Tribunal rules AER did not prove Victoria monopolists’ smart meter contract management fee was ‘not prudent’

First 10 of 10 paragraphs shown The Australian Competition Tribunal has overruled the Australian Energy Regulator and ruled the AER had had failed to prove that an untendered self-contract to mamage metering develpment was not a device to increase4 determination to refuse self-contracts fees was based;
- on an error of fact; and
- on a misreading of the AMI Order:
AER had argued management fee, was a profit margin for the related party. The Tribunal disagreed - " This premise is incorrect, as a matter of both fact and law. The regulatory principles set out in cl 4 of the AMI Order refer to a building block approach based on, among other things, operating expenditure of the distributor.
AER must prove profit margin 'not prudent": The Tribunal ruled :If a distributor outsources activities, the operating expenditure of the distributor will necessarily incorporate a margin it pays to the party providing the outsourced services. So long as the third party is performing activities within scope, then the profit margin payable to the third party is a cost for those activities within scope. It may be that the profit margin payable is not prudent, but that is a separate matter. In this case, the AER did not establish that the management fee was not prudent".
Where AER erred: The Tribunal said “....we are satisfied that there have been errors of fact, that those errors were material, and that that the AER’s ultimate determination to reject the management fees was based at least partly on those errors.
Tribunal explains ruling:
- "In its final determination the AER referred to the ESCV’s Electricity Industry Guideline No. 3, a guideline which specifies the requirements for the collection, allocation and recording of business data by a DNSP. The guideline does not permit the DNSP to record management fees and related party margins in its accounting statements.
- The AER seems to be of the opinion (once again its precise view is not altogether clear) that the guideline’s exclusion of management fees and related party margins permits the AER to exclude those items from the budget. This, of course, is incorrect. The AER’s opinion (if that is the opinion that it holds) is based on a misreading of the AMI Order."
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