Major Gas Users' Group Incorporated v Commerce Commission - [2024] NZHC 959

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2022-485-348

CIV-2022-485-352 [2024] NZHC 959

UNDER Sections 91 and 52Z of the Commerce Act 1986

IN THE MATTER

of an appeal against the Gas Transmission Services Input Methodologies Amendment Determination (No. 2) 2022 and Gas Distribution Services Input Methodologies Amendment Determination (No. 2) 2022

AND

an appeal against the Gas Transmission Services Default Price-quality Path Determination 2022 and the Gas Distribution Services Default Price-quality Path Determination 2022

BETWEEN

MAJOR GAS USERS’ GROUP INCORPORATED

Appellant

AND

COMMERCE COMMISSION

First Respondent

continued …

Hearing: 16–20 October 2023

Counsel:

M N Dunning KC, S L Franks and B E Morten for Appellant V E Casey KC, R S May and T G Bain for First Respondent

V L Heine KC, T D Smith and R J J Wales for Second Respondent J D Every-Palmer KC, G K Rippingale, S D J Peart and

S I A Harker for Third and Fourth Respondents

Judgment:

29 April 2024

JUDGMENT OF RADICH J AND

LAY MEMBERS PROFESSOR A VAN ZIJL AND DR J WALKER

MAJOR GAS USERS’ GROUP INC v COMMERCE COMMISSION [2024] NZHC 959 [29 April 2024]

… continued

FIRST GAS LIMITED
Second Respondent
POWERCO LIMITED
Third Respondent
VECTOR LIMITED
Fourth Respondent

Table of Contents

Paragraph

Introduction [1]

The legislative scheme [10]

The purpose of Part 4 [12]

Default price-quality paths [17]

Input methodologies [23]
The building blocks method [26]

The decisions on appeal [35]

Rights of Appeal [37]

Right of appeal for the 2022 Input Methodologies Decision [37]

Right of appeal for the 2022 Default Price-quality Path Decision [43]

The application of the Part 4 scheme to date [50]

The 2010 Input Methodologies Decision [51]

The Wellington International Airport decision  [61]
The decision on a customised price-quality path for Orion
following the Christchurch earthquakes  [67]
The Commission’s 2014 decision amending the WACC percentile for price-quality regulation for electricity lines services and gas
pipeline services  [72]
The 2016 input methodologies review decisions  [77]
The fibre input methodologies decision  [85]
The net position on asset stranding risks under Part 4  [90]

Climate change and the new policy landscape [94]

The 2022 Input Methodologies Decision [101]

The reasons paper [101]

Gas Distribution Services Input Methodologies Amendment
Determination [111]

The 2022 Default Price-quality Path Decision [115]

The appellant’s position [131]

Approach to discussion of the grounds of appeal [139]

Is the 2022 Input Methodologies Decision inconsistent with
the s 52A purpose?  [144]
Is stranding risk already addressed through the weighted average cost of capital component of the input methodologies – or
otherwise provided for in the input methodologies?  [144]
Systematic risk is compensated through the equity beta in
the WACC  [145]
Provision for asymmetric risk in the WACC  [149]
Double counting  [155]
Otherwise, is the Commission’s decision consistent with the
s 52A purpose?  [160]
Workably competitive markets, regulation and the long-term
benefit of consumers  [163]
Input methodologies in times of stable demand  [170]
Responding to the risk of network stranding…

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: [2024] NZHC 959
Decision Date: 29 April 2024

CaseChat Overview and Summary

The appeal in Major Gas Users' Group Incorporated v Commerce Commission was heard over five days in Wellington in October 2023. The appellant, Major Gas Users' Group Incorporated, challenged two decisions of the Commerce Commission. The first was the Gas Transmission Services Input Methodologies Amendment Determination (No. 2) 2022 and the Gas Distribution Services Input Methodologies Amendment Determination (No. 2) 2022 (the "2022 Input Methodologies Decision"). The second was the Gas Transmission Services Default Price-quality Path Determination 2022 and the Gas Distribution Services Default Price-quality Path Determination 2022 (the "2022 Default Price-quality Path Decision"). The respondents to the appeal were the Commerce Commission, First Gas Ltd, Powerco Ltd, and Vector Ltd.

The 2022 Input Methodologies Decision amended the input methodologies for gas pipeline businesses to enable adjustments to be made to the asset lives of gas pipeline assets, which would in turn enable depreciation on them to be brought forward, increasing the calculated costs of gas pipeline operators and, therefore, their regulated prices. The 2022 Default Price-quality Path Decision used the amended input methodologies to accelerate gas pipeline depreciation in the default price-quality path for gas pipeline businesses.

The Court found that the 2022 Input Methodologies Decision was not materially better than the Commission's decision, having regard to the purpose of Part 4 of the Commerce Act 1986, the timing of the decision, and the terms of sections 52R and 52T of the Act. The Court also found that the 2022 Input Methodologies Decision did not misinterpret or misapply sections 52R and 52T of the Act. Finally, the Court found that the Commission did not err in law in making the 2022 Default Price-quality Path Decision. The appeal against both decisions was dismissed.

Orders