Vector Limited v Electricity Authority
[2015] NZHC 2959
•25 November 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2015-485-754 [2015] NZHC 2959
UNDER the Electricity Industry Act 2010 IN THE MATTER
of an appeal under section 64 of the Electricity Industry Act 2010 against a determination of the Electricity Authority
BETWEEN
VECTOR LIMITED Appellant
AND
THE ELECTRICITY AUTHORITY Respondent
Hearing: 19 November 2015 Counsel:
B A Scott and E G Thomson for Appellant
L O'Gorman for RespondentJudgment:
25 November 2015
JUDGMENT OF BROWN J
[1] The appellant (Vector) seeks an order under s 64 of the Judicature Act 1908 that its notice of appeal dated 9 October 2015 (the Exemption Appeal) from a determination of the Electricity Authority (the Authority) dated 11 September 2015 be transferred to the Court of Appeal in order that it may be heard together with Vector’s appeal from the High Court judgment Vector Ltd v Transpower
New Zealand Ltd.1
[2] The Authority, which has been joined as a respondent to the appeal under r 4.56 of the High Court Rules, supports the application.
1 Vector Ltd v Transpower New Zealand Ltd [2014] NZHC 3411.
VECTOR LTD v THE ELECTRICITY AUTHORITY [2015] NZHC 2959 [25 November 2015]
Context
The NAaN grid upgrade project
[3] In 2009, the Electricity Commission approved a grid upgrade proposed by Transpower New Zealand Ltd (Transpower) for the connection and installation of a new underground high voltage transmission cable link between Pakuranga and Albany. This project was known as the North Auckland and Northland (NAaN) grid upgrade project.
[4] This appeal relates to one section of the NAaN project, which involved constructing an interconnection cable linking Penrose with Albany. The cable was built in three sections, with new grid exit points at Hobson Street and Wairau Road. It appears that these new assets were always intended to be interconnection assets and the project was approved by what is now the Authority on that basis.
[5] The original project plan for the construction and commissioning of the NAaN project would have involved all sections of the cable being commissioned at essentially the same time. The Albany to Wairau Road section was completed and able to be commissioned on time in May 2013. However delays with other parts of the project meant that it was some nine months before the project as a whole was completed in February 2014 and the balance of the cable was commissioned.
[6] For various engineering and operational reasons Transpower preferred to commission the first section of the new cable (the Albany to Wairau Road section) when construction of that section was completed in May 2013. Vector agreed to the early commissioning and connected its network to the Wairau Road grid exit point as part of that commissioning process. In doing so, Vector and Transpower were unaware that this may alter how Vector was charged for use of this asset.
[7] After Vector had connected, Transpower formed the view that the early commissioning of this section of the cable before the remainder of the cable had been completed meant that this first section of the cable and certain associated assets (the initial assets) were, for the period from their commissioning until the link to Penrose was complete, connection assets for the purposes of the Transmission
Pricing Methodology (TPM). This was because, pending completion of the new NAaN cable link, the new assets in practice formed a spur (that is, they were connected to the grid at one end only) and not yet a closed loop.
[8] This treatment of the initial assets would mean that for the interim period until the project was completed, the costs of the initial assets would be payable by Vector alone under the TPM – rather than shared by all grid users, as had been intended.
Transpower’s exemption application
[9] Transpower recognised that the treatment of the initial assets as connection assets was anomalous and unintended. Consequently on 25 July 2013 Transpower applied for an exemption from cls 8 to 26 of the TPM in respect of the Albany to Hobson Street section of the NAaN Project (the Transpower application). In a final decision dated 29 October 2013 the Authority declined to grant an exemption on Transpower’s application. No appeal was filed to the High Court.
Vector’s proceeding in the High Court
[10] Vector then commenced a proceeding in the High Court seeking a declaratory judgment that the TPM should be interpreted purposively. Williams J held that the Authority’s interpretation of the TPM was to be preferred and his Honour declined to grant the order sought by Vector.
[11] At the conclusion of the judgment Williams J addressed Vector’s submission that the Authority’s approach failed to address problems with scenarios where, perhaps through no fault of Transpower, interconnection assets became inoperable for weeks or months and that it would be a perverse outcome for liability to be shifted from the wider network, where it had resided, to those on the new and unintentionally created link.
[12] The Judge said:
[51] I do not agree. It is not unrealistic to suggest that at some time in the future, some point on the network will suffer a catastrophic event rendering
interconnection assets inoperable as such and transforming them into connection links. These scenarios are best addressed, in my view, by way of an exemption application under s 11(2) of the Act.
[52] If a damaged loop is to be repaired, then an exemption may very well be consistent with the s 11(2)(a) test. It may be seen as a truly exceptional occurrence without likely negative effects on pricing efficiency or supply reliability and with positive benefits for consumers in terms of consistency of treatment. It would also be open to the Authority to revoke any such exemption under s 11(3) if Transpower began dragging its feet in repair.
[53] I conclude that there is nothing in the Authority’s objective as set out in s 15 that requires the gloss suggested by Mr Goddard to be read into cls 5 and 6 of the TPM. Rather, in my view, the better approach is to address true exceptions through the exemption process. As I have said, the Authority has already signalled that it is considering developing a new policy for issues of the type raised by the NAaN upgrade.
[13] Vector’s appeal against that judgment was filed on 12 February 2015 and has a date of hearing in the Court of Appeal on 27 April 2016.
Vector’s exemption application
[14] On 25 May 2015 Vector filed an application for an exemption from sch 12.4, cls 8 to 26 of the TPM for the following assets:
(a) Switch 742 (Albany) (ALB742); and
(b) Albany to Wairau Road line section (ALB_WRD).
[15] If granted, the exemption sought would have had the effect that Transpower’s AC revenue relating to these assets would be recovered through interconnection charges in accordance with the TPM.
[16] In a decision dated 11 September 2015 the Authority declined Vector’s application. On 12 November 2015 Vector filed the Exemption Appeal against that refusal. The object of the current application is to have the Exemption Appeal heard in the Court of Appeal concurrently with the appeal from the judgment of Williams J.
The Exemption Appeal
[17] It is common ground that there is a right of appeal to the High Court on questions of law under s 64 of the Electricity Act 2010 (“the Act”) in relation to determinations of the Authority on applications for exemption under s 11 of that Act. Section 71(1) of the Act confers a further right of appeal to the Court of Appeal but only with the leave of the High Court or the Court of Appeal.
[18] In the Exemption Appeal Vector contends that the Authority erred in law in directing itself as to the threshold for granting an exemption under s 11 of the Act, in particular as follows:
(a) by setting a threshold for the grant of an exemption that is much higher than the legislation requires, imposing restrictions on the exemption jurisdiction that were not contemplated by, and that are inconsistent with, the statutory scheme
(b) by failing to proceed on the basis that it will generally be appropriate to grant an exemption to address “true exceptions” to the circumstances contemplated by the Code, including to relieve market participants from the consequences of a genuine mistake, in circumstances where there is no material prejudice to other market participants compared with the scenario in which the mistake was not made;
(c) by proceeding on the basis that granting an exemption in exceptional circumstances such as this case would undermine efficient contracting, and give rise to inefficient incentives and/or regulatory uncertainty. The purpose of the exemption regime is to relieve market participants from compliance with the regulatory regime where compliance is not required to achieve the purposes of the regime, mitigating the “black letter” requirements of the regime where their application is not necessary;
(d) by failing to find that the s 11(2)(a) criterion was satisfied, in circumstances where the Authority’s objective under s 15 would not be impaired by granting an exemption on a basis that was explicitly confined to the exceptional circumstances of this case;
(e) by failing to find that the s 11(2)(b) criterion was satisfied, in circumstances where refusing to grant an exemption is likely to lead to excessive caution on the part of market participants in assessing the implications of steps taken under the TPM, and to litigation between market participants about the consequences of genuine mistakes made by one or more market participants; and
(f) by proceeding on the basis that an exemption might also be refused on the grounds of retrospectivity and/or inability to impose appropriate conditions on an exemption.
[19] The relief sought by Vector includes an order setting aside the exemption application determination and an order granting the exemption sought by Vector.
Jurisdiction to order transfer
[20] The circumstances in which the High Court may transfer civil proceedings to the Court of Appeal are specified in s 64 of the Judicature Act.
64 Transfer of civil proceedings from High Court to Court of
Appeal
(1) If the circumstances of a civil proceeding pending before the High Court are exceptional, the High Court may order that the proceeding be transferred to the Court of Appeal.
(2) Without limiting the generality of subsection (1), the circumstances of a proceeding may be exceptional if—
(a) A party to the proceeding intends to submit that a relevant decision of the Court of Appeal should be overruled by the Court of Appeal:
(b) The proceeding raises 1 or more issues of considerable public importance that need to be determined urgently, and those issues are unlikely to be determined urgently if the proceeding is heard and determined by both the High Court and the Court of Appeal:
(c) The proceeding does not raise any question of fact or any significant question of fact, but does raise 1 or more questions of law that are the subject of conflicting decisions of the High Court.
(3) In deciding whether to transfer a proceeding under subsection (1), a
Judge must have regard to the following matters:
(a) The primary purpose of the Court of Appeal as an appellate court:
(b) The desirability of obtaining a determination at first instance and a review of that determination on appeal:
(c) Whether a Full Court of the High Court could effectively determine the question in issue:
(d) Whether the proceeding raises any question of fact or any significant question of fact:
(e) Whether the parties have agreed to the transfer of the proceeding to the Court of Appeal:
(f) Any other matter that the Judge considers that he or she should have regard to in the public interest.
(4) The fact that the parties to a proceeding agree to the transfer of the proceeding to the Court of Appeal is not in itself a sufficient ground for an order transferring the proceeding.
(5) If the High Court transfers a proceeding under subsection (1), the Court of Appeal has the jurisdiction of the High Court to hear and determine the proceeding.
Vector’s application for transfer
[21] The grounds on which the order for transfer is sought include the following:
2.2The circumstances of the Exemption Appeal are exceptional, in that: (a) The transfer of the Exemption Appeal to the Court of
Appeal, to be heard at the same time as the Judgment Appeal, is a prompt and efficient means of determining the questions of law raised in both appeals. More specifically, it would be an inefficient use of the Court’s (and the parties’) resources for the High Court to hear the Exemption Appeal as:
(i) the Court of Appeal is to hear the Judgment Appeal on 27 April 2016;
(ii) the Judgment Appeal relates to the same factual situation as the Exemption Appeal and involves similar important, but narrow, issues of interpretation of relevant provisions of the Electricity Industry Act 2010 (the Act) and aspects of the Code operated by the Authority under the Act;
(iii) Vector considers the questions of law to be determined in the Exemption Appeal to be of such importance that, depending on the outcome, it is likely that leave would be sought and granted to appeal the decision of this Court to the Court of Appeal and that such an appeal would be pursued in the Court of Appeal.
(b) The appeal relates to the interpretation of the regulatory framework that governs the operation, maintenance and development of the national electricity network (the National Grid). More specifically:
(i) the appeal concerns the scope of the Authority’s statutory power to grant exemptions from the requirements of TPM in order to facilitate the efficient development of the National Grid;
(ii) the breadth of the Authority’s exemption power is a matter of considerable importance to all industry participants subject to the provisions of the TPM and the wider Electricity Industry Participation Code; and
(iii) the orders sought affect all designated transmission customers subject to interconnection charges calculated in accordance with the TPM;
[22] It is said that the Exemption Appeal does not raise any questions of fact but only narrow questions of law intrinsically linked with the findings in Vector. The point is also made that the Exemption Appeal is already the subject of a first instance determination by the Authority. Consequently it is said that there is less benefit in the High Court hearing the Exemption Appeal before the matter is heard by the Court of Appeal than in civil proceedings which do not involve a challenge to a decision of a quasi-judicial body.
Discussion
[23] The Court has had the benefit of helpful written and oral submissions from Mr Scott for Vector. There has also been useful input from Ms O’Gorman on behalf of the Authority explaining why the Authority does not oppose transfer although of course the appeal itself is resisted.
[24] I accept the validity of the contentions in ground 2.2(b) of the notice of appeal. I also accept Mr Scott’s submission that the issue of interpretation raised in the Vector appeal is of significant importance to the parties and the wider electricity industry.
[25] However, while both the Vector appeal and the Exemption Appeal concern the interpretation and application of the TPM, a significant issue in my view is the extent to which the two appeals can be viewed as interconnected.
[26] Vector submits that if the Exemption Appeal was transferred and joined with the Vector appeal, the Court of Appeal would have the benefit of a reasoned judgment of the High Court “dealing with the subject-matter of these appeals”. I consider that that contention goes too far as concerns the Exemption Appeal. The
subject matter of the exemption process was touched only briefly at the end of the
Vector judgment.
[27] In Vector Williams J described the Transpower exemption application as “round one” and the proceeding in the High Court as “round two”.2 Adopting that categorisation the Exemption Appeal is round three. The need for the exemption application arises as a consequence of the interpretation adopted in round two.
[28] Mr Scott fairly acknowledged that if Vector’s appeal in the Court of Appeal were to be successful then there would be no need to proceed with the Exemption Appeal. Hence the Vector appeal and the Exemption Appeal do not involve the same issue. Rather the outcome of the former dictates whether the latter needs to be pursued.
[29] However, Mr Scott contended that in considering the interpretation issue raised by the Vector appeal, the Court of Appeal would likely find the scope of the exemption power relevant and possibly instructive. He emphasised the degree of connection between the appeals in that respect. He made the further point that if a transfer was declined and the Exemption Appeal was still extant in the High Court by the time the Vector appeal is heard in April 2016, then the Court of Appeal may feel constrained from considering the implications for the interpretation issue of the scope of the exemption power.
[30] Assuming for the purposes of analyses the correctness of the former proposition, I do not accept that the Court of Appeal would be inhibited in its consideration of the implications of the exemption power in the abstract. To put the point somewhat differently, I do not consider that it would be necessary for the Exemption Appeal to be moved into the Court of Appeal in order for that Court to adequately and properly engage with the Vector appeal.
[31] In my view the Exemption Appeal is the next phase in this process rather than an intrinsic feature of the Vector appeal. The Exemption Appeal identifies six aspects of the Authority’s determination which are framed as errors of law. In my
assessment consideration of those matters would add significantly to the scope of the hearing required for the Vector appeal.
[32] While I readily understand Vector’s desire to achieve a prompt final determination in both appeals (assuming that it proves necessary to determine the Exemption Appeal), I consider that the Exemption Appeal, incorporating as it does the several alleged errors or law in the Notice of Appeal,3 is a proceeding which should be the subject of a judgment of the High Court before leave to the Court of Appeal is entertained.
[33] Consequently the application for transfer of the Exemption Appeal to the
Court of Appeal is declined.
Brown J
Solicitors:
Chapman Tripp, Wellington
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