COMMERCE COMMISSION V VECTOR LIMITED COA CA702/2011

COMMERCE COMMISSION V VECTOR LIMITED COA CA702/2011 [1 June 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA702/2011[2012] NZCA 220BETWEEN COMMERCE COMMISSIONAppellantAND VECTOR LIMITEDRespondentHearing: 20 and 21 March 2012Court: O'Regan P, Arnold and Heath JJCounsel: B W F Brown QC, V E Casey and K C Millard for AppellantA R Galbraith QC, A S Butler, C Marks and R Versteeg forRespondentJudgment: 1 June 2012 at 10 amJUDGMENT OF THE COURTA The appeal is allowed.B Leave is reserved to the parties to apply for any consequential orders necessary to give effect to this judgment.C The respondent must pay the appellant costs for a standard appeal on a band B basis plus usual disbursements. We certify for two counsel._______________________________________________________________REASONS OF THE COURT(Given by Arnold J)Table of ContentsPara NoIntroduction [1]Background [2]High Court decision [21]Basis of appeal [27]Discussion [30]Is the Commission required to publish a price reset inputmethodology? [31](i) Price reset process [36](ii) Statutory language [38](iii) Legislative history [44](iv) Section 52T(2) [51](v) Conclusion [59]Extent of Commission's power to reset under s 54K(3) [61](i) Background [62](ii) Our evaluation [67](iii) Conclusion [73]Costs [74]Decision [76]Introduction[1] This appeal concerns the scope of the Commerce Commission's obligations under the price control provisions of the Commerce Act 1986 (the Act). The relevant provisions are found in Part 4 of the Act, which provides for price control in markets where there is little or no actual or potential competition. The particular question is whether the Commission was obliged under s 52T(1) of the Act to publish, by 31 December 2010, what the Act describes as an input methodology in respect of the approach it proposes to take to setting prices under s 53P(3)(b) of the Act.Background[2] Part 4, which came into force in its current form on 1 April 2009, "providesfor the regulation of the price and quality of goods or services in markets where there is little or no competition and little or no likelihood of a substantial increase incompetition".1 The purpose of the Part is described in s 52A as follows:Purpose of Part(1) The purpose of this Part is to promote the long-term benefit of consumers in markets referred to in section 52 by promoting outcomes that are consistent with outcomes produced in competitive markets such that suppliers of regulated goods or services—1 Commerce Act 1986, s 52.(a) have incentives to innovate and to invest, including in replacement, upgraded, and new assets; and(b) have incentives to improve efficiency and provide services at a quality that reflects consumer demands; and(c) share with consumers the benefits of efficiency gains in the supply of the regulated goods or services, including through lower prices; and(d) are limited in their ability to extract excessive profits.(2) In this Part, the purpose set out in subsection (1) applies in place of the purpose set out in section 1A.[3] The Part provides for three principal forms of regulation: information disclosure regulation, negotiate/arbitrate regulation and price-quality regulation. There are two forms of price-quality regulation: one under which default price- quality paths (default paths) are set for regulated suppliers and the other under which customised price-quality paths are set for particular suppliers (customised paths).2This case is concerned with price-quality regulation by way of default paths. At present, electricity lines businesses (other than those which are community owned) and gas distribution businesses are covered by this form of regulation.[4] An important component of the regulatory scheme in Part 4 is what are referred to as "input methodologies". An input methodology is defined as being:3... a description of any methodology, process, rule, or matter that includes any of the matters listed in s 52T and that is published by the Commission under s 52W; and, in relation to particular goods or services, means any input methodology, or all input methodologies, that relate to the supply, or to suppliers, of those goods or services.[5] Input methodologies are dealt with in subpart 3 of Part 4. Their purpose isdescribed as being "to promote certainty for suppliers and consumers in relation to the rules, requirements, and processes applying to the regulation, or proposedregulation, of goods or services under this Part".4 We pause here to note that Mr Galbraith QC for the respondent, Vector Ltd (Vector), placed much weight on the reference in this statement of purpose to promoting certainty. He emphasised that the current Part 4 was enacted because it was thought that the previous Part 4 did not2 Section 52B(2).3 Section 52C.4 Section 52R.provide sufficient certainty for suppliers, and this lack of certainty was an impediment to their continuing investment in infrastructure. As noted above, one of the purposes of Part 4 generally is to encourage suppliers to continue to invest in infrastructure. We return to this aspect in greater detail below.5[6] Section 52T(1) sets out the matters that are to be covered by input methodologies. It provides:Matters covered by input methodologies(1) The input methodologies relating to particular goods or services must include, to the extent applicable to the type of regulation under consideration,—(a) methodologies for evaluating or determining the following matters in respect of the supply of the goods or services:(i) cost of capital:(ii) valuation of assets, including depreciation, and treatment of revaluations:(iii) allocation of common costs, including between activities, businesses, consumer classes, and geographic areas:(iv) treatment of taxation; and(b) pricing methodologies, except where another industry regulator (such as the Electricity Authority) has the power to set pricing methodologies in relation to particular goods or services; and(c) regulatory processes and rules, such as—(i) the specification and definition of prices, including identifying any costs that can be passed through to prices (which may not include the legal costs of any appeals against input methodology determinations under this Part or of any appeals under section 91 or section 97); and(ii) identifying circumstances in which price-quality paths may be reconsidered within a regulatory period; and(d) matters relating to proposals by a regulated supplier for a customised price-quality path, including—5 At [31]–[35].(i) requirements that must be met by the regulated supplier, including the scope and specificity of information required, the extent of independent verification and audit, and the extent of consultation and agreement with consumers; and(ii) the criteria that the Commission will use to evaluate any proposal.[7] There are three points to be made about s 52T(1) at this stage:(a) Section 52T(1)(b) refers to pricing methodologies. That term is defined in s 52C in a way that makes it irrelevant to the issues before us, and neither party suggested otherwise.(b) Section 52T(1)(c) refers to "regulatory processes and rules, such as ...". The use of the words "such as" indicates that the specific instances in s 52T(1)(c)(i) and (ii) are examples rather than being an exhaustive list. This seems a rather unusual drafting technique when viewed in the context of the opening words of the subsection, which are expressed as a mandatory obligation, that is, "input methodologies ... must include".(c) Both parties were in agreement that, while s 52T(1) requires the Commission to publish input methodologies in relation to certain specified matters, it does not prevent the Commission from publishing input methodologies in relation to other matters.[8] Section 52T(2) and (3) set out various requirements in relation to input methodologies, as follows:(2) Every input methodology must, as far as is reasonably practicable,—(a) set out the matters listed in subsection (1) in sufficient detail so that each affected supplier is reasonably able to estimate the material effects of the methodology on the supplier; and(b) set out how the Commission intends to apply the input methodology to particular types of goods or services; and(c) be consistent with the other input methodologies that relate to the same type of goods or services.(3) Any methodologies referred to in subsection (1)(a)(iii) must not unduly deter investment by a supplier of regulated goods or services in the provision of other goods or services.[9] We will return to s 52T in more detail when we come to discuss the substance of the appeal. However, we note at this point the requirement in 52T(3) that input methodologies not unduly deter investment, a point emphasised by Mr Galbraith.[10] Part 4 required that the Commission determine input methodologies by 30 June 2010, although there was provision for this to be extended by up to six months, as in fact happened.6 Whenever the Commission proposes to publish an input methodology it must:7(a) give public notice of its intention to do so;(b) establish a time table;(c) publish a draft;(d) give interested parties an opportunity to comment;(e) hold at least one conference; and(f) have regard to the views received.There is provision for the Commission to utilise prior work.8 If it wishes to make any material amendment to a published input methodology, the Commission must to go through the process just outlined.9 Further, it is required to review every input methodology no later than seven years after the date of its publication.10[11] Two important points emerge from this:6 Section 52U.7 Section 52V(1) and (2).8 Section 52V(3) and (4).9 Section 52X.10 Section 52Y.(a) First, the Commission was required to publish input methodologies within, at the least, 12 months and, at the most, 18 months after the Part came into effect. This timeframe may tell us something about the nature of the task that Parliament had in mind for the Commission.(b) Second, the Commission did not start this process from scratch. It was contemplated that at least some of the Commission's work underthe previous regulatory framework would remain relevant and could be used.[12] Finally in this context, we note that Part 4 provides for a merits appeal to the High Court against the determination of an input methodology.11 On such an appeal the Court will generally comprise a High Court Judge and two economists (although one economist is permitted).12 There is then an appeal to this Court on a question of law.13[13] We turn now to the use by the Commission (and regulated firms) of input methodologies. Section 52P(1) requires the Commission to make determinations specifying how the relevant forms of regulation apply to suppliers of regulated goods or services. Section 52P(3) provides:Determinations must–(a) set out, for each type of regulation to which the goods or services are subject, the requirements that apply to each regulated supplier; and(b) set out any time frames (including regulatory periods) that must be met or that apply; and(c) specify the input methodologies that apply; and(d) be consistent with this Part.(Emphasis added.)[14] The particular dispute in this case concerns price-quality regulation by way of default paths (default path regulation). Under s 53O, where default path regulation11 Section 52Z. The Court may allow an appeal only if it is satisfied that an amended or substitutedinput methodology would be "materially better" in meeting the purpose of Part 4 and/or s 52R.12 Section 52ZA(3).13 Section 97(5).applies to regulated goods or services a s 52P determination must set out a default path that includes for the first regulatory period (among other things):(a) the starting prices that apply;(b) the rate(s) of permitted price change during the period; and(c) the quality standards that apply."Price" is relevantly defined as "any 1 or more of individual prices, aggregate prices,or revenues (whether in the form of specific numbers, or in the form of formulas by which numbers are derived)".14[15] Before the end of the first and any subsequent regulatory period, the Commission is required by s 53P to amend the s 52P determination. Given its importance to the argument, we set s 53P out in full:Resetting starting prices, rates of change, and quality standards(1) Before the end of the first and every subsequent regulatory period, the Commission must amend the section 52P determination by setting out the starting prices (as referred to in section 53O(a)), rates of change (as referred to in section 53O(b)), and quality standards (as referred to in section 53O(c)) that apply for the following regulatory period.(2) In resetting starting prices, rates of change, and quality standards, the Commission must consult with interested parties.(3) The starting prices must be either—(a) the prices that applied at the end of the preceding regulatory period; or(b) prices, determined by the Commission, that are based on the current and projected profitability of each supplier.(4) Starting prices set in accordance with subsection (3)(b) must not seek to recover any excessive profits made during any earlier period.(5) Subject to subsection (8), the Commission must set only one rate of change per type of regulated goods or services (for example, if the rate of change (x) is 1% in a CPI-x path, 1% must be the rate for all goods or services of that type).14 Section 52C.(6) The rate of change must be based on the long-run average productivity improvement rate achieved by either or both of suppliers in New Zealand, and suppliers in other comparable countries, of the relevant goods or services, using whatever measures of productivity the Commission considers appropriate.(7) When setting the rate of change, the Commission may take into account the effects of inflation on the inputs of suppliers of the relevant goods or services.(8) The Commission may set alternative rates of change for a particular supplier—(a) as an alternative, in whole or in part, to the starting prices set under subsection (3)(b) if, in the Commission's opinion, this is necessary or desirable to minimise any undue financial hardship to the supplier or to minimise price shock to consumers; or(b) as an incentive (under section 53M(2)) for the supplier to improve its quality of supply.(9) Any alternative rates of change set under subsection (8) may include step changes.(10) The Commission may not, for the purposes of this section, use comparative benchmarking on efficiency in order to set starting prices, rates of change, quality standards, or incentives to improve quality of supply.(11) If starting prices, rates of change, and quality standards have not been set by way of an amendment to the relevant section 52P determination by the end of the regulatory period to which it applies, the starting prices, rates of change, and quality standards that apply at the end of the regulatory period continue to apply until the reset starting prices, rates of change, and quality standards are set.[16] As can be seen, under s 53P:(a) The Commission is required to set starting prices, rates of change and quality standards for the new regulatory period.15(b) The Commission may either roll over the prices applicable at the end of the preceding regulatory period, set new prices that are based on15 Section 53P(1).the current and projected profitability of each supplier,16 or, as an alternative to setting new prices, set alternative rates of change.17(c) If new starting prices are set, they must not seek to recover any excessive profits made in the preceding period.18 Further, the Commission may not use comparative benchmarking in performing its obligations under s 53P.19[17] Finally in the sequence of statutory provisions, we must mention ss 54J and 54K. The effect of s 54J was that the thresholds for electricity lines businesses that applied under the previous Part 4A of the Act were deemed to be s 52P determinations that applied to regulated electricity lines companies for the period 1 April 2009 to 31 March 2010. What was to happen after that is addressed in s 54K. That section provides:Section 52P determinations setting out default price-quality paths applying from 1 April 2010(1) Before 1 April 2010, the Commission must reset the default price- quality paths for each supplier that apply on and after that date, using the process set out in section 53P.(2) The Commission may reset the default price-quality paths even if all or any of the relevant input methodologies have not been determined.(3) If an input methodology is published after 1 April 2010 and if, had that methodology applied at the time the default price-quality paths were reset as required by subsection (1), it would have resulted in a materially different path being set, then the Commission may reset the default price-quality paths in accordance with section 53P and may apply claw-back, despite section 53ZB(1).(4) However, the Commission may not exercise its powers in subsection (3) later than 9 months after the date of publication of the input methodology.(5) Nothing in this section affects sections 54N and 54O.[18] In its initial reset decision dated 30 November 2009, in fulfilment of its obligations under s 54K(1), the Commission rolled over for the regulatory period16 Section 53P(3).17 Section 53P(8).18 Section 53P(4).19 Section 53P(10).1 April 2010 to 31 March 2015 the existing (deemed) default paths.20 Then, in December 2010, it published a number of input methodologies relevant to default path regulation of electricity lines businesses. As a consequence, it began a process of consultation concerning the reset of the default paths under s 54K(3). On 19 July 2011, the Commission published a draft decisions paper in which it explained why it proposed to reset the starting prices in the 2010–2015 default paths on the basis of current and projected profitability of each supplier and the approach that it proposed to adopt in resetting the price under s 54K(3).21[19] Vector then issued the judicial review proceedings that have given rise to this appeal. As Clifford J said in the decision under appeal, the broad thrust of Vector'sproceedings was that the 19 July draft decisions paper reflected the use of methodologies that should have been, but were not, promulgated as input methodologies applying to electricity default path regulation.22 In its pleading, Vector claimed that the Commission was required either:(a) to publish an input methodology under s 52T(1)(c)(i) in relation to the resetting of the starting price; or(b) to indicate, in the input methodologies which it publishes under s 53T(1)(a), how they apply in the context of setting a new starting price.[20] Further, Vector said that the Commission's power to reset the starting price under s 54K(3) was limited. The Commission considered that, where a published input methodology would have resulted in a material change in the price set at the outset of the regulatory period, it was entitled to reset under s 54K(3) on the same broad basis that it could reset under s 53P(3). By contrast, Vector claimed that theCommission's power to reset in such a case was limited to resetting the price to take account of the material change resulting from the publication of the particular input methodology.20 Commerce Act (Electricity Distribution Default Price-Quality Path) Determination 2010.21 Commerce Commission 2010-15 Default Price-Quality Path for Electricity Distribution: DraftDecisions Paper (19 July 2011).22 Vector Ltd v Commerce Commission HC Wellington CIV-2011-485-536, 26 September 2011 at[14].High Court decision[21] At this stage we will give a brief outline of the High Court decision. We will deal in more detail with aspects of Clifford J's reasoning in our discussion of the substantive issues.[22] Clifford J treated the matter as "very much one of statutory interpretation"23and upheld Vector's claim that the Commission was required to publish an inputmethodology in relation to the resetting of prices under s 53P(3)(b). The Judge held that this obligation flowed from s 52T(1)(c)(i) "either explicitly or in effect".24Clifford J said that it was difficult to see how s 52T(1)(c)(i) did not require a price reset input methodology given that s 53O(a) required a s 52P determination to set starting prices and s 53P required them to be reset.25 To the extent that there was any ambiguity in the scope of s 52T(1)(c)(i), the Judge considered that it was resolved by the requirements of s 52T(2).26[23] Requiring the publication of an input methodology for price resetting reflected the centrality of default paths for default path regulation and the importance of price setting and resetting. It was also consistent with the scheme and purpose of Part 4, including promoting certainty. The Judge considered that his interpretation was supported by the appeal rights existing under the Act. As we have said, there is a merits appeal against an input methodology to the High Court, comprising a Judge and one or (more usually) two economists. The Judge considered that this also reflected the centrality of input methodologies to the operation of Part 4.27[24] Finally, Clifford J addressed an important aspect of the legislative history. We will not deal with that now but will do so in our reasoning below.28 He then expressed his conclusion as follows:2923 At [93].24 At [130].25 At [122].26 At [125].27 At [132].28 See [44]–[50] below.29 At [141].I have concluded, notwithstanding this element of legislative history, that Part 4 as properly construed does require an [input methodology] providing the key elements of the regulatory processes and rules for the specification of starting point prices (and therefore revenues) for [default path] sets and resets. That is, taken overall, and although I acknowledge the complexity of the Part 4 regulatory scheme and the challenges it no doubt has provided to the Commission, I conclude that the Commission is required to determine [a price reset input methodology] for Electricity [default path] regulation.[25] As to s 54K(3), Clifford J accepted Vector's position, although his observations on this aspect were obiter dicta. He referred to s 53ZB(1), which provides that default paths may not be re-opened within a regulatory period on the grounds of a change in an input methodology, except as provided in s 53ZB(2). Section 53ZB(2) provides:Every default and customised price-quality path must be reset by the Commission in accordance with s 53P if–(a) an input methodology changes as a result of an appeal under section 52Z; and(b) had the changed methodology applied at the time the price-quality path was set, it would have resulted in a materially different path being set.[26] The Judge considered that s 53ZB(2) permitted a reset only on a limited basis, that is, to the extent necessary to take account of the material difference arising from the publication of the new input methodology. He considered that it would beinconsistent with the statutory scheme if the words "in accordance with s 53P" wereread as a signal that price resetting on a broader basis was contemplated. The Judge took the same approach to s 54K(3), holding that it was limited to the correction of the impact of the new input methodology and did not authorise the Commission to carry out a general reset under s 53P(3).30Basis of appeal[27] Mr Brown QC for the Commission submitted that s 52T(1) set out the matters that were required to be dealt with by way of input methodologies. A price reset methodology was not included in the items specified. Interpreting s 52T(1) as30 At [147]–[150].requiring the publication of a price reset methodology was inconsistent with the statutory language and with the legislative history.[28] Mr Brown argued that the matters included within s 52T(1) representedParliament's assessment of the appropriate balance between, on the one hand,matters which were to be notified in advance of regulation by means of input methodologies in the interests of promoting certainty and, on the other, matters which would emerge through the regulatory process itself by means of a s 52P determination.[29] In relation to s 54K(3), Mr Brown accepted that the Judge's observations were obiter, but noted the Commission's concern about them. He argued that Parliament contemplated that there would be a reset under s 54K(3) once the relevant input methodologies had been published. The Commission had simply rolled over the existing prices from 1 April 2010, on the basis that it would be able to conduct a full reset once the relevant input methodologies were published. On the limited approach favoured by the Judge, the Commission would be unable to carry out a reset as the premises underlying the rolled over prices and the reset prices would be quite different. The former were not based on current and future profitability so a price reset input methodology would not have any material impact on them. Accordingly, reset prices would have to wait until the commencement of the next regulatory period in 2015. Mr Brown submitted that this outcome was contrary to what Parliament had in mind.Discussion[30] We deal first with the question whether the Commission is required to publish a price reset input methodology and then with the question about the extent of theCommission's power to reset under s 54K(3).Is the Commission required to publish a price reset input methodology?[31] As Mr Galbraith confirmed, Vector says that s 52T(1)(c)(i) requires the Commission to publish a price reset input methodology that explains how theCommission will assess current profitability, how it will assess future profitability and how it will set prices on the basis of those assessments in terms of s 53P(3)(b).31This must be done against the background of the two constraints under s 53P, namely that the Commission must not seek to recover excessive profits previously earned and must not engage in benchmarking for efficiency.[32] Mr Galbraith emphasised in argument the reasons for the introduction of the current Part 4. Reference was made to the explanatory note accompanying the Bill when it was introduced. Having set out a list of reasons why the then current regime needed to be changed, the explanatory note said:32The objectives of the Bill are to address these issues, and in particular to–provide an efficient and credible regime to address the potential to exercise market power in markets where competition is not possible:improve clarity, certainty, timeliness, and predictability for businesses:tailor the regime to New Zealand's small size (with small firms andlimited resources):provide specifically for incentives to invest in infrastructure. Certainty is considered a pre-requisite for this.[33] The explanatory note went on to describe the purpose of setting input methodologies as being:33... to give greater certainty, transparency, and predictability to businesses (including businesses not subject to regulation) and their customers. This certainty is expected to help improve the climate for investment in infrastructure.It later concluded in the following terms:34The Bill seeks to put in place a modern, flexible, and forward-looking regulatory regime in line with the OECD mainstream to allow for regulation of suppliers of core infrastructural services, which are not subject to competition. In doing so it seeks to preserve incentives for suppliers to31 Or, alternatively, that the Commission must explain in each input methodology published unders 52T(1)(a) how it applies to the setting of starting prices.32 Commerce Amendment Bill 2008 (201-1) (explanatory note) at 3–4.33 At [5].34 At 9–10.invest while at the same time protecting consumers, where required, from excessive prices and poor quality service.[34] We accept that an important purpose of Part 4 was to create incentives for suppliers to undertake long-term investments in infrastructure and that Parliament saw certainty as an important mechanism in that context. But three points must be made at this stage:(a) First, s 52R describes the purpose of input methodologies as being to"promote" certainty. This language suggests that certainty is a relative rather than an absolute value and may take time to achieve. This latter feature was acknowledged in the explanatory note, where itwas said that the new regime would "provide an effective regime thatover time produces more timeliness, certainty, and incentives forinvestment".35(b) Second, s 52A(1) describes the purpose of Part 4 as being "to promotethe long-term benefit of consumers in markets [where there is little or no present or likely competition] by promoting outcomes that areconsistent with outcomes produced in competitive markets ...". The reference to "promoting outcomes produced in competitive markets"assists in placing the concept of certainty in its proper context. Participants in competitive markets generally face conditions of considerable uncertainty: that is the nature of competition. In the present context, while Parliament undoubtedly saw certainty as being important, particularly in terms of encouraging investment, it was not identified as the predominant consideration.(c) Third, as Clifford J observed,36 the fact that the publication of an input methodology for resetting prices would increase certainty does not, of itself, mean that the Commission must publish such amethodology. Ultimately, determining the Commission's obligationsin this regard is a matter of statutory interpretation.35 At 24. (Emphasis added.)36 At [93].[35] We propose to discuss this issue under four headings: the price reset process, statutory language, legislative history and section 52T(2).(i) Price reset process[36] Under s 53P(3), at the end of a regulatory period the Commission must decide whether to:(a) roll over the existing price; or(b) set a new price taking into account the current and future profitability of the supplier; or(c) as an alternative to setting a new price under s 53P(3)(b), set variable rate of change figures (that is, X) so as to minimise price shocks for either the supplier or consumers (s 53P(8)(a)).[37] Vector accepts that the Commission is not required to provide an input methodology in respect of the first and third of these decisions, arguing that the obligation relates only to the second decision. It is unclear to us why, if an input methodology is required in respect of the second decision, it is not also required in respect of the first and third decisions as, in deciding which decision to make, the Commission is likely to have regard to the available alternatives. We acknowledge, however, that this is not a decisive consideration: if the statutory language requires such an outcome, we are bound to apply it.(ii) Statutory language[38] In our view, the language of s 52T(1)(c)(i) does not require the publication of a price reset input methodology. It will be recalled that s 52T(1)(c) requires input methodologies relating to:regulatory processes and rules, such as–(i) the specification and definition of prices, including identifying costs that can be passed through to prices (which may not include the legalcosts of any appeals against input methodology determinations under this Part or of any appeals under section 91 or section 97); and(ii) identifying circumstances in which price-quality paths may be reconsidered within a regulatory period; ...[39] The reference to "regulatory processes and rules, such as the specificationand definition of prices" is not, in our view, an obvious reference to a price reset input methodology. The input methodology which the Commission has published in relation to the definition and specification of prices has a different focus than a price reset input methodology. It has three subparts, one dealing with the specification of price, another with amalgamations and the last with an incremental rolling incentive scheme. The specification of price sub-part of the input methodology deals with the specification and definition of prices, with pass-through costs and with recoverable costs.[40] As the Commission submitted, if s 52T(1)(c)(i) were to be given a broad meaning as indicated by the Judge, it is difficult to understand the purpose of s 52T(1)(b) as the subject of that paragraph would be subsumed within s 52T(1)(c)(i). Moreover, s 52T(1)(c)(i) would capture a variety of Commission decisions that will or are likely to impact on price, thus adding to the number of input methodologies that would be required.[41] Perhaps recognising that there was a difficulty with the scope of the language, Clifford J did not commit himself to whether the Commission's obligation to publish a price reset input methodology under s 52T(1)(c)(i) was explicit or implicit. Nor, indeed, did Mr Galbraith in argument before us. It seems to us unlikely that, had Parliament intended to impose so important a requirement as the publication of a price reset input methodology, it would have spoken so obliquely.[42] Clifford J described the decision to set a new price under s 53P(3)(b) as the"sharp end" of default path regulation.37 We agree with that characterisation. Given that price resetting is central to default path regulation and of obvious importance to suppliers, we would have expected to see it specifically identified in s 52T(1) had Parliament intended that the Commission provide a price reset input methodology.37 At [96].Yet there is no specific reference to price resetting in s 52T(1)(a) or (c), even though s 52T(1)(c) does impose other specific obligations on the Commission in relation to default path regulation, in particular in s 52T(1)(c)(ii). Vector argued that the use ofthe words "such as" in s 52T(1)(c) shows that the two instances given are simplyexamples, so that even if it is not specifically referred to, a price reset input methodology may still be required. However, it is difficult to see why Parliament would have omitted such an important and obvious example in favour of less important ones. To the contrary, we consider that the examples given are indicative of what Parliament had in mind in this context.[43] To summarise this point, then, price resetting under s 53P(3)(b) was an obvious candidate for inclusion in the input methodology process yet it was not mentioned in s 52T(1). This is, in our view, a significant indicator that Parliament did not intend that the Commission produce an input methodology for price resetting.(iii) Legislative history[44] We consider that the legislative history supports the conclusion we have reached on the basis of the statutory language. In saying this, we are mindful of thisCourt's caution in Christchurch District Licensing Inspector v Karara Holdings Ltdthat "[w]hen considering legislative history or passages in Hansard as a guide to the meaning of a statute ... it is important to have a clear focus on the statutory language that is to be interpreted."38 This point was emphasised by Mr Galbraith and is the reason that we looked first at the statutory language.[45] When the Commerce Committee reported to the House following its consideration of the Bill, it said:39We recommend the addition of [a] new section [52T(2)] to ensure that input methodologies would be set out in sufficient detail to allow affected suppliers to reasonably estimate the impact on their business.We did not agree with submitters who put forward a range of proposals for additional matters to be covered by input methodologies in new section38 Christchurch District Licensing Inspector v Karara Holdings Ltd [2003] NZAR 752 (CA) at[36].39 Commerce Amendment Bill (201-2) (select committee report) at 4.[52T]. Given that the Commission is already faced with a very large and demanding work load we consider that additional requirements would put pressure on the input-methodology process.[46] The background to this is that in submissions to the Committee, Vector and a number of other electricity lines businesses put forward various proposals for additional matters to be included in the list of input methodologies required to be published. These included input methodologies in relation to the matters referred to in s 53P(1), namely starting prices, rates of change and quality standards. Submissions were also made that what became s 52T(2) should be included so as to provide more certainty. As can be seen from the extract just quoted, the Committee'sresponse to these submissions was that a requirement to publish further input methodologies would not be included in the Bill, as that would create too great a workload for the Commission. (It will be recalled that the input methodologies had to be completed by 30 June 2010, or by 31 December 2010 if the Minster agreed to an extension.) Section 52T was ultimately enacted in the form recommended by the Committee.[47] Clifford J's conclusion in respect of this legislative history was as follows:[139] It is clear, therefore, that the Select Committee did consider an additional specific reference in s 52T(1) to an [input methodology] for setting [default paths], and rejected that proposal. That is clearly a factor which counts against Vector's argument that the Commission must specify a [price reset input methodology].[140] Having said that, I am not persuaded that the very detailed material put before me, when seen in the context of the interpretation that I think the legislation as passed calls for, is – at the end of the day – conclusive on the point. First, there is at least a suggestion that the decision not to include a specific reference was made, not because a [price reset input methodology] was considered unnecessary, but that in the view of officials at least, s 52T(2) in effect met that need. Moreover, and as probably does not need to be said but as was also observed by the Court of Appeal in Skycity Auckland Ltd v Gambling Commission [[2007] NZCA 407, [2008] 2 NZLR 182], it can be difficult and even inappropriate – particularly in an MMP environment – to draw firm conclusions from expressions of opinions in legislative history as to what legislation, when enacted, may mean. Moreover, with contentious and very technical legislation such as the Commerce Act, what may or may not have been in the minds of a Select Committee, or individual submitters, is not necessarily in my view a particularly helpful source of guidance to interpreting the legislation when passed.(Footnotes omitted).[48] We see the Committee's decision not to include a specific reference in s 52T(1) to a price reset input methodology as having greater significance in the interpretive exercise than the Judge gave it. That is especially so given that the debates in the House indicate that Government and Opposition members worked together on the Bill and there was bipartisan support for it in the form reported back.40[49] This is not a situation such as existed in Skycity Auckland Ltd v Gambling Commission.41 In that case the Court was asked to consider not simply parliamentary materials but also Cabinet papers. While not ruling out reference to Cabinet papers, this Court doubted that such materials would ever be of much assistance in interpreting specific statutory provisions. The best they could do would be to provide some sense of the overall purpose of the legislation, although that should be apparent from the legislation itself.42 The Court also made the point that while Cabinet papers may reveal the Executive's intention at the time of the Cabinetmeeting, there was no guarantee in an MMP environment that the legislation as passed would reflect that same intention. We see this as being well removed from the present situation where a select committee has reported, unanimously, on a Bill and its report has received general support in the House.[50] In short, then, the Select Committee was asked to include a specific requirement that the Commission publish a price reset input methodology in what became s 52T. The Committee rejected that submission and Parliament acted on theCommittee's recommendation by enacting the provision as reported back. This history supports our interpretation of s 52T(1).(iv) Section 52T(2)[51] We do not see s 52T(2) as being inconsistent with our analysis. Clifford J thought otherwise. He said:4340 (2 September 2008) 649 NZPD 18539 and 18541.41 Skycity Auckland Ltd v Gambling Commission [2007] NZCA 407, [2008] 2 NZLR 182.42 At [40]43 At [125].To the extent that there is any ambiguity in the requirement of s 52T(1)(c)(i) as, in and of itself, requiring a [price reset input methodology], I think that ambiguity is considerably resolved by the requirements of s 52T(2).[52] Under s 52T(2)(a) and (b), every input methodology must, as far as reasonably practicable:(a) give sufficient detail so that "each affected supplier is reasonably ableto estimate the material effects of the methodology on the supplier";and(b) set out how the Commission intends to apply the input methodology to particular types of goods or services.As both parties agreed, these provisions do not require further input methodologies: they apply only to those that are required under s 52T(1).[53] Clifford J said that because the Commission intended to use input methodologies published under s 52T(1) (such as the asset valuation and cost of capital input methodologies) in resetting prices, it was obliged by s 52T(2) to describe how it proposed to use those input methodologies in the price reset process. This supported the view that a price reset methodology was required.[54] It is important to emphasise that s 52T(2) does not impose an obligation to publish an input methodology on any particular topic. It deals simply with what must be included in any input methodology required to be published under s 52T(1). The question is how far the detail required by s 52T(2) must go. Does it mean that input methodologies must be formulated so as to enable regulated firms to understand the application or impact of the methodology in all the contexts in which the Commission proposes to use it within a particular form of regulation (in this case in resetting prices in price-quality regulation)? Or does it mean simply that the Commission must give sufficient detail in the input methodology to enable a regulated firm to understand how it applies to its operations in respect of the matter with which it deals?[55] So, to take the cost of capital input methodology as an example, on the former view, that input methodology must set out not simply how the Commission proposes to undertake the cost of capital calculation but also how the Commission proposes to use the cost of capital calculation in the various contexts in which it is likely to be used within price-quality regulation. On the latter view, the input methodology must be sufficiently detailed to permit regulated firms to calculate their cost of capital consistently with the Commission's approach, but a further explanation as to how the Commission proposes to use that calculation in various contexts within price-quality regulation is not required.[56] In considering which is the correct meaning, we begin with s 52T(1). It sets out what input methodologies must include "to the extent applicable to the type of regulation under consideration". That means that individual input methodologies must be linked to particular types of regulation (that is, one of the four types of regulation identified in s 52B(2)). If valuation of assets is relevant to two or more forms of regulation, there should be an input methodology for each. If the Commission proposes to approach the valuation of assets differently in respect of one form of regulation as opposed to another, that must be made clear in the relevant input methodology. So an input methodology must be tailored to the particular type of regulation to which it applies. As we understand it, the Commission now accepts this. The question is how much further an input methodology must go.[57] Returning to s 52T(2), we consider that the more limited interpretation is correct. We make the following points:(a) First, if input methodologies had to set out not simply how the Commission proposed to, for example, calculate the cost of capital or approach asset valuation in the context of (in this case) price-quality regulation, but also to explain how the Commission proposed to use the cost of capital or asset valuation input methodologies in particular contexts within that type of regulation (in relation to price resetting, for example), input methodologies would inevitably have to be more detailed and would therefore be more time-consuming to prepare. As the legislative history illustrates, Parliament attempted to balance thedesire for greater certainty against the need not to overburden the Commission unduly at the outset of the process given the applicable timeframe.(b) Second, requiring greater detail at the outset is likely to give rise to a greater risk of error, given that the Commission would have to provide a detailed description of how it intended to utilise cost of capital, asset valuation and such like in the context of future regulatory decisions. Moreover, once published, input methodologies cannot easily be amended. This supports the more limited interpretation of s 52T(2).(c) Third, it seems to us implausible that Parliament would have rejected enacting a requirement that the Commission prepare a price reset methodology on the ground that that would entail too much work for the Commission in the initial phase, but then enact s 52T(2) with the purpose of imposing essentially the same obligation on the Commission (among other obligations). The legislative history to which we were referred indicated that industry submitters (including Vector) did not regard s 52T(2) as an alternative to the inclusion of the requirement for a price-reset input methodology in s 52T(1). Nor did the Select Committee, as the extract quoted at [45] above indicates.(d) Finally, s 52Z provides for appeals against input methodologies. Section 52Z(4) provides that the court may only allow such an appeal if it is satisfied that an amended or substituted input methodologywould be "materially better" in meeting the purpose of Part 4 and/or s 52R. We do not consider that the interpretation of s 52T(2) that we favour illegitimately undermines the right of appeal conferred by s 52Z. Rather, we consider that input methodologies will contain sufficient detail to enable regulated firms to make informed decisions as to whether to appeal.[58] The concern that led to the introduction of s 52T(2) at the Select Committee stage was that the Commission might develop high level methodologies that did not provide sufficient certainty. As we see it, there will be greater certainty than might otherwise have been the case even on the more limited interpretation that we consider is correct.(v) Conclusion[59] On the basis of the wording of the relevant provisions, supported by their legislative history, we consider that the Commission is not required under s 52T to publish a price reset input methodology. Mr Galbraith suggested at one point in the oral argument that the Commission was seeking flexibility and flexibility is the opposite of certainty, which is what Part 4 sought to ensure. Predictability, he said, was the key. He noted that the Commission had identified several different approaches to the reset of prices, which would have significantly different impacts on Vector. While the Commission disputed the extent of the differences identified byVector's witnesses, such variations must, at least in theory, be possible.[60] As Mr Galbraith acknowledged, however, there is a continuum between complete certainty at one end and complete flexibility at the other. The question is where Parliament has drawn the line. Clearly Parliament did not accord the Commission absolute flexibility, nor did it require absolute certainty in the regulatory regime. The requirement for the publication of input methodologies was intended to promote certainty in relation to the matters dealt with in s 52T(1). Against that framework, however, the Commission still has to make regulatory decisions, including as to price resetting under s 53P(3)(b). Parliament must have considered that, as the Commission does so, further certainty will emerge.Moreover, the Commission's extensive consultation obligations under Part 4 are also likely to produce further certainty over time.Extent of Commission's power to reset under s 54K(3)[61] As we have said, the Judge's observations about the operation of s 54K(3)were obiter. However, both parties have invited us to express a view about thesubsection's operation.(i) Background[62] The fundamental point in dispute concerns the extent of any price reset that the Commission may carry out following the publication of an input methodology.Vector argues that the Commission's power is limited to readjusting the price to takeaccount of the changed input methodology; the Commission argues that it is entitled to carry out a full price reset, that is, to start from scratch.[63] Before addressing this issue, we will, for convenience, set out the two sections in full. Section 53ZB provides:What happens to price-quality paths if input methodologies change(1) Default or customised price-quality paths may not be reopened within a regulatory period on the grounds of a change in an input methodology, except as provided in subsection (2).(2) Every default and customised price-quality path must be reset by the Commission in accordance with s 53P if–(a) an input methodology changes as a result of an appeal under section 52Z; and(b) had the changed methodology applied at the time the price- quality path was set, it would have resulted in a materially different path being set.(3) When resetting a default or customised price-quality path under subsection (2), the Commission must apply claw-back.(Emphasis added.)[64] "Claw-back" means that the Commission must either require the supplier tolower its prices temporarily to compensate consumers for over-recovery in itsprevious prices, or allow the supplier to recover a revenue shortfall that resulted from its previous prices.44[65] Section 54K provides:Section 52P determinations setting out default price-quality paths applying from 1 April 2010(1) Before 1 April 2010, the Commission must reset the default price- quality paths for each supplier that apply on or after that date, using the process set out in s 53P.(2) The Commission may reset the default price-quality paths even if all or any of the relevant input methodologies have not been determined.(3) If an input methodology is published after 1 April 2010 and if, had that methodology applied at the time the default price-quality paths were reset as required by subsection (1), it would have resulted in a materially different path being set, then the Commission may reset the default price-quality paths in accordance with section 53P andmay apply claw-back, despite section 53ZB(1).(4) However, the Commission may not exercise its powers in subsection (3) later than 9 months after the date of publication of the input methodology....(Emphasis added.)[66] Clifford J concluded that Vector was right: the Commission could reset prices only to the extent necessary to accommodate the changed (s 53ZB) or new (s 54K) input methodology. The Judge gave particular weight to the similarity in wording between s 53ZB(2) and s 54K(3). As can be seen, both subsections refer to the pricereset being carried out "in accordance with section 53P". Clifford J reasoned that s 53ZB provided for limited re-opening of default paths to take account of the extent to which the price paths would have changed if the successfully appealed input methodology had applied at the time they were set. The Judge considered that itwould be inconsistent with the statutory scheme to read "in accordance with section53P" in s 53ZB(2) as authorising a broad-based price reset. He took the same approach to s 54K(3). The Judge said:4544 Section 52D.45 At [150].That a similar approach is required is, I think, confirmed by the cross- reference in [s 54K(3)] to s 53ZB as otherwise preventing reset. Moreover, I think the words of s 54K(3) direct the focus of the reset being to the subsequently published [input methodology], and the effect it would have had on the s 54K(1) price path, i.e. resulting in a materially different price path, if it had applied at the time that price path was set. In my view, if Parliament had intended that the Commission could, in effect, reset the price paths by reference to more general considerations, the legislation would have said that.(ii) Our evaluation[67] In our view, the Judge's analysis overlooks the different contexts of ss 53ZB and 54K. Section 53ZB does not permit changes to default paths in order to take account of changed input methodologies unless the changes have resulted from a successful appeal and are material. Where there is a materially successful appeal, the Commission must reset default paths to reflect that and must apply claw-back. Section 53ZB both achieves some certainty (by prohibiting changes to default paths except in specified circumstances) and accords parties who succeed on appeal an effective remedy. The drafting of s 53ZB indicates that it is designed to operate where the relevant input methodology was applied by the Commission in setting the default paths in the first place.[68] By contrast, s 54K is a transitional provision designed to accommodate the move from the former regulatory regime to the present regime, in particular the likelihood that all or some of the necessary input methodologies would not be completed when the first reset was due. Under s 54K, where a new input methodology is published that would have materially affected the default paths, the Commission may (not must) reset prices, provided it does so within nine months ofthe input methodology's publication, and, if it does reset, may (not must) apply claw- back. The nine month leeway period may have been intended to allow the Commission to take account of the publication of a number of new input methodologies in one reset.[69] Logically, where a reset occurs under s 53ZB it should be confined to accommodating the changes to the input methodology that have resulted from the successful appeal. This reflects the section's balancing of the interests of certainty and of according successful parties an effective remedy. Accordingly, we agree withClifford J that a broader interpretation of s 53ZB would be inconsistent with the legislative scheme.46 Further, because the input methodology will presumably have been a component of the prices originally set, it should be possible for the Commission to accommodate the changes in a relatively straightforward way.[70] The position under s 54K(3) is different, however, as can be illustrated by reference to what occurred in the present case. The first price reset for the electricity distribution companies was required by 1 April 2010, before the input methodologies had been set. (It will be recalled that the input methodologies were required to be set by 30 June 2010, although that date could be, and was, extended until 31 December 2010.) The Commission reset the starting prices by simply rolling over the prices existing at the end of the previous regulatory period under s 53P(3)(a). Considerations relating to current and future profitability of suppliers, which are integral to resetting prices under s 53P(3)(b), played no part in this.[71] The Commission argued that once it had set the relevant input methodologies, it would be able to assess current and future profitability and so would be able to reset prices under s 53P(3)(b) rather than s 53P(3)(a). It argued that, properly interpreted, s 54K(3) permits this, whereas the interpretation of s 54K(3) advanced by Vector and accepted by Clifford J precludes it. The Commission submitted that, on the view accepted by the Judge, the publication of input methodologies going to current and projected profitability would not materially affect the reset prices because those reset prices were not based on those concepts but were simply "roll-overs". The practical effect would be to prevent the resetting of prices until the beginning of the next regulatory period in 2015, which, the Commission said, wascontrary to Parliament's intention.[72] We accept the Commission's submissions on this point. Despite the use ofthe words "in accordance with section 53P" in both subsections, we consider that the scope of the Commission's power to reset under s 54K(3) is broader than its power to reset under s 53ZB(2). We consider that this follows from the different functions that each section performs in the statutory scheme. Parliament must have anticipated that the Commission might decide to roll over existing prices as from 1 April 2010.46 At [149].If Parliament had intended to limit the Commission's ability to reset prices unders 53P(3)(b) in that event, it would surely have made that clear in s 54K(3).(iii) Conclusion[73] In the result, then, we consider that Clifford J interpreted s 54K(3) too narrowly. In our view, it permits a price reset on the wider basis articulated by the Commission.Costs[74] Clifford J reserved the question of costs in the High Court. We are unsure from the material before us whether costs have been determined in that Court. The parties have leave to file memoranda on that point.[75] In terms of the appeal, the Commission, having succeeded, is entitled to costs.Decision[76] The appeal is allowed. Leave is reserved to the parties to apply for any consequential orders that may be required to give effect to our judgment, in light of these reasons. We invite counsel to confer and to provide a joint memorandum indicating whether any orders are required and if so, indicating what orders are sought. These may include an order remitting the matter to the High Court.[77] The respondent must pay the appellant costs for a standard appeal on a band B basis plus usual disbursements. We certify for two counsel.Solicitors:Crown Law Office, Wellington for AppellantRussell McVeagh, Wellington for Respondent