TXU Electricity Limited (formerly known as Eastern Energy Ltd) v Office of the Regulator-General [2001] VSC 153

Supreme Court of Victoria|2001-05-17|Before: Gillard J

[2001] VSC 153 Revised 14 June 2001

Judicial Review - price fixing by Regulator - allegation made without power - question of law raised - meaning of Tariff Order - terms of art - evidence of meaning of words - application of Tariff Order - no error established - determination made within power.

This is the return of a summons in a proceeding instituted by originating motion in which the plaintiff seeks judicial review, pursuant to Order 56 of the Rules of Court, of a determination made on 21 September 2000 and a re-determination made on 1 December 2000 by the Office of the Regulator-General.

The plaintiff, TXU Electricity Limited ("TXU") complains that the Office had no power to make the determinations.

Prior to 1994, the electricity industry in Victoria was the responsibility of a statutory body called the State Electricity Commission ("SEC"). In that year, the State Government decided to privatise the electricity industry and sell off the various activities of the Commission to non-government bodies. The Government divided up the various parts of the SEC, formed companies to operate the various activities and proceeded to offer the new businesses for sale. They were sold during 1995-1997.

The plaintiff, formerly known as Eastern Energy Limited, acquired one of the privatised businesses, and retails and distributes electricity in Victoria pursuant to licences issued under the Electricity Industry Act 1993 ("E.I Act").

This case is concerned with the distribution of electricity, that is, the ownership and operation of equipment used to transport electricity.

The first defendant, the Office of the Regulator-General ("Office"), is a body corporate created by the Office of the Regulator-General Act 1994 ("ORG Act") - see s.6.

One of the functions of the Office is to perform such functions as are conferred on it by relevant legislation under which a regulated industry operates.

One of the regulated industries is the electricity industry. The Office may regulate prices in respect of services supplied by a regulated industry - see s.24(1) - and was obliged by reason of the provisions of a Tariff Order, made pursuant to s.158A of the E.I Act, to fix the price for distribution of electricity for the period 2001 to 2005.

The Office made a determination and a re-determination, after an Appeal Panel Hearing in the year 2000, with respect to the prices for the distribution of electricity by, inter alia, TXU from 1 January 2001. The determination and re-determination are the subject of the present proceeding.

The case is concerned with the prices fixed for distribution of electricity for the period 1 January 2001 to 31 December 2005. Distribution is to be contrasted with generation and sale and is concerned with owning and operating the poles, wires, transformers, sub-stations and other infrastructure used to transport electricity.

The State of Victoria was joined as second defendant to the proceeding but by order made on 8 March 2001, I ordered that it cease to be a party to the proceeding. No relief was claimed against it.

The third, fourth, fifth and sixth defendants, AGL Electricity Limited ("AGL"), Citipower Pty ("Citipower"), Powercor Australia Limited ("Powercor") and United Energy Limited ("United Energy") respectively, are also, like TXU, the distributors of electricity in Victoria pursuant to licences issued under the E.I Act.

When the hearing commenced, the court was informed that AGL proposed to play no role in the proceeding. Solicitors appeared on behalf of Citipower and Powercor and informed the court that neither company would take part in the proceeding and would abide the event.

The sixth defendant, United Energy, appeared by counsel who, during the hearing on the first day, stated that it did not propose to play any part in the proceeding but maintain a presence in the court.

The court informed the representatives for the said four defendants that if any party wished to participate, it could apply to do so and that the question of participation was a matter for each defendant. As things transpired, the four defendants did not participate in the hearing.

The basic facts which led to the dispute between the parties can be briefly summarised.

On 20 June 1995, the Governor in Council made an order, pursuant to the provisions of s.158A of the E.I Act, called the Victorian Electricity Supply Industry Tariff Order ("the Tariff Order") which regulated tariffs, charges and fees with respect to the supply of electricity in this State.

The Tariff Order, inter alia, prescribed the tariffs, charges and fees that could be charged by TXU and the other distributors for the distribution of electricity for the period from 1 January 1995 to 31 December 2000.

By reason of s.158(1)(a) of the E.I Act, the electricity industry became a regulated industry and the power to regulate prescribed prices with respect to the services was conferred on the Office in respect of, inter alia, charges for connection to, and the use of, any distribution systems - see s.158(1)(b).

"(1) The Office may regulate prescribed prices for or in respect of prescribed goods and services supplied by or within a regulated industry."

Section 25 of the same Act deals with price determinations. An important feature of the section is that the powers to determine the price set out in that section are, inter alia, subject to the "Order in Council under ... s.158A of the E.I Act 1993" - see s.25(1).

This means that the provisions of the Order in Council, which established the Tariff Order, override anything contained in s.25 of the ORG Act.

In 1998, the Office commenced the process to determine the price that could be charged by the distributors from 1 January 2001. In so doing, it published consultative papers, reports and drafts, widely consulted on the process and had discussions with and considered submissions of, the distributors.

By determination made 21 September 2000, the Office determined the new charges which could be levied by the distributors for the use of their distribution systems for the period from 1 January 2001 until 31 December 2005.

The Tariff Order provided what was to be taken into account in determining the charges for the use of the distribution systems, and cl.5.10 set out matters that had to be taken into account. The opening part of the sub-clause provided -

"In making any price determination under s.25 or s.26 or both of the ORG Act regulating charges for use of Distribution Systems after 31 December 2000 the Regulator-General must, notwithstanding the criteria specified in the ORG Act or the Electricity Industry Act: (a) utilise price based regulation adopting a CPI--X approach and not rate of return regulation."

The meaning and application of sub-cl.(a) were the main issues in this case.

It is noted that there were other sub-clauses of cl.5.10 that applied to the price fixing process as well as provisions of both the ORG Act and the E.I Act.

It was the opinion of TXU and three of the other four distributors that the Office had made a number of errors and accordingly, on 2 October 2000, these distributors instituted appeals pursuant to s.37 of the ORG Act to an Appeal Panel. The right to appeal is restricted by s.37(2) of the ORG Act. It is restricted to bias or where "the determination is based wholly or partly on an error of fact in a material respect." (Emphasis added.) Each distributor's appeal was a separate appeal, and dealt with as such.

The Appeal Panel held a hearing and senior counsel appeared on behalf of the distributors. One of the grounds of appeal raised by United Energy, which was adopted by all the distributors, was that in making the determination, the Office did not determine the charges on a price based regulation adopting a CPI--X approach but in fact adopted the prohibited rate of return regulation approach.

The Appeal Panel, comprising a lawyer and two eminent economists, rejected this ground of appeal but upheld some of the grounds of a factual nature. It delivered reasons on 30 October 2000. It affirmed the determinations in respect of the ground that the Office had failed to apply cl.5.10(a).

The Appeal Panel affirmed the determination in respect of the three grounds of appeal raised by TXU. I interpolate to observe that some of the other distributors were successful and the re-determination amended the determination to give effect to the decisions. It is unnecessary to examine in detail the changes to the determination as a result of the Appeal Panel's findings except to note that the X factor fixed for the first year for TXU was reduced from 21.8% to 18.4%.

The complaint made to the court is that the Office made the determination and re-determination without power. It was submitted that the Office had, contrary to the express terms of cl.5.10(a) of the Tariff Order, determined the charges adopting a rate of return regulation and not the method required by the Tariff Order.

The judicial review is in respect of the determination and the re-determination made by the Office. Mr J. Beach QC, who appeared with Mr P. Gray for the Office, submitted that the relevant determination was made by the Appeal Panel and not the Office because of the appeal and its outcome. It followed that TXU was out of court because the judicial review was in respect of the wrong decision and the Office was not the party who made the decision.

There is no doubt that this court has a supervisory jurisdiction to review a decision of a statutory body which affects the rights of, inter alia, bodies such as TXU and may quash the decision if the body acted, inter alia, without jurisdiction or power.

The determination made by the Office was open to challenge by appeal pursuant to s.37 of the ORG Act.

The right is limited to bias, which is not relevant here, and where "the determination is based wholly or partly on an error of fact in a material respect" - see s.37(2)(b).

Four distributors, including TXU, appealed the determination of the Office to the Appeal Panel.

One distributor, not TXU, took the ground of appeal that the Office had failed to comply with the provisions of cl.5.10(a) in determining the price. TXU and the other distributors adopted the ground of appeal and left it to the appellant to support the ground. The Appeal Panel considered the ground, held that it was not made out and affirmed the determination.

The Appeal Panel considered the three grounds raised by TXU, rejected them and affirmed the determination.

However, other distributors, Powercor and United Energy, succeeded in respect of some grounds, one of which had the effect of amending the X factor in relation to TXU. The formal decision of the Appeal Panel records that where grounds failed, "The Panel has decided to affirm the determination."

In respect of the grounds which were upheld, the formal decision records, "The Panel has decided that the determination be set aside and remitted to the Office for amendment to ensure" and directions were given as to what was to be done by the Office.

The ground raised before the Appeal Panel with respect to the construction and application of cl.5.10(a) of the Tariff Order to determining the price, raised a question of law and not fact and in my opinion, the Appeal Panel had no jurisdiction to entertain the ground of appeal. In any event, it was rejected and the Appeal Panel affirmed the determination in that respect.

Section 38(4)(b) of the ORG Act sets out the powers of the Appeal Panel with respect to the outcome of the appeal on errors of fact. It may affirm the determination, vary the determination to correct an error or set aside the determination "and remit it to the Office for amendment of the determination in accordance with the decision".

By reason of s.38(6), the Office is obliged to give effect to the decision of the Appeal Panel.

"Determination" is defined by s.3 as meaning "a determination made by the Office under this Act or any other Act."

The determination by the Office fixing a price for distribution of electricity was fixed pursuant to s.25 of the ORG Act.

Instead of rejecting grounds and affirming the determination and upholding grounds and setting aside the determination, the Appeal Panel should have, when it upheld a ground, set aside the determination with directions to amend it. It should not have both affirmed the determination and set it aside. If a ground of appeal is made out and the Appeal Panel decides to set aside the determination and remit it to the Office for amendment pursuant to s.38(4)(b)(iii), then the result is the determination is set aside. If it also rejects grounds of appeal, it is unnecessary and inappropriate to make a decision to affirm the determination. But in any event, it is clear what the Appeal Panel intended to do and that was that the determination be set aside and that it be remitted to the Office to be amended in accordance with the decision.

It follows that pursuant to s.38(6), which obliges the Office to give effect to the determination of the Appeal Panel, the decision which is binding and operative is the determination made by the Office giving effect to the decision of the Appeal Panel. It is that determination which binds TXU and the other distributors and which affects their rights.

The judicial review is in respect of the re-determination made 1 December 2000 by the Office of the Regulator-General which is the proper party to the judicial review.

TXU is claiming relief in the nature of certiorari. In so doing, it is invoking the common law jurisdiction of this court to review the price fixing decision of the Office as a result of the re-determination.

The jurisdiction is an ancient one and is subject to the procedural rules of the Court.

Order 56 is concerned with procedure. It abolishes the remedies in the nature of the old prerogative writs but nevertheless preserves the jurisdiction of the Court to make prerogative writ-type orders. It is clear the rules do not affect the common law jurisdiction of the Court, and it is equally clear that this Court has jurisdiction to make an order in the form similar to the old prerogative writ certiorari, namely, quashing the decision under review.

The old writ of certiorari went only to an inferior court or a body exercising powers pursuant to legal authority affecting rights of subjects. See R v Electricity Commissioners ex parte London Electricity Joint Committee Company (1924) 1 KB 179 at 205.

The present proceeding concerns the decision made by the Office, pursuant to statute, fixing the prices TXU could charge for the use of distribution systems after 31 December 2000 to supply electricity.

This proceeding is not concerned with the decision-making process of an inferior court. In view of the distinction between jurisdictional error and non-jurisdictional error, it is important to note that the effect of a non-jurisdictional error of law by a body depends on whether it is a body or an inferior court making the decision.

But whether the decision is made by a body exercising legal authority or an inferior court, the jurisdiction is necessarily limited.

The jurisdiction is supervisory and does not entitle the court to canvass matters that it would on an appeal. The jurisdiction is a common law one and is different to an appeal.

The judicial review procedure is concerned with the legality of what was done by the body in question, and is not concerned with the merits of the decision under review. This is to be contrasted with an appeal, where the question usually is whether the decision is right or wrong, whereas the question on a judicial review is whether the decision is in accordance with the law.

The scope of the supervisory jurisdiction where the relief claimed is in the nature of the old writ of certiorari, namely, quashing the decision or order was summarised by the High Court in Craig v South Australia [1995] HCA 58; (1994) 184 CLR 163 at 175-76. In a joint judgment, the court said:

"Where available, certiorari is a process by which a superior court, in the exercise of original jurisdiction, supervises the acts of an inferior court or tribunal. It is not an appellate procedure enabling either a general review of the order or decision of the inferior court or tribunal, or a substitution of the order or decision which the superior court thinks should have been made. Where the writ runs, it merely enables the quashing of an impugned order or decision upon one or more of a number of distinct established grounds: most importantly, jurisdictional error, failure to observe some applicable requirement of procedural fairness, or fraud, and error of law on the face of the record. Where the writ is sought on the ground of jurisdictional error, breach of procedural fairness or fraud, the superior court entertaining an application for certiorari can, subject to applicable procedural and evidentiary rules, take account of any relevant material placed before it. In contrast, where relief is sought on the ground of error of law on the face of the record, the superior court is restricted to 'the record' of the inferior court or tribunal and the writ will enable the quashing of the impugned order or decision only on the ground that it is affected by some error of law which is disclosed by that record."

The jurisdiction is concerned with the decision-making process. In Chief Constable of North Wales Police v Evans [1982] UKHL 10; (1982) 1 WLR 1155, Lord Brightman at p.1173 said -

"Judicial review is concerned, not with the decision, but with the decision-making process. Unless that restriction on the power of the court is observed, the court will in my view, under the guise of preventing the abuse of power, be itself guilty of usurping power."

It is not an appeal on the facts. In R v District Court; ex parte White [1966] HCA 69; (1966) 116 CLR 644, Windeyer J said at p.655 -

"I am not disposed to a narrow view of the scope of either certiorari or prohibition or of the power of this court to use these writs and also mandamus to ensure that administrative tribunals exercising functions under Commonwealth law proceed according to law and keep within the law. But we must not use these writs to give an appeal on the facts." (Emphasis added).

The grounds upon which the review may be based, depend on whether the body in question is an inferior court or a body making a decision according to law.

In Craig's case, supra at p.176 the High Court said -

"In considering what constitutes 'jurisdictional error', it is necessary to distinguish between, on the one hand, the inferior courts which are amenable to certiorari and, on the other, those other tribunals exercising governmental powers which are also amenable to the writ."

The grounds available where the body is not a court were listed by Lord Reid in Anisminic Ltd v Foreign Compensation Commission [1968] UKHL 6; (1969) 2 AC 147 at 171 -

"It may have given its decision in bad faith. It may have made a decision which it had no power to make. It may have failed in the course of the inquiry to comply with the requirements of natural justice. It may in perfect good faith have misconstrued the provisions giving it power to act so that it failed to deal with the question remitted to it and decided some question which was not remitted to it. It may have refused to take into account something which it was required to take into account. Or it may have based its decision on some other matter which, under the provision setting it up, it had no right to take into account. I do not intend this list to be exhaustive. But if it decides the question remitted to it for decision without committing any of these errors it is as much entitled to decide that question wrongly as it is to decide it rightly. ... If it is entitled to enter on the inquiry and does not do any of those things which I have mentioned in the course of the proceedings, then its decision is equally valid whether it is right or wrong subject only to the power of the court in certain circumstances to correct an error of law." (Emphases added).

The list is not exhaustive. The High Court in Craig's case has made it clear at p.178 that the principles stated by Lord Reid are confined to bodies other than a court of law.

The High Court at p.179 in Craig's case also listed the types of errors which may render a decision a nullity by a body lawfully exercising a decision-making power -

"If such an administrative tribunal falls into an error of law which causes it to identify a wrong issue, to ask itself a wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the tribunal's exercise or purported exercise of power is thereby affected, it exceeds its authority or powers. Such an error of law is jurisdictional error which will invalidate any order or decision of the tribunal which reflects it." (Emphases added).

It is observed that the specified errors must result in the body's exercise or purported exercise of power exceeding its authority or powers.

In RSL v Liquor Licensing Commission [1999] VSCA 37; (1999) 2 VR 203 at 210, Phillips JA after referring to what the High Court said, stated -

"The appellants' outline omitted altogether the critical expression 'and the tribunal's exercise or purported exercise of power is thereby affected' which plainly serves to qualify all the descriptions of error which precede it. Thus, to ask a wrong question, to ignore relevant material and so on, is jurisdictional error if - but only if - 'the tribunal's exercise or purported exercise of power is thereby affected'. ... Ultimately, at all events when what is in question is error in the course of decision-making ... , the task for the court from which certiorari is sought must be to distinguish between, on the one hand, those matters which the tribunal is given the jurisdiction to decide, and even to decide wrongly (so that the error does not go to jurisdiction), and on the other hand those in respect of which, while it may have the power to enquire into them, it does not have the jurisdiction to decide wrongly (so that the error does go to jurisdiction)." (Emphases added).

As is apparent from what His Honour said, the issue whether the error was one which affected jurisdiction was primarily one of construction of the instrument which gave the power or authority to the body to make the decision - see p.211.

"Accordingly, in a case like the present the essential search must be for the task which is confided to the body whose decisions are under attack; for only if that body strays beyond that task will there be a want or excess of jurisdiction." (Emphasis added).

In my respectful opinion, that is the task which faces the court on a judicial review such as the present. It is clear from the limited nature of the jurisdiction that the court is not hearing an appeal and generally is not concerned with the merits of the decision. It is concerned with the decision-making process. Did the decision-making body make an error which showed that it did something which it did not have the power or authority to do?

This error may occur at the assumption of jurisdiction or may occur in the exercise of the jurisdiction, but what this court is concerned with at the outset is to consider and determine what power or authority was given to the body to make the decision, and having identified the alleged error, consider and determine whether the body's exercise or purported exercise of power was affected by the error which resulted in it exceeding its authority or powers. In other words, acting without jurisdiction.

Clearly, the Office had jurisdiction to make the determination which it did - see ss.24 and 25 of the ORG Act.

If error occurred, it occurred in the course of exercising that jurisdiction or authority. A body exercising statutory power may make an error in the course of exercising the power, and whether or not this court can quash the decision depends upon the nature of the error and whether it goes to jurisdiction. This necessarily involves considering what Parliament has entrusted the body to do.

As a general proposition, an administrative body lacks the authority to determine questions of law or to make a determination otherwise than in accordance with the law.

In Craig's case, supra, at p.179, the court said -

"At least in the absence of a contrary intent in the statute or other instrument which established it, an administrative tribunal lacks authority either to authoritatively determine questions of law or to make an order or decision otherwise than in accordance with the law. That point was made by Lord Diplock in In Re Racal Communications Ltd: 'Parliament can, of course, if it so desires, confer upon administrative tribunals or authorities power to decide questions of law as well as questions of fact or of administrative policy; but this requires clear words, for the presumption is that where a decision making power is conferred on a tribunal or authority that is not a court of law, Parliament did not intend to do so'." (Emphasis added). See also RSL v Liquor Licensing Commission, supra, at p.214.

Of course, if the legislation did so authorise the tribunal to authoritatively determine questions of law or make a decision otherwise than in accordance with the law, judicial review would not be open if errors were made in respect of the law or the decision because the body would be acting within jurisdiction.

In the present matter, TXU asserts that in fixing the price regulating charges for the use of the distribution systems in the electricity industry, the Office acted without power in using a methodology which was not in accordance with cl.5.10(a) and which was prohibited by the sub-clause.

From time to time, Parliament enacts a provision designed to oust or limit the common law supervisory jurisdiction of this court, which is known as a privative clause.

Section 40 of the ORG Act contains a form of privative clause. It provides -

"No proceedings may be brought in respect of a determination ... other than on the grounds that there was no power to make the determination ... or that the procedural requirements in relation to the making of the determination ... have not been complied with." (Emphasis added).

It is clear from s.41 of the same Act that Parliament anticipated that the provisions of the section would have an effect upon the jurisdiction of this court. For example, an error of law on the face of the record is not open.

This proceeding is not concerned with failure to comply with procedural requirements but is concerned with the power of the Office to make the determination which it did.

There is no warrant in the section or the Act to narrowly construe the words "there was no power to make the determination" and in my opinion, the reference to "power" covers not only a situation where the allegation is that the Office did not have the authority or power to embark upon the decision-making process, but also covers the situation where it clearly has the power or authority to make the decision in question but did so without power in the exercise of it.

The contention put by TXU is that in the course of carrying out its authority to fix the price, the Office employed a method of doing so which was contrary to the Tariff Order and made without power.

It is unnecessary for the court to further consider the extent of the attempt by Parliament to reduce the jurisdiction of this court because TXU has asserted that the Office had no power to make the determination it did.

This court has jurisdiction to review the re-determination on the ground that in determining the price, the Office had no power to make the determination it did.

After TXU's counsel opened its case, Mr Beach QC objected to the admission into evidence of various affidavits filed on behalf of TXU. He submitted that the only evidence which was admissible was that contained in an affidavit by Patrick Ernest Murphy, which set out in summary form the circumstances of the determination and re-determination and the appeals and exhibited the relevant documents. It was submitted that the other evidence was irrelevant.

In support of its case, TXU filed a number of affidavits. The evidence was from a number of eminent economists - Australian, English and American - and the affidavits addressed the questions of what the words meant in cl.5.10 of the Tariff Order, how they should have been applied by the Office in making the determination and finally, observations and comments about the determination and whether it was made without power.

The determination made by the Office is contained in two volumes. The first volume is concerned with a Statement of Purpose and Reasons and the second volume purports to be the actual Determination. Despite the fact that it is comprised in two volumes, in my opinion the Determination is in fact one determination comprising two volumes. This is so by reason of s.27(1) of the ORG Act which provides -

"A determination must include a statement of the purpose and reasons for the making of the determination."

I interpolate to observe that the Office had also filed affidavits which covered the same topics of evidence as the affidavits filed by TXU.

In the course of developing his submissions, Mr Beach QC submitted that the proceeding should be dismissed because the matters in dispute went to the merits of the determination made, were purely factual and it was clear that the task entrusted to the Office involved a question of fact and accordingly there could be no error of law.

In my opinion, it is clear that the meaning of the words used in cl.5.10 of the Tariff Order is a question of fact and accordingly, the affidavits were admissible on that ground in relation to that evidence. Whether the other two categories of evidence were admissible was debateable, and in the circumstances, I ruled that the affidavits be admitted into evidence subject to objection.

With respect to the question of this court having jurisdiction, Mr Beach referred to what Black CJ said in Australian Heritage Commission v Mt Isa Mines Ltd (1995) 60 FCR 456 at 466, where His Honour made it clear that questions of fact concerning the jurisdiction of an authority were usually a question for the authority alone to decide, especially in cases where there were complicated facts, assessments and value judgments to be considered and made. In my opinion, that is not the position here.

The question of the construction and application of cl.5.10 is a question of law for this court to decide. It is said by TXU that the Office misapplied the formula and accordingly made an error of law. Its final determination was made without power.

In my opinion, the main issue involved in this proceeding does involve a question of law.

Indeed, the issues raised in this proceeding are typical of issues raised in judicial review, namely, consideration by the court of the statutory power and authority of the administrative body to make a decision and whether in making the decision it acted within power. By way of example I refer to Pearlman v Keepers and Governors of Harrow School [1978] EWCA Civ 5; (1979) QB 56 and R v Hillingdon; ex parte Puhlhofer [1986] UKHL 1; (1986) 1 AC 484.

Clause 5.10 of the Tariff Order made 20 June 1995 sets out what is described in the heading as "Restrictions on review of price control arrangements made by the Regulator-General" under, inter alia, s.25 of the ORG Act.

What that clause means and its application are questions of law which are to be determined by this court.

In order to determine the proper construction of the clause, it is necessary to set out the legislative scheme which authorised the Office to make the price determination.

The Office determined, for the five distributors in this State, the price each could charge for the use of their electricity distribution systems from 1 January 2001 until 31 December 2005.

Each distributor has a defined territory in which it operates its distribution system. TXU and Powercor operate in rural areas whereas the other three operate in Melbourne and its environs.

TXU operates in the area from the outer eastern suburbs to the eastern border of this State.

It is a trite observation that its distribution systems cover a larger area with fewer consumers than the urban distributors resulting in different financial considerations than those affecting the other distributors.

Under cl.4 of its licence, TXU is obliged to make its distribution network available to retailers and customers at a price which is consistent with the Tariff Order.

Clause 5.1.1 of the Tariff Order provides that a distributor must not charge a distribution customer more, for connection to and use of the distribution system, than the price approved by the Office for a financial year.

The Order was made on 20 June 1995 but commenced from 3 October 1994 - see cl.1.3.

The Tariff Order fixed the network tariffs for use of each distributor's distribution system for the financial year ending 30 June 1995. The distribution charges for the following financial years to 31 December 2000 were determined in accordance with the provisions of the Order. The prices were based on a CPI--X price cap method which was determined to give a rate of return on capital.

From 1 January 2001, the Office is responsible for regulating the prices and cl.5.10 describes a methodology that must be used, a prohibition on another form of regulation and also other matters that must be taken into account.

The legislative framework governing the Office's task is summarised as follows:

(i) The Office is authorised to regulate prescribed prices in respect of, inter alia, services supplied within a regulated industry - see s.24(1) of the ORG Act.

The electricity industry is a regulated industry - see s.158(1)(a) of the E.I Act.

Section 24(2) of the ORG Act defines "prescribed goods and services" and "prescribed price".

(ii) Part 3 of the ORG Act deals with "Specific Powers" of the Office including price regulation and price determination.

By reason of s.158 of the E.I Act, power is conferred on the Office in respect of, inter alia, regulating charges for connection to and use of any distribution system. See s.158(1)(b)(ii).

(iii) Part 12 of the E.I Act is concerned with the regulation of the electricity industry, and is "relevant legislation" for the purposes of the ORG Act. See s.155 of the E.I Act.

This reference leads into the ORG Act. Provisions of Part 12 of the E.I Act have application with respect to the exercise by the Office of its various powers and authorities under the ORG Act. By way of example, s.4 of the ORG Act deals with interpretation and inconsistency between that Act and any other Act including "relevant legislation". See also ss.7(2), 8(a), 9(2), 24(2), 25 and 26 of the ORG Act.

(iv) Section 158A of the E.I Act gives power to the Governor in Council to regulate by order in such manner as it thinks fit, inter alia -

"(b) charges for connection to, and the use of, any distribution system."

Sub-section (1B) of s.158A provided -

"(1B) The Order may direct the Office to make a determination under the Office of the Regulator-General Act 1994 in respect of such factors and matters or in accordance with such procedures, matters or bases as are specified in the order, or both."

Sub-section (2) sets out a non-exhaustive list of matters that can be taken into account in specifying in the Order the manner in which prices are fixed.

(v) The Victorian Electricity Supply Industry Tariff Order was made by the Governor in Council on 20 June 1995 and was subsequently amended by orders made on 8 August 1995, 28 October 1997 and June 1998. (vi) Section 25 deals with price determinations and pursuant to sub-section (2), wide power is given to the Office in making a price determination to regulate the prescribed price "in any manner the Office considers appropriate".

(vii) Section 25 is an important section and it is necessary to set it out in full.

"25. Price determinations (1) This section is subject to anything to the contrary in the relevant legislation or Order in Council under section 3(2) or under section 158A of the Electricity Industry Act 1993 specifying the prescribed prices or prescribed goods and services in respect of which the Office is exercising its power of regulation. (2) A price determination by the Office may regulate a prescribed price for prescribed goods and services in any manner the Office considers appropriate. (3) Without limiting the generality of sub-section (2), the manner may include - (a) fixing the price or the rate of increase or decrease in the price; (b) fixing a maximum price or maximum rate of increase or minimum rate of decrease in the maximum price; (c) fixing an average price for specified goods or services or an average rate of increase or decrease in the average price; (d) specifying pricing policies or principles; (e) specifying an amount determined by reference to a general price index, the cost of production, a rate of return on assets employed or any other specified factor; (f) specifying an amount determined by reference to quantity, location, period or other specified factor relevant to the rate or supply of the goods or services. (4) In making a determination under this section, the Office must have regard to - (a) the costs of making, producing or supplying the goods or services; (b) the return on assets in the regulated industry; (c) any relevant interstate and international benchmarks for prices, costs and return on assets in comparable industries; (d) the financial implications of the determination; (e) any factors specified in the relevant legislation; (f) any other factors that the Office considers relevant." (Emphases added). (viii) It is important to emphasise a number of features of s.25. First, the section is subject to anything to the contrary in the Tariff Order. By reason of s.18 of the Interpretation of Legislation Act 1984, the reference to the Order in Council is to be construed as a reference contained in a subordinate instrument made pursuant to the provisions of the Act in which the reference occurs. As a general proposition, subordinate legislation cannot override, amend or alter a statute. Parliament is the source of the authority to make the subordinate instrument and it follows that it cannot affect an Act of Parliament. But Parliament can confer the power - see Hall v Paparua County Council (1976) 2 NZLR 350 at 352 and Williams v Volta [1982] VicRp 74; (1982) VR 739 at 747. Parliament has given power to the Governor in Council to give the Tariff Order precedence over anything contained in s.25 of the ORG Act. But it is important to emphasise that the section does not provide for the Order in Council to override any other provision of either the ORG Act or the E.I Act. The second matter to observe is sub-section (3), in a non-exhaustive list, sets out the methods by which the office may prescribe the price. The third matter is that under sub-section (4), the Office is obliged to take into account certain specified matters which includes factors specified in the E.I Act and also any other factors the Office considers relevant. However, consistent with the direction in sub-section (1), the provisions of the Order in Council would override the obligations imposed on the office by sub-section (4) if the Order in Council addressed the particular matter; in other words, if the provision of the Tariff Order was contrary to any matter referred to in s.25(4). (ix) Section 35 of the Interpretation of Legislation Act 1984 requires the court, in interpreting a provision of an Act or subordinate instrument, to adopt a construction that would promote the purpose or object underlying the Act or subordinate instrument, and in seeking the purpose or object, consideration may be given to certain extrinsic material. Both the E.I Act and the ORG Act expressly enumerate the objectives and purposes of the Office and the legislation. (x) Section 157 of the E.I Act sets out the objectives of the Office. The section provides - "157. Objectives of the Office The objectives of the Office under this Act are - (a) to promote competition in the generation, supply and sale of electricity; (b) to ensure the maintenance of an efficient and economic system for the generation, transmission, distribution, supply and sale of electricity; (c) to protect the interest of consumers with respect to electricity prices and the safety, reliability and quality of electricity supply; (d) to facilitate the maintenance of a financially viable electricity supply industry." Matters which are clearly relevant and of substance in price determination are the necessity to maintain an efficient and economic system for distribution, the protection of consumers with respect to, inter alia, reliability and quality of electricity supply and the importance of maintaining a financially viable electricity supply industry. Whilst it is very much in the interests of the consumer to keep the prices down, it is equally important in the interests of consumers and distributors of electricity that the latter are able to continue in business. Given the choice, the consumer would prefer electricity at a price than no electricity at all. (xi) Section 1(b) of the ORG Act states the purpose of the Act, which was to establish the Office and create an economic regulatory framework for, inter alia, the electricity industry "which promotes the simulation of competitive market conduct and the prevention of the misuse of monopoly power" in the absence of a competitive market. (xii) Section 7 is concerned with the objectives of the Office and provides - "7. Objectives of the Office (1) In performing its functions and exercising its powers the Office has the following objectives - (a) to promote competitive market conduct; (b) to prevent misuse of monopoly or market power; (c) to facilitate entry into the relevant market; (d) to facilitate efficiency in regulated industries; (e) to ensure that users and consumers benefit from competition and efficiency. (2) Without derogating from sub-section (1), the Office must also perform its function and exercise its powers in such a manner as the Office considers best achieves any objectives specified in the relevant legislation under which a regulated industry operates." (xiii) Section 9 deals with the powers of the Office and provides - "9. Powers of the Office (1) Subject to this Act, the Office has power to do all things necessary or convenient to be done for or in connection with the performance of its functions and to enable it to achieve its objectives. (2) Without derogating from sub-section (1), the Office also has such powers as may be conferred on the Office by the relevant legislation under which a regulated industry operates." (xiv) The Tariff Order is a long, detailed and complicated document comprising 92 pages together with 43 pages of attachments. Attachment 1 contains definitions and attachment 2 is concerned with rules of interpretation. The latter is concerned more with definitions rather than any rules of interpretation. Clause 5 is concerned with the network tariffs which can be charged by a distributor. It is divided into a number of sub-clauses which cover a variety of topics. Clauses 5.1 to 5.8 ceased to have effect on the later of 31 December 2000 or by the making by the Office of a price determination under, inter alia, s.25 of the ORG Act for use of distribution systems - see cl.5.9.1. That leaves the only other sub-clause in cl.5, which is sub-clause 10. It is necessary to set out the sub-clause in full. "5.10 Restrictions on review of price control arrangements by the Regulator-General In making any price determination under section 25 or section 26 or both of the ORG Act regulating charges for use of Distribution Systems after 31 December 2000 the Regulator-General must, notwithstanding the criteria specified in the ORG Act or the E.I Act: (a) utilise price based regulation adopting a CPI--X approach and not rate of return regulation; (b) where the value of the fixed assets which were allocated to a Distributor under the allocation statements under Sections 117 and 137 of the E.I Act is required to be taken into account, use the adjusted asset value for that Distributor as at 1 July 1994 determined in accordance with the table set out below, adjusted to take into account inflation and depreciation on the asset value increased by inflation since 1 July 1994 and for any disposals since 1 July 1994:

(c) take into account the value of K calculated for each Distributor in accordance with clause 5.3.5 and 5.5.5 for the Financial Year ending 30 June 2001; (d) have regard to the need to: (i) provide each Distributor with incentives to operate efficiently; (ii) ensure a fair sharing of the benefits achieved through efficiency gains between customers and the Distributors; (iii) ensure appropriate incentives for capital expenditure and maintenance in the Distributor's Distribution Systems; and (iv) have regard to the level of executive remuneration in each Distributor by reference to any relevant interstate and international benchmarks for such remuneration; and (e) subject to clause 6.3, set the price controls for use of Distribution Systems and Network Tariffs (if any) for a period of not less than 5 years." Clause 6.3 permits the re-opening of the price determination during the period set under 5.10(e), but only in a limited way. The price may be re-opened if it was set on the basis of information provided by a licensed person and the information was false or misleading. Or, where there was a material error in the price determination, the Office may revoke the price, but only with the prior written consent of the licensed person affected by the determination. Or, the licensed person applies on the basis that the determination is materially adversely affected as a result "of an event beyond the licensed person's control which was not contemplated at the time the price determination was made", but then on certain terms and only with the prior written consent of all licensed persons to which the price determination applies. It is appropriate to make a number of observations concerning cl.5.10. First, the real issue in the present proceeding focuses on the words used in cl.5.10(a). It is the contention of TXU that the Office made the price determination not in accordance with the mandated formula, using rate of return regulation which was prohibited. Hence, the determination was made without power. Secondly, it is observed that the Office "must notwithstanding the criteria specified in the ORG Act or the E.I Act", adopt a certain approach. What criteria in the said two Acts are overridden by the sub-clause? Thirdly, whether or not the values of fixed assets are required to be taken into account clearly is a matter for the Office and will depend upon the Office's methodology, but if used, then they must be used in accordance with the table. Fourthly, the Office is required to have regard to the specified factors set out in paragraph (d)(i)-(iv) (inclusive). Finally, by reason of s.25, the Order overrides anything that is in s.25 which is inconsistent with it.

The Office made a price determination pursuant to s.24 of the ORG Act. Its authority and powers are found in the Order and the two pieces of legislation.

The Office was required, pursuant to cl.5.10(a), to adopt a certain methodology in regulating the charges and was prohibited from adopting another methodology.

The word "formula" has a variety of meanings. One definition is "a procedure to be followed", and I propose to refer to the required methodology as the mandated formula and the prohibited regulation as the prohibited formula.

The evidence established that the mandated formula is imprecise, uncertain and of recent origin. On no view could it be described as a mathematical or scientific formula. It is a formula which sets out to achieve certain objectives.

The prohibited formula also seeks to achieve certain objectives but is a formula which has been used in excess of 100 years, and has certain well accepted characteristics.

The framers of the Tariff Order did not define either formula. That is despite the fact that there are a large number of detailed definitions and interpretation directions included in the attachments. The failure to define either formula shows an intention on the part of the framers of the Tariff Order to leave to the Office the decision as to methodology, and how the price fixing exercise was to be performed within the meaning of the Tariff Order and legislation.

The formula "price based regulation adopting a CPI-X approach" is not found in any of the economics literature prior to the making of the Order on 20 June 1995. On the other hand, methods of price fixing based upon price as distinct from cost have been used for some 60 or 70 years, mainly in the United States of America. A common form of price based approach is what is called a price cap method of price fixing. It is the contention of the Office that the terms "price based regulation" and "price cap" approach are synonymous. This is disputed by TXU.

The approach known as CPI--X is a concept taken up and developed by Professor Stephen Littlechild who, during the 1980s and for most of the 1990s, was responsible for fixing prices for privatised industries in England. He applied the English equivalent to CPI--X, namely, RPI--X. Again the evidence established that it was a method which set out to achieve certain objectives which were markedly different to the objectives applying to the rate of return regulation. The concept has been in a state of evolution over the last 15 years..

The Office made the price determination under ss.24 and 25 of the ORG Act. In making the Determination, the Office was obliged to comply with the provisions of cl.5.10 of the Tariff Order.

This raises the questions of what is meant by the provisions of cl.5.10, in particular cl.5.10(a), and how they were to be applied by the Office.

The object of construing a statutory provision is to determine what the intention was, of the framers of the statutory instrument at the time it was enacted or made.

The primary source of the intention is the words of the provision, construed in their normal and natural meaning, subject to any definition and context and after reading the instrument as a whole.

If the words are precise and certain, and there is no debate as to their application to the facts, then the court is bound to construe the words in their ordinary and natural sense. The words themselves best declare the intention of those responsible for their enactment. See Cargo Ex Argos (1872) LR 5 PC 134 at 153.

Rarely, in contested litigation these days, can that approach be adopted. Adversarial minds have little difficulty in creating a difference of opinion as to the meaning and application of words in a statutory instrument.

Often, the court must go wider than confining the construction to the four corners of the instrument.

In 1877, Lord Blackburn expressed the approach in an oft cited dictum when he said in The River Wear Commissioners v William Adamson (1877) 2 App Cas 743 at 763 -

"I shall therefore state, as precisely as I can, what I understand from the decided cases to be the principles on which the courts of law act in construing instruments in writing; and a statute is an instrument in writing. In all cases the object is to see what is the intention expressed by the words used. But, from the imperfection of language, it is impossible to know what that intention is without enquiring further, and seeing what the circumstances were with reference to which the words were used, and what was the object, appearing from those circumstances, which the person using them had in view; for the meaning of words varies according to the circumstances with respect to which they were used."

A court is permitted, where the statutory instrument is uncertain in meaning or application, to consider the scope, purpose and object of the legislation. The court is permitted to consider the history surrounding the enactment. The court is also permitted to put itself in the shoes of the authors and take into account what the authors knew concerning the subject matter of the proposed instrument.

In R v West Riding County Council (1906) 22 TLR 783, Farwell LJ said -

"The court must, of course, in construing an Act of Parliament, as in construing a deed or will, do its best to put itself in the position of the authors of the words to be interpreted at the time when such words were written or otherwise became effectual."

Today, legislation requires the court to construe a subordinate instrument in a manner which promotes the purpose or object underlying the statutory instrument. Such construction is preferred to a construction which would not promote the purpose or object. See s.35 Interpretation of Legislation Act 1984. In construing a provision, consideration may be given to a variety of extrinsic materials provided the material in question is relevant. See s.35(b).

The permitted extrinsic material is any matter or document, and the only limitation is that it is relevant to the interpretation.

In my opinion, Parliament intended that the court should consider all extrinsic material which may assist it in determining the intention of the framers of the statutory instrument. The important considerations are relevance and care in weighing the extrinsic material.

However, as has been pointed out by the High Court in a number of recent cases, the words in the statute are the primary source of the intention, and if they are precise and unambiguous, they best declare the intention of the body responsible for the statutory instrument. See Re Bolton; ex parte Beane [1987] HCA 12; (1987) 162 CLR 514 at 518 and Walker v In Line Couriers Pty Ltd (1999) 73 ALJR 1084 at 1085.

The parties did rely upon extrinsic material.

The task entrusted to the court in construing a statutory instrument is two-fold, namely, what is the meaning of the words used and what is their legal effect?

The meaning of the words is a question of fact. The legal effect is a question of law. In Chatenay v Brazilian Submarine Telegraph Co (1891) 1 QB 79 at 85, Lindley LJ said -

"It is well at the outset to guard against confusion between the meaning and the legal effect of expressions used in a statute. The expression 'construction' as applied to a document, at all events as used by English lawyers, includes two things - first, the meaning of the word; and secondly, the effect which is to be given to them. The meaning of words I take to be a question of fact in all cases, whether we are dealing with a poem or a legal document. The effect of the words is a question of law."

Sometimes words used in a statutory instrument are technical words, and the court requires the assistance of evidence to determine what the words mean. The words found in cl.5.10(a) are technical words, which no doubt have meaning to those involved in the price regulation industry and in particular economists, but mean nothing to the layman. They are technical words understood in a particular field, and must be given a meaning according to their usage in that field.

The approach to the construction of a provision of a statutory instrument which contains a technical term was stated by O'Connor J in Markell v Wollaston [1906] HCA 91; (1906) 4 CLR 141 at 150 -

"The general rule of interpretation is that words used in a statute must be taken to have been used in their ordinary meaning. If it is contended that there is a commercial or other special meaning of the word, there must be evidence before the court on which it can come to the conclusion that the word is so used, and then it is for the court to determine whether the legislature has used the word in its ordinary signification or in the special sense."

Where terms of art are used, evidence may be given as to what the words mean. The court is permitted to refer to books which show what the words mean.

In Borowski v Quayle [1966] VicRp 54; (1966) VR 382 at 385, Gowans J stated the principles as follows -

"The term 'antibiotic substance' is a technical one. But a court cannot treat such a term in a statute as having no meaning for it. If not assisted by evidence it may itself have resort to technical dictionaries of authority. ... But in the absence of such aid evidence may be given as to the meaning and denotation of the technical term."

In London and North NE Railway Co v Berriman (1946) AC 278 at 294 Lord MacMillan said -

"I recognise that when Parliament employs technical terms without definition in a statute dealing with a particular art or industry, courts of law are entitled to have the assistance of skilled persons in the interpretation of such terms. Indeed the present statute and rules contain numerous technical terms as to whose meaning in railway parlance evidence would be almost indispensable."

In the same case at p.310 Lord Simonds said -

"It is only by reference to the industry that the meaning can be ascertained ... It remains a question of evidence what the words mean in the industry. They are a term of art and it is by those skilled in the art that I must be instructed." (Emphasis added).

The two formulae contained in cl.5.10(a) of the Tariff Order comprise words which may be terms of art. The art is the regulation of prices of public utilities. The experts in that area, price regulators and economists, are skilled in that art and their evidence is admissible to enable the court to give legal effect to the terms of the Tariff Order.

Parker LJ summarised the principles in R v Patents Appeal Tribunal; ex parte Baldwin and Francis Ltd (1959) 1 QB 105 at 111 when he said -

"Thus, when the language of the instrument is such that the court does not understand, it is competent to receive evidence of the proper meaning of that language, and this is so whether it is written (for instance) in a foreign tongue or contains technical terms of science or art."

When a word or phrase is described as a term of art, usually it is not difficult for the court by reference to a book, such as a dictionary of technical terms or a textbook, to determine what the word or phrase means. The industry, profession or field of learning evolve their own language to define a word or phrase. They acquire a well accepted meaning. The lexicon of the terms of art is found usually in a dictionary or a textbook. There is usually no debate as to meaning. However, that is not the case here. Witnesses were called on both sides as to the meaning of the formulae contained in cl.5.10(a), but on any view of the evidence, there is a degree of uncertainty as to what each formula means.

In my opinion, the evidence of the experts called by TXU and the Office as to what the words mean, is admissible.

Clause 5.10(a) provides "(a) Utilise price based regulation adopting a CPI--X approach and not rate of return regulation".

It is convenient to divide up the sub-clause to determine what the words mean. However, in determining their application, which is a question of law, the sub-clause will have to be construed as a whole and in context and after taking into account the relevant provisions of both the ORG Act and the E.I Act.

When reference is made to the art, namely, price regulation and economics, we find that the phrase "price based regulation" is not a term of art, and is a phrase which has been rarely used prior to the date of the Tariff Order, 20 June 1995, and did not at that date have a definite meaning.

The eminent economists called by each side addressed the question of what cl.5.10(a) meant. In giving their evidence, each made extensive use of articles and textbooks concerning price regulation in relation to public utilities.

In addition, an economist called by the Office, Gregory John Houston, who has had extensive experience in the regulatory review of tariffs for various electricity, gas, water, rail, airports and telecommunications utilities since 1989, carried out a survey of the relevant literature in the field of price regulation and economics. He reviewed some 69 articles and texts by 59 authors.

The evidence revealed that the phrase "price based regulation" was not a term of art. Prior to 1995, it had been used in two articles. Two economists in 1989, in an article, had used the phrase to describe a concept concerning price regulation. In another article in 1993, an economist also used the phrase.

By 20 June 1995, it could not be said that the phrase was a term of art which had an accepted meaning amongst price regulators and economists. It was a phrase coined by two economists in 1989 to describe a price fixing approach.

The experts called by each side gave evidence as to what they understood the phrase meant, and in so doing, were very much influenced by the provisions of cl.5.10(a). In so far as the experts gave evidence as to what they thought the phrase meant in the context of the clause, in my opinion, the evidence is irrelevant. Evidence may be given as to what words mean within a particular area of learning, but their effect and application in the statutory instrument is a question of law.

Evidence from Professor King, Professor of Economics at the University of Melbourne, on behalf of TXU, was that there were two articles in 1982 and 1989 which contained formulae which utilised what he described as "price based regulation". However, the articles did not support what he said, but appeared in a general way to support his theory as to what the phrase "price based regulation adopting CPI--X approach" meant.

What is clear is, that by 20 June 1995, two articles had referred to the phrase and the information was available to the framers of the Tariff Order at the relevant time.

According to the evidence, the phrase first appeared in an article in the prestigious "Rand Journal of Economics" by Messrs Braeutigam and Panzar of the North Western University, United States of America. The article appeared in the autumn edition 1989.

In the first two pages of their article, the authors referred to a regulatory process and having described that regulatory process, stated that it was a "cost based regulation".

They went on to summarise the deficiencies of what they described as a rate of return or cost based regulation as follows on p.374 -

"A lengthy literature has developed on the potential economic inefficiencies that might accompany either rate-of-return regulation or fully distributed cost pricing, even when diversification into competitive markets is not an issue. Some of the resulting inefficiencies include the failure of the firm to minimise its costs in producing any observed output, the inability of the regulatory regime to force the firm to operate in an inelastic region of demand, the lack of incentives for the firm to develop socially desirable cost-reducing innovations, and the incentive for the firm to engage in inefficient diversification into competitive markets."

These deficiencies were accepted by the experts on both sides in the present proceeding as the real problems of a price fixed by rate of return regulation.

"As an alternate to cost-based regulation, there is currently great interest in a form of regulation that would establish rate caps on non-competitive services and allow the firm to enter into competitive markets, charging whatever prices it likes. We refer to this as 'price-based' regulation. In its simplest form, the firm is regulated by rate caps determined exogenously for the non-competitive markets. Thus, the firm will find it profitable to produce its output in cost-minimising fashion, to innovate when it is socially desirable to do so, and to diversify into competitive markets only if it is economically efficient to do so." (Emphasis added).

"A model of the firm operating under price-based (price-capped) regulation is presented and analysed in section 4." (Emphasis added).

It is clear from the article that the authors used the phrase "price based regulation" and "price cap regulation" interchangeably. This provides support for the Office's opinion to the same effect.

In an article in the "Journal of Regulatory Economics" in 1993 by Dennis Weisman of Kansas State University called "Superior Regulatory Regimes in Theory and Practice", the author states in his Introduction the following -

"A substantial body of recent research examines the superiority of price-based or price-cap over cost-regulation."

In his footnote at the bottom of p.355, the author says -

"We use the terms price-based and price-capped regulation interchangeably. The latter term has come into vogue in the telecommunications industry due to recent experiments with capping prices by British Telecom and the Federal Communications Commission. See Beesley and Littlechild (1989)."

That was the state of the information available, as at 20 June 1995, according to the evidence. That is what the evidence reveals is the meaning of the words used in the phrase, namely, a form of price-cap regulation.

Writing in an introduction to a symposium of price cap regulation published in The Rand Journal of Economics, Vol. 20, No. 3 in 1989, Messrs Acton and Vogelsang, from the Rand Corporation and Boston University respectively, said at p.370 -

"What do we mean by price caps? As is well known from the history of rate-of-return regulation, a sharp characterisation of a regulatory mechanism is not easy. The two best known characterisations of rate-of-return regulation by Averch and Johnson (1962) and Joskow (1972 and 1974) are very different from one another. Both appear to be fruitful because they allow for a more diversified discussion of arising issues. Keeping this in mind, we aim for a definition of price-cap regulation that is compatible with the articles in this symposium and with our research and practice. In our view, price caps are characterised by four properties: 1. The regulator director sets a ceiling for prices to be charged by the regulated firm. The firm may chose the prices below the ceiling 2. Price ceilings are defined for baskets of services offered by the regulated firm. They can be expressed as price indices for these baskets - and different ceilings may apply for each basket. 3. These price indices are adjusted periodically by a pre-announced adjustment factor that is exogenous to the regulated firm. 4. In longer intervals of several years, the adjustment factors, baskets and weighting schemes for the indices are reviewed and possibly changed. While appearing to be a British import, price caps are not new to Americans." (Emphasis added).

The learned authors go on then to note that many claims "have been made about price caps and their superiority over rate of return regulation". The authors emphasised the uncertainty amongst economists as to the characteristics of the various price fixing formulae that have been used.

The above references were available to the framers of the Tariff Order when they considered what method was to be used to fix the price for distribution of electricity.

"CPI--X approach" is that part of the mandated formula that deals with the adjustment of the prices each year. CPI is a well-known concept in Australia, and by reference to the publication by the Australian Bureau of Statistics, one can determine the movement in the cost of living for a particular period. The X is fixed as part of the adjustment mechanism.

At a glance

Court

Decision date

Before

Source

Judgment (506 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (8)