TEC Pipe Pty Ltd and Clean Energy Regulator
[2017] AATA 48
•20 January 2017
TEC Pipe Pty Ltd and Clean Energy Regulator [2017] AATA 48 (20 January 2017)
Division:GENERAL DIVISION
File Number: 2016/1731
Re:TEC Pipe Pty Ltd
APPLICANT
Clean Energy RegulatorAnd
RESPONDENT
DECISION
Tribunal:Justice D Kerr, President
Senior Member CR WalshDate:20 January 2017
Place:Perth
The Tribunal affirms the decision under review.
......[Sgd]..................................................................
Justice D Kerr, President
CATCHWORDS
RENEWABLE ENERGY SHORTFALL CHARGE – large-scale generation shortfall charge - meaning of the defined term “standby plant” - whether the six electricity generators owned and operated by the Applicant were “standby plant” for each of the “immediately preceding 3 years” - whether the Applicant’s “relevant acquisition” in the 2014 assessment year was not a “relevant acquisition” because it was delivered on a grid “that is not, directly or indirectly, connected to a grid that has a capacity of 100MW or more”- whether the Applicant was a “liable entity” in the 2014 assessment year - decision under review affirmed
LEGISLATION
Renewable Energy (Electricity) Act 2000 (Cth) – ss 3, 26, 27, 30P(3), 31(1), 31(2)(a), 31(3), 32, 32(2), 33, 33(2), 35, 36(1), 38, 44, 44(1)(a), 44(1)(b), 44(2), 45B, 46(1), 47(6), 48A(6)
Renewable Energy (Electricity) Regulations 2000 – rr 3(1), 3(1)(a), 22, 22(a), 22(b)CASES
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27
Australian Education Union v Department of Education and Children’s Services (2012) 248 CLR 1; [2012] HCA 3
Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 199 FCR 226
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 87 ALJR 98; [2012] HCA 55
Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 87 ALJR 588; [2013] HCA 16
Halford v Price [1960] HCA 38, (1960) 105 CLR 23
Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12
Project Blue Sky Inc and Others v Australian Broadcasting Authority (1998) 194 CLR 355
Sea Shepherd Australia Ltd v Federal Commissioner of Taxation (2013) 212 FCR 252; [2013] FCAFC 68
Segelov v ErnstPty Ltd [2015] NSWCA 156
Taylor v The Owners – Strata Plan No 11564 (2014) 88 ALJR 473; [2014] HCA 9
The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404SECONDARY MATERIALS
Explanatory Memorandum to the Renewable Energy (Electricity) Bill 2000
Macquarie Dictionary Online, 6th Edition, Macmillan Publisher Australia, 2015
REASONS FOR DECISION
Justice D Kerr, President
Senior Member CR Walsh20 January 2017
INTRODUCTION
The Applicant, TEC Pipe Pty Ltd (TEC Pipe), owns and operates a power station known as the “Solomon Power Station” (the Solomon Power Station), which is an islanded off-grid power station located in the Pilbara, Western Australia, adjacent to the “Solomon Hub” mining area, being an area mined by FMG Solomon Pty Limited (FMG Solomon), a wholly-owned subsidiary of Fortescue Metals Group Ltd.
The Solomon Power Station comprises six electricity generators, namely four Solar Turbine Titan Mobile Power Units 130 dual fuel gas turbine generators (MPUs) and two GE LM 6000 dual fuel gas turbine generators (GTGs), which are connected to a grid, known as the “Solomon Power Grid” (the Solomon Power Grid). Electricity generated by the Solomon Power Station is supplied by TEC Pipe exclusively to FMG Solomon, for use by FMG Solomon at its mines in the “Solomon Hub”.
The ultimate issue for determination in this application is whether each of the six electricity generators which comprise the Solomon Power Station constitute a “standby plant” as defined in r 3(1) of the Renewable Energy (Electricity) Regulations 2001 (the Regulations) in the “immediately preceding 3 years”.[1] If they do, TEC Pipe did not make a “relevant acquisition”, pursuant to s 31(2)(a) of the Renewable Energy (Electricity) Act 2000 (the Act), and TEC Pipe is not a “liable entity” for the purpose of s 35 of the Act, with the result that TEC Pipe it is not liable to a “large-scale generation shortfall charge” under s 36(1) of the Act.
[1] The meaning of the phrase “immediately preceding 3 years”, as it appears in the definition of “standby plant” in r 3(1) of the Regulations, is considered in detail below in [42], [45] and [47]-[55].
FACTUAL & PROCEDURAL BACKGROUND
As set out in their “Statement of Agreed Facts”, dated 2 September 2016, TEC Pipe and the Respondent, the Clean Energy Regulator (the Regulator), agree on the following facts:[2]
[2] Exhibit A1.
1.The applicant owns and operates a power station known as the Solomon Power Station (“SP Station”).
2.The SP Station is connected to a grid known as the Solomon Power Grid (“SP Grid”).
3. The SP Grid is not connected to any other grid.
4.Other than the SP Station, no other electricity generation capacity is installed on the SP Grid.
5. The SP Station is comprised of the following electricity generators:
(a)four solar Turbine Titan Mobile Power Units 130 dual fuel gas turbine generators (“MPUs”);
(b)two GE LM6000 PF dual fuel gas turbine generators (“GTGs”).
6.The SP Station was commissioned over a number of years, as follows:
(a) in 2012, two MPUs were commissioned;
(b) in 2013, two more MPUs were commissioned; and
(c) in 2014, both GTGs were commissioned.
7.The amount of electricity generated by each electricity generator in each of the respective years was (in gigawatt-hours or GWh) as follows:
Electricity Generator
Manufacturer
Turbine
2012
2013
2014
MPU21
Solar Turbine
Titan MPU 130
0.00
13.92
26.56
MPU22
Solar Turbine
Titan MPU 130
0.00
13.43
29.80
MPU23
Solar Turbine
Titan MPU 130
0.02
13.94
40.30
MPU24
Solar Turbine
Titan MPU 130
0.03
12.72
40.03
GTG 1
GE
LM6000
0.00
0.00
49.10
GTG 2
GE
LM6000
0.00
0.00
28.57
Site Total
0.05
54.02
214.36
No gigga-watt hours (GWh) were generated by the Solomon Power Station in the 2011 calendar year as the Solomon Power Station was under construction in that year.
During 2014, FMG Solomon (the end user of the electricity) was not registered under the National Electricity Rules[3] and FMG Solomon acquired electricity from TEC Pipe, who generated the electricity.[4]
[3] Exhibit A2 at [4].
[4] Exhibit A1 at [4], Exhibit A2 at [1] and Exhibit A3 at [8]-[10].
The capacity of the six generators installed on the Solomon Power Grid in 2014 was as follows:
· each of the two GTGs has a “nameplate capacity” of 50 mega-watts (MW);
· each of the four MPUs has a “nameplate capacity” of 13MW.
As such, the total installed “nameplate capacity” of the six generators in the 2014 year (before any deductions) was 152MW.
By email dated 18 February 2015, TEC Pipe submitted an “Energy acquisition statement and renewable energy shortfall statement”, dated 17 February 2015, with the Regulator in respect of the Solomon Power Station for the 2014 assessment year, being the calendar year from 1 January 2014 to 31 December 2014.[5]
[5] Exhibit R2 at pp 247-263.
On 31 March 2015, the Regulator sent TEC Pipe a letter titled “Intention to decide your matter in relation to the acquisition of electricity in respect of section 31 of the Renewable Energy (Electricity) Act 2000” (the Notice of Intention).[6] The Notice of Intention states:
I have concluded that:
none of the six Solomon Power Station electricity generators meet the definition of standby plant as defined in regulation 3(1) of the Renewable Energy (Electricity) Regulations 2001 (REE Regulations), and
the capacity of the Solomon Power Network is greater that the 100MW threshold allowed for in section 31(2) of the Renewable Energy (Electricity) Act 2000 (REE Act) when Regulation 22 of the REE Regulations is applied to this grid, and
TEC Pipe Pty Ltd is liable entity for the relevant acquisition of electricity, mentioned by section 31(1) of the REE Act, delivered on the Solomon Power Network during 2014.
[6] Exhibit R2 at pp 274-275.
TEC Pipe then sought from the Regulator (and was granted) a number of extensions of time to file a response to the Notice of Intention.[7]
[7] Exhibit R2 at p 26.
On 14 May 2015, a teleconference was held between a representative of TEC Pipe and the Regulator in relation to the Notice of Intention.
By letter dated 22 July 2015, the Regulator wrote to TEC Pipe setting out its interpretation of the relevant legislation in the context of the facts and circumstances of the Solomon Power Station and said:
I would like to inform you that the Regulator will assess [TEC Pipe’s] 2014 Energy Acquisition Statement, as lodged before 16 February 2015, in line with the Regulator’s position on liability. I would appreciate it if you entered your 2014 Energy Acquisition Statement into the REC Registry as liable entities are now about to report zero (0) relevant acquisition. This will mean TEC Pipe’s quarter 1 to 3 required surrender amounts for the 2015 assessment year will be set at zero (0) MW and zero (0) STCs.
Consequently I will allow an assessment under section 45B of the REE Act. This will allow TEC Pipe to apply and surrender the required amount of certificates within 30 days of the assessment notice under section 45C of the REE Act.
As foreshowed in its letter dated 22 July 2015 (the Original Decision), on 1 December 2015, the Regulator issued TEC Pipe with a “Notice of Amendment of an Energy Acquisition Statement at the Regulator’s own initiative” under s 45B of the Act. The Original Decision:
· increased the “relevant acquisitions” from “0” to “209,770”; and
· resulted in an invoice payable by TEC Pipe for $1,345,760.00, plus additional invoices for $88,346.36 in interest in respect of a renewable energy shortfall charge for 2014.
By email dated 24 December 2015, TEC Pipe applied to the Regulator for an internal review of the Original Decision. However, the email application was sent to an incorrect email address and so was not received by the Regulator until 15 January 2016.[8]
[8] Exhibit R2 at p 6.
On 11 March 2016, the Regulator notified TEC Pipe of its decision to “confirm” the Original Decision (the Reviewable Decision).[9]
[9] ibid.
In the “Statement of reasons for decision” ( “Attachment A” to the Reviewable Decision), the Regulator stated the following in relation to the issue of whether six generators which comprise the Solomon Power Station constitute “standby plant” as defined in r 3(1) of the Regulations:
31.Applying regulation 22 of the REE Regulations to the Solomon Power Network, the grid’s capacity is the sum of all its installed electricity generation capacity excluding installed electricity generation capacity in the form of a “standby plant” or a “privately owned domestic generator”.
32.If the Solomon Power Network is considered not to include installed electricity generation capacity which is either a standby plant or a privately owned domestic generator, then the Network had, in 2014, a capacity of 136MW (being the total capacity of all its installed generation capacity). However, TEC Pipe asserts that, during the 2014 assessment year, the Network;
a.had installed electricity generation capacity which was comprised solely of standby plants; and
b.when the capacity of the standby plants is excluded from the calculation of the electricity generation capacity of the Network, then the capacity of the Network is zero for the relevant period; and
c.if the capacity of the Network is zero, then paragraph 31(2)(a) of the REE Act would apply such that any acquisitions of electricity delivered to an end user on the Network could not be “relevant acquisitions” for the purposes of REE Act.
33.In its application for internal review, TEC Pipe contends that the definition of “standby plant” in sub-regulation 3(1) of the REE Regulations should be read narrowly, particularly that the phrase “electricity generator” should be read to mean each electricity generation unit that comprises the Solomon Power Station. However, as McHugh J said in the High Court of Australia’s decision in Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216, nothing “is more likely to defeat the intention of the legislature than to give a definition a narrow, literal meaning and then use that meaning to negate the evident policy or purpose of a substantive enactment”.
34.In my view, the term “standby plant” needs to be interpreted appropriately. To do this requires me to have regard not only to the context of the legislative scheme as a whole, but to the plain and ordinary meaning of the term, industry practice and understanding of the term; and the configuration/operation of the power station in question.
35.In my view, the inclusion of a definition of “standby plant” in the legislation is not intended to displace the plain and ordinary meaning of the term. The plain and ordinary meaning of the term should be used, with the additional material set out in the definition of “standby plant” in sub-regulation 3(1) providing technical context to provide an upper limit on what could be considered a “standby plant”.
36.The term “standby plant” is defined in the Electrical Engineer’s Reference Book (14th edition) as follows:
18.4.4 Standby plant
In the UK, where there is a closely interconnected system with numerous generating stations, standby plant is not necessary as part of the main supply system. Individual large consumers, e.g. important manufacturers, hospitals, pumping installations, etc., may, however, consider it desirable to install standby plant to guard against a supply failure. The required outputs do not usually exceed a few hundred kW, and diesel plant, which can be started almost instantaneously, is usually provided for this duty.
There are circumstances where a load centre is supplied by an overhead transmission line from a distant hydro-electric station, and standby plant may then form part of the main system. Diesel plant, or steam turbine plant with quick-starting forced circulation boilers, has been used in such cases.
[Source: Electrical Engineer’s Reference Book (14th edition), edited by M A Laughton and M G Say, 1st published 1945; this edition 1985 (1990 reprint), Butterworths & Co (Publishers), London; [reference omitted]
37.In my view, a “plant” can have multiple generation units, it is my view that the term “standby plant” (as used in the REE Regulations) is not meant to refer to individual generation units that ordinarily comprise the standard generation units of a power station. Nor is it meant to refer to the power station as a whole. In my view, the words “electricity generator” (as used in the definition of “standby plant” in sub-regulation 3(1) of the REE Regulations) is meant to refer only to those electricity generator units that guard against a supply failure by providing a backup power supply when the standard generation units fail.
38.In my view, the text of sub-regulation 3(1) must be read as a whole; that the words “standby plant” and “electricity generator” need to be read in conjunction with each other. A “plant” can therefore be made up by one or more generators. Even if the Solomon Power Station was not the sole source of supply (e.g. backup power supply when the standard generation units fail) to the Solomon Power Network, I am satisfied that the legislative intent was that the six generating units that form the Solomon Power Station would form a single “plant”. As shown in the table in paragraph 11 above, the six generating units as a single “plant” generated 209.77GWh in 2014, which is more than the 50GWh of electricity each per year for the three consecutive years immediately preceding 2014 that is required for the Solomon Power Station to meet the definition of “standby plant” in sub-regulation 3(1) of the REE Regulations.
39.In this regard, I am not satisfied that it is open to TEC Pipe to claim that because each of its six generating units produced less than 50GWh for the 2014 assessment year that the Solomon Power Station is a “standby plant” for the purposes of the Renewable Energy (Electricity) legislation. In addition to the material supplied to the Clean Energy Regulator by TEC Pipe, it is clear from the documentation it submitted to the Western Australian Government to obtain a licence to operate the Solomon Power Station that the six generating units were intended as the main supply system for the Solomon Power Network. They were not intended, individually or collectively, to operate as a standby plant, in the sense that it would only be operated to guard against supply failure by providing a backup power supply.
40.For example, on 10 September 2012, TEC Pipe applied to the Economic Regulation Authority (WA) [footnote omitted] for an Integrated Regional Licence to operate the Solomon Power Station (Attachment D), generate electricity and sell it to FMG Solomon Pty Ltd. After referring to the two GE LM6000PF dual fuel gas turbines (initially configured for diesel combustion) and four Solar Turbine TITAN 130-20501 dual fuel gas turbines (initially configured for diesel combustion), the application refers to a “black start generator” in the following terms:
The black start generator is a 2.5 MVA diesel driven generator that is energised in the event of a complete loss of power. The generator is used to start and maintain essential auxiliary equipment and systems required for a gas turbine to re-start, for example gas turbine lube oil pumps and diesel fuel pumps.
This generator will not be used during the normal course of operation, but it will be tested regularly to ensure that it is serviceable and available, if ever needed.
41.I am satisfied that the “black start generator” would not only meet the statutory definition of a “standby plant” but aligns with the plain and ordinary meaning of this term and industry practice. However, the six gas turbines would not.
42.Similarly, the Department of Environment Regulation (Government of Western Australia) under the Part V of the Environmental Protection Act1986 (WA) has issued a licence to allow TEC Pipe to operate the Solomon Power Station (Attachment E [footnote omitted]). The power station has been categorised as a Category 52 (electric power generation) premises, being “Electric power generation: premises (other than premises within category 53 or an emergency or standby power generating plant on which electrical power is generated using a fuel”.
43.This licence regulates the operation of a 134.4 MWe power station under Part V of the Environmental Protection Act 1986 (WA). The power station is located within the Solomon Iron Ore Mine in the Pilbara Region. During construction of the mine, FMd Solomon Pty Ltd gained approval to construct a 134.4 MWe Power Station to supply the mine’s power needs (W5104/2011/1). The licence also states that FMG Solomon Pty Ltd has since sold the power station to TEC Pipe.
…
Conclusions
55. For the reasons outlined above, I am satisfied that:
a.the capacity of the Solomon Power Network is greater than the 100MW threshold allowed for in subsection 31(2) of the REE Act, when calculated in accordance with regulation 22 of the REE Regulations;
b.none of the six generating units of the Solomon Power Station meet the definition of “standby plant” in sub-regulation 3(1) of the REE Regulations. The six Solomon Power Station electricity generating units were not intended, individually or collectively, to operate as a standby plant, in the sense that it would only be operated to guard against supply failure or provide a backup power supply;
c.even if the Solomon Power Station can be regarded as a “standby plant” in the sense that it is only operated to guard against supply failure or provide a backup power supply (which I do not accept), the six generating units that comprise the “plant” generated 209.77GWh in 2014, which is more than the 50GWh of electricity each per year for the three consecutive years immediately preceding 2014 that is required for the Solomon Power Station to meet the definition of “standby plant” in sub-regulation 3(1) of the REE Regulations;
d.TEC Pipe is a liable entity for a relevant acquisition of electricity, referred to in subsection 31(1) of the REE Act, delivered on the Solomon Power Network during 2014. TEC Pipe Pty Ltd does not meet the requirements of the end user generator exemption in paragraph 31(2)(b) of the REE Act; and
e.TEC Pipe is, therefore, a liable entity for the purposes of the REE Act.
(emphasis added)
On 1 April 2016, TEC Pipe applied to the Administrative Appeals Tribunal (the Tribunal) for a review of the Reviewable Decision. TEC Pipe’s stated “Reasons for the Application” are as follows:
The Applicant is dissatisfied with the Clean Energy Regulator’s objection decision on the basis that the Clean Energy Regulator’s:
(a)assessment of the renewable energy shortfall charge for the 2014 assessment year was excessive or incorrect; and, or
(b)the decision to impose shortfall charges on the renewable energy shortfall charge for the 2014 assessment year was excessive or incorrect on the proper construction of the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act).
Particularly:
(c)The Applicant is not liable, on the proper construction of the REE Act, to pay a renewable energy shortfall charge for the 2014 assessment year because it did not make a “relevant acquisition” within the meaning of that term as used in s 35 of the REE Act. The applicant did not make a “relevant acquisition” because relevantly the electricity was delivered on a grid that has a capacity (calculated as required by the REE Act) that is less than 100MW and not connected to any other grid (s.31(1) of the REE Act). The capacity of the relevant grid is less than 100MW because each electricity generator connected to the grid is “standby plant” as defined in the Renewable Energy (Electricity) Regulations 2001 (Cth) Reg 3 and, consequently, not included in calculating the capacity of the grid (Reg 22 and s. 31 of the REE Act); and
(d)To the extent that the Applicant is liable to pay a renewable energy shortfall charge for the 2014 assessment year, the Clean Energy Regulator extended time for the Applicant to lodge a “large-scale generation shortfall statement” (s.46(2) of the REE Act) until 1 December 2015 and any shortfall charges (if any) are only payable from 1 December 2015, not 15 February 2015 (s.67 or s.69 of the REE Act).[10]
CONSIDERATION
[10] Exhibit R1 at p 5.
Legislative framework
The long title of the Act states:
An Act for the establishment and administration of a scheme to encourage additional electricity generation from renewable energy sources, and for related purposes.
The “objects” of the Act are set out in s 3 as follows:
(a)to encourage the additional generation of energy from renewable sources; and
(b) to reduce emissions of greenhouse gases in the electricity sector; and
(c) to ensure that renewable energy sources are ecologically sustainable.
Broadly, the Act and the Regulations together establish a scheme whereby certificates, called “renewable energy certificates” (RECs), are issued for the generation of electricity using eligible renewable energy sources. The scheme requires certain purchasers (called “liable entities”) to surrender a specified number of RECs for the electricity they acquire during a calendar year (called an “assessment year”). Where a liable entity does not have enough RECs to surrender, the liable entity must pay a “renewable energy shortfall charge”: s 3 of the Act.
Section 46(1) of the Act provides for the creation of two types of RECs, namely a “large-scale generation certificate” (meaning a REC created under Subdivision A of Division 4 of Part 2 of the Act) or a “small-scale technology certificate” (meaning a REC created under Subdivision B or BA of Division 4 of Part 2 or under s 30P of the Act).
Once created, and registered by the Regulator pursuant to s 26 or s 30P(3) of the Act, as relevant, RECs may be transferred to any person pursuant to s 27.
The Act provides for two types of “renewable energy shortfall charge”, namely a “large-scale generation shortfall charge”, which is payable if a liable entity has a “large-scale generation shortfall” for an assessment year (Subdivision B of Division 1 of Part 4 of the Act) and a “small-scale technology shortfall charge” which is payable if a liable entity has a “small-scale technology shortfall” for an assessment year (Subdivision C of Division 1 of Part 4 of the Act).
It is common ground that it is the “large-scale generation charge” which is relevant in this case.
A liable entity will have a “large-scale generation shortfall” in a particular year, if after applying the method in s 38 of the Act, the liable entity has not surrendered enough “large-scale generation shortfall certificates” to acquit the liability that is referrable to the electricity acquired by the liable entity under “relevant acquisitions” during that year.
Only electricity acquired under a “relevant acquisition” is relevant to determining whether a liable entity has incurred “large-scale generation shortfall charge”.
“Liable entity” is defined in s 35 of the Act as follows:
35 Liable entities
A person who, during a year, makes a relevant acquisition of electricity is called a liable entity.
“Relevant acquisition” is defined in s 31(1) of the Act as follows:
31 What are relevant acquisitions?
(1) There are 2 types of relevant acquisition of electricity. These are:
(a) a wholesale acquisition (see section 32); and
(b) a notional wholesale acquisition (see section 33).
However, s 31(2) of the Act provides:
(2) An acquisition is not a relevant acquisition if:
(a)the electricity was delivered on a grid that has a capacity that is less than 100 MW and that is not, directly or indirectly, connected to a grid that has a capacity of 100 MW or more;
(emphasis added)
Section 31(3) of the Act provides:
(3)The amount of electricity acquired under a relevant acquisition and the capacity of the grid are to be determined in accordance with the regulations.
Consequently, irrespective of whether the acquisition is a “wholesale acquisition” or a “notional wholesale acquisition”, pursuant to s 31(2)(a), it will not be a “relevant acquisition” if the grid on which the electricity was delivered had a capacity of less than 100MW and was not, directly or indirectly, connected to a grid that has a capacity of 100MW or more.
It is common ground that, but for the exception in s 31(2)(a) of the Act, TEC Pipe would have made a “relevant acquisition” in the 2014 calendar year because it made a “notional wholesale acquisition” within the meaning of s 33 (i.e. rather than a “wholesale acquisition” with the meaning of s 32). This common position follows from ss 32(2) and 33(2) of the Act and the fact that FMG Solomon was not registered under the National Electricity Rules in the 2014 calendar year: refer to [6] above.
What is at issue is the “capacity” of the Solomon Power Grid which is used to supply electricity from the Solomon Power Station (which is owned and operated by TEC Pipe) to the “Solomon Hub” mining area (which is mined by FMG Solomon, the end user).
As stated above, s 31(3) provides that the “capacity of a grid” is to be determined in accordance with the Regulations.
Regulation 22 relevantly provides:
22 Capacity of grids
For subsection 31(3) of the Act, the capacity of a grid is the sum of all installed electricity generation capacity of the grid other than:
(a) standby plant; and
(b) privately owned domestic generators.
(emphasis added)
It is common ground that none of the six electricity generators at the Solomon Power Station (owned and operated by TEC Pipe) are “privately owned domestic generators” for the purpose of r 22(b) of the Regulations. What is at issue is whether the six generators are “standby plant” for the purpose of r 22(a) of the Regulations such that they can be excluded in determining the “capacity” of the Solomon Power Grid for the purpose of
s 31(3).
The Explanatory Memorandum to the Renewable Energy (Electricity) Bill 2000 (the EM) (which was enacted as the Act), states the following in relation to r 22 of the Regulations:
Regulation 22 – Capacity of grids
This regulation outlines the requirements for determining whether an electricity grid exceeds the 100MW installed capacity requirement for liability, in accordance with Subsection 31(3) of the Act. The sum of the installed capacity of all power stations linked to the grid is to be counted, except where the installed capacity operates as standby plant or are privately owned domestic generators. The definition of standby plant is outlined in Regulation 3 and only those plant meeting those criteria can be considered for this exclusion.
(emphasis added)
The term “standby plant” is defined in r 3(1) of the Regulations as follows:
standby plant means an electricity generator that, for each of the immediately preceding 3 years:
(a) produced less than 50GWh; or
(b) had a load factor of less than 5%.
It is common ground that only paragraph (a) of the definition of “standby plant” in r 3(1) is relevant in this case.
There is no discussion of the r 3(1) definition of “standby plant” in the EM.
The Act and the Regulations provide no statutory definition of “year” or “years”. This raises the question of what is meant by the phrase “immediately preceding 3 years” in the definition of “standby plant” in r 3(1) of the Regulations. The parties’ contentions, and the Tribunal’s view, on this issue are set out below: refer to [43], [46] and [48] – [57].
THE PARTIES’ CONTENTIONS
TEC Pipe’s position
Proper construction of the phrase “immediately preceding 3 years”
In summary, TEC Pipe’s position on the proper construction of the phrase “immediately preceding 3 years” in the definition of “standby plant” in r 3(1) is as follows (at [2]):
…the phrase “immediately preceding 3 years” means the three years preceding the day of the relevant acquisition, not the three years preceding the commencement of the calendar year in which that acquisition occurs. Let it be assumed that electricity is acquired on 14 December 2016. On the construction advanced by the applicant the “immediately preceding 3 years” is the period from 14 December 2013 to 13 December 2016, not the period 1 January 2013 to 31 December 2015. That is the correct construction for a number of reasons.[11]
Whether TEC Pipe’s six electricity generators are “standby plant”
[11] “Applicant’s Submissions in Response to Direction from the AAT”, received on 19 December 2016.
TEC Pipe’s “Statement of Facts, Issues and Contentions”, dated 15 July 2016, states the following in relation to this issue:
4.6[TEC Pipe] maintains that there has been no “relevant acquisition” of electricity for the 2014 year.
4.7There are three steps which must all be satisfied to determine whether a “relevant acquisition” of electricity occurred and if so, the quantum of such “relevant acquisition”.
4.8 These are:
(1)any electricity that is acquired by an end user on a grid that has a capacity that is less than 100 MW is not a “relevant acquisition”;
(2)in determining capacity of a grid, the capacity of “standby plant” is not to be taken into account; and
(3)“standby plant” is defined as an electricity generator that for each of the immediately preceding 3 years produced less than 50GWh.
4.9Each of the electricity generators at the Solomon Power Station is an “electricity generator”.
4.10Each electricity generator produced less than 50GWh of electricity in the immediately preceding 3 years.
4.11Each is consequently “standby plant” and not to be considered in calculating grid capacity. In the circumstance the grid has no capacity (all generators being standby plant”) when capacity is calculated as required by the Regulations.
4.12There was no “relevant acquisition” because the electricity is acquired by an end user on a grid that has a capacity that is less than 100MW.
4.13Consequently, [TEC Pipe] is not a “liable entity”. Both the decision to issue the amended energy acquisition statement and the review decision should be set aside, and in place determined that [TEC Pipe], in respect of the Solomon Power Station, had nil “relevant acquisitions” for the 2014 assessment year.
Further, TEC Pipe’s “Written Outline of Submissions”, dated November 2016, state:
37.It should be observed that s. 31(2) of the Act and regulation 22, read with the definition of “standby plant” in regulation 3, are drafted by reference to different concepts. Section 31(2) of the Act is directed to capacity. Regulation 22 excludes from the calculation of capacity generators that in point of fact generated less (or in the case of “privately owned domestic generators” are likely to generate less) than the specified amount of electricity, directing attention to actual production (or use) in place of capacity. Attention is directed to production, or actual use, regardless of installed capacity. That objectively deliberate use of different concepts explains why the Solomon Power Station, with large amounts of excess capacity which is not used to produce electricity, has, for the purpose of the Act, no relevant capacity. That also informs the issue of construction.
38.[The Regulator] confuses capacity and production. In focusing on production (in essence, use), contrary to [the Regulator’s] construction, the Regulations do not precede from a premise of existing capacity.
39.That leads to a further distinction which [the Regulator] confuses. Section 31 is directed to a point in time (as capacity generally is), while the definition of “standby plant” is directed to production (ie what did the electricity generator actually produce) over a period. The premise to [the Regulator’s] statement of facts etc [29(a)] confuses those different concepts.
40.TEC Pipe’s submission is simple - in point of undisputed fact each “electricity generator” “for each of the immediately preceding 3 years... produced less than 50GWH”. Consequently, by reference to the criterion specified by the Regulations, namely production, the relevant generators are excluded from the calculation of capacity which leads to liability, or exclusion from liability. Because the generators only produced less than 50GWh each year, the generators are excluded from calculating capacity. That is to give the words used their ordinary meaning.
41.The Regulations do not require that an electricity generator be installed prior to the 3 year period commencing. If this were the intention, the Regulations would have stated this. The only factor relevant (at least in this case) to determining whether an electricity generator is standby plant is that electricity generator’s actual production.
42.On the construction advanced by the construction advanced by [sic] [the Regulator], an electricity generator is required to have been installed and, apparently, producing electricity for 3 years prior to being eligible to be defined as standby plant. That construction involves, in effect, deeming that an electricity generator has produced not less than 50GWh each year if not installed for at least three years.
43.This is not in accordance with the objects of the Act, and is not what the Regulations say. There is no “deeming” provision in the Act or the Regulations. The definition of “standby plant” refers to actual production, and therefore actual use, not a deemed (or more bluntly not real) production.
44.However, before coming to the construction argument, there are further sections of the Act which should be briefly noticed. Sections 37 and 38 impose the “large scale shortfall charge”. As already identified, s.41 is an anti-avoidance provision. Section 44 creates the regime for an annual “energy acquisition statement”, the effect of which is that the statement is functionally equivalent of a tax return but relates to a calendar year. Section 67(1) provides that the “large-scale generation shortfall charge for a year is payable” in effect when the “large-scale generation shortfall statement for that year” is lodged, which is (subject to extension — s.70) 14 February of the following year.
Argument
Principles
45.In light of the contentions advanced by [the Regulator] it is necessary to identify certain well known principles of statutory construction.
46.First, in Federal Commissioner of Taxation v Consolidated Media Holdings Limited [2012] HCA 55 (2012), 250 CLR 503 at [39] the High Court held:
“This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text’ [fn: Alcan (NT) Alumina Pty Limited v Commissioner of Territory Revenue (2009) 239 CLR 27 at [46]-[47]]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text.”
47.That is not to say that the apparent object is not important — it is: s.15AA of the Acts Interpretation Act1901 (Cth); Theiss v Collector of Customs [2014] HCA 12 (2014) 250 CLR 664 at [22]-[24]. However, as already identified it is the apparent purpose or object of the particular section or regulation that is important, and to identify the object of the Act is to make an enquiry at too high a level of generality: Carr v Western Australia at [5]-[6]; Donovan at [81]-[82]. The focus on asserted purpose in the the Regulator’s statement of facts etc is stated at too high a level of generality.
48.Second, once satisfied that the definition of “standby plant” applies to regulation 22 [footnote omitted] “the better — I think the only proper - course is to read the words of the definition into the substantive enactment and then construe the substantive enactment”: Kelly v The Queen [2004] HCA 12 (2004) 218 CLR 216 at [103] per McHugh J.
49.Third, to read words into an act generally requires satisfaction of the conditions identified in Wentworth Securities Limited v Jones [1980] AC 74 (as subsequently refined and restated in part), but satisfaction of those conditions is not necessarily sufficient as the question remains the construction of the (in this case) Regulations as promulgated: Taylor v The Owners — Strata Plan No 11564 [2014] HCA 9 (2014) 253 CLR 531 at [22]-[24], [38]-[40] per French CJ, Crennan and Bell JJ.
“Standby plant”
50.The starting point is the words used in the definition, when read into regulation 22 (Consolidated Media, Kelly in the passages cited). That is, reading the definition as part regulation 22, relevantly:
“... the capacity of a grid is the sum of all installed electricity generation capacity of the grid other than:
(a)an electricity generator that, for each of the immediately preceding 3 years produced less than 50GWh ...”
51.Those words have their ordinary meaning. In point of fact each of the six generators installed at the Solomon Power Station have “...for each of the immediately preceding 3 years produced less than 50GWh”. For present purposes the regulation is directed to 2014 (the year of the assessment). In 2014 each of the six generators were “installed”. Each had “produced less than 50GWh” of electricity in each of the preceding three years. That is to focus on production as is required by regulation.
52.Consequently, each unit was “standby plant” in the 2014 year and the capacity of the grid is nil. Section 31(2) of the Act is engaged, and in 2014 TEC Pipe did not make a “relevant acquisition”.
[The Regulator’s] construction — reading words in
53.[The Regulator] reached a difference [sic] conclusion by a construction, in effect that the generators also having been installed throughout the preceding three years, which requires words to be read into the relevant regulation. In effect [the Regulator] reads the chapeau of the definition of “standby plant” as being to the effect “an electricity generator that, for each of the preceding 3 years has been installed and...” (bold words added). There are a number of reasons why those words should not be read in, and [the Regulator’s] construction should be rejected.
54.First, accepting that it can almost always be said if words are sought to be read into a section or regulation, [the Regulator’s] construction departs from the words used. Reading words in is a process of construction, and it is the departure from the language used which provides a strong reason why a construction involving reading words in should be rejected: Taylor at [39]-[40], a proposition consistent with Consolidated Media at [39]. In this matter, the premise to the definition or condition for which the Regulator contends is unstated in the language used. Words should not be read as subject to an unstated premise or condition unless the words used provide compelling reason to do so. The words used in the definition and in regulation 22 do not provide compelling reason.
55.Second, the precise purpose of the provision to be construed must be identified: Taylor at [22], [39]-[40]. Section 31(2) of the Act creates an exception. Pausing there, that this matter involves the construction of an exception is important. As already identified, [the Regulator’s] reliance on the object of the Act is directed at too high a level of generality, and also fails to engage with the issue of construction arising in respect of the exception. The exception operates in relation to grids with a capacity of less than 100MW. It may be inferred that the object of that exception is to exclude relatively small producers of electricity from the “large scale generation shortfall charge”, in effect as a proxy for not charging those which produce lower quantities of greenhouse gases. That identification of the objective purpose is reinforced by regulation 22 read with “standby plant”: use of each of the things identified in regulation 22 and the definition as, in effect, attracting the exception produces relatively limited amounts of electricity and, consequently, likely limited quantities of greenhouse gases. The object of the definition is the exclusion of relatively low actual production. That object is advanced by giving the words the apparent grammatical meaning, and not reading in the premise or condition for which [the Regulator] contends. The premise or condition imported by [the Regulator] does not advance the objective purpose, instead (as will be identified) it produces unlikely consequences inconsistent with that purpose.
56.Third, the Tribunal generally must be satisfied that the drafter inadvertently overlooked the eventuality requiring the reading in of words: Taylor at [22], [39]-[40]. While the facts of this matter follow from a design mistake and are somewhat unusual, that is not the relevant eventuality. The relevant eventuality is that an electricity generator, which is used to produce relatively small amounts of electricity (that is, which meets the criteria stated in the definition), be installed within the three year period identified in the definition. That readily apparent possibility (it is inevitability, not a possibility) ought not to be concluded to have been overlooked. Instead, the occurrence is addressed by the language in that the relevant generator qualifies as exempt because, in point of fact, it did not produce more than 50GWh in a year.
57.Fourth, if it is right that [the Regulator] reads words into the definition of “standby plant”, then [the Regulator’s] construction requires a re-writing of the definition of “standby plant” to give that definition, in part, substantive operation by importing a condition. That is not a permissible way of construing a definition as to do so departs from Kelly at [103]. Further, [the Regulator’s] reconstruction of the defined term “standby plant” confuses two concepts: the definition is directed to use but [the Regulator] seeks to condition that definition by importing the concept of installed capacity. That confusion of concepts is wrong.
58.Fifth, if the words are to be read into the chapeau to regulation 22 (or otherwise the chapeau be construed as limited to plant which has been installed for not less than three years), instead of into the definition of “standby plant”, then the regulation read as a whole has an irrational operation. Regulation 22 is not concerned only with “standby plant”. It also excludes “privately owned domestic generators” when calculating the capacity of a grid. There is no reason to exclude from the calculation of the capacity of a grid only those “privately owned domestic generators” which have been “installed” for not less than three years. Other unlikely consequences of the construction for which [the Regulator] contends are identified later in these submissions.
TEC Pipe’s construction is the correct construction in any event
59.If it be wrong that [the Regulator] construction requires words to be read in, the construction advanced by TEC Pipe is in any event correct for the following reasons.
60.First, as already identified the words are the starting point and the end point of the analysis: Consolidated Media at [39]. The words used in the definition and in regulation 22 are not subject to the limitation for which [the Regulator] contends, but instead have a meaning consistent with the construction advanced by TEC Pipe.
61.Second, each of the reasons identified in paragraphs 54 to 58 are also good reason to construe the definition of “standby plant” as identified by TEC Pipe, and to reject [the Regulator’s] construction.
62.Third, [the Regulator’s] construction leads to unlikely consequences, one of which has already been identified.
63.It may be accepted that, on the construction identified by TEC Pipe, there is a possibility — likely remote ([the Regulator’s] statement of facts etc [29(c)] is stated far to absolutely and is not supported by evidence or logic) — of the exception created by regulation 22 read with the definition of “standby plant” being engaged fortuitously. Take a grid with high capacity which is first operated at the end of the year with the fortuitous consequence that each generator produced fewer than 50MW of electricity by the end of the year, and thus falls within the definition. The prospect of that happening appears remote: it appears unlikely that a grid be first operated for a short period at the very end of a year, and in effect ramped up in a very short time. That is particularly so as any attempt to avoid the “large scale generation shortfall charge” by a decision on operation directed to manufacturing the postulated circumstance would be unsuccessful: s.41 of the Act. Further, that consequence would be limited to a short period of electricity generation when the plant or generator was first brought into operation. The remote prospect of once only fortuitous operation of the exception is not a reason to strain the language to produce the construction for which [the Regulator] contends (it may be added that the postulated circumstance is the consequence of adopting a calendar year as the ultimately arbitrary measure for the period in which the “large scale generation shortfall charge” be calculated instead of any deficiency in s.31(2) and regulation 22).
64.In contrast, the construction advanced by [the Regulator] creates a number of improbable consequences and is unlikely to have been intended. Electricity generators will count towards the grid capacity, irrespective of how little used (departing from the measure, use, otherwise adopted), in the first three years from being installed or the event which otherwise commences the relevant three year period. That is, the exception cannot be engaged for little used generators for three years. That is illogical, does not does not [sic] advance the objects of regulation 22, or the Act more generally, and involves confusing use and capacity. Similarly, a temporary generator (for example the temporary units considered in Forge Group Power Pty Limited (in liq) (recs and mgrs apptd) [2016] NSWSC 52 (2016) 305 FLR 101, perhaps installed while other generators are subject to maintenance) installed for a short period or an, in effect, emergency generator could never qualify for the exemption and thus are required to be included in calculating capacity of a grid. That has a tendency to defeat the object of regulation 22. Other examples, inconsistent with the apparent object to exclude grids which produce relatively little electricity and greenhouse gas emissions, can readily be postulated.
65.The construction advanced by [the Regulator] more readily leads to improbable results, inconsistent with the statutory object, than that advanced by TEC Pipe. That is good reason not to depart from the prima facie meaning of the language used. Further, the improbable consequences of the construction identified by [the Regulator] is also good reason to hold the construction identified by TEC Pipe is correct because it leads to fewer unlikely results.
Another point?
66.[The Regulator’s] statement of facts etc [31] is expressed as being to the effect that, because there is a “notional wholesale acquisition”, s.33(2) of the Act provides a separate reason which supports the assessment. If that is the intended effect of [the Regulator’s] statement of facts etc [31] it is wrong. Section 33 of the Act contains a definition of one of the two types of acquisition defined in s. 31(1) as a “relevant acquisition”. However, the s. 31(1) definition, relevantly defining a “relevant acquisition” as including a “notional wholesale acquisition”, is subject to the exception in s. 31(2). That is, that the acquisition is a “notional wholesale acquisition” is a necessary step prior to reaching the issue of s.31(2) read with regulation 22 and the definition of “standby plant”. [The Regulator’s] statement of facts etc [31] does not provide separate support for the assessment, and does not advance the present issue.
Conclusion
67.For those reasons the six generators located at the Solomon Power Station are “standby plant”. Each is excluded in calculating the relevant grid’s capacity, which when calculated as required by the Act is nil. Consequently, TEC Pipe has not made a “relevant acquisition” and is not a “liable entity”. The assessment is “excessive” and should be set aside because it was made on the erroneous basis that (a) the capacity of the grid exceeded 100MW, (b) consequently there was a “relevant acquisition” and (c) TEC Pipe was a “liable entity”. In lieu of that assessment TEC Pipe should be assessed as having no liability to pay the “large scale generation shortfall charge” for the 2014 year.
(emphasis added)
The Regulator’s position
Proper construction of the phrase “immediately preceding 3 years”
In summary, the Regulator’s position regarding the proper construction of the phrase “immediately preceding 3 years” in the definition of “standby plant” in r 3(1) of the Regulations is as follows (footnotes omitted):
6.…the phrase “immediately preceding years” in r.22 [sic] can only refer to the three calendar years which come before, but do not include, the (calendar) assessment year in question. Specifically:
a.While in the absence of a statutory definition, “year” simply means a period of 365 (or 366) days, in this case, both the relevant statutory context (above) and well established principle - absent contrary intention, a term has consistent meaning throughout the statutory regime - support the conclusion that “year” means a “calendar year”;
b.The ordinary meaning of “precede” is “to come before in time or to occur earlier than” or “to go before, as in place, order, rank, importance, or time”. “Preceding” has a corresponding meaning: “to occur immediately before” or “previous”.
c.X cannot “come before” or “precede” Y if Y forms part of X. Contrast the situation in Item 7 to the Table in s.36 of the Acts Interpretation Act - a period of time expressed to end before a specified day does not include that day. That is not the case here - the ordinary meaning of “preceding” excludes the period of time which follows it.[12]
[12] “Respondent’s Supplementary Submissions”, received on 19 December 2016.
Whether TEC Pipe’s six electricity generators are “standby plant”
The Regulator’s “Statement of Facts, Issues and Contentions”, dated 2 November 2016, states the following in relation to this issue:
Contentions
21. The Respondent contends:
a.that the Applicant’s acquisition of electricity was a “relevant acquisition” during the 2014 assessment year because:
i. the electricity acquired by the Applicant was delivered on a grid with a capacity of at least 100MW; and
ii.the acquisitions were notional wholesale acquisitions [footnote omitted];
b.the imposition of interest pursuant to the terms of s. 70 of the REE Act is not a matter capable of review or determination by the Tribunal.
The relevant acquisition contention
22.The electricity acquired by the Applicant was delivered on the Solomon Power Station Grid (SP Grid). The only installed electricity generation capacity on the SP Grid is the Solomon Power Station (SP Station) [footnote omitted]. During the 2014 assessment year, the SP Station comprised six generators [footnote omitted].
23.Pursuant to r 22, the capacity of the SP Grid is the sum of all installed electricity generation capacity, namely the capacity of each of the generators, except any which are standby plant or privately owned domestic generators.
24. None of the generators are privately owned domestic generators.
25.The Applicant contends that in 2014 each of the six installed generators were standby plant because each of them produced less than 50GWh in each of the immediately preceding three years (i.e. that paragraph (a) of the definition of “standby plant” is satisfied).
26.Embedded in this contention is the premise that a generator which is not installed on the grid for one or more of each of the immediately preceding three years is capable of satisfying the definition of standby plant. That is the Applicant contends that because it was not installed it ought to be considered to have “produced less than 50GWh” or to have “had a load factor of less than 5%” in each relevant year.
27.The Respondent contends, on the proper construction of the definition of “standby plant” in r 3(1) (which is informed by ss 31(2)(a) and 31(3) and r 22), that for a generator to have “produced less than 50GWh” or have “a load factor of less than 5%” for each of the immediately preceding three years, it must have been installed on the grid for each of those three years.
28.In particular, the Respondent contends that for a generator to be an “electricity generator” for the purpose of the definition of standby plant, it must be installed on the grid in respect of which capacity is being determined for each year in the relevant three year period. Further, or alternatively, for a generator to have “produced less than 50GWh” or have a “load factor of less than 5%” in each of the relevant years, presupposes that the generator was capable of producing electricity to the grid in respect of which capacity is being determined.
29.The Respondent contends that this construction best accords with the text, context and purpose of the REE Act and Regulations for the following reasons:
a.the correct construction of the statutory definition of “standby plant” is informed by its context, and the purpose or object of the substantive provisions, which in this case is principally r 22 [footnote omitted]. When read together it is plain that r 22 and the definition of “standby plant” operate to exclude from the determination of a particular grid’s capacity that which is otherwise “installed electricity generation capacity”. That is, for the purpose of r 22, only generation capacity which is “installed” on the grid is relevant to that grid’s capacity. For the definition of “standby plant” to be read to include generators which were not installed for the relevant three year period, (whether or not it pertains to satisfying either of the alternative elements to the definition), would be contrary to the clear purpose of r 22;
b. r 22 excludes a generator from the meaning of standby plant by reference to the generator’s production of electricity over a three year period. In that way, dispensation is provided where the actual production level of a generator is consistently (over 3 years) below the relevant liability thresholds. To interpret the definition of standby plant so as to enable a generator to satisfy the criteria of standby plant because for one or more of the relevant years because it did not exist, would significantly curtail the effect of the three year requirement and undermine the purpose to afford dispensation in respect of actual production;
c.if the Applicant’s construction were to be preferred, it would produce an outcome inconsistent with the REE Regulation’s imposition of a three year period. In particular, if it were accepted that an electricity generator satisfied the criteria of producing less than a certain amount of electricity in a given year because it was not installed, any newly installed generator would, in its first year of operation, automatically qualify as standby plant no matter how much electricity it generated in that first year. By contrast, the Respondent’s position gives meaning to the use of the three year period in the definition;
d.if the Respondent’s contention is accepted, then a new generator could not satisfy the definition of “standby plant” until at least its fourth year of operation. This is consistent with the underlying purpose for exclusion of standby plants from a grid’s capacity and the objects of the REE Act. In particular, it would require a generator to have three years of operational data before it could be considered a “standby plant” in the context of the particular grid in which it is installed and operates; and
e.the Respondent’s contention is consistent with the objects of the REE Act. In particular, by including all new sources of electricity in the determination of a grid’s capacity, it advances the objects of encouraging the additional generation of electricity from renewable sources and reducing emissions of greenhouse gases in the electricity sector [footnotes omitted]. First, it encourages greater consideration of whether expansion of a grid’s current capacity is required, because any expansion may lead to an entity which is not currently a liable entity becoming a liable entity. Second, in considering what type of generator to use in expanding a grid’s capacity, an entity is encouraged to consider renewable sources not simply because it may wish to create RECs but also because it may need those RECs if it were to then become a liable entity by reason of the grid’s expansion.
30.As none of the generators installed to the SP Grid in the 2014 assessment year were installed in each of the immediately preceding three years, the Respondent contends that none of these generators satisfy the definition of standby plant. Accordingly, the capacity of the SP Grid in 2014 (being “the sum of all its installed generation capacity”), is the sum of the capacity of each of the six generators, which is greater than 100MW [footnote omitted.
31.The Respondent also contends that the electricity acquired by the Applicant during 2014 on the SP Grid was a notional wholesale acquisition. In particular, pursuant to s 33(2) of the REE Act, a notional wholesale acquisition occurs if the end user of the electricity acquires the electricity from the person who generated the electricity, and the end user is not registered under the National Electricity Rules. As set out in paragraph 7 above, both these elements were satisfied in relation to the electricity acquired during the 2014 assessment year. Accordingly, pursuant to s 33(2), the REE Act, the person who generated the electricity (the Applicant) is taken to be two persons (the notional generator and the notional wholesaler) and the REE Act applies as if the notional wholesaler acquired the electricity from the notional generator at the time the end user acquired the electricity.
32.Accordingly, the acquisition of electricity by the Applicant during the 2014 assessment year was a relevant acquisition.
(emphasis added)
The Tribunal’s position
Proper construction of the phrase “immediately preceding 3 years”
As stated previously, the word “years”, which appears in the phrase “immediately preceding 3 years” in the definition of “standby plant” in r 3(1) of the Regulations, is not defined in the Act or the Regulations. In such circumstances, it takes its ordinary meaning, being:
period of 365 or 366 days, divided into 12 calendar months, based on the Gregorian calendar and now reckoned as beginning 1 January and ending 31 December (calendar year).[13]
[13] Macquarie Dictionary Online, 6th Edition, Macmillan Publisher Australia, 2015.
As stated above (in [43]), TEC Pipe asserts that the phrase “immediately preceding 3 years”, in the definition of “stand by plant”, means the three years preceding “the day of the relevant acquisition”, not the three calendar years preceding the commencement of the assessment (calendar) year in which the “relevant acquisition” occurs.
For the following reasons, the Tribunal does not accept TEC Pipe’s construction. The Tribunal’s view is, as submitted by the Regulator, that the phrase “immediately preceding 3 years” in the definition of “standby plant” in r 3(1) of the Regulations, is to be understood and applied in the context of the scheme established by the Act together with the Regulations, especially ss 31 and 44.
Section 44 of the Act states:
44 Annual energy acquisition statements
(1)A liable entity that acquired electricity under a relevant acquisition during a year (the assessment year) must lodge an energy acquisition statement for the year on or before:
(a) 14 February in the next year; or
(b) any later day allowed by the Regulator.[14]
[14] Pursuant to s 45B of the Act, the Regulator may, as it did in this case, amend an energy acquisition statement on its own initiative.
Consequently, a “liable entity” that acquired electricity under a “relevant acquisition” (as defined in s 31 of the Act) during an “assessment year” must lodge an “energy acquisition statement” (EAS) with the Regulator for that “assessment year”. It is clear that an “assessment year” for the purpose of s 44(1) is a calendar year because the EAS must be lodged with the Regulator “for the year on or before …14 February in the next year”. This interpretation also follows from the ordinary meaning of the word “year”. The lodging of an EAS for an assessment year is effectively the mechanism by which the liable entity self-assesses its liability to pay a “renewable energy shortfall charge” (i.e. a “large-scale generation shortfall charge” or a “small-scale technology shortfall charge”, as relevant) for an “assessment year” or calendar year. The liable entity’s EAS “has effect as if it were a notice of assessment signed by the Regulator and given to the liable entity on the day on which the assessment is taken to have been made”: ss 47(6) and 48A of the Act. This mechanism of the liable entity self-assessing its liability and lodging an EAS for an assessment (calendar) year with the Regulator, is not unlike the system of self-assessment which applies under the income tax legislation, whereby a taxpayer self-assesses his taxable income for a particular income year, files an income tax return with the Commissioner by the required date[15] and the Commissioner issues the taxpayer with a Notice of Assessment in accordance with the tax return filed by the taxpayer, albeit the relevant “assessment” year for income tax purposes is a financial year, not a calendar year as is the case here.
[15] As specified by the Commissioner, towards the end of each financial year, via Legislative Instrument.
Section 44(2) of the Act provides:
(2) The statement must set out:
…
(b)the amount, in MWh, of electricity acquired by the liable entity under relevant acquisitions during the assessment year; and
(emphasis added)
Consequently, the concept of a “relevant acquisition” is central to the completion and lodgement of an EAS by a liable entity with the Regulator for an assessment (calendar) year. What does and does not constitute a “relevant acquisition” is set out in s 31 of the Act: refer to [29] and [30] above. As previously stated, s 31(1) of the Act provides that a “relevant acquisition” must be one of two type, under s 31(2) an acquisition of electricity delivered on a grid with less than 100MW capacity is not a “relevant acquisition” and s 31(3) provides that a grid’s capacity is to be determined in accordance with the Regulations.
It follows, in the Tribunals view, that the phrase “immediately preceding 3 years” in the definition of “standby plant” in r 3(1) of the Regulations can only refer to the three calendar years which come before, but do not include, the relevant “assessment (calendar) year” – in TEC Pipe’s case, the 2014 “assessment (calendar) year”. As submitted by the Regulator, the use of the word “immediately” in the definition of “standby plant” is directed towards ensuring that the relevant three year period is specified and that a generator is not “standby plant” simply because the generator satisfied one of the alternative criteria of the definition of “standby plant” in r 3(1)(a) and (b) of the Regulations in any preceding three year period.
TEC Pipe’s contention that the phrase “immediately preceding 3 years” means the three calendar years immediately preceding the day of the “relevant acquisition” is, with respect, misplaced. If, by way of analogy, we were considering the same phrase, “immediately preceding 3 years”, in the context of a Capital Gains Tax (CGT) event and the income tax legislation, each of the “immediately preceding 3 years”, for the purpose of including a capital gain in a taxpayer’s assessable income for an income year (financial year) would be the immediately preceding income years (financial years) before, but not including, the income year in which the CGT event happened. So, for example, if the CGT event happened on 29 June 2016 (which falls within the income year ended 30 June 2016), the “immediately preceding 3 years” would be the income years ended 30 June 2015, 30 June 2014 and 30 June 2013. The “immediately preceding 3 years” would not be the three income years immediately preceding the day on which the CGT event happened on 29 June 2016. Such an interpretation would be inconsistent with the way in which the self-assessment system operates under the income tax legislation. The same logic applies in relation to the self-assessment regime in place under the Act, save for the fact that here we are considering a calendar assessment year rather than a financial assessment year.
In making this finding, the Tribunal acknowledges and accepts the following submissions of the Regulator (footnotes omitted):
7.Any suggestion that the phrase means the three periods of 365 days immediately before the acquisition in question is inconsistent with the statutory context (above) as well as posing practically difficulties - it would require a day by day assessment of the grid’s capacity, whereas on the Respondent’s case a generator’s status is known and applies for the calendar year.
8.But, in any event, the adoption of such an alternative construction would make no difference to the end result in the present case if the Respondent’s principal submission - that an electricity generator that didn’t exist in in the relevant year cannot be said to have “produced less than 50GWh in that year” - is accepted. None of the electricity generators in question existed at any time in 2011. Thus even if the 3 years runs backwards from the date of acquisition (say 19 December 2014), none of the generators produced less than 50GWh for each of the three “years” (19/12/11-18/12/12, 19/12/12-18/12/13 & 19/12/13-18/12/14).
(emphasis added)
Whether TEC Pipe’s six electricity generators are “standby plant”
The Macquarie Dictionary Online[16] defines the word “standby” to include:
something upon which one can rely; a chief support.
something kept in a state of readiness for use, as for an emergency.
and the word “plant” to mean:
the complete equipment or apparatus for a particular mechanical process or operation…
the equipment, as for electricity, air conditioning, plumbing, etc., used in the functioning of a large building.
heavy-duty machinery and vehicles, as earthmoving equipment, bobcats, tip trucks, pumps, loaders, etc.
[16] Macquarie Dictionary Online, 6th Edition, Macmillan Publisher Australia, 2015.
If the Tribunal is entitled to construe the words “standby plant” in r 22, and its definition in
r 3(1), having regard to their ordinary meaning, as set out above, we would conclude that none of the installed capacity of TEC Pipe is to be excluded from the calculation of Solomon Power Grid (which is owned and operated by TEC Pipe). The undisputed evidence is to the effect that although the Solomon Power Station was overdesigned, and has a very large amount of excess capacity, each of the six installed generators in the Solomon Power Station are linked. They form part of a common system supplying the “Solomon Hub” mining area on a regular basis, each switching on as demand for power is required.[17][17] TEC Pipe’s “Statement of Facts, Issues and Contentions”, dated 15 July 2016, at [2.5]-[2.17].
Uninstructed by authority, this Tribunal would adopt the reasoning expressed by the Regulator in the “statement of reasons for decision” attached to the Reviewable Decision as Annexure A: refer to [17] above. Yet, notwithstanding the appeal of the primary decision-maker’s reasoning, to what McHugh J stated in the High Court of Australia’s decision in Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 (Kelly) as the appropriate principle (i.e. that nothing “is more likely to defeat the intention of the legislature than to give a definition a narrow, literal meaning and then to use that meaning to negate the evident policy or purpose of a substantive enactment”), the Tribunal reluctantly accepts it is constrained by specific binding authority not to apply those observations to the statutory definition of “standby plant” in r 3(1) in this review.
The Tribunal is bound by the decision of the Full Court of the Federal Court of Australia in Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 199 FCR 226 (Esso) at [101]-[107] to discount the ordinary meaning of a defined term. Both counsel for TEC Pipe and counsel for the Regulator acknowledged this at the hearing of this application.
In Esso the Full Court (Keane CJ, Edmunds and Perram JJ) accepted (at [101]) that such a conclusion might be regarded as “surprising”, but reasoned that it was required in consequence of the High Court’s per curiam statement in The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 (Shin Kobe Maru) (at 419) that:
It would be quite circular to construe the words of a definition by reference to the term defined [footnote omitted].
There may be reason to doubt that Shin Kobe Maru mandates the absoluteness of the conclusion reached by the Full Court in Esso. In Shin Kobe Maru, the High Court explicitly accepted (at 420) that a statutory definition should be read down:
Only if that is clearly required as, for example, if it is necessary to give effect to the evident purpose of the Act [footnotes omitted].
Moreover, the bench which decided Shin Kobe Maru included McHugh J whose later remarks in Kelly, to more robust effect, were understandably, albeit in error, relied on by the primary decision maker in this matter.
Be that as it may, the Full Court in Esso, in considered reasons of a strong and unanimous bench, explained how Shin Kobe Maru is to be applied. Their Honour’s reasoning is binding on all inferior Federal courts and tribunals. A challenge to the conclusion in Esso has no prospect of success unless advanced before a subsequent Full Court or in an appeal to the High Court of Australia.
Esso requires this Tribunal to proceed on the basis that the established law of Australia prohibits this Tribunal construing a defined term in an Act or regulation by reference to the defined term’s ordinary meaning.
On that premise, TEC Pipe contends that having regard to the literal meaning conveyed by the words of the definition of “standby plant” in r 3(1) of the Regulations; ignoring, as the Tribunal accepts it must, the contrary inferences it might (and would) otherwise derive from the ordinary meaning of that term; each of the six individual generators that make up the Solomon Power Station potentially come within the exclusion provided for “standby plant” in r 22(a).
It will be recalled that r 3(1) defines “standby plant” relevantly:
As an electricity generator that, for each of the immediately preceding 3 years:
(a) produced less than 50GWh.[18]
[18] As stated in [40], it is common ground that the alternative exception in r 22(b) of the Regulations, as it applies to generators having a “load factor of less than 5%” does not apply in this case.
As set out above (in [45]), the consequences TEC Pipe submit flow from applying that definition to the exclusion provided for “standby plant” in r 22 of the Regulations are that each of the six electricity generators at the Solomon Power Station:
· is an “electricity generator”;
· produced less than 50GWh of electricity in the immediately preceding 3 years; and
· is, consequently, “standby plant” as defined in r 3(1) of the Regulations and not to be considered in calculating grid capacity. In such circumstances, TEC Pipe argues, the grid has no capacity (all generators being “standby plant”) when capacity is calculated according to the Regulations.
Affronting to common-sense as the conclusion may be that a “grid” which supplies the substantial demands for electricity of the “Solomon Hub” has no capacity; particularly because it is undisputed that the Solomon Power Station generates much more than 50GWh; the literal wording of the text in the definition of “standby plant” in r 3(1) of the Regulations (subject to the Regulator’s submissions regarding the period over which the generators must operate), supports the conclusion contended for by TEC Pipe that because each of the six generators that give it that generation capacity, each separately produce less than 50GWh, the Solomon Power Station makes a net zero contribution to the grid.
That is what the literal meaning of words of the definition of “standby plant”, divorced from the ordinary meaning of the term they define and the issue of the period over which they must operate, appears to require.
Many recent decisions of the High Court have reiterated the centrality of text to the task of statutory interpretation: see, for example, Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27 at [47]; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 87 ALJR 98; [2012] HCA 55 at [39]; and Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 87 ALJR 558; [2013] HCA 16 at [47].
Once it is accepted that each generator comes within the literal language of the exception provided for in r 22 of the Regulations, each step of the argument advanced by TEC Pipe, subject to the caveat regarding the period over which they must operate, logically follows.
It is the ordinary meaning of the expression “standby plant” which gives rise to the Tribunal’s unease with the construction submitted for by TEC Pipe. The ordinary meaning conveyed by those words is that of a back-up generator that is not part of the main supply system: refer to [56] above. Only if the definition can be construed having regard to the ordinary meaning of the term it defines does it affront common-sense to consider the six generators operating as the Solomon Power Station being understood as “standby plant” and adding nothing to the grid.
However, that having been specifically prohibited by the decision in Esso, the Tribunal has not identified anything else in the Act or Regulations that would entitle it to reach the conclusion, adverse to TEC Pipe, it otherwise would have reached - i.e. the evident purpose of the exclusion in r 22 is to exclude generators (up to a maximum power output of 50GWh or with a load factor of 5% or less) which are not part of a main supply system and which are called on only as required when the main supply fails.
Notwithstanding Project Blue Sky Inc and Others v Australian Broadcasting Authority (1998) 194 CLR 355, in which a majority of the High Court of Australia held (at 381-382) that in construing a statutory provision the text of any particular section must be read and understood as part of the statute viewed as a whole, in our view there is nothing in the Act or Regulations which is inconsistent with the literal text save an inconsistency with the ordinary meaning of the defined term - the specific matter we are prohibited from taking into account. For the same reason we are equally of the opinion that there is no sufficient basis to apply the principle stated by Fullager J in Halford v Price (1960) 105 CLR 23; [1960] HCA 38, (recently applied in Segelov v ErnstPty Ltd [2015] NSWCA 156 at [107]) that there is no principle of statutory construction which requires a definition to be applied where it would be at variance with a context or with the general intent to be gathered from the whole of the instrument.
However, the Tribunal’s acceptance of those propositions does not dispose of the Regulator’s riposte.
Before the Tribunal, the Regulator accepts that the reasoning of the internal decision on review cannot be defended because of the reasons discussed above. However, it submits that the correct construction of r 22 of the Regulations operates to exclude from the determination of a particular grid’s “installed electricity capacity” only specific kinds of electricity generators, those that for each of the immediately preceding three years: (a) produced less than 50GWh; or (b) had a load factor of less than 5%.
It submits that the literal meaning of the words of r 22 (applying the definition of “standby plant” in r 3(1)) is consistent with the contention that in order to fall within the exclusion a generator must have been “installed” for “each of the immediately preceding three years”. It submits that such a construction best accords with the text, context and purpose of the Act and Regulations. It submits that “for the definition of standby plant to be read to include generators which were not installed for the relevant three year period … would be contrary to the clear purpose of r.22”[19]: refer to [47] above.
[19] “Respondent’s Statement of Facts, Issues and Contentions at [29a]”, dated 2 November 2016.
TEC Pipe rejects that analysis. It submits that the Regulations do not require that an electricity generator be “installed” prior to the three year period commencing to fall within the exemption. It observes that if this had been the intention the Regulations would have stated this: refer to [44] above. It submits that to reach such a conclusion would require the Tribunal to read additional words into the text of the definition of “standby plant” such that it would read, “an electricity generator that, for each of the preceding 3 years has been installed and ...”: refer to [45] above.
TEC Pipe submits that there are five “powerful” reasons why the Tribunal should not take that course. First, reading any additional words in departs from the words actually used. That is not warranted unless compelling reasons require it. Second, it would result in a departure from the Regulations’ objective purpose of excluding relatively low actual production. Third, the Tribunal cannot be satisfied that the drafter inadvertently overlooked the eventuality requiring the reading in of words. Fourth, it impermissibly changes the substance of the definition. Fifth, it gives the Regulations read as a whole an irrational operation. Privately owned domestic generators would be captured in the calculation of the capacity of a grid unless they too had been installed for not less than three years: refer to [45] above.
The Tribunal need not specifically address each of those submissions. It accepts that if additional words must be added to a text to give it a substantively different meaning that would trespass beyond that which current legal doctrine accepts to be permissible as an aspect of statutory interpretation unless that meaning is clearly identifiable as the intention of an act or regulation, when read as a whole: see Taylor v The Owners - Strata Plan No 11564 (2014) 88 ALJR 473; [2014] HCA 9 per French CJ, Crennan and Bell JJ at [38]-[39].
However, the Tribunal does not accept the premise of those submissions.
Reading the definition of “standby plant”, as part of r 22, it relevantly states:
For subsection 31(3) of the Act the capacity of a grid is the sum of all installed electricity of the grid other than an electricity generator that, for each of the immediately preceding three years produced less than 50GWh…
The text read literally qualifies what is included in the sum of installed capacity only by excluding those electricity generators which for “each of the preceding three years have produced” less than 50GWh. In the Tribunal’s view, it operates, by its own terms, rather than by necessity for any additional words, such that to fall within the exclusion a generator must have been in existence (that is capable of producing electricity) but to have “produced” less than 50GWh of the capacity of the grid, for each of the preceding three years. If a generator has not been commissioned for each of those years, it is not within the exclusion. The Tribunal is of the opinion that such a reading is consistent with the principles that apply to the construction of a composite phrase: see Sea Shepherd Australia Ltd v Federal Commissioner of Taxation (2013) 212 FCR 252; [2013] FCAFC 68 per Gordon J at [34].
It is the construction urged by TEC Pipe, rather than that submitted for by the Regulator, which requires additional words to be read into the text to justify a different conclusion; vis “other than an electricity generator, that for each of the immediately preceding three years had not been commissioned or had produced less than 50GWh”.
On the undisputed facts before us, given the sequencing of the coming into commissioning of the six respective electricity generators, we have concluded that on a literal reading of the text of r 22 the Reviewable Decision must be affirmed.
Moreover, we are not minded to accept either party’s appeal to broader statutory purpose, or their reference to what they divergently assert may be inferred to have been the drafter’s intent, to reach a different conclusion.
Neither the construction advanced by TEC Pipe, nor that advanced by the Regulator, plausibly appears to be the intended operation of the r 22 of the Regulations.
For the reasons advanced by TEC Pipe in its written submissions at [64] (refer to [45] above) there are good reasons to doubt that the construction now advanced by the Regulator was intended.
But equally, as TEC Pipe itself concedes in its written submissions at [63] (refer to [45] above), there are reasons to doubt that it could have been intended by the drafter that r 22 might “fortuitously” exclude high capacity grids comprising linked smaller generators.
In these circumstances, it cannot be for the Tribunal to choose as between two unattractive sets of implausible hypothesised intentions. Nor is the Tribunal at liberty to advance its own view of what policy outcome should prevail. As French CJ, Hayne, Keifel, and Bell JJ held in Australian Education Union v Department of Education and Children’s Services (2012) 248 CLR 1; [2012] HCA 3 at [28]:
In construing a statute it is not for a court [or a tribunal] to construct its own idea of a desirable policy, impute it to the legislature, and then characterise it as a statutory purpose [footnote omitted].
We think it more plausible that the actual policy intent that the drafters intended to convey was that expressed by the Regulator in the Reviewable Decision (i.e. that the exception was intended to apply only to a back-up generator which was not part of a main power supply system: refer to [17] above). However, to decide this review on that basis is forbidden to the Tribunal by the decision in Esso.
Be that as it may, we doubt the policy makers or the drafters foresaw the issues that have emerged in this matter. However, as each of TEC Pipe and the Regulator have identified very different but equally unintended consequences that flow whichever view ultimately prevails, there appears to the Tribunal to be a sound case for the Regulations to be amended to address those possible consequences and/or more clearly state the outcomes intended to be achieved.
DECISION
For the above reasons, the Tribunal affirms the Reviewable Decision.
I certify that the preceding 95 (ninety-five) paragraphs are a true copy of the reasons for the decision herein of Justice D Kerr, President & Senior Member CR Walsh
.....[Sgd]...................................................................
Associate
Dated: 20 January 2017
Date of hearing: 7 December 2016 Date final submissions received: 19 December 2016 Counsel for the Applicant: Mr JC Giles SC Solicitor for the Applicant: Ms B Cowcher
Fortescue Metals GroupCounsel for the Respondent: Mr HH Jackson Solicitor for the Respondent: Mr D Blencowe
Clayton Utz
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