Vector may continue watchdog battle

JASON KRUPP AND FIONA ROTHERHAM
Last updated 10:33 16/11/2012

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The Commerce Commission has welcomed a Supreme Court decision that unanimously dismissed Vector's battle to overturn the Commission's ability to set the prices monopolies can charge to transport gas and electricity to customers.

Vector said while it’s disappointed at the outcome of the judicial review, it had given some clarity of what was required under the new process but may not be the end of the road in the long-running battle between the Auckland energy distributor and watchdog.

The two faced off in the High Court where Vector won, and then the Court of Appeal where the Commission won, before winding up before the Supreme Court. Commerce Commission chairman Mark Berry said yesterday's ruling finally allowed the commission to complete aspects of the regulatory regime.

"The judicial reviews the Commission has faced in relation to input methodologies have significantly delayed the implementation of the Part 4 regime. This has had the effect of allowing some businesses to continue to charge their customers too much and some businesses which we believe should be able to charge more in order to invest in their networks have not been able to increase prices," Berry said.

But Vector chief executive Simon Mackenzie said the judicial review simply focused on whether the Commission had followed the procedures it was meant to, not whether that was the right decision. Under the new pricing rules being proposed, the Commission calculated that Vector needed to reduce its prices by between 16 per cent and 25 per cent, which equates to $4.60 a month for the 140,000 customers.

Vector challenged the watchdog to reset prices on two grounds.

First, under the Commerce Act of 1986, the Commission is required to publish input methodologies – or how it calculates prices - when it assesses a monopoly's profitability. It must also set standard starting prices for a five-year period.

When prices were set at the end of 2009, the input methodology was not put in place, and the regulator rolled over the existing price structure in March the following year for five years. The input methodologies were published in December 2010.

Vector contended the Commission couldn't reset profitability limits without first having the methodology in place without leaving the new price regime in an unacceptably uncertain state.

The court dismissed the argument, saying the Commerce Act didn't specifically require this. It also rejected Vector's second argument that under the act the Commission couldn't retrospectively change starting prices in any five-year period, saying it placed "unnecessary gloss on the statutory text".

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Mackenzie said while the court has ruled the Commission didn't have to include standard starting prices, it also said it could have done so. He said Vector and seven other parties have also appealed under a Merits Appeal hearing before a High Court judge and two independent experts which looked at the quality of the Commission's decision-making, not just whether it followed the letter of the law. He hoped to have decisions out from that merits appeal in the first quarter of next year.

"This is a very common process in most international regimes, it's just the first time it has occurred here ... .we obviously want to have long-term security and are not looking to delay," Mackenzie said.

Berry said the final reports on the default pricing for both electricity distribution and gas pipeline businesses will be released November 30 and in February 2013 respectively.

- BusinessDay.co.nz

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