Application by Jemena Gas Networks (NSW) Ltd (No 5) [2011] ACompT 10

Application by Jemena Gas Networks (NSW) Ltd (No 5) [2011] ACompT 10

The appropriate curve from which JGN's debt risk premium should be calculated is the Bloomberg fair value curve. The Tribunal found that the Bloomberg curve was a much better fit than the CBASpectrum curve, that the CBASpectrum curve was no longer published and was not sufficiently reliable or market respected for averaging, and that empirical analysis of the relevant population of bonds, with appropriate adjustments for non-standard bond features and including BBB, BBB+ and A- bonds, consistently supported Bloomberg. Because there was a clear basis to prefer Bloomberg, averaging with CBASpectrum was not appropriate.

Jurisdiction
Australia
Judgment Date
09 June 2011
Procedural Posture
Application Under Section 245 of the National Gas Law for Review of a Full Access Arrangement Decision Made by the Australian Energy Regulator Pursuant to Rule 64 of the National Gas Rules / Reasons for Decision on Jgn's Challenge Regarding the Debt Risk Premium
Outcome
Subject to the outstanding imputation credits issue, the Tribunal found that the appropriate fair value curve for calculating JGN's debt risk premium was the Bloomberg fair value curve and that the CBASpectrum curve should not be averaged with it.
Legal Topics
['national Gas Rules' 'full Access Arrangement Decision' 'rate of Return on Capital' 'debt Risk Premium' 'weighted Average Cost of Capital' 'fair Value Curves' 'corporate Bond Yields']
['competition and Consumer Law' 'energy Regulation' 'administrative Review'] ['national Gas Rules' 'full Access Arrangement Decision' 'rate of Return on Capital' 'debt Risk Premium' 'weighted Average Cost of Capital' 'fair Value Curves' 'corporate Bond Yields']

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Procedural Posture

Application Under Section 245 of the National Gas Law for Review of a Full Access Arrangement Decision Made by the Australian Energy Regulator Pursuant to Rule 64 of the National Gas Rules / Reasons for Decision on Jgn's Challenge Regarding the Debt Risk Premium

Legal Issues

  1. 1 ["What group of companies' bonds should be used as a benchmark from which to calculate the debt risk premium for JGN." 'Whether the debt risk premium should be calculated using the Bloomberg fair value curve alone or an average of the Bloomberg and CBASpectrum fair value curves.' 'Whether BBB and A- rated bonds, floating rate bonds, and bonds with non-standard features should be considered in assessing the appropriate fair value curve.' 'Whether statistical or empirical analysis provided a basis to distinguish between the Bloomberg and CBASpectrum fair value curves.']

Ratio Decidendi

The appropriate curve from which JGN's debt risk premium should be calculated is the Bloomberg fair value curve. The Tribunal found that the Bloomberg curve was a much better fit than the CBASpectrum curve, that the CBASpectrum curve was no longer published and was not sufficiently reliable or market respected for averaging, and that empirical analysis of the relevant population of bonds, with appropriate adjustments for non-standard bond features and including BBB, BBB+ and A- bonds, consistently supported Bloomberg. Because there was a clear basis to prefer Bloomberg, averaging with CBASpectrum was not appropriate.

Court Disposition

Subject to the outstanding imputation credits issue, the Tribunal found that the appropriate fair value curve for calculating JGN's debt risk premium was the Bloomberg fair value curve and that the CBASpectrum curve should not be averaged with it.

Orders

  • ["Subject to the imputation credits issue, JGN should within five days submit draft minutes of orders to give effect to these and the Tribunal's previous reasons."]