Price Control Parts of Commerce Act Under Review - Ministers of Commerce and Energy Media Statement

Commerce Minister Lianne Dalziel and Energy Minister David Parker today released a discussion document reviewing the price control provisions of the Commerce Act.

Lianne Dalziel said the discussion document sets out options to improve certainty and predictability while maintaining flexibility, and emphasising the importance of investment in infrastructure.

"We want to better ensure that consumers are protected from excessive prices or the possibility of poor quality service from monopoly suppliers, such as gas pipeline or electricity lines companies. At the same time we want to make sure firms retain incentives to invest in infrastructure."

The discussion document reviews Parts 4, 4A and some of Part 5 of the Act.

• Part 4 allows goods or services to be placed under price and quality control where competition is limited and control would be in the long-term interests of consumers.
• Part 4A applies specifically to electricity lines businesses, and allows the Commerce Commission to place them under regulatory control if they breach thresholds set by the Commission.
• Part 5 requires the Commerce Commission to authorise the prices of controlled goods and services.

Lianne Dalziel said the discussion document seeks feedback on a range of potential amendments to the regulatory provisions of the Act.

The options presented include the provision of relatively "light-handed" forms of regulation such as compulsory disclosure of information including prices, costs and service quality and a negotiate/arbitrate regime. It also proposes allowing limited challenges to Commerce Commission decisions based on merit rather than just process and points of law.

David Parker said there was a high level of public interest in the performance of the electricity market.

"This review will enable all parties to have their say on legislation that affects electricity line and gas pipeline prices for homes and businesses."

Feedback is sought from all interested parties. Submissions close on 6 July 2007. The discussion document can be viewed by clicking on the link below.

Lianne Dalziel said another discussion document on the rest of Part 5 of the Act, which relates to clearances and authorisation, would be published at a later date.

Main Proposals for Review of Commerce Act Parts 4. 4A and s70-74 of Part 5

1. New purpose statement and criteria for when regulation may be introduced
   • Introduction of regulatory-specific purpose statement to clarify purpose and intent, which makes it explicit that regulation should ensure firms have incentives to innovate and to invest in infrastructure.
   
   
2. Introduction of new "light-handed" alternatives to control
1. Information disclosure and price monitoring.
   • Requirement for firms to disclose prices, costs and quality.
2. Negotiate / arbitrate regime.
   • Supplier and customers encouraged to negotiate commercial outcomes, with mandatory arbitration if they fail to reach agreement.
   • Suitable for monopoly suppliers with a relatively few large customers (eg retailers and major users).


3. "Input methodologies" to be set as a stand-alone process:
   • Requirement to consult and set methodologies in advance of any inquiry on whether price control should be introduced. Examples of key input methodologies affecting determination of whether prices are excessive: how to calculate WACC (weighted average cost of capital), value assets and allocate common costs.
   
   
4. Option for firms to propose their own control terms (prices and quality):
   • Commission required to accept reasonable proposals by a firm. Criteria for a "reasonable proposal" to be pre-set by the Commission.
   • Criteria could include requirement to consult and agree with customers on price / quality trade-offs, and for independent verification that the firm is efficient.
   
   
5. Options regarding Part 4A (electricity lines thresholds regime):
   • Part 4A is retained and made generic so that other sectors (e.g. gas pipeline services) can be placed under a thresholds regime if appropriate; or
   • Part 4A is repealed and replaced with the ability for the Commission to set control terms under Part 5 using comparative benchmarking. This option includes allowing firms to propose customised control terms as in Option 4 above. Electricity lines businesses would be subject to such a regime, if introduced. This option avoids difficulties with the Part 4A regime caused by minor or technical breaches of thresholds or breaches caused by major capital expenditure.
6. Providing for limited merits review:
   • Currently interested parties may only seek judicial review of regulatory decisions by the Commerce Commission under Parts 4, 4A and 5 (largely limited to process and points of law).
   • Options for limited merits review:
     1. Limited to final control terms set by the Commission
     2. New evidence may only be presented if it is fresh and material and could not have been presented at stage of original decision
     3. Initial decisions by Commission would stand until merits review completed, to limit incentives for firms to seek merit review to delay regulations coming into effect.

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