Applications by Public Interest Advocacy Centre Ltd and Endeavour Energy

The Australian Competition and Consumer Commission (ACCC) and Endeavour Energy were involved in a dispute concerning the determination of revenue for standard control services for the 2014-2019 regulatory period. The Australian Energy Regulator (AER) had reduced the revenue allowance for Endeavour Energy, prompting the applicants to challenge the decision. The Federal Court of Australia was tasked with reviewing the AER’s decision. The legal issues before the court included whether the AER correctly assessed operating expenditure (opex) and whether the AER appropriately determined the return on debt and the estimated cost of corporate income tax (gamma).

The court found that the AER did not provide an allowance for labour and vegetation management costs claimed by Endeavour Energy, which led to a reduction in the revenue allowance. The court held that the AER’s decision to reduce the revenue allowance for opex was flawed because it did not adequately consider the operating expenditure criteria. The court also found that the AER’s determination of the return on debt and the estimated cost of corporate income tax (gamma) required reconsideration. The court concluded that the AER's decision should be set aside and remitted for reconsideration in line with the court's directions.

The court ordered that the AER should reassess the operating expenditure, return on debt, and estimated cost of corporate income tax based on the court's directions. The court instructed the AER to conduct a broader review of operating expenditure, benchmark against Australian businesses, and consider a “bottom up” review of Endeavour’s forecast operating expenditure. The court also directed the AER to determine the return on debt in accordance with the court's reasons and to consider the estimated cost of corporate income tax based on a gamma of 0.25. Finally, the court allowed the AER to vary the Final Decision in other respects as it deemed appropriate.