESOURCES – return on debt – transition arrangements for the debt risk premium component of the cost of debt – gradual transition compared with immediate transition – allowed rate of return objective – promotion of efficient financing practices – bias in regulatory decision-making – historical data problems – impact of change on benchmark efficient entity and recovery of efficient financing costs – meaning of “across regulatory control periods” – windfall gains and losses

ENERGY AND RESOURCES – forecast bushfire safety capex – capex objectives and criteria – meaning of “regulatory obligation or requirement” – the nature of regulatory obligations – Electricity Act 1996 (SA) – Fair Work Act 2009 (Cth) – decisions of AER not to be approached in overly rigid way – compliance with capex criteria

ENERGY AND RESOURCES – forecast labour cost escalation – whether enterprise agreement is a “regulatory obligation or requirement” – operating expenditure (opex) objectives and criteria – capex objectives and criteria – character of enterprise agreements – relevance of the Ausgrid decision

ENERGY AND RESOURCES – forecast inflation – post-tax revenue model (PTRM) – building block determination – whether AER can consider inflation outside the PTRM

Legislation:
Australian Energy Market Act 2004 (Cth)

Electricity Act 1996 (SA)

Fair Work Act 2009 (Cth)

National Electricity Rules

National Electricity (South Australia) Act 1996 (SA)

Work Health and Safety Act 2012 (SA)

Cases cited:
Application by ActewAGL Distribution [2015] ACompT 3

Application by ATCO Gas Australia Pty Ltd [2015] ACompT 7

Application by ATCO Gas Australia Pty Ltd [2016] ACompT 10

Application by Energex Ltd (No…

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 SA Power Networks

Details

AGLC: Application by SA Power Networks [2016] ACompT 11
Case: [2016] ACompT 11
Decision Date: 28 October 2016

CaseChat Overview and Summary

The application by SA Power Networks involved a challenge to a decision made by the Australian Energy Regulator (AER). The dispute centred around various aspects of the AER's determination, including the gamma building block, return on debt, forecast bushfire safety capital expenditure (capex), forecast labour cost escalation, and forecast inflation. The case was heard in the Federal Court of Australia.

The legal issues that the court had to resolve included whether the AER had properly considered the substitution of "the value of imputation credits" for "the assumed utilisation of imputation credits" in the definition of gamma, which affected the valuation of imputation credits. Additionally, the court needed to determine whether the AER had correctly assessed the transition arrangements for the debt risk premium component of the cost of debt, considering the impact on the allowed rate of return objective. The court also examined the AER's consideration of forecast bushfire safety capex, whether it complied with the capex objectives and criteria, and the AER's approach to forecast labour cost escalation and enterprise agreements. Furthermore, the court assessed whether the AER could consider inflation outside the post-tax revenue model (PTRM) in its building block determination.

The court found that the AER had not adequately considered several aspects of the determination. Regarding gamma, the court noted that the AER had not properly valued imputation credits, which was influenced by the substitution in the definition. Concerning the debt risk premium, the court concluded that the AER had not sufficiently justified its decision to implement a gradual transition compared to an immediate transition, leading to potential windfall gains and losses. The court also found that the AER had not properly considered the forecast bushfire safety capex, leading to a non-compliance with the capex criteria. Regarding forecast labour cost escalation, the court determined that the AER had not adequately assessed whether enterprise agreements were regulatory obligations or requirements. Finally, the court ruled that the AER could consider inflation outside the PTRM in its building block determination.

The court ordered that the AER's determination be set aside and remitted for reconsideration, taking into account the court's findings and directions. The AER was required to reassess the issues of gamma, return on debt, forecast bushfire safety capex, forecast labour cost escalation, and forecast inflation in line with the court's directions.

Orders