The Bill amends Part 4 of the Commerce Act 1986. Part 4 provides for goods and services to be made subject to government control, including price control, although the Bill uses the word 'regulation' in place of the current Act's 'control'. The Bill:
- Repeals the current Part 4 and Part 4A (relating to electricity lines) and deals with all regulated goods and services in a single and much-expanded new Part 4.
- Provides for price regulation for gas pipeline services (with the exception of certain pipelines set out in a Schedule to the Bill).
- Makes certain airport services subject to information disclosure regulation under the Bill. Currently airports are subject to information disclosure requirements under the Airport Authorities Act 1966.
We previously commented on the reforms in the Bill when they were at an early stage (see DLA Phillips Fox Competition and Market Regulation Update - Commerce Act reviews and recommendations, 29 November 2007). In broad terms the Bill provides for three different types of regulation:
- Information disclosure regulation ie an obligation on regulated persons to disclose information.
- Negotiate/arbitrate regulation ie an obligation on regulated suppliers to negotiate/arbitrate with acquirers the terms of supply of regulated goods and services.
- Price-quality regulation ie an obligation to supply regulated goods or services on regulated terms as to price and quality.
The Bill also provides for the Commerce Commission (the Commission) to set default price-quality paths that would apply to a number of suppliers. Individual suppliers then have the option of applying to the Commission for a customised price-quality path in place of the default one. The Bill also provides for the Commission to set individual price-quality regulation.
In all cases the regulation imposed must apply certain generic input methodologies which the Commission is required to develop and publish covering:
- Cost of capital.
- Valuation of assets.
- Allocation of common costs.
- Treatment of taxation.
- Pricing methodologies.
- Costs that can be passed through to prices.
- Circumstances in which price-quality paths may be reconsidered.
- Requirements that must be met by a proposal for a customised price-quality path.
KEY CHANGES
Key amendments made to the Bill by the Commerce Committee include:
Appeals
- Providing for merits appeals against final decisions of the Commission on customised and individual pricequality paths.
- Clarification of the role of the High Court when considering appeals on input methodologies. The High Court may only allow an appeal against an input methodology if an amended or substituted input methodology would be materially better in meeting either the purpose of the new Part 4 or the purpose of input methodologies. In summary those purposes are, respectively:
- Promoting outcomes consistent with outcomes produced in competitive markets such that suppliers:
- Have incentives to innovate, invest and improve efficiency, and share with customers the benefits of efficiency gains.
- Are limited in their ability to extract excessive profits.
- Promoting certainty for suppliers and consumers in relation to the rules applying to regulation or proposed regulation of goods or services under Part 4.
- Providing that on appeal the High Court cannot stay the application of an input methodology or a final determination of the Commission. The input methodology or final determination continues to apply until the appeal is determined. (This was already in place for input methodology appeals - the change is to extend this to also cover final determinations).
- Providing that where an input methodology changes as a result of an appeal and this results in a reset of a default or customised regulatory price-quality path, the Commission must apply claw-back. This means either a lowering of regulated prices over time to compensate consumers for any over-recovery or, conversely, increasing regulated prices over time to allow for any previous under-recovery.
Test for regulation
- Changing the third limb of the test for when previously unregulated goods or services may be regulated under the Act to require that 'the benefits of regulating the goods or services in meeting the purpose of [the new Part 4] materially exceed the costs of regulation'. Input methodologies
- Being more prescriptive as to the content of input methodologies so that input methodologies must:
- Contain sufficient detail for suppliers to reasonably estimate the material effects of the methodology on them.
- Set out how the Commission intends to apply the input methodology.
- Be consistent with other input methodologies that relate to the same type of goods or services.
- Requiring the Commission to consult with interested parties before treating earlier work as work done in determining input methodologies (relevant in this regard is the Commission's work on estimating the cost of capital).
Electricity lines
- Providing that the Commission may reset default pricequality paths applicable to electricity lines services and apply claw-back if an input methodology published after 1 April 2010 would have resulted in a materially different path being set.
- Providing that the old Part 4A processes and provisions (and not the new penalty and compensation provisions in the new Part 4) would continue to apply in respect of breaches of current electricity lines thresholds until new default price paths are set from 1 April 2010.
- Limiting the power (of the Governor General on the recommendation of the Minister of Energy) to transfer jurisdiction to the Electricity Commission - this power is now restricted to just the electricity lines services supplied by Transpower.
- Requiring the Commission to take into account, before exercising or performing any of its powers, duties or functions under the new Part 4, the obligation on electricity lines businesses to continue to supply remote rural customers under section 62 of the Electricity Act 1962.
Gas pipelines
- Amending to 1 July 2012, or earlier if agreed with the Commission, the date for the gas pipeline services supplied by Vector and Powerco and currently controlled by the Commerce (Control of Natural Gas Services) Order 2005, to transition to a new price-quality regime under the new Part 4. Consistent with this, also amending the Order to expire on 1 July 2012 rather than 1 September 2016.
Key Dates
These are subject to change in the final Bill as enacted. However, at present they are:
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Date Bill comes into force |
1 April 2009 - provisions relating to electricity lines businesses 28th day after Bill received royal assent - rest of the Bill's provisions |
|
Input Methodologies |
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Date by which Commerce Commission must determine input methodologies for electricity lines services, gas pipeline services and airport services |
No later than 30 June 2010 |
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Electricity lines |
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Date by which Commerce Commission must make determinations that specify how Information Disclosure Regulation applies to each supplier of electricity lines services |
As soon as practicable after 1 April 2009 |
|
Date by which Commerce Commission must make determinations that specify how default/customised price-quality regulation applies to each supplier of electricity lines services |
As soon as practicable after 1 April 2009 (Note the current thresholds for large electricity lines businesses are deemed under the Bill to be default price-quality paths and continue to apply until 31 March 2010 - thus extending those thresholds for another year) |
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Last date that breach of default price-quality paths will be dealt with under old regime |
31 March 2010 |
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Date by which Commerce Commission must reset default price-quality paths for suppliers of electricity lines services |
1 April 2010 |
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Gas pipeline services |
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Date gas pipeline services become subject to information disclosure regulation |
28th day after Bill receives royal assent |
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Date by which Commerce Commission must make determinations specifying how Information Disclosure Regulation applies to each supplier of gas pipeline services |
As soon as practicable after the relevant parts of the Bill come into force |
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Date gas pipeline services become subject to default/ customised price-quality regulation |
1 July 2010 |
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Date by which Commerce Commission must make determination specifying how default/customised price-quality regulation applies to each supplier of gas pipeline services (Note that in doing so the Commission must treat 30 June 2010 as the end of the previous regulatory period. Also if a supplier has increased its weighted average prices by more than the movement in the CPI in the period from 1 January 2008 to 30 June 2010 the Commission may apply claw back) |
As soon as practicable after 1 July 2010 |
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Date until which Powerco and Vector gas distribution businesses remain subject to the Commerce (Control of Natural Gas Services) Order 2005. From that date those businesses will be regulated under the provisions of the Bill (Note the Bill provides that until that date they will also remain subject to any authorisation made, or any undertaking obtained or accepted prior to 1 April 2009) |
1 July 2012 |
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Airport services |
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Date by which Commerce Commission must make determination specifying how information disclosure regulation applies to each supplier of specified airport services |
1 July 2010 |
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