Worth Richard: Commerce Amendment Bill — In Committee Third Reading 
Text is incorporated into the Bound Volume 
Worth Richard: Commerce Amendment Bill — In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18545. Text is incorporated into the Bound Volume.] 
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.