A 647 page High Court decision last week should eventually mean a reduction in monopoly profits of up to $150m per year, to the benefit of electricity consumers. I'm proud of my firm's role in making this likely, and surprised that it may have not been recognised in relevant share prices.

We acted for the Major Electricity Users' Group in the High Court merit review of the price control methodologies announced by the Commerce Commission in 2010. Given market whining about lack of warning of the effects of monopoly price control on Chorus I'd have expected an 'efficient market' in company analysis to be keeping a close watch on the merit review decision.

 Yet the Vector price, for example, seems to have been unaffected by a decision that could cut its revenue by as much as $20-25m p.a.. Unlike the Labour scheme for nationalising the electricity generation market, this win for consumers will come from confining monopoly prices to risk defined market returns, based on orthodox principles. It would eliminate a current generosity bias to monopolists. During the consultation process on the Input Methodologies the Commerce Commission simply ignored the relevant MEUG submissions so there was not enough material in the Commission's record of expert opinion (on which the Court must rely to rewrite a methodology). Accordingly the Court limited itself to delivering a strong steer to the Commerce Commission:

(paragraph [1486]) “In reaching this decision not to amend the IM in respect of the use of the 75^th percentile for DPP/CPP regulation, we are mindful that the IMs will be reviewed. At that time, we would expect that our scepticism about using a WACC substantially higher than the mid-point, as expressed above, will be considered by the Commission. We would expect that consideration to include analysis – if practicable – of the type proposed by MEUG. We would also expect the Commission to consider MEUG’s two-tier proposal in light of our observations. We acknowledge that further analysis and experience may support the Commission’s original position. But they may not…." 

This is a very strong direction to consider our claim that there should be a mid-point WACC or an alternative 2-tier WACC.

The ComCom could review their 75^th percentile decision next year so that the reduced return on capital could apply when the price path for lines companies is reset for the period 2015 to 2020.

In the merit review proceedings on the opening day of the substantive hearing the Franks & Ogilvie team (Nikki Pender, Jordan Williams and me) faced 29 lawyers (including 6 QCs) in the body of the Court with their supporting platoons in the gallery. MEUG was there alone representing consumers. The Commission lawyers were dedicated to defending its status quo, and the others were pushing for hundreds of millions more in permitted revenue.

I've previously mentioned these proceedings here, here and here. They took more  Franks & Ogilvie hours in 2012 than anything else.  We're enormously chuffed to have such a good outcome for our clients, and eventually for all consumers.

The High Court decision is extraordinarily assured and direct, despite the Judge's open acknowledgement in the early stages of the hearing that he was having to learn the arcane mysteries of cutting edge corporate finance. He was assisted by two experienced economic regulators from Australia. We think the merit review process could be improved to reduce the burden on the Court, but the decision shows the intellectual quality of good adjudicators.

Nevertheless I'll blog in future posts on some of the lessons for me of re-exposure to our courts after 30 years of strenuously keeping my clients as far away from them as possible. In my opinion they are immeasurably worse overall for litigants, and much more indulgent to lawyers' pretensions.. This is not within the power of even an outstanding High Court judge to control. It could be remedied only by a dedicated reform-minded Supreme Court.