Citipower Pty v Regulator General and Powercor Australia Limited [1999] VSC 348 - VSC 1999 case summary — Zoe

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Citipower Pty v Regulator General and Powercor Australia Limited [1999] VSC 348

[1999] VSC 348

Supreme Court of Victoria|1999-09-17|Before: Eames J

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At a glance

Source facts

Court

Supreme Court of Victoria

Decision date

1999-09-17

Before

Eames J

Source

Original judgment source is linked above.

Judgment (203 paragraphs)

[1]

The application for a new distribution licence was dated 29 December 1998, and was an application for a distribution and supply licence. Once again, Powercor stated that it did not seek rights to sell electricity to franchise customers, and acknowledged that "Citipower will have rights and obligations to sell electricity to any franchise customers within the Docklands area until 31 December 2000, under the terms of the retail Licence issued to it by the office". (The background to that concession was that Government policy, as reflected in later amendments to the legislation was that, as at 31 December 2000, the exclusive rights of distribution companies to sell to the franchise customers in their area would cease.) Once again, as with the variation application, Powercor acknowledged that having two distribution licences covering the same area created inappropriate duplication of responsibilities which were imposed by the distribution licence, and also under various industry Codes.

[2]

In June 1999 the Regulator General, Mr John Tamblyn, published what he called a "Draft Decision", as to the two applications. The Draft Decision reflected, he said, analysis by the Office of the relevant issues, and he invited further submissions in response to his tentative views. The draft decision is presumably published pursuant to the power in s. 12 of Office of the Regulator General Act 1994 ("the ORG Act") which permits the Office to publish "statements and guidelines relating to the performance of its functions and the exercise of its powers".

[47]

"6.7 The Distribution and Supply Sectors Currently, both the low voltage distribution of electricity through local networks (the distribution `wires' business) and the wholesale purchase and retail sale of electricity (the retail `supply' business) are integrated functions within local SECV Customer Service Businesses and the MEUs. The distribution `wires' business, like the transmission `wires' business, is a strong natural monopoly due to the high costs of duplicating the assets. However, the retail supply business is potentially competitive for large customers in the short to medium term, and perhaps for smaller customers in the longer term. Even small consumers could eventually gain the advantages of competition by purchasing electricity through power brokers or other participants who aggregate the market power of such small customers. If there is to be a competitive supply market, then a number of key issues need to be addressed: ø Number of participants. Competitive purchasing of electricity at the wholesale level, and competitive sale at the retail level, depend on there being a number of participants in the market. These might include regionally based integrated distribution/supply businesses, large customers, and wholesale electricity brokers. ø Open access. In the competitive sector, there should be open access to large commercial and industrial customers. In the captive market, domestic and small industrial and commercial customers will need to be protected through regulation. ø Transmission and distribution pricing. These should be fair and transparent. ø Cross-subsidies between captive and competitive market sectors. There should be no cross-subsidy on supply prices between competitive and captive market sectors. If a distribution body is also a supplier, then these functions will need to be separated, at least for accounting purposes. The distribution "wires" business is a natural monopoly, which can be conducted on a regional basis by awarding area franchises for defined regions. Benchmark or yardstick performance comparisons can then be made between them to encourage efficiency improvements. Performance comparisons are easier between franchises that are similar in size and customer composition. In determining the optimal number of distribution franchises, the Government needs to consider any economies of scale in delivering distribution services, the minimum number of franchises for effective comparison, and geographic and demographic variations. Possible options for defining distribution businesses include: ø A number of similar "pie-slice" distribution businesses. Similarity in size, customer types, load profiles and coverage of urban and rural areas allows for easier performance comparisons between businesses. It also minimises the need for equalisation payments, if cross-subsidies and uniform pricing are to continue. ø Multiple similar metropolitan distribution businesses and multiple similar rural distribution businesses. This option recognises the different supply economics of rural and metropolitan areas, more clearly exposes the cross-subsidies between rural and urban areas (but not those within the different areas), and allows for performance comparisons within the two groups. This option will require significant equalisation payments between the metropolitan and rural businesses, if cross-subsidies and uniform pricing are to continue. The development of an optimal structure for the distribution sector will need to take into account the MEUs. The overall objective should be to improve to the efficiency and responsiveness of the sector."

[79]

Mr Young submitted that each of those Codes reflected the assumption that there would be but a single distribution licensee for each area, although he conceded that none of the Codes expressly said as much. The Tariff and Charges Deed (and the Tariff Order which replaced it in 1994 by an Order in Council made pursuant to s. 158A) provided for transmission fees to be paid by distribution licence holders, and the fees charged to Citipower were weighted at a higher rate than those charged to rural licence holders, such as Powercor. The charges were determined by a calculation having regard to the value of assets and of the franchise of each licence holder, and the country was subsidised by the city. Mr Young contended that the cross-subsidies were calculated on the assumption that distribution areas would be exclusively held by licensees. Counsel submitted that it would be inconsistent for there to be such a weighting in favour of rural licensees and yet for those rural licensees to be entitled to simply move in to an area covered by a city distribution licence so as to obtain a competing licence and then seek to provide distribution services to just one lucrative locale, within the broader licence area of another distributor. That is what Powercor is seeking, Mr Young submitted. It wants to obtain the cream of consumers, based in one area, Docklands, leaving the franchise "dross" in that area to the existing licence holder or, more likely, itself assuming the monopoly role as distributor throughout the Docklands area in replacement of Citipower. Mr Beach contended, however, that a close examination of the terms of the Tariff and Charges Deed (see Attachment 9, note 1, at page 49 of the Deed) demonstrated that the fees for transmission services which were charged to distributors related to the quantity of electricity which the licencees obtained, and did not relate, at all, to any suggestion that they were to have an exclusive right to distribution in their area.

[145]

(1) Subject to sub-sections (2), (2A) and (2B), the Office may grant or refuse an application for the issue of a licence for any reason it considers appropriate, having regard to the objectives specified in section 157.

(2) The Office must not grant an application for the issue of a licence unless the Office is satisfied that -

(a) subject to sub-section (2A), in the case of an applicant for a licence to sell electricity, the applicant is financially viable; and

(b) subject to sub-section (2AAA), the applicant has the technical capacity to comply with the conditions of the licence;

* * * * *

(d) in the case of an application for a licence to generate electricity for supply or sale or a licence to distribute or supply electricity, the applicant is a company incorporated under the Corporations Law of Victoria or a statutory authority or a corporation all the shares in which are held by, or on behalf of, the State or by a statutory authority.

(2A) The Office does not have to be satisfied as to the matter specified in sub-section (2)(a) if the applicant is applying for a licence, which includes a condition requiring compliance with the pool rules, and the pool rules include prudential requirements.

(2AAA) The Office does not have to be satisfied as to the applicant's technical capacity to comply with the conditions of the licence at the time it is issued if -

(a) the activities specified in the licence are not likely to be commenced to be carried out within the next following 12 months; and

(b) the application is granted subject to such conditions as are determined by the Office relating to further approval of the applicant's technical capacity or approval of future facilities necessary for the carrying out of the activities.

(2AA) The Office does not have to be satisfied as to the matter specified in sub-section (2)(d) if, having regard to the conditions to which the licence to be granted to the applicant will be subject, the Minister so approves at the request of the Office.

(2B) If the Office has issued a licence authorising a distribution company to sell electricity to franchise customers, the Office must not issue a licence to another applicant authorising the sale of electricity to those franchise customers unless the Minister and the licensed distribution company have consented to the issue of the licence.

(3) The Office must publish a notice in a daily newspaper generally circulating in Victoria -

(a) specifying that an application for a licence in respect of the relevant activity has been lodged with the Office by the person specified in the notice; and

(b) inviting interested persons to make submissions to the Office in respect of the application within the period and in the manner specified in the notice.

(4) Subject to this section and any requirements specified in regulations made for the purposes of this section under section 92, the Office may determine the procedures that are to apply in respect of the issue of licences.

(5) The Office must notify an applicant in writing of its decision to grant or refuse to grant the application and, in the case of a decision to refuse to grant the application, of the reasons for its decision.

[151]

(1) A licence is to be issued for such term (if any) as is determined by the Office and is specified in the licence.

(2) A licence is subject to such conditions as are determined by the Office.

(2A) If a licence is issued to 2 or more persons for the purpose of the carrying on by those persons of the activities authorised by the licence in partnership or as an unincorporated joint venture, the licence may include conditions relating to the carrying on of those activities in that manner.

(3) Without limiting the generality of sub-section (2) or (2A), the conditions may include provisions -

(a) requiring the licensee to pay specified fees and charges in respect of the licence to the Office;

(b) requiring the licensee to enter into agreements on specified terms or on terms of a specified type;

(c) requiring the licensee to observe specified industry codes and specified pool rules with such modifications or exemptions as may be determined by the Office;

(d) requiring the licensee to maintain specified accounting records and to prepare accounts according to specified principles;

(da) specifying requirements about the ownership of real or personal property used in or in connection with the carrying on of the activities authorised by the licence;

(e) preventing the licensee from engaging in or undertaking specified business activities;

(f) specifying methods or principles to be applied by the licensee in determining prices or charges;

(g) specifying methods or principles to be applied in the conduct of activities authorised by the licence;

(h) specifying procedures for variation or revocation of the licence;

(ha) specifying procedures for variation of the conditions by the Treasurer;

(i) specifying the procedures to apply if an administrator is appointed under section 166;

(j) requiring the licensee to provide, in the manner and form determined by the Office, such information as the Office may from time to time require;

(k) requiring the licensee to develop, issue and comply with customer-related standards, procedures, policies and practices (including with respect to the payment of compensation to customers).

(4) For the purposes of sub-section (3)(a) the fees and charges to be specified in respect of a licence are to be determined by the Minister having regard to the proportion of the total costs of the Office that are incurred in the administration of this Part.

(5) If the Office -

(a) issues a single licence authorising each of the activities referred to in section 161(1)(a) and (c); or

(b) issues to the same person separate licences which together authorise each of those activities; or

(c) approves the transfer of a licence as a result of which the same person holds separate licences which together authorise each of those activities -

the licence, or each such licence, must contain a condition prohibiting the person from having an entitlement -

(d) to generating capacity within the meaning of Part 13 of more than 30 megawatts derived from facilities which are not co-generation facilities; and

(e) to generating capacity within the meaning of Part 13 of more than 200 megawatts derived from facilities of any kind.

(6) If a licence is subject to conditions of a kind referred to in sub-section (3)(c), the Office -

(a) may, in accordance with procedures specified by the Office, amend the specified industry codes or specified pool rules, or a document referred to in such a code or rule, for the purposes of their application under the licence;

(b) may resolve, or seek to resolve, disputes between the licensee and any other person relating to the specified industry codes or specified pool rules, or a document referred to in such a code or rule, as they apply under the licence.

(7) If the Office amends an industry code or the pool rules or a document referred to in a code or the rules under sub-section (6), the Office may at the same time, in accordance with procedures specified by the Office, amend that code or those rules or that document for the purposes of their application otherwise than under the licence."

[155]

(1) A distribution company that holds, or has held, an exclusive licence under this Part authorising it to sell electricity to franchise customers must pay to the Treasurer, in respect of each financial year during which it holds, or held, such a licence the impost determined in respect of that year by Order of the Governor in Council, on the recommendation of the Treasurer, applying to that company and published in the Government Gazette-

(a) if the licence is issued before 30 June 1996 -

(i) before 30 June 1995, in the case of the impost in respect of the financial year ending on that date; and

(ii) before 30 June 1996, in the case of the impost in respect of each year ending on 30 June in the period beginning on 30 June 1996 and ending on 30 June 2001; and

(b) if the licence is issued on or after 30 June 1996, before the end of the first year of the term of the licence.

(2) The Treasurer, in recommending the amount of an impost for each financial year payable by a distribution company, must be satisfied that the amount reasonably represents the amount by which the income of the company derived from the sale of electricity to franchise customers in that year is likely to exceed the sum of -

(a) the costs of deriving the income; and

(b) taxes payable in deriving that income; and

(c) an amount determined by the Treasurer to be a reasonable return on the capital of the company used in deriving that income -

having regard to -

(d) any relevant Order in force under section 158A; and

(e) the value of property and rights vested in the company under Parts 10 and 11; and

(f) the amount of liabilities that became liabilities of the company under Parts 10 and 11; and

(g) the likely number of franchise customers of the company in that financial year; and

(h) such other matters as the Treasurer determines after consultation with the company.

(3) The impost in respect of a financial year is payable at such times and in such manner as are determined in the Order.

(3) For the purposes of this section, a distribution company has an exclusive licence authorising the sale of electricity to franchise customers if that licence is the only licence in force under this Part authorising the sale of electricity to those customers."

[159]

Mr Young referred me to extrinsic material relevant, specifically, to the introduction of the Bill for Act No.56 of 1995. The first of these was yet another Reform Paper, dated December 1994 and titled "A Competitive Future for Electricity - A summary of reforms" written, again, by the Office of State Owned Enterprises, which foreshadowed that the five corporatised distribution companies were to become privatised in 1995. Although this document was not referred to in the Hansard debate I consider that it is relevant for my consideration under s. 35 of the Interpretation of Legislation Act. The paper, at pp.10-11, said that the five companies had separated their "wires" business from their business of selling electricity, and stated that: "The wires function . . . has been separated from the retail function for regulatory and accounting purposes. The wires function is effectively a local monopoly subject to independent regulation. Customers who initially do not have a choice of retailer or direct access to the competitive market are termed franchise customers". At page 37, the Paper said that: "The wires function is regarded as a local monopoly and will remain subject to regulation by ORG. The retail function will be progressively opened to competition over the next five years" At page 38, it asserted that the wires business required the distribution company to connect all customers or licensed retailers to its network, and, at p.40, that the government had set prices which it could charge for connection and usage in order to ensure that the distribution company had a fair return on its capital. That objective would be thwarted if customers were simply removed from its captive area by virtue of permitting another distribution company to move into the same area, Mr Young submitted. At page 65, the report spoke of the wires business as being "a regulated geographic monopoly business separate from the competitive retail function" of the distribution company. Those and earlier passages do suggest that it was assumed that the wires business would remain a monopoly, but it seems to me that the paper says nothing about whether that was regarded as necessarily being so, or being desirably so. Although these passages might well explain why Citipower might have assumed that it was in fact going to have a distribution monopoly in its area, these passages do not preclude the legislation actually providing for, and being intended to provide for, the possibility that that might not remain so.

[163]

(1) Without limiting the generality of section 163, the conditions to which a licence to distribute or supply electricity is subject may include a requirement that, in certain circumstances, the licensee, on terms and conditions approved by the Office, supply and sell electricity to non-franchise customers to whom electricity is supplied under another licence (whether held by that licensee or another licensee).

(2) In approving the terms and conditions of a requirement referred to in sub-section (1), the Office must have regard to the risks and costs associated with the requirement.

(3) A requirement referred to in sub-section (1) does not apply so as to require the licensee to supply and sell electricity -

(a) outside the distribution area within the meaning of the licensee's licence; or

(b) to a non-franchise customer to whom electricity is supplied under another licence if the non-franchise customer elects, in writing given to the holder of that other licence, not to be a non-franchise customer for the purposes of sub-section (1).

(4) If the conditions to which a licence of a licensee is subject include a requirement referred to in sub-section (1), the licensee is deemed to be the holder of a licence to sell electricity to the extent necessary to comply with the requirement.

(5) The obligation of the holder of a licence ("the second licence") to supply and sell electricity to a non-franchise customer to whom electricity is supplied under another licence ("the first licence") in accordance with the requirement referred to in sub-section (1) commences when -

(a) the first licence is suspended or revoked; or

(b) the right of the holder of the first licence to acquire electricity from the market for wholesale trading in electricity is suspended or terminated -

whichever first occurs, and ends after 3 months or when the non-franchise customer advises the holder of the second licence in writing that the supply and sale is no longer required, whichever first occurs."

[192]

Where there is a clear, literal, meaning arising from the words of an enactment, and no real doubt as to the intention of Parliament then the fact that that meaning produces anomalies or injustices would not permit the court to depart from the literal meaning of the words. The fact that absurdity, injustice or anomaly will be produced, may however itself give rise to doubt as to whether Parliament intended the literal meaning to prevail, and thus the literal meaning might be departed from: see Mills v Meeking, supra, at 242, per McHugh J; Cooper Brookes (Woollongong) Pty Ltd v F.C.T, supra, at 394, per Gibbs CJ. Where the words in a statute are precise and unambiguous they serve best to declare the intention of the legislature (see Re Bolton; Ex Parte Beane [1987] HCA 12; (1987) 162 CLR 514, at 518; Thompson v Judge Byrne [1999] HCA 16; (1999) 73 ALJR 642, at 653). Furthermore, when the express words of a legislative provision are reasonably capable of only one construction and neither the purpose of the provision nor any other provision in the legislation throws doubt on that construction, a court cannot ignore it and substitute a different construction because it furthers the objects of the legislation: per McHugh J in Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85, at 109. Whilst it may be said that the legislation is relatively limited in its terms, and does not, in clear terms, spell out, either way, whether a distribution licence gives exclusive rights to distribution and supply in the area of the licence, that does not indicate that there is ambiguity in the legislation, so that an interpretation which avoids the suggested anomalous results should be preferred. From another perspective it may be said that the situation is, in fact, quite clear. The contention for which the plaintiff argues, namely, that the legislation grants it an exclusive area of distribution and supply, gains no support from any of its provisions and the prohibition on the power of the Office to grant a licence to Powercor over the same area as that to which its own licence applies, is not demonstrated by any of its provisions either. In other words, there is no indication at all, in my opinion, that the Office would be prohibited from granting a further distribution licence to the same area as that identified in an existing licence.