Commerce Commission v Aurora Energy Ltd - [2020] NZHC 610

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV 2019-412-134

[2020] NZHC 610

UNDER Parts 4 and 6 of the Commerce Act 1986

BETWEEN

COMMERCE COMMISSION

Plaintiff

AND

AURORA ENERGY LIMITED

Defendant

Hearing: 16 March 2020

Counsel:

L A O’Gorman, E J Watt and R Cahn for Plaintiff

T D Smith, S D Peart and S I A Harker for Defendant

Judgment:

23 March 2020

JUDGMENT OF MALLON J

Introduction

[1] The defendant, Aurora Energy Limited (Aurora), is an electricity distribution company. It provides electricity lines services in the Dunedin, Central Otago and Queenstown Lakes areas. The supply of its services is subject to regulation under Part 4 of the Commerce Act 1986 (the Act). This regulation includes quality standards that suppliers are required to meet. On the application of the Commerce Commission (the Commission), the Court can impose pecuniary penalties if the quality standards are contravened.

[2] The Commission claims that Aurora contravened the quality standards between 2016 and 2019. Aurora accepts this. The Commission and Aurora have agreed to recommend that the Court impose a total penalty of $4,997,200 for those contraventions.

COMMERCE COMMISSION v AURORA ENERGY LIMITED [2020] NZHC 610 [23 March 2020]

[3] The established approach in such circumstances is for the Court to impose the penalty that has been agreed between the parties, as long as it falls within an appropriate range that satisfies the objects of the Act and the particular circumstances of the case.1 This is because of the interests of the parties and the public in promoting a resolution and thereby avoiding costly, time-consuming and uncertain litigation.2

The quality standards

[4] Part 4 of the Act provides for the regulation of goods and services in markets where there is little or no competition and little or no likelihood of a substantial increase in competition. Electricity lines services are in this category. Aurora is subject to information disclosure regulation and price-quality regulation as a supplier of these services.

[5] The purposes of the price-quality regulation include limiting the ability of suppliers to extract excessive profits and providing incentives to suppliers to provide services at a quality that reflects consumer demands. Quality standards are essential to the efficacy of Part 4.3 Without them, electricity distribution businesses can earn excessive profits by underspending on their networks, defeating the purpose of the regulations.

[6] The price-quality regulations are set out in determinations made by the Commission under s 52P of the Act. In this case, the relevant determinations are referred to as the default price-quality path determinations (DPPs). The DPP principally contravened by Aurora over the period between 2016 and 2019 was the

1 See for example: Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC) at [18]; Commerce Commission v Geologistics International (Bermuda) Ltd HC Auckland CIV-2010-404- 5490, 22 December 2010 at [37]-[39]; Commerce Commission v Air New Zealand Ltd [2013] NZHC 1414 at [27]; Commerce Commission v New Zealand Diagnostic Group Ltd HC…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZHC 610
Decision Date: 23 March 2020

CaseChat Overview and Summary

The case of Commerce Commission v Aurora Energy Limited involves the Commerce Commission (the Commission) bringing proceedings against Aurora Energy Limited (Aurora), an electricity distribution company, for contravening quality standards as regulated under Part 4 of the Commerce Act 1986. Aurora admitted to contravening the quality standards between 2016 and 2019, and both parties agreed to recommend a total penalty of $4,997,200. The court was required to decide whether the agreed penalty was appropriate under the circumstances, considering the objects of the Act and the particular circumstances of the case.

The court's reasoning focused on the established approach of imposing the penalty agreed upon by the parties, provided it falls within an appropriate range. The court considered the purposes of the quality standards, which include preventing excessive profits and ensuring services meet consumer demands. The contraventions were measured by the system average interruption duration index (SAIDI) and the system average interruption frequency index (SAIFI), both of which Aurora exceeded significantly in 2016, 2017, 2018, and 2019. Aurora's failures in data management, asset lifecycle management, reliability management, and vegetation management were identified as key causes of the contraventions.

The court found that the starting points for the penalties, proposed by the parties, were appropriate given Aurora's culpability and the harm caused to consumers. The court noted that Aurora had taken steps to address its non-compliance from the end of 2017, which warranted a lower penalty for 2018 and 2019. A discount was applied for mitigating factors, including Aurora's cooperation with the investigation and its efforts to work towards future compliance. The court concluded that the overall penalty was within an appropriate range and not disproportionate to Aurora's conduct when assessed as a whole.

Aurora is ordered to pay a pecuniary penalty of $4,997,200. The penalty is to be paid within 20 working days of the judgment, though the court did not impose a specific time due to the COVID-19 emergency. Costs are to lie where they fall in accordance with the parties' agreement.

Orders