The ACCC is seeking a judicial review of the Moomba to Sydney Pipeline Access Arrangement decision handed down on 8 July to clarify the meaning of key provisions of the Gas Code, an Australian Competition and Consumer Commission Commissioner, Mr Ed Willett, said today.
"The ACCC application is confined to the tribunal's application of the law, consideration of evidence and reasonableness of its propositions relating to the methodology to be applied when establishing the initial capital base of the pipeline pursuant to the National Gas Code", Mr Willett told the Australian Institute of Energy in Melbourne. "The tribunal's decision conflicts with the Western Australian Supreme Court decision in the Epic Dampier to Bunbury pipeline case in some respects and proposes a new approach to determining the initial regulated value of a pipeline.
"While our appeal application specifically applies to the MSP ruling, this was just the latest in a series of cases going back to 2001 which we believe have tended to leave some important questions unanswered about the Gas Code access arrangements.
"Since 2001 there have been four appeals to the tribunal over Gas Code Access Arrangement decisions by the ACCC. Given the relative infancy of operation of the regime, that is perhaps not surprising. The likelihood for appeals to arise is high, given the many industry stakeholders that serve to be affected by an access arrangement determination including those seeking access (i.e. shippers), producers, large end users/consumers, retailers and of course the owner/operator of the pipeline system itself.
Mr Willett said that the ACCC had approved 12 access arrangements, embodying hundreds of minor decisions.
"Across the four tribunal cases there were a total of 22 grounds for appeal. That is, when the final approval was issued the ACCC and the service provider had not reached an agreement on 22 aspects of the access arrangements. The service provider abandoned 10 of these grounds before the tribunal even considered the matter. On a further three the ACCC conceded the point. In seven of the original 22 the tribunal found in favour of the applicant, while in two cases the ACCC's decision was upheld.
"Another way to assess the outcome of this process is to look at the impact of the revenue outcome of the tribunal's decision benchmarked against the service provider's application and the ACCC final approval".
Mr Willett said that even when the tribunal upheld the appeals, the final revenue outcomes had fallen well short of the revenues originally claimed by the service provider.
"Our concern is that the current approach rewards 'cherry picking', and encourages appeals where the applicants have nothing to lose and everything to gain by challenging specific aspects of our decisions, while leaving the rest of the decision untouched.
"For example, the agreed approach to setting the cost of capital has been an assumed 60:40 debt equity ratio. This benchmark has implications for other parameters used, including the benchmark credit rating for determining the risk premium on debt. While a higher risk premium might been viewed as beneficial for service providers in that it generates a higher return, a corresponding adjustment to the benchmark gearing ratio to reflect gearing ratios of such businesses would lead to a reduction in the cost of capital and therefore lower tariffs.
"The result of cherry picking has been the creation of a level of inconsistency in gas code interpretation which ultimately leads to a higher level of regulatory uncertainty that can only be detrimental to the future management of the access regime, for service providers and users alike.
"Gas transmission companies have more to lose than anyone as a result of any uncertainty.
"Under the current regime, gas transmission companies have been very successful businesses. An example, I can point to is the performance of the ASX Utilities Index. Businesses in this index outperformed the S&P ASX 300 accumulation index over the past four years. Moreover, the market values of these businesses trade at a premium to the value of their regulatory asset values. This suggests that regulated returns are higher than necessary to maintain regulated asset values.
"All of which I would have thought rather put the lie to the industry’s claim that ACCC regulation has, in the words of one major player 'had a chilling effect' on investment", he said.
The speech is available on the ACCC website.