Vector has partial win on retailer contracts

Tuesday 4th December 2018

Vector has had a partial win in its efforts to protect the form of the contracts it has with electricity retailers.

The Auckland-based power distributor – the country’s largest – has spent much of the past four years opposing efforts by the Electricity Authority to set standardised use-of-system contracts between network operators and power retailers.

Last week the company had a partial victory when the Court of Appeal declared unlawful two parts of a code change the authority had planned which would have limited the topics on which firms could negotiate their own terms.

And the court may yet restrict the authority’s powers further. President Stephen Kos and Justices Helen Winkelmann and Raynor Asher were unable to agree whether the authority’s proposal had strayed into the service quality-setting territory of the Commerce Commission, something it is barred from doing.

They have sought additional submissions on that issue, particularly on what powers the authority’s predecessor – the Electricity Commission – previously had to impose quality standards on distributors.

Standardised use-of-system agreements have been debated in the power industry for almost 20 years. The Electricity Commission, and then the authority, published model agreements for participants in 2008 and 2012 respectively believing greater standardisation would lower costs for retailers and increase competition nationwide.

But little changed and in 2016 the authority proposed a standard agreement that parties could then vary by mutual agreement.

Vector opposed the move, noting that – at that time – it had agreements with 21 retailers. It said that number belied any suggestion that competition was being reduced, and added that some of the additional terms had been added by retailers, and others were for specific operational and reliability reasons.

Critics argue that Auckland’s sheer size makes it the first market of choice for most retailers and leaves them little choice but to accept Vector’s terms.

The small size of many other networks also makes it costly and time-consuming to negotiate terms with all of them in order to provide genuinely national offers. While consumers in Auckland had 34 brands to choose from last year, on 12 networks they had fewer than 20 and on the Buller network, the country’s smallest, they had only 12.

Vector’s latest appeal, after losing in the High Court last year, was backed by major shareholder Entrust. It believed the EA’s changes would have prevented Vector requiring retailers to provide information to it on its beneficiaries – their customers.

Leaving aside the issue of quality standards for distributors, Justice Kos said the 2010 Electricity Industry Act clearly gave the authority the power to impose standard distribution terms in the industry code.

But he said the real issue was whether it also had the power to prevent parties negotiating other terms. And that was particularly true of terms that might deliver benefits to third-parties – such as Entrust – over which the authority had no jurisdiction.

While greater standardisation of use-of-system agreements – UoSAs – was “demonstrably desirable” for improving competition and efficiency in the industry, the legislative history showed no evidence that complete standardisation was expected, he said.

Nor had the authority provided “substantial evidence” that it was necessary to exclude terms from use-of-systems agreements that didn’t relate strictly to regulating distribution services.

“In other words, while the authority made its case for greater standardisation of UoSAs, it did not do so for complete standardisation.”

(BusinessDesk)

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