FEDERAL COURT OF AUSTRALIA United Energy Distribution Pty Ltd v Australian Energy Regulator [2012] FCA 405 Citation: United Energy Distribution Pty Ltd v Australian Energy Regulator [2012] FCA 405 Parties: UNITED ENERGY DISTRIBUTION PTY LIMITED (ACN 064 651 029) v AUSTRALIAN ENERGY REGULATOR File number: VID 989 of 2010 Judge: FOSTER J Date of judgment: 20 April 2012 Legislation: Administrative Decisions (Judicial Review) Act 1977 (Cth), ss 5(1)(d), 5(1)(e) and 5(1)(f) National Electricity Law, Pt 6, Div 3A, subdivs 1 and 2, s 71B Cases cited: Application by United Energy Distribution Pty Limited [2012] ACompT 1 related Application by United Energy Distribution Pty Limited (No 2) [2012] ACompT 8 related Dates of hearing: 20, 21, 22, 23 and 27 June 2011; 4, 5, 6, 7, 12, 22 and 25 July 2011; and 27 March 2012 Date of last submissions: 22 March 2012 Place: Sydney (via video link to Melbourne) Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 20 Counsel for the Applicant: Mr AC Archibald QC and Mr SR Horgan SC Solicitor for the Applicant: Johnson Winter & Slattery Counsel for the Respondent: Mr C Scerri SC, Ms M Sloss SC, Mr S Lloyd SC, Mr P Gray, Mr D Star, Dr V Priskich, Mr T Clarke and Mr L Merrick Solicitor for the Respondent: Corrs Chambers Westgarth Counsel for the Minister for Energy and Resources for the State of Victoria (Intervener): Mr P Hanks QC and Mr G McCormick Solicitor for the Minister for Energy and Resources for the State of Victoria (Intervener): Minter Ellison IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 989 of 2010 BETWEEN: UNITED ENERGY DISTRIBUTION PTY LIMITED (ACN 064 651 029) Applicant AND: AUSTRALIAN ENERGY REGULATOR Respondent JUDGE: FOSTER J DATE OF ORDER: 20 April 2012 WHERE MADE: SYDNEy (via video link to melbourne) THE COURT ORDERS THAT: 1. The whole of this proceeding be dismissed. 2. There be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 989 of 2010 BETWEEN: UNITED ENERGY DISTRIBUTION PTY LIMITED (ACN 064 651 029) Applicant AND: AUSTRALIAN ENERGY REGULATOR Respondent JUDGE: FOSTER J DATE: 20 April 2012 PLACE: SYDNEY (via video link to melbourne) REASONS FOR JUDGMENT 1 The applicant, United Energy Distribution Pty Limited (UED), is one of five registered electricity distribution network service providers in the State of Victoria. 2 On 29 October 2010, the Australian Energy Regulator (the AER) published its final determination as to the basis upon which electricity distribution services will be provided by UED in Victoria for the regulatory period 2011–2015. 3 There are four other registered electricity distribution network service providers in Victoria. At the same time as it published its final determination in respect of UED, the AER published a separate final determination in respect of each of the other four distribution network service providers. The AER supported and explained the five determinations made by it with one set of reasons, also published on 29 October 2010. 4 UED was dissatisfied with some aspects of the AER's final determination in respect of it. As a result, it made application to the Australian Competition Tribunal (the Tribunal) pursuant to s 71B of the National Electricity Law (the NEL) for a review of the AER's final determination in respect of it. The Tribunal granted leave to UED to make its application for review. The review before the Tribunal is a limited merits review. Its scope is laid down in Pt 6, Div 3A, subdiv 1 and subdiv 2 of the NEL. 5 At the same time as it began to pursue its rights in the Tribunal for merits review of the AER's final determination in respect of it, UED filed an Application for an Order of Review in this Court. By that application, UED sought judicial review of the following decisions of the AER, namely its decision to: (1) include in the building blocks in respect of [UED's] annual revenue requirement for the regulatory control period 2011 to 2015 a total amount of $-32.8 million (real 2010 dollars) in respect of the closeout of the Essential Services Commission of Victoria's (ESCV's) S factor scheme applicable in the 2006-2010 regulatory period, being a decision under one or more of s15(1)(f) of the National Electricity (Victoria) Law as applicable under the National Electricity (Victoria) Act 2005 (Vic) and clauses 6.2.4, 6.4.3, 6.11.1 and 6.12.1(2)(i) of the National Electricity Rules (S Factor Decision); and (2) exclude certain directs costs of [UED] from the AER's calculation of the Applicant's forecast operating expenditure (in the manner described more fully in paragraph 8 below), being a decision under one or more of s15(1)(f) of the National Electricity (Victoria) Law as applicable under the National Electricity (Victoria) Act 2005 (Vic) and clauses 6.2.4, 6.4.3, 6.5.6, 6.11.1 and 6.12.1(4) of the National Electricity Rules (Opex Decision). 6 UED claimed an order that both of those decisions be quashed or set aside with effect from 29 October 2010. 7 Both the ESCV S Factor closeout decision and the opex decision challenged in these proceedings were also challenged in the review application brought by UED in the Tribunal. The grounds upon which those decisions were challenged in the Tribunal included the same grounds as those upon which those decisions were challenged in this proceeding. The hearing of UED's challenges in the Tribunal to the AER's ESCV S Factor closeout decision and its opex decision and the hearing of its judicial review challenges to those decisions proceeded concurrently in June and July 2011. 8 On 6 January 2012, the Tribunal published its Reasons for Decision (Application by United Energy Distribution Pty Limited [2012] ACompT 1) in respect of all applications for review made by the registered electricity distribution network service providers in the State of Victoria in relation to the AER's final determinations of 29 October 2010. The Tribunal's Reasons for Decision included findings and reasons in respect of the ESCV S Factor closeout decision and the opex decision, both of which are challenged in this proceeding. 9 In its Reasons for Decision published on 6 January 2012, the Tribunal upheld UED's challenge to the AER's decision in respect of the ESCV S Factor closeout decision but rejected UED's challenge to the opex decision. UED submitted that the reasoning which underpinned the Tribunal's decision in respect of the AER's ESCV S Factor closeout decision, if adopted by this Court, would also have justified the making of the orders sought by UED in this proceeding in respect of that decision pursuant to ss 5(1)(d), 5(1)(e) and 5(1)(f) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). In the events which have happened, I need not determine whether that submission is sound. 10 On 5 April 2012, the Tribunal published further Reasons for Decision (Application by United Energy Distribution Pty Limited (No 2) 2012] ACompT 8). Those Reasons for Decision did not alter the outcome in respect of the challenges made by UED to the AER's ESCV S Factor closeout decision and to the AER's opex decision. 11 In its Reasons for Decision published on 6 January 2012, at [241]–[247], the Tribunal summarised its conclusions in respect of the AER's ESCV S Factor closeout decision in the following way: Decision 241 The essence of the issue confronting the Tribunal in respect of the AER's decision to implement a methodology to close out the ESCV S Factor Scheme is one of interpretation. The critical question is whether cl 6.4.3(a)(6) and cl 6.4.3(b)(6) of the NER, upon their true interpretation, permit the carrying forward into the current regulatory control period 2011–2015 of the ESCV S Factor Scheme being a scheme which was in operation only in respect of the State-based last ESCV price determination up to 31 December 2010. That question is answered favourably to the position of the AER and the Minister if the subclauses to which we have referred contemplate the carrying over of such a State-based regulatory regime. 242 In our view, however, the subclauses referred to do not permit such a course. This is essentially for the reasons advanced by UED. The draftsman of the NER intended, in our view, to start with a clean slate in respect of incentive schemes as at 1 January 2011. This is no accident. Had the draftsman wished to authorise that which the AER has in fact done in the present case, he or she could have done so by prescribing appropriate transitional provisions, as was done in the case of South Australia. This was not done. Instead, the AER was required to propound its own incentive scheme (STPIS) and to do so in respect of the first regulatory control period for which it was charged with the responsibility of making the relevant determination. 243 At [56]–[61] above, we have discussed the governing principles and provisions for the interpretation of the NEL and the NER. Applying those principles to the present problem, it seems to us that: (a) The extrinsic material to which our attention was drawn does not assist, one way or the other, in the interpretation of cl 6.4.3(a)(6) and cl 6.4.3(b)(6). (b) Despite the fact that cl 7 requires that the interpretation that will best achieve the purpose or object of the NEL is to be preferred to any other interpretation, that notion is not a mandate for a wholesale redrafting of the relevant provision. 244 The language deployed in the relevant subclauses is clear enough. Interpreting the language according to its ordinary meaning and in accordance with the relevant definitions contained in the Glossary for the NER and in s 2 of the NEL does not produce absurd results. It may produce results with which the AER and the Minister disagree – disagreement which may, in the circumstances of the present case, even be supportable by reasoned argument. However, in our view, this is quite beside the point. We are not authorised to rewrite the relevant subclauses. 245 Even if the Interpretation of Legislation Act 1984 (Vic) applies to the interpretation of the NER (and we think that it does not), we do not accept that s 27 of that Act is of any assistance to the AER in the circumstances of the present case. As UED has pointed out in its Reply Submissions, the power to amend the ESCV S Factor Scheme is constrained very substantially by the terms of cl 2.3.9(i) of the last ESCV price determination. Neither the ESCV nor the AER had a general right to vary the implementation mechanisms. The closeout methodology is not, in any event, an amendment of the ESCV S Factor Scheme. It is an engrafted methodology designed to mimic the effects of that scheme while, at the same time, bringing it to an end. 246 Similarly, we do not think that s 28(2) of the Interpretation of Legislation Act 1984 (Vic) is of any assistance to the AER and the Minister. Subsection (2)(e) and subs (2)(f) of s 28 are relied upon in support of the proposition that both the rewards and penalties that would have been imposed in the 2011–2015 regulatory control period had the scheme continued into that period should, in effect, be preserved. But, the scheme expired on 31 December 2010. At that time, no price adjustments in respect of the 2011-2015 regulatory control period had been made or had accrued. The most that can be said is that the financial impacts of the scheme were notionally or contingently in place, subject to the scheme continuing beyond 31 December 2010 (which, of course, did not happen). Section 28(2) does not assist. Conclusion 247 For these reasons, the Tribunal is of the opinion that the AER did not have power to include within its final decision the methodology and consequential decision directed to the closing out of the ESCV S Factor Scheme. The year-by-year penalty sought to be imposed on UED by the AER's adoption of its close-out methodology cannot be imposed on UED. We propose to deal with UED's position now. The consequences of this conclusion on other DNSPs are reserved for further consideration in light of further submissions which we will invite the parties to make. 12 At [193]–[198] of its Reasons for Decision published on 6 January 2012, the Tribunal held that UED had failed to make out any ground of review in respect of the AER's opex decision. In particular, the Tribunal held that UED had failed to establish that it had been denied procedural fairness by the AER in respect of that decision. 13 In light of the decisions made by the Tribunal to which I have referred, UED has submitted that it is not now necessary for it to press its claims for relief by way of judicial review in the present proceeding in respect of the AER's ESCV S Factor closeout decision because the Tribunal has granted adequate relief to UED in respect of that decision on the merits. 14 I agree with that submission. 15 In addition, UED has accepted the Tribunal's decision in respect of its challenge to the opex decision (including the Tribunal's rejection of that challenge based upon a denial of procedural fairness) and does not now seek to press its challenge to that decision by way of judicial review in the present proceeding. 16 In light of the Tribunal's decisions, UED has applied to this Court for orders that this proceeding be dismissed upon the basis that there be no order as to costs. 17 The other parties who have a legitimate interest in this proceeding are the AER and the Victorian Minister for Energy and Resources. 18 The AER and the Minister do not oppose an order dismissing the present proceeding upon the basis that there be no order as to costs. 19 Accordingly, I propose to dismiss the present proceeding upon the basis that there be no order as to costs. 20 There will be orders accordingly. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate: Dated: 20 April 2012