AUSTRALIAN COMPETITION TRIBUNAL

 

Application by EnergyAustralia and Others (No 2) [2009] ACompT 9

 

 

 

 

FILE NO 2 of 2009

RE:     APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENERGYAUSTRALIA PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES

 

BY:      ENERGYAUSTRALIA

Applicant

 

AND:  SOUTHERN SYDNEY REGIONAL ORGANISATION OF COUNCIL

Intervener

 

FILE NO 3 of 2009

 

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 TRANSGRID PURSUANT TO CLAUSE 6A.13.1 OF CHAPTER 6A OF THE NATIONAL ELECTRICITY RULES

 

BY:      TRANSGRID

Applicant

 

FILE NO 4 of 2009

 

RE:     APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO INTEGRAL ENERGY PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES

 

BY:     INTEGRAL ENERGY

Applicant

 

FILE NO 5 of 2009

 

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 TRANSEND PURSUANT TO CLAUSE 6A.13.1 OF CHAPTER 6A OF THE NATIONAL ELECTRICITY RULES

 

BY:     TRANSEND

Applicant

 

AND:  Nyrstar Australia Pty Ltd

Intervener

 

 

FILE NO 6 of 2009

 

RE:     APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION/TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO COUNTRY ENERGY PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES

 

BY:     COUNTRY ENERGY

Applicant

 

 

JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R SHOGREN

25 november 2009

SYDNEY

IN THE AUSTRALIAN COMPETITION TRIBUNAL
	FILE NO 2 of 2009

 

RE:	APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENERGYAUSTRALIA PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES
BY:	ENERGYAUSTRALIA
	Applicant
AND:	SOUTHERN SYDNEY REGIONAL ORGANISATION OF COUNCILS
	Intervener

 

THE TRIBUNAL:	JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R SHOGREN
DATE OF DIRECTION:	25 NOVEMBER 2009
WHERE MADE:	SYDNEY

 

THE TRIBUNAL DETERMINES THAT:

 

1.                  The decision of the Australian Energy Regulator (AER) to withhold agreement to the averaging period originally proposed by EnergyAustralia is varied as set out in order 2 below pursuant to section 71P(2)(a) of the National Electricity Law on the grounds that the exercise of the AER’s discretion was incorrect, having regard to all the circumstances (section 71C(1)(c)) and the AER’s decision was unreasonable, having regard to all the circumstances (section 71C(1)(d)).

2.                  The decision referred to in order 1 is varied by using the averaging period in EnergyAustralia’s revised revenue proposal, being 15 business days from 18 August 2008, for the purposes of determining the risk free rate and the debt risk premium with the effect set out in orders 4 and 5 below.

3.                  The decision of the AER to estimate the observed corporate bond yields and determine the debt risk premium by sole reference to Bloomberg fair value yields is affirmed pursuant to section 71P(2)(a) of the National Electricity Law.

4.                  The AER’s EnergyAustralia determination 2009-10 to 2013-14 dated 28 April 2009 and published on 30 April 2009 (EnergyAustralia determination) be varied pursuant to section 71P(2)(a) as follows:

(a)        the determination of the AER made in accordance with clause 6.12.1(5) of the Transitional Rules regarding the rate of return to apply to EnergyAustralia be varied by deleting the figure of 8.78 per cent and inserting the figure of 10.02 per cent;

(b)        the tables numbered 8.24, 8.25, 8.26, 9.4, 10.4, 11.9, 13.2, 16.23, 16.24, 16.25, 16.30, and 16.31 in the reasons given by the AER, set out in the document entitled “Final Decision New South Wales distribution determination 2009-10 to 2013-14” dated 28 April 2009 and published on 30 April 2009 (EnergyAustralia decision), be amended as shown in the Appendix to this order;

(c)        any other variations to the EnergyAustralia determination and the EnergyAustralia decision required as a consequence of (a) to (b) above as agreed between EnergyAustralia and the AER.

5.                  The decision of the AER made pursuant to clause 6.12.1(12) of Chapter 11 of the National Electricity Rules on the control mechanism for alternative control services be remitted back to the AER pursuant to section 71P(2)(b) of the National Electricity Law to make the decision again, in accordance with the following directions and recommendations and upon the making of that decision, the decision on the control mechanism for alternative control services the subject of this review be set aside:

(1)        The Tribunal directs that the AER make the decision on the control mechanism for alternative control services in accordance with the following timetable:

(a)        EnergyAustralia provides a confidential and non-confidential version of its submission to the AER by 4pm on 7 January 2010;

(b)       The AER publish EA’s submission by 4pm on 8 January 2010;

(c)        Parties interested in responding to EnergyAustralia’s submission provide their submissions to the AER by 4pm on 21 January 2010;

(d)       The AER publish a draft decision by 4pm on 25 February 2010;

(e)        Submissions in response to the AER’s draft decision be provided to the AER by 4pm on 11 March 2010;

(f)        The AER publish its final decision by 4pm on 15 April 2010.

(2)        The Tribunal directs that the AER make the decision using the following methodologies:

(a)        a building block approach incorporating an asset base roll forward for pre 1 July 2009 public lighting assets; and 

(b)       an annuity approach for post 30 June 2009 public lighting assets.

(3)        The Tribunal directs that in making the decision the AER:

(a)        apply the rate of return parameters as shown in order 3(b) below to vary the schedule of fixed charges and fixed prices with respect to public lighting contained in Appendices P and R, so as to achieve revenues which are neutral in net present value (NPV) terms over the 2009-14 regulatory control period; and

(b)        vary the WACC parameters contained in Table 17.15 of the EnergyAustralia decision in relation to public lighting, by:

(i)         deleting the figure of 8.78 per cent and inserting the figure of 10.02 per cent with respect to EnergyAustralia’s Nominal Vanilla WACC;

(ii)        deleting the figure of 6.83 per cent and inserting the figure of 8.13 per cent with respect to EnergyAustralia’s pre-tax real WACC, which is to be applied in the annuity approach for post 30 June 2009 public lighting assets which is referred to in paragraph 2(b) above; and

(iii)       inserting the figure of 10.81 per cent with respect to EnergyAustralia’s pre-tax nominal WACC, which is to be applied in the building block approach incorporating an asset base roll forward for pre 1 July 2009 public lighting assets referred to in paragraph 2(a) above.

(4)        The Tribunal directs that submissions made by EnergyAustralia:

(a)        must address the value of, and methodology for determining, the efficient operating expenditure required by EnergyAustralia for each year of the regulatory control period in order to operate and maintain its public lighting assets that provide alternative control services.  The efficient level of operating expenditure must be supported by a detailed model whereby the efficiency of inputs and assumptions for all key maintenance aspects are explained and justified.

(b)       may include information and material that was not before the AER when it made its original decision, such as the “IPART letter” identified by the Tribunal in paragraph 57 of its reasons for directions (16 October 2009);

(c)        may address the value of, and methodology for determining, the regulatory asset base for use in the building block approach for pre 1 July 2009 public lighting assets.

(5)        The Tribunal directs that in the process of the AER making the decision, the AER:

(a)        must have regard to submissions made to the AER in accordance with the timetable set out above and any other information or material requested by the AER in the course of making the decision again; and

(b)       otherwise is not required to have regard to submissions made to the AER.

(6)        The Tribunal directs that, to the extent they remain relevant, in making the decision again, the AER must correct those parts of its final determination that the AER has conceded are in error, as listed below:

 

Compensation for corporate income tax on pre 1 July 2009 public lighting assets

The AER is to calculate the rate of return for pre 1 July 2009 public lighting assets by reference to the pre-tax nominal weighted average cost of capital (‘WACC’) of 10.81% referred to in paragraph 3(b)(iii) above.

 

Indexation of the RAB (pre July 2009 public lighting assets)

The AER is to apply the RAB indexation that it used in the PTRM and RAB roll forward model for standard control services to the RAB indexation in the public lighting modelling for pre 1 July 2009 public lighting assets.

Calculation of depreciation (pre July 2009 public lighting assets)

The AER is to apply the depreciation calculation that is used in the PTRM for standard control services to the regulatory depreciation allowance in the public lighting modelling for pre 1 July 2009 public lighting assets.

Indexation of operating expenditure by forecast inflation (pre July 2009 assets)

The AER is to apply forecast inflation, in addition to the real wage inflator, in respect of the annual efficient opex for pre 1 July public lighting assets when calculating the future nominal charges for those assets.

Calculation of residual capital value of public lighting assets that are replaced early

The AER in its draft and final determinations is to specify a control mechanism for the determination of the residual capital value of an asset replaced before the end of its economic life at a customer’s request.  As part of this specification the AER is to set out how consequential pricing adjustments are to be made.

Additional labour costs for traffic routes

An allowance be made for efficient labour costs for traffic routes.

Connections operating costs

An allowance be made for efficient opex on pre July 2009 connections operating assets.

Vlookup

The AER is to correct the VLOOKUP error in the public lighting model.

(7)        The Tribunal directs that, if the AER is or becomes satisfied of other errors in the course of making the decision, the AER must correct those errors.

(8)        The Tribunal directs that the AER must make available to all interested parties all substantive submissions made to the AER to the extent the disclosure of the information is permitted by Division 6 of Part 3 of the NEL.  Any party that claims confidentiality must substantiate its claim at the time it makes its submission. 

(9)        The decision re-made by the AER, again with respect to the control mechanism for alternative control services, is to apply for public lighting prices and charges for the period of 1 July 2009 to 30 June 2014.  Any necessary adjustments to prices or charges for the provision of alternative control services as a consequence of the AER’s remade decision are to be undertaken in a manner that maintains Net Present Value neutrality.

(10)      The parties have liberty to apply in respect of these directions and any further directions that the parties may seek with respect to the making of the decision again by the AER as to the control mechanism for alternative control services.

6.                  The decision of the AER to disallow EnergyAustralia’s proposed forecast operating expenditure associated with the Finance and Commercial – Business Systems step change (Step change 8) is varied pursuant to section 71P(2)(a) of the National Electricity Law so that the operating expenditure associated with this step change is allowed.

7.                  The decision of the AER to disallow EnergyAustralia’s proposed forecast operating expenditure is affirmed pursuant to section 71P(2)(a) in relation to the following step changes: incremental iAMS / Field Computing (Step Change 1); Intelligent Network – System (Step Change 2); Incremental IT CAPEX (corporate (Step Change 3); Incremental Data Centre (Step Change 4); Incremental IT CAPEX (Step Change 5); NVD – Shared Telco Infrastructure (Step Change 6); NVD – Demand Management (Step Change 7); NVD – Telecommunications support (Step Change 9); Information Services (Step Change 10); IT Applications – Network System (Step Change 11); Incremental AMI Pilot (Step Change 12)’ and Business Improvement Team (Step Change 13).

8.                  The decision of the AER to not accept EnergyAustralia’s proposed forecast operating expenditure in relation to maintenance costs and to reduce EnergyAustralia’s forecast operating expenditure by $22.4 million ($2008-09) is affirmed pursuant to section 71P(2)(a).

9.                  The decision of the AER on the additional pass through events that are to apply for the regulatory control period be varied by deleting the definition of “general nominated pass through event in section 15.6.2 of the EnergyAustralia decision, and replacing it with the following:

“A general nominated pass through event occurs in the following circumstances:

1.       An uncontrollable and unforeseeable event the effect of which prudent operational risk management could not have prevented or mitigated that occurs during the next regulatory control period;

2.       The change in costs of providing distribution services as a result of the event is material;

3.       The event does not fall within any of the following definitions:

‘regulatory change event’ in the NER (read as if paragraph (a) of the definition were not a part of the definition);

‘service standard event’ in the NER;

‘tax change event’ in the NER;

‘terrorism event’ in the NER;

‘retail project event’ in this final decision;

‘smart meter event’ in this final decision (read as if paragraph (a) of the definition were not a part of the definition);

‘emissions trading scheme event’ in this final decision (read as if paragraph (a) of the definition were not a part of the definition);

‘aviation hazards event’ in this final decision.

For the purposes of this definition:

§         an event will be considered unforeseeable if, at the time the DNSP lodged its regulatory proposal, despite the occurrence of the event being a possibility there was no reason to consider that the event was more likely to occur than not to occur during the next regulatory control period;

§         ‘material’ means the costs associated with the event would exceed 1 per cent of the smoothed forecast revenue specified in the final decision in the years of the regulatory control period that the costs are incurred.”

10.              In respect of the grounds for review raised by EnergyAustralia, the EnergyAustralia determination and the EnergyAustralia decision are both otherwise affirmed.

Appendix of consequential changes to AER determination

Table 8.24:     AER conclusion on EnergyAustralia’s total forecast opex allowance ($m, 2008-09)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Energy Australia’s revised controllable opex forecast	548.8	566.9	582.8	601.69	610.8	2910.9
Self insurance costs	5.9	5.9	5.9	5.9	5.9	29.6
Debt raising costs	7.6	9.0	10.1	11.4	12.6	50.8
Equity raising costs	-	-	-	-	-	-
EnergyAustralia’s total opex	562.4	581.8	598.9	618.9	629.3	2991.3
AER’s adjustable controllable opex	498.3	508.3	518.7	527.8	528.6	2581.8
Self insurance costs	4.1	4.1	4.1	4.1	4.1	20.6
Debt raising costs	3.9	4.5	5.0	5.6	6.2	25.2
Equity raising costsa	-	-	-	-	-	-
Demand management innovation allowanceb	1.0	1.0	1.0	1.0	1.0	5.0
AER’s total opex	507.3	517.9	528.8	538.6	540.0	2632.6

^{Note:  Totals may not add up due to rounding.}

(a)     The AER will allow EnergyAustralia to amortise a total of $31.7 million ($2008-09) for benchmark equity raising costs associated with forecast capex for the next regulatory control period.     

(b)     Refer to chapter 14 for details on this allowance.

 

Table 8.25:     AER conclusion on EnergyAustralia’s controllable opex allowance ($m, 2008-09)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Energy Australia’s revised controllable opex forecast	548.8	566.9	582.8	601.69	610.8	2910.9
EnergyAustralia’s revised controllable opex forecast	548.8	566.9	582.8	601.6	610.8	2910.9
Adjustment to network operating	-23.2	-27.9	-26.8	-28.0	-30.0	-135.9
Adjustment to network maintenance	-3.4	-4.3	-5.3	-6.8	-7.4	-27.2
Adjustment to other expenditure	-8.4	-8.8	-9.3	-9.0	-8.2	-43.8
Adjustment to labour escalators	-15.5	-17.6	-22.7	-29.9	-36.5	-122.2
AER’s adjusted controllable opex	498.3	508.3	518.7	527.8	528.6	2581.8

 

Table 8.26:     AER conclusion on EnergyAustralia’s total opex allowance—distribution and transmission ($m, 2008-09)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Distribution network	472.2	483.0	494.1	503.8	505.8	2459.0
Transmission network	35.1	34.8	34.7	34.8	34.1	173.6
Total opex allowance	507.3	517.9	528.8	538.6	540.0	2632.6

 

Table 9.4:       AER conclusion on NSW DNSPs’ corporate income tax allowances ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Energy Australia	43.0	75.2	86.0	98.2	104.2	406.5

 

Table 10.4:     AER conclusion on NSW DNSPs’ regulatory depreciation allowances ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Energy Australia	80.0	107.0	131.2	156.9	152.2	627.2

 

Table 11.9:     AER conclusion on WACC parameters

Parameter	EnergyAustralia
Risk- free rate (nominal)	5.82%
Risk-free rate (real)	3.27%
Expected inflation rate	2.47%
Debt risk premium	3.00%
Market risk premium	6.00%
Gearing	60%
Equity beta	1.00
Nominal pre-tax return on debt	8.82%
Nominal post-tax return on equity	11.82%
Nominal vanilla WACC	10.02%

 

Table 13.2:     EnergyAustralia’s forecast controllable opex for EBSS purposes ($m, 2008–09)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Total forecast opex	507.3	517.9	528.8	538.6	540.0	2632.6
Adjustment for debt raising costs	3.9	4.5	5.0	5.6	6.2	25.2
Adjustment for self insurance	4.1	4.1	4.1	4.1	4.1	20.6
Adjustment for insurance	6.1	6.1	6.1	6.1	6.1	30.4
Adjustment for superannuation	–	–	–	–	–	–
Adjustment for non–network alternatives	4.9	4.9	5.0	5.0	5.0	24.8
Forecast opex for EBSS purposes	488.4	498.3	508.7	517.8	518.6	2531.6

^{Note:  Totals may not add up due to rounding.}

Table 16.23:   AER conclusion on EnergyAustralia’s annual revenue requirements and X factors – distribution ($m, nominal)

	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Regulatory depreciation		76.0	99.6	120.2	142.6	138.7
Return on capital		731.3	845.2	973.7	1117.2	1256.4
Tax allowance		39.3	67.5	77.1	87.7	92.7
Operating expenditure		483.9	507.2	531.7	555.5	571.6
Annual revenue requirements		1330.5	1519.6	1702.8	1903.1	2059.3
Expected revenues	1023.5	1224.3	1458.3	1738.5	2063.9	2076.5
Forecast CPI (%)		2.47	2.47	2.47	2.47	2.47
X factors (%)		-17.86	-18.18	-18.18	-18.18	0.77

 

Table 16.24:   AER conclusion on EnergyAustralia’s annual revenue requirements and X factors – transmission ($m, nominal)

	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Regulatory depreciation		4.0	7.4	11.0	14.3	13.5
Return on capital		103.1	131.2	149.4	175.3	210.1
Tax allowance		3.7	7.6	8.8	10.5	11.5
Operating expenditure		36.0	36.6	37.4	38.3	38.6
Annual revenue requirements		146.7	182.8	206.6	238.4	273.6
Expected revenues	129.5	143.0	173.6	210.7	255.8	267.4
Forecast CPI (%)		2.47	2.47	2.47	2.47	2.47
X factors (%)		-7.77	-18.46	-18.46	-18.46	-2.02

 

Table 16.25:   AER conclusion on EnergyAustralia’s annual revenue requirements and expected revenues ($m, nominal)

	NPV	2009-10	2010-11	2011-12	2012-13	2013-14
Transmission
Annual revenue requirements	771.9	146.7	182.8	206.6	238.4	273.6
Expected revenues	771.9	143.0	173.6	210.7	255.8	267.4
Difference (%)	0.00	-2.55	-5.07	2.00	7.27	-2.88
Distribution
Annual revenue requirements	6319.6	1330.5	1519.6	1702.8	1903.1	2059.3
Expected revenues	6319.6	1224.3	1458.3	1738.5	2063.9	2076.5
Difference (%)	0.00	-7.99	-4.04	2.10	8.45	0.83

 

Table 16.30:   AER conclusion on NSW DNSPs annual revenue requirements ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14
EnergyAustralia (distribution)	1330.5	1519.6	1702.8	1903.1	2059.3
EnergyAustralia (transmission)	146.7	182.8	206.6	238.4	273.6

 

Table 16.31:   AER conclusion on NSW DNSPs’ X factors (per cent)

	2009-10	2010-11	2011-12	2012-13	2013-14
EnergyAustralia (distribution)	-17.86	-18.18	-18.18	-18.18	0.77
EnergyAustralia (transmission)	-7.77	-18.46	-18.46	-18.46	-2.02

IN THE AUSTRALIAN COMPETITION TRIBUNAL
	File No 3 of 2009

 

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 TRANSGRID PURSUANT TO CLAUSE 6A.13.1 OF CHAPTER 6A OF THE NATIONAL ELECTRICITY RULES
By:	TRANSGRID
	Applicant

 

THE TRIBUNAL:	JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R Shogren
DATE OF DECISION:	25 NOVEMBER 2009
WHERE MADE:	SYDNEY

 

THE TRIBUNAL DETERMINES THAT:

 

1.         The decision of the Australian Energy Regulator (AER) to withhold agreement to the averaging period originally proposed by TransGrid is varied as set out in order 2 below pursuant to section 71P(2)(a) of the National Electricity Law on the grounds that the exercise of the AER’s discretion was incorrect, having regard to all the circumstances (section 71C(1)(c)) and the AER’s decision was unreasonable, having regard to all the circumstances (section 71C(1)(d)).

2.         The decision referred to in order 1 is varied by using the averaging period in TransGrid’s revised revenue proposal, being 20 business days ending 5 September 2008, for the purposes of determining the risk free rate and the debt risk premium. The effect of this change, together with the effect of the change described in order 5, is set out in order 6 below.

3.         The decision of the AER to estimate the observed corporate bond yields and determine the debt risk premium by sole reference to Bloomberg fair value yields is affirmed pursuant to section 71P(2)(a) of the National Electricity Law.

4.         The decision of the AER to reduce TransGrid’s forecast operating expenditure by disallowing a figure for defect maintenance for new growth assets is varied as set out in order 5 below pursuant to section 71P(2)(a) of the National Electricity Law on the grounds that the exercise of the AER’s discretion was incorrect, having regard to all the circumstances (section 71C(1)(c)) and the AER’s decision was unreasonable, having regard to all the circumstances (section 71C(1)(d)).

5.         The decision referred to in order 4 is varied by using TransGrid’s operating expenditure model with asset growth factors to calculate its forecast operating expenditure. The effect of this change, together with the effect of the change described in order 2, is set out in order 6 below.

6.         The AER’s TransGrid transmission determination 2009-10 to 2013-14 dated 28 April 2009 and published on 30 April 2009 (TransGrid determination) be varied as follows:

(a)        the determination of the AER regarding the calculation of the X factor to apply to TransGrid be varied by deleting the figure of –4.10 per cent and inserting the figure of –5.61 per cent;

(b)        tables numbered 1, 3, 6 and 7 be deleted and the following tables be inserted; and

(c)        any other variations to the TransGrid determination and the “Final Decision TransGrid transmission determination 2009-10 to 2013-14” dated 28 April 2009 and published on 30 April 2009 required as a consequence of (a) to (b) above as agreed between TransGrid and the AER.

Table 1:          AER final determination on annual building block revenue requirement ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Return on capital	423.8	473.0	514.8	570.5	621.7	2603.9
Regulatory depreciation	74.6	75.2	66.8	75.4	85.5	377.5
Opex allowance	162.1	160.3	168.5	182.5	188.9	862.3
Opex efficiency allowance	5.8	4.7	5.8	2.5	-3.0	15.7
Net tax allowance	24.1	25.4	24.9	28.1	31.3	133.8
Annual building block revenue requirement (unsmoothed)	690.5	738.6	780.8	859.0	924.3	3993.2

 

Table 3:          AER forecast of the maximum allowed revenue ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
MAR (smoothed)	678.4a	734.2	794.5	859.8	930.5	3997.3

^a       The MAR to be recovered in 2009-10 is based on the AER’s October 2008 draft determination of $678.4 million. As TransGrid has based its transmission prices on the MAR in the draft determination, as it is entitled to do pursuant to clause 6A.24.4(b) of the NER, the actual amount to be recovered by TransGrid in 2009-10 is $678.4 million. The difference between the amount of $678.4 million that TransGrid will actually recover and the amount that TransGrid is entitled to recover as a result of the Australian Competition Tribunal’s decision (being $690.5 million) is recovered over years 2 to 5 of the regulatory control period. The net present value (discount rate equal to the vanilla WACC of 10.05%) of the smoothed MAR for the five years in Table 3 is the same as the net present value of the unsmoothed annual building block revenue requirements in Table 1 (i.e. $2981.4 million) which reflects the implementation of the Tribunal’s decision on cost of capital, and includes an adjustment for defect maintenance operating expenditure.

 

Table 6:          AER forecast controllable opex for EBSS purposes ($m, 2007–08)

	2009-10	2010-11	2011-12	2012-13	2013-14
Forecast target opex	114.7	124.3	127.5	135.6	137.0

 

Table 7:          Other amounts, values and inputs (per cent)

Parameter	Value
Risk-free rate (nominal)	5.86
Expected inflation rate	2.47
Debt risk premium	2.99
Effective tax rate	24.42
Nominal vanilla WACC	10.05

7.         In respect of the grounds for review raised by TransGrid, the TransGrid determination is otherwise affirmed.

 

IN THE AUSTRALIAN COMPETITION TRIBUNAL
	File No 4 of 2009

 

RE:	APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO INTEGRAL ENERGY PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES
By:	INTEGRAL ENERGY
	Applicant

 

THE TRIBUNAL:	JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R Shogren
DATE OF DECISION:	25 NOVEMBER 2009
WHERE MADE:	SYDNEY

 

THE TRIBUNAL DETERMINES THAT:

 

1.         The decision of the Australian Energy Regulator (AER) to withhold agreement to the averaging period originally proposed by Integral Energy is varied as set out in order 2 below pursuant to section 71P(2)(a) of the National Electricity Law on the grounds that the exercise of the AER’s discretion was incorrect, having regard to all the circumstances (section 71C(1)(c)) and the AER’s decision was unreasonable, having regard to all the circumstances (section 71C(1)(d)).

2.         The decision referred to in order 1 is varied by using the averaging period in Integral Energy’s revised revenue proposal, being 15 business days ending on the 5 September 2008, for the purposes of determining the risk free rate and the debt risk premium with the effect set out in orders 4 and 5 below.

3.         The decision of the AER to estimate the observed corporate bond yields and determine the debt risk premium by sole reference to Bloomberg fair value yields is affirmed pursuant to section 71P(2)(a) of the National Electricity Law.

 

4.         The AER’s Integral Energy determination 2009-10 to 2013-14 dated 28 April 2009 and published on 30 April 2009 (Integral Energy determination) be varied pursuant to section 71P(2)(a) as follows:

(a)        the determination of the AER made in accordance with clause 6.12.1(5) of the Transitional Rules regarding the rate of return to apply to Integral Energy be varied by deleting the figure of 8.83 per cent and inserting the figure of 10.02 per cent;

(b)        the tables numbered 9.4, 10.4, 11.9, 16.27, 16.28, 16.30 and 16.31 in the reasons given by the AER, set out in the document entitled “Final Decision New South Wales distribution determination 2009-10 to 2013-14” dated 28 April 2009 and published on 30 April 2009 (Integral Energy decision), be amended as shown in the Appendix to this order;

(c)        the matter of the schedule of fixed charges and fixed prices with respect to public lighting contained in Appendices P and R of the Integral Energy decision be remitted back to the AER to apply the rate of return parameters as shown in order 5 below, so as to achieve revenues which are neutral in net present value (NPV) terms over the 2009-14 regulatory control period;

(d)        any other variations to the Integral Energy determination and the Integral Energy decision required as a consequence of (a) to (c) above as agreed between Integral Energy and the AER.

5.         The WACC parameters contained in Table 17.15 of the Integral Energy decision in relation to public lighting are to be varied in accordance with the averaging period as determined in order 2, by:

(a)        deleting the figure of 8.83 per cent and inserting the figure of 10.02 per cent with respect to Integral Energy’s Nominal Vanilla WACC; and

(b)        deleting the figure of 6.88 per cent and inserting the figure of 8.15 per cent with respect to Integral Energy’s pre-tax real WACC.

6.         In respect of the grounds for review raised by Integral Energy, the Integral Energy determination and the Integral Energy decision are otherwise affirmed.

 

Appendix of consequential changes to AER determination

Table 9.4:       AER conclusion on NSW DNSPs’ corporate income tax allowances ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Integral Energy	38.8	42.9	43.1	42.9	43.5	211.2

 

Table 10.4:     AER conclusion on NSW DNSPs’ regulatory depreciation allowances   ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Integral Energy	144.3	123.2	119.8	113.5	106.3	607.1

 

Table 11.9:     AER conclusion on WACC parameters

Parameter	Integral Energy
Risk- free rate (nominal)	5.82%
Risk-free rate (real)	3.27%
Expected inflation rate	2.47%
Debt risk premium	3.00%
Market risk premium	6.00%
Gearing	60%
Equity beta	1.00
Nominal pre-tax return on debt	8.82%
Nominal post-tax return on equity	11.82%
Nominal vanilla WACC	10.02%

 

Table 16.27:   AER conclusion on Integral Energy’s annual revenue requirements and X factors ($m, nominal)

	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Regulatory depreciation		144.3	123.2	119.8	113.5	106.3
Return on capital		369.8	415.9	470.0	518.5	563.5
Tax allowance		38.8	42.9	43.1	42.9	43.5
Operating expenditure		304.8	314.8	327.4	339.7	346.8
Annual revenue requirements		857.7	896.8	960.4	1014.6	1060.1
Expected revenues	652.8	749.9	874.3	1023.9	1077.6	1101.7
Forecast CPI (%)		2.47	2.47	2.47	2.47	2.47
X factors (%)		-12.58	-13.00	-13.00	-0.15	1.72

 

Table 16.28:   AER conclusion on Integral Energy’s annual revenue requirements and expected revenues ($m, nominal)

	NPV	2009-10	2010-11	2011-12	2012-13	2013-14
Distribution
Annual revenue requirements	3591.6	857.7	896.8	960.4	1014.6	1060.1
Expected revenues	3591.6	749.9	874.3	1023.9	1077.6	1101.7
Difference (%)	0.00	-12.56	-2.51	6.62	6.21	3.93

 

Table 16.30:   AER conclusion on NSW DNSPs annual revenue requirements              ($m, nominal)

 

Table 16.31:   AER conclusion on NSW DNSPs’ X factors (per cent)

 

 

IN THE AUSTRALIAN COMPETITION TRIBUNAL
	File No 5 of 2009

 

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 TRANSEND PURSUANT TO CLAUSE 6A.13.1 OF CHAPTER 6A OF THE NATIONAL ELECTRICITY RULES
By:	TRANSEND
	Applicant
AND	NYRSTAR AUSTRALIA PTY LTD
	Intervener

 

THE TRIBUNAL:	JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R Shogren
DATE OF DECISION:	25 NOVEMBER 2009
WHERE MADE:	SYDNEY

 

THE TRIBUNAL DETERMINES THAT:

 

1.         The decision of the Australian Energy Regulator (AER) to withhold agreement to the averaging period originally proposed by Transend is varied as set out in order 2 below pursuant to section 71P(2)(a) of the National Electricity Law on the grounds that the exercise of the AER’s discretion was incorrect, having regard to all the circumstances (section 71C(1)(c)) and the AER’s decision was unreasonable, having regard to all the circumstances (section 71C(1)(d)).

2.         The decision referred to in order 1 is varied by using the averaging period being 10 business days ending 5 September 2008 for the purposes of determining the risk free rate and the debt risk premium with the effect set out in order 4 below.

3.         The decision of the AER to estimate the observed corporate bond yields and determine the debt risk premium by sole reference to Bloomberg fair value yields is affirmed pursuant to section 71P(2)(a) of the National Electricity Law.

4.         The AER’s Transend transmission determination 2009-10 to 2013-14 dated 28 April 2009 and published on 30 April 2009 (Transend determination) be varied as follows:

(a)        the determination of the AER regarding the calculation of the X factor to apply to Transend be varied by deleting the figure of -5.19 per cent and inserting the figure of -5.53 per cent;

(b)        tables numbered 1, 3 and 6 be deleted and the following tables be inserted, including new table 3A;

 

Table 1:          AER’s final determination on annual building block revenue requirement ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Return on capital	95.2	109.4	123.8	131.9	140.5	600.8
Regulatory depreciation	26.3	27.7	22.8	27.4	30.8	135.0
Opex allowance	50.9	52.9	53.8	57.7	58.8	274.0
Opex efficiency (glide path) allowance	0.0	0.0	0.0	0.0	0.0	0.0
Net tax allowance	4.8	5.6	6.4	7.0	7.7	31.5
Annual building block revenue requirement (unsmoothed)	177.2	195.6	206.7	224.1	237.8	1041.3

 

Table 3:          AER’s forecast of the maximum allowed revenue ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
MAR (smoothed)	177.21a	191.63	207.22	224.08	242.32	1042.46

 

^a       The MAR to be recovered in 2009-10 is based on the AER’s April 2009 determination of $164.70 million.  The adjustment to the MAR in years 2 to 5 of the regulatory control period to recover the difference between the AER’s April 2009 determination ($164.70 million) and what the MAR in 2009-10 should have been as a result of the Australian Competition Tribunal’s decision ($177.21 million), being an amount of $12.51 million ($2009-10) is set out in Table 3A.

 

Table 6:          Other amounts, values and inputs

Parameter	Value
Risk-free rate (nominal)	5.80%
Expected inflation rate	2.47%
Debt risk premium	3.01%
Effective tax rate	22.60%
Nominal vanilla WACC	10.00%

 

(c)        to provide for an adjustment to the MAR, determined in accordance with paragraphs 4(a) and (b) of this order, to permit the recovery of $3.95 million in each of the years two to five of the regulatory control period so as to recover an amount which is equal in net present value terms to the difference between the AER’s April 2009 determination for the 2009-10 MAR (being $164.70 million) and what the MAR in 2009-10 should have been as a result of the Tribunal’s decision (being $177.21 million), being an amount of $12.51 million ($2009-10), as set out in a new Table 3A below; and

 

Table 3A:        Adjustment (addition) to the maximum allowed revenue for the 2009-10 under-recovery ($m, nominal)

	Difference between AER MAR and Tribunal Determined MAR 2009-10	2010-11	2011-12	2012-13	2013-14
Annual MAR adjustment	12.51	3.95	3.95	3.95	3.95

 

(d)        any other variations to the Transend determination and the “Final Decision Transend transmission determination 2009-10 to 2013-14” dated 28 April 2009 and published on 30 April 2009 required as a consequence of (a) to (c) above as agreed between Transend and the AER.

5.         In respect of the grounds for review raised by Transend, the Transend determination is otherwise affirmed.

 

IN THE AUSTRALIAN COMPETITION TRIBUNAL
	File No 6 of 2009

 

RE:	APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION/TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO COUNTRY ENERGY PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES
By:	COUNTRY ENERGY
	Applicant

 

THE TRIBUNAL:	JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R Shogren
DATE OF DECISION:	25 NOVEMBER 2009
WHERE MADE:	SYDNEY

 

THE TRIBUNAL DETERMINES THAT:

 

1.         The decision of the Australian Energy Regulator (AER) to withhold agreement to the averaging period originally proposed by Country Energy is varied as set out in order 2 below pursuant to section 71P(2)(a) of the National Electricity Law on the grounds that the exercise of the AER’s discretion was incorrect, having regard to all the circumstances (section 71C(1)(c)) and the AER’s decision was unreasonable, having regard to all the circumstances (section 71C(1)(d)).

2.         The decision referred to in order 1 is varied by using the averaging period in Country Energy’s revised revenue proposal, being 15 business days starting prior to 7 September 2008, for the purposes of determining the risk free rate and the debt risk premium with the effect set out in orders 4 and 5 below.

3.         The decision of the AER to estimate the observed corporate bond yields and determine the debt risk premium by sole reference to Bloomberg fair value yields is affirmed pursuant to section 71P(2)(a) of the National Electricity Law.

4.         The AER’s Country Energy determination 2009-10 to 2013-14 dated 28 April 2009 and published on 30 April 2009 (Country Energy determination) be varied pursuant to section 71P(2)(a) as follows:

(a)        the determination of the AER made in accordance with clause 6.12.1(5) of the Transitional Rules regarding the rate of return to apply to Country Energy be varied by deleting the figure of 8.78 per cent and inserting the figure of 10.02 per cent;

(b)        in the tables numbered 9.4, 10.4, 11.9, 16.20, 16.21, 16.30 and 16.31 in the reasons given by the AER, set out in the document entitled “Final Decision New South Wales distribution determination 2009-10 to 2013-14” dated 28 April 2009 and published on 30 April 2009 (Country Energy decision), be amended as shown in the Appendix to this order;

(c)        The matter of the schedule of fixed charges and fixed prices with respect to public lighting contained in Appendices P and R of the CountryEnergy decision be remitted back to the AER to apply the rate of return parameters as shown in order 5 below, so as to achieve revenues which are neutral in net present value (NPV) terms over the 2009-14 regulatory control period;

(d)        any other variations to the Country Energy determination and the Country Energy decision required as a consequence of (a) to (c) above as agreed between Country Energy and the AER.

5.         The WACC parameters contained in Table 17.15 of the Country Energy decision in relation to public lighting are to be varied in accordance with the averaging period as determined in order 2, by:

(a)        deleting the figure of 8.78 per cent and inserting the figure of 10.02 per cent with respect to Country Energy’s Nominal Vanilla WACC;

(b)        deleting the figure of 6.76 per cent and inserting the figure of 8.07 per cent with respect to Country Energy’s pre-tax real WACC.

6.         In respect of the grounds for review raised by Country Energy, the Country Energy determination and the Country Energy decision are otherwise affirmed.

Appendix of consequential changes to AER determination

Table 9.4:       AER conclusion on NSW DNSPs’ corporate income tax allowances ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Country Energy	48.6	51.9	45.3	52.6	57.8	256.2

 

Table 10.4:     AER conclusion on NSW DNSPs’ regulatory depreciation allowances ($m, nominal)

	2009-10	2010-11	2011-12	2012-13	2013-14	Total
Country Energy	154.1	176.8	141.7	161.4	181.1	815.1

 

Table 11.9:     AER conclusion on WACC parameters

Parameter	Country Energy
Risk- free rate (nominal)	5.82%
Risk-free rate (real)	3.27%
Expected inflation rate	2.47%
Debt risk premium	3.00%
Market risk premium	6.00%
Gearing	60%
Equity beta	1.00
Nominal pre-tax return on debt	8.82%
Nominal post-tax return on equity	11.82%
Nominal vanilla WACC	10.02%

 

Table 16.20:   AER conclusion on Country Energy’s annual revenue requirements and X factors ($m, nominal)

	2008-09	2009-10	2010-11	2011-12	2012-13	2013-14
Regulatory depreciation		154.1	176.8	141.7	161.4	181.1
Return on capital		432.9	494.2	558.1	629.7	701.7
Tax allowance		48.6	51.9	45.3	52.6	57.8
Operating expenditure		405.4	424.0	442.8	461.2	477.9
Annual revenue requirements		996.0	1146.9	1188.0	1304.8	1418.6
Expected revenues	732.3	856.8	1039.2	1260.8	1489.6	1474.5
Forecast CPI (%)		2.47	2.47	2.47	2.47	2.47
X factors (%)		-13.41	-17.90	-17.90	-14.75	3.99

 

Table 16.21:   AER conclusion on Country Energy’s annual revenue requirements and expected revenues ($m, nominal)

	NPV	2009-10	2010-11	2011-12	2012-13	2013-14
Annual revenue requirements	4515.3	996.0	1146.9	1188.0	1304.8	1418.6
Expected revenues	4515.3	856.8	1039.2	1260.8	1489.6	1474.5
Difference (%)	0.00	-13.98	-9.39	6.13	14.16	3.94

 

Table 16.30:   AER conclusion on NSW DNSPs annual revenue requirements ($m, nominal)

 

Table 16.31:   AER conclusion on NSW DNSPs’ X factors (per cent)

IN THE AUSTRALIAN COMPETITION TRIBUNAL
	File No 2 of 2009

RE:	APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION/TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO ENERGYAUSTRALIA PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES
BY:	ENERGYAUSTRALIA
	Applicant
AND	SOUTHERN SYDNEY REGIONAL ORGANISATION OF COUNCILS
	Intervener
		File No 3 of 2009

 

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 TRANSGRID PURSUANT TO CLAUSE 6A.13.1 OF CHAPTER 6A OF THE NATIONAL ELECTRICITY RULES
By:	TRANSGRID
	Applicant
		File No 4 of 2009

RE:	APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO INTEGRAL ENERGY PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES
BY:	INTEGRAL ENERGY
	Applicant
		File No 5 of 2009

 

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 TRANSEND PURSUANT TO CLAUSE 6A.13.1 OF CHAPTER 6A OF THE NATIONAL ELECTRICITY RULES
By:	TRANSEND
	Applicant
AND	NYRSTAR AUSTRALIA PTY LTD
	Intervener
		File No 6 of 2009

 

RE:	APPLICATION UNDER SECTION 71B OF THE NATIONAL ELECTRICITY LAW FOR A REVIEW OF A DISTRIBUTION/TRANSMISSION DETERMINATION MADE BY THE AUSTRALIAN ENERGY REGULATOR IN RELATION TO COUNTRY ENERGY PURSUANT TO CLAUSE 6.11.1 OF APPENDIX 1 OF CHAPTER 11 OF THE NATIONAL ELECTRICITY RULES
By:	COUNTRY ENERGY
	Applicant

 

the Tribunal:	JUSTICE MIDDLETON (DEPUTY PRESIDENT), MR R DAVEY AND MR R Shogren
DATE:	25 November 2009
PLACE:	SYDNEY

FURTHER REASONS FOR DETERMINATIONS

PUBLIC LIGHTING

1                     On 28 April 2009, the AER published its distribution determination entitled EnergyAustralia Distribution Determination 2009-10 to 2013-14.  This distribution determination included a decision on the control mechanism for alternative control services, namely the prices/charges to be applied to the provision of alternative control services, being the construction and maintenance of public lighting. 

2                     On 19 June 2009 the Tribunal granted leave to EA to apply for a review of the determination. 

3                     In File No 2 of 2009, the parties are EA, the AER and SSROC.  On 16 October 2009 the Tribunal gave directions to those parties and provided reasons for directions in respect of public lighting.  The Tribunal made directions that:

·                    the parties consult with the aim of reaching agreement on the directions or recommendations that may be made by the Tribunal in making its determination and remitting the matter to the AER, identifying precisely each public lighting issue which is agreed and each public lighting issue which is not agreed and which remains in contention.

·                    the parties report to the Tribunal on or before 4:00pm on 19 October 2009 indicating a practicable and reasonable time prior to the date (27 November 2009) for the making of the Tribunal’s determination in which such consultation can be finalised and reported to the Tribunal pursuant to the following direction.

·                    within five days of the conclusion of consultation, the AER report in writing to the Tribunal each agreed direction or recommendation and each issue not agreed and which remains in contention.

4                     On 19 October 2009 the Tribunal was notified of the parties’ agreement to report on their consultations by 6 November 2009.

5                     The AER has prepared a report in order to comply with the directions made on 16 October 2009 and the notification provided to the Tribunal on 19 October 2009.

6                     The parties have agreed upon certain directions and recommendations. 

7                     The Tribunal, having considered the AER report, is prepared to and will make those directions and recommendations as have been agreed in accordance with its reasons for directions published on 16 October 2009.

8                     Certain aspects of possible directions and recommendations have not been agreed.

9                     Once the reviewable regulatory decision it set aside, the Tribunal has power to make directions and recommendations even though elements of the reviewable regulatory decision are not directly affected by the established grounds of review.

10                  The Tribunal does not accept the submission of the AER that it cannot direct, upon setting aside a decision and a remittal, the AER to consider non ‘review related matter’ in respect of an aspect of the decision set aside.  In fact, upon reconsideration the AER, in the absence of a direction from the Tribunal, would not be restricted to ‘review related matter’, as so classified at the time of the Tribunal determination. 

11                  Undoubtedly, the Tribunal having decided to set aside the AER’s decision and to remit the matter back to the AER to make the decision again, could make a direction or recommendation limiting the scope of the reconsideration (s 71P(2)(b)).  However, the starting point should be that the AER would be obliged to consider ‘up dated’ non ‘review related matter’ for the purposes of making its new decision. Presumably, on any merits review before the Tribunal from that new decision of the AER, the scope of the ‘review related matter’ would be different from that currently before the Tribunal. 

12                  The Tribunal sees nothing in the language of the NEL or the legislative intent to put a restriction on the Tribunal of the kind suggested by the AER, namely that the directions and recommendations be confined to:

·                    those elements of the reviewable regulatory decision that are directly affected by the established grounds of review; and

·                    consequential matters, such as other elements of the reviewable regulatory decision that are affected as a result of the action that the Tribunal decides to take in relation to those elements of the reviewable regulatory decision that are directly affected by the established grounds.

13                  However, undoubtedly the legislative intent and policy considerations favour the Tribunal not ‘re-opening’ the whole review process afresh where error is found in one aspect of the AER’s decision but no apparent error exists in any other aspect of the AER’s decision.  This is not a question of the Tribunal not having the power to so direct, but more a matter which should inform the exercise of the Tribunal’s discretion as to remittal, and what recommendations and directions to make to assist in the reconsideration by the AER.

14                  The Tribunal repeats what was stated in the reasons for directions published on 16 October 2009 at [32]:

The NEL contemplates that the Tribunal must make a determination after considering the grounds of review, and if a ground of review is established, then decide whether the matter should be remitted.  In looking at each constituent decision the Tribunal may come to a view that the determination of the AER in one or other aspect is incorrect (that is, a ground of review is established), set aside the determination and vary it in accordance with the Tribunal’s view of the proper determination to make upon the application before the Tribunal.  Alternatively, it may remit the matter to the AER to make the determination again, either with a direction or recommendation.  Ideally, the end result should not require a recommencement of the entire process undertaken previously by the AER.  The object of the remittal is to correct errors, leaving the AER to re-determine any aspects of the determination set aside which have not been singled out by the Tribunal as being in error.  However, once the determination is set aside, if the AER is persuaded of error, other than that identified by the Tribunal, the AER has the power and the duty to correct that error in its re-determination. 

15                  Therefore, the Tribunal should make directions and recommendations that ideally do not involve the recommencement of the entire process, that enable correction of an error or errors established as a ground of review and that enable the AER to have the ability to correct any other error identified by it  in the course of its reconsideration.

16                  The Tribunal now turns to the matters still in contention. 

17                  On ‘Methodology’, the AER (supported by the SSROC) seeks the following direction:

The Tribunal directs that the AER make the decision using the following methodologies:

 

(a)       a building block approach incorporating an asset base roll forward for pre 1 July 2009 public lighting assets; 

 

(b)       an annuity approach for post 30 June 2009 public lighting assets;

 

(c)       a control mechanism comprising a schedule of fixed charges in the first year of the next regulatory control period for assets constructed before 1 July 2009 and a schedule of fixed prices in the first year of the next regulatory control period for assets constructed after 30 June 2009 and a price path for the remaining years of the next regulatory control period.

18                  EA does not agree with paragraph (c) of that proposed direction.  It submits that the direction in paragraph (c) may inappropriately restrict the AER from correcting or adjusting the control mechanism, where the AER is satisfied of additional errors.  An example was given of the issue of how to deal with the capital contribution of the sunk value of any assets early in their economic life, and possible solutions to this issue.

19                  The Tribunal is of the view that the direction in paragraph (c) should not be made.  The parties have the confirmation of the Tribunal that this aspect of the determination was not infected by reviewable error.  Regulatory consistency and certainty of process of the AER can be effectively maintained by the AER adopting that position.  However, the AER should not be prevented from otherwise carrying out its statutory role in making a new decision, and having the flexibility to consider ‘solutions’ and adjustments as may be proffered by EA.  The AER does submit that other directions, in effect, permit the AER to correct errors, but the Tribunal considers that there is no reason to limit the AER’s reconsideration in the way proposed by paragraph (c). 

20                  On the matters to be addressed in submissions, the AER seeks the following directions:

The Tribunal directs that submissions made by EA:

 

(a)       must address the value of, and methodology for determining, the efficient operating expenditure required by EA for each year of the regulatory control period in order to operate and maintain its public lighting assets that provide alternative control services.  The efficient level of operating expenditure must be supported by a detailed ‘bottom up’ model whereby the efficiency of inputs and assumptions for all key maintenance aspects are explained and justified.

 

(b)       may include information and material in respect of issues the subject of these directions that were not before the AER when it made its original decision;

 

(c)       must not address the value of, and methodology for determining, the regulatory asset base for use in the building block approach for pre 1 July 2009 public lighting assets.

21                  SSROC submits that the direction should be more confined, so as to prevent a general recommencement of the process, should ensure EA remedies defects in its original submission on opex, and the AER’s original decision to the extent it contains no reviewable error, remain as it is and not be revisited.

22                  SSROC seeks directions as follows:

Submissions made by EnergyAustralia may address:

 

(a)       matters identified by the Tribunal as involving reviewable error by the AER;

 

(b)       matters identified by the Tribunal as interacting with matters involving reviewable error by the AER;

 

(c)       matters specifically identified by the Tribunal as being matters which the AER may consider further upon remittal.”

 

and SSROC also supported a direction in the following terms: 

 

“EA provide the AER with a submission that includes a detailed opex model calculating its efficient opex requirements for pre and post 30 June 2009 public lighting assets. The submission must include supporting information justifying the efficiency of all inputs and assumptions applied in calculating the efficient opex, including connections operating costs and labour costs for traffic and non-traffic routes.

EA is to provide inputs and assumptions relating to bulk lamp replacement cycles, spot lamp replacement productivity levels and assumed average cost per luminaire in its model consistent with those inputs and assumptions determined by the AER in its final determination of 28 April 2009. (footnote omitted)

23                  The EA seeks the following directions:

(a)       must address the value of, and methodology for determining, the efficient operating expenditure required by EA for each year of the regulatory control period in order to operate and maintain its public lighting assets that provide alternative control services.  The efficient level of operating expenditure must be supported by a detailed model whereby the efficiency of inputs and assumptions for all key maintenance aspects are explained and justified;

 

(b)       may include information and material that was not before the AER when it made its original decision, such as the ‘IPART letter’ identified by the Tribunal in paragraph 57 of its reasons for directions (16 October 2009);

 

(c)       may address the value of, and methodology for determining, the regulatory asset base for use in the building block approach for pre 1 July 2009 public lighting assets.

24                  The Tribunal considers that it should not limit the way EA may advance an operating expenditure model, particularly by a model not necessarily recognised by the Rules.  EA has an incentive to provide the AER with sufficient material to support its case, and the AER will again determine the position based on that material.

25                  Equally, whilst ideally the Tribunal would wish to limit the extent of any reconsideration, in the case of public lighting the Tribunal considers that the AER should not be restricted on the material or submissions it receives, other than as to the matters addressed in the final direction in contention as addressed below.  The AER, upon receiving the submissions, will consider the matter, subject to the NEL and the Rules, and guided by the reasons for directions published on 16 October 2009 and these reasons.

26                  On this aspect, the Tribunal proposes to make the directions as sought by EA.

27                  Finally, the AER seeks a direction by the Tribunal that the AER, in making a decision:

(a)       must have regard to submissions made to the AER in accordance with the timetable set out above and any other information or material requested by the AER in the course of making the decision again; and

 

(b)       otherwise is not required to have regard to submissions made to the AER.

28                  SSROC considered that the AER should have a discretion as to having regard to submissions, and the EA wanted to broaden the obligation on AER to include a discretion to consider submissions even if out of time, provided that there was a reasonable time for the AER to consider the additional information provided.

29                  The Tribunal considers that the AER’s proposal is appropriate and fair.  A timetable is proposed, the AER must have regard to submissions and information made within the confines of the direction, but places no obligation upon the AER to have regard to submissions otherwise made to the AER.  This ensures an orderly and timely decision-making process, and the parties know exactly what is expected of them.

30                  In light of the above, the Tribunal will make the appropriate directions and recommendations in relation to public lighting.

31                  At the directions hearing on 19 November 2009, SSROC made an application for costs against EA under s 71X of the NEL.  The Tribunal has considered the submissions made in support of that application, and does not consider that EA should be required to pay any costs of SSROC.

32                  The Tribunal appreciates that SSROC (as intervener) seeks to protect the public interest, but there is no proper basis upon which to order EA to pay any part of the costs.

33                  It will be apparent from the reasons dated 16 October 2009, that the Tribunal took the position it did on public lighting because of a number of considerations, including the fact that the AER’s reasons for determination on public lighting did not deal with many of the matters now agitated before the Tribunal and the AER accepted mistakes had occurred in its determination. 

34                  The EA succeeded in obtaining a determination from the Tribunal that the decision of the AER be set aside and remitted.  The EA did not succeed on all the issues it raised, but the Tribunal does not consider that an “issues based” allocation of costs is appropriate in the situation confronting the parties on the issue of public lighting.

35                  Whilst some criticism was made of EA in the Tribunal’s earlier reasons, the Tribunal does not consider that the actions of EA are a basis for making a cost order against it and in favour of SSROC.  The approach of the Tribunal in making its directions on 16 October 2009 was dictated by many factors, as indicated in its reasons for those directions.

36                  The application of SSROC for costs against EA is refused.

OTHER MATTERS

37                  In relation to the other matters arising from the Tribunal’s reasons for determination published on 12 November 2009, the parties have provided draft minutes of determination.  The Tribunal is prepared to make the determinations substantially in accord with those minutes.

38                  The Tribunal makes two comments.  First, the Tribunal at [113] indicated that additional revenue was to be recovered in the second year only.  To avoid an unnecessarily high increase in prices for customers in the second year, the Tribunal (with the agreement of all parties) will direct that the additional revenue is to be recovered in years two to five. 

39                  Secondly, the Tribunal in the Transgrid matter, is prepared to vary the decision of the AER, other than direct a remittal as anticipated at [310] of its reasons.  This approach is taken at the request of the parties.

40                  Therefore, in accordance with these further reasons, and the reasons published on 16 October 2009 and 19 November 2009, the Tribunal makes its determinations in each proceeding.

 

 

I certify that the preceding forty (40) numbered paragraphs are a true copy of the further Reasons for Determinations herein of the Honourable Justice Middleton (Deputy President), Mr R Davey and Mr R Shogren.

Associate:

Dated:         25 November 2009

Counsel for the Australian Energy Regulator:	Mr P Hanks QC with Mr P Gray, Mr P Wallis and Dr V Priskich
Solicitor for the Australian Energy Regulator:	Corrs Chambers Westgarth
Counsel for EnergyAustralia:	Mr JT Gleeson SC with Mr P Brereton SC, Dr R CA Higgins and Ms A Rao
Solicitor for EnergyAustralia:	Gilbert + Tobin
Counsel for Southern Sydney Regional Organisation of Councils:	Mr FM Douglas QC with Mr WAD Edwards
Solicitor for Southern Sydney Regional Organisation of Councils:	HWL Ebsworth
Counsel for Transgrid:	Mr AJ Meagher SC with Mr CA Moore
Solicitor for Transgrid:	Gilbert + Tobin
Counsel for Integral Energy:	Mr R Dick SC
Solicitor for Integral Energy:	Gilbert + Tobin
Counsel for Transend:	Mr AJ Payne SC with Mr JA Arnott
Solicitor for Transend:	Gilbert + Tobin
Solicitor for Nyrstar Australia:	O’Donnell Salzano
Counsel for Country Energy:	Mr JRJ Lockhart SC
Solicitor for Country Energy:	Gilbert + Tobin

Date of Hearing:	10, 11, 12, 13, 14, 17, 18, 19, 20, 21 August 2009
Date of Judgment:	25 November 2009