Application by Envestra Limited (No 2) [2012] ACompT 4

Application by Envestra Limited (No 2) [2012] ACompT 4

The Australian Energy Regulator committed reviewable error by averaging the extrapolated Bloomberg curve value with the APA bond without sufficient regard to all relevant material and expert evidence. The debt risk premium should be determined solely by reference to the extrapolated Bloomberg value (4.67%). No reviewable error was made in the determination of the market risk premium; the AER's decision to set the value at 6% was reasonably open to it and supported by evidence.

Parties
Applicant: Envestra Limited; Respondent: Australian Energy Regulator
Jurisdiction
Australia
Judgment Date
11 January 2012
Procedural Posture
Application for Review of Regulatory Decision / Final Determination of Review
Outcome
Varied and affirmed in part
Legal Topics
Access Arrangements, Rate of Return, Debt Risk Premium, Market Risk Premium, Regulatory Discretion, National Gas Law
Administrative Law Competition Law Energy Regulation Access Arrangements Rate of Return Debt Risk Premium Market Risk Premium Regulatory Discretion +1 more

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Parties

Envestra Limited

Applicant

Australian Energy Regulator

Respondent

Procedural Posture

Application for Review of Regulatory Decision / Final Determination of Review

Legal Issues

  1. 1 Whether the Australian Energy Regulator correctly determined the debt risk premium for Envestra's Queensland gas distribution network
  2. 2 Whether the Australian Energy Regulator correctly determined the market risk premium for the purposes of calculating the cost of equity
  3. 3 Whether the Australian Energy Regulator made any reviewable error under section 246(1) of the National Gas Law

Ratio Decidendi

The Australian Energy Regulator committed reviewable error by averaging the extrapolated Bloomberg curve value with the APA bond without sufficient regard to all relevant material and expert evidence. The debt risk premium should be determined solely by reference to the extrapolated Bloomberg value (4.67%). No reviewable error was made in the determination of the market risk premium; the AER's decision to set the value at 6% was reasonably open to it and supported by evidence.

Court Disposition

Varied and affirmed in part

Orders

  • The Access Arrangement Decision is varied by replacing 3.81% for the debt risk premium with 4.67% for purposes of calculating the cost of debt.
  • The Access Arrangement Decision relating to the market risk premium for calculating the cost of equity is affirmed.