First published in NZLawyer, 14 December 2012.
Litigation continues to surround the input methodologies
(IMs) set by the Commerce Commission to regulate electricity,
gas and airport companies under Part 4 of the Commerce Act 1986 (the
Act). Most recently, in mid November the Supreme Court knocked back
Vector's attempt to challenge the Commission's reset of price-quality paths for
electricity distribution businesses (EDBs) by arguing that it
had failed to publish an IM for a starting price adjustment
(SPA). That decision may have closed off that particular
avenue, but there are still several routes open to regulated companies who
remain determined to upset the IM apple-cart.
As explained in the 16 November 2012 edition of this column (The bumpy
road to a price path), Vector's challenge concerned the transition to
price-quality path regulation for non-consumer-owned EDBs under Part 4 of the
Act, which took effect in 2008. The relevant price path depends heavily on
starting prices, which are then adjusted on a CPI – x basis.
The former Part 4A (the predecessor to Part 4) had regulated EDBs by way of a
different regime that relied on thresholds. Part 4 deemed those thresholds to be
price-quality paths for the interim period from 1 April 2009 to 31 March
On 30 November 2009, the Commission set starting prices and default
price-quality paths for the five-year regulatory period commencing on 1 April
2010. It did so by simply rolling over the prices set under the old thresholds
regime, because it had yet to publish the other IMs required for the new
regulatory regime. The Commission took the view that, once it had published the
necessary IMs, it would be able to reset the starting prices and default
price-quality paths by reference to each supplier's expected profitability
during the regulatory period using a power set out in section 54K(3).
On 22 December 2010, the Commission published the relevant IMs. Consultation
in relation to resetting starting prices was commenced, but soon stalled by
Vector's application for judicial review. Vector contended in particular that
the Commission had failed to publish a SPA IM as required by section 52T. If the
Commission had done so, that SPA IM would have been susceptible to merits review
by the High Court.
In the High Court, Clifford J agreed with Vector that the Commission had
misinterpreted Part 4. He held that the reference in section 52T(1)(c)(i) to
"regulatory processes and rules, such as the specification and definition of
prices" indeed required the Commission to publish a SPA IM. The Court of Appeal
overturned Clifford J's decision. Vector appealed to the Supreme Court, which
unanimously dismissed that appeal.
The Supreme Court decision
Vector's appeal raised two questions. The first, shortly put, was whether the
Commission was required to publish a SPA IM. As a matter of statutory
interpretation, the Supreme Court concluded that the Commission was able – but
not required – to do so by section 52T. In reaching that conclusion, it made the
The list in section 52T(1) of topics to be covered by IMs was non-exhaustive.
It simply identified a number of topics which those IMs "must include".
Significantly, there was no explicit reference in section 52T to a starting
price reset. That was so even though, during the legislative phase, submitters
had argued to the Commerce Select Committee that the Commission should be
required to publish IMs on a much wider range of topics than those reflected in
Interpreting section 52T(1)(c) to require the Commission to publish a SPA IM
would place it under an extremely onerous obligation to publish IMs for a wide
range of matters relating to the specification of prices. Such an interpretation
was unlikely to have been intended, given the tight statutory timeframes imposed
on the Commission by Part 4.
It was clear that Part 4 had been intended to address the lack of regulatory
certainty and absence of merits-based appeal rights offered by the former Part
4A. However, the Supreme Court was reluctant to accept that the Commission's
approach would lead to greater uncertainty. It appeared to accept that the
Commission's interpretation would lead to there being no merits review of its
starting price reset, but did not see this as being determinative – it suggested
instead that disappointed suppliers could propose a customised price-quality
path, which would be subject to merits review.
The second question was whether section 54K(3) allowed the Commission to
reset the starting prices fixed for the regulatory period which commenced on 1
April 2010. Vector argued that it did not, in particular because the Commission
could not show that the IMs released in December 2010 would have resulted in a
materially different default price-quality path being set. The Supreme Court
disagreed, observing that Vector's approach involved placing a substantial gloss
on the wording of section 54K(3).
In the result, Vector's judicial review failed to derail the Commission's
reset process. The Commission moved swiftly in response, issuing a determination
resetting default price quality paths for EDBs on 30 November 2012.
A footnote on jurisdiction
In the 19 October 2012 edition of this column (Exporting jurisdiction
(2): more on the liability of foreign parents under the Commerce Act), we
discussed the decision in Commerce Commission v Visy Board Pty Limited
 NZCA 383. The Court of Appeal there rejected Visy's protest to the
jurisdiction of the New Zealand courts in connection with alleged collusion in a
corrugated fibreboard packaging market, where much of the conduct occurred in
In late November, the Supreme Court dismissed Visy's application for leave to
appeal. It reasoned that the Court of Appeal's decision was "provisional" and
could be overtaken by an application of section 4 of the Commerce Act at trial.
So, the position remains as outlined in our earlier column – an Australian
parent may find itself subject to the jurisdiction of the New Zealand Courts,
even where it operates through a New Zealand subsidiary and the relevant conduct
itself did not occur here.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.