Commerce Amendment Bill — In Committee Third Reading 
Text is incorporated into the Bound Volume 
Commerce Amendment Bill — In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18539. Text is incorporated into the Bound Volume.] 
Commerce Amendment Bill 
In Committee 
Part 1Amendments to Commerce Act 1986  
SIMON POWER (National—Rangitikei) 
: 
 I raise a point of order Mr Chairperson. Just for clarification because this is a very complex piece of legislation and so none of us on this side of the Committee get out of order in respect of contributions that we might make during the Committee stage the debate that we are about to enter into relates to Part 1. Does that include those matters contained only in clauses 3 and 4 including the new Part 4 substituted which of course would lead us right through almost the entire bill up to what would be regarded as Part 2 which commences with clause 27? Am I reading that correctly? 
The CHAIRPERSON (H V Ross Robertson) 
: As I understand it Mr Power it includes clauses 3 through to 26 so that would include new clause 4 and it also includes the schedules as well. 
SIMON POWER 
: I understand. Thank you for that clarification. Those members of the public and the Parliament who were tuned into this debate yesterday will be aware that this bill is receiving the support of a substantial majority of the parties in the House although not of all and we are now in the Committee stage of the bill where we can spend some time on it. We are lucky to have in the Chamber the Hon Paul Swain who has some technical expertise in this area and who will be able to assist us during the Committee stage. 
These matters relate to the principal part of the bill and in particular I will commence with the purpose clause. The reason I am going to start there is that I want to allow the Minister time to reflect on Supplementary Order Paper 244 which she has tabled in respect of a couple of amendments made to this bill and ask her to explain to the Committee how that Supplementary Order Paper and the amendments contained therein relate to the work done by the Commerce Committee and whether we are talking about technical changes or major changes. I notice that the initial amendment actually has to do with legal costs surrounding the input methodologies and it might be worth the Minister’s while to just clarify those matters so that we do not get sidetracked into a lengthy and technical discussion on those points. 
Just returning initially to the purpose clause the Minister said in the second reading if I recall correctly that the key to this particular clause was to balance the issues of investment alongside the benefits with consumers. Regulation and the role that it would play in balancing those two variables is essentially what this legislation is all about. I did raise the issue—and I would be interested in any comments that the Minister might have on this—of whether that purpose clause goes wide enough or is intended to capture the consumer of tomorrow and how that is balanced alongside these regulatory decisions in respect of infrastructure and pricing at the consumer end. So there are two things that I would ask the Minister to comment on at this early stage. The first is the matter of balancing the rights and interests of the consumer of tomorrow against the purpose clause and the matters that I have outlined. Secondly would the Minister be kind enough to give a quick overview of the Supplementary Order Paper so we will know as we work our way through that we will not have to have too many technical discussions about that document. I am signalling those two matters at this point. 
Because of the way this bill has been structured we will have a substantial debate on Part 1 of the bill. As I rightly understand from the Chairperson’s colleague who was previously in the Chair Mr Robertson we are dealing now with clauses 3 to 26. This is essentially the guts of the entire bill barring the matters relating to airports and airlines and regulation in that regard. We will be getting into quite a complex and detailed discussion around the input methodology determination and the rights of merit review appeal. I will be interested in the Minister’s comments on valuation techniques the calculations relating to the weighted average cost of capital and other matters. This is a good time to do that because the first and second readings do not allow us to have those discussions in a detailed way and of course the Minister did not appear before the Commerce Committee during its deliberations on the bill. So now is an opportunity for the Minister to give us some of her thoughts publicly on these matters. 
As I say we are certainly supportive of this bill but I think there have been some big changes around those merit review processes. I think it is worth the Minister making some comments on the consumer-owned electricity trusts as well. I would not say that those matters are controversial but they deserve further explanation from the Minister. I think what I will do at this stage is signal that those are the areas along with the Supplementary Order Paper and the purpose clause that we are interested in hearing from the Minister on. Once those matters have been dealt with I am sure we can proceed at a seemly pace through the rest of the Committee of the whole House. 
Just before the Minister takes her call I take this opportunity to thank the officials who were involved in putting this legislation together. As I said yesterday in the second reading as did the Minister and Mr Swain this is complex stuff and we were guided through it by the officials from the Ministry of Economic Development with a degree of competency that frankly allowed those of us who are not specialists in this area to decipher some of the more technical aspects of the legislation in what I thought was a pretty reasonable way. I think probably two or three members of the committee in particular grasped the issues quickly and were able to have some good discussions with the officials during the process. 
I will not say any more other than that I look forward to hearing from the Minister on those points and I am sure she will not mind if we spend just a little time on those three or four issues prior to moving through the Committee stage. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I would like to thank the member for his constructive contribution to the debate on this bill and indeed we have had really good cooperation from the Opposition in respect of the matters contained within it. 
I will deal with the first point that was raised which is about how we judge the interests of future consumers versus current consumers. I think that is set out in the purpose clause. The purpose is “to promote the long-term benefit of consumers in markets … by promoting outcomes that are consistent with outcomes produced in competitive markets such that suppliers of regulated goods or services—(a) have incentives to innovate and to invest including in replacement upgraded and new assets;”. I do not think we should ignore the fact that that is No. 1 of a series of four tests against which those outcomes are being measured. 
Starting with the incentives to innovate and to invest is really sending a signal about how important it is not to forget that future needs are just as important when we are looking at a non-competitive market. New section 52A to be inserted by clause 4 sets out incentives for suppliers of regulated good or services to innovate to improve efficiency and to provide services of a quality that reflects consumer demand—that is current consumers. The purpose of this provision is also to ensure that suppliers share with consumers the benefits of efficiency gains and to limit the ability of suppliers to extract excessive profits. I think we have the order right and that sends a very good signal. 
The amendments to Supplementary Order Paper 244 are technical amendments. Perhaps as we go through the debate there may be particular questions the member would like me to refer to. There are no material changes to policy contained within these amendments. Essentially the first one is to clarify that input methodologies cannot provide for the legal costs of appeals to be passed through to prices. That is probably one of the less technical aspects of the changes being promoted by the Supplementary Order Paper. I will use new section 54T as an example. The Commerce Committee recommended that the power to transfer jurisdiction be limited to Transpower only. Therefore the Supplementary Order Paper makes a consequential change to section 54T to limit the criteria and consultation requirements to Transpower and transmission issues. If the member goes through the different parts of the explanatory note of the Supplementary Order Paper then he will see that the amendment is simply designed to deliver technically what has been approved by way of policy. 
The third area that I want to spend just a little bit of time on is the question of appeals on input methodologies. It has not been a controversial area but it has been an approach we have adopted to try to achieve a purpose. The purpose is certainty in an area where the previous law has not allowed for certainty in investment decisions. The only way to get in front of the Commerce Commission in respect of negotiating administrative settlements was to breach a threshold. We are already on the back foot when we are doing that. We are being punished as it were for failure in the past instead of a forward-looking approach being taken which is what the new provisions of the bill allow. I personally was very passionate about having appeals at the input methodologies stage because it is really important that when businesses are making investment decisions they have certainty in respect of how the regulator will act. Businesses actually could not be certain in this area of the input methodologies which I have to say are pretty much the basis for all of the court cases that have been taken in respect of the Commerce Commission and Part 4 and Part 4A. 
We recognise though that the input methodologies having appeals in the High Court will present some novel challenges for it. I think we will have to use constructively the period between the passing of this legislation and the implementation of the input methodologies and the appeals that may arise from that. As we have 2 years essentially through to 2010 there will be ample time to appoint suitable and available experts—the panel of lay members. We will be ahead of the game as it were. In that time the High Court will be able to consider the best way to optimise the appellate process so that it is fair to all while dealing efficiently with the issues raised in appeals. 
Once this legislation is passed I intend to write to the Rules Committee to ask it to start thinking about the processes around High Court appeals to deal with this rather novel area of law as it will become. I think it is worth doing that because the alternative would have been to set up a specialist tribunal just to deal with this. I believe very firmly that the first time this occurs and the input methodologies are then set appeals will arise out of that. I think that is pretty much a given. I believe that will settle it for quite some considerable time. Even though the system may be reviewed again in 7 years’ time I do not think we will see significant changes beyond that initial period. 
I am very keen for the High Court to give some thought to how it might handle a process where it might be better to get people around the table to talk about issues and really thrash them out rather than leaving the case for the Commerce Commission with the case for the individual parties to be made by counsel and then for rulings to be made. I think that will be a challenge in terms of the new process but I think it will be worthwhile. I am very grateful that we have the support of the Opposition on this bill. I believe it will improve investment in our important infrastructure companies. 
SIMON POWER (National—Rangitikei) 
: 
 I thank the Minister for that explanation. I am particularly interested to follow the procedure around the new role for the High Court and how that pans out in a non-legislative sense. I am not sure of the procedures around how a Minister of the Crown does that but if it is just a matter of informing the body—or signalling to it— 
Hon Lianne Dalziel 
: The Rules Committee. 
SIMON POWER 
: We need to make sure that those processes take into account what will inevitably be a different framework initially. If that is the way it is done then that is the way it is done; I cannot comment on that. But I would certainly be interested in one capacity or another to see the processes that unfold from those particular discussions. 
Hon Lianne Dalziel 
: We’ll keep you engaged. 
SIMON POWER 
: I thank the Minister.  
There are two or three other matters that I would just like to put on record for the Opposition. In fact the Minister has addressed one of them in part already: the issue of the new appeals regime for the input methodologies and when it is that merits reviews are to occur. I know one of the major concerns from parties originally about having a two-step review process or appeal process was that the issue that gaming could occur. The concern was that because the two steps were in place that could easily be used as a way of—I would say—stalling the finality of the determinations. But in the end unless I am wrong—and the Minister or the officials can nod or shake their heads at me at this point—the initial finding is to stay in place while those particular reviews or discussions are going on. So the risk that front-end gaming will take place is eliminated almost completely because that initial stand is to be held in place while those discussions occur. If I have got it right that means that if indeed a merit review is undertaken it will be undertaken at a time when the original determination is held in place which means that there will be no material gain to be made from taking the appeal process through more than one stage. That makes sense and as long as that process within the context of the two appeal stages is understood by all players—which it will be when they read the legislation—I think that is an important step forward.  
It is worth making a comment about the consumer-based trusts for just one second. Of course the model behind the measure applying to them is that because the consumer is—in theory anyway—both the owner and the end user the squeeze if one likes on pricing means that both those parties because they hold two such crucial roles together require a less rigorous regulatory framework. In essence they are able to ultimately control pricing by controlling their representatives on various trusts and other such bodies and controlling any input they might have into the senior management or governance process surrounding decisions on price setting and the like.  
It is also worth making one point about a curious relationship that we discovered during the Commerce Committee hearings which I know the Hon Paul Swain and I were most engaged by. It is the interesting situation of the Northland community trust company where the “democratic” processes that are supposedly responsible for keeping that natural price setting in place are slightly skewed by the fact that the trustees are appointed directly by the member of Parliament for Northland and the Maori member for that area—in other words in current terminology by the honourable members John Carter and Hone Harawira. That presents a slightly skewed version of the democratic model that the consumer-based trust is designed to put in place because of course no direct participatory pressure is able to be exerted in the same way that would occur with the other consumer-based trusts. I think it is worth making that point but I do think this measure is a tidy way of dealing with those trusts.  
I have one final question that the Minister may be able to deal with before I hand over to my colleagues who have far more expertise and detailed knowledge of these matters than I do. It is on the issue of the capacity of the Commerce Commission to deliver on the input methodologies on time. That is an important point and it was one that I and to a lesser extent the Hon Paul Swain raised with a number of submitters during the select committee process. When Ms Rebstock appeared for the commission—it was all in open session so I am not breaching any privilege—she assured the committee that we had sufficient expertise and capacity to get these input methodologies determined in a way that would not hold up the process. That is an important assurance that this Committee needs to hear from the Minister. Although I know the Minister has no direct political ability to interfere with the commission’s work nor should she or any other Minister for that matter it would be helpful to be reassured that she is confident in her ministerial capacity that the commission does have the capacity to meet those time lines in what is—and I know Lindsay Tisch and Richard Worth know more about this than I do—exceptionally complex and very very difficult work.  
I will leave my contributions on this part of the debate there but I ask the Minister just to give the Committee of the whole House some assurances in that regard. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 Again I am very grateful to the member. I was just jotting down and checking my recollection of what had happened. We have resourced the Commerce Commission to develop the input methodologies. It is a specific allocation for it to do that. The commission has already issued a discussion document with both the process and the timetable included in it. It intends to hold a conference on all the input methodologies in February 2010 so that is after it has consulted on all of the individual input methodologies. It plans to have it determined by mid-2010 in accordance with the legislation with 20 days then allowed for appeal. 
LINDSAY TISCH (National—Piako) 
: 
 One of the most controversial parts of the select committee process was dealing with the inclusion of airports. Although we came to some consensus that they should be included in the disclosure regimes there is probably more debate over this than on any other point. I have a particular interest in airports—I mentioned this in the second reading—so I want to concentrate my comments just on the airport part of the bill. Airports were a late inclusion and as I have said National feels that they should be included in the regime.  
One of the issues that came out when we were trying to set a pricing regime was whether companies should be operating as a whole. The argument came forward that in airport company situations they were not: they were not operating as a single till each of their entities was separately in a charging regime so that they became profit centres. One of the arguments was simply that if we want to have some fairness and equity in terms of setting prices we should actually be looking at their operating as a whole.  
The information supplied to the committee indicated that some airport companies over-recovered in regard to their airfield activities under the Commerce Commission scenario based on historic cost of those specialised assets and also under the Commerce Commission scenario of using the optimised depreciated replacement cost which is the optimised deprival value for specialised assets. We were keen to make sure that this part of the debate was fully canvassed and as I said it was the most controversial.  
The bill now has a regulatory regime that allows for the setting of the airport charges and moves it away from the Airports Act into the Commerce Commission. But I say to the Minister I need some clarification in terms of what we are looking at with the methodology. We have just had an inquiry into State-owned enterprise valuation methodology and my understanding is—and the Minister’s advisers here today may be able to help me with this—that the aim of applying the optimised deprival value methodology is to value the assets at the cost to the owner of reinvesting in that business if he or she was deprived of those assets.  
So if they were taken away what actually is the methodology we would use? The optimised deprival value methodology is usually higher than the historic cost. My understanding is that in New Zealand the post-tax nominal weighted average cost of capital is normally used. The next point is that the rate works perfectly well with the historic cost valuation. The next point is that combining the post-tax nominal weighted average cost of capital and the revalued assets can create a double counting of the inflation effect. Those are questions that the Minister with her advisers may be able to help me with.  
On the other side of the equation of course we heard that although the airlines and the Board of Airline Representatives of New Zealand in particular were keen to have the airports included in the Commerce Amendment Bill the airports—which would argue that they have for the last 20 years operated very successfully without this new regime—were not happy that this was included. They gave examples of where there are deregulated regimes. They mentioned Stansted and Manchester in the United Kingdom and they mentioned Sydney. But we felt that at the end we need to have this fair and consistent so that there was some equity and that we were not operating where monopolies could be seen to be operating and that including the airports in this bill was the right way to go. So with those points I would be interested in the Minister’s reply to me as to the clarification of those valuation methodologies which she may be able to help me with. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I continue this debate in the spirit of people genuinely wanting to debate these issues. The provisions relating to the input methodologies are the most important provisions in this bill apart from the introduction of a purpose statement for this particular part. Given that these rules determine how financial statements should be prepared for regulatory purposes they actually allow the Commerce Commission to identify whether a natural monopoly business is taking monopoly rents. So they are the fundamental part of any form of regulatory control under the legislation including the very light-handed information disclosure regime that we have just mentioned.  
I think the member is asking me to set the input methodologies; we are not doing that. That is the Commerce Commission’s role and it will be doing that by 2010. Asset valuations could use the optimised deprival value they could use the optimised depreciative replacement cost method and they could use the depreciated historic cost method. I think the member has gone through some of those options and asked me to define what it should be. The whole point of defining them up front is so that businesses have certainty going forward about how the Commerce Commission will interpret their obligations to report on their financial statements under any of the regimes included under the Act. That is the same with asset revaluations the allocation of common costs taxation and the cost of capital.  
That is the purpose of getting the input methodologies done ahead of time—so that there is certainty. I will not pick and choose which one I might prefer for any particular purpose but we will have an input methodology that deals with asset valuations and there will be certainty. That is the key point of this bill. 
Dr RICHARD WORTH (National) 
: 
 The Commerce Amendment Bill is highly complex legislation in two parts. One can mount sustainable criticism as to why that was done because it clearly carries with it the potential to stifle debate with a significant number of subparts in each part. I really wonder at the utility of prolonging the Committee stage. Instead I flag what might be called some high-level issues that caused various stages of the select committee process to pause.  
The major part of the substantive change of course is in Part 1. Little can really be said of Part 2 because it just effects a number of amendments to other pieces of legislation. So I will focus on Part 1 for a moment and talk about the main changes. Clearly as has been signalled before a significant change was the introduction of a purpose statement specifically for the purpose of the Act to give clearer guidance to the courts and the regulator that the aim of regulation is to promote investment. It is very easy to forget that. We are not seeking in this particular bill to stifle business activity. Rather it is the opposite and that is to promote investment.  
The main changes are that for the first time there is a clear emphasis on the importance of incentives for regulated businesses to invest there is a requirement for the Commerce Commission to clearly set out the regulatory rules which are called “input methodologies” with all their complications applying to these businesses and to complete this work by a nominated date in the legislation. These rules are to be subject to merits review and clearly specifying the rules will greatly improve certainty and predictability for businesses and improve business confidence.  
One of the other changes the bill makes is that it allows what one could call “fit for purpose” regulation such as information disclosure and this negotiate and arbitrate regime as alternatives to full price control. When it comes time to speak about Subpart 11 relating to airports I will perhaps make some comment about that. Another thing it does of course is provide a much simpler and more predictable regime for electricity lines businesses removing the threat of relatively heavy-handed regulation for minor breaches of thresholds and with time limits for commission decisions.  
There is a more appropriate regime of information disclosure for small locally consumer-owned electricity lines business where as Mr Power has said the customers are essentially the owners of the business. That should—should—lower their compliance costs and result in savings to consumers. There is an enhanced regime for gas pipelines that enables them to propose a price path to the commission and there is a more robust information disclosure regime for three airports: Auckland Wellington and Christchurch—those international airports with monitoring by the Commerce Commission. Mr Tisch has said that that was controversial. The current regime contained in the Airport Authorities Act is seen by the airlines to be satisfactory. Not so the airport companies would say. 
Let me just talk about some of the issues that detained us for a short time. The first was the time line for preparation and consultation of input methodologies. This is complex stuff. It centres on new section 52U in clause 4. But generally I would describe the key process requirements in this way. First of all the commission has to publish a notice of its intention to begin work on an input methodology including the process to be followed and the proposed time frames. Second it must subsequently publish a draft input methodology.  
Then it has to give interested parties a reasonable opportunity to give their views on that draft. Then it must have regard to any views received; to that end it may hold conferences. The commission has said it intends to hold one formal conference on all input methodologies by I think February 2010. Next the commission is required to determine all the input methodologies specified in new section 52S in clause 4 for electricity lines gas pipelines and airports by 30 June 2010 with an ability for limited extensions. So it is a complex time line. I do not doubt it will place the commission under some logistic pressure. 
Suggestions were offered by officials that there was a case for additional input methodologies under new section 52S. In fact it is my recollection that the departmental report recommended two additional input methodologies. But there are some problems with that and I think those problems were fairly noted by the Commerce Commission and have resulted in a position where that is not now to be advanced.  
There was also an issue which centres on new section 52Z(2) in clause 4 about whether new evidence should be permitted on appeals because that provision prevents parties from introducing new evidence or information in appeals on input methodologies. That is a reasonable approach to take because it should discourage gaming and it should in particular require parties to put up their best evidence and experts in front of the commission. This gaming that occurs in appellate processes is not uncommon. One need only think about what happens in the world of resource management with the Environment Court to see that it is a legitimate concern and it is a concern that is appropriately addressed in the Commerce Amendment Bill. Of course the downside of not allowing new evidence is probably small because there are no facts or changed circumstances at issue. So presumably the High Court Rules will provide a sufficient basis of protection in respect of the introduction of new evidence.  
Others have spoken on these issues of appeals on final decisions in addition to appeals on input methodologies and I do not want to deal with that. We were concerned however about the prospect of delays occurring in the High Court in the hearing of appeals on merits and appeals relating to input methodologies. I do not think that issue has been well addressed. The reality is as others have said that the courts are open to everyone like the Ritz Hotel—those who have money can make their way determinedly through the processes but for many there are huge costs and the delays associated with cases reaching trial are a compounding effect. So I do not believe we have that issue right and it may well have to be looked at in the period of the next Parliament.  
Members of the Commerce Committee will recall the debate on the issues around whether the commission should be able to appoint itself as an arbitrator under the negotiate and arbitrate regime. The reasons for not allowing the commission to appoint itself an arbitrator are several. They include clearly the fact that the commission is a regulator not an arbitrator so if the commission appoints itself arbitrator it is making regulatory decisions becoming almost a judge and jury in its own cause we might say. The second point is that the commission may well be vulnerable to review as an arbitrator and it may well be seen as conflicted having made the rules for negotiation or arbitration. I guess there may be a reduced likelihood of the parties reaching a negotiated settlement and the commission may be perceived by one party or another as likely to make arbitral awards favourable to that party.  
There is a big issue as Mr Tisch has said about whether airports should be included in the bill. It is right to say that I believe all members of the committee were lobbied determinedly by the different interests in that regard. The view that carried force on the day was that the major airports do have strong natural monopoly characteristics. The select committee was treated to an interesting statistic from Infratil showing that that company aimed to provide its shareholders with a consistent return of 20 percent per annum over the long term. That is a very high rate of return for a low-risk infrastructure business that is not facing competition.  
It is also possible to argue quite credibly that the information disclosure regime under the Airport Authorities Act is ineffectual. There are no input methodologies on how information must be compiled for disclosure and there is no monitoring and analysis by an expert body. As we look back at the history of disputes between airlines and airport companies we would have to say that those disputes have been expensive protracted and in the context of the court processes that have followed not really satisfactory.  
So information disclosure is a very light-handed form of regulation. It is proper to record that other OECD countries apply much more stringent regulation to their major airports even though their airports are subject to more competitive pressures from for example high-speed public transport than New Zealand’s airports. There are other matters that I could talk about but I identify those as the issues that the Commerce Committee looked at with the closest consideration. 
LINDSAY TISCH (National—Piako) 
: 
 I want to carry on with a point made by my colleague Dr Worth. The Commerce Amendment Bill does not actually tie in in terms of pricing methodology and disclosure. Airports will be able to treat information disclosure separately from pricing and will be able to continue to set prices as they see fit. That will be one of the challenges the Commerce Commission has and we will be looking very closely at what the regulations are and how this provision will work. I say to the Minister of Commerce that I do not think it is as clear-cut as we would like it to be. There are some huge challenges and I mention that one in particular— 
Hon Lianne Dalziel 
: Which is why the Commerce Commission will handle that. 
LINDSAY TISCH 
: Sure I appreciate that. The other thing that is of concern is in regard to the transitional provisions and I mentioned it in the second reading. Section 56G(1) in clause 4 states: “As soon as practicable after any new price for a specified airport service is set in or after 2012 by a supplier of the service the Commission must—” and it goes through the requirements. If the commission decides there is monopoly pricing it can recommend to the Minister that an inquiry be held and an inquiry could take anywhere between 2 and 3 years.  
Hon Lianne Dalziel 
: Like it does today. 
LINDSAY TISCH 
: Yes so it could be 2015 or later before anything is done to address a situation of overcharging that could well be occurring. That will be a huge issue in that the bill is trying to satisfy that concern on the part of airlines. 
The other point is that with that delay it is unlikely that any changes would take place before 2016-17. So there is a huge lead time. I understand how that works but I flag that these are things that National members will be looking at and monitoring closely. We like regulation in that it is light-handed; we do not want a heavy-handed approach. But it has to be fair and equitable in this case.  
The question was put that the amendments set out on Supplementary Order Paper 244 in the name of the Hon Lianne Dalziel to Part 1 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 113 
New Zealand Labour 49; New Zealand National 47; New Zealand First 7; Green Party 5; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 4 
Maori Party 4. 
Amendments agreed to. 
Part 1 as amended agreed to. 
Part 2  agreed to.  
Schedule  
The question was put that the amendment set out on Supplementary Order Paper 244 in the name of the Hon Lianne Dalziel to the schedule be agreed to. 
Amendment agreed to. 
Schedule as amended agreed to.  
Clauses 1 and 2  
SIMON POWER (National—Rangitikei) 
: 
 We know that any discussion in the Committee of the whole House in respect of clauses 1 and 2 are wide-ranging and comprehensive debates and do not— 
Hon Lianne Dalziel 
: Since when? 
SIMON POWER 
: They are as opposed to the particular discussions that the Committee may have had in some detail surrounding Parts 1 and 2. It is not my intention to engage in a wide-ranging debate on clauses 1 and 2 because it would seem that the Committee—apart from I think one party—is largely in agreement with the provisions. We have canvassed in detail many of the matters relating to the appeal provisions in respect of price setting and paths for price setting for electricity lines companies and gas companies. We have had lengthy discussions this afternoon about issues surrounding Part 2 although I believe we had those discussions in the Committee stage on Part 1 when talking about airports and airlines. We have canvassed matters around consumer-owned lines companies. 
We have talked about the capacity of the Commerce Commission to deliver the input methodologies at the time they are required. We have had further discussions about merits review and the potential for gaming and how that issue has been dealt with. We have had further discussions on matters relating to the purpose clause—in particular the Minister addressed the Committee about the confidence she has that the consumer of tomorrow is protected by the purpose clause being wide enough. We will see how that goes. We have had further discussions and heard from the Minister about the Supplementary Order Paper. The Minister has addressed some of those matters and given the Committee an undertaking that the Commerce Commission has the capacity to deliver those input methodologies within the appropriate time frame. 
This has been a slightly shortened debate I think for only two reasons. The first as I said earlier is the near-unanimous support for the legislation by parties in the House but more particularly because the select committee process itself was a detailed and painstaking process which saw us move through many of these issues in a very very detailed way. So for that reason there is probably not a lot I can add to this debate except to say that overall what we will be looking for when this legislation is eventually bedded down is that the intention of the legislation is actually occurring. Peculiar to this legislation that will not necessarily be so in the short term for the large bulk of the matters that are passing through the House this afternoon but we believe on this side of the Chamber that there will be many opportunities during the course of these provisions being enacted and being utilised for us to stop and pause not in a legislative sense but in a policy sense to ensure that what this legislation is intended to do is actually occurring. Of course that is always the test—the theory being applied in practice. Having said all of that I will leave the matter there unless any other member including the Minister has a contribution to make at this time. 
Clause 1 agreed to. 
Clause 2 agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Commerce Amendment Bill be now read a third time 
. The bill is a major rewrite of the price control provisions in Parts 4 and 4A and in certain parts of Part 5 of the Commerce Act 1986. Its overall aim is to provide protection for consumers against excessive prices and poor quality when buying what are important infrastructural services where there is no real prospect of competition while at the same time ensuring that suppliers have incentives to invest innovate and improve efficiency. The bill draws upon best practice overseas to achieve these objectives. In particular it seeks to ensure that regulation is not imposed unnecessarily and that where it is required it is applied in the most efficient way to promote the long-term interests of consumers.  
The main changes in the bill can be summarised as follows. First a purpose statement has been set for price control for the first time. That will ensure that any regulation is well focused and delivers on objectives including providing incentives for investment. Second the tests and processes for deciding whether and how to regulate have been improved. An inquiry by the Commerce Commission will need to show there is little or no likelihood of competition that there is scope for the exercise of substantial market power and that the benefits of any regulation will materially exceed the costs. Third the Commerce Commission will be required as a priority to set clear and explicit rules called input methodologies relating to regulatory decisions. This is designed to give businesses certainty about what to expect and to improve their confidence in the regulatory regime. Fourth lighter-handed forms of regulation are made available as fit-for-purpose alternatives to price control. They include information disclosure a negotiate-arbitrate regime and a default customised regime. Lastly the bill puts in place improved approaches for the three sectors that are already subject to economic regulation—namely electricity lines gas pipelines and airports.  
The bill will also improve confidence in the integrity of regulatory decisions by providing for appeals to the High Court assisted by lay experts on input methodologies on final decisions made by the commission. Conducting appeals on input methodologies as I mentioned in the Committee stage will present some novel challenges for the High Court and some concerns have been expressed about this. However the statutory time frames for determining methodologies and lodging appeals mean that the timing of the appeal process is likely to be known well in advance. That will give ample time to appoint suitable and available experts to the panel of lay members. It will also enable the High Court to consider the best way to optimise the appellate process so that it is fair to all while dealing efficiently with the issues raised in appeals. Once this legislation is passed as I said again in the Committee stage I intend to write to the Rules Committee which essentially makes the rules for the processes to be followed by the High Court to encourage it to develop appropriate processes for the best consideration of these input methodology appeals.  
In conclusion can I again thank the officials who worked on this bill. They have worked tirelessly on very complex legislation. Can I also pay tribute to all members of the Commerce Committee. In particular I am going to single out Simon Power for being a very willing and able individual who has worked very closely with us to ensure that the bill has been able to make its way to the House in better shape than when it was first introduced to the select committee. This was a good process and it has been contributed to by the many many submissions that were received on it as well. I commend the bill to the House. 
SIMON POWER (National—Rangitikei) 
: 
 The Commerce Amendment Bill of course has been before the Committee of the whole House in recent moments and now we find ourselves moving swiftly through the third reading. There is no need to be concerned about that pace in this particular instance. Normally speaking the Opposition is opposed to procedural urgency motions and we remain opposed to this one but this legislation by and large does have the support of the very large majority of members in this Chamber. I thank the Minister for involving the National Party in discussions and briefings about the bill from the start. It certainly made understanding some of the complex issues contained in this legislation easier to deal with and I am grateful for that. 
There is of course a very complex make-up to this bill as we have heard on the second reading report back and in the Committee stage. Many of the matters have been canvassed by the Minister in her speech to this third reading. I do not intend to cover off those matters again because they have been covered off a number of times in the last 24 hours. I will just emphasise though a comment that I made in the Committee of the whole House—that is although legislators are put in a position of having to foresee over a 2 3 or 5-year period how legislation they have passed in this House will impact on industry and consumers we never have a crystal ball. That means that many of the things we pass into law can have an effect we do not anticipate. That is why it is important to keep a close watch on the Commerce Commission’s work in the area of determining these input methodologies. 
The inability for legislators to see the future is also why it is important to keep a close watch on the Rules Committee and the way it will be instructed or checked on by the Minister and that is why it is important to keep a watching brief on consumer-based lines companies to make sure that the regulatory framework surrounding them which is different from the one being proposed in this legislation is effective and that consumers are not disadvantaged and long-term investment is not disadvantaged by that as well. That is why it is important under Part 2 to make sure that the delicate balance that has existed for so long in this portfolio between airlines and airports is also looked at pretty carefully and monitored in terms of information disclosure regimes that are being put in place with this legislation. That is an argument that I have no doubt will continue past the passing of this legislation. 
The inability to see the future is also why it is important to spend some time from time to time making sure that the purpose clause of commerce legislation is updated and reviewed and that we can make sure that all the processes involved in that are clearly monitored. 
I also have one last point in respect of something I raised very early in this process; it relates to the merits review process. The Minister rightly in my view recommended to the Committee that we have a two-stage appeal process—firstly at the point where import methodologies are determined and secondly at the point of final implementation. The fact that initial determinations will stay in place if indeed any appeal rights or merit review rights are exercised provides for a minimisation of any potential for gaming in these areas and that is important. The Minister was right when she said in her opening remarks that legislation in the commerce area is designed to provide certainty. That applies not only to businesses under regulations themselves but to the consumers who are in receipt of the goods and services produced by those businesses. 
The Commerce Amendment Bill enjoys the support of the National Party has done through all stages and will continue to do so through the third reading. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 In the minute that has been allocated to me it will be very difficult to traverse the work—the thorough work—of the Commerce Committee on the Commerce Amendment Bill. But I will say that as the previous member outlined anything to do with commerce and competition requires a very delicate balance. If we get it wrong if the balance is too heavy in one way or too light in the other it creates perverse outcomes. That is no more so than with electricity. We know that electricity lines companies are monopolies so if we regulate them in too tough a way it then means that boards do not have to do much and they blame the Government—if the lights go out it is the fault of the Government for setting the regulations at too tough a level and for not allowing enough retained earnings for putting back into capital expenditure. If companies are regulated too lightly then there is the opportunity for a monopoly to gouge and for consumers who have no other alternative means of access to electricity to have to pay monopoly rents.  
This is a very delicate business and in my view the select committee worked extremely diligently on this legislation to improve the balance in a number of areas. I think the committee worked extremely well and I think that as a result the balance in this area which will have to be looked at continually from time to time has been much improved. I support the passage of this bill. 
LINDSAY TISCH (National—Piako) 
: 
 The Commerce Amendment Bill has been an interesting exercise. It has been a fundamental rewrite of the Commerce Act’s provisions relating to regulation of the sectors with little or no competition or prospect of competition. The new purpose statement in Part 4 in new section 52A(1) substituted in clause 4 states that the bill’s purpose is “to promote the long-term benefit of consumers …” such that suppliers “(a) have incentives to innovate and to invest … (b) have incentives to improve efficiency and provide services at a quality …  (c) share with consumers the benefits of efficiency gains … and (d) are limited in their ability to extract excessive profits.”  
The bill we have debated provides the Government with many more tools for regulating other than the imposition of price controls including information disclosure negotiation or arbitration of a regime a price control path and customised price control. Of course the test will be whether to regulate and that has changed. There will be only one process after deciding whether to regulate and how to regulate rather than two separate processes. This is very complex law it is very technical with wide-ranging implications I have to say that will make it difficult for policy makers to predict the outcome.  
National will be watching very closely as we monitor the progress of this bill under the Commerce Commission to see that the points we have raised will be realised. There was a question mark over resources and how the changes will be able to be implemented in the time frame that has been set. I have been assured by the Minister during the Committee stage that the time frames for the transitional changes are shorter than have certainly been mooted before. That is a good sign. However we will be monitoring those as we go through. Good commercial law depends very much on sound and reliable implementation by both the independent agencies and Ministers. With those points considered National is happy to support the third reading. 
Bill read a third time.