Member Article

Recent decisions of the Australian Competition Tribunal provide an opportunity to reflect on the efficiency and cost effectiveness of limited merits review under the National Electricity Law (NEL).

Recent Tribunal decisions

On 26 May 2010, three electricity distributors, Energex Limited, Ergon Energy Corporation Limited and ETSA Utilities, made applications to the Australian Competition Tribunal (Tribunal) for review of the Australian Energy Regulator's (AER) distribution determinations. The distribution determinations set the prices that each entity could charge customers for the period from 1 July 2010 to 30 June 2015. The applications were the second tranche of applications for limited merits review under the NEL. Since May 2010, the Tribunal has made over ten decisions in relation to the three applications.

Limited merits review

Limited merits review by the Tribunal of certain decisions of the AER was introduced into the NEL in 2007. The  regime limits an applicant's right of review in three ways:

 

• leave to seek review is required
  
  
• the grounds of review upon which an applicant can seek review are narrowed, and
  
  
• the evidence the Tribunal can consider is limited. 

Leave is required

There is no automatic right of review of any of the AER's decisions under the NEL; rather, an applicant requires leave.  The Tribunal must not grant leave unless there is a serious issue to be heard and determined as to whether a ground for review exists. The NEL identifies a number of circumstances in which leave must or may be refused, including if the application is about an error relating to a revenue amount below a specified financial threshold.

The expression 'serious issue to be heard and determined' is not defined in the NEL. In Re Application by ElectraNet Pty Ltd [2008] ACompT 1, the Tribunal held that the words 'serious issue to be heard and determined' should be analysed and applied by reference to the learning and principles applicable to the grant of interlocutory injunctions. In that context, an applicant must establish that it has a prima facie case for relief in respect of each ground of review.

In its recent decision of Re Application by Energex [2011] ACompT 4, the Tribunal provided specific guidance as to the application of the thresholds for leave under the NEL. In summary, the Tribunal found:

• every issue which an applicant seeks to raise in an appeal must be a 'serious issue'. An applicant cannot obtain leave on the basis of one serious issue and then seek to review other issues as well
  
  
• in circumstances where the application is about an error relating to a revenue amount which must exceed a specified financial threshold, the threshold is cumulative of the value attributable to each serious issue. Each individual issue does need to meet the threshold, and
  
  
• an applicant does not need to produce material that would satisfy a standard of proof in proceedings. Rather, it is sufficient for the Tribunal to reach a 'reasonable state of satisfaction' on the question.

By requiring an applicant to establish that it has a prima facie case for relief in respect of each and every issue it wishes to raise, the limited merits review regime restricts the issues which may be agitated before the Tribunal. The leave requirement necessitates a preliminary hearing at which an applicant must adduce evidence of its prima facie case. Ordinarily, there is likely to be a significant degree of overlap between the issues agitated at that hearing and the issues agitated at the substantive hearing. This means that preparation for the leave hearing involves a measure of duplication of cost and effort. On that basis, it is not entirely clear whether the leave requirement makes the process of review more efficient and cost effective than allowing review as of right and leaving it to the Tribunal to deal with unmeritorious claims as part of the substantive hearing.

Grounds for review are restricted

The NEL restricts the grounds for review to material errors of fact or decisions where the exercise of the AER's discretion was incorrect or unreasonable having regard to all the circumstances. While the grounds of review are restricted, they are broadly interpreted and there is a degree of overlap between them. In practice, applicants often frame an allegation of error in the decision under review by reference to multiple grounds for review as alternative bases upon which the Tribunal may find error. 

While it is for the applicant to establish a ground of review, with the exception of the AER, a party to a review may not raise any 'matter' that was not raised in submissions to the AER before the decision under review was made. This limitation appears to have been designed to address concerns about 'forum shopping' or 'gaming' of the regulatory process, whereby a party withholds relevant information with a view to pursuing those matters before the Tribunal. The expression 'matters raised’ has been broadly interpreted to include particular subject matters, issues and arguments put forward as being relevant. It is sufficient that a matter arise broadly out of a subject fairly raised in submissions; the precise issues need not be directly agitated before the AER. The matter will need to be raised with the AER in submissions leading up to, and relevant to, the decision under review; it is not sufficient to raise a matter in a preliminary process or a different context. 

The effect of the limitation on raising new matters ensures that a party presents all the material and submissions in advance of the AER's decision. Practically, this may lead an applicant who suspects that an adverse decision may be made to provide additional submissions and/or information to the AER in the period leading up to the final decision so that the matters raised in that material can be argued in any review. This last minute submission of material creates challenges for the AER and can undermine the efficiency and cost effectiveness of preventing a party from raising new 'matters' on review.

Limitations on new evidence

An applicant cannot adduce new evidence to assist it establish a ground of review. Unless and until the Tribunal is satisfied that a ground of review is made out, the applicant must make its case on the basis of material before the AER. The Tribunal must have regard to any document prepared, and used, by the AER for the purpose of making the decisions that the AER has made publicly available. It must not consider any matter other than 'review related matter' which is defined largely by reference to documents which were before the AER when making its decision. In the recent decision of Application by Jemena Gas Networks (NSW) Ltd (No 3) [2011] ACompT 6, the Tribunal held that simply referring to material in a footnote, or by inference in a submission, will not generally put that material before the AER.

Of course, there is no limit on the Tribunal's capacity to make use of its knowledge and experience if that knowledge and experience will assist it in arriving at a decision.

One possible danger with restricting the material to which the Tribunal can have regard is that circumstances relevant to the making of the decision can change between the time of the original decision and the time the review is undertaken. If this occurs, there is a real risk that the purposes for which limited merits review was established will not be met and public confidence in the review process can be undermined. However, under the NEL, the Tribunal has relatively strict time limits (subject to a discretion to extend) within which it must make a decision on any application. These time limits go some way to minimising the risk of circumstances changing dramatically between the time of the original decision and the time the review is undertaken.