Major Electricity Users' Group Inc v Commerce Commission

[2015] NZHC 1042

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-268

CIV-2011-485-269 [2015] NZHC 1042

UNDER

Part 4 of the Commerce Act 1986

IN THE MATTER

of an intended appeal to the Court of Appeal under s 52Z(6) and s 97(1) of that Act

BETWEEN

THE MAJOR ELECTRICITY USERS' GROUP INC

Applicant

AND

THE COMMERCE COMMISSION, VECTOR LIMITED, POWERCO LIMITED AND TRANSPOWER NEW ZEALAND LIMITED

Respondents

On the papers
Counsel:	N M Pender and S L Franks for Applicant V E Casey for Commerce Commission A S Butler and C M Marks for Vector V L Heine and B A Davies for Powerco and Transpower
Judgment:	18 May 2015

COSTS JUDGMENT OF CLIFFORD J

Introduction

[1]      On 28 July 2014 this Court1  gave judgment2  declining leave to The Major

Users’  Electricity  Group  Inc  (MEUG)  to  appeal  its  judgment  in  Wellington

International Airport Limited v Commerce Commission [2013] NZHC 3289.

1      Comprising, pursuant to s 52ZA(3) of the Commerce Act 1986, Clifford J, Mr R Davy (lay member) and Mr R Shogren (lay member).

2      The Major Electricity Users’ Group Inc v Commerce Commission [2014] NZHC 1765.

THE MAJOR ELECTRICITY USERS' GROUP INC v THE COMMERCE COMMISSION [2015] NZHC 1042 [18 May 2015]

[2]      The   respondents,   Vector,   and   Powerco   and   Transpower   jointly,   seek Schedule 3C costs against MEUG on the basis they opposed leave being granted to MEUG and had succeeded in that opposition.   MEUG opposes those applications. The Commerce Commission abided the Court’s leave decision, and does not seek costs.

[3]      In  a Minute  of 23  September 2014  I deferred  consideration  of  costs  on MEUG’s application for leave to appeal until I knew whether I would be dealing with costs applications arising out of the substantive proceedings.   In a joint memorandum dated 9 February 2015 counsel for Vector, and Powerco and Transpower, advised me that issues of costs arising from the substantive appeal had been resolved,3  that MEUG continued to oppose their clients’ applications for costs on its unsuccessful leave to appeal application and that a timetable had been agreed for  the  exchange  of  written  submissions.    MEUG  subsequently  sought  an  oral hearing on the question, which I declined.4

[4]      I am therefore considering these applications on the papers.  I do so first in terms of the applications originally made by Vector, and Powerco and Transpower, in September 2014, then by reference to the submissions filed by MEUG in February this year opposing those applications and, finally, to the reply submissions filed subsequently.

Submissions

The applications

[5]      Powerco  and  Transpower  apply jointly for  an  order  of  costs  of  $19,110 calculated on a 3C basis.  That joint application reflects the fact that, in responding to MEUG’s application for leave, they were represented jointly by Chapman Tripp.

Vector applies individually for costs in an identical amount.

3      In  a  memorandum of 26  February 2015 the  Commission confirmed that it  had  reached a settlement with all appellant parties for payment of costs at approximately 70 per cent of the estimated scale costs on a 3C basis (with some areas of uplift).  Scale costs and disbursements totalling $468,736 were paid to the Commission by the appellants on a “pragmatic basis to reflect  the  multiplicity of  appeals  while  at  the  same  recognising  the  areas  of  overlap  in responding to the appeals”.

4      The Major Electricity Users’ Group Inc v Vector Ltd and ors, CIV-2011-485-268, Minute (No.6)

of Clifford J, 19 February 2015.

[6]      Each of those applications is based on the simple proposition that, as they succeeded in their opposition to MEUG’s application for leave, costs should follow the event in the normal manner.   Category 3C is said to be the appropriate categorisation, given the complexity and novelty of the issues raised.

MEUG’s opposition

[7]      As summarised in its written submissions, MEUG’s position is:

(a)       The usual “costs follow the event” principle that applies in inter- party disputes should not apply to proceedings arising from input methodology determinations  (IM).    IM  appeals  are legislative  in nature.   Legislative processes seek to maximise the availability of information  that  helps  estimate  the  effects  of  proposed  rules  on future conduct.   Competing perspectives are to be encouraged, not deterred.   Costs as between interested parties in IM proceedings should lie where they fall.

(b)       Requiring  MEUG  to  pay  costs  to  regulated  suppliers  will  chill consumer participation in future proceedings.  Even if the usual costs principles is not to be displaced, the Court should still decline to order costs against MEUG for its participation in IM-related proceedings.

(c)       All three suppliers could have presented a joint defence.  If costs are to be awarded, they should be limited to one set only.

(d)       The quantum sought is excessive.   The  costs  of this application ought to mirror the costs scale used by the Court of Appeal for its own leave applications.  Alternatively, High Court band B should be used to allocate time for all steps.

Reply submissions

[8]      Vector,  Powerco  and  Transpower  reject  MEUG’s  submission  that,  as  a consumer representative, it should not be required to pay costs.  MEUG cannot, they say,  properly  be  described  as  a  “consumer  body”  acting  in  the  public  interest. MEUG is an industry association.   Vector pointed to the following extract from MEUG’s mission statement found on its website:

To add value to MEUG members’ management of electricity costs and risks through market intelligence, networking, facilitating solutions to improve competition, maintain reliability, promote efficient operations and regulate monopolies to achieve outcomes consistent with competitive markets for the long term benefit of electricity consumers.

[9]      Moreover, the “public interest” issues MEUG had raised had been considered by the Court  when  it  declined  MEUG’s  leave  application.    Importantly,  and  as recognised when the Court did so, the Commission was already re-considering the Cost of Capital IM’s selection of the 75th percentile for the determination of WACC, the issue MEUG wished to pursue in the Court of Appeal.

Analysis

[10]     In the substantive appeals, Vector, Powerco and Transpower as suppliers of regulated  services  contested   a  range  of  decisions   made  by  the  Commerce Commission when determining IMs.  MEUG, representing purchasers of electricity lines services from Transpower and electricity distribution businesses including Vector and Powerco, did likewise.  Each contended that the positions they took were consistent with, and indeed required by, the regulatory framework under which the Commission had made its challenged decisions.  In particular, those positions were ones which would, in a materially better way, “promote the long-term benefit of consumers by promoting  outcomes  that  were  consistent  with  those  produced  in

competitive markets”.5

[11]     MEUG’s particular concern was the Cost of Capital IM and, within that, the

Commission’s determination to use the 75th percentile of the WACC range for price

– quality path regulation.  MEUG argued that the 50th percentile should be used, or alternatively that the 75th percentile should be applied only to new investment. Vector and Powerco – as interested parties – supported the Commission’s decision. Transpower initially argued for the adoption of the 90th percentile, but did not pursue that at the appeal hearing.

[12]     They did so in the context of a regulatory process which I have previously described in the following terms:6

[The] Commission’s role under Part 4 is best categorised as that of making legislative rules, in effect regulations as Professor Burrowes says.  The clear purpose of Part 4 is, through the determination of input methodologies, to set up rules as to how Part 4 regulation will apply so that, before the event, firms

5      The Commerce Act 1986, s 52A(1).

6      Wellington International Airport Ltd v Commerce Commission HC Wellington CIV-2011-485-

1031, 22 December 2011.

operating in a regulated sector have a greater degree of certainty as to how the regulatory framework will apply to them.

[13]     In that contest over regulatory rules, the suppliers and purchasers of regulated services do not bring each other to the table: rather they are there in response to decisions by the regulator.  As unsuccessful appellants, they have paid costs to the regulator.  As I understand it, no question of costs arose as between suppliers and purchasers in the substantive appeals.  That is notwithstanding the fact that, in those substantive appeals Vector, Powerco and Transpower on the one hand, and MEUG on   the   other,   directly   challenged   the   “materially   better”   propositions   they respectively advanced, and supported approaches taken by the Commission when they did so.

[14]     In many ways, the question that these applications raise is whether I should take the same approach here (although that is not the explicit way MEUG framed its argument), or whether I should adopt the more traditional party and party approach suggested by Vector, Powerco and Transpower.

[15]     I think that question is best answered by reference to the way in which these proceedings have been conducted, and matters resolved as to the capacity in which appellants participated in the separate appeals of their co-appellants when only the Commission had been named as the respondent to those appeals.

[16]     In the judicial review applications brought in response to the Commerce Commission’s IM determinations, and then throughout the hearing of the substantive appeals, the “rulemaking” character of these proceedings was reflected in the approach  taken  to  standing  and  participation.    As  this  Court  said  in  declining MEUG’s leave application, in response to propositions by MEUG as to whether or not the suppliers should be regarded as respondents to its leave application:

[67]     There is, in our view, no principled basis for seeking to draw any distinction between the position of the regulated respondents, Vector, Powerco, Transpower and WELL, on the basis of whether they are interested parties or respondents.  The substantive appeals were conducted on the basis that there was no distinction between participation as a respondent or interested party, other than as regards the IM decisions in which persons participating in either of those capacities were interested.

[17]     From the outset, therefore, the Court took the view that an inclusive approach to standing and participation was most consistent with the objective of achieving input methodologies that would promote the Part 4 purposes.   In my view, and as between suppliers and purchasers of regulated services who were – as relevant on the

75th percentile issue – effectively cross-appellants, leaving costs to lie where they fall in the substantive appeals best achieves that result.

[18]     I think the same approach is appropriate on this application for leave.   I acknowledge it  was  MEUG alone who sought  leave to  appeal,  and  that  it  was unsuccessful.   But I do not think that changes the essential character of the leave proceedings in this Court.   Namely, they were a continuation of the, essentially regulatory, contest that challenges to input methodology determinations by the Commission comprise.

[19]     I therefore agree with MEUG’s submission that on its leave application as between it and the supplier respondents costs should lie where they fall.

[20]     I do not, however, base that conclusion on the status of MEUG as in some way representing consumers more generally. That, I think, would be naïve.  Rather, I base it on the proposition that suppliers and purchasers challenge input methodology determinations by the Commission quite properly because to do so is in their own interests, albeit that – as I have noted – they all argue that the outcome they advocate is most consonant with the long-term interests of consumers, which is the purpose of the regulatory regime.

Result

[21]     I accordingly decline the applications for costs made by Vector, Powerco and Transpower jointly.   Costs of the participants in these processes should, and will here,  lie  where  they  fall.    If  a  “costs”  discipline  is  appropriate  for  potential

participants in proceedings like these, that in my view is provided by the accepted basis upon which the Commerce Commission may be entitled to costs where a

challenge to one of its decisions fails.

Clifford J

Solicitors:

Franks & Ogilvie, Wellington for Applicant
Chapman Tripp, Wellington for Powerco Limited and Transpower New Zealand Limited

Russell McVeagh, Wellington for Vector Limited