AER appeals against ACT decision on electricity and gas prices

AER – Australian Energy Regulator

Apr 05
AER appeals against ACT decision on electricity and gas prices

On 24 March 2016, the Australian Energy Regulator (AER) applied to the Federal Court for a judicial review of the Australian Competition Tribunal (ACT) decisions to set aside the NSW and ACT electricity and gas distribution network revenue determinations.

The AER has asked the Court ‘to consider whether the grounds of review were properly established by the network businesses and whether these were correctly applied by the Tribunal’.  The grounds of the ‘limited merits review’ require that the service provider applies to the ACT on the basis that there has been, in the AER’s determination:

  • an error of fact;
  • incorrect exercise of discretion, or
  • unreasonableness by the AER.

One of the above grounds of review must be established before the ACT can vary the decision or order the AER to remake it.

Whilst the review is underway, the AER has stated that it will continue to consult with stakeholders around remaking its original decisions, as is required under the ACT’s initial findings.  This includes how prices should be set from 1 July 2016 and until new decisions are made.

Background:

In April and May 2015, the AER determined the maximum revenues that the electricity and gas distribution networks in NSW and the ACT could earn and what could be recovered through consumer bills.  The AER’s decision allowed less revenue than proposed by the businesses with the AER determining:

  • that NSW and ACT electricity networks were not operating as efficiently as other comparable networks
  • a lower rate of return and corporate tax allowance, consistent with recent market trends.

In June 2015 the gas and electricity distribution businesses sought a limited merits review of the AER’s final decisions in the ACT.

On 26 February 2016, The ACT handed down its ruling on the appeal, finding that the AER was correct in some matters, e.g. how the cost of equity was to be calculated. However, the ACT directed the AER to remake its decisions in relation to the electricity networks’ operating expenses, the cost of corporate income tax and the cost of debt.