BAY OF PLENTY ENERGY LTD V THE ELECTRICITY AUTHORITY & ORS HC WN CIV-2010-485-2531

BAY OF PLENTY ENERGY LTD V THE ELECTRICITY AUTHORITY & ORS HC WN CIV-2010-485-2531 20 December 2010IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2010-485-2531BETWEEN BAY OF PLENTY ENERGY LTDAND THE ELECTRICITY AUTHORITY &ORSHearing: 20 December 2010(Heard at Wellington)Counsel: J SmithL O'GormanJ StevensO MeechL HansenJudgment: 20 December 2010JUDGMENT OF JOSEPH WILLIAMS JIn accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 1.30pm on the 20th December 2010.Solicitors: Izard Weston Bell Gully Minter Ellison Rudd Watts Contact Energy Limited[1] New Zealand‟s electricity market is managed by the New Zealand StockExchange (NZX). The regulatory framework requires that electricity retailers (of which the applicant Bay of Plenty Energy Ltd (BOPE) is one) regularly provide their retail consumption data to NZX. NZX acts under the framework as Reconciliation Manager.[2] The Reconciliation Manager calculates the electricity consumption of each retailer. It does this by aggregating the reported consumption of all other electricity retailers and subtracting that figure from the overall consumption for that period. The resulting deficit is attributed to the "incumbent retailer". This consumptionfigure for each retailer is forwarded by way of a reconciliation report to the"Clearing Manager". The Clearing Manager (currently an NZX owned company called Energy Clearing House Ltd) invoices the relevant retailer on the basis of the reconciliation report.[3] For this system to work, it is crucial that subjective reports by co-retailers as to their electricity consumption over the relevant period are accurate. If co-retailers under-report their usage, it will be wrongly attributed to the "incumbent retailer"resulting in that retailer being overcharged. It appears that this has been known to happen.[4] Rules were promulgated to provide a corrections process. BOPE says that at the relevant times in 2007 and 2008 any revision to correct inaccurate reporting had to be completed within 14 months of the consumption period,1 and information provided to the Reconciliation Manager was deemed final after 17 months.2[5] While NZX reconciles and invoices retailers for their electricity drawdown, the regulator having control of the Rules at the relevant time was the Electricity Commission now the Electricity Authority.[6] The current proceedings are triggered because two other retailers –TrustPower and Contact Energy – say that because they over-reported their1 Rule 11.2 – there were exceptions but they are not relevant to these proceedings.2 Rule 12.6.consumption in August, September, and December 2007 and February 2008 respectively, they were overcharged for consumption and the applicant was undercharged. The extent of the mistakes appear to have been significant amounting to approximately $2.375 million. The Electricity Commission seems to have agreed that the mistake had been made. It took the view that BOPE had in fact been undercharged by that amount. The knock-on effect of this mistake, in theCommission‟s view was that TrustPower had been overcharged $1.97 million,Contact had been overcharged $468,000, and various other industry participants had been overcharged nearly $65,400 between them.[7] The Commission gave notice of its intention to consider revising consumption allocations for the relevant period. By this time all were outside the 14 month time limit provided by Rule 11.2 and the 17 month time limit provided by Rule 12.6. Legal opinions obtained by the Commission on the question of whether the time limits applied were in conflict. The Commission addressed this by proposing retrospectively to exempt NZX from complying with the two Rules in respect of this revision. It gave notice of its intention to do so on 19 October 2010.[8] BOPE opposed the proposal, but the Commission carried it through. This was done by Gazette notice dated 28 October 2010. The Clearing Manager issued invoices. These invoices full due for payment today at 2.00pm. The applicant says if they are not paid dire consequences will follow from it.[9] As from 1 November this year the new electricity market regime is provided for in the Electricity Industry Act 2010 and the Electricity Industry Participation Code 2010.[10] The Code provides that if invoices generated by the Clearing Manager are not paid as and when they are due by retail operators, the Clearing Manager can:(a) call in any securities provided by the defaulting party;(b) access any cash deposits made by that party;(c) deduct the default sum from any future entitlements;(d) charge interest at the bank bill rate plus 5% compounding monthly.[11] BOPE appealed and filed judicial review proceedings and now seeks an interim injunction to prevent the Clearing Manager from taking any of the foregoing steps.[12] The applicant says that the Electricity Commission acted unlawfully in allowing the late revision by way of exemption to the time limits as required by the then applicable Rules. The applicant says the Electricity Commission:(a) failed to consider s 172N of the Electricity Act 1992 (as required by Regulation 194(3)(a) of the Electricity Governance Regulations 2003);(b) did not have the authority to grant the exemption because the relevant Rules are not cast in a form requiring compliance so could not be waived or exempted;(c) failed to consider the position of the applicant under Regulation 194(3)(c);(d) failed to have regard to the position of other retailers who have or may have been similarly affected by other reconciliation errors;(e) did not have the power to grant an exemption retrospectively;(f) failed to treat the applicant in a procedurally fair way when it made its decision; and(g) made a decision that was inconsistent with the evidence.[13] This court would not ordinarily provide injunctive relief over a debt owed by one solvent company to another solvent company. The applicant says an injunctionis necessary because once the payment is made to the Clearing Manager it will be distributed to the other retailers (including Contact and TrustPower) and there is no mechanism in the new 2010 framework to enable it to be recovered once paid if a court ultimately finds that the Electricity Commission was wrong in retrospectively allowing the revision and the Clearing Manager was wrong in issuing the invoices accordingly.[14] It has not been possible in the time available for me to traverse in any detail at all the relevant provisions of the Act and the Rules. There is no doubt in my mind however that the issues raise serious questions to be tried. The respondents effectively accept that too. The Commission had differing legal opinions in relation to whether the time limits in the Rules could be avoided. There must also be a genuine question about whether the technique used by the Commission to get around this – an exemption notice – was properly available to it.[15] The real issue in this case is around the balance of convenience. Is it true that once the applicant pays the invoices, the funds can never be retrieved?[16] Mr Smith for BOPE says that the time limits in Rules 11.2 and 12.6 would apply to this reconciliation as it does to the last one it opposed so would not be available to correct the mistake. Nor, he argues, is an exemption available in light of the fact that a core aspect of BOPE‟s case is that the Commission had no power togrant the original exemptions. It is also argued that the Electricity Industry Act 2010 offers no pathway for relief because the appeals available to the Rulings Panel relate only to appeals under the Code and this dispute pre-dates the Code.[17] BOPE acknowledges that there are common law restitutionary remedies and they vest a wide power in this Court on appeal. It is argued that the existing cases in relation to restitutionary remedy in judicial review relate to public authorities rather than private companies like NZX. In addition, Mr Smith argued, Energy Clearing House Ltd is just that. It receives but does not retain the money so there is a real question about whether it would be available in practice anyway.The position of the respondents[18] When the matter came before me this morning, there had been extensive discussions between the parties and the respondents had settled on a single general position in relation to interim relief. That is, they would not oppose interim relief being granted in specific terms but were not prepared to consent. Insofar as the Electricity Authority (as successor to the Commission) and NZX is concerned, they took the view that the Act and Code are mandatory and they had no discretion to consent to waive its terms.[19] Ms O‟Gorman for the Authority (supported in this respect by Ms Stevens forNZX) simply indicated her client would not oppose interim orders provided the Court felt it appropriate to make the orders to protect BOPE‟s position, and that there was sufficient protection for the Authority and NZX in respect of any downstream exposure to other retailers. And sufficient protection in respect of costs.[20] Of course both the Authority and NZX were of the view that there are possible means by which BOPE could obtain relief even after its invoice had been paid. It was accepted however that interim relief may well be appropriate in light of the contention around these propositions.[21] Mr Meech for TrustPower advised that his client takes the view that the time limits were not breached in the original revision and in addition that the exemption notice was valid. Having said that, he accepted that the Court had jurisdiction to make the interim orders sought and that in the amended form provided by Mr Smith this morning, there were adequate protections against the potential knock-on effect of injunctive relief on other industry participants.[22] Ms Hansen for Contact took a similar position but made it clear that Contact wished to preserve its right to claim penalty interest in accordance with the Rules (and Code) for loss of use of money from today until the dispute is resolved, ifresolved in TrustPower‟s favour. Clearly BOPE‟s undertaking as to damages coversthis.[23] In light of the issues raised in these proceedings therefore, I consider that it is appropriate to grant the interim relief sought.[24] The form of the orders provides protection in favour of the retailers other than BOPE, TrustPower and Contact whose exposure is a result of these interim orders is $65,395.60. That money is to be held in an interest bearing deposit account pending resolution. There are, I was advised, a number of affected parties in addition to BOPE, TrustPower and Contact Energy. Many, perhaps most only have an interest or exposure to the extent of a few dollars or even a few cents. There is little point in serving the proceeding on those parties. BOPE proposes a cut-off value of $1,000. In all the circumstances that seems appropriate to me.[25] Crucially, the orders will relieve any parties who may be affected downstream by them of any ongoing obligation in that respect.Interim relief[26] There will be orders as follows.(a) BOPE is relieved of the obligation to pay $2,375,090.20 to the Clearing Manager at 2.00pm on 20 December 2010 (such obligation having arisen from the net effect of the August 2007, September 2007, December 2007 and February 2008 reconciliations) pending further order of the Court;(b) the Clearing Manager is relieved of the obligation to pay $1,971,590,28 to TrustPower at 4.30pm on 20 December 2010 (such obligation having arisen from the net effect of the August 2007, September 2007, December 2007 and February 2008 reconciliations) pending further order of the Court;(c) the Clearing Manager is relieved of the obligation to pay $468,895.57 to Contact at 4.30pm on 20 December 2010 (such obligation having arisen from the net effect of the August 2007, September 2007,December 2007 and February 2008 reconciliations) pending further order of the Court;(d) the Clearing Manager shall place the funds it receives from other market participants as a result of the net effect of the August 2007, September 2007, December 2007 and February 2008 reconciliations(being a total sum of $65,395.60) (the „Net Funds‟) into an interestbearing deposit account to hold on trust pending further order of the Court;(e) all parties are to be relieved of any other consequential Part 14 obligations arising with respect to those matters to which the above orders relieving the parties of obligations apply, subject to furtherorder of the Court (including, for example, the Clearing Manager‟sPart 14.50 obligation to pay interest and Part 14.49 obligation to pro rata certain costs). Subject to further order of the Court on application on 7 day‟s notice;(f) leave is reserved to the Clearing Manager to seek on 7 days notice to all parties, further orders of the Court on the terms on which these orders are to be implemented as necessary including, if required, any orders that may be necessary to address any consequences that may otherwise flow under Part 14 of the Code;(g) the Clearing Manager is to identify the other market participants that have an interest of not less than $1000 in the Net Funds (arising either from any obligation to pay or a right to receive any of the Net Funds) to BOPE;(h) following the Clearing Manager‟s compliance with (g) BOPE will arrange for service of the Amended Notice of Appeal, the Notice of Proceeding, the Statement of Claim – Application for Review, and the Order on the other market participants identified by the Clearing Manager.(i) leave is reserved for any of the other market participants served by BOPE pursuant to order (i) to apply, on 7 days notice to all parties, further to the Court;(j) the parties to this proceeding shall have leave to apply to the Court on 7 days notice for further clarification of variation of these orders should that prove necessary;(k) costs are to be reserved on this application;(l) that such orders remain in force until the resolution of the appeal proceedings and the judicial review proceedings, or until further order of the Court.Procedural orders[27] Further the procedural orders are made as follows:(a) extending the time for notice of appeal to be given in accordance with s 66 of the Electricity Industry Act 2010 (s 66), and/or s 172KJ(2) of the Electricity Act 1992 (s 712Kj(2)), and for special leave extending the time for appeal as permitted by s 66, and/or s 172KJ(2), to 6pm on 26 November 2010; or alternatively for an order dispensing with service requirements;(b) giving directions as to the proper parties to the appeal as follows:(i) that the appeal against the first respondent (the Electricity Commission) may be discontinued with no order as to costs;(ii) that the appeal against the second respondent should continue in its capacity as Market Administrator and applicant for the Exemption Notice;(iii) that NZX should be added as a fifth respondent;(iv) that the appeal should proceed against the respondents identified in the draft amended notice of appeal attached to the interlocutory;(c) giving leave to the appellant to amend its notice of appeal, in accordance with the draft amended notice of appeal;(d) a direction that the amended notice of appeal should be filed, and a copy served on or at least delivered to the solicitors for the parties by facsimile or email within 7 days.Timetabling[28] There will also be timetabling orders as follows:(a) statements of defence are to be provided by 14 February;(b) discovery will be provided by 14 February. Such discovery may be provided informally – by numbered bundle, with an unsworn list necessary only in respect of documents for which privilege is claimed;(c) first case management conference for both the appeal and judicial review to be on 7 March 2011. BOPE acknowledges that discovery may take more time than timetabled for some parties and will accommodate that where necessary.___________________________Joseph Williams J