AUSTRALIAN COMPETITION TRIBUNAL

 

Re:  Application by ElectraNet Pty Limited No 2 [2008] ACompT 2


 

 


 


 


 


 


RE:     APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ELECTRANET PTY LIMITED PURSUANT TO CLAUSE 6A.13.1 OF THE NATIONAL ELECTRICITY RULES

 

BY:      ELECTRANET PTY LIMITED

 

File no 1 of 2008

 

 

JUSTICE GOLDBERG

28 july 2008

MELBOURNE



AUSTRALIAN COMPETITION TRIBUNAL

 

 

FILE No 1 of 2008

rE:

APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ELECTRANET PTY LIMITED PURSUANT TO CLAUSE 6A.13.1 OF THE NATIONAL ELECTRICITY RULES

 

BY:      ELECTRANET PTY LIMITED

Applicant

MEMBER:

 

JUSTICE GOLDBERG (PRESIDENT)

DATE OF DIRECTION:

28 JULY 2008

WHERE MADE:

MELBOURNE

 

THE TRIBUNAL ORDERS AND DIRECTS THAT:

 

1.         Subject to paragraph 2 of this Order, leave is granted to Energy Consumers Coalition of South Australia to intervene in this review.

 

2.         Energy Consumers Coalition of South Australia is limited to presenting evidence and documents and making submissions in relation to:

 

(a)        its contention that $52.8 million or thereabouts should not be included in ElectraNet Pty Limited’s opening regulatory asset base as at 1 July 2008 to the extent to which evidence and documents are not presented and submissions are not made by the Australian Energy Regulator in relation to that issue;

 

(b)        the matters raised in Annexure “C” to the affidavit of David Headberry filed and sworn on 23 July 2008 in relation to its contention that $29.1 million or thereabouts should not be included in ElectraNet Pty Limited’s opening regulatory asset base as at 1 July 2008 in respect of easement compensation costs.

 

3.         Any evidence, documents and submissions upon which Energy Consumers Coalition of South Australia wishes to rely be filed and served by 4.00pm on 1 August 2008.

4.         The applicant file and serve on Energy Consumers Coalition of South Australia and the Australian Energy Regulator an outline of submissions in reply to Energy Consumers Coalition of South Australia by 4.00pm on 8 August 2008.



AUSTRALIAn competition tribunal

 

 

FILE No 1 of2008

RE:

APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ELECTRANET PTY LIMITED PURSUANT TO CLAUSE 6A.13.1 OF THE NATIONAL ELECTRICITY RULES

 

BY:      ELECTRANET PTY LIMITED

Applicant

member:


JUSTICE GOLDBERG (PRESIDENT)

DATE:

28 july 2008

PLACE:

MELBOURNE


REASONS FOR DECISION

1                          On 23 June 2008 I directed that the Australian Energy Regulator (“AER”) by 27 June 2008 notify any party who it considered may wish to intervene in the proceeding that any application for leave to intervene or notice that it intended to intervene be filed and served by 11 July 2008.

2                          On 8 July 2008 the Energy Consumers Coalition of South Australia (“ECCSA”) filed an application with the Tribunal seeking the granting of leave for it to intervene in the proceeding. 

3                          ECCSA is an unincorporated association representing the interests of major electricity users in South Australia and the interests of electricity users more generally.  ECCSA does not have a formal constitution but operates under rules which regulate its operation.  Its current members are Adelaide Brighton Cement Limited, Kimberley Clark Australia, Mitsubishi Motors Australia Limited, Nyrstar Port Pirie, OneSteel Limited and Seeley International. 

4                          ECCSA has previously made submissions to the Australian Competition and Consumer Commission (“ACCC”) and the AER in which it has opposed the inclusion of any amount in ElectraNet Pty Limited’s (“ElectraNet”) regulatory asset base (“RAB”) in respect of easement compensation costs or easement acquisition or transaction costs.

5                          In particular, ECCSA made submissions to the AER in respect of the inclusion of any amount in ElectraNet’s RAB in respect of easement compensation costs and easement acquisition or transaction costs in its consideration and draft decision in respect of a revenue proposal submitted by ElectraNet to the AER on 31 May 2007 relating to the period 1 July 2008 to 30 June 2013. 

6                          In its revenue proposal submitted to the AER on 31 May 2007 ElectraNet proposed an adjustment to its RAB as at 1 July 2008 to reflect the costs of easements.  The adjustment sought related to the inclusion in its RAB of two categories of costs:

(a)        landowner compensation costs in the amount of $29.1 million which comprised compensation paid directly to landowners for the acquisition of easement rights;

 

(b)        easement acquisition or transaction costs in the amount of $52.8 million which comprised costs necessarily incurred in acquiring easement rights (excluding landowner compensation costs).

 

7                          ECCSA made submissions to the AER prior to the AER publishing its draft decision.  In its submissions to the AER, ECCSA objected to the inclusion of easement compensation costs of $29 million on the basis, in general terms, that they were unreasonable.  ECCSA submitted that easement compensation costs should not be included in ElectraNet’s RAB because there was no evidence that such costs were either incurred and capitalised or not expensed at the time.  ECCSA also objected to the inclusion in ElectraNet’s RAB of the amount claimed by ElectraNet in respect of easement acquisition or transaction costs. 

8                          Section 71O(2) of the National Electricity Law (which is set out in the schedule to the National Electricity (South Australia) Act 1996 (SA)) provides:

“A party (other than the AER) to a review under this Subdivision may not raise any matter that was not raised in submissions to the AER before the reviewable regulatory decision was made.”


Counsel for the AER confirmed that ECCSA had made submissions to the AER before it made its final decision.  Counsel confirmed that, for the purposes of s 71O(2) of the National Electricity Law, ElectraNet had made the submission that the amount of $29.1 million or thereabouts claimed by ElectraNet to be included in its RAB in respect of easement compensation costs should not be so included. 

 

9                          ECCSA is seeking to intervene in the proceeding in support of the AER’s decision in relation to its exclusion of $52.8 million or thereabouts from ElectraNet’s RAB in respect of easement acquisition or transaction costs.  It also wishes to contend that the AER should not have included the amount of $29.1 million or thereabouts in ElectraNet’s RAB as at 1 July 2008 in respect of easement compensation costs.

10                        The AER neither supported nor opposed ECCSA’s application for leave to intervene.  The position of ElectraNet was that it contended that on the basis of the initial material filed by ECCSA it had not sufficiently made out a case for intervention but it was not contending that there was no basis upon which leave to intervene might be granted.  In the events which occurred, I gave ECCSA leave to file further material. 

11                        Mr David Headberry, the secretary of ECCSA, filed an affidavit sworn on 23 July 2008 in which he annexed a list of the current members of ECCSA and a copy of ECCSA’s rules.  Mr Headberry stated that ECCSA does not have a formal constitution but operates under these rules.  Mr Headberry also annexed to his affidavit what he described as “A summary of the ECCSA view on ElectraNet easement costs and extracts of submissions made to the ACCC and AER” (“the summary”).

12                        In the summary there is set out ECCSA’s contentions and submissions with regard to the inclusion of easement costs being incorporated in ElectraNet’s RAB.  The summary contains material and contentions in relation to ECCSA’s view of the decision of the AER.  In particular there is included a section entitled “ECCSA view on Easement Valuation in the 2008 AER Review”.

13                        In substance, ECCSA’s contentions are that ElectraNet is not entitled to an increase in its RAB of $52.8 million for easement transaction costs and that the AER erred in including in the RAB easement compensation costs of $29.1 million or thereabouts.  It is ECCSA’s contention that these costs should not be allowed because an initial allowance was made for these costs by the ACCC in 2002 of $3.1 million which was subsequently increased to $3.4 million.

14                        ECCSA’s position in relation to easement compensation costs is set out in the summary in a number of places.  In particular the summary sets out the following:

Secondly, ECCSA considers that the AER erred in including the $29.1 m in the final decision for easement compensation costs.  In regard to this, ECCSA observed in its response to the AER draft decision:

 

“The AER argument for granting these additional costs is as follows:-

 

          We assume [easement compensation costs] might have been incurred

          There is no evidence that the costs were incurred, [but] if they were, they might have been expensed at the time

          If they were incurred and they were not expensed at the time, there is no record of what they were.

          We do have records in Victoria, so despite ElectraNet advising in 2002 (and many times since) that the ElectraNet network is totally different to that in Victoria, we will use the Victorian records to estimate what the costs might have been [for ElectraNet].

 

This whole process and justification by the AER is unreasonable from a consumer viewpoint.  The AER approach defies logic let alone objectivity.”

 

Thirdly, the implication of the AER including the easement compensation cost in the regulatory asset base (RAB), is that in future it will be subjected to regular increases in value, as the RAB is escalated annually to retain its ‘real’ value of a depreciated replacement cost.  Easements are not depreciated, so effectively the easement cost included in the RAB will be increased by the allowed escalator each year.

 

If the amount paid as compensation is a fixed amount, it should not be escalated, but retained at the amount ElectraNet is assumed to have paid.  In the ACCC decision in 2003, it escalated the notional $3.1m for easements by CPI to allow a 2003 RAB starting value for easements of $3.4m.

 

ECCSA considers indexation of an easement compensation payment to be incorrect.”

 

15                        ElectraNet submitted that insofar as the summary of ECCSA’s view of the AER’s decision sets out potential grounds of review in respect of the AER’s decision to allow into the RAB $29.1 million for easement compensation costs, the grounds and contentions upon which ECCSA says the AER was in error are not specified. 

16                        It is true that the summary does not set out any grounds in the terms specified in s 71C(1) of the National Electricity Law, but it is clear from the summary that ECCSA is contending, in summary, that the AER’s decision was unreasonable having regard to all the circumstances and that the exercise of its discretion was incorrect, having regard to all the circumstances. 

17                        ElectraNet submitted that the summary is simply a list of the arguments ECCSA advanced before the AER as to why easement compensation costs should not be included in the RAB and that, as a matter of substance, no relevant ground of review or error is identified.  I do not accept that submission. 

18                        I consider that ElectraNet is able to discern from the summary the reasons why ECCSA contends that the AER’s decision was unreasonable and why the exercise of its discretion was incorrect.  There is included in the summary a considerable body of detail which may be said to be the circumstances to which ECCSA contends regard should be had in determining whether these grounds are made out. 

19                        ElectraNet submitted that if ECCSA is given leave to intervene and to argue the issue in relation to easement compensation costs, its ability to meet the case sought to be made by ECCSA adequately will be prejudiced.  Any such prejudice can be met by ECCSA being confined and limited to raising and arguing the issues set out in the summary. 

20                        Section 71L of the National Electricity Law provides that a “user or consumer intervener” may apply to the Tribunal for leave to intervene in a review, such as is presently before the Tribunal, and that the Tribunal may grant leave to such user or consumer intervener to intervene.  In particular s 71L provides:

“(3)     Without limiting subsection (2), the Tribunal may grant leave to a user or consumer intervener to intervene in a review under this Division if the Tribunal is satisfied –

 

(a)        the user or consumer intervener, in its application for leave to intervene, raises a matter that will not be raised by the AER or the applicant; or

 

(b)        the information or material the user or consumer intervener wishes to present, or the submissions the user or consumer intervener wishes to make, in the review is likely to be better presented if submitted by the user or consumer intervener rather than another party to the review; or

 

(c)        the interests of the user or consumer intervener or its members are affected by the decision being reviewed.

 

(4)       For the purposes of subsection (3)(c) –

(a)        the interests of a user or consumer intervener are to be taken to be affected if the reviewable regulatory decision being reviewed relates to an object or purpose of the user or consumer intervener;

 

(b)        the interests of a user or consumer intervener are not to be taken to not be affected only because those interests do not coincide with the interests of the applicant.”

 

21                        Further, s 71M of the National Electricity Law provides:

“(1)     An intervener may raise in a review under this Subdivision any of the grounds specified in section 71C even if the ground that is raised by the intervener is not raised by the applicant.

 

(2)       To avoid doubt, it is for the intervener to establish the ground referred to in subsection (1).”

 

22                        The expression “user or consumer intervener” is defined in s 71A of the National Electricity Law as meaning:

“(a)     a user or consumer association; or

 (b)      a user or consumer interest group,

that has made a submission or comment in relation to the making of a reviewable regulatory decision following an invitation to do so by the AER under this Law or the Rules.”


Further, s 71A of the National Electricity Law defines the expression “user or consumer association” as meaning:

 

“An association or body (whether incorporated or unincorporated) –

(a)       the members of which include more than 1 user, prospective user, or end user;

 

(b)       that represents and promotes the interests of those members in relation to the provision of electricity services.”


Section 2 of the National Electricity Law defines “end user” as meaning:

“a person who acquires electricity or proposes to acquire electricity for consumption purposes.”

 

23                        I am satisfied that ECCSA is a “user or consumer intervener” for the purposes of the National Electricity Law and in particular, s 71L.  The AER and ElectraNet did not contend to the contrary.

24                        The discretion vested in the Tribunal to grant leave to a user or consumer intervener to intervene in a review under Div 3A of the National Electricity Law, pursuant to s 71L(2) is not constrained or restricted in any way, notwithstanding the provisions of subs (3) of s 71L.  Nevertheless, in determining the manner in which the discretion granted by s 71L(2) is to be exercised it is relevant to take into account the matters referred to in subs (3) of s 71L (par [20] above).

25                        ECCSA submitted that the basis for its intervention fell within subpars (a) and (c) of s 71L(3).  For the purposes of subpar (a) ECCSA relied on its submission to the AER that easement compensation costs of $29.1 million or thereabouts should not be included in ElectraNet’s RAB on the basis that they were unreasonable.  For the purposes of subpar (c) of s 71L(3), ECCSA submitted that if the review was successful, ElectraNet’s RAB would be increased.  Part of the revenue which ElectraNet would be allowed to obtain was measured by reference to the application of its weighted average cost of capital to its RAB so that an increase in its RAB would result in an increase in ElectraNet’s allowable revenue which would, in turn, result in an increase in the amount ElectraNet would be entitled to charge consumers of electricity supplied by ElectraNet.

26                        ElectraNet submitted that it was arguable that the scope of subpar (c) of s 71L(3) was limited by the provisions of subs (4)(a) of s 71L (par [20] above).  I do not accept that submission.  Subparagraph (c) of s 71L(3) is not limited by subpar (a) of s 71L(4).  Rather s 71(4)(a) is a deeming provision which allows s 71L(3)(c) to be satisfied in certain circumstances.  But s 71L(4)(a) is not an exhaustive prescription for the application of s 71L(3)(c); it is non‑exhaustive and provides for one circumstance, amongst others, by reference to which s 71L(3)(c) may be satisfied.

27                        I am satisfied that ECCSA has raised a matter in its application for leave to intervene which will not be raised by the AER or ElectraNet in the review, namely its contention that the easement compensation costs of $29.1 million or thereabouts included by the AER in ElectraNet’s opening RAB as at 1 July 2008 should not have been so included. 

28                        Further, I am satisfied that the interests of the members of ECCSA are affected by the decision of the AER under review, consistently with subpar (c) of s 71L(3), because it follows that if ElectraNet’s opening RAB as at 1 July 2008 includes the $52.8 million in respect of easement acquisition or transaction costs, then there will be a flow‑on in relation to the charges which may be made by ElectraNet for the supply of electricity to consumers generally, including the member of ECCSA.  This is because a component of the costs to be taken into account in determining the charges allowed to be made by ElectraNet for the electricity which it supplies includes a component determined by the application of ElectraNet’s weighted average cost of capital to the total of its RAB.

29                        ElectraNet submitted that in relation to the issue of easement acquisition or transaction costs, ECCSA’s summary does not identify the submissions it wishes to make which are not raised by the AER in its statement of facts, issues and contentions.  In his affidavit Mr Headberry said that ECCSA is seeking to intervene in the proceeding generally in support of the AER’s decision.  In its summary ECCSA contends that ElectraNet is not entitled to an increase in its RAB for the $52.8 million it claims for easement acquisition or transaction costs.  Accordingly, ElectraNet contended that ECCSA has not identified any matter in respect of easement acquisition or transaction costs that is additional to those raised by the AER in its statement of facts, issues and contentions. 

30                        However, ElectraNet’s concern can be met by limiting and restricting ECCSA’s participation in the proceeding in relation to the issue of easement acquisition or transaction costs to presenting evidence and documents and making submissions in relation to that issue only to the extent to which evidence and documents are not presented and submissions are not made by the AER in relation to that issue.

31                        I am therefore satisfied that ECCSA should be granted leave to intervene in this review and such leave is therefore granted albeit on limited terms.  Such leave should be granted on the basis that ECCSA is limited to presenting evidence and documents and making submissions in relation to:

(a)        the matters raised in Annexure “C” to Mr Headberry’s affidavit in relation to its contention that $29.1 million or thereabouts should not be included in ElectraNet’s opening RAB as at 1 July 2008 in respect of easement compensation costs;

 

(b)        the contention that $52.8 million or thereabouts should not be included in ElectraNet’s opening RAB as at 1 July 2008 in respect of easement acquisition or transaction costs to the extent to which such evidence and documents are not presented and submissions are not raised by the AER in relation to that issue.



I certify that the preceding thirty‑one (31) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Goldberg.



Associate:


Dated:         28 July 2008



Counsel for ElectraNet Pty Ltd

Ms M Sloss S.C., and P Gray

 

 

Solicitor for ElectraNet Pty Ltd

Gilbert + Tobin

 

 

Counsel for Australian Energy Regulator

M Borsky

 

 

Solicitor for Australian Energy Regulator

Corrs Chambers Westgarth

 

 

Representative of Energy Consumers Coalition of South Australia

Mr D Headberry

 

 

Solicitor for Energy Consumers Coalition of South Australia

Dwyer Lawyers


Date of Hearing:

21 July 2008

 

 

Date of Judgment:

28 July 2008