Application by WA Gas Networks Pty Ltd (No 3)

The Federal Court reviewed an Access Arrangement Decision made by the Economic Regulation Authority of Western Australia (ERA) regarding the proposed access arrangement for the Mid-West and South-West Gas Distribution Systems by WA Gas Networks Pty Ltd (WA Gas). The dispute centred on whether the ERA made reviewable errors in formulating the Access Arrangement Decision, specifically in relation to its application of National Gas Rules (NGR) rule 87, the determination of the rate of return on capital, the escalation of previous capital expenditure, the inclusion of bridging finance costs and working capital, the tariff variation mechanism, and the exclusion of certain commercial terms from the template haulage contract.

The primary legal issues before the court were whether the ERA correctly applied NGR rule 87, accurately determined the rate of return on capital, appropriately escalated previous capital expenditure, correctly included bridging finance costs and working capital, adequately provided for unexpected regulatory capital expenditure in the tariff variation mechanism, and appropriately excluded commercial terms from the template haulage contract. The court assessed whether the ERA's decisions aligned with the statutory framework and whether the ERA provided sufficient reasoning and evidence for its determinations.

The court found that the ERA did not err in its application of NGR rule 87; it correctly interpreted the rule to not require going beyond the figure determined under rule 87(2)(b). The court also determined that the ERA's determination of the rate of return on capital, including the market rate of return, the market risk premium, the value of imputation credits, and the discount rate premium, was supported by evidence and did not contain errors. The court further found that the ERA did not err in using a national measure of inflation for escalating previous capital expenditure or in excluding bridging finance costs and working capital from allowable operational expenditure. However, the court held that the ERA erred in excluding from the tariff variation mechanism provision for adjustment as a result of unexpected regulatory capital expenditure. The court found that the ERA's exclusion of certain terms and conditions from the template haulage contract was inconsistent with NGR rule 48(1)(d)(ii), and the ERA did not provide a reasoned basis for excluding such terms.

The court ordered the ERA to revise the Access Arrangement Decision to include a provision for adjustment as a result of unexpected regulatory capital expenditure in the tariff variation mechanism. Additionally, the ERA was directed to review and, if necessary, revise the exclusion of certain terms and conditions from the template haulage contract to ensure compliance with NGR rule 48(1)(d)(ii).