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Appendix A: A Sample Access Pricing Regime


This Document is Archived


Regulation of Access to Vertically-Integrated Natural Monopolies

[ Last Updated 16 November 2005 ]


This appendix presents, as a basis for consultation, one option for an access pricing regime. The further elaboration of this option here does not imply any particular Government endorsement or support for this access pricing regime.

In brief, under this regime, compulsory arbitration would be available for resolving disputes arising in an industry characterised by a vertically-integrated natural monopoly. The arbitrator would be (a) guided by broad legislative principles, primarily based on economic efficiency and (b) have regard to s.26-type statements of detailed Government policy with respect to particular industries.

Invoking the Access Pricing Regime

Under this option, the access pricing regime would be invoked by the Governor-General acting on the advice of the Minister of Commerce. The Governor-General would, by Order-in-Council declare a particular facility a 'controlled access facility' for which the described access pricing regime would apply.

The Minister would make a declaration after an analysis of the economic efficiency issues involved. This analysis could be carried out by the Government, or by the Commerce Commission either at the Minister's request or on the Commission's own motion.

In making the declaration the Minister would be required to have regard to whether or not:

  1. the facility owner has a dominant position in a market;
  2. the facility owner also competes (or may potentially compete) in the up- or downstream market which the firm seeking access wishes to enter (or continue to participate in);
  3. it is economically infeasible for the competitor to provide the facility itself now or in the foreseeable future;
  4. the facility has sufficient capacity to meet the demands of the competitor;
  5. the parties have made proper efforts to secure a private agreement, but without success;
  6. the likely economic benefits resulting from regulation of the access terms and conditions are likely to substantially outweigh the economic costs. Factors to take into account when considering this item are:
    1. the magnitude of any monopoly profits being earned in the up- or downstream market by the facility owner and the likely development of substitutes;
    2. the availability of an access pricing rule that is:
      1. efficient; and
      2. easily implemented in the access pricing regulatory framework (e.g., can be applied by an arbitrator if necessary);
    3. the ability of the access pricing regulatory framework to efficiently and easily control other terms and conditions of access;
    4. the quality of the information needed to implement the pricing rule and to regulate the other terms and conditions of access;
    5. the potential for any undesirable side-effects or consequences that have arisen as a result of an access pricing regime in this or any other sector.

The order declaring a particular facility to be a controlled access facility would be required to specify:

  1. the facilities to which the access pricing regime will apply;
  2. the scope of disputes for which compulsory arbitration is available;
  3. the duration of the access regime and/or the conditions under which it will be reviewed;
  4. the parties to which the access regime will apply.

If (a) a dispute arises between one of the parties specified in the order, and the facility owner and (b) that dispute falls within the scope of disputes for which the regime applies, the effect of the order would be to permit that party to seek compulsory arbitration over that particular dispute.

In resolving the dispute, the arbitrator would be required to have regard to the promotion of economic efficiency or, in other words:

  1. The promotion of efficiency in the production and supply or acquisition of the controlled service; and
  2. The necessity or desirability of safeguarding the interest of users, or consumers.

In addition, in resolving the dispute the arbitrator would be required to have regard to any statements transmitted to the Commerce Commission under a mechanism similar to s.26 of the Commerce Act.

The Arbitration Model

The following paragraphs set out a particular compulsory arbitration option.

A panel of arbitrators would be convened to deal with designated access disputes. The Government would appoint a Panel Convenor and a Deputy Panel Convenor, both of whom would be senior lawyers. The panel would include persons with a wide range of relevant skills including legal, economic, business and technical skills. Three-person 'benches' of arbitrators with a cross-section of skills would be formed from this panel as the need arose.

The Convenor would select the chair of each bench. The two parties to each arbitration would each have the right to request one arbitrator from the panel. Where both parties select the same person that person would be selected and the Convenor would select the third member.

The main features of the process would be:

  1. Either party may invoke access to the arbitration process 80 working days after an Order-in-Council is made by giving the other party formal written notice that the party wishes the agreement to be subject to the mandatory arbitration process.
  2. The Convenor would, within five working days, convene a meeting with the parties to discuss the composition of the panel including the selection of the chair. The Convenor would appoint a chair within one day of that meeting.
  3. The parties would then have five working days after the date of the meeting to nominate one member each.
  4. The Convenor would have a further five working days to select the third member where the two parties have selected the same person.
  5. An initial hearing would be held within 10 working days of the finalisation of the bench. Each party would make submissions on the nature and extent of the dispute and the time they consider necessary to determine it. The bench would then make a binding decision on the time that the process is to take, including reporting the decision.
  6. At the initial hearing the arbitrators would also receive any questions relating to jurisdiction and issues to be considered. There would be no right of appeal.
  7. In order to promote speedy resolution, reviews and appeals from decisions of the arbitrators should be limited to matters of procedural unfairness and errors of law on the face of the award. Further, awards will be given effect to notwithstanding the appeal/review unless the Court orders otherwise on compelling grounds; appeals will not be allowed unless there has been a substantial miscarriage of justice; and the Court may order an unsuccessful appellant/applicant to pay solicitor and client costs of the party together with any damages that may arise as a result of the appeal/review being brought.

Access to Information

Arbitrators would require sufficient information to enable them to make a decision on the issues before them. Hence:

  1. arbitrators would have wide powers to require persons to supply information and documents or give evidence; and to make confidentiality orders. This would include the power to ask the Commerce Commission to provide advice on competition and public interest issues, including advice on the interpretation of expert opinion;
  2. there would be sanctions for non-compliance with such requests; and
  3. arbitrators would decide on the extent of discovery that should take place between the parties.

Funding Issues

The main funding issues are as follows:

  1. A secretariat may be required to facilitate selection of arbitrators for any particular arbitration and to deal with administrative matters relating to the maintenance of the panel. This task is likely to be small and could be funded from existing resources within Vote: Commerce.
  2. The arbitrators' fees would be set by the Convenor.
  3. Arbitrators would have the power to award costs against the parties.
  4. With one exception, the costs of the arbitration would be met by the parties to the arbitration, in such shares as may be ordered by the arbitrators, and all other costs would lie where they fall. The firm seeking access would bear all the costs if it decided not to agree to enter into a contract in accordance with the arbitrators' decision. Costs would be met 50:50 by the parties pending a final costing order by the arbitrators.
  5. Venues for arbitration could be selected by the chair after consultation with the parties. All costs of venues and secretarial services for the purposes of the arbitration and the producing of any report would be met by the parties.

Other Issues

If the party seeking interconnection agreed to enter into an access agreement in accordance with the decision, it will be binding and specifically enforceable in the High Court. Decisions would be published[104] with a view to increasing their precedent value and to promote consistency within and between markets and industries.

Pecuniary penalties would be able to be awarded for failure to comply with orders of arbitrators. Damages would be available for failure to comply with arbitrator's decisions. The parties would have the right to take these matters to the High Court for enforcement.

Arbitrators would be empowered to order that the natural monopoly owner provide access to the other party on terms specified by the arbitrators if a final decision had not been made by a date specified at the beginning of the mandatory process. To the extent that the award differed from the interim access order, financial settlements would be made at a later time. No actions would lie on the arbitrators for any consequence to any party of such a decision.

If a party did not take part in the arbitration the arbitrators would, nevertheless, be fully empowered to make decisions. Any decisions would be binding and enforceable as though that party had taken part.

In order to provide a balance between allowing the decision to be in force for long enough to allow certainty and to avoid immediate relitigation of issues; and the risk of decisions becoming outdated due to technology changes, each arbitration decision would have a term of between three and five years. The term may be varied with the agreement of both the parties.

The general principles above could be included in legislation. The rules for conducting the arbitration hearings could be included in regulations.


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