CKI Utilities Development Pty Ltd v Australian Energy Regulator

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FEDERAL COURT OF AUSTRALIA

CKI Utilities Development Pty Ltd v Australian Energy Regulator
[2016] FCA 17

File number: SAD 231 of 2015
Judge: MANSFIELD J
Date of judgment: 29 January 2016
Catchwords:

ADMINISTRATIVE LAW – application for judicial review of a decision of the Australian Energy Regulator (AER) – AER determination that a pricing proposal is deficient under cl 6.18.8 of the National Electricity Rules (NER)

ENERGY AND RESOURCES – Distribution Network Service Provider discretion in defining tariff classes – where pricing proposal includes tariff subclasses – where pricing proposal includes a “solar tariff” subclass for customers with micro-generation facilities – where pricing proposal includes a “social tariff” subclass for customers identified as hardship customers – whether the NER recognise the existence of tariff subclasses – application of the protective principles of cl 6.18.4(a) of the NER – equal treatment of retail customers with a similar connection or usage profile – comparison of similarity or dissimilarity of customer load profiles – use of competing expert evidence to demonstrate unreasonableness – treatment of retail customers with micro-generation facilities no less favourable than retail customers without such facilities but with a similar load profile – where there is an economically efficient rationale for tariff classes – role or responsibility of a Distribution Network Service Provider for the determination of policy

ADMINISTRATIVE LAW – requirement that the AER approve a pricing proposal if the AER is satisfied in accordance with cl 6.18.8 – whether an onus to demonstrate dissimilarity of load profiles was imposed – where it was open to the applicants to provide the information they considered would satisfy the AER

Legislation:

National Electricity Law

National Electricity Rules

Administrative Decisions (Judicial Review) Act 1977 (Cth)

Electricity Act 1996 (SA)

Migration Act 1958 (Cth)

Cases cited:

Minister for Immigration and Ethnic Affairs v Taveli (1990) 23 FCR 162

Minister for Immigration and Citizenship v Li (2013) 249 CLR 332

Re Telstra Corporation Ltd [2006] ACompT 4

Abebe v The Commonwealth (1999) 197 CLR 510

Australian Retailers Association v Reserve Bank of Australia (2005) 148 FCR 446

Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611

Minister for Primary Industries and Energy v Austral Fisheries Pty Ltd (1993) 40 FCR 381

Date of hearing: 16 and 17 November 2015
Date of last submissions: 20 November 2015
Registry: Adelaide
Division: General Division
National Practice Area: Administrative and Constitutional Law and Human Rights
Category: Catchwords
Number of paragraphs: 159
Counsel for the Applicants: P Gray QC and H Hassan
Solicitor for the Applicants: Minter Ellison
Counsel for the Respondent: K Walker QC and T Clarke
Solicitor for the Respondent: Australian Government Solicitor
Counsel for amicus curiae: SA McDonald
Solicitor for amicus curiae: Clayton Utz Lawyers

ORDERS

SAD 231 of 2015
BETWEEN:

CKI UTILITIES DEVELOPMENT LTD
First Applicant

PAI UTILITIES DEVELOPMENT LTD (and others named in the Schedule)
Second Applicant
AND:

AUSTRALIAN ENERGY REGULATOR
Respondent

JUDGE:

MANSFIELD J

DATE OF ORDER:

23 DECEMBER 2015

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.The application is…

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Details
Case
[2016] FCA 17
Decision Date

CaseChat Overview and Summary

The case of CKI Utilities Development Pty Ltd v Australian Energy Regulator involves a judicial review application by CKI against the Australian Energy Regulator (AER). The dispute centres around the AER's decision to reject a pricing proposal submitted by CKI, which included tariff subclasses such as a "solar tariff" for customers with micro-generation facilities and a "social tariff" for hardship customers. The core legal issues addressed by the Court were whether the AER's decisions were legally sound and if the pricing proposal complied with the National Electricity Rules (NER).

The Court examined whether the AER had properly applied the principles set out in cl 6.18.4 of the NER, which require equal treatment of retail customers with similar connection or usage profiles. The Court also considered if the AER had correctly interpreted cl 6.18.4 and whether it had imposed an undue burden on CKI to demonstrate dissimilarity of load profiles. Furthermore, the Court assessed the reasonableness of the AER's reliance on statistical analysis and whether the AER had correctly identified an economically efficient rationale for the tariff classes proposed by CKI.

In its reasoning, the Court found that the AER had not erred in its interpretation of the NER and had correctly rejected the proposed solar and social tariffs. The Court concluded that CKI's pricing proposal did not align with the regulatory structure aimed at achieving economic efficiency. The Court held that the creation of new tariff subclasses under the proposal constituted the establishment of new tariff classes, which was not permissible under the Rules. Additionally, the Court found that the AER's decisions were reasonable and based on sound principles, rejecting CKI's claims of unreasonableness and improper statistical analysis.

The Court dismissed CKI's application for judicial review and ordered that CKI pay the AER's costs. The Court also extended the time for any appeal to commence from the date of publication of the reasons for judgment.

Orders

Orders of the court

1. The application is dismissed.

2. Applicants pay to the respondent costs of the application.

3. The time within which any appeal from these orders may be brought is extended to run from the date upon which the written reasons for judgment are published.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The Court did not consider that the Primary Decision nor the additional decisions of the AER should be set aside. It announced that conclusion on 23 December 2015, and made orders dismissing the application with costs at that time. These are the reasons for that decision. At that time, the Court also extended the time from which any appeal period should run to commence on the date of publication of these reasons.BACKGROUND By the further amended application dated 15 November 2015, SAPN sought orders under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act) setting aside the two decisions of the AER made on 19 June 2015 under cl 6.18.8(a) and (b)(1) of the Rules firstly rejecting the solar tariff and social tariff included in the Pricing Proposal in relation to the Low Voltage Residential Class, and secondly requiring amendments to its proposal to remove the solar tariff and social tariff. Secondly, it sought to set aside the decision of the AER of 29 June 2015, which was supplementary to the Primary Decision and which approved the Revised Pricing Proposal submitted to the AER by SAPN, without prejudice and under protest, pursuant to the AER’s decisions on 19 June 2015. As it is accepted that each of the decisions of the AER is reviewable under the ADJR Act, it is not necessary to trace the legislative structure under which that comes to be the case. It is also common ground that Version 65 of the Rules is the applicable version. The AER’s decisions in respect of both the solar tariff and the social tariff were made by reference to cl 6.18.4 of the Rules. It was SAPN’s contention that the decisions are affected by a misconception about the role of cl 6.18.4 (ground 1). SAPN said that cl 16.18.4 creates constraints on the movement of customers between tariff classes, but not to the application of tariffs to different customers within a tariff class. It also said that its proposal on tariffs to the AER did not involve the transfer of customers between tariff classes, so cl 6.18.4 was not engaged at all. The applicable clause, it said, was cl 16.8.5. The second broad attack by SAPN asserted that the AER’s decisions in respect of the solar tariff were affected by the impermissible imposition of an onus to disprove the applicability of an aspect of cl 6.18.4 (ground 2), and were unreasonable, because the AER relied upon a purported statistical analysis that was not performed in accordance with proper statistical methods and principles. SAPN said that this was an approach that no reasonable decision-maker would have adopted (ground 3). The third line of attack by SAPN asserted that the AER’s decisions in respect of the social tariff were affected by an erroneous interpretation and/or application of cl 6.18.4 that ignored an important element of cl 16.18.5 (ground 4). The primary relief sought by SAPN was to have the AER’s decisions set aside on some convenient date in the future, following the publication of reasons. Following the publication of the Court’s reasons, SAPN was to seek an opportunity to be heard on when that date should be. The adoption of that suggested course was to allow the parties to have a substituted set of tariffs in place at the time the current tariffs cease to apply, and so would minimise disruption to SAPN, retailers, customers and the wider South Australian community. In the further alternative, SAPN sought a declaratory order under s 16(1)(c) of the ADJR Act as to the proper construction of cl 6.18.4 and cl 6.18.5 (for the purposes of future annual pricing proposals) and/or directions under s 16(1)(d) of the ADJR Act that the AER consider and determine SAPN’s future pricing proposals by reference to cl 6.18.5 rather than cl 6.18.4.

Evidence

Evidence Before The Court

Mr Bennett’s evidence was to explain in more detail how and why SAPN decided to introduce the solar tariff and the social tariff, including the data available to SAPN and its analysis of that date, and to expand upon the communications between SAPN and the AER in June 2015. He said that the Pricing Proposal was intended, by the social tariff, to ensure that allocative efficiency was achieved by charging users for access to the network by reference to the cost of providing the network to meet the demand for its usage. At times of peak demand, outside of daylight hours when the PV customers’ demands were being met by the network, it was necessary for the network capacity to be at its current level to meet their demands.The Evidence of Mr Tustin and Mr Thompson Mr Tustin’s evidence and reports were directed to showing that the creation of the solar tariff and its structure was a sensible one on the part of SAPN. He was critical of the decisions of the AER which did not accept that. It was given in a direct and impressive way. To the extent that particular consideration of his views is necessary, however, the position is that I do not consider, having regard to his evidence, that the attacks on the decision of the AER (putting aside the issues of construction and proper application of the Rules) are made out, notwithstanding his evidence. That is because, in my view, Mr Thompson’s evidence was both impressive and sensible. He explained why he, on behalf of the AER, reached the conclusion that the load profile of the PV customers was not the same as, or similar to, that of the non-PV customers. In particular, I considered his explanation that load factor is but one of the characteristics of load profile, and why the key question is how the peak load drives the cost of the network. I accept that the AER’s published reasons for rejecting the solar tariff do not really represent the reasons, as explained by Mr Thompson, for doing so. It was therefore necessary to consider whether it was in fact the reasoning of Mr Thompson which led the AER to its conclusion to reject the solar tariff, or alternatively to consider whether, in the light of Mr Thompson’s evidence, the Court in any event was satisfied that SAPN’s attack on the decision to attack the solar tariff on the ground of unreasonableness was made out. That conclusion is not to overlook Mr Tustin’s evidence. It was given in a confident and persuasive manner. But, in my view, given the assessment of Mr Thompson’s evidence which I made, I considered that to conclude that Mr Tustin is correct and that Mr Thompson is wrong, that is that I should prefer Mr Tustin’s evidence over that of Mr Thompson (as SAPN urged in its final submission), would in the particular circumstances amount to a “merits review” of the AER’s Primary Decision. The SAPN contention is that I should have taken that step, because s 5(1)(e) of the ADJR Act has been made out: “an improper exercise of power”, even though it may not be shown that the decision was unreasonable, as expressed in s 5(2)(g) of the ADJR Act. That is because, it is said, the ADJR Act is intended to provide “redress against unlawful or unfair or erroneous decision-making” with the overarching objective of improving and maintaining “standards of official fairness, rationality and compliance with the law”: Minister for Immigration and Ethnic Affairs v Taveli (1990) 23 FCR 162 at 178 per French J.

Decision

Reasons for decision

I have already concluded that the Pricing Proposal for a subgroup of social tariff customers was not available in the way the Pricing Proposal presented it. Whether the creation of a separate new tariff class of such a group could be established is a matter which I do not finally decide.CONCLUSION For those reasons, orders were made on 23 December 2015 in the terms referred to above. There are two additional observations to be made. First, obviously, these reasons for judgment relate to the particular Primary Decision of the AER under review, and its consequential decisions. They do not decide either as a matter of fact or as a matter of law that there is no scope for there to be a solar tariff or a social tariff put forward in some later pricing proposal by SAPN and for that to be considered by, and if appropriate accepted by, the AER. Secondly, it is clear, as Mr Bennett readily acknowledged, the primary cost elements for the provision of electricity to consumers (both commercial and consumer users) is ultimately determined by the AER under the process prescribed by the Rules, relevantly by reference to the pricing proposal of a DNSP. Retailers of electricity have limited capacity to adjust prices for the supply of electricity to consumers, although clearly the terms and conditions of supply are more flexible. The metering and reading of the meters is also a task performed by SAPN. In that context, particularly in relation to the prospect of a social tariff, but also more generally in relation to a solar tariff, the Rules broadly speaking impose a regulatory structure to give effect to economic efficiency in the provision of network services. There is no clear reason why SAPN, or any network service provider, should have the role or responsibility for the determination of policy which is intended to protect those in need within the wider community, or (as here) to identify and define the extent of that need. To a degree, but for different reasons, there are clearly policy considerations which have influenced pricing for PV customers in the past. The incentives provided for the installation of domestic solar power are an example. That is, for example, recognised by cl 6.18.2(6A). As I noted, without determining its correctness in this matter, SAPN identified a clear economically efficient rationale for its proposal to introduce the solar tariff. Assuming that it is valid (as it appears at a theoretical level to be), any broader policy considerations encouraging the installation of domestic solar power or how they could intersect with the need to maintain an efficient and effective electricity network for the provision of services to consumers would not be within the aegis of the AER in its regulatory role. The comments in this concluding section of the reasons are not, and could not be, to express any view about proper public policy. That is a matter for government. They are simply to point out that the criteria by which SAPN, and other DNSPs, and the AER, are required respectively to present and consider pricing proposals are essentially based on economic efficiency considerations, with the possible exception of cl 6.18.5(b)(ii). It is not clear whether it is intended that broader matters of public policy are in fact intended to be delegated to the DNSPs, and to the AER (to the extent that it may do so, if at all, where a pricing proposal otherwise satisfies the Rules).

Ratio Decidendi

Legal Principle Established

The Revised Pricing Proposal, as approved and published, is now in effect.CONSIDERATION: GROUND 1 As is apparent, there is a clear difference in the Rules between the creation of new “tariff classes” (as defined in Chapter 10 of the Rules):A class of retail customers for one or more direct control services who are subject to a particular tariff or particular tariffs.and the concept of “tariffs” as exist or as purported in the pre-existing “Low Voltage Residential Tariff class”. The term “tariff” is not itself defined. The contention of SAPN is that its creation of the solar tariff is a subclass of the previous Low Voltage Residential tariff class and is not the creation of a new tariff class. In my view, that is not correct. As a matter of construction, the creation of the PV customers or a “grouping of customers” (the description of SAPN) meant that it was creating (in terms of the Rules) a new tariff class. Its proposed tariff or price (or formula for the price) to be charged to each customer for the service to be provided to the PV customers was not compliant with the Rules. The legislative structure giving rise to the Rules, and in particular Chapter 6 of the Rules, was not said to be of any particular significance to the construction of the relevant Rules, save for a passing reference to cl 4 of Sch 2 to the Law. It provides, possibly relevantly, that headings to chapters and parts of the Law are part of the Law, but not headings to sections or subsections of the Law or notes to provisions. The real focus was on Chapter 6 of the Rules, entitled Economic Regulation of Distribution Services. It provides for the AER to make a distribution determination for each DNSP: cl 6.2.4, including to impose controls over the prices for direct control services by a control mechanism which may have a number of elements: cl 6.2.5. Part I of Chapter 6 was the part of the Rules most directly relevant to the present issues. It applies to tariffs and to tariff classes related to direct control services. As noted, it requires the submission of a pricing proposal which sets out the proposed tariff classes, and the proposed tariff for each tariff class: cl 6.18.2(b)(1) and (2) of the Rules. Clause 6.18.3 requires the pricing proposal to define the tariff classes into which retail customers are divided. Clause 6.18.3(d) provides that a tariff class must be constituted with regard to:(1)the need to group retail customers together on an economically efficient basis; and(2)the need to avoid unnecessary transaction costs. Clauses 6.18.4 and 6.18.5 are set out above. Clause 6.18.4 directs the AER, in formulating the provisions of a distribution decision governing the assignment of retail customers to tariff classes or the re-assignment of retail customers from one tariff class to another to have regard to specified principles. By reference to those principles, focus is given to the nature and extent of usage, the nature of the connection to the network, the nature of the metering (if required by a regulatory obligation or requirement) and the similarity or otherwise of a retail customer’s connection and usage profile: cl 6.18.4(a)(1) and (2) of the Rules.