New Zealand Legislation: Bills
Bills are proposed Acts
Government Bill
201—1
This Bill amends Parts 4, 4A, 5, and 6 of the Commerce Act 1986 (the Act) and makes other consequential amendments. The primary focus of the Bill is to fundamentally reform the regulatory control provisions in the Act. Other amendments include imposing enhanced information disclosure regulation on certain services supplied by 3 international airport companies and providing for the enforcement and variation of undertakings given under section 69A of the Act in relation to clearance or authorisation of mergers.
Part 4 of the Act has generic provisions enabling price and quality control to be imposed where competition is limited and control would be in the interests of acquirers. The gas pipelines of Powerco and the Auckland pipelines of Vector are currently under control.
Part 4A empowers the Commerce Commission (the Commission) to impose control on electricity lines businesses where they breach thresholds set by the Commission. The Commission has entered into or is negotiating “administrative settlements”
with several electricity lines businesses following breaches of thresholds.
Sections 70–74 of Part 5 provide for the Commission to determine requirements for the supply of controlled goods or services.
The Government undertook a review of Parts 4 and 4A between May 2006 and December 2007 in close consultation with interested parties. There was general agreement that the existing legislation needs amendment. As part of the review, the Government also considered the effectiveness of existing regulation of aeronautical-related services supplied by 3 international airport companies.
Section 69A of Part 5 provides for merger parties to give an undertaking to divest assets or shares which, if accepted by the Commission, is deemed to form part of a clearance or authorisation granted by the Commission for the merger. Section 69A undertakings cannot be varied or enforced separately under the Act. Section 62 of Part 5 sets prescriptive time frames for the Commission to hold a conference when consulting on a draft determination for a restrictive trade practice authorisation.
The Government is currently carrying out a review of the clearance and authorisation provisions in the Act. The issues related to enforcing and varying section 69A undertakings and conference time frames have been identified in that review for early consideration and addressing in this Bill.
The key reason for providing for price and quality control, or “economic regulation”
, is to counter the ability of firms that are not faced with competition or the threat of competition to charge excessive prices and/or reduce quality. Such firms may also have weak incentives to improve efficiency and to make investments in a timely manner.
In practice, there are relatively few sectors that are not faced with competition or the threat of competition. These sectors tend to be those supplying core infrastructure such as electricity lines, gas pipelines, and airports. All OECD countries regulate such sectors, particularly where they are privately owned.
The reviews found general (though not unanimous) agreement that the main problems with the existing legislation are as follows:
absence of a specific purpose statement for Part 4. This has led to dispute and uncertainty, since the general purpose statement of the Commerce Act (section 1A), which seeks to “promote competition”
, does not work for sectors where competition is not possible:
there is no specific requirement for any regulation to incentivise investment and innovation:
separate inquiries are required on “whether to regulate”
and “how to regulate”
:
there is uncertainty about the rules governing regulatory decisions (such as the cost of capital):
there are no powers to implement alternative forms of regulation (such as information disclosure) other than price control:
the Part 4A thresholds regime is generally regarded as creating too much uncertainty for businesses and does not provide adequate incentives for investment in infrastructure:
the accountability regime for the Commission is limited (primarily judicial review):
the lack of a credible information disclosure regime to constrain the exercise of market power by 3 international airport companies in the supply of aeronautical-related services:
an inability to enforce and vary section 69A undertakings could result in inefficient outcomes.
The objectives of the Bill are to address these issues, and in particular to—
provide an efficient and credible regime to address the potential to exercise market power in markets where competition is not possible:
improve clarity, certainty, timeliness, and predictability for businesses:
tailor the regime to New Zealand's small size (with small firms and limited resources):
provide specifically for incentives to invest in infrastructure. Certainty is considered a pre-requisite for this.
The proposed purpose statement is to promote the long-term interests of consumers (in markets where there is little or no competition and no likelihood of a substantial increase in competition) by promoting outcomes consistent with competition. The purpose statement spells out that this requires suppliers to—
have incentives to invest and innovate:
have incentives to improve efficiency and provide services at a quality required by consumers:
share the benefits of efficiency gains with consumers:
limit excessive profits.
The Bill provides a new and clearer test for when regulation may be imposed, namely,—
there is little or no competition and no likelihood of a substantial increase in competition and there is substantial scope for the exercise of market power, taking into account the effectiveness of existing regulation or arrangements (including ownership arrangements):
the benefits of regulation (in meeting the objectives of the purpose statement) clearly exceed the costs of regulation.
The Bill retains current provisions for the Commission to undertake inquiries on whether regulation should be imposed on its own volition or on request from the Minister. However, it specifies that any inquiry recommending regulation should comprise a qualitative analysis of all material long-term efficiency and distributional considerations. As part of this analysis, the Commission should, as far as possible and practicable, undertake quantitative analysis of material effects on market efficiency, distributional and welfare consequences, and the costs and risks of regulation.
Decisions on whether to recommend the introduction of regulation (by Order in Council) rest with the Minister, as at present, who must consult with any sector Minister. However, unlike the current legislation, the Minister may not decide to recommend regulation unless the Commission has first undertaken an inquiry and made recommendations.
Any Commission recommendation to regulate must include the detailed regulatory provisions which would apply. Following any Order in Council imposing regulation, the Commission must make determinations setting out the details applying to individual suppliers. These provisions may not materially differ from the Commission's recommendations to the Minister.
The term input methodologies refers to the rules, processes, and requirements relating to regulation, such as how to calculate the cost of capital, value assets, allocate common costs, comply with regulatory specifications and so forth.
The Bill requires the Commission to set input methodologies by 30 June 2010. The purpose of setting input methodologies is to give greater certainty, transparency, and predictability to businesses (including businesses not subject to regulation) and their customers. This certainty is expected to help improve the climate for investment in infrastructure.
The Bill provides for lighter-handed forms of regulation as well as for conventional price control. This is designed to allow “fit for purpose”
regulation to meet the circumstances of specific suppliers and sectors.
The forms of regulation provided for in the Bill are as follows.
Information disclosure is a relatively light-handed form of regulation, although it can be quite powerful in setting standards on what is acceptable and for early identification of trends that may raise concerns.
The powers in the Bill include the ability to require forward-looking information (such as asset management plans, investment intentions, prices, and quality standards) and that the Commission be empowered to monitor compliance and outcomes.
This form of regulation requires the parties (suppliers and their customers) to negotiate a settlement on matters such as investments, quality of service, and prices. If they fail to agree within a specified time frame, they may agree on an arbitrator, or the Commission may appoint an arbitrator.
The Commission would have powers to set processes and time frames for negotiation and any arbitration and the input methodologies to be used. Any enforcement of settlements would be by the parties.
This form of regulation has encouraged parties to reach negotiated settlements in some overseas jurisdictions. It is most likely to be considered for sectors where there are a relatively limited number of customers.
This form of regulation builds on (and replaces) the Part 4A thresholds regime. The main features of the regime are:
the Commission must set default price-quality paths for suppliers based on readily available information such as historic productivity rates or information disclosed under information disclosure regulation:
a supplier, if it is unable to operate within the default path (for example, because it needs to make a step-change investment) may make a proposal to the Commission for a customised path. The Commission sets the requirements for qualifying proposals, the supplier may not relitigate input methodologies, and the Commission must make a determination on the proposal within 12 months. In making a determination, the Commission may set a path tougher than the default.
The advantages of this regime over the current Part 4A regime are that firms will have greater certainty as to their obligations (including the consequences of breaches) and they have an up-front, time-bound opportunity to seek a customised path if the generic default path is unsuitable for them.
The Bill places electricity lines businesses (except for consumer-owned businesses) and gas pipelines on to this regime.
This is a conventional price control regime for individual businesses.
Because of the importance of input methodologies, the Bill makes provision for merits review of input methodology determinations by the Commission. This is in the form of an appeal to a High Court judge assisted by 2 expert lay members (in most circumstances). The appeal provides accountability for the Commission, helps ensure that input methodologies deliver on the purpose statement, and promotes business confidence.
Submitters and the Select Committee are invited in particular to consider whether there should be specific criteria for such appeals. The Bill as drafted provides for a right of general appeal by way of rehearing. This is in line with other parts of the Act and would allow the High Court to apply well-established principles when considering and deciding such appeals. It can be argued, however, that specific and narrower criteria may be appropriate to help reduce gaming risks and to help ensure that only Commission decisions that are unreasonable (rather than unsatisfactory in the view of the Court) are overturned.
The Government gave careful consideration to whether merits review should also be available on final decisions of the Commission applying to individual firms. The pros and cons of merits review are set out in the Regulatory Impact Statement attached to this Bill. On balance, after taking into account costs and gaming risks, and the availability of merits review on input methodologies (which are the detailed decision-rules), the Government decided to limit appeals to points of law. Firms will also have judicial review available to them.
The Bill makes provisions for regulation to apply to the following specific sectors.
Electricity lines businesses (ELBs), which are currently subject to Part 4A, are to be subject to the following arrangements from 1 April 2009:
100% consumer-owned ELBs will be subject only to information disclosure and to monitoring by the Commission. The reason for this relatively light-handed regime is because consumers, as owners, are able to ensure that the business acts in their interests. However, provision is also made for consumers of individual ELBs to petition the Commission to recommend to the Minister that the ELB be subject to the same regime as other non-consumer-owned ELBs:
other ELBs will be subject to the default/customised price-quality regime (as well as information disclosure). The initial default path will be the current thresholds under Part 4A rolled over for 12 months until 31 March 2010. ELBs will be able to apply for customised paths following the setting of input methodologies in mid 2010.
Administrative settlements entered into by the Commission and ELBs by 1 April 2010 for breaches of Part 4A prior to 1 April 2008 will be preserved for their term. Should a business be placed under control it will be as if it were subject to a customised path.
There are special provisions applying to Transpower to recognise its unique position among ELBs.
Existing provisions in the legislation to enable transfer of jurisdiction for administering provisions relating to ELBs from the Commerce Commission to the Electricity Commission are retained.
The Bill imposes information disclosure and, from 1 July 2010, the default/customised price-quality regime on gas pipelines. The pipelines of Powerco and the Auckland pipelines of Vector, which are under Parts 4 and 5 control, will transition to the default/customised price-quality regime at the expiry of the Order in Council imposing control (2016) or any earlier date agreed with the Commission.
The Bill imposes information disclosure on the Auckland, Wellington, and Christchurch International Airports from 1 July 2010. These airports, which have strong natural monopoly characteristics, are currently subject to information disclosure under the Airport Authorities Act 1966, but the Commerce Act regime is expected to be more demanding including specifying input methodologies. The Bill also requires the Commission to report to the Minister as soon as possible after the start of the next pricing period in 2012 on the effectiveness of the information disclosure regime and whether an inquiry is needed.
The Bill provides that merger parties may apply to the Commission for variations to section 69A undertakings after the Commission has given clearance or authorisation to the merger. The Commission may accept the varied undertakings if the variation is not material to its clearance or authorisation decisions. A new prohibition, distinct from the main prohibition against anticompetitive mergers, is established to enable the Commission to separately enforce the undertakings.
The Bill provides for a range of pecuniary penalties and offences for breaches of information disclosure requirements and price-quality paths. It also provides for orders for compensation for breaches of price-quality paths and for injunctions. These provisions replace current powers for the Commission to impose penalties and remedies without reference to the courts, and the ability of the Commission to impose price control on ELBs that breach thresholds under Part 4A.
As noted, enforcement of settlements under the negotiate/arbitrate regime rests with the parties.
The Bill seeks to put in place a modern, flexible, and forward-looking regulatory regime in line with the OECD mainstream to allow for regulation of suppliers of core infrastructural services, which are not subject to competition. In doing so it seeks to preserve incentives for suppliers to invest while at the same time protecting consumers, where required, from excessive prices and poor quality service.
Clause 1 is the Title clause.
Clause 2 relates to commencement. Most of the Bill comes into force on the day after Royal assent is given to it. The exception is that the existing Part 4A relating to electricity lines business price control is repealed on 1 April 2009, and the new provisions in the new Part 4 apply to electricity lines services on and after that date.
Clause 3 says that Part 1 amends the Commerce Act 1986.
Clause 4 repeals and substitutes Part 4. Subparts 1 to 7 of new Part 4 contain the generic provisions for the new regulatory regime. They are described in the general policy statement, and can be read in the Bill. Subpart 8 contains generic miscellaneous provisions (on levies and information gathering), which are the same as the existing provisions. Subparts 9 to 11 contain the transitional provisions for electricity lines, gas pipelines, and the 3 airport companies that are becoming subject to information disclosure regulation.
Clause 5 repeals Part 4A, which relates to electricity lines businesses. The effective date is 1 April 2009.
Clause 6 amends section 62, which relates to the Commerce Commission preparing draft determinations in relation to restrictive trade practices. The amendment removes the 20-working-day restriction for the holding of conferences under that section.
Clause 7 inserts new sections 69AB and 69AC.
New section 69AB provides that if a person contravenes an undertaking accepted under section 69A, the clearance given or the authorisation granted in relation to the acquisition to which the undertaking relates is void and of no effect from the date it was given or granted. This means that the protection created by the authorisation or clearance will be removed.
New section 69AC authorises the Commerce Commission to accept variations of undertakings accepted under section 69A.
Clause 8 repeals sections 70 to 74, which relate to the powers of the Commerce Commission to make authorisations, and to accept undertakings, in respect of prices, revenues, and quality standards of regulated suppliers.
Clauses 9 to 19 amend Part 6, which is about enforcement, remedies, and appeals.
Clause 9 amends section 75(1) to set out the Court's jurisdiction with respect to civil proceedings under new Part 4. The clause also extends the Court's jurisdiction to cover applications for orders under new section 85A or 85B (see clause 14).
Clause 10 consequentially amends section 76, which is about the jurisdiction of the District Court in criminal cases under the Act.
Clause 11 amends section 79, which is about evidence admissible in court. It replaces a reference to the 2 specific sections that currently provide for proceedings for pecuniary penalties with a general reference to proceedings for pecuniary penalties. This means that the new pecuniary penalty provisions proposed by this Bill will automatically be included in the reference.
Clause 12 inserts a new cross-heading and section 79A. The new section sets out 2 standard provisions relating to pecuniary penalties. They relate to the standard of proof applying in pecuniary penalty proceedings, and discovery and the administration of interrogatories.
It consequentially amends 3 sections that currently each contain the same provisions.
Clause 13 amends section 84 (which relates to injunctions) to authorise the Court to grant injunctions in respect of contraventions of undertakings accepted under section 69A.
Clause 14 inserts new sections 85A to 85C.
New section 85A authorises the Court to order a person to pay a pecuniary penalty to the Crown if it is satisfied that the person has contravened an undertaking accepted under section 69A. The Court may also order a person to pay a pecuniary penalty if the person has attempted to contravene such an undertaking or has been a party to a contravention. The pecuniary penalty must not exceed $500,000.
New section 85B authorises the Court to make an order directing the person to dispose of assets or shares in accordance with the undertaking.
New section 85C specifies matters that the Court must not take into account under new sections 85A and 85B.
Clause 15 substitutes new sections 86 to 87C, replacing the enforcement provisions that applied to the former Part 4 with ones relating to the new Part 4. The new provisions provide for the following:
new section 86: pecuniary penalties for contravening information disclosure regulation, with a maximum penalty of $500,000 for individuals and $5,000,000 for bodies corporate:
new section 86A: orders requiring a person to comply with particular information disclosure requirements:
new section 86B: offences for intentionally contravening any information disclosure requirement, or for failing to comply with an order under new section 86A, with a maximum fine of $1,000,000:
new section 86C: orders requiring parties to negotiation or arbitration to comply with a new section 52O determination, and orders requiring one party to pay another party an amount to compensate the other party for loss or damage suffered as a result of inadequately co-operating in a negotiation or arbitration:
new section 87: pecuniary penalties for contravening price-quality requirements, with a maximum penalty of $500,000 for individuals and $5,000,000 for bodies corporate:
new section 87A: orders compensating any person who has suffered, or is likely to suffer, loss or damage as a result of a contravention of price-quality requirements. An order under this section can only be made following an order to pay a pecuniary penalty:
new section 87B: offence for intentionally contravening a price-quality requirement or breaching an order under new section 87C, with a maximum fine of $1,000,000:
new section 87C: injunction restraining a supplier from supplying in contravention of price-quality requirements, and orders requiring a supplier to supply in accordance with price-quality requirements.
Clause 16 amends section 89, which is about other orders the Court may make in response to various contraventions of the Act. The amendment provides that a reference to a contravention of the Act extends to include a reference to contravening the requirements of any form of regulation under new Part 4.
Clause 17 recasts section 91(1), which provides for appeals to the High Court from determinations by the Commission. At present, section 91(1) provides a general right of appeal in respect of all determinations other than—
determinations under section 57F (that goods or services supplied by large electricity lines businesses are controlled); and
determinations under sections 70 and 71 (in respect of authorisations in respect of prices, revenues, and quality standards).
Sections 57F, 70, and 71 are proposed to be repealed by this Bill as they are being replaced by new Part 4. New section 91(1) now provides that, as before, there is a general right of appeal against determinations by the Commission, but not against—
section 52O determinations; and
input methodology determinations (for which a separate right of appeal is provided in new section 52Y).
Section 91(1)(b) presently provides that there is a right of appeal, by way of case stated for the opinion of the Court on a question of law only, against authorisations given under section 70 or 71. New section 91(1A) replaces this with a general right of appeal to the High Court on a point of law against any determination of the Commission. An effect of new section 91(1) and (1A) is that the only form of appeal against a section 52O determination is an appeal on a point of law.
Clause 18 amends section 92 to provide that any supplier or consumer may bring an appeal against a section 52O determination.
Clause 19 consequentially amends the opening words of section 93 of the Act, which is about what the High Court may do following an appeal.
Clauses 20 to 25 amend Part 7, which contains miscellaneous provisions.
Clause 20 amends section 98A, which gives a power to search for the purpose of determining whether there has been a contravention of the Act. The amendment provides that a reference to a contravention of the Act is extended to include a reference to contravening the requirements of any form of regulation under new Part 4.
Clause 21 consequentially amends section 103, which creates offences relating to the Commission's enforcement powers, by inserting references to failing to comply with notices given under any of new sections 53D, 53N, and 53ZC.
Clause 22 consequentially amends section 105 by omitting references to sections 70 to 74.
Clause 23 makes 3 types of amendment to section 106, which sets out various privileges. The first type replaces the references in subsection (5) to proceedings under sections 80 and 83 (which provide for pecuniary penalties) with a general reference to proceedings for pecuniary penalties. The second type omits references to spouses from subsections (4) and (5). This is for consistency with the Evidence Act 2006, which does not extend privileges against self-incrimination to spouses or others in close relationship. The third type is an amendment to subsection (6)(b) that changes a reference to section 103(1)(b) into a reference to section 103. The effect is that the protection against using certain statements in criminal proceedings will not apply to any criminal proceedings under section 103. At present, the protection does not apply only in respect of proceedings under section 103(1)(b).
Clause 24 replaces a regulation-making power that relates to the Commission's power to refund fees when accepting undertakings. At present, the power relates only to undertakings in respect of controlled goods or services. Under the new Part 4 regime, there will be no such undertakings, but the power is retained and now relates to any undertakings under the Act.
Clause 25 repeals sections 116 to 118, which are spent.
Clause 26 adds 2 new Schedules. New Schedule 5 relates to the ability of the Commerce Commission to incorporate other documents by reference in certain determinations. The Commission currently has this power when setting thresholds under Part 4A. New Schedule 6 lists the gas pipelines that are exempt from regulation under subpart 10 of Part 4.
Clause 27 amends the Electricity Act 1992, mainly to replace redundant references to the Corporation.
Clause 28 amends the Electricity Industry Reform Act 1998 to remove an obsolete reference to Part 4A of the Commerce Act 1986.
Clause 29 amends the Gas Act 1992 to replace redundant references to the Corporation.
Clause 30 amends the Airport Authorities Act 1966, mainly so that regulation of Auckland, Wellington, and Christchurch airports under the Commerce Act 1986 is recognised in that Act.
The discussion document released in April 2007 and subsequent submissions have identified a number of problems with the current legislation, including, unclear policy objectives, inefficient decision making processes, regulatory uncertainty, constraints on regulatory approaches, lack of certainty for efficient and timely investment for electricity lines businesses under Part 4A, and a relatively weak accountability regime for the Commerce Commission as regulator.
To address these problems the following key amendments are proposed:
specifying a specific purpose statement for Part 4:
a more conventional, qualitative test for when regulation may be imposed:
broadening the range of forms of regulation available under the Act to include information disclosure, a negotiate/arbitrate regime, and a default/customised price-quality path regime to replace Part 4A:
a requirement that input methodologies (how to determine the weighted average cost of capital, value assets, allocate common costs, etc) should be set as soon as possible by the Commission with the aim of improving certainty and predictability for businesses:
providing for merits review of Commission decisions on input methodologies.
It is also proposed that 100% trust-owned electricity lines businesses be subject to information disclosure only, while the default/customised price-quality path regime would apply to non-trust electricity lines businesses, and to gas pipeline businesses.
The Regulatory Impact Analysis Unit has reviewed the RIS and considers the RIS is adequate according to the adequacy criteria.
The objectives are to provide for a regulatory regime for businesses not subject to competition that—
is credible and coherent, provides sufficient disciplines on firms in markets with natural monopoly characteristics, and provides for incentives to invest in infrastructure:
provides clarity, certainty, transparency, timeliness, and predictability for businesses, and appropriate accountability mechanisms:
is appropriate for New Zealand’s small size (with small firms and limited resources).
Electricity lines businesses (ELBs) have argued that the Part 4A regime has increased uncertainty in the sector. This uncertainty can affect their cost of capital, thereby deterring investment. While industry complaint is not by itself proof of a problem, analysis of the current regulatory mechanisms indicates that the current regulatory model in Parts 4 and 4A has not kept pace with changes in the regulatory environment and international best practice. For instance, Part 4A devolves a significant amount of discretion and flexibility to the regulator, but that has come at the cost of increased uncertainty for business.
The purpose of the review was to identify whether the regulatory control provisions within the Act were achieving the intended regulatory objectives. The following issues were identified as part of the Review.
Currently there is no specific purpose statement for the generic regulatory control provisions in Part 4 of the Act, while the overall Commerce Act purpose statement is to promote competition (which is not feasible in natural monopoly markets). Submissions on the Commission’s 2 draft price control inquiry reports to date indicate that the purpose of the regulatory provisions may be unclear. In particular, there has been debate around whether Part 4 requires consideration of economic efficiency only, or whether consumer protection/distributional considerations should also be taken into account in the context of regulating firms and, if so, what the relative weighting between these objectives should be. There is also debate about whether the current purpose statement for Part 4A of the Act is appropriate given that there is no explicit reference to a key regulatory objective of providing for incentives to invest. Such debate and uncertainty does not fit well with the key regulatory objectives of clarity, certainty, transparency, and predictability.
The review identified weakness with the current tests for whether or not to impose regulation. The existing competition test is relatively low and it is likely that it applies to many markets in New Zealand including where control is clearly undesirable, and thereby fails to provide business certainty for when regulation is likely to be imposed.
The current acquirers benefit test (whether there are net benefits to acquirers from control) may not be appropriately targeted as it does not require explicit consideration of efficiency effects.
Currently the Act requires separate processes for decisions on whether and how control should be imposed. This means that a Minister's decision taken on whether to regulate will be based on incomplete information with regards to how control would be applied. If a Minister decides to regulate, the Commission is charged with doing the analysis again in order to identify how to regulate. This largely duplicative process can be costly and time consuming.
The Act currently does not require that the key technical decisions (input methodologies) relating to how regulation will be imposed be set in advance of control inquiries and the imposition of control. This has resulted in uncertainty and dispute throughout the regulatory process (such as the airports and gas inquiries).
The Commission’s regulatory decisions are subject to judicial review only. There is a general perception that the accountability regime for the Commission is weak, as judicial review applies to questions of law and process only and not the substance of a decision. Thus the regime is less capable of correcting regulatory error or improving the regulator’s decision making over time. This can impact on business/investor confidence in the regime.
The Act only allows a choice between no control or conventional price control. Broadening the choice of regulatory options provides a wider range of regulatory tools to ensure that the most “fit for purpose”
form of regulation is implemented in a given circumstance.
Part 4A is generally regarded by electricity lines businesses as unsatisfactory. The key weaknesses include as follows:
(a) uncertainty for firms over what happens in the event of a breach and the process, time frames, and criteria for assessing administrative settlement processes:
(b) absence of a mechanism for ex ante approval for major capital expenditure:
(c) lack of timeliness in decision making. There is no set time frame for when the Commission can open an inquiry following a breach or for making decisions. Once a firm has breached a threshold they can remain open to Commission action for a number of years:
(d) unusual penalties for a breach. Breaches may be minor, technical, and historic while the consequences can relate to any aspect of a firm’s activities:
(e) administrative settlements do not provide sufficient transparency, consistency, or precedent for the sector going forward.
Investors are less likely to make long-term investments spanning multiple regulatory periods under a regime where the rules are unclear or applied inconsistently.
Various options were considered for addressing the specific problems identified above. Individual proposals could be packaged in several different ways, for example, retaining the Part 4A thresholds while improving regulatory certainty by including the feature of input methodologies set in advance. The different options and the associated costs, risks, benefits, and opportunities are discussed below.
The status quo was considered for each of the proposed changes outlined below. In each case the failure of the current arrangements to meet the quality of regulation objectives listed above has counted against retaining the status quo. It is considered that the short-term regulatory uncertainty resulting from change is mitigated by the long-term benefits of a well-functioning regulatory environment.
The preferred option contains the following features:
(a) a regulation specific purpose statement for Part 4:
(b) a more conventional qualitative test for when regulation may be imposed:
(c) provision for additional forms of regulation, including a default/customised price-quality path regime for sectors to replace Part 4A:
(d) a requirement that input methodologies should be set ahead of any major decision making, as a stand-alone process:
(e) provision for merits review of Commission decisions on input methodologies.
The following options were considered:
(a) no purpose statement for Part 4 (status quo):
(b) a purpose statement that focuses only on improving efficiency upfront, with the implicit expectation that over time all consumers will benefit:
(c) a purpose statement that explicitly states that the objective of regulation is to improve efficiency and to protect consumers from excessive prices, similar to the Part 4A purpose statement (preferred approach).
It is considered unsatisfactory for there to be insufficient clarity about the objectives of economic regulation so option (a) was discarded.
Option (b), on balance, is problematic in the context of natural monopoly sectors. A key objective of economic regulation in New Zealand is the protection of consumers from excessive prices over the long term. This is achieved by explicitly providing for this objective in regulation. Thus, variants of the purpose statement developed in the context of option (b) were not considered appropriate and were discarded.
Option (c) includes both efficiency and distributional objectives, to provide for an appropriate balance between the protection of consumers and that of producers and investors. The proposed purpose statement is similar to the Part 4A purpose statement. Building on the Part 4A purpose statement will mitigate the risk of losing case law.
Several options were considered—
(a) for the test when regulation may be imposed: status quo, competition/market power only, or both market power and distributional considerations and net benefits (preferred option); and
(b) for the form of analysis: status quo, quantitative cost benefit analysis, qualitative assessment only, or qualitative with quantitative analysis where possible and practical (preferred option); and
(c) on the number of inquiries: A separate inquiry for whether to control/regulate and a separate inquiry for how control will be imposed (status quo), or 1 inquiry only (preferred option).
The benefit of the preferred options for the test for when control may be imposed is that they improve clarity and certainty for business. They also move away from the more controversial net acquirers benefit test which requires a trade-off between 2 things (ie, net economic cost against benefits to consumers) that cannot be compared in a meaningful way.
Providing guidance to the Commission provides comfort that qualitative analysis (with quantification wherever possible) is appropriate and will allow for timely and transparent analysis.
The main argument against a single process for the decision on whether and how to regulate is that it risks predetermining the processes and outcomes relating to control before a decision has been made to regulate. It could also result in the initial inquiry being more intrusive than if the 2 processes are considered separately. This risk is considered relatively low and is outweighed by the benefits of having more complete information for the decision on whether to control and the avoidance of costly and largely duplicative processes, ie, essentially 2 separate inquiries into the activities of firms.
It is proposed that a range of regulatory tools be provided for under the Act.
The availability of different regulatory options will enable the Commission to ensure that the most cost effective, “fit for purpose”
form of regulation is recommended in a given circumstance.
A number of submitters were concerned that providing specifically for less costly, lighter-handed forms of regulation may lower the threshold for intervention, noting that even lighter-handed forms also impose additional costs on business. This risk is mitigated by the legislative test for whether to impose regulation. The test will require the Commission to conduct an analysis to ensure that the benefits of regulation exceed the costs, taking into account the purpose statement.
The exact cost of enhanced information disclosure and negotiate/arbitrate options will depend on the final design detail. While there is general agreement regarding the benefits of information disclosure as a low cost tool to constrain the abuse of market power, the case for negotiate/arbitrate is more contentious. The costs and benefits for negotiate/arbitrate are outlined in the table below.
| Arguments in favour | Arguments against |
|---|---|
| Provides incentive for parties to negotiate a settlement | Parties look to the end-game (ie, arbitration/regulation) and position themselves to get the best outcome from arbitration/regulation |
| Less costly for regulator | Some submitters argue it could stall and frustrate investment |
| Parties able to customise settlement to meet own circumstances | Arbitration can be complicated where there are multiple services and parties |
| May improve relationships between suppliers and customers (some evidence from overseas) | Very difficult to get agreement of all parties, so arbitration is inevitable |
| Arbitrator/regulator only involved if parties fail to agree | May be less efficient than price control |
| Over time, parties get better at predicting arbitrated outcomes, speeding up settlement processes |
It is accepted that the negotiate/arbitrate model will not suit all circumstances. But as there may be cases where the benefits outweigh the risks (eg, where there are a few large parties) it is considered that the regime would be strengthened by providing specifically for this form of regulation.
A key feature of the new regime is the replacement of Part 4A with a default/customised price quality path regime (within Part 4). It is proposed that ELBs (except for 100% consumer-trust-owned businesses) and all gas lines business, except Nova Gas and the Taranaki pipelines, will transfer to this regime. The gas pipelines of Powerco and Vector (Auckland pipelines) that are currently controlled under the Commerce (Control of Natural Gas Services) Order 2005 will only be transferred to the new regime following the expiry of the order on 1 September 2016 or on such earlier date as may be agreed in the terms of any undertaking.
The 2 options considered were to—
(a) retain the Part 4A threshold regime with a few changes such as requiring the Commission to set input methodologies in advance of the reset of price-quality paths; or
(b) replace the Part 4A threshold regime with a default/customised price-quality path regime (within Part 4). This would provide for the Commission to set a default price-quality path for a sector (similar to the setting of sector-wide thresholds under Part 4A), and in addition would provide an ex ante, time-bound opportunity for an individual firm to seek a customised path. Under this regime, any breach of a firm’s customised price-quality path (or the default price-quality path if a firm remains on it) would be subject to conventional penalties and remedies that are proportionate to the breach (preferred option).
The arguments that have been made in favour of retaining the status quo and for option (a) above are broadly the same. These are that—
(a) much of the current uncertainty for businesses with the Part 4A regime is due to the current regulatory regime still bedding in (the current regime was introduced in 2001 and has only been through 1 five-year regulatory period). It has been argued that certainty will evolve over time as precedent is set, for example, as the Commission makes more decisions on administrative settlements; and
(b) as the Commission develops the regime further, future threshold resets under Part 4A could take into account future investment requirements to address the need for firms to have certainty around making substantial capital investment.
The main disadvantages with the retention of Part 4A are outlined in the problem definition above. Most submitters thought that these flaws were inherent features of the regime rather than issues that could be resolved over time. For these reasons option (a) was discarded.
There will be little additional cost to those firms that decide to remain on the default path as the default price-quality path will be set in a similar way to the current thresholds. For customised proposals the firm may choose whether or not to put forward a proposal. Firms that choose to put forward a proposal will face costs in the form of management/staff time and external expertise. Many of these costs are evident in the status quo, for instance, the cost incurred as part of an administrative settlement process. To minimise costs and potential for delay the proposal includes strict time frames, input methodologies set upfront, preset criteria for proposals, and statutory timeframes.
There is a risk that the Commission may be overwhelmed by proposals. To address this risk the Commission will only be obliged to make determinations on 4 proposals a year, and prioritise its work. Other proposals would be deferred to the following year, with the affected firms having to comply with the default price path in the meantime.
This creates a risk that some firms might make losses whilst their proposal is being considered because the default price path will apply. This risk has been addressed through allowing the Commission to provide for revenue recovery by the firm where the Commission subsequently sets a higher price path.
There will be additional costs to the regulator of administering the new regime, relating to—
(a) the preparation of input methodologies. However, the Commission already does much of this work anyway:
(b) administering a default/customised price-quality path regime for gas pipelines. In this area, the Commission should also be able to use the extensive information gathered during the inquiry:
(c) processing proposals for customised price-quality paths for electricity lines businesses. The additional costs from this compared to the current regime will be offset by Part 4A no longer applying to 17 trust-owned electricity lines businesses, and the Commission and firms no longer needing to negotiate administrative settlements:
(d) defending merits review on input methodologies. The additional costs from this should also be partially offset by fewer judicial reviews.
The benefit of option (b) is that it builds on the strengths of the Part 4A regime (namely, setting sector-wide price paths based on available information) while addressing its main weaknesses through providing an opportunity for firms to seek Commission approval of a customised path. The proposal will provide an effective regime that over time provides more timeliness, certainty, and incentives for investment. Almost all submitters supported some sort of replacement for the Part 4A regime. On balance, these benefits are considered to outweigh the incremental regulatory and business costs and short-term costs of uncertainty for regulated firms arising from changes to the status quo.
It is proposed that input methodologies be set up front in a stand-alone process at the start of an inquiry and any reset of price quality paths. The purpose is to provide greater certainty, transparency, and predictability to business.
A statutory provision that would require input methodologies to be set up front as a stand-alone process is consistent with approaches adopted in other jurisdictions such as Australia. There was support from almost all submitters for this proposal.
Setting input methods in advance will reduce the flexibility that is inherent in the current regime. It is considered that this risk is outweighed by the significant increase in business certainty. The replicability of the input methodologies will also benefit those in non-regulated sectors. For instance, it will ensure that those negotiating with monopolies can point to a standard model. It will also reduce the number of disputes and areas of contention when considering the appropriate control terms.
There is a risk that having to set input methods in advance will delay the decision-making process. Consequently, it is proposed to specify a statutory time frame for the Commission to complete input methods for the 3 sectors that are to be subject to regulation under the Bill. The Commission will be required to complete these input methods by 1 July 2010, but this deadline may be extended by the Minister for a further 6 months on written request by the Commission. In addition, any delay in setting input methodologies will likely be offset by the reduction of delays and disputes later on in the process of setting control terms.
Two main options have been considered for who should prepare the input methodologies, as follows:
(a) prepared and set by the Commission:
(b) prepared by an independent expert panel, and set as regulations/rules.
There are specific benefits and risks associated with each of the options relating to who prepares the inputs methodologies. The performance against key criteria is outlined in the table below.
| Criteria | The Commission (Option (a)) | Independent Panel (Option (b)) |
|---|---|---|
| Availability of expertise | Uses the Commission’s expertise and integrates well with the Commission’s current work streams. | It will be necessary to recruit the appropriate expertise to sit on the panel. |
| Quality of outcomes | The Commission is experienced at developing input methodologies and has extensive knowledge of the electricity sector. However, the Commission is likely to have a more conservative approach to developing input methodologies than an independent panel. | Would enable a fresh look to be taken at input methods and this approach is more likely to pick up suitable overseas examples. There is a trade-off between striving for “best practice”and certainty and timeliness, and this option improves the chances of striking a good balance. |
| The availability of merits review of input methodologies provides a check of the quality of the proposed methodologies. | It provides for separation of rule making from rule implementation, thereby limiting conflicts of interest. | |
| Political independence | No Ministerial/political involvement. | The Minister would be involved in appointing the panel and accepting or rejecting the recommendation of the Panel. |
| Cost | The Commission has estimated that the cost of developing the input methodologies will be $4 million over 3 years, depending on whether a form of merits review is available and the level of specificity required. | It is estimated that the work would cost $3 million (over 2 years). |
| Timeliness | The Commission estimates a time frame of over 3 years to develop methodologies and frameworks. Appeals to the High Court would involve additional time delays and costs to the Commission. | It is expected a Panel could make a recommendation by the end of 2009. |
An independent panel has the advantage of separating rule making from rule implementation, thereby reducing the likelihood of regulatory bias. However, a robust accountability arrangement (merits review) for the Commission is proposed. There is also a reduced risk of undue political involvement under option (a). It would be more difficult to ensure the neutrality and quality of decisions issued by an independent panel.
On balance, the advantages of the Commission’s sector-specific knowledge, expertise in developing input methodologies, political independence, and proposed accountability arrangements outweigh the advantages of option (b).
The cost of the developing input methodologies could either be government funded (ie, tax) or levy funded. As consumers will be the direct beneficiary of the proposed changes the use of levy powers is the most appropriate option.
In addition to the status quo the review considered whether to make available limited merits review by way of appeal to the High Court for a rehearing. Consideration was given to whether to provide merits review for decisions on input methodologies and control terms or for decisions on input methodologies only (preferred option).
Businesses submitters generally supported the introduction of merits review of the Commission’s decisions, noting the importance and far-reaching effects of regulatory decisions. The main arguments for and against merits review can be summarised as follows:
| For | Against |
|---|---|
| Improves accountability for the regulator | Gaming risk. Though can be mitigated by providing for full implementation of decisions pending conclusion of appeals |
| Likely better quality decisions over time | Cost (most likely recovered by way of a levy on regulated parties) |
| Allows for correction of errors of fact or judgement | Ties the Commission up (time, resource, and management focus) in the courts |
| Improves business confidence in the regulatory regime | Courts lack the specialist expertise of the regulator (notwithstanding lay members) and decisions may be different as opposed to better |
| Consistency with the rest of the Commerce Act | Results in delays and uncertainty |
| Merits review is available on clearances and authorisations | Likely pressure to extend to other sectors, such as telecommunications and electricity |
| Judicial review provides an effective discipline on Commission processes and ensures that decisions are not unreasonable. |
For accountability and transparency purposes some jurisdictions separate the rule maker from the rule enforcer, for example, in Australia, where the rule maker for the energy market is the Australian Energy Market Commission while the rule enforcer is the Australian Energy Regulator (AER). Decisions on the rules are not merits reviewable, though Australia is in the process of introducing limited merits review on AER decisions. In other jurisdictions merits review is often available on regulatory decisions at the end. For example, in the United Kingdom they do not separate the rule maker from the rule enforcer, but have merits review by the Competition Commission on regulatory decisions.
The associated risks of delay and gaming can be mitigated though careful design, for instance, by allowing the Commission’s decision to stand while the courts are considering the case. The overall improvements to the decision-making process outlined above may have the effect that relatively few decisions would go to appeal, thereby limiting the costs of making merits review available. Taking into account the ability to mitigate the risks of merits review and the high cost associated with regulatory error, there is a strong case for providing for merits review of Commission decisions relating to specific matters.
The proposals being recommended as part of this review, ie, clearer regulatory objectives, the ability for firms to propose control terms, and the provision of merits review of input methodologies, will strengthen the regulatory process and will limit the scope for error and dispute. The resulting stronger regulatory process weakens the case for merits review.
The case for having merits review of input methodologies, before a decision on whether and how to regulate is made, is stronger than for review at the end for decisions on the control terms. Decisions on input methodologies are considered integral to the regulatory process as a whole as they have a significant impact on the final outcome and apply to all regulated (and potentially regulated) businesses.
Different options for who should review input methodologies were considered. The 2 main options considered were—
(a) an independent expert panel appointed by the Minister chaired by a person with significant legal experience; and
(b) appeal to the High Court (with specialist lay members) (preferred option).
The pros and cons of each option are outlined below.
| High Court | Independent Panel |
|---|---|
| Pros | Pros |
| Established processes and procedures | Faster decisions than High Court |
| Low risk of further appeals (process or proper interpretation of law) | May allow for more tailored expertise |
| No suggestion of political involvement | Costs met by affected parties (levy) |
| Cons | Cons |
| Timeliness issues (may take up to 2 years) | Higher risk of further appeals |
| Courts may prefer to deal with case-specific applications rather than methodologies in the abstract | Perception of political involvement |
| May be difficult to assign judge with specialist expertise | More difficult to manage conflict of interest issues |
| Need to develop rules for processes and procedures | |
| Levy design may be difficult (fairness issues) | |
| Costs of members may be high |
There is a risk that any review of decisions about input methodologies is not suited for judicial decision making since they relate to fact, rather than interpretation and application of the law. There may also be difficulties in assigning Judges with specialist knowledge in this area. While many Judges have particular areas of interest and particular specialist knowledge, their role is to interpret and apply the law to a particular factual situation, rather than be a principal decision maker in matters which require highly specialised knowledge about input methodologies.
It can be argued that an independent body made up of specialists would have access to a greater level of expertise in this field as an independent panel will enable the appointment of people with the appropriate technical knowledge and skills. To mitigate this risk the proposal allows for the High Court to appoint lay members with specialist knowledge.
An appeal to the High Court is likely to take more time than an independent panel which could dedicate resource to such reviews. This could impact on the timeliness of inquiries under the Commerce Act as well as implementing regulation. However, establishing a panel is also likely to be a costly and time-intensive process, with the increased risk of subsequent appeal, when compared to the High Court option.
On balance, the consideration of appeals by the High Court is a more conventional approach, minimises the risk of further appeals and reviews (because processes are likely to be better), and minimises the difficulties of managing conflict of interest problems. There is also a reduced risk of undue political involvement.
It is difficult to estimate the likely costs which will be demand-driven. However, it is likely that there will be appeals for the first set of input methodologies with the number and extent of appeals reducing over time.
The following options were considered for regulating 100% consumer-trust-owned ELBs:
(a) 100% consumer-trust-owned business subjected to the same form of regulation as other ELBs; and
(b) 100% consumer trust owned business subjected to lighter handed regulation (such as information disclosure) (preferred option).
With respect to option (a), in principle the case for economic regulation is relatively weak where the customers are the owners of the firm. This is because the incentives of trusts to charge excessive prices are relatively low because excess profits are returned to the customer. Their relatively small size means that the cost of heavier handed regulation may outweigh the benefits.
A number of risks were identified for option (b) including the following:
(a) the risk of cross subsidies where voters may vote for trustees favouring lower prices for residential consumers subsidised by business; and
(b) voters/consumers may favour lower price at the expense of long-term security of supply; and
(c) increased cross subsidy to other activities or investments; and
(d) discouraging efficiency-improving amalgamations (though there is little incentive to do so under option (a) or the status quo).
The availability of information disclosure under option (b) will provide pressure on prices and efficiency. The Commission will be able to make a recommendation to the Minister that the default/customised price quality path regime be imposed on a trust firm under certain conditions, for instance, where it no longer qualifies for the lighter regime or where a substantial proportion of its customers have petitioned the Commission and the Commission concludes that a change in the form of regulation would better meet the purpose statement.
The ability for consumers to respond to increased prices or quality concerns by replacing trustees also mitigates the above risks.
Implementation of the proposals above requires amendment to the Commerce Act 1986. It is proposed that the Commerce Act Amendment Bill will be passed by mid 2008.
There will be a transition period for electricity lines businesses. The following transitional arrangement is proposed:
(a) eligible consumer-owned trusts will be subject to information disclosure regulation only from 1 April 2009:
(b) for remaining electricity lines businesses, the existing thresholds set under Part 4A of the Commerce Act will be rolled over from 1 April 2009 to become the new default paths under the default-customised price-quality regulation regime:
(c) the new thresholds will apply until 31 March 2010, whereupon the Commission will be required to reset the default price-quality paths under the new provisions:
(d) the Commission will set input methodologies by 1 July 2010 and electricity lines businesses will be able to submit customised proposals for consideration from that date:
(e) breaches of old Part 4A thresholds up to 31 March 2008 will expire unless the Commission has issued a notice of intention to declare control by 1 October 2008. If the Commission has made such a notice, the Commission has until 1 April 2009 to complete an investigation and determine whether to impose control under the old Part 5 of the Act or enter into an administrative settlement:
(f) breaches of thresholds after 1 April 2008 will be subject to the pecuniary penalty prohibitions in the bill:
(g) any administrative settlements or old Part 5 authorisations or undertakings in place as at 1 April 2010 would continue for their term.
The Commerce Commission will be responsible for implementing and giving force to the proposed regime. Officials from the Energy and Communications Branch will monitor the implementation and outcomes from the new regime as part of regular monitoring of the effectiveness of policy outcomes.
Ministry officials undertook extensive consultation with industry and consumer representatives. This included running an expert advisory group process to identify the key issues that should be addressed in the discussion document. A discussion paper was released in April 2007 with a 3 month consultation period. Submissions were received from 45 submitters. Opportunity was provided for those submitters who wanted to convey their key messages verbally to meet with Ministry of Economic Development (MED) officials. The key messages relating to each of the proposals is discussed in the main body of the RIS. Detailed consultations on design issues have been held with the Treasury, the Ministry of Justice, the Ministry of Transport, and the Commerce Commission.
In the light of the complexity of some of the design issues, a brief and informal period of consultation on design detail was carried out in concert with the legislative drafting process. Eighteen submissions were received and officials submitted advice to Ministers delegated by POL committee to make decisions consistent with the Cabinet decisions. The Ministers of Commerce and Energy, in consultation with the Ministers of Finance and Transport, agreed to further amendments including new transitional arrangements for electricity lines businesses and the adoption of a statutory time frame for the Commission to complete input methods.
Many airports have strong natural monopoly characteristics. A sound regulatory regime should enable the regulator to identify the extent of monopoly pricing which should encourage airports to price their services in a manner consistent with the outcomes of a workably competitive market. The current regulatory regime for airports fails to do this.
In the context of the review of the regulatory control provisions in the Commerce Act, some members of the aviation sector made a number of submissions on the regulatory regime for airports. MED received 8 submissions. The key problem identified with the current regulatory regime for airports is the lack of a credible information disclosure regime to constrain the exercise of substantial market power by major airports in setting airport charges. This problem has been exacerbated by the lack of guidelines on both the desired outcomes from the regulatory regime, and on appropriate input methodologies (how to value assets, calculate the cost of capital, etc) to provide guidance on desired regulatory outcomes.
To address the inadequacies of the current regime a strengthened information disclosure and price monitoring regime under the Commerce Act is proposed for the Auckland, Wellington, and Christchurch airports.
The Regulatory Impact Analysis Unit has reviewed the RIS and considers the RIS is adequate according to the adequacy criteria.
The over arching objectives of economic regulation of airports are to—
(a) provide a credible regulatory regime to address markets where competition is not possible:
(b) constrain the scope for exercise of substantial market power by airports:
(c) protect consumers from prices that would not be consistent with those in a workably competitive market:
(d) improve certainty, timeliness, and predictability for businesses; and
(e) provide for appropriate incentives for efficient investment in infrastructure, taking into account the benefits to end-users.
The intention behind the 1997 introduction of the disclosure regulations for airports under the Airports Authorities Act 1966 was to explicitly help guard against the possibility of monopoly pricing, and to help to better inform the statutory consultation process (refer to the second reading speech by Hon Jenny Shipley, Minister of Transport for the Airport Authorities Amendment Bill 6 March 1997, NZPD 729). The current information disclosure regulations are ineffective in this regard.
Many airports, particularly larger airports, have strong natural monopoly characteristics. This enables them to set prices above those that would prevail in a workably competitive market. Whilst other smaller airport companies are, strictly speaking, natural monopolies, few if any have market power, and most only have 1 airline customer, Air New Zealand, which has substantial countervailing negotiating power. Also, the recent review of the Commerce Act did not receive any comment relating to smaller airports. Consequently we have limited information on the nature of and extent of the problem and possible solutions for the regulation of smaller airports.
The 2002 Commerce Commission inquiry undertook extensive analysis and found that Auckland Airport was earning excessive rents and if the regulatory regime remained unchanged this would continue. The Commission also stated that the criteria for recommending control would also be met for Wellington Airport if prices were subsequently raised significantly. The Commission estimated that forecast excess returns for Auckland Airport would be $27 million over the 6 years from 2002. These forecasts did not include any potential revaluation gains that may have occurred in relation to land. To the extent that there would have been revaluations, these excess returns are likely to have been understated.
The Commission also stated that while any countervailing power by airlines might constrain airport behaviour at the margin, it was unlikely to be sufficient by itself to prevent the exercise or even abuses of market power. The Minister of Commerce in making her decision not to impose control, at the time, based her decision on analysis that overall efficiency costs were negative and consumer benefits were relatively low. Notably, in assessing the costs of regulation the assumption was that the form of regulation was price cap regulation which is a high-cost form of regulation, and the only form of regulation then available under the Commerce Act.
Since 2002, the regulatory regime for airports has not changed, and it is likely that the substantive analysis of market power undertaken in this inquiry is no less relevant.
The current regime lacks the requisite guidance around what information is required to facilitate effective negotiations between airports and users on the level of charges. This is likely to be a significant contributing factor (along with the lack of guidance) to the contentious and litigious features of the current regime. For example, in 1997 and again in 2002, following the setting of airport charges by Wellington International Airport Limited (WIAL), Air New Zealand and WIAL respectively took proceedings against each other. In 1997 Air New Zealand objected to WIAL’s investment programme, and in 2002 Air New Zealand refused to pay the charges set by WIAL based on its revaluation of its assets. Again, following the latest round of pricing announcements earlier this year, Air New Zealand has sought judicial review of the process undertaken by both AIAL and WIAL and BARNZ has been active in calling for a Commerce Commission inquiry (under Part 4 of the Commerce Act) into WIAL’s pricing.
The information provided is also generally insufficient to help the regulator or officials to determine whether excessive prices are being charged. For example, a 2001 review by Arthur Andersen Consulting for the Ministry of Transport found that the lack of clarity and specificity in the disclosure regulations meant that none of the disclosures would allow an interested party to understand the price-setting process to such an extent as to make a meaningful assessment for example, of the appropriateness of cost allocations.
The current disclosure regime does not specify a sufficient level of detail to determine whether airports are over-recovering or not. Some of the crucial components in assessing whether airport user charges are excessive or not are the input methodologies relating to how the value of the asset base is calculated (including how asset revaluations gains are treated) and how common costs are allocated. The disclosure regulations do not specify any clear requirement in respect of the appropriate methodologies that should be used by airports. The lack of specificity also contributes to contention, for example, about which assets should be included in the asset base for aeronautical pricing purposes.
The statutory requirement for airports under the Airport Authorities Act 1966 is to consult, not to negotiate. Because airports have the right to make investment decisions and set charges unilaterally (after consultations) it is inevitable, absent an independent dispute resolution mechanism, or credible and timely threat of heavier-handed regulation, that airports will tend to make decisions in their own interests. Again the lack of pricing principles and binding input methodologies mean that these are a major source of contention between larger airports and airlines, along with the outcomes of consultation.
Furthermore, the current disclosed information is not monitored or reported on at the departmental or regulator level. Thus, whether or not an airport is over-recovering based on the information disclosed is not compiled and presented by an independent body.
The option of taking no further action specifically on airport regulation, but to let the proposals relating to the regulatory control provisions of the Commerce Act take effect, was considered.
This option does not resolve the problems discussed above associated with inadequate information. Also, when compared to the preferred option, it does not provide additional checks on the misuse of market power and will not help facilitate effective negotiation between airports and airport users.
The threat of further regulatory action under the Commerce Act is likely to be a weak vehicle for constraining airports’ market power without an effective means of measuring and monitoring the information disclosed by the airport. Instead a costly inquiry would be needed to determine whether there are grounds for economic regulation.
In addition to the status quo there were 4 options considered for the regulation of airports as follows:
(a) do further work through an independent consultancy study or a Commerce Commission inquiry to identify whether there is a problem, and if so make recommendation on the best solution; and
(b) make a decision now to impose an improved information disclosure regime and a negotiate/arbitrate regime (for international airports) under the revised Commerce Act; and
(c) make a decision to impose price control under the current Commerce Act on major international airports; and
(d) make a decision now to improve the information disclosure regime and undertake price monitoring (preferred option).
The benefits of this option are that it provides for a full review process to consider the nature of the problem to be addressed, the magnitude of this, and the options available to address this. It would also be fully consistent with Government statements on quality regulation being based on evidence and rigorous analysis.
Commissioning an independent review by a consultancy firm or the Commission on whether airports are overpricing and whether there would be net benefits in introducing further regulation, and on the best type of regulation, would cost up to $500,000 and take around 6 months. A full inquiry under Part 4 of the Commerce Act by the Commission could take about 18 months to 2 years and cost around $2 million.
While there are advantages in taking additional time to identify more evidence and undertake further analysis, this will not necessarily lead to a different or better outcome. There is sufficient information from previous reviews, as well as in submissions made on the review of the Commerce Act, regarding the inadequacy of the current information disclosure regime and thus it is unlikely that a full review undertaken in the near future will reveal any significantly or materially different issues that have not been raised previously. Thus, it may just lengthen the process for making a decision for little further benefit. Therefore, this option was discarded.
The benefits of the improved information disclosure regime under this option would be the same as set out below in the preferred option (option (d)), although it can be argued that this would better facilitate effective negotiation.
A negotiate/arbitrate regime should provide incentives for parties to negotiate a settlement, and parties would be able to customise settlements to meet their own circumstances. As a result, it could improve relationships between suppliers and customers. The arbitrator is only involved if parties fail to agree—this reduces costs compared to an option such as price control. Also, over time, parties should get better at predicting arbitrated outcomes, which will again speed up settlement processes.
The risks of such a regime are that parties look to the end game (ie, arbitration) and position themselves to get the best outcome from the arbitration. This may not be conducive to constructive commercial negotiations. The design issues such as the process for invoking arbitration would be important in limiting vexatious and/or trivial requests for arbitration. Should arbitration be too easily invoked, it could become the default form of regulation, rather than a form of regulation only resorted to after constructive commercial engagement.
Some airports also expressed concern that a negotiate/arbitrate regime would stall and frustrate investment, and pointed out that arbitration can be complicated where there are multiple services and parties. As a result, it could be difficult to get the agreement of all parties, which would mean that arbitration is inevitable.
To mitigate the risk of incumbent airlines refusing to pay for capital investment that would encourage or facilitate increased competition by new entrant airlines, it would be proposed that arbitration be required to consider the benefits to end-consumers of investment in facilities reasonably required to improve competition among airlines. Arbitration under the Commerce Act would also be subject to guidance from a proposed regulatory specific purpose statement that explicitly refers to incentives to invest.
Additional costs of arbitration are difficult to estimate as it will depend on the scope of any arbitration. A rough estimate would be an average of $300,000 per arbitration. This allows for 40 days (an indicative time frame for the purposes of cost calculations only) for an arbitrator at $3000/day, plus $100,000 for specialist assistance, plus $80,000 for travel, accommodation, administration, and sundries.
On balance, given the potential risks and costs associated with the negotiate/arbitrate model, it is considered that further work on whether an alternative regulatory regime to the proposed information disclosure regime is necessary.
It is considered that price control should not be considered without a full inquiry. It is a relatively high-cost option when compared to the status quo and preferred option (option (d)).
This option would involve moving the regulation of Auckland, Wellington, and Christchurch airports into the enhanced information disclosure regime provided for under the amended Commerce Act. Under this provision, the Commission would develop input methodologies that the airports would be required to use in preparing information for disclosure. The Commission would also develop additional input methodologies on pricing principles and cost of capital that the Commission would use for monitoring and reporting on the information disclosed by airports.
This regime would be along similar lines to the Australian regime for larger airports which provides pricing principles, information disclosure, and price monitoring and reporting by the ACCC. In most other OECD countries, larger privatised international airports are subject to some form of price cap regulation.
The advantage of this option is that it significantly improves the value and relevance of the information disclosed. Providing for specification of input methodologies provides better information to guide consultations between airlines and airports and pricing decisions. The proposed regulatory specific statement under the Commerce Act would also provide guidance on desired regulatory outcomes. This, together with providing an explicit role of monitoring and reporting by the Commission, should also create a more credible threat of further regulation if prices are shown to be excessive. Improved information disclosure will also allow the regulator to identify whether regulation should be removed.
Specification of binding input methodologies would also remove much of the contention under the current regime. This reduces the scope for dispute, which could mean settlements are reached quicker, and at less cost, and that there are greater incentives to improve commercial relationships.
The input methodologies required for robust information disclosure (such as asset valuations, revaluations, and allocation of common costs) would be binding, while methodologies such as pricing principles and how to calculate the cost of capital (which are required for monitoring and analysis) would be in the form of guidelines against which the disclosed information would be assessed. This would allow airports and airlines and other customers to reach commercial agreements taking into account efficiency, productivity, investment, and other issues while providing clear guidance to assist commercial negotiations.
The application of this regime can occur under either the Airports Authorities Act or the Commerce Act. On balance, the preferred option is to move the regulatory regime for the setting of airport charges by Auckland, Wellington, and Christchurch airports into the Commerce Act. The regulatory provisions of the Commerce Act are specifically designed to address monopoly pricing issues and the proposed regulatory specific purpose statement will guide decisions about appropriate/desired regulatory outcomes. The Commerce Act will also provide for cross-sectoral consistency and has processes and tests/criteria for further inquiries on whether more (or less) regulation is warranted.
The Commission estimates that the main one-off costs for it to prepare input methodologies for information disclosure are estimated at $1.4 million with ongoing costs for administering the information disclosure regime of $400,000 per annum. These costs would be able to be recovered by levy on the 3 relevant airports. Airports and airlines would continue to incur the costs of consultation and litigation. Costs for airports and airlines are likely to be lower than currently as a result of fewer disputes about methodologies.
Implementation of the proposals in this paper requires amendment to the Commerce Act 1986. It is proposed that a Commerce Act Amendment Bill will be passed by mid 2008.
The following transitional arrangement is proposed:
(a) the Commission to develop and prepare generic input methodologies (including pricing principles) for airports to be ready by July 2010; and
(b) the Commission to specify the information disclosure requirements by July 2010 and for the information disclosure requirements to take effect from then; and
(c) disclosure for the regulated airports would be 3 months after the end of a financial year; and
(d) until the input methodologies and information disclosure requirements are finalised, the current information disclosure regulations under the Airport Authorities Act will apply.
Major airports and the airline sector were active in making submissions on the review of the regulatory control provisions in the Commerce Act, and specifically highlighted issues with the regulatory regime for airports. Submissions were received from Air New Zealand, Auckland International Airports Limited (AIAL), the Board of Airline Representatives in New Zealand (BARNZ), Christchurch International Airport Limited (CIAL), the International Air Transport Association (IATA), Peet Aviation, Virgin Blue, and Wellington International Airport Limited (WIAL).
After meetings during consultation with AIAL, WIAL, BARNZ, and Air New Zealand, these parties further submitted on questions posed, and on possible options for regulatory change.
Major airports (AIAL, WIAL, and CIAL) maintain that the current regulatory regime is largely satisfactory. They say that consultation requirements are taken seriously with airports making adjustments to their proposals (in terms of input methodologies, proposed capital expenditure, and charges) as part of this. Judicial review also provides a check on consultation processes. They also state that they take the threat of price control under the Commerce Act very seriously, and that their prices are not excessive and that their charges are generally mid-range compared to international airports overseas.
Airports also claim that some airlines, and in particular Air New Zealand, oppose investments in new facilities required to attract new entry by competing airlines and that this is to the detriment of the travelling public. Airports have also expressed the view that the ability to set charges as they see fit provide a “circuit breaker”
when it does not prove possible to reach agreement. This enables the airports to get on and make investments.
The airlines (BARNZ, Air Zealand, Virgin Blue) and IATA, on the other hand, argue that New Zealand’s regulatory regime lacks credibility. They argue that the information disclosure regime lacks rigour and value because there are no guidelines or methodology specified and the consultation process is unsatisfactory. The absence of guidelines or binding input methodologies is a major source of dispute and means that consultation processes are time-consuming and costly. The statutory power for airports to set charges as they see fit appears to be unique and, as a result of the regime’s current design, the airports can and do make unilateral decisions on investments and set charges as they see fit.
The objective of the Review of the Authorisation and Clearance Provisions of the Commerce Act 1986 is to improve the effectiveness and efficiency of the authorisation and clearance processes. Three issues have been identified as suitable for inclusion in an amendment Bill. The following amendments are being considered:
providing for the enforcement of undertakings that have been approved as part of a merger clearance or authorisation application; and
allowing the Commerce Commission (the Commission) to approve variations of undertakings; and
removing the 20-day statutory time frame within which the Commission is required to hold a conference.
The Ministry of Economic Development has reviewed the RIS and considers that the RIS is adequate according to the adequacy criteria.
The objective of the review is to test whether some possible changes to Part 5 of the Commerce Act 1986 (the Act) could improve the effectiveness and efficiency of the authorisation and clearance systems. The following issues have been identified.
The inability of the Commission to separately enforce undertakings given under section 69A of the Act is unsatisfactory. Weak enforcement provisions provide an opportunity for parties to game the legal system as they can consummate a merger that was approved based on an undertaking, and later advise the Commission that they tried to dispose of the relevant shares or assets but were unable to find a buyer that was prepared to pay a reasonable price. This means that a merger would have occurred that the Commission may have otherwise declined if it were not for the undertaking. There has only been 1 example in recent years where a divestment deed to undertaking was not given effect to. While the magnitude of the problem is small there is an opportunity to improve the effectiveness of the status quo.
The Commission does not have the ability to amend an undertaking once a merger clearance or authorisation decision has been made. This can mean that the acquirer will lose the protection provided by the approval if it does not implement the merger strictly in accordance with the approved undertaking. Thus, immunity from legal challenge by a third party would be lost even if a variation involved only minor changes that had no bearing on competition.
Section 62 of the Act provides time limits within which the Commission would be required to hold a conference following the release of its draft determination for restrictive trade practice authorisation proceedings. The process is inconsistent with the timing for merger authorisations. This lack of consistency between the 2 processes can be problematic when an application has both merger and trade practice implications, as it can be difficult to operate the procedures in parallel.
The objective of the review is to provide for a regulatory regime that provides clarity, certainty, and transparency of decision making, encourages participation of interested parties and timeliness of decisions, and reduces business and administrative costs.
The retention of the status quo in each case is unlikely to result in significant harm and were considered as viable options. However, on balance, the preferred options present an opportunity to improve the efficiency and effectiveness of the authorisation and clearance processes and are unlikely to result in additional costs to government, businesses, and society.
The following options were identified to address the problems outlined above.
It is proposed to allow for the Commission to apply to the High Court to enforce undertakings given under section 69A of the Act to divest assets or shares if the Commission can show that the parties failed to comply with the undertaking. The objective of the proposal is to provide a strong incentive to comply with undertakings and reduce the administrative burden of enforcement.
The proposed option strengthens the current incentives for firms to comply with an undertaking and will reduce the risk of potential gaming. It will also reduce the costs and improve the timeliness of enforcing undertakings and will enable the Commission to have greater confidence in accepting undertakings offered. This amendment is also consistent with other jurisdictions, such as Australia, that provide for the separate enforcement of undertakings.1
As a general rule, law that includes provisions that cannot be easily enforced is unsatisfactory and ineffective. A requirement on the Commission to demonstrate to the High Court that 1 or more orders should be made is also sound from a transparency and accountability perspective.
Under this option, the affected parties would not be able to put forward the defence that the merger did not breach section 47 of the Act, because the question for the High Court will be whether the parties complied with the agreed undertaking only. One submission identified the risk that the Commission may apply to the High Court to enforce an undertaking in cases where non-compliance has not led to an adverse effect on competition.
The risk outlined above is small. The Commission is unlikely to make an order to the High Court to enforce an undertaking for an activity that clearly does not raise competition concerns. The proposal (outlined below) to provide for the Commission to accept minor variations to an undertaking will also alleviate this risk.
It is proposed to amend the Act to allow the original applicant to seek a variation to an approved undertaking to divest shares or assets as part of a merger clearance or authorisation application. The Commission would be able to approve the variation if it were considered that the variation was minor, or would not otherwise defeat the original decision or the competition or public benefit objectives of the Act.
Presently, an applicant who decides that compliance with an approved undertaking may be unnecessary or counterproductive has 3 choices. It could comply with the undertaking in full, although this may result in assets being divested unnecessarily. It could carry out a variation to the undertaking with the knowledge that the protection of the Commission’s approval will not apply. This option does not rate well from a business or legal certainty standpoint. Lastly, the applicant could reapply to the Commission for a clearance or an authorisation with the proposed revised terms. This option rates poorly in terms of timeliness and cost effectiveness for a firm, and poorly in terms of the efficient use of the Commission’s limited resources. Greater flexibility would provide the opportunity for minor variations to be made without losing the original protection.
The ability to vary undertakings after the event may encourage parties to make spurious applications in the hope that it will be impractical to sell the assets by the time the Commission has made a decision. This risk is considered to be minimal as long as the undertakings could be enforceable through correction, punitive, and compensatory orders.
It is proposed to remove the 20-day time limit within which the Commission would be required to hold a conference following a request for a conference to be held.
The current time frames are arbitrary, unnecessary, and do not serve any purpose. There is a lack of consistency between the time frames for the merger authorisation process (there are no interim time frames within the merger authorisation process) and this can be problematic when both processes must be considered as part of 1 application.
These amendments will require changes to the Commerce Act 1986. The Ministry of Economic Development is responsible for reviewing the effectiveness of the Commerce Act 1986.
A discussion document on the authorisation and clearance provisions within the Commerce Act 1986 was published and 33 submissions on the issues raised within this document were received. Officials have also consulted with the Treasury, the Commerce Commission, and the Ministry of Justice regarding the administrative and low-level policy issues within the Part 5 review that are proposed to be progressed. The majority of the submissions supported the proposals.
Hon Lianne Dalziel
Government Bill
201—1
Order in Council imposing regulation
Commission determination about how regulation applies
Appeals of input methodology determinations
53I Section 52O determination to set out requirements for application of negotiate/arbitrate regulation
Customised price-quality paths
What happens to price-quality paths if input methodologies change
Application, overview, and interpretation
Imposition of regulation under this Part
54G Certain electricity lines services are also subject to default/customised price-quality path regulation
54H How exempt status can be lost and default/customised price-quality regulation can be applied to consumer-owned suppliers
When and how price-quality regulation applies
54K How regulation applies to suppliers with administrative settlements under Part 4A (other than Transpower)
54M Certain breaches of thresholds before 1 April 2008 expire if no intention to declare control is published before cut-off date
54N Old law applies to breaches of thresholds before 1 April 2008 if intention to declare control is published before cut-off date
Jurisdiction issues and interface with Electricity Commission and Electricity Act 1992
Imposition of regulation under this Part
When and how price-quality regulation applies generally
55G Existing Order, authorisations, and undertakings continue to apply until 2 September 2016 (or earlier expiry)
55K Savings provision for existing levy regulations for services controlled under Commerce (Control of Natural Gas Services) Order 2005
The Parliament of New Zealand enacts as follows:
This Act is the Commerce Amendment Act 2008.
(1) The following come into force on 1 April 2009:
(a) sections 5 and 28 (which repeal Part 4A of the principal Act relating to electricity lines businesses); and
(b) subpart 9 of Part 4 of the principal Act (which relates to electricity lines businesses, as substituted by section 4 of this Act), except sections 54C(3) and 54M to 54P.
(2) The rest of this Act comes into force on the day after the date on which it receives the Royal assent.
This Part amends the Commerce Act 1986.
Part 4 is repealed and the following Part substituted:
“Part 4
“Regulated goods or services“Subpart 1—Preliminary provisions
“52 Overview of Part
This Part provides for the regulation of the price and quality of goods or services in markets where there is little or no competition and no likelihood of a substantial increase in competition.
“52A Purpose of Part
“(1) The purpose of this Part is to promote the long-term benefit of consumers in markets referred to in section 52 by promoting outcomes that are consistent with outcomes produced in competitive markets so that suppliers of regulated goods or services—
“(a) have incentives to innovate and to invest, including in replacement, upgraded, and new assets; and
“(b) have incentives to improve efficiency and provide services at a quality that reflects consumer demands; and
“(c) share with consumers the benefits of efficiency gains in the supply of all or any regulated goods or services, including through lower prices; and
“(d) are limited in their ability to extract excessive profits.
“(2) In this Part, the purpose set out in subsection (1) applies in place of the purpose set out in section 1A.
“52B Outline of Part
“(1) This Part provides—
“(a) generic provisions for imposing any 1 or more of 3 types of regulation on goods or services (see subpart 2); and
“(b) for the Commission to determine input methodologies applying to the supply of goods or services regulated under this Part (see subpart 3).
“(2) The different types of regulation under this Part are as follows:
“(a) information disclosure regulation, under which regulated suppliers are required to disclose information in accordance with requirements determined by the Commission (see subpart 4):
“(b) negotiate/arbitrate regulation, under which regulated suppliers are required to negotiate with other parties on prices and quality, and, if negotiation is unsuccessful, to enter into binding arbitration (see subpart 5):
“(c) price-quality regulation, of which there are 2 types:
“(i) default/customised price-quality regulation, under which default price-quality paths are set for regulated suppliers, but individual suppliers may seek a customised price-quality path instead (see subpart 6); and
“(ii) individual price-quality regulation, under which the Commission sets a price-quality path for an individual regulated supplier (see subpart 7).
“(3) Regulation of the following services is dealt with by subparts 9 to 11:
“(a) electricity lines services (subpart 9):
“(b) gas pipeline services (subpart 10):
“(c) services at certain airports (subpart 11).
“(4) This section is only a guide.
“52C Interpretation
In this Part, unless the context otherwise requires,—
“consumer (other than in sections 54B, 54C, and 55A) means a person that consumes or acquires regulated goods or services
“information disclosure requirement means a requirement that applies to a supplier of goods or services that are subject to information disclosure regulation, and is specified in a section 52O determination
“input methodology means a description of any methodology, process, rule, or matter that includes any of the matters listed in section 52S and that is published by the Commission under section 52V; and, in relation to particular goods or services, means any input methodology, or all input methodologies, that relate to the supply, or to suppliers, of those goods or services
“inquiry means an inquiry by the Commission carried out in accordance with sections 52G to 52I
“price—
“(a) means any 1 or more of individual prices, aggregate prices, or revenues (whether in the form of specific numbers, or in the form of formulas by which specific numbers are derived); and
“(b) includes any related terms of payment
“publicly available in relation to making a document or information available, means that—
“(a) the document or information is available for inspection, free of charge, on an Internet site that is publicly accessible at all reasonable times; and
“(b) a copy of the document or information is available for inspection at all reasonable times, free of charge, at the head office of the person that is required to make it publicly available; and
“(c) copies of the document may be purchased by any person at a reasonable price
“publicly disclose, in relation to information required to be disclosed under information disclosure regulation, means to disclose information to the public in the manner required by a section 52O determination
“regulated means regulated under this Part
“regulated goods or services means goods or services that are declared to be regulated—
“(a) by Order in Council made under section 52M; or
“(b) by any of subparts 9 to 11
“regulated supplier means a person to whom a section 52O determination applies in relation to particular goods or services
“section 52O determination means a determination by the Commission under section 52O that sets out how each type of regulation that applies to particular regulated goods or services applies to a supplier of those goods or services; and, in relation to particular goods or services, means every section 52O determination relevant to the regulation of those goods or services.
“Subpart 2—Regulating particular goods or services
“52D Overview of process if regulation imposed on goods or services
“(1) The process for imposing regulation under this subpart on particular goods or services involves the following steps:
“(a) the Commission holds an inquiry into whether and, if so, how, to regulate the goods or services, and then makes a recommendation to the Minister under section 52J:
“(b) the Minister considers the Commission’s recommendation and decides whether or not to recommend to the Governor-General that regulation be imposed and, if so, which type or types of regulation:
“(c) if the Minister decides to recommend regulation, an Order in Council may be made under section 52M that makes the goods or services subject to regulation and identifies the type or types of regulation that apply:
“(d) for each type of regulated goods or services, the Commission makes a section 52O determination specifying how the applicable type or types of regulation apply to a supplier of the regulated goods or services.
“(2) This section is only a guide.
“52E Effect of goods or services being subject to regulation
“(1) If goods or services are subject to regulation of a particular type, every regulated supplier of those goods or service must comply with—
“(a) the requirements of this Part relating to that type of regulation; and
“(b) every section 52O determination applying to the supplier.
“(2) Sections 86 to 87C (which relate to offences and civil proceedings relating to contraventions of this Part) apply to a regulated supplier on and from the date on which the supplier is obliged to comply with a relevant section 52O determination.
“(3) The Commission is entitled to exercise any of its powers under this Act for the purpose of monitoring compliance by regulated suppliers with regulation under this Part.
“52F Preliminary test for regulation of goods or services
“(1) Goods or services may be regulated under this Part only if—
“(a) the goods or services are supplied in a market where there is both—
“(i) little or no competition; and
“(ii) no likelihood of a substantial increase in competition; and
“(b) there is substantial scope for the exercise of market power in relation to the goods or services, taking into account the effectiveness of existing regulation or arrangements (including ownership arrangements); and
“(c) the benefits of regulating the goods or services in meeting the purpose of this Part (as set out in section 52A) clearly exceed the costs of regulation.
“(2) In any consideration of this test, the part of the test in subsection (1)(c) need not be considered unless the parts of the test in subsection (1)(a) and (b) are satisfied.
“Commission inquiry
“52G How inquiry triggered
“(1) The Commission—
“(a) must hold an inquiry if required to do so by the Minister; and
“(b) may hold an inquiry on its own initiative.
“(2) Any requirement by the Minister must—
“(a) be in writing; and
“(b) specify the date by which the Commission must make a recommendation under section 52J to the Minister.
“52H Commission inquiry into particular goods or services
“(1) In conducting an inquiry into particular goods or services, the Commission must consider—
“(a) whether the test in section 52F is satisfied in relation to the goods or services; and
“(b) whether the goods or services should be regulated; and
“(c) if so, how the goods or services should be regulated, including—
“(i) how the goods or services should be defined; and
“(ii) which type or types of regulation (as set out in section 52B(2)) the goods or services should be subject to; and
“(iii) how that type or those types of regulation should apply to suppliers of the goods or services.
“(2) As part of an inquiry into particular goods or services, the Commission—
“(a) must determine (and then apply) input methodologies for the supply of the goods or services, in accordance with subpart 3; and
“(b) must, when carrying out the analysis required by section 52F(1)(c), undertake a qualitative analysis of all material long-term efficiency and distributional considerations.
“(3) As part of that qualitative analysis, the Commission must, as far as practicable,—
“(a) quantify material effects on allocative, productive, and dynamic efficiency; and
“(b) quantify material distributional and welfare consequences on suppliers and consumers; and
“(c) assess the direct and indirect costs and risks of any type of regulation considered, including administrative and compliance costs, transaction costs, and spill-over effects.
“(4) As part of an inquiry, the Commission must, when considering which type of regulation might be imposed,—
“(a) assess the benefits of imposing different types of regulation in meeting the purpose of this Part (as set out in section 52A) against the costs of imposing those types of regulation; and
“(b) consider what would be the most cost-effective type or types of regulation in the circumstances.
“(5) During an inquiry, the Commission may have regard to any other matters it considers necessary or desirable for the purpose of the inquiry.
“52I Process of inquiry
“(1) At the start of an inquiry, the Commission must publish in the Gazette a notice setting out,—
“(a) in the case of an inquiry required by the Minister, the Minister’s requirements; and
“(b) in the case of an inquiry on the initiative of the Commission, the terms of reference for the inquiry.
“(2) The notice must set out indicative time frames and key steps.
“(3) During the course of an inquiry, the Commission—
“(a) may publish, in whatever way it considers appropriate, further notices, consultation documents, or papers; and
“(b) must give interested persons a reasonable opportunity to give their views; and
“(c) may hold 1 or more conferences; and
“(d) must have regard to any views received from interested persons within any time frames set.
“(4) Before the end of an inquiry, the Commission must publish a proposed recommendation for consultation.
“52J Commission's recommendation following inquiry
“(1) At the end of an inquiry, the Commission must make a recommendation to the Minister on whether, in its opinion, the goods or services should be regulated.
“(2) If the recommendation is that particular goods or services should be regulated, the recommendation must state the following:
“(a) how the goods or services should be specified; and
“(b) which type or types of regulation should apply to the goods or services:
“(c) what input methodologies apply:
“(d) if information disclosure regulation is recommended, the material provisions of the information disclosure requirements:
“(e) if negotiate/arbitrate regulation is recommended, the material provisions of the negotiation process and arbitration process:
“(f) if default/customised price-quality regulation is recommended, the default price path and quality standards:
“(g) if individual price-quality regulation is recommended, the material provisions to apply.
“(3) The Minister must publish the Commission’s recommendation, and may do so in whatever way he or she considers appropriate.
“Order in Council imposing regulation
“52K Minister's consideration
“(1) The Minister must consider any recommendation of the Commission made under section 52J.
“(2) As part of that consideration, the Minister—
“(a) must consult with the relevant sector Minister (such as the Minister of Energy or the Minister of Transport); and
“(b) may request further information or advice from the Commission.
“(3) If the Minister proposes, contrary to the recommendation of the Commission, that the goods or services should be regulated, or that they should be subject to a type of regulation not recommended by the Commission, the Minister must ask the Commission what the material provisions of the relevant section 52O determination would be likely to be if the goods or services were subject to the type or types of regulation proposed by the Minister.
“(4) If the Commission receives a request under subsection (3), it may, at its discretion,—
“(a) consult with interested parties; or
“(b) reopen its inquiry, in which case section 52I applies with all necessary modifications.
“52L Minister's decision and recommendation
“(1) Having considered the Commission’s recommendation in accordance with section 52K, the Minister must—
“(a) decide whether, in the opinion of the Minister, the goods or services should be regulated; and
“(b) if the goods or services are to be regulated, decide which type or types of regulation are to apply; and
“(c) make a recommendation to that effect, if the goods or services are to be regulated.
“(2) The decision on either matter may be the same as, or different from, the Commission’s recommendation under section 52J or any advice given to the Minister under section 52K(3).
“52M Order in Council imposing regulation
“(1) The Governor-General may, on the recommendation of the Minister made under section 52L, make an Order in Council imposing regulation on particular goods or services.
“(2) The order must—
“(a) declare that the goods or services are regulated; and
“(b) state which type or types of regulation the goods or services are subject to.
“(3) The order may identify the goods or services it relates to by reference to goods or (with all necessary modifications) services—
“(a) supplied in or for delivery within specified regions, areas, or localities in New Zealand; or
“(b) supplied in different quantities, qualities, grades, or classes; or
“(c) supplied by or to or for the use of different persons or classes of persons; or
“(d) any or all of paragraphs (a) to (c).
“(4) Subsection (3) applies so that any part or element of goods or services can be dealt with separately.
“(5) The order must include an expiry date, which must be a date not later than 20 years after its date of commencement.
“(6) The order is a regulation within the meaning of the Regulations (Disallowance) Act 1989 and the Acts and Regulations Publication Act 1989.
“52N Revocation or amendment of Order in Council
“(1) An Order in Council made under section 52M in respect of particular goods or services may not be revoked or significantly amended unless the Commission has held an inquiry into the goods or services.
“(2) In subsection (1), significantly amended means amended in a way that—
“(a) alters the type or types of regulation applying to the goods or services; or
“(b) materially alters the goods or services to which the regulation applies, so that either—
“(i) the goods or services, or any of them, are no longer regulated; or
“(ii) goods or services that were not identified in the original order are now subject to regulation.
“(3) An Order in Council made under section 52M may be amended in any other material way only after the Commission has consulted with interested parties, but may be amended in a non-material way without prior consultation.
“Commission determination about how regulation applies
“52O Determination by Commission under this section
“(1) The Commission must make determinations under this section in relation to suppliers of regulated goods or services,—
“(a) in the case of goods or services declared to be regulated by an Order in Council under section 52M, as soon as practicable after the Order in Council is made; and
“(b) in the case of goods or services declared to be regulated under any of subparts 9 to 11, in accordance with sections 54I, 55E, and 56E.
“(2) Determinations must—
“(a) set out, for each type of regulation to which the goods or services are subject, the requirements that apply to each regulated supplier; and
“(b) set out any time frames (including the regulatory periods) that must be met or that apply; and
“(c) refer to the input methodologies that apply; and
“(d) be consistent with this Part.
“(3) It is not necessary for a single determination to address all matters relating to particular regulated goods or services, or to a supplier of regulated goods or services, and different parts of any determination may come into effect at different times.
“(4) If a determination under this section is made following an inquiry and a recommendation under section 52J, the requirements referred to in subsection (2)(a) must not differ in any material respect from the recommendation, or from any advice given to the Minister under section 52K(3).
“(5) A determination under this section may require a supplier to comply with the requirements set out in any other determination that has been made under this section in respect of regulated goods or services of the same type.
“(6) The Commission must, as soon as practicable after making a determination under this section,—
“(a) give a copy of the determination to each supplier to whom the determination relates; and
“(b) publish a summary of it in the Gazette; and
“(c) make the whole determination publicly available.
“(7) Each supplier to whom the determination relates must comply with the requirements imposed by the determination.
“52P Amendment of section 52O determination
“(1) A section 52O determination may be amended in a material way only after the Commission has consulted with interested parties, but may be amended in a non-material way without prior consultation.
“(2) However, the Commission is not required to conduct an inquiry before amending a determination.
“(3) An amendment forms part of the determination it amends.
“(4) An amendment comes into force on the date specified in the amendment, which must be a date on or after the date on which it, or a summary of it, is published in the Gazette.
“(5) The Commission must, as soon as practicable after making an amendment,—
“(a) give a copy of the amendment to each supplier to whom the determination relates; and
“(b) publish the amendment, or a summary of the amendment, in the Gazette; and
“(c) make a copy of the determination, as amended by the amendment, publicly available.
“Subpart 3—Input methodologies
“52Q Purpose of input methodologies
The purpose of input methodologies is to promote certainty for suppliers and consumers in relation to the rules, requirements, and processes applying to the regulation, or proposed regulation, of goods or services under this Part.
“52R How published input methodologies apply
Every relevant input methodology relating to the supply of particular goods or services that is published under section 52V must be applied,—
“(a) if the goods or services are regulated, by every regulated supplier of the goods or services in accordance with the relevant section 52O determination; and
“(b) in all cases, by every person entitled or required under this Act to recommend on, decide, or determine—
“(i) whether or how regulation under this Part should apply to the goods or services; or
“(ii) the prices or quality standards applying to the goods or services.
“52S Matters covered by input methodologies
“(1) The input methodologies relating to particular goods or services must include, to the extent applicable to the type of regulation under consideration,—
“(a) methodologies for evaluating or determining the following matters in respect of the supply of the goods or services:
“(i) cost of capital:
“(ii) valuation of assets, including depreciation, and treatment of revaluations:
“(iii) allocation of common costs, including between activities, businesses, consumer classes, and geographic areas:
“(iv) treatment of taxation:
“(v) pricing principles; and
“(b) regulatory processes and rules, such as—
“(i) the specification and definition of prices, including identifying any costs that can be passed through to prices; and
“(ii) identifying circumstances in which price-quality paths may be reconsidered within a regulatory period; and
“(c) matters relating to proposals by a regulated supplier for a customised price-quality path, including—
“(i) requirements that must be met by the regulated supplier, including the scope and specificity of information required, the extent of independent verification and audit, and the extent of consultation and agreement with consumers; and
“(ii) the criteria that the Commission will use to evaluate any proposal.
“(2) Any methodologies under subsection (1)(a)(iii) must not unduly deter investment by a supplier of regulated goods or services in the provision of other goods or services.
“52T When input methodologies must be determined
“(1) The Commission must determine input methodologies for the goods or services regulated under subparts 9 to 11 no later than 30 June 2010.
“(2) The Minister may, on the written request of the Commission, extend the deadline referred to in subsection (1) once, by a period of up to 6 months.
“(3) The Commission must determine input methodologies for any goods or services that are the subject of an inquiry as soon as practicable after the Commission is satisfied that the parts of the test for the regulation of goods or services set out in paragraphs (a) and (b) of section 52F(1) are satisfied.
“52U Commission process for determining input methodologies
“(1) When the Commission begins work on an input methodology, it must publish a notice of intention to do so that—
“(a) outlines the process that will be followed; and
“(b) sets out the proposed time frames.
“(2) During the course of its work on an input methodology, the Commission—
“(a) must publish a draft methodology; and
“(b) must give interested persons a reasonable opportunity to give their views on that draft methodology; and
“(c) may hold 1 or more conferences; and
“(d) must have regard to any views received from interested persons within any time frames set.
“(3) Despite subsections (1) and (2), any work done or action taken (including any consultation) by the Commission on input methodologies before the commencement of this section may be treated by the Commission and any person consulted as work done or action taken under this section.
“52V Publication of input methodologies
“(1) The Commission must publish every input methodology, and every amendment to an input methodology,—
“(a) within 10 working days after the Commission determines the input methodology or amendment; or
“(b) if the input methodology or an amendment is determined by the High Court on appeal, within 10 working days after the Commission receives a copy of the decision of the High Court.
“(2) The publication must be by way of a notice in the Gazette setting out—
“(a) a brief description of the nature of the methodology, and the goods or services to which it applies; and
“(b) the reasons for determining that methodology; and
“(c) how it is publicly available.
“(3) The Commission must make every input methodology, and every amended input methodology, publicly available as soon as the input methodology or amendment is published.
“52W Amendment of input methodologies
If the Commission proposes to amend an input methodology by making a material change, section 52U applies as if the amendment were a new input methodology.
“52X Review of input methodologies
“(1) The Commission must review each input methodology no later than 7 years after the date on which it is first published and, after that, at intervals of no more than 7 years.
“(2) Section 52U applies, with all necessary modifications, as if the review were a new input methodology.
“(3) Section 52V applies if, following a review, an input methodology is replaced or amended.
“Appeals of input methodology determinations
“52Y Appeals of input methodology determinations
“(1) Any person who gave views on an input methodology determination to the Commission as part of the process under section 52U, and who has a significant interest in the matter, may appeal to the High Court against the determination.
“(2) In this section and section 52Z, input methodology determination means any of the following:
“(a) the initial determination of an input methodology:
“(b) any determination by the Commission that amends the input methodology:
“(c) any determination by the Commission of an input methodology following a review of the input methodology.
“(3) In determining an appeal against an input methodology determination, the High Court may do any of the following:
“(a) decline the appeal and confirm the input methodology set out in the determination:
“(b) allow the appeal by—
“(i) amending the input methodology; or
“(ii) revoking the input methodology and substituting a new one; or
“(iii) referring the input methodology determination back to the Commission with directions as to the particular matters that require amendment.
“(4) If the Court allows an appeal, the Commission may seek clarification from the Court on any matter for the purpose of implementing the Court's decision.
“(5) Any appeal under section 97 to the Court of Appeal from any decision or order of the High Court under this section may be on a point of law only.
“52Z Process for appeals in respect of input methodology
“(1) Any appeal under section 52Y must be brought within 20 working days after the date on which the input methodology determination is published.
“(2) The appeal must be by way of rehearing and must be conducted solely on the basis of the documentary information and views that were before the Commission when it made its determination, and no party may introduce any new material during the appeal.
“(3) The High Court must sit with 2 lay members (unless the Court considers that only 1 is required).
“(4) Each of the lay members must have relevant experience and be appointed from the pool of people appointed under section 77 to be members of the Court for the purpose of hearing the appeal.
“(5) Section 77 applies, and section 77(14) is not limited by subsection (3) of this section.
“53 Input methodology applies pending outcome of appeal
“(1) The High Court may not stay the application of section 52R with respect to any input methodology published under section 52V until any appeal against it is finally determined.
“(2) Section 52R continues to apply with respect to every input methodology published under section 52V until any appeal against it is finally determined.
“Subpart 4—Information disclosure regulation
“53A Purpose of information disclosure regulation
The purpose of information disclosure regulation is to ensure that every supplier of goods or services that are subject to this type of regulation publicly discloses reliable and timely information, so that interested persons are informed about matters relating to the supply of the regulated goods or services.
“53B Effect of being subject to information disclosure regulation
“(1) Every supplier of goods or services that are subject to information disclosure regulation must—
“(a) publicly disclose information in accordance with the information disclosure requirements set out in the relevant section 52O determination; and
“(b) supply to the Commission a copy of all information disclosed in accordance with the section 52O determination, within 5 working days after the information is first made publicly available; and
“(c) supply to the Commission, in accordance with a written notice by the Commission, any further statements, reports, agreements, particulars, or other information required for the purpose of monitoring the supplier’s compliance with the section 52O determination.
“(2) If a supplier of goods or services is subject to information disclosure regulation, the Commission—
“(a) may monitor and analyse all information disclosed in accordance with the information disclosure requirements; and
“(b) must, as soon as practicable after any information is publicly disclosed, publish a summary and analysis of that information for the purpose of promoting greater understanding of the relative performance of individual regulated suppliers, and the changes in performance over time.
“53C Section 52O determination to set out information disclosure requirements
“(1) A section 52O determination relating to goods or services that are subject to information disclosure regulation must—
“(a) specify the goods or services to which it applies; and
“(b) specify the suppliers to which it applies; and
“(c) specify the information to be disclosed; and
“(d) specify the manner in which the information is to be disclosed; and
“(e) specify the form of disclosure; and
“(f) specify when, and for how long, information must be disclosed; and
“(g) refer to the input methodologies that apply; and
“(h) specify any other methodologies that are required in the preparation or compilation of the information.
“(2) Information required to be disclosed may include (without limitation) any or all of the following:
“(a) financial statements (including projected financial statements):
“(b) asset values and valuation reports:
“(c) prices and pricing methodologies:
“(d) contracts:
“(e) transactions with related parties:
“(f) financial and non-financial performance measures:
“(g) plans and forecasts, including (without limitation) plans and forecasts about investments, prices, and revenues, and quality and service levels:
“(h) asset management plans:
“(i) policies and methodologies in these or other areas:
“(j) consolidated information that includes information about unregulated goods or services, in which case section 53D applies.
“(3) The section 52O determination may do all or any of the following:
“(a) require disclosed information, or information from which disclosed information is derived (in whole or in part), to be verified by statutory declaration:
“(b) exempt any person or class of persons, or provide for exemptions, from any requirements of the determination, and provide for the revocation of exemptions:
“(c) provide for transitional provisions:
“(d) impose any other requirements that the Commission considers necessary or desirable to promote the purpose of information disclosure regulation.
“(4) The section 52O determination may not require a supplier to publicly disclose any provision of an existing contract that, immediately before the goods or services became subject to information disclosure regulation, was not required by or under Part 4A or any other enactment to be publicly disclosed.
“53D Consolidated information may also be required
“(1) The purpose of this section is to enable the Commission to monitor compliance with information disclosure regulation applying to regulated goods or services.
“(2) A section 52O determination may require information referred to in subsection (3) to be disclosed only to the extent required to enable the purpose in subsection (1) to be met.
“(3) If a regulated supplier provides goods or services that are not subject to regulation under this Part (unregulated goods or services), the supplier may be required to disclose—
“(a) consolidated financial statements, and any other information referred to in section 53C, for all businesses (including those related to the supply of unregulated goods or services) undertaken by that supplier; and
“(b) consolidated financial statements, and any other information referred to in section 53C, for the supply of all unregulated goods or services in aggregate; and
“(c) reconciliation between information provided under paragraphs (a) and (b) with information disclosed in accordance with information disclosure requirements applying to the regulated goods or services.
“53E Charge for providing copies to public
“(1) A person who is required, by a section 52O determination, to provide copies of statements and information to the public on request may charge for providing those copies.
“(2) The charge must be no more than is reasonably required to recover the costs of providing those copies.
“53F Input methodologies on cost of capital and pricing principles
“(1) This section applies to input methodologies for—
“(a) evaluating or determining the cost of capital; and
“(b) pricing principles.
“(2) Those input methodologies are applicable in respect of information disclosure regulation as follows:
“(a) the Commission may apply them for the purposes of monitoring and analysis; but
“(b) if information disclosure regulation is the only type of regulation to which the goods or services are subject, the supplier is not required to apply them for any purpose related to that regulation.
“(3) Subsection (2)(b) overrides section 52R.
“Subpart 5—Negotiate/arbitrate regulation
“53G Purpose of negotiate/arbitrate regulation
The purpose of negotiate/arbitrate regulation is to encourage a supplier and its customers to reach agreement, through negotiation, on the supplier's prices and quality standards during a specified regulatory period, and to provide for binding arbitration if negotiation is unsuccessful.
“53H Overview of negotiate/arbitrate regulation
“(1) If a regulated supplier is subject to negotiate/arbitrate regulation,—
“(a) the supplier must enter into negotiations with parties identified by the Commission in order to reach agreement on the matters identified by the Commission (being the prices and quality standards associated with regulated goods or services) that will apply for the regulatory period specified by the Commission; and
“(b) if the negotiations fail to reach a settlement of all the matters within the time frames set by the Commission, the parties must enter into arbitration to resolve the outstanding matters; and
“(c) the terms of the arbitration are set by the Commission, and the arbitral award is binding on the parties unless or until they agree to vary it.
“(2) This section is only a guide.
“53I Section 52O determination to set out requirements for application of negotiate/arbitrate regulation
“(1) If negotiate/arbitrate regulation applies to regulated goods or services, the section 52O determination must set out the following:
“(a) the parties to the negotiation or arbitration:
“(b) the matters (including the prices and quality standards associated with the regulated goods or services) that the parties must agree to by negotiation, or are bound to by arbitral award:
“(c) the period or periods for which any negotiated settlement or arbitral award applies:
“(d) a reference to the input methodologies that apply:
“(e) the information that the parties must provide to the other parties and, if necessary, the arbitrator, and the time frames for that provision:
“(f) the processes for negotiations, including the form of involvement by the parties, and the form, scope, and coverage of any negotiated settlement:
“(g) the time frames for the negotiations (including stages in negotiations) and, in particular, the date by which, if negotiations are not complete, the parties must enter into arbitration to settle any remaining unresolved matters:
“(h) the terms of any arbitration that takes place, including its form, procedures, the allocation of costs, and powers of the arbitrator:
“(i) the date by which the arbitral award must be made:
“(j) the manner in which the parties must make publicly available any negotiated settlement, arbitral award, or both.
“(2) The Commission may include in the determination any other matters it considers necessary or desirable to promote the purpose of negotiate/arbitrate regulation.
“(3) The terms of arbitration set by the Commission must—
“(a) allow the parties a reasonable period within which to agree on an arbitrator but, if agreement is not reached within that period, the terms must provide that the Commission must appoint the arbitrator (and may not appoint itself as the arbitrator); and
“(b) require the arbitral award to include provisions requiring and enabling the parties to enforce it; and
“(c) include a right or rights of recourse to the High Court, exercisable by any party to the arbitration.
“53J Compulsory arbitration
“(1) If a negotiated settlement is not reached within the time frame set by the Commission, the parties must enter into arbitration on the terms set out in the section 52O determination.
“(2) Nothing in the Arbitration Act 1996 applies to the arbitration, except to the extent that the Commission applies particular provisions of that Act to the arbitration.
“(3) The arbitrator’s role is to determine a commercially fair and workable outcome in light of the fact that the parties cannot agree.
“(4) The arbitral award is binding on the parties to the arbitration unless or until the parties agree to vary it.
“Subpart 6—Default/customised price-quality regulation
“53K Purpose of default/customised price-quality regulation
The purpose of default/customised price-quality regulation is to provide a relatively low-cost way of setting price-quality paths for suppliers of regulated goods or services, while allowing the opportunity for individual regulated suppliers to have alternative price-quality paths that better meet their particular circumstances.
“53L Overview of default/customised price-quality regulation
“(1) If goods or services are subject to default/customised price-quality regulation,—
“(a) the Commission sets default price-quality paths that apply for a regulatory period, and all regulated suppliers must apply those default price-quality paths; but
“(b) individual suppliers may make a proposal to the Commission for a customised price-quality path; and
“(c) the Commission may set a customised price-quality path for the supplier, and that then applies for a set period instead of a specified default price-quality path.
“(2) This section is only a guide.
“53M Content of price-quality paths
“(1) Every price-quality path (whether a default price-quality path or a customised price-quality path under this subpart, or an individual price-quality path under subpart 7 ) must specify,—
“(a) in relation to prices, either or both of the following with respect to a specified regulatory period:
“(i) the maximum price or prices that may be charged by a regulated supplier:
“(ii) the maximum revenues that may be recovered by a regulated supplier; and
“(b) the quality standards that must be met by the regulated supplier; and
“(c) the regulatory period.
“(2) A regulatory period must be 5 years.
“(3) However, the Commission may set a shorter period than 5 years if it considers that it would better meet the purposes of this Part, but in any event may not set a term less than 4 years.
“(4) Subsections (2) and (3) are subject to section 53W.
“53N Monitoring compliance with price-quality paths
For the purpose of monitoring compliance with a price-quality path (whether a default price-quality path or a customised price-quality path under this subpart, or an individual price-quality path under subpart 7), the Commission may, in addition to exercising its powers under section 98, issue a written notice to a regulated supplier requiring it to provide any or all of the following:
“(a) a written statement that states whether or not the supplier has complied with the price-quality path applying to that supplier:
“(b) a report on the written statement referred to in paragraph (a) that is signed by an auditor in accordance with any form specified by the Commission:
“(c) sufficient information to enable the Commission to properly determine whether all applicable price-quality paths have been complied with:
“(d) a certificate, in the form specified by the Commission and signed by at least one director of the supplier, confirming the truth and accuracy of any information provided under this section.
“Default price-quality path
“53O Section 52O determination to set out requirements of default price-quality paths
If default price-quality regulation applies to regulated goods or services, the section 52O determination must set out a default price-quality path that includes—
“(a) the starting prices that apply to the supply of the goods or services during the first regulatory period; and
“(b) the rate or rates of change in prices, relative to the consumer price index, required during the first regulatory period; and
“(c) the quality standards that apply during the first regulatory period; and
“(d) the date or dates on which the default price-quality path (or any part of it) takes effect; and
“(e) the annual date by which any proposal for a customised price-quality path must be received; and
“(f) the annual date by which compliance must be demonstrated in accordance with section 53N.
“53P Resetting default prices, rates, and quality standards
“(1) Before the end of the first and every subsequent regulatory period, the Commission must amend the section 52O determination by setting out the reset default prices, rate or rates of changes in prices, and quality standards that apply for the following regulatory period.
“(2) In resetting default prices, rates, and quality standards, the Commission—
“(a) must consult with interested parties; and
“(b) may consider all or any of the following:
“(i) information disclosed in accordance with information disclosure regulation:
“(ii) information obtained from the consultation with interested parties:
“(iii) information obtained by the Commission under section 53N:
“(iv) other information in the public domain, including the annual reports of suppliers, submissions, and Internet sites; but
“(c) may not use its powers under sections 53ZC or 98 to obtain information except to verify information relating to the current or previous years.
“(3) The reset default prices must be either—
“(a) the prices that applied at the end of the preceding regulatory period; or
“(b) prices determined by the Commission after considering information referred to in subsection (2)(b) .
“(4) Subject to subsections (6) and (7), the Commission must set only one reset default rate per type of regulated goods or services (for example, if the default rate is 1% in a CPI − × path, 1% must be the rate for all goods or services of that type).
“(5) The reset default rate must be based on the long-run average productivity improvement rate achieved by either or both of suppliers in New Zealand, and suppliers in other comparable countries, of the relevant goods or service, using whatever measures of productivity the Commission considers appropriate.
“(6) In order to provide incentives for suppliers to improve quality, the Commission may provide for a differing rate or rates in the reset default rate to apply to all suppliers within a class to which any quality standards apply (for example, there may be other rates, for example, 0.75%, that apply to all suppliers who meet specified quality improvement targets).
“(7) The Commission may set alternative reset default rates for a particular supplier as an alternative, in whole or in part, to the reset default prices set under subsection (3)(b) if, in the Commission's opinion, this is necessary or desirable to minimise any undue financial hardship to the supplier or to minimise price shocks to consumers.
“(8) If reset default prices, rates, and quality standards have not been set by way of an amendment to the relevant section 52O determination by the end of the regulatory period to which it applies, the default prices, rates, and quality standards applying to that regulatory period continue to apply until the reset default prices, rates, and quality standards are set.
“Customised price-quality paths
“53Q Supplier may propose customised price-quality path
“(1) At any time after a default price-quality path is set by the Commission, a supplier that is (or is likely to be) subject to the default price-quality path may make a proposal to the Commission for a customised price-quality path to apply to that supplier.
“(2) Every proposal must—
“(a) comply with the input methodologies relating to the process for, and content of, customised price-quality path proposals; and
“(b) be made within the period, or by the annual date, specified for the purpose in the section 52O determination; and
“(c) include the standard application fee for customised price-quality path proposals; and
“(d) apply or adopt all relevant input methodologies.
“(3) A supplier may make only 1 proposal during a regulatory period, and may not make a proposal within the 12 months before a default price-quality path is due to be reset.
“(4) A supplier that makes a proposal must make it publicly available as soon as practicable after it has been made to the Commission.
“53R Effect of making proposal for customised price-quality path
A supplier that makes a proposal to the Commission—
“(a) cannot withdraw the proposal; and
“(b) is bound, for the regulatory period to which it applies, by any customised price-quality path that the Commission subsequently sets for the supplier.
“53S Preliminary assessment of proposal
“(1) Within 40 working days after receiving a proposal, the Commission must determine whether the proposal complies with the input methodologies under section 52S(1)(c) relating to the process for, and content of, customised price-quality path proposals.
“(2) If the proposal does not comply with those requirements, the Commission may, at its discretion,—
“(a) discontinue any consideration of the proposal; or
“(b) request the supplier to remedy the deficiencies in the proposal by providing additional information within 40 working days.
“(3) If the supplier fails to provide any additional information requested by the Commission under subsection (2)(b), the Commission may discontinue any consideration of the proposal.
“(4) If a proposal is discontinued under subsection (2) or (3), section 53Q(3) does not apply and the supplier may make another proposal within the regulatory period (except in the 12 months before the default price-quality path is due to be reset).
“53T Process and timing for assessing proposal
“(1) Once the Commission decides that a proposal complies with the input methodologies relating to the process for, and content of, customised price-quality path proposals, it must—
“(a) give notice that the proposal is under consideration, and how copies of the proposal may be obtained; and
“(b) set a date for interested persons to make submissions on the proposal; and
“(c) have regard to any submissions made by that date.
“(2) The Commission must make a determination on a proposal for a customised price-quality path within 150 working days of receiving a complete proposal, subject to sections 53U and 53Y.
“53U Extension of time frames
The time frames specified in sections 53S and 53T may, with the agreement of the supplier and the Commission, be extended by a total of up to 30 working days.
“53V Determination setting customised price-quality path
“(1) The Commission may determine any customised price-quality path that the Commission considers appropriate for a supplier that has made a proposal.
“(2) To avoid doubt, and without limitation, the determination may do any of the following:
“(a) set a price-quality path that is lower, or otherwise less favourable to the regulated supplier, than the default price-quality path that would otherwise apply:
“(b) if the Commission sets a lower price than applied under the default price-quality path, the Commission may require the supplier to lower its prices below the customised price on a temporary basis in order to refund consumers for some or all of any over-recovery of revenues that occurred while the default price-path applied; but, in this case, any lowering of price must be spread over time to minimise undue financial hardship to the supplier:
“(c) if the Commission sets a higher price than applied under the default price-quality path, the Commission may allow the supplier to recover some or all of any shortfall in its revenues while the default price-path applied; but, in this case, the recovery must be spread over time to minimise price shocks to consumers.
“(3) A customised price-quality path for a supplier is imposed by way of an amendment to the section 52O determination relating to the default/customised price-quality regulation applying to the supplier, and section 52P applies accordingly.
“53W Terms of customised price-quality paths
“(1) A customised price-quality path applies for 5 years.
“(2) However, the Commission may set a shorter period than 5 years if it considers this would better meet the purpose of this Part, but in any event may not set a term less than 3 years.
“(3) At the end of the period, the supplier is subject to a default price-quality path that must be determined by the Commission, in a section 52O determination for that supplier, using the process used under section 53P for resetting default price-quality paths.
“53X Commission's costs in setting customised price-quality path
“(1) The Commission’s costs in setting a customised price-quality path must be met by the person who makes the proposal for a customised price-quality path.
“(2) The costs may be recovered in whatever manner the Commission determines.
“53Y Prioritisation by Commission
“(1) The Commission is not required to consider any more than 4 proposals for a customised price-quality path relating to the same type of regulated goods or services in any one year.
“(2) If the Commission receives more than 4 proposals for a customised price-quality path relating to the same type of regulated goods or services in any one year, the Commission—
“(a) may defer the additional proposals to a subsequent year; but
“(b) must prioritise its consideration of the proposals in accordance with the criteria in subsection (3).
“(3) The criteria for Commission decisions on priorities are—
“(a) quality and completeness of the initial proposal; and
“(b) urgency of any proposed additional investment (compared to historic rates of investment) required to meet consumer requirements on quality; and
“(c) materiality of the proposal relative to size and revenues of the supplier.
“53Z What happens if Commission does not make decision within time frame
“(1) This section applies if the Commission does not make a determination within 150 working days of receiving a complete proposal (or within any extended time agreed under section 53U).
“(2) If the regulated supplier has not complied, in the Commission’s opinion, with any reasonable exercise by the Commission of its information-gathering powers under section 53ZC or 98, the default price-quality path continues in effect at the close of that period.
“(3) If the regulated supplier has so complied, the customised proposal made under section 53Q takes effect at the close of that period.
“(4) If a customised price-quality path proposal takes effect under subsection (3), the Commission must immediately prepare an amendment to the relevant section 52O determination, setting out the customised price-quality path applying to the supplier.
“What happens to price-quality paths if input methodologies change
“53ZA What happens to price-quality paths if input methodologies change
“(1) Default or customised price-quality paths may not be reopened within a regulatory period on the grounds of a change in an input methodology, except as provided in subsection (2).
“(2) Every default and customised price-quality path must be reconsidered by the Commission if—
“(a) an input methodology changes as a result of an appeal under section 52Y; and
“(b) had the changed methodology applied at the time the price-quality path was set, it would have resulted in a materially different path being set.
“(3) In considering a proposal by a supplier, and making a determination, the Commission may vary an input methodology applying to that supplier with the agreement of the supplier.
“Subpart 7—Individual price-quality regulation
“53ZB Price-quality path for individual businesses
“(1) If individual price-quality regulation applies to goods or services supplied by a supplier, the Commission may set the price-quality path for that supplier using any process, and in any way, it thinks fit, but must use the input methodologies that apply to the supply of those goods or services.
“(2) The following provisions of subpart 6 apply (with all necessary modifications) where individual price-quality regulation is imposed:
“(a) sections 53M and 53N:
“(b) section 53ZA.
“Subpart 8—Miscellaneous provisions
“53ZC Powers of Commission under this Part
“(1) For the purpose of carrying out its functions and exercising its powers under this Part, the Commission may, in addition to exercising its powers under section 98, do any of the following:
“(a) consult with any person the Commission considers may assist it:
“(b) investigate any of the following:
“(i) how effectively and efficiently any supplier of the goods or services is supplying the goods or services:
“(ii) how any formula, methodology, or price-quality path being considered by the Commission may be applied, or how any formula, methodology, or price-quality provision determined or authorised by the Commission has been applied, in considering proposed prices or quality standards:
“(iii) how any conditions relating to the quality of the goods or services may be, or are being, fulfilled:
“(c) examine, consider, or investigate any activity, cost, revenue, transfer, asset valuation, circumstance, or event that is occurring or that has occurred during the previous 7 years:
“(d) by notice in writing, require any supplier of the goods or services—
“(i) to prepare and produce forecasts, forward plans, or other information; and
“(ii) to apply any methodology specified by the Commission in the preparation of forecasts, forward plans, or other information:
“(e) by notice in writing, require any supplier of the goods or services, or any previous supplier of them that the Commission has reason to believe may have information or documents relevant to the investigation, audit, or inquiry, at the time and place specified in the notice, to do either or both of the following:
“(i) produce or supply to the Commission documents and information in relation to the goods or services, or the prices or operations of the person in respect of the goods or services:
“(ii) to answer any questions about any matter that the Commission has reason to believe may be relevant to the investigation, audit, or inquiry:
“(f) by notice in writing, require any supplier of the goods or services, at the time and place specified in the notice, to produce or supply to the Commission an expert opinion from an appropriately qualified person, or from a member of a class of appropriately qualified persons, as determined by the Commission in relation to the matters in paragraph (b), (c), (d), or (e)(i).
“(2) This section is subject to section 53P(2)(c).
“Compare: 1986 No 5 s 70E
“53ZD Levies
“(1) Every supplier of regulated goods or services (or prescribed class of suppliers of regulated goods or services) must pay to the Minister the levy determined in accordance with regulations made under subsection (2).
“(2) The Governor-General may, by Order in Council made on the recommendation of the Minister, make regulations—
“(a) specifying the amount of levies, or method of calculating or ascertaining the amount of levies, on the basis that the estimated costs of performing the Commission's functions, powers, and duties under this Part, and of collecting the levy money, should be met fully out of levies:
“(b) including in levies, or providing for inclusion in levies of, any shortfall in recovering those actual costs:
“(c) refunding, or providing for refunds of, any over-recovery of those actual costs:
“(d) providing different levies for different classes of suppliers or goods or services:
“(e) specifying the financial year or part financial year to which those levies apply, and applying to that financial year or part financial year and each subsequent financial year until revoked or replaced:
“(f) providing for the payment and collection of those levies:
“(g) for the first financial year to which the levy applies to a supplier or class of suppliers, including in the levy amount or method costs incurred by the Commission in connection with preparing itself to perform, and performing, its functions, powers, and duties under this Part, irrespective of the fact—
“(i) that the regulations are made and come into effect after that year; or
“(ii) that the goods or services become regulated after the costs were incurred (for example, costs incurred by the Commission in preparing input methodologies):
“(h) requiring payment of a levy for a financial year or part financial year, irrespective of the fact that the regulations may be made after that financial year has commenced:
“(i) exempting or providing for exemptions from, and providing for waivers of, the whole or any part of the levy for any case or class of cases.
“(3) The amount of any unpaid levy is recoverable in any court of competent jurisdiction as a debt due to the Crown.
“(4) The Minister must consult with the suppliers of regulated goods or services, or representatives of those suppliers, before making a recommendation for the purposes of subsection (2).
“53ZE Material may be incorporated by reference
Schedule 5 applies if the Commission wishes to incorporate material by reference in any of the following documents:
“(a) a section 52O determination:
“(b) an input methodology.
“53ZF Power to exempt disclosure of commercially sensitive information
“(1) The Commission may, on application, exempt any person or class of persons, in respect of any information or class of information that the Commission considers to be commercially sensitive, from any obligation to make that information publicly available as part of the requirements of information disclosure regulation, negotiate/arbitrate regulation, or customised price-quality regulation.
“(2) The Commission may grant the exemption on any terms and conditions that it thinks fit.
“(3) The exemption must be granted by notice in the Gazette, and takes effect from the date specified in the exemption (which must not be earlier than the date of the Gazette notice).
“(4) The Commission may, in like manner, vary or revoke any exemption.
“(5) The Commission must keep a list of all current exemptions made by it under this section available for public inspection free of charge during normal office hours of the Commission at the offices of the Commission.
“(6) An exemption under this section is not a regulation within the meaning of the Regulations (Disallowance) Act 1989 or the Acts and Regulations Publication Act 1989.
“Subpart 9—Electricity lines services
“Application, overview, and interpretation
“54 Overview of how this subpart applies
“(1) This subpart provides—
“(a) that all suppliers of electricity lines services are subject to information disclosure regulation; and
“(b) that suppliers of electricity lines services that are not consumer-owned are also subject to price-quality regulation; and
“(c) for the transition to the new regime provided for in this Part.
“(2) This section is only a guide.
“54A Overview of when this subpart applies
“(1) This subpart applies on and after 1 April 2009.
“(2) However, sections 54C(3) and 54M to 54P apply as soon as the rest of this Part comes into force.
“(3) This section is only a guide.
“54B Meaning of electricity lines services
“(1) In this subpart, unless the context otherwise requires, electricity lines services means the conveyance of electricity by line in New Zealand.
“(2) However, none of the following are electricity lines services:
“(a) conveying electricity solely for the supplier’s own consumption or for the consumption of the supplier’s associates:
“(b) conveying electricity only from a generator to the national grid or from the national grid to a generator:
“(c) conveying electricity (other than via the national grid) only from a generator to a local distribution network or from a local distribution network to a generator:
“(d) conveying electricity by lines that are not connected, directly or indirectly, to the national grid:
“(e) conveying electricity only by a line or lines that are mostly in competition with a line or lines operated by another supplier of electricity lines services that is not an associate of the person, provided that the competition is actual competition and not potential competition:
“(f) conveying electricity if the total circuit length of the prescribed voltage electric lines provided by the supplier (or over which electricity is conveyed by the supplier, as the case may be) is less than 25 kilometres:
“(g) conveying electricity of less than 20 gigawatt hours per annum:
“(h) conveying electricity to less than 500 consumers.
“(3) In this section, unless the context otherwise requires,—
“associate has the same meaning as in section 12 of the Electricity Industry Reform Act 1998
“consumer has the same meaning as in section 2(1) of the Electricity Act 1992
“lines has the same meaning as in section 2(1) of the Electricity Act 1992
“national grid has the same meaning as in section 2(1) of the Electricity Act 1992
“prescribed voltage electric line means a line that is capable of conveying electricity at a voltage equal to or greater than 3.3 kilovolts.
“54C Definition of consumer-owned
“(1) In this subpart, unless the context otherwise requires, a supplier is consumer-owned if it is a supplier that meets the following criteria:
“(a) 100% of the control rights and 100% of the equity return rights (within the meaning of section 3 of the Electricity Industry Reform Act 1998) in the supplier are held by either—
“(i) a customer trust or a community trust within the meaning of subsection (2); or
“(ii) a customer co-operative within the meaning of subsection (2); and
“(b) the trustees of the customer trust or community trust, or the directors of the customer co-operative, as the case may be, that is referred to in paragraph (a) are elected or appointed solely by the persons who are consumers of the supplier, and at least 90% of the persons who are consumers of the supplier at the time of the election or appointments are eligible to vote in those elections or to participate in those appointments; and
“(c) all of the persons who are consumers of the supplier as at an income distribution resolution date benefit from that income distribution; and
“(d) the supplier has fewer than 100,000 ICPs.
“(2) In this section, unless the context otherwise requires,—
“community trust is a trust—
“(a) whose income beneficiaries substantially comprise persons who are a class or classes identified by reference to their domicile or location or operation within, or connection to, a prescribed geographic area; and
“(b) that has confined distributions largely to those beneficiaries or for purposes related to a prescribed geographic area
“consumer has the same meaning as in section 2(1) of the Electricity Act 1992
“customer co-operative means a co-operative company (as defined in section 2(1) of the Co-operative Companies Act 1996) that has the characteristics described in the definition of customer trust in this subsection, applied as if references to trusts were to co-operatives, references to beneficiaries were to shareholders, and all other necessary modifications were made
“customer trust is a trust—
“(a) whose income beneficiaries substantially comprise persons who are a class or classes identified by reference to any of—
“(i) the person's connection to the lines of the supplier:
“(ii) the person's receipt of electricity from the supplier:
“(iii) the person's liability for payment for supply of electricity from the supplier:
“(iv) the person's liability for payment for the connection:
“(v) the person's liability for payment for line services; and
“(b) that has confined distributions largely to those beneficiaries
“ICP means a point of connection on a local or an embedded network at which a retailer supplies electricity to a consumer
“income distribution resolution date means the date that a supplier, or the trust or co-operative that owns a supplier, as the case may be, resolves to make an income distribution to beneficiaries.
“(3) As soon as practicable after this subsection comes into force, the Minister must publish a notice in the Gazette stating the names of the suppliers that are consumer-owned as at that date.
“(4) The notice in subsection (3) is only for information purposes and has no legal effect.
“54D Further interpretation for this subpart
In this subpart, unless the context otherwise requires,—
“existing administrative settlement means any deed agreed between the Commission and a supplier of electricity lines services before 1 April 2009 in respect of a breach of a threshold
“Part 4A means Part 4A of this Act as in force immediately before its repeal by the Commerce Amendment Act 2008
“threshold means a threshold set under Part 4A for the declaration of control in relation to large electricity lines businesses
“Transpower means Transpower New Zealand Limited or any subsidiary of, or successor to, that company.
“Imposition of regulation under this Part
“54E Electricity lines services declared to be regulated
Electricity lines services are regulated under this Part.
“54F All electricity lines services are subject to information disclosure regulation
All electricity lines services are subject to information disclosure regulation under this Part.
“54G Certain electricity lines services are also subject to default/customised price-quality path regulation
“(1) All electricity lines services (other than those supplied by Transpower) are subject to default/customised price-quality regulation under this Part unless they are exempt.
“(2) All electricity lines services that are supplied by a supplier that is consumer-owned are exempt (unless an Order in Council has been made in respect of the service under section 54H).
“54H How exempt status can be lost and default/customised price-quality regulation can be applied to consumer-owned suppliers
“(1) Electricity lines services that are supplied by a supplier that is consumer-owned cease to be exempt for the purpose of section 54G (and therefore become subject to default/customised price-quality regulation under this Part) if the Governor-General, by Order in Council, declares that this section applies.
“(2) The Minister may make a recommendation only if the Minister is satisfied that either—
“(a) the Commission has advised the Minister that a supplier has ceased to be consumer-owned within the meaning of section 54C; or
“(b) the Commission has recommended to the Minister that the purpose of this Part would be better met if price-quality regulation were imposed on the supplier under this Part.
“(3) The Commission may make a recommendation under subsection (2)(b) only following consideration of a petition made by 1 or more of the following:
“(a) 15% of the persons who are residential consumers of the supplier as at the date of the petition who are eligible to vote in elections for trustees of the customer trust or community trust, or for directors of the customer co-operative:
“(b) 20% of the persons who are residential consumers of the supplier as at that date who are not eligible to vote in elections for trustees of the customer trust or community trust, or for directors of the customer co-operative:
“(c) 25% of the persons who are non-residential consumers (either by number or by consumption of that class of consumer) of the supplier as at that date who are not eligible to vote in elections for trustees of the customer trust or community trust, or for directors of the customer co-operative.
“(4) Petition means a petition seeking the application of price-quality regulation to all or any of the electricity lines services of the relevant supplier, and that records the signatures of the signatories.
“(5) The Governor-General may, on the recommendation of the Minister, make an Order in Council in accordance with this section.
“54I Commission must make section 52O determination specifying how this subpart applies
“(1) The section 52O determinations that specify how information disclosure regulation applies in respect of each supplier of electricity lines services must be made as soon as practicable after 1 April 2009.
“(2) The section 52O determinations that specify how default/customised price-quality regulation applies in respect of each supplier of electricity lines services that are subject to that form of regulation as at 1 April 2009 must be made as soon as practicable after that date.
“(3) The section 52O determinations that specify how default/customised price-quality regulation applies in respect of each supplier of electricity lines services that become subject to that form of regulation as a result of an Order in Council made under section 54H must be made as soon as practicable after the order comes into force.
“When and how price-quality regulation applies
“54J Initial default price-quality paths
“(1) The section 52O determinations required in respect of each supplier of electricity lines services that are subject to default/customised price-quality regulation under section 54G must set default price-quality paths as follows:
“(a) the default price-quality path that applies for the period commencing on 1 April 2009 and ending with the close of 31 March 2010 must be the thresholds for large electricity lines businesses that were set by the Commission under Part 4A and that expire on 31 March 2009; and
“(b) the default price-quality path that applies for the period commencing on 1 April 2010 must be set by the Commission using the process used under section 53P for resetting default price-quality paths.
“(2) This section is subject to section 54K.
“54K How regulation applies to suppliers with administrative settlements under Part 4A (other than Transpower)
“(1) The enactment of the Commerce Amendment Act 2008 does not limit or affect any existing administrative settlement that applies for electricity lines services.
“(2) Price-quality regulation under this Part applies to the supplier until the expiry of the existing administrative settlement as if the settlement were a section 52O determination setting out the requirements of this Part.
“(3) As soon as practicable after the expiry of the existing administrative settlement, the supplier is subject to a default price-quality path determined by the Commission, in a section 52O determination for that supplier, using the process used under section 53P for resetting default price-quality paths.
“(4) This section does not apply to services supplied by Transpower.
“54L How regulation applies to Transpower
“(1) The enactment of the Commerce Amendment Act 2008 does not limit or affect any existing administrative settlement that applies to Transpower.
“(2) Any threshold for Transpower set as part of an administrative settlement before 1 April 2009 must be regarded after 1 April 2009 as if it were a customised price-quality path set under section 53V.
“(3) Before the expiry of any authorisation or undertaking or any existing administrative settlement that applies to Transpower under Part 4A or 5, the Commission must recommend to the Minister that an Order in Council be made under section 52M declaring that either—
“(a) Transpower is subject to default/customised price-quality regulation under subpart 6; or
“(b) Transpower is subject to individual price-quality path regulation under subpart 7.
“(4) Subpart 2, except the provisions relating to inquiries, applies to the process for imposing that regulation and making the section 52O determination.
“(5) If an Order in Council declares that Transpower is subject to default/customised price-quality regulation, the section 52O determination must set the price-quality path that applies for the regulatory period commencing with the date on which the Order in Council comes into force, using the process under section 53P for resetting default price-quality paths.
“(6) The only requirements that may be included in a section 52O determination in respect of the quality standards of Transpower are requirements that give effect to quality standards set by the Electricity Commission.
“Other transitional provisions
“54M Certain breaches of thresholds before 1 April 2008 expire if no intention to declare control is published before cut-off date
“(1) The Commission may not commence or continue any action in respect of a breach of a threshold, and must treat it in all respects as if it had never occurred, if—
“(a) the breach occurred before the close of 31 March 2007 and the Commission has not published a notice of intention to declare control under Part 4A before the cut-off date of 1 October 2008; or
“(b) the breach occurs between 1 April 2007 and the close of 31 March 2008 and the Commission has not published a notice of intention to declare control before the cut-off date of 1 April 2009.
“(2) This section applies regardless of when the breach is identified.
“54N Old law applies to breaches of thresholds before 1 April 2008 if intention to declare control is published before cut-off date
“(1) If, before the applicable cut-off date referred to in section 54M(1) in respect of a breach, the Commission has published a notice of intention to declare control under Part 4A, the enactment of the Commerce Amendment Act 2008 does not—
“(a) limit or affect any action that may be commenced or continued in respect of the breach under any existing administrative settlement; or
“(b) limit or affect the power of the Commission, before 1 April 2010, to—
“(i) make a control declaration under Part 4A; or
“(ii) grant an authorisation or accept an undertaking in respect of the breach under Part 5; or
“(c) limit or affect the power of the Commission, before or after 1 April 2010, to commence or continue any action under Part 5 in respect of a breach of any such authorisation or undertaking.
“(2) To avoid doubt, subsection (1) applies as if Parts 4A to 6 had not been amended or repealed by the Commerce Amendment Act 2008.
“(3) If the Commission imposes control under section 57F after 1 April 2009, then the Commission must determine requirements for that electricity lines business under Part 5 as if sections 70 to 74 had not been repealed.
“(4) However, the content of the requirements (but not the process) under subsection (3) must be determined as if the electricity lines business were subject to customised price-quality regulation under this Part, and the customised price-quality path applies as if section 53W applies.
“(5) Sections 87 and 87A (pecuniary penalty and compensation) apply to the electricity lines business as if the breach of the requirement under Part 5 were a contravention of price-quality regulation under this Part.
“54O Transitional penalties for breaches after 1 April 2008
“(1) This section applies to a breach of a threshold that occurs on or after 1 April 2008 (whether or not the breach is identified before or after that date).
“(2) Sections 87 and 87A (pecuniary penalty and compensation) apply to the electricity lines business in respect of the breach as if—
“(a) the breach of the threshold were a contravention of price-quality regulation under this Part; and
“(b) sections 87 and 87A were in force from the date of the breach.
“54P Transitional provision for proposals for customised price-quality paths
“(1) A supplier of electricity lines services may propose a customised price-quality path at any time—
“(a) after the Commission gives notice of the requirements and criteria that will apply in relation to a proposal for a customised price-quality path for electricity lines services, as required by section 52S(1)(c); and
“(b) before 31 March 2013 (see section 53Q(3) for how that date is calculated).
“(2) A customised price-quality path may apply at any time on or after 1 April 2010, notwithstanding that the proposal may be made after that date.
“Energy efficiency
“54Q Energy efficiency
The Commission must provide incentives to improve energy efficiency and demand side management, and to reduce energy losses, when applying this Part in relation to electricity lines services.
“Jurisdiction issues and interface with Electricity Commission and Electricity Act 1992
“54R Transfer of jurisdiction relating to suppliers of electricity lines services
The Governor-General may, by Order in Council made on the recommendation of the Minister of Energy, transfer to the Electricity Commission the jurisdiction under this Part in respect of all or any electricity lines services.
“54S Effect of transfer of jurisdiction
“(1) If an Order in Council is made under section 54R,—
“(a) the Electricity Commission, and not the Commerce Commission, has all the powers, duties, and functions under this Part in respect of the electricity lines services in respect of which the jurisdiction has been transferred; and
“(b) the Electricity Commission must exercise or perform those powers, duties, and functions, and be treated in that exercise or performance, as if it were an independent Crown entity.
“(2) Without limiting subsection (1)(b), if an Order in Council is made under section 54R, the Minister of Energy may not—
“(a) set objectives and outcomes under section 172ZK of the Electricity Act 1992 on any matter relating to its jurisdiction under this Part; or
“(b) direct the Electricity Commission to give effect to or have regard to any government policy that relates to the jurisdiction under this Part; or
“(c) direct the Electricity Commission to amend any provision that is included in its statement of intent that relates to the jurisdiction under this Part; or
“(d) remove any member of the Electricity Commission for a reason related to the exercise of the jurisdiction under this Part.
“(3) The Order in Council under section 54R may contain any other provisions that are necessary or desirable to ensure that the Electricity Commission exercises or performs the powers, duties, and functions under this Part, and is treated in that exercise or performance, as if it were an independent Crown entity.
“54T Procedure before jurisdiction order can be made
“(1) The Minister of Energy may make a recommendation for the purpose of section 54R only if—
“(a) he or she has consulted with representatives of industry participants and representatives of consumers; and
“(b) he or she has consulted with the Electricity Commission and the Commerce Commission and has sought a recommendation from them; and
“(c) he or she is satisfied that the transfer of jurisdiction that would occur would result in—
“(i) more efficient and effective achievement of the purpose of this Part; and
“(ii) more efficient and effective achievement of the purposes of the Electricity Act 1992 as it applies to some or all suppliers of electricity lines services; and
“(iii) lower compliance costs for industry participants in the electricity distribution and transmission markets.
“(2) Industry participant has the same meaning as in section 2(1) of the Electricity Act 1992.
“54U Levies during transition in jurisdiction
“(1) The costs of the Commerce Commission during any period after any transfer of jurisdiction under this Part may continue to be met via levy regulations under section 53ZD.
“(2) The costs of the Electricity Commission in respect of jurisdiction that is transferred to it must be met via levy regulations under the Electricity Act 1992.
“54V Impact of certain decisions made under Electricity Act 1992
“(1) The Electricity Commission must advise the Commerce Commission as soon as practicable after making any recommendation for an electricity governance regulation or rule under subpart 2 of Part 14 of the Electricity Act 1992, or after making any decision under electricity governance regulations or rules, or after issuing any guidelines, that is or are likely to be relevant to the powers, duties, or functions of the Commerce Commission under this Part.
“(2) The Commerce Commission must take into account, before exercising or performing any of its powers, duties, or functions under this Part,—
“(a) any electricity governance regulation or rule, or decision made under them, that relates to or affects the quality standards or pricing methodologies applicable to Transpower:
“(b) any electricity governance regulation or rule, or decision made under them, that relates to or affects the pricing methodologies applicable to any other line owner:
“(c) any guidelines of which it receives advice under subsection (1) that are likely to be relevant to the exercise or performance of the powers, duties, or functions of the Commerce Commission under this Part:
“(d) the levy payable by Transpower or any other line owner under section 172ZC of the Electricity Act 1992.
“(3) The Commerce Commission must, if asked by the Electricity Commission to do so, reconsider a section 52O determination and, to the extent that the Commerce Commission considers it necessary or desirable to do so, amend the determination, to take account of any matter referred to in subsection (2).
“Savings provisions
“54W Savings provision relating to existing information disclosure requirements
Any information disclosure requirements published by the Commission under subpart 3 of Part 4A before 1 April 2009 continue to apply to each supplier of electricity lines services in respect of every financial year that precedes the first financial year to which a determination made by the Commission under section 54I(1) applies to that supplier.
“54X Savings provision for existing levy regulations for electricity lines businesses
“(1) Any regulations made pursuant to section 57ZK before the repeal of Part 4A continue to apply to each person who is a large line owner in respect of every financial year that precedes the first financial year to which levy regulations made under section 53ZD apply to that supplier.
“(2) Subsection (1) applies as if—
“(a) references in those regulations to the Commission's costs included references to the costs of exercising and performing the Commission's powers, duties, and functions under this Part, and enforcing the obligations under this Part, in respect of those persons, and with all other necessary modifications; and
“(b) terms used in subsection (1) have the same meaning as they do in those regulations.
“Subpart 10—Gas pipeline services
“Overview and interpretation
“55 Overview of this subpart
“(1) This subpart provides—
“(a) that certain gas pipeline services are subject to information disclosure regulation and price-quality regulation; and
“(b) for the transition to the new regime provided for in this Part.
“(2) This section is only a guide.
“55A Meaning of gas pipeline services
“(1) In this subpart, unless the context otherwise requires, gas pipeline services means the conveyance of natural gas by pipeline, including the assumption of responsibility for losses of natural gas.
“(2) However, none of the following are gas pipeline services:
“(a) conveying natural gas to a gas processing facility:
“(b) conveying natural gas of less than 75 000 gigajoules per annum per pipeline:
“(c) conveying natural gas for supply to industrial and commercial consumers located within 1 kilometre of a gas station or existing gas pipeline:
“(d) conveying natural gas by a pipeline that is listed in the second column of Schedule 6.
“(3) In this section, unless the context otherwise requires,—
“consumer has the same meaning as in section 2(1) of the Gas Act 1992
“container has the same meaning as in section 2(1) of the Gas Act 1992
“gas refueller has the same meaning as in section 2(1) of the Gas Act 1992
“pipeline—
“(a) means everything used, or designed or intended for use, (whether above or below ground) in or in connection with the conveyance of natural gas between—
“(i) the boundary of the gas field or gas processing facility to the point of supply to a consumer or gas refueller; or
“(ii) the outlet of the container in which gas is stored to the point of supply to a consumer or gas refueller; but
“(b) excludes meters.
“(4) The Governor-General may, by Order in Council made on the recommendation of the Minister, amend Schedule 6 by—
“(a) adding any pipeline:
“(b) deleting any pipeline:
“(c) changing the description of any pipeline or its owner.
“(5) The Minister may not make a recommendation for the purpose of subsection (4) unless the Commission has made a recommendation to the same effect.
“Imposition of regulation under this Part
“55B Gas pipeline services declared to be regulated
Gas pipeline services are regulated under this Part.
“55C All gas pipeline services are subject to information disclosure regulation
Gas pipeline services are subject to information disclosure regulation under this Part.
“55D All gas pipeline services are subject to price-quality regulation
Gas pipeline services are subject to default/customised price-quality regulation under this Part on and after 1 July 2010.
“55E Commission must make section 52O determination specifying how this subpart applies
“(1) The section 52O determinations that specify how information disclosure regulation applies in respect of each supplier of gas pipeline services must be made soon as practicable after this subpart commences to apply.
“(2) The section 52O determinations that specify how default/customised price-quality regulation applies in respect of each supplier of gas pipeline services must be made as soon as practicable after 1 July 2010.
“(3) The section 52O determinations that specify how default/customised price-quality regulation applies in respect of each supplier of gas pipeline services that become subject to that form of regulation as a result of an Order in Council made under section 55A(4)(a) must be made as soon as practicable after the order comes into force.
“When and how price-quality regulation applies generally
“55F How initial price-path set
The section 52O determinations required in respect of each supplier of gas pipeline services must set the default price-quality path as follows:
“(a) if the supplier has increased its prices by more than the movement, or forecast movement, in the all groups index number of the New Zealand Consumer Price Index in the period beginning 1 January 2008 and ending with the date that the determination is made, the Commission may use its powers under section 53ZC or 98 and may determine the initial default price-path in any way that it thinks fit:
“(b) in any other case, section 53P applies, and the Commission must set the initial default price-path as if it were resetting prices and rates and quality standards under that section.
“When and how price-quality regulation applies to services controlled by virtue of the Commerce (Control of Natural Gas Services) Order 2005
“55G Existing Order, authorisations, and undertakings continue to apply until 2 September 2016 (or earlier expiry)
“(1) This section provides how price-quality regulation under this Part applies to services that are controlled by virtue of the Commerce (Control of Natural Gas Services) Order 2005 (the Order)
“(2) The Order continues in force, despite the repeal of Part 4, until the date on which the Order expires or is revoked (the expiry date).
“(3) The enactment of the Commerce Amendment Act 2008 does not limit or affect, before the expiry date, any of the following in respect of the gas pipeline services that are controlled by virtue of the Order:
“(a) any existing authorisation made, or any undertaking obtained or accepted, under Part 5 before 1 April 2009; or
“(b) the power of the Commission to obtain or accept any further undertakings under Part 5; or
“(c) any action that may be commenced or continued in respect of a breach of any authorisation or undertaking.
“(4) To avoid doubt, subsection (3) applies as if the provisions of Parts 4 to 6 had not been amended or repealed by the Commerce Amendment Act 2008.
“(5) Price-quality regulation under this Part applies until the expiry date as if every authorisation or undertaking referred to in subsection (3) were a section 52O determination setting out the requirements under this Part.
“55H How price-quality regulation under this Part applies after 2 September 2016 (or earlier expiry)
“(1) This section provides how price-quality regulation under this Part applies to a gas pipeline service after it ceases to be controlled by virtue of the Commerce (Control of Natural Gas Services) Order 2005 (the Order)
“(2) Section 53W(3) applies (with all necessary modifications) to the setting of the default price-quality path in respect of the gas pipeline service with effect on and after the expiry date.
“(3) In this section, expiry date means—
“(a) the expiry date referred to in section 55G; or
“(b) if an undertaking is obtained or accepted from a supplier in respect of a service that expires on an earlier date, that earlier date, provided that the Order ceases to apply to that service on or before that date (by revocation of the Order or otherwise).
“Interface with Gas Act 1992
“55I Impact of certain decisions made under Gas Act 1992
“(1) The recommending body must advise the Commerce Commission as soon as practicable after making any recommendation for a gas governance regulation or rule under Part 4A of the Gas Act 1992, or after making any decision under gas governance regulations or rules, or after issuing any guidelines, that is or are likely to be relevant to the powers of the Commerce Commission under this Part.
“(2) The Commission must take into account, before exercising any of its powers under this Part,—
“(a) any gas governance regulation or rule under Part 4A of the Gas Act 1992, or decision under those gas governance regulations or rules, that relates to or affects the quality standards or pricing methodologies applicable to a pipeline owner:
“(b) any guidelines issued by the recommending body of which it is advised under subsection (1) that is likely to be relevant to the powers of the Commerce Commission under this Part:
“(c) the levy payable by any pipeline owner under the Gas Act 1992.
“(3) The Commission must, if asked by the recommending body to do so, reconsider any determination made under this Part and, to the extent that the Commission considers it necessary or desirable to do so, amend the determination, to take account of any matter referred to in subsection (2).
“(4) In this section, recommending body has the same meaning as in section 43D of the Gas Act 1992.
“Savings provisions
“55J Savings provision until Commission publishes information disclosure requirements
“(1) The Gas (Information Disclosure) Regulations 1997 continue to apply to each supplier of gas pipeline services in respect of every financial year that precedes the first financial year to which a determination made by the Commission referred to in section 55E(1) applies to that supplier.
“(2) After that, no regulations made under section 55 of the Gas Act 1992 apply to the supplier of gas pipeline services.
“55K Savings provision for existing levy regulations for services controlled under Commerce (Control of Natural Gas Services) Order 2005
“(1) Any regulations made pursuant to section 74 before the repeal of that section continue to apply to each person that is a supplier of controlled services under the Commerce (Control of Natural Gas Services) Order 2005 in respect of every financial year that precedes the first financial year to which levy regulations made under section 53ZD apply to that supplier.
“(2) Subsection (1) applies as if—
“(a) references in those regulations to the Commission's costs include references to the costs of exercising the Commission's powers and duties under this Part, and enforcing the obligations under this Part, in respect of those persons, and with all other necessary modifications; and
“(b) terms used in subsection (1) have the same meaning as they do in those regulations.
“Subpart 11—Airport services
“Overview and interpretation
“56 Overview
“(1) This subpart provides—
“(a) that specified airport services (at Auckland, Wellington, and Christchurch airports) are subject to information disclosure under this Part; and
“(b) for the transition to the new regime provided for in this Part; and
“(c) for a review of the new regime as soon as any new price is set in 2012 for specified airport services.
“(2) This section is only a guide.
“56A Meaning of specified airport services
“(1) In this Part, unless the context otherwise requires, specified airport services means all of the services supplied by the companies referred to in subsection (2) in markets directly related to the following activities (whether for international and domestic flights):
“(a) aircraft and freight activities:
“(b) airfield activities:
“(c) specified passenger terminal activities:
“(d) any other services that are determined by the Governor-General, by Order in Council made on the recommendation of the Minister under subsection (4), to be specified airport services for the purposes of this Part.
“(2) The companies are—
“(a) the company (as defined in section 2 of the Auckland Airport Act 1987) that operates Auckland International Airport or any subsidiary of, or successor to, that company:
“(b) the company (as defined in section 2 of the Wellington Airport Act 1990) that operates Wellington International Airport or any subsidiary of, or successor to, that company:
“(c) the airport company (as defined in section 2 of the Airport Authorities Act 1966) that operates Christchurch International Airport or any subsidiary of, or successor to, that company.
“(3) Terms used in subsection (1)(a) to (c) have the same meanings as in section 2 of the Airport Authorities Act 1966.
“(4) The Minister may recommend that an Order in Council be made under subsection (1)(d) only if the Minister is satisfied that—
“(a) the services are supplied in a market where any or all of the companies referred to in subsection (2) have a substantial degree of market power; and
“(b) the Commission has consulted with interested parties (however, the Commission is not required to conduct an inquiry).
“Imposition of regulation under this Part
“56B Specified airports services declared to be regulated
Specified airport services are regulated under this Part.
“56C Specified airport services are subject to information disclosure regulation
Specified airport services are subject to information disclosure regulation under this Part.
“56D Duty to also disclose to Secretary of Transport
Each supplier of specified airport services must supply to the Secretary of Transport a copy of any information disclosed under this Part, as soon as practicable after so disclosing it.
“56E Commission must make determination specifying how this subpart applies
The section 52O determinations that specify how information disclosure regulation applies in respect of each supplier of specified airport services must be made no later than 1 July 2010 (or, if the deadline for determining input methodologies is extended under section 52T(2), no later than the date to which that deadline is extended).
“How information disclosure regulation applies
“56F Transitional provision until Commission publishes information disclosure requirements
“(1) The Airport Authorities (Airport Companies Information Disclosure) Regulations 1999 continue to apply to each supplier of specified airport services in respect of every financial year that precedes the first financial year to which a determination made by the Commission under section 56E applies to that supplier.
“(2) After that, no regulations made under section 9A of the Airport Authorities Act 1966 apply to that supplier.
“(3) Each supplier of specified airport services must supply to the Commission a copy of any information disclosed under those regulations, as soon as practicable after so disclosing.
“56G Transitional provision requiring review after new prices set
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—
“(a) review the information that has been disclosed by suppliers of specified airport services under subpart 4; and
“(b) report to the Ministers of Commerce and Transport as to how effectively information disclosure regulation under this Part is promoting the purpose in section 52 in respect of the specified airport services.”
Part 4A is repealed.
(1) Section 62 is amended by repealing subsections (5) and (6) and substituting the following subsections:
“(5) If any of the persons to whom a draft determination was sent under subsection (2) notifies the Commission, in writing, within the period of 10 working days prescribed in subsection (3) that he or she wishes the Commission to hold a conference in relation to the draft determination, the Commission must appoint a date, time, and place for the holding of the conference and give notice of the date, time, and place so appointed to each of the persons to whom a draft determination was sent under subsection (2).
“(6) The Commission may, of its own motion, determine to hold a conference in relation to the draft determination and must appoint a date, time, and place for the holding of the conference and give notice of the date, time, and place so appointed to each of the persons to whom the draft determination was sent under subsection (2).”
(2) Section 62(5) and (6) of the principal Act (as amended by this section) apply in respect of every application for an authorisation under section 58 of the principal Act that is made after the commencement of this section.
(1) The following sections are inserted after section 69A:
“69AB Authorisation or clearance void if undertaking contravened
“(1) If a person contravenes an undertaking accepted under section 69A, the clearance given or the authorisation granted in relation to the acquisition to which the undertaking relates is void and of no effect from the date it was given or granted.
“(2) Subsection (1) does not prevent the Court from making an order under sections 85A to 85C in relation to the undertaking.
“69AC Variation of undertaking
“(1) The Commission may, on an application made under subsection (2), accept a variation of an undertaking given under section 69A if it considers that the variation would not have materially affected its decision to give the clearance or grant the authorisation in relation to the acquisition to which the undertaking relates if the variation had been proposed at the time of the decision.
“(2) An application for a variation under subsection (1)—
“(a) may be made only by the person who gave the undertaking or on whose behalf the undertaking was given; and
“(b) must be made no later than 20 working days before the date on which the relevant obligation under the undertaking must be met.
“(3) The Commission must notify the person who made the application of its decision on the application no later than 3 working days before the relevant obligation under the undertaking must be met.
“(4) A variation under subsection (1)—
“(a) comes into force on a date specified in the variation (being a date that is on or after the date on which the variation is accepted); and
“(b) is deemed to form part of the undertaking (and, accordingly, is deemed under section 69A(3) to form part of the clearance given or the authorisation granted in relation to the acquisition to which the undertaking relates).”
(2) Section 69AB of the principal Act (as inserted by this section) applies only to undertakings under section 69A of the principal Act that are accepted in relation to clearances given or authorisations granted on notices under section 66 or 67 of the principal Act that are registered after the commencement of this section.
(3) Section 69AC of the principal Act (as inserted by this section) applies to—
(a) every undertaking accepted under section 69A of the principal Act before the commencement of this section if the period for giving effect to the undertaking has not expired at the time of that commencement; and
(b) every undertaking accepted under section 69A of the principal Act after the commencement of this section.
Sections 70 to 74 and the heading above section 70 are repealed.
(1) Section 75(1) is amended by repealing paragraph (c) and substituting the following paragraph:
“(c) in the case of contraventions relating to Part 4,—
“(i) proceedings for the recovery of pecuniary penalties under section 86 or 87:
“(ii) applications for orders under section 86A, 86C, or 87A:
“(iii) applications for injunctions under section 87C:”.
(2) Section 75(1) is amended by adding the following paragraph:
“(i) applications for orders under section 85A or 85B.”
Section 76 is amended by omitting “86”
and substituting “86B, 87B”
.
Section 79 is amended by omitting “under section 80 or section 83”
and substituting “for pecuniary penalties”
.
(1) The following heading and section are inserted after section 79:
“Proceedings for pecuniary penalties
“79A Proceedings for pecuniary penalties
In any proceedings under this Part for a pecuniary penalty—
“(a) the standard of proof is the standard of proof applying in civil proceedings; and
“(b) the Commission may, by the order of the Court, obtain discovery and administer interrogatories.”
(2) The following provisions are consequentially repealed:
(a) section 74D(3) and (4):
(b) section 80(3) and (4):
(c) section 83(3) and (4).
(1) The heading to section 84 is amended by adding “or undertaking”
.
(2) Section 84 is amended by adding the following subsection as subsection (2):
“(2) If it appears to the Court, on the application of the Commission, that a person intends to engage, or is engaging, or has engaged, in conduct that constitutes or would constitute a contravention of an undertaking accepted under section 69A, the Court, by order, may do all or any of the following things:
“(a) grant an injunction restraining any person from engaging in conduct that constitutes or would constitute—
“(i) a contravention of that undertaking:
“(ii) any attempt to contravene that undertaking:
“(iii) aiding, abetting, counselling, or procuring any other person to contravene that undertaking:
“(iv) inducing or attempting to induce any other person, whether by threats, promises, or otherwise, to contravene that undertaking:
“(v) being in any way directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of that undertaking:
“(vi) conspiring with any other person to contravene that undertaking:
“(b) impose on any person obligations to be observed in the carrying on of any business or the safeguarding of any business or any assets of any business:
“(c) provide for the carrying on of any business or the safeguarding of any business or assets of any business, either by the appointment of a person to conduct or supervise the conduct of any business (on the terms and with the powers as may be specified or described in the order), or in any other manner, as it thinks necessary in the circumstances of the case.”
(3) Section 84(2) of the principal Act (as inserted by this section) applies only to undertakings under section 69A of the principal Act that are accepted in relation to clearances given or authorisations granted on notices under section 66 or 67 of the principal Act that are registered after the commencement of this section.
(1) The following sections are inserted after section 85:
“85A Pecuniary penalties for contravention of undertaking
“(1) The Court may, on the application of the Commission, order a person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person—
“(a) has contravened an undertaking accepted under section 69A; or
“(b) has attempted to contravene an undertaking accepted under section 69A; or
“(c) has aided, abetted, counselled, or procured any other person to contravene an undertaking accepted under section 69A; or
“(d) has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene an undertaking accepted under section 69A; or
“(e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of an undertaking accepted under section 69A; or
“(f) has conspired with any other person to contravene an undertaking accepted under section 69A.
“(2) However, the Court may only make an order under subsection (1) if the acquisition to which the undertaking relates has proceeded.
“(3) The amount of pecuniary penalty must not, in respect of each act or omission, exceed $500,000.
“(4) In setting the amount of pecuniary penalty, the Court must take into account all of the following matters:
“(a) the nature and extent of the contravention:
“(b) the circumstances in which the contravention took place:
“(c) whether the person has obstructed or hindered the Commission in any attempt of the Commission to obtain compliance with the undertaking:
“(d) whether the person has taken any steps with the intention of—
“(i) impeding the disposal of assets or shares in accordance with the undertaking; or
“(ii) limiting the effectiveness of the undertaking in preventing a substantial lessening of competition in a market:
“(e) whether the person or an interconnected body corporate has previously been found by the Court in proceedings under this Part to have engaged in similar conduct.
“(5) Subsection (4) is subject to section 85C.
“(6) A person may not be liable to more than 1 pecuniary penalty in respect of the same conduct.
“(7) An application under this section may be made at any time within 12 months from the date on which the relevant obligation under the undertaking was required to be met.
“85B Court may order divestiture of assets or shares in respect of contravention of undertaking
“(1) If the Court, on the application of the Commission, is satisfied that any person has contravened an undertaking accepted under section 69A and the acquisition to which the undertaking relates has proceeded, the Court may, by order, give directions for the disposal by that person of any assets or shares in accordance with the undertaking.
“(2) An application under this section may be made at any time within 12 months from the date on which the relevant obligation under the undertaking was required to be met.
“85C Matters Court must not take into account under sections 85A and 85B
For the purposes of sections 85A and 85B, the Court must not take into account any of the following:
“(a) whether it was appropriate for the Commission to accept the undertaking under section 69A:
“(b) whether the undertaking under section 69A is still necessary or desirable:
“(c) whether any of the terms of the undertaking under section 69A are still necessary or desirable:
“(d) the extent to which the contravention of the undertaking under section 69A may have lessened competition in a market.”
(2) Sections 85A to 85C of the principal Act (as inserted by this section) apply only to undertakings under section 69A of the principal Act that are accepted in relation to clearances given or authorisations granted on notices under section 66 or 67 of the principal Act that are registered after the commencement of this section.
Sections 86 and 87 and the heading above section 86 are repealed and the following heading and sections substituted:
“Regulated goods or services
“86 Pecuniary penalty for contravening information disclosure requirement
“(1) The Court may, on application by the Commission, order any person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person—
“(a) has contravened any information disclosure requirement (as defined in section 52C); or
“(b) has attempted to contravene any such requirement; or
“(c) has aided, abetted, counselled, or procured any other person to contravene any such requirement; or
“(d) has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene any such requirement; or
“(e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of any such requirement; or
“(f) has conspired with any other person to contravene any such requirement.
“(2) In subsection (1) and section 86B, a reference to contravening an information disclosure requirement includes all or any of the following:
“(a) failing to disclose information required to be disclosed:
“(b) failing to disclose information in the form or within the time required:
“(c) disclosing information under an information disclosure requirement that is false or misleading.
“(3) The amount of pecuniary penalty must not, in respect of each act or omission, exceed $500,000 in the case of an individual, or $5,000,000 in the case of a body corporate.
“(4) In determining the amount of pecuniary penalty, the Court must have regard to all relevant matters, including—
“(a) the nature and extent of the contravention; and
“(b) the circumstances in which the contravention took place; and
“(c) whether the person has previously been found by the Court in proceedings under this Part to have engaged in similar conduct.
“(5) A supplier may not be liable to more than 1 pecuniary penalty in respect of the same conduct.
“(6) Proceedings under this section may be commenced at any time within 3 years after the contravention occurred.
“86A Order requiring information disclosure requirement to be complied with
“(1) The Court may, on application by the Commission, order a supplier of regulated goods or services to comply with an information disclosure requirement that applies to the supplier.
“(2) An order under this section must specify the date by which, or period within which, the supplier must comply with the requirement.
“86B Offences relating to information disclosure regulation
“(1) A person commits an offence if—
“(a) the person, knowing that particular goods or services are subject to information disclosure regulation, intentionally contravenes any information disclosure requirement relating to those goods or services; or
“(b) the person is subject to an order under section 86A and fails to comply with the order by the date, or within the period, specified.
“(2) A person who commits an offence under subsection (1) is liable on summary conviction to a fine not exceeding $200,000 in the case of an individual, or $1,000,000 in the case of a body corporate.
“(3) Despite section 14 of the Summary Proceedings Act 1957, proceedings for an offence under subsection (1)(a) may be commenced at any time within 3 years after the contravention occurred.
“86C Orders where negotiate/arbitrate regulation applies
“(1) The Court may, on the application of a party (party A) to negotiation or arbitration in respect of goods or services that are subject to negotiate/arbitrate regulation, make either or both of the following orders:
“(a) an order requiring another party to the negotiation or arbitration (party B) to comply with the relevant section 52O determination in the manner specified by the Court:
“(b) an order requiring party B to pay party A an amount to compensate party A for loss or damage suffered as a result of party B failing to co-operate, or inadequately co-operating with, the negotiation or arbitration.
“(2) Any application for an order under subsection (1)(b) must be made within 1 year after the date on which the failure to co-operate, or inadequate co-operation, occurred.
“(3) In setting an amount under subsection (1)(b), the Court must have regard to all relevant factors, including—
“(a) the nature and extent of the failure to co-operate; and
“(b) the extent to which the failure was the result of factors outside the control of party B; and
“(c) whether party B has previously been ordered to pay compensation for a similar failure in proceedings under this section.
“87 Pecuniary penalty for contravening price-quality requirements
“(1) The Court may, on application by the Commission, order a person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person—
“(a) has contravened any price-quality requirement applying to the regulated goods or services; or
“(b) has attempted to contravene any such requirement; or
“(c) has aided, abetted, counselled, or procured any other person to contravene any such requirement; or
“(d) has induced, or attempted to induce, any other person, whether by threats or promises or otherwise, to contravene any such requirement; or
“(e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by any other person of any such requirement; or
“(f) has conspired with any other person to contravene any such requirement.
“(2) In subsection (1) and sections 87A to 87C, a reference to contravening a price-quality requirement—
“(a) refers to a requirement imposed in relation to goods or services that are subject to default-customised price-quality regulation or to individual price-quality regulation imposed under Part 4; and
“(b) means either or both of the following:
“(i) failing to comply with the requirements for prices, whether by charging a price for the goods or services that is higher than the maximum price permitted under the price-quality, or by receiving more revenue than is permitted, or in any other way:
“(ii) refusing or failing to comply with any quality standards required under the price-quality regulation.
“(3) The amount of pecuniary penalty must not, in respect of each act or omission, exceed $500,000 in the case of an individual, or $5,000,000 in the case of a body corporate.
“(4) In setting the amount of pecuniary penalty, the Court must take into account all of the following matters:
“(a) the nature and extent of the contravention:
“(b) the nature and extent of any loss or damage suffered by any person as a result of the contravention:
“(c) the circumstances in which the contravention took place:
“(d) whether or not the person has previously been found by the Court in proceedings under this Part to have engaged in similar conduct.
“(5) A supplier may not be liable to more than 1 pecuniary penalty in respect of the same conduct.
“(6) Proceedings under this section may be commenced at any time within 3 years after the contravention occurred.
“87A Compensation for contravention of price-quality requirement
“(1) If the Court orders a person to pay a pecuniary penalty under section 87 in respect of the contravention of a price-quality requirement, the Court may, in addition, order the person to pay compensation to any person who has suffered, or is likely to suffer, loss or damage as a result of the contravention (an aggrieved person).
“(2) An application for orders under this section may be made by the Commission or any aggrieved person.
“(3) The application must be made within 1 year of the date of the pecuniary penalty order.
“(4) The Court may make an order under this section whether or not any aggrieved person is party to the proceedings.
“(5) In proceedings under this section, the Court may make such orders as to cost as it thinks fit.
“87B Offence relating to price-quality regulation
“(1) A person commits an offence if—
“(a) the person, knowing that particular goods or services are subject to price-quality regulation, intentionally contravenes a price-quality requirement in respect of the goods or services; or
“(b) the person is subject to an order under section 87C(1)(b) and fails to comply with the order.
“(2) A person who commits an offence under subsection (1) is liable on summary conviction to a fine not exceeding $200,000 in the case of an individual, or $1,000,000 in the case of a body corporate.
“(3) Despite section 14 of the Summary Proceedings Act 1957, proceedings for an offence under subsection (1)(a) may be commenced at any time within 3 years after the contravention occurred.
“87C Injunction and other orders relating to price-quality regulation
“(1) If the Court is satisfied that goods or services that are subject to price-quality regulation are being supplied, or are likely to be supplied, in contravention of any price-quality requirement applying with respect to those goods or services, the Court may do either or both of the following:
“(a) grant an injunction restraining any supplier of those goods or services from supplying them in contravention of the price-quality requirement:
“(b) requiring the supplier to supply the goods or services in accordance with the price-quality requirement applying to them.
“(2) An application for an order under this section may be made by any person.”
Section 89 is amended by adding the following subsection:
“(7) In this section, a reference to a contravention of this Act includes a reference to contravening the requirements of any type of regulation under Part 4.”
Section 91 is amended by repealing subsection (1) and substituting the following subsections:
“(1) There is a right of appeal to the High Court under this subsection against any determination of the Commission under this Act, other than the following:
“(a) a determination made under section 52O (a section 52O determination):
“(b) an input methodology determination (as defined in section 52Y, and for which a separate appeal right is given under that section).
“(1A) There is a right of appeal to the High Court on a question of law against any determination of the Commission under this Act (including a determination referred to in subsection (1)).”
Section 92 is amended by omitting paragraphs (d) and (e) and substituting the following paragraph:
“(d) in the case of an appeal against a determination made under section 52O, any supplier or consumer (as defined in section 52C) of goods or services to which the determination relates:”.
Section 93 is amended by omitting all the words above paragraph (a) and substituting “In determining an appeal under section 91(1), the Court may do any of the following:”
.
Section 98A is amended by adding the following subsection:
“(4) In this section, a reference to a contravention of this Act includes a reference to contravening the requirements of any type of regulation under Part 4.”
Section 103(1)(a) is amended by omitting “70E”
and substituting “53B(1)(c), 53N, 53ZC”
.
(1) Section 105(1) is amended by omitting “, except in accordance with subsection (2)”
.
(2) Section 105 is amended by repealing subsections (2) and (3).
(1) Section 106(4) is amended by omitting “or that person’s spouse”
.
(2) Section 106(5) is amended by omitting “under section 80 or section 83”
and substituting “for pecuniary penalties”
.
(3) Section 106(5) is amended by omitting “, or that person’s spouse”
.
(4) Section 106(6)(b) is amended by omitting “103(1)(b)”
and substituting “103”
.
Section 108 is amended by repealing paragraph (cb) and substituting the following paragraph:
“(cb) authorising the Commission to refund a part of a prescribed fee paid by a person in any case where a written undertaking is obtained or accepted from that person:”.
Sections 116 to 118 are repealed.
The Schedules 5 and 6 set out in the Schedule of this Act are added.
(1) This section amends the Electricity Act 1992.
(2) The definition of consumer in section 2(1) is amended by—
(a) omitting “the Corporation”
in the first place where it appears and substituting “any electricity generator”
; and
(b) omitting “the Corporation”
in the second place where it appears and substituting “the electricity generator”
.
(3) Section 172E(2)(d) is amended by omitting “section 57MA(1)” and substituting “section 54V”.
(1) This section amends the Electricity Industry Reform Act 1998.
(2) Section 92 is amended by omitting “and Part 4A”
.
(1) This section amends the Gas Act 1992.
(2) The definition of consumer in section 2(1) is amended by—
(a) omitting “the Corporation”
in the first place where it appears and substituting “any gas producer”
; and
(b) omitting “the Corporation”
in the second place where it appears and substituting “the gas producer”
.
(1) This section amends the Airport Authorities Act 1966.
(2) Section 4A is amended by adding the following subsection:
“(4) This section does not limit the application of regulation under Part 4 of the Commerce Act 1986.”
(3) Section 9A is amended by inserting the following subsection before subsection (1):
“(1A) This section applies to each of the following airport companies until the end of the last day of the financial year that is referred to in section 56F of the Commerce Act 1986 in relation to that company:
“(a) the company (as defined in section 2 of the Auckland Airport Act 1987) that operates Auckland International Airport:
“(b) the company (as defined in section 2 of the Wellington Airport Act 1990) that operates Wellington International Airport:
“(c) the airport company (as defined in section 2 of the Airport Authorities Act 1966) that operates Christchurch International Airport.
“(1B) After the end of that day, this section does not apply to that company, and references in this section to
‘every airport company’are references to every company other than that company.”
Schedule | s 26 |
Schedule 5
Material incorporated by references 53ZE
1 Definitions
In this schedule, unless the context otherwise requires,—
material means written material that is set out in a document other than a Part 4 determination
Part 4 determination means either of the following:
(a) a determination made under section 52O:
(b) an input methodology published under section 52V.
2 Material incorporated by reference into Part 4 determinations
(1) The Commission may incorporate by reference any material into a Part 4 determination if—
(a) the material deals with technical matters; and
(b) it is impractical to include it in, or publish it as part of, the determination.
(2) Material may be incorporated by reference into a Part 4 determination—
(a) in whole or in part; and
(b) with any modifications, additions, or variations specified in the Part 4 determination.
(3) Material incorporated by reference—
(a) is the material as it exists at the time the Part 4 determination is published; and
(b) has legal effect as part of the Part 4 determination for all purposes, except as provided in clauses 8 and 9.
3 Proof of material incorporated by reference
(1) A copy of any material incorporated by reference in a Part 4 determination must be—
(a) certified by the chairperson as a correct copy of the material; and
(b) retained by the chairperson.
(2) The production in proceedings of a certified copy of the material is, in the absence of evidence to the contrary, sufficient evidence of the incorporation of the material into the Part 4 determination.
4 Access to material incorporated by reference
(1) The Commission—
(a) must make copies of all material incorporated by reference in a Part 4 determination available for inspection during normal working hours at the head office of the Commission; and
(b) must make copies of the material available for purchase at a reasonable price from the head office of the Commission; and
(c) may make copies of the material available in any other way that the chairperson considers appropriate in the circumstances (such as on an Internet site); and
(d) must give notice in the Gazette of how the material is available for inspection and purchase.
(2) Subclause (1) applies to material when it is first incorporated into a Part 4 determination, and to any subsequent amendment or replacement of the material that is incorporated into the determination.
(3) A failure to comply with this clause does not invalidate a Part 4 determination.
5 Effect of amendments to, or replacements of, material incorporated by reference
An amendment to, or replacement of, material incorporated by reference in a Part 4 determination has legal effect as part of the determination only if—
(a) the amendment or replacement material is made by the person or organisation that made the original material; and
(b) the amendment or replacement material is of the same general character as the original material; and
(c) either—
(i) a subsequent Part 4 determination states that the particular amendment or replacement material has legal effect as part of the determination; or
(ii) the chairperson, by notice in the Gazette, adopts the amendment or replacement material as having legal effect as part of the determination.
6 Effect of expiry of material incorporated by reference
Material incorporated by reference in a Part 4 determination that expires, is revoked, or ceases to have effect, ceases to have legal effect as part of the Part 4 determination only if—
(a) a subsequent Part 4 determination states that the material ceases to have that legal effect; or
(b) the chairperson, by notice in the Gazette, states that the material ceases to have that legal effect.
7 Consultation before material incorporated by reference
(1) This clause applies if—
(a) the Commission proposes to incorporate material by reference into any Part 4 determination; or
(b) the Commission proposes to make a Part 4 determination adopting amended or replacement material; or
(c) the chairperson proposes to publish a notice in the Gazette adopting amended or replacement material.
(2) If any of the things referred to in subclause (1) are proposed, the Commission—
(a) must make copies of the material (which in this subclause includes any amended or replacement material) proposed to be incorporated by reference available for inspection during normal working hours at the head office of the Commission; and
(b) must make copies of the material available for purchase at a reasonable price from the head office of the Commission; and
(c) may make copies of the material available in any other way that the chairperson considers appropriate in the circumstances (such as on an Internet site); and
(d) must give notice in the Gazette of how copies of the material may be inspected and purchased, and how people may make comments on the proposal; and
(e) must allow a reasonable opportunity for people to comment on the proposal; and
(f) must consider any comments made within the time allowed.
(3) A failure to comply with this clause does not invalidate a Part 4 determination.
8 Acts and Regulations Publication Act 1989 not applicable to material incorporated by reference
The Acts and Regulations Publication Act 1989 does not apply to material incorporated by reference in a Part 4 determination, or to any amendment to, or replacement of, the material.
9 Application of Regulations (Disallowance) Act 1989 to material incorporated by reference
(1) Nothing in section 4 of the Regulations (Disallowance) Act 1989 requires material incorporated by reference in a Part 4 determination to be laid before the House of Representatives.
(2) However, in all other respects the Regulations (Disallowance) Act 1989 applies to material incorporated by reference in a Part 4 determination.
Schedule 6
Exemptions from Part 4 in respect of specific pipeliness 55A(2)(d), (4)
Pipeline owner Pipeline Todd Taranaki Limited McKee Production Station—Tikorangi gas pipelines Swift Energy New Zealand Limited Waihapa—New Plymouth gas pipeline Methanex New Zealand Limited
Bertrand Road—Waitara Valley Plant gas pipeline (via Faull Road Mixing station)
Tikorangi—Faull Road Mixing Station gas pipeline
Faull Road Mixing Station—Motunui Plant main process gas process gas pipeline
Faull Road Mixing Station—Waitara Valley Plant minor gas pipeline
Vector Limited Kapuni—Faull Road Mixing Station low temperature separator gas pipeline Nova Gas Limited All gas pipelines
1 Note that the Australian Trade Practices Act 1974 provides for the enforcement of a wider-range undertaking than is being proposed here.