Plaintiff v Defendant

Whether plaintiff an "operator" of distribution pipeline for the purposes of National Third Party Access Code for Natural Gas Pipeline - "Owner or operator" - Multiple service providers - Access arrangements - Ring fencing requirements

1 Until the reform of the gas industry in the late 1990s, gas distribution in Victoria was conducted by the Gas & Fuel Corporation, a state-owned body corporate, which operated a monopoly. During the late 1990s, there was extensive legislative reform, as the industry underwent a process of corporatisation and then privatisation.

2 The natural gas industry in Victoria is now regulated by two principal statutes, the Gas Industry Act 2001 ("GIA 2001") and the Gas Pipelines Access (Victoria) Act 1998 ("GPAV"). The GPAV enacts the National Third Party Access Code for Natural Gas Pipeline Systems ("the Code") and schedule 1 to the Gas Pipelines Access (South Australia) Act 1997 ("the Law") (collectively, "the Access Law") as laws of Victoria.

3 The defendant, the Essential Services Commission ("ESC"), is the independent regulator of prescribed essential utility services for the purposes of the Access Law and the GIA 2001.

4 The GIA 2001 imposes various licensing requirements. Under section 22(1) of that Act, it is an offence for a person to "provide services (other than the sale of gas by retail) by means of a distribution pipeline, either as principal or agent", unless the person is either licensed to do so or exempt from the licensing requirements.

5 The Access Law forms part of a uniform national scheme for third party access to gas pipelines, which was adopted in order to promote the development of a competitive national market for natural gas. In respect of pipelines covered by the Access Law, a "service provider" is required to establish an access arrangement to the satisfaction of the relevant regulator. Service providers are also subject to other requirements designed to promote competition, including "ring fencing" requirements.

6 Since December 1997, a partnership comprising Multinet Gas (DB No 1) Pty Ltd and Multinet Gas (DB No 2) Pty Ltd (collectively, "Multinet") has held a distribution licence under the GIA 2001 or its predecessors.

7 Multinet also has access arrangements under the Code, which have been approved by the ESC for the period to the end of 2007.

8 The plaintiff, Alinta Asset Management Pty Ltd ("AAM"), provides operations and management services to owners of infrastructure assets in various industries, including the gas industry. Multinet is one of its clients.

9 In July 2003, AAM entered into an operating services agreement ("the OSA") with Multinet, under which Multinet appointed AAM to operate, construct and manage, or procure the operation, construction and management of, the entire Multinet gas distribution network ("the Multinet system"). AAM was given extensive powers under the agreement. The OSA was amended in late October 2006, so as to remove a power of attorney which AAM held for Multinet, and to put in place alternative arrangements for AAM to enter into certain contracts on behalf of Multinet.

10 The ESC asserts that the nature and range of services provided by AAM under the OSA in relation to the Multinet system are (or prior to the amendments in October 2006 were) such that AAM:

(a) Provides (or provided) services by means of a distribution pipeline, within the meaning of section 22 of the GIA 2001 and is (or was) therefore required to hold a licence under that Act[1];

(b) Is (or was) a "service provider" within the meaning of the Access Law and therefore is (or was) required to comply with the requirements of the Code.

11 AAM disputes those assertions on various bases. As a matter of law, it argues that the relevant legislation should be construed far more narrowly than the ESC contends. As a matter of fact, AAM argues that its role is simply that of a contractor and is not as extensive as the ESC asserts.

12 In this proceeding, AAM and the ESC each seek declaratory relief which reflects their respective contentions.

Overview of the natural gas industry in Victoria

13 Before considering the relevant statutory provisions, it is necessary to have some understanding of how the natural gas industry operates in Victoria, and the history of its privatisation. Except where otherwise indicated, the matters set out in this section of the reasons were not the subject of any real dispute between the parties.

14 There are six stages in the gas supply and delivery system, namely production, processing, transmission, storage, distribution and retailing.

15 Production of natural gas generally uses the same techniques as those applied to oil production. When economically viable subterranean reservoirs of gas are discovered, production wells are drilled into the reservoir and gas flows to the surface under natural geological pressures, through the well-casing, to be interconnected with other production wells. The gas is channelled to a gas processing plant via various gathering systems.

16 When raw gas is produced from wells it contains various impurities and contaminants which need to be removed before the gas is suitable for industrial and domestic purposes. The removal of these contaminants is carried out in gas processing plants, like the one operated by ExxonMobil near Longford in eastern Victoria.

17 The end product of this process is "sales gas". Sales gas is the gas that is ultimately transmitted by the pipeline systems and delivered to the consumer. It must meet strict statutory and contractual requirements in respect of its constituents.

18 The principal transmission system ("PTS") is Victoria's primary high pressure gas transmission system. It transports gas in large volumes from processing plants via underground transmission pipelines, which typically operate at a maximum pressure of 7,000 kilopascals. The PTS comprises just over 1,930 kilometres of pipeline. The network passes through much of Victoria and has over 110 off-takes, supplying most of Victoria's cities and regional centres.

19 Gas pipelines within the transmission and distribution systems are a means of transporting gas to end-users. The term "haulage" is used to describe the transport of gas. The different types of haulage are discussed later in these reasons.

20 The owners or operators of the pipelines do not necessarily own the gas in transit. Instead, there are contractual mechanisms by which the pipeline owner or operator takes custody of the gas on receipt from the user and then returns an equivalent amount of gas to the end-user on delivery.

21 Sales gas from a processing plant is injected into the PTS via a custody transfer station, which measures the quantity and quality of the gas transferred. It is at this point that the sales gas is usually sold to large industrial customers, gas retailers, gas traders and firms whose demands for gas are large enough for the purchase of wholesale gas supplies. The distribution of natural gas to most consumers occurs through distribution networks, also called distribution systems.

22 The point at which gas from a processing plant enters the PTS is known as an injection point. There are seven such injection points for the PTS.

23 The PTS is now owned by GasNet Australia (Operations) Pty Ltd ("GasNet"), a wholly-owned subsidiary of the APA group of private companies.

24 The PTS is operated by VENCorp from a control room at Southbank in Melbourne. VENCorp is a statutory body that was established on 11 December 1997 by the Gas Industry Act 1994 (Vic) ("GIA 1994"). The functions and powers presently exercisable by VENCorp are contained in Part 8 of the GIA 2001 and include controlling the operation of the PTS, operating and administering a competitive wholesale gas market within Victoria, and facilitating competition in the retail market for gas.

25 VENCorp is responsible for the operation of inlets, outlets and compressors in the PTS. It monitors pressure and gas flows utilising information technology systems, including the supervisory control and data acquisition system ("SCADA"). SCADA controls and monitors all the devices on the gas network, such as valves, regulators and major meters, to regulate the flow of gas, pressure and temperatures. Most of these critical facilities are equipped with remote terminal units, which measure critical variables such as pressure and whether the facilities are faulty. This information is transmitted to central computer-based control rooms, where remedial action is determined.

26 VENCorp is responsible for scheduling gas injections into, and withdrawals from, the PTS. It provides and maintains delivery pressures to the gas distribution networks which are connected to the PTS, within limits specified in the system security guidelines and systems connection deeds.

27 VENCorp maintains pressures at the point at which a gas distribution network connects with the PTS. This point is called a connection point or a custody transfer point. The injections of gas at the connection point happens by virtue of the pressure difference between the upstream PTS pipelines and the distributors' pipelines. Connection point facilities, which include custody transfer meters, valve data loggers and telemetry, are owned and maintained by GasNet and controlled and operated by VENCorp. There are 15 major connection or transfer points. The GasNet custody transfer meter records the flow of gas at each connection point and this information is provided to VENCorp. There are custody transfer meters at each off-take on the PTS.

28 The gas demand profile of Victoria is unlike any other in Australia, in that consumption patterns follow seasonal changes very closely. Thus, the demand for gas greatly increases during the winter months. Rather than increasing the capacity of gas processing plants and major pipelines at great expense, this gas demand profile has lead to the installation of two gas storage facilities, the Dandenong liquefied natural gas storage facility and the Western underground storage facility located on the depleted Iona gas field near Port Campbell.

29 In both cases, surplus gas is taken from the PTS during periods of low gas demand. Underground storage simply involves the gas being pumped back into empty subterranean reservoirs and then recovered and re-processed and put back into the PTS during periods of increased demand. The alternative method involves the surplus gas being liquefied and stored in insulated tanks each of which hold up to 12,000 tonnes of liquefied natural gas. During periods of high demand, the liquefied natural gas is pumped from these tanks, vaporised in a gas fired heater and injected back into the PTS.

30 Stored gas is available through the wholesale gas market in Victoria and via commercial arrangements between gas retailers and the owners of the storage facilities.

31 Gas distribution systems complete the gas delivery chain to most end-users. Distribution systems generally comprise of a network of underground distribution pipelines used to distribute gas from the PTS to hundreds of thousands of individual customers across Victoria. They consist of a few large trunk pipelines along the main thoroughfares in a gas distribution area, which are connected to a large number of progressively smaller and smaller branch pipelines, which operate at lower pressures, eventually running into residential streets to supply individual customers.

32 These distribution pipelines typically operate at pressures that do not exceed 515 kilopascals. However, in Victoria each distribution system includes pipelines that operate at gas transmission pipeline pressures in excess of 1050 kilopascals. These high pressure pipelines are governed by the Pipelines Act 2005 (Vic), an Act which will be discussed later in these reasons.

33 Gas is supplied through a system which consists of a complex arrangement of components including transmission pressure pipelines, high pressure pipelines, high to low pressure mains, regulator stations, service pipes, customer regulators, custody transfer meters and valves. Gas physically flows through all of the above components. Cathodic protection equipment and the SCADA system ensure the safe operation and maintenance of the network.

34 Given that gas naturally flows from high pressure regions to low pressure regions, the PTS operates at higher pressures than distribution pipelines. The point at which gas moves from the PTS into the distribution system is known in Victoria as the withdrawal point. At any such point, the two pipelines are separated by a gas pressure regulator. Regulators can also be used to adjust gas flow rates into or out of pipelines, where users require gas to be received at a particular rate of flow.

35 Regulator stations within a distribution network include city gates, field regulators and district regulators. Each of these regulator stations is responsible for receiving gas from pipelines operating at a particular pressure.

36 Customer regulators serve to reduce the pressure of gas received from sub-networks of the distribution network and inject gas into the customer's fitting line for its gas appliances.

37 The point at which a distribution network connects with the premises of a customer is known as a customer supply point. There are two classes of supply point within Victoria: class A supply points and class B supply points, depending on the volumes of natural gas. They are metered and billed differently.

38 There are three principal gas distribution systems in Victoria, namely:

(b) A distribution system now owned by Envestra Limited ("Envestra"); and

(c) A distribution system now owned by SPI Networks (Gas) Pty Limited ("SPI").

39 Multinet is the largest distributor of natural gas in Victoria, supplying almost 640,000 connections to gas supply. The Multinet system supplies gas to Melbourne's inner and outer eastern and south eastern suburbs, in adjacent areas of the Dandenong Ranges, and some parts of Gippsland and the Yarra Ranges region.

40 The Multinet system comprises a grid of supply pipelines, gas reticulation mains and services of varying sizes. There are 9,316 kilometres of gas distribution pipeline, covering an area of 1,603 square kilometres.

41 The PTS supplies the Multinet system through custody transfer meters which measure gas quantities connected to PTS pipeline sections at Dandenong/Brooklyn, Morwell/Dandenong and Pakenham/Wollert. Gas supplied through the Multinet system can also originate from the Dandenong liquefied natural gas facility, or via the Envestra gas distribution network at Templestowe, when Multinet's gas supply in that region is supplemented during periods of high gas demand.

42 There are approximately 1.6 million retail and wholesale customers of natural gas throughout Victoria.

43 VENCorp is the manager and administrator of the Victorian wholesale gas market. The operation of the wholesale gas market is governed by the Market and System Operator Rules ("the MSO rules"), which provide the framework for an efficient, competitive and reliable wholesale market for natural gas and regulate the administration of and participation within that market.

44 The wholesale gas market operates as a spot market, which allows licensed market participants to competitively bid for the surplus production of gas not otherwise committed under existing gas sales contracts.

(a) Producers, who operate gas production facilities;

(b) Traders, who arrange for gas to be transported through the PTS and either "export" the gas into other pipelines or on-sell to other parties, but do not sell directly to end-use customers in Victoria; and

(c) Retailers, who, by way of a Victorian gas retail licence, buy gas from producers or traders and sell gas directly to end-use customers.

46 Wholesale market participants submit offers or bids to VENCorp at various times every day, to inject or withdraw gas at specified locations and prices. VENCorp assembles these various bids in ascending price order into a "bid stack", which it then optimises in order to meet the forecast daily demand profile at the lowest overall cost. This process schedules the injections and withdrawals of gas and sets a clearing price for gas.

47 VENCorp administers the wholesale metering and settlement functions for gas flowing through the PTS, informing market participants on pricing, gas demands and forecasts.

48 There is also a retail gas market. Full retail contestability was introduced by the Victorian Government in October 2002. Full retail contestability allows all Victorian consumers of natural gas to choose their gas retailers from the range of gas retail businesses competing in Victoria. Since the introduction of full retail contestability, numerous retailers of natural gas have commenced operation within Victoria, including Origin, AGL, TRUenergy and Victoria Electricity.

49 The retail gas market is governed by a set of processes, responsibilities and obligations which ensure customers can transfer from one retailer to another. These are specified in the Victorian Gas Market Retail Rules ("retail rules"), which are given effect through the GIA 2001.

50 VENCorp has primary responsibility for developing the retail rules, which are approved by the ESC under the GIA 2001. VENCorp also facilitates the development of the Gas Interface Protocol ("interface protocol"), which describes technical standards and business protocols to be followed by VENCorp, retailers and distributors when transferring information between each other electronically. All participants in the retail gas market must comply with the retail rules and the interface protocol.

51 VENCorp also operates the FRC hub, an information technology system which supports business activities associated with full retail contestability. The FRC hub is a fully-automated electronic business-to-business infrastructure, based around a central message-handling facility, which allows information to be shared in the retail market. VENCorp, each market participant and distributors can deliver and receive structured transactions through this network facility using the interface protocol. The FRC hub supports business activities and transactions associated with full retail contestability, including custody transfers, meter data delivery, service orders, network billing and basic meter installation. Each transaction is sent to and from a participant's interface gateway via the FRC hub, which routes the transaction to the intended recipient within the retail market.

52 The FRC hub was originally developed by VENCorp; it is now owned and maintained by the National Electricity Market Management Company ("NEMMCO").

53 Most end-users acquire gas through a retailer. Retailers sell gas to customers at customer supply points, which are typically located in or adjacent to the customer's premises. In order to do so, retailers must acquire natural gas from producers or gas traders, transmission services through the PTS, and distribution services from a distributor to whose distribution system the customer's gas supply pipeline is connected.

54 Gas retailers are the primary buyers and sellers of natural gas. They buy gas directly from the producers, from storage facilities or from traders, and then sell gas to end users using the transmission and distribution networks. The owners and operators of the transmission and distribution systems simply transport the retailers' gas through their respective network of pipelines (this is known as haulage) and charge the retailer a haulage tariff for that service.

55 Several different types of haulage are referred to in the legislation relevant to this case, including firm haulage, interruptible haulage, spot haulage and backhaul.

56 Firm haulage is the most common service provided by means of a pipeline. It is a transportation service provided by the pipeline owner or operator to the shipper of the gas, for the carriage of a quantity of gas from an injection (or receipt) point to a withdrawal (or delivery) point on the same pipeline. It gives the shipper the right to "capacity" on the pipeline, that is, the right to transport gas at a specified flow rate between the two points. "Firm" means that the service is guaranteed to always be available to the shipper, except for force majeure events or other contractually-agreed circumstances. Firm haulage contracts are usually entered into for a minimum period of 12 months. The shipper is usually required to pay for the capacity, even if it is not used, on a "take or pay" basis.

57 Interruptible haulage service is the second most common service provided by means of a pipeline. "Interruptible" means that the service is not guaranteed to always be available to the shipper, and can be interrupted or curtailed if a higher priority service, such as firm haulage, is demanded by a shipper. Contracts for interruptible haulage service are often entered into on a day-to-day basis. The shipper is only required to pay for the service when it is available and only for the amount actually used.

58 Spot haulage service is, for all relevant intents and purposes, the same as interruptible haulage service.

59 Backhaul is the transport of gas contrary to the normal flow of gas in the pipeline. The technical details of how it works are not relevant for our present purposes.

60 In 1992, the Council of Australian Governments ("COAG") commissioned an independent committee of inquiry, led by Professor Fred Hilmer, into a national competition policy. The committee reviewed all infrastructure sectors dominated by public providers, who were usually operating at all levels of the production chain, including the gas industry. The report produced by the committee ("Hilmer report") recommended a number of reforms, including a national access regime to address the denial of access by vertically-integrated operators.

61 The recommendations in the Hilmer report went beyond addressing the denial of access to essential facilities and raised the possibility of additional safeguards to increase the contestability of the market in industries such as electricity and gas. In particular, the Hilmer report proposed requirements to provide cost data relevant to the application of pricing principles.

62 Acting on the Hilmer report's recommendations, a number of reforms were drawn together to form a package called the National Competition Policy. These reforms included the development of a national access regime to enable competing businesses to use nationally significant infrastructure (like airports, electricity cables, gas pipelines and railway lines), and specific regulatory reforms to the gas, electricity, water and road transport industries.

63 In April 1995, each of the Australian governments entered into the following agreements, collectively comprising the National Competition Policy:

(a) Competition Principles Agreement, which provided, amongst other things, for the reform of public monopolies and established arrangements for access by third parties to services provided by significant infrastructure facilities;

(b) Conduct Code Agreement, which extended prohibitions against anti-competitive conduct in the Trade Practices Act 1974 (Cth) ("TPA") to almost all businesses in Australia; and

(c) Agreement to Implement the National Competition Policy and Related Reforms, which set out the reform obligations covering national markets in electricity and gas, water reform and national road transport regulations, and provided for payments to be made by the Commonwealth to the States and Territories where satisfactory progress in implementing the National Competition Policy and related reforms was achieved.

64 Pursuant to the Competition Principles Agreement, the Commonwealth was required to establish a regime for access by third parties to services provided by significant infrastructure facilities. These arrangements are provided for in part IIIA of the TPA and were capable of applying to the gas industry.

65 In support of its argument that only Multinet, as the asset owner, was intended to be covered by the legislation, AAM pointed to numerous references in the early competition reform documents to the policy objective of facilitating the provision of access to natural monopoly infrastructure by "owners" of that infrastructure. But, I agree with the ESC that such references to "owners" must be read in the context of the COAG Communiqué of 25 February 1994, which foreshadowed the imposition of obligations not only on owners, but on "pipeline owners and/or operators".

66 Further, and in any event, in spite of focus initially being placed in the Hilmer report and the Competition Principles Agreement on ownership, when it came to the drawing of legislation, there was evidently a conscious choice on the part of the drafters and legislatures to move to a broader programme of regulating operators as well as owners, as is indicated by the inclusion of "operator" in each significant successive piece of relevant access regulation legislation, including those discussed later in these reasons.

67 Part IIIA of the TPA was enacted in 1995 by the Competition Policy Reform Act 1995. In section 44B of the TPA, "service" was (and is) defined as "a service provided by means of a facility" including "the use of an infrastructure facility such as a road or railway line" and "handling or transporting things such as goods or people". The term "provider" was (and is) defined in relation to a service as "the entity that is the owner or operator of the facility that is used (or is to be used) to provide the service".

68 Consistent with the objectives of the National Competition Policy, federal, state and territory governments took steps to implement a policy of national competition within the natural gas industry.

69 In 1995, the Gas Reform Task Force was established to develop and implement reforms for achieving competition in the natural gas industry. The task force was later renamed the Gas Reform Implementation Group, with membership including Commonwealth, State and Territory governments, the Australian Competition and Consumer Commission and industry groups.

70 The task force focused on ways to facilitate competition in supply, transmission, distribution and marketing of natural gas, through the provision of third party access to the natural monopoly segment of the industry, namely the downstream pipeline system.

71 In 1997, the task force released for public consultation a draft uniform national regulatory framework to govern third party access to natural gas pipeline systems.

72 On 7 November 1997, the members of COAG entered into the Natural Gas Pipelines Access Agreement ("NGPAA") under which the parties formally agreed to establish a uniform national framework for third party access to natural gas pipelines. The NGPAA provided for South Australia to act as the lead legislator by passing the legislation annexed to the NGPAA.

73 The legislation annexed to the NGPAA and passed by South Australia is the Gas Pipelines Access (South Australia) Act 1997 (SA), and contains the Access Law.

(a) Schedule 1 is Third Party Access to Natural Gas Pipelines which is the Law; and

(b) Schedule 2 is the National Third Party Access Code for Natural Gas Pipelines which is the Code.

Together, the Law and the Code comprise the industry-specific regime for third party access to natural gas transmission and distribution pipelines.

75 In accordance with the provisions of the NGPAA, each State and Territory in Australia has enacted its own legislation incorporating the Access Law. In Victoria, this law is the GPAV.

76 Until December 1994, gas distribution in Victoria was conducted by the Gas & Fuel Corporation ("GFC"), a state-owned body corporate. It was a vertically-integrated monopoly utility, supplied primarily by the primary producer under restrictive long-term gas supply contracts. A process of corporatisation and then privatisation was implemented over the next few years, governed by an interim regulatory environment.

77 The stated purpose of the first of these regulatory instruments, the GIA 1994, was to restructure the gas industry; establish two public authorities, namely the Gas Transmission Corporation ("GTC") and GASCOR (which used the trading name "Gas & Fuel"); provide for the transfer of property and rights from GFC to GTC and GASCOR; and provide for the technical regulation of the gas industry.

78 GASCOR and GTC were formed through the separation of the distribution and transmission functions of GFC. In broad terms, GTC became responsible for the transmission functions of GFC, and GASCOR became responsible for the distribution and retail functions. GTC and GASCOR were entitled to charge tariffs (which were fixed by the relevant Minister) for their respective services.

79 The next stage of the reforms occurred in 1997. The key features of this stage were the separation of GASCOR's retail and distribution functions, into three "stapled" (or joined) businesses, each comprising a gas distribution business and a gas retailer business. Initially, the retailers were to be allocated customers based on their geographic area of operation, with full retail contestability to be introduced progressively over the next four years.

80 In December 1997, GASCOR's distribution functions were allocated to three new gas distribution businesses, each of which covered a separate area:

(a) The Westar business, which covered, broadly, the inner west and north-western Melbourne metropolitan regions, and south-western Victoria, including Geelong, Portland, Horsham, Ballarat and Bendigo;

(b) The Multinet business, which covered Melbourne's inner south-eastern and eastern suburbs, and some of the Yarra Ranges; and

(c) The Stratus business, which covered, broadly, the north-eastern Melbourne metropolitan area and Mornington Peninsula, Gippsland (including Moe and Sale) and north-eastern Victoria, including Shepparton, Benalla, Echuca and Albury.

81 In fact, two companies were incorporated for each of the three distribution businesses. One company (in the case of the Multinet business, Multinet (Assets) Pty Ltd ("Multinet Assets")) was the owner of the physical gas distribution assets, including pipelines and related facilities. The other company (in the case of the Multinet business, Multinet Gas Pty Ltd ("Multinet Gas")) was the lessee of those assets and operated the distribution business. In each case, the lessee/operating company was granted a distribution licence for an unlimited term, with effect from 11 December 1997.

82 At the same time, three new gas retailers were created, "stapled" as follows:

(a) Kinetik Energy Pty Ltd ("Kinetik") was stapled to the Westar business;

(b) Ikon Energy Pty Ltd ("Ikon") was stapled to the Multinet business; and

(c) Energy 21 Pty Ltd ("Energy 21") was stapled to the Stratus business.

83 Initial licences under the GIA 1994 to sell gas by retail were granted to Ikon, Kinetik and Energy 21, as well as GASCOR and Esso Australia Resources Ltd ("Esso"). These licences had effect from 11 December 1997. Each licence entitled the holder to retail gas:

(a) Exclusively to non-contestable customers within a designated part of a distribution network; and

(b) Non-exclusively to "contestable" customers throughout Victoria.

84 Although the businesses were "stapled" for the purpose of privatisation, the retailers' designated geographic customer bases were structured to avoid exact alignment with the gas distribution areas. The areas overlapped in such a way that, in some areas, gas distributors serviced both their stapled retailer and the neighbouring retailer.

85 Also on 11 December 1997, VENCorp was established and took on some of the functions of GTC, namely, responsibility for balancing the transmission system, managing the spot market and operating the transmission system.

86 GTC, which was renamed Transmission Pipelines Australia, maintained ownership of and responsibility for maintenance of the PTC. Whilst the functions of Transmission Pipelines Australia and VENCorp were customarily integrated in other gas transmission markets, the planned implementation of third party access facilitated a new requirement for balancing arrangements in Victoria, to allow multiple shippers of gas to utilise the system in a safe, secure and efficient manner.

87 The GIA 1994 was amended by the Gas Industry (Amendment) Act 1997 (Vic) to provide for the restructure and reform of the gas industry and the creation of the Office of Gas Safety ("OGS") to ensure the safety and security of gas supply and to control gas safety standards.

88 It was amended again by the Gas Industry (Further Amendment) Act 1997 (Vic), which provided for further disaggregation of the industry, creation of the retail and licensing regime, the establishment of VENCorp and the implementation of a Victorian Access Code. It also outlined the MSO rules applicable to the transmission system.

89 An access code called the Victorian Third Party Access Code for Natural Gas Pipeline Systems ("the Victorian Access Code") was established with respect to third party access to transmission and distribution pipelines, with effect from 11 December 1997. It was established pursuant to section 48U of the GIA 1994 (as amended). The introduction to the Victorian Access Code acknowledged that its regime was intended to be short-lived, as it would be succeeded by the proposed national scheme.

90 One feature of the interim regulatory package was that it largely prescribed the component parts of the access arrangements, including tariffs, which were included in the access arrangements. These provisions have been superseded by reason of the application of the Access Law to Victoria.

91 In December 1998, the then-regulator of the Victorian gas industry, the Office of the Regulator-General ("ORG"), approved the access arrangement for the Multinet business under the Victorian Access Code. The parties to that access arrangement were Multinet Assets, as asset owner and the holder of relevant licences and permits, and Multinet Gas (then called Multinet Energy) as lessee and operator of the pipeline.

92 Part 4B of the GIA 1994, as inserted by the Gas Industry (Further Amendments) Act 1997 (Vic), utilised a definition of "service provider" in terms similar to the definition later adopted in the Access Law, and which is central to this case.[2] Part 4B of the GIA 1994 was repealed by section 25(g) of the GPAV, with effect from 1 December 1998.

93 In the first quarter of 1999, the distribution and retail businesses were sold by the Victorian government to private interests:

(a) Westar/Kinetik was sold to Texas Utilities Australia Limited for $1.617 billion;

(b) Ikon/Multinet was sold to Energy Partnership Pty Ltd for $1.97 billion; and

(c) Energy 21/Stratus was sold to a consortium comprising Boral Energy Limited and Envestra for $1.67 billion.

94 On 24 February 1999, the Multinet partnership (defined earlier in these reasons as "Multinet") purchased the assets and undertaking of the Multinet distribution business and became the holder of the Multinet distribution licence.

95 The regulatory framework governing the gas industry in Victoria now has the following principal components relevant to this proceeding:

(c) The Gas Safety Act 1997 (Vic);

(d) The Pipelines Act 2005 (Vic);

(e) The Victorian Gas Distribution System Code ("the Distribution Code");

96 The GIA 2001 is to be read and construed as one with the Gas Industry (Residual Provisions) Act 1994 (Vic). That latter Act contains what remains of the GIA 1994 as subsequently amended.

97 Part 8 of the GIA 2001 provides for VENCorp to continue, and confers certain functions and power on VENCorp, including powers concerned with facilitation of reliability and security of the gas supply, operation of equipment and control of the flow of gas.

98 The GIA 2001 and the Access Law will be discussed in detail later in these reasons. The following is a brief description of the other relevant legislation and rules.

Gas Safety Act 1997

99 The main purpose of the Gas Safety Act 1997 ("GSA") is to "make provision for the safe conveyance, sale, supply, measurement, control and use of gas and to generally regulate gas safety" (section 1).

100 Energy Safe Victoria ("ESV"), the relevant gas safety monitor, has, as one of its principal objectives, the obligation to ensure the safety of the conveyance, sale, supply, measurement, control and use of gas. The functions of ESV and of its predecessor, the OGS, include those conferred by the GSA and the regulations under the GSA (relevantly, the Gas Safety (Safety Case) Regulations 1999 ("safety case regulations")).

101 Division 1 of Part 3 of the GSA imposes various obligations on gas companies, including obligations to manage and operate their facilities to minimise hazards and risks to people and property, and to ensure that the gas which they convey complies with any prescribed requirements.

102 Importantly, division 2 of Part 3 of the GSA contains a framework of provisions for the submission, acceptance and review of management plans (known as safety cases) for the safe operation of facilities, including distribution pipelines, and for compliance with accepted safety cases. "Facility" includes a pipeline or a facility or service for the control of the conveyance of gas.

103 Regulation 7 of the safety case regulations provides that a safety case must specify the title of the position and the business address of a person who has "management or control of the facility" and who has "general responsibility for the safe operation of the facility".

104 A "gas company" is required to lodge a safety case with ESV for each of its facilities (section 37), and must manage and operate each of its facilities in accordance with its accepted safety case (section 44(2)). A revised safety case must be submitted at the end of each period of five years (section 46).

105 A "gas company" is defined in section 3 of the GSA to mean, amongst other things: a "gas distribution company" within the meaning of the GIA 2001; "a person who is an owner or operator of a facility or service for the control of the conveyance of gas, being a person declared under section 5 to be a gas company for the purposes of this Act"; or "a person who is an owner or operator of a pipeline, being a person declared under section 5 to be a gas company for the purpose of this Act."

106 It is common ground that AAM has not been declared a gas company pursuant to section 5 of the GSA.

107 If the ESC is right in its interpretation of the GIA 2001, then AAM will be a "gas distribution company" under that Act, and therefore a "gas company" and subject to the obligations imposed on gas companies under the GSA.

108 These Acts apply to high pressure gas pipelines, with operating pressures greater than 1,050 kilopascals; this includes some of the Multinet system.

109 The Pipelines Act 1967 imposed a permit regime. Section 8 provided:

(a) the pipeline is constructed along the authorized route in respect of that pipeline; and

(b) he holds a permit granted under this Part entitling him to own and use the pipeline.

110 "Pipeline" was defined in the 1967 Act as "a pipe or system of pipes for the conveyance of anything through the pipe or pipes, and includes all apparatus and works associated with the pipe or pipes" (section 3), but did not include certain matters which are not relevant for our purposes.

111 "Own and use" was defined to mean "in relation to a pipeline, the owning and being entitled to convey an authorized thing through the pipeline".

112 The Pipelines Act 2005 repealed and re-enacted, with amendments, the Pipelines Act 1967. It came into operation on 1 April 2007.

113 The 2005 Act replaced the permit system with a licensing regime. It created specific offences, including the following (section 15):

A person must not operate a pipeline unless a licence to construct and operate that pipeline has been issued under this Act.

Penalty: In the case of a natural person, 120 penalty units;

In the case of a body corporate, 600 penalty units.

(a) to facilitate the development of pipelines for the benefit of Victoria;

(b) to create an effective, efficient and flexible regulatory system for the construction and operation of pipelines;

(c) to establish sound consultative processes relating to the construction and operation of pipelines;

(d) to establish processes to determine the most efficient and suitable route for each pipeline;

(e) to protect the public from environmental, health and safety risks resulting from the construction and operation of pipelines;

(f) to ensure that pipelines are constructed and operated in a way that minimises adverse environmental impacts and has regard for the need for sustainable development.

115 There is some overlap with the subject-matter of the GSA, the main purpose of which is to make provision for the safe conveyance, sale, supply, measurement, control and use of gas and to generally regulate gas safety. This is recognised by certain provisions of the 2005 Act, which require a licensee to give ESV a safety management plan before carrying out any pipeline operation, for acceptance by ESV of that plan, and for the licensee to ensure that in carrying out a pipeline operation, the operation is carried out in accordance with the accepted plan. Section 208 provides that a safety case accepted under the GSA at the commencement of the 2005 Act is deemed for the purposes of the 2005 Act to be a safety management plan accepted by ESC on the commencement day under the 2005 Act.

116 It is worth noting that the prohibition on the "unlicensed" construction or operation of a pipeline in the 2005 Act is structured in quite a different way to the prohibition in section 22(1) of the GIA 2001. The 2005 Act does not require the person undertaking the relevant activity to be licensed; rather, it requires rather that there be a licence in respect of the pipeline. That is apparent from sections 14 and 15, as well as other provisions like section 109 of the 2005 Act, which provides that the licensee must "ensure that the pipeline to which the licence applies" is operated in accordance with any applicable standards prescribed or included in the licence.

117 The MSO rules were made on 2 February 1999 under the GIA 1994, and continued in force under the GIA 2001.

118 The purpose of the MSO rules is to provide an efficient, competitive and reliable market for gas and to regulate the operation and administration of the market and the activities of market participants. It is also to regulate the operation of the gas transmission system by VENCorp in a way which minimises threats to system security, enables access to the transmission system and the market, and encourages achievement of the market objectives.

119 The MSO rules apply to all owners, operators and users of the transmission system, including transmission pipeline owners, producers, storage providers, distributors and retailers, each of whom must register with VENCorp as a "participant". However, some of the rules only apply to "market participants"- a concept which does not include distributors.

120 A "distributor" is defined in the MSO rules (chapter 11) as "a person who owns (whether legally or equitably) or operates the whole or any part of" a distribution pipeline. The Multinet system is a distribution pipeline within the meaning of the MSO rules.

121 The retail rules are also made under the GIA 1994 and continued under the GIA 2001.

122 VENCorp is required to develop retail gas market rules for the gas transmission and gas distribution systems, which are approved by the regulator (section 62).

123 The GIA 2001 also requires a gas distribution company to develop retail market rules for any part of a distribution pipeline in respect of which it is a licensee, and to which the rules developed by VENCorp do not apply (section 63).

124 The retail rules impose numerous obligations on distributors. "Distributor" is defined as "a person authorised to provide services by means of a distribution pipeline under a Distribution Licence" issued under the GIA 2001.

125 The obligations imposed on distributors by the retail rules include: the registration of unique numbers assigned to supply points (known as metering installation registration numbers); access to customer meter data; the processes for the transfer of customers between retailers; and the provision, installation and maintenance of metering installations for the purposes of the retail gas market.

126 The Distribution Code was promulgated by the ESC's predecessor, the ORG, with effect from 1 December 1997.

127 It is essentially concerned with the nature of the operations surrounding the conveyance of gas through the distribution system. It sets minimum standards for the operation and use of the distribution system, including requirements for: connection to and augmentation (the expansion or enhancement) of distribution pipelines; disconnection and reconnection; the provision of metering installations and testing, and meter reading and data; curtailment (the interruption of delivery of gas to a supply point due to planned maintenance or emergencies); customer dispute resolution; and deemed distribution contract requirements (including deemed obligations which extend to both customers and distributors). It also sets benchmarks for, amongst other things, unaccounted for gas and service levels for residential gas customers.

128 The Distribution Code, version 5 (24 February 2000), applied at the time of the commencement of the GIA 2001, and is referred to in section 48(3) of the GIA 2001. The current version of the Distribution Code is 8.1 (which came into effect on 30 March 2007). Version 5 may assist in the interpretation of the GIA 2001, as regards the question of what services are comprehended by the expression "services" used in section 22(1) of the GIA 2001.

129 The Distribution Code operates and has effect as a condition of a distributor's distribution licence. Distributors and "large customers" (being those customers who have taken, or are likely to take, an aggregate supply from a distribution supply point of more than 5,000 gigajoules in any year) can vary their respective rights and obligations under the Distribution Code by agreement.

130 The GIA 2001 provides the general regulatory framework for the gas industry in Victoria. Its main purpose is stated to be to regulate the gas industry.

131 Many of the provisions of the GIA 2001 impose requirements on persons who are a "gas company", which relevantly includes a "gas distribution company". A "gas distribution company" is a person holding a licence to provide services by means of a "distribution pipeline" (section 3).[3]

132 Section 22(1) is central to the proceeding. It provides:

1. Offence to distribute or retail gas without licence

(1) A person must not provide services (other than the sale of gas by retail) by means of a distribution pipeline, either as principal or agent, unless the person -

(a) is the holder of a licence authorising that person to provide those services; or

(b) is exempt from the requirement to obtain a licence in respect of those services because of an Order under section 24.

Penalty: 1200 penalty units and 120 penalty units for each day after the day on which a notice of contravention of this sub-section is served on the person by [the ESC].

133 Section 22(2) sets out an equivalent prohibition on the sale of gas by retail unless the person is the holder of a relevant licence or exempt from doing so.

134 Section 25 provides for applications for licences, and section 26 for the grant or refusal of licence applications. Section 27(1)(a) provides that under section 26 the ESC may grant an application for a licence to provide services by means of a distribution pipeline in a particular area on an exclusive basis. As there is a dispute as to whether all distribution licences under the GIA 2001 are exclusive, sections 26 and 27 will be considered in detail later in these reasons.

135 A licence is subject to such conditions as are decided by the ESC (section 28). This section contemplates the grant of a licence, for the purpose of carrying on activities authorised by the licence, to two or more persons in partnership or as an unincorporated joint venture.

136 Section 29 provides that, without limiting the generality of section 28, conditions of various kinds may be imposed upon the licensee. The subject matter of potential conditions includes the maintenance of specified accounting records, compliance with industry codes, and preventing the licensee from engaging in or undertaking specified business activities.

138 The ESC may appoint an administrator to the business in respect of which a licence is issued if it considers that a contravention by a licensee of the licence conditions threatens the security of the gas supply, and any other remedies to enforce compliance are not adequate (section 41).

139 Section 22(1) contains a number of concepts which are critical in this case:

140 There is no dispute between the parties that the ordinary or natural meaning of "provide" is "to furnish or supply".[4]

141 Thus, section 22(1)(a) applies to a person who supplies/provides relevant services. However, the parties differ as to what makes somebody a supplier or provider, and as to whether there can be more than one provider in respect of the same distribution pipeline. Whether there can be more than one provider will be considered later in these reasons.

142 Obviously, to be a provider or supplier, a person has to have an actual ability to deliver the services, whatever they are.

143 But AAM says that to be a supplier, one must also furnish or provide services under a contract with the person to whom the services are provided. On the other hand, the ESC argues that contractual relationships are not important, and the section is addressed to functional or factual activity.

144 In its ordinary and natural meaning, the concept of providing or supplying services does not connote any particular contractual or legal relationship. The concept is not, as AAM contends, ordinarily limited to selling those services. Nor does the concept require that the supplier receive payment for its services from a particular source (in this case, retailers).

145 AAM argues that the purpose of a licence is to protect the regulated monopoly and to control "access" to the monopoly infrastructure. AAM argues that "access" can only be provided via contracts with retailers, therefore only the person who is a party to such contracts who can provide the relevant services. This argument is misconceived, primarily because there is no basis for believing that the purpose of a licence under the GIA 2001 is to protect monopolies. That would be directly contrary to the whole purpose of the industry reform, which was to encourage competitive behaviour in the gas industry. This does not provide a reason to read down the meaning of "provide", so as to limit it to "provide under a contract with a retailer."

146 At one point in its submissions, AAM put forward a rather curious argument based on the definition of "operation" in section 3 of the GIA 2001, which includes "the maintenance, removal and alteration of the pipeline". As best I could understand it, the argument seemed to be that section 22(1) does not require the licensing of a pipeline operator, being the person who undertakes pipeline maintenance, removal and alteration functions.

147 I agree that the concepts of "operator" and "provider" are not synonymous, although one person may fit both descriptions. But it does not follow that a person who undertakes pipeline operations need not be licensed.

148 The definition in question is "operation", not "operator". "Maintenance, removal and alteration" are inclusive extensions of the natural meaning of operation. The main purpose of the definition of "operation" in the GIA 2001 is to support the compulsory land and easement acquisition powers in sections 142 and 143, and the offence in section 150 of obstructing the lawful operation of a pipeline. Section 150 would be broad enough to include the obstruction of a person engaged by a maintenance sub-contractor; and the sub-contractor would not need to be licensed under section 22 for the offence to be committed. For these reasons, no conclusion should be drawn from the definition of "operation" that a true operator was intended to be beyond the licensing requirements of section 22.

150 Dictionary definitions of "service" are of little help here. For example, the Macquarie Dictionary (4th ed.) defines service as "the supplying or supplier of any articles, commodities, activities, etc., required or demanded". That definition provides no assistance in giving content to the meaning of the word in section 22(1).

151 The heading to section 22, which forms part of the GIA 2001,[5] is "Offence to distribute or retail gas without a licence." Section 22(1) is concerned with services other than the sale of gas by retail (retail sales being dealt with in section 22(2)), that is to say, with the distribution of gas. "Distribute" is in turn defined to mean "in relation to gas, means convey gas through distribution pipeline". I agree with the ESC that this is, in ordinary language, a description of a functional activity.[6]

152 AAM argues that "services" has the same meaning as in the Code (section 10.8). Even if that is so, it does not mean that services are narrowly confined to haulage services and interconnection rights, as contended for by AAM. As explained later in these reasons, the Code definition is inclusive, not exhaustive. It applies to all services provided by means of a covered pipeline (other than the production, sale or purchasing of gas), including without limitation the two specified services. It also includes all services ancillary to such services. The Code definition does not limit the concept of services to services provided under a contract.

153 Section 22(1) does not identify to whom the services are to be provided. AAM focused primarily on the provision of services to retailers. It is not clear whether AAM says that "services" also includes services provided to end-users, such as retail customers; in some places in its submissions it seems to be arguing that they are, in others that they are not. By focussing as it does on services provided to retailers, AAM highlights the contractual relationship which exists between Multinet and the retailers.

154 Whether "services" means the distribution of gas, or has the same meaning as in the Code, such services are capable of being provided to retailers and end-users.

155 As a matter of fact, AAM contends that it does not provide any "services" to retailers or end-users, and that the only services it provides are to Multinet. That contention will be considered later in these reasons.

156 AAM argues, by reference to a High Court decision on income tax, that "by means of" means "by the instrumentality of" or "through the intervention of".[7] The income tax context is quite different from the present inquiry, and seems to be of little, if any, assistance. AAM argues that the services that occur "by the instrumentality" of the pipeline occur "due to pressure differential". That may be so as a matter of physics, but hardly helps one understand what services are provided "by means of".

157 I agree with the ESC that the ordinary and natural meaning of "by means of" is "using". AAM argues against the adoption of such a meaning, without really explaining how that differs from "by the instrumentality of". At one point, AAM does so on the basis that the only person who "uses" the pipeline is the retailer whose gas is transported to the customer. But there is no reason to adopt such a limited concept of "use" or "using". There are many other possible ways of providing services using or by means of a distribution pipeline. Indeed, elsewhere in its submissions, AAM itself acknowledges that Multinet provides services to retailers "by means of" the distribution pipeline.

158 AAM seeks to rely on the decision of the Australian Competition Tribunal in Re Duke Eastern Gas Pipeline Pty Ltd and Others.[8] Whilst that case did involve a consideration of the phrase "services provided by means of a pipeline", it did so in the context of that phrase as it appears in the coverage provisions of the Code. In fact, the Tribunal said nothing about "by means of" which is inconsistent with that phrase meaning "using".

159 AAM also points out that it does not own the pipeline or any pipeline assets with which it can offer services; Multinet owns the pipeline. That is beside the point. The GIA 2001 is not concerned with who owns the infrastructure. The concept of "by means of" in section 22(1) certainly does not impose any requirement of pipeline ownership. Nor does it impose any requirement that the service provider be entitled to exclusive possession of the pipeline, as AAM also contends.

160 AAM argues that, at its highest, it provides services "in respect of" the pipeline or "to" Multinet, not "by means of" the pipeline. The ESC does not suggest that "by means of" means "in respect of" or "to". However, the ESC argues that AAM provides services using the pipeline. I will consider later in these reasons whether, as a matter of fact, AAM does provide relevant services by means of the pipeline.

161 A distribution pipeline relevantly means "a pipeline for the conveyance of gas", which is not a transmission pipeline. A "pipeline" relevantly means "a pipe or system of pipes for or incidental to the conveyance of gas and includes all apparatus and works associated with the pipe or system of pipes, and includes a part of such a pipe or system".

(a) apparatus for inducing or facilitating the flow or movement of anything through the pipeline;

(b) apparatus or structure for giving protection or support to the pipeline;

(c) apparatus for transmitting information or instructions with regard to the operation of the pipeline;

(d) valves, valve chambers, manholes, inspection pits and other similar works annexed to or incorporated in the course of the pipeline;

(e) storage, loading and all ancillary facilities and installations required for the pipeline or used in connection with, or incidental to, the pipeline; and

(f) prime movers for the operation of any apparatus or works mentioned in paragraph (a), (d) or (e).

163 "Prime movers" are not defined, but I agree with the ESC that this expression means or includes the control mechanisms for the operation of any apparatus or works mentioned in paragraph (a), (d) or (e) of the definition.

164 Section 22(1) applies to the provision of relevant services "either as principal or agent".

165 Section 22 was first incorporated as section 48B of the GIA 1994 by way of amendment in 1997. Section 22 is in identical terms to section 48B, save for references to the ORG having been changed to references to the ESC, and penalties having been increased. Neither the explanatory memorandum nor the parliamentary debates for the 1997 Act provide an explanation as to the inclusion of the words "either as principal or agent". Nor do the equivalent extrinsic materials for the GIA 2001 provide any assistance; the explanatory memorandum simply notes that section 22 is in the same terms as section 48B of the GIA 1994, save that the penalties have been increased.

166 AAM argues that there was an historical purpose to the inclusion of the words in section 48B, but they have no real role to serve in section 22. It argues that the words have remained in the provision only by legislative oversight and ought effectively to be ignored.

167 Historically, only one entity owned all the pipelines and supplied all customers as non-contestable customers. Arrangements were needed to provide for the transition to a de-regulated industry, and full retail contestability was introduced in stages.

168 On 11 December 1997, a retail licence was issued to GASCOR as licensee. The licence authorised GASCOR to sell gas to every franchise customer in the relevant franchise area, and required all such sales to be made "by an agent who is separately licensed" by the ESC's predecessor. One such licensed agent appointed by GASCOR was Kinetik. Kinetik in fact sold gas in two different capacities: to non-contestable customers as agent for GASCOR, and to contestable customers as principal. So far as the non-contestable customers were concerned, the agency agreement provided that Kinetik derived the revenue from sales and bore the ultimate credit risk for the GASCOR agency customers.

169 AAM argues that if GASCOR had not itself been a retailer, then it would have been sufficient for the purposes of section 48B if its agent, Kinetik, were licensed. I do not agree with that argument. If GASCOR's agent was selling gas on its behalf, then GASCOR would have been the principal in respect of those retail sales, irrespective of the parties' contractual arrangements as to remuneration of the agent. That is to say, both the principal and the agent would have required a retail licence under section 48B.

170 Even if regard could be had to the GASCOR and Kinetik retail licences in order to construe section 22 (which may be doubted), it is not clear why the particular facts surrounding those licences should be taken to limit the operation of section 22.

171 In looking at the historical context, AAM argues that unless the prohibition in the predecessor of section 22(1) had referred expressly to "either as principal or agent", then persons would have been able to subvert the licensing regime by appointing an agent who was not licensed to provide the relevant services. I agree that that would have been a problem, but that is as much a current problem as an historical one. By requiring the licensing of any person who provides relevant services, in any capacity, the legislature has clearly sought to prevent persons from subverting the Act by simply appointing an agent. Therefore, the words "either as principal or agent" remain as relevant in the GIA 2001 as they were in the previous legislation.

172 In the alternative, AAM contends that the GIA 2001 only requires that either the principal or the agent be licensed, but not both. AAM argues that if it is Multinet's agent (which it denies) then, because Multinet has a licence, there is no need for it to also have one.

173 AAM argues that in the usual case, there will only be one service provider of a bundle of retail services or, in the distribution context, one provider of distribution services via a single distribution pipeline. However, even if that is the case as a matter of fact (about which I am unable to express an opinion), that does not entitle me to ignore the express wording of section 22.

174 AAM contends that the licensing regime under the GIA 2001 is about imposing responsibility for the supply of services and "there cannot be responsibility imposed upon two persons for the same activity." It does not explain why that must be the case as a matter of general principle, nor do the other Victorian statutes and rules support such a bald proposition.

175 There is nothing in the terms of section 22(1) which suggests that where an agency relationship exists, only one of the principal or agent needs to have a licence. The section creates an offence for a person who does the prohibited act "either as principal or agent". The words "either as principal or agent" indicate the breadth of the offence, namely that it applies to any person who provides relevant services in any capacity.

176 This is consistent with the general structure of the provision: section 22(1) contains a general prohibition on the provision of services by an unlicensed person, not a prohibition unless there is a licence in relation to the pipeline.

177 By prohibiting the provision of services either as a principal or agent, the legislature has emphasised that the prohibition applies irrespective of whether the person concerned is a party to a contract which confers the benefit of those services on another person (such as a retailer or customer). The language confirms that the legislature intended the prohibition to operate on a person who is providing the stipulated services in a functional or factual sense.

178 AAM argues that a distribution licence issued pursuant to the GIA 2001 is an exclusive licence. It says that, unlike the position under the GIA 1994 (as amended), the GIA 2001 does not allow for two licences to be granted in the one geographic area or over the same pipeline. This argument is based on AAM's interpretation of sections 25, 26 and 27 of the GIA 2001.

179 The ESC says that although it has a discretion to grant an exclusive licence, it is not the case that the GIA 2001 only allows for exclusive licences.

180 Applications for licences, including licences to provide services by means of a distribution pipeline, are made to the ESC under section 25.

181 Sections 26 and 27 relevantly provide as follows:

(1) [The ESC] 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 18.

(2) [mandatory procedure for public consultation about licence applications]

(3) Subject to this section and any requirements specified in regulations made for the purposes of this section under section 236, [the ESC] may determine the procedures that are to apply to in respect of the issue of licences.

(4) [The ESC] 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.

(1) [The ESC], under section 26, may grant an application for a licence-

(a) to provide services by means of a distribution pipeline in a particular area on an exclusive basis; or

(b) to sell gas by retail in a particular area or on an exclusive basis.

(2) [The ESC], under section 38, may vary a licence to permit the licensee-

(a) to provide services by means of a distribution pipeline in a particular area on an exclusive basis; or

(b) to sell gas by retail in a particular area on an exclusive basis.

(3) [The ESC] may only grant an application for a licence of a kind referred to in sub-section (1) in accordance with the criteria determined by Order under this section for the grant of a licence.

(4) [The ESC] may only vary a licence for a purpose referred to in sub-section (2) in accordance with the criteria determined by Order under this section for the variation of a licence.

(a) an application for a licence to provide services by means of a distribution pipeline is granted, in accordance with this section, in relation to a particular area; or

(b) a licence is varied to permit the provision of services by means of a distribution pipeline in a particular area on an exclusive basis-

then for the period specified in the licence, no other licensee is authorised to provide those services in that area.

(a) an application for a licence to sell gas by retail is granted in accordance with this section in relation to a particular area; or

(b) a licence is varied to permit the sale of gas by retail in a particular area on an exclusive basis-

then for the period specified in the licence no other licensee is authorised under this Act to sell gas by retail in that area.

(7) Sub-sections (5) and (6) apply despite anything to the contrary in any licence granted before, on or after the commencement of this section and any such licence is deemed to be modified accordingly.

(8) The Governor in Council, by Order published in the Government Gazette, may determine the criteria for-

(a) the grant of an application for a licence of a kind referred to in sub-section (1)(a) or (b); or

(b) the variation of a licence of a kind referred to in sub-section (2)(a) or (b).

(9) The criteria specified in an Order under sub-section (8) must not be inconsistent with any relevant criteria contained in the Natural Gas Pipelines Access Agreement dated 7 November 1997 and made between the Commonwealth, the States of New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania, and the Australian Capital Territory and the Northern Territory as that agreement is amended and in effect from time to time.

182 AAM argues that section 26 is concerned with whether or not to grant an application made under section 25, and section 27 is concerned with the content of a licence so granted. It says that the plain language of section 27(1)(a) permits the grant of a distribution licence only for a particular area and only on an exclusive basis.

183 AAM says that the reference in section 27(1) to "may" does not carry a discretion as to the content of the decision. Rather, it is a reference back to what the regulator may do under section 26, namely, to grant or refuse an application. If the regulator does determine under section 26 to grant an application under section 25, then the content must be as set out in section 27(1).

184 The decision to grant a licence pursuant to section 26(1) is required to be made having regard to the objectives in section 18 of the Act. AAM argues that it is consistent with those objectives that licences be granted on an exclusive geographic basis, and puts forward an elaborate argument based on the fact that it makes no economic sense to duplicate pipeline distribution networks within a geographic area. But that is not what the ESC contends needs to occur, either in this particular case or generally.

185 I agree with the ESC that the section should be read in the following manner. Section 25(1) provides for an application to be made for the issue of a licence authorising a person to provide services by means of a distribution pipeline. Under section 26(1) the ESC may decide to grant the application to issue a licence. A licence is subject to such conditions as the ESC decides. One possible condition is that the licensee may be authorised to provide services by means of a distribution pipeline in a particular area. For example, the Multinet licence authorises Multinet to provide services in a particular area, defined by reference to postcodes.

186 On a proper reading of sections 25 to 27, the grant of a licence does not of itself confer authority to provide the services in the described area to the exclusion of all others.

187 Instead, the ESC "may" issue an exclusive licence under sections 27(1)(a) and (2)(a). This is a discretionary not a mandatory power. AAM's suggestion that "may" in section 27 is actually a reference to "may" in section 26, is strained and unnecessary. Thus, the distribution licence will be an exclusive distribution licence only if the ESC exercises its power to make it so. Before the ESC can exercise its power to issue an exclusive distribution licence, or to vary one so that it becomes exclusive, the criteria determined by Order under section 27 must be met.

188 Section 27 had no antecedent in the GIA 1994. This has led AAM to contend that all existing distribution licences were transformed into exclusive distribution licences upon the commencement of the GIA 2001. AAM relies on sections 27(5) and (7) in support of this proposition, asserting that a licence held prior to the introduction of the GIA 2001 was deemed by section 27(7) to be an exclusive licence.

189 I agree with the ESC that this involves an incorrect reading of the provisions. Sections 27(5) and (7) do not deem all existing distribution licences to be exclusive. Rather, they provide that where an exclusive licence is granted (or an existing licence is varied so as to make it exclusive), then for the period specified in the licence, no other licensee is authorised to provide those services in that area (section 27(5)), and this applies "despite anything to the contrary in any licence granted before, on or after the commencement of this section and any such licence is deemed to be modified accordingly" (section 27(7)).

190 Section 27 contains separate, mirror provisions in relation to the sale of gas by retail (sub-sections (1)(b), (2)(b), (6) and (7)), which should be construed in the same manner as the provisions relating to distribution services. If AAM's construction of sections 26 and 27 were correct, it would also have the consequence that all existing retail licences became exclusive upon the commencement of the GIA 2001. This would amount to the exact opposite of full retail contestability.

191 If AAM's submission was correct, there would also be no work to be done by the provisions conferring power on the ESC to vary a licence to make it exclusive, or by sections 27(3), (4), (8) and (9).

192 AAM also seeks to draw comfort from provisions other than sections 26 and 27 themselves. It points out that none of the specific licence conditions mentioned in section 29, or the general licence conditions in sections 31, 34 or 36, of the GIA 2001, specify conditions on a non-exclusive basis. But it would be more accurate to say that those provisions do not address the issue of exclusivity at all; they have been drawn in such a way that they are broad enough to apply to exclusive or non-exclusive licences.

193 In fact, no distribution licence has been issued under the GIA 2001 on an exclusive basis to date. The current Multinet distribution licence does not purport to be an exclusive licence. The evidence given by several witnesses called by AAM,[9] as to their belief that it is exclusive, does not establish its proper legal characterisation.

194 AAM's argument appears to have been driven by a priori reasoning based on its mistaken premise that the purpose of section 22 is "to protect the licence holder's exclusive rights from interference by others". Whilst I accept that a distribution licence is a very valuable asset to a distributor such as Multinet, this argument involves a serious misconstruction of the GIA 2001. The policy of the GIA 2001 is not to protect natural monopolists, rather it is to protect the public interest. Natural monopolies tend to protect themselves and thus need no protection from the legislature.

195 The fact that it might be uneconomic for another licensee to build a duplicate set of pipelines in the Multinet distribution area is not an argument about the construction of section 22, simply an observation to the effect that a distribution network has natural monopoly characteristics.

196 With the exception of licences held by a partnership, of which the Multinet licence is an example, it is common ground that there are no instances where more than one distribution licence has in fact been issued over the same distribution system in Victoria. But it does not follow, as AAM contends, that to issue a second licence would "therefore" be contrary to section 27(5) of the GIA 2001.

197 Even if, contrary to the above analysis, the GIA 2001 contemplated that all distribution licences were to be exclusive, that would not affect the task before the court, which is to determine whether AAM is caught by the section 22 prohibition.

198 Section 48(1) provides that a gas distribution company may, subject to the conditions of its licence, give notice of terms and conditions applying in respect of the distribution or supply of gas to retail customers or a class of retail customers. The ESC must approve any such terms and conditions (section 48(2)), which must not be inconsistent with the Distribution Code (section 48(3)) or with "any access arrangement applicable to the gas distribution company and approved under" the Code (section 48(4)). A gas distribution company and a retail customer are deemed to have entered into a contract on the approved terms and conditions on a specified date (section 48(6)).

199 AAM seeks to rely upon these provisions, although its arguments in this regard are not entirely clear. It seems to be arguing that section 48 could not apply to it, because Multinet is the party who contracts to provide services. AAM says that this further strengthens its argument that it is not a gas distribution company and therefore need not be licensed.

200 But this argument ignores the fact that neither Multinet nor AAM has distribution or supply contracts with retail customers. Retailers are the only persons who have such contracts. In fact, the whole point of section 48 is to allow for the deeming of contracts between people between whom there would otherwise be no direct contract, namely, a gas distribution company and a retail customer.

201 AAM also argues that, because it does not have an access arrangement under the Code, section 48 could not apply and therefore it is not intended to be a gas distribution company. However, section 48(4) requires a deemed distribution contract to be not inconsistent with "any access arrangement applicable to the gas distribution company". That is to say, it allows for the possibility that there may be no applicable access arrangement, but simply requires consistency of terms if there is one. In any event, for reasons given elsewhere, I have concluded that AAM does in fact require an access arrangement under the Code.

202 AAM refers in a number of places to the other Victorian legislation, in support of its arguments, but it does not always do so consistently. For example, on the one hand AAM argues that to have more than one licensee in respect of the same pipeline would not fit in with other Victorian legislation, in particular, with the GSA, either of the Pipelines Acts, the Distribution Code and the MSO and retail rules. Elsewhere, it argues that the obligations imposed by those other provisions are independent of and irrelevant to the construction of the GIA 2001 and the Code.

203 For the reasons which follow, I am not persuaded that any of the other legislation or the rules would alter my interpretation of section 22.

204 The GSA's main purpose is "to make provision for the safe conveyance, sale, supply, measurement, control and use of gas and to generally regulate gas safety" (section 1). As discussed earlier, the principal mechanism by which a person comes within the purview of the GSA is by receiving a licence under the GIA 2001.[10]

205 The GSA requires a gas company to submit and comply with a safety case, and to manage and operate its facilities safely. If AAM is in fact the operator of the Multinet system, it is not clear in principle why it should not have to comply with the GSA on its own account. It already does all the work in preparing and complying with the current Multinet safety case, so there is no question as to its capacity to do these things (as AAM has argued elsewhere is an impediment to it being required to be licensed). References in the GSA to "its facilities" (for example, in section 32), are capable of being read as referring to the facilities which the gas company operates, not as requiring ownership of the facilities.

206 AAM argues that it is up to a gas distribution company how it wishes to discharge its obligations under the GSA. It may completely out-source the management and/or operation of its facilities, as long as it retains ultimate responsibility for them under the GSA.

207 As a matter of public safety, it would be preferable to construe the GSA so as to impose relevant obligations on a person who actually provides distribution services by means of the pipeline, rather than merely leaving legal liability with the owner. In the distribution (or "safe conveyance") context, it would be contrary to the general policy of both the GSA and GIA 2001 if it were possible for a person to simply hand over responsibility for the safe operation of the pipeline to an unlicensed service provider, without the engagement of section 22(1) of the GIA 2001.

208 As mentioned earlier, under section 8 of the Pipelines Act 1967, no person could own or use a high pressure pipeline unless it held a permit entitling him to own or use the pipeline. Multinet, and not AAM, held such a permit at all relevant times. But there was nothing in the 1967 Act which required it to be read as meaning that only one permit could be issued in respect of the same pipeline, as AAM contends.

209 The Pipelines Act 2005 makes it an offence to construct or operate a high pressure pipeline unless a licence to construct or operate the pipeline has been issued. There is no requirement that the licence holder be the user of the pipeline, merely that the pipeline be licensed. Since 1 April 2007, it is irrelevant whether a person who provides services by means of a distribution pipeline (within the meaning of section 22 of the GIA 2001) is the holder of a licence under the Pipelines Act 2005.

210 AAM points out that Multinet has a number of detailed obligations imposed on it by the Distribution Code, in relation to matters such as: minimum standards for operation and use of the distribution system; system security and maintenance; guaranteed service levels for residential customers; unaccounted for gas; and various metering obligations.

211 As mentioned earlier, the Distribution Code is applied as a condition of a licence under section 22, it does not automatically apply in its entirety to every distributor. If it were the case (as AAM seems to be arguing), that some of the obligations in the Distribution Code would be more appropriate to impose on Multinet than AAM, there is no reason in principle why that could not be done via suitable licensing conditions. It is certainly not a reason for construing section 22 of the GIA 2001 so as not to require AAM to be licensed.

212 Furthermore, the concept of distribution services has a broad and functional interpretation in the Distribution Code.

213 AAM expressly concedes that these rules cannot be used to interpret the GIA 2001. Indeed, given that they are enacted under the powers conferred by the GIA, they must be construed consistently with it, and not the other way around.

214 Although AAM points to a number of features of the rules, and how they have been applied in the case of Multinet, nothing in those submissions detracts from the construction of section 22(1) which I have discussed earlier.

215 The objectives of the Code are consistent with the aims of the National Competition Policy. The objectives are set out in the introductory text to the Code as follows:

The objective of this Code is to establish a framework for third party access to gas pipelines that:

(a) facilitates the development and operation of a national market for natural gas; and

(c) promotes a competitive market for natural gas in which customers may choose suppliers, including producers, retailers and traders; and

(d) provides rights of access to natural gas pipelines on conditions that are fair and reasonable for both Service Providers and Users; and

216 The Code applies to any "covered pipeline". Section 1 of the Code provides for coverage. The pipelines owned by Multinet Gas as at 1 December 1997 (as listed in schedule A to the Code), were covered pipelines from the commencement of operation of the Code.

217 "Pipeline" is defined in section 2 of the Law as meaning "a pipe, or system of pipes, or part of a pipe, or system of pipes, for transporting natural gas, and any tanks, reservoirs, machinery or equipment directly attached to the pipe or system of pipes, but does not include ..." a series of things related to the upstream processing or production activities or to downstream of the connection point to a consumer (none of which exclusions are relevant for our purposes).

218 The Code applies to "service providers", a term which will be considered shortly.

219 The Code addresses a number of matters, which are summarised below:

(a) Section 1, Coverage - establishes the mechanism by which natural gas pipelines become subject to the Code. Only those pipelines (or parts of pipelines) covered by the Code are required to have an access arrangement, although a service provider may voluntarily propose an access arrangement where its pipeline is not covered;

(b) Section 2, Access arrangements - an access arrangement is a statement of the policies and the basic terms and conditions which apply to third party access to a covered pipeline. An access arrangement must be approved by the relevant regulator in accordance with the process and timing set out in section 2;

(c) Section 3, Content of an access arrangement - sets out the matters that, as a minimum, must be included in an access arrangement;

(d) Section 4, Ring fencing arrangements - requires a service provider to segregate from other parts of its business that part of its business responsible for providing services using the covered pipeline. The section also imposes a number of minimum obligations, such as the maintenance of separate accounts in respect of activities covered by an access arrangement, and limitations on the use of confidential information. Section 4 also empowers the regulator to impose additional or waive minimum ring fencing obligations;

(e) Section 5, Information and timelines for negotiation - imposes obligations on service providers and users to disclose to the market the information that is relevant to obtaining access to services under the Code. This includes an obligation on the service provider to maintain a public register providing information about the capacity of the covered pipeline;

(f) Section 6, Dispute resolution - in the event of a dispute between prospective users and service providers as to the terms of access to a covered pipeline, either party can refer the dispute to the relevant regulator for resolution in accordance with section 6. In resolving a dispute referred to it, the relevant regulator must apply the terms and conditions of the access arrangement;

(g) Section 7, General regulatory and miscellaneous provisions - includes provisions dealing with the approval process for contracts that are not "arm's length", publication obligations applying to decision makers under the Code, the treatment of confidential information, and extensions to time limits;

(h) Section 8, Reference tariff principles - sets out the principles with which a reference tariff and a reference tariff policy contained in an access arrangement must comply. These include both principles of general application and principles that apply specifically to calculating the actual or forecast total revenue generated by a service provider from providing all services during the period the access arrangement is in force; and

(i) Sections 9 and 10, Code change and interpretation - address the processes for amending and interpreting the Code respectively. Section 10 also includes definitions of terms used in the Code.

220 One of the obligations imposed on service providers is to propose an access arrangement to the relevant regulator for approval. An access arrangement is a statement of the policies and basic terms and conditions which apply to third party access to a covered pipeline. The Code requires each access arrangement to be reviewed periodically, usually every five years.

221 Service providers must formulate and propose an access arrangement which sets out the terms and conditions of access, including tariffs. The relevant regulator then reviews and either approves the access arrangement or proposes revisions.

222 The Code requires all access arrangements to contain certain minimum elements, which are set out in sections 3.1 to 3.20 of the Code. The ESC is not permitted to approve a proposed access arrangement, or proposed revisions to an access arrangement, unless the minimum elements are included. In brief, these elements are:

(a) A services policy, which is a policy governing the services to be offered by the service provider. The policy must include a description of one or more services which are to be offered; where reasonable and practical, allow prospective users to obtain a service that includes only those elements that the user wishes to be included in the service; and where reasonable and practical, allow prospective users to obtain a separate tariff in regard to a separate element of a service;

(b) A reference tariff for at least one service that is "likely to be sought by a significant part of the market", and for each service that is "likely to be sought by a significant part of the market and for which the [ESC] considers a reference tariff should be included." All reference tariffs other than those determined through a competitive tender process are required to comply, in the ESC's opinion, with the reference tariff principles in section 8;

(c) A reference tariff policy, which is a policy describing the principles that are to be used to determine a reference tariff. This policy must comply with the reference tariff principles described in section 8;

(d) The terms and conditions on which the service provider will supply each reference service, which must be reasonable;

(e) A capacity management policy, which is a statement that the covered pipeline manages third party access using either the contract carriage or market carriage systems. In Victoria, under the MSO rules, a market carriage model is adopted;

(f) A trading policy, which sets out how pipeline capacity will be traded, and must allow for transfers in certain situations mandated by the Code;

(g) A queuing policy, which defines the priority that a prospective user has, as against any other prospective user, to obtain or negotiate access to spare capacity and developable capacity;

(h) An extensions/expansions policy, which sets out a method for determining whether an extension to or an expansion of a covered pipeline is to be treated as part of the covered pipeline for the purposes of the Code, and how any extension or expansion will affect reference tariffs. The policy must state the description of new facilities that the service provider agrees to fund, and the conditions upon which it will give its agreement. The ESC cannot require the extensions/expansions policy to state that a service provider will fund new facilities unless the service provider agrees; and

(i) A date by which revisions to the access arrangement must be submitted to the relevant regulator, and the date on which the revised access arrangement will commence. Revisions for each of the current access arrangements were submitted in March 2007.

223 Section 4 of the Code requires a service provider to establish arrangements to segregate or ring fence "its business of providing services using a covered pipeline." As a minimum, a service provider must:

(b) Not carry on a related business (essentially an upstream or downstream business of producing, purchasing or selling natural gas);

(c) Establish and maintain separate accounts for the activity that is the subject of each access arrangement;

(d) Establish and maintain a consolidated set of accounts for all the activities undertaken by the service provider;

(e) Allocate costs shared between different accounts in a fair and reasonable manner;

(f) Ensure that confidential information provided by a user or a prospective user is used only for the purposes for which it was provided and is not disclosed without the user or prospective user's consent;

(g) Ensure that confidential information obtained by a service provider which might reasonably be expected to materially affect the commercial interests of a user or prospective user is not disclosed to any other person without the permission of the user or prospective user to whom the information pertains;

(h) Ensure that marketing staff of a service provider are not also working for an associate that takes part in a related business; and

(i) Ensure that marketing staff of an associate that takes part in a related business are not also working for the service provider.

224 The regulator may require the service provider to meet additional ring fencing obligations in addition to these minimum requirements. Additional requirements may be imposed under sections 4.3 to 4.11 of the Code, for reasons which include ensuring that the service provider does not prefer its associates.

225 Conversely, the regulator also has discretion to dispense with some, but not all, of the ring fencing obligations, in certain circumstances and in accordance with sections 4.15 to 4.24 inclusive.

226 As a matter of interpretation, where there is an inconsistency between schedule 1 (the Law) and schedule 2 (the Code) of the Access Law, then schedule 1 prevails (section 5 of the Law).

227 Schedule 1 contains appendix 1, which has general application to "the Law". It includes a requirement in paragraph 7 that:

(1) In the interpretation of a provision of this Law, the interpretation that will best achieve the purpose or object of this Law is to be preferred to any other interpretation.

(2) Subclause (1) applies whether or not the purpose is expressly stated in this Law.

228 In interpreting the Code, regard may be had to a wide range of "extrinsic material" listed in section 8 of appendix 1 of the Law.

229 Sections 10.4 and 10.5 of the Code provide as follows:

10.4 The introduction to this Code and the overview in italics at the beginning of each section of this Code do not form part of this Code.

10.5 In interpreting a provision of this Code consideration should be given to the introduction to this Code and the overview in italics at the beginning of the relevant section of this Code:

(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision; or

(b) to determine the meaning of the provision when:

(ii) the ordinary meaning conveyed by the text of the provision leads to a result that is manifestly absurd or unreasonable.

230 The introduction to the Code includes the text set out in paragraph 215 of these reasons, being the Code objectives.

231 As mentioned earlier, the Code imposes various requirements on a person who is a "service provider" in respect of a covered pipeline, including the requirements to establish an access arrangement and to comply with ring fencing obligations. There is a substantial dispute between the parties as to whether AAM is a service provider under the Code.

232 "Service provider" is defined in section 10.8 of the Code to correspond to the definition in the Law. Service provider is defined in section 2 of the Law as:

service provider, in relation to a pipeline or proposed pipeline, means the person who is, or is to be, the owner or operator of the whole or any part of the pipeline or proposed pipeline.

233 It is common ground that the pipelines in the Multinet system are covered pipelines for the purpose of the Code, and that Multinet has a current access arrangement, approved by the ESC.

234 It is also common ground that there may be two service providers under the Code at the same time - one the owner and the other the operator of the same covered pipeline. This possibility arises by virtue of section 10 of the Code, which will be considered shortly. In this case, Multinet is clearly the owner of the pipeline.

235 The first question to be decided is whether AAM is the operator within the meaning of the Code. The ESC argues that AAM is the operator of the pipeline. AAM argues that Multinet is both the owner and the sole operator.

236 If AAM is the operator, it then becomes necessary to consider what obligations the Code imposes on it. AAM argues that so long as either the owner or operator has an access arrangement in place, providing access on fair and reasonable terms to the full suite of services required to be provided, that is all that is required to satisfy the underlying purpose of the Access Law. Therefore, as Multinet has an appropriate access arrangement in place in relation to the full suite of services, AAM says it is not required to comply with the Code.

237 "Operator" and "operate" are not defined terms in the Access Law. Neither word is defined in the GIA 2001, the GPAV, the GSA, or in any other legislation relating to the gas industry in Victoria.[11]

238 The relevant principles to be applied in construing the term "operator" are not disputed. The starting point is to look for the ordinary and natural meaning of the word, as conveyed by the text of the relevant provisions and the context in which it appears. If that ordinary meaning is ambiguous or obscure, or leads to a result that is manifestly absurd or unreasonable, regard may be had to extrinsic material (including the italicised parts of the Code) to assist in the interpretation. In undertaking that process, an interpretation which will best achieve the purpose and objects of the Access Law should be preferred. Regard may also be had to expert evidence, where that evidence can inform the court as to any specialised usage of words or phrases among those versed in the particular field of infrastructure regulation or competition policy.

239 Dictionary definitions are of limited assistance here. The Macquarie Dictionary (4th ed.) defines "operator" as:

someone who conducts some working or industrial establishment, enterprise or system, the operators of a mine.

240 The Penguin English Dictionary (2nd ed.) similarly defines "operator" as:

(b) somebody who owns or runs a business, organisation, etc: a tour operator ...

241 The word "operator" derives its context from where it appears in the Code, namely, in the definition of "service provider" as "the person who is or is to be the owner or operator of the whole or any part of the pipeline or proposed pipeline." The only operative provision in the Code in which "operator" is used is in section 10, the provision dealing with multiple service providers.

242 AAM argues that the reference to "the person" is a deliberate reference to the singular and the reference to "the owner or operator" is a deliberate reference to only one or other of those persons being the service provider.

243 Although "service provider" is said to be "the person" who is the owner or operator of the pipeline, I agree with ESC that singularity is not required. There are various literal, contextual and purposive contraindications, indicating that there can be a plurality of service providers in respect of the same pipeline.

244 Firstly, words in the singular include the plural for the purposes of the Access Law, including the Code.[12]

245 Secondly, there is no contrary intention appearing in either schedule of the Access Law such as might displace the application of that provision. There are other provisions which support plurality. For example, section 9(1) of the Law, in defining an authorised applicant in relation to a pipeline under part 3 as "a service provider of the pipeline", suggests that there may be a plurality of service providers. The Code itself contains the multiple service provider provisions in section 10, which will be discussed shortly. There is no relevant inconsistency between schedule 1 and schedule 2 (the Code) such as to bring section 5 into operation.

246 AAM argues that the concept of a "service provider" should control the meaning of "operator", and it spent a lot of time arguing about what "services" means under the Access Law. But, I agree with the ESC, that to do so reverses the structure of the definition. The definition section defines "service provider" as meaning owner or operator, not the other way around.

247 AAM argues that the key to understanding the meaning of the word "operator" is that the "operator" forms part of the concept of "service provider". It therefore focuses on the definition of "services" under the Code, and argues that it does not provide any such services. Whilst it may be helpful to consider the definition of services, the Code focuses on the question of "owner or operator".

248 "Service" is defined in section 10.8 of the Code as:

Service means a service provided by means of a Covered Pipeline (or when used in section 1 a service provided by means of a Pipeline) including (without limitation):

(a) haulage services (such as firm haulage, interruptible haulage, spot haulage and backhaul);

(b) the right to interconnect with the Covered Pipeline; and

(c) services ancillary to the provisions of such services,

but does not include the production, sale or purchasing of Natural Gas.

249 Haulage services and interconnection rights are only two of the services which may be provided by means of a relevant pipeline. The use of the words "including (without limitation)" confirms that the references to haulage services and interconnection rights are not intended to limit the types of service that might be provided by means of a relevant pipeline. The concept of ancillary services is also a broad one.

250 AAM argues that it does not provide any "services" by means of a pipeline, particularly haulage services or the right to interconnect. It primarily relies upon the fact that it is not a party to any haulage contracts or any agreements under which interconnection rights are conferred. Therefore, it says it cannot have been parliament's intention that it be considered to be a service provider.

251 But such an argument ignores the reference in the definition to the "owner". In particular, it ignores the position of what might be called a "bare" owner of a pipeline, meaning one who owns the pipeline but makes it available to others to operate, and who does not itself contract in relation to haulage and/or interconnection.

252 Even in the absence of a contract with a retailer, the owner is making the infrastructure available for use. That constitutes the provision of a service in both legal and factual terms.

253 The exclusion of bare owners from the definition of service provider cannot have been intended, for several reasons. A bare owner is in a position to limit or control third party access to the pipeline, at the very least in a physical sense. Also, the capital costs element in the calculation of total revenue permitted to be recouped from the pipeline through the tariff-setting process requires a consideration of the position of the asset owner.

254 Such a bare owner would come within the definition of service provider, even though not a party to relevant contracts.

255 By parity of reasoning, an operator who does not contract with retailers is likewise included in the definition of the service provider, if they fit the factual description of the operator.

256 For these reasons, I agree with the ESC that "service" is not limited to the conferral of contractual rights. It encompasses factual/functional services.

257 AAM seeks to draw comfort from section 44B in part IIIA of the TPA, and decisions relating to that provision. Section 44B defines a "provider" in relation to a service as the entity that is the "owner or operator of the facility that is used (or is to be used) to provide the service."

258 In that context, "service" is defined to mean a:

service provided by means of a facility and includes:

(a) the use of an infrastructure facility such as road or railway line;

(b) handling or transporting things such as goods or people;

259 In its determination, dated November 2004, of an access application brought by Fortescue Metals Group Limited, the National Competition Council ("NCC") had to consider whether the Mount Newman railway line was a facility to which part IIIA of the TPA had application. The NCC set out a number of factors which it said were relevant in determining whether a person was "the provider" of a particular service under section 44B.[13] Some of those are uncontentious, for example, the proposition that the mere fact that the owner of the facility engages another party to manage the use of the facility on its behalf does not necessarily mean that the third party is the provider of the service under section 44B. Ultimately, the NCC determined that the terms of any management agreement between the owner of the facility and any other party which operates the facility on the owner's behalf will be relevant in determining which entity is the operator under section 44B.

260 On the facts of that case, the NCC did not accept that the manager of the railway line was in fact a "provider" of the service for the purposes of section 44B. That is because of the extent to which the manager was subject to the direction of the joint venture participants and had no ability independent of the joint venture participants to provide access to the service.

261 In that sense, notwithstanding the breadth of some of its statements of broad principles, the NCC applied a functional "real world" approach and asked itself who provided the relevant service.

262 On appeal to the Federal Court, the parties sought competing declarations in relation to access to the rail infrastructure. The court was not called upon to consider the meaning of "provide" or "provider", the matter in issue before the NCC.[14]

263 After making a number of observations about the general principles of statutory construction to be adopted, Middleton J said that in the context of proceedings involving the application of part IIIA, to adopt an approach which would be contrary to the main concepts referred to in the Hilmer report as adopted by Parliament "would not involve the sympathetic discovery which should take place in ascertaining the meaning to be given to the terms under consideration here."[15] As a matter of general principle, I agree with his Honour's suggested approach. As discussed below, in my opinion the construction proposed by the ESC is more consistent with the concepts referred to in the Hilmer report than the construction advanced by AAM.

264 If "operator" had a particular meaning in the industry, rather than its ordinary dictionary meaning, and if the Code has adopted the industry meaning, then that is something to which I could have regard.

265 The ESC pointed to numerous examples of AAM, an entity carrying on business in the industry, publicly describing itself as the "operator" of the Multinet system.[16] A number of the AAM witnesses also agreed that AAM was the operator.

266 The ESC also sought to rely on the intention of the pre-incorporation promoters of AAM, as expressed in documents created during the series of transactions called the Aquila transaction.[17]

267 Ultimately, it is for the court, not the parties, to determine whether AAM's conduct is sufficient to bring it under the relevant legislation.

268 I have not had the benefit of evidence as to how others in the industry would describe AAM's role. I am not persuaded that the examples given are sufficient to establish a technical industry meaning.

269 The Code clearly envisages the possibility of there being multiple "service providers" in respect of the same pipeline, including where one person is the owner and another the operator of the pipeline.

270 Sections 10.1 and 10.2 of the Code are in the following terms:

10.1(a) This section 10.1 applies if there is more than one Service Provider in connection with a Covered Pipeline, including if:

(i) the Covered Pipeline is owned or operated by two or more persons as a joint venture or partnership; or

(ii) the Covered Pipeline is owned and operated by different persons; or

(iii) a Covered Pipeline is legally owned by a person or persons on trust for others.

In such a case each Service Provider in connection with the Covered Pipeline is referred to in this section 10.1 as a "Participant".

(b) If this Code requires or permits something to be done by the Service Provider, that thing may be done by one of the Participants on behalf of all the Participants. So, for example, a proposed Access Arrangement may be submitted under section 2.2 by one Participant on behalf of all Participants.

(c) If a provision of this Code refers to the Service Provider bearing any costs, the provision applies as if the provision referred to any of the Participants bearing any costs.

(d) If a provision of this Code, other than section 4 [ring fencing], refers to the Service Provider doing something, the provision applies as if the provision referred to one or more of the Participants doing the thing on behalf of all the Participants.

(a) there is more than one Service Provider in connection with a Covered Pipeline;

(b) one is the owner and another is the operator; and

(c) responsibility for complying with the obligations imposed by this Code on the Service Provider is allocated among them by their Access Arrangements or their Access Arrangement,

each Service Provider is responsible for complying with the obligations allocated to it.

271 It is not suggested that sub-sections 10.1(a)(i) or (iii) apply here, as there is no "joint venture" or partnership between AAM and Multinet, and no trust in place pursuant to which Multinet owns the pipeline for the benefit of any other person.

272 The ESC says that the present case falls squarely within sub-section 10.1(a)(ii), with AAM being the operator and Multinet the owner of the pipeline.

273 AAM argues that sub-section (ii) only applies in far more limited circumstances, for example, where the owner has leased part or all of the pipeline capacity to an operator. If an owner leases, say fifty percent of capacity, to a third party but retains its ownership to deal independently with retailers as to the remaining fifty percent and where the market is a contract carriage market, in such a case, the lessee may "operate" the whole of the pipeline, as to fifty percent on its own behalf and as to the other fifty percent on behalf of the owner.

274 AAM referred to the lease that was granted to Multinet Gas by Multinet Assets during the privatisation process, to allow Multinet Gas to operate the distribution network. The ESC does not dispute that the Code would apply to both a lessee and lessor in such a situation (by virtue of section 10.1(a)(ii)). Indeed, as already mentioned, both Multinet Gas and Multinet Assets were in fact parties to the original access arrangement under the Victorian Access Code.

275 However, section 10.1(a)(ii) of the Code is not limited to this type of situation. The words of this section make it clear that it applies in all situations where a covered pipeline is "owned and operated by different persons", regardless of whether a lease is the legal vehicle for that separation of owner and operator. If the drafters of the Code intended to limit section 10.1(a)(ii) to lease arrangements, they could have easily used words to that effect rather than the flexible approach which was adopted in section 10.1(a)(ii).

276 Section 10.1 is permissive. For example, it enables persons to lodge a joint access arrangement or an access arrangement by one "participant" on behalf of all "participants". It does not compel all participants to do so, even where there may be one "owner" and a separate "operator". The word "may" is defined in section 12 of schedule 1 of the Code as a power that "may be exercised or not exercised". As such, section 10.1 does not impose any obligation. The source of the obligations imposed on multiple service providers is to be found elsewhere in the Code, for example in the access arrangement and ring fencing provisions.

277 Section 10.1(d) is also important. There is no difficulty in compliance by one participant constituting compliance by all, for example in the submission of access arrangements under section 2.2. Importantly, section 10.1(d) does not apply to section 4: each participant (i.e. each of the multiple service providers) must ring fence its costs and submit regulatory accounts and comply with the other ring fencing obligations, such as the protection of confidential information and restriction on certain staff being involved in a related business.

278 AAM argues that, in the Victorian context, where the services are provided via market carriage contracts, there is no room for two service providers, both of whom have separate access arrangements in respect of the same pipeline. But this is a misconceived argument, because the ESC does not suggest that AAM and Multinet must have separate access arrangements in respect of the same covered pipeline.

279 Section 10.2 of the Code expressly contemplates that there may be more than one service provider (other than as joint venturers or partners), in relation to the same covered pipeline. In a case where one service provider is the owner and the other the operator, each "service provider" is responsible for complying with the obligations allocated to it pursuant to an access arrangement. This demonstrates that one participant may have the legal right to grant access, but the other will still be a service provider, because, typically, only one of the owner and the operator will have the formal legal right to grant access. It would be most unlikely that this provision would have been intended to be read down so as to apply only to cases where there was a joint legal right to grant permission of use.

280 AAM's submissions focus on the access arrangement provisions and, in particular, the various requirements for the setting of reference tariffs. For example, the services policy of the service provider must include a description of one or more services that the service provider will make available to users or prospective users and the terms and conditions on which the service provider will supply its reference services. Similarly, an access arrangement must include reference tariffs for at least one service that is likely to be sought by a significant part of the market.

281 AAM argues that if a person is not in a position to supply a reference service to others and to specify the "terms and conditions" on which such person will supply each reference service, then such person is not an "operator". Similarly, if the person is not able or in a position to comply with the other content requirements or access arrangements, included in the balance of sections 3.7 to 3.20, that person is not an "operator" for the purposes of the Code, no matter how that word might otherwise be understood. AAM then went through in some detail all the requirements of an access arrangement with which it would be unable to comply on its own.

282 It is in fact common ground that AAM could not submit its own free-standing access arrangement in respect of the Multinet pipeline, by which AAM alone undertook to discharge each of the full suite of obligations binding upon a "service provider" under the Code and to provide the full suite of services including the grant of legal use of the distribution system.

283 In circumstances where AAM does not own or invest capital in the relevant pipelines, or contract as principal with transmission companies or users, AAM has characterised the ESC's case as asking the impossible. But, the case portrayed by AAM is not the case advanced by the ESC. The ESC contends that AAM could be accommodated as a participant in Multinet's access arrangement. There is no need under the Code for an operator which is not an owner to submit its own, free-standing, access arrangement (any more than the opposite would apply to a bare owner). Thus none of the points made by AAM in relation to the inability of AAM to do various things required by the Code is determinative.

284 The question is not whether AAM on its own has the ability to do everything required by the Code, it is rather whether AAM is the operator within the meaning of the Code and the Law. AAM's invitation to use its premise (that any service provider under the Code must alone be able to perform all obligations set out in the Code) to determine the meaning of "operator" and "service provider" is a priori reasoning and wrong.

285 I accept that there are many access arrangement requirements with which AAM could not comply on its own. But it is not required to submit its own access arrangement in respect of the Multinet system. Section 10 allows a joint access arrangement to be submitted where the owner and operator are different people.

286 Pursuant to section 4.1 of the Code, a service provider must establish arrangements to segregate or "ring fence" its business of providing services using a covered pipeline from other non-regulated aspects of its business. The ring fencing obligations are set out in more detail earlier in these reasons.

287 AAM disputes the ESC's assertion that the ring fencing provisions are of critical importance to an understanding of the Code. AAM argues that the ring fencing obligations are simply "a consequence of a person being a party to an access arrangement" and do not provide a rationale or basis for requiring a person to be a party to an access arrangement.

288 I agree with the ESC that the Code is not directed only to the grant of formal access, but extends to requiring the ring fencing of the business function of providing the services connected with use of the pipeline. The policy of the Code includes capturing the costs of operation (in order to facilitate determination of appropriate access arrangements) and allowing for the imposition of flexible ring fencing requirements by a relevant regulator.

289 On a proper construction of the Code, the ring fencing obligations are clearly separate from the access arrangement provisions. The ring fencing obligations are a consequence of a person being a service provider, not (as AAM suggests) a consequence of a person being a party to an access arrangement.

290 The provisions of sections 4.3 and 4.4, in particular, demonstrate a legislative intention to regulate an operator who may favour its "associates" in operational matters, irrespective of whether access to other users has been granted or denied.

291 Section 4.3 permits the regulator to require a service provider to comply with additional obligations to ensure that the service provider does not have regard to the interests of an associate in priority to other users "with respect to the supply of Services". The words "with respect to" are of the widest import, and do not require a contract between the service provider and the users.

292 Section 4.4 makes it clear that the ring fencing obligations are directed to the separation of the business functions of a service provider from its associates.

293 In the distribution context, the clear policy of the section is directed to segregation of the actual operations constituting the business function with respect to distribution. It is AAM which conducts those operations.

294 The fact that the ESC may be able to obtain accounting information from AAM or other persons through the service of notices under section 41 of the Law is not a reason for reading down the ring fencing requirements (of which the provision of financial information to the regulator is only one part).

295 The Code contemplates that an operator may be a service provider separately from an owner. A construction which requires the operator to comply with section 4 advances the purposes of the Code and complies with its intendment. The ring fencing provisions are not directed to the power to grant the right of access, but to the isolation of business operations and information concerning the covered pipeline. There is no basis in policy for reading "service provider" in such as way as to limit the operation of section 4 (and the entire Code) to the person who is the contracting party to access contracts.

296 The ring fencing arrangements in section 4 apply to a "service provider", but compliance with them is not a pre-requisite to a valid access arrangement. Nor is it, unlike section 8 of the Code, a matter with which compliance is needed for approval of an access arrangement.

297 Clause 10.1 (d) of the Code requires that, where there are multiple service providers in relation to the one pipeline, although one participant may comply with the Code on behalf of all participants, each participant must separately comply with the ring fencing obligations in section 4.

Access arrangements and efficiency carryovers

298 The tariff setting process under the Code provides service providers with a market-based incentive to improve efficiency and to promote efficient growth of the gas market.

299 A reference tariff policy and reference tariff must be designed to achieve a number of objectives, including providing the service provider with the opportunity to earn a stream of revenue that recovers the costs of delivering the reference service over the expected life of the assets used in delivering that service, to replicate the outcome of a competitive market, and to be efficient in level and structure (section 8.1).

300 A reference tariff must also be designed to provide the service provider with the ability to earn greater (or lesser) profits than anticipated between reviews, if it out-performs (or under-performs against) the benchmarks that were adopted in setting the reference tariff. Such an incentive mechanism must be designed with a view to achieving the following objectives, set out in section 8.46:

(a) to provide the Service Provider with an incentive to increase the volume of sales of all Services, but to avoid providing an artificial incentive to favour the sale of Service over another;

(b) to provide the Service Provider with an incentive to minimise the overall costs attributable to providing those Services, consistent with the safe and reliable provision of such Services;

(c) to provide the Service Provider with an incentive to develop new Services in response to the needs of the market for Services;

(d) to provide the Service Provider with an incentive to undertake only prudent New Facilities Investment and to incur only prudent Non Capital Costs, and for this incentive to be taken into account when determining the prudence of New Facilities Investment and Non Capital Costs for the purposes of sections 8.16 and 8.37; and

(e) to ensure that Users and Prospective Users gain from increased efficiency, innovation and volume of sales (but not necessarily in the Access Arrangement Period during which such increased efficiency, innovation or volume of sales occur).

301 During the term of the OSA which coincides with the 2003 to 2007 regulatory period, Multinet has in fact significantly bettered the benchmarks set by the ESC in setting the relevant tariff.

302 The ESC has already indicated how it will apply an efficiency carryover mechanism in access arrangements for the purposes of the current gas access arrangement review for 2008 to 2012.

303 The efficiency carryover mechanism will apply to each service provider who is party to an access arrangement. AAM says that if the ESC case is correct, and both Multinet and AAM are required to submit access arrangements, then both Multinet and AAM would be entitled to the benefit of any efficiencies which it achieves against the benchmarks set by the ESC. AAM says that a dual requirement for access arrangements would, in such a case, increase rather than decrease the rewards to "participants", with the consequence of greater costs to the consumer.

304 This argument is entirely misconceived. It is a variant of the argument by which AAM has sought to depict the ESC's case as being that AAM must have a free-standing access arrangement with a free-standing set of tariffs. The ESC does not contend that there would be a separate access arrangement or tariff basket. There would be one tariff policy, one set of tariffs and one stream of revenue: thus, one efficiency carryover. AAM would not have its own efficiency carryover, any more than it would have its own duplicated network of pipes and other apparatus. Consideration of AAM's costs of operating the network in the course of tariff-setting would result in any efficiency gains being fairly allocated rather than being, effectively, simply retained by AAM, as currently occurs.

305 Even if it is the operator, AAM argues in the alternative that it is not required to comply with the Code because it argues that the Code only requires compliance by either the owner or the operator.

306 AAM says that the preamble to both the Law and the Code, provide support for the proposition that either owner or operator, as service provider, and not both, must submit an access arrangement. AAM points to a number of references in extrinsic materials to the purpose of competition policy reform being to enable third parties to gain access to essential facilities. From that, AAM argues that so long as either the owner or operator is providing access to third parties, if the two are not one and the same, there is no reason for both to be parties to an access arrangement.

307 Accordingly, as Multinet has an access arrangement in place providing for access to the Multinet system, AAM argues that there is no need nor any basis in the legislation to require AAM to also have an access arrangement in place in respect of the Multinet system. That is so even if, contrary to AAM's primary case, AAM is held to be the "operator". The purpose or object is to have an access arrangement in place for the full suite of services provided by means of the distribution pipeline. The orderly attainment of that objective is achieved in this case by there being one service provider with one access arrangement in place.

308 In Victoria, each of the distributors has an approved access arrangement in place covering the period 2003 to 31 December 2007. The ESC is currently conducting the 2008 to 2013 gas access arrangement review. AAM seeks to draw comfort from the fact that the ESC's two discussion papers for the current review demonstrate that the ESC and the parties involved in the current review are presently proceeding on the premise there will be one access arrangement per gas distribution system. But the mere fact that the parties may be proceeding on that basis does not establish what the proper construction of the Code is.

309 AAM's alternative argument overlooks the fact that access arrangements are only one of the obligations imposed on a service provider under the Code. The ring fencing requirements are another critical one. Whilst an owner and an operator may be able to comply with the Code by submitting a joint access arrangement, their ring fencing obligations must be complied with separately. The Code is not to be read as if it only has to be complied with by either the owner or the operator.

Why the ESC says that the legislation applies to AAM

310 Before turning to consider the evidence as to what AAM actually does, it is desirable to consider just how the ESC pleads its case that AAM falls within the relevant GIA 2001 and Code provisions.

311 Although AAM is the plaintiff, it has brought this proceeding largely as a defensive measure, given the ESC's assertions in correspondence between the parties. This means that most of the important factual allegations are to be found in the ESC's amended defence and counterclaim dated 24 November 2006 ("the defence"), AAM's further amended reply and defence to counterclaim dated 28 November 2006 ("the AAM reply"), and the ESC's further amended reply to further amended defence to counterclaim ("the ESC reply").

312 In general terms, the ESC relies upon both the terms of the OSA and AAM's performance under it.

313 The ESC pleads in detail certain terms of the OSA. Although, in the AAM reply, AAM did not admit the relevant paragraph, in fact there was no real dispute at trial that the OSA contains the extensive provisions pleaded by the ESC. These contractual provisions will be considered shortly.

314 After the execution of the OSA amending agreement on 20 October 2006, amendments were made to the pleadings to reflect that fact. There is no dispute that the OSA amending agreement deleted the existing power of attorney provision in clause 32 of the OSA and substituted a new clause 32. There is a dispute as to the nature and effect of those amendments, which will be considered shortly.

315 The defence goes on to plead that at all material times, alternatively, all material times prior to 20 October 2006:

(a) The parties have performed and, where applicable, have continued to perform specified obligations under the OSA; and

(b) AAM, in undertaking the activities contemplated by, and exercising the rights and performing those obligations, has undertaken the activities constituting the Services, as specified in schedule 1 to the OSA.

316 In response to those allegations, the AAM reply pleads a number of contracts between Multinet and third parties, in relation to the maintenance and operation of the Multinet system. It alleges that those contracts have not been assigned or novated to AAM, and therefore those functions are being performed by persons other than AAM.

317 In the ESC reply, the ESC alleges in respect of those third party contracts one or more of a number of things: that the contract was not required to be novated or assigned to AAM; that Multinet holds the contract on trust for AAM; that the third parties have dealt with AAM, not Multinet, in relation to the contract, and/or that the contract is no longer being performed. These allegations will be considered when I deal with the relevant contracts.

318 In its defence, the ESC relies on the performance by AAM of a number of other functions, including:

(a) Facilitation of the haulage of gas for users of the Multinet system by 24 hour control and management of the Multinet system, its technical operation and control of its operation, control of access to its assets and responding to faults and incidents;

(b) Negotiating and entering into haulage agreements, called UoSAs, with retailers, including (prior to 20 October 2006) executing such agreements pursuant to the power of attorney in clause 32 of the OSA;

(c) Managing new connections, disconnections, reconnections, relocation and transfer processes, including granting permission for, and undertaking connection and disconnection of premises from the Multinet system at the request of retail customers; and

(d) Activities incidental to the transportation of gas and connection to the Multinet system, such as undertaking or causing to be undertaken the following:

(i) operating and maintaining the billing system for the Multinet system, including rendering bills to users, receiving payment and accounting to Multinet in relation to revenues received;

(ii) meter reading and the provision of meter reading data to users of the system;

(iii) provision of information and data in relation to the operation of the system to users and other parties; and

(iv) managing claims from customers in relation to loss or damage and making payments to customers, within the meaning of that term in the Multinet licence, because of a failure to meet a guaranteed service level.

319 By reason of all of those matters, the ESC pleads that AAM:

(a) Does, and did at all material times (alternatively, at all material times prior to 20 October 2006), provide services:

by means of a distribution pipeline, namely the Multinet system; and

(b) Is therefore required to be the holder of a licence under the GIA 2001.

320 By reason of those same matters, the ESC pleads that AAM:

(a) Is, and has been at all material times (alternatively was at all material times prior to 20 October 2006), an operator of a covered pipeline, namely the Multinet system; and

(b) As such, is and has been at all material times (alternatively was at all material times prior to 20 October 2006), required to comply with the Code as a service provider, within the meaning of the Access Law.

321 Although AAM did not, in its pleadings, admit that it performed many of the functions referred to above, during the course of the trial it became apparent that it did not seriously dispute those matters. Rather, it sought to argue that whatever functions it carried out were carried out under the control of Multinet, via various contractual mechanisms, and in any event were not such as to bring it under the relevant legislation. For that reason, I have in many of the following parts of my reasons simply recited relevant factual conclusions put forward by the ESC, which were not disputed by AAM, rather than referring to the underlying evidence.

322 It is important to note that this case is about what AAM does, and whether its conduct brings it within the GIA 2001 or the Code. It is not about what Multinet does or does not do, or to what extent Multinet's activities are affected by the relevant legislation; that is the principal reason why, shortly prior to the commencement of the trial, I refused an application by Multinet to be joined as a party to this proceeding.[18] In particular, I am not asked to determine whether Multinet has, in handing over operational control of the Multinet system, breached its own licence or rendered itself unable to meet its responsibilities under the Distribution Code.

323 AAM was incorporated on 28 April 2003. On 31 March 2006, it changed its name from Alinta Network Services Pty Ltd ("ANS") to AAM. For convenience, I will refer to it as AAM, even in respect of the period when it was called ANS.

324 AAM provides a variety of management, operation, construction and regulated services to owners of infrastructure and assets, including Multinet, in both regulated and unregulated services.

325 On 14 July 2003, Multinet Group Holdings Pty Ltd ("MGH"), AAM and its ultimate parent company, Alinta Limited ("Alinta"), signed a provision of labour services agreement. Under this agreement, MGH agreed to provide AAM with labour services during what was described as the "Transitional Services Period". The "labour" which MGH was in a position to provide, via Multinet, comprised the ex-Multinet Gas and/or Multinet Assets white collar workforce of approximately 70 staff.

326 AAM has a large number of employees, not all of whom are employed to carry out functions pursuant to the OSA. At the commencement of these proceedings, AAM had over 340 employees at 10 offices around Australia. As at October 2006, the equivalent of approximately 60 full-time employees were engaged by AAM in relation to the Multinet system. These numbers have both increased substantially since late 2006, although it is not possible on the evidence (or necessary) to provide the precise numbers of current employees.

327 AAM also utilises Alinta staff in relation to the Multinet system. Alinta charges AAM for those persons, but such costs are not revealed to Multinet.

328 The OSA was entered into in July 2003 and was amended in October 2006. The initial term of the OSA is until 30 June 2008, with provision for subsequent renewal periods of five years.

329 By the OSA, Multinet appointed AAM exclusively to operate, construct and manage, or procure the operation, construction and management of, the Multinet system. AAM accepted the appointment and agreed to perform (including by causing them to be performed, under AAM's management or control) "the Services" specified in schedule 1 of the OSA. Pursuant to clause 3(b), Multinet agreed to deliver up operating control of the Multinet system to or at the direction of AAM. These are very extensive powers which are given to AAM.

330 The services provided by AAM under the OSA are set out in schedule 1 to the OSA and may be broadly classified into 6 main categories, as follows:

(a) Regulatory services: including proposing distribution and network tariffs; drafting submissions to the ESC in relation to the access arrangements and other Code requirements; making recommendations to Multinet for the setting of additional charges; and providing reports to the ESC as required;

(b) Network management: including managing the business, the network and associated assets; and network planning engineering and market development services;

(c) Construction management: including network expansion and replacement of minor and major capital works;

(d) Network customer services: including retailer management; tariff management; billing; and access systems and policies;

(e) Network planning and engineering services: including network design and planning; and network asset data management and network engineering support; and

(f) Network operation, incident management and supervisory control.

331 As will be discussed later in these reasons, it is clear on the evidence that AAM has provided, and still provides, all of those services. This effectively involves the handover from Multinet to AAM of all functions which are required to be performed in order to operate the Multinet system.

332 Clause 2 of schedule 1 of the OSA specifies those services which AAM is excluded from providing, namely:

(a) Approval of final submissions to the ESC in relation to the access arrangement, revisions to the access arrangement and other requirements under the Code;

(b) Regulatory strategy, including strategy for network pricing and tariff reassignment;

(c) Determining reference tariffs and submissions to the ESC in relation to revisions to the access arrangement and other requirements under the Code;

(d) Claims by customers or third parties as at the date of entering into the OSA;

(e) General management and operation of Multinet, including the board of Multinet; and

333 Whilst no doubt important to Multinet, none of these excluded functions is concerned with the day-to-day operation of the Multinet system.

334 Clause 4 of the OSA made provision for what was to happen in respect of Multinet's various services contracts and sub-contractors as at the commencement date of the OSA ("existing services contracts"). The existing services contracts listed in schedule 6 were the two gas field operations contracts (both of which will be discussed later), and two other contracts which are not relevant to this proceeding.

335 Where no consent was required for the assignment or novation of an existing services contract, Multinet assigned to AAM the rights and benefits under each such contract with effect from the commencement date. If the consent of a person was needed for the assignment or novation, Multinet and AAM agreed to use reasonable endeavours to obtain any necessary consent. Pending receipt of consent from the third party, Multinet agreed, to the extent permitted under the existing services contract, to hold the benefit of the contract on trust for AAM, and AAM agreed to indemnify Multinet in respect of the performance, or breach, of that contract. Clause 4.4 contains detailed provisions which apply if a person whose consent is needed either refused or did not give its consent before the commencement date.

336 There is a dispute as to the current status of the gas field operations contracts, which is discussed later in these reasons.

337 Notwithstanding the breadth of the functions conferred on AAM under the OSA, AAM argues that Multinet retains effective control over all aspects of AAM's functions via the contractual mechanisms of key performance indicators ("KPIs") and reporting requirements imposed upon AAM.

338 There are only eight KPIs in the OSA (schedule 5). Three of them relate to occupational health and safety issues. The others relate to matters such as telephone response times, interruptions to customer services, unaccounted for gas and environmental performance. If AAM fails to meet any KPI over three consecutive months, then it is obliged to provide to Multinet a cure plan and to implement that cure plan within "a reasonable period of time" (clause 6.4). There is no financial penalty for failure to meet the KPIs. The only remedy available to Multinet, in the event that AAM does not meet its KPIs and implement any subsequent cure plan, is to go through the procedure of giving a written notice of default and, if the default is not cured through a further cure period procedure, exercising its right to terminate the OSA (clause 14). This is a very protracted process and an option of last resort.

339 The evidence also discloses that there were what was described as operating KPIs, which form part of the monthly reporting to Multinet. They have no contractual status.

340 The KPI provisions certainly do not empower Multinet to interfere with or control, on a regular basis, operational matters. The OSA certainly does not envisage that Multinet could quickly regain control of the Multinet system for breaches of the KPIs.

341 AAM has various reporting obligations under the OSA. It must develop and update annually an asset management plan and a capital expenditure budget for Multinet. It must provide to Multinet the regulatory reports required to be submitted to each of the ESC, OGS, EPA and the ACCC, in the format required by those regulators, at least 5 business days before providing the report to the regulator, and it must also provide a number of other operational, financial and other reports.

342 Until 20 October 2006, clause 32 of the OSA contained the following power of attorney clause:

Multinet irrevocably appoints [AAM] and each Authorised Representative of [AAM] severally as its attorney to:

(c) do anything which is necessary or desirable to deliver the Services.

Each Attorney may appoint and remove substitutes, and may delegate its powers (including this power of delegation) and revoke any delegation. The attorney's scope of authority extends only to doing things contemplated by this document, and before incurring any liability on behalf of Multinet (other than liability in the ordinary course) must obtain Multinet's prior approval.

(a) An attorney may do anything contemplated by this clause in its name, in the name of Multinet or in the name of both of them.

(b) Multinet must ratify anything done by an attorney in accordance with this clause.

(c) Multinet gives the power of attorney in this clause:

(i) to secure performance by [AAM] of its obligations to Multinet under this document; and

(ii) for valuable consideration, receipt of which is acknowledged by Multinet.

343 Clause 3(c) of the OSA amending agreement substituted the following in place of clause 32 of the OSA:

(a) For administrative convenience only, the parties acknowledge and agree that AAM is authorised to enter into such agreements, contracts, arrangements or understandings, for and on behalf of Multinet, as may be necessary or desirable to deliver the Services which the board of Multinet nominates from time to time either:

other than any [UoSA] ... or any connection agreement with a transmission or distribution company on behalf of Multinet.

(b) AAM is not authorised to enter into any agreement, contract, arrangement or understanding for and on behalf of Multinet save and except for the agreements, contracts, arrangements and undertakings which are authorised by Multinet pursuant to sub-paragraph (a) above.

(c) Except as expressly provided in this clause, nothing contained or implied in this document is to:

(i) constitute or be deemed to constitute AAM as agent or legal representative of Multinet for any purpose whatsoever; or

(ii) create or be deemed to create any agency between AAM and Multinet.

(d) The parties acknowledge and agree that in the performance of the Services, AAM:

(i) is and shall be an independent contractor and shall not hold itself out as an agent of Multinet;

(ii) is not acting as an agent, or partner of Multinet;

(iii) has sole authority and responsibility to employ, discharge and otherwise control its employees.

344 The significance of this clause, and the circumstances in which it has been used, will be considered later.

345 In order to downplay the importance of the OSA, AAM places some significance on the fact that sub-contracting has long been a feature of the gas industry. In particular, it places heavy reliance on the fact that, in the days prior to privatisation, maintenance services in respect of the Multinet system were provided to Multinet Gas under a contract with Fluor Daniel Gas Services Pty Ltd and Fluor Daniel Power & Maintenance Services Pty Ltd ("Fluor Daniel"), dated 23 December 1997.

346 It is not disputed that sub-contracting has been and remains a feature of the gas industry. But what matters in each case is obviously the extent of the sub-contracting. The situation under those earlier contracts is not comparable to AAM's operation of the Multinet system under the OSA. In terms of contractual rights and obligations, the Fluor Daniel agreement is comparable to the gas field operations contracts and BBS alliance agreements, which are discussed below, not to the OSA.[19]

347 In the context of current sub-contracting, there is no dispute that Multinet carries on its entire business through contractors providing services to it. In particular, Multinet has current out-sourcing contracts with Pacific Indian Energy Services Pty Ltd ("PIES") and AMP Henderson and Global Investors Ltd ("AMP"). There is no evidence before the court that Multinet actually has any employees of its own.

348 Multinet's internal management services are and have, since July 2003, been provided by PIES, under an agreement between MGH and PIES dated 14 July 2003 ("the PIES agreement").

349 PIES currently provides the following personnel,[20] who perform key management functions for Multinet:

(a) Hugh Gleeson, previously an employee of United Energy, who is the CEO of both Multinet and PIES;

(c) Shaun Glasson, previously an employee of United Energy, who is the Business and Technical Analysis Manager of Multinet.

350 Under the PIES agreement, the management services of Messrs Gleeson, Strang and Glasson are also provided by PIES to United Energy, in relation to the United Energy electricity distribution network, and to Alinta Network Holdings Pty Ltd ("ANH") in relation to the Alinta gas network in Western Australia.

351 Since 20 July 2004, the principal place of business of PIES has been either at an Alinta address or "c/- Alinta".

352 The PIES agreement does not place responsibility for the operation of the Multinet distribution system upon the contracted management of the MGH group. Instead, the description of the services provided to the MGH group by the PIES personnel include, with respect to operational issues, no more than participating where appropriate in meetings with AAM "on strategic and major operational issues impacting the Company or any Group Members to ensure shareholder interests are effectively addressed and any potential conflicts of interest resolved".

353 Pursuant to a financial services agreement dated 14 July 2003 ("the AMP agreement"), AMP is the exclusive provider of specified financial services to MGH, Multinet and other companies in the Multinet group.

354 The contracted services provided to Multinet include treasury functions such as management of cash flow and investment funds. When capital expenditure is required, AMP advises as to whether such expenditure should be funded by debt or working capital and from which account or facilities. By the AMP agreement, AMP was also given the exclusive right to advise MGH and other Multinet group members on certain debt re-financing. Schedule 1 contemplates that additional services might be provided by AMP in addition to the treasury functions, including internal audit/risk management, accounting/financial control and secretarial/corporate governance.

355 Schedule 1 of the PIES agreement specifies that management of the AMP agreement for Multinet is to be performed by PIES personnel.

356 Administrative support in relation to these treasury functions is provided to Multinet by AAM as part of the services which AAM provides to Multinet pursuant to the OSA.

357 The AMP agreement places no obligations on AMP in relation to the operation of the Multinet system.

358 Until recently, the Multinet system was divided into two areas for the purposes of the day-to-day operation of the network, being the Moorabbin and Burwood areas. Multinet entered into two separate gas field operations contracts for the maintenance, construction, repair and customer supply of the network in those areas. Those contracts are both dated 1 May 2002, although there have been numerous amendment agreements.

359 The Moorabbin contract was entered into between Multinet and Abigroup Asset Services Pty Ltd. In November 2005, Abigroup changed its name to Bilfinger Berger Services (Australia) Pty Ltd ("BBS").

360 The Burwood contract was entered into between Multinet and National Power Services (Western Australia) Pty Ltd ("NPS (WA)").

361 The Burwood and Moorabbin contracts are both "existing services contracts" for the purpose of clause 4 of the OSA.

362 Since about December 2003, in addition to performing the Burwood contract, NPS (WA) has provided other services in relation to the Multinet system, pursuant to project-specific contracts between it and AAM.

363 The service level agreements to the Moorabbin and Burwood contracts set out the services that were provided pursuant to the agreements.

364 Until 23 July 2003, NPS (WA) was a 50% subsidiary of National Power Services Pty Ltd ("NPS") and a 50% subsidiary of Alinta. Then NPS (WA) became a 100% subsidiary of Alinta.

365 It seems that, since late 2003, the operations of NPS (WA) and NPS have effectively been combined in relation to the Multinet system, although it is not clear on precisely what contractual or legal basis this has occurred. In addition to the employees of NPS (WA) moving across to NPS, it seems that NPS took up the responsibility of performing any contracts to which NPS (WA) was party, and received payment for performing such contracts.

366 Whatever the precise arrangements between NPS (WA) and NPS may have been, it is clear that, since November 2004, NPS, and not NPS (WA), has entered into all variation agreements in relation to the Burwood contract.

367 In and from late 2005, pursuant to what was variously called the "Gas East Alliance" or "Project Harmony", NPS further combined planning elements of its operations in relation to the Multinet system with AAM. The stated purpose was the creation of a new business model and organisation structure for AAM and NPS, as well as the implementation of an alliance arrangement between NPS and AAM.

368 In early 2006, the operations of AAM and NPS were combined or merged. The arrangement was formally announced on 17 January 2006.

369 On 31 March 2006, NPS changed its name to Alinta Asset Management (2) Pty Ltd ("AAM(2)"). This was also the day on which ANS changed its name to AAM. The managers of AAM(2) moved to AAM at that time, and the "blue collar" workforce remained with AAM(2), at least initially, possibly due to the industrial relation considerations. However, the workforce of AAM(2) was under the management of AAM from that date.

370 From an accounting point of view, invoices were issued at all material times from July 2003 to late 2006 in the name of NPS (WA) to AAM, payable by AAM not Multinet.

371 The evidence, such as there is, suggests that from the NPS side of the contract, NPS regarded itself as providing services to AAM, not Multinet, under the Burwood contract.

Current status of the gas field operations contracts

372 As described earlier, clause 4 of the OSA required the assignment or novation of existing services contracts.

373 Under clause 20 of the Burwood and Moorabbin contracts, Multinet was entitled to assign its rights and obligations without the consent of the other party, provided that the assignee covenanted with the other party to be bound by the terms and conditions of the contract.

374 It is common ground that neither the Moorabbin nor Burwood contracts was novated or assigned by Multinet to AAM.

375 The combined effect of the OSA and the relevant assignment clauses is that AAM is entitled to complete the legal assignment of the contracts simply by providing appropriate covenants to the other contacting parties.

376 There is some evidence to suggest that the contracts were not novated due to commercial and regulatory reasons (including a perceived advantage in keeping costs in Multinet to obtain a better price review outcome, and financial benefits for both AAM and Multinet), rather than because Multinet was intended to retain any direction or control over BBS or AAM(2).

377 Whatever the reason may have been for the lack of novation or assignment, I am satisfied that at all material times between 23 July 2003 to 31 December 2006, all operations under the Burwood and Moorabbin contracts have been under AAM's control, direction and management. In particular:

(a) AAM dealt directly with BBS and AAM(2) employees on a day-to-day basis on a range of issues including: payments to be made to those parties for services; connection and disconnections; installations; customer complaints; and supply problems and maintenance issues;

(b) BBS and AAM(2) were required to report to Multinet daily, weekly and monthly in accordance with the contracts. However, these reports were actually provided by BBS and AAM(2) to AAM and not Multinet; and

(c) Invoicing practices support this conclusion.[21]

378 From about late 2004 or early 2005, badging and ID cards for the relevant personnel changed from Multinet to Alinta, and when BBS personnel were on gas field operations work on the Multinet system, their ID cards read "Contractor to Alinta". Statutory obligations under section 154 of the GIA 2001 require a licensed gas company to issue ID cards to personnel including contractors engaged on such operations, and so it is of some significance that the ID cards bore the Alinta name and not Multinet's.

379 Since July 2004, AAM has varied the Burwood and Moorabbin contracts pursuant to the power of attorney in the OSA. There is no evidence that the variations to the contracts after July 2003 were referred to Multinet itself.

380 AAM argues that the performance of the maintenance contracts has been monitored by Multinet by way of its insistence that AAM, as well as BBS and NPS, meet performance criteria in all the relevant service contracts. It says that this fact, and the mechanics of achieving it, demonstrates that Multinet retains control over all service providers. But, even if it has the contractual power to do so, there is no evidence that Multinet has in fact monitored the performance of the maintenance contracts since the OSA.

381 Certainly the governing commercial principle as between AAM and Multinet seems to have been that, commercially and economically, AAM would bear the risks on existing services contracts.

382 Even though they have not been formally terminated, since 1 January 2007, the Burwood and Moorabbin contracts have not been performed by any of the parties. Although the parties remain legally bound by the contracts, it is clear that for all practical intents and purposes they have been superseded by the BBS alliance agreement, which is discussed below.

383 On 9 May 2006, AAM and BBS entered into a memorandum of understanding containing the framework for the parties to negotiate, in good faith, an alliance agreement. The scope of the foreshadowed alliance agreement was to include the work of the Moorabbin and Burwood contracts.

384 In August 2006, BBS and AAM entered into an agreement entitled "Operational, Maintenance, Construction and Support Services Alliance Agreement" by which BBS agreed that it would, in alliance with AAM, provide operational maintenance, construction and support works and services as set out in the agreement for a term of five years ("BBS alliance agreement").

385 The BBS alliance agreement was subject to several conditions precedent, including condition 1.6(c), which required agreement on the percentage figures applicable to each participant necessary to calculate "corporate overhead" and "normal profit" for the first year of the term. Those figures would be a necessary element in the pricing mechanism of the agreement.

386 There was some confusion between witnesses as to whether or not all of these conditions precedent had been satisfied.

387 For example, paragraph 19 of the witness statement of Mr Steen, the Nomad Project Manager for BBS, dated 27 March 2007, said that all conditions precedent had been fulfilled, and the BBS alliance agreement had come into effect on 1 January 2007. However, in the witness box, he said that, upon recently returning from 6 weeks' leave, he had become aware that condition 1.6(c) had not been satisfied and would not be satisfied until after the accounts had been audited.

388 Instead, in December 2006, the parties agreed to an interim remuneration arrangement until the "corporate overhead" and "normal profit" figures were finalised and agreed.

389 Mr Craig Bergin, Gas Distribution Manager - South for AAM, confirmed that the result of the audit would determine the corporate overhead and normal profit figures. He said that there was nothing further that was required to be done by the parties in order to reach agreement on pricing.

390 The ESC argues that the BBS alliance agreement, including condition precedent 1.6(c) as varied by the interim arrangement of the parties referring the corporate overhead and normal profit figures to an external audit, is now binding on BBS and AAM.

391 AAM argues that the margins are subject to an audit, which is not complete. The evidence, such as there is, is to the effect that if the audit is unsatisfactory to AAM, it will "probably" re-enter negotiation with BBS and if the alliance does not work, then BBS would revert back to the "old contract".

392 In fact, it is clear that payments are now being made under the BBS alliance agreement, as varied by the interim arrangements, and not under the Moorabbin or Burwood contracts.

393 Whatever the strict contractual position may be, I find that since 1 January 2007, BBS and AAM have in fact been undertaking all of the works previously the subject of the Burwood and Moorabbin contracts, and receiving payment for those works.

394 From all these matters, it seems that AAM and BBS have treated the Moorabbin contract as theirs to dispose of, and that AAM has also treated the Burwood contract as its to dispose of. The treatment by AAM and BBS of the Moorabbin contract as their own contract is consistent with the evidence that BBS and AAM treated BBS as AAM's sub-contractor (not Multinet's), during the period before the BBS alliance agreement.

395 AAM has discharged some of its obligations under the OSA using its own staff and others through the use of sub-contractors. Examples of areas in which AAM has utilised sub-contractors include:

(a) Supply, testing and delivery of new domestic gas meters;

(f) Construction of high pressure polyethylene gas mains; and

396 Sub-contractors and other third parties who contribute to the functions of the Multinet system do so under AAM's management and/or control, as envisaged by the OSA.

397 On 14 April 2004, AAM entered into a two year agreement with AMRS (Aust) Pty Ltd ("AMRS") for the provision of meter reading services ("the AMRS agreement"). This work had previously been outsourced by AAM to AGL Utility Services Pty Ltd. The AMRS agreement was extended and was due to expire on 15 June 2007.

398 AMRS has extensive obligations to report to AAM under the AMRS agreement, by way of monthly reports as well as specific incident reports.

399 If AMRS fails to perform the meter reading services in accordance with the AMRS agreement, such as a failure to satisfy a guaranteed service level, then AMRS is required to reimburse AAM.

400 AMRS renders invoices to AAM for all services provided. AMRS does not render any invoices to Multinet. AAM pays all such invoices.

401 AMRS has daily interactions with AAM in relation to ad hoc issues that may arise under the AMRS agreement.

402 On 19 March 2004, AAM entered into an agreement with United Customer Management Solutions Pty Ltd ("UCMS") to provide back office services such as the establishment of a service desk and the provision of customer support, data management and distribution billing services ("the UCMS agreement"). The UCMS agreement will expire in December 2007.

403 Ms Hanna, the Client Relationship Manager for UCMS, described the UCMS agreement as being a "partnership in style", and that UCMS staff really see themselves as "an extension of" AAM in the four areas of work that they do. Ms Hanna also stated that the key people she deals with in relation to the UCMS agreement are both AAM employees, and confirmed that she does not deal with anyone at Multinet, either directly or indirectly.

405 The Multinet safety case states that incidents are generally reported via the UCMS Call Centre facility in South Melbourne to Alinta's dispatch, and then referred directly to Alinta's (not Multinet's) gas field operations contractors.

406 Interestingly, and unlike the OSA, the UCMS agreement provides an example of a contract in which the contracting party retains genuine control over the sub-contractor. In addition to reporting obligations and contractual service levels, the powers which AAM has to direct and monitor UCMS in relation to the performance of the UCMS agreement include:

(a) The right to remove proposed personnel, including key personnel, to be provided by UCMS, or to require the removal of personnel who are performing any of the Services; and

407 Since July 2003, AAM has been a party to at least 54 project-related contracts in relation to the Multinet system.[22]

408 It is AAM, and not Multinet, which directs and controls the performance of these contracts. Some of AAM's contractual rights include rights to suspend services or "step-in".

409 Contractors are required to tender invoices to AAM for services provided. AAM pays invoices tendered. Contractors do not tender invoices to Multinet.

410 AAM concedes that it retains contractors to carry out a variety of projects in relation to the Multinet system. But it asserts that each and every project is approved, or not, as the case may be, by Multinet. Each and every project is the subject of a business case, the feasibility requirement and contractual obligations by the contractors including performing according to Multinet's engineering standards.

411 Multinet is the contracting party in the distribution tariff agreements, commonly referred to as use of system agreements ("UoSAs"), with users of the system (retailers and large consumers). Multinet is entitled to and receives the revenue from those agreements.

412 Prior to October 2006, Multinet had entered into UoSAs with the following retailers:

(a) Origin Energy Retail Limited, entered into 11 October 2004;

(b) EA-IPR Retail Partnership, entered into 7 February 2006;

(d) AGL Victoria Pty Ltd ("AGL"), entered into 17 November 2003;

(e) Energex Retail Pty Ltd, entered into 27 October 2003; and

(f) Victoria Electricity Pty Ltd, entered into 2 March 2005.

413 In 2003, Multinet also entered into a UoSA with a large user, Santos Direct Pty Ltd.

414 Prior to 27 October 2003, UoSAs were executed by retailers and Multinet. Those UoSAs contained an execution clause which said that the UoSA was executed by Multinet and the other party.

415 There is no dispute that, between 27 October 2003 and 20 October 2006, all UoSAs were executed by Multinet by its attorney, AAM, pursuant to the power of attorney in clause 32 of the OSA.

416 By the new clause 32 in the OSA amending agreement of October 2006, the power of attorney is removed and AAM is declared not to be Multinet's agent. Since October 2006, Multinet has entered into two new UoSAs, with Australian Power & Gas Pty Ltd and Red Energy, respectively.

417 AAM argues that the power of attorney merely facilitated the execution of the documents and existed for administrative convenience. It argues that because AAM cannot, in its own right, grant or refuse any access to the Multinet system, its conduct in relation to UoSAs does not bring it within the legislative regimes.

418 The ESC points out that correspondence from Mr Gleeson to Mr Reardon in 2006 suggests that the power of attorney was removed in order to give the appearance (for example, to the ESC) that Multinet did have some operating functions in relation to its system. For example, Mr Gleeson wrote to Mr Reardon in the following terms:

I'm a bit surprised and disappointed Alinta has seen it necessary to have all the Multinet use of system agreements signed by Alinta's most senior management under power of attorney. This makes it much harder to claim that there is substance in the Multinet asset co functions given that holding and managing UoSAs was one of the few functions that we had on our list, and even harder to convince the ESC that we are not related.

In the past when the Andrew Schilles of the world have represented [United Energy] and AAM, we could argue that they report to David and me on these issues but it gets much harder to mount that argument when it when it is Bob [Browning] and Murray [King] who sign.

419 Mr Reardon agreed in cross-examination that the removal of the power of attorney was done at least in part due to the issues in these proceedings. Mr Gleeson did not give evidence.

420 I agree with AAM that, at the end of the day, the motives of Mr Gleeson or Multinet in relation to the use of the power of attorney by AAM, are irrelevant to the question of statutory construction.

421 AAM argues that the execution of UoSAs by AAM under power of attorney for Multinet did not constitute AAM as the "provider of services by means of a distribution pipeline".

422 In support of that argument, AAM makes a number of uncontroversial submissions about the legal effect of the power of attorney clause. It points out that the execution of a document pursuant to a power of attorney does not create any liability between the third party and the attorney, and that execution under the power of attorney equates to execution by Multinet itself. By executing the UoSAs under power of attorney, AAM was not exposing itself to action for breach or to perform the contractual obligations of Multinet. Multinet alone is so exposed to liability. With the ability and obligation to supply the services, Multinet both bears the responsibility to provide the service and the ability to derive the financial benefits. Signing as attorney for Multinet gives none of these obligations or rights to AAM.

423 The ESC does not suggest that the execution of the UoSAs under power of attorney in fact made AAM a party to the contracts or liable in respect of them. Rather, for the reasons already discussed, it says that the strict contractual rights are irrelevant to a consideration of the GIA 2001 and the Code. I agree.

424 Considerable time was spent examining witnesses as to the extent to which AAM did, or did not, negotiate the terms of any of the UoSAs.

425 AAM argued that the UoSAs were standard-form agreements, and the only issue for discussion was as to how the retailer was to satisfy certain credit support requirements. AAM urged the court to conclude that its role in relation to UoSAs was administrative only. It merely facilitated the transactions between Multinet, as principal, and the retailers, as third parties. It says the court should conclude that AAM does not and did not "negotiate" any term of the UoSAs.

426 Whilst agreeing that many of the UoSA terms are standard (and approved by the ESC), the ESC argued that insofar as there is any negotiation of the terms, that negotiation is undertaken by AAM, not Multinet.

427 James Wong gave evidence that during the period from April 2001 to March 2005, he was a key customer and retailer manager at AAM, with responsibility for the administration of UoSAs, including arranging their execution. Mr Wong understood the position to be that if no amendments were to be made to the standard UoSA, then approval need not be sought from Multinet prior to the agreement being executed by AAM's representatives in Perth under power of attorney. If amendments were to be made to the standard UoSA, he understood he needed to seek approval from Multinet prior to the agreement being executed by AAM under power of attorney. In fact, no amendments were made to terms of the UoSAs for which Mr Wong was responsible and therefore he did not seek Multinet's approval prior to arranging for the execution of the agreements by AAM under power of attorney.

428 During 2001 to 2004, Rod Collins worked alongside Mr Wong in a very similar role. Mr Collins dealt with and administered the UoSAs for Origin, TXU, AGL and Energex. Mr Collins did not give evidence during this proceeding. However, correspondence between Mr Collins and Ms Hanna, who worked at AGL at the relevant time, demonstrated a significant level of negotiation between AAM and AGL on a number of issues in relation to the AGL UoSA, including connection charges, unaccounted for gas, disconnection at the request of the user and liability of supply. Ms Hanna confirmed that evidence in her cross-examination.

429 Ms Pollock confirmed in cross-examination that she had negotiated credit support with retailers. Mr Eskrigge also confirmed that he negotiated credit support with Mr Wong in relation to the UoSA for Victoria Electricity.

430 Ms Pollock gave evidence that when credit support issues were raised which did not conform with the standard UoSA, Multinet approval was sought and obtained.

431 I accept that the UoSAs were largely standard form contracts and that there was little scope for a retailer to renegotiate their terms. I conclude that, insofar as there was any negotiation of the terms of UoSAs, it was undertaken by AAM, not Multinet. Multinet clearly retained the legal power to approve or reject proposed amendments.

432 There is no real dispute that AAM has, at all material times since 23 July 2003, dealt with retailers in relation to all operational and relationship issues. The following are examples:

(a) The primary means of communication necessary for the operation of the retail market is the B2B transaction process, conducted through VENCorp's FRC hub and the interface protocol developed by VENCorp. Ms Pollock acts as the point of contact within AAM when retailers are unable to resolve particular issues through the normal B2B process. Ms Pollock confirmed that there are many communications between herself and retailers "about all sorts of different day-to-day matters".

(b) AAM notifies retailers when the UoSAs are to cover new geographic areas;

(c) AAM deals with retailers in relation to administration of the UoSAs;

(d) AAM attends operational meetings with retailers to discuss various issues including gas interval meter installations and reading of gas meters;

(e) AAM controls or directs customer connections and disconnections. As confirmed by Mr Beech, there is a standard economic feasibility test that must be passed before someone can be connected. The test is set in the access arrangements by the ESC and is applied by AAM personnel. The physical connection itself is managed by AAM;

(f) AAM informs retailers of new connection procedures and/or changes in connection procedures;

(h) Guaranteed service level payments are made by AAM (or by contractors to AAM's account) to customers where the relevant failure to meet the guaranteed service level fits the description of the exception referred to in clause 12.4(a) of the OSA. AAM has in fact made guaranteed service level payments;

(i) Since November 2003, all gas connection advices contain a Multinet and an Alinta logo and all state "[t]his offer is made by Alinta Network Services on behalf of Multinet Gas pursuant to its obligations under Part 3 of the Gas Distribution System Code";

(j) AAM informs retailers if meters are to be replaced;

(k) Invoices from AAM to retailers are sent by AAM and retailers pay to an account called "Multinet Gas Distribution Partnership"; and

(l) AAM deals with retailers in relation to overdue payments and tariff notification.

433 AAM does not contest that it has many dealings with retailers. It is required to do so under the terms of the OSA. However, it says that at all times its activities are the subject of KPIs and reporting obligations and that Multinet retains ultimate control of all aspects of the Multinet system through KPIs and reporting requirements.

434 As already mentioned, the KPIs and reporting requirements are very weak mechanisms for monitoring and controlling AAM's activities. In any event, for the reasons expressed earlier, the functional/factual interpretation does not require a detailed examination of the contractual position.

AAM's other activities in relation to the Multinet system

435 AAM either does, or directs others to do, the following categories of activity which must be performed in order to facilitate the flow of gas through the Multinet system:

(b) Routine operations, including maintenance, replacement, expansion and upgrading;

(c) Incident response, including the implementation of a safety case; and

436 The evidence is that these activities are necessary, in a technical sense, for the distribution of gas to occur.

437 AAM also carries out all of the functions set out in section 1.2 of the Distribution Code which, overlapping with schedule 1 to the OSA, includes connection and augmentation; disconnection and reconnection; provision of metering installation; metering installation testing; meter reading data; curtailment; customer dispute resolution and deemed distribution contract requirements.

438 The Multinet system is controlled by SCADA. SCADA monitors gas flows, pressures and temperatures. It collects, collates and stores data and makes decisions between pre-programmed choices. It is used in the pressure management of gas and reduces the risk of leakage by increasing gas pressure during periods of high demand and decreasing pressures during off peak periods.

439 SCADA is operated and monitored by AAM employees. Maintenance of SCADA is coordinated by AAM's field services and carried out by subcontractors under the direction of AAM.

440 AAM argues that SCADA is, for practical purposes, an automated monitoring system and does not constitute an operational control system of the Multinet system. For example, AAM points to the fact that although SCADA reports on the Multinet system, there is little that co-ordinators can do when a low pressure alarm is recorded. What occurs if nothing is done is that the system goes to "failsafe", that is, maximum pressure.

441 The fact that the monitoring system has been automated does not reduce the importance of SCADA to the operation of the Multinet system. In so far as any decisions are made about the parameters of operation, they are made by AAM.

442 Maintenance and replacement strategies are produced within the asset services group at AAM.

443 In respect of substantial construction and maintenance work, AAM prepares a business case and makes recommendations to Multinet. Such work is either approved or otherwise by Multinet and carried out by contractors pursuant to Multinet's standards and specifications.

444 However, run of the mill maintenance and construction tasks do not require Multinet approval and are not reported to Multinet.

445 All construction and maintenance work is undertaken by AAM, or contracted workforces under the direction of AAM, not Multinet. Where third party contractors are used, AAM conducts the necessary tender processes and enters into the contracts.

446 AAM also does, or subcontracts for others to do, at least the following additional routine things:

(a) Co-ordination of security and protection of the transmission pipelines;

447 AAM also deals with VENCorp in relation to its annual review of certain gas quantity and minimum pressure stipulations referred to in the relevant agreements between VENCorp and Multinet.

448 AAM is also responsible for reviews and alterations of the Multinet engineering standards, which cover how pipes are installed, minimum cover requirements, offsets and when risk assessments are required. Although the engineering standards are those of Multinet, they are maintained and assessed by AAM.

449 AAM prepares and submits the Multinet safety case. The safety case describes AAM's operation of the network and the various functions that must be performed from time to time including: control equipment; meters; pipeline renewal and rehabilitation; modification control; gas quality; permit to work systems; and competencies.

450 Although it prepares and lodges the safety case on behalf of Multinet, the last revision of the safety case was prepared and sent by AAM and did not even go to Multinet for approval.

451 There is no dispute that the obligations in the Multinet safety case are imposed on Multinet under the GSA, but the fact of the matter is that it is AAM who in fact discharges all of these obligations. At the very least, this is illustrative of the extent to which AAM in is charge of all aspects of the Multinet system.

452 The safety case contains a section entitled "AAM Safety Management Policy". Pursuant to that section, Peter Magarry, Chief Operating Officer at AAM, undertakes that all AAM personnel and contractors fully support this safety policy and will be fully accountable for their safety performance. Mr Magarry is also the only person nominated in the safety case as having management of the facility and being responsible for the safe operation of the facility (pursuant to regulation 7, division 2 of the safety case regulations).

453 The Multinet safety case includes a safety management system which sets out the response process for managing incidents. Such incidents may be advised by control room operators, field operations staff, other authorities staff and members of the public.

454 Incidents include gas escapes due to damaged pipes, mains or equipment, restricted gas supply to customers, water in mains, limits to network capacity under high load conditions or insufficient gas being supplied into the network. Responses affecting network operation may require:

(b) Valve closures so that network sections can be isolated for repair;

(c) Laying of temporary mains to provide continuing supply during repairs; and

(d) Customer load curtailment in accordance with safety management system rules.

455 Responsibility for managing the response depends on the severity of the incident as outlined in emergency response levels specified in the safety case.

456 AAM is effectively responsible for the safe operation of the Multinet system as well as dealing with all network incidents and coordinating incident responses.

457 The main activities of the AAM Co-ordination Centre in relation to the Multinet system is to monitor and overview the network, as well as operating an after hours communication hub, a first line emergency response centre and information dispersal service for management.

458 AAM performs or sub-contracts for the performance of the following functions set out in the Multinet safety case: system design, construction, maintenance and repair, control and protection; leakage pinpointing; pipeline management; regulator and valve maintenance; meter calibration, testing, maintenance and repair; public contact; incident notification; information systems; and meter supply.

459 Long term planning is carried out to ensure the distribution network can deliver forecast gas loads to customers at required pressures. System design services are provided by external design consultants. The construction of new and replacement mains and services is performed by contractors through a selective competitive tendering process.

460 AAM has a contractual obligation pursuant to the OSA to submit asset management plans to Multinet. Their primary purpose is to set out the capital requirements for the Multinet system for the following five years, such that the required service standards, safety and reliability can be maintained.

461 The asset management plan therefore is concerned mainly with capital expenditure ("capex"), which includes AAM providing limited operational information needed to make decisions, such as limited information about forecast operating expenditure ("opex"), but it does not contain any information as to actual opex.

462 Asset management plans are approved or not approved, as the case may be, by Multinet. Thereafter, AAM must prepare a business case, which complies with the financial feasibility requirements and undertakes the work.

463 Multinet is not informed of AAM's opex pursuant to a policy, implemented by AAM, which ensures that AAM keeps its opex information from Multinet.

464 The ESC argues that this shows that, although representatives of Multinet may be consulted and may make decisions on matters related to capex and regulatory strategy, consistent with being the owner of an asset, AAM, as well as bearing opex, in fact directs and controls all day-to-day operational issues.

465 AAM offers a different perspective, stating that the insistence that Multinet is not aware of its opex demonstrates the arm's length relationship between Multinet and AAM. Contractors do not normally disclose profits and margins to the other contracting party. It is not necessary that the other contracting party is aware of the profits and losses of the contractor in performing the contract obligations.

466 There are other examples of AAM's involvement in long term planning. For example, AAM also tendered, on Multinet's behalf, for the Yarra Valley gas reticulation project. The tender was submitted by Mr Schille, an employee of AAM, on Multinet letterhead. Mr Schille confirmed that in communicating with government agencies regarding the Multinet distribution network, or extensions to it, he has standing authority to write on behalf of Multinet on Multinet letterhead, even though he is an AAM employee.

467 The following conclusions of fact are of critical importance to the questions under both the GIA 2001 and the Code:

(a) The OSA appoints AAM exclusively to operate and manage, or procure the operation or management of, the entire Multinet system;

(b) Multinet has agreed to deliver up, and has in fact delivered up, operating control of the system to AAM, or as AAM directs;

(c) AAM in fact operates and manages, or procures the operation and management, of the Multinet system. The contractual mechanisms of KPIs and other reporting obligations, and the limited amount of actual involvement by Multinet through meetings and the like, do not detract from that essential position;

(d) The operation of the Multinet system undertaken, or caused to be undertaken, by AAM is what facilitates the flow of gas through the system;

(e) Sub-contractors and other third parties who contribute to, or assist AAM with, the functioning of the Multinet system, do so under AAM's management or control;

(f) In performing its obligations to provide the services under the OSA, AAM has extensive decision-making functions about incurring operating expenditure in order to meet the requirements of the OSA and the asset management plan (as proposed by AAM and approved by Multinet from time to time);

(g) Under the OSA, AAM negotiates on Multinet's behalf in connection with UoSAs, and deals with or manages dealings with system users on all other matters;

(h) Prior to October 2006, AAM had an irrevocable power of attorney from Multinet to perform the services, enter into any UoSA, and do anything necessary or desirable to deliver the services. It is irrelevant that AAM was not a party to the UoSAs which it executed under the power of attorney. The nature and extent of the power of attorney clause further confirmed the extent to which AAM was in fact operating and managing the entire Multinet system;

(i) Although since October 2006 the power of attorney clause has been deleted, and AAM is declared not to be AAM's agent, no other provision in the OSA has been amended. Most importantly, no practical change has occurred in performance of AAM's functions under the OSA, save that Multinet now signs UoSAs itself.

AAM provided and provides relevant services under section 22(1) of the GIA 2001

468 Section 22(1) requires the application of a functional or factual approach to the question of whether a person provides services by means of a distribution pipeline, either as principal or agent. It does not require that the person provide all the relevant services which are provided by means of the pipeline. There can be more than one person who provides distribution services in respect of the same pipeline. A person may provide some of those services as principal and some as agent.

469 The critical issue in determining whether a person provides services is not whether they are a party to the relevant haulage contracts, or who owns the pipeline, it is whether the person in fact uses the distribution pipeline to distribute gas, according to the ordinary and natural meaning of those concepts. A person such as AAM who undertakes, controls and directs the activities constituting the distribution of gas is providing those services.

470 The extent of the contractual powers conferred on AAM under the OSA, and actually exercised by AAM, are such as to bring it within the ordinary and natural meaning of a person who provides services by means of a distribution pipeline. The fact that subcontractors undertake some of the particular activities, under the direction and control of AAM, does not diminish that conclusion.

471 At all material times (including since October 2006), AAM has in fact provided sufficient relevant services by means of the Multinet system, either as principal or agent, to bring it within section 22(1) of the GIA 2001.

472 The Code is not concerned with whether a person is acting as principal or agent. It is concerned with whether a person is the owner or operator of a covered pipeline.

473 The Code clearly conceives of the possibility of there being a separate owner and operator for some or all of a covered pipeline.

474 Where it appears that the owner has handed over the operation of some or all of the pipeline, there is a need to undertake a factual enquiry to determine who is in fact the operator of the pipeline. This involves an inquiry as to the functions actually performed by the parties, not merely an inquiry as to who is a party to contracts with third parties.

475 The extent of the contractual powers conferred on AAM under the OSA, and actually exercised by AAM, are such as to bring it within the ordinary and natural meaning of the "operator" of the pipeline. The fact that subcontractors undertake some of the particular activities, under the direction and control of AAM, does not diminish that conclusion.

476 Those conclusions are not affected by the amendment to clause 32 of the OSA in October 2006. That is to say, AAM was the operator of the pipeline at all relevant times before and after October 2006.

477 AAM therefore fell and falls within the definition of "service provider" for the purposes of the Code.

478 As such, AAM is required to comply with the access arrangement provisions in respect of the Multinet system. How it chooses to comply with that obligation is a matter for it and Multinet to determine. One obvious possibility would be for AAM and Multinet to submit a joint access arrangement.

479 In any event, AAM is required to comply with the ring fencing requirements of the Code.

480 The effect of my decision is not that all persons who perform discrete functions necessary for the operation of a distribution network will be "the operator" under the Code, or will need to be licensed under the GIA 2001. In each case, it will be necessary to undertake a detailed examination of the relevant facts, including the terms of any relevant contract with the network owner, to determine the extent to which the operation and management of the network has in fact been handed over to another person.

481 What has happened here is that Multinet has effectively handed over all the functions which are required to be performed to operate and manage the Multinet system. It is the aggregation of all the contractual responsibility under the OSA that leads to the conclusion that AAM is and has, at all material times since 23 July 2003, been the operator of the Multinet system. Those same facts lead to the conclusion that AAM is providing services by means of the distribution pipeline.

482 I will hear from the parties as to the precise form of declarations and as to costs.

Agreement between AMP and MGH, Multinet and other companies in the Multinet Group dated 14 July 2003

Fluor Daniel Gas Services Pty Ltd and Fluor Daniel Power & Maintenance Services Pty Ltd

Gas Industry Act 1994 (Vic)

Gas Industry Act 2001 (Vic)

Gas Pipelines Access (Victoria) Act 1998 (Vic)

Gas Safety Act 1997 (Vic)

The report produced by the independent committee of inquiry, led by Professor Hilmer and commissioned by COAG.

Multinet Partnership comprising of Multinet Gas (DB No 1) Pty Ltd and Multinet Gas (DB No 2) Pty Ltd

National Power Services (Western Australia) Pty Ltd

The Supervisory Control and Data Acquisition system

Schedules 1 and 2 to the Gas Pipelines Access (South Australia) Act 1997 (SA), which have been incorporated into Victorian law

National Third Party Access Code for Natural Gas Pipeline Systems, being schedule 2 to the Gas Pipelines Access (South Australia) Act 1997 (SA)

Schedule 1 to the Gas Pipelines Access (South Australia) Act 1997 (SA)

Trade Practices Act 1974 (Cth)

Victorian Third Party Access Code for Natural Gas Pipeline Systems

[1] It is common ground that there is no applicable exemption from licensing requirements.

[2] Section 4 defined "service provider" as "in relation to a pipeline or proposed pipeline, means a person that, within the meaning of the Access Code, is, or is to be, the owner or operator of the whole or any part of the pipeline or proposed pipeline".

[3] Defined terms in the GIA 2001 mentioned in these reasons are all found in section 3.

[4] Macquarie Dictionary (4th edition): "to furnish or supply"; Compact Oxford English Dictionary (2nd edition, 1991): "to supply or furnish for use; to yield, afford".

[5] Section 36(2A) of the Interpretation of Legislation Act (1984) Vic.

[6] This conclusion is supported by other indications in the GIA 2001, including sections 3 (definitions of pipeline and apparatus and works), section 23, section 29(2), the recognition of the Distribution Code in section 48(3).

[7] Hughes (Commissioner for Income Tax Queensland) v Munro [1909] HCA 27; (1909) 9 CLR 289.

[8] [2001] ACompT 2.

[9] In particular, Mr Reardon and Mr Teoh.

[10] See definitions of "gas company" in section 3 of the GSA and "gas distribution company" in section 3 of the GIA 2001.

[11] The definition of "operation" in the context of the GIA 2001 has been discussed earlier.

[12] Clause 11(4) of the Appendix to Schedule 1 provides that in "this Law" words in the singular include the plural. "This Law" is both Schedule 1 and the Code/Schedule 2.

[16] See Annexure A to the ESC's closing submissions.

[17] The ESC sought to rely on statements made by Robert Browning, an executive director of various companies in the Alinta group, to the effect that, pre July 2003, it was intended that AAM would operate the Multinet system. AAM objected to the tender of those documents, and I reserved my decision in relation to their admissibility. I have had no regard to these documents in arriving at my decision.

[18] Alinta v Essential Services Commission (No 1) [2007] VSC 32.

[19] Annexure G to the ESC's final submissions provides a helpful comparison of the differences between the OSA on the one hand, and those other contracts on the other.

[20] The PIES agreement originally provided for 3 personnel to be provided. In November 2006, that number was increased to 5.

[21] From January 2004, invoices for services pursuant to the Moorabbin and Burwood contracts were sent by BBS to AAM, not Multinet. Since July 2003, AAM has paid BBS invoices. From January 2004, tax invoices from AAM(2) have been sent to AAM and not Multinet. Since January 2004, AAM(2) electronic invoices have been sent to AAM. Since July 2003, AAM has paid AAM(2) invoices. By late 2006, BBS was invoicing AAM directly for the work it performed under the Moorabbin contract.

[22] These are listed in annexure B to the ESC's closing submission.