AUSTRALIAN COMPETITION TRIBUNAL
Application by DBNGP (WA) Transmission Pty Ltd [2012] ACompT 6
Citation: | Application by DBNGP (WA) Transmission Pty Ltd [2012] ACompT 6 | |
Review from: | Economic Regulation Authority of Western Australia | |
Parties: | DBNGP (WA) TRANSMISSION PTY LTD (ACN 081 609 190) ON ITS OWN BEHALF AND ON BEHALF OF DBNGP (WA) NOMINEES PTY LTD (ACN 081 609 289) AS TRUSTEE OF THE DBNGP WA PIPELINE TRUST, AND DBNGP (WA) NOMINEES PTY LTD (ACN 081 609 289) AS TRUSTEE OF THE DBNGP WA PIPELINE TRUST | |
File number: | ACT 2 of 2012 | |
Tribunal: | JUSTICE MANSFIELD (PRESIDENT) MR R DAVEY PROFESSOR D ROUND | |
Date of decision: | ||
Date of last submissions: | 2 February 2012 | |
Place: | Perth | |
Category: | No catchwords | |
Number of paragraphs: | 32 | |
Solicitors for the Economic Regulation Authority: | Lavan Legal | |
IN THE AUSTRALIAN COMPETITION TRIBUNAL | |
RE: | APPLICATION UNDER SECTION 245 OF THE nATIONAL GAS ACCESS (WESTERN aUSTRALIA) LAW FOR A REVIEW OF THE DECISION MADE BY THE ECONOMIC REGULATION AUTHORITY OF WESTERN AUSTRALIA TO GIVE EFFECT TO ITS PROPOSED REVISIONS TO AN ACCESS ARRANGEMENT FOR THE DAMPIER TO BUNBURY NATURAL GAS PIPELINE, PURSUANT TO RULE 64 OF THE NATIONAL GAS RULES |
BY: | DBNGP (WA) TRANSMISSION PTY LTD (ACN 081 609 190) ON ITS OWN BEHALF AND ON BEHALF OF DBNGP (WA) NOMINEES PTY LTD (ACN 081 609 289) AS TRUSTEE OF THE DBNGP WA PIPELINE TRUST First Applicant AND DBNGP (WA) NOMINEES PTY LTD (ACN 081 609 289) AS TRUSTEE OF THE DBNGP WA PIPELINE TRUST Second Applicant |
TRIBUNAL: | MR R DAVEY PROFESSOR D ROUND |
DATE OF ORDER: | |
WHERE MADE: | perth |
THE TRIBUNAL ORDERS THAT:
1. Leave is granted to the applicants to apply to the Tribunal for review of the decision made by the Economic Regulation Authority of Western Australia to give effect to its proposed revisions to an access arrangement for the Dampier to Bunbury Natural Gas Pipeline, pursuant to Rule 64 of the National Gas Rules.
THE TRIBUNAL DIRECTS THAT:
2. The applicants to serve on any interested parties the application by 19 March 2012 (noting that BHP Billiton and Verve Energy have already been served).
3. Any application to intervene is to be filed and served by 22 March 2012 and will be listed for hearing at 11:30 am (Central time) (10:00 am Western time) on 5 April 2012.
4. The directions hearing in this matter to be adjourned to 11:30 am (Central time) 10:00 am (Western time) on 5 April 2012, but may be vacated if no intervention application is received.
5. The directions hearing listed for 22 March 2012 at 2:00 pm (WST) be vacated.
ACT 2 of 2012 |
RE: | APPLICATION UNDER SECTION 245 OF THE nATIONAL GAS ACCESS (WESTERN aUSTRALIA) LAW FOR A REVIEW OF THE DECISION MADE BY THE ECONOMIC REGULATION AUTHORITY OF WESTERN AUSTRALIA TO GIVE EFFECT TO ITS PROPOSED REVISIONS TO AN ACCESS ARRANGEMENT FOR THE DAMPIER TO BUNBURY NATURAL GAS PIPELINE, PURSUANT TO RULE 64 OF THE NATIONAL GAS RULES |
BY: | DBNGP (WA) TRANSMISSION PTY LTD (ACN 081 609 190) ON ITS OWN BEHALF AND ON BEHALF OF DBNGP (WA) NOMINEES PTY LTD (ACN 081 609 289) AS TRUSTEE OF THE DBNGP WA PIPELINE TRUST First Applicant AND DBNGP (WA) NOMINEES PTY LTD (ACN 081 609 289) AS TRUSTEE OF THE DBNGP WA PIPELINE TRUST Second Applicant |
TRIBUNAL: | JUSTICE MANSFIELD (PRESIDENT) PROFESSOR D ROUND MR R DAVEY |
DATE OF ORDER: | 15 March 2012 |
WHERE MADE: | PERTH |
REASONS FOR DECISION
background
1 By application dated 16 January 2012, DBNGP (WA) Transmission Pty Ltd on its own behalf and on behalf of DBNGP (WA) Nominees Pty Ltd as trustee of the DBNGP WA Pipeline Trust (the Trust), and DBNGP (WA) Nominees Pty Ltd as trustee of the Trust (together the Applicants) seek leave to apply under section 245 of the National Gas Access (Western Australia) Law (NGL(WA)) for a review by the Tribunal of an access arrangement determination made by the Economic Regulatory Authority of Western Australia (ERA) in respect of the Dampier to Bunbury Natural Gas Pipeline (DBNGP).
2 On 22 December 2011 the ERA issued an amended Final Decision pursuant to the National Gas Rules (NGR) in relation to the proposed revisions to the access arrangement for the DBNGP (Final Decision). On the same day the ERA also issued a revised access arrangement determination for the DBNGP pursuant to rule 64 of the NGR (Final Determination), a revised access arrangement for the DBNGP (Revised Access Arrangement) and revised access arrangement information. The Final Determination gives effect to the Revised Access Arrangement.
3 DBNGP (WA) Pipeline Trust is the owner of the BGNGP and DBNGP (WA) Transmission Pty Ltd is the operator of the DBNGP.
Application
4 The Applicants seek leave to apply to the Tribunal for a review of the Final Determination on ten issues. These ten issues may be summarised into six categories (as the Applicants have done):
1. whether the appropriate real, pre-tax rate of return on capital is 5.74%, as determined by the ERA, or whether it is some higher figure such as 10.03%, as proposed by the Applicants;
2. whether the ERA correctly adjusted DBNGP’s capital base for the purposes of calculating a reference tariff. In particular:
2.1 whether the opening capital base should be adjusted using a national or local rate of inflation;
2.2 whether a “project management retainer fee” paid by the Applicants to a related company in respect of certain pipeline expansion works should be counted as conforming capital expenditure; and
2.3 whether certain capital expenditure made by the Applicant in respect of the Burrup Extension Pipeline (BEP) should be valued at $17.679 million or $23.117 million.
3. whether the ERA should have taken into account the full amount of certain regulatory expenses or whether the ERA was correct in reducing these amounts for the purposes of calculating the reference tariffs;
4. whether the ERA correctly specified the appropriate reference services. In particular;
4.1 and 4.2 whether the ERA ought to have accepted the R1 reference service, as proposed by the Applicants, or whether it was correct in requiring the Applicants to offer T1, P1 and B1 reference services; and
4.3 if this question is answered adversely to the Applicants, that is if the ERA was correct in rejecting the R1 reference service, whether the ERA correctly altered the definition of the P1 reference service;
5. whether the ERA, in determining the applicable terms and conditions applicable under a reference service, should have adopted certain more stringent behavioural limits, which would mean that the Applicants did not have to set a lower amount as the available capacity of the DBNGP to provide pipeline services; and
6. whether any further expansions to the capacity of the DBNGP should automatically be covered by the Revised Access Arrangement, unless the Applicants demonstrate to the ERA’s satisfaction that coverage is not consistent with the National Gas Objective contained in section 23 of the NGL(WA).
5 The ERA has indicated that it does not oppose the granting of leave to apply for review in relation to any of the grounds advanced by the Applicants.
leave requirements
6 Section 245(1) of the NGL(WA) provides:
An affected or interested person or body, with the leave of the Tribunal, may apply to the Tribunal for a review of a reviewable regulatory decision.
7 As DBNGP (WA) Transmission Pty Ltd operates the DBNGP and DBNGP (WA) Nominees Pty Ltd as Trustee of the DBNGP (WA) Pipeline Trust owns the DBNGP, it is clear that both of the Applicants are service providers: NGL(WA) s 8(1). As a service provider to whom a reviewable regulatory decision, the Final Determination, applies, the Applicants are affected or interested persons for the purposes of section 245: NGL(WA) s 244.
8 The NGL(WA) provides that a “reviewable regulatory decision” includes an “applicable access arrangement decision” (other than a full access arrangement decision that does not approve a full access arrangement): s 244 of the NGL(WA). A “full access arrangement” means an access arrangement that provides for price or revenue regulation as required by the NGR and deals with all other matters for which the NGR require provision to be made for in an access arrangement: s 2 of the NGL(WA). The Final Determination has that character.
9 That is because an “applicable access arrangement decision” is defined in s 2 of the NGL(WA) to include a decision of the ERA under the NGR that “makes a full access arrangement…in place of a full access arrangement [proposed by the Applicants] the ERA does not approve in that decision” or “makes revisions to an access arrangement in place of revisions submitted to the ERA under s 132 that the ERA does not approve in that decision.”
10 Consequently, the Final Determination is a “reviewable regulatory decision”. It is a decision to “make revisions to an access arrangement in place of revisions submitted to the [ERA] under section 132” in place of a revised access arrangement the ERA does not approve. Further, the Final Determination as formulated with regard to the ERA’s reasons contained in the Final Decision resulted in “revisions to an access arrangement…in place of revisions submitted to the ERA…that the ERA does not approve”.
11 Section 246 of the NGL(WA) specifies the grounds upon which a decision of the ERA may be reviewed. In brief, the grounds are that the ERA has made a material error of fact, incorrectly exercised its discretion and/or that its decision was unreasonable.
12 There are two relevant limitations on the Tribunal’s discretion to grant leave to appeal from a decision of the ERA. Firstly, in respect of each of the matters raised by the Applicants there must be a serious issue to be heard and determined. Secondly, the Applicants must satisfy the financial threshold imposed by s 249 of the NGL(WA).
Serious issue to be heard and determined
13 The Tribunal must be satisfied under s 248 of the NGL(WA) that there is a serious issue to be heard and determined as to whether a ground of review set out in s 246(1) exists. Section 246(1) specifies the available grounds. The application in this matter is in terms consistent with those grounds in all respects. Nevertheless, the Tribunal must be satisfied that there is a serious issue to be heard and determined. The Tribunal has had the benefit of an extensive written submission from the Applicants. As the application for leave is not contested by the ERA, it is not necessary to discuss in detail earlier decisions of the Tribunal as to how that test is satisfied. Some of the earlier decisions are referred to in the Applicants’ written submission. The Tribunal in this matter simply proceeds on the basis of ss 246 and 248 as explained in those earlier decisions. In addition, the Tribunal in the circumstances does not need to indicate in as much detail as in a contested application why it considers that there is a serious issue to be heard and determined in respect of each of the issues sought to be the subject of review by the Tribunal.
14 Two of the issues in this application, namely the correct return on capital and whether a local or national rate of inflation should be used, are similar to those raised in WA Gas Networks Pty Ltd (No 1) [2011] ACompT 14 (WAGN). For the same reasons as were given there, each of these grounds raise a serious issue to be heard and determined: see WAGN at [22]-[32]. The detail underlying the conclusion is set out in the Applicants’ submissions at [54]-[91] and [91]-[119] respectively.
15 The Applicants contend that the ERA made reviewable errors in its decision not to allow an annual payment of a project management retainer fee of $2.25 million from 2008 onwards to be counted as conforming capital expenditure. The Applicants point to an alleged error of fact in the ERA’s consideration of the timeframe of the payments. At the heart of the issue is whether the payment is properly characterised as conforming capital expenditure. The ERA considered that it did not meet the requirement of being a fee paid by a prudent and efficient service provider because it was paid to a related company to ensure that this related company retained the capacity to undertake capital works, rather than a fee paid for actual project management. The Applicants maintain that it was prudent expenditure given that it is obliged to deliver expansions of capacity under a tight timeframe if called upon to do so under its standard shipper contracts.
16 The Applicants contend that the ERA regarded the fee as an ongoing payment until 2015 even though there were no expansions forecast for the purposes of the Revised Access Arrangement period. The Applicants submit that, were that the case, there may well have been a good basis for the ERA’s view that the payment of the fee was not prudent or efficient. The Applicants contend that the ERA should have addressed, but did not address, the question of whether incurring the fee for the period of 2009 and 2010, when the fee was actually paid, was prudent and efficient. The Applicants implicitly submit that, had the ERA directed itself to this question, it would have answered it favourably to the Applicants.
17 The Applicants have some prospects of success in demonstrating that the ERA should have addressed the question of whether the expenditure was efficient and prudent when it was actually made. Further, it is arguable that the ERA may have come to a different conclusion had it accepted as correct the timeframe that the Applicants contend is the relevant one. Accordingly, there is a serious issue to be heard and determined.
18 The Applicants executed a finance lease relating to the BEP in 2008, for a maximum term of 20 years. The lease commenced after satisfaction and waiver of various conditions, becoming unconditional in 2010. The Applicants contend that the ERA made three errors in determining the value that should be assigned to this in determining the opening capital base. The first of these is that it was incorrect or unreasonable to value the lease using its value in 2008 rather than in 2010. The Applicants contend that the asset was only in fact used as part of the pipeline after 2010 and that the relevant accounting standards require that a finance lease be valued as an asset at the commencement of the lease. Secondly, the Applicants contend that the ERA acted unreasonably in rejecting the Applicant’s proposed discount rate and determining that there was no discount rate implicit in the lease. Thirdly, the Applicants contend that the ERA was in error in determining the relevant period for discounting of the lease. In support of this contention the Applicants point to an alleged inconsistency in the ERA’s reasoning in which it calculated the BEP asset’s capital value having regard to the lease payments over 20 years, but depreciated the value of the asset over 60 years.
19 It is clearly arguable that the correct date at which to value the lease was when the lease came into force, namely 2010 rather than 2008. In addition, it is arguable that the rejection by the ERA of the Applicant’s proposed discount rate was unreasonable, based as it was on the ERA’s rejection of the Applicants’ valuation of the lease. Finally, the length of the depreciation period is a matter open to argument as, on the face of it, there does appear to be some basis for asserting inconsistency in the ERA’s approach. As such, there appears to be a serious issue to be heard and determined as to whether the ERA fell into reviewable error in its treatment of the BEP lease expenditure.
20 The ERA disallowed an amount of $200,000 as an additional regulatory expenditure which the Applicants forecast for preparing revisions to the next access arrangement to commence on 1 January 2016. Instead, the ERA adopted the same forecast for regulatory costs as used for revisions to the Revised Access Arrangement commencing on 1 January 2012. This was despite the Applicants informing the ERA that the actual estimates for such regulatory costs had in fact been exceeded. The Applicants submit that it was clearly erroneous for the ERA to have adopted a forecast of regulatory costs for the next access arrangement period on a basis which had already proved to be inadequate. This is an arguable position and gives rise to a serious issue to be heard and determined.
21 The Applicants contend that the ERA incorrectly construed NGR rules 48(1)(c), 48(1)(d) and 101(2) in determining what services should be classed as “reference service”. The Applicants’ argument turns on the definition in NGR rule 101(2) that a reference service means a pipeline service that is likely to be sought by a significant part of the market.
22 The Applicants identified two alleged errors of construction. First, the ERA considered that, in determining the likely demand for reference services, it had to have regard to the services that would be supplied to a significant part of the market during the Revised Access Arrangement Period, including having regard to capacity which was already contracted. The Applicants, on the other hand, contended that the relevant market concerned only those shippers likely to contract for further capacity during the Revised Access Arrangement Period. Secondly, the ERA considered that a reference service was largely defined by the terms on which the service was provided. The Applicant contends, however, that a reference service is a type of service defined only by the availability, length and direction of haulage.
23 Rule 48(1)(c) of the NGR requires an access arrangement to specify a reference service. The relevant reference service which must be specified is one which “will be provided”. The Applicants submit that rule 48 is concerned with the reference service to be provided in the future during the operation of the relevant access arrangement in which the reference service is provided. Whether rules 48(1)(c) and (d) are concerned with reference service which “will be provided” pursuant to existing contract, or are only concerned with reference service which “will be provided” to customers seeking further capacity in the relevant access arrangement period is elucidated in the Applicants’ submission, by the definition of “reference service” in rule 101(2) of the NGR. This rule states that a reference service is a pipeline service that is “likely to be sought by a significant part of the market”.
24 The Applicants submit that the reference to likelihood and the use of the words “to be sought” indicate that the rule is concerned only with a prediction about what the market will, in the future, seek rather that also being concerned with the existing services which have already been contracted.
25 The Applicants submit that the definition of “pipeline service” in section 2 of the NGL(WA) adopts the approach of describing the service by reference to the service’s availability, length and direction. In selecting these features, the Applicants submit, the definition has focused on the particular features which are fundamental to the nature of the service, rather than the particular terms and conditions.
26 The construction for which the Applicants contend is clearly arguable. There is some prospect of success. For this reason there is a serious issue to be heard and determined.
27 In the alternative, the Applicants submit that the terms and conditions contained in the standard contract for the reference service determined by the ERA should be modified to bring certain criteria aspects into line with stricter behavioural limits on the basis that these stricter limits offer more efficient utilisation of the DBNGP for the benefit of all shippers. The Applicants’ detailed written submission at [146]-[148] develops the contention.
28 The Tribunal is satisfied that the contention of the Applicants under the heading “Terms and Conditions” demonstrates a serious issue to be heard and determined.
29 The final issue is whether the ERA was in error in determining that all future expansions to the DBNGP will be deemed to be part of the covered pipeline subject to the Revised Access Arrangement unless the Applicants demonstrate that this is inconsistent with the National Gas Objective. The Applicants submit that this was in error because, in making the determination, the ERA assumed that coverage should apply to an expansion without any regard to whether the particular circumstances of an expansion in fact justify coverage and whether the pipeline coverage criteria in section 15 of the NGL(WA) have been satisfied. It is certainly arguable that each expansion should be considered on its own facts, rather than pre-emptively. For this reason, there is a serious issue to be heard and determined as to whether the ERA fell into reviewable error in reaching this determination.
Financial threshold
30 Section 249 of the NGL(WA) imposes as a threshold that the amount that is specified in or derived from the Reviewable Decision must exceed either the lesser of $5m or 2% of the average annual regulated revenue of the covered pipeline service provider.
31 There is no submission that the Tribunal should depart from the construction given to section 249 of the NGL in Jemena Gas Networks (NSW) Ltd (No 2) [2011] ACompT 5 at [4]. There the Tribunal held that the threshold is met if the effect of all alleged errors, considered together, exceeds the financial limits. On the basis of the confidential information provided by the Applicants in the application for review and submissions for the Applicants the financial threshold is easily met. The material to support that conclusion is more fully described in the Applicants’ written submission.
Decision
32 As each matter raised by the Applicants gives rise to a serious issue to be heard and determined and the financial threshold has been met, leave should be granted on each ground.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield, Mr R Davey and Professor D Round. |
Associate: