Nova Energy Limited v Electricity Authority - [2023] NZCA 275

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA364/2022
[2023] NZCA 275

BETWEEN	NOVA ENERGY LIMITED Appellant
AND	ELECTRICITY AUTHORITY First Respondent
AND	MERIDIAN ENERGY LIMITED Second Respondent

Hearing:	19-20 April 2023
Court:	French, Miller and Katz JJ
Counsel:	M N Dunning KC and J A Tocher for Appellant D A Laurenson KC, J H Stevens and L J Hardcastle for First Respondent J D Every-Palmer KC and T Mijatov for Second Respondent T D Smith for Transpower as Intervenor
Judgment:	3 July 2023 at 11.00 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BNova Energy Ltd must pay costs as set out at [57].

____________________________________________________________________

REASONS OF THE COURT

(Given by Miller J)

TABLE OF CONTENTS

Introduction  [1]
Nova Energy  [12]
The Authority’s rationale  [15]
The statutory framework for decision  [24]
The Code  [30]
The grounds of judicial review  [31]
Illegality  [34]
Irrationality  [38]
Failure to undertake cost-benefit analysis of net AMD for co-generation       [53]
Disposition  [55]

Introduction

Transpower operates the national electricity grid, which transmits electricity in bulk around the country, connecting generation plants to distribution networks through which it is transmitted to consumers. The costs of operating the national grid are around $800M a year. They are recovered from users of electricity under a transmission pricing methodology (TPM) that Transpower must develop in accordance with guidelines set by the Electricity Authority | Te Mana Hiko (the Authority) and given effect in the Electricity Industry Participation Code (the Code).[1]
[1]Under the Electricity Industry Act 2010, s 32; and the Electricity Industry Participation Code 2010, part 12.
In a 2020 decision the Authority developed new guidelines (the 2020 Guidelines) which have now been implemented in a TPM which took effect on 1 April 2023.
The 2020 Guidelines effected substantial change in transmission pricing. The Authority had decided that the existing TPM was no longer fit for purpose because it distorted the cost of transmission, distributed those costs in a way which did not encourage efficient investment in the electricity system, and required that the costs of the high voltage direct current link across Cook Strait must be borne by South Island generation notwithstanding that all users benefit from its output.
The Authority instead adopted a policy of recovering costs from those who benefit from transmission investments. There are three components:
(a)Connection charges are payable by generators, regional lines companies or industrial users who connect directly to the grid. The charges recover the costs of Transpower connection assets needed to connect these users to the grid.
(b)Benefit-based charges cover grid investments made from July 2019. They are payable by those who benefit from such investments.
(c)A “residual charge” recovers costs not allocated to specific transmission investments (such as Transpower’s head office costs) and the remaining costs of all other historical transmission investments.
Initially the residual charge will recover a large proportion — about 56 per cent — of the total costs of the grid, but that proportion is projected to decline to…

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: [2023] NZCA 275
Decision Date: 3 July 2023 at 11.00 am

CaseChat Overview and Summary

Nova Energy Limited appealed against the Electricity Authority's decision to implement a new transmission pricing methodology, specifically challenging the allocation of the residual charge based on gross anytime maximum demand (AMD) for co-generation plants. The Court of Appeal found that the Authority had acted rationally in implementing the new methodology and upheld the decision. The Authority had considered the statutory objective of promoting competition, reliable supply, and efficient operation of the electricity industry for the long-term benefit of consumers, and had applied a gross AMD approach to achieve these objectives in the least distortionary manner possible. The Court found that the Authority's decision to implement the gross AMD approach was consistent with its objectives and based on available information. The appeal was dismissed, and the Authority was entitled to costs for a complex appeal on a Band A basis with usual disbursements. Meridian Energy Ltd also had costs on the same basis, as it was a respondent and fully participated in the appeal.

Orders