Buller Electricity Limited v Electricity Authority
[2024] NZHC 706
•28 March 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-30
[2024] NZHC 706
UNDER the Judicial Review Procedure Act 2016 and Part 30 of the High Court Rules 2016 IN THE MATTER
of an application for judicial review
BETWEEN
BULLER ELECTRICITY LIMITED
Applicant
AND
ELECTRICITY AUTHORITY
First Respondent
TRANSPOWER NEW ZEALAND LIMITED
Second Respondent
Hearing: 31 July – 2 August 2023 Appearances:
T C Weston KC, O D Peers and M Powell for Applicant D A Laurenson KC and J H Stevens for First Respondent T D Smith and D J Keogh for Second Respondent
Judgment:
28 March 2024
JUDGMENT OF McQUEEN J
BULLER ELECTRICITY LIMITED v ELECTRICITY AUTHORITY [2024] NZHC 706 [28 March 2024]
Table of Contents
Para Nos
Introduction [1]
The parties and their interim arrangements [4] Overview of the regulatory framework for the electricity industry [8] Factual background [19]
Electricity in the Buller region [20]
The Authority’s 2019 Issues Paper [23]
The Authority’s 2020 Decision and Guidelines [29]
The development of the new TPM [39]
The reclassification of the Affected Assets in 2020 [40]
Ongoing development of the TPM [42]
The introduction of the discretionary reclassification power [51]
The adoption of the new TPM [56]
The implementation of the new TPM [61]
The reclassification of the Affected Assets [64]
The replacement costs update [79]
The re-notification of the reclassification decision [81]
Total transmission charges increase [86]
Matters of common ground [91]
BEL’s application for review [95]
Response of the Authority and Transpower [98]
The evidence [99]
BEL’s specific position [107]
Economic evidence [117]
Cause of action against the Authority [126]
Is cl 23 consistent with the statutory objective? [127]
Is cl 23 consistent with the 2020 Guidelines? [144]
Was cl 23 targeted at BEL? [160]
Was the inclusion of cl 23 unreasonable or unlawful for any other reason? [165]
Conclusion [211]
First cause of action against Transpower: did Transpower have
jurisdiction to reclassify the Affected Assets on 15 September 2022? [212]
Section 43 of the Legislation Act 2019 [216]
BEL submissions [238]
The Authority’s submissions [242]
Transpower’s submissions [246]
Did Transpower have jurisdiction to reclassify the Affected Assets on
15 September 2022? [251]
Conclusion [257]
Second cause of action against Transpower: did Transpower fail to
properly exercise its discretion in its 15 September 2022 decision? [258]
BEL submissions [259]
Transpower submissions [262]
Legal foundation for claim [263]
Did Transpower pre-determine the outcome of the application ofcl 23(1)(c) to BEL? [264]
Did Transpower make an error of law and consequently fail to properly
exercise the cl 23 discretion? [282]
Conclusion [299]
Third cause of action against Transpower—did Transpower fail
properly to exercise its discretion in the 1 April 2023 renotificataion
decision? [300]
Result [302]
Costs [304]
Introduction
[1] Buller Electricity Ltd (BEL) is the local lines company that supplies electricity in the Buller district of the West Coast of the South Island. BEL seeks judicial review of decisions made by each of the Electricity Authority (the Authority) and Transpower New Zealand Ltd (Transpower).
[2] BEL has a contract with Transpower for the supply of transmission services. The fees charged for transmission services are determined by the Transmission Pricing Methodology (the TPM).1 Put simply, BEL challenges two decisions. First, it challenges the Authority’s decision to include in cl 23 of the TPM a discretionary power to reclassify interconnection assets as connection assets for the purpose of determining transmission charges. It says that decision was unlawful, unreasonable, and inconsistent with the Authority’s statutory purpose. Second, BEL challenges Transpower’s decision to exercise that power to reclassify certain BEL assets (the Affected Assets). BEL does so on three grounds. First, it says that Transpower exercised the power to reclassify prematurely. Second, it says that Transpower’s exercise of that power was unlawful, unreasonable, and/or was pre-determined. Third, it says that Transpower’s renotification of the reclassification decision at a later date did nothing to cure the defects present in the earlier decision.
1 The Transmission Pricing Methodology (the TPM) is included as sch 12.4 of the Electricity Industry Participation Code 2010 (the Code).
[3]I conclude that BEL’s application for review should be dismissed.
The parties and their interim arrangements
[4] BEL is a consumer-owned electricity distribution business with the primary corporate vision of building Buller’s community through energy, service and technology.2 Its shares are held collectively by the five trustees of the Buller Electric Power Trust (the Trust). The Trust was established in 1993, with the purpose of enabling the trustees to acquire all of the shares in BEL. The purposes of the Trust, as set out by cl 3.6 of the Trust Deed, are:
To protect and promote the interests of the Trust by encouraging and facilitating [BEL] in meeting its objective of being a successful business and to ensure that the benefits of ownership are maximised to consumers in the form of dividends, discounts on line charges or otherwise. In assessing whether [BEL] is meeting its obligations. The (sic) Trustees should have regard to any benefits provided to the community within which it operates and recognise that provision of benefits to the community is a proper function of a locally based and community owned corporation.
[5] The trustees of the Trust and the directors of BEL include longstanding West Coast residents with strong community and family ties to the Buller region. They are concerned to advance and protect the interests of Buller residents, including to ensure that Buller residents receive reliable electricity supply at sustainable prices. BEL supplies electricity, via several retailers, to approximately 4,800 consumers in the Buller area.
[6] The Authority is established as the regulator of the electricity industry under the Electricity Industry Act 2010 (the Act).3 Transpower is a state-owned enterprise providing electric power transmission from generators to local lines companies (such as BEL) and large industrial users.
[7] When BEL commenced these proceedings, it also applied for an interim injunction restraining Transpower from increasing transmission charges following its decision to reclassify the Affected Assets until further order of the Court. BEL and Transpower were able to reach an agreed interim position. In essence, Transpower
2 As required by s 39 of the Energy Companies Act 1992.
3 Sections 8 to 18.
gave undertakings that it will not invoice BEL for the portion of connection charges reflecting the reclassification of the Affected Assets, pending the determination of these proceedings. In response, BEL gave undertakings that in the event it is unsuccessful in the proceeding, it would be required to pay the outstanding charges (with interest) within five working days of demand by Transpower.
Overview of the regulatory framework for the electricity industry
[8] The Act provides the current legislative framework for the regulation of the electricity industry.4 I now briefly outline this framework.5
[9] Part 2 of the Act, entitled “Electricity industry governance”, addresses “who does what” in the industry. It establishes the Authority. It also establishes Transpower as the system operator and defines who are “industry participants”.6
[10] The Authority’s objectives are set out in s 15. At the time relevant to the matters at issue in the current proceeding, s 15 stated:7
The objective of the Authority is to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.
[11]The Authority’s functions are set out in s 16(1) of the Act, and include:
(a)to make and administer the Electricity Industry Participation Code 2010 (the Code) in accordance with subpt 3 of the Act;8
(b)to monitor compliance with the Act, its regulations, and the Code, and to exempt individual industry participants from the obligation to comply with the Code or specific provisions of the Code;9 and
4 Electricity Industry Act 2010 (the Act), s 4.
5 A brief outline of the earlier history of electricity regulation in New Zealand is set out in Manawa Energy Limited v Electricity Authority [2022] NZHC 1444 [Manawa] at [7].
6 Section 7.
7 Section 15 was amended with effect from 1 January 2023: ss 2(2) and 10(1) of the Electricity Industry Amendment Act 2022. The effect of the amendments was that what was previously s 15 became s 15(1) with the adjective “main” inserted before “objective” and subs 15(1) and (2) were inserted, referring to an additional objective.
8 Section 16(1)(b).
9 Section 16(1)(c).
(c)to investigate and enforce compliance with pt 4 of the Act, the regulations, and the Code.
[12] Participants in the electricity industry are defined by s 7 and include generators, distributors (such as BEL), retailers, and Transpower. Section 9 of the Act requires industry participants to comply with the Code. Section 32 addresses the content of the Code. Section 32(1) states:
The Code may contain any provisions that are consistent with the objectives of the Authority and are necessary or desirable to promote any or all of the following:
(a)competition in the electricity industry:
(b)the reliable supply of electricity to consumers:
(c)the efficient operation of the electricity industry:
(d)the protection of the interests of domestic consumers and small business consumers in relation to the supply of electricity to those consumers:
(e)the performance by the Authority of its functions:
(f)any other matter specifically referred to in this Act as a matter for inclusion in the Code.
[13] The Code governs nearly every aspect of the electricity industry. It has effect as secondary legislation and came into force on 1 November 2010.
[14] Transpower owns the national power grid and is responsible for operating the transmission network.10 The costs of operating the national grid are around $800 million each year. Transpower charges for the use of the transmission network, over which it has a natural monopoly.
[15] The Code requires Transpower to develop a TPM and provides detailed provisions as to the process by which this is to occur.11 The purpose of the TPM is to ensure that, subject to pt 4 of the Commerce Act 1986, the full economic costs of
10 Section 5 of the Act defines the “system operator” as “the person who ensures the real-time co- ordination of the electricity system …”. Section 8 provides that Transpower is the system operator.
11 Electricity Industry Participation Code 2010 (the Code), pt 12 subpt 4.
Transpower’s services are allocated in accordance with the Authority’s objective in s 15 of the Act.12
[16] It follows that the TPM must, among other things, be consistent with the Authority’s statutory objective as set out in s 15 of the Act and any guidelines issued by the Authority.13 The TPM must include indicative prices to allow the Authority and interested parties to understand the impact of the methodology.14 As the TPM is part of the Code, it must also be consistent with the Act’s purpose. Transpower must submit a proposed TPM to the Authority.15 It is for the Authority to approve a TPM for publication and then allow time for submissions.16 Following consideration of submissions, the Authority must consider whether to incorporate the TPM into the Code and if so, the date on which the TPM will take effect.17 Ultimately, Transpower must charge for transmission services in accordance with the TPM.18 Transpower supplies transmission services to designated transmission customers under contract.19
[17] An important contextual matter to appreciate at this point is that the TPM generally categorises transmission grid assets as either “connection assets” or “interconnection assets” for the purpose of determining how the costs associated with those assets are recovered by Transpower. At a high level, connection assets can be attributed to a particular customer and connect a customer’s plant to the wider national grid. Interconnection assets form part of the wider national grid and provide interconnectivity between connected parties but are not attributable to a single customer.
[18] Generally speaking, the costs of connection assets are allocated directly to the transmission customers who make use of those assets, while the costs of interconnection assets are spread over a wider pool of customers. The 2023 TPM and its 2008 predecessor include technical definitions of connection assets and
12 Clause 12.78, and see cl 12.77 as to the recovery of Transpower’s investment costs.
13 Clause 12.89(1).
14 Clause 12.89(2).
15 Clause 12.88.
16 Clauses 12.91–12.92.
17 Clause 12.93–12.94.
18 Clause 12.95.
19 The terms of such contracts are determined in accordance with subpt 2 of pt 12 of the Code.
interconnection assets.20 As is discussed further below, while the definitions in the TPM for connection and interconnection charges have broadly remained the same, the basis for recovering interconnection charges has changed under the 2023 TPM. The classification of BEL’s transmission grid assets is of significance in this proceeding.
Factual background
[19] The key events for this proceeding occur from 2019 to early 2023. Some events relate to the process undertaken in the lead up to the promulgation of a new TPM in April 2022, which took effect from 1 April 2023. There are other events relating specifically to BEL and its interactions with the Authority and Transpower over this period. Extensive factual evidence has been filed by the parties, together with expert economic and engineering evidence. I draw on the factual evidence to set out here the background matters and events to the extent they are not disputed.
Electricity in the Buller region
[20] The Affected Assets at the heart of BEL’s challenge are transmission grid assets owned by Transpower but used by BEL. In broad terms, the Affected Assets comprise two 110kV lines of approximately 37 kilometres in length and ancillary infrastructure which connect the Robertson Street substation (BEL-owned) to the Inangahua Substation (Transpower-owned). These lines are capable of servicing a maximum capacity of 100MW Anytime Maximum Demand (AMD), exceeding BEL’s maximum network demand of approximately 11MW AMD.
[21] The Affected Assets are undergoing some rationalisation. Of note is that Transpower and BEL are bypassing and decommissioning the Waimangaroa substation, which operates on the Affected Asset lines. From the date of electrical disconnection, BEL’s connection charges will reduce.
[22] There are differences between the BEL and Transpower as to the description and utilisation of the Affected Assets and the history of the provision of electricity in the Buller region.21 It is however accepted that the Affected Assets serve only BEL
20 For the current technical definitions see the Code, sch 12.4 at cl 21.
21 This is discussed further in [107]–[113] below.
customers. The history of the classification of the Affected Assets as connection or interconnection assets is addressed below.
The Authority’s 2019 Issues Paper
[23] On 23 July 2019, the Authority published an Issues Paper (the 2019 Issues Paper).22 This proposed a new approach to transmission pricing and said that the Authority would be issuing guidelines for Transpower’s preparation of a new TPM. The TPM at that time had been in place since 2008. Work on a new approach had been underway since 2009. The Authority undertook an extensive consultation process on the approach it proposed in the 2019 Issues Paper.
[24] The key change proposed in the 2019 Issues Paper was a shift to a “benefit- based approach to allocating transmission costs, where those who benefit from specific grid investments would pay for them”.23 It was perceived that the then current pricing regime resulted in certain regions subsidising the costs of assets that they did not benefit from and in incentives to avoid charges. The 2019 Issues Paper recorded the Authority’s view that “[t]he proposed charges would therefore minimise inefficient grid use and inefficient investments”.24 The 2019 Issues Paper also stated that the proposed TPM guidelines would better promote the Authority’s statutory objective in s 15, in particular, by promoting the efficient operation of the electricity industry for the long-term benefit of consumers.25
[25] The 2019 Issues Paper attached appendices setting out the proposed TPM guidelines and the Authority’s underlying policy intent. The four main components in the proposed guidelines were:
(a)A connection charge: this is a charge to recover the costs of assets that connect a transmission customer to the interconnected grid. The 2019 Issues Paper states that the proposed guidelines for charging for connection assets are largely the same as under the then current
22 Te Mana Hiko | Electricity Authority 2019 Issues paper: Transmission pricing review— Consultation paper (23 July 2019) (2019 Issues Paper).
23 2019 Issues Paper, above n 22, at iii.
24 At iii and [3.6].
25 At vi.
guidelines, and the Authority considers that this is largely consistent with the principles of efficient transmission charging as it charges parties for the cost of connecting them to the grid.26
(b)A benefit-based charge: this is a charge to transmission customers for investment in the interconnected grid in proportion to the estimated net private benefit they are expected to get from each investment.27
(c)A residual charge: the purpose of this charge is to provide a mechanism to ensure Transpower is able to recover up to its forecast maximum allowable revenue (MAR) in any year in a way that does not affect designated transmission customers’ decision-making.28
(d)A prudent discount policy (PDP): this would allow Transpower to discount the transmission charges where a designated transmission customer would otherwise find it viable to inefficiently bypass the grid.29
[26] In addition, a transitional price cap on transmission charges was proposed. This was intended to protect consumers from price shocks from initial rebalancing of transmission charges.30 The transmission charges subject to this price cap excluded connection charges.31
[27] Seven additional components were also identified for Transpower to consider. They were to be proposed in the TPM if Transpower considered that doing so would better meet the Authority’s statutory objective. One component is particularly relevant to the present case, and is often described as Additional Component B. This was a method to ensure that assets that in substance provide connection services are charged as connection assets.32
26 Appendix B at [B.3(a)], [B23] and [B24].
27 Appendix B at [B.3(b)] and [B.37].
28 Appendix B at [B.3(c)] and [B.194].
29 Appendix B at [B.3(d])] and [B.252].
30 At [4.180] and Appendix B at [B.262].
31 Appendix A at [49(1)].
32 Appendix B at [B.294]–[B.301].
[28]The Authority sought and received submissions on the 2019 Issues Paper.
The Authority’s 2020 Decision and Guidelines
[29] On 10 June 2020, the Authority released its decision on the TPM review (the 2020 Decision Paper) and published guidelines for Transpower’s development of the new TPM (the 2020 Guidelines).33 Transpower was required to develop a TPM consistent with the 2020 Guidelines, which included consistency with the Authority’s statutory objective.34 The 2020 Guidelines adopted the benefit-based approach set out in the 2019 Issues Paper, where those who benefit from transmission investments will pay for them.35 The Authority considered that its new approach would deliver significant long-term benefits to consumers, consistent with all three limbs of its statutory objective.36
[30] The Authority acknowledged that, while no single option would deliver consensus, the Authority’s solution, although imperfect, was the best available and materially better than any other viable option. It considered that the need for change was urgent and that is decision to issue new TPM guidelines improved certainty by putting an end to a decade-long review that had been a constant source of industry tension.37
[31] The 2020 Decision Paper and the 2020 Guidelines identified six main components that the TPM must address:38
(a)a connection charge;
(b)a benefit-based charge;
(c)a residual charge;
33 Te Mana Hiko | Electricity Authority Transmission pricing methodology 2020 Guidelines and process for development of a proposed TPM – Decision (10 June 2020) (2020 Decision Paper); Te Mana Hiko | Electricity Authority Transmission pricing methodology 2020 Guidelines (10 June 2020) (2020 Guidelines).
34 2020 Decision Paper, above n 33, at [17.5].
35 2020 Decision Paper, above n 33, at i.
36 2020 Decision Paper, above n 33, at [4.18].
37 2020 Decision Paper, above n 33, at v.
38 2020 Decision Paper, above n 33, at [1.4]; 2020 Guidelines, above n 33, at [i]–[ii].
(d)a PDP;
(e)a transitional cap on specified transmission charges; and
(f)seven additional components if including a component would, in Transpower’s reasonable opinion, better meet the Authority’s statutory objective than not including it.
[32] The additional components mentioned by the 2020 Decision Paper and the 2020 Guidelines included Additional Component B.
[33]Additional Component B proposed:39
Charges for assets that in substance principally provide connection services. The purpose of this component is to ensure that if a connection asset is reclassified as an investment in the interconnected grid but continues in substance to provide principally connection services, it is still charged for as a connection asset.
[34] The rationale for the inclusion of Additional Component B was to address inefficient incentives for a customer to seek to have assets classified as interconnection assets.40
[35] Footnote 3 of the 2020 Decision Paper records that the guidelines are consistent with the final report in the 2019 Electricity Price Review (EPR).41 BEL places some weight on this footnote, and I discuss it below at [172].
[36] The Authority recognised that implementation of the 2020 Guidelines would rebalance the transmission charges between transmission customers.42 The 2020 Decision Paper states that the effect of the rebalancing for residential customers is modest on average.43 It further states that to reassure households and businesses they would not face large cost increases, there is a cap on the amount a designated
39 2020 Guidelines, above n 33, at [viii(b)] (emphasis in original).
40 2020 Decision Paper, above n 33, at [14.11].
41 Miriam Dean and others Electricity Price Review | Hikohiko Te Uira – Final Report (New Zealand Government, 21 May 2019) (EPR Report) at 48–50.
42 2020 Decision Paper, above n 33, at [16.1].
43 2020 Decision Paper, above n 33, at [16.3].
transmission customer’s total electricity bill may rise due to implementing the 2020 Guidelines.44 The cap proposed was 3.5 per cent.45 The Authority records that BEL’s estimated 2022 charges would reflect an increase of $0.1 million.46
[37] As well as setting out the various matters which Transpower had to address in developing a new TPM, the 2020 Guidelines provided the basis on which the Authority would decide whether to approve a proposed TPM. The Authority required Transpower to develop the proposed TPM by 30 June 2021.47
[38] It is common ground that the 2019 Issues Paper, which is a lengthy document, did not consider a proposed discretionary power to reclassify interconnection assets as connection assets either in a general sense or specifically in relation to BEL’s assets. Nor is any reference made to such a power in the 2020 Guidelines or the 2020 Decision Paper. As indicated above, such a power was eventually included in cl 23 of the TPM.
The development of the new TPM
[39] Throughout the period in which Transpower was developing the new TPM, the Authority required Transpower to share its working drafts. These were described as ‘checkpoints’, where the Authority would provide feedback to Transpower. This feedback was published on the Transpower website. On 24 August 2020, Transpower released a consultation paper seeking feedback on options for connection charges and other related provisions of the new TPM (the August 2020 Consultation Paper).48 Transpower received 20 submissions and four cross-submissions, although BEL did not submit in this consultation process. At this time, what was to become cl 23 of the TPM was not proposed.
The reclassification of the Affected Assets in 2020
[40] Up to the period in which Transpower was consulting on the new TPM, it is common ground between the parties that the Affected Assets had been historically and
44 At [16.5].
45 At [16.23].
46 At [16.14].
47 At [17.33].
48 Transpower TPM Development: Connection Charges Consultation Paper (24 August 2020) (August 2020 Consultation Paper).
erroneously classified as connection assets. For convenience, I note that, while technically the Affected Assets meet the definition of interconnection assets, they provide in substance the service provided by connection assets, because BEL is the only distributor that benefits from them.
[41] Both Transpower and BEL had assumed that the Affected Assets were appropriately classified as connection assets for the purposes of the 2008 TPM. However, in 2020, a Transpower-commissioned audit identified that some of the Affected Assets met the definition of interconnection assets, owing to their unusual configuration. This was communicated to BEL. BEL obtained its own expert report, which also concluded that the Affected Assets met the definition of interconnection assets under the 2008 TPM. Transpower accepted these findings, and accordingly applied reductions to BEL’s monthly charges to reflect the interconnection asset classification. BEL and Transpower entered a confidential agreement in May 2021 in relation to the incorrect charges previously levied against BEL. The Affected Assets were therefore treated as interconnection assets from mid-2020.
Ongoing development of the TPM
[42] Throughout this period, Transpower continued the process of consulting on the new TPM. In October 2020 Transpower published a summary of the submissions received on the August 2020 Consultation Paper, along with its response. It also continued engaging with the Authority about various aspects of the new TPM. This included submitting to the Authority a proposal on 1 May 2021, as part of a ‘checkpoint’, which for the first time included the proposed discretionary power to reclassify interconnection assets as connection assets. At that time, the proposed power was set out as cl 25 of the TPM, and no consultation upon its inclusion had occurred other than with the Authority.
[43] Then, on 30 June 2021, Transpower formally provided the Authority with its proposed TPM along with a supporting TPM Proposal Reasons Paper (the 2021 Reasons Paper).49 The 2021 Reasons Paper discussed grid asset classification in
49 Transpower TPM Proposal Reasons Paper (30 June 2021) (2021 Reasons Paper).
chapter four, addressing both Additional Component B and the proposed discretion to reclassify assets (set out in cl 25).
[44]The 2021 Reasons Paper recorded that, consistent with the current TPM:50
“the Guidelines contemplate grid assets being classified as either connection assets (providing transmission assets to one or a few customers only) or interconnection assets (providing transmission services to many or all customers)”.
[45]Transpower explained that it proposed:51
… the new TPM will continue to define connection and interconnection nodes, links and assets by reference to the physical configuration of the grid, with the distinguishing characteristic of interconnection nodes, links and assets being their existence in a loop of continuous nodes and links with the same start and end point (clauses 22 and 23 of the proposed TPM). The changes to grid asset classification we are proposing are moderate and incremental.
[46] Transpower also noted the Authority had recorded in its 2020 Decision Paper that the aim of Additional Component B was to address inefficient incentives for a customer to seek to have assets classified as interconnection assets.52 The 2021 Reasons Paper recommended the implementation of Additional Component B through expanding the definition of grid assets. Transpower proposed including a method to ensure that connection assets cannot be changed into interconnection assets by a person other than Transpower investing in other assets that create an interconnection loop.53
[47] In relation to what it described as a grid asset classification “safety valve”, Transpower also recommended that cl 25 be included in the new TPM. The reasons for its inclusion were given as follows:54
30.Clause (vii)(b) [sic] of the [2020] Guidelines says the purpose of additional component B is:
to ensure that if a connection asset is reclassified as an
investment in the interconnected grid but continues in
50 At [3].
51 At [16].
52 At [26]; citing 2020 Decision Paper, above n 33, at [14.11].
53 At [29].
54 Footnotes omitted, emphasis in original.
substance to provide principally connection services, it is still charged for as a connection asset.
31.We consider this supports a more general approach in the new TPM to addressing situations where grid assets that technically meet the definition of interconnection assets are principally providing connection services in substance.
32.The definitions of connection and interconnection node, link and asset in the current and proposed TPM are necessarily general, and they may occasionally result in anomalous outcomes (outside of the specific situation contemplated in additional component B). We have recently discovered an example of this in the Buller region where an unusual grid configuration results in some grid assets supplying a single customer (i.e. assets in substance providing connection services) being classified as interconnection assets.
33.Clause 25 of the proposed TPM contains a discretion for Transpower to classify, or reclassify prospectively, a grid asset that would otherwise be an interconnection asset as a connection asset if:
33.1the grid asset provides connection services in substance (by reference to the number of customers served by the grid asset); and
33.2we determine it is fair and reasonable in all the circumstances to classify or reclassify the grid asset as a connection asset.
34.We consider this proposal to be a reasonable implementation of clauses
11 and 12 of the Guidelines, informed by the stated purpose of additional component B.
[48] The 2021 Reasons Paper also included indicative charge modelling which provided details on how the new TPM would change the costs payable by affected customers.55 The explanation was presented, in relation to BEL, on the assumption that the Affected Assets would be reclassified as connection assets.
[49] In July 2021, the Authority sent a request for information to Transpower to clarify what assumption had been used in relation to BEL in Transpower’s indicative pricing. The response confirmed that Transpower had applied the proposed cl 25 to BEL and noted that if this had not been done, BEL’s indicative connection charges would have been $1,700.
[50] Also at this time, a report prepared by Authority staff identified that the Authority Board might wish to refer the proposed cl 25 back to Transpower. The report
55 Appendix B.
recorded that this “[h]as only come to light in the last week in the course of interrogating indicative prices”. It also noted that if the proposed reclassification power was applied to BEL, this would increase BEL’s indicative transmission charges by 23 per cent over the 2020 estimate. The Authority decided not to refer cl 25 back to Transpower but include it in further consultation on the proposed TPM.
The introduction of the discretionary reclassification power
[51] Following Transpower’s provision of the proposed TPM and 2021 Reasons Paper, the Authority entered into a further round of consultation. On 8 October 2021 it issued a consultation paper to which a proposed TPM was attached (the 2021 Consultation Paper).56 The 2021 Consultation Paper explained that the Authority had considered the TPM proposed by Transpower against the 2020 Guidelines and the Authority’s statutory objective. It said that the Authority, while agreeing with most aspects of the TPM proposed by Transpower and the reasoning behind it, had amended the TPM in several respects and raised additional options for stakeholders to consider.57 This included seeking views on the proposed reclassification power contained in the draft cl 25.
[52] The 2021 Consultation Paper also addressed the transitional cap on transmission charges. It explained that the transitional cap responded to the amount electricity bills could increase as a direct result of bringing in benefit-based and residual charges.58 It said that the cap does not apply to connection charges because the 2020 Guidelines in respect of connection charges are essentially the same as under the earlier 2006 TPM Guidelines.59 The 2021 Consultation Paper discussed BEL’s position, noting that BEL’s increases in transmission charges and estimated household electricity bills under the proposed TPM were driven in part by Transpower’s proposed reclassification of an asset from an interconnection to connection asset and also because BEL’s transmission charges vary significantly year-on-year under the then current 2008 TPM.60
56 Te Mana Hiko | Electricity Authority Proposed Transmission Pricing Methodology – Consultation Paper (8 October 2021) (2021 Consultation Paper).
57 At [1.10].
58 At vi.
59 At [12.29].
60 At [12.54]–[12.55].
[53] The Authority’s consultation ended on 23 December 2021. BEL made a submission and the Trust made a cross-submission. In its submission, BEL:
(a)provided further information on the Affected Assets;
(b)expressed the view that there were a number of wider issues which needed to be considered prior to adopting the proposed discretionary reclassification mechanism, including:
(i)BEL’s objection to the use of a discretionary clause to override a definition or design default;
(ii)that the Affected Assets appeared to be the only existing interconnection assets to which the discretionary clause was to be applied;
(iii)the significant impact of reclassification of the Affected Assets on BEL’s transmission charges;
(iv)that the material impact of reclassification on customers (e.g ability to pay) should be taken into account;
(v)whether the existing definitions of interconnection assets and connection assets were meeting the Authority’s statutory objective in the most appropriate manner; and
(vi)that the use of a proposed discretionary reclassification power was contrary to the Authority’s statutory objectives, and that all customers should be provided with long-term security by being able to have their charges determined in a fair and transparent manner.
[54] Authority staff prepared for the Authority Board a paper titled “Preferred approach to issues arising from consultation on proposed new TPM”, dated 14 February 2022. In relation to a discretion to reclassify interconnection assets to
connection assets, the paper recorded that Authority staff disagreed with BEL’s opinion that the relevant technical definitions needed to be improved. Staff did agree, however, that Transpower’s discretion did not need to be any wider than necessary.
[55] At a meeting of the Authority’s Board on 18 February 2022, the Board accepted the staff recommendations. The process regarding the introduction of the discretion to reclassify is discussed further at [191]–[197] below.
The adoption of the new TPM
[56] On 31 March 2022, the Authority formally approved the new TPM for inclusion in the Code, meaning that the new TPM would replace the 2008 TPM.61 This was progressed by way of an amendment to the Code under the Electricity Industry Participation Code Amendment (Transmission Pricing Methodology) 2022, which was made on 11 April 2022 and provided that the new TPM would come into force on 1 April 2023. This amendment to the Code did not contain any transitional provisions enabling the exercise of new powers under the new TPM prior to 1 April 2023.
[57] The new TPM included the discretionary power to reclassify interconnection assets as connection assets in certain circumstances, with requirements that Transpower consult affected customers, and with the availability of referral to an independent expert with binding decision-making powers. The new TPM also clarified that the provisions implementing Additional Component B were only to apply to the effects of other parties connecting to grid assets in future, rather than resulting in changes to the status of existing assets.62 The new TPM also provided for a prudent discount policy and a transitional price cap.63
[58] The discretionary reclassification power was set out as cl 23 of the new TPM. It states:64
61 Delegated authority was given to two Authority Board members to finalise and approve the TPM for publication, after taking into account the Board’s comments and making any further minor changes.
62 Clause 23(2).
63 In pt I and pt H respectively.
64 Emphasis in original.
23 Discretion to Classify and Reclassify as Connection Asset
(1)Despite anything else in this transmission pricing methodology, Transpower may classify or (subject to subclause (2)) reclassify any grid asset that would otherwise be an interconnection asset as a connection asset if Transpower determines—
(a)the grid asset provides or will provide transmission services to 1 or more customers of a type and nature typically provided by connection assets; and
(b)the grid asset does not provide or will not provide any material transmission services of a type and nature typically provided by interconnection assets; and
(c)it is reasonable in all the circumstances to classify or reclassify the grid asset as a connection asset.
(2)Transpower must not reclassify a grid asset as a connection asset
under subclause (1) retrospectively.
(3)Transpower must—
(a)before classifying or reclassifying a grid asset as a connection asset under subclause (1), consult with all customers who will be connected to the grid asset. This consultation may occur either before or after the start of the first pricing year; and
(b)notify those customers of Transpower’s decision whether or not to classify or reclassify the grid asset as a connection asset under subclause (1).
(4)A customer referred to in subclause (3) may, within 20 days of Transpower notifying the customer of Transpower’s decision, refer Transpower’s decision under subclause (1) to an independent expert for review.
(5)The independent expert’s decision will be binding on Transpower and the customer, and will have effect as if Transpower had made the decision itself, except that the customer may not refer the decision to an independent expert again.
(6)The costs of the independent expert must be met by the customer unless the independent expert decides Transpower’s decision was unreasonable, in which case Transpower may be required to meet all or some of the costs of the independent expert, as determined by the independent expert.
[59] One of the significant differences between the proposed cl 25 and the final cl 23 was the removal of the word ‘fair’ in subcl (1)(c).
[60] The Authority’s adoption of the new TPM was accompanied by a Decision Paper (the 2022 Decision Paper).65 The 2022 Decision Paper recorded the Authority’s decision to include in the TPM a discretionary power for reclassifying interconnection assets as connection assets in certain circumstances. It summarised at some length the submissions on the reclassification power, including BEL’s opposition to it. The 2022 Decision Paper recorded:66
3.13Buller submitted (pp1-5) that providing Transpower with discretion to reclassify interconnection assets as connection assets was not ideal, preferring that the Authority improve the definition of connection assets to remove the need for such a power. Fonterra’s submission (p 2) also did not support the proposal (because it considers it is not Transpower’s role to determine who is or who is not an interconnection customer) and that if the TPM provides for this discretion further conditions should be in place to mitigate potential bias or conflicts that could arise.
3.14The Authority considers that the definitions of connection asset and interconnection asset have proven to be fit-for-purpose, and generally produced appropriate classifications. We are currently only aware of a single instance where a reclassification was thought to potentially be appropriate, and as such do not consider there is a case for a general review of definitions.
3.15The Authority considers that careful definitions likely would not eliminate the potential need for judgement entirely. The discretionary power in this case is to cater for the rare instances where reclassification may be appropriate. The Authority does, however, consider that a discretionary reclassification power should be no broader than necessary, thus promoting certainty of the asset classification rules.
3.16We have made drafting changes to clarify the situations in which the clause applies and to focus on the reasonableness of Transpower’s approach. These changes have been made to provide more certainty as to when reclassification might occur.
3.17The criteria Transpower must assess when deciding whether to classify or reclassify an interconnection asset as a connection asset have been slightly changed from the version consulted on to provide this may occur where Transpower determines:
(a)the grid asset provides or will provide transmission services to one or more customers of a type and nature typically provided by connection assets; and
65 Te Mana Hiko | Electricity Authority Transmission Pricing Methodology 2022 – Decision Paper
(12 April 2022) (2022 Decision Paper).
66 Footnotes omitted.
(b)the grid asset does not provide or will not provide any material transmission services of a type and nature typically provided by interconnection assets; and
(c)it is reasonable in all the circumstances to classify or reclassify the grid asset as a connection asset.
3.18We do not agree with Buller’s submission that a “material impact” test should be applied when exercising the discretion, which would in effect establish a threshold for when different distributional outcomes may be appropriate. We consider that the assessment should be based just on the technical criteria above, not also on materiality / distributional outcomes, as this would reduce certainty for stakeholders (due to greater complexity and scope for controversy).
3.19Given the potentially significant financial impact on customers of the use of the reclassification power, the TPM requires Transpower to consult affected customers before finalising its decision, and if these customers are not satisfied with the decision, they may refer the matter to an independent expert for a binding decision.
3.20The TPM does not provide discretion for Transpower to reclassify assets from connection to interconnection assets. Refining NZ submitted in favour of allowing reclassification from connection assets to interconnection assets (if the asset in substance principally provides interconnection services). Refining NZ considers that the Bream Bay connection assets are oversized (for historical reasons) and provide additional electricity security benefits to northern consumers other than itself. As such it suggests they could be considered to be interconnection assets.
3.21The Authority considers that there is not a strong case for Transpower to have the discretion to reclassify connection assets as interconnection assets. Where connection assets are funded through commercial contracts, a discretion to reclassify may interfere with efficient investment incentives as it shares the risk of overinvestment across other transmission customers. If a discretion to reclassify connection assets as interconnection assets is required at some future date, Transpower can propose it via operational review.
3.22The Authority has considered a number of options that might potentially be available to address the issue raised by Refining NZ around oversized connection assets. A prudent discount might be available to deal with situations such as this. However, we have been unable to identify any other appropriate solutions within the TPM.
The implementation of the new TPM
[61] Following the promulgation of the new TPM, Transpower turned to its implementation, so as to enable the effective commencement of the TPM by 1 April 2023.
[62] On several occasions, including on 27 April and 17 May 2022, Transpower published indicative prices for the 2022/23 pricing year. Transpower calculated indicative prices generally in accordance with the new TPM. Transpower’s intention was to provide “an illustrative comparison with customers’ transmission charges under the current TPM”.67 When indicative prices were released, in BEL’s respect, they were calculated on the basis of an assumption that the Affected Assets would be reclassified as connection assets.
[63] The Transpower Board delegated the “operationalisation” of the TPM to a Project Advisory Team (PAT). This included decisions concerning implementation of the reclassification power. The PAT then delegated these decisions to Messrs David Knight, General Counsel, and John Clarke, the General Manager of Grid Development.
The reclassification of the Affected Assets
[64] On 23 June 2022, Transpower issued a consultation paper on the reclassification of the Affected Assets (the Reclassification Consultation Paper).68 That Paper sought feedback on the proposal to reclassify the Affected Assets under cl 23 of the new TPM. It recorded that Transpower would, following consideration of feedback, finalise and notify its decision, and then apply that decision when calculating transmission charges for the first pricing year under the new TPM, commencing 1 April 2023.69
[65] The Reclassification Consultation Paper stated that Transpower considered the Affected Assets met the criteria for reclassification for two primary reasons. First, Transpower considered that the Affected Assets provide connection services and do not provide material interconnection services, stating:70
22.1The Affected Assets would not exist but for Buller Electricity’s load at Robertson Street and the prior Holcim cement factory load on Buller Electricity’s network at WPT. The Affected Assets only exist to
67 Transpower Pricing year 2022/23 – Indicative Prices (27 April 2022) at [1]; Transpower Pricing year 2022/23 – Indicative Prices (17 May 2022) at [1].
68 Transpower TPM Consultation: Reclassification of Buller region assets (23 June 2022) (Reclassification Consultation Paper).
69 At [5].
70 Footnotes omitted.
connect that load to the interconnected grid at IGH. This is reflected in the description of the Affected Assets in Transpower’s latest and previous Transmission Planning Reports as a “spur”.
22.2The Affected Assets do not provide transmission services, or material reliability or economic benefits, to any customers beyond Buller Electricity and its downstream customers.
22.3If a new customer were to connect to the Affected Assets in the future, the Affected Assets would provide transmission services to both Buller Electricity and the new customer but those services would still be connection services (i.e. transmission services of a type and nature typically provided by connection assets). The TPM (current and new) allows for multiple customers to be connected to, and pay connection charges for, the same connection assets.
[66] Second, Transpower considered that it was reasonable to reclassify the Affected Assets because:
23.1the key substantive criteria relevant to reclassification in clauses 23(1)(a) and 23(1)(b) are met (i.e. the Affected Assets provide connection services and do not provide material interconnection services); and
23.2having considered the context of the Affected Assets and the circumstances surrounding the nature of transmission services provided by the Affected Assets, we consider it is reasonable to reclassify the Affected Assets as connection assets.
[67] Allied to these views was Transpower’s position that even considering the impact of the proposed reclassification on BEL’s and other transmission customers’ transmission charges did not make it unreasonable to reclassify the Affected Assets. Transpower said that this was for the following reasons:71
27.1Buller Electricity’s indicative connection charges under the new TPM if the reclassification is implemented are $600k per annum, out of total indicative transmission charges of $1.4m per annum. Without the reclassification Buller Electricity would continue to pay only a small connection charge, being charges for the metering at Robertson Street (no other transmission customer pays connection charges for metering only). We do not consider the potential increased transmission charges are out of proportion to the benefits Buller Electricity and its customers receive from being connected to the grid. Buller Electricity’s indicative connection charges are the fourth equal lowest for distributors, and its indicative transmission charges overall are the second lowest for distributors. Buller Electricity’s indicative connection charges are lower than those for Scanpower Limited,
71 Footnotes omitted.
which is similar in size to Buller Electricity in terms of energy transported on its network.
27.2While Buller Electricity’s indicative connection charges, if the proposal to reclassify is implemented, make up a relatively high proportion of its total indicative transmission charges, this reflects the type and quantity of Affected Assets and the distance of Buller Electricity’s grid points of connection from the interconnected grid at IGH.
[68] In addition, Transpower considered that it would be unreasonable for other customers to pay, through residual charges, “most of the cost of grid assets that only provide connection services to the one customer who is connected to those assets”, being BEL, which would be the case were the reclassification not to occur. Transpower noted also that if BEL wished to reduce its connection charges, it could potentially do so by seeking rationalisation of the Affected Assets or applying for a prudent discount.72
[69] The Reclassification Consultation Paper sought submissions by 7 July 2022 (a period of two weeks) and cross-submissions by 14 July 2022 (a further week). It stated that Transpower would not be able to allow any time extensions for submissions or cross-submissions. BEL was the only party who submitted on the Reclassification Consultation Paper. A single cross-submission was also received from the Trust, which expressed its complete agreement with BEL’s submission. In essence, BEL conceded that the first two criteria of cl 23(1) were met but submitted that reclassification would nonetheless be unreasonable.
[70] In its submission, BEL accepted that “with the exclusion of assets between Inangahua Substation and T26 (inclusive), and Inangahua Substation and T500 (inclusive), Transpower has largely met the first two criteria imposed by clause 23”. However, it went on to say:73
7.That notwithstanding, there are two aspects where Buller considers that adjustments to the proposed reclassifications should be made:
· The sections of the WMG-WPT-A and IGH-WPT-B circuits between the Orowaiti Tee and Westport Zone substation should be allocated to the interconnection pool. These sections should be
72 At [30].
73 Emphasis in original.
subject to the same stranded asset treatment as the decommissioned Westport GXP, consequent to the closure of Holcim’s Cape Foulwind cement works. It is not clear from the proposal whether this adjustment has been considered; and
· Approximately 4km of the IGH-WPT-B circuit forms an ‘inefficient’ double-back to/from the decommissioned Waimangaroa GXP. While this inefficiency is unintentional and created by historic supply arrangements, it would be a relatively straightforward task to reconfigure the circuit (by installing jumpers at T90) to eliminate the double-back. Buller considers that the 4km double-back should also be subject to stranded asset treatment, and be allocated to the interconnection pool.
8.Buller fundamentally disagree[s] with Transpower’s assessment of the reasonableness of the proposed reclassification. Transpower’s decision to reclassify must be reasonable in all the circumstances. Buller considers that the proposed reclassification will materially impact Buller’s consumers through a step-change in the transmission recovery component of their line charges:
· The appropriate consideration is not Buller’s ability to pay, but the ability of Buller’s consumers to pay. Transmission charges are defined as a recoverable cost under price-quality regulation and while Buller is an exempt electricity distribution business (EDB), there is no reason to expect that exempt EDBs would recover their transmission expenses any differently;
· Because of the new TPM, Buller’s consumers face the highest consumer impact ($ per ICP and $/MWh delivered) of all of New Zealand’s 29 EDBs. The proposed connection charges are a significant component of that increase, with much of the remainder attributable to the reintroduction of Westport demand into the calculation for recovering interconnection costs via the residual charge, despite decommissioning of the Westport GXP in 2016.
· While Buller has not re-run its pricing model to quantify the impact of the proposed reclassification, high-level analysis indicates that an average residential consumer may pay around $62 more per annum in their line charges to recover the proposed connection charge. This is material for Buller consumers, especially in the current high-inflation environment.
· Buller’s consumers have been subject to significant variability in Transmission recoveries through no fault of their own. Transpower had not been correctly applying the existing TPM to classify Buller regional assets, resulting in a significant reduction in charges from 1 April 2020 when the regional assets were correctly recategorized as interconnection. To immediately reimpose connection charges on top of other increased TPM costs is unreasonable – consumers do not cope with cost increases near as well as they do with cost reductions.
9.Buller’s view is that Transpower’s proposal is demonstrably unreasonable when all the circumstances are considered, and that the proposal should be terminated on that basis.
[71] In its submission, the Trust emphasised that the Buller District is one of the most deprived communities in New Zealand. It also said that the requirement that any reclassification must be “reasonable in all the circumstances” is an expansive requirement and cannot be applied as narrowly as Transpower set out in its consultation paper, focusing only on the charges to BEL. In the Trust’s view, Transpower must consider the impact of its proposal at the consumer level, and the impact on the Trust’s customers of the proposal is excessive when compared to the counterfactual impact on other consumers from the retention of the status quo (continuing to recognise the assets as interconnection assets). The Trust requested that Transpower abandon its proposal to reclassify the assets.
[72] Transpower then considered these submissions before issuing a decision paper on the reclassification of the Buller region assets on 15 September 2022 (the Reclassification Decision Paper).74 The Reclassification Decision Paper recorded the decision (made by Mr Knight and Mr Clarke) to reclassify the Affected Assets for substantially the same reasons as recorded in the Reclassification Consultation Paper. Transpower concluded that the Affected Assets provide connection services and do not provide national interconnection services, pursuant to cl 23(1)(a) and (b). Transpower also concluded that it was reasonable in all the circumstances to reclassify the Affected Assets pursuant to cl 23(1)(c) having considered:75
a. that the key substantive criteria relevant to reclassification in clauses 23(1)(a) and 23(1)(b) are met (i.e. the Affected Assets provide connection services and do not provide material interconnection services);
b. the context of the Affected Assets and the circumstances surrounding the nature of transmission services provided by the Affected Assets;
c. the impact of the reclassification on Buller’s charges and charges for Buller’s customers. In this respect it is important to note that our role in implementing the TPM is the allocation of Transpower’s charges in accordance with the principles of efficient allocation determined by the Electricity Authority in its 10 June 2020 decision on the TPM Guidelines. It is not our role to seek to address wider socio-economic matters e.g. as
74 Transpower TPM: Decision Paper – Reclassification of Buller region assets (15 September 2022) (Reclassification Decision Paper).
75 At [18(a)]–[18(c)].
described in the submissions from Buller Electricity and the Buller Electric Power Trust.
[73] Transpower did not accept BEL’s view that certain assets should be treated as stranded and “allocated to the interconnection pool”,76 stating that:77
25. We disagree. These assets are capable of providing, and do provide, transmission services despite the decommissioning of the GXPs. The assets are not treated as stranded for the purposes of Transpower’s revenue regulation. In any event, Buller Electricity’s suggestion the assets be treated as interconnection [sic] is inconsistent with the assets being stranded.
26. We acknowledge that, for various reasons, the physical configuration of some transmission assets (in the Buller region and elsewhere) may not be optimal. But in most situations the TPM (current and new) does not calculate transmission charges based on an optimised grid. Transmission charges are calculated based on recovering the costs of the grid that exists, subject only to prudent discounts. As we noted in paragraph 31 of our Consultation Paper:
If Buller Electricity wishes to reduce its connection charges it can potentially do so by seeking rationalisation of the Affected Assets or applying for a prudent discount.
[74] Nor did Transpower agree with BEL that an increase in BEL’s transmission charges taking effect on 1 April 2023 (following the April 2021 reduction noted above) was a sufficient reason not to reclassify the Affected Assets. Transpower considered that the April 2021 reduction did not mean a further reclassification should not happen later or should only happen after a minimum period of time, or that applying such an approach would result in arbitrary outcomes.78
[75] In relation to BEL’s submissions regarding the increase in charges for its consumers, Transpower stated:79
31. We acknowledge the difficult conditions currently faced by consumers in the Buller region and across New Zealand. However, this does not change our decision. Our reasons are:
a.The Authority made many policy choices when it made the TPM Guidelines and approved the new TPM, including to allocate residual charges based on historic load (which is responsible for a large component of the Buller increase) and to exclude connection
76 At [24].
77 Footnotes omitted.
78 At [27]–[28].
79 Footnotes omitted.
charges from the transitional cap (which may otherwise have moderated the initial potential increase due to changes to the TPM). Those choices were made based on the Authority’s view of the policies likely to be most consistent with its statutory objective. Reclassification (or not) is a discrete decision by Transpower under clause 23. It should not, and in our view cannot, be made with a view to compensating Buller Electricity, or any other customer, for transmission charge outcomes that result from the Authority’s policy choices.
b.As we noted in paragraph 25 of our Consultation Paper, one of the Authority’s (express) policy choices was to reject a material impact criterion for reclassification, and instead to focus on technical criteria:
We do not agree with Buller's submission that a “material impact” test should be applied when exercising the discretion, which would in effect establish a threshold for when different distributional outcomes may be appropriate. We consider that the assessment should be based just on the technical criteria above, not also on materiality / distributional outcomes, as this would reduce certainty for stakeholders (due to greater complexity and scope for controversy).
c.The TPM is not designed to equalise customers’ transmission charges per ICP or energy delivered or on the basis of any other metric. There were necessarily going to be winners and losers and one customer with the highest impact based on those metrics – if not Buller Electricity then someone else – which does not mean that outcome is wrong.
d.Notwithstanding the information provided by Buller Trust regarding deprivation levels in the Buller region, the TPM, and our role in implementing it, are to efficiently allocate transmission charges. Transpower’s role is not to seek to address socioeconomic [issues] more broadly than that (e.g. taking account of the effect of high inflation or climate-related events on particular groups). In this regard, none of the considerations raised outweigh the factors Transpower has taken into account which support reclassification of the Affected Assets.
[76] Transpower considered that the increase in BEL’s transmission charges was not out of proportion to the benefit BEL and its customers receive from the Affected Assets and noted that, in fact, BEL’s indicative charges were the fourth equal lowest for distributors and its indicative transmission charges overall were the second lowest across the entire grid.80 Transpower also recorded that the TPM is not designed to equalise customers’ transmission charges per ICP (installation control point) or energy delivered or any other metric.
80 At [32].
[77] Transpower considered that the alternative to reclassification would be that all costs of connection assets be borne by all load customers to spread the costs around as many electricity consumers as possible. Transpower considered that this would be inconsistent with the new TPM and the Authority’s statutory objective.81
[78] The effect of the Reclassification Decision paper was that the Affected Assets would be reclassified as connection assets from 1 April 2023.
The replacement costs update
[79] Transpower also decided to update the replacement costs used to calculate the asset and maintenance components of connection charges under the new TPM. It did so because of the requirement in cl 34(1) of the new TPM to update replacement cost valuations at least once every five years. As at September 2022, replacement costs had not in fact been updated for a number of years under the previous TPM and many had not been updated since 1998. Transpower published its decision paper on the review of connection asset replacement costs (the Replacement Costs Decision) on 15 September 2022.82
[80] While the Replacement Costs Decision is not challenged by BEL in this proceeding, it is important to record that the effect of that decision was to increase the connection charges allocated to BEL from approximately $0.6 million to $1.5 million. This occurred because the value of the Affected Assets increased relative to the connection assets of other designated transmission customers, resulting in a greater allocation of connection charges to BEL.
The re-notification of the reclassification decision
[81] On 5 October 2022, BEL wrote to Transpower questioning whether Transpower had jurisdiction to reclassify the Affected Assets prior to 1 April 2023, the date on which the new TPM was to commence. This letter stated:
In the Reclassification Decision dated 15 September 2022 Transpower purports to exercise a discretionary power to reclassify grid assets under cl 23
81 At [36].
82 Transpower TPM Decision Paper: Review of Connection Asset Replacement Costs (15 September 2022) (Replacement Costs Decision).
of the new TPM, even though this provision (and therefore the power it creates) is not yet in effect … The Code Amendment does not, on BEL’s reading, contain any transitional provisions which would clearly enable cl 23 of the new TPM to be implemented before it is in force.
BEL acknowledges that there may be certain administrative steps which Transpower is entitled to take prospectively as part of the machinery of bringing the new TPM into effect on the commencement date; … However, in BEL’s view, the exercise of a discretionary power, such as provided for under cl 23 of the new TPM, is in a different category. This is not an administrative step which is necessary to bring the new TPM into operation. This letter also noted that BEL had, on the same day, sent another letter notifying Transpower that BEL had referred the Reclassification Decision Paper for expert review as a precautionary measure, without prejudice to its right to challenge the process on jurisdictional grounds.
[82] While Transpower maintains that it was entitled to make and notify a decision regarding the reclassification of the Affected Assets prior to 1 April 2023, to avoid doubt, it re-notified that decision on 1 April 2023 (the Re-notification Decision Paper).83 The Re-notification Decision Paper is substantially the same as the Reclassification Decision Paper, with the inclusion of some additional contextual information.
[83] The extra information Transpower included was new material arising out of further calculation of final prices since the publication of the Reclassification Decision Paper on 15 September 2022. Essentially, new considerations arose out of the decisions made regarding the update to replacement costs, as discussed above. Transpower stated:
35.Since our September paper, we have undertaken the calculation of final prices. This indicates that Buller Electricity’s expected connection charges if the Affected Assets are reclassified as connection assets are approximately $1.5 m per annum. This compares with approximately $0.6 m in our previous price indication. The difference is attributable to our update of the grid asset building block replacement costs used to allocate connection revenue to each connection, in accordance with TPM Decision: Review of connection asset replacement costs. This update impacted every customer’s connection charges with some seeing reductions and others increases.
36.We have reconsidered our decision in light of the change in the connection charges if the Affected Assets are reclassified. Our view remains unchanged. We do not consider the increased transmission charges are out of proportion to the benefits Buller Electricity and its
83 Transpower TPM: Decision Paper – Reclassification of Buller region assets (1 April 2023) (Re- notification Decision Paper).
customers receive from being connected to the grid. Buller Electricity’s connection charges, once the update of connection asset replacement costs is accounted for, are not out of proportion to other connected parties, and its transmission charges overall are the fourth lowest for distributors. Accordingly, while Buller Electricity’s connection charges, if the proposal to reclassify the Affected Assets is implemented, make up a relatively high proportion of its total transmission charges, this reflects the type and quantity of Affected Assets and the distance of Buller Electricity’s grid points of connection from the interconnected grid at IGH.
37.In particular, the connection spur allocated to Buller Electricity is the fourth longest across the grid. While connection charges are a function of multiple parameters, including line length, type and rating, configuration of substation assets as well as local seismic and terrain factors, the connection charge for Buller Electricity is materially comparable to other long connections including at Mangahou, Tekapo A, Waikino, Koikohe, Waihou and Frankton. The longest connection is to Manapouri and its charges are materially higher, including due to the higher rating of those lines.
38.As we noted in paragraph 27.1 of our Consultation Paper, if the Affected Assets are not reclassified then Buller Electricity will continue to pay only a very small connection charge relating to metering at Robinson Street (approximately $2,000), despite the many kilometres of lines that exist only to get electricity to Buller Electricity’s customers. No other distributor pays connection charges for metering only, and metering assets alone are not capable of providing a customer with a connection to the interconnected grid. This would result in Buller Electricity paying connection charges that are materially lower than any other distributor, including those with little or no lines connecting them to transmission assets.
[84] To protect its position, on 19 April 2023, BEL also triggered the expert review process in relation to the reclassification decision in the Renotification Decision Paper.
[85] Further correspondence ensued between BEL and Transpower, and BEL and the Authority, culminating in this proceeding. I understand the expert review process has not progressed, pending resolution of BEL’s application in this proceeding.
Total transmission charges increase
[86] In the meantime, on 6 December 2022, Transpower had notified designated customers of their transmission charges for the pricing year beginning on 1 April 2023. This showed BEL facing a 427 per cent increase in its transmission charges on 1 April 2023.
[87] To summarise, BEL’s transmission charges were affected by the decision to reclassify the Affected Assets as connection assets, as well as the decision to revalue the replacement costs of those Assets. These two changes would have the combined effect of increasing BEL’s transmission charges. Ms Osborne provides the following table to illustrate the difference in transmission charges BEL would be required to pay with and without the reclassification of the Affected Assets for the pricing year 2023/24:
Charge type With
reclassification
Without
reclassification
Difference Connection charges 1,506,928 1,498 1,505,430 Residual charge 671,423 671,423 0 Benefit based charges 168,618 168,618 0 Transitional cap recovery charges 3,155 1,13184 2,024 Total charges 2,350,124 842,670 1,507,454
[88] These final notified prices were the culmination of indicative prices notified to transmission customers throughout the implementation process for the new TPM. Transmission customers had been provided indicative pricing figures on 27 April 2022, 17 May 2022, and 25 August 2022. Earlier indicative prices were also given in an email by Transpower to BEL on 22 September 2021, following BEL seeking clarification as to why their indicative residual charges had increased in a proposed TPM provided to the Authority by Transpower on 15 September 2021.
[89] Mr Osauskas calculates that the effect of this increase for the approximately 4,800 customers in the Buller region is an additional cost per customer of $310 per annum for the additional connection charges and that the total cost of all transmission charges is $484 per customer per annum.
[90] In February 2023, BEL advised its customers of price increases which will average 22.1 per cent across both residential and commercial customers.
84 This is an estimate as the actual calculation would require all other customers’ charges to be adjusted. This is calculated by ratio and proportion of total charges.
Matters of common ground
[91] The parties are in agreement on several matters. I note them here for convenience, although they are also discussed later in the judgment.
[92] First, Transpower accepts BEL’s contention that, but for its reclassification of the Affected Assets, they would fall within the definition of interconnection assets under both the 2008 TPM and the 2023 TPM (although Transpower’s position is that the Affected Assets are not properly defined as interconnection assets). While the Authority’s statement of defence is more equivocal, I understood from counsel for the Authority, Mr Laurenson KC, that the Authority’s position was effectively the same. As noted earlier, it is accepted by the parties that the Affected Assets serve only BEL’s customers.
[93] Second, it is accepted that in all indicative prices published, Transpower calculated prices based on the proposal that the Affected Assets would be reclassified as connection assets. BEL contends that the approach taken by each of Transpower and the Authority assumed that a reclassification of the Affected Assets as connection assets was inevitable, despite the proposed reclassification clause being expressed as a discretion, which would not come into effect until the new TPM was adopted as a schedule to the Code. Transpower says it was obliged under the TPM to publish indicative pricing and it was most useful to the industry to assume the most significant effect on BEL.
[94] Third, the parties agree that at present they are unaware of any assets other than BEL’s Affected Assets where the technical definitions of connection and interconnection assets in the TPM produce what Transpower considers to be an incorrect result. Transpower says, however, that while it is not aware of other examples, that does not mean that they do not exist. BEL says instead that the lack of other examples indicates that the reclassification power was included solely for the purpose of the reclassification of its Affected Assets.
BEL’s application for review
[95]BEL’s amended statement of claim dated 28 April 2023 pleads that:
(a)the Authority acted unlawfully and unreasonably in formally approving the adoption of the 2023 TPM, specifically in relation to cl 23;
(b)Transpower had no jurisdiction to reclassify the Affected Assets on 15 September 2022 because that power did not come into force until 1 April 2023;
(c)even if Transpower had jurisdiction to reclassify the Affected Assets, it has not properly exercised its discretion in making that decision for reasons which include pre-determination; and
(d)even if Transpower had jurisdiction to reclassify the Affected Assets, in renotifying the decision to reclassify the assets on 1 April 2023, it made a further decision in which it has not properly exercised its discretion for reasons which include pre-determination.
[96]As to relief, BEL seeks declarations that:
(i)clause 23 of the 2023 TPM is unlawful and of no effect, and its approval by the Authority was unreasonable and/or illogical; and
(ii)even if it did have jurisdiction, Transpower’s decision to reclassify the Affected Assets (and associated steps) are invalid and Transpower failed to properly exercise its discretion under cl 23.
[97] BEL also seeks an order quashing or setting aside cl 23 and all steps taken pursuant to it, including an order quashing the reclassification decision. In addition, or in the alternative, BEL seeks directions in relation to future implementation of any price increases signalled in the decision to reclassify the Affected Assets. Restitutionary compensation for any increased charges BEL is or may be required to pay from 1 April 2023 as a result of the reclassification is also sought.
Response of the Authority and Transpower
[98] The Authority disagrees that it has acted unlawfully or unreasonably. Transpower disagrees that it lacked jurisdiction to reclassify the Affected Assets or that it failed to properly exercise its discretion in cl 23, including by pre-determination.
The evidence
[99] The parties have filed extensive affidavit evidence, comprising factual evidence and expert evidence from economists and an engineering consultant.
[100]BEL has filed affidavits from:
(a)Mr Frank Dooley, director and current chairman of BEL;
(b)Mr Chris Osauskas, former Technology and Strategy Manager at BEL;
(c)Mr Jeffrey Schlichting, managing director of Helios Energy Ltd;85
(d)Mr James Mellsop, independent expert economist; and
(e)Mr John Gleadow, independent engineering consultant.
[101]The Authority has filed affidavits from:
(a)Ms Lana Stockman, Board Member of the Authority; and
(b)Mr Jean-Pierre de Raad, independent expert economist.
[102]Transpower has filed affidavits from:
85 Helios Energy Ltd is a renewable energy provider who has worked within BEL’s service district. The parties reached an agreement about protecting the commercial confidentiality of Mr Schlichting’s affidavit (confidentiality orders were granted by me in Buller Electricity Ltd v Electricity Authority HC Wellington CIV-2023-485-030, 12 May 2023 (Minute of McQueen J)). In the end, little reference was made to Mr Schlichting’s evidence at the hearing, and it has not been necessary for me to refer to it in this judgment.
153 CREEDNZ Inc v Governor-General, above n 151, at 179; Manawa, above n 5, at [92]; MKD v Minister of Health [2022] NZHC 1997 at [82]–[83]; and New Era, above n 111, at [71]–[72].
154 New Era, above n 106, at [73]; citing New Zealand Fishing Industry Association Inc v Minister of Agriculture and Fisheries [1988] 1 NZLR 544 (CA) at 559.
to both consider the issues, and form and express at least tentative views. I do not accept that this amounts to pre-determination of the reclassification decision.
[267] Mr Weston emphasised again the difficulties BEL faces in bringing a judicial review claim where discovery is limited. It is the case that judicial review generally progresses based on affidavit evidence given on behalf of the decision-making body in question. This frequently includes disclosure of relevant documentation. This approach reflects the fact that judicial review process is intended to be “simple, untechnical and prompt” and commonly does not include cross-examination. In any event, having considered the evidence from Messrs Clark and Knight, I am not satisfied on the balance of probabilities that they had closed minds in considering whether the Affected Assets should be reclassified under cl 23. This is so despite Mr Osauskas’ impression from his dealings with Transpower that they did.
[268] Mr Clarke is Transpower’s General Manager of Grid Development and was a member of the PAT responding to the new TPM, both in development and implementation stages. His evidence is that given his senior role, he deliberately focused on governance level matters, keeping an open mind about reclassification of the Affected Assets until the reclassification issue came to him for decision. Mr Knight is General Counsel for Transpower and similarly says that he kept his mind open to see what information BEL and others would put forward on the reclassification proposal. Their positions are supported by the evidence from Ms Osborne that the team working on the draft decision paper maintained an open mind about whether reclassification was needed.
[269] Mr Clarke explains that he did not consider that BEL had put forward any argument that the Affected Assets are more correctly regarded as interconnection assets but that if BEL had, he would have sought more information from the Transpower project team. He also says that while there was a suggestion that the Affected Assets be treated as “stranded assets”, he considers this could not occur: from a technical perspective the assets are not stranded because, until they are disconnected, they are capable of providing transmission services. Mr Knight also says he considered that the Affected Assets were clearly providing connection services, explaining that “the only use made of the Affected Assets is to supply electricity to the
BEL distribution network”. Similar to the view taken by Mr Clarke, Mr Knight did not consider the Affected Assets to be “stranded assets”.
[270] Both executives turned their mind to the requirement in cl 23(1)(c) that it must be reasonable in all the circumstances to reclassify the Affected Assets as connection assets. They both acknowledged the impact of the reclassification on BEL’s connection charges and therefore the potential impact on BEL’s end consumers, as this had been raised in BEL’s submission on the proposed reclassification of the Affected Assets. Mr Clarke says that he did not consider there was any scope within the TPM and the Guidelines on which it is based to consider factors like social value or socio-economic impact. He says the TPM does not give Transpower the right to make “social value calls” in its implementation. Mr Knight first indicates that his “primary concern” is to give effect to the TPM having regard to the Guidelines. However, he goes on to says that “against [the] impact” on BEL and its customers, he took account of several factors including:
(a)the increase in transmission charges faced by BEL that resulted from other changes in the TPM and not just the reclassification of the Affected Assets;
(b)the Authority had directly rejected a “material impact” test as part of cl 23;
(c)the TPM is not designed to equalise customers’ charges on any particular metric, but BEL’s connection charges (following reclassification) are not out of line with those imposed in comparable situations; and
(d)that “more violence” would be done to the TPM by trying to achieve particular socio-economic outcomes rather than applying the principles of the TPM.
[271] Mr Knight says that “[s]tanding back”, he agreed that, as recommended in the proposed decision paper, it would be unreasonable for other load customers to pay
(through residual charges or future benefit-based charges) the costs of maintaining assets that only provide connection assets to the one customer who is connected to those assets.
[272] Both executives refer to the suggestion made by Ms Osborne in evidence that if BEL considers that the charges exceed the efficient standalone costs of the transmissions services it receives, it can apply under the TPM for a prudent discount to reduce its transmission charges.
[273] This evidence from Messrs Clarke and Knight demonstrates how they each understood the task of applying cl 23(1)(c) with its test of reasonableness. Mr Knight engaged in a balancing exercise between BEL’s position and other factors as set out above. I return to this below in discussing whether Transpower made an error of law in interpreting cl 23(1)(c).
[274] I also note that the Reclassification Decision Paper engages with BEL’s arguments despite the fact Transpower did not accept them. Transpower criticises BEL for not raising in its submission some of the points it has advanced in this proceeding and says that, as this material was not before the decision-maker, little weight can be placed on it. While I can understand this comment, I nonetheless have some sympathy for Mr Weston’s argument that, as the expert body in this context, it is fundamentally for Transpower to use that expertise in making the reclassification decision, whether or not BEL has raised any particular point with it.
[275] BEL also emphasises that it is the only distributor identified by Transpower or the Authority as holding assets which, while meeting the TPM definition of interconnection assets, are accepted to be in the nature of connection assets. The evidence from Mr Osauskas shows that BEL appreciates the challenges in establishing workable technical definitions. Different approaches to how assets are categorised are possible. I do not consider that the Authority having chosen a particular approach and subsequently Transpower applying it to BEL can be cast as pre-determination. In my view it is correct, as Transpower submits, that the cl 23 process requires engagement with the party potentially subject to reclassification, and it is necessarily the case that no decision can be made before that occurs.
[276] Nor do I accept the suggestion that Transpower’s consultation process failed because it was not a genuine exercise. Given that the issue had been at large for some time, it does not seem to me that the two-week consultation period on what is a narrow issue was insufficient in the circumstances (although I agree with Mr Weston that for Transpower to suggest that BEL could have asked for more time—Transpower having said explicitly that no more time would be allowed—is implausible). As Transpower concedes, there is no suggestion that the scope of evidence that could be provided in the expert review process is limited to the material that was before Transpower.
[277] Transpower’s consistent inclusion in its indicative pricing of transmission pricing for BEL based on the reclassification of the Affected Assets can also be properly understood, in my view, as presenting what was effectively the ‘worst case scenario’ for BEL. Mr Weston says that Transpower would only have modelled this scenario if it thought the outcome likely. I do not agree that is the case or that this amounted to a pre-determination of the reclassification decision.
[278] Transpower publishes its indicative pricing with a warning that it does not constitute notification of transmission charges for any pricing year and that actual transmission charges may be materially different to the indicative prices. As I have mentioned already, it is not in my view the case that contemplating such a decision, and warning BEL of the potential impact in terms of pricing, is pre-determination. The indicative pricing can be seen as providing BEL with a clear warning of what might happen, thus ensuring that BEL contemplated this outcome and took whatever steps it thought appropriate in response (which plainly it has done).
[279] Messrs Clarke and Knight have given evidence that they regarded the indicative pricing as irrelevant to reclassification, both also expressing the view that they would have been comfortable if BEL’s final charges had reduced. It is also significant to my mind that Transpower would, in any event, have recovered the costs, one way or another. Ms Osborne disagrees with the suggestion by Mr Osauskas that absent the reclassification decision, the costs of the Affected Assets would be recovered through the residual charge and therefore spread across all load customers. Rather, Ms Osborne explains in her evidence that the historic costs of the Affected Assets would be recovered under the residual charge and any further capital
investment in the Affected Assets (as interconnection assets) would be subject to benefit-based charges, with BEL most likely to be allocated most of the capital costs.
[280] BEL is particularly concerned that it must suffer the consequences of earlier decision making by Transpower’s predecessors as to how its network has been built. Mr Weston’s submissions revealed this in the emphasis placed on the unfairness of the situation that BEL now finds itself in, including reliance on an economic analysis of the efficient recovery of costs relating to historical investments. I do not repeat my earlier discussion as to the effect of the economic analysis in this proceeding. While I have some sympathy for BEL’s concerns given the Buller region’s economic and social challenges, I am satisfied that its predicament is not one that can properly be characterised as Transpower reaching a pre-determined outcome.
[281] BEL has not satisfied me on the balance of probabilities that Transpower pre- determined the outcome of the application of cl 23(1)(c) to BEL. I therefore turn to address whether Transpower made an error of law in its interpretation of cl 23(1)(c) and therefore failed to properly exercise its discretion.
Did Transpower make an error of law and consequently fail to properly exercise the cl 23 discretion?
[282] The question here is what should be considered by Transpower in determining whether it was “reasonable in all the circumstances to classify or reclassify the grid asset as a connection asset” (as required by the words of subcl 23(1)(c)). I understand this to be Mr Weston’s concern about the ambit of the discretion.
[283] As noted above, it is uncontroversial that public bodies must exercise their statutory powers in accordance with the statutes which confer them. In further reliance on Unison Networks, I agree with Mr Smith that my task is to identify the legal limits of the power in subcl (c) rather than assessing the merits of its exercise.155
[284] I have already discussed the development of cl 23 in the context of the cause of action against the Authority. I concluded earlier that cl 23 is lawful and reasonable.
155 Unison Networks, above n 94, at [54].
The argument against Transpower here overlaps with much of the earlier discussion in the context of the cause of action against the Authority. It also overlaps with the consideration of pre-determination that I have just undertaken. I do not repeat here what I have already discussed, rather, I address matters raised for BEL that have not yet been addressed.
[285] Before turning to those matters, I record Mr Smith’s concern that some matters now raised by BEL were not raised during the consultation on reclassification. I accept that this is the case and that the Court in an application for judicial review must focus on the information before the decision-maker at the relevant time. But, as will become apparent, I do not consider that BEL’s raising of any new issues has caused a disadvantage to Transpower in the course of their argument. To the extent that there can be said to be any disadvantage for Transpower, Transpower will also have the ability to respond further to these issues at the expert review.
[286] First, Mr Smith rejects any suggestion that Transpower did not apply the third limb in its decision making about BEL. He relies on the discussion of the application of this limb in the Reclassification Consultation Paper and the Reclassification Decision Paper, as I have referred to above.
[287] As part of this consideration, Mr Smith says that Transpower carried out a cross-check of whether BEL had “outlier” status among designated transmission customers. Transpower concluded that BEL was not an outlier if the Affected Assets were reclassified but would be if they were not reclassified. Mr Smith says this confirms Transpower’s decision as rational and reasonable. Transpower compares BEL with two other distribution companies, Alpine and Electra, in support of its conclusion.
[288] BEL does not agree with Transpower’s analysis. I have noted earlier that I have not sought to prescribe the correct measures by which to assess. whether BEL might be categorised as an “outlier” as a result of the reclassification of the Affected Assets. I have also indicated my view that matters of this kind may be put forward as part of a reasonableness assessment, whether by Transpower or an expert reviewer.
[289] In these circumstances, I do not accept that Transpower failed to consider subcl (c) at all. BEL may not agree with Transpower’s assessment, but the merits of the position will be a matter for the expert review.
[290] Nor do I consider that Transpower has made an error of law in not placing weight on the socio-economic impacts on BEL and its end-consumers due to the increased transmission charges resulting from reclassification of the Affected Assets. This is a re-casting of the “material impact” question that has been discussed earlier in the judgment. In not placing weight on this factor, Transpower has acted consistently with the Authority’s explicit rejection of BEL’s suggestion that there should be an additional criterion added to cl 23 regarding material impact. I consider that in rejecting that suggestion, the Authority was also implicitly saying that material impact cannot be understood to fall within the “reasonableness” aspect of subcl (c). To this extent, then, in my view the history of the drafting of cl 23 supports my conclusion that the proper interpretation of “reasonableness in the circumstances” must exclude consideration of financial impact on BEL and its end-consumers.
[291] The broader point in support of this approach to cl 23 is the absence generally in the TPM of distributional consequences on end-consumers. As discussed earlier, the TPM does contemplate various measures that respond to changes in position by Transpower’s customers, such as the transitional price cap and the PDP. But these measures do not include assessment of socio-economic consequences as sought by BEL in this case. I am satisfied that it would be inconsistent with both the TPM and the statutory objective to take such consequences into account.
[292] Similarly, there is no basis for treating socio-economic impact as a mandatory consideration and, accordingly, the fact Transpower did not take it into account does not make its decision under cl 23 unlawful.
[293] Transpower also rejects on a factual basis all remaining factors that Mr Weston says should have been but were not considered by Transpower in assessing what was
reasonable in the circumstances. I mention these factors only briefly here, as they have all been discussed earlier and are not matters on which I need to reach findings.156
[294] The first is that Transpower’s predecessors rather than BEL were responsible for the design and configuration of its assets, thus there was no gaming or inefficient behaviour on BEL’s part. I do not understand Transpower to criticise BEL in such a manner. Rather, Transpower’s position is, as Ms Osborne says, that while it accepts that some of BEL’s assets may not be “optimal”, in most situations, neither the previous TPM nor the 2023 TPM calculate charges on an optimised grid, rather the existing grid is used. Transpower also refers to the rationalisation of assets already underway, which will reduce BEL’s transmission charges, as well as the option for BEL to seek a stand-alone prudent discount.
[295] The second is that the capacity of the Affected Assets significantly exceeds BEL’s present demands and those for the foreseeable future thus BEL derives no meaningful benefit from the assets to the extent there is over capacity. Once again, Transpower disagrees with BEL’s analysis in this regard. Mr Smith reiterates that the PDP was introduced to respond to the kind of policy concerns regarding overbuilt assets raised by BEL.
[296] The final point is that Transpower appears to have considered fairness in relation to the impact (albeit very minor) on other customers of contributing to the costs of the Affected Assets if recovered through the residual charge, without having explained how that is consistent with the s 15 statutory objective. I have mentioned earlier Ms Osborne’s evidence that both the residual charge and benefit-based charges would be involved in recovering the costs of the Affected Assets if they were treated as interconnection assets. I note that Mr Knight states that his primary concern was to give effect to the new TPM, by which he means that, in considering decisions in the implementation of the TPM, such as the reclassification, they must be consistent with the terms and purpose of the TPM, including having regard to the 2020 Guidelines that the new TPM was to give effect to.
156 These matters are ones that BEL might further advance in the expert review of Transpower’s reclassification of the Affected Assets.
[297] As noted above, it is not for me to make such an assessment on the merits of the exercise of the discretion to reclassify the assets, nor is it appropriate for me to prescribe what considerations Transpower must take into account when exercising its discretion under cl 23. But I make two observations that would appear to support that reclassification of the Affected Assets was reasonable. First, that the Affected Assets have generally been treated as connection assets in substance, by both BEL and Transpower, for a considerable period of time. Second, that the evidence from Mr Osauskas is that the reclassification of the Affected Assets as interconnection assets in 2021 did not lead BEL to pass on the resulting reduction in its transmission charges to its customers in part because of its concern about the durability of the change.
[298] Accordingly, BEL has not satisfied me that Transpower failed to account for particular matters that it was legally obliged to take into account in exercising its discretion under cl 23.
Conclusion
[299]I conclude that BEL’s second cause of action against Transpower must fail.
Third cause of action against Transpower—did Transpower fail properly to exercise its discretion in the 1 April 2023 renotification decision?
[300] In its third cause of action against Transpower, BEL contends, in the alternative, that even if Transpower had jurisdiction to reclassify the Affected Assets, it has not properly exercised its discretion in re-notifying its 15 September 2022 decision on 1 April 2023. BEL says Transpower had already reached a pre-determined outcome and that it failed to take account of material considerations.
[301] As I have concluded both that jurisdiction existed for Transpower to make its reclassification decision on 15 September 2022 and that in making that decision it properly exercised its discretion, it is not necessary for me to address this cause of action.
Result
[302]BEL’s application for judicial review is dismissed.
[303] Mr Smith requested that I record that, in the event that Transpower was successful in the proceeding, the undertakings given in lieu of interim orders have come to an end. I have now determined the proceeding and record that the undertakings come to an end on their terms.
Costs
[304] The Authority and Transpower are entitled to costs. If the parties cannot agree costs the Authority and Transpower may file memoranda of no more than five pages plus a schedule within ten working days with BEL to file a memorandum of the same length within a further ten working days. If necessary, brief memoranda in reply may be filed within a further five working days. I will determine costs on the papers.
McQueen J
Solicitors:
Bell Gully, Wellington for Applicant
Buddle Findlay, Christchurch for First Respondent Chapman Tripp, Wellington for Second Respondent
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