Applications by Public Interest Advocacy Centre Ltd and Endeavour Energy
[2016] ACompT 2
•26 FEBRUARY 2016
AUSTRALIAN COMPETITION TRIBUNAL
IN THE MATTER OF APPLICATIONS BY PIAC, AUSGRID AND OTHERS
SUMMARY
Applications by Public Interest Advocacy Service Ltd and Ausgrid Distribution
[2016] ACompT 1Applications by Public Interest Advocacy Service Ltd and Endeavour Energy [2016]
ACompT 2Applications by Public Interest Advocacy Service Ltd and Essential Energy
[2016] ACompT 3Application by ActewAGL Distribution [2016] ACompT 4
This background to, and summary of, the reasons of the Tribunal (Mansfield J, Mr R C Davey and Dr D R Abraham) in determining these matters is not a complete statement of those reasons or its conclusions, nor does it comprise part of the reasons for the Tribunal’s determination. The only authoritative statement of the Tribunal’s reasons is that contained in the published Reasons for Determination available at
In brief
The Tribunal’s PIAC-Ausgrid determination is the ‘lead’ case in its consideration of the five matters listed below under the heading “Parties”.
While the Tribunal determined that it is in the long term interests of consumers of electricity and gas to set aside the AER’s decisions and have the AER make them again, the impact on the suppliers’ revenues, and hence the prices they may charge, will not be known until the AER remakes its decisions.
The Tribunal found in favour of the regulated suppliers on some issues and in favour of the AER on others. The most significant finding for the suppliers is that when the AER decides the suppliers’ operating expenses (opex) allowances again, it is to use a broader range of modelling and benchmarking against Australian businesses and include a “bottom up” review of their forecast opex. The suppliers’ challenges to the AER’s allowances for their returns on debt, the value it set for gamma and ActewAGL’s Service Target Performance Incentive Schemes allowance were also upheld.
The suppliers’ challenges to the AER’s decision on their returns on equity, Efficiency Benefit Sharing Schemes and metering issues raised by Ausgrid and Jemena were not upheld.
The Tribunal’s opex finding meant that it did not need to decide the suppliers’ challenges to the AER’s decisions on some interrelated matters (the X factor and some metering issues) but it has provided some guidance to the AER on how it may approach those matters when it comes to remake its decisions.
The parties
The hearing of PIAC and Ausgrid’s challenges also involved the Tribunal’s consideration applications by:
· the three NSW government owned regulated electricity suppliers: Ausgrid, Endeavour Energy and Essential Energy (Networks NSW) and by PIAC to review the AER’s April 2015 determination of Networks NSW’s revenues for 2014-19 (ACT Nos 1, 2 and 3);
· the regulated electricity supplier, ActewAGL Distribution, to review the AER’s April 2015 determination of its revenues for 2014-19 (ACT No 4); and
· the regulated gas supplier, Jemena Gas Networks (NSW) Limited (JGN), to review the AER’s June 2015 determination of its revenues for 2015-20 (ACT No 5).
The following companies, which opposed the AER’s methodology because it might be applied to them, intervened in the proceeding in support of the regulated suppliers: AusNet Services (Distribution) Pty Ltd, AusNet Services (Transmission) Ltd, Australian Gas Networks Ltd, Citipower Pty Ltd, Powercor Australia Ltd, SA Power Networks and United Energy Distribution Pty Ltd (Vic/SA Network Interveners) and the Queensland government owned Ergon Energy Corporation Ltd (Ergon).
The Commonwealth Minister for Energy and Science / Minister for Resources, Energy and Northern Australia also intervened. The Minister’s submissions were confined to the proper construction and application of the relevant legislation: the National Electricity Law (NEL), the National Gas Law (NGL) and associated Rules (the National Electricity Rules and the National Gas Rules). As these matters involved the first application by the AER (and, on review, by the Tribunal) of significant 2012 changes to the Rules and 2013 changes to the Laws, the Tribunal was most appreciative of the Minister’s submissions.
The Tribunal’s task
The challenges to the AER’s decisions raised complex legal and economic issues. The decisions, being made under new, untested legislation, meant that the AER’s task (and the Tribunal’s on review) of resolving those issues was more demanding than it might have otherwise been.
Consumer consultations and prices
Prior to hearing the applications the Tribunal engaged in two days of consultation with individual consumers and representatives of consumer and user groups. This consultation process was a ‘first’ for the Tribunal under the new legislation.
As PIAC was a party to the proceedings, it did not participate in the consumer consultations. However, by participating in the hearing, PIAC played a particularly helpful role by advancing the consumers’ and users’ perspective.
The consumer consultation process enabled the Tribunal to better understand and appreciate consumers’ and users’ concerns – price being the most significant. There was material showing the number of disconnections over time and consumers raised the issue of the less well-off in the community being either unable to afford access to the services at all, or at least to do so only at considerable personal cost.
It is, however, to be noted in that context that the national electricity / gas objectives (NEO / NGO) that speaks of efficiency in the long term interests of consumers, do not extend to broader social and environmental objectives better dealt with in other legislative instruments and policies which sit outside the NEL / NGL (see Legislative Council, South Australia, 16 October 2007, Hansard at p 886).
The issue of price was not only raised by consumers in a lower socio-economic context, but also by some smaller commercial enterprises, primary producers and others – all noted, and generally supported, the price reductions that the AER predicted should follow from its decisions. Those predictions will, however, have to be revisited once the AER has made its decisions again in accordance with the Tribunal’s determination.
The hearing
The available grounds for review are, briefly, that the AER made material error of facts, its exercise of discretion was incorrect or its decisions were unreasonable in all the circumstances.
The hearing involved what is known as a limited merits review – ‘limited’ because it is a review ‘on the papers’ in which the Tribunal is restricted in the material it may consider. The material that the Tribunal may consider is material which was before the AER when it made its decision (eg the suppliers’ proposals and their experts’ reports in support of those proposals), submissions made in the course of the Tribunal’s consumer consultations, the applications for review and written and oral submissions by the parties appearing before the Tribunal. Neither the AER nor the Tribunal has the benefit of the experts’ reports being tested by oral examination before them.
The hearing of oral submissions by those opposing the AER’s decisions and from the AER occupied three weeks. The review-related material which the parties drew on in making their submissions was said to extend to more than one million pages. Lengthy written submissions were presented to the Tribunal – on but one issue (the AER’s opex allowances) the parties’ written submissions were over 460 pages and their oral submissions occupied three and a half days filling over 250 pages of transcript.
The length of the Tribunal’s reasons (over 300 pages), and the time taken to release them, reflects the size of its task and that of the AER in reaching its decisions – just one of the AER’s five decisions under challenge (the Ausgrid decision) comprised an overview of 66 pages and 20 attachments totalling 1,470 pages, with the other four decisions being of similar size.
The legislationThe AER’s obligations
The Laws and Rules empower the AER to decide the revenue a regulated electricity or gas supplier may earn over a regulatory period of 5 years.
In making a decision the Laws require the AER to, amongst other things:
·have regard to, as appropriate, the NEO / NGO and to the Laws’ revenue and pricing principles (the RPP);
·give users or consumers a reasonable opportunity to make a submission before the decision is made; and
·if there are two or more possible decisions that will or are likely to contribute to the achievement of the NEO / NGO make the decision that the AER is satisfied will or is likely to contribute to the achievement of those objectives to the greatest degree (the preferable reviewable regulatory decision).
While the requirement to have regard to the NEO / NGO and to the RPP have existed for some time, this was the first time that the AER has been obliged to give consumers the opportunity to be heard and to make a preferable reviewable regulatory decision.
The Tribunal’s obligations
When reviewing an AER decision, the Tribunal may only determine to vary it, or set it aside and remit it to the AER to make the decision again, if the Tribunal is satisfied that to do so will, or is likely to, result in a materially preferable NEO / NGO decision (ie a decision that is materially preferable to the AER’s decision in making a contribution to the achievement of the NEO / NGO).
In a context where for every competing argument there is a supporting expert or experts, the use of the phrase “materially preferable” requires the Tribunal to look through the inevitable conflict and difference of views between experts, all advocating positions which they regard as being preferable, and to determine whether an advocated materially preferable NEO / NGO decision is, indeed, materially preferable: ie a decision which, notwithstanding that divergence of views, is sufficiently compelling to be seen by the Tribunal as being “materially preferable” to the AER’s (cf: Wellington International Airport Limited & Ors v Commerce Commission [2013] NZHC 3289 at [164]).
Also, if the Tribunal’s determination is to vary the AER’s decision – the Tribunal must be satisfied that to do so will not require it to undertake an assessment of such complexity that the preferable course of action would be to set aside the decision and remit it to the AER to make the decision again. It is self-evident from each issue outlined below where the Tribunal’s set aside the AER’s decision, the task of undertaking the appropriate review and making the decision again is a complex one.
The issues and the Tribunal’s decisions
That the Tribunal found for the applicants on some issues is not to cast an adverse reflection on the AER. Nor is it to suggest that the AER did not conscientiously examine the submissions it received. It recognises that the AER had a large and most difficult task to perform within a limited timeframe.
The applicants, variously supported by the interveners, took issue with aspects of certain ‘building blocks’ that the AER is obliged to use in deciding the revenue to allow each regulated supplier for the relevant regulatory period. The building blocks, the applicants which challenged them and the Tribunal’s decision on each topic follow:
The operating expenses (opex) allowance: PIAC; Networks NSW; ActewAGL.
Networks NSW and ActewAGL argued the AER’s opex allowances for them were too low. PIAC’s challenge, which it limited to the AER’s opex allowances for Networks NSW, asserted they were too high.
Networks NSW and ActewAGL’s raised a number of issues in relation to a benchmarking model on which the AER relied to arrive at their respective opex allowances. PIAC’s concerns focused on the AER’s lowering of the model’s efficiency target comparison point and adjustments it made to the model to account for operational environment factors peculiar to a particular supplier.
The Tribunal’s decision
The AER is to make the opex decision again in accordance with Tribunal’s reasons including using a broader range of modelling and benchmarking against Australian businesses and a “bottom up” review of the regulated suppliers’ forecast opex.
The X-factor: Networks NSW.
The X factor for a particular year represents the real rate of change in revenues for that year that have been approved by the AER (before any annual adjustments). In effect, it operates as a “smoothing factor” for revenue over consecutive years.
Networks NSW and the AER agreed on the desirability of avoiding price volatility and the strong message from the consumer consultations was that price shocks should be avoided where possible. The immediate effect of the AER’s X factor decisions would, however, be significant price decreases in 2015-16 potentially followed by nominal price increases during 2016-19.
The Tribunal’s decision
The Tribunal’s decision on the opex issue requires the AER to revisit and re-determine Networks NSW’s opex allowances and then re-apply the X factor. In those circumstances while the Tribunal did not need to determine whether Networks NSW’s contention was correct it did observe that the NEO and RPP are complementary and that the NEO may not give rise to a decision by the AER which in fact is inconsistent with the RPP.
The Efficiency Benefit Sharing Scheme (EBSS): Networks NSW.
As part of the incentive regulation underpinning the Laws, the EBSS rewards a regulated supplier by allowing it to keep any yearly gain derived from the difference between its actual opex and its forecast.
The difference between Networks NSW and the AER turned on whether the rewards were related to real efficiency gains. The AER took the view that certain reductions in Ausgrid and Endeavour’s respective opex resulted from substantial changes in the assumptions underlying estimates for provisioning of future payments of employee entitlements, such as long service leave, not real business outcomes.
The Tribunal’s decision
The Tribunal was not satisfied that any ground of review exists in relation to the AER’s decisions concerning the EBSS – the view taken by the AER was open to it. A consequence of the Tribunal’s opex decision does, however, mean that the AER will be required to make its EBSS decisions again.
The Service Target Performance Incentive Scheme (STPIS): ActewAGL
The STPIS is designed to balance incentives to reduce expenditure, with the need to maintain or improve service quality. It achieves that by providing financial incentives to a supplier to maintain and improve performance and reliability – penalties if the supplier fails to maintain historical levels of reliability over the last five years, benefits if the levels are exceeded.
ActewAGL contended that the AER’s decision to apply its then existing STPIS to ActewAGL for the subsequent regulatory period without modification of the targets to account for reductions in its opex was erroneous because the reductions meant it could not maintain its historical levels of reliability by reference to which the targets had been set.
The Tribunal’s decision
The Tribunal’s decision on the opex issues means that one of the foundations on which the AER based its STPIS decision is flawed. In those circumstances, the Tribunal considers that the AER’s STPIS decision is also flawed.
The return on equity: PIAC; Networks NSW; ActewAGL, JGN
An allowed rate of return objective introduced by 2012 changes to the Rules informs both the rate of return on equity and the rate of return on debt. The objective is that the rate of return for a regulated entity is to be commensurate with the efficient financing costs of a benchmark efficient entity with a similar degree of risk as that which applies to the regulated supplier in respect of the provision of its regulated services.
Applying its foundation financial model, the AER allowed an annual return on equity of 7.1 percent in lieu of Networks NSW’s proposed 10.11 percent, ActewAGL’s 10.71 percent and JGN’s 9.83 percent. PIAC focused on one of the components of the AER’s foundation financial model, the equity beta, contending that the correct equity beta should have been 0.5 and that the AER erred in selecting a value at the top of the range, 0.7, which its guidelines contemplated.
The Tribunal’s decision
The AER’s use of its foundation financial model did not involve an error of discretion. Nor was the Tribunal persuaded that that the AER’s selection of an equity beta of 0.7 was wrong – the Tribunal observed that it is one matter to show that the AER’s analysis might have been undertaken in another way, but it is another matter to show that the other way would produce an outcome which is the correct outcome rather than just an alternative and rational outcome.
The return on debt: PIAC; Networks NSW; ActewAGL, JGN
While the AER replacement of its ‘on-the-day’ method of estimating a supplier’s return on debt used in the previous regulatory with a ‘trailing average’ method was uncontentious, there was contention about it adopting a 10 year transitional period for a supplier to move to the new method.
Networks NSW proposed immediate application of the new method. Although there were some differences between them, ActewAGL joined in Networks NSW’s submissions on this issue. They also asserted other errors in the AER’s transitioning approach. JGN contended that the AER was wrong to apply its transition methodology to both the base rate and the DRP components of the return on debt. PIAC argued that the transition to the new method should have commenced from 2015-16 rather than 2014-15 to comply, or to better comply, with the relevant rule, especially where the on-the-day interest rates at the time of, and leading up to, the date of its decision were declining. Ergon contended that the AER made an error of fact in finding that a simple trailing average should be used to estimate the return on debt when the use of a Post-Tax Revenue Model (PTRM) weighted average would better meet the requirements of the Rules.
The Tribunal’s decision
The Tribunal found that a ground of review was made out and ordered the AER to make its decision on a return on debt in relation to the introduction of the trailing average approach in accordance with the Tribunal’s reasons.
The Tribunal noted PIAC’s contention to the effect that Network NSW’s existing debt financing structures are not necessarily efficient for the purposes of any transition and that, when the AER comes to make its decision again, the requirement upon it to make the preferable regulatory decision may entitle the AER to make some adjustment if, as PIAC says, consumers may be paying “a second time” for the consequences of the spike in DRP rates following the GFC.
As the AER acknowledged that Ergon’s PTRM-weighted average approach had potential advantages in some circumstances and observed it was open to future consideration by the AER, the Tribunal did not consider it desirable to address that issue.
Imputation credits/gamma: Networks NSW; ActewAGL; JGN
The value of imputation credits is recognised by the Rules in estimating a regulated supplier’s allowed revenue. The Rules reduce the revenue that a regulated supplier requires to pay the estimated cost of its corporate tax by way of a formula in which the value of imputation credits is represented by the Greek letter ‘gamma’.
Under the formula, the higher the value for gamma, the lower the estimated cost of corporate income tax for a regulated supplier. The AER adopted a gamma of 0.4 (from a possible range of 0.3 to 0.5). The Networks NSW; ActewAGL and JGN argued for a gamma of 0.25. PIAC argued that the AER should retain the value of 0.5 it adopted in its Draft Decisions.
The Tribunal’s decision
The Tribunal decided that the AER set a value for gamma which was too high. It ordered the AER to make its decision on gamma in accordance with the Tribunal’s reasons including by reference to an estimated cost of corporate income tax based on a gamma of 0.25.
Metering services – opex: ActewAGL
ActewAGL contended that the AER misconstrued data provided to it and made an error in the course of its calculation of its price cap for ActewAGL’s Type 5 and 6 metering services.
The AER argued that it proceeded on a reasonable understanding of the complex data presented by ActewAGL and submitted, amongst other things, that the amount in issue ($4.9m ($2013-2014)) – assuming that its assessment of ActewAGL’s data was incorrect – means that the contended error is not a material one and its correction would not lead to a materially preferable NEO decision.
The Tribunal’s decision
It was not necessary to decide whether, in the circumstances, a ground of review had been made out. That is because, the Tribunal’s opex decision means that the AER must revisit ActewAGL’s opex and in doing so it is unlikely that the contended misconstruction of ActewAGL’s data will recur.
Metering classification: ActewAGL
The AER’s decision on the classification of ActewAGL’s metering services was made in error.
The AER conceded the error and that it should be corrected. It proposed to do so after the Tribunal proceedings were concluded. Notwithstanding the AER's concession, ActewAGL maintained that the most appropriate course is for the error to be corrected by the Tribunal.
The Tribunal’s decision
The Tribunal did not need to further address this issue because its opex decision means that the ActewAGL decision is being set aside and the AER will make the decision again. In those circumstances the error, which is conceded, should be corrected by the AER.
Metering services - opex: Ausgrid
Ausgrid challenged the AER’s decision to reject its forecast metering opex and substitute its own forecast alleging errors on the part of the AER in:
· deciding that a Type 5 meter is not more expensive to operate and maintain than a Type 6 meter (it was Ausgrid’s contention that a Type 5 meter is more complex than the more common Type 6 meters); and
· using an average of 2008-13 when calculating Ausgrid’s metering opex allowance, rather than a single base year of 2012-13.
Tribunal’s decision
The AER’s decision that Type 5 and 6 meters do not have materially different costs was not an error of fact and did not lead to it making an unreasonable decision. Nor did the AER’s use of a 5 year average to calculate Ausgrid’s metering opex demonstrate a reviewable error.
Market Expansion Capital Expenditure (ME Capex): JGN
ME capex is expenditure for new assets that JGN requires to connect new customers to its network. JGN challenged the AER’s decision not to approve JGN’s ME capex forecast based on its unit rate derivation model (the JGN model) and to adopt an ME capex forecast based on its own, alternative model (the AER’s ME capex decision). The AER was not satisfied that the unit rate composition JGN used in determining the cost per connection was arrived at on a reasonable basis or was the best estimate because JGN relied on only one year of data and did not adequately justify increases in its estimates of metres of certain connections
The Tribunal’s decision
While the Tribunal formed the view that properly understood, the JGN model contained adequate detail to assess its validity, the Tribunal has had the benefit of detailed written and oral submissions not available to the AER when it made its ME Capex Decision. In the absence of appropriate explanatory material, the AER’s concerns with the JGN model were legitimate. In reaching that view the Tribunal observed that the Rules do not require the AER to engage with a service provider indefinitely – there is a point at which the consultation process must cease and a decision made. The fact that the JGN model did not ultimately satisfy the AER that JGN’s ME capex forecast represented the best forecast or estimate in the circumstances did not demonstrate error on the part of the AER.
The Tribunal did, however, find that the AER’s rejection of JGN’s one year of data and conclusion based upon historical average unit rates involved an error.
Rather than substituting or varying the AER’s ME capex decision, the Tribunal concluded that when comes to re-make its JGN Final Decision on other grounds, it will have the opportunity to reconsider its ME capex decision and its interrelationships when deciding what is the preferable designated reviewable regulatory decision.
26 February 2016
AUSTRALIAN COMPETITION TRIBUNAL
Applications by Public Interest Advocacy Centre Ltd and Endeavour Energy [2016] ACompT 2
Citation: Applications by Public Interest Advocacy Centre Ltd and Endeavour Energy [2016] ACompT 2 Review from: Australian Energy Regulator Applicants: PUBLIC INTEREST ADVOCACY CENTRE LTD and ENDEAVOUR ENERGY File number: ACT 2 of 2015;
ACT 6 of 2015Tribunal: MANSFIELD J, PRESIDENT
MR R DAVEY, MEMBER
DR D ABRAHAM, MEMBERInterveners in
ACT 2 of 2015
ACT 6 of 2015: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 AustraliaInterveners in
ACT 2 of 2015:Endeavour Interveners in
ACT 6 of 2015:Public Interest Advocacy Centre Ltd Date of Determination: 26 February 2016 Dates of hearing: 21-25 September 2015; 28-30 September 2015;
1-2 October 2015, 6-9 October 2015Place: Darwin (via video link to Sydney, Melbourne, Brisbane and Adelaide) Category: No Catchwords Number of paragraphs: 76 Counsel for the Public Interest Advocacy Centre Ltd: S Horgan QC with T Clarke Solicitor for the Public Interest Advocacy Centre Ltd: Public Interest Advocacy Centre Ltd Counsel for Endeavour Energy: C Moore SC with K Morgan, A Hochroth and C Dermody Solicitor for Endeavour Energy: Herbert Smith Freehills Counsel for the Australian Energy Regulator: S Lloyd SC and M O’Bryan QC with S Balafoutis, A Mitchelmore, J Arnott, T Phillips, D Tucker and F St John Solicitor for the Australian Energy Regulator: Corrs Chambers Westgarth Counsel for the Commonwealth Minister for Resources, Energy and Northern Australia: T Howe QC and B Lim Solicitor for the Commonwealth Minister for Resources, Energy and Northern Australia: Australian Government Solicitor Counsel for AusNet Services (Distribution) Pty Ltd, AusNet Services (Transmission) Ltd, Australian Gas Networks Ltd, Citipower Pty Ltd, Powercor Australia Ltd, SA Power Networks and United Energy Distribution Pty Ltd: P Brereton SC with R Higgins Solicitor for AusNet Services (Distribution) Pty Ltd, AusNet Services (Transmission) Ltd, Australian Gas Networks Ltd, Citipower Pty Ltd, Powercor Australia Ltd, SA Power Networks and United Energy Distribution Pty Ltd: Jones Day Counsel for Ergon Energy Corporation Ltd T Bradley QC with A Coulthard and E Hoiberg Solicitor for Ergon Energy Corporation Ltd Minter Ellison
IN THE AUSTRALIAN COMPETITION TRIBUNAL
ACT 6 of 2015
RE:
BY:
APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENDEAVOUR ENERGY PURSUANT TO RULE 6.11.1 OF CHAPTER 6 OF THE NATIONAL ELECTRICITY RULES
ENDEAVOUR ENERGY
Applicant
TRIBUNAL:
MANSFIELD J, PRESIDENT
MR R DAVEY, MEMBER
DR D ABRAHAM, MEMBERDATE OF DETERMINATION:
26 FEBRUARY 2016
WHERE MADE:
DARWIN (VIA VIDEO LINK TO SYDNEY, MELBOURNE, BRISBANE AND ADELAIDE)
THE TRIBUNAL DETERMINES THAT:
1.Pursuant to s 71P(2)(c) of the National Electricity Law, the Final Decision Endeavour Energy distribution determination 2015-16 to 2018-19, April 2015, including attachments (the Final Decision) is set aside and remitted to the Australian Energy Regulator (AER) to make the decision again in accordance with the following directions:
(a)the AER is to make the constituent decision on opex under r 6.12.1(4) of the National Electricity Rules in accordance with these reasons for decision including assessing whether the forecast opex proposed by the applicant reasonably reflects each of the operating expenditure criteria in r 6.5.6(c) of the National Electricity Rules including using a broader range of modelling, and benchmarking against Australian businesses, and including a “bottom up” review of Endeavour’s forecast operating expenditure;
(b)the AER is to make the constituent decision on a return on debt in relation to the introduction of the trailing average approach in accordance with these reasons for decision;
(c)the AER is to make the constituent decision on estimated cost of corporate income tax (gamma) in accordance with these reasons for decision, including by reference to an estimated cost of corporate income tax based on a gamma of 0.25; and
(d)the AER is to consider, and to the extent to which it considers appropriate to vary the Final Decision in such other respects as the AER considers appropriate having regard to s 16(1)(d) of the National Electricity Law in the light of such variations as are made to the Final Decision by reason of (a)-(c) hereof.
IN THE AUSTRALIAN COMPETITION TRIBUNAL
ACT 2 of 2015
RE:
BY:
APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENDEAVOUR ENERGY, PURSUANT TO CLAUSE 6.11.1 OF CHAPTER 6 OF THE NATIONAL ELECTRICITY RULES
PUBLIC INTEREST ADVOCACY CENTRE LTD
ApplicantACT 6 of 2015 RE:
BY:
APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENDEAVOUR ENERGY PURSUANT TO RULE 6.11.1 OF CHAPTER 6 OF THE NATIONAL ELECTRICITY RULES
ENDEAVOUR ENERGY
Applicant
TRIBUNAL:
MANSFIELD J, PRESIDENT
MR R DAVEY, MEMBER
DR D ABRAHAM, MEMBERDATE:
26 FEBRUARY 2016
PLACE:
DARWIN (VIA VIDEO LINK TO SYDNEY AND MELBOURNE)
REASONS FOR DETERMINATION
BACKGROUND
On 30 April 2015, the Australian Energy Regulator (AER) delivered its Final Decision for the Endeavour Energy (Endeavour) distribution determination for the period 2015-16 to 2018-19 pursuant to r 6.11.1 of Ch 6 of the National Electricity Rules (NER).
Endeavour is a distribution network service provider (DNSP) and is owned by the State of New South Wales (NSW). It is one of three state owned NSW DNSPs which were granted leave to apply for review of the AER’s decisions made on 30 April 2015. They are Ausgrid (ACT 4 of 2015), Endeavour (ACT 6 of 2015) and Essential Energy (Essential) (ACT 7 of 2015). They collectively form Networks NSW and are incorporated under the Energy Services Corporations Act 1995 (NSW).
The relevant regulatory control period is 2014-19. In the case of the Networks NSW DNSPs, it included a transitionary period in 2014-15. A placeholder revenue allowance was set by the AER on 16 April 2014 to apply from 1 July 2014 to 30 June 2015. The relevant Final Decisions, including the Endeavour Final Decision, were delivered after Endeavour submitted a Regulatory Proposal on 31 May 2014 and the AER had published Draft Decisions on that and the other Regulatory Proposals on 27 November 2014, and Endeavour had submitted a Revised Regulatory Proposal on 20 January 2015.
On 21 May 2015, Endeavour applied for leave to review the AER’s Final Decision in relation to Endeavour under s 71 B of the National Electricity Law (NEL), as scheduled in the National Electricity (South Australia) Act 1996 (SA). The NEL is given jurisdictional effect through the National Electricity (New South Wales) Act 1997 (NSW).
On 21 May 2015, the Public Interest Advocacy Centre Ltd (PIAC) also filed an application for leave to apply to review the AER’s Final Decision in relation to Endeavour under s 71B of the NEL. PIAC also filed applications for leave to apply for review with respect to the AER’s Final Decisions with respect to Ausgrid (ACT 1 of 2015) and Essential (ACT 3 of 2015).
The Tribunal granted leave to Endeavour to apply for review, and it also granted leave to PIAC to do so under s 71B of the NEL on 17 July 2015. Endeavour and PIAC were also each granted leave to intervene in each other’s applications. The Tribunal also granted leave to intervene in each of those matters to AusNet Services (Distribution) Pty Ltd, AusNet Services (Transmission) Ltd, Australian Gas Networks Ltd, CitiPower Pty Ltd, Powercor Australia Ltd, SA Power Networks and United Energy Distribution Pty Ltd (Vic/SA Interveners), Ergon Energy Corporation Ltd (Ergon) and the Commonwealth Minister for Industry and Science (now the Minister for Resources, Energy and Northern Australia).
The hearing of each of the applications by Networks NSW and PIAC took place together. In addition, ActewAGL Distribution (ActewAGL) applied, and was granted leave, to review a decision of the AER made under the NEL (ACT 5 of 2015) on the same date as the Networks NSW Final Decisions. Later Jemena Gas Networks (NSW) Ltd (JGN) applied, and was granted leave, to review a further decision of the AER made on 3 June 2015 under the National Gas Law (NGL) (ACT 8 of 2015).
Each of the eight applications was heard together because a number of the issues arising in relation to them were common to issues with other applications. There are, of course, some issues particular to one or more of the applicants, and in some respects the issues or arguments relating to particular issues differed slightly.
THE GROUNDS OF REVIEW
Endeavour’s grounds of review related to a number of the building blocks prescribed by r 6.4.3 of the NER as components of the Final Decision. It claimed that the AER had erred in significant respects in arriving at the Final Decision fixing the revenue allowed for the regulatory control period in respect of:
(1)operating expenditure (opex);
(2)Efficiency Benefit Sharing Scheme (EBSS);
(3)rate of return on equity;
(4)rate of return on debt;
(5)estimated cost of corporate income tax (gamma); and
(6)consequential issues, including form of control mechanism (X factor).
They mirrored the grounds of review of Ausgrid, save for Ausgrid having an additional issue concerning its metering costs.
PIAC’s grounds of review related to Endeavour in the same terms as they related to Ausgrid and Essential. PIAC largely sought to restore the Draft Decisions of the AER. Its grounds concerned the building blocks of:
(1)opex, by having the benchmark efficiency target fixed at 0.86, being the weighted average of the upper quartile of the efficiency scores of the comparators used by the AER, and removing certain of the operating environment factors (OEF) adjustments made by the AER in each Final Decision;
(2)return on equity, to vary the equity beta to 0.5 rather than that used by the AER in each Final Decision; and
(3)return on debt, to commence the transitional methodology adopted by the AER to move to the trailing average approach for estimating the return on debt to the earlier (transitional) year 2014-15.
In other respects, it supported each of the AER’s Final Decisions concerning Networks NSW.
The Vic/SA Interveners broadly speaking supported the position taken by Networks NSW generally, as did Ergon. Ergon made a separate contention with respect to the transitional consequences of the Final Decisions (relating to all the network service providers) as a result of the 2012 Rule Amendments and the 2013 Legislative Amendments.
The Tribunal has decided that it is not necessary, for the purposes of this or the other applications, to address Ergon’s contention. It may seek to raise it, depending on the Final Decision of the AER in relation to Ergon itself.
THE PIAC-AUSGRID DECISION
The Tribunal has, at the same time as this decision is published, published its decision on the applications by PIAC relating to the AER’s Ausgrid Final Decision, and Ausgrid to review that Final Decision: Applications by Public Interest Advocacy Centre Ltd and Ausgrid [2016] ACompT 1 (the PIAC-Ausgrid Decision).
This decision deals only with the applications by PIAC and Endeavour to review the AER Final Decision concerning Endeavour. It is intended to be read in conjunction with the decision of the Tribunal in the PIAC-Ausgrid Decision. That decision serves as the “lead” decision on the Tribunal’s general considerations, on the significance of matters of common concern, and its consideration of aspects of particular topics that do not need to be repeated in full in the decisions of the Tribunal concerning the other applications. The definitions used in the PIAC-Ausgrid Decision are adopted for the purposes of this decision.
As noted, in the PIAC-Ausgrid Decision, the Tribunal conducted public consultation in relation to the matters raised in each of the eight applications on 6 and 7 August 2015. It then heard the applications concurrently over the period from 21 September 2015 to 9 October 2015.
Due to the substantial commonality of issues raised, it was common ground that it would be appropriate for the applicants to prepare common written submissions in relation to those issues or topics which it had substantially in common with other applicants. On this basis, and pursuant to the Tribunal’s directions of 5 August 2015:
(a)the Network Applicants prepared common written submissions on the issues of return on equity and the value of imputation credits;
(b)Networks NSW and ActewAGL prepared common written submission on return on debt; and
(c)Networks NSW prepared common written submissions on framework, opex, X-factor, EBSS, the application of s 71O of the NEL and what constitutes a materially preferable NEO decision.
The applicants were to some extent also represented during the hearing by common counsel in respect of those issues or topics which it had in common with the other applicants. Relevantly, common counsel appeared on behalf of each of the Network Applicants in relation to return on equity and gamma, on behalf of Networks NSW and ActewAGL in respect of return on debt, and on behalf of each of Network NSW in relation to framework, opex, X-factor, EBSS, s 71O of the NEL and what constitutes a materially preferable NEO decision. In addition, during the course of the hearing the Network Applicants and the interveners adopted the submissions of other parties where it was appropriate to do so.
That recitation is sufficient to indicate why it is, in relation to these two applications, unnecessary to do much more than to note any significant differences between the circumstances of Ausgrid and Endeavour, any significant differences in the way in which the AER approached its task in relation to its determination of its Final Decisions concerning Ausgrid and Endeavour (the Tribunal has not discerned any), and any significant points to be made concerning the Tribunal’s reasoning with respect to the topics addressed in the PIAC-Ausgrid Decision by reason of the particular circumstances of Endeavour.
THE AER’S FINAL DECISION RELATING TO ENDEAVOUR
The effect of the AER’s Final Decision for Endeavour was to disallow some $1.17 billion (that is a reduction of about 17 percent) of the revenue for standard control services sought in its Revised Regulatory Proposal over the 2014-19 regulatory period. That sum is made up of a reduction in claimed revenue for opex of $264m; a reduction of $744m in revenue relating to the claimed return on capital (equity and debt) over the period, made up of a $461m reduction in revenue for the claimed return on equity, and a $283m reduction in claimed revenue for the return on debt; a reduction of $100m in claimed revenue for the carryover of the EBSS; and a reduction of $60m in claimed revenue for the value of imputation credits (gamma). The figures in this part of the reasons are presented by Networks NSW, some of which did not specify whether they are nominal or real figures.
The Tribunal notes that those reductions followed the revenue allowance in the placeholder determination for 2014-15, where the claimed revenue was $949.5m, but the allowance from the AER was $858.6m, that is an additional $91m reduction in claimed revenue in 2014-15 and reflected of course after the 2015-19 regulatory period.
CONSIDERATION
The Tribunal proposes to follow the same sequence of principal headings as appears in the PIAC-Ausgrid Decision. In addition, given the degree of commonality of issues, the following very largely incorporates reasons by reference to what the Tribunal has said in the PIAC-Ausgrid Decision, with respect to the regulatory framework and the grounds raised in relation to this decision. There is very little that requires further detailed discussion, notwithstanding that there are some differences between Endeavour and Ausgrid both in their operating environment, and in their respective submissions to the AER, and of course in the AER’s reasons for their respective Final Decisions. The Tribunal has, of course, considered those differences.
It does not consider that it is necessary to expand upon them or to discuss them separately in any particular detail. It has done so where it considers it desirable.
Accordingly, the reasons for this decision are hereafter relatively brief.
(a) Operating Expenditure
The AER’s Final Decision with respect to opex found that Endeavour was not materially inefficient. However, it did not provide an allowance claimed by Endeavour for labour and vegetation management costs that would be incurred in the 2014-19 regulatory control period. It raised grounds of review in this respect, which also corresponded with the opposing grounds raised by PIAC in relation to Endeavour’s claimed allowance for labour and vegetation management.
The Tribunal’s reasons with respect to opex, including matters specific to Endeavour and PIAC, can be found in the Ausgrid-PIAC Decision.
In short, the common contentions of Networks NSW regarding the opex allowance in each of the Networks NSW applications relating to the selection and use of data, the model construction and use of the EI model, and the reflection of the OEFs have been made out.
In the case of Endeavour, however, the AER’s starting point despite those matters was that its opex was not materially inefficient on the basis of the EI model. Nonetheless, it adjusted downwards its forecast opex by $240.7m (in $2013-14) in respect of what it identified as increased vegetation management expenditure (VM Expenditure) and by $17.3m (in $2013-14) in respect of redundancy costs (the Redundancy Expenditure).
The AER rejected the proposed VM Expenditure because the proposed additional expenditure was to enable Endeavour to meet increased contract prices from outsourced providers in response to Endeavour targeting further improvements to achieve conformance with the minimum risk standards it must meet regarding the clearance distance between mains and vegetation for all of its network area.
The AER considered it did not have “persuasive evidence” that Endeavour’s historical opex was too low to achieve the opex objectives, and without such evidence, it did not consider such increased contract costs to be a reason to increase the opex forecast, given that Endeavour’s regulatory obligations were unchanged.
Consequently, while Endeavour was not found to be materially inefficient, its decision was “marginal” and would not have been the same had Endeavour’s base year opex included additional expenditure consistent with the VM Expenditure proposed. The AER also considered that further evidence would be required to substantiate the VM Expenditure, and that it would be inconsistent with the application of the EBSS to include the VM Expenditure in the opex forecast.
The AER rejected the proposed Redundancy Expenditure because it considered that this was only needed because Endeavour was not currently operating as efficiently as it could. In this respect, it relied upon a report by Deloitte Access Economics (Deloitte) dated 28 April 2015 (the 2015 Deloitte Labour Report) concerning labour and workforce management issues affecting Networks NSW.
It is a consequence of the grounds of review established in relation to the EI model (as recorded in the PIAC-Ausgrid Decision) in a less direct way than is the case with Ausgrid and Essential, but which nevertheless affect the AER’s Endeavour Final Decision, that the same grounds of review with respect to Endeavour are made out.
That step is further explained in relation to Endeavour in the PIAC-Ausgrid Decision. In that decision, the OEF adjustments made by the AER, including in relation to Endeavour are also the subject of detailed consideration by the Tribunal.
The AER in the Endeavour Final Decision, as noted, accepted that the opex claimed by Endeavour in its Revised Regulatory Proposal – apart from the VM Expenditure and the Redundancy Expenditure – was not materially inefficient. Endeavour in its closing submissions proposes a reconsideration of its opex, starting therefore with the allowed opex of $1,218m. It then seeks to have revisited only those two disputed elements.
The Tribunal makes more general orders than it might otherwise because it does not know what might be the consequences of the AER’s assessment of the efficiency of the claimed opex when it has undertaken the modelling and benchmarking which the Tribunal canvassed in the PIAC-Ausgrid Decision. Depending on the outcome of that, the AER may adhere to that starting point or revisit it. It should, in any event, be given the opportunity to consider that, and to revisit the VM Expenditure and Redundancy Expenditure claimed in the more general context of the opex expenditure claimed.
It is desirable to add some further observations about the VM Expenditure.
The VM Expenditure was required, according to Endeavour’s Revised Regulatory Proposal, to enable Endeavour to be compliant with applicable standards for vegetation management in NSW, and so (it says) to ensure the safety and reliability of the supply of electricity and the distribution system. Consequently, in its contention, the VM Expenditure was directed at meeting the operating expenditure objectives, specifically those in rr 6.5.6(a)(2), (3) and (4) of the NER.
Reference was made to the Industry Safety Steering Committee 3 Standard – Guidelines for Managing Vegetation Near Powerlines (ISSC 3) specifying minimum clearances to be maintained between electricity assets and vegetation based on the operating voltage and construction type of the electricity assets, and regrowth allowances which an operator may maintain to allow for regrowth between trimming cycles.
Endeavour accepted that its compliance was not complete. It attributed that to some contractors trimming vegetation only to the minimum clearances and not making any allowance for regrowth. As a result, minimum clearances were not being maintained following regrowth, leading to a need for more frequent trimming cycles. It provided material showing it had withheld payments under contracts due to non-compliance with the required contractual standards, including a substantial withheld payment of $2.8m in the 2011-12 year.
In 2011-12 (for two geographical areas) and in 2012-13 (for the remaining 11 geographical areas in its service area), Endeavour went to market and re-tendered, requiring trimming to the minimum clearance plus regrowth allowance in accordance with ISSC 3. The market priced the additional costs required to adequately meet compliance standards, with significant increased costs. Compliance with ISSC 3 rose to a much higher level by 2013-14 as a result.
This increase in price to contractors was the major reason for the inclusion of the VM Expenditure in Endeavour’s forecast opex for the 2014-19 regulatory control period.
The AER treated the proposed VM Expenditure as a “step change” so that it would only accept the VM Expenditure if it was a change resulting from a capex/opex trade-off, or a change resulting from a new regulatory obligation. It is argued that that was in error, because its task was to consider whether Endeavour’s forecast opex, including the VM Expenditure, reasonably reflected the opex criteria: r 6.5.6(3) of the NER.
The AER made no finding that ISSC 3 is an unreasonable standard to adopt. It is an industry standard which Endeavour has been required by the NSW Department of Water and Energy to incorporate into plans it must maintain under the Electricity Supply (Safety and Network Management) Regulation 2014 (NSW). By disallowing the VM Expenditure, it is argued that the AER disallowed Endeavour the expenditure it requires to comply with the standard providing for best practice vegetation clearance, and which has been incorporated into documents with which it is required to comply under regulatory provisions. That is said not to be an approach consistent with the opex objectives, the RPP or the NEO itself.
It is not necessary to explore those assertions fully.
It is sufficient to note that the AER’s rejection of the VM Expenditure is infected by the same errors which affect its benchmarking exercise and the EI model in particular. That is because the AER expressly relied upon the fact that its benchmarking exercise had found Endeavour to be not materially inefficient, but only marginally so, such that any additional expenditure could not be added without jeopardising the finding of efficiency, and because the AER relied upon its benchmarking exercise to support the proposition that comparator networks operate safe and reliable networks. Those aspects are dealt with in the PIAC-Ausgrid Decision.
The rejection of the Redundancy Expenditure is a matter which is common to Networks NSW, and is dealt with in the PIAC-Ausgrid Decision.
The Tribunal has not specifically addressed the asserted error of discretion on the part of the AER that it wrongly rejected Endeavour’s proposed VM Expenditure and Redundancy Expenditure on the basis that they did not arise because of a change resulting from a capex/opex trade-off or a change resulting from a new regulatory obligation (those being the criteria set out in the AER’s Expenditure Forecast Assessment Guideline which, Networks NSW asserted, have no basis in the NEL or the NER). Nor has the Tribunal specifically accepted or rejected Endeavour’s contention that the AER wrongly rejected the proposed VM Expenditure when Endeavour was not given a reasonable opportunity, or any opportunity, to make submissions in relation to that topic.
The further review by the AER which the Tribunal proposes to direct should be conducted so that the AER is not constrained by its formal rulings on those matters, particularly having regard to s 16(1)(d) of the NEL.
For the reasons given in the PIAC-Ausgrid Decision, the Tribunal in the circumstances did not need finally to determine the correctness of PIAC’s contentions.
(b) Control Mechanism (X factor)
This issues is confined to the Networks NSW DNSPs. It is not a matter upon which PIAC made submissions, either as an applicant or an intervener. Nor did any other intervener address submissions in relation to it.
The written and oral submissions on the application of revenue smoothing (involving the use of an X factor) were prepared jointly in each of the applications for review by Ausgrid, Essential and Endeavour. The Tribunal’s reasons on the X factor are set out in the PIAC-Ausgrid Decision. It is not necessary to repeat them here.
As a consequence of the Tribunal’s decision with respect to opex, the ground of review for the application of the control mechanism has largely fallen away. When the AER revisits and re-determines the opex allowances, it will then have to apply the X factor. It will do so at a time, and in relation to revenues streams, which will require it to make a fresh decision on the X factor.
(c) EBSS
The Tribunal’s reasons with respect to the EBSS can be found within the PIAC-Ausgrid Decision. The consideration of the grounds of review with respect to the EBSS has been substantially confined as a consequence of the Tribunal’s decision with respect to opex. It is common ground that the treatment of the EBSS by the AER is related to the opex allowance.
In the case of Essential, the consequence of the opex allowance was in part to lead the AER to exclude Essential from a significant penalty or liability which it had incurred in the previous regulatory period.
The Tribunal considers that, because of the interrelationship between the EBSS and the allowance for opex, the AER may wish to revisit that approach. Indeed, the Networks NSW proposed orders include the proposition that that liability should be carried forward to the current regulatory period (of course on its assumption that in other respects the opex allowance should be revisited to allow for VM Expenditure and Redundancy Expenditure).
(d) Return on Equity
The AER’s Final Decisions for Networks NSW are said to compromise two components of the building block “return on capital” under Ch 6 of the NER: the return on equity and the return on debt. The written and oral submissions of the parties separated the two issues, despite their interrelatedness in forming a critical feature of the building block for return on capital. It was appropriate to proceed that way in view of the complexity and individual features of the contentions before the Tribunal with respect to equity and debt.
The grounds of review with respect to the rate of return on equity for Endeavour are common to all the Networks NSW submissions and PIAC’s submissions also apply to Networks NSW as a group.
Networks NSW unsuccessfully sought to make out grounds of review in relation to the AER’s reasons for its quantification of the allowance for return on equity. PIAC supported the AER’s contentions in that regard, and successfully so.
In addition, PIAC argued that the allowance for return on equity for each of Networks NSW should be reduced because the AER should have adopted an estimate of equity beta of 0.5. The Tribunal did not conclude that that ground of review is made out.
The reasons of the Tribunal in the PIAC-Ausgrid Decision for that conclusion equally apply to Endeavour. It is not necessary to repeat them.
The Tribunal has rejected the contentions by Networks NSW seeking to disturb the AER Final Decisions on the rate of return on equity in the PIAC-Ausgrid Decision. Those reasons apply equally to Ausgrid and to Endeavour (and to Essential). The consequence is that no grounds of review are made out in relation to the Final Decisions concerning the return on equity.
Separately, in the PIAC-Ausgrid Decision, the Tribunal has also explained why it does not consider that PIAC has made out its grounds of review in relation to the return on equity.
The Tribunal does not need to repeat those reasons.
(e) Return on Debt
As stated above, the grounds of review with respect to the rate of return on capital for Endeavour, and specifically the return on debt, are common to Networks NSW. PIAC’s grounds of review on this topic also apply to Networks NSW generally.
As explained in the PIAC-Ausgrid Decision, the competing contentions of Networks NSW and PIAC were directed to the way in which the introduction of the trailing average approach to determining the appropriate return on debt should be transitioned.
Their respective positions could not have been further apart.
The Tribunal was satisfied that Networks NSW had established grounds of review in relation to each of them about the transition methodology adopted by the AER, largely by reason of its adoption of a standard regulated benchmark efficient entity.
PIAC’s contention was again premised on the AER’s approach being broadly correct. It then contended that the transition methodology should have been applied commencing a year earlier than that adopted by the AER. Because the premise was not maintained by the Tribunal, it did not need to fully consider PIAC’s contention.
The reasons for those conclusions are set out in the PIAC-Ausgrid Decision. There were no particular elements, peculiar to Endeavour, which require separate consideration.
The reasons for the decision on the return on debt for Networks NSW addressed in the PIAC-Ausgrid Decision are therefore equally applicable to this application. The contentions on behalf of Networks NSW, as discussed in the PIAC-Ausgrid Decision, mean that Endeavour succeeds on its grounds of review on this topic. That result also means that PIAC’s contentions about the timing for the commencement of the transition methodology of the trailing average for estimating return on debt do not arise.
Again, the Tribunal refers to, and adopts, its reasons in the PIAC-Ausgrid Decision without repeating them.
(f) The Value of Imputation Credits (Gamma)
The Tribunal’s reasons with respect to gamma for Endeavour are applicable to each of Networks NSW, as the submissions were common. Consequently, the Tribunal’s reasons and conclusion in the PIAC-Ausgrid Decision apply equally to this application. That means that Endeavour has made out grounds of review with respect to this topic.
(g) What determination should be made?
The Tribunal’s consideration of how the constituent components of the AER’s Final Decisions interrelate with each other, taking into account the RPP under s 71P(2b) of the NEL are addressed as issues common to Networks NSW in the PIAC-Ausgrid Decision.
So too are the Tribunal’s reasons with respect to whether its decision would, or would be likely to, result in a materially preferable NEO decision under s 71P(2a) of the NEL. Consequently, for Endeavour, for the reasons set out in the PIAC-Ausgrid Decision, the Tribunal is satisfied that it should set aside the AER Final Decision with respect to Endeavour in relation to those topics where a ground of review has been made out, or where there is an interrelationship between one or more of those topics and another topic addressed in the Endeavour Final Decision of the AER. For the reasons there discussed, that re-opens to the AER, to the extent to which it considers appropriate, the other elements or amounts allowed for the other building blocks in its Final Decision concerning Endeavour.
DETERMINATION
For those reasons, the Tribunal has decided to make its determination in much the same terms as are made in the Ausgrid application for review, and in the PIAC application for review of the AER’s Ausgrid Final Decision. That means the AER Final Decision is set aside and the matter remitted to the AER for reconsideration in accordance with the Tribunal’s reasons in the PIAC-Ausgrid Decision and as adopted for this decision.
The AER’s reconsideration in relation to opex will involve, at least in part, a “bottom up” analysis of the VM Expenditure and a review of its approach to the Redundancy Expenditure. The extent to which the determination “opens up” the more general opex allowance for the AER is a matter for the AER to determine. Indeed, for the reasons given in the PIAC-Ausgrid Decision, the Tribunal’s determination on the Endeavour application enables the AER to revisit such of the other topics it addressed in the Endeavour Final Decision as it considers appropriate to give effect to s 16(1)(c) and (d) of the NEL. For the same reasons, the Tribunal makes no determination in the PIAC application concerning the Endeavour Final Decision by the AER.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield, Mr R Davey and Dr D Abraham. Associate:
Dated: 26 February 2016
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