Background
6. In 2001, the Commerce Act was substantively amended by the Government. The amendments made the New Zealand competition regime more consistent with the Australian regime and have been generally well received by industry and practitioners. The 2001 amendments included:
- A new purpose statement promoting competition for the long term benefit of New Zealand consumers;
- The prohibition against the use of a dominant position was replaced with the equivalent Australian threshold of "substantial degree of market power"; and
- The dominance threshold for mergers and acquisitions was replaced with the equivalent Australian threshold of "substantially lessening competition".
7. Notwithstanding the broad support for the regime since 2001, there is impetus for review in two specific areas. In particular:
- Experience with two regulatory control inquiries and the electricity thresholds regime have highlighted potential problems with the regulatory control provisions of the Commerce Act (Parts 4, 4A, and Sections 70-74 of Part 5); and
- There have been calls for improvements to the processes for authorisations and clearances in Part 5 of the Commerce Act.
8. On 22 May 2006, the Minister of Commerce announced that Parts 4 and 5 of the Commerce Act will be reviewed. The Review was expected to include examination of provisions relating to regulatory control; and provisions relating to the authorisation and clearance of restrictive trade practices and business acquisitions.
9. Part 4A, which relates specifically to the control of electricity lines businesses, was expected to be excluded from the Review.
Regulatory Control Provisions
Parts 4 and 5
10. Part 4 of the Commerce Act allows for goods or services to be placed under price, revenue, or quality control (regulatory control) subject to specific tests being met. The final decision on whether or not to impose control is taken by the Minister of Commerce or, in the case of energy matters, by the Minister of Energy. Once a decision has been made to impose control under Part 4, the controlled good or service may not be supplied unless an authorisation to supply has been made under sections 70-74 of Part 5.
11. Since 2001 (when the Commerce Act was substantially amended) there have been Part 4 inquiries into whether regulatory control should be declared in respect of airport activities and gas pipeline services. In 2003, the Minister of Commerce decided not to impose control over airport activities. In 2005 regulatory control was declared over some gas pipeline services.
Part 4A
12. In addition to the generic control provisions in Part 4 and sections 70-74 of Part 5, Part 4A of the Commerce Act allows for individual electricity lines businesses to be placed under regulatory control if they breach thresholds set by the Commerce Commission. This regime was introduced in August 2001 and covers 29 lines businesses, including Transpower. Thresholds were reset in 2004 and will be reset again in 2009.
13. The purpose of the threshold regime, as set out in section 57E of the Commerce Act, "is to promote the efficient operation of markets directly related to electricity distribution and transmission services through targeted control for the long-term benefit of consumers by ensuring that suppliers:
- Are limited in their ability to extract excessive profits;
- Face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and
- Share the benefits of efficiency gains with consumers, including through lower prices."
14. A declaration of control under Part 4A has the same effect as a declaration of control under Part 4 and as such, the controlled good or service may not be supplied unless an authorisation to supply has been made under Part 5.
Authorisation and Clearance Provisions
15. Sections 58-69B of Part 5 of the Commerce Act contain provisions relating to the authorisation and clearance of business acquisitions and restrictive trade practices. Authorisation is able to be sought for most types of practices and business acquisitions substantially lessening competition, if sufficient benefits to the public are shown that outweigh any detriments arising from the practice. Clearance is able to be sought for business acquisitions that may or may not substantially lessen competition.
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