Powerful
appeals to sanctity of contract did not succeed in Vector’s unsuccessful
challenge to Electricity Authority proposals to impose a standard-form supply contract
between lines companies and electricity retailers.
Vector holds a natural
monopoly as the lines company supplying power to much of Auckland City. Most of its profits are returned to local
consumers by way of dividend channelled through its major shareholder, Entrust. Entrust was put up as a stalking horse in
Vector’s attempts to derail Electricity Authority plans to standardise Use-of-System
agreements between lines companies and retailers.
Established by the 2010
Electricity Industry Act, the Electricity Authority was designed as a new broom
to sweep through failed attempts at industry self-regulation. It is required to improve competition in the
industry. One task is to reduce
transaction costs by standardising agreements between industry players.
Vector sued in the High
Court to block current Authority proposals.
It says the proposed model prevents Entrust having access to Vector’s
customer database and consequently Entrust will be unable to pay annual
dividends to Auckland consumers. While
highlighting database access as a specific issue, Vector sought a High Court
ruling that the Authority had no statutory power at all to force on it any
standardised supply agreement. Freedom
of contract is paramount, it said.
Justice Simon France commented
that while society has moved from feudalism (where legal relationships were
governed by membership of a class within society) to capitalism (where
relationships are governed by legally enforceable private agreements), freedom
and sanctity of contract are not conclusive of the public interest. Legislation is used to redress
inequality. The 2010 legislation does
allow the Authority to dictate the “core” terms in agreements between
distributors and retailers, he ruled.
Vector also claimed the
Authority has no jurisdiction over Use-of-System agreements because these are
covered by the Commerce Commission.
There is overlap between the two, but they are not in conflict, Justice
Simon France ruled. The Authority is
primarily interested in the reliable and efficient supply of electricity while promoting
competition. The Commission is primarily
concerned with consumer welfare and pricing.
This does include control over performance levels; in a price-controlled
industry suppliers are tempted to compromise performance in pursuit of higher
profits.
Vector
Ltd v. Electricity Authority – High Court (31.07.17)
17.091