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Commerce Commission appeals Vector win

Tuesday 25th October 2011

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The Commerce Commission will appeal a High Court decision that told it to go back to the drawing board on regulating prices for monopoly services.  

The appeal is the latest twist in a tangle of legal actions led by Vector, the NZX-listed Auckland monopoly electricity and gas network owner, against the competition regulator’s interpretation of new parts of Part 4 of the Commerce Act, relating to monopoly pricing regimes.

Part 4 of the Commerce Act regulates suppliers of monopoly electricity lines, gas pipelines services and airport services supplied by Auckland, Wellington and Christchurch airports.

The commission will contest the judgment of Judge Denis Clifford that it should have determined further input methodologies before seeking to reset starting prices for electricity network owners.

“We do not believe that an input methodology for starting prices was intended when Part 4 of the Commerce Act was enacted,” said Mark Berry, Commerce Commission Chair. “We are also concerned that the High Court’s decision could potentially require the commission to develop other process input methodologies that we do not believe were intended by Parliament.”

“This leads to uncertainty and the potential for further legal challenges. We believe that it is therefore in everyone’s interests to address this concern now,” Berry said.

The case is crucial to how future earnings are regulated for NZX-listed Vector and Powerco, and to more than two dozen local government-owned electricity network companies, and could have flow-on effects to airport monopoly regulation.

At stake is the interplay between the input methodology and the use it is put to in determining the network owner’s regulated Default Price Path (DPP).

Vector is challenging the DPP set by the commission under a separate “merits review” process, also to be overseen by Judge Clifford in proceedings set down for hearings next year.

Vector is also contesting the commission’s approach on a third set of legal grounds relating to whether there were “errors in law” in the way the commission has interpreted its task.

The appeal further complicates the array of interlocking court actions, all of which have potential to create further sources of highly technical legal dispute.

The High Court decision has resulted in a delay to the proposed mid-period price reset of the DPP that would have been effective from April 1 next year.

“The Commission is in the process of making submissions back to the Court regarding what work it can undertake while the appeal is pending to minimise any further delay to that reset,” said Berry.

Vector chief executive Simon Mackenzie said the decision to appeal was “disappointing”, especially given the high threshold required for a judicial review to succeed.

“Vector will engage in the appeal process, but we are disappointed the commission have taken this action which leads to a continuation of the extremely costly and lengthy process and a further delay to regulatory certainty,” he said.


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