Major monopolies challenge ComCom pricing strategies

A High Court hearing is under way in Wellington, with several major airports, gas and electricity suppliers appealing the Commerce Commission's input methodologies.

At least 30 lawyers are involved in Wellington High Court as major airports and power companies challenge the merits of the Commerce Commission's input methodologies determination.

The methodologies were determined by the commission in December 2010 and are designed to "promote certainty for suppliers and consumers in relation to the rules, requirements and processes applying to the regulation, or proposed regulation, of goods or services'"

The commission's focus is on protecting consumers by trying to ensure such businesses do not generate excess returns from their monopoly activities.

This can be achieved by limiting returns to the assessed cost of capital applicable to those activities, the valuation of assets, the allocation of common costs and treatment of taxation.

They applied to specified airport services, electricity distribution and transmission, and gas pipelines.

Auckland, Wellington and Christchurch international airports, Air New Zealand, PowerCo, Transpower, Wellington Electricity Lines, Vector, Maui Developments and the Major Electricity Users Group are stacked up against the commission.

There are at least 30 lawyers, including several Queen's counsel in court today, some spilling over into the public gallery, representing the companies. They are from law firms including Chapman Tripp, Franks and Ogilvie in Wellington, Thomas More Chambers, also in Wellington, and Shortland Chambers in Auckland.

An expected 17-day hearing is before Justice Denis Clifford.

Technology plays a major part in this hearing, with lawyers given access to iPads which are being used to record submissions and court records.

In May, commission chairman Dr Mark Berry said 12 parties had initially filed appeals against aspects of the input methodologies, but three subsequently withdrew their appeals.

The appeal this month is against the cost of capital and asset valuation.

PowerCo's lawyer Jack Hodder outlined the history of Part 4 of the Commerce Act and the history of regulation in the market.

He said between World War II and the 1986 act, regulation was seen as heavy-handed, while between 1986 and 2001 lawmakers went in the opposite direction, applying a much lighter hand to regulation.

Mr Hodder said the regulation was about providing certainty, clarity, timeliness and predictability for business.

Justice Clifford said there is a need to protect consumers which in turn take steps to ensure that protection does not suppress incentives for company investment.

He does not believe unregulated monopolies need incentives to invest.

But Mr Hodder disagreed. "Everyone needs incentive to invest further."

Vector's lawyer Allan Myers agreed with Justice Clifford's comments but said New Zealand does not have unregulated monopolies.

The commission is expected to lay out its arguments later today.


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