Trustpower Ltd v Electricity Authority

• Jurisdiction: New Zealand
• Judge: Cull J
• Judgment Date: 02 December 2016
• Neutral Citation: [2016] NZHC 2914
• Docket Number: CIV-2016-485-580
• Court: High Court
• Date: 02 December 2016

BETWEEN

Trustpower Limited (Formerly Bay Energy)

Applicant

and

Electricity Authority

First Respondent

Meridian Energy Limited

Second Respondent

[2016] NZHC 2914

CIV-2016-485-580

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Application for judicial review of the “process decisions” of the defendant refusing to grant the plaintiff's request for extensions of time for written submissions and an oral hearing on two consultation papers — the defendant had received submissions from industry participants, including the plaintiff — the defendant had not yet made its substantive decision on the proposal papers — whether there had been adequate consultation — whether the Court should intervene at a preliminary stage of a consultation process

Appearances:

J Farmer QC and B A Davies for applicant

K J Scott for respondent

JUDGMENT OF Cull J

Contents

Introduction	[1]
PART I: BACKGROUND TO THE PROCEEDING	[5]
The parties	[10]
The regulatory framework	[14]
The Code	[16]
The Charter	[20]
The TPM process to date	[30]
The Authority's strategy announcement	[39]
The Consultation Papers	[42]
The TPM Paper	[43]
The DGPP Paper	[44]
Trustpower's requests	[45]
Further Consultation Opportunity	[48]
PART II: THE PARTIES' POSITIONS	[49]
Trustpower's position	[49]
Grounds of review	[52]
The process has “gone off the rails”	[57]
Consultation was inadequate	[60]
The Authority's position	[67]

Meridian's position	[74]
Reviewability of a procedural decision	[78]
PART III: ANALYSIS	[82]
The Authority's duty of consultation	[86]
Court's intervention at a preliminary stage	[100]
Has this decision-making process gone seriously off the rails?	[108]
Conclusion	[117]
Result	[125]
APPENDIX 1 — CONSULTATION PROCESS FOR DEVELOPING THE TPM (FIGURE 8)

Introduction

1 Trustpower has applied for judicial review of the “process decisions” of the Electricity Authority (the Authority) refusing to grant Trustpower's request for extensions of time for written submissions, cross-submissions and an oral hearing on two consultation papers, which were promulgated by the Authority in May 2016 to industry participants. They are:

• (a) Transmission Pricing Methodology: second issues paper (the TPM Paper) dated 17 May 2016; and

• (b) Review of distributed generation pricing principles consultation paper (the DGPP Paper) dated 17 May 2016. 1

2 The Authority has received submissions from industry participants, including Trustpower, but has not yet made substantive decisions in relation to the May consultation papers. In seeking to review the Authority's procedural decision, Trustpower contends that the consultation process was meaningless, being limited, insufficient and inadequate. The Authority in reply submits that the decision is not reviewable because the substantive decision has not yet been made.

3 Meridian Energy (Meridian) as intervenor and second respondent, joins the Authority in submitting that the application for judicial review is premature. In the alternative, both the Authority and Meridian submit that the decisions about consultation were not unlawful or unreasonable.

4 The judgment is divided into three parts. Part I explains the background to the proceeding and the regulatory framework of the electricity industry. Part II describes the parties' positions and the actions of the Authority to date. Part III analyses the issues and explains the reasons for my decision.

PART I: BACKGROUND TO THE PROCEEDING

5 The electricity industry in New Zealand is regulated by the Authority, which governs the electricity market under the Electricity Industry Act 2010 (the Act). The

electricity industry is divided into the following functional areas: generation, transmission, distribution and retail. The Authority has published a diagram, which illustrates the different functions within the industry. 2

6 Originally, the New Zealand electricity supply was sourced from local authorities and industrial plants providing their own electricity supply. This form of electricity supply is now known as “distributed generation”.

7 The Government became involved in the supply of generation and transmission in 1914. 3 In the 1950s, the New Zealand Electricity Department increased the national infrastructure and on-sold wholesale electricity and transmission services to local authorities on a bulk supply tariff. Various payment structures were used for the bulk supply tariff, but charges based on peak demand were an important component of the pricing structure applied to local authorities. Local authorities on-sold wholesale energy to customers, on their local networks, sourced from a mix of wholesale purchases from the state-owned grid connected generation and from their own distributed generation.

8 In the late 1980s and 1990s, the New Zealand Electricity Department was progressively restructured into a separate transmission company (Transpower) and four separate generation companies: Contact Energy, Genesis Energy, Meridian

Energy and Mighty River Power (now Mercury Energy). As part of the reform, local authorities were required to choose to be either electricity retailers or distributors

9 Currently, electricity is generated at over 200 power stations around the country and the national grid is used to transmit this electricity to large industrial users that connect directly to the grid 4 and to distribution networks, to which smaller businesses and households connect. 5 The transmission network is owned by Transpower and consists of high voltage pylons and lines. Distribution networks consist of lower voltage lines, which distribute electricity to business and domestic consumers. Those generators that connect to a distribution network, instead of to the national transmission grid are “local generators” and are called “distributed generation”.

The parties

10 Trustpower (formerly a Tauranga based local authority) is both a generator and a seller of electricity from 38 hydro power stations across 19 hydro electric power schemes, two wind farms and one diesel peaking station in New Zealand. Trustpower's power stations are connected either to the national electricity grid or some local electricity distribution networks (distributed generation).

11 Trustpower is a distributed generator, for those of its power stations which are connected to local electricity distribution networks. Trustpower is the fifth largest generator-retailer and the largest owner of distributed generation.

12 The Authority is the successor to the former Electricity Commission and is an independent Crown entity. 6 It has a broad range of functions, including the making and administering of the Electricity Industry Participation Code 2010 (the Code). 7

13 Meridian is one of four separate generation companies in New Zealand, having devolved from the restructure of the New Zealand Electricity Department in the late 1980s and 1990s.

The regulatory framework

14 The Act regulates the electricity industry and establishes the Authority. 8 Section 15 of the Act defines the Authority's objective, which is: 9

… to promote competition in, reliable supply by, and the efficient operation of, the electricity industry for the long-term benefit of consumers.

15 The Act provides a framework for the regulation of the electricity industry and, under pt 4 of the Act, industry participants must register and comply with the Code. Section 44(1) of the Act contemplates that the Code may require that connection of industry participants to the national grid will involve “transmission agreements” between Transpower and connected participants. Each transmission agreement is deemed to include a provision whereby the participant agrees to pay to Transpower charges made in accordance with the Transmission Pricing Methodology (TPM). 10 Section 41 requires the Authority to publish a consultation charter, which for present purposes contains general consultation principles. Part 4 of the Commerce Act involves the Commerce Commission approving the TPM for Transpower's charges.

The Code

16 The Authority is responsible for the Code, which sets out the duties and responsibilities of industry participants (including Trustpower). Section 32 of the Act prescribes the content of the Code which is to promote any or all of the following:

• (a) competition in the electricity industry:

• (b) the reliable supply of electricity to consumers:

• (c) the efficient operation of the electricity industry:

• (d) the performance by the Authority of its functions:

• (e) any other matter specifically referred to in this Act as a matter for inclusion in the Code.

17 Among other things, the Code contains:

• (a) the TPM, which sets out how Trustpower's revenue is allocated between designated transmission customers. It includes connection charges, 11 the high voltage direct current (HVDC) charge 12 for the link between North and South Islands and the interconnection charge; 13 and

• (b) the Distributed Generation Pricing Principles (DGPP), which determine the default prices of services between a distributor and a distributed generator. The DGPP includes connection costs and the avoided cost of transmission (ACOT) payments.

18 For clarification, distributed generation owners pay no more than the incremental cost of being connected to the network, 14 which means distributed generators are not required to meet the common costs of the distribution services, including overheads. 15 This is referred to as the incremental cost of connection services issue. Each distributor within the electricity industry is to pay distributed generation owners connected to its network, amounts equal to the transmission costs that the distributor avoids, as a...