Proposed Scope of Review of Regulatory Control Provisions
16. The attached terms of reference (Appendix 1) provides further detail on the matters that are proposed for consideration as part of the Review of Regulatory Control Provisions.
17. Experience with the regulatory control provisions of the Commerce Act since 2001 has highlighted some potential issues with these Parts. For example:
- There may be a lack of clarity around the policy intent of the regulatory control provisions (both the generic control provisions and those relating to the electricity thresholds regime);
- There is some concern about the inability of the Commerce Commission to consider the form of control when it conducts a Part 4 control inquiry;
- There is a question as to whether the introduction of a "merits review" process and/or other checks and balances on the Commerce Commission would strengthen the quality of decision making;
- The lack of ex-ante investment approvals process under the electricity threshold regime, in cases where future threshold breaches are likely or unavoidable; and
- Whether there should be a statutory timeframe for the completion of investigations into the breaches of thresholds.
18. It is timely to review the regulatory control provisions in the Commerce Act to:
- ensure that regulatory control is consistent with providing for the long-term benefit of consumers within New Zealand;
- ensure that there is sufficient legislative clarity and that any regulatory uncertainty is minimised; and
- ensure that the provisions are consistent with the government's objectives around infrastructure investment.
Inclusion of Part 4A in the Review of Regulatory Control Provisions
Rationale for Including Part 4A
19. The attached terms of reference (Appendix 1) proposes that the Review of Regulatory Control Provisions include Part 4A, which was originally expected to be excluded from the Review.
20. Having considered the pros and cons of including Part 4A, we consider that there is benefit in its inclusion. While there is the potential for the inclusion of Part 4A to increase regulatory uncertainty (since electricity lines businesses would not know what regulatory regime they would be under following the Review), we recommend its inclusion in the Review for the following reasons:
- It is desirable for regulatory certainty and clarity that the various regulatory control provisions in the Commerce Act (i.e. in Parts 4, 4A, and 5) are consistent, and therefore, there is benefit in examining the various provisions at the same time.
- Many of the issues that officials have identified in their initial scoping of the Review apply to the electricity thresholds regime, in addition to the generic control provisions. For example, there may be a lack of clarity around the purpose of regulatory control under both Part 4 and Part 4A. There would be benefit in considering such issues together to minimise duplication.
- Parts 4, 4A, and 5 are linked, and in many cases, changes to the generic control provisions will automatically affect the electricity thresholds regime. For example, the introduction of a merits review process under Part 5 will automatically apply to authorisations for control of electricity businesses since a declaration of control under Part 4A has the same effect as if it was a declaration of control under Part 4. Examining the various provisions together will ensure that the implications of changes to the generic provisions in Part 4A will be fully considered.
- In 2005, Cabinet agreed to introduce a targeted thresholds regime for gas pipeline services. Examination of the electricity thresholds regime as part of the Commerce Act Review would inform the work on the gas thresholds regime, and thus would remove the risk that potentially problematic aspects of the electricity lines regime be carried into the new gas regime (see discussion regarding the gas threshold regime below).
- Part 4A, when introduced in 2001, represented a significant shift in economic regulatory policy for the electricity lines sector. In our judgement, sufficient time has now elapsed over which to observe and assess outcomes, although we note that the further passage of time would yield more observations about the regime (e.g. operation of the regime to date has not resulted in any lines business being placed under control). Moreover, the current Review of Parts 4 and 5 represents a timely opportunity to review Part 4A within a broader context.
- Part 4A requires the Commerce Commission to set thresholds for the control of lines businesses. The Commission has set thresholds for all the lines businesses (other than Transpower) for a period of five years - from April 2004 to March 2009. Commencing a review of Part 4A now may allow any changes resulting from the Review to be implemented in time to take effect from April 2009 (i.e. fitting in with the existing five year cycle).
21. The proposed inclusion of Part 4A in the Review is not a response to the Commerce Commission's recent announcement that it intends to declare control of the electricity distribution services supplied by Vector.
22. Any legislative amendments that result from the Review will not come into effect until 2008 at the earliest, and therefore will not affect the outcome of current regulatory processes (viz., the Commission's consideration of control in respect of Vector, Unison Networks, and Transpower).
Communications
23. Given the statutory independence of the Commerce Commission, communications on this Review should convey to industry and the public that the inclusion of Part 4A in the Review is not a response to the Commission's announcement regarding control of Vector.
24. We propose to issue a joint media statement that clarifies the scope of the Review and the rationale for including electricity lines provisions. In addition, we propose that the Ministry of Economic Development post the terms of reference for each stream of the Review (attached - Appendix 1, Appendix 2) on its website.
Jurisdiction of Part 4A
25. Part 4A was amended in 2004 to provide for the transfer of jurisdiction from the Commerce Commission to the Electricity Commission by Order in Council. The Minister of Energy consulted on a proposal to transfer jurisdiction in respect of Transpower in late 2005. The Minister decided in April 2006 not to transfer jurisdiction at that time, but to consider the question again by March 2007. Some may call for this issue to be included within the scope of this Review. However, officials advise that the question of jurisdiction is separable from other matters in the Review, and accordingly we recommend that it be excluded from the Review's scope.
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