Vector maintains the drumbeat of monopoly complaint about price control.

After years of pushing, monopolies and their lawyers persuaded Lianne Dalziel, then Simon Power, to extend rights of appeal against Commerce Commission decisions. Traditionally appellants had to dress up arguments about financial and economic theory as questions of law and process. Courts stretched their jurisdiction to give the regulated some backstop error protection.

In bigger, richer countries that error protection and quality control function is performed by specialist administrative tribunals. New Zealand decided to economise. The “Part 4 merit review" law changes, from 2010 allowed the Courts to step into the shoes of the Commission to make changes it thinks it should, without having to find 'error of law'.

Safeguards to mitigate the risk of more obscene feasting by lawyers include:

a) limits on Court tinkering just because it can – the Court may only change an IM if the result would be "materially better"; and

b) limits on tactical advantage from stringing proceedings out –  the Commission's ruling applies in the meantime, and any Court-ordered change is back-dated (claw-back).

The Commission's 2010 Input Methodologies are testing these novel powers of the High Court. Over 30 lawyers debated for months the economic and financial orthodoxy of the Commission's methods for working out what "workable competition" would deliver to comparable businesses that were not monopolies.

The results have been summarised as posts here, and here.

Vector is not happy. The Chief Executive is reported in the Herald saying:

"The court said the alternative approaches proposed by Vector and others did not provide a 'materially better' outcome than the commission's approach," said Mackenzie. "It is now evident that the 'materially better' test is unworkable."

Perhaps the Herald left something out of its report of Mr Mackenzie’s comments The 'court did not accept our claims' is not usually evidence that the law is "unworkable'. But Mr Mackenzie said more:

The ruling gave the commission "wide discretion over the conduct of New Zealand's critical infrastructure, but it gives no guidance to how the test of 'materially better' can be assessed robustly.

This is decidedly odd. Over 600 pages of judgment contain substantial guidance. But he goes further:

"The country's infrastructure providers are deprived of an effective process to challenge the regulator's determinations."

I'm really curious now. After Vector has spent millions in an exhausting process, is there more than disappointment to justify the claim that the process is not effective? Vector are a serious company. They’re not slow to take their arguments to court. What exactly are they now saying.

Is Mr Mackenzie signalling a push to dump merit review? Vector has a competent and busy regulatory team? What are his lobbyists now urging on the government? Surely he will be asked what he is asking for.

After a season of  business complaining about regulatory uncertainty, with business journalists briefed to quote investors alleging that it is putting them off investment,  it will be very curious if no one asks Vector why they want to build that uncertainty?

MEUG has taken the constructive step of appealing one aspect on which the High Court felt compelled to leave uncertainty.

MEUG’s appeal seeks a more certain application of certain findings and views of the High Court.

The Commerce Commission deliberately biased its methodology in favour of the monopolies, with the stated intent to encourage investment and innovation. MEUG had pointed out that the Commission simply asserted that such generosity was needed, without evidence, without particular logical  and theoretical reasoning, and without counting the cost to users (including investment by other businesses) if it resulted in excessive electricity prices. The High Court agreed with MEUG, and noted that Australian case-law was critical of assumptions similar to those applied by the Commerce Commission. But the High Court decided that the law governing merit reviews did not allow it to order the correction of the relevant input methodology without more evidence and expert support to establish that the result would be “materially better”.

MEUG believes that the High Court read its powers too narrowly. The Court of Appeal can eliminate that uncertainty and give useful pointers for the future on how the review regime should work.

Without an authoritative decision on appeal now, the key issue of concern would almost certainly be appealed in a fresh merit review by the High Court when the Commission changes the relevant IMs in due course.

MEUG’s appeal will clarify the powers of the High Court. Success would increase certainty for consumers and suppliers and substantially reduce current uncertainty for investors about permitted returns.

Without a successful appeal it could be 2020 before users get any benefit from the High Court finding late last year. If the High Court had decided in favour of MEUG, it would reduce what  suppliers could charge by around $150m per year. Instead the Court held that it was restricted to inviting the Commerce Commission to have a rethink when it next modifies the relevant input methodologies. The could be any time in the next 3 years. If it is not done before November this year, any change will be immaterial until the end of the 5 years regulatory period starting next year.

Even if the appeal does not succeed, Court of Appeal views could make it easier for the government to know how to tidy up the rules. A review of the merit review regime is scheduled. Without senior court comment on its first outing there could be a disinclination to try to improve it until there has been more judicial attention. MEUG’s appeal on points of law will provide that.

Under the legislation a successful appeal is the only way to secure  claw-back of amounts overpaid in the past. Even if the Commerce Commission agrees with the Court views in support of MEUG concerns that the permitted return was too high, a change of mind by the Commission in a  review does not result in claw-back.

Disclosure – My firm is acting for MEUG in this matter.