In October 2005, the Ministerial Council on Energy (“MCE”) released the Review of Decision-Making in the Gas and Electricity Regulatory Frameworks Discussion Paper (“the Discussion Paper”), which considers extending the grounds of review for regulatory decisions made in relation to the gas and electricity markets.
Currently the gas and electricity markets are subject to two slightly divergent review schemes. Under the National Electricity Law (“NEL”) and National Electricity Rules, the Australian Energy Regulator (“AER”), Australian Energy Market Commission (“AEMC”) and the National Electricity Market Management Company (“NEMMCO”) are subject only to judicial review under the Administrative Decisions (Judicial Review) Act 1979 (Cth) (“ADJR Act”). However, under the Gas Pipelines Access Law, in addition to the judicial review available under the ADJR Act, a limited form of merits review by the Australian Competition Tribunal (“ACT”) is also available.
In the Discussion Paper, two options are considered by the MCE: the first involves taking a more expansive view of the grounds of judicial review, and the second considers making merits review available in limited circumstances. In particular, the Discussion Paper examines the role of review with respect to ‘economic regulatory decisions’ (such as decisions relating to revenue caps for electricity transmission services, or coverage of gas pipelines) because these assessments often involve considerable administrative discretion, and the ultimate decision will have a significant economic impact on society where such assessments are flawed.
Judicial Review
In the Discussion Paper, the MCE proposes an option where the Federal Court will have the power to review the economic regulatory decision-making of the AER. The central proposition under this option is that the standard grounds of judicial review available under the ADJR Act will be supplemented by, and be considered in the context of, any specific legislative requirements provided for in the NEL and proposed National Gas Law (“NGL”).
For example, under the proposed arrangements when the AER makes an electricity transmission determination, the process is governed by explicit requirements under the NEL. Where the AER fails to consider these specific requirements, the Federal Court would be able to review that decision. In this regard, the Federal Court will be able to examine in detail the nature of the decision being made as well as the rationale behind the decision-making process.
As with judicial review generally, the Federal Court will not be able to substitute what it considers to be the preferable decision, but rather it will be confined to considering whether the decision-maker has undertaken a ‘lawful’ exercise of its administrative discretion. In the event that the Federal Court considers that the decision-maker’s error of law should be reviewed, it may:
- set aside or quash the original administrative decision;
- remit the administrative decision to the decision-maker for reconsideration according to the Court’s directions; or
- make declarations in relation to the original decision.
Under this option, any person “aggrieved by a decision” or a person “interested in a decision” may seek review in accordance with the limited standing provisions of the ADJR Act.
Merits Review
The second option involves the ACT undertaking a limited form of merits review, with the ACT being restricted to only reviewing “economic regulatory decisions” of the AER, and decisions of relevant Ministers in relation to the coverage of gas pipelines.
The proposed grounds of review will be limited to an error in the fact-finding of the decision-maker, and situations where, as determined by the ACT, the exercise of the decision-maker’s discretion was incorrect or unreasonable. In the event that the ACT considers that a regulatory error has been made, it may:
- remit the administrative decision to the original decision-maker for reconsideration in accordance with its directions;
- vary the administrative decision; or
- set aside the administrative decision and either substitute that decision for that of the AER or the relevant Minister. However, it should be noted that the MCE is not proposing that de novo review (where the reviewing body starts from the beginning and completely reproduces the administrative decision-making process to produce a ‘fresh’ decision) be made available.
Another limitation imposed on this form of merits review is that only industry service and network providers, the regulator itself, and “affected users” who meet a high “materiality” test, are proposed to be provided with standing to mount such a review challenge. However, once review proceedings have been commenced it is possible for a wider range of persons, such as those whom are “adversely affected”, or those having a “sufficient interest” to intervene in the review. It was also noted in the Discussion Paper that this wider range of persons could include consumer and/or environmental advocacy groups.
Business implications
The MCE’s proposals for a new regulatory review regime must be considered in the context of wider energy market reforms currently taking place. The primary goals of this staged reform process are the strengthening of competition, as well as the encouragement of investment in the gas and electricity markets.
The establishment of a transparent and reasonable decision-making process, which may be held accountable by a review scheme that produces consistent and fair outcomes, are fundamental to ensuring the quality of economic regulation that produces economically efficient outcomes. Both the options canvassed in the Discussion Paper by the MCE make inroads in this respect, as they allow for a greater range of regulatory reviews than is currently available. By referring the review body to consider explicit legislative requirements specific to decision-making processes in the energy market, both options should ensure that the economic realities of the energy sector are reflected in regulatory decisions. In particular, it is argued that the introduction of merits review will increase the effectiveness of the review regime, as it enables substitution of the original decision by the ACT, a specialist administrative tribunal equipped with the same technical expertise as the original decision-maker.
It is expected that the MCE will review submissions received in response to the Discussion Paper, as part of the consultation process foregoing its development of a policy position and legislation regarding the review process. Such consultation may also reveal whether the options canvassed by the MCE satisfies the business requirements of the gas and electricity market participants as well as the social and environmental concerns of the public.
For more information please contact:
| Andrew Petersen, Leader
Phone: + 61 2 8266 6681
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| Michael Daniel, Partner
Phone: +61 2 8266 6618
Send email
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