The role of courts and tribunals in providing guidance to regulators - PowerPoint PPT Presentation

The role of courts and tribunals in providing guidance to regulators A quest for value – The epic saga of the Moomba to Sydney Pipeline Justin Oliver Special Counsel Minter Ellison

The Moomba to Sydney Pipeline • A major gas transmission pipeline • Regulated under the Gas Code since 1998 • EAPL required to submit a proposed access arrangement to the ACCC • Access arrangement contains reference tariffs • Access arrangement considered in parallel with revocation application • Partial revocation of coverage • A very lengthy process

The Initial Capital Base • ICB is a step in determining reference tariffs • Existing pipeline – 8.10 sets out factors • DAC • DORC • Other “well recognised” methodologies • Pros and cons of each • Other factors • ICB normally between DAC and DORC (8.11)

ACCC decision • EAPL proposed ICB of $784-$997 million • ACCC rejected this figure • Section 8.10 • ACCC started with ORC • “Kinked” depreciation profile to arrive at ICB • Based on past tariffs and depreciation (8.10(f)) • Substituted ICB of $545.4 million

Australian Competition Tribunal • Limited merits review • ACCC erred - there is an order to s 8.10 1. consider 8.10(a), (b) and (c) 2. assess pros and cons of each (8.10(d)) 3. use 8.10(e)-(k) to help choose between them • may justify adjustment to chosen methodology • will rarely (if ever) allow well recognised methodologies to be put aside • ICB of $834.66 million

Federal Court • Judicial review – Full Court • No error in ACCC decision • There is no order to 8.10 • Regulator need only take each factor into account to arrive at ICB • ORC can be adjusted by reference to 8.10(f)

High Court • Federal Court decision set aside • Gleeson CJ, Heydon, Crennan JJ • There is an order to 8.10 • Agreed with Tribunal • Gummow, Hayne JJ • There is an order to 8.10 • A narrower role for 8.10(e) to (k)?

Gleeson CJ, Heydon, Crennan JJ • Key objective – provide a return on investment commensurate with • prevailing conditions in market for funds • risk involved • Regulatory uncertainty increases risk • Regulator’s discretion, while wide, must be limited • An outcome that is novel or idiosyncratic should not be permitted

Relevant objectives • The Gas Code contains objectives • Introduction, 2.24, 8.1 • These do not include providing a rate of return commensurate with market conditions and risk • This objective was derived from context • 8.30 - rate of return • There is a purposive relationship between ICB and rate of return

Lessons • Objectives are critical in interpretation • Objectives are not always obvious • Recognising risk is an objective of most access laws • Does this mean the regulator’s discretion will always be constrained by the need to minimise uncertainty? • Keep it simple!