21 December 2006
Key Points:
A recent decision has interpreted a criterion for declaration as simply requiring that competition be promoted as a result of access in fact rather than access through declaration.
A recent Full Federal Court decision has lowered the benchmark for third party access to natural monopoly infrastructure. If and until such time as the National Electricity Rules are "certified" as effective under Part IIIA of the Trade Practices Act ("TPA"), electricity network owners face increased exposure to being "declared" and subject to the general third party access provisions of the TPA.
The Ministerial Council on Energy has stated its intention to have the Rules certified as an effective access regime under Part IIIA of the TPA. Certification of the Rules will give network owners immunity from their network services being "declared" under the general third party access provisions of the TPA.
Declaration entitles an access seeker to negotiate terms of access directly with the infrastructure provider, and failing agreement, the terms can be determined by the ACCC by arbitration. In contrast, once an access regime is certified as effective, the only means by which access can be sought is through and on the terms set out in the regime.
For an access regime to be certified as effective under Part IIIA, it needs to satisfy the criteria for an effective access regime as set out in the Competition Principles Agreement (clause 6 principles). This process can be lengthy and involves public consultation, consideration and recommendation by the National Competition Council ("NCC"), and then consideration by the relevant decision making Minister.
Up until now, State Governments appear not to have considered it an imperative to obtain certification for many access regimes. For example, neither the Queensland Gas Code nor the Victoria Rail Access Regime are certified even though both are operative. The Queensland Government sought but was unsuccessful in its application for certification of the Queensland Gas Code. In the case of the Victorian Rail Access Regime, after the NCC identified a number of issues with the regime, the Government withdrew its application for certification.
There appears to have been a view that the consequences and risks associated with not certifying an access regime may not have been significant. In particular, from a practical perspective, access seekers may be more likely to seek access pursuant to established and comprehensive access regimes rather than seek declaration, and then negotiate and possibly arbitrate terms from scratch.
Second, there was real doubt as to whether an application for declaration of infrastructure already the subject of a comprehensive access regime, would satisfy the declaration criteria.
In particular, declaration criterion (a) (section 44H(4)(a))) requires that access (or increased access) would promote competition in a dependent market. The Australian Competition Tribunal has interpreted this criterion as requiring that "the opportunities and environment for competition" in a dependent market be enhanced if the infrastructure service was declared. In other words, the question identified by the Tribunal for consideration under criterion (a) was would access through declaration under Part IIIA promote competition (Duke Eastern Gas Pipeline (2001) ATPR 41-821).
In circumstances where the infrastructure was already covered by a comprehensive State access regime, it would be less likely that declaration would promote competition as the market power of the infrastructure service provider would likely be constrained (Application for Declaration of Rail Network Services provided by Freight Australia: Final Recommendation (Dec 2001)). In other words, the pro-competitive effect of third party access would already have been achieved by the access regime in place.
However, the Full Federal Court's decision in Sydney Airport Corporation Limited v Australian Competition Tribunal [2006] FCAFC 146 rejected the Tribunal's interpretation of criterion (a) and has lowered the bar by interpreting declaration criterion (a) as simply requiring that competition be promoted as a result of access in fact rather than access through declaration.[1] In other words, the relevant question is now whether the fact of access would promote competition in a dependent market. On this test, it is arguable that access to almost all natural monopoly infrastructure, particularly network infrastructure, would satisfy criterion (a).
An implication for electricity network owners is that if, for whatever reason, an access seeker is unhappy with the terms of access offered under the Rules, it would be open to it to seek declaration of the relevant network services under the general access provisions of Part IIIA.
This exposure and the resultant uncertainty would be entirely addressed if the Rules are certified as effective under Part IIIA. Certification, however, can take some time and, as yet, no formal application has been made. The need for certification given the Full Federal Court's decision has become more pressing.
For further information, please contact Nevenka Codevelle.
