We should see more details of the amended Limited Merits
Review regime in the first quarter of 2017, and a consultation
process is likely.
At the August meeting of the COAG Energy Council, a review was
initiated of the role of Limited Merits Review for gas and
electricity regulatory decisions and whether it should be
abolished. This came from a concern by the Energy Ministers that
the regime was failing to meet its policy intent and leading to
higher prices for consumers.
The results of that review were provided to the December meeting
of the COAG Energy Council and while Limited Merits Review was not
abolished, it has certainly been changed quite significantly from
its current form. The details of the changes are still being worked
out, but key aspects of the changes are:
Introduction of a binding rate-of-return guideline, with
relevant elements of the regulator's decision not subject to
merits review. This reform draws upon the New Zealand weighted
average cost of capital (WACC) experience with
"input methodologies". It reflects the fact that the
rate-of-return aspect alone can give rise to multiple appeals under
the current Australian regulatory arrangements and regulated
revenue decision timings. Under this reform, a single, binding
rate-of-return determination will apply to all regulated revenue
decisions. Presumably, the methodology in the rate-of-return
determination will need to be accompanied by a worked example that
generates a WACC point estimate, based on the prevailing conditions
in the market for funds. It is not clear whether the proposed
reform will allow the binding guideline itself to be reviewable, or
if the binding guideline and the subsequent rate-of-return
decisions will all be excluded from limited merits review.
No more oral hearings before the Australian Competition
Tribunal. It seems that all reviews will be on the papers rather
than through the form of oral hearing which has been used up until
now in these hearings. It is hoped this will reduce the expense and
time taken by reviews.
Tightening and clarifying the grounds for review. It is not
clear precisely what this will involve as there are already fairly
narrow grounds on which a review can be initiated.
Higher unspecified financial thresholds before a review can be
A strengthened requirement for review appellants to demonstrate
that overturning the regulator's decision would not be to the
serious detriment of the long-term interests of consumers.
More flexible arrangements for consumer participation in
Remove opportunities for gaming by limiting the time-frames in
which material can be submitted to the regulator.
Costs of reviews, including those of the AER, to be borne by
network businesses. This is a way to encourage only reviews where
the benefits will exceed all parties' costs. It would, however,
be dangerous if there were no scope for the Tribunal to make
different costs orders if it were to find that there were serious
errors on the part of the AER.
A working group of officials has been tasked with quickly
developing detailed amendments for the Ministers' consideration
and approval in the first quarter of 2017. It seems likely that
there will be opportunities for interested stakeholders to engage
with Energy Council officials, and it is important to start
thinking about how the reforms should be most usefully
A further review of the regime will be undertaken by officials
two years after the amendments have been implemented.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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