Murraylink Transmission Company Pty Ltd v National Electricity Market Management Company Ltd
[2003] VSC 265
•24 July 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 8359 of 2002
| MURRAYLINK TRANSMISSION COMPANY PTY LTD | Appellant |
| v | |
| NATIONAL ELECTRICITY MARKET MANAGEMENT COMPANY LIMITED and ors | Respondents |
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JUDGE: | NETTLE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23, 24, 25 and 26 June 2003 | |
DATE OF JUDGMENT: | 24 July 2003 | |
CASE MAY BE CITED AS: | MurrayLink Transmission Company Pty Ltd v NEMMCO | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 265 | |
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Electricity – National Electricity Law – Appeal from determination of the National Electricity Tribunal – National Electricity Code, clauses 5.6.5 and 5.6.6.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Ms S.M. Crennan QC with Mr S.R. Horgan | Freehills |
| For the first Respondent For the second Respondent For the third Respondent For the fourth Respondent | Mr A.C. Archibald QC Mr S. Gageler SC Dr C.J. Birch SC Mr C.J Kourakis QC, | Mallesons Stephen Jaques Clayton Utz Lawyers I.V. Knight Crown Solicitor SA |
HIS HONOUR:
Introduction
On 6 December 2001, the first respondent National Electricity Market Management Company Ltd (NEMMCO) made a determination pursuant to clause 5.6.6(c) of the National Electricity Code[1] that an interconnector proposed by the second respondent (TransGrid) and known as the SNI option (SNI) was justified. On 21 December 2001, the appellant applied to the National Electricity Tribunal[2] for review of the determination. On 31 October 2002, the Tribunal decided by majority to dismiss the application for review. This is an appeal on a question of law[3] from that decision, pursuant to s.46 of the Law. The questions of law the subject of appeal are identified in the grounds of appeal which are set out below.
[1]The National Electricity Law (The Law) is a uniform code establishing and regulating a national electricity market within Australia. It was enacted as a Schedule to the National Electricity (South Australia)Act 1997 and has been adopted as law by application Acts passed in Victoria, New south Wales, the ACT and Queensland: in Victoria, see the National Electricity (Victoria) Act 1997. S.6 of the Law provides that Ministers of the participating jurisdictions may approve a code of conduct for participants in the National Electricity Code (“the Code”). The electricity market is managed by the first respondent, National Electricity Market Management Company Ltd (“NEMMCO”). For present purposes, I am concerned with Version 1 of the Code.
[2]The Tribunal was established by s. 9 of the South Australian Act.
[3]Transport Accident Commission v Hoffman [1989] VR 197 at p.199; Mond v Lipshut [1999] 2 VR 342 at p.350.
Ground 1
The appellant’s first ground of appeal is that “the Tribunal erred in law in holding or proceeding on the basis that it was not necessary to apply general principles of cost-benefit analysis in the application of the Regulatory Test pursuant to clause 5.6.5(k)(2) of the Code, subject to the express requirements of the Regulatory Test”.
At relevant times Clause 5.6.6(c) of the Code provided that:
“The Connection Applicant may request NEMMCO and the Inter-Regional Planning Committee to review the economic and technical effects of the proposed interconnector in accordance with clause 5.6.5 to determine whether the proposed interconnector satisfies the regulatory test based on a premise that all transmission systems are to be planned and operated as if they form a single transmission system.”
“Regulatory test” was defined in the Glossary in the Code to mean:
“The test promulgated by ACCC in accordance with clause 5.6.5(q) for the purposes of clause 5.6.5 and 5.6.6.”
The majority of the Tribunal considered that:
“We accept the submission of NEMMCO that the regulatory test as followed by the IRPC provides a clear and objective basis for the calculation of maximum net present value, and the paramount task of the IRPC and NEMMCO (and this Tribunal on review) is to apply the cost benefit analysis conformably with the particular criteria specified in the regulatory test by the ACCC rather than by reference to cost benefit principles at large.”
Professor McDonnell, who dissented, was of the view that:
“…it could scarcely be clearer that what the paper ‘Regulatory Test for New Interconnectors and Network Augmentation‘ provides is an instruction for a formal traditional cost benefit analysis within a partial equilibrium setting, with the specified, and only the specified, delimitations to be used for the particular application, and the applicability of the usual dimensions of a CBA taken for granted. As I shall show, the NEMMCO interpretation before the Tribunal is either systematically, or likely to, lead to results quite perverse to the ACCC’s objectives.”
The appellant embraces Professor McDonnell’s analysis and says that the failure of the Tribunal to apply the regulatory test as Professor McDonnell said that it should have been applied has resulted in an improper failure to consider taxes and transfers; shadow prices; and optimisation of project characteristics, especially in relation to scale and timing; and risk and uncertainty.
In my opinion this is not a question of law. It is a question of fact[4]. There is no dispute that the test to be applied is the test promulgated by the ACCC. There is also no dispute that the test modifies what Professor McDonnell terms “the usual dimensions of a CBA”. The debate is about the way to go about a cost benefit analysis of that kind. Say that quickly and it may sound as though it involves a question of construction of the Code, or at least the construction of the test imported by the Code. But it does not. The difference between the majority and Professor McDonnell is about no more than the application of economic criteria to the facts of the matter.
[4]Collector of Customs v Agfa-Gavaert (1996) 186 CLR 386 at p.394; Vetter v Lake Macquarie CC (2001) 202 CLR 439 at pp.450-452
Much was said in argument as to whether the regulatory test is a code. By that was meant, in part, whether it provides comprehensively for all sorts of situations. Plainly it does. It was also suggested that it is so comprehensive that one is never to look beyond its terms when testing a proposal. Just as plainly, it is not. The express terms of the test leave much to general principle.
In the report which accompanies the Regulatory Test, it is explained that:
“…the Commission has based the Regulatory test on the traditional cost-benefit analysis framework but with a number of clarifications to limit any adverse impact that regulated network investments might have on the competitive process in the contestable parts of the index.”
And that it is:
“…largely consistent with the standard principles used in economic cost benefit studies.”
The test begins with the statement:
“A new inteconnector or an augmentation option satisfies this test if it maximises the net present value of the market benefit having regard to a number of alternative project, timings and market development scenarios.”
That is followed by four pages of detailed instructions as to how the test is to be applied, in all manner of circumstances, and the provisions are comprehensive.
But the test does not define every concept with precision and it thereby leaves a large amount to general principles of cost benefit analysis. It is indeed littered with the need for judgments based upon those principles. The direction that “only costs and benefits (associated with a partial equilibrium analysis) should be included and any additional costs (associated with partial equilibrium analysis) should be excluded from the assessment” assumes a knowledge of economics and econometrics upon which no guidance is given in the verbiage of the text. Similarly, the direction that “the analysis should include modelling alternative development scenarios, incorporating varying levels of demand growth at relevant load centres (reflecting demand side options), alternative project commissioning dates and various potential generator investments and realistic operating regimes” assumes an understanding of economics and engineering which are left at large. Further, as Professor McDonnell observed in his reasons for decision, “many of the concepts scattered throughout the test such as ‘market benefits’, ‘net benefits’, ‘development scenarios’, ‘sensitivity analysis’ and ‘efficient operating costs’….are all terms permitting of optional renderings”. And examples can be multiplied. In those circumstances it is really not apposite and it is likely to lead to error to speak in terms of a code.
Contrary, however, to the appellant’s contention, the majority did not wrongly exclude considerations of relevant general economic principle. What they said was that the “cost benefit analysis is to be applied conformably with the particular criteria specified in the regulatory test, rather than by reference to cost benefit principles at large”. In principle there is no difference between that and, as Professor McDonnell would have it, a “formal traditional cost benefit analysis within a partial equilibrium setting, with the specified, and only the specified, delimitations to be used for the particular application, and the applicability of the usual dimensions of a CBA taken for granted”. Semantics aside, the two are the same.
The difference is in the detail. The majority accepted the results of NEMMCO’s “cost benefit analysis…applied conformably with the particular criteria specified in the regulatory test, rather than by reference to cost benefit principles at large”, and Professor McDonnell rejected it. He considered that NEMMCO had made errors in the application of the cost benefit analysis, because among other things his view was that:
· …”they had not clearly explained or quantified the application of their concept of ‘substitutes’ to ‘the specific alternatives chosen’ “and thus the whole framework of the analysis as applied commenced from a vague distinction”;
· …”its discussion of taxes and transfers at 3.2 and 3.3 is confused and contradictory…”;
· “NEMMCO is unclear as to how taxes and transfers should be dealt with in a CBA, in particular omitting the role that willingness to pay and opportunity cost dictate in what transfers will or will not be included…wealth transfers are not included, while 3.3 says taxes are. Overall, NEMMCO’s response provides no justification for excluding a correct treatment of taxes and transfer from the CBA of the Regulatory Test.”;
· “The discussion in 4 of shadow prices is also flawed, and shows an inadequate understanding of what shadow prices are, and in particular their role in the CBA of the Regulatory Test.”;
· “Apart from failing to perform this process of optimiztion, NEMMCO also makes it very clear that it took no steps to use any normalizing procedures on the alternatives of different scale, to make the calculations comparable. Failure to make such adjustments for comparability will… systematically favour large projects, and so promote ‘gold plating.”;
· “…another weakness relating to the specification of the alternatives. It could be the case that the projects are economically and operationally interdependent. If so the appropriate disaggregating analyses should have been done.”
· Because of its restricted assessment of risk and uncertainty, no heed was taken by NEMMCO of the significance and quanta of less certain, late-occurring benefits in relation to less uncertain, early-occurring benefits, a very damaging omission.”
These are differences of fact. The judgments which are called for are judgements of fact. The results of their application are questions of fact. And there is no error of law in taking one view of the facts as opposed to another, so long as there was evidence to support the view which was taken[5].
[5]Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at p.357; S v Crimes Compensation Tribunal [1998]1VR 83 at pp.88-9 and 91
The question was whether the cost benefit analysis had been carried out in accordance with generally accepted standards of cost benefit analysis as conditioned by the regulatory test. There was expert evidence before the Tribunal adequate to support a number of competing views as to whether or not it had been. On the basis of that evidence Professor McDonnell took one view and the majority took another. The majority were entitled to do so.
Ground 2
The appellant’s second ground of appeal is that the majority erred as a matter of law in its application of clause 5.6.5(k) of the Code. The contention is that clauses 5.6.5(k)(1) and 5.6.5(k)(2) give rise to two separate and distinct tests: a consideration of “practicable alternatives” and a consideration of “alternative projects”, and that the majority erred in conflating the two tests or by ignoring the first altogether. More specifically, the appellant argues that the “practicable alternatives” to which one has regard for the purposes of clause 5.6.5(k)(1) are different to the “alternative projects” to which one has regard for the purposes of the regulatory test in clause 5.6.5(k)(2) and that the majority erred in law by treating the two as if they were the same.
In the appellant’s contention:
“…the Tribunal was obliged to consider MurrayLink[6] in operation with the augmentation known as unbundled SNI as a ‘practicable alternative’ and to consider this as a separate and distinct investigation from the application of the Regulatory Test.”
and if the Tribunal had done so they would have recognised that MurrayLink was capable of being a practicable alternative (even though it is already in existence or at least committed). In the appellant’s contention, the Tribunal applied to clause 5.6.5(k)(1) the regulatory test criteria which are applicable to clause 5.6.5(k)(2) and thereby wrongly excluded MurrayLink from the range of practicable alternatives (on the ground that it was already in existence or committed).
[6]MurrayLink is a connector between Victoria and South Australia which is owned by the appellant.
As the contention was first put it was that if it were possible to identify a practicable alternative to a proposal under clause 5.6.5(k)(1) the process of justification stopped at that point and the proposal was bound to fail. Later it was said that even if a practicable alternative were identified under clause 5.6.5(k)(1) it was still incumbent upon NEMMCO to go on and consider the regulatory test under clause 5.6.5(k)(2). Asked then, however, what would happen in a case where it was possible to identify a practicable alternative under clause 5.6.5(k)(1), but the proposal beat all alternatives under clause 5.6.5(k)(2), counsel for the appellant submitted that the proposal would still fail; it was enough that a practicable alternative be identified in order to defeat it. Asked then what would be the point in going to the second test if the proposal had already failed at the first, no answer was forthcoming.
In my view the argument is untenable. The majority were correct to treat “practicable alternatives” as synonymous with the alternative projects to be considered under clause 5.6.5(k)(2). Axiomatically, the purpose of identifying practicable alternatives under clause 5.6.5(k)(1) is so that they may be assessed against the proposed interconnector or augmentation in accordance with the regulatory test under 5.6.5(k)(2). The raison d’etre of clauses 5.6.5 and 5.6.6 is to assess possible alternatives by reference to the market test. That is apparent from the history of the provisions and it is evident in their text. As NEMMCO submitted, correctly, clause 5.6.6(c) requires an interconnector application to be reviewed in accordance with the processes in clause 5.6.5 NEMMCO’s requirement to make a determination under clause 5.6.5(j) follows a detailed process undertaken by the IRPC with respect to annual planning reviews of the NEM transmission system and the assessment of augmentations under the regulatory test. Augmentation options are identified in clause 5.6.5(e) and clause 5.6.5(f) requires the IRPC[7] to consult on the assessment of those options. Clause 5.6.5(g) requires the IRPC to assess those options under the regulatory test and then, as a last step under clause 5.6.5(h), the IRPC must report on the methodology used for its assessment and any alternatives to augmentation considered by the IRPC and it must make recommendations to NEMMCO on its assessment of the costs and benefits of augmentation options and any practicable alternatives to augmentation. The process is incremental and cumulative.
[7]Inter-regional Planning Committee established by NEMMCO under clause 5.6.3 of the Code.
NEMMCO’s role under clause 5.6.5(k) is to take the IRPC’s report and recommendations and determine whether the project in question is justified. If NEMMCO believes that not all practicable alternatives have been considered, it may require the IRPC to undertake further analysis or it may commission independent analysis under cluse 5.6.5(l). If a proposal beats the practicable alternatives on the regulatory test it will be justified. And if does not, it will not. There is no via media. It follows that there is no point in identifying something as a practicable alternative unless it is capable of constituting an alternative for the purposes of the regulatory test.
Ground 3
The appellant’s third ground of appeal is that the Tribunal erred in law by failing to consider USNI as:
(a)“a practicable alternative” to the SNI proposal within the meaning of clause 5.6.5(k)(l) of the Code; and
(b)an “alternative project” in accordance with the Regulatory Test and clause 5.6.5(k)(2).
Despite the apparent similarity with Ground 2, the point here is different.
(a) Practicable alternative
The appellant contends that the Tribunal was bound in law to make an objective assessment of whether unbundled SNI[8] (USNI) was a practicable alternative and that it erred in law by deciding the question on the subjective basis that TransGrid refused to be a proponent of USNI. I think that the appellant is right.
[8]USNI was all of the augmentations comprising SNI except the Burronga to Roberts Town connector
The majority began its consideration of practicable alternatives by taking as the criteria of a practicable alternative that it had to be relevantly substitutable (in the sense that it produced similar results to SNI); that it had to be technically feasible; and that it had to be commercially feasible. So much appears to have been agreed by all parties and there is no suggestion now that there was error in approaching the matter in that way.
The majority next accepted that SNI and USNI were relevantly substitutable (in the sense that they were to be taken as producing similar results), and that too seems not to have been contentious. As the majority put it:
“It seemed to be assumed that because both SNI and USNI would operate to transfer power from New South Wales to be available to South Australia USNI is a substitute for SNI, notwithstanding that SNI would provide direct power delivery from New South Wales to South Australia whereas USNI would make power available to Victoria for later dispatch to South Australia. It was not submitted, for example, that because USNI would make power available to South Australia only when MurrayLink and Heywood[9] were unconstrained, and not when they were constrained, it was not a substitute for SNI which would cause power to be directly transmitted from New South Wales to South Australia. The parties assumed USNI was relevantly a substitute for SNI and the Tribunal has approached the matter on that basis.”
[9]Heywood is another connector between Victoria and South Australia. It is not owned by the appellant or TransGrid.
The third step in the majority’s reasoning appears also to have been uncontroversial. The majority considered that the existence of a proponent was not a prerequisite for a project to be considered a practicable alternative, because:
“Conformably with the views of the economists (Mr Houston and Professor Kahn) we accept the view that the existence of a proponent for an alternative project is not a necessary pre-requisite for that project to be considered…NEMMCO does not dispute this proposition and asserts that in so far as its determination was read as the need for an alternative to have a proponent the fault lay in the interpretation placed upon its words.”
Interwoven with that step, however, was a still further question, of the significance to be attributed to TransGrid’s refusal to be a proponent of USNI, and there is no doubt that was controversial. The controversy is to be seen in the majority’s observation in the middle of the passage set out in the preceding paragraph:
“Existence of a proponent is, as TransGrid submits, fairly good evidence of commercial feasibility and conversely the non-existence of a proponent is some evidence of lack of commercial feasibility…
and in the observation, made a little later, that:
“As we have said, in its final submission MurrayLink accepted that commercial feasibility is a criterion, but contended that TransGrid’s refusal to be a proponent for USNI is unjustified and should be ignored.”
Furthermore, the controversy was not just about the evidential significance to be attributed to TransGrid’s refusal to be a proponent of USNI (although that was part of it). The dispute was also about the question of whether practicability (scil., here, commercial feasibility) was to be decided by reference to conceptions of commercial feasibility exogenous to the economic criteria prescribed by the regulatory test, or only by reference to criteria which derived from the regulatory test. That may be seen in the earlier passage from the reasons of the majority directed to the appellant’s final submission:
“Mr Thomas took the view that a project ought to be assumed to be commercially feasible if no more is known about it than that it would yield the greatest economic benefit. His assumption being, apparently, that because a market participant stands to gain that participant will have the incentive to cause the project to occur and that NEMMCO has the obligation to bring about the necessary co-operation. We have not approached the matter on the view advanced by Mr Thomas..” (Emphasis added).
The nature of the dispute becomes clearer again once it is understood that the critical passage of Mr Thomas’ evidence to which the majority’s observations were directed was expressed as follows:
“…the act of determining that an interconnection proposal satisfies the regulatory test favourably alters conventional perceptions of the project’s practicability. Projects that would be utterly impractical without regulatory protection, perhaps because of overwhelming transaction costs, can become practical if they are deemed fit to be regulated. What matters is how large the net market benefit is likely to be, as the magnitude of the net market benefit determines the value/merit of overcoming any of the (typically fewer) remaining obstacles to implementation.
Practicability is an economic concept that, when applied to regulated investments, can be substantially achieved by a finding that a project – that can otherwise be legally implemented – passes the regulatory test. It is crucial to recognise the existence of inherent and unavoidable circularity with respect to the overall evaluation process. Practicability is not strictly an exogenous factor to be assessed by NEMCO or the IRPC – it is a characteristic that is substantially conferred by a favourable determination.” (Emphasis added).
As noted when dealing with the appellant’s second ground of appeal, the question of whether clause 5.6.5(k)(1) imports a test different to the regulatory test under clause 5.6.5(k)(2) permits of only one answer. The consideration of “practicable alternative(s)” does not involve a process of selection which is discrete and independent of the assessment of alternative scenarios in accordance with the regulatory test under clause 5.6.5(k)(2) - it is simply part of a single process of determining whether a project is justified according to the regulatory test - and the necessary consequence of that is that, for the purposes of clause 5.6.5(k)(1), the concept of practicability is substantially informed by the regulatory test.
The passage of Mr Thomas’ evidence which is set out above represents an accurate explanation of that principle and hence of the operation of clause 5.6.5 (k)(1). But the majority rejected that approach in favour of an assessment of commercial feasibility which was based upon the subjective preferences and motivation of TransGrid. I consider that the majority were in error to do so. Their error was an error of law.
The identification of the error may also be approached in another way, which may make it clearer. Having identified that practicability was to be equated to commercial feasibility, the majority’s process of reasoning proceeded by the following steps:
· First, an observation that “the existence of a proponent for an alternative project is not a necessary pre-requisite for that project to be considered (a practical alternative)” but it is “fairly good evidence of commercial feasibility and conversely the non-existence of a proponent is some evidence of lack of commercial feasibility[10]”
[10]Reasons of the majority at p. 49.3; AB 9963
· Secondly, a finding that TransGrid was “the only entity legally entitled to build USNI”[11];
[11]Reasons of the majority at p. 50.3; AB 9964
· Thirdly, a finding that TransGrid was not willing to undertake the construction of USNI[12];
[12]ibid
· Fourthly, an observation that the reason given by TransGrid for not undertaking USNI was that USNI would lead to a risk of asset stranding[13];
[13]ibid
· Fifthly, a finding that “TransGrid’s apprehension of the risk of stranding (was) real and not unreasonable”, and not “a sham or construct raised for no other purpose than manipulating the asset process”[14];
[14]Reasons of the majority at p. 53. 3; AB 9967
· Sixthly, a proposition that “once the risk of stranding (was) recognised as reasonably open to TransGrid to hold, it (was) a matter for TransGrid to determine whether it was prepared to expose itself to that risk” and its refusal to do so was “not unreasonable”[15];
[15]ibid
· Seventhly, an observation or finding that “TransGrid (had) also claimed that…it (was) reluctant to invest in works that (were) dependent on one customer and “whether or not the concerns (about that were) as significant as (TransGrid) would maintain”, the majority did not “accept the view that TransGrid (had) simply made up that ground as an excuse for not undertaking USNI”[16] ;
[16]Reasons of the majority at p. 53.5; AB 9967
· Eighthly, a finding that “NEMCO… (had) no power to compel TransGrid to build USNI”[17];
[17]Reasons of the majority at p. 54.8; AB 9968
· Ninthly, an observation or finding that the appellant had offered to construct USNI within the TransGrid network but, because “TransGrid (could) not be compelled to allow the appellant to construct USNI within its own network”, the appellant’s offer was nothing to the point[18]; and
· Finally, the conclusion that “for all the reasons discussed… USNI (was) not relevantly an alternative project for the purpose of the regulatory test”[19].
[18]Reasons of the majority at pp. 55 – 6; AB 9969-70
[19]Reasons of the majority at pp.56.5; AB 9970
The error is apparent in that reasoning. The problem with the reasoning is that it starts out as an inquiry into whether USNI was commercially feasible and finishes up with the syllogism that, because TransGrid cannot be compelled to construct or to permit construction of USNI, and because the reason for its refusal to construct is real and not unreasonable, USNI is not a practicable alternative. Put another way, having identified that the issue of practicable alternative was to be determined according to a test of commercial feasibility, and that the existence or absence of a proponent may be some evidence of commercial feasibility or the lack of it, the majority then proceeded to determine the issue of practicable alternative on the basis of whether TransGrid had a real and not unreasonable reason for refusing to build USNI.
Perhaps it may be said that it is implicit in their conclusion that the majority were satisfied by reason of the factors which they identified that USNI was not commercially feasible. But given the premise upon which their reasoning was based, that could not be unless the majority considered that:
(a)the reasonableness of TransGrid’s fear of the risk of stranding, together with the fact that TransGrid could not be compelled to allow the appellant to construct USNI, meant that there was no proponent for USNI; and
(b)the lack of a proponent, in that sense, was not just some evidence that USNI was not commercially feasible, but sufficient evidence to conclude that USNI was not commercially feasible.
One then faces the problem of why TransGrid’s refusal to build and to let the appellant build USNI should be equated to the absence of a proponent. That could not be so unless the range of proponents were confined to those who have a legally enforceable entitlement to construct the USNI assets. But given that the question is to be decided by reference to the economic criteria prescribed by the regulatory test, the range must include those entities who would be willing to construct USNI if given the chance to do so.
The consideration of “practicable alternative” is simply part of a single process of determining whether a project is justified according to the regulatory test. The concept of practicability is therefore substantially informed by the regulatory test. The exercise is always one of justifying a proposed augmentation or interconnector against alternatives on the basis of the cost benefit analysis which the regulatory test prescribes. In those circumstance it is inevitable that there will be occasions when the proponent of an augmentation or interconnector is for good reason unwilling to construct an alternative (which only that entity has the legally enforceable right to construct), and yet the alternative should be regarded as a practicable alternative.
To take but one example: assume a proposed augmentation comprised of a 275 MW upgrade of a transmission line. Let it be supposed that similar results can be achieved with a technically feasible 150 MW upgrade, which costs considerably less, and some demand-side alterations. Let it further be supposed that the proponent of the 275 MW upgrade is the only entity with a legally enforceable entitlement to construct the alternative 150 MW upgrade, and yet, for reasons based in commercial conservatism and philosophical disposition (which reasons are real and not unreasonable), that entity is unwilling to construct the 150 MW upgrade. Assume then that despite that entity’s reservations it is shown by the cost benefit analysis which is prescribed by the regulatory test that net present value of the market benefit of the 150 MW upgrade coupled with the demand side alterations far exceeds the net present value of the market benefit of the 275 MW proposal. In those circumstances it cannot be right that the 150 MW alternative is not to be regarded as a practicable alternative. The purpose of the regulatory test is to assess alternatives on the basis of the economic criteria prescribed by the test, and not on the basis of subjective preferences.
In my opinion there was error in the process of reasoning employed by the majority. The question was whether USNI was a practicable alternative and, assuming technical feasibility, that should have been decided objectively by reference to economic criteria derived from the regulatory test. The test was whether an objective operator, if acting rationally according to the economic criteria prescribed by the regulatory test, would be prepared to construct USNI if SNI were not approved. The error in the majority’s process of reasoning was to substitute for that test an assessment of the subjective predilections and motivations of TransGrid.
That is not to deny the possibility of drawing permissible inferences from the reality and reasonableness of TransGrid’s reticence. Conceivably, one possibility is that any objective operator acting rationally according to the regulatory test criteria would, like TransGrid, be unwilling to construct USNI if SNI were not approved. But while the finding of reality and reasonableness of TransGrid’s reticence may suggest that possibility, it does not compel it; and it may not even support it if the assessment of reasonableness were based upon considerations at odds with the regulatory test conception of practicability. It is one thing to say that TransGrid had a real and not unreasonable fear of the risk of stranding, and it is quite another to conclude that an objective operator acting rationally according to the regulatory test criteria would not be prepared to wear the risk. An inference that such an objective operator would not be prepared to wear the risk could not be drawn without first considering all of the competing evidence as to the likelihood of objective behaviour and forming a view as to why the inference should be preferred. The majority did not do that.
There was a body of expert evidence before the Tribunal as to the likely effect of the usage of MurrayLink on the usage of USNI and as to the likely financial effects for TransGrid if the risk of under-usage were realised. And the majority paid regard to the first part of that evidence, concerning the probability and extent of under-usage of USNI. The majority recorded their assessment of that material in the following terms:
“Professor Kahn, Mr Houston and Professor Bishop thought it reasonable for TransGrid to regard its risk as substantial. Professor King, Professor Littlechild and Mr Ergas considered it has not been demonstrated that the degree of risk would be other than trivial.
Relevant to the degree of risk is whether USNI is dependent on MurrayLink, and the extent to which MurrayLink has sufficient market power and/or the incentive to manipulate the flow of current to the detriment of TransGrid…
The differences of opinion between economists turn, in effect, on their assessment of the degree of risk of stranding, and thus, upon the extent to which they therein it realistic that MurrayLink, as an unregulated interconnector and in competition with generators, would have the ability and the commercial incentive to reduce the amount of power flowing from Victoria in order to achieve higher prices in SA…
We accept Mr Campbell’s analysis…
Taking into account the differing views of the economists and others concerning the degree of risk we have come to the conclusion on the evidence that the implementation of USNI would lead to a real risk of stranding or, at the very least, TransGrid’s apprehension of the risk of stranding is real and not unreasonable.”
But that is as far as it went. The majority did not say anything about the likely financial effects on TransGrid if the feared risk of stranding eventuated. Consequently, so far as can be told from the reasons for decision, the majority did not consider the question of whether an objective operator acting rationally according to the economic criteria prescribed by the regulatory test would be so much deterred by the risk of such financial effects as to decline to construct USNI if approval to construct SNI were withheld.
The majority did say that they accepted Mr Campbell’s analysis. But upon examination that analysis shows no more than that:
(a)If it were assumed that MurrayLink were 75% contracted, the stranding risk would be a risk of a 1 MW or 1% reduction in flows along USNI assets for 7% of the times that MurrayLink had positive flows. Since, however, USNI assets were planned to be in operation for only 2.5% of the time that MurrayLink were bidding to reduce flow, the risk of reduction in flow along USNI assets as a result of restrictions in flow along MurrayLink would be of the order of 1% of 7% of 2.5% or, in other words, 0.00175% of USNI total flow; and
(b)If it were assumed that MurrayLink were not contracted, the stranding risk would be a risk of an average 15% to 16% reduction in flows along USNI assets for 64% of the times that MurrayLink had positive flows, and since USNI assets were planned to be in operation for only 13% of the time that MurrayLink were bidding to reduce flow when uncontracted, the risk of reduction in flow along USNI assets as a result of restriction in flow along MurrayLink would be of the order of 16% of 64% of 13% or, in other words, 0.013312% of USNI total flow.
Obviously, the mere acceptance of that analysis could not be determinative. Indeed it could not even resolve the difference in opinion as between Professor Kahn, Mr Houston and Professor Bishop, and Professor King, Professor Littlechild and Mr Ergas. If competing views are based upon a common statistical analysis, as they were, it is self evident that it requires more than mere acceptance of the statistical analysis to resolve the competition. It requires an analysis of why a risk of that order of magnitude which was calculated in the statistical analysis should be regarded as economically significant in the context of concern.
My own uninformed view is that it is difficult to imagine that a restriction of 0.013312%, or even a figure of 100 times that amount, could ever be regarded as more than negligible; although, of course, that is not my decision to make. And it is not the point. The decision is one for the Tribunal to make. And the point is whether a risk of restriction of that order of magnitude would so much deter an objective operator, acting rationally according to the economic criteria prescribed by the regulatory test, as to refuse to construct USNI if SNI were not approved. The majority’s failure to make that decision was an error of law.
(b) Alternative project
The appellant’s point about “alternative project” is closely aligned with its complaint about the majority’s treatment of the question of whether USNI was a practicable alternative. The appellant submits that the majority held that USNI “was not relevantly an alternative project for the purpose of the regulatory test“, on the basis of two considerations, namely:
(a)that it was not unreasonable for TransGrid to refuse to be a proponent of USNI; and
(b)that TransGrid could not be compelled to construct USNI or allow to permit MurrayLink to construct USNI.
The appellant contends that the majority were in error to do so.
So far as the first consideration is concerned, the appellant says that even if the reasonableness of TransGrid’s refusal were a relevant consideration, the finding that the refusal was reasonable had no basis in fact upon the evidence before the Tribunal. It follows, it is contended, that the Tribunal’s conclusion was not open on the material before the Tribunal, and thus there was error of law. This appears to me to pre-empt the fourth ground of appeal and therefore I shall deal with it when I come to that ground.
The complaint about the second consideration is that it was irrelevant, inasmuch as if a project is a superior alternative on a cost-benefit analysis (as a matter of economics), the project is likely to be undertaken. Thus, it is said, there was error by reason of taking into account an extraneous factor. That argument does not appear to me to add anything to the appellant’s earlier contention concerning “practicable alternative” and therefore I say no more about it.
Ground 4
The appellant’s fourth ground of appeal has been put in a number of ways. It is said that the Tribunal erred in law in proceeding on the basis that TransGrid had a real and not unreasonable fear of the risk of stranding. The contention is that there was no evidence upon which the Tribunal could have reached the decision that TransGrid had a real and not unreasonable fear of the risk of stranding, and indeed that there was contrary evidence from Dr Parker (who was called by TransGrid and who, it is contended, was the only witness with the knowledge and qualifications to speak to the relevant facts). It is also said that the Tribunal erred in law in proceeding on the basis that SNI satisfied the regulatory test under clause 5.6.5(k)(2). It is contended that it was not open on the facts so to find: first, because there was no evidence to support a finding that USNI was not an “alternative project”; and secondly, because the only primary evidence “was that of Dr Parker that unbundled SNI would not support the capability of the MurrayLink interconnector and in those circumstances, if SNI were not justified (TransGrid) would be likely to be a proponent of unbundled SNI”. It is also said that the Tribunal erred in law in holding that there was risk of stranding, given that “(TransGrid’s) own evidence was that unbundled SNI was not dependent upon the flows of electricity over the MurrayLink interconnector.”
These contentions conduce to two propositions. The first is that there was error of law in the majority’s failure to deal with probative evidence and otherwise to make clear in their reasons for decision the basis of their finding that there was a significant risk of stranding. The second is that is was not open on the evidence before the Tribunal for the Tribunal to find that TransGrid had a real and not unreasonable fear of the risk of stranding.
Enough has perhaps been said when dealing with the appellant’s third ground of appeal to show that in the way in which the hearing was conducted before the Tribunal a great part of the contest centred on the question of whether the risk of stranding was anything more than negligible. As a result, the majority seem to have lost sight or, perhaps more accurately, were led to lose sight of the real question: was the risk (whatever its proportions) sufficient to deter an objective operator, acting rationally according to the economic criteria of the regulatory test, from constructing USNI if SNI were not approved.
There is also a related problem in the way in which the majority approached the matter, and that is that they appear to have treated the risk that MurrayLink would restrict flows as if it were synonymous with the risk of stranding (as opposed merely to being causative of it). As the majority put it[20]:
“TransGrid’s reason for not undertaking USNI is that it would lead to a risk of “asset stranding’. It has declined to be a proponent. Its stated fear is that MurrayLink as an unregulated interconnector undertaking its activities by way of arbitrage, might so conduct itself that TansGrid’s investment in USNI could become stranded….
Relevant to the degree of risk is whether USNI is dependent on MurrayLink, and the extent to which MurrayLink has sufficient market power and/or the incentive to manipulate the flow of current to the detriment of TransGrid…
The differences of opinion between economists turn, in effect, on their assessment of the degree of risk of stranding, and thus, upon the extent to which they think it realistic that MurrayLink, as an unregulated interconnector and in competition with generators, would have the ability and the commercial incentive to reduce the amount of power flowing from Victoria in order to achieve higher prices in SA. Relevant to this question, of course, is the degree of MurrayLink’s market power. All economists seem to agree that MurrayLink has some degree of market power. The question is whether it should be characterised as trivial or substantial. It is TransGrid’s contention that the marginal costs of generating power in SA will, in the foreseeable future, always be more expensive than in New South Wales and Victoria and that during certain periods the Heywood interconnector is constrained.
MurrayLink would have the ability to reduce the amount of power it would allow to flow from Victoria to South Australia and it would, in our opinion, have the commercial incentive to do that at least in peak periods. The marginal cost of generating power in South Australia is significantly greater than MurrayLink’s marginal costs, which are the cost of electricity in Victoria and the cost of transmitting it to South Australia. And this state of affairs is likely to continue for some time in the future, on the information before us…
We accept Mr Campbell’s analysis. It is true that MurrayLink has asserted it would have no interest in restricting flow because it hopes to supply 75% of electricity to South Australia pursuant to contracts. We note that at the present time there are no contracts…
Taking into account the differing views of the economists and others concerning the degree of risk we have come to the conclusion on the evidence that the implementation of USNI would lead to a real risk of stranding or at the very least, TransGrid’s apprehension of the risk of stranding is real and not unreasonable…”
[20]Reasons of the majority at pp. 49 to 53; AB 9963 to 9967
The problem with that reasoning is that so far as one can tell it leaves out of account Mr Campbell’s statistical analysis (which the majority earlier made a point of saying that they accepted) that although there would indeed be a risk of MurrayLink reducing flows by significant percentages, the consequential percentage reduction in flows along USNI assets would be vastly less. It will be remembered that, according to his analysis, the percentage reduction in flows along USNI assets in the worst case scenario (scil. MurrayLink completely uncontracted) would be only 16% of 64% of 13% or, in other words, only 0.013312% of USNI total flows.
The respondents argue that the Tribunal were perfectly entitled to take the view of the matter which they did take, because whatever the quantum of the risk expressed as a percentage, the Tribunal had before them statements of a number of highly qualified expert witnesses[21] to the effect that there was an incentive and ability on the part of MurrayLink to limit power flow over its interconnector and that the risk was sufficient reason to give TransGrid serious concern about the risk of stranding. Among those witnesses:
[21]Tendered on behalf of TransGrid and the New Sough Wales Minister for Energy respectively
· Dr William Dutton Bishop (a highly qualified expert in economic and regulatory analysis) deposed that his assessment of the market circumstances suggested that MurrayLink may have sufficient market power at least at certain times to give it an incentive to restrict the amount of energy it transmits to below the competitive level and that there was sufficient reason for TransGrid to have a serious concern that its dependency on the MurrayLink interconnector could cause sub-optimal usage of TransGrid’s own assets under the unbundled SNI project leading to stranding at the next review.
· To similar effect, Professor Alfred Edward Kahn, sometime Professor and Dean of Economics and Arts and Sciences at Cornell University, deposed that as an entrepreneurial unregulated transmitter MurrayLink would be in a position to make use of USNI and would have the power and incentive to make less than economically optimal use of USNI so as to decrease the prospective profitability of the investment from TransGrid’s standpoint. In the professor’s opinion, USNI would preserve and possibly enhance MurrayLink’s monopoly power and that is why MurrayLink favoured it as against SNI and why USNI could well be regarded as commercially impracticable from TransGrid’s standpoint.
· Again to much the same effect, Gregory John Houston, who was a consulting economist and the Managing Director of the Australian operating entity of the United States based National Economic Research Associates Inc, was of opinion that economic modelling which had been undertaken established that MurrayLink would have an incentive to restrict the use of its transfer capacity, in order to maximise its profitability, in a situation where the assets involved in the USNI alternative were constructed and that the restriction of MurrayLink’s transfer capacity would result in the USNI assets being under utilised. He concluded that TransGrid would face a tangible asset stranding risk if it were to construct the USNI.
That being so, may it not be said that the Tribunal as the tribunal of fact were entitled to prefer the opinions of Dr Bishop, Professor Kahn and Mr Houston to the competing opinions of Dr Cook, Professor Littlechild and Mr Ergas, which were also before the Tribunal and were to the effect that the risk of was immaterial? Ordinarily, perhaps so.[22] But in the circumstances of this case I do not think it can. The problem is the way in which the majority expressed their reasons. It is impossible to tell whether they reached their conclusion because they regarded the orders of magnitude calculated by Mr Campbell as in themselves expressing a significant risk of stranding or because, notwithstanding the orders of magnitude calculated by Mr Campbell, they accepted the opinions of Dr Bishop, Professor Kahn and Mr Houston that such orders of magnitude are properly to be regarded as a significant risk of stranding, or because, in the final analysis, they overlooked or did not understand the distinction drawn in Mr Campbell’s analysis between the risk of reductions in flows along MurrayLink and the risk and size of consequential reductions in flows along the USNI assets.
[22]Australian Broadcasting Tribunal v Bond, supra; Roads Corporation v Dacakis [1995] 2 VR 508 at p.520; Minister for Immigration and Multicultural Affairs v Epeabaka (1998) 84 FCR 411 atp.421
In my opinion the appellant is correct in its contention that failure of the majority to make clear its reasons for finding the stranding risk to be significant was an error of law.[23]
[23]cf Yates Property v Darling Harbour Authority (1991) 24 NSWLR 156 at 162 E per Kirby P and at 189B per Handley JA.
Moreover, and perhaps even more tellingly, there was direct evidence in the statement of Professor Littlechild (who was the only economic expert to point out in quantitative terms the negligible effect of USNI assets of reduction in flows along MurrayLink) that the reductions in USNI flows as calculated by Mr Campbell were so tiny that TransGrid could not discern, let alone identify the causes of such a trivial difference in utilisation. Logically the majority could not have reached the conclusion that the risk of stranding was a significant risk without rejecting that evidence. Yet, unless the majority’s rejection of the evidence is intended to be encompassed in the passing reference to “the differing views of the economists and others” (which is plainly inadequate) there is no mention of the evidence in the majority’s reasons for decision; let alone any reasons for its rejection. I regard that too as an error of law.
I am conscious that the reasons of an administrative tribunal are meant to inform and not to be scrutinised upon over-zealous judicial review by seeking to discern whether some inadequacy may be gleaned from the way in which reasons are expressed[24]; that it is not necessary for such a tribunal to address every issue raised in the proceedings and that it is enough to make findings on the material facts upon which the decision turns and to explain the logic of the decision[25]; and that, in a case like this, where there is no appeal on questions of fact, a failure to state the basis of even a crucial finding of fact will not constitute error of law unless the failure is to be characterised as a breach of the principle that justice must be seen to be done[26]. It remains, however, that s. 42 of the Law requires the Tribunal to give written reasons for its decision and that those reasons must include its findings on material questions of fact and reference to the evidence or other material upon which those finding are based. The section thus creates a need for reasoned decision-making and that imports a requirement to produce reasons which not only deal with the substantial points which have been raised but which are also intelligible[27]. Reasons are not intelligible if they leave the reader to wonder which of a number of possible routes have been taken to the conclusion expressed. They are an error of law.
[24]Minister for Immigration & Ethnic Affairs v Wu Shan Lian (1996) 185 CLR 259 at 271-2
[25]Our Town FM Pty Ltd v Australian Broadcasting Tribunal (No1) (1987) 16 FCR 465 at 481
[26]. Soulemizis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, 281.
[27]Re Palmer and Minister for the Capital Territory (1978) 23 ALR 196 at 206 per Fisher J
Furthermore, the requirement to refer to the evidence is not limited to the evidence that has been accepted and acted upon. If a party has relied on evidence or material which the Tribunal has rejected, it is necessary to refer to that evidence or material and, in giving reasons which deal with the substantial points that have been raised, to explain why that evidence or material has been rejected[28]. And while it is true that not every failure to deal with competing evidence will amount to error of law, I consider that it does in this case. To adopt and adapt to the circumstances of this case part of the observations of Tadgell JA in Bausch[29], the significance of Mr Campbell’s analysis concerning the percentage reduction in flows along USNI assets and thus the evidence of Professor Littlechild was at once so strikingly relevant and cogent that the Tribunal could not give fair and sensible reasons for its decision without adverting to it and assigning reasons for its rejection. Their failure to do so is to be characterised as a breach of the principle that justice must be seen to be done.
[28]Copperart v Federal Commissioner of Taxation 93 ATC 4780 at 4781 per Hill J, aff’d on appeal: CopperartPty Ltd v Commissioner of Taxation (1994) 50 FCR 345, esp at p.352, per Davies J; Transport Accident Commission v Bausch [1998] 4 VR 249 at 260-1, per Tadgell JA.
[29]Ibid.
The appellant’s second argument is that each of the expert witness opinions tendered by TransGrid was based on an unfounded assumption that there was a relationship between the utilisation of MurrayLink and the utilisation of USNI. According to the appellant: “this assumption was that unbundled SNI would support the capability of the MurrayLink interconnector and accordingly that unbundled SNI would be dependent upon the flow of electricity over the MurrayLink interconnector” (Emphasis added). Dr Parker gave evidence that USNI did not support the capability of MurrayLink. Thus it follows in the appellant’s submission that: the “relationship between the utilisation of MurrayLink and the utilisation of unbundled SNI were repeatedly and explicitly rejected by [Dr Parker who was] the only witness before the Tribunal with technical expertise in the planning of transmission networks”.
As has now become clear, and I think the appellant may now accept, the question of whether “unbundled SNI would support the capability of the MurrayLink interconnector” is a different question to whether the utilisation of MurrayLink would significantly affect the utilisation of USNI. “Capability” in the sense in which Dr Parker spoke of that quality is a measure of the extent to which a system can be loaded assuming an outage of its strongest element. In his opinion, one of the upstream augmentations comprising USNI – the Darlington Point to Buronga upgrade – would be the strongest element of MurrayLink interconnector. Hence, in his opinion it followed that there could be no change in the capability of MurrayLink by reason of constructing that link. It is in that sense that Dr Parker expressed reservations about the idea that USNI could “support the capability” of MurrayLink (although contrary to the appellant’s argument he did not explicitly reject that as a possibility[30]). The lack of support of capability does not necessarily say anything about the risk of stranding.
[30]See his final position in cross examination at T453; AB 10694, at lines 13 to 18.
That is not the end of the matter, however. Although Dr Parker’s evidence about capability was given in cross examination and it was that evidence upon which the appellant placed principal reliance in its submissions to the Tribunal, the appellant also put to the Tribunal that certain of the evidence given by Dr Parker in chief constituted a concession. According to the appellant, Dr Parker conceded in chief that it was not clear that MurrayLink could strand USNI. The appellant now argues that that evidence shows not only that Dr Parker was unsure about the stranding risk but that what he said is enough to deprive TransGrid’s economic opinion evidence of the foundation upon which it purported to be built. Hence it is said that there was no evidence before the Tribunal of a significant risk of stranding.
Before going to the detail of that argument it is desirable to set out some the evidence of Dr Parker which is relied upon. Among other things, Dr Parker said in chief:
“From a network planning perspective, if we look at the parts of what people call the unbundled SNI, for instance, if you take the Darlington Point to Buronga line upgrade, which costs a certain amount of money, 20-odd million or so just to do the transformation at each end, the existing system is operated at 220 kV, and , if MurrayLink wasn’t there and we looked at the case for upgrading that line to 275 kV, I don’t believe that would achieve sufficient benefits in terms of capacity support to Victoria and reduction in network losses such that there would be enough benefit there to actually justify the upgrading of that line to 275 kV.
So my view is that MurrayLink – and if it was there and required the upgrade of that 275 kV, then MurrayLink’s operation would have a significant bearing on the actual value of that upgrade, and I would say that MurrayLink operation could effectively strand that – that part of the unbundled SNI if MurrayLink wasn’t there.
As you work your way back through the system, say, Wagga to Darlington Point, for instance, we are installing this network control scheme, now that is going in effectively for SNOVIC 400 this year. So MurrayLink, I don’t believe, could have any impact on the value of that tripping scheme.
As you work your way back in the system, say, to Wagga, where we are putting in capacitor banks, I don’t believe the operation of MurrayLink would significantly change the need for those capacitor banks. But when you get don to the Jindera phase angle regulator and the works in that are, including lower Tumut-Wagga up – rates, etc., then it becomes a bit more difficult to see the connection between MurrayLink and that work.
I have struggled a bit with this, and probably finer minds and probably economists’ minds would probably give a better view of this, but to me it seems that if you – people are saying – people might say that MurrayLink can’t effect those works. But if the combined SANI-SNOVIC scheme allows you to get 2,100 megawatts into Victoria – SA and without MurrayLink only 500 if that goes on to South Australia, then that leaves 1,600 megawatts for use by Victoria.
Now, in the future, generation would be developed in Victoria on that basis because that will be their effective import capability, and so you develop a certain amount of generation over time in Victoria. But if MurrayLink is there and taking 200 into South Australia so that the SA import totals some 700 megawatts, that you think there would be less emphasis on generation development in South Australia compared to Victoria. So I think the economists perhaps have to answer the question as to whether the change in emphasis of generation development between south Australia and Victoria as a result of the changed capability of South Australia import due to Murray Link really has a bearing on the works back there in the Snowy area between Jindera and Dederang. So, as I say, to it is not quite clear just whet MurrayLink could possibly strand those works or not.”
Now, to return to the appellant’s argument[31], it proceeds thus: first, that the only part of USNI which Dr Parker considered might be affected by MurrayLink is the Darlington to Buronga line upgrade; secondly, that, in the absence of SNI, TransGrid would only contemplate building that upgrade if the appellant asked for it, and the appellant has not asked for it; and, thirdly, that Dr Parker’s evidence shows clearly that MurrayLink cannot affect the usage of other parts of USNI because the 600 MW which they will add to Victorian capacity is bound to be used up as the demand for power in Victoria continues to grow.
[31]It was formulated for the first time in the appellant’s written submissions in reply and then reformulated in oral argument.
I am not persuaded by the argument. I think it to be deficient in a number of respects. To begin with it is not possible to treat USNI as if it did not include the Burronga to Darlington upgrade. The fact is that USNI does include that upgrade and for the reason that it enhances the ability of the network to deliver a full 200 MW of power to South Australia. Secondly, it is not possible for the first time on appeal on a question of law to begin an exercise in disaggregation of the assets which comprise USNI in order to create a further alternative which was never before suggested, let alone the subject of consideration by the Tribunal below. The exercise below was always one of the assets necessary to be added to SNOVIC 400 to achieve an additional 600 MW capacity in the combined Victorian/South Australian region, and those were always taken to include the Burronga to Darlington upgrade. Thirdly, and even if were possible to remove the Burronga to Darlington upgrade from the equation, the evidence given by Dr Parker about the other elements of USNI rises no higher than that as a network planner he doubts that usage of the other assets would be affected by MurrayLink but that he is prepared to defer to economists on a question which he perceives possibly to lie beyond the ambit of his expertise. Finally, none of the economists who gave evidence were cross examined on the effect which Dr Parker’s evidence had upon their conclusions. It is true that proceedings before the Tribunal are not subject to the same procedures as apply in court[32]. Therefore the failure to put a point to the Tribunal may not give rise to the same difficulties on appeal as would the failure to put a point to a court of first instance[33]. But here the position goes further than that. The result of what occurred is that there is just no satisfactory basis upon which the point can now be assessed[34].
[32]Section 32 of the Law and see TAC v Bausch supra at. 263
[33]Coulton v Holcombe (1986) 162 CLR 1 at pp.8 and16; Riseda Nominees Pty Ltd v St Vincent’s Hospital [1998] 2 VR 70 at p.76
[34]cf. Chief Executive Officer of Customs v AMI Toyota Ltd (2000) 102 FCR 578 [45]
Ground 5
By way of fifth ground of appeal the appellant contends that the Tribunal erred in holding or proceeding on the basis that the SNI proposal was relevantly an “interconnector” within the meaning of clause 5.6.6(c) of the Code. It is argued that it was not permissible to do so because SNI includes not only a transmission line and such augmentations as are necessary for the purposes of maintaining levels of service and quality of supply to exiting Code participants within the meaning of clause 5.6.6(b), but also augmentations to enlarge or increase the capability of what is proposed. It is the latter augmentations which are the butt of the complaint. It is said that they should have been treated separately under the regulatory test and that it was not permissible to lump them in with what was truly the connector in order to give to the connector a net market benefit which without the extraneous augmentations it simply would not have.
The majority dealt with that argument in these terms:
“If we understand MurrayLink’s submission correctly, it is that what was presented to the IRPC for assessment and recommendation and to NEMMCO for determination was not relevantly an interconnector within the meaning of the Code, because only so much of it as would physically connect Buronga to Robertstown is capable of being assessed under clause 5.6.6(c). It is submitted that USNI is really a separate and distinct project to which is attached a physical interconnector (the Buronga to Robertstown line) giving the one what MurrayLink describes as a ‘free ride’…
Dr Parker gave extensive evidence concerning the function of SNI including, of course, that portion of it encompassed by USNI. The effect of Dr Parker’s evidence is that if the new transmission line is to function reliably according to its capacity (275Kv/220 MW) SNI should be constructed. The circumstance that SNI (or at least the USNI component) can serve other purposes as, for example, making 600 MW of capacity available for Victoria does not operate to deny it its function to enhance direct flow of power from New South Wales into South Australia.
It is true, as MurrayLink submits, that the Code defines the interconnector in terms of a transmission line. However, as has been pointed out that the establishment of a new interconnector may involve augmentations and if that happens those augmentations are to be included within the regulatory asset base of the regulated interconnector. TransGrid’s network is proposed to be ‘augmented’ to enlarge or increase the capability of what is proposed. A proper understanding of clauses 5.6 and 5.5 makes it clear, in our opinion, that a proposal to establish an interconnector may (and in this case does) involve a ‘transmission system augmentation proposal’.”
In my opinion the majority were correct. An interconnector is defined in terms of a transmission line that connects the transmission networks in adjacent regions. An augmentation is defined in terms of works to enlarge a network or to increase the capability of a network to transmit or distribute active energy. Hence it is true that the former is concerned with the connection of more than one network and the latter with the augmentation of only one network. But it does not follow that an interconnector may not have associated with it augmentations which enhance the capability of one or other or all of the networks which it is designed to connect. Every interconnector, without more, is also an augmentation of one or other or perhaps all of the networks which it connects; for every connector serves to increase the capability of one or other or all of those networks. Hence, as TransGrid has submitted, it is a false dichotomy to regard interconnectors and augmentations as if they were mutually exclusive. And the Code does not do so. Each falls to be evaluated under the Code in terms of the same regulatory test and it has as its premise that all transmission systems are to be treated as if they were but one system.
Certainly, the evaluation of augmentations is dealt with under clause 5.6.5(k) of the Code and the evaluation of interconnectors is dealt with under clause 5.6.6(c), and in another context such a distinction might suggest that the two are different[35]. But so far from treating them differently, the intent and the effect of the Code is to treat interconnectors as augmentations. The aim is to ensure that interconnectors are treated as augmentations “on the basis that all transmission systems are to be planned and operated as if they form a single transmission system”. An augmentation proposal submitted for evaluation under clause 5.6.5(e) is subjected to the regulatory test under clause 5.6.6(c) as if it were an interconnector proposal.
[35]Anthony Horden and Sons Ltd v The Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at p. 7; R v Wallis; Ex parte Employers Association of Wool Selling Brokers (1949) 78 CLR 529 at p. 550; cf. Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at p. 575
The appellant suggests that the opening words of clause 5.6.6(b) – “for the purposes of maintaining levels of service and quality of supply to existing Code Participants in accordance with this Code” - limit the augmentations which may be coupled with an interconnector to augmentations which are for the purposes of maintaining levels of service and quality of supply to existing Code Participants in accordance with the Code. It argues that its point is borne out by the special provision which is made in clause 5.6.6(d) for the recovery of cost of augmentations to other networks. The appellant’s contention is that if capability adding augmentations could be included in an interconnector it would not be necessary to make special provision for such augmentations to other networks.
But I do not think that either of those points is correct. The opening words of clause 5.6.6(b) are an explanation of the purpose of the review provided for in clause 5.6.6(b); not of the nature of applications to establish an interconnector which may be submitted for review. The provision which is made in clause 5.6.6(d) for augmentations in other networks is there because the general provision for the recovery of costs of augmentations which is made in clause 5.6.6(m) is limited to augmentations to the network. Clause 5.6.6(d) exists to ensure that where augmentations in other networks are associated with an interconnector they will be treated, mutatis mutandis, as if they were augmentations to the network[36].
[36]cf. Project blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at p.382
The appellant argues further as a matter of purposive construction that unless the augmentations which may be coupled with an interconnector are confined to augmentations required for maintaining levels of service and quality, operators could beat the regulatory test by combining a non-competitive interconnector with high-value augmentations. It submits that that cannot be the intention of the Code
But again I do not see that as a problem or, more relevantly, a reason to construe “interconnector” proposals as excluding augmentations which do more than maintain levels of service and quality. To the contrary, and at the risk of repetition, the assessment of market benefit is required to be carried out “on the basis that all transmission systems are to be planned and operated as if they form a single transmission system”. Hence, for the purposes of the regulatory test, the interconnector is in effect to be viewed as if it were an intranetwork connector or, more appropriately perhaps, as an augmentation to the combined networks. Consequently, even if a low-grade interconnector be combined with high-grade intranetwork augmentations, the interconnector will still not pass the regulatory test unless it so adds to the capability of the combined networks (as augmented) as to beat any practicable alternative for achieving the same results.
To take just one example somewhat close to the facts of the case: if it were proposed to develop augmentations to the capability of an already power-rich New South Wales distribution system and combine them with a new interconnector to transmit the added power from New South Wales to a power-impoverished Victorian power distribution system, it would be wholly consistent with the terms and policy of the Code that the combination should be assessed as if there were a combined New South Wales/Victorian transmission system and on the basis that the New South Wales augmentation and the interconnector combined to alleviate the power deficit in the Victorian section of the combined transmission system.
That is not to say that there may not be other practicable ways of alleviating the supposed power deficit in Victoria. For argument’s sake it may be imagined that almost exactly the same results could be achieved by building the New South Wales augmentations and conducting the additional power to Victoria along existing connectors. But whether those other ways of achieving the same results should be preferred would be a question for decision under the regulatory test. Assuming that one or more of those other ways of achieving the results were a practicable alternative, in the sense explained when dealing with Ground 3, the question would be which of the alternatives provides the greatest net present value of market benefit when assessed objectively in the fashion already described.
Finally, on this point, I should say that a good deal of the appellant’s written submissions and hence of the respondent’s submissions in reply were directed to whether the augmentations proposed by TransGrid were for the reliable functioning of the interconnector. Reference has already been made to evidence given by Dr Parker and to the interpretation which should be placed upon it. As may be seen from so much of the majority’s reasons as I have set out above, the majority construed Dr Parker’s evidence as meaning that the augmentations were not only to ensure the reliable operation of the interconnector but also to add to Victorian capability. In their opinion, the circumstance that the augmentations made an additional 600 MW of capacity available to Victoria did not deny the interconnector the function of enhancing the flow of power from New South Wales into South Australia. In my view they were right.
Ground 6
The appellant’s sixth ground of appeal is that the Tribunal erred in accepting the opinions of Dr Campbell, Professor Kahn, Dr Bishop and Mr Houston that there was a real risk of stranding or alternatively a genuine or reasonably based apprehension on the part of TransGrid of the risk of stranding, contrary to Dr Parker’s evidence that USNI would not be dependent of MurrayLink. It does not appear to me that this ground of appeal adds anything to Grounds 3 and 4 and hence I say no more about it.
Ground 7
The appellant’s seventh ground of appeal is in 17 parts of which one is itself comprised of eight sub-parts. Consequently, I had hoped that there would be some sort of rationalisation of the ground in the course of oral submissions. That, however, was not to be the case. Despite my inquiry as to whether it was really necessary to consider every part, and despite the fact that I was not favoured by the appellant with any oral submissions upon any of them, I was told by counsel for the appellant that the appellant continued to rely upon everything that was within the appellant’s written submissions and that I should approach the task accordingly.
(a) Failed to give proper reasons for decision
In the appellant’s written submissions in chief it is contended that the majority’s reasons are devoid of any analysis or any proper analysis of the evidence that was before the Tribunal. In its written submissions in reply the appellant explains that the contention is that the majority did not set out the facts which grounded the majority’s acceptance of a finding of stranding or a real risk of stranding. I agree for the reasons given when dealing with Ground 4. The point does not improve with repetition.
(b) Failed to hear and decide the matter on the evidence before it
In the appellant’s written submissions in chief it is contended that the Tribunal failed to hear and decide the matter on the evidence before it or failed to deal with evidence and submissions in respect of some seventeen separate matters. I shall deal with them in turn.
(i) the non-dependency of unbundled SNI on MurrayLink
This complaint is directed back to an earlier part of the appellant’s written submissions in which is analysed Dr Parker’s evidence on the effect of USNI on the capability of MurrayLink. I have dealt with that already in relation to Grounds 3 and 4.
(ii) the cost of SNI
This complaint is directed back to an earlier part of the appellant’s written submissions in which is analysed the accuracy of costings of SNI submitted by TransGrid. I have dealt with that already in relation to Ground 1.
(iii) the impact of the Yass-Wagga line on the capacity benefit of SNI
This complaint is directed to a later part of the appellant’s written submissions - part (k) - and I shall deal with it when I come to that part.
(iv) the value of delaying parts or the whole of SNI
This complaint is directed back to an earlier part of the appellant’s written submissions in which is analysed the value of delaying parts or the whole of SNI. I have dealt with that already in relation to Ground 1.
(v) the waste of expenditure if MurrayLink were made redundant by the Buronga – Roberstown new transmission line component of SNI
This complaint is directed back to an earlier part of the appellant’s written submissions in which is analysed the waste of expenditure if MurrayLink were made redundant. I have dealt with that already in relation to Ground 1.
(vi) the benefit of unbundled SNI to the market as a whole
This complaint is directed back to an earlier part of the appellant’s written submissions in which is analysed the benefit of unbundled SNI to the market as a whole. I have dealt with that already in relation to Ground 1.
(vii) the “piggy-back“ or “free-riding” relationship of the wasteful Buronga-Robertstown new transmission line component of SNI
This complaint is directed back to an earlier part of the appellant’s written submissions in which is analysed the “piggy-back“ or “free-riding” relationship of the wasteful Buronga-Robertstown new transmission line component of SNI. I have dealt with that already in relation to Grounds 1 and 5.
(viii) if any deferral benefit in respect of augmentation in the Riverland region of South Australia would arise, the timing and quantum of the benefit
This complaint is also directed back to an earlier part of the appellant’s written submissions with which I have dealt already in relation to Ground 1.
(c) asserted that the appellant wanted the decision of the first respondent set aside on the basis of “judicial review” for procedural errors when no such submission was made.
I think this point to be of no substance. When considering the process issues, which are dealt with above under Ground 7(b), the majority commented that MurrayLink sought to have NEMMCO’s decision set aside on grounds akin to judicial review. In my opinion the comment was a substantially accurate characterisation of one of the appellant’s submissions. But even if it were not, it would not have constituted an error of law and it was not evidence of error of law. The majority considered each of the appellant’s arguments on the process issues and dealt with them on their merits. However inaccurate may have been the characterisation of the appellant’s contention, it got the treatment which it deserved.
(d) asserted that the appellant wanted the Tribunal to give declarations as the invalidity and formal orders in respect of procedural irregularities asserted that the appellant wanted the MurrayLink interconnector to be considered as an “alternative project” within the meaning of the Regulatory Test when no such submission was made
I think this point to be equally devoid of merit. The appellant said in the course of its submissions to the Tribunal:
“Certainly for our part we do say that the NEMMCO determination is fatally affected by the process problems, one of which was lack of consultation. There are the conflict of interest type problems as well.”[37]
[37]AB 10285: opening address.
The majority said in their reasons:
“…it has been submitted on behalf of MurrayLink that the function of the Tribunal…extends to declarations of invalidity and to the making of formal orders based on what might be …described as procedural irregularities and improprieties by the IRPC…”
That commends itself to me as a substantially accurate characterisation of the submission. But, again, even if it were not, it would not matter. The point went nowhere. The matter was dealt with on the merits and decided on the merits in the manner already described. Nothing hinged upon or was decided as to the availability of declaratory relief.
(e) asserted that the appellant wanted the MurrayLink interconnector to be considered as an “alternative project” within the meaning of the Regulatory Test when no such submission was made
I think this point also to be without substance. The majority dealt with the issues of practicable alternative and alternative projects as already explained in relation to Grounds 3 and 4. In my opinion they were correct to approach the application of the regulatory test on the basis that the universe of “alternative projects” is limited to “practicable alternatives”. It is appropriate and natural to speak of practicable alternatives and alternative projects as if they were the same. The majority’s only error, as I perceive it, was to apply to the identification of “practicable alternatives” an exogenous test of TransGrid’s preference and motivation instead of the endogenous test of economic rationality that derives from the regulatory test.
(f) asserted that the appellant sought to have unbundled SNI justified pursuant to the Regulatory Test and (presumably) in accordance with clause 5.6.5(k)(2) of the Code when no such submission was made.
In their reasons for decision the majority said that:
“…contrary to assumptions made by MurrayLink, the issue is not whether USNI is, in the opinion of the Tribunal, justified. (Or, for that matter, SNOVIC 800 or NEWVIC 2500). The issue is whether SNI is justified. The circumstance that USNI may provide greater net present value of market benefit, with the consequence that it is not established that SNI relevantly maximises net present value of market benefit, would not thereby authorise USNI a project under the Code. If SNI’s were held not to be justified, USNI could not proceed unless an application were made ant that project, in turn, would, at the relevant time, be measured against any other practicable alternative.”
The appellant complains that it never assumed any issue as to whether or not USNI was justified and that it expressly disclaimed the point in one of the many witness statements that it filed in reply. I do not think that it matters. The majority was right that the issue was whether SNI was justified, and they proceeded accordingly. The appellant may harbour some sense some irritation in having attributed to it a proposition which it considers that it did not advance. But its irritation is of no consequence. The appellant does not suggest and I do not see how the attribution, even if unwarranted, could amount to an error of law.
(g) failed to consider properly or at all the appellant’s material contention that Dr Parker’s evidence rendered the second respondent’s “stranding” arguments untenable, such that the second respondent could not have any real or reasonable apprehension of the risk of stranding.
This appears to me to be another repetition of the point already made and dealt with concerning Dr Parker’s evidence in cross examination as to whether USNI added to MurrayLink’s capability, and his evidence in chief as to whether the usage of the USNI assets would be affected by the flows of power through MurrayLink. I treat it accordingly.
(h) asserted that the appellant never questioned Mr Hutt on whether the second respondent would undertake unbundled SNI if the SNI proposal was no justified when such questions were asked of Mr Hutt and extensive and relevant submission were made in respect of the responses received from that witness.
In their reasons the majority did say that Mr Hutt had not been asked whether TransGrid would proceed with USNI if SNI were not approved. And they were wrong. Mr Hutt was asked and he answered that he would consult with his officers and notably with Dr Parker. Given the reservations expressed by Dr Parker about the idea that the usage of USNI assets could be affected by MurrayLink, it is conceivable that the error may have affected the outcome.
The probability is that it does not add anything to the anterior error of approaching the question of “practicable alternative” on the basis of the subjective preferences and motivation of TransGrid. But it may, because TransGrid’s reaction could perhaps be treated as some evidence of objective behaviour. Consequently, when the matter is reconsidered, it will be necessary for the Tribunal to take into account the evidence of Mr Hutt which previously it ignored.
(i) asserted that the appellant did not pursue criticisms of the economic modelling of the SNI proposal on the basis of the electricity generation capacity in New South Wales when in fact it did.
The appellant’s complaint is that it filed witness statements in which criticisms of the modelling were made and made reference to the matter in written opening submissions and in cross examination, and yet the majority concluded that the issue “does not seem to have been pursued.” No doubt the Tribunal took the view it did because the matter was not pressed in closing submissions. A lot of things get mentioned in opening and a lot more frequently get mentioned and even pressed in cross examination. But unless they are mentioned in closing and related to the matters in issue, one is inclined to discount them. Bundles of paper listing scores of points are no substitute for oral argument.
It may be said perhaps that proceedings before the Tribunal are not adversarial and that the Tribunal is under a duty to inquire into matters which are significant whatever counsel may or may not do or say.[38] But one must surely reach a point in a case like where the principle ceases to apply. The significance of New South Wales generation capacity amongst the myriad other considerations which were identified before the Tribunal may well be such a point.
[38]Bausch v Transport Accident Commission supra.
But even if there were error in the failure to consider the issue, and I am inclined to think that there was not, I suspect it would be an error of fact. Unaided by any submission as to why I should regard it in any other light, I am disposed not to do so.
(j) failed to consider the submissions of the appellant that related to the costings advanced by the second respondent in relation to the SNI proposal.
The appellant’s complaint is that it “filed detailed evidence regarding the accuracy of the costings advanced by the second respondent in relation to the SNI proposal. This evidence was contained in Appendix B to the witness statement of Dr Cook filed with the Tribunal on 15 May 2002 and paragraphs 274 – 288 of the witness statement in reply of Dr Cook filed with the Tribunal on 15 August 2002” and that “the appellant also made detailed submissions on this issue which appear in the appellant’s written opening submissions at paragraph 101(a)(iii) and its written closing submissions at paragraphs 46-47” and that “the majority … erred in law by failing to make any reference at all to this significant evidence or to make findings in relation to it”.
I gather from what I have just set out that “this significant evidence” was not thought sufficiently “significant” to warrant mention in the appellant’s closing address. If that is so I am not much surprised that the Tribunal did not mention it.
The majority did deal with the evidence implicitly, and rejected it, implicitly, by their acceptance of the process undertaken by the IRPC and NEMMCO and Mr Campbell’s analysis and by their decision that SNI was justified. Furthermore, it is apparent that the majority had the issue of the cost of SNI in mind when they dealt with and rejected appellant’s submission that the cost of SNI did not include the cost of diverting the Buuronga Robertstown 275 kV line via Monash:
“In the alternative it appeared to be suggested that SNI did not include the cost of diverting to Monash. It is sufficient merely to observe that, as Dr Parker explained, the $10 million allowed by ESIPC would have more than accommodated that cost.
The $25 million benefit calculated be ESIPC was on the basis that the cost of augmentation that would need to be done if SNI did not proceed was $35 million. From that was deducted $10 million cost of work required to connect SNI at Monash. Hence the criticism is misplace.”
I have to say, however, that while I sympathise with the Tribunal for the way in which it was apparently deluged with points in the form of witness statements and written submissions and other such impedimenta, and left without a great deal of guidance as to which were said to be important, I am inclined to think that the majority may have done less than was required of them in explaining why they rejected the “significant evidence” of the appellant on costs of SNI. I have referred already to the obligation of the Tribunal to deal with any conflict of evidence which it has had to consider and to state its findings, including its acceptance or rejection of such evidence. The approach which was adopted by the majority on this issue appears to fall short of that requirement. As Tadgell JA said in Bausch it is not enough even to refer to the competing evidence and assert a conclusion based upon the acceptance of part of that evidence; a fortiori where the evidence is not mentioned.
But that having been said, I am by no means convinced that the failure of the majority to deal with this conflict of evidence should be thought a failure to state the basis of a crucial finding of fact or that it should be characterised as a breach of the principle that justice must be seen to be done[39]. I also suspect that the appellant may have reached a similar conclusion. Its submission in writing on the point (and I repeat that none were made orally on the point) is no more developed than the bare assertion that it was an error of law. I am not persuaded.
(k) failed to consider the submissions of the appellant that the capacity benefit of the SNI proposal (600 MW) should be reduced to take into account that the Yass-Wagga line which was not costed as part of the SNI proposal and which would provide a significant proportion (170 MW) of the capacity benefit.
[39]Soulemizis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, 281.
The appellant’s complaint under this heading is that it “filed detailed evidence regarding the impact of the Yass-Wagga line on the capacity benefit of SNI. This evidence was contained in paragraphs 180-183 of the witness statement of Dr Cook filed with the Tribunal on 15 May 2002 and paragraphs 340-341 of the witness statement in reply of Dr Cook filed with the Tribunal on 16 August 2002” and that “Mr Houston agreed during cross examination that if the Yass-Wagga line were required in three years at a cost of $70M to maintain the 600 MW capacity benefit of SNI then that cost should be incrementally considered in the cost-benefit analysis” and that “the appellant made submissions that the cost of constructing the Yass-Wagga line, required to maintain the 600 MW capacity benefit of SNI, should be included in the cost-benefit analysis (in its written opening submission…,paragraphs 84-86 and annexure H(6) of its written closing submissions”.
This point seems to be very similar to the last one. It was not mentioned in closing address to the Tribunal and I gather that the Tribunal may thereby have been led to the view that it was not regarded as being so “significant” as to require specific mention. It was dealt with implicitly in the majority’s acceptance of Mr Campbell’s analysis; the majority’s finding that 600 MW was properly used in the modelling; and the majority’s decision that SNI was justified based upon a cost of SNI of $110M as estimated by TransGrid. But the majority did not mention the evidence to which the appellant refers and they did not explain why they rejected that evidence in favour of the evidence they seem to have preferred, and in that I think that they erred. But, as with the last point, I am not favoured with any reasoned argument as to why I should regard the error as one of law and I am not inclined to do so.
(l) asserted that the appellant did not rely upon or “explore in the case before the Tribunal” relevant information including the observations of Mr Ravalli that to delay the SNI proposal or to reconfigure it might result in the potential saving in excess of $50m when in fact it did.
The appellant contends that the Tribunal erred in law in proceeding on the basis that the appellant had not explored in the case before the Tribunal the observations of Mr Ravalli as to the savings which might result from delay of SNI. The appellant says that it did deal with the matter in its opening written submissions at paragraphs 16 and 56 and in its oral opening submissions and, in the sense that Mr Thomas’ witness statement “in reply” and oral evidence (which was directed to the proper application of traditional cost-benefit analysis) was not contradicted, and in written closing submissions. I gather, however, that this was yet another matter to which no reference was made in the course of the appellant’s closing address.
As with the last two points I consider there is some substance in the appellant’s complaint. But once again I am not satisfied that the error is one of law, if indeed it is an error. I am not persuaded that it goes to a critical finding of fact or otherwise that justice has not been seen to be done. For among other considerations, it appears that the matter to which Mr Rambali’s evidence was directed was not exactly in point. Mr Ravalli’s note dealt with the possibility of TransGrid building USNI immediately and waiting to see if the Buronga to Monash 275kV line were ever needed. That is not necessarily the same thing as the idea of “delayed SNI” which is analysed in MurrayLink’s submissions. And in any event, the majority did deal directly with the idea of building USNI immediately, and on the basis of their analysis they were satisfied that if USNI were to be regarded as a practicable alternative it would maximise net present value of the market benefit.
For the reasons earlier expressed, I consider that the majority erred in their approach to the question of whether USNI was a practicable alternative. But that is another matter. So far as I can see on the written materials before me, and that is all I have on this point, the absence of specific reference to the savings of $50M could not make any difference to the outcome; once the issue is properly analysed.
(m) failed to consider, assess or evaluate significant expert evidence submitted to the Tribunal by the appellant relevant to the issues in dispute before the Tribunal including the evidence of Professor King, Professor Littlechild, and Mr Thomas and construed the application of the appellant in the review before it as limited to a dispute in relation to “identified aspects of the modelling”.
The appellant’s written submission on this point is as follows:
“The appellant refers to paragraph 113 of these submissions, and to the evidence there referred to.”
Paragraph 113 “of these submissions” is directed to part(b) of Ground 7. In the circumstances, I refer to and repeat what I have said with respect to that ground.
(n) asserted that the extent of the impact of the SNI proposal, if it were to proceed as a regulated project, upon the commercial operations of the MurrayLink interconnector was not explored in evidence in the review before the Tribunal (because nobody thought that was a relevant circumstance until a final submission by the appellant) when in fact that matter was the subject of evidence (both evidence-in-chief- and cross-examination) and submissions.
I consider this point to be without substance, for two reasons. First, as I have already explained, the effect on MurrayLink of SNI was irrelevant to the issues before the Tribunal. The questions of practicable alternatives and market benefit were and are to be decided, as indeed the appellant contended in another part of its submissions, by reference only to those economic considerations which are endogenous to the regulatory test. Secondly, although it is true to say that the appellant adduced some evidence and made some submissions directed to the conceptual proposition that SNI would have an adverse impact on MurrayLink, it did not adduce any financial evidence as to the quantum of the alleged impact. In the absence of evidence of that kind, the submission was almost bound to fail on its merits (even assuming it were relevant).
(o) asserted that the appellant withdrew the request for alternate relief sought by it that the SNI proposal be remitted to the first respondent for reconsideration by the first respondent when in fact it did not withdraw that request for relief.
I do not understand why a point of this kind should be raised. The appellant did submit to the Tribunal that it would be inappropriate for the Tribunal to remit the matter to NEMMCO (if the appellant were successful) and that TransGrid should be required to start again by way of fresh application. It made its preference plain even though it added that if the matter were to be remitted, contrary to its preference, it should be remitted with directions. The only complaint now is that the Tribunal characterised that as withdrawing the request for alternate relief. It has not been sought to explain and I do not see how something like that could be in the least way significant.
(p) failed to afford the partied procedural fairness upon the hearing of the review by the Tribunal in that it adopted a procedure whereby it prevented a member of the Tribunal, Professor McDonnell FTSE from raising matters relevant to that member at a time and in a fashion that enabled and allowed the parties to deal with those matters, in so far as they had not already done so during the course of evidence and/or submissions; and
(q) failed to consider properly or at all the appellant’s responses and contentions made in answer to specific queries by a member of the Tribunal, Professor McDonnell FTSE, on the basis that such matters had not been referred to during the hearing of the review before the Tribunal in circumstances where no proper opportunity was given to the appellant to make submissions on the matters at any earlier stage.
The appellant’s written submissions treat these two parts as if they were one and therefore so do I. The second respondent’s written submissions provide an answer to both parts which I think to be persuasive. The procedures established at the beginning of the hearing before the Tribunal were that all evidence in chief would be in the form of witness statements with cross examination of only those witnesses who were required to attend. At the conclusion of the evidence the Tribunal made orders for the filing and exchange of closing submissions and adjourned to another day. After written closing submissions had been exchanged and on the final day of the hearing Professor McDonnell put a question to counsel for NEMMCO and the Chairman ordered NEMMCO to file a written response to the question and granted leave to each of the other parties to make further written submissions in reply to NEMMCO’s response. NEMMCO filed its answer and the appellant and TransGrid provided a written response. Thereafter neither the appellant nor any other party sought the opportunity to make any further submissions to the Tribunal, whether written or oral.
Based upon the exchange of paper which had occurred, on 31 October 2002 the Tribunal’s decision was published and in their reasons for decision the majority dealt the question which had been asked by Professor McDonnell in the following way:
“Prior to the matter coming on for hearing MurrayLink gave particulars of its claim and later and in response to a request by other parties amplified those particulars. The purpose of this procedure was to identify for the parties and the Tribunal the matter which were to be alleged to be defective and the decision finally made by NEMMCO. The result was that the matter in issue between the parties were clearly defined and the subsequent steps and processes in the hearing addressed those issues. The matters raised by Professor McDonnell were not an issue between the parties. The issue was not that the whole process was ‘foundationally flawed’: it was that identified aspects of the modelling were subject to criticism. We do not view the generalised statement of MurrayLink it its reply to Professor McDonnell’s questions as addressing that issue. In our view it is inappropriate that at this stage the Tribunal should turn its attention to the question whether the whole process was ‘foundationally flawed’. TransGrid had submitted that the Tribunal should not have regard to any of the additional matter raised by MurrayLink which were not raised in the proceedings. While there is considerable force in that submission, we have nonetheless taken into account MurrayLink’s submissions on the specific issues raised by it.”
I am unable to discern any lack of procedural fairness in that. The requirements of natural justice vary according to the circumstances of the case, the nature of the inquiry, the rules under which a tribunal may be acting and the subject matter that is being dealt with[40]. Accordingly, the application of the rules of natural justice are as much conditioned by necessary implication - from the text of the relevant statute, the nature of the power, and the administrative framework created by the statute[41] - as they may by express provision. It is in each case a question of construction, bearing in mind the subject matter of the power, the repository of the power, and the terms of the statute[42]. It cannot be supposed that the circumstances of this case warranted anything more, if indeed as much as was done, to allow the parties to be heard.
[40]Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation (1963) 113 CLR 475 at pp. 503 - 504
[41]Kioa v West (1985) 159 CLR 550 at p. 619
[42]Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487 at p. 491
In any event, I regard the point as moot. For the reasons given with respect to Ground 1, the majority were correct that:
“…the paramount task of IRPC and NEMMCO (and [the] Tribunal on review) is to apply [a] cost benefit analysis conformably with the particular criteria specified in the [R]egulatory [T]est by the ACCC rather than by reference to cost benefit principles at large.”
(r) failed to properly consider the review before the Tribunal as an administrative review wherein the Tribunal was entitled to inform itself on any matter in any way that it considered appropriate and relevant.
Under this part of Ground 7 the appellant focuses on the part of the reasons of the majority set out above wherein it was observed that because of the way in which the hearing had been conducted:
“The matters raised by Professor McDonnell were not an issue between the parties. The issue was not that the whole process was ‘foundationally flawed’: it was that identified aspects of the modelling were subject to criticism. We do not view the generalised statement by MurrayLink it its reply to Professor McDonnell’s questions as addressing that issue. In our view it is inappropriate that at this stage the Tribunal should turn its attention to the question whether the whole process was “foundationally flawed.” (Emphasis added)
The complaint is that because the Tribunal stands in the shoes of NEMMCO it is bound to satisfy itself on the material which is before it that the decision is correct, regardless of the procedure which may have been followed or the form of the parties’ submissions, and that the Tribunal was in error to refuse to turn its attention to the question of foundational flaw. There is force in that submission. Again the point is covered by the observations of Tadgell JA in TAC v Bausch[43]:
“It is now well established that the Commonwealth Administrative Appeals Tribunal (and those State and Territorial tribunal established by cognate legislation, as in Victoria) are obliged by statute, when reviewing a primary administrative decision, to be satisfied whether or not that decision was, on the material before the tribunal, the correct or preferable one: Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 46 FLR 409 at ALR 589; FLR 419 per Bowen CJ and Deane J.; ALR 599; FLR429-30 per Smithers J; Bushell v Repatriation Commission (1992) 175 CLR 408 at 424-5; McDonald v Guardianship and Administration Board [1993] 1 VR 521 at 528. It has been said that the tribunal is required to undertake its task regardless of the form which the parties’ submissions take: McKeown v Repatriation Commission (1995) 39 ALD 30. An error of law may be committed by the tribunal through ignoring a central issue, even if not submission at all is directed to it on the point: Australian Trade Commissioner v F & F Asia Pty Ltd (1996) 69 FCT 262 at 266 per Carr J. These propositions follow from the decision of the Full Federal court of Australia in Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186; 54 FLR 334.”
[43]supra, at pp.263-4; cf. Perpetual Trustees Company (Canberra) Ltd v Commissioner of ACT Revenue (1994) 50 FCR 405 t p.419; Riordan v Australian Sports Drug Agency [2002] FCA 858 at [50]
Despite the force of the submission, however, it is not an issue which I need to pursue. The majority were correct in their view of the requirements of the regulatory test, except for the test of “practicable alternatives”. Their task was to apply the cost benefit analysis in accordance with the criteria specified by the ACCC on the basis of the evidence before them. But for their adoption of an erroneous subjective test of practicable alternatives, that is what they did. There was no error in the acceptance of the modelling which had been undertaken.
Ground 8
The eighth ground of appeal is that the Tribunal erred in law in that, having held or found that the SNOVIC 400 project was no longer to be treated as an alternative project (whereas it had been when the Regulatory Test was originally applied by NEMMCO), the Tribunal proceeded to decide that SNI was a justifiable proposal as if SNOVIC were still an alternative project. The appellant contends that the Tribunal should have started afresh, with a fresh application of the regulatory test, so as to allow for the change in the status of SNOVIC.
The answer to that is that Dr Rose for ROAM gave evidence that there is no difference in modelling terms between treating a project as an alternative and factoring it into the base case, although the optimum timing for SNI would be different depending on whether SNOVIC 400 were a “given” (scil. committed) or not. ROAM’s supplementary report to NEMMCO analysed a range of optimum timings for SNI according to the time of commissioning of SNI. In the result the Tribunal had before it the evidence which it needed to deal with the change in circumstances and it decided accordingly.
The appellant also complains that there was evidence given by Dr Campbell that the Heywood upgrade ought be considered as an alternative project but that the Tribunal failed to consider it in that light. The point seems to me to be misdirected. The report of Dr Campbell which was before the Tribunal showed the results of the IES which included the Heywood upgrade as an alternative. Dr Campbell confirmed in cross examination that it had been done.
Finally, with respect to this ground of appeal, the appellant submits that evidence given by Dr Parker established that if SNI were not justified, TransGrid would be likely to be a proponent of USNI and that Dr Parker’s evidence on that point was consistent with the evidence of Mr Hutt, the General Manager–Corporate Development of TransGrid. In the appellant’s contention the Tribunal failed to deal either properly or at all with that evidence and its failure to do so constituted an error of law that goes to the heart of their decision.
I think otherwise. The effect of the evidence given by Dr Parker was that if USNI had a very high net present value according to TransGrid’s own modeller, it would be likely that TransGrid would therefore be likely to build it. So much is obvious. But as the Majority observed, Dr Parker did not say that the modeller considered that the net present value was high and he made plain that he was not speaking for TransGrid. Mr Hutt’s evidence was to much the same effect. He said in answer to a hypothetical question that, if one assumed a high net present value of USNI, it could be concluded that TransGrid would be likely to build it. Neither witness said in substance or effect that if SNI were not justified TransGrid would be likely to build USNI.
Conclusion
For the reasons given, the appellant succeeds on grounds 3 and 4 of its appeal, but not otherwise. Subject to the submissions of counsel, I am disposed to allow the appeal, set aside the Tribunal’s decision and remit the matter to the Tribunal for reconsideration according to law.
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