Webb Duncan; Bayly AndrewParts 1 to 5 Schedules 1 and 2 and clauses 1 and 2Hon Dr DUNCAN WEBB (Minister of Commerce and Consumer Affairs): Thank you Mr Bayly. The reason I wasn't disposed to answer your question was because it didn't relate to Part 1 but now that leave has been sought and granted to take the matter as one question I'm at liberty to answer anything on any part of the bill which makes life a little easier. The fact of the matter is that this isn't particularly heavy-handed. It's a well-recognised method of regulating natural monopolies which left to their own devices have a tendency to act in a monopolistic manner either by poor investment plans or by excess pricing or by poor service.So this as I've mentioned already in this Chamber in this committee stage is used in respect of telecommunications and electricity already—a well-proven right-sized and appropriately scoped regulatory framework.ANDREW BAYLY (National—Port Waikato): It's interesting that the Minister refers to the electricity sector amongst others as being models but the reality is that those are not equivalent models because the entities that are running those are commercially orientated companies—the electricity industry in particular. They are listed on the New Zealand Stock Exchange. They are very large commercial entities and in fact they have other operations other than just the regulated part of their business. So I find that example not particularly relevant because these are effectively closed entities. There is no one else with the ability to compete with them because there is a monopoly over the infrastructure that they have in place. But the risk of these in terms of shareholder risk as I've said right in my introductory comments before dinner is that there is no shareholder there are no accountabilities there is no maximisation of profit and you'd have to argue that the maximisation of profit is probably the greatest risk towards needing or requiring a heavy-handed regulation approach. In these situations we don't. We have entities that if anything are more likely to under-invest rather than over-invest. The pricing aspect of it which the Minister mentioned doesn't really come into play because there is no issue around profit maximisation or whatever because that's not what their purpose is. Their purpose is to deliver the service. Even if they did build up retained earnings they can't pay it out to shareholders; they are not accountable to it. Everything would need to be retained within the business and presumably be applied to future investments and infrastructure investments.So again I'm trying to understand the concept of competition that the Labour Government is so keen to regulate because that seems to be the driver. Or is the Minister just saying Because they happen to have a monopoly we need to have a really heavy-handed economic approach to it."? My experience of regulatory frameworks of water assets around the world particularly in Australia and the UK is that you would apply this approach where there are commercial entities not where they are quasi - Government-controlled closed entities with no real shareholders that will benefit from any additional profit or profit maximisation.Hon Dr DUNCAN WEBB (Minister of Commerce and Consumer Affairs): I thank the member for identifying in there that these are indeed not-for-profit entities. They won't be granting dividends. They are there for the benefit of the community. However having said that the expression of limiting excessive profits which is what this legislation is in part about is entirely appropriate and that's why this framework was adopted. Obviously in any business like this there is an equity return directly or indirectly from the water services entity. It is conceivable that the water services entity could still earn a higher than normal return in the absence of scrutiny or conversely run a lower than normal effective organisation which would again indicate that competition or a similar framework wasn't working well.So this economic regulation framework is designed to allow regulated entities to grow and expand to serve more consumers but not simply grow on the back of excess profits. This is enabled by allowing more investment which would increase the size and value of an entity's asset base to accommodate any new investment. Part 2 of the bill which we can now debate allows the commission to specify its price quality path the maximum revenues that reflect the expected return. So yes workable and effective competition—and you're right this is a not-for-profit entity—a little bit different than some of the electricity sector. But anywhere where there is an effective monopoly left to itself the entities won't deliver best value or value that's for the long-term benefit of consumers into the market so regulation is required and that's exactly what we've got here. I'm confident that we've got it right and that the Commerce Commission has the skills the expertise the knowledge and the background to implement this regulatory regime."