29 July 2008 Media Statement

Ministers welcome Committee report on Commerce Amendment Bill

Commerce Minister Lianne Dalziel and Energy Minister David Parker today welcomed the amendments to the Commerce Amendment Bill recommended unanimously by the Commerce Select Committee.

The Bill amends the price control provisions applying to sectors not faced with competition, such as electricity lines, gas pipelines and airports.

"The Commerce Committee has listened carefully to submissions and made worthwhile changes," Lianne Dalziel said.

The most significant change is to provide for appeals to the High Court on final implementation decisions by the Commerce Commission. The Bill as introduced only provided for appeals on the detailed rules (input methodologies) relating to the various forms of control.

"Submitters on this issue recommended appeals on final decisions, and in the end we have accepted that this will help improve confidence for businesses in the quality of regulatory decisions," Lianne Dalziel said.

David Parker welcomed other changes to the Bill which improve the transitional arrangements to the new regulatory regime for electricity lines businesses and gas pipelines.

David Parker also welcomed the Committee’s endorsement of the proposed new arrangements for consumer-owned electricity lines businesses, which limits regulation to information disclosure.

"The new regime for these businesses, where competition risks are lower because consumers are also the owners, avoids complex regulation and minimises compliance costs", Mr Parker said.

The Commerce Committee also supported shifting information disclosure for the Auckland, Wellington and Christchurch international airports from the Airport Authorities Act to the Commerce Act.

"We are confident that the revised Bill will improve certainty for regulated businesses and incentives for investing in infrastructure, while at the same time protecting consumers from excessive prices and poor quality," Lianne Dalziel said.

An updated summary of the contents of the Commerce Amendment Bill is attached.

Summary of the Commerce Amendment Bill

Amendments recommended by the Commerce Committee are in italics.
Purpose statement

- A purpose statement is introduced for the first time for price control provisions. It seeks to promote outcomes consistent with competitive markets, including providing incentives to invest, innovate and make efficiency gains, while requiring suppliers to share gains with consumers and to limit excessive profits.

Test for when regulation may be imposed

 A new test for when regulation may be introduced includes requirements that:

o There is little or no competition and little or no likelihood of a substantial increase in competition, and
o There is scope for the exercise of substantial market power, taking into account the effectiveness of existing regulation or arrangements (including ownership), and
o The benefits or regulating materially exceed the costs and risks of regulating.

- A full inquiry by the Commerce Commission is required as a first step before new goods or services may be regulated. Decisions on whether and how to regulate rest with the Minister of Commerce in consultation with the sector Minister.
Input methodologies

- Input methodologies are the detailed rules covering matters such as how to calculate the cost of capital, value assets and allocate common costs.

- The Commission is required to set input methodologies for electricity lines, gas pipelines and airports by 30 June 2010. (The Minister may grant one extension of 6 months). The methodologies are binding on the Commission and regulated suppliers.

- Interested parties have a right of appeal against the input methodologies to the High Court sitting with lay members. The criterion for appeals is that an amended methodology would be materially better in meeting the purpose statement in the opinion of the court.
Information disclosure

- Powers to impose information disclosure requirements are provided in the Bill. (At present, this lighter-handed form of regulation is not available without new legislation).
Negotiate/arbitrate regime

- This is a new, relatively light-handed form of regulation which may be suitable for suppliers with relatively few large customers. It requires a supplier to negotiate prices and supply agreements with its customers, with mandatory arbitration if they cannot agree.

- The processes and procedures for the negotiation and any arbitration are set by the Commerce Commission. The Commission also appoints an arbitrator if the parties cannot agree on one. The criterion for arbitral awards is promoting the purpose statement.
Default/customised regulation

- This is a new form of regulation (replacing the Part 4A thresholds regime). It will apply to electricity lines businesses that are not consumer-owned, and to gas pipelines.

- It requires the Commerce Commission to set a default price-quality path for regulated suppliers for (normally) 5 year periods. The start price may be existing prices or amended prices, and the rate of change in prices will be determined by the consumer price index less a requirement for productivity improvement, based on long run productivity improvement rates for the sector. The Commission is precluded from using comparative benchmarking on efficiency for setting default paths.

- Suppliers may apply to the Commission for a customised price-quality path if they have special requirements, such as significant new investment requirements. The Commission must make decisions on the proposal within approximately 12 months.

- Explicit powers are provided for the Commission to set quality standards (including to reduce energy losses) and to incentivise meeting or exceeding those standards.
Appeals on final decisions by the Commission

- Interested parties will have a right of appeal to the High Court against final decisions taken by the Commission on customised price paths. Decisions of the Commission will take effect pending the outcome of any appeals.
Electricity lines businesses (ELBs)

- Consumer-owned ELBs (such as trusts) will be subject only to information disclosure requirements. However, consumers will be able to petition the Commission if they consider the ELB should be put on the default/customised regime. (This regime will apply to about 16 of 28 ELBs).

- Other ELBs will be subject to the default/customised regime (as well as information disclosure), instead of the Part 4A thresholds regime. The Commission will be required to set a default path for these ELBs by 1 April 2010. Existing Part 4A thresholds will be rolled over until then and existing Part 4A processes and penalties will apply to any breaches.

- The Commission is required to promote incentives and avoid disincentives for ELBs to invest in energy efficiency, demand-side management, and reduction of energy losses.
Gas pipelines

- The gas pipelines of Powerco and Vector (Auckland) will continue to be under price control until 2012 or any earlier date agreed with the Commission, at which time they will go on to a default/customised regime. Other gas pipelines will be subject to a default/customised regime from 1 July 2010.
Auckland, Wellington and Christchurch international airports

- These airports will be subject to a new information disclosure regime from 1 July 2010, using input methodologies set by the Commission. The Commission will monitor disclosed information and report to Ministers after 2012 whether the information disclosure regime is effective.
Penalties and remedies

- The Bill provides for a range of pecuniary penalties and offences, to be applied by the courts, for breaches of regulatory requirements. It also provides for compensation for breaches of price-quality paths and for injunctions. These provisions replace current powers which enable the Commission to impose penalties and remedies without reference to the courts.
Section 69A undertakings on mergers

- The Bill provides for variances to undertakings given by merger parties, and new enforcement provisions.

ENDS

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