Dalziel Lianne: Commerce Amendment Bill — First Reading 
Dalziel Lianne: Commerce Amendment Bill — First Reading 
[Volume:646;Page:15157] 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Commerce Amendment Bill be now read a first time. 
 At the appropriate time I intend to move that the bill be considered by the Commerce Committee and that the committee report finally to the House on or before 22 July 2008. 
This bill comprises a new Part 4 of the Commerce Act replacing Parts 4 and 4A and amending related sections of Parts 5 and 6 of the current Act. In summary the new Part 4 puts in place a forward-looking purpose statement for the regulation of services not faced with competition. The bill improves the test and processes for considering whether to regulate such services. It provides for the upfront development of rules processes and procedures—which we call input methodologies—so that businesses can get certainty over what to expect. It provides for alternative lighter-handed forms of regulation as fit-for-purpose alternatives to price control and it puts in place improved regulatory regimes for our electricity lines gas pipelines and the three main international airports. The bill also upgrades penalties offences and remedies provisions and it improves the working of some parts of the restrictive trade practices provisions. 
This bill is primarily a back-to-basics rewrite of the price control provisions of the Commerce Act 1986. It has drawn on best-practice regulation in other OECD countries and it has benefited greatly from three rounds of consultation with stakeholders over the last 18 months. The main objective of the bill is to provide for efficient and cost-effective regulation of the price and quality of goods or services that are not subject to competition. In practice there is a very limited number of services that fall into this category and they are the important infrastructure services—electricity lines gas pipelines and airports. 
All countries in the OECD regulate these types of services because they are essential and because in the absence of regulation suppliers could charge excessive prices or provide poor-quality service. So the issue is not whether we need powers to regulate these types of services; rather it is whether we have in place the appropriate regulatory framework to ensure that we get the benefits that consumers would expect from a competitive market as well as the investment in innovation and infrastructure that this country needs. In other words how do we balance the need to protect consumers from excessive prices while ensuring that suppliers have incentives to invest to innovate and to improve efficiency so we can be assured of reliable efficient supply over the long term? I believe that the new bill gets the balance right and that it makes significant improvements to the current legislation. 
For the first time the bill puts in place a purpose statement for economic regulation. The absence of a purpose statement in Part 4 of the current Act has led to uncertainty as to the objective of this form of regulation. The new purpose statement makes it clear that the objective is the long-term benefit of consumers of goods or services that are not faced with competition or the likelihood of a substantial increase in competition. The bill aims to do this by promoting outcomes consistent with those produced by 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. 
The bill upgrades the test for when regulation may be introduced. Specifically it requires that there is little or no competition and no likelihood of a substantial increase in competition. In the bill there is substantial scope for the exercise of market power taking into account the effectiveness of existing regulation or arrangements—including ownership arrangements—and most important the fact that the benefits of regulating clearly exceed the costs and risks of regulating. In contrast to the current Act goods or services may not be regulated under the proposal unless the Minister has the benefit of advice from a full inquiry by the Commerce Commission. Decisions on whether and how to regulate will rest with the Minister of Commerce in consultation with the relevant sector Minister. 
A major improvement to the current regime is the proposal that we will require the Commerce Commission to develop as a matter of priority the rules requirements and procedures collectively called input methodologies for regulation. Businesses have complained about a current lack of certainty and predictability in the rules on crucial matters like how to calculate the cost of capital to value assets and to allocate common costs. The bill requires the commission to set input methodology for electricity lines gas pipelines and airports by 30 June 2010. 
In recognition of the importance of the rules we are providing for merits review by way of a right of general appeal on input methodologies. Appeals will go to the High Court which will sit with expert lay members. Appeals must be submitted within 20 working days and will be limited to consideration of the material and documentation before the commission. The original Cabinet decision had a narrower form of merits review. However I was persuaded to broaden the criteria particularly as the input methodologies had been the focus of all the litigation in the past and it is important that we get those right. There is a question about why there is no second right of appeal on individual cases but I believe that that would create a serious risk of gaming. This is why we have provided for appeals on only points of law for final commission decisions relating to specific firms. 
Most disputes about final decisions are in fact disputes about what the rules or input methodologies should be so it is much more important to provide full appeal rights on the rules rather than on the implementation of the rules. We also saw the need to retain a balance between providing accountability for the regulator and allowing it to get on with its job rather than being tied down with litigation. 
One of the limitations of the current Act is that it provides for price control as the sole response to the exercise of market power by suppliers with natural monopoly characteristics. The Government considers that other more appropriate regulatory options should also be available. Accordingly the bill provides for the power to put in place the following alternative forms of regulation. The first is information disclosure. This is a relatively non-intrusive form of regulation which requires regulated firms to disclose information to the light of day about their costs and prices asset management plans future intentions and the like. 
The second is a new negotiate/arbitrate form of regulation. This requires a supplier to negotiate prices and supply agreements with its customers with mandatory arbitration if they cannot agree. This form of regulation has proven successful overseas in encouraging the parties themselves to hammer out agreements that best suit their requirements. The processes and procedures for the negotiation and any arbitration would be set by the Commerce Commission and the commission would also appoint an arbitrator if the parties cannot agree on one. 
Third the bill provides for a new form of regulation called default/customised regulation. This replaces the current thresholds regime in Part 4A. This requires the Commerce Commission to set a default price-quality path for regulated suppliers for 5-year periods. The start prices may be existing prices or amended prices with the rate of change in prices to be determined by the consumer price index less a requirement for productivity improvement based on long-run productivity improvement rates for the sector. Suppliers may apply to the commission for a customised price-quality path if they have special requirements such as needing to make significant new investments. 
The bill provides specific subparts covering the three sectors that are currently subject to economic regulation—namely electricity lines businesses gas pipelines and airports. First on electricity lines businesses the Government has decided that 100 percent consumer-owned businesses—numbering about 16—should be subject only to information disclosure requirements. This is because consumers as owners are able to influence rates of return and price-quality trade-offs made by their businesses. However as a safeguard consumers will be able to petition the Commerce Commission if they consider that a business should be put on the default/customised regime. The remaining lines businesses—about 11 in total—will be subject to the new default/customised regime as well as to information disclosure instead of the Part 4A thresholds regime. The replacement of Part 4A is expected to provide much more certainty for businesses including giving them an upfront opportunity to get approvals for customised price-quality paths to cover the cost of a step change in investment requirements for example. 
Second in relation to gas pipelines I tell the House that the pipelines of Powerco and Vector will continue to be under price control until 2016 or until any earlier date agreed with the Commerce Commission at which time they will go on to a default/customised regime. Other gas pipelines will be subject to a default/customised regime in a new information disclosure regime from 1 July 2010. Third airport companies are currently subject in varying degrees to information disclosure under the Airport Authorities Act. I think it has been welcomed and well-received that they will come under the jurisdiction of the Commerce Act in future. 
This bill is a major improvement in the way we think about and regulate basic services that are not subject to competition. It applies best-practice approaches from around the world. I commend this bill to the House.