Listed energy company Vector has won a significant High Court ruling that will send the Commerce Commission back to the books in determining the earnings of monopolies like electricity companies and gas networks.
The High Court has supported Vector's application for a judicial review appeal against the commission's process for setting the starting price for electricity and gas networks under the regulatory framework proposed by the commission.
Vector chief executive Simon Mackenzie said yesterday there was a high threshold to win a judicial review and he was pleased the High Court had supported Vector's argument.
"The decision is an important step towards regulatory certainty."
Vector's argument had focused on the process and rules for setting the starting prices, and the fact those were not included in the final "input methodologies", which made investment decisions difficult, he said.
The review was the first step in the process of appealing the commission's decisions under Part 4 of the Commerce Act.
Following the judge's decision, Vector would make submissions to the court to determine the process from here, Mr Mackenzie said.
The Otago Daily Times earlier reported the commission's formula for determining the weighted average cost of capital (WACC) and the asset base to which that rate applied would result in returns of 0.5% to 1% lower than those allowed by the Australian regulator.
The lines companies argued that would make it harder to attract the capital they needed to invest in their networks.
Forsyth Barr broker Peter Young said the court decision meant the commission now needed to amend the input methodologies.
There were two major impacts of the decision. It seemed unlikely the commission would be able to implement the court's decision to enable new electricity prices from April 1, 2012, and that probably meant a delay of a year.
The starting price adjustment process was now able to be merits reviewed, making it easier for Vector to challenge the commission's decisions, he said.
"The High Court decision is a double-edged sword. It will increase regulatory certainty in the long-term, but it will take longer to get to that position."
Vector still had a second judicial review, an Error of Law case and the merits review itself yet to be heard. It could be two to three years before investors finally got the certainty they craved, Mr Young said.
