Summary
The High Court declined an application for judicial review of the Electricity Authority’s (“Authority”) decision to grant Transpower New Zealand Ltd (“Transpower”) a discretionary power to reclassify transmission assets, and Transpower’s decision to exercise that power.
Background
Buller Electricity Limited (“BEL”) is a local electricity supplier contracted to Transpower for the supply of transmission services. The Authority is the regulator of the electricity industry.
Transpower must charge for transmission services in accordance with the Transmission Pricing Methodology (“TPM”). The TPM is located within the Electricity Industry Participation Code (2010) which is secondary legislation. Transpower is required to develop the TPM, subject to the Authority’s approval. This must be consistent with guidelines issued by the Authority in 2020 (“2020 Guidelines”).
The TPM distinguishes between interconnection assets and connection assets. Broadly, interconnection assets are those providing transmission services that are not directly attributable to a single, or a few, customers, whilst connection assets are.
Following an audit process in 2020, Transpower discovered that due to the unique grid infrastructure in Buller, some of BEL’s assets were incorrectly classified as connection assets. These assets technically met the definition of interconnection assets under the TPM, but were in substance providing connection services as BEL were the only distributor that benefited from them. At this time BEL's charges were adjusted.
In 2023, Transpower proposed to include a clause in the TPM to allow the reclassification of interconnection assets to connection assets in circumstances such as this, where it was fair and reasonable to do so.
The Authority approved the 2023 TPM and Transpower decided to exercise the power to reclassify certain BEL assets. This decision was made prior to the commencement of the 2023 TPM.
BEL faced a 427 percent increase in its transmission charges.
The Case
BEL challenged two decisions:
The Authority's Decision
BEL argued the discretionary power (Clause23), was inconsistent with the Authority's statutory objective of promoting the efficient operation of the electricity industry for the long-term benefit of consumers. It argued that Clause 23 was inconsistent with the 2020 Guidelines, it was targeted at BEL, and the Authority's consultation process was insufficient.
The Court emphasised that its role is not to determine questions of fact, but to focus on questions of law. The overriding consideration was whether the decision was made in accordance with the Authority’s statutory objective. Justice McQueen was satisfied the Authority thoroughly considered all relevant material and used its specialist expertise to reach a conclusion that was supported by available evidence, and that was, in its view, consistent with its statutory objective. It was not the Court’s role to determine whether the substantive conclusion was correct or not.
Transpower’s Decision
BEL argued Transpower’s decision to reclassify its assets was unlawful as it was made before the commencement of the 2023 TPM, and alternatively, if Transpower had the jurisdiction to reclassify the affected assets, it failed to properly exercise its discretion due to pre-determination of the outcome, and in failing to take account of material considerations. As a further alternative, BEL argued the re-notification of the decision was unlawful.
It is common ground that a power cannot be exercised until it has come into force. However, section 43 of the Legislation Act allows for powers conferred by legislation to be exercised before legislation comes into force in certain circumstances. The question was whether Transpower’s decision to reclassify assets prior to the commencement of the 2023 TPM, was (as under s43(1)(e)), “necessary or desirable to bring, or in connection with bringing” the 2023 TPM into operation.
The evidence showed that the TPM was approved and adopted by the Authority with the intention that it was to be utilised for the first pricing year, commencing on 1 April 2023. The Court therefore found that exercising the power prior to the commencement date was necessary or desirable in ensuring the TPM could operate fully as at 1 April2023.
In respect of the second cause of action, the Court determined BEL had failed to prove on the balance of probabilities that Transpower had closed its mind in considering whether the affected assets should be reclassified. BEL argued “reasonable in all the circumstances” required the consideration of the ability of BEL’s consumers to pay the transmission charges, highlighting that Buller District is one of the most deprived communities in New Zealand. Justice McQueen found that Transpower’s interpretation was consistent with the TPM and its purpose, and it was not required to consider socio-economic impacts.
Result and Significance
The Court dismissed BEL’s application for judicial review.
This case affirmed the Authority's broad statutory powers in regulating the electricity industry, confirming that a high bar exists for judicial intervention. The decision also clarified the application of section 43 of the Legislation Act 2019, of which there has been no previous judicial consideration of, allowing for pre-commencement exercise of powers deemed necessary or desirable to implement legislation. While BEL's challenge failed, the decision provides valuable guidance on the legal framework governing electricity transmission regulation.
For further information on this case or similar issues, please contact Director, Brigitte Morten
