In a recently-released judgment, available here, the Supreme Court affirmed the Commerce Commission's approach to the midpoint price reset for default price quality paths (DPPs) for electricity distribution businesses (EDBs) under Part 4 of the Commerce Act 1986.

The Supreme Court judgment ends a long running challenge by Vector over the Commission's decision not to specify a starting price adjustment (SPA) input methodology (IM) for the DPP midpoint reset.

Background to Part 4

Part 4 of the Commerce Act provides for the Commission to impose price and quality controls in markets where there is little or no competition and little or no likelihood of a substantial increase in competition.  It does so using a range of regulatory tools.  IMs specify processes and methodologies for the Commission to use under Part 4.  They are a key part of Part 4. 

The Supreme Court judgment

The Supreme Court judgment affirms the decision reached by the Court of Appeal, see here, (which overturned an earlier High Court judgment, see here), that the Commission was not required to specify an SPA IM.  In particular, the Supreme Court noted that:

  • As there is no specific reference to SPA IMs in Part 4 there is no explicit mandatory requirement that the Commission specify one
  • The Commission is able to make regulatory decisions without needing to specify IMs for every single aspect. This finding avoids the Commission having to determine IMs to cover all possible issues the Commission might have to address in reaching a regulatory decision
  • The Select Committee that reviewed the Bill that implemented the current Part 4 identified customised price quality paths as an alternative to DPPs if suppliers (such as EDBs) found the DPP set by the Commission unsatisfactory.  The Court agreed, and also noted that the decision to provide merits appeals for customised price quality paths but not DPPs was recognition by Parliament that the fixing of DPPs involves regulatory judgments by the Commission and not simply the mechanical application of IMs
  • The Select Committee was also mindful of the significant workload for the Commission in determining IMs, from which the Court inferred that the Committee did not wish to overburden the Commission by requiring every regulatory process to have a corresponding IM.

Nevertheless, the Court affirmed it is open to the Commission to specify an SPA IM if it wants.  The Commission has indicated it will not. 

Although the Supreme Court judgment concludes this challenge by Vector, this is not the end of the Part 4 story.  A number of merits appeals are still ongoing.  These involve challenges to other IMs specified by the Commission as part of implementing the DPPs.  This begs the question whether Part 4 is achieving its objectives and providing a stable and efficient regulatory framework for regulated businesses.