Chapter 5: Purpose Statement
82. A purpose statement sets out the purpose and intent of the Part in broad terms and, in doing so, provides guidance on the interpretation and application of the provisions within that Part.
Current provisions
Part 4 (unlike Part 4A) does not have a separate purpose statement from the overall purpose statement of the Commerce Act ("to promote competition in markets for the long term benefit of consumers within New Zealand").
The absence of a specific purpose statement has led to uncertainty, and hence debate, regarding the intent of the provisions. In particular, there is debate around the extent to which and how s1A (the overall purpose statement of the Commerce Act) and s3A (which requires the Commission to have regard to efficiency) apply to the regulatory control provisions.
Under Part 4A, the Commerce Commission is guided by a separate purpose statement, which states that: "The purpose of this subpart 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:
(a) are limited in their ability to extract excessive profits; and
(b) face strong incentives to improve efficiency and provide services at a quality that reflects consumer demands; and
(c) share the benefits of efficiency gains with consumers, including through lower prices."
The presence of a purpose statement has meant that there has been less debate about the intent of Part 4A relative to Part 4. Nonetheless, some concerns/issues have been raised about the Part 4A statement. For example, some argue that the purpose statement is unclear and that it does not give sufficient weighting to the objective of maintaining incentives to invest.
5.1 Is a regulatory-specific purpose statement desirable?
83. Irrespective of the policy intent of economic regulation, it is unsatisfactory and inefficient for all parties for there to be uncertainty and ambiguity about that policy intent. The purpose of regulation, as conveyed in legislation, will affect both when and how regulation is imposed and must be unambiguous.
84. The regulatory provisions of the Commerce Act do not fit easily with the overall purpose of the Commerce Act (to promote competition in markets for the long-term benefit of consumers). The regulatory provisions exist because there are markets where effective competition is not possible and therefore "promoting competition" will not benefit the economy and/or consumers.
85. Having said that, the regulatory provisions do sit well with the outcomes of a competitive market, since competitive markets maximise both efficiency and consumer welfare (by limiting monopoly rents).
86. In the interests of clarity and certainty, the Ministry considers that there should be a separate purpose statement that applies to the regulatory provisions of the Act, and that the statement should be the same for Part 4, 4A, and the relevant sections of Part 5.
5.2 What would a regulatory-specific purpose statement say?
87. On the basis of the discussions in Chapter 4, the Ministry proposes the purpose statement noted below. It is based on the overall purpose statement of the Act plus s57E of Part 4A, and picks up the government's recent s26 Statement of Economic Policy on the importance of investment and innovation for regulated businesses. To the extent possible, it is desirable to use terminology already in the Act, as it allows industry, Government, and the Commission to rely on the jurisprudence that has emerged on the current Act.
Proposed purpose statement
The purpose of this Part is, in markets where there is little or no competition or prospect of competition, to provide for economic regulation for the long term benefit of consumers of New Zealand. Any regulation under this Part should seek to ensure that suppliers:
(a) are limited in their ability to earn excessive profits;
(b) have incentives to improve efficiency and provide services at a quality that reflects consumer demands;
(c) share the benefits of efficiency gains with consumers, including through lower prices; and
(d) have incentives to innovate and to invest including in replacement, upgraded and new assets and in related businesses.
Subparts (a) and (c) seeks to limit monopoly rents and to ensure that consumers face prices closer to costs.
Subpart (b) conveys that an objective is to ensure incentives for suppliers to improve productive efficiency.
Subpart (d) incorporates the Government's policy in relation to infrastructure investment set out in the government's recent s26 Statement of Economic Policy.
Questions for submitters: Chapter 5
Q1. In your opinion, is a regulatory-specific purpose statement desirable?
Q2. If so, do you agree with the proposed regulatory-specific purpose statement, or do you prefer an alternative formulation? If so, please suggest specific wording.
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